TMI Blog2015 (9) TMI 1055X X X X Extracts X X X X X X X X Extracts X X X X ..... 2009 (IT) - - - Dated:- 8-9-2015 - Vineet Saran And B. Manohar, JJ. For the Petitioner : Sri A Shankar M Lava, Advs For the Respondents : Sri K V Aravind Sri G Kamaladhar, Advs JUDGMENT The assessee has preferred these appeals under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as 'the Act' for short) being aggrieved by the common order dated 08-05-2009 made in ITA No.738- 740/BNG/2008 passed by the Income Tax appellate tribunal, Bangalore Bench (hereinafter referred to as 'the Tribunal' for short) confirming the order passed by the Commissioner, Income Tax (Appeals)-V, Bangalore, (hereinafter referred to as 'the First Appellate Authority' for short) as well as the assessment order passed by the assessing authority for the assessment years 2000-01 to 2002-03 disallowing the interest expenditure. 2. The assessee is a partnership firm which is in the business of real estate and construction of commercial and residential complexes. It has filed its return of income for the assessment years 2000-01 to 2002-03. The Assessing Officer processed the return under Section 143(1) of the Act. Subsequently, return of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 30,49,721/- for the assessment year 2000-01, ₹ 26,80,935/- for the assessment year 2001-02, ₹ 30,28,155/- for the assessment year 2002-03. Being aggrieved by the same, the assessee preferred three appeals before the First Appellate Authority, challenging the three assessment orders on various grounds. The First Appellate Authority, after considering the matter in detail and taking into consideration the judgments of various High Courts, while partly allowing the appeals, denied the expenditure on interest for the three assessment years by its order dated 18-03-2008. The assessee being aggrieved by the order passed by the First Appellate Authority preferred three appeals before the Tribunal. The Tribunal after considering the matter in detail held that though the assessee availed loan for its business, the said amount was not utilized for its business whereas the same was diverted to its sister concern, Dynasty Developers Private Limited Company (hereinafter referred to as 'the DDPL for short). The veracity of exchange of letter between the assessee and its sister concern to treat the loan as an advance payment for the area to be purchased in the so called pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquisition of a portion of the property in the proposed project of its sister concern in the name and style, Embassy Meadows . The advance was not in the nature of assets. The loan amount was invested in its sister concern as a measure of commercial expediency. In those circumstances, the assessee is entitled for deduction of expenditure incurred towards the interest under Section 36(1)(iii) of the Act. The order passed by the Tribunal is contrary to the law laid down by the Hon'ble Supreme Court in the case of S.A.BUILDERS LTD. v/s COMMISSIONER OF INCOME-TAX (APPEALS) AND ANOTHER, reported in (2007)288 ITR 1(SC). The amounts paid to the DDPL are business advance and in turn the DDPL provisionally allotted an area to an extent of 30000 sq.ft. and 25 covered car parking area in the project of Embassy Meadows for a consideration of ₹ 3.25 crores. In the above said judgment, the Hon'ble Supreme Court, while examining Section 36(1)(iii) and Section 37 of the Act, held that interest on money borrowed from the Bank and lent to the sister concern without charging interest for the purpose of its business is an allowable deduction under Section 36(1)(iii) of the Act. The f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he supplier for implementation of the said project. Hence, the Tribunal, taking into consideration all these aspects of the matter, disallowed the deduction of interest. The judgments relied upon by the assessee are not applicable to the facts of the present case and sought for dismissal of the appeals. 6. Heard the learned counsel appearing for the parties and perused the orders passed by the Tribunal, First Appellate Authority and the Assessing Authority. 7. The records clearly disclose that the assessee-Firm is engaged in the business of real estate and construction of commercial and residential complexes. During the assessment year 2000-01, the assessee borrowed a sum of ₹ 2.50 crores from KSIIDC as medium term corporate loan for its business. However, the said amount was diverted to its sister concern i.e. M/s. DDPL for which, one of the Partners of the assessee-Firm is also one of the Directors. During the assessment year 2000-01, the assessee debited a sum of ₹ 30,49,721/- as interest towards loan amount and claimed it as an expenditure while preparing the profit and loss account and filed the returns. The said returns were taken up for scrutiny and notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all these aspects of the matter, clearly held that the transaction between the assessee and its sister concern is purely a loan transaction. There is no agreement entered into between the parties. The intention behind the advance is only book interest expenditure in the assessee's case to reduce the taxable income. The finding recorded by the authorities below is purely a question of fact. The same was confirmed by the Tribunal. Except saying that the sister concern provisionally agreed to allot an extent of 30000 sq.ft. and 25 covered car park area in the project Embassy Meadows , no concrete material has been produced before the authorities concerned. Initially, the assessee itself wanted to put up Embassy Meadows , however, the responsibility of construction has been given to its sister concern DDPL. The land belongs to another sister concern. Even after three years, the Project has not yet been commenced. Whether ₹ 65,00,000/- paid for the assessment year 2003-04 is with respect to the profit or the loan amount is not made known. In view of that, all the authorities have concurrently held that the amount advanced is not a business expediency and it is only a loan t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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