Reeta Jain, Meerut V. ITO, Meerut

ITA 3015/DEL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52555 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 11-08-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 08-06-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Revision of order; Period of limitation; Time period of passing order; Revenue expenditure; Capital expenditure
• Section: 143(3); 263; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F, NEW DELHI BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER & SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO. 3015/DEL/2011 ASSESSMENT YEAR: 2006-07 REETA JAIN, VS. ITO, B-141, WARD-2(2), SHASTRI NAGAR, MEERUT. MEERUT. AAMPJ8925F (APPELLANT) (RESPONDENT) APPELLANT BY : SH. NEERAJ JAIN, ADV. RESPONDENT BY : SUDESH GARG, CIT(DR) ORDER PER C.L. SETHI, J.M. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER DATED 28.3.2011 PASSED BY LD. CIT U/S 263 OF THE INCOME T AX ACT, 1961 (THE ACT), FOR THE A.Y. 2006-07. 2. THE GROUNDS TAKEN BY THE ASSESSEE ARE AS UNDER: - 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E THE LD. CIT, MEERUT ERRED IN CANCELLING THE ASSESSMENT FRAMED BY THE LD. AO HOLDING THE ITA NO. 3015/D/2011 2 SAME TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT ERRED IN LAW AND FACT BY EVOKING THE PROVISIONS OF SEC. 263 OF THE I.T. ACT, 1961 TREATING THE ASSESSMENT ORDER PASSED BY THE LD. AO AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE BY ADDING AN AMOUNT OF RS. 2,55,882/- AS CAPITAL EXPENDITURE, WHILE THE LD. AO AFTER DETAILED INQUIRY ALLOWED AS AMOUNT OF RS. 2,55,882/- AS REVENUE EXPENDITURE. HENCE, THE ORDER PASSED BY THE LD. CIT U/S 263 OF THE I.T. ACT, 1961 IS VOID AND OUGHT TO BE CANCELLED. 3. THAT THE LD. CIT ERRED IN LAW AND FACT BY EVOKIN G THE PROVISIONS OF SEC. 263 OF THE I.T. ACT, 1961 AGAINST THE ASSESSMENT ORDER PASSED BY THE LD. AO DATED 25.4.2008 ALLOWING AN AMOUNT OF INTEREST OF RS. 2,55,882/- AS REVENUE EXPENDITURE, THE LD. AO FORMED THE POSSIBLE VIEW PERMISSIBLE UNDER THE LAW. HENCE, THE ORDER PASSED BY THE LD. CIT U/S 263 OF THE I.T. ACT, 1961 OUGHT TO BE CANCELLED. 4. THAT THE LD. CIT ERRED IN LAW AND FACT BY NOT MAKING AN ORDER U/S 263 OF THE I.T. ACT, 1961 WITHIN THE STIPULATED TIME AS THE ORDER WAS COMMUNICATED TO THE ASSESSEE ON 5.4.2011 (5.4.11). HENCE, THE ORDER PASSED IS BARRED BY LIMITATION. ITA NO. 3015/D/2011 3 3. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. 4. IN THIS CASE, THE ASSESSEE FILED HER RETURN OF I NCOME DECLARING TOTAL INCOME AT RS. 3,02,100/- ON 16.10.0 6. THEREAFTER, THE AO COMPLETED THE ASSESSMENT U/S 143 (3) OF THE ACT ON 25.4.2008 DETERMINING THE TOTAL INCOME A T RS. 4,20,562/-. SUBSEQUENTLY, THE LD. CIT EXAMINED THE RECORDS AND FOUND THAT ASSESSEE HAD CLAIMED INTEREST OF RS. 3,27,554/- PAID TO BANK AGAINST THE LOAN TAKEN BY H ER FOR PURCHASE OF COMMERCIAL LAND TO BE USED FOR HOSPITAL PROJECT AND FOR OTHER PURPOSES. IT WAS SUBMITTED BY THE AS SESSEE THAT THE PLOT WAS NOT VACANT AND CONSTRUCTION PLAN WAS I N PROGRESS AS EVIDENT FROM THE ASSESSEES REPLY DATED 4.4.2008 . SINCE, THE HOSPITAL PROJECT WAS NOT YET STARTED, THE LD. C IT WAS OF THE VIEW THAT THE EXPENSES BY WAY OF INTEREST ARE OF CA PITAL NATURE AS THE INTEREST WAS INCURRED FOR THE PRE-CONSTRUCTI ON PERIOD OF A FUTURE HOSPITAL PROJECT. THE LD. CIT WAS OF THE VIEW THAT INTEREST SHOULD HAVE BEEN CAPITALIZED AND SHOULD HA VE BEEN ADDED IN THE COST OF THE LAND/CONSTRUCTION INSTEAD OF CLAIMING IT AS REVENUE EXPENDITURE IN THE PROFIT AND LOSS ACCOU NT. THE LD. CIT WAS THEREFORE OF THE VIEW THAT ASSESSEE HAS WRO NGLY ITA NO. 3015/D/2011 4 CLAIMED THE INTEREST AS DEDUCTION, WHICH HAS BEEN A LLOWED BY THE AO WRONGLY. HE, THEREFORE, HAD TAKEN A VIEW TH AT HE ASSESSMENT ORDER PASSED BY THE AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. HE, TH EREFORE, ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE U/S 263 OF THE ACT TO SHOW CAUSE AS TO WHY AN APPROPRIATE ORDER U/S 263 S HOULD NOT BE PASSED IN THE CASE. THE ASSESSEE, THEN, FILED I TS REPLY AND HER ADVOCATE SHRI NEERAJ JAIN APPEARED BEFORE THE C IT AND SUBMITTED HIS CONTENTIONS. 5. AFTER HEARING THE ASSESSEE, CONSIDERING THE AOS ORDER AND THE FACTS AND CIRCUMSTANCES OF THE CASE AVAILAB LE ON RECORD, THE LD. CIT PASSED THE ORDER U/S 263 OF THE ACT BY HOLDING AND OBSERVING AS UNDER: - I) THAT INTEREST PAID ON TERM LOAN TO THE EXTENT O F RS. 2,55,882/- PAID FOR THE PURCHASE OF COMMERCIAL LAND TO BE USED FOR HOSPITAL PROJECT IS OF CAPITAL IN NATURE, WHICH IS TO BE CAPITALIZED IN THE COST OF LAND/CONSTRUCTION IN AS MUCH AS THIS INTEREST WAS PAID FOR THE PRE-CONSTRUCTION PERIOD OF A FUTURE HOSPITAL PROJECT, WHICH WAS NOT YET STARTED. HE, THEREFORE, HOLD THAT EXPENDITURE OF RS. 2,55,882/- IS NOT ALLOWABLE AND IS LIABLE TO BE ADDED IN THE INCOME OF THE ITA NO. 3015/D/2011 5 ASSESSEE IN THE YEAR UNDER CONSIDERATION. THE AO WAS DIRECTED TO MODIFY THE ASSESSMENT ORDER ACCORDINGLY. II) AS REGARDS INTEREST AMOUNTING TO RS. 69,039/- ON THE LOAN TAKEN FOR THE PURCHASE OF AUTO ANALYZER, THE LD. CIT DIRECTED THE AO TO EXAMINE THE SAME IN ACCORDANCE WITH THE PROVISIONS OF LAW AND TO DECIDE THE MATTER WHETHER THE EXPENDITURE INCURRED IS OF CAPITAL NATURE OR REVENUE. III) WITH REGARD TO INTEREST OF RS. 2,454/- ON CAR LOAN AND BANK CHARGES OF RS. 179/-, THE LD. CIT HOLD THE SAME TO BE IN THE NATURE OF REVENUE EXPENSES, WHICH ARE TO BE ALLOWED AS DEDUCTION. 6. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED T HAT AMOUNT OF RS. 2,55,882/- HAS BEEN ALLOWED BY THE AO AS REVENUE EXPENDITURE AFTER MAKING DETAILED INQUIRY A ND AS SUCH THE AOS ORDER CANNOT BE SAID TO BE ERRONEOUS AND P REJUDICIAL TO THE INTEREST OF THE REVENUE. HE, FURTHER SUBMIT TED THAT AOS VIEW IN ALLOWING THE INTEREST OF RS. 2,55,882/- AS REVENUE EXPENDITURE WAS A POSSIBLE VIEW PERMISSIBLE UNDER T HE LAW AND, THEREFORE, LD. CIT HAS ERRED IN INVOKING HIS P OWERS U/S 263 OF THE ACT. ITA NO. 3015/D/2011 6 7. THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTHE R HAND, SUPPORTED THE LD. CITS ORDER AND SUBMITTED THAT TH E AOS ORDER IN ALLOWING INTEREST OF RS. 2,55,882/- AS REV ENUE EXPENDITURE IS NOT AT ALL SUSTAINABLE IN THE EYES O F LAW IN VIEW OF SPECIFIC PROVISIONS CONTAINED IN THE ACT. HE, F URTHER, SUBMITTED THAT THE AOS ACTION IN ALLOWING INTEREST OF RS. 2,55,882/- AS REVENUE EXPENDITURE CANNOT SAID TO BE A POSSIBLE VIEW PERMISSIBLE UNDER THE LAW. HE, THERE FORE, SUBMITTED THAT AO DID NOT MAKE ANY INQUIRY WITH REG ARD TO THE INTEREST OF RS. 69,039/- PAID ON LOAN TAKEN FOR THE PURPOSE OF AUTO ANALYZER, AND, THEREFORE, THE CIT IS JUSTIFIED IN DIRECTING THE AO TO EXAMINE THE MATTER AFRESH. 8. IN THIS CASE, THE ASSESSEE HAS CLAIMED DEDUCTION BY WAY OF INTEREST AMOUNTING TO RS. 3,27,554/- ON FOLLOWIN G ACCOUNTS: (I) RS. 2,55,882/- INTEREST ON TERM LOAN TAKEN FOR PURCHASE OF COMMERCIAL LAND TO BE USED FOR HOSPITAL PROJECT. (II) RS. 69,039/- INTEREST PAID ON LOAN TAKEN FOR PURCHASE OF AUTO ANALYZER. (III) RS. 2,454/- BEING INTEREST PAID ON CAR LOAN. (IV) RS. 179/- BANK CHARGES. ITA NO. 3015/D/2011 7 9. IN THIS APPEAL, WE ARE CONCERNED ABOUT THE CITS ORDER WITH REGARD TO THE ASSESSEES CLAIM OF INTEREST OF RS. 2,55,882/- PAID ON LOAN TAKEN FOR THE PURPOSE OF PU RCHASE OF LAND AND RS. 69,039/- BEING INTEREST ON LOAN TAKEN FOR THE PURPOSE OF PURCHASE OF AUTO ANALYZER. ON EXAMINATI ON OF ASSESSMENT ORDER, WE FIND THAT AO DID NOT MAKE ANY INQUIRY AS TO THE CLAIM OF INTEREST AMOUNTING TO RS. 69,039 /-. THE LD. COUNSEL FOR THE ASSESSEE HAS NOT PRODUCED ANY MATER IAL BEFORE US TO SHOW AND ESTABLISH THAT ANY INQUIRY WA S EVER MADE BY THE AO WITH REGARD TO THIS ITEM. WE, THERE FORE, HOLD THAT LD. CIT IS JUSTIFIED IN RESTORING THIS MATTER BACK TO THE AO FOR HIS EXAMINATION. THEREFORE, LD. CITS ORDER U/ S 263 ON THIS ACCOUNT IS FOUND TO BE VALID AND WITHIN JURISDICTIO N. 10. NOW, WE COME TO THE ASSESSEES CLAIM OF DEDUCTI ON OF INTEREST OF RS. 2,55,882/- PAID ON TERM LOAN TAKEN FOR THE PURPOSE OF PURCHASE OF COMMERCIAL LAND TO BE USED F OR A FUTURE HOSPITAL PROJECT. IT IS NOT IN DISPUTE THAT THE HOSPITAL PROJECT HAS NOT YET BEEN STARTED DURING THE YEAR. IT IS IN THE PROCESS OF SET UP AND THE BUSINESS OF HOSPITAL PROJ ECT WAS NOT COMMENCED DURING THE YEAR. IN THIS CONNECTION, A R EFERENCE MAY BE MADE TO A PROVISO TO SEC. 36(1)(III) WHICH H AS BEEN ITA NO. 3015/D/2011 8 INSERTED BY THE FINANCE ACT, 2003 W.E.F. 1.4.2004, WHICH IS AS UNDER: - (III) THE AMOUNT OF THE INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION: [ PROVIDED THAT ANY AMOUNT OF THE INTEREST PAID, IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION (WHETHER CAPITALIZED IN THE BOOKS OF ACCOUNT OR NOT); FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE, SHALL NOT BE ALLOWED AS DEDUCTION.] EXPLANATION- RECURRING SUBSCRIPTIONS PAID PERIODICALLY BY SHAREHOLDERS, OR SUBSCRIBERS IN MUTUAL BENEFIT SOCIETIES WHICH FULFILL SUCH CONDITIONS AS MAY BE PRESCRIBED, SHALL BE DEEMED TO BE CAPITAL BORROWED WITHIN THE MEANING OF THIS CLAUSE; 11. ON READING SECTION 36(1)(III) AND PROVISO THERE TO, IT IS SEEN THAT THE AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSES OF BUSINESS OR PROFESSION SHALL BE ALLOWED AS DEDUCTION IN COMPUTING THE INCOME UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION. HOWE VER, THE ITA NO. 3015/D/2011 9 EXCEPTION HAS BEEN CARVED OUT BY THE PROVISO TO SEC . 36(1)(III) PROVIDING THAT ANY AMOUNT OF INTEREST PAID, IN RESP ECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION (WHETHER CAPITALIZED IN THE BOOKS OF ACCOUNT OR NOT); FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF T HE ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE, SHALL NOT BE ALLOWED AS DEDUCTION. IN THE PRESENT CASE, THE ASS ESSEE HAS PAID INTEREST OF RS. 2,55,882/- IN RESPECT OF LOAN BORROWED FOR ACQUISITION OF A PLOT OF LAND, WHICH WAS TO BE USED FOR AN EXTENSION OF ASSESSEES EXISTING PROFESSION BY WAY OF STARTING A HOSPITAL PROJECT, AND THE SAID PLOT OF LAND HAS N OT YET BEEN PUT TO USE FOR BUSINESS OR PROFESSION DURING THE YE AR UNDER CONSIDERATION IN AS MUCH AS HOSPITAL PROJECT IS STI LL UNDER CONSTRUCTION PLAN AND, THEREFORE, THE INTEREST PAID ON LOAN FROM THE DATE ON WHICH THE LOAN WAS BORROWED TILL THE DA TE THE HOSPITAL PROJECT GET STARTS, SHALL NOT BE ALLOWED A S DEDUCTION U/S 36(1)(III) OF THE ACT. THE PROVISO TO SEC. 36( 1)(III) IS CLEAR, WHICH HAS NOT BEEN TAKEN INTO ACCOUNT BY THE LD. AO WHILE ALLOWING THE ASSESSEES CLAIM OF INTEREST OF RS. 2, 55,882/-. THE AOS ORDER IN ALLOWING THE ASSESSEES CLAIM OF INTEREST OF RS. 2,55,882/- IS CONTRARY TO THE PROVISIONS CONTAI NED IN THE ITA NO. 3015/D/2011 10 PROVISO TO SEC. 36(1)(III) OF THE ACT. THUS, THE A OS ORDER IS NOT SUSTAINABLE IN THE EYES OF LAW AND IS TO BE HELD AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. IN THI S VIEW OF THE MATTER, THE ORDER OF LD. CIT ON THIS ACCOUNT IS UPH ELD. 12. THE ASSESSEE HAS ALSO TAKEN ONE MORE TECHNICAL GROUND CONTAINING THAT LD. CIT HAS NOT PASSED THE ORDER U/ S 263 WITHIN THE STIPULATED TIME AS THE ORDER WAS COMMUNICATED T O THE ASSESSEE ON 5.4.2011. IN THIS CASE, THE ASSESSMENT U/S 143(3) WAS MADE ON 25.4.2008, IN RESPECT OF WHICH A N ORDER U/S 263 OF THE ACT MAY BE PASSED BY THE AO WITHIN T WO YEARS FROM THE END OF THE FINANCIAL YEAR IN WHICH THE IMP UGNED ORDER U/S 143(3) OF THE ACT WAS PASSED BY THE AO. THUS, THE LAST DAY OF PASSING THE ORDER U/S 263 BY THE LD. CIT WOU LD BE 31.3.2011 BEING TWO YEARS FROM THE END OF THE FINAN CIAL YEAR 2008-09 DURING WHICH THE AO PASSED THE ASSESSMENT O RDER U/S 143(3) OF THE ACT. THE LD. CIT HAS PASSED THE ORDER U/S 263 OF THE ACT ON 28.3.2011. IT IS NOT THE CASE OF THE ASSESSEE THAT THE ORDER OF LD. CIT IS BACKDATED. THE ASSESS EE HAS ALSO NOT BEEN ABLE TO ESTABLISHED AND PROVED THAT THE OR DER DATED 28.3.11 HAS BEEN ISSUED BY THE CIT(A) AFTER AN INOR DINATE DELAY FROM THE LAST DAY OF LIMITATION PERIOD. IT I S AN ADMITTED ITA NO. 3015/D/2011 11 POSITION THAT THE ORDER DATED 28.3.11 HAS BEEN RECE IVED BY THE ASSESSEE ON 5.4.11, WHICH GOES TO SHOW THAT THE ORD ER U/S 263 OF THE ACT DATED 28.3.11 WAS ISSUED WITHIN THE TIME LIMIT. IN THIS CONNECTION, THE ASSESSEE HAS RELIED UPON TH E DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF COMMISS IONER OF AGRICULTURAL INCOME TAX VS. KAPPUMALAI ESTATE 234 I TR 187. IN THAT DECISION, IT HAS BEEN HELD THAT IN ORDER TO MAKE THE ASSESSMENT ORDER COMPLETE AND EFFECTIVE IT SHOULD B E ISSUED SO AS TO BE BEYOND THE CONTROL OF THE AUTHORITY CON CERNED, FOR ANY POSSIBLE CHANGE OR MODIFICATION. THIS SHOULD B E DONE WITHIN THE PRESCRIBED PERIOD, THOUGH THE ACTUAL SER VICE OF THE ORDER MAY BE BEYOND THAT PERIOD. THEREFORE, IN THE PRESENT CASE MERE BECAUSE THE SERVICE OF THE ORDER DATED 28 .3.11 HAS BEEN MADE UPON THE ASSESSEE ON 5.4.11 THAT BY ITSEL F CANNOT BE A REASON TO HOLD THAT THE ORDER WAS NOT PASSED B EFORE THE EXPIRY OF 31 ST MARCH, 2011 PARTICULARLY IN VIEW OF THE FACT THAT THE ORDER WAS PASSED ON 28.3.11 AS IS CLEAR FROM TH E ORDER ITSELF. FURTHER, THE AFORESAID CASE IS OF NO HELP TO THE ASSESSEE IN AS MUCH AS IN THAT CASE THE ASSESSMENT ORDER FOR A.Y. 1979-80 WAS DATED 13.3.1985 AND IT WAS DISPATC HED ON APRIL 22, 1985, AND RECEIVED BY THE ASSESSEE ON APR IL 26, 1985. THE ASSESSMENT ORDER FOR A.Y. 1980-81 WAS DA TED ITA NO. 3015/D/2011 12 MARCH 24, 1986 AND WAS DISPATCHED ON DECEMBER 2, 19 86 AND WAS RECEIVED BY THE ASSESSEE ON DECEMBER 5, 198 6. THERE WAS AN INORDINATE DELAY IN DISPATCHING THE OR DER BY THE AO AND, THEREFORE, IT WAS HELD THAT THE ASSESSMENTS FOR BOTH THE YEARS WERE NOT COMPUTED WITHIN THE PRESCRIBED P ERIOD. HOWEVER, IN THE PRESENT CASE, IT IS NOT PROVED THAT THE ORDER DATED 28.3.11 WAS DISPATCHED BELATEDLY AFTER THE EX PIRY OF LIMITATION PERIOD. IN THE LIGHT OF THE REASONS ABO VE, THE CONTENTION OF THE ASSESSEE THAT ORDER PASSED BY LD. CIT IS TIME BARRED HAS NO MERIT AND IS THUS, REJECTED. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. 14. THIS DECISION IS PRONOUNCED IN THE OPEN COURT O N 19 TH AUGUST, 2011. SD/- SD/- (SHAMIM YAHYA) (C.L. SETH I) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 19.8.11 *KAVITA ITA NO. 3015/D/2011 13 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR