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TMI Blog2018 (12) TMI 1493X X X X Extracts X X X X X X X X Extracts X X X X ..... businessman can be engaged in business activities in an intermittent manner from year to year, when the sale of operations and quantum of loans raised by the appellant are considered. In view of the above - the appellant is actually engaged in the business of development and sale of real estate, and that the expenses on the premium payments are allowable u/s 37(1). - Decided in favour of assessee Allowability of partnership insurance premium - Held that:- For these two years paid by the firm being the insurance premium in the nature of keyman insurance premia and regarding allowability of expenditure issue, no ground has been raised by revenue in the these two appeals filed before Tribunal for these two years. Since no difference in facts has been pointed out by ld. DR of revenue in present two years i.e. Assessment Years 2013-14 and 2014-15, in our considered opinion, in view of the principle of consistency, the order of CIT(A) does not contain any infirmity on this issue in both these years Disallowance of interest expenditure - interest free advances given by the assessee firm to its three sister concerns - Held that:- It is seen that the interest free funds available wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m business and claimed large amounts as expenses, even though there is no business activity being carried out by the assessee. 3. The Ld. CIT (A) has ignored the fact that the assessee has not satisfied conditions laid out u/s 37(1) of the IT Act to claim certain amount as business expenses. 4. The Ld. CIT (A) has relied on the CIT (Appeals)-111, Bengaluru order for A.Y.2008-09 without appreciating the facts and circumstances for A.Y.2013-14 and A.Y.2008-OY are entirely different. 5. For these and such other grounds that may be urged at the time of hearing, it is humbly prayed that the order of the Ld. CIT (A) be reversed and that of the Assessing Officer be restored. 6. The appellant craves leave to add, to alter, to amend or delete any of the grounds that may be urged at the time of hearing of appeal. 3. The grounds raised by the revenue for Assessment Year 2014-15 in ITA No. 557/Bang/2018 are as under. 1. The order of the Learned CIT (Appeals), in so far as it is prejudicial to the interest of revenue, is opposed to law and the facts and circumstances of the case. 2. The Ld. CIT(A) has not appreciated the fact that the assessee year after year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant being in common Real Estate business. 6. The authorities below without considering the above facts on record WRONGLY concluded to disallow a pro-rata interest on the amount advanced which is now prayed by the appellant for allowing as deduction. 7. For the above and other grounds that may be urged and presented at the time of hearing of the appeal, the appellant humbly prays that the appeal may be allowed and justice rendered. 5. Brief facts are that the AO has noted in the assessment order for Assessment Year 2013-14 that the assessee firm derives income on account of rental income amounting to ₹ 698.40 Lakhs in addition to commission income of ₹ 5,11,008/- and income from other sources of ₹ 4,12,158/-. Thereafter the AO has reproduced the P L account of the assessee for the year ending as on 31.03.2013, as per which, it is seen that the assessee has debited various expenses such as processing fees, professional fees, corporation tax, Simple Mortgage Deed Expenses, interest on loan and several other expenses and worked out the net profit at ₹ 2,04,74,372/-. The AO has noted that two expenses i.e. corporation tax of ₹ 1,20,50,990/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made out a strong case for holding that the appellant is not involved in business of the appellant as 'Real Estate' but at the same time not controverted the appellant's contention that it is engaged in the business of property development and sale. It had raised large loans the bank and developed a constructed are of 2,00,000 sq. ft. of commercial space though there was no sale during the year since there was a dispute with the development partner, M/s. IBC Knowledge Park. It is pertinent to note that with respect to this property, the appellant has also claimed legal expenses arid security charges, which were disallowed by the AO on the ground that though the constructed area appeared on the balance sheet, no income other than rental income was shown in the profit and loss account. It is the appellant's contention that there was a genuine dispute with regard to the joint development arrangement which necessitated these expenses which were related to securing its rights over its portion o the disputed property and furthering its business. I have to note that the AO has not disputed the fact of the legal dispute, but has questioned the expenditure on security with r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so in favour of the assessee on this basis that in Assessment Year 2009-10 also, similar view was taken and in the present year also, the facts are same. 7. Similarly in Assessment Year 2014-15, the AO made similar disallowance of business expenses to the extent of ₹ 7,61,60,088/- with the same reasoning and in this year also, the assessee carried the matter in appeal before CIT(A). In Assessment Year 2014-15, the ld. CIT(A) has held that in this year also, the business expenses should be allowed but he further noted on the penultimate page of his order for Assessment Year 2014-15 that it is seen from the balance sheet of the assessee that substantial amounts of borrowed money was advanced to the sister concerns / related parties, viz., Century Carbel ₹ 20.12 Crores, Century Astral ₹ 7.40 Crores and Canara Housing Development Company ₹ 3.35 Crores. He held that proportionate interest on the said amounts advanced to sister concerns without interest has to be disallowed out of the total interest debited to P L account. He directed the AO in this year to obtain the cost of the borrowed funds from the assessee or else the average interest cost debited m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Vs. U. Manohar Rao, 325 ITR 402 (Karnataka) 10. We have considered the rival submissions. We find that we have to decide two issues. The first issue involved in the appeals of the revenue is this as to whether in the facts of present case, various business expenses debited by assessee in the P L account is allowable as business expenses in view of this fact that only a meagre income has been offered by assessee as business income being commission income of ₹ 5,11,008/- in Assessment Year 2013-14 and ₹ 4,48,106/- in Assessment Year 2014-15. On this issue, we find that the decision of ld. CIT(A) in Assessment Year 2013-14 is contained on pages 9 and 10 of his order in which he has also reproduced the finding of ld. CIT(A) in assessee s own case for Assessment Year 2008- 09. Hence these paras are reproduced hereinbelow from pages 9 and 10 of the order of CIT(A) for Assessment Year 2013-14. Grounds No. 5 to 9 are raised against the action of the Assessing officer in disallowing the expenses claimed in the return of income from the income from business in the assessment order passed u/s 143(3) of the Income tax Act, 1961. In this regard, the appellant has made deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ea appeared on the balance sheet, no income other than rental income was shown in the profit and loss account. It is the appellant's contention that there was a genuine dispute with regard to the joint development arrangement which necessitated these expenses which were related to securing its rights over its portion o the disputed property and furthering its business. I have to note that the AO has not disputed the fact of the legal dispute, but has questioned the expenditure on security with respect to the development of the security personnel on the disputed portion of the joint development rather than on the owned portion. On this point the appellant argues that it is the disputed portion that needs to be secured more than the owned portion since it is the former which is more vulnerable. 4.1.4 On a careful consideration of the issues, as mentioned above, I find that the AO has not adduced sufficient reasons to assert that the appellant was not engaged in business activities. Whereas he has base his conclusion on the fact that no business income was declared, the fact that the sale of the property did not take place due to various reasons during the year cannot automat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 7.40 Crores and Canara Housing Development Company ₹ 3.35 Crores. Before us, the ld. DR of revenue could not point out any difference in facts in the present two years and in Assessment Year 2008- 09 because the ld. CIT(A) in the present two years has followed the order of CIT(A) in Assessment Year 2008-09. In Assessment Year 2008-09, the revenue has filed an appeal before the Tribunal also which has been decided by Tribunal in ITA Nos. 646 811/Bang/2012 dated 20.03.2013 and we find that in these two appeals of revenue, the only issue raised by revenue is regarding allowability of partnership insurance premium of ₹ 187 Lakhs and ₹ 506.04 Lakhs for these two years paid by the firm being the insurance premium in the nature of keyman insurance premia and regarding allowability of expenditure issue, no ground has been raised by revenue in the these two appeals filed before Tribunal for these two years. Since no difference in facts has been pointed out by ld. DR of revenue in present two years i.e. Assessment Years 2013-14 and 2014-15, in our considered opinion, in view of the principle of consistency, the order of CIT(A) does not contain any infirmit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... using Development Company of ₹ 335 Lakhs Total of ₹ 30.87 Crores 18. The Balance Sheet of the assessee firm for the year ending as on 31.03.2014 is available on record and as per the same, we find that the assessee s own interest free funds in the form of partners capital as on 31.03.2014 was to the extent of ₹ 35,17,36,566/- and hence, it is seen that the interest free funds available with the assessee is much more than the interest free advances given by assessee firm to its sister concerns. In the light of these facts, we examine the applicability of the judgments of Hon ble Bombay High Court rendered in the case of CIT vs. Reliance Utilities and Power Ltd. (supra) and of Hon ble Karnataka High Court rendered in the case of CIT vs. Brindavan Beverages Pvt. Ltd. (supra). As per para 10 of this judgment of Hon ble Bombay High Court, it is held that if interest free funds available with assessee is sufficient to meet its investments and at the same time, the assessee has raised a loan, it can be presumed that the investments were from the interest free funds available and in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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