MOSIAC LANDMARKS LLP, MUMBAI V. DCIT, CIRCLE-29(2)(3), MUMBAI

ITA 436/MUM/2019

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 6907 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 29-01-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Set aside
• Section: 13

Judgement Text

1 ITA 436/Mum/2019 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “SMC”, MUMBAI BEFORE SHRI RAHUL CHAUDHARY (JUDICIAL MEMBER) AND SHRI GAGAN GOYAL (ACCOUNTANT MEMBER)0 I.T.A No.436/Mum/2019 (Assessment year: 2012-13) Mosaic Landmarks LLP Godrej One, 5 th Floor Pirajshanagar, Eastern Express Highway, Vikhroli (East) Mumbai-400 079 PAN : AATFM8735F vs Dy.CIT-13(3)(2), Mumbai APPELLANT RESPONDENT Assessee represented by Shri Jitendra Jain Department represented by Shri Nishant Somaiya Date of hearing 22/02/2022 Date of pronouncement 15/03/2022 O R D E R Per: Gagan Goyal (AM): 1. This appeal has been filed by the assessee against the order dated 27/06/2017 passed by the Commissioner of Income-tax (Appeals)-58, Mumbai for the assessment year 2012-13. 2. The following effective grounds of appeal are taken by the assessee:- 2 ITA 436/Mum/2019 “1) The learned Commissioner of Income Tax (Appeals) erred in holding that the Appellant was not a running concern and that the only activity of the Appellant was to obtain an advance and to park such funds and in ignoring the fact that the project development of the Appellant had already commenced during the year. 2. The Assessing Officer erred in holding that the interest expending attributable to the borrowings utilized for giving loans to the partners was not allowable under Section 36(l)(iii) of the Act against the interest income earned by the Appellant LLP from such loans and in holding that interest income generated from such loans had no nexus to the borrowed funds. 3. The learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer in taxing interest income of Rs.12.87,432/- under the head "Income from other sources”. The Appellant submits that such interest income be taxed under the head of Business". 4) Without prejudice to the above Grounds 2 and 3, even assuming though not conceding that the interest income is to be taxed as "Income from Other Sources", the learned Commissioner of Income Tax (Appeals) erred in holding that the interest expenditure incurred wholly and exclusively for the purpose of earning such interest income was not allowable under Section 57(iii) of the Act. Having regard to the facts and circumstances of the case, the Appellant submits that the interest expenditure incurred for earning such interest income be allowed while computing the income under the head "Income from Other Sources". 3. Facts and finding on ground number one are as under: “1) The learned Commissioner of Income Tax (Appeals) erred in holding that the Appellant was not a running concern and that the only activity of the Appellant was to obtain an advance and to park such funds and in ignoring the fact that the project development of the Appellant had already commenced during the year. 3 ITA 436/Mum/2019 The assessee LLP WAS FORMED ON 1 st August 2011 with an object of purchasing the land and development of the same there after and gave advances for the purchase of land on September 20, 2011. Thereafter to further their business objects assessee took M/s. Godrej Properties Limited as partner on 16 th December 2011. Thereafter land for development of residential projects with M/s. Godrej Properties Limited at Pune, which formed part of the project inventory was acquired on 19 th December 2011. Immediately thereafter the project expenses for the development of the residential project under construction commenced from 9 th January onwards. Various expenses incurred on construction expenses, architect fees, advertising & marketing fees and overhead expenses are furnished as per paper book on pages No. 51 to 57. These expenses are fully reflected in the audited balance sheet of the assessee and duly confirmed by the AO also in his order vide page 1 para 3. So, in these circumstances of the facts it’s not reasonable at the end of the AO to hold that the Appellant was not a running concern and that the only activity of the Appellant was to obtain an advance and to park such funds and in ignoring the fact that the project development of the Appellant had already commenced during the year. 4. Herein below we are discussing the facts and findings pertaining to ground numbers 2, 3, and 4 as under: 5. The assessee, an LLP, is engaged in the business of property development since from its incorporation. The assessee LLP started developing a residential project known as ‘Godrej Horizon’ at village Undri, Pune which was under progress during the year under consideration. The assessing officer, in the course of assessment proceedings, noticed that assessee has debited an amount of Rs.12, 87,432/- as finance cost in the Profit & Loss Account and not debited the same to cost of construction. When confronted, the assessee explained that 4 ITA 436/Mum/2019 assessee LLP borrowed a sum of Rs.13 crores from its partner, Godrej Properties and had interest @12% p.a. as prescribed under section 40(b)(iv) of the Act and in terms of the Deed of Partnership. Out of the said borrowing, assessee LLP had placed a fixed deposit of Rs.13 crores with IndusInd Bank, Pune Branch, Pune for a period of 8 days and received interest income of Rs.2,20,822/-. The said fixed deposit was thereafter recalled and out of the said amount of Rs. 13 crores, an amount ofRs.3.70 crores was given as a loan to one of the partners and the Assessee LLP charged interest at the rate of 12% from the said partner on the amount advanced. Similarly, the Assessee LLP also gave an amount of Rs. 58.20 lacs as a loan to one of the partners and the Assessee LLP charged interest at the rate of 12% from the said partner on the amount advanced. Thus, it was explained that interest income that has been earned by the assessee LLP is lower than the interest expenditure incurred to earn such income. However, as the interest expenditure incurred to earn such income was less than the interest expenditure, the interest expenditure incurred has been set off against such interest income and the balance interest expenditure has been treated as part of cost of the project. And as the funds were borrowed for business purposes, the interest income and the expenses attributable thereto were reflected profits gains of business. The assessing Officer, however, observed that the assessee LLP has capitalized finance cost only of Rs.29,68,651/- (after setting off the cost of interest of Rs.12,87,43/- from the finance cost of Rs.2,56,083/-). According to the assessing officer, the assessee ought to have capitalized the entire finance cost of Rs.42, 56,083/-. He treated the interest income of Rs.12, 87,432/- as “Income from other sources”. On appeal, the Ld.CIT (A), following his predecessor’s order for A.Y.2013-14, upheld the action of the assessing officer. 5 ITA 436/Mum/2019 6. Further aggrieved, the assessee is in appeal before the Tribunal. 7. The learned counsel for the assessee submitted that the issue in appeal squarely stands covered by the decision of the Tribunal in assessee’s own case for assessment year 2013-14. 8. The learned departmental representative, though agreed with the contention of the assessee, still, he relied upon the decision of the lower authorities. 9. We have considered the submissions made by either party. We find that the “D” Bench of the Mumbai Tribunal, in assessee’s own case has considered identical issue in ITA No.3977/Mum/2017 for assessment year 2013-14 and decided the issue in favour of the assessee with the following observations:- “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 there exists nexus between borrowings of money from the partner M/S Godrej Properties Ltd and lending out of that to two partners. Therefore ,in our opinion, while assessing interest income received on loans from two partners 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 allowed in respect of interest payment on loan to M/s. Godrej Properties Ltd. to equal 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 conclusion 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 paid u/s 57(iii) of the Act while assessing interest income as income from other sources.” 10. Facts and circumstances of the case being identical, consistent with the earlier finding of the Tribunal, we decide the issue in favour of the assessee. 6 ITA 436/Mum/2019 11. In the result, appeal filed by the assessee is allowed and direct the AO accordingly. Order pronounced in the open court on 15 th March, 2022. Sd/- Sd/- (RAHUL CHAUDHARY) (GAGAN GOYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dt : 15 th March, 2022 Pavanan /True copy/ Assistant Registrar / Senior Private Secretary ITAT, Mumbai Benches