SHREE NIRMAL COMMERCIAL LTD., MUMBAI V. DY. CIT CIR 3(3), MUMBAI

ITA 2104/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84039 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 13-10-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 15-03-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Assessee Lawyers: JITENDRA SINGH
• Keywords: Business income; Depreciation; Unabsorbed depreciation
• Section: 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE S/ SHRI I.P. BANSAL ( JM ) & R.C. SHARMA (AM) I.T.A. NO. 2104 /MUM/ 20 11 (ASSESSMENT YEAR : 200 7 - 0 8 ) I.T.A. NO. 1371 /MUM/2011 (ASSESSMENT YEAR : 2008 - 09 ) SHREE NIRMAL COMMERCIAL LTD. NARIMA N POINT MUMBAI - 400 021. VS. DCIT, CIRCLE 3(3) AAYAKAR BHAVAN M.K. BHAVAN MUMBAI - 400 020. PAN/GIR NO . AAACS7533F ( APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY : SHRI K. GOPAL & SHRI JITENDRA SINGH DEPARTMENT BY : SHRI NEIL PHILIP DATE OF HEARING : 13 . 10 .2014 DATE OF PRONOUNCEMENT : 22 . 10 .2014 O R D E R PER I.P. BANSAL (JM ) : - BOTH THESE APPEALS ARE FILED BY THE ASSESSEE AND THEY ARE DIRECTED AGAINST TWO SEPARATE ORDERS PASSED BY LEARNED CIT(A) DATED 16.12.2010 AND 11.10.2011 FOR A.YS. 200 7 - 08 & 2008 - 09 RESPECTIVELY. 2. GROUNDS OF APPEAL FOR A.Y. 2007 - 08 ARE READ AS UNDER : - 1.1 THE ASSESSING OFFICER ERRED IN CONSIDERING FOLLOWING INCOME AS INCOME FROM OTHER SOURCES AND CIT(A) IN CONFIRMING THE SAME INSTEAD OF BUSINESS INCOME AS TREATED BY THE APPELLANT: RUPEES I) INTEREST INCOME 28,68,720 II) MISCELLANEOUS INCOME 1,74,4 14 30,43,144 SHREE NIRMAL COMMERCIAL LTD. 2 1.2 IT IS SUBMITTED THAT INTEREST INCOME AND MISCELLANEOUS INCOME ARE EARNED BY THE APPELLANT OUT OF ITS BUSINESS ACTIVITY. THE APPELLANT COLLECTS THE CHARGES F ROM THE UNIT HOLDERS ON QUARTERLY BASIS TO MANAGE THE AFFAIRS OF THE BUILDING BUT HAS TO INCUR CERTAIN EXPENDITURES ON MONTHLY BASIS SO THE FUNDS COLLECTED IN THE MEANTIME ARE KEPT IN FIXED DEPOSITS WITH BANKS. THIS IS ITS REGULAR AND ONGOING ACTIVITY FOLL OWED BY THE APPELLANT FOR YEARS AND IS NOT A ONETIME ACTIVITY. THUS, INTEREST INCOME EARNED ON THESE DEPOSITS CANNOT BE CONSIDERED AS INCOME FROM OTHER SOURCES AND BE CONSIDERED AS INCOME FROM BUSINESS. 1.3 MISCELLANEOUS INCOME OF RS. 1,74,424 / - IS CHAR GES RECOVERED FROM UNIT HOLDERS FOR PROVIDING COPY OF BUILDING PLAN, MEMORANDUM AND ARTICLES OF ASSOCIATION, CAR STICKERS AND MISCELLANEOUS FACILITIES AND MISCELLANEOUS BALANCES WRITTEN BACK ETC. THUS, THE NATURE OF INCOME WOULD SHOW THAT THE SAME IS BUSIN ESS INCOME. 1.4 WITHOUT PREJUDICE TO ABOVE IT IS SUBMITTED THAT EVEN IF INTEREST & MISCELLANEOUS INCOMES ARE CONSIDERED AS INCOME FROM OTHER SOURCES, THE SAME BE TREATED AS BUSINESS INCOME FOR THE PURPOSES OF SET OFF OF ITS CARRIED FORWARD BUSINESS LOSS O F EARLIER YEARS. 2.1 THE ASSESSING OFFICER HAS ERRED IN ADDING DEPRECIATION OF RS.68,4 1,555 AS PROVIDED IN THE ACCOUNTS WHILE COMPUTING BOOK PROFIT U/S 11 5JB OF THE INCOME TAX ACT AND CIT(A) IN CONFIRMING THE SAME. 2.2 IT IS SUBMITTED THAT AS THE ACCOUNTS ARE PREPARED AS PER SCHEDULE VI OF THE COMPANIES ACT 1956 READ WITH THE ACCOUNTING STANDARDS AS REFERRED TO IN SECTION 11 5JB NO ADDITION/REDUCTION EXCEPT AS PROVIDED IN THE EXPLANATION TO SUBSECTION 2 TO SECTION 11 5JB CAN BE MADE. HENCE , THE ADD ITION MADE BE DELETED. 2.3 IT IS SUBMITTED THAT THE JUDGMENT/ORDER REFERRED TO BY CIT(A) IN PARA 4.3 HAS NO BEARING TO THE FACTS OF THIS CASE. 3. GROUNDS OF APPEAL FOR A.Y. 2008 - 09 ARE READ AS UNDER : - 1.1 THE ASSESSING OFFICER ERRED IN CONSIDERING FOLLOWING INCOME AS INCOME FROM OTHER SOURCES INSTEAD OF BUSINESS INCOME AS TREATED BY THE APPELLANT AND CIT(A) IN CONFIRMING THE SAME: RUPEES I) INTEREST INCOME 44,27,03 5 II) MISCELLANEOUS INCOME 1,03,226 45,30.261 SHREE NIRMAL COMMERCIAL LTD. 3 1.2 IT IS SUBMITTED THAT CLASSIFICATION UND ER 'HEADS OF INCOME' IS ONLY FOR COMPUTATION OF INCOME AND NOT TO DETERMINE CHARACTER OF INCOME AS THE BUSINESSMEN CONSIDERS IT. HERE, THE WAY THE APPELLANT HANDLES THE CASH FLOW IT CARRIES ON A BUSINESS OF INVESTING THE FUNDS HELD FOR A LONG PERIOD. HENCE , IN COMMERCIAL BASIS, IT IS A BUSINESS INCOME AND THE SAME SHOULD NOT BE CONSIDERED AS INCOME FROM OTHER SOURCES. 1.3 MISCELLANEOUS INCOME OF RS. 1,03,226 IS CHARGES RECOVERED FROM UNIT HOLDERS FOR PROVIDING COPY OF BUILDING PLAN, MEMORANDUM AND ARTICLES OF ASSOCIATION, CAR STICKERS AND MISCELLANEOUS FACILITIES AND GRATUITY PROVISION WRITTEN BACK ETC. THUS, THE NATURE OF INCOME WOULD SHOW THAT THE SAME IS BUSINESS INCOME. FURTHER MISCELLANEOUS INCOME OF RS. 1,03,226 IN ANY CASE BE REDUCED BY RS. 31,362 BE ING GRATUITY PROVISION WRITTEN BACK (NOT TAXABLE) INCLUDED IN MISCELLANEOUS INCOME. THIS IS A MISTAKE APPARENT ON RECORD. 1.4 WITHOUT PREJUDICE TO ABOVE IT IS SUBMITTED THAT EVEN IF INTEREST & MISCELLANEOUS INCOMES ARE CONSIDERED AS INCOME FROM OTHER SOUR CES, THE SAME BE TREATED AS BUSINESS INCOME FOR THE PURPOSES OF SET OFF OF ITS CARRIED FORWARD BUSINESS LOSS OF EARLIER YEARS. 2.1 THE ASSESSING OFFICER ERRED IN MAKING DISALLOWANCE OF RS.53,500 U/S 14A OF THE INCOME TAX ACT UNDER THE HEAD 'INCOME FROM BUSINESS OR PROFESSION' AND CIT(A) IN CONFIRMING THE SAME. 2.2 THE APPELLANT RELIES ON THE JUDGMENT OF MUMBAI HIGH COURT IN GODREJ & BOYCE MFG VS DOT (194 TAXMAN 203) WHICH STATES THAT IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE APPELLANT, THE REASONS FOR THE SAME SHOULD BE RECORDED. NO SUCH REASONS HAVE BEEN RECORDED IN THE ASSESSMENT ORDER. HENCE, DISALLOWANCE BE DELETED. 2.3 THE ASSESSING OFFICER HAS ERRED IN COMPUTING THE DISALLOWANCE UNDER RULE 8D OF RS. 53,500 AS AGAINST RS. 26,750 COMPUTED BY THE APPELLANT AND NOTED IN THE STATEMENT OF FACTS. THIS IS A MISTAKE APPARENT ON RECORD. 3.1 THE ASSESSING OFFICER HAS ERRED IN ADDING DEPRECIATION OF CURRENT YEAR OF RS.84,043 AS PROVIDED IN THE ACCOUNTS WHILE COMPUTIN G BOOK PROFIT U/S 11 5JB OF THE INCOME TAX ACT AND CIT(A) IN CONFIRMING THE SAME. 3.2 IT IS SUBMITTED THAT AS THE ACCOUNTS ARE PREPARED AS PER SCHEDULE VI OF THE COMPANIES ACT 1956 READ WITH THE ACCOUNTING SHREE NIRMAL COMMERCIAL LTD. 4 STANDARDS AS REFERRED TO IN SECTION 11 SJB NO ADD ITION/REDUCTION EXCEPT AS PROVIDED IN THE EXPLANATION TO SUBSECTION 2 TO SECTION 11 5JB CAN BE MADE. HENCE THE ADDITION MADE BE DELETED. 3.3 IT IS SUBMITTED THAT CIT(A)'S ORDER WR ONGLY REFERS TO ADDITION MADE U/ S . 14A WHEREAS THE ISSUE IS RELATING TO DEPR ECIATION ON BUILDING. 3.4 WITHOUT PREJUDICE TO ABOVE IT IS STATED THAT THE ASSESSING OFFICER HAS ERRED IN NOT REDUCING THE UNABSORBED DEPRECIATION OR BUSINESS LOSS WHICHEVER IS LESS TO ARRIVE AT BOOK PROFIT. THE CIT(A) HAS NOT ADJUDICATED ON THIS ISSUE. 4 . THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OR ALL THE ABOVE GROUNDS OF APPEAL, IF SO ADVISED. 4. AS IT CAN BE SEEN FROM THE GROUNDS OF APPEAL FOR BOTH YEARS ARE ON SIMILAR ISSUES EXCEPT ISSUE RELATING TO THE DISALLOWANCE MADE U/S.14A IN A.Y. 2008 - 09. DURING THE COURSE OF HEARING LEARNED AUTHORISED REPRESENTATIVE DID NOT PRESS GROUND NO. 2 FOR A.Y. 2008 - 09 , WHICH IS REGARDING DISALLOWANCE MADE U/S. 14A DUE TO SMALLNESS OF THE AMOUNT. THEREFORE GROUND NO. 2 IN ITS ENTIRETY IS DISMISSED B EING NOT PRESSED BY LEARNED AUTHORISED REPRESENTATIVE FOR THE REASON OF SMALLNESS OF THE DISALLOWANCE. 5. REST OF THE GROUNDS IN BOTH THE APPEALS ARE RELATING TO SIMILAR ISSUES . GROUND NO. 1 RELATES TO THE INCOME EARNED BY THE ASSESSEE BY WAY OF INTEREST ON FDRS AND MISCELLANEOUS INCOME , WHICH HAVE BEEN TREATED TO BE AS INCOME FROM OTHER SOURCES BY THE ASSESSING OFFICER AGAINST THE CLAIM OF THE ASSESSEE THAT THESE INCOMES ARE IN THE NATURE OF BUSINESS INCOME. IT MAY ALSO BE MENTIONED HERE THAT THE AM OUNT MENTIONED IN GROUND NO. 1 FOR A.Y. 2007 - 08 AS INTEREST INCOME AMOUNTING TO RS. 28,68,720/ - COMPRISE OF TWO COMPONENTS CONSISTING OF RS 25,21,695/ - AS INTEREST INCOME ARISES OUT OF FIXED DEPOSIT AND ANOTHER PART OF RS. 3,47,025/ - RELATES TO INTEREST ON INCOME TAX REFUND. GRIEVANCE OF LEARNED AUTHORISED REPRESENTATIVE , DURING THE COURSE OF HEARING WAS LIMITED TO THE INTEREST R ECEIVED BY THE ASSESSEE ON FDRS , A S LEARNED AUTHORISED REPRESENTATIVE DID NOT ADVANCE ANY ARGUMENT WITH RESPECT TO SHREE NIRMAL COMMERCIAL LTD. 5 INTEREST EARNED ON INCOME TAX REFUND, SO TO THAT EXTENT , DISALLOWANCE WAS ADMITTED AND SAME HAS RIGHTLY BEEN TREATED BY THE ASSESSING OFFICER AS INCOME FROM OTHER SOURCES. THEREFORE THE DISPUTE IS ONLY WITH RESPECT TO A SUM OF RS. 25,21,695/ - ON ACCOUNT OF INTEREST INCO ME ASSESSABLE UNDER THE HEAD OTHER SOURCES. 6. FACTS RELATING TO THE ISSUES RAISED IN THE PRESENT APPEALS FOR BOTH YEARS ARE SIMILAR. FOR UPHOLDING THE ACTION OF THE ASSESSING OFFICER, LEARNED CIT(A) HAS MAINLY REFERRED TO A.Y. 2007 - 08 WHILE CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN RESPECT OF THE A.Y. 2008 - 09. THEREFORE FOR THE SAKE OF CONVENIENCE, WE WILL REFER TO THE FACTS IN RESPECT OF A.Y. 2007 - 08 AND THE DECISION TAKEN IN RESPECT OF A.Y. 2007 - 08 WILL BE EQUALLY APPLICABLE TO A.Y. 2008 - 09. 7. SO FAR AS IT RELATES TO GROUND NO. 1 IN BOTH THE APPEALS, FIRST AND FOREMOST CASE OF THE ASSESSEE IS THAT INTEREST EARNED BY IT ON FDRS AND MISCELLANEOUS INCOME BOTH ARE IN THE NATURE OF BUSINESS INCOME. IN THE ALTERNATIVE , IT IS CLAIM ED THAT EVEN IF THESE INCOMES ARE HELD TO BE ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES, THEN ALSO THE ASSESSEE IS ENTITLED TO THE BENEFIT OF SET OFF OF BROUGHT FORWARD LOSSES AND THIS ISSUE WAS RAISED BY THE ASSESSEE IN THE FIRST APPEAL AND HAS NOT BEEN ADJ UDICATED BY LEARNED CIT(A) BY WAY OF SPEAKING ORDER. 8. FOR PROPER APPRECIATION OF THE FACTS IT MAY BE MENTIONED HERE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER CAME TO THE NOTICE THAT INTEREST EARNED BY THE ASSESSEE FROM FDRS ALONGWITH INTEREST EARNED BY THE ASSESSEE ON INCOME TAX REFUND AND MISCELLANEOUS INCOME WERE OFFERED AS BUSINESS INCOME. ACCORDING TO THE ASSESSING OFFICER SUCH INCOME SHOULD BE TREATED AS INCOME FROM OTHER SOURCES. HE REQUIRED TH E ASSESSEE TO EXPLAIN AS TO WHY THIS INCOME SHOULD NOT BE TREATED AS INCOME FROM OTHER SOURCES. THE SHREE NIRMAL COMMERCIAL LTD. 6 REPLY OF THE ASSESSEE AS BEEN REPRODUCED IN THE ASSESSMENT ORDER I N PARA 6.3 WHICH READS AS UNDER : - INTEREST INCOME IS EARNED ON BANK FIXED DEPOSITS. TO K EEP AMOUNTS IN THE FIXED DEPOSITS IS THE NORMAL PHENOMENA OF THE ASSESSEES BUSINESS . IT IS NOT ONCE IN A WHILE SURPLUS FUND WHICH IS INVESTED. HENCE, THE NATURE OF ITS INCOME IS BUSINESS INCOME. 9. THE ASSESSING OFFICER DID NOT ACCEPT SUCH SUBMISSION OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE IS NOT A FINANCIAL COMPANY AND EARNING OF INTEREST INCOME IS NOT THE BUSINESS OF THE ASSESSEE. THE ASSESSEE IS ENGAGED IN PROVIDING FACILITIES TO THE UNIT HOLDER S AND MANAGING BUILDING. THE SURPLUS FUNDS HAVE BEEN DEPOSITED IN THE BANK AND INTEREST HAS BEEN EARNED ON THE SAME. ACCORDINGLY HE TREATED THE INTEREST INCOME AS WELL AS MISCELLANEOUS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. TREATMENT GIVEN BY THE ASSESSING OFFICER WAS CHALLENGED IN AN APPE AL F ILED BEFORE LEARNED CIT(A). THE SUBMISSIONS OF THE ASSESSEE HAVE BEEN RECORDED BY LEARNED CIT(A) IN PARA 3.1 OF HIS ORDER WHERE HE HAS NOT DISCUSSED IN DETAIL THE SUBMISSIONS MADE BY THE ASSESSEE. HOWEVER, LEARNED AUTHORISED REPRESENTATIVE HAS FILED A COPY OF THE SUBMISSIONS MADE BEFORE LEARNED CIT(A) AT PAGE 59 TO 62 OF THE PAPER BOOK. SUBMISSIONS OF THE ASSESSEE BEFORE LEARNED CIT(A) ON THESE ISSUES ARE AS UNDER : - 2.1 THE APPELLANT COLLECTS QUARTERLY COMPENSATION CHARGES FROM THE UNIT HOLDERS T O INCUR THE EXPENDITURE RELATED TO MANAGING THE AFFAIRS OF THE BUILDING WHEREAS THERE ARE CERTAIN EXPENDITURES WHICH ARE INCURRED BY THE APPELLANT ON MONTHLY BASIS. ALSO THE APPELLANT PAYS MUNICIPAL TAXES QUARTERLY W HEREAS COLLECTS F ROM THE UNI T HOLDERS ON CE IN A YEAR THUS, T HE A PPELLANT HAS VERY OFTEN CASH COLLECTED BUT TO BE DISCHARGED AT A LATER STAGE AND HENCE KEEPS THE FUNDS IN FIXED DEPOSITS WITH BANKS. IT THUS MANAGES TO RAISE INCOME THEREON AND SAME IS ITS REGULAR ONGOING ACTIVITY. HENCE, IT SHOULD BE CONSIDERED AS A BUSINESS ACTIVITY. MUNICIPAL CORPORATION OF GREATER MUMBAI HAS INCREASED THE RATEABLE VALUE OF THE BUILDING AND HAS RAISED ADDITIONAL DEMANDS WHICH IS DISPUTED BY THE APPELLANT. WRIT PETITION IS FILED BY THE SHREE NIRMAL COMMERCIAL LTD. 7 APPELLANT IN THE MUM BAI HIGH COURT. THUS TO MEET THIS CONTINGENT LIABILITY SAID FUNDS ARE COLLECTED. SIMILARLY THE APPELLANT HOLDS VARIOUS DEPOSITS FROM THE UNIT HOLDERS, SAME ARE PARKED IN FIXED DEPOSITS WITH BANKS. THIS PRACTICE IS CONSISTENTLY AND ON GOING BASIS FOLLOWED B Y THE APPELLANT SINCE MANY YEARS AND SAME IS NOT ONE TIME ACTIVITY. BASED ON ABOVE, THE APPEL LANT SUBMITS THAT, THE INTEREST INCOME EARNED ON THESE DEPOSITS CANNOT BE CONSIDERED AS INCOME FROM OTHER SOURCES. THE SAME BE CONSIDERED AS BUSINESS INCOME. THE APPELLANT RELIES ON THE FOLLOWING JUDGEMENT OF MUMBAI HIGH COURT IN: CIT VS PARAMOUNT PREMISES (P) LTD. 190 ITR 259 ( XEROX OF H EAD NOTE ENCLOSED) . IT IS FURTHER ADDED THAT CLASSIFICATION UNDER 'HEADS OF INCOME' IS ONLY FOR COMPUTATION OF INCOME AND NOT TO DETERMINE CHARACTER OF INCOME AS THE BUSINESSMEN CONSIDERS IT. HERE, THE APPELLANT THE WAY IT HANDLES THE CASH FLOW IT CARRIES ON A BUSINESS OF INVESTING THE FUNDS HELD FOR A LONG PERIOD. HENCE, IN COMMERCIAL BASIS, IT IS A BUSINESS INCOME AS HELD BY TH E S UPREME C OURT. 2.3 WITHOUT PREJUDICE TO ABOV E, IT IS SUBMITTED THAT EVEN IF INTEREST INCOME IS CONSIDERED AS INCOME FROM OTHER SOURCES THE SAME BE ALLOWED TO BE SET OFF AGAINST EARLIER YEAR'S BUSINESS LOSS. 10. AS IT CAN BE SEEN FROM THE ABOVE SUBMISSI ONS, IT IS THE CONTENTION OF THE ASSESSEE THAT CERTAIN OBLIGATIONS REGARDING MUNICIPAL TAXES ARE TO BE DISCHARGED ON QUARTERLY BASIS WHEREAS THE ASSESSEE COLLECTED FROM THE UNIT HOLDERS ONCE IN A YEAR. SECONDLY , MUNICIPAL CORPORATION HAD INCREASED RATEABLE VALUE OF THE BUILDING ON ACCOUNT OF WHICH ADDITIONAL DEMANDS WERE RAISED WHICH WERE DISPUTED BY THE APPELLANT AND IN REGARD TO ADDITIONAL DEMAND THE ASSESSEE HOLD VARIOUS DEPOSITS FROM THE UNIT HOLDERS WHICH WERE PARKED IN FD R S AND ON THIS GROUND THE ASSE SSEE CLAIMED THAT IT IS BUSINESS INCOME BY THE ASSESSEE. HOWEVER, LEARNED CIT(A) HAS TURNED DOWN THIS PLEA OF THE ASSESSEE ON THE GROUND THAT THE ASSESSING OFFICER HAS RIGHTLY TREATED THIS INCOME AS INCOME FROM OTHER SOURCES. O NLY TO THE EXTENT OF UNABSO RBED SHREE NIRMAL COMMERCIAL LTD. 8 DEPRECIATION OF RS. 3,50,181/ - , HE HAS ACCEPTED THE CLAIM OF THE ASSESSEE REGARDING SET OFF OF THE SAME AGAINST BROUGHT FORWARD BUSINESS LOSS. 11. NOW BEFORE US IT IS THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT FIRSTLY LEARNED CIT( A) HAS ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER REGARDING TAXABILITY OF THE INTEREST INCOME AND MISCELLANEOUS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT LEARNED CIT(A) HAS COMMITTED AN ERROR IN NOT ACCEPTING THE CLAIM OF THE ASSESSEE AND FOR THIS PURPOSE LEARNED AUTHORISED REPRESENTATIVE RELIED UPON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF LOK HOLDINGS (308 ITR 356) , WHEREIN IT HAS BEEN HELD THAT INTEREST EARNED BY THE AS SESSEE, A PROPERTY DEVELOPER, BY MAKING TEMPORARY DEPOSITS OF SURPLUS MONEY OUT OF ADVANCES RECEIVED BY IT FROM INTENDING PURCHASE S IS BUSINESS INCOME AND CANNOT BE ASSESSED AS INCOME FROM OTHER SOURCES. 12. IN THE ALTERNATIVE AND WITHOUT PREJUDICE TO TH E AFOREMENTIONED SUBMISSION , LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT LEARNED CIT(A) HAS COMMITTED AN ERROR IN NOT ACCEPTING THE ENTIRE CLAIM OF THE ASSESSEE REGARDING SETTING OFF OF THE INTEREST INCOME AND MISCELLANEOUS INCOME AGAINST BROUGHT FORW ARD BUSINESS LOSSES . F OR THIS PURSE LEARNED AUTHORISED REPRESENTATIVE REFERRED TO THE FOLLOWING DECISIONS : - CIT VS. COCANADA RADHASWAMI BANK LTD.(57 ITR 306) (SC), WHEREIN IT HAS BEEN HELD THAT LOSS IN BANKING BUSINESS CAN BE CARRIED FORWARD AND S ET OFF OF AGAINST BUSINESS INCOME FROM SECURITIES WHICH FORM ED PART OF ITS TRADING ASSETS . LAVISH APARTMENT (P) LTD. (210 TAXMAN 9)(DEL) , WHEREIN FOLLOWING THE AFOREMENTIONED DECISION OF HON'BLE SUPREME COURT IT IS HELD THAT INCOME EARNED BY THE ASSESSEE BY WAY OF RENT, CAR AND COMPUTER HIRE CHARGES AND COMMISSION INCOME IS ELIGIBLE FOR SET OFF AGAINST BROUGHT FORWARD BUSINESS LOSS. SHREE NIRMAL COMMERCIAL LTD. 9 13. IT WAS SUBMITTED BY LEARNED AUTHORISED REPRESENTATIVE THAT THOUGH THIS ISSUE WAS NOT RAISED BEFORE THE ASSESSING OFFICE R AND WAS ONLY RAISED BEFORE LEARNED CIT(A) , BUT LEARNED CIT(A) D ID NOT PASS A SPEAKING ORDER UPON THE SAME, THEREFORE THE MATTER MAY BE RESTORED BACK TO THE FILE OF THE LEARNED CIT(A) OR ASSESSING OFFICER FOR PROPER CONSIDERATION OF THE SUBMISSIONS OF THE ASSESSEE AND THE ABOVE DECISION S IN ACCORDANCE WITH LAW. 14. ON THE OTHER HAND LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER PASSED BY LEARNED CIT(A) AND THE ASSESSING OFFICER. HE SUBMITTED THAT BY VERY NATURE INCOME RECEIVED BY THE ASSESSEE ON FDRS IS IN THE NATURE OF INCOME FROM OTHER SOURCES. HE SUBMITTED THAT THE MISCELLANEOUS INCOME EARNED BY THE ASSESSEE IS ALSO OF SIMILAR CHARACTER. THEREFORE , HE SUBMITTED THAT LEARNED CIT(A) DID NOT COMMIT ANY ERROR IN UPHOLDING THE ACTION OF THE ASSES SING OFFICER. HE SUBMITTED THAT TO THE EXTENT OF DEPRECIATION LEARNED CIT(A) HAS ALREADY ACCEPTED THE CLAIM OF THE ASSESSEE AND AS PER PROVISIONS OF SECTION 72 BENEFIT OF SET OFF OF BROUGHT FORWARD BUSINESS LOSSES AGAINST INCOME FROM OTHER SOURCES CANNOT BE GRANTED TO THE ASSESSEE. 15. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENTIONS HAVE CAREFULLY BEEN CONSIDERED. THE ASSESSEE DID NOT SUBMIT DETAILS TO SHOW TH AT WHAT WAS THE NATURE OF FUNDS, WHICH WERE PARKED IN THE FIXED DEPOSITS. BEFORE THE ASSES SING OFFICER ALSO NO DETAILS WERE SUBMITTED. IT WAS ONLY BEFORE LEARNED CIT(A) SOME WRITTEN SUBMISSIONS WERE MADE, ACCORDING TO WHICH, FUNDS PARKED IN FDRS WERE RELATING TO THE ANNUAL COLLECTION MADE BY THE ASSESSEE FROM ITS CUSTOMERS , WHICH WERE TO BE PAI D BY THE ASSESSEE QUARTERLY AND SOME FUNDS COLLECTED BY THE ASSESSEE FROM UNIT HOLDERS REPRESENTING MUNICIPAL TAXES ON ACCOUNT OF INCREASE IN THE MUNICIPAL RENTAL VALUE WHICH WAS DISPUTED BY THE ASSESSEE IN THE W RIT P ETITION FILED BEFORE HON'BLE BOMBAY HIG H COURT. IN ANY CASE, THE ASSESSEE HAS PARKED THESE FUNDS IN FDRS JUST FOR THE PURPOSE OF EARNING INTEREST INCOME THEREFROM. THEREFORE NATURE OF INCOME IS JUST INTEREST EARNED BY THE ASSESSEE BY PARKING THE FUNDS IN FDRS. NO MATERIAL HAS BEEN SHREE NIRMAL COMMERCIAL LTD. 10 BROUGHT ON RE CORD TO SUGGEST THAT IT WAS BY WAY OF TEM PORARY DEPOSIT OF SURPLUS MONEY OR I T WAS IN THE NATURE OF ADVANCES RECEIVED BY IT FROM THE INTENDED PURCHASE R S. THEREFORE , BY NO LOGIC THE RATIO LAID DOWN IN THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF LOK HOLDINGS (SUPRA) CAN BE APPLIED TO THE PRESENT CASE . IN ABSENCE OF ANY SUPPORTING MATERIAL, WE ARE UNABLE TO ACCEPT THE SUBMISSION OF LEARNED AUTHORISED REPRESENTATIVE THAT THE NATURE OF INCOME EARNED BY THE ASSESSEE AS INTEREST ON FDRS , IS IN THE NAT URE OF BUSINESS. SIMILAR IS THE POSITION WITH OTHER MISCELLANEOUS INCOME , WHICH IS IN THE NATURE OF PROVIDING COPY OF BUILDING PLAN, M EMORANDUM OF A RTICLE S OF A SSOCIATION, CAR STICKERS AND MISCELLA NEOUS FACILITIES ETC. THUS WE REJECT THE PRINCIPAL ARGUMEN T OF LEARNED AUTHORISED REPRESENTATIVE THAT NATURE OF THIS INCOME IS BUSINESS INCOME. HOWEVER , TO EXAMINE THE ALTERNATIVE CLAIM OF THE ASSESSEE THAT IN VIEW OF T HE AFOREMENTIONED TWO DECISIONS I.E. FOR CONSIDERING THE SET OFF OF THESE INCOMES AGAINST BRO UGHT FORWARD BUSINESS LOSSES, THE MATTER IS REQUIRED TO BE RESTORED BACK TO THE FILE OF LEARNED CIT(A) OR THE ASSESSING OFFICER, WE ACCEPT SUCH SUBMIS SION OF THE ASSESSEE AND THIS MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION T O EXAMINE THIS CLAIM OF THE ASSESSEE AS PER PROVISIONS OF LAW AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF HEARING. WE DIRECT ACCORDINGLY. GROUND NO. 1.1 TO 1.3 ARE DISMISSED AND GROUND NO. 1.4 IS ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFO RESAID. IN SHORT , GROUND NO. 1 IS PARTLY ALLOWED. 16. APROPOS GROUND NO. 2; COPY OF AUDIT REPORT SUBMITTED U/S. 115JB IN FORM NO. 29B IS FILED AT PAGE NO. 2 TO 5 OF THE PAPER BOOK . ACCORDING TO THE SAID REPORT IN COLUMN NO. 7 , IT IS STATED THAT PROFIT AND LOSS ACCOUNT IS PREPARED IN ACCORDANCE WITH THE PROVISIONS OF PART S II AND III OF SCHEDULE VI TO THE COMPAN IES ACT, 1956 (1 OF 1956). IN COLUMN NO. 9 IT IS STATED THAT NET PROFIT ACCORDING TO PROFIT AND LOSS ACCOUNT REFERRED IN COLUMN NO. (7) ABOVE , IS A LOSS OF RS. 51,44,353/ - . IN COLUMN NO. 10 IT IS DESCRIBED THAT AMOUNT OF NET PROFIT AS SHOWN IN PROFIT AND LOSS ACCOUNT AS INCREASED BY THE AMOUNTS SHREE NIRMAL COMMERCIAL LTD. 11 REFERRED TO IN CLAU SES (A) TO (F) OF EXPLANATION TO SUB - SECTION (2) OF THIS SECTION (FILE WORKING SEPARATELY WHERE REQUIRED) IS STATED AS UNDER : - LOSS RS. 51,44,353/ - ADD FRINGE BENEFIT TAX RS. 5,750/ - DEFERRED TAX RS. 8,39,954/ - --------------------- RS. 42,98,694/ - --------------------- 17. HOWEVER, THE ASSESSING OFFICER D URING THE COURSE OF ASSESSMENT PROCEEDINGS , WHILE COMPUTING BOOK PROFIT , CAME TO KNOW THAT THE ASSESSEE CLAIMED DEPRECIATION IN RESPECT OF PREVIOUS 40 YEARS AMOUNTING TO RS. 68,41,555/ - ON THE BUILDING AND THE SAME WAS DEBITED TO THE PROFIT AND LOSS ACCOUN T. HE NOTED THAT SCHEDULE (G) IN THE ANNUAL ACCOUNTS HAVE THE FOLLOWING REMARKS OF THE AUDITOR DURING THE YEAR DEPRECIATION ON BUILDING IS BEING PROVIDED SINCE 01/06/1968 AGGREGATE DEPRECIATION PROVIDED IS RS. 68,41,555/ - CONSISTING OF RS. 67,53,088/ - FOR EARLIER YEARS AND RS. 88,467/ - FOR THE CURRENT YEARS . ACCORDING TO THE ASSESSING OFFICER ASSESSEE WAS NOT ENTITLED TO CLAIM DEPRECIATION AND EVEN IN RESPECT OF COMPUTATION OF BOOK PROFIT U/S. 115JB, THE ASSESSEE WAS REQUIRED TO ADD BACK THE AFOREMENTIONE D AMOUNT OF DEPRECIATION, THEREFORE, HE REQUIRED THE ASSESSEE TO EXPLAIN THE SAME. IT WAS SUBMITTED THAT THE ACCOUNTS HAVE BEEN PREPARED BY THE ASSESSEE AS PER SCHEDULE VI OF THE COMPANIES ACT. IN ORDER TO AVOID THE ISSUE OF CORRECTNESS OF THE ACCOUNTS ARI SING AT THE REGISTRAR OF THE COMPANIES, IT WAS FELT THAT ACCUMULATED DEPRECIATION OF EARLIER YEAR S AND CURRENT YEAR TO BE PROVIDED. IT WAS FURTHER SUBMITTED THAT AS PER SECTION 27, UNIT HOLDERS OF VARIOUS UNITS IN THE BUIL DING ARE DEEMED TO BE THE OWNER , T HEREFORE THE ASSESSEE CANNOT CLAIM DEPRECIATION. UPON THESE SUBMISSIONS OF THE ASSESSEE THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE IS NOT A LEGAL OWNER OF THE BUILDING. LEGAL OWNERSHIP VEST IN VARIOUS UNIT HOLDERS, THEREFORE THE ASSESSEE CANNOT CLAIM DEPRECATION AND TO THIS EXTENT , ACCOUNTS OF THE ASSESSEE ARE NOT SHREE NIRMAL COMMERCIAL LTD. 12 IN ACCORDANCE WITH PARTS II & III OF SCHEDULE VI OF THE COMPANIES ACT. OBSERVATIONS OF THE ASSESSING OFFICER ARE AS UNDER : - THUS, THE ASSESSEE ACCEPTS THAT THE ASSESSEE COMPANY IS NOT TH E LEGAL OWNER OF THE BUILDING. THE LEGAL OWNERSHIP OVER THE BUILDING IS WITH THE VARIOUS UNIT HOLDERS. THE ASSESSEE IN ITS ACCOUNTS HAS CLAIMED DEPRECATION OVER THE PROPERTY (BUILDING) WHICH IS NOT OWNED BY THEM. THE ASSESSEE HAD CONSTRUCTED THE BUILDING A ND SOLD THE SAME TO VARIOUS PERSONS. THUS, THE BUILDING WAS THE STOCK - IN - TRADE AND NOT ANY ASSET. TO THIS EXTENT THE ACCOUNTS OF THE ASSESSEE ARE NOT IN ACCORDANCE WITH THE PART - II AND PART - III OF SCHEDULE VI OF THE COMPANIES ACT, 1956. 18. LD. ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEES RELIANCE UPON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF MALAYALA MANORMA CO. LTD. VS. CIT (300 ITR 251) IS MISPLACED ON THE GROUND THAT THE PROVISIONS WHICH WERE CONSTRUED BY HON'BLE SUPREME COURT WERE OF SECTION 115J , WHILE IN THE PRESENT CASE PROVISIONS ARE OF SECTION 115JB. ACCORDINGLY THE ASSESSING OFFICER COMPUTED BOOK PROFIT OF THE ASSESSEE AS UNDER : - CALCULATION U/S. 115JB OF THE ACT. LOSS AS PER P&L ACCOUNT RS. 42,98,649/ - ADD : DEPRECIATION IN P&L ACCOUNT (PARA 5) RS. 68,41,555/ - BOOK PROFIT RS. 25,42,906/ - ============= SUCH A CTION OF THE ASSESSING OFFICER WAS AGITATED BEFORE LEARNED CIT(A), WHO HAS UPHELD THE ACTION OF THE ASSESSING OFFICER ON T HE GROUND THAT IT IS NECESSARY THAT THE EXPENDITURE CLAIMED IN THE PROFIT AND LOSS ACCOUNT SHOULD HAVE CHARACTER OF EXPENDITURE RELATED TO THE IMPUGNED YEAR AND AS IN THE PRESENT CASE DEPRECIATION DOES NOT RELATE TO YEAR UNDER CONSIDERATION , A CTION OF THE ASSESSING OFFICER WAS TO BE UPHELD. THE ASSESSEE IS AGGRIEVED, HENCE HAS FILED GROUND NO. 2. 19. IT WAS SUBMITTED BY LD . AR THAT THE ASSESSING OFFICER HAS WRONGLY REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT PROVISIONS CONSIDERED IN THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF MALAYALA MANORAMA CO. SHREE NIRMAL COMMERCIAL LTD. 13 LTD. (SUPRA) WERE OF SECTION 115J AND SAID DECISION CANNOT BE APPLIED TO THE PROVISIONS OF SECTION 115JB. HE SUBMITTED THAT RELYING UPON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF APOL LO TYRES LTD. VS. CIT (255 ITR 273) , I T WAS HELD BY HON'BLE BOMBAY HIGH COURT THAT ONCE ACCOUNTS ARE PREPARED AS PER PARTS II &III OF SCHEDULE VI OF THE COMPANIES ACT , THEN THE ASSESSING OFFICER HAS NO POWER TO CONTEND THAT THE PROFIT AND LOSS ACCOUNT HAS NOT BEEN PREPARED IN ACCORDANCE WITH THE PROVISIONS OF COMPANIES ACT, 1956. HE SUBMITTED THAT THIS POSITION OF LAW HAS BEEN CONFIRMED IN THE CASE OF ADB H UT TRADING CO. (P) LTD. (338 ITR 94) (BOM). IN THE SAID CASE , COMPUTATION U/S. 115JB WAS CHALLENGED BY T HE REVENUE ON THE GROUND THAT THE TRIBUNAL HAS COMMITTED AN ERROR IN DELETING THE ADDITION OF RS. 1.98 CRORES MADE BY THE ASSESSING OFFICER BY FOLLOWING THE DECISION IN THE CASE OF APOLLO TYRES LTD. (SUPRA) . ACCORDING TO THE REVENUE, ASSESSEE HAD INTENTIONA LLY PREPARED A WRONG PROFIT AND LOSS ACCOUNT. HOWEVER, HON'BLE BOMBAY HIGH COURT HAS CONFIRMED THE DELETION WITH THE FOLLOWING OBSERVATIONS : - 1. IN THE PRESENT CASE, THE INCOME - TAX APPELLATE TRIBUNAL HAS CONFIRMED THE ORDER OF THE COMMISSIONER OF INCO ME - TAX (APPEALS) IN DELETING THE ADDITION OF RS. 1.98 CRORES MADE BY THE ASSESSING OFFICER WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF THE INCOME - TAX ACT, 1961, BY FOLLOWING THE DECISION OF THE APEX COURT IN THE CASE OF APOLLO TYRES LTD. V. CIT [2002] 255 ITR 273 (SC). ACCORDING TO THE REVENUE, THE ASSESSEE HAS INTENTIONALLY PREPARED A WRONG PROFIT AND LOSS ACCOUNT. ONCE THE ACCOUNTS INCLUDING THE PROFIT AND LOSS ACCOUNT ARE CERTIFIED BY THE AUTHORITIES UNDER THE COMPANIES ACT IT IS NOT OPEN TO T HE ASSESSING OFFICER TO CONTEND THAT THE PROFIT AND LOSS ACCOUNT HAS NOT BEEN PREPARED IN ACCORDANCE WITH THE PROVISIONS OF THE COMPANIES ACT, 1956. 2. IN THESE CIRCUMSTANCES, THE DELETION OF THE ADDITION BY THE TRIBUNAL BY FOLLOWING THE DECISION OF THE APEX COURT IN THE CASE OF APOLLO TYRES LTD. [2002] 255 ITR 273 (SC) CANNOT BE FAULTED. IN THE RESULT, WE SEE NO MERIT IN THE APPEAL. THE APPEAL IS ACCORDINGLY DISMISSED WITH NO ORDER AS TO COSTS. SHREE NIRMAL COMMERCIAL LTD. 14 20. THUS , IT WAS SUBMITTED BY LEARNED AUTHORISED REPRESENTATIVE THAT ADDITION HAS WRONGLY BEEN CONFIRMED BY LEARNED CIT(A) AND PROPER RELIEF SHOULD BE GRANTED TO THE ASSESSEE. 21. ON THE OTHER HAND , LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER PASSED BY THE ASSESSING OFFICER AND LEARNED CIT(A). HE SUBMI TTED THAT PRIMA - FACIE THE DEPRECIATION W AS NOT ADMISSIBLE AND THIS HAS BEEN CLEARLY BROUGHT OUT BY LEARNED CIT(A) AS WELL AS ASSESSING OFFICER. THUS, HE SUBMITTED THAT THE ORDER PASSED BY LEARNED CIT(A) SHOULD BE CONFIRMED. 22. WE HAVE HEARD BOTH THE PAR TIES AND THEIR CONTENTIONS HAVE CAREFULLY BEEN CONSIDERED. WE HAVE ALREADY MENTIONED THAT THE ASSESSEE HAS FILED AUDIT REPORT IN APPROPRIATE FORM COMPUTING THE BOOK PROFIT. IT HAS BEEN CLEARLY STATED IN THE SAID REPORT THAT THE PROFIT AND LOSS ACCOUNT HAS BEEN PREPARED IN ACCORDANCE WITH THE PROVISIONS OF PARTS II & III OF SCHEDULE VI OF THE COMPANIES ACT , 1956 , AND AMOUNTS WHICH ARE TO BE ADDED AS PER EXPLANATIONS OF SUB - SECTION (2) ARE ALSO DULY STATED IN THE AUDIT REPORT AND FINALLY A LOSS HAS BEEN COMPU TED AT RS. 42,98,649/ - . TO THIS AMOUNT , THE ASSESSING OFFICER HAS FURTHER ADDED A SUM OF RS. 68,41,555/ - . THE QUESTION IN THE PRESENT APPEAL IS THAT WHEN THE ASSESSEE HAS SUBMITTED AUDIT REPORT IN FORM NO. 29B CERTIFYING THAT THE PROFIT AND LOSS ACCOUNT HA S BEEN PREPARED AS PER PARTS II & III OF SCHEDULE VI OF THE COMPANIES ACT THEN, WHETHER THE ASSESSING OFFICER HAS POWER TO CONTEND THAT THE PROFIT AND LOSS ACCOUNT HAS NOT BEEN PREPARED IN ACCORDANCE WITH THE PROVISIONS OF COMPANIES ACT, 1956. IN OUR OPINI ON THIS HAS BEEN CLEARLY ANSWERED BY HON'BLE BOMBAY HIGH COURT IN THE AFOREMENTIONED DECISION IN THE CASE OF ADBHUT TRADING CO. (P). LTD. (SUPRA) , WHEREIN IT HAS BEEN HELD THAT IN SUCH A SITUATION , IT IS NOT OPEN TO THE ASSESSING OFFICER TO CONTEND THAT TH E PROFIT AND LOSS ACCOUNT HAS NOT BEEN PREPARED IN ACCORDANCE WITH THE PROVISIONS OF COMPANIES ACT, 1956. THEREFORE WE REVERSE THE ORDER OF LEARNED CIT(A) IN RESPECT OF GROUND NO. 2 FOR A.Y. 2007 - 08 AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. SHREE NIRMAL COMMERCIAL LTD. 15 23. IT HAS ALREADY BEEN MENTIONED THAT THE DECISION TAKEN IN RESPECT OF A.Y. 2007 - 08 WILL BE APPLICABLE TO SIMILAR GROUNDS IN RESPECT OF A.Y. 2008 - 09 AND IN VIEW OF THE ABOVE DISCUSSION, GROUND NO. 1.1 TO 1.3 FOR A.Y. 2008 - 09 IS DISMISSED AND GROUND NO. 1.4 IS AL LOWED FOR STATISTICAL PURPOSES APPLYING THE DECISION TAKEN IN A.Y. 2007 - 08. SIMILARLY GROUND NO. 3 FOR A.Y. 2008 - 09 IS ALLOWED AS PER DISCUSSION ON SIMILAR GROUND IN RESPECT OF A.Y. 2007 - 08. 24. IN THE RESULT, APPEALS FOR BOTH THE YEARS ARE PARTLY ALLOWE D IN THE MANNER AFORESAID. ORDER PRONOUNC ED ON 22 ND D AY OF OCTOBER , 2014 . SD/ - ( R.C. SHARMA ) ACCOUNTANT MEMBER SD/ - (I.P. BANSAL ) JUDICIAL MEMBER MUMBAI ; DATED : 22 / 10 /20 14 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// DY./ASSTT. REGISTRAR) ITAT, MUMBAI PS