DCIT, New Delhi V. Sh. Arun Dagar, Delhi

ITA 4565/DEL/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3541 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 18-05-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 02-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SONAL JAIN; HIMANSHU JAIN
• Assessee Lawyers: APARNA KARAN
• Keywords: Capital expenditure
• Section: 142(1); 56

Judgement Text

1ITA NO. 3394 & 4565/DEL/2013 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: A NEW DELHI BEFORE SHRI N. K. SAINI, ACCOUNTANT MEM BER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER ITA NO. 3394/DEL/201 3 ( A.Y 2009-10) & ITA NO. 4565/DEL/201 3 ( A.Y 2010-11) DCIT CIRCLE 48(1), NEDERLAND (APPELLANT) VS ARUN DAGAR BK-16, SHALIMAR BAGH DELHI AEAPD0039A (RESPONDENT) APPELLANT BY MS. SONAL JAIN, CA & SH. HIMANSHU JAIN, CA RESPONDENT BY SMT. APARNA KARAN, CIT(DR) ORDER PER SUCHITRA KAMBLE, JM THESE APPEALS ARE FILED BY THE REVENUE AGAINST THE ORDER DATED 20/03/2013 & 13/05/2013 FOR THE A.YS. 2009-10 AND 2 010-11 RESPECTIVELY PASSED BY CIT(A)-XXX, NEW DELHI. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN: (VIII) REDUCING THE ADDITION OF RS.40,80,835/- ON A CCOUNT OF INTEREST ON BORROWED FOR ACQUIRING IMMOVABLE PROPERTY AND ISSUI NG DIRECTIONS TO ADJUST THE SAME AGAINST THE INCOME FROM OTHER SOURC ES; DATE OF HEARING 23.10.2017 DATE OF PRONOUNCEMENT 06.11.2017 2ITA NO. 3394 & 4565/DEL/2013 (IX) HOLDING THAT THE LOAN TAKEN FROM RELIANCE CAPITAL LTD. WAS FOR THE PURPOSED OF EARNING INCOME FROM OTHER SO URCES; (X) HOLDING THAT THE INTENTION OF THE ASSESSEE WA S TO EARN ASSURANCE RETURN GIVEN BY THE OMAXE LTD AND TO PURCHASE MULTI PLEX IN THE COMMERCIAL SPACE IN OMAXE NRI CITY; (XI) DIRECTING TO ALLOW THE INTEREST ON LOAN U/S 57 (3) OF THE I.T ACT THOUGH THE SAME IS SPECIFICALLY ALLOWABLE U/S 24(B) OF THE I.T. ACT. (XII) HOLDING THAT THE INTEREST ON LOAN WAS A REVEN UE EXPENDITURE AND NOT A CAPITAL EXPENDITURE; (XIII) HOLDING THAT THE ASSESSEE HAD MADE AN INVEST MENT IN COMMERCIAL PROPERTY IGNORING THE FACT THAT THE UNIT ALLOTTED T O THE ASSESSEE WAS A HOUSE PROPERTY; (XIV) NOT APPLYING THE RATIO OF DECISION IN THE CAS E OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD VS. CIT(1997) 227 ITR 172(HON'BLE SUPREME COURT) WHICH IS FULLY APPLICABLE IN THIS CA SE. 3. THE GROUNDS OF APPEAL ARE AS UNDER:- ITA NO. 4565/DEL/2013 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN: (VIII) REDUCING THE ADDITION OF RS.40,56,252/-/TO R S. 33,23,793/- ON ACCOUNT OF INTEREST ON BORROWED FOR ACQUIRING IMMOV ABLE PROPERTY AND ISSUING DIRECTIONS TO ADJUST THE SAME AGAINST T HE INCOME FROM OTHER SOURCES; (IX) HOLDING THAT THE LOAN TAKEN FROM RELIANCE CAPITAL LTD. WAS FOR THE PURPOSED OF EARNING INCOME FROM OTHER SO URCES; (X) HOLDING THAT THE INTENTION OF THE ASSESSEE WA S TO EARN ASSURANCE RETURN GIVEN BY THE OMAXE LTD AND TO PURCHASE MULTI PLEX IN THE COMMERCIAL SPACE IN OMAXE NRI CITY; 3ITA NO. 3394 & 4565/DEL/2013 (XI) DIRECTING TO ALLOW THE INTEREST ON LOAN U/S 57 (3) OF THE I.T ACT THOUGH THE SAME IS SPECIFICALLY ALLOWABLE U/S 24(B) OF THE I.T. ACT. (XII) HOLDING THAT THE INTEREST ON LOAN WAS A REVEN UE EXPENDITURE AND NOT A CAPITAL EXPENDITURE; (XIII) HOLDING THAT THE ASSESSEE HAD MADE AN INVEST MENT IN COMMERCIAL PROPERTY IGNORING THE FACT THAT THE UNIT ALLOTTED T O THE ASSESSEE WAS A HOUSE PROPERTY; (XIV) NOT APPLYING THE RATIO OF DECISION IN THE CAS E OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD VS. CIT(1997) 227 ITR 172(HON'BLE SUPREME COURT) WHICH IS FULLY APPLICABLE IN THIS CA SE. 4. THE RETURN OF INCOME WAS E-FILED ON 29/7/2009 DE CLARING TAXABLE INCOME OF RS.98,25,260/-. THE ASSESSEE DERIVED INCOME FRO M SALARY AND OTHER SOURCES. THE CASE WAS SELECTED OR SCRUTINY AND NOT ICE U/S 143(2) WAS ISSUED ON 23/8/2010 AND NOTICE U/S 142(1) WAS ISSUED ON 12 /1/2011. THE CASE WAS ASSIGNED FOR SCRUTINY TO JCIT, RANGE-48 BY THE CIT, DELHI-XVI, NEW DELHI. TAKING INTO ACCOUNT THE NATURE AND QUANTUM OF INCOM E, THE ISSUE INVOLVED AND AIR INFORMATION DETAILS WE HAVE HEARD BOTH THE PART IES AND PERUSED THE MATERIAL AVAILABLE ON RECORD CALLED FOR. 5. ON PERUSAL OF THE COMPUTATION OF INCOME FILED, I T IS SEEN THAT THE ASSESSEE HAS CLAIMED DEDUCTION OF INTEREST PAID TO RELIANCE CAPITAL AMOUNTING TO RS.40,80,835/- UNDER THE HEAD INCOME FROM OTHER SOURCES. 6. VIDE NOTE SHEET ENTRY DATED 28/1/2011, THE ASSES SEE WAS ASKED TO SUBSTANTIATE HIS CLAIM WITH DOCUMENTARY EVIDENCE RE GARDING INTEREST EARNED AND DEDUCTION CLAIMED ON INTEREST PAID. 7. IN RESPONSE THE ASSESSEE HAD FILED A REPLY DATED 22/2/2011. 4ITA NO. 3394 & 4565/DEL/2013 8. DURING THE SUBJECT ASSESSMENT YEAR, THE ASSESSEE JOINTLY ALONG WITH HIS BROTHER, MR. RANJAN DAGAR HAD ENTERED INTO AN AGREE MENT FOR PURCHASE OF COMMERCIAL COMPLEX PROPOSED TO BE SITUATED IN GREAT ER NOIDA, UP. THE ASSESSEE HAD OBTAINED THE LOAN OF RS.6,00,00,000/- FROM RELIANCE CAPITAL LTD. AND HAD PAID IT TO OMAXE LTD AS ADVANCE FOR THE AFO RESAID PROJECT. DURING THE SUBJECT ASSESSMENT YEAR, THE ASSESSEE JOINTLY WITH HIS BROTHER MR. RANJAN DAGAR EARNED INTEREST INCOME OF RS.72,51,912/- FROM OMAXE LTD ON THE ADVANCE GIVEN TO OMAXE LTD AND DULY OFFERED HIS 50% SHARE OF INTEREST INCOME OF RS.36,25,956/- FOR TAXATION UNDER THE PROVISIONS OF SECTION 56 OF THE ACT. FURTHER, SINCE THE LOAN WAS TAKEN FORM RELIANCE CA PITAL LTD TO GIVE THE ADVANCE TO OMAXE LTD, THE ASSESSEE HAS CLAIMED DEDU CTION OF INTEREST PAYMENT OF RS.40,80,835/- (50% OF THE TOTAL INTEREST PAYMEN T ACTUALLY PAID LIMITED TO 50% OF HIS SHARE OF AMOUNT PAID TO OMAXE LTD) TO R ELIANCE CAPITAL LTD UNDER THE PROVISIONS OF SECTION 57(III) OF THE ACT AGAINS T THE INTEREST INCOME OF RS.36,25,956/- EARNED FROM OMAXE LTD. 9. THE SUBMISSION OF THE ASSESSEE HAS BEEN EXAMINED AND CONSIDERED IN DETAIL. SECTION 57 OF THE INCOME TAX ACT, 1961 (UN DER THE PROVISIONS OF WHICH, THE ASSESSEE HAS CLAIMED THE AFORESAID DEDUCTION) C LEARLY STATES THE DEDUCTIONS WHICH CAN BE CLAIMED BY THE ASSESSEE FOR ARRIVING A T HIS INCOME CHARGEABLE UND THE HEAD INCOME FROM OTHER SOURCES. THE ASSESSEE I N HIS RETURN OF INCOME HAS CLAIMED THE DEDUCTION U/S 57(III). 10. THE ASSESSING OFFICER BY RELYING ON THE JUDGME NT OF THE HONBLE APEX COURT IN CASE OF TUTICORIN ALKALI CHEMICALS & FERTI LIZERS LTD. VS. CIT 227 ITR 172 (SC) HELD THAT THE DEDUCTION CLAIMED BY THE ASS ESSEE SETTING OF HIS INTEREST INCOME EARNED AGAINST THE RELIANCE CAPITAL CANNOT B E ACCEPTED. THEREFORE, THE SAME WAS DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE AT 5ITA NO. 3394 & 4565/DEL/2013 RS.40,80,835/-. THE ASSESSEE FILED APPEAL BEFORE T HE CIT(A). THE CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE. 11. THE LD. DR SUBMITTED THAT REDUCING THE ADDITION OF RS.40,80,835/- TO RS.36,53,648/- ON ACCOUNT OF INTEREST ON BORROWED F OR ACQUIRING IMMOVABLE PROPERTY AND ISSUING DIRECTIONS TO ADJUST THE SAME AGAINST THE INCOME FROM OTHER SOURCES WAS NOT JUSTIFIED ON PART OF THE CIT( A). THE ASSESSING OFFICER HAS RIGHTLY ADDED THE SAID AMOUNT WHICH WAS NEVER THE C ASE OF THE ASSESSEE THAT THE LOAN TAKEN FROM RELIANCE CAPITAL LTD WAS FOR TH E PURPOSE OF EARNING INCOME FROM OTHER SOURCES WAS NOT JUSTIFIED ON PART OF THE CIT(A). THE ASSESSING OFFICER HAS RIGHTLY ADDED THE SAID AMOUNT WHICH WAS NEVER THE CASE OF THE ASSESSEE THAT THE LOAN TAKEN FROM RELIANCE CAPITAL LTD. WAS FOR THE PURPOSE OF EARNING INCOME FROM OTHER SOURCES. THE CIT(A) ERR ED IN HOLDING THAT THE INTENTION OF THE ASSESSEE WAS TO EARN ASSURANCE RET URN GIVEN BY THE OMAXE LTD AND TO PURCHASE MULTI PLEX IN THE COMMERCIAL SPACE IN OM NRI STUDY. 12. THE LD. AR SUBMITTED THAT THE ITAT IN ASSESSEE S BROTHERSS CASE SHRI RANJAN DAGAR HAS DISMISSED THE APPEAL OF THE REVEN UE. THE FACTS OF THE CASE ARE SIMILAR AND IN FACT IN THE PRESENT ASSESSMENT O RDER THE NAME OF THE ASSESSEES BROTHER RANJAN DAGAR IS MENTIONED BY THE ASSESSING OFFICER. 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDER OF THE ITAT IN CASE OF ITO VS. SHRI RANJAN DAGAR ITA NO. 3346 & 4602/DE L/2013 ASSESSMENT YEARS 2009-10 & 2010-11 ORDER DATED 22/9/2017. THU S, THE ITAT HELD AS UNDER:- 7. UNDISPUTEDLY, THE ASSESSEE HAS AVAILED OFF THE LOAN FROM M/S. RELIANCE CAPITAL LIMITED FOR THE PURPOSE OF EARNING INTEREST INCOME ON ADVANCE MADE TO M/S. OMAXE LIMITED; THAT ASSESSEE H AS INVESTED IN COMMERCIAL PROPERTY AS INVESTMENT FOR APPRECIATION; THAT THE ASSESSEE HAS 6ITA NO. 3394 & 4565/DEL/2013 NOT BEEN GIVEN POSSESSION OF THE PROPERTY IN QUESTI ON; THAT M/S. OMAXE LIMITED WITH WHOM THE ASSESSEE HAS INVESTED IN COMM ERCIAL PROPERTY HAS STOPPED PAYING ASSURED RETURN TO THE ASSESSEE AND T HE ASSESSEE HAS STOPPED MAKING PAYMENT OF EMI TO THE DEVELOPER. 8. IN THE BACKDROP OF THE AFORESAID FACTS AND CIRCU MSTANCES OF THE CASE, GROUNDS OF APPEAL AND ARGUMENTS ADDRESSED BY LD. AU THORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, THE S OLE QUESTION ARISES FOR DETERMINATION IN THIS CASE IS :- AS TO WHETHER THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE ON THE LOAN AVAILED OF FROM M/S. RELIANCE CAPITAL LIMITED IS DIRECTLY RELATED WITH THE INTEREST INCOM E EARNED ON ADVANCE MADE TO M/S. OMAXE LIMITED SHOULD BE ALLOWE D TO BE DEDUCTED FROM THE SAID INTEREST INCOME U/S 57 (III) OF THE ACT? 9. LD. CIT (A), BY RELYING UPON THE JUDGMENT OF HON BLE APEX COURT CITED AS CIT VS. RAJENDRA PRASAD MOODY (1978) 115 ITR 519, HELD THAT THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE O N THE LOAN AVAILED OF FROM RELIANCE CAPITAL LIMITED IS DIRECTLY RELATED T O INTEREST INCOME EARNED ON ADVANCE MADE TO M/S. OMAXE LIMITED AND AS SUCH, IT IS ALLOWABLE. HOWEVER, THE LD. DR FOR THE REVENUE RELIED UPON THE ORDER PASSED BY AO. 10. WHEN WE EXAMINE THE FACTS OF THIS CASE, IT IS U NDISPUTED THAT THE AO HAS DISALLOWED THE INTEREST OF RS.40,80,835/- AND R S.33,23,793 FOR AYS 2009-10 AND 2010-11 RESPECTIVELY PAID BY THE ASSESS EE ON THE LOAN OF 7ITA NO. 3394 & 4565/DEL/2013 RS.6,00,00,000/- AVAILED OF FROM M/S. RELIANCE CAPI TAL LIMITED AND INVESTED THE SAME IN M/S. OMAXE LIMITED FOR GETTING ASSURED RETURN ONLY. HOWEVER, M/S. OMAXE LIMITED HAS RESILED FORM ITS PR OMISE AND DID NOT PAY THE ASSURED RETURN TO THE ASSESSEE AND THEREAFT ER ASSESSEE HAS ALSO STOPPED MAKING PAYMENT OF EMI TO M/S. RELIANCE CAPI TAL LIMITED. 11. WHEN WE EXAMINE ALL THESE FACTS IN THE LIGHT OF THE FACT THAT M/S. RELIANCE CAPITAL LIMITED, M/S. OMAXE LIMITED AND AS SESSEE ARE INTO LITIGATION BEFORE HONBLE DELHI HIGH COURT QUA THE PROPERTY IN QUESTION AND THE PROPERTY HAS ALSO NOT BEEN TRANSFERRED IN THE N AME OF ASSESSEE, THE ASSESSEE WILL CERTAINLY GET BENEFIT OF INTEREST PAY MENT ON THE LOAN OF RS.6,00,00,000/- U/S 57 (III) OF THE ACT AS IT IS NOT A HOUSE PROPERTY INCOME AS HAS BEEN HELD BY THE AO. RATHER IT WAS I NVESTED IN THE COMMERCIAL PROPERTY MADE BY THE ASSESSEE TO GET ASS URED RETURN / INTEREST FROM HIS INVESTMENT OF RS.6,00,00,000/-. 12. IN THESE CIRCUMSTANCES, THE LD. CIT (A) HAS RIG HTLY HELD THAT THIS INCOME IS TO BE TREATED AS INCOME FROM OTHER SOURCE S AND THE INTEREST PAID BY ASSESSEE TO M/S. RELIANCE CAPITAL LIMITED IS TO BE ALLOWED AS EXPENDITURE INCURRED FOR EARNING THE INCOME U/S 57 (III) OF THE ACT. MOREOVER, WHEN THERE WAS A CATEGORIC UNDERSTANDING BETWEEN THE ASSESSEE AND M/S. RELIANCE CAPITAL LIMITED THAT THE ASSESSEE WILL GET ASSURED RETURN, THE INTEREST WAS BEING PAID FOR THE PURPOSE OF EARNING 8ITA NO. 3394 & 4565/DEL/2013 INTEREST I.E. ASSURED INCOME FROM M/S. OMAXE LIMITE D AND ACQUISITION OF THE PROPERTY WAS INCIDENTAL ONLY. 11. HONBLE APEX COURT IN CASE OF CIT VS. RAJENDRA PRASAD MOODY (SUPRA) WHILE INTERPRETING SECTION 57 (III) OF THE ACT HELD AS UNDER :- THE PLAIN NATURAL CONSTRUCTION OF THE LANGUAGE OF S. 57(III) OF THE INCOME-TAX ACT, 1961 IRRESISTIBLY LE ADS TO THE CONCLUSION THAT TO BRING A CASE WITHIN THE SECTION, IT IS NOT NECESSARY THAT ANY INCOME SHOULD IN FACT HAVE BEEN EARNED AS A RESULT OF THE EXPENDITURE. WHAT SECTION 57(III) REQUIRES IS THAT THE EXPENDITURE MUST BE LAID OUT O R EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING INCOME. THIS SECTION DOES NOT RE QUIRE THAT THIS PURPOSE MUST BE FULFILLED IN ORDER TO QUA LIFY THE EXPENDITURE FOR DEDUCTION. IT DOES NOT SAY THAT THE EXPENDITURE SHALL BE DEDUCTIBLE ONLY IF ANY INCOME IS MADE OR EARNED. WHERE THE ASSESSEE BORROWED MONIES FOR THE PURPOSE OF MAKING INVESTMENT IN SHARES AND PAID INTEREST TH EREON DURING THE ACCOUNTING PERIOD RELEVANT TO THE ASSESS MENT YEAR BUT DID NOT RECEIVE ANY DIVIDEND ON THE SHARES PURCHASED WITH THOSE MONIES : HELD, ACCORDINGLY, TH AT THE INTEREST ON MONIES BORROWED FOR INVESTMENT IN SHARE S WHICH HAD NOT YIELDED ANY DIVIDEND WAS ADMISSIBLE A S A DEDUCTION UNDER SECTION 57(III) OF THE INCOME-TAX A CT, 1961, IN COMPUTING ITS INCOME FROM DIVIDEND UNDER T HE HEAD INCOME FROM OTHER SOURCES. 12. SO, IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE FIND NO ILLEGALITY OR PERVERSITY IN THE FINDINGS RETURNED BY LD. CIT ( A) WHO HAS GIVEN THE COMPLETE COMPUTATION OF TOTAL INCOME IN THE IMPUGNE D ORDER, CONSEQUENTLY 9ITA NO. 3394 & 4565/DEL/2013 BOTH THE APPEALS FILED BY THE REVENUE FOR AYS 2009- 10 & 2010-11 ARE HEREBY DISMISSED. 14. THE FACTS ARE IDENTICAL WHICH WERE NOT DISTINGU ISHED BY THE LD. DR. SO RESPECTIVELY, FOLLOWING THE ABOVE SAID ORDER, WE AR E OF THE VIEW THAT THE CIT(A) HAS RIGHTLY HELD THAT THIS IS NOT HOUSE PROPERTY IN COME AS CONTEMPLATED BY THE ASSESSING OFFICER AND THERE IS INVESTMENT IN LAND I N THE COMMERCIAL PROPERTY ON WHICH THE ASSESSEE IS GETTING ASSURED RETURN/INT EREST FOR HIS INVESTMENT OF RS. 6 CRORES WITH OMAXE LTD. HENCE, THIS INCOME HAS TO BE TREATED AS INCOME FROM OTHER SOURCES AND THE INTEREST PAID BY HIM TO RELIANCE CAPITAL SHOULD BE ALLOWED AS EXPENDITURE INCURRED FOR EARNING THE INC OME U/S 57(3) OF THE INCOME TAX ACT, 1961. THERE IS NO NEED TO INTERFERE WITH F INDINGS GIVEN BY THE CIT(A). THEREFORE, THE PRESENT APPEAL NEEDS TO BE DISMISSED . 15. IN RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 06TH NOVEMBE R, 2017 . SD/- SD/- (N. K. SAINI) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 06/11/2017 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT 10 ITA NO. 3394 & 4565/DEL/2013 ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 23/10/2017 PS 2. DRAFT PLACED BEFORE AUTHOR 24/10/2017 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2017 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 6.11.2017 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 6 .11.2017 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. 11 ITA NO. 3394 & 4565/DEL/2013