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Income Tax Appellate Tribunal, ‘’ SMC’’ BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV & SHRI WASEEM AHMED
आदेश/O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax(Appeals)-3, Ahmedabad, dated 18/03/2019 arising in the matter of assessment order passed under s. 143 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2013-14.
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The assessee has raised the following grounds of appeal: Being aggrieved by the rectification order passed u/s. 154 of the Income Tax Act by the learned CIT(A) - 3, Ahmedabad, your appellant submits following grounds of appeal amongst others for your kind justice. 1. The learned CIT(A) has grossly and grievously, erred in law and on facts by rejecting rectification and disallowing a sum of interest of Rs.5,40,375/-on secured term loans from bank, without understanding the basic facts and circumstances of the case and therefore, based on the facts and circumstances of the matter, it is prayed to allow all the above noted expenses as claimed by your appellant in full. Your appellant craves a leave to add, alter, amend, and/or modify any of the grounds of appeal on or before the date of hearing.
The only issue raised by the assessee is that the learned CIT (A) appeal order in holding that there is no mistake apparent from record in his order dated 19th March 2018.
The facts in brief are that the assessee in the present case is HUF and engaged in the activity of running the cinema hall under the name and style of Revolution Video Cinema. The assessee in the year under consideration inter-alia has claimed certain expenses as detailed below: i. Depreciation on the cinema building Rs. 3,25,533/- ii. Interest on the loan taken for construction of the cinema building Rs. 5,40,375/- iii. Repair and maintenance of the cinema building and the lift etc. Rs. 6,02,594/- 4.1 The AO during the assessment proceedings found that the assessee is not the owner of the cinema building and there is also no rent agreement with respect to the cinema building. Accordingly, the AO was of the view that the cinema building does not belong to the assessee and therefore the question of allowing the depreciation thereon does not arise. Once the cinema building is neither owned as owner nor as tenant, the question of interest on the loan taken for the construction of cinema building viz a viz repair/maintenance of such building/lift does not arise.
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Thus the AO, disallowed the claim of the assessee for Rs. 14,68,502/- and added to the total income of the assessee.
Aggrieved assessee preferred an appeal to the learned CIT (A) who deleted the addition made by the AO with respect to the depreciation on the cinema building, repair /maintenance of the cinema building /lift. However, the learned CIT (A) confirmed the addition with respect to the interest on the loan taken for the construction of the cinema building by observing as under: However, there is no document for proving that the loan was taken by the appellant. In fact, the loan has been taken by the members/concerns of family. There is no document as evidence from the appellant to the banker and vice-a-versa which can prove that the loan was actually sought for specific purpose by the appellant and the loan was granted to the appellant for specific purpose. It is common knowledge that the bankers do put many conditions while granting the loan. The information about any such conditions is missing from the record. Therefore, whether that particular loan for which interest expenditure is claimed has actually been utilized by the appellant for purchasing plant & machinery for movie theater is not discernible. It goes without saying that the appellant does not own the land. It is quite possible that the expenditure is not concerning the appellant but to the family members/concerns, in view of these facts, it is not proved that this expenditure is deductible expenditure. In the circumstances, it is my opinion that disallowance of interest expenditure of Rs.5,40,375/- has been done by the AO correctly. The disallowance of interest expenditure is hereby confirmed.
The assessee was not satisfied with the finding of the learned CIT (A) and moved an application under section 154 of the Act by stating that there is a mistake apparent from record in the order of the learned CIT (A) vide application dated 16th January 2019 and 4th March 2019. It was contended by the assessee that the loan was taken in the name of the assessee which is evident from the sanction letter issued by the bank. The assessee further contended that the term used in the loan document ‘extended equitable mortgage’ does not refer to the old loan taken by the partnership firm namely M/s Rajdeep Automobiles in the earlier years.
6.1 The assessee also submitted that the learned CIT (A) in his order dated 19th March 2018 has already admitted that the cinema hall building was constructed out of the loan obtained by the assessee. Likewise, the learned CIT (A) has allowed the depreciation to the assessee on the cinema building which evidences that the
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assessee has incurred the interest cost on such building and therefore the same is allowable.
However, the learned CIT (A) disregarded the contention of the assessee by observing as under: The contention of the appellant is considered carefully and on verification of the appellate order passed by this office it is found that there is no apparent mistake while deciding the appeal, the submission of the appellant has been considered and (he appeal is decided on the facts of the case. Accordingly, the application u/s.154 of the IT Act filed by the assessee is hereby rejected.
Being aggrieved by the order of learned CIT (A) passed under section 154 of the Act, the assessee is in appeal before us.
The learned DR before us vehemently supported the order of the authorities below.
We have heard the learned DR and perused the materials available on record. The provisions of section 154 of the Act are limited to the extent of the mistakes which are apparent from record. The mistakes in respect of which two views are not possible can be termed as a mistake apparent from record. We also note that, the Hon’ble Mumbai Tribunal in the case of Gold Meadows Properties (P) Ltd. vs ITO reported in 149 Taxman 17 has held that if the adjudicating authority failed to consider the contention of the assessee which is bearing on the decision-making will also amount a mistake apparent from record. The relevant extract of the judgment reads as under: The principles of law as enunciated by various decisions are summarized as follows : 1.That where there is a wrong assumption of facts it will constitute mistake apparent from record. 2.Where there is a failure to consider certain evidence brought on record it would also constitute a mistake apparent from record. 3.Where there is an omission on the part of the Tribunal to consider the principles of law enunciated by the decisions of various Courts on which reliance was placed in the course of hearing, it will also constitute mistake apparent from record.
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10.1 In the light of the above stated discussion, we analyze the facts of the case on hand. There was a partnership form namely M/s Rajdeep Automobiles engaged in the business of automobiles show room and works shop. This partnership firm which was operating from the ground floor at 10-B, Kumbhanath Society, Near Avkar Hall, Maninagar, Ahmadabad has taken a loan from the bank for its business purposes. The loan was taken by the firm for its activities on the mortgage of its property from where it was running its business activities. Subsequently one of the party being HUF, consisting of the members who are the partners of the partnership firm namely M/s Rajdeep Automobiles, constructed the cinema hall building on the 1st floor on the same premise. The assessee being HUF has also taken loan on the mortgage of same property which was owned by the partnership firm as discussed above. Such loan taken by the assessee was called as extended equitable mortgage. Accordingly, the assessee has claimed the deduction of interest expenses on such loan. However, the learned CIT (A) in his order under section 250 of the Act dated 19th March 2018 has disallowed the interest expenses on the reasoning that the assessee failed to produce any documentary evidence suggesting that the assessee has taken loan for the construction of the cinema hall building. As per the learned CIT (A), the loan was taken by the members of the assessee being HUF or associated concern and not by the assessee. The finding of the learned CIT (A) has already been reproduced somewhere in the preceding paragraph.
10.2 Now the issue arises for our adjudication whether there is a mistake apparent from record in the order of the learned CIT (A). Indeed, it is a subject matter of verification whether the loan was taken by the assessee or the other parties and the same was utilized for the purpose of cinema hall building. However, on perusal of the order of the learned CIT (A), we note that the learned CIT (A) himself in his order admitted the fact that the construction for the cinema hall building was made on the 1st floor on the land owned by the partnership firm out of the loan taken by it. Likewise the assessee was making the payment of the instalment of loan out of its sale proceeds. The relevant finding of the learned CIT (A) reads as under:
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The appellant has developed the cinema theatre by obtaining two term loan from Punjab National Bank by providing security in the form of extension of Equitable Mortgage of the land and building owned by the firm of M/s. Rajdeep Automobiles - which is already under equitable mortgage with the same bank in respect of some other loan taken by M/s. Rajdeep Automobiles earlier. Out of the sale proceeds of tickets and other receipts, the appellant has been repaying its loans in installments with interest Accordingly. The upper structure is owned, possessed and used by the appellant for his own business.
10.3 Once the learned CIT (A) himself has admitted that the building for the cinema was constructed out of the loan which was also repaid by the assessee, then to our understanding, the learned CIT (A) cannot disallow the interest expenses by holding that that there was no document concerning the loan furnished by the assessee. In fact, we are of the view that the learned CIT (A) has given contradictory finding in his order dated 19th March 2019 under section 250 of the Act, which amounts to a mistake apparent from record and the same is liable to be corrected under the provisions of section 154 of the Act.
10.4 Moreover, we also note that the assessee before the learned CIT (A) in the proceedings under section 154 of the Act has submitted that, as evident from the statement of facts filed along with rectification application, the loan was taken by the assessee for the purpose of purchasing the equipment, plant, furniture and construction of the cinema building. But the learned CIT (A) in his order under section 154 of the Act without rejecting the contention of the assessee has reached to the conclusion that there is no mistake apparent in the order passed under section 250 of the Act dated 18-03-2019. Thus the order of the learned CIT (A) seems to be a nonspeaking order. In other words, the learned CIT (A) was under the obligation to reject the contentions of the assessee with reasoning. But he has not done so. Accordingly, in the interest of justice and fair play, we are setting aside the issue to the file of the learned CIT (A) for fresh adjudication as per the provisions of law after considering the documents of the assessee and after providing
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reasonable opportunity of being heard to the assessee. Hence, the ground of appeal of the assessee is allowed for the statistical purposes.
In the result the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the Court on 30/11/2021 at Ahmedabad.
Sd/- Sd/- (RAJPAL YADAV) (WASEEM AHMED) VICE PRESIDENT ACCOUNTANT MEMBER
(True Copy) Ahmedabad; Dated 30/11/2021 Manish