ACIT, New Delhi v. M/s. Navneet Developers, New Delhi

ITA 4307/DEL/2010 | 2007-2008
Pronouncement Date: 04-11-2011 | Result: Dismissed

Appeal Details

RSA Number 430720114 RSA 2010
Bench Delhi
Appeal Number ITA 4307/DEL/2010
Duration Of Justice 1 year(s) 1 month(s) 14 day(s)
Appellant ACIT, New Delhi
Respondent M/s. Navneet Developers, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 04-11-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 04-11-2011
Date Of Final Hearing 31-10-2011
Next Hearing Date 31-10-2011
Assessment Year 2007-2008
Appeal Filed On 20-09-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E DELHI) BEFORE SHRI G.D. AGARWAL HONBLE VICE PRESIDENT AND SHRI A.D. JAIN JUDICIAL MEMBER ITA NO. 4307(DEL)2010 ASSESSMENT YEAR: 2007-08 ASSTT.COMMISSIONER OF INCOME TAX M/S. NAVN EET DEVELOPERS CIRCLE 20(1) NEW DELHI. V. FL AT D-9 MODEL TOWN III DELHI. (APPELLANT) (RESPO NDENT) APPELLANT BY: SHRI R.S. NEGI SR. DR RESPONDENT BY: S/SHRI RA VI BHATIA & ANANT BHATIA. CAS ORDER PER A.D. JAIN J.M. THIS IS DEPARTMENTS APPEAL FOR THE ASSESSMENT YEAR 2007-8 TAKING THE FOLLOWING GROUNDS:- 1. THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS AN D CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION OF ` 78 16 323/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECTION 24(A) OF I.T. ACT 1961 WHEN THE AO HAD TRE ATED THE INCOME OF THE FIRM AS INCOME FROM BUSINESS OR PROFESSION IN A CCORDANCE WITH THE TERMS AND CONDITIONS STIPULATED IN THE PARTNERSHIP DEED. ITA 4307(DEL)2010 2 2. THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS A ND CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION OF ` 9 07 212/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF PROPORTIONATE INTEREST U NDER SECTION 36(1)(III) OF THE I.T. ACT 1961. 2. APROPOS GROUND NO.1 THE AO OBSERVED THAT THE AS SESSEE CONTINUED TO DERIVE INCOME FROM RENT; THAT DURING THE YEAR THE TOTAL RENT RECEIVED FROM VARIOUS PARTIES STOOD DISCLOSED AT ` 2 65 39 059/- AND AFTER CLAIMING VARIOUS EXPENSES THE NET PROFIT FROM BUSINESS OF PROPERTY H AD BEEN DISCLOSED AT ` 1 53 00 648/-; THAT HOWEVER WHILE CALCULATING THE TOTAL INCOME THE ASSESSEE HAD DISCLOSED THIS INCOME AS INCOME FROM HOUSE PROP ERTY AND HAD ALSO CLAIMED U/S 24(A) OF THE I.T. ACT 30% DEDUCTION F OR ` 78 16 323/-. THE AO EXAMINED THE PARTNERSHIP DEED OF THE ASSESSEE. IT WAS FOUND THAT GIVING PROPERTY ON RENT TO REPUTED COMPANIES IS ALSO A PAR T OF THE BUSINESS OF THE ASSESSEE. ON QUERY THE ASSESSEE SUBMITTED INTER ALIA THAT UNDER THE ACT THE OWNER OF A HOUSE PROPERTY IS TAXED IN THE FORM OF ITS ANNUAL VALUE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE AO HO WEVER DISAGREED WITH THE ASSESSEES STAND. IT WAS OBSERVED THAT BESIDES CARRYING ON THE BUSINESS OF GIVING PROPERTIES ON RENT THE ASSESSEE WAS EARN ING INCOME FROM RENT; THAT THE ASSESSEE WAS ALSO PROVIDING OTHER SERVICE AND C HARGING MAINTENANCE FROM THE TENANTS; THAT THE ASSESSEE HAD ALSO MADE A GREEMENT WITH ITS SISTER CONCERNS AND HAD RELINQUISHED ITS RIGHT FOR MAINTE NANCE SERVICES TO M/S. ITA 4307(DEL)2010 3 RYDER ESTATES WITHOUT ANY CHARGES; THAT IT WAS THUS CLEAR THAT THE ASSESSEE WAS BESIDES BEING ENGAGED IN THE BUSINESS OF GIVIN G PROPERTY ON RENT ALSO EARNING INCOME FROM MAINTENANCE SERVICE. THE AO D ISALLOWED THE ASSESSEES CLAIM RELYING ON KARNAPURA DEVELOPERS C O. LTD. V. CIT 44 ITR 362 (SC) WHEREIN THE HONBLE SUPREME COURT HAS HELD THAT A COMPANY FORMED WITH THE SPECIFIC OBJECT OF ACQUIRING PROPER TIES NOT WITH THE VIEW TO LEASING THEM AS PROPERTY BUT TO SELLING THEM OR TUR NING THEM TO ACCOUNT EVEN BY WAY OF LEASING THEM OUT AS AN INTEGRAL PART OF I TS BUSINESS CANNOT BE TREATED AS LAND OWNER BUT HAS TO BE TREATED AS TRA DER AND INCOME FROM RENT HAS TO BE TREATED AS BUSINESS INCOME. 3. BY VIRTUE OF THE IMPUGNED ORDER THE LD. CIT(A) DELETED THE DISALLOWANCE RESULTING IN GROUND NO.1 BEING RAISED BEFORE US. 4. IN THIS REGARD THE LD. DR HAS CONTENDED BEFORE US THAT THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF ` 78 16 323/- RIGHTLY MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF DEDUCTION CLAIMED BY THE ASSESSEE U/S 24(A) OF THE ACT BY TREATING THE INCOME OF THE FIRM AS INCOME FROM BUSINESS IN ACCORDANCE WITH THE TERMS AND CONDITIONS STIPULA TED IN THE PARTNERSHIP DEED; THAT THE LD. CIT(A) HAS FAILED TO CONSIDER TH AT BESIDES CARRYING ON THE BUSINESS OF RENTING OUT PROPERTIES THE ASSESSEE W AS ALSO PROVIDING MAINTENANCE SERVICES THROUGH ITS SISTER CONCERN; T HAT THE ASSESSEE HAD ALSO ITA 4307(DEL)2010 4 CLAIMED EXPENSES UNDER THE HEAD OF BUSINESS AS WELL AS FROM HOUSE PROPERTY; THAT THE FIGURE OF ` 1 53 00 648/- INCLUDES OTHER EXPENSES ALSO; THAT TH E LD. CIT(A) HAS ALSO FAILED TO CONSIDER THAT THE DECISIO N IN KARNAPURA DEVELOPERS CO. LTD. V. CIT (SUPRA) IS SQUARELY AP PLICABLE TO THE FACTS OF THE PRESENT CASE; THAT AS SUCH THE DISALLOWANCE BE ORDERED TO BE CANCELLED. 5. PER CONTRA THE LEARNED COUNSEL FOR THE ASSESSEE HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER. IT HAS BEEN SUBMIT TED ON QUERY FROM THE BENCH THAT THE INCOME HAS NOT BEEN COMPUTED UNDER THE HEAD OF BUSINESS; THAT DEPRECIATION HAS NOT BEEN GIVEN; AND THAT IN T HE EARLIER YEARS THE INCOME WAS TREATED AND ACCEPTED AS INCOME FROM HOUSE PROPE RTY WHEREAS IN THE SUBSEQUENT YEAR THE TREATMENT BY THE AO WAS THAT OF BUSINESS INCOME WHICH ACTION OF THE AO IS PRESENTLY UNDER CHALLENGE BY WAY OF APPEAL BEFORE THE LD. CIT(A). 6. WE HAVE HEARD THE PARTIES ON THIS ISSUE AND HAVE PERUSED THE MATERIAL ON RECORD. WE HAVE PERUSED THE COMPUTATION OF INCO ME FILED BY THE ASSESSEE. THEREIN THE TREATMENT GIVEN TO THE INC OME BY THE ASSESSEE IS UNDER THE HEAD OF HOUSE PROPERTY. THE EXPENSES AR E ONLY MAINTENANCE AND HENCE TAXED. APROPOS THE MAINTENANCE EXPENSES IT HAS BEEN SUBMITTED ON BEHALF OF THE ASSESSEE THAT THE ALLEGATION OF THE D EPARTMENT REGARDING THE ASSESSEE PROVIDING MAINTENANCE IS ENTIRELY INCORREC T AND THAT SUCH SERVICES ITA 4307(DEL)2010 5 ARE PROVIDED BY THE SISTER CONCERN OF THE ASSESSEE FOR WHICH SEPARATE BOOKS OF ACCOUNT ARE MAINTAINED AND THE ASSESSEE HAS NOTH ING WHATSOEVER TO DO WITH SUCH SERVICES. IT HAS BEEN FOUND AS A FACT BY THE LD. CIT(A) THAT THE ASSESSEE HAD PURCHASED THE PROPERTY IN QUESTION FRO M M/S. MAHINDRA GESCO DEVELOPERS LIMITED ON 25.6.2006 FOR ` 13 51 95 839/-. THERE HAS COME NO DENIAL FROM THE DEPARTMENT TO THE FACT THAT IT IS T HE ASSESSEE WHO IS THE ABSOLUTE OWNER OF THE PROPERTY. THE PROPERTY HAS B EEN RENTED OUT IN THE STATUS OF OWNER THEREOF. SECTION 22 OF THE ACT PR OVIDES THAT THE INCOME TO BE CHARGEABLE AS INCOME FROM HOUSE PROPERTY IN CASE THE ASSESSEE IS THE OWNER OF THE PROPERTY. ACCORDING TO SECTION 23 T HE ANNUAL VALUE HAS TO BE DETERMINED IN ACCORDANCE WITH THE ACTUAL RENT REC EIVED OR RECEIVABLE OR THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPE CTED TO BE LET FROM YEAR TO YEAR. IN THE FACTS OBTAINING THE LD. CIT (A) CANNOT AT ALL BE SAID TO HAVE ERRED IN CONCLUDING THE INCOME AS INCOME FROM HOUSE PROPERTY. IN KARNAPURA DEVELOPERS CO. LTD. V. CIT (SUPRA) THE OBJECT WAS TO ACQUIRE PROPERTIES AND TO SELL THEM. IN THE PRESENT CASE HOWEVER THE OWNER OF THE PROPERTY HAS LET IT OUT RATHER THAN SELLING IT FOR PROFIT. KARNAPURA DEVELOPERS (SUPRA) AS SUCH HAS BEEN RIGHTLY DIST INGUISHED. 7. THE DECISIONS IN CIT V. BHOOPALAM COMMERCIAL CO MPLEX AND INDUSTRIES (P)LTD. 262 ITR 517(KAR) SHAMBHU IN VESTMENT (P)LTD. V. ITA 4307(DEL)2010 6 CIT 263 ITR 143 (SC) CIT V. CHENNAI PROPERTIES AND INVESTMENT LTD. 266 ITR 685(MAD) AND EAST INDIA HOUSING AND LAND D EVELOPMENT 42 ITR 49(SC) HAD BEEN RELIED ON BY THE LD. CIT(A) IN FAVOUR OF THE ASSESSEE. IN THE FACTS OF THE CASE THE DEPARTMENT HAS NOT BE EN ABLE TO DISTINGUISH THE APPLICABILITY OF THESE DECISIONS. 8. APROPOS THE ISSUE OF THE ASSESSEE ALLEGEDLY PROV IDING MAINTENANCE SERVICE CHARGES IT HAS BEEN FOUND THAT THE ASSESSE E HAD ENTERED INTO AN AGREEMENT WITH M/S. RYDER ESTATES ITS SISTER CONCE RN WHICH WAS SPENDING ON MAINTENANCE AND COLLECTING THE SERVICE CHARGES A T A PRESCRIBED RATE IN ACCORDANCE WITH THE SAID AGREEMENT AND THIS AS RIG HTLY OBSERVED BY THE LD. CIT(A) HAS NO EFFECT ON THE HOUSE PROPERTY INCOME EARNED BY THE ASSESSEE. 9. IN VIEW OF THE ABOVE FINDING NO FORCE THEREIN GROUND NO.1 IS REJECTED. 10. COMING TO GROUND NO.2 THE ASSESSEE WAS FOUND T O HAVE ADVANCED ` 89 12 000/- AS FOLLOWS:- S.NO. NAME OF THE PARTY AMOUNT ( `) 1. M/S. M.K.S. POWAER RAINS PVT.LTD. 24 000 2. M/S. RYDER ESTATE 1 89 000 3. M/S. RYDER EXPORTS 86 99 000 ITA 4307(DEL)2010 7 11. THE AO OBSERVED THAT THE ASSESSEE HAD NOT CHARG ED ANY INTEREST ON THESE ADVANCES AND ON THE OTHER HAND IT HAD CLAIME D INTEREST EXPENSES OF ` 1 07 21 243/-. OBSERVING THAT FUNDS HAD BEEN DIVE RTED BY THE ASSESSEE TO THE SISTER CONCERN FOR NON BUSINESS PURPOSES WITHO UT CHARGING ANY INTEREST THE AO PUT THE ASSESSEE ON QUERY AS TO WHY PROPORTI ONATE INTEREST THEREON BE NOT DISALLOWED. THE ASSESSEE SUBMITTED THAT THE I NTEREST HAD BEEN PAID TO PUNJAB NATIONAL BANK AGAINST LOAN TAKEN AT THE TIME OF PURCHASING OF PROPERTY IN 2004 WHICH LOAN WAS DIRECTLY PAID TO T HE SELLER OF THE PROPERTY DUE TO WHICH THERE WAS NO DIVERSION OF FUND CALLIN G FOR ANY DISALLOWANCE OF PROPORTIONATE INTEREST ON LOANS AND ADVANCES. 12. THE AO HOWEVER DISAGREEING WITH THE ASSESSEE S REPLY OBSERVED THAT THE ASSESSEE HAD DIVERTED FUNDS FOR NON BUSINE SS PURPOSES WITHOUT CHARGING ANY INTEREST; AND THAT IF THE AMOUNT WAS R EPAID TO THE BANK THE RESULTANT EXPENSES ON ACCOUNT OF INTEREST SHOULD HA VE BEEN LESS TO THE EXTENT OF THE FUNDS DIVERTED AS LOANS AND ADVANCES TO THE ASSESSEES SISTER CONCERN. THE AO THUS MADE DISALLOWANCE OF ` 9 07 212/- ON ACCOUNT OF PROPORTIONATE INTEREST U/S 36(1)(III) OF THE ACT. THE LD. CIT(A ) DELETED THE DISALLOWANCE. 13. THE LD. DR CONTENDS THAT WHILE WRONGLY DELETING THE DISALLOWANCE CORRECTLY MADE THE LD. CIT(A) HAS FAILED TO TAKE I NTO CONSIDERATION THE FACT THAT THE ASSESSEE WAS PAYING INTEREST AND WAS ALSO ADVANCING INTEREST FREE ITA 4307(DEL)2010 8 LOANS; THAT THE AO HAS CORRECTLY RELIED ON THE DECI SION IN CIT V. H.R. SUGAR PVT. LTD.; AND THAT THE ASSESSEE OUGHT NOT TO HAV E DIVERTED ITS FUNDS SO AS TO BE ENTITLED TO THE ALLOWANCE. 14. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OT HER HAND HAS AGAIN PLACED STRONG RELIANCE ON THE ORDER. IT HAS BEEN R EITERATED AS BEFORE THE AUTHORITIES BELOW THAT THE TOTAL INTEREST WAS PAID TO PUNJAB NATIONAL BANK AGAINST THE LOAN FOR THE PURCHASE OF PROPERTY; THAT THE LOAN WAS DIRECTLY DISBURSED TO THE SELLER BY THE BANK; AND THAT AS PE R THE ASSESSEES TERMS AND CONDITIONS WITH THE BANK THE LOAN AMOUNT WAS TO B E DIRECTLY DISBURSED TO THE SELLER OF THE PROPERTY AND NOT TO BE CREDITED T O THE ASSESSEES BANK ACCOUNT. 15. IN THIS REGARD IT HAS BEEN FOUND BY THE LD. CI T(A) THAT THERE WAS A DIRECT NEXUS BETWEEN THE LOAN RAISED FOR THE PROPER TY AND THE UTILIZATION THEREOF FOR THE SAID PURPOSE. IT HAS NOT BEEN PROV ED TO BE OTHERWISE. AS SUCH AS RIGHTLY OBSERVED BY THE LD. CIT(A) THERE WAS NO DIVERSION OF LOAN AMOUNT FOR ANY OTHER PURPOSE. THE INTEREST PAID T O THE BANK TOWARDS LOAN AMOUNT FOR PURCHASE OF THE PROPERTY IS ALLOWABLE U/ S 24(B) OF THE ACT. THE INCOME OF THE ASSESSEE BEING INCOME FROM HOUSE PRO PERTY AND NOT INCOME FROM BUSINESS AS UPHELD HEREINABOVE THERE IS NO Q UESTION OF APPLICABILITY OF THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT. ITA 4307(DEL)2010 9 16. IN THE ABOVE FACTS THE DISALLOWANCE WRONGLY MA DE BY THE AO HAS CORRECTLY BEEN DELETED BY THE LD. CIT(A) AND THER EFORE GROUND NO.2 ALSO DOES NOT CARRY ANY FORCE AND IT IS REJECTED. 17. IN THE RESULT THE APPEAL FILED BY THE DEPARTME NT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 4.11.2011. SD/- SD/- (G.D. AGARWAL) (A.D. JAIN) VICE PRESIDENT JUDICIAL MEMBER DATED: 4.11.2011 *RM COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER DEPUTY REGISTRAR