PRASHID CONSTRUCTION PVT. LTD., MUMBAI V. ITO 10(3)(4), MUMBAI

ITA 4121/MUM/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 1766 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 05-06-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP LD
• Assessee Lawyers: SANJAY PARIKHLD
• Keywords: Capital receipt
• Section: 143(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.4121/MUM/2017 ( / ASSESSMENT YEAR: 2012-13) M/S. PRASHID CONSTRUCTION S P VT. LTD. BHANI 6, VITHAL NAGAR SOCIETY N.S. ROAD NO.10, JUHU SCHEME VILE PARLE, MUMBAI- 400 049. / VS. INCOME TAX OFFICER - 10( 3 )(4) R.NO. 554, 5 TH FLOOR, AAYKAR BHAVAN M.K. ROAD MUMBAI - 400 020. ! ./ ./PAN/GIR NO. AACCP-5073-D ( /APPELLANT ) : ( / RESPONDENT ) ASSESSEE BY : SHRI SANJAY PARIKH-LD.AR DEPARTMENT BY : SHRI NEIL PHILIP-LD.DR / DATE OF HEARING : 13/05/2019 / DATE OF PRONOUNCEMENT : 06/06/2019 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER):- 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [IN SHORT REFERRED TO AS AY] 2012-13 CONTEST THE ORDER OF LD. COMMIS SIONER OF INCOME-TAX (APPEALS)-17, MUMBAI, [IN SHORT REFERRED TO AS CIT (A)], APPEAL NO. CIT(A)- 17/IT-67/15-16 DATED 24/03/2017 ON FOLLOWING GROUNDS OF APPEAL: - 2 A)DISALLOWANCE OF INTEREST - RS. 7,03,401/- 1) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) - 17, MUMBAI [CIT(A)] ERRED ON FACTS AND IN LAW IN CONFIRMING THE ORDER OF THE INCOME TAX OFFICER - 10(3)(4), MUMBAI (AO) DISALLOWING INTEREST OF RS.7,03,401/- W ITHOUT APPRECIATING THAT THE APPELLANT HAD SUFFICIENT NON-INTEREST BEARING FUNDS TO GIVE THE ADVANCES. 2) THE APPELLANT PRAYS THAT THE DISALLOWANCE OF INT EREST OF RS.7,03,401/- AS MADE BY THE AO AND AS CONFIRMED BY THE CIT(A), MAY BE DELET ED, B)TAXING RENT OF RS. 21,150/- 3) THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ORDER OF THE AO TAXING THE RENT RECEIVED BY THE APPELLANT OF RS.21, 150/- AS THE INCOME OF THE APPELLANT. 4) THE APPELLANT PRAYS THAT THE ADDITION MADE BY T HE AO OF RS. 21,150/- ON ACCOUNT OF RENT AND AS CONFIRMED BY THE CIT(A), MAY BE DELETED . C) WITHOUT PREJUDICE TAXING THE RENT ON GROSS BASIS 5) WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT( A) ERRED IN CONFIRMING THE RENT RECEIPT OF RS. 21,150/- ON GROSS BASIS WITHOUT APPRECIATING THAT THE APPELLANT WAS ENTITLED TO DEDUCTION U/S. 24 AS PER LAW AND ONLY THE NET RENTA L INCOME COULD BE TAXED. 6) IF YOUR HONOURS ARE NOT INCLINED TO DELETE THE E NTIRE INCOME OF RS. 21,150/-, YOUR HONOURS MAY BE PLEASED TO DIRECT THE AO TO TAX THE NET RENTAL INCOME AS AGAINST THE GROSS INCOME OF RS. 21,150/-. D)TAXING TRANSFER FEES RECEIVED AS INCOME - R S, 5,00,000/- 7) THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ORDER OF THE AO TAXING THE TRANSFER FEES RECEIVED BY THE APPELLANT OF RS. 5,00,000/- AS THE INCOME OF THE APPELLANT. 8) THE APPELLANT PRAYS THAT THE TRANSFER FEES OF RS . 5,00,000/- TAXED BY THE AO AND AS CONFIRMED BY THE CIT(A), MAY BE DELETED. 9) WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED AO A ND THE CIT(A) ERRED IN NOT APPRECIATING THAT THE TRANSFER FEES OF RS. 5,00,000 /- WAS A CAPITAL RECEIPT AND HENCE COULD NOT BE TAXED AS THE REGULAR INCOME OF THE APP ELLANT. 10)IF YOUR HONOURS ARE NOT INCLINED TO DELETE THE E NTIRE ADDITION ON ACCOUNT OF TRANSFER FEES OF RS. 5,00,000/-, YOUR HONOUR MAY BE PLEASED TO HOLD THAT THE RECEIPT OF TRANSFER FEES IS A CAPITAL RECEIPT AND HENCE, SHOULD BE DEAL T WITH ACCORDINGLY. 2.1 FACTS ON RECORD REVEAL THAT THE ASSESSEE BEING RESIDENT CORPORATE ASSESSEE HAS BEEN ASSESSED U/S 143(3) FOR IMPUGNED AY ON 19/ 03/2015 WHEREIN THE INCOME HAS BEEN ASSESSED AT RS.5.21 LAC S AS AGAINST NIL RETURN FILED BY THE ASSESSEE ON 12/11/2012. 2.2 DURING ASSESSMENT PROCEEDINGS, IT TRANSPIRED TH AT THE ASSESSEE ADVANCED INTEREST-FREE DEPOSIT FOR RS.58.61 LACS WH EREAS THE ASSESSEE WAS PAYING INTEREST @12% ON ITS BORROWINGS. THE AGG REGATE BORROWINGS 3 STOOD AT RS.1338.35 LACS AND THE ASSESSEE DEBITED I NTEREST OF RS.82.68 LACS UNDER THE HEAD WORK-IN-PROGRESS [WIP] SINCE TH E PROJECTS WERE NOT COMPLETED AND THE ASSESSEE WAS FOLLOWING PROJECT CO MPLETION METHOD OF ACCOUNTING TO RECOGNIZE THE REVENUE. ACCORDINGLY, P ROPORTIONATE INTEREST @12% AMOUNTING TO RS.7.03 LACS ON STATED INTEREST F REE DEPOSIT OF RS.58.61 LACS WAS DISALLOWED U/S 36(1)(III) AND RED UCED FROM WIP. 2.3 THE SECOND ADJUSTMENT STEM FROM THE FACT THAT T HE ASSESSEE RECEIVED RENT FROM TENANT FOR RS.21,150/- AND TENANCY TRANSF ER FEES OF RS.5 LACS WHICH WAS REDUCED FROM WIP. HOWEVER, THE SAME, IN T HE OPINION OF LD. AO, WAS ASSESSABLE AS INCOME FROM OTHER SOURCES. THE ASSESSEE DEFENDED ITS STAND BY SUBMITTING THAT THE ASSESSEE WAS BUILDER A ND DEVELOPER AND THE INCOME ON THE PROJECT WOULD BE TAXED ON PROJECT AS A WHOLE AND NOT ON INDIVIDUAL INCOME BASIS. RELIANCE WAS PLACED ON THE DECISION OF THIS TRIBUNAL RENDERED IN ACIT VS. SKYLARK BUILDER 2011 TIOL 400. HOWEVER, THE SAME COULD NOT FIND FAVOR WITH LD. AO WHO OBSERVED THAT THE ASSESSEE HAD PURCHASED BUNGALOW FROM THE OWNERS ALONG WITH THE T ENANTS AND THE SAID ASSET WAS DISCLOSED AS STOCK-IN-TRADE. THEREFORE, R ENT AND TENANCY FEES RECEIVED DID NOT RELATE TO PROJECT IN HAND. THE CIT ED DECISION WAS DISTINGUISHED SINCE IN THAT CASE TDR RECEIVED BY TH E ASSESSEE WAS DIRECTLY RELATED TO BUSINESS OF CONSTRUCTION. HOWEVER, IN TH E PRESENT CASE, THE ASSESSEE HAD RECEIVED RENT AND TRANSFER FEES FROM T HE TENANT OF THE BUILDING PURCHASED FOR REDEVELOPMENT AND DID NOT RELATE TO T HE ASSESSEES CONSTRUCTION ACTIVITIES. THEREFORE, THE AFORESAID R ECEIPTS OF RS.5.21 LACS WERE ASSESSED AS INCOME FROM OTHER SOURCES AND WIP WAS ENHANCED BY CORRESPONDING AMOUNT. 4 3. AGGRIEVED, THE ASSESSEE AGITATED THE SAME, HOWEV ER, WITHOUT ANY SUCCESS BEFORE LD. FIRST APPELLATE AUTHORITY VIDE I MPUGNED ORDER DATED 24/03/2017 WHERE THE STAND OF LD. AO GOT CONFIRMED. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. THE LD. AUTHORIZED REPRESENTATIVE FOR ASSESSEE C ONTESTED THE STAND OF LOWER AUTHORITIES WHEREAS LD. DR SUPPORTED THE S TAND IN THE IMPUGNED ORDER. 5. WE HAVE CAREFULLY HEARD THE RIVAL SUBMISSIONS AN D PERUSED RELEVANT MATERIAL ON RECORD. THE PERUSAL OF FINANCIAL STATEM ENTS AS PLACED ON RECORD REVEAL THAT THE ASSESSEES FREE FUNDS IN THE SHAPE OF SHARE CAPITAL AND RESERVES FAR EXCEEDS THE INTEREST FREE DEPOSITS GRANTED BY THE ASSESSEE. ANOTHER FEATURE TO BE NOTED IS THAT THERE IS VERY M INOR INCREASE IN THE DEPOSITS DURING THE IMPUGNED AY. THEREFORE, A PRESU MPTION WAS TO BE DRAWN IN ASSESSEES FAVOR THAT THE STATED DEPOSITS WERE MADE OUT OF FREE FUNDS AVAILABLE WITH THE ASSESSEE UNLESS THE NEXUS OF BORROWED FUNDS VIS- -VIS INTEREST FREE DEPOSITS GRANTED BY THE ASSESSE E COULD BE PROVED BY THE REVENUE. THE SAID PROPOSITION IS IN LINE WITH THE R ECENT DECISION OF HONBLE SUPREME COURT RENDERED IN CIT VS RELIANCE INDUSTRIES LTD. [410 ITR 466]. RESPECTFULLY FOLLOWING THE SAME, WE DELETE DISALLOW ANCE U/S 36(1)(III) MADE BY LD. AO. THE LD. AO IS DIRECTED TO NULLIFY T HE ADJUSTMENT OF THE SAME FROM WIP. GROUND NO. A STANDS ALLOWED. 6.1 SO FAR AS THE TREATMENT OF RENTAL INCOME AS WEL L AS TRANSFER FEES RECEIVED BY THE ASSESSEE IS CONCERNED, WE FIND THAT THE ASSESSEE HAS ENTERED INTO AN AGREEMENT FOR TRANSFER OF TENANCY R IGHTS ON 05/10/2011.THIS AGREEMENT IS BETWEEN THE OUTGOING TENANTS, ASSESSEE AS LANDLORD AND 5 INCOMING TENANTS. THE PERUSAL OF THE SAME REVEAL TH AT THE ASSESSEE WAS OWNER OF A CERTAIN PROPERTY BEARING CTS NO. 677, 67 7/1& 677/2 IN VILLAGE VILE PARLE WEST, TALUKA ANDHERI, ADMEASURING 1110 S QUARE METERS TOGETHER WITH BUILDING STANDING THEREUPON. UNDER TH E TERMS OF THE AGREEMENT, THE INCOMING TENANTS HAS AGREED TO OBTAI N TENANCY RIGHTS FROM OUTGOING TENANTS FOR A CERTAIN LUMP SUM CONSIDERATI ON. THE LANDLORD, AS A CONSENTING PARTY, HAS AGREED FOR THE SAME UPON RECE IPT OF A SUM OF RS.5 LACS. HENCE, THIS AGREEMENT IS FOR TRANSFER OF TENA NCY RIGHTS IN CERTAIN LAND & BUILDING FROM OUTGOING TENANTS IN FAVOR OF INCOMI NG TENANTS WITH ASSESSEE AS A CONSENTING PARTY. 6.2 IT ALSO EMANATES FROM THE RECORD THAT THE ASSES SEE WAS PURSUING ONLY ONE PROJECT WHICH WAS AT THE ABOVE STATED SITE. ALL COSTS UNDER THE PROJECT HAVE BEEN CAPITALIZED BY THE ASSESSEE UNDER THE HEA D STOCK-IN-PROCESS FOLLOWING PROJECT COMPLETION METHOD OF ACCOUNTING. NO EXPENDITURE HAS BEEN CLAIMED IN THE PROFIT & LOSS ACCOUNT DURING IM PUGNED AY. THE PERUSAL OF SCHEDULE 13 OTHER EXPENSES REVEAL THAT THE ASSESSEE HAS PAID COMPENSATION OF RS.3 LACS TO TENANTS WHICH HAS ALSO BEEN CAPITALIZED UNDER THE SAME HEAD AND NOT CLAIMED AS AN EXPENDITU RE. THE AFORESAID FACTORS WOULD REVEAL THAT ALL THE ACTIVITIES & TRAN SACTIONS BEING CARRIED OUT BY THE ASSESSEE, IN UNISON, WERE IN FURTHERANCE OF CAR RYING OUT THE STATED PROJECT ONLY AND PART AND PARCEL OF THE UNIFIED CON STRUCTION ACTIVITY. THIS BEING SO, THE ACTION OF THE ASSESSEE IN REDUCING TH E STATED AMOUNTS FROM WIP WAS JUSTIFIED. THEREFORE, BY REVERSING THE STAN D OF LOWER AUTHORITIES, WE DIRECT LD. AO TO DELETE THE STATED ADDITIONS AND RE DUCE WIP BY 6 CORRESPONDING AMOUNT. GROUND NOS. B & D STANDS ALLO WED. GROUND NO. C, BEING WITHOUT PREJUDICE GROUND, BECOMES INFRUCTUOUS. 7. THE APPEAL STANDS PARTLY ALLOWED IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 06 TH JUNE, 2019. SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 06/06/2019 SR.PS:-JAISY VARGHESE ! ' ! / COPY OF THE ORDER FORWARDED TO : 1. !% / THE APPELLANT 2. &'!% / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. ( )&* , * , / DR, ITAT, MUMBAI 6. ) ,-. / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.