M/s. SRS Real Estate Limited, New Delhi V. ACIT, Faridabad

ITA 6660/DEL/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6867 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 16-11-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 18-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: UMESH CHAND DUBEY
• Keywords: Source of fund; Revenue expenditure; Capital expenditure
• Section: 6

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D : NEW DELHI BEFORE SHRI H.S.SIDHU , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI , ACCOUNTANT MEMBER I TA NO . 6660/DEL/2013 (ASSESSMENT YEAR: 2009 - 10 ) SRS REAL ESTATE LIMITED, RRA TEXINDIA C/O. CORPORATE PROFESSIONALS, D - 28, SOUTH EXTENSION PART - 1, NEW DELHI VS. ACIT, CIRCLE - 11, FARIDABAD (APPELLANT) (RESPONDENT) ASSESSEE BY : DR. RAKESH GUPTA, ADV SH. SOMIL AGARWAL, ADV SH. TARUN KUMAR, ADV REVENUE BY: SH. UMESH CHAND DUBEY, SR. DR DATE OF HEARING 17/11/ 2016 DATE OF PRONOUNCEMENT 07 / 02 / 2017 O R D E R PER PRASHANT MAHARISHI , A . M . 1. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD CIT(A) - 2, FARIDABAD DATED 13.11.2013 FOR THE AY 2009 - 10. 2. IN FACT THE ASSESSEE HAS RAISED FIVE GROUNDS OF APPEAL HOWEVER THE ONLY GROUND CONTESTED BEFORE US IS GROUND NO. 1 WHICH IS AS UNDER: - 1. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD CIT(A) HAS ERRED IN LAW IN UPHOLDING THE ACTION OF THE LD AO IN MAKING AN ADDITION OF RS. 3013503/ - O UT OF INTEREST EXPENDITURE TREAT ING T HE SAME AS CAPITAL EXPENDITURE. 3. IN VIEW OF ONLY GROUND ARGUED BEFORE US WE DISMISS GROUND NO. 2 TO 5 OF THE APPEAL OF THE ASSESSEE. 4. NOW COMING TO THE GROUND NO. 1 OF THE APPEAL WHICH IS AGAINST DISA LLOWANCE OF SUM OF RS. 3013503/ - OUT OF INTEREST EXPENDITURE TREATING THE SAME AS CAPITAL EXPENDITURE. 5. THE BRIEF FACT OF THE CLAIM OF SUCH EXPENDITURE MENTIONED BY THE LD ASSESSING OFFICER IN PARA NO. 2 AND 3 OF HIS ORDER WHICH ARE AS UNDER: - 2. THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF PROMOTION, CONSTRUCTION, DEVELOPMENT OF INTEGRATED TOWNSHIPS AND RESIDENTIAL, COMMERCIAL COMPLEXES, TRADING IN REAL ESTATE UNDER THE NAME AND STYLE OF M/S. SRS REAL ESTATE LTD. DURING THE YEAR THE ASSESSEE HAS BE EN EXECUTING THE FOLLOWING PROJECTS: PAGE 2 OF 9 SRS RESIDENCY, SEC - 88, FARIDABAD - RESIDENTIAL AND COMMERCIAL COMPLEX SRS ROYAL HILLS, SEC - 87 S FARIDABAD - RESIDENTIAL AND COMMERCIAL COMPLEX SRS PEARL FLOORS, SEC - 87, FARIDABAD - RESIDENTIAL AND COMMERCIA L COMPLEX INTEGRATED TOWNSHIP SEC - 6, PALWAL INTEGRATED TOWNSHIP, SEC - 8, PALWAL NONE OF THE PROJECTS HAVE BEEN COMPLETED DURING THE YEAR. THE ASSESSEE IS FOLLOWING PERCENTAGE COMPLETION METHOD FOR THE REVENUE RECOGNITION OF EACH PROJECT. THE ASSE SSEE HAS BEEN MAINTAINING SEPARATE BOOKS OF ACCOUNT OF EACH PROJECT. IT HAS RECOGNIZED REVENUE IN RESPECT OF FOLLOWING PROJECT: A. PROJECT IN THE NAME OF SRS RESIDENCY, SEC - 88, FARIDABAD AS IT HAS INCURRED EXPENSES FOR 57.76% OF THE TOTAL ESTIMATED COST OF THE PROJECT. B. PROJECT IN THE NAME OF SRS CITY , SEC - 6 PALWAL AS IT HAS INCURRED EXPENSES FOR 56.64% OF THE TOTAL ESTIMATED COST OF THE PROJECT. AFTER CONSIDERING ALL THE DOCUMENTS/INFORMATION AND DISCUSSION WITH THE A.R. THE RELEVANT ISSUES FOR THE COMPUTATION OF INCOME OF THE ASSESSEE ARE DISCUSSED IN THE FOLLOWING PARAS: 3.1 ON GOING THROUGH SCHEDULE 11 TO THE BALANCE SHEET IN LOAN AND ADVANCES IT WAS NOTED THE ASSESSEE HAS MADE ADVANCE, FOR FUTURE PROJECTS AT RS.128,02,85,088/ - . ON GOING THROUGH THE DETAILS OF THESE LOANS AND ADVANCES AS SUBMITTED BY THE AR DURING THE ASSESSMENT PROCEEDINGS, IT WAS NOTED THAT THE ASSESSEE HAS MADE ADVANCES FOR PROJECTS VARIOUS COMPANIES DURING THE YEAR ON VARIOUS DATES: NAME AMOUNT (IN RS.) BANSLA FINLEASE LTD. 400,000.00 BTL INDUSTRIES LTD. 237,739,000.00 MULTITECH DEVELOPERS P LTD 20,400,000.00 PRAYAS TRACON LTD. 107,892,168.00 CLASSIC LAMPS INDUSTRIES P LTD 750,000.00 AAKASH INFRACON PVT LTD 77,718,000.00 DAKSH DEVELOPERS P LTD 67,065,000.00 ARAMBH BUILDERS P LTD 55,250,000.00 PERFECT RE ALTECH (P) LTD 48,520,000.00 JAGRITI INFRACON P LTD 55,753,000.00 KALAKRITI BUILDERS (P) LTD 84,420,000.00 SUNDAWN BUILDERS (P) LTD 47,480,000.00 NAAZ BUILDERS (P) LTD 53,460,000.00 NAKSHATRA REALTECH P LTD 89,040,000.00 ONE ON ONE DEVELOPERS P LTD 52,915,000.00 UDAY DEVELOPERS P LTD 59,400,000.00 SWAMI FOODS LTD. 150,000,000.00 MANSHA REALTECH PVT LTD 2,700,000.00 BHOLEYJI BUILDCON P LTD 69,181,000.00 3.2 THE AR HAS MADE AVAILABLE THE MEMORANDUM OF UNDERSTANDING (MOU) ENTERED BY THE ASSESSEE WITH THE ABOVE COMPANIES IN SUPPORT OF ADVANCE FOR FUTURE PAGE 3 OF 9 PROJECTS. ON GOING THROUGH THE SAID MOUS, IT IS NOTED THAT THE ASSESSEE HAS ENTERED IN THE COLLABORAT ION AGREEMENTS WITH THE ABOVE COMPANIES. THESE COMPANIES ARE HAVING LAND BELONGING TO THEM OR WILL ACQUIRE LAND ON BEHALF OF THE ASSESSEE, THE DETAILS OF WHICH ARE GIVEN IN THE RESPECTIVE COLLABORATION AGREEMENTS. BOTH THE ASSESSEE AND THE RESPECTIVE COMPA NIES HAVE AGREED THAT THE ASSESSEE SHALL CONSTRUCT AND DEVELOP RESIDENTIAL COMPLEXES ON THE LAND. FOR THIS PURPOSE THE ASSESSEE HAS PAID ADVANCE PAYMENTS FOR THESE FUTURE PROJECTS TO ABOVE STATED COMPANIES AGAINST THE COST OF LAND. IN VIEW OF THESE FACTS, THE AR WAS REQUIRED TO MAKE AVAILABLE THE DETAILS OF PAYMENT ALONGWITH NET LIQUIDITY STATUS OF THE COMPANY ON THE DATE OF PAYMENTS TO EACH OF ABOVE CONCERNS. IN RESPONSE TO THIS THE AR EXPLAINED THAT THE PAYMENTS HAVE BEEN MADE AS ABOVE FROM THE INTEREST F REE FUNDS OF THE ASSESSEE. THE PAYMENTS HAVE BEEN MADE FROM CURRENT ACCOUNT ON WHICH THERE IS NO INTEREST LIABILITY. IT HAS BEEN FURTHER EXPLAINED THAT THE TERM LOANS/ OD RAISED BY THE ASSESSEE FOR SPECIFIC PROJECT HAVE BEEN USED FOR THAT PROJECT ONLY AND INTEREST HAS BEEN SHOWN AS A DIRECT COST IN THE WORKING OF W.I.P OF THAT PROJECT ONLY. IT HAS BEEN EXPLAINED BY THE AR THAT THE ASSESSEE HAS GIVEN THESE ADVANCES FOR THE FUTURE PROJECTS AS THE LAND BELONGING THE ABOVE COMPANIES WERE AT PRIME LOCATION TO EX PLORE THEIR COMMERCIAL 3.3 AFTER CONSIDERING THE ABOVE SUBMISSION, THE AR WAS REQUIRED TO SUBMIT INTEREST COMPONENTS OUT OF THE BORROWED FUNDS UTILIZED FOR THE PURPOSES OF MAKING ADVANCE PAYMENTS FOR FUTURE PROJECTS. IN ADDITION TO THE EXPLANATION OF THE AR AS ABOVE, IT WAS ALSO EXPLAINED THAT THE ASSESSEE HAS EARNED INTEREST INCOME OF RS. 1.16 CRORES ON FOR AND RS. 1.17 CRORES FROM CUSTOMERS/ OTHER ADVANCES. THESE FDRS HAVE BEEN PLEDGED AGAINST OVERDRAFT FACILITY WITH THE BANK WHILE THE MONEY RECEIVED FROM CUSTOMERS ALONGWITH OTHER INTEREST FREE FUNDS LIKE SHARE HOLDER'S FUNDS HAS BEEN USED TO FUND THE VARIOUS ADVANCES. 3.4 IN ORDER TO EXAMINE THE SUBMISSION OF THE AR THAT NO INTEREST BEARING FUNDS WERE UTILIZED FOR THE ABOVE PURPOSE, THE AR WAS REQU IRED TO GIVE BIFURCATION OF INTEREST CLAIMED. ON GOING THROUGH THE SAID BIFURCATION SUBMITTED BY THE AR, IT WAS NOTED THAT THE ASSESSEE HAS PAID INTEREST OF RS.74, 10,899/ - ON UNSECURED LOANS/OTHERS, BESIDES INTEREST ON VEHICLES RS.7,70,369/ - AND RS.465836 / - CHARGES. FURTHER, THE ASSESSEE HAS USED OVERDRAFT FACILITIES ON WHICH IT HAS CLAIMED INTEREST OF RS.1256863 / - . THE AR WAS REQUIRED TO SPECIFICALLY PINPOINT THE SOURCE OF PAYMENT MADE ON VARIOUS DATES TO THE ABOVE COMPANIES FOR THE FUTURE PROJECTS. IT WA S EXPLAINED BY THE AR THAT THOUGH THE FUNDS HAVE BEEN ADVANCED FROM THE CURRENT ACCOUNT. HOWEVER, THE EXACT THE SOURCE OF PAYMENTS IN THE CURRENT ACCOUNT WAS NOT EXPLAINED. THE ASSESSEE IS HAVING BORROWED FUNDS FROM OTHERS INCLUDING THE OVERDRAFT ACCOUNT. IN VIEW OF THESE FACTS IT WAS ASKED TO EXPLAIN WHY THE INTEREST COMPONENTS OUT OF TOTAL INTEREST EXPENSES EXCLUDING THE FUNDS SPECIFICALLY USED FOR SPECIFIC HEADS, TERM LOANS AND SECURED IN THE FORM OF GOVERNMENT EDC SHOULD NOT BE APPORTIONED ON PRO - RATA B ASIS FOR THE ADVANCE PAYMENTS MADE AS ABOVE FOR THE FUTURE PROJECTS. IT WAS FURTHER REQUIRED TO EXPLAIN WHY THE ABOVE COMPONENTS OF INTEREST SO DETERMINED SHOULD NOT BE DISALLOWED AS THE FUTURE PROJECTS HAVE NOT COMMENCED DURING THE YEAR UNDER CONSIDERATIO N AND SPECIFICALLY ASSESSEE IS RECOGNIZING INCOME PROJECT WISE INDEPENDENTLY. IT IS ALSO IMPORTANT TO MENTION HERE THAT THE ASSESSEE HAS BEEN TREATING THE FINANCIAL COST AS A PART OF WIP FOR EACH PROJECT IN HIS BOOKS OF ACCOUNT. THE AR FURTHER EXPLAINED T HAT THE ABOVE ADVANCES ARE IN THE NATURE OF TRADE ADVANCES AND THEREFORE INTEREST IF ANY UPON THE SAME WILL BE REVENUE EXPENDITURE. PAGE 4 OF 9 3.5 THE FACTS OF THE CASE ALONGWITH THE SUBMISSIONS AND EXPLANATION OF THE AR HAVE BEEN CONSIDERED IN DETAIL. THE AR AS DIS CUSSED ABOVE COULD NOT SUBSTANTIATE THE EXACT SOURCE OF PAYMENTS FOR THE ADVANCES FOR FUTURE PROJECTS AS ABOVE. THE ASSESSEE HAS USED THE FUNDS IN A MIXED MANNER IN RESPECT OF BORROWED FUNDS FROM OTHERS AND OVERDRAFT FACILITY. IN SUCH A SITUATION, PART OF BORROWED FUNDS HAVE GONE INTO THE PAYMENTS FOR ADVANCES FOR THE FUTURE PROJECTS. EVEN THE AR COULD NOT SUBSTANTIATE THAT AVAILABILITY OF LIQUIDITY WAS POSITIVE AND SUFFICIENT ON EACH DATE TO COVER THE ADVANCES GIVEN SO AS TO SUBSTANTIATE THAT MONEY HAS BEE N GIVEN OUT OF NON - INTEREST FUNDS. WHEN MONEY HAS SO MIXED USE I HAVE NO ALTERNATIVE BUT TO PRO RATE THE FUNDS EMPLOYED IN SUCH ADVANCES OVER COMMON INTEREST FUNDS AND NON - INTEREST BEARING FUNDS. SIMILAR STAND WAS TAKEN IN THE CASE, OF THE ASSESSEE IN TH E ASSESSMENT MADE FOR LAST YEAR. IN ORDER TO COMPUTE THE COMPONENT OF INTEREST ATTRIBUTABLE TO THE AMOUNT OF THE ADVANCE GIVEN TO VARIOUS COMPANIES, COPY OF ACCOUNTS OF ADVANCE WERE GONE THROUGH AND IT WAS FOUND THAT THE PAYMENTS HAVE BEEN MADE FROM VARIO US DATES. THEREFORE, A WORKING WAS MADE TO FIND OUT THE AMOUNT OF ADVANCE GIVEN ON AVERAGE AMOUNT OUTSTANDING ANNUALLY. ON THE BASIS OF THIS WORKING, PLACED ON RECORD, IT WAS FOUND THAT AVERAGE AMOUNT OUTSTANDING FOR THE ENTIRE YEAR WORKS FOR ALL THE COMPA NIES AMOUNTS TO RS.82,18,27,426/ - THEREFORE IT CAN BE ASSUMED THAT AMOUNT OF RS.82,18,27,426/ - IF ADVANCED AS ON 01.04.2008, IT WILL RESULT INTO THE SAME LIABILITY OF INTEREST IF THE PAYMENTS MADE ON VARIOUS DATES ARE CONSIDERED INDEPENDENTLY. THE INTEREST COMPONENT ATTRIBUTABLE TO THE AVERAGE ANNUAL FUNDS OF RS.82,18,27,426/ - ADVANCED IS COMPUTED AS UNDER: - PARTICULARS FIGURES IN RS. INTEREST ON UNSECURED LOANS RS.74, 10,899 / - INTEREST ON OD RS. 12,56,863 / - BANK CHARGES RS. 4,65,836 / - TOTAL COMMON INTEREST BEARING FUNDS RS.9 1,33,598 / - TOTAL ASSETS EXCLUDING THE SPECIFIC TERM/OTHER LOAN AS ON 0 1 .04.2008 AS PER LAST YEAR RS.248,92,02,678 / - TOTAL ASSETS EXCLUDING THE SPECIFIC TERM/OTHER LOAN AS ON 31.03.2009 RS. 249,25,35,781 AVERAGE ASSETS EXCLUDING THE TERM LOAN ASSETS (B) RS. 249,08,69,229 AVERAGE ANNUAL ADVANCES OUTSTANDING (C) RS.82,1 8,27,426/ - COMPONENTS OF INTEREST ATTRIBUTABLE TO C. (A* C/B) RS. 30, 1 3,503 / - 3.6 THE SUBMISSION OF THE AR THAT THE ABOVE INTEREST IS A REVENUE EXPENDITURE DOES NOT HAVE ANY FORCE. THE ASSESSEE HAS MADE PAYMENTS FOR ADVANCE FOR THE FUTURE PROJECTS WHICH AMOUNTS TO EXTENSION OF CURRENT PROJECTS. THESE FUTURE PROJECTS HAVE NOT BEEN COMMENCED AND ONLY SOME ELEM ENTARY PLANNING SEEMS TO HAVE BEEN DONE. NO PROJECT REPORTS, APPLICATION FOR GOVT. APPROVALS ETC. HAVE BEEN SUBMITTED. THE ASSESSEE IS TREATING FINANCIAL COST AS A DIRECT COST AS A PART OF WJP OF EACH PROJECT SEPARATELY. THE ASSESSEE IS ALSO FOLLOWING PERC ENTAGE COMPLETION METHOD FOR THE REVENUE RECOGNITION. IF AT ALL THIS INTEREST DETERMINED IS TO BE CONSIDERED, IT WILL BE CONSIDERED ONLY AS A PART OF WIP OF THESE PROJECTS IF THE SAME ARE IMPLEMENTED. PAGE 5 OF 9 CONSEQUENTLY HE HELD THAT A SUM OF RS. 3 013503/ IS ON ACCOUNT OF INTEREST RELATED TO ADVANCE PAYMENT FOR FUTURE PROJECTS IN TREATED IT AS CAPITAL EXPENDITURE AND DISALLOWED. AGGRIEVED WITH THE ORDER OF THE LEARNED AO THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT 0A WHO IN TURN DECIDED THE ISSUE DISMIS SING THE CLAIM OF THE ASSESSEE AS UNDER: - 3.2 I HAVE CONSIDERED THE FACTS OF THE CASE, THE ASSESSMENT ORDER AND THE DETAILED SUBMISSIONS OF THE APPELLANT. DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT WAS EXECUTING 5 PROJECTS, NAMELY, SRS RESIDENCY, SECTOR 88, FARIDABAD, SRS ROYAL HILLS, SECTOR 87, FARIDABAD, SRS ROYAL PEARLS, SECTOR 87, FARIDABAD, INTEGRATED TOWNSHIP SECTOR 6 PALWAL AND INTEGRATED TOWNSHIP SECTOR 8 PALWAL. THE APPELLANT WAS FOLLOWING PERCENTAGE COMPLETION METHOD FOR REVENUE RECOGNITI ON OF EACH PROJECT AND FOR THAT PURPOSE SEPARATE BOOKS OF ACCOUNT WERE MAINTAINED BY IT. IT RECOGNISED REVENUE IN RESPECT OF ONLY 2 PROJECTS, NAMELY, SRS RESIDENCY, SECTOR 88, FARIDABAD,AND INTEGRATED TOWNSHIP SECTOR 6 PALWAL AS THESE WERE MORE THAN 50% CO MPLETE. 3.3. DURING THE YEAR,IT ALSO GAVE ADVANCES FOR FUTURE PROJECTS TO 19 PARTIES AMOUNTING IN ALL TO RS 128,02,85,0887 - . ON GOING THROUGH THE MOUS THE APPELLANT ENTERED INTO WITH THESE PARTIES, IT WAS REVEALED THAT THESE WERE IN THE NATURE OF COLLABORA TION AGREEMENTS. THE APPELLANT GAVE ADVANCES TO THESE PARTIES AGAINST THE LAND OWNED BY THEM SO THAT FUTURE PROJECTS COULD BE EXECUTED ON THE SAID LAND. THE SUBMISSION OF THE APPELLANT THAT ANY EXPENSE INCURRED IN RELATION TO THESE ADVANCES WAS REVENUE IN NATURE LACKS ANY FORCE ON ACCOUNT OF THE FOLLOWING REASONS: (I) THE FUTURE PROJECTS HAD HARDLY STARTED AND ONLY SOME INITIAL PLANNING SEEMS TO HAVE BEEN DONE; (II) THE APPELLANT RECOGNIZED INCOME AND EXPENSES OF PROJECTS SEPARATELY ONCE SUBSTANTIAL PROGRESS HAD BEEN MADE. OUT OF THE 5 PROJECTS UNDER EXECUTION INCOME AND EXPENSES HAD BEEN RECOGNIZED IN ONLY 2 PROJECTS; (III) IN PROJECTS WHERE THERE WAS INSIGNIFICANT PROGRESS OR THE PROJECT WAS AT ITS INITIAL STAGES, THE APPELLANT TREATED FINANCIAL COST AS A PART OF WIP OF EACH PROJECT SEPARATELY; (IV) HENCE IF THIS INTEREST IS TO BE CONSIDERED, IT WILL BE A PART OF WIP OF THESE PROJECTS ON THEIR IMPLEMENTATION. THE SAME WILL NOT BE CONSIDERED AS A REVENUE EXPENDITURE ALLOWABLE FOR THE YEAR UNDER CONSIDERATION. 3.4. THUS, ONCE IT IS CLEAR THAT THE INTEREST EXPENDITURE IN CONNECTION WITH FINANCING OF ADVANCES FOR FUTURE PROJECTS IS NOT ALLOWABLE FOR THE YEAR UNDER CONSIDERATION, LET US EXAMINE WHETHER THE APPELLANT HAS INCURRED ANY INTEREST IN CONN ECTION WITH FINANCING OF SUCH ADVANCES. IN ORDER TO EXAMINE THE ISSUE WHETHER ANY INTEREST WAS INCURRED THE APPELLANT WAS ASKED TO GIVE THE BREAK - UP OF THE INTEREST CLAIMED. ON A PERUSAL OF THIS BREAK - UP IT WAS REVEALED THAT THE APPELLANT HAD PAID F INTERE ST OF RS 74,10,899/ - ON UNSECURED LOANS, BESIDES INTEREST ON VEHICLES RS 7,70,369/ - AND RS 4,65,8367 - ON BANK CHARGES. FURTHERMORE THE APPELLANT HAD USED OVERDRAFT FACILITIES ON WHICH IT HAD CLAIMED INTEREST OF RS 12,56,863/ - THE APPELLANT STATED THAT THE F UNDS WERE GIVEN FROM THE CURRENT ACCOUNT. BUT ULTIMATELY THE APPELLANT COULD NOT SUBSTANTIATE THE SOURCE OF FUNDS IN THE CURRENT ACCOUNT WHICH LED THE AO TO CONCLUDE THAT THE BORROWED FUNDS HAD ALSO BEEN USED EITHER DIRECTLY OR INDIRECTLY IN GIVING ADVANCE TO THE SAID PARTIES. DURING THE COURSE OF APPELLATE PROCEEDINGS THE APPELLANT COULD NOT PROVE THAT THE BORROWED FUNDS HAD NOT BEEN USED IN THE GIVING ADVANCE TO PARTIES IN CONNECTION WITH FUTURE PROJECTS. THE REASON WAS THAT THE CUMULATIVE LIQUIDITY OF TH E APPELLANT WAS NEGATIVE ON MOST OCCASIONS. IN SUCH A SITUATION, THE AO WAS CORRECT IN HOLDING THAT PART OF THE BORROWED FUNDS WERE USED FOR MAKING ADVANCES TO PARTIES FOR FUTURE PROJECTS. PAGE 6 OF 9 3.5 A SIMILAR ISSUE AROSE IN THE ASSESSMENT OF THE APPELLANT FOR T HE ASSESSMENT YEAR 2008 - 09 IN WHICH THE ADDITION OF RS.28,39,8077 - WAS MADE BY THE AO. THE APPELLANT PREFERRED AN APPEAL AGAINST THE ORDER BEFORE THE CIT (A) WHICH WAS WITHDRAWN ON 11.02.2011. CONSEQUENT UPON THE REQUEST BY THE APPELLANT FOR WITHDRAWAL OF APPEAL, THE CIT(A), FARIDABAD PASSED AN ORDER ON 14.02.2011 ALLOWING THE APPEAL TO BE WITHDRAWN AND THUS DISMISSING THE SAME. THESE FACTS MAKE IT AMPLY CLEAR THAT THE APPELLANT ACCEPTED THE ADDITIONS MADE ON THIS ISSUE BY THE AO. IF THE APPELLANT HAS ACCEP TED THAT THE ADDITION WAS RIGHTLY MADE FOR ASSESSMENT YEAR 2008 - 09, IT IS NOT UNDERSTANDABLE AS TO WHY THE APPELLANT IS NOT CONSISTENT IN ITS STAND BY ACCEPTING THE ADDITIONS MADE BY THE AO ON THIS ISSUE. 3.6 THE APPELLANT HAS RELIED UPON A NUMBER OF CASE LAWS TO SUPPORT ITS STAND. HOWEVER, ON A PERUSAL OF THESE JUDICIAL PRONOUNCEMENTS, SIGNIFICANT DIFFERENCES ARE OBSERVED. THESE ARE DISCUSSED HEREUNDER: 3.6.1. IN CIT VS BNARATI TELEVENTURE LTD. 331 ITR 302, THE APPELLANT AT THE TIME OF ADVA NCING MONEY HAD ADEQUATE NON - INTEREST BEARING FUNDS. HOWEVER, IN THE PRESENT CASE THE AO ESTABLISHED THAT AT THE TIME OF ADVANCING MONEY, THE APPELLANT DID NOT HAVE ADEQUATE NON - INTEREST BEARING FUNDS IN ITS CURRENT ACCOUNT. 3.6.2. IN CIT VS BRITANNIA INDUSTRIES LTD. 280 ITR 525, THE INTEREST FREE LOAN WAS GIVEN BY THE APPELLANT TO A FIRM WITH WHICH REGULAR BUSINESS WAS CONDUCTED AND THE SAID LOAN WAS EXTENDED FOR OBTAINING SUPPLY OF RAW - MATERIALS, WHEREAS IN THE PRESENT CASE, THE LOANS WERE GIV EN NOT IN CONNECTION WITH THE ACQUISITION OF ANY RAW - MATERIAL OR ANY ITEM OF THE INVENTORY/STOCK OF THE APPELLANT, BUT WAS FOR ACQUISITION OF THE COMMERCIAL COMPLEX. 3.6.3. IN CIT VS. LOKHANDWALA CONSTRUCTION INDS. LTD. 260 ITR 579, THE APPELLANT, ENG AGED IN CONSTRUCTION OF BUILDING TOOK LOAN IN CONNECTION WITH A PROJECT. SINCE THE PROJECT CONSTITUTED STOCK IN TRADE, THEREFORE, INTEREST IN CONNECTION WITH ITS ACQUISITION WAS ALLOWABLE. IN THE PRESENT CASE, HOWEVER, THE APPELLANT WAS NOT IN THE BUSINESS OF BUYING/CONSTRUCTION OF COMMERCIAL COMPLEXES AND HENCE THE SAME DID NOT FIGURE IN ITS STOCK IN TRADE. 3.6.4. IN ACIT VS ANILINE DYESTUFFS & PHARMACEUTICALS P. LTD. 138 ITR 843, THE APPELLANT WAS A MANUFACTURER OF DYESTUFFS AND STARTED ANOTHER FACTORY FOR MANUFACTURING INTERMEDIATES USED IN MANUFACTURE OF DYESTUFFS. THE INTEREST ON BORROWING WAS ALLOWABLE, SINCE LOANS WERE TAKEN FOR MANUFACTURING INTERMEDIATES WHICH WERE INEXTRICABLY LINKED WITH THE BUSINESS OF THE APPELLANT. 3.7 ON THE OTHER HAND, THE RE ARE CERTAIN JUDICIAL PRONOUNCEMENTS AS PER WHICH INTEREST IS CLEARLY DISALLOWABLE. 3.7.1 IN THE CASE OF NAHAR POLYFILM LTD. VS CIT (P&H) 201 TAXMAN 304, THE ASSESSEE RAISED TERM LOAN FROM BANK FOR ACQUIRING NEW MACHINERY FOR INCREASIN G SPINDLE CAPACITY OF ITS UNIT. SINCE THIS AMOUNTED TO EXTENDING OF BUSINESS AND MACHINERY WAS NOT PUT TO USE DURING THE PREVIOUS YEAR, INTEREST INCURRED WAS CAPITALIZED TILL THE MACHINERY WAS PUT TO USE. SIMILARLY, IN THE CASE OF CIT VS VARDHMAN POLYTEX L TD. (P&H) 299 ITR 152, IT WAS HELD THAT THE INTEREST PAID ON CAPITAL BORROWED FOR SETTING UP OF A NEW UNIT IN THE SAME LINE OF BUSINESS IS CAPITAL EXPENDITURE. FURTHERMORE, IT WAS HELD THAT THE INTEREST ON CAPITAL BORROWED FOR THE PURPOSE OF ACQUISITION OF ASSET OF THE NEW UNIT IS TO BE ALLOWED AS REVENUE EXPENDITURE ONLY WHEN SUCH ASSETS STARTED YIELDING INCOME AND NOT FOR ANY PERIOD PRIOR THERETO. 3.7.2. THE AFORESAID TWO CASES MAKE IT ABUNDANTLY CLEAR THAT EVEN IN THE CASE OF SAME BUSINESS, INTEREST ON CAPITAL BORROWED FOR EXTENSION OF THE SAME BUSINESS IS NOT ALLOWED AS A REVENUE EXPENDITURE. HENCE, AFTER A CAREFUL CONSIDERATION OF THE FACTS OF THE CASE TOGETHER WITH THE ASSESSMENT ORDER AND THE PAGE 7 OF 9 SUBMISSIONS OF THE APPELLANT, I HOLD THAT THE AO RIGHTLY DISALLOWED INTEREST AMOUNTING TO RS.30,13,503/ - . THIS GROUND OF APPEAL IS THUS DISMISSED. 6. THEREFORE AGGRIEVED BY THE ORDER OF THE LD. CIT APPEAL THE ASSESSEE HAS PREFERRED APPEAL BEFORE US. 7. THE LD. AUTHORIZED REPRESENTATIVE OF THE APPELLANT SUBMITTED THAT THE ISSUE IS NOW SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE COORDINATE BENCH IN CASE OF SISTER CONCERN OF THE ASSESSEE. HE FURTHER SUBMITTED THAT THE ADVANCES HAVE BEEN GIVEN ABOVE FOR THE PROJECT TO BE COMPLETED BY THE ASSESSEE AND THEREFORE ADVANCES GIVEN FOR THE PURPOSES OF THE BUSINESS.. HE FURTHER REFERRED TO THE PROVISIONS OF SECTION 36 (1) (III) OF THE ACT AND SUBMITTED THAT THE INTEREST EXPENDITURE IS ALLOWABLE IN CASE THE FUNDS ARE BORROWED FOR THE PURPOSE OF THE BUSINESS. HE THEREFORE SUBMITTED THAT IN THIS CASE THE FUNDS ARE BORROWED FOR THE PURPOSE OF THE BUSINESS AND SAME HAVE BEEN USED FOR THE PROJECT OF THE ASSESSEE. REGARDING THE ADVANCES GIVEN TO VARIOUS CONCERN IS SUBMIT TED THAT THESE ARE THE ADVANCES GIVEN BY THE ASSESSEE FOR THE PURPOSE OF THE BUSINESS AND FOR THE FUTURE PROJECTS. HE STATED THAT IT IS NOT THE CASE OF DEALER RED ASSESSING OFFICER THAT THE ADVANCES GIVEN WITHOUT ANY REASON TO THE SISTER CONCERN. IN THE EN D HE VEHEMENTLY CONTESTED THAT THE DISALLOWANCE MADE BY THE LD. ASSESSING OFFICER OF RS. 3 013503/ AND CONFIRMED BY THE LD. AND CIT APPEAL IS INCORRECT. 8. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER OF THE LOWER AUTHORITIES AND SUBMITTED THAT T HEY ARE GIVEN ENOUGH REASONS WITH RESPECT TO THE DISALLOWANCE MADE AND THEREFORE THE ORDERS OF THE LOWER AUTHORITIES MAY BE UPHELD. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND ALSO P ERUSED THE ORDERS OF THE LOWER AUTHORITY ON THE ISSUE. IT HAS B EEN SUBMITTED THAT IDENTICAL ISSUE HAS BEEN CONSIDERED IN CASE OF THE SISTER CONCERN OF THE ASSESSEE M/S. SRS LTD IN ITA NO, 6581/DEL/2013 FOR AY 2009 - 10 BY COORDINATE BENCH VIDE ITS ORDER DATED 18.05.2016. FOR THIS PURPOSE THE ASSESSEE HAS ALSO PRODUCED B EFORE US THE COPY OF THE ASSESSMENT ORDER DATED 20.12.2011 AND ORDER OF THE LD CIT(A) DATED 12.11.2013. THE SIMILARITY IN THE FACTS IS THAT EVEN THE LD ASSESSING OFFICER PASSING THE ORDER AND LD FIRST APPELLATE AUTHORITY DECIDING THE ISSUE ARE SAME AND THE IR RESPECTIVE ORDERS ARE ALSO SIMILARLY WORDED AND ARE OF NEARBY DATES. PAGE 8 OF 9 THEREFORE, BECAUSE OF SIMILARITY OF THE FACTS WE ARE DUTY BOUND TO FOLLOW THE ORDER OF COORDINATE BENCH WHICH HAS DECIDED THE ISSUE AS UNDER: - 7. UNDISPUTEDLY THE FACT IS THAT THE ASSESSEE IS THE BUSINESS OF 'MALL CUM MULTIPLEX ACTIVITIES, RUNNING OF DEPARTMENTAL STORES, FOOD COURT, RETAIL CHAIN, CINEMAS, CLUB ETC.' UNDER THE NAME AND STYLE OF M/S SRS LTD. THE ADVANCE GIVEN WAS FOR THE ACQUISITION OF A COMMERCIAL COMPLEX TO BE CONST RUCTED. THE TRANSACTION ULTIMATELY DID NOT TAKE PLACE AND THE ASSESSEE GOT BACK THE ADVANCES. ON THESE FACTS AND CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIEW THAT THE ADVANCES WERE GIVEN FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. 7.1. S.36(1)(III) OF TH E INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') READS AS FOLLOWS. '' S.36(1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREIN, IN COMPUTING THE INCOME REFERRED TO IN S.28: (I II) THE AMOUNT OF THE INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSES OF BUSINESS OR PROFESSION: (PROVIDED THAT ANY AMOUNT OF THE INTEREST PAID, IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION (WHETHER CAPITALIZED IN THE BOOKS OF ACCOUNTS OR NOT), FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE, SHALL NOT BE ALLOWED AS DEDUCTI ON). EXPLANATION: RECURRING SUBSCRIPTIONS PAID PERIODICALLY BY SHAREHOLDERS, OR SUBSCRIBERS IN MUTUAL BENEFIT SOCIETIES WHICH FULFIL SUCH CONDITIONS AS MAY BE PRESCRIBED, SHALL BE DEEMED TO BE CAPITAL BORROWED WITHIN THE MEANING OF THIS CLAUSE.' S.36(1)( III) GRANTS SPECIFIC DEDUCTION FOR THE AMOUNT OF INTEREST PAID IN RESPECT OF BORROWED CAPITAL UTILIZED FOR THE PURPOSES OF THE BUSINESS. THE PROVISO TO S.36(1)(III) AS APPLICABLE TO THE IMPUGNED ASSESSMENT YEAR MANDATED DISALLOWANCE OF INTEREST PAID FOR AC QUISITION OF THE ASSET ONLY WHEN THE SAME IS FOR THE EXTENSION OF THE EXISTING BUSINESS OF THE ASSESSEE. THE WORDING 'FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION' WAS OMITTED BY THE FINANCE ACT, 2015 WITH EFFECT FROM 2015 - 2016. 7.2. IN OUR CONSIDERED VIEW, AS ADVANCE WAS GIVEN FOR THE PURPOSE OF BUSINESS, NO DISALLOWANCE CAN BE MADE UNDER SECTION 36(1)(III) OF THE ACT. 7.3. FURTHER THE A.O. HAS NOT DEMONSTRATED AS TO HOW HE HAS COME TO A CONCLUSION THAT THE BORROWED FUNDS HAVE BEEN UTILISED FOR THE P URPOSE OF MAKING THESE ADVANCES. ON THE CONTRARY HE ALLEGED THAT MIXED FUNDS WERE UTILISED FOR MAKING THESE ADVANCES. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS RELIANCE UTILITIES & POWER LTD. REPORTED IN 313 ITR 340 (MUM), HAS LAID DOWN A PROPOSI TION THAT, WHEN INTEREST - BEARING FUNDS AND INTEREST - FREE FUNDS ARE AVAILABLE WITH THE ASSESSEE, THE PRESUMPTION WOULD BE THAT, INTEREST - FREE FUNDS PAGE 9 OF 9 WERE UTILISED FOR GIVING INTEREST - FREE ADVANCES. THE ASSESSEE IS RIGHT IN RELYING ON THE DECISION OF CALCUTT A HIGH COURT IN THE CASE INDIA EXPLOSION LTD. (SUPRA). 7.4. APPLYING THE PROPOSITIONS LAID DOWN BY THE HONBLE'BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA) TO THE FACTS OF THIS CASE WE HAVE TO NECESSARILY HOLD THAT THE A.O. SH OULD PRESUME THAT INTEREST FREE FUNDS HAVE BEEN UTILIZED FOR GIVING INTEREST FREE ADVANCES. THE ASSESSEE HAS DEMONSTRATED THAT IT HAS SUFFICIENT INTEREST FREE FUNDS. HENCE NO DISALLOWANCE CAN BE MADE ON THIS GROUND ALSO. 7.5. THE LEARNED COUNSEL FOR THE A SSESSEE SUBMITTED THAT THE APPEAL FOR THE EARLIER YEAR ON THE VERY SAME ISSUE BEFORE THE LD.CIT(A) WAS WITHDRAWN, AS THE ITA NO. 6581/DEL/2013 A.Y. 2009 - 10 S.R.S. LTD. VS. ACIT, NEW DELHI ASSESSEE WAS HAVING A LOSS AND THE AMOUNT OF DISALLOWANCE WARS SMALL . THUS THIS WITHDRAWAL CANNOT ACT AS PRECEDENT. 7.6. IN VIEW OF THE ABOVE DISCUSSION, WE UPHOLD THE CONTENTIONS OF THE ASSESSEE AND SET ASIDE THE ORDER OF THE LD.CIT(A). 10. THE LD DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY DIFFERENCE IN THE FACTS AS WELL AS THE ISSUE INVOLVED. IN VIEW OF THIS WE RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH, UPHOLD THE CONTENTION OF THE ASSESSEE REVERSING THE FINDING OF THE LOWER AUTHORITY. IN THE RESULT GROUND NO. 1 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 11. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER P RONOUNCED IN THE OPEN COURT ON 0 7 / 02 / 2017 . - S D / - - S D / - ( H.S.SIDHU ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 0 7 / 02 / 2017 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI