MOSIAC LANDMARKS LLP, MUMBAI V. ACIT CIR. 29(2), MUMBAI

ITA 3977/MUM/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 4723 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 31-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D G
• Assessee Lawyers: F V IRANI
• Keywords: Capital expenditure; Set aside
• Section: 143(3); 201

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI RAJESH KUMAR (AM) & SHRI RAMLAL NEGI ( JM) I.T.A. NO. 3977/MUM/2017 (ASSESSMENT YEAR 2013-1 4) MOSIAC LANDMARKS LLP GODREJ ONE, 5 TH FLOOR PIROJSHANAGAR EASTERN EXPRESS HIGHWAY VIKHROLI EAST MUMBAI-400 079. PAN : AATFM8735F VS . ACIT, CIRCLE 29(2) ROOM NO. 202 C-10, 2 ND FLOOR PRATYAKSHA KAR BHAVANM BKC BANDRA EAST MUMBAI-400 051. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI F.V. IRANI DEPARTMENT BY SHRI D.G. PANSARI DATE OF HEARING 12 . 2 . 201 9 DATE OF PRONOUNCEMENT 22 . 2 . 201 9 O R D E R PER RAJESH KUMAR (AM) : THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 03.03.2017 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT Y EAR 2013-14. 2. ONLY EFFECTIVE ISSUE RAISED BY THE ASSESSEE IN V ARIOUS GROUNDS OF APPEAL IS AGAINST THE ORDER OF LEARNED CIT(A) CONFIRMING A CTION OF THE ASSESSING OFFICER IN HOLDING THAT INTEREST EXPENDITURE ON BORROWINGS UTILIZED FOR ADVANCING LOAN TO THE PARTNERS WAS NOT ALLOWABLE U/S. 57(III) OF T HE ACT WHILE ASSESSING THE INTEREST RECEIVED ON LOANS AS INCOME FROM OTHER SOU RCES THEREBY WRONGLY UPHOLDING THE ORDER OF THE ASSESSING OFFICER TREATI NG THE SAME AS PART OF PROJECT COST. 3. FACT IN BRIEF ARE THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTICED THAT THE ASSESSEE HAS DEBITED A SUM OF RS. 49,84,677/- AS FINANCE COST IN THE PROFIT AND LOSS ACCOUNT AND NOT CAPITALIZED AND DEBITED IT TO COST OF CONSTRUCTION. ACCORDINGLY, THE ASSESSEE WAS ASKED TO EXPLAIN WHY 2 INTEREST DEBITED TO THE PROFIT AND LOSS ACCOUNT SHO ULD NOT BE DISALLOWED AND TREATED AS CAPITAL EXPENDITURE AND ADDED TO THE COS T OF BUILDING AND ALSO ASKED TO EXPLAIN AS TO WHY INTEREST INCOME OF RS. 49,84,6 77/- SHOULD NOT BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES, WHICH W AS REPLIED BY THE ASSESSEE VIDE WRITTEN SUBMISSIONS DATED 5.11.2015, WHEREIN T HE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS GIVEN LOANS TO TWO PARTNERS OUT OF BORROWINGS/LOANS FROM ANOTHER PARTNER I.E. M/S. GODREJ PROPERTIES LI MITED. IT WAS ALSO SUBMITTED THAT COST OF INTEREST ON SUCH LOAN HAS BEEN SET OFF TO THE EXTENT OF RS. 49,84,677/-FROM THE INTEREST RECEIVED FROM THE PART NERS AND HENCE THE TOTAL FINANCE COST OF RS. 1,69,92,681/- WAS REDUCED BY TH E CORRESPONDING AMOUNT AND THUS CAPITALISED NET FINANCE COST OF RS. 1,20,0 8,004/- INSTEAD OF RS. 1,69,92,681/-. HOWEVER, REPLY OF THE ASSESSEE DID N OT FIND FAVOUR OF THE ASSESSING OFFICER. HE TREATED RS. 49,94,677/- AS INCOME FROM OTHER SOURCES WHILE THE SAME AMOUNT WAS ALSO CORRESPONDINGLY ADDE D TO THE CAPITAL WORK-IN- PROGRESS BY FRAMING ASSESSMENT U/S. 143(3) OF THE ACT DATED 31.12.2015. 4. IN THE APPELLATE PROCEEDINGS, LEARNED CIT(A) DIS MISSED THE APPEAL OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER :- 3.4 IT IS ACCORDINGLY HELD THAT, THE NETTING IS NOT POSSIBLE AND THE TEMPORARY-DIVERSION OF FUNDS AND EARNING OF INCOME ARE ON A TOTALLY DIFFERENT FOOTING BEING GOVERNED BY S 56. THE ESSEN TIAL NATURE OF THE LOAN TAKEN AND THE PURPOSE THEREOF SHALL GOVERN THE DEDU CTIBILITY OF INTEREST UNDER THE APPROPRIATE HEAD. ALSO IN VIEW OF THE FAC T THAT THE PROJECT UNDER QUESTION IS IN THE PROCESS OF BEING DEVELOPED ANY INCREASE IN THE PROJECT COST SHALL ULTIMATELY BE OF BENEFIT TO THE APPELLANT, INASMUCH AS THE TAXABLE PROFITS SHALL BE SUBSEQUENTLY REDUCED S UBJECT TO OF COURSE OTHER PROVISIONS OF LAW GOVERNING THE SUBJECT MATTE R. BE THAT AS IT MAY, IN FACT REMAINS THAT THE NATURE OF INTEREST INCOME EARNED, NOT BEING IN THE COURSE OF BUSINESS OF THE APPELLANT HAS TO BE T REATED AS INCOME FROM OTHER SOURCES AND THE INTEREST EXPENSE INCURRED BY THE APPELLANT ONLY HAS A REMOTE REFERENCE IF ANY TO SECTION 57. IN THE RESULT, THE TREATMENT BY THE ASSESSING OFFICER OF THE IMPUGNED AMOUNT IS HEREBY CONFIRMED AND THE GROUND IS IN RESPECT THEREOF ARE HEREBY DIS MISSED. 5. LEARNED AR VEHEMENTLY SUBMITTED BEFORE US THAT T HE FACTS OF THE CASE WERE NOT PROPERLY APPRECIATED BY THE AUTHORITIES. LEARNED AR SUBMITTED THAT 3 THE ASSESSEE HAS ADVANCED LOANS TO TWO PARTNERS OUT OF BORROWINGS FROM ANOTHER PARTNER M/S. GODREJ PROPERTIES LIMITED. WHA TEVER INTEREST INCOME WAS RECEIVED FROM THE PARTNERS WAS SET OFF AGAINST TOTAL INTEREST EXPENDITURE AND THEREFORE NET AMOUNT WAS CAPITALIZED IN THE WOR K IN PROGRESS ACCOUNT. AUTHORITIES BELOW, CAME TO THE CONCLUSION THAT SUC H NETTING OF INTEREST IS NOT PERMISSIBLE AND ACCORDINGLY ASSESSED INTEREST EARNE D OF RS. 49,84,677/- AS INTEREST FROM OTHER SOURCE AND ALSO CORRESPONDINGL Y ADDING THE SAID AMOUNT TO THE WORK-IN-PROGRESS ACCOUNT. LEARNED AR CONT ENDED BEFORE THE BENCH THAT SINCE THERE IS DIRECT NEXUS BETWEEN THE BORROW INGS AND LENDING, SAID EXPENDITURE HAS TO BE ALLOWED U/S. 57(III) OF THE A CT, WHICH ENVISAGED THAT WHERE ANY EXPENSES ARE WHOLLY AND EXCLUSIVELY INCUR RED IN CONNECTION WITH INCOME, EXPENSES HAS TO BE ALLOWED. LEARNED AR DREW OUR ATTENTION TO THE BANK STATEMENTS FILED DURING THE COURSE OF HEARING, WHEREIN LEARNED AR DREW TO OUR ATTENTION TO MONEY RECEIVED FROM M/S. GODREJ PROPERTIES LIMITED ON 29.12.2011 WAS DIRECTLY GIVEN TO THE EXTENT OF RS. 3,70,40,000/- TO ANOTHER PARTNER M/S. REPTON LANDMARKS LLP @ 12% AND INTERES T INCOME WAS EARNED TO THE TUNE OF RS. 33,48,882/-. SIMILARLY, IN RESPECT OF SECOND PARTNER MR. RAMESH P. BHATIA, MONEY WAS TAKEN FROM M/S. GODREJ PROPERTIES LTD. ON 14 TH MARCH TO THE TUNE OF RS. 60 LAKHS AND ON THE SAME D ATE MONEY WAS GIVEN OUT OF THAT TO MR. RAMESH P. BHATIA TO THE TUNE OF RS. 58,20,000/- WHICH IS DULY EVIDENCED BY THE BANK STATEMENT. THUS, LEARNED AR S UBMITTED THAT THERE IS DIRECT NEXUS BETWEEN THE MONEY BORROWED AND PAID AN D ACCORDINGLY INTEREST INCURRED SHOULD BE ALLOWED U/S. 57(III) WHILE COMPU TING INCOME FROM OTHER SOURCES. FINALLY LEARNED AR ALSO MADE WITHOUT PREJU DICE, SUBMISSION THAT IN THE CASE THE ARGUMENTS AS STATED HEREINABOVE, DO NO T FIND FAVOUR OF THE HON'BLE BENCH, THE SAME SHOULD BE TREATED AS BUSINE SS ACTIVITY AND INTEREST INCOME SHOULD BE ASSESSED ACCORDINGLY BY ALLOWING C ORRESPONDING DEDUCTION IN RESPECT OF INTEREST PAID. LEARNED AR ALSO DISTINGUI SHED THE DECISION RELIED ON BY LEARNED CIT(A) OF HON'BLE SUPREME COURT IN THE C ASE OF DR. V.P. GOPINATHAN (2001) 448 ITR 449. LEARNED AR SUBMITTED THAT THE F ACTS OF THE SAID CASE ARE CLEARLY DISTINGUISHABLE AS IN THE SAID CASE MONEY W AS BORROWED AND PUT INTO 4 FDRS AND MONEY ADVANCES WAS OUT OF BORROWINGS MADE AGAINST SECURITY OF FDRS BY PLEDGING FDRS SO MADE. LEARNED AR THEREFORE PRAYED THAT THE ORDER OF LEARNED CIT(A) MAY BE SET ASIDE AND THE ASSESSIN G OFFICER MAY BE DIRECTED TO ALLOW DEDUCTION U/S. 57(III) OF THE ACT WHILE ASSES SING INTEREST INCOME AS INCOME FROM OTHER SOURCES. 6. LEARNED DR HEAVILY RELIED ON THE ORDERS OF AUTHO RITIES BELOW AND SUBMITTED THAT THERE IS NO NEXUS AND THEREFORE THE ORDER OF LEARNED CIT(A) NEEDS TO BE AFFIRMED. 7. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIALS ON RECORDS AS PLACED BEFORE US INCLUDING VARIOUS DOCUMENTS FILED BY LEARNED AR DURING THE COURSE OF HEARING, WE OBSERVE THAT IN THIS CASE THE RE EXISTS NEXUS BETWEEN BORROWINGS OF MONEY FROM THE PARTNER M/S GODREJ PRO PERTIES LTD AND LENDING OUT OF THAT TO TWO PARTNERS. THEREFORE ,IN OUR O PINION, WHILE ASSESSING INTEREST INCOME RECEIVED ON LOANS FROM TWO PARTNER S NAMELY M/S. REPTON LANDMARKS LLP AND MR. RAMESH P. BHATIA TO THE TUNE OF RS. 49,84,677/- AS INCOME FROM OTHER SOURCES, DEDUCTION HAS TO BE ALL OWED IN RESPECT OF INTEREST PAYMENT ON LOAN TO M/S. GODREJ PROPERTIES LTD. TO E QUAL EXTENT. IN OUR OPINION DECISION CITED BY LEARNED CIT(A) IN THE CASE OF DR. V.P. GOPINATHAN (SUPRA) IS CLEARLY DISTINGUISHABLE ON FACT AND NOT APPLICABLE IN THE PRESENT CASE. IN OUR VIEW, THE ASSESSEE HAS PROVED DIRECT NEXUS BETWEEN BORROWINGS AND LENDING. THEREFORE WE ARE NOT IN AGREEMENT WITH THE CONCLUSI ON OF LEARNED CIT(A). ACCORDINGLY WE SET ASIDE THE ORDER OF LEARNED CIT( A) AND DIRECT THE ASSESSING OFFICER TO ALLOW DEDUCTION IN RESPECT OF INTEREST P AID U/S 57(III) OF THE ACT WHILE ASSESSING INTEREST INCOME AS INCOME FROM OTHER SOUR CES. 8. SINCE WE HAVE ALLOWED THE APPEAL ON PRIMARY CONT ENTION, WITHOUT PREJUDICE THE CONTENTION RAISED BY THE ASSESSEE NEE D NOT TO BE ADJUDICATED. 5 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. ORDER HAS BEEN PRONOUNCED IN THE COURT ON 22.2.2019 . SD/- SD/- (RAMLAL NEGI) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT M EMBER MUMBAI; DATED : 22/2/2019 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( (( ( SENIOR PRIVATE SECRETARY) PS ITAT, MUMBAI