9911796707
TMI Blog2024 (5) TMI 1413X X X X Extracts X X X X X X X X Extracts X X X X ..... l relating to disallowance of interest paid by the assessee. 3. Brief facts are, in the course of assessment proceedings, the Assessing Officer noticed from P & L accounts of the assessee that the assessee had debited Rs. 1,65,65,973/- towards interest paid on loan. The assessee in the course of assessment proceedings explained that the nature of business of the assessee is of real- estate and Finance business. It was also explained that assessee is getting rental income from property, interest from savings bank account and on FDRs. The assessee submitted that he has taken loans for the business purposes from banks and paid interest and, therefore, the interest paid on loans borrowed is an allowable deduction as it was paid in the course of business of real estate. The assessee also explained that he is into the real estate business and finance business since assessment year 2007-08 and the fact of carrying on this business has already been accepted while framing regular assessment for the assessment years 2007-08 and 2008-09 and subsequent assessment years. The assessee explained that he is booking space, shops in malls, flats and plots and advancing money for earning business in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shown interest earned only from 4 parties out of 17 parties whereas interest was being paid to banks and others on the entire amount of borrowed funds. The Assessing Officer was also of the view that a significant part of interest free advances has been given to assessee's own company M/s. Khushi Trading Pvt. Ltd. as well as other relatives or other Bhatia's Siblings. The Assessing Officer placing reliance on various decisions referred to in page 8 of assessment order concluded that the investments were diverted for non business purposes and there is no nexus between the interest paid on funds borrowed and the income earned and, therefore, not allowable as deduction under Section 36(1)(3) of the Act. The claim of the assessee that the expenditure is allowable under Section 37(1) of the Act was also denied by observing that the interest bearing funds were not utilized wholly and exclusively for the purpose of business or professions. 6. On appeal, learned Commissioner of Income-Tax (Appeals) sustained the disallowance made by the Assessing Officer. 7. The learned counsel for the assessee referring to page 5 of the paper book which is the copy of the order of the learned Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer that the assessee did not charge interest from all these seventeen parties and charged only from four parties is not correct. The learned counsel, therefore, submits that this is a covered matter as learned Commissioner of Income-Tax (Appeals) for the assessment year 2009-10 and subsequent assessment years held that the assessee into the real estate business and the interest expenses are allowable as deduction. The Tribunal sustained the order of the Ld. CIT(A) for assessment year 2009-10. 9. On the other hand, learned Departmental Representative referring to para 3.8 of the assessment order submits that it is the finding of the Assessing Officer that the loans were not used for any business purposes, no agreements were produced and, therefore, the interest expenses are not allowable as deduction. The learned Departmental Representative also submits as under: " It is respectfully submitted that the following facts and arguments may kindly be taken into consideration - 1. The assessee has not transacted in any property during the year. The claim of the assessee that he is engaged in the business of buying and selling of property and that he takes loans to buy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000/- and also given to sister concern SGP Developers and to the assessee's wife Pawanjeet Kaur. The rest of the amount has been given to other relatives for their use. As mentioned earlier, meager interest has been shown from these interest bearing funds, that too from only 4 out of 17 parties to whom the same have been advanced. It is thus clear that there is no nexus between the high interest paid and meager interest earned. In fact, the assessee is deliberately engaged in booking losses on account of interest outgo for purposes not related to business at all as discussed above. 11. Further, the fraud being perpetrated by the assessee is also evident from the fact that on one hand, the assessee is claiming the property rented out as Income from House property and availing standard deduction @30% on the same, while at the same time, he is claiming the entire activity as business and also claiming interest paid on purchase of the relevant property as business expenditure, thereby taking double deduction. 12. As mentioned clearly by the Ld.CIT(A) at page 17 of his order, it was specifically enquired if the property C- 9, Westend Colony purchased/constructed during 2006- 11 wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f profit determination for a year. Business, however, is a continuing, integral and uninterrupted process which is spread after over several years after its commencement. Business terminates only the business activity is wholly given up. Thus the submission made by the Revenue that since the Assessee had not transacted in any property during the year and so the assessee was not engaged in any business is misconceived, misleading and fallacious. 2 & 3) In the first place it needs to be clarified that the Assessee is not an investor in properties. Assessee is a trader of properties. The properties held for trade are reflected under the head current assets, fixed assets in the Balance Sheet placed at page 10 of the main Paper Book. The averment of the Revenue in this regard is per se erroneous. 4) Investing in FDRs is one amongst the several business activities of the Assessee. No objection can, therefore, be taken to the receipt of interest from FDRs by the Assessee. 5) The loans and advances comprise both of loans provided to customers for earning interest and also paid for the booking of moceese advances paid for booking properties do not fetch any interest. The figures un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been perpetrated by the Assessee is stoutly denied. The allegation is malicious and obnoxious. In fact the Assessee has suffered continuously because of incorrect and improper actions of the Authorities culminating in disallowances year after year in the past. All that has happened due to the ignorance of the Authorities as to business practise and conventions and due to the complete absence of a requirement in the system for accountability and answerability. The compilation of 59 pages detailing the case history from AY 2009-10 to AY 2013-14 at pages 1-19 of the compilation clearly evidences the unfair treatment meted out to the Appellant by the several Assessing Authorities in the past. 12) The Ld. CIT(A) has contradicted herself by saying that the property investments at CX9, Westend Colony, New Delhi-110027 was personal even though she herself has taken note of fhe fact that 3/4h of that property was earning rent and only the rest of the 'A th was occupied by the Assessee. Double deduction of any sort has not been claimed at any time by the Assessee. The allegation is false. The deduction as permitted by S.24(a) of the Income-tax Act, 1961 (the Act) to the Assessee is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 009-10, it is the finding of the learned Commissioner of Income-Tax (Appeals) that the assessee is into real estate business and, therefore, the interest expenses have to be allowed as deduction and this decision of the Ld. CIT(A) has been sustained by the Tribunal. 12. We have perused the order of the learned Commissioner of Income-Tax (Appeals) for the assessment year 2009-10 which is placed at page nos. 1 to 7 of the paper books. We observe that the learned Commissioner of Income-Tax (Appeals) for the assessment year 2009-10 in his order dated 24.08.2012 decided the issue of whether the interest payments made by the assessee was for the purpose of real estate business or not and the learned Commissioner (Appeals) held as under: "4.6 I have considered the order of the AO and the submissions of the assessee and I find considerable merit in the submission of the assessee that the assessee is in the real estate business. It is also apparent that the assessee purchased the property on 08/03/2006 for Rs. 3,56,40,000/- and thereafter the assessee has demolished the old structure and had constructed a new building by making the new investments of Rs. 1,02,50,064/- in the AY 2007-08, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at C-2 & C- 3, Premji House, Connaught Place, New Delhi for which there was a sale agreement dated 12/04/2008 with Nav Jyoti Overseas TP Ltd and the assessee had received an advance of Rs 40,00,000/- but even this transaction did not materialize because of the bad market condition. The main submission of the assessee was that the assessee was in the real estate business and had taken various loans for the purchase and sale of properties and as such the assessee was eligible for the deduction of the interest payments for the various loans taken which were for the purpose of business only. It is also submitted by the ld. AR that the AO had made inquiry with the Indian Bank and the Indian Bank had given a reply stating that the loan was granted to the assessee for the purpose of purchasing the commercial building at C-9, Westend Colony, New Delhi vide Para-3 of the AO. The assessee has also relied on various case laws in support of the claim that the business of the assessee started the moment the assessee started the purchasing of the property and the process of the activity of the development of the property started and the assessee also relied on the case of Swire Holding P Ltd. vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... real estate business and even if the real estate business is being done, the expenses of interest are for the prior period before the commencement of the business and as such the interest expenses are not allowable as a normal business expense vide the order of the AO. When the assessee went in appeal against the order of the AO and submitted that the AO was not justified in disallowing the interest payments as the same were paid for the purpose of business, the ld. CIT(A) deleted the same. Now the aggrieved Revenue is in appeal against the action of the ld. CIT(A) in granting relief to the assessee. 6. After considering the rival submissions, we find that the ld. CIT(A), at para 4.6 and 4.7 has discussed the issue and has come to the following conclusion as reproduced hereunder: "4.6 I have considered the order of the AO and the submissions of the assessee and I find considerable merit in the submission of the assessee that the assessee is in the real estate business. It is also apparent that the assessee purchased the property on 08/03'2006 for Rs 3,56,40,000/- and thereafter the assessee has demolished the old structure and had constructed a new building by making the ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow tax effect. We further observe that the incomes/loss returned by the assessee under the head "income from business" have been accepted for the assessment years 2017-18 to 2022-23 by the Revenue and in none of these years, the incomes/losses shown by the assessee were disturbed. It is the submission of the learned counsel that the decision of the Tribunal for the assessment year 2009-10 affirming the order of the learned Commissioner of Income-Tax (Appeals) in holding that the assessee is into real estate business has became final and this was accepted by the Revenue for assessment year 2009-10. We are of the view that simply because the assessee has not shown any business income during the current assessment year, it cannot be held that the assessee is not carrying on the real estate business. Thus, following the order of the Tribunal for the assessment year 2009-10, we hold that the assessee is into the business of real estate and finance the interest expenditure incurred by the assessee is an allowable deduction. Accordingly, we delete the disallowance of Rs. 1,65,62,973/- made by the Assessing Officer. Ground no.1 of grounds of appeal raised by the assessee is allowed. 15. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Sr. DR are inconsistent with facts of the case and are incorrect. The correct position on facts and in law would be as under:- 1. The deposits in the Karnataka Bank account are required to be seen and assessed and evaluated on the basis of the entries in the cash boo9k and the books of account in this regard. There is no principle which prescribes proximate connectivity between the withdrawals and deposits as the icon. 2. The assessee has the clear option of conducting his business transactions in the manner he wishes, no matter what the current electronic age may propose or provide. 3. The A.O carried out the examination of the cash deposits and formed his preposterous opinion by deviating from the standard verification procedure adopted by the Department. The entirety of the cash deposits in Karnataka Bank are relatable to business receipts deposited with banks which have been rechanneled after withdrawals made therefrom form time to time. The further observations of the CIT(A) are all misconceived and erroneous as under: i) The balance sheet has been read partially by the CIT(A) and so the error in the findings. ii) |The best evidence of cash-in-hand as on 01.04.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Karnataka Bank are relatable to business receipts deposited with banks which have been rechanneled after withdrawals made therefrom from time to time. The further observations of the CIT(A) are all misconceived and erroneous as under:- (i) The balance sheet has been read partially by the CIT(A) and so the error in the findings. (ii) The best evidence of cash-in-hand as on 01.04.2013 is the audit report as on 31.03.2013 which forms part of the records of the case. (iii) The CIT(A) perhaps was ignorant of the fact that without a cash book, there cannot be an audit of the books of accounts. (iv) The bunch of papers' as per the nomenclature supplied by the Authorities is a partial printout of the cash book which was desired for checking the antecedents of the cash deposits. The so called 'bunch of papers' is an integral part of the cash book which has been misunderstood by the lower Authorities. (v) The Sr. DR errs in describing the CIT(A) is "He". It is actually a lady CIT(A) who has passed the order which basic fact the Sr. DR has omitted to note. This point regarding interest being submitted for taxation on accrual basis has already been dealt in point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n cash book(Rs.) 1 April 2013 49,992 2 May 2013 11,13,845 3 June 2013 12,28,845 4 July 2013 23,97.065 5 August 2013 29,64,065 6 September 2013 39,12,965 7 October 2013 40,30,065 8 November 2013 34,28,065 9 December 2013 54,98,064 10 January 2014 21,79,565 11 February 9,71,565 12 March 2014 8,90,565 The details of date wise cash deposit in bank account is as under: Statement of source of Cash of Rs. 66,70,000 deposited in Karnataka Bank SB a/c. no. 5372500103694201 S. no Cash amount deposited Dated Sources 1 2 Rs.5,00,000 Rs.2,00,000 17.04.2013 18.04.2013 The assessee is having cash in hand of Rs. 16,28,819 as on 01.04.2013 including opening cash in hand received sum of Rs. 16,21,003 in the first week of April 2013 from debtors. Total cash in hand as on 16.04.2013 was at Rs. 16,55,844. The assessee has deposited cash of Rs. 5,00,000 on 17.04.2013 and Rs. 2,00,000 on 18.04.2013 out of above cash in Karnataka Saving Bank account. 3 Rs.6,50,000 03.10.2013 The assessee has deposited Rs. 6,50,000 on 03.10.2013 in Karnataka Saving Fund Account. The source of the same of cash in hand in books at Rs. 40,30,065 out of which Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HAND IN CASH BOOK S. No Months Opening Balance Deposit Withdrawals Net Balance of cash in hand 1 April 49942 1827003 763100 1113845 2 May 1113845 190000 75000 1228845 3 June 1228845 1218220 50000 2397065 4 July 2397065 622000 55000 2964065 5 August 2964065 1018000 70000 3912065 6 September 3912065 183000 65000 4030065 7 October 4030065 98000 700000 3428065 8 November 3428065 2120000 50000 5498065 9 December 5498065 81500 3400000 2179565 10 January 2179565 342000 1550000 971565 11 February 971565 241000 322000 890565 12 March 890565 162000 300000 752565 From the above monthly cash summary of cash book it is clear that the appellant was having enough cash in hand. No addition could be made on suspicion basis. The Ld. ACIT is wrong in holding that no cash expenditure has been claimed by the appellant when the appellant has withdrawn cash from cash book. The Ld. ACIT is wrong in saying that there are other modes of transfer. Such as online transfer, through NEFT/RTGS by which the appellant can transfer the funds amongst his bank account. The contention of the Ld. ACIT is wrong. He could not guide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer that assessee did not produce cash book and on the other hand it is observed that the Assessing Officer has examined the cash book. It is also observed that the auditor have not given any finding that assessee is not maintaining any cash book. Cash and bank books are the basic documents for beginning the audit, we are not able to see from where the learned Commissioner of Income-Tax (Appeals) came to know that the cash book is not a part of books listed in the audit report. 24. We further observe that none of the authorities below have taken cognizance of the submissions of the assessee that in the first week of April 2013, the assessee had received realization from debtors amounting to Rs. 16,21,003/- and the cash balance stood in hand as on 16.04.2013 stood at Rs. 16,55,844/- just a day before the deposits of Rs. 5,00,000/- made into bank account on 17.04.2013 and Rs. 2,00,000/- on 18.04.2013 rather the Assessing Officer simply stated that the assessee has withdrawn only Rs. 1,50,000/- on 16.04.2013 and this is the only proximate cash withdrawals for making cash deposits of Rs. 5,00,000/- and Rs. 2,00,000/- on 17.04.2013. On reading of the assessment order, it is obs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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