M/S JAIMALA CONSTRUCTION CO. PVT. LTD., JAIPUR V. INCOME TAX OFFICER, WARD-6-2, JAIPUR

ITA 503/JPR/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 7189 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• 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; Business expenditure; Earning of tax free income; Revised return; Set aside
• Section: 14A

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR JH FOT; IKY JKO] U;KF;D LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JUDICIAL MEMBER VK;DJ VIHY LA -@ ITA NO. 503/JP/2018 FU/KZKJ.K O'KZ@ ASSESSMENT YEAR : 2012-13 M/S JAIMALA CONSTRUCTION CO. PVT. LTD., 3, CHAT HOUSE, NARAIN SINGH CIRCLE, JAIPUR. C UKE VS. I.T.O., WARD-6(2), JAIPUR. LFKK;H YS[KK LA -@THVKBZVKJ LA -@ PAN/GIR NO.: AAACJ 4635 K VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKS J LS @ ASSESSEE BY: SHRI S.L. PODDAR (ADV) JKTLO DH VKSJ LS @ REVENUE BY : SMT. RUNI PAL (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 19/09/2019 MN?KKS 'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 23/10/2019 VKNS'K@ ORDER PER: VIJAY PAL RAO, J.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 14/03/2018 OF LD. CIT(A)-2, JAIPUR FOR THE A.Y. 2012-13. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN SUSTAINING THE ADDITION OF RS. 11,91,668/- BY DISALLOWING OF INTEREST PAID U/S 24(B) ON BORROWED FUNDS ON PROPERTY LET OUT TO M/S IDEA CELLULAR LTD. 2. THE ASSESSEE CRAVES YOUR INDULGENCE TO ADD AMEND OR LATER ALL OR ANY GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. ITA 503/JP/2018 M/S JAIMALA CONST. CO. P LTD. VS ITO 2 2. THE ASSESSEE HAS ALSO RAISED AN ADDITIONAL GROUND, WHICH READS AS UNDER: IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. A.O. AS WELL AS THE LD. CIT(A) HAS ERRED IN NOT ALLOWING THE PAYMENT OF INTEREST U/S 36(1)(III) OF THE INCOME TAX ACT, 1961 AND ALSO ALLOW THE SETOFF OF BUSINESS LOSSES AGAINST OTHER HEADS OF INCOME FOR THE SAME YEAR. 3. ON THE ADMISSIBILITY OF ADDITIONAL GROUND, THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THIS ISSUE WAS RAISED BY THE ASSESSEE BEFORE THE LD. CIT(A) BUT THE SAME WAS NOT ADJUDICATED WHILE PASSING THE IMPUGNED ORDER. FURTHER THE ASSESSEE IS TAKING THIS GROUND ONLY AS AN ALTERNATIVE PLEA THAT IN CASE THE INTEREST IS NOT ALLOWABLE AGAINST THE INCOME FROM HOUSE PROPERTY THEN IT IS ALLOWABLE U/S 36(1)(III) OF THE INCOME TAX ACT, 1961 (IN SHORT, THE ACT) AS THE ASSESSEE MADE THE INVESTMENT IN THE OTHER COMPANY FOR HAVING A CONTROLLING STAKE ENGAGED IN THE SIMILAR LINE OF BUSINESS, THEREFORE, THE INTEREST EXPENDITURE ON SUCH INVESTMENT IS AN ALLOWABLE CLAIM. 4. ON THE OTHER HAND, THE LD DR HAS SUBMITTED THAT THE ASSESSEE HAS NOT SHOWN ANY BUSINESS INCOME FOR THE YEAR UNDER CONSIDERATION, THEREFORE, THERE WAS NO BUSINESS ACTIVITY AND IT WAS YET TO BE STARTED, HENCE, THE INTEREST EXPENDITURE PRIOR TO THE COMMENCEMENT OF THE BUSINESS HAS TO BE CAPITALIZED AND NOT TO BE ALLOWED AS AN EXPENDITURE. ITA 503/JP/2018 M/S JAIMALA CONST. CO. P LTD. VS ITO 3 5. HAVING CONSIDERED THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIAL ON RECORD. IT IS NOTED THAT THE ASSESSEE HAS TAKEN THIS ALTERNATIVE PLEA EVEN BEFORE THE A.O. WHO REJECTED THE CLAIM OF THE ASSESSEE HAS DISALLOWED THE INTEREST CLAIM OF RS. 11,91,668/-AGAINST THE INCOME FROM HOUSE PROPERTY. SINCE THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS A FRESH PLEA RAISED FIRST TIME BEFORE THE TRIBUNAL, THEREFORE, IN VIEW OF THE FACTS AND CIRCUMSTANCES WHEN THE ASSESSEE HAS TAKEN THIS PLEA EVEN BEFORE THE A.O. AS WELL AS THE LD. CIT(A), THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS ADMITTED FOR ADJUDICATION ON MERITS. 6. THE MAIN GROUND OF THE APPEAL IS REGARDING DISALLOWANCE OF INTEREST U/S 24(B) OF THE ACT. IN THE RETURN OF INCOME, THE ASSESSEE HAS SHOWN RENTAL INCOME OF RS. 18,97,500/- IN RESPECT OF THE PROPERTY LET OUT TO M/S IDEA CELLULAR LIMITED. THE ASSESSEE CLAIMED DEDUCTION U/S 24(B) OF THE ACT OF RS. 11,91,668/- ON ACCOUNT OF INTEREST PAID ON BORROWED FUNDS. THE A.O. AFTER CONSIDERING THE DETAILS OF THE BORROWED FUNDS, HAVE ARRIVED TO A CONCLUSION THAT THE BORROWED FUNDS WERE NOT UTILIZED FOR ACQUISITION AND CONSTRUCTION OF THE PROPERTY IN QUESTION WHICH WAS LET OUT BY THE ASSESSEE AND EARNED RENTAL INCOME. THEREFORE, THE INTEREST PAYMENT OF RS. 11,91,668/- IS NOT ALLOWABLE ITA 503/JP/2018 M/S JAIMALA CONST. CO. P LTD. VS ITO 4 EXPENDITURE U/S 24(B) OF THE ACT IN THE OPINION OF THE A.O. THE ASSESSEE CHALLENGED THE ACTION OF THE A.O. BEFORE THE LD. CIT(A) BUT COULD NOT SUCCEED. 7. BEFORE THE TRIBUNAL, THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THE BORROWED FUND WAS PARTLY UTILIZED BY THE ASSESSEE FOR REPAYMENT OF THE EARLIER LOAN USED FOR CONSTRUCTION OF THE PROPERTY IN QUESTION AND THEREFORE, TO THE EXTENT OF THE FUND WHICH WAS USED FOR THE ACQUISITION/CONSTRUCTION OF THE PROPERTY IN QUESTION AND INTEREST ON SUCH AMOUNT IS AN ALLOWABLE EXPENDITURE. A FUND BORROWED BY THE ASSESSEE FOR REPAYMENT OF THE EARLIER LOAN WILL PARTAKE THE CHARACTER OF BORROWED FUNDS UTILIZED FOR THE PURPOSE OF THE PROPERTY, HENCE TO THAT EXTENT, THE INTEREST EXPENDITURE IS ALLOWABLE U/S 24(B) OF THE ACT. AS REGARDS THE ADDITIONAL GROUND, THE LD AR HAS SUBMITTED THAT SINCE THE ASSESSEE HAS PURCHASED SHARES OF M/S FRUITFUL BUILDCON PVT. LTD. WHICH IS ENGAGED IN THE BUSINESS OF HOTEL AND COMING WITH A SEVER STAR HOTEL IN THE HEART OF THE CITY UNDER THE BRAND NAME OF THE HAYAT, THEREFORE, TO ACQUIRE THE CONTROLLING STAKE IN THE M/S FRUITFUL BUILDCON PVT. LTD., THE ASSESSEE HAS MADE INVESTMENT IN THE SHARES OF THE SAID COMPANY BY UTILIZING THE ASSESSEES OWN SURPLUS FUNDS AS WELL AS BORROWED FUNDS. THEREFORE, THE LOAN TO THE EXTENT OF RS. 1,12,31,040/- WERE ITA 503/JP/2018 M/S JAIMALA CONST. CO. P LTD. VS ITO 5 UTILIZED FOR THE PURPOSE OF REPAYMENT OF THE EARLIER LOANS WHICH WERE TAKEN FOR THE CONSTRUCTION/ACQUISITION OF THE PROPERTY AND ASSESSEES OWN SURPLUS FUND WERE UTILIZED FOR THE PURPOSE OF MAKING INVESTMENT IN THE SHARES TO THE EXTENT OF RS. 87.00 LACS. THE LD AR HAS SUBMITTED THAT EVEN IF PART OF THE BORROWED FUND IS UTILIZED FOR THE INVESTMENT IN SHARES, THE INTEREST IN RESPECT OF SUCH FUND IS AN ALLOWABLE BUSINESS EXPENDITURE AND IN ABSENCE OF BUSINESS INCOME, THE BUSINESS LOSS IS ALLOWABLE TO SET OFF AGAINST THE OTHER INCOME. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE DECISION OF THE COORDINATE BENCH OF THE JAIPUR ITAT IN THE CASE OF M/S JAIPUR HOUSE (P) LTD. VS THE ITO IN ITA NO. 488/JP/2012 ORDER DATED 31/08/2012. 8. ON THE OTHER HAND, THE LD DR HAS SUBMITTED THAT THE ASSESSEE HAS NOT GIVEN BIFURCATION OF THE FUNDS UTILIZED FOR REPAYMENT OF THE EARLIER LOANS AND INVESTMENT MADE IN THE SHARES OF M/S FRUITFUL BUILDCON PVT. LTD.. FURTHER IT IS ALSO NOT CLEAR WHETHER THE EARLIER LOAN TAKEN BY THE ASSESSEE WAS UTILIZED FOR THE PURPOSE OF CONSTRUCTION OF THE PROPERTY IN QUESTION WHICH WAS LET OUT TO IDEA CELLULAR LTD., HENCE, THE A.O. HAS RIGHTLY DISALLOWED THE INTERESTS DEDUCTION ON ACCOUNT OF INTEREST U/S 24(B) OF THE ACT WHEN THE BORROWED FUND WAS NOT UTILIZED FOR THE PURPOSE OF ACQUISITION OR CONSTRUCTION OF THE PROPERTY IN ITA 503/JP/2018 M/S JAIMALA CONST. CO. P LTD. VS ITO 6 QUESTION. AS REGARDS THE ALTERNATIVE PLEA, THE LD DR HAS SUBMITTED THAT SINCE THE INVESTMENT IN THE SHARES OF THE OTHER COMPANY CANNOT BE SAID TO BE AN EXPENDITURE ALLOWED BY THE A.O. IN THE BUSINESS OF THE ASSESSEE. EVEN OTHERWISE, THE DIVIDEND INCOME ON THE SHARE IS AN EXEMPT INCOME AND THEREFORE, THE EXPENDITURE ON ACCOUNT OF SAID INVESTMENT IS NOT ALLOWABLE AGAINST ANY OTHER INCOME IN VIEW OF THE PROVISIONS OF SECTION 14A OF THE ACT. SHE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 9. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. AS REGARDS THE CLAIM OF DEDUCTION OF INTEREST U/S 24(B) OF THE ACT, THE A.O. HAS DENIED THE CLAIM ON THE GROUND THAT THE ASSESSEE HAS NOT UTILIZED THE BORROWED FUND IN RESPECT OF WHICH THE INTEREST WAS PAID FOR THE PURPOSE OF ACQUIRING OR CONSTRUCTING OF THE PROPERTY IN QUESTION. THE A.O. HAS NOTED THE FACT THAT THE BORROWED FUND WAS UTILIZED FOR REPAYMENT OF THE EARLIER LOAN. HOWEVER, THERE IS NO FINDING ON THE PART OF THE A.O. THAT WHETHER THE EARLIER LOAN WAS TAKEN FOR THE PURPOSE OF ACQUISITION/CONSTRUCTION OF THE PROPERTY IN QUESTION, THEREFORE, UNTIL AND UNLESS, THIS FACT IS VERIFIED THAT THE EARLIER LOAN WAS TAKEN AND UTILIZED BY THE ASSESSEE FOR ACQUISITION/CONSTRUCTION OF PROPERTY IN QUESTION, THE CLAIM OF THE ASSESSEE THAT THE BORROWED ITA 503/JP/2018 M/S JAIMALA CONST. CO. P LTD. VS ITO 7 FUND WAS UTILIZED FOR REPAYMENT OF THE EARLIER LOAN TAKEN FOR THE PURPOSE OF CONSTRUCTION OF THE PROPERTY CANNOT BE ACCEPTED. THEREFORE, THIS ISSUE REQUIRES A PROPER VERIFICATION OF FACTS REGARDING THE FUNDS UTILIZED BY THE ASSESSEE FOR THE PURPOSE OF ACQUISITION/CONSTRUCTION OF THE PROPERTY IN QUESTION AND IN CASE, THE EARLIER LOAN WAS UTILIZED BY THE ASSESSEE FOR THE CONSTRUCTION/ACQUISITION OF THE PROPERTY THEN TO THE EXTENT OF SUCH LOAN UTILIZED FOR THE PURPOSE OF CONSTRUCTION OF THE PROPERTY AND REPAYMENT OF THE SAME BY THE SUBSEQUENT LOAN WOULD BE ELIGIBLE FOR CLAIM U/S 24(B) OF THE ACT. IN ABSENCE OF THE VERIFICATION OF THE RELEVANT FACTS BY THE AUTHORITIES BELOW, THIS ISSUE IS SET ASIDE TO THE RECORD OF THE A.O. FOR PROPER VERIFICATION AND READJUDICATION. AS REGARDS THE ALTERNATIVE PLEA OF DEDUCTION U/S 36(1)(III) OF THE ACT, THE A.O. HAS DENIED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THIS CLAIM WAS NOT MADE IN THE RETURN OF INCOME OR IN THE REVISED RETURN OF INCOME, THEREFORE, THE SAME CANNOT BE ENTERTAINED. HOWEVER, THERE IS NO EMBARGO FOR CONSIDERING THE SAID CLAIM BY THE APPELLATE AUTHORITY IF ALL THE RELEVANT FACTS FOR ADJUDICATION OF SUCH ISSUE ARE AVAILABLE ON RECORD. THEREFORE, THE LD. CIT(A) OUGHT TO HAVE CONSIDERED AND ADJUDICATED THIS CLAIM. SINCE, THIS ISSUE HAS NOT BEEN DECIDED BY THE LD. CIT(A) AND THE A.O. REFUSED TO ENTERTAIN THE SAME, THEREFORE, THE SAME ITA 503/JP/2018 M/S JAIMALA CONST. CO. P LTD. VS ITO 8 IS SET ASIDE TO THE RECORD OF THE A.O. FOR CONSIDERATION AND ADJUDICATION. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN PROPER AND REASONABLE OPPORTUNITY OF HEARING. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES ONLY. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD OCTOBER, 2019. SD/- FOT; IKY JKO (VIJAY PAL RAO) U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 23 RD OCTOBER, 2019 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- M/S JAIMALA CONSTRUCTION CO. PVT. LTD., JAIPUR. 2. IZR;FKHZ @ THE RESPONDENT- THE I.T.O., WARD-6(2), JAIPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 503/JP/2018) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR