ITO, New Delhi V. M/s K.D. Electrotech Overseas India Pvt. Ltd., New Delhi

ITA 3530/DEL/2011

• Counselvise Citation: 353020114 RSA 2011
• Duration Of Justice: 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 13-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y KAKK
• Assessee Lawyers: AMAR MITTAL
• Keywords: Unexplained investment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D NEW DELHI) BEFORE G.E. VEERABHADRAPPA, HON'BLE VICE-PRESIDENT AND SHRI RAJPAL YADAV: HONBLE JUDICIAL MEMBER ITA NO.3530/DEL/2011 ASSESSMENT YEAR: 2008-09 INCOME-TAX OFFICER, VS. M/S. K.D. ELECTROTECH OV ERSEAS WARD 5(1), INDIA PVT. LTD., NEW DELHI. B-59, OKHLA INDL. AREA, PH.II, NEW DELIH. (PAN: AAACK3720C) (APPELLANT) (RESPONDENT) APPELLANT BY: MS. Y. KAKK AR, DR RESPONDENT BY: SHRI AMAR MITTAL, CA ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE REVENUE IS IN APPEAL BEFORE US AGAINST THE ORD ER OF LEARNED CIT(APPEALS) DATED 27.05.2011 PASSED FOR ASSESSMENT YEAR 2008-09. THE SOLITARY GRIEVANCE OF THE REVENUE IS THAT LEARNED C IT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.10,80,000 WHICH WAS MAD E BY DISALLOWING THE CLAIM OF INTEREST EXPENSES UNDER SEC. 24 OF THE INC OME-TAX ACT, 1961. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY HAS FILED ITS RETURN OF INCOME ON 14.3.2009 DECLARING AN INCOME O F RS.4,84,520. ITS CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND A NOTICE U NDER SEC. 143(2) OF THE INCOME-TAX ACT, 1961 WAS ISSUED. DURING THE COURSE OF SCRUTINY ASSESSMENT, 2 IT REVEALED TO THE ASSESSING OFFICER THAT THE ASSES SEE HAS CLAIMED DEDUCTION UNDER SEC. 24 OF RS.10,80,000 WHICH WAS PAID AS INT EREST TO DIAMOND EXPORTS ON THE ALLEGED SECURITY DEPOSIT FOR TAKING THE PREMISES ON RENT. ASSESSING OFFICER ON THE BASIS OF ASSESSMENT ORDER IN ASSESSMENT YEAR 1996- 97 WHEREIN DISPUTE TRAVELED UP TO THE ITAT AND IT W AS CONCLUDED THAT THE AMOUNT OF RS.90 LACS RECEIVED BY THE ASSESSEE FROM M/S. DIAMOND EXPORTS WAS INTEREST FREE AND, THEREFORE, ASSESSEE CANNOT C LAIM DEDUCTION UNDER SEC. 24 ON THE GROUND THAT THE BORROWED FUNDS USED FOR T HE PURPOSE OF CONSTRUCTION OF THE BUILDING. ON APPEAL, LEARNED CI T(APPEALS) HAS DELETED THE DISALLOWANCE BY FOLLOWING THE ORDER OF THE ITAT IN ITA NO.1742/DEL/09 PASSED IN ASSESSMENT YEAR 2006-07 WHEREIN THE ITAT HAS CONSIDERED THE FRESH RENT AGREEMENT AND ALL OTHER FACTS FOR ALLOWI NG THE DEDUCTION OF INTEREST EXPENSES. LEARNED DR ON THE OTHER HAND, SOUGHT ADJO URNMENT ON THE GROUND THAT CASE NEEDS SOME MORE IN DEPTH STUDY AND PREPAR ATIONS, WHEREAS LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ISSUE IN DI SPUTE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE ITAT PASSED IN ASSESSMENT YEAR 2006-07. THE ITAT IN THIS ORDER, HAS CONSIDERED THE ORDER OF THE ITAT PASSED IN ASSESSMENT YEAR 1996-97 WHEREIN THE DISAL LOWANCE OF SUCH INTEREST EXPENSES WAS UPHELD BY THE ITAT. THE LEARNED COUNSE L FOR THE ASSESSEE PLACED ON RECORD COPIES OF ALL THE ORDERS. 3 3. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. WE FIND THAT THE DEDUCTION CLAIME D IN THIS YEAR IS BASED ON THE AGREEMENT CONSIDERED BY THE ITAT IN ASSESSMENT YEAR 2006-07. THERE IS NO DISPARITY OF FACTS. LEARNED CIT(APPEALS) HAS MAD E A REFERENCE TO THIS EFFECT IN THE IMPUGNED ORDER. THE DISCUSSION MADE B Y THE ITAT IN ASSESSMENT YEAR 2006-07 READS AS UNDER: 7. WE HAVE DULY CONSIDERED THE RIVAL CONTENTION AN D GONE THROUGH THE RECORD CAREFULLY. SECTION 24 OF THE INC OME TAX ACT PROVIDE GRANT OF DEDUCTION FROM INCOME FROM HOUSE P ROPERTY. THIS SECTION HAS A DIRECT BEARING. THEREFORE IT IS IMPERATIVE UPON US TO TAKE NOTE OF RELEVANT CLAUSES OF THIS SE CTION. 24. DEDUCTIONS FROM INCOME FROM HOUSE PROPERTY. INCOME CHARGEABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY SHALL B E COMPUTED AFTER MAKING THE FOLLOWING DEDUCTIONS, NAMELY :- (A) A SUM EQUAL TO THIRTY PER CENT OF THE ANNUAL VA LUE; (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. PROVIDED THAT IN RESPECT OF PROPERTY REFERRED TO IN SUB-SECTION (2) OF SECTION 23; THE AMOUNT OF DEDUCTION SHALL NOT EXCEE D THIRTY THOUSAND RUPEES: PROVIDED FURTHER THAT WHERE THE PROPERTY REFERRED T O IN THE FIRST PROVISO IS ACQUIRED OR CONSTRUCTED WITH CAPITAL BOR ROWED ON OR AFTER THE 1 ST DAY OF APRIL, 1999 AND SUCH ACQUISITION OR CONSTRUC TION IS COMPLETED [WITHIN THREE YEARS FROM THE END OF THE FINANCIAL YEAR IN W HICH CAPITAL WAS BORROWED], THE AMOUNT OF DEDUCTION UNDER THIS CLAUS E SHALL NOT EXCEED ONE LAKH FIFTY THOUSAND RUPEES. XXXXXXXXX 8. APART FROM SECTION 24 COGNIZANCE OF TWO CLAUSES OF RENT AGREEMENT IS ALSO REQUIRED TO BE TAKEN BEFORE ADJUD ICATING THE CONTROVERSY IN HAND. THESE TWO CLAUSES READ AS UNDE R :- 1. RENT AGREEMENT DATED 15 TH MAY, 1995 4 THE LESSEE HEREBY COVENANTS WITH THE LESWSOR AS FOLLOW 2. :THE TENANT HAS TO PAY RS.90.00 LAC TO THE OWNER AS INTEREST FREE SECURITY IN CONSIDERATION OF USE OF THE SAID BUILDI NG FOR A TERM OF FIVE YEARS FROM THE DATE OF HANDING OVER THE POSSESSION OF THE BUILDING. 3. AGREEMENT DATED 1 ST AUGUST 2005. IN THE SAID AGREEMENT IT WAS DECIDED THAT THE TENAN T HAD TO PAY RS. 90 LACS TO THE OWNER AS INTEREST FREE SECURITY IN CONS IDERATION OF USE OF THE SAID BUILDING FOR A TERM OF FIVE YEARS FROM DATE OF HEANDING OVER THE POSSESSING OF THE BUILDING. IN A WAY THE INTEREST W AS EQUATED TO RENT AND VICE-A-VERSA. THE SAID AGREEMENT WAS REVISED ON 1.5.1998 FOR THE PERIOD 1/5/1998 TO 31/5/2000 & ON 10 TH JUNE 2000, FOR THE PERIOD FROM 1/6/2000 TO 31/3/20 03. THE PRESENT AGREEMENT IS BEING ENTERED FOR THE PERI OD 1/8/2005 TO 31/7/2008 ON THE TERMS AND CONDITIONS WHICH ARE AS FOLLOWS :- 1. THE MONTHLY RENT SHALL BE RS. 1,72,500/- 2. THE INTEREST RATE HAS BEEN FIXED & 12% P.A. THE ANNUAL INTEREST WORKS OUT RS. 10,80,000/- PER YEAR. 3. THIS AGREEMENT SHALL BE EFFECTIVE FROM 1.8.2005. A BARE PERUSAL OF SUB CLAUSES B OF SECTION 24 MAK E IT CLEAR THAT IF THE PROPERTY HAS BEEN ACQUIRED, CONST RUCTED, REPAIRED ETC. WITH BORROWED CAPITAL, THE AMOUNT OF ANY INTEREST PAYABLE ON SUCH CAPITAL WILL BE ALLOWED AS A DEDUCT ION FROM THE HOUSE PROPERTY INCOME. 9. WE HAVE GONE THROUGH THE DETAILS OF ALLEGED LOA N OF RS. 90 LACS WHICH IS AVAILABLE AT PAGE 28 32 OF THE P APER BOOK. THESE ARE THE SMALL PAYMENTS ALLEGED TO HAVE BEEN M ADE BY M/S. DIAMOND EXPORT ON BEHALF OF THE ASSESSEE TO TH E DIFFERENT CONCERNS FOR THE PURCHASE OF MATERIAL AS WELL AS SE RVICES UTILIZED FOR CONSTRUCTING THE BUILDING. THE AMOUNTS HAVE DULY BEEN PAID THROUGH ACCOUNT PAYEE CHEQUE. THE DETAILS OF 5 RECIPIENTS, CHEQUE NUMBER AND ACCOUNTS ARE DULY AVA ILABLE IN THESE DETAILS. THE AO ALSO IN THE EARLIER YEAR DID NOT DISPUTE THAT SOURCE OF CONSTRUCTION IS THE FUNDS PROVIDED B Y M/S. DIAMOND EXPORT. OTHERWISE AN ADDITION ON ACCOUNT OF UNEXPLAINED INVESTMENT WOULD HAVE BEEN MADE IN THE YEAR OF CONSTRUCTION. THIS AMOUNT WAS NOT CONSIDERED AS A B ORROWED CAPITAL FOR ALLOWING DEDUCTION U/S 24 (1)(VI) OF TH E INCOME TAX ACT IN ASSTT. YEAR 1996-97 AND 1997-98 ONLY BECAUSE OF CLAUSE I OF THE AGREEMENT DATED 15 TH MAY, 1995. ACCORDING TO THE TRIBUNAL IT WAS AN INTEREST FREE SECURITY DEPOSIT. THEREFORE, ASSESSEE WAS NOT UNDER OBLIGATION TO PAY INTEREST T O THE M/S. DIAMOND EXPORT . FACED WITH THIS DIFFICULTY ASSESSE E HAS CHANGED THE AGREEMENT AND TURNED IT AS AN INTEREST BEARING BORROWED FUND. IT HAS PROVIDED THE RATE OF INTEREST AT 12% PER ANNUM. LD. CIT(A) HAS NOTICED THE DETAILS OF ALLEGE D INTEREST EXPENSES AS WELL AS THE RENTAL INCOME WHICH HAS BEE N WORKED OUT BY THE ASSESSEE ON YEAR TO YEAR BASIS. THE CALC ULATION NOTICED BY THE LD. CIT (A) READ AS UNDER :- DATE OF AGREEMENT PERIOD RATE OF INTEREST RENT/MONTH 01.08.1998 1.5.1998 TO 31.5.2000 18% 1,50,000/- 10.06.2000 1.6.2000 TO 31.3.2003 18% 1,50,000/- 02.05.2003 1.4.2003 TO 31.7.2005 12% 1,50,000/- 01.08.2005 1.8.2005 TO 31.7.2005 12% 1,72,500/- 01.08.2008 1.8.2008 TO 31.3.2011 12% 1,72,500/- 10. ON AN ANALYSIS OF THE DETAILS AVAILABLE ON THE RECORD WE FIND THAT GRIEVANCE OF REVENUE IS, HOW ASSESSEE CAN CHANGE THE 6 AGREEMENT. THE AO WANTS TO DEAL THE RIGHTS AND LIAB ILITIES OF THE ASSESSEE QUA THIS RENTAL INCOME VIS A VIS EXPENSES INCURRED FOR EARNING RENTAL INCOME IN THE LIGHT OF THE ORIGINAL AGREEMENT ONLY. IN HIS OPINION ONCE ASSESSEE HAS COMMITTED A MISTAK E THEN IT SHOULD HAVE CONTINUE WITH THAT VERY FACTS AND IT HA S NO RIGHTS TO ALTER CLAUSES OF AGREEMENTS. INSTEAD OF APPRECIATIN G THE CONTROVERSY WITH THE LATEST POSITION OF THE AGREEME NT AND THE RIGHTS / LIABILITIES ARISING FROM THAT AGREEMENT , BOTH THE REVENUE AUTHORITIES HAVE APPRECIATED THE CONTROVERSY UNDER THE ORIGINAL AGREEMENT ONLY. IN OUR OPINION THAT AGREEMENT IS NO MORE IN EXISTENCE AS FAR AS THIS YEAR IS CONCERN. THE CONT ROVERSY OF THE ASSESSEE HAS TO BE DECIDED IN THE LIGHT OF THE FRESH AGREEMENT WHICH IT HAS ENTERED WITH ITS LESSEES, T HE AGREEMENT SPECIFICALLY PROVIDE FOR CHARGING OF INTEREST @ 12% WHICH WORKS OUT TO BE RS. 10,80,000/-. FROM THE DETAILS OF EXPE NSES AVAILABLE AT PAGE 28 32 OF THE PAPER BOOK WE ARE SATISFIED THAT THE COST OF CONSTRUCTION WAS BORNE BY ASSESSEE WITH THE FINANCE PROVIDED BY M/S. DIAMOND EXPORT AND THEREFO RE WE HAVE NO HESITATION TO CONCLUDE THAT IT IS THE BORRO WED CAPITAL WHICH WERE USED BY THE ASSESSEE FOR RAISING CONSTRU CTION. THE ASSESSEE IS ENTITLED FOR THE DEDUCTION IN RESPECT O F EXPENSES IN THE SHAPE OF INTEREST ON SUCH BORROWED CAPITAL FROM THE HOUSE PROPERTY INCOME U/S 24 OF THE INCOME TAX ACT. THE F ACTS ARE MATERIALLY DIFFERENT FROM ASSTT. YEAR 1996-97 1997- 98 IN THE PRESENT YEAR. IN VIEW OF THE ABOVE DISCUSSION WE AL LOW THE APPEAL OF ASSESSEE AND DELETE THE DISALLOWANCE. NO OTHER ISSUE WAS PRESSED BY THE LD. COUNSEL FOR THE ASSESSEE AT THE TIME OF 7 HEARING HENCE GROUND NO. 6 WHICH IS DIFFERENT FROM THE ISSUE DISCUSSED ABOVE IS REJECTED. 4. LEARNED FIRST APPELLATE AUTHORITY HAS CONSIDERED THIS ORDER AND THEREAFTER DELETED THE DISALLOWANCE. WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LEARNED CIT(APPEALS) WHO HAS APPRECIATED THE FA CTS AND CIRCUMSTANCES IN RIGHT PERSPECTIVE. IN VIEW OF THE ABOVE DISCUSSI ON, THIS APPEAL IS DE VOID OF ANY MERIT, HENCE DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 16.09.2011 SD/ SD/- ( G.E. VEERABHADRAPPA) ( RAJPAL YAD AV ) VICE-PRESIDENT JUDICIAL MEMBER DATED: 16/09/2011 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR