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Income Tax Appellate Tribunal, DELHI BENCH “B”: NEW DELHI
Before: SHRI M. BALAGANESH
O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in AY 2014-15, arises out of the order of the Commissioner of Income Tax (Appeals)-33, New Delhi [hereinafter referred to as „ld. CIT(A)‟, in short] in Appeal No. 566/18-19 dated 31.07.2019 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟) dated 29.12.2016 by the Assessing Officer, ITO, Ward-6(1), New Delhi (hereinafter referred to as „ld. AO‟).
None appeared on behalf of the assessee despite issuance of notice. Hence, we proceed to dispose of this appeal on hearing the learned DR and based on materials available on record.
The Ground No. 2 raised by the assessee is challenging the confirmation of disallowance of expenses of Rs 68,47,078/- under section 24 of the Act. Page | 1
We have heard the learned DR and perused the materials available on record. The return of income for the assessment year 2014-15 was filed by the assessee company on 26-11-2014 declaring total income of Rs 19,01,202/-. The assessee company had disclosed revenue from operations from letting out of properties which has been offered to tax under the head income from house property. The learned AO during the course of assessment proceedings perused the memorandum and articles of association from where it was noticed that the predominant object of the company was meant for setting up and running film producing and recording studios; carry on the business of film producers, film renters, film hirers and distributors and also to carry on the business of video software generating facilities; to carry on the business of executing cinematography films and of organizing the production, management and performance of film and television entertainments. From the above, it was concluded by the learned AO that the assessee company was predominantly only into the business of film production and film renters and its allied activities. Except the rental income derived from letting out of properties, no other income was disclosed by the assessee. Since the rental income was offered to tax by the assessee under the head income from house property, the learned AO concluded that assessee would be eligible for deduction of expenses only in terms of section 24 of the Act and not otherwise. Accordingly, he proceeded to disallow certain expenses which were claimed under the head income from business by the assessee as there was no business activity carried out by the assessee. This action led to the disallowance of Rs 68,47,078/- by the learned AO in the assessment.
The learned CIT(A) though in principle agreed with the contentions of the learned AO, gave partial relief to the assessee on the ground that since suo moto disallowance of expenses were already made by the assessee in the return of income towards repairs and maintenance (building) of Rs 26,38,866/- and interest on TDS & service tax of Rs 3,91,250/-, the disallowance of expenses under the head „business‟ need to be restricted only to Rs 38,16,962/- (6847078-2638866-391250).
It is a fact that no business activity was carried out by the assessee during the year under consideration. Hence, assessee is not entitled for claiming any deduction towards expenses under the head income from business. Since the only income that has been disclosed was rental income from letting out of properties which has been offered by the assessee company under the head income from house property, as rightly contended by the learned AO, the assessee would be entitled only for deduction in terms of section 24 of the Act and not otherwise. Hence, we do not find any infirmity in the order of the learned CIT(A) restricting the disallowance of expenses to Rs 38,16,962/-. Accordingly, the Ground No. 2 raised by the assessee is hereby dismissed.
The Ground no. 1 raised by the assessee is challenging the confirmation of disallowance of Rs 54,82,626/- under section 24 of the Act.
We have heard the learned DR and perused the materials available on record. The learned AO had observed that assessee vide letter dated 28-10-2016 during the course of assessment proceedings had furnished a revised computation of income wherein 1/5th of total expenses of interest prior to the date of completion has been claimed as deduction under section 24(b) of the Act. The assessee was asked to substantiate its claim of capitalized interest which was incurred before the date of completion. The assessee gave an explanation vide letter dated 28-12- 2016 before the learned AO. The learned AO observed that no third party confirmation whatsoever was filed in support of the contentions of the assessee and accordingly proceeded to disallow the capitalized interest claim of Rs 54,82,626/-. The learned CIT(A) dismissed the claim of the assessee by observing as under:-
“7.2.1 During the assessment proceedings, the Assessee submitted a revised computation wherein claim for 1/5th of interest prior to the date of completion was made. The Assessing Officer asked the Assessee to substantiate its claim of capitalized interest amounting to Rs.2,74,13,132/- incurred before the date of completion. The Assessing Officer remarked that the Assessee company had paid back the loan taken for the construction. It is also remarked by the Assessing Officer that the Assessee did not furnish confirmation to verify whether claim of interest made by the Assessee was shown as income by the payees. Secondly, the Assessing Officer disallowed the claim on the ground that the Assessee could not furnish details that the loans were actually raised for the purpose of construction income of which has been offered under the head 'Income from House Property'. 7.2.2 The Appellant has, inter alia, submitted that a claim dated 21" December, 2016 was made before the Assessing Officer with the enclosures including sanction letters for the loan of Rs.16.20 Crores and Rs.3 Crores. The bank granted a revised loan of Rs.24.75 Crores with which the earlier loans had been restructured by the repayment of the same. But at no stage the bank waived off any interest including the interest for the construction period. The company correctly and legitimately made the claim for deduction of Rs.54,82,626/-. Total cost of building was Rs.29.69 Crores inclusive of Rs.1.06 Crores paid as development charges for obtaining sanction. The shareholders funds were to the tune of Rs.4.10 Crores at the beginning of the year against the total cost. The remaining funds were borrowed from the bank. The copy of the completion certificate was submitted by mail. In terms of the provisions of section 24(b) of the IT Act, interest on any fund borrowed and used for construction purpose is allowable expenditure. Copy of various sanctions of the loans by the bank was submitted before the Assessing Officer. The earlier loans amounting to Rs.16.24 Crores and Rs.3 Crores were restructured and fresh loan of Rs.24.75 Crores was sanctioned by the bank. 7.2.3 I have considered the facts of the case and submission of the Appellant. The Assessing Officer has disallowed the claim of the Appellant on the ground that the Assessee could not furnish confirmation from the banks that they had actually declared the interest received by the Assessee as their income. I understand that such condition is not relevant for allowing the claim under the provisions of IT Act. The other objection raised by the Assessing Officer was that the Assessee could not furnish the Page | 4 details that the loans borrowed were utilized for the purpose of construction of the property. 7.2.4 On the verification of the facts, I find that the Appellant has not only constructed the building from which rental income has been shown but has also acquired / added tangible assets like computers, furniture & fixture, plant & machinery and land. The Appellant has not furnished certificate from the bank as required in terms of third proviso to section 24 of the IT Act specifying the amount of interest payable by the Assessee for the purpose of such acquisition or construction of the property. In the absence of such details and certificate from the bank, the Appellant's claim of 1/5th of capitalized interest amounting to Rs.54,82,626/- made only during the assessment proceedings cannot be allowed. Further, the Ld. AR for the Appellant has invited my attention to the fact that the Assessing Officer, in the computation of income, took returned income at Rs.19,01,202/- and disallowed 1/5th of capitalized interest amounting to Rs.54,82,626/- to compute the total income at Rs.1,42,30,906/-, As a matter of fact, the claim of 1/5th of capitalized interest was made during the assessment proceedings only and no such claim was made in the ITR, to compute the total income of the Appellant, such disallowance could not have been added to the returned income. Accordingly, the disallowance of Rs.54,82,626/- is deleted. In the light of above observations, ground no. 3 of the appeal is dismissed and ground no. 4 of the appeal is allowed.”
Even though there was no appearance on made on behalf of the assessee before us, we find that assessee had placed on record the bank certificate from Syndicate Bank, Canara Bank together with the details of plant and machinery which were added under the head fixed assets. Since the claim of the assessee for claiming deduction towards pre-operative interest was denied by the learned CIT(A) for want of bank certificates, the bank certificates were filed by the assessee as additional evidences before us. We deem it fit to admit those additional evidences as it would be relevant for adjudication of the issue in dispute. Accordingly, these additional evidences are admitted and the issue in dispute is restored to the file of Learned AO for de novo adjudication in accordance with law in the light of additional evidences submitted by the assessee. Accordingly, the Ground No. 1 raised by the assessee is allowed for statistical purposes.
In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 27/03/2025.