ACIT, Circle- 15(1), New Delhi V. Leon Realtors Pvt. Ltd., New Delhi

ITA 6155/DEL/2017

AI Insights

The case involves the Assistant Commissioner of Income Tax, Circle-15(1), New Delhi as the appellant and M/s Leon Realtors Pvt. Ltd. as the respondent. The dispute centered on the assessment year 2013-14, where the primary issue was the deduction of interest under section 24(b) of the Income Tax Act, 1961. The Assessing Officer (AO) had restricted the deduction of interest claimed by the assessee, which was later contested and partially allowed by the CIT(A). The Revenue appealed against the CIT(A)'s decision, which led to the current proceedings before the Income Tax Appellate Tribunal. The tribunal's decision favored the respondent, affirming the CIT(A)'s order.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 116373 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 01-11-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 02-10-2017
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ADJOURNMENT APPLICATION BY
• Keywords: Depreciation
• Section: 10; 143(1); 143(2); 113

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘E’: NEW DELHI BEFORE, DR. B.R.R. KUMAR, ACCOUNTANT MEMBER AND SHRI YOGESH KUMAR U.S., JUDICIAL MEMBER ITA No.6155/Del/2017 (ASSESSMENT YEAR-2013-14) Asst. CIT Circle-15(1) New Delhi Vs. M/s Leon Realtors Pvt. Ltd. Unit No.201, 1 st Floor Empire Apartments Sultanpur, M.G. Road New Delhi-110 074 PAN-AABCL 4591M (Appellant) (Respondent) Appellant by Ms. Shivani Sanghi, AR Respondent by Adjournment application by Sr. DR Date of Hearing 02/11/2023 Date of Pronouncement 10/11/2023 ORDER PER YOGESH KUMAR U.S., JM: This appeal by Revenue is filed against the order of Learned Commissioner of Income Tax (Appeals)-5, Delhi [“Ld. CIT(A)”, for short], dated 07/07/2017 for Assessment Year 2013-14. Grounds taken in this appeal are as under: “1. Whether in facts and circumstances of the case the Ld. CIT(A) has erred in deleting the addition of Rs.2,67,51,318/- u/s 24(b) of the Income tax Act, 1961 (Rs.13,93,95,296/- minus Rs.11,26,43,978/-) made by the AO. 2 ITA No.6155/Del/2017 Leon Realtors Pvt. Ltd. vs. ACIT 2. That the order of Ld. CIT(A) is erroneous and is not tenable on facts and in law. 3. That the grounds of appeal are without prejudice to each others. 4. That the appellant craves leave to add, alter, amend or forego any ground(s) of the appeal raised above at the time of hearing.” 2. The brief facts of the case as mentioned in the order of the Ld. CIT(A) are that the Assessee company is engaged in the business of renting of immovable property and rendering of amenities and maintenance services. During the year, the Assessee earned rental income and maintenance charges from the same building. Return declaring loss of Rs.34,34,374/- was e-filed on 28/09/2013 for A.Y. 2013-14 respectively. The return was processed u/s 143(1) of the IT Act. The case was selected for scrutiny and notice u/s 143(2) was issued and duly served upon the assessee. The income was assessed at Rs.2,82,88,900/-, after re-computing income from house property by including income derived from maintenance services and limiting the deductions claimed u/s 24(a) and 24(b) of the Act as also limiting the interest expenditure allowable against ‘income from other sources’. 3 ITA No.6155/Del/2017 Leon Realtors Pvt. Ltd. vs. ACIT 3. Aggrieved by the assessment order dated 28/01/2016, the assessee preferred the appeal before the Ld. CIT(A), and the Ld. CIT(A) vide order dated 07/07/2017 partly allowed the appeal filed by the Assessee by deleting the addition of Rs.2,67,51,318/-. 4. Aggrieved by the order of the Ld. CIT(A) dated 07/07/2017 in deleting the addition made by the AO, the Department of Revenue is in appeal before us on the grounds mentioned above. The Ld. DR relied on the order of the AO and sought for allowing the appeal. The Ld. AR relied on the order of the Ld. CIT(A) and submitted that, borrowing new loan for purposes of repaying old loan and the claiming of interest paid on such second loan could also be allowed as deduction u/s 24(1)(vi) of the Act, the interest paid on the loan claimed is thus per se allowable under the provisions of section 24(b) of the Act, therefore, submitted that the order of the Ld. CIT(A) requires no interference. 5. We have heard both the parties and perused the materials available on record. The Ld. AO while restricting the amount of deduction of interest claimed Under Section 24(b) of the Act 4 ITA No.6155/Del/2017 Leon Realtors Pvt. Ltd. vs. ACIT Rs.11,26,43,978/- as against Rs.13,93,95,296/- claimed by the assessee observed as under: “Deduction u/s 24(b) of the IT Act Further the assessee is claiming deduction u/s 24(b) of the IT Act, 1961 amounting to Rs.13,93,95,296/- on account of interest paid. From the perusal of the accounts it is seen that assessee has claimed interest expense of Rs. 16,54,25,141/- in its P&L Account. From the details filed it is not discernible that what portion of the interest paid pertains to the House Property in question because the assessee has used the borrowed funds for various activities but is claiming almost all of the interest u/s 24(b) of the IT Act, 1961. The background of the case is that the assessee had acquired the building under question entirely from the borrowed funds. The funds were borrowed at the rate of 10% p.a. However, in the AY 2011-12, the assessee company repaid these funds by taking fresh loans ranging from @10% to 16% rate of interest. It is not clearly established as to which money is attributable for acquisition of the property and which money to the other activities. The opening value of the property is 112,64,39,775/- and the assessee has claimed interest expenses of Rs. 13,93,95,296/- which comes to 12.37%. the original loan taken for the property, was at the rate of 10% which was repaid by taking loan at a higher rate. It is not out of place to mention here that in the assessment for the A.Y. 2011-2012 and 2012-13, the Assessing Officer has restricted the deduction u/s 24(b) to 10 % of the value of the property, primarily for the reason that the assessee could not establish the nexus of the funds borrowed for the second time to the property in question. The matter is sub-judiced with the CIT (A). Keeping all the above facts in view the assessee is allowed deduction u/ 24(b) to the extent of Rs. 11,26,43,978/-. 6. The Ld. CIT(A) while deleting the addition held as under: “3.8.1 Thus, in the preceding AY, it was seen that loans totaling Rs. 113 cr. had been utilized in the gross value of building (excluding depreciation) totaling Rs. 131.48 cr. During the assessment year 2012-13 as per the chart furnished before the undersigned the appellant has claimed interest cost of Rs. 19.61 crores u/s 24(b) on loans totaling Rs. 114.34 cr. Out of the total loan of Rs. 139.70 crores utilized during the year the appellant has claimed the pro rata interest of Rs. 19.61 crores on the loan of Rs. 5 ITA No.6155/Del/2017 Leon Realtors Pvt. Ltd. vs. ACIT 114.34 crores utilized towards the impugned house property, on the basis of percentage of loan utilized for house property out of total borrowings which comes to 81.85%. As already discussed in the earlier appellate order, in the present case also, all the details were filed before the AO. However, it seems that the A.O. has chosen to ignore these details and to comment upon the nexus sought to be established by stating that the appellant has not been able to establish that the loans on which interest have been paid, were attributable for acquisition of property. From the perusal of the balance sheet as on 31.03.2012 in addition to the written down value of the impugned property after claim of depreciation, the appellant has included the work in progress of Rs. 14.89 crores. In the value of the property. The claim of interest is on Rs. 114.34 crores and hence it cannot be called as excessive or unreasonable. The breakup of Interest paid is Rs. 18,10,67,510/- paid to banks & NBFCs/others & loan processing fees categorized as "Other Borrowing Costs" of Rs. 6,78,29,546/- for structure fee, loan processing fee and advisory fee. The details of the Interest claimed and allowed filed before the undersigned are as under: S. No. Particulars Loan utilized (Rs.Cr) Interest +Finance Cost claimed (Rs. Cr) Allowed by the A.O. (Rs. Cr) 1. House Property U/s 24(b) 114.34 19.61 11.26 2. Other Sources U/s 57 14.14 2.99 2.99 3. Other disallowed 11.22 2.29 1.73 Total 139.70 24.89 15.98 3.8.2 During the year the loans taken in the earlier years of Rs. 50 crores from Religare Finvest has been repaid by new loan from ANR Securities on 15.04.2011 and on sanction of the loan of Rs. 139 crores from the Standard Chartered Bank in May, 2011, the loan account of ANR Securities has been repaid. It is understood that following foreclosure of the loan account of Standard Chartered Bank the outstanding loan of Rs. 55 crores of SCB was replaced by a loan from Today Holding on 13.05.2011 and replaced by the sanction and drawal of loan of Rs. 139 crores from the Standard Chartered Bank on 18.05.2011. It is further understood that the SCB loan totaling Rs. 74.70 crores was downsold to IDFC on 29.07.2011 and continued in the balance sheet till the end of the subsequent FY ending 31.03.2013. Undoubtedly, there have been many loan transactions, by way of replacement of loans taken with new loans, but nowhere it is seen that total Interest cost allocated or the loan amount utilized is more than the gross value of asset standing in the balance sheet. The loan amounts have been received and repaid to the appellant's bank accounts In Standard Chartered Bank and HDFC Bank and are 6 ITA No.6155/Del/2017 Leon Realtors Pvt. Ltd. vs. ACIT entirely relatable. The cost of borrowing that has been claimed has been restricted to Rs. 114.34 crores that has been actually utilized in the building as well as interior and other installations. Moreover, during the year the appellant has incurred loan processing fees of Rs. 6.87 crores as per details mentioned in the preceding para. It appears that these fees have been paid to Standard Chartered Bank in respect of a loan availed of by a syndicate of some of the group companies such as Sharan Hospitality P. Ltd, Pawan Impex P. Ltd., SVIIT Software P. Ltd., GYS Real Estates P. Ltd. and Payne Realtors P. Ltd. and it is noted that the claim out of Rs. 6.78 crores under house property income has been restricted and claimed 081.85% Rs. 5.55 crores. Notably, even as per, the Board's circular no. 28[F.No.8/8/69-IT(A-1)], dated 20.08.1969, there is no restriction on borrowing new loan for purposes of repaying old loan and the claim of interest paid on such second loan could also be allowed as deduction u/s 24(1)(vi). The interest paid on the loan claimed is thus per se allowable under the provisions of the present provisions of section 24(b) of the 1.T Act. Similar facts obtain for AY 2013-14 wherein interest has been paid to Standard Chartered Bank, IDFC Bank Ltd. towards the building as well as interior work. Thus, as per the preceding discussion, it is held that the interest claimed in both the years u/s 24(b) is fully allowable and is not to be restricted. Ground no. 4 for A.Y. 2012-13 & Ground no. 2 for A.Y. 2013-14 are allowed.” 7. The Ld. CIT(A) observed that there have been many loan transactions, by way of replacement of loans taken with new loans, but nowhere it is seen that total interest cost allocated or the loan amount utilized is more than the gross value of asset standing in the balance sheet. The loans amount have been received and repaid to the Assessee’s bank accounts in Standard Chartered Bank and HDFC Bank and are entirely found to be relatable. The cost of borrowing that has been claimed has been restricted to Rs.114.34 crores that has been found to be actually utilized in the building as 7 ITA No.6155/Del/2017 Leon Realtors Pvt. Ltd. vs. ACIT well as interior and other installations and during the year the Assessee has incurred loan processing fees of Rs.6.78 crores, the Ld. CIT(A) has also found that the fees have been paid to Standard Chartered Bank in respect of a loan availed of by a syndicate of some of the group companies and it has noted that the claim out of Rs.6.78 crores under house property income has been restricted and claimed @81.85 @5.55 crores. Considering the fact that Board’s Circular No.28[F.No.8/8/69-IT(A-I)], dated 20/08/1969, there is no restriction on borrowing new loan for the purposes of repaying old loan and the claim of interest paid on such second loan cold also be allowable as deduction u/s 24(1)(vi). Therefore, in our considered opinion, the Ld. CIT(A) has committed no error in deleting the addition made by the AO. Accordingly, grounds of appeal of the Revenue are dismissed as devoid of merit. 8. In the result, the appeal filed by the Revenue is dismissed. Order pronounced in open Court on 10 th November, 2023. Sd/- Sd/- Sd/- Sd/- (DR. B.R.R. KUMAR) (YOGESH KUMAR U.S.) ACCOUNTANT MEMBER JUDICIAL MEMBER 8 ITA No.6155/Del/2017 Leon Realtors Pvt. Ltd. vs. ACIT Dated: 10/11/2023 Pk/Sr.ps Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI