Income Tax Appellate Tribunal - DelhiNirja Guleri,, vs Assessee on 23 March, 2005ITA NOS. 2662 & 2987/DEL/2005
                                                                         A.Y. 2001-02

                 IN THE INCOME TAX APPELLATE TRIBUNAL
                          DELHI BENCH "E" NEW DELHI
                 BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER
                                     AND
               SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER
                            I.T.A. No. 2662/Del/2005
                                 A.Y. : 2001-02


ACIT, CIRCLE-24(1),                    vs. Smt. Nirja Guleri,
R.NO. 238B, C.R. Bldg.,                    Prop. Prime Channel,
New Delhi                                  A-2/30, Safdarjung Enclave,
                                           New Delhi
                                           (PAN: AALPG4019P)

                                     AND
                           ITA NO. 2987/DEL/2005
                                 A.Y. 2001-02
Smt. Nirja Guleri,                     vs. ACIT, CIRCLE-24(1),
Prop. Prime Channel,                       R.NO. 238B, C.R. Bldg.,
A-2/30, Safdarjung Enclave,                New Delhi
New Delhi
(PAN: AALPG4019P)
(Appellants)                                (Respondents)

           Asseessee by                 :   SH. V.K. GARG, ADV.
          Department by                 :   Sh. N.K. CHAND, Sr. D.R.

                               ORDERPER BENCH
     These appeals by revenue and assessee emanate out of order of

the Ld. Commissioner of Income Tax (Appeals) dated 23.3.2005

pertaining to assessment year 2001-02.1ITA NOS. 2662 & 2987/DEL/2005
                                                                    A.Y. 2001-02

REVENUE'S APPEAL2.    The   issue raised is that Ld. Commissioner of Income Tax
(Appeals) has erred in deleting the addition amounting to ` 5,62,252/-
disallowed by Assessing Officer     for utilizing the borrowed funds for
non-business use.2.1   At the threshold, we note that the total addition made in this
case is ` 5,62,252/- and the tax effect in this case is below ` 2 lakhs,
fixed by the CBDT for filing the appeal before the           Tribunal vide
Instruction No. 5 dated 16.7.2007.      While considering the effect of
CBDT Instructions in this regard,   ITAT Delhi Benches are consistently
taking the view that revenue authorities must give respect to the
C.B.D.T. Circulars and should not file appeal in small and petty cases.
The whole idea of the circular is not to waste energy of the department
on small matters and save it for high-tax yielding cases.2.2   In our above view, we find support from the recent decision of the

Hon'ble Bombay High Court in the case ofCommissioner of Income Tax

vs. Pithwa Engg. Works, [2005] 197 CTR (Bom) 655 : [2005] 276 ITR

519 (Bom) wherein their Lordships following their order in the case ofCIT vs. Camco Colour Co.[2002] 173 CTR (Bom) 255 : [2002] 254 ITR

565 (Bom) held that "Instruction dt. 27th March, 2000 reflect the policy

decision taken by the Board not to raise questions of law where the tax

effect is less than the amount prescribed with a view to reduce

litigations before the High courts and the Supreme Court.           The said

circular is binding on the Revenue. One fails to understand how the2ITA NOS. 2662 & 2987/DEL/2005
                                                                      A.Y. 2001-02

Revenue can contend that so far as new cases are concerned, the

circular issued by the Board is binding on them and in compliance with

the said instructions, they do not file references if the tax effect is less

than ` 2 lakhs, but the same approach is not adopted with respect to

the old referred cases even if the tax effect is leas than ` 2 lakhs.There is no logic behind this approach. Board's circular dt. 27th March,

2000 is very much applicable even to the old references which are still

undecided. The Department is not justified in proceeding with the old

references wherein the tax impact is minimal.           Thus, there is no

justification to proceed with decades old references having negligible

tax effect."2.3   For similar proposition, we also find support from the decision of

High Court of Delhi in the case ofCommissioner of Income Tax vs.

Pradeep Kumar Gupta, [2007] 207 CTR (Del) 115 wherein their

Lordships held that tax effect being less than ` 2 lakh, the appeal filed

by the Revenue against the CBDT Instruction was not maintainable.2.4   In this view of the matter and respectfully following the decisions

(supra), it is held that since the tax effect involved in the instant

appeal of the revenue is less than ` 2 Lac, the same is against the

instructions issued by the CBDT and, hence, not maintainable before

the Tribunal. Accordingly, the appeal filed by the revenue is liable to3ITA NOS. 2662 & 2987/DEL/2005
                                                                    A.Y. 2001-02

be dismissed on this ground alone and the same is dismissed

accordingly.ASSESSEE'S APPEAL3.    The first issue raised is that Ld. Commissioner of Income Tax
(Appeals) erred in sustaining the disallowance of ` 122090/- out of total
disallowance of ` 6873842/- being interest paid on loans borrowed and
utilized by the assessee for its business purposes in earlier years.3.1   The assessee is proprietor of M/s Prime Channel, which is
engaged in the production of tele-serials. During the year under
consideration the assessee declared income from house property and
business.   The P&L account filed by the assessee shows an amount of
` 23,80,000/- debited as interest paid.     Further, the balance sheet
showed an amount of ` 1,93,80,000/- as unsecured loans on which
interest at the rate of 14% was paid during the year.        The details of
investment shown in the balance sheet show that during the year fresh
investments were made for ` 1,70,00,000/-. On enquiry as to why the
interest paid on loans to the extent of this investment may not be
disallowed as these were invested in instruments from which income
earned was not chargeable to tax. In response assessee stated that
loans from which interest was paid was taken in earlier year to meet
the requirement of business. Assessing Officer proceeded to hold as
under:-"Thus, from the above discussion it is amply clear that
            interest on borrowed capital cannot be allowed on the
            amount, which is utilized for non-business purpose and for
            the period for which the fund is utilized as such. Thus, in4ITA NOS. 2662 & 2987/DEL/2005
                                                             A.Y. 2001-02

the present case the disallowance is calculated @ 14% on
such amount and for such period as the business funds
were utilized for non-business purpose. The disallowance is
shown in the table below:-Investment Amount             Date           No. of   Interest
                                             days     disallowed @
                                             for      14%
                                             which
                                             intere
                                             st
                                             disall
                                             owed
Alliance      2500000         11.01.2001     80       76712.33
Equity
Growth
Mutual
Fund
Franklin      2500000         11.01.2001     80       76712.33
Templeton
Index Div.
Option
Meryll        10000000        11.01.2001     80       306849.32
Lynch
Bond
Funds
Fixed         2000000         09.06.2000     296      227068.49
Deposit UTI
TOTAL                                                 687342.47


     In view of the       above discussions, out of the total

interest   payment   of    `   23,80,000/-     an     amount      of   `6,87,342.47 is disallowed for utilizing the borrowed funds

for non-business use."5ITA NOS. 2662 & 2987/DEL/2005
                                                                   A.Y. 2001-02

3.2   Upon assessee's appeal Ld. Commissioner of Income Tax

(Appeals) elaborately considered the issue and held as under:-"In the light of the above observations, it is seen that the
          appellant's stand is that loans taken in A.Y. 1997-98 had
          been utilized for the business in that year itself and the
          investments made in this year were out of its own funds,
          and there was no nexus between the interest bearing old
          loans and the investments. To examine this claim the
          appellant's   balance sheet for that year and subsequent
          years has been examine. It is seen that in the period
          relevant to A.Y. 1997-98 the appellant had taken unsecured
          loans of ` 2,03,51,709/- and it had also utilized its existing
          current assets to the extent of about ` 2.70 crores to
          acquire new fixed assets of about ` 1.20 crores, and to
          reduce its current liabilities by about ` 3.12 crores.        Thus
          most of the funds raised as unsecured loans had               been
          utilized in that year. No interest bearing loans were taken
          in subsequent years. But, it is also seen that even after such
          utilization of funds in A.Y. 1997-98, the appellant still had
          an amount of ` 30,18,611.73 as cash in hand and cash in
          bank, as seen in its current assets as on 31.3.1997.       That is
          to say that the appellant's plea that all its funds raised as
          interest bearing loans in A.Y. 1997-98 had been used up in
          that year itself is not found to be entirely correct. It is
          further seen that this amount was not fully depleted in the
          subsequent years as well, that could indicate that all the
          non business investment in A.Y. 2001-02 was made out of6ITA NOS. 2662 & 2987/DEL/2005
                                                         A.Y. 2001-02

the current year's capital, profits etc. It is seen that in the
intervening years also the appellant had cash in hand and in
bank of about ` 66.06 lakhs on 31.3.09, ` 73.27 lakhs as on
31.3.2000 and ` 2.83 crores as on 31.3.2001. thus it is not
correct to say that all the borrowed funds had been used up
in A.Y. 1997-98 or even in the subsequent and intervening
years, since the appellant always had a part of the
unutilized funds out of the interest bearing loans, at least of
` 30,19,611,73 coming down since A.Y. 1997-98 , which
could be said to have been invested towards the non
business investments in A.Y. 2001-02 out of the old interest
bearing loans. It may be added here that in the preceding
A.Y.s, especially in A.Y. 99-00 the fact that the interest
payments were allowed as a deduction would indicate that
it was accepted by the Assessing Officer in that year that
the interest expenditure was for the appellant's business
and hence allowable. But during these proceedings no case
has been made out       by the appellant to show that this
amount     too had been       used up for business in the
intervening years.   But the balance     investment out of `
1.70 crores has to be taken to have been invested out of
the appellant's income and capital of the present A.Y., as
the same for exceeded the amounts invested in FDRs etc.
Thus, there was a nexus between the interest bearing loans
taken in A.Y. 1997-98 and the investments made in the
present A.Y., to the extent of ` 30,19,611.73 only and not in
respect of the balance investment. In view of this position,
the disallowance made by the Assessing Officer has to be7ITA NOS. 2662 & 2987/DEL/2005
                                                                     A.Y. 2001-02

            partly sustained. Out of the claim of ` 23.80 lacs, the
            Assessing Officer had disallowed a sum of ` 6,87,342/-, in
            the present A.Y. when it was treated that the entire
            investments of ` 1.70 crores was made out of interest
            bearing loans. Now since the investment out of interest
            bearing loans is taken to be of ` 30,1,611.73 / ` 1.70 cores x
            ` 6,87,342, which comes to ` 1,22,090/-. This is made for
            the    same   reasons mentioned by the Assessing Officer,
            namely that the investments were for non-business purpose
            and also that the investments were made to earn income
            that was not chargeable to tax.     The disallowance out of
            the interest claimed by the appellant thus comes to `
            1,22,090/- and the appellant gets a relief of the balance
            amount i.e. ` 5,62,252/- [ ` 6,87,342 - ` 1,22,090]."3.3   We have heard both the counsel and perused the records.               We
find that Ld. Commissioner of Income Tax (Appeals) has made a factual
analysis and found that only a part of the interest can be disallowed.
He has given a      finding that out of ` 1.70 crores considered by the
Assessing Officer     investment out of interest bearing funds was `
30,19,611.73. The ld. counsel of the assessee could not controvert the
finding. Hence, in our considered opinion his order does require any
interference on our part.     Hence the disallowance of ` 1,22,090/-
stands affirmed.4.    The next issues raised read as under:-"i)   That the Ld. Commissioner of Income Tax (Appeals) has
            erred on facts and in law in sustaining the assessment of
            rateable value of Property NO. 41-A, Royal Accord, Mumabi,8ITA NOS. 2662 & 2987/DEL/2005
                                                                        A.Y. 2001-02

             at ` 5,00,000/- without appreciating the appellant's claim
             that the said property was used for business purposes and
             as such, no rateable value was assessable.ii)    That without prejudice and in the alternative, if income from
             property No. 41A, Royal Accord, Mumbai, be assessable as
             income from house property, the same is incorrectly
             computed    without     proper   allowance,      outgoings       and
             deductions there from, including because rateable value
             has been taken on non-comparable basis without adopting
             standard rent in view of the decisions of the Hon'ble Apex
             Court. As such too, the said addition is liable to be
             substantially reduced, if not deleted.iii)   That the Ld. Commissioner of Income Tax (Appeals) has
             erred on facts in     law in sustaining the non-allowance of
             depreciation on property no. 41-A, Royal Accord, Mumbai
             used by the assessee for the purposes of its business. The
             same was duly claimed during the course of assessment
             proceedings though inadvertently not claimed in return."4.1   During the course of assessment assessee was required to
furnish the details of properties owned by her. In the details filed it
was observed that the property no. 41-A, Royal Accord, Mumbai was
mentioned as used for business and its annual value was taken at Nil.
However, from the Schedule of fixed assets furnished by the assessee
along with the returns, it was observed that no depreciation was
claimed on this property.          The assessee could not explain why
depreciation was not claimed on this property if the same was used for
the purpose of business. Assessing Officer       opined that property no.9ITA NOS. 2662 & 2987/DEL/2005
                                                                     A.Y. 2001-02

41-A, Royal Accord, Mumbai was not used for the business purpose of
the assessee. Further, in the case of the assessee for A.Y. 1999-2000
the Assessing Officer held that the property was not used for business
and the income was chargeable under the head 'house property'. For
determining the annual value, Assessing Officer found the same to be
equal to that of property no. 41-B, Royal Accord, Mumbai from which,
the assessee showed annual rent of ` 5,00,000/-.         Thus, the annual
value of this property is also taken at ` 5,00,000/-.4.2   Upon assessee's appeal Ld. Commissioner of Income Tax
(Appeals) affirmed the addition.4.3   Against this order the assessee is in appeal before us.4.4   Ld. counsel of the assessee submitted that the in           assessee's
own case, the Tribunal had earlier deleted the addition made for A.Y.
1999-2000 in ITA No. 1865/Del/2005.4.5   We have heard both the counsel and perused the records.               We
find that in the said order the tribunal on the said issue had held as
under:-"We have carefully considered the rival submissions in
                 the light of the material placed before us.      The bills of
                 furniture and fixture which was added during the year
                 under consideration, the claim of depreciation of the
                 assessee has not been disturbed. Those bills clearly
                 shows that the furniture installed       or brought was
                 belonging to that property. It is also not shown by the
                 revenue that assessee used the said property for her
                 personal use. As against that the assessee has been10ITA NOS. 2662 & 2987/DEL/2005
                                                       A.Y. 2001-02

able to show that the said property was business
property and the said facts was clearly stated in the
wealth tax return so filed.      It has not been shown by
the revenue that the claim of the assessee that the
said property is business property was not accepted in
wealth tax proceedings.         Thus, it is difficult to reject
the   submissions    of   the   assessee      that    the    said
property was being used as business property without
bringing any material on record to suggest that the
fact stated by the assessee in the wealth tax return or
on the bills of furniture was wrong. The assessee had
brought the material on record before the Assessing
Officer   to show that the       said property was being
utilized for the purpose of business. The said record
has been rejected without any cogent reasons or by
bringing some adverse material on record to suggest
that the facts stated by the assessee was false or
incorrect.   In these circumstances, the ALV could not
be assessed as the said property was not self-
occupied property. However, so as it relates to claim
of the assessee with regard to depreciation on the said
property, Ld. C.I.T.(A) has not given any                finding
despite the fact that the grievance was stated by the
assessee before him in ground               no. 5.       In the
circumstances,   we hold        that ALV      could     not be
assessed as house property income as the assessee
was using the property for the purpose of business.              If
it is so, the claim of depreciation is consequential.11ITA NOS. 2662 & 2987/DEL/2005
                                                                    A.Y. 2001-02

                 However, neither the Assessing Officer         nor the Ld.
                 Commissioner of Income Tax (Appeals) has quantified
                 the depreciation available, therefore, we        direct the
                 Assessing   Officer      to   compute    the    admissible
                 depreciation on the value of the said property.In the result, the addition made of ` 4,32,000/- (`
                 5,76,000 - ¼ for repair and maintenance, ` 1,44,000/-)
                 assessing net annual letting value of the property is
                 deleted and the Assessing Officer is directed to allow
                 depreciation as directed above. Thus, ground no. 3
                 and 3.1 are allowed in the manner aforesaid."4.6   The facts in the present case are identical, hence, following the
above precedent, we set aside the orders of the authorities below and
decide the issue in favour of the assessee in accordance with above
tribunal decision.5.    The next issue raised is that Ld. Commissioner of Income Tax
(Appeals) erred in sustaining the disallowance of ` 112409/- on account
of electricity charges in respect of property no. 41-A, Royal Accord,
Mumbai used by the assessee for the purpose of business.5.1   This issue is consequential to the above and as such this issue is
also decided in favour of the assessee.6.    The next issue raised is that Ld. Commissioner of Income Tax
(Appeals) erred in sustaining the addition of income from house
property in respect of Property No. W-97, Greater Kailash-II, New Delhi
which has been erroneously assessed on a net annual value of
` 413610/-.12ITA NOS. 2662 & 2987/DEL/2005
                                                                   A.Y. 2001-02

6.1   On this issue Assessing Officer     observed that in the chart
furnished by the assessee the property at Greater kailash-II, New Delhi
was shown as dilapidated property and not in use.     Moreover, the size
of the property was not mentioned by the assessee as required. From
the schedule of the fixed assets, it was observed that the WDV was
shown at ` 1,43,25,000/- and no depreciation was claimed on this
property. Since the value shown in the balance sheet was quite high it
is clear that the same cannot be dilapidated as claimed by the
assessee. Further, the Assessing Officer mentioned that in A.Y. 1999-
2000 also, the Assessing Officer    had taxed rental income from this
property under the head 'income from house property'. Hence, taking
the same step in this year the annual value was taken at ` 4,13,610/-
which   was treated by the Assessing Officer     rateable value of the
property   as per the property tax bill issued by the assessment and
collection department of MCD.6.2   Upon assessee's appeal Ld. Commissioner of Income Tax
(Appeals) confirmed the addition.6.3   We have heard both the counsel and perused the records.             We
find that no evidence whatsoever has been furnished by the assessee
for the claim that the said property is in dilapidated condition and
was not let out. In the earlier year the tribunal had decided the issue
in favour of the assessee by holding the last titled deed was registered
on 12th April, 1999 and tribunal has held that unless it was established
that the assessee has got the possession of the main property before
the   execution of the last title deed, it cannot be said that           with
certainty that any ALV was assessable with regard to that property.
Therefore, tribunal had directed the Assessing Officer to delete the13ITA NOS. 2662 & 2987/DEL/2005
                                                                    A.Y. 2001-02

same.      For the present year under consideration, there is no doubt
regarding the possession of the property by the assessee. In the
absence of the any evidence produced by the assessee that the same
was in a dilapidated condition, we do not find any infirmity or illegality
in the order of the authorities below and, therefore, we affirm the
same.7.   In the result, the appeal filed by the revenue stands dismissed
and appeal filed by the assessee is partly allowed.Order pronounced in the open court on 22/10/2010.Sd/-                                             Sd/-

[A.D. JAIN]                                      [SHAMIM YAHYA]
JUDICIAL MEMBER                              ACCOUNTANT MEMBER

Date 22/10/2010

SRB
Copy forwarded to: -
1.   Appellant 2.     Respondent             3.    CIT   4.      CIT (A)
5.   DR, ITAT


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                                                        Deputy Registrar,
                                                      ITAT, Delhi Benches14