Paramount Grand, Guwahati V. Income Tax Officer, Ward-3(3), Guwahati

ITA 90/GTY/2020

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 7728 (ITAT-GUWAHATI)
• Duration Of Justice: 7 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 26-05-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Source of fund; Commercial expediency

Judgement Text

ITA NO. 90/GAU/2020 PARAMOUNT GRAND, A.Y. 2014-15 1 | P A GE IN THE INCOME TAX APPELLATE TRIBUNAL GAUHATI BENCH: GUWAHATI VIRTUAL HEARING AT KOLKATA [BEFORE SHRI A. T. VARKEY, JM] I.T.A. NO. 90/GAU/2020 ASSESSMENT YEAR: 2014-15 PARAMOUNT GRAND (PAN: AANJP 0260 A ) VS. ITO, WARD-3(3), GUWAHATI APPELLANT RESPONDENT DATE OF HEARING (VIRTUAL) 15.01.2021 DATE OF PRONOUNCEMENT 20.01.2021 FOR THE APPELLANT SHRI AKKAL DUDHWEWALA, A.R FOR THE RESPONDENT SHRI ARUP CHATTERJEE, ADDL. CIT ORDER THIS IS AN APPEAL PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)- GUWAHATI-2, DATED 31.01.2020 FOR A.Y. 2014-15. 2. THE SOLE GROUND RAISED BY THE ASSESSEE IS AGA INST THE ACTION OF THE LD. CIT(A) IN CONFIRMING THE ACTION OF AO IN DISALLOWING INTER EST TO THE TUNE OF RS. 24,54,678/- U/S 36(1)(III) OF THE INCOME TAX ACT, 1961 (HEREINA FTER REFERRED TO AS THE ACT BEING THE PRO-RATA INTEREST ON THE INTEREST FREE LOAN GIV EN TO THE SISTER CONCERN. 3. BRIEF FACTS OF THE CASE AS NOTED BY THE AO IS TH AT THE ASSESSEE FIRM IS INTO THE BUSINESS OF REAL ESTATE, AND IS A BUILDER AND DEVE LOPER. THE AO NOTES FROM A PERUSAL OF PROFIT AND LOSS ACCOUNT THAT THE FINANCIAL EXPEN SES IS TO THE TUNE OF RS.1,22,78,864/- [INTEREST (NEDF-1) RS.70,61,865 + INTEREST ON BANK OD RS.50,820/- + INTEREST ON UNSECURED LOAN RS.43,30,269/- + INTEREST TO PARTN ERS RS.8,35,910/-] . ITA NO. 90/GAU/2020 PARAMOUNT GRAND, A.Y. 2014-15 2 | P A GE 4. THE AO NOTES THAT ASSESSEE HAS RECEIVED ADVANC ES FROM CUSTOMERS AGAINST FLATS TO THE TUNE OF RS.1,50,64,902/-. THE AO ALSO TOOK NOTE OF THE FACT THAT ASSESSEE HAS TAKEN LOAN FROM THE FOLLOWING FINANCIAL INSTITU TIONS. LOAN/CAPITAL FUND PARTICULARS BALANCE AS ON 31.03.2014 BALANCE AS ON 31.03.2013 SECURED LOAN FROM NEDFI SBI OD A/C UNSECURED PARTNERS CAPITAL 70003058 864042 65579937 14504462 25023013 346714 23640910 12181146 5. AND THE AO OBSERVED AS UNDER: THE OTHER MAJOR SOURCE OF FUND IS ADVANCES FROM CUSTOMERS AGAINST FLATS & GARAGE. THE RESPECTIVE BALANCE UNDER THIS HEAD A S ON 31.03.2013 AND AS ON 31.03.2014 IS RS.3,40,59,847 AND RS.4,91,24,749. T HEREFORE, A SUM OF RS.1,50,64,902 HAS BEEN RECEIVED FROM CUSTOMERS DURING THE RELEVAN T PREVIOUS YEAR 2013-14. 6. THEREAFTER THE AO NOTES THAT THE FUNDS (LOAN AND OTHERS) HAVE BEEN UTILIZED AS UNDER: PURPOSE/HEAD WHERE UTILIZED BALANCE AS ON 31.03.2014 BALANCE AS ON 31.03.2013 STOCK (WORK-IN-PROGRESS) LOANS AND ADVANCES 152201278 40461344 62758761 24868995 THE AO NOTED THAT THE WORK-IN-PROGRESS HAS INCREAS ED BY RS.8,94,42,517/- DURING THE RELEVANT PREVIOUS YEAR, IT MAY BE CONCLUDED THAT LO ANS/FUNDS FROM NEDFI, GUWAHATI, SBI OD ACCOUNT AND PARTNERS HAVE BEEN UTILIZED FOR THE PURPOSE OF BUSINESS AND PROFESSION. 7. THEREAFTER THE AO NOTES THAT THE FUNDS RAISED FR OM DIFFERENT PERSONS BY WAY OF UNSECURED LOANS REMAINED INVESTED AS LOANS AND ADVA NCED DURING THE RELEVANT PREVIOUS YEAR OR FRESH LOANS AND ADVANCES WERE GIVEN DURING THE RELEVANT PREVIOUS YEAR. THE AO REPRODUCED THE COMPLETE DETAILS OF LOANS AND ADV ANCES AS FOLLOWS: ITA NO. 90/GAU/2020 PARAMOUNT GRAND, A.Y. 2014-15 3 | P A GE THEREAFTER THE AO NOTES THAT ASSESSEE HAS GIVEN LOA N AND ADVANCES TO FIVE RELATED SISTER CONCERNS. ACCORDING TO AO, NO INTEREST HAS B EEN CHARGED FROM THESE RELATED CONCERNS. SO, THE INTEREST FREE ADVANCES MADE TO T HE RELATED CONCERNS IS DIVERSION OF FUNDS AT THE COST OF THE ASSESSEE FIRM AND TO THE E XTENT OF FUNDS ADVANCED TO THE RELATED CONCERNS, THE BORROWED FUNDS ARE NOT USED F OR THE PURPOSE OF BUSINESS OF ASSESSEE FIRM. THE AO OBSERVES THE INTEREST-BEARING SOURCES OF FUNDS, NAMELY NEDFI AND SBI OD A/C ARE SECURED AGAINST THE BUSINE SS OF THE ASSESSEE. SIMILARLY, PARTNERS CAPITAL HAS JUST INCREASED ITS NORMAL COU RSE OF BUSINESS. THEREFORE, IT CAN BE SAFETY CONCLUDED THAT THE INTEREST-FREE ADVANCES MA DE TO THE ABOVE-MENTIONED RELATED CONCERNS' PERSONS IS OUT OF UNSECURED LOANS RAISED BY THE ASSESSEE-FIRM. THE UNSECURED LOANS ARE FOUND TO BE RAISED AT THE RATE OF 9% PER ANNUM . AND THEREAFTER AO DISALLOWED RS. 24,54,678/-. 8. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFOR E THE LD. CIT(A) WHO CONFIRMED THE SAME. 9. AGGRIEVED THE ASSESSEE IS BEFORE ME. ITA NO. 90/GAU/2020 PARAMOUNT GRAND, A.Y. 2014-15 4 | P A GE 10. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORDS. THE LD. A.R. SHRI AKKAL DUDHWEWALA DREW MY ATTENTION TO PAGE 3 WHICH HAS BE EN REPRODUCED ABOVE FROM WHICH THE LD. A.R CONTENDED THAT IN THIS CASE, THE ASSESSEE HAS TAKEN LOAN OF RS.8,97,59,716/- WHICH HAS BEEN USED FOR THE CONSTR UCTION OF BUILDINGS/FLATS OF THE ASSESSEE WHICH CAN BE NOTED FROM THE INCREASE IN TH E WORK-IN-PROGRESS (IN SHORT WIP) THIS YEAR. DRAWING MY ATTENTION TO THE EARLIER YEAR WIP WHICH WAS ONLY TO THE TUNE OF RS. 6.27 CRORES WHEREAS IT IS INCREASED TO RS. 15.2 2 CRORES WHICH MEANS THE BORROWED AMOUNT HAS BEEN COMPLETELY UTILIZED FOR THE BUSINES S PURPOSE I.E. RS.8.94 CR. ACCORDING TO LD. A.R THE ASSESSEE DID NOT CLAIM ANY INTEREST EXPENDITURE U/S 36(1)(III) OF THE ACT AND THE AO ERRED IN DISALLOWING THE SAME . ACCORDING TO THE ASSESSEE, THE AMOUNT OF RS.4,06,41,344/- ADVANCED TO FIVE SISTER CONCERNS NAMELY I) M/S PARAMOUNT HILLS II) M/S PARAMOUNT PALAZO III) M/S PARAMOUNT T AJ IV) M/S PARAMOUNT SQUARE V) M/S S. P. ASSOCIATES ARE ALSO INTO THE REAL ESTATE, BUILDERS AND CONSTRUCTION AND THE AMOUNT HAVE BEEN GIVEN TO THEM DUE TO COMMERCIAL EX PEDIENCY AND THAT AMOUNT ADVANCED IS NOT FROM THE BORROWED FUNDS AND RATHER IT CAN BE NOTED THAT IT IS FROM THE INTEREST FREE AMOUNT AVAILABLE WITH THE ASSESSEE TO THE TUNE OF RS.4,91,24,749/- FROM ADVANCES FROM CUSTOMERS (INTEREST FREE), THEREFOR E, NO DISALLOWANCE COULD HAVE BEEN MADE AGAINST THE ASSESSEE U/S. 36(1)(III) OF T HE ACT. AND FOR THAT PROPOSITION RELIED ON THE DECISION OF THE HONBLE BOMBAY HIGH C OURT IN RELIANCE UTILITIES & POWER LTD. (178 TAXMAN 135) AND IN RESPECT OF COMME RCIAL EXPEDIENCY HE CITED THE DECISION OF THE HONBLE SUPREME COURT IN S.A. BUILD ERS VS. CIT IN 288 ITR 1 (SC) WHEREIN THE HONBLE SUPREME COURT UPHELD THE VIEWS OF THE HONBLE DELHI HIGH COURT IN CIT VS. DALMIA CEMENT IN 254 ITR 377 (DEL) AND ALSO DECISION OF HONBLE SUPREME COURT IN SASOON J. DAVID VS. CIT IN 118 ITR 268 (SC). IT IS NOTED THAT THE HONBLE DELHI HIGH COURT IN CIT VS. BHARTI TELEVENT URES LTD. IN 331 ITR 502 (DEL) RELYING ON THE DECISION OF HONBLE SUPREME COURT IN SASOON J DAVID (SUPRA) HELD THAT THE HONBLE SUPREME COURT FURTHER HELD THAT THE AC TION THOUGH THE BORROWED AMOUNT WAS NOT UTILIZED BY THE ASSESSEE IN ITS OWN BUSINES S AND HAD BEEN ADVANCED AS AN INTEREST FREE LOAN TO THE SISTER CONCERN, BUT THAT IS NOT RELEVANT TO. WHAT IS RELEVANT IS WHETHER THE ASSESSEE HAD ADVANCED SUCH AMOUNT TO, I TS SISTER CONCERN AS A MEASURE OF COMMERCIAL EXPEDIENCY. THE HONBLE SUPREME COURT APPROVED THE LAW LAID DOWN ITA NO. 90/GAU/2020 PARAMOUNT GRAND, A.Y. 2014-15 5 | P A GE BY THE HONBLE DELHI HIGH COURT IN THE CIT VS. DALM IA CEMENT (SUPRA) WHEREIN THE HONBLE DELHI HIGH COURT OBSERVED THAT ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BETWEEN EXPENDITURE AND THE PURPOSE OF THE BUSINESS (WHICH NEED NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE ITSELF), THE REVENUE C ANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARMCHAIR OF THE BUSINESS MAN AND FURTHER NO BUS INESS MAN CAN BE COMPELLED TO MAXIMIZE HIS PROFIT. THE HONBLE SUPREME COURT FURTHER OBSERVED THAT TH E REVENUE IN SUCH CASES AS TO PUT ITSELF IN THE SHOES OF A PRUDE NT BUSINESS MAN AND TO VISUALISE THE TRANSFER OF FUND FROM THE POINT OF VIEW OF COMMERCI AL EXPEDIENCY AND NOT FROM THE POINT OF VIEW WHETHER THE AMOUNT WAS ADVANCED FOR E ARNING PROFIT. THEREFORE, ACCORDING TO LD. AR, NO DISALLOWANCE OF INTEREST EX PENDITURE COULD HAVE BEEN MADE BY THE AO ON THE FACTS AS WELL AS LAW/CASE LAWS DIS CUSSED. PER CONTRA, THE LD. DR SHRI ARUP CHATTERJEE VEHEMENTLY OPPOSED THE SUBMISS ION OF LD. AR AND SUPPORTED THE ACTION OF THE LD. CIT(A) AND AO DOES NOT WANT M E TO INTERFERE WITH THE IMPUGNED ORDER OF LD. CIT(A). 11. HAVING HEARD BOTH THE PARTIES AND AFTER PERUSAL OF RECORDS IT IS NOTED THAT ASSESSEE FIRM IS INTO REAL ESTATE AND IS A BUILDER. THE ASSESSEE HAS TAKEN TOTAL LOAN FROM BOTH SECURED AND UNSECURED SOURCES TO THE TUNE OF RS.8.97 CR, ITS CASE WAS THAT THIS AMOUNT WAS APPLIED FOR BUILDING FLATS (STOCK) AND SO THE INTEREST EXPENDITURE WAS CAPITALIZED AS WORK IN PROGRESS (WIP) TO THE TUNE O F RS.8.94 CR. AND SO THE ASSESSEE DID NOT CLAIM ANY DEDUCTION ON ITS INTEREST EXPENDITURE . HOWEVER, THE AO TAKING NOTE THAT ASSESSEE HAS GIVEN/SHOWN TO HAVE ADVANCED AMOUNT TO ITS SISTER CONCERNS THE TUNE OF RS.4,06,41,344/- WITHOUT CHARGING ANY INTEREST ON I T AND AT THE SAME TIME HAS SHOWN FINANCE EXPENSES OF R.S1,22,76,864/- AT SCHEDULE 9 OF ITS AUDITED ACCOUNTS, WAS OF THE OPINION THAT THE ASSESSEE BY GIVING INTEREST FREE ADVANCES TO SISTER CONCERN, HAS INCURRED COST FOR BORROWING, WHICH IS AN ACT OF DIV ERSION OF FUND AT THE COST OF ASSESSEE FIRM AND THEREFORE, HE DISALLOWED RS.24,54,678/-. 12. FROM THE FINANCIALS (AUDITED ACCOUNTS) PRODUCED BEFORE ME, THE FOLLOWING FACTS WHICH ARE RELEVANT TO DETERMINE THIS LIS IN THIS APPEAL ARE REPRODUCED AS UNDER: ITA NO. 90/GAU/2020 PARAMOUNT GRAND, A.Y. 2014-15 6 | P A GE ITA NO. 90/GAU/2020 PARAMOUNT GRAND, A.Y. 2014-15 7 | P A GE ITA NO. 90/GAU/2020 PARAMOUNT GRAND, A.Y. 2014-15 8 | P A GE 13. FROM THE AFORESAID FACTS AS RECORDED (SUPRA) TH E COMPARATIVE POSITION OF THE INTEREST FREE FUNDS (ADVANCES FROM CUSTOMER(S) AND THE INTEREST FREE LOANS ADVANCED TO SISTER RELATED CONCERN ARE CULLED OUT AS UNDER: PARTICULARS BALANCE AS ON 31.03.2013 BALANCE AS ON 31.03.2014 ADVANCES FROM CUSTOMERS (INT. FREE) LOANS TO SISTER/RELATED CONCERN (INT. FREE) RS.3,40,59,847/- RS.2,48,68,995/0 RS.4,91,24,749/- RS.4,06,41,344/- 14. AND THE COMPARATIVE POSITION OF THE INTEREST BE ARING LOAN FUNDS AND THE COST OF INVENTORY/WORK-IN-PROGRESS & FIXED ASSETS ARE CAPTU RED AS UNDER: PARTICULARS BALANCE AS ON 31.03.2013 BALANCE AS ON 31.03.2014 INCREASE INCREASE IN INTEREST BEARING FUNDS. LOAN FROM NEDFI RS.2,50,23,013/- RS.7,00,03,058/- R S.4,49,80,045/- ITA NO. 90/GAU/2020 PARAMOUNT GRAND, A.Y. 2014-15 9 | P A GE SBI OD A/C RS.3,46,714/- RS.8,64,042/- RS.5,17,328/ - UNSECURED LOAN RS.2,36,40,910/- RS.6,55,79,937/- RS .4,19,39,027/- PARTNERS CAPITAL RS.1,21,81,146/- RS.1,45,04,462/- RS.23,23,316/- SUB-TOTAL RS.8,97,59,716/- INCREASE IN INVENTORY/FIXED ASSETS WORK-IN-PROGRESS RS.6,27,58,761/- RS.15,22,01,278/- RS.8,91,42,517/- 15. FROM A PERUSAL OF THE AFORESAID CHARTS, IT IS D ISCERNED THAT ASSESSEE HAD OBTAINED INTEREST BEARING FUNDS TO THE TUNE OF RS.8,97,59,71 6/- AS ON 31.03.2014 (BETWEEN 01.04.2013 31.03.2014) AND ITS STOCK/WIP HAS INCR EASED IN THIS YEAR TO THE TUNE OF RS.8,94,42,517/-. IN SUCH A SCENARIO, THE ASSESSEE HAD CAPITALIZED THE INTEREST EXPENDITURE IN ITS STOCK/WIP AND SO IT DID NOT CLAI M DEDUCTION OF INTEREST U/S. 36(1)(III) OF THE ACT. THIS ACTION OF THE ASSESSEE CANNOT BE HELD TO BE WRONG AND THE AO ERRED IN DISALLOWING INTEREST U/S. 36(1)(III) OF THE ACT WIT HOUT EVEN THE ASSESSEE CLAIMING ANY DEDUCTION OF INTEREST EXPENDITURE ON THE FACTS OF THE CASE AS DISCUSSED (SUPRA). 16. FURTHER, IT IS NOTED THAT ASSESSEE HAD ENOUGH FUNDS (INTEREST FREE)IN ITS DISPOSAL TO GIVE ADVANCE TO ITS RELATED CONCERNS. IT IS NOT ED FROM THE CHART ABOVE THAT ASSESSEE HAD ADVANCES FROM CUSTOMERS (INTEREST FREE) TO THE TUNE OF RS.4,91,24,749/-. AND IT HAD ADVANCED ONLY AN AMOUNT OF RS.4,06,41,344/- TO ITS RELATED CONCERNS AS INTEREST FREE. SO, ACCORDINGLY, NO DISALLOWANCE OF INTEREST WAS WARRANTED IN THE FACTS OF THIS CASE, SINCE THE ASSESSEE HAS CLEARLY DEMONSTRATED T HAT ADVANCE GIVEN TO RELATED CONCERNS WAS FROM ITS INTEREST FREE FUNDS AVAILABLE WITH IT. THEREFORE, ACCORDING TO ME, THERE IS NO QUESTION OF ANY DISALLOWANCE OF INTERES T OUGHT TO HAVE BEEN RESORTED BY INVOKING SECTION 36(1)(III) OF THE ACT IN THE FACTS OF THE CASE. AND, THEREFORE, I ALLOW THE APPEAL OF THE ASSESSEE AND DIRECT THE AO TO DEL ETE RS.24,54,678/-. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. . ORDER IS PRONOUNCED IN THE OPEN COURT ON 20 TH JANUARY, 2021. SD/- ( (A. T. VARKEY) VICE PRESIDENT JUDICIAL MEMBER DATED: 20 TH JANUARY, 2021. SB, SR. PS ITA NO. 90/GAU/2020 PARAMOUNT GRAND, A.Y. 2014-15 10 | P A GE COPY OF THE ORDER FORWARDED TO: 1. APPELLANT- PARAMOUNT GRAND, C/O, RAHUL RAJ JAIN & C O. H. NO. 15, 1 ST FLOOR, BYE LANE-2, SHAKTIGARH PATH, BHANGAGARH, G.S.ROAD, ASSAM-781005. 2. RESPONDENT- ITO, WARD-3(3), GUWAHATI 3. THE CIT(A)- GUWAHATI 4. CIT- , GUWAHATI 5. DR, GAUHATI BENCH, GUWAHATI TRUE COPY BY ORDER SR. PRIVATE SECRETARY ITAT, KOLKATA BENCHES, KOLKATA