The ACIT,(OSD)Circle-8, Ahmedabad V. M/s. Satnam Developers, Ahmedabad

ITA 2664/AHD/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73163 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 28-03-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 13-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K C MATHEWS
• Assessee Lawyers: G C PIPARA
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: SRI D.K TYAGI, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTAN T MEMBER ACIT(OSD), CIRCLE-8, AHMEDABAD (APPELLANT) VS SATNAM DEVELOPERS PVT LTD, 501, SAPPHIRE, C.G. ROAD, AHMEDABAD PAN: AAHCS9263R (RESPONDENT) REVENUE BY: SRI K.C. MATHEWS, SR.D.R. ASSESSEE BY: SRI G.C. PIPARA, A.R. DATE OF HEARING : 28-03-2014 DATE OF PRONOUNCEMENT : 31-03-20 14 / ORDER PER : D.K. TYAGI, JUDICIAL MEMBER:- THIS IS THE REVENUES APPEAL AGAINST THE ORDER OF LD. CIT(A)-XIV AHMEDABAD DATED 18-06-2010. 2. REVENUE HAS TAKEN FOLLOWING TWO EFFECTIVE GROUND S:- ITA NO. 2664/AHD/2010 ASSESSMENT YEAR 2007-08 I.T.A NO.2664/AHD/2010 A.Y. 2007-08 PAGE NO ACIT VS. SATNAM DEVELOPERS PVT. LTD 2 1. THE LD. CIT(A)-XIV, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF CLAIM OF INTEREST E XPENSES OF RS. 5,55,802/- 2. THE LD. CIT(A)-XIV, AHMEDABAD HAS ERRED IN LAW A ND ON FACTS IN DELETING THE DISALLOWANCE OF CLAIM OF VARIOUS EX PENSES LIKE ELECTRICITY, OFFICE CLEANING, LIFT AND SECURITY EXP ENSES OF RS. 5,84,581/- 3. GROUND NO. 1 RELATES TO DISALLOWANCE OF CLAIM OF INTEREST EXPENSES OF RS. 5,55,802/-. 4. AO DURING THE ASSESSMENT PROCEEDINGS NOTICED THA T ASSESSEE HAD TAKEN LOANS FROM ITS GROUP CONCERNS ON WHICH INTEREST OF RS. 16,67,405/- WERE PAID @ 12%. ON THE OTHER HAND, THE ASSESSEE HAD GIVEN L OANS TO SATNAM DEVELOPERS FROM WHICH INTEREST OF RS. 3,58,811/- W ERE CHARGED @ 8% ONLY. SINCE ALL SUCH TRANSACTIONS WERE MADE AMONGST GROUP COMPANIES/CONCERNS, THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY PAYMENT OF INTEREST SHOULD NOT BE CONSIDERED @ 8% WHEN LOANS WERE GIVEN TO GROUP C ONCERN ON THE SAME RATE. AFTER TAKING INTO CONSIDERATION THE REPLY OF THE ASSESSEE, AO WAS OF THE VIEW THAT 8% INTEREST WAS REASONABLE BECAUSE ASSESS EE-COMPANY HAS RECEIVED INTEREST @ 8% ON LOANS GIVEN TO ITS GROUP COMPANIES AND THEREFORE DIFFERENCE OF 4% OF INTEREST WAS FOUND EXCESSIVE AN D WAS DISALLOWED AMOUNTING TO RS. 5,55,802/-. 5. THE SUBMISSIONS OF THE ASSESSEE BEFORE LD. CIT(A ) WERE SUMMARIZED BY HIM AS UNDER:- A) THE MONEY BORROWED BY THE APPELLANT WAS FOR THE PURPOSE OF BUSINESS AND INTEREST PAID THEREON IS FULLY ALLOWAB LE U/S. 36(1)(III) OF THE ACT. I.T.A NO.2664/AHD/2010 A.Y. 2007-08 PAGE NO ACIT VS. SATNAM DEVELOPERS PVT. LTD 3 B) THE MONEY ADVANCED TO M/S. SATNAM DEVELOPERS IS OUT OF NON INTEREST BEARING FUND/SURPLUS FUND TO EARN INTEREST @ 8 % AS THE TERMS AND CONDITIONS ARE DICTATED BY THE BORROWER, WHILE THE MONEY BORROWED BY APPELLANT IS ON ACCOUNT OF BUSINESS EXP EDIENCY AND HENCE TERMS AND CONDITIONS OF INTEREST @ 12% ARE DI CTATED BY LENDER. C) THE LOAN TAKEN FROM M/S. SUNDERDEEP INFRASTRUCTU RE PVT , LTD. (SIPL) IS FOR A CERTAIN PERIOD, I.E. TERM LOAN AND HENCE WHENEVER APPELLANT HAS SURPLUS FUND THE SAME IS NOT REPAID T O M/S . SIPL, BUT ADVANCED TO M/S. SATNAM DEVELOPERS TO EARN INTEREST @ 8%. D) THE LOAN TAKEN FROM M/S. MEENA PROJECTS PVT. LTD IS TO REPAY THE LOAN OF M/S. SIPL AND THE INTEREST RATE AT 12% DOES NOT HAVE ANY UNREASONABLENESS. E) THE A.O. INITIALLY SHOW CAUSED FOR A NOTIONAL I NTEREST INCOME OF RS. 1,79,406/- ON THE BASIS OF FACT THAT INTEREST CHA RGED FROM M/S. SATNAM DEVELOPERS @ 8% AT RS. 3,58,811/- SHOULD HA VE BEEN @ 12% AND THEREBY SHORT OF RS. 1,79,406/-, HENCE ADDI TION SHOULD HAVE BEEN OF RS. 1,79,406/- ONLY. F). DURING THE PREVIOUS YEAR, THE LOAN ADVANCED T O M/S. SATNAM DEVELOPERS WERE ONLY OF RS. 1,82,00,000/- FOR A SH ORT PERIOD SINCE THERE WAS AN OPENING BALANCE OF RS. 1,08,88,538/- I N THIS CASE, HENCE IF ANY INTEREST HAS TO BE DISALLOWED ON THE BASIS O F EXCESSIVE OR UNREASONABLENESS SHOULD HE COMPUTED ACCORDINGLY. G). RELYING ON VARIOUS CASE LAWS, APPELLANT WANT TO EMPHASIS THAT THE A.O. HAS TO ESTABLISH NEXUS BEFORE DISALLOWING SUCH EXPENSES. THE AO, CANNOT DISALLOW SUCH EXPENSES BEING ACTING ON BEHALF OF APPELLANT AND DECIDING WHAT HAS TO BE DONE AND HOW HAS TO BE DONE. 6. AFTER TAKING INTO CONSIDERATION THESE SUBMISSION S OF THE ASSESSEE LD. CIT(A) DELETED THIS ADDITION BY OBSERVING AS UNDER: - NOW AGAINST THESE CONTENTIONS, WHICH WERE THERE BE FORE THE A.O. ALSO, THE A.O. HAS NOT DISPUTED ABOUT THE CONTENTIO N THAT THE MONEY WAS BORROWED FOR THE PURPOSE OF BUSINESS. THE ONLY OBJECTION WAS THE EXCESSIVE OR UNREASONABLE RATE OF INTEREST PAID TO M/S. SUNDERDEEP INFRASTRUCTURE PVT. LTD. AND M/S. MEERA PROJECT PVT . LTD., THOUGH I.T.A NO.2664/AHD/2010 A.Y. 2007-08 PAGE NO ACIT VS. SATNAM DEVELOPERS PVT. LTD 4 INITIALLY THE A.O. HAD GIVEN SHOW CAUSE FOR UNREASO NABLE CHARGING OF @ 8% IN STEAD OF 12% FROM M/S. SATNAM DEVELOPERS, B UT LATER ON CHANGED TO DISALLOWANCE OF EXCESSIVE AND UNREASONAB LE INTEREST PAID TO ASSOCIATED COMPANIES OF GROUP @ 12% INSTEAD OF M ARKET RATE OF 8 %. IT IS, THEREFORE, I AM PARTLY INCLINED WITH THE CONTENTIONS OF THE APPELLANT THAT THE FLOW OF FUND HAS TO BE CONSIDERE D IN WORKING OUT SUCH EXCESSIVE OR UNREASONABLENESS CONSIDERING THE FACT THAT ONLY RS. L,82,00.000 WAS ADVANCED TO M/S. SATNAM DEVELOPERS FOR A SHORT PERIOD OUT OF INTEREST FREE OR SURPLUS FUND AND INT EREST PAID TO ASSOCIATE CONCERNS WERE FULLY ALLOWABLE BEING FOR B USINESS PURPOSE. THE FACT THAT OPENING BALANCE IN THE CASE OF M/S. S ATNAM DEVELOPERS OF RS. L,08,88,,538/- AND INTEREST PAID ON IT HAS NOT BE CONSIDERED IN THE DISALLOWANCE U/S. 40A(2)(B) OF THE I.T. ACT. I AM IN CONTINUITY WITH THE A. O. THAT IT IS NOT TH E CASE OF NOTIONALLY CHARGING OF INTEREST @ 12% FROM M/S. SATNAM DEVELOPERS BUT THE CASE OF DISALLOWANCE U/S. 40A(2)(B) OF THE ACT BEIN G UNREASONABLE AND EXCESSIVE INTEREST PAID AND CLAIMED. BUT, IT IS ONL Y THE INTEREST ON THE MONEY ADVANCED OUT OF INTEREST BORROWING FUND @ 12% OF RS, 10 LAC FROM SIPL RECEIVED ON 27-0-5-06 AND ADVANCED ON 27- 05-06 TILL 20- 07-2007. THEREFORE, IT IS A CASE OF UNREASONABLE IN TEREST PAID IN EXCESS OF 4% FOR ABOUT 2 MONTHS ON THIS AMOUNT AND NOT THE ENTIRE INTEREST. THEREFORE, THE DISALLOWANCE SHOULD HAVE BEEN EXCESSIVE INTEREST OF 4% ON RS, 10 LACS FOR TWO MONTHS, I.E. RS, 4000/- PAID IN EXCESS. THIS IS BEING VERY NOMINAL AMOUNT CONSIDER ING THE TOTAL INTEREST RECEIVED AND PAID. IT IS, THEREFORE, THE B ASIC REQUIREMENT IN RESPECT OF DISALLOWANCE U/S. 40A(2)(B) OF THE ACT T HAT IT IS ONLY UNREASONABLE AND EXCESSIVE EXPENDITURE WHICH HAS TO BE CONSIDERED FOR DISALLOWANCE AND THE SAME BEING VERY NOMINAL AM OUNT, THE AO IS NOT JUSTIFIED IN MAKING DISALLOWANCE ON ENTIRE AMOU NT INCLUDING OPENING BALANCE AND THE SAME IS REQUIRED TO BE DELE TED. GROUND OF APPEAL OF APPELLANT, IS THEREFORE, ALLOWED. THE APP ELLANT GETS A RELIEF OF RS. 5,55,802/-. 7. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE FIND THAT LD. CIT(A) AFTER PROPERLY ANALYZING THE FACTS OF T HE CASE ARRIVED AT THE FINDING THAT DISALLOWANCE COULD HAVE BEEN MADE FOR EXCESSIVE INTEREST @ 4% ON ONLY RS. 10 LACS AND THAT TOO FOR TWO MONTHS WHICH COMES TO RS. I.T.A NO.2664/AHD/2010 A.Y. 2007-08 PAGE NO ACIT VS. SATNAM DEVELOPERS PVT. LTD 5 4,000/- ONLY WHICH WAS VERY NOMINAL AMOUNT BY TAKIN G INTO CONSIDERATION THE TOTAL INTEREST RECEIVED AND PAID BY THE ASSESSE E, THEREFORE HE DELETED THE DISALLOWANCE MADE BY AO ON ENTIRE AMOUNT INCLUDING OPENING BALANCE OF RS. 1,08,88,538/- IN THE CASE OF SATNAM DEVELOPERS. THIS FINDING OF FACT REMAINED UNCONTROVERTED BY THE REVENUE, THEREFORE W E ARE NOT INCLINED TO INTERFERE WITH THE ORDER PASSED BY LD. CIT(A) AND T HE SAME IS HEREBY UPHELD. THIS GROUND OF REVENUE IS DISMISSED. 8. SECOND GROUND IS AGAINST DISALLOWANCE OF VARIOUS EXPENSES OF RS. 5,84,581/- WHILE TREATING THE SAME AS NOT REVENUE I N NATURE . 9. AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS N OTICED THAT THE ASSESSEE HAS DEBITED FOLLOWING EXPENSES. ELECTRICITY EXPENSES RS. 2,40,897/- OFFICE CLEANING EXPENSES RS. 1,52,876/- LIFT EXPESES RS. 56,120/- SECURITY EXPENSES RS. 1,34,688/- THESE EXPENSES WERE INCURRED BY THE ASSESSEE-COMPAN Y FOR BUILDING OF NATIONAL PLAZA WHICH WAS CONSTRUCTED BY THE COMPA NY AND DURING THE YEAR UNDER CONSIDERATION AN AMOUNT OF RS. 1,57,49,951/- HAD ALREADY BEEN SHOWN AS SALE OF UNIT PERTAINING TO THIS BUILDING ACCOUNT . ACCORDING TO AO, THIS WAS NOT ELIGIBLE AS REVENUE EXPENSES IN THE YEAR UN DER APPEAL. THE ASSESSEE WAS ASKED AS TO WHY THE SAME AMOUNT SHOULD NOT BE D ISALLOWED. IN RESPONSE, THE ASSESSEE EXPLAINED THAT THIS EXPENDIT URE WAS INCURRED FOR THE PURPOSE OF BUSINESS. THIS EXPLANATION WAS NOT ACC EPTABLE TO THE AO ON THE I.T.A NO.2664/AHD/2010 A.Y. 2007-08 PAGE NO ACIT VS. SATNAM DEVELOPERS PVT. LTD 6 GROUND THAT WHEN ASSESSEE HAS ALREADY TAKEN MAINTEN ANCE DEPOSIT AT RS. 60.47 FROM VARIOUS PERSONS TO WHOM UNITS HAD BEEN S OLD AND THE SAME AMOUNT HAD BEEN REFLECTED IN THE BALANCE SHEET, THE N EXPENSES INCURRED BY THE ASSESSEE CANNOT BE DEBITED IN THE PROFIT AND LO SS ACCOUNT. THESE EXPANSES WERE INCURRED FOR THE BENEFIT OF MEMBERS/OCCUPANTS OF THE BUILDING ON BEHALF OF THE DEPOSIT RECEIVED BY THE ASSESSEE COMPANY. S INCE DEPOSITS WERE NOT CONSIDERED AS INCOME, EXPENSES INCURRED BY THE ASSE SSEE ON THE SAME HEAD COULD NOT BE CLAIMED AS EXPENSES AND THEREFORE AO D ISALLOWED THE EXPENDITURE OF RS. 5,84,581/-. 10. LD. CIT(A) HOWEVER AFTER TAKING INTO CONSIDERA TION THE SUBMISSION OF THE ASSESSEE WHICH HAS BEEN REPRODUCED BY HIM IN HI S ORDER DELETED THIS ADDITION BY OBSERVING AS UNDER:- 3.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E SUBMISSIONS OF THE APPELLANT. I AM INCLINED LO ACCEPT THE CONTENTI ONS OF THE APPELLANT, WHICH ARE SUMMARIZED AS FOLLOWS:- A) WHEN THE PROJECT IS NOT FULLY SOLD BUT PARTLY S OLD, IT IS THE BUSINESS EXPEDIENCY TO KEEP THE BUILDING NEAT AND C LEAN, SAFE AND SECURE AND WITH OTHER SERVICES LIKE LIFT, PREVE NTION OF FIRE ETC. SO THAT FUTURE CUSTOMER FOR UNSOLD PART CAN AP PRECIATE THE PROJECT., B) THE APPELLANT TILL THE PROJECT FULLY SOLD, KEPT SUCH MAINTENANCE AND SERVICES WITH IT BEFORE HANDING IT OVER TO MEMBERS ASSOCIATION WHICH IS A NORMAL BUSINESS PRAC TICE IN SUCH BUSINESS TO AVOID ANY INCONVENIENCE TO EXISTIN G CUSTOMER. FURTHER, THE APPELLANT RECOVERED SUCH COST FROM MEM BERS AND OFFERED IT AS INCOME. C) EVEN OTHERWISE, IF THE DATE OF SALE WITH AREA O F SALE IS DISTRIBUTED PROPORTIONATELY, THE APPELLANT'S SHARE OUT OF SUCH MAINTENANCE AND SERVICE CHARGES OF RS. 5,84,581/- C OMES TO RS. 3,17,613/- WHICH IS AN ALLOWABLE BUSINESS EXPENDITU RE, WHILE I.T.A NO.2664/AHD/2010 A.Y. 2007-08 PAGE NO ACIT VS. SATNAM DEVELOPERS PVT. LTD 7 THE BALANCE WAS RECOVERED BY APPELLANT IN SUBSEQUEN T YEAR AND OFFERED AS INCOME. THE CLAIM OF SUCH MAINTENANCE AND SERVICE EXPENDITU RE IS, THEREFORE, FOR WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSIN ESS OF APPELLANT AND ALLOWABLE U/S. 37(1) OF THE ACT. THE A.O. IS DI RECTED TO DELETE SUCH DISALLOWANCE AND ADDITION OF RS. 5,84,581/-. THE A PPELLANT GETS RELIEF OF RS. 5,84,581/-. SINCE THE FINDING OF LD. CIT(A) THAT THESE EXPENSES WERE INCURRED BY THE ASSESSEE FOR BUSINESS PURPOSES HAS NOT BEEN CONTROV ERTED BY THE REVENUE , WE ARE NOT INCLINED TO INTERFERE WITH THE ORDER PASSED BY HIM AND THE SAME IS HEREBY UPHELD. THIS GROUND OF REVENUE IS ALSO DISM ISSED. 11. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (ANIL CHATURVEDI) ( D.K. TYAGI) ACCOUNTANT MEMBER J UDICIAL MEMBER AHMEDABAD : DATED 31/03/2014 AK / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,