2021 (9) TMI 1069 - AT - Income Tax

Income from house property - Addition of estimated deemed rent on unsold flats of assessee's project - unsold flats that were held by the assessee as stock-in-trade of its business as that of a builder and a developer - HELD THAT - As relying on assessee's ow case 2019 (4) TMI 2016 - ITAT MUMBAI find no infirmity in the view taken by the CIT(A) who had rightly vacated the addition that was made by the A.O towards the deemed ALV of the unsold flats that were held by the assessee as stock-in-trade of its business of a builder and developer, we uphold the same. The Ground of appeal No.1 is dismissed. Deduction of interest expenditure u/s 36(1)(iii) - HELD THAT - As per order passed u/s 143(3) r.w.s 254, for A.Y 2012-13 that the assesse had sufficient interest free funds available with it to source the interest free advances of ₹ 13,32,13,440/- that were given by it in the previous assessment years i.e the year ended 31.03.2005, 31.03.2007, 31.03.2009 and 31.03.2010 and no interest free advances had thereafter been given by the assessee during the period 31.03.2013 to 31.03.2015, therefore, we find no justification to take a different view and sustain any part of the disallowance of the assessee‟s claim for deduction of interest expenditure u/s 36(1)(iii) of the Act - CIT(A) had rightly observed that no part of the assessee‟s claim for deduction u/s 36(1)(iii) of interest expenditure could have been disallowed - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of the addition of estimated deemed rent on unsold flats.
2. Deletion of the disallowance of interest expenditure on account of diversion of borrowed funds towards interest-free advances.
3. Verification of the contention that the assessee's own funds were more than borrowed funds.

Issue-Wise Detailed Analysis:

1. Deletion of the Addition of Estimated Deemed Rent on Unsold Flats:
The revenue challenged the CIT(A) for deleting the addition of ?35,17,223/- as deemed Annual Lettable Value (ALV) of the unsold flats held by the assessee as stock-in-trade. The Tribunal noted that this issue was covered by its own decision in the assessee's case for A.Y. 2012-13, where it was held that sub-section (5) of Sec. 23 of the Income Tax Act, 1961, introduced by the Finance Act, 2017, provided relief to real estate developers by considering the annual value of unsold property held as stock-in-trade as Nil for up to one year from the end of the financial year in which the completion certificate was obtained. As the facts and issue remained the same, the Tribunal upheld the CIT(A)'s decision to vacate the addition of deemed ALV.

2. Deletion of the Disallowance of Interest Expenditure:
The revenue contested the deletion of the disallowance of ?2,22,40,835/- of interest expenditure claimed under Section 36(1)(iii) of the Act. The Assessing Officer (A.O) had disallowed this amount, believing the assessee diverted interest-bearing loans for giving interest-free loans and advances. The CIT(A) observed that this was a recurring issue and had been decided in favor of the assessee in previous years. The Tribunal noted that the A.O had, in earlier proceedings, verified that the interest-free loans were advanced in preceding years out of sufficient self-owned and interest-free funds. The Tribunal, referencing the Bombay High Court's decision in CIT Vs. Reliance Utilities & Power Ltd., upheld the CIT(A)'s deletion of the disallowance, finding no infirmity in the CIT(A)'s order.

3. Verification of the Contention of Own Funds Exceeding Borrowed Funds:
The Tribunal discussed that the A.O, in compliance with the Tribunal's directions from earlier years, had verified the availability of sufficient self-owned and interest-free funds with the assessee. It was confirmed that the interest-free loans were advanced in earlier years and no new interest-free advances were given during the period from 31.03.2013 to 31.03.2015. The A.O had accepted that the assessee had sufficient interest-free funds to cover the interest-free loans, thus supporting the CIT(A)'s decision to delete the disallowance of interest expenditure.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s order on both counts of deleting the addition of deemed rent and the disallowance of interest expenditure. The Tribunal found that the CIT(A) had rightly vacated the additions and disallowances made by the A.O, based on the facts and legal precedents applicable to the case. The appeal was dismissed, and the CIT(A)'s order was affirmed.