Design Forum International, New Delhi V. JCIT, Range-61, New Delhi

ITA 8615/DEL/2019

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 7933 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 02-04-2024
• Assessment Year: 2014-2015
• Appeal Filed On: 03-11-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Commercial expediency; Set aside; Capital Gains
• Section: 54; 143(3); 54F; 205; 43

Judgement Text

Page | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “B”: NEW DELHI BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITA No. 8615/Del/2019 (Assessment Year: 2014-15) Design Forum International, K-47, Kailash Colony, New Delhi Vs. JCIT, Range-61, New Delhi (Appellant) (Respondent) PAN:AAEFD8417C Assessee by : Shri Ved Jain, Adv Shri Amang Garg, CA Revenue by: Shri Vivek Kumar Upadhyay, Sr. DR Date of Hearing 03/04/2024 Date of pronouncement 09/04/2024 O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in ITA No.8615/Del/2019 for AY 2014-15, arises out of the order of the Commissioner of Income Tax (Appeals)-20, New Delhi [hereinafter referred to as „ld. CIT(A)‟, in short] in Appeal No. 10772/2016-17 dated 28.08.2019 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟) dated 30.12.2016 by the Joint Commissioner of Income Tax, Range-61, New Delhi (hereinafter referred to as „ld. AO‟). 2. The Ground Nos. 1 & 4 raised by the assessee are general in nature and does not require specific adjudication. 3. The Ground No.2 raised by the assessee is challenging the disallowance of interest u/s 36(1)(iii) of the Act. ITA No. 8615/Del/2019 Design Forum International Page | 2 4. We have heard the rival submissions and perused the materials available on record. The assessee firm is engaged in the business of providing architectural services for housing and commercial projects. The ld. AO observed that the assessee had paid interest of Rs 1,76,23,321/- on its loans. The ld. AO observed that on one hand, assessee is paying interest on its loans borrowed and on the other hand, it had given interest free loans to some parties. Accordingly, the ld. AO proceeded to disallow the interest payment on proportion basis u/s 36(1)(iii) of the Act in the sum of Rs 19,24,311/-. This action of the ld. AO was upheld by the ld. CIT(A). 5. Both the parties before us agreed that this issue is decided in favour of the assessee by the co-ordinate bench of this Tribunal in assessee‟s own case in ITA No. 3317/Del/2017 for Asst Year 2013-14 dated 30.10.2019 . The relevant operative portion of the said order is reproduced below:- “As regards to Ground No. 2 (i) and (iii), the Ld. AR submitted that no disallowance can be made in respect of the amount paid to such parties in the earlier years which is standing under the head loans and advances' as opening balance. In this regard, the Ld. AR pointed out that the interest on account of payment made in earlier year to such parties aggregates to Rs. 14,16,000/- (12,00,000 pertains to amount paid to M/s Chintel India Ltd. in earlier years). The Ld. AR further pointed out that no addition was on account of interest in earlier years that are A.Y. 2011-12 and A.Y. 2012-13. In such circumstances, considering the interest on account of opening balance is bad in law and as well as on facts. The Ld. AR further submitted that payment was made from the current account held with ABN Amro Bank which became the Royal Bank of Scotland which are reflected in the ledger accounts. The party wise interest paid listing placed in the paper book also reveals that no interest was paid to such bank. The Ld. AR further submitted that the said bank account is reflecting under the head current assets in the balance sheet. The Ld. AR submitted that it is not a case of the assessee that it had not applied for the flat itself. It is the case of the assessee that the assessee had to apply for the flat as a measure of commercial expediency in order to recover the fees amount. It was mutually agreed between the assessee and the respective parties that the payment for fees will be made subject to the condition that the assessee applies for allotment of flat. Thus, assessee had to apply for allotment of flat as a measure of commercial expediency. The ledger account of such parties where in the receipt of money is reflecting was also placed on record. Further, a summary sheet reflecting the date of receipt of amount and the date of payment for flat is also submitted by the assessee. The Ld. AR submitted that perusal of the same reveals that the assessee had applied the fees amount towards the purchase of flat as per the terms agreed upon. The Ld. AR further submits that had the assessee not applied towards the flat, it would not have been able to recover the fees amount. The Ld. AR pointed out that the assessee had ITA No. 8615/Del/2019 Design Forum International Page | 3 duly offered such receipt amount to its income on cash basis in accordance with its method of accounting as evident from the ledger accounts of such parties. The Ld. AR submitted that the CIT(A)'s allegation that under the cash system of accounting, there is no debtor that exists in the books of accounts and no amount ought to be standing under the head current assets is incorrect appreciation of facts and has no relevance to the case. The Ld. AR submitted that the amount standing is not as debtor, but as advance towards flat. Further, with regard to allegation of the CIT(A) that the business of the assessee is to provide architectural services and amount advances to purchase flat cannot be considered to be business of the assessee, the Ld. AR submitted that it is not the case of the assessee that it is the business of the assessee to buy and sell flats. It is the case of the assessee that the money was advanced to the parties as a measure of commercial expediency i.e. to safeguard its interest and recover the fees due from the said parties. The Ld. AR submitted that it is a settled law that no disallowance can be made under Section 36(1)(iii) in respect of the money advanced as a measure of commercial expediency. "Commercial Expediency" is the prerogative of the businessman and that the Revenue cannot justifiably claim to put itself in the armchair of the businessman and dictate as to what is "commercial expediency". The Ld. AR relied upon the following decisions: 1. S. A. Builders Ltd. vs. CIT (2007) 288 ITR 1 (SC) 2. Hero Cycles (P.) Ltd. vs. CIT (2015) 379 ITR 347 (SC) 3. PCIT vs. Basti Sugar Mills Co. Ltd. (Del. HC) (ITA No. 205 order dated 28.09.2018) 4. DCIT vs. M/s Jetair Pvt. Ltd. (Tri. Del.) (ITA Nos. 2712, 2713 and 6884/Del/2015 order dated 19.09.2018) 5. Chemical Sales and Services 3N vs. ITO (Tri. Del.) (ITA No. 4146/Del/2015 order dated 26.09.2018) 6. PCIT vs. DLF Holding Ltd. (Del. HC) (ITA No. 1012/2018 order dated 28.09.2018) Thus, the Ld. AR submitted that the disallowance made, deserves to be deleted. The Ld. AR further submitted that the balance sheet of the assessee reveals that it has its own funds to the tune of Rs. 56,73,773. Thus, no disallowance can be made to the extent of such amount advanced (Interest of Rs. 6,80,853) in view of the recent judgement of the Hon'ble Supreme Court in case of CIT vs. Reliance Industries Ltd. (2019) 410 ITR 466 (SC) wherein it has been held that where the interest free funds are available with the assessee, it could be presumed that the investments were first made from the interest free funds available with the assessee. The Ld. AR relied upon the following decisions: 1. Punjab Stainless Steel Inds. Vs. ACIT (2019) (6) TMI 427 - Tri. Del. 2. CIT vs. HDFC Bank Ltd. (2014) 366 ITR 505 (Bom. HC) 3. CIT vs. Amod Stamping (P.) Ltd. (2014) 223 Taxman 256 (Guj. HC) 4. PCIT vs. Consumer Marketing (India) (P.) Ltd. (ITA No. 646 of 2015 Guj. HC) ITA No. 8615/Del/2019 Design Forum International Page | 4 5. M/s R. N. Gupta & Co. Ltd. vs. Addl.CIT (ITA No. 848/Chd/2015 dated 12.04.2016 Tri. Chandigarh) In view of the above, the Ld. AR prayed that the addition made be deleted as the same is injudicious both on law and on facts. 8. The Ld. DR relied upon the Assessment Order and the order of the CIT(A). 9. We have heard both the parties and perused all the relevant material available on record. From the perusal of records, it can be seen that payment was made from the current account held with the bank, are duly reflected in the ledger accounts. The details of party wise interest paid also reveals that no interest was paid to such bank. The said bank account is reflecting under the head current assets in the balance sheet. It is the case of the assessee that the assessee had to apply for the flat as a measure of commercial expediency in order to recover the fees amount. It was mutually agreed between the assessee and the respective parties that the payment for fees will be made subject to the condition that the assessee applies for allotment of flat. Thus, assessee had to apply for allotment of flat as a measure of commercial expediency. The ledger account of such parties where in the receipt of money is reflecting was also placed on record. Further, a summary sheet reflecting the date of receipt of amount and the date of payment for flat is also submitted by the assessee. From the records it can be seen that the assessee had applied the fees amount towards the purchase of flat as per the terms agreed upon. It can further emerges from the records that the assessee had duly offered such receipt amount to its income on cash basis in accordance with its method of accounting which is also evident from the ledger accounts of such parties. Thus, the CIT(A) was not right in sustaining the addition in respect of interest incurred on account of amount standing as advance in respect of interest incurred on account of amount standing as advance in respect of such parties. Therefore, the order of CIT(A) is set aside. Ground No. 2(i) and 2(iii) are allowed.” 6. Respectfully following the same, the Ground No. 2 raised by the assessee is allowed. 7. The Ground No. 3 raised by the assessee is with regard to the date of reckoning of holding of capital asset i.e. whether the asset is to be construed as being held from the date of allotment of flat or from the date of agreement. 8. We have heard the rival submissions and perused the materials available on record. We find that Bestech India Pvt Ltd (Builder) allotted Flat No. D-702 , Park View Spa, Sector-47 , Gurgaon via allotment letter dated 20.8.2009. The agreement with the buyer was executed on 13.7.2010. The assessee sold the flat to Mr Goonmeet Singh Chauhan on 8.4.2014 relevant to Asst Year 2015-16. The assessee filed its return of income declaring long term capital loss of Rs 17,95,278/- computing long term capital gains, assessee computed the period ITA No. 8615/Del/2019 Design Forum International Page | 5 holding from the date of allotment to the date of sale i.e. 20.8.2009 to 8.4.2014 comprising of 43 months. The ld. AO during the course of assessment proceedings rejected the contention of the assessee and observed the period of holding has to be considered from the date of buyers agreement i.e. 13.7.2010. Accordingly, the ld. AO observed that the assessee had held the property for less than 36 months and hence the resultant gain on its transfer would only be short term capital gains and no benefit of indexation would be available to the assessee. The ld. AO computed short term capital gains at Rs 11,60,508/-. This action of the ld. AO was upheld by the ld. CIT(A). 9. It is pertinent to note that the genuineness of the entire transactions carried out by the assessee is not doubted by the revenue. The short point that arises for our consideration is as to whether the date of allotment of flat or the date of buyer‟s agreement, would have to be considered for the purpose of considering the holding period of asset by the assessee. In our considered opinion, this issue is no longer res integra in view of the decision of Hon‟ble Bombay High Court in the case of PCIT vs Vembu Vaidyanathan reported in 101 taxmann.com 436 (Bombay) dated 22.1.2019 wherein it was held that for computing capital gain tax, date of allotment of flat by DDA would be the date on which purchaser of flat can be stated to have acquired property. The relevant observations of the Hon‟ble Bombay High Court are reproduced below:- “4. Having heard learned counsel for the parties, we notice that the CBDT in its circular No.471 dated 15th October, 1986 had clarified this position by holding that when an assessee purchases a flat to be constructed by Delhi Development Authority ("D.D.A." for short) for which allotment letter is issued, the date of such allotment would be relevant date for the purpose of capital gain tax as a date of acquisition. It was noted that such allotment is final unless it is cancelled or the allottee withdraw from the scheme and such allotment would be cancelled only under exceptional circumstances. It was noted that the allottee gets title to the property on the issue of allotment letter and the payment of installments was only a follow-up action and taking the delivery of possession is only a formality. 5. This aspect was further clarified by the CBDT in its later circular No.672 dated 16th December, 1993. In such circular representations were made to the board that in cases of allotment of flats or houses by co-operative societies or other institutions whose schemes of allotment and consideration are similar to those of D.D.A., similar view should be taken as was done in the board circular dated 15th ITA No. 8615/Del/2019 Design Forum International Page | 6 October, 1986. In the circular dated 16th December, 1993 the board clarified as under: "2. The Board has considered the matter and has decided that if the terms of the schemes of allotment and construction of flats/houses by the co- operative societies or other institutions are similar to those mentioned in para 2 of Board's Circular No.471, dated 15-10-1986, such cases may also be treated as cases of construction for the purposes of sections 54 and 54F of the Income-tax Act." It can thus be seen that the entire issue was clarified by the CBDT in its above mentioned two circulars dated 15th October, 1986 and 16th December, 1993. In terms of such clarifications, the date of allotment would be the date on which the purchaser of a residential unit can be stated to have acquired the property. There is nothing on record to suggest that the allotment in construction scheme promised by the builder in the present case was materially different from the terms of allotment and construction by D.D.A.. In that view of the matter, CIT appeals of the Tribunal correctly held that the assessee had acquired the property in question on 31st December, 2004 on which the allotment letter was issued. 10. The revenue‟s Special Leave Petition (SLP) preferred before the Hon‟ble Supreme Court was dismissed in 108 taxmann.com 339 (SC). 11. In view of the aforesaid observations and respectfully following the judicial precedent relied upon hereinabove, we allow the Ground No. 3 raised by the assessee and direct the ld. AO to accept the long term capital loss reported by the assessee. 12. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 09/04/2024. -Sd/- -Sd/- (KUL BHARAT) (M BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 09/04/2024 A K Keot Copy forwarded to 1. Applicant ITA No. 8615/Del/2019 Design Forum International Page | 7 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi