ACIT, Bangalore V. M/s Kristal Projects (India) Private Limited, Bangalore

ITA 522/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63681 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 06-05-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A SUNDARARAJAN
• Assessee Lawyers: DEEPAK PADMANABHAN
• Keywords: Capital asset; Capital expenditure
• Section: 143(3); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH C BEFORE SHRI P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T.A. NO.522/BANG/2011 (ASSESSMENT YEAR : 2008-09) ASST. COMMISSIONER OF INCOME TAX, CIRCLE 11(5), BANGALORE. . APPELLANT. PAN VS. M/S. KRISTAL PROJECTS (INDIA) PRIVATE LIMITED, NO.6, KULANGARA ILLUM, CHINNAMMA LANE, 2 A MAIN, MADIWALA EXTENSION, BANGALORE-68. .. R ESPONDENT. APPELLANT BY : SHRI A. SUNDARARAJAN. RESPONDENT BY : SHRI DEEPAK PADMANABHAN. DATE OF HEARING : 23.08.2012. DATE OF PRONOUNCEMENT : 31.08.2012. O R D E R PER SHRI JASON P. BOAZ : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I, BANGALORE DATED 9.3.2011 FO R THE ASSESSMENT YEAR 2008-09. 2. THE FACTS OF THE CASE, IN BRIEF, ARE AS UNDER : 2.1 THE ASSESSEE COMPANY, IN THE BUSINESS OF BU ILDING AND PROMOTING RESIDENTIAL FLATS AND VILLAS, FILED ITS RETURN OF INCOME FOR ASSESSM ENT YEAR 2008-09 ON 27.9.2008 DECLARING INCOME OF RS.3,40,64,380. THE RETURN WAS PROCESSED UNDER SECTION 143(1) ON 8.2.2009 AND THE CASE WAS TAKEN UP FOR SCRUTINY BY ISSUE OF NOTI CE UNDER SECTION 143(2) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED AS 'THE ACT') ON 17.8.2009. THE ASSESSING OFFICER AFTER EXAMINING THE CASE COMPLETED THE ASSESSMENT B Y AN ORDER UNDER SECTION 143(3) ON 2 ITA NO.522/BANG/11 16.12.2010 DETERMINING THE INCOME OF THE ASSESSEE A T RS.4,04,31,702. IN DOING SO, THE ASSESSING OFFICER MADE A DISALLOWANCE OF RS.63,67,3 32 UNDER SECTION 36(1)(III) OF THE ACT OF INTEREST AS CAPITAL EXPENDITURE STATING THAT THE ASSESSEE HAD OFFERED THIS AMOUNT OF INTEREST TO BE CAPITALIZED BY LETTER DT.22.10.2010. 2.2 THE ASSESSEE WENT IN APPEAL AGAINST THE ORD ER OF ASSESSMENT FOR ASSESSMENT YEAR 2008-09 BEFORE THE LEARNED CIT(A) CHALLENGING THE D ISALLOWANCE OF INTEREST OF RS.63,67,332 AS CAPITAL EXPENDITURE. THE LEARNED C IT(A) WAS OF THE VIEW THAT THE ASSESSEES LETTER DT.22.10.2010 ADDRESSED TO THE AS SESSING OFFICER, AND ON THE BASIS OF WHICH THE DISALLOWANCE WAS MADE DID NOT REVEAL THA T THE ASSESSEE HAS ACCORDED ITS APPROVAL FOR ANY ADDITION. THE LEARNED CIT(A) WA S NOTED THAT THE ASSESSING OFFICER HAD FAILED TO EXAMINE WHETHER THE BORROWED CAPITAL WAS UTILIZED FOR THE PURPOSE OF BUSINESS OF DEVELOPMENT OF REAL ESTATE, FOR CONSTRUCTION AND SALE OF FLATS OR VILLAS OR NOT ? IN THIS VIEW OF THE MATTER, THE LEARNED CIT(A) FOLLOWING TH E DECISION OF THE HON'BLE APEX COURT IN DCIT & ANOTHER VS. M/S. CORE HEALTH CARE LTD REPOR TED IN (2008) 298 ITR 194(SC) ALLOWED THE ASSESSEES APPEAL HOLDING THAT IT WAS E NOUGH FOR THE ASSESSEE TO GET RELIEF IF IT BORROWED FUNDS ON INTEREST FOR THE PURPOSE OF BUSIN ESS IRRESPECTIVE OF THE STATUS OF SUCH BUSINESS. 3. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A) , REVENUE IS IN APPEAL BEFORE US. THE GROUNDS RAISED IN THIS APPEAL ARE AS UNDER : 1. THE ORDER OF THE LEARNED CIT(A), IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE, IS OPPOSED TO LAW AND THE FACT S AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED CIT(A) WAS NOT JUSTIFIED IN DELETIN G THE ADDITION OF RS. 63,67,322=00 MADE ON ACCOUNT OF DISALLOWANCE OF CLA IM OF INTEREST ON LOAN, 3 ITA NO.522/BANG/11 WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES UN DER WHICH THE ADDITION WAS MADE BY THE ASSESSING OFFICER. 3. THE LEARNED CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION WITHOUT APPRECIATING THAT THE INTEREST ON LOAN CLAIMED BY T HE ASSESSEE IS IN THE NATURE OF CAPITAL EXPENDITURE. 4. THE LEARNED CIT(A) HAS ERRED IN DELETING THE AD DITION RELYING ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F DCIT & ANOTHER VS. M/S. CARE HEALTH CARE LTD. & ANOTHER (2008) 298 ITR 194 (SC) RELATING TO THE ASSESSMENT YEARS 1992-93 TO 1997-98, WHICH WAS DECI DED WITH REFERENCE TO THE LAW AS IT STOOD PRIOR TO 1.4.2004, WITHOUT APPR ECIATING THAT THE PROVISO INSERTED IN SECTION 36(1)(III) BY FINANCE ACT, 2003 WITH EFFECT FROM 1.4.2004 AND APPLICABLE FOR THE ASSESSMENT YEAR 2008-09. 5. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE UR GED AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE ORDER OF THE CIT(A) BE REVERSED IN SO FAR AS THE ABOVE MENTIONED ISSUE IS CONCERNED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 6. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, TO AMEND OR TO DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HEARIN G OF THE APPEAL. 4. THE GROUNDS OF APPEAL RAISED AT S.NOS.1, 5 AND 6 ARE GENERAL IN NATURE AND THEREFORE NO ADJUDICATION IS CALLED FOR THEREON. 5.1 THE GROUNDS OF APPEAL RAISED AT S.NOS.2 TO 4 , ALL RELATE TO THE SINGLE ISSUE IN THIS APPEAL PERTAINING TO THE LEARNED CIT(A)S DELETION THE DISALLOWANCE OF RS.63,67,322 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST ON LOAN TO BE CAPITALIZED. 5.2 THE LEARNED DEPARTMENTAL REPRESENTATIVE SU BMITTED THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS BASED ON THE LANGUAGE OF THE ASSESSEES LETTER DT.22.10.2010 WHICH STATED THAT AS PER THE WORKING SHEET THE FIN ANCIAL COST NOT CAPITALIZED TO THE PROJECT FOR WHICH WE HAVE NOT COMMENCED SALE WORKS OUT TO RS.63,67,322. A PLAIN READING OF THIS LINE OF THE LETTER, THE LEARNED DEPARTMENTA L REPRESENTATIVE SUBMITS, INDICATED THAT THE ASSESSEE HAD ACKNOWLEDGED THAT RS.63,67,322 WAS INTEREST ON PROJECTS NOT COMPLETED THAT OUGHT TO HAVE BEEN CAPITALIZED BUT HAD NOT BEE N CAPITALIZED BY THE ASSESSEE AND THEREFORE THE ASSESSING OFFICER PROCEEDED TO DISALL OW THE SAME IN ACCORDANCE WITH THE 4 ITA NO.522/BANG/11 PROVISIONS OF SECTION 36(1)(III) OF THE ACT. THE L EARNED DEPARTMENTAL REPRESENTATIVE FURTHER SUBMITTED THAT LEARNED CIT(A) ERRED IN DELE TING THE DISALLOWANCE OF RS.63,67,322 MADE ON ACCOUNT OF CLAIM OF INTEREST PAID ON LOANS WITHOUT APPRECIATING THAT THE SAID INTEREST CLAIMED WAS IN THE NATURE OF CAPITAL EXPEN DITURE. IT WAS ALSO STRONGLY CONTENDED THAT THE LEARNED CIT(A) ERRED IN RELYING ON THE DEC ISION OF THE HON'BLE APEX COURT IN THE CASE OF CORE HEALTH CARE LTD. (SUPRA) FOR ASSESSME NT YEARS 11992-93 TO 1997-98 WHICH WAS RENDERED WITH REFERENCE TO THE LAW AS IT STOOD PRIOR TO THE AMENDMENT W.E.F. 1.4.2004. IT WAS ARGUED THAT THE LEARNED CIT(A) OUGHT TO HAVE APPLIED THE PROVISIONS OF THE PROVISO INSERTED IN SECTION 36(1)(III) BY THE FINANCE ACT, 2003 W.E.F. 1.4.2004 WHICH WAS APPLICABLE IN THE INSTANT CASE AS THE RELEVANT PERIOD IN QUEST ION PERTAINED TO ASSESSMENT YEAR 2008- 09. IN THIS VIEW OF THE MATTER, THE LEARNED DEPART MENTAL REPRESENTATIVE PRAYED THAT THE ORDERS OF THE LEARNED CIT(A) ON THIS ISSUE BE REVER SED AND THE FINDING OF THE ASSESSING OFFICER BE RESTORED. 5.3 THE LEARNED COUNSEL FOR THE ASSESSEE ON HIS PART SUPPORTED THE ORDERS OF THE LEARNED CIT(A). 5.4 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PERUSED AND CONSIDERED THE MATERIAL ON RECORD AND THE JUDICIAL DECISIONS CITED. IT IS SEE N THAT THE FINDING OF THE ASSESSING OFFICER IN MAKING THE DISALLOWANCE OF RS.63,67,322 FOR CAPITALIZATION OF INTEREST PERTAINING TO UNCOMPLETED PROJECTS APPEARS TO HAVE ARISEN SOLELY FROM THE LANGUAGE AND TENOR OF THE SUBMISSIONS AND ADMISSIONS MADE BY THE ASSESSEE IN ITS LETTER DT.22.10.2010. FROM A PERUSAL OF THE LEARNED CIT(A)S ORDER ALSO W E NOTICE THAT THE LEARNED CIT(A) HAS NOT EXAMINED THE CRUX OF THE ISSUE AS TO WHETHER AN D TO WHAT EXTENT THE INTEREST DEBITED 5 ITA NO.522/BANG/11 BY THE ASSESSEE PERTAINED TO EXISTING RUNNING PROJE CTS OR FOR ACQUIRING CAPITAL ASSETS FOR PROJECTS NOT COMMENCED. FURTHER, WE ALSO FIND THAT THE LEARNED CIT(A) HAS ALLOWED THE ASSESSEE RELIEF APPLYING THE DECISION IN THE CASE O F CORE HEALTH CARE LTD. (SUPRA) WHICH WAS RENDERED FOR ASSESSMENT YEARS 1992-93 TO 1997-9 8 WITHOUT CONSIDERING THE AMENDED PROVISO OF SECTION 36(1)(III) OPERATIVE W.E.F. 1.4. 2004 WHICH WOULD HAVE BEEN APPLICABLE IN THE INSTANT CASE OF THE ASSESSEE WHICH IS FOR ASSES SMENT YEAR 2008-09. IN THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT IN THE IN TEREST OF EQUITY AND JUSTICE, THE MATTER BE REMITTED BACK TO THE FILE OF THE ASSESSING OFFIC ER TO BE RE-EXAMINED AFRESH AS TO WHETHER OUT OF THE INTEREST OF RS.3,56,85,324 DEBIT ED THE AMOUNT OF RS.63,67,322 IS EXPENDED FOR RUNNING PROJECTS OR FOR ACQUIRING OF C APITAL ASSETS FOR PROJECTS THAT HAVE NOT YET COMMENCED. THE ASSESSING OFFICER IS DIRECTED T O DISPOSE OFF THE MATTER AFTER AFFORDING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEIN G HEARD. THE ASSESSEE IS ALSO DIRECTED TO CO-OPERATE IN THESE PROCEEDINGS BY FILI NG DETAILS CALLED FOR SO THAT THE MATTER CAN BE DISPOSED OFF EXPEDITIOUSLY. IT IS ORDERED A CCORDINGLY. 6. IN THE RESULT, THE REVENUES APPEAL IS ALLOWED F OR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 3 1 ST AUG., 2012. SD/- SD/- (P. MADHAVI DEVI) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMB ER BANGALORE, DATED: 31.08.2012. *REDDY GP 6 ITA NO.522/BANG/11 COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, - C BENCH. 6. GUARD FILE. (TRUE COPY ) BY ORDE R SR. PRIVATE SECRETARY, ITAT, BANGALORE