ITO Ward-12 (1), New Delhi V. Gaylord Builders Pvt. LTd, New Delhi

ITA 2614/DEL/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2083 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 09-07-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 04-08-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BK GUPTA
• Assessee Lawyers: K L GUGLANI
• Section: 191

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA : VICE PRESIDENT AN D SHRI A.D. JAIN : JUDICIAL MEMBER ITA NO. 2055/DEL/09 ASSTT. YR: 2005-06 ACIT CIRCLE 27(1), VS. M/S SUPER TIME INDUSTRIES, NEW DELHI. 18, COMMUNITY CENTRE, MAYAPURI, PHASE-I, NEW DELHI. PAN/ GIR NO. AAKFS2292L ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI B.K. GUPTA SR. DR RESPONDENT BY : SHRI K.L. GUGLANI ADV. O R D E R PER G.E. VEERABHADRAPPA, V.P: THIS APPEAL, FILED BY THE REVENUE, ARISES OUT OF TH E ORDER DATED 28-1- 2009, OF THE CIT(APPEALS)-XXIV, NEW DELHI FOR A.Y. 2005-06. THE GROUND RAISED BY THE REVENUE READS AS UNDER: ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD . CIT(A) ERRED IN DELETING THE ADDITION OF RS. 13,71,527/- AND RS. 10 ,92,489/- ON ACCOUNT OF DEDUCTION U/S 24 IN RESPECT OF INTEREST PAID TO PAR TNER ON BORROWED CAPITAL AND INTEREST PAID ON UNSECURED LOAN RESPECTIVELY AS IT IS ESTABLISHED THAT THE ASSESSEE COULD NOT FURNISH EVIDENCE TO ESTABLISH NE XUS BETWEEN BORROWING AND ACQUISITION/ CONSTRUCTION OF THE PROPERTY. 2. THE ASSESSEE IS A PARTNERSHIP FIRM AND IS ENGAGE D IN THE BUSINESS OF CONSTRUCTION OF PROPERTY AND DEALINGS IN IT. IT ALS O HAD A BUSINESS OF TRADING IN SHARES. THE ASSESSEE RETURNED INCOME FROM BUSIN ESS AND ALSO INCOME FROM HOUSE PROPERTY. OUT OF THE INCOME FROM HOUSE P ROPERTY, THE ASSESSEE ITA 2055/DEL/09 SUPER TIME INDUSTRIES 2 CLAIMED DEDUCTION OF THE DISPUTED SUMS ( AS MENTION ED IN THE GROUNDS OF APPEAL), U/S 24 OF THE ACT ON THE GROUND THAT IT UT ILIZED THE CAPITAL BALANCES IN THE PARTNERS ACCOUNT, IN THE CONSTRUCTION ACTIVITY AND THEREFORE, THE INTEREST PAID ON THE PARTNERS CAPITAL BALANCES IS DEDUCTIBL E U/S 24 OF THE ACT. SIMILARLY, ON UNSECURED BALANCES ALSO THE INTEREST WAS COMPUTED AND CLAIMED FOR DEDUCTION U/S 24 WHICH THE ASSESSING OFFICER DI D NOT ACCEPT. ACCORDING TO HIM, IT IS NOT ESTABLISHED THAT THE LOANS/ ADVAN CES WERE WHOLLY AND EXCLUSIVELY USED FOR THE PURPOSE OF PURCHASE, CONST RUCTION OF PROPERTY, WHICH WAS LET OUT. HE DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE THAT THE AMOUNTS IN QUESTION WERE ALLOWABLE IN THE LIGHT O F TRIBUNALS DECISION IN THE CASE OF JCIT VS. B.K. PATEL FAMILY TRUST (2006) 9 SOT 583, ON THE REASONING THAT THE DECISION OF THE TRIBUNAL RELATED TO THE CASE OF A TRUST AND THE SAME DID NOT DEAL WITH THE PARTNERS CAPITAL AC COUNT OR ITS INTEREST FOR THE PURPOSE OF DEDUCTION U/S 24 OF THE ACT. ON THE OTHE R HAND, THE ASSESSING OFFICER RELIED UPON THE DECISION OF ITAT DELHI BENC H D IN THE CASE OF ACIT VS. VIRENDER SINGH 104 ITD 365 (DEL.), TO SAY THAT THE INTEREST PAID ON BORROWED FUNDS COULD BE ELIGIBLE FOR DEDUCTION U/S 24 ONLY IF THE BORROWED MONIES HAVE BEEN UTILIZED FOR ACQUIRING BUILDINGS O R LAND AND THE CAPITAL CONTRIBUTION BY THE PARTNERS IN A PARTNERSHIP FIRM COULD NOT BE EQUATED WITH THAT OF BORROWED MONIES. THE CIT(APPEALS), HOWEVE R, ACCEPTED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE RATIO LAID DOWN BY THE MUMBAI BENCH OF THE ITAT IN THE CASE OF B.K. PATEL FAMILY TRUST (S UPRA).THE REVENUE HAS CHALLENGED THIS IN THE PRESENT APPEAL. 3. THE LEARNED DR ARGUED THAT THERE IS NO DIRECT NE XUS BETWEEN THE BORROWED FUNDS AND THE ACQUISITION OF THE PROPERTY, WHICH YIELD RENTAL INCOME. IN ANY CASE THE LEARNED DR ARGUED THAT DEDU CTION COULD NOT BE ITA 2055/DEL/09 SUPER TIME INDUSTRIES 3 CLAIMED U/S 24 OF THE ACT. HE DREW OUR ATTENTION TO THE ACCOUNTS FILED ONLY TO CONTEND THAT THE CLAIM OF THE ASSESSEE IS NOT ADMIS SIBLE U/S 24 OF THE ACT. 4. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE PAPERS FILED IN THE PAPER BOOK AND DECISION OF THE MUMBAI BENCH OF THE ITAT IN THE CASE OF B.K. PATEL FAMILY TRUST (SUPRA) AND ALSO THE DISCUSSION IN THE ORDER OF CIT(A). 5. WE HAVE HEARD BOTH SIDES. THE ASSESSEE HAS FILED PAPER BOOK, CONTAINING 89 PAGES. MOSTLY IT CONTAINS THE WRITTEN SUBMISSIONS AND THE STATEMENT OF ACCOUNT AND THE FINANCIAL SETTLEMENT FILED BY THE ASSESSEE. SECTION 24(B) OF THE I.T. ACT, WHICH DEALS WITH THE PAYMENT OF INTEREST AND ALLOWABLITY OF INTEREST, UNDER THE HEAD HOUSE PR OPERTY, READS AS UNDER: [ DEDUCTIONS FROM INCOME FROM HOUSE PROPERTY. 24. INCOME CHARGEABLE UNDER THE HEAD INCOME FROM H OUSE PROPERTY SHALL BE COMPUTED AFTER MAKING THE FOLLOWING DEDUCTIONS, NAMELY:- (A) (B) WHERE THE PROPERTY HAS BEEN ACQUIRED, CONSTRUCT ED, REPAIRED, RENEWED OR RECONSTRUCTED WITH BORROWED CAPITAL, THE AMOUNT OF ANY INTEREST PAYABLE ON SUCH CAPITAL. 5.1. UNDER THE PROVISIONS OF SECTION 36(1)(III), RE LATING TO COMPUTATION OF INCOME FROM BUSINESS, DEDUCTION IS PERMISSIBLE IN R ESPECT OF THE AMOUNT OF INTEREST PAID IN RESPECT OF THE CAPITAL BORROWED FO R THE PURPOSE OF BUSINESS OR PROFESSION. IN TUNE WITH THAT PROVISION, THE PRE SENT CLAUSE PERMITS THE DEDUCTION OF ANY INTEREST ON BORROWED CAPITAL FOR T HE ACQUISITION, CONSTRUCTION, REPAIR OR RECONSTRUCTION OF THE PROPE RTY IN QUESTION. WHAT IS NECESSARY FOR THE PURPOSE OF CLAIMING DEDUCTION OF INTEREST IS THAT THE BORROWING SHOULD HAVE A NEXUS WITH THE ACQUISITION, CONSTRUCTION, REPAIR, RENEWAL OR RECONSTRUCTION OF THE PROPERTY. REFEREN CE MAYBE MADE TO THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF RAJK OT SEEDS, OIL AND BULLION MERCHANTS ASSOCIATION LTD. VS. CIT (1965) 56 ITR 6 85 AND THE DECISION OF ITA 2055/DEL/09 SUPER TIME INDUSTRIES 4 THE ALLAHABAD HIGH COURT IN THE CASE OF MANSA RAM & SONS VS. CIT (1991) 191 ITR 46 (ALL.). 5.2. IN CIT VS. JAIN (JUSTICE PC)(1989) 179 ITR 572 , THE PUNJAB & HARYANA HIGH COURT WAS CONCERNED WITH THE CASE OF AN ASSESSEE COMPANY, WHICH WAS FORMED AS AN ASSOCIATION OF MERCHANTS AND WAS LATER INCORPORATED AS A LIMITED COMPANY UNDER THE COMPANIES ACT, 193 0. A BUILDING WAS CONSTRUCTED OUT OF THE MEMBERSHIP DEPOSITS BEFORE T HE INCORPORATION OF THE ASSOCIATION AS COMPANY. AFTER IT HAD BEEN INCORPORA TED, THE COMPANY TOOK OVER THE BUILDING AS PART OF THE ASSETS OF THE ASSO CIATION. THE CLAIM OF THE ASSESSEE COMPANY FOR AN ALLOWANCE IN RESPECT OF INT EREST PAID BY IT TO ITS MEMBERS ON THE DEPOSITS MADE BY THEM WAS DISALLOWED ON THE GROUND THAT THE ASSESSEE COMPANY COULD NOT BE SAID TO HAVE CONS TRUCTED THE BUILDING, MUCH LESS WITH BORROWED CAPITAL AS THE ASSESSEE COM PANY HAD COME INTO EXISTENCE ABOUT THREE YEARS AFTER THE BUILDING IN Q UESTION HAD BEEN COMPLETED. THE RATIO LAID DOWN BY THE AFORESAID CAS E IS THAT BORROWING MUST BEAR DIRECT NEXUS WITH THE ACQUISITION, CONSTRUCTIO N, REPAIR OR RECONSTRUCTION OF THE PROPERTY. IN THE CASE BEFORE US, NO SUCH DIR ECT NEXUS IS ESTABLISHED. NO DOUBT THE ASSESSEE HAS CAPITAL BALANCE IN THE PA RTNERS ACCOUNT TO THE EXTENT OF RS. 1,96,22,691/- IN RESPECT OF WHICH IN TEREST IS COMPUTED UNDER THE PROVISIONS OF THE INCOME-TAX ACT. THE CLOSE PER USAL OF THE BALANCE-SHEET AS ON 31-3-2004 SHOWS THAT HE HAS INVESTED THIS MON EY FOR WORK IN PROGRESS AND FIXED ASSETS AS ALSO THE CURRENT ASSETS AND LO ANS AND ADVANCES AND IT IS ALSO A CLOSING STOCK OF SHARES, MEANING THEREBY THA T THE ASSESSEE WHO IS IN THE BUSINESS OF SHARES AND THE REAL ESTATE IT CANNO T BE SAID THAT THE PARTNERS CAPITAL BALANCES REPRESENTS THE BORROWING EXCLUSIVE LY FOR THE PURPOSE OF ACQUISITION OR CONSTRUCTION OF THE PROPERTY IN QUES TION WHICH YIELDED THE RENTAL INCOME. IN THE LIGHT OF THE PRINCIPLE LAID D OWN BY THE DECISION OF ITA 2055/DEL/09 SUPER TIME INDUSTRIES 5 PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V. J AIN, SUPRA, THE NEXUS HAS TO BE DIRECT AND IT SHOULD HAVE A RELATION BETW EEN THE PROPERTY WHICH IS YIELDING THE RENTAL INCOME AND YOU CANNOT JUST COM PUTE INTEREST ON ALL THE UNSECURED LOANS TAKEN IN THE COURSE OF THE ASSESSEE S BUSINESS WHICH INCLUDES THE REAL ESTATE BUSINESS AS IF WAS RAISED ONLY FOR THE PURPOSE OF CONSTRUCTION OR ACQUISITION OF THE PROPERTY WHICH I S SUBJECT MATTER OF THE ASSESSABILITY UNDER THE HEAD HOUSE PROPERTY. THE CAPITAL ACCOUNTS ARE FOR THE PURPOSE OF DOING BUSINESS OF THE ASSESSEE, WHIC H AMONG OTHER THINGS MAY ALSO INCLUDE THE INVESTMENT IN THE HOUSE PROPER TY. THAT BY ITSELF DOES NOT MEAN THAT INTEREST THAT IS COMPUTED ON THE PART NERS CAPITAL ACCOUNT IS TO BE TREATED AS INTEREST PAID ON MONIES BORROWED. THE CASE RELIED UPON BY THE ASSESSEE IS IN RELATION TO THE TRUST AND NOT IN REL ATION TO THE FIRM. IN THE LIGHT OF THE DECISION OF THE HIGH COURT AND THE PRINCIPLE LAID DOWN THEREIN, THE INTEREST PAID ON CAPITAL ACCOUNT BALANCES OF THE PA RTNERS AS WELL AS ON THE UNSECURED LOANS APPEARING IN THE BALANCE SHEET OF T HE FIRM, CANNOT BE TREATED AS AMOUNTS DEDUCTIBLE U/S 24 OF THE ACT. THE ORDER OF THE ASSESSING OFFICER IS, THEREFORE, RESTORED. 6. IN THE RESULT, APPEAL FILED BY THE REVENUE IS T REATED AS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON -12-2009. ( A.D. JAIN ) (G.E.VEERA BHADRAPPA) JUDICIAL MEMBER VICE PRESIDENT DATED: ______ DECEMBER 2009. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT ITA 2055/DEL/09 SUPER TIME INDUSTRIES 6 4. CIT(A) 5. DR