Mrs. Ekta Reality Pvt. Ltd., Indore V. The I..T.O., Indore

ITA 45/IND/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2842 (ITAT-INDORE)
• Duration Of Justice: 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 20-05-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 25-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: APARNA KARAN LD
• Assessee Lawyers: S S SOLANKI
• Keywords: Business income; Commercial expediency; Revenue expenditure
• Section: 143(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, SMC-I BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER ITA NO. 45/IND/2010 AY: 2004-05 M/S EKTA REALITY PRIVATE LIMITED INDORE (PAN AABCE-2305C) ..APPELLANT V/S. INCOME TAX OFFICER 5(2), INDORE ..RESPONDENT ASSESSEE BY : SHRI S.S. SOLANKI, CA DEPARTMENT BY : SMT. APARNA KARAN, LD.SR. DR ORDER THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED CIT(A), INDORE, DATED 24.9.2009. THE FIRST GROUND R AISED IS THAT THE LEARNED LD. FIRST APPELLATE AUTHORITY ERRED IN MAIN TAINING THE DISALLOWANCE OUT OF INTEREST OF RS.4,50,774/- BY JUSTIFYING THE S TAND OF THE AO. THE CRUX OF ARGUMENTS ON BEHALF OF THE ASSESSEE IS THAT THE ASSESSEE GOT A PLOT FROM IDA AND THE SAME WAS USED FOR EARNING INC OME BY LETTING OUT THE SAME FOR PARKING PURPOSES TO VARIOUS PERSONS AN D USED THE SAME FOR 2 COMMERCIAL PURPOSES. IT WAS CONTENDED THAT EVEN A SINGLE TRANSACTION CAN BE TREATED AS BUSINESS ACTIVITY AND THE ASSESSE E RECEIVED RENT FROM VARIOUS PARTIES ON VARIOUS DATES AND DULY PRODUCED THE RELEVANT RECORD BEFORE THE AO AS WELL AS BEFORE THE LEARNED CIT(A). MY ATTENTION WAS INVITED TO THE ALLOTMENT LETTER (PAGE 16 OF THE PAP ER BOOK) TO THE EFFECT THAT IT IS A COMMERCIAL PLOT. IT WAS ALSO BROUGHT TO MY NOTICE THAT FOR THE AY 2006-07 IN THE ORDER FRAMED U/S 143(3) OF TH E ACT IDENTICALLY THE CLAIM OF THE ASSESSEE HAS BEEN ALLOWED BY THE DEPAR TMENT. 2. ON THE OTHER HAND, THE LEARNED SR. DR STRONGLY D EFENDED THE IMPUGNED ORDER BY CONTENDING THAT THE ASSESSEE PURC HASED THE PLOT FROM IDA AND THE INTEREST WAS REQUIRED TO BE PAID A T THE RATE OF 12% ON THE OUTSTANDING AMOUNT PAYABLE IN INSTALMENT. SUCH INTEREST IS IN CONNECTION WITH PAYMENT OF ACQUISITION OF PLOT, THE REFORE, IT IS NOT A REVENUE EXPENDITURE. 3. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERU SED THE MATERIAL AVAILABLE ON THE FILE. BRIEF FACTS ARE THAT ONE COM MERCIAL PLOT OF LAND IN SCHEME NO. 54, NEAR BOMBAY HOSPITAL, WAS ALLOTTED B Y IDA VIDE LETTER DATED 7.8.2002 TO THE ASSESSEE. THE ASSESSEE EXPLOI TED THIS PLOT FOR COMMERCIAL PURPOSES BY USING IT FOR PARKING PURPOSE S AND RECEIVED RENT FROM VARIOUS PERSONS. OUT OF THE EARNING FROM THIS PLOT, THE ASSESSEE 3 PAID INTEREST TO THE IDA ON THE PRINCIPAL AMOUNT. THE LD. AO DISALLOWED THE INTEREST OF RS.4,50,774/-, AGAINST THE RECEIPT OF RS.4,58,033/-, ON THE PLEA THAT IT IS AN EXPENDITURE OF CAPITAL NATUR E, THEREFORE, IT CANNOT BE ALLOWED. THERE IS NO DISPUTE TO THE FACT THAT TH E ASSESSEE FURNISHED THE NECESSARY DETAILS OF EARNINGS FROM SUCH PLOT AL ONG WITH WORK-SHEET SHOWING INTEREST AND PREMIUM IN EACH MONTH INSTALME NT ALONG WITH INTEREST ACCOUNT WHICH REFLECTED PAYMENT OF RS.4,50 ,774/-. THE ASSESSEE CLAIMED IT REVENUE EXPENDITURE. IT IS ALSO A FACT T HAT THE AO ACCEPTED THE RETURNED INCOME FOR THE AY 2006-07 BY PASSING AN OR DER U/S 143(3) DATED 12.11.2008 BY ALLOWING IDENTICAL EXPENDITURE OF INTEREST. THE PROFIT AND LOSS ACCOUNT OF THE YEAR ENDING ON 31.3. 2006 IS ANNEXED WITH THE ORDER DATED 12.11.200 WHICH IS PLACED ON RECORD BY THE ASSESSEE. IN SUCH A SITUATION, EVEN IF FOR ARGUMENTS SAKE THE CO NTENTION OF THE AO IS ACCEPTED, STILL THE INTEREST OF RS.4,50,774/- WAS T O BE REDUCED FROM INCOME FROM OTHER SOURCES U/S 57(3) OF THE ACT. EVE N WHERE CERTAIN INTEREST INCOME IS DIRECTED TO BE CAPITALISED SO AS TO REDUCE THE COST OF ASSET, THE QUESTION OF DEDUCTION OF ANY EXPENDITURE INCURRED ON EARNING SUCH INCOME FROM SUCH INTEREST INCOME WOULD NOT ARI SE. THIS VIEW IS SUPPORTED BY THE DECISION IN KARNAL CO.OP. SUGAR MI LLS LIMITED V. CIT; 223 ITR 531 (P&H). IN THE PRESENT APPEAL, SINCE TH E PROPERTY IS OF COMMERCIAL NATURE AND WAS EXPLOITED FOR COMMERCIAL PURPOSES, 4 THEREFORE, ANY INTEREST PAID OUT OF SUCH EARNING FR OM THE COMMERCIAL PLOT, TOWARD PAYMENT OF INSTALMENT OF THE PRINCIPAL AMOUNT, CANNOT BE DISALLOWED BY TREATING THE SAME AS CAPITAL EXPENDIT URE. IT IS A SETTLED LAW THAT INCOME FROM EXPLOITATION OF COMMERCIAL PRO PERTY WOULD BE BUSINESS INCOME FOR WHICH THE RATIO LAID DOWN BY TH E HONBLE APEX COURT IN SHRI LAXMI SILK MILLS LIMITED; 20 ITR 451 WHEREI N IT WAS HELD THAT THE PLANT DOES NOT CEASE TO BE A COMMERCIAL ASSET WHEN LET OUT TEMPORARILY, INCOME EARNED FROM SUCH LETTING OUT IS A BUSINESS I NCOME. IN THE CASE OF CIT V. A.P. INDUSTRIAL INFRASTRUCTURE COMPANY (175 ITR 361) (A.P.) WHEREIN THE CORPORATION DEVELOPED INDUSTRIAL ESTATE S, CONSTRUCTED INDUSTRIAL SHEDS AND LEASED THEM OUT. IT WAS HELD TO BE INCOME FROM BUSINESS. IDENTICAL RATION WAS LAID DOWN IN GANESH DAS SHRIRAM; 180 ITR 397 (GAU) AND CIT V. KOTHARI AUTO PARTS MFG. PVT. L TD.; 109 ITR 333, SARABHAI MANAGEMENT CORPORATION LIMITED V.CIT; 102 ITR 25 (GUJ). EVEN LETTING OUT OF THE PROPERTY TO VARIOUS PERSONS IS WITHIN THE PURVIEW OF COMMERCIAL ACTIVITY. ORDINARILY, IT IS NOT EASY TO EVOLVE A TEST FOR ASCERTAINING WHETHER IN A GIVEN CASE THE EXPENDITUR E IS CAPITAL OR REVENUE. FOR THE DETERMINATION OF THE QUESTION DEP ENDS UPON FACTS AND CIRCUMSTANCE OF EACH CASE. THE COURTS ARE EXPECTED TO CONSIDER THE NATURE OF SUCH EXPENSES IN THE ORDINARY COURSE OF B USINESS AND THE OBJECTS FOR WHICH THE EXPENDITURE IS INCURRED. WHET HER A PARTICULAR 5 EXPENDITURE IS REVENUE EXPENDITURE, INCURRED FOR TH E PURPOSE OF BUSINESS, MUST BE DETERMINED ON THE GIVEN FACTS AND BY APPLICATION OF PRINCIPLE OF COMMERCIAL TRADING. THE QUESTION MUST BE VIEWED IN THE LARGER CONTEXT OF BUSINESS NECESSITY OR EXPEDIENCY. TO DECIDE WHETHER AN EXPENDITURE IS CAPITAL OR REVENUE IN NATURE, THE NATURE OF EXPENDITURE, NATURE OF RIGHTS ACQUIRED AND THEIR RE LATION, INTER SE, HAVE TO BE CONSIDERED IN THE LIGHT OF THE GENERAL PRINCI PLE OF COMMERCIAL EXPEDIENCY. THE DECISIVE TEST WHETHER A PARTICULAR EXPENDITURE IS CAPITAL OR REVENUE THE COURTS HAVE TO SEE WHETHER THE EXPEN DITURE IN QUESTION WAS INCURRED TO CREATE ANY NEW ASSET OR WAS INCURRE D FOR MAINTAINING THE BUSINESS OF THE COMPANY HAS TO BE SEEN. IT IS NOT THE CASE THAT THE PRINCIPAL AMOUNT WAS PAID FOR THE ACQUISITION OF TH E ASSET, WHICH IS OF ENDURING NATURE, RATHER INTEREST PAYMENT WAS MADE BY THE ASSESSEE OUT OF THE EARNINGS FROM THE COMMERC IAL EXPLOITATION OF SUCH ASSET AFTER ITS ACQUISITION, THER EFORE, IT IS REVENUE IN NATURE. IN VIEW OF THESE FACTS AND JUDICIAL PRONOUNCEMENTS, THIS GROUND OF THE ASSESSEE IS ALLO WED. 4. THE NEXT GROUND RAISED BY THE ASSESSEE PERTAINS TO DISALLOWANCE OF SALARY OF RS.28,200/- PAID TO CHOWKIDAR WHO WAS KEP T FOR THE MAINTENANCE OF THE PROPERTY AND THE AMOUNT WAS PAID FOR THE WHOLE 6 YEAR, CANNOT BE SAID TO BE UNREASONABLE AS THERE IS NO DISPUTE THAT PAYMENT WAS EITHER NOT MADE OR IS EXCESSIVE, THEREF ORE, IT HAS TO BE ALLOWED. FINALLY, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2. 6.2010. SD/- (JOGINDER SINGH) JUDICIAL MEMBER DATED: 2.6.2010 COPY TO: APPELLANT/RESPONDENT/CIT/CIT(A)/DR/GUARD F ILE D/-