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TMI Blog2025 (5) TMI 1658X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 148 of the Act dated 30.07.2022 as invalid ignoring the fact that the original notice u/s 148 of the Act was issued on 10.05.2021 Le. within the extended time limit by TOLA, 2021 ii) On the facts and circumstances of the case, the Id. CIM(A) erred in allowing the deduction claimed u/s. 24(b) of the Act of Rs. 7,14,84,210/-ignoring the fact that the assessee has failed to establish nexus between the house property income earned and interest expenditure which is wholly and exclusively for the purpose of earning house property income. iii) On the facts and circumstances of the case, the Ld. CIT(A) erred in allowing the deduction claimed u/s. 24(b) of the Act of Rs. 7,14,84,210/-ignoring the fact that the assessee has failed to prove that second and subsequent loans were availed for payment of outstanding housing loan iv) On the facts and circumstances of the case, the Ld. CIT(A) erred in allowing the deduction claimed u/s. 24(b) of the Act of Rs. 7,14,84,210/-ignoring the fact that the assessee has not fulfilled the conditions laid down in section for 24(b) of the Act for claiming deduction u/s 24(b) of the Act. v) On the facts and circumstances of the case, the Ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning the necessary approval u/s. 148A r.w.s. 151 as ld. AO has obtained approval from Pr. Commissioner of Income Tax as against Pr. Chief Commissioner of Income Tax as required u/s. 151 (amended by Finance Act 2021; and * Lastly, reopening cannot be done on the behest of revenue audit. 4. Since the legal issue raised in cross objection, especially that notice issued is in the name of non-existing entity, goes to the very root of the validity of the re-assessment order therefore, same has been taken it first. 5. The brief facts qua the issue involved as captured in the first paragraph of the assessment order is that, erstwhile assessee company, that is, "Wadhwa Associates and Realtors Pvt. Ltd" having PAN AAACW5273G amalgamated with "Raghuleela Estates Pvt. Ltd." [AACCR6864N] w.e.f. 01/10/2019 (appointed date of the amalgamation) vide Order dated 11.02.2021, passed by the NCLT Mumbai Bench sanctioning the scheme of Amalgamation. Now pursuant to the amalgamation, Wadhwa Associates and Realtors Pvt. Ltd. (i.e., Amalgamating Company/Transferor Company) ceased to exist, and now the assessable entity was Raghuleela Estates Pvt. Ltd PAN-AACCR6864N, w.e.f. 01/10/2009. Erstwhile company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... difference in the income, only a note is written under the reconciliation statement that "the difference is on account of service tax which is collected and paid to the central government which is routed through current liability." The assessee has reconciled breakup of the amounts of Rs. 98,61,90,942 as per 26AS and arrived/reconciled at a figure of Rs. 98,34,53,821 as per P/L account, the difference being claimed to be on account o service tax However, in the undisclosed TDS information as per AIR statement, the total income as shown at Rs. 55,23.62,870/- Neither the assessee nor the AO during the assessment proceedings has reconciled the breakup of Rs. 55,23,62,870/ shown in AIR statement and corresponding incomes as per P/L account. This is discrepancy noticed from the records, which needs to be ensuring that the corresponding incomes as per receipts reflected in 26AS are forming part of total income as per return of income. 6. Notice u/s. 148 was issued on 10.05.2021 to erstwhile company, Wadhwa Associates and Realtors Pvt. Ltd., which has ceased to exist after the order passed by NCLT dated 11/02/2021. The ld. AO in view of the Hon'ble Supreme Court judgment in the case of A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s invalid in view of the fact that the Hon'ble Supreme Court in its order dated 04.05.2022 has concluded in Para 10 that the notices issued during the extended period shall be construed to be notices issued u/s 148A(b) of the amended provisions. It is abundantly clear that the Hon'ble Supreme Court has upheld the validity of the notices Issued under the unamended provisions. The other arguments regarding the validity of the proceedings relate to the legal position prevailing before the amendment and before the decision of the decision of the Hon'ble Supreme Court dated 04.05.2022 and hence, do not require any specific rebuttal. The assessee's objection as regards the validity of the notice/proceedings is hereby rejected. 5.3 The assessee's argument that the Wadhwa & Associates Realtors Pvt. Ltd. had got amalgamated with Raghuleela Estates Pvt. Ltd. w.e.f. 01.10.2019 and hence notice should not have been issued in the case of a non-existent company, also cannot be accepted. The assessee has placed reliance on the decision of the Hon'ble Supreme Court in PCIT Vs. Maruti Suzuki India Limited [416 ITR 613]. However, in a recent decision, in the case of PCIT Vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven in the impugned order. It is an undisputed fact that first notices u/s. 148 was issued on 10/05/2021 in the name of "Wadhwa Associates and Realtors Pvt. Ltd. PAN: AAACW5273G" and approval u/s. 151 was also sought on the same date in the name of erstwhile company. Later on show-cause notice u/s. 148A(b) also issued in the name of Wadhwa Associates and Realtors Pvt. Ltd., a non-existing entity at that time. Even when assessee raised this objection before the ld. AO, order u/s. 148A(d) and final notice u/s. 148 dated 30/07/2022 has again been issued in the name of Wadhwa Associates and Realtors Pvt. Ltd., Once the ld. AO himself has noted in his order u/s. 148A(d) about the factum of amalgamation in the order of the NCLT that the erstwhile company has been amalgamated with M/s. Raghuleela Estate Pvt. Ltd., then also he issued the notice u/s. 148 in the name of the non-existing entity. Here in this case as noted above NCLT has approved the scheme of amalgamation vide its order dated 11/02/2021 appointed date of the scheme was 01/10/2019. It has been brought on record that this fact was duly disclosed by the assessee to the department by way of following letters which has been plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was well aware of merger of WARPL with the assessee company. 11. Now, it is a well settled law and this issue stands covered by several decisions of the Tribunal and the Hon'ble Bombay High Court wherein the judgment of the Hon'ble Supreme Court in the case of PCIT vs. Maruti Suzuki reported in 416 ITR 613 has been discussed and relied upon and distinguishing the judgment of the Hon'ble Supreme Court in the case of PCIT vs. Mahagun Realtors Pvt. Ltd., reported in 443 ITR 194. For the sake of ready reference, latest judgment of the Hon'ble Bombay High Court in the case of Reliance Industries Ltd. vs. P.L. Roongta Ltd., reported in (2025) 171 taxman.com 467 judgment dated 14/02/2025 is referred, wherein the Hon'ble high Court has discussed the ratio and principle of Mahagun Realtors Pvt. Ltd., and Maruti Suzuki in the following manner:- "28. The reliance placed by the respondent-revenue on the decision of the Supreme Court in the case of Mahagun Realtors (P) Ltd. (supra) is distinguishable. This decision was rendered on 5 April 2022 and in which the decision of the Supreme Court in the case of Maruti Suzuki India Ltd. (supra) was also considered. In the case of Mahagun Realtors (P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court. Further, tax treatment in the various provisions of the Act was not brought to the notice of this Court in the previous decisions. In paragraph 30 of Mahagun Realtors (P) Ltd. (supra), the Hon'ble Supreme Court observed that the combined effect of Section 394(2) of the Companies Act, 1956, Section 2(1A) and various other provisions of the Income-tax Act, 1961 is that unlike a winding up, there is no end to the enterprise, with the entity. The enterprise in the case of amalgamation continues. In paragraph 18 of Mahagun Realtors (P) Ltd. (supra), the Hon'ble Supreme Court observed that it is essential to look beyond the mere concept of destruction of corporate entity which brings to an end or terminates any assessment proceedings. The Supreme Court further observed that there are analogies in civil law and procedure where upon amalgamation, the cause of action or the complaint does not per se cease - depending of course, upon the structure and objective of enactment. It is further observed that broadly, the quest of legal systems and courts has been to locate if a successor or representative exists in relation to the particular cause or action, upon whom the assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the names of RPEL and RPPL. (v) The scheme of amalgamation in the present case before us was approved on 11 January 1995 with effect from 1 January 1995 by the order of this Court and the assessment orders were passed after 1 January 1995. (vi) Inspite of the Assessing Officer being aware of the fact of amalgamation, the assessment order was passed on an entity which had ceased to exist. (vii) The assessment orders are passed in the name of RPEL and RPPL only without mentioning anything about RIL. This fact is identical to Maruti Suzuki's case whereas in Mahagun's case, assessment orders contained names of both amalgamating and amalgamated company. 33. In our view, the facts of the present appellant-assessee before us are similar to the significant facts in the case of Maruti Suzuki India Ltd. (supra) on the basis of which the Supreme Court has held that inspite of the fact of the Assessing Officer being informed of the amalgamating company having ceased to exist as a result of the scheme of amalgamation, if the proceedings are initiated against the non-existing companies, then such proceedings are void ab initio although the amalgamated company participated in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct that this was intimated to the department much earlier, the impugned notice u/s. 148 is held as "null and void" and consequently, re-assessment order is quashed. Since we have quashed the assessment on the aforesaid ground, therefore, the grounds for appeal raised by the Revenue as well as other cross objections raised by the assessee are treated as academic and hence, infructuous. 13. In the result, the appeal of the Revenue is dismissed and cross objection of the assessee is allowed. 14. Now coming to the appeal for A.Y.2016-17, the brief facts are that the returned income was filed on 16/10/2016 declaring income of Rs. 39,64,07,570/- and the said return was selected for scrutiny assessment u/s. 143(3) was completed on 29/12/2018 determining total income of Rs. 40,30,07,860/-. The assessee's case was reopened u/s. 147 and notice u/s. 148 was issued on 31/03/2021. In the name of M/s. Wadhwa & Associates Realtors Private Limited and despite all the intimation by the assessee about the fact of amalgamation of WARPL with Raghuleela Estate Pvt. Ltd., (all the fact of intimation has already been noted in the appeal for the A.Y.2013-14 including various dates), it is seen that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in law, Ld. CIT(A) has erred relying on the decision of the Hon'ble Bombay High Court in the case of CIT Vs Runwal Developers(p) Ltd. without appreciating the fact that the decision of Hon'ble High Court is not applicable to this case as the facts in the case of Runwal Developers are distinguishable from facts of instant case." 18. In the cross objection, the assessee has raised the following grounds:- 1) The Commissioner of Income Tax (Appeals) 53, Mumbai [CIT(A)] erred in confirming the AO's action of disallowing preconstruction interest of Rs 51,40,617 claimed under section 24(b) of the Act on the ground that preconstruction interest shall be allowed only to the extent of the cost of the property which is finally acquired/constructed. Your Appellant submits that on the facts of the case the preconstruction interest has been rightly claimed by the Appellant, being one-fifth of the interest paid on funds utilized for acquiring the property. 19. The brief facts are that the assessee has filed its return of income for A.Y.2020-21 on 10/02/2021 declaring total income of Rs. 7,11,96,580/-. The ld. AO noted that assessee has claimed interest u/s. 24(b) and had of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /1502 Capital which establishes that the assessee has made payments of borrowed loans for acquisition of the above mentioned properties, hence, during the year there is no question of claiming deduction. The assessee's claim before the ld. AO was that it has been claiming deduction u/s. 24(b) on the properties from the date of acquisition / construction till the date including A.Y.2011-12 to 2013-14 and has also submitted the details of deduction in respect of three properties in the paper book. It was clarified before us that assessee while filing of return for the above three properties has inadvertently clubbed the income and deduction claimed under one property i.e. the HDO building, however, the assessee received rental income from all the three properties and continues to receive in the year under consideration also. However, the ld. AO disallowed the claim of the assessee. 22. The ld. CIT(A) allowed the disallowance after referring and relying upon the decision of the Tribunal in assessee's own case for A.Y.2015-16 after observing as under:- 8.1. In the case of the appellant for A.Y 2015-16, vide ITA No. 2157/Mum/2023 dated 19.03.2024, the Hon'ble ITAT held as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , even if the AO considers that a part of interest expenditure is not allowable under the head Income from Other sources", then the same shall be allowable as deduction either under the head Income from House Property' or under the head "Income from Business". 14. Since the assessee has generated income from three sources, it has followed a consistent methodology for allocating interest expenditure between three heads of income. This is for the reason that the assessee is of the opinion that all types of funds, viz., own funds, loan funds and interest free lease advances have been used for generating income from all the three heads of income. We notice that the very purpose of giving short term loans is for the purpose of generating income from idle funds, which are not immediately required for its activities. Since the assessee is having liability to pay interest expenditure on borrowed funds, it has taken prudent decision to generate income by giving short term loans. This is exclusive prerogative of the assessee and the tax man cannot question the wisdom of the businessman. 15. Hence, in our view, so long as the assessee has not diverted the loan funds for non-income ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained subsequently were for replacing old loans the interest paid on such loans were claimed as a deduction under section 24(b) of the Act while computing Income from House Property. He aslo relied upon and he referred to CBDT Circular No. 28 dated 20/08/1969 which clarifies that fresh loans raised to repay the earlier loans taken on the property, then the interest paid on subsequent loan shall be allowed as deduction. There is no restriction placed in the Circular that second or third loan shall not be eligible for claiming deduction u/s. 24(b). He further submitted that all the sanction letters were filed before the ld. AO for subsequent loans which notes that loan was taken for the purpose of repayment of earlier loans. The ld. AO has only drawn his own inference and made an allegation that assessee has not established the nexus of loan and the possession / construction of the property without even considering the said sanction letters or anything to bring on record that assessee did not pay the original loans from any subsequent loans. When the substitution of loan has been accepted for the repayment earlier loans in the assessment orders for the earlier years, then the ld. AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of borrowed funds of Rs 30 crores from HDFC Bank. The Assessee Company was allotted Unit No.1502 and 202 in the year 2014-15 and the same was capitalized in the year 2014-15 at Rs 43,46,72,365 which included interest cost of Rs. 189,826,961 The Unit 1502 was spilt in to Unit 1502A and 1502 B and the Unit 1502A was sold in the year 2016-17. Thus the investment in Project Capital currently consists of Unit No 202 and 1502B standing in the books at Rs 319,485,098 as on 31.3.2020 and the Assessee Company is claiming deduction of interest under section 24(b) to the extent of Cost of Property Rs 178,333,176. (Refer Page no 45 of the Paper Book). Initial loans of Rs 30 cores was borrowed from HDFC Ltd which were replaced by Loan taken from India Bulls Financial Services (IBFS). Subsequently the IBFS loan was replaced by loans taken from PNB Housing Finance Ltd and Laxmi Villas Bank, then by loan from Wadhwa Group Holding Private Limited and finally from Bank of Baroda Thus in the given facts of our case initially the loans were utilized for the purpose of acquiring/Constructing the property and the subsequent loans were for replacing the existing loans and for general corporate pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Property. In the assessment of WARPL for the period till 30.09.2019 i.e part of the year the claim of interest under section 24(b) was allowed, thus there cannot be a question of disallowance of interest for remaining part of the year in the hands of the assessee company. 25. In view of the above facts and material placed on record, it is clear that the subsequent loan were taken for the repayment of earlier loans which were used for acquisition /construction of the properties and this fact has been accepted in the earlier years given by the Tribunal for A.Y.2015-16. Therefore, we do not find any infirmity in the order of the ld. CIT(A) and the same is confirmed. 26. Now coming to the issue of direction of the ld. AO on account of recovery of common maintenance charges of Rs. 1,98,89,541/- considering the same as "income from house property" as against income from business and profession considered by the assessee, the ld. AO has noted that maintenance charges received of Rs. 1,98,89,541/- from the tenants has been considered as part and parcel of the rent by the ld. AO on which already statutory deduction @ 30% u/s. 24(a) has been allowed which comes to Rs. 59,66,862/-. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cided in favour of the Assessee. The ITAT declined to interfere with the findings of the Id. CIT (A) in deleting the additions made by the AO for CAM charges and hence dismissed the departments appeal on the above said ground that it is consistently treated as business income in earlier years. 29. We find that this issue not only stands covered by the decision of the Tribunal in the aforesaid case but also the principle is squarely covered by the decision of the Hon'ble Bombay High Court in the case of CIT vs. Runwal Developers Pvt. Ltd. wherein collection and maintenance charges from lessees which was held to be taxable under the head "income from house property" by the ld.AO. The Hon'ble High Court upheld the finding of the Tribunal holding that maintenance charges received towards maintenance of common area and therefore, business received liable to be assessed under the head "income from business", accordingly, finding of the ld. CIT(A) is upheld and the grounds raised by the Revenue is dismissed. 30. Now, coming to the cross objection raised by the assessee i.e. disallowance of pre-construction interest of Rs. 51,40,617/-claimed u/s. 24(b) on the ground that pre-construction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est cost of Rs. 18,98,26,961. Thus, it has been stated that cost of property acquired includes actual interest cost borne by the assessee of Rs. 30 Crores for the period of 5 years till acquisition of the property and it was much later when the area was reduced and money was refunded back. It has been brought on record and pointed out that a revisionary proceedings u/s. 263 was undertaken in the assessee's case for the A.Y 2018-19 by the PCIT on the same issue following the disallowance of current year. The ITAT Mumbai vide order No ITA No 2595/Mum/2024 dated 20/8/2024 has set aside the order of the PCIT dated 26/03/2024 and restored the order of the AO and allowed the assessee appeal besides deciding on the technical ground, on merits Tribunal held that the claim of interest even if not allowable u/s 24(b) of the Act, certainly allowable under section u/s 36/37 of the Act and thus no prejudice is caused to the interest of the revenue as the interest would have been allowed in any case in other provisions of the Act. 33. We hold that, once the claim of the assessee u/s. 24(b) was never disputed and have been accepted year after year by the department for the last four years an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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