HB Estate Developers Ltd., New Delhi V. DCIT, New Delhi

ITA 4596/DEL/2011

• Counselvise Citation: 459620114 RSA 2011
• Duration Of Justice: 4 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 16-11-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 17-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T VASANTHAN
• Assessee Lawyers: AMIT GOEL
• Keywords: Business income; Commercial expediency
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C : NEW DELHI BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER ITA NO S . 4557 & 4596 /DEL/201 1 ASSESSMENT YEAR S : 2005 - 06 & 2004 - 05 HB ESTATE DEVELOPERS LTD. VS. DCIT, CIRCLE - 12(1), H - 72, CANNAUGHT CIRCUS, C.R. BUILDING, NEW DELHI NEW DELHI (PAN: AAACH3122M ) (APPELLANT) (RESPONDENT) APPELLANT BY : SH. AMIT GOEL, ADV. RESPONDENT BY : SH. T. VASANTHAN, SR. DR DATE OF HEARING: 16.11.2015 DATE OF PRONOUNCEMENT: 20.11.2015 ORDER PER O.P. KANT , A. M. : THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST DIFFERENT ORDERS OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) - VIII, NEW DELHI , DATED 09.08.2011 PASSED FOR THE ASSESSMENT YEARS 2005 - 06 AND 2004 - 05. SINCE COMMON GROUNDS OF APPEAL , EXCEPT DIFFERENCE IN AMOUNT, RAISED IN BOTH THE APPEALS, THEY ARE BEING DISPOSED OF BY A CONSOLIDATED ORDER. THE SOLE GROUND OF APPEAL RAISED IN ITA 4557/DEL/ 2011 IS AS UNDER: ON THE FACTS AND CIRCUMSTANCES OF CASE AND IN LAW, THE COMMISSIONER OF INCOME TAX(APPEAL) ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER OF MAKING THE DISALLOWANCE OF RS. 5332685/ - ON ACCOUNT OF INTE REST. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEAL) SHOULD HAVE DELETED THE ADDITION/DISALLOWANCE MADE BY THE ASSESSING OFFICER. 2 ITA NOS. 4557 & 4596/DEL/2011 2. FOR THE SAKE OF BREVITY AND CONVENIENCE THE FACTS IN ITA NO. 4557/DEL/2011 ARE STATED BELOW: THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF REAL ESTATE DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEARS CONCER NED. DURING SCRUTINY ASSESSMENT , THE L EARNED ASSESSING OFFICER OBSERVED THAT THE ASSESSEE COMPANY CLAIMED INTEREST AND FINANCIAL CHARGES TOWARDS LOAN S TAKEN . IT IS FURTHER OBSERVED BY THE LD. ASSESSING OFFICER THAT OUT OF LOANS TAKEN , THE ASSESSEE HAD EXTENDED LOANS OF RS. 23,45,37,991/ - TO THE SISTER CONCERNS WITHOUT AN Y INTEREST LIABILITY. THE LD. ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE DIVERTED INTEREST BEARING FUNDS TOWARDS INTEREST FREE LOANS TO SISTER CONCERNS AND THAT TO O FOR NON - BUSINESS PURPOSES. IN VIEW OF THE OBSERV ATIONS, T HE ASSESSING OFFICER DISALLOWED THE INTEREST AND FINANCE EXPENSES OF RS. 53,32,685/ - PERTAINING TO THE INTEREST BEARING LOANS DIVERTED AS INTEREST FREE LOANS TO SISTERS CONCERNS. ON APPEAL BY THE ASSESSEE , THE LEARNED COMMISSIONER OF INCOME TAX(AP PEALS) UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. AGGRIEVED, THE ASSESSEE IS BEFORE US WITH THE PRESENT APPEALS. 3. AT THE OUTSET, THE LEARNED AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT IN THE ASSESSMENT YEAR 2002 - 03 , SIMILAR DI SALLOWANCE OF INTEREST OF RS. 1,75,51,634/ - MADE BY THE LEARNED ASSESSING OFFICER FOR INTEREST FREE ADVANCES TO THE SISTER CONCERNS OF THE ASSESSEE COMPANY WAS UPHELD BY THE LEAR NED COMMISSIONER OF INCOME - TAX( APPEALS) , WHICH HAS BEEN DELETED BY THE TRIBUNAL IN ITS ORDER DATED 26.03.2015 IN ITA NO. 4617/DEL/2011 . THEREFORE, THE 3 ITA NOS. 4557 & 4596/DEL/2011 LEARNED AUTHORIZED REPRESENTATIVE REQUESTED THAT THE CASE OF THE ASSESSEE BEING SQUARELY COVERED BY THE AFORESAID DECISION IN ASSESSEE S OWN CASE , THE GROU ND RAISED BY THE ASSESSEE MAY BE ALLOWED. 4. LD. SENIOR DEPARTMENTAL REPRESENTATIVE CONCURRED WITH THE FACTS THAT THE CASE OF THE ASSESSEE IS COVERED BY THE AFORESAID DECISION OF THE TRIBUNAL IN THE ASSESSEE S OWN CASE FOR AY 2002 - 03. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDER OF THE LOWER AUTHORITIES AS WELL AS THE ORDER OF THE TRIBUNAL CITED BY THE ASSESSEE IN ITS OWN CASE. WE FIND THAT IN THE IMPUGNED ORDER, THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ALSO FOLLOWED HIS DECISION GIV EN FOR AY 2002 - 03, BEING FACTS AND CIRCUMSTANCES SIMILAR TO AY 2002 - 03, AND UPHELD THE DISALLOWANCE OF INTEREST. WE HAVE GONE THROUGH THE ORDER OF THE TRIBUNAL FOR AY 2002 - 03 AND FIND THAT THE FACTS AND CIRCUMSTANCES OF THE CASE IN HAND ARE IDENTICAL TO TH E FACTS AND CIRCUMSTANCES IN AY 2002 - 03. THE RELEVANT PART OF THE AFORESAID ORDER IS REPRODUCED AS UNDER: 17. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS. IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS AND PRECEDENTS RELIED UPON THE BY THE ASSE SSEE, WE FIND CONSIDERABLE COGENCY IN THE SUBMISSION OF THE ASSESSEE THAT THE ITAT 'C' BENCH, NEW DELHI IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2003 - 04 VIDE ITA NO. 4211/DE1/2010 VIDE ORDER DATED 13.7.2012 IN REVENUE'S APPEAL, HAS DECIDED THE ISSUE OF DISALLOWANCE OF RS.81,65,658/ - ON ACCOUNT OF INTEREST PAYEE IN FAVOR OF THE ASSESSEE AND AGAINST THE REVENUE. 18. A PERUSAL OF THE BALANCE SHEET OF COMPANY REVEALS THE FINANCIAL POSITION OF THE ASSESSEE COMPANY IS AS FOLLOWS: - NON - INTEREST BEARING F UNDS AVAILABLE WITH THE COMPANY I.E. OWNED FUNDS: - 4 ITA NOS. 4557 & 4596/DEL/2011 PARTICULARS AS ON 31.03.2002 SHARE CAPITAL 123083123 RESERVE & SURPLUS 59042225 TOTAL INTER FEE FUND 713505648 INTEREST BEARING LOAN TAKEN (LOAN TAKEN WAS 180089042 BUSINESS LOAN AGAINST MORTGAGE OF REAL ESTATE PROPERTIES HELD AS STOCK - IN - TRADE) LOAN & ADVANCES GIVEN 518123177 19. FROM THE ABOVE, WE FIND THAT IT IS APPARENT THE NETWORTH/NON - INTEREST BEARING FUNDS AVAILABLE WITH THE COMPANY WERE MUCH MORE THAN THE LOAN & ADVANCES GIVEN. WE FIND THAT THE INVENTORIES HELD BY THE ASSESSEE COMPANY HAS REDUCED FROM RS. 47.79 CORES TO RS.36.79 CORES I.E. BY RS.11 CORES. THE CASH AND BANK BALANCES HAVE REDUCED FROM RS.1.29 CORES TO RS.0.40 CORES I.E. BY RS.0.89 CORES. 20. THUS WE FIND THAT THE FUNDS OF RS.11.89 CORES RELEASED FROM THE CURRENT ASSETS BECAME AVAILABLE AS ASSESSEE OWN INTEREST FREE FUNDS AS SUBMITTED BY THEM. 21. THE HON'BLE SUPREME COURT IN THE CASE OF S A BUILDERS LTD. VS CIT (158 TAXMAN 74) HAS HELD THAT IF THE BORROWED FUNDS ARE LENT TO A SISTER CONCERN INTEREST FREE AS A MEASURE OF COMMERCIAL EXPEDIENCY, THE INTEREST PAID ON THE BORROWED FUND IS FOR THE PURPOSE AND THE SAME SHOULD BE ALLOWED AS DEDUCTION. THEREFORE, EVEN IF IT IS PRESUMED THAT THE INTEREST ADVANCES WERE GIVEN OUT OF BORROWED FUNDS, IT WILL BE CONSIDERED AS PRUDENT BUSINESS DECISION AND TO PROTECT THE EARNING OF BUSINESS INCOME AND THE INTEREST WILL BE ALLOWABLE AS DEDUCTION NOT ONLY UNDER SECTION 36 BUT ALSO UNDER SECTION 37 OF THE ACT. 22. WE FIND THAT THE ASSESSEE HAD SUFFICIENT AMOUNT OF MONEY TOWARDS SHARE CAPITAL, RESERVE & SURPLUS AND THE INTEREST FREE ADVANCES GIVEN WERE FULLY COVERED BY AMOUNT OF SHARE CAPITAL, RESERVE & SURPLUS, DISALLOWANCE OF INTEREST NEED TO BE DELETED AND TAKING INTO CONSIDERATION OF THE COORDINATE BENCH OF THE ITAT 'C' BENCH, NEW DELHI IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2003 - 04 PASSED IN ITA NO. 4211 /DE1/2010 VIDE ORDER DATED 13.7.2012 IN REVENUE'S APPEAL. WE DECIDE THE ISSUE AGAINST THE R EVENUE BY DELETING THE ADDITION OF 1.75,51.634/ - ON ACCOUNT OF INTEREST. 23. IN THE RESULT, ASSESSEE S APPEAL IS ALLOWED. 5 ITA NOS. 4557 & 4596/DEL/2011 6. R ESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE TRI BUNAL, WE REVERSE THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (AP PEALS) ON THIS ISSUE AND THE DISALLOWANCE MADE IS DIRECTED TO BE DELETED. ACCORDINGLY, THE SOLE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 7 . IN THE RESULT, BOTH THE APPEAL S FILED BY THE ASSESSEE ARE ALLOWED. THE DECISION IS PRONOUNCED IN THE OPEN COURT ON 2 0 T H NOVEMBER , 2015. S D / - S D / - ( DIVA SINGH ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 0 T H NOVEMBER , 2015. RK/ - COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI