Case Law Details
Brief of the Case
ITAT Delhi held In the case of Wel Intertrade Pvt. Ltd. vs. ITO that there is no dispute that for purchasing the property at Munirka for a consideration of Rs.9,37,33,600, the assessee had taken loan from HDFC Bank for Rs.6.50 crores on which the authorities below have allowed the interest paid by the assessee. The property was acquired w.e.f. 22-09-2005 from Lal Bhai Reality Finance Pvt. Ltd. and Rs.2,21,879 as interest was paid on the delayed payment. The said delayed payment out of the consideration was made on 10.2.2006. Thus, in our view, the interest paid at Rs.2,21,879 cannot be treated differently in comparison to the interest paid to the HDFC Bank as the very purpose for both the interest was to facilitate the payment of amount in consideration for acquisition of the property.
Facts of the Case
ITA No.2538/Del/2010
Disallowance of late payment of interest
The assessee engaged in the business of consultancy and real estates had purchased 8,927 sq. fts. of built up area for a total consideration of Rs.9,37,33,600 besides stamp duty and registration expenses. The property was purchased with effect from 22.9.2005 when the assessee paid a sum of Rs.6,12,98,805 and subsequently requested the seller that since this property was purchased on 22.9.2005 they are also entitled to rent from 23.9.2005. The property was on lease with Lal Bhai Reality Finance Pvt. Ltd. and they paid rent of Rs.4,60,431 for the intervening period.
It was submitted by the assessee that for purchasing the aforesaid property, the assessee company had borrowed Rs.6.50 crores from HDFC Bank and part of the consideration was financed by the assessee company from its own resources. However, since the amount had to be paid by the assessee company to Lal Bhai Reality Finance Pvt. Ltd. on 22.9.2005, it paid interest on the unpaid amount to Lal Bhai Reality Finance Pvt. Ltd. of Rs.2,21,879 prior to the deduction of tax at source. It was submitted that from 23.9.2005, the assessee received rent from the tenant ‘Energy Infra-structure India Pvt. Ltd.’. The rent received in the year under consideration from 23.9.2005 aggregated to Rs.59,45,525. Besides the aforesaid rent, the assessee also received rent of Rs.27,67,500 from another property owned by the assessee company. Thus, the aggregate rent received amounted to Rs.87,13,025 which was duly reflected in the profit and loss account. The assessee claimed deduction of interest paid by the assessee to Lal Bhai Reality Finance Pvt. Ltd. from whom the assessee had acquired the property and paid the consideration for purchase thereof. The Assessing Officer disallowed the same, which has been upheld by the CIT (A) at Rs.2,21,879.
ITA No. 1146/Del/2012
Addition on account of interest income
The assessee company was incorporated on 28.2.1973. It is engaged in the business of development of real estates, sale and purchase of wood and related items. It is also engaged in the business of providing consultancy earning service income by providing infra-structure facility for maintenance of property and earning of interest income on the advances made.
During the year, assessee had offered income from sales of Rs.19,917, rental income of Rs.1,98,31,020 and other income of Rs.84,31,874 which included the interest income of Rs.83,65,124 and dividend income of Rs.66,750. Against the aforesaid, the assessee had claimed expenditure of Rs.2,77,77,591. The Assessing Officer framed the assessment under sec.143(3) at the income of Rs.1,51,50,290 as against the returned income at nil. The Assessing Officer held that interest income is taxable under the head ‘income from other sources’ as against the business income offered by the assessee. The Assessing Officer further held that since no business activity was undertaken by the assessee as such no expenses can be allowed to the assessee and in view thereof the Assessing Officer disallowed the expenditure to the extent of Rs.2,09,62,446 as against Rs.1,79,09,346 claimed in the computation of income. The Learned CIT (A) has upheld the same.
Contention of the Assessee
ITA No.2538/Del/2010
Disallowance of late payment of interest
The ld counsel of the assessee submitted that the disallowance was made by the Assessing Officer without application of mind as he proceeded to compute income on the basis of profit and loss account and not on the basis of computation of income filed by the assessee. Had the Assessing Officer examined the claim under the head “income from property” separately then he would not have committed such an error of disallowing the entire claim debited in the profit and loss account which aggregated to Rs.71,12,593 which was the amount of interest paid as also bank charges, detailed in the profit and loss account.
The Learned AR submitted further that CIT (A) in his order has also erred having only allowed a deduction of interest paid on a loan of Rs.6.50 crores paid to HDFC Bank and erred in not allowing interest paid by the assessee to Lal Bhai Reality Finance Pvt. Ltd. by holding that the same represents late interest payment and not interest charges paid to HDFC Bank. He submitted that the CIT (A) has failed to appreciate that the assessee has paid the interest on the amount borrowed from HDFC Bank and has also paid interest on the unpaid amount to Lal Bhai Reality Finance Pvt. Ltd. till the same was paid on 10.2.2006. He submitted that not only interest paid to HDFC Bank of Rs.29,41,967 was allowable as deduction but also unpaid amount to Lal Bhai Reality Finance Pvt. Ltd. represented borrowed amount and as such interest paid on such borrowed amount is also eligible for deduction under sec. 24(b).
Addition of income on account of non commencement of business
The ld counsel of the assessee submitted that the assessee had been carrying on various business activities including business of real estates. In fact, the Assessing Officer has himself observed in the assessment order as “assessee engaged in the business of consultancy and real estates” and has computed business income at Rs.18,77,041. The Assessing Officer had denied the claimed deduction on the basis that there was no income from real estates in the year under consideration. The Assessing Officer accordingly disallowed interest and bank charges claimed as deduction.
The CIT (A) in fact has himself accepted that the funds have been admittedly utilized as working capital of the real estates business. He pointed out that even in the assessment order framed under sec. 143(3) for the assessment year 2005-06; it is an admitted fact by the Assessing Officer that assessee is engaged in the work of real estates. He pointed out further that in the preceding assessment year, expenditure incurred and as debited in profit and loss account like in the present year has been fully and wholly allowed as deduction.
ITA No. 1146/Del/2012
Addition on account of interest income
The ld counsel of the assessee submitted that the assessee had been engaged in the earning income from advancing money on interest since last many preceding assessment years and the interest income earned in each of such assessment years had been offered as business income and same has also been accepted in all the preceding assessment years i.e. 2002-03 to 2007-08 and 2009-10. He pointed out that even in the assessment framed under sec. 143(3) for the assessment years 2005-06 and 2006-07, the interest income offered as business income has duly been accepted. Hence, even on the principles of consistency, aforesaid interest income as was offered by the assessee is liable to be taxed as business income and not as income from other sources.
The Learned AR submitted that the assessee is in the business of development of real estates, sale and purchase of woods and related items, business of providing consultancy, earning service income by providing infra-structure facility for maintenance of property and earning of interest income. He submitted that it is not denied that during the year under consideration apart from interest income earned to Rs.83,65,124 and Rs.19,917 earned from the sale of timber, no other business income was earned, however, merely because business income was not earned from its activity of real estates and consultancy business, it cannot be held that no business was undertaken during the year. He submitted that the business of assessee had never ceased to exist.
Contention of the Revenue
ITA No.2538/Del/2010
Disallowance of late payment of interest
The ld counsel of the revenue submitted that the claimed interest was not allowable as it was not an interest paid on the capital borrowed from the HDFC Bank. He submitted further that this amount also cannot be claimed as expenditure incurred for business purposes as the property in question has been assessed to tax under the head ‘income-from house property”.
Addition of income on account of non commencement of business
The ld counsel of the revenue submitted that under the facts of the present case, the CIT (A) has rightly come to the conclusion that the assessee company had not commenced the business of real estates. The assessee was in several business activities and it was not clear that as to which business was commenced during the year.
ITA No. 1146/Del/2012
Addition on account of interest income
The learned Senior DR on the other had relied upon the orders of the authorities below. He submitted that under the facts of the case, the authorities below have rightly treated the claimed interest income as income from other sources. He submitted further that a principle of res-judicata is not applicable in the matters of income-tax.
Held by CIT (A)
CIT (A) upheld the order of AO.
Held by ITAT
ITA No.2538/Del/2010
Disallowance of late payment of interest
We find that the claimed deduction has been denied on the basis that the same was not allowable as it was not an interest paid on the capital borrowed from HDFC Bank. There is no dispute that for purchasing the property at Munirka for a consideration of Rs.9,37,33,600, the assessee had taken loan from HDFC Bank for Rs.6.50 crores on which the authorities below have allowed the interest paid by the assessee. The property was acquired from Lal Bhai Reality Finance Pvt. Ltd. and Rs.2,21,879 as interest was paid on the delayed payment of the amount out of the sale consideration to Lal Bhai Reality Finance Pvt. Ltd. The said delayed payment out of the consideration was made on 10.2.2006. Thus, in our view, the interest paid at Rs.2,21,879 cannot be treated differently in comparison to the interest paid to the HDFC Bank as the very purpose for both the interest was to facilitate the payment of amount in consideration for acquisition of the property.
We thus while setting aside the orders of the authorities below in this regard direct the Assessing Officer to compute the interest of Rs.2,21,879 claimed as allowable while computing income from property as provided under sec. 24(b).
Addition of income on account of non commencement of business
We find that in the assessment year 2005-06 in the assessment framed under sec. 143(3), the Assessing Officer himself has admitted that the assessee is engaged in the work of real estate’s development.. Besides, it is an established position of law that any expenditure incurred after the date of setting up of the business is allowable deduction and it is an unrebutted fact of the present case that in the preceding assessment years, as submitted by the Learned AR hereinabove, the expenditure incurred and as debited in profit and loss account like in the year under consideration, has been fully and wholly allowed as deduction. The CIT (A) has himself held that admittedly the loan amount was used as working capital in its real estates business. Under these facts, we are of the view that the Learned CIT (A) was not justified in arriving at a conclusion that the assessee company has not commenced the business of real estates.
ITA No. 1146/Del/2012
Addition on account of interest income
We find that in the assessment years 2002-03 to 2007-08 and 2009-10, the interest income offered as business income has duly been accepted. It has not been denied by the Revenue that facts of the case on the issues during the year are similar to that of earlier assessment years. Principles of maintenance of consistency in the approach of the revenue on an identical issue under similar facts and circumstances are well established proposition of law. In its recent decision, the Hon’ble Supreme Court in the case of CIT vs. Excel Industries Ltd. (2013) – 358 ITR 295 (S.C) has been pleased to hold that Revenue cannot be allowed to flip flop on the issue and having accepted the order in preceding years, Revenue cannot be allowed to take a contrary view in subsequent assessment years.
In our view, the business is continuing process and merely because there may not be any income from all resources, of course, which is not the case herein, does not by itself mean that the assessee is not engaged in the business and is not carrying on business activities in that year. Under these facts and circumstances, we are of the view that the Assessing Officer was not justified in treating the interest income of Rs.83,65,124 as income from other sources against the claimed income from business.
Accordingly appeals disposed of.
