M/s. Lavender Buildcon Pvt. Ltd., Ahmedabad V. The Dy.CIT, Circle-2(1)(2), Ahmedabad

ITA 254/AHD/2016

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9156 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 02-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: APARNA A GARWAL
• Keywords: Business income; Depreciation; Maximum Marginal Rate
• Section: 143(3)

Judgement Text

, A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMEBR ./ I.T.A. NO. 254/AHD/2016 ( ASSESSMENT YEAR : 2012-13) M/S. LAVENDER BUILDCON PVT. LTD. CENTRAL MALL, AMBAWADI, AHMEDABAD-380015 / VS. DCIT CIRCLE 2(1)(2), AHMEDABAD NAVJIVAN TRUST BUILDING, ASHRAM ROAD, AHMEDABAD 380009 ./ ./ PAN/GIR NO. : AABCL5863E ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI DEEPAK SONI, A.R. / RESPONDENT BY : SMT. APARNA AGARWAL, CIT.D.R. DATE OF HEARING 12/12/2018 !'# / DATE OF PRONOUNCEMENT 19/12/2018 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE CIT(A)-2, AHMEDAB AD (CIT(A) IN SHORT), DATED 03.01.2017 ARISING IN THE ASSESSME NT ORDER DATED 02.11.2015 PASSED BY THE ASSESSING OFFICER (AO) UND ER S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) CONCERNING AY 2012-13. ITA NO. 254/AHD/16 [M/S. LAVENDER BUILDCON PVT. LTD. VS. DCIT] A.Y. 2012-13 - 2 - 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ AS UNDER: 1.0 THE CIT(A) UNDER THE FACTS OUGHT TO HAVE QUASH ED THE ORDER FRAMED BY THE ASSESSING OFFICER. THE ORDER IS CON TRARY TO THE PROVISIONS OF LAW AND CONTRARY TO THE FACTS IN THE CASE OF THE APPELLANT. THE ORDER BE QUASHED. 2.0 THE CIT(A) ERRED IN UPHOLDING ASSESSM ENT OF LEASING INCOME OF RS.8,18,25,840/- UNDER THE HEAD INCOME FROM HOUSE PROPERTY AS AGAINST COMPUTATION MADE BY YOUR APPELL ANT UNDER THE HEAD PROFIT AND GAINS OF BUSINESS. THE APPELLANT SU BMITS THAT INCOME OF RS. 8,18,25,840/- BE DIRECTED TO BE ASSESSED UND ER THE HEAD PROFIT AND GAIN OF BUSINESS. 2.1 THE APPELLANT FURTHER SUBMITS THAT DEPRECIATION AND EACH AND EVERY EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVE LY FOR THE PURPOSE OF THE BUSINESS OPERATIONS AND THE ASSESSIN G OFFICER BE DIRECTED TO ALLOW DEDUCTIONS FOR DEPRECIATION AND E XPENSES. 3.0 THE CIT(A) ERRED IN UPHOLDING DISALLOWANCE AT T HE RATE OF 4.25% OF INTEREST PAID TO M/S THAKUR FINVEST PVT LTD. THE APPELLANT SUBMITS THAT INTEREST AT THE RATE OF 18% WAS REASONABLE AND IN CONSONANCE WITH MARKET RATE. THE DISALLOWANCE OF 4.25% OF INTE REST ADOPTING RATE OF INTEREST AT 13.75% IS GROSSLY ERRONEOUS AND CONTRARY TO THE FACTS. THE DISALLOWANCE BE QUASHED. 3.1 THE APPELLANT WITHOUT PREJUDICE TO ABOVE SUBMIT S THAT THE DISALLOWANCE MADE BY THE AO IS CONTRARY TO THE LAW. THE PROPERTY WAS ACQUIRED WITH BORROWED CAPITAL AND THE AO HAS A SSESSED INCOME UNDER THE HEAD HOUSE PROPERTY AND THEREFORE ENTIRE INTEREST IS DEDUCTIBLE U/S 24(B). THE DISALLOWANCE OF INTEREST AT 4.25% BE QUASHED. 4.0 THE CIT(A) ERRED IN UPHOLDING ASSESSMENT OF RS. 31,14,501/- UNDER THE HEAD INCOME FROM OTHER SOURCES. THE APPEL LANT SUBMITS THAT INCOME WAS DERIVED DURING BUSINESS OPERATIONS CARRIED ON BY THE APPELLANT AND THEREFORE INCOME OF RS. 31,14,000/- W AS ASSESSABLE UNDER THE HEAD PROFIT AND GAINS OF BUSINESS. THE AP PELLANT SUBMITS THAT IT BE SO HELD NOW. 4.1 THE APPELLANT FURTHER SUBMITS THAT EACH AND EVE RY EXPENDITURE (INCLUDING DEPRECIATION) DEBITED TO THE PROFIT AND LOSS ACCOUNT WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIR ECTED TO ALLOW DEDUCTION FOR EXPENSES INCLUDING DEPRECIATION. 5.0 THE CIT(A) ERRED IN UPHOLDING ADDITION OF RS. 2 4,475/- IN COMPUTATION OF THE TOTAL INCOME. THE APPELLANT SUBM ITS THAT INTEREST ITA NO. 254/AHD/16 [M/S. LAVENDER BUILDCON PVT. LTD. VS. DCIT] A.Y. 2012-13 - 3 - OF RS. 24,475/- HAS NEITHER BEEN RECEIVED BY IT NOR HAS ACCRUED. ADDITION OF RS. 24,475/- BEING ERRONEOUS BE QUASHED . 3. WHEN THE MATTER WAS CALLED FOR HEARING, THE LEA RNED AR FOR THE ASSESSEE SUBMITTED AT THE OUTSET THAT GROUND NO.1 I S GENERAL IN NATURE AND THEREFORE DOES NOT REQUIRE ANY SEPARATE ADJUDICATION. 4. THE LEARNED AR SUBMITTED THAT HE ALSO DOES NOT S EEK TO PRESS GROUND NOS. 2 & 2.1 OF ITS APPEAL. IN VIEW OF THE AVERMENTS MADE IN THIS REGARD, GROUND NOS. 2 & 2.1 ARE DISMISSED. 5. AS REGARDS GROUND NOS. 3 & 3.1, THE LEARNED AR F OR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS BORROWED F UNDS FROM PUNJAB NATIONAL BANK AS WELL AS FROM HOLDING COMPAN Y M/S. THAKUR FINVEST PVT. LTD. THE TERM LOAN FROM PUNJAB NATIONAL BANK IS SECURED IN NATURE AND INTEREST WAS CHARGEAB LE THEREON AT 13.75%. AS AGAINST THIS, THE ASSESSEE HAS PAID INT EREST @18% TO THE HOLDING COMPANY ON LOAN OBTAINED OF UNSECURED N ATURE. THE AO HAS DISALLOWED THE DIFFERENTIAL INTEREST OF 4.25 % OF BORROWALS MADE FROM THE HOLDING COMPANY. IN THIS REGARD, THE LEARNED AR REFERRED TO ITS STATEMENT AT PARA NO.4.1 PAGE 7 OF THE ASSESSMENT ORDER AND SUBMITTED THAT HOLDING COMPANY IS A NON-B ANKING FINANCE COMPANY AND HAS DECLARED AN INCOME OF RS.43 .60 CRORE AT A MAXIMUM MARGINAL RATE. THUS, THE SO CALLED EXCES S INTEREST CHARGED BY THE LENDER HAS NOT IN FACT CAUSED ANY PR EJUDICE TO THE REVENUE OWING TO MORE COLLECTION OF TAX. THEREFORE , THE TERMS AND CONDITIONS OF THE LOAN ARE BONAFIDE INEVITABLY. THE LEARNED AR THEREAFTER SUBMITTED THAT THE LOAN FROM PUNJAB N ATIONAL BANK IS SECURED AND THEREFORE RATE OF INTEREST IS NATURA LLY LIKELY TO BE LOWER. THE LEARNED AR FURTHER ADDED THAT THE ASSES SEE HEREIN HAS FILED LOSS RETURN AND THEREFORE, APPARENTLY DOES NO T STAND TO GAIN ITA NO. 254/AHD/16 [M/S. LAVENDER BUILDCON PVT. LTD. VS. DCIT] A.Y. 2012-13 - 4 - FROM THE ALLEGED HIGHER RATE OF INTEREST CHARGED BY THE HOLDING COMPANY TO THE ASSESSEE. WE FIND SUBSTANTIAL FORCE IN THE PLEA OF THE ASSESSEE FOR BONAFIDES OF THE INTEREST CHARGED. THEREFORE, THE DISALLOWANCE OF INTEREST ON LOAN FROM HOLDING COMPA NY TFPL AMOUNTING TO RS.1,09,75,753/- PAID TO THE HOLDING C OMPANY IS REVERSED AND THE CLAIM OF THE ASSESSEE IN THIS REGA RD IS RESTORED. GROUND NOS. 3 & 3.1 ARE ACCORDINGLY ALLOWED. 6. GROUND NOS. 4 & 4.1 CONCERN RE-CHARACTERIZATION OF INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES BY THE A O AS AGAINST BUSINESS INCOME OFFERED BY THE ASSESSEE. IN THE CO URSE OF HEARING, THE LEARNED AR FOR THE ASSESSEE SUBMITTED THAT HE D OES NOT SEEK TO PRESS THIS ASPECT OF THE GRIEVANCE. HOWEVER, IN TH E SAME VAIN, HE SUBMITTED THAT THE ASSESSEE HAS INCURRED AUDIT FEES OF RS.67,416/- AND BANK CHARGES OF RS.35,113/- WHICH ARE INEXTRICA BLY LINKED TO THE CORPORATE STATUS AND STRUCTURE OF THE ASSESSEE COMPANY AND THEREFORE, SUCH EXPENDITURES ARE REQUIRED TO BE ALL OWED IRRESPECTIVE OF ANY INCOME GENERATED UNDER THE HEAD BUSINESS INCOME. WE FIND CONSIDERABLE FORCE IN THE AFORESA ID CLAIM OF THE ASSESSEE FOR ALLOWANCE OF EXPENDITURE FOR RETAINING THE STATUS OF COMPANY VIZ. TOWARDS AUDIT FEE AND BANK CHARGES NOT WITHSTANDING ABSENCE OF ANY INCOME UNDER THE HEAD BUSINESS INCO ME IN VIEW OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF RAMPUR TIMBER & TANNERY CO. LTD. 129 ITR 58 (ALL.). THUS, GROUND NOS.4 & 4.1 IS ALLOWED IN PART. 7. GROUND NO.5 CONCERNS ADDITION OF RS.24,475/- ON ACCOUNT OF INTEREST. THE AO NOTICED ACCRUAL OF INTEREST INCOM E OF AFORESAID AMOUNT FROM 26AS STATEMENT OF THE ASSESSEE. THE LE ARNED AR FOR ITA NO. 254/AHD/16 [M/S. LAVENDER BUILDCON PVT. LTD. VS. DCIT] A.Y. 2012-13 - 5 - THE ASSESSEE HAS NOT SUBMITTED ANY CONCRETE EVIDENC E TO DISLODGE THE ACCRUAL OF INCOME SHOWN IN THE ANNUAL STATEMENT . THUS, WE DO NOT FIND ANY MERIT IN THE GRIEVANCE RAISED BY THE A SSESSEE ON THIS SCORE. GROUND NO.5 OF THE ASSESSEES APPEAL IS ACC ORDINGLY DISMISSED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. SD/- SD/- (MAHAVIR PRASAD) (PRADIP KUMA R KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 19/12/2018 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT 4. ,- / CIT (A) /. 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7. 289 : / GUARD FILE. BY ORDER / 4 /5 *+#4 56) THIS ORDER PRONOUNCED IN OPEN COURT ON 19/12/20 18