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Income Tax Appellate Tribunal, DELHI BENCH: ‘A’ NEW DELHI
Before: SHRI N. K. SAINI & MS SUCHITRA KAMBLE
PER SUCHITRA KAMBLE, JM These appeals are filed by the Revenue against the order dated 20/03/2013 & 13/05/2013 for the A.Ys. 2009-10 and 2010-11 respectively passed by CIT(A)-XXX, New Delhi.
The grounds of appeal are as under:- “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in: (viii) Reducing the addition of Rs.40,80,835/- on account of interest on borrowed for acquiring immovable property and issuing directions to adjust the same against the income from other sources;
2ITA No. 3394 & 4565/Del/2013 (ix) Holding that the loan taken from Reliance capital Ltd. was for the purposed of earning income from other sources; (x) Holding that the intention of the assessee was to earn assurance return given by the Omaxe Ltd and to purchase multiplex in the commercial space in Omaxe NRI City; (xi) Directing to allow the interest on loan u/s 57(3) of the I.T Act though the same is specifically allowable u/s 24(b) of the I.T. Act. (xii) Holding that the interest on loan was a revenue expenditure and not a capital expenditure; (xiii) Holding that the assessee had made an investment in commercial property ignoring the fact that the unit allotted to the assessee was a house property; (xiv) Not applying the ratio of decision in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd Vs. CIT(1997) 227 ITR 172(Hon'ble Supreme Court) which is fully applicable in this case.
The grounds of appeal are as under:- “On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in: (viii) Reducing the addition of Rs.40,56,252/-/to Rs. 33,23,793/- on account of interest on borrowed for acquiring immovable property and issuing directions to adjust the same against the income from other sources; (ix) Holding that the loan taken from Reliance capital Ltd. was for the purposed of earning income from other sources; (x) Holding that the intention of the assessee was to earn assurance return given by the Omaxe Ltd and to purchase multiplex in the commercial space in Omaxe NRI City;
3ITA No. 3394 & 4565/Del/2013 (xi) Directing to allow the interest on loan u/s 57(3) of the I.T Act though the same is specifically allowable u/s 24(b) of the I.T. Act. (xii) Holding that the interest on loan was a revenue expenditure and not a capital expenditure; (xiii) Holding that the assessee had made an investment in commercial property ignoring the fact that the unit allotted to the assessee was a house property; (xiv) Not applying the ratio of decision in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd Vs. CIT(1997) 227 ITR 172(Hon'ble Supreme Court) which is fully applicable in this case.
The return of income was e-filed on 29/7/2009 declaring taxable income of Rs.98,25,260/-. The assessee derived income from salary and other sources. The case was selected or scrutiny and notice u/s 143(2) was issued on 23/8/2010 and notice u/s 142(1) was issued on 12/1/2011. The case was assigned for scrutiny to JCIT, Range-48 by the CIT, Delhi-XVI, New Delhi. Taking into account the nature and quantum of income, the issue involved and AIR Information details we have heard both the parties and perused the material available on record called for.
On perusal of the computation of income filed, it is seen that the assessee has claimed deduction of interest paid to Reliance Capital amounting to Rs.40,80,835/- under the head income from other sources.
Vide note sheet entry dated 28/1/2011, the assessee was asked to substantiate his claim with documentary evidence regarding interest earned and deduction claimed on interest paid.
In response the assessee had filed a reply dated 22/2/2011.
4ITA No. 3394 & 4565/Del/2013
During the subject Assessment Year, the assessee jointly along with his brother, Mr. Ranjan Dagar had entered into an agreement for purchase of commercial complex proposed to be situated in Greater Noida, UP. The assessee had obtained the loan of Rs.6,00,00,000/- from Reliance Capital Ltd. and had paid it to Omaxe Ltd as advance for the aforesaid project. During the subject Assessment Year, the assessee jointly with his brother Mr. Ranjan Dagar earned interest income of rs.72,51,912/- from Omaxe Ltd on the advance given to Omaxe Ltd and duly offered his 50% share of interest income of Rs.36,25,956/- for taxation under the provisions of Section 56 of the Act.
Further, since the loan was taken form Reliance Capital Ltd to give the advance to Omaxe Ltd, the assessee has claimed deduction of interest payment of Rs.40,80,835/- (50% of the total interest payment actually paid limited to 50% of his share of amount paid to Omaxe Ltd) to Reliance Capital Ltd under the provisions of Section 57(iii) of the Act against the interest income of Rs.36,25,956/- earned from Omaxe Ltd.
The submission of the assessee has been examined and considered in detail. Section 57 of the Income Tax Act, 1961 (under the provisions of which, the assessee has claimed the aforesaid deduction) clearly states the deductions which can be claimed by the assessee for arriving at his income chargeable und the head income from Other Sources. The assessee in his return of income has claimed the deduction u/s 57(iii).
10. The Assessing Officer by relying on the judgment of the Hon’ble Apex Court in case of Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs. CIT 227 ITR 172 (SC) held that the deduction claimed by the assessee setting of his interest income earned against the Reliance Capital cannot be accepted. Therefore, the same was disallowed and added back to the income of the assessee at 5ITA No. 3394 & 4565/Del/2013 Rs.40,80,835/-. The assessee filed appeal before the CIT(A). The CIT(A) allowed the appeal of the assessee.
11. The Ld. DR submitted that reducing the addition of Rs.40,80,835/- to Rs.36,53,648/- on account of interest on borrowed for acquiring immovable property and issuing directions to adjust the same against the income from other sources was not justified on part of the CIT(A). The Assessing Officer has rightly added the said amount which was never the case of the assessee that the loan taken from Reliance Capital Ltd was for the purpose of earning income from other sources was not justified on part of the CIT(A). The Assessing Officer has rightly added the said amount which was never the case of the assessee that the loan taken from Reliance Capital Ltd. was for the purpose of earning income from other sources. The CIT(A) erred in holding that the intention of the assessee was to earn assurance return given by the Omaxe Ltd and to purchase Multi Plex in the Commercial Space in Om NRI Study.
The Ld. AR submitted that the ITAT in assessee’s brothers’s case Shri Ranjan Dagar has dismissed the appeal of the Revenue. The facts of the case are similar and in fact in the present assessment order the name of the assessee’s brother Ranjan Dagar is mentioned by the Assessing Officer.
We have heard both the parties and perused the order of the ITAT in case of ITO Vs. Shri Ranjan Dagar & 4602/Del/2013 Assessment Years 2009-10 & 2010-11 order dated 22/9/2017. Thus, the ITAT held as under:- “7. Undisputedly, the assessee has availed off the loan from M/s.
Reliance Capital Limited for the purpose of earning interest income on advance made to M/s. Omaxe Limited; that assessee has invested in commercial property as investment for appreciation; that the assessee has 6ITA No. 3394 & 4565/Del/2013 not been given possession of the property in question; that M/s. Omaxe Limited with whom the assessee has invested in commercial property has stopped paying assured return to the assessee and the assessee has stopped making payment of EMI to the developer.
8. In the backdrop of the aforesaid facts and circumstances of the case, grounds of appeal and arguments addressed by ld. Authorized Representatives of the parties to the appeal, the sole question arises for determination in this case is :-
as to whether the interest expenditure incurred by the assessee on the loan availed of from M/s. Reliance Capital Limited is directly related with the interest income earned on advance made to M/s. Omaxe Limited should be allowed to be deducted from the said interest income u/s 57 (iii) of the Act?
9. Ld. CIT (A), by relying upon the judgment of Hon’ble Apex Court cited as CIT vs. Rajendra Prasad Moody – (1978) 115 ITR 519, held that the interest expenditure incurred by the assessee on the loan availed of from Reliance Capital Limited is directly related to interest income earned on advance made to M/s. Omaxe Limited and as such, it is allowable.
However, the ld. DR for the Revenue relied upon the order passed by AO.
When we examine the facts of this case, it is undisputed that the AO has disallowed the interest of Rs.40,80,835/- and Rs.33,23,793 for AYs 2009-10 and 2010-11 respectively paid by the assessee on the loan of 7ITA No. 3394 & 4565/Del/2013 Rs.6,00,00,000/- availed of from M/s. Reliance Capital Limited and invested the same in M/s. Omaxe Limited for getting assured return only.
However, M/s. Omaxe Limited has resiled form its promise and did not pay the assured return to the assessee and thereafter assessee has also stopped making payment of EMI to M/s. Reliance Capital Limited.
11. When we examine all these facts in the light of the fact that M/s.
Reliance Capital Limited, M/s. Omaxe Limited and assessee are into litigation before Hon’ble Delhi High Court qua the property in question and the property has also not been transferred in the name of assessee, the assessee will certainly get benefit of interest payment on the loan of Rs.6,00,00,000/- u/s 57 (iii) of the Act as it is not a house property income as has been held by the AO. Rather it was invested in the commercial property made by the assessee to get assured return / interest from his investment of Rs.6,00,00,000/-.
12. In these circumstances, the ld. CIT (A) has rightly held that this income is to be treated as income from other sources and the interest paid by assessee to M/s. Reliance Capital Limited is to be allowed as expenditure incurred for earning the income u/s 57 (iii) of the Act.
Moreover, when there was a categoric understanding between the assessee and M/s. Reliance Capital Limited that the assessee will get assured return, the interest was being paid for the purpose of earning
8ITA No. 3394 & 4565/Del/2013 interest i.e. assured income from M/s. Omaxe Limited and acquisition of the property was incidental only.
Hon’ble Apex Court in case of CIT vs. Rajendra Prasad Moody (supra) while interpreting section 57 (iii) of the Act held as under :-
“ The plain natural construction of the language of s. 57(iii) of the Income-tax Act, 1961 irresistibly leads to the conclusion that to bring a case within the section, it is not necessary that any income should in fact have been earned as a result of the expenditure. What section 57(iii) requires is that the expenditure must be laid out or expended wholly and exclusively for the purpose of making or earning income. This section does not require that this purpose must be fulfilled in order to qualify the expenditure for deduction. It does not say that the expenditure shall be deductible only if any income is made or earned.
Where the assessee borrowed monies for the purpose of making investment in shares and paid interest thereon during the accounting period relevant to the assessment year but did not receive any dividend on the shares purchased with those monies : Held, accordingly, that the interest on monies borrowed for investment in shares which had not yielded any dividend was admissible as a deduction under section 57(iii) of the Income-tax Act, 1961, in computing its income from dividend under the head “Income from other sources”.”
12. So, in view of what has been discussed above, we find no illegality or perversity in the findings returned by ld. CIT (A) who has given the complete computation of total income in the impugned order, consequently
9ITA No. 3394 & 4565/Del/2013 both the appeals filed by the Revenue for AYs 2009-10 & 2010-11 are hereby dismissed.”
The facts are identical which were not distinguished by the Ld. DR. So respectively, following the above said order, we are of the view that the CIT(A) has rightly held that this is not house property income as contemplated by the Assessing Officer and there is investment in land in the commercial property on which the assessee is getting assured return/interest for his investment of Rs. 6 crores with Omaxe Ltd. Hence, this income has to be treated as income from other sources and the interest paid by him to Reliance Capital should be allowed as expenditure incurred for earning the income u/s 57(3) of the Income Tax Act, 1961. There is no need to interfere with findings given by the CIT(A). Therefore, the present appeal needs to be dismissed.
In result, both the appeals of the Revenue are dismissed.
Order pronounced in the Open Court on 06th November, 2017.