M/S SUMERU ENTERPRISES, Jaipur V. DCIT, Jaipur

ITA 446/JPR/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5179 (ITAT-JAIPUR)
• Duration Of Justice: 4 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 09-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P BATEJA CIT DHK
• Assessee Lawyers: O P AGARWAL CAS
• Keywords: Depreciation; Business expenditure; Additional evidence
• Section: 37(1)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH HKKXPUN] YS[KK LNL; ,OA JH DQY HKKJR] U;KF;D LNL; DS LE{K BEFORE: SHRI BHAGCHAND, AM AND SHRI KUL BHARAT, JM VK;DJ VIHY LA-@ ITA NO. 446/JP/2012, 764/JP/2013 & 158/JP/2015. FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2008-09, 09-10 & 11-12. M/S. SUMERU ENTERPRISES, H-1-29, OLD TOURIST HOTEL BUILDING, SUBHASH MARG, C-SCHEME, JAIPUR. CUKE VS. THE DE PUTY COMMISSIONER OF INCOME TAX/ACIT, CIRCLE-6, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AAEFS 3266 L VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI MANISH AGARWAL & SHRI O.P. AGARWAL (CAS) JKTLO DH VKSJ LS@ REVENUE BY : SHRI O.P. BATEJA (ADDL.CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 27.07.2016. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 22/08/2016. VKNS'K@ ORDER PER BENCH : THESE THREE APPEALS BY THE ASSESSEE ARE DIRECTED A GAINST THREE SEPARATE ORDERS OF LD. CIT (A)-II/CIT (A)-2, JAIPUR DATED 16 .03.2012, 31.07.2013 AND 19.01.2015 PERTAINING TO ASSESSMENT YEARS 2008-09, 09-10 & 11-12. IN ALL THESE APPEALS IDENTICAL GROUNDS HAVE BEEN RAISED, THEREFO RE, ALL THREE APPEALS ARE TAKEN UP TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF A CON SOLIDATED ORDER, FOR THE SAKE OF CONVENIENCE. 2. THE ONLY EFFECTIVE GROUND IN ALL THESE APPEALS I S WITH REGARD TO DISALLOWANCE OF INTEREST EXPENDITURE CLAIMED TO HAVE BEEN TAKEN FOR BUSINESS PURPOSES. FIRST, WE TAKE UP ITA NO. 446/JP/2012 PERTAINING TO ASSESSMEN T YEAR 2008-09. 2 ITA NO. 446(3)/JP/2012 M/S. SUMERU ENTERPRISES. 3. BRIEFLY STATED THE FACTS ARE THAT THE CASE OF TH E ASSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND ASSESSMENT UNDER SECTION 14 3(3) OF THE I.T. ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VID E ORDER DATED 29.11.2010. WHILE FRAMING THE ASSESSMENT, THE AO MADE DISALLOWANCE OF INTEREST OF RS. 2,51,64,779/- AND ALSO DEPRECIATION OF RS. 9,738/- ON THE GROUND THAT THE ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY AND THE PAYMENT OF INTERE ST ON THE LOAN TAKEN FOR PAYING OF EARLIER LOAN IS THUS NOT FOR THE PURPOSES OF BUSINE SS. AGGRIEVED BY THIS ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT (A), WH O AFTER CONSIDERING THE SUBMISSIONS DISMISSED THE APPEAL OF THE ASSESSEE IG NORING THE DECISION OF THE ITAT JAIPUR ON THE GROUND THAT WHILE DECIDING THE APPEAL S OF THE ASSESSEE BY THE JAIPUR BENCH OF THE TRIBUNAL, FOR EARLIER YEARS, ALL THE F ACTS WERE NOT AVAILABLE BEFORE THE TRIBUNAL AND THERE IS MATERIAL CHANGE IN THE FACTS AND CIRCUMSTANCES IN THE CURRENT YEAR. 4. NOW THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNA L. 5. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN EARLIER YEARS. HE SUBMITTED T HAT THE INTEREST EXPENDITURE IS ALLOWABLE DEDUCTION AND HAS BEEN TAKEN FOR BUSINESS PURPOSES. THE LD. COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE ON VARIOUS JUDICIA L PRONOUNCEMENTS. IN SUPPORT OF HIS CONTENTION, LD. COUNSEL HAS RELIED ON THE DECIS ION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF SHINGAR LAMPS LTD. VS. ADDL . CIT (2006) 150 TAXMAN 17 (ASR.)(MAG.). THE LD. COUNSEL ALSO PLACED RELIANCE ON THE DECISION OF TRIBUNAL IN THE CASE OF KNP SECURITIES (P) LTD. VS. ACIT, 33 DTR 21 0 (MUMBAI)(TRIB.) AND ON THE JUDGMENT OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. RAJ KUMAR 3 ITA NO. 446(3)/JP/2012 M/S. SUMERU ENTERPRISES. SINGH, 295 ITR 81 (ALL.). THE LD. COUNSEL FOR THE ASSESSEE HAS REITERATED THE SUBMISSIONS AS MADE IN THE WRITTEN SUBMISSION. 5.1. ON THE CONTRARY, LD. D/R OPPOSED THE SUBMISSIO NS OF THE ASSESSEE AND SUBMITTED THAT THERE IS NO ILLEGALITY IN THE ORDERS OF THE AUTHORITIES BELOW. HE SUBMITTED THAT THE FACTS OF THE PRESENT CASE ARE DI STINGUISHABLE FROM THE FACTS OF THE CASE LAW AS RELIED UPON BY THE LD. COUNSEL. HE SUB MITTED THAT ADMITTEDLY THE ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY DURING THE YEAR UNDER APPEAL, THEREFORE, INTEREST EXPENDITURE SO PAID IS NOT ALLO WABLE. 5.2. WE HAVE HEARD RIVAL CONTENTIONS, PERUSED THE M ATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN THE WRITTEN SUBMISSION THE ASSESSEE HAS SUBMITTED AS UNDER :- AT THE OUTSET, IT IS SUBMITTED THAT THE DISALLOWA NCE OF IDENTICAL NATURE BY MAKING SIMILAR ALLEGATION UNDER SIMILAR CIRCUMSTANCE WERE ALSO MADE IN CASE OF THE ASSESSEE FOR ASSESSMENT YEARS 2004-05 WHICH STOOD DELETED BY THE LD. CIT (A) AND SUCH ORDERS WERE UPHOLD BY THIS HONBLE TRIBUNAL BY DISM ISSING THE APPEAL OF THE DEPARTMENT VIDE ORDER DATED 10-12-2010 IN ITA NO.28 2/JP/2010 (APB 39-41) . THE RELEVANT OBSERVATION OF HONBLE BENCH IN ORDER FOR A.Y.2004-05 AT PAGE 5 IN PARA 7 ARE REPRODUCED HEREIN BELOW FOR READY REFERENCE (APB 41) . 7. WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED THEM CAREFULLY. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERI AL ON RECORD, WE FIND NO INFIRMITY IN THE FINDING OF LD. CIT(A). THE LD. CIT (A) HAS ASCERTAINED THE FACTUAL ASPECT THAT THIS IS NOT A CLOSURE OF BUSINE SS BUT TEMPORARY DISCONTINUANCE OF BUSINESS. WE FURTHER NOTED THAT IN EARLIER YEARS THE INTEREST EXPENDITURE CLAIMED BY ASSESSEE WERE ALLOWED BY THE DEPARTMENT ITSELF. HOWEVER, IN THE YEAR UNDER CONSIDERATION THE SAME W AS NOT ALLOWED FOR THE REASON THAT DURING THE YEAR UNDER CONSIDERATION FRE SH LOANS HAVE BEEN TAKEN BY THE ASSESSEE FOR REPAYMENT OF OLD LOANS TAKEN FO R THE PURPOSE OF BUSINESS. FRESH LOANS TAKEN DURING THE YEAR UNDER CONSIDERATI ON FOR THE PURPOSE OF REPAYING THE LOANS TAKEN IN PAST FOR THE PURPOSE OF BUSINESS, IN OUR 4 ITA NO. 446(3)/JP/2012 M/S. SUMERU ENTERPRISES. CONSIDERED VIEW DOES NOT CHANGE THE CHARACTER OF TH E LOAN TAKEN DURING THE YEAR UNDER CONSIDERATION. THE LOAN TAKEN FOR THE YE AR UNDER CONSIDERATION HAS TO BE TREATED AS TAKEN FOR BUSINESS PURPOSES FO R THE SIMPLE REASON THAT THIS LOAN WAS SUBSTITUTED WITH THE LOANS TAKEN IN P AST AFTER REPAYING THE OLD LOANS. THERE IS A DIRECT NEXUS BETWEEN THE FRESH LO ANS AND OLD LOANS BECAUSE THE FRESH LOANS HAVE BEEN UTILIZED FOR THE PURPOSE OF REPAYING THE OLD LOAN. NOW FRESH LOANS PARTAKES THE CHARACTER OF LOANS TAK EN FOR BUSINESS PURPOSES . INTEREST PAID ON OLD LOANS WAS HELD AS ALLOWABLE, THEREFORE, INTEREST PAID ON FRESH LOANS HAS TO BE ALLOWED AS THE CHARAC TER OF LOAN REMAINS THE SAME BUT ONLY CHANGE OF THE NAME OF THE PERSON / IN STITUTION FROM WHOM THE FRESH LOANS ARE TAKEN. THEREFORE, THE DECISION OF H ONBLE ALLAHABAD HIGH COURT CONSIDERED BY LD. CIT(A) IN CASE OF RAJ KUMAR SINGH & CO. (SUPRA) IS DIRECTLY ON THE ISSUE. THEREFORE, WE SEE NO REASON TO INTERFERE WITH THE FINDING OF LD. CIT(A). ACCORDINGLY, WE CONFIRM THE FINDINGS OF THE LD. CIT(A) IN RESPECT TO BOTH THE DISALLOWANCES DELETED BY HIM. FURTHER THIS HONBLE TRIBUNAL HAS ALSO DISMISSED TH E APPEALS OF THE DEPARTMENT FOR THE ASSESSMENT YEAR 2005-06 & 2007-08 VIDE ORDER DATED 13.01.2011 PASSED IN ITA NOS. 416 & 417/JP/2010 (APB 42-45) BY OBSERVING THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF HONBLE ITAT FOR THE ASSESSMENT YEA R 2004-05 AND CONFIRMED THE ORDER OF LD. CIT(A), DELETING THE DISALLOWANCES. IN THE YEAR UNDER APPEAL LD. CIT(A) CONFIRMED THE DISALLOWANCE BY ALLEGING THAT THERE W ERE CERTAIN FACTS WHICH WERE NOT BROUGHT ON RECORD IN PRECEDING ASSESSMENT YEARS THE REFORE, THE JUDICIAL PROPRIETARY COULD NOT BE FOLLOWED. SUCH CONCLUSION OF LD. CIT(A ) IS BASED ON MIS-APPRECIATION OF THE FACTS SOLELY RELYING UPON THE REMAND REPORT GIV EN BY THE AO ( APB 8-11 ) WHEREIN THE LD. AO HAD EXCEEDED HIS JURISDICTION AND TRIED TO COMMENT UPON THE MATTERS WHICH HAVE ALREADY BEEN SETTLED BY THE HONBLE ITAT IN THE CASE OF THE APPELLANT COMPANY ITSELF SPECIALLY WITH REFERENCE TO THE COST OF WORK IN PROGRESS CARRIED OVER FROM A.Y. 1995-96 WHICH ORDER TRAVELED UP TO THE HO NBLE ITAT AND THE CLOSING WORK IN PROGRESS AS CLAIMED BY THE APPELLANT WAS CO NFIRMED BY THE HONBLE BENCH HOWEVER MERELY FOR A TYPOGRAPHICAL ERROR SUCH COST WHICH HAS BEEN MADE BASIS FOR DISBELIEVING THE SUBMISSIONS MADE. SUCH AN ERROR WA S CONSIDERED AND DECIDED IN FAVOUR OF APPELLANT BY THE HONBLE ITAT IN RESPECT TO THE ASSESSEES APPEAL FOR A.Y. 1996-97 IN ITA NO. 392/JP/2003 DATED 07.11.2006 WHI LE DISPOSING GROUND OF APPEAL NO.4 AND RELEVANT OBSERVATIONS ARE AT PAGE 16 & 17 AT PARA 4.7 OF THE ORDER. 5 ITA NO. 446(3)/JP/2012 M/S. SUMERU ENTERPRISES. IN THE AFORESAID CONTEXT, IT IS SUBMITTED THAT THE LD. AO HAD DISALLOWED THE INTEREST EXPENSES OF RS. 2,51,64,779/- PAID ON BORROWED FUND S, ON THE GROUND THAT NO BUSINESS ACTIVITY WAS CARRIED ON DURING THE ASSESSMENT YEAR UNDER APPEAL AND THERE IS NO DIRECT NEXUS OF INTEREST EXPENSES WITH THE BUSINESS OF THE APPELLANT WHICH FINDING IS BASED TOTALLY ON ASSUMPTIONS AND PRESUMPTIONS. FACTS OF THE CASE ARE THAT APPELLANT HAD TAKEN UNSE CURED LOANS FROM VARIOUS PARTIES IN F.Y. 1995-96 FOR ITS REAL ESTATE BUSINESS I.E. FOR CONSTRUCTION OF COMMERCIAL COMPLEX HAVING SHOPS AND OFFICES. UPTO A.Y. 2000-01, THE IN TEREST PAID ON SUCH BORROWED FUNDS WAS ADDED TO THE COST OF WORK IN PROGRESS, HO WEVER, FROM A.Y. 2001-02 AND ONWARDS IT WAS DECIDED TO CLAIM THE SAME SEPARATELY IN THE PROFIT & LOSS ACCOUNT AS NORMAL BUSINESS EXPENDITURE AND THE RETURNS FILED B Y CLAIMING SUCH EXPENSES WERE NEVER DOUBTED AND PROCESSED U/S 143(1) BY THE DEPAR TMENT. FOR THE FIRST TIME IN A.Y. 2004-05, THE DEPARTMENT HAS CHANGED ITS STAND BY AL LEGING THAT THE ASSESSEE HAS TAKEN FRESH LOANS THEREFORE, THEY LOOSE THEIR CHARACTER O F BUSINESS EXPEDIENCY AND ACCORDINGLY DISALLOWANCE OF INTEREST WAS MADE. WHIL E DOING SO, THE FACT THAT IN THE A.Y. 2004-05 FRESH LOANS HAVE BEEN TAKEN BY THE ASS ESSEE FIRM FOR THE PURPOSE OF REPAYMENT OF OLD LOANS AND THE INTEREST PAYMENT WAS MADE DURING THE YEAR ON THE SAID LOANS WHICH WERE OBTAINED AND UTILIZED WHOLLY AND E XCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE APPELLANT AND ARE ADMISSIBLE EXPEND ITURE U/S 36(1)(III) OR 37(1) OF THE INCOME TAX ACT, 1961 WAS IGNORED BY THE DEPARTMENT. THERE IS DIRECT NEXUS AND LIVE LINK BETWEEN THE INTEREST EXPENDITURE AND THE BUSIN ESS OF THE APPELLANT BUT THE LD. AO ALLEGED THAT THERE IS NO SUCH DIRECT NEXUS BY STATI NG THAT FRESH LOANS RAISED ARE NOT FOR THE PURPOSE OF BUSINESS BUT TO PAY OFF THE OLD LOAN S AND SINCE THE OLD LOANS WERE EXCLUSIVELY USED FOR THE PURPOSE OF BUSINESS ONLY T HUS THE EXPENDITURE IN SHAPE OF INTEREST ON SUCH LOANS IS AN ALLOWABLE EXPENDITURE U/S 36(1)(III) OR 37(1) OF THE INCOME TAX ACT, 1961. RELIANCE IS PLACED ON THE CASE OF KALPANA TRADING CORPORATION VS. ITO, 156 TAXMAN 78, ITAT, MUMBAI BENCH, MUMBAI . BASED ON THESE FACTS, THE LD. CIT(A) AS WELL AS THE HONBLE BENCH HAD ALLOWED THE EXPENSES CLAIMED BY THE ASSESSEE ON ACCOUNT OF INTEREST PAID ON SUCH BORROW ED FUNDS. IN THE YEAR UNDER APPEAL WHILE DISALLOWING THE EXPE NDITURE, THE OBSERVATIONS OF LD. ASSESSING OFFICER HIMSELF ARE SELF CONTRADICTORY AS : 6 ITA NO. 446(3)/JP/2012 M/S. SUMERU ENTERPRISES. IN PAGE 3 POINT 2 (FIRST PARA) OF ASSESSMENT ORDE R THE LD. AO OBSERVED THAT: SECTION 36(1)(III) CATEGORICALLY SPELLS THAT O NLY THAT INTEREST PAID IS AN ALLOWABLE EXPENDITURE IF IT IS IN RESPECT OF CAP ITAL BORROWED FOR THE PURPOSE OF BUSINESS IN PAGE 3 POINT 4 (FOURTH PARA) OF ASSESSMENT ORDE R HE FURTHER OBSERVED THAT: AS REGARDS THE INTEREST PAYMENT, IT DESERVES A ME NTION HERE THAT THE ASSESSEE HAD TAKEN LOANS FROM VARIOUS PARTIES IN TH E F.Y. 1995-96 FOR THE PURPOSE OF BUSINESS OF REAL ESTATE I.E. FOR CONSTRU CTING SHOPS AND OFFICES IN A COMMERCIAL COMPLEX. IN THE INSTANT YEAR I.E. A .Y. 2007-08 FRESH LOANS HAVE BEEN TAKEN BY ASSESSEE NOT FOR THE PURPOSE OF BUSINESS OF REAL ESTATE AND SALE OF SHOPS AND OFFICES, BUT TO REPAY OLD LOA NS.. FROM THE PERUSAL OF THE AFORESAID OBSERVATION OF LD . AO, THE FACT THAT THE LOANS TAKEN DURING THE YEAR UNDER APPEAL WERE IN FACT FOR THE REPAYMENT OF OLD LOANS TAKEN FOR BUSINESS PURPOSES IS NOT IN DISPUTE RATHE R THE AO HIMSELF HAS ACCEPTED THE SAME AS STATED ABOVE. FURTHER WHILE MAKING DISALLOWANCE OF THE EXPENDITUR E CLAIMED U/S 36(1)(III) ON ACCOUNT OF INTEREST ON BORROWED FUNDS BY THE APPELL ANT, THE LD. AO ALLEGED THAT THE BUSINESS OF THE ASSESSEE COMPANY WAS DISCONTINUED W HICH WAS FURTHER MENTIONED IN THE REMAND REPORT WHICH HAD BEEN RELIED UPON BY THE LD. CIT(A) WHO AT PARA 3.2 IN PAGE 9 OF THE APPELLATE ORDER HAS OBSERVED THAT ANY TEMPORARY SUSPENSION IN THE BUSINESS CANNOT LAST FOR 15 YEARS. WHILE OBSERVING SO THE LD. AO AS WELL AS LD. CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT THE B USINESS OF THE APPELLANT WAS IN TEMPORARY SUSPENSION DUE TO THE STAY ORDER ON ITS R EAL ESTATE ACTIVITY BY THE HONBLE RAJASTHAN HIGH COURT VIDE ITS ORDER DATED 26.03.199 6 AS SUCH THE APPELLANT WAS FOLLOWING THE DIRECTIONS OF THE HONBLE JURISDICTIO NAL HIGH COURT DURING THE SUSPENSION OF ITS REAL ESTATE ACTIVITY. IN THIS REGARD, IT IS FURTHER SUBMITTED THAT THERE WAS NO TOTAL DISCONTINUANCE OF BUSINESS OF THE APPELLANT AS PRESUMED BY THE AO AND LD. CIT( A). THE APPELLANT HAD EARNED INCOME FROM COMPLEX MAINTENANCE CHARGES AND INTEREST INCOME FROM SUNDRY 7 ITA NO. 446(3)/JP/2012 M/S. SUMERU ENTERPRISES. DEBTORS. ON THE BASIS OF SAME AND UNCHANGED FIGURE OF OPENING AND CLOSING STOCK, THE LD. AO CONCLUDED THAT DURING THE YEAR UNDER CONSIDE RATION THERE WAS NO BUSINESS ACTIVITY CARRIED OUT AND ACCORDINGLY HELD THAT THE INTEREST CLAIMED U/S 36(1)(III) WAS NOT ADMISSIBLE. FURTHER THE LD. AO ALLEGED THAT THE NEXUS OF PAYMENT WITH STOCK IN TRADE AND NOT WITH SUNDRY DEBTORS. THE ALLEGATION O F THE LD. AO WITH REGARD TO NEXUS ARE INCORRECT AS THE NEXUS OF PAYMENT OF INTEREST I S FULLY JUSTIFIED WHICH IS ON ACCOUNT OF BORROWED LOANS WHICH WERE UTILIZED FOR PURPOSE O F REAL ESTATE BUSINESS. IT IS PERTINENT TO NOTE HERE THAT THE BUSINESS OF CONSTRU CTION HAD REMAINED IN ABEYANCE DUE TO ORDERS OF STAY PASSED BY HONBLE RAJASTHAN HIGH COURT DATED 24-03-1996 DUE TO ONGOING DISPUTE BETWEEN PARTNERS OF THE ASSESSEE FI RM. THUS CONSTRUCTION ACTIVITY WAS PUT AT HALT WHICH WAS BEYOND THE CONTROL OF THE ASS ESSEE AND ALSO FURTHER CONSIDERING THE MARKET CONDITIONS IT WAS A PRUDENT BUSINESS DEC ISION THAT THERE SHOULD BE A LIMBO IN CONSTRUCTION OPERATIONS THOUGH THE REST OF THE A CTIVITIES RELATED TO THE BUSINESS CONTINUED IN ITS ROUTINE MANNER DURING THE ENTIRE Y EAR UNDER CONSIDERATION, WHICH IS A PART AND PARCEL OF THE MAIN BUSINESS ACTIVITY FROM WHICH THE TOTAL RECEIPTS IS DULY FORMING PART OF THE INCOME DECLARED. IN THIS REGARD , KIND ATTENTION OF HONBLE BENCH IS INVITED TO PROFIT & LOSS A/C FOR THE YEAR ENDED 31- 03-2008 (APB 70) , ON PERUSAL OF WHICH, IT IS EVIDENT THAT APART FROM INTEREST EXPEN SES (INCLUDING FINANCE COST) DISALLOWED BY LD. AO, ADMINISTRATIVE & OTHER EXPENS ES TO THE TUNE OF RS.13,03,479/- (APB 74) HAVE ALSO BEEN DEBITED TO P & L A/C, WHICH INTER A LIA INCLUDE COMPLEX MAINTENANCE EXPENSES RS.7,71,290/-, SALARY RS.1,43, 567/- AND ELECTRIC CHARGES OF RS.2,92,211/-. IT IS PERTINENT TO NOTE HERE THAT NE ITHER LD. AO NOR LD. CIT (A) HAS RAISED ANY OBJECTION IN RESPECT OF ALLOWABILITY OF THESE EXPENSES. IN OTHER WORDS, BY ALLOWING THESE EXPENSES, LOWER AUTHORITIES HAVE CON CEDED THE FACT THAT BUSINESS OF THE ASSESSEE WAS VERY MUCH IN EXISTENCE AND IT WAS MERE LY TEMPORARY SUSPENSION OF REAL ESTATE BUSINESS ACTIVITIES. BASIC DIFFERENCE BETWEE N DISCONTINUATION OF BUSINESS AND TEMPORARY SUSPENSION IS THAT IN THE FORMER SITUATIO N ASSETS ARE SOLD TO PAY OFF THE LIABILITIES, AS BUSINESS ACTIVITIES ARE NOT RESUMED EVER, WHEREAS IN THE LATTER, ASSETS HAVE TO BE MAINTAINED AND LIABILITIES HAVE TO BE DI SCHARGED SEPARATELY, FOR WHICH FUNDS ARE REQUIRED, FOR WHICH CERTAIN MINIMUM EXPENSES, M OSTLY IN THE NATURE OF ADMINISTRATIVE EXPENSES HAVE TO BE INCURRED. IN THE INSTANT CASE ALSO, BUSINESS OF THE ASSESSEE REMAINED SUSPENDED DUE TO STAY ORDER OF CO URT AND FUNDS WERE BORROWED TO DISCHARGE LOANS ALREADY TAKEN FOR THE PURPOSE OF BU SINESS, WHICH WERE NOT DOUBTED. 8 ITA NO. 446(3)/JP/2012 M/S. SUMERU ENTERPRISES. FURTHER, AS STATED ABOVE THERE WAS NO OBJECTION WIT H RESPECT TO ADMINISTRATIVE EXPENSES, WHICH MEANS THAT LD. AO HAS IMPLIEDLY ACC EPTED THAT THE BUSINESS WAS VERY MUCH IN EXISTENCE AND IN THIS SCENARIO, THERE WAS N O REASON, FOR WHICH INTEREST EXPENSES SHOULD BE DISALLOWED. APART FROM THIS, LOGICALLY, THE LD. AO HAS ACCEPTED THAT THE LOANS OLD OR NEW HAVE BEEN TAKEN FOR THE PURPOSE OF BUSINESS. THIS FACT H AS NEITHER BEEN DENIED NOR CONTRADICTED ANYWHERE IN THE ASSESSMENT ORDER . SINCE THIS IS AN ESTABLISHED FACT THAT THE REAL ESTATE BUSINESS IS ALWAYS CARRIED OUT ON T HE BASIS OF LOANS FROM VARIOUS AGENCIES AND THEIR UTILIZATION IS EXCLUSIVELY TO EX PAND THE BUSINESS WITHOUT IN ANY WAY LEADING TO THE FACT THAT ANY STOPPAGE OR A LULL PER IOD WOULD HAMPER THE CONSTRUCTION WORK. EVEN IF, FOR ARGUMENT SAKE, THE FINDINGS OF T HE LD. AO ARE CONSIDERED THAT THERE WAS NO BUSINESS DUE TO STAY ORDER OF THE COURT, THU S IT CANNOT BE SAID THAT THE REPAIR WORKS, CONSTRUCTION OF PASSAGE AND OTHER ALLIED AND FACILITY ITEMS DID NOT CONTINUE DURING THIS PERIOD ALSO AS THE STAY ORDER WAS PUREL Y FOR CONSTRUCTING NEW UNITS AND EXTENSION OF THE EXISTING UNITS. THE LD. CIT(A) AT PAGE 7 OF ITS IMPUGNED ORDER FIRS TLY TRIED TO DISBELIEVE THE VALUE OF CLOSING WORK IN PROGRESS CLAIMED BY THE APPELLANT I N A.Y. 1996-97 WHICH AS SUBMITTED ABOVE IS DUE TO TYPOGRAPHICAL ERROR AND D ESERVES TO BE IGNORED. FURTHER LD. CIT(A) HAS ALSO DOUBTED THE TOTAL AREA AVAILABLE WI TH THE APPELLANT AS WORK IN PROGRESS BY ALLEGING THAT THE ASSESSEE RECEIVED ADV ANCES FOR 8549 SQ. FT. AREA BY WRONGLY APPRECIATING THE FACT THAT THE AMOUNT WAS R ECEIVED AGAINST THE BOOKING OF SUCH AREA HOWEVER DUE TO STAY BY THE HIGH COURT NEI THER THE SALES WERE MADE NOR THE POSSESSION WERE HANDED OVER. THE LD. CIT(A) FURTHER ALLEGED THE INTEREST INCOME DECLARED BY THE ASSESSEE REGULARLY IN ITS PROFIT & LOSS ACCOUNT AS A MAKE BELIEVE STOR Y SINCE THE ASSESSEE HAS RECEIVED LOANS FROM THE SAME PERSONS WHO ARE THE DEBTORS AND THE INTEREST RECEIVABLE WAS NEVER RECEIVED BUT A DEBIT ENTRY TO THIS EFFECT WAS MADE IN THE DEBTORS ACCOUNT BY GROSSLY IGNORING THE FACT THAT THE SAME WAS ACCEPTED BY THE DEPARTMENT SINCE BEGINNING AND EVEN IN THE YEAR UNDER APPEAL WHERE THE ASSESSMENTS WERE ALSO COMPLETED U/S 143(3). IT IS FURTHER SUBMITTED THAT AN APPLICATION UNDER R ULE 29 (FOR FILING OF ADDITIONAL EVIDENCES) THE INCOME TAX RULES HAS BEEN FILED BEFO RE HONBLE JAIPUR BENCH ON 27- 9 ITA NO. 446(3)/JP/2012 M/S. SUMERU ENTERPRISES. 05-2015 STATING THAT THE SUIT FILED BY SMT. SUDHA Y ADAV, ERSTWHILE PARTNER OF THE ASSESSEE FIRM, IN THE DISTRICT COURT WAS DISMISSED AND DIRECTION WAS GIVEN TO RESOLVE THE DISPUTE THROUGH ARBITRATION (APB 96-104). THE SAID ORDER OF DISTRICT COURT WAS CHALLENGED IN APPEAL BEFORE THE HONBLE RAJASTHAN H IGH COURT WHEREIN, VIDE ORDER DATED 18.07.2005 PASSED IN S.B. CIVIL FIRST APPEAL NO. 76/2003 THE HONBLE COURT REFERRED THE MATTER TO ARBITRATION APPOINTING MR. J USTICE N.M. KASLIWAL, FORMER JUDGE SUPREME COURT OF INDIA AS THE SOLE ARBITRATOR TO DE CIDE THE DISPUTE, WHO VIDE PASSED AN INTERIM AWARD ON 01.05.2007 WHICH WAS CHALLENGED BEFORE THE DISTRICT COURT AND THE HIGH COURT. HOWEVER, BEFORE CONCLUSION OF THE SAID PROCEEDINGS, THE PARTIES REACHED AN AMICABLE SETTLEMENT VIDE SETTLEMENT DEED DATED 17.02.2012 (APB 125) AND WITH EFFECT OF WHICH, THE ONGOING DISPUTE CAME TO AN END. SUBSEQUE NTLY, THE SOLE ARBITRATOR PASSED AN AWARD IN ACCORDANCE WITH THE TERMS OF THE SETTLE MENT DEED AND THE PROCEEDINGS PENDING BEFORE THE DISTRICT COURT AS WELL AS THE HI GH COURT WERE SOUGHT TO BE WITHDRAWN WHICH WERE ALLOWED SO BY THE RESPECTIVE C OURTS. THUS, AFTER HAVING REACHED SETTLEMENT AS STATED ABO VE, THE STAY ORDER STOOD VACATED AUTOMATICALLY AND THE BUSINESS OF ASSESSEE FIRM RES UMED AFTER EXECUTING A DEED OF RETIREMENT & RECONSTITUTION OF PARTNERSHIP DATED 17 .02.2012 (APB 105-114) IN TERMS OF THE SETTLEMENT DEED AND ARBITRATION AWARD AS MEN TIONED ABOVE. IN VIEW OF ABOVE, IT IS PROVED THAT BUSINESS OF THE ASSESSEE WAS NOT DISCONTINUED RATHER TEMPORARILY STAYED UNDER THE ORDER OF THE HONBLE C OURT WHICH HAS BEEN REVIVED NOW BY VACATION OF STAY WITH EFFECT FROM SETTLEMENT REA CHED BETWEEN PARTIES. IT IS FURTHER SUBMITTED THAT THE SUSPENSION OR DISC ONTINUATION OF ONE OF THE ACTIVITIES OF BUSINESS OUT OF SEVERAL SUCH ACTIVITIES DOES NOT DI SENTITLE THE TAXPAYER FROM DEDUCTION OF INTEREST OR OTHER EXPENDITURE INCIDENTAL TO THE BUSINESS. ALL THE BUSINESS ACTIVITIES TAKEN TOGETHER CONSTITUTES THE BUSINESS UNDERTAKING AS ONE AND SO LONG THE SAME REMAINS UNDER THE COMMON MANAGEMENT WITH COMMON RES OURCE EMPLOYMENT AND COMMON ESTABLISHMENT AND CONTROL IT CANNOT BE SAID THAT THE BUSINESS ACTIVITY IS SEPARATE AND DISTINCT. THE APPELLANT CONTINUED ITS BUSINESS IN THE RELEVANT ASSESSMENT YEAR AND THE BUSINESS WAS NEITHER CLOSED NOR DISCON TINUED NOR IT HAD EVER CEASED TO BE FUNCTIONAL DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. 10 ITA NO. 446(3)/JP/2012 M/S. SUMERU ENTERPRISES. IT IS FURTHER SUBMITTED THAT U/S 36(1)(III) OF THE INCOME TAX ACT, 1961 IT IS CATEGORICALLY SPELLED OUT THAT THE INTEREST PAID IS AN ALLOWABLE EXPENDITURE IF IT IS PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF B USINESS. FROM THE PERUSAL OF SECTION 36(1)(III) IT IS SUBMITTED THAT THE INTEREST PAID O N BORROWED CAPITAL AND USED FOR THE PURPOSE OF BUSINESS OF THE APPELLANT ONLY AND NOT F OR PERSONAL OR OTHER PURPOSES, IS FULLY ALLOWABLE EXPENDITURE. WHERE THE ASSESSEE COMPANY HAD NO INTENTION TO CLOS E DOWN ITS BUSINESS ACTIVITY AND ALSO KEPT ITS BUSINESS ASSETS READY FOR USE ITS CLA IM OF BUSINESS EXPENDITURE INCURRED ON MINIMUM ELECTRICITY CHARGES AND OTHER OFFICE EST ABLISHMENT EXPENSES ALONGWITH DEPRECIATION COULD NOT BE DISALLOWED BECAUSE OF TEM PORARY SUSPENSION OF MANUFACTURING ACTIVITY. IT HAS BEEN SO HELD IN THE CASE OF SHINGAR LAMPS LTD. VS. ADDL. CIT (2006) 150 TAXMAN 17 (ASR.) (MAG.) . THUS ALTHOUGH THERE WAS A STAY BY COURT ON THE APPELLANT DO DEAL WITH CERTAIN SPECIFI C PROPERTIES BUT THERE WAS NO SUSPENSION, CESSATION, CLOSING DOWN AND DISCONTINUO US OF BUSINESS ACTIVITY OF THE APPELLANT. IN VIEW OF ABOVE SUBMISSIONS, FACTS AND CIRCUMSTANC ES IT IS HUMBLY PRAYED THAT SINCE THE ISSUE UNDER THE YEAR CONSIDERATION IS SQUARELY COVERED BY THE DECISION OF HONBLE ITAT PASSED IN EARLIER YEARS THUS THE DISALLOWANCE OF RS. 2,51,64,779/- DESERVES TO BE DELETED. RELIANCE IS ALSO PLACED ON THE FOLLOWING CASE LAWS: COMMISSIONER OF INCOME TAX VS. RAJ KUMAR SINGH AND CO. (NO. 2) 295 ITR 81 (ALL) KNP SECURITIES (P) LTD. VS. ASSISTANT COMMISSIONER OF INCOME TAX 33 DTR 210 (MUMBAI) (TRIB) DY. CIT VS. SARABAI PITAMAL PHARMACEUTICALS LTD. 8 SOT 815 (MUM.) CIT VS. GOM INDUSTRIES LTD. & 299 ITR 42 (MP) DCIT VS. CORE HEALTH CARE LTD. REPORTED IN 215 CT R 1 (SC) WE FIND THAT THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 392/JP/2003 PERTAINING TO ASSESSMENT YEAR 1996-97 DECIDED THE ISSUE OF WOR K-IN-PROGRESS IN FAVOUR OF THE 11 ITA NO. 446(3)/JP/2012 M/S. SUMERU ENTERPRISES. ASSESSEE. FURTHER, THE COORDINATE BENCH OF THE TRIB UNAL IN ASSESSEES OWN CASE IN ITA NO. 282/JP/2010 PERTAINING TO ASSESSMENT YEAR 2 004-05, IN PARA 7 OF ITS ORDER HAS DECIDED THE ISSUE WHICH IS ALSO SUBJECT MATTER OF THIS APPEAL, AS UNDER :- 7. WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED T HEM CAREFULLY. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, WE FIND NO INFIRMITY IN THE FINDING OF LD. CIT (A). THE LD. CIT (A) HAS ASCERTAINED THE FACTUAL ASPECT THAT THIS IS NOT A C LOSURE OF BUSINESS BUT TEMPORARY DISCONTINUANCE OF BUSINESS. WE FURTHER NO TED THAT IN EARLIER YEAR THE INTEREST EXPENDITURE CLAIMED BY ASSESSEE W ERE ALLOWED BY THE DEPARTMENT ITSELF. HOWEVER, IN THE YEAR UNDER CONSI DERATION THE SAME WAS NOT ALLOWED FOR THE REASON THAT DURING THE YEAR UNDER CONSIDERATION FRESH LOANS HAVE BEEN TAKEN BY THE AS SESSEE FOR REPAYMENT OF OLD LOANS TAKEN FOR THE PURPOSE OF BUS INESS. FRESH LOANS TAKEN DURING THE YEAR UNDER CONSIDERATION FOR THE P URPOSE OF REPAYING THE LOANS TAKEN IN PAST FOR THE PURPOSE OF BUSINESS , IN OUR CONSIDERED VIEW DOES NOT CHANGE THE CHARACTER OF THE LOAN TAKE N DURING THE YEAR UNDER CONSIDERATION. THE LOAN TAKEN FOR THE YEAR UN DER CONSIDERATION HAS TO BE TREATED AS TAKEN FOR BUSINESS PURPOSES FO R THE SIMPLE REASON THAT THIS LOAN WAS SUBSTITUTED WITH THE LOANS TAKEN IN PAST AFTER REPAYING THE OLD LOANS. THERE IS A DIRECT NEXUS BET WEEN THE FRESH LOANS AND OLD LOANS BECAUSE THE FRESH LOANS HAVE BEEN UTI LIZED FOR THE PURPOSE OF REPAYING THE OLD LOAN. NOW FRESH LOANS P ARTAKES THE CHARACTER OF LOANS TAKEN FOR BUSINESS PURPOSES. INT EREST PAID ON OLD LOANS WAS HELD AS ALLOWABLE, THEREFORE, INTEREST PA ID ON FRESH LOANS HAS TO BE ALLOWED AS THE CHARACTER OF LOAN REMAINS THE SAME BUT ONLY CHANGE OF THE NAME OF THE PERSON/INSTITUTION FROM W HOM THE FRESH LOANS ARE TAKEN. THEREFORE, THE DECISION OF HONBLE ALLAHABAD HIGH COURT CONSIDERED BY LD. CIT (A) IN CASE OF RAJ KUMA R SINGH & CO. (SUPRA) IS DIRECTLY ON THE ISSUE. THEREFORE, WE SEE NO REASON TO INTERFERE WITH THE FINDING OF LD. CIT (A). ACCORDIN GLY, WE CONFIRM THE FINDINGS OF THE LD. CIT (A) IN RESPECT TO BOTH THE DISALLOWANCES DELETED BY HIM. FURTHER, THE TRIBUNAL IN ITA NO. 416 & 417/JP/2010 PERTAINING TO ASSESSMENT YEARS 2005-06 AND 2007-08 CONFIRMED THE DELETION OF ADDIT ION BY LD. CIT (A) BY HOLDING AS UNDER :- 7. WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED THEM CAREFULLY. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, WE FIND NO INFIRMITY IN THE FINDING OF LD. CIT (A). THE LD. CIT (A) HAS 12 ITA NO. 446(3)/JP/2012 M/S. SUMERU ENTERPRISES. ASCERTAINED THE FACTUAL ASPECT THAT THIS IS NOT A C LOSURE OF BUSINESS BUT TEMPORARY DISCONTINUANCE OF BUSINESS. WE FURTHER NO TED THAT IN EARLIER YEAR THE INTEREST EXPENDITURE CLAIMED BY ASSESSEE W ERE ALLOWED BY THE DEPARTMENT ITSELF. HOWEVER, IN THE YEAR UNDER CONSI DERATION THE SAME WAS NOT ALLOWED FOR THE REASON THAT DURING THE YEAR UNDER CONSIDERATION FRESH LOANS HAVE BEEN TAKEN BY THE AS SESSEE FOR REPAYMENT OF OLD LOANS TAKEN FOR THE PURPOSE OF BUS INESS. FRESH LOANS TAKEN DURING THE YEAR UNDER CONSIDERATION FOR THE P URPOSE OF REPAYING THE LOANS TAKEN IN PAST FOR THE PURPOSE OF BUSINESS , IN OUR CONSIDERED VIEW DOES NOT CHANGE THE CHARACTER OF THE LOAN TAKE N DURING THE YEAR UNDER CONSIDERATION. THE LOAN TAKEN FOR THE YEAR UN DER CONSIDERATION HAS TO BE TREATED AS TAKEN FOR BUSINESS PURPOSES FO R THE SIMPLE REASON THAT THIS LOAN WAS SUBSTITUTED WITH THE LOANS TAKEN IN PAST AFTER REPAYING THE OLD LOANS. THERE IS A DIRECT NEXUS BET WEEN THE FRESH LOANS AND OLD LOANS BECAUSE THE FRESH LOANS HAVE BEEN UTI LIZED FOR THE PURPOSE OF REPAYING THE OLD LOAN. NOW FRESH LOANS P ARTAKES THE CHARACTER OF LOANS TAKEN FOR BUSINESS PURPOSES. INT EREST PAID ON OLD LOANS WAS HELD AS ALLOWABLE, THEREFORE, INTEREST PA ID ON FRESH LOANS HAS TO BE ALLOWED AS THE CHARACTER OF LOAN REMAINS THE SAME BUT ONLY CHANGE OF THE NAME OF THE PERSON/INSTITUTION FROM W HOM THE FRESH LOANS ARE TAKEN. THEREFORE, THE DECISION OF HONBLE ALLAHABAD HIGH COURT CONSIDERED BY LD. CIT (A) IN CASE OF RAJ KUMA R SINGH & CO. (SUPRA) IS DIRECTLY ON THE ISSUE. THEREFORE, WE SEE NO REASON TO INTERFERE WITH THE FINDING OF LD. CIT (A). ACCORDIN GLY, WE CONFIRM THE FINDINGS OF THE LD. CIT (A) IN RESPECT TO BOTH THE DISALLOWANCES DELETED BY HIM. THE FACTS IN THE YEAR UNDER APPEAL ARE IDENTICAL AS WERE BEFORE THE TRIBUNAL IN THE EARLIER ASSESSMENT YEARS. THE REVENUE HAS NOT PLACE D ANY CONTRARY MATERIAL ON RECORD SUGGESTING THAT THERE IS CHANGE IN FACTS AND CIRCUMSTANCES OF THE CASE. THEREFORE, WE ARE UNABLE TO SUSTAIN THE FINDING OF LD. CIT (A). RESPECTFULLY, FOLLOWING THE DECISION OF COORDINATE BENCH IN ASSES SEES OWN CASE IN EARLIER ASSESSMENT YEARS, WE DIRECT THE AO TO DELETE THE DI SALLOWANCE OF INTEREST EXPENDITURE. THUS THE APPEAL OF THE ASSESSEE IS ALL OWED. 5.3. THE ISSUE INVOLVED IN ITA NOS. 764/JP/2013 AND 158/JP/2015 ARE EXACTLY IDENTICAL TO ITA NO. 446/JP/2012 AND SINCE WE HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY ALLOWING THE APPEAL OF THE ASSESSEE , THEREFORE, ON THE SAME SET OF 13 ITA NO. 446(3)/JP/2012 M/S. SUMERU ENTERPRISES. FACTS AND CIRCUMSTANCES, WE ALLOW BOTH THESE APPEAL S OF THE ASSESSEE FOR THE ASSESSMENT YEARS 2009-10 AND 2011-12. 6. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE A RE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22/08/2016 . SD/- SD/- ( HKKXPUN ( DQY HKKJR ) ( BHAGCHAND) ( KUL BHARAT ) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 22/08/2016. DAS/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- THE ITO, WARD 2(2), ALWAR. 2. THE RESPONDENT SHRI RATAN SINGH, BHIWADI. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 388(2)/JP/2014) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR