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Order under section 254(1) of Income Tax Act PER PAWAN SINGH JUDICIAL MEMBER; 1. These Cross two appeals under section 253 of Income Tax Act (Act) are directed against the order of Commissioner (Appeals)-29, Mumbai, dated 24.02.2014 for AY: 2009-10. As both the appeals are arising out of the same order, thus both the appeals were clubbed together, heard and being decided by common order to avoid the conflicting decision.
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The brief facts of the case are that the assessee company is engaged in the business of letting out of immovable properties. The assessee filed return of income for relevant AY on 29 September 2009. The assessment u/s 143(3) was completed on 5 December 2011.The AO while framing assessment order made addition of Rs. 15,40,429/- on account of Service Tax holding that it was collected but not paid, disallowed the claim under section 24(b) of Rs. 60,34,149/- (out of Rs. 89,25318/-) holding that the assessee failed to prove the nexus of disbursement of loan from Diwan Housing Finance Ltd (DHFL).
On appeal before the Commissioner (Appeals) the addition of Rs. 15,40,429/-on account of service tax was upheld. However, in respect of claim of interest expenses the assessee filed additional evidence and raised additional ground for claiming interest expenses in respect of ‘Dhanwatay property’ (other than the property for which it was claimed before AO). The ld CIT (A) forwarded to the additional evidence to AO for his comment. The AO vide his reply dated 08/02/2013objected for raising the additional ground for allowing the interest u/s 24(b) in respect of the different property for which no such claim was made during the assessment proceedings. The assessee not claimed such interest expenses in respect of Dhanwatay property. After considering the contention of assessee the ld CIT(A) admitted the additional ground of appeal
and the additional evidence. After considering the remand report of AO, the ld CIT(A) directed AO to verify the contention of the assessee if the borrowed funds were used to acquire the Dhanwatay property and grant the relief to the assessee. Thus, consequently allowed the part relief to the assessee. Aggrieved, by the order of ld Commissioner (appeals) both the party filed their Cross Appeal before this Tribunal. The assessee has challenged the confirmation of addition on account of Service Tax collected as not paid and the disallowance under section 24(b) Rs. 60,34,149/- The revenue has challenged the admission of additional ground of appeal, additional evidence and the direction of ld CIT(A) to assess the rental income from Dhanwatay house and to allow interest against the rent.
4. First we are taking the appeal filed by assessee. The assessee in its appeal has raised following grounds of appeal: 2 & 3107/M/2014 Crimson Property P. Ltd (i) The ld CIT(A) erred in confirming the addition of Rs. 15,40,429/- to the rental income of the appellant on account of service at collected but not paid. (ii) The ld CIT (A) erred in law in resending the matter back to the AO for calculation of interest. (iii) The ld CIT(A) erred in law and on the facts in not allowing the claim of interest under section 24(b) amounting to Rs. 60,34,149/- acquisition of the apply house and then want the house from which the assessee and interest.
We have heard the ld AR for the assessee and the ld DR for the revenue and gone through the orders of the authorities below and the documents filed on record. First ground of appeal
relates to the addition of Rs 15,40,429/-on account of Service Tax holding that it was collected but not paid. The ld AR for the assessee argued that the assessee received service tax of Rs. 15,40,429/- which had not been paid to the Government till 31/03/2009. The provision of Section 43B is not applicable to the assessee as there was no business income. The service tax was not paid as there was stay from the Bombay High Court. The assessee has not credited it to the P/L account nor claimed expenditure. The ld AR for the assessee relied on the decision of Mumbai Tribunal in Pharma Search Vs ACIT [2012] 21taxman.com 44(Mum) and decision of Bombay High Court in CIT Vs Knight Frank (India) in of 2014 dated 16.08.2016. On the other hand the ld DR for the revenue supported the orders of the authorities below and argued that the assessee despite collecting the service tax neither deposited with the Government nor refunded it to the parties from whom it was collected.
6. We have considered the rival contention of the parties. During the assessment the AO noticed that the assessee received the service tax of Rs. 15,40,429/- over and above the rental income. The assessee not deposited the service tax with the Government nor refunded to the persons from whom it was collected. The assessee contended that the provision of section 43B is not applicable to the assessee as the assessee has no business income. The contention of the assessee was not accepted by AO and added the same in the income of the assessee. The ld CIT(A) has not given any different finding except to confirm it. We have seen that the ratio of the decision of Hon’ble Bombay High Court in CIT Vs Knight & 3107/M/2014 Crimson Property P. Ltd
Frank (India) (supra) is squarely applicable on the facts of the case. The Hon’ble Bombay high Court in CIT Vs Knight Frank (India) (supra) while considering the similar question held :
“(a) It is very clear from the reading of Section 145A(a)(ii) of the Act that it only covers cases where the amount of tax, duty, cess or fee is actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. (b) In this case, the assessee has admittedly not paid or incurred any liability for the purposes of bringing any goods to the place of its location. In this case, the assessee is rendering services. Thus, on the plain reading of Section145A(a)(ii) of the Act, it is self evident that the same would not apply to the service tax billed on rendering of services. This is so as the service tax billed has no relation to any goods nor does it have anything to do with bringing the goods to a particular location. (c) The Explanation to Section 145A(a) of the Act does not expand its scope. An Explanation normally does not widen the scope of the main section. It merely helps clarifying an ambiguity. (See Zakiyr Begam v/s. Shanaz Ali & Ors., 2010 (9) SCC 280). The main part of the Section specifically restrict its ambit only to valuation of purchase and sale of goods and inventory. Rendering of service is not goods or inventory. Goods would mean movables and inventory would mean stock of goods. Therefore, the Explanation would only apply for valuation of sales and purchase of goods and stock of goods as provided in the main part. The Explanation in this case clarifies/ explains that any tax, duty, cess or fee paid or incurred will have to be taken into account for valuation of goods even if such payment results in any benefit/ right to the person making the payment. This Explanation was necessary as otherwise in terms of Accounting Standard – (AS2) issued by the Institute of Chartered Accountants of India provides that cost of goods would include the duties and taxes paid, other then the duties and taxes which give a right to recover the same from the taxing authorities – to illustrate duty draw back etc. Thus, the Explanation only seeks to clarify the fact that notwithstanding any right acquired on payment of taxes to recover the same from the government, for the purpose of Section 145A of the Act, the same cannot be excluded even though the AS2 provides otherwise. It does not even remotely deal with the issue of service tax. (d) Further, it is to be noted that Service Tax was first introduced in India by Finance Act, 1994. Section 145A of the Act was first introduced into the Act only by Finance (No.2) Act, 1998 w.e.f. 1st April, 1999. It was thereafter substituted by Finance (No.2) Act, 2009 which is identical, except for addition of clause (b), dealing with interest. However, the Parliament did not while substituting it, deem it fit to explicitly include the valuation of Services therein. Thus, it is clear that the legislature never intended to restrict the applicability of Section 145A of the Act only to goods and not extend it to Services. As observed by the Apex Court in State of Bihar v/s. S. K. Roy AIR 1966 (SC) 1995: “It is well recognized principle in dealing with construction that a subsequent legislation may be looked at in order to see what is the proper interpretation to 4 & 3107/M/2014 Crimson Property P. Ltd be put upon an earlier Act where the earlier Act is obscure or capable of more then one interpretation.” We must make it clear that we do not find any ambiguity in Section 145A of the Act as arising for our consideration. However, even if one were to assume the main part of Section 145A of the Act, is capable of more than one interpretation, the interpretation sought to be canvassed by the Revenue, is not sustainable. Therefore, Section 145A of the Act would have no application in cases where service is provided by the Assessee. (e) In view of the above, the question (i) as proposed does not give rise to any substantial question of law. Thus, not entertained. (f) Regarding question (ii) it is an admitted position before us that the assessee had not claimed any deduction on account of the service tax payable in order to determine its taxable income. In the above view, there can be no occasion to invoke Section 43B of the Act. The issue stands concluded against the Revenue by the decisions of this Court in Commissioner of Income Tax Vs. Ovira Logistics P. Ltd. 377 ITR 129 and Commissioner of Income Tax Vs. Calibre Personnel Services Pvt. Ltd. (Income Tax Appeal No. 158 of 2013) rendered on 2nd February, 2015. Thus, considering the above legal position as discussed above the ground of appeal raised by assessee is covered in favour of assessee, hence we allow the ground No.1 of the appeal in favour of the assessee.
7. Ground No 2 and 3 of assessee’s appeal and the grounds of appeal raised by the revenue (in ITA 3107/M/2014) are interconnected. Thus, we have heard all the grounds altogether. The ld AR for the assessee would argue that the AO while making disallowance of interest expenses held that assessee not filed documentary evidence which may show the nexus of utilization of loan. The assessee filed evidence during first appellate stage. The ld CIT(A) called remand report from AO and after appreciating the documentary evidences held that share in the property (Dhanwaty property) was predetermined and income was offered to tax. The ld CIT(A) observed that from the remand report it was not clear if the loan have been actually been used for the acquisition of property and directed the AO to verify the fact while giving effect to his order. On the grounds of appeal raised by revenue in its Cross appeal it was argued by ld AR that as per the decision of Bombay High Court CIT Vs Pruthvi Brokers & Share Brokers 349 ITR 336, the assessee was entitled to raised additional ground of appeal before the appellate authority. It was further argued that the assessee is & 3107/M/2014 Crimson Property P. Ltd entitled for the entire interest expenses including of Rs.60,34,149/-. The ld AR relied upon the decision of Bada Saab Property (P) Ltd Vs ACIT [2010] 8 TAXMAN.COM 33(MUM), K.S. Kamalakannan Vs ACIT [2010]126 ITD 231(Chennai) and CBDT Circular No. 028 dated 20.08.1969. On the other hand the ld DR for the revenue supported the order of AO. The ld DR for revenue further argued that ld CIT(A) erred in directing the AO to assess the income of Dhanwaty house under the head ‘ Income from house property’ and to allow the interest against the rent shown on the basis of additional evidence. During the assessment proceeding the assessee repeatedly submitted that the loan availed has been used for acquiring the ‘Dhapla house’ only and not as stated about having invested the money borrowed for acquiring ownership right in the ‘Dhanwaty house’. The assessee has not filed any revised return of income nor brought such fact before the Assessing Officer. The ld CIT (A) has no jurisdiction to entertain additional ground in absence of the facts which was not brought before the Assessing Officer. The additional ground of appeal raised during the first appellate stage was not based on the facts available before the Assessing Officer. The ld DR prayed that the order passed by ld CIT (A) is liable to be set aside. It was argued that the ratio of decision relied by ld AR are entirely different on facts and the ration of the decisions are not applicable on the facts of present case in anyway.
8. We have considered the rival contention of the parties and further perused the orders of authorities below and the various documents placed on record. We have seen that during the assessment proceedings the AO noticed that assessee had claimed interest expenses of Rs. 89,25,318/- on repayment of loans and deduction under section 24(b). The assessee was asked to specify the reasons for taking interest-bearing loan along with documentary evidence and to prove that the same had been utilised for purpose for which it had been taken, the year in which the property was rented out, the year of purchase and the source of fund along with documentary evidence. The AO also asked the assessee to provide the details of interest on loans along with the supportive documents. The & 3107/M/2014 Crimson Property P. Ltd assessee filed its reply dated 23 August 2011. It was contended on behalf of assessee that it has not taken any secured loan during the year under consideration. The property was acquired India in 1995-96. Several addition and improvement was carried out in the said property and the Gross block is around Rs. 9.80 Crores. The assessee specifically pleaded that over the years the direct nexus of the fund taken and used for acquisition become clouded as loans are taken, repaid through other loan taken and the cycle keeps on moving. After receipt of reply of assessee the AO again specifically asked the assessee to furnish the bank statement to show that the payment made for investment in the property. As assessee not furnished the required information the Assessing officer verified the past record of the assessee and on the basis of past record the AO concluded out of the new loan of Rs. 9.57 Crore the assessee utilised an amount of Rs. 6.07 Crore for creating a new asset and payment of deferred tax liability. The AO concluded that the balance amount of Rs. 3.50 crore has been used for repayment of other loans which was utilised for the purpose of purchases/acquisition of asset, on which the assessee is getting rental income, for which the assessee can be said to be entitled to claim deduction under section 24(b) in respect of interest charges paid to DHFL only Rs. 3.50 Crore as against the initial disbursement of loan from DHFL of Rs. 3.98 Crore in absence of any documentary evidence which may indicate the nexus. Thus the AO worked out disallowance of interest expenses of Rs.60,34,149/- ( out of Rs. 89,25,318/-). During the first appellate stage the assessee filed application for raising additional grounds of appeal and also filed additional documents. The application for raising the additional grounds of appeal and the filing of additional documents were referred to AO for his objections and comments. The AO along with his letter dated 08.07.2013 submitted his report and objected for filing the additional documents contending that the assessee’s case is not covered by Rule 46A as during assessment sufficient opportunity was given. The AOP was not declared nor was the claim in respect of Dhanwaty property raised by assessee during assessment. In response to the remand report and the & 3107/M/2014 Crimson Property P. Ltd objections of AO the assessee submitted detailed written submission dated 12.12.2013, which has been made a part of order by ld CIT(A). After considering the remand report and the written submission the ld CIT(A) concluded that it is not clear as to whether loan has been utilised in the acquisition of the property in question( Dhanwaty Property). Though it appears from the balance sheet that borrowed funds were utilised in acquisition of the property. And after referring the provisions of Section 26 and 67A directed the AO to assess the income from ‘House property’ as income from AOP is taxable as income from house property under the specific provision of sec 26. We have noticed that the ld CIT(A) admitted that it is not clear that borrowed fund was utilised for acquisition of property. The ld CIT(A) directed the AO to assess the income of the property which was not claimed during the assessment. The order of ld CIT(A) is not sustainable in such circumstances. The ld CIT(A) has not given specific reason as to why the additional grounds of appeal was admitted. The ratio of the various decisions relied by ld AR is not applicable of the facts of the present case.
9. Here, the basic dispute is if the borrowed funds were utilised or not for acquisition of particular property or not. There is no dispute where a fresh loan was availed to repay the earlier loan for acquisition of the property; the interest payable in respect of second loan is also deductable u/s 24. Considering the peculiarity of the fact of the case we are of the view that this issue needs to be examined afresh by duly considering additional evidences. Accordingly, we restore the same to the file of AO for examining the issue afresh in accordance with law without being influence by the decision taken by the ld CIT(A). The AO shall make adequate inquiry/ investigation from the financial institute regarding the nature of borrowed funds/ loan its utilisation in acquisition of property and if any such claim was made by assessee in respect of the ‘Dhanwaty property’ in past. The assessee is also directed to co-operate with AO and provide all necessary information and documents well in time. With these directions the appeal of the assessee is allowed for statistical purpose.
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