TMI Blog2015 (10) TMI 2695X X X X Extracts X X X X X X X X Extracts X X X X ..... s set aside to the file of AO. Therefore, the issue of both the revenue’s appeals is allowed for statistical purposes. Addition made on account of interest paid on loan - CIT(A) deleting the addition in violation of Rule 46A of the I. T. Rules - Held that:- We find that the claim of the assessee before CIT(A) was that this interest was paid on account of acquisition of flat at 9/1, Middleton Street on 31.03.2003 from Tata Iron & Steel Co. Ltd. As per the claim of the assessee, this property was acquired by taking a loan of ₹ 1 cr. from Standard Chartered Bank and claimed the interest relating to premises as allowable u/s. 36(1)(iii) of the Act since interest paid on asset which is being used as business asset is allowable as deduction. We find that the assessee is unable to bring the documents before the AO during the course of assessment proceedings but he subsequently produced these documents before CIT(A) for the first time and CIT(A) has also not referred these documents to the AO for verification. In terms of the above, we are of the view that the interest is paid for acquisition of business asset and the same is allowable but subject to verification of the AO. Accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are common and grounds are identical, except variance in amount, we dispose of both the appeals by this consolidated order. 2. The first common issue in these appeals of revenue is against the order of CIT(A) in deleting the addition on account of short credit in rental income by admitting new evidence in violation of Rule 46A of the I. T. Rules. The issue in both appeals of revenue is identical and facts are also identical. Hence, we will take the facts from AY 2006-07 and decide the issue. For this, revenue has raised following ground no. 1: 1. On the facts and circumstances of the case ld. CIT(A) erred in deleting the addition of ₹ 27,59,634/- for AY 2006-07 and ₹ 2,40,000/- for AY 2007-08 on account of short credit in rental income by admitting evidence not furnished before the assessing officer during the course of assessment proceedings and without giving the assessing officer opportunity to examine the same in violation of rule 46A(3) of the I. T. Rules. 1.1. On the facts and circumstances of the case Ld. CIT(A) erred in deleting the addition of ₹ 27,59,634/- for AY 2006-07 and ₹ 2,40,000/- for AY 2007-08 on account of short credit in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts, it was described as rent of ₹ 23,50,621/- thereby the difference arose of ₹ 1,30,621/-. This difference is basically due to the fact that the total reimbursement received by the assessee from Naresh Kumar Co. was included by the auditor. We find that the assessee filed copies of ledger account as well as the details of transaction as appearing in the ledger account of the assessee before CIT(A) for the first time. From these details, it is crystal clear that the assessee has reconciled these documents but since these documents were filed for the first time before CIT(A) and these were not referred to the AO for verification, hence,in the interest of justice, we restore this issue back to the file of AO only with a direction to examine the veracity of the documents. In case the reconciliation is correct the addition will not be made. Similarly, the assessee has received rental income from Naresh Kumar Co. P. Ltd. at ₹ 48.60 lacs including interest on loan at ₹ 7.20 lacs thereby the total receipts from sister concern at ₹ 55.80 lacs but the auditor of the assessee filed Notes on Accounts at 11B(5) wherein he has recorded the rental transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 4,64,542/-. Aggrieved, assessee preferred appeal before CIT(A), who deleted the disallowance of interest by observing that interest payment was related to acquisition of flat at 9/1, Middleton Street on 31.03.2003 from Tata Iron Steel Co. Ltd. and this premises has been acquired by taking a loan of ₹ 1 cr. from Standard Chartered Bank. Subsequently, the said loan was transferred to ABN Amro Bank on 29.09.2004 and interest was paid on the said loan. The assessee claimed before the CIT(A) that this property at Middleton Street was registered office of the assessee and, therefore, there was direct nexus between the interest paid on fund borrowed from ABN Amro Bank and assessee s business. Accordingly, CIT(A) directed the AO to allow the claim of interest while computing the assessee s business income. Aggrieved, now revenue is in appeal before us that the same was not confronted to the AO by the CIT(A) while allowing relief. 8. We have heard rival submissions and gone through facts and circumstances of the case. We find that the claim of the assessee before CIT(A) was that this interest was paid on account of acquisition of flat at 9/1, Middleton Street on 31.03.200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness of coal during the year or in the earlier but no substantial business was carried out during this year. According to assessee, this was a continuing business process and depreciation cannot be disallowed on the premise that in one year there is no business. Accordingly, the CIT(A) allowed the claim of the assessee by giving finding that a company which is in existence has to incur certain expenses for its existence and such expenses are allowable as business expenditure even if the company has not earned any business income during the year. The CIT(A) relied on the decision of Hon ble Calcutta High Court in the case of CIT Vs. Ganga Properties Pvt. Ltd. 199 ITR 94 and allowed the claim of assessee. Aggrieved, revenue came in appeals before us. 11. We have heard rival submissions and gone through facts and circumstances of the case. We find that admittedly, the AO has noted the fact that unlike in earlier years the assessee has not earned any income from coordination activity or handling of coal etc. it means that the AO has admitted in earlier years there was business activity of handling of coal etc. by the assessee. From the accounts of the assessee also it is revealed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut to use. 30. With the aforesaid amendment, the depreciation is now to be allowed on the written down value of the block of assets‟ at such percentage as may be prescribed. With this amendment, individual assets have lost their identity and concept of block of assets‟ has been introduced, which is relevant for calculating the deprecation. It would be of benefit to take note of the Circular issued by the Revenue itself explaining the purpose behind the amended provision. The same is contained in CBDT Circular No.469 dated 23.09.1986, wherein the rationale behind the aforesaid amendment is described as under: 6.3 As mentioned by the Economic Administration Reforms Commission (Report No. 12, para 20), the existing system in this regard requires the calculation of depreciation in respect of each capital asset separately and not in respect of block of assets. This requires elaborate book-keeping and the process of checking by the Assessing Officer is time consuming. The greater differentiation in rates, according to the date of purchase, the type of asset, the intensity of use, etc., the more disaggregated has to be the record- keeping. Moreover, the practice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose due to transaction involving sale and purchase of shares without giving opportunity to the assessing officer to examine the same thus violating the provisions of Rule 46A(3) of the I. T. Rules. 4.2. On the facts and circumstances of the case Ld. CIT(A) erred in deleting the addition of ₹ 7,60,00,000/- u/s. 2(22)(e) by accepting appellant s submission without examining that the loan or advance was interest bearing one though the facts is that the same was interest free as submitted by the appellant during the assessment proceedings before the AO. 4.3. On the facts and circumstances of the case Ld. CIT(A) erred in deleting the addition of ₹ 7,60,00,000/- u/s. 2(22)(e) on the facts which are contradictory to the facts submitted by the assessee before the assessing officer. 4.4. On the facts and circumstances of the case Ld. CIT(A) erred in deleting the addition of ₹ 7,60,00,000/- u/s. 2(22)(e) by wrongly relying on the decision of jurisdictional High Court though the same is squarely applicable to the facts of the case being interest free loan and this comes under the purview of gratuitous loan. 14. Briefly stated facts are that during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns i.e. a shareholder has substantial interest in the recipient company and has 10% or more holding in the lending company is fulfilled which did not exist in the case of the assessee on the date on which the said credit balance/loan came into existence. Furthermore, since the said amount outstanding was interest bearing, therefore in view of the decision of the Calcutta High Court in the case of Pradip Kumar Malhotra vs. CIT, reported in 338 ITR 538, the said amount could not have been treated as deemed dividend under section 2(22)(e). The Hon'ble Calcutta High Court has held that only gratuitous loans or advances can be treated as deemed dividend u/s.2(22)( e). In the case of the assessee since the said amount is interest bearing, the provisions of section 2(22)(e) are clearly not attracted. Even otherwise, in view of plethora of decisions relied upon by the assessee and more particularly the decision of Delhi High Court in the case of Ankitech Pvt. Ltd., Bombay High Court in the case of Universal Medicare Pvt. Ltd., Mumbai Special Bench decision in the case of Bhaumik Colour Pvt. Ltd. and Rajasthan High Court in the case of Hotel Hiltop, deemed dividend cannot be added in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that nothing new was brought before the CIT(A) and these facts were already available before the AO and even before the CIT(A). On query from the bench and when assessment order was confronted, Ld. CIT, DR could not answer the same. 17. We have heard rival submissions and gone through facts and circumstances of the case. We find that, admittedly, Naresh Kumar Co. Pvt. Ltd. has not given any loan to the assessee company even otherwise the balance arose due to transaction of purchase and sale of shares between assessee and Naresh Kumar Co. Pvt. Ltd. No money has been advanced by Naresh Kumar Co. Pvt. Ltd. to assessee. From the shareholding pattern it is also clear that the assessee is not a shareholder in Naresh Kumar Co. Pvt. Ltd., which is the primary requirement for treating any loan as deemed dividend u/s. 2(22)(e) of the Act. We find that the CIT(A) has relied on the decision of Special Bench of this Tribunal, Mumbai Bench in the case of ACIT Vs. Bhaumick Colour Pvt. Ltd. We also find that the CIT(A) relied on the decision of Hon ble Rajasthan high court in the case of . In view of the above facts and circumstances, we are of the considered view that this issue is s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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