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Income Tax Appellate Tribunal, “B’’ BENCH: BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
O R D E R PER BEENA PILLAI, JUDICIAL MEMBER: Present appeal has been filed by assessee against order dated 05/12/2018 passed by the Ld.CIT(A)-6, Bangalore on following grounds of appeal:
1. The learned Assessing Officer had erred in passing the order in the manner passed by him and the learned CIT(A) has erred in partially confirming the same. The orders passed are bad in km and is liable to be quashed. 2.1 The learned assessing officer had erred in holding that interest of Rs. 2,42,33,822/- debited to Profit and loss account is not allowable u/s 36(1)(iii) of the Act on the ground that the appellant has given interest free advances to sister concerns and others without establishing the commercial expediency of the same and the learned CIT(A) has erred in partially confirming the Same. On the facts and circumstances of the case and the law applicable the conclusions drawn king totally erroneous are to be disregarded.
2.2 The appellant had rightly claimed the interest as business expenditure as all the borrowed funds were utilized for the purpose of business only. The finding of disallowance as made being erroneous is to be deleted and interest as claimed is to be allowed as deduction. 2.3 In any case, the advances given to sister concerns and other are out of business expediency and further there are sufficient free funds to support such advance and therefore also the finding as given by the Assessing Officer in Assessment order was erroneous. 2.4 The learned Assessing Officer had also erred in holding that alternatively as per the recast profit and loss account, the interest needs to be capitalized and the learned CIT(A) has erred in confirming the same. The observation/findings of Assessing Officer being without basis, totally erroneous on facts are to be rejected.
3. The learned Assessing Officer has also erred in not allowing a sum of Rs.5,19,496/- claimed as depreciation u/s 57 of the Act against electrical installation and furniture and fixtures on the grounds that the deduction for electrical installation and furniture and fixtures already been claimed u/s 24(a) of the Act and the learned CIT(A) has erred in confirming the same. The conclusion drawn by the authorities below is wholly erroneous and needs to be disregarded. There being no incorrect claim made by the appellant, hence disallowance as made is to be deleted.
In any case, the authorities below have erred in making various observations/ finding in the course of passing the assessment/appellate orders. The observations/findings made are totally erroneous both on facts and law are to be disregarded.
The appellant denies the liability to pay Interest U/s. 234B and 2341) of the I.T. Act, 1961. The interest having been levied erroneously is to be deleted.
In view of the above and on other grounds to be adduced at the time of hearing, it is requested that impugned order passed be quashed or at least the disallowance u/s 36(1)(iii) and u/s 57 of the Act be deleted and interest levied be also deleted.” Brief facts of the case are as under: 2. Assessee is a partnership firm and filed its return of income for year under consideration on 29/09/2012 declaring loss of Rs.15,71,375/-. The Ld.AO observed that loss comprised of sum of Rs.2,14,22,724/-being loss from business, Rs.71,98,816/- being income from house property and Rs.1,26,52,533/- being income from other sources. Ld.AO observed that, during the year under consideration, assessee claimed interest expense of Rs.2,24,33,822/-. Assessee was called upon to explain the business expediency as well as allowability of said interest under section 36(1)(iii) of the Act, as borrowed capital was not used for business purposes. 2.1 The assessee in response submitted that during the year assessee had borrowed sum of Rs.29.30 crores from Raligare Fine Investment Ltd. The utilisation of this loan was filed before the Ld. AO and submitted that, Rs.13.36 crores was withdrawn by partners and the interest paid on the loan relatable to such withdrawal was debited to the partners account. The assessee submitted that, took it took loan towards acquisition of land and the interest cost was capitalised in proportionate way on the loan from Raligare Fine investment Ltd. Assessee submitted that, the interest on other loans was claimed under the head rental income and business income and a chart was filed forming part of the assessment order at page 6-7. 2.2 The Ld.AO after considering submissions of assessee, was of the opinion that, assessee has advanced various loans to sister concern and others without charging interest. The Ld.AO thus treated interest paid to be capital in nature and disallowed the same under section 36 (1) (iii) of the Act.
Aggrieved by the order passed by the Ld.AO assessee preferred appeal before the Ld.CIT(A). The Ld.CIT(A) merely upheld the action of the Ld.AO by observing as under: “4.2.4 The AO has alternatively ordered that the interest claimed should be capitalized to the cost of land of Rs.10.87 crores. The AO has also recast the appellant's P&L account in this regard as shown in para 11 of the assessment order. This alternative proposition of the AO is endorsed as the appellant has shown ongoing projects (WIP Rs. 1,43,29,743/- and Investments in Projects Rs.1,12,83,881/- in the balance sheet) and interest paid on funds deployed for construction and development expenses would
have to be capitalised to the cost of the projects. The appellant had itself submitted that the work-in-progress includes expenses incurred till date on the project(s) and hence interest would have to be capitalised with the closing work-in-progress. Thus the AO's stand that interest claimed cannot be allowed u/s 36(1)(iii) is upheld. However, as discussed in para 4.2.1 supra the disallowance of interest is to be restricted to Rs.2,22,88,256/-. The appellant gets partial relief w.r.t. to these grounds of appeal
. 4.2.5 One additional aspect that has been raised by the appellant during appellate proceedings is that the appeal for A.Y.2014-15 on the similar issue has been decided in favour of the appellant. I have perused the said appellate order and find that the Id. CIT(A) had allowed the appellant's appeal for that year on the grounds that the AO had merely reproduced what was stated in the assessment order for A.Y.2013-14 and no reason was made out for the disallowance. However, the position with respect to the year which is the subject matter of the present appeal is different. The AO has given a clear-cut finding on the disallowance of interest expenses u/s 36(1)(iii). Moreover, the appeal is for an earlier year and the disallowance made is the original disallowance which has been followed by the AG in subsequent assessment years. Therefore the disallowance is being adjudicated for this year, also having regard to the fact that the principle of res judicata is not applicable to income tax proceedings and each assessment year is a separate one for which the facts would need to be adjudicated separately. 4.3 Ground No. 6 pertains to the disallowance of depreciation claimed on electrical installations and furniture and fixtures in the let-out property 'Karle Premium'. The AG had disallowed the depreciation on these items on the ground that they constituted an inalienable part of the building let out, on which 30% deduction from rental income was allowed towards repairs and maintenance. The Appendix to the Hire Agreement dated between the appellant and the tenant M/s Reuters India Pvt. Ltd. shows the following items.”
4. Aggrieved by the order of the Ld.CIT(A) assessee is in appeal before us now.
5. At the outset, Ld.AR submitted that, Ground No. 1, 4, 6 are general in nature and therefore do not require adjudication. Ground No. 2.1-2.4 is in respect of the disallowance of interest under section 36(1)(iii) of the Act. 5.1 The Ld.AR submitted that, assessee took loans from Raligare Fine Investment Ltd., which was used to repay the med- term loan from PNB bank and PNB Corporate loans, that was earlier taken by assessee for investment in commercial property towards purchase of land etc. A detailed chart was relied by the Ld.AR forming part of the Ld.CIT(A) order at page 4. It was submitted that assessee used the borrowed funds for the purpose of business. Ld.AR also submitted that assessing officer erred in recasting the profit and loss account and considered it to be work in progress. The Ld.AR submitted that, assessee has interest-free funds which is evident at page 52 of paper book. It is also submitted that, assessee has rental income from building and entities which was credited to the P&L account placed at page 53 of paper book. The Ld.AR submitted that, under such circumstances it cannot be assumed that the loan given to sister concern arises out of interest-bearing funds. 5.2 On the contrary the Ld.DR relied on the orders passed by authorities below. 5.3 We have perused the submissions advanced by both sides in the light of records placed before us. We have also analysed the financial statements filed by assessee placed in the paper book at page 49-58. We note that assessee does have its own fund to advance money to the sister concern. However in the interest of Justice we deem it fit to remand to the Ld.AO for verifying cash flow statement for relevant period. Assessee is directed to furnish the cash flow statement that would disclose the funds available as on the date of advance to the sister concern. The Ld.AO shall take a pragmatic approach in accordance with law considering the business exigency in the hands of assessee.
Accordingly this ground raised by assessee stands allowed for statistical purposes.
6. Ground No. 5 is in respect of depreciation claimed on the equipments. 6.1 The Ld.AO did not allow sum of Rs.5,19,496/- claimed as depreciation under section 57 of the Act, against electrical installations and furniture’s and fixtures on the ground that deduction for electrical installation and furniture fixtures already has been claimed under section 24(a) of the Act. 6.2 We have considered the arguments advanced by both sides. 6.3 We note that the furniture fixtures and the equipments on which the depreciation has been claimed by assessee as an integral part of the rented premises on which standard deduction of 30% is claimed and allowed under Section 24 of the Act by Ld.AO. The primary condition as envisaged by Section 32 to claim the depreciation is that the assets should be used for the purposes of assessee’s business which has remained unfulfilled in the present facts before us. Therefore, we are unable to concur with the stand of the Ld.AR, in this regard. Accordingly this ground raised by assessee stands dismissed. In the result appeal filed by assessee stands allowed partly for statistical purposes. Order pronounced in open court on 14th July, 2021 Sd/- Sd/- (Chandra Poojari) (Beena Pillai) Accountant Member Judicial Member Bangalore, Dated 14th July, 2021.