SUNCITY LANDMARK TOWNSHIPS PRAA LTD., JAIPUR V. INCOME TAX OFFICER, WARD-3-4, JAIPUR

ITA 522/JPR/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3960 (ITAT-JAIPUR)
• Duration Of Justice: 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 18-04-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J C KULHARI
• Keywords: Business income; Business expenditure; Capital receipt

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES A, JAIPUR JH JES'K LH 'KEKZ] YS[KK LNL; ,OA JH FOT; IKY JKO] U;KF;D LNL; DS LE{K BEFORE: SHRI RAMESH C SHARMA, AM & SHRI VIJAY PAL RAO , JM VK;DJ VIHY LA-@ ITA NO. 522/JP/2018 FU/KZKJ.K O'KZ@ ASSESSMENT YEAR : 2007-08 SUNCITY LANDMARK TOWNSHIPS PVT. LTD., S-4, SUN N MOON CHAMBERS, LINKING ROAD, NEAR AJMER PULIYA, JAIPUR. CUKE VS. I.T.O., WARD 3(4), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAJCS 6847 D VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI P.C. PARWAL (CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI J.C. KULHARI (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 23/01/2019 MN?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 05/02/2019 VKNS'K@ ORDER PER: VIJAY PAL RAO, J.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 15/03/2018 OF LD. CIT(A)-I, JAIPUR FOR THE A.Y. 200 7-08. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER IN TAXING THE INTEREST INCOME OF RS. 11,61,823/- UNDER THE HEAD INCOME FROM OTHER SOURCES BUT AT T HE SAME TIME NOT DIRECTING THE AO TO COMPUTE LOSS UNDER THE HEAD INCOME FROM BUSINESS AT RS. 16,39,113/-. 2. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN NOT GIVING FINDING ON THE ALTERNATE CONTENTION OF THE ASSESSEE THAT BY AS SESSING THE INTEREST INCOME OF RS. 11,61,823/- AS INCOME FROM O THER SOURCES AND ITA 522/JP/2018_ SUNCITY LANDMARK VS. ITO 2 AT THE SAME TIME NOT ALLOWING THE BUSINESS LOSS WHI CH THE ASSESSEE HAS MADE IT AS A PART OF STOCK-IN-TRADE, SUCH AMOUN T HAS BEEN TAXED TWICE. 3. THE ASSESSEE CRAVES TO AMEND, ALTER AND MODIFY A NY OF THE GROUNDS OF APPEAL. 4. THE APPROPRIATE COST BE AWARDED TO THE ASSESSEE. 2. THE ASSESSEE IS A COMPANY INCORPORATED ON 08/02/2 005 WITH THE OBJECT TO CONSTRUCT COMMERCIAL AND RESIDENTIAL COMP LEX. THE ASSESSEE COMPANY PARTICIPATED IN THE AUCTION FOR PURCHASE OF COMMERCIAL LAND FROM JAIPUR DEVELOPMENT AUTHORITY (JDA) AND WAS HIGHEST B IDDER. THE ASSESSEE WAS ACCORDINGLY ALLOTTED THE LAND MEASURING 4643.36 SQ.MT. AT SWEJ FARM SCHEME, NEW SANGANER ROAD, JAIPUR VIDE LETT ER DATED 18/4/2006 FOR CONSIDERATION OF RS. 11.83 CRORES WHI CH WAS SUBSEQUENTLY REVISED TO RS. 12.62 CRORES. THE ASSESSEE PAID THE INITIAL AMOUNT OF RS. 1.18 CRORES AND THE BALANCE AMOUNT WAS TO BE PAID AS PER TERMS OF THE ALLOTMENT LETTER OF THE JDA. HOWEVER, IN THE MEAN TI ME, A PUBLIC INTEREST PETITION WAS FILED BEFORE THE HON'BLE HIGH COURT AND THEREFORE, FURTHER PAYMENT WAS KEPT IN ABEYANCE. SUBSEQUENTLY THE JDA G AVE NO OBJECTION/ASSURANCE TO RAJASTHAN FINANCE CORPORATIO N FOR FINANCE OF THE PROJECT OF THE ASSESSEE AND ALSO ASSURED THAT IN CA SE OF ANY ADVERSE DECISION, THE JDA WILL REFUND THE COST OF LAND ALONG WITH INTEREST @ 6% PER ANNUM. THE ASSESSEE THEREAFTER RECEIVED ADVANCE BOOK ING AMOUNT OF RS. 1.25 CRORES WHICH WAS ADVANCED BY THE ASSESSEE TO V ARIOUS PARTIES AND ITA 522/JP/2018_ SUNCITY LANDMARK VS. ITO 3 EARNED INTEREST OF RS. 11,61,823/- DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE HAS TREATED THE SAID INTEREST INCOME AS BUSINESS INCOME OF THE ASSESSEE AND ALSO DEBITED THE ADVERTISEMENT, EX HIBITION AND LOAN APPLICATION CHARGES AGAINST THE SAID INCOME AND FIN ALLY SHOWN THE NIL INCOME IN THE RETURN OF INCOME. THE ASSESSING OFFIC ER REOPENED THE ASSESSMENT TO ASSESS THE SAID INTEREST INCOME AS IN COME FROM OTHER SOURCES INSTEAD OF BUSINESS INCOME. THE ASSESSING OF FICER HELD THAT SINCE THE LENDING ACTIVITY OF THE ASSESSEE IS AN INDEPEND ENT ACTIVITY AND NOT CONNECTED WITH THE BUSINESS ACTIVITY, THEREFORE, THE INTEREST INCOME IS ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. THE ASSESSEE CHALLENGED THE ACTION OF THE ASSESSING OFFICER BEFO RE THE LD. CIT(A) BUT COULD NOT SUCCEED. 3. BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMITT ED THAT ONCE THE ASSESSEE COMMENCED ITS BUSINESS IN THE F.Y. 2005-06 ITSELF THEN THE INTEREST ON THE SURPLUS AMOUNT IS NOTHING BUT BUSIN ESS INCOME OF THE ASSESSEE. SINCE THE ASSESSEE HAS INCURRED EXPENDITU RE OF RS. 16,39,112/- UNDER VARIOUS HEAD, WHICH ARE MAINLY ON ADVERTISEMEN T, EXHIBITION EXPENSES, CONSULTANCY CHARGES ETC., THEREFORE, THE OUTCOME IS BUSINESS LOSS UNDER THE HEAD PROFIT AND GAIN OF BUSINESS. THU S, THE LD AR HAS SUBMITTED THAT THE RECEIPT OF INTEREST OF RS. 11,61 ,823/- IS ASSESSABLE AS BUSINESS INCOME UNDER THE HEAD PROFIT AND GAINS OF BUSINESS AND THUS, ITA 522/JP/2018_ SUNCITY LANDMARK VS. ITO 4 THE NET BUSINESS LOSS IS ASSESSABLE TO TAX. ALTERNA TIVELY, THE LD AR HAS SUBMITTED THAT EVEN IF THE INTEREST INCOME IS ASSES SED UNDER THE HEAD INCOME FROM OTHER SOURCES, IT WOULD BE SET OFF AGAIN ST THE BUSINESS LOSS OF RS. 16,39,112/- AND THE NET RESULT WOULD BE SAME, TH EREFORE, THE LD AR HAS SUBMITTED THAT THE ADDITION MADE BY THE ASSESSI NG OFFICER IS NOT SUSTAINABLE AND THE SAME MAY BE DELETED. HE HAS POI NTED OUT THAT SINCE THE ASSESSEE HAS ALREADY SHOWN THIS EXPENDITURE DURI NG THE YEAR UNDER CONSIDERATION AND IT WAS NOT CONSIDERED AS PART OF T HE COST OF BUILDING UNDER CONSTRUCTION IN THE SUBSEQUENT YEAR, THEREFOR E, IT WILL AMOUNT TO DOUBLE TAXATION ON THE SAME AMOUNT. 4. ON THE OTHER HAND, THE LD DR HAS SUBMITTED THAT THE LENDING IS A SEPARATE ACTIVITY AND HAS NO CONNECTION WITH THE BUS INESS OF THE ASSESSEE, THEREFORE, THE ASSESSING OFFICER HAS RIGH TLY TREATED THE INTEREST INCOME AS INCOME FROM OTHER SOURCES. FURTHER THE AS SESSEE HAS NOT DONE ANY BUSINESS DURING THE YEAR UNDER CONSIDERATION, T HEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE CAN BE CAPITAL IZED TO THE COST OF THE PROJECT BUT CANNOT BE ALLOWED AS BUSINESS LOSS DURIN G THE YEAR UNDER CONSIDERATION. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THE DISPUTE IS ONLY REGARDING T HE TREATMENT OF INTEREST ITA 522/JP/2018_ SUNCITY LANDMARK VS. ITO 5 INCOME AS INCOME FROM OTHER SOURCES AND THE EXPENDI TURE INCURRED BY THE ASSESSEE CAN BE SET OFF AGAINST THE INTEREST INCOME . WE FIND THAT THE ASSESSEE AFTER ALLOTMENT OF THE LAND BY THE JDA HAS ALSO RECEIVED ADVANCE BOOKING AMOUNT OF RS. 1.25 CRORES AND IN THAT PROC ESS THE ASSESSEE HAS INCURRED AN EXPENDITURE OF RS. 16,39,112/- UNDER TH E HEAD ADVERTISEMENT, EXHIBITION EXPENSES, CONSULTANCY CHARGES ETC.. THUS, THESE ACTIVITIES OF THE ASSESSEE CLEARLY REVEALS THE COMMENCEMENT OF TH E BUSINESS BY THE ASSESSEE. EVEN OTHERWISE THE ASSESSING OFFICER WHILE DEALING WITH THE ISSUE HAS ACCEPTED THE FACT THAT THE ASSESSEE HAS C OMMENCED ITS BUSINESS IN THE F.Y. 2005-06. THE RELEVANT PART OF THE ASSESS ING OFFICERS FINDING IS AS UNDER: A PRIVATE LIMITED COMPANY CAN START BUSINESS IMMEDI ATELY AFTER INCORPORATION AND DOES NOT REQUIRE ANY CERTIFICATE TO COMMENCE BU SINESS. PERUSAL OF COMPANY FINANCIAL STATEMENTS REVEAL THAT THE COMPAN Y HAS COMMENCED ITS BUSINESS EVEN PRIOR TO THE YEAR UNDER CONSIDERATION I.E. FY 2005-06 WHERE THE COMPANY HAS GIVEN ADVANCE FOR LAND AND TAKEN BOOKIN G ADVANCE FROM CUSTOMERS AMONG OTHER THINGS. IN THE PRESENT CASE, THE ASSESSEE WAS NOT BOUND BY ANY STATUTORY OR REGULATORY OBLIGATIONS TO LAND THE FUNDS AND IT WAS MERE UTILIZATION OF IDLE FUNDS WHICH THE COMPANY HA D MANAGED TO RAISE. THE LENDING OF MONEY WAS AN INDEPENDENT AND UNRELATED A CTIVITY WHICH WAS IN NO WAY AN INTEGRAL PART OF CONSTRUCTION ACTIVITY OF TH E ASSESSEE. THUS, INTEREST EARNED ON IDLE FUNDS CANNOT BE CAPITAL RECEIPT. AFTER ACCEPTING THE FACT THAT THE ASSESSEE HAS COMM ENCED HIS BUSINESS, THE ASSESSING OFFICER TREATED THE LENDING OF MONEY AS AN INDEPENDENT AND ITA 522/JP/2018_ SUNCITY LANDMARK VS. ITO 6 UNRELATED ACTIVITY AND CONSEQUENTLY THE INTEREST ON SAID LENDING WAS TREATED AS INCOME FROM OTHER SOURCES. THOUGH, THE L D AR HAS CONTENDED THAT SINCE THE MONEY WAS GIVEN ON INTEREST AS IT WAS NOT REQUIRED FOR BUSINESS PURPOSES IN THE IMMEDIATE FUTURE, HOWEVER, WE FIND THAT IT IS NOT A CASE OF INTEREST INCOME EARNED BY THE ASSESSEE WHI CH IS INCIDENTAL TO THE BUSINESS ACTIVITY OF THE ASSESSEE BUT THE ASSES SEE HAS GIVEN THE LOANS IN THE MARKET FOR EARNING THE INTEREST AND THEREFOR E, THE INTEREST WAS EARNED BY THE ASSESSEE ON INTENTIONAL ACTIVITY OF L ENDING. IT IS NOT A SIMPLE CASE OF PARKING THE MONEY IN THE BANK BUT THE ASSES SEE HAS DELIBERATELY GIVEN THE ADVANCES IN THE MARKET FOR EARNING THE IN TEREST. HENCE, WE CONCUR WITH THE VIEW OF THE ASSESSING OFFICER ON THE POINT THAT THE INTEREST EARNED BY THE ASSESSEE FROM GIVING LOAN BY THE ASSESSEE IN THE MARKET IS INCOME FROM OTHER SOURCES AND NOT THE BUS INESS INCOME. HOWEVER, SINCE THE ASSESSEE ALREADY COMMENCED THE BU SINESS IN THE F.Y. 2005-06 AND HAS NOW INCURRED EXPENDITURE OF RS. 16,3 9,112/- ON ACCOUNT OF ADVERTISEMENT, EXHIBITION, CONSULTANCY CHARGES WH ICH ARE AN ALLOWABLE BUSINESS EXPENDITURE, THEN THE SAID BUSINESS EXPEND ITURE WILL BE BUSINESS LOSS FOR THE YEAR UNDER CONSIDERATION FOR WANT OF A NY BUSINESS INCOME AND CONSEQUENTLY THE INTEREST INCOME ASSESSED AS INCOME FROM OTHER SOURCES WOULD BE SET OFF AGAINST THE BUSINESS LOSS AS PER TH E PROVISIONS OF SECTION 71 OF THE ACT. THEREFORE, WE FIND MERITS IN THE ALTE RNATIVE CONTENTION OF ITA 522/JP/2018_ SUNCITY LANDMARK VS. ITO 7 THE LD AR THAT THE BUSINESS LOSS CAN BE SET OFF AGA INST THE INTEREST INCOME. HENCE, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE I NTEREST INCOME TO BE SET OFF AGAINST THE BUSINESS LOSS IN THE SHAPE OF T HE EXPENDITURE OF RS. 16,39,112/- SUBJECT TO THE VERIFICATION OF THE FACT THAT THE SAID EXPENDITURE HAS NOT BEEN ADDED TO THE COST OF THE P ROJECT IN THE SUBSEQUENT YEAR. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 05 TH FEBRUARY, 2019. SD/- SD/- JES'K LH 'KEKZ FOT; IKY JKO (RAMESH C SHARMA) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 05 TH FEBRUARY, 2019 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- SUNCITY LANDMARK TOWNSHIPS PVT. LTD., AJMER. 2. IZR;FKHZ @ THE RESPONDENT- THE I.T.O., WARD 3(4), JAIPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 522/JP/2018) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR