Sh. Irvinder Singh Chadha, Chandigarh V. ITO, Chandigarh

ITA 690/CHANDI/2015

• Counselvise Citation: 69021514 RSA 2015
• Duration Of Justice: 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 06-11-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 20-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S K BHASIN
• Keywords: Gift; Depreciation; Question of law
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES SMC CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT ITA NO. 690/CHD/2015 ASSESSMENT YEAR: 2009-10 SH. IRVINDER SINGH CHADHA, VS. THE ITO, WARD 5(3) , PROP M/S WINNIES HOLIDAY INN, CHANDIGARH CHANDIGARH PAN NO. ACBPC5424D (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.K. BHASIN RESPONDENT BY : MS. RAJINDER KAUR DATE OF HEARING : 06.11.2015 DATE OF PRONOUNCEMENT : 31.12.2015 ORDER PER H.L.KARWA, VP THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINS T THE ORDER OF CIT(A)-2 CHANDIGARH DATED 6.4.2015 RELATING TO ASSESSMENT Y EAR 2009-10. THE ONLY EFFECTIVE GROUND RAISED IN THIS APPEAL IS AS UNDER: - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A) HAS ERRED IN UPHOLDING THE ADDITION OF RS. 3,58,069/- MADE BY THE ASSESSING OFFICER BY DISALLO WING INTEREST ON BORROWED FUNDS ON THE GROUND THAT INVES TMENT IN LAND AND BUILDING UNDER CONSTRUCTION ARE OF CAPITAL NATURE AND INVESTMENT ARE NOT PUT TO USE FOR BUSINESS DURI NG THE YEAR AND NEEDS TO BE CAPITALIZED. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE EARNS INCOME FROM HOUSE PROPERTY BUSINESS, PROFESSION AND OTHER SOURCES. THE ASSESSEE IS RUNNING A RESORT AT KAUSALI IN THE NAME AND STYLE O F M/S WINNIES HOLIDAY INN. 2 AS PER THE ASSESSING OFFICER THE ASSESSEE HAD DEBIT ED AN AMOUNT OF RS. 7,61,620/- TO THE PROFITS AND LOSS ACCOUNT OF BANK CHARGES AND INTEREST ON SECURED LOANS OF RS. 58.59 LAKHS. THE ASSESSING OFF ICER FURTHER NOTED THAT THE ASSESSEE HAD SHOWN BUILDING UNDER CONSTRUCTION TO T HE TUNE OF RS. 10,88,785/- ON WHICH DEPRECIATION HAD NOT BEEN CLAIMED. HE NOTI CED THAT THE ASSESSEE HAD MADE INVESTMENT OF RS. 29,91,108/- IN PURCHASING LA ND DURING THE YEAR UNDER CONSIDERATION IN ADDITION TO THE LAND PURCHASED OF RS. 4 LAKHS IN THE EARLIER YEARS IN VILLAGE MAUJA SHAHI, TEHSIL KASAULI. THE A SSESSING OFFICER TOOK THE VIEW THAT THE INVESTMENTS IN LAND AND BUILDING WERE OF CAPITAL NATURE SINCE THESE HAVE NOT BEEN PUT TO USE AND SO FINANCIAL COSTS RE LATING TO THIS REQUIREMENT TO BE CAPITALIZED. ACCORDINGLY, THE INTEREST OF RS. 3, 58,069/- @ 10% OF THE TOTAL AMOUNT RELATING TO LAND AND BUILDING WAS DISALLOWED . 3. ON APPEAL, THE CIT(A) CONFIRMED THE ADDITION AND , HENCE, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. I HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALSO PERUSED THE MATERIALS AVAILABLE ON RECORDS. SHRI S.K. BHASIN, LD. COUNSEL FOR THE ASSESSEE INVITED MY ATTENTION TO PARAS 5 & 6 OF THE ASSESSMENT ORDER, WHICH READS AS UNDER:- 5. THE ASSESSEE SUBMITTED THAT HE RECEIVED A GIFT OF RS. 14,00,OOO/- FROM MRS. IQBAL SAW HNEY (MOTHER'S SISTER) W/O SH, G.S. SAWHNEY R/O 14, MODEL TOWN, YAMUNANAGAR HAVING PAN NO. ABJPS7731 AND ASSESSED WITH ITO WARD 2, YAMUNANAGAR. THE COPY OF THE GIFT DEED AND ITR IS PLACED ON RECORD. RS. 2,00000/ - WAS RECEIVED IN THE YEAR 1990-1991 FROM COL. S.S. CHAHA L AS INTEREST FREE SECURITY FOR LEASE OF FLAT. COL. S.S. CHAHAL EXPIRED FEW YEARS BACK. DURING THE RELEVANT PREVIOU S YEAR HE RETURNED THE SAID SECURITY TO MRS. S.S. CHAHAL. 3 INFORMATION U/S 133(6) HAS BEEN CALLED FOR FR OM THE SUNDRY CREDITORS AND THE CONFIRMATION RECEI VED AND PLACED ON RECORD. THE ASSESSEE HAS TAKEN THE SECURE D LOAN OF RS. 58,59,182/- FROM STATE BANK OF PATIALA A ND PUNJAB & SIND BANK (PHOTOCOPIES OF THE BANK STATEM ENTS ARE PLACED ON RECORD). 6. THE ASSESSEE HAS RAISED VARIOUS CREDIT FA CILITIES FROM PUNJAB & SINDH BANK, GARKHAL BRANCH TEHS IL KASAULI, DISTT. SOLAN AGAINST THE EQUITABLE MORTGAGE OF LAND MEASURING 3.8 BIGHAS HAVING KHASRA NO. 52/77 2002-03, KHASRA NO.88 (2-15) *41/48 SHARE KHA TA NO. 55/83 AND KHASRA NO. 490/76 (1-9) AT VILLAGE SANAWA R ON DHARAMPUR - KASAULI ROAD & BUILDING CONSTRUCTED THE REON. THE SAID LAND & BUILDING IS OWNED BY HIMSELF & FROM WHERE HE IS RUNNING HIS BUSINESS IN THE NAME OF M/ S WINNIES HOLIDAY INN. THE PHOTOCOPIES OF THE LUXURY TAX RETURNS AND SALES TAX RETURNS HAVE BEEN OBTAINED AN D PLACED ON RECORD. DURING THE YEAR, HE MADE ADDITION OF RS. 10,88,785/- UNDER 'BUILDING UNDER CONSTRUCTION', BI LLS WERE CALLED FOR AND VERIFIED (PLACED ON RECORD). DURIN G THE YEAR, THE ASSESSEE HAS PURCHASED THE ABOVE LAND FOR RS. 20,91,108/- AND INVESTED RS. 14 LACS OUT OF THE GIF T RECEIVED FROM HER MOTHERS SISTER AND THE BALANCE WAS INVEST ED OUT THE FUNDS AVAILABLE WITH HIM (PHOTOCOPIES OF THE RE GISTERS ARE PLACED ON RECORD) 5. SHRI S.K.BHASIN LD. COUNSEL FOR THE ASSESSEE SUB MITTED THAT OUT OF TOTAL INVESTMENT IN LAND OF RS. 24,91,908/-, INVESTMENT OF RS. 4 LAKHS WAS MADE IN THE FINANCIAL YEAR 2006-07 AND BALANCE INVESTMENT OF RS. 20,91,108/- WAS MADE DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. HE FURTHER POINTED OUT THAT THE ASSESSEE MADE INVESTMENT OF RS . 20,91,908/- IN LAND AT VILLAGE MAUJA SHAHI, TEHSIL KASAULI, DSITT. SOLAN F OR EXPANSION OF BUSINESS WHICH IS DIFFERENT FROM THE LAND AT WHICH RESORT IN THE NAME OF M/S WINNIES HOLIDAY INN IS RUNNING. THE ASSESSEE MADE THE INVE STMENT, OUT OF RS. 14 LAKHS 4 RECEIVED FROM MRS IQBAL SAWHEY (MOTHERS SISTER) AN D RS. 6 LAKHS AS UNSECURED LOAN FROM MR.M.S. SAWHNEY AND MRS. MADHYU SAWHNEY A ND PROFIT OF RS. 12,10,197/-. SHRI S.K. BHASIN, LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE ASSESSEE HAD NOT BORROWED ANY FUNDS FROM THE BANK F OR AFORESAID INVESTMENT AND HENCE NO INTEREST CORRESPONDS TO THE AMOUNT INVESTE D IN THE SAID LAND. HE FURTHER POINTED OUT THAT THE ASSESSEE HAD INVESTED RS. 4 L AKHS IN THE AFORESAID LAND ON 29.6.2006 IN THE PREVIOUS YEAR 2006-07. FORM THE A BOVE; IT IS CLEAR THAT ASSESSEE HAD INDIVIDUAL INTEREST FREE FOUND AT HIS DISPOSAL FOR MAKING INVESTMENT IN LAND IN QUESTION. SHRI S.K.BHASIN LD. COUNSEL FO R THE ASSESSEE, RELIED ON THE JUDGEMENT OF THE HON'BLE PUNJAB & HARYANA HIGH COU RT IN THE CASE OF CIT-1, LUDHIANA VS RAKESH GUPTA IN ITA NO. 37 OF 2014 DATE D 2.7.015 WHEREIN ONE OF THE SUBSTANTIAL QUESTION WAS AS UNDER:-;- (I) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HONBLE ITAT WAS RIGHT IN LAW IN UPHOLDING THE ORDE R OF THE LD. CIT(A) WHEREIN DISALLOWANCE MADE UNDER SECT ION 36(1)(III) WAS DELETED IGNORING THE JUDGEMENT OF HO NBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS ABHISHEK INDUSTRIES LTD. REPORTED 286 ITR 1, RELIED UPON BY THE ASSESSING OFFICER? WHILE DECIDING THE ABOVE QUESTION, THE HON'BLE JURI SDICTIONAL HIGH COURT HELD AS UNDER:- 3. AS REGARDS QUESTION (I), THE APPELLANTS CASE IS THAT AN AMOUNT OF 8.89 CRORES WAS ADVANCED BY THE RESPONDENT/ASSESSEE TO HIS SON. THE RESPONDENT/ASSE SSEE ON THE OTHER HAND CONTENDS THAT DURING THE ASSESSMENT YEAR IN QUESTION 2008-2009, ONLY ABOUT 2.14 CRORES WAS ADV ANCED BY HIM TO HIS SON. IT WOULD MAKE NO DIFFERENCE. THE TRIBUNAL HAS RIGHTLY UPHELD THE DETAILED AND REASON ED ORDER OF THE CIT (APPEALS). THE CIT (APPEALS) HAS A NALYZED THE CASH AVAILABLE WITH THE RESPONDENT. FOR INSTANC E, THE OPENING BALANCE OF CAPITAL AS ON 01.04.2007 WAS ABO UT 5 13.45 CRORES AND THE CLOSING BALANCE AS ON 31.03.20 08 WAS ABOUT 10.40 CRORES. THE OPENING BALANCE AS ON 01.0 4.2007 WAS ABOUT 73.57 CRORES AND THE CLOSING BALANCE AS ON 31.03.2008 WAS ABOUT 86.60 CRORES. THE OPENING BAL ANCE OF INTEREST FREE UNSECURED LOANS FROM FAMILY AND FR IENDS AS ON 01.04.2007 WAS ABOUT 55.95 CRORES AND THE CLOSI NG BALANCE OF INTEREST FREE UNSECURED LOANS FROM FAMIL Y AND FRIENDS AS ON 31.03.2008 WAS ABOUT 51.46 CRORES. I T WAS NOT THE CASE OF THE AO THAT THE ASSESSEE HAD DIVERT ED THE FUNDS BORROWED ON INTEREST FOR THE PURPOSE OF ADVAN CING THE SUM TO HIS SON FOR BUSINESS. THE TRIBUNAL NOTED ITA-37- 2014 3 THAT THE AO HAD IN FACT ACCEPTED THAT NO SUC H BORROWED FUNDS HAD BEEN DIVERTED/ADVANCED BY THE AS SESSEE TO HIS SON. THERE WAS NO NEXUS BETWEEN THE FUNDS BO RROWED BY THE ASSESSEE AND THE FUNDS DIVERTED/ADVANCED TO HIS SON. THERE WERE FREE RESERVES AVAILABLE WITH THE ASSESSE E TO ADVANCE THE INTEREST FREE LOAN TO HIS SON. IT IS NO T POSSIBLE TO HOLD THAT THE APPRECIATION OF THESE FACTS WAS PE RVERSE OR ABSURD. NO QUESTION OF LAW, THEREFORE, ARISES IN TH IS REGARD EITHER. WHILE DECIDING THE ABOVE QUESTION, THE HON'BLE JURI SDICTIONAL HIGH COURT HAS CONSIDERED ITS EARLIER DECISION PASSED IN THE CASE OF M/S ABHISHEK INDUSTRIES LTD. 286 ITR 1. SH. S.K. BHASIN, LD. COUNSEL FOR THE ASSESSEE RELIE D ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V RELIANCE UTI LITIES & POWER LTD , INCOME TAX APPEAL NO. 1398 OF 2008 OF BOMBAY HIGH COURT IN (2009) 313 ITR 340 (BOM.) WHEREIN IT HAS BEEN CLARIFIED THAT T HAT IF THERE WERE FUNDS AVAILABLE BOTH INTEREST-FREE AND OVERDRAFT AND/OR L OANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE IN TEREST-FREE FUNDS GENERATED OR 6 AVAILABLE WITH THE COMPANY, IF THE INTEREST-FREE FU NDS WERE SUFFICIENT TO MEET THE INVESTMENTS. 6. IN VIEW OF THE RECENT DECISION OF THE HON'BLE JU RISDICTIONAL HIGH COURT IN THE CASE OF RAKESH GUPTA REFERRED TO ABOVE, I THINK IT APPROPRIATE TO SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND REMAND THE MATTER TO THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER AFFORDING DUE AND REASONABLE OPPORTUNITY OF BEING H EARD TO THE ASSESSEE. 7. FOR STATISTICAL PURPOSES, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31.12.2015 SD/- (H.L.KARWA) VICE PRESIDENT DATED : 31 ST DECEMBER, 2015 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR