2020 (7) TMI 273 - AT - Income Tax

Disallowance of interest u/s 36(1)(iii) - assessee has utilized the interest bearing fund for capital work in progress - A.O relying on the ground that the owned fund available with the assessee were more than the capital work in progress - CIT-A deleted the addition - HELD THAT - No infirmity emerges from the order of the CIT(A) who had rightly observed that as the assessee had sufficient self-owned funds to justify the investment made towards capital WIP therefore no part of the interest expenditure pertaining to interest bearing borrowed funds could have been disallowed u/s 36(1)(iii) of the Act. Insofar the claim of the revenue that they had not accepted the judgment in the case of CIT Vs. HDFC Bank Ltd. (2014) 2014 (8) TMI 119 - BOMBAY HIGH COURT and had filed a SLP before the Hon ble Supreme Court is concerned we are afraid that the same does not find favour with us. As the operation of the order of the Hon ble High Court in the case of HDFC Bank Ltd. (supra) had not been stayed by the Hon ble Apex Court therefore the same holds the ground till date and continues to be binding. Addition u/s 69B - suppressed purchase consideration of the property - HELD THAT - Adoption of the purchase consideration of the property in question by the A.O was only on the basis of an unsubstantiated and dumb rough notings on a piece of paper seized during the course of the search proceedings. On a perusal of the aforesaid seized document we find that the same only refers to a set of figures which on a standalone basis could not have been adopted as the purchase consideration of the property in question. Apart from that we find that the support drawn by the A.O from the fact that while framing the assessment in the case of the seller i.e M/s Ganesh Paper Mills an addition of Rs. 1 crore was made in respect of the transaction under consideration looses all the force as the said addition on appeal had already been deleted by the CIT(A)-29 Delhi vide his order dated 05.02.2016. Lastly we find that the landed cost (inclusive of stamp duty and other charges) had been recorded by the assessee in its books of accounts at Rs. 14.14 crores i.e an amount in excess of the impugned purchase consideration of Rs. 14.01 crores. Accordingly we are persuaded to subscribe to the view taken by the CIT(A) that in the totality of the facts of the case the addition of an amount of Rs. 1 crore made by the A.O towards suppressed purchase consideration of the property in question cannot be sustained and is liable to be vacated. Order being pronounced after ninety (90) days of hearing - COVID-19 pandemic and lockdown - HELD THAT - Taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown the period of lockdown days need to be excluded. See case of DCIT vs. JSW Limited 2020 (5) TMI 359 - ITAT MUMBAI

Summary

Issues Involved:
1. Disallowance of interest under Section 36(1)(iii).
2. Addition of unexplained investment under Section 69B.
3. Validity of assessment based on seized documents without corroborative evidence.

Detailed Analysis:

1. Disallowance of Interest under Section 36(1)(iii):

The primary issue revolves around whether the CIT(A) was justified in deleting the disallowance of interest made under Section 36(1)(iii) of the Income Tax Act, 1961, where the assessee had utilized interest-bearing funds for capital work in progress. The Assessing Officer (A.O) observed that the assessee had a capital work-in-progress (WIP) of Rs. 137.40 crore and claimed interest expenditure of Rs. 15.26 crores on borrowings. The A.O. disallowed Rs. 94,80,600/- by attributing it to the capital WIP, asserting that the interest expenditure should have been capitalized.

The CIT(A) overturned this disallowance, noting that the assessee had sufficient self-owned funds (Rs. 920.91 crores) to justify the investment in capital WIP. This decision was supported by the judgment of the Bombay High Court in CIT Vs. Reliance Utilities & Power Ltd., which established that if an assessee possesses sufficient interest-free funds, it is presumed that investments are made from these funds rather than borrowed funds.

The Tribunal agreed with the CIT(A), emphasizing that the assessee's self-owned funds were sufficient to cover the capital WIP, thus no part of the interest expenditure on borrowed funds should be disallowed. The Tribunal also noted that the revenue's appeal to the Supreme Court against the Bombay High Court's decision in a similar case (CIT Vs. HDFC Bank Ltd.) did not affect the binding nature of the judgment as it had not been stayed.

Conclusion: The Tribunal upheld the CIT(A)’s decision to delete the disallowance of Rs. 94,80,600/- under Section 36(1)(iii).

2. Addition of Unexplained Investment under Section 69B:

The second issue pertains to the addition of Rs. 1 crore made by the A.O. under Section 69B for unexplained investment in property. The A.O. based this addition on a hand-written note seized during a search, which suggested that the property was purchased for Rs. 14.01 crores instead of the declared Rs. 13.01 crores. The CIT(A) found that the addition was based solely on rough notings without corroborative evidence and noted that a similar addition in the seller's case was deleted by the CIT(A)-29, Delhi.

The Tribunal scrutinized the seized document and found it to be unsubstantiated and lacking corroborative evidence. It was noted that the assessee recorded the landed cost of the property (including stamp duty and other charges) at Rs. 14.14 crores, which was higher than the purported purchase consideration. The Tribunal concurred with the CIT(A) that the addition of Rs. 1 crore was unsustainable.

Conclusion: The Tribunal upheld the CIT(A)’s decision to delete the addition of Rs. 1 crore under Section 69B.

3. Validity of Assessment Based on Seized Documents Without Corroborative Evidence:

The final issue was whether the CIT(A) was correct in stating that the seized document did not have any evidentiary value for unexplained investment. The Tribunal noted that the A.O. relied on a rough, uncorroborated note to make the addition. The CIT(A) and the Tribunal found that without corroborative evidence, such a document could not substantiate the addition.

Conclusion: The Tribunal agreed with the CIT(A) that the addition based on the seized document without corroborative evidence was invalid.

Procedural Issue:

The Tribunal addressed the delay in pronouncing the order beyond 90 days due to the COVID-19 lockdown, citing exceptional circumstances. It referenced a coordinate bench's decision in DCIT Vs. JSW Limited & Ors., which allowed for the exclusion of the lockdown period from the 90-day limit for pronouncement of orders.

Conclusion: The Tribunal justified the delay in pronouncement due to the unprecedented COVID-19 lockdown.

Final Outcome:

The appeal filed by the revenue was dismissed, and the Tribunal upheld the CIT(A)’s decisions on all issues. The order was pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1962.