ITO 8(2)(3), MUMBAI V. NAMAN MALL MANAGEMENT CO. P.LTD, MUMBAI

ITA 4685/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83863 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 14-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PAVAN KUMAR BEER LA
• Keywords: Proportionate interest

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B MUMBAI . . , , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND SHRI SANJAY ARORA, ACCOUNTANT MEMBER ITA NO.4685/MUM/2013 (A.Y.2009-10) THE ITO 8(2)(3), ROOM NO.213, 2 ND FLOOR, AAYKAR BHAVAN, MK ROAD, MUMBAI 400 020. (APPELLANT ) VS. M/S. NAMAN MALL MANAGEMENT CO. PVT. LTD., 52, KALPATARU SYNERGY, OPP. GRAND HYATT HOTEL, VAKOLA, SANTACRUZ(E), MUMBAI. PAN: AACCN 1164H (RESPONDENT) APPELLANT BY : SHRI PAVAN KUMAR BEER LA RESPONDENT BY : NONE DATE OF HEARING : 01/10/2014 DATE OF PRONOUNCEMENT : 01 /10/2014 ORDER PER I.P.BANSAL, J.M: THIS IS AN APPEAL FILED BY THE REVENUE AND IT IS D IRECTED AGAINST THE ORDER PASSED BY LD. CIT(A)-17, MUMBAI DATED14/11/2012 FOR ASSESSMENT YEAR 2009-10. GROUNDS OF APPEAL READ AS UNDER: 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) ERRED IN ALLOWING THE ASSESSEES CLAIM OF NETTING OF INTERES T INCOME OF FDS OF RS.15,47,695/- AGAINST INTEREST EXPENDITURE INCLUDED IN THE COST O F THE PROJECT, WITHOUT APPRECIATING THAT THE SAID INCOME HAS BEEN EARNED ON FDS AND NOT RELA TED TO THE CONSTRUCTION ACTIVITY AND, THEREFORE, THE ASSESSING OFFICER WAS JUSTIFIED IN DISALLOWING AND CONSEQUENTLY ADDING THE GROSS INTEREST EXPENDITURE TO WIP WHILE TAXING THE INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES 2. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A ) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE AO BE RESTORED. ITA NO.4685/MUM/2013 (A.Y.2009-10) 2 2. NOTICE OF HEARING WAS SENT TO THE ASSESSEE, HOWE VER, NONE WAS PRESENT ON BEHALF OF THE ASSESSEE AT THE TIME OF HEARING. THE REFORE, WE PROCEED TO DECIDE THE PRESENT APPEAL EX-PARTE QUA THE ASSESSEE. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS ACTIVITY OF DEVELOPING REAL ESTATE AND CARRY OUT CONSTRUCTION ACTIVITY. FROM THE BALANCE SHEET IT WAS NOTICED BY THE AO THAT CAPITAL WORK IN PROGRESS AS AT THE END OF THE YEAR WAS SHOWN AT RS.62,49,63,537/- AND IT WAS NOTICED BY AO THAT ASS ESSEE HAS CHARGED A SUM OF RS.5,36,23,775/- TOWARDS INTEREST ON FUNDS BORROWED FOR THE PURPOSE OF BUSINESS. THE ASSESSEE WAS REQUIRED TO SHOW CAUSE AS TO WHY PROPORTIONATE INTEREST RELATABLE TO THE WORK-IN-PROGRESS SHOULD NOT BE DISALLOWED. IN RESPONSE TO SUCH SHOW CAUSE NOTICE THE ASSESSEE FILED REPLY DATED 16/11/2010 CO NTENDING THAT IT SHOULD NOT BE DISALLOWED FOR THE REASON THAT INTEREST PAID WAS C APITALIZED AND DEBITED TO WORK-IN- PROGRESS ACCOUNT. IT WAS SUBMITTED THAT INTEREST E ARNED ON BANK FDR OF RS.15,47,695/- WAS DEDUCTED FROM THE WORK-IN-PROGRE SS ACCOUNT AND NET INTEREST WAS CAPITALIZED BY THE COMPANY. IT WAS FURTHER SU BMITTED THAT OTHER OPERATING COST ARE RECOGNIZED AS AN EXPENDITURE IN THE PERIOD IN W HICH IT HAS BEEN INCURRED. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE THE AO HAS COME TO THE CONCLUSION THAT INTEREST EARNED BY THE ASSESSEE ON FDR AMOUNTING TO RS.15,47,695/- IS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AND AS PER PROVISIONS OF SECTION 57(III) OF THE INCOME TAX ACT, 1961(THE ACT) THE EXPENSES I NCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF INCOME EARNED ARE ONLY TO BE AL LOWED AS DEDUCTION. THE OTHER INTEREST PAID BY THE ASSESSEE ON LOANS CANNOT BE CO NSIDERED AS EXPENDITURE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BANK IN TEREST OF RS.15,47,695/- AND THUS, AO ASSESSED THE SAID AMOUNT AS INCOME OF THE ASSESS EE AND INCOME OF THE ASSESSEE HAS BEEN ASSESSED AT RS.15,47,695/- IN PLACE OF RET URNED INCOME OF NIL. 4. THE ADDITION MADE BY THE AO WAS AGITATED IN AN APPEAL FILED BEFORE LD. CIT(A). IT WAS SUBMITTED THAT ASSESSEE COMPANY HAS BORROWED THE FUND FROM FINANCIAL INSTITUTIONS ON WHICH INTEREST PAID WAS CAPITALIZED AND DEBITED TO ASSET ACCOUNT. THE INTEREST EARNED ON FDR WAS A SUM OF R S.15,47,700/-. THE FDRS WERE ITA NO.4685/MUM/2013 (A.Y.2009-10) 3 GIVEN TO BANK TOWARDS MARGIN MONEY FOR THE BANK GU ARANTEES GIVEN BY THE BANK TO THE COLLECTOR OF CUSTOMS, MUMBAI FOR THE IMPORT M ADE AT THE CONCESSIONAL RATE OF CUSTOM DUTY AGAINST EPCG LICENSES. THUS, IT WAS NO T AN INVESTMENT OR DEPLOYMENT OF FUNDS IN FDR. IT WAS A BUSINESS NECESSITY TO GI VE THE BANK GUARANTEE AND FOR THE BANK GUARANTEE MARGIN MONEY WAS GIVEN IN THE FORM O F FDR. THE ASSESSEE COMPANY HAD COMMENCED THE PROJECT OF DEVELOPMENT OF SHOPPIN G MALL AT INDORE AND DURING THE RELEVANT ASSESSMENT YEAR AS THE PROJECT WAS UNDER CONSTRUCTION, ALL THE EXPENSES RELATED AND INCIDENTAL TO THE CONSTRUCTION WERE CAP ITALIZED AND INCLUDED IN THE COST OF PROJECT. THUS, IT WAS PLEADED THAT INTEREST EARNED IS RELATED TO SETTING UP OF THE PROJECT AND AS IT WAS DEDUCTIBLE FROM THE COST OF C ONSTRUCTION. REFERENCE WAS MADE TO THE DECISION OF HONBLE SUPREME COURT IN THE CAS E OF CIT VS. BOKARO STEEL LTD., 236 ITR 315(SC) AND TUTICORIN ALKALI CHEMICALS AND FERT ILIZERS LTD. 227 ITR 172(SC) AND IT WAS PLEADED THAT THE ACCOUNTING TREATMENT GIVEN BY THE ASSESSEE WAS CORRECT AND AOS ACTION IS NOT IN ACCORDANCE WITH THE DECISIONS RELIED UPON BY THE ASSESSEE. 5. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, LD. CIT(A) HAS RECORDED THE FOLLOWING FINDING AND HAS ALLOWED THE CLAIM OF THE ASSESSEE. 4.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT AND THE ORDER OF THE AO. THE APPELLANT HAS BEEN CAPITALIZING THE NET INTEREST IN THE CAPITAL WORK-IN-PROGRESS. THE AMOUNTS WHICH WERE KEPT AS FDS WERE IN CONNECTION W ITH BANK GUARANTEE ISSUED BY THE BANK AGAINST EPCG LICENCES FOR IMPORT OF MATERIALS USED IN THE CONSTRUCTION ACTIVITIES. THEREFORE, THE FDS WERE IN CONNECTION OF THE CONSTR UCTION ACTIVITY. THE FDS WERE NOT OUT OF SURPLUS FUNDS, THEREFORE, THE INTEREST INCOME FR OM THESE FDS HAD DIRECT NEXUS WITH THE CONSTRUCTION ACTIVITY AND WAS CORRECTLY NETTED AGAI NST THE INTEREST PAID. IN VIEW OF THE ABOVE, THE GROUND OF APPEAL OF THE APPELLANT IS ALL OWED. 6. LD. DR AFTER NARRATING THE FACTS RELIED UPON THE ASSESSMENT ORDER. 7. WE HAVE HEARD LD. DR AND AFTER CONSIDERING THE FACTS MENTIONED IN THE ASSESSMENT ORDER AND SUBMISSIONS MADE BEFORE LD. CI T(A), WE FIND NO INFIRMITY IN THE RELIEF GRANTED BY LD. CIT(A) AS HE HAS RECORDED A FINDING OF FACT THAT THE AMOUNT KEPT IN THE FDRS WAS IN CONNECTION WITH BANK GUARAN TEE ISSUED BY THE BANK AGAINST EPCG LICENCES FOR IMPORT OF MATERIALS USED IN THE CONSTRUCTION ACTIVITIES, THEREFORE, ITA NO.4685/MUM/2013 (A.Y.2009-10) 4 THE FDRS WERE IN CONNECTION WITH CONSTRUCTION ACTIV ITIES. THEY WERE NOT OUT OF SURPLUS FUNDS. THE INTEREST INCOME EARNED FROM FD RS HAD DIRECT NEXUS WITH THE CONSTRUCTION ACTIVITY AND WAS CORRECTLY NETTED AGAI NST INTEREST PAID. NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE REVENUE TO ASSAIL THE SE FINDING OF FACT. THEREFORE, WE DECLINE TO INTERFERE AND APPEAL FILED BY THE REVENU E IS DISMISSED. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 01/10/201 4 ! ' #$ % &'( 01/10/2014 ' ) SD/- SD/- ( /SANJAY ARORA ) ( . . / I.P. BANSAL ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; &' DATED 01/10/2014 ! ! ! ! ' '' ' *+, *+, *+, *+, -,$+ -,$+ -,$+ -,$+ / COPY OF THE ORDER FORWARDED TO : 1. ./ / THE APPELLANT 2. *0./ / THE RESPONDENT. 3. 1 ( ) / THE CIT(A)- 4. 1 / CIT 5. ,2) *+' , , / DR, ITAT, MUMBAI 6. )3 4 / GUARD FILE. !' !' !' !' / BY ORDER, 0,+ *+ //TRUE COPY// 5 55 5 / 6 6 6 6 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . ' . ./ VM , SR. PS