MIGHTY CONSTRUCTIONS PVT LTD, MUMBAI V. I.T.O. WARD 9(2)(3), MUMBAI

ITA 1867/MUM/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5868 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 13-03-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 07-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SANJIV M SHAH
• Keywords: Business income; Proportionate interest

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL J B ENCH, MUMBAI , , !'# , $ % BEFORE SHRI VIJAY PALO RAO, JM AND SHRI N.K. BIL LAIYA, AM ./ I.T.A. NO.1867/MUM/2011 ( & & & & / ASSESSMENT YEAR :2007-08 M/S. MIGHTY CONSTRUCTIONS PVT. LTD., 6 TH FLOOR, A WING, UNIVERSAL BUSINESS PARK, CHANDIVALI FARM ROAD, OFF. SAKI VIHAR ROAD, ANDHERI (E), MUMBAI-400 072 / VS. THE ITO, WARD-9(2)(3), AAYAKAR BHAVAN, MUMBAI ' $ ./ ( ./ PAN/GIR NO. : AADCM 3581C ( ') / APPELLANT ) .. ( *+') / RESPONDENT ) ') , / APPELLANT BY: SHRI SANJIV M. SHAH *+') - , / RESPONDENT BY: SHRI MAURYA PRATAP - ./$ / DATE OF HEARING :19.03.2014 01& - ./$ / DATE OF PRONOUNCEMENT :26.03.2014 2 / O R D E R PER N.K. BILLAIYA, AM: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R OF THE LD. CIT(A)-20, MUMBAI DT.12.11.2010 PERTAINING TO A.Y. 2007-08. 2. THE GRIEVANCE OF THE ASSESSEE IS TWO FOLD. FIRS TLY, THE INTEREST INCOME OF RS. 9,81,988/- AROSE DURING THE COURSE OF BUSINESS OF ITA NO. 1867/M/2011 2 CONSTRUCTION OUGHT TO HAVE BEEN TAXED UNDER THE HEA D PROFIT AND GAINS BUSINESS OR PROFESSION AND ACCORDINGLY CONSIDERED A S PART OF WORK-IN- PROGRESS. SECONDLY, EVEN IF INTEREST INCOME IS TAX ED UNDER THE HEAD INCOME FROM OTHER SOURCES IT SHOULD HAVE BEEN NET TED OFF BY DEDUCTING THE INTEREST EXPENSES. 3. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PRO CEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS RE CEIVED INTEREST INCOME OF RS. 9,81,988/- ON FIXED DEPOSITS, WHICH THE ASSE SSEE HAS CONSIDERED AS BUSINESS INCOME. THE AO FURTHER OBSERVED THAT THE ASSESSEE HAS NETTED THIS INTEREST RECEIVED AGAINST THE INTEREST AND FIN ANCIAL EXPENSES. THE AO SOUGHT CLARIFICATION FROM THE ASSESSEE AS TO WHY TH E INTEREST INCOME EARNED ON FIXED DEPOSITS SHOULD NOT BE TAXED AS IN COME FROM OTHER SOURCES. THE ASSESSEE FILED A DETAILED REPLY CONT ENT OF WHICH IS INCORPORATED BY THE AO AT PARA-4.1 OF HIS ORDER. IT WAS CONTENDED THAT THE ASSESSEE HAS BORROWED LONG TERM UNSECURED LOANS TO FUND THE PROJECT ON WHICH THE ASSESSEE HAS PAID INTEREST OF RS. 62,45,6 96/-. TO MINIMIZE INTEREST BURDEN, THE EXCESS LONG TERM BORROWED FUND HAS BEEN PARKED IN SHORT TERM FIXED DEPOSIT WITH BANK FROM TIME TO TIM E ON WHICH THE ASSESSEE EARNED INTEREST AT RS. 9,81,988/- AND THER EFORE THE SAME SHOULD BE TAXED UNDER THE HEAD PROFITS AND GAINS OF BUSINE SS OR PROFESSION. THIS EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO WHO WAS OF THE OPINION THAT THE ASSESSEE ITSELF HAS CARRIED FORWAR D ALL THE EXPENSES RELATING TO THE CONSTRUCTION BUSINESS IN THE BALANC E SHEET AS WORK-IN- PROGRESS. THE AO WAS OF THE FIRM BELIEF THAT THE A SSESSEE HAS MADE FIXED DEPOSIT OUT OF SURPLUS FUND. THE AO WENT ON TO TAX THE INTEREST RECEIVED UNDER THE HEAD INCOME FROM OTHER SOURCES. ITA NO. 1867/M/2011 3 4. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A) BUT WITHOUT ANY SUCCESS. BEFORE THE LD. CIT(A), THE ASSESSEE T OOK AN ALTERNATIVE PLEA THAT IF INTEREST WAS ASSESSABLE AS INCOME FROM OTHE R SOURCES, THE INTEREST COST ON BORROWED FUNDS SHOULD BE ALLOWED AS DEDUCTI ON U/S. 57 OF THE ACT. THE LD. CIT(A) ALSO DISMISSED THIS ADDITIONAL PLEA. 5. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. T HE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN SUBMITTED BEF ORE THE LOWER AUTHORITIES. 6. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUP PORTED THE FINDINGS OF THE LOWER AUTHORITIES. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAR EFULLY PERUSED THE ORDERS OF THE LOWER AUTHORITIES. THE MAIN CONT ENTION OF THE ASSESSEE IS THAT IT HAS INVESTED IN SHORT TERM FIXED DEPOSIT WI TH BANK FROM TIME TO TIME OUT OF THE EXCESS LONG TERM BORROWING. HOWEVE R, AT THE SAME TIME WE FIND THAT DURING THE YEAR, THE ASSESSEE HAS RECE IVED RS. 6.26 CRORES AS ADVANCE AGAINST THE FLAT BOOKINGS WHEREAS THE ASSES SEE HAS CHANGED ITS RESIDENTIAL PROJECT TO COMMERCIAL PROJECT. NOT HING HAS BEEN BROUGHT ON RECORD WHICH COULD SUGGEST THAT THE MONEY RECEIV ED AGAINST THE BOOKING OF RESIDENTIAL FLATS HAVE NOW BEEN CONVERTE D TO BOOKING AGAINST COMMERCIAL SPACE. NEITHER THE AO HAS GIVEN ANY FIN DING OF THIS NOR THE ASSESSEE HAS BROUGHT ANY BIFURCATION BEFORE US. IF THE ENTIRE MONEY RECEIVED AS BOOKING AGAINST FLAT AND NO PART OF IT IS CONSIDERED AS ADVANCE AGAINST COMMERCIAL SPACE, THEN THE ENTIRE SUM BECOM ES LIABILITY OF THE ASSESSEE WHICH IT HAS TO REFUND TO THE RESPECTIVE D EPOSITORS. HOWEVER, IF SOME PART OF IT IS CONVERTED INTO DEPOSITS AGAINST COMMERCIAL SPACE, THEN PROPORTIONATE INTEREST TO THAT EXTENT HAS TO BE CON SIDERED AS PART OF WORK- ITA NO. 1867/M/2011 4 IN-PROGRESS. WE, THEREFORE, RESTORE THIS ISSUE BAC K TO THE FILES OF THE AO. THE ASSESSEE IS DIRECTED TO FILE NECESSARY DETAILS IN RESPECT OF THE ADVANCES AGAINST FLAT BOOKINGS VIS--VIS ADVANCES A GAINST COMMERCIAL PROJECT. THE AO IS DIRECTED TO VERIFY THE SAME AND IF SOME PARTS OF THE DEPOSITS/ADVANCES ARE FOUND TO BE ADJUSTED AGAINST COMMERCIAL SPACE OF THE PROJECT, THEN INTEREST RECEIVED ON FIXED DEPOSI TS TO THAT EXTENT SHOULD BE CONSIDERED AS PART OF WORK-IN-PROGRESS. NEEDLES S TO MENTION, BEFORE DECIDING THIS ISSUE, THE AO SHOULD GIVE AN OPPORTUN ITY TO THE ASSESSEE. IN SO FAR AS THE ALTERNATIVE PLEA IS CONCERNED, WE ARE IN AGREEMENT WITH THE LD. COUNSEL THAT THE INTEREST EARNED HAS TO BE NETT ED OFF AGAINST THE INTEREST PAID BY THE ASSESSEE AND THEN NET EFFECT S HOULD BE TAKEN TO THE WORK-IN-PROGRESS. WE DIRECT THE AO TO CONSIDER THE INTEREST EARNED AFTER DECIDING GROUND NO. 1 AGAINST THE PAYMENT OF INTERE ST. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH MARCH, 2014 . 2 - 1& $ 3 45 26.3.2014 1 - 6 SD/- SD/- (VIJAY PAL RAO ) (N.K. BILLAIYA) /JUDICIAL MEMBER $ / ACCOUNTANT MEMBER MUMBAI; 4 DATED 26.3.2014 . . ./ RJ , SR. PS ITA NO. 1867/M/2011 5 2 2 2 2 - -- - *. *. *. *. 7&. 7&. 7&. 7&. / COPY OF THE ORDER FORWARDED TO : 1. ') / THE APPELLANT 2. *+') / THE RESPONDENT. 3. 8 ( ) / THE CIT(A)- 4. 8 / CIT 5. 96 *. , , / DR, ITAT, MUMBAI 6. 6: ; / GUARD FILE. 2 2 2 2 / BY ORDER, +. *. //TRUE COPY// < << < / = = = = (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI