SATI INDUSTRIES, CHENNAI V. ITO NON CORPORATE WARD 10(4), CHENNAI

ITA 2929/CHNY/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7373 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 17-10-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: F C JAIN
• Keywords: Business income; Opportunity of being heard; Proportionate interest
• Section: 143(3); 143(1)

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . , , BEFORE SHRI DUVVURU RL REDDY, JUDICIAL MEMBER & SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ I.T.A.NO.2929/MDS/2018 / ASSESSMENT YEAR :2013-14 M/S. SATI INDUSTRIES, PRATHAMES, 5, LAKSHMI STREET, KILPAUK, CHENNAI 600 010. [PAN:AABFS0562N] VS. THE INCOME TAX OFFICER, NON-CORPORATE WARD 10 (4), CHENNAI 34. ( /APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI F.C. JAIN, C.A. / RESPONDENT BY : SHRI AR. V. SREENIVASAN, JCIT / DATE OF HEARING : 24.04.2019 /DATE OF PRONOUNCEMENT : 30.04.2019 / O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 12, CHENNAI DATED 16.08.2018 RELEVANT TO THE ASSESSMENT YEAR 2013-14.THE GROUNDS RAISED BY THE ASSESSEE ARE THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING (I) THE DISALLOWANCE OF INTEREST PAID TO VIJAYA BANK TO THE TUNE OF .91,24,968/- (II) DISALLOWANCE OF INTEREST PAID TO PARTNERS TO THE TUNE OF .32,56,463/- AND RESULTING DOUBLE DISALLOWANCE AND (III) DISALLOWANCE OF ADMINISTRATIVE EXPENSES INCURRED TO THE TUNE OF .3,07,645/-. I.T.A. NO.2929/CHNY/18 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 26.09.2013 ADMITTING TOTAL INCOME AT . 8,41,160/-. THE RETURN OF INCOME FILED BY THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 [ACT IN SHORT]. SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY. THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT WAS COMPLETED BY MAKING VARIOUS ADDITIONS/DISALLOWANCES. 3. WITH REGARD TO THE DISALLOWANCE OF INTEREST PAID TO VIJAYA BANK, THE ASSESSEE HAS CLAIMED INTEREST OF .91,24,968/- ON LOAN BORROWED. THE SCHEME OF LOAN IS MENTIONED AS MORTGAGE LOAN V RENT. THE BANK ALSO REPORTED TO THE ASSESSING OFFICER THAT THE PURPOSE OF THE LOAN IS BUSINESS-V- RENT. THE ABOVE COMMUNICATION FROM THE BANK WAS SHARED WITH THE ASSESSEE. LATER, THE ASSESSEE OBTAINED ANOTHER LETTER FROM THE BANK STATING THAT PURPOSE OF LOAN WAS CONSTRUCTION OF FACTORY BUILDING AND LAND AND BUILDING WERE OFFERED AS SECURITY. SINCE THE COMMUNICATIONS FROM THE BANK WERE CONTRADICTORY, THE ASSESSING OFFICER SUMMONED THE BANK AUTHORITIES TO CLARIFY THE SAME. AFTER CONSIDERING THE SUBMISSIONS OF THE BANK AUTHORITIES, THE ASSESSING OFFICER OBSERVED THAT THE LOAN EXISTING DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION WAS BUSINESS-V0- RENT TERM LOAN BASED ON RENT RECEIVABLES AND THEREFORE, HE HELD THAT THE INTEREST ON LOAN BORROWED BY THE ASSESSEE CANNOT BE ALLOWED UNDER SECTION I.T.A. NO.2929/CHNY/18 3 24 OF THE ACT. ON APPEAL, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 4. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESSEE HAS CLAIMED INTEREST ON LOAN BORROWED FROM THE BANK. IN SUPPORT OF THE SAME, THE ASSESSEE FURNISHED A COPY OF TERM LOAN ACCOUNT STATEMENT FOR THE PERIOD FROM 01.04.2012 TO 31.03.2013 WHEREIN, THE SCHEME OF THE LOAN IS MENTIONED AS MORTGAGE LOAN V RENT'. IN ORDER TO CONFIRM THE SAME, A LETTER DATED 01.03.2016 WAS ADDRESSED TO THE MANAGER, VIJAYA BANK, MOORE STREET, CHENNAI REQUESTING TO SPECIFY THE PURPOSE OF THE SAID LOAN AND OTHER DETAILS AND ANY MORTGAGE/SECURITY FURNISHED TO BE BANK FOR THE SAID LOAN. IN RESPONSE TO THE SAME, A LETTER AND E-MAIL DATED 16.03.2016 WAS RECEIVED FROM THE BANK STATING THAT THE PURPOSE OF THE LOAN IS BUSINESS-V-RENT BASED ON RENT RECEIVABLES AND THAT EMDTD OF LAND AND BUILDING WAS SECURED BY THE ASSESSEE TO THE BANK. THE ABOVE LETTER WAS SHOWN TO THE AR OF THE ASSESSEE AND HE ASSURED THAT HE WOULD APPROACH THE BANK AND FURNISH THE DETAILS ON THE SAID LOAN. SUBSEQUENTLY, A LETTER AND E-MAIL DATED 22.03.2016 WAS RECEIVED, WHEREIN, THE PURPOSE OF LOAN WAS STATED AS 'CONSTRUCTION OF FACTORY BUILDING' AND THAT LAND AND BUILDING WAS OFFERED AS SECURITY TO THE BANK. AS THE BANK HAS ISSUED TWO DIFFERENT STATEMENTS ON THE SAME LOAN, A I.T.A. NO.2929/CHNY/18 4 SUMMON DATED 28.03.2016 WAS ISSUED TO THE BRANCH MANAGER, VIJAYA BANK TO APPEAR ON 29.03.16 WITH ALL THE BOOKS AND DOCUMENTS WITH RESPECT TO THE ASSESSEE. THE CHIEF MANAGER AND ASST. BRANCH MANAGER APPEARED IN RESPONSE TO THE SUMMONS ON 29.03.2016 AND FILED A LETTER STATING THAT THE PURPOSE OF LOAN WAS BUSINESS TERM LOAN BASED ON SECURITY OF RENT RECEIVABLES. IT WAS FURTHER STATED THAT THE ASSESSEE AVAILED MORTGAGE LOAN ON 19.12.2008 FOR AN AMOUNT OF .1240 LAKHS FOR THE PURPOSE OF CONSTRUCTION OF FACTORY BUILDING MORTGAGING ITS LAND AND BUILDING AND CLOSED THE SAME ON 29.09.2011. SUBSEQUENTLY, THE ASSESSEE HAS OBTAINED A BUSINESS TERM LOAN ON RENT RECEIVABLES ON 29.09.2011 FOR AN AMOUNT OF . 635 LAKHS OFFERING EMDTD OF LAND AND BUILDING. OUT OF THE ABOVE LOAN OF . 635 LAKHS, THE ASSESSEE HAD CLOSED THE MORTGAGE LOAN EARLIER AVAILED BY PAYING A SUM OF AROUND . 535 LAKHS [WRONGLY MENTIONED AS CRORES]. THUS, DURING THE FINANCIAL YEAR 2012-13, THE ASSESSEE HAD NO LOAN EXISTING FOR THE PURPOSE OF CONSTRUCTION OF FACTORY BUILDING. 5.1 IT IS CLEAR FROM THE ABOVE STATEMENT OF THE BANK AUTHORITIES THAT THE ASSESSEE HAS AVAILED MORTGAGE LOAN ON 19.12.2008 FOR AN AMOUNT OF .1240 LAKHS FOR THE PURPOSE OF CONSTRUCTION OF FACTORY BUILDING BY MORTGAGING ITS LAND AND BUILDING AND TO CLOSE THE EXISTING LOAN, THE ASSESSEE HAS AVAILED ANOTHER LOAN FROM THE SAME BANK OF .635 LAKHS ON 29.09.2011 OUT OF WHICH .535 LAKHS WERE REPAID TO CLOSE THE EXISTING LOAN ON 29.09.2011 BY I.T.A. NO.2929/CHNY/18 5 MORTGAGING SAME LAND AND BUILDING. ADMITTEDLY, A SUBSTANTIAL PORTION OF SECOND LOAN WAS PAID TO THE BANK FOR CLOSING EXISTING LOAN. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT PROPORTIONATE INTEREST RELATABLE TO THE FIRST LOAN OBTAINED FOR THE PURPOSE OF CONSTRUCTION SHOULD HAVE BEEN ALLOWED BY THE ASSESSING OFFICER UNDER SECTION 24 OF THE ACT AGAINST THE INCOME FROM HOUSE PROPERTY. ACCORDINGLY, WE REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION BY PASSING A SPEAKING ORDER. 6. WITH REGARD TO THE DISALLOWANCE OF INTEREST PAID TO THE PARTNERS, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSING OFFICER REJECTED THE CLAIM OF INTEREST PAID TO THE TUNE OF .32,56,463/- IS NOT CORRECT. THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE OF INTEREST PAID TO THE PARTNERS SINCE THERE WAS NO ASSESSABLE BUSINESS INCOME DURING THE YEAR. THE ASSESSEE HAS NOT FILED ANY COGENT MATERIAL TOWARDS BUSINESS INCOME/INTEREST INCOME. THUS, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) AND ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE STANDS DISMISSED. 7. WITH REGARD TO THE CLAIM OF ADMINISTRATIVE EXPENSES, THE ASSESSING OFFICER IS DIRECTED TO VERIFY MATERIAL EVIDENCE AND ALLOW THE DIRECT EXPENSES IN ACCORDANCE WITH LAW AFTER ALLOWING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. I.T.A. NO.2929/CHNY/18 6 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 30 TH APRIL, 2019 AT CHENNAI. SD/- SD/- (S. JAYARAMAN) ACCOUNTANT MEMBER (DUVVURU RL REDDY) JUDICIAL MEMBER CHENNAI, DATED, THE 30.04.2019 VM/- /COPY TO: 1. / APPELLANT, 2. / RESPONDENT, 3. ( ) /CIT(A), 4. /CIT, 5. /DR & 6. /GF.