ACIT, New Delhi v. M/s. Deutsche Motoren Pvt. Ltd.,, Delhi

ITA 1216/DEL/2010 | 2006-2007
Pronouncement Date: 29-02-2012 | Result: Dismissed

Appeal Details

RSA Number 121620114 RSA 2010
Assessee PAN AACCA4905H
Bench Delhi
Appeal Number ITA 1216/DEL/2010
Duration Of Justice 1 year(s) 11 month(s) 11 day(s)
Appellant ACIT, New Delhi
Respondent M/s. Deutsche Motoren Pvt. Ltd.,, Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 29-02-2012
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 29-02-2012
Date Of Final Hearing 07-02-2012
Next Hearing Date 07-02-2012
Assessment Year 2006-2007
Appeal Filed On 18-03-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI A.N. PAHUJA ITA NOS. 1216/DEL/2010 & 3696/DEL/11 ASSTT. YRS: 2006-07 & 2007-08 ACIT CIR. 10(1) VS. M/S DEUTSCHE MOTOREN PVT. LTD. NEW DELHI. H-5/B-1 MOHAN COOP. INDL. AREA MATHURA ROAD NEW DELHI. PAN/GIR NO. AACCA4905H (APPELLANT) ( RESPONDENT ) APPELLANT BY : SHRI PRADEEP KUMAR SR. DR RESPONDENT BY : SHRI SANJEEV KAPOOR CA O R D E R PER R.P. TOLANI J.M : THESE ARE REVENUES APPEALS AGAINST SEPARATE ORDER S OF CIT(A) RELATING TO A.Y. 2006-07 & 2007-08. BOTH THE APPEAL S ARE HEARD TOGETHER AND BEING DISPOSED OF BY A CONSOLIDATED ORDER FOR THE S AKE OF CONVENIENCE. RESPECTIVE GROUNDS ARE AS UNDER: ITA 1216/DEL/10 (AY 2006-07) : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE ORDER OF THE CIT(A) IS WRONG PERVERSE ILLEGAL AND AGAINST THE PROVISIONS OF LAW WHICH IS LIABLE TO BE SET ASIDE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A)HAS ERRED IN DELETING THE ADDITION OF RS. 10 37 251/- MADE BY THE AO ON ACCOUNT OF CAPITALIZATION OF EXPE NSES CLAIMED AS REVENUE EXPENSES. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A)HAS ERRED IN DELETING THE ADDITION OF RS. 29 22 195/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF 50% OF THE 2 INTEREST ON LOAN AFTER TREATING THE INCOME OF RS. 5 0 00 000/- AS INCOME FROM OTHER SOURCES. ITA NO. 3696/DEL/11 ( A.Y. 2007-08) : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRONEOUSLY DELETED THE ADDITION OF RS. 18 00 000/- MADE BY THE ASSESSING OFFICER ON ACCOUN T OF DISALLOWANCE OF DEDUCTION U/S 24(A) OF THE I.T. ACT 1961 CLAIMED BY THE ASSESSEE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A) HAS ERRONEOUSLY DELETED DISALLOWANCE ON ACCOUNT OF INTEREST OF RS. 27 80 280/- BY TREATING 50% OF CLAI M OF SUCH INTEREST ON BORROWED LOAN AS BUSINESS EXPENSES AS AGAINST THE SAME BEING DISALLOWED BY THE AO AND ALLOWED TO BE CAPITALIZED. 2. BRIEF FACTS ARE: THE ASSESSEE WAS EARLIER ENGAGE D IN THE BUSINESS OF DISTRIBUTION OF TATA BRAND VEHICLES AND IN THIS YEA R BMW BRAND OF VEHICLES. THE ASSESSEE CLAIMED THAT IT HAS STARTED BMW OPERAT IONS IN OCTOBER 2005 AND RECEIVED ADVANCES FROM BUYERS OF THE CARS BY TH E YEAR ENDING 31-3-2006. 2.1. AO HOWEVER HELD THAT THE BUSINESS IN RESPECT OF BMW VEHICLE DISTRIBUTION HAD COMMENCED PARTIALLY DURING THE YEA R AND THAT TOO AFTER 15-2- 2006. AO THEREAFTER HELD THAT 25% OF TOTAL EXPENDIT URE OF RS. 10 37 251/- WAS TO BE CAPITALIZED IN THIS YEAR BEING PRIOR TO THE COMMENCEMENT OF BUSINESS. 2.2. AGGRIEVED ASSESSEE PREFERRED FIRST APPEAL BEF ORE THE CIT(A) WHERE ASSESSEE REITERATED ITS STAND THAT IT WAS EARLIER ENGAGED IN THE BUSINESS OF DEALING TATA BRAND OF VEHICLES AND DURING THE PERIO D UNDER CONSIDERATION SWITCHED IT TO BMW BRAND OF VEHICLES THE ASSESSEE HAD ADDED A NEW PRODUCT IN OLD BUSINESS. 3 2.3. CIT(A) ON VERIFICATION OF THE RECORD ALLOWED THE EXPENDITURE BY FOLLOWING OBSERVATIONS: AFTER GOING THROUGH THE SUBMISSION AND ASSESSMENT ORDER IT IS QUITE CLEAR THAT THE APPELLANT HAS SET UP HIS BUSI NESS IN OCTOBER 2005 AND RECEIVED ADVANCES FROM THE SOME BUYERS OF CARS DURING THE A.Y. 06-07. IT IS FURTHER NOTICED THAT C ONSIGNMENT WAS RECEIVED ON 18-01-2006. IT ALSO NOTICED THAT CO MPANY ALSO SENT ITS STAFF TO THE OFFICE OF THE BMW AT SINGAPOR E AND KUALUMPUR FOR GETTING THE TECHNICAL AND MARKETING T RAINING. THE DELHI HIGH COURT DECISIONS IN THE CASES OF CIT VS. HUGHES ESCORTS COMMUNICATIONS LTD. (2009) 311 ITR 253 AND CIT VS. WHIRLPOOL OF INDIA LTD. [DELHI HC ORDER DT: 19-8-20 09] IS ALSO RELEVANT HERE AS THEY STATE THAT EXPENSES INCURRED AFTER SET UP OF BUSINESS BUT BEFORE COMMENCEMENT OF BUSINESS ARE AL LOWABLE EXPENSES. 2.4. APROPOS SECOND ISSUE PERTAINS TO RENTAL INCOME FROM LEASING OUT OF COMMERCIAL PREMISES. THE ASSESSEE WAS OWNER OF A CO MMERCIAL PREMISE WITH LAND APPURTENANT THERETO WHICH IS USED FOR PAR KING OF THE CARS. A PART OF THIS COMMERCIAL PROPERTY WAS LET OUT TO AN ASSOCIA TE CONCERN AND PART WAS USED BY THE ASSESSEE FOR ITS BUSINESS PURPOSE. THIS COMMERCIAL PROPERTY WAS ACQUIRED BY THE ASSESSEE OUT OF BORROWED FUNDS ON WHICH INTEREST WAS PAID. THUS THE PROPERTY WAS PARTIALLY USED FOR BUSINESS PURPOSE OF THE ASSESSEE AND PARTIALLY LET OUT. THE RENT SO RECEIVED BY THE ASSESSEE WAS OFFERED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE AMOUNT OF INTEREST ON BORROWED CAPITAL WAS DISTRIBUTED IN PROPORTION. ASS ESSEE WORKED OUT THE PART OF INTEREST ATTRIBUTABLE TO THE LET OUT PORTION WH ICH WAS CLAIMED AGAINST THE RENTAL INCOME AND THE REMAINING PART WAS ATTRIBUTAB LE BY THE ASSESSEE FOR ACQUIRING A BUSINESS ASSET AND WAS THUS CLAIMED IN THE P&L A/C AGAINST BUSINESS INCOME. AO HOWEVER WAS OF THE VIEW THAT THE LEASE OUT PREMISES WERE NOT A PORTION OF THE BUILDING BUT OPEN PLOT WH ICH WAS USED FOR PARKING 4 OF THE VEHICLES THEREFORE LEASE RENT WAS NOT IN T HE NATURE OF HOUSE PROPERTY INCOME BUT INCOME FROM OTHER SOURCES AND THE STATUT ORY DEDUCTION UNDER HOUSE PROPERTY INCOME WERE DENIED. BESIDES AO OBSE RVED THAT THE INTEREST PAYABLE IN RESPECT OF BORROWINGS MADE FOR ACQUISITI ON OF THIS PROPERTY 50% THEREOF WAS ALLOWED AGAINST THE LEASE INCOME AND 50 % PERTAINING TO THE PORTION ATTRIBUTABLE TO ASSESSEES OWN USER OF BUSI NESS PREMISES OF THE ASSET WAS DIRECTED TO BE CAPITALIZED TO THE COST OF THE B UILDING. 2.5. AGGRIEVED ASSESSEE PREFERRED FIRST APPEAL BEF ORE THE CIT(A) WHO ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING OBSE RVATIONS: THE AO HAS TREATED THE RENTAL INCOME FROM THE PROP ERTY LOCATED AT MATHURA ROAD AS INCOME FOR OTHER SOURCES ON THE GROUND THAT APPELLANT HAS GIVEN ONLY THE PLOT OF L AND ON RENT BUT NOT THE BUILDING. IT IS NOTICED FROM THE SUBMIS SION GIVEN BY THE APPELLANT THAT THE PROPERTY GIVEN ON RENT CONSI ST OF BASEMENT GROUND FLOOR AND FIRST FLOOR WAS GIVEN ON RENT BY W AY OF RENT LEASE DEED DATED 1 JUNE 2003. IN MY OPINION AS THE BUILDING ALONG WITH THE COMPOUND HAS BEEN GIVEN ON RENT AND IT SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM PROPERTY AND THERE IS NO REASON AS TO WHY SAID RENT INCOME CAN BE ASSESSE D AS INCOME FROM OTHER SOURCES. THE APPEAL OF APPELLANT IS ALLO WED ON THIS GROUND. 2.6. APROPOS ALLOWABILITY OF 50% INTEREST ON BORROW ED LOAN FOR A.Y. 2007-08 CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE B Y OBSERVING AS UNDER: 4.2. I HAVE CONSIDERED THE SUBMISSIONS MADE BY TH E AUTHORIZED REPRESENTATIVE OF THE APPELLANT COMPANY. EVEN IF ONLY 50% OF THE INTEREST PAID ON BORROWED FUNDS FOR ACQUISITION OF THE PROPERTY IS ALLOWABLE U/S 24(B) AS DEDUCTION FROM THE INCOME FROM HOUSE PROPERTY THE BALANCE 50% OF THE INTEREST PAID ON THE BORROWED FUNDS WHICH IS ATTRIBUTABLE T O THE PORTION OF THE PROPERTY BEING USED BY THE APPELLANT ITSELF FOR ITS BUSINESS IS AN ALLOWABLE BUSINESS EXPENDITURE. THE LD. CIT(A)-XIII NEW DELHI WHILE ADJUDICATING THE APPE LLANTS 5 APPEAL FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEA R 2006-07 HAS GIVEN THE FINDING THAT THE BUSINESS OF THE APPE LLANT HAD COMMENCED IN ASSESSMENT YEAR 2006-07 AND THAT EXPEN SES CLAIMED BY THE APPELLANT WERE ACCORDINGLY TO BE ALL OWED. SINCE THE BUSINESS OF THE APPELLANT HAS COMMENCED LAST YE AR ITSELF AND 50% OF THE BUILDING FOR THE ACQUISITION OF WHI CH LOAN WAS TAKEN BY THE APPELLANT WAS BEING USED FOR THE APPE LLANTS OWN BUSINESS I AM OF THE VIE THAT 50% OF THE INTEREST ON THIS LOAN HAS TO BE ALLOWED AS A BUSINESS EXPENDITURE (OTHER 50% BEING CLAIMED BY THE APPELLANT AND ALLOWED BY THE ASSESSI NG OFFICER AS DEDUCTION FROM INCOME FROM HOUSE PROPERTY). THESE G ROUNDS OF APPEAL ARE DISPOSED OF ACCORDINGLY. 3. LD. DR RELIED ON THE ORDER OF AO. 4. LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT THE A SSESSEE WAS ALREADY INTO BUSINESS OF SELLING AND DISTRIBUTING AUTOMOBIL E VEHICLES. THUS IT WAS ALREADY IN THE BUSINESS OF AUTOMOBILE DISTRIBUTION. BY MERE CHANGE IN THE SELLING BRAND OF VEHICLES FROM TATA TO BMW THE ASS ESSEE DID NOT ENTER INTO A NEW BUSINESS. 4.1. EVEN IF THE PROPOSITION IS STRETCHED IT CAN B E SAID THAT THE ASSESSEE HAD ALREADY SET UP ITS BUSINESS AND THE BMW BRAND W AS COMMENCED LATER. THE ASSESSEES BUSINESS BEING IN OPERATION SINCE EA RLIER THERE IS NO JUSTIFICATION IN HOLDING THAT THE ASSESSEES BUSINE SS STARTED IN FEBRUARY 2006 ON ASSUMPTIONS. THE ORDER OF CIT(A) IS PERFECTLY JU STIFIED. 4.2. APROPOS OTHER GROUND LD. COUNSEL CONTENDS THA T THERE IS NO DISPUTE THAT THE IMPUGNED PROPERTY WAS A COMMERCIAL PROPERT Y WITH LAND APPURTENANT THERETO. PART WAS UTILIZED BY THE ASSES SEE AND PART WAS LET OUT ON RENT. CIT(A) BY FACTUAL OBSERVATIONS HAS HELD THAT PART OF BUILDING AND OPEN PLOT WAS LET OUT WHICH IS APPURTENANT TO THE PART OF THE LAND. THE PLOT IN QUESTION IS INTEGRAL PART OF THE HOUSE PROPERTY AND CANNOT BE TREATED AS A 6 SEPARATE AND DISTINCT ASSET SEGREGATING IT FROM TH E HOUSE PROPERTY. THEREFORE THE INCOME HAS BEEN RIGHTLY TREAT ED AS RENTAL INCO ME BY THE CIT(A). 4.3. APROPOS INTEREST INCOME LD. COUNSEL CONTENDS THAT IT IS TRITE LAW THAT THE INTEREST PAID BY THE ASSESSEE FOR ACQUIRING A C OMMERCIAL ASSET IS ALLOWABLE AS BUSINESS EXPENDITURE U/S 36 OF THE I.T . ACT. THEREFORE THERE IS ABSOLUTELY NO JUSTIFICATION FOR CAPITALIZING PART OF THE INTEREST TOWARDS COST OF THE BUILDING. ORDER OF CIT(A) WAS RELIED ON. 5. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE ENTIRE MATERIAL AVAILABLE ON RECORD. IT HAS NOT BEEN DISPUTED THAT ASSESSEE WAS IN THE AUTOMOBILE BUSINESS EARLIER IN TATA BRAND OF VEHICL ES AND NOW IN BMW BRAND OF VEHICLES. MERE SWITCHING OF BRAND OF VEHIC LE CANNOT BE HELD TO BE COMMENCEMENT OF NEW BUSINESS. THEREFORE WE FIND NO INFIRMITY IN THE ORDER OF CAIT(A) IN DELETING THE ADDITION IN THE CAPITALI ZATION OF EXPENSES. FIRST GROUND OF THE ASSESSEE IS DISMISSED. 5.1. APROPOS SECOND ISSUE ALSO WHAT HAS BEEN LET OU T BY THE ASSESSEE IS PART OF THE BUILDING ALONG WITH THE LAND APPURTENAN T THERETO UTILIZED BY THE LESSEE FOR PARKING OF THE VEHICLES. THE TERM HOUSE PROPERTY INCLUDES A BUILDING WHICH IN TERM MEANS CONSTRUCTION AND LAND APPURTENANT THERETO. IN VIEW THEREOF WE SEE NO JUSTIFICATION IN ASSUMING T HAT THE LEASE OUT PROPERTY WAS NOT HOUSE PROPERTY AND TO TREAT THE INCOME UNDE R THE HEAD INCOME FROM OTHER SOURCES. IN OUR CONSIDERED VIEW CIT(A) HAS RIGHTLY HELD THE INCOME TO BE HOUSE PROPERTY INCOME. ORDER OF CIT(A) ON THE ISSUE IS UPHELD. 5.2. APROPOS THE THIRD ISSUE I.E. CAPITALIZATION OF 50% OF INTEREST FOR A.Y. 2006-07 REVENUE IN GROUND NO. 3 HAS CHALLENGED THE CIT(A)S DELETION OF 50% OF INTEREST. LD. COUNSEL FOR THE ASSESSEE CONTE NDS THAT FACTS OF THE CASE 7 ON THIS ISSUE FOR A.Y. 2006-07 ARE SIMILAR TO A.Y. 2007-08. AFTER GOING THROUGH THE CIT(A)S ORDER FOR A.Y. 2006-07 WE FIN D THAT HE HAS ONLY REPRODUCED THE ASSESSEES CONTENTIONS ABOUT THE JUS TIFICATION FOR ALLOWABILITY OF THE ENTIRE INTEREST AND HAS NOT GIVEN ANY FINDI NG OR CONCLUSION ON THIS ISSUE. THUS AS FOR A.Y. 2006-07 THERE IS NO FINDIN G OF CIT(A) ON THIS ISSUE THIS ISSUE DOES NOT ARISE FROM THE ORDER OF THE CIT (A). CONSEQUENTLY THIS ISSUE RAISED BY THE REVENUE IN GROUNDS OF APPEAL IS DISMISSED AS SUCH. 5.3. HOWEVER IN THE ORDER FOR A.Y. 2007-08 THE CI T(A) HAS GIVEN DETAILED FINDINGS ON THIS ISSUE ALLOWING THE CLAIM OF THE ASSESSEE. THE INCOME TAX ACT BY SPECIFIC PROVISION OF SEC. 36 AL LOWS THE INTEREST ATTRIBUTABLE TO ACQUISITION OF A BUSINESS ASSET AS A REVENUE EXPENDITURE OF THE YEAR IN WHICH IT IS INCURRED. CONSEQUENTLY WE SEE NO INFIRMITY IN THE ORDER OF CIT(A) DELETING THIS DISALLOWANCE. 6. IN THE RESULT BOTH THE APPEALS FILED BY THE REV ENUE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 29-02-2012. SD/- SD/- ( A.N. PAHUJA) ( R.P. TOLANI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:_29-02-2012. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR