TOWN & COUNTRY REALTY P.LTD, MUMBAI V. ITO 11(3)(1), MUMBAI

ITA 1087/MUM/2017

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 0689 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2013-2014
• Appeal Filed On: 16-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D G
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.1087/M/2017 ASSESSMENT YEAR: 2013-14 M/S. TOWN & COUNTRY REALTY PVT. LTD. (MERGED WITH ATTARCHAND TRADING CO. PVT. LTD.), 702, NATRAJ, M.V. ROAD JUNCTION, W.E. HIGHWAY, ANDHERI (E), MUMBAI 400 069 PAN: AACCT 7395Q VS. ITO 11(3)(1), IT OFFICE, AAYAKAR BHAVAN, MUMBAI (APPELLANT) (RE SPONDENT) PRESENT FOR: ASSESSEE BY : SHRI NARESH KUMAR, A.R. REVENUE BY : SHRI D.G. PANSARI, D.R. DATE OF HEARING : 18.09.2018 DATE OF PRONOUNCEMENT : 01.10.2018 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 17.11.2016 OF THE COMMISSIO NER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2013-14. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: THE HONORABLE COMMISSIONER OF INCOME TAX APPEALS H AS ERRED IN CONFIRMING DISALLOWANCE OF INTEREST EXPENSES OF RS.7,14,807/- DEBITED TO PROFIT & LOSS ACCOUNT BY STATING THAT THE LAND SHOWN AS INVENTORY IS AGRICULTURAL LAND AND AS THE SAME HAS NOT BEEN CONVERTED TO NON AGRICULTURAL LAND AND THEREFORE THE INCOME FROM AGRICULTURAL LAND IS EXEMPT WHICH IS IN CORRECT. FURTHER, THE LEARNED ASSESSING OFFICER HAS FAILED TO UNDERSTAND THE CONC EPT OF 'QUALIFYING ASSET' AS PER 'ACCOUNTING STANDARD 16 -BORROWING COSTS' AND THERE BY DISALLOWED THE INTEREST ITA NO.1087/M/2017 M/S. TOWN & COUNTRY REALTY PVT. LTD. (MERGED WITH ATTARCHAND TRADING CO. PVT. LTD.) 2 EXPENSES OF RS.7,14,807/-ACCORDINGLY, IT IS PRAYED TO YOUR HONOUR TO DELETE THE ADDITION MADE BY THE LEARNED ASSESSING OFFICER WITH REGARDS TO THE INTEREST EXPENSES FOR THE YEAR UNDER CONSIDERATION. WITHOUT PREJUDICE TO ABOVE IT IS PRAYED THAT IF INT EREST EXPENDITURE IS NOT ALLOWED TO BE CLAIMED IN THE P&L ACCOUNT THEN SUCH EXPENDIT URE SHALL BE ALLOWED TO BE CAPITALISED TO THE INVENTORY OF THE APPELLANT COMPA NY DURING THE YEAR UNDER CONSIDERATION. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND, AND/OR ALTER ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL. 3. THE MAIN ISSUE CHALLENGED BY THE ASSESSEE THE CONFIRMATION OF DISALLOWANCE OF RS.7,14,807/- BY LD . CIT(A) AS MADE BY THE AO ON THE GROUND THAT THE LAND PURCHASE D SHOWN AS INVENTORY IS AN AGRICULTURAL LAND AND SAME HAS N OT BEEN CONVERTED INTO NON AGRICULTURAL LAND FOR THE PURPOS E OF DEVELOPMENT. 4. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGA GED IN THE BUSINESS OF PROPERTY DEVELOPMENT. THE AO DURING TH E COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT ASSESSEE HAS C HARGED A SUM OF RS.7,14,807/- TO THE P & L ACCOUNT WHEREAS T HE ASSESSEE HAS NOT EARNED ANY INCOME DURING F.Y. 2012-13 RELEV ANT TO A.Y. 2013-14 BESIDES CLAIMING OTHER EXPENSES. ACCORDING LY, AO ASKED THE ASSESSEE TO EXPLAIN AS TO HOW THESE EXPEN SES WERE ALLOWABLE UNDER THE ACT WHICH WAS REPLIED BY THE AS SESSEE VIDE LETTER DATED 18.01.2016 SUBMITTING BEFORE THE AO TH AT ACCORDING TO THE ACCOUNTING STANDARD-16 THE LAND DOES NOT QUA LIFY FOR QUALIFYING ASSET AND THEREFORE NOT CAPITALIZED AND IT IS ONLY FOR THIS REASON THE INTEREST COST HAS BEEN DEBITED TO T HE P & L ACCOUNT. HOWEVER, THE AO FOUND THAT THE ASSESSEE P URCHASED THE AGRICULTURAL LAND WAY BACK IN 2007 AND THE INCO ME OF THE SAID AGRICULTURAL LAND IS TAX FREE AND THE SAME HAS NOT BEEN ITA NO.1087/M/2017 M/S. TOWN & COUNTRY REALTY PVT. LTD. (MERGED WITH ATTARCHAND TRADING CO. PVT. LTD.) 3 CONVERTED INTO NON AGRICULTURAL LAND. AO ALSO OBSE RVED THAT NO DEVELOPMENTAL ACTIVITIES WERE CARRIED OUT ON BY THE ASSESSEE ON THE SAID LAND AND THEREFORE THE EXPENSES INCURRED F OR ACQUISITION OF THE SAID LAND ARE NOT ALLOWABLE AND ACCORDINGLY ADDED BACK RS.7,14,807/- ON ACCOUNT OF INTEREST COST ATTRIBUTA BLE TO THE ACQUISITION OF SAID LAND. 5. THE LD. CIT(A) DISMISSED THE APPEAL OF THE ASSES SEE BY OBSERVING AND HOLDING AS UNDER: 5. I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT OR DER, THE CONTENTION THE APPELLANT AND THE FACTS OF THE CASE. UNDER THIS GRO UND OF APPEAL THE APPELLANT HAS AGITATED THE DISALLOWANCE OF INTEREST TO RS. 7,14,807/-. I HAVE CONSIDERED THE ASSESSMENT ORDER VIS-A-VIS THE SUBMISSIONS OF THE A PPELLANT. J FIND THAT THE AO HAS DISALLOWED INTEREST AMOUNTING TO RS. 7,14,807/- ON THE GROUND THAT THERE IS NO BUSINESS INCOME CORRESPONDING TO SAID EXPENSE. INTE REST PAID FOR ACQUISITION OF AGRICULTURAL LAND IS INADMISSIBLE BECAUSE THE INCOM E FROM SAME IS EXEMPT. THE AO THEREFORE OBSERVED THAT THE SAME CANNOT BE CAPITALI ZED AS WELL. THE AO FURTHER OBSERVED THAT THE INTEREST CAN BE ALLOWED ONLY IF T AXABLE INCOME IS GENERATED OUT OF THE SAID ASSET. THE APPELLANT HAS NOT EVEN CONVERTE D AGRICULTURAL LAND INTO NON- AGRICULTURAL LAND FOR 9 YEARS. I ALSO FIND THAT THI S FACTUM WAS DULY ADMITTED BY THE APPELLANT THAT AGRICULTURAL LAND DOES NOT QUALIFY F OR 'QUANTIFYING AS PER PAPER BOOK ASSET' AS PER ACCOUNTING STANDARDS BY LETTER DATED 18 TH JANUARY, 2016 TO THE AO VIDE PAGE 20 OF PAPER BOOK. I THEREFORE, FIND THAT THE AO HAS RIGHTLY DISALLOWED THE INTEREST. 5.1 I FURTHER FIND THAT THE CASE LAW S RELIED UPON BY THE ASSESSEE REPRESENTATIVE IS NOT PERTAINING TO AGRICULTURAL L AND AND THEREFORE DISTINGUISHABLE ON FACTS. THIS GROUND OF APPEAL IS DISMISSED. 6. GROUND NO.2: THIS GROUND OF APPEAL IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION. 6. HAVING HEARD BOTH THE PARTIES AND PERUSING THE M ATERIAL ON RECORD AS PLACED BEFORE US, WE FIND THAT THE ASSESS EE IS ENGAGED IN THE BUSINESS OF PROPERTY DEVELOPER AND BUILDER. IN THE ORDINARY COURSE OF BUSINESS, THE ASSESSEE ACQUIRED THE AGRICULTURAL LAND IN 2007 BY BORROWING MONEY ON WHI CH THE INTEREST OF RS.7,14,807/- DEBITED TO P & L ACCOUNT WHEREAS THERE ITA NO.1087/M/2017 M/S. TOWN & COUNTRY REALTY PVT. LTD. (MERGED WITH ATTARCHAND TRADING CO. PVT. LTD.) 4 WAS NO INCOME DURING THE YEAR. THE AO ADDED THE SA ME TO THE INCOME OF THE ASSESSEE ON THE GROUND THAT THE PROPE RTY PURCHASED WAS AGRICULTURAL LAND, THE INCOME FROM WH ICH IS EXEMPT FROM TAX AND IT WAS NOT CONVERTED INTO NON A GRICULTURAL LAND BY THE ASSESSEE NOR ANY DEVELOPMENTAL ACTIVITI ES WERE UNDERTAKEN. SIMILARLY, THE LD. CIT(A) ALSO CONFIRM ED THE ADDITION OF THE INTEREST ON THE GROUND THAT THE SAI D LAND REMAINED AGRICULTURAL LAND FOR A PERIOD OF 9 YEARS AND DOES NOT QUALIFY FOR QUALIFYING ASSET AND THEREFORE JUSTIFIE D THE ADDITION. 7. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE PURCH ASED THE PROPERTY FOR THE PURPOSE OF DEVELOPMENT AND SHOWN T HE SAME AS STOCK IN TRADE. IN OUR OPINION, WHEN THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROPERTY DEVELOPMENT, ANY INTEREST COST WHICH IS INCURRED IN CONNECTION WITH THE ACQUISITION OF ASSE TS WHICH IS SHOWN AS INVENTORIES HAS TO BE ALLOWED AS EXPENSE E VEN THOUGH NO REVENUE IS GENERATED FROM THE DEVELOPMENT OF PRO PERTY/SALE OF THE PROPERTY. MOREOVER, CAPITALIZATION OF SUCH ASSETS IS NOT NECESSARILY TO BE MADE IN ORDER TO CAPITALIZE THE I NTEREST WHICH IS WRONG AS THIS IS A CASE OF ASSESSEE ENGAGED IN THE BUSINESS OF DEVELOPMENT AND TRADING OF PROPERTIES. WE ARE, THE REFORE, NOT IN AGREEMENT WITH THE CONCLUSION DRAWN BY THE LD. CIT( A) THAT THE EXPENSES INCURRED BY WAY OF INTEREST OF LOAN ON ACQ UISITION OF AGRICULTURAL LAND IN 2007 IS NOT ALLOWABLE EITHER A S REVENUE EXPENSES OR AS CAPITAL EXPENSES AS ASSET IS NOT CA PITALIZED. WE, THEREFORE, SET ASIDE THE ORDER OF LD. CIT(A) AND DI RECT THE AO TO ALLOW THE EXPENSES AS REVENUE EXPENSES. ITA NO.1087/M/2017 M/S. TOWN & COUNTRY REALTY PVT. LTD. (MERGED WITH ATTARCHAND TRADING CO. PVT. LTD.) 5 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 01.10.2018. SD/- SD/- (MAHAVIR SINGH) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 01.10.2018. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY /ASSTT. REGISTRAR, ITAT, MUMBAI.