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Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH
PER T.R SENTHIL KUMAR, JUDICIAL MEMBER:-
These cross appeals are filed by the Revenue and the Assessee as against the appellate order dated 08.06.2023 passed by the Commissioner of Income Tax [Appeals], National Faceless Appeal Centre (NFAC), Delhi arising out of the re-assessment order passed under section 143(3) r.w.s 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2010-11.
The brief facts of the case is that the assessee is a private limited company engaged in the business of Construction and Development of Housing Project. For the Asst. Year 2010-11, the assessee filed his Return of Income on 29.09.2010, showing total income of Rs.2,46,800/-. The Return was taken for scrutiny assessment and the assessment order dated 22.03.2013 was passed u/s.143(3) of the Act, accepting the returned income. Subsequently, the case was re-opened u/s. 148 and re-assessment order was passed by making disallowance of a. interest expenditure of Rs.41,40,858/- b. disallowance u/s.80IB(10) of the Act of Rs.5,01,18,591/- and c. addition u/s.115JB on account of re-valuation of land of Rs.3,49,40,160/- and demanded tax thereon.
Aggrieved against the same, the assessee filed an appeal before the Ld.CIT[A], who partly allowed the appeal of the assessee.
Aggrieved against the same, both the Revenue and Assessee are in appeal before us. The Grounds of Appeal raised by the Revenue in (a) The Ld.CIT (A) has erred in law and on facts of the case that partly allowed the claim for deduction of Rs. 5,1,18,591/- u/s 80IB(10) as it has violated the provisions of section 80IB(10)(f) by allotting flats to the relatives. (b) The Ld.CIT (A) has erred in law and on facts in deleting the addition of Rs. 3,49,14,160/- made by the AO u/s. 115JB of the IT Act on account of Book Profit as revaluation of land. (b) On the facts and circumstances of the case, Ld CIT(A) ought to have upheld the order of the Assessing Officer. (c) The appellant craves leave to add, alter and/or to amend all or any of the ground before the final hearing of the appeal.
5. Heard the rival contention and perused the materials available on records. At the outset, the Ld. Counsel Shri Sanjay R Shah, appearing for the assessee submitted that the above grounds raised by the Revenue are covered in favour of the assessee in assessee’s own case, thus, the grounds raised by the Revenue are liable to be dismissed.
The Ld. CIT-DR also confirmed that the above issues are covered against the Revenue, in assessee’s own case by the Co-ordinate Bench of this Tribunal.
We have given our thoughtful consideration and perused the materials available on record, Dept Ground no.1 namely the assessee violated the provisions of section 80IB(10)(f) by allotting flats to the relatives, which is covered against the Revenue in assessee’s own case for the Asst. Year 2013-14 in & 2194/Ahd/2018 vide order dated 01-09-2023 reported in [2023] 156 taxmann.com 175 (Ahmedabad - ITAT) wherein it was held as follows: “… 14.5 Assessee sold units to more than one person of a family which is not allowed as per section 80(IB) of the Act. This issue is also considered by the co- ordinate Benches of the Tribunal in the following cases as follows: 5. Om Swami Smaran Developers (P.) Ltd. v. ITO [2018] 90 taxmann.com 267 (Mum. - Trib.) "Section 80-IB of the Income-tax Act, 1961- Deductions - Profits and gains from industrial undertakings other than infrastructure development undertakings (Housing project) Assessment year 2011-12-Assessee, a developer, had developed a housing project and claimed deduction under section 80-1B(10) - Assessing Officer disallowed same on grounds that assessee had allotted three flats a single person, thus, violated conditions of section 80-1B(10)(f) which provides that more than one residential unit in a housing project cannot be sold to one person/individual - Whether merely because assessee had violated conditions of section 80-1B(10)(f) in respect of three flats, deduction under section 80-IB(10) could not be disallowed for entire housing project and, assessee was entitled to deduction proportionately in respect of flats which fulfilled all conditions of section 80-1B(10) - Held, yes [Para 8] [In favour of assessee]" 6. ITO v. Paras Builders 58 taxmann.com 286/69 SOT 82 (Pune - Trib.) "Section 80-IB of the Income-tax Act, 1961 - Deductions - Profits and gains from industrial undertakings other than infrastructure development undertakings (Housing project) - Assessment year 2007-08 - Assessee, engaged in business of construction, constructed a housing project against which it claimed deduction under section 80-1B(10) Assessing Officer disallowed deduction on ground that assessee had violated provisions of section 80- 18(10)(c) by amalgamating two row houses, covered area of which was more than 1500 sq. ft. which is condition stipulated in section 80- 1B(10) (c) Whether merely because assessee had violated provisions of section 80-18(10) (c) in respect of two units, deduction under section 80-1B(10) could not be denied in entirety and assessee was entitled to said deduction in respect of balance units which had been constructed as per conditions laid down in section 80-1B(10)(c)-Held, yes [Para 11] [In favour of assessee]" 14.6 Respectfully following the above decisions of the co-ordinate Benches of the Tribunal, the assessee cannot be denied the deduction u/s.80IB [10] of the Act on the entirety and the assessee is eligible for balance units which has been constructed as per conditions laid down in section 80IB[10][c] of the Act. Thereby this issue is set aside to the file of the Assessing Officer with a direction to grant the deduction after giving opportunity to the assessee. 8. Respectfully following the Co-ordinate Bench decision in assessee’s own case which is not reversed by the higher Forum, the ground no.1 raised by the Revenue is liable to be dismissed.
Ground no.2 is also covered against the Revenue in assessee’s own case for the Asst. Years 2011-12 and 2012-13 vide order dated 23-08-2023 in & others reported in [2023] 154 taxmann.com 594 (Ahmedabad - Trib.) wherein it was held as follows: “ Assessee initially filed its income tax return for asst year 2011-12, which was later revised due to merger of companies following High Court's judgment - Merger involved entities that were initially partnership firms, with land revaluation in 2008-09 - Upon conversion of these partnership firms into private limited companies on 23-9-2008, capital accounts (revaluation reserve) were transferred to 'Unsecured Loan' accounts held by shareholders - Subsequently, these converted companies were amalgamated with present assessee-company, and this amalgamation was effective from 1-4-2010 - Assessing Officer made adjustments to book profit under section 115JB for assessment years 2011- 12 and 2012-13 based on revaluation of lands - He invoked clause (J) of Explanation 1 to section 115JB(2), contending that increased land value should be added to book profit for tax calculation purposes - On appeal, Commissioner (Appeals) deleted addition, stating that revaluation reserve could not be reversed while computing book profit under section 115JB, and none of adjustments provided in Explanation to section 115JB applied - Additionally, it was noted that no revaluation reserve had been created in hands of assessee-company due to disposal or retirement of any asset and therefore, no adjustment was deemed necessary under section 115JB - Whether clause (J) in Explanation 1 to section 115JB(2), would be applicable from assessment year 2013-14 onwards only and Assessing Officer was not correct in invoking clause (J) of Explanation 1 and making adjustments in book profits on account of revaluation of lands in profit and loss account for assessment years 2011-12 and 2012-13 - Held, yes - Whether further lands after revaluation, at revised value were transferred
to companies which later merged to present assessee-company and assessee had followed Accounting Standard-14 as applicable to it under pooling of interests method and therefore, adjustments made by Assessing Officer in book profit was not in accordance with law and rightly deleted by Commissioner (Appeals) - Held, yes [Para 10] … 10. We have given our thoughtful consideration and perused the materials available on record. Prima facie, we are in agreement that clause 'J' in Explanation 1 to section 115JB of the Act, will be applicable from the Assessment Year 2013-14 onwards only. The A.O. is not correct in invoking clause 'J' of Explanation 1 and made adjustments in the book profits on account of revaluation of lands in the profit and loss account for the Assessment Years 2011-12 and 2012-13. Further the lands after revaluation, at the revised value were transferred to the companies which later merged to the present assessee company and the assessee has followed Accounting Standard-14 as applicable to it under the pooling of interests method. Therefore the adjustments made by the Assessing Officer in the book profit is not in accordance with law. Therefore the Ld. CIT(A) is correct in deleting the above addition/ adjustments made by the Assessing Officer. We do not find any merits in the grounds raised by the Revenue, therefore the same are hereby rejected. 9.1 There is no change in facts, except the amount of disallowance u/s.115JB in figures. Therefore, respectfully following the Co-ordinate Bench decision in assessee’s own case, which is not reversed by the Higher Forum, the ground no.2 raised by the Revenue is liable to be dismissed. In the result, the appeal filed by the Revenue in ITA No. 10. 597/Ahd/2023 is hereby dismissed. Now coming to the appeal filed by 11. the assessee. The brief facts is that the assessee company had taken loans of Rs.34,83,07,768/- from four group companies without charging any interest. On the other hand, the assessee’s company had taken loan from HUDCO amounting to Rs.8.65 crores on which interest of Rs.1,14,10,812/- was debited in its profit and loss accounts. As per the AO, the assessee could not establish the business expidency of giving loans to the group companies. However, the assessee-company has interest free funds of Rs.8,61,30,101/- consisting of share capital of Rs.1 crore, Reserve and Surplus of Rs.1,00,62,400/- and interest free unsecured loan of Rs.6,55,27,701/-. The assessee claimed to have received advances from customer amounting to Rs.5,05,50,317/- and sale proceed of the housing units of Rs.9,28,51,700/- However, the AO disallowed the interest of Rs.41,40,858/- on the basis that the share capital, reserve and surplus and interest free unsecured loans are mostly from revaluation of the land, which is nothing but a book-entry and the assessee has not provided any material evidence to show that interest bearing funds are not deployed for advancement of loans to the four parties.
Aggrieved against the addition, the assessee filed an appeal before the Ld.CIT(A), who has also confirmed the above addition and dismissed the appeal filed by the assessee by observing as follows: “… 6.2. I have considered the findings of the AO and arguments of the assessee. The assessee has not filed anything adverse against the findings of the AO that interest free funds represent revaluation amount and not any actual sum of money received by the assessee. The appellant has failed to demonstrate that loans given were out of interest free funds by filing cash flow and one to one nexus with loans given and source thereon. The claim of the appellant that it has sufficient interest free funds is found to be unacceptable for the reason that the same arises due to revaluation. Further, sale receipts on housing units and advances from customers have not been demonstrated to be deployed for giving loans. In view of above, it is held that the AO was justified in disallowing interest expenditure of Rs.41,40,858/- and the same is confirmed. The relevant grounds of appeal are dismissed. 13. Aggrieved against the same, the assessee is in appeal before us, raising the following Grounds of Appeal:
The Learned Commissioner of Income Tax (Appeals) has erred in law and on facts by confirming disallowance of interest expenditure of Rs.41,40,858/- by the learned Assessing Officer holding that the Appellant has transferred borrowed funds to group companies on which no interest is charged, despite the fact that the appellant had sufficient own funds and the amount of borrowed funds were not utilized for such purposes as alleged.
2. The Appellant, therefore, prays to delete the disallowance of Rs.41,40,858/- in respect of such interest expenditure made by the learned Assessing Officer and confirmed by the learned Commissioner of Income Tax (Appeals). 3. The Appellant reserves the right to add, alter, amend and/or withdraw any of the above Grounds of Appeal.
The Learned Counsel Shri Sanjay R Shah for the assessee submitted that the assessee has higher amount of interest free fund compared to the amount of interest free loans given to the Associate concerns. The amount of interest free funds available to the assessee is ₹6.55 crores (page number 15 of the paper book) which shows amount of unsecured loan in Schedule C at ₹6.55 crores and on page 9 of the paper book, the annual report at para 3 (c) shows that the loan taken from various parties are interest-free. Thus, interest free funds available is ₹6.55 crore. Besides this assessee has interest free advances received from customers of ₹ 5.05 crore (page 17 of paper book in schedule E). As against this, the interest free loan given is ₹3.48 crore only, as can be seen from page 17 of the paper book, wherein two amounts under schedule E of Rs.20.84 lakhs and Rs. 327.23 lakhs can be seen, which is totaling to ₹ 348.07 lakhs.
14.1 The Learned Counsel further submitted that similar kind of issues decided in favour of the in the case of Reliance Utilities and Power Ltd and Reliance Industries Ltd. In both the cases, the Hon’ble Courts have held that if interest free funds are more than interest free loans given, there is a presumption that such interest free loans have been given from interest-free funds available with the assessee. The LdCIT Appeal in the present case has confirmed the disallowance on the ground that the assessee has not been able to show the interest free funds have been utilised for giving interest free loans, but the ratio of the above decision clearly points out that when interest free funds are more than interest free loans given, it is to be presumed that interest-free loans have been given out of interest free funds and therefore there is no need to prove anything further. 14.2 The Learned Counsel further submitted that another observation of the AO and CIT Appeal while confirming the disallowance is that interest-free fund has arisen due to revaluation, which is also incorrect, as it can be seen from page 15 of the paper book that the amount of interest free funds available to the assessee is Rs.6.55 crore has nothing to do with the revaluation done in the past in respect of the erstwhile companies, which merged with the company.
14.3 Learned Counsel brought to our kind attention for the earlier assessment year 2009–10 on similar facts were available and the Revenue had not made any such disallowance, which can be seen from ITAT order attached at page number 102 of the paper book. This clearly shows that there was no such issue contested by the department or the assessee before this Tribunal.
14.4 Learned Counsel further relied upon Jurisdictional High Court judgement in the case of ACIT -Vs- Gujarat Narmadha Valley Fertilisers Company Ltd, [2014] 42 taxmann.com, 579 and CIT -Vs- Raghuvir synthetics Ltd, [2013] 36 taxmann.com 275.
14.5 The Learned Counsel further submitted that it can be seen the loans obtained from HUDCO of ₹ 8.65 crore have been utilised for the purpose of business, which can be justified from the fact that investment of the assessee in work-in- progress is at ₹12.09 crores, which was utilised for the purpose of business of the assessee in its entirety and engaged in real estate business. Therefore the disallowance confirmed by the Ld CIT Appeal is label to be deleted.
Per Contra the Ld. Sr DR appearing for the Revenue strongly supported the orders passed by the lower authorities and requested to uphold the same.
We have given our thoughtful consideration and perused the materials available on record, Paper Books and case laws filed by the assessee. The interest expenditure of Rs.41,40,858/= made by the lower authorities was mainly on the ground that the assessee has sufficient interest free funds is found to be unacceptable for the reason that the same arises due to revaluation of assets only. The assessee clarified from page 15 of the paper book that the amount of interest free funds available to the assessee is Rs.6.55 crore has nothing to do with the revaluation done in the past in respect of the erstwhile companies, which merged with the assessee company. Further for the earlier assessment year 2009–10 on similar facts where the Revenue had not made any such disallowance, which can be seen from the decision of the Co- ordinate Bench [which was Authored by the present Judicial Member] at page number 102 of the paper book. Therefore, when there is no change in facts with that of the earlier assessment year, the lower authorities are not correct making disallowance for the present asst. year and the same is liable to be deleted.
It is well settled principle of law that when interest free funds are more than interest free loans given, it is to be presumed that interest-free loans have been given out of interest free funds and therefore there is no need to prove anything further by the assessee as held by the Jurisdictional High Court judgement in the case of Gujarat Narmadha Valley Fertilizers Company Ltd, [cited supra] where it was held that where there were sufficient funds available with assessee company on which no interest was paid and out of which loans and advances to associate companies could be made, the AO was not justified to disallow claim of interest on borrowed funds. Similarly in the case of Raghuvir Synthetics Ltd [cited supra] Jurisdictional High Court held that where huge funds were available without any interest liability with the assessee and there was no evidence to hold that borrowed money was utilized for purpose of advance to sister concerns, no disallowance was warranted. Respectfully following the above judicial precedents, we are of the considered view the disallowance made by the lower authorities are liable to be deleted. Thus the grounds of appeal raised by the assessee are hereby allowed.
In the result the appeal filed by the assessee in is allowed.
In the combined result, the appeal of the Revenue is dismissed whereas the appeal of the assessee is allowed.
Order pronounced in the open court on 29-05-2024