ACIT RG 9(1), MUMBAI v. KISHOR BAJAJ, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A MUMBAI BEFORE SHRI R.S.SYAL AM AND SMT.ASHA VIJAYARAGHAVA N JM ITA NO.1308/MUM/2009 : ASST.YEAR 2005-2006 SHRI KISHOR BAJAJ 501 KRYSTAL 206 N.S.PATKAR MARG (WATERFIELD ROAD) BANDRA (WEST) MUMBAI 400 050. PAN : AAPPB3650G. VS. THE ASSTT.COMMISSIONER OF INCOME-TAX CIRCLE 9(1) MUMBAI. (APPELLANT) (RESPONDENT) ITA NO.1587/MUM/2009 : ASST.YEAR 2005-2006 THE ASSTT.COMMISSIONER OF INCOME-TAX CIRCLE 9(1) MUMBAI. VS. SHRI KISHOR BAJAJ 501 KRYSTAL 206 N.S.PATKAR MARG (WATERFIELD ROAD) BANDRA (WEST) MUMBAI 400 050. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SRAVAN KUMAR ASSESSEE BY : SHRI V.C.SHAH O R D E R PER R.S.SYAL AM : THESE TWO CROSS APPEALS - ONE BY THE ASSESSEE AND THE OTHER BY THE REVENUE ARISE OUT OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 18.12.2008 IN RELATION TO THE ASSESSMENT YEAR 2005- 2006. 2. THE ONLY GROUND RAISED IN ASSESSEES APPEAL IS A GAINST THE CONFIRMATION OF DISALLOWANCE OF RS.8 09 344 BEING INTEREST PAID ON BORROWING. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE CLAIMED DED UCTION OF INTEREST AMOUNTING TO RS.8 09 344 AGAINST THE INCOME FROM HOUSE PROPERTY. ON BEING CALLED UPON TO EXPLAIN THE JUSTIFICATION FOR DEDUCTION OF SUCH INT EREST INCOME THE ASSESSEE STATED THAT SUCH INTEREST PAID BY HIM PERTAINED TO BORROWI NG UTILIZED FOR THE BUSINESS PURPOSE. IT WAS CLAIMED THAT SUCH INTEREST BE ALLOW ED AS DEDUCTION AGAINST THE PROPERTY INCOME. HOWEVER NO DETAIL WAS FILED SHOWI NG THE AMOUNT OF SUCH BORROWING AND THEIR UTILIZATION TOWARDS THE ACQUISI TION OR RENOVATION OR REPAIR ETC. ITA NOS.1308 & 1587/MUM/2009 SHRI KISHOR BAJAJ. 2 OF PROPERTY. IN THE ABSENCE OF ANY JUSTIFICATION F OR ALLOWING OF SUCH DEDUCTION OF INTEREST AGAINST THE HOUSE PROPERTY INCOME U/S.24(B ) THE ASSESSING OFFICER HELD THAT THIS PART OF INTEREST WAS NOT ALLOWABLE. NO RE LIEF WAS ALLOWED IN THE FIRST APPEAL. 3. HAVING HEARD BOTH SIDES AND PERUSED THE RELEVANT MATERIAL ON RECORD IT IS NOTED THAT THE ASSESSEE APART FROM EARNING RENTAL INCOME WAS ALSO ENGAGED IN TAILORING BUSINESS AND FINANCING BUSINESS. DEDUCTIO N WAS CLAIMED FOR RS.8.09 LAKHS AGAINST INCOME FROM HOUSE PROPERTY. IT IS OBVIOUS THAT DEDUCTION TOWARDS INTEREST CAN BE ALLOWED AGAINST PROPERTY INCOME ONLY IF THE PROPERTY IS ACQUIRED CONSTRUCTED REPAIRED RENEWED OR RECONSTRUCTED WIT H BORROWED CAPITAL. THIS IS PRECISELY THE PRESCRIPTION OF SECTION 24(B). ONUS I S ALWAYS UPON THE ASSESSEE TO SHOW THAT THE FUNDS BORROWED IN RESPECT OF WHICH I NTEREST WAS PAID WERE UTILIZED FOR ACQUISITION CONSTRUCTION OR REPAIRING ETC. OF THE BUILDING. FROM THE FACTS OF THE CASE IT IS NOTED THAT THE ASSESSEE APART FROM CLA IMING DEDUCTION OF INTEREST AGAINST PROPERTY INCOME ALSO CLAIMED DEDUCTION FOR INTERES T AGAINST BUSINESS INCOME AS WELL. IN THE ABSENCE OF THE ASSESSEE HAVING FILED A NY DETAIL ABOUT THE UTILIZATION OF BORROWED FUNDS FOR ACQUISITION REPAIRING OR CONSTR UCTION ETC. OF THE BUILDING NO DEDUCTION COULD HAVE BEEN ALLOWED FOR INTEREST U/S .24(B). THE LEARNED A.R. STATED THAT THE ASSESSING OFFICER DID NOT ALLOW ANY OPPORT UNITY IN THIS REGARD AS NO QUESTION WAS PUT ABOUT THE DETAIL OF FUNDS UTILIZED FOR THE PURPOSE OF BUILDING AND IT WAS ONLY FROM THE ASSESSMENT ORDER THAT THE DISALLO WANCE WAS NOTED. IN OUR CONSIDERED OPINION THE ENDS OF JUSTICE WOULD MEET ADEQUATELY IF THE IMPUGNED ORDER ON THIS ISSUE IS SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF A.O. WE ORDER ACCORDINGLY AND DIRECT HIM TO DECIDE THIS ISS UE AFRESH AS PER LAW AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. NEEDLESS TO SAY IT WILL BE THE OBLIGATION OF THE ASSESSEE TO LEAD POSI TIVE EVIDENCE FOR ESTABLISHING BEYOND DOUBT THAT THE FUNDS IN RESPECT OF WHICH IN TEREST WAS CLAIMED AGAINST PROPERTY INCOME WERE IN FACT UTILIZED FOR ACQUIRIN G CONSTRUCTING REPAIRING OR RECONSTRUCTING ETC. OF THE BUILDING. ITA NOS.1308 & 1587/MUM/2009 SHRI KISHOR BAJAJ. 3 4. GROUND NO.1 OF THE REVENUES APPEAL IS AGAINST T HE DELETION OF ADDITION OF RS.2 93 333 BEING 8% OF THE INTEREST FREE DEPOSIT OF RS.40 LAKHS MADE TO THE ANNUAL RENT OF THE HOUSE PROPERTY. THE FACTS APROPO S THIS GROUND ARE THAT THE ASSESSEE RECEIVED INTEREST FREE DEPOSITS OF RS.40 L AKHS FROM M/S.BLUE WATER HOSPITALITY PRIVATE LIMITED TO WHOM SOME PROPERTY WAS GIVEN ON RENT OF RS.75 LAKHS PER ANNUM. THE ASSESSING OFFICER CONSIDERIN G THE PROVISIONS OF SECTION 23(1) CAME TO THE CONCLUSION THAT THE INTEREST ON SUCH INTEREST FREE DEPOSIT WAS LIABLE TO BE INCLUDED IN THE GROSS RENT DECLARED BY THE ASSESSEE. BY APPLYING 8% RATE ON THE DEPOSITS OF RS.40 LAKHS FOR 11 MONTHS THE GROSS RENT WAS COMPUTED AT RS.77 93 333 (75 00 000 + 2 93 333). IN THE FIRST A PPEAL THE LEARNED CIT(A) DELETED THE ADDITION OF RS2 93 333. 5. HAVING HEARD BOTH SIDES AND PERUSED THE RELEVANT MATERIAL ON RECORD IT IS NOTED THAT THE PROPERTY IN QUESTION WAS LET OUT ON ANNUAL RENT OF RS.75 LAKHS. AS AGAINST THAT A DEPOSIT OF RS.40 LAKHS WAS RECEIVED BY THE ASSESSEE. IT IS CUSTOMARY TO HAVE ADVANCE RENT RANGING FROM ONE MONTH EXTENDI NG UPTO ONE YEAR. THIS ADVANCE RENT IS TAKEN SO THAT THE TENANT DOES NOT V ACATE THE PROPERTY WITHOUT NOTICE OR TO ENSURE THAT THE LANDLORD IS SECURE FOR ANY DA MAGE CAUSED TO BE PROPERTY BY THE TENANT. INTEREST ON SUCH TYPE OF DEPOSIT CANNOT BE CONSIDERED AS A COMPENSATION FOR THE LOWER RENT WHICH MAY MERIT INCLUSION IN THE AN NUAL VALUE OF PROPERTY. THIS TYPE OF DEPOSIT HAS TO BE UNDERSTOOD IN CONTRADISTI NCTION TO THE INTEREST FREE DEPOSIT WHICH IS COMPARATIVELY QUITE LARGE WHEN SEEN IN THE LIGHT OF THE SETTLED RENT. ADVERTING TO THE FACTS OF THE INSTANT CASE WE FIND THAT THE INTEREST FREE SECURITY IS ONLY ABOUT SIX MONTHS RENT WHICH CANNOT BE CONSID ERED AS COMPENSATION FOR THE LOWER RENT. UNDER THESE CIRCUMSTANCES WE ARE OF TH E CONSIDERED OPINION THAT THE LEARNED CIT(A) WAS JUSTIFIED IN EXCLUDING SUM OF RS .2.93 LAKHS FROM THE ANNUAL RENT OF RS.75 LAKHS. THIS GROUND IS NOT ALLOWED. ITA NOS.1308 & 1587/MUM/2009 SHRI KISHOR BAJAJ. 4 6. THE ONLY OTHER GROUND IS AGAINST THE DELETION OF ADDITION OF RS.20 LAKHS BEING WRITE BACK OF LIABILITY TO THE CAPITAL ACCOUN T. FROM PAGE 10 PARA 7 OF THE ASSESSMENT ORDER IT IS NOTED THAT THE ASSESSEE CR EDITED A SUM OF RS.20 LAKHS TO HIS CAPITAL ACCOUNT AGAINST THE BALANCE OUTSTANDING IN THE NAME OF KECI SETH & SONS. ON BEING CALLED UPON TO EXPLAIN THE JUSTIFICATION O F THIS CREDIT THE ASSESSEE STATED THAT IT WAS AN OLD BALANCE WHICH HE WANTED TO PAY B ACK BUT THE PARTY WAS NOT TRACEABLE AND EVENTUALLY THIS AMOUNT WAS CREDITED T O THE ASSESSEES CAPITAL ACCOUNT. IN THE ABSENCE OF ANY DETAIL FILED BY THE ASSESSEE TO SUBSTANTIATE THIS CLAIM THE A.O. MADE ADDITION OF RS.20 LAKHS. THE LEARNED CIT(A) DE LETED THIS ADDITION BY OBSERVING THAT THE ASSESSEE HAD TAKEN A PERSONAL LO AN MANY YEARS EGO AND THE SAME WAS CREDITED TO THE CAPITAL ACCOUNT AS IT WAS NOT P AYABLE. THIS BEING A CAPITAL RECEIPT WAS HELD TO BE NOT INCLUDIBLE IN THE INCOME OF THE ASSESSEE. IN COMING TO THIS CONCLUSION THE LEARNED CIT(A) ALSO CONSIDERED COPIES OF BALANCE SHEET FOR THREE YEARS AND OPINED THAT NO INTEREST WAS PAID ON THIS BORROWING. 7. HAVING HEARD BOTH SIDES AND PERUSED THE RELEVANT MATERIAL ON RECORD IT IS NOTED THAT THE ASSESSEE CREDITED A SUM OF RS.20 LAK HS TO HIS CAPITAL ACCOUNT CLAIMING THAT THE SAID AMOUNT WAS NOT PAYABLE. THE LEARNED CIT(A) DELETED THIS ADDITION ON THE STRENGTH OF BALANCE SHEETS FILED BY THE ASSESSEE FOR THE LAST THREE YEARS INDICATING THAT THIS AMOUNT WAS OUTSTANDING. HOWEVER IT IS SEEN THAT NO SUCH EXPLANATION WAS GIVEN OR ANY BALANCE SHEETS OF EARL IER YEARS FILED BEFORE THE A.O. TO SHOW THE EXISTENCE AND NATURE OF SUCH LOAN. THUS IT IS CLEAR THAT THE LD. CIT(A) DELETED THE ADDITION BY CONSIDERING FRESH MATERIAL AND EXPLANATION FOR THE FIRST TIME BEFORE HIM WITHOUT GIVING OPPORTUNITY TO THE AO TO CONSIDER THE RELEVANT OF THIS MATERIAL QUA THE ADDITION. UNDER THE GIVEN CIRCUMSTANCES WE SET ASIDE THE IMPUGNED ORDER AND RESTORE THE MATTER TO THE FILE O F A.O. FOR TAKING A FRESH DECISION AS PER LAW ON THIS ISSUE AFTER ALLOWING A REASONABL E OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. NEEDLESS TO SAY THE ASSESSEE WILL BE AT LIBERTY TO PLACE ANY FRESH MATERIAL BEFORE THE AO IN HIS SUPPORT IN FRESH PROC EEDINGS. ITA NOS.1308 & 1587/MUM/2009 SHRI KISHOR BAJAJ. 5 8. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES AND THAT OF THE REVENUE IS PARTLY ALLOWED FOR STATISTIC AL PURPOSES. ORDER PRONOUNCED ON THIS 4 TH DAY OF FEBRUARY 2011. SD/- SD/- (ASHA VIJAYARAGHAVAN) (R.S.SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : 4 TH FEBRUARY 2011. DEVDAS* COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) - IX MUMBAI. 5. THE DR/ITAT MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI.