SHRI AJAY KUMAR BAKLIWAL, Jaipur V. ASSISTANT COMMISSIONER OF INCOME TAX, Kota

ITA 322/JPR/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 5966 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 06-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROONIPAL
• Assessee Lawyers: NIKHILESH KATARIA
• Keywords: Business income; Question of law
• Section: 143(2); 148; 56

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S,B JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA-@ ITA. NO. 322 & 323/JP/2018 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2011-12 & 2014-15 SHRI AJAY BAKLIWAL C-9, VALLABH BARI, KOTA. CUKE VS. THE ACIT, CIRCLE-1, KOTA. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: ABZPB 7775 P VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI NIKHILESH KATARIA (C.A.) JKTLO DH VKSJ LS @ REVENUE BY : SMT. ROONIPAL (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 11/12/2019 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT : 07/02/2020 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THESE ARE TWO APPEALS FILED BY THE ASSESSEE AGAINS T THE RESPECTIVE ORDERS OF LD. CIT(A), KOTA DATED 29.12.2 017 FOR THE ASSESSMENT YEARS 2011-12 & 2014-15 RESPECTIVELY. SI NCE COMMON ISSUES ARE INVOLVED, BOTH THE APPEALS WERE HEARD TO GETHER AND ARE DISPOSED OFF BY THIS CONSOLIDATED ORDER. 2. FOR THE PURPOSE OF PRESENT DISCUSSIONS, THE CASE OF THE ASSESSEE IN ITA NO. 323/JP/2018 WAS TAKEN LEAD CASE WITH THE CONSENT OF BOTH ITA NO. 322 & 323 /JP/2018 SHRI AJAY BAKLIWAL VS. ACIT 2 THE PARTIES, WHEREIN THE ASSESSEE HAS TAKEN FOLLOWI NG GROUNDS OF APPEAL:- 1. THE ASSESSMENT ORDER PASSED U/S 143(2) IS BAD I N LAW AS WELL AS ON FACTS AND HENCE, THE SAME MAY PLEASE BE QUASH ED. 2. RS. 1,00,000/- THE LD. AO ERRED IN LAW AS WELL A S ON THE FACTS OF THE PRESENT CASE IN MAKING AD-HOC ADDITION AFTER REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE AND THE LD. CIT(A) ERRED IN SUSTAINING THE SAME. 3. RS. 1878448/- THE LD. AO ERRED IN LAW AS WELL AS ON THE FACTS OF THE PRESENT CASE IN MAKING ADDITION OF INTEREST ON FDR SEPARATELY UNDER THE HEAD INCOME FROM OTHER SOURCE AND THE LD. CIT(A) ERRED IN SUSTAINING THE SAME. THE SAME IS PR AYED TO BE DELETED. 3. AT THE OUTSET, THE LD. AR SUBMITTED THAT THE ASS ESSEE DOES NOT WANT TO PRESS GROUND NOS. 1 AND 2 OF ITS APPEAL. HE NCE, THESE TWO GROUNDS ARE DISMISSED AS NOT PRESSED. 4. REGARDING GROUND NO. 3, BRIEFLY THE FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE W AS ENGAGED IN CIVIL CONSTRUCTION BUSINESS FOR GOVERNMENT AND SEMI-GOVER NMENT DEPARTMENTS AND ALSO FOR PRIVATE CONCERNS. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSER VED THAT THE ASSESSEE HAS SHOWN INTEREST INCOME OF RS. 16,16,898 /- IN M/S NAVBHARAT NIRMAN COMPANY AND RS. 2,61,550/- IN M/S AJAY BAKLIWAL & ASSOCIATES WHICH ARE TWO PROPRIETORSHIP CONCERNS OF THE ASSESSEE AND A SHOW CAUSE WAS ISSUED TO THE ASSESSEE AS TO WHY THE INTEREST INCOME MAY NOT BE ASSESSED UNDER THE HEAD INCOME FROM OTH ER SOURCES. ITA NO. 322 & 323 /JP/2018 SHRI AJAY BAKLIWAL VS. ACIT 3 5. IN RESPONSE, THE ASSESSEE SUBMITTED THAT IN THE PAST ASSESSMENT YEARS WHERE THE MATTER WAS SCRUTINIZED BY THE ASSES SING OFFICER, THE INTEREST INCOME ON FDR WAS NOT CONSIDERED U/S 56 OF THE ACT AND THE INTEREST EXPENDITURE ON OD/CASH CREDIT WAS SET OFF AGAINST INTEREST INCOME. EVEN IN THE ASSESSMENT YEAR 2013-14, THE IN TEREST INCOME WAS CONSIDERED AS BUSINESS INCOME AND INTEREST EXPENDIT URE WAS SET OFF AGAINST INCOME AND BALANCE WAS EITHER DEBITED OR CR EDITED TO PROFIT AND LOSS ACCOUNT. IT WAS FURTHER SUBMITTED THAT THE ASS ESSEE BEING CIVIL CONTRACTOR, THE FDRS WERE MADE TO FURNISH BANK GUAR ANTEE TO THE AWARDERS OF THE CONTRACT AND THUS, FIXED DEPOSITS W ERE INEXTRICABLY LINKED AND INTRINSICALLY CONNECTED WITH THE EXECUTI ON OF THE CONTRACT BEING AWARDED TO THE ASSESSEE AND HENCE, THE INTERE ST SO RECEIVED ON SUCH FDRS WAS ONLY INCIDENTAL TO THE VERY EXECUTION OF THE CONTRACT. IT WAS SUBMITTED THAT FURNISHING OF BANK GUARANTEE WAS THE SINE QUA NON FOR INITIATION OF THE PROJECT AND ONLY ON FURNISHIN G THE BANK GUARANTEE, COULD THE ASSESSEE ENTER INTO THE CONTRACT FOR THE CONSTRUCTION OF THE PROJECT. IT WAS SUBMITTED THAT IT IS NOT A CASE WH ERE SURPLUS FUNDS HAVE BEEN DEPLOYED TO EARN THE INTEREST INCOME RATHER TH E ACTIVITY OF DEPOSITING MONEY WAS INCIDENTAL TO THE BUSINESS OF THE ASSESSEE. IT WAS ACCORDINGLY SUBMITTED THAT THE INTEREST RECEIVE D/ACCRUED ON THESE DEPOSITS IS NOT A SEPARATE INCOME WHICH IS DEHORS T HE MAIN BUSINESS OF THE ASSESSEE AND SAME SHOULD BE CONSIDERED AS INCO ME FROM BUSINESS ONLY. THE REPLY SO FILED BY THE ASSESSEE WAS CONSI DERED HOWEVER, NOT FOUND ACCEPTABLE AS THE ASSESSING OFFICER WAS OF TH E VIEW THAT THE FDRS ARE INVESTMENT AND INTEREST EARNED THEREON ARE NOT BUSINESS INCOME AS ASSESSEE IS A CONTRACTOR AND THEREFORE, THE INTERES T RECEIVED BY THE ITA NO. 322 & 323 /JP/2018 SHRI AJAY BAKLIWAL VS. ACIT 4 ASSESSEE WAS BROUGHT TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCE U/S 56 OF THE ACT. 6. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R IN APPEAL BEFORE THE LD. CIT(A) AND THE LD. CIT(A) HAS SUSTAI NED THE ADDITION HOLDING THAT IT HAS NEVER BEEN HELD BY THE HIGHER A UTHORITY THAT THE INTEREST INCOME IS BUSINESS INCOME IN THE ASSESSEE CASE. IT HAS ALSO NOT BEEN PROVED BY THE ASSESSEE THAT THE DEPOSITS WERE INTRINSICALLY LINKED TO EARNING THE CONTRACT INCOME. AGAINST THE SAID F INDINGS, THE ASSESSEE IS IN APPEAL BEFORE US. 7. DURING THE COURSE OF HEARING, REFERRING TO THE A SSESSMENT YEARS PASSED FOR A.YS. 2010-11 TO 2013-14, THE LD. AR SUB MITTED THAT SINCE LAST MANY YEARS, THE INTEREST RECEIVED BY THE ASSES SEE HAS BEEN TREATED AS PART OF ITS TRADING RESULTS AND INTEREST HAS NEV ER BEEN ASSESSED AS INCOME FROM OTHER SOURCES. IT WAS SUBMITTED THAT T HE DEPARTMENT HAS NEVER ASSESSED THE INTEREST INCOME AS INCOME FROM O THER SOURCES AND GIVEN THAT THERE IS NO CHANGE IN THE BUSINESS OF TH E ASSESSEE AND AS SUCH, THERE IS NO REASON TO DEVIATE FROM THE PAST S ETTLED POSITION WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT. IT WAS FURTHER SUBMITTED THAT THE OBSERVATION OF THE LD. CIT(A) THAT THE ASSESSEE HAS NOT PROVED THAT THE DEPOSITS WERE INTRINSICALLY LINKED TO EARNING O F CONTRACT INCOME IS NOT CORRECT AS THE DEPARTMENT IS CONSISTENTLY MAKIN G ASSESSMENT WHILE TREATING INTEREST INCOME AS BUSINESS INCOME OF THE ASSESSEE AND FURTHER, THE DETAILED WRITTEN SUBMISSIONS WERE FILE D BEFORE THE LD. CIT(A) WHICH HAVE NOT BEEN PROPERLY APPRECIATED. IT WAS FU RTHER SUBMITTED THAT THE MATTER IS SQUARELY COVERED BY THE DECISION OF THE HONBLE ITA NO. 322 & 323 /JP/2018 SHRI AJAY BAKLIWAL VS. ACIT 5 RAJASTHAN HIGH COURT IN CASE OF M/S CHOUDHARY AND B ROTHERS VS. DCIT (DB. ITA NO. 355/2017 DATED 31.08.2018). IT WAS FURTHER SUBMITTED THAT THE COORDINATE BENCHES ARE ALSO TAKING A CONSI STENT VIEW THAT WHERE THE INTEREST ON FDR IS INEXTRICABLY LINKED WI TH THE BUSINESS OF THE ASSESSEE, THE SAME IS TO BE TREATED AS PART OF BUSI NESS INCOME AND NOT INCOME FROM OTHER SOURCES AND IN SUPPORT, RELIANCE WAS PLACED ON THE DECISION OF COORDINATE BENCH IN CASE OF M/S MOHD CO NSTRUCTION COMPANY VS. ACIT (ITA NO. 389/JP/2012). IT WAS FURTHER SUBMITTED THAT THE BANK GUARANTEE IS OF A CERTAIN PERCENTAGE OF THE CONTRACT VALUE WHICH IS TO BE SUBMITTED TO THE AWARDER OF CO NTRACT AND SUCH BANK GUARANTEE ARE MOSTLY GIVEN AS PERFORMANCE SECU RITY WITHOUT WHICH THE CONTRACT CANNOT BE AWARDED TO THE ASSESSE E. IT IS ALSO NOTABLE THAT IN CASE OF CONTRACT BUSINESS, THIS IS A VERY REGULAR FEATURE WHEREBY BANK GUARANTEES ARE MADE AND RELEASED AFTER SOMETIME. IT IS NOTABLE THAT THESE BANK GUARANTEES ARE ISSUED BY THE BANK ON THE BASIS OF PLEDGING OF FDRS BY THE ASSESSEE AND THERE FORE, FOR THIS PURPOSE ONLY, THE FDRS ARE MADE WHICH WORKS AS LIEN FOR THE ISSUANCE OF BANK GUARANTEES BY THE BANK AND IN SUPPORT, VARI OUS LETTERS ISSUED BY THE AWARDER OF THE CONTRACT FOR SUBMISSION OF PE RFORMANCE SECURITY WAS PLACED ON RECORD. FURTHER, OUR REFERENCE WAS DR AWN TO THE CERTIFICATE ISSUED BY THE PUNJAB NATIONAL BANK CERT IFYING THAT FDRS HAVE BEEN KEPT UNDER LIEN FOR THE PERIOD FROM 01.04 .2013 TO 31.03.2014 WHICH IS PLACED IN THE ASSESSEES PAPER BOOK. IT WAS ACCORDINGLY SUBMITTED THAT THE ADDITION SO MADE BY THE ASSESSING OFFICER MAY BE DIRECTED TO BE DELETED. ITA NO. 322 & 323 /JP/2018 SHRI AJAY BAKLIWAL VS. ACIT 6 8. THE LD. DR IS HEARD WHO HAS RELIED ON THE FINDI NGS OF THE LOWER AUTHORITIES. IT WAS SUBMITTED THAT EACH YEAR IS A S EPARATE ASSESSMENT YEAR AND THE PRINCIPLES OF RES JUDICATA DOESNT APP LY IN THE INCOME TAX PROCEEDINGS. IT WAS FURTHER SUBMITTED THAT THE ASS ESSEE HAS EARNED INTEREST ON FDR RECEIPTS AND INTEREST SO RECEIVED H AS BEEN RIGHTLY BROUGHT TO TAX UNDER THE HEAD INCOME FROM OTHER SO URCES. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE MATTER IS COV ERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN CASE OF M/S CHOUDHARY AND BROTHERS VS. DCIT (SUPRA) WHEREIN THE HONBLE HIGH COURT HAS HELD AS UNDER:- IN THE PRESENT CASE ALSO, ON THE FACTS OF THE PRES ENT CASE, WE FIND THAT APPELLANT BEING A CIVIL CONTRACTOR WAS RE QUIRED TO PROVIDE A PERFORMANCE GUARANTEE TO THE VARIOUS WORKS DEPART MENTS FOR OBTAINING CONTRACTS OF CIVIL CONSTRUCTION. HE HAS T O KEEP SUCH PERFORMANCE GUARANTEE ALIVE BY WAY OF UTILIZING THE BANK OVERDRAFT LIMIT AGAINST WHICH HE HAD TO FURNISH FDR S/NSC FOR EXECUTION OF THE CONTRACTS. HIS FAILURE TO SUBMIT T HE PERFORMANCE GUARANTEE OR INABILITY TO KEEP THEM ALIVE WOULD HAV E RESULTED IN TERMINATION OF THE CONTRACT AWARDED TO HIM AND IN T HAT EVENT, THE CONCERNED DEPARTMENTS/EMPLOYER COULD ENCASH THE SEC URITY. RELEASE OF SUCH PERFORMANCE GUARANTEE IS DEPENDENT ON FULFILLMENT OF CERTAIN CONDITIONS. IT IS NOT THAT T HE APPELLANT HAD INVESTED SURPLUS MONEY LYING IDLE WITH HIM ONLY IN FDRS/NSCS WITH A VIEW TO EARNING INTEREST. OBTAINING OF FDRS/ NSCS AND FURNISHING OF THE SAME AGAINST THE PERFORMANCE GUAR ANTEE BY THE APPELLANT, THEREFORE, HAD AN INEXTRICABLE NEXUS WIT H HIS BUSINESS OF SECURING CIVIL CONTRACTS AND INTEGRAL TO HIS WOR KING AS CIVIL CONTRACTOR. THE INCOME OF INTEREST EARNED FROM THE INTEREST SUCH ITA NO. 322 & 323 /JP/2018 SHRI AJAY BAKLIWAL VS. ACIT 7 FDRS/NSCS BY THE APPELLANT THEREFORE, IN OUR CONSID ERED VIEW, CANNOT BE TREATED AS INCOME FROM OTHER SOURCES AND WOULD RATHER BE AN INCOME EARNED FROM BUSINESS. IN VIEW OF ABOVE DISCUSSION, THE QUESTION OF LAW EX TRACTED ABOVE IS ANSWERED IN THE TERMS THAT 'IN THE FACTS AND CIR CUMSTANCES OF THE CASE, THE INTEREST INCOME FROM FDRS AND NSCS OF THE PETITIONER HAS TO BE TREATED AS INCOME FROM BUSINES S AND NOT INCOME FROM OTHER SOURCES AS THE INCOME IS PART OF THE TOTAL RECEIPTS AND NOT FROM OTHER SOURCES.' IN THE INSTANT CASE, WE FIND THAT FDRS WERE PLACED WITH PNB UNDER ITS LIEN FOR PROVIDING NECESSARY MARGINS FOR THE PURPOS ES OF OBTAINING THE BANK GUARANTEES WHICH WERE REQUIRED TO BE PLACED WI TH THE AWARDER OF THE CONTRACTS TO THE ASSESSEE AND ISSUED BY THE PNB . THERE THUS EXIST A DIRECT NEXUS BETWEEN PLEDGING OF FDRS WITH BANK AND SEEKING BANK GUARANTEE FOR THE PURPOSES OF ASSESSEES BUSINESS. FURTHER, SOME OF THE FDRS WERE DIRECTLY PLACED WITH CHIEF ENGINEER, PWD, JAIPUR BY WAY OF SECURITY TOWARDS PERFORMANCE OF CONTRACT OBLIGAT IONS. FOLLOWING THE RATIO LAID DOWN BY THE HONBLE RAJASTHAN HIGH COURT IN CASE OF M/S CHOUDHARY & BROTHERS (SUPRA), OBTAINING AND PLEDGIN G THE FDR FOR THE PURPOSES OF OBTAINING BANK GUARANTEE FOR THE PURPOS ES OF ITS BUSINESS, THE ASSESSEE HAS THUS ESTABLISHED THE NECESSARY NEX US WITH HIS BUSINESS AND INTEREST EARNED FROM SUCH FDRS CANNOT BE TREATED AS INCOME FROM OTHER SOURCES AND WOULD RATHER BE TREAT ED AN INCOME EARNED FROM BUSINESS. WE THEREFORE, AGREE WITH THE CONTENTIONS SO ADVANCED BY THE LD AR AND THE GROUND OF APPEAL IS A LLOWED. ITA NO. 322 & 323 /JP/2018 SHRI AJAY BAKLIWAL VS. ACIT 8 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ITA NO. 322/JP/2018 11. IN ITA NO. 322/JP/2018 FOR A.Y 2011-12, BOTH TH E PARTIES FAIRLY SUBMITTED THAT FACTS AND CIRCUMSTANCES OF THE CASE ARE EXACTLY IDENTICAL AND THUS, SIMILAR CONTENTIONS HAVE BEEN ADVANCED BY THEM. THEREFORE, FOLLOWING OUR FINDINGS AND DIRECTIONS IN ITA NO. 32 3/JP/2018, INTEREST EARNED FROM SUCH FDRS CANNOT BE TREATED AS INCOME F ROM OTHER SOURCES AND WOULD RATHER BE TREATED AN INCOME EARNE D FROM BUSINESS AND GROUND NO. 2 OF ASSESSEES APPEAL IS ALLOWED. 12. IN GROUND NO. 1, THE ASSESSEE HAS CHALLENGED TH E REOPENING OF THE PROCEEDINGS BY ISSUANCE OF NOTICE U/S 148 OF TH E ACT. IN VIEW OF OUR FINDINGS ON MERIT, THE SAID GROUND HAS BECOME A CADEMIC AND THE SAME IS THEREFORE, DISMISSED AS INFRUCTIOUS. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 07/02/2020. SD/- SD/- FOT; IKY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 07/02/2020. * SANTOSH ITA NO. 322 & 323 /JP/2018 SHRI AJAY BAKLIWAL VS. ACIT 9 VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- SHRI AJAY BAKLIWAL, KOTA. 2. IZR;FKHZ@ THE RESPONDENT- ACIT, CIRCLE-1, KOTA. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE { ITA NO. 322 & 323/JP/2018} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR.