DCIT 17(2), MUMBAI V. RATAN HIRA ASSOCIATES, MUMBAI

ITA 3662/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1732 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2010
• Appeal Filed By: Department
• Bench Allotted: D
• Next Hearing Date: 12-04-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 04-06-2009
• Court: TRIBUNAL
• Assessee Lawyers: BHUPAL R RAPELLI
• Keywords: Capital asset; Business income; Cost of acquisition
• Section: 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D BEFORE SHRI N.V. VASUDEVAN (JM) & T.R. SOOD (AM) I.T.A.NO. 3662/MUM/2009 (ASSESSMENT YEAR : 2006-0 7) DCIT 17(2) ROOM NO. 217 PIRAMAL CHAMBERS MUMBAI-400 012. VS. M/S. RATAN HIRA ASSOCIATES 194, NARENDRA STATION ROAD WADALA, MUMBAI-400 031. APPELLANT RESPONDENT PAN/GIR NO. : AAEFR3611C ASSESSEE BY : SHRI BHUPAL R. RAPELLI DEPARTMENT BY : SHRI AARSI PRASAD ORDER PER N.V. VASUDEVAN, JM :- THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R DATED 12.3.2009 OF LEARNED CIT(A)-XVII, MUMBAI RELATING T O A.Y. 2006-07. 2. THE ASSESSEE IS A REGISTERED PARTNERSHIP FIRM. I T DERIVES INCOME FROM SUBLETTING PROPERTIES WHICH IS ASSESSED AS BUS INESS INCOME. DURING THE PREVIOUS YEAR 1998-99, THE ASSESSEE HAD OBTAINE D THE PREMISES AT FLAT NO.8, BALDOTA BHAVAN, 117, M.K. MARG, CHURCHGA TE, MUMBAI-400 020 ON TENANCY BASIS FROM M/S. BALDOTA BROTHERS AS PER THEIR LETTER DATED 1 ST MAY 1998 GRANTING TENANCY RIGHTS. AS PER THE TERMS OF THE LETTER GRANTING TENANCY RIGHTS, THE ASSESSEE HAD TO PAY A SUM OF RS. 1.5 CRORES TOWARDS REIMBURSEMENT OF COMPENSATION PAID TO THE V ACATING TENANTS AND A FURTHER SUM OF RS. 1.5 CRORES BY WAY OF SECUR ITY DEPOSIT WITHOUT INTEREST WHICH IS REPAYABLE ON TERMINATION OF THE A GREEMENT. THE TOTAL PAYMENT REQUIRED TO BE MADE TO THE LANDLORD WAS RS. 3 CRORES. TO ACQUIRE THE PREMISES ON TENANCY BASIS AND TO ENABLE THE PAYMENT OF RS.3 CRORES TO BE MADE TO THE LANDLORD, THE ASSESSEE HAD OBTAINED A TERM LOAN OF RS. 3 CRORES FROM GREATER BOMBAY CO-OP. BANK LTD , (GBCB) AS PER THE M/S. RATAN HIRA ASSOCIATES 2 AGREEMENT OF LOAN DATED 6 TH MAY 19998. ACCORDING TO THE ASSESSEE, TENANCY RIGHT IS A CAPITAL ASSET AND THE AMOUNT WAS BORROWED FOR AVAILING A CAPITAL ASSET IN THE NATURE OF TENANCY RIGHTS IN THE SAID PREMISES AND INTEREST PAID ON SUCH BORROWING IS TO BE ALLOWED AS DEDUCTION AGAINST INCOME RECEIVED FROM LETTING OF THE PREMISES (WHICH IS ASSESSED AS BUSINESS INCOME) U/S.36(1)(III) OF THE ACT. 3. THE ASSESSEE GAVE THE AFORESAID PREMISES ON LE AVE AND LICENSE BASIS TO GBCB AS PER LEAVE AND LICENSE AGREEMENT DA TED 1 ST JANUARY 1999. AS PER THE TERMS OF THE LEAVE AND LICENSE AGR EEMENT, GBCB WOULD PAY TO THE ASSESSEE RS. 5,00,000 PER MONTH AS LICEN SE FEES FOR USE OF THE PREMISES FOR INITIAL PERIOD OF 5 YEARS, AND AFTER W HICH THE LICENSE FEES WOULD BE ENHANCED TO RS. 6,25,000 PER MONTH OVER TH E NEXT FIVE YEARS. DURING THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE H AD RECEIVED LICENSE FEES OF RS. 75,00,000/- FROM GBCB AGAINST WHICH INT EREST EXPENSES OF RS. 10,32,710/- WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT AND THIS WAS ADDED BACK AS DISALLOWABLE EXPENSES WHILE COMPUTING PROFITS AND GAINS FROM BUSINESS OR PROFESSION BECAUSE THE AMOUNT WAS NOT ACTUALLY PAID AND IN VIEW OF THE PROVISIONS OF SEC.43-B OF THE AC T, THE AMOUNT OF INTEREST ACTUALLY PAID ALONE CAN BE ALLOWED AS DED UCTION NOTWITHSTANDING THE MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE. THE ASSESSEE HOWEVER CLAIMED THE ALLOWABL E INTEREST EXPENDITURE AS PER SECTION 36(I)(III) READ WITH SEC TION 43B OF THE ACT OF RS. 30,12,240/- ON PAYMENT BASIS AS IT WAS DISALLOWED I N THE EARLIER ASSESSMENT YEAR BY VIRTUE OF SECTION 43B. COPY OF T HE AUDIT REPORT, AUDITED FINANCIAL STATEMENTS AND INCOME TAX COMPUTA TION AND RETURN WERE ALSO ENCLOSED IN THIS REGARD. THE ASSESSI NG OFFICER DID NOT ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION AND IN THIS REGARD RELIED ON THE ORDER OF THE ASSESSING OFFICER ON IDENTICAL ISSUE I N A.Y. 2004-05. 4. IN A.Y. 2004-05, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE HAD SHOWN COST OF ACQUISITION OF TENANCY R IGHT AS NIL AND THEREFORE IT CANNOT BE SAID THAT THE MONEY BORROWED WAS UTILIZED BY THE M/S. RATAN HIRA ASSOCIATES 3 ASSESSEE FOR ACQUIRING ANY CAPITAL ASSET. THE ASSES SING OFFICER FURTHER WAS OF THE VIEW THAT EVICTION OF EXISTING TENANTS W AS THE RESPONSIBILITY OF THE LANDLORD AND NOT THAT OF THE ASSESSEE. THE ASSE SSING OFFICER FURTHER WAS OF THE VIEW THAT THERE WAS NO BUSINESS NECESSIT Y TO KEEP REFUNDABLE DEPOSITS OF RS. 1.5 CRORES WITH THE LANDLORD. THE A SSESSING OFFICER FURTHER NOTICED THAT OUTGOING TENANT WAS RELATED TO THE ASS ESSEE AND THEREFORE PAYMENT OF RS. 1.5 CRORES TO THE OUTGOING TENANT, A CCORDING TO THE ASSESSEE WAS A COLLUSIVE AGREEMENT. FOR THE ABOVE REASONS, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSES SEE FOR DEDUCTION ON ACCOUNT OF INTEREST EXPENDITURE IN A.Y.04-05. 5. ON APPEAL BY THE ASSESSEE, LEARNED CIT(A) FOUND THAT IN A.Y. 2004- 05, ON AN IDENTICAL ISSUE HIS PREDECESSOR HAD HELD THAT THE AMOUNT OF RS. 3 CRORES HAD BEEN TAKEN AS LOAN BY THE ASSESSEE AND WAS DIRECTLY UTILIZED FOR ACQUIRING TENANCY RIGHTS OF THE PREMISES. HE HE LD THAT THE PAYMENTS HAVE TO BE CONSIDERED AS COST OF ACQUIRING COST OF TENANCY RIGHTS; AND ACCORDINGLY INTEREST PAID ON FUNDS BORROWED FOR SUC H ACQUISITION HAS TO BE ALLOWED AS A DEDUCTION. FOLLOWING THE AFORESAID ORDER OF LEARNED CIT(A), IN A.Y. 2004-05, DISALLOWANCE MADE BY THE A SSESSING OFFICER WAS DIRECTED TO BE DELETED. 6. AGGRIEVED BY THE ORDER OF LEARNED CIT(A), THE RE VENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. GROUNDS OF APPEAL RAISED BY THE REVENUE READS AS FOLLOWS :- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, LEARNED CIT(A) ERRED IN DELETING THE ADDITION MADE BY ASSES SING OFFICER IN RESPECT OF THE INTEREST PAID ON BORROWED CAPITAL FO R ACQUIRING RIGHT DISALLOWED U/S. 43 OF THE I.T. ACT, 1961. 7. AT THE TIME OF HEARING OF THIS APPEAL, IT WAS BR OUGHT TO NOTICE THAT ON IDENTICAL ISSUE IN A.Y. 2000-01 TO 2003-04 AND 2 005-06, THIS TRIBUNAL IN ITA NO.2102 TO 2106/MUM/09, HELD THAT THE ASSESS EE WAS ENTITLED TO CLAIM DEDUCTION ON ACCOUNT OF INTEREST EXPENDITURE. THE FOLLOWING WERE THE OBSERVATIONS OF THE TRIBUNAL :- M/S. RATAN HIRA ASSOCIATES 4 AT THE TIME OF HEARING BEFORE US, NOBODY HAS APPEAR ED ON BEHALF OF THE ASSESSEE. THESE APPEALS OF THE REVENUE ARE, THEREFORE, BEING DISPOSED OF EX PARTE QUA THE RESPONDENT ASSES SEE AFTER HEARING THE ARGUMENTS OF LEARNED D.R. AND PERUSING THE RELEVANT MATERIAL ON RECORD. AS ALREADY NOTED, THE DISALLOWA NCE MADE BY THE A.O. ON ACCOUNT OF ASSESSEES CLAIM FOR DEDUCTI ON FOR INTEREST PAID ON FUNDS BORROWED FOR ACQUIRING TENANCY RIGHTS IN ALL THE YEARS UNDER CONSIDERATION HAS BEEN DELETED BY THE L D. CIT(A) BY HIS IMPUGNED ORDERS RELYING ON THE FINDING OF FACT RECORDED BY HIS PREDECESSOR IN ASSESSEES OWN CASE FOR A.Y. 2004-05 TO THE EFFECT THAT THE BORROWED FUNDS WERE UTILIZED BY THE ASSESS EE FOR ACQUIRING TENANCY RIGHTS AND INTEREST PAID THEREON WAS AN EXPENDITURE INCURRED FOR EARNING RENTAL INCOME. AT THE TIME OF HEARING BEFORE US, THE LEARNED D.R. HAS NOT BEEN AB LE TO CONTROVERT/REBUT THESE FINDINGS OF FACT RECORDED BY THE LD. CIT(A). HE HAS ALSO NOT BEEN ABLE TO BRING ANYTHING ON RECO RD TO SHOW THAT THE ORDER PASSED BY THE LD. CIT(A) IN A.Y. 200 4-05 ON A SIMILAR ISSUE AND RELIED UPON IN THE IMPUGNED ORDER S FOR GIVING RELIEF TO THE ASSESSEE HAS BEEN DISTURBED OR SET AS IDE BY THE TRIBUNAL. THIS BEING SO, WE FIND NO JUSTIFIABLE RE ASON TO INTERFERE WITH THE IMPUGNED ORDERS OF THE LD. CIT(A) DELETIN G THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF INTERES T EXPENDITURE AND UPHOLDING THE SAME, WE DISMISS THESE APPEALS FI LED BY THE REVENUE. 8. THE NATURE OF INTEREST EXPENDITURE BEING THE SAM E IN THIS ASSESSMENT YEAR, RESPECTFULLY FOLLOWING THE AFORESA ID ORDER OF LEARNED CIT(A), WE UPHOLD THE ORDER OF LEARNED CIT(A) AND D ISMISS THIS APPEAL BY THE REVENUE. 9. IN THE RESULT, APPEAL BY THE REVENUE IS DISMISSE D. ORDER PRONOUNCED ON 11 TH DAY OF JUNE, 2010. SD/- (T.R. SOOD) ACCOUNTANT MEMBER SD/- (N.V. VASUDEVAN) JUDICIAL MEMBER DATED : 11 TH JUNE, 2010 COPY TO : 1. THE ASSESSEE 2. THE RESPONDENT 3. THE CIT(A)-CONCERNED. 4. THE CIT, CONCERNED. M/S. RATAN HIRA ASSOCIATES 5 5. THE DR CONCERNED, MUMBAI 6. GUARD FILE BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI PS