DY CIT CC 4 (1), MUMBAI V. M/S KANAKIA SPACES PVT LTD., MUMBAI

ITA 323/MUM/2020

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7719 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2015-2016
• Appeal Filed On: 13-01-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GURBINDER SINGH
• Keywords: Business income; Proportionate interest; Competent authority; Revised return; Set aside
• Section: 143(3); 142(1); 143(1); 201; 143(2); 192; 13; 22

Judgement Text

ITA NO.323/MUM/2020 A.Y. 2015 - 16 DY. CIT - 4(1) VS. M/S KANAKIA SPACES PVT.LTD. 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H MUMBAI BEFORE SHRI S.RIFAUR RAHMAN (ACCOUNTANT MEMBER) AND SHRI RAVISH SOOD (JUDICIAL MEMBER) ITA NO.323/MUM/2020 (ASSESSMENT YEAR: 2015 - 16) DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 4(1), ROOM NO. 1918, 19 TH FLOOR, AIR INDIA BUILDING, NARIMAN POINT, MUMBAI 400 021 VS. M/S KANAKIA SPACES PVT. LTD. 10 TH FLOOR, 215 ATRIUM, ANDHERI KURLA ROAD, ANDHERI (E) MUMBAI 400 059 PAN NO. AAACK2629J ( REVENUE ) (ASSESSEE ) ASSESSEE BY : SHRI ANUJ KISNADWALA , A.R REVENUE BY : SHRI GURBINDER SINGH , D.R DATE OF HEARING : 11/08/2021 DATE OF PRONOUNCEMENT : 24 /08/2021 ORDER PER RAVISH SOOD, J.M: THE PRESENT APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) - 52, MUMBAI, DATED 24.10.2019, WHICH IN TURN ARISES FROM THE ORDER PASSED BY THE A.O U/S 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT ACT), DATED 13.12.2017. THE REVENUE HAS A SSAILED THE IMPUGNED ORDER ON THE FOLLOWI NG GROUNDS BEFORE US: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. C.I.T(A) WAS JUSTIFIED IN DELETING THE ADDITION OF ESTIMATED DEEMED RENT AMOUNTING TO RS.35,17,223/ - ON UNSOLD FLATS OF ASSESSEE'S PROJECT . 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT( A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF ITA NO.323/MUM/2020 A.Y. 2015 - 16 DY. CIT - 4(1) VS. M/S KANAKIA SPACES PVT.LTD. 2 INTEREST EXPENDITURE AMOUNTING TO RS. 2,22,40 ,835/ - ON ACCOUNT OF DIVERSION MADE BY THE ASSESSE E OF BORROWED FUNDS, TOWARDS INTEREST FREE ADVANCES . 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. C.I.T(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFIC ER OF INTEREST EXPENDITURE AMOUNTING TO RS. 2,22,40,835/ - WITHOUT VERIFYING THE CONTENTION OF THE ASSESSEE THAT ITS OWN FUNDS WERE MORE THAN BORROWED FUNDS . 4. THE APPELLANT CRAVES, LEAVE, TO ADD, TO AMEND AND / OR TO ALTER ANY OF THE GROUNDS OF THE APPEAL , IF NEED BE . 5. THE APPELLANT, THEREFORE, PRAYS THAT ON THE GROUNDS STATED ABOVE, THE ORDER OF THE CIT( A) - 52 T MUMBAI, MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 2. BRIEFLY STATED, THE ASSESSEE COMPANY HAD FILED ITS RETURN OF INCOME FOR A.Y. 2015 - 16 ON 25.11.2015, DECLARING A TOTAL INCOME OF RS.3,53,40,670/ - . THE RETURN OF INCOME WAS PROCESSED AS SUCH U/S 143(1) OF THE ACT. SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSM ENT U/S 143(2) OF THE ACT. 3. ORIGINAL ASSESSMENT WAS FRAMED BY THE A.O VIDE HIS ORDER PASSED U/S 143( 3 ) OF THE ACT, DATED 13.12.2017 AT AN INCOME OF RS.6,10, 98,730/ - AFTER INTER ALIA MAKING THE FOLLOWING ADDITIONS/DISALLOWANCES: SR. NO. PARTICULARS AMOU NT 1. ADDITION OF DEEMED ANNUAL LETTABLE VALUE (ALV) OF THE FLATS HELD BY THE ASSESSEE AS STOCK - IN - TRADE OF ITS BUSINESS OF A BUILDER AND DEVELOPER. RS.35,17,223/ - 2. DISALLOWANCE OF THE ASSESSEES CLAIM FOR DEDUCTION OF INTEREST EXPENDITURE U/S 36(1)( III) OF THE ACT. RS.2,22,40,835/ - 4. AGGRIEVED, THE ASSESSEE ASSAILED THE ASSESSMENT ORDER IN APPEAL BEFORE THE CIT(A). AFTER NECESSARY DELIBERATIONS, THE CIT(A) FINDING FAVOUR WITH THE CONTENTIONS ADVANCED BY THE ASSESSEE VACATED THE AFOREMENTIONED IMP UGNED ADDITIONS/DISALLOWANCE S MADE BY THE A.O . 5. THE REVENUE BEING AGGRIEVED WITH THE ORDER OF THE CIT(A) HAS CARRIED THE MATTER IN APPEAL BEFORE US. AT THE VERY OUTSET OF THE HEARING OF THE APPEAL, IT WAS SUBMITTED BY THE LD. AUTHORIZED REPRESENTATIVE (F OR SHORT A.R) FOR THE ASSESSEE THAT THE ISSUE S INVOLVED IN THE PRESENT APPEAL WERE SQUARELY COVERED BY THE ITA NO.323/MUM/2020 A.Y. 2015 - 16 DY. CIT - 4(1) VS. M/S KANAKIA SPACES PVT.LTD. 3 ORDER S PASSED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE PRECEDING YEARS. IN ORDER TO BUTTRESS HIS AFORESAID CLAIM THE LD. A.R HAD DRAWN OU R ATTENTION TO THE ORDERS PASSED BY THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR A.Y. 2012 - 13 IN ITA NO. 6686/MUM/2013, DATED 31.10.2018, A.Y. 2013 - 14 AND A.Y. 2014 - 15 IN ITA NOS. 7288 & 7289/MUM/2017 AND ITA NO. 209 & 210/MUM/2018, DATED 23.04.2019. OUR A TTENTION WAS DRAWN BY THE LD. A.R TO THE RELEVANT OBSERVATIONS OF THE TRIBUNAL QUA THE ISSUE S INVOLVED IN THE PRESENT APPEAL BEFORE US. 6. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE (FOR SHORT D.R) RELIED ON THE ASSESSMENT ORDER. 7. WE HAVE HEARD TH E LD. AUTHORIZED REPRESENTATIVES FOR BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD , AS WELL AS CONSIDERED THE JUDICIAL PRONOUNCEMENTS THAT HAVE BEEN PRESSED INTO SERVICE BY THEM TO DRIVE HOME THEIR RESPECTIVE CONTENTIONS. ON A PERUSAL OF THE RECORDS, WE FIND THAT THE REVENUE HAS ASSAILED THE ORDER OF THE CIT(A) ON TWO GROUNDS, VIZ. (I). DELETION OF THE ADDITION OF THE DEEMED ANNUAL LETTABLE VALUE (ALV) OF RS.35,17,223/ - THAT WAS MADE BY THE A.O QUA THE UNSOLD FLATS THAT WERE HELD BY THE ASSESSEE AS STOCK - IN - TRADE OF ITS BUSINESS AS THAT OF A BUILDER AND A DEVELOPER; AND (II) DELETION OF T HE DISALLOWANCE OF THE ASSESSEES CLAIM FOR DEDUCTION OF INTEREST EXPENDITURE U/S 36(1)(III) OF RS.2,22,40,835/ - . 8. AS STATED BY THE LD. A.R, AND RIGHTLY SO, THE ISSUE AS TO WHETHER OR NOT THE ANNUAL LETTABLE VALUE OF THE UNSOLD FLATS THAT WERE HELD BY TH E ASSESSEE AS STOCK - IN - TRADE OF ITS BUSINESS AS THAT OF A BUILDER AND DEVELOPER WERE LIABLE TO BE ASSESSED UNDER THE HEAD HOUSE PROPERTY IS SQUARELY COVERED BY THE ORDER PASSED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR A.Y. 2012 - 13 IN ITA NO. 6686/M UM/2016, DATED 31.10.2018. ON A PERUSAL OF THE AFORESAID ORDER, WE FIND THAT THE TRIBUNAL HAD OBSERVED THAT SUB - SECTION (5) OF SEC. 23 OF THE ACT WHICH CONTEMPLATES A RELIEF TO THE REAL ESTATE DEVELOPERS THEREIN PROVID ES THAT IF AN ITA NO.323/MUM/2020 A.Y. 2015 - 16 DY. CIT - 4(1) VS. M/S KANAKIA SPACES PVT.LTD. 4 ASSESSEE IS HOLDING ANY HOUSE PROPERTY AS HIS STOCK - IN - TRADE WHICH IS NOT LET OUT FOR THE WHOLE OR PART OF THE YEAR , THEN, THE ANNUAL VALUE OF SUCH PROPERTY WILL BE CONSIDERED AS NIL FOR A PERIOD UP TO ONE YEAR FROM THE END OF THE FINANCIAL YEAR IN WHICH THE COMPLETION CERTIFICAT E IS OBTAINED FROM THE COMPETENT AUTHORITY . IT WAS, THUS, OBSERVED BY THE TRIBUNAL THAT AS SUB - SECTION (5) OF SEC. 23 HAD BEEN MADE AVAILABLE ON THE STATUTE VIDE THE FINANCE ACT, 2017 W.E.F 01.04.2018, THEREFORE, THE ASSESSING OF THE ALV OF THE UNSOLD FLAT THAT WERE HELD BY THE ASSESSEE AS STOCK - IN - TRADE OF ITS BUSINESS FOR THE YEAR BEFORE THEM I.E A.Y. 2012 - 13 COULD NOT BE SUSTAINED AND WAS LIABLE TO BE VACATED. THE TRIBUNAL WHILE CONCLUDING AS HEREINABOVE HAD OBSERVED AS UNDER: 3. BRIEFLY STATED, THE FA CTS ARE THAT THE APPELLANT IS IN THE BUSINESS OF REAL ESTATE DEVELOPMENT. DURING THE YEAR UNDER CONSIDERATION, ITS PROJECT WESTERN EDGE, ANANTA & 351 ICON GOT COMPLETED. THE APPELLANT HAS OFFERED INCOME IN RESPECT OF SALE OF FLATS/UNITS IN THE ABOVE PROJEC TS AND BALANCE UNSOLD FLATS/UNITS IN THE ABOVE PROJECTS IS SHOWN AS STOCKIN - TRADE. THE APPELLANT IS HOLDING SUCH UNSOLD FLATS/UNITS OF RS.1,85,95,17,274/ - UNDER THE HEAD CLOSING INVENTORIES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFI CER (AO) ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE ANNUAL LETTING VALUE (ALV) OF SUCH UNSOLD FLATS/UNITS CANNOT BE TAXED AS INCOME FROM HOUSE PROPERTY AS PER THE PROVISIONS OF SECTION 22 OF THE ACT. IN RESPONSE TO IT, THE APPELLANT FILED A REPLY STATING THAT IT IS HOLDING UNSOLD FLATS/UNITS AS STOCK - IN - TRADE TO EARN BUSINESS INCOME AND NOT RENTAL INCOME. THE SAME CANNOT BE TAXED ON THE BASIS OF ALV NOTIONALLY BECAUSE THE COMPANY IS AN OCCUPANT AND SUCH AN OCCUPATION IS IN THE COURSE OF BUSINESS AS BUILDE R AND DEVELOPER. ALSO MOST OF THE FLATS/UNITS ARE SOLD IN NEAR FUTURE OR REMAINS TO BE SOLD ON ACCOUNT OF NON - APPROVAL ETC. THE APPELLANT ALSO SUBMITTED EVIDENCE IN THE FORM OF BOOKING MEMOS ETC. IN SUPPORT OF ITS CLAIM THAT THE SAME IS SOLD IN NEAR FUTUR E. HOWEVER, THE AO WAS NOT CONVINCED WITH THE ABOVE EXPLANATION OF THE APPELLANT AND RELYING ON THE DECISION IN THE CASE OF ANSAL HOUSING FINANCE & LEASING CO. LTD. (2013) 354 ITR 180 (DEL), WORKED OUT THE ALV AT RS.2,21,53,896/ - AS THE ALV OF UNSOLD FLATS/UNITS AND ADDED SUM OF RS.1,55,07,727/ - UNDER THE HEAD INCOME FROM HOUSE PROPERTY AFTER GIVING DEDUCTION @ 30% U/S 24(A) OF THE ACT. 4. AGGRIE VED BY THE ORDER OF THE AO THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) RELIED ON THE DECISION IN ANSAL HOUSING FINANCE & LEASING CO. LTD. (SUPRA) AND OBSERVING THAT THE FACTS IN THE CASE OF THE APPELLANT ARE IDENTICAL TO THE FACTS IN THE ABOVE CASE, CONFIRMED THE ADDITION OF RS.1,55,07,727/ - MADE BY THE AO. 5. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE FILES A PAPER BOOK CONTAINING THE JUDGEMENT OF THE HONBLE GUJARAT HIGH COURT IN CIT V. NEHA BUILDERS P. LTD. 296 ITR 661 AND THE OR DER OF THE ITAT MUMBAI IN THE CASE OF RUNWAL CONSTRUCTIONS V. ACIT (ITA NOS. 5408/MUM/2016 AND 5409/MUM/2016 DATED 22.02.2018), ITO V. ARIHANT ESTATES PVT. LTD. (ITA NO. 6037/MUM/2016 DATED 27.06.2018), C R DEVELOPMENTS P. LTD. V. JCIT (ITA NO. 4277/MUM/20 12 DATED 13.05.2015), SARANG PROPERTY DEVELOPERS PVT. LTD. V. ITA NO.323/MUM/2020 A.Y. 2015 - 16 DY. CIT - 4(1) VS. M/S KANAKIA SPACES PVT.LTD. 5 ACIT (ITA NO. 5620/MUM/2016 DATED 26.06.2015). THE LD. COUNSEL RELIES ON THE ABOVE DECISIONS. 6. PER CONTRA THE LD. DR RELIES ON THE DECISION IN ANSAL HOUSING FINANCE & LEASING CO. LTD. (SUPRA ) AND SUPPORTS THE ORDER PASSED BY THE LD. CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR DECISION ARE GIVEN BELOW. ON THE ABOVE ISSUE, WE COME ACROSS ONE DECISION FOR THE ASSESSEE AND ANOTHER DECISION FOR THE REVENUE. THE DECISION IN NEHA BUILDERS PVT.LTD.(SUPRA) IS FOR THE ASSESSEE, WHEREAS THE DECISION IN ANSAL HSG. FINANCE & LEASING CO. LTD.,(SUPRA) IS FOR THE REVENUE. THE HONBLE SUPREME COURT IN THE CASE OF CIT V. VEGETABLE PR ODUCTS 88 ITR 192 (SC) HAS HELD THAT IF TWO REASONABLE CONSTRUCTIONS OF A TAXING PROVISIONS ARE POSSIBLE, THAT CONSTRUCTION WHICH FAVOURS THE TAX PAYER MUST BE ADOPTED. THEREBY, WE WILL FOLLOW THE DECISION IN NEHA BUILDERS PVT. LTD. (SUPRA). 7.1 THE FO LLOWING SUB - SECTION (5) HAS BEEN INSERTED AFTER SUB - SECTION (4) OF SECTION 23 BY THE FINANCE ACT, 2017, W.E.F. 01.04.2018: (5) WHERE THE PROPERTY CONSISTING ANY BUILDING OR LAND APPURTENANT THERETO IS HELD AS STOCK - IN - TRADE AND THE PROPERTY OR ANY PART OF THE PROPERTY IS NOT LET DURING THE WHOLE OR ANY PART OF THE PREVIOUS YEAR, THE ANNUAL VALUE OF SUCH PROPERTY OR PART OF THE PROPERTY, FOR THE PERIOD UP TO ONE YEAR FROM THE END OF THE FINANCIAL YEAR IN WHICH THE CERTIFICATE OF COMPLETION OF CONSTRUCTION OF THE PROPERTY IS OBTAINED FROM THE COMPETENT AUTHORITY, SHALL BE TAKEN TO NIL. THUS, IN ORDER TO GIVE RELIEF TO REAL ESTATE DEVELOPERS, SECTION 23 HAS BEEN AMENDED W.E.F. AY 2018 - 19 (FY 2017 - 18). BY THIS AMENDMENT, IT IS PROVIDED THAT IF THE ASSESSEE IS HOLDING ANY HOUSE PROPERTY AS HIS STOCK - IN - TRADE WHICH IS NOT LET OUT FOR THE WHOLE OR PART OF THE YEAR, THE ANNUAL VALUE OF SUCH PROPERTY WILL BE CONSIDERED AS NIL FOR A PERIOD UP TO ONE YEAR FROM THE END OF THE FINANCIAL YEAR IN WHICH A COMPLETION CE RTIFICATE IS OBTAINED FROM THE COMPETENT AUTHORITY. IN VIEW OF THE ABOVE AMENDMENT TO SECTION 23, WE ARE NOT ADVERTING TO THE CASE LAWS RELIED ON BY THE LD. C OUNSEL AND LD. DR. IN THE INSTANT CASE, THE ASSESSEE IS IN THE BUSINESS OF REAL ESTATE DEVELOPMENT. THE ISSUE OF TAXABILITY IS WITH REGARD TO UNSOLD FLATS/UNITS OF RS.1,85,95,17,274/ - HELD BY THE APPELLANT UNDER THE HEAD CLOSING INVENTORIES. THE AY IS 2012 - 13. IN VIEW OF THE INSERTION OF SUB - SECTION (5) I N SECTION 23 BY THE FINANCE ACT, 2017, W.E.F. 01.04.2018 NARRATED HEREINBEFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND ALLOW THE 1ST & 2ND GROUNDS OF APPEAL . AS THE FACTS AND ISSUE INVOLVED IN THE PRESENT APPEAL REMAINS THE SAME AS WERE THERE BEFOR E THE TRIBUNAL IN ITS AFOREMENTIONED ORDER, WHICH THEREAFTER HAD BEEN FOLLOWED BY THE TRIBUNAL WHILE DISPOSING OFF THE APPEAL IN THE ASSESSEES CASE FOR A.Y. 2013 - 14 AND A.Y. 2014 - 15 IN ITA NO. 7288,7289/MUM/2017 AND ITA 209,210/MUM/2018, DATED 23.04.2019, THEREFORE, WE RESPECTFULLY FOLLOW THE ITA NO.323/MUM/2020 A.Y. 2015 - 16 DY. CIT - 4(1) VS. M/S KANAKIA SPACES PVT.LTD. 6 SAME. ACCORDINGLY, FINDING NO INFIRMITY IN THE VIEW TAKEN BY THE CIT(A) WHO HAD RIGHTLY VACATED THE ADDITION OF RS.35,17,223/ - THAT WAS MADE BY THE A.O TOWARDS THE DEEMED ALV OF THE UNSOLD FLATS THAT WERE HELD BY THE ASSESSEE AS STOCK - IN - TRADE OF ITS BUSINESS OF A BUILDER AND DEVELOPER, WE UPHOLD THE SAME. THE G ROUND OF APPEAL NO.1 IS DISMISSED. 9. WE SHALL NOW TAKE UP THE CLAIM OF THE REVENUE THAT THE CIT(A) HAD ERRED IN DELETING THE DISALLOWANCE OF THE ASSESSEES CLA IM FOR DEDUCTION OF INTEREST EXPENDITURE OF RS.2,22,40,835// - U/S 36(1)(III) OF THE ACT. AS IS DISCERNIBLE FROM THE RECORDS, THE A.O BEING OF THE VIEW THAT THE ASSESEE HAD DIVERTED ITS INTEREST BEARING LOANS AND ADVANCES FOR THE PURPOSE OF GIVING INTEREST FREE LOANS AND ADVANCES OF RS.13,08,28,440/ - , HAD THUS, DISALLOWED THE CORRESPONDING INTEREST I.E @ 17% PER ANNUM AND MADE A RESULTANT ADDITION/DISALLOWANCE OF INTEREST EXPENDITURE OF RS.2,22,40,835/ - . ON APPEAL, THE CIT(A) OBSERVED THAT THE ISSUE QUA DISA LLOWANCE OF THE ASSESSEES CLAIM FOR DEDUCTION OF INTEREST EXPENDITURE U/S 36(1)(III) WAS A RECURRING ISSUE THAT WAS DECIDED BY HIS PREDECESSOR IN THE ASSESSEES OWN CASE FOR A.Y. 2013 - 14 AND A.Y. 2014 - 15. REFERRING TO THE VIEW TAKEN BY HIS PREDECESSOR WHI LE DISPOSING OFF THE ASSESSEES APPEAL FOR A.Y. 2 013 - 14, IT WAS OBSERVED BY THE CIT(A) THAT HIS PREDECESSOR TAKING COGNIZANCE OF AVAILABILITY OF SUFFICIENT OWN FUNDS AND INTEREST FREE ADVANCES WITH THE ASSESSEE HAD VACATED THE DISALLOWANCE OF THE ASSESSEE S CLAIM FOR DEDUCTION U/S 36(1)(III) OF RS. 2,23,93,835/ - . ACCORDINGLY, THE CIT(A) FINDING THAT THE FACTS AND THE ISSUE INVOLVED IN THE CASE BEFORE HIM QUA THE AFORESAID ISSUE OF DISALLOWANCE OF THE ASSESSEES CLAIM FOR DEDUCTION OF INTEREST EXPENDITURE U/ S 36(1)(III) REMAINED THE SAME AS WERE THERE IN ITS CASE FOR THE PRECEDING YEARS I.E A.Y. 2013 - 14 AND A.Y. 2014 - 15 , THUS, FOLLOWED THE VIEW THEREIN TAKEN BY HIS PREDECESSOR AND VACATED THE DISALLOWANCE OF THE ASSESSES CLAIM FOR DEDUCTION OF INTEREST EXPEND ITURE OF RS. 2,22,40,835/ - . ITA NO.323/MUM/2020 A.Y. 2015 - 16 DY. CIT - 4(1) VS. M/S KANAKIA SPACES PVT.LTD. 7 10. THE REVENUE BEING AGGRIEVED WITH THE ORDER OF THE CIT(A) TO THE EXTENT HE HAD VACATED THE DISALLOWANCE MADE BY THE A.O OF THE ASSESSEES CLAIM FOR DEDUCTION OF INTEREST EXPENDITURE U/S 36(1)(III) OF RS.2,22,40,835/ - HAS CARR IED THE MATTER IN APPEAL BEFORE US. AT THE VERY OUTSET, IT WAS SUBMITTED BY THE LD. A.R THAT THE INTEREST FREE ADVANCE GIVEN BY THE AS S ESSEE COMPANY PERTAINED TO THE PERIOD PRIOR TO 31.03.2013. IN OTHER WORDS, IT WAS THE CLAIM OF THE LD. A.R THAT NO PART O F THE INTEREST FREE ADVANCES WERE GIVEN BY THE ASSESSEE COMPANY SUBSEQUENT TO A.Y 201 3 - 1 4 . ADVERT ING TO THE FACTS INVOLVED IN THE CASE OF THE ASSESSEE FOR A.Y. 2012 - 13, IT WAS SUBMITTED BY THE LD. A.R THAT THE ASSESSEES CLAIM FOR DEDUCTION OF INTEREST EXP ENDITURE WAS DISALLOWED BY THE A.O WHILE FRAMING THE ASSESSMENT FOR THE SAID YEAR U/S 143(3) OF THE ACT. IT WAS SUBMITTED BY THE LD. A.R THAT THEREAFTER THE CIT(A) HAD AFTER CONSIDERING THE AVAILABILITY OF SUFFICIENT SELF - OWNED AND INTEREST FREE FUNDS WITH THE ASSESSEE COMPANY VACATED THE DISALLOWANCE OF THE ASSESSEES CLAIM FOR DEDUCTION OF INTEREST EXPENDITURE U/S 36(1)(III) OF THE ACT. IT WAS SUBMITTED BY THE LD. A.R THAT O N FURTHER APPEAL BY THE REVENUE, THE TRIBUNAL CO NSIDERING THE CLAIM OF THE ASSESSEE THAT THE ENTIRE INTEREST FREE LOANS AND ADVANCES OF RS. 1 3 ,32,13,440/ - WERE GIVEN IN THE PRECEDING YEARS OUT OF THE SUFFICIENT INTEREST FREE FUNDS THAT WERE AVAILABLE WITH IT , HAD THUS, IN ALL FAIRNESS RESTORE D THE MATTER TO THE FILE OF THE A.O, WITH A DIRECTION TO RE - ADJUDICATE THE SAME AFTER VERIFYING THE FACTUM OF AVAILABILITY OF SUFFICIENT SELF - OWN ED AND INT E REST FREE FUNDS WITH THE ASSESSEE IN LIGHT OF THE JUDGMENT OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CI T VS. RELIANCE UTILITIES & POWER LTD. 313 ITR 340 (BOM). IT WAS SUBMITTED BY THE LD. A.R THAT THE A.O GIVING EF FECT TO THE AFORESAID DIRECTIONS OF THE TRIBUNAL HAD VIDE HIS ORDER PASSED U/S 143(3) R.W.S 254 OF THE ACT, DATED 05.07.2019 OBSERVED THAT THE IN TEREST FREE LOANS AND ADVANCES GIVEN BY THE ASSESSEE WERE OLD LOANS THAT WERE ADVANCED WAY BACK IN THE PRECEDING YEARS I.E A.Y. 2005 - 06, A.Y. 2007 - 08 AND A.Y. 2009 - 10 AND A.Y. 2010 - 11. IT WAS SUBMITTED BY THE LD. A.R THAT THE A.O IN THE COURSE OF THE SET - A SIDE PROCEEDINGS HAD AFTER VERIFYING THE CLAIM OF THE ASSESSEE THAT THE INTEREST FREE LOAN S IN ITA NO.323/MUM/2020 A.Y. 2015 - 16 DY. CIT - 4(1) VS. M/S KANAKIA SPACES PVT.LTD. 8 QUESTION WERE ADVANCED OUT OF SUFFICIENT RESERVE S AND SURPLUS, SHARE CAPITAL AND NON - INTEREST BEARING FUNDS AS WERE AVAILABLE WITH IT HAD VACATED THE DISALLOWANC E OF INTEREST OF RS.2,26,46,285/ - THAT WAS MADE BY HIS PREDECESSOR VIDE HIS ORIGINAL ASSESSMENT ORDER PASS U/S 143(3), DATED 12.03.2015. AT THIS STAGE, WE MAY HEREIN OBSERVE THAT THE LD. A.R HAD IN ALL FAIRNESS POINTED OUT THAT THE TRIBUNAL WHILE DISPOSIN G OFF THE APPEALS IN THE CASE OF THE ASSESSEE FOR A.Y. 2013 - 14 IN ITA NO. 7288/MUM/2017 AND A.Y. 2014 - 15 IN ITA NO. 7289/MUM/2017, DATED 23.04.2019 HAD RESTORED THE ISSUE QUA THE DISALLOWANCE OF THE ASSESSEES CLAIM FOR DEDUCTION OF INTEREST EXPENDITURE FOR BOTH THE SAID RESPECTIVE YEARS TO THE FILE OF THE A.O , WITH A DIRECTION TO RE - ADJUDICATE THE SAME AS PER THE EXTANT LAW AND AS PER THE DIRECTION S WHICH WERE EARLIER GIVEN BY THE TRIBUNAL WHILE DISPOSING OFF THE APPEAL OF THE ASSESSEE FOR A.Y. 2012 - 13 I N ITA NO. 6686/MUM/2016, DATED 31.10.2018. IT WAS SUBMITTED BY THE LD. A.R THAT THE A.O HAD THEREAFTER VIDE HIS RESPECTIVE ORDERS PASSED U/S 143(3) R.W.S 254, DATED 20.04.2021 FOR A.Y. 2013 - 14 AND A.Y. 2014 - 15 DISALLOW ED THE ASSESSEES CLAIM FOR DEDUCTION OF INTEREST EXPENDITURE U/S 36(1)(III) OF THE ACT A S WAS DONE IN THE ORIGINAL ASSESSMENT ORDER THAT WAS PASSED BY HIS PREDECESSOR U/S 143(3) OF THE ACT FOR THE SAID YEARS. IT WAS, HOWEVER, SUBMITTED BY THE LD. A.R THAT THOUGH THE DIRECTIONS GIVEN BY THE T RIBUNAL IN ITA NO. 6686/MUM/2016, DATED 31.08.2018 FOR A.Y. 2012 - 13 WERE CONSIDERED IN THE COURSE OF THE SET - ASIDE PROCEEDINGS BY THE A.O, HOWEVER, THE VIEW THEREIN TAKEN BY THE HONBLE HIGH COU R T IN CIT VS. RELIANCE UTILITIES & POWER LTD. 313 ITR 340 (BO M) (AS WAS REFERRED BY THE TRIBUNAL IN ITS ORDER FOR A.Y 2012 - 13 IN ITA NO. 6686/MUM/2016) THAT IN CASE OF AVAILABILITY OF MIXED FUNDS THE PRESUMPTION OF UTILIZATION OF SELF OWNED/INTEREST FREE AMOUNTS AVAILABLE WITH THE ASSESSEE FOR GIVING INTEREST FREE A DVANCES WAS LOST SIGHT OF BY THE A.O WHILE FRAMING THE SET - ASIDE ASSESSMENT FOR BOTH OF THE AFOREMENTIONED YEARS. BE THAT AS IT MAY, IT WAS SUBMITTED BY THE LD. A.R THAT THE A.O IN THE COURSE OF THE SET - ASIDE ASSESSMENT FOR A.Y. 2014 - 15 HAD CATEGORICALLY O BSERVED THAT THE ASSESSEE HAD ADVANCED THE INTEREST FREE LOANS IN EARLIER YEARS. IN THE BACKDROP ITA NO.323/MUM/2020 A.Y. 2015 - 16 DY. CIT - 4(1) VS. M/S KANAKIA SPACES PVT.LTD. 9 OF THE AFORESAID FACTS , IT WAS SUBMITTED BY THE LD. A.R THAT IT WAS AN ADMITTED FACTUAL POSITION WHICH HAD NOT BEEN REBUTTED BY THE REVENUE THAT THE INTEREST F REE LOANS IN QUESTION WERE ADVANCED BY THE ASSESSEE PRIOR TO ASSESSMENT YEAR 2012 - 13 I.E DURING THE PERIOD RELEVANT TO THE YEARS ENDED 31.03.2005, 31.03.2007, 31.03.2009 AND 31.03.2010. IN ORDER TO FORTIFY THE AFORESAID FACTUAL POSITION THE LD. A.R HAD PLA CED BEFORE US A CHART, WHICH READS AS UNDER: CHART SHOWING DETAILS OF MOVEMENT IN THE LOAN ACCOUNTS OF PARTIES PERIOD 31.03.2013 TO 31.03.2015 SR. NO. NAME OF THE PARTY CLOSING BALANCE AS ON 31 ST MARCH, 2012 ADDITIONS DURING PERIOD 01.04.2012 TO 31.03.2015 REDUCTION DURING PERIOD 01.04.2012 TO 31.03.2015 CLOSING BALANCE AS ON 31 ST MARCH, 2015 1. MANISH ENTERPRISES 65,00,000 65,00,000 2. MAYUR ENTERPRISES 60,00,000 60,00,000 3. S OHIL KUSUMGAR 2,85,000 2,85,000 4. SUPRELINE CONSTRUCTION PVT. LD. 10,00,00,000 10,00,00,000 5. ASHOK T. CHHEDA 5,00,000 5,00,000 6. B.G. DOSHI 11,00,000 11,00,000 7. BHAVESH M.CHHEDA 85,000 85,000 8. BINDU H. MEHTA 5,00,000 5,00,000 9. CHEMFERT GRANULATIONS LTD. 2,00,000 2,00,000 10. CHEMFERT TRADERS BOM. PVT.LTD. 1,35,100 1,35,100 11. DEVESH AGARWAL 5,00,000 5,00,000 12. DINESH MEHTA 9,00,000 9,00,000 - 13. GIVIBEN CHHEDA 5,63,000 5,63,000 14. HUKAMATRAJ MEHTA 6,00,000 6,00,000 15. KAMLESH DAFTARY 5,94,740 5,94,740 16. KISHOR M. PUROHIT 2,05,000 2,05,000 17. MADHUBALA M. CHHEDA 95,000 95,000 18. MAHDHU MEHTA 15,00,000 15,00,000 19. MAHENDRA L. CHHEDA 85,000 85,000 20. MAHENDRQA L. CHHEDA HUF 85,000 85,000 21. MEHUL P. SANGHVI 15,00,000 15,00,000 22. POINEER ELECTRONICS 6,00,000 6,00,000 23. PRANAV AGARWAL 5,00,000 5,00,000 24. RAJKUMAR PANMANI 1,00,000 1,00,000 25. SHREEDHAM CORPORATION 3,50,000 3,50,000 26. SHREEDHAM SECURITIES 2,50,000 2,50,000 27. S.N. MAHESHWARI 1,24,000 1,24,000 ITA NO.323/MUM/2020 A.Y. 2015 - 16 DY. CIT - 4(1) VS. M/S KANAKIA SPACES PVT.LTD. 10 HUF 28. SRISHTI SECURITIES PVT.LTD. 4,00,000 4,00,000 29. SUBARBAN BUILDERS PVT. LTD. 30,05,000 30,05,000 30. SUSHANT AGARWAL 5,00,000 5,00,000 31. TARABEN L. CHHEDA 5,65,600 5,65,600 32. UDAY M. SAMPAT 21,01,000 21,01,000 33. VINOD HOUSING PVT.LTD. 13,00,000 13,00,000 TOTAL 13,17,28,440 9,00,000 13,08,28,440 AS OBSERVED BY US HEREINABOVE, THE FACT THAT THE INTEREST FREE LOANS HAD BEEN ADVANCED BY THE ASSESSEE IN THE PREVIOUS ASSESSMENT YEARS I.E RELEVANT TO THE YEARS ENDED 31.03.2005, 31.03.2007, 31.03.2009 AND 31.03.2010, AND THE ASSESSEES CLAIM QUA AVAILABILITY OF SUFFICIENT OWN ED FUNDS AND INTEREST FREE FUNDS FOR GIVING SUCH INTEREST FREE LOAN S HA D BEEN ACCEPTED BY THE A.O VIDE HIS ORDER PASS ED U/S 143(3) R.W.S 254 OF THE ACT, DATED 05.07.2019 FOR A.Y 2012 - 13 , WHEREIN IT WAS OBSERVED BY HIM AS UNDER: T HE RETURN OF INCOME WAS E - FILED ON 28.09.2012 DECLARING TOTAL INCOME OF RS.8,34,40,265/ - . THE ASSESSEE FILED A REVISED RETURN OF INCOME ON 17.08.2013 DECLARING TOTAL INCOME AT RS.8,71,49,682/ - . SUBSEQUENTLY, NOTICE U/S. 143(2) OF THE INCOME TAX ACT, 1961 WAS ISSUED ON 08.08.2013 WHICH WAS DULY SERVED UPON THE ASSESSEE COMPANY . THEREAFTER, ASSESSMENT WAS CO MPLETED U/S 143(3) OF THE ACT ON 12.03.2015 AT AN ASSESSED INCOME OF RS.12,53,03,690/ - AFTER MAKING ADDITION/DISALLOWANCE ON ACCOUNT ANNUAL LETABLE VALUE OF RS.1,55,07,727/ - AND DISALLOWANCE OF INTEREST OF RS.2,26,46,285/ - 2. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) AND THE LD. CIT(A) - 52 VIDE DATED 15.07.2016 DISMISSED THE APPEAL OF THE ASSESSEE. THE ASSESSEE HAS PREFERRED APPEAL BEFORE HONBLE ITAT. THE HONBLE ITAT VIDE ITS ORDER NO. ITA NO. 6686/MUM/2016 DATED 31.10.2018 DELETED T HE ADDITION WITH REGARDS TO ANNUAL LET T ABLE VALUE AND SET ASIDE THE ISSUE OF DISALLOWANCE OF INTEREST WHEREI N THE TRIBUNAL HAD S ET ASIDE THE ORDER OF LD. CIT(A) AND REMITTED THE MATTER TO THE FILE OF THE A.O TO MAKE A DE NOVO ORDER AS PER RATIO LAID DOWN I N MADHAV PRASAD JATIA 118 ITR 200 (SC) AND RELIANCE UTILITIES & POWER LTD. 313 ITR 340, AFTER GIVING AN OPPORTUNITY OF BEING HEAD TO THE ASSESSEE. 3. ACCORDINGLY, NOTICES U/S 143(2) AND 142(1) WERE ISSUED AND SERVED ON THE ASSESSEE. IN RESPONSE THERETO SH RI NILESH MEHTA, CA ATTENDED AND MADE SUBMISSIONS. 4. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, ASSESSEE WAS ASKED TO FURNISH JUSTIFICATION FOR THE ALLOWABILITY OF PROPORTIONATE INTEREST. IN RESPONSE TO THE SAME ASSESSEE SUBMITTED DETAILS VIDE LET TER DATED 29.03.2019 WHEREIN NOTE ON NON - DISALLOWANCE OF PROPORTIONATE INTEREST HAS BEEN SUBMITTED. THE SUBMISSIONS OF THE ASSES SE E HAVE BEEN CONSIDER E D AND FOUND THE SAME TO BE ACCEPTABLE. IN THIS REGARD, IT IS TO MENTION HERE THAT ASSESSEES OWN FUNDS AN D NON - INTEREST BEARING LOANS ARE SUM OF RS.185.84 CRORES AGAINST WHICH NON - INTERES T BEARING ADVANCES GIVEN ARE OF RS.159.22 ITA NO.323/MUM/2020 A.Y. 2015 - 16 DY. CIT - 4(1) VS. M/S KANAKIA SPACES PVT.LTD. 11 CRORES. OUT O F SUM OF RS.159.22 CRORES, ASSESSEE HAD MADE ADVANCES OF RS.42.67 CRORES TOWARDS LAND/ADVA N CES TO CREDITORS AND ASSESSE E BEING IN THE BUSINESS OF REAL ESTATE DEVELOPMENT, AND BEING STOCK IN TRADE THE SAID ADVANCES ARE IN THE NATURE OF TRADE ADVANCES AND BEING INCURRED FOR THE BUSINESS PURPOSES. FOR THE REMAINI NG INTEREST FREE LOAN OF RS.116.55 CRORES GIVEN, ASSESSEE HAD GI VEN INTEREST FEE LOAN OF RS.89.92 CRORES TO WHOLLY OWNED SUBSIDIARIES, RS.10.98 CRORES TO ASSOCIATE CONCERNS AND BALANCE OF RS.15.65 CROES WAS GIVEN AS INTEREST FREE FRIENDLY LOANS. FURTHER, IT IS TO MENTIO N HERE THAT ALL THESE LOANS ARE OLD LOANS ASSESSEE HAS ACCORDINGLY FURNISHED THE PAPER BOOK SUBMITTED BEFORE THE HONBLE ITAT THROUGH LETTER ON 03.08.2018 SUPPORTED BY BALANCE SHEET OF PREVIOUS ASSESSMENT YEARS I.E 31.03.2005, 31.03.2007, 31.03.2009 AND 31.03.2010. IN THIS REGARD, ASSESSEE HAS EXPLAINED THAT RESERVES & SURPLUS, SHARE CAPITAL AND NON - INTEREST BEARING FUNDS WERE MORE WHEN COMPARED TO NON - INTEREST BEARING FUND I.E FRIENDLY LOANS. THE CASE OF ASSESSEE WAS THAT INTEREST WAS NOT DISALLOWED IN THE ABOMVETINOED ASSESSMENT YEARS AND HENCE INTERES T CANNOT BE DISALLOWED U/S 36(1)(III). HENCE, THE CASE OF ASSESSEE WAS COVERED AS PER THE RATIO LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. 313 ITR 34. FURTHERMORE, THE PROCEEDINGS IN RESPECT OF EARLIER YEARS CARE COMPLETED U/S 245D(4) OF THE I.T. ACT, 1961 BY THE HONBLE INCOME TAX SETTLEMENT COMMISSION WHEREIN THERE WAS NO ADDITION/DISALLOWANCE WITH REGARDS TO INTEREST U/S 36(1)(III) OF THE ACT. LOOKING INTO THE SCENARIO, THE CASE OF THE ASSESSEE WAS COVERED BY THE ABOVEMENTIONED TWO APEX COURT PRONOUNCEMENTS, THE CASE OF THE ASSESSEE WAS SQUARELY COVERED AND HENCE, THERE WILL BE NO DISALLOWANCE OF INTEREST U/S 36(1)(III) OF THE IT ACT, 1961. I N THE BACKDROP OF THE AFORESAID ACCEPTANCE OF THE ASSESSEES CLAI M BY THE A.O WHILE GIVING EFFECT TO THE DIRECTION OF THE TRIBUNAL, VIDE HIS ORDER PASSED U/S 143(3) R.W.S 254, DATED 05.07.2019 FOR A.Y 2012 - 13 THAT THE ASSESSE HAD SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH IT TO SOURCE THE INTEREST FREE ADVANCES OF RS.13,32,13,440/ - THAT WERE GIVEN BY IT IN THE PREVIOUS ASSESSMENT YEARS I.E THE YEAR ENDED 31.03.2005, 31.03.2007, 31.03.2009 AND 31.03.2010 AND NO INTEREST FREE ADVANCES HAD THEREAFTER BEEN GIVEN BY THE ASSESSEE DURING THE PERIOD 31.03.2013 TO 31.03.2015, THEREFORE, WE FIND NO JUSTIFICATION TO TAKE A DIFFERENT VIEW AND SUSTAIN ANY PART OF THE DISALLOWANCE OF THE ASSESSEES CLAIM FOR DEDUCTION OF INTEREST EXPENDIT URE U/S 36(1)(III) OF THE ACT. WE, THUS, IN THE BACKDROP OF OUR AFORESAID DELIBERATIONS ARE OF THE CONSIDERED VIEW THAT AS THE CIT(A) HAD RIGHTLY OBSERVED THAT NO PART OF THE ASSESSEES CLAIM FOR DEDUCTION U/S 36(1)(III) OF INTEREST EXPENDITURE OF RS.2,22, 40,835/ - COULD HAVE BEEN DISALLOWED , THEREFORE, FINDING NO INFIRMITY IN THE VIEW TAKEN BY HIM UPHOLD HIS ORDER QUA THE ISSUE UNDER CONSIDERATION. THE GROUNDS OF APPEAL NOS. 2 & 3 ARE DISMISSED. ITA NO.323/MUM/2020 A.Y. 2015 - 16 DY. CIT - 4(1) VS. M/S KANAKIA SPACES PVT.LTD. 12 11. THE GROUNDS OF APPEAL NOS. 4 & 5 BEING GENERAL ARE DISMIS SED AS NOT PRESSED. 12. RESULTANTLY, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PR ONOUNCED IN THE OPEN COURT ON 24 .08.2021 SD/ - SD/ - ( S. RIFAUR RAHMAN ) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEM BER MUMBAI ; DATED: 24 .08 .2021 PS: ROHIT COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (SR. PRIVATE SECRETARY) ITAT, MUMBAI