DCIT, CC - I (2), CHENNAI V. M/S. BALAJI HOTELS & ENTERPRISES LTD., CHENNAI

ITA 378/CHNY/2020

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 6783 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 16-02-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Additional evidence; Cost of acquisition; Revised return; Revenue expenditure; Capital expenditure
• Section: 148; 143(3); 143(1); 13

Judgement Text

आयकर अपीलीय अिधकरण, ‘बी’ Ɋायपीठ, चेɄई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH: CHENNAI ŵी धुʫुŜ आर.एल रेǭी, Ɋाियक सद˟ एवं ŵी जी. मऺजुनाथा, लेखा सद˟ के समƗ Before Shri Duvvuru RL Reddy, Judicial Member and Shri G. Manjunatha, Accountant Member आयकर अपील सं./ITA No.378/Chny/2020 िनधाŊरण वषŊ /Assessment Year: 2008-09 Deputy Commissioner of Income Tax, Corporate Circle – 1 (2), Chennai – 600 034. Vs. M/s. Balaji Hotels & Enterprises Limited, No.17/1, Bazullah Road, T. Nagar, Chennai – 600 017. [PAN: AAACB 1445 P] (अपीलाथŎ/Appellant) (ŮȑथŎ/Respondent) Appellant by : Shri S. Palanikumar, CIT Respondent by : Shri D. Anand, Advocate सुनवाई की तारीख/Date of Hearing : 09.11.2021 घोषणा की तारीख /Date of pronouncement : 08.12.2021 आदेश / O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: This appeal filed by the Revenue is directed against the order of the ld. Commissioner of Income Tax (Appeals) 1, Chennai, dated 12.12.2019 for the assessment year 2008-09. The Revenue has raised the following grounds: “1. The order of the learned CIT(A) is contrary to law, facts and circumstances of the case. 2. Whether on the facts and circumstances of the case, is it correct on the part of learned CIT(A) to allow deduction of interest expenses on loan taken in computation of capital gain by holding that the interest expenses is an expenditure incurred wholly and exclusively in connection with the transfer of commercial property? 3. Whether on fact and circumstances of the case, the Ld. CIT(A) was right in deleting the disallowances of interest expense and other revenue expenditure, without giving proper opportunity under Rule 46A to the AO for verifying the additional evidences - final accounts of relevant AYs, submitted during appeal proceeding, based on which relief has been given by the Ld. CIT(A). :- 2 -: ITA No.378/Chny/20 4. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored. 2. Brief facts of the case are that the assessee filed its return of income for the assessment year 2008-09 on 30.09.2008 admitting a loss of ₹.106,77,75,500/-. The case was processed under section 143(1) of the Income Tax Act, 1961 [“Act” in short]. Subsequently, the case was reopened and a notice under section 148 of the Act was issued and served on the assessee on 28.03.2013. The reasons for reopening were given to the assessee on 03.10.2013. The assessee is engaged in developing a hotel and commercial complex at Anna Salai, Teynampet, Chennai and had obtained substantial amounts as loans to develop the project. The debts to the banks being M/s. IFCI and TFCI could not be settled and hence, Asset Reconstruction Company (India) Ltd. had taken over possession of the assets. During the year, the hotel property was sold by M/s. IFCI to M/s. Robust Hotels Ltd. for a consideration of ₹.251 crores and the commercial complex mortgaged to ICICI was sold to M/s. Ramani Hotels Ltd. for a consideration of ₹.63 crores in all totaling to a sale value of ₹.314,11,72,802/-. During the course of scrutiny, before the Assessing Officer the assessee provided the computation of long term capital loss arising out of sale of property at ₹.173,59,69,695/- as against ₹.105,99,78,952/- originally returned. Since the assessee has not filed any revised return of income, instead, only filed revised computation of income, the Assessing Officer rejected the revised computation :- 3 -: ITA No.378/Chny/20 of income. The Assessing Officer has observed that while computing the long term capital loss in respect of commercial property a sum of ₹.41,24,11,072/- has not been included in the cost of acquisition being interest paid on loans and thus, the assessee was asked to clarify this. The assessee vide its letter dated 18.11.2013 submitted that the assessee never claimed that the sum of ₹.41,24,11,072/- represents an expenditure incurred wholly and exclusively in connection with the transfer. On the other hand, this amount was claimed as part of the cost of acquisition. This amount, being the interest incurred on the loan from ICICI and utilized for the commercial project, has been considered for the calculation of the cost of acquisition. This amount does not represent any interest paid by the assessee to M/s. ARCIL. This amount is the interest on the loan from ICICI cumulative from the financial year 1996-97 and did not arise during the financial year 2008-09 when ICICI transferred their loan to ARCIL. The assessee has further submitted before the Assessing Officer that the sum of ₹.41,24,11,072/- has correctly been considered as part of cost of acquisition while assessing the income under section 143(3) of the Act. However, in order to verify the claim of the assessee, a letter dated 14.02.2014 was issued to the assessee calling for various details. Since there was no compliance from the assessee, the Assessing Officer completed the assessment under section 143(3) r.w.s. 147 of the Act by making disallowance of interest paid on loans amounting to ₹.41,24,11,072/- and brought to tax. :- 4 -: ITA No.378/Chny/20 2.1 Further, the Assessing Officer has observed that during the course of scrutiny proceedings for the assessment year 2008-09, the assessee stated that for the hotel project, even though a sum of ₹.108.35 cores has been paid, only ₹.87.21 has been capitalized and balance charged to P & L account in the earlier years. Likewise, for the commercial project, even through a sum of ₹.21.14 crores (₹.108.35-87.21) and ₹.7.13 crores (₹.48.37-41.24) has been claimed as expenditure in the books of accounts in the earlier years on revenue account. Since the above related to the hotel and commercial project, the same is required to be treated as capital expenditure & deductions allowed as revenue expenditure in the earlier years is required to be reversed. Vide letter dated 14.02.2014, the assessee was given show-cause why same should not be disallowed and treated as capital expenditure & added to total income. Since there was no response from the assessee, the Assessing Officer has assessed the business income of the assessee at ₹.35,26,98,355/- after reducing the assessed business loss of ₹.13,01,645/- as per assessment order under section 143(3) of the Act dated 31.12.2010 as well as disallowing the revenue expenditure at ₹.35,40,00,000/-. 3. The assessee carried the matter in appeal before the ld. CIT(A). During the course of appellate proceedings, the AR of the assessee has explained before the ld. CIT(A) that the sum of ₹.41,24,11,072/- represents interest paid to various financial institutions in connection with loans borrowed for the :- 5 -: ITA No.378/Chny/20 purpose of commercial complex from the financial years 1995-96 till 2007-08. Since these loans had been specifically taken for construction of the commercial complex and the funds had been utilized for this purpose (not disputed by the AO in any earlier assessments), the interest on these loans had been correctly capitalized to the cost of Work-in-Progress of the commercial complex. Accordingly, the sum of ₹.41,24,11,072/- had been correctly allowed as part of cost of acquisition in the original order of assessment. During the course of appellate proceedings, the facts furnished by the assessee are reproduced as under: “B) The interest pertaining to the loans taken for Hotel project (comprising of Hotel property and Commercial property) has been kept as part of capital Work in progress and shown in the Balance Sheet. The Table given below giving details of the interest pertaining to the hotel project capitalized on year to year basis proves that interest on the loans relating to hotel project was capitalized and that such interest was not charged to profit and loss account. Copies of the ledger extracts of the interest account and Balance Sheets of all the above years are enclosed in evidence of the submission. Table 1 Financial Year Interest for the year provided on the loans to Hotel project (in Rs.) Accumulated Closing Balance (in Rs.) 1997-98 31,02,98,033/- 31,02,98,033/- 1998-99 73,14,55,992/- 104,17,54,025/- 1999-00 49,38,36,056/- 153,55,90,081/- 2000-01 50,31,63,168/- 203,87,53,249/- 2001-02 45,13,05,454/- 249,00,58,703/- 2002-03 NIL 249,00,58,703/- 2003-04 NIL 249,00,58,703/- 2004-05 NIL 249,00,58,703/- 2005-06 (43,72,45,723/-* 205,28,12,980/- 2006-07 NIL 205,28,12,980/- 2007-08 (76,83,17,763/-)** 128,44,95,217/- * In 2005-06 excess provision was written back through Exceptional item credited to P&L a/c below the line. :- 6 -: ITA No.378/Chny/20 ** In 2007-08 accumulated interest was transferred to capital WIP and sold. C) On the basis of the factual evidence submitted above, it is submitted that the interest pertaining to the hotel project loans was not charge to profit and loss account at any time and that such interest had been capitalized to capital work in progress. D) Excess capitalized interest had been reversed in the Profit and Loss Account for the assessment year 2006-07 under the head ‘Exceptional Item’. Further, the AR of the assessee has submitted that the interest expenditure of ₹.41,24,11,072/- was not claimed as revenue expenditure because business operations had not commenced on the hotel project during the relevant previous year. Further, it was explained before the ld. CIT(A) that the hotel and commercial projects were part of an integrated project and therefore, there was a huge component of expenditure common to these projects. After considering the submissions of the AR of the assessee, the ld. CIT(A) has observed that the interest expenditure which had accumulated over a period of years was in the nature of pre-operative expenses and was capitalized. This expenditure was stated to have been apportioned on the basis of direct investment in each of the projects. Further, the expenditure was allocated on the basis of investments made in the different assets. A sum of ₹.76,83,17,763/- was waived by Financial Institutions and the accumulated balance of ₹.128,44,95,217/- was transferred to Capital WIP and sold. It was further submission that the above details had been submitted before the Assessing Officer vide letter dated 23.12.2013. After considering the submissions of the AR of the assessee and examining the Profit and Loss :- 7 -: ITA No.378/Chny/20 Account of the company for the year ended 31.03.2008, the ld. CIT(A) noticed that during the said Financial Year, only finance charges amounting to ₹.10,51,899/- were claimed by the assessee. The A.R. explained that these expenses formed part of the fixed assets under “commercial project” assets in Schedule – E of the Balance Sheet. They were treated as part of the “commercial expenditure allocation” in the Fixed Asset Schedule. Taking into account the facts and circumstances of this case, the ld. CIT(A) has held that the interest expenditure had been capitalized and not claimed as revenue expenditure and therefore, the disallowance of ₹.41,24,11,072/- made by the Assessing Officer was deleted. 4. Aggrieved, the Revenue is in appeal before the Tribunal. By referring to the grounds of appeal, the ld. DR has submitted that the ld. CIT(A) has erroneously allowed deduction of interest expenses on loan taken in computation of capital gain by holding that the interest expenses is an expenditure incurred wholly and exclusively in connection with the transfer of commercial property and pleaded for suitable directions. On the other hand, the ld. Counsel for the assessee has strongly supported the appellate order. 5. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. With regard to the disallowance of interest expenses of ₹.41,24,11,072/-, on perusal of the financials of the assessee, the Assessing Officer was under the impression :- 8 -: ITA No.378/Chny/20 that while computing the long term capital loss in respect of commercial property a sum of ₹.41,24,11,072/- has not been included in the cost of acquisition being interest paid on loans. When the assessee company was asked to clarify, vide its letter dated 18.11.2013, the assessee has submitted that the assessee never claimed that the sum of ₹.41,24,11,072/ - represents an expenditure incurred wholly and exclusively in connection with the transfer. On the other hand, this amount was claimed as part of the cost of acquisition. This amount being the interest incurred on the loan from ICICI and utilized for the Commercial Project has been considered for the calculation of the cost of acquisition and does not represent any interest paid by the assessee to M/s. ARCIL. The assessee has explained that this amount is the interest on the loan from ICICI cumulative from the F.Y. 1996-97 and did not arise during the financial year 2008-09 when ICICI transferred their loan to ARCIL as alleged in the notice. Thus, it was the submissions of the assessee that the sum of ₹.41,24,11,072/- has correctly been considered as part of cost of acquisition while assessing the income under section 143(3) of the Act. However, the Assessing Officer disallowed the interest paid on loans amounting to ₹.41,24,11,072/- and total capital loss returned by the assessee was reduced from ₹.105,99,78,952/- to ₹.64,75,67,880/-. 5.1 Before us, the ld. Counsel for the assessee has submitted that the interest expenditure of ₹.41,24,11,072/- was not at all claimed as revenue :- 9 -: ITA No.378/Chny/20 expenditure because business operations had not commenced during the relevant previous year. Further, by referring to the assessment order passed under section 143(3) r.w.s. 147 of the Act, the ld. Counsel for the assessee has submitted that para 3 and 4 clearly speaks the reply submitted before the Assessing Officer that the interest paid on loans of ₹.41,24,11,072/- has been included in the cost of acquisition and not claimed as revenue expenditure. It was further submitted that the interest expenditure which had accumulated over a period of years was in the nature of pre-operative expenses and was capitalized. It was further submission that the above details have been submitted before the Assessing Officer vide letter dated 23.12.2013. After considering the submissions of the AR of the assessee and examining the Profit and Loss Account of the company for the year ended 31.03.2008, the ld. CIT(A) noticed that during the said Financial Year, only finance charges amounting to ₹.10,51,899/- were claimed by the assessee. It was further submission of the ld. Counsel for the assessee that these expenses formed part of the fixed assets under “commercial project” assets in Schedule – E of the Balance Sheet. It was further submission that the assessee treated the asset as part of the “commercial expenditure allocation” in the Fixed Asset Schedule. He further submits that after examining all the above aspects and verifying the balance sheet & profit and loss account, etc., the ld. CIT(A) has held that the interest expenditure has been capitalized and not claimed as revenue expenditure. The ld. Counsel for the assessee has further submitted that the Assessing Officer failed to establish that under which year the :- 10 -: ITA No.378/Chny/20 assessee has claimed the payment has revenue expenditure, but simply he disallowed ₹.41,24,11,072/- as revenue expenditure. Therefore, there is no basis for this disallowance since the assessee has rightly shown it as work in progress / capitalized and prayed for confirming the appellate order. 5.2 We find force in the arguments of the ld. Counsel for the assessee. We have perused the assessment order passed under section 143(3) r.w.s. 147 of the Act and find that the para 3 and 4 clearly speaks the reply submitted before the Assessing Officer that the interest paid on loans of ₹.41,24,11,072/- has been included in the cost of acquisition and not claimed as revenue expenditure. Moreover, we find that all the details furnished before the ld. CIT(A) were already furnished before the Assessing Officer in their letter dated 23.12.2013 and after examining the materials available on record, the ld. CIT(A) has held that the interest expenditure had been capitalized and not claimed as revenue expenditure, which was not disputed by the Assessing Officer in his remand report against the submissions of the assessee. In view of the above, we find no infirmity in the order passed by the ld. CIT(A) and thus, the ground raised by the Revenue stands dismissed. 6. With regard to the disallowance of revenue expenditure of ₹.35,40,00,000/-, the Assessing Officer disallowed the same while computing the income from business. After considering the submissions of the assessee, :- 11 -: ITA No.378/Chny/20 the ld. CIT(A) observed the disallowance made by the Assessing Officer is untenable and allowed the ground of appeal. 6.1 By referring to the grounds of appeal, the ld. DR has submitted that the ld. CIT(A) has erroneously allowed deduction of other revenue expenditure without giving proper opportunity in violation of Rule 46A of the Income Tax Rules for verifying the additional evidences and pleaded for suitable directions. On the other hand, the ld. Counsel for the assessee has submitted that the assessee has never filed any additional evidence before the ld. CIT(A). The ld. CIT(A) has relied on the balance, profit and loss account of assessee company and passed the appellate order. It was further submitted that the balance sheet and profit and loss accounts are part and parcel of the return of income of the assessee. Therefore, the contention of the ld. DR that the ld. CIT(A) has not given proper opportunity to the Assessing Officer is not factually correct. Apart from this, the ld. CIT(A) also called remand report from the Assessing Officer before adjudicating the appellate order. Therefore, the ld. Counsel for the assessee prayed for confirming the appellate order. 6.2 We have heard rival contentions and gone through the orders of authorities below. In the assessment order, the Assessing Officer disallowed the revenue expenditure amounting to ₹.35,00,40,000/-. In para 6 of the reassessment order, the Assessing Officer stated that ₹.21.14 crores (₹.108.35 crores – 87.21 crores) and ₹.7.13 crores (₹.48.37 crores – ₹.41.24 crores) had :- 12 -: ITA No.378/Chny/20 been claimed as expenditure in the books of accounts in the earlier years on revenue account. The assessee has submitted that the same was required to be treated as capital expenditure and deductions allowed as revenue expenditure in the earlier years were required to be reversed. However, as the assessee failed to clarify the issue further, the Assessing Officer disallowed the same and brought to tax. During the course of appellate proceedings, the assessee has explained before the ld. CIT(A) that the interest expenditure was not claimed in the current year or in the earlier years as the assessee had not commenced its business operations pertaining to the hotel project. The assessee furnished the final accounts for the financial years 1997-1998 to 2007-2008 before the ld. CIT(A). On perusal of the accounts, the ld. CIT(A) has observed that every year the interest relating to the hotel and commercial project has been shown separately as “expenditure pending allocation” and such interest has not been found debited to the Profit and Loss Account. In the remand report, the Assessing Officer has not furnished explanations regarding the disallowance of ₹.35,26,98,355/-. Under the above facts and circumstances, the ld. CIT(A) has observed that the disallowance made by the Assessing Officer is untenable and allowed the ground of appeal. 6.2 So far as the contention of the Department that no proper opportunity was given to verify the additional evidences furnished before the ld. CIT(A), which is in violation of Rule 46A, the ld. Counsel for the assessee has submitted that no new evidence was placed before the ld. CIT(A) and the ld. :- 13 -: ITA No.378/Chny/20 CIT(A) has considered the materials whatever placed before the Assessing Officer and decided the issue on merits. On perusal of the appellate order, it is we find that the ld. CIT(A) has very well called for remand report from the Assessing Officer on the submissions and final accounts for the financial years 1997-98 to 2007-08 furnished by the assessee. However, in the remand report, the Assessing Officer has not furnished any explanation regarding the disallowance of ₹.35,26,98,355/- and accordingly, the ld. CIT(A) has rightly observed that the disallowance made by the Assessing Officer is untenable. We find no infirmity in the appellate order passed by the ld.CIT(A) and accordingly, the ground raised by the Revenue stands dismissed. 7. In the result, the appeal filed by the Revenue is dismissed. Order pronounced on the 08 th December, 2021 in Chennai. Sd/- Sd/- [जी. मंजुनाथा, लेखा सद˟] [धुʫुŜ आर.एल रेǭी, Ɋाियक सद˟] (G. MANJUNATHA) ACCOUNTANT MEMBER (DUVVURU RL REDDY) JUDICIAL MEMBER Chennai, Dated, 08.12.2021 Vm/- आदेश की Ůितिलिप अŤेिषत/Copy to: 1. अपीलाथŎ/Appellant, 2.ŮȑथŎ/ Respondent, 3. आयकर आयुƅ (अपील)/CIT(A), 4. आयकर आयुƅ/CIT, 5. िवभागीय Ůितिनिध/DR & 6. गाडŊ फाईल/GF.