ITO 22(3)(2), NAVI MUMBAI V. MEHUL CONSTRUCTION, NAVI MUMBAI

ITA 3226/MUM/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2374 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 06-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR SONIDR
• Keywords: Business income
• Section: 44AD; 143(3); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUM BAI BEFORE SHRI JOGINDER SINGH, JM AND SHRI RAJESH KUMA R, AM ./ I.T.A. NO. 3226/M/2014 ( / ASSESSMENT YEAR: 2006-07) INCOME TAX OFFICE, ITO, WD-22(3)-2, VASHI RAILWAY STATION COMPLEX, TOWER NO.6, 3 RD FLOOR, ROOM NO.307, VASHI, NAVI MUMBAI. / VS. M/S MEHUL CONSTRUCTION 508, SHANTI SHRAYAS CHS. LTD., PLOT NO.21, SECTOR-21, VASHI, NAVI MUMBAI-400 703. ./ ./PAN/GIR NO. AAHFM6864B ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI VIJAY KUMAR SONI(DR) / RESPONDENT BY : SHRI NONE / DATE OF HEARING : 29/10/2015 !'# / DATE OF PRONOUNCEMENT : 20/11/2015 / O R D E R PER RAJESH KUMAR, A. M: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 24/02/2014 OF COMMISSIONER OF INCOME TAX (APPEALS) 33 , MUMBAI (H EREINAFTER CALLED AS THE CIT(A) ) FOR ASSESSMENT YEAR 2006-07.THE ASSESSEE H AS RAISED FOLLOWING GROUNDS OF APPEAL: 2 I.T.A. NO. 3226/M/2014 (A.Y: 2006-07) CIT VS. M/S MEHUL CONSTRUCTION 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO TREAT THE ARBITRATION DEBT RECEIVED OF RS.26,79,266/- AS BUSINESS RECEIPT INSTEAD OF TREAT ING THE SAME AS INCOME FROM OTHER SOURCES. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTO RED. 3. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GR OUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 2. THE COMMON ISSUE RAISED IN BOTH THE GROUNDS OF A PPEAL RELATES TO TREATING TO THE RECEIPT FROM ARBITRATION AWARD (INTEREST COMPONENT) AS INCOME FROM OTHER SOURCES INSTEAD OF BUSINESS INCOME. 3 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 31/10/2006 THE DECLARATION OF INCOME OF RS.2,71,480 /-. THE ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT VIDE ORDER DATED 14/11/2008 A CCEPTING THE RETURN OF INCOME. THEREAFTER THE ASSESSMENT WAS RE-OPENED BY ISSUING NOTICE 148 OF THE ACT TO ASSESS THE AMOUNT RECEIVED AS ARBITRATION AWARD FROM M/S. KONK AN RAILWAY AMOUNTING TO RS.38,45,155/- WHICH WAS INCLUSIVE OF TDS AND OUT O F WHICH RS.5,26,027/- WAS DEDUCTED AS TDS. THE COMPENSATION RECEIVED COMPRIS ED OF CLAIM FILED ORIGINALLY OF RS.11,65,889/-AND INTEREST OF RS.26,79,266/- AT TH E RATE OF 10% PER ANNUM AGGREGATING TO RS.38,45,155/- . THE ASSESSEE TREATE D THE NET AMOUNT OF COMPENSATION AFTER TDS AS INCOME FROM BUSINESS AND FILED THE RE TURNS U/S 44AD OF THE INCOME TAX ACT. THE ASSESSMENT U/S 143(3) R.W.S.147 WAS FRAMED VIDE ORDER DATED 17/10/2012 3 I.T.A. NO. 3226/M/2014 (A.Y: 2006-07) CIT VS. M/S MEHUL CONSTRUCTION WHERE IN THE INTEREST ELEMENT IN THE ARBITRATION AW ARD WAS TREATED AS INCOME FROM OTHER SOURCES WHILE TREATING THE ORIGINAL CLAIM AS PART OF BUSINESS INCOME. 4 AGGRIEVED BY THE ORDER OF AO THE ASSESSEE FILED A N APPEAL BEFORE CIT(A) WHO ALLOWED THE APPEAL OF THE ASSESSEE BY OBSERVING AS UNDER: I HAVE GONE THROUGH THE ORDER OF THE AO AS WELL AS THE SUBMISSIONS MADE BY THE APPELLANT, I HAVE ALSO PERUSED THE ARBITRATION AWAR D AND FOUND THAT THE APPELLANT HAS DURING THE YEAR UNDER CONSIDERATION R ECEIVED SUM TOTAL OF RS.33,55,458/- WHICH, INTER ALIA, INCLUDES THE SUM OF RS.22,27,565/- BEING INTEREST PAYABLE AT THE RATE OF 10%. THE ONLY QUEST ION WHICH ARISES IN THIS CASE IS AS TO WHETHER SUCH INTEREST IS CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES OR THE SAME SHOULD BE TREATED AS INCOME FRO M BUSINESS AND PROFESSION AS PART OF CONTRACT RECEIPT. I AM IN AGREEMENT WITH THE ASSESSEE THAT THE AMOUNT RECEIVED BY VIRTUE OF THE ARBITRAL AWARD RELATES TO THE CONTRACT RECEIPTS AND THAT SUCH INTEREST ALSO FORMS PART OF THE SAID RECEIPT A S HAS BEEN HELD BY SUPREME COURT IN CASE OF GOVINDA CHAUDHARY AND SONS (SUPRA) WHERE THEIR LORDSHIP WAS PITTED WITH THE SAME QUESTION AS TO WHETHER THE INTEREST WAS PART OF CONTRACT RECEIPT AND AS SUCH 10% INCOME OFFERED BY THE ASSESSEE IN RESPECT OF THE SAID INTEREST IN THAT CASE WAS CORRECT. DEALING WITH THE ISSUE THEIR LORDSHIP HAS HELD AS UNDER: 'THIS BRINGS US TO A CONSIDERATION OF THE SECOND QU ESTION. THE SUM OF RS. 2,77,692 WAS RECEIVED BY THE ASSESSEE AS INTEREST O N THE AMOUNTS WHICH WERE DETERMINED TO BE PAYABLE BY THE ASSESSEE IN RE SPECT OF CERTAIN CONTRACTS EXECUTED BY THE ASSESSEE AND IN REGARD TO THE PAYMENTS UNDER WHICH THERE WAS A DISPUTE BETWEEN THE TWO PARTIES. THE ASSESSEE IS A CONTRACTOR. HIS BUSINESS IS TO ENTER INTO CONTRACTS . IN THE COURSE OF THE EXECUTION OF THESE CONTRACTS, HE HAS ALSO TO FACE D ISPUTES WITH THE STATE GOVERNMENT AND HE HAS ALSO TO RECKON WITH DELAYS IN PAYMENT OF AMOUNTS THAT ARE DUE TO HIM. IF THE AMOUNTS ARE NOT PAID AT THE PROPER TIME AND INTEREST IS AWARDED OR PAID FOR SUCH DELAY , SUCH INTEREST IS ONLY AN ACCRETION TO THE ASSESSEE'S RECEIPTS FROM THE CO NTRACTS. IT IS OBVIOUSLY ATTRIBUTABLE AND INCIDENTAL TO THE BUSINESS CARRIED ON BY HIM. IT WOULD 4 I.T.A. NO. 3226/M/2014 (A.Y: 2006-07) CIT VS. M/S MEHUL CONSTRUCTION NOT BE CORRECT, AS THE TRIBUNAL HAS HELD, TO SAY TH AT THIS INTEREST IS TOTALLY DE HORS THE CONTRACT BUSINESS CARRIED ON BY THE ASS ESSEE. IT IS WELL-SETTLED THAT INTEREST CAN BE ASSESSED UNDER THE HEAD 'INCOM E FROM OTHER SOURCES 'ONLY IF IT CANNOT BE BROUGHT WITHIN ONE OR THE OTH ER OF THE SPECIFIC HEADS OF CHARGE. WE FIND IT DIFFICULT TO COMPREHEND HOW T HE INTEREST RECEIPTS BY THE ASSESSEE CAN BE TREATED AS RECEIPTS WHICH FLOW TO HIM DE HORS THE BUSINESS WHICH IS CARRIED ON BY HIM. IN OUR VIEW, T HE INTEREST PAYABLE TO HIM CERTAINLY PARTAKES OF THE SAME CHARACTER AS THE RECEIPTS FOR THE PAYMENT OF WHICH HE WAS OTHERWISE ENTITLED UNDER TH E CONTRACT AND WHICH PAYMENT HAS BEEN DELAYED AS A RESULT OF CERTA IN DISPUTES BETWEEN THE PARTIES. IT CANNOT BE SEPARATED FROM THE OTHER AMOUNTS GRANTED TO THE ASSESSEE UNDER THE AWARDS AND TREATED AS 'INCOME FR OM OTHER SOURCES'. THE SECOND QUESTION IS, THEREFORE, ANSWERED IN FAVO UR OF THE ASSESSEE AND AGAINST THE REVENUE. WE ARE CONSCIOUS THAT THE SECOND QUESTION HAS NOT BEEN ANSWERED BY THE HIGH COURT IN VIEW OF ITS ANSWER TO THE FIRST QUESTION. WE HAVE CONSIDERED WHETHER IT IS NECESSAR Y TO SEND THE MATTER BACK FOR THE DECISION OF THE HIGH COURT. BUT, HAVIN G REGARD TO THE FACTS THAT THE APPEAL RELATES TO A VERY OLD ASSESSMENT YE AR (1972-73) AND ALSO THAT ALL THE NECESSARY FACTS AND THE DECISION OF TH E TRIBUNAL ARE AVAILABLE BEFORE US, WE HAVE ALSO PROCEEDED TO ANSWER THE SEC OND QUESTION STRAIGHTAWAY IN ORDER TO AVOID FURTHER UNNECESSARY DELAY. CONSIDERING THE FACTS OF THE CASE AND JUDICIAL PRON OUNCEMENTS OF THE APEX COURT INTEREST IN THE INSTANT CASE IS CHARGEABLE AS BUSIN ESS INCOME AND THAT TOO FROM CONTRACT RECEIPT, AND , SINCE THE TURNOVER OF THE ASSESSEE D ID NOT EXCEED THE LIMIT U/S 44AB, IT AT AS ITS OPTION TO OFFER 8% OF SUCH RECEIPT AS INC OME. ACCORDINGLY, THE AO IS DIRECTED TO TREAT THE INTEREST AS BUSINESS RECEIPT AND ALSO TO ALLOW THE ASSESSEE THE BENEFIT OF THE PROVISIONS OF SEC.44AD AS CLAIMED BY THE ASSESSEE. 5 THE LD. DR SUBMITTED THAT THE ORDER OF CIT(A) IS BAD AS CIT(A) FAILED TO APPRECIATE THAT INTEREST RECEIVED IN THE ARBITRATIO N AWARD AMOUNTING TO RS.26,79,226/- WAS TAXABLE AS INCOME FROM OTHER SOURCES AND NOT AS INCOME FROM BUSINESS WHICH WAS RIGHTLY DONE BY THE AO AND THEREFORE, PRAYED FOR RE VERSING THE ORDER OF CIT(A) AND 5 I.T.A. NO. 3226/M/2014 (A.Y: 2006-07) CIT VS. M/S MEHUL CONSTRUCTION RESTORING THE ORDER OF LD.AO. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT AMOUNT RECEIVED UNDER ARBITRATION AW ARD WHICH COMPRISED OF BOTH THE PRINCIPAL CLAIM LODGED AND INTEREST THEREON WAS PAR T OF THE BUSINESS INCOME AND THE ASSESSEE HAS RIGHTLY TREATED THE SAME AS INCOME FRO M BUSINESS . THE LD. COUNSEL STRONGLY PLACED RELIANCE ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. GOVINDA CHAUDHARY AND SONS REPORTED IN 203 ITR 881. THE COUNSEL ALSO RELIED ON THE JUDGEMENT OF JURISDICTIONAL HIGH COU RT IN THE CASE OF EMKAY EXPORTS REPORTED IN 188 TAXMANN 195(BOM). THE LD. COUNSEL F INALLY SUBMITTED THAT THE ORDER PASSED BY CIT(A) AFTER FOLLOWING THE DECISION IN T HE CASE OF CIT VS. GOVINDA CHAUDHARY AND SONS (SUPRA) WAS PERFECT, AS PER LAW AND DESERVED TO BE UPHELD. 6 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERU SED THE MATERIAL ON RECORD. WE NOTE THAT THE ASSESSEE RECEIVED ARBITRATION AWAR D OF RS.38,45,155/- INCLUSIVE OF TDS OF RS.5,26,027/-. THE SAID AMOUNT WAS INCLUSIVE OF INTEREST ELEMENT . THE ASSESSEE TREATED THE ENTIRE AMOUNT AS INCOME FROM B USINESS AND FILED ITS RETURN OF INCOME U/S 44AD OF THE ACT BY TAKING THE NET RECEIP T AFTER TDS AND FAILED TO GROSS UP THE SAME WHILE FILING THE RETURN OF INCOME TAX. THE LD.AO WHILE FRAMING THE ASSESSMENT ORDER U/S 143(3) ACCEPTED THE RETURNED I NCOME HOWEVER THE ASSESSMENT WAS RE-OPENED BY ISSUING NOTICE U/S 148. WHILE FRAM ING THE ORDER U/S 143(3) R.W. S. 147 OF THE ACT LD AO BIFURCATED THE TOTAL AMOUNT OF AWARD INTO CLAIM ORIGINALLY LODGED AND INTEREST THEREON AND TREATED AMOUNT OF ORIGINAL CLAIM AS PART OF BUSINESS INCOME BY CONSIDERING SAME U/S 44AD OF THE ACT WHIL E TREATING INTEREST THEREON AS INCOME FROM OTHER SOURCES. THE LD. CIT(A) REVERSED THE ORDER OF AO ON THIS ISSUE AND DIRECTED THE AO TO TREAT THE INTEREST AMOUNT AS PAR T OF BUSINESS INCOME OF THE ASSESSEE FOR THE PURPOSE OF COMPUTING INCOME U/S 44AD OF THE ACT BY FOLLOWING THE RATIO LAID 6 I.T.A. NO. 3226/M/2014 (A.Y: 2006-07) CIT VS. M/S MEHUL CONSTRUCTION BY THE HONBLE SUPREME COURT IN THE CASE OF GOVIND A CHAUDHARY AND SONS (SUPRA). WE FIND THAT THE ASSESSEE DURING THE COURSE OF EXEC UTION OF CONTRACT HAD SOME DISPUTES WITH M/S. KONKAN RAILWAY WHICH WENT INTO ARBITRATION AND THE ASSESSEE WAS AWARDED RS.11,65,889/- AS CLAIMED LOSS BY ASSE SSEE WITH INTEREST FOR THE DELAYED PAYMENT @ 10% P.A. OF RS. 26,79,266/- . IN OUR OPIN ION THE INTEREST IS ONLY THE AMOUNT OF ADDITION AND ACCRETION TO THE ASSESSEE RE CEIPTS FROM THE CONTRACTS AND IT IS OBVIOUSLY ATTRIBUTABLE AND INCIDENTAL TO THE BUSINE SS CARRIED OUT BY THE ASSESSEE. IN THE DECISION REFERRED TO ABOVE IN THE CASE OF GOVINDA C HAUDHARY AND SONS (SUPRA) SIMILAR ISSUED CAME UP FOR CONSIDERATION BEFORE THE THE HON BLE SUPREME COURT AND IT WAS HELD BY THE HONBLE COURT THAT INTEREST IS ALSO PA RT OF THE BUSINESS RECEIPT OF THE ASSESSEE. WE THEREFORE, DO NOT FIND ANY INFIRMITY I N THE ORDER PASSED BY THE CIT(A) AND UPHELD THE SAME BY DISMISSING THE APPEAL OF THE REVENUE. IN THE RESULT, REVENUES APPEAL IS DISMISSED. &#'( ) & *+ , ORDER PRONOUNCED IN THE OPEN COURT ON NOVEMBER 20 TH , 2015 SD/- SD/- (JOGINDER SINGH ) (RAJESH KUMAR) -. / JUDICIAL MEMBER / ACCOUNTANT MEMBER ' MUMBAI; 0 DATED : 20 .11.2015 ASHWINI GAJAKOSH PS 7 I.T.A. NO. 3226/M/2014 (A.Y: 2006-07) CIT VS. M/S MEHUL CONSTRUCTION / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 1 ( ) / THE CIT(A) 4. 1 / CIT - CONCERNED 5. 456 ..78 , 78# , ' / DR, ITAT, MUMBAI 6. 6:; < / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) $%, ' / ITAT, MUMBAI