ITO, New Delhi V. M/s Beam Estates P. Ltd., New Delhi

ITA 1392/DEL/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3897 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 01-06-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 31-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: A K BANSAL
• Keywords: Business income; Capital expenditure
• Section: 56

Judgement Text

ITA NO. 1392/DEL/2010 A.Y. 2006-07 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 1392/DEL/2010 A.Y. : 2006-07 INCOME TAX OFFICER, VS. M/S BEAM ESTATES P. LTD. WARD 2(4), ROOM NO. 381, 3, OAK LANE, DLF CHATT ARPUR, C.R. BUILDING, NEW DELHI NEW DELHI (PAN: AAACB5199E) [APPELLANT] (RESPONDENT) ASSESSEE BY : SHRI A.K. BANSAL, CA DEPARTMENT BY : SHRI AMRISH BEDI, SR. DR PER SHAMIM YAHYA: AM THE REVENUE IS IN APPEAL BEFORE US AGAINST THE OR DER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 04.01.20 10 PERTAINING TO ASSESSMENT YEAR 2006-07. 2. THE ISSUE RAISED IS THAT LD. COMMISSIONER OF INC OME TAX (APPEALS) HAS ERRED IN DIRECTING TO ALLOW INTEREST EXPENDITURE OF RS. 6 ,14,992/- FROM THE INTEREST EARNED. 3. IN THIS CASE THE ASSESSING OFFICER NOTED THAT D URING THE YEAR THE ASSESSEE COMPANY HAS SHOWN INCOME FROM INTEREST ONLY. SINCE THE BUSINESS HAS NOT COMMENCED THE ASSESSING OFFICER ASKED AS TO WHY THE INTEREST INCOME SHOULD BE ALLOWED TO BE SET OFF AGAINST THE EXPENSES DURIN G THE CONSTRUCTION PERIOD. THE ASSESSING OFFICER FURTHER ASKED THE ASSESSEE THAT SINCE THE BUSINESS HAD NOT YET ITA NO. 1392/DEL/2010 A.Y. 2006-07 2 COMMENCED, THE EXPENDITURE INCURRED WAS REQUIRED TO BE CAPITALIZED TILL THE BUSINESS ACTIVITY COMMENCES. HENCE THE EXPENSES CA NNOT BE ALLOWED TO BE SET OFF AGAINST THE INTEREST RECEIVED AS THE SAME HAS N OT BEEN RECEIVED ON ACCOUNT ANY BUSINESS ACTIVITIES. HE FURTHER OBSERVED THAT IN VIEW OF THE VARIOUS JUDICIAL PRONOUNCEMENTS, THE INTEREST INCOME IS TO BE ASSE SSED AS INCOME FROM OTHER SOURCES. 3.1 THE ASSESSEE COMPANY IN ITS REPLY STATED THAT TWO SEPARATE TYPES OF LOANS WERE RAISED FROM NARAINS INFRASTRUCTURE PVT. LTD.-O NE FOR THE PURPOSE OF EARNING INTEREST IN THE NATURE OF DEMAND LOAN, REPAYABLE ON DEMAND. SECOND FOR CAPITAL EXPENDITURE REPAYABLE ON LONG TERM BASIS. IT WAS F URTHER STATED THAT LOAN FOR THE PURPOSE OF EARNING INTEREST WAS RAISED IN THE F.Y. 2004-05 AND FOR THE CAPITAL EXPENDITURE (CONSTRUCTION) IN F.Y. 2005-06. 3.2 ASSESSING OFFICER DID NOT ACCEPT THE ASSESSEE S CONTENTION. HE REFERRED THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS. C.I.T. (1997) 227 ITR 172 (SC). ASSESSING OFFICER HELD THAT ASSESSEE MAY BE ENTITLED TO CAPITALIZE THE INTEREST PAYABLE BY IT BUT THE ASSESSEE CANNOT CLAIM THE ADJUSTMENT OF INTEREST PAYABLE AG AINST INTEREST SO EARNED AND ASSESSABLE U/S 56. ASSESSING OFFICER CONCLUDED AS UNDER:- IN THE FACTS OF THE ABOVE CASE THE COMPANY CANNOT CLAIM ANY RELIEF UNDER EITHER OF THESE TWO SECTIONS, SINCE ITS BUSINESS HA D NOT STARTED AND THERE COULD NOT BE ANY COMPUTATION OF BUSINESS INCOME OR LOSS INCURRED BY THE ASSESSEE IN THE RELEVANT ACCOUNTING YEAR. IN SUCH A SITUATION, THE EXPENDITURE INCURRED BY THE ASSESSEE FOR THE PURPOS E OF SETTING UP ITS ITA NO. 1392/DEL/2010 A.Y. 2006-07 3 BUSINESS CANNOT BE ALLOWED AS DEDUCTION, NOR CAN IT BE ADJUSTED AGAINST ANY OTHER INCOME UNDER ANY OTHER HEAD. ON THE BASIS OF ABOVE REMARKS, AS INDICATED ABOVE, THE INCOME FROM INTEREST IS TO BE TAXED AS INCOME FROM OTHER SOURC ES. HENCE, IN THE CURRENT YEAR AS THE BUSINESS IS YET TO BE COMMENCED THE INC OME OF THE ASSESSEE IS ASSESSED AT RS. 6,92,000/- AS INCOME FROM OTHER SOU RCES. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCO ME TAX (APPEALS) CONSIDERED THE ISSUE HE HELD AS UNDER:- 5.5 I HAVE GONE THROUGH THE ASSESSMENT ORDER, SUB MISSIONS AS WELL AS THE FACTS PARTICULARLY NEXUS OF LOAN RAISED AND UT ILIZED AND RESPECTIVE CONFIRMATION WITH IT PARTICULARS, OF THE CASE, IT I S CLEAR THAT TWO DISTINCT LOANS FOR TWO DIFFERENT PURPOSES ONE FOR EARNING INTEREST AND SECOND FOR CONSTRUCTIO N WAS RAISED BY THE APPELLANT AND WAS USED ACCORDINGLY. THE FACT S AND RATIOS IN THIS CASE ARE DIFFERENT AS AGAINST THE RELIED CASE OF TUTIC ORIN ALKALI CHEMICALS AND FERTILIZERS LTD., VS. C.I.T. (1997) 227 ITR 172 (SC ). THE DECISION OF THE HONBLE SUPREME COURT IN THE TUTICORIN ALKALI CHEMI CALS ON THE PROJECTS CONSTRUCTION STAGE WHERE SHORT TERM FUND WAS PERKED IN THE BANK A/C TO EARN INTEREST AND SUCH INTEREST WAS TREATED AS INCO ME FROM OTHER SOURCES. IN THE PRESENT CASE THE WHOLE OF INTEREST INCOME OF RS. 6,92,000/- WAS AGAINST THE FUNDS RAISED FOR THE PURPOSE OF EARNIN G INTEREST WHILE IN THE CITED CASE, EARNING OF INTEREST WAS AGAINST THE F UNDS RAISED FOR THE PURPOSE OF CAPITAL EXPENDITURE. IN FACT WHILE DECIDING IN THE CITED CASE, THE HONBLE ITA NO. 1392/DEL/2010 A.Y. 2006-07 4 SUPREME COURT APPROVED THE DECISION OF HONBLE MADR AS HIGH COURT IN THE MATTER OF C.I.T. VS. SESHASAYEE PAPER AND BOARDS LT D., (1985) 156 ITR 542 (MAD.) AND QUOTED THE FOLLOWING PARA DRAWN FROM PAG E 549 OF SAID ORDER. IN THIS CASE, ADMITTEDLY, THE BORROWING HAS NOT BEEN MADE EXCLUSIVELY AND SOLELY FOR THE PURPOSE OF EARNING INTEREST IN WHICH CASE ALONE IT SHOULD BE TAKEN AS AN INCOME WHICH SHOULD BE DEDUCTED FROM THE INTEREST RECEIPTS. 5.6 UNDER THE FACTS OF THE CASE, AND RATIOS DECIDE D VIDE HONBLE SUPREME COURT IN THE MATTER OF TUTICORN ALKALI CHE MICALS AND FERTILIZERS LTD., READ WITH APPROVED JUDGEMENT OF MADRAS HIGH CO URT IN THE CASE OF C.I.T. VS. SESHASAYEE PAPER AND BOARDS LTD., (1985) 156 ITR 542 (MAD.), I AM OF THE CONSIDERED VIEW THAT ASSESSING OFFICER HA S RIGHTLY ADDED INTEREST INCOME OF RS. 6,92,000/- AS INCOME FROM OTHER SOUR CES U/S 56 BUT THE APPELLANT IS ALSO ENTITLED FOR DEDUCTION OF RELATA BLE INTEREST EXPENDITURE US/ 57(III). ACCORDINGLY, ASSESSING OFFICER IS DI RECTED TO ALLOW RELATABLE INTEREST EXPENDITURE OF RS. 6,14,992/- FROM THE ASS ESSED INCOME OF RS. 6,92,000/- WITH NET EFFECT OF TAXABLE INCOME UNDER OTHER SORUCES OF RS. 77,008/- ONLY. 5. AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEF ORE US. 6. IT HAS BEEN URGED THAT LD. COMMISSIONER OF INCOM E TAX (APPEALS) HAS ERRED IN DIRECTING TO ALLOW INTEREST EXPENDITURE FROM IN TEREST EARNED ON THE BASIS THAT THE RELATING LOAN WAS MEANT FOR AN UTILIZED FOR SOL ELY EARNING INTEREST INCOME IGNORING THAT THE RELEVANT LOAN WAS UTILIZED FOR CO NSTRUCTION ACTIVITIES AND ITA NO. 1392/DEL/2010 A.Y. 2006-07 5 ADJUSTMENT OF INTEREST ON SUCH LOAN WAS RIGHTLY DISA LLOWED AND ALLOWED TO BE CAPITALIZED BY THE ASSESSING OFFICER . 7. WE HAVE HEARD THE LD. COUNSEL OF THE ASSESSEE. LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT REGULAR SENIOR DEPAR TMENTAL REPRESENTATIVE WHO WAS HANDLING THIS CASE HAS TAKEN ILL. HENCE AN ADJOURNMENT WAS REQUIRED. UPON GOING THROUGH THE RECORDS, WE ARE OF THE OPIN ION THAT MATTER CAN BE DISPOSED OF BY PERUSING THE RECORDS ALONGWITH THE S UBMISSIONS OF THE REVENUE RAISED IN THE GROUNDS OF APPEAL AND HEARING THE ASS ESSEES COUNSEL. 8. WE FIND THAT ASSESSEE HAS RECEIVED LOAN FROM M/S NARAINS INFRASTRUCTURE PVT. LTD. AND THE OPENING BALANCE THEREOF WAS RS. 1 ,02,10,182/- AND INTEREST THEREON WAS AMOUNTED TO RS. 7,10,916/-. ASSESSEE H AS ADVANCED A SUM OF RS. 1 CRORE OUT OF THE ABOVE TO M/S M.G.S. (INDIA) PVT. LTD. RS. 13,50,000/- OUT OF THE ABOVE WERE RECALLED AND THE OPENING BALANCE THE REON AS ON 1.4.2005 WAS RS. 86,50,000/-. INTEREST EARNED ON THE SAME WAS R S. 6,92,000/-. NOW THE INTEREST PAID BY THE ASSESSEE TO M/S NARAIN INFRASTRUCTURE PVT. LTD. TO THE PROPORTION OF THE AMOUNT ADVANCED COMES TO RS. 6,14,992/-. HENCE, ADMITTEDLY IN EARNING THE INCOME OF RS. 6,92,000/- THE ASSESSEE HAS SPENT RS. 6,14,992/- AS INTEREST ON AMOUNT BORROWED. SINCE THE INTEREST EARNED ON AMO UNT ADVANCED IS DIRECTLY CO- RELATED TO THE INTEREST SPENT ON AMOUNT BORROWED, I N OUR CONSIDERED OPINION THERE IS NO INFIRMITY IN THE DIRECTIONS OF THE LD. COMMISSIONER OF INCOME TAX ITA NO. 1392/DEL/2010 A.Y. 2006-07 6 (APPEALS) THAT AGAINST THE INTEREST INCOME OF RS. 6 ,92,000/-, RS. 6,14,992/- SHOULD BE ALLOWED AS EXPENDITURE AND HENCE THE NET TAXABLE INCOME UNDER OTHER SOURCES WILL BE RS. 77008/- ONLY. HENCE HOLDING THAT THERE IS DIRECT NEXUS BETWEEN THE AMOUNT ADVANCED AND AMOUNT BORROWED, WE AFFIRM THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND DECIDE THE ISSUE AGAINST THE REVENUE. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 04/06/2010. SD/- SD/- [I.P. BANSAL] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE 04/06/2010 SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES