Ashish Anand, New Delhi V. DCIT, New Delhi

ITA 5774/DEL/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7038 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC 1
• Next Hearing Date: 15-02-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 19-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROBIN RAWAL SENIOR
• Keywords: Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH SMC-I : NEW DELHI) BEFORE SHRI P.K. BANSAL, ACCOUNTANT MEMBER ITA NO.5774/DEL./2015 (ASSESSMENT YEAR : 2011-12) SHRI ASHISH ANAND, VS. DCIT, CIRCLE 10 (1), 11, HAUZ KHAS VILLAGE, NEW DELHI. NEW DELHI 110 016. (PAN : AAEPA5764F) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AKSHAT, CA REVENUE BY : SHRI ROBIN RAWAL, SENIOR DR DATE OF HEARING : 16.02.2016 DATE OF PRONOUNCEMENT : 17.02.2016 O R D E R THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT (APPEALS) DATED 27.08.2015. 2. THE ONLY ISSUE INVOLVED IN THIS APPEAL RELATE TO THE DISALLOWANCE OF THE SUM OF RS.5,58,515/- CLAIMED BY THE ASSESSEE AS AN EXPENDITURE INCURRED FOR THE PURPOSE OF EARNING THE INTEREST INCOME U/S 57 OF TH E INCOME-TAX ACT, 1961 (HEREINAFTER THE ACT). 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAS TAKEN THE LOAN OF RS.2 CRORES FROM M/S. KOTAK MAHINDRA BANK @ 18% INTEREST PER ANNUM AND UNSECURED LOAN OF RS.1.75 CRORES @ 9% INTEREST PER ANNUM FROM OTHER PERSONS. THE ASSESSEE HAS GIVEN THE ENTIRE LOAN TAKEN FROM T HE BANK AS WELL AS FROM THE ITA NO.5774/DEL./2015 2 OTHER PERSONS TO M/S. DELHI ART GALLERY PVT. LTD. F OR ITS POTENTIAL GROWTH AT THE SAME RATE OF INTEREST @ 18% AND 9% PER ANNUM. THE ASSESSEE HAS RECEIVED THE INTEREST OF RS.32,76,737/- AND CLAIMED EXPENSES AGA INST THIS AT RS.38,35,252/- U/S 57 OF THE ACT WHICH CONSIST OF LOAN PROCESSING CHAR GES AMOUNTING TO RS.3,30,900 AND PENAL INTEREST AMOUNTING TO RS.2,27,615/- PAID TO M/S. KOTAK MAHINDRA BANK. THE AO DISALLOWED THE SAID SUM OF RS.5,58,51 5/- BY OBSERVING THAT NEITHER THE BANK CHARGES NOR THE PENAL INTEREST WAS INCURRED FOR THE PURPOSE OF EARNING INTEREST INCOME. WHEN THE MATTER WENT BEFO RE THE CIT (A), THE CIT (A) DISMISSED THE APPEAL OF THE ASSESSEE. 4. I HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULLY CONSIDERED THE SAME ALONG WITH THE ORDERS OF THE TAX AUTHORITIES BELOW. THE FACTS OF THE CASE REVEAL THAT THE LOAN TAKEN BY THE ASSESSEE FROM KOTAK MAHINDRA BANK AND FROM OTHER PARTIES WERE ADVANCED TO DELHI ART GALLERY PVT. LTD. ON WHI CH THE ASSESSEE EARNED THE INTEREST INCOME AMOUNTING TO RS.32,76,737/-. WHILE TAKING THE LOAN FORM KOTAK MAHINDRA BANK, THE ASSESSEE PAID LOAN PROCESSING CH ARGES AMOUNTING TO RS.3,30,900/- AND ALSO PAID PENAL INTEREST AMOUNTIN G TO RS.2,27,615/-. BOTH THE PROCESSING CHARGES AND PENAL INTEREST HAS BEEN PAID BY THE ASSESSEE IN CONNECTION WITH THE LOAN TAKEN FROM KOTAK MOHINDRA BANK AND THE AMOUNT SO PAID, IN MY OPINION, HAD TO BE REGARDED AS INTEREST WITHIN THE MEANING OF SECTION 2(28A) OF THE ACT WHICH DEFINES THE INTEREST PAYABL E IN ANY MANNER IN RESPECT OF ANY MONEY BORROWED AND INCLUDES ANY SERVICE FEE OR OTHER CHARGES IN RESPECT OF THE MONEY BORROWED. THE PROCESSING CHARGES PAID BY THE ASSESSEE AS WELL AS THE PENAL INTEREST RELATE TO THE MONEY BORROWED FROM KO TAK MAHINDRA BANK. THE ITA NO.5774/DEL./2015 3 EXPENSES SO INCURRED HAVE BEEN LAID OUT OR EXPANDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME I.E. T HE INTEREST INCOME. THE CLAIM OF THE ASSESSEE, IN MY OPINION, FALLS U/S 57 (III) AND THE EXPENDITURE INCURRED BY THE ASSESSEE CANNOT BE REGARDED TO BE I N THE NATURE OF A CAPITAL EXPENDITURE. THE AUTHORITIES BELOW ARE NOT CORRECT BY HOLDING THAT THESE EXPENSES HAVE NOT BEEN INCURRED FOR THE PURPOSE OF EARNING THE INTEREST INCOME. WITHOUT PAYING THE PROCESSING CHARGES, THE ASSESSEE COULD NOT HAVE RECEIVED THE LOAN AND THE PENAL INTEREST IS PART OF THE INTEREST PAID AS PER THE TERMS AND CONDITIONS ON THE BASIS OF WHICH THE LOAN HAS BEEN SANCTIONED BY KOTAK MAHINDRA BANK. MY AFORESAID VIEW IS DULY SUPPORTED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. RAJEND ER PRASAD MODI 115 ITR 519 ON WHICH THE AR HAS VEHEMENTLY RELIED. I, THER EFORE, SET ASIDE THE ORDER OF THE CIT (A) AND DELETE THE DISALLOWANCE OF RS.5,58, 515/-. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 17 TH DAY OF FEBRUARY, 2016. SD/- (P.K. BANSAL) ACCOUNTANT MEMBER DATED THE 17 TH DAY OF FEBRUARY, 2016/TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-3, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.