ITO, New Delhi V. M/s. Star Realty Pvt. Ltd., New Delhi

ITA 4431/DEL/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5455 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 13-02-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 17-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RENUKA JAIN
• Assessee Lawyers: V MOHAN CHOURSIYA
• Keywords: Capital expenditure

Judgement Text

ITA NO. 4431/DEL/2012 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI C,M. GARG, JUDICIAL MEMBER I.T.A. NO. 4431/DEL/2012 A.Y. : 2009-10 INCOME TAX OFFICER, WARD 9(2), ROOM NO. 180, CR BUILDING, NEW DELHI VS. M/S STAR REALTY PVT. LTD., 75, GREATER KAILASH, PART-I, NEW DELHI (PAN: AAACS97621) (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY : SH. VED JAIN, CA & SMT. RANO JAIN, CA AND SH. V. MOHAN CHOURSIYA, ADV. DEPARTMENT BY : SMT. RENUKA JAIN, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS-XII), NEW D ELHI DATED 30.5.2012 PERTAINING TO ASSESSMENT YEAR 2009-10. 2. THE ISSUE RAISED IS THAT LD. CIT(A) HAS ERRED I N DELETING THE ADDITION OF RS. 20,13,229/- AS INCOME EARNED FROM OTHER SOURCES FOR THE INTEREST RECEIVED ON TERM DEPOSITS. 3. IN THIS CASE AO NOTED THAT ASSESSEE IS A COMPANY AND IS ENGAGED IN THE BUSINESS OF REAL ESTATE. AO FURTHER NOTED THAT THE ASSESSEE HAS STATED THAT IT WAS IN CONSTRUCTION OF FIVE STAR HOTEL. AO OBSERVED THAT ASSESSEE HAS EARNED INTEREST INCOM E OF RS. ITA NO. 4431/DEL/2012 2 20,13,229/- ON TERM DEPOSITS AND THE SAME WAS NOT D ECLARED AS INCOME IN THE PROFIT AND LOSS ACCOUNT. AO NOTED THAT THE ASSESSEE HAS DEDUCTED THE SAID AMOUNT FROM CAPITAL WORK IN P ROGRESS. ON ENQUIRY IT WAS ASKED THAT WHY THIS AMOUNT WAS NOT T REATED INCOME FROM OTHER SOURCES. ASSESSEE RESPONDED THAT ASSES SEE WAS REQUIRED TO DEPOSIT THE MARGIN MONEY WITH THE BANK FOR ISSUANCE OF BANK GUARANTEE. THAT ASSESSEE HAD PAID INTEREST ON TERM LOAN WHICH WAS MUCH MORE THAN THE INTEREST RECEIVED ON FDR. THAT AS PER SETTLED LAW INTEREST RECEIVED CAN BE ADJUSTED AGAI NST THE INTEREST PAID AND IS NOT SUBJECT TO TAX. HOWEVER, AO WAS N OT SATISFIED WITH THE ABOVE. AO HELD THAT THE BANK LOAN WAS TAKEN B Y THE ASSESSEE FOR ITS BUSINESS PURPOSES AND THE INTEREST DUE ON T HE BANK LOAN HAS BEEN RIGHTLY INCLUDED IN ITS CAPITAL WORK IN PROG RESS. THAT AS FAR AS INTEREST EARNED ON FDR IS CONCERNED, THE SAME CA NNOT BE TERMED TO BE INTEREST EARNED, ON ACCOUNT OF MAIN BUSINES S OF THE ASSESSEE COMPANY. AO FURTHER OBSERVED THAT FDR MADE BY THE ASSESSEE DOES NOT ORIGINATE FROM THE TIME OF THE SANCTION OF THE BANK LOAN. HE HELD THAT THERE IS NO DIRECT NEXUS OR PROXIMITY OF RELATIONSHIP BETWEEN THE BANK LOAN TAKEN AND THE FDR MADE. HEN CE, HE HELD THAT THE INCOME EARNED ON FDR IS REVENUE EXPENDITUR E AND IS TO BE TAXED AS INCOME FROM OTHER SOURCES. IN THIS REGAR D, AO PLACED RELIANCE UPON HONBLE APEX COURT DECISION IN THE CA SE OF TUTICORN ALKALI CHEMCIALS AND FERTILIZERS LIMITED VS. CIT ( 1997) 93 TAXMAN 502 (SC). HENCE, AO CONCLUDED THAT INTEREST INCOME EARNED OF RS. 20,13,229/- IS TO BE TAXED AT INCOME FROM OTHER SO URCES. 4. UPON ASSESSEES APPEAL LD. CIT(A) NOTED THAT ASS ESSEES SUBMISSIONS ARE AS UNDER:- ASSESSEE COMPANY WAS ALLOTTED A PLOT OF LAND BY DD A FOR CONSTRUCTION OF A FIVE STAR HOTEL. NO BUSINESS WAS DONE BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION . ITA NO. 4431/DEL/2012 3 ASSESSEE HAD TAKEN TERM LOANS FROM BANK TO MAKE THE PAYMENTS TOWARDS THE LAND. LOAN WAS TAKEN FROM PUNJ AB NATIONAL BANK. COPY OF SANCTION LETTER IS ENCLOSED FOR YOUR READY REFERENCE. ASSESSEE COMPANY WAS REQUIRED TO G IVE A BANK GUARANTEE TO DDA. THE SAME WAS ARRANGED FROM THE BANK. ASSESSEE WAS REQUIRED TO GIVE CERTAIN MAR GIN IN THE SHAPE OF FIXED DEPOSITS TO BANK AGAINST THE BAN K GUARANTEE. ASSESSEE HAS HUGE INTEREST PAYMENTS ON T ERM LOAN TAKEN FROM THE BANK. ON THE MARGIN MONEY PROVI DED TO THE BANK CERTAIN INTEREST ACCRUED TO THE ASSESSE E AND THE SAME HAS BEEN ADJUSTED AGAINST THE INTEREST PAYMENTS ON TERM LOAN AND THE BALANCE AMOUNT WAS CAPITALIZED IN THE BOOKS. THE ABOVE PROCEDURE IS IN ACCORDANCE WITH THE LCAL GUIDELINES AND ACCOUNTING STANDARDS ISSUED TIME TO TIME. HOWEVER LEARNED ASSESSING OFFICER DID NOT ACCEPTED ASSESSEE'S CONTE NTION AND TREATED THE INTEREST INCOME AS INCOME FROM OTHE R SOURCES ARID TAXED IT. AGGRIEVED BY THE ABOVE ACTIO N OF AO WE HAVE APPROACHED YOUR HONOR FOR JUSTICE. ASSESSEE HAD PAID TOTAL INTEREST OF RS. 353,56,554/ TO M/S PUNJAB NATIONAL BANK TOWARDS THE INTEREST ON TERM L OAN AVAILED FROM THE BANK. ASSESSEE RECEIVED SUM OF RS, 20,13,229/- AS INTEREST FROM SAME BANK AGAINST THE MARGIN MONEY DEPOSITED WITH THEM. MARGIN MONEY WAS REQUIRED FOR ISSUING OF BANK GUARANTEE IN FAVOR OF DDA WHO HAS GIVEN THE LAND TO THE ASSESSEE. MARGIN MONE Y WAS PAID OUT THE TERM LOAN RECEIVED BY THE ASSESSEE . THERE WAS CIRCUMSTANCES THAT ASSESSEE HAD IDLE MONE Y TO DEPOSIT IN BANK TO EARN INTEREST WHEN THERE IS S UCH A HUGE INTEREST PAYOUT. LEARNED ASSESSING OFFICER ITA NO. 4431/DEL/2012 4 MISUNDERSTOOD THE FACTS AND TOOK THE LOAN AS BUSINE SS LOAN WHILE IT WAS TAKEN FOR A PROJECT TO ESTABLISH A FIVE STAR HOTEL. LEARNED ASSESSING OFFICER WRONGLY APPLI ED THE RATIO OF JUDGMENT DELIVERED BY THE APEX COURT IN TH E CASE OF TUTICORN ALKALI CHEMICALS & FERTILIZERS LIMITED VS CIT (1997) 93 TAXMAN 502 (SC). THE TEST WHICH PERMEATES THROUGH THE JUDGMENT OF THE APEX COURT IN ABOVE CAS E IS THAT IF FUNDS HAVE BEEN BORROWED FOR SETTING UP OF A PLANT AND IF THE FUNDS ARE SURPLUS AND THEN BY VIRTUE OF THAT CIRCUMSTANCE THEY ARE INVESTED IN FIXED DEPOSITS TH E INCOME EARNED IN THE FORM OF INTEREST WILL BE TAXAB LE UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. THE FAC TS OF OUR CASE ARE TOTALLY DIFFERENT. ASSESSEE DID NOT HA VE ANY SURPLUS FUNDS AT ALL TO MAKE A FIXED DEPOSIT. IT WA S COMMERCIAL EXIGENCY THAT FORCED THEM TO MAKE A DEPO SIT. DEPOSIT WAS MADE FOR KEEPING AS MARGIN MONEY FOR BA NK GUARANTEE IN FAVOR OF DDA. IT WAS A PROJECT REQUIRE MENT. AO HAS TOTALLY IGNORED THE APEX COURT JUDGMENT IN T HE CASE OF BOKARO STEEL LIMITED. IN THIS CASE IT WAS H ELD THAT IF INCOME IS EARNED, WHETHER BY WAY OF INTEREST OR IN ANY OTHER MANNER ON FUNDS WHICH ARE OTHERWISE 'INEXTRIC ABLY LINKED TO THE SETTING UP OF THE PLANT, SUCH INCOME IS REQUIRED TO BE CAPITALIZED TO BE SET OFF AGAINST PR E- OPERATIVE EXPENSES. IN A RECENT JUDGMENT IN THE CAS E OF ITO VS. BEAM ESTATE (P) LIMITED (DELHI) 2012, 6 TAX CORP (DT) 49980 LEARNED CIT(A) ALLOWED THE INTEREST PAYM ENTS TO BE ADJUSTED AGAINST INTEREST INCOME. ON FURTHER APPEAL BY DEPARTMENT AGAINST CIT(A) ORDER TRIBUNAL CONFIRM ED THE CIT (A) ORDER AND DISMISSED THE DEPARTMENT APPE AL. COPY OF ORDER IS ENCLOSED FOR YOUR READY REFERENCE. ITA NO. 4431/DEL/2012 5 IN YET ANOTHER RECENT JUDGMENT UTTRAKHAND HIGH COUR T IN THE CASE OF CIT VS. TEHRI HYDRO DEVELOPMENT CORPORA TION (2009) 25 DTR 100 PRINCIPALS LAID DOWN BY APEX COUR T IN THE CASE OF BOKARO STEEL LTD. WERE FOLLOWED. (COPY OF JUDGMENT IS ENCLOSED). KEEPING IN VIEW THE FACTS OF OUR CASE AND THE VARIOUS LEGAL PRONOUNCEMENTS N IS CLEA R THAT IF THE INTEREST IS EARNED DURING CONSTRUCTION PERIO D ON IDLE MONEY IT CAN BE TAXED AS REVENUE INCOME. HOWEVER IF THE FUNDS ARE PART OF PROJECT FUNDS AND CAN BE INEXTRIC ABLY CONNECTED TO THE SETTING OF PLANT THEN INTEREST EAR NED ON SUCH FUNDS SHOULD BE REDUCED FROM THE CAPITAL EXPENDITURE INCURRED DURING THE YEAR. DELHI HIGH CO URT IN THE CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD VS. [TO (2009) 020 DTR 0107 (DEL) HAD CONFIRMED IT. 5. LD. CIT(A) ACCEPTED THE ABOVE SUBMISSIONS OF THE ASSESSEE. HE OBSERVED THAT IN THIS CASE ASSESSEE COMPANY HAS TO GIVE PERFORMANCE BANK GUARANTEE IN FAVOR OF THE DDA FOR THE PURPOSE OF ITS OBLIGATION AND FULFILLING THE CONDITIONS PRECE DENT TO ENTERING INTO A CONTRACT AND FURTHER IT WAS KEPT ALIVE TO FULFILL THE OBLIGATION. HENCE, LD. CIT(A) GAVE A FINDING THAT PRESENT CASE IS NOT ONE WHERE THE ASSESSEE HAS MADE THE DEPOSIT OF SURPLUS FUNDS LYING IDLE WITH AN INTENTION TO EARN THE INTEREST. THAT ON THE CO NTRARY THE AMOUNT OF INTEREST WAS EARNED FROM FIXED DEPOSITS. IT WAS KEPT IN THE BANK AND MARKED AS LIEN FOR FURNISHING THE BANK GUARANTE E. THAT IT HAD AN INEXTRICABLE NEXUS WITH SECURING THE CONTRACT AND A SSESSEE HAS HUGE INTEREST PAYMENTS ON TERM LOAN TAKEN FROM THE BANK. THAT ON THE MARGIN MONEY PROVIDED TO THE BANK CERTAIN INTEREST ACCRUED TO THE ASSESSEE AND THE SAME HAS BEEN ADJUSTED AGAINST THE INTEREST PAYMENTS ON TERM LOAN AND THE BALANCE AMOUNT WAS C APITALIZED ITA NO. 4431/DEL/2012 6 6. CONSIDERING THE ABOVE FACTS, LD. CIT(A) HELD TH AT THE ADDITION MADE BY THE AO WAS LIABLE TO BE DELETED AND APPEAL WAS ALLOWED. 7. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. 8. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT IN THIS CASE THE ASSESSEE WAS ALLOTTED A PLOT OF LAND BY DDA FOR CONSTRUCTION OF FIVE STAR HOTEL. NO BUSINE SS WAS DONE BY THE ASSESSEE DURING THE YEAR. ASSESSEE HAD ONLY TAK EN LOAN FROM BANK TO MAKE PAYMENT TOWARDS LAND. IN THIS REGARD , LOAN WAS TAKEN FROM PUNJAB NATIONAL BANK. THE ASSESSEE COMPANY WA S ALSO REQUIRED TO GIVE THE BANK GUARANTEE TO THE DDA. FOR OBTAINING THESE FROM THE BANK, ASSESSEE WAS REQUIRED TO GIVE CERTA IN MARGIN IN THE SHAPE OF FIXED DEPOSITS IN THE BANK ACCOUNT AGAINST THE BANK GUARANTEE. IN THESE CIRCUMSTANCES, ASSESSEE HAD T O INCUR INTEREST EXPENSES ON THE LOAN TAKEN FROM THE BANK. IT WAS C APITALIZED AND THE AO HAS ACCEPTED THE SAME. THE INTEREST WHICH WAS RECEIVED ON THE FIXED DEPOSITS WAS DEDUCTED FROM THE CAPITAL W ORK IN PROGRESS OF THE ASSESSEE. THIS WAS NOT ACCEPTED BY THE AO . THE AO WAS OF THE OPINION THAT THERE WAS NO NEXUS BETWEEN THE INT EREST PAID AND INTEREST RECEIVED. HE FURTHER PLACED RELIANCE UPO N THE HONBLE APEX COURT IN THE CASE OF TUTICORN ALKALI CHEMICALS & FE RTILIZERS LIMITED VS. CIT (1997) 93 TAXMAN 502 (SC). 8.1 HOWEVER, WE FIND THAT ON THE FACTS AND CIRCUMST ANCES OF THE CASE THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF TUTICORN ITA NO. 4431/DEL/2012 7 ALKALI CHEMICALS & FERTILIZERS LIMITED (SUPRA) IS N OT APPLICABLE. IN THE ABOVE CASE HONBLE APEX COURT HAS EXPOUNDED THA T THE FUNDS HAVE BEEN BORROWED FOR SETTING UP OF THE PLANT AND IF THE FUNDS ARE SURPLUS AND THEN BY VIRTUE OF THAT CIRCUMSTANCE THE Y ARE INVESTED IN FIXED DEPOSITS THE INCOME EARNED IN THE FORM OF INT EREST WILL BE TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. HOWEVER, IN THE PRESENT CASE, WE FIND THAT FACTS ARE DIFFERENT. ASSESSEE HAS ACQUIRED LOAN FROM BANK FOR CONSTRUCTION OF FIVE ST ART HOTEL. ASSESSEE HAD TO GIVE BANK GUARANTEE TO THE DDA IN T HIS REGARD. FOR THIS PURPOSE, FIXED DEPOSIT WAS PLACED AS MARGIN IN THE BANK. IN THESE CIRCUMSTANCES, WE FIND THAT THE DECISION OF T HE HONBLE APEX COURT AND OTHER COURTS REFERRED IN THE SUBMISSION O F THE ASSESSEES COUNSEL AS ABOVE BEFORE THE LD. CIT(A) ARE GERMANE AND SUPPORT THE CASE OF THE ASSESSEE. WE AGREE WITH THE LD. CIT(A) THAT THE PRESENT CASE IS NOT ONE WHERE THE ASSESSEE HAS MADE THE DE POSIT OF SURPLUS FUNDS LYING IDLE WITH AN INTENTION TO EARN THE INTE REST. ON THE CONTRARY THE AMOUNT OF INTEREST WAS EARNED FROM FI XED DEPOSIT WHICH WAS KEPT IN THE BANK AND MARKED AS LIEN FOR F URNISHING THE BANK GUARANTEES. THUS, IT HAD AN INEXTRICABLE NEXU S WITH SECURING THE CONTRACT. WE FIND THAT THE ASSESSEE WAS JUSTIF IED IN ADJUSTING THE INTEREST EARNED FROM THE INTEREST PAYMENTS ON TERM LOAN AND THE BALANCE OF INTEREST PAID WAS CAPITALIZED IN THE BOOKS. IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. ITA NO. 4431/DEL/2012 8 CIT(A) IN DIRECTING THAT THE ADDITION MADE BY THE A O AMOUNTING TO RS. 20,13,299/- UNDER THE HEAD INCOME FROM OTHER S OURCES WAS TO BE DELETED. ACCORDINGLY, WE AFFIRM THE ORDER OF T HE LD. CIT(A). 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21/2/2014. SD/- SD/- [ [[ [C.M. GARG C.M. GARG C.M. GARG C.M. GARG] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 21/2/2014 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES ITA NO. 4431/DEL/2012 9