DHARMA KSHETRA P. LTD, MUMBAI V. ACIT 10(3), MUMBAI

ITA 2327/MUM/2012

• Counselvise Citation: 232719914 RSA 2012
• Duration Of Justice: 2 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 15-05-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 09-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DEEPAK SUTARIYA
• Keywords: Business income; Revenue expenditure
• Section: 143(3); 56

Judgement Text

D IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI .. , # %, & # ' BEFORE SHRI P.M. JAGTAP, AM AND SHRI SANJAY GARG, J M ./ I.T.A. NO.2327 /MUM/2012 ( &% % / ASSESSMENT YEAR : 2009-2010 M/S DHARMA KSHETRA PVT. LTD., JAWAHAR TALKIES COMPOUND, DR. R.P. ROAD, MULUND (WEST), MUMBAI 400 080. / VS. A.C.I.T. 10(3), AAYAKAR BHAVAN, MUMBAI 400 020. ./ PAN : AABCD9627L ( / APPELLANT ) .. ( / RESPONDENT ) A PPELLANT BY SHRI VIJAY MEHTA R E SPONDENT BY : SHRI DEEPAK SUTARIYA / DATE OF HEARING : 15-05-2014 / DATE OF PRONOUNCEMENT : 21#05#2014 [ / O R D E R PER P.M. JAGTAP, A.M . : .. , THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD. CIT(A) -22, MUMBAI DATED 18-1-2012. 2. THE GROUNDS RAISED BY THE ASSESSEE READ AS UNDER :- 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. ASSESSING OFFICER ERRED IN ADDING RS.1,44,55,782/- WHICH WERE RELATED TO TH E NORMAL ADMINISTRATIVE EXPENSES INCURRED FOR THE DAY TO DAY RUNNING & MAINTENANCE O F THE BUSINESS, THESE ARE REVENUE EXPENSES IN NATURE WHICH CANNOT BE ADDED TO THE WIP A/C OR LAND A/C. AS FOR THE FINANCIAL COST AS SUCH HUGE SUMS OF BORROWED MONEY IS NOT USE D FOR THE PURPOSE OF THE CONSTRUCTION AT ONCE AND THUS THE EXCESS MONEY IS GIVEN OUT ON L OAN HENCE THE INTEREST RELATING TO THE SAME IS ALSO EXPENSED AS REVENUE EXPENDITURE. ITA 2327/M/12 2 2. THE LD. ASSESSING OFFICER HAS ERRED IN SEPARATEL Y CONSIDERING INTEREST INCOME OF RS.1,08,33,630/- AS INCOME FROM OTHER SOURCES. ON A N ANALYSIS OF SECTION 56 OF THE INCOME- TAX ACT,1961, WHICH ALONE PERMITS TAXATION OF INCOM E3 FROM OTHER SOURCES, THAT THE LANGUAGE USED IN THAT SECTION ALSO SUPPORTS THE VIE W THAT THE INCOME EARNED BY THE ASSESSEE FROM BUSINESS LOANS & ADVANCES COULD ONLY BE TAXED AS INCOME FROM BUSINESS, BECAUSE THE INTEREST ON THE ADVANCES GIVEN SPRANG DIRECTLY FROM THE CARRYING ON OF THE BUSINESS AND NOT DE HORS IT AND IT WAS GOOD MANAGEMENT OF CASH B Y THE MANAGEMENT TO ADVANCE THE EXCESS OF BORROWINGS FOR BUSINESS PURPOSE TO PRODUC E THE INCOME AGAINST KEEPING THE FUNDS IDLE AND INCURRING THE EXPENSES ON THE SAME. 3. THE APPELLANT THEREFORE PRAYS YOUR HONOR TO DELE TE ADDITION OF RS.1,44,55,782/- MADE TO WIP A/C AND CONSIDER THE INTEREST INCOME OF RS.1 ,08,33,630/- UNDER THE HEAD INCOME FROM BUSINESS & PROFESSION ITSELF. 3. AT THE TIME OF HEARING BEFORE US, THE LD. COUNSE L FOR THE ASSESSEE HAS NOT PRESSED GROUND NO. 2. THE SAME IS ACCORDINGLY D ISMISSED AS NOT PRESSED. 4. AS REGARDS THE ISSUE RAISED IN GROUND NO. 1 RELA TING TO THE DISALLOWANCE OF RS. 1,44,55,782/- MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF PRE-COMMENCEMENT EXPENSES TREATING THE S AME AS CAPITAL IN NATURE, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMIT TED THAT HE WANTS TO DISPUTE THE SAID DISALLOWANCE ONLY TO THE EXTENT OF INTEREST EXPENDITURE ATTRIBUTABLE TO THE EARNING OF INTEREST INCOME WHIC H IS ASSESSED TO TAX IN THE HANDS OF THE ASSESSEE UNDER THE HEAD INCOME FROM O THER SOURCES. HE HAS SUBMITTED THAT INTEREST EXPENDITURE TO THAT EXTENT IS BEING CLAIMED BY THE ASSESSEE U/S 57 OF THE INCOME TAX ACT, 1961 AS AGAI NST THE INTEREST INCOME ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES AND ADDITIONAL GROUND IS ALSO BEING RAISED TO MAKE THIS ALTERNATIVE CLAIM AS AN ABUNDANT RECORD. SINCE THIS ISSUE RAISED BY THE ASSESSEE IN THE ADDI TIONAL GROUND RELATES TO ITS ALTERNATIVE CLAIM FOR DEDUCTION OF INTEREST U/S 57 OF THE ACT AND THE LD. D.R. HAS NOT RAISED ANY OBJECTION FOR THE ADMISSION OF T HE ADDITIONAL GROUND, THE ADDITIONAL GROUND RAISED BY THE ASSESSEE HAS BEEN A DMITTED BY US AND WE NOW PROCEED TO DECIDE THE SAME AFTER TAKING INTO CO NSIDERATION THE ARGUMENTS OF BOTH THE SIDES AND PERUSING THE RELEVANT MATERIA L AVAILABLE ON RECORD. ITA 2327/M/12 3 5. IT IS OBSERVED THAT A LOAN OF RS. 16,40,40,274/- WAS TAKEN BY THE ASSESSEE COMPANY ON INTEREST @ 8% FROM NIRMAL MANOR PVT. LTD. AND THE SAME WAS PARTLY UTILIZED BY THE ASSESSEE IN GIVING LOANS OF RS. 6,44,89,035/- AND RS. 6,44,60,184/- TO M/S RAJDHANI TEXTILE PVT. LTD. AND M/S RASNA PROCESSOR PVT. LTD. ON INTEREST @ 9% PER ANNUM. TH E INTEREST OF RS. 1,08,33,628/- RECEIVED BY THE ASSESSEE ON THESE LOA NS WAS SHOWN BY THE ASSESSEE AS ITS BUSINESS INCOME AND THE ENTIRE INTE REST OF RS. 1,31,23,222/- PAID ON LOAN TAKEN FROM M/S NIRMAL MANOR PVT. LTD. WAS CLAIMED AS DEDUCTION AGAINST THE SAID BUSINESS INCOME ALONG WI TH OTHER ADMINISTRATIVE EXPENSES. IN THE ASSESSMENT COMPLETED U/S 143(3) OF THE ACT, THE INTEREST INCOME RECEIVED BY THE ASSESSEE WAS BROUGHT TO TAX BY THE A.O. UNDER THE HEAD INCOME FROM OTHER SOURCES AND SINCE THE MAIN BUSINESS OF THE ASSESSEE OF CONSTRUCTION OF RESIDENTIAL AND COMMERC IAL PROJECTS HAD NOT COMMENCED DURING THE YEAR UNDER CONSIDERATION, THE ENTIRE INTEREST EXPENDITURE AS WELL AS OTHER ADMINISTRATIVE EXPENSE S WERE DISALLOWED BY HIM TREATING THE SAME AS PRE-COMMENCEMENT EXPENDITURE. ON APPEAL, THE LD. CIT(A) UPHELD THE ORDER OF THE A.O. ON BOTH THESE I SSUES. AS ALREADY NOTED, THE LD. COUNSEL FOR THE ASSESSEE HAS NOT PRESSED GR OUND NO. 2 RAISED IN THE APPEAL OF THE ASSESSEE DISPUTING THE HEAD OF INCOME UNDER WHICH INTEREST INCOME IS LIABLE TO TAX IN THE HANDS OF THE ASSESSE E AND THUS THE TREATMENT GIVEN TO THE SAID INTEREST INCOME BY THE AUTHORITIE S BELOW AS INCOME FROM OTHER SOURCES HAS NOW BECOME FINAL. THE ONLY ISSUE WHICH SURVIVES FOR OUR CONSIDERATION IS RELATING TO THE ASSESSEES ALTERNA TIVE CLAIM FOR DEDUCTION ON ACCOUNT OF INTEREST EXPENDITURE TO THE EXTENT IT IS ATTRIBUTABLE TO THE INTEREST INCOME EARNED WHICH HAS BEEN ASSESSED IN THE HANDS OF THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES. THIS CLAIM I S MADE BY THE ASSESSEE U/S 57 OF THE ACT WHICH PROVIDES THAT THE INCOME CH ARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES SHALL BE COMPUTED AFTER M AKING INTER ALIA THE DEDUCTION ON ACCOUNT OF ANY EXPENDITURE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR MAKING OR EARNING SUCH INCOME. IT THEREFORE FOLLOWS THAT IF THE ITA 2327/M/12 4 INTEREST EXPENDITURE INCURRED BY THE ASSESSEE IS LA ID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING INTEREST INCOME, THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION U/S 57 OF THE ACT. THI S ALTERNATIVE CLAIM MADE BY THE ASSESSEE FOR DEDUCTION U/S 57 OF THE ACT ON ACC OUNT OF INTEREST ATTRIBUTABLE TO THE EARNING OF INTEREST INCOME, HOW EVER, NEEDS VERIFICATION AND SINCE THE SAME HAS NOT BEEN DONE EITHER BY THE A.O. OR BY THE LD. CIT(A), WE RESTORE THIS ISSUE TO THE FILE OF THE A.O. WITH A D IRECTION TO DECIDE THE SAME IN ACCORDANCE WITH THE PROVISIONS OF SECTION 57 OF THE ACT AFTER NECESSARY VERIFICATION. NEEDLESS TO OBSERVE THAT THE A.O. SHA LL ALLOW PROPER AND SUFFICIENT OPPORTUNITY TO THE ASSESSEE TO MAKE OUT ITS CASE FO R DEDUCTION U/S 57 OF THE ACT. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 21#05#2014 . . / 0 21#05#2014 SD/- SD/- (SANJAY GARG) (P.M. JAGTAP ) .3 JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; 0 DATED 21#05#2014 [ .3../ RK , SR. PS ITA 2327/M/12 5 , -&./ 0/ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 5 () / THE CIT(A)22, MUMBAI. 4. 5 / CIT 10, MUMBAI 5. 8 33: , : , / DR, ITAT, MUMBAI D BENCH 6. = / GUARD FILE. / BY ORDER, 8 3 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI