JGS Enterprises P. Ltd., Chandigarh V. DCIT, Chandigarh

ITA 706/CHANDI/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51496 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 28-09-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 24-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Keywords: Business income; Business expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH CH ANDIGARH BEFORE SHRI H.L. KARWA, HONBLE VICE PRESIDENT AND SHRI MEHAR SINGH, HONBLE ACCOUNTANT MEMBER ITA NO. 706/CHANDI/2011 ASSESSMENT YEAR: 2007-08 JGS ENTERPRISES P LTD V D.C.I.T. C-1(1), CHANDIG ARH CHANDIGARH PAN: AABCJ 2392 J (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SATISH BANSAL RESPONDENT BY: SHRI N.K. SAINI DATE OF HEARING: 28.9.2011 DATE OF PRONOUNCEMENT: 30.9.2011 ORDER PER H.L. KARWA, V.P THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER PASSED BY THE LD. CIT(A), CHANDIGARH DATED 2.5.2011 RELATING TO ASSESSMENT YEAR 2007-08. 2. THE ONLY EFFECTIVE GROUND RAISED IN THIS APPEAL READS AS UNDER:- 1 THAT THE APPELLANT PRAYS THAT THE TREATMENT GIVE N TO THE PORTION OF INTEREST AMOUNTING TO RS. 304003/- (45% OF A TOTAL INTEREST OF 675563/-) SHOULD HAVE BEEN THE SAME AS HAS BEEN TO OTHER INTE RESTS DEBITED IN PROFIT AND LOSS ACCOUNT OF THE COMPANY. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A COMPANY CARRYING ON THE BUSINESS OF RUNNING A LIBRARY IN TH E NAME AND STYLE OF THE BROWSER. THE COMPANY HAS OWNED THE PREMISES OF WH ICH 55% OF THE AREA HAS BEEN USED FOR CARRYING OUT THE BUSINESS OF THE ASSE SSEE AND REMAINING APPROXIMATELY 45% OF THE AREA OF THIS PREMISE IS US ED FOR LET OUT PURPOSES. THE ASSESSEE COMPANY HAS INCOME FROM BUSINESS AND RENTA L INCOME AND BOTH ARE EMANATING FROM THE SAME PREMISES. THE AO DISALLOWE D A SUM OF RS. 3,04,003/- OBSERVING AS UNDER:- 2.2 ON FURTHER EXAMINATION OF THE ACCOUNTS OF THE ASSESSEE, IT WAS FOUND THAT INTEREST ON LOAN HAS BEEN PAID TO THE EXTENT O F RS. 25,10,259/-. THE ASSESSEE WAS ASKED TO FURNISH IT DETAILS. AS PER A SSESSEES REPLY VARIOUS INTEREST PAYMENTS DEBITED TO PROFIT AND LOSS ACCOUN T ARE AS UNDER:- TOTAL INTEREST DEBITED RS. 25,10,259.39 INTEREST ON TERM LOAN CENTRAL BANK OF INDIA RS. 14, 88,084.24 INTEREST ON SBBJ CASH CREDIT LIMIT RS. 3,46,612. 00 INTEREST ON PERSONAL LOANS USED FOR BUSINESS RS. 6,75,563.15 ITA NO. 706/CHANDI/2011 JGS ENTERPRISES V. DCIT 2 2 THE PROPERTY IS OWNED BY THE ASSESSEE COMPANY. THE ASSESSEE IS CARRYING ON BUSINESS FROM THE SAID PREMISES AND ALS O PARTLY IT HAS BEEN RENTED OUT. AS PER ASSESSEES REPLY 55% OF THE BU ILDING IS USED FOR BUSINESS PURPOSE AND 45% FOR RENTALS. ASSESSEE WAS CONFRONTED THAT SINCE THE LOANS PERTAIN TO THE BUILDING, THE ENTIRE AMOUN T OF INTEREST PAID CANNOT BE ALLOWED TO BE CLAIMED AS EXPENDITURE FROM THE BU SINESS INCOME. HOWEVER IT IS SEEN THAT THE ASSESSEE IS USING THE B UILDING PARTLY FOR BUSINESS PURPOSE AND PARTLY FOR RENT AND HAS BIFURC ATED THE SAME IS THE RATIO OF 55:45. THEREFORE ONLY 55% OF INTEREST PAI D IS TO BE CONSIDERED FOR BUSINESS PURPOSES AND ALLOWED AS EXPENSE. AND 45% OF INTEREST PAID IS TO BE DISALLOWED FROM BUSINESS EXPENSES. HENCE A SUM OF RS. 304003/- (45% OF RS. 675563/-) AND RS. 669638/- (45% OF RS. 14880 84/-) IS DISALLOWED AND ADDED TO BUSINESS INCOME OF THE ASSESSEE. AS T HE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF HIS BUSINESS IN COME, PENALTY PROCEEDINGS U/S 271(1)(C) ARE ALSO BEING INITIATED. 3.1 THE AO VIDE PARA 2.3 OF THE ORDER HELD THAT THE BALANCE INTEREST OR PERSONAL LOANS AMOUNTING TO RS. 3,04,003/- CANNOT BE ALLOWE D AS INTEREST EXPENSES AGAINST HOUSE PROPERTY INCOME AS THE INTEREST PERTA INS TO THE PERSONAL LOAN. 4. ON APPEAL, THE LD. CIT(A) UPHELD THE ORDER OF AO AND HENCE THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. BEFORE US, SHRI SATISH BANSAL, LD. COUNSEL FOR T HE ASSESSEE SUBMITTED THAT THE COMPANY HAD CARRIED OUT ONLY TWO TYPES OF ACTIV ITIES FROM WHICH IT DERIVED THE INCOME (I) BUSINESS INCOME (II) RENTAL INCOME. ACC ORDING TO THE LD. COUNSEL FOR THE ASSESSEE, BOTH THE ACTIVITIES WERE CARRIED OUT FROM SAME BUILDING OWNED BY THE ASSESSEE COMPANY. ON THE BASIS OF USAGE OF AREA 5 5% OF THE BUILDING WAS USED FOR CARRYING OUT THE BUSINESS ACTIVITY AND REMAININ G 45% WAS LET OUT. SHRI SATISH BANAL, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT WHILE ALLOWING INTEREST FROM OTHER LOANS, THE AO HELD THAT THESE LOANS ARE FOR B UILDING AND THE BUILDING BEING 55% USED FOR BUSINESS, ONLY 55% OF INTEREST IS TO B E ALLOWED AS BUSINESS EXPENDITURE. AS REGARDS NON ALLOWANCE OF REMAINING 45% TOWARDS RENTAL INCOME THE AO DISALLOWED THE SAME BY SIMPLY HOLDING THAT T HESE BEING PERSONAL LOANS AND INTEREST ON PERSONAL LOANS CANNOT BE ALLOWED AGAINS T THE INCOME FROM HOUSE PROPERTY. SHRI SATISH BANSAL, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ABOVE FINDINGS GIVEN BY THE AO ARE CONTRADICTORY AN D HENCE NOT TENABLE. THE ASSESSEE COMPANY HAD NO OTHER ACTIVITY THAN THE BUS INESS OF RUNNING A LIBRARY AND DERIVING RENTAL INCOME. ALL THE LOANS IN THE BALAN CE SHEET OF THE ASSESSEE COMPANY FOR WHICH INTEREST OF RS. 6,75,563/- HAS BE EN CLAIMED BY THE ASSESSEE COMPANY, DEMONSTRATES THAT THESE LOANS HAVE BEEN CO NTRIBUTED TOWARDS THE ITA NO. 706/CHANDI/2011 JGS ENTERPRISES V. DCIT 3 3 ASSETS OF THE COMPANY WHICH ARE EITHER ON ACCOUNT O F BUSINESS ASSETS OR THE BUILDING IN WHICH THE BUSINESS IS CARRIED ON AND FR OM WHICH RENTAL INCOME IS DERIVED. SHRI SATISH BANSAL, LD. COUNSEL FOR THE A SSESSEE SUBMITTED THAT THERE CAN BE ONLY TWO WAYS BY WHICH THESE LOANS OUTSTANDING I N THE BOOKS COULD HAVE BEEN APPLIED (A) EITHER THESE LOANS ARE PRESUMED TO BE A PPLIED IN BUSINESS ONLY OR (B) THESE LOANS ARE PRESUMED TO BE APPLIED IN BUILDING ONLY. SHRI SATISH BANSAL, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT BUT IN NO C ASE THE LOANS COULD HAVE BEEN UTILIZED FOR ANY OTHER PURPOSE SO AS TO BE DESIGNAT ED THEM AS PERSONAL LOANS BECAUSE THESE HAVE NOT BEEN UTILIZED ON ANY SUCH AC TIVITY, THE INCOME FROM WHICH IS EXEMPT AND AGAINST WHICH THE QUESTION OF ALLOWI NG OR DISALLOWING COULD ARISE. SHRI SATISH BANSAL, LD. COUNSEL FOR THE ASSESSEE SU BMITTED THAT ENTIRE INTEREST OF RS. 675563/- PAID ON THESE LOANS SHOULD BE ALLOWED AS BUSINESS EXPENDITURE AS HAS BEEN CLAIMED BY THE ASSESSEE AND HAS BEEN CONSI STENTLY ALLOWED AS SUCH BY THE AO WHILE MAKING ASSESSMENT FOR ASSESSMENT YEAR 2006-07 U/S 143(3) OF THE ACT. NO DISALLOWANCE ON THIS ACCOUNT HAS BEEN MADE IN IMMEDIATELY PRECEDING YEAR. 6. SHRI N.K. SAINI, THE DR STRONGLY SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 7. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH T HE PARTIES AND HAVE ALSO GONE THROUGH THE MATERIALS AVAILABLE ON RECORD. IN THIS CASE THE AO HAS GIVEN CONTRADICTORY FINDINGS WHICH ARE NOT TENABLE. THE AO ALLOWED ONLY 55% TOWARDS BUSINESS (USAGE OF BUILDING TOWARDS BUSINESS) LEAVI NG 45% TOWARDS RENTAL (BEING USAGE TOWARDS RENTAL) IS CONTRADICTORY IN ITSELF. IN OUR VIEW THE TWO DIVERGENT OPINIONS ON THE SAME ISSUE IN THE SAME ORDER ARE UN -WARRANTED AND HENCE CAN NOT BE SUSTAINED IN THE EYES OF LAW. ONCE THE AO H AS HELD THAT THESE LOANS (THE SO CALLED PERSONAL LOANS) ON WHICH INTEREST OF RS. 675563/- WAS PAID ARE FOR BUILDING PURPOSES AND THE BUILDING HAS BEEN USED FO R BUSINESS AND RENTAL PURPOSES IN THE RATIO OF 55% AND 45% RESPECTIVELY T HEN HOW THE INTEREST PORTION OF THESE LOANS USED FOR BUILDING (45% OF THE BUILDING USED FOR RENTAL PURPOSE) SHALL NOT BE ALLOWED. IN OUR CONSIDERED VIEW ONCE THE AO HAS HELD THAT THESE LOANS ARE FOR BUILDING THEN IT IS IMMATERIAL WHETHER THE LOAN S ARE PERSONAL OR OTHERWISE FOR CLAIMING DEDUCTION OF INTEREST U/S 24 OF THE ACT. WE ALSO FIND THAT THE LD. CIT(A) ITA NO. 706/CHANDI/2011 JGS ENTERPRISES V. DCIT 4 4 HAS NOT APPRECIATED THE FACTS OF THE PRESENT CASE I N RIGHT PERSPECTIVE AND THEREFORE, THE FINDINGS GIVEN BY HIM ARE ALSO NOT S USTAINABLE IN LAW. CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE, WE ALLOW THE APPEAL OF THE ASSESSEE AND DIRECT THE AO TO GIVE SAME TREATMENT T O THE PORTION OF INTEREST AMOUNTING TO RS. 304003/- AS HAS BEEN GIVEN TO OTHE R INTEREST DEBITED IN THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE COMPANY. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED ON 30.9.2011 SD/- SD/- (MEHAR SINGH) (H.L. KARWA) ACCOUNTANT MEMBER VICE PRESIDENT CHANDIGARH, THE 30.9.2011 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/ THE DR