Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI D.KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश आदेश / ORDER आदेश आदेश
PER D. KARUNAKARA RAO, AM :
This appeal is filed by the assessee against the order of CIT(A)-I, Pune dated 07-09-2015 for the Assessment Year 2011-12.
Before us, Ld. AR for the assessee submitted that Ground No.1 constitutes substantive ground. Ground Nos. 2 to 6 merely support the Ground No.1 by way of arguments. Therefore, Ground No.1 being substantive in nature, which relates to the disallowance of interest claim, is extracted here as under :
“1. The Ld.CIT(A) erred in confirming the disallowance of interest of Rs.1,55,65,609/- u/s.36(1)(iii) on the ground that the loan on which the interest was paid was utilized for non business purposes.”
2 ITA No.1587/PUN/2015 Adhita Reality Pvt. Ltd.,
Briefly stated relevant facts are that the assessee entered into an
MOU with Vishwaroop Infotech Pvt. Ltd. dated 16-09-2010 for purchase
of land. According to which assessee was to buy land admeasuring
56870 sq.mtrs along with factory shed and dwelling places standing
thereon located at Dhanori, Haveli Taluk, Pune District. Total
consideration is Rs.214 crores. According to the said MOU, which is
placed at page 33 of the paper book, assessee borrowed a sum of
Rs.25.50 crores on 16-09-2010 from Indiabulls and paid to the seller.
Subsequently, assessee was to pay Rs.188.50 crores on execution of the
Deed of Conveyance. Assessee could only pay the amount of Rs.25.50
crores but not the balance amount. Subsequently, the Deed of
Cancellation dated 23-02-2011 (page 41 of the paper book) was entered
into by the parties, i.e. assessee and Vishwaroop Infotech Pvt. Ltd.,
Consequently, seller refunded the said amount of Rs.25.50 crores
without any interest. Clause 5 of the MOU relating to Termination
provides for non-charging of interest in case if the Cancellation is
attributable to the buyer. Interest becomes payable only if the seller is
at default for the reasons specified therein. Thus, an amount of Rs.25
crores was borrowed by the assessee from Indiabulls on 17-09-2010
and the same was advanced to Vishwaroop Infotech Pvt. Ltd., on the
same date.
Subsequently, after cancellation of MOU, the assessee entered
into an arrangement with the Panchsheel group/Atul Chordia group
and incorporated M/s. Bluerays Developers LLP with 50:50 partnership.
Towards his share, assessee paid Rs.30 crores which is freshly
borrowed from Indiabulls on 08-11-2011 to M/s. Bluerays Developers
LLP. Further, assessee also borrowed unsecured loans from the
shareholders/directors amounting to Rs.48 crores in total. Further, it
3 ITA No.1587/PUN/2015 Adhita Reality Pvt. Ltd.,
is the submission of the assessee that the advance given by the
assessee to Vishwaroop Infotech Pvt. Ltd., was refunded to him and the
said amount was utilised for repaying the unsecured loans to the
abovementioned shareholders who gave the unsecured loans amounting
to Rs.48 crores.
Ld. AR for the assessee brought our attention to the details of
interest expenditure and interest income. Drawing our attention to the
profit and loss account placed at page 15 of the paper book, Ld. AR
submitted that the total interest income earned by the assessee as per
Schedule 7 works out to Rs.1,83,18,830/-. Per Contra, the financial
expenditure incurred by the assessee as per Schedule 9 works out to
Rs.2,77,75,031/-. The interest expenditure is more than interest
income as the assessee did not receive any interest as the said Rs.25
crores of loans utilized for giving trade advance to the Vishwaroop
Infotech Pvt. Ltd. (supra). Explaining the interest expenditure paid to
the Indiabulls on the loans of Rs.25 crores taken on 17-09-2010 and
also Rs.30 crores taken on 08-01-2011, Ld. AR for the assessee
submitted that all the funds were utilized in the context of the said
transaction of acquisition of land and therefore the expenditure is
entirely allowable as business expenditure u/s.36(1)(iii) of the Act.
Further, without prejudice to the above, Ld. AR for the assessee
submitted that the above expenditure at the maximum can be set off
against the interest earnings. The addition, if any, can be restricted to
the difference amount of Rs.88,46,924/-( i.e. Rs.2.77 Crores – Rs.1.83
crores).
On the other hand, Ld. DR for the Revenue submitted that the
said MOU and Deed of Cancellation constitute the self-serving
4 ITA No.1587/PUN/2015 Adhita Reality Pvt. Ltd.,
documents and they were not submitted to the AO during the
assessment proceedings. An attempt made by the Ld. AR for the
assessee to submit the said documents (i.e. MOU and Deed of
Cancellation) before the CIT(A) and the same was rejected by the First
Appellate authority invoking the provisions of section 46A of the I.T.
Rules, 1962. It is the claim of the Revenue that these MOU and the
Deed of Cancellation constitutes the self-serving documents as they are
neither registered with any State Govt. authority nor written on the
stamp paper etc. Ld. DR vehemently argued on the fact of failure to
submit the same before the AO. According to him, they never existed
during the assessment proceedings and the creation of these
documents constitute an afterthought of the assessee only. On these
facts, Ld. DR submitted that all interest paid by the assessee on the
said loan amount of Rs.25 crores taken from Indiabulls does not
constitute a trade advance. As such, assessee failed to discharge the
onus to prove that the same constitutes the trade advance. Therefore,
relevant interest expenditure claim is not allowable and the provisions
of section 36(1)(iii) of the Act does not help the assessee.
Before us, during rebuttal time, Ld. AR for the assessee filed the
written submission in demonstrating the above facts and the
arguments. For the sake of completeness, the argumentative/alternative
submissions which are narrated in Para No.8 to 10 of his Note are
extracted here as under :
“8. The assessee submits that the disallowance of interest is not justified. As stated above, the assessee has advanced the amount out of the loan taken from Indiabulls. Now, the lower authorities have held that the amount advanced was not for the business of the assessee but the same was on behalf of Bluerays LLP in which the assessee was a partner. Further, the learned CIT(A) has refused to consider the MOU and the cancellation deed. In this context, the assessee submits that Vishwaroop is not related to it. Secondly, the amount was advanced to Vishwaroop for purchase of its land for a total consideration of Rs. 214 crs. However, due to constraints in raising the balance funds, the assessee decided to purchase
5 ITA No.1587/PUN/2015 Adhita Reality Pvt. Ltd.,
the land in the LLP named Bluerays Developers LLP wherein the assessee was a partner having 50% of the share and the balance 50% was owned by Shri Atul Chordia and Zero G Apartments Pvt. Ltd. [an entity of Atul Chordia Group. The said LLP was constituted on 20.09.2010 i.e. after the advance was paid by the assessee to Vishwaroop.
Now, the lower authorities have held that the amount advanced by the assessee was not for its business. The assessee submits that it intended to purchase the land from Vishwaroop which is not related to it and therefore, the advance was paid. Secondly, the assessee had never admitted before the A.O. that there was no written documents. Thirdly, the lower authorities have not appreciated that ultimately, the land was purchased by Bluerays in which the assessee company was a partner. It is not a case that the land deal did not materialize. Thus, considering the subsequent events of formation of the LLP and acquisition of land by the LLP, the bona fides of the assessee can be proved that the amount advanced to Vishwaroop was for purchase of land and it was not a mere advance. Accordingly, it is submitted that the amount advanced to Vishwaroop was for the business of the assessee and therefore, no disallowance of interest is warranted.
Without prejudice to the above contention, the assessee submits that the disallowance worked out by the ld A.O. of Rs. 1,55,65,609/- is not correct. As clarified above, the assessee had paid total interest of Rs. 2,71,65,754/- to Indiabulls. Further, during the year, the assessee had invested amounts as capital in Bluerays LLP and had earned interest income of Rs. 1,83,18,830/-. The same is shown as income in the profit and loss account. The assessee clarifies that it had invested in Bluerays partly out of the loan taken from Indiabulls of Rs. 30 crs. and partly out of the unsecured loan from directors on which no interest was paid by the assessee company. The relevant chart giving the details of amount invested in Bluerays is enclosed herewith. Now, the lower authorities have held that the amount advanced to Vishwaroop by the assessee was on behalf of Bluerays and therefore, the assessee should have charged interest. The assessee has clarified its stand that the amount advanced to Vishwaroop was in the course of its business. However, without prejudice, the assessee submits that the learned A.O. has not appreciated that the assessee company has earned interest income of Rs. 1,83,18,830/- from Bluerays. If the contention of the A.O. is considered that the assessee has advanced the amount to Vishwaroop on behalf of Bluerays, he has not appreciated that the assessee has earned interest of Rs. 1,83,18,830/- and the same should have been netted against the interest paid to Indiabulls and only the net interest could be disallowed of Rs. 88,46,924/- As against this, the A.O. has made a disallowance of Rs.1,55,65,609/-. Thus, the assessee submits that if any disallowance is warranted, the same should be restricted to the net interest expenditure of Rs. 88,46,924/-.”
We heard both the parties, both on the main arguments as well
as alternate arguments. The issue raised by the assessee in Ground
No.1 relates to confirming the disallowance of interest of
Rs.1,55,65,609/- u/s.36(1)(iii). This interest amount is attributable to
the loan of Rs.25.50 crores borrowed and given to M/s.Vishwaroop
Infotech Pvt. Ltd. It is the case of the Revenue that the said interest
6 ITA No.1587/PUN/2015 Adhita Reality Pvt. Ltd.,
claimed is attributable to the borrowed loans of Rs.25 crores from
Indiabulls which was never utilized for the business purposes, i.e. for
acquisition of the aforementioned land. The non submission or absence
of documentation-MOU and the Deed of Cancellation and subsequent
purchase of the said land by M/s. Bluerays Developers LLP constitutes
the circumstantial evidence/events in favour of the Revenue.
On the other hand, the case of the assessee is that the said land
belongs to Vishwaroop Infotech Pvt. Ltd., and the assessee could not
complete the transaction due to paucity of funds. Therefore, in view of
the shortage of finance, assessee had to incorporate a Limited Liability
Partnership (in short ‘LLP’) with Panchsheel/Atul Chordia group. These
subsequent events support the assessee’s claim that the loan of Rs.25
crores received from Indiabulls was paid to Vishwaroop Infotech Pvt.
Ltd., for business purposes only. The failure of the assessee to file the
MOU and the Deed of Cancellation are not due to non-existence of the
documents. The event of transfer of the said loan from Indiabulls to
Vishwaroop Infotech Pvt. Ltd., is a matter of fact and the same executed
through the banking channels. Considering the subsequent events
discussed above, as per Ld. AR for the assessee, the interest paid by the
assessee to Indiabulls on the said amount of Rs.25 crores is an
allowable expenditure u/s.36(1)(iii) of the Act.
From the above divergent stand of the parties, we find there are
two aspects to be considered in this appeal (1) relates to allowability of
the entire claim of deduction of Rs.1,55,65,609/- under the provisions
of section 36(1)(iii) of the Act and (2) the allowability of the differential
amount of Rs.88,46,924/-, i.e. difference between the interest debited
and interest earned by the assessee.
7 ITA No.1587/PUN/2015 Adhita Reality Pvt. Ltd.,
Regarding the first issue, as discussed at length in the preceding
paragraphs of this order, we find the assessee’s arguments requires to
be rejected considering assessee’s failure to discharge the preliminary
onus with regard to correctness of the borrowed sum of Rs.25.50 crores
to the Vishwaroop Infotech Pvt. Ltd., It is an admitted fact that
assessee failed to submit evidences by way of said MOU and the Deed of
Cancellation. The submission of these papers admittedly happened
during the first appeal proceedings. Why these documents could not be
submitted by the assessee during the assessment proceedings is a
matter of question, still not answered by the assessee even before us.
Therefore, the reasoning of failure of the assessee to discharge the
preliminary onus, the claim made by the assessee u/s.36(1)(iii) of the
Act is dismissed, in principle.
Regarding the second issue, i.e. the alternate claim raised by the
assessee’s counsel before us, it is an admitted fact that assessee did not
record any core business activities apart from the interest payments
and earnings. The details provided in the financial statements placed at
page 15 of the paper book evidences the same. Para 10 of his written
submission deals with the arguments raised without prejudice and
praying for restricting the disallowance only to Rs.88,46,924/-, the
difference of the interest incurred and interest earned by the assessee.
On hearing both the parties, we are of the opinion that,
considering the peculiar facts of this case and subject to verification of
the figures by the AO, restricting the disallowance to the said amount of
Rs.88,46,924/- should meet both ends of justice. Accordingly, the
disallowance made by the AO is restricted to the said amount. The
grounds raised by the assessee are partly allowed for statistical
purposes.
8 ITA No.1587/PUN/2015 Adhita Reality Pvt. Ltd.,
In the result, appeal of the assessee is partly allowed for
statistical purposes.
Order pronounced in the open court on this 17th day of January,
2018.
Sd/- Sd/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) �याियक सद�य �याियक सद�य /JUDICIAL MEMBER लेखा लेखा सद�य सद�य / ACCOUNTANT MEMBER �याियक �याियक सद�य सद�य लेखा लेखा सद�य सद�य
पुणे Pune; �दनांक Dated : 17th January, 2018 सतीश आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : अ�ेिषत
अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. 3. The CIT(A)-I, Pune 4. CIT-I, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “B Bench” 5. Pune; गाड� फाईल / Guard file. 6.
आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार
स�यािपत �ित //True Copy// //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune