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Income Tax Appellate Tribunal, MUMBAI BENCHES “J”, MUMBAI
Before: SHRI G.S. PANNU (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
This appeal has been filed by the assessee against order dated 24.08.2016 passed by the Ld. Commissioner of Income Tax (Appeals)-40, Mumbai, for the assessment year 2012-13, whereby the Ld. CIT (A) has dismissed the appeal filed by the assessee against assessment order passed u/s 143 (3) of the Income Tax Act, 1961 (for short ‘the Act’).
2. Brief facts of the case are that the assessee a partnership firm, engaged in the business of construction and development, filed its return of income declaring the total income of Rs. 4,55,69,300/-. The return was processed u/s 143(1) of the Act. Since, the case was taken up for scrutiny notices u/s 143(2) and 142(1) were served upon the assessee. In response to the said notices, the authorized representative of the assessee attended the proceedings and 2 Assessment Year: 2012-13 furnished the details called for. The AO inter alia made addition of Rs. 1,34,308/-on account of notional annual letting value of unsold flats, held as stock in trade, and addition of Rs. 2,08,235/-on account of disallowance made being interest on borrowed funds. The assessee challenged the action of AO in making the aforesaid additions. However, the Ld. CIT(A) after hearing the assessee dismissed the appeal and confirmed both the additions. The assessee is in appeal before the tribunal against the impugned order passed by the Ld. CIT(A). 3. The assessee has challenged the impugned order passed by the Ld. CIT(A) on the following effective grounds:-
1. “Under the facts and circumstances the Ld. CIT (Appeals) erred in confirming the addition of Rs. 134308/- made by the Ld. Assessing Officer calculating the deemed rent on the value of the unsold flats during the year.
Under the facts and circumstances the Ld. CIT (Appeals) erred in confirming the disallowance of Rs. 208235/- made by the Ld. Assessing Officer being interest paid on borrowings.”
Before us, the learned counsel for the assessee submitted that the findings of the Ld. CIT(A) are contrary to the decision of the Mumbai Bench of the ITAT rendered in M/s Runwal Constructions vs. ACIT Mumbai ITA No. 5408/Mum/2016. In the said case the tribunal has decided the identical issue in favour of the assessee by relying on the decision of the Hon’ble Gujarat High Court in the case of CIT versus Neha Builders Private Ltd 296 ITR 661 and the decision of ITAT Mumbai in the case of C.R. Developers Private Ltd vs. DCIT, ITA No.4277/Mum/2013. The Ld. counsel further submitted that since the findings of Ld. CIT(A) is contrary to the decision of ITAT Mumbai, the same is liable to be set aside.
3 Assessment Year: 2012-13
On the other hand, the Ld. departmental representative (DR) relied on the findings of the Ld. CIT(A).
We have perused the material on record and gone through the cases relied upon by the assessee. We notice that the coordinate bench has decided the identical issue in favour of the assessee in the case of M/s Ranwal Constructions versus ACIT (supra) by relying on the judgment of the Hon’ble Gujarat High Court passed in CIT versus Neha Builders Private Ltd. and the decision of the coordinate Bench rendered in C.R. Developers Private Ltd vs. ACIT (supra). The operative part of the decision rendered by the coordinate Bench in the case of a Runwal Constructions reads as under: – “10. In the case on hand before us it is an undisputed fact that both assessee have created the unsold flats as stock in trade in the books of account and the flats sold by them bar assessed under the head ‘income from business ’. Thus, respectfully following the above said decisions we hold that the unsold flats which are stock in trade when they were sold they are assessable under the head ‘income from business’ when they are sold and therefore the AO is not correct in bringing to tax notional annual letting value in respect of those unsold flats under the head income from house property. Thus, we direct the AO to delete the addition made under section 23 of the act as income from house property.”
In the present case since the assessee had shown one unsold flat bearing number 1301 of A-1 Wing as stock in trade, the AO asked the assessee to explain as to why the closing stock of unsold flats should not be considered for treating as income from house property? The assessee contended that the letting out vacant or other properties is not the part of the business or objectives of the assessee. The authorized representative of the assessee further contended that since the assessee had not earned any income by letting out property, the assessee is not liable to pay tax on annual letting value of unsold 4 Assessment Year: 2012-13 flat which has been shown as stock in trade. Since, the findings of the Ld. CIT(A) are contrary to the decision of coordinate Bench relied upon by the assessee, we set aside the impugned order and respectfully following the decision of the coordinate Bench rendered in the case of Runway Constructions (supra), allow this ground of appeal of the assessee and direct the AO to delete the addition made under the head income from house property.
The second ground of appeal
pertains to confirmation of disallowance of Rs. 2,08,235/-made by the AO. The learned counsel for the assessee submitted that the findings of the Ld. CIT(A) not in accordance with the evidence on record. The learned counsel further submitted that the assessee received unsecured loans for the purpose of business and the loan was utilized for the purpose of business. So for as debit balance of Rs. 2,22,08,235/-in the balance sheet as on31.03.2012 capital account of one of the partners M/s. Arun Kumar company is concerned, since there is no clause in the agreement to pay interest on the balance in the capital account of the partner, no interest was charged by the assessee from the partner. Since, there is no evidence to conclude that the unsecured loans taken was diverted for the purpose other than the business of the assessee, the Ld. CIT(A) ought to have deleted the addition made by the AO.
9. On the other hand, the Ld. DR relying on the concurrent findings of the authorities below submitted that since the assessee has failed to prove that the unsecured loans was used for the purpose of business the Ld. CIT(A) has rightly confirmed the addition made by the AO.
10. We have perused the material placed before us including the orders passed by the authorities below in the light of the respective submissions of the parties. The authorities below have disallowed the interest expenditure of rupees 2,08,235/- claimed by the assessee on borrowed funds on the two grounds: i) it was found that in the balance sheet as on 31.03.2012 capital 5 Assessment Year: 2012-13 account of one of the partner M/s. Arun Kumar company shows debit balance of Rs.2,22,08,927/-but no interest has been charged by the assessee from the partner. The AO considered the explanation of the assessee to be very general in nature and did not accept the same; ii) the assessee has failed to establish that the borrowed funds were utilised exclusively for the purpose of business. We further notice that the assessee has failed to explain as to why interest was not charged from the partner. In our considered view, the assessee’s explanation that since there is no clause in the agreement to pay interest or charge interest on the balance in the capital account of the partners is not sufficient to justify the action. Similarly, in our considered view, the assessee has failed to discharge the onus of proving that the borrowed funds were utilized for the purpose of business of the assessee firm. Even during the arguments, the Ld. counsel did not point out any cogent evidence on record to establish the aforesaid fact.
11. In view of the above discussion we do not find any infirmity in the findings of the Ld. CIT(A). Hence we uphold the findings of the Ld. CIT(A) and dismiss this ground of the appeal of the assessee.
In the result, appeal filed by the assessee for assessment year 2012- 2013 is partly allowed.