DCIT, New Delhi V. M/s. PNB Housing Finance Ltd., New Delhi

ITA 5490/DEL/2013

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 8913 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 11-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 07-10-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIKRAM SAHAY
• Assessee Lawyers: V K NISCHAL
• Keywords: Business income; Depreciation; Bad and doubtful debts; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : F : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND SHRI A.T. VARKEY, JM ITA NOS.5490/DEL/2013, 477/DEL/2010 & 4868/DEL/2010 ASSESSMENT YEARS : 2008-09, 2006-07 & 2007-08 DCIT, CIRCLE 14(1), NEW DELHI. VS. PNB HOUSING FINANCE LTD., 9 TH FLOOR, ANTRIKSH BHAWAN, 22, KG MARG, NEW DELHI. PAN: AAACP3682N (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI V.K. NISCHAL, ADVOCATE DEPARTMENT BY : SHRI VIKRAM SAHAY, SR. DR DATE OF HEARING : 11.03.2015. DATE OF PRONOUNCEMENT : 12 .03.2015. ORDER PER R.S. SYAL, AM: THESE THREE APPEALS BY THE REVENUE RELATE TO THE A SSESSMENT YEARS 2006-07, 2007-08 AND 2008-09. SINCE COMMON ISSUE I S RAISED IN THESE ITA NOS.5490/DEL/2013, 477 & 4868/DEL2010 2 APPEALS, WE ARE, THEREFORE, PROCEEDING TO DISPOSE T HEM OFF BY THIS CONSOLIDATED ORDER, FOR THE SAKE OF CONVENIENCE. 2. THE LD. DR STARTED HIS ARGUMENTS WITH REFERENCE TO THE FACTS IN THE APPEAL FOR THE ASSESSMENT YEAR 2008-09 AND IT WAS S UBMITTED THAT THE FACTS OF THE OTHER TWO YEARS ARE MUTATIS MUTANDIS SIMILAR. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A CO MPANY ENGAGED IN THE BUSINESS OF PROVIDING HOUSING LOAN. A DEDUCTION AM OUNTING TO RS.8,14,50,000/- WAS CLAIMED U/S 36(1)(VIII) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED `THE ACT) WITH THE C OMPUTATION AS UNDER:- CHART-A COMPUTATION OF REBATE ALLOWABLE U/S 36(1)(VIII) OF THE INCOME TAX ACT, 1961. 1. BUSINESS INCOME BEFORE DEDUCTION U/S 36(1)(VIII) OF THE INCOME TAX ACT 59,68,03,660 RATIO OF INTEREST ON LONG TERM HOUSING LOANS TO TO TAL INTEREST OF HOUSING LOANS 140,69,40,560 : 205,70,94,576 68.39: 100 2. PROFIT FROM LONG TERM HOUSING LOANS THEREFORE, 68.39% OF BUSINESS INCOME IS ELIGIBLE FO R REBATE U/S 36(1)(VIII) (A) 40,81,54,023 3. 20% OF (A) ABOVE ALLOWABLE AS DEDUCTION U/S 36(1 )(VIII) OF THE INCOME TAX ACT 8,16,30,805 4. AMOUNT TRANSFERRED TO SPECIAL RESERVE CREATED U/ S 36(1)(VIII) OF THE INCOME-TAX ACT. 8,14,50,000 5. AMOUNT CLAIMED AS DEDUCTION U/S 36(1)(VIII) OF T HE INCOME-TAX ACT. 8,14,50,000 ITA NOS.5490/DEL/2013, 477 & 4868/DEL2010 3 IN THE ABOVE CHART, THE ASSESSEE COMPUTED THE `BUSI NESS INCOME AS PER THE COMPUTATION OF INCOME FILED WITH THE RETURN OF INCO ME, AS UNDER : - CHART-B 1 BUSINESS INCOME AFTER MAKING ADJUSTMENTS 66,21,03,014 2 LESS: (I) DEPRECIATION ON FIXED ASSETS AS PER INCOME TAX RULES 48,89,252 (II) RECOVERY OF UNREALIZED INTEREST 70,35,453 (III) REVERSAL OF PROVISIONS FOR DOUBTFUL DEBTS & ADVANCES 2,07,74,884 (IV) INCOME FROM OTHER SOURCES 10,41,98,731 (A) INTEREST ON INVESTMENTS LESS: EXPENSES @ 68.95% (COMPUTATION ENCLOSED) 7,18,45,025 --------------- 3,23,53,706 (IV) SHORT TERM CAPITAL GAINS 2,46,059 --------------- 6,52,99,354 3 GROSS BUSINESS INCOME 59,68,03,660 THE FIGURE OF EXPENSES PERCENTAGE AT 68.95% IN THE EARLIER CHART WAS DERIVED AS UNDER : - CHART-C COMPUTATION FOR APPORTIONMENT OF EXPENSES 1 EXPENSES (I) INTEREST AND OTHER CHARGES 145,66,55,679 (II) PERSONNEL COST 5,60,16,398 (III) ESTABLISHMENT EXPENSES 3,09,35,165 --------------- TOTAL 154,36,07,242 2. INCOME (I) INTEREST INCOME 217,32,21,686 (II) FEES & OTHER CHARGES 6,54,88,135 ----------------- TOTAL 223,87,09,821 ------------------ 3. RATIO OF EXPENSES (RS.1543607242) TO GROSS RECEI PTS (RS.2238709821) 68.95% ITA NOS.5490/DEL/2013, 477 & 4868/DEL2010 4 3. THE AO NOTICED THAT THE CALCULATION OF ITEM AT S L. NO. (IV) UNDER CHART-B, WAS STARTED BY THE ASSESSEE WITH INCOME FROM OTHER SOURCES AT RS.10,41,98,731/- AND, THEREAFTER, THE ASSESSEE DEDUCTED EXPENSES AMOUNTING TO RS.7,18,45,025/- @ 68.59%, WHICH WAS DETERMINED AS PER CHART-C. THIS INTEREST INCOME OF RS.10.41 CRORE AND ODD WAS EARNED BY THE ASSESSEE BY INVESTING A SUM OF RS.42,36,76,000/ - AS LONG-TERM INVESTMENT IN 12.25% IN UP STATE GOVERNMENT BONDS. BESIDES, THE ASSESSEE HAD ALSO INVESTED A SUM OF RS.93,25,85,000 /- IN GOI BONDS, UCO BANK AND BANK OF MAHARASHTRA BONDS/DEBENTURES. THESE INVESTMENTS WERE MADE AS LONG-TERM INVESTMENTS AND INTEREST OF RS.10.41 CRORE AND ODD ACCRUED FROM THE ABOVE INVES TMENTS. THE AO OBSERVED THAT WHILE CALCULATING THE RATIO OF EXPENS ES AT 68.95%, THE ASSESSEE ALLOCATED A SUM OF RS.145,66,55,679/-, BEI NG INTEREST AND OTHER CHARGES TOWARDS EARNING OF INCOME FROM OTHER SOUR CES. IT WAS NOTICED THAT THE RESERVES AND SURPLUS IN THE BALANCE SHEE T STOOD AT RS.138.57 CRORE ON 31.3.2008. BESIDES THAT, THERE WERE CERT AIN SUMS AMOUNTING TO RS.1883.35 CRORE APPEARING ON THE LIABILITY SIDE AN D LOANS TO THE TUNE OF RS.1906.49 CRORE APPEARING ON THE ASSET SIDE OF THE ASSESSEES BALANCE ITA NOS.5490/DEL/2013, 477 & 4868/DEL2010 5 SHEET. BY MAKING A COMPARISON OF THESE TWO LOAN FI GURES, THE AO OPINED THAT NO PART OF LOANS AMOUNTING TO RS.1883.3 5 CRORE COULD BE SAID TO HAVE BEEN ATTRIBUTED TO THE INVESTMENTS MADE BY THE ASSESSEE IN UP STATE BONDS AND OTHERS. IN VIEW OF THE FACT THAT TH E AMOUNT OF RESERVES AND SURPLUS WAS MORE THAN THE INVESTMENTS MADE BY THE ASSESSEE COMPANY IN THESE UP GOVERNMENT BONDS, IT WAS HELD T HAT SUCH INVESTMENTS WERE MADE OUT OF INTEREST FREE FUNDS AV AILABLE AT THE DISPOSAL OF THE ASSESSEE AND RESULTANTLY, THE DEDUC TION OF INTEREST AND OTHER CHARGES AMOUNTING TO RS.145.66 CRORE FROM IN TEREST ON INVESTMENT, BEING INCOME FROM OTHER SOURCES, WAS NOT PERMISSIBLE. 4. THE AO RE-PREPARED CHART-C AND CHART-B AS UNDE R:- CHART-B 1 BUSINESS INCOME AFTER MAKING ADJUSTMENTS 66,21,03,014 2 LESS: (I) DEPRECIATION ON FIXED ASSETS AS PER INCOME TAX RULES 48,89,252 (II) RECOVERY OF UNREALIZED INTEREST 70,35,453 (III) REVERSAL OF PROVISIONS FOR DOUBTFUL DEBTS & ADVANCES 2,07,74,884 (III) SHORT TERM CAPITAL GAINS 2,46,059 (IV) INCOME FROM OTHER SOURCES 1041,98,731 (A) INTEREST ON INVESTMENTS LESS: EXPENSES @ 3.82% 39,80,392 --------------- 100218339 (IV) SHORT TERM CAPITAL GAINS ------------- 13,31,63,987 3 GROSS BUSINESS INCOME 52,89,39,027 ITA NOS.5490/DEL/2013, 477 & 4868/DEL2010 6 CHART-C COMPUTATION FOR APPORTIONMENT OF EXPENSES 1 EXPENSES (I) INTEREST AND OTHER CHARGES 0 (II) PERSONNEL COST 5,60,16,398 (III) ESTABLISHMENT EXPENSES 3,09,35,165 --------------- TOTAL 8,69,51,563 2. INCOME (I) INTEREST INCOME 217,32,21,686 (II) FEES & OTHER CHARGES 6,54,88,135 (III) OTHER INCOME 3,24,87,475 ----------------- TOTAL 227,11,97,296 ------------------ 3. RATIO OF EXPENSES (RS.8,69,51,563) TO GROSS RECE IPTS (RS.227,11,97,296) 3.82% 5. ON THE BASIS OF THE ABOVE RE-CALCULATED CHARTS, THE AO RE-PREPARED CHART-A FOR CALCULATING THE AMOUNT OF DEDUCTION U/S 36(1)(VIII), AS UNDER:- COMPUTATION OF REBATE ALLOWABLE U/S 36(1)(VIII) OF THE INCOME TAX ACT, 1961. 20% OF PROFIT FROM LONG TERM HOUSING LOAN ..TRAN SFERRED TO SPECIAL RESERVE WHICHEVER IS LESS 1. BUSINESS INCOME BEFORE DEDUCTION U/S 36(1)(VIII) OF THE INCOME TAX ACT 52,89,39,027 RATIO OF INTEREST ON LONG TERM HOUSING LOANS TO TO TAL RECEIPTS OF THE BUSINESS. 140,69,40,560 : 2167244624 64.92 : 100 2. PROFIT FROM LONG TERM HOUSING LOANS THEREFORE, 64.92 % OF BUSINESS INCOME IS ELIGIBLE FOR REBATE U/S 36( 1)(VIII) (A) 34,33,87,216 3. 20% OF (A) ABOVE ALLOWABLE AS DEDUCTION U/S 36(1 )(VIII) OF THE INCOME TAX ACT 6,86,77,443 4. AMOUNT TRANSFERRED TO SPECIAL RESERVE CREATED U/ S 36(1)(VIII) OF THE INCOME-TAX ACT. 8,14,50,000 5. AMOUNT ALLOWED AS DEDUCTION U/S 36(1)(VIII) OF T HE INCOME-TAX ACT. 6,86,77,443 ITA NOS.5490/DEL/2013, 477 & 4868/DEL2010 7 6. THAT IS HOW THE AMOUNT OF DEDUCTION U/S 36(1)(VI II) WAS REDUCED FROM RS.814,50,000/- TO RS.6,86,77,443/-, RESULTIN G INTO DISALLOWANCE TO THE TUNE OF RS.1,27,72,557/-. THE LD. CIT(A) GOT C ONVINCED WITH THE ASSESSEES SUBMISSIONS AND RESTORED THE DEDUCTION U /S 36(1)(VIII) TO THE AMOUNT AS CLAIMED BY THE ASSESSEE. THE REVENUE IS A GGRIEVED WITH SUCH DIRECTION OF THE LD. FIRST APPELLATE AUTHORITY. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. BEFORE PROCEEDING FURTHER, WE WANT TO MAKE IT CLEAR THAT LD. DR RESTRICTED HIS ARGUMENTS ONLY TO THE NO N-DEDUCTIBILITY OF INTEREST AND OTHER CHARGES IN CHART-C, WHICH WAS CLAIMED BY THE ASSESSEE AT RS.1,45,66,55,679/-, WHEREAS THE AO RED UCED THIS AMOUNT TO 0. THE CASE OF THE REVENUE IS THAT SINCE THE AMOU NT OF RESERVES AND SURPLUS APPEARING IN THE ASSESSEES BALANCE SHEET IS MORE THAN THE INVESTMENT MADE IN THE UP STATE BONDS, ETC. WHICH F ETCHED INTEREST INCOME OF RS.10.41 CRORE, AND THE AMOUNT OF INTERES T BEARING ADVANCES BEING MORE THAN THE INTEREST BEARING LOANS, THE PRE SUMPTION SHOULD BE DRAWN THAT SUCH INVESTMENTS WERE FINANCED BY THE AS SESSEE OUT OF ITS ITA NOS.5490/DEL/2013, 477 & 4868/DEL2010 8 CAPITAL AND RESERVES AND NOT FROM ANY INTEREST BEAR ING FUNDS. AND AS SUCH, THE CLAIM FOR DEDUCTION OF INTEREST AND OTHE R CHARGES AMOUNTING TO RS.145.66 CRORE IS UNTENABLE. PER CONTRA, THE LD. AR VEHEMENTLY ARGUED THAT THE INVESTMENT IN THESE BONDS WERE MADE IN EAR LIER YEARS OUT OF INTEREST BEARING FUNDS AND, HENCE, DEDUCTION SHOULD BE ACCORDINGLY ALLOWED. 8. SECTION 57 OF THE ACT DEALS WITH DEDUCTIONS IN THE COMPUTATION OF THE INCOME CHARGEABLE UNDER THE HEAD 'INCOME FROM O THER SOURCES'. SUB-SECTION (III) PROVIDES THAT ANY EXPENDITURE (NO T BEING IN THE NATURE OF CAPITAL EXPENDITURE) LAID OUT OR EXPENDED WHOLLY AN D EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME IS DEDUCTI BLE. THE HONBLE BOMBAY HIGH COURT IN CIT VS. SMT. SUSHILA DEVI KHADARIA L/H OF LATE GOPAL KHADARIA (2009) 319 ITR 413 (BOM) HAS HELD THAT THE FINANCE CHARGES AND INTEREST PAID ON LOANS OBTAINED BY THE ASSESSEE FOR MAKING INVESTMENT IN SHARES IS DEDUCTIBLE U/S 57(III) IN C OMPUTING `INCOME FROM OTHER SOURCES. IN VIEW OF THE ABOVE LEGAL POSITIO N, IT IS APPARENT THAT THE ITA NOS.5490/DEL/2013, 477 & 4868/DEL2010 9 AMOUNT OF INTEREST EXPENDITURE CAN BE ALLOWED AS DE DUCTION U/S 57 OF THE ACT PROVIDED THE INVESTMENTS ARE MADE FROM INTEREST BEARING LOANS. 9. COMING BACK TO THE FACTUAL MATRIX OF THE CASE , WE NOTE THAT THERE IS NO DISCUSSION IN THE ASSESSMENT OR THE IMPUGNED ORD ER AS TO THE NEXUS OF INVESTMENT IN SUCH BONDS WITH THE INTEREST BEARING OR INTEREST FREE BONDS. THE AO HAS GONE WITH THE FIGURES OF THE CURRENT YEA R TO HOLD THAT INTEREST BEARING ADVANCES ARE MORE THAN THE INTEREST BEARING LOANS. ON THE OTHER HAND, THE CONTENTION OF THE ASSESSEE IS THAT INVEST MENT IN SUCH BONDS WERE MADE IN EARLIER YEARS AND THAT TOO OUT OF INTE REST BEARING FUNDS. THE LD. CIT(A) HAS SIMPLY HELD THAT SINCE DEDUCTIONS UN DER CHAPTER VI-A ARE TO BE DONE ON NET BASIS, THE ASSESSEE DESERVES RELI EF. HE FAILED TO NOTE THAT THE QUESTION UNDER CONSIDERATION WAS NOT ABOUT THE CALCULATION OF THE AMOUNT OF DEDUCTION UNDER CHAPTER VI-A, BUT THE COM PUTATION OF INCOME UNDER THE HEAD `INCOME FROM OTHER SOURCES, FOR WHICH THERE IS A SEPARATE SCHEME SET OUT IN CHAPTER IV-F OF THE ACT. UNDER SUCH CIRCUMSTANCES, WE CANNOT SUSTAIN THE VIEW CANVASSED BY THE LD. CIT(A). ACCORDINGLY, THE IMPUGNED ORDER IS SET ASIDE AND TH E MATTER IS SENT BACK ITA NOS.5490/DEL/2013, 477 & 4868/DEL2010 10 TO THE AO FOR DECIDING THIS ISSUE AFRESH AS PER LAW AND IN ACCORDANCE WITH THE ABOVE DISCUSSION. IN OTHER WORDS, THE AO W ILL FIND OUT THE SOURCE OF THE AMOUNT INVESTED IN SUCH FUNDS, AT THE TIME WHEN SUCH INVESTMENTS WERE MADE. IF THE INVESTMENTS ARE FOUN D TO BE SPECIFICALLY MADE OUT OF INTEREST BEARING FUNDS, THEN, THERE COU LD NOT BE ANY DIFFICULTY IN ACCEPTING THE ASSESSEES CLAIM FOR AL LOWING DEDUCTION OF INTEREST AND OTHER CHARGES. IN THE OTHERWISE SITUA TION, THE REVENUES STAND OF NOT ALLOWING ANY DEDUCTION SHOULD BE UPHEL D. 10. BOTH THE SIDES ARE IN AGREEMENT THAT THE FACTS AND CIRCUMSTANCES OF THE OTHER TWO APPEALS ARE SIMILAR TO THOSE FOR THE AY 2008-09. FOLLOWING THE VIEW TAKEN HEREINABOVE, WE SET ASIDE THE IMPUGNED ORDERS FOR THESE TWO YEARS ALSO AND REMIT THE MATTER TO TH E FILE OF AO FOR DECIDING IT AFRESH IN CONFORMITY WITH OUR DIRECTION S GIVEN FOR THE AY 2008-09. ITA NOS.5490/DEL/2013, 477 & 4868/DEL2010 11 11. IN THE RESULT, ALL THE APPEALS ARE ALLOWED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 12.03.201 5. SD/- SD/- [A.T. VARKEY] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 12 TH MARCH, 2015. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.