LATE HARBANS SINGH SETHI ( THROUGH L/H SARABJIT SING SETHI ), MUMBAI V. ACIT RG 19(1), MUMBAI

ITA 436/MUM/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59713 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 03-01-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 18-01-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Assessee Lawyers: MILIND KOTHARI
• Keywords: Business income; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H BEFORE SHRI J. SUDHAKAR REDDY(AM) & SHRI V.DURGA RA O(JM) I.T.A.NO. 436/MUM/2010 (ASSESSMENT YEAR : 2005-06) LATE SHRI HARBANS SINGH SETHI (THROUGH L/H SARABJIT SINGH SETHI) 166, CST ROAD, KALIANA SANTACRUZ, MUMBAI-400 098. VS. ACIT 19(1) MUMBAI APPLICANT RESPONDENT PAN/GIR NO. : ABIPS5048P ASSESSEE BY : SHRI MILIND KOTHARI DEPARTMENT BY : SHRI D.S. SUNDER SINGH DATE OF HEARING : 3.1.2012 DATE OF PRONOUNCEMENT : 18.1.2012 ORDER PER J. SUDHAKAR REDDY(AM) :- THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF LEARNED CIT(A)-30, MUMBAI DATED 25.11.2009 FOR A .Y. 2005-06 ON THE FOLLOWING GROUNDS :- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LEARNED CIT(A) HAS LEGALLY ERRED IN CONFIRMING PENALTY OF ` 3,61,757/- LEVIED BY THE ASSESSING OFFICER UNDER SECTION 271(1 )(C) OF THE ACT. 2. THE ASSESSEE IS AN INDIVIDUAL AND IS A PROPRIETO R OF M/S. G.S. SETHI & SONS WHICH IS ENGAGED IN SEVERAL BUSINESSES INCLUDING DEALERS IN AUTOMOBILE SPARE PARTS, HIRING EQUIPMENTS ETC. 3. THE ASSESSEE HAD BORROWED MONEY FROM UCO BANK FO R THE CONSTRUCTION OF COMMERCIAL PREMISES. A PART OF PREM ISES WAS SOLD TO THE THIRD PARTY. CERTAIN PART OF THE PREMISES WAS GIVEN ON LEAVE AND LICENSE BASIS AND CERTAIN PORTION WAS RETAINED BY THE ASSES SEE AND USED AS BUSINESS PLAZA, BANQUETS AND FOR SETTING UP GYMNASI UM. THE ASSESSEE ALSO RETAINED A SMALL PORTION FOR BEING SOLD AT ITS FUTURE DATE. THE ASSESSEE PAID INTEREST TO UCO BANK AND CLAIMED THE SAME AS DEDUCTION. THE ASSESSING OFFICER RESTRICTED THE DEDUCTION BY O BSERVING AS FOLLOWS :- LATE SHRI HARBANS SINGH SETHI 2 3.2 IT IS SEEN THAT THE INTEREST PAID NEEDS TO BE APPORTIONED BETWEEN THE PREMISES GIVEN ON HIRE, PREMISES USED F OR THE PURPOSE OF BUSINESS AND BALANCE PREMISES IN THE FOLLOWING M ANNER :- S.NO. USE OF PROPERTY AREA (SQ.FT.) INTEREST APPORTIONED 1 LET OUT PREMISES- UTI BANK, GROUND FLOOR AND SAS SERVICES PVT. LTD., 1 ST FLOOR 2650 3,30,787 2 PREMISES USED FOR BUSINESS-PLAZA BANQUETS ON GROUND FLOOR, BANQUETS ROOMS ON 2 ND FLOOR AND GYMNASIUM ON 3 RD FLOOR 12,410 15,49,0 3 BALANCE AREA 7,860+8,610= 16470 20,55,875 TOTAL 31,530 39,35,746 3.3 ONLY INTEREST OF ` 15,49,084/- INSTEAD OF THE WHOLE INTEREST ON CONSTRUCTION LOAN OF ` 39,35,746/- WILL BE ALLOWABLE AGAINST BUSINESS INCOME. HENCE, ADDITION OF ` 23,86,662/- IS REQUIRED TO BE MADE IN THE BUSINESS INCOME SHOWN BY THE ASSESSEE. AN INTEREST OF ` 3,30,787/- WILL BE ALLOWABLE AGAINST INCOME FROM H OUSE PROPERTY. FURTHER, INTEREST OF ` 20,55,875/- CAN NOT BE ALLOWED AS REVENUE EXPENDITURE BUT CAN BE CAPITALIZED BY THE ASSESSEE. THIS INTEREST AMOUNT WILL GO TOWARDS INCREASING THE CONSTRUCTION COST. THE ASSESSEE HAS FURTHER CLAIMED THAT INCREASE IN THIS CONSTRUCTION COST WILL REDUCE HIS PROFITS ON SALE OF PREMISES AND HEN CE, BENEFIT OF THE SAME SHOULD BE GIVEN TO HIM. IT IS SEEN THAT THE AS SESSEE HAS SOLD 7860 SQ. FT. AREA OUT OF THE BALANCE AREA OF 16470 SQ.FT. BECAUSE OF INCREASED CONSTRUCTION COST, THE PROFIT ON SALE OF 7860 SQ.FT. PREMISES WILL BE REDUCED BY ` 9,81,128/-. SINCE, THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF HIS INCOME, PEN ALTY PROCEEDINGS U/S. 271(1)(C) ARE SEPARATELY INITIATED. THEREAFTER PENALTY WAS LEVIED U/S.271(1)(C) OF THE ACT. THE ASSESSEE CARRIED THE MATTER IN APPEAL WITHOUT SUCCESS. AGGRI EVED, THE ASSESSEE IS BEFORE US. 4. WE HAVE HEARD MR. MILIND KOTHARI, LEARNED COUNSE L FOR THE ASSESSEE AND MR. D.S. SUNDER SINGH, SR. AR. ON CAR EFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, PERUSAL OF THE PAPERS ON RECORD AND ORDERS OF THE AUTHORITIES BELOW, WE HOLD AS FOL LOWS :- THE DISALLOWANCE IN QUESTION IS MADE ON THE GROUND THAT THE INTEREST SHOULD HAVE BEEN CAPITALIZED. THE UNDISPUT ED FACT IS THAT THE CONSTRUCTION OF A BUILDING WAS COMPLETED IN THE EAR LIER YEAR. TO THE EXTENT THE PROPERTY IS LET OUT, INTEREST IS ALLOWAB LE U/S. 24. FOR THE BALANCE AREA WHICH IS HELD EITHER AS STOCK IN TRADE OR AS PREMISES USED LATE SHRI HARBANS SINGH SETHI 3 FOR BUSINESS OF BANQUETS PLAZA AND GYMNASIUM, THE I NTEREST PAID IS ALLOWABLE U/S. 36(1)(III). THE ASSESSEE FOR CERTAIN REASONS HAS NOT DISPUTED THE ADDITION MADE BY THE ASSESSING OFFICER . THIS BY ITSELF DOES NOT MAKE THE DISALLOWANCE CORRECT IN LAW. WE ALSO F IND THAT THE ASSESSING OFFICER FOR THE SUBSEQUENT ASSESSMENT YEAR 2006-07 IN AN ORDER PASSED U/S. 143(3), HAS ALLOWED THE INTEREST EXPENDITURE O F THE ASSESSEE. IN OUR OPINION THE INTEREST IN QUESTION WAS ALLOWABLE EITH ER U/S. 36(1)(III) AS WELL U/S. 24 TO THE EXTENT APPORTIONED BY THE ASSESSING OFFICER. THUS, WE ARE OF THE OPINION THAT THERE IS NEITHER CONCEALMENT OF INCOME NOR FURNISHING OF INACCURATE PARTICULARS. MERE DISALLOWANCE OF A C LAIM DOES NOT WARRANT LEVY OF PENALTY U/S. 271(1)(C). 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER HAS BEEN PRONOUNCED ON 18 TH DAY OF JANUARY, 2012. SD/- (V. DURGA RAO) JUDICIAL MEMBER SD/- (J. SUDHAKAR REDDY) ACCOUNTANT MEMBER DATED : 18 TH JANUARY, 2012. COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-CONCERNED. 4. THE CIT, CONCERNED. 5. THE DR CONCERNED, MUMBAI 6. GUARD FILE BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI PS LATE SHRI HARBANS SINGH SETHI 4 DURING THE COURSE OF ASSESSMENT PROCEEDINGS VARIOU S DETAILS/EXPLANATIONS WERE ASKED AND WERE FURNISHED BY THE ASSESSEES COUNSEL IN SUPPORT OF HIS RETURN OF INCO ME. AFTER EXAMINING THE DETAILS SUBMITTED, THE ASSESSMENT FRA MED AS UNDER:- INTEREST EXPENSES WRONGLY CLAIMED AS REVENUE EXPENS ES : IT IS SEEN DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT TH E ASSESSEE HAS DEBITED INTEREST EXPENDITURE PERTAINING TO LOAN TAK EN FOR CONSTRUCTION OF ` 39,35,746/-. IN THE PROFIT AND LOSS ACCOUNT ALONG WITH INTEREST ON LOAN TAKEN FOR OTHER PURPOSES. IT IS SEEN THAT THE ENTIRE AMOUNT OF INTEREST ON THIS LOAN HAS BEEN DEB ITED TO P&L ACCOUNT THOUGH ONLY PART OF THE PREMISES HAVE BEEN USED FOR BUSINESS AND HIRING PURPOSE. THE ASSESSEE HAS USED THE CONSTRUCTED PREMISES IN THE FOLLOWING MANNER :- S.NO. USE OF PROPERTY AREA (SQ.FT.) 1 LET OUT PREMISES UTI BANK, GROUND FLOOR AND SAS SERVICES PVT., 1 ST FLOOR 2650 2 PREMISES USED FOR BUSINESS PLAZA BANQUETS ON GRO UND FLOOR, BANQUET ROOMS ON 2 ND FLOOR AND GYMNASIUM ON 3 RD FLOOR 12,410 3 AREA SOLD DURING THE YEAR 7,860 4 BALANCE AREA SOLD DURING THE A.Y. 2004-05 AND LYI NG VACANT FOR SUBSEQUENT OCCUPATION BY TENANTS 8,610 TOTAL 31,530