Graphisads Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 4770/DEL/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6929 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 21-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S R SENAPATI
• Keywords: Depreciation; Rule of consistency; Proportionate interest
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E NEW DELHI BEFORE SHRI G.D. AGRAWAL, PRESIDENT & SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER ITA NO.4770/DEL/2015 ASSESSMENT YEAR: 2010-11 GRAPHISADS PVT. LTD. C/O M/S KUMAR PIYUSH & CO CAS C-5, LGF, LAJPAT NAGAR III, NEW DELHI. AAACG2365F VS DCIT, CIRCLE 12(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI ARVIND KUMAR, ADVOCATE REVENUE BY SH. S.R. SENAPATI, SR. DR ORDER PER K. NARASIMHA CHARY, J.M. AGGRIEVED BY THE ORDER DATED 25/05/2015 IN APPEAL N O. 36/13-14/CITA-4 ON THE FILE OF THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS)-4, NEW DELHI THE ASSESSEE PREFERRED THIS APPEAL, ON THE FOLLOWING GR OUNDS:- 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS I N NOT APPRECIATING THAT THE ASSESSEE HAD SUFFICIENT AVAILABILITY OF INTEREST TO FREE FUNDS TO MAKE THE INTEREST-FREE ADVANCES AND, THEREFORE, INTEREST PAY MENTS ON BORROWALS COULD NOT HAVE BEEN PROPORTIONATELY DISALLOWED. DATE OF HEARING 26.07.2018 DATE OF PRONOUNCEMENT 26.07.2018 2 2. THAT THE LD. CIT(A) HAS ADDED IN LAW AND IN FACTS I N NOT APPRECIATING THAT EVEN OTHERWISE, THE INTEREST-FREE ADVANCE S/INVESTM ENTS WERE MADE TO PROTECT THE BUSINESS INTERESTS OF THE ASSESSEE AND, THEREFORE, NO PROPORTIONATE DISALLOWANCE OF INTEREST EXPENSE WAS CALLED FOR. 3. THAT IT THE LD. CIT(A) HAS ADDED IN LAW AND ON FACT S IN DISALLOWING THE CLAIM OF DEPRECIATION FOR AN AMOUNT OF RS. 50, 50, 000/-. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF ADVERTISING, PR ACTIVITIES, OUTD OOR MEDIA AND TRADING OF HELICOPTERS PARTS. FOR THE ASSESSMENT YEAR 2010-11 THEY HAVE FILED THEIR RETURN OF INCOME ON 26/09/2010 DECLARING AN INCOME OF RS.1,76 ,85,000/-. DURING THE ASSESSMENT PROCEEDINGS, LEARNED ASSESSING OFFICER ( LD. AO) FIRSTLY OBSERVED THAT THE ASSESSEE EARNED DIVIDEND INCOME OF RS.1,96,092/ - ON THE INVESTMENT OF RS.8,96,092/- AS ON 31/03/2010 BUT NOT MADE ANY DIS ALLOWANCE AS REQUIRED UNDER SECTION 14-A OF THE INCOME TAX ACT, 1961 (THE ACT ). LEARNED AO, THEREFORE, MADE A DISALLOWANCE OF RS.16,621/-ON THAT SCORE. 3. SECONDLY, LD. AO NOTED THAT THE ASSESSEE HAD GIV EN INTEREST-FREE ADVANCES OF RS.5,30,66,046/- TO ITS DIRECTORS WHEREAS THEY H AVE BEEN MAKING INTEREST PAYMENT OF RS.1,47,51,794/-ON THE BORROWED FUNDS OF RS.10,71,79,812/-. LD. AO, THEREFORE, BY INVOKING THE PROVISIONS UNDER SECTION 36(1)(III) OF THE ACT, DISALLOWED A SUM OF RS.34,46,444/- TOWARDS THE PROPORTIONATE I NTEREST IN THE RATIO OF INTEREST TO FREE FUNDS GIVEN TO THE DIRECTORS OF THE COMPANY . 4. LASTLY THE ASSESSING OFFICER NOTICED THAT THE AS SESSEE HAD SHOWN ADDITION TO OFFICE BUILDING AT RS.6,88,81,224/- BUT A PERUSA L OF THE PURCHASE DEED IN RESPECT OF THE BUILDING ADDED DURING THE YEAR, SHOW ED THAT THE TOTAL PURCHASE VALUE OF THE BUILDING WAS RS.5,55,00,000/-WHICH COM PRISES OF THE VALUE OF THE LAND MEASURING 505.85 SQ. M OF RS.5,05,00,000/- AND THE VALUE OF THE BUILDING 3 THEREON WAS ONLY RS. 50 LAKHS. LD. AO, THEREFORE, H ELD THAT THE ASSESSEE IS NOT ENTITLED TO CLAIM DEPOSITION IN RESPECT OF BUILDING ONLY BUT IT HAS CLAIMED DEPRECIATION AT 10% AGAINST THE COMPOSITE VALUE OF THE LAND AND BUILDING. ON SUCH PREMISE, LD. AO DISALLOWED A SUM OF RS.50,50,000/- ATTRIBUTABLE TO THE VALUE OF THE LAND. 5. AGGRIEVED BY THE ASSESSMENT ORDER BECAUSE OF THE ADDITIONS MADE THEREIN, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A). LD. CIT(A) BY WAY OF IMPUGNED ORDER DELETED THE ADDITION OF RS. 16,621/- ADDED ON ACCOUNT OF THE DISALLOWANCE BY INVOKING THE PROVISIONS UNDER SECTION 14-A OF TH E ACT READ WITH RULE 8-D OF THE INCOME TAX RULES, 1962. 6. LD. CIT(A), HOWEVER, HELD THAT THE BORROWED FUND S AND OWN FUNDS OF THE ASSESSEE COULD HAVE REASONABLY BE DEPLOYED TOWARDS MAKING INVESTMENTS IN FLATS/PLOTS ETC. IN THE RATIO OF 5.30:10.71, THE AS SESSEE DEPLOYED INTEREST-BEARING BORROWED FUNDS OF RS.2,31,59,663/- FOR MAKING INVES TMENT IN FLATS/PLOTS AND, THEREFORE, LD. CIT(A) DIRECTED THE LD. AO TO COMPUT E THE INTEREST ON IT AT THE APPLICABLE INTEREST RATE PAYABLE TO BANK AND RESTRI CT THE DISALLOWANCE OF INTEREST EXPENSE UNDER SECTION 36(1)(III) OF THE ACT TO THAT EXTENT, THEREBY ALLOWING RELIEF IN PART. 7. SO ALSO LD. CIT(A) HELD THAT THE ACT OF THE ASSE SSING OFFICER IN NOT DISALLOWING THE DEPRECIATION ON LAND IN ASSESSMENT YEARS 2009-10 AND IN ASSESSMENT YEAR 2011-12 AND 2012-13 WHILE PASSING A SSESSMENT UNDER SECTION 143(3) OF THE ACT, IS NOT IN ACCORDANCE WITH LAW IN VIEW OF THE DECISION OF THE HONBLE APEX COURT IN CIT VS. ALPS THEATRE LTD (196 7) 65 ITR 377 AND WHILE REFUSING THE PRAYER OF THE ASSESSEE TO FOLLOW THE D ECISION OF THE HONBLE APEX 4 COURT IN RADHASOAMI SATSANG V . CIT, [1992] 193 ITR 321 AS TO THE RULE OF CONSISTENCY AND PRECEDENCE, LD. CIT(A) SUSTAINED TH E ADDITION MADE ON ACCOUNT OF THE RELEVANCE OF THE DEPRECIATION ON THE LAND CO MPONENT. 8. THE ASSESSEE IS, THEREFORE, BEFORE US IN THIS AP PEAL ON THE ABOVE STATED GROUNDS, CHALLENGING THE ADDITION OF THE PROPORTION ATE INTEREST ON THE INTEREST- FREE LOANS ADVANCED TO THE DIRECTORS ON THE GROUND THAT THE ASSESSEE HAD SUFFICIENT OWN FUNDS OVER AND ABOVE THE INTEREST-FR EE LOANS ADVANCED TO THE DIRECTORS AND ALSO THAT THEY HAVE PURCHASED THE BUI LDING AS LOCK, STOCK AND BARREL INCLUDING EVERYTHING AND NOT LAND AND BUILDING SEPA RATELY FOR COST, AS SUCH, THE BIFURCATIONS OF THE CAST OF THE ASSET INTO LAND UND ER BUILDING COMPONENT AND TO DISALLOW THE DEPOSITION CLAIMED IN PROPORTION TO TH E LAND COMPONENT IS NOT WARRANTED. 9. INSOFAR AS THE DISALLOWANCE OF THE PROPORTIONATE INTEREST IS CONCERNED, THE CONTENTIONS ADVANCED ON BEHALF OF THE ASSESSEE ARE TWOFOLD. FIRSTLY, THAT THE ASSESSEE HAD SUFFICIENT AVAILABILITY OF INTEREST-FR EE FUNDS TO MAKE THE INTEREST-FREE ADVANCES AND, THEREFORE, INTEREST PAYMENTS ON BORRO WALS COULD NOT HAVE BEEN PROPORTIONATELY DISALLOWED. SECONDLY, IT IS ARGUED THAT EVEN OTHERWISE, THE INTEREST-FREE ADVANCES/INVESTMENTS WERE MADE TO PRO TECT THE BUSINESS INTERESTS OF THE ASSESSEE AND, THEREFORE, NO PROPORTIONATE DI SALLOWANCE OF INTEREST EXPENSE WAS CALLED FOR. 10. IT IS BROUGHT TO OUR NOTICE THAT IT WAS SUBMITT ED BEFORE BOTH THE AUTHORITIES BELOW THAT AS ON 31/03/2010 THE PAID-UP CAPITAL OF THE ASSESSEE STANDS AT AN AMOUNT OF RS. 82.45 LAKHS AND THE RESULTS AND SURPL USES INCLUDING THE SHARE PREMIUM STOOD AT AN AMOUNT OF RS.10,91,62,836/-, PU T TOGETHER THE PAID-UP 5 CAPITAL AND RESERVES AVAILABLE TO THE ASSESSEE AS O N 31/03/2010 WERE TO THE TUNE OF RS. 11.74 CRORES WHEREAS THE ADVANCES OR ONLY TO THE TUNE OF RS.5,30,66,046/-. ON THIS ASPECT THERE IS NO ADVERSE COMMENT BY EITHE R OF THE AUTHORITIES. 11. LD. AR PLACED RELIANCE ON THE DECISIONS OF THE HONBLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UTILITIES AND POWER LTD (2009) 178 TAXMAN 135 (BOMBAY) AND PCIT VS. MIDDAY MULTIMEDIA LTD (2018) 89 TAXMANN.CO M 184 (BOMBAY) FOR THE PRINCIPLE THAT IF THERE ARE FUNDS AVAILABLE BOTH IN TEREST-FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT IN VESTMENT WOULD BE OUT OF THE INTEREST-FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST-FREE FUNDS WERE SUFFICIENTLY TO MEET THE INVESTMENTS. FU RTHER RELIANCE IS PLACED ON THE DECISION OF THE HONBLE APEX COURT IN HERO CYCLES P RIVATE LIMITED VERSES CIT (2015) 63 TAXMAN.COM 308 (SC) WHEREIN IT WAS HELD T HAT INSOFAR AS THE LOANS TO DIRECTORS ARE CONCERNED, IT COULD NOT BE DISPUTED B Y THE REVENUE THAT THE ASSESSEE HAD A CREDIT BALANCE IN THE BANK ACCOUNT W HEN THE SAID ADVANCE OF RS. 34 LAKHS WAS GIVEN AND THE COMPANY HAD RESERVES/SUR PLUS TO THE TUNE OF ALMOST 15 CRORES AND , THEREFORE, THE ASSESSEE COMPANY COU LD IN ANY CASE, UTILISE THOSE FUNDS FORGIVING ADVANCE TO ITS DIRECTORS. 12. THESE DECISIONS OF THE HONBLE BOMBAY HIGH COUR T AND THE HONBLE APEX COURT ARE DIRECTLY APPLICABLE TO THE FACTS OF THE C ASE ON HAND ON ALL FOURS AND IN SO FAR AS THE REVENUE DOES NOT DISPROVE THE CONTENTION OF THE ASSESSEE THAT THEY HAD INTEREST FREE FUNDS IN THEIR HANDS OVER AND ABOVE T HE LOANS ARE ADVANCES GIVEN TO THE DIRECTORS AS ON SUCH DATE, INASMUCH AS SUCH INT EREST-FREE FUNDS ARE SUFFICIENT TO ADVANCE SUCH LOANS TO THE DIRECTORS, THE PRESUMP TION IS THAT THE LOANS WOULD BE OUT OF THE INTEREST-FREE FUNDS AVAILABLE WITH TH E ASSESSEE. 6 13. FURTHER THE IMPUGNED ORDER REVEALS THAT THE BUS INESS EXPEDIENCY WAS ALSO PLEADED BEFORE THE AUTHORITIES BELOW BESIDES DEMONS TRATING THAT THE TOTAL AMOUNT OF INTEREST DEBITED TO PROFIT AND LOSS ACCOU NT AMOUNTING TO RS.1,47,51,794/- WAS PLEADED TO DIFFERENT THE BANKE RS/LENDERS. THE IMPUGNED ORDER DOES NOT COMMENTED ANYTHING ADVERSE ON THIS A SPECT. 14. IN THIS SET OF FACTS AND CIRCUMSTANCES OF THE C ASE, WHILE RESPECTFULLY FOLLOWING THE RATIO IN THE DECISIONS RELIED UPON BY THE ASSESSEE WE ARE OF THE CONSIDERED OPINION THAT THE DISALLOWANCE OF PROPORT IONATE INTEREST CANNOT BE SUSTAINED. WE, THEREFORE, WHILE ALLOWING GROUNDS NO . 1 AND 2 DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION MADE ON THIS ASPECT. 15. NOW COMING TO THE 2 ND ASPECT RELATING TO THE DEPRECIATION CLAIMED IN RESPECT OF THE ASSET COMPRISED OF LAND AND BUILDING COMPONENTS INTEGRALLY, THE IMPUGNED ORDER ITSELF SAYS THAT THE ASSESSING OFFIC ER ALLOWED SUCH DEPRECIATION IN RESPECT OF THE ASSESSMENT YEARS 2009-10, 2011-12 AN D 2012-13 WHICH MEANS IN THE EARLIER YEAR AS WELL AS THE SUBSEQUENT YEARS. F URTHER IT IS SUBMITTED BEFORE US THAT FOR THE ASSESSMENT YEARS 2013-14 TO 2015-16 A LSO THE DEPOSITION ON THE ENTIRE ASSET WAS ALLOWED. THERE IS NO DISPUTE AS TO THE FACT THAT THE ASSET WAS SOLD IN THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YE AR 2015-16 AND WHILE CALCULATING THE LONG-TERM AND SHORT-TERM CAPITAL GA INS THE WRITTEN DOWN VALUE OF THE ASSET WAS CONSIDERED AFTER ALLOWING THE DEPRECI ATION ON THE ASSET AS A WHOLE. 16. IN THESE CIRCUMSTANCES IT IS CLEAR THAT EXCEPT THE YEAR UNDER CONSIDERATION, FOR ALL REMAINING YEARS FROM PURCHASE OF THE ASSET TO ITS SALE, DEPRECIATION WAS ALLOWED ON THE TOTAL VALUE OF THE ASSET WITHOUT RES ORTING TO ANY BIFURCATIONS OF THE ASSET INTO THE LAND COMPONENT AND BUILDING COMPLAIN T, BUT IS ONLY FOR THE YEAR 7 UNDER CONSIDERATION SUCH A VIEW IS TAKEN BY THE ASS ESSING OFFICER. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED OPINION THAT THE RULE OF CONSISTENCY DEMANDS THAT THE CONSISTENT VIEW HAD TO BE TAKEN IN SIMILAR MATTERS OF THE SAME ASSESSEE OVER A PERIOD OF TIME AND TO DISCRIMINATE THE ISSUE FOR A SINGLE YEAR IS NOT PERMISSIBLE. WE, THE REFORE, WHILE FOLLOWING THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF RADHASOAMI SATSANG (SUPRA) FIND IT DIFFICULT TO SUSTAIN THE DISALLOWANCE OF DEPRECI ATION AND THE CONSEQUENTIAL ADDITION. WE , THEREFORE, DIRECT THE ASSESSING OFFI CER TO DELETE THE DISALLOWANCE AND THE CONSEQUENTIAL ADDITION. GROUNDS NO. 3 IS AL LOWED. 17. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH JULY 2018 SD/- SD/- (G.D. AGRAWAL) (K. NARASI MHA CHARY) PRESIDENT JUDICIAL MEMBER DATED: 26 TH JULY, 2018 VJ 8 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DRAFT DICTATED ON 26.07.2018 DRAFT PLACED BEFORE AUTHOR 26.07.2018 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. APPROVED DRAFT COMES TO THE SR.PS/PS 26.7.18 KEPT FOR PRONOUNCEMENT ON 26.7.18 DATE OF UPLOADING ORDER ON THE WEBSITE 26.7.18 FILE SENT TO THE BENCH CLERK 26.7.18 DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.