M/s Lavender Buildcon P.Ltd, Ahmedabad V. I.TO,wARD-4(3), Ahmedabad

ITA 846/AHD/2015

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2338 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 10-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: T P HEMANI
• Keywords: Cost of acquisition

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI RIFAUR RAHMAN, ACCOUNTANT MEMBER ./ ITA NO.846/AHD/2015 / ASSTT. YEAR: 2010-11 M/S.LAVENDER BUILDCON P.LTD. CENTRAL MALL AMBAWADI AHMEDABAD. PAN : AABCL 5863 E VS. ITO, WARD-4(3) AHMEDABAD. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI T.P.HEMANI, AR REVENUE BY : SHRI VINOD TANWANI, SR.DR ! / DATE OF HEARING : 19/06/2019 '#$ ! / DATE OF PRONOUNCEMENT: 24/06/2019 %& / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST O RDER OF THE LD.CIT(A)-2, AHMEDABAD DATED 13.3.2015 PASSED FOR T HE ASSTT.YEAR 2010-11 2. THE ASSESSEE HAS TAKEN THREE GROUNDS OF APPEAL A LONG WITH SUB-GROUNDS, BUT ITS GRIEVANCE REVOLVES AROUND A SI NGLE ISSUE VIZ. THE LD.CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWA NCE OF RS.1,47,65,934/- WHICH WAS CLAIMED AS INTEREST EXPE NDITURE UNDER SECTION 24(B) OF THE INCOME TAX ACT. ITA NO.846/AHD/2015 2 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS COMPANY ENGAGED IN THE BUSINESS OF CONSTRUCTION AND LEASING OF IMMOVABLE PROPERTY. IT HAS FILED ITS RETURN OF INCOME ELECTR ONICALLY ON 30.9.2010 DECLARING TOTAL INCOME AT RS.14,77,719/-. M/S.NAVRATNA ORGANIZER & DEVELOPER P. LTD. (NODPL FOR SHORT) HAS CONSTRUCTED A COMMERCIAL PROPERTY KNOWN AS KOL LANADE CENTRE SITUATED AT AMBAWADI, AHMEDABAD. THIS PROP ERTY WAS CONSTRUCTED WITH THE HELP OF BORROWED FUND FROM HUD CO. LATER ON THIS PROPERTY WAS PURCHASED BY THE ASSESSEE FROM NODPL. THE ASSESSEE HAS SHOWN RENTAL INCOME FROM THE PROPE RTY. THE CASE OF THE ASSESSEE IS THAT PURCHASE PRICE REMAINE D UNPAID AND BECAME AN OUTSTANDING DEBT DUE FROM THE ASSESSEE TO NODPL. INTEREST EXPENDITURE UPTO THE DATE OF COMPLETION OF CONSTRUCTION HAS BEEN CRYSTALLIZED IN THE PURCHASE COST AND AFTE R COMPLETION OF THE BUILDING, INTEREST EXPENDITURE RELATING TO UNPA ID PURCHASE PRICE HAS BEEN CLAIMED AS DEDUCTION UNDER SECTION 24(B) O F THE ACT. THE LD.AO DID NOT ALLOW THIS CLAIM OF THE ASSESSEE BY HOLDING THAT TERM LOAN WAS TAKEN BY NODPL FROM HUDCO FOR CONSTR UCTION OF PROPERTY. IT IS NOT A LIABILITY OF THE ASSESSEE, M ORE SO IN THE CONVEYANCE DEED THERE IS NO CLAUSE REGARDING PAYMEN T IN ANY FORM INCLUDING INTEREST TO NODPL. THUS, ACCORDI NG TO THE AO, THERE WAS NO OBLIGATION ON THE PART OF THE ASSESSEE TO PAY INTEREST ON THE TERM LOAN OBTAINED BY NODPL FROM HUDCO. A PPEAL TO THE CIT(A) DID NOT BRING ANY RELIEF TO THE ASSESSEE . 4. THE LD.COUNSEL FOR THE ASSESSEE AT THE VERY OUTS ET SUBMITTED THAT BOTH AUTHORITIES HAVE FAILED TO APPRECIATE THE CONTROVERSY. HE TOOK US THROUGH PAGE NO.21 OF THE PAPER BOOK AND SU BMITTED THAT AS ON 31.3.2010 KOLLANADE BUILDING IS BEING SHOWN I N THE SCHEDULE OF FIXED ASSET HAVING VALUE OF RS.59.24N CORES. RE PORT TO THIS ITA NO.846/AHD/2015 3 EFFECT IS GIVEN IN THE BALANCE SHEET, COPY OF WHICH PLACED ON PAGE NO.21 OF THE PAPER BOOK. IT READS AS UNDER: FIXED ASSETS 31 ST MARCH, 31 ST MARCH, 2009 2010 NIL KOLONNADE BUILDING (SCHEDULE-B) 592,99,461 5. HE THEREAFTER MADE REFERENCE TO PAGE NO.20 OF TH E PAPER BOOK AND SUBMITTED THAT UNDER THE HEAD CURRENT LIA BILITIES AND PROVISIONS THE ASSESSEE HAS SHOWN RS.25.77 CRORES AGAINST THE NAME OF NODPL. THERE WAS NO LIABILITY QUA THIS AS ON 31.3.2009, THE LIABILITY HAS BEEN RECOGNIZED ON 31. 3.2010. HE THEREAFTER MADE REFERENCE TO THE COPY OF THE LEDGER ACCOUNT AVAILABLE ON PAGE NO.60 OF THE PAPER BOOK. GROUP S UMMARY OF FIXED ASSETS HAS BEEN SHOWN ON THIS PAGE AND THIS B UILDING IS AVAILABLE. THE LD.COUNSEL FOR THE ASSESSEE THEREAF TER MADE REFERENCE TO THE LEDGER ACCOUNT OF NODPL IN ITS B OOKS OF ACCOUNTS INCLUDING OUTSTANDING INTEREST ON PAGE NOS .31 AND 32 OF THE PAPER BOOK. THE LD.COUNSEL FOR THE ASSESSEE AL SO CONTENDED THAT UPTO NOVEMBER, 2009 INTEREST WAS CAPITALIZED I .E. BEFORE THE DATE OF ACQUISITION. HE POINTED OUT THAT DATE OF A CQUISITION IS 14.11.2009; INTEREST UPTO THIS DATE WAS CAPITALIZED IN THE COST OF PURCHASE. THEREAFTER FROM NOVEMBER TO MARCH, INTER EST EXPENDITURE HAS BEEN CLAIMED. THE DETAILS TO THIS EFFECT HAVE BEEN PLACED IN THE LEDGER ACCOUNT ON PAGE NO.30 OF THE PAPER BOOK. HE TOOK US THROUGH THESE DETAILS. FOR BUTTR ESSING HIS CONTENTIONS, HE RELIED UPON THE DECISION OF THE ITA T, JODHPUR BENCH IN THE CASE OF GOPI KISHAN PUROHIT VS. DCI, 20 ITA NO.846/AHD/2015 4 TAXMANN.COM 257 (JODH.). HE PLACED ON RECORD COPY OF THE TRIBUNALS ORDER. ON THE OTHER HAND, THE LD.DR REL IED UPON THE ORDERS OF THE REVENUE AUTHORITIES. 6. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GO NE THROUGH THE RECORD CAREFULLY. DEDUCTION FROM INCOME FROM HOUSE PROPERTY HAS BEEN PROVIDED IN SECTION 24. THEREFO RE, IT IS IMPERATIVE UPON US TO TAKE NOTE OF RELEVANT CLAUSE WHICH READS AS UNDER: 24. INCOME CHARGEABLE UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY' SHALL BE COMPUTED AFTER MAKING THE FOLLOW ING DEDUCTIONS, NAMELY: (A) ..... ...... ..... (B) WHERE THE PROPERTY HAS BEEN ACQUIRED, CONSTRUCT ED, REPAIRED, RENEWED OR RECONSTRUCTED WITH BORROWED CA PITAL, THE AMOUNT OF ANY INTEREST PAYABLE ON SUCH CAPITAL: 7. SIMILARLY, EXPRESSION INTEREST HAS BEEN DEFINE D UNDER SECTION 2(28)(A). THIS DEFINITION READS AS UNDER: (28A) 'INTEREST' MEANS INTEREST PAYABLE IN ANY MANN ER IN RESPECT OF ANY MONEYS BORROWED OR DEBT INCURRED (IN CLUDING A DEPOSIT, CLAIM OR OTHER SIMILAR RIGHT OR OBLIGATI ON) AND INCLUDES ANY SERVICE FEE OR OTHER CHARGE IN RESPECT OF THE MONEYS BORROWED OR DEBT INCURRED OR IN RESPECT OF A NY CREDIT FACILITY WHICH HAS NOT BEEN UTILISED ; 8. IN THE LIGHT OF THE ABOVE, LET US EXAMINE FACTS OF THE PRESENT CASE. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT NODPL HAS CONSTRUCTED COMMERCIAL BUILDING, VIZ. KOLLANADE CENTRE. THIS IS ALSO NOT IN DISPUTE THAT CONSTRUCTION WAS COMPLE TED WITH HELP OF BORROWED FUNDS FROM HUDCO. THE AO HAS ALSO NOT DIS PUTED THAT UPTO THE DATE OF ACQUISITION OR PURCHASE, WHATEVER INTEREST ITA NO.846/AHD/2015 5 EXPENDITURE IS INCURRED BY THE ERSTWHILE BUILDER/VE NDOR THAT INTEREST AMOUNT HAS BEEN CAPITALIZED IN THE COST OF PURCHASE. THE ONLY DISPUTE IS THAT PART OF THE PURCHASE COST IN T HE HANDS OF THE ASSESSEE REMAINED UNPAID. IN OTHER WORDS, THE ASSE SSEE HAS NOT PAID FULL COST OF PURCHASE TO NODPL, AND THAT COS T IN A PRESUMPTIVE WAY BEING TREATED AS OUTSTANDING DEBT QUA THE ASSESSEE IN THE BOOKS OF NODPL. IN OTHER WORDS, THE ASSESSEE BECAME DEBTOR OF NODPL FOR A SUM OF RS.25.77 CROR ES WHICH WAS DUE ON THE DATE OF ACQUISITION. THE ASSESSEE HAS RECOGNIZED PURCHASE PRICE AS A LIABILITY PAYABLE TO NODPL. THESE FACTS ARE NOT IN DISPUTE. IT IS SO DISCERNIBLE FROM THE LEDG ER ACCOUNT OF NODPL IN THE BOOKS OF ASSESSEE AVAILABLE ON PAGE NO.32. THE DEBIT BALANCE SHOWN AS ON 31.3.2010 IS RS.25.77 CRO RES. THE ITAT, JODHPUR BENCH HAS CONSIDERED AN IDENTICAL SIT UATION AND OBSERVED AS UNDER: 3.2 WE FIRSTLY OBSERVE THAT THE AMOUNT, INTEREST O N WHICH IS BEING CLAIMED AS DEDUCTION U/S. 24(B) OF THE ACT, I S UNPAID PURCHASE PRICE OF THE PROPERTY UNDER REFERENCE. THE FIRST QUESTION (A), THEREFORE, THAT ARISES AND THIS NEEDS TO BE AN SWERED, IS IF THE SAME, I.E., THE UNPAID PURCHASE PRICE, COULD BE CON SIDERED AS 'BORROWED CAPITAL' FOR THE PURPOSE OF SEC. 24(B) OF THE ACT. IN OUR VIEW, THE INTEREST PAYABLE TO RFC WOULD QUALIFY AS INTEREST ON BORROWED CAPITAL AS ENVISAGED U/S. 24(B) OF THE ACT . THIS IS AS THE TERM 'INTEREST' IS DEFINED COMPREHENSIVELY U/S. 2(2 8A) TO INCLUDE ON ANY DEBT AND, MORE IMPORTANTLY, THE SAME IS IN R ESPECT OF 'CAPITAL BORROWED'. THE WORD 'CAPITAL' IS WIDER IN SCOPE THAN THE TERM 'MONEY', AND UNDER APPROPRIATE CIRCUMSTANCES, AS THE PRESENT ONE, INCLUDE PART OF THE DEBT THAT THE SELL ER, A FINANCIAL INSTITUTION, HAS AGREED TO EXTEND, ON CHARGE OF INT EREST, TO THE ASSESSEE PURCHASER. 3.3 THE NEXT QUESTION (B) WOULD BE AS TO WHETHER TH E ASSESSEE'S CLAIM FOR DEDUCTION IS TO BE RESTRICTED TO THE INTE REST THAT IT WOULD BE LIABLE TO PAY HAD IT ADHERED TO THE AGREED SCHED ULE OF REPAYMENT OF THE BORROWING, I.E., AS PER THE AGREEM ENT. WE DO NOT THINK IT AS SO; THERE BEING NOTHING IN THE LANG UAGE OF SEC. 24(B) TO WARRANT SO. THE INTEREST DEDUCTIBLE IS THE ACTUAL INTEREST ITA NO.846/AHD/2015 6 PAYABLE BY THE ASSESSEE IN RESPECT OF THE CAPITAL B ORROWED, AND NOT ONE WHICH WOULD HAVE BEEN PAYABLE UNDER A DIFFE RENT FACT SETTING THAN THE ACTUAL ONE. THE INTEREST PAYABLE, DEDUCTION FOR WHICH IS CLAIMED, IS ONLY THAT CHARGED IN TERMS OF THE AGREEMENT ENTERED INTO BETWEEN THE PARTIES, SO THAT IT COULD NOT BE LIMITED OR RESTRICTED WITH REFERENCE TO SOME PREDEFINED OR HYP OTHETICAL CIRCUMSTANCES, WHICH MAY HAVE OBTAINED OR WERE CONC EIVED TO BE SO WHEN THE AGREEMENT WAS ENTERED INTO. OF COURSE, THE CLAIM MUST BE GENUINE AND NOT A RESULT OF AN ARTIFICE, AR ISING AS A DEVICE TO INFLATE THE INTEREST EXPENSE WITH TAX OR OTHER M OTIVATION. WHY, IF THE ASSESSEE HAD PRE-PAID THE DEBT, EVEN THE INT EREST AS INITIALLY CONTEMPLATED WOULD NOT HAVE ARISEN FOR PAYMENT, IN WHICH CASE THE ASSESSEE'S INTEREST LIABILITY AND, THUS, EXPENS E WOULD BE LOWER, AND HIS INCOME CORRESPONDINGLY INCREASED TO THAT EXTENT. 9. A PERUSAL OF ORDERS BOTH THE AUTHORITIES WOULD R EVEAL THAT THEY HAVE FAILED TO APPRECIATE THE TRUE FACTS IN RI GHT PERSPECTIVE. THE ASSESSEE IS ABLE TO DEMONSTRATE THAT IN A CONST RUCTIVE MANNER IT HAS PROVED OUTSTANDING DEBTS OUT OF WHICH IT HAS ACQUIRED THIS PROPERTY WHICH HAS RESULTED IN RENTAL INCOME. THE REFORE, THE EXPENSES INCURRED BY THE ASSESSEE FOR ACQUISITION O F THE PROPERTY IN SHAPE OF INTEREST, IS ADMISSIBLE TO IT AS AN EXP ENDITURE. RESPECTFULLY FOLLOWING ORDERS OF THE ITAT (COPY THE REOF IS AVAILABLE ON RECORD) AND IN VIEW OF THE ABOVE DISCUSSION, WE ALLOW THIS GROUND OF APPEAL, AND DELETE DISALLOWANCE MADE BY T HE AO, AND CONFIRMED BY THE CIT(A). 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE COURT ON 24 TH JUNE, 2019. SD/- SD/- (RIFAUR RAHMAN) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 24/06/2019