M/s Samar Estate Pvt. Ltd., Panchkula V. ITO, Panchkula

ITA 1252/CHANDI/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86185 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 27-01-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 30-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JYOTI KUMARI
• Keywords: Business income
• Section: 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R. SOOD, ACCOUNTANT MEMBER ITA NO. 1252/CHD/2011 ASSESSMENT YEAR: 2008-09 M/S SAMAR ESTATE PVT. LTD., VS. THE ITO SEC-7 PANCHKULA PANCHKULA PAN NO.AAICS0083L (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI TEJ MOHAN SINGH RESPONDENT BY : SHRI. JYOTI KUMARI DATE OF HEARING : 27/01/2015 DATE OF PRONOUNCEMENT : 06.02.2015 ORDER PER T.R.SOOD, A.M. THE APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 31.10.2011 PASSED BY THE CIT(A) PANCHKULA. 2. IN THIS APPEAL ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN LAW AS WELL AS ON FACTS UPHOLDING THE ADDITION OF RS. 2,19,70,183/- WHICH IS ILLEGAL, ARBITRARY & UNJ USTIFIED. 2. THAT LD. COMMISSIONER OF INCOME TAX (APPEALS)HAS FURTHER ERRED IN UPHOLDING THAT THE INTEREST INCOME EARNED BY THE ASSESSEE IS INCOME FROM OTHER SOURCES AND NOT BUSINESS INCOME IN UTTER DISREGARD OF THE EXPLANA TION RENDERED WHICH IS ARBITRARY AND UNJUSTIFIED. 3. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) HAS FURTHER ERRED IN UPHOLDING THE FACTUALLY INCORR ECT FINDING 2 OF THE ASSESSING OFFICER THAT THE BUSINESS OF THE A SSESSEE COMPANY HAD NOT COMMENTED AND AS SUCH THE COMPANY W AS NOT ELIGIBLE FOR ANY RELIEF U/S 70 OR 71 WHICH IS A RBITRARY AND UNJUSTIFIED. 4. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) HAS FURTHER ERRED IN NOT CONSIDERING THE WRITTEN SU BMISSIONS FILED BEFORE HER DURING THE COURSE OF APPELLATE PRO CEEDINGS WHICH IS ARBITRARY AND UNJUSTIFIED. 3. AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS IT WAS NOTICED THAT ASSESSEE IS ENGAGED IN THE BUSI NESS OF DEVELOPING LAND AND CONSTRUCTION OF RESIDENTIAL APARTMENTS THEREON. AC CORDING TO ASSESSING OFFICER, THE ASSESSEE COMPANY HAD NOT COMMENCED THE BUSINESS . IT WAS FURTHER NOTICED THAT ASSESSEE HAD RECEIVED BANK INTEREST ON FDRS AM OUNTING TO RS. 2,19,70,183/- THESE FDRS WERE MADE OUT OF THE ADVANCES RECEIVED F ROM CUSTOMERS. IN RESPONSE TO THE QUERY WHY THIS INTEREST SHOULD NOT BE SUBJECTED TO TAX, IT WAS MAINLY STATED THAT ASSESSEE WAS DEVELOPING LAND AND CONSTRUCTING RESIDENTIAL APARTMENTS IN THE AREA OF PANCHKULA. DURING THE YE AR, THE APARTMENTS REMAINED UNDER CONSTRUCTION AND WERE NOT COMPLETE AND, THERE FORE, NOT READY FOR SALE. THE ASSESSEE WAS FOLLOWING MERCANTILE ACCOUNTING SYSTEM RIGHT FORM THE INCEPTION AND ALL THE CONSTRUCTION COST AND RELATED EXPENSES WERE SHOWN AS WORK IN PROGRESS AND INTEREST RECEIVED WAS CREDITED TO SUC H WORK IN PROGRESS. 4. ACCORDING TO ASSESSING OFFICER SUCH INTEREST INC OME WAS REQUIRED TO BE TAXED PARTICULARLY IN VIEW OF THE DECISION OF HON'B LE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD V CIT 227 ITR 172 (SC). HE FURTHER OPINED THAT FACTS OF THE ASSESSEE WERE ALMO ST IDENTICAL WITH THE FACTS OF THE DECISION OF TUTICORIN ALKALI CHEMICALS AND FERT ILIZERS LTD V CIT (SUPRA) BECAUSE ASSESSEE HAS NOT COMMENCED ITS BUSINESS AND HAS EARNED INTEREST. ACCORDINGLY, THE INTEREST INCOME WAS SUBJECTED TO T AX AS INCOME FROM OTHER SOURCES. 3 5. ON APPEAL, IT WAS MAINLY CONTENDED THAT ASSESSI NG OFFICER IS NOT CORRECT IN OBSERVING THAT ASSESSEE HAS NOT COMMENCED ITS BU SINESS BECAUSE ASSESSEE COMPANY HAD PERFORMED BHUMI PUJA AND THEREAFTER S TARTED CONSTRUCTION OF FLATS. ADVERTISEMENTS FOR SALE OF SUCH FLATS WERE GIVEN IN THE NEWSPAPERS. IT WAS FURTHER POINTED OUT TAHT CERTAIN ADVANCES WERE RECE IVED FROM CUSTOMERS AND SUCH ADVANCES HAD DIRECT LINK TO THE BUSINESS. THE MONE Y RECEIVED FROM SUCH ADVANCES WAS PARTLY USED AND WAS PARTLY KEPT IN BAN K ON WHICH INTEREST WAS EARNED WHICH WAS CREDITED TO THE WORK IN PROGRESS A CCOUNT BECAUSE CONSTRUCTION WAS COMPLETE. 6. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OBSERVED THAT INTEREST HAS BEEN EARNED BY THE ASSESSEE COMPANY DURING PRE- OPERATIVE PERIOD AND THE IDLE FUNDS BEFORE THE PRE-OPERATIVE PERIOD HAS BEEN USED IN MAKING FDRS. SHE FURTHER REFERRED TO THE PROFIT AND LOSS ACCOUNT AND POINTED OUT THAT IN SUCH PROFIT AND LOSS ACCOUNT, SALES AS WELL AS ALL EXPENSES WER E SHOWN AS NIL WHICH MAKES IT CLEAR THAT ASSESSEE HAS NOT COMMENCED THE BUSINESS, THEREFORE, DECISION IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD V CIT (SUPRA) WAS APPLICABLE. IN THIS BACKGROUND SHE CONFIRMED THE AS SESSMENT OF INCOME FROM INTEREST AND AS INCOME FROM OTHER SOURCES. 7. BEFORE US, LD. COUNSEL FOR THE ASSESSEE SUBMITTE D THAT ASSESSEE WAS IN THE BUSINESS OF DEVELOPMENT OF LAND AND CONSTRUCTION OF RESIDENTIAL FLATS. THE CONSTRUCTION ACTIVITY HAS ALREADY STARTED AFTER PER FORMING BHUMI PUJA AND, THEREFORE, IT CANNOT BE SAID THAT BUSINESS IS NOT C OMMENCED. IN THE CASE OF CONSTRUCTION, COMPANIES BUSINESS WOULD COMMENCE THE MOMENT CONSTRUCTION STARTS. SINCE FLATS WERE NOT READY FOR SALE, THER EFORE, ALL EXPENSES WERE SHOWN AS WORK IN PROGRESS. 4 8. IN THIS REGARD HE REFERRED TO THE BALANCE SHEET WHERE THE WORK IN PROGRESS HAS BEEN SHOWN SEPARATELY. THE DETAILS OF WORK IN P ROGRESS AS GIVEN IN A SCHEDULE ARE AVAILABLE AT PAGE 334 OF THE PAPER BOO K. HE POINTED OUT THAT A SUM OF RS. 1,22,12,592/- ON ACCOUNT OF NET FINANCIAL CH ARGES HAS BEEN REDUCED FROM SUCH WORK IN PROGRESS. THE ASSESSEE HAS PAID SOME I NTEREST ON THE BORROWINGS MADE, THEREFORE, AFTER REDUCING SUCH PAYMENT FROM T HE INTEREST RECEIVED, THE NET AMOUNT HAS BEEN CREDITED TO THE PROFIT AND LOSS ACC OUNT. HE CONTENDED THAT REDUCED WORK IN PROGRESS WOULD MEAN THAT WHATEVER I NTEREST ELEMENT IS THERE WOULD BECOME TAXABLE IN THE NEXT YEAR WHEN THE FLAT S ARE ACTUALLY SOLD BECAUSE COST WOULD BE LOWER BECAUSE OF THIS CREDIT OF INTER EST. HE FURTHER CONTENDED THAT IN THE IDENTICAL CIRCUMSTANCES, THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS LOK HOLDINGS 308 ITR 356 (BOM.) HAS HELD THAT INTEREST INCOME WOULD CONSTITUTE AS BUSINESS I NCOME. IN THAT CASE ALSO INTEREST WAS REDUCED FROM THE WORK IN PROGRESS. THE ASSESSING OFFICER HELD INTEREST TO BE TAXABLE AS INCOME FROM OTHER SOURCE S AND THE HON'BLE HIGH COURT REVERSED THE DECISION OF ASSESSING OFFICER. 9. ON THE OTHER HAND LD. DR STRONGLY SUPPORTED THE ORDER OF ASSESSING OFFICER AND THE CIT(A). SHE FURTHER SUBMITTED THAT SINCE ASSESSEE HAS NOT COMMENCED BUSINESS, THEREFORE, INCOME FROM INTEREST WAS RIGHTLY TAXED BECAUSE OF THE DECISION OF HON'BLE SUPREME COURT IN THE CAS E OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD V CIT TURICORIN (SUPR A). SHE ALSO STRONGLY RELIED ON THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT V SWANI SPICE MILLS P. LTD. 332 ITR 288 (BOM). SHE FURTHER RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS AUTOKAST LTD 248 ITR 11 0 (SC). 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND FORCE IN THE SUBMISSI ONS OF LD. COUNSEL FOR THE ASSESSEE. IN OUR OPINION, THE ASSESSING OFFICER I S NOT CORRECT IN OBSERVING THAT 5 ASSESSEE HAS NOT COMMENCED ITS BUSINESS. IN CASE O F A CONSTRUCTION COMPANY, ONCE CONSTRUCTION ACTIVITY STARTS THEN IT CAN DEFIN ITELY BE SAID THAT BUSINESS HAS COMMENCED. IN THE CASE BEFORE US, THE ASSESSEE HAS PURCHASED VARIOUS MATERIALS AND HAS INCURRED LABOR CHARGES AND OTHER EXPENSES L IKE ADMINISTRATIVE EXPENSES, SALARIES, ELECTRICITY, MACHINERY REPAIR ETC. HOWEV ER, SINCE FLATS WERE NOT COMPLETE, THEREFORE, ALL THESE EXPENSES ALONG WITH MATERIAL ETC. HAVE BEEN SHOWN AS WORK IN PROGRESS WHICH BECOMES CLEAR FROM PAG E 334 OF THE PAPER BOOK WHICH GIVES DETAILS OF THE WORK IN PROGRESS AS WELL AS THE BALANCE SHEET WHICH IS AVAILABLE AT PAGE 4 OF THE PAPER BOOK. THE TOTAL W ORK IN PROGRESS IS RS. 9,50,10,025/-, THEREFORE, THE DECISION OF HON'BLE S UPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD V CI T (SUPRA) IS NOT APPLICABLE BECAUSE IN THAT CASE ASSESSEE HAD NOT COMMENCED ANY BUSINESS. THE ABOVE SITUATION FURTHER BECOMES CLEAR FROM THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V LOK HOLDINGS (SUPRA ). IN THAT CASE THE FOLLOWING QUESTIONS WERE RAISED:- 4(A) QUESTION IS WHETHER, ON THE FACTS AND CIRCUM STANCES OF THE CASE AND IN LAW THE TRIBUNAL IS RIGHT IN DELETING T HE ADDITION ON THE GROUND THAT IN THE CASE OF EAST COAST ENTERPRISES, THE TRIBUNAL HAD UPHELD THE DELETION WITHOUT DISCUSSING THE FACTS OF THE SAID CASE OF EAST COAST ENTERPRISES ? (B) QUESTION IS WHETHER, ON THE FACTS AND CIRCUMST ANCES OF THE CASE AND IN LAW, THE TRIBUNAL IS RIGHT IN HOLDING T HAT THE INTEREST INCOME CANNOT BE ASSESSED AS INCOME FROM OTHER SOUR CES WITHOUT REFERRING TO SECTION 56 OF THE INCOME-TAX ACT AND C ONTRARY TO THE DECISION OF THE APEX COURT REPORTED IN TUTICORIN AL KALI CHEMICALS AND FERTILISERS LTD. V. CIT [1997] 227 ITR 172 ? (C) QUESTION IS WHETHER, ON THE FACTS AND CIRCUMST ANCES OF THE CASE AND IN LAW, THE TRIBUNAL IS RIGHT IN COMING TO A CONCLUSION THAT THE INTEREST INCOME RECEIVED BY THE RESPONDENT IS N OTHING BUT 6 BUSINESS INCOME AND, THEREFORE, THE SAME CANNOT BE ASSESSED AS INCOME FROM OTHER SOURCES ? 11. IN THAT CASE THE FACTS ARE IDENTICAL TO THE CAS E BEFORE US. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF DEVELOPMENT AND CONSTRUC TION OF PROPERTIES. THE ASSESSEE FIRM HAD RECEIVED ADVANCES FROM CUSTOMERS AND MONEY RECEIVED THROUGH SUCH ADVANCES WHICH WERE NOT REQUIRED IMMED IATELY WAS DEPOSITED IN FDRS ETC. ON TEMPORARY BASIS. THE INTEREST CREDITED ON SUCH DEPOSITS WAS DEDUCTED FROM THE WORK IN PROGRESS. HOWEVER, ASSES SING OFFICER TAXED SUCH INTEREST AS INCOME FROM OTHER SOURCES. IN THAT C ASE ALSO ON BEHALF OF THE REVENUE RELIANCE WAS PLACED ON THE DECISION OF HON' BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD V CIT (SUPRA). THE HON'BLE COURT CLEARLY OBSERVED THAT FACTS IN THIS CASE ARE COMPLETELY DIFFERENT AND, THEREFORE, DECISION IN THE CASE OF TUTICORIN A LKALI CHEMICALS AND FERTILIZERS LTD V CIT (SUPRA) WAS NOT APPLICABLE. ULTIMATELY, T HE COURT REFERRED TO ANOTHER DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CI T V BOKARO STEEL LTD. 236 ITR 315 (SC) AND HELD THAT INTEREST INCOME IS TO BE ASSESSED AS BUSINESS INCOME BECAUSE THE ASSESSEE HAD ALREADY COMMENCED BUSINESS . IN THIS BACKGROUND THE INTEREST INCOME WAS HELD TO BE NOT TAXABLE. IN OUR OPINION, THE FACTS OF THE ASSESSEES CASE ARE IDENTICAL TO THIS CASE AND, THE REFORE, FOLLOWING THIS DECISION, WE HOLD THAT INTEREST INCOME CANNOT BE TREATED AS INCOME FROM OTHER SOURCES AS SINCE HE SAME HAS BEEN REDUCED FROM THE WORK IN PRO GRESS, THE SAME IS NOT TAXABLE. THEREFORE, WE SET ASIDE THE ORDER OF LD. C IT(A) AND DELETE THE ADDITION. 12. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 06.02.2015 SD/- SD/- (BHAVNESH SAINI) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 6 TH FEBRUARY, 2015 RKK COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR 7