9911796707
TMI Blog2016 (8) TMI 1522X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 143(3) of the I.T. Act, 1961 (hereinafter referred to as the Act) was framed vide order dated 29.11.2010. While framing the assessment, the AO made disallowance of interest of Rs. 2,51,64,779/- and also depreciation of Rs. 9,738/- on the ground that the assessee has not carried out any business activity and the payment of interest on the loan taken for paying of earlier loan is thus not for the purposes of business. Aggrieved by this order, the assessee preferred an appeal before ld. CIT (A), who after considering the submissions dismissed the appeal of the assessee ignoring the decision of the ITAT Jaipur on the ground that while deciding the appeals of the assessee by the Jaipur Bench of the Tribunal, for earlier years, all the facts were not available before the Tribunal and there is material change in the facts and circumstances in the current year. 4. Now the assessee is in appeal before the Tribunal. 5. At the outset, the ld. Counsel for the assessee submitted that the issue is squarely covered in favour of the assessee by the decision of the coordinate Bench of the Tribunal in earlier years. He submitted that the interest expenditure is allowable deduction and ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the year under consideration fresh loans have been taken by the assessee for repayment of old loans taken for the purpose of business. Fresh loans taken during the year under consideration for the purpose of repaying the loans taken in past for the purpose of business, in our considered view does not change the character of the loan taken during the year under consideration. The loan taken for the year under consideration has to be treated as taken for business purposes for the simple reason that this loan was substituted with the loans taken in past after repaying the old loans. There is a direct nexus between the fresh loans and old loans because the fresh loans have been utilized for the purpose of repaying the old loan. Now fresh loans partakes the character of loans taken for business purposes. Interest paid on old loans was held as allowable, therefore, interest paid on fresh loans has to be allowed as the character of loan remains the same but only change of the name of the person / institution from whom the fresh loans are taken. Therefore, the decision of Hon'ble Allahabad High Court considered by Ld. CIT(A) in case of Raj Kumar Singh & Co. (supra) is directly on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the cost of work in progress, however, from A.Y. 2001-02 and onwards it was decided to claim the same separately in the Profit & Loss Account as normal business expenditure and the returns filed by claiming such expenses were never doubted and processed u/s 143(1) by the department. For the first time in A.Y. 2004-05, the department has changed its stand by alleging that the assessee has taken fresh loans therefore, they loose their character of business expediency and accordingly disallowance of interest was made. While doing so, the fact that in the A.Y. 2004-05 fresh loans have been taken by the assessee firm for the purpose of repayment of old loans and the interest payment was made during the year on the said loans which were obtained and utilized wholly and exclusively for the purpose of business of the appellant and are admissible expenditure u/s 36(1)(iii) or 37(1) of the Income Tax Act, 1961 was ignored by the department. There is direct nexus and live link between the interest expenditure and the business of the appellant but the Ld. AO alleged that there is no such direct nexus by stating that fresh loans raised are not for the purpose of business but to pay off th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant was following the directions of the Hon'ble Jurisdictional High Court during the suspension of its real estate activity. In this regard, it is further submitted that there was no total discontinuance of business of the appellant as presumed by the AO and Ld. CIT(A). The appellant had earned income from "Complex maintenance charges" and interest income from sundry debtors. On the basis of same and unchanged figure of opening and closing stock, the Ld. AO concluded that during the year under consideration there was no business activity carried out and accordingly held that the interest claimed u/s 36(1)(iii) was not admissible. Further the Ld. AO alleged that the nexus of payment with stock in trade and not with sundry debtors. The allegation of the Ld. AO with regard to nexus are incorrect as the nexus of payment of interest is fully justified which is on account of borrowed loans which were utilized for purpose of real estate business. It is pertinent to note here that the business of construction had remained in abeyance due to orders of stay passed by Hon'ble Rajasthan High Court dated 24-03-1996 due to ongoing dispute between partners of the assessee firm. Thus const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... radicted anywhere in the assessment order. Since this is an established fact that the real estate business is always carried out on the basis of loans from various agencies and their utilization is exclusively to expand the business without in any way leading to the fact that any stoppage or a lull period would hamper the construction work. Even if, for argument sake, the findings of the Ld. AO are considered that there was no business due to stay order of the court, thus it cannot be said that the repair works, construction of passage and other allied and facility items did not continue during this period also as the stay order was purely for constructing new units and extension of the existing units. The Ld. CIT(A) at page 7 of its impugned order firstly tried to disbelieve the value of closing work in progress claimed by the appellant in A.Y. 1996-97 which as submitted above is due to typographical error and deserves to be ignored. Further Ld. CIT(A) has also doubted the total area available with the appellant as work in progress by alleging that the assessee received advances for 8549 sq. ft. area by wrongly appreciating the fact that the amount was received against the bookin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which has been revived now by vacation of stay with effect from settlement reached between parties. It is further submitted that the suspension or discontinuation of one of the activities of business out of several such activities does not disentitle the taxpayer from deduction of interest or other expenditure incidental to the business. All the business activities taken together constitutes the business undertaking as one and so long the same remains under the common management with common resource employment and common establishment and control it cannot be said that the business activity is separate and distinct. The appellant continued its business in the relevant assessment year and the business was neither closed nor discontinued nor it had ever ceased to be functional during the previous year relevant to the assessment year under appeal. It is further submitted that u/s 36(1)(iii) of the Income Tax Act, 1961 it is categorically spelled out that the interest paid is an allowable expenditure if it is paid in respect of capital borrowed for the purpose of business. From the perusal of section 36(1)(iii) it is submitted that the interest paid on borrowed capital and used for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the year under consideration fresh loans have been taken by the assessee for repayment of old loans taken for the purpose of business. Fresh loans taken during the year under consideration for the purpose of repaying the loans taken in past for the purpose of business, in our considered view does not change the character of the loan taken during the year under consideration. The loan taken for the year under consideration has to be treated as taken for business purposes for the simple reason that this loan was substituted with the loans taken in past after repaying the old loans. There is a direct nexus between the fresh loans and old loans because the fresh loans have been utilized for the purpose of repaying the old loan. Now fresh loans partakes the character of loans taken for business purposes. Interest paid on old loans was held as allowable, therefore, interest paid on fresh loans has to be allowed as the character of loan remains the same but only change of the name of the person/institution from whom the fresh loans are taken. Therefore, the decision of Hon'ble Allahabad High Court considered by ld. CIT (A) in case of Raj Kumar Singh & Co. (supra) is directly on the i ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
