2019 (7) TMI 929 - AT - Income Tax

Disallowance finance cost - borrowings were raised through debentures issued - expenditure of Rs. 104.50 crores was incurred for redemption of debenture - eligible business expenditure u/s 36(1)(iii) - objection that quantum of borrowing made together with the period of borrowings such rates of interest are highly excessive - HELD THAT - Once borrowing has been made through the debentures and utilized for the purpose of business it has been established through documentary evidence in the shape of agreements and correspondences for which no contrary evidence has been placed on record then surmises conjectures and suspicion should not be made a basis to reject the claim of the appellant company. Thus the judgment as relied upon has no application to the facts of the instant case. In view of the foregoing we conclude that the appellant is entitled to deduction of Rs. 104.50 crores incurred on redemption of debentures u/s 36(1)(iii). Furthermore we also hold that Rs. 1 crores earned by the appellant on redemption of debentures by M/s. Vatika Ltd. in respect of investment made by the appellant company was taxable as business income as declared in the return of income. As a result grounds raised by the appellant are allowed. Addition in respect of sale of commercial area - collaboration agreement was also entered between the appellant and M/s. DLF Ltd. to develop the land - agreement for proportionate expenditure on account of advertisement and marketing - out of proportionate sale proceeds was Rs. 103.42 crores. M/s. DLF deducted Rs. 13.92 crores and credited Rs. 89.50 crores to appellant - HELD THAT - The aforesaid agreements supported by independent confirmation obtained u/s 133(6) by the learned Officer in the remand proceedings to which no contrary evidence has been placed on record we are of the opinion sum taxable is Rs. 89.50 crores and not at Rs. 103.42 crores as taxed in the impugned orders. In our considered opinion income accrued is only Rs. 89.50 crores which is also supported by an audited certified statement and thus addition so made is not in accordance with law and therefore is deleted. Grounds raised by the appellant are allowed. Addition under the head income from house property - property left left vacant and not forming part of block of assets - HELD THAT - In the present case we are concerned with the property which is purchased for the purpose of resale and lying vacant under head inventory and meanwhile used for purpose of business. The FMV of the property used by appellant for business purpose admittedly cannot be determined u/s 23(1). In identical case coordinate bench of Delhi Tribunal in case of Ashok Kumar Gupta vs. ITO 2017 (10) TMI 1077 - ITAT DELHI has held that FMV of properties used by appellant for business purpose could not be determined u/s 23(1). In the said case properties under consideration were the properties which which are lying vacant or were under construction or were let out or were self occupied for the purpose of business purpose and in respect of properties which were used by the assessee for his own office/ business purpose it was held that FMV of the properties used by the assessee for business purpose admittedly cannot be determined u/s 23(1) We are of the opinion that addition made by erroneously determining annual value u/s 23(1) is not in accordance with law and is therefore deleted.

Summary

Issues Involved:
1. Jurisdictional overreach and denial of a fair hearing.
2. Disallowance of a loss of Rs. 103.50 crores on redemption of debentures.
3. Addition of Rs. 13.92 crores due to alleged failure to deduct tax at source.
4. Addition of Rs. 18.90 lacs as deemed rental income.
5. General confirmation of the assessment order by CIT(A).

Issue-wise Detailed Analysis:

1. Jurisdictional Overreach and Denial of a Fair Hearing:
- The assessee argued that the Assessing Officer (AO) exceeded his jurisdiction and did not provide a fair opportunity for a hearing.
- The Tribunal dismissed these grounds as they were general and not separately argued.

2. Disallowance of Rs. 103.50 Crores on Redemption of Debentures:
- Facts: The assessee issued debentures to M/s. India Bulls Housing Finance Ltd. at a discount, resulting in a claimed loss of Rs. 104.50 crores upon redemption.
- AO's Conclusion: The AO prepared flow charts showing money trails, concluding that the transactions were contrived to create an artificial loss. The AO held that the funds were routed back to India Bulls Group companies, indicating a colorable transaction.
- CIT(A)'s Conclusion: The CIT(A) agreed with the AO, noting that the companies involved had similar addresses and common email IDs, suggesting they were controlled by the same entity. The CIT(A) also found that the companies had no substantial asset base or employees, reinforcing the view of a contrived loss.
- Tribunal's Analysis: The Tribunal found that the borrowings were used for business purposes, supported by documentary evidence such as agreements and confirmations from the companies involved. The Tribunal noted that the revenue did not rebut these evidences or conduct further inquiries. The Tribunal also highlighted that the income from these transactions was taxed in the hands of other entities, making it inconsistent to disallow the expenditure as artificial.
- Conclusion: The Tribunal allowed the deduction of Rs. 104.50 crores under Section 36(1)(iii) of the Income Tax Act, holding that the expenditure was for business purposes.

3. Addition of Rs. 13.92 Crores Due to Alleged Failure to Deduct Tax at Source:
- Facts: The assessee entered into a collaboration agreement with M/s. DLF Ltd. for developing land, where DLF was to receive 55% of the super area and the assessee 45%. DLF deducted Rs. 13.92 crores from the sale proceeds for marketing expenses.
- AO's Conclusion: The AO added Rs. 13.92 crores to the assessee's income, arguing that the assessee did not furnish adequate details to verify the claim.
- CIT(A)'s Conclusion: The CIT(A) upheld the AO's addition, citing insufficient evidence from the assessee.
- Tribunal's Analysis: The Tribunal referred to the supplementary agreement and confirmation from DLF under Section 133(6), which clarified that Rs. 89.50 crores was the final settlement amount. The Tribunal found that the income of Rs. 13.92 crores was already offered to tax by DLF.
- Conclusion: The Tribunal deleted the addition of Rs. 13.92 crores, holding that the income accrued to the assessee was Rs. 89.50 crores.

4. Addition of Rs. 18.90 Lacs as Deemed Rental Income:
- Facts: The AO added Rs. 18.90 lacs as notional rental income for a property in Vasant Vihar, which the assessee claimed was held as inventory for resale.
- AO's Conclusion: The AO held that the property could not be self-occupied by the company and added the notional rent.
- CIT(A)'s Conclusion: The CIT(A) confirmed the AO's addition.
- Tribunal's Analysis: The Tribunal referred to precedents where properties held as inventory or used for business purposes were not subject to notional rent under Section 23(1). The Tribunal also noted that the property was used for business purposes and thus should not be taxed as house property.
- Conclusion: The Tribunal deleted the addition of Rs. 18.90 lacs.

5. General Confirmation of the Assessment Order by CIT(A):
- The Tribunal found that the CIT(A) had mechanically confirmed the assessment order without adequately considering the assessee's submissions and supporting evidence.
- The Tribunal allowed the appeal, deleting the additions and disallowances made by the AO and confirmed by the CIT(A).

Conclusion:
The Tribunal allowed the appeal, deleting the disallowances and additions made by the AO and confirmed by the CIT(A), and held that the transactions and expenditures were genuine and for business purposes.