M/s Bangalore Housing Deveopment & Investments , Bangalore V. Assistant Commissioner of Income Tax Circle-1(2)(1), Bangalore

ITA 425/BANG/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2641 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 13-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P V PRADEEP KUMAR
• Assessee Lawyers: R RAMAKRISHNA
• Keywords: Business income; Business expenditure; Proportionate interest; Question of law
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER APPEAL NO. APPELLANT ASSESSMENT YEAR RESPONDENT ITA NO. 425/BANG/2018 M/S. BANGALORE HOUSING DEVELOPMENT & INVESTMENTS, NO. 10/1, LAKSHMINARAYANA COMPLEX, PALACE ROAD, BANGALORE 560 052. PAN: AAGFB0819A 2014-15 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1 (2) (1), BANGALORE. ITA NO. 556/BANG/2018 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1 (2) (1), BANGALORE. 2013-14 M/S. BANGALORE HOUSING DEVELOPMENT & INVESTMENTS, NO. 10/1, LAKSHMINARAYANA COMPLEX, PALACE ROAD, BANGALORE 560 052. PAN: AAGFB0819A ITA NO. 557/BANG/2018 2014-15 ASSESSEE BY : SHRI R. RAMAKRISHNA, CA REVENUE BY : DR. P.V. PRADEEP KUMAR, ADDL. CIT (DR) DATE OF HEARING : 1 2 . 10 .2018 DATE OF PRONOUNCEMENT : 07 . 1 1 .2018 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER OUT OF BUNCH OF THESE THREE APPEALS, THERE IS ONE A PPEAL OF REVENUE FOR ASSESSMENT YEAR 2013-14 AND THERE ARE TWO CROSS APP EALS OF REVENUE AND ASSESSEE FOR ASSESSMENT YEAR 2014-15 AND THESE APPE ALS ARE DIRECTED AGAINST TWO SEPARATE ORDERS OF LD. CIT(A)-1, BANGALORE BOTH DATED 24.10.2017. ALL THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE GROUNDS RAISED BY THEREVENUE FOR ASSESSMENT YEAR 2013-14 IN ITA NO. 556/BANG/2018 ARE AS UNDER. 1. THE ORDER OF THE LEARNED CIT (APPEALS), IN SO FA R AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE, IS OPPOSED TO LAW AND THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LD. CIT(A) HAS NOT APPRECIATED THE FACT THAT THE ASSESSEE YEAR AFTER YEAR HAS POSTED MEAGER INCOME FROM BUSINESS AND CLA IMED LARGE AMOUNTS AS EXPENSES, EVEN THOUGH THERE IS NO BUSINESS ACTIV ITY BEING CARRIED OUT BY THE ASSESSEE. 3. THE LD. CIT (A) HAS IGNORED THE FACT THAT THE AS SESSEE HAS NOT SATISFIED CONDITIONS LAID OUT U/S 37(1) OF THE IT ACT TO CLAI M CERTAIN AMOUNT AS BUSINESS EXPENSES. 4. THE LD. CIT (A) HAS RELIED ON THE CIT (APPEALS)- 111, BENGALURU ORDER FOR A.Y.2008-09 WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES FOR A.Y.2013-14 AND A.Y.2008-OY ARE ENTIRELY DIFFERENT. 5. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URG ED AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE ORDER OF THE LD. CIT (A) BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 6. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, TO AMEND OR DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HEARIN G OF APPEAL. 3. THE GROUNDS RAISED BY THE REVENUE FOR ASSESSMENT YEAR 2014-15 IN ITA NO. 557/BANG/2018 ARE AS UNDER. 1. THE ORDER OF THE LEARNED CIT (APPEALS), IN SO FA R AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE, IS OPPOSED TO LAW AND THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LD. CIT(A) HAS NOT APPRECIATED THE FACT THAT THE ASSESSEE YEAR AFTER YEAR HAS POSTED MEAGER INCOME FROM BUSINESS AND CLA IMED LARGE AMOUNTS AS EXPENSES, EVEN THOUGH THERE IS NO BUSINESS ACTIV ITY BEING CARRIED OUT BY THE ASSESSEE. 3. THE LD. CIT (A) HAS IGNORED THE FACT THAT THE AS SESSEE HAS NOT SATISFIED CONDITIONS LAID OUT U/S 37(1) OF THE IT ACT TO CLAI M CERTAIN AMOUNT AS BUSINESS EXPENSES. 4. THE LD. CIT (A) HAS RELIED ON THE CIT (APPEALS)- 111, BENGALURU ORDER FOR A.Y.2008-09 WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES FOR A.Y.2013-14 AND A.Y.2008-09 ARE ENTIRELY DIFFERENT. 5. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URG ED AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE ORDER OF THE LD. CIT (A) BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 6. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, TO AMEND OR DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HEA RING OF APPEAL. 4. THE GROUNDS RAISED BY THE ASSESSEE FOR ASSESSMEN T YEAR 2014-15 IN ITA NO. 425/BANG/2018 ARE AS UNDER. 1. THE ORDERS OF THE AUTHORITIES BELOW IN SO FAR AS THEY ARE AGAINST THE APPELLANT ARE OPPOSED TO LAW, EQUITY, WEIGHT OF EVIDENCE, PROBABILITIES, FACT AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED CIT (A) HAS ERRED BY UPHOLDING THE O RDER OF THE LEARNED AO REGARDING THE DISALLOWANCE OF THE INTERE ST PAID ON LOAN IN PROPORTION TO THE FUNDS ADVANCED TO THE SISTER CONC ERNS/RELATED PARTIES WITHOUT CONSIDERING THE FACTS AND DETAILS SUBMITTED BY THE APPELLANT BEFORE THE ASSESSING OFFICER AND THE APPELLATE AUTH ORITY. 3. THE AUTHORITIES BELOW OUGHT TO HAVE NOTED FROM T HE BALANCE SHEET AS AT 31/03/2014 OF THE APPELLANT THAT IT HAD A NET -OWNED FUNDS OF RS.35.17 CRORES AS AGAINST THE INVESTMENTS MADE IN THE ABOVE MENTIONED SISTER CONCERNS/RELATED PARTIES FOR BUSIN ESS PURPOSES AGGREGATING TO RS.30.87 CRORES. HENCE THE QUESTION OF DISALLOWING THE INTEREST ON PRO-RATA BASIS DOES NOT ARISE. 4. THE HON'BLE CIT(A), THOUGH GAVE A RELIEF TO THE APPELLANT BY ALLOWING THE OTHER EXPENSES AGGREGATING TO RS.1,36, 24,401, HAS WRONGLY ORDERED FOR THE PROPORTIONATE DISALLOWANCE ON THE INTEREST DEBITED (RS.6,25,35,687) TO THE P&L ACCOUNT OF THE APPELLANT WITH RESPECT TO THE AMOUNTS ADVANCED TO THE SISTER CONCE RNS/RELATED PARTIES. 5. THE AUTHORITIES BELOW OUGHT TO HAVE CONSIDERED T HAT THE FUNDS ADVANCED TO THE SISTER CONCERNS/RELATED PARTIES ARE ONLY FOR THE PURPOSE OF THE BUSINESS OF THE APPELLANT BEING IN C OMMON REAL ESTATE BUSINESS. 6. THE AUTHORITIES BELOW WITHOUT CONSIDERING THE AB OVE FACTS ON RECORD WRONGLY CONCLUDED TO DISALLOW A PRO-RATA INT EREST ON THE AMOUNT ADVANCED WHICH IS NOW PRAYED BY THE APPELLAN T FOR ALLOWING AS DEDUCTION. 7. FOR THE ABOVE AND OTHER GROUNDS THAT MAY BE URGE D AND PRESENTED AT THE TIME OF HEARING OF THE APPEAL, THE APPELLANT HUMBLY PRAYS THAT THE APPEAL MAY BE ALLOWED AND JUSTICE RENDERED. 5. BRIEF FACTS ARE THAT THE AO HAS NOTED IN THE ASS ESSMENT ORDER FOR ASSESSMENT YEAR 2013-14 THAT THE ASSESSEE FIRM DERI VES INCOME ON ACCOUNT OF RENTAL INCOME AMOUNTING TO RS. 698.40 LA KHS IN ADDITION TO COMMISSION INCOME OF RS. 5,11,008/- AND INCOME FROM OTHER SOURCES OF RS. 4,12,158/-. THEREAFTER THE AO HAS REPRODUCED THE P &L ACCOUNT OF THE ASSESSEE FOR THE YEAR ENDING AS ON 31.03.2013, AS P ER WHICH, IT IS SEEN THAT ITA NOS. 425, 556 & 557/BANG/2018 PAGE 4 OF 12 THE ASSESSEE HAS DEBITED VARIOUS EXPENSES SUCH AS P ROCESSING FEES, PROFESSIONAL FEES, CORPORATION TAX, SIMPLE MORTGAGE DEED EXPENSES, INTEREST ON LOAN AND SEVERAL OTHER EXPENSES AND WOR KED OUT THE NET PROFIT AT RS. 2,04,74,372/-. THE AO HAS NOTED THAT TWO EXPEN SES I.E. CORPORATION TAX OF RS. 1,20,50,990/- AND INSURANCE PAID OF RS. 1,90 ,802/- TOTAL OF RS. 1,22,41,792/- HAS TO BE DISALLOWED AND IN THIS MANN ER, HE COMPUTED TOTAL INCOME OF RS. 3,27,16,164/- AND FROM THAT, HE REDUC ED INCOME FROM HOUSE PROPERTY CREDITED TO P&L ACCOUNT OF RS. 698.40 LAKH S AND IN THIS MANNER, HE WORKED OUT BUSINESS LOSS AT RS. (-)3,71,23,836/- . THIS IS THE OBJECTION OF THE AO THAT THE ASSESSEE HAS ATTEMPTED TO CLAIM BUS INESS EXPENDITURE OF RS. 3,71,23,836/- U/S. 37 OF IT ACT AGAINST A MEAGR E COMMISSION INCOME OF RS. 5,11,008/- WITH AN INTENTION TO AVOID TAX LIABI LITY AS PER THE P&L ACCOUNT. THE AO HAS PARTICULARLY NOTED THE FOLLOWING EXPENSE S I.E. LOAN PROCESSING CHARGES OF RS. 28.59 LAKHS, INTEREST ON LATE PAYMEN T OF CORPORATION TAX OF RS. 20,57,670/- AND INTEREST ON LOAN ON WORKING CAP ITAL OF RS. 2,76,71,229/-. THE AO HAS OBSERVED ON PAGE NO. 6 OF THE ASSESSMENT ORDER THAT THESE EXPENSES HAVE NOT BEEN INCURRED WHOLLY AND EXCLUSIV ELY FOR THE PURPOSE OF EARNING COMMISSION AND BROKERAGE INCOME AND IN ANY WAY, THE SAME CANNOT BE ALLOWED AGAINST THE RENTAL INCOME ASSESSE D UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND AFTER MAKING THESE O BSERVATIONS, HE MADE DISALLOWANCE OF RS. 3,71,23,836/- AND ASSESSED THE TAXABLE INCOME AT RS. 4,04,52,310/- AS AGAINST INCOME AS PER RETURN OF IN COME OF RS. 33,28,470/-. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE CIT (A) WHO DELETED THE DISALLOWANCE ON THE BASIS OF THE OR DER OF CIT (A) IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2009-10 WITH A CATEGORICAL FINDING THAT THE AO HAS NOT ADDUCED SUFFICIENT REAS ONS TO ASSERT THAT THE ASSESSEE WAS NOT ENGAGED IN BUSINESS ACTIVITIES. H E HAS FURTHER NOTED THAT IN ASSESSMENT YEAR 2008-09, AS PER CIT (A)S ORDER, THE AOS CONCLUSION IS BASED ON THIS FACT THAT THERE IS NO BUSINESS INCOME DECLARED AND HE HAS FURTHER HELD THAT THIS FACT THAT SALE OF THE PROPER TY DID NOT TAKE PLACE DUE TO VARIOUS REASONS DURING THE YEAR CANNOT AUTOMATICALL Y IMPLY THAT NO BUSINESS IS CARRIED ON. FOR THE SAKE OF READY REFERENCE, WE REPRODUCE THE RELEVANT PARAS OF THE ORDER OF CIT(A) FOR ASSESSMENT YEAR 20 08-09 BEING PARAS 4.1.3 ITA NOS. 425, 556 & 557/BANG/2018 PAGE 5 OF 12 AND 4.1.4 WHICH HAS BEEN REPRODUCED BY CIT(A) IN TH E ORDER FOR ASSESSMENT YEAR 2013-14 ON PAGES 9 AND 10 OF ITS OR DER. THE SAME ARE AS UNDER. 4.1.3 ON AN APPRAISAL OF THE FACTS OF THE CASE, I A M OF THE VIEW THAT OF THE AO HAS NOT MADE OUT A STRONG CASE FOR HOLDING T HAT THE APPELLANT IS NOT INVOLVED IN BUSINESS OF THE APPELLANT AS 'RE AL ESTATE' BUT AT THE SAME TIME NOT CONTROVERTED THE APPELLANT'S CONTENTI ON THAT IT IS ENGAGED IN THE BUSINESS OF PROPERTY DEVELOPMENT AND SALE. IT HAD RAISED LARGE LOANS THE BANK AND DEVELOPED A CONSTRU CTED ARE OF 2,00,000 SQ. FT. OF COMMERCIAL SPACE THOUGH THERE W AS NO SALE DURING THE YEAR SINCE THERE WAS A DISPUTE WITH THE DEVELOP MENT PARTNER, M/S. IBC KNOWLEDGE PARK. IT IS PERTINENT TO NOTE THAT W ITH RESPECT TO THIS PROPERTY, THE APPELLANT HAS ALSO CLAIMED LEGAL EXPE NSES ARID SECURITY CHARGES, WHICH WERE DISALLOWED BY THE AO ON THE GRO UND THAT THOUGH THE CONSTRUCTED AREA APPEARED ON THE BALANCE SHEET, NO INCOME OTHER THAN RENTAL INCOME WAS SHOWN IN THE PROFIT AND LOSS ACCOUNT. IT IS THE APPELLANT'S CONTENTION THAT THERE WAS A GENUINE DIS PUTE WITH REGARD TO THE JOINT DEVELOPMENT ARRANGEMENT WHICH NECESSITATE D THESE EXPENSES WHICH WERE RELATED TO SECURING ITS RIGHTS OVER ITS PORTION O THE DISPUTED PROPERTY AND FURTHERING ITS BUSINESS. I HA VE TO NOTE THAT THE AO HAS NOT DISPUTED THE FACT OF THE LEGAL DISPUTE, BUT HAS QUESTIONED THE EXPENDITURE ON SECURITY WITH RESPECT TO THE DEV ELOPMENT OF THE SECURITY PERSONNEL ON THE DISPUTED PORTION OF THE J OINT DEVELOPMENT RATHER THAN ON THE OWNED PORTION. ON THIS POINT THE APPELLANT ARGUES THAT IT IS THE DISPUTED PORTION THAT NEEDS TO BE SE CURED MORE THAN THE OWNED PORTION SINCE IT IS THE FORMER WHICH IS MORE VULNERABLE. 4.1.4 ON A CAREFUL CONSIDERATION OF THE ISSUES, AS MENTIONED ABOVE, I FIND THAT THE AO HAS NOT ADDUCED SUFFICIENT REASONS TO ASSERT THAT THE APPELLANT WAS NOT ENGAGED IN BUSINESS ACTIVITIES. W HEREAS HE HAS BASE HIS CONCLUSION ON THE FACT THAT NO BUSINESS INCOME WAS DECLARED, THE FACT THAT THE SALE OF THE PROPERTY DID NOT TAKE PLA CE DUE TO VARIOUS REASONS DURING THE YEAR CANNOT AUTOMATICALLY IMPLY THAT NO BUSINESS IS CARRIED ON. THIS IS PARTICULARLY TRUE OF A CASE WHE RE A LEGAL DISPUTE EXISTS. THE APPELLANT IS A PARTNERSHIP BASED ON A R EGISTERED DEED WHICH IS PART OF THE RECORD. BUSINESS ASSETS EXIST IN THE BALANCE SHEET AND BANK LOANS SUPPORT THESE ASSETS. THERE IS A REG ISTERED DEVELOPMENT AGREEMENT DATED 26.12.2003 FOR THE DEVE LOPMENT OF THE PROPERTY MEASURING 2,00,000 SQ. FT. A LEGAL DISPUTE EXISTS WHICH HAS AFFECTED THE BUSINESS, BUT WHICH HAS NOT BEEN DOUBT ED ON GENUINENESS BY THE AO. IN THE CIRCUMSTANCES, IT IS NOT INCONCEI VABLE THAT A SITUATION LIKE THIS CAN CAUSE A GENUINE BUSINESS LO SS. FOR THE IMMEDIATELY PRECEDING YEAR IN APPEAL BEFORE IT ON S IMILAR GROUNDS, THE LD. ITAT BANGALORE BENCH HAS FUND THAT THE APPE LLANT DID ENGAGE IN BUSINESS ACTIVITY. IT IS INCONCEIVABLE THAT A BU SINESSMAN CAN BE ENGAGED IN BUSINESS ACTIVITIES IN AN INTERMITTENT M ANNER FROM YEAR TO YEAR, WHEN THE SALE OF OPERATIONS AND QUANTUM OF LO ANS RAISED BY THE APPELLANT ARE CONSIDERED. IN VIEW OF THE ABOVE, I H AVE TO CONCLUDE THAT ITA NOS. 425, 556 & 557/BANG/2018 PAGE 6 OF 12 THE APPELLANT IS ACTUALLY ENGAGED IN THE BUSINESS O F DEVELOPMENT AND SALE OF REAL ESTATE, AND THAT THE EXPENSES ON THE P REMIUM PAYMENTS ARE ALLOWABLE U/S 37(1). SIMILAR ISSUE HAS BEEN DECIDED BY ME IN MY ORDER DATED 03-02-2012 IN THE APPELLANT'S OWN CASE FOR TH E AY 2007-08 WHEREIN AFTER DISCUSSING THIS ISSUE AT LENGTH, I HA VE DIRECTED THE AO TO ALLOW THE EXPENSES ON THE PREMIUM PAYMENTS PAID U/S 37(1). I, THEREFORE, DIRECT THE AO TO ALLOW THIS EXPENDITURE AND THE GROUND OF APPEAL SUCCEEDS. 6. AFTER REPRODUCING THESE TWO PARAS FROM THE ORDER OF CIT (A) IN ASSESSMENT YEAR 2008-09, THE CIT (A) HAS DECIDED THE ISSUE IN ASSESSMENT YEAR 2013- 14 ALSO IN FAVOUR OF THE ASSESSEE ON THIS BASIS THA T IN ASSESSMENT YEAR 2009-10 ALSO, SIMILAR VIEW WAS TAKEN AND IN THE PRE SENT YEAR ALSO, THE FACTS ARE SAME. 7. SIMILARLY IN ASSESSMENT YEAR 2014-15, THE AO MAD E SIMILAR DISALLOWANCE OF BUSINESS EXPENSES TO THE EXTENT OF RS. 7,61,60,088/ - WITH THE SAME REASONING AND IN THIS YEAR ALSO, THE ASSESSEE CARRI ED THE MATTER IN APPEAL BEFORE CIT(A). IN ASSESSMENT YEAR 2014-15, THE LD. CIT(A) HAS HELD THAT IN THIS YEAR ALSO, THE BUSINESS EXPENSES SHOULD BE ALL OWED BUT HE FURTHER NOTED ON THE PENULTIMATE PAGE OF HIS ORDER FOR ASSE SSMENT YEAR 2014-15 THAT IT IS SEEN FROM THE BALANCE SHEET OF THE ASSES SEE THAT SUBSTANTIAL AMOUNTS OF BORROWED MONEY WAS ADVANCED TO THE SISTE R CONCERNS / RELATED PARTIES, VIZ., CENTURY CARBEL RS. 20.12 CRORES, C ENTURY ASTRAL RS. 7.40 CRORES AND CANARA HOUSING DEVELOPMENT COMPANY RS. 3.35 CRORES. HE HELD THAT PROPORTIONATE INTEREST ON THE SAID AMOUNT S ADVANCED TO SISTER CONCERNS WITHOUT INTEREST HAS TO BE DISALLOWED OUT OF THE TOTAL INTEREST DEBITED TO P&L ACCOUNT. HE DIRECTED THE AO IN THIS YEAR TO OBTAIN THE COST OF THE BORROWED FUNDS FROM THE ASSESSEE OR ELSE THE AVERAGE INTEREST COST DEBITED MAY HAVE TO BE APPORTIONED ON PRO-RATA BASI S AND THE SAME MAY BE DISALLOWED. NOW THE REVENUE IS IN APPEAL BEFORE US IN RESPECT OF RELIEF ALLOWED BY CIT(A) AND THE ASSESSEE IS IN APPEAL BEF ORE US IN RESPECT OF DISALLOWANCE OF INTEREST CONFIRMED BY CIT(A). IN R ESPECT OF APPEAL OF THE ASSESSEE REGARDING DISALLOWANCE OF INTEREST CONFIRM ED BY CIT(A), THE LD. AR OF ASSESSEE SUBMITTED THAT AS PER THE BALANCE SHEET OF THE ASSESSEE AS ON 31.03.2014, OWN FUNDS OF THE ASSESSEE BEING PARTNER S CAPITAL IS OF RS. 3517.36 LAKHS AS AGAINST THE ADVANCE GIVEN BY THE A SSESSEE FIRM TO THREE ITA NOS. 425, 556 & 557/BANG/2018 PAGE 7 OF 12 COMPANIES I.E. CENTURY CORBEL OF RS. 2012 LAKHS, CE NTURY AUSTRAL RS. 740 LAKHS AND CANARA HOUSING DEVELOPMENT COMPANY OF RS. 335 LAKHS TOTAL OF RS. 3087 LAKHS. IT WAS SUBMITTED THAT THIS IS S ETTLED POSITION OF LAW BY NOW THAT IN CASE OF MIXED FUNDS, IT SHOULD BE PRESU MED THAT ADVANCES GIVEN TO SISTER CONCERN IS OUT OF INTEREST FREE FUNDS IF THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE IS SUFFICIENT TO COVER INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE. IN PARTICULAR, RELIANCE WAS PLACED ON A JUDGMENT OF HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE OF C IT VS. RELIANCE UTILITIES AND POWER LTD. AS REPORTED IN 313 ITR 340 (BOM.) AND ALSO ON A JUDGMENT OF HONBLE KARNATAKA HIGH COURT RENDERED I N THE CASE OF CIT VS. BRINDAVAN BEVERAGES PVT. LTD. AS REPORTED IN 393 IT R 261. 8. REGARDING THE ISSUE RAISED BY THE REVENUE IN ITS APPEAL IN BOTH YEARS, HE SUBMITTED THAT IN ASSESSMENT YEARS 2007-08 AND 2008 -09 SIMILAR ISSUE WAS DECIDED BY CIT(A) IN FAVOUR OF THE ASSESSEE AND FOR THOSE TWO YEARS, REVENUE HAS ALTHOUGH FILED APPEAL BEFORE THE TRIBUN AL IN ITA NOS.646 & 811/BANG/2012 DATED 20.03.2013 BUT THIS ISSUE WAS N OT RAISED BY REVENUE BEFORE THE TRIBUNAL IN THESE YEARS AND THE ONLY ISS UE RAISED IN THE APPEALS FILED BY THE REVENUE BEFORE THE TRIBUNAL IN THESE T WO YEARS WAS REGARDING THE ALLOWABILITY OF INSURANCE PREMIUM IN THE NATURE OF KEYMAN INSURANCE PREMIA. HE SUBMITTED A COPY OF THE TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2007-08 AND 2008-09. 9. AS AGAINST THIS, THE LD. DR OF REVENUE SUPPORTED THE ASSESSMENT ORDER IN BOTH YEARS AND RELIANCE WAS PLACED BY HIM ON THE FO LLOWING JUDICIAL PRONOUNCEMENTS. A) CIT VS. TRANSPORT CORPN. INDIA LTD., 123 TAXMAN 806 (ANDHRA PRADESH) B) BHARAT COMMERCE & INDUSTRIES LTD. VS. CIT, 98 TA XMAN 151 (SC) C) CIT VS. U. MANOHAR RAO, 325 ITR 402 (KARNATAKA) 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE F IND THAT WE HAVE TO DECIDE TWO ISSUES. THE FIRST ISSUE INVOLVED IN THE APPEAL S OF THE REVENUE IS THIS AS TO WHETHER IN THE FACTS OF PRESENT CASE, VARIOUS BU SINESS EXPENSES DEBITED BY ASSESSEE IN THE P&L ACCOUNT IS ALLOWABLE AS BUSI NESS EXPENSES IN VIEW OF THIS FACT THAT ONLY A MEAGRE INCOME HAS BEEN OFF ERED BY ASSESSEE AS BUSINESS INCOME BEING COMMISSION INCOME OF RS. 5,11 ,008/- IN ASSESSMENT ITA NOS. 425, 556 & 557/BANG/2018 PAGE 8 OF 12 YEAR 2013-14 AND RS. 4,48,106/- IN ASSESSMENT YEAR 2014-15. ON THIS ISSUE, WE FIND THAT THE DECISION OF LD. CIT(A) IN A SSESSMENT YEAR 2013-14 IS CONTAINED ON PAGES 9 AND 10 OF HIS ORDER IN WHICH H E HAS ALSO REPRODUCED THE FINDING OF LD. CIT(A) IN ASSESSEES OWN CASE FO R ASSESSMENT YEAR 2008- 09. HENCE THESE PARAS ARE REPRODUCED HEREINBELOW F ROM PAGES 9 AND 10 OF THE ORDER OF CIT(A) FOR ASSESSMENT YEAR 2013-14. GROUNDS NO. 5 TO 9 ARE RAISED AGAINST THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE EXPENSES CLAIMED IN THE RETURN OF INCOME FROM THE INCOME FROM BUSINESS IN THE ASSESSMENT ORDER PA SSED U/S 143(3) OF THE INCOME TAX ACT, 1961. IN THIS REGARD, THE APPEL LANT HAS MADE DETAILED SUBMISSIONS ARGUING THAT THE APPELLANT IS A PARTNERSHIP FIRM DOING ITS BUSINESS FOR MORE THAN A DECADE IN THE RE AL ESTATE SECTOR. IT IS SUBMITTED THAT THE PROJECTS OF THE APPELLANT WERE L OCKED UP IN LITIGATION & ARBITRATION AND HENCE TO CUT DOWN THE COST THE AP PELLANT HAS DOWNSCALED ITS ACTIVITY TO BEAR MINIMUM TO REDUCE T HE LOSSES. IT HAS ALSO SUBMITTED THAT THE LEGAL PROCEEDINGS WERE BEIN G ACTIVELY PURSUED DURING THE YEAR AND WHICH AS ON TODAY (SUBSEQUENT Y EARS) HAVE CULMINATED IN GETTING A FAVOURABLE ORDER FROM THE A RBITRATION ON 13.12.2014 IN THE SUBSEQUENT ASST. YEARS. FURTHER, A COPY OF THE SAID ORDER WAS OBTAINED BY THE UNDERSIGNED TO EXAMINE TH E FACTS WHICH ARE FOUND TO BE TRUE. FURTHER, THE APPELLANT HAS STATED THAT IT HAS RE-STARTED ITS ACTIVITY AND HAS BORROWED HUGE AMOUNT OF FRESH LOANS DURING THE FINANCIAL YEAR 2013-14 FROM JAMMU & KASHMIR BANK LT D AMOUNTING TO RS. 58 CRORE FOR FURTHER USE IN ITS BUSINESS. FUR THER, IT HAS BORROWED AN ADDITIONAL SUM OF NEARLY RS. 4 CRORES FROM THE L IC OF INDIA DURING THE YEAR, THUS, TAKING THE TOTAL OUTSTANDING TO RS 6,28,44,567. FROM THE ABOVE, THE APPELLANT HAS ARGUED THAT IT HAS INDEED CONTINUED ITS BUSINESS AND WERE RELYING ON THE PLETHORA OF CASE L AWS AND ARGUED THAT TEMPORARY DOWNSCALING OF THE ACTIVITIES CAN NOT AMO UNT TO CLOSURE OF THE BUSINESS. IN THIS REGARD, THE APPELLANT HAS REL IED ON THE APPELLATE ORDERS PASSED BY THE THEN COMMISSIONER OF INCOME TA X (APPEALS)-III, BENGALURU IN THE APPELLANT'S OWN CASE FOR THE ASST. YEAR 2008-09 UNDER THE SIMILAR CIRCUMSTANCES WHEREIN THE CIT (APPEALS) HAS HELD AS UNDER: 4.1.3 ON AN APPRAISAL OF THE FACTS OF THE CASE, I AM OF THE VIEW THAT OF THE AO HAS NOT MADE OUT A STRONG CASE FOR H OLDING THAT THE APPELLANT IS NOT INVOLVED IN BUSINESS OF THE APPELL ANT AS 'REAL ESTATE' BUT AT THE SAME TIME NOT CONTROVERTED THE A PPELLANT'S CONTENTION THAT IT IS ENGAGED IN THE BUSINESS OF PR OPERTY DEVELOPMENT AND SALE. IT HAD RAISED LARGE LOANS THE BANK AND DEVELOPED A CONSTRUCTED ARE OF 2,00,000 SQ. FT. OF COMMERCIAL SPACE THOUGH THERE WAS NO SALE DURING THE YEAR SINCE THER E WAS A DISPUTE WITH THE DEVELOPMENT PARTNER, M/S. IBC KNOWLEDGE PA RK. IT IS PERTINENT TO NOTE THAT WITH RESPECT TO THIS PROPERT Y, THE APPELLANT HAS ALSO CLAIMED LEGAL EXPENSES ARID SECURITY CHARG ES, WHICH WERE DISALLOWED BY THE AO ON THE GROUND THAT THOUGH THE CONSTRUCTED AREA APPEARED ON THE BALANCE SHEET, NO INCOME OTHER THAN RENTAL ITA NOS. 425, 556 & 557/BANG/2018 PAGE 9 OF 12 INCOME WAS SHOWN IN THE PROFIT AND LOSS ACCOUNT. IT IS THE APPELLANT'S CONTENTION THAT THERE WAS A GENUINE DIS PUTE WITH REGARD TO THE JOINT DEVELOPMENT ARRANGEMENT WHICH NECESSIT ATED THESE EXPENSES WHICH WERE RELATED TO SECURING ITS RIGHTS OVER ITS PORTION O THE DISPUTED PROPERTY AND FURTHERING ITS BUSINESS . I HAVE TO NOTE THAT THE AO HAS NOT DISPUTED THE FACT OF THE LEGAL DISPUTE, BUT HAS QUESTIONED THE EXPENDITURE ON SECURITY WITH RESPECT TO THE DEVELOPMENT OF THE SECURITY PERSONNEL ON THE DISPUT ED PORTION OF THE JOINT DEVELOPMENT RATHER THAN ON THE OWNED PORT ION. ON THIS POINT THE APPELLANT ARGUES THAT IT IS THE DISPUTED PORTION THAT NEEDS TO BE SECURED MORE THAN THE OWNED PORTION SINCE IT IS THE FORMER WHICH IS MORE VULNERABLE. 4.1.4 ON A CAREFUL CONSIDERATION OF THE ISSUES, AS MENTIONED ABOVE, I FIND THAT THE AO HAS NOT ADDUCED SUFFICIENT REASO NS TO ASSERT THAT THE APPELLANT WAS NOT ENGAGED IN BUSINESS ACTIVITIE S. WHEREAS HE HAS BASE HIS CONCLUSION ON THE FACT THAT NO BUSINES S INCOME WAS DECLARED, THE FACT THAT THE SALE OF THE PROPERTY DI D NOT TAKE PLACE DUE TO VARIOUS REASONS DURING THE YEAR CANNOT AUTOM ATICALLY IMPLY HAT NO BUSINESS IS CARRIED ON. THIS IS PARTICULARLY TRUE OF A CASE WHERE A LEGAL DISPUTE EXISTS. THE APPELLANT IS A PA RTNERSHIP BASED ON A REGISTERED DEED WHICH IS PART OF THE RECORD. B USINESS ASSETS EXIST IN THE BALANCE SHEET AND BANK LOANS SUPPORT T HESE ASSETS. THERE IS A REGISTERED DEVELOPMENT AGREEMENT DATED 2 6.12.2003 FOR THE DEVELOPMENT OF THE PROPERTY MEASURING 2,00,000 SQ. FT. A LEGAL DISPUTE EXISTS WHICH HAS AFFECTED THE BUSINESS, BUT WHICH HAS NOT BEEN DOUBTED ON GENUINENESS BY THE AO. IN THE CIRCU MSTANCES, IT IS NOT INCONCEIVABLE THAT A SITUATION LIKE THIS CAN CA USE A GENUINE BUSINESS LOSS. FOR THE IMMEDIATELY PRECEDING YEAR I N APPEAL BEFORE IT ON SIMILAR GROUNDS, THE LD. ITAT BANGALORE BENCH HAS FUND THAT THE APPELLANT DID ENGAGE IN BUSINESS ACTIVITY. IT I S INCONCEIVABLE THAT A BUSINESSMAN CAN BE ENGAGED IN BUSINESS ACTIV ITIES IN AN INTERMITTENT MANNER FROM YEAR TO YEAR, WHEN THE SAL E OF OPERATIONS AND QUANTUM OF LOANS RAISED BY THE APPELLANT ARE CO NSIDERED. IN VIEW OF THE ABOVE, I HAVE TO CONCLUDE THAT THE APPE LLANT IS ACTUALLY ENGAGED IN THE BUSINESS OF DEVELOPMENT AND SALE OF REAL ESTATE, AND THAT THE EXPENSES ON THE PREMIUM PAYMENTS ARE ALLOW ABLE U/S 37(1). SIMILAR ISSUE HAS BEEN DECIDED BY ME IN MY O RDER DATED 03- 02-2012 IN THE APPELLANT'S OWN CASE FOR THE AY 2007 -08 WHEREIN AFTER DISCUSSING THIS ISSUE AT LENGTH, I HAVE DIREC TED THE AO TO ALLOW THE EXPENSES ON THE PREMIUM PAYMENTS PAID U/S 37(1). I, THEREFORE, DIRECT THE AO TO ALLOW THIS EXPENDITURE AND THE GROUND OF APPEAL SUCCEEDS. IN VIEW OF THE ABOVE FACTS OF THE CASE FOR THE CURR ENT YEAR AND ALSO CONSIDERING THE POSITION TAKEN BY MY PREDECESS OR, TO BE CONSISTENT, I HAVE TAKEN AN IDENTICAL VIEW OF THE MATTER FOR TH E ASST YEAR 20-9-10. THEREFORE, AS THE FACTS BEING SAME DURING THE CURRE NT YEAR, I AM INCLINED TO AGREE WITH THE SUBMISSIONS MADE BY THE APPELLANT IN THIS REGARD. I ACCORDINGLY DIRECT THE AO TO ALLOW THE E NTIRE EXPENDITURE. ITA NOS. 425, 556 & 557/BANG/2018 PAGE 10 OF 12 THUS, THESE GROUNDS OF APPEAL ARE ALLOWED. 11. SIMILARLY IN ASSESSMENT YEAR 2014-15 ALSO, THE LD. CIT(A) HAS REPRODUCED THE SAME PARAS 4.1.3 AND 4.1.4 FROM THE ORDER OF CI T(A) IN ASSESSMENT YEAR 2008-09 AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE EXCEPT CONFIRMING THE DISALLOWANCE IN RESPECT OF INTEREST ON INTEREST FREE ADVANCES TO THREE SISTER CONCERNS I.E. CENTURY CARBEL RS. 20.12 CRORES, CENTURY ASTRAL RS. 7.40 CRORES AND CANARA HOUSING DEVELOP MENT COMPANY RS. 3.35 CRORES. BEFORE US, THE LD. DR OF REVENUE COUL D NOT POINT OUT ANY DIFFERENCE IN FACTS IN THE PRESENT TWO YEARS AND IN ASSESSMENT YEAR 2008- 09 BECAUSE THE LD. CIT(A) IN THE PRESENT TWO YEARS HAS FOLLOWED THE ORDER OF CIT(A) IN ASSESSMENT YEAR 2008-09. IN ASSESSMENT Y EAR 2008-09, THE REVENUE HAS FILED AN APPEAL BEFORE THE TRIBUNAL ALS O WHICH HAS BEEN DECIDED BY TRIBUNAL IN ITA NOS. 646 & 811/BANG/2012 DATED 20.03.2013 AND WE FIND THAT IN THESE TWO APPEALS OF REVENUE, T HE ONLY ISSUE RAISED BY REVENUE IS REGARDING ALLOWABILITY OF PARTNERSHIP IN SURANCE PREMIUM OF RS. 187 LAKHS AND RS. 506.04 LAKHS FOR THESE TWO YEARS PAID BY THE FIRM BEING THE INSURANCE PREMIUM IN THE NATURE OF KEYMAN INSUR ANCE PREMIA AND REGARDING ALLOWABILITY OF EXPENDITURE ISSUE, NO GRO UND HAS BEEN RAISED BY REVENUE IN THE THESE TWO APPEALS FILED BEFORE TRIBU NAL FOR THESE TWO YEARS. SINCE NO DIFFERENCE IN FACTS HAS BEEN POINTED OUT B Y LD. DR OF REVENUE IN PRESENT TWO YEARS I.E. ASSESSMENT YEARS 2013-14 AND 2014-15, IN OUR CONSIDERED OPINION, IN VIEW OF THE PRINCIPLE OF CON SISTENCY, THE ORDER OF CIT(A) DOES NOT CONTAIN ANY INFIRMITY ON THIS ISSUE IN BOTH THESE YEARS AND HENCE, WE DECLINE TO INTERFERE IN THE ORDER OF CIT( A) ON THIS ISSUE IN BOTH THE YEARS. 12. BEFORE PARTING, WE EXAMINE THE APPLICABILITY OF VARIOUS JUDGEMENTS CITED BY LD. DR OF REVENUE. THE FIRST JUDGEMENT CITED BY HI M IS THE JUDGEMENT OF HONBLE HIGH COURT OF ANDHRA PRADESH RENDERED IN TH E CASE OF CIT VS. TRANSPORT CORPN. INDIA LTD. (SUPRA). IN THAT CASE, THE ISSUE INVOLVED WAS REGARDING ALLOWABILITY OF PAYMENT OF SECRET COMMISS ION BY THE ASSESSEE COMPANY TO THE EMPLOYEES OF CUSTOMERS. IN THE PRES ENT CASE, THE FACTS ARE DIFFERENT AND THEREFORE, THIS JUDGMENT IS NOT APPLI CABLE. 13. THE SECOND JUDGEMENT CITED BY LD. DR OF REVENUE IS THE JUDGEMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF BHARAT C OMMERCE & INDUSTRIES ITA NOS. 425, 556 & 557/BANG/2018 PAGE 11 OF 12 LTD. VS. CIT (SUPRA). IN THIS CASE, THE ISSUE INVO LVED WAS REGARDING ALLOWABILITY OF INTEREST PAID ON DELAYED PAYMENT OF ADVANCE TAX AND THIS WAS THE STAND OF THE REVENUE IN THAT CASE THAT THIS COU LD NOT BE CONSIDERED AS WHOLLY AND EXCLUSIVELY FOR BUSINESS AND IS NOT ALLO WABLE AS BUSINESS EXPENDITURE AND IT WAS HELD THAT THE SAME IS NOT AL LOWABLE. IN THE PRESENT CASE, THIS JUDGMENT IS ALSO NOT APPLICABLE BECAUSE THE FACTS ARE DIFFERENT. 14. THE NEXT JUDGEMENT CITED BY LD. DR OF REVENUE I S THE JUDGEMENT OF HON'BLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF CIT VS . U. MANOHAR RAO (SUPRA). IN THIS CASE, IT WAS HELD THAT PENALTY FO R LATE FILING OF RETURN ON ACCOUNT OF NON-PAYMENT OF TAX WAS JUST AND PROPER. SINCE THE ISSUE INVOLVED IN PRESENT CASE IS DIFFERENT, THIS JUDGMEN T IS ALSO NOT APPLICABLE IN THE PRESENT CASE. 15. HENCE IT IS SEEN THAT NONE OF THE JUDGEMENTS CI TED BY LD. DR OF REVENUE IS RENDERING ANY HELP TO REVENUE IN THE PRESENT CASE. 16. BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. 17. NOW WE TAKE UP THE APPEAL OF THE ASSESSEE. WE FIND THAT IN ASSESSMENT YEAR 2014-15, ALTHOUGH THE CIT(A) HAS DELETED THE D ISALLOWANCE MADE BY THE AO REGARDING VARIOUS EXPENSES BUT HE HAS DIRECT ED THE AO TO MAKE DISALLOWANCE OUT OF INTEREST EXPENDITURE ON PROPORT IONATE BASIS IN RESPECT OF INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE TO THR EE SISTER CONCERNS. A) CENTURY CORBEL OF RS. 2012 LAKHS B) CENTURY AUSTRAL OF RS. 740 LAKHS AND C) CANARA HOUSING DEVELOPMENT COMPANY OF RS. 335 LA KHS TOTAL OF RS. 30.87 CRORES 18. THE BALANCE SHEET OF THE ASSESSEE FIRM FOR THE YEAR ENDING AS ON 31.03.2014 IS AVAILABLE ON RECORD AND AS PER THE SA ME, WE FIND THAT THE ASSESSEES OWN INTEREST FREE FUNDS IN THE FORM OF P ARTNERS CAPITAL AS ON 31.03.2014 WAS TO THE EXTENT OF RS. 35,17,36,566/- AND HENCE, IT IS SEEN THAT THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE IS MUCH MORE THAN THE INTEREST FREE ADVANCES GIVEN BY ASSESSEE FIRM TO ITS SISTER CONCERNS. IN THE LIGHT OF THESE FACTS, WE EXAMINE THE APPLICABILITY OF THE JUDGMENT S OF HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE OF CIT VS. RELIANCE UTIL ITIES AND POWER LTD. (SUPRA) AND OF HONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF CIT VS. BRINDAVAN ITA NOS. 425, 556 & 557/BANG/2018 PAGE 12 OF 12 BEVERAGES PVT. LTD. (SUPRA). AS PER PARA 10 OF THI S JUDGMENT OF HONBLE BOMBAY HIGH COURT, IT IS HELD THAT IF INTEREST FREE FUNDS AVAILABLE WITH ASSESSEE IS SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME, THE A SSESSEE HAS RAISED A LOAN, IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM THE INTEREST FREE FUNDS AVAILABLE AND IN THAT SITUATION, NO DISALLOWANCE CAN BE MADE OUT OF INTEREST EXPENDITURE. HONBLE KARNATAKA HIGH COURT HAS CONSIDERED THIS JU DGMENT OF HONBLE BOMBAY HIGH COURT AND HELD THAT NO SUBSTANTIAL QUESTION OF LAW ARISES BECAUSE THE TRIBUNAL ORDER IS ON THE SAME LINE AS HELD BY HONB LE BOMBAY HIGH COURT. RESPECTFULLY FOLLOWING THESE TWO JUDGMENTS OF HONB LE BOMBAY HIGH COURT AND HONBLE KARNATAKA HIGH COURT, WE HOLD THAT LD. CIT( A) WAS NOT JUSTIFIED IN MAKING DISALLOWANCE OUT OF INTEREST EXPENDITURE IN RESPECT OF INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE FIRM TO ITS THREE SISTER CONCERNS B ECAUSE THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AS ON 31.03.2014 OF RS. 35.17 CRORES IS HIGHER THAN THE INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE FI RM TO ITS THREE SISTER CONCERNS TO THE EXTENT OF RS. 30.87 CRORES. HENCE WE DELETE THIS INTEREST DISALLOWANCE. 19. IN THE RESULT, THE APPEAL FILED BY THE ASSESS EE IS ALLOWED. 18. IN THE COMBINED RESULT, BOTH THE APPEALS OF REV ENUE ARE DISMISSED AND THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTIONPAGE. SD/- SD/- (SUNIL KUMAR YADAV) (ARUN KUMAR GARODI A) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 07 TH NOVEMBER, 2018. /MS/ COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.