Shri. Ibrahim Shereef, Shimoga V. DCIT, Shimoga

CO 53/BANG/2009

• Counselvise Citation: [2010] 122 COUNSELVISE.COM (IT) 4423 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 5 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 05-02-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 03-02-2010
• Assessment Year: 2007-2008
• Appeal Filed On: 30-09-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income
• Section: 154; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO.762/BANG/2009 ASSESSMENT YEAR : 2007-08 THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE 1, SHIMOGA. : APPELLANT VS. SRI IBRAHIM SHEREEF, CONTRACTOR, BALEBYLU, THIRTHAHALLI. : RESPONDENT C.O. NO.53/BANG/2009 (IN ITA NO.762/BANG/2009) ASSESSMENT YEAR : 2007-08 SRI IBRAHIM SHEREEF, CONTRACTOR, BALEBYLU, THIRTHAHALLI. : CROSS OBJECTOR VS. THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE 1, SHIMOGA. : APPELLANT IN APPEAL REVENUE BY : SMT. JACINTA ZIMIK VASHAI ASSESSEE BY : SHRI CHYTHANYA ITA NO.762/B/09 & CO NO.53/B/09 PAGE 2 OF 6 O R D E R PER GEORGE GEORGE K., JUDICIAL MEMBER THE APPEAL IS FILED BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE, DIRECTED AGAINST THE ORDER OF THE CIT(APP EALS), HUBLI DATED 4.5.2009. 2. THE FOLLOWING GROUNDS ARE RAISED BY THE REVENUE : 1. THE LEARNED CIT(A) HAS ERRED IN DELETING THE AD DITION MADE BY THE AO U/S. 154 OF THE ACT. 2. THE LEARNED CIT(A) SHOULD HAVE APPRECIATED THAT THE ASSESSEE IS NOT MAINTAINING ANY BOOKS OF ACCOUNTS A ND HE HAD NOT SHOWN THE RECEIPT OF INCOME FROM THE FDRS I N THE GROSS RECEIPTS FILED WITH THE RETURN OF INCOME. 3. THE LEARNED CIT(A) SHOULD HAVE APPRECIATED THAT THE INCOME WAS DETECTED BY THE AO ON THE BASIS OF TDS CERTIFICATES FILED BY HIM ALONG-WITH THE RETURN OF INCOME WHICH HAS BEEN CLAIMED AS TAX PAID. 4. THE LEARNED CIT(A) SHOULD HAVE APPRECIATED THAT NO PART OF INTEREST HAS BEEN ADDED IN THE GROSS RECEIPTS BY THE ASSESSEE BUT TDS DEDUCTED BY THE BANK HAS BEEN CLAI MED. HENCE, TO ALLOW THE CREDIT OF TDS, INCOME HAS TO BE ADDED TO THE TOTAL INCOME. 3. THE BRIEF FACTS OF THE CASE ARE THE ASSESSEE IS AN INDIVIDUAL, A CLASS-I CIVIL CONTRACTOR, WHO EXECUTES ORDERS FOR C ENTRAL & STATE GOVERNMENT. THE ASSESSEE FILED RETURN OF INCOME ON 24.10.07, ESTIMATING INCOME OF A SUM OF RS.1,69,18,790. THE SAID RETURN WAS PROCESSED U/S. 143(1) AND A DEMAND WAS RAISED FOR AN AMOUNT OF RS, 6,313 ON 27.12.07. FURTHER THE ASSESSING OFFICER ISSUED A NOTICE U/S. 154 DATED 29.2.08 TO TAX SEPARATELY A SUM OF RS.4,35,286 BEING THE INTEREST RECEIVED ON BANK ITA NO.762/B/09 & CO NO.53/B/09 PAGE 3 OF 6 DEPOSITS AS INCOME FROM OTHER SOURCES AND PASSED OR DER U/S. 154 ON 18.3.08 BRINGING TO TAX A SUM OF RS.4,35,286. ON A PPEAL, THE CIT(APPEALS) PASSED AN ORDER ON 4.5.09 ADMITTING THE INTEREST IN COME PARTOOK THE CHARACTER OF BUSINESS INCOME AND DIRECTED THE AO TO DELETE THE ADDITION U/S. 154. 4. AGGRIEVED THE REVENUE HAS FILED THE APPEAL BEFOR E US AND THE ASSESSEE HAS FILED A CROSS OBJECTION STATING THAT I NITIATION OF RECTIFICATION PROCEEDINGS U/S. 154 IS BAD AND THERE WAS NO MISTAK E APPARENT ON RECORD. 5. AT THE TIME OF HEARING, THE LD. AR SUBMITTED THA T THE CROSS OBJECTION FILED BY THE ASSESSEE IS NOT PRESSED AND HENCE THE SAME IS DISMISSED. 6. THE LD. DR WITH REFERENCE TO APPEAL FILED, SUBMI TTED NO PART OF INTEREST INCOME HAS BEEN ADDED TO THE GROSS RECEIPT S OF THE ASSESSEE, BUT TDS DEDUCTED BY THE BANK HAS BEEN CLAIMED. HENCE T O ALLOW CREDIT OF TDS, INCOME HAS TO BE ADDED TO THE TOTAL INCOME. 7. THE LD. AR SUBMITTED THAT THE ASSESSEE KEPT THE FIXED DEPOSIT WITH BANKERS ONLY TO GIVE SECURITY FOR ISSUING BANK GUAR ANTEE ON THE BASIS OF WHICH THE ASSESSEE COULD GET CIVIL CONTRACTS FROM C ENTRAL OR STATE GOVERNMENTS. IN OTHER WORDS, IT WAS SUBMITTED WITH OUT THE ISSUE OF THE BANK GUARANTEE, THE ASSESSEE WOULD NOT HAVE GOT THE BUSINESS OF EXECUTING CIVIL CONTRACTS. HE ALSO SUBMITTED CHANG ING THE HEAD OF INCOME TO INCOME FROM OTHER SOURCES IN PROCEEDINGS U/S. 15 4 IS NOT WARRANTED. IT WAS FURTHER CONTENDED THE INSTANT CASE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE IN THE CASE OF CHINNA NACHIMUTHU CONSTRUCTIONS (ITA ITA NO.762/B/09 & CO NO.53/B/09 PAGE 4 OF 6 NO.508/BANG/2000), WHICH WAS AFFIRMED BY THE JURISDICTIONAL HIGH COURT IN THE CASE REPORTED IN 297 ITR 70. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN THE INSTANT CASE, THE FINDING OF THE CIT (APPEALS) THAT FIXED DEPOSITS WERE MADE TO SECURE BANK GUARANTEE AND AS SUCH INTEREST ON FIXED DEPOSITS ALSO PARTAKES THE NATURE OF BUSINESS INCOME HAS NOT BEEN CONTROVERTED BY THE LD. DR. WE FIND THE ISSUE IN QU ESTION IS SQUARELY COVERED BY THE TRIBUNALS DECISION IN ITA NO.508/B/ 2000. IN THIS CASE, THE ASSESSEES PROFITS HAD BEEN ESTIMATED AT 7.5% OF GR OSS RECEIPTS IN RESPECT OF CONSTRUCTION WORK. HOWEVER, A SEPARATE ADDITION WAS MADE IN RESPECT OF INTEREST INCOME. THE SAID INTEREST INCOME WAS EARN ED ON FIXED DEPOSITS WHICH WERE KEPT FOR OBTAINING BANK GUARANTEES FOR S ECURING CONTRACT FROM KPTCL. ACCEPTING THE STAND OF THE ASSESSEE, THE TR IBUNAL HELD AS FOLLOWS: 7.4 FROM THE FACTS OF THE CASE, WE FIND THAT THERE IS A DIRECT NEXUS BETWEEN EARNING OF INCOME AND THE MAIN BUSINE SS ACTIVITY OF THE ASSESSEE. THE DEPOSITS IN THE FORM OF SECUR ITY DEPOSIT ARE REQUIRED TO BE MAINTAINED TO OBTAIN CONTRACT FROM K ARNATAKA POWER CORPORATION. THE ASSESSEE IS ALSO REQUIRED T O MAINTAIN FIXED DEPOSIT WITH BANK TO AVAIL BANK GUARANTEE FAC ILITY. THUS, THE BANK GUARANTEE IS REQUIRED TO BE GIVEN TO THE K ARNATAKA POWER CORPORATION FOR OBTAINING A HUGE SUM AS ADVANCE TOW ARDS CONSTRUCTION WORK. THEREFORE, THESE IMPLY THAT THE ACTIVITIES ARE PART AND PARCEL OF THE ASSESSEES MAIN BUSINESS ACT IVITY. THE SECURITY DEPOSIT AS WELL AS FIXED DEPOSIT WITH BANK CAN BE CONSIDERED TO BE A TRADING ASSET ONLY AND INCOME AR ISING FROM THE TRADING ASSET IS REQUIRED TO BE TAXED AS INCOME FR OM BUSINESS ONLY. 9. THE AFORESAID DECISION WHEN CHALLENGED BEFORE TH E HONBLE HIGH COURT IN THE CASE OF CIT V. CHINNA NACHIMUTHU CONSTRUCTIONS (2008) 297 ITR 70 (KAR) HAS BEEN AFFIRMED. THE HONBLE KARNATAKA HIGH COUR T HELD AS FOLLOWS: ITA NO.762/B/09 & CO NO.53/B/09 PAGE 5 OF 6 .. IT IS NOT IN DISPUTE THAT THE ASSESSEE BEING A CONTRACTOR IN ORDER TO SECURE A CONTRACT WORK WAS REQUIRED TO OFF ER A BANK GUARANTEE TO THE KPTCL. IT IS NOT IN DISPUTE THAT IN ORDER TO AVAIL OF THE BANK GUARANTEE, CERTAIN AMOUNTS WERE INVESTE D IN FIXED DEPOSITS, WHICH HAD ACCRUED INTEREST. THE ASSESSEE HAD SHOWN THE INTEREST ACCRUED ON THE FIXED DEPOSITS AS BUSINESS INTEREST. BUT THE ASSESSING OFFICER TREATED THE INTEREST, CONSIDE RING THE SAME AS INCOME FROM OTHER SOURCES AND CALLED UPON THE ASSES SEE TO SHOW CAUSE, WHICH ORDER HAS BEEN FURTHER CONFIRMED BY TH E INCOME-TAX APPELLATE TRIBUNAL. THIS APPEAL IS FILED AGAINST T HE CONCURRENT FINDINGS OF THE COURTS BELOW. HAVING HEARD COUNSEL FOR BOTH SIDES, WE HAVE NOTICE D THAT THE INVESTMENT OF AMOUNT IN FIXED DEPOSITS BY THE ASSES SEE WAS ONLY TO SECURE A BANK GUARANTEE TO BE OFFERED TO M/S. KP TCL IN ORDER TO ACQUIRE A CONTRACT WORK. THEREFORE, IT CANNOT B E TREATED AS AN INCOME FROM OTHER SOURCES AND INTEREST ACCRUED ON S UCH FIXED DEPOSITS HAS TO BE TREATED AS BUSINESS INCOME ONLY. OUR VIEW IS ALSO SUPPORTED BY THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CIT V. GOVINDA CHOUDHURY & SONS [1993] 203 ITR 881. 10. IN VIEW OF THE AFORESAID REASONING, WE FIND CIT S DIRECTION TO CONSIDER INTEREST INCOME AS PART OF INCOME FROM CON TRACT BUSINESS AND TO DELETE THE ADDITION MADE U/S. 154 OF THE ACT IS COR RECT AND IN ACCORDANCE WITH LAW. 11. HOWEVER, WE FIND THE ASSESSEE HAS NOT INCLUDED THE SAME IN THE GROSS RECEIPTS OF THE CONTRACT BUSINESS. THEREFORE , FOR THE LIMITED PURPOSE, WE REMIT THE MATTER BACK TO THE FILE OF THE AO AND AO SHALL ADD THE INTEREST INCOME TO THE CONTRACT RECEIPTS AND 7% OF THE CONTR ACT RECEIPTS SHALL BE BROUGHT TO TAX. THEREFORE, IN THE LIGHT OF THE ABO VE, THE APPEAL FILED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO.762/B/09 & CO NO.53/B/09 PAGE 6 OF 6 PRONOUNCED IN THE OPEN COURT ON THIS 5 TH DAY OF FEBRUARY, 2010. SD/- SD/- (A. MOHAN ALANKAMONY ) ( GEORGE GEORGE K. ) ACCOUNTANT MEMBER JUDICIAL ME MBER BANGALORE, DATED, THE 5 TH FEBRUARY, 2010. DS/- COPY TO: 1. REVENUE 2. ASSESSEE 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.