ASST CIT 15(2), MUMBAI V. SHUBH ENTERPRISES, MUMBAI

ITA 5473/MUM/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5693 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2008-2009
• Appeal Filed On: 28-08-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V JUSTIN
• Keywords: Business income; Opportunity of being heard; Principle of natural justice
• Section: 56

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.5473/ MUM/2014 ( / ASSESSMENT YEAR : 2008 - 09) ACIT 15(2) MATRU MANDIR, R.NO. 113, OPP GRANT ROAD(W), MUMBAI 400007 / V. M/S. SHUBH ENTERPRICES, FLAT NO. 102, 1 ST FLOOR, J WING, NISAR G BUILDING, KANDIVALI WEST, MUMBAI - 400067 ./ PAN : AAYFS3688A ( / APPELLANT ) .. ( / RESPONDENT ) REVENUE BY : SHRI V JUSTIN ASSESSEE BY: NONE / DATE OF HEARING : 05.07.2018 / DATE OF PRONOUNCEMENT : 11 .07.2018 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY R EVENUE, BEING ITA NO. 5473/MUM/2014, IS DIRECTED AGAINST APPELLATE ORDER DATED 03.06.2014 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 26, MUMBAI (HEREINAFTER CALLED THE CIT(A)), FOR ASSESSMENT YEAR 2008 - 09, THE APPELLATE PROCEEDINGS HAD ARISE N BEFORE LEARNED CIT(A) FROM PENALTY ORDER DATED 18.03.2013 PASSED BY LEARNED ASSESSING OFFICER (HEREINAFTER CALLED THE AO) U/S 271(1)(C) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) FOR AY 2008 - 09. I.T.A. NO.5473/MUM/2014 2 2. THE GRO UNDS OF APPEAL RAISED BY R EVEN UE IN THE MEMO OF APPEAL FILED WITH THE INCOME - TAX APPELLATE TRIBUNAL, MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER: - 1.'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW , THE LD. CIT(A) ERRED IN HOLDING THAT THE CLAIM OF THE AP PELLANT TREATING INCOME FROM OTHER SOURCES AS BUSINESS INCOME IS BONAFIDE, IGNORING THE RELEVANT FACTS IN THE ASSESSMENT ORDER AND ALSO IN THE PENALTY ORDER. 2.'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THAT THE ACTION OF THE ASSESSEE IN TREATING THE INTEREST AS BUSINESS INCOME GOES TO THE ROOT OF THE TAXABILITY OF THE INTEREST INCOME IN THE FACTS OF THE CASE AND THE RIGHT HEAD OF THE INCOME UNDER WHICH IT IS TAXABLE IN LAW IS 'INCOME FRO M THE OTHER SOURCES. 3. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING PENALTY LEVIED U/S 271(L)(C) MERELY RELYING UPON CASE LAW (BENNETT COLEMAN & CO. LTD. BOMBAY HIGH COURT) FACTS OF WHICH ARE TOTALLY DIFFERENT FROM THIS CASE.' 4. 'THE APPELLANT CRAVES LEAVE, ADD, AMEND, ALTER OR VARY ANY OF THE GROUNDS OF APPEAL AT THE TIME AND/OR BEFORE THE HEARING OF THE APPEAL' 3. THIS APPEAL IS FILED BY R EVENUE AGAINST DELETION OF PENALTY OF RS. 23,34, 033/ - WHICH WAS LEVIED BY THE AO U/S 271(1)(C) OF THE 1961 ACT AND WAS DELETED BY LEARNED CIT(A) IN HIS APPELLATE ORDERS DATED 03.06.2014 . THE BRIEF FACTS ARE THAT THE ASSESSEE IS BUILDER AND DEVELOPER. THE ASSESSEE HAS RECEIVED BUILDING ADVANCES FROM BOOKING O F FLATS AND AMOUNT S WERE ADVANCED TO VARIOUS PARTIES WHICH HAS REMAIN ED OUTSTANDING FOR LONG PERIOD OF TIME . HOWEVER , THE ASSESSEE CHARGED INTEREST OF RS. 56,23,221/ - ON SUCH LOANS AND ADVANCES WHICH WAS TREATED AS BUSINESS INCOME BY THE ASSESSEE. THE SAID INTEREST WAS HE LD BY THE AO TO BE INCOME ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AS IN THE OPINION OF THE AO THESE ARE NOT BUSINESS ADVANCES BUT SHOULD BE CHA RGED TO INCOME - TAX UNDER THE HEAD INCOME FROM THE OTHER SOURCES . FURTHER, THE AO MADE ADDITI ONS OF RS. 32,71,584/ - BY INCREASING WIP BY RS. 32,71,584/ - BEING INTEREST COST WORKED OUT AT 58.18% OF THE TOTAL INTEREST PAID AT RS. 56,32,211/ - THERE WAS SOME RELIEF GRANTED BY LD. CIT(A) WHO HELD THAT THE INTEREST INCOME SHOULD BE CHARGED TO THE TAX UNDER THE HEAD INCOME FROM OTHER SOURCES BUT RESTRICTED THE ADDITION ON ACCOUNT OF INCREASE IN WIP TO ONLY 10% OF INCREASED WIP OF RS. 32,71,584/ - AS THE ASSESSEE WAS SHOWING ONLY 10% OF I.T.A. NO.5473/MUM/2014 3 THE PROFIT IN THE RETURN OF INCOME. THE AO HAD INITIATED PENALTY PR OCEEDINGS U/S. 271(1)(C) WHICH LED TO THE LEVY OF THE PENALTY TO THE TUNE OF RS. 23,34,033/ - U/S. 271(1)(C) OF THE ACT BY THE AO VIDE ORDERS DATED 18.03.2013 PASSED U/S 271(1)(C) , BY HOLDING AS UNDER: - 5. THE EXPLANATION OF THE ASSESSEE IS CONSIDERED BU T NOT ACCEPTED. THE INTEREST INCOME IS GENERALLY ASSESSED UNDER THE SPECIFIC HEAD OF 'INCOME FROM OTHER SOURCES' UNLESS IT IS ACCRUED AS AN INTEGRAL PART OF THE BUSINESS. THE ASSESSEE ADVANCED FUNDS TO SISTER CONCERN WITH THE SOLE MOTIVE OF EARNING OF INTE REST INCOME, WHICH IS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES ONLY. SINCE THIS INCOME IS ASSESSABLE UNDER THE 'INCOME FROM OTHER SOURCES', IT CANNOT BE SET OFF AGAINST INTEREST PAID ON BORROWINGS FOR BUSINESS PURPOSES. HAD THE CASE NOT BEEN SELECT ED FOR SCRUTINY, THIS FACT WOULD HAVE GONE UNNOTICED LEADING TO LOSS OF REVENUE. SO, THE ASSESSEE IS LIABLE FOR PENALTY U/S 271(1)(C) I NCOME TAX ACT, 1961 IN RESPECT OF AMOUNT OF RS. 56,23,221/ - ASSESSED UNDER THE HEAD 'INCOME FROM OTHER SOURCES' FOR FILIN G INACCURATE PARTICULARS OF INCOME AND CONCEALING HIS INCOME 6. THE ASSESSING OFFICER DID NOT ALLOW SET OFF OF INTEREST PAID BY THE ASSESSEE AND ENTIRE INTEREST RECEIVED AT RS. 56,23,2117 - WAS ADDED TO WIP OF THE ASSESSEE. ACCORDINGLY THERE WAS INCREASE OF WIP BY RS. 56,23,211/ - . SINCE 58.18% OF THIS INTEREST PERTAINS TO THE PROJECT ON WHICH 10% GP WAS DISCLOSED BY THE ASSESSEE SO PROPORTIONATE INCREASE IN WIP OF SUCH PROJECT AMOUNT TO RS. 32,71,584/ - (I.E. 58.18% OF RS.56,23,211). THE AO ADDED TH E WHOLE FIGURE OF WIP OF RS. 32,71, 584/ - IN INCOME OF ASSESSEE. THE C!T(A) RESTRICTED THE ADDITION TO 10% OF THE INCREASE IN WIP I.E. TO RS. 3,27,158/ - . THE ASSESSEE BY NOT INCLUDING INTEREST AMOUNT OF RS. 32,71,5847 - IN ITS WIP TRIED TO DECREASE ITS GP BY RS.3,27 ,158/ - . THE ASSESSEE THUS FILED INACCURATE PARTICULARS OF ITS INCOME AND CONCEALED ITS INCOME. THE ASSESSEE IS THUS LIABLE TO PENALTY U/S 271(1)(C)LNCOME TAX ACT, 1961. 4. THE ASSESSEE WENT IN APPEAL BEFORE LEARNED CIT(A) WHO DELETED THE PENALTY LEVIED B Y THE AO U/S 271(1)(C), VIDE APPELLATE ORDER DATED 03.06.2014, BY HOLDING AS UNDER: - 3.7 THE FACTS OF THE CASE AND SUBMISSION OF THE LD. A.R HAVE BEEN CONSIDERED ACCORDINGLY. THE FACTS ARE NOT IN DISPUTE. THE INTEREST INCOME HAS BEEN CONSIDERED BY THE ASSESSEE UNDER THE HEAD 'BUSINESS INCOME' WHEREAS THE SAME HAS BEEN FOUND ASSESSABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. THE INCREASED INCOME ON ACCOUNT OF INCREASE IN WIP IS DUE TO THE ASSESSMENT OF INTEREST INCOME UNDER THE HEAD 'INCOME FROM OTHE R SOURCES'. 3.8 ASSESSABILITY OF INTEREST INCOME AS BUSINESS INCOME OR AS INCOME FROM OTHER SOURCES IS A DEBTABLE ISSUE AND THEREFORE, IT CANNOT BE SAID THAT THE CLAIM OF THE ASSESSEE WAS NOT BONAFIDE. THEREFORE, THE CASE OF THE ASSESSEE IS COVERED BY TH E DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF BENNETT COLEMAN & CO. LTD., SUPRA WPIEREIN HON'BLE BOMBAY HIGH COURT HAS HELD AS UNDER : - I.T.A. NO.5473/MUM/2014 4 '2. SO FAR AS QUESTION (I) IS CONCERNED, THE RESPONDENT - ASSESSEE HAS CLAIMED DEDUCTION OF INTEREST ON TAX FREE BONDS OF RS.5,60,11,644/ - . DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO GIVE DETAILS OF INTEREST ON TAX FREE BONDS. WHILE PREPARING THE SAID DETAILS, IT WAS NOTICED THAT 6 PERCENT GOVERNMENT OF INDIA CAPITAL INDEX BONDS P URCHASED DURING THE YEAR HAD INADVERTENTLY BEEN CATEGORIZED AS TAX FREE BONDS AND, THEREFORE, INTEREST OF RS.75,00,000/ - EARNED ON SUCH BONDS HAD ALSO INADVERTENTLY ESCAPED TAX. THE ASSESSING OFFICER LE VIED PENALTY UNDER SECTION 271(1 )(C) OF THE INCOME TAX ACT, 1961 (THE ACT). THE CI T(A) UPHELD THE ORDER OF THE ASSESSING OFFICER. ON FURTHER APPEAL, THE TRIBUNAL IN THE IMPUGNED ORDER RECORDS A FINDING OF FACT THAT BY INADVERTENT MISTAKE INTEREST AT 6 PERCENT ON THE GOVERNMENT OF INDIA CAPITAL INDEX BONDS WAS SHOWN AS TAX FREE BONDS. THE TRIBUNAL CONCLUDED THAT THERE WAS NO DESIRE ON THE PART OF THE RESPONDENT - ASSESSEE TO HIDE OR CONCEAL THE INCOME SO AS TO AVOID PAYMENT OF TAX ON INTEREST FROM THE BONDS. IN THAT VIEW OF THE MATTER, THE TRIBUNAL DELETED THE PE NALTY IMPOSED UPON THE RESPONDENT - ASSESSEE UNDER SECTION 271(1 )(C) OF THE ACT IN VIEW OF THE FACT THAT THE DECISION OF THE TRIBUNAL IS BASED ON FINDING OF FACT THAT THERE WAS AN INADVERTENT MISTAKE ON THE PART OF THE ASSESSEE IN INCLUDING THE INTEREST REC EIVED OF 6 PERCENT ON THE GOVERNMENT OF INDIA CAPITAL INDEX BONDS AS INTEREST RECEIVED ON TAX FREE BONDS. IT IS NOT CONTENDED BY THE REVENUE THAT ABOVE FINDING OF FACT BY THE TRIBUNAL IS PERVERSE. IN THESE CIRCUMSTANCES, WE SEE NO REASON TO ENTERTAIN THE P ROPOSED QUESTION (I). 3. SO FAR AS QUESTION (II) IS CONCERNED, THE RESPONDENT - ASSESSEE HAD CLAIMED PREMIUM ON REDEMPTION OF DEBENTURES AS INCOME FROM CAPITA! GAINS. WHEREAS THE ASSESSING OFFICER HELD THAT THE REDEMPTION OF DEBENTURES IS REVENUE RECEIPT ASSESSABLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. THE CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. THE RESPONDENT - ASSESSEE DID NOT FILE ANY FURTHER APPEAL ON THE QUANTUM PROCEEDINGS. THEREAFTER, THE ASSESSING OFFICER LE VIED PENALTY UNDER SECTION 271(1 )(C) OF THE ACT ON THE RESPONDENT - ASSESSEE. THE CIT(A) ALSO CONFIRMED THE LEVY OF PENALTY UPON THE RESPONDENT - ASSESSEE. ON FURTHER APPEAL, THE TRIBUNAL HELD THAT THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE RESPONDENT - ASSESSEE HAD DIS CLOSED THAT THE AMOUNT RECEIVED AS PREMIUM ON REDEMPTION OF DEBENTURES IN ITS COMPUTATION OF INCOME. FURTHER, THE TRIBUNAL RECORDS THAT IT IS NOT THE CASE OF THE DEPARTMENT THAT THE RESPONDENT - ASSESSEE HAD CONCEALED ANY PARTICULARS OF INCOME OR FURNISHED I NACCURATE PARTICULARS OF INCOME BY STATING INCORRECT FACTS. THE ASSESSING OFFICER CONSIDERED THE SAID PREMIUM RECEIVED ON REDEMPTION OF DEBENTURES TO BE TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES WHILE THE RESPONDENT - ASSESSEE CONSIDERED THE SAME TO B E TAXABLE UNDER THE HEAD CAPITAL GAINS. IN VIEW OF THE FACT THAT THERE IS ONLY A CHANGE OF HEAD OF INCOME AND IN THE ABSENCE OF ANY FACTS THAT THE CLAIM OF THE ASSESSEE WAS NOT BONAFIDE, THE TRIBUNAL DELETED THE PENALTY IMPOSED UNDER SECTION 271(L)(C) OF T HE ACT. THE REVENUE HAS NOT BEEN ABLE TO POINT OUT THAT THE FINDING OF THE TRIBUNAL IS PERVERSE. IN THESE CIRCUMSTANCES, WE SEE NO REASON TO ENTERTAIN THE PROPOSED QUESTION (II)'. I.T.A. NO.5473/MUM/2014 5 3.9 CONSIDERING THE FACTS OF THE CASE AND AFORESAID ORDER OF THE HON'B LE BOMBAY HIGH COURT, PENALTY LEVIED U/S. 271(L)(C) IS DIRECTED TO BE DELETED. 5. AGGRIEVED BY THE DELETION OF PENALTY BY LEARNED CIT(A), T HE R EVENUE HAS COME IN AN APPEAL BEFORE THE TRIBUNAL . N ONE APPEARED ON BEHALF OF THE ASSESSEE WHEN APPEAL WAS CALL ED FOR HEARING BEFORE THE TRIBUNAL . THE LD. DR HAS RELIED UPON ORDER LEVYING PENALTY PASSED BY THE AO AND HAS PLEADED THAT ASSESSEE HAS GRANTED LOANS AND ADVANCES WHICH WERE NOT IN THE NATURE OF THE BUSINESS ADVANCES BUT THE ASSESSEE TREATED INTEREST INC OME AS INCOME FROM BUSINESS WHICH WAS RIGHTLY TREATED AS INCOME FROM THE OTHER SOURCES AND THE SAME WAS CONFIRMED BY LEARNED CIT(A) IN QUANTUM PROCEEDINGS. THE LEARNED DR DREW OUR ATTENTION TO BOTH THE ORDER S OF THE AUTHORITIES BELOW . 6. W E HAVE HEARD LD. DR AND PERUSED THE MATERIAL ON RECORD . W E HAVE OBSERVED THAT ASSESSEE IS BUILDER AND DEVELOPER. THE ASSESSEE HAS RECEIVED BOOKING ADVANCES AND CERTAIN PORTION OF THE SAID ADVANCES WERE ADVANCED TO VARIOUS PARTIES FROM WHICH INTEREST INCOM E TO THE TUNE OF RS. 56,23 , 221/ - WAS EARNED BY THE ASSESSEE CLAIMING THE SAID INCOME TO BE INCOME FROM THE BUSINESS WHILE THE AUTHORITIES BELOW TREATED THE SAID INTEREST INCOME AS INCOME FROM OTHER SOURCES . T HE AO HAS MAD E ADJUSTMENT TO WORK IN PRO GRESS BY ADDING THE INTEREST EXPENSES WHILE LEARNED CIT(A) RESTRICTED THE SAME TO 10% OF WIP BEING 10% OF THE PROFIT ON SALE OF FLAT IN QUANTUM PROCEEDINGS. WE HAVE OBSERVED THAT T HE MATTER TRAVELLED TO TRIBUNAL IN ITA NO. 801/MUM/2012 FOR AY 2008 - 09 AG AINST QUANTUM ASSESSMENT AND THE TRIBUNAL VIDE ORDER S DATED 19.05.2017 HAS RESTORED THE MATTER BACK TO THE FILE OF THE AO FOR DENOVO ADJUDICATION OF THE ISSUE ON MERITS , BY HOLDING AS UNDER: - 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RE LEVANT MATERIAL ON RECORD. WE BEGIN WITH THE DECISION RELIED ON BY THE LEARNED COUNSEL OF THE ASSESSEE. IN THE CASE OF LOK HOLDINGS (SUPRA), THE ASSESSEE FIRM WAS INVOLVED IN THE BUSINESS OF DEVELOPMENT OF PROPERTIES. IN THE COURSE OF ITS BUSINESS, THE ASS ESSEE - FIRM RECEIVED MONIES IN ADVANCE FROM CUSTOMERS INTENDING TO PURCHASE FLATS IN THE PROPERTIES AS DEVELOPED BY THE ASSESSEE. THESE MONIES WERE OF THE NATURE OF BOOKING / ADVANCES. SINCE THESE MONIES RECEIVED COULD NOT BE IMMEDIATELY UTILISED FOR THE BU SINESS OF THE FIRM, THE SURPLUS AMOUNTS FROM SUCH MONEY RECEIVED CAME TO BE TEMPORARILY INVESTED WITH BANKS AND OTHER CONCERNS. SUCH DEPOSITS WITH ACCRUED INTEREST THEREON WHICH WAS RECEIVED BY THE ASSESSEE - FIRM WAS DEDUCTED FROM THE WORK - IN - PROGRESS TILL THE CONCLUSION OF THE PROJECT. FOR THE A.Y. 1992 - 93, THE INCOME FROM SUCH INTEREST WAS RS. 52,28,289/ - . THE A.O. ASSESSED THIS INTEREST INCOME FROM OTHER SOURCES AND THUS MADE AN ADDITION UNDER THE HEAD INCOME FROM OTHER SOURCES. THE HON'BLE BOMBAY I.T.A. NO.5473/MUM/2014 6 HIGH COURT HAS HELD THAT THE INTEREST EARNED ON DEPOSITS OF SURPLUS MONEY IS BUSINESS INCOME AND CANNOT BE ASSESSED AS INCOME FROM OTHER SOURCES. I N SHREE KRISHANA POLYSTER LTD. (SUPRA), THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURE OF SYNTHETIC YARN AND MONEY LENDING WAS NEVER THE BUSINESS ACTIVITY OF THE ASSESSEE. THE ASSESSEE RECEIVED SURPLUS MONEY IN PUBLIC ISSUE AND THE SAID MONEY WAS INVESTED IN BANK DEPOSITS FOR A PERIOD OF 45 DAYS. THE HON'BLE HIGH COURT HAS OBSERVED THAT THE FACTS WHICH H AVE BEEN FOUND BY THE TRIBUNAL LEAD TO THE CONCLUSION THAT THE INTEREST WHICH THE ASSESSEE EARNED FROM SHORT TERM INVESTMENT OF SURPLUS MONEY RECEIVED IN PUBLIC ISSUE DID NOT SPRING OR EMANATE FROM THE BUSINESS ACTIVITY OF THE ASSESSEE. THE HON'BLE HIGH CO URT HAS HELD THAT THE INCOME OF INTEREST EARNED BY THE ASSESSEE BY INVESTING SURPLUS MONEY RECEIVED IN PUBLIC ISSUE IN BANK DEPOSITS FOR A PERIOD OF 40 DAYS WAS ASSESSABLE AS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. IN PARAMOUNT PREMISES (P) LT D. (SUPRA), FOR THE A.Y. 1978 - 79, THE ASSESSEE WAS ENGAGED IN THE CONSTRUCTION OF THREE BUILDINGS. THE ASSESSEE RECEIVED DEPOSITS IN INSTALMENTS FROM PROSPECTIVE PURCHASERS WHILE THE WORK OF CONSTRUCTION WAS IN PROGRESS. OF THE PURCHASERS FAILED TO MAKE DE POSITS BY STIPULATED DATES, THEY HAD TO PAY INTEREST. SECONDLY, THE AUTHORISED CAPITAL OF THE ASSESSEE WAS SMALL BUT THE AMOUNTS RECEIVED AS DEPOSITS WERE LARGE. IDLE AMOUNTS WERE DEPOSITED WITH THE BANK OR GIVEN ON TEMPORARY LOANS UNTIL SUCH TIME AS THEY WERE REQUIRED FOR CONSTRUCTION. THUS, INTEREST WAS EARNED ON THESE AMOUNTS. THE ASSESSEE WAS ALSO REQUIRED TO GIVE A GUARANTEE TO THE STATE BANK OF INDIA IN RESPECT OF THE LAND TAKEN ON LEASE FOR CONSTRUCTION WORK. FOR THIS PURPOSE, CERTAIN AMOUNTS WERE KE PT IN FIXED DEPOSITS ON WHICH THE ASSESSEE EARNED INTEREST. IN THESE CIRCUMSTANCES, THE TRIBUNAL HAS GIVEN A FINDING OF FACT TO THE EFFECT THAT THE ENTIRE INTEREST SPRANG FROM THE BUSINESS ACTIVITY OF THE ASSESSEE AND DID NOT ARISE OUT OF ANY INDEPENDENT A CTIVITY. ACCORDINGLY, INTEREST INCOME WAS CONSIDERED AS THE BUSINESS INCOME OF THE ASSESSEE. IN CHHAGANLAL KHIMJI & CO. PVT. LTD. (SUPRA), APPELLANT WAS IN TO BUSINESS OF REAL ESTATE AND IT REQUIRED FUND FOR MAKING INVESTMENT AND TO CARRY ON THE CONSTRUCT ION ACTIVITY. FUNDS BORROWED FROM MNRPL WAS IN TURN INVESTED IN PPL WHICH WAS ENGAGED IN CONSTRUCTION OF A COMMERCIAL COMPLEX BY NAME MARATHONE FUTURE X. APPELLANT BEING ONE OF THE JV PARTNER THE BORROWAL WAS UTILIZED ONLY IN THE CONSTRUCTION ACTIVITY AND THERE WAS NO ROOM FOR ANY DOUBT. ALTERNATIVELY IT COULD BE TREATED AS PART OF ACTIVITY IN CONSTRUCTION BUSINESS. THE A.O., DID NOT CONTROVERT THIS CLAIM OF THE APPELLANT. THE APPELLANT DID NOT RECEIVE ANY INTEREST FROM PPL FOR THE INVESTMENT MADE. MERE NON - RECEIPT OF INTEREST INCOME DURING THE YEAR CANNOT LEAD TO THE CONCLUSION THAT THE APPELLANT IS NOT INTO FINANCE ACTIVITY. THE CIT(A) HELD THAT THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF CONSTRUCTION AS WELL AS LENDING OF MONEY, BOTH CONSTITUTED I TS MAIN BUSINESS ACTIVITY. BOTH THESE OBJECTS WERE CLEAR FROM THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF ASSESSEE - COMPANY. AS PER CLAUSE 55 OF MEMORANDUM AND ARTICLES OF ASSOCIATION, ASSESSEE WAS AUTHORIZED TO CARRY BUSINESS OF MONEY LENDING. BOTH CONSTRUCTION AS WELL AS LENDING CONSTITUTED THE BUSINESS ACTIVITY HENCE, THE CLAIM OF THE APPELLANT THAT THE INTEREST INCOME EARNED WAS FROM BUSINESS WAS IN ORDER. THE ITAT HELD THE INTEREST EARNED AS BUSINESS INCOME. I.T.A. NO.5473/MUM/2014 7 7.1 NOW WE COME TO THE DECISION RELIE D ON BY THE LEARNED DR. IN M/S. THE TOTGARS CO - OP SALE (SUPRA), THE ASSESSEE - SOCIETY WAS ASSESSED TO TAX AS A CO - OPERATIVE SOCIETY. ITS BUSINESS WAS TO PROVIDE CREDIT FACILITIES TO ITS MEMBERS AND TO MARKET THE AGRICULTURAL PRODUCE TO ITS MEMBERS. THE HON 'BLE SUPREME COURT HELD AS UNDER: INTEREST ON SUCH INVESTMENTS, THEREFORE, CANNOT FALL WITHIN THE MEANING OF THE EXPRESSION PROFITS AND GAINS OF BUSINESS. SUCH INTEREST INCOME CANNOT BE SAID ALSO TO BE ATTRIBUTABLE TO THE ACTIVITIES OF THE SOCIETY, NAME LY, CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS OR MARKETING OF THE AGRICULTURAL PRODUCE OF ITS MEMBERS. WHEN THE ASSESSEE - SOCIETY PROVIDES CREDITS FACILITIES TO ITS MEMBERS, IT EARNS INTEREST INCOME. AS STATED ABOVE, IN THIS CAS E, INTEREST HELD AS INELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) IS NOT IN RESPECT OF INTEREST RECEIVED FROM MEMBERS. IN THIS CASE, WE ARE ONLY CONCERNED WITH INTEREST WHICH ACCRUES ON FUNDS NOT REQUIRED IMMEDIATELY BY THE ASSESSEE(S) FOR ITS BUSINE SS PURPOSES AND WHICH HAVE BEEN ONLY INVESTED IN SPECIFIED SECURITIES AS INVESTMENT. FURTHER, AS STATED ABOVE, ASSESSEE(S) MARKETS THE AGRICULTURAL PRODUCE OF ITS MEMBERS. IT RETAINS THE SALE PROCEEDS IN MANY CASES. IT IS THIS RETAINED AMOUNT WHICH WAS PAYABLE TO ITS MEMBERS, FROM WHOM PRODUCE WAS BOUGHT, WHICH WAS INVESTED IN SHORT - TERM DEPOSITS/SECURITIES. SUCH AN AMOUNT, WHICH WAS RETAINED BY THE ASSESSEESOCIETY, WAS A LIABILITY AND IT WAS SHOWN IN THE BALANCE - SHEET ON THE LIABILITY SIDE. THEREFORE, TO THAT EXTENT, SUCH INTEREST INCOME CANNOT BE SAID TO BE ATTRIBUTABLE EITHER TO THE ACTIVITY MENTIONED IN SECTION 80P(2)(A)(I) OF THE ACT OR IN SECTION 80P(2)(A)(III) OF THE ACT. THEREFORE, LOOKING TO THE FACTS AND CIRCUMSTANCES OF THIS CASE, WE ARE OF TH E VIEW THAT THE ASSESSING OFFICER WAS RIGHT IN TAXING THE INTEREST INCOME, INDICATED ABOVE, UNDER SECTION 56 OF THE ACT. 7.2 NOW WE GO BACK TO THE FACTS OF THE PRESENT CASE. IN THE SUBMISSION BEFORE THE A.O. VIDE LETTER DATED 10.12.2010 , THE LEARNED AR OF THE ASSESSEE HAS EXPLAINED THAT (I) THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT OF HOUSING PROJECT, (II) THE ASSESSEE HAS FOLLOWED THE PERCENTAGE COMPLETION METHOD OF ACCOUNTING, (III) THE ASSESSEE HAS EARNED INTEREST INCOME OF RS. 56,23,221/ - FOR GIVING LOAN OR ADVANCE DURING THE NORMAL COURSE OF BUSINESS TO ASSOCIATES OR OTHER CONCERNS; THE ASSESSEE HAS NETTED OFF THE INTEREST EARNED RS. 56,23,221/ - FROM THE VALUE OF INTEREST PAID RS. 86,04,016/ - AND THE NET AMOUNT OF RS. 29 ,80,795/ - HAS BEEN CHARGED TO THE WORK - IN - PROGRESS FOR THE A.Y. 2008 - 09 AND THIS METHOD OF VALUATION HAS BEEN FOLLOWED IN A.Y. 2009 - 10 ALSO. 7.3 THE LEARNED AR OF THE ASSESSEE HAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE ASSESSEE IS A PARTNERSHIP FIRM AND THE BUSINESS CLAUSE AS PER THE PARTNERSHIP DEED OF THE FIRM IS AS UNDER: THAT THE PARTNERSHIP SHALL CARRY ON THE BUSINESS OF BUILDERS AND CONTRACTORS, CONSTRUCTION CONTRACTORS, DEVELOPERS OF LAND AND ESTATES AND CONSTRUCTION OF RESIDENTIAL FLAT, COL ONIES, OFFICE BUILDING, COMMERCIAL AND MULTI - STORIED COMPLEXES, PREFABRICATED AND PRE - CAST HOUSES, AND TO ACQUIRE BY PURCHASES, LEASE, EXCHANGE OR OTHERWISE LAND, BUILDING AND HEREDITMENTS OF ANY TENURE OR DESCRIPTION AND ANY ESTATE OR INTEREST THEREIN AND ANY RIGHTS OVER OR CONNECTED WITH LAND, AND IN TURN THE SAME TO ACCOUNT AS MAY SEEM EXPEDIENT AND IN PARTICULAR BY PREPARING BUILDING SITES AND BY CONSTRUCTING, RECONSTRUCTING, ALTERING, IMPROVING, REPAIRING, DECORATING, FURNISHING AND MAINTAINING OFFICES , FLATS, HOUSES, FACTORIES, WAREHOUSES, SHOPS, WHARVES, BUILDINGS, WORKS AND CONVENIENCE OF ALL KINDS AND BY CONSOLIDATING OR CONNECTING OR SUBDIVIDING PROPERTIES AND BY LEASING AND DISPOSING OF THE SAME IN ANY MANNER AND / OR ANY OTHER BUSINESS UNDER THE NAME & STYLE OF M/S. SHUBH I.T.A. NO.5473/MUM/2014 8 ENTERPRISES OR SUCH OTHER NAME OR NAMES AS MY BE MUTUALLY DECIDED BY AND BETWEEN THE PARTNERS FROM TIME TO TIME. 7.4 WE OBSERVE THAT THE ASSESSEE HAS NOT DISPUTED BEFORE THE LEARNED CIT(A) (I) THE DETAILS OF LOAN MENTIONED AT P AGE 4 OF THE ASSESSMENT ORDER FOR THE A.Y. 2008 - 09 AND AT PAGE 6 - 7 OF THE ASSESSMENT ORDER FOR THE A.Y. 2009 - 10 AND (II) THE DETAILS OF LOAN GIVEN BY THE ASSESSEE WHERE THERE WAS NO TRANSACTION DURING THE F.Y. 2008 - 09 MENTIONED BY THE A.O. AT PAGE 6 OF THE ASSESSMENT ORDER FOR THE A.Y. 2009 - 10. 7.5 WE FIND THAT THERE IS MERIT IN THE FINDING OF THE A.O. THAT THE LOAN ADVANCED FOR MORE THAN THREE/FOUR YEARS TO M/S. VIJAY PARIKH & ASSOCIATES, ARPIT SAMANI, PARIKH GRANITO, M/S. NISHA ENTERPRISE CANNOT BE TREA TED AS A TEMPORARY INVESTMENT OF THE BORROWED FUNDS. EVEN THE LOAN PROVIDED TO M/S. SHRI SHANKAR SANITATION, SHUBH HOTEL P. LTD. AND SHUB BUILDERS P. LTD. HAS CROSSED THE LIMIT OF MORE THAN TWO YEARS. THUS THERE IS MERIT IN THE FINDING OF THE A.O. THAT AS - 16: BORROWING COSTS IS NOT APPLICABLE IN THE PRESENT CASE. 7.6 LET US ILLUSTRATE THE FUNDS ADVANCED BY THE ASSESSEE TO ITS TWO SISTER CONCERNS I.E. M/S. SHUB HOTELS PVT. LTD. AND SHREE SHUBH BUILDERS PVT. LTD. IN THE CASE OF SHUB HOTELS PVT. LTD. THE L OAN WAS RS. 15,36,003/ - AS ON 31.03.2007, RS. 1,43,83,433/ - AS ON 31.03.2008 AND RS. 2,08,07,427/ - AS ON 31.03.2009. IN THE CASE OF SHREE SHUB BUILDERS P. LTD. THE LOAN WAS RS. 1,72,71,840/ - AS ON 31.03.2007, RS. 2,73,09,016/ - AS ON 31.03.2008 AND RS. 3,60 ,26,172/ - AS ON 31.03.2009. 7.7 HOWEVER, THE SOLITARY ISSUE IN THE INSTANT APPEAL IS WHETHER THE INTEREST EARNED BY THE ASSESSEE ON LOANS AND ADVANCES GIVEN TO PARTIES / CONCERNS (IN THE TABLE GIVEN AT PARA 3 HERE - IN - ABOVE) EMANATE FROM THE BUSINESS ACTI VITY OF THE ASSESSEE OR IT IS CASE OF SIMPLE DIVERSION OF FUND FOR NON - BUSINESS ACTIVITY. THE ISSUE OF NETTING OFF OF INTEREST INCOME AGAINST INTEREST EXPENDITURE SHALL ARISE WHEN THE INTEREST EARNED BY THE ASSESSEE EMANATE FROM ITS BUSINESS ACTIVITY AND T HERE IS RELATIONSHIP BETWEEN THE TWO. THE ABOVE ISSUE SHALL NOT ARISE IF THERE IS DIVERSION OF FUND FOR NONBUSINESS ACTIVITY. THESE ASPECTS HAVE NOT BEEN EXAMINED EITHER BY THE A.O. OR THE LEARNED CIT(A). IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDER OF THE LEARNED CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE A.O. TO EXAMINE THE ABOVE AND PASS AN ORDER AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE ASSESSEE IS ALSO DIRECTED TO FILE THE RELEVANT DETAILS BEFORE THE A.O. SINCE TH E TRIBUNAL HAS PASSED AFORESAID DETAIL ED APPELLATE ORDER DATED 19 - 05 - 2016 FOR IMPUGNED ASSESSMENT YEAR W.R.T. QUANTUM ASSESSMENT WHEREIN TRIBUNAL HAS WIT H RESPECT TO WHOLE GAMUT OF TRANSACTION OF LOANS AND ADVANCES HAS TAKE N A VIEW THAT TH E AO NEED TO D ENOVO ADJUDICATE THE ISSUE ON MERITS IN QUANTUM, IT WILL BE FAIR TO BOTH THE PART IES IF THE PENALTY PROCEEDINGS ARE ALSO RESTORED TO THE FILE OF THE AO WITH SIMILAR DIRECTION IN LINE WITH THE DIRECTION OF THE TRIBUNAL VIDE ORDERS DATED 19 - 05 - 2017 IN QUANTU M, TO RE - ADJUDICATE THE PENALTY ISSUE AFRESH IN LINE/ COMPLIANCE WITH THE DIRECTION S OF THE TRIBUNAL IN QUANTUM , IN CASE IF IT IS FOUND THAT THE ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOME OR HAS FURNISHED I.T.A. NO.5473/MUM/2014 9 INACCURATE PARTICULARS OF INCOME WITHIN MANDATE OF PROVISIONS OF SECTION 271(1)(C) , DURING THE COURSE OF DENOVO ASSESSMENT PROCEEDINGS . N EEDLESS TO SAY THAT THE AO S HALL GIVE TO THE ASSESSEE PROPER AN D ADEQUATE OPPORTUNITY OF BEING HEARD IN ACCORDANCE WITH PRINCIPLES OF NATURAL JUSTICE AS PE R LAW . THE EXPLANATIONS/ EVIDENCES FILED BY THE ASSESSEE IN ITS DEFENCE IN DENOVO PROCEEDINGS SHALL BE ADMITTED BY THE AO AND ADJUDICATED ON MERITS. WE ORDER ACCORDINGLY. ORDER PRONOUNCED IN THE OPEN COURT ON 1 1 .07.2018 1 1 .07.2018 S D / - S D / - (SAKTIJIT DEY) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 1 1 .07.2018 NISHANT V ERMA SR. PRIVATE SECRETARY COPY TO 1 . THE APPELLANT 2 . THE RESPONDENT 3 . THE CIT(A) CONCERNED, MUMBAI 4 . THE CIT - CONCERNED, MUMBAI 5 . THE DR BENCH, 6 . MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI