M/s K.D. Electrotech Overseas India Pvt. Ltd., New Delhi v. ITO, New Delhi

ITA 3335/DEL/2011 | 2003-2004
Pronouncement Date: 19-11-2014 | Result: Allowed

Appeal Details

RSA Number 333520114 RSA 2011
Assessee PAN AAACK3720C
Bench Delhi
Appeal Number ITA 3335/DEL/2011
Duration Of Justice 3 year(s) 4 month(s) 26 day(s)
Appellant M/s K.D. Electrotech Overseas India Pvt. Ltd., New Delhi
Respondent ITO, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 19-11-2014
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted D
Tribunal Order Date 19-11-2014
Date Of Final Hearing 10-11-2014
Next Hearing Date 10-11-2014
Assessment Year 2003-2004
Appeal Filed On 23-06-2011
Judgment Text
ITA NO. 3335/ DEL/ 2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI H.S. SIDHU JUDICIAL MEMBER AND SHRI T.S. KAPOOR ACCOUNTANT MEMBER I.T.A. N O. 3335/DEL/2011 A.Y. : 2003 - 04 M/S KD ELECTROTECH OVERSEAS INDIA PVT. LTD. B - 59 OKHLSA INDUSTRIAL AREA PHASE - I NEW DELHI (PAN: AAACK3720C) VS. ITO WARD 5(1) CR BLDG. I.P. ESTATE NEW DELHI 110 002 (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. V.P. GUPTA ADV. DEPARTMENT BY : SH. GAURAV DUDEJA SR. DR DATE OF HEARING : 10 - 11 - 2014 DATE OF ORDER : 19 - 11 - 2014 ORDER PER H.S. SIDHU : J M THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) - VIII NEW DELHI DATED 27 . 5 .201 1 P ERTAINING TO ASSESSMENT YEAR 2003 - 04 AND FOLLOWING GROUNDS HAVE BEEN RAISED. 1. THAT THE ORDER PASSED BY THE LD. CIT(A) DATED 27.5.2011 IS BAD IN LAW AND WRONG ON FACT. ITA NO. 3335/ DEL/ 2011 2 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT (A) WHILE C OMPUTING PROPERTY INCOME HAS ERRED IN LAW IN NOT ALLOWING U/S 24 OF THE ACT THE DEDUCTION OF INTEREST PAID TO DIAMOND EXPORTS AMOUNTING TO RS.1620000/ - ON MONEY BORROWED FOR CONSTRUCTION OF PREMISES WHICH WAS GIVEN ON LEASE TO DIAMOND EXPORTS FOR BUSINESS PURPOSE. 3. (A) THAT THE LEARNED CIT (A) HAS FAILED TO APPRECIATE THE FACT ASSESSEE COMPANY IS THE ACQUIRER OF THE PROPERTY AND IS RECIPIENT OF THE RENTAL INCOME. ON THE OTHER HAND THE ASSESSEE COMPANY IS ALSO PAYING INTEREST ON THE FUNDS BORROWED FOR CO NSTRUCTION OF THE PROPERTY AND TDS IS BEING DEDUCTED ON THE INTEREST PAYMENTS WHICH ARE BEING BOOKED AS INCOME BY THE TENANT WHICH PROVES THE RELATIONSHIP OF BORROWER AND THE LENDER BETWEEN THEM. (B) THAT THE LEARNED CIT (A) HAS ALSO NOT APPRECIATED THE FACT THAT ASSESSEE COMPANY HAS ALREADY CARRIED OUT SUITABLE MODIFICATIONS FROM TIME TO TIME AS PER REQUIREMENTS OF LAW IN THE RENT AGREEMENT. THE AMOUNT ON WHICH THE ASSESSEE COMPANY IS PAYING ITA NO. 3335/ DEL/ 2011 3 INTEREST AND DEDUCTING TDS CAN NEVER BE TERMED AS 'SECURITY' A MOUNT THOUGH THE WORD SECURITY DEPOSIT HAS BEEN USED INADVERTENTLY IN OLD AGREEMENTS. 4. THE LEARNED CIT (A) HAS ALSO RAISED A QUESTION ON WHY THE RATE OF INTEREST HAS BEEN FIXED CONSTANTLY ON THE AMOUNT OF LOAN OF RS. 90 LACS LYING WITH THE APPELLANT COM PANY. HOWEVER THE RATE OF INTEREST HAS CHANGED DURING THE LAST FIFTEEN. IT IS A LIGHT OF THE APPELLANT COMPANY TO DECIDE IN REGARD TO RATE OF INTEREST WHICH IS DEPENDENT ON MARKET CONDITIONS. 5. THAT THE PENALTIES PROCEEDING INITIATED BY LEARNED A. O. AR E BAD IN LAW AND ARE LIABLE TO BE QUASHED AS THERE IS NEITHER ANY CONCEALMENT OF INCOME NOR FURNISHING OF INACCURATE PARTICULARS. 6. DESPITE TAKING NOTE OF HON'BLE ITAT ORDER IN FOR AY 200607 AND PUTTING ON RECORD LOGIC AND RATIONALE EXPLAINED IN THAT OR DER LEARNED CIT (APPEAL) DECLINED TO TAKE NOTE OF REVISED LEASE AGREEMENT IN YEAR 1998 AND LATER AGREEMENT IN YEAR 2000. THE AGREEMENT HAS BEEN RENEWED LATER ON IN THE YEARS 2003 2005 & 2008. THE AGREEMENT APPLICABLE FOR AY 200304 IS DATED 10.06.2000. ITA NO. 3335/ DEL/ 2011 4 7. THAT THE APPELLANT CRAVES THE LEAVE TO ADD AMEND WITHDRAW VARY MODIFY AND DELETE ALL OR ANY OF THE GROUNDS AS ABOVE ON OR BEFORE THE DATE OF HEARING. 2 . THE BRIEF FACTS OF THE CASE ARE THAT THE RETURN OF INCOME IN THIS CASE WAS FILED ON 2.12.2003 DECLARING A LOSS OF RS. 9 38 240/ - WHICH WAS PROCESSED U/S. 143(1) AND THE RETURNED LOSS WAS ACCEPTED. THEREAFTER IT WAS NOTICED BY THE AO THAT AN INCOME OF RS. 1945614/ - HAS ESCAPED ASSESSMENT IN TERMS OF SECTION 147 OF THE I.T. ACT 1961. THEREFORE AFTER RECORDING DUE REASONS A NOTICE U/S. 148 WAS ISSUED ON 30.3.2010. 2 .1 SUBSEQUENTLY THE CASE WAS TAKEN UP FOR SCRUTINY AN DETAILS RELATING TO THE HOUSE PROPERTY INCOME DEDUCTIONS CLAIMED U/S. 24 AND THE BUSINESS LOSS DECLARED BY THE ASSESSEE COMPA NY WERE OBTAINED AND SCRUTINIZED BY THE AO. IN THE COURSE OF SCRUTINY OF THE INFORMATION / DETAILS FURNISHED BY THE ASSESSEE COMPANY IT WAS NOTICED BY THE AO THAT AS AGAINST THE HOUSE PROPERTY INCOME OF RS. 18.84 LACS THE ASESSEE COMPANY HAD CLAIMED D EDUCTION ON ACCOUNT OF HOUSE TAX RS. 444888/ - REPAIR AND MAINTENANCE RS. 431734/ - AND INTEREST TO M/S DIAMOND EXPORTS RS. 16.20 LACS AND THEREAFTER THE LOSS OF RS. 612622/ - HAS BEEN SHOWN UNDER THE HOUSE PROPERTY INCOME. IN ORDER TO EXAMINE THE ADMIS SIBILITY OF CLAIM OF PAYMENT OF INTEREST TO M/S DIAMOND EXPORTS THE AO EXAMINED THE ORIGINAL RENT AGREEMENT DATED 15.5.1995 EXECUTED IN CONNECTION WITH LETTING OUT OF PROPERTY SITUATED AT B - 59 OKHLA INDUSTRIAL AREA PHASE - 1 NEW DELHI AND RECEIPT OF INT EREST FREE DEPOSIT OF RS. 90 LACS FROM M/S DIAMOND EXPORTS AS ALSO THE ORDER OF THE ITAT FOR THE AYRS. 1996 - 97 AND 1997 - 98. ON EXAMINATION OF THE AFORESAID THE AO CAME TO A CONCLUSION THAT CLAIM OF PAYMENT OF INTEREST OF RS. 16.20 LACS TO M/S DIAMOND EXPO RTS WAS NOT ADMISSIBLE AGAINST THE HOUSE ITA NO. 3335/ DEL/ 2011 5 PROPERTY INCOME OF RS. 18.84 LACS AND ACCORDINGLY HE REJECTED THE CLAIM OF INTEREST MADE BY THE ASSESSEE COMPANY. 3 . AGAINST THE ASSESSING OFFICER S ASSESSMENT ORDER DATED 29.11.2010 PASSED U/S. 147/143(3) OF THE I.T. ACT 1961 ASSESSEE APPEALED BEFORE THE LD. CIT WHO VIDE IMPUGNED ORDER DATED 27.5.2011 HAS SUSTAINED THE ADDITION OF RS. 16.20 LACS MADE BY THE AO. 4 . AGAINST THE AFORESAID ORDER OF THE LD. CIT(A) ASSESSEE APPEALED BEFORE US. 5 . LD. COUNSEL OF THE ASSESSE HAS STATED THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED BY THE ORDER OF THE ITAT D BENCH DELHI IN ASSESSEE S OWN CASE IN THE ASSTT. YEAR 2006 - 07 DATED 31.8.2010 BECAUSE EXACTLY SIMILAR AMENDED AGREEMENT HAS BEEN ACCEPTED BY THE ITAT IN THE CASE OF ASSESSEE AND ALLOWED DEDUCTION TO INTEREST TO THE ASSESSEE. HE HAS ALSO FILED THE COPY OF THE RENT AGREEMENTS FOR THE ASSTT. YEAR 1996 - 97 AND 1997 - 98 DATED 10.6.2000 RELEVANT TO THE ASSESSMENT YEAR IN DISPUTE I.E. ASSTT. YEAR 2003 - 04 WHICH HE HAS ATTACHED AT PAGES 41 TO 48 OF HIS PAPER BOOK. IN ADDITION TO THE SAID HE HAS ALSO FILED THE PAPER BOK CONTAINING PAGES 1 TO 77 IN WHICH HE HAS ATTACHED THE COPY OF THE ITAT ORDERS DATED 31.8.2010 AND 5.8.2005 ALONGWITH OTHER RELEVANT DOCUMENTARY EVIDEN CE TO SUPPORT HIS CONTENTION. 5 .1 ON THE OTHER HAND LD. DR RELIED UPON THE ORDERS OF THE REVENUE AUTHORITIES AND STATED THAT LD. FIRST APPELLATE AUTHORITY HAS PASSED A WELL REASONED ORDER ON THE BASIS OF DOCUMENTARY EVIDENCE FILED BY THE ASSESSEE AND AS PER LAW. THEREFORE THE APPEAL OF THE ASSESSEE MAY BE DISMISSED. ITA NO. 3335/ DEL/ 2011 6 6 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS ESPECIALLY THE ORDERS OF THE ITAT DATED 31.8.2010 AND 5.8.2005 WHICH THE LD. FIRST APPELLATE AUTHORITY HAS DISCUSSED IN THE IMP UGNED ORDER ALONGWITH THE RENT AGREEMENTS DATED 15.5.1995 RELEVANT TO ASSTT. YEAR 1996 - 97 AND 1997 - 98 WHICH THE ASSESSEE HAS ATTACHED AT PAGE NO. 41 TO 42 OF HIS PAPER BOOK AND THE RENT AGREEMENTS DATED 10.6.2000 RELEVANT TO ASSTT. YEAR IN DISPUTE I.E. ASS TT. YEAR 2003 - 04 PG. 45 - 46 AND THE RENT AGREEMENTS DATED 1.8.2005 RELEVANT TO ASSTT. YEAR 2006 - 07 WHICH THE ASSESSEE HAS ATTACHED AT PAGES 47 TO 48 OF THE PAPER BOOK AND WE ARE OF THE CONSIDERED VIEW THAT IT IS GERMANE TO GO THROUGH THE ORDERS PASSED BY TH E ITAT D BENCH DELHI IN THE CASE OF THE ASSESSEE FOR THE ASSTT. YEAR 2006 - 07 VIDE ORDER DATED 31.8.2010 PASSED IN ITA NO. 1742/DEL/2009 REFERRING TO THE AGREEMENTS DATED 15.5.1995 AND ALSO THE AGREEMENTS DATED 1.8.2005 WHICH READ AS UNDER: - 9. WE HAVE GONE THROUGH THE DETAILS OF ALLEGED LOAN OF RS. 90 LACS WHICH IS AVAILABLE AT PAGE 28 - 32 OF THE PAPER BOOK. THESE ARE THE SMALL PAYMENTS ALLEGED TO HAVE BEEN MADE BY M/S. DIAMOND EXPORT ON BEHALF OF THE ASSESSEE TO THE DIFFERENT CONCERNS FOR T HE PURCHASE OF MATERIAL AS WELL AS SERVICES UTILIZED FOR CONSTRUCTING THE BUILDING. THE AMOUNTS HAVE DULY BEEN PAID THROUGH ACCOUNT PAYEE CHEQUE. THE DETAILS OF RECIPIENTS CHEQUE NUMBER AND ACCOUNTS ARE DULY AVAILABLE IN THESE DETAILS. THE AO ALSO IN THE EARLIER YEAR DID NOT DISPUTE THAT SOURCE OF CONSTRUCTION IS THE FUNDS PROVIDED BY M/S. DIAMOND EXPORT. OTHERWISE AN ADDITION ON ACCOUNT OF UNEXPLAINED INVESTMENT WOULD HAVE BEEN MADE IN THE YEAR OF CONSTRUCTION. THIS AMOUNT WAS NOT CONSIDERED AS A BORROWED CAPITAL FOR ALLOWING DEDUCTION ULS 24 (1 )(VI) OF ITA NO. 3335/ DEL/ 2011 7 THE INCOME TAX ACT IN ASSTT. YEAR 1996 - 97 AND 1997 - 98 ONLY BECAUSE OF CLAUSE I OF THE AGREEMENT DATED 15TH MAY 1995. ACCORDING TO THE TRIBUNAL IT WAS AN 'INTEREST FREE SECURITY DEPOSIT. THEREFORE ASSESSE E WAS NOT UNDER OBLIGATION TO PAY INTEREST TO THE M/S. DIAMOND EXPORT . FACED WITH THIS DIFFICULTY ASSESSEE HAS CHANGED THE AGREEMENT AND TURNED IT AS AN INTEREST BEARING BORROWED FUND. IT HAS PROVIDED THE RATE OF INTEREST AT 12% PER ANNUM. LD. CIT(A) HAS NOTICED THE DETAILS OF ALLEGED INTEREST EXPENSES AS WELL AS THE RENTAL INCOME WHICH HAS BEEN WORKED OUT BY THE ASSESSEE ON YEAR TO YEAR BASIS. THE CALCULATION NOTICED BY THE LD. CIT (A) READ AS UNDER: - DATE OF PERIOD RATE OF RENT/ MONTH AGREEMENT INTEREST ===================================== 01.08.1998 1.5.1998 - 31.5.2000 18% 1 50 000 / - 10.06.2000 1.6.2000 - 31.3.2003 18% 1 50 000 / - 02.05.2003 1.4.2003 - 31.7.2005 12% 1 50 000 / - 01.08.2005 1.8.20 05 - 31.7.2005 12% 1 72 50 0/ - 01.08.2008 1.8.2008 - 31.3.2011 12% 1 72 500 / - 10. ON AN ANALYSIS OF THE DETAILS AVAILABLE ON THE RECORD WE FIND THAT GRIEVANCE OF REVENUE IS HOW ASSESSEE CAN CHANGE THE AGREEMENT. THE A O WANTS TO DEAL THE RIGHTS AND LIABILITIES OF THE ASSESSEE QUA THIS RENTAL INCOME VIS A VIS EXPENSES INCURRED FOR EARNING RENTAL INCOME IN THE LIGHT OF THE ORIGINAL AGREEMENT ONLY. IN HIS OPINION ONCE ASSESSEE HAS COMMITTED A MISTAKE THEN IT SHOULD HAVE CON TINUE WITH THAT VERY FACTS AND IT HAS NO RIGHTS TO ALTER ITA NO. 3335/ DEL/ 2011 8 CLAUSES OF AGREEMENTS. INSTEAD OF APPRECIATING THE CONTROVERSY WITH THE LATEST POSITION OF THE AGREEMENT AND THE RIGHTS I LIABILITIES ARISING FROM THAT AGREEMENT BOTH THE REVENUE AUTHORITIES HAVE AP PRECIATED THE CONTROVERSY UNDER THE ORIGINAL AGREEMENT ONLY. IN OUR OPINION THAT AGREEMENT IS NO MORE IN EXISTENCE AS FAR AS THIS YEAR IS CONCERN. THE CONTROVERSY OF THE ASSESSEE HAS TO BE DECIDED IN THE LIGHT OF THE FRESH AGREEMENT WHICH IT HAS ENTERED WI TH ITS LESSEES THE AGREEMENT SPECIFICALLY PROVIDE FOR CHARGING OF INTEREST @ 12% WHICH WORKS OUT TO BE RS. 10 80 000 / - . FROM THE DETAILS OF EXPENSES AVAILABLE AT PAGE 28 - 32 OF THE PAPER BOOK WE ARE SATISFIED THAT THE COST OF CONSTRUCTION WAS BORNE BY AS SESSEE WITH THE FINANCE PROVIDED BY M/S. DIAMOND EXPORT AND THEREFORE WE HAVE NO HESITATION TO CONCLUDE THAT IT IS THE BORROWED CAPITAL WHICH WERE USED BY THE ASSESSEE FOR RAISING CONSTRUCTION. THE ASSESSEE IS ENTITLED FOR THE DEDUCTION IN RESPECT OF EXPEN SES IN THE SHAPE OF INTEREST ON SUCH BORROWED CAPITAL FROM THE HOUSE PROPERTY INCOME U/S 24 OF THE INCOME TAX ACT. THE FACTS ARE MATERIALLY DIFFERENT FROM ASSTT. YEAR 1996 - 97 1997 - 98 IN THE PRESENT YEAR. IN VIEW OF THE ABOVE DISCUSSION WE ALLOW THE APPEAL OF ASSESSEE AND DELETE THE DISALLOWANCE. NO OTHER ISSUE WAS PRESSED BY THE LD. COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING HENCE GROUND NO. 6 WHICH IS DIFFERENT FROM THE ISSUE DISCUSSED ABOVE IS REJEC TED. 7 . KEEPING IN VIEW OF THE AFORESAID ORDERS WE ARE OF THE VIEW THAT THE TRIBUNAL HAS DULY CONSIDERED THE ISSUE IN LIGHT OF THE AMENDED AGREEMENT DATED 1.8.2005 AND IT HAD ALSO REFERRED TO OTHER ITA NO. 3335/ DEL/ 2011 9 AMENDED AGREEMENTS INCLUDING THE AGREEMENT DATED 10.6.2000 RELEVANT TO ASSTT. YEAR BEFORE US. IT HAS BEEN CLEARLY HELD THAT THE ASSESEE HAD USED THE FINANCES PROVIDED BY M/S DIAMOND EXPORTS FOR CONSTRUCTION OF PROPERTY AND ACCORDINGLY THE ASSESSEE WAS ENTITLED FOR DEDUCTION IN RESPECT OF EXPENSES IN THE SHAPE OF INTEREST OF SUCH BORROWED CAPITAL UNDER SECTIO N 24 OF THE I.T. ACT. WE FIND THAT TRIBUNAL HAS ALSO NOTED THAT FACTS WAS MATERIALLY DIFFERENT FROM ASSTT. YEAR 2006 - 07 AND 1997 - 98. KEEPING IN VIEW OF THE AFORESAID DISCUSSIONS AND THE ORDER OF THE TRIBUNAL FOR THE ASSTT. YEAR 2006 - 07 REPRODUCED ABOVE W E ARE OF THE CONSIDERED VIEW THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED BY THE ORDER OF THE ITAT D BENCH DELHI IN ASSESSEE S OWN CASE FOR THE ASSTT. YEAR 2006 - 07 VIDE ORDER DATD 31.8.2010. RESPECTFULLY FOLLOWING THE AFORESAID ORDER THE ADDITION IN DI SPUTE IS DELETED AND THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 8 . IN THE RESULT THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE O PEN C OURT ON 19 / 11 /20 1 4 . SD/ - SD/ - [ T.S. KAPOOR ] [ H.S. SIDHU ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 19 / 11 /201 4 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR ITAT TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT DELHI BENCHES ITA NO. 3335/ DEL/ 2011 10