ACIT-CIRCLE-2, Nagpur V. SHRI NANDKUMAR KHATTUMAL HARCHANDANI, Nagpur

ITA 460/NAG/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3259 (ITAT-NAGPUR)
• Duration Of Justice: 2 year(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2003-2004
• Appeal Filed On: 26-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANITA RUPVATARAM
• Keywords: Business income; Business expenditure; Revenue expenditure
• Section: 143(3); 37(1)

Judgement Text

1 ITA NO. 460/NAG/2013 IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. ITA NO. 460/NAG/2013 ASSESSMENT YEAR : 2003 - 04. ASSTT. COMMISSIONER OF INCOME - TAX, SHRI NANDKUMAR KHATTUMAL CIRCLE - 2, NAGPUR. VS. HARCHANDANI, NAGPUR. PA N AATPH2594R APPELLANT. RESPONDENT. APPELLANT BY : SMT. ANITA RUPVATARAM. RESPONDENT BY : SHRI MANOJ MORYANI . DATE OF HEARING : 03 - 12 - 2015. DATE OF PRONOUNCEMENT : 6 TH JAN., 2016. O R D E R PER SHRI SHAMIN YAHYA, A.M . THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS) - I, NAGPUR DATED 30 - 09 - 2013 AND PERTAINS TO ASSESSMENT YEAR 200 3 - 04 . GROUNDS OF APPEAL READ AS UNDER : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN ALLOWING THE CLAIM OF THE ASSESSEE IN RESPECT OF INTEREST PAID ON BORROWED CAPITAL DESPITE THE FACT THAT THE ASSESSEE COULD NOT PROVE THAT THE PROPERTY HAD BEEN ACQUIRED OR CONSTRUCTED WITH BORROWED CAPITAL; 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN TREATING THE RENTAL INCOME OF THE ASSESSEE AS BUSINESS INCOME; 3. ON THE F ACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE C!T(A) ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE HAD MERELY LET OUT THE PREMISES WITHOUT ANY FACILITIES; 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) 2 ITA NO. 460/NAG/2013 ERRED IN NOT APPREC IATING THE FACT THAT THE ASSESSING OFFICER, IN THE ASSESSMENT ORDER, HAS CLEARLY STATED THAT NO FACILITIES HAVE BEEN PROVIDED BY THE ASSESSEE WHICH FACT HAS NOT BEEN REBUTTED BY THE ASSESSEE; 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, T HE CIT(A) ERRED IN DIRECTING THE AO TO CONSIDER THE INCOME AS AGRICULTURAL INCOME AS AGAINST INCOME FROM OTHER SOURCES ON THE BASIS OF THE ITAT DECISION IN THE CASE OF M/S LINK HOUSE INDUSTRIES LTD., WHICH HAS NOT BEEN ACCEPTED BY THE DEPARTMENT. 2. APROPOS THE ISSUE OF RENTAL INCOME VS - BUSINESS INCOME. ON THIS ISSUE LEARNED COUNSEL OF THE ASSESSEE HAS STATED THAT THE AO HAS TREATED THE BUSINESS INCOME AS INCOME FROM HOUSE PROPERTY AND HAS DISALLOWED BUSINESS EXPENSES AMOUNTING TO RS.13,83,296/ - . 3 . WE FIND THAT THE FACTS AS WELL AS THE ARGUMENTS OF THE COUNSELS IN THIS REGARD ARE IDENTICAL TO THE ONE DEALT WITH BY US IN ITA NO. 461/NAG/2013 FOR ASSESSMENT YEAR 2008 - 09 IN THE CASE OF THE SAME ASSESSEE VIDE OUR ORDER OF EVEN DATE. SAME IS REPRODUCED AS UNDER : 3. APROPOS THE ISSUE OF RENTAL INCOME VS - BUSINESS INCOME. BRIEF FACTS OF THE CASE ARE AS UNDER : THE ASSESSEE IS AN INDIVIDUAL AND DERIVES INCOME FROM BUSINESS COMMISSION WHICH THE AO HAS TREATED AS INCOME FROM HOUSE PROPERTY. THE MAIN SOURCE OF INCOME DECLARED BY THE ASSESSEE IS RECEIPT OF BUSINESS CONDUCTING FEES RECEIVED FROM FOUR PARTIES VIZ., SHRI NIRMAL WASWANI, M/S SAPTASATI ENTERPRISES & MUSIC BROADCAST PVT. LTD., NAGPUR. THE ASSESSEE HAS BUILT A TOWER NAMED POONAM BAZAR. IN THE SAID TOWER HE HAS BUILT A COMMERCIAL SUPER BAZAAR WHICH IS EQUIPPED WITH MODERN ELECTRICAL FITTING, AIR CONDITIONI NG, LIFTS ELEVATORS, FURNITURE AND FIXTURE AND BACK - UP POWER GENERATOR. TO EXPLOIT THE COMMERCIAL ASSET THE ASSESSEE ENTERED INTO BUSINESS CONDUCTING AGREEMENTS WITH THE ABOVE PARTIES. BY VIRTUE OF THE SAID AGREEMENTS THE ASSESSEE IS ENTITLED TO FIX THE PERCENTAGE OF SALES OR FIX A SUM WHICHEVER IS HIGHER. THE ASSESSEE HAS SHOWN THE INCOME UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION WHICH WAS ACCEPTED BY THE REVENUE IN EARLIER YEARS. IN THESE YEARS, HOWEVER, THE AO TREATED THE INCOME AS INCOME F ROM HOUSE PROPERTY. WHILE TREATING THE ABOVE INCOME AS INCOME FROM HOUSE PROPERTY, THE AO OBSERVED THAT THE ASSESSEE HAS FAILED TO ENUMERATE THE DETAILS OF SERVICES AND FACILITIES PROVIDED BY HIM TO THE CLIENTS OTHER THAN THE FACILITY FOR THE 3 ITA NO. 460/NAG/2013 USE OF PREMIS ES FOR BUSINESS. THE AO ALSO DREW ADVERSE INFERENCE THAT PAYEES HAVE DEDUCTED TAX U/S 194H. THE AO WAS OF THE OPINION THAT THE AGREEMENTS ENTERED INTO BY THE ASSESSEE WITH TWO OF THE PARTIES WERE COLOURABLE DEVISES WITH A MOTIVE TO CLAIM THE RENTAL INCOME AS BUSINESS INCOME. IN RESPECT OF THE TWO OTHER PARTIES FROM WHOM THE ASSESSEE COULD NOT PRODUCE ANY AGREEMENT, AO TREATED THE INCOME AS INCOME FROM HOUSE PROPERTY. 4. AGAINST THE ABOVE ORDER, ASSESSEE APPEALED BEFORE THE LEARNED CIT(APPEALS). AFTER CONSI DERING THE SUBMISSIONS IN DETAIL, LEARNED CIT(APPEALS) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. LEARNED CIT(APPEALS) IN THIS REGARD FOUND THAT THE FACTS OF THE CASE ARE IDENTICAL WITH THE FACTS DEALT WITH BY THE ITAT, NAGPUR BENCH IN THE CASE OF CITY CENTRE IN ITA NO. 95 TO 99/NAG/2009 AND ITA NO. 28/NAG/2010 VIDE ORDER DATED 31 - 07 - 2007 AND 27 - 04 - 2011. LEARNED CIT(APPEALS) ALSO NOTED THAT ON SIMILAR FACTS THE REVENUE HAS ACCEPTED THE ASSESSEES INCOME AS INCOME FROM BUSINESS IN EARLIER YEARS. LEARNED C IT(APPEALS) ALSO NOTED THAT THE ASSESSEE HAS ENTERED INTO AGREEMENTS INCLUDING SOME ORAL AGREEMENTS. THE ASSESSEE ALSO FURNISHED THE CONFIRMATION LETTERS FROM THE PARTIES ALONG WITH THEIR AFFIDAVITS IN SUPPORT OF ITS CLAIM OF HAVING RECEIVED BUSINESS COMMI SSION CHARGES FROM THESE PARTIES. LEARNED CIT(APPEALS) FURTHER OBSERVED AS UNDER : 8.5 THEREFORE, IN SUPPORT OF HIS CLAIM OF HAVING RECEIVED THE BUSINESS COMMISSION CHARGES IN RESPECT OF THESE REMAINING TWO PARTIES APPEARING AT SL. NO. (III) & (IV) ABOVE, THE APPELLANT HAS ADDUCED THE CONFIRMATION AND AFFIDAVITS BEFORE THE AO AND DURING THE APPELLATE PROCEEDINGS. THE AO, HOWEVER, DECLINED TO AGREE WITH THE CONTENTION OF THE ASSESSEE FOR THE REASON THAT THE APPELLANT HAS ACTUALLY NOT RECEIVED ANY RENT OR ANY BUSINESS COMMISSION CHARGES FROM THESE TWO PARTIES AND THEREFORE TREATED THE RECEIPTS FROM THESE TWO PARTIES AS INCOME FROM OTHER SOURCES. IN THIS REGARD, THE FACTUAL POSITION AS EMERGED FROM THE RECORDS AND CONTENTION OF THE APPELLANT IS THAT THE AP PELLANT HAD RECEIVED THE DEPOSITS FROM THESE TWO PARTIES AND ON THEIR FAILURE TO PAY THE BUSINESS COMMISSION CHARGES, THE APPELLANT DURING THE RELEVANT F.Y. FINALLY ADJUSTED SUCH RECEIPTS AGAINST THE BUSINESS COMMISSION CHARGES AND DECLARED THE SAME AS BUS INESS COMMISSION INCOME AGGREGATING WITH THE BUSINESS COMMISSION INCOME RECEIVED FROM OTHER PARTIES WITH WHOM THE APPELLANT HAS ENTERED INTO BUSINESS COMMISSION AGREEMENTS. SINCE THE APPELLANT NEITHER RECEIVED THE RENT, NOR THE BUSINESS CONDUCTING COMMISSI ON FROM THESE TWO PARTIES, THEREFORE THE APPELLANT HAS ADJUSTED SUCH DEPOSITS AGAINST THE BUSINESS COMMISSION CHARGES DECLARED AS INCOME FROM 4 ITA NO. 460/NAG/2013 BUSINESS IN THE RETURN WHICH HAS NOT BEEN PROVED CONTRARY. DURING THE APPELLATE PROCEEDINGS, THE APPELLANT HAS FI LED THE COPIES OF CONFIRMATION LETTERS AND THE AFFIDAVITS FROM SUCH PARTIES WHO HAVE CONFIRMED THAT THE AMOUNTS HAVING BEEN ADJUSTED TOWARDS BUSINESS COMMISSION CHARGES. IN THIS REGARD, IT IS VITAL TO MENTION HERE THAT THE DEPOSITS ADJUSTED BY THE APPEL LANT AGAINST THE BUSINESS COMMISSION CHARGES WERE SUO - MOTO OFFERED FOR TAXATION AS BUSINESS RECEIPTS, EVEN THOUGH IT BEING A MERE DEPOSIT, DOES NOT CONSTITUTE DOES NOT CONSTITUTE AN ITEM OF INCOME, IF THE TERMS OF THE BUSINESS WERE NOT SO DEFINED BETWEEN THE PARTIES, EITHER ORALLY OR THROUGH WRITTEN AGREEMENT, WHICH ASPECT REQUIRED TO BE CONSIDERED AND THERE IS NO REASON TO DRAW ANY ADVERSE INFERENCE. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE PARTICULAR ITEM OF RECEIPT SHOWN UNDER THE HEA D INCOME FROM BUSINESS CANNOT BE SEGREGATED UNLESS IT IS PROVED OTHERWISE THAT THE RECEIPTS SO RECEIVED FROM THESE TWO PARTIES, ARE FROM THE SOURCES OTHER THAN THE BUSINESS OF THE APPELLANT, WHICH BEING NOT A CASE, AND LOOKING TO THE CIRCUMSTANCES OF THE CASE, THE EVIDENCES BROUGHT ON RECORD AND THE JUDICIAL DECISIONS RELIED UPON BY THE APPELLANT, THE INCOME DECLARED BY THE APPELLANT UNDER THE HEAD BUSINESS CANNOT BE INFERRED TO HAVE BEEN DERIVED FROM OTHER SOURCES FOR WANT OF ANY CONTRARY EVIDENCE ON RECORD. 8.6 I, THEREFORE, DECLINE TO AGREE WITH THE CONTENTION OF THE ASSESSING OFFICER THAT AFORESAID INCOME WAS HOUSE PROPERTY INCOME WHEN THE AGREEMENT BETWEEN THE PARTIES MAKES IT ABUNDANTLY CLEAR THAT IT IS ENTERED WITH BUSINESS MOTIVE. 8.7 THUS IN T HE LIGHT OF THE ABOVE FACTS OF THE CASE AND THE RATIO OF THE DECISIONS DISCUSSED ABOVE AND IN THE LIGHT OF THE HONBLE ITATS, NAGPUR BENCH, NAGPUR, DECISION IN THE CASE OF CITY CENTRE, I AM OF THE CONSIDERED OPINION THAT THE INCOME RECEIVED BY THE APPEL LANT BY WAY OF BUSINESS CONDUCTING FEES, IS TO BE TREATED AS BUSINESS INCOME AQND NOT TO BE TREATED AS INCOME FROM HOUSE PROPERTY AS THIS IS A CASE WHERE THE INCOME HAS BEEN DERIVED BY COMMERCIAL EXPLOITATION OF A COMMERCIAL ASSET. IN VIEW OF THE ABOVE DISCUSSION, I DIRECT THE AO TO ASSESS THE BUSINESS CONDUCTING CHARGES/COMMISSION RECEIVED BY THE ASSESSEE AS ITS BUSINESS INCOME AND NOT INCOME FROM HOUSE PROPERTY IN RESPECT OF ALL THE FOUR PARTIES APPEARING AT (I) TO (IV) ABOVE. THE APPEAL OF THE A PPELLANT ON GROUND NOS. 5,6&7 ARE ALLOWED AND THE RESULTANT ADDITION OF RS.13,83,944/ - IS DIRECTED TO BE DELETED AND THE RELEVANT EXPENDITURE ATTRIBUTABLE TO SUCH BUSINESS INCOME TO BE ALLOWED. 5 ITA NO. 460/NAG/2013 5. AGAINST THE ABOVE ORDER, REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT IT IS EMANATING FROM THE FACTS ON RECORD THAT THE ASSESSEE HAS CONSTRUCTED A COMMERCIAL PROPERTY AT POONAM BAZAR AND IS EXPLOITING IT BY MEANS OF BUSINESS CONDUCTI NG AGREEMENTS WITH FOUR PARTIES. THE ASSESSEE HAS PROVIDED VARIOUS FACILITIES WHICH IS ENUMERATED IN THE EARLIER PARAGRAPH. THE ASSESSEE HAS GIVEN THESE PROPERTIES TO THESE PARTIES AND ENTERED INTO AGREEMENT TO PROVIDE FACILITIES AND CHARGE FEES ON NET SA LES OF THE PRODUCT MARKETED/SOLD. AFTER EXAMINING THE RELEVANT FACTS LEARNED CIT(APPEALS) HAS SUMMARIZED HIS FINDINGS AS UNDER : A) THE ASSESSEE IS AN INDIVIDUAL AND THE BUSINESS OF THE APPELLANT IS TO CONSTRUCT & LET OUT COMMERCIAL PREMISES ON BUSINESS C ONDUCTING COMMISSION BASIS B) THE APPELLANT IS ENGAGED IN RUNNING OF REAIL STORES LIKE POONAM SUPER BAZAR AND ALLIED RETAIL STORES. C) THE PROJECT UNDERTAKEN WAS TO RUN A DEPARTMENTAL STORE NAMELY POONAM SUPER BAZAR STORE. D) THE APPELLANT IS CARRYING ON B USINESS OF DEPARTMENTAL STORES THROUGH EXECUTING BUSINESS CONDUCING AGREEMENTS WITH THE PARTIES. E) THE BUSINESS CONDUCTING FEES ON NET SALES OF PRODUCT MARKETED ON PERCENTAGE OF SIGNAGE AND OTHER INCOME REALIZED BY CONDUCTOR WITH A MINIMUM GUARANTEE CLAUS E. THIS SORT OF ARRANGEMENT ESSENTIALLY INVOLVES A SHARING OF BUSINESS RISK WITH SUCH PARTY WHICH AS IS ONE OF THE ESSENTIAL ELEMENTS OF BUSINESS. HENCE THE NATURE OF SUCH RECEIPTS IS NOT BARE RENT RATHER IT IS BUSINESS ENTREPRENEURSHIP. F) THE ASSESSEE HA S CONSTRUCTED STATE OF ART SHOPPING CENTRE FOR ITS BUSINESS AND IT IS ITS COMMERCIAL ASSET. RS. 1,63,84,300/ - INCLUDING COST OF CONSTRUCTION AND COST OF OTHER AMENITIES AND ELECTRIC INSTALLATIONS, AIR - CONDITIONERS, LIFTS, ESCALATORS, FURNITURE AND FIXTURES , BACK - UP GENERATOR AND OTHER APPLIANCES. IT IS FULLY FURNISHED SUPER BAZAR TO CARRY ON ACTIVITY OF BUSINESS IN ALL RESPECT. THE ASSESSEE HAS EXPLOITED THE COMMERCIAL ASSET TO DERIVE REVENUE AS BUSINESS INCOME. THE ANALYSIS OF BALANCE SHEET AS ON 31/03/200 8 SHOWS TOTAL INVESTMENT MADE IN THE BUSINESS AT RS.311.78 LACS, THE TOTAL CAPITAL OF APPELLANT AT RS. 24.75 CRORES. THE BORROWING IS TOWARDS COST OF BUILDING, PLANT AND MACHINERIES, FURNITURE AND FIXTURES, LIFTS PARKING SPACE, SECURITY, CC TV ETC. THE INT ENTION OF THE ASSESSEE IS TO CARRY ON BUSINESS ACTIVITY. SINCE THE INVESTMENT HAS BEEN MADE BY BORROWED FUNDS ON INTEREST, THIS FACT ALSO INDICATE THE ELEMENT OF CARRYING 6 ITA NO. 460/NAG/2013 ON ITS BUSINESS PARTICULARLY WHEN THE PROPERTY IS OF COMMERCIAL NATURE BEING LOCATED IN A COMMERCIAL COMPLEX, NAMELY POONAM CHAMBERS. THE RELEVANT CLAUSE OF THE AGREEMENT IN THIS REGARD ENTERED BY THE APPELLANT WITH THE AFORESAID PARTIES IS REPRODUCED BELOW: IT IS AGREED THAT, THE PARTY NO. II SHALL PAY TO PARTY NO. 1 THE MONTHLY COMPEN SATION IN THE FORM OF BUSINESS PROFIT VIZ. 2% OF THE GROSS SALE PROCEEDS, MONTHLY EXPECTED SALE PROCEEDS BEING RS.50,00,000/ - (RUPEES FIFTY LACS ONLY). IT IS SPECIFICALLY AGREED BETWEEN THE PARTIES THAT IN THE EVENT THAT IF THE TURNOVER OF PARTY NO. II DO ES NOT REACH ITS MINIMUM TARGET OF RS.50,00,000 (RUPEES FIFTY LACS ONLY) PER MONTH, GROSS SALES TURNOVER FROM THE SAID PREMISES, THEN PARTY NO. II SHALL GIVE TO PARTY NO. 1 RS.98,640/ - (RUPEES NINETY EIGHT THOUSAND SIX HUNDRED FORTY ONLY) PER MONTH OF MINIMUM GUARANTEE CHARGES PLUS THE MONTHLY MAINTENANCE CHARGES PAYABLE THIS AMOUNT SHALL BE DUE AND PAYMENT ON OR BEFORE 5 TH DAY OF EVERY MONTH. 7.1 FROM THE ABOVE FEATURES OF THE APPELLANTS CASE AND PERUSAL OF THE CONDUCTING AGREEMENTS FILED ON RECORD, IT IS QUITE MANIFEST THAT THE ASSESSEE IS CARRYING ON BUSINESS BY WAY OF CHARGING CONDUCTING FEES. 7. FROM THE ABOVE WE FIND THAT IT IS QUITE APPARENT THAT THE ASSESSEE IS ENGAGED INTO THE BUSINESS OF LETTING OUT COMMERCIAL PROPERTIES W ITH CERTAIN FACILITIES AND THE INCOME DERIVED FROM THIS IS LIABLE TO BE ASSESSED AS INCOME FROM BUSINESS. AS REGARDS THE TWO PARTIES FROM WHOM THE ASSESSEE HAS ADJUSTED THE DEPOSITS AS BUSINESS INCOME, LEARNED CIT(APPEALS) HAS GIVEN A FINDING THAT THE SA ME WAS DULY SUPPORTED BY CONFIRMATION AND AFFIDAVITS AND THERE IS NO REASON WHY NOT TO TREAT THE SAME AS BUSINESS INCOME. IN THIS REGARD WE NOTE THAT IN IDENTICAL SITUATION THE ITAT, NAGPUR BENCH VIDE ORDER DATED 28 - 08 - 2015 IN ITA NO.435/NAG/2010 IN THE CA SE OF ACIT VS. CITY CENTRE HAS DECIDED SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE. MOREOVER, WE ALSO NOTE THAT THE ISSUE INVOLVED IS COVERED IN FAVOUR OF THE ASSSESSEE BY THE DECISION OF HONBLE APEX COURT IN THE CASE OF CHENNAI PROPERTIES AND INVESTMENT VS. CIT 373 ITR 673. IN THIS CASE THE HONBLE APEX COURT HAS EXPLAINED AND DISTINGUISHED ITS RULING IN THE CASE OF EAST INDIA HOUSING AND LAND DEVELOPMENT TRUST LTD. HONBLE APEX COURT HAS CLEARLY EXPOUNDED THAT IF THE LETTING OUT OF THE PROPERTY WAS MAIN OBJ ECTIVE OF THE ASSESSEE, THE INCOME THEREFROM SHOULD BE TREATED AS INCOME FROM BUSINESS. IN THE PRESENT CASE THE ASSESSEE HAS CONSTRUCTED THE COMMERCIAL PROPERTIES EQUIPPED WITH FACILITIES AND LET THEM OUT. IT IS UNDISPUTED THAT LETTING OUT THE PROPERTIES WHICH IS INCLUSIVE OF CERTAIN FACILITIES IS THE BUSINESS OF THE 7 ITA NO. 460/NAG/2013 ASSESSEE. IN SUCH CIRCUMSTANCES THE INCOME DERIVED FROM SUCH LETTING OUT HAS TO BE TREATED AS INCOME FROM BUSINESS ON THE ANVIL OF AFORESAID DECISION OF HONBLE APEX COURT. HENCE WE HAVE NO HE SITATION IN UPHOLDING THE ORDER OF LEARNED CIT(APPEALS). 4. FOLLOWING THE ABOVE, WE UPHOLD THE ORDER OF LEARNED CIT(APPEALS) ON THIS ISSUE. 5. APROPOS GROUND RELATING TO INTEREST PAID. ON THIS ISSUE THE MATTER PERTAINS TO DISALLOWANCE OF INTEREST PAID ON BORROWED FUND AMOUNTING TO RS. 2,96,410 / - . 6. WE FIND THAT THE FACTS AND ARGUMENTS OF BOTH THE COUNSEL ON THIS ISSUE ARE IDENTICAL TO ONE DEALT WITH BY US IN ITA NO. 461/NAG/2013 FOR ASSESSMENT YEAR 2008 - 09 IN THE CASE OF THE SAME ASSESSEE VIDE OUR ORDER OF EVEN DATE. SAME IS REPRODUCED AS UNDER : 8. APROPOS GROUND RELATING TO DISALLOWANCE OF INTEREST PAID: ON THIS ISSUE THE AO HAS DISALLOWED THE CLAIM OF THE ASSESSEE AT RS.6,58,596/ - BEING INTEREST PAYMENT TO HDFC BANK AGAINST RENTAL DISCOUNT STATING THAT THERE SHOULD BE NEXUS BETWEEN THE CAPITAL BORROWED AND THE ACQUISITION, CONSTRUCTION, REPAIRS, RENEWAL OR RECONSTRUCTION OF THE PROPERTY OUT OF SUCH BORROWINGS AND THE INTEREST PAID ON IT. THE AO IN HIS ORDER STATES THAT THE ASSESSEE HAS AVAILED THE LOAN FROM HDFC BANK BY MORTGAGING THE PROPERTY POONAM SUPER BAZAR SITUATD AT POONAM TOWERS, AS SECURITY FOR THE BANK LOAN. THE AO FURTHER STATES THAT THE SAID LOAN OBTAINED FROM HDFC BANK AGAINST THE RENTAL DISCOUNT OF POONAL SUPER BAZAR, HAS NOTHING TO DO WITH THE ACQUISITION OR CONSTRUCTION OF THE PROPERTY ON THE GROUND THAT THE ASSESSEE HAS NOT ADDUCED ANY E VIDENCE IN SUPPORT OF HIS CLAIM THAT THE SAID LOAN WAS UTILIZED FOR ACQUISITION OR CONSTRUCTION OF THE SAID PROPERTY. THE AO THUS, DECLINED TO AGREE WITH THE CONTENTIONS OF THE ASSESSEE THAT THE AMOUNT OF LOAN ON WHICH INTEREST HAS BEEN PAID HAS ACTUALLY B EEN UTILIZED FOR UPKEEP, RENOVATION OR REPAIR OF THE PROPERTY FOR WANT OF FURNISHING ANY EVIDENCE. ACCORDING TO THE AO THE ASSESSEE WAS OBLIGED TO FURNISH A CERTIFICATE FROM THE PERSON TO WHOM INTEREST IS PAYABLE ON SUCH BORROWED CAPITAL TO CLAIM DEDUCTION U/S 24(B) OF THE ACT, WHICH THE ASSESSEE FAILED TO SUBMIT. THE AO ALSO DID NOT ALLOW 8 ITA NO. 460/NAG/2013 THE ALTERNATE CLAIM OF THE ASSESSEE TO ALLOW SUCH INTEREST U/S 37(1) OF THE ACT. THE AO IN THIS REGARD HAS RELIED ON THE DECISION IN THE CASE OF CIT VS. DEVENDRA BROS. & CO. (1993) 200 ITR 146 (ALL.) WHEREIN IT HAS BEEN HELD THERE SHOULD BE NEXUS BETWEEN THE CAPITAL BORROWED AND THE ACQUISITION, CONSTRUCTIONS, REPAIRS, RENEWAL OR RECONSTRUCTION OF THE PROPERTY OUT OF SUCH BORROWINGS AND THE INTEREST PAID ON IT. 9. UPON A SSESSEES APPEAL, LEARNED CIT(APPEALS) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. LEARNED CIT(APPEALS) NOTED THAT THE INTEREST HAS BEEN PAID BY THE ASSESSEE TO THE HDFC BANK AGAINST THE RENTAL DISCOUNTING LOAN. THE INTEREST AMOUNT WAS ACTUALLY PAID BY TH E ASSESSEE. THE ASSESSEE HAS UTILIZED THE LOAN FOR RENOVATION OF THE RENTAL PROPERTY, FOR UPKEEP OF PROPERTY PREMISES AND FOR REPAIRS OF PROPERTY IN ORDER TO FACILITATE THE CLIENT TO RUN HIS BUSINESS CONVENIENTLY AND SMOOTHLY TO EARN THE PROFIT. THE ASSESS EE ALSO UTILIZED THE AFORESAID AMOUNT FOR ADDITION AND ALTERATION OF PREMISES FROM TIME TO TIME AND WHEN REQUIRED TO KEEP THE BUSINESS PREMISES IN GOOD CONDITION BEING THE COST OF RENOVATION BORNE BY THE ASSESSEE AS PER THE TERMS OF AGREEMENT ENTERED. LEAR NED CIT(APPEALS) ALSO NOTED THAT SIMILAR CLAIM OF THE ASSESSEE HAS BEEN ALLOWED AS BUSINESS EXPENDITURE U/S 37(1) DURING THE ASSESSMENT YEAR 2006 - 07 IN AN ORDER PASSED U/S 143(3). LEARNED CIT(APPEALS) FURTHER NOTED THE DECISION OF HONBLE JURISDICTIONAL HI GH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. 18 DTR 1. THE LEARNED CIT(APPEALS) CONCLUDED AS UNDER : ON THE FACTS AND EVIDENCES ON RECORD THE APPELLANT HAS INCURRED REVENUE EXPENDITURE OF RS.6,58,596/ - ON ACCOUNT OF INTEREST PAID TO HDFC ON LOAN OBTAINED. THE AFORESAID LOAN HAS BEEN UTILIZED FOR THE PURPOSE OF BUSINESS IS EVIDENT FROM THE ANALYSIS OF BALANCE SHEET SUBMITTED BY APPELLANT. THE AFORESAID SUM IS THUS AN ALLOWABLE EXPENDITURE IN THE CASE OF APPELLANT. THE APPELLANT UNDER THE MISTAKEN ADVICE, HAS CLAIMED THE EXPENDITURE INCURRED UNDER THE HEAD INCOME FROM HOUSE PROPERTY ALTHOUGH IT IS CORRECTLY ALLOWABLE DEDUCTION WHILE COMPUTING INCOME FROM BUSINESS. ON ABOVE STATED FACTS THE DISALLOWANCE MADE BY AO IS NOT JUSTIFIED. T HE APPELLANT PLACED RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. REPORTED AT 18 DTR 1 (BOM.). IN THE FACTS OF PRESENT CASE, THE TOTAL PERSONAL ASSETS AND THE ASSETS ON WHICH NO INCOME ARISES ARE FUL LY EXPLAINED FROM CAPITAL OF THE APPELLANT. THE RATIO AS LAID DOWN BY THE HONBLE BOMBAY HIGH COURT, THEREFORE, SQUARELY APPLIES TO THE FACTS IN THE CASE OF THE APPELLANT. THE ASSESSEES APPEAL ON THE IDENTICAL ISSUE ON SIMILAR FACTS HAS ALSO BEEN ALLOWED BY THE COMMISSIONER OF CIT(APPEALS) - I NAGPUR BY ORDER DATED 22/06/2009 FOR THE AY 2005 - 06 VIDE APPEAL NO. CIT(A) - I/2007 - 08 DATED 26.2.2009. 9 ITA NO. 460/NAG/2013 5.7 ON CAREFUL EXAMINATION OF THE APPELLANTS BALANCE SHEET SUBMITTED ALONG WITH RETURN OF INCOME, IT IS SEEN THAT T HE CAPITAL OF THE APPELLANT IS SHOWN AT RS.24.75 CRORES AS ON 31/3/2008. THE COUNSEL OF THE APPELLANT HAS ALSO SUBMITTED ANALYSIS OF BALANCE SHEET TO SHOW THAT BUSINESS INCOME ASSESSED AT THE HANDS OF APPELLANT IS ON TOTAL INVESTMENT MADE IN THE BUSINESS A T RS.311.78 LAKHS. THE TOTAL ASSETS COMPRISING ASSETS ON WHICH NO TAXABLE INCOME ARISES ARE RS.13.22 CRORES WHICH IS LESS THAN THE CAPITAL OF APPELLA NT AT RS.24.75 CRORES. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. RELIANC E UTILITIES & POWERS LTD., HAS HELD THAT DISALLOWANCE OF INTEREST WAS NOT JUSTIFIED AS APPELLANT HAS SUFFICIENT INTEREST FREE FUNDS TO EXPLAIN THE INVESTMENT MADE BY THE SAID COMPANY, THEREFORE THE RATIO IS SQUAQRELY APPLICABLE IN THIS CASE. IN THE FACTS OF PRESENT CASE, TOTAL PERSONAL ASSETS AND ASSETS ON WHICH ON INCOME ARISES ARE FULLY EXPLAINED FROM CAPITAL OF APPELLANT. THE RATIO AS LAID DOWN BY THE HONBLE BOMBAY HIGH COURT SQUARELY APPLIES TO THE FACTS IN THE CASE OF APPELLANT. IN VIEW OF ABOVE THE GROUND OF APPEAL OF THE APPELLANT IS ALLOWED. THE ASSESSING OFFICER IS DIRECTED TO GRANT DEDUCTION IN RESPECT OF INTEREST PAID AT RS.6,58,596/ - WHILE COMPUTING INCOME FROM BUSINESS AT THE HANDS OF APPELLANT. 10. AGAINST THE ABOVE ORDER, REVENUE IS IN APPE AL BEFORE US. 11. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT THE ASSESSEE HAS OBTAINED LOAN FROM HDFC BANK AS RENTAL DISCOUNTING LOAN. LEARNED CIT(APPEALS) HAS GIVEN A FINDING THAT THE AFORESAID AMOUNT OF LOAN ON WHICH INTEREST HA S BEEN PAID HAS BEEN USED FOR RENOVATION OF RENTAL PROPERTY FOR UPKEEP OF PROPERTIES/PREMISES AND FOR REPAIRS OF PROPERTIES IN ORDER TO FACILITATE THE CLIENT TO RUN HIS BUSINESS CONVENIENTLY AND SMOOTHLY TO EARN PROFIT. THAT THE ASSESSEE HAS ALSO UTILIZE D THE AFORESAID AMOUNT FOR ADDITIONS AND ALTERATIONS OF THE PREMISES FROM TIME TO TIME AS PER THE BUSINESS REQUIREMENTS. LEARNED CIT(APPEALS) ALSO NOTED THAT SIMILAR CLAIMS OF THE ASSESSEE WERE ALLOWED AS BUSINESS EXPENDITURE U/S 37(1) IN THE EARLIER YEAR S. LEARNED CIT(APPEALS) HAS GIVEN A FINDING THAT THE AFORESAID LOAN HAS BEEN UTILIZED FOR THE PURPOSE OF BUSINESS IS ALSO EVIDENCED FROM THE ANALYSIS OF BALANCE SHEET SUBMITTED BY THE ASSESSEE. LEARNED CIT(APPEALS) HAS GIVEN A CLEAR FINDING THAT THE SAID L OAN HAS NOT BEEN UTILIZED FOR NON BUSINESS PURPOSES. IN THESE CIRCUMSTANCES, IN OUR CONSIDERED OPINION, LEARNED CIT(APPEALS) IS CORRECT IN HOLDING THAT THE SAID AMOUNT OF INTEREST PAID SHOULD BE ALLOWED TO BE DEDUCTED FROM THE BUSINESS INCOME OF THE ASSESS EE. THIS IS MORE SO IN THE LIGHT OF OUR ADJUDICATION ON THE EARLIER ISSUE THAT THE ASSESSEES INCOME FROM LETTING OUT BUSINESS OF THE ASSESSEE. IN SUCH 10 ITA NO. 460/NAG/2013 SITUATION, INTEREST ON LOAN BORROWED FOR BUSINESS HAVE TO BE ALLOWED AS BUSINESS EXPENDITURE. HENCE WE UPHOLD THE ORDER OF LEARNED CIT(APPEALS). 7. FOLLOWING THE ABOVE ORDER, WE UPHOLD THE ORDER OF LEARNED CIT(APPEALS) ON THIS ISSUE. 8. APROPOS THE GROUND RELATING TO AGRICULTURAL INCOME: ON THIS ISSUE THERE IS NO DISCUSSION IN THE ASSESSMENT ORDER. HOWEVER , THE ASSESSEE HAD RAISED THE FOLLOWING GROUND BEFORE THE LEARNED CIT(APPEALS): THAT THE LEARNED ASSESSING OFFICER ERRED IN NOT GRANTING REBATE TAX ON AGRICULTURAL INCOME OF RS. 1,69,000/ - THEREFORE THE ORDER PASSED IS ILLEGAL, INVALID AND BAD IN LAW. LEARNED CIT(APPEALS) HAS ADJUDICATED THE ISSUE AS UNDER : 13. THIS GROUND RELATES TO THE NON - ALLOWANCE OF REBATE OF RS.1,96,000/ - IN THE COMPUTATION OF INCOME ON AGRICULTURE INCOME TO THE TUNE OF RS.6,00,000/ - IN THE RETURN FILED. THE APPELLANT FURTHER S UBMITTED THAT THE AO H A S NOT DISCUSSED THE ISSUE OF AGRICULTURAL INCOME IN THE ASSESSMENT ORDER AT ALL. BUT DID NOT ALLOW THE REBATE IN COMPUTATION OF TAXES ON ACCOUNT OF SUCH AGRICULTURAL INCOME DECLARED IN THE RETURN. 13.1 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND THE ORDER OF THE AO. IT IS A FACT THAT THE ASSESSEE IN THE RETURN OF INCOME FILED HAS DECLARED THE AGRICULTURAL INCOME OF RS.6,00,000/ - AND THE LD. AO HAS ACCEPTED THE SAME IN THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT. IT IS ALSO A FACT THAT REBATE ON ACCOUNT OF AGRICULTURAL INCOME FOR THE PURPOSE OF TAXATION IN THE COMPUTATION OF INCOME HAS NOT BEEN ALLOWED TO THE APPELLANT. IT IS A STATUTORY PROVISION THAT THE APPELLANT IS ELIGIBLE FOR SUCH REBATE ON ACCOUNT OF AG RICULTURAL INCOME FOR TAXATION PURPOSES ONCE SUCH AGRICULTURAL INCOME DECLARED BY THE APPELLANT, HAS BEEN ACCEPTED BY THE AO. THE AO IS THEREFORE DIRECTED TO ALLOW THE REBATE WHILE COMPUTING THE TAX LIABILITY OF THE APPELLANT AS PER LAW. THIS GROUND IS ALL OWED. 9. AGAINST THE ABOVE ORDER, REVENUE IS IN APPEAL BEFORE US. 10. THE GROUND RAISED BY THE REVENUE IS THAT THE LEARNED CIT(APPEALS) HAS ERRED IN DIRECTING THE AO TO CONSIDER THE INCOME AS AGRICULTURAL INCOME AS 11 ITA NO. 460/NAG/2013 AGAINST THE INCOME FROM OTHER SOURCES ON THE BASIS OF ITATS DECISION IN THE CASE OF M/S LINK HOUSE INDUSTRIES LTD. WHICH HAS NOT BEEN ACCEPTED BY THE DEPARTMENT. 11. UPON CAREFUL CONSIDERATION AND HEARING BOTH THE COUNSEL, WE FIND THAT THE ABOVE GROUND RAISED BY THE REVENUE IS MISPLACED. LEARNED CIT(APPEALS) IN HIS ORDER HAS NOWHERE STATED THAT HE IS PLACING RELIANCE ON THE ORDER OF ITAT. LEARNED CIT(APPEALS) HAS SIMPLY DIRECTED THE AO TO ALLOW THE REBATE IN RELATION TO THE AGRICULTURAL INCOME WHICH HAS BEEN SO RETURNED BY THE ASSESSEE. TH E AO HAS NOT DISCUSSED ANY ADVERSE PROPOSITION REGARDING ASSESSEES CLAIM OF AGRICULTURAL INCOME. IN THESE CIRCUMSTANCES, WE FIND THAT THE REVENUES GROUND IS MISPLACED AND THE SAME IS LIABLE TO BE DISMISSED AND ACCORDINGLY THE SAME IS DISMISSED. 12. IN T HE RESULT, THIS APPEAL BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 6 TH DAY OF JANUARY , 201 6 . SD/ - SD/ - (MUKUL K. SHRAWAT) ( SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER. NAGPUR, DATED: 6 TH JANUARY, 2016. 12 ITA NO. 460/NAG/2013 COPY FORWARDED TO : 1. SHRI NANDKUMAR KHATTUMAL HARCHANDANI,, 469, NEW COLONY, NAGPUR. 2. A.C.I.T., CIRCLE - 2, NAGPUR. 3. COMMISSIONER OF INCOME - TAX - , NAGPUR. 4. CI T(APPEALS) - I, NAGPUR. 5. D.R., ITAT, NAGPUR. 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, NAGPUR WAKODE.