ITO, New Delhi V. M/s. Accession Buildwell (P) Ltd., New Delhi

ITA 2001/DEL/2012

• Counselvise Citation: 200120114 RSA 2012
• Duration Of Justice: 1 year(s) 4 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 02-07-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 30-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHIM SINGH
• Assessee Lawyers: G C SRIVASTAVA; SAURAV SRIVASTAVA
• Keywords: Business income; Business expenditure; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI T.S. KAPOOR ITA NO. 2001/DEL/2012 ASSTT. YR: 2008-09 INCOME-TAX OFFICER, VS. M/S ACCESSION BUILDWELL (P) LTD., COY. WARD 1(2), NEW DELHI. FF-28, ECE HOUSE, K.G. MARG, NEW DELHI-110001. PAN: AAFCA 6909 E ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI BHIM SINGH SR. DR RESPONDENT BY : SHRI G.C. SRIVASTAVA ADV. & SHRI SAURAV SRIVASTAVA CA O R D E R PER R.P. TOLANI, J.M : THIS IS REVENUES APPEAL AGAINST CIT(A)S ORDER DA TED 15-3-2012, RELATING TO A.Y. 2008-09. FOLLOWING GROUNDS ARE RAI SED: 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DIRECTING THE AO TO TREAT THE INTEREST INCOME OF RS. 77,25,1 53/- ON THE BANK OF INDIA FDRS AS PART OF BUSINESS INCOME OF TH E ASSESSEE. 2. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DIRECTING THE AO TO ALLOW THE BUSINESS EXPENDITURE UP TO RS. 1,40,575/- AS REVENUE EXPENDITURE. 2. BRIEF FACTS ARE: THE ASSESSEE COMPANY IS ENGAGE D IN THE BUSINESS AS BUILDERS AND DEVELOPERS. DURING THE COURSE OF ASSES SMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS EARNED INTEREST INCOME OF RS. 2 77,25,153/- ON FDRS WHICH HAS BEEN INCORPORATED IN THE BOOKS OF A/C BY SETTING IT OFF AGAINST THE CAPITALIZED WORK IN PROG RESS ACCOUNT OF THE ASSESSEE. ON ASSESSING OFFICERS FURTHER QUERIES IN THIS BEHA LF, ASSESSEE EXPLAINED THAT: (I) FOR THE PURPOSE OF FINANCING THE PURCHASES OF THE L AND ASSESSEE RAISED THE FUNDS FROM MARKET BY WAY OF INTEREST PAY ABLE DEBENTURES FOR WHICH A DEBENTURE TRUST WAS CREATED BY EXECUTIO N OF A DEED. AS PER THE TERMS AND CONDITIONS OF THE DEBENTURE TRUST DEED, ASSESSEE WAS OBLIGED TO RETAIN SPECIFIED AMOUNT OF FDRS FOR SERVICE OF DEBENTURE LOANS. THUS, THE RAISING OF FUNDS BY DEBE NTURES AND CORRESPONDING RETENTION OF FDRS IN THE BANK WERE WE RE EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSE SSEE. THE LIABILITY OF INTEREST PAYABLE ON DEBENTURES WAS CAP ITALIZED TOWARDS THE COST OF THE PROJECT ON THE SAME PRINCIPLE THE R ECEIPT OF INTEREST FROM FDRS AS PER DEBENTURE TRUSTS CONDITION WAS ALS O SET OFF AGAINST THE COST OF THE PROJECT. (II) IN CASE THE INTEREST EARNED IS SOUGHT TO BE TREATED AS INCOME FROM OTHER SOURCES, THEN ON THE BASIS OF MATCHING PRINCI PLE, THE INTEREST PAID BY THE ASSESSEE QUA DEBENTURES, SHALL BE NET OFF AND THE BALANCE BE TAXED AS PER LAW. 2.1. ASSESSING OFFICER, HOWEVER, REJECTED ASSESSEE S CONTENTIONS AND BY RELYING ON FOLLOWING JUDGMENTS: - BROOK BOND INDIA LTD. VS. CIT 225 ITR 798(SC); - PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD . VS. CIAT 225 ITR 792 (SC). 3 HELD THAT THE INTEREST FROM THESE FDRS CONSTITUTED INCOME FROM OTHER SOURCES AND NO EXPENSES WERE TO BE ALLOWED OR ADJUSTED AGAI NST THIS INTEREST INCOME. 2.2. APROPOS SECOND ISSUE, THE ASSESSING OFFICER D ISALLOWED THE AMOUNT OF RS. 8,89,275/- AS CAPITAL EXPENSES, WHICH INCLUDED AN AMOUNT OF RS. 7,48,700/- BEING ROC FEES AND STAMP DUTY FOR INCREA SE IN THE AUTHORIZED SHARE CAPITAL OF THE COMPANY. CIT(A) HELD THE ROC F EE TO BE CAPITAL IN NATURE AND NOT ALLOWABLE, HOWEVER, THE REMAINING A MOUNT OF RS. 1,40,575/- NOT RELATED TO ROC FEE WAS ALLOWED AS REVENUE EXPEN DITURE. 2.3. AGGRIEVED, REVENUE IS BEFORE US ON BOTH GROUND S. 3. LD. DR RELIED ON THE ORDER OF ASSESSING OFFICER. 4. LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT ASSES SING OFFICER HAS NOT DISPUTED THE FOLLOWING FACTS: (I) ASSESSEE HAD RAISED FUNDS BY INTEREST BEARING ON DE BENTURES BY WAY OF A DEBENTURE TRUST. AS PER THE SPECIFIC OBLIG ATIONS SET OUT BY THE TRUST DEED, THE ASSESSEE WAS REQUIRED TO MAINTA IN MINIMUM INTEREST RESERVE AMOUNT TO SAFEGUARD THE PAYMENT OF INTEREST ON SUCH DEBENTURES IN THE FORM OF FDRS IN THE BANK. (II) THE ASSESSEE SET OFF OF INTEREST EARNED ON FDRS AGA INST THE INTEREST PAID AGAINST THE WORK-IN-PROGRESS A/C OF THE RELEV ANT PROJECT IN HAND. (III) ALL THE RELEVANT DOCUMENTS WERE PRODUCED BEFORE THE ASSESSING OFFICER AND THERE IS NO ALLEGATION THAT ANY DOCUMEN T WAS NOT PRODUCED. 4 (IV) ASSESSING OFFICER HAS NEITHER ADVERTED TO THE ISSUE OF DEBENTURE TRUST NOR ASSESSEES OBLIGATIONS AND HAS SUMMARILY HELD THE INTEREST EARNED ONLY UNDER THE HEAD INCOME FROM OTHER SOURCE S. FURTHER, NO COMMENTS HAVE BEEN OFFERED ABOUT MATCHING PRINCIPL E AND INTEREST PAID. 4.1. LD. COUNSEL FURTHER CONTENDS THAT THE INTEREST PAID ON THE DEBENTURES HAS BEEN CONSIDERED AND ALLOWED BY ASSESSING OFFICE R AS PER METHOD OF ACCOUNTING AND HAS BEEN ALLOWED TO BE CAPITALIZED T OWARDS COST OF THE PROJECT. ON THE SAME ANALOGY, THE KEEPING OF THE MI NIMUM INTEREST RESERVE AMOUNT IN FDRS UNDER BUSINESS OBLIGATION AND INTERE ST EARNED THEREON ALSO SHOULD HAVE BEEN ALLOWED AS BUSINESS EARNING. THERE FORE, ON THIS PROPOSITION, WORK IN PROGRESS METHOD AND MATCHING P RINCIPLE THE AMOUNT OF FDR INTEREST HAS BEEN RIGHTLY SET OFF AGAINST THE I NTEREST PAID FOR WORK IN PROGRESS ACCOUNT BY THE ASSESSEE. 4.2. THE ASSESSEES CASE FINDS FURTHER STRENGTH FRO M THE FACT THAT ON MATCHING PRINCIPLE THE INTEREST EARNED ON FDRS IS C ONSEQUENT TO AND INEXTRICABLY LINKED TO THE PAYMENT OF INTEREST ON THE BORROWED FUNDS WHICH HAS BEEN RAISED FOR FINANCING THE PROJECTS, HAS NO T BEEN DISPUTED BY THE ASSESSING OFFICER. THEREFORE, ALTERNATIVELY, ON M ATCHING PRINCIPLE ALSO, AS BOTH THE EXPENDITURE AND RECEIPT HAVE ALREADY MATC HING INGREDIENTS, THE NETTING OFF IS TO BE ALLOWED. THUS, ON THE BASIS OF BUSINESS EXPEDIENCY AND 5 MATCHING PRINCIPLE, BOTH PROPOSITIONS SUPPORT THE C ASE OF THE ASSESSEE. CIT(A) HAS RIGHTLY ALLOWED THE AMOUNT BY FOLLOWING OBSERVATIONS: 5.5 UNDER THE FACTS AND CIRCUMSTANCES AS MENTIONED ABOVE, I FIND THAT THE DEBENTURES WERE ISSUED BY THE APPELLA NT COMPANY FOR RAISING FINANCE FOR THE PURPOSE OF THE APPELLAN T'S BUSINESS WHICH HAS BEEN UTILIZED MAINLY FOR THE PURPOSE OF L AND. THE INVESTMENT IN BANK FDRS WAS MADE AS PER THE TERMS O F THE DEBENTURE TRUST DEED WITH A VIEW TO MAINTAINING THE MINIMUM INTEREST RESERVE ACCOUNT FOR THE PURPOSE OF SERVICI NG THE INTEREST BURDEN ON DEBENTURES. IN VIEW OF THE ABOVE AND CONSIDERING THE CASE LAWS ON THE SUBJECT AS POINTED OUT BY THE ID. AR, I FIND THAT THE INTEREST ACCRUED ON THE BAN K FDRS FORMS PART OF THE BUSINESS INCOME OF THE APPELLANT AND IS NOT AN INDEPENDENT ACTIVITY WHICH CAN BE CLASSIFIED AS INC OME FROM OTHER SOURCES. THE CASE LAWS RELIED UPON BY THE AO INCLUDING THAT OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LT D. VS. CIT (1997) 227 ITR 172 (SC) ARE NOT RELEVANT TO THE INS TANT CASE, AS IN THE ABOVE CASE OF TUTICORIN ALKALI INTEREST WAS EARNED BY THE ASSESSEE BEFORE THE COMMENCEMENT OF BUSINESS ON SHO RT TERM DEPOSITS MADE IN THE BANK OUT OF SURPLUS FUNDS FROM THE TERM LOANS RECEIVED FROM FINANCIAL INSTITUTIONS. AS AGAI NST THE ABOVE, IN THE INSTANT CASE, INTEREST HAS ACCRUED TO THE AP PELLANT ON THE BANK FDRS AFTER THE COMMENCEMENT OF THE APPELLANT'S BUSINESS. THE SAID INVESTMENT IN BANK FDRS WAS NOT OUT OF SUR PLUS FUNDS BUT FOR CREATING A MINIMUM INTEREST RESERVE ACCOUNT TO SERVICE THE INTEREST BURDEN ON THE ABOVE DEBENTURE AS PER T HE TERMS OF THE ABOVE DEBENTURE TRUST DEED. IN VIEW OF THE ABOV E, THE FACTS IN THE INSTANT CASE ARE CLEARLY DISTINGUISHABLE. CO NSIDERING THE SAME, I FIND THAT THE ACTION OF THE AO IN TREATING THE IMPUGNED AMOUNT OF RS.77,25, 153/- AS INCOME FROM OTHER SOUR CES IS NOT SUSTAINABLE ON FACTS OR IN LAW. EVEN FOR THE SAKE O F ARGUMENT, IF THE AO'S STAND IS ACCEPTED THEN THE PROPORTIONATE I NTEREST PAID BY THE APPELLANT ON THE DEBENTURES IS TO BE ALLOWED AS DEDUCTION AGAINST THE ABOVE FDR INTEREST IN TERMS O F)SECTION 57(III) OF THE ACT WHICH WILL ALSO DEFEAT THE PURPOSE OF THE ABOVE 6 STAND TAKEN BY THE AO. IN VIEW OF THE ABOVE, THE AO IS DIRECTED TO TREAT THE INTEREST INCOME ON THE AFORESAID BANK FDRS AS PART OF BUSINESS INCOME OF THE APPELLANT. THIS GROUND OF THE APPELLANT IS ACCORDINGLY ALLOWED. 4.3. APROPOS SECOND GROUND, LD. COUNSEL CONTENDED T HAT CIT(A) ALLOWED RS. 1,40,575/- AS REVENUE EXPENDITURE BY HOLDING AS UNDER: 7.2 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDE R AND THE SUBMISSIONS MADE BY THE ID. AR ON THE ABOVE ISSUE. AS PER THE FACTS OF THE CASE, THE APPELLANT COMPANY WAS INCORPORATED ON 17.03.2006 FOR THE PURPOSE OF DOING BUSINESS AS BUILDERS AND DEVELOPERS. THE ASSESSEE H AS DURING THE YEAR UNDER CONSIDERATION HAS RAISED FINA NCE BY WAY OF DEBENTURES AT RS.591.06 CRORES, ACQUIRED LAN D FOR ITS INVENTORY AT RS.45.8 CRORES, GIVEN ADVANCE TO SUBSI DIARY COMPANY AGAINST COLLABORATION AGREEMENT FOR FURTHER ACQUISITION OF LAND AT RS.512.09 CRORES, AND PAID A MOUNTS TO EMAAR MGF AT RS.16.7 CRORES FOR JOINT DEVELOPMENT O F LAND ETC. THIS IS EVIDENT FROM THE AUDITED ACCOUNTS OF THE CO MPANY FOR THE YEAR UNDER CONSIDERATION AND THE DETAILS SUBMIT TED AS DISCUSSED IN GROUND NO. 3 ABOVE. THEREFORE, IT IS C LEAR THAT THE BUSINESS OF THE APPELLANT COMPANY HAS ALREADY B EEN SET UP AND THE COMPANY IS READY TO COMMENCE ITS BUSINES S. IT IS SETTLED LAW THAT THE EXPENSES INCURRED AFTER THE BU SINESS IS SET UP IS TO BE ALLOWED AS REVENUE EXPENDITURE. THE ID. AR HAS ALSO RELIED UPON A LARGE NUMBER OF CASE LAWS WH ICH ARE DIRECTLY RELEVANT TO THE ISSUE IN HAND. THEREFORE, I FIND THAT THE AO'S ACTION IN CAPITALIZING THE EXPENDITURE OF RS.8,89,275/- INCURRED AFTER THE SETTING UP OF THE APPELLANT'S BUSINESS IS NOT LEGALLY TENABLE AS PER SETTLED LAW ON THE MATTER. HOWEVER, I FIND THAT THE ABOVE EXPEN DITURE INCLUDES AN AMOUNT OF RS.7,48,700/- TOWARDS ROC FEE S AND STAMP DUTY FOR INCREASE IN THE AUTHORIZED SHARE CAP ITAL OF THE COMPANY FROM RS.2 LAKHS TO RS.10 CRORES. THE AO HAS 7 SIMPLY OBSERVED THAT THE ABOVE EXPENDITURE NEEDS TO BE CAPITALIZED. ON CAREFUL EXAMINATION OF THE MATTER, I FIND THAT AS PER LAW THE ABOVE EXPENDITURE ON ROC FEES ETC. F OR INCREASE IN AUTHORIZED SHARE CAPITAL IS NOT AN ALLO WABLE EXPENDITURE. THE SAME IS ALSO NOT AMORTIZABLE U/S 35D(2)(C)(III) OF THE ACT, NOT BEING FEE FOR INITIA L REGISTRATION OF THE COMPANY. THIS VIEW STANDS CONFIRMED BY THE H ON'BLE SUPREME COURT IN BROOK BOND INDIA LTD. VS. CIT 225 ITR 798 AND PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD. VS. CIT 225 ITR 798. IN VIEW OF THE ABOVE, THE AMOUNT O F RS.7,48,700/- IS DISALLOWED. THE AO IS DIRECTED TO ALLOW THE BALANCE EXPENDITURE OF RS.1,40,575/- ONLY (I.E. RS. 8,89,275/- MINUS RS.7,48,700/-) AS REVENUE EXPENDITURE. 4.4. IT IS CONTENDED THAT THE ABOVE PART OF THE AMO UNT DISALLOWED BY ASSESSING OFFICER WAS PURELY REVENUE IN NATURE WHIC H HAS BEEN RIGHTLY ALLOWED BY THE CIT(A) ACCORDINGLY. ASSESSING OFFICE R HAS GIVEN NO REASONS FOR HOLDING THIS AMOUNT TO BE CAPITAL IN NATURE. OR DER OF CIT(A) IS RELIED UPON. 5. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE ENTIRE MATERIAL AVAILABLE ON RECORD. THE FACT THAT FDRS WERE MADE T O FULFILL THE OBTAINED BY OBLIGATION CAST BY THE DEBENTURE TRUST DEED ON THE ASSESSEE HAS NOT BEEN DISPUTED. THUS, THE EARNING OF INTEREST HAS A DIREC T NEXUS WITH THE BUSINESS OPERATIONS OF THE ASSESSEE I.E. RAISING OF FUNDS BY DEBENTURES TO FINANCE THE PROJECT. THE INTEREST INCURRED THEREON HAS BEEN ALL OWED AS BUSINESS LIABILITY AND AS PER METHOD OF ACCOUNTING REGULARLY FOLLOWED I.E. WORK IN PROGRESS, THE AMOUNT HAS BEEN ALLOWED TO BE CAPITALIZED IN PROJEC T ACCOUNT. LD. COUNSEL 8 FOR THE ASSESSEE APART FROM THE JUDGMENTS REFERRED TO IN CIT(A)S ORDER HAS RELIED ON THE JUDGMENTS OF THE HONBLE DELHI HIGH C OURT IN THE CASES OF CIT V. SASAN POWER LTD. (2012) 18 TAXMANN. COM 182 (DEL .); AND INDIAN OIL PANIPAT POWER CONSORTIUM LTD. VS. ITO (2009) 181 TA XMAN 249 (DEL.). 5.1. IN OUR CONSIDERED VIEW, THESE CASES, WHICH IN TURN HAVE RELIED ON THE JUDGMENTS OF CIT VS. BOKARO STEEL LTD. 236 ITR 315; AND TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT 227 ITR 172 ET C. SUPPORT THE VIEW ADOPTED BY THE CIT(A). IN VIEW THEREOF ON BOTH THE PROPOSITIONS I.E. METHOD OF ACCOUNTING AND MATCHING PRINCIPLE, CIT(A)S ORDE R DESERVES TO BE UPHELD. 6. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 09-09-2013. SD/- SD/- ( T.S. KAPOOR ) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 9 TH SEPT. 2013. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR 9