LALAMAL SANGAMLAL SETH CONSTRUCTION PVT. LTD., NEW DELHI V. ITO, WARD- 15(1), NEW DELHI

ITA 6663/DEL/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5851 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 03-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAVIKANT GUPTA
• Assessee Lawyers: S K TULSIYAN MS NISHA RACHH
• Keywords: Notional interest; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES A : DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA.NO.4540 & 6663/DEL./2017 ASSESSMENT YEARS 2012-2013 & 2014-2015 M/S. LALAMAL SANGAMLAL SETH CONSTRUCTION (P) LTD., 1, UNDER HILL, CIVIL LINES, DELHI 110 054. PAN AAACL0135G VS THE INCOME TAX OFFICER, WARD-15(1), C.R. BUILDING, NEW DELHI 110 002. (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI S.K. TULSIYAN, ADVOCATE MS. NISHA RACHH, C.A. & SHRI KARAN KUMRA, C.A. FOR REVENUE : SHRI RAVI KANT GUPTA, SR. D.R. DATE OF HEARING : 17.05.2018 DATE OF PRONOUNCEMENT : 07.06.2018 ORDER PER BHAVNESH SAINI, J.M. BOTH THE APPEALS BY THE SAME ASSESSEE ARE DIRECTE D AGAINST THE DIFFERENT ORDERS OF THE LD. CIT(A)-5, D ELHI, DATED 18.04.2017, FOR THE A.Y. 2012-2013 AND DATED 24.07. 2017 FOR THE A.Y. 2014-2015. 2 ITA.NOS.4540 & 6663/DEL./2017 M/S. LALAMAL SANGAMLA L SETH CONSTRUCTIONS PVT. LTD., DELHI. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BO TH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. BOT H THE APPEALS ARE DECIDED AS UNDER. ITA.NO.4540/DEL./2017 A.Y. 2012-2013 : 3. THIS APPEAL IS FILED ON THE FOLLOWING GROUNDS : 1. THAT ON THE FACTS AND LAW INVOLVED THE L D. A.O. HAS ERRED IN COMPUTING AND DISALLOWING A SUM OF RS.1,673,452/- OVER AND ABOVE THE SUM OF RS.21,58,7 58/- SUO MOTU DISALLOWED/CAPITALIZED BY THE ASSESSEE ON ACCOUNT OF INTEREST ON UNSECURED LOANS UTILIZED FOR THE INVENTORY IN RESPECT OF MODEL TOWN AND SUKHDEV VIHA R PROJECT. THE LD. CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE. THE DISALLOWANCE AS MADE AND SUSTAINE D IS ERRONEOUS AND DESERVES TO BE DELETED. 2. THAT WITHOUT PREJUDICE TO THE ABOVE, T HE DISALLOWANCE FOR INTEREST OF RS 1,673,452/- AS MADE BY THE LD. AO AND SUSTAINED BY LD. CIT(A) IS EXCESSIVE AS THE 3 ITA.NOS.4540 & 6663/DEL./2017 M/S. LALAMAL SANGAMLA L SETH CONSTRUCTIONS PVT. LTD., DELHI. SAME EXCEEDS THE AMOUNT OF INTEREST OF RS.10,23,183 /- RELATED TO UNSECURED LOANS WHICH WAS CLAIMED BY THE ASSESSEE AS REVENUE EXPENDITURE AS PER THE RETURN O F INCOME. AS SUCH TOO THE DISALLOWANCE AS MADE AND SUSTAINED IS ERRONEOUS AND DESERVES TO BE DELETED. 4. DURING THE YEAR UNDER CONSIDERATION, IT WAS FOU ND THAT ASSESSEE HAD CLAIMED INTEREST IN P & L A/C AT RS.55,25,092/-, OUT OF WHICH, ASSESSEE HAD CAPITALI ZED INTEREST OF RS.32,19,030/- AND RS.11,66,729/- ON UTILISATION OF BORROWED FUNDS FOR COMMON WEALTH GAMES FLATS AND MO DEL TOWN PROJECT. AS THE BORROWED FUNDS ARE MAINLY UTIL ISED FOR INVENTORY AND WORK-IN-PROGRESS, ASSESSEE WAS REQUES TED TO EXPLAIN WHY ALL THE INTEREST PAYMENTS MAY NOT BE CA PITALIZED. IN RESPONSE TO THIS, ASSESSEE STATED THAT TERM LOAN FR OM RELIGARE WAS UTILISED FOR COMMON WEALTH GAMES FLATS, INTERES T ON WHICH, HAD ALREADY BEEN CAPITALIZED. THE ASSESSEE F URTHER STATED THAT OUT OF TOTAL UNSECURED LOANS OF RS.4,03 ,60,241/-, AN AMOUNT OF RS.2,34,46,285/- HAD BEEN UTILISED FOR MO DEL TOWN 4 ITA.NOS.4540 & 6663/DEL./2017 M/S. LALAMAL SANGAMLA L SETH CONSTRUCTIONS PVT. LTD., DELHI. AND SUKHDEV VIHAR PROJECTS, ON WHICH, INTEREST OF RS.11,65,729/- AND RS.9,93,029/- HAD ALREADY BEEN CAPITALIZED. THE CONTENTION OF THE ASSESSEE WAS NOT FOUND TO BE CORRECT AS THE ASSESSEE HAD CAPITALIZED A SUM OF RS .11,65,729/- (COMPUTATION OF INCOME) AND RS.4,54,373/- (NOTE-24 OF FINANCIAL STATEMENT) ONLY. FURTHER, ASSESSEE DID NO T FURNISH THE DETAILS HOW HE HAS CALCULATED THE INTEREST AT THIS AMOUNT. PERUSAL OF DETAILS OF INTEREST AND UNSECURED LOANS REVEALED THAT ASSESSEE IS PAYING INTEREST @ 12% ON UNSECURED LOAN S. HENCE, INTEREST @ 12% ON RS.2,3,46,285/- WHICH COMES TO RS.28,13,554/- HAD TO BE CAPITALIZED AGAINST INTERE ST CAPITALIZED AT RS.16,20,102/-. HENCE, DIFFERENCE OF RS.11,93,45 2/- WAS ADDED TO THE INCOME OF THE ASSESSEE. BESIDES THIS, PERUSAL OF BALANCE SHEET REVEALED THAT ASSESSEE HAS GIVEN ADVA NCE OF RS.40 LAKHS TO THE LAND OWNER OF MODEL TOWN PROJECT. SINC E, THE ADVANCE GIVEN WAS FOR MODEL TOWN PROJECT, INTEREST @ 12% ON THIS AMOUNT WHICH COMES TO RS.4,80,000/- WAS ALSO A DDED TO THE INCOME OF ASSESSEE. THUS, TOTAL DISALLOWANCE ON ACCOUNT OF INTEREST WAS WORKED OUT TO RS.16,73,452/-. 5 ITA.NOS.4540 & 6663/DEL./2017 M/S. LALAMAL SANGAMLA L SETH CONSTRUCTIONS PVT. LTD., DELHI. 5. THE ASSESSEE CHALLENGED THE ADDITION BEFORE THE LD. CIT(A). HOWEVER, IT IS NOTED BY THE LD. CIT(A) THAT ASSESSEE HAS NOT ADVANCED ANY ARGUMENTS IN THE SUMMARIZED ARGUME NTS ON THE IMPUGNED ADDITION. THEREFORE, THIS ISSUE WAS DE CIDED ON THE BASIS OF THE FINANCIAL STATEMENTS AVAILABLE ON RECO RD. THE LD. CIT(A) DISMISSED THIS GROUND OF APPEAL OF ASSESSEE. 6. LEARNED COUNSEL FOR THE ASSESSEE FILED DETAILED WRITTEN SUBMISSIONS AND IT WAS SUBMITTED THAT BEFOR E DEALING WITH THE SPECIFIC ISSUES, IT WOULD BE OF RELEVANCE TO LAY DOWN THE SPECIFIC FACTS RELATING TO THE INTEREST EXPENDITURE DEBITED AND CAPITALIZED BY THE ASSESSEE. THE SAME ARE REPRODUCE D AS UNDER. IN CONNECTION TO THE ABOVE, IT IS STATED THAT DURI NG THE RELEVANT FINANCIAL YEAR, THE ASSESSEE DEBITED INTEREST EXPENDITURE OF RS.55,25,0 92/- ON VARIOUS LOANS IN THE PROFIT & LOSS A/C. THE SAID FIGURE OF RS.55,25,092/- WAS DEBITED IN TH E PROFIT & LOSS A/C AFTER ADJUSTING AN AMOUNT OF RS.9,93,029/- ON ACCOUNT OF CAPITALIZATION TOWARDS SUKHDEV VIHAR PROJECT AND FURTHER ADJUSTING AN AMOUNT OF RS.7,500/- TOWA RDS MISCELLANEOUS ADJUSTMENT. THE DETAILS OF THE TOTAL INTEREST COST IS AS UNDER : 6 ITA.NOS.4540 & 6663/DEL./2017 M/S. LALAMAL SANGAMLA L SETH CONSTRUCTIONS PVT. LTD., DELHI. (DETAILED CHART ENCLOSED AT PAGE 26 OF THE P/K) (I) INTEREST ON SECURED LOAN FROM RELIGARE FOR CWG FLAT S RS.32,19,030/- (II) INTEREST ON SECURED LOAN FROM HDFC BANK FOR CAR RS. 1,17,150/- (III) INTEREST ON UNSECURED LOAN RS.31.89,440/- TOTAL INTEREST RS.65,25,620/- LESS: (I) MISCELLANEOUS ADJUSTMENT RS. 7,500/- (II) INTEREST CAPITALISED FOR SUKHDEV VIHAR PROJECT RS. 9.93,029/- (OUT OF INTEREST ON UNSECURED LOAN) INTEREST DEBITED TO THE P & L ACCOUNT RS.55,25,092/ - (NOTE 17 TO THE ACCOUNTS, PAGE 8 OF P/K) LESS: (CLAIMED IN COMPUTATION OF INCOME AT PAGE 29 OF P/K ) (I) INTEREST ON THE SECURED LOANS FROM RELIGARE RS.32,1 9,030/- FINVEST LTD. USED IN PURCHASE OF COMMON WEALTH GAMES FLATS CAPITALISED IN THE COMPUTATION OF INCOME (IN COMPUTATION AT PAGE 29 OF P/K) (II) INTEREST CAPITALISED FOR MODEL TOWN PROJECT CAPITALISED RS.L 1,65,729/- IN COMPUTATION OF INCOME (OUT OF UNSECURED LOANS) (IN COMPUTATION AT PAGE 29 OF P/K) TOTAL INTEREST CLAIMED AS REVENUE EXPENSE IN INCOME TAX RS.L 1.40,333/- RETUM (INCLUDING RS.L0,23,182 INTEREST ON UNSECURED LOAN) THUS FROM THE ABOVE IT IS CONCLUSIVELY SEEN THAT CA PITALISATION OF INTEREST WAS UNDER THE FOLLOWING HEADS: INTEREST ON THE SECURED LOANS FROM RELIGARE RS.32,1 9,030/- FINVEST LTD. USED IN PURCHASE OF COMMON WEALTH GAMES FLATS CAPITALISED IN THE COMPUTATION OF INCOME (IN COMPUTATION AT PAGE 29 OF P/K) 7 ITA.NOS.4540 & 6663/DEL./2017 M/S. LALAMAL SANGAMLA L SETH CONSTRUCTIONS PVT. LTD., DELHI. INTEREST CAPITALISED FOR SUKHDEV VIHAR PROJECT RS. 9,93,029/- (OUT OF INTEREST ON UNSECURED LOAN) - INTEREST CAPITALISED FOR MODEL TOWN PROJECT CAPITALISED RS.11,65,729/- IN COMPUTATION OF INCOME (OUT OF UNSECURED LOANS) (IN COMPUTATION AT PAGE 29 OF P/K) 3.1. HE HAS SUBMITTED THAT AUTHORITIES BELOW HAVE ALL ALONG WRONGLY CONTENDED THAT INTEREST TO THE TUNE O F RS.4,54,373/- AND NOT RS.9,93,029/- WAS CAPITALIZED TOWARDS THE SUKHDEV VIHAR PROJECT BASED ON THE INCORRECT REPRESENTATION IN NOTE-24 OF THE AUDITED ACCOUNTS. IT WAS A MISTAKE BY THE ACCOUNTANT. IT WAS CORRECTED BY MAKI NG A DECLARATION BY THE AUDITOR IN THIS BEHALF. COPY OF THE LETTER OF VERIFICATION IS ALSO PLACED ON RECORD. THUS, THE AS SESSEE CAPITALIZED RS.9,93,020/- FOR SUKHDEV VIHAR PROJECT INSTEAD OF RS.4,54,373/-. HE HAS FURTHER SUBMITTED THAT A.O. A ND THE LD. CIT(A) HAVE APPLIED FLAT RATE OF 12% ON UNSECURED L OANS MERELY ON ASSUMPTIONS. THE AUTHORITIES BELOW HAVE TOTALLY IGNORED THE DETAILED CALCULATION OF INTEREST PROVIDED BY THE AS SESSEE WHEREIN THE SPECIFIC INTEREST ON SPECIFIED LOANS ARE LISTED , CHART OF WHICH, IS FILED AT PAGE-26 OF THE PAPER BOOK. HERE IN THIS CONNECTION, 8 ITA.NOS.4540 & 6663/DEL./2017 M/S. LALAMAL SANGAMLA L SETH CONSTRUCTIONS PVT. LTD., DELHI. THE EXACT BREAK-UP OF THE INTEREST COMES TO RS.21,5 8,758/-. THE AUTHORITIES BELOW HAVE ACCEPTED THE FIGURE OF RS.2. 34 CRORES PROVIDED BY THE ASSESSEE BUT HAVE NOT ACCEPTED THE INTEREST RELATABLE TO THE SAME AND WITHOUT ANY BASIS, APPLIE D INTEREST @ 12%. THE DETAILED CHART IS GIVEN FOR ALL THE PROJEC TS IN THE WRITTEN SUBMISSIONS. HE HAS ALSO SUBMITTED THAT ASSESSEE HA S INTEREST FREE LOANS OF RS.88,65,316/- WHICH HAVE BEEN IGNORE D. THE ASSESSEE HAD ALSO CONSIDERED THE TOTAL INVESTMENT I N VARIOUS PROJECTS WHICH EVEN INCLUDES AMOUNT OF RS.40 LAKHS SHOWN AS ADVANCE RECOVERABLE FROM LAND OWNER OF MODEL TOWN P ROJECT. IT IS AFTER CONSIDERING ALL THE INVESTMENTS IN VARIOUS PROJECTS THAT THE ASSESSEE HAS ARRIVED AT THE FIGURE OF RS.2,28,9 2,475/- WHICH IS THE MAXIMUM TOTAL INVESTMENT WHICH MAY BE PRESUM ED TO BE OUT OF UNSECURED LOANS. AFTER ARRIVING AT THE ABOVE FIGURE, ASSESSEE HAS WORKED-OUT THE PROPORTION OF TOTAL INV ESTMENT OUT OF INTEREST BEARING UNSECURED LOANS WHICH COMES TO RS.1,78,64,036/-. THEREAFTER, APPLYING THE INTEREST RATE OF 12%, THE ASSESSEE ARRIVED AT THE FIGURE OF RS.21,43,684/ -, BEING THE FIGURE OF MAXIMUM INTEREST THAT MAY BE ATTRIBUTABLE TO THE ON 9 ITA.NOS.4540 & 6663/DEL./2017 M/S. LALAMAL SANGAMLA L SETH CONSTRUCTIONS PVT. LTD., DELHI. GOING PROJECTS OF THE ASSESSEE. THE ASSESSEE HAD AL READY CAPITALIZED AN AMOUNT OF RS.21,58,758/- (RS.11,65,7 29/- TOWARDS MODEL TOWN PROJECT AND RS.9,93,029/- TOWARD S SUKHDEV VIHAR PROJECT) WHICH IS MORE THAN THE FIGUR E OF MAXIMUM INTEREST ALLOCABLE AS CALCULATED IN CHART F ILED, IT IS CLEAR THAT NO FURTHER AMOUNT OF INTEREST MAY BE ALL OCATED TOWARDS THE ONGOING PROJECT OF THE ASSESSEE AS ALLE GED BY THE A.O. IT IS AGREED BY THE AUTHORITIES BELOW THAT TER M LOAN TAKEN FROM RELIGARE WAS UTILISED FOR COMMON WEALTH GAMES FLATS, INTEREST ON WHICH TO THE TUNE OF RS.32,19,030/- HAS ALREADY BEEN CAPITALIZED AND WAS NOT CLAIMED AS REVENUE EXP ENDITURE. THEREFORE, NO FURTHER ADDITION IS JUSTIFIED. IT WAS FURTHER STATED THAT THE AUTHORITIES BELOW HAVE APPLIED ADHOC INTER EST @ 12% ON ADVANCE OF RS.40 LAKHS GIVEN FOR MODEL TOWN PROJ ECT MERELY BY OBSERVING THAT ASSESSEE HAS GIVEN ABOVE ADVANCE TO THE LAND OWNER AS REFLECTED IN THE BALANCE SHEET. IT WAS SUB MITTED THAT AN AMOUNT OF RS.95 LAKHS WAS GIVEN BY THE ASSESSEE TO THE LAND OWNER OF MODEL TOWN DURING F.Y. 2009-2010. REFERENC E WAS MADE TO PAGE-27 OF THE PAPER BOOK. HOWEVER, DUE TO RE- 10 ITA.NOS.4540 & 6663/DEL./2017 M/S. LALAMAL SANGAMLA L SETH CONSTRUCTIONS PVT. LTD., DELHI. NEGOTIATION OF THE COLLABORATION AGREEMENT, SUM OF RS.80 LAKHS BECAME REFUNDABLE IN VIEW OF LOWER SHARE IN CONSTRU CTED AREA TO BE TAKEN BY THE ASSESSEE COMPANY. ACCORDINGLY, SUM OF RS.40 LAKHS WAS RECEIVED BACK DURING THE RELEVANT FINANCI AL YEAR. COPY OF THE LEDGER ACCOUNT IS FILED AT PAGE-33 OF THE PA PER BOOK. THE BALANCE SUM OF RS.40 LAKHS WAS SHOWN AS RECEIVABLE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE-COMPANY. IN EFFECT , THE ASSESSEE REDUCED SUM OF RS.80 LAKHS FROM THE WORK-I N-PROGRESS OF THE MODEL TOWN PROJECT. COPY OF THE SAME IS FILE D AT PAGE-34 OF THE PAPER BOOK. HENCE, FROM THE ABOVE, IT IS CLE AR THAT BALANCE AMOUNT OF RS.40 LAKHS WAS SHOWN UNDER THE HEAD SHO RT TERM LOAN AND ADVANCES REPRESENTS ONLY AMOUNT TO BE REC EIVED BACK FROM THE LAND OWNER OF THE MODEL TOWN PROJECT. THER EFORE, CONCLUSION COULD BE DRAWN IN ASSESSEES CASE THAT A DVANCE OF RS.40 LAKHS WAS MADE OUT OF NON-INTEREST BEARING LO ANS AS THERE WERE SUFFICIENT RECEIPT OF NON-INTEREST BEARING FUN DS DURING THE CONCERNED PERIOD. ASSESSEE MAINTAINED MIXED BANK AC COUNTS WHEREIN ALL FUNDS INCLUDING OWN FUNDS BEING SHARE C APITAL, SALES AND LOAN FUNDS COMPRISING OF SECURED LOANS, INTERES T BEARING 11 ITA.NOS.4540 & 6663/DEL./2017 M/S. LALAMAL SANGAMLA L SETH CONSTRUCTIONS PVT. LTD., DELHI. UNSECURED LOANS, NON-INTEREST BEARING UNSECURED LOA NS ETC., ARE CREDITED. THEREFORE, IT IS DIFFICULT TO BRING OUT T HE EXACT NEXUS OF UTILISATION OF THE UNSECURED LOANS ESPECIALLY WHEN THE SAID LOANS WERE RECEIVED IN EARLIER YEARS. THE A.O. HAS MADE THE NOTIONAL DISALLOWANCE OF RS.4,80,000/- BY ARBITRARI LY APPLYING THE INTEREST RATE @ 12% ON THE AMOUNT OF RS.40 LAKH S. LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON DECISION OF TH E HONBLE SUPREME COURT IN THE CASE OF DHAKESWARI COTTON MILL S LTD., VS. CIT (1954) 26 ITR 775 (SC) IN WHICH IT WAS HELD THA T ITO IS NOT ENTITLED TO MAKE A PURE GUESS AND MAKE AN ASSESSMEN T WITHOUT REFERENCE TO ANY EVIDENCE OR ANY MATERIAL AT ALL. IT IS, THEREFORE, SUBMITTED THAT ENTIRE ADDITION IS LIABLE TO BE DELE TED. 4. THE LD. D.R. RELIED UPON THE ORDERS OF THE AUTH ORITIES BELOW. 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE DO NOT FIND ANY JUSTIFICATION TO SUSTAIN THE ADDITION. THE ASSESSEE HAS GIVEN DETAILED EXPLANATION WITH REGARD TO INTEREST CAPITALIZED ON THREE PROJECTS AS NOTED TO ABOVE, WHICH HAVE NOT BE EN DISPUTED 12 ITA.NOS.4540 & 6663/DEL./2017 M/S. LALAMAL SANGAMLA L SETH CONSTRUCTIONS PVT. LTD., DELHI. BY THE AUTHORITIES BELOW. THE ASSESSEE ULTIMATELY C LAIMED RS.11,40,333/- AS REVENUE EXPENDITURE. THE ASSESSEE HAS GIVEN BASIS AS TO HOW MUCH INTEREST IS TO BE CAPITALIZED ON THREE PROJECTS. THE AUTHORITIES BELOW WITHOUT ANY JUSTIFI CATION HAVE APPLIED INTEREST RATE OF 12% FOR THE PURPOSE OF MAK ING ADDITION AGAINST THE ASSESSEE. THE ASSESSEES AUDITOR HAS FI LED LETTER OF VERIFICATION TO THE EFFECT THAT THE INTEREST COST O F RS.4,54,373/- IS WRONGLY MENTIONED, WHEREAS THE CORRECT FIGURE IS RS.9,93,029/-. THEREFORE, SUCH A FIGURE SHOULD NOT HAVE BEEN DISBELIEVED WITHOUT VERIFICATION OF THE FACT. THE A SSESSEE HAS EXPLAINED THIS FIGURE THROUGH THE EVIDENCE AND MATE RIAL ON RECORD AS WELL AS BY FILING LETTER OF DECLARATION F ROM THE C.A. THE AUTHORITIES BELOW HAVE NOT DISPUTED THE INTERES T CAPITALIZED ON LOAN TAKEN FROM RELIGARE FINVEST LTD., USED IN T HE PROJECTS OF COMMON WEALTH GAMES FLATS. THE ASSESSEE ALREADY EXP LAINED THE BASIS OF CLAIM OF INTEREST CAPITALIZED FOR VARI OUS PROJECTS, DETAILS OF WHICH, WERE FILED IN THE PAPER BOOK. IT IS ALSO ESTABLISHED ON RECORD THAT ASSESSEE HAS INTEREST FR EE LOANS OF RS.88,65,316/- WHICH IS AVAILABLE TO ASSESSEE FOR M AKING 13 ITA.NOS.4540 & 6663/DEL./2017 M/S. LALAMAL SANGAMLA L SETH CONSTRUCTIONS PVT. LTD., DELHI. INVESTMENT. THE ASSESSEE ALSO EXPLAINED THAT ASSESS EE CORRECTLY CAPITALIZED THE INTEREST FOR MODEL TOWN PROJECT AND SUKHDEV VIHAR PROJECT. THEREFORE, FURTHER ENHANCEMENT WAS W HOLLY UNJUSTIFIED. FOR MODEL TOWN PROJECT, IT IS STATED T HAT ASSESSEE HAS GIVEN ADVANCE OF RS.40 LAKHS. HOWEVER, ASSESSEE HAS RIGHTLY EXPLAINED THAT AN AMOUNT OF RS.95 LAKHS WAS GIVEN T O THE LAND- LORD BUT AFTER RE-NEGOTIATION, A SUM OF RS.80 LAKHS BECOME REFUNDABLE. RS.40 LAKHS WAS RECEIVED BACK DURING RE LEVANT F.Y. WHICH IS SHOWN IN THE AUDITED ACCOUNTS AND FOR BALA NCE AMOUNT, IT WAS CLAIMED AS SHORT TERM LOAN AND ADVA NCES WHICH COULD BE OUT OF NON-INTEREST BEARING LOANS AV AILABLE TO THE ASSESSEE. THEREFORE, THERE WERE NO JUSTIFICATION FO R THE A.O. TO MAKE NOTIONAL DISALLOWANCE OF RS.4,80,000/- BY APPL YING ARBITRARY INTEREST RATE OF 12% ON ADVANCES OF RS.40 LAKHS. SINCE THE EXPLANATION GIVEN BY THE ASSESSEE IN THE WRITTE N SUBMISSIONS REPRODUCED ABOVE, HAVE NOT BEEN REBUTTE D BY THE REVENUE THROUGH ANY EVIDENCE OR MATERIAL ON RECORD, THEREFORE, THE CALCULATION GIVEN BY ASSESSEE FOR CAPITALIZING INTEREST IN VARIOUS PROJECTS IS JUST AND PROPER WHICH IS SUPPOR TED BY BOOK 14 ITA.NOS.4540 & 6663/DEL./2017 M/S. LALAMAL SANGAMLA L SETH CONSTRUCTIONS PVT. LTD., DELHI. ENTRIES. THE ASSESSEE AVAILED BALANCE AMOUNT IN BUS INESS AND RIGHTLY CLAIMED IT TO BE REVENUE EXPENDITURE BECAUS E ALL THE AMOUNTS ARE COMING-UP IN THE MIXED BANK ACCOUNTS MAINTAINED BY ASSESSEE. THEREFORE, SEPARATE BIFURCA TION WOULD NOT BE POSSIBLE FOR THE ASSESSEE. HOWEVER, THE FACT S AND FIGURES EXPLAINED ABOVE CLEARLY JUSTIFY THE EXPLANATION OF ASSESSEE THAT DISALLOWANCE OF THE INTEREST OF RS.16,73,452/- WAS WHOLLY UNJUSTIFIED. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. 6. IN THE RESULT, ITA.NO.4540/DEL./2017 OF THE ASS ESSEE IS ALLOWED. ITA.NO.6663/DEL./2017 A.Y. 2014-2015 : 7. IN THIS APPEAL, ASSESSEE CHALLENGED THE DISALLO WANCE OF A SUM OF RS.25,27,036/- ON ACCOUNT OF INTEREST O N UNSECURED LOANS. 8. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE MAI N BUSINESS ACTIVITY OF THE ASSESSEE IS CONSTRUCTION A CTIVITY PRIMARILY IN COLLABORATION WITH LAND OWNERS TO CONS TRUCT ON 15 ITA.NOS.4540 & 6663/DEL./2017 M/S. LALAMAL SANGAMLA L SETH CONSTRUCTIONS PVT. LTD., DELHI. PLOTS OWNED BY THEM AND SHARE THE BUILT-UP SPACE. OCCASIONALLY, THE COMPANY ALSO UNDERTAKES CONTRACTU AL CONSTRUCTION WORK. THE ASSESSEE E-FILED ITS RETURN OF INCOME DECLARING NIL INCOME. THE ASSESSMENT WAS CONCLUDED BY DISALLOWING THE INTEREST EXPENSES OF RS.25,27,036/- . THE ASSESSEE CHALLENGED THE ADDITION BEFORE LD. CIT(A). THE WRITTEN SUBMISSIONS OF THE ASSESSEE IS REPRODUCED IN THE AP PELLATE ORDER IN WHICH THE ASSESSEE EXPLAINED THAT DURING THE YEA R UNDER APPEAL, ASSESSEE WAS INVOLVED IN TWO DEVELOPMENT PR OJECTS IN COLLABORATION NAMELY MODEL TOWN PROJECT AND SUKHDEV VIHAR PROJECT. WHEREAS MODEL TOWN PROJECT WAS READY FOR S ALE AND IN FACT, ONE FLAT OUT OF IT WAS SOLD BY THE ASSESSEE A ND ANOTHER PROJECT BEING SUKHDEV VIHAR PROJECT WAS STILL UNDER DEVELOPMENT. APART FROM THE ABOVE, THE ASSESSEE-COM PANY HAS ALSO INVESTED IN FLATS AT COMMON WEALTH GAMES, PEND ING POSSESSION OF WHICH, THE ADVANCE/INSTALMENTS GIVEN HAS BEEN SHOWN UNDER LONG TERM LOANS AND ADVANCES UNDER SU B-HEAD ADVANCE/EXPENDITURE FOR PURCHASE OF FLAT. SUCH FL AT WAS PURCHASED OUT OF LOAN TAKEN FROM M/S. RELIGARE FINV EST LIMITED 16 ITA.NOS.4540 & 6663/DEL./2017 M/S. LALAMAL SANGAMLA L SETH CONSTRUCTIONS PVT. LTD., DELHI. AND THE ENTIRE INTEREST PAID ON LOAN FROM RELIGARE FINVEST LIMITED DURING THE YEAR HAS BEEN ADDED TO SUCH ADVA NCE ACCOUNT AND NOT CLAIMED AS REVENUE EXPENDITURE. THE ASSESSEE FILED DETAILS OF INTEREST ON LOAN, UNSECURED LOANS AND LOANS FROM RELIGARE FINVEST LIMITED AND IT WAS EXPLAINED THAT INTEREST ON LOAN FROM RELIGARE FINVEST LIMITED WAS NOT CLAIMED AS REVENUE EXPENDITURE. SIMILARLY, INTEREST ON UNSECURED LOANS ADDED TO THE COST OF INVENTORY OF SUKHDEV VIHAR PROJECT AND INTEREST ON UNSECURED LOANS ADDED TO THE COST OF INVENTORY OF M ODEL TOWN PROJECT AT NIL. INTEREST OF UNSECURED LOANS CLAIMED AS REVENUE EXPENDITURE OF RS.25,27,036/-. THE ASSESSEE HAS DUL Y CAPITALIZED INTEREST ON TERM LOANS/ UNSECURED LOANS WHEREVER IT WAS REQUIRED TO BE CAPITALIZED. NO INTEREST HAS BEE N CAPITALIZED TO MODEL TOWN PROJECT THIS YEAR AS THE CONSTRUCTION HAS BEEN COMPLETED AND NO CONSTRUCTION WAS DONE DURING THE Y EAR UNDER CONSIDERATION. THE DETAILS OF THE ACCOUNTS AND BANK STATEMENTS ARE FILED IN SUPPORT OF THE CONTENTION. THE UNSECUR ED LOANS WERE UTILISED FOR VARIOUS BUSINESS PURPOSES OF ASSESSEE INCLUDING WORKING CAPITAL. THE ASSESSEE INCURRED EXPENDITURE FOR THE 17 ITA.NOS.4540 & 6663/DEL./2017 M/S. LALAMAL SANGAMLA L SETH CONSTRUCTIONS PVT. LTD., DELHI. PURPOSE OF BUSINESS AS NO FURTHER CAPITALIZATION WA S REQUIRED. WHATEVER INTEREST HAVE BEEN PAID FOR BUSINESS PURPO SES SHALL HAVE TO BE ALLOWED AS DEDUCTION. THE ASSESSEE RELIE D UPON ACCOUNTING STANDARD AS-16 IN SUPPORT OF THE CONTENT ION THAT INTEREST IS AN ALLOWABLE DEDUCTION. THE ASSESSEE FI LED PROJECT INVENTORY OF ALL THE PROJECTS IN SUPPORT OF THE CON TENTION. THE LD. CIT(A), HOWEVER, NOTED THAT ASSESSEE HAS NOT DI SCHARGED BURDEN UPON IT AND SINCE ENTIRE MONEY IN THE BUSINE SS ENTITY COMES IN A COMMON KITTY AND ASSESSEES BUSINESS IS NO DIFFERENT, THEREFORE, DISALLOWANCE OF INTEREST WAS CONFIRMED, BY RELYING UPON DECISION OF HONBLE PUNJAB & HARYANA H IGH COURT IN THE CASE OF ABHISHEK INDUSTRIES LTD., 286 ITR 1. THIS GROUND WAS ACCORDINGLY DISMISSED. 9. LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND S UBMITTED THAT THIS ISSUE IS SAME AS HAVE BEEN CONSIDERED IN A.Y. 2012- 2013 AND SUBMITTED THAT IN THE YEAR UNDER CONSIDERA TION, THE MODEL TOWN PROJECT WAS READY FOR SALE AND IN FACT, ONE FLAT OUT 18 ITA.NOS.4540 & 6663/DEL./2017 M/S. LALAMAL SANGAMLA L SETH CONSTRUCTIONS PVT. LTD., DELHI. OF IT WAS SOLD, THEREFORE, INTEREST ON UNSECURED LO AN WAS CLAIMED AS REVENUE EXPENDITURE. HE HAS SUBMITTED THAT COMPL ETE DETAILS AND INVENTORY OF THE PROJECTS WERE FILED WHICH HAVE NOT BEEN DISPUTED BY THE AUTHORITIES BELOW. HE HAS REFERRED TO ACCOUNTING STANDARD-16 RELATING TO BORROWING COST I N WHICH IT IS PROVIDED CAPITALIZATION OF BORROWING COSTS SHOULD CEASE WHE N SUBSTANTIALLY ALL THE ACTIVITIES NECESSARY TO PREPA RE THE QUALIFYING ASSET FOR ITS INTENDED USE OR SALE ARE COMPLETE. AN ASSET IS NORMALLY READY FOR ITS INTENDED USE OR SALE WHEN IT S PHYSICAL CONSTRUCTION OR PRODUCTION IS COMPLETE EVEN THOUGH ROUTINE ADMINISTRATIVE WORK MIGHT STILL CONTINUE. IT IS AMP LY CLEAR THAT NO CAPITALIZATION OF INTEREST IS REQUIRED FOR MODEL TOWN PROJECT. HE HAS FURTHER SUBMITTED THAT ASSESSEE MAINTAINED M IXED BANK ACCOUNTS WHEREIN ALL FUNDS INCLUDING OWN FUNDS BEIN G SHARE CAPITAL, SALES AND LOAN FUNDS COMPRISING OF SECURED LOANS, INTEREST BEARING UNSECURED LOANS, NON-INTEREST BEAR ING UNSECURED LOANS ETC., ARE CREDITED. THEREFORE, IT I S, DIFFICULT TO BRING-OUT THE EXACT NEXUS OF UTILISATION OF THE UNS ECURED LOANS, ESPECIALLY WHEN THE SAID LOANS WERE RECEIVED LONG B ACK. IN VIEW 19 ITA.NOS.4540 & 6663/DEL./2017 M/S. LALAMAL SANGAMLA L SETH CONSTRUCTIONS PVT. LTD., DELHI. OF THE CONTENTION OF THE ASSESSEE THAT MIXED BANK A CCOUNTS ARE MAINTAINED WHEREIN BOTH INTEREST BEARING UNSECURED LOANS AND NON-INTEREST BEARING UNSECURED LOANS HAVE BEEN CRED ITED, IT MAY BE SAFELY PRESUMED THAT ALLEGED UTILISATION OF UNSECURED LOANS FOR COMMON WEALTH GAMES FLAT IS OUT OF ASSESS EES NON- INTEREST BEARING UNSECURED LOANS, WHICH STANDS AT A FIGURE OF RS.3.6 CRORE OUT OF THE TOTAL FIGURE OF UNSECURED L OANS OF RS.5.45 CRORES AS ON 31.03.2014. HE HAS REFERRED TO PB-22 G IVING WORKING OF CAPITALIZATION/PERIOD, COST OF INTEREST PAID DURING THE RELEVANT YEAR. HE HAS ALSO REFERRED TO PB-23 GIVING DETAILS OF UTILISATION OF UNSECURED LOANS FOR VARIOUS PROJECTS AS WELL AS FOR COMMON WEALTH GAMES FLAT, WHICH, EVEN THOUGH IS NOT ADMITTED BUT PRESUME EVEN OTHERWISE. PERUSAL OF THE SE PAPERS REVEALS THAT FUNDS TO THE TUNE OF RS.1.5 CRORES MAY BE CONSIDERED TO BE UTILISED FROM UNSECURED LOANS IN C OMMON WEALTH GAMES FLAT. HENCE, SINCE THE TOTAL NON-INTER EST BEARING UNSECURED LOANS IS MUCH HIGHER THAN THE AMOUNT OF R S.1.5 CRORES WHICH MAY BE CONSIDERED TO BE UTILISED FROM UNSECURED LOANS IN COMMON WEALTH GAMES FLAT, WHICH IS APPAREN T THAT NO 20 ITA.NOS.4540 & 6663/DEL./2017 M/S. LALAMAL SANGAMLA L SETH CONSTRUCTIONS PVT. LTD., DELHI. FURTHER ALLOCATION OF INTEREST ON UNSECURED LOANS I S WARRANTED. IN VIEW OF THE FACT THAT ASSESSEE POSSESSED SUFFICI ENT NON- INTEREST BEARING FUNDS TO COVER THE PRESUMED UTILIS ATION OF UNSECURED LOANS IN COMMON WEALTH GAMES FLAT, THERE ARISES NO QUESTION OF MAKING ANY FURTHER DISALLOWANCE OF INTE REST EXPENDITURE AS ALLEGED BY THE A.O. LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISION OF HONBLE SUPREM E COURT IN THE CASE OF MUNJAL SALES CORPORATION VS. CIT (2008) 298 ITR 298 (SC) IN WHICH IT WAS HELD THAT WHEN OPENING BALANCE IS SUFFICIENT TO GIVE SMALL LOANS TO THE SISTER CONCER N AND PROFIT EARNED DURING THE RELEVANT ASSESSMENT YEAR WERE ALS O SUFFICIENT TO COVER THE IMPUGNED LOAN, NO DISALLOWANCE SHOULD BE MADE. HE HAS ALSO RELIED UPON THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. VIJAY SOLVEX LTD. , (2015) 274 CTR 384 (RAJ.) (HC) WHEREIN IT WAS HELD THAT WHERE ASSESSEE- COMPANY HAD ITS OWN SUFFICIENT FUNDS AND REVENUE WA S UNABLE TO PROVE NEXUS BETWEEN THE BORROWED FUNDS AND ADVAN CES GIVEN TO THE SISTER CONCERNS, NOTIONAL INTEREST DISALLOWE D BY A.O. WAS TO BE DELETED. HE HAS ALSO RELIED UPON THE DECISION OF THE 21 ITA.NOS.4540 & 6663/DEL./2017 M/S. LALAMAL SANGAMLA L SETH CONSTRUCTIONS PVT. LTD., DELHI. HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. BHA RTI TELEVENTURE LTD., (2011) 331 ITR 502 (DEL.) (HC) IN WHICH IT WAS HELD THAT ADVANCES WERE GIVEN TO THE SUBSIDIARY COMPANIES FO R BUSINESS CONSIDERATION I.E., OUT OF COMMERCIAL EXPE DIENCY, THEREFORE, DEPARTMENTAL APPEAL WERE DISMISSED. LEARNED COUNSEL FOR THE ASSESSEE, THEREFORE, SUBMITTED THAT ADDITION MAY BE DELETED. 10. ON THE OTHER HAND, LD. D.R. RELIED UPON THE OR DERS OF THE AUTHORITIES BELOW. 11. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE DO NOT FIND ANY JUSTIFICATION TO SUSTAIN THE ADDITION. SIM ILAR ISSUE HAVE BEEN CONSIDERED IN A.Y. 2012-2013 AS WELL AND THE A SSESSEE EXPLAINED THAT WHEREVER INTEREST IS TO BE CAPITALIZ ED, FOR VARIOUS PROJECTS, IT WAS CAPITALIZED AND THE BALANCE AMOUNT HAVE BEEN USED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSI NESS, THEREFORE, INTEREST WAS ALLOWED IN A.Y. 2012-2013 A S DEDUCTION. IN THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE F URTHER EXPLAINED THAT MODEL TOWN PROJECT WAS READY FOR SAL E AND IN 22 ITA.NOS.4540 & 6663/DEL./2017 M/S. LALAMAL SANGAMLA L SETH CONSTRUCTIONS PVT. LTD., DELHI. FACT, ONE FLAT OUT OF IT HAS BEEN SOLD. THEREFORE, THE INTEREST TO THAT EXTENT SHALL HAVE TO BE ALLOWED AS DEDUCTION I N FAVOUR OF THE ASSESSEE. THE ASSESSEE FURTHER EXPLAINED SIMILA RLY THAT WHEREVER INTEREST IS TO BE CAPITALIZED FOR PENDING PROJECTS, IT HAS BEEN CAPITALIZED. THE ASSESSEE ALSO EXPLAINED THAT ASSESSEE HAS SUFFICIENT CAPITAL AND RESERVES, THEREFORE, IT SHOU LD BE PRESUMED THAT FUNDS AVAILABLE WITH THE ASSESSEE HAVE BEEN US ED FOR THE PURPOSE OF MAKING INVESTMENTS. THEREFORE, SUCH EXPL ANATION SHOULD BE TAKEN INTO CONSIDERATION WHILE DECIDING T HE ISSUE IN FAVOUR OF THE ASSESSEE. AS-16 SUPPORTS THE CLAIM OF ASSESSEE THAT NO CAPITALIZATION OF INTEREST IS REQUIRED FOR MODEL TOWN PROJECT. THE ASSESSEE EXPLAINED ISSUE IN WRITTEN SU BMISSIONS WITH DOCUMENTS FILED IN PAPER BOOK THAT INTEREST IS CLAIMED AS DEDUCTION ON UNSECURED LOANS. THE CLOSING BALANCE O F SUCH LOANS WOULD BE AT RS.1,82,20,253/- WHEREAS, ASSESSE ES NON- INTEREST BEARING UNSECURED LOANS STANDS AT FIGURE O F RS.3.61 CRORES (PB-22). THE EXPLANATION OF ASSESSEE HAS NOT BEEN REBUTTED BY REVENUE DEPARTMENT. A.O. REJECTED THE C LAIM OF ASSESSEE BY RELYING UPON JUDGMENT OF THE HONBLE PU NJAB & 23 ITA.NOS.4540 & 6663/DEL./2017 M/S. LALAMAL SANGAMLA L SETH CONSTRUCTIONS PVT. LTD., DELHI. HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRI ES LTD., (SUPRA) IN WHICH THE ENTIRE MONEY IN BUSINESS ENTIT Y COMES IN A COMMON WITTY. HOWEVER, THIS JUDGMENT HAVE BEEN OVER RULED BY THE HONBLE SUPREME COURT IN THE CASE OF HERO CYCLE S PVT. LTD., 379 ITR 347 (SC). THE EXPLANATION OF ASSESSEE HAVE NOT BEEN REJECTED BY THE AUTHORITIES BELOW. THEREFORE, CONSI DERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THAT SIMILAR ISSUE HAVE BEEN CONSIDERED IN A.Y. 2012-201 3 ABOVE, THE FACTS IN THIS ASSESSMENT YEAR ARE ON BETTER FOO TING, THEREFORE, AUTHORITIES BELOW WERE NOT JUSTIFIED IN DISALLOWING THE INTEREST INCURRED BY ASSESSEE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE A.O. ALSO HAS NOT BROUGHT ANY EVIDENC E ON RECORD IF BORROWED FUNDS HAVE BEEN USED FOR NON-BUSINESS P URPOSES ? NO NEXUS HAVE BEEN POINTED-OUT BETWEEN BORROWED FUN DS AND NON-BUSINESS ACTIVITIES OF THE ASSESSEE OR IF BORRO WED FUNDS HAVE BEEN USED FOR THE PROJECTS PENDING COMPLETION. IN THIS VIEW OF THE MATTER, WE SET ASIDE THE ORDERS OF THE AUTHO RITIES BELOW AND DELETE THE ENTIRE ADDITION. 24 ITA.NOS.4540 & 6663/DEL./2017 M/S. LALAMAL SANGAMLA L SETH CONSTRUCTIONS PVT. LTD., DELHI. 12. IN THE RESULT, ITA.NO.6663/DEL./2017 OF THE AS SESSEE IS ALLOWED. 13. TO SUM-UP, BOTH THE APPEALS OF THE ASSESSEE AR E ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (L.P. SAHU) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DELHI, DATED 07 TH JUNE, 2018 VBP/- COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. CIT(A) CONCERNED 4. CIT CONCERNED 5. D.R. ITAT A BENCH 6. GUARD FILE