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Income Tax Appellate Tribunal, MUMBAI BENCHES “J”, MUMBAI
Before: Shri C.N. Prasad, & Shri Ashwani Taneja
Per Ashwani Taneja (Accountant Member): This appeal has been filed by the Assessee against the order of Ld. Commissioner of Income Tax (Appeals), Mumbai- 32 {(in short ‘CIT(A)’}, order dated 26.03.2014 passed against assessment order u/s 143(3) dated 30.11.2010 for the Assessment Year 2008-09 on the following grounds:
“A) Disallowing interest claimed u/s. 24 - Rs.
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12,06,997/- 1) The learned Commissioner of Income Tax (Appeals) [CIT(A)] erred on facts and in law in upholding the order of the Additional Commissioner of Income Tax - 21(1), Mumbai (AO) disallowing the appellant's claim of interest u/s. 24 amounting to Rs. 12,06,997/-. 2) The appellant prays that the disallowance of interest of Rs. 12,06,997/- as made by the AO and as upheld by the CIT(A) may be deleted. 3) Without prejudice to the above, the learned CIT(A) erred on facts and in law in not allowing the interest of Rs. 12,06,997/- u/s. 36(1)(iii). 4) The appellant prays that if your honours are not inclined the allow the appellant's claim of interest of Rs. 12,06,997/- u/s. 24, the same may be held to be allowable u/s. 36(1)(iii)
B) General
5) The above grounds of appeal are without prejudice to one another and the appellant craves leave to add, alter, amend, delete or modify any of the above”
During the course of hearing, arguments were made by Shri Sanjay Parikh, Authorised Representative (AR) on behalf of the Assessee and by Shri Ajay, Departmental Representative (DR) on behalf of the Revenue.
The effective issue raised by the assessee is that its claim of interest u/s 24 amounting to Rs.12,06,997/- made against the rental income from house property was rejected by the lower authorities. The alternative issue raised by the assessee is that interest is alternatively eligible u/s 36(1)(iii) as business
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expenses. It was argued that the assessee is a builder and developer. In the earlier years part amount of interest was capitalized in the project cost, as the project was under construction and since the project was completed and the rental income was received in immediately preceding assessment year, the claim of interest was made against rental income which was allowed by the Assessing Officer in the assessment order passed u/s 143(3) dated 30.11.2009 for assessment year 2007-08. In support of his arguments, the assessee submitted copies of return and assessment order of assessment year 2007-08. He also placed before us copies of ledger accounts to show that the loans taken in earlier years were utilized for carrying our construction of the impugned properties. He placed reliance upon the judgment of Hon’ble Construction Ind. Ltd. (2003) 260 ITR 579 (Bom) for the proposition that in the case of builder the construction project undertaken by the assessee constituted stock-in-trade and therefore, the assessee would be entitled to deduction of interest on loan u/s 36(1)(iii) in respect of interest on loan obtained for execution of said project. The reliance was also placed on the judgment of the Mumbai Bench of the Tribunal in the case of JCIT v. K. Raheja (P) Ltd. 102 ITD 414 (Bom) for the proposition that even, if the assessee is following completion contract method for returning of its income, its claim of finance cost as a period cost, in nature of the interest would be eligible in the year in which it incurred or accrued, in accordance with AS-7 issued by the Institute of Chartered
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Accountants of India. Lastly, it was submitted by him that complete details were furnished to the lower authorities but without appreciating the fact properly, valid claim of the assessee has been rejected.
Per contra, Ld. DR submitted that the onus was upon the assessee to show that all the loans were used by the assessee for acquiring the property from which rental income has been received, against which deduction of interest u/s 24 has been claimed. With regard to alternate claim of the assessee for allowing the interest u/s 36(1)(iii), it has been submitted that since no business income has been earned by the assessee, therefore, claim of interest was not allowable to the assessee.
In reply, the assessee reiterated its stand that complete details were furnished to the lower authorities showing that the loans were used for acquiring/ constructing the house property which is evident from this fact that assessee was exclusively in the business of construction/development of properties, and from the balance sheet submitted to the lower authorities as well as before the bench it was evident that these loans have not been used elsewhere, and were used for construction/ acquisition of properties. It was further emphasized by the Ld. Counsel that in earlier years the claim of the assessee has been accepted and assessment order was passed u/s 143(3), thus, the revenue cannot take a new stand in the impugned assessment year. With regard to its alternative claim of allowing interest u/s 36(1)(iii), he
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reiterated his reliance upon the aforesaid judgment quoted by him wherein in the similar circumstances claim was held to be allowable by Hon’ble Bombay High Court and by Mumbai Bench of the Tribunal.
We have gone through facts of the case, orders of the lower authorities, evidences brought before us and the judgments relied upon by the parties. It is noted by us that similar claim was made by the assessee in immediately proceedings year i.e. A.Y. 2007-08. The claim of interest has been made conspicuously in the computation sheet for A.Y. 2007-08. Our attention was drawn on the assessment orders passed u/s 143(3) for assessment years 2006-07 & 2007-08 and also upon the details submitted to the AO in these years with regard to claim of interest made by the assessee. It was shown that for A.Y. 2007-08 as well as in the impugned assessment year complete details were given with regard to sanction letter of loans issued by Indian Bank and other details with regard to other loans and parties purchased constructed and sold and retained in A.Y. 2007-08. The claim of interest has been allowed by the AO u/s 143(3) in the impugned year. These claims have been rejected by the lower authorities on the ground that the assessee could not demonstrate that loans were utilized for acquiring/constructing these properties. It is noted by us that when the interest claimed on the same loans has been found to be allowable by the AO in earlier years when the loans were taken and utilized, it can be taken that the assessing officer had allowed these claims after verifying the 6 Jaisingh Builders
aspect of utilization of loans. Nothing has been mentioned by the AO in the assessment order of the impugned year that once he had allowed the claim of interest in earlier years, then, how the assessee can be asked to go back in the earlier years and demonstrate the utilization now, especially when AO himself was satisfied in the earlier years about the claim of the assessee. In our considered view, if this kind of approach is allowed there would be not consistency and harmony in the assessments framed by the revenue officers, which may in turn, lead to chaos and uncertainties. The law does not encourage and permit this kind of approach. Further, the assessee has demonstrated that sufficient details and evidences were submitted. Under these circumstances it was for the lower authorities to specifically point out that what more evidences were required to clear the doubts. We find that the claim has been rejected in unfair manner. The AO is directed to allow the said claim. At this stage, we are not going into alternative claim made by the assessee u/s 36(1)(iii).
In the result, the appeal of the Assessee is partly allowed.
Order pronounced in the open court on 16th March, 2016. (C.N. Prasad ) (Ashwani Taneja) "या"यक सद"य / JUDICIAL MEMBER लेखा सद"य / ACCOUNTANT MEMBER मुंबई Mumbai; "दनांक Dated : 16/ 03 /2016 ctàxÄ? P.S/."न.स.
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आदेश क" ""त"ल"प अ"े"षत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant
""यथ" / The Respondent. 3. आयकर आयु"त(अपील) / The CIT, Mumbai. 4. आयकर आयु"त / CIT(A)- , Mumbai
"वभागीय ""त"न"ध, आयकर अपील"य अ"धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड" फाईल / Guard file. आदेशानुसार/ BY ORDER, स"या"पत ""त //// उप/सहायक पंजीकार (Dy./Asstt.