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TMI Blog2024 (5) TMI 1413X X X X Extracts X X X X X X X X Extracts X X X X ..... y on that basis when the assessee had clearly demonstrated that the cash deposits were all made out of withdrawals, opening cash balance and realization of debtors. Thus, we direct the AO to delete the addition made u/s 68. Decided in favour of assessee. Disallowance of interest paid u/s 36(1)(iii) - contention of the assessee is that the interest paid on bank loans is business expenditure and is deriving income from business on account of real estate and finance business was not accepted by the AO as the assessee has not sold any property or built/purchased any property during the current assessment year - HELD THAT:- Incomes/loss returned by the assessee under the head income from business have been accepted for the assessment years 2017-18 to 2022-23 by the Revenue and in none of these years, the incomes/losses shown by the assessee were disturbed. It is the submission that the decision of the Tribunal for the assessment year 2009-10 affirming the order of the learned Commissioner of Income-Tax (Appeals) in holding that the assessee is into real estate business has became final and this was accepted by the Revenue for assessment year 2009-10. We are of the view that simply becau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he fact of carrying on this business has already been accepted while framing regular assessment for the assessment years 2007-08 and 2008-09 and subsequent assessment years. The assessee explained that he is booking space, shops in malls, flats and plots and advancing money for earning business income. The assessee also explained that he is also advancing money for earning interest income. For investment in the above business, the assessee had raised funds from banks, financial institutions and from relatives and private parties. The assessee also explained that he had advanced amounts to various parties for earning interest income. In that process, an amount of Rs. 17,52,681/- was earned as interest from finance business. 4. The assessee further explained that he could not sell any booking on account of fall in real estate business and the advance is remained as advance. It is also explained that no new loans have been taken from the banks during the year. The assessee explained that he has secured bank loans which were used in business and for construction of business properties, it was also explained that the property could not be sold on account of fall in real estate business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the purpose of business or professions. 6. On appeal, learned Commissioner of Income-Tax (Appeals) sustained the disallowance made by the Assessing Officer. 7. The learned counsel for the assessee referring to page 5 of the paper book which is the copy of the order of the learned Commissioner of Income-Tax (Appeals) for the assessment year 2009-10 submits that the issue of whether the assessee is into the business of real estate and finance and whether the interest paid was allowable as business expenses came up for consideration during assessment years 2007-08 to 2009-10 and in the assessment year 2009-10, the learned Commissioner of Income-Tax (Appeals) has accepted the position that the assessee is into the real estate and finance business and, therefore, there is no justification in denying deduction of interest payments which are incurred for the purposes of business of the assessee. The learned counsel for the assessee submits that year after year, the assessee has adduced evidences to show that he is into the real estate business and the expenses claimed by the assessee have been allowed year after year, therefore, the learned counsel submits that the observations of the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that the following facts and arguments may kindly be taken into consideration - 1. The assessee has not transacted in any property during the year. The claim of the assessee that he is engaged in the business of buying and selling of property and that he takes loans to buy properties stands disproved from the fact that no property has been purchased by him since 2006. This is clearly proven by the submission of the assessee himself as reproduced in the order of Ld. CIT(A) at Page 16 of his order. 2. The Ld. CIT(A) has further observed at page 16 that the AO has clearly recorded that the assessee did not file any documentary 3. Proof to authenticate his claim that some loans were used to book properties. He has further observed very clearly that the Balance Sheet is NIL against Investments column which clearly proves that the claims of the assessee are factually incorrect. The assessee s own documents are clearly showing that he has been misleading the Revenue regarding the state of his affairs. 4. Even the interest received by the assessee is largely from the FDs. 5. In respect of the loans and advances of Rs. 8.17 crore advanced by the assessee, the interest earned is onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant property as business expenditure, thereby taking double deduction. 12. As mentioned clearly by the Ld.CIT(A) at page 17 of his order, it was specifically enquired if the property C- 9, Westend Colony purchased/constructed during 2006- 11 was sold off as the assessee has claimed interest on loan taken for purchase/construction as BUAINESS EXPENDITURE. The assessee claimed that as the property could not be sold, so l/4th of the said property was being used as the personal residence of the assessee while 3/4th has been given out on rent. The Ld.CIT(A) has thus rightly concluded that in these facts , only deduction u/s24(b) could have been allowed and not claim of interest payment as business expenditure which the assessee has wrongfully done over several years. 13. Further, the CIT(A) has rightly observed at page 17 of his order that the assessee has himself submitted that for loan of Rs. 10 crore from syndicate bank, the bank had taken collateral charge on the property in CP, Delhi and he had paid loan of Reliance Capital used in construction of property at C-9, Westend Colony. Hence the loan is, therefore, inextricably linked with purchase of property C-9 and, therefore, doubl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. 5) The loans and advances comprise both of loans provided to customers for earning interest and also paid for the booking of moceese advances paid for booking properties do not fetch any interest. The figures under the two heads, therefore, cannot be aggregated to argue insufficiency of income from interest receipts. 6) The allegation of interest free advances / loans to friends and related persons is misconceived and untrue. No specific case has been brought on record by the Revenue with proper evidence. 7) The 17 parties to whom loans and advances have been given were never for earning interest in all those cases. It is only 4 parties from whom interest was expected to be earned on loans extended to them. Interest so earned has been submitted for taxation. The other 13 parties from whom interest has not been earned are those with whom properties have been booked for purchase for sale at an appropriate time. 8) Assessee's accounts are subject to assessment on accrual basis, Therefore, irrespective of the receipt of the interest amount, they get To be taxable on the due dates. The AO in the assessment order in the Cause Title has clearly mentioned the method of accounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction of any sort has not been claimed at any time by the Assessee. The allegation is false. The deduction as permitted by S.24(a) of the Income-tax Act, 1961 (the Act) to the Assessee is not for any interest paid on loans for purchasing a property. Deduction for interest paid on loans availed for acquiring properties is covered separately under S.24(b) of the Act. No such claim has been made by the Assessee u/s. 24(b). All interest outgoings have been claimed solely against business income. There is thus no question of any double deduction. 13) As a business entity, Assessee has the unfettered right to arrange his affairs according to his prudence and discretion. Any objection by the Revenue in this regard is inconsequential and redundant. The apex Court decisions in Walchand Co. P. Ltd. (1967) 65 ITR 381 and J.K. Woollen Manufacturers (1969) 72 ITR 612 stand solidly to support this proposition. 14) The CIT(A) s observation regarding the interest charge on the top up loan of Rs. 22.79 lacs from ICICI is ex facie erroneous, in as much as, the property has been acquired out of an interest bearing loans and so interest has rightly to be allowed against the business income result ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56,40,000/- and thereafter the assessee has demolished the old structure and had constructed a new building by making the new investments of Rs. 1,02,50,064/- in the AY 2007-08, Rs. 1,20,94,513 and the AY 2008-09 and Rs. 1,05,16,509/- in the A.Y 2009-10 and as such it is very much apparent that the assessee was in a real estate business venture. So it is apparent that the motive of the assessee is to be in the real estate business. There is also considerable merit in the submissions of the assessee that the property could not be sold because of the poor market conditions. It is also apparent that the assessee is in the real estate business and for this purpose only the old property was purchased on 08/03/2006 and the assessee has constructed a new building on the same property after demolishing the old building. It is apparent from the above facts and circumstances of the case that the business activities of the assessee started with the purchase of the property on 08/03/2006 and as such the assessee is eligible for the deduction of the interest payments which are for the purpose of business. 4.7 After considering all the case facts and circumstances of the case, I am of the view t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asing of the property and the process of the activity of the development of the property started and the assessee also relied on the case of Swire Holding P Ltd. vs ITO, [2006] 6 SOT 621 (BANG.) (SMC) and Dhoomketu Builders Development P Ltd. vs Addl. CIT [2012] 49 SOT 312 (Delhi). It is submitted that in the present case the business of the assessee started on 08/03/2006 when the property was purchased and the development activity was started by the assessee immediately thereafter . It is also submitted by the ld. AR that the assessee has been dealing with many other properties regarding the purchase and sale of property and for this purpose, advances were made to various parties. 5. We have heard the rival submissions and have carefully perused the relevant material on record. From the facts emanating from the order of the AO and the submissions of the assessee it is an undisputed fact that the assessee was having a property at C-2 3, Premji House, Connaught Place, New Delhi which had been given on rent and the assessee was receiving rental income. The assessee has also purchased a property on 08/03/2006 for a consideration of Rs 3,56,40,000/- at C-9, Westend Colony, New Delhi an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 08/03'2006 for Rs 3,56,40,000/- and thereafter the assessee has demolished the old structure and had constructed a new building by making the new investments of Rs 1.02,50,064/- in the AY 2007-08, Rs 1,20,94,531/- in the AY 2008-09 and Rs 1.05.16,509/- in the AY 2009-10 and as such it is very much apparent that the assessee was in a real estate business venture. So it is apparent that the motive of the assessee is to be in the real estate business. There is also considerable merit in the submissions of the assessee that the property could not be sold because of the poor market conditions. It is also apparent that the assessee is in the real estate business and for this purpose only the old property was purchased on 08/03/2006 and the assessee has constructed a new building on the same property after demolishing the old building. It is apparent from the above facts and circumstances of the case that the business activities of the assessee started with the purchase of the property on 08/03/2006 and as such the assessee is eligible for the deduction of the interest payments which are for the purpose of business. 4.7. After considering all the case facts and circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e disallowance of Rs. 1,65,62,973/- made by the Assessing Officer. Ground no.1 of grounds of appeal raised by the assessee is allowed. 15. Coming to ground no.2 of grounds of appeal, we notice that in the course of assessment proceedings, the Assessing Officer noticed that the assessee made several cash deposits into saving bank account with Karnataka Bank. Assessee was required to explain the cash deposits. Assessee vide letter dated 15.11.2016 explained the sources for the cash deposits of Rs. 66,70,000/-. The assessee explained that the cash deposits in the Canara Bank Account was out of cash withdrawal made, out of opening cash in hand and, therefore, all the cash deposits were explained. However, not convinced with the submissions of the assessee, the Assessing Officer treated the cash deposits of Rs. 66,70,000/- on the ground that the assessee did not show any expenditure against cash withdrawals from banks ignoring the submission of the assessee that the cash was withdrawn whenever required from other banks to meet the requirement or to honour the cheques issued by the assessee in any of the banks. 16. On appeal, learned Commissioner of Income-Tax (Appeals) sustained the add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been read partially by the CIT(A) and so the error in the findings. ii) |The best evidence of cash-in-hand as on 01.04.2013 is the audit report as on 31.03.2013 which forms part of the records of the case. iii) The CIT(A) perhaps was ignorant of the fact that without a cash book, there cannot be an audit of th books of account. iv) The bunch of papers as per the monenclature supplied by the Authorities is a partial printout of the cash book which was desired for checking the antecedents of the cash which was desired for checking the antecedents of the cash deposits. The so called bunch of papers is on integral part of the cash book which has been misunderstood by the lower authorities. v) The Sr. DR errs in describing the CIT(A) is He . It is actually a lady CIT(A) who has passed the order which basic fact the Sr. DR has omitted to note. This point regarding interest being submitted on for taxation accrual basis has already been dealt in point 8 above. The several cases cited by the A.O, as pointed out during the course of the hearing on behalf of the assessee, are totally distinguishable on facts and so inapplicable to the subject case. Rest of the observations of the Sr. DR bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted for taxation on accrual basis has already been dealt in point 8 above. The several cases cited by the AO, as pointed out during the course of the hearing on behalf of the Assessee, are totally distinguishable on facts and so inapplicable to the subject case. Rest of the observations of the Sr. DR being repetitious and inane which require no separate comments subject to the caveat. That the order of the CIT(A) dated 26.03.2019 complaining non-compliance by the Assessee on 26.03.2019 requires to be quashed as precipitous and arbitrary in terms of the decision of the Madras High Court in S. Velu Palander (1972) 83 ITR 683. Placed for the most favourable consideration. 20. Heard rival submissions and perused the orders of the authorities below. 21. It is observed that the assessee made detailed submissions before the learned Commissioner of Income-Tax (Appeals) as under: Ground no.2: That the Ld. ACIT has erred in making addition of cash of Rs. 66,70,000 deposited in small amount on different dates in Karnataka Bank out of cash in cash book without any cogent reasons. Whereas cash in cash book is out of realization of outstanding from parties and cash withdrawals from bank a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Rs.30,00,000. 06.12.2013 The assessee has deposited cash of Rs. 30 lacs on 06.12.2013 in Karnataka Saving Bank account. The sources of the same was out of opening cash in hand on 01.12.2013 at Rs. 54,98,065 5. Rs.3,00,000 30.12.2013 The said deposit is out of opening cash in hand on 01.12.2013 at Rs. 54,98,065. Copy of Bank book is filed. 6. Rs.9,00,000 17.01.2014 Both the said deposits are out of opening cash in hand on 01.01.2014 at Rs. 21,79,565. 8. Rs.1,50,000 17.02.2014 The assessee was having cash in hand on 01.02.2014 at Rs. 9,71,565. The said cash deposit of Rs. 1,50,000 on 17.02,2014 and Rs. 1,20,000 on 21.02.2014 are out of cash in hand at Rs. 9,71,565. The deposit in cash book are out of withdrawals from Karnataka Bank on earlier dates. 10. Rs.2,50,000 04.03.2014 The assessee was having cash in hand on 01.03.2014 at Rs. 8,90,565. The deposit in Karnataka Bank is out of cash in hand. Rs.66,70,000 Total cash deposit. NOTE: i) The source of cash in hand was out of opening cash in hand. Interest income declared as income in previous year received in cash on 01.04.2013 from the parties and other amount received from outstanding debtors. Cash withdrawals from Canara Bank for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appellant. The Ld. ACIT in para no.4.3 from a to h at pge no. 11 12 of the assessment order has stated certain details which are only for making addition. He did not take into account the copy of cash book. He did not give any cognizance to the detailed explanation filed. He has not taken into account the opening cash in hand in the books on the Ist of every month. If he would have taken into account the opening cash in hand on the Ist day of every month is much more. There is no shortage of cash book for depositing in Karnataka Bank saving bank account. In view of the above stated facts and excess monthly cash in hand, the addition of Rs. 66,70,000 deserves to be deleted. The relief of the same may be allowed. 22. It is the observations of the learned Commissioner of Income-Tax (Appeals) that there is no authentication with respect to month-wise figure of cash in hand as cash book is not the part of the books listed as having been audited. He also observed that only a bunch of pages were submitted and it cannot be accepted as cash book. It is also the finding of the learned Commissioner of Income- Tax (Appeals) that entries in the cash book pertained to interest receivable and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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