The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has held that Interest expense which is in nature of rent deposit cannot be disallowed.
The Revenue appealed against the order of Commissioner of Income-tax (Appeals)-1, Ahmedabad [“CIT(A)]” dated 23.05.2016 which restricted the addition of Rs. 2,63,59,170/- made by the Assessing Officer on account of estimated profit on the sale of 5 units to Rs.58,31,955/-.
M/s. Aarya Realties Pvt. Ltd., the assessee engaged in the real estate business. Return of income for the year under consideration was filed by it on 14.08.2013 declaring a loss of Rs.1,29,02,944/-. The AO noted that the assessee company was appointed as a developer by M/s. Advait Realty Pvt. Ltd. by an agreement dated 28.06.2005 for the development of land and with the permission of Ahmedabad Municipal Corporation, a building known as “Arya Arcade” was constructed by the assessee in terms of the said development agreement.
It was observed that 5 out of 11 offices were sold by the assessee during the year under consideration for a total consideration of Rs.6,20,79,312/-, including the share amount; whereas the remaining 6 offices had been sold by the assessee in the earlier years.
The AO after allowing credit of Rs.30,53,668/- on account of excess sale consideration taken by the assessee for the remaining 6 properties, the profit earned by the assessee during the year under consideration was worked out by the Assessing Officer at Rs.2,63,59,170/-. CIT(A) restricted the estimation of the business profit of the assessee as made by the Assessing Officer at Rs.2,63,59,170/- to Rs.58,31,955/-.
It was contended by Shri Bhavin Marfatia, counsel for the assessee that the mistake committed by the Assessing Officer in his work was also pointed out by the assessee by submitting that the offices sold during the year under consideration were situated on the ground floor and first floor where the sale price of the same as well as the corresponding cost of construction was much higher than the remaining offices sold in the earlier years. Shri Anand Kumar, the Departmental Representative failed to rebut or controvert the finding of CIT(A) while giving relief to the assessee.
A Coram of Shri P M Jagtap, vice-president and Ms Suchitra R Kamble, judicial member observed that the CIT(A) deleted the disallowance of Rs.2,41,365/- made by the Assessing Officer on account of interest expenses. CIT(A)found that the amount of Rs.20,11,378/- was not like the sadvance given by the assessee but the same was a rent deposit which was transferred to the office owners.
The Tribunal upheld the impugned order of the CIT(A) giving relief to the assessee.
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