M/s.Global Entropolis (Vizag)(P) Ltd., Bangalore V. Deputy Commissioner of Income-tax, Bangalore

ITA 2082/BANG/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5504 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 28-11-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRAMOD KU MAR SINGH
• Assessee Lawyers: C ANANTHAN
• Keywords: Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, BENGALURU BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER I TA NO. 2082 / BANG/2 0 1 6 (ASSESSMENT YEAR: 20 12 - 13 ) M/S.GLOBAL ENTROPOLIS (VIZAG) (P) LTD. NO.40/43, 8 TH MAIN, 4 TH CROSS, SADASHIVNAGAR, BENGALURU - 560080. PAN:AADCG1109J VS. APPELLANT DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE 3(1)(2), BENGALURU. RESPONDENT APPELLANT BY : SHRI C.ANANTHAN, CA. RESPONDENT BY : SHRI PRAMOD KUMAR SINGH, CIT(DR) DATE OF HEARING : 27/11/2017 DATE OF PRONOUNCEMENT : 26 / 02 /201 8 O R D E R PER INTURI RAMA RAO, AM : THIS IS AN APPEAL FILED BY THE ASSESSEE COMPANY DI RECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-3, BENGALURU DATED 28/09/2016 FOR THE ASSESSMENT YEAR 2012-13. 2. BRIEFLY, FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF PROPERTY DEVELOPMENT. T HE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2012-13 WAS FILED ON 29/09/ 2012 DECLARING LOSS OF RS.5,54,10,126/-. AGAINST THE SAID RETURN OF IN COME, THE ASSESSMENT ITA NO.2082/BANG/2016 PAGE 2 OF 4 WAS COMPLETED BY THE DEPUTY COMMISSIONER OF INCOME- TAX, CIRCLE 3(1)(2), BENGALURU [AO], VIDE ORDER DATED 31/03/201 5 PASSED U/S 143(3) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED T O AS 'THE ACT' FOR SHORT] AT TOTAL INCOME OF RS.2,80,18,045/-. WHILE DOING SO, THE AO MADE ADDITION ON ACCOUNT OF INTEREST EARNED FROM BANK OF RS.1,45,10,399/- UNDER THE HEAD INCOME FROM OTHER SOURCES AND ALSO ADDITION ON ACCOUNT OF DIFFERENCE IN THE AMOUNT OF RECOGNITION OF INCOM E IN RESPECT OF WORKS-IN-PROGRESS I.E., CONSTRUCTION OF VILLAS AND APARTMENTS FOLLOWING PERCENTAGE OF COMPLETION METHOD OF RS.6,89,17,772/- . 3. BEING AGGRIEVED, AN APPEAL WAS PREFERRED B EFORE THE LD.CIT(A), WHO VIDE IMPUGNED ORDER, DISMISSED THE APPEAL. 4. BEING AGGRIEVED, THE ASSESSEE IS BEFORE US. LEARNED AR OF THE ASSESSEE VEHEMENTLY CONTENDED THAT INTEREST INCOME OF RS.1,45,10,399/- WAS EARNED BY THE ASSESSEE-COMPANY ON FIXED DEPOSIT S MADE WITH BANKS IN ORDER TO SECURE BANK GUARANTEE FOR BUSINESS PURP OSE. THEREFORE, INTEREST INCOME EARNED SHOULD BE TREATED AS PART OF BUSINESS INCOME AND SET OFF AGAINST INTEREST EXPENDITURE. RELIANCE IN THIS REGARD WAS PLACED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. V. CIT [1997] 227 ITR 172. AS REGARDS ADDITION ON ACCOUNT OF DIFFERENCE IN THE RECOGNITIO N OF INCOME, FOLLOWING THE PERCENTAGE OF COMPLETION METHOD, THE ONLY SUBMI SSION MADE BY THE LEARNED AR OF THE ASSESSEE IS THAT FOR THE PURPOSE OF COMPUTING INCOME FOLLOWING PERCENTAGE OF COMPLETION OF METHOD, THE A O HAD CONSIDERED INTEREST AS A PART OF EXPENDITURE INCURRED UP TO TH E DATE, WHERE AS ITA NO.2082/BANG/2016 PAGE 3 OF 4 INTEREST WAS NOT CONSIDERED AS PART OF THE EXPENDIT URE IN THE ESTIMATED COST OF PROJECT. HE ALSO PLACED RELIANCE ON THE DE CISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. TATA ELXSI (349 ITR 98). ON THE OTHER HAND, LD.CIT(DR) PLACED RELIANCE ON T HE ORDERS OF THE LOWER AUTHORITIES. WE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIA L ON RECORD. THE ISSUE IN THIS APPEAL IS WHETHER INTEREST INCOME EARNED ON FIXED DEPOSITS FROM BANK IS SEPARATELY ASSESSABLE UNDER T HE HEAD INCOME FROM OTHER SOURCES. THE CONTENTION OF THE ASSESSEE IS THAT INTEREST INCOME SO EARNED SHOULD BE SET OFF AGAINST INTEREST EXPENDITU RE AS BORROWED FUNDS WERE UTILIZED FOR THE PURPOSE OF MAKING FIXED DEPOS ITS TO SECURE BANK GUARANTEES FOR BUSINESS PURPOSE. NO DOUBT LAW IS S ETTLED THAT IF THERE IS NEXUS BETWEEN INCOME EARNED AND EXPENDITURE INCURRE D, EXPENDITURE SHOULD BE ALLOWED AS A DEDUCTION. IN THE PRESENT C ASE, THOUGH THE ASSESSEE-COMPANY ASSERTED BEFORE THE AO THAT INTERE ST WAS EARNED ON FIXED DEPOSITS MADE TO SECURE BANK GUARANTEES FOR THE PURPOSE OF ITS BUSINESS, NO EVIDENCE WAS LAID BEFORE THE AO DEMONS TRATING THAT FDS WERE MADE ONLY FOR THE PURPOSE OF SECURING BANK GUA RANTEES FOR BUSINESS PURPOSE AND FIXED DEPOSITS ARE MADE OUT OF BORROWED FUNDS. THEREFORE, IN ORDER TO MEET ENDS OF JUSTICE, WE DEEM IT FIT TO REMIT THE MATTER BACK TO THE FILE OF THE AO FOR DE NOVO EXAMINATION OF THE ISSUE ON THE ABOVE LINES. AS REGARDS DIFFERENCE IN RECOGNITION OF INCOME, FO R PURPOSE OF CALCULATING PERCENTAGE OF COMPLETION METHOD, INTERE ST WAS CONSIDERED AS PART OF COST INCURRED TILL YEAR END, INTEREST SHOUL D ALSO BE CONSIDERED AS PART OF ESTIMATED TOTAL COST IN ORDER TO MAINTAIN P ARITY, WHILE CALCULATING ITA NO.2082/BANG/2016 PAGE 4 OF 4 ESTIMATED TOTAL COST AS WELL AS COST INCURRED TILL DATE. IF WHAT IS CONSIDERED IN THE TOTAL COST INCURRED TILL DATE IS NOT CONSIDERED IN ESTIMATED TOTAL COST, IT GIVES A DISTORTED PICTURE OF PERCENTAGE OF WORK COMPLETED. THEREFORE, WE REMIT THIS ISSUE BACK TO T HE FILE OF THE AO TO COMPUTE THE PERCENTAGE OF COMPLETION METHOD BASED O N ABOVE METHODOLOGY TAKING INTEREST ELEMENT AS A PART OF CO ST IN BOTH ESTIMATED TOTAL COST AS WELL AS COST INCURRED. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH FEBRUARY, 2018 SD/- SD/- ( SUNIL KUMAR YADAV ) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE : BENGALURU. D A T E D : /02/2018 SRINIVASULU, SPS COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY INCOME-TAX APPELLATE TRIBUNAL BANGALORE