ENPEE CREDIT & CAPITAL (INDIA) LTD, MUMBAI V. DCIT 1(1), MUMBAI

ITA 2433/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1748 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 08-06-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 16-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MOHANTY
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Revenue expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI BEFORE SHRI D.K. AGARWAL, J.M AND SHRI A.L. GEHLOT , A.M. ITA NO. 2433/M/2009 ASSESSMENT YEAR: 2004-05 M/S ENPEE CREDIT & CAPITAL (INDIA) LTD. APPELLAN T A-59, MIDC INDUSTRIAL AREA, ANDHERI(EAST), MUMBAI 400 093 (PAN AAACE0880D) VS. THE DY. COMMISSIONER OF INCOME TAX, RESPONDENT 1(1), MUMBAI. APPELLANT BY : MR. VIJAY MEHTA RESPONDENT BY : MR. S.K. MOHANTY ORDER PER A.L. GEHLOT, A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A)-I, MUMBAI, PASSED ON 06.02.2009 FOR THE ASSESSMENT YEAR 2004-05 WHEREIN THE ASSESSEE HAS RAISED THE FO LLOWING GROUNDS OF APPEAL:- I. A) THE LEARNED COMMISSIONER OF INCOME TAX (APPEA LS) ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER IN TER ALIA TREATING THE INCOME OF RS. 48,44,208/- (SUBSEQUENTL Y REVISED TO RS. 53,46,065/- IN THE ORDER U/S 154) DERIVED FR OM SUB- LEASING OF THE PROPERTY UNDER THE HEAD INCOME FROM OTHER SOURCES. B) THE APPELLANT SUBMITS THAT ON THE FACTS AND CIRC UMSTANCES OF THE CASE AS WELL AS IN THE LAW THE SAID INCOME O UGHT TO HAVE BEEN ASSESSED UNDER THE HEAD PROFIT AND GAINS OF B USINESS AS THE APPELLANT CARRIES ON A BUSINESS THAT OF OBTA INING THE PROPERTY ON LEASE AND SUB-LETTING THEM. C) THE APPELLANT FURTHER SUBMITS THAT CONSIDERING T HE FACT THAT IT IS CARRYING ON A SINGULAR BUSINESS, ALL EXPENDIT URE RELATING TO SUCH BUSINESS OUGHT TO HAVE BEEN ALLOWED WHILE C OMPUTING INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINES S. II. A) THE LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER TR EATING THE CORPORATE AND ADMINISTRATIVE EXPENSES, ETC. AGGREGA TING TO RS. 40,63,982/- AS COST OF CONSTRUCTION OF THE PROPERTY AND ITA NO. 2433/M/09 M/S ENPEE CREDIT & CAPITAL (I) LTD. 2 THEREBY NOT ALLOWING THE DEDUCTION OF THE SAME WHIL E COMPUTING INCOME OF THE APPELLANT FOR THE PREVIOUS YEAR RELEVANT TO A.Y. 2004-05. B) THE APPELLANT SUBMITS THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN THE LAW THE SAID CORPORATE/ADMINISTRATIVE EXPENSES OF RS. 40,63,982/ - OUGHT TO HAVE BEEN ALLOWED WHILE COMPUTING THE INCOME OF THE APPELLANT (EITHER UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR UNDER THE HEAD INCOME FROM OTHER SOURCES. 2. THE LEARNED AR, AT THE OUTSET, SUBMITTED THAT TH E EFFECTIVE GROUNDS ARE TWO IN THE GROUNDS OF APPEAL, HOWEVER I N FORM NO. 36, THE ASSESSEE HAS TAKEN IN GROUND NO. 1 THREE SUB-GR OUNDS A, B & C AND GROUND NO.2 TWO SUB-GROUNDS A & B. THE LEARNED AR SUBMITTED THAT THE FIRST EFFECTIVE GROUND IS IN RESPECT OF TH E HEAD UNDER WHICH THE INCOME IS ASSESSABLE UNDER THE HEAD INCOME FRO M BUSINESS OR INCOME FROM OTHER SOURCES. GROUND NO. 2 IS IN RES PECT OF ALLOWABILITY OF ADMINISTRATIVE EXPENSES. 3. THE LEARNED AR SUBMITTED THAT THE ISSUES ARE SQU ARELY COVERED BY THE DECISION OF ITAT IN ASSESSEES OWN C ASE IN ITA NO. 501/MUM/2007 VIDE ORDER DATED 28 TH JULY, 2009. ON THE OTHER HAND, THE LEARNED DR HAS RELIED UPON THE ORDERS OF REVENUE AUTHORITIES. 4. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD. THE ADMITTED FACTS OF THIS CARE THAT THE ASSESSEE CLAIMED INCOME FROM BUSINESS IN RESPECT OF PARLE PRODUCTS WHEREAS THE AO TREATED THE SAME AS INCOME FROM OTHE R SOURCES. THE CIT(A) FOLLOWED HIS PREDECESSORS ORDER AND CON FIRMED THE ORDER OF AO. GROUND NO. 2 IS CONSEQUENTIAL TO GROUND NO. 1 WHERE THE INCOME IS ASSESSABLE UNDER THE HEAD INCOME FROM BUS INESS OR INCOME FROM OTHER SOURCES AND ALLOWABILITY OF ADMIN ISTRATIVE AND FINANCIAL EXPENSES. WE FIND ON IDENTICAL SET OF FA CTS IN AY 2003-04 IN ASSESSEES OWN CASE THE ITAT (SUPRA) HAS DECIDED THE ISSUES AS UNDER:- ITA NO. 2433/M/09 M/S ENPEE CREDIT & CAPITAL (I) LTD. 3 GROUND NO. 1 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) [LD.CIT(A)] ERRED IN COMPUTING THE SUB LEASE INCO ME, RECEIVED FROM M/S I-FLEX SOLUTIONS LTD, SEPARATELY UNDER THE HEAD INCOME FROM OTHER SOURCES, INSTEAD OF COMPUTING THE SAME AS PART OF THE BUSINESS INCOME O F THE APPELLANT UNDER THE HEAD PROFITS & GAINS OF BUSINESS. FINDINGS OF ITAT (IX) ON THE FACTUAL MATRIX DISCUSSED ABOVE AND APPL YING THE PROPOSITIONS LAID DOWN IN THE VARIOUS CASE LAWS DIS CUSSED ABOVE, WE ARE OF THE CONSIDERED OPINION THAT THE IN COME IN QUESTION IS ASSESSABLE ONLY UNDER THE HEAD INCOME FROM BUSINESS AND NOT UNDER THE HEAD INCOME FROM HOUSE PROPERTY AS ONE OF THE MAIN OBJECTS OF THE ASSESSEE IS TO DE AL IN REAL ESTATE PROPERTIES AND AS THE ASSESSEE HAD INCURRED SUBSTANTIAL EXPENDITURE BY WAY OF GIVING DEPOSITS, UNDERTAKING REPAIRS AND RENOVATION AND FURTHER ENTERING INTO AGREEMENTS FOR IMPROVEMENT AND DEVELOPMENTS OF THE PROPERTIES, ETC. THUS, WE ALLOW GROUND 1 OF THE ASSESSEE. GROUND NOS. 3, 4 & 5 3. WITHOUT PREJUDICE TO THE ABOVE, THE LD.CIT(A) ERRED IN CONFIRMING THE ACTION OF THE A.O. IN MAKING ADDITIO N OF RS.3,60,832/-, WHILE COMPUTING THE SUB LEASE INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES, ON THE GROUND OF ALLEGED NON PAYMENT OF PROPERTY TAX. 4. THE LD.CIT(A) ERRED IN CONFIRMING THE ACTION OF THE A.O. IN CAPITALIZING THE ENTIRE ADMINISTRATIVE EXPENSES OF RS.24,22,432/- [RS.26,42,432/- MINUS RS.2,20,000/-] , INSTEAD OF ALLOWING THE SAME A REVENUE EXPENDITURE FOR THE YEAR. 5. THE LD.CIT(A) ERRED IN CONFIRMING THE ACTION OF THE A.O. IN CAPITALIZING THE INTEREST EXPENSES OF RS.29,30,608/ -, INSTEAD OF ALLOWING THE SAME AS DEDUCTION AS CLAIMED FINDINGS OF ITAT D. COMING TO GROUNDS 4, 5 & 6, THE EXPENDITURE IS O F ADMINISTRATIVE EXPENSES, INTEREST EXPENDITURE AND DEPRECIATION, WHICH THE ASSESSING OFFICER HAS CAPIT ALIZED ON THE GROUND THAT THE ASSESSEE IS DEVELOPING JUHU PRO PERTY. A PERUSAL OF THE AGREEMENT ENTERED ON 24-12-2001 BETW EEN VINOD V PAREKH AND TWO OTHERS WITH THE ASSESSEE, TH E ASSESSEE WAS REQUIRED TO INCUR EXPENDITURE FOR THE CONSTRUCTION OF A BUILDING. THE ASSESSEE HAS NOT OB TAINED ANY ITA NO. 2433/M/09 M/S ENPEE CREDIT & CAPITAL (I) LTD. 4 OWNERSHIP RIGHT TO THE ABOVE BUILDING. THE COMPENS ATION THAT THE ASSESSEE IS TO RECEIVE IS GIVEN AT PARAGRAPH 6 OF THIS AGREEMENT WHICH IS REPRODUCED BELOW, FOR READ REFER ENCE: 6. IN CONSIDERATION OF OWNER AGREEING TO ALLOW THE DEVELOPER TO CONSTRUCT STILT PLUS 7 UPPER FLOORS AT AN ADDITIONAL TDR AT HIS OWN COST. THE OWNER HAS AGRE ED FOR THE FOLLOWING COMPENSATION / CONSIDERATION. A) IF THE SAID PREMISES ARE SOLD THEN 65% OF THE REALIZATION SHOULD GO TO THE DEVELOPER AND BALANCE 35% PORTION SHALL BE SHARED BY THE OWNERS THEMSELVES. B) IF THE PREMISES ARE BEING LET OUT ON RENT BY THE OWNER THEN 75% OF THE RENT SHOULD GO TO THE DEVELOPER ALONG WITH THE EQUIVALENT PORTION OF DEPOSIT. C) THE EXPENSES ON ACCOUNT OF BROKERAGE, TRANSFER CHARGES, STAMP DUTY IF ANY, OTHER LEGAL AND PROFESSIONAL CHARGES, SHALL BE BORNE BY THE DEVELOPER ALONE FOR THE TOTAL PORTION. (I) THOUGH THE ASSESSEE IS TERMED AS A DEVELOPER IN THIS AGREEMENT, THE ROLE OF THE ASSESSEE IS TO FINANCE T HE CONSTRUCTION AND IN LIEU THEREOF HE IS USED TO RECE IVE 75% OF THE RENT AND 75% OF THE DEPOSIT. IT IS NOT A CASE WHERE THE ASSESSEE IS A BUILDER OR A DEVELOPER WHEREIN HE CON STRUCTS THE PROPERTY AND BECOMES AN OWNER OR PART THEREOF. THE UNDISPUTED FACT IS THAT THE ASSESSEE HAS INCURRED C ERTAIN EXPENDITURE FOR CONSTRUCTION AND TREATED THIS EXPEN DITURE AS A LOAN OR ADVANCE RECOVERABLE FROM THE OWNERS OF THE JUHU PROPERTY. ON THIS FACTUAL MATRIX WE ARE UNABLE TO AGREE WITH THE FINDINGS OF THE REVENUE AUTHORITIES THAT THE AD MINISTRATIVE EXPENDITURE OR THE INTEREST OR THE DEPRECIATION IN QUESTION HAVE TO BE CAPITALIZED. THERE IS NO ASSET OWNED BY THE ASSESSEE ON WHICH THESE EXPENDITURES CAN BE CAPITALIZED. WHEN A MERE LOAN IS GIVEN TO CERTAIN PERSON, THE QUESTION OF CA PITALIZING THESE EXPENDITURES TO THE QUANTUM OF LOAN SIMPLY DO ES NOT ARISE. THE QUESTION OF THE ASSESSEE FOLLOWING PROJ ECT COMPLETION METHOD ALSO DOES NOT ARISE AND IT IS NOT FACTUALLY CORRECT. EVEN OTHERWISE, THE ADMINISTRATIVE EXPEND ITURE IN QUESTION IS ROUTINE REVENUE EXPENDITURE AND IS NOT IN ANY WAY CONNECTED WITH THE JUHU PROPERTY. THESE EXPENDITUR ES WERE ALLOWED TO THE ASSESSEE IN THE EARLIER ASSESSMENT Y EARS AS REVENUE EXPENDITURES AND IN THIS YEAR THE REVENUE C ANNOT TAKE A DIFFERENT VIEW AND DISALLOW THE SAME ON THE GROUN D THAT THESE EXPENDITURES HAVE A NEXUS WITH JUHU PROPERTY. NEITHER THE ASSESSING OFFICER NOR THE CIT(A) HAS DEMONSTRAT ED THAT THE ITA NO. 2433/M/09 M/S ENPEE CREDIT & CAPITAL (I) LTD. 5 ROUTINE REVENUE EXPENDITURE IN QUESTION IS IN ANY W AY CONNECTED WITH THE JUHU PROPERTY TRANSACTION. COMI NG TO THE ISSUE OF INTEREST EXPENDITURE, THE SAME HAS TO BE A LLOWED A BUSINESS EXPENDITURE U/A 36(1)(III). THE HONBLE S UPREME COURT IN THE CASE OF DCIT VS CORE HEALTH CARE LTD 2 98 ITR 194 (SC) HAS HELD AS FOLLOWS: SECTION 36(1)(III) OF THE INCOME-TAX ACT, 1961, H AS TO BE READ ON ITS OWN TERMS : IT IS A CODE BY ITSEL F. IT MAKES NO DISTINCTION BETWEEN MONEY BORROWED TO ACQUIRE A CAPITAL ASSET OR A REVENUE ASSET. ALL TH AT THE SECTION REQUIRES IS THAT THE ASSESSEE MUST BORROW C APITAL AND THE PURPOSE OF THE BORROWING MUST BE FOR BUSINE SS WHICH IS CARRIED ON BY THE ASSESSEE IN THE YEAR OF ACCOUNT. UNLIKE SECTION 37 WHICH EXPRESSLY EXCLUDE S AN EXPENSE OF A CAPITAL NATURE, SECTION 36(1)(III) EMP HASIZES THE USER OF THE CAPITAL AND NOT THE USER OF THE ASS ET WHICH COMES INTO EXISTENCE AS A RESULT OF THE BORRO WED CAPITAL. THE LEGISLATURE HAS, THEREFORE, MADE NO DISTINCTION IN SECTION 36(1)(III) BETWEEN CAPITAL BORROWED FOR A REVENUE PURPOSE AND CAPITAL BORROWED FOR A CAPITAL PURPOSE. AN ASSESSEE IS ENTITLED TO CLAIM INTEREST PAID ON BORROWED CAPITAL PROVIDED THAT THE CAPITAL IS USED FOR BUSINESS PURPOSE IRRESPECTIVE O F WHAT MAY BE THE RESULT OF USING THE CAPITAL WHICH THE ASSESSEE HAS BORROWED. ACTUAL COST OF AN ASSET H AS NO RELEVANCY IN RELATION TO SECTION 36(1)(III). ON THIS GROUND ALSO, THE INTEREST EXPENDITURE CANNO T BE DISALLOWED. SIMILARLY, THE REVENUE IS NOT CORRECT IN DENYING THE BENEFIT OF DEPRECIATION. IN VIEW OF THE ABOVE DISCUSSION, GROUNDS 4, 5 & 6 OF THE ASSESSEE ARE ALLOWED. 5. SINCE THE FACTS OF THE CASE UNDER CONSIDERATION ARE IDENTICAL TO THAT OF AY 2003-04 (SUPRA), WHICH HAS BEEN DECIDED BY TH E ITAT, WE RESPECTFULLY FOLLOW THE SAME AND IN THE LIGHT OF TH AT WE ALLOW THE CLAIM OF THE ASSESSEE. ITA NO. 2433/M/09 M/S ENPEE CREDIT & CAPITAL (I) LTD. 6 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED AS INDICATED ABOVE. PRONOUNCED IN OPEN COURT ON THIS 11 TH DAY OF JUNE, 2010. SD/- SD/- (D.K. AGARWAL) (A.L. GEHLO T) JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED: 11 TH JUNE, 2010. COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, I BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON 9.6.10 SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR 10.6.10 SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER