SHREE RAM URBAN INFRASTRUCTURE LTD, MUMBAI V. DCIT CIR 7(2), MUMBAI

ITA 3511/MUM/2016

AI Insights

M/s. Shree Ram Urban Infrastructure Ltd. appealed against the order of the Commissioner of Income Tax (Appeals), which confirmed the Assessing Officer's decision on two main issues: the disallowance of proportionate interest expenses capitalized to WIP and the classification of income from a business center as income from house property. The Tribunal dismissed the appeal, agreeing with the lower authorities' findings and noting the assessee's failure to substantiate their claims or appear consistently during the proceedings.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 301219 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 9 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 30-11-2022
• Assessment Year: 2010-2011
• Appeal Filed On: 18-05-2016
• Other Referred Cases: Land Acquisition Collector vs. MST Katiji & Others, CIT vs. Abhishek Industries Ltd, Shambu Investments Ltd vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S.N. KABRA
• Assessee Lawyers: MOVING AN APPLICATION BY WAY OF AFFIDAVIT; FILING PRESENT APPEAL RAISED TWO GROUNDS
• Keywords: Set aside
• Section: 143(3); 43

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH “F”, MUMBAI BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No.3511/M/2016 Assessment Year: 2010-11 M/s. Shree Ram Urban Infrastructure Ltd., Shree Ram Mills Premises, Ganpatrao Kadam Marg, Lower Parel, Mumbai – 400 013 PAN: AACCS0454P Vs. DCIT, Circle 7(2), Mumbai (Appellant) (Respondent) Present for: Assessee by : None Revenue by : Shri S.N. Kabra, Sr. A.R. Date of Hearing : 01 . 12 . 2022 Date of Pronouncement : 23 . 02 . 2023 O R D E R Per : Kuldip Singh, Judicial Member: At the very outset it is brought to the notice of the Bench by the Ld. D.R for the Revenue that this appeal filed by the appellant, M/s. Shree Ram Urban Infrastructure Ltd. (hereinafter referred to as ‘the assessee’) is time barred having been filed with the delay of 43 days. The assessee by moving an application by way of affidavit that due to the fact that order passed by the Ld. CIT(A) has been misplaced by the staff and in the absence of concerned accountant the appeal could not be filed within limitation. ITA No.3511/M/2016 M/s. Shree Ram Urban Infrastructure Ltd. 2 2. We are of the considered view that when the reason brought on record by the assessee is duly supported with affidavit filed by the director of the company, we find it sufficient cause to condone the delay in view of the decision rendered by the Honorable Supreme Court in case of Land Acquisition Collector vs. MST Katiji & Others 167 ITR 471 (SC) wherein the Hon’ble Supreme Court has held that “it is on contention of delay that when substantial justice and technical considerations are pitted against each other, the case of substantial justice deserves to be preferred, for the other side cannot claim to have a vested right in injustice being done because of a non deliberate delay” so we condone the delay in filing the present appeal. 3. The assessee by filing the present appeal, sought to set aside the impugned order dated 22.01.2016 passed by Commissioner of Income Tax (Appeals), Mumbai [hereinafter referred to as the CIT(A)] qua the assessment year 2010-11 on the grounds inter-alia that :- “1. The Hon'ble Commissioner of Income Tax (Appeal) has erred in confirming the Order of Assessing Officer in reducing WIP on account of proportionate disallowance of interest expense of Rs.1,73,04,183/- capitalised to WIP mainly incurred on account of Secured Loans on the pretext that interest free Loans and Advances has been extended from Secured Loans by the appellant. It is submitted that such proportionate interest disallowance worked out by Assessing Officer and confirmed by the Hon'ble Commissioner of Income Tax (Appeal) should be deleted and necessary direction should be given in this regard. 2. The Hon'ble Commissioner of Income Tax (Appeal) has erred in confirming the Order of Assessing Officer in treating business centre income of Rs.1,00,91,601/- generated from providing Business Facility as income taxable under the head "Income from House Property. It is submitted that appellant has during the year continued with the activities of running of business centre and income there from has been regularly offered as business income. It is submitted that such treatment of considering business income as Income from House ITA No.3511/M/2016 M/s. Shree Ram Urban Infrastructure Ltd. 3 Property by the learned assessing officer is unjustifiable therefore it is requested from your honour to give necessary direction in this regard. 3. Your appellant craves to add, alter, or amend any of the grounds of appeal on or before the date of hearing of appeal.” 4. Briefly stated facts necessary for consideration and adjudication of the issues at hand are : the assessee is into the business of trading in grey material, construction activity and also earned a rental income from business centre. On the basis of information received from Maharashtra Sales Tax Department survey action under section 133 of the Income Tax Act, 1961 (for short 'the Act') was carried out, during which it was found that in standard purchase procedure the purchase bills are accompanied by delivery challan, weighment slip, goods test slip, goods receipt note etc. However, the Assessing Officer (AO) noticed that the purchase bills from certain parties are not corroborated with supporting documents viz. delivery challan, weighment slip, goods test slip, goods receipt note etc. The AO has given numerous opportunities to the assessee to bring on record the supporting documents but he failed to do so. The AO after thrashing the facts on the basis of survey proceedings and statement recorded by the investigation wing proceeded to frame the assessment under section 143(3) of the Act at the total loss of Rs.85,15,862/-. 5. The assessee carried the matter before the Ld. CIT(A) by way of filing appeal who has confirmed the addition by dismissing the same. Feeling aggrieved with the impugned order passed by the Ld. CIT(A) the assessee has come up before the Tribunal by way of filing present appeal. ITA No.3511/M/2016 M/s. Shree Ram Urban Infrastructure Ltd. 4 6. This appeal was filed by the assessee on 21.11.2017 thereafter numerous opportunities have been availed by the assessee by moving adjournment applications. On 10.10.2022 again none appeared on behalf of the assessee and notice was issued through Registered Post with Acknowledgement Due (RPAD) as well as through Ld. D.R for 01.12.2022 on which date again the assessee did not prefer to put in appearance. Since a period of more than 30 days has already elapsed from the issuance of notice the assessee is presumed to have been served but failed to put in appearance. It appears that the assessee is not interested in prosecuting the present appeal. So the Bench has decided to dispose of this appeal on the basis of material available on record with the assistance of the Ld. D.R. for the revenue. 7. We have heard the Ld. D.R. for the Revenue, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and case law relied upon. 8. The assessee by filing present appeal raised two grounds before the Tribunal: 1. Challenging the order of Ld. CIT(A) confirming the assessment order in reducing the work in progress (WIP) on account of proportionate disallowance of interest expenses of Rs.1,37,04,183/- capitalised to WIP mainly incurred on account of secured loans 2. That Ld. CIT(A) erred in confirming the order of AO in treating the business income of Rs.1,00,91,601/- generated ITA No.3511/M/2016 M/s. Shree Ram Urban Infrastructure Ltd. 5 from providing business facilities as income taxable under the head “income from house property”. 9. The Ld. CIT(A) after duly thrashing the facts decided both the aforesaid issues against the assessee by returning following findings: “4. As regards ground No. 1, the facts are that the assessee had taken loan amounting to Rs 411.9 crores against which the interest expenses of Rs 59.91 crores is claimed. At the same time the assessee has given loans and advances amounting to Rs 208,52 crores to various parties. During the assessment proceedings, the AO proposed to disallow proportionate interest. A detailed reply of the assessee is reproduced in the assessment order. The appellant in the submissions admitted that the assessee is having common pool of fund from which advances are given. The AO disallowed interest @ 14.5% as per the ledger of the party. During the appellate proceedings the appellant reiterated the submissions made during the assessment proceedings. In the case of CIT vs. Abhishek Industries Ltd 285 ITR 1 it is held that :- "Entire money in business entity comes in a common kitty. The monies received as share capital, as term loan, as working capital loan, as sale proceeds, etc, do not have any different colour. Whatever are the receipts in the business, that have the colour of business receipts and have no separate identification. Sources have no concern whatsoever. The only thing sufficient to disallow the interest paid on the borrowing to the extent the amount is lent to sister concern without carrying any interest for non business purpose would be that the assessee has some loans or other interest bearing debts to he repaid. In case the assessee had some surplus amount which, according to it, could not be repaid prematurely to any financial institution, still the same is either required to be circulated and utilized for the purpose of business or to be invested in a manner in which it generates income and not that is diverted towards sister-concern free of interest. This would result in not presenting true and correct picture of the accounts of the assessee as at the cost being incurred by the assessee, the sister-concern would be enjoying the benefits thereof. It cannot possibly be held that the funds to the extent diverted to sister-concerns or other persons free of interest were required by the assessee for the purpose of its business and loans to that extent were required to be raised. We do not subscribe to the theory of direct nexus of the funds between borrowings of the funds and diversion thereof for non business purposes. Rather, there should be nexus of use of borrowed funds for the purpose of business to claim deduction under s. 36(1)(iii) of the Act. That being the position, there is no escape from the finding that interest being paid by the assessee to the extent the amounts are diverted to sister-concem on interest free basis are to be disallowed." ITA No.3511/M/2016 M/s. Shree Ram Urban Infrastructure Ltd. 6 From the facts as above, it is clear that the amount has been advanced out of common pool of fund and the assessee could not prove the nexus of interest free funds with the advances made. From the reply submitted during assessment proceedings, it is noted that all the advances supposedly given for business purposes has been recovered from the parties and therefore the contention that advances are given for business is not proved. Appellant has himself admitted that it is difficult to establish the direct nexus of interesting bearing funds to advances given. Therefore looking into the facts of the case and relying on the decision in the case of Abhishek Industries (Supra) the addition is confirmed. The ground No.1 is dismissed. 5. As regards ground No. 2, I have considered the submissions made. As clear from the assessment order, the same income has been assessed as "House Property Income in earlier years in which the facts were identical. The appellant has not referred to any adverse decision against the findings of the AO in earlier year. The appellant has submitted that it is managing the business centre and has given amenities to the parties like provision for security, electricity, water provisions etc. It is therefore submitted that income earned is charged for providing business facilities to the parties and is not a plain rent. From the facts, it is clear that the primary intention of the assessee is to earn rent from letting out the property and the ancillary services provided are attached to such letting out of the property. Therefore relying on the decision in the case of Shambu Investments Ltd vs. CIT 263 ITR 143(SC), this ground of appeal is dismissed.” 10. We have perused the order passed by the Ld. CIT(A). Undisputedly assessee has taken loan of Rs.411.9 crore against which claimed interest expenses of Rs.59.91 crore but at the same time the assessee has also given loans and advances amounting to Rs.208.52 crores to various parties. The AO allowed the interest at the rate of 14.5% on the basis of ledger of the assessee. When the assessee has failed to prove the nexus of interest free funds with advances made rather advanced the loan out of common pool and no other facts have been brought on record before the Tribunal we do not find any illegality or perversity in the impugned findings given by the Ld. CIT(A). The assessee despite availing numerous ITA No.3511/M/2016 M/s. Shree Ram Urban Infrastructure Ltd. 7 opportunities has failed to appear before the Tribunal to assist the Bench to unsettle the findings returned by the Ld. CIT(A). 11. So far as ground No.2 raised by the assessee is concerned the Ld. CIT(A) confirmed the findings returned by the AO in treating the business centre income of Rs.1,00,91,601/- generated from providing business facilities as income taxable under the head “income from house property” by following the earlier year order. There is nothing on record if the findings returned in the earlier years have been disturbed. The assessee has not come up before the Tribunal to explain as to how the said income is to be treated as business income. So we find no illegality or perversity in the impugned addition confirmed by the Ld. CIT(A). In view of what has been discussed above present appeal filed by the assessee is hereby dismissed. Order pronounced in the open court on 23.02.2023. Sd/- Sd/- (S. RIFAUR RAHMAN) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 23.02.2023. * Kishore, Sr. P.S. Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT (A) Concerned, Mumbai The DR Concerned Bench //True Copy// ITA No.3511/M/2016 M/s. Shree Ram Urban Infrastructure Ltd. 8 By Order Dy/Asstt. Registrar, ITAT, Mumbai.