TULIP SHAPES & STRUCTURES (P) LTD, MUMBAI V. IT WD 1(3)(3), MUMBAI

ITA 1010/MUM/2015

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 2201 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 13-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: HITENDRA BHANDARI
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, M UMBAI BEFORE SHRI A.K. GARODIA, AM ITA NO.1010/MUM/2015 ASSESSMENT YEAR: 2010-11 TULIP SHAPES & STRUCTURES P. LTD. 6 TH FLOOR, A WING, UNIVERSAL BUSINESS PARK, CHANDIVALI FARM ROAD, OFF SAKI VIHAR ROAD, ANDHERI (E), MUMBAI- 4000072 / VS. THE ITO WARD- 1 (3)(3), AAYKAR BHAWAN, ROOM NO. 528, 5 TH FLOOR, MUMBAI 400020. ./ ./ PAN/GIR NO. AADCT0329F ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI. HITENDRA BHANDARI / RESPONDENT BY : SHRI. V.S.JADHAV / DATE OF HEARING : 22/12/2015 !'# / DATE OF PRONOUNCEMENT : 22/12/2015 / O R D E R PER A. K. GARODIA, A. M . THIS IS AN ASSESSEE APPEAL DIRECTED AGAINST THE OR DER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-3, MUMBAI (HER EINAFTER CALLED AS THE CIT(A) ) DT. 19.01.2015 FOR ASSESSMENT YEARS 201011. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER :- 1. THE LD. CIT (A) ERRED IN LAW AND FACTS UPHOLDING THE ASSESSMENT OF INTEREST INCOME OF RS. 10,79,013/- UN DER THE HEAD 'INCOME FROM OTHER SOURCES'. THE REASONS G IVEN BY HIM FOR DOING SO ARE WRONG, CONTRARY TO THE FACT S OF THE CASE AND AGAINST THE PROVISIONS OF LAW. 2 ITA NO.1010/MUM/2015 ASSESSMENT YEAR: 2010 -11 2. THE LD. CIT (A) ERRED IN LAW AND FACTS IN DENYIN G THE DEDUCTION OF INTEREST EXPENSE INCURRED FOR EARNING INTEREST INCOME U/S 36 (1) (III) OR U/S 57 OF THE A CT. 3. THE LD. CIT (A)/ AO NOT JUSTIFIED IN TREATING TH E INTEREST EXPENSE AS 'BUSINESS EXPENSE' AND INTEREST INCOME AS 'INCOME FROM OTHER SOURCES'. 4. THE AO / CIT (A) FAILED TO APPRECIATE THAT ASSES SEE HAS COMMENCED BUSINESS OF DEVELOPERS & BUILDERS AND ACQUIRED LAND FOR THE PURPOSE AND INTEREST WAS EARN ED BY LENDING /DEPOSIT OF BORROWED FUNDS. 5. THE ABOVE GROUNDS/SUB-GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER. 6. THE APPELLATE CRAVES THE LEAVE TO ADD, AMEND OR ALTER ALL OR ANY OF THE GROUNDS OF APPEAL. 2.1 LEARNED AR OF THE ASSESSEE PLACED RELIANCE ON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT RENDERED IN T HE CASE OF CIT VS. LOK HOLDINGS AS REPORTED IN 189 TAX MAN 452 (BOMBAY) AND SUBMITTED THAT AS PER THIS JUDGMEN T, THE INCOME OF THE ASSESSEE ON ACCOUNT OF INTEREST IS AS SESSABLE AS BUSINESS INCOME AND AS A CONSEQUENCES, DEDUCTIO N IS ALSO ALLOWABLE ON ACCOUNT OF INTEREST EXPENDITURE. HE ALSO SUBMITTED THAT THE BALANCE SHEET OF THE ASSESSEE CO MPANY IS AVAILABLE OF PAGE 1 OF THE PAPER BOOK AND FROM THE SAME, IT CAN BE SEEN THAT THE ASSESSEE IS HAVING SHARE CA PITAL OF ONLY RS. 1,00,000/- AND THERE IS DEBIT BALANCE OF R S. 1,99,433/- IN PROFIT AND LOSS ACCOUNT AND THEREFORE , THERE IS NO OWN FUND OF THE ASSESSEE AND ENTIRE FUND AVAI LABLE WITH THE ASSESSEE IS ON ACCOUNT OF UNSECURED LOANS OF RS. 11,78,31,843/- AND THEREFORE, EVEN IF THE INTEREST INCOME IS ASSESSED AS INCOME FROM OTHER SOURCES, DEDUCTION SH OULD 3 ITA NO.1010/MUM/2015 ASSESSMENT YEAR: 2010 -11 BE ALLOWED ON ACCOUNT OF INTEREST EXPENDITURE INCU RRED BY THE ASSESSEE U/S 57 (III) BECAUSE BORROWED FUND ON LY WAS USED FOR EARNING INTEREST INCOME. 2.2 IN REPLY THE LD. DR OF THE REVENUE SUPPORTED TH E ORDERS OF THE AUTHORITIES BELOW. 2.3 HE ALSO SUBMITTED THAT AS PER PROFIT & LOSS ACC OUNT OF THE ASSESSEE AVAILABLE ON PAGE 2 OF THE PAPER BOOK, THERE IS NO INTEREST EXPENSES DEBITED IN PROFIT & LOSS ACCOU NT AND THEREFORE, NO SUCH DEDUCTION IS ALLOWABLE. AS REGA RDS THE JUDGMENT OF HONBLE BOMBAY HIGH COURT CITED BY LD. AR OF THE ASSESSEE RENDERED IN THE CASE OF CIT VS. LOK HO LDING (SUPRA.), HE SUBMITTED THAT THIS JUDGMENT IS NOT AP PLICABLE BECAUSE THE FACTS ARE DIFFERENT. HE POINTED OUT THA T IN THAT CASE, THE ASSESSEE TEMPORARILY INVESTED SURPLUS FU NDS IN BANK AND OTHER CONCERNS BUT IN THE PRESENT CASE, TH E DEPLOYMENT OF FUND BY THE ASSESSEE IN LOAN AND ADVA NCES HAS NOT BEEN A TEMPORARY DEPLOYMENT BECAUSE SUCH LO AN AND ADVANCES ADVANCED BY THE ASSESSEE ARE STILL CONTINUING. 2.4 AT THIS JUNCTURE, A QUERY WAS RAISED FROM THE L D. AR OF THE ASSESSEE REGARDING THE PRESENT STATUS OF LOAN A ND ADVANCES AS SHOWN IN BALANCE SHEET OF THE PRESENT Y EAR AS CURRENT ASSETS OF RS. 4,57,40,154/- AND IN REPLY, I T WAS AGREED BY THE LD. AR OF THE ASSESSEE THAT THE SAME ARE STILL CONTINUING. 4 ITA NO.1010/MUM/2015 ASSESSMENT YEAR: 2010 -11 2.5 I HAVE CONSIDERED RIVAL SUBMISSIONS. FIRST I EX AMINE THE APPLICABILITY OF THIS JUDGMENT OF HONBLE BOMBAY HI GH COURT RENDERED IN THE CASE OF CIT VS. LOK HOLDING ( SUPRA) CITED BY THE LD. AR OF THE ASSESSEE. IN THAT CASE, AS PER THE FACTS NOTED BY THE HONBLE HIGH COURT, THE ASSESSEE INVESTED SURPLUS AMOUNT TEMPORARILY IN THE BANK AN D OTHER CONCERNS AND EARNED INTEREST ON SUCH DEPOSITS , AND THE ASSESSEE OFFERED SUCH INTEREST INCOME UNDER TH E HEAD INCOME FROM BUSINESS WHEREAS, THE AO ASSESSED THE S UCH INTEREST INCOME IN THAT CASE AS INCOME FROM OTHER S OURCES. IN THE PRESENT CASE, THE FACTS ARE DIFFERENT BECAUS E IN THE PRESENT CASE, THE LOAN AND ADVANCES GIVEN BY THE AS SESSEE ARE NOT TEMPORARY BECAUSE SUCH LOAN AND ADVANCES AR E STILL CONTINUING AS HAD BEEN ADMITTED BY THE LD. AR OF TH E ASSESSEE. THEREFORE, I HOLD THAT THIS JUDGMENT OF H ONBLE BOMBAY HIGH COURT CITED BY THE LD. AR OF THE ASSESS EE IS NOT APPLICABLE IN THE PRESENT CASE BECAUSE THE FACT S ARE DIFFERENT AS NOTED ABOVE. 3.1 THEREFORE, GROUND NO. 1 OF THE ASSESSEE IS REJE CTED BECAUSE INTEREST INCOME IS TO BE ASSESSED AS INCOME FROM OTHER SOURCES IN THE FACTS OF THE PRESENT CASE. 3.2 REGARDING GROUND NO. 2, I FIND THAT THAT INTERE ST EXPENSES IS ALLOWABLE U/S 57(III) IF THE ASSESSEE C AN ESTABLISH DIRECT TAXES BETWEEN THE INTEREST EXPENDI TURE AND INTEREST INCOME. AS PER BALANCE SHEET OF THE ASSESS EE 5 ITA NO.1010/MUM/2015 ASSESSMENT YEAR: 2010 -11 AVAILABLE ON PAGE 1 OF THE PAPER BOOK, THE ASSESSEE HAS A BORROWED FUND OF RS. 11,78,31,843/-AND ASSESSEE HAS GIVEN LOANS AND ADVANCES OF RS. 4,57,40,154/- AND ASSESSEE DOES NOT HAVE ANY OWN FUNDS. UNDER THESE F ACTS, TO THE EXTENT OF INTEREST ON BORROWED FUNDS USED FO R EARNING INTEREST INCOME, DEDUCTION OF INTEREST EXPENDITURE IS ALLOWABLE U/S 57 (III). 3.3 NOW REGARDING THE ARGUMENT OF THE LD. DR OF TH E REVENUE THAT NO INTEREST EXPENDITURE IS DEBITED I N PROFIT & LOSS ACCOUNT, I FIND THAT THE DETAILS OF WORK IN PR OGRESS AS ON 31/03/2010 IS AVAILABLE ON PAGE 5 OF THE PAPER B OOK WHERE, THE ASSESSEE HAS ADDED INTEREST ON LOAN TAKE N RS. 12,69,132/- AND ASSESSEE REDUCED INTEREST ON LOAN G IVEN RS. 10,79,013/-. THIS INTEREST ON LOAN IS TAXED BY THE A.O. BUT HE HAS NOT ALLOWED DEDUCTION FOR INTEREST ON LO AN TAKEN RS. 12,69,132/- 3.4 IN MY CONSIDERED OPINION, UNDER THESE FACTS, TH IS ISSUE SHOULD GO BACK TO THE FILE OF THE AO FOR FRESH DECI SION AND DEDUCTION ON ACCOUNT OF INTEREST EXPENDITURE SHOULD BE ALLOW TO THE ASSESSEE, TO THE EXTENT THE ASSESSEE C AN ESTABLISH THAT THE LOAN TAKEN BY THE ASSESSEE ON W HICH INTEREST WAS PAID WAS USED FOR EARNING INTEREST INC OME. THIS CAN BE DONE BY THE ASSESSEE BY ESTABLISHING DI RECT NEXUS BETWEEN THE LOAN TAKEN ON INTEREST AND LOAN GIVEN FOR EARNING INTEREST AND ONLY TO THAT EXTENT, INTER EST 6 ITA NO.1010/MUM/2015 ASSESSMENT YEAR: 2010 -11 EXPENDITURE CAN BE ALLOWED AS DEDUCTION U/S 57(III) . ACCORDINGLY I SET ASIDE THE ORDER OF LD. CIT(A) ON THIS ISSUE AND RESTORE THE MATTER BACK TO THE FILE OF THE ASSE SSING OFFICER FOR FRESH DECISION IN THE LIGHT OF ABOVE D ISCUSSION AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HE ARD TO THE ASSESSEE. GROUND NO.2 IS ALLOWED FOR STATISTICA L PURPOSE. 4. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND DECEMBER, 2015 SD/- (A.K. GARODIA) / ACCOUNTANT MEMBER MUMBAI; ( DATED : 22.12.2015 7 ITA NO.1010/MUM/2015 ASSESSMENT YEAR: 2010 -11 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ) ( ) / THE CIT(A) 4. ) / CIT - CONCERNED 5. ,-. //01 , 01# , / DR, ITAT, MUMBAI 6. .34 5 / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) !' #, / ITAT, MUMBAI PRAMILA