QUANTUM REAL ESTATE AND PROPERTY DEVELOPMENT INDIA LTD,MUMBAI vs. DCIT CEN CIR 39, MUMBAI

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ITA 813/MUM/2012Status: DisposedITAT Mumbai03 October 2018AY 2008-094 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal found that the assessee is in the business of real estate and had previously been allowed similar interest deductions. Therefore, the disallowance was not justified, and the matter was restored to the AO for verification of advances given to trade parties.

What were the facts?

The assessee, engaged in real estate investment and trading, claimed interest expenses on borrowed funds. The Assessing Officer (AO) disallowed a significant portion of this interest, arguing the funds were not used for business purposes. The CIT(A) upheld the AO's disallowance.

What were the issues?

Whether interest on borrowed funds used for advances to trade parties for property acquisition is deductible under Section 36(1)(iii) when the assessee is in the real estate business.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii)

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Income Tax Appellate Tribunal, “D”, BENCH MUMBAI

Before: SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI, JM

For Appellant: Shri Narayan Atal
For Respondent: Shri E. Sridhar
Hearing: 19/09/2018Pronounced: 03/10/2018

आदेश / O R D E R PER R.C.SHARMA (A.M):

This is an appeal filed by the assessee against the order of CIT(A)- 41, Mumbai dated 08/12/2011 for A.Y.2008-09 in the matter of order passed u/s.143(3) of the IT Act. 2. In this appeal, assessee is aggrieved for disallowance of interest to the extent of Rs.50,11,602/- out of total interest of Rs.56,09,241/- u/s.36(1)(iii) of the Income Tax Act, 1961. 3. Rival contentions have been heard and record perused.

M/s. Quantum Real Estate and Property 4. Facts in brief are that assessee is engaged in business of investment and trading in real estate. During the course of scrutiny assessment the AO has noticed that the assessee company has share capital of Rs.1,00,000/- and received interest bearing loan of Rs.9,54,10,559/-. It was further noticed that the assessee has shown Rs.23,20,824/- under the head of fixed assets and Rs. 8,52,45,000/- under the head of loans and advances. The detail of the loans and advances is given at page 2 of the assessment order. Accordingly, the assessee was asked to justify the loans and advances given in view of the claim of interest of Rs. 56,09,241/- as per the provisions of section 36(1)(iii) of the I.T. Act. In response to this show cause notice, the A.R. of the assessee has submitted its reply along with the copy of sale agreement dated 24.2.2006 in which the terms and conditions of payment are given which is discussed by the A.O. in para 3.1 of the assessment order. From the perusal of the reply of the assessee, the A.O. has again asked to explain as to why the interest claimed should not be disallowed as no explanation was submitted in justification for diversion of interest bearing funds for non -business purpose. In response to this show cause notice, the A.R. of the assessee has failed to submit any reply before the A.O. The A.O. has also discussed the provisions of section 36(1)(iii)that as per this provision there are conditions that capital must have been borrowed and used for the business purpose, the interest should have been payable and if the borrowing is not for the business purpose,

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