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Income Tax Appellate Tribunal, G Bench, Mumbai
Before: Shri B.R. Baskaran & Shri Ravish Sood
O R D E R
Per Ravish Sood, JM
The present appeal filed by the revenue is directed against the order passed by the CIT(A)-14, Mumbai, dated 28.11.2015, which in turn arises from the order passed by the A.O under Sec. 143(3) r.w.s.147 of the Income Act, 1961 (for short „Act‟), dated 24.03.2014 for A.Y 2010-11. The revenue assailing the order of the CIT(A) has raised before us the following grounds of the appeal:
1. (i) The Learned CIT(A) has erred in law on facts not considering the provision iv's. 24(b) of the Act wherein interest paid on money borrowed for the purpose of repaying old loan and not an interest paid on security deposits from tenants. (ii) The Learned CIT(A) has erred in law and on facts in allowing interest paid on 'Security Deposit from tenant u/s. 24(b) of the I. T. Act. (iii) The Learned CIT(A) has erred in lazy on facts in differentiating between the term 'Security Deposit' and 'Borrowed Capital'.
P a g e | ITO-8(2)(3) Vs. M/s Structmast Realtors (iv) The Learned CIT(A) has erred in law and on facts in considering the expression "capital borrowed" predicates the relation of the borrower and a lender, which relationship does not exists in that case. (v) The Learned CIT(A) has erred in law and on facts in appreciating that the interest bearing refundable security deposits received from the tenants only to protect the possible damage to the rental property or non payment of rent.
2. The Ld. CIT(A) order is contrary in law and on facts and deserves to be set aside.
3. The appellant craves leave to amend or alter any ground or add a new ground and that may be necessary.
The appellant prays that the order of CIT (A) on the above ground be set aside and that of the Assessing Officer be restored.”
Briefly stated, the assessee company which is engaged in the business of a builder and developer had e-filed its return of income on 29.09.2010, declaring total income at Rs.nil. The return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. Subsequently, the case of the assessee was reopened on the ground that it had while computing the „Income from house property‟ wrongly claimed deduction of Rs. 73,42,501/- under Sec. 24(b) of the Act.
The A.O during the course of the assessment proceedings observed, that the assessee had claimed deduction under Sec. 24(b) of Rs. 73,42,501/-. It was noticed by the A.O, that the assessee had taken an unsecured loan of Rs.11 crores from M/s Reliance Industries Ltd. for purchasing an immovable property at Mittal Court, Nariman Point for a consideration of Rs.10,07,69,540/-. Thereafter, the assessee had let out the property and was in receipt of interest bearing security deposits from the tenants. The interest bearing funds raised by the assessee were utilised for repayment of the unsecured loan of M/s Reliance Industries Ltd. It was observed by the A.O, that the interest paid by the assessee at the rate of 6% on the aforesaid security deposits was claimed as a deduction under Sec. 24(b) of the Act. The A.O held a conviction that as the security deposits received by the assessee from the tenants could not be characterised as „borrowed capital‟, thus, the interest paid on the same would not be eligible as deduction under Sec.24(b). In order to fortify his aforesaid view, it was observed by the A.O that as the crucial element of “borrower” and “lender”
P a g e | ITO-8(2)(3) Vs. M/s Structmast Realtors was missing in the transaction involving receipt of security deposit by the assessee from its tenants, therefore, the interest bearing funds so raised by the assessee could not be held as “borrowed capital”. On the basis of his aforesaid deliberations, the A.O disallowed the claim of deduction of Rs. 73,42,501/- raised by the assessee under Sec. 24(b) in its return of income.
4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) observed that the issue involved in the case was squarely covered by the order passed by the Tribunal in the assesses own case for A.Y 2009- 10 i.e. ITO-7(2)(4), Mumbai Vs. M/s Structmast Realtors (Mumbai) Pvt. Ltd.(ITA No. 6920/Mum/2012; dated 25.03.2015). On the basis of his aforesaid observations, the CIT(A) followed the decision of the Tribunal and deleted the disallowance of Rs.73,42,501/-.
The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorized Representative (for short „A.R‟) of the assessee, at the very outset of the hearing of the appeal submitted that the issue involved in the present appeal was squarely covered by the order passed by the coordinate benches of the Tribunal in the assesses own case for A.Y 2008-09 and A.Y 2009-10. The ld. A.R, in order to buttress his aforesaid contention, took us through the observations of the Tribunal arrived at in context of the issue under consideration in the said respective years. Per contra, the ld. Departmental Representative (for short „D.R‟) though relied on the orders of the lower authorities, but could not controvert the contention of the ld. A.R that the issue involved in the present appeal was squarely covered by the earlier orders of the Tribunal in the assesses own case.
We have heard the authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record. We have perused the orders of the coordinate benches of the Tribunal passed in the assesses own case viz. (i) ITO-8(2)(3), Mumbai Vs. M/s Structmast Realtors Pvt. Ltd. (ITA No. 5370 & 5371/Mum/2016; dated 21.03.2018) for A.Ys 2008-09 and 2011-12; and (ii) ITO-7(2)(4), Mumbai Vs.
P a g e | ITO-8(2)(3) Vs. M/s Structmast Realtors M/s Structmast Realtors (Mumbai) Pvt. Ltd.(ITA No. 6920/Mum/2012; dated 25.03.2015) for A.Y 2009-10. We are persuaded to be in agreement with the contention advanced by the ld. A.R, that the issue involved in the present appeal before us is squarely covered by the aforesaid orders of the coordinate benches of the Tribunal. We find that the coordinate bench of the Tribunal viz. ITAT, Mumbai bench “J”, Mumbai, while dismissing the appeal of the revenue for A.Y 2008-09 in ITO-8(2)(3) Vs. M/s Structmast Realtors (Mumbai) Pvt. Ltd. (ITA No. 5370/Mum/2016; dated 21.03.2018), by taking support of the earlier orders passed in the assesses own case for A.Y 2009- 10 in dated 23.03.2015, had vacated the disallowance of the interest claimed by the assessee as deduction under Sec. 24(b) of the Act, observing as under:
6. Having heard the rival submissions and after perused of the material available on record, we find that the identical issue was involved in A.Y. 2009- 10 which has been decided in favour of the assessee vide order dated 23.03.2015 passed in ITA No. 6920/Mum/2012. The relevant para is reproduced as under: “8. We have heard the rival submissions and also perused the relevant finding given in the impugned orders, The assessee had purchased property by utilizing the loan of Rs. 11 crores taken from Reliance Industries Ltd., for a short period. This loan was interest free. In order to repay the loan, the assessee had taken loan and also deposits from its tenants as per the details incorporated above. The assessee had utilized the interest bearing security deposits for the repayment of loan taker from the Reliance Industries. The interest paid on the deposit @ 6% has been claimed as deduction u/s 24(b), on the ground that it is borrowed capital utilized for the repayment of old loan. Generally under a lease agreement, the security deposits are taken as an advance of rent of a certain period which are generally not interest bearing. Here in this case the deposits received from various tenants are more than 100 times of the arrival rent amount. These deposits have been taken/accepted on a payment of interest @ 6% per annum and deposit is to be refunded back by the assessee. Now, whether such a deposit can be reckoned as borrowed capital" within the meaning of section 24(b). The word "borrow" as defined in Law lexicon (2nd edition) means to take or receiving from another person as a loan or on trust money or other article of value with the intention of returning or giving an equivalent for. A person can borrow on a negotiated interest with or without security. If the P a g e | ITO-8(2)(3) Vs. M/s Structmast Realtors deposits are interest bearing and is to be refunded back, then debt is created on the assessee which it is liable to be discharged in future. Here the concepts of debt has to be understood as per the terms of the parties. If the deposits had been security deposit simpliciter to cover the damage of the property or lapses on part of the tenant either for non-payment of rent or other charges, then such a deposit cannot be equated with the borrowed money, because then there is no debt on the assessee. A moment a deposit is accepted on interest, then it part takes the character of borrowed money. It is an undisputed fact here that, these interest bearing deposits has been utilized for repayment of borrowed capital. Accordingly, finding of the Ld. CIT(A) in this regard is affirmed. Ground raised by the Revenue are dismissed.”
7. Following the decision of the coordinate bench as stated above, the Appeal of the Department for A.Y. 2008-09 is dismissed.”
7. We have perused the aforesaid observations of the Tribunal and are persuaded to subscribe to the contention of the ld. A.R that the issue involved in the present appeal is squarely covered by the aforesaid order of the Tribunal. We thus, finding no reason to take a different view, respectfully follow the aforesaid decision of the coordinate bench of the Tribunal. Hence, finding no infirmity in the order of the CIT(A), who we find has followed the order of the Tribunal in context of the issue under consideration in the assesses own case for A.Y 2009-10, thus, uphold the same.
The appeal filed by the revenue is dismissed.