TMI Blog2016 (1) TMI 311X X X X Extracts X X X X X X X X Extracts X X X X ..... e entered into on 01.01.2005, the contention of the assessee that the loan had been obtained by the developer for construction of the building is probable as no Bank would probably give a loan on a building which is not yet completed for any other purpose. However, the loan from Oriental Bank of Commerce was taken by the developer and the reason for the assessee to repay the same is stated to be for the purpose of acquiring the property. If the assessee has agreed to pay the developer for the works outside the development agreement for making it fit for letting out the property with all amenities, it is the expenditure incurred by the assessee for acquisition or improvement of the property. The mode or time of payment would not determine the nature of the expenditure. Therefore, all these facts need verification by the A.O. which has not been carried out by the A.O. for the assessment years before us. But the first year of the claim is A.Y. 2005-06 wherein the claim of the assessee was allowed in the assessment proceedings under section 143(3) of the Act and this fact has been taken note of by the Coordinate Bench of this Tribunal while quashing the revision order under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivahana Associates (referred to as developer hereinafter) for construction of a commercial complex on the said land with their own funds vide development agreement dated 01.04.2001. The said complex was completed in 2004 and thereafter the assessee entered into registered lease deeds dated 04.05.2005 with M/s. Secunderabad Hotels P. Ltd., for lease of the above mentioned constructed property. Thereafter, the assessee obtained a loan on lease rentals from UCO Bank to repay a loan obtained by the developer M/s. Shalivahana Associates from Oriental Bank of Commerce. Assessee claimed the interest paid to UCO Bank from the income from house property as interest paid for acquisition or improvement of the property under section 24(b) of the Act for the first time during A.Y. 2005- 06. During the scrutiny proceedings under section 143(3) of the Act for the A.Y. 2005-06, the A.O. called for the details of the loan advanced to the sister concern and after considering the details filed by the assessee, allowed the claim of the assessee. Similar claims made in A.Ys. 2006-07 and 2007-08 were allowed by the respective Assessing Officers. Thereafter, the CIT exercising jurisdiction under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing ratio in the original development agreement dated 01.04.2001 as well as supplementary agreement dated 19.12.2002 was 50:50 and the mention in the supplementary agreement of the sharing ratio in the original agreement being 65:35 is not correct as in the original agreement itself the sharing ratio is 50:50. He therefore held that the supplementary deed is a make believe deed to claim that assessee has provided some funds to the developer. He further observed that even in the lease deeds entered into with M/s. Secunderabad Hotels P. Ltd., there is no mention of the supplementary deed. Thus, he held the supplementary deed to be a colourable device introduced by the assessee to claim interest expenditure from the rental income. He accordingly held that the assessment order allowing the claim of interest under section 24(b) as erroneous and prejudicial to the interest of revenue and directed the A.O. to further examine the allowability of the claim of the assessee under section 24(b) of the Act. The A.O. while giving effect to the order of the CIT under section 143(3) read with section 263 of the Act disallowed the claim under section 24(b). Meanwhile, assessee preferred appeals bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) for the A.Ys. 2008-09, 2009-10 and 2010- 11 were reopened by issuance of notice under section 148 of the Act to bring the amount to tax. 2.3. For the relevant assessment years before us, there was no compliance by the assessee to the notices issued under section 148 and no information was filed. Therefore, the assessment was completed under section 144 read with section 147 of the Act on the basis of the material available on record. The A.O. thereafter disallowed the claim of interest under section 24(b) on the same grounds on which the CIT sought to revise the assessments for A.Ys. 2006-07 and 2007-08 under section 263 of the Act. Aggrieved, the assessee preferred appeals before the CIT(A) who confirmed the orders of the A.O. for A.Ys. 2009-10 and 2010-11 and the assessee is in second appeal before us. 3. Ld. Counsel for the Assessee, Mr. S. Rama Rao, while reiterating the submissions made by the assessee before the authorities below submitted that the assessee s appeal for A.Y. 2008-09 was still pending before the CIT(A). As regards the present appeals and the issue therein, he has drawn our attention to the development agreements, supplementary deed to the development a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntentions and the material on record, we find that the only dispute in this appeal is whether the assessee had borrowed funds for construction of the building and if so, whether the assessee is entitled to the interest on such borrowed funds as deduction from the rental income. There is no dispute as regards the date of development agreement but the dispute is with regard to the sharing ratio mentioned in the development agreement and also about the existence of the supplementary deed and whether the assessee has advanced funds to the developer for the purpose of acquisition of property. To disbelieve the existence of the supplementary deed, the A.O. and the Ld. CIT(A) have relied upon the lease deeds entered into by the assessee with M/s. Secunderabad Hotels P. Ltd., wherein there is no mention of the supplementary deed even though they were stated to be executed after the execution of the supplementary agreement. They have observed that there is a mention of only the original development agreement dated 01.04.2001 in the registered lease deeds. Further, the A.O. has also considered the fact that the ratio of sharing between the assessee and the developer was mentioned as 50:50 ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the loan must have been taken by the developer in relation to the said property. Since the construction of the property was completed in 2004 and the lease deeds were entered into on 01.01.2005, the contention of the assessee that the loan had been obtained by the developer for construction of the building is probable as no Bank would probably give a loan on a building which is not yet completed for any other purpose. However, the loan from Oriental Bank of Commerce was taken by the developer and the reason for the assessee to repay the same is stated to be for the purpose of acquiring the property. 6. Now, let us examine if the supplementary deed is acceptable. We find that initially the said deed was disbelieved by the CIT under section 263 wherein, he has reproduced the portion of both the development agreement as well as supplementary agreement, wherein the sharing ratio of parties has been mentioned as 50:50. The A.O., during the relevant assessment years before us, also has reproduced the same portion reproduced by the CIT in his order under section 263 to hold that the original agreement itself stipulated the sharing ratio as 50:50 and therefore the supplementary deed is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t determine the nature of the expenditure. Therefore, all these facts need verification by the A.O. which has not been carried out by the A.O. for the assessment years before us. But the first year of the claim is A.Y. 2005-06 wherein the claim of the assessee was allowed in the assessment proceedings under section 143(3) of the Act and this fact has been taken note of by the Coordinate Bench of this Tribunal while quashing the revision order under section 263 of the Act. As rightly held by the CIT(A), the observations of ITAT in the 263 proceedings may not be entirely relevant for the proceedings under section 144 read with section 147 of the Act but as seen from the copy of the assessee s submissions before the A.O. for the A.Y. 2005-06, we find that the assessee had submitted that it had requested the builder to complete their share of constructed area for which the assessee shall reimburse the expenses incurred for providing all the amenities and that the availing of the loan was to reimburse the developer for such finishing works. Since the assessment for A.Y. 2005-06 was completed under section 143(3) of the Act after calling for various details and scrutiny of the same, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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