DCIT, New Delhi V. M/s. Avantha Realty Ltd., New Delhi

ITA 4360/DEL/2016

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 2923 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 08-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY TRIPATHI
• Keywords: Earning of tax free income
• Section: 14A; 115JB; 64

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A, NEW DELHI BEFORE SH. AMIT SHUKLA, JUDICIAL MEMBER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER ITA NO. 4360/DEL/2016 : ASSTT. YEAR : 2010-11 ITA NO. 4361/DEL/2016 : ASSTT. YEAR : 2011-12 ITA NO. 4362/DEL/2016 : ASSTT. YEAR : 2012-13 ITA NO. 6147/DEL/2017 : ASSTT. YEAR : 2013-14 ITA NO. 6148/DEL/2017 : ASSTT. YEAR : 2014-15 DCIT, CIRCLE-3(2), NEW DELHI-110002 VS M/S AVANTHA REALTY LTD., 124, JANPATH, NEW DELHI-110001 (APPELLANT) (RESPONDENT) PAN NO. A A ACJ8030A ASSESSEE BY : SH. UPVAN GUPTA, ADV. REVENUE BY : SH. SANJAY TRIPATHI, SR. DR DATE OF HEAR ING: 2 1 . 10 .20 2 1 DATE OF PRONOUNCEMENT: 25 .10 .20 2 1 ORDER PER BENCH: THE PRESENT APPEALS HAVE BEEN FILED BY THE REVENUE AGAINST THE ORDERS OF LD. CIT(A)-I, NEW DELHI DATED 04.05.2016 AND 24.05.2016 AND THE ORDER OF LD. CIT(A)-32, NEW DELHI DATED 31.07.2017. 2. SINCE, THE ISSUES INVOLVED IN ALL THESE APPEALS ARE IDENTICAL, THEY WERE HEARD TOGETHER AND BEING ADJUD ICATED BY A COMMON ORDER. ITA NOS. 4360 TO 4362/DEL/2016 ITA NOS. 6147 & 6148/DEL/2017 AVANTHA REALTY LTD. 2 3. IN ITA NO.6147/DEL/2017, FOLLOWING GROUNDS HAVE BEEN RAISED BY THE REVENUE: 1. LD. CIT(A) ERRED ON FACTS AND IN LAW IN DELETIN G DISALLOWANCE OF DEDUCTION CLAIMED U/S 24(B) OF THE INCOME TAX ACT, 1961 ON ACCOUNT OF INTEREST AMOUNTI NG TO RS.6,40,00,000/- INCURRED ON OUTSTANDING PURCHAS E CONSIDERATION TO ACQUIRE THE PROPERTIES OF REAL EST ATE DIVISION OF M/S BALLARPUR INDUSTRIES LTD ON ITS DEM ERGER. 2. LD. CIT(A) HAS FAILED TO APPRECIATE THE FACTS BR OUGHT ON RECORDS BY THE AO THAT THE VALUE OF IMPUGNED PROPERTIES NOWHERE MENTIONED TO BE CONSTRUCTED OR ACQUIRED OUT OF BORROWED FUND AND SECONDLY NO FUND WAS BORROWED BY THE ASSESSEE TO ACQUIRE OR CONSTRUC T THE IMPUGNED PROPERTIES, SO INTEREST INCURRED ON OUTSTANDING PURCHASE CONSIDERATION IS NOT ELIGIBLE FOR DEDUCTION U/S 24(B) OF THE INCOME TAX ACT, 1961. 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE ADDITION TO RS.6,72,266/- AS AGAINS T RS.3,59,40,416/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE U/S 14A R.W.R 8D OF INCOME TAX RULES. 4. THE LD. CIT(A) HAS ERRED IN LAW IN HOLDING THAT SINCE THE ASSESSEE HAS SUO-MOTTO DISALLOWED EXPENDITURE T O THE EXTENT OF RS.3,64,58,112/- RELATING TO EARNING OF EXEMPT INCOME, FURTHER DISALLOWANCE OF EXPENSES U/S 14A CANNOT BE IMPORTED INTO WHILE COMPUTING THE BOO K PROFIT U/S 115JB OF THE INCOME TAX ACT, 1961 IGNORI NG THE PROVISIONS CONTAINED IN EXPLANATION 1(F) TO THE SECTION 115JB WHICH PROVIDES THAT AMOUNT OF EXPENDITURE RELATABLE TO DIVIDEND INCOME HAS TO BE INCREASED FOR THE PURPOSE OF BOOK PROFIT. DEDUCTION OF INTEREST U/S 24: 4. FACTS RELEVANT TO THE ADJUDICATION OF THE FACT T HAT THE ASSESSEE HAS ACQUIRED PROPERTY FROM BALLARPUR INDUS TRIES LTD. (BIL) IN PURSUANCE TO THE DEMERGER ORDER FOR A CONS IDERATION OF RS.140 CRORES. OWING TO THE ACQUISITION FROM BIL, T HE ASSESSEE ITA NOS. 4360 TO 4362/DEL/2016 ITA NOS. 6147 & 6148/DEL/2017 AVANTHA REALTY LTD. 3 HAS INCURRED DEBT OF RS.64,00,00,000/- WHICH NEEDS TO BE PAID TO BIL ON ACCOUNT OF THE PROPERTY. BY WAY OF AN AGR EEMENT BETWEEN THE BIL AND THE ASSESSEE, THE ASSESSEE PAID INTEREST OF RS.6.4 CRORES @ 10% TO BIL ON THE OUTSTANDING AMOUN T OF RS. 64 CR. THE UNPAID PURCHASE PRICE IS TREATED AS BORR OWED CAPITAL BY THE ASSESSEE AND THE INTEREST PAID THEREON IS CL AIMED AS DEDUCTION U/S 24 OF THE ACT UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE ASSESSING OFFICER DISALLOWED THE INT EREST PAID BY THE ASSESSEE TO BIL ON THE GROUNDS THAT THE UNPAID PURCHASE AMOUNT HAS NOT BEEN PAID EVEN AFTER SO MANY YEARS O F TRANSACTIONS IN THE AMALGAMATION SCHEME NEVER ENVIS AGED THE NON-PAYMENT OF PURCHASE PRICE PERPETUALLY. THE AO H ELD THAT THIS IS A CONVOLUTED SCHEME BY THE ASSESSEE TO RESO RT TO THE DEDUCTION U/S 24(B). 5. THE LD. CIT(A) DISAGREED WITH THE OBSERVATION OF THE ASSESSING OFFICER AND HELD THAT INTEREST ON UNPAID AMOUNT TO THE SELLER IS AKIN TO INTEREST ON BORROWED CAPITAL AND SINCE IT IS AN INTEREST ON BORROWED CAPITAL, THE ASSESSEE IS EL IGIBLE FOR DEDUCTION U/S 24(B) OF THE ACT. THE LD. CIT(A) ALSO HELD THAT THE DEDUCTION WAS ALLOWED BY THE REVENUE IN THE EARLIER YEARS. 6. BEFORE US, THE LD. DR ARGUED THAT THE PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO THE DECISION OF INCOME TAX AUTHORITIES AND RELIED UPON THE JUDGMENTS OF HONBL E MADHYA PRADESH HIGH COURT IN THE CASE OF LACHHIRAM PURANMA L VS. CIT (119 TAXMMAN), JUDGMENT OF HONBLE BOMBAY HIGH COUR T IN THE CASE OF BAIJNATH BRIJMOHAN & SONS (P.) LTD. VS. CIT (161 ITR 234), JUDGMENT OF HONBLE DELHI HIGH COURT IN THE C ASE OF PROMINENT MOTORS (INDIA) VS. CIT (8 TAXMANN 181), J UDGMENT OF ITA NOS. 4360 TO 4362/DEL/2016 ITA NOS. 6147 & 6148/DEL/2017 AVANTHA REALTY LTD. 4 HONBLE CALCUTTA HIGH COURT IN THE SMT. KAMALA DEVI JHAWAR VS. CIT (115 ITR 401) AND THE ORDER OF CO-ORDINATE BENC H OF ITAT, AGRA IN THE CASE OF MEERAJ ESTATE & DEVELOPERS VS D CIT (44 TAXMANN 431) WHEREIN IT WAS HELD THAT THE PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO THE DECISION OF INCOME TAX AUTHORITIES. 7. WE AGREE WITH THE ARGUMENT OF THE LD. DR. WE FIN D THAT THE LD. CIT(A) HAS NOT SOLELY ADJUDICATED BASED ON THE EARLIER ASSESSMENTS BUT HAS ALSO SO CONSIDERED THE VARIOUS JUDGMENTS OF HONBLE HIGH COURT OF CALCUTTA IN THE CASE OF CI T VS. R.P GOENKA (233 ITR 128) AND THE JUDGMENT OF HONBLE PU NJAB & HARYANA IN THE CASE OF CIT VS. SUNIL KUMAR SHARMA ( 254 ITR 103) WHEREIN IT WAS HELD THAT UNPAID PRICE IS TO BE TREATED AS BORROWED CAPITAL WITHIN THE MEANING OF SECTION 24(B ). HENCE, ON INDEPENDENT EXAMINATION OF THE FACTS AND THE PRO VISIONS OF LAW, WE HOLD THAT THE INTEREST PAID BY THE ASSESSEE TO BIL IS AN ALLOWABLE DEDUCTION AS IT AMOUNTS TO INTEREST ON TH E CAPITAL BORROWED. DISALLOWANCE U/S 14A: 8. AT THE OUTSET, THE LD. AR ARGUED THAT THE DISALL OWANCE CANNOT BE MORE THAN THE EXEMPT INCOME EARNED. SINCE , THE PROPOSITION OF LAW IS CLEAR BY NOW THAT THE DISALLO WANCE CANNOT EXCEED THE EXEMPT INCOME, THE CONTENTION OF THE LD. AR IS ALLOWED. 9. WITH REGARD TO CONSIDERATION OF DISALLOWANCE OF EXPENSES U/S 14A FOR COMPUTING THE BOOK PROFIT U/S 115JB, WE HEREBY HOLD THAT IN ACCORDANCE WITH THE CLAUSE (F) OF EXPL ANATION TO ITA NOS. 4360 TO 4362/DEL/2016 ITA NOS. 6147 & 6148/DEL/2017 AVANTHA REALTY LTD. 5 SECTION 115JB, THE DISALLOWANCE UNDER SECTION 14A O F THE ACT IS A NOTIONAL DISALLOWANCE AND THEREFORE, BY TAKING RE COURSE TO SECTION 14A OF THE ACT, THE AMOUNT CANNOT BE ADDED BACK TO BOOK PROFIT UNDER CLAUSE (F) OF SECTION 115JB OF THE ACT. THE AO IS DIRECTED TO RE-COMPUTE THE PROFITS FOLLOWING THE TWO DIRECTIONS GIVEN ABOVE. 10. IN THE RESULT, ALL THE APPEALS OF THE REVENUE A RE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25/10/2021. SD/- SD/- (AMIT SHUKLA) (DR . B. R. R. KUMAR) JUDICIAL MEMBER ACCOUN TANT MEMBER DATED: 25/10/2021 *SUBODH KUMAR, SR. PS* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR