REDWOOD IT SERVICES LTD, MUMBAI V. ITO 10(2)(2), MUMBAI

ITA 1285/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3737 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 18-03-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 24-02-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV
• Keywords: Capital asset
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI BEFORE SHRI D KARUNAKARA RAO, ACCOUNTANT MEMBER & SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.:1285/MUM/2012 ASSESSMENT YEAR: 2009-10 REDWOOD IT SERVICES LTD., VS. THE ITO 10(2)(2), D-211, GHATKOPAR INDL. ESTATE, MUMBAI BEHIND R CITY MALL, GHATKOPAR (W), MUMBAI- 400 086 PAN : AADCR7296K (APPELLANT) (RESPONDENT) APPELLANT BY : MR. VIJAY MEHTA RESPONDENT BY : MR. JITENDRA YADAV DATE OF HEARING : 18.03.2013 DATE OF PRONOUNCEMENT : 08.05.2013 ORDER PER SANJAY GARG, JM : THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) DATED 12.01.2012 PERTAINING TO A.Y 2009-10, CONFIRM ING THE ADDITION OF INTEREST INCOME OF RS.7,69,465/- INTO THE INCOME OF THE ASSE SSEE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY FILED ITS RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR DECLARING T OTAL INCOME AT NIL . DURING THE RELEVANT ASSESSMENT YEAR THE ASSESSEE HAD NOT START ED ITS BUSINESS ACTIVITY. THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH G:CORP PROPERTIES PVT. LTD. FOR PURCHASE OF AN OFFICE PREMISES FOR AN AMOUNT OF RS. 19,93,59,900/- AND HAD SHOWN ADVANCE TO THE TUNE OF RS.14,96,48,067/- TO THE BUI LDER IN ITS BOOKS OF ACCOUNT. THE SOURCE OF ADVANCE WAS OUT OF BANK LOAN TAKEN FROM K OTAK MAHINDRA BANK AND ALSO ITA NO. 1285/MUM/2012 AY : 2009-10 2 LOANS WERE TAKEN FROM SHARE HOLDERS, DIRECTORS AND THEIR RELATIVES. THE POSSESSION OF THE PROPERTY WAS NOT TAKEN BY THE COMPANY DURING TH E RELEVANT FINANCIAL YEAR. DURING THE COMPUTATION OF INCOME U/S. 143(3) OF THE I T ACT, THE AO NOTICED THAT THE ASSESSEE HAD SET OFF INTEREST INCOME OF R.7,69,465/ - EARNED ON FIXED DEPOSIT WITH KOTAK MAHINDRA BANK AGAINST THE BANK INTEREST PAID ON LOAN AMOUNT I.E. RS.59,58,046/-. THE AO FURTHER NOTICED THAT THE AS SESSEE HAD TAKEN LOAN EXCLUSIVELY FOR ACQUIRING AN IMMOVABLE PROPERTY I.E. CAPITAL AS SET AND THE INTEREST HAD ACCRUED ON THE SAID LOAN BUT THE BUSINESS HAD NOT COMMENCED DURING THE RELEVANT PREVIOUS YEAR. THE AO CONFIRMED THAT THE CAPITAL ASSET HAD NOT BEEN UTILIZED BY THE ASSESSEE FOR BUSINESS PURPOSE AND THAT THE ASSESSEE HAD SHOW N THE ABOVE LOAN AS ADVANCES TO THE BUILDER IN THE BALANCE SHEET. THE AO THUS D ID NOT ALLOW THE INTEREST INCURRED ON LOAN AS IT SHOULD HAVE BEEN CAPITALIZED IN THE Y EAR AND WAS ALLOWABLE WHEN THE BUSINESS WOULD START. HENCE, THE INTEREST INCOME O F RS.7,69,465/- EARNED ON FIXED DEPOSIT WAS NOT ALLOWED TO BE SET OFF AND WAS ADDED AND TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES. THE LEARNED CIT(A) CO NFIRMED THE ADDITIONS SO MADE. THE ASSESSEE IS THUS IN APPEAL BEFORE US. 3. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND HAVE ALSO GONE THROUGH THE RECORD. THE LEARNED AR BEFORE US HAS S UBMITTED THAT THE DEPOSIT MAINTAINED BY THE ASSESSEE WITH KOTAK MAHINDRA BANK TO THE EXTENT OF RS.1 CRORE WAS NOT OUT OF ANY FREE CASH RESERVES MAINTAINED BY THE ASSESSEE. THE SAID BANK WHILE ACCORDING LOAN OF RS.12 CRORES TO THE ASSESSE E HAD PUT IN A CONDITION THAT THE LOAN WOULD BE SANCTIONED SUBJECT TO MAINTAINING A F IXED DEPOSIT OF RS.1 CRORE WITH THE SAID BANK. THE ASSESSEE WAS NOT HAVING ANY OPT ION THAN TO AGREE WITH THE SAID CONDITION BUT WITH AN UNDERSTANDING THAT THE SAID L OAN WOULD BE ENHANCED FROM RS.12 CRORES TO RS.13 CRORES, WHICH WAS SANCTIONED ACCORDINGLY. TO COMPLY WITH THE CONDITION, THE ASSESSEE TOOK A TEMPORARY LOAN OF RS . 1 CRORE FROM ONE MRS. JYOTI NANDLAL CHHABRIA ON 29.05.2008 AND AS SUCH THE SAME WAS CONVERTED INTO FIXED ITA NO. 1285/MUM/2012 AY : 2009-10 3 DEPOSIT WITH THE BANK ON 30.05.2008 AS PER THE PRE- REQUISITE CONDITION FOR THE SANCTION OF THE LOAN. THE LOAN WAS SANCTIONED AND FURTHER THE BANK RELEASED A SUM OF RS.1,03,84,060/- ON 31.05.2008 TOWARDS THE REPAY MENT OF TEMPORARY LOAN OF MRS. JYOTI NANDLAL CHHABRIA, WHICH WAS PAID ACCORDINGLY. THE LEARNED AR HAS FURTHER SUBMITTED THAT THE REASON FOR NOT TREATING THE INTE REST ACCRUED TO THE EXTENT OF RS.7,69,645/- AS REVENUE AGAINST THE AFORESAID FIXE D DEPOSIT WAS THAT IT WAS A CONDITIONAL FIXED DEPOSIT THAT WAS ASKED BY THE BAN K WITHOUT WHICH THE LOAN WOULD NOT HAVE BEEN SANCTIONED. THE LEARNED AR HAS FURTH ER SUBMITTED THAT THE CAPITAL ASSET I.E. BUILDING PREMISES ON WHICH THE LOAN WAS TAKEN WAS NOT READY AND WAS NOT PUT TO USE HENCE, THE INTEREST PAYMENT MADE AGAINST THE LOANS TO THE BANK WAS CAPITALIZED. SINCE THE INTEREST EARNED FOR THE SAM E PERIOD WAS OUT OF CONDITIONAL DEPOSIT WITH THE BANK AND AGAINST THE SAME CAPITAL ASSET, THE SAID INTEREST WAS ACCORDINGLY REDUCED FROM THE INTEREST EXPENDITURE A ND THE NET BALANCE WAS CAPITALIZED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT . THE LEARNED AR THUS HAS SUBMITTED THAT THE DISALLOWANCE OF THE SAID SET OFF WAS WRONG AND IS REQUIRED TO BE SET ASIDE. ON THE OTHER HAND, THE LEARNED DR HAS RELIED UPON THE FINDINGS OF THE AUTHORITIES BELOW. 4. IT IS THE OWN CASE OF THE ASSESSEE THAT THE DEPO SIT OF RS.1 CRORE IN FIXED DEPOSIT WITH THE BANK WAS A PRE-CONDITION FOR THE G RANT OF LOAN. THE ASSESSEE WAS SUPPOSED TO ARRANGE RS.1 CRORE OUT OF HIS OWN FUNDS OR FROM WHATEVER SOURCE IT MAY BE. THE SAID DEPOSIT WAS NOT MEANT FOR ANY BUSINES S PURPOSE. FURTHER THE LOAN WHICH WAS SANCTIONED TO THE ASSESSEE WAS MEANT FOR PURCHASING A CAPITAL ASSET/BUSINESS PURPOSE. THE ASSESSEE WAS NOT SUPP OSED TO USE THE LOAN AMOUNT FOR ANY OTHER PURPOSE TO CLAIM DEDUCTIONS ON ACCOUNT OF INTEREST ON LOAN PAID TO THE BANK. THE ASSESSEE HAS SUBMITTED THAT OUT OF THE S ANCTIONED LOAN, AMOUNT OF RS.1,03,84,060/- HAVE BEEN RETURNED TO MRS. JYOTI N ANDLAL CHHABRIA AS LOAN PLUS INTEREST ON THE AMOUNT OF RS.1 CRORE, WHICH WAS TAK EN FROM HER FOR THE CONDITIONAL ITA NO. 1285/MUM/2012 AY : 2009-10 4 DEPOSIT FOR THE GRANT OF LOAN BY THE BANK. THE REF UND OF AMOUNT OF RS.1,03,84,060/- CANNOT IN ANY EVENT BE SAID TO BE INCURRED SOLELY F OR THE PURPOSE OF BUSINESS. EVEN THE CONDITIONAL DEPOSIT MADE BY THE ASSESSEE WAS NO T FOR THE PURPOSE OF PURCHASING OF ASSET MEANT FOR THE BUSINESS PURPOSES RATHER, IT WAS A CONDITIONAL DEPOSIT FOR THE SANCTION OF LOAN. IT CANNOT BE SAID TO BE THE INVES TMENT WAS MADE FOR THE PURPOSE OF PURCHASE OF ASSET. THE INTEREST ACCRUED ON THE SAI D DEPOSIT CANNOT BE SAID TO BE AGAINST THE SAME CAPITAL ASSET. UNDER SUCH CIRCUMS TANCES, NEITHER THE DEPOSIT MADE WITH THE BANK CAN BE SAID TO BE INCURRED SOLELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE NOR THE INTEREST ACCRUED THEREON CAN BE SE T OFF AGAINST THE EXPENDITURE INCURRED FOR THE CAPITAL ASSET. THE AO, IN O UR VIEW, HAS RIGHTLY DISALLOWED THE SAID CLAIM. WE DO NOT FIND ANY INFIRMITY IN THE OR DER OF THE LEARNED CIT(A) AND THE SAME IS HEREBY UPHELD. 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS HEREBY DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH MAY 2013. SD/- SD/- (D.KARUNAKARA RAO) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DT : 8 TH MAY, 2013 SA COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED, MUMBAI 4. THE CIT- (A) CONCERNED, MUMBAI 5. THE DR, D - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI