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Shalivahana Estates Pvt Ltd (Formerly Known As Shalivahana Estates) Versus ACIT, Circle 10 (1) , Hyderabad

2016 (1) TMI 311 - ITAT HYDERABAD

Disallowance of interest under section 24(b) - whether amount paid by the assessee to its sister concern Salivahana Associates, is not for the purpose of acquisition of property? - Held that:- From the details of the property, it is clear that the very same building ‘Bhuvana Towers’ was mortgaged with the Oriental Bank of Commerce. Thus, though the assessee has taken the loan from UCO Bank after construction of the building, we find that the same has been taken to repay the loan taken from Orien .....

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ty 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.

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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 submi .....

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be presumed that the A.O. has verified the details and accepted the assessee’s contentions after being satisfied about their acceptability.

There has to be consistency and uniformity in the approach of the Revenue in the assessee’s own case in the subsequent assessment years on the same set of facts. Since the A.O. has accepted the assessee’s claim after verification and the revenue has not taken any steps to revise or reopen the assessment for A.Y. 2005-06, the assessee cannot be ask .....

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for the A.Y. 2009- 2010 and 2010-2011 respectively. In both these appeals, the assessee is aggrieved by the order of the Ld. CIT(A) in confirming the action of the A.O. in holding that the amount of ₹ 3 crores paid by the assessee to its sister concern Salivahana Associates, is not for the purpose of acquisition of property and in disallowing the claim of interest of ₹ 10,05,932 thereon under section 24(b) of the I.T. Act. 2. Brief facts of the case are that the assessee firm, the ow .....

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e 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 .....

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als and not for construction or improvement of the property and therefore, the interest on such loan was not allowable under section 24(b) of the Act. Before the CIT, the assessee submitted that in the original development agreement dated 01.04.2001 the sharing ratio of the developer and the assessee was 65:35 respectively (of the bare structure) and that in addition to the above, the developer had agreed to pay an interest free non-refundable deposit of ₹ 80 lakhs to the owner and that th .....

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h worked out to about ₹ 330 lakhs towards assessee s share and that as there was a slump in the real estate market at that time, the assessee and the developer agreed to let out the property to a suitable tenant and M/s. Secunderabad Hotels P. Ltd., came forward to take the entire area on lease for a period of 10 years. It was submitted that as agreed, the developer completed the work before 31.12.2004 and the area was let out from 01.01.2005 onwards and as the assessee had to pay the amou .....

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er years which was allowed in the first year i.e., A.Y. 2005-06, the A.O. has allowed the same during the A.Ys. 2006-07 and 2007-08 and hence the proceedings under section 263 may be dropped. 2.1. The CIT, however, observed that the sharing 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 origi .....

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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 before ITAT against the order under section 263. B Bench of this T .....

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Moreover, there is no other activity for the assessee except owning 50% share of the property which was leased out. As stated by the A.O. in A.Y. 2005-06, assessee s own resources of income is rental income and interest claimed on borrowed funds was examined in A.Y. 2005-06, wherein supplementary deed was also considered thereby, A.O. has given a finding that assessee owns 50% of the constructed area in the building. Not only that assessee also offered on income at 50% of the building, which was .....

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nt of ₹ 330 lahs out of which ₹ 300 lakhs was stated to be by way of loan from UCO Bank and as seen from the record, ₹ 330 lakhs paid by the assessee was also offered by the said sister concern as income. Since these aspects were examined by the A.O. in A.Y. 2005-06 which was the first year, of not only rental income but also claim of interest on the borrowed funds, the observations of the CIT cannot be upheld. Since the A.O. examined this issue in the course of assessment proc .....

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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 as .....

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ementary deed to the development agreement and also loan applications of UCO Bank and also statement of account for the period 03.03.2005 to 02.09.2005 in UCO Bank the copies of which are all filed in the paper book filed before us. He has drawn our particular attention to the preamble of the Development agreement where the sharing ratio between the developer and the owner is mentioned as 65:35 and also para-5 of the agreement where it is mentioned that the developer is at liberty to sell their .....

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for the A.Ys. 2006-07 and 2007-08 respectively after accepting the existence of the supplementary deed, has quashed the proceedings under section 263 of the I.T. Act. He submitted that the assessments under section 143(1) for the relevant assessment years before us i.e., A.Ys. 2009-10 and 2010- 11 were reopened under section 147 on the basis of the assessments under section 143(3) read with section 263 for the earlier A.Ys. 2006-07 and 2007-08 and since the basis for those orders itself was kno .....

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on 263 which has been quashed because according to the Tribunal, A.O. for A.Y. 2005-06 was aware of the supplementary deed by which the share of the property to the assessee was increased from 35% to 50% and hence such assessment order could not be revised, whereas the proceedings before us are the reassessment proceedings which cannot be said to be same as revision proceedings under section 263. 5. Having regard to the rival contentions and the material on record, we find that the only dispute .....

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f 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. Furth .....

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Counsel for the assessee, in order to rebut this finding of the authorities below, has drawn our attention to the development agreement dated 01.04.2001 filed at pages 29 to 32 of the paper book to demonstrate that originally the sharing ratio was 65:35 only. He has also drawn our attention to the application form for the sanction/renewal/enhancement of the sanction of credit limits made to the Manager of the UCO Bank dated 19.01.2005. On perusal of the said application, we find that at item-8 o .....

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d intimating that a cheque for ₹ 3,44,00,000 bearing No.471770 dated 03.03.2005 favouring the Oriental Bank of Commerce for the account of M/s. Salivahana Associates is enclosed therewith and requesting the Bank to release the documents mortgaged by the loanee to the Bank since the assessee has availed credit facilities from UCO Bank against the same property. From the details of the property, it is clear that the very same building Bhuvana Towers was mortgaged with the Oriental Bank of Co .....

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he Oriental Bank of Commerce raises the presumption that 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 fro .....

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g 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 a make believe document. However, from the copy of the development agreement filed before us, we find that the developer had agreed to complete the construction of the building with its own funds and the sharing ratio is mentioned as 65:35. The r .....

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before us also, the Ld. Counsel for the assessee, reiterated that the assessee did not receive the non-refundable deposit of ₹ 80,00,000. Further, the reason for advancing the sum of ₹ 300 lakhs has been mentioned as payment for finishing works @ ₹ 300 per sq. feet for letting out the constructed area. It is not clear whether any agreement has been entered into for this purpose. However, since no copy of any such agreement is filed before us, it is presumed that there is no suc .....

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was agreed to pay ₹ 300 per sq. feet. The fact that the loan was obtained by the assessee after completion of the construction on the lease rentals cannot be the sole reason to come to the conclusion that the assessee has not incurred expenditure on the acquisition of the property. The time when the liability of the assessee has arisen is to be seen. If the assessee has agreed to pay the developer for the works outside the development agreement for making it fit for letting out the proper .....

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ct 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 shar .....

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