KALYAN VIHAR BUILDHOME PVT. LTD., JAIPUR V. INCOME TAX OFFICER, WARD-6-1, JAIPUR

ITA 500/JPR/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 3665 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 12-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RUNI PAL JCIT DHK
• Assessee Lawyers: S L PODDAR
• Keywords: Business income; Salary income; Proportionate interest
• Section: 143(3)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCH SMC, JAIPUR JH FOT; IKY JKWO] U;KF;D LNL; DS LE{K BEFORE: SHRI SHRI VIJAY PAL RAO, JUDICIAL MEMBER VK;DJ VIHY LA-@ ITA NOS. 500 & 501/JP/2018 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2014-15 & 15-16. KALYAN VIHAR BUILDHOME PVT. LTD., D-25, LAL BAHADUR NAGAR, JLN MARG, JAIPUR. CUKE VS. THE INCOME TAX OFFICER, WARD 6(1), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AACCK 4105 D VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI S.L. PODDAR (ADVOCATE) JKTLO DH VKSJ LS@ REVENUE BY : SMT. RUNI PAL (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 19.09.2019. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 29/10/2019. VKNS'K@ ORDER PER VIJAY PAL RAO, JM : THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGA INST TWO SEPARATE ORDERS OF LD. CIT (APPEALS)-2, JAIPUR BOTH DATED 27.03.2018 F OR THE ASSESSMENT YEARS 2014-15 AND 15-16 RESPECTIVELY. THE ASSESSEE HAS RAISED CO MMON GROUNDS IN THESE APPEALS EXCEPT THE QUANTUM OF DISALLOWANCE. THE GROUNDS RAI SED FOR THE ASSESSMENT YEAR 2014-15 ARE AS UNDER :- 1. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT (A) HAS ERRED IN SUSTAINING THE ADDITION OF RS. 40, 24,782/- BY NOT ALLOWING INTEREST EXPENSES CLAIMED BY THE ASSESSEE AGAINST THE INTEREST INCOME OF RS. 42,01,020/- SHOWN BY THE ASS ESSEE. 2 ITA NOS. 500 & 501/JP/2018 M/S. KALYAN VIHAR BUILDHOME P. LTD., JAIPUR. 2. THE ASSESSEE CRAVES YOUR INDULGENCE TO ADD, AMEN D OR ALTER ALL OR ANY GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEAR ING. 2. THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND EN GAGED IN THE BUSINESS OF CONSTRUCTION AND REAL ESTATE DEVELOPMENT. THE ASSE SSEE FILED ITS RETURN OF INCOME ON 30 TH SEPTEMBER, 2014 DECLARING TOTAL INCOME AT RS. 1,68 ,187/-. THE A.O. WHILE COMPLETING THE ASSESSMENT UNDER SECTION 143(3) OF T HE IT ACT DISALLOWED THE INTEREST OF RS. 40,24,782/- ON THE GROUND THAT THE FUND WAS BORROWED FOR BUSINESS PURPOSES WHEREAS THE SAME WAS USED FOR GIVING ADVANCES TO TH E SISTER CONCERNS ON SPECIFIED INTEREST, THEREFORE, THE INTEREST EXPENDITURE IS NO T ALLOWABLE AGAINST THE INTEREST INCOME ON ADVANCES TO THE SISTER CONCERNS. THE ASS ESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE LD. CIT (A) BUT COULD NOT SUCCEED . 3. BEFORE THE TRIBUNAL, THE LD. A/R OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS INVESTED BORROWED FUNDS ON WHICH INTER EST HAS BEEN PAID TO THE BANK. THE FUNDS HAVE BEEN UTILIZED PARTLY FOR THE INVESTM ENT IN PURCHASING THE LAND AND REMAINING BORROWED FUNDS WERE UTILIZED FOR ADVANCIN G THE LOANS TO M/S. GREEN VALLEY VENTURES LLP AND M/S. SHRI KALYAN HOLDINGS LTD. FRO M WHERE THE ASSESSEE COMPANY HAS RECEIVED INTEREST @ 14.50% AND 14.75% RESPECTIV ELY. THUS THE TOTAL INTEREST INCOME DURING THE YEAR EARNED BY THE ASSESSEE FROM THESE TWO COMPANIES IS RS. 41,41,096/-. THE ASSESSEE HAS PROPORTIONATELY DIVI DED THE INTEREST EXPENDITURE FOR INVESTMENT IN LAND AND FOR ADVANCES GIVEN TO THESE TWO ENTITIES. THE ASSESSEE SUO MOTO CAPITALIZED ITS INVESTMENT IN LAND AND SHOWN I N THE BALANCE SHEET. THE REMAINING INTEREST WAS CLAIMED AGAINST THE INTEREST INCOME. THE LD. A/R HAS FURTHER CONTENDED THAT THE ASSESSEE WAS ALSO HAVING INTERES T FREE FUNDS AS A LOAN OF RS. 3 ITA NOS. 500 & 501/JP/2018 M/S. KALYAN VIHAR BUILDHOME P. LTD., JAIPUR. 47,65,000/- TAKEN FROM THE DIRECTOR OF THE ASSESSEE COMPANY ON WHICH NO INTEREST WAS PAID. THUS THE LD. A/R HAS SUBMITTED THAT WHEN THE INTEREST EXPENDITURE HAS DIRECT NEXUS WITH THE INTEREST INCOME, THEN THE SAM E IS ALLOWABLE UNDER SECTION 57(III) OF THE IT ACT. THE AO HAS NOT DISPUTED THE FACT TH AT THE ADVANCES TO THE OTHER PARTIES WERE GIVEN FROM THE BORROWED FUNDS AND ASSE SSEE HAS EARNED THE INTEREST INCOME ON SAID ADVANCES GIVEN TO THESE TWO PARTIES, THEREFORE, THE CORRESPONDING INTEREST EXPENDITURE IS AN ALLOWABLE DEDUCTION AGAI NST THE INTEREST INCOME. THE AO IN HIS REMAND REPORT HAS ACCEPTED THAT THE ASSESSEE HA S CAPITALIZED PART OF THE INTEREST PAYMENT ON LAND INVESTMENT AND ONLY REMAINING INTER EST PAYMENT WAS SET OFF AGAINST THE INTEREST INCOME. ALTERNATIVELY, THE LD. A/R HA S SUBMITTED THAT WHEN THE AO HAS DISALLOWED THE INTEREST EXPENDITURE AGAINST THE INT EREST INCOME ON THE GROUND THAT THE FUNDS WERE BORROWED FOR BUSINESS PURPOSES THEN THE SAID INTEREST EXPENDITURE WOULD RESULT A BUSINESS LOSS WHICH IS ELIGIBLE TO S ET OFF AGAINST THE INTEREST INCOME. THEREFORE, EVEN OTHERWISE, THE INTEREST EXPENDITURE WHICH IS CLAIMED AGAINST THE INTEREST INCOME WOULD BE SET OFF AGAINST THE INTERE ST INCOME. 4. ON THE OTHER HAND, THE LD. D/R HAS RELIED UPON T HE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE BORROWED FUND S FROM BANK FOR BUSINESS PURPOSES, HOWEVER, THE SAME WAS UTILIZED FOR THE PU RPOSE OF GIVING ADVANCES TO THE OTHER CONCERNS, THEREFORE, THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE IS NOT FOR EARNING THE INTEREST INCOME BUT FOR BUSINESS PURPOS ES. HENCE THERE IS NO NEXUS BETWEEN THE INTEREST PAID TO BANK ON THE LOANS TAKE N FOR THE BUSINESS PURPOSES AND THE INTEREST INCOME EARNED BY THE ASSESSEE BY DIVER TING THE FUNDS FOR ADVANCING TO OTHER CONCERNS. SHE HAS RELIED UPON THE ORDERS OF T HE AUTHORITIES BELOW. 4 ITA NOS. 500 & 501/JP/2018 M/S. KALYAN VIHAR BUILDHOME P. LTD., JAIPUR. 5. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS PAID TOTAL INTEREST OF RS . 58,55,000/- IN RESPECT OF LOAN OF RS.3,80,00,000/- TAKEN FROM BANK. THE PART OF THE I NTEREST EXPENDITURE TO THE EXTENT OF RS. 18,30,000/- WAS CAPITALIZED BY THE ASSESSEE TO THE LAND INVESTMENT ACCOUNT AND SHOWN IN THE BALANCE SHEET AS THE ASSESSEE UTIL IZED THE BORROWED FUNDS FOR THE PURPOSE OF ACQUIRING THE LAND. THE BALANCE AMOUNT O F INTEREST OF RS. 40,25,000/- WAS CLAIMED AGAINST THE INTEREST INCOME OF RS. 41,41,00 0/-. THE ASSESSEE AFTER UTILIZATION OF THE BORROWED FUNDS TO THE EXTENT OF RS. 1,61,71, 033/- HAS GIVEN THE BALANCE AMOUNT OF RS. 2,19,19,555/- TO THE OTHER CONCERNS F OR EARNING THE INTEREST INCOME. THE AO HAS NOT DISPUTED THAT THE ASSESSEE HAS INTER EST INCOME @ 14.50% AND @ 14.75% RESPECTIVELY. THUS THE INTEREST INCOME EARN ED BY THE ASSESSEE IS MORE THAN THE PROPORTIONATE INTEREST EXPENDITURE OF THE BORRO WED FUNDS WHICH WERE GIVEN TO OTHER CONCERNS. THE AO AS WELL AS THE LD. CIT (A) HAVE REJECTED THE CLAIM OF INTEREST EXPENDITURE ON THE GROUND THAT THE LOAN WAS TAKEN F ROM THE BANK FOR BUSINESS PURPOSES AND, THEREFORE, THE INTEREST EXPENDITURE T O THE EXTENT OF THE BORROWED FUND UTILIZED FOR ADVANCING TO THE OTHER CONCERNS IS NOT INCURRED FOR EARNING THE INTEREST INCOME. IT IS PERTINENT TO NOTE THAT EVEN IF THE SA ID INTEREST EXPENDITURE IS CONSIDERED TO HAVE BEEN INCURRED FOR THE BUSINESS PURPOSES THE N IT WILL RESULT A BUSINESS LOSS IN THE ABSENCE OF ANY BUSINESS INCOME DURING THE YEAR UNDER CONSIDERATION. IT IS ALSO UNDISPUTED PROPOSITION OF LAW THAT AS PER PROVISION S OF SECTION 71(2A) THE BUSINESS LOSS IS ELIGIBLE TO BE SET OFF AGAINST ANY OTHER IN COME EXCEPT THE SALARY INCOME. THEREFORE, IN VIEW OF THE MATTER WHEN THE BUSINESS LOSS IS ELIGIBLE TO BE SET OFF AS AGAINST THE INCOME FROM OTHER SOURCES BEING INTERES T INCOME, THEN THE CLAIM OF 5 ITA NOS. 500 & 501/JP/2018 M/S. KALYAN VIHAR BUILDHOME P. LTD., JAIPUR. INTEREST EXPENDITURE AGAINST THE INTEREST INCOME IS OTHERWISE ALLOWABLE. HENCE IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CLAIM OF I NTEREST EXPENDITURE DISALLOWED BY THE AO AND CONFIRMED BY THE LD. CIT (A) IS NOT JUST IFIED AND CONSEQUENTLY THE SAME IS ALLOWED. 6. FOR THE ASSESSMENT YEAR 2015-16, AN IDENTICAL IS SUE IS RAISED IN RESPECT OF DISALLOWANCE OF INTEREST RS. 31,97,756/- AGAINST TH E INTEREST INCOME OF RS. 32,63,486/-. THE FINDING FOR THE ASSESSMENT YEAR 2 014-15 IS APPLICABLE FOR THE ASSESSMENT YEAR 2015-16. ACCORDINGLY THE CLAIM OF THE ASSESSEE IS ALLOWED. 7. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 29/10/20 19. SD/- ( FOT; IKY JKWO (VIJAY PAL RAO) U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 29/10/2019. DAS/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- KALYAN VIHAR BUILDHOME PVT. LTD., JAIPUR. 2. THE RESPONDENT THE ITO WARD 6(1), JAIPUR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 500 & 501/JP/2018) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR 6 ITA NOS. 500 & 501/JP/2018 M/S. KALYAN VIHAR BUILDHOME P. LTD., JAIPUR. 7 ITA NOS. 500 & 501/JP/2018 M/S. KALYAN VIHAR BUILDHOME P. LTD., JAIPUR.