LITLOIER PROPERTIES HOLDING P.LTD,MUMBAI vs. DCIT 5(2), MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�य सद�य,राजे�� राजे�� केकेकेके अनुसार अनुसार -Per Rajendra,AM: लेखा लेखा लेखा सद�य सद�य राजे�� राजे�� अनुसार अनुसार Challenging the orders of the CIT(A)-5,Mumbai,dtd.12.12.2012,the assesse and the Assessing Officer(AO)have filed appeals for the above mentioned Assessment Years(A.Y.s).Assessee- company is engaged in the business of giving properties on lease/rent.

During the course of hearing before us,the AR produced additional evidences with the request to accept the same under Rule 29 of the Income Tax Appellate Tribunal Rules, 1963. It was argued that the additional evidences did not require any further investigation facts and were in support of the main contention raised before the First Appellate Authority(FAA), that the details of bank account would help in deciding the issue before the bench. The Departmental Representative (DR)left the issue to the discretion of the bench. After considering the details of the bank accounts, filed by the assessee, we are of the opinion that it would help us to decide the grounds of appeal contested by the assessee. Therefore, we admit the additional evidences produced by the assessee.

2.Details of dates of filing of returns of incomes,returned incomes,dates of assessments etc.can be summarised as under:

1470-1979-1982/M/13 Litolier (08-09)(09-10)

A.Y. ROI filed on Returned Income(Rs.) Assessment dt. Assessed Income(Rs.) 2008-09 30/09/2008 1.80 crores 10.12.2010 4.20 crores 2009-10 30/09/2009 5.93 crores 30.12.2011 7.91 crores ITA/1470/Mum/2013,AY.08-09: 3.Effective ground of appeal,raised by the assessee,is about disallowance of interest of Rs. 57.29 lakhs claimed by the assessee u/s.57(iii) of the Act.During the assessment proceedings, the AO found that the assessee had claimed expenses on account of interest to bank, amounting Rs.2,57, 29,167/-.He directed the assessee to justify the availability of said expenses against the source and to prove the nexus that such expenses had been incurred wholly and exclusively for earning income under the same head. In its reply dated 24/11/2010, the assessee submitted that it had given turnover of Rs. 10 crores to M/s. Fountain Head Motels Private Ltd. (FHMPL) for a short term period of 3 to 6 months from its Dena Bank O/D account on 15/10/2007 on agreed interest at the rate of 13.5% per annum,that accordingly the interest income of Rs. 61.87 lakhs on the above loan were shown by the assessee on accrual basis, that the amount of Rs.10 crores was given out of the overdraft account of Dena bank,that out of the total interest of Rs.1.90 crores (2.30 crores -39.45 lakhs) a sum of Rs. 1.33 crores was capitalised, that the balance of Rs. 57.29 lakhs,pertaining to the loan of Rs. 10 crores,was claimed as deduction from the income from other sources.The assessee enclosed a copy of interest account of Dena bank overdraft account as well as a copy of Ledger account of FHMPL.After considering the submission of the assessee the AO held that submissions made by it were factually incorrect,that the perusal of overdraft account statement of Dena Bank revealed that during the year under appeal the assessee had made total withdrawal of Rs.39.30 crores,that the bank had debited total interest of Rs. 3.99 crores,that out of the total withdrawals Rs.10 crores was advanced to FHMPL,that balance amount was given a advances towards purchase of property, that Rs.1.34 crores,being difference of interest,was capitalised to the property account, that the purpose of balance withdrawal of Rs. 29.30 crores was not known,that utilisation of the same had not been explained by the assessee, that interest expenses in respect of such amount was otherwise also not allowable as same was not incurred for the purpose of business.Referring to the provisions of section 43B(e) read with explanation 3D of the Act, the AO held that the assessee had not actually paid the interest and same had been converted into loan/advanced by the bank, that the interest expenditure would not 1470-1979-1982/M/13 Litolier (08-09)(09-10) qualify for deduction.Finally,he disallowed interest of Rs. 57.29 lakhs and added back to the income of the assessee. 4.Aggrieved by the order of the AO, the assessee preferred an appeal before the FAA. Before him,it was argued that there was some error in the submissions made before the AO, that the cheques were issued from the current-account and not from the overdraft account,that the current-account was funded by Rs.10 crores on 16/10/2007, that the assessee court sanction of joint term loan/overdraft of Rs. 45 crores at an interest rate of 12.50%, the amount was sanction to be used by six entities namely Litolier Properties Private Ltd, Ashok Mittal HUF, Litolier Interior Private Ltd.,Multiplex Investment Private Ltd,Freeport Investment and Trading Company Private Ltd and Ashok Mittal and Co., That the short-term loan given by the assessee was funded to the extent of Rs. 5 crores by transferring funds from overdraft account and partly from the pre-matured deposit of Rs.3 crores, that balance 3 crores were received as unsecured loan from Ashok Mittal,that there was joint overdraft balance of Rs. 36.43 crores before the date of issue of loan, that directly/indirect the overdraft proceeds were used for the purpose of issuing of the loan and the assessee had earned interest on the loan given and the interest income was assessed as income from other sources, that it was entitled for deduction of proportionate interest expenses amount from the interest income u/s.57, that the rate of interest charged on the loan was at the rate of 13.5% which was 1% more than the 40 interest rate of 12.5%. Before the FAA,the assessee had produced certain additional evidences,so,he directed the AO to file a remand report in that regard.

4.1.After considering the remand report and rejoinder to the report, the FAA held that assessee had claimed interest expenditure of Rs.57.29 lakhs,that it had tried to set it off against interest income of Rs. 61.87 lakhs,that it had claimed that a term loan of Rs.10 crores was advanced to FHMPL on which interest income of Rs. 61.87 lakhs was earned, that the assessee had also claimed that the overdraft of Rs.10 crores was financed from overdraft account, that in the remand report the AO had found that the assessee had advanced loan of movies 864.50 lakhs and Rs.135.50 lakhs on 16/10/2007 from its current-account CA GN26545 on which interest was paid by the assessee,that it had not made any interest on the loans advanced i.e. Rs. 10 crores, that the assessee had not incurred an indirect expenses to all interest of Rs. 61.87 lakhs, that it had failed to prove any direct nexus between the interest of Rs. 68 1.87 lakhs(paid on the overdraft account No. Term loan DRT 1), that there were two different and distinct accounts that 3

1470-1979-1982/M/13 Litolier (08-09)(09-10) were used for advancing interest-bearing loan to FHMPL, that the interest income of Rs. 61.87 lakhs had not been earned out of the overdraft account of the assessee (account number term loan DRT-1), that the interest expense of Rs. 57.29 lakhs was not incurred to earn interest of Rs. 61, 87,500/-. Finally, he upheld the order of the AO.

5.After considering the remand report and rejoinder to the report, the FAA held that assessee had claimed interest expenditure of Rs.57.29 lakhs, that it had tried to set it off against interest income of Rs. 61.87 lakhs, that it had claimed that a term loan of Rs.10 crores was advanced to FHMPL on which interest income of Rs.61.87 lakhs was earned,that the assessee had also claimed that the overdraft of Rs.10 crores was financed from overdraft account, that in the remand report the AO had found that the assessee had advanced loan of movies 864.50 lakhs and Rs.135.50 lakhs on 16/10/2007 from its current-account CA-GN26545 on which interest was paid by the assessee, that it had not made any interest on the loans advanced i.e. Rs. 10 crores, that the assessee had not incurred an indirect expenses to all interest of Rs. 61.87 lakhs, that it had failed to prove any direct nexus between the interest of Rs. 61.87 lakhs(paid on the overdraft account No.Term loan DRT 1), that there were two different and distinct accounts that were used for advancing interest-bearing loan to FHMPL, that the interest income of Rs. 61.87 lakhs had not been earned out of the overdraft account of the assessee (account number term loan DRT-1), that the interest expense of Rs.57.29 lakhs was not incurred to earn interest of Rs.61,87,500/-. Finally,he upheld the order of the AO.

6.During the course of hearing before us, the AR argued that the loan of Rs.3 crores was given to the assessee on behalf of Ashok Mittal out of current account number 26630 belonging to Bellamy Investments and Trading Company Private Ltd.,that Ashok Mittal was one of the directors of the said company, that Rs. 3 crore were withdrawn against common overdraft facility enjoyed by him as per sanction letter of Dena Bank. He referred to pages 8,59,111 and 121 of the Paper Book and stated that as on 31/03/2008 the unsecured loan given by Ashok Mittal to the assessee was Rs.14.82 crores,that the AO and the FAA had not dealt with this aspect at all.The DR argued that the FAA had considered the submissions of the assessee and had passed a reasoned order after considering all the material.

7.We have heard the rival submissions and perused the material before us.We find that the issue of availability of fund and advancing of funds from the account of Ashok Mittal to the assessee 4

1470-1979-1982/M/13 Litolier (08-09)(09-10) have not been verified properly.We have admitted additional evidences that were not available to the lower authorities,but they throw light on the dispute before us.From the bank statement it is clear that at least Rs.3 crores were advanced on behalf of Ashok Mittal.It is also a fact that Dena Bank had extended loan facility in favour of six entities.In our opinion,the AO/FAA had not deliberated upon the said issue as the assessee had not furnished the necessary details before them.Therefore,we are of the opinion that in the interest of justice,matter should be restored back to the file of the AO for fresh adjudication,who would decide the issue afresh after affording a reasonable opportunity of hearing to the assessee.Effective Ground of appeal(GOA 1-3)is decided in favour of the assessee,in part.

ITA.s./1979 & 1982/Mum/2013-AY.s.2008-09 & 2009-10 8.Solitary ground of appeal

,raised by the AO in both the AY.s.,is about disallowance of interest/discounting charges of Rs.1.71 crores.It was brought to our notice by the AR that the stands decided against the AO by the orders for the earlier years.The DR stated that matter could be decided on merits.We find that the Tribunal for the AY.2001-02(ITA/5223/Mum/03,dtd.21. 09.2006),AY.2002-03(ITA/685/Mum/2006,dtd.29.05.2008),AY.2005-06(order dtd.31.08.2009) AY.2006-07(order dtd.07.03.12),had dismissed the appeal filed by the AO.The Hon’ble Bombay High Court had dismissed the appeal filed by the department on 8.8.2011 for the AY. 2005-06. The department had approached the Hon’ble Apex Court.But,the SLP filed by it was dismissed. Considering these facts the FAA decided the issue in favour of the assessee.In our opinion,there is no legal or factual infirmity in the order of the FAA.So,confirming the same,we decide effective ground of appeal against the AO for both the AY.s. As a result,appeal of the assessee is partly allowed and appeals of the AO stand dismissed. फलतःिनधा�रती �ारा दािखल क� गई अपील अंशतःमंजूर क� जाती है और िनधा�रती अिधकारी क� अपील नामंजूर क� जाती है. Order pronounced in the open court on 17th March, 2017. आदेश क� घोषणा खुले �यायालय म! "दनांक 17 माच�, 2017 को क� गई । Sd/- Sd/- (संजय गग� /Sanjay Garg) (राजे�� / RAJENDRA) �याियक सद�य / JUDICIAL MEMBER लेखा लेखा सद�य सद�य / ACCOUNTANT MEMBER लेखा लेखा सद�य सद�य मुंबई Mumbai; "दनांक/Dated : 17.03.2017. Jv.Sr.PS. आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : आदेश आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत 1.Appellant /अपीलाथ%

2. Respondent /&'यथ% 3.The concerned CIT(A)/संब* अपीलीय आयकर आयु-, 4.The concerned CIT /संब* आयकर आयु- 5

1470-1979-1982/M/13 Litolier (08-09)(09-10)