M/S BANGALORE PHARMACEUTICAL vs. DY COMMISSIONER OF INCOME TAX

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NC: 2023:KHC:20115-DB ITA No. 24 of 2018 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 12TH DAY OF JUNE, 2023 PRESENT THE HON'BLE MR JUSTICE P.S.DINESH KUMAR AND THE HON'BLE MR JUSTICE T.G. SHIVASHANKARE GOWDA INCOME TAX APPEAL NO. 24 OF 2018 BETWEEN: M/S BANGALORE PHARMACEUTICAL AND RESEARCH LABORATORY PVT LTD., NO.163, RESERVOIR STREET, BASAVANAGUDI BANGALORE, REP. BY ITS MANAGING DIRECTOR SHRI. S.T.RAGHAVENDRA MADY AGED ABOUT 80 YEARS S/O. LATE S.THAMMIAH MADY PAN-AAACB5712H. …APPELLANT (BY SRI. BALRAM R. RAO, ADV.) AND: DY. COMMISSIONER OF INCOME TAX PRESENTLY CIRCLE 1(1)(2) PREVIOUSLY CIRCLE-11(2) BMTC BUILDING, 80 FEET ROAD KORAMANGALA, BANGALORE-560 095 …RESPONDENT (BY SRI.DILIP M, STANDING COUNSEL)

THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961 AGAINST THE ORDER DATED: 13.01.2017 PASSED IN ITA NO.560 & 1025/BANG/2014, FOR THE ASSESSMENT YEAR: 2010-2011, PRAYING THIS HON'BLE COURT TO: (A) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE AND ETC.,

THIS APPEAL, COMING ON FOR HEARING, THIS DAY, P.S.DINESH KUMAR J., DELIVERED THE FOLLOWING: Digitally signed by MALA K N Location: HIGH COURT OF KARNATAKA

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NC: 2023:KHC:20115-DB ITA No. 24 of 2018 JUDGMENT This appeal by the assessee directed against the order dated January 13, 2017 in ITA No.560/Bang/2014 for the Assessment Year 2010-11 has been admitted to consider the following questions of law: "1. Whether the Tribunal in law as well as facts was right in holding that when income from house property held as inventory is assessed to tax under the head "Income From House Property" as in the instant case, the corresponding interest on borrowals for acquiring the said house property cannot be allowed under the head income form house property and is to be allowed as a deduction under "profits and gains of business and profession"? 2. Whether the Tribunal in law as well as facts correct in restricting the deduction for interest on borrowed funds u/s 24 only for the period after the building was let out, while clause (b) of Section 24 permits deduction of interest payable on borrowed capital during the previous year? 3. Whether the Tribunal has erred in giving the AO directions to verify the end use of the funds by the developer and not whether the borrowed funds have been used by appellant to acquire the property from which rental income was obtained.

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NC: 2023:KHC:20115-DB ITA No. 24 of 2018 4. Whether the Tribunal in law as well as facts of the case correct in confirming the order of the AO wherein sum of Rs.15.50 Lakhs paid to M/s Sheshanka Financial Services Pvt. Ltd., has been disallowed as an "accommodation entry"? 5. Whether the Tribunal was right in not considering ground no.3 raised before them in Form 36 with regard to disallowance of interest of Rs.66,66,733 paid to M/s Pratibha Realtors Pvt Ltd., under the head provisions when the liability to pay the same had crystallized during the Financial year ended 31.03.2010? 2. Heard Shri Balram R.Rao, learned advocate for the appellant/assessee and Shri M.Dilip, learned advocate for the Revenue. 3. Brief facts of the case are, for Assessment Year 2010-11, assessee filed its return of income and an assessment order was passed on March 28, 2013 under Section 143(3) of the Income Tax Act, 1961 ('the Act' for short) disallowing certain exemptions claimed by the assessee. Feeling aggrieved, assessee

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NC: 2023:KHC:20115-DB ITA No. 24 of 2018 challenged AO's order before CIT(A)-I1, Bangalore, in I.T.A.No.137/DC-11(2)/A-I/13-14 and it was allowed in part. Both assessee and Revenue challenged CIT(A)'s order before the ITAT2, in I.T.A.No.560 & 1025/Bang/2014. The ITAT has remitted the matter to the file of Assessing Officer. 4. Shri Balram for the assessee submitted that with regard to grounds No.1 and 2, the ITAT has remanded the matter for the limited purpose of verification of facts. With regard to ground No.3, viz., disallowance of interest of Rs.41,55,000/-, the ITAT has not recorded any finding. With regard to fourth ground, ITAT has remitted the matter to Assessing Officer. He submitted that after the remand, the Assessing Officer has passed an order dated September 28, 2017 holding all the issues against the assessee. Feeling aggrieved, assessee has challenged AO's order before the National Faceless Appeal 1 Commissioner of Income Tax (Appeals)-I, Bangalore Bench 'A' 2 Income Tax Appellate Tribunal

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NC: 2023:KHC:20115-DB ITA No. 24 of 2018 Centre, New Delhi ('NFAC' for short) in Appeal No.CIT(A), Bengaluru-1/10187/2017-18 and the same is pending. He submitted that in the Assessment Order, the AO has recorded at paragraph 6.6 that ITAT had not directed the Assessing Officer to allow the assessee's claim of interest. According to him, the said observation shows that AO would decide the matter based on ITAT's observations and not by independently applying his mind. He prayed that this appeal may be allowed and NFAC may be directed to consider assessee's appeal on merits, wholly uninfluenced by the order passed by the ITAT. 5. Shri M.Dilip, learned Advocate for the Revenue opposing the appeal, in his usual fairness submitted that NFAC may consider the appeal on merits uninfluenced by the order passed by the ITAT. 6. We have perused the order passed by the Assessing Officer after remand. In paragraph-6.6 of his order, the Assessing Officer has recorded thus:

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NC: 2023:KHC:20115-DB ITA No. 24 of 2018 " 6.6. . . . . . . . . . . Hence as claimed by the assessee, the ITAT had not directed the A.O. to allow the assessee's claim of interest expenses to be allowed under the head 'Income from business'. The assessee is attempting to selectively quote the order of the ITAT to get a favourable order from A.O.” 6.1. In paragraph-7.5, the Assessing Officer has recorded thus: "7.5. . . . . . . . . . . I am disallowing an amount of Rs.41,55,000/- [which was also disallowed by the erstwhile A.O. and upheld by the CIT(A)]." 6.2. In paragraph-8.1, it is held as under: "8.1. . . . . . . . . . However, in reality, in the earlier order in ITA.NO.560/Bang/2014 dated 31/03/2017, this matter was not remitted back; rather, the ITAT had upheld the addition made by the A.O." 6.3. In paragraph-8.4, it is held as follows: "8.4. . . . . . . . . . Hence as discussed above, I am disallowing an amount of Rs.15,50,000/- [which was also disallowed by the erstwhile A.O, upheld by ITAT vide ITA No.560/Bang/2014 dated 31/03/2017." 7. The above findings recorded by the Assessing Officer clearly indicate that the impugned order is not

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NC: 2023:KHC:20115-DB ITA No. 24 of 2018 passed by applying his mind independently. In any event, the second order dated September 28, 2017 is under challenge before the NFAC. 8. In the light of the submissions made by the learned Advocate for the assessee and the learned Standing Counsel for the Revenue and having perused the assessment order dated September 28, 2017, in our considered opinion, ends of justice would be met by directing NFAC, New Delhi to dispose of Appeal No.CIT(A), Bengaluru-1/10187/2017-18 filed against the Assessment Order dated September 28, 2017 in accordance with law without being influenced by order dated January 13, 2017 in I.T.A.No.560 & 1025/Bang/2014 and C.O.No.102/Bang/2015 impugned in this appeal. Hence, the following: ORDER

(a) Appeal is disposed of;

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NC: 2023:KHC:20115-DB ITA No. 24 of 2018

(b) NFAC, New Delhi is directed to dispose of the Appeal No.CIT(A), Bengaluru-1/10187/2017-18 in accordance with law.

(c) Since the matter has been disposed of only with a direction to the NFAC, New Delhi, to pass orders in accordance with law, the questions of law do not require any answer in this appeal.

No costs. SD/- JUDGE SD/- JUDGE KNM List No.: 2 Sl No.: 90