C. Raju Gowda, Mysore V. Asst.C.I.T., Mysore

ITA 755/BANG/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95348 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 21-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUNIL KUMAR AGARWALA JT
• Assessee Lawyers: S VENKATESAN
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ITA NO.755/BANG/2015 ASSESSMENT YEAR : 2009-10 SHRI C. RAJU GOWDA, DEEPAM CONSTRUCTIONS, # 18/A, KANTOOR ROAD, ALANAHALLI EXTN., MYSORE. PAN: AEJPG 8163P VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI S. VENKATESAN, CA RESPONDENT BY : SHRI SUNIL KUMAR AGARWALA, JT. CIT(DR) DATE OF HEARING : 15.10.2015 DATE OF PRONOUNCEMENT : 28.10.2015 O R D E R PER ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER DATED 10.02.2015 OF THE CIT(APPEALS), MYSURU FOR THE ASSE SSMENT YEAR 2009-10. 2. AS AGAINST THE RETURNED INCOME OF RS. 51,88,757/ - FOR THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE HAS BEEN ASSESSED ON A TOTAL ITA NO.755/BANG/2015 PAGE 2 OF 8 INCOME OF RS.70,00,870 BY THE ORDER PASSED U/S 143[ 3] OF THE ACT DATED 28/12/2011. 3. AGGRIEVED BY THE ORDER OF ASSESSMENT AS AFORESAI D, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(APPEALS). 4. THE ASSESSEE SUBMITTED BEFORE THE CIT(A) THAT TH E ASSESSEE MAINTAINS REGULAR BOOKS OF ACCOUNTS AND THESE BOOKS OF ACCOUNTS ARE AUDITED U/S.44AB OF THE ACT AND THE AUDITOR HAS CER TIFIED THE ACCOUNTS WITHOUT ANY QUALIFICATIONS. IT WAS FURTHER SUBMITTE D THAT THE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSING OFFICER DISALLOWE D A SUM OF RS.17,66,500 DEBITED IN THE BOOKS OF ACCOUNTS AS INCENTIVES FOR EFFECTIVE SALES AND THESE ARE ALL SUPPORTED BY VOUCHERS AND THE EXPENSES INCU RRED IN MAKING PAYMENTS TO THE EMPLOYEES OF THE CUSTOMERS, WHO PUR CHASE GOODS FROM THE ASSESSEE. IT WAS SUBMITTED THAT THE GENUINENESS OF THE PAYMENTS ARE NOT IN DISPUTE AND THE VOUCHERS AS IN THE LINE OF T HIS BUSINESS ARE OBTAINED IN SUPPORT OF THESE EXPENSES. FURTHER, THESE ARE NO T PROHIBITED BY LAW, AS NONE OF THE CUSTOMERS ARE GOVERNMENT ORGANIZATIONS AND THEY ARE ALL INDIVIDUALS AND FIRMS AND THE PAYMENTS ARE MADE TO THE EMPLOYEES SO THAT THE ASSESSEE GETS THE ORDERS FOR PURCHASE AND TIMEL Y PAYMENTS, WHICH ARE ESSENTIAL FOR THE BUSINESS. IT WAS ONCE AGAIN STATE D THAT THE BOOKS OF ACCOUNTS HAVE NOT BEEN REJECTED AND THERE IS NO JUS TIFICATION IN HOLDING THAT THESE PAYMENTS ARE HIT BY THE EXPLANATION TO SECTIO N 37[1] OF THE ACT. IT WAS ITA NO.755/BANG/2015 PAGE 3 OF 8 SUBMITTED THAT THESE EXPENSES ARE INCURRED WHOLLY A ND EXCLUSIVELY FOR THE BUSINESS AND IT WAS PRAYED THAT THE SAME MAY BE ALL OWED. 5. THE LD. CIT(APPEALS) SUSTAINED 25% OF THE DISALL OWANCE WITH RESPECT TO A SUM OF RS.17,66,500 MADE BY THE AO TOW ARDS INCENTIVE ON SALES. AGGRIEVED, THE ASSESSEE HAS RAISED GROUND NOS. 2 & 2.1 BEFORE US AS FOLLOWS:- 2. THE LEARNED CIT[A] IS NOT JUSTIFIED IN SUSTAIN ING 25% OF THE DISALLOWANCE OF A SUM OF RS.17,66,500/- MADE BY THE LEARNED A.O. INSTEAD OF DELETING THE SAME IN ENTIRETY BEING THE INCENTIVES PAID TO THE EMPLOYEES OF THE CUSTOMERS FOR SECURING THE ORDERS AND TIMELY PAYMENT AND IS INCURRED WHOLLY AND EXCLU SIVELY FOR THE PURPOSES OF THE BUSINESS OF THE APPELLANT AND T HE SAME THEREFORE REQUIRED TO BE ALLOWED IN FULL. 2.1 THE LEARNED CIT[A] FAILED TO APPRECIATE THAT T HE PAYMENTS ARE SUPPORTED BY VOUCHERS AS ARE IN VOGUE IN THE LI NE OF BUSINESS AND THE GENUINENESS OF THE BOOKS OF ACCOUNTS ARE NO T DOUBTED AND ARE AUDITED AND THE LEARNED A.O. DISALLOWED THEM MA INLY ON THE GROUND THAT THEY WERE HIT BY THE EXPLANATION OF SEC TION 37[1] OF THE ACT, WHICH WAS NOT UPHELD BY THE LEARNED CIT[A] . 6. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE ARGU ED THAT THE ENTIRE AMOUNT OF RS.17,66,500 IS TOWARDS INCENTIVES PAID T OWARDS EMPLOYEES OF CUSTOMERS FOR SECURING ORDERS AND FOR TIMELY PAYMEN T AND SINCE IT IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE, IT HAS TO BE ALLOWED IN FULL. THE LD. CO UNSEL ALSO ARGUED THAT THE PAYMENTS WERE SUPPORTED BY VOUCHERS AND SINCE THE A SSESSEE WAS AUDITED U/S. 44AB AND GENUINENESS OF THE BOOKS OF A CCOUNTS WERE NOT ITA NO.755/BANG/2015 PAGE 4 OF 8 DOUBTED, EXPENSES ARE NOT HIT BY EXPLANATION TO SEC TION 37 OF THE ACT SINCE NONE OF THE CUSTOMERS ARE GOVERNMENT ORGANIZATIONS AND ARE MERELY PRIVATE INDIVIDUALS CARRYING ON BUSINESS. THE LD . COUNSEL FOR THE ASSESSEE ALSO STATED THAT NO DISALLOWANCE WAS MADE IN THE EA RLIER YEARS. 7. THE LD. DR SUPPORTED THE ORDER OF THE CIT(APPEAL S). 8. WE HAVE HEARD BOTH THE PARTIES. THE CIT(APPEALS ) HAS, HOWEVER, HELD THAT THE ASSESSEE COULD NOT ESTABLISH THE PAYE ES DETAILS AND RESTRICTED THE ADDITION TO 25% OF THE DISALLOWANCE MADE BY THE AO. SINCE WHILE MAKING ADHOC DISALLOWANCE IN THE ABSENCE OF V OUCHERS, AS HELD IN THE CASE OF M/S. TRANSPORT CORPORATION OF INDIA LTD. IN ITA NO. 19/HYD/2009 DATED 25.01.2012 , DISALLOWANCE TO THE EXTENT OF 15% IS REASONABLE. WE THEREFORE RESTRICT THE DISALLOWANCE TO 15% INSTEAD OF 25% SUSTAINED BY THE CIT(APPEALS). 9. WITH RESPECT TO THE NEXT ISSUE REGARDING DISALLO WANCE OF INTEREST PAID TO THE BANK IN RESPECT OF THE LOAN BORROWED FO R CONSTRUCTION OF THE EXISTING HOUSE, BEFORE THE CIT(APPEALS), THE LD. AR FURTHER CONTENDED THAT THE ASSESSEE OWNED A HOUSE AND HAS CONSTRUCTED THE FIRST FLOOR FOR HIS OWN USE. HIS CAPITAL AT THE BEGINNING OF THE YEAR IS RS .48,69,503 AND THE CAPITAL AT THE END OF THE YEAR VIZ., 31/03/2009 IS RS.86,08 ,779. IT WAS SUBMITTED THAT THE ASSESSEE COULD NOT WITHDRAW FUNDS FOR HIS OWN CONSTRUCTIONS AS THAT WOULD AFFECT HIS BUSINESS, THEREFORE, HE BORRO WED MONIES FOR THE CONSTRUCTION OF THE HOUSE. FURTHER, THE ASSESSEE MO RTGAGED THE EXISTING PROPERTY AND OBTAINED THE FUNDS INASMUCH AS, BY WIT HDRAWING THE FUNDS ITA NO.755/BANG/2015 PAGE 5 OF 8 FROM HIS OWN BUSINESS FOR CONSTRUCTION, HIS CAPITAL WILL BE ERODED AND WILL NOT BE SUFFICIENT FOR CARRYING ON THE BUSINESS SMOO THLY. IT WAS SUBMITTED THAT THE ASSESSEE HAS NOT OVERDRAWN THE CAPITAL AND THE CAPITAL STILL CONTINUES TO BE TO THE CREDIT OF THE ASSESSEE IN HI S PERSONAL BOOKS AND THE INTEREST PAYABLE TO BANK, WAS CLAIMED AS A DEDUCTIO N UNDER THE HEAD HOUSE PROPERTY AND THE A.O. DISALLOWED IT ON THE GROUND THAT THE CONSTRUCTION WAS NOT COMPLETED DURING THE PREVIOUS YEAR 31/03/2009. IT WAS SUBMITTED SO LONG AS THE CONSTRUCTION IS COMPLE TED WITHIN 3 YEARS, THERE IS NO JUSTIFICATION FOR MAKING THE DISALLOWAN CE OF THE INTEREST PAID DURING THE YEAR AND IT IS NOT NECESSARY THAT THE CO NSTRUCTION SHOULD BE COMPLETED IN THE VERY YEAR IN WHICH LOAN IS AVAILED . IT WAS SUBMITTED THAT THE ASSESSEE COMPLETED CONSTRUCTION WITHIN 3 YEARS AND THEREFORE, HE ARGUED THAT THE INTEREST PAID REQUIRES TO BE ALLOWE D. 10. THE LD. CIT(APPEALS) AGREED WITH THE AO ON THIS ISSUE THAT INTEREST IS NOT ALLOWABLE SINCE THE CONSTRUCTION IS NOT COMPLET ED AND FURTHER HELD THAT THE SAME IS TO BE CAPITALISED, CONFIRMING THE ADDIT ION MADE BY THE AO. 11. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US RAISING GROUND NOS. 3 AND 3.1 READS AS FOLLOWS:- 3. THE LEARNED CIT[A] IS NOT JUSTIFIED IN SUSTAIN ING THE DISALLOWANCE OF THE INTEREST PAID TO THE BANK IN RE SPECT OF THE LOAN BORROWED FOR MAKING CONSTRUCTION OF THE FIRST FLOOR OF THE EXISTING HOUSE USED FOR RESIDENCE IN RESPECT OF WHI CH EVEN THE CONSTRUCTION WAS CONSTRUCTED WITHIN 3 YEARS FROM AV AILING THE LOAN UNDER THE FACTS AND CIRCUMSTANCES OF THE APPEL LANTS CASE. ITA NO.755/BANG/2015 PAGE 6 OF 8 3.1 THE LEARNED CIT[A] HAS FAILED TO APPRECIATE TH AT TO AVOID THE WITHDRAWAL OF FUNDS FROM BUSINESS THE APPELLANT HAD MORTGAGED THE PROPERTY TO SECURE THE LOANS SO BORRO WED AND THEREFORE, THE SAME IS ALLOWABLE AS A DEDUCTION AGA INST THE TOTAL INCOME, AS IT HAS NOTHING TO DO WITH THE COMPLETION OF THE FIRST FLOOR OF THE RESIDENTIAL HOUSE WITHIN 3 YEARS AND T HEREFORE, THE INTEREST REQUIRED TO BE ALLOWED IN FULL IN THE YEAR OF INCURRENCE. 12. THE ASSESSEE SUBMITTED BEFORE US THAT THE ASSES SEE OWNED A HOUSE AND HAS CONSTRUCTED THE FIRST FLOOR FOR HIS O WN USE. HE COULD NOT WITHDRAW FUNDS FOR HIS CONSTRUCTION SINCE THAT WOUL D AFFECT HIS BUSINESS AND HENCE, BORROWED MONIES. HENCE, IT IS LIKE WITHDRAWI NG THE FUNDS FROM HIS OWN BUSINESS. IF THE CONSTRUCTION IS COMPLETED WITH IN THREE YEARS, THERE IS NO JUSTIFICATION FOR MAKING DISALLOWANCE OF INTERES T. IT WAS SUBMITTED THAT IT IS NOT NECESSARY THAT CONSTRUCTION SHOULD BE COMPLE TED IN THE VERY YEAR IN WHICH THE LOAN IS AVAILED. 13. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORD ER OF CIT(APPEALS). 14. WE HAVE HEARD BOTH THE PARTIES. THERE IS SOME MERIT IN THE ARGUMENT OF THE ASSESSEE THAT IF THE CONSTRUCTION I S COMPLETED WITHIN 3 YEARS, THERE IS NO JUSTIFICATION FOR MAKING THE DIS ALLOWANCE OF INTEREST PAID DURING THE YEAR AND ALSO IT IS NOT NECESSARY THAT T HE CONSTRUCTION SHOULD BE COMPLETED IN THE VERY YEAR IN WHICH THE LOAN IS AVA ILED. THE ASSESSEE HAS COMPLETED THE CONSTRUCTION WITHIN 3 YEARS AND HENCE SECTION 24(B) BECOMES RELEVANT, WHICH IS REPRODUCED BELOW:- ITA NO.755/BANG/2015 PAGE 7 OF 8 DEDUCTIONS FROM INCOME FROM HOUSE PROPERTY . 24. INCOME CHARGEABLE UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY' SHALL BE COMPUTED AFTER MAKING THE FOLLOW ING DEDUCTIONS, NAMELY: ( A ) A SUM EQUAL TO THIRTY PER CENT OF THE ANNUAL VAL UE; ( B ) WHERE THE PROPERTY HAS BEEN ACQUIRED, CONSTRUCTE D, REPAIRED, RENEWED OR RECONSTRUCTED WITH BORROWED CAPITAL, THE AMOUNT OF ANY INTEREST PAYABLE ON SUCH CAPITAL: PROVIDED THAT IN RESPECT OF PROPERTY REFERRED TO IN SUB-SEC TION (2) OF SECTION 23, THE AMOUNT OF DEDUCTION SHALL NOT EX CEED THIRTY THOUSAND RUPEES : PROVIDED FURTHER THAT WHERE THE PROPERTY REFERRED TO IN THE FIRST PROVISO IS ACQUIRED OR CONSTRUCTED WITH CAPITAL BOR ROWED ON OR AFTER THE 1ST DAY OF APRIL, 1999 AND SUCH ACQUISITI ON OR CONSTRUCTION IS COMPLETED WITHIN THREE YEARS FROM T HE END OF THE FINANCIAL YEAR IN WHICH CAPITAL WAS BORROWED, THE A MOUNT OF DEDUCTION UNDER THIS CLAUSE SHALL NOT EXCEED ONE LAKH FIFTY THOUSAND RUPEES. . EXPLANATION. WHERE THE PROPERTY HAS BEEN ACQUIRED OR CONSTRUCTED WITH BORROWED CAPITAL, THE INTEREST, IF ANY, PAYABLE ON SUCH CAPITAL BORROWED FOR THE PERIOD PRIOR TO THE P REVIOUS YEAR IN WHICH THE PROPERTY HAS BEEN ACQUIRED OR CONSTRUCTED , AS REDUCED BY ANY PART THEREOF ALLOWED AS DEDUCTION UNDER ANY OTHER PROVISION OF THIS ACT, SHALL BE DEDUCTED UNDER THIS CLAUSE IN EQUAL INSTALMENTS FOR THE SAID PREVIOUS YEAR AND FOR EACH OF THE FOUR IMMEDIATELY SUCCEEDING PREVIOUS YEARS: 15. WE THEREFORE DIRECT THE ASSESSING OFFICER TO EX AMINE THE ISSUE IN ACCORDANCE WITH THE PROVISIONS OF EXPLANATION TO SE CTION 24(B) OF THE ACT AND ALLOW APPROPRIATE INTEREST ELIGIBLE TO THE ASSE SSEE AND REDO THE ASSESSMENT DE NOVO IN ACCORDANCE WITH THE LAW. ITA NO.755/BANG/2015 PAGE 8 OF 8 16. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF OCTOBER, 2015. SD/- SD/- ( ABRAHAM P. GEORGE ) (ASHA VIJAYARAGHAVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 28 TH OCTOBER, 2015. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.