Dwaraka Tirumala Constructions, Anaparthy V. THE ACIT, Eluru

ITA 161/VIZ/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8806 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 27-04-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 05-05-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K C DAS
• Assessee Lawyers: M GANGA RAJU
• Keywords: Business income
• Section: 143(3); 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM SMC BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO, HON'BLE JUDICIAL MEMBER ITA NO. 1 6 1 / VIZ /201 5 (ASST. YEAR : 20 11 - 1 2 ) M/S. DWARAKA TIRUMALA CONSTRUCTIONS, 28 - 1 - 38, 7 TH LANE, SANTHINAGAR, ELURU, W.G. DISTRICT VS. A CIT, CIRCLE - 1, ELURU. PAN NO. AACFD 9718 J (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI M. GANGA RAJU ADV OCATE . DEPARTMENT BY : SHRI K.C. DAS - SR. DR DATE OF HEARING : 25 / 0 7 /201 7 . DATE OF PRONOUNCEMENT : 27 / 0 7 /201 7 . O R D E R THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), RAJAHMUNDRY , DATED 27/02/2015 FOR THE ASSESSMENT YEAR 2011 - 12 . 2. FACTS ARE IN BRIEF THAT THE ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF EXECUTION OF CIVIL CONTRACT WORKS . THE ASSESSEE HAD FILED A RETURN OF INCOME BY DECLARING TOTAL INCOME OF 16,36,960/ - . THE RETURN FILED BY THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. SUBSEQUENTLY, AFTER FOLLOWING DUE PROCEDURE ASSESSMENT WAS COMPL E TED UNDER SECTION 143(3) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE ASSESSING OFFICER HAS NOTED THAT THE ASSESSEE HAS RECEIVED INTEREST I NCOME OF 16,66,784/ - , FOR WHICH ASSESSEE HAS 2 ITA NO. 161/VIZ/2015 (M/S. DWARAKA TIRUMALA CONSTRUCTIONS) AGREED FOR ASSESSMENT OF INTEREST INCOME , BUT REQUESTED THE SAME HAS TO BE CONSIDERED AS PAR T OF THE BUSINESS RECEIPTS AS THE DEPOSITS WERE MADE AS PART OF BUSINESS ACTIVITY. THE ASSESSING OFFICER AFTER CONSIDERING THE CONTENTIONS OF THE ASSESSEE , ALLOWED EXPENSES TO THE TUNE OF 1,32,906/ - AND THE BALANCE AMOUNT OF 15,33,876/ - WAS ADDED TO THE TOTAL INCOME AS INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. 3. ON APPEAL, IT WAS SUBMITTED BE FORE THE LD. CIT(A) TH A T THE INTEREST INCOME RECEIVED BY THE ASSESSEE IS CONNECTED TO THE BUSINESS OF THE ASSESSEE AND THE SAME HAS TO BE ASSESSED AS INCOME FROM BUSINESS AND NOT FROM OTHER SOURCES. THE LD. CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFI CER BY FOLLOWING THE DECISION OF ITAT, VIZAG IN THE CASE OF K. VENKATA RAJU IN ITA NO. 16 /VIZ/2013 BY ORDER DATED 03/05/2013 . 4 . ON BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL. 5 . LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE INTEREST INCOME RECEIVED BY THE ASSESSEE IS CLOSELY CONNECTED WITH THE BUSINESS INCOME OF THE ASSESSEE AND THEREFORE IT HAS TO BE TREATED AS BUSINESS INCOME. 6 . ON THE OTHER HAND, L EARNED DEPARTMENTAL REPRESENTATIVE HAS RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 7 . WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND ORDERS OF THE AUTHORITIES BELOW . 3 ITA NO. 161/VIZ/2015 (M/S. DWARAKA TIRUMALA CONSTRUCTIONS) 8 . WE FIND THAT THE ONLY ISSUE INVOLVED IN THIS APPEAL IS WHETHER INTEREST INCOME RECEIVED BY THE ASSESSEE HAS TO BE TREATED AS INCOME FROM BUSINESS OR INCOME FROM OTHER SOURCES . AFTER CAREFUL CONSIDERATION OF THE ASSESSMENT ORDER AS WELL AS THE ORDER OF LD.CIT(A), WE FIND THAT ASSESSEE IS NOT ABLE TO SUBSTANTIATE NEITHER BEFORE THE ASSESSING OFFICER NOR BEFORE THE LD. CIT(A) , E VEN BEFORE US THE INTEREST INCOME RECEIVED BY HIM IS CLOSELY CONNECTED WITH THE BUSINESS OF THE ASSESSEE . EVEN BEFORE US EXCEPT STATING THAT THE INCOME HAS TO BE TREATED AS BUSINESS INCOME , BUT NO MATERIAL HAS BEEN PLACED TO SU BSTANTI AT E HIS CLAIM. THE LD. CIT(A) BY CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE HELD THAT INCOME RECEIVED BY THE ASSESSEE IS INCOME FROM OTHER SOURCES. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS UNDER: - 5.3 I HAVE CONSIDERED THE SUBMISSIONS AND DETAILS FILED. AT THE OUTSET THE PLEA THAT THE INTEREST INCOME IS PART OF BUSINESS RECEIPT IS UNTENABLE AS THE GENERATION OF INTEREST INCOME IS NOT OUT OF BUSINESS ACTIVITY AND SQUARELY FALLS WITHIN THE PURVIEW OF THE HEAD 'INCOME FROM OTHER SOURCES'. A SIMILAR ISSUE WAS DEALT BY THE HON'BLE ITAT, VIZAG BENCH IN THE CASE OF K.VENKATA RAJU IN ITA NO.16/201 3 - 14/330/AC C - 1 RJY/2014 - 15 DATED 03/05/2013, THE RELEVANT DISCUSSION IS AS UNDER: - WE HAVE HEARD THE RIVAL CONTE NTIONS ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICE THAT THE LD.CIT(A) HAS DEALT WITH THIS I SSUE IN A DETAILED MANNER AND HENCE FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE RELEVANT OBSERVATIONS MADE BY LD.C1T(A) ON THIS ISSUE : THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED THAT IN ORDER TO SECURE CONTRACT WORK, THE APPELLANT HAD TO PROVIDE BANK DEPOSITS, AS SECURITY, THE INTEREST INCOME FROM WHICH PARTOOK OF THE NATURE OF BUSINESS INCOME. THE ASSESSING OFFICER OUGHT TO HAVE APP RECIATED THE FACT THAT THE FDRS WERE MADE NOT ON ACCOUNT OF AN INTENTIONAL INVESTMENTS OF SURPLUS FUNDS, BUT OUT OF COMPULSIONS OF BUSINESS. HENCE, THE SAID INTEREST INCOME OUGHT TO HAVE BEEN TREATED AS BUSINESS INCOME, AND INCLUDED IN THE TOTAL CONTRACT R ECEIPTS FOR THE PURPOSE OF ESTIMATION OF INCOME, AND NOT SEPARATELY ASSESSED, OVER AND ABOVE THE ESTIMATED BUSINESS INCOME, AS 4 ITA NO. 161/VIZ/2015 (M/S. DWARAKA TIRUMALA CONSTRUCTIONS) INCOME FROM OTHER SOURCES. THE APPELLANT RELIES ON THE RATIOS OF THE FOLLOWING CASE - LAWS A) CIT VS. GOVINDA CHOUDHARY AND SONS (203 ITR 881) (SUPREME COURT), AND B) CIT VS. CHINNA NACHIMUTHU CONSTURCTIONS (297 ITR 70) (KARNATAKA HIGH COURT) AFTER HEARING THE LEARNED AUTHORIZED REPRESENTATIVE AND ON A CAREFUL CONSIDERATION OF THE FACTS RELATING TO THE ISSUE, IT MAY, AT THE OUTSET, BE STATED, WITH DUE RESPECT TO THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. CHINNA NACHIMUTHU CONSTRUCTIONS (SUPRA), THAT EVEN IF IT IS ACCEPTED THAT THE APPELLANT HAD MADE THE SAID FDRS IN ORDER TO SECURE CONTRACT WORKS, YET THE EA RNING OF INTEREST INCOME THEREFROM CANNOT BE SAID TO HAVE A DIRECT NEXUS WITH THE INCOME EMANATING FROM THE UNDERTAKING OF CONTRACT WORKS, IN THE LIGHT OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD . VS. CIT (227 ITR 172) WHICH HELD THAT INTEREST EARNED ON DEPOSITS PLACED FOR THE PURPOSE OF OBTAINING LOANS FOR BUSINESS CANNOT BE TREATED AS BUSINESS INCOME, BUT ONLY AS INCOME FROM OTHER SOURCES. THE SAID DECISION WHICH WAS RENDERED IN THE CONTEXT OF S ECTIONS 56 AND 57 OF THE ACT, HAS BEEN FOLLOWED IN THE CASE OF CIT VS. AUTOKAST LTD., (248 ITR 110) (SUPREME COURT). LIKEWISE, IN THE CASE OF CIT VS. DR.V.GOPINATHAN (248 ITR 449) (SUPREME COURT) INTEREST ON FDRS WAS HELD NOT TO QUALIFY FOR SETTING OFF AGA INST INTEREST ON BORROWED LOANS ON THE RATIONALE THAT SUCH INTEREST ON FDRS PARTOOK OF THE CHARACTER OF NON - BUSINESS INCOME. THE OTHER DECISIONS OF THE HON'BLE SUPREME COURT ARE CIT VS. STERLING FOODS (237 ITR 579) AND PANDIAN CHEMCIALS LTD. VS. CIT (262 I TR 278). IN THESE DECISIONS, THE HON'BLE SUPREME COURT REITERATED THE NEXUS THEORY AND DECLINED TO TREAT SUCH INTEREST EARNED AS BUSINESS INCOME. THE RELIANCE PLACED BY THE APPELLANT ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. GOVIN DA CHOUDHARY AND SONS (SUPRA) CAN BE SAID TO BE MISPLACED, IN AS MUCH AS, IN THE SAID CASE, THE FACTS WERE THAT ON ACCOUNT OF DELAY IN PAYMENT OF CONTRACT RECEIPTS, INTEREST WAS PAID ADDITIONALLY WITH REFERENCE TO SUCH DELAYED RECEIPTS, AND, THEREFORE, THE HON'BLE COURT HELD THAT SUCH INTEREST WAS ONLY ACCRETION TO THE ASSESSEE'S INCIDENTAL TO THE BUSINESS CARRIED ON BY IT. THERE BEING A DIRECT SAID CASE, THE INTEREST INCOME WAS HELD AS BUSINESS INCOME, WHEREAS IN THE APPELLANT'S CASE, THE INTEREST INCOME D ID NOT FLOW DIRECTLY FROM THE CONTRACT RECEIPTS, AND, THEREFORE, IT CANNOT BE SAID THAT THE INTEREST INCOME HAD A DIRECT NEXUS WITH SUCH RECEIPTS, AND, ACCORDINGLY, IT CANNOT BE TREATED AS BUSINESS INCOME OF THE APPELLANT. IN VIEW OF THE FOREGOING DISCUSSI ON, THE APPELLANT'S CASE FAILS, AND ACCORDINGLY, THE DECISION RENDERED AGAINST THE APPELLANT ON THIS ISSUE.' 5 ITA NO. 161/VIZ/2015 (M/S. DWARAKA TIRUMALA CONSTRUCTIONS) ON A CAREFUL CONSIDERATION OF THE ORDER OF THE LD.CIT(A) ON THIS ISSUE, WE ARE OF THE VIEW THAT THE FIRST APPELLATE AUTHORITY HAS TAKEN A CONSCIOUS DECISION ON THIS: ISSUE AFTER DULY ANALYZING THE VARIOUS DECISIONS RENDERED BY HON'BLE SUPREME COURT. ACCORDINGLY, WE ARE IN AGREEMENT WITH HIS VIEW THAT THE INTEREST EARNED ON BANK DEPOSITS HA VE TO BE ASSESSED SEPARATELY, EVEN IF THE INCOME FROM CONTRACT WORKS IS ESTIMATED. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE DECISION RENDERED BY LEARNED CIT(A) ON THIS ISSUE. IN VIEW OF THE ABOVE DISCUSSION, IT IS HELD THAT THE AO IS JUSTIFIED IN ASSESSING THE BANK INTEREST SEPARATELY EVEN IF INCO ME FROM CONTRACT WORKS IS ESTIMATED. ACCORDINGLY THIS PLEA RAISED BY THE ASSESSEE IS DISMISSED. IN VIEW OF THE ABOVE, THE AO'S ACTION IN ASSESSING THE INTEREST INCOME SEPARATELY IS JUSTIFIED EVEN WHEN THE CONTRACT INCOME IS ESTIMATED. ACCORDINGLY THE IMPUG NED ADDITION OF RS. 15,33,876/ - IS CONFIRMED. 9 . AFTER CAREFUL CONSIDERATION , WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) , HENCE, THIS APPEAL FILED BY THE ASSESSEE IS DISMISSED. 10 . IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 27 TH DAY OF JULY , 201 7 . SD/ - ( V. DURGA RAO ) JUDICIAL MEMBER DATED : 27 TH JU LY , 201 7 . VR/ - COPY TO: 1. THE ASSESSEE - M/S. DWARAKA TIRUMALA CONSTRUCTIONS, 28 - 1 - 38, 7 TH LANE, SANTHINAGAR, ELURU, W.G. DISTRICT . 2. THE REVENUE - ACIT, CIRCLE - 1, ELURU. 3. THE CIT, RAJAHMUNDRY. 4. THE CIT(A) , RAJAHMUNDRY 5. THE D.R . , VISAKHAPATNAM. 6. GUARD FILE. BY ORDER (VUKKEM RAMBABU) SENIOR PRIVATE SECRETARY, ITAT, VISAKHAPATNAM.