MOUNTAIN VIEW REALTORS P.LTD, MUMBAI V. ITO 1(2)(3), MUMBAI

ITA 1712/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87998 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-01-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 04-12-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 04-03-2013
• Court: TRIBUNAL
• Department Lawyers: AKHILENDRA YADAV
• Keywords: Reopening of assessment; Business expenditure; Rule of consistency; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 147

Judgement Text

IN THE INCO ME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ./I.T.A. NO. 1712/M/2013 (AY 2008 - 2009) MOUNTAIN VIEW REALTORS P LTD., 1 & 2 WESTERN INDIA HOUSE, 1 ST FLOOR, SIR P.M. ROAD, FORT, MUMBAI 01. / VS. ITO 1(2)(3), AAYAKAR BHAVAN, MUMBAI 400 020 ./ PAN : AAFCM 1707 Q ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI VIJAY MEHTA / RESPONDENT BY : SHRI AKHILENDRA YADAV / DATE OF HEARING : 04 .12.2014 / DATE OF PRONOUNCEMENT : 14 . 01.2015 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 4.3.2013 IS AGAINST THE ORDER OF THE CIT (A) - 2, MUMBAI DATED 27.12.2012 FOR THE ASSESSMENT YEAR 2008 - 2009. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER OF INVOKING OF PROVISIONS OF SECTION 147 R.W.S. 148 OF THE ACT. THE APPELLANT COMPANY PRAYS THAT THE REOPENING OF ASSESSMENT MAY BE TREATED AS BAD IN LAW. 2. WITHOU T PREJUDICE TO GROUND NO.1, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN HOLDING THAT THE REIMBURSEMENT OF INTEREST EXPENSES AMOUNTING TO RS. 26,57,151/ - AS TAXABLE IN THE YEAR UNDER CONSIDERATION. THE APPELLANT COMPANY P RAYS THAT THE INTEREST INCOME IS ACCRUED IN AY 2009 - 2010 AND THE SAME MAY PLEASE BE HELD AS TAXABLE IN AY 2009 - 2010. 3. WITHOUT PREJUDICE TO GROUND NO.1 AND 2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN HOLDING THAT THE I NTEREST EXPENSES AND INTEREST INCOME OF RS. 26,57,151/ - AS A CAPITAL EXPENDITURE AND CAPITAL RECEIPT RESPECTIVELY INSTEAD OF REVENUE EXPENDITURE AND INCOME. THE APPELLANT COMPANY PRAYS THAT THE SAID EXPENDITURE / INCOME MAY BE HELD AS REVENUE EXP ENDITURE INCOME. 2. ORIGINALLY, ASSESSEE RAISED THE ISSUES RELATING TO THE RE OPENING OF THE ASSESSMENT AND THE TAXABILITY OF INTEREST INCOME RECEIVED BY WAY OF REIMBURSEMENT OF INTEREST EXPENSE S IN THE YEAR 2009 - 2010 AND THESE ISSUES WERE NOT PRESSED 2 BEFORE US. A CCORDINGLY, GROUND NOS.1 AND 2 ARE DISMISSED AS NOT PRESSED. THAT LEAVES GROUND NO.3 FOR OUR ADJUDICATION. 3. BRIEFLY STATED RELEVANT FACTS RELATING TO GROUND NO.3 AS NARRATED BY THE ASSESSEE IN THE STATEMENT OF FACTS INCLUDE THAT THE ASSESSEE PAID A SUM OF RS. 72 CRS AS AN ADVANCE TO PAYAL PROPERTIES P LTD (PAYAL ). THE SAID ADVANCE INCLUDES A SUM OF RS. 35 CRS AND RS. 37 CRS RECEIVED FROM COSMIC HOLDINGS PVT LTD AND WINRO COMMERCIAL (INDIA) LIMITED (WINRO) RESPECTIVELY. IN THE YEAR UNDER CONSIDERATION, THE SAID PAYAL REPAID THE SAID ADVANCE ALONG WITH THE INTEREST OF RS. 6,59,85,189/ - . FURTHER, ASSESSEE REPAID THE LOAN TAKEN FROM WINRO ALONG WITH THE INTEREST OF RS. 6,33,28,078/ - PERTAINING TO AY 2009 - 2010 AND FURTHER INTEREST AMOUNT OF RS. 26,57,151/ - RELATABLE TO AY 2008 - 2009 . THUS, THE ENTIRE INTEREST RECEIVED FROM PAYAL SINCE PAID TO THE WINRO, ASSESSEE CLAIMED SET OFF OF INTER EST COST INCURRED ON THE FUNDS BORROWED FROM WINRO. HOWEVER, ASSESSING OFFICER ALLOWED THE CLAIM OF THE ASSESSEE PARTLY AND TREATED THE SUM OF RS. 26,57,151/ - AS THE INTEREST INCOME OF THE ASSESSEE. THUS, ASSESSING OFFICER DISALLOWED THE PAYMENT OF THE S AID AMOUNT TO WINRO. FURTHER, ASSESSING OFFICER HELD THAT ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING AND THEREFORE, ASSESSEE IS BOUND TO OFFER RESPECTIVE INTEREST INCOME ON ACCRUAL BASIS. THEREFORE, THE SUM OF RS. 26,57,151/ - IS RIGHTLY TAXED IN THE YEAR UNDER CONSIDERATION UNDER THE INCOME FROM OTHER SOURCES. FURTHER, ASSESSING OFFICER COMMENTED THAT SINCE THE SAME AMOUNT WAS PAID TO WINRO IN THE AY 2009 - 2010, THE ALLOWABILITY OF THE SAME WILL BE CONSIDERED IN THE RELEVANT AY 2009 - 2010. EVENTUALLY , ASSESSING OFFICER MADE ADITION OF RS. 26,57,151/ - IN THE AY 2008 - 2009. AGGRIEVED WITH THE SAME, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 4. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, ASSESSEE MADE SUB MISSIONS AND THE SAME WERE DISCUSSED IN DETAIL IN PARAS 3 AND 4 ALONG WITH ITS SUB - PARAS OF THE IMPUGNED ORDER. CIT (A) WHILE PARTLY ALLOWING THE APPEAL OF THE ASSESSEE HELD IN PAGE 27 OF HIS ORDER THAT THE ASSESSEE RECEIVED INTEREST INCOME BY WAY OF REIM BURSEMENT OF INTEREST EXPENDITURE PAID TO WINRO. THEREFORE, SUCH REIMBURSED INTEREST INCOME IS TAXABLE U/S 41(1) OF THE ACT. SIMILARLY, INTEREST EXPENDITURE PAID BY THE ASSESSEE TO WINRO CONSTITUTES BUSINESS EXPENDITURE. PARA 3 5.3 AND THE CONTENTS APPEAR IN PAGE 27 ARE RELEVANT IN THIS REGARD. CIT (A) FURTHER MENTIONED THAT THE INTEREST EXPENDITURE MAY CONSTITUTES CAPITAL EXPENDITURE IN THAT CASE THE REIMBURSED INTEREST INCOME WILL GO TO REDUCE THE CAPITAL EXPENDITURE. RELEVANT LINES FROM THE IMPUGNED OR DER ARE REPRODUCED AS UNDER: THE INTEREST REIMBURSEMENT IS TAXABLE, AS INCOME IN VIEW OF SECTION 41(1) OF THE INCOME TAX ACT IN CASE THE INTEREST EXPENDITURE MET OUT BY THE APPELLANT COMPANY IS CONSIDERED AS BUSINESS EXPENDITURE OF THE APPELLANT COMPANY A ND THEREBY IT WILL REDUCE THE LOSSES CLAIMED IN THE RETURN OF INCOME. IN CASE, THE INTEREST EXPENDITURE IS CONCERNED AS CAPITAL EXPENDITURE THEN THE REIMBURSEMENT WILL GO TO REDUCE THE CAPITAL EXPENDITURE MET OUT BY THE APPELLANT COMPANY. IN CASE, THE IN TEREST REIMBURSEMENT CANNOT BE TAXED SEPARATE. IN THIS CASE, THE ASSESSING OFFICER HAS CHARGED THE ENTIRE REIMBURSEMENT OF INTEREST EXPENDITURE AS INCOME AS DETERMINED THE TOTAL INCOME T RS. 26,45,100/ - WHICH IS NOT CORRECT. IN THIS CASE, THE APPELLANT W ANTED TO START A NEW LINE OF BUSINESS AND HENCE, I AM OF THE VIEW THAT THE INTEREST EXPENDITURE SHOULD BE CONSIDERED AS CAPITAL EXPENDITURE BUT AT THE SAME TIME THE REIMBURSEMENT OF INTEREST EXPENDITURE WILL GO TO REDUCE THE CAPITAL EXPENDITURE. AS A RESU LT THE LOSS OF THE APPELLANT FROM BUSINESS WILL BE ONLY RS. 12,056/ - AND THE TOTAL LOSS SHOULD BE ASSESSED AT RS. 12,056/ - FOR AY 2008 - 2009. 5. FROM THE ABOVE IT IS EVIDENT THAT CIT (A) HELD THAT THE ASSESSEE WANTED TO START A NEW BUSINESS AND THEREFORE INTEREST EXPENDITURE CONSTITUTES A CAPITAL EXPENDITURE. THESE COMMENTS OF THE CIT (A) ARE NOT ACCEPTED BY THE ASSESSEE THEREFORE, THE ASSESSEE IS IN APPEAL BEFORE US WITH THE GROUND NO.3 MENTIONING THAT INTEREST EXPENDITURE AS WELL AS THE INTEREST INCOME ARE NOT IN THE CAPITAL ZONE BUT THEY ARE OF THE REVENUE IN NATURE. 6. ON THE OTHER HAND, LD DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 7. AFTER HEARING BOTH THE PARTIES, WE FIND THE ASSESSEE IS A COMPANY ENGAGED IN THE TRADING OF GOODS AND RAISED ADVANCED FROM COSMIC HOLDINGS PVT LTD AND WINRO COMMERCIAL (INDIA) LIMITED AND ADVANCED THE SAME TO PAYAL, WHO REPAID THE WHOLE ADVANCE ALONG WITH THE INTEREST IN THE SUBSEQUENT ASSESSMENT YEAR. AFTER EXAMINING THE FACTS OF THE CASE AND THE TRANSACTIONS INVOLVED THEREIN, WE FIND THERE IS NO DISCUSSION IN THE ORDER OF THE ASSESSING OFFICER AS WELL AS IN THE ORDER OF THE CIT (A) THAT THE ASSESSEE IS ENGAGED IN NEW BUSIN ESS TOWARDS ADVANCES AND THE INTEREST RECEIPTS AND INTEREST PAYMENTS ARE IN THE CAPITAL ZONE. CIT (A) AT PAGE 27 HAS HELD INITIALLY THESE ARE REVENUE RECEIPTS AND EXPENDITURES AND IN SUBSEQUENT PARAS HE VAGUELY MENTIONED THAT THE INTEREST EXPENDITURE AND I NCOME FALLS IN CAPITAL FIELD. IN OUR OPINION, THE ORDER OF THE CIT (A) IS NOT WELL DRAFTED AND ITS SUFFERS FROM 4 LACK OF CLARITY. WE DO NOT UNDERSTAND AS TO HOW INTEREST RECEIPTS ON ADVANCES GIVEN BY THE ASSESSEE BECOMES CAPITAL RECEIPTS AND THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE BECOMES A CAPITAL EXPENDITURE . IN OUR CONSIDERED OPINION, BOTH THE INTEREST INCOME AND THE INTEREST EXPENDITURE FALLS IN THE REVENUE FIELD ON THE GIVEN FACTS OF THE CASE ON HAND . REGARDING THE CHARGEABILITY OF THESE I NTEREST INCOME AND ALLOWABILITY OF INTEREST EXPENDITURE, THE SAME REQUIRES TO BE DECIDED BASING ON THE ACCRUAL METHOD OF ACCOUNTING FOLLOWED THE ASSESSEE CONSISTENTLY. SINCE, THERE IS NO FINDING OF THE FACT THAT THE SAID INTEREST INCOME OF RS. 26,57,151/ - IS RELATABLE TO THE AY UNDER CONSIDERATION, ASSESSING OFFICER HAS RIGHTLY TAXED THE SAME IN THE AY 2008 - 2009. FOLLOWING THE PRINCIPLE OF CONSISTENCY, THE INTEREST EXPENDITURE PAID TO WINRO IN THE AY 2009 - 2010 SHOULD BE ALLOWED AS PER THE METHOD OF ACCOUN TING FOLLOWED BY THE ASSESSEE IN THAT YEAR. THEREFORE, WE ARE OF THE OPINION THAT THE INTEREST RECEIPT AND EXPENDITURE DO NOT CONSTITUTE CAPITAL RECEIPT AND EXPENDITURE. TO THAT EXTENT ASSESSEE GETS RELIEF. ACCORDINGLY, GROUND NO.3 RAISED BY THE ASSESSEE IS ALLOWED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNC ED IN THE OPEN COURT ON 1 4 T H JANUARY, 2015. S D / - S D / - (AMIT SHUKLA) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTA NT MEMBER MUMBAI ; 1 4 .1.2015 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, 5 ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI