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Income Tax Appellate Tribunal, DELHI BENCH: ‘E’ NEW DELHI
Before: SHRI G.D. AGRAWAL & SHRI K.NARASIMHA CHARY
Date of Hearing 26.07.2018 Date of Pronouncement 26.07.2018 ORDER PER K. NARASIMHA CHARY, J.M.
Aggrieved by the order dated 25/05/2015 in appeal No. 36/13-14/CITA-4 on the file of the Learned Commissioner of Income Tax (Appeals)-4, New Delhi the assessee preferred this appeal, on the following grounds:- 1. That the Ld. CIT(A) has erred in law and on facts in not appreciating that the assessee had sufficient availability of interest to free funds to make the interest-free advances and, therefore, interest payments on borrowals could not have been proportionately disallowed.
2. That the Ld. CIT(A) has added in law and in facts in not appreciating that even otherwise, the interest-free advance S/investments were made to protect the business interests of the assessee and, therefore, no proportionate disallowance of interest expense was called for.
3. That it the Ld. CIT(A) has added in law and on facts in disallowing the claim of depreciation for an amount of Rs. 50, 50, 000/-. 2. Briefly stated facts of the case are that the assessee is a company engaged in the business of Advertising, PR activities, Outdoor Media and trading of helicopters parts. For the assessment year 2010-11 they have filed their return of income on 26/09/2010 declaring an income of Rs.1,76,85,000/-. During the assessment proceedings, learned Assessing Officer (Ld. AO) Firstly observed that the assessee earned dividend income of Rs.1,96,092/- on the investment of Rs.8,96,092/- as on 31/03/2010 but not made any disallowance as required under section 14-A of the Income Tax Act, 1961 (“the Act”). Learned AO, therefore, made a disallowance of Rs.16,621/-on that score.
3. Secondly, Ld. AO noted that the assessee had given interest-free advances of Rs.5,30,66,046/- to its Directors whereas they have been making interest payment of Rs.1,47,51,794/-on the borrowed funds of Rs.10,71,79,812/-. Ld. AO, therefore, by invoking the provisions under section 36(1)(iii) of the Act, disallowed a sum of Rs.34,46,444/- towards the proportionate interest in the ratio of interest to free funds given to the Directors of the company.
4. Lastly the Assessing Officer noticed that the assessee had shown addition to office building at Rs.6,88,81,224/- but a perusal of the purchase deed in respect of the building added during the year, showed that the total purchase value of the building was Rs.5,55,00,000/-which comprises of the value of the land measuring 505.85 Sq. m of Rs.5,05,00,000/- and the value of the building thereon was only Rs. 50 lakhs. Ld. AO, therefore, held that the assessee is not entitled to claim deposition in respect of building only but it has claimed depreciation at 10% against the composite value of the land and building. On such premise, Ld. AO disallowed a sum of Rs.50,50,000/- attributable to the value of the land.
5. Aggrieved by the assessment order because of the additions made therein, assessee preferred an appeal before the Ld. CIT(A). Ld. CIT(A) by way of impugned order deleted the addition of Rs. 16,621/- added on account of the disallowance by invoking the provisions under section 14-A of the Act read with rule 8-D of the Income Tax Rules, 1962.
6. Ld. CIT(A), however, held that the borrowed funds and own funds of the assessee could have reasonably be deployed towards making investments in flats/plots etc. in the ratio of 5.30:10.71, the assessee deployed interest-bearing borrowed funds of Rs.2,31,59,663/- for making investment in flats/plots and, therefore, Ld. CIT(A) directed the Ld. AO to compute the interest on it at the applicable interest rate payable to bank and restrict the disallowance of interest expense under section 36(1)(iii) of the Act to that extent, thereby allowing relief in part.
7. So also Ld. CIT(A) held that the act of the Assessing Officer in not disallowing the depreciation on land in assessment years 2009-10 and in assessment year 2011-12 and 2012-13 while passing assessment under section 143(3) of the Act, is not in accordance with law in view of the decision of the Hon’ble apex court in CIT vs. Alps Theatre Ltd (1967) 65 ITR 377 and while refusing the prayer of the assessee to follow the decision of the Hon’ble Apex Court in Radhasoami Satsang v. CIT, [1992] 193 ITR 321 as to the rule of consistency and precedence, Ld. CIT(A) sustained the addition made on account of the relevance of the depreciation on the land component.
8. The assessee is, therefore, before us in this appeal on the above stated grounds, challenging the addition of the proportionate interest on the interest- free loans advanced to the Directors on the ground that the assessee had sufficient own funds over and above the interest-free loans advanced to the directors and also that they have purchased the building as lock, stock and barrel including everything and not land and building separately for cost, as such, the bifurcations of the cast of the asset into land under building component and to disallow the deposition claimed in proportion to the land component is not warranted.
9. Insofar as the disallowance of the proportionate interest is concerned, the contentions advanced on behalf of the assessee are twofold. Firstly, that the assessee had sufficient availability of interest-free funds to make the interest-free advances and, therefore, interest payments on borrowals could not have been proportionately disallowed. Secondly, it is argued that even otherwise, the interest-free advances/investments were made to protect the business interests of the assessee and, therefore, no proportionate disallowance of interest expense was called for.
It is brought to our notice that it was submitted before both the authorities below that as on 31/03/2010 the paid-up capital of the assessee stands at an amount of Rs. 82.45 lakhs and the results and surpluses including the share premium stood at an amount of Rs.10,91,62,836/-, put together the paid-up capital and reserves available to the assessee as on 31/03/2010 were to the tune of Rs. 11.74 crores whereas the advances or only to the tune of Rs.5,30,66,046/-. On this aspect there is no adverse comment by either of the authorities.
Ld. AR placed reliance on the decisions of the Hon’ble Bombay High Court in CIT vs. Reliance Utilities and Power Ltd (2009) 178 Taxman 135 (Bombay) and PCIT vs. Midday Multimedia Ltd (2018) 89 taxmann.com 184 (Bombay) for the principle that if there are funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investment would be out of the interest-free funds generated or available with the company, if the interest-free funds were sufficiently to meet the investments. Further reliance is placed on the decision of the Hon’ble Apex Court in Hero Cycles Private Limited verses CIT (2015) 63 taxman.com 308 (SC) wherein it was held that insofar as the loans to directors are concerned, it could not be disputed by the Revenue that the assessee had a credit balance in the bank account when the said advance of Rs. 34 lakhs was given and the company had reserves/surplus to the tune of almost 15 crores and , therefore, the assessee company could in any case, utilise those funds forgiving advance to its Directors.
These decisions of the Hon’ble Bombay High Court and the Hon’ble Apex Court are directly applicable to the facts of the case on hand on all fours and in so far as the revenue does not disprove the contention of the assessee that they had interest free funds in their hands over and above the loans are advances given to the Directors as on such date, inasmuch as such interest-free funds are sufficient to advance such loans to the Directors, the presumption is that the loans would be out of the interest-free funds available with the assessee.
Further the impugned order reveals that the business expediency was also pleaded before the authorities below besides demonstrating that the total amount of interest debited to profit and loss account amounting to Rs.1,47,51,794/- was pleaded to different the bankers/lenders. The impugned order does not commented anything adverse on this aspect.
In this set of facts and circumstances of the case, while respectfully following the ratio in the decisions relied upon by the assessee we are of the considered opinion that the disallowance of proportionate interest cannot be sustained. We, therefore, while allowing grounds No. 1 and 2 direct the Assessing Officer to delete the addition made on this aspect.
Now coming to the 2nd aspect relating to the depreciation claimed in 15. respect of the asset comprised of land and building components integrally, the impugned order itself says that the Assessing Officer allowed such depreciation in respect of the Assessment Years 2009-10, 2011-12 and 2012-13 which means in the earlier year as well as the subsequent years. Further it is submitted before us that for the Assessment Years 2013-14 to 2015-16 also the deposition on the entire asset was allowed. There is no dispute as to the fact that the asset was sold in the financial year relevant to the Assessment Year 2015-16 and while calculating the long-term and short-term capital gains the Written Down Value of the asset was considered after allowing the depreciation on the asset as a whole.
In these circumstances it is clear that except the year under consideration, for all remaining years from purchase of the asset to its sale, depreciation was allowed on the total value of the asset without resorting to any bifurcations of the asset into the land component and building complaint, but is only for the year under consideration such a view is taken by the Assessing Officer. Having regard to the facts and circumstances of the case, we are of the considered opinion that the rule of consistency demands that the consistent view had to be taken in similar matters of the same assessee over a period of time and to discriminate the issue for a single year is not permissible. We, therefore, while following the decision of the Hon’ble Apex Court in the case of Radhasoami Satsang (supra) find it difficult to sustain the disallowance of depreciation and the consequential addition. We , therefore, direct the assessing officer to delete the disallowance and the consequential addition. Grounds No. 3 is allowed.
In the result appeal of the assessee is allowed.