Eisha Properties, Pune V. Income-tax Officer,

ITA 143/PUN/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7107 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 07-02-2017
• Assessment Year: misc
• Appeal Filed On: 03-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P S NAIK
• Keywords: Business income; Source of fund

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , ! ' # , $% &' #' , ' # '( BEFORE SHRI ANIL CHATURVEDI, AM AND SHRI VIKAS AWAS THY, JM '%. / ITA NO. 143/PUN/2015 * +* / ASSESSMENT YEAR : 2010-11 EISHA PROPERTIES, 603, SAN MAHU COMPLEX, 5, BUND GARDEN ROAD, OPP. POONA CLUB, PUNE-411001 PAN : AACFE0876B ....... / APPELLANT /VS. THE INCOME TAX OFFICER, WARD 2(2), PUNE / RESPONDENT ASSESSEE BY : SHRI KRISHNA GUJARATHI REVENUE BY : SHRI P.S. NAIK / DATE OF HEARING : 08-02-2017 / DATE OF PRONOUNCEMENT : 17-02-2017 , / ORDER PER VIKAS AWASTHY, JM : THE APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE OR DER OF COMMISSIONER OF INCOME TAX (APPEALS)-II, PUNE DATED 30-10 -2014 FOR THE ASSESSMENT YEAR 2010-11. 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD S ARE: THE ASSESSEE IS A PARTNERSHIP FIRM AND IS ENGAGED IN THE BUSIN ESS OF CONSTRUCTION OF BUILDINGS AND DEVELOPMENT OF REAL ESTATE. THE ASSESSEE 2 ITA NO. 143/PUN/2015, A.Y. 2010-11 FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER A PPEAL ON 14-10-2010 DECLARING TOTAL INCOME OF ` 44,850/-. DURING THE COURSE OF SCRUTINY ASSESSMENT, THE ASSESSING OFFICER MADE CERTAIN ADDITIONS/DISALLOWANCES WHICH INTER ALIA INCLUDES ADDITIONS OF IN TEREST RECEIVED ` 41,55,891/-. DURING THE PERIOD RELEVANT TO THE ASSESSME NT YEAR 2010-11 THE ASSESSEE RECEIVED INTEREST OF ` 1,31,11,065/-. THE DETAILS OF INTEREST RECEIVED ARE AS UNDER : SR. NO. INTEREST RECEIVED AMOUNT 1 INTEREST ON PARTNERS CAPITAL ` 89,55,174/ - 2 INTEREST RECEIVED FROM BANK ` 29,443/ - 3 INTEREST ON LOANS AND ADVANCES GIVEN 41,26,448/ - TOTAL ` 1,31,11,065/ - THE ASSESSEE PAID INTEREST ON UNSECURED LOANS ` 1,31,11,065/-. IN THE PROFIT AND LOSS ACCOUNT THE ASSESSEE CLAIMED INTE REST EXPENDITURE AS NIL. THE INTEREST PAID WAS NET OFF AGAINST T HE INTEREST AMOUNT RECEIVED. THE ASSESSING OFFICER ALLOWED NETTING OFF OF INTEREST RECEIVED ` 89,55,174/- ON PARTNERS CAPITAL AGAINST THE INTEREST PAID. IN RESPECT OF INTEREST RECEIVED FROM BANK ` 29,443/- AND INTEREST ON LOANS AND ADVANCES ` 41,26,448/- THE ASSESSING OFFICER REJECTED THE CLAIM OF ASSESSEE AND CHARGED THE SAME UNDER THE HEAD INCOM E FROM OTHER SOURCES. AGGRIEVED BY THE ADDITIONS/DISALLOWANCES IN THE ASSESSMENT ORDER DATED 28-03-2013, THE ASSESSEE FILED AN APPEAL BEFO RE THE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSIONER OF I NCOME TAX (APPEALS) VIDE IMPUGNED ORDER REJECTED THE CONTENTIO NS OF THE ASSESSEE IN RESPECT OF NETTING OFF OF INTEREST RECEIVED FRO M BANK AND AGAINST LOANS AND ADVANCES. NOW, THE ASSESSEE IS IN SECO ND APPEAL 3 ITA NO. 143/PUN/2015, A.Y. 2010-11 BEFORE THE TRIBUNAL AGAINST CONFIRMING OF ADDITION IN RESPECT OF INTEREST RECEIVED ON LOANS AND ADVANCES ` 41,26,448/- CHARGED UNDER THE HEAD INCOME FROM OTHER SOURCES. 3. SHRI KRISHNA GUJARATHI APPEARING ON BEHALF OF THE ASSES SEE SUBMITTED THAT THE ASSESSEE HAD TAKEN UNSECURED LOANS FROM ITS SISTER CONCERNS AND THIRD PARTIES AND HAD PAID INTEREST THEREON . THE ASSESSEE COULD NOT UTILIZE THE BORROWED FUNDS FOR ITS PROJECT AND HENCE, ADV ANCED THE UNUTILIZED FUNDS ON INTEREST TO OTHER CONCERNS. THER E IS A DIRECT NEXUS BETWEEN THE BORROWING OF FUNDS AND APPLICATION OF FUN DS IN ADVANCING THE SAME TO OTHER CONCERN. THE ASSESSEE IS NOT HAVING ANY OTHER SOURCE OF INCOME FOR ADVANCING THE SURPLUS FUNDS AS LOANS. WHATEVER AMOUNT HAS BEEN GIVEN AS LOANS IS OUT OF FUNDS ACCEPTED AS UNSECURED LOANS. THE ASSESSEE CAN DEMONSTRATE FROM TH E DOCUMENTS ON RECORD THAT UNSECURED LOANS RECEIVED AND THE AMOUN TS ADVANCED TO THE OTHER CONCERNS ARE BACK TO BACK TRANSACTIONS. TH E LD. AR PRAYED FOR GRANTING THE BENEFIT OF NETTING OFF OF INTEREST RECEIVED O N LOANS AND ADVANCES AGAINST THE INTEREST PAID BY THE ASSESSEE ON UNSECURED LOANS. THE LD. AR SUBMITTED THAT THE CO-ORDINATE BENCH OF THE T RIBUNAL IN THE CASE OF ASSESSEES SISTER CONCERN EISHA CONCORD REALTOR S VS. THE INCOME TAX OFFICER IN ITA NO. 1888/PN/2014 FOR ASSESSMENT YEAR 2010-11 DECIDED ON 22-04-2016 HAS HELD THAT THE BENEFIT OF NETTING OFF OF INTEREST PAID ON LOANS RECEIVED FROM BANK AND INTEREST RECEIVED FROM SISTER CONCERNS ON ADVANCING OF THE SAME AMOUNT SHOULD BE ALLOWED. THE LD. AR FURTHER DRAWS ATTENTION OF THE BENCH TO THE C HART AT PAGES 55 AND 56 OF THE PAPER BOOK INDICATING SOURCE OF FUNDS A ND APPLICATION OF FUNDS. 4. PER CONTRA SHRI P.S. NAIK REPRESENTING THE DEPARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF THE AUTHORITIES BELO W IN 4 ITA NO. 143/PUN/2015, A.Y. 2010-11 DISALLOWING NETTING OFF OF THE INTEREST RECEIVED ON LOANS AND ADVANCES AGAINST INTEREST PAID. THE LD. DR SUBMITTED THAT THE INT EREST RECEIVED BY THE ASSESSEE ON THE LOANS AND ADVANCES IS CHARGEAB LE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. THE ASSESSEE HAS RECEIVED INTEREST INCOME OF ` 1,31,11,065/-. THE ASSESSING OFFICER HAS ALLOWED NETTING OFF OF ` 89,55,174/- IN RESPECT OF INTEREST RECEIVED ON PARTNERS CAPITAL, BEING THE BUSINESS INCOME. THE REMAINING AMOUNT H AS BEEN RIGHTLY REJECTED AS IT INCLUDES INTEREST RECEIVED FROM BAN K ` 29,443/- AND INTEREST RECEIVED ON LOANS AND ADVANCES ` 41,26,448/-. THE ASSESSEE COULD NOT ESTABLISH LINK BETWEEN BORROWED FUNDS AND ADVANCING OF THE SAME TO OTHER CONCERNS. THE LD. DR PR AYED FOR DISMISSING THE APPEAL OF THE ASSESSEE AND CONFIRMING THE FIN DINGS OF COMMISSIONER OF INCOME TAX (APPEALS). 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. THE ONLY ISSUE RAISED IN THE APPEAL IS AGAINST ADDITION OF INTERE ST RECEIVED ON LOANS AND ADVANCES ` 41,26,448/- UNDER THE HEAD INCOME FROM OTHER SOURCES. THE ASSESSEE HAS PRAYED FOR NETTING O FF OF INTEREST RECEIVED AGAINST INTEREST PAID. THE LD. AR OF THE ASSESSEE HAS CONTENDED THAT THERE IS A DIRECT NEXUS BETWEEN THE UN SECURED LOANS RECEIVED BY ASSESSEE AND ADVANCING OF LOANS BY THE ASS ESSEE TO THE OTHER CONCERNS. OUR ATTENTION HAS BEEN DRAWN TO THE CHART AT PAGES 55 AND 56 OF THE PAPER BOOK TO SHOW THE SOURCE OF FUNDS A ND THE APPLICATION OF SAME. 6. THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF A SSESSEES SISTER CONCERN EISHA CONCORD REALTORS VS. THE INCOME TA X OFFICER (SUPRA) UNDER SIMILAR CIRCUMSTANCES HAD REMITTED THE ISSUE BACK TO THE 5 ITA NO. 143/PUN/2015, A.Y. 2010-11 FILE OF ASSESSING OFFICER WITH CERTAIN DIRECTIONS. THE RELEVANT EXTRACT OF THE FINDINGS OF TRIBUNAL IN THE AFORESAID CASE ARE AS UNDER : 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRE SENTATIVES OF RIVAL SIDES AND HAVE EXAMINED THE ORDERS OF THE AUT HORITIES BELOW. WE HAVE ALSO CONSIDERED THE DECISION ON WHICH THE LD. AR OF THE ASSESSEE HAS PLACED RELIANCE. THE FIRST GROUND RAISED IN TH E APPEAL RELATES TO THE ADDITION OF INTEREST RECEIVED `23,24,436/- BY THE A SSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES. THE CONTENTION O F THE ASSESSEE IS THAT THE INTEREST RECEIVED BY THE ASSESSEE IS ON THE LOA N ADVANCED TO OTHER CONCERNS. THE ASSESSEE HAS ADVANCED LOANS TO OTHER CONCERNS FROM TERM LOAN AMOUNT DISBURSED BY THE PNB HOUSING FINANCE. THE ASSESSEE HAS PAID INTEREST OF `60,95,369/- ON THE SAID LOANS AND HAS RECEIVED INTEREST OF `60,95,369/- ON THE AMOUNT ADVANCED. THEREFORE, THE INTEREST RECEIVED BY THE ASSESSEE IS NOT THE INCOME OF THE A SSESSEE TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. THE ASSESSEE IS ENTITLED TO CLAIM BENEFIT OF NETTING OFF OF INTEREST. IN SUPPORT OF HIS SUBMISSIONS, THE LD. AR OF THE ASSESSEE HAS PLACED ON RECORD THE DETAILS OF TERM LOAN DISBURSED TO THE ASSESSEE AND THE AMOUNTS ADVANCED TO OTHER C ONCERNS TO SHOW THAT THE LOAN AMOUNTS RECEIVED AND ADVANCED ARE BAC K TO BACK TRANSACTIONS AND HAVE DIRECT NEXUS. 7. THE CO-ORDINATE BENCH OF TRIBUNAL IN THE CASE OF ITO VS. M/S. BRAHMA ASSOCIATES (SUPRA) HAS DEALT WITH THE ISSUE WHEREIN UNDER SIMILAR CIRCUMSTANCES THE ASSESSEE HAD GIVEN ADVANC ES TO ASSOCIATE CONCERNS FROM THE LOAN AVAILED FROM RUPEE CO-OPERAT IVE BANK LTD. THE RELEVANT EXTRACT OF THE ORDER OF TRIBUNAL IS REPROD UCED HERE-IN-BELOW: 11. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PAP ER BOOK FILED ON BEHALF OF THE ASSESSEE. THE ONLY DISPUTE THAT HAS T O BE DECIDED IN THE IMPUGNED APPEAL IS REGARDING ALLOWABILITY OF THE IN TEREST INCOME OF RS.71,75,503/- FROM THE INTEREST EXPENDITURE ON THE BASIS OF NEXUS BETWEEN THE INTEREST EXPENDITURE AND THE INTEREST I NCOME. FROM THE DETAILS FURNISHED BY THE ASSESSEE WE FIND THE ASSES SEE HAD SHOWN INTEREST INCOME OF RS.1,09,94,741/- AND INTEREST EX PENDITURE OF RS.1,10,01,275/- FOR THE FINANCIAL YEAR ENDING ON 3 1- 03-2003. THE AO IN THE ASSESSMENT ORDER HELD THAT THE ASSESSEE COUL D ESTABLISH SUCH NEXUS ONLY TO THE EXTENT OF R.38,19,238/-. HE, THER EFORE, TREATED THE BALANCE INTEREST INCOME OF RS.71,75,503/-, [I.E. RS .1,09,94,741/- (-) RS.38,19,238/-] AS INCOME FROM OTHER SOURCES AND DI D NOT ALLOW SET OFF FROM THE INTEREST EXPENDITURE SINCE ACCORDING TO TH E AO THE ASSESSEE COULD NOT ESTABLISH ANY DIRECT NEXUS BETWEEN THE BO RROWED FUNDS, LOANS GIVEN, INTEREST EXPENDITURE INCURRED AND INTEREST E ARNED. WE FIND THE 6 ITA NO. 143/PUN/2015, A.Y. 2010-11 LD.CIT(A) ON THE BASIS OF THE VARIOUS DETAILS FILED BY THE ASSESSEE ALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THA T THE AO HAS NOT EXAMINED THE ENTIRE DETAILS FURNISHED BY THE ASSESS EE AND HAS BEEN GUIDED BY THE HEADING OF THE EXPENSES SUCH AS ADVERTISEMENT/MISCELLANEOUS EXPENSES AND CONCLUDED THAT INTEREST EXPENDITURE INCLUDES NUMBER OF OTHER EXPENSES WHERE AS INTEREST RECEIVED INCLUDES CERTAIN MISCELLANEOUS EXPENSES WR ITTEN OFF AS NOLONGER PAYABLE. WE FIND THE LD.CIT(A) HAS GIVEN A FINDING ON THE BASIS OF THE DETAILS FILED BY THE ASSESSEE THAT THE ASSESSEE HAS RECEIVED INTEREST AMOUNTING TO RS.59,20,843/- FROM BRAHMA FINANCE COR PORATION UPTO F.Y. 31-03-2002 AND FROM BRAHMA BUILDERS AMOUNTING TO RS.12,54,660/- FOR THE F.Y. 2002-03. HE HAS GIVEN A FINDING THAT THERE IS A DIRECT NEXUS BETWEEN THE LOAN TAKEN FROM RUPEE CO OPERATIVE BANK LTD AND THE AMOUNT OF ADVANCE TO BRAHMA FINANCE CORPORA TION AND BRAHMA ASSOCIATES. THE LD. DEPARTMENTAL REPRESENTATIVE COU LD NOT CONTROVERT THE ABOVE FACTUAL FINDING GIVEN BY THE CIT(A). FURTHER, THE FINDING OF THE LD.CIT(A) THAT THE MISCELLANEOUS EXPENDITURE IN THE LEDGER ACCOUNT CONTAINS THE ENTIRE DETAILS OF EXPENDITURE WHICH IN CLUDES THE INTEREST EXPENDITURE AND ALSO THE RECEIPT OF INTEREST AND DI VIDEND FOR F.Y. 2001- 02 WHEREIN THE JOURNAL ENTRIES 447 AND 448 ARE ALSO MENTIONED COULD NOT BE CONTROVERTED BY THE LD. DEPARTMENTAL REPRESENTAT IVE. THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE BEFORE US THAT THE LOAN OBTAINED FROM THE BANK AND GIVEN TO THE VARIOUS CONCERNS ARE BACK TO BACK TRANSACTIONS COULD NOT BE CONTROVERTED BY THE LD. DEPARTMENTAL R EPRESENTATIVE . IN VIEW OF THE ABOVE AND IN VIEW OF THE DETAILED REASO NING GIVEN BY THE LD.CIT(A) WE FIND NO INFIRMITY IN HIS ORDER. ACCORD INGLY, THE SAME IS UPHELD AND THE GROUNDS RAISED BY THE REVENUE ARE DI SMISSED. 8. THE ASSESSEE IN THE PRESENT CASE HAS FURNISHED T HE DETAILS OF TERM LOAN DISBURSED TO THE ASSESSEE BY PNB HOUSING FINAN CE AND ADVANCED BY THE ASSESSEE TO SHOW THE NEXUS BETWEEN TWO. THE SE DETAILS WERE NOT FURNISHED BY THE ASSESSEE BEFORE THE AUTHORITIES BE LOW. IN OUR CONSIDERED OPINION THIS ISSUE NEEDS A REVISIT TO TH E FILE OF ASSESSING OFFICER FOR VERIFICATION OF THE LOANS RECEIVED AND SAME AMOUNT BEING ADVANCED TO OTHER CONCERNS. IF THE ASSESSEE IS SUC CESSFUL IN ESTABLISHING THE LINK BETWEEN THE LOAN AMOUNT RECEIVED BY THE AS SESSEE AND THE LOAN ADVANCED, THE ASSESSEE SHALL BE ENTITLED TO THE BEN EFIT OF NETTING OFF OF INTEREST AMOUNT. ACCORDINGLY, THE FIRST GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR THE STATISTICAL PURPOSE. 7. THE FACTS IN THE CASE OF ASSESSEE ARE SIMILAR. THE AUT HORITIES BELOW HAVE NOT PROPERLY EXAMINED THE APPLICATION OF UNSEC URED LOANS. WE ARE OF THE CONSIDERED VIEW THAT THIS ISSUE NEEDS A R EVISIT TO THE FILE 7 ITA NO. 143/PUN/2015, A.Y. 2010-11 OF ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE-EXAMINE T HE DETAILS FURNISHED BY THE ASSESSEE TO SUBSTANTIATE CONNECTION BE TWEEN THE UNSECURED LOANS TAKEN BY THE ASSESSEE AND ADVANCING O F LOANS TO OTHER CONCERNS. IN CASE THE ASSESSEE IS ABLE TO ESTABLISH THE NEXUS BETWEEN THE BORROWINGS MADE AND LOANS AND ADVANCES GIVEN BY AS SESSEE, THE BENEFIT OF NETTING OFF OF INTEREST BE ALLOWED TO ASSESSEE. THE APPEAL OF THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON FRIDAY, THE 17 TH DAY OF FEBRUARY, 2017. SD/- SD/- ( / ANIL CHATURVEDI) ( ! / VIKAS AWASTHY) ' ! / ACCOUNTANT MEMBER # ! / JUDICIAL MEMBER ' / PUNE; $% / DATED : 17 TH FEBRUARY, 2017 RK , - ./& 0&+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. & & ' () / THE CIT(A)-II, PUNE 4. & & ' / THE CIT-II, PUNE 5. *+ ,- , & ,- , . ./ , ' / DR, ITAT, B BENCH, PUNE. 6. +01 23 / GUARD FILE. // // TRUE COPY// &'4 / BY ORDER, 5 %6 / ASSISTANT REGISTRAR, & ,- , ' / ITAT, PUNE