SAVILLE ESTATES P. LTD, MUMBAI V. ASST CIT RG 7(2), MUMBAI

ITA 2573/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4279 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 03-07-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 01-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ABANIKANT NAYAK
• Assessee Lawyers: S C TIWARI MS NATASHA MANGAT
• Keywords: Business income; Opportunity of being heard

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . . , !'#$ , % &' BEFORE SHRI H.L. KARWA, PRESIDENT AND SHRI N.K. BILLAIYA, AM ./I.T.A. NO. 2573/MUM/2011 ( ( ( ( ( / ASSESSMENT YEAR : 2007-08 M/S. SAVILLE ESTATES PVT. LTD., 133, KAZI SYED STREET, MASJID, MUMBAI-400 003 THE ACIT, RANGE-7(2), AAYAKAR BHAVAN, MUMBAI-400 020 ') % ./ *+ ./PAN/GIR NO. : AAGCS 7058H ( ), /APPELLANT ) .. ( -.), / RESPONDENT ) ), / / APPELLANT BY : ` SHRI S.C. TIWARI MS. NATASHA MANGAT -.), 0 / /RESPONDENT BY : SHRI ABANIKANT NAYAK 0 12% / DATE OF HEARING :3.07.2013 34( 0 12% / DATE OF PRONOUNCEMENT : 10.7.2013 &5 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-13, MUMBAI DT.30.11.2010 PERTAINING TO A.Y. 2007-08. 2. THE ASSESSEE HAS RAISED THREE SUBSTANTIVE GROUND S OF APPEAL. GROUND NO. 1 & 2 RELATE TO THE ALLOWANCE OF INTERES T ON BORROWINGS AS A DEDUCTION U/S. 24(B) OF THE ACT. ITA NO.2573/M/2011 2 3. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PRO CEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS EAR NED INCOME OF RS. 3,94,49,424/- ARISING FROM LEASING OUT OF MIT MARA THON INDUSTRIAL PARK TO AXA BUSINESS SERVICES PVT. LTD. THE ASSESSEE HAD S HOWN THIS UNDER THE HEAD BUSINESS INCOME. THE AO WAS OF THE FIRM BELI EF THAT THIS RENT INCOME SHOULD BE CHARGED UNDER THE HEAD INCOME FR OM HOUSE PROPERTY. AFTER GIVING A REASONABLE OPPORTUNITY TO EXPLAIN IT S CASE, THE AO FINALLY CONCLUDED THAT THE RENTAL INCOME OF RS. 3,94,49,424 /- EARNED FROM LEASING OUT OF MIT MARATHON INDUSTRIAL PARK TO AXA BUSINES S SERVICES PVT. LTD. IS TO BE TAXED AS INCOME FROM HOUSE PROPERTY. THE AO ALLOWED THE CREDIT FOR THE MUNICIPAL TAXES PAID AT RS. 21,41,132/-. T HEREAFTER, THE AO WENT ON TO DISCUSS THE CLAIM OF INTEREST OF RS. 1,80,99, 746/-. IT WAS EXPLAINED THAT THE TERM LOAN HAS BEEN TAKEN FOR THE ACQUISITI ON OF THE PREMISES, THEREFORE, THE INTEREST PAYMENT SHOULD BE ALLOWED A S DEDUCTION U/S. 24(B) OF THE ACT. HOWEVER, THE AO OBSERVED THAT THE TERM LOAN ON WHICH THE ASSESSEE IS PAYING INTEREST HAS BEEN TAKEN AGAINST THE MORTGAGE OF THE LET OUT PROPERTY. THE AO WAS OF THE OPINION THAT THE I NTEREST ON TERM LOAN IS NOT DIRECTLY ATTRIBUTABLE TO THE CAPITAL/LOAN USED IN THE ACQUISITION OF THE PREMISES RENTED OUT , THE ASSESSEE WAS SHOW CAUSED VIDE ORDER SHEET ENTRY DT. 25.8.2009 AS TO HOW MUCH OF THE INTEREST PAID C LAIMED IS ATTRIBUTABLE TO THE CAPITAL /LOAN USED IN THE ACQUISITION OF THE PREMISES RENT OUT. 3.1. THE ASSESSEE DID NOT FILE ANY DETAILS/EXPLANAT ION. THE AO PROCEEDED WITH THE MATERIAL AVAILABLE ON RECORD AND NOTED THAT THE ASSESSEE HAS COMPLETED THE CONSTRUCTION OF THE PREM ISES IN THE FINANCIAL YEAR 2004-05 AND IN THE SAME YEAR, THE PREMISES WER E LET OUT. THE AO NOTED THAT THE ASSESSEE HAD A SECURED LOAN LIABILIT Y OF RS. 13,63,08,806/- TAKEN FROM JEEVAN SAHGAKARI BANK LTD AND INDUSIND B ANK LTD AND UNSECURED LOANS OF RS. 4,52,70,284/- IN THE FINANCI AL YEAR 2004-05. THE ITA NO.2573/M/2011 3 ASSESSEE HAS ALSO ADVANCED A LOAN OF RS. 1,34,78,98 4/-. THUS, ACCORDING TO THE AO, THE ASSESSEE HAD TAKEN A TOTAL LOAN OF R S. 16,81,00,106/- FOR THE PURCHASE AND CONSTRUCTION OF THE PROPERTY. THE AO FURTHER NOTED THAT THE SECURED LOANS WERE INTEREST BEARING AND THE UNS ECURED LOANS WERE NON- INTEREST BEARING. THE AO FURTHER NOTED THAT SUBSEQ UENTLY, IN FINANCIAL YEAR 2005-06, THE ASSESSEE REPAID THE SECURED LOANS TAKEN FROM JEEVAN SAHAKARI BANK LTD. AND INDUSIND BANK LTD. BY TAKING ANOTHER LOAN OF RS. 24 CRORES FROM HDFC BANK LTD. THE AO FURTHER OBSER VED THAT THE ASSESSEE HAD REPAID A TOTAL AMOUNT OF RS. 12,29,93, 257/-, THEREFORE, THE ASSESSEE IS ELIGIBLE FOR CLAIM OF INTEREST ONLY IN RESPECT OF THIS AMOUNT. ON THE BASIS OF THESE OBSERVATIONS, THE AO WENT ON TO CALCULATE THE INTEREST ON LOAN ATTRIBUTABLE TO HOUSE PROPERTY AND COMPUTED SUCH INTEREST AT RS. 97,66,120/- AND DISALLOWED THE BALANCE AMOUN T. 4. THE ASSESSEE CARRIED THIS MATTER BEFORE THE LD. CIT(A) AND EXPLAINED THE NATURE OF TRANSACTION AND THE BORROWI NGS. IT WAS THE CLAIM OF THE ASSESSEE THAT IT HAS PAID A TOTAL AMOUNT OF RS. 1,77,71,136/- AS INTEREST ON THE LOAN TAKEN FROM HDFC BANK. DURING THE APPELLATE PROCEEDINGS, THE ASSESSEE SUBMITTED A CHART OF BORR OWINGS, THE SAME IS EXHIBITED AT PAGE-4 OF CIT(A)S ORDER. IT WAS EXPL AINED THAT THE AO HAS ERRONEOUSLY TAKEN A FIGURE OF BORROWINGS WHICH HAVE BEEN REPAID AT RS. 1319.93 LAKHS, THE SAME SHOULD HAVE BEEN AT RS. 166 1.58 LAKHS. THE LD. CIT(A) WENT ON TO COMPUTE ON HIS OWN THE ALLOWABLE INTEREST AS PER THE WORKING GIVEN AT PAGE-6 OF HIS ORDER AND COMPUTED T HE ALLOWABLE INTEREST AT RS. 71,04,376/- AS AGAINST RS. 97,66,120/- COMPU TED BY THE AO AND DIRECTED THE AO TO RESTRICT THE ALLOWANCE OF INTE REST AT RS. 71,04,376/-, IN OTHER WORDS, THE LD. CIT(A) ENHANCED THE INCOME. 5. AGGRIEVED BY THIS FINDING OF THE LD. CIT(A), ASS ESSEE IS BEFORE US. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REITERA TED WHAT HAS BEEN ITA NO.2573/M/2011 4 SUBMITTED BEFORE THE LOWER AUTHORITIES. IT IS THE SAY OF THE LD. COUNSEL THAT WHILE COMPUTING THE ALLOWABLE INTEREST, THE LD . CIT(A) HAS PROCEEDED WITH THE BELIEF THAT THE ASSESSEE MUST HA VE UTILIZED ITS OWN FUNDS AMOUNTING TO RS. 419.91 LACS FOR THE REPAYMEN T OF LOANS. IT IS THE SAY OF THE LD. COUNSEL THAT ONCE MONIES ARE AVAILAB LE, IT IS FOR THE ASSESSEE TO TAKE A BUSINESS DECISION FOR APPLICATIO N OF FUNDS. WHERE THERE ARE BOTH BORROWED FUNDS AS ALSO INTEREST FREE FUNDS , THE DISCRETION LIES IN THE HANDS OF THE ASSESSEE FOR THE UTILIZATION OF TH OSE FUNDS. THEREFORE, THE LD. CIT(A) GROSSLY ERRED IN PRESUMING THAT THE ASSE SSEE MUST HAVE UTILIZED ITS OWN FUNDS FOR REPAYING THE LOAN. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE AO HAS ALSO ERR ED IN MISCALCULATING THE AMOUNT OF LOANS REPAID. THE CORRECT FIGURE IS RS. 16,61,58,000/- WHEREAS THE AO HAS TAKEN RS. 13,19,93,257/-. IT I S THE SAY OF THE LD. COUNSEL THAT EVEN THE INTEREST FIGURE HAS BEEN WRO NGLY TAKEN AT RS. 17,77,11,136/- WHEREAS THE CORRECT FIGURE IS RS. 1, 80,99,746/-. 6. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE FINDINGS OF THE AO. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAR EFULLY PERUSED THE ORDERS OF THE LOWER AUTHORITIES. THE UNDISPUTE D FACTS EMERGING OUT OF THE ORDER OF THE LOWER AUTHORITIES ARE THAT THE ASS ESSEE HAD BORROWINGS IN EARLIER YEARS TOWARDS THE CONSTRUCTION OF THE RENTE D PREMISES. IT IS ALSO AN UNDISPUTED FACT THAT DURING THE YEAR, THE ASSES SEE HAD BORROWED MONEY FROM HDFC BANK FOR THE REPAYMENT OF OUTSTANDI NG LOANS. THE ENTIRE DISPUTE RELATE TO THE AMOUNT OF LOAN REPAID AS CLAIMED BY THE ASSESSEE AND HAS COMPUTED BY THE AO AND ALSO THE IN TEREST PAID ON SUCH BORROWINGS. IN OUR CONSIDERATE VIEW, THIS ISSUE DE SERVES TO BE REVISITED AT THE ASSESSMENT STAGE. WE, ACCORDINGLY, RESTORE THI S ISSUE BACK TO THE FILES OF THE AO. THE AO IS DIRECTED TO VERIFY THE ACTUAL AMOUNT OF LOAN REPAID ITA NO.2573/M/2011 5 DURING THE YEAR , WHETHER SECURED OR UNSECURED. TH E AO IS FURTHER DIRECTED TO VERIFY THE ACTUAL AMOUNT OF INTEREST P AID. THE ASSESSEE IS DIRECTED TO SUBMIT THE INTEREST CERTIFICATE FROM TH E CONCERNED BANK TO SUBSTANTIATE ITS CLAIM. THE AO IS FURTHER DIRECTE D TO RECOMPUTE THE ALLOWABLE INTEREST U/S. 24[B] OF THE ACT AFTER DETE RMINING THE ACTUAL REPAYMENT OF LOAN LIABILITY AS MENTIONED HEREINABOV E AFTER GIVING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. THE ASSESSEE IS ALSO DIRECTED TO SUBMIT NECESSARY DETAILS BEFORE TH E AO. GROUND NO.1 & 2 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 8. GROUND NO. 3 RELATES TO THE CLAIM OF DEDUCTION O F EXPENSES LIKE AUDIT FEES, FILING FEES AND PRELIMINARY EXPENSES U/ S. 35D OF THE ACT. 9. AT THE VERY OUTSET, THE BENCH POINTED OUT TO THE LD. COUNSEL THAT THESE ISSUES HAVE NOT AT ALL BEEN CONSIDERED BY THE AO AT THE ASSESSMENT STAGE. THE LD. COUNSEL FOR THE ASSESSEE FAIRLY CON CEDED THAT THESE ISSUES DO NOT ARISE FROM THE ASSESSMENT ORDER, ACCORDINGLY GROUND NO. 3 IS DISMISSED. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 10.7.2013 . &5 0 4( % 6 7&8 10.7.2013 4 0 9 SD/- SD/- (H.L. KARWA ) (N.K . BILLAIYA ) / PRESIDENT % &' / ACCOUNTANT MEMBER MUMBAI; 7& DATED 10/07/2013 . . ./ RJ , SR. PS ITA NO.2573/M/2011 6 &5 &5 &5 &5 0 00 0 -1! -1! -1! -1! :!(1 :!(1 :!(1 :!(1 / COPY OF THE ORDER FORWARDED TO : 1. ), / THE APPELLANT 2. -.), / THE RESPONDENT. 3. ; ( ) / THE CIT(A)- 4. ; / CIT 5. !<9 -1 , , / DR, ITAT, MUMBAI 6. 9= > / GUARD FILE. &5 &5 &5 &5 / BY ORDER, .!1 -1 //TRUE COPY// ? ?? ? / @ @ @ @ * * * * (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI