DCIT 9(2), MUMBAI V. PENTAGRAM PROPERTIES P. LTD, MUMBAI

ITA 4526/MUM/2010

• Counselvise Citation: 452619914 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 02-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALEXANDER CHANDY
• Keywords: Sale consideration of property below Jantri Value; Transfer pricing
• Section: 143(3); 50C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, C, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT AND SHRI B RAMAKOTAIAH, ACCOUNTANT MEMBER I T A NO: 3713/MUM/2010 (ASSESSMENT YEAR: 2006-07) PENTAGRAM PROPERTIES PRIVATE LIMITED, MUMBAI APPE LLANT (PAN: AADCP6170E) VS DEPUTY COMMISSIONER OF INCOME TAX 9(2) RESPONDE NT MUMBAI I T A NO: 4526/MUM/2010 (ASSESSMENT YEAR: 2006-07) DEPUTY COMMISSIONER OF INCOME TAX 9(2) APPELLAN T MUMBAI VS PENTAGRAM PROPERTIES PRIVATE LIMITED, MUMBAI RESP ONDENT ASSESSEE BY: MR NITESH JOSHI REVENUE BY: MR ALEXANDER CHANDY DATE OF HEARING: 9 TH AUGUST 2011 DATE OF PRONOUNCEMENT: 12 TH AUGUST 2011 O R D E R R V EASWAR, PRESIDENT: THESE ARE CROSS APPEALS RELATING TO THE ASSESSMENT YEAR 2006-07. THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS AS BUILDER. THE APPEALS ARISE OUT OF THE ASSESSMENT ORDER PASSED ON 29 TH DECEMBER 2008 UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961. 2. WE SHALL FIRST TAKE UP THE ASSESSEES APPEAL IN ITA NO: 3713/MUM/2010. THE ONLY ISSUE IS WHETHER THE ASSES SEE IS ENTITLED ITA NO: 3713/MUM/2010 ITA NO: 4526/MUM/2010 2 TO THE DEDUCTION OF ` 55,00,000/- BEING LOAN PROCESSING CHARGES WHILE COMPUTING THE INCOME FROM PROPERTY. THE BRIE F FACTS IN THIS CONNECTION ARE THAT THE ASSESSEE ACQUIRED SEVERAL P ROPERTIES IN THE RELEVANT PREVIOUS YEAR AT A TOTAL COST OF ` 59,57,45,918/- FROM HDFC LIMITED. IN ORDER TO ACQUIRE THE PROPERTIES, THE A SSESSEE ISSUED 5532 VARIABLE SECURED REDEEMABLE CONVERTIBLE DEBENT URES IN FAVOUR OF HDFC PROPERTY FUND AND THUS RECEIVED A TOTAL SUM OF ` 55,32,00,000/-. FROM THE PROPERTIES THE ASSESSEE D ECLARED A RENT OF ` 3,55,21,068/-. IN RESPECT OF THE BORROWINGS THROUG H DEBENTURES, THE ASSESSEE PAID INTEREST OF ` 2,91,88,818/- AND PROCESSING FEE OF ` 55,00,000/- TO HDFC PROPERTY FUND AND IN RESPECT OF THESE TWO AMOUNTS CLAIMED DEDUCTION UNDE R SECTION 24(B) OF THE ACT WHILE COMPUTING THE INCOME FROM TH E PROPERTIES. 3. THE ASSESSING OFFICER INVOKED SECTION 50C OF THE ACT AND FOUND THAT THE STAMP DUTY VALUATION IN RESPECT OF T HE PROPERTIES WAS ONLY ` 15,77,88,653/- AND THAT THE ASSESSEE HAD MADE EXCES S PAYMENT OF ` 38,39,94,182/- WHILE ACQUIRING THE PROPERTIES. HE THEREFORE HELD THAT ONLY PROPORTIONAL INTEREST WAS ALLOWABLE, I.E. INTEREST REFERABLE TO THE MARKET VALUE OF THE PROPE RTIES ALONE WAS ALLOWABLE AS A DEDUCTION AND THE INTEREST REFERABLE TO THE EXCESS CONSIDERATION CANNOT BE ALLOWED. HE THEREFORE DISA LLOWED INTEREST OF ` 2,40,78,641/- OUT OF THE TOTAL AMOUNT OF ` 3,46,88,818/- CLAIMED BY THE ASSESSEE. IT SHOULD BE REMEMBERED THAT THE AMOUNT CLAIMED BY THE ASSESSEE AS A DEDUCTION CONSISTED OF INTEREST OF ITA NO: 3713/MUM/2010 ITA NO: 4526/MUM/2010 3 ` 2,91,88,818/- AND PROCESSING FEE OF ` 55,00,000/- PAID TO HDFC PROPERTY FUND. 4. THE ASSESSEE APPEALED TO THE CIT(A), WHO HELD TH AT THE PROCESSING FEE OF ` 55,00,000/- WAS NOT ALLOWABLE AS A DEDUCTION SINCE IT CANNOT BE CONSIDERED AS INTEREST AS DEFINE D IN SECTION 2(28A) OF THE ACT. THE BALANCE DISALLOWANCE WAS DE LETED. 5. THE ASSESSEE IS IN APPEAL QUESTIONING THE DECISI ON OF THE CIT(A) REGARDING THE ALLOWANCE OF PROCESSING FEES. SECTION 24(B) ALLOWS DEDUCTION IN RESPECT OF ANY INTEREST PAYABLE ON CAPITAL BORROWED FOR THE PURPOSE OF ACQUIRING, CONSTRUCTING , REPAIRING OR RENEWING THE PROPERTY. SECTION 2(28A), WHICH WAS I NSERTED BY THE FINANCE ACT, 1976, WITH EFFECT FROM 1 ST JUNE 1976 DEFINES INTEREST AS INTEREST PAYABLE IN ANY MANNER IN RESPECT OF ANY MONEYS BORROWED OR DEBT INCURRED (INCLUDING A DEPOSIT, CLA IM OR OTHER SIMILAR RIGHT OR OBLIGATION) AND INCLUDES ANY SERVI CE FEE OR OTHER CHARGE IN RESPECT OF THE MONEYS BORROWED OR DEBT IN CURRED OR IN RESPECT OF ANY CREDIT FACILITY WHICH HAS NOT BEEN U TILIZED. IT IS SEEN FROM THE DEFINITION THAT EVEN A SERVICE FEE PAID IN RESPECT OF THE MONEYS BORROWED IS INCLUDED IN THE DEFINITION OF I NTEREST. THE PROCESSING FEE IS CHARGED BY THE LENDER SINCE THE P ROCESSING OF THE LOAN APPLICATION AND CONNECTED DOCUMENTS INVOLVES A SERVICE RENDERED BY HIM TO THE BORROWER. BY VIRTUE OF THE DEFINITION OF THE WORD INTEREST, THE PROCESSING FEE, WHICH PERHAPS MAY NOT OTHERWISE FALL TO BE CONSIDERED AS INTEREST, IS TO BE TREATED AS INTEREST AND ALLOWED AS A DEDUCTION UNDER SECTION 2 4(B) OF THE ACT. IF WE MAY SAY, THAT WITH RESPECT, THE CIT(A) WOULD APPEAR TO HAVE ITA NO: 3713/MUM/2010 ITA NO: 4526/MUM/2010 4 LOST SIGHT OF THE FACT THAT IT IS BY DEFINITION OF THE WORD INTEREST THAT THE PROCESSING FEE IS TO BE TREATED AS INTEREST AND THE FACT THAT THE PROCESSING IS DONE BEFORE THE GRANT OF THE LOAN CAN NOT BE PUT AGAINST THE ASSESSEE IN THE LIGHT OF THE DEFINITION . THE ASSESSEES CONTENTIONS ARE ALSO SUPPORTED BY THE ORDER OF THE SINGLE MEMBER, PUNE BENCH IN THE CASE OF CHINTAMANI HATCHERIES (P) LTD. VS. DCIT (2000) 75 ITD 116 (PUNE) (SMC), WHERE IT HAS BEEN H ELD THAT PROCESSING FEE FOR OBTAINING A LOAN IS A SERVICE FE E AND HAS TO BE ALLOWED AS INTEREST IN VIEW OF THE DEFINITION IN SE CTION 2(28A). THE CIRCULAR NO. 202, DATED 5 TH JULY 1976, ISSUED BY THE CBDT (COPY FILED) WHILE EXPLAINING THE PROVISIONS OF SECTION 2 (28A) ALSO CLARIFY THE POSITION. WE THEREFORE ACCEPT THE ASSESSEES C LAIM BASED ON SECTION 2(28A) AND DIRECT THE ASSESSING OFFICER TO ALLOW THE PROCESSING FEE OF ` 55,00,000/- AS DEDUCTION UNDER SECTION 24(B) WHILE COMPUTING THE PROPERTY INCOME. THE APPEAL IS ALLOWED. 6. ITA NO: 4526/MUM/2010 IS THE APPEAL BY THE DEPAR TMENT, IN WHICH THE ORDER OF THE CIT(A) IS QUESTIONED, IN SO FAR AS IT RELATES TO THE DELETION OF THE DISALLOWANCE OF THE INTEREST. THE ASSESSING OFFICER HAS INVOKED SECTION 50C TO HOLD THAT SINCE THE PROPERTIES HAVE BEEN ACQUIRED AT A MUCH HIGHER PRICE THAN THEI R MARKET VALUE, THE BORROWINGS TO THE EXTENT OF THE DIFFERENCE BETW EEN THE PRICE PAID AND THE MARKET VALUE WILL NOT BE CONSIDERED AS BORROWINGS FOR THE PURPOSE OF ACQUIRING THE PROPERTIES. WHETHER S UCH AN ACTION OF THE ASSESSING OFFICER IS CORRECT HAS COME UP BEFORE THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. GRANDE UR PROPERTIES ITA NO: 3713/MUM/2010 ITA NO: 4526/MUM/2010 5 PVT. LTD., IN ITA NO: 2056/MUM/2010. BY ORDER DATE D 28 TH JANUARY 2011 (COPY FILED), THE TRIBUNAL HAS HELD AS UNDER: - 8. WE HAVE NOTED THAT THERE IS NO DISPUTE THAT A BORROWING BY WAY OF DEBENTURES, IN RESPECT OF WHICH INTEREST IS CLAIMED AS DEDUCTION, IS DULY UTILIZED FOR THE PURPOSES OF PURCHASE OF THE PROPERTY. THERE IS ALSO NO DISPUTE THAT THERE IS NO SPECIFIC LEGAL PROVISION ENABLING DISALLOWANCE OF INTEREST IN RESPECT OF EXCESS CONSIDERATION, EVEN IF THAT BE SO, PAID FOR PURCHASE OF PROPERTY. IN ANY EVENT, NEITHER STAMP DUTY VALUATION IS A CONCLUSIVE PROOF OF VALUE OF PROPERTY, NOR A VALUERS REPORT, AS IS SUBMITTED BY THE ASSESSEE IN SUPPORT OF THE PURCHASE PRICE, CAN BE SIMPLY BRUSHED ASIDE. WE ARE UNABLE TO SEE ANY MERITS IN THE ACTION OF THE ASSESSING OFFICER. THE TRANSFER PRICING REGULATIONS AND THE PROVISIONS UNDER SECTION 40A(2), WHICH HAVE BEEN REFERRED TO IN THE GROUNDS OF APPEAL, HAVE NO APPLICATION TO THE FACTS OF THIS CASE EITHER. IN OUR CONSIDERED VIEW, LEARNED CIT(A) WAS FULLY JUSTIFIED IN DELETING THE IMPUGNED DISALLOWANCE OF INTEREST, AND HIS ORDER DOES NOT CALL FOR ANY INTERFERENCE . 9. GROUND NOS.1 TO 3 IS THUS DISMISSED . SINCE THE FACTS AND THE CONTROVERSY IN THE PRESENT APPEAL ARE IDENTICAL, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL CITED ABOVE, WE UPHOLD THE DECISION OF THE CIT(A) DELETING THE D ISALLOWANCE OF THE INTEREST AND DISMISS THE APPEAL FILED BY THE DE PARTMENT. 7. TO SUM UP, THE ASSESSEES APPEAL IS ALLOWED AND THE DEPARTMENTS APPEAL IS DISMISSED. NO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH AUGUST 2011. SD/- SD/- (B RAMAKOTAIAH) (R V EASWAR) ACCOUNTANT MEMBER PRESIDE NT MUMBAI, DATED 12 TH AUGUST 2011 SALDANHA ITA NO: 3713/MUM/2010 ITA NO: 4526/MUM/2010 6 COPY TO: 1. PENTAGRAM PROPERTIES PRIVATE LIMITED HDFC HOUSE, CTS 154 & 155 OSHIWARA DISTRICT CENTRE, GARDEN ROAD GOREGAON ROAD, MUMBAI 400 104. 2. DCIT 9(2), MUMBAI 3. CIT-9, MUMBAI 4. CIT(A)-20, MUMBAI 5. DR C BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI