DCIT,Circle-1, Kolkata, Kolkata V. M/s. Calcutta Mumbai Truck Terminal Ltd, Howrah

ITA 1189/KOL/2012

• Counselvise Citation: 118923514 RSA 2012
• Duration Of Justice: 3 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2015
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 13-08-2012
• Court: TRIBUNAL
• Department Lawyers: SANJAY M UKHERJEE JCITLD
• Assessee Lawyers: R S SAHAY FCA LD
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Difference of opinion; Valuation report; Change of opinion; Revenue expenditure
• Section: 28; 143(3)

Judgement Text

ITA NOS. 1189/K/12, 736/K/11 & 1190/K/12-C-AM DEPTT VS. M/S. CAL. MUM TRUCK TERMINAL LTD & P.LTD - 1 IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH, K OLKATA BEFORE : SHRI M. BALAGANESH, ACCOUNTANT MEMBER, AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A NOS. 1189 & 1190/KOL/2012 A.YS 2007-08 & 2009-10 D.C.I.T, CIRCLE-1, KOLKATA VS. M/S. CALCUTTA MUMBA I TRUCK TERMINAL LTD. PAN: AABCC 0747Q (APPELLANT/DEPARTMENT) (RESPONDEN T/ASSESSEE) I.T.A NO. 736/KOL/2011 A.Y 2008-09 I.T.O WARD 1(3), KOLKATA VS. M/S. CALCUTTA MUMBAI TRUCK TERMINAL PVT.LTD. PAN: AABCC 0747Q (APPELLANT/DEPARTMENT) (RESPONDEN T/ASSESSEE) FOR THE APPELLANT/DEPART MENT: SHRI SANJAY MUKHERJEE, JCIT,LD.DR FOR THE RESPONDENT/ ASSESSEE: SHRI R. S SAHAY, FCA,, LD.AR DATE OF HEARING: 13-10-2015 DATE OF PRONOUNCEMENT: 30-10-201 5 ORDER SHRI S.S VISWANETHRA RAVI, JM THESE APPEALS OF THE REVENUE ARISE OUT OF THE ORD ER OF THE LEARNED CITA IN APPEAL NO. 1104/CIT(A)-1/C-1/11-12 DATED 7.5.2012 F OR ASST YEAR 2007-08,APPEAL NO. 305/CIT(A)-1/1(3)/2010-11 DATED 11.2.2011 FOR A SST YEAR 2008-09 AND APPEAL NO. 1105/CIT(A)-1/C-1/11-12 DATED 7.5.2012 FOR ASST YEAR 2009-10AGAINST THE ORDERS OF ASSESSMENT FRAMED U/S 143(3) OF THE INCOME TAX A CT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). ITA NOS. 1189/K/12, 736/K/11 & 1190/K/12-C-AM DEPTT VS. M/S. CAL. MUM TRUCK TERMINAL LTD & P.LTD - 2 2. SHRI. SANJAY MUKHERJEE, JCIT, THE LEARNED DR AR GUED ON BEHALF OF THE REVENUE AND SHRI.R.S.SAHAY, FCA, THE LEARNED AR ARGUED ON B EHALF OF THE ASSESSEE. 3. THESE APPEALS ARE TAKEN UP TOGETHER AND DISPOS ED OFF BY A COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. ITA NO. 1189 / 2012 ASST YEAR 2007-08 4. THE FIRST ISSUE TO BE DECIDED IN THIS APPEAL I S AS TO WHETHER AN ADDITION COULD BE MADE IN THE SUM OF RS. 25,54,763/- TOWARDS DIFFEREN CE IN THE COST OF CONSTRUCTION AS EXCESS DEBIT IN THE BOOKS OF ACCOUNTS IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 4.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE AS SESSEE COMPANY HAD SET UP A MULTIFARIOUS TRUCK TERMINAL AT DHULAGORI, SANKRAIL, HOWRAH IN JOINT VENTURE WITH WEST BENGAL TRANSPORT INFRASTRUCTURE DEVELOPMENT CORPORA TION LTD UNDER MINISTRY OF TRANSPORT, GOVT. OF WEST BENGAL. THE SAID PROJECT IS SET UP UNDER THE ENDEAVOUR OF GOVT. OF WEST BENGAL TO EASE OUT THE FLOW OF HEAVY VEHICLES IN THE CITY OF KOLKATA. THE PROJECT PROVIDES FOR THE FOLLOWING CAPITAL ASSE TS IN RESPECT OF BUILDINGS WHICH HAS BEEN SHOWN IN FIXED ASSETS AND DEPRECIATION HAS BEE N CLAIMED ON PART OF THE ASSETS WHICH HAS BEEN USED : TRUCK PARKING AREA, ADMINIST RATIVE BUILDING, BANK BLOCK, BOUNDARY WALLS, DORMITORY, ELECTRICAL INSTALLATION BUILDING, ELECTRIC SUBSTATION BUILDING, MINI THEATRE, FIRE BRIGADE OFFICE , HEALT H CLUB, MEDICAL CENTRE, POLICE STATION, POST OFFICE, PETROL PUMP, PUMP HOUSE, TOLL GATE STORAGE, TOILET, WATER RESERVOIR ETC. DURING THE YEAR UNDER CONSIDERATI ON, THE ASSESSEE SOLD COMMERCIAL UNITS BEING SHOPS, SHOW ROOMS, DHABA/RESTAURANT & WAREHOU SES AT THE TRUCK TERMINAL COMPLEX. THE ASSESSEE ALSO SOLD SOME BUILDING MATER IALS DURING THE YEAR. APART FROM ABOVE, THE ASSESSEE EARNED PARKING FEES AND FEES FO R USE OF OTHER FACILITIES AT THE TRUCK TERMINIAL COMPLEX AND RENTALS FROM GODOWNS SITUATED IN THE TRUCK TERMINAL. ITA NOS. 1189/K/12, 736/K/11 & 1190/K/12-C-AM DEPTT VS. M/S. CAL. MUM TRUCK TERMINAL LTD & P.LTD - 3 4.2. THE ASSESSEE DEBITED A SUM OF RS. 7,23,86,646 /- IN ITS PROFIT AND LOSS ACCOUNT UNDER THE HEAD COST OF CONSTRUCTION WHICH ADMITTE DLY INCLUDES A SUM OF RS. 6,98,29,883/- TRANSFERRED FROM WORK IN PROGRESS ACC OUNT AND RS. 25,54,763/- WHICH IS THE COST OF SALES OF MATERIALS DIRECTLY DEBITED TO COST OF CONSTRUCTION. THE LEARNED AO FOUND THAT THE ASSESSEE HAD DEBITED RS. 7,23,86,646 /- AS COST OF CONSTRUCTION IN PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDING 31.3.2007. HO WEVER, AS PER SCHEDULE F ANNEXED TO THE STATEMENT OF ACCOUNTS, THIS AMOUNT WAS SHOWN AT RS. 6,98,29,883/- AND THE CLOSING WORK IN PROGRESS HAS BEEN COMPUTED ACCORDIN GLY. ACCORDINGLY, THE LEARNED AO HELD THAT THE ASSESSEE HAD DEBITED AN EXCESS AMO UNT OF RS. 25,54,763/- TOWARDS COST OF CONSTRUCTION IN THE PROFIT AND LOSS ACCOUNT AND DISALLOWED THE SAME. ON FIRST APPEAL, THE ASSESSEE PLEADED THAT THOUGH A SUM OF R S. 7,23,86,646/- WAS DEBITED IN PROFIT AND LOSS ACCOUNT BY THE ASSESSEE, IT INCLUDE S A SUM OF RS. 6,98,29,883/- TRANSFERRED FROM WORK IN PROGRESS ACCOUNT DURING TH E YEAR ON COMPLETION OF WORK AND A SUM OF RS. 25,54,763/- WAS DIRECTLY DEBITED TO THE COST OF CONSTRUCTION ACCOUNT BY INADVERTENCE INSTEAD OF DEBITING TO COST OF GOODS S OLD. IT WAS FURTHER PLEADED THAT THERE WAS NO EXCESS COST DEBITED IN THE PROFIT AND LOSS A CCOUNT WARRANTING ANY DISALLOWANCE / ADDITION. IT IS ONLY A UNINTENTIONAL ERROR THAT HA D CREPT IN WHILE DEBITING THE CONCERNED ACCOUNT HEAD. IT WAS PLEADED THAT THIS SUM OF RS. 25,54,763/- REPRESENTS BUILDING MATERIALS ITEMS PURCHASED BY THE ASSESSEE AND THE S AME HAS BEEN SOLD FOR RS. 26,20,270/- TO THE FOLLOWING PARTIES AS BELOW:- TIRUPATI BUSINESS PRIVATE LIMITED RS.2,60,000/- 545, G.T ROAD(S), HOWRAH-1 PAN:AACT9576F VIVEKANAND CONSTRUCTION PVT. LTD RS.8,00,000/- 545, G.T ROAD(S), HOWRAH-1 PAN:AABCV0484B AVADH PLANTATIONS PVT. LTD RS.15,60,270/- 545, G.T ROAD(S), HOWRAH-1 PAN:AACCA6087G ITA NOS. 1189/K/12, 736/K/11 & 1190/K/12-C-AM DEPTT VS. M/S. CAL. MUM TRUCK TERMINAL LTD & P.LTD - 4 IT WAS ALSO PLEADED THAT THIS SALE OF RS. 26,20,27 0/- WAS DULY INCLUDED IN THE TOTAL SALES FIGURE OF RS. 8,97,04,478/- BY THE ASSESSEE AND THE MATERIALS WHICH WERE PURCHASED FOR RESALE AS STATED SUPRA WERE NOT CAPITALIZED UNDER P ROJECT IN PROGRESS AND HENCE THE AMOUNT COULD NOT HAVE BEEN TRANSFERRED FROM THE PRO JECT IN PROGRESS ACCOUNT TO THE PROFIT AND LOSS ACCOUNT BUT INSTEAD THE SAID SUM OF RS. 25,54,763/- WAS DIRECTLY DEBITED TO COST OF CONSTRUCTION BY INADVERTENCE. THIS WAS DULY APPRECIATED BY THE LEARNED CITA WHO DELETED THE ADDITION MADE IN THE SUM OF RS . 25,54,763/-. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GRO UND:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE LD. CIT(A) HAS ERRED IN DELETING ADDITION OF RS.25,54,7 63/- BEING EXCESS COST OF CONSTRUCTION DEBITED IN THE ACCOUNTS. 4.3. THE LEARNED AR REITERATED THE AFORESAID FACT S BEFORE US. IN RESPONSE TO THIS, THE LEARNED DR VEHEMENTLY RELIED ON THE ORDER OF TH E LEARNED AO. 4.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS ON RECORD. WE FIND THAT THE ASSESSEE HAD ONLY MADE A CLERICAL ERR OR IN PRESENTATION OF ACCOUNTS BY DEBITING A WRONG HEAD (I.E COST OF CONSTRUCTION) IN STEAD OF DEBITING COST OF GOODS SOLD IN RESPECT OF BUILDING MATERIALS PURCHASED BY IT FO R THE PURPOSE OF RESALE. WE FIND THAT THE ASSESSEE HAD SOLD THE PURCHASED BUILDING MATERI ALS FOR RS. 26,20,270/- TO THREE PARTIES AND DULY INCLUDED THE SAME IN THE TOTAL SAL ES. WITHOUT THE PURCHASES BEING MADE, THERE CANNOT BE ANY SALES. IT IS NOT THE CA SE OF THE LEARNED AO THAT THE PURCHASE OF BUILDING MATERIALS TO THE TUNE OF RS. 25,54,763/ - WERE MADE BY THE ASSESSEE OUT OF ITS UNDISCLOSED SOURCES. WE FIND THAT THE ASSESSEE HA D FILED THE FOLLOWING DETAILS BEFORE THE LEARNED AO WHICH IS NOT DISPUTED BY THE LEARNED DR:- 1. DETAILS OF COST OF CONSTRUCTION 2. DETAILS OF SALES 3. DETAILS OF PURCHASES MADE WHICH WERE DEBITED TO WORK IN PROGRESS AS WELL THOSE WHICH WERE DIRECTLY DEBITED TO PROFIT AND LOS S ACCOUNT. ITA NOS. 1189/K/12, 736/K/11 & 1190/K/12-C-AM DEPTT VS. M/S. CAL. MUM TRUCK TERMINAL LTD & P.LTD - 5 4. CONFIRMATION OF ACCOUNTS IN RESPECT OF SALES OF MATERIALS MADE AGAINST WHICH THE PURCHASES OF RS. 25,54,763/- WAS MADE BY THE ASSESS EE. WE FIND THAT THE ASSESSEE HAD DULY EXPLAINED THE D IFFERENCE IN THE COST OF CONSTRUCTION ACCOUNT AS BEING A CLERICAL ERROR AND AN ERROR IN PRESENTATION OF THE FINANCIAL STATEMENTS AND WE HOLD THAT THERE IS NO D IFFERENCE IN THE COST OF CONSTRUCTION AND HENCE THERE IS NO CASE FOR THE LEARNED AO TO MA KE ANY ADDITION IN THIS REGARD. ACCORDINGLY, THE GROUND NO. 1 RAISED BY THE REVENUE IS DISMISSED. 5. THE NEXT GROUND TO BE DECIDED IN THIS APPEAL I S THAT AS TO WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, AN ADDITION IN THE S UM OF RS. 1,00,00,800/- TOWARDS EXCESS AMOUNT OF COST OF CONSTRUCTION FOR UNITS SOL D GOING BY THE RATIO OF EXPENDITURE TO SALES . 5.1. THIS ADDITION OF RS. 1,00,00,800/- HAS BEEN MADE DUE TO SOME SORT OF COMPARISON OF EXPENSES WITH THAT OF LAST YEAR. THE FINDINGS OF THE LEARNED AO WITH REGARD TO THIS ADDITION ARE AS BELOW:- 2. AS PER ITEM(D) OF SCHEDULE-L FORMING PART OF TH E BALANCE SHEET AS ON 31.03.2008, IT WAS MENTIONED THAT COST OF CONST RUCTION FOR UNITS SOLD WAS TRANSFERRED TO P & L A/C. GOING BY THE RATIO O F EXPENDITURES TO SELLS IN RESPECT OF THE F.Y 2007-08, THE AMOUNT OF EXPEND ITURE DURING THE F.Y 2006-07 SHOULD HAVE BEEN RS.6,23,83,766/- INSTEAD O F RS.7,23,84,646/- WHICH WAS ACTUALLY DEBITED TO THE P & L A/C FOR THE F.Y 2006-07. SINCE THE COST OF CONSTRUCTION WAS COMPUTED ON THE BASIS OF ALLOCATION OF ACTUAL EXPENDITURES PROPORTIONATE TO SALE CONSIDERATION, T HE ASSESSEE HAS DEBITED AN EXCESS AMOUNT OF RS.1,,00,00,880/-. AS SUCH THE SAID EXCESS AMOUNT OF RS.1,00,00,880/- IS DISALLOWED AND ADDED TO THE RET URNED INCOME OF THE ASSESSEE. HENCE THE ADDITION HAS MADE ONLY BY COMPARING THE R ATIO OF EXPENDITURE TO SALES WITH THAT OF THE EARLIER YEAR. THE LEARNED AR ARGUED THAT THE RATIOS ARE TO BE MEASURED IN TERMS OF GROSS PROFIT OR NET PROFIT RATIO AS THEY W OULD REFLECT WHETHER THE PROFIT MARGIN ITA NOS. 1189/K/12, 736/K/11 & 1190/K/12-C-AM DEPTT VS. M/S. CAL. MUM TRUCK TERMINAL LTD & P.LTD - 6 HAS COME DOWN OR NOT AFTER CONSIDERING ALL THE EXPE NSES AND INCOME OF THE BUSINESS. THE LEARNED AR TOOK US TO THE RELEVANT PAGE OF THE LEARNED CITA ORDER WHEREIN THE DETAILS OF PROFITS AND PERCENTAGE THEREON ON TURNOV ER FOR THE ASSESSMENT YEAR UNDER APPEAL AND THAT OF THE PREVIOUS YEAR WERE REFLECTED . THE SAME ARE REPRODUCED HEREIN BELOW FOR THE SAKE OF CONVENIENCE:- PAGE 8 & 9 OF THE LD.CIT(A)S ORDER : 3.02 THE LD. AO HAS MENTIONED THE FOLLOWING IN THE BODY OF ASST. ORDER: GOING BY THE RATIO OF EXPENDITURES TO SELLS IN RES PECT OF F.Y 2007-08, THE AMOUNT OF EXPENDITURE DURING THE F.Y 2006-07 SHOUL D HAVE BEEN RS.6,23,83,766/-, INSTEAD OF RS.7,23,84,646/-, WHIC H WAS ACTUALLY DEBITED TO THE P & L A/C FOR THE F.Y 2006-07. YOUR HONOUR, THE LD. AO HAS USED THE BASIS OF RATI O OF CURRENT YEAR WITH THAT OF PRECEDING YEAR FOR MAKING THE ADDITION. WE NOW B EG TO STATE THAT THE RATIOS ARE MEASURED IN TERMS OF GROSS PROFIT RATIO AND NET PROFIT RATIO AND THEY WOULD REFLECT WHETHER THE MARGIN HAS COME DOWN OR NOT. THE SAME WOULD COVER THE EXPENSES CLAIMED BY THE ASSESSEE. THE FOLLOWIN G FACTS WOULD REVEAL WHETHER THERE WERE ANY SUCH RATIO WHICH WERE ADVERSE TO TH E ASSESSEE: F.Y 2006-07 F.Y 2005-06 GROSS PROFIT(RS.) 2,56,63,334/ - 28,41,569/ - TURNOVER(RS) 10,60,65,717/- 2,26,97,432/- GROSS PROFIT RATIO 24.19% 12.52% NET PROFIT/(-)LOSS (RS.) 1,15,292/- (-)29,88,574/-( LOSS) NET PROFIT RATIO 1.15% (-)13.16% 5.2. THE LEARNED AR FURTHER PLEADED THAT THE AFORE SAID FIGURES WOULD SUGGEST THAT THE ASSESSEE HAD EARNED HIGHER INCOME AS COMPARED TO LA ST YEAR. IF THE GROSS PROFIT RATE OF 12.52 % WAS APPLIED TO CURRENT YEARS TURNOVER, THE GROSS PROFIT OF THE CURRENT YEAR WOULD HAVE BEEN RS. 1,32,79,428/- ( 10,60,65,717 * 12.52%) WHILE THE GROSS PROFIT FOR THE YEAR IS RS. 2,56,63,334/- WHICH IS HIGHER BY RS . 1,23,83,906/- AS COMPARED TO LAST YEAR. SIMILARLY THE NET PROFIT GOING BY LAST YEAR /S RATE WOULD HAVE BEEN A NET LOSS OF RS. 1,39,58,248/- (10,60,65,717 * (-) 13.16%), WHIL E THE NET PROFIT FOR THE YEAR IS RS. 1,15,292/- , WHICH IS HIGHER BY RS. 1,40,73,540/- A S COMPARED TO LAST YEAR. IT IS THUS ITA NOS. 1189/K/12, 736/K/11 & 1190/K/12-C-AM DEPTT VS. M/S. CAL. MUM TRUCK TERMINAL LTD & P.LTD - 7 CLEAR THAT THE APPLICATION OF RATIO HAS BEEN MISAPP LIED BY THE LEARNED AO AND ARE AGAINST THE FACTS OF THE ASE. THE LEARNED AR ARGU ED THAT IF THE GROSS PROFIT RATE AND NET PROFIT RATE WOULD HAVE BEEN LOWER AS COMPARED T O LAST YEAR, THEN THE LEARNED AO COULD HAVE HAD A POINT. BUT THE CASE HERE IS JUST THE OPPOSITE AS THE SAID RATIOS ARE MUCH BETTER THAN LAST YEAR. 5.3. BEFORE THE LEARNED CITA, THE LEARNED AR FURTH ER FILED BREAK UP OF SALES AND COST OF CONSTRUCTION OF EACH TYPE OF SHOP, WAREHOUSE / G ODOWN, SHOWROOM, DHABA ETC. THE COSTS HAVE BEEN ARRIVED ON THE BASIS OF VALUATION R EPORT WHICH IS PART OF THE RECORD. THE COST OF SALES OF EACH TYPE OF UNIT IS BEING TAK EN ON THE BASIS OF COSTS ARRIVED THROUGH VALUATION REPORT AND THE SAME IS BEING FOLL OWED IN EVERY YEAR. MOREOVER, IT IS SEEN THAT THE ADDITION HAS BEEN MADE WITHOUT REJECT ING THE EXPLANATION , SUBMISSIONS AND ACCOUNTS OF THE ASSESSEE AND WITHOUT POINTING O UT ANY DEFECTS IN THE SAME, WITHOUT BRINGING TO LIGHT ANY MATERIAL TO SHOW THAT THE ADD ITIONS WERE WARRANTED AND WITHOUT ANY BASIS OF ESTIMATION. BASED ON THESE FACTS AND SUBMISSIONS, THE LEARNED CITA DELETED THE ADDITION. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,00,00,880/- BEING COST OF CONSTRUCTION FOR UNITS SOLD AND TRANSFERRED TO P & L A/C 5.4. THE LEARNED AR REITERATED THE AFORESAID FACT S BEFORE US. IN RESPONSE TO THIS, THE LEARNED DR VEHEMENTLY RELIED ON THE ORDER OF THE LE ARNED AO. 5.5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS ON RECORD. WE FIND FROM THE AFORESAID FACTS THAT THE ADDITION HAS BEEN MADE IN THE SUM OF RS. 1,00,00,800/- ON THE BASIS OF RATIO OF EXPENDITURE TO SALES IN THIS ASSESSMENT YEAR YEAR AS COMPARED TO LAST YEAR. IT IS NOT THE CASE OF TH E LEARNED AO THAT THE ASSESSEE HAD MADE EXTRA CLAIM OF EXPENSES APART FROM WHAT IS REP ORTED IN THE PROFIT AND LOSS ACCOUNT. ITA NOS. 1189/K/12, 736/K/11 & 1190/K/12-C-AM DEPTT VS. M/S. CAL. MUM TRUCK TERMINAL LTD & P.LTD - 8 WE FIND THAT BOTH THE GROSS PROFIT AND NET PROFIT R ATES ARE HIGHER IN THIS ASSESSMENT YEAR AS COMPARED TO THE LAST YEAR. WE HOLD THAT THERE IS COMPLETE NON-APPRECIATION OF THE FACTS ON RECORD BY THE LEARNED AO AND THERE IS NO C ASE FOR MAKING ANY ADDITION IN THIS REGARD. ACCORDINGLY, THE GROUND NO. 2 RAISED BY TH E REVENUE IS DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO. 1189 / KOL / 2012 IS DISMISSED. ITA NO. 736 / KOL /2011 ASST YEAR 2008-09 7. AT THE OUTSET, THERE IS A DELAY OF 5 DAYS IN FI LING THE APPEAL BEFORE US BY THE REVENUE. THE REVENUE HAD FILED AN AFFIDAVIT BEFORE US AND DURING THE COURSE OF HEARING WHEN THIS WAS PUT TO THE LEARNED AR, HE FAIRLY CONC EDED FOR CONDONATION OF THE DELAY. IN THE EVENT OF CONSENT GIVEN BY THE LEARNED AR FOR CONDONING THE DELAY , WE CONDONE THE DELAY AND THE APPEAL IS ADMITTED FOR FURTHER AD JUDICATION. 7.1. THE ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE RENTAL INCOME FROM G ODOWNS DERIVED BY THE ASSESSEE IS TO BE TAXED AS BUSINESS INCOME OF THE ASSESSEE OR A S INCOME FROM HOUSE PROPERTY. 7.2. THE FACTS STATED IN PARA 4.1 OF THIS ORDER H EREINABOVE IS APPLICABLE FOR ADJUDICATION OF THIS ISSUE , BUT THE SAME ARE NOT R EITERATED HERE FOR THE SAKE OF BREVITY. THE ASSESSEE HAS LET OUT SEVERAL GODOWNS THAT WERE CONSTRUCTED IN THE TRUCK TERMINAL COMPLEX WHICH WERE LYING UNSOLD WITH THE ASSESSEE A ND THE RENTAL INCOME DERIVED THEREON WERE SHOWN AS INCOME FROM BUSINESS. THE SA ID RENTAL INCOME WAS CLASSIFIED AS BUSINESS INCOME IN THE PRECEDING YEARS AS WELL IN T HE SUBSEQUENT YEAR AND ALSO IN VIEW OF THE FACT THAT RENTING OF GODOWNS / WAREHOUSES AR E PART OF TRADING OPERATIONS OF THE ASSESSEE COMPANY. THE ASSESSEE HAD SOLD SEVERAL W AREHOUSES CONSTRUCTED AT THE TRUCK TERMINAL COMPLEX AND THE UNSOLD GODOWNS BEING THE B USINESS ASSETS WERE LET OUT TO BE ITA NOS. 1189/K/12, 736/K/11 & 1190/K/12-C-AM DEPTT VS. M/S. CAL. MUM TRUCK TERMINAL LTD & P.LTD - 9 COMMERCIALLY EXPLOITED BY OTHERS. IN THIS REGARD, THE ASSESSEE PLACED RELIANCE ON THE FOLLOWING DECISIONS IN SUPPORT OF ITS CONTENTIONS:- CIT VS MAHESWARI DEVI JUTE MILLS LTDD REPORTED IN ( 1965) 57 ITR 36 (SC) WHEREIN THE HONBLE SUPREME COURT HELD THAT : AN ASSET ACQUIRED AND USED FOR THE PURPOSE OF THE BUSINESS DOES NOT CEASE TO BE A COMMERCIAL ASSET OF THAT BUSINESS AS SOON AS IT IS TEMPORARILY PUT OUT OF USE OR IS LET OUT TO ANOTHER PERSON FOR USE IN HIS BUSINESS OF TRADE. RECEIPT BY THE EXPLOITATION OF A COMMERCIAL ASSET I S THE PROFIT OF THE BUSINESS, IRRESPECTIVE OF THE MANNER IN WHICH THE A SSET IS EXPLOITED BY THE OWNER OF THE BUSINESS, FOR THE OWNER IS ENTITLED TO EXPLOIT IT TO HIS BEST ADVANTAGE EITHER BY USING IT HIMSELF PERSONALLY OR BY LETTING IT OUT TO SOMEBODY ELSE THE YIELD OF INCOME BY A COMMERCIAL ASSET IS THE P ROFIT OF THE BUSINESS IRRESPECTIVE OF THE MANNER IN WHICH THAT A SSET IS EXPLOITED BY THE OWNER OF THE BUSINESS. HE IS ENTITLED TO EXPLOIT IT TO HIS BEST ADVANTAGE AND HE MAY DO SO EITHER BY USING IT HIMSELF PERSONALLY OR BY LETTING IT OUT TO SOMEBODY ELSE-CEPT V. SHRI LAKSHMI SILK MILLS LTD [ 1951] 20 ITR 451(SC). 7.3. THE ASSESSEE SUBMITTED THAT THE SEVERAL SHOP S IN THE COMPLEX WHICH ARE REMAINING UNSOLD, AND WHEREVER THERE IS HUGE DEMAND FOR RESPECTIVE GODOWNS , THE SAME WERE LET OUT ON RENT FOR COMMERCIAL EXPLOITATI ON OF THE GODOWNS. THE LEARNED AO TREATED THE RENTAL INCOME AS INCOME FROM HOUSE P ROPERTY AS AGAINST THE CLAIM OF BUSINESS INCOME AND THEREBY DISALLOWING CERTAIN EXP ENSES THAT WERE DEBITED ON BUSINESS ACCOUNT. ON FIRST APPEAL, IT WAS PLEADED BY THE ASSESSEE THAT THE ASSESSEE HAS RECEIVED RENTS FROM GODOWNS THAT WERE MEANT FOR SAL E BUT HAD LET OUT TO EARN INCOME FROM THE SAME PENDING ITS SALE. IT WAS FURTHER PLE ADED THAT THE OBJECTS OF THE COMPANY IS NOT TO EARN RENTAL INCOME BUT TO RUN AND OPERATE THE TRUCK TERMINAL WHICH IS A MULTIFARIOUS ACTIVITY AND THE ASSESSEE HAD EARNED P ARKING FEES FROM TRUCKS, SOLD VARIOUS SHOPS / GODOWNS ETC IN THE SAID TERMINAL AP ART FROM EARNING RENTAL INCOME FROM THE GODOWNS LYING UNSOLD. IT WAS STATED BEFOR E THE LEARNED CITA THAT ASSESSEE WAS NOT THE OWNER OF THE ENTIRE LAND ON WHICH THE T RUCK TERMINAL HAS BEEN CONSTRUCTED ITA NOS. 1189/K/12, 736/K/11 & 1190/K/12-C-AM DEPTT VS. M/S. CAL. MUM TRUCK TERMINAL LTD & P.LTD - 10 AS THE ASSESSEE HAD PAID LEASE RENT OF RS. 9.25 LAC S TO VARIOUS LAND OWNERS FOR SEVERAL ACRES OF LAND TAKEN ON LEASE AND THE SAME IS BEING PAID FROM FINANCIAL YEAR 2002-03 ONWARDS. HENCE IT WAS ARGUED THAT THE ASSESSEE IS NOT THE OWNER OF THE ENTIRE LANDS AND ON THAT GROUND ITSELF , THE RENTAL INCOME COULD NO T BE TAXED AS INCOME FROM HOUSE PROPERTY. IT WAS FURTHER PLEADED BEFORE THE LEARNED CITA THAT THE RENTAL INCOME FROM GODOWNS REMAINING UNSOLD WERE TREATED AS BUSINESS I NCOME IN ASST YEAR 2006-07 U/S 143(3) PROCEEDINGS BY THE LEARNED AO . THE LEARNE D CITA TREATED THE RENTAL INCOME FROM GODOWNS AS INCOME FROM BUSINESS. AGGRIEVED, T HE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 1.THE LD.CIT(A) ERRED IN CONSIDERING THE RENTAL IN COME AGAINST VARIOUS CAPITAL ASSETS AS ASSESSEES BUSINESS INCOM E. 7.4. THE LEARNED AR REITERATED THE AFORESAID FACT S BEFORE US. IN RESPONSE TO THIS, THE LEARNED DR VEHEMENTLY RELIED ON THE ORDER OF THE LE ARNED AO. 7.5 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS ON RECORD. ON A SPECIFIC QUERY FROM THE BENCH TO THE LEARNED AR WIT H REGARD TO THE STATUS OF THE UNSOLD GODOWNS IN THE SUBSEQUENT YEARS, HE STATED T HAT THE UNSOLD GODOWNS WERE DULY SOLD IN THE SUBSEQUENT YEARS AND BUSINESS INCOME OF FERED BY THE ASSESSEE. BEFORE US, THE COUNSEL RELIED ON THE DECISION OF THE JURISDICT IONAL HIGH COURT IN THE CASE OF AZIMGANJ ESTATE (P) LTD VS CIT REPORTED IN 352 ITR 82 (CAL) , WHEREIN IT WAS HELD AS BELOW:- 11. IN OUR OPINION, WE WOULD HAVE ACCEPTED THE REA SONING ASSIGNED BY THE TRIBUNAL IF THE SUBJECT MATTER OF STOCK-IN-TRADE WAS NOT UNSOLD FLATS SIMPLICITOR, BUT WERE PLANTS, MACHINER Y, GODOWN, ETC AND IN THOSE CIRCUMSTANCES IT COULD BE REASONABLY ARGUED T HAT INCOME BY EXPLOITING THOSE STOCK-IN-TRADE WOULD COME UNDER TH E PURVIEW OF INCOME FROM BUSINESS. EVEN IN THE DECISION OF THE G UJARAT HIGH COURT RELIED UPON BY MR. NIZAMUDDIN AND THE TRIBUNAL BELO W, IN PARAGRAPH (III) AT PAGE 247 OF THE REPORT, IT WAS POINTED OUT THAT WHAT WAS TO BE SEEN WAS WHETHER THE ASSET WAS BEING EXPLOITED COM MERCIALLY BY THE LETTING OUT OR WHETHER IT WAS BEING LET OUT FOR THE PURPOSE OF ENJOYING THE RENT. ACCORDING TO THE SAID DECISION, THE DISTI NCTION BETWEEN THE TWO ITA NOS. 1189/K/12, 736/K/11 & 1190/K/12-C-AM DEPTT VS. M/S. CAL. MUM TRUCK TERMINAL LTD & P.LTD - 11 IS A NARROW ONE AND HAS TO DEPEND UPON CERTAIN FAC TS PECULIAR TO EACH CASE. IT WAS FURTHER POINTED OUT THAT PURE AND SIM PLE, THE COMMERCIAL ASSETS LIKE MACHINERY, PLANTS TOOLS, INDUSTRIAL SHE DS OR GODOWNS HAVING HIGH BUSINESS POTENTIALS STAND ON A DIFFERENT FOOTI NG FROM ASSETS LIKE LAND AND BUILDING. IN OUR VIEW, IN THE CASE BEFORE US, THE SUBJECT MATTER OF EXPLOITATION BEING UNSOLD FLATS STILL OWNED BY T HE ASSESSEE, THE COMMISSIONER OF INCOME TAX (APPEALS) RIGHTLY CONCLU DED THAT THE SAME SHOULD BE TREATED AS INCOME FROM HOUSE PROPERTY BY WAY OF LETTING IT OUT. 12. IN THE CASE OF CIT V. AJMERA INDUSTIRES (P) LTD [1976] 103 ITR 245 (CAL) RELIED UPON BY THE TRIBUNAL BELOW, A DIVI SION BENCH OF THIS COURT WAS CONSIDERING A CASE WHERE THE ASSESSEE WAS CARRYING ON BUSINESS AND IN COURSE OF ITS TRADING ACTIVITIES, T HE ASSESSEE WAS USING AND EXPLOITING NON-FACTORY BUILDING INCLUDING ITS GODOWNS. IN SUCH A FACT, THE DIVISION BENCH WAS OF THE VIEW THAT NON-F ACTORY BUILDING INCLUDING THE GODOWNS CLEARLY CONSTITUTED COMMERCI AL ASSETS OF THE ASSESSEE AND THE FINDING OF THE TRIBUNAL IN THAT CA SE WAS THAT NON- FACTORY BUILDINGS INCLUDING GODOWNS WERE COMMERCIAL ASSETS OF THE COMPANY WHICH AMOUNTED TO EXPLOITING MAJOR PORTION OF THE SAME BY LETTING TO SOME OTHERS AS BUSINESS INCOME OF THE A SSESSEE. IN THE AFORESAID JUDGEMENT, THE HONBLE CALCUTTA HI GH COURT AGREES TO THE FACT THAT IF THE SUBJECT MATTER OF STOCK IN TRADE INCLUDES GODOW NS THEN IT COULD REASONABLY BE ARGUED THAT INCOME BY EXPLOITING THOSE STOCK IN TRA DE WOULD COME UNDER THE PURVIEW OF INCOME FROM BUSINESS. SIMILARLY IN CIT VS AJMERA INDUSTRIES (P) LTD REPORTED IN (1976) 103 ITR 245 (CAL) RELIED UPON HEREINABOVE, THE ASSESEE WAS USING AND EXPLOITING NON-FACTORY BUILDING INCLUDING ITS GODOW NS. IN SUCH A FACT, THE DIVISION BENCH WAS OF THE VIEW THAT NON-FACTORY BUILDING INC LUDING THE GODOWNS CLEARLY CONSTITUTED COMMERCIAL ASSETS OF THE ASSESSEE WHICH AMOUNTED TO EXPLOITING MAJOR PORTION OF THE SAME BY LETTING OUT TO SOME OTHERS A S BUSINESS INCOME OF THE ASSESSEE. 7.6. WE HOLD THAT IN ORDER TO BE A BUSINES S INCOME WITHIN THE MEANING OF SECTION 28 OF THE ACT, THERE MUST BE EVIDENCE OF EXPLOITATI ON OF A COMMERCIAL ASSET. EXPLOITATION OF A COMMERCIAL ASSET DOES NOT NECESSA RILY MEAN EXPLOITATION BY THE ASSESSEE HIMSELF AT ALL MATERIAL TIMES. THE ITA NOS. 1189/K/12, 736/K/11 & 1190/K/12-C-AM DEPTT VS. M/S. CAL. MUM TRUCK TERMINAL LTD & P.LTD - 12 ASSESSEE MAY TEMPORARILY CAUSE IT TO BE EXPLOITED B Y ANOTHER PERSON AGAINST PAYMENT OF CONSIDERATION AND FOR THIS PURPOSE MAY ALSO EXECUTE A LEASE FOR A FIXED PERIOD EVEN WITH CLAUSES OF OPTION TO RENEW. BUT IN ORDER THAT THE INCOME DERIVED FROM THE LEASE MAY BE TAXABLE IT MUST BE SHOWN THAT THE LESSORS INTENTION WAS THAT DURING THE PERIOD OF THE LEASE THE ASSET LEASED OUT MUST REMAIN AND T REATED AS A COMMERCIAL ASSET AND EXPLOITED AS SUCH. THIS INTENTION OF THE LESSOR RE FERRED TO ABOVE HAS TO BE ASCERTAINED FROM THE CUMULATIVE EFFECT OF ALL THE TERMS OF THE LEASE AND OTHER MATERIAL CIRCUMSTANCES. WE FIND THAT THE SUBJECT MENTIONED GODOWNS WERE SOLD SUBSEQUENTLY AFTER IT WAS REMAINING UNSOLD FOR SOME TIME AND IT WAS ONLY DURING INTERVENING PERIOD, THE SAME WERE LET OUT BY THE ASSESSEE AND RENTAL INCOME DERIVED THEREON. WE FIND THAT THE ASSESEE IS NOT ENGAGED IN THE BUSINESS OF SIMPL Y LETTING OUT OF LAND AND BUILDING BUT IS ENGAGED IN DEVELOPING, RUNNING AND OPERATING A T RUCK TERMINAL WITH SEVERAL AMENITIES AND NATURALLY RENTS REALIZED FROM SUCH LE TTING OUT ARE PART OF BUSINESS OPERATIONS. IN THIS REGARD, WE WOULD LIKE TO PLACE RELIANCE ON THE DECISION OF THE CO- ORDINATE BENCH OF THE BANGALORE TRIBUNAL IN THE CAS E OF ITO VS INFORMATION TECHNOLOGY PARK LTD REPORTED IN (2012) 49 SOT 491 (BANG.) (TRI B.) WHEREIN IT WAS HELD THAT :- ASSESSEE HAD DEVELOPED A TECHNOLOGY PARK, AND LET OUT ITS BUILDING ALONG WITH AMENITIES AND FACILITIES. SINCE THE ASSESSEE IS CARRYING ON A COMMERCIAL COMPLEX ACTIVITY OF SETTING UP SOFTWARE TECHNOLOGY PARK WITH VARIOUS FACILITIES AND AMENITIES THE INCOME DERIVED FROM LESSEES IS TO BE TAXED AS BUSINESS INCOME AND NOT AS INCOME FROM HOU SE PROPERTY. HENCE IN VIEW OF THE AFORESAID FACTS AND CIRCUMSTAN CES AND RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENTS RELIED UPON HEREINABOVE, WE HOL D THAT THE RENTAL INCOME DERIVED FROM GODOWNS ARE TO BE TAXED ONLY AS INCOME FROM BU SINESS. ACCORDINGLY, THE GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED. ITA NOS. 1189/K/12, 736/K/11 & 1190/K/12-C-AM DEPTT VS. M/S. CAL. MUM TRUCK TERMINAL LTD & P.LTD - 13 8. THE NEXT ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE INTEREST ON TERM LOAN UTILIZED FOR VARIOUS CAPITAL ASSETS ARE TO BE ALLOW ED AS REVENUE EXPENDITURE AFTER THE DATE OF CONSTRUCTION IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 8.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE AS SESSEE CLAIMED INTEREST ON LOAN AMOUNTING TO RS. 1,82,14,073/- AS A REVENUE EXPENDI TURE AS ADMITTEDLY THE CONSTRUCTION OF TRUCK TERMINAL WAS COMPLETED ON 31.12.2005. IT IS NOT IN DISPUTE THAT THE INTEREST ON LOAN TOGETHER WITH OTHER EXPENDITURES WERE CAPIT ALIZED UPTO 31.12.2005 BY THE ASSESSEE. THE LEARNED AO SOUGHT TO DISALLOW THE I NTEREST ON LOAN ON THE PREMISE THAT THE SAME ARE RELATED TO THE WORK IN PROGRESS. BE FORE THE LEARNED CITA, THE ASSESSEE PLEADED THAT THE ASSESSEE BORROWED TERM LOANS FROM UCO BANK, PUNJAB NATIONAL BANK AND STATE BANK OF INDIA IN THE YEARS 2001-02 , 2002 -03 & 2003-04 AND THE INTEREST PAID TILL 31.12.2005 HAS ALREADY BEEN CAPITALIZED AS THE LOANS WERE UTILIZED FOR ACQUIRING CAPITAL ASSETS AND THE CAPITAL ASSETS WERE ACQUIRED AND COMPLETED BY 31.12.2005. THE INTEREST ON LOAN AFTER 31.12.2005 AMOUNTING TO RS. 58.07 LACS WAS CHARGED TO PROFIT AND LOSS ACCOUNT AND ALLOWED AS A DEDUCTION IN SECTION 143(3) PROCEEDINGS FOR ASST YEAR 2006-07. IT WAS ARGUED THAT THE CAPITAL WORK IN PR OGRESS AS ON 31.3.2008 OF RS. 31.47 CRORES APPEARING IN THE BALANCE SHEET IS IN FACT CA PITAL WORK IN PROGRESS OF UNITS HELD FOR SALE WHICH COMPRISE OF WAREHOUSES, SHOPS, BUSINESS CENTRE, FRUITS / VEGETABLES / FISH MARKET, RESIDENTIAL QUARTERS, OFFICES, RESTAURANT A ND DHABA, REPAIR SHOPS ETC. IT WAS ARGUED THAT THESE AMENITIES ARE NOT PART OF FIXED A SSETS BUT ARE PART OF STOCK AND ARE BEING SOLD YEAR TO YEAR. IT WAS FURTHER STATED TH AT SINCE THE COMPANY WAS FACING POOR RESPONSE FROM CUSTOMERS FOR THESE UNITS, MANY OF TH EM STILL REMAIN UNFINISHED AND AS AND WHEN SOME CUSTOMERS ARE WILLING TO TAKE POSSESS ION THEN BALANCE FINISHING WORK IS DONE AS PER SPECIFICATION, REQUIREMENT AND NEED OF THE CUSTOMERS AND THE UNIT IS SOLD. THE ASSESSEE ALSO STATED THAT MANY OF THE UNITS WHI CH ARE READY ARE SOLD AS IT IS. THUS THE SAME HAS TO BE CONSTRUED AS STOCK AND STOCK IN PROCESS OF UNITS FOR SALE. IT WAS FURTHER ARGUED THAT SEVERAL OF THE UNITS HELD FOR S ALE ARE ALSO BEING UTILIZED FOR LETTING OUT AS GODOWNS AND WAREHOUSES AND THE COMPANY IS EA RNING RENT FROM THE SAME. THE ITA NOS. 1189/K/12, 736/K/11 & 1190/K/12-C-AM DEPTT VS. M/S. CAL. MUM TRUCK TERMINAL LTD & P.LTD - 14 ASSESSEE ALSO PLACED RELIANCE ON THE CERTAIN DECISI ONS OF THE SUPREME COURT IN SUPPORT OF ITS CONTENTIONS WHICH WERE DULY APPRECIATED AND ALL OWED THE CLAIM OF THE ASSESSEE TOWARDS INTEREST ON TERM LOAN AS A REVENUE EXPENDIT URE. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 2. THE LD.CIT(A) ERRED IN TREATING THE INTEREST EX PENSES ON TERM LOAN FOR VARIOUS CAPITAL ASSETS AS A REVENUE E XPENDITURE. 8.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT NO CLEAR FINDING WAS GIVEN BY THE LEARNED AO WITH REGARD TO THIS ADDITION IN THE ASSESSMENT ORDER. HOWEVER, WE FIN D THAT THE LEARNED CITA HAD PROCEEDED TO DELETE THE ADDITION BY OBSERVING AS UN DER:- 6. I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT O RDERS PASSED BY THE AO AND THE SUBMISSION PUT FORTH BY THE LD. AR, VARI OUS EXPLANATIONS & DETAILS FILED BEFORE THE AO AND THE ASSESSMENT ORD ER PASSED IN THE CASE FOR A.Y 2006-07. 6.1 I FIND THAT THERE IS ENOUGH FORCE IN THE ARGUME NTS PUT FORTH BY THE LD. A.R. FIRSTLY THAT THERE IS NO DOUBT THAT ASSESS MENT OF RENTAL INCOME EITHER UNDER INCOME FROM HOUSE PROPERTY OR AS INCOM E FROM BUSINESS OR PROFESSION IS NOT AUTOMATIC. AS HAS BEEN HELD BY VARIOUS COURTS THAT IT MUST EMERGE FROM THE FACTS & CIRCUMSTANCES OF T HE CASE. THE APPELLANTS ONLY BUSINESS IS NOT OF LAND OWNER BUT IT IS RUNNING A TRUCK TERMINAL WITH VARIOUS FACILITIES THROWN IN. THE FAC TS POINT OUT THAT APART FROM RENTING OF GODOWNS IT IS ACTUALLY SELLING THEM TOO APART FROM SELLING SHOPS ETC. IT HAS ALSO COLLECTED PARKING FEES FROM VEHICLES/TRUCKS. APART FROM THE ABOVE IT IS ALSO A FACT THAT THE GODOWNS WHICH WERE RENTED OUT ARE NOT PART OF FIXED ASSETS AND NO DEPRECIATION IS BEING CHARGED ON THE SAME AND THE SAME ARE BEING HELD AS TRADING ASSET AND ON EXPLOITATION OF TRADING ASSETS, WHAT MUST RESULT SHALL BE PART OF TRADING OPERATIONS. THE AO HAS FAILED TO PR OPERLY ANALYZE THE CASE AND HIS ORDER IS NOT BASED ON PROPER FINDINGS . HE HAS DISALLOWED DEPRECIATION WITHOUT FINDING OUT WHETHER THE SAME W AS BEING CLAIMED ON THE GODOWNS RENTED OR SOME OTHER BUILDING. HE HA S DISALLOWED REPAIRS & MAINTENANCE EXPENSES AND COMMISSION BROK ERAGE AS BEING THE SAME RELATED TO EARNING RENT, WHERE AS RECORDS CLEARLY SHOW THAT IT IS NOT RELATED TO EARNING RENTAL INCOME. HE HAS DIS ALLOWED INTEREST ON TERM LOANS PAID AS BEING RELATED TO WIP, THEREBY NEITHER ALLOWING IT TO BE OFFSET AGAINST HOUSE PROPERTY INCOME OR BUSINESS INCOME AND ITA NOS. 1189/K/12, 736/K/11 & 1190/K/12-C-AM DEPTT VS. M/S. CAL. MUM TRUCK TERMINAL LTD & P.LTD - 15 INSTEAD CAPITALIZING TO WIP WITHOUT FINDING OUT IF THE SAME SPECIFICALLY RELATES TO BRINGING INTO EXISTENCE ANY CAPITAL ASSE T. IT IS A FACT THAT THE LOANS WERE OBTAINED IN EARLIER YEARS AND THERE IS N O ADDITION INTO NEW FIXED ASSETS DURING THE YEAR (EXCEPT SOME COMPUTERS OF RS.45698/-) THEN HOW COULD THE INTEREST ON LOANS WHICH WERE BORROWE D IN EARLIER YEARS COULD BE DISALLOWED OR CAPITALIZED. 6.2 THE AO HAS DISALLOWED COST OF CONSTRUCTION, COS T OF GOODS SOLD & COST OF LAND WITHOUT CONSIDERING THE FACT THAT THE RE ARE SALES OF GODOWNS, SHOPS & MATERIALS AGAINST THE SAME. THERE IS NO BASIS FOR SUCH DISALLOWANCE. IT APPEARS THAT THE FACTS OF THE CASE OF THE APPELLANT HAVE BEEN TOTALLY MISINTERPRETED BY HIM. 6.3 IT IS ALSO SEEN THAT IN THE APPELLANTS CASE FO R A.Y 2006-07 THE RENT WAS TREATED AS BUSINESS INCOME AND THE INTEREST PAI D ON TERMS LOANS WERE ALLOWED AS BUSINESS EXPENDITURE. THE AO HAS FA ILED TO BRING TO LIGHT WHY THERE IS A CHANGE OF OPINION WHERE THE F ACTS HAVE REMAINED THE SAME. 6.4 I AM THUS INCLINED TO UPHOLD THE CONTENTION OF THE APPELLANT AND DIRECT THE AO TO TREAT THE GODOWN RENTS RECEIVED BY THE APPELLANT AS BUSINESS INCOME AND ALL THE ADDITIONS MADE (EXCEPT THE DIFFERENCE ON DEPRECIATION ON ELECTRICAL FITTINGS WHICH HAS BEEN DEALT IN THE NEXT PARA OF ORDER) ARE DELETED. WE ALSO FIND THAT THE FOLLOWING DECISIONS OF THE HO NBLE APEX COURT SUPPORTS THE VIEW OF THE ASSESSEE :- CIT VS ASSOCIATED FIBRE & RUBBER INDUSTRIES (P) LTD REPORTED IN (1999) 102 TAXMAN 700 (SC), WHEREIN IT WAS HELD THAT :- WHERE MACHINERY WAS PURCHASED OUT OF BORROWED AMO UNT FOR PURPOSE OF BUSINESS AND IT WAS TREATED AS BUSINES S ASSETS, MERELY BECAUSE SUCH MACHINERY HAD NOT BEEN ACTUALLY USED IN BUSINESS AT THE TIME WHEN ASSESSMENT WAS MADE, INTEREST PAID ON AMO UNT BORROWED COULD NOT BE DISALLOWED. CIT VS UNITED PHOSPHOROUS LTD REPORTED IN (2008) 16 7 TAXMAN 261 (SC) IN VIEW OF SUPREME COURTS JUDGMENT IN CASE OF DY . CIT V. CORE HEALTH CARE LTD [2008] 167 TAXMAN 206, IT WAS TO BE HELD THAT INTEREST PAID IN RESPECT OF BORROWING FOR PURCHASING CAPITAL ASSETS, WHICH ARE ITA NOS. 1189/K/12, 736/K/11 & 1190/K/12-C-AM DEPTT VS. M/S. CAL. MUM TRUCK TERMINAL LTD & P.LTD - 16 NOT PUT TO USE IN CONCERNED FINANCIAL YEAR, CAN BE PERMITTED AS AN ALLOWABLE DEDUCTION. 8.3. IN VIEW OF THE AFORESAID FACTS AND RESPECTFU LLY FOLLOWING THE JUDICIAL PRECEDENTS RELIED UPON HEREINABOVE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LEARNED CITA AND ACCORDINGLY, THE GROUND NO.2 RAISE D BY THE REVENUE IS DISMISSED. SINCE WE HOLD THAT THE INTEREST ON TERM LOAN IS ALL OWABLE AS A DEDUCTION FROM BUSINESS INCOME, THE ALTERNATIVE ARGUMENT OF THE LEARNED AR THAT THE SAME IS LIABLE TO ALLOWED AS DEDUCTION ON ACTUAL BASIS AGAINST RENTAL INCOME IF TAXED UNDER INCOME FROM HOUSE PROPERTY, DOES NOT REQUIRE ANY ADJUDICATION. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO. 736 /KOL / 2011 IS DISMISSED. ITA NO. 1190 / KOL / 2012 ASST YEAR 2009-10 10. THE ISSUE TO BE DECIDED IN THIS APPEAL IS AS T O WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE RENTAL INCOME FROM G ODOWNS DERIVED BY THE ASSESSEE IS TO BE TAXED AS BUSINESS INCOME OF THE ASSESSEE OR A S INCOME FROM HOUSE PROPERTY. THIS ISSUE HAS ALREADY BEEN DISCUSSED AND DECIDED BY US IN PARA 7.4 & 7.5 HEREINABOVE IN ITA NO. 736 / KOL / 2011 FOR THE ASST YEAR 2008-09 AND THE DECISION RENDERED THEREON WOULD APPLY WITH EQUAL FORCE TO THIS ASST YEAR ALSO . ACCORDINGLY, THE GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED. 11. THE NEXT ISSUE TO BE DECIDED IN THIS APPEAL I S AS TO WHETHER ANY ADDITION TOWARDS COST OF CONSTRUCTION (WORK IN PROGRESS) AMOUNTING T O RS. 96,00,820/- ; COST OF LAND (WORK IN PROGRESS) AMOUNTING TO RS. 2,936/- ; REPA IRS AND MAINTENANCE AMOUNTING TO RS. 5,42,090/- AND INTEREST ON LOAN AMOUNTING TO RS . 1,52,97,322/- COULD BE DISALLOWED IN THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NOS. 1189/K/12, 736/K/11 & 1190/K/12-C-AM DEPTT VS. M/S. CAL. MUM TRUCK TERMINAL LTD & P.LTD - 17 11.1 THE BRIEF FACTS OF THESE ADDITIONS ARE THAT THE ASSESSEE HAS BUILT HUGE FACILITY AT ITS TRUCK TERMINAL AND EXPENSES HAVE TO BE INCURRED TO MAINTAIN THE SAME. ALL THE EXPENSES INCURRED UPTO THE DATE OF COMPLETION OF CO NSTRUCTION OF TRUCK TERMINAL WERE DULY CAPITALIZED BY THE ASSESSEE (I.E UPTO 31.12.20 05) AND REGULAR RECURRING REVENUE EXPENSES INCURRED THEREAFTER HAVE BEEN DULY CLAIMED BY THE ASSESSEE AS A DEDUCTION. IT WAS ARGUED THAT THE EXPENSES APART FROM OTHER REPAI RS INCLUDES THOSE WHICH HAVE BEEN INCURRED FOR GODOWNS WHICH WERE LET OUT. THE BASIC NATURE OF EXPENSES ARE ON AIR CONDITIONER MACHINES, ELECTRICAL INSTALLATIONS, CHA IR, TYPE MACHINE, WEIGH BRIDGE, SHEDS AND GODOWNS. WITH REGARD TO THE ADDITION MADE T OWARDS COST OF CONSTRUCTION AND COST OF LAND (WORK IN PROGRESS) , IT WAS ARGUED THA T THE ASSESSEE HAD SOLD WAREHOUSES AND CARRIED OUT SOME EXTRA WORK FOR A PARTY AS FOLL OWS DURING THE YEAR :- SALE OF WAREHOUSE - 97,03,050 EXTRA WORK - 2,00,000 -------------- 99,03,050 THE DETAILS OF COST OF CONSTRUCTION OF THE SAME WER E FILED BEFORE THE LEARNED AO AS BELOW:- COST OF GODOWNS SOLD (SEMI FINISHED) 27723 SQ.FT @ RS 291 - 80,67,390 COST OF MATERIALS & LABOUR CONSUMED FOR REPAIRS OF WAREHOUSES ETC GIVEN ON RENT - 13,58,430 COST OF MATERIALS & LABOUR CONSUMED FOR EXTRA FINIS HING WORK DONE FOR PARTIES - 1,75,000 ------------ TOTAL 96,00,820 ------------ THE DETAILS OF THE SAME WERE DULY FILED BEFORE THE LEARNED AO TOGETHER WITH THE VALUATION REPORT FOR CALCULATING COST OF CONSTRUCTI ON OF WAREHOUSES SOLD. IT WAS FURTHER STATED THAT THE COMPANY HAD INCURRED AN EXPENDITURE OF RS. 1,42,94,755/- DURING THE YEAR WHICH WAS ADDED TO WORK IN PROGRESS AND OUT OF TOTAL WORK IN PROGRESS, THE COST RELATING TO THE SALE OF WAREHOUSES / GODOWNS ETC WE RE DEDUCTED AND CHARGED TO PROFIT ITA NOS. 1189/K/12, 736/K/11 & 1190/K/12-C-AM DEPTT VS. M/S. CAL. MUM TRUCK TERMINAL LTD & P.LTD - 18 AND LOSS ACCOUNT. WITH REGARD TO COST OF LAND (W ORK IN PROGRESS) , IT WAS STATED THAT A SUM OF RS. 2,936/- DID NOT RELATE TO CURRENT YEAR B UT WAS DUE TO RECTIFICATION OF AN ERROR MADE IN FINANCIAL YEAR 2006-07 WHEREIN A SUM OF RS. 2,936/- WAS SHORT DEBITED TO THE COST OF LAND IN PROFIT AND LOSS ACCOUNT. IT WAS F URTHER PLEADED BY THE ASSESSEE THAT SIMILAR ADDITION WAS MADE IN ASST YEAR 2008-09 BY T HE LEARNED AO WAS DELETED BY THE LEARNED CITA AND NO FURTHER APPEAL WAS PREFERRED BY THE REVENUE AGAINST THAT ISSUE BEFORE TRIBUNAL. WITH REGARD TO THE INTEREST ON TER M LOAN AMOUNTING TO RS. 1,52, 97,322/- , IT WAS PLEADED THAT THE SAME RELATES TO PERIOD SUBSEQUENT TO THE DATE OF COMPLETION OF TRUCK TERMINAL AND HENCE ALLOWABLE AS DEDUCTION. THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE LD.CIT(A) HAS ERRED IN DELETING THE ADDITIONS BEING CAPITAL E XPENDITURE UNDER THE HEAD CCOST OF CONSTRUCTION, COST OF LAND, REPAIRS & MAINTENANCE AND INTEREST ON LOAN. 11.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PER USED THE MATERIALS AVAILABLE ON RECORD. WE HAVE ALREADY HELD THAT THE RENTAL INCOM E DERIVED FROM GODOWNS ARE TO BE TAXED ONLY AS INCOME FROM BUSINESS AND HENCE THE RE PAIRS ACTIVITY CARRIED OUT ON THE SAME ARE TO BE ALLOWED ONLY AS A BUSINESS EXPENDITU RE. WITH REGARD TO INTEREST ON TERM LOAN, WE HAVE ALREADY HELD IN PARA 8.2 & 8.3 HEREI NABOVE IN ITA NO. 736/KOL / 2011 FOR ASST YEAR 2008-09 THAT THE SAME IS ALLOWABLE A S BUSINESS EXPENDITURE AND THE SAID DECISION WOULD APPLY IN EQUAL FORCE FOR THIS ASSESS MENT YEAR ALSO. WITH REGARD TO THE ADDITION MADE TOWARDS COST OF CONSTRUCTION AND COST OF LAND (WORK IN PROGRESS) , WE ARE SATISFIED WITH THE ACCOUNTING TREATMENT DONE BY THE ASSESSEE BY DEDUCTING THE COST ATTRIBUTABLE TO THE EXTENT OF GODOWNS SOLD FROM THE OVERALL WORK IN PROGRESS FIGURE. HENCE NO ADDITION IS CALLED FOR IN THIS REGARD. AC CORDINGLY, THE GROUND NO. 2 RAISED BY THE REVENUE IS DISMISSED. ITA NOS. 1189/K/12, 736/K/11 & 1190/K/12-C-AM DEPTT VS. M/S. CAL. MUM TRUCK TERMINAL LTD & P.LTD - 19 12. TO SUM UP, THE THREE APPEALS OF THE REVENUE IN ITA NO. 1189/KOL/2012 ; ITA NO. 736/KOL/2011 AND ITA NO. 1190/KOL/2012 FOR ASST YEARS 2007-08 ; 2008-09 & 2009-10 RESPECTIVELY ARE DISMISSED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 30 / 10/ 2015 1.. THE APPELLANT/DEPARTMENT: DCIT,CIR-1 & ITO W 1(3) AAYKAR BHAVAN,P-7 CHOWRINGHEE SQ., KOL-69. 2 THE RESPONDENT/ASSESSEE-M/S. CALCUTTA MUMBAI TRU CK TERMINAL LTD/ M/S. CALCUTTA MUMBAI TRUCK TERMINAL PVT.LTD 545 G. T ROAD9S), HOWRAH-711101. 3 4.. /THE CIT, / THE CIT(A) 5. DR, KOLKATA BENCH 6. GUARD FILE. TRUE COPY, BY ORDER, ASSTT REGISTRAR ** PRADIP SPS SD/- ( M. BALAGANESH, ACCOUNTANT MEMBER ) SD/- ( S.S. VISWANETHRA RAVI , JUDIC IAL MEMBER ) DATE 30 /10/2015 COPY OF THE ORDER FORWARDED TO: