VASWANI & CO, MUMBAI V. I.T.O.19(1)-2, MUMBAI

ITA 1923/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84310 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 01-12-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 08-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PAWAN KU MAR BEERLA
• Section: 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUM BAI , , BEFORE SHRI JOGINDER SINGH, JM AND SHRI SANJAY ARO RA, AM ./ I.T.A. NOS. 6768/MUM/2013, 1923 & 1924/MUM/2011 ( / ASSESSMENT YEARS: 2008-09, 2006-07 & 2007-08) VASWANI & COMPANY 602, SANT NIWAS, 14 TH ROAD, 394, LINKING ROAD, KHAR (W), MUMBAI-400 052 / VS. ASST. CIT-19(1), PIRAMAL CHAMBERS, LALBAUG, PAREL, MUMBAI-400 012 ! ./' ./PAN/GIR NO. AAAFV 4961 H ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) !# & ' / APPELLANT BY : SHRI VIMAL PUNMIYA $%!# & ' / RESPONDENT BY : SHRI PAWAN KUMAR BEERLA ( )*+ & ,- / DATE OF HEARING : 01.12.2014 DATE OF ORDER : 05.12.2014 . / O R D E R PER SANJAY ARORA, A. M.: THIS IS A SET OF THREE APPEALS BY THE ASSESSEE ARIS ING OUT OF THE SEPARATE ORDERS BY THE COMMISSIONER OF INCOME TAX (APPEALS), MUMBAI ( CIT(A) FOR SHORT), DISMISSING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENTS U/ S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THREE CONSECUTIVE YEARS , BEING ASSESSMENT YEARS (A.YS.) 2006- 07 TO 2008-09. THE ISSUE ARISING BEING COMMON, THES E WERE POSTED FOR AND, ACCORDINGLY, HEARD TOGETHER, AND ARE BEING DISPOSED OF TOGETHER FOR THE SAKE OF CONVENIENCE. WE SHALL, HOWEVER, ADVERT TO THE FIGURES, IF AND WHERE NECESS ARY OR CONTEXTUAL, FOR A.Y. 2006-07. 2 ITA NOS. 6768/M/13, 1923 & 1924/MUM/2011 (A.YS. 08-09, 06-07 & 07-08) VASWANI & COMPANY VS. ASST. CIT 2. THE ASSESSEE, AN INDIVIDUAL, ENGAGED IN THE DEVE LOPMENT OF REAL ESTATE, WAS DURING THE COURSE OF ASSESSMENT OBSERVED TO HAVE CAPITALIZ ED THE INTEREST COST, AT NET OF THAT RECEIVED (RS.15.09 LACS), UNDER ITS CONSTRUCTION P ROJECT KRSNA AT BORIVALI. IT WAS EXPLAINED THAT AS THE FUNDS UNUTILIZED FOR THE TIME BEING, I.E., IN THE CONSTRUCTION BUSINESS, DID NOT YIELD INTEREST IN THE CURRENT ACCOUNT WITH THE BANK, THE ASSESSEE, WITH THE VIEW TO MITIGATE ITS INTEREST COST FOR THE YEAR (RS.79,11,9 22/-), HAD LEND THE SAME ON INTEREST BASIS. THERE WAS A DIRECT NEXUS BETWEEN THE AMOUNTS BORROW ED AND THAT LENT. ACCORDINGLY, THE ASSESSEE HAD CAPITALIZED ONLY THE NET INTEREST TO T HE PROJECT COST, WHICH BEING UNDERWAY AS AT THE YEAR-END/S, STANDS CARRY FORWARD AS WORK-IN- PROGRESS (WIP). THE ASSESSING OFFICER (A.O.), HOWEVER, WAS OF THE VIEW THAT THE INTEREST ON THE SURPLUS FUNDS WOULD BE LIABLE TO BE ASSESSED U/S. 56 AS INCOME FROM OTHER SOURCES, RESULTING THUS IN ADDITION TO THE ASSESSEES RETURNED INCOME BY THAT AMOUNT, I.E., RS .15,08,783/- (FOR A.Y. 2006-07). THE SAME FOUND CONFIRMATION IN APPEAL BY THE LD. CIT(A) . THE ASSESSEES MAIN OR, RATHER, THE SOLE BUSINESS WAS OF CONSTRUCTION, AND IT WAS NOT E NGAGED IN ANY FINANCING ACTIVITY. IT HAD BY REDUCING THE INTEREST COST OF ITS BUSINESS, CAM OUFLAGED ITS INCOME BY WAY OF SUBSTANTIAL RECEIPT OF INTEREST AS BUSINESS INCOM E. AGGRIEVED, THE ASSESSEE IS IN APPEAL. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. WE FIND, EVEN AS OBSERVED DURING HEARING, THE CLAIM OF BOTH THE PARTIES, I.E., THE ASSESSEE AND THE REVENUE, AS UNTENABLE. THE ASSESSE E BEING NOT ENGAGED IN ANY FINANCING ACTIVITY, THE LENDING OF ITS FUNDS, DEEMED SURPLUS FOR THE TIME BEING, COULD ONLY BE REGARDED AS INCOME FROM OTHER SOURCES, ASSESSABLE U /S.56. SO HOWEVER, IT IS ONLY THE NET AND NOT THE GROSS INCOME THAT COULD BE SAID TO ARIS E TO IT AND THUS BROUGHT TO TAX U/S.56. THE ASSESSEE IN THIS REGARD CONTENDS AND WHICH IS NOT DISPUTED BY THE REVENUE, OF THE SOURCE OF THE SAID FUNDS AS BORROWED CAPITAL, WITH A PARITY OBTAINING BETWEEN THE BORROWING AND THE LENDING RATES. THE NET RESULT, I. E., AFTER ALLOWING DEDUCTION FOR THE INTEREST PAID U/S. 57(III) WOULD THEREFORE BE NIL. ACCORDINGLY, THERE WOULD BE IN EFFECT NO POSITIVE INCOME U/S.56, WHILE THE ASSESSEES BUSINE SS INCOME, WHICH THUS GETS CHARGED AT 3 ITA NOS. 6768/M/13, 1923 & 1924/MUM/2011 (A.YS. 08-09, 06-07 & 07-08) VASWANI & COMPANY VS. ASST. CIT ONLY THE INTEREST COST RELATABLE TO THE FUNDS, OR R ATHER THE USER OF THE FUNDS, FOR BUSINESS PURPOSES, REMAINS UNDISTURBED. IN FACT, THE ASSESSEE ALSO CLAIMS, WITHOUT PREJUDIC E, THAT IT HAVING SUFFERED TAX ON THE INTEREST INCOME FOR THE FIRST TWO YEARS, I.E., A.YS. 2006-07 AND 2007-08, THE GROSS INTEREST, I.E., WITHOUT DEDUCTING THE INTEREST EARN ED FOR THE SAID YEARS, OUGHT TO BE ALLOWED TO IT AS A PART OF ITS COST OF THE RELEVANT PROJECT FOR THE THIRD YEAR, I.E., A.Y. 2008-09, WHEREAT THE SAID PROJECT STANDS COMPLETED. THE REVE NUE BY DENYING ITS ALTERNATE CLAIM (FOR A.Y. 2008-09) FOR SUCH HIGHER INTEREST, I.E., THE TOTAL INTEREST COST SUFFERED FOR THE PRECEDING TWO YEARS, CAUSES IT DOUBLE JEOPARDY. WE COULD NOT AGREE MORE. HOWEVER, IN VIEW OF OUR HAVING HELD THAT ONLY THE NET INTEREST COST, I.E., AS RELATABLE TO THE ASSESSEES BUSINESS ACTIVITY, WHICH WOULD THEREFORE REQUIRE RE DUCTION FROM THE GROSS INTEREST SUFFERED, OF THE INTEREST COST CORRESPONDING TO THE FUNDS LENT, WHICH IS EQUAL TO THE AMOUNT OF INTEREST EARNED THEREON, SO THAT THE NET INTERES T INCOME IS NIL, WOULD RESULT IN NO ADDITIONAL INCOME EITHER U/S.28 OR SECTION 56 FOR A .YS. 2006-07 AND 2007-08. ACCORDINGLY, THERE IS NO OCCASION FOR THE ASSESSEE S CLAIM FOR A HIGHER INTEREST FOR THE THIRD, OR THE TERMINAL, YEAR, I.E., A.Y. 2008-09, A ND THE ASSESSEES APPEAL FOR THAT YEAR BECOMES INFRUCTUOUS. WE DECIDE ACCORDINGLY. 4. IN THE RESULT, THE ASSESSEES APPEALS FOR A.Y. 2 006-07 AND 2007-08 ARE ALLOWED, WHILE THAT FOR A.Y. 2008-09 IS DISMISSED AS INFRUCT UOUS. ORDER PRONOUNCED IN THE OPEN COURT ON DECEMBER 01, 2014 AT THE CONCLUSION OF THE HEARING ITSELF. SD/- SD/- (JOGINDER SINGH) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ( /+ MUMBAI; 0) DATED : 05.12.2014 *.). ./ ROSHANI , SR. PS 4 ITA NOS. 6768/M/13, 1923 & 1924/MUM/2011 (A.YS. 08-09, 06-07 & 07-08) VASWANI & COMPANY VS. ASST. CIT !' # $%&' (!'% / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. ( 1, ( ) / THE CIT(A) 4. ( 1, / CIT - CONCERNED 5. 4*5 $,)6 , - 67 , ( /+ / DR, ITAT, MUMBAI 6. 89 :+ / GUARD FILE !' ) / BY ORDER, */)+ , (DY./ASSTT. REGISTRAR) , ( /+ / ITAT, MUMBAI