M/S AMANSHIL REALTORS (P) LTD.,,DELHI vs. DCIT, NEW DELHI

Brief facts of the case are that the assessee is a company engaged in the business of trading of shares, commodities and future and options. For the assessment year 2012-13 it had filed its return of income on 30/9/2012 declaring a loss of Rs. 61,05,005/-. Assessment under section 143(3) of the Income Tax Act, 1961 (for short “the Act”) was complete by order dated 19/1/2015 at a loss of Rs.12,72,150/- by making certain additions which include, for the purpose of this appeal, disallowance of interest to the tune of Rs. 8,75,020/-treating the same as not allowable under section 36 (1)(iii)/37 (1) of the Act, disallowance of depreciation to the tune of Rs. 36,35,533/-treating the Vatika city building office with the furniture is not having been used for business purpose for a limited period and disallowance of interest of Rs.2,16,003/-due to non-availability of funds is not being allowed in section 37 (1) of the Act.

In the appeal preferred by the assessee, Ld. CIT(A), by way of impugned order sustained these three additions. Hence the assessee is before us in this appeal. Insofar as the 1staddition is concerned, on a perusal of the P&L 4. account of the assessee, learned Assessing Officer found that the assessee had shown gross turnover of Rs. 61,11,803/-on sales of shares and income of Rs.7,13,925/-was shown as a service charges received; that under the head other income, the assessee had further declared dividend income of Rs. 2,78,258/-and rental received of Rs. 34,18,841/-; that as per competition, the rental income was offered to tax separately and a dividend of Rs.2,78,258/- was claimed as exempt; and that the assessee had also shown interest income of Rs. 6,83,041/-under the head income from other sources. On a perusal of the Balance Sheet learned Assessing Officer found that the assessee had deployed share capital of Rupees one crore in its business, reserve and surplus on the 1st day of the year was shown at Rs.3,19,57,521/- and at the end of the year after the adjustment of current year’s loss, the net surplus of Rs.2,70, 48,094/-was shown and the assessee had shown long- term borrowing of Rs.4,47,72,998/-and short-term borrowing of Rs.1,52,34,051/-. In the asset side non-current investment of Rs.67,66, 397/- was shown as on the 1st day of the year and long-term loans and advances given amounting to Rs. 3,13,81,947/-and Rs. 3, 12,60,638/-were shown as on 1st and last day of the year respectively. Short-term loans and advances amounting to Rs.1,40,04,383/-and Rs.58,03,437/-as on the 1st and last day of the year were also appearing in the Balance Sheet. The trade inventories as on the 1st and last day of the year were shown at Rs.2,06,50,962/-and Rs.1,80,09,434/-were also shown. As per the P&L statement, the assessee had claimed employee benefit expenses of Rs.10,56,855/-, finance cost of Rs.9,15,671/-and other expenses amounting to Rs.14,74,223/-. As per the computation, depreciation of Rs.43,80,140/-was claimed under section 32 (1) of the Act.

On an analysis of these facts, learned Assessing Officer felt that the assessee had incurred expenditure on payment of interest on borrowings which have been mainly utilized for the purpose of making investment in the real estate and also making advances. After hearing the assessee learned Assessing Officer held that there was no justification for payment of interest on borrowing on one hand and parking the funds in the name of investment/interest free advances which is not the core of business of the assessee and therefore, learned Assessing Officer brought an amount of Rs.8,75,020/-to tax under section 36(1)(iii)/37(1) of the Act.

On this aspect Ld. CIT(A) concurred with the findings of the learned Assessing Officer and held that the assessee had advanced loan to its sister concerns or other persons without charging any interest and there was no nexus between the payment of interest claimed for business purpose justifying the learned Assessing Officer to infer that the assessee did not utilise the borrowed funds for business.

Before us, the assessee confined the arguments in respect of grounds No. 3 to 5. In respect of ground No. 3, Ld. AR submitted that the interest of Rs. 8,75,020/-on loan was paid to ICICI bank for purchasing office building having address flat No. 307, Vatika city point, MG road, Gurgaon for business expansion purposes and, therefore, the interest paid shall be inferred to have been incurred for business purpose and be allowed. In the alternative, it is pleaded before us that if such an interest on loan is not treated as for business purpose, then such an interest should be allowed as interest on borrowed capital under income from house property under section 24 (b) of the Act since the said building was let out from 19/10/2011 and rental income from house property to the tune of Rs. 27,95,754/-was duly declared in the books of accounts and Income Tax return.

In respect of the depreciation, it is submitted by the Ld. AR that the assessee company decided to expand its business and to open a new branch in Gurugaon, a growing business have for MNCs and in order to have business opportunities and to get some or potential clients, the assessee thought of opening a new branch in the commercial space which is already been with the assessee in VatikaCity, Gurugaon. Subsequently such property was let out and the rental received was declared in the books and Income Tax return.

In support of these contentions the assessee produced certain documents like letter dated 15/1/2010 issued by ICICI Home Finance, bank statement, lease deed dated 19/10/2011 and certain vouchers and bills to show that the premises was required for business purpose. Assessee also produced the letter issued by Aditya Birla Money for the purpose of activating the currency trading account from the new business premises from VatikaCity Point, energy bills and telephone bills etc to show that the newly acquired premises was used for the purpose of business till 4/10/2011, the period exceeding 180 days in support of the claim for full depreciation on the building.

Ld. DR submitted that all these documents were not available before the learned Assessing Officer and it is for the 1st time the assessee produced such documents before the Tribunal and taking a new plea that was not available before the authorities below. Ld. DR submitted that the matter requires factual verification which cannot conveniently be done by the Tribunal.

Be that as it may, the plea taken by the assessee is that the borrowed funds were not utilized for investments and interest free advances and they were utilised only for business purpose and acquisition of a premises to run the office. It is submitted that the claim of the assessee is well supported by documents which could not be filed before the learned Assessing Officer under mistaken impression inasmuch as it is not possible to verify the veracity of such documents at Tribunal level. Keeping in view the submissions made by the counsel on either side, we are of the considered opinion that the utilisation of funds and use of the newly acquired premises for business purposes requires verification of facts in the light of the documents produced by the assessee. This requires the matter to be remanded to the file of the learned Assessing Officer to cause such verification. We, therefore, set aside these grounds No. 3 and 4 to the file of the Assessing Officer for factual verification on these aspects and to take a view as per law.

Now coming to the disallowance of interest of Rs.2,21,003/-, covered by ground No. 5, Ld. AR submitted that such expenses were not added in the computation of income and the assessee has no objection for disallowance of the same. By recording the same, we dismiss ground No. 5 as not pressed.

In the result, appeal of the assessee is allowed in part for statistical purpose. Order pronounced in the Open Court on 16th January, 2020.