VINCA DEVELOPERS P.LTD, MUMBAI V. DCIT 8(3), MUMBAI

ITA 5145/MUM/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3560 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2010-2011
• Appeal Filed On: 11-08-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Cost of acquisition
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUM BAI BEFORE SHRI R.C. SHARMA, AM AND SHRI SANDEEP GOSAIN , JM ./ I.T.A. NO. 5145/MUM/2014 ( / ASSESSMENYEAR: 2010-11) VINCA DEVELOPERS PRIVATE LIMITED UNIT NO.116, FIRST FLOOR, REHAB BUILDING NO.4, AKRUTI ANNEXE, ROAD NO.7, MAROL MIDC, ANDHERI (E), MUMBAI-400 093. / VS. DY. COMMISSIONER OF INCOME TAX-8 (3), MUMBAI. ./ ./PAN/GIR NO. AACCV 8042J ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI PAWAN VED / RESPONDENT BY : SHRI JAVED AKHTAR / DATE OF HEARING : 25/02/2016 !'# / DATE OF PRONOUNCEMENT : 02/03/2016 $% / O R D E R PER SANDEEP GOSAIN, J. M.: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A GAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)- 18, DATED 25. 07.2014 FOR A.Y. 2010-11 ON THE FOLLOWING GROUNDS OF APPEAL. 2 ITA NO. 5145/MUM/2014 (A.Y. 2010-11) VINCA DEVELOPERS PRIVATE LIMITED VS. DCIT 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LE ARNED CIT(A) 18 HAS ERRED IN CONFIRMING DISALLOWANCE OF INT4EREST OF RS .12,80,166/- (OUT OF RS.1,62,70,200/-DISALLOWED BY THE LEARNED ASSESSING OFFICER). 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND WITH OUT PREJUDICE TO THE ABOVE GROUND, THE CIT(A) HAS FAILED TO APPRECIATE T HAT EVEN IF THE INTEREST IS TO APPORTIONED TO ADVANCES GIVEN FOR ACQUISITION OF PLOT TO SISTER CONCERN THE SAME WOULD NEED TO BE CAPITALIZED TO THE COST OF TH E PLOT AND CANNOT BE DISALLOWED. 3. THE ORDER UNDER APPEAL IS AGAINST THE PRINCIPALS OF NATURAL LAW OF EQUITY AND JUSTICE. 4. THE APPELLANT RESERVES THE RIGHT TO ADD, ALTER, AME ND, DELETE, MODIFY, OMIT, SUBSTITUTE, AND VARY ANY ONE OR MORE OR ALL GROUNDS OF APPEAL. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN REAL ESTATE DEVELOPMENT. FOR THE RELEVANT YEAR, THE ASSE SSEE HAS CREDITED TO THE P& L ALC RECEIPTS AGGREGATING TO RS.6,16,51,506/- ON ACC OUNT OF INTEREST RECEIVED ON DEBENTURES. AFTER DEBITING VARIOUS EXPENSES SUCH AS ADMINISTRATIVE AND INTEREST EXPENSE, LOSS OF RS.49,78,812/- HAS BEEN DECLARED B Y THE ASSESSEE WHILE FILING HIS RETURN. THE AO WHILE PERUSAL OF THE DETAILS HAVE NO TICED THAT THE ASSESEE HAS ADVANCED A SUM OF RS.13,55,85,000/- TO ACKRUTI CITY LTD FOR ACQUIRING DEVELOPMENT 3 ITA NO. 5145/MUM/2014 (A.Y. 2010-11) VINCA DEVELOPERS PRIVATE LIMITED VS. DCIT RIGHTS IN RELATION TO LAND SITUATED AT BHANDUP. IN THIS REGARD, THE ASSSSEE WAS ASKED TO SHOW CAUSE AS TO WHY INTEREST ATTRIBUTABLE TO TH IS INTEREST FREE ADVANCE OF RS.13.56CR TO ACKRUTI CITY LTD SHOULD NOT BE DISALL OWED. IN THIS CONTEXT THE ASSESSEE MADE SUBMISSIONS THAT THE COMPANY HAS GIVE N ADVANCE OF RS.10,61,00,000/- TO M/S. ACKRUTI CITY LTD FOR ACQ UIRING DEVELOPMENT RIGHTS OF PROPERTY. IN ADDITION A SUM OF RS. 2,94,85,000/- WA S ALSO SPEND ON STAMP DUTY AND REGISTRATION CHARGES FOR GETTING DEVELOPMENT AGREEM ENT DATED 31.12.09 REGISTERED BETWEEN THE ASSESSEE AND M/S. ACKRUTI CITY LTD . TH E ASSESSEE FURTHER SUBMITTED THAT THE COMPANY HAS GIVEN ADVANCES TO ACKRUTI CITY LTD OUT OF FUNDS RECEIVED FROM EQUITY SHAREHOLDERS TOWARDS SHARE ALLOTTED DUR ING THE YEAR. THE EXPLANATION SO OFFERED WAS REJECTED BY THE AO AND IT WAS HELD T HAT SINCE THERE IS NO BUSINESS DURING THE RELEVANT PREVIOUS YEAR AND THE ONLY RECE IPT DECLARED BY THE ASSESSEE IS INTEREST ON DEBENTURES OF RS.6,16,51,506/- AND THE ASSESSEE HAS DEBITED INTEREST OF RS.9,45,91,715/- TO ITS P& L A/C IN RECEIPT OF ITS BORROWINGS, WHILE ON THE OTHER HAND ASSESSEE HAS ADVANCED INTEREST FREE LOAN TO AC KRUTI CITY LTD. THIS BEING SO, THE AO HELD THAT INTEREST CHARGES @ 12% ON THE AGGR EGATE LOAN OF RS.13,55,88,000/- TO ACKRUTI CITY LTD WAS DISALLOW ED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 4 ITA NO. 5145/MUM/2014 (A.Y. 2010-11) VINCA DEVELOPERS PRIVATE LIMITED VS. DCIT 3. AGGRIEVED BY THE ORDER OF THE AO, ASSESSEE FILED APPEAL BEFORE THE CIT(A) AND THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS MA DE BY THE ASSESSEE AND RESTRICTED THE INTEREST AT THE RATE OF 12% ON RS.1 ,06,68,050/- AND THE TOTAL OF WHICH WORKS OUT TO RS.12,80,166/- AND THE DETAILED REASON ING FOR COMING TO THE CONCLUSION HAS BEEN MENTIONED BY THE CIT(A) AT PARA NO. 1.3 WHICH IS REPRODUCED BELOW: 1.3, I HAVE CONSIDERED THE SUBMISSIONS OF THE APPE LLANT ORDER OF THE AO AND FACTS OF THE CASE CAREFULLY IT IS NOTICED THAT THE ASSESSEE HAS MADE INTEREST-FREE ADVANCE OF RS 13,55,85,000/ TO MIS. A CKRUTI CITY LTD ACCORDINGLY THE A.O. HAS GIVEN SHOW-CAUSE NOTICE TO THE ASSESSEE TO EXPLAIN WHY THE INTEREST ON INTEREST-FREE ADVANCES MAY NOT BE DISALLOWED. IN RESPONSE TO THIS THE AR OF THE APPEL LANT HAS SUBMITTED ITS REPLY. AFTER CONSIDERING THE SAME THE A0 HAS HELD T HAT THE SHARE-CAPITAL OF RS. -12.51 24,390/- AND THE UNSECURED LOAN OF RS 2.78,49.92,560/- WERE IN THE COMMON POOL OUT OF WHICH THE ASSESSEE H AS MADE ADVANCE OF RS. 13,55.85.0001- TO MIS. ACKRUTI CITY LTD WHICH C ANNOT BE CLAIMED AS ADVANCE MADE OUT OF THE SHARE CAPITAL AMOUNTING TO RS. 12,51.24,390/-. IN VIEW OF THESE FACTS, THE A.O, HAS COMPUTED THE I NTEREST @ 12% ON THE INTEREST-FREE LOAN OF RS. 13,55.85.000/- AND ADDED BACK A SUM OF RS. 1.62.70.200/- ON THE OTHER HAND, THE AR OF THE APPELLANT HE SUBMI TTED THAT THE INTEREST- FREE LOAN TO GROUP COMPANY WAS MADE OUT OF THE SHAR E CAPITAL OF RS 12,51.24.3901- BECAUSE THE UNSECURED LOANS OF RS 2. 78.49,92,560/- WERE INVESTED IN DEBENTURES OF RS. 2 ,78,52,00,000/- THU S, IT WAS ARGUED THAT SINCE THE INTEREST-FREE LOAN W8S GIVEN OUT OF ITS O WN FUNDS THEREFORE. THE DISALLOWANCE MADE BY THE A.O ON ACCOUNT OF INTEREST ON INTEREST-FREE LOAN IS NOT CALLED FOR TO STRENGTHEN ITS VIEW. THE AR OF THE APPELLANT HAS ALSO RELIED ON DECISIONS OF HON'BLE COURTS (SUPRA), FROM THE PERUSAL OF THE SUBMISSIONS AND FACTS OF TH E CASE IT IS NOTICED THAT THE ASSESSES NAS A SNARE CAPITAL 0 RS. 12 51 24,390 /- AND UNSECURED LOAN OF RS 2.78.4992,560/-,WHICH IS AN UNDISPUTED FACT. SECONDLY IT IS ALSO UNDISPUTED THAT THE ASSESSEE HAS MADE INVESTMENT OF RS 2 ,78,52,00,000/- IN THE PURCHASE OF DEBENTURES AND MADE ADVANCE TO M /S. ACKRUTI CITY LTD 5 ITA NO. 5145/MUM/2014 (A.Y. 2010-11) VINCA DEVELOPERS PRIVATE LIMITED VS. DCIT OF RS 13,55,85,000/-. THIRDLY, THE ASSESSEE HAS SHO WN INTEREST INCOME FROM DEBENTURES AT RS. 6,16,51,506/- AND DEBITED TH E INTEREST AMOUNT OF RS. 9,45,91,715/- TO THE PROFIT & LOSS ACCOUNT ON A CCOUNT OF BORROWINGS. NOW, QUESTION ARISES WHETHER THE ASSESSEE HAS MADE THE INTEREST-FREE ADVANCE OF RS. 13,55,85,000/- OUT OF THE SHARE CAPI TAL OR OUT OF UNSECURED LOANS. TO ANSWER THIS QUESTION, IT IS CLEAR THAT OU T OF THE UNSECURED LOANS OF RS. 2,78,49,92,560/-, THE ASSESSEE HAS MADE INVE STMENT OF RS. 2,78.52,00,000/- I.E, RS. 2,07,440/- (RS. 2,78,52.0 0,000 - 2,78,49,92,560) THIS IS MORE THAN THE UNSECURED LOAN. SECONDLY OUT OF THE SHARE CAPITAL OF RS. 12,51,24,390/- THE ASSESSEE HAS GIVEN ADVANCE T O M/S. ACKRUTI CITY LTD. OF RS. 1.3,55,85,000/- WHICH MEANS THE ASSESSE E HAS MADE ADVANCES TO THE TUNE OF RS. 1,06,68,050/-~ OF THE BORROWED F UND91.04.60,610 + 2,07,440). FROM THE PERUSAL OF THE SUBMISSIONS AND FACTS IT IS CLEAR THAT THE ASSESSEE HAS MADE ADVANCES TO M/S. ACKRUTI CITY LTD. OF RS. 13,55,85,000/- WHICH WAS NOT ENTIRELY FROM THE SHAR E CAPITAL OF RS. 12.51.24,390/- BUT THE BALANCE AMOUNT OF RS. 1,04,6 0,6101- WAS OUT OF THE UNSECURED LOANS OR OVERDRAFT FROM THE BANK. THE AMOUNT OF RS, 2,07,440/ WAS ALSO EXCESS OF THE UNSECURED LOAN OF RS. 2,78,4992,560/- BECAUSE THE ASSESSEE HAS PURCHASED DEBENTURES TO TH E TUNE OF RS, 2,78,52,00,000/-. FROM THE ANALYSIS OF THESE FIGURE S, IT IS WORKED OUT THAT THE ASSESSEE HAS NOT ITS OWN FUNDS TO THE TUNE OF R S. 1,04,60,6101- AND RS, 2,07,440/- TOTALING TO RS. 1,06,68,050/-, THEREFORE , THE INTEREST @ 12% ON RS. 1,00,68,050/- WORKS OUT TO RS. 12,80,166/-. IN SUPPORT OF THIS VIEW, VARIOUS HON'BLE COURTS ARE HELD AS UNDER:- (A) HAMRA) CANJI VS. ITO - WHETHER IF ASSESSEE WAS ABLE TO ESTABLISH DIRECT NEXUS BETWEEN INTEREST-BEARING BORROWED FUND S AND INVESTMENTS IN SHARES, WHICH HAD BEEN SOLD DURING THE YEAR, SAID I NTEREST SHOULD BE ADDED TO COST OF ACQUISITION: - HELD, YES - WHETHER SUBMISSION OF THE ASSESSEE THAT INTEREST AS WELL AS OTHER EXPENSES SH OULD BE ALLOWED IN ITS ENTIRETY ON THE GROUND THAT IN EARLIER YEARS NO SUC H DISALLOWANCE WAS MADE, COULD NOT BE ACCEPTED - HELD, YES. (B) ACIT VS. EICHER LTD. - WHETHER ASSESSING OFFICE R CAN ESTIMATE A PART OF EXPENDITURE INCURRED BY ASSESSEE AS EXPENDITURE INCURRED TO PRODUCE NON-TAXABLE INCOME ON ASSUMPTION THAT A PART OF EXP ENDITURE MUST HAVE NECESSARILY BEEN INCURRED TO PRODUCE NON- TAXABLE I NCOME AND DISALLOW SAID PART OF EXPENDITURE U/S 14A - HELD, NO (C) CIT VS BHART/ TELEVENTURE LTD - THE REVENUE PRE FERRED APPEALS AGAINST THE ORDER OF THE CIT(A) IN ALL THE THREE CA SES BEFORE TRIBUNAL 6 ITA NO. 5145/MUM/2014 (A.Y. 2010-11) VINCA DEVELOPERS PRIVATE LIMITED VS. DCIT THE CONTENTIONS OF THE REVENUE BEFORE THE TRIBUNAL AND ALSO BEFORE US WERE THAT IT WAS NOT THE ASSESSEE S BUSINESS TO INV EST THE SHARES OF THE SUBSIDIARY COMPANIES; THE: WHILE THE ASSESSEE HAD B ORROWED MONEY AND HAD PAID INTEREST THEREON. THE AMOUNT BORROWED HAD BEEN DIVERTED INTEREST-FREE TO THE SUBSIDIARY COMPANIES WHICH NO PRUDENT BUSINESSMAN WOULD DO SO; THAT THE ASSESSEE COMPANY WRONGLY DEBI TED TO ITS P&L ACCOUNT, THE AMOUNT OF INTEREST TOWARDS ACQUISITION OF CAPITAL ASSET AND THAT THE EXPENDITURE INCURRED WAS NOT FOR THE BUSIN ESS PURPOSE OF THE ASSESSEE. (D) CIT VS. SRIDEV ENTERPRISES SEC. 36(1)(III) OF THE I.T. ACT- INTEREST ON BORROWED CAPITAL- ASSESSMENT YEAR 1978-79- DURIN G RELEVANT ACCOUNT YEAR ASSESSEE FIRM ADVANCED A SUM TO A FIRM N - THE RE WAS CERTAIN OPENING BALANCE OF ADVANCES MADE TO N DURING EARLIE R YEARS PARTNERS OF ASSESSEE AND N WERE INTERRELATED AND HELD BUSINE SS CONNECTIONS NO INTEREST WAS CHARGED FROM N HOWEVER ASSESSEE BORR OWED FUNDS FROM THIRD PARTIES AND CLAIMED DEDUCTION OF INTEREST PAI D ON SUCH BORROWINGS- WHETHER, SINCE NO ADDITION HAD BEEN MADE IN EARLIER YEARS. OPENING DEBIT BALANCE OF N COULD NOT BE CONSIDERED DURING Y EAR IN QUESTION AND ENQUIRY HAD TO BE LIMITED TO INCREASE IN CURRENT YE AR ONLY - HELD YES. IN TOTALITY OF FACTS & CIRCUMSTANCES. IT IS HELD TH AT THE ASSESSEE HAS GIVEN ADVANCES TO ITS SISTER CONCERN OUT OF UNSECURED LOA NS AND OVERDRAFT FROM THE BANK ON WHICH INTEREST HAS BEEN DEBITED TO THE PROFIT & LOSS ACCOUNT THEREFORE, THE ADDITION MADE BY THE AO IS RESTRICTE D TO RS.12,80,166/- AND THE BALANCE ADDITION IS DELETED, HENCE GROUND O F APPEAL IS PARTLY ALLOWED. 3.1 AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSESS EE FILED THE PRESENT APPEAL BEFORE US ON THE GROUNDS MENTIONED HEREIN ABOVE. 4. WE HAVE HEARD THE COUNSELS FOR BOTH THE PARTIES AND WE HAVE ALSO PERUSED THE MATERIAL ON RECORD AS WELL AS THE ORDERS PASSED BY THE LOWER AUTHORITIES AND AFTER CONSIDERING THE ARGUMENTS AS WELL AS THE ORDE RS PASSED BY THE REVENUE 7 ITA NO. 5145/MUM/2014 (A.Y. 2010-11) VINCA DEVELOPERS PRIVATE LIMITED VS. DCIT AUTHORITIES WE ARE OF THE CONSIDERED OPINION THAT T HE DISALLOWANCE OF INTEREST, IF ANY, IS TO BE RESTRICTED TO THE AMOUNT OF ADVANCE A CTUALLY GIVEN BY THE ASSESSEE AND SHOULD NOT BE IN REFERENCE TO THE EXPENDITURE INCUR RED FOR THE REGISTRATION AND STAMP DUTY CHARGES FOR REGISTRATION OF DEVELOPMENT AGREEMENT. WE FURTHER FOUND THAT SINCE THE ADVANCE WAS GRANTED ON 31.12.2009 AS PER THE DEVELOPMENT AGREEMENT THEREFORE, THE PERIOD COVERED DURING THE YEAR UNDER CONSIDERATION IS ONLY W.E.F 31.12.09 I.E. FOR 3 MONTHS ACCORDINGLY, THE AO IS DIRECTED TO COMPUTE THE DISALLOWANCE OF INTEREST ONLY ON THE ACTUAL AM OUNT OF ADVANCE AND ONLY FOR THE PERIOD OF THREE MONTHS W.E.F. 31.12.09 TO 31.03.10. AO IS DIRECTED ACCORDINGLY. 6. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND MARCH, 2016 SD/- SD/- (R.C. SHARMA) (SANDEEP GOSAIN) $ / ACCOUNTANT MEMBER &' $ / JUDICIAL MEMBER ( ) MUMBAI; *$ DATED :02.03.2016 PS. ASHWINI 8 ITA NO. 5145/MUM/2014 (A.Y. 2010-11) VINCA DEVELOPERS PRIVATE LIMITED VS. DCIT / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT - CONCERNED 5. ./0 ''12 , 12# , ( ) / DR, ITAT, MUMBAI 6. 045 6 / GUARD FILE / BY ORDER, / !'# (DY./ASSTT. REGISTRAR) #$ %, ( ) / ITAT, MUMBAI