ASST CIT 15(2)(2), MUMBAI V. PUSHPANJALI REALTORS P.LTD, NAVI MUMBAI

ITA 483/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0658 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 02-02-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITTAL LD
• Assessee Lawyers: REEPAL TRALSHAWALA LD
• Keywords: Capital asset; Business income
• Section: 143(3)

Judgement Text

ITA NO. 483/MUM/2016 PUSHPANJALI REALTORS PRIVATE LIMITED ASSESSMENT YEAR 2011-12 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI . , , BEFORE SHRI C.N. PRASAD, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO.483/MUM/2016 ( / ASSESSMENT YEAR: 2011-12) ASSISTANT COMMISSIONER OF INCOME TAX - 15(2)(2) ROOM NO.403,4 TH FLOOR AAYKAR BHAVAN, M.K.ROAD MUMBAI-400 020 / VS. PUSHPANJALI REALTORS PRIVATE LIMITED FLAT NO.406,PLOT NO.1 ANJALI APARTMENTS SECTOR-2,SANPADA(W) MUMBAI-400 054 ! ./ ./ PAN/GIR NO.AAECP-6138-R ( !# /APPELLANT ) : ( $!# / RESPONDENT ) REVENUE BY : RAJAT MITTAL, LD. DR ASSESSEE BY : REEPAL TRALSHAWALA,LD.AR / DATE OF HEARING : 10/01/2018 / DATE OF PRONOUNCEMENT : 17 /01/2018 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEAL BY REVENUE FOR ASSESSMENT Y EAR [AY] 2011-12 ASSAILS THE ORDER OF THE LD. COMMISSIONER OF INCOME -TAX (APPEALS)-24 [CIT(A)], MUMBAI, APPEAL NO.CIT(A)-22/DCIT-10(3)/IT-288/13-14 DATED 27/11/2015 BY RAISING THE FOLLOWING EFFECTIVE GROUN DS OF APPEAL:- 2 ITA NO. 483/MUM/2016 PUSHPANJALI REALTORS PRIVATE LIMITED ASSESSMENT YEAR 2011-12 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN LA W, THE LD. CIT(A) ERRED IN ALLOWING CAPITALIZATION OF INTEREST EXPENSES OF RS. 2,94,31,532/- WITHOUT ALLOWING OPPORTUNITY TO AO AND WITHOUT VERIFYING THAT THE L OAN HAS BEEN TAKEN TO INVEST IN CAPITAL ASSET. 2. WITHOUT PREJUDICE TO ABOVE, THE LD. CIT(A) FAI LED TO APPRECIATE THE FACT THAT RATE OF INTEREST CLAIMED IS ALSO EXORBITANT I.E.@32% P.A . WHICH WAS NOT FOR THE PURPOSE OF BUSINESS. 3. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER IS RESTORED. THE ASSESSMENT FOR IMPUGNED AY WAS FRAMED U/S 143(3 ) BY LD. DEPUTY COMMISSIONER OF INCOME TAX OFFICER-10(3), MUMBAI [A O] ON 10/01/2014. 2.1 FACTS LEADING TO THE SAME ARE THAT THE ASSESSE BEING RESIDENT CORPORATE ASSESSEE ENGAGED IN THE BUSINESS OF REAL-ESTATE WAS ASSESSED U/S 143(3) AT RS. NIL AS AGAINST RETURNED LOSS OF RS.2,94,73,439/- E-FILED BY THE ASSESSEE ON 19/09/2011. DURING ASSESSMENT PROCE EDINGS, IT WAS NOTED THAT THE ASSESSEE CLAIMED EXPENSES OF RS.2,94,73,43 9/- INCLUDING FINANCE EXPENSES OF RS.2,94,31,532/-. THE INTEREST WAS PAID BY THE ASSESSEE TO LENDERS @32% P.A. THE ASSESSEE DID NOT REFLECTED AN Y SALES OR CLOSING STOCK DURING THE YEAR BUT REFLECTED ADVANCES FOR PU RCHASE OF FLATS UNDER THE HEAD CURRENT ASSETS IN THE BALANCE SHEET. THE LD. AO OPINED THAT SINCE NO BUSINESS ACTIVITY WAS BEING CARRIED OUT BY THE ASSE SSEE, THE SAID EXPENDITURE WAS NOT ALLOWABLE TO THE ASSESSEE. ACCO RDINGLY, HE DISALLOWED THE ENTIRE EXPENDITURE AS CLAIMED BY THE ASSESSEE A ND COMPLETED THE ASSESSMENT. 2.2 AGGRIEVED, THE ASSESSEE CONTESTED THE STAND OF LD. AO WITH PARTIAL SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 27/11/2015, WHERE 3 ITA NO. 483/MUM/2016 PUSHPANJALI REALTORS PRIVATE LIMITED ASSESSMENT YEAR 2011-12 LD. CIT(A) CONCURRED WITH THE ALTERNATIVE CLAIM OF THE ASSESSEE AND CONCLUDED THE MATTER IN THE FOLLOWING MANNER:- 2.4 I HAVE GIVEN MY CAREFUL CONSIDERATION TO THE RI VAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED THE FACTUAL MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. 2.4.1 GROUND NOS.1 TO 3 ARE AGAINST THE DISALLOWAN CE OF ENTIRE BUSINESS INCOME OF RS.2,94,73,439/- ON THE GROUND THAT THERE IS NO BUS INESS ACTIVITY DURING THE YEAR UNDER CONSIDERATION SINCE THERE WAS NO SALE. GROUND NO.4 IS A WITHOUT PREJUDICE STATEMENT SEEKING CAPITALIZATION OF INTEREST EXPENS ES AND ALLOWANCE OF SMALL ADMINISTRATION EXPENSES FOR RUNNING THE COMPANY. LD . AO OBSERVED THAT THE APPELLANT WAS STATED TO BE INVOLVED IN TRADING OF F LATS AND DURING THE YEAR UNDER CONSIDERATION HAD SHOWN NIL SALES AND NIL STOCK-IN- TRADE AT YEAR END AGAINST WHICH EXPENSES OF RS.2,94,73,439/- WERE CLAIMED IN THE PROFIT AND LOSS ACCOUNT WHICH INCLUDED FINANCE EXPENSES OF RS.2,94,31,532/- . HE FOUND THAT THE APPELLANT HAD SHOWN RS.13.20 CRORE AS ADVANCE FOR PURCHASE OF FLAT UNDER THE HEAD CURRENT ASSETS. IT WAS FURTHER OBSERVED THAT THE FUNDING FOR PURCHASE OF FLATS WAS RECEIVED FROM TWO COMPANIES TO WHOM THE APPELLA NT HAD PAID INTEREST @32% P.A. HOWEVER, AS THE LD. AO FOUND THAT THERE W AS NO BUSINESS ACTIVITY DURING THE YEAR, THE APPELLANT SHOULD HAVE SHOWN TH E PROFITS INVESTED AS STOCK-IN- TRADE TO CLAIM BENEFIT OF INTEREST EXPENSES WHICH H AS NOT BEEN DONE AND HENCE, THE INTEREST EXPENDITURE CLAIMED IN THE PROFIT AND LOSS ACCOUNT WAS NOT JUSTIFIED. LD. AO FURTHER OBSERVED THAT THERE WAS NO BUSINESS ACTIVITY IN THE EARLIER YEAR I.E. A.Y.2010-11 AND HENCE, EVEN THE CLAIM OF EXPENDITUR E FOR THAT YEAR WAS NOT STATED TO BE INCURRED FOR THE PURPOSE OF BUSINESS. 2.4.2 PER CONTRA, IT HAS BEEN STATED BY THE APPELLA NT THAT IT WAS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT AND TRADING IN IMMOVABLE PROPERTY AND HAD PURCHASED/BOOKED TOTAL 23 FLATS AT SEWA NAGAR SOCIE TY, KHAR(W), MUMBAI FOR WHICH TOTAL FUND OF MORE THAN RS.12 CRORE WAS DEPLO YED. IT WAS FURTHER STATED THAT THE AGREEMENTS FOR PURCHASE OF THE SAID FLATS WERE DULY REGISTERED AND THESE FACTS WERE NOT IN DISPUTE. HOWEVER, DUE TO COURT LI TIGATIONS THE PROJECT IN WHICH THE APPELLANT HAD PURCHASED THE FLATS WAS STAYED AN D THE FLATS PURCHASED REMAINED UNDER CONSTRUCTED. IT WAS FOR THESE REASON S THEY WERE NOT SHOWN AS STOCK-IN-TRADE NOR WERE THEY SHOWN AS WORK-IN-PROGR ESS SINCE IT WAS NOT THE APPELLANT WHO WAS DEVELOPING THE SAID PROJECT. IT W AS FURTHER STATED THAT AS PER THE MEMORANDUM OF ASSOCIATION TRADING IN IMMOVABLE PROPERTY WAS ONE OF THE OBJECTS OF THE APPELLANT AND, HENCE, BUSINESS ACTIV ITIES COMMENCED ONCE THE FLATS WERE PURCHASED AND PAYMENTS WERE MADE. IT WAS FURTHER SUBMITTED THAT FOR CARRYING OUT THE SAID BUSINESS ACTIVITY, THE APPELL ANT HAD BORROWED FUNDS AND UTILIZED THE SAME FOR PURCHASE OF FLATS, A FACT WHI CH HAS NOT BEEN CONTROVERTED BY LD. AO. I ALSO FIND THAT THE APPELLANT HAS RAISED G ROUND NO.4 WHICH IS A WITHOUT PREJUDICE GROUND BY STATING THAT EVEN IF FOR ANY R EASON THE PURCHASES OF FLATS WAS NOT CONSIDERED AS ITS BUSINESS ACTIVITY, IN THAT CA SE, THE INTEREST EXPENSES INCURRED TOWARDS THE SAME AMOUNTING TO RS.2,94,31,5 32/- OUGHT TO HAVE BEEN CAPITALIZED AND THE BALANCE EXPENSES ALLOWED AS DED UCTION IN THE NATURE OF MAINTENANCE OF STATUS AS A COMPANY. ON APPRECIATION OF THE ENTIRE FACTS, WHEREAS I FIND THAT THE APPELLANT WAS WORKING MORE AS AN INVESTOR RATHER THAN A TRADER OF FLATS AND, THEREFORE, THERE IS CONSIDERAB LE FORCE IN THE ARGUMENTS OF LD. 4 ITA NO. 483/MUM/2016 PUSHPANJALI REALTORS PRIVATE LIMITED ASSESSMENT YEAR 2011-12 AO THAT THERE WAS NO BUSINESS ACTIVITY PER SE IN MA KING AN INVESTMENT IN PURCHASE OF FLATS. WHAT THE APPELLANT WAS DOING WAS PERHAPS USING HIS KNOWLEDGE AND SKILL TO MAKE BOOKINGS IN FLATS WHICH WERE IN CONSTRUCTION AND OBVIOUSLY BEEN PURCHASED AT LESSER RATE FOR REAPING MAXIMUM INVESTMENT VALUE AT THE TIME OF ITS TRANSFER HOWEVER, THE FACT REMAI NS THAT THE APPELLANT HAD INCURRED INTEREST EXPENSES FOR BORROWING THE FUND T O MAKE INVESTMENT IN THE SAID PROPERTIES. EVEN THE SAME IS NOT HELD TO BE ELIGIBL E UNDER THE HEAD BUSINESS, THERE IS NO INFIRMITY IN THE WITHOUT PREJUDICE CL AIM THAT THE SAME SHOULD HAVE BEEN ALLOWED TO BE CAPITALIZED. ACCORDINGLY, PAYIN G HEED TO THE WITHOUT PREJUDICE. GROUND OF THE APPELLANT, VIDE GROUND NO .4, WHEREAS GROUND NOS. 1 TO 3 ARE DISMISSED, GROUND NO.4 IS ALLOWED AS FAR AS INTEREST EXPENSES OF RS.2,94,31,532/- IS CONCERNED. AS REGARDS THE BALAN CE AMOUNT OF RS 41,900/- THE SAME APPEARS TO BE ON ACCOUNT OF MAINTENANCE OF THE APPELLANT COMPANY WHICH OUGHT TO BE ALLOWED FOR RUNNING OF THE SAID COMPANY. AGGRIEVED, THE REVENUE IS IN FURTHER APPEAL BEFORE US. 3. THE LD. DEPARTMENTAL REPRESENTATIVE [DR] SUPPORT ED THE STAND OF LD. AO WHEREAS LD. COUNSEL FOR ASSESSEE [AR] POINTED OU T THAT IF THE EXPENDITURE WAS NOT ALLOWABLE AS REVENUE EXPENDITUR E THEN ALTERNATIVELY, THE SAME SHOULD BE ALLOWED TO BE CAPITALIZED AND TH EREFORE, THE STAND OF LD. CIT(A) WAS QUITE FAIR AND LOGICAL. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED RELEVANT MATERIAL ON RECORD. AFTER GOING THROUGH THE SAME, WE CONCUR WIT H THE STAND OF LD. FIRST APPELLATE AUTHORITY SINCE WE HAVE NOTED THAT LD. CI T(A) HAS ONLY UPHELD THE STAND OF LD. AO. FROM THE IMPUGNED ORDER, IT IS QUI TE EVIDENT THAT THE LD. CIT(A) HAS ONLY ACCEPTED THE ALTERNATIVE CLAIM OF T HE ASSESSEE AND ALLOWED CAPITALIZATION OF INTEREST EXPENDITURE SINCE NO BUS INESS ACTIVITY WAS CARRIED OUT BY THE ASSESSEE DURING IMPUGNED AY. THE LD. AO, IN PARAGRAPH 3.2 OF THE QUANTUM ASSESSMENT ORDER HAS ALSO EXPRESSED SIM ILAR VIEW. REGARDING RATE OF INTEREST OF 32%, THE REVENUE COULD NOT POIN T OUT HOW THE SAME WAS EXCESSIVE OR UNREASONABLE IN THE CIRCUMSTANCES. THE OTHER EXPENDITURE OF 5 ITA NO. 483/MUM/2016 PUSHPANJALI REALTORS PRIVATE LIMITED ASSESSMENT YEAR 2011-12 RS.41,900/-, BEING ADMINISTRATIVE IN NATURE AND INC URRED TO MAINTAIN THE CORPORATE IDENTITY HAS RIGHTLY BEEN ALLOWED AS REVE NUE EXPENDITURE. THEREFORE, FINDING NO STRENGTH IN REVENUES APPEAL, WE DISMISS THE SAME. 5. RESULTANTLY, THE REVENUES APPEAL STANDS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH JANUARY, 2018. SD/- SD/- (C. N. PRASAD) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 17.01.2018 SR.PS:- THIRUMALESH ! / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $!# / THE RESPONDENT 3. , ( ) / THE CIT(A) 4. , / CIT CONCERNED 5. &. , . , / DR, ITAT, MUMBAI 6. /0 / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI