JOYOUS HOUSING LTD, MUMBAI V. DCIT CEN CIR 5(1), MUMBAI

ITA 5507/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8033 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 14-12-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 03-12-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M C OMI NINGSHEN
• Keywords: Business income; Business expenditure; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H, MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.5507/MUM/2015 ASSESSMENT YEAR: 2012-13 JOYOUS HOUSING LTD., TULSIWADI PROJECTS OFFICE, AMBEDKAR NAGAR, S. K. RATHOD MARG, BEHIND I.T. OFFICE, TARDEO MUMBAI 400 034 PAN: AAACM3076H VS. DCIT CENT CIR 5(1) MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIJAY MEHTA RESPONDENT BY : SHRI M C OMI NINGSHEN, SR. DR DATE OF HEARING :14.12.2016 DATE OF PRONOUNCEMENT : 10.03.2017 O R D E R PER AMIT SHUKLA, JUDICIAL MEMBER: THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSE E AGAINST THE IMPUGNED ORDER DATED 31.07.2015, PASSED BY LD. CIT( APPEALS)-53, MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED U/S.143( 3) FOR THE A.Y. 2012-13. IN THE GROUNDS OF APPEAL THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE OF EXPENSES AMOUNTING TO RS.67,04,063/- OUT OF TOTAL EXPENSES C LAIMED OF RS.69,77,956/- ON THE GROUND THAT THE APPELLANT WAS NOT ENGAGED IN ANY BUSINESS ACTIVITIES DURING THE YEAR AND THEREFORE CLAIM OF EXPENSES SHOULD NOT BE ALLOWED. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE OF INTEREST EXPENSES IN RELATION TO FUNDS BORROWED FOR VARIOUS PURPOSES ITA NO.5507/MUM/2015 JOYOUS HOUSING LIMITED 2 INCLUDING LOAN/ADVANCES GIVEN INCIDENTALLY FROM WHI CH THE APPELLANT IS EARNING INTEREST INCOME OF RS.48,00,00 0/- 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) HAS ERRED IN DIRECTING WITHOUT PREJUDICE, D ISALLOWANCE OF INTEREST COST EXCEEDING 12% OF THE BORROWED FUND (DISALLOWANCE FIGURE NOT QUANTIFIED IN ASSESSMENT O RDER). THE DISALLOWANCE MADE, WITHOUT PREJUDICE AND IN THE EVE NT THAT GROUND NO 1 AND 2 IS DELETED AT APPELLATE PROCEEDIN GS, IS UNFAIR AND ILLOGICAL AND AGAINST NATURAL PRINCIPLE OF LAW AND JUSTICE. APART FROM THE ABOVE, THE ASSESSEE HAS ALSO FILED AN A DDITIONAL GROUND OF APPEAL, VIDE PETITION DATED 13.12.2016, WHI CH READS AS UNDER:- ALTERNATIVE, THE LEARNED CIT(A) OUGHT TO HAVE DIRE CTED THE AO TO ALLOW CAPITALIZATION OF INTEREST EXPENSE AMOUNTI NG TO RS.62,52,905/- (I.E. TO INCLUDE IT IN WORK IN PROG RESS OF THE PROJECT) IN THE SAME MANNER HE DIRECTED TO CAPITALI ZE THE OTHER EXPENSES LIKE TRANSPORT CHARGES, PROFESSIONAL FEES, ADVERTISING EXPENSES ETC. 2. THE BRIEF FACTS ARE THAT THE ASSESSEE COMPANY IS A CLOSELY HELD PUBLIC LIMITED COMPANY, ENGAGED IN THE BUSINESS OF CO NSTRUCTION OF BUILDING AND DEVELOPMENT OF PROPERTIES. THE AO NOTED THAT THE ASSESSEE COMPANY HAS EARNED INTEREST INCOME OF RS.48 ,92,066/-, WHICH WAS SHOWN AS INCOME FROM OTHER SOURCES AND A GAINST SUCH INCOME, THE ASSESSEE HAS CLAIMED VARIOUS EXPENSES. I T WAS FURTHER NOTED BY HIM THAT THE ASSESSEE COMPANY WAS IN THE PROCE SS OF DEVELOPMENT OF ITS PROJECT AT TULSIWADI AT TARDEO, MUM BAI. SINCE THE ASSESSEE HAD NOT COMMENCED ITS BUSINESS, THEREFORE, TH E AO HELD THAT THE EXPENDITURE CANNOT BE ALLOWED AS BUSINESS EXPEN DITURE. FURTHER THE EXPENDITURE ALLOWABLE U/S 57 AGAINST INC OME FROM OTHER SOURCES IS ONLY THOSE EXPENSES WHICH ARE INCIDENTAL TO THE EARNING OF THE INTEREST INCOME. HE HELD THAT SINCE SINGLE DEVELOPM ENT PROJECT WAS BEING EXECUTED BY THE ASSESSEE DURING THE YEAR, TH EREFORE, IT SHOULD HAVE CAPITALIZED ALL THESE EXPENSES TO WORK-IN -PROGRESS AND ITA NO.5507/MUM/2015 JOYOUS HOUSING LIMITED 3 SHOULD NOT HAVE CLAIMED THE SAME IN THE PROFIT & LOSS A CCOUNT. ACCORDINGLY, ALL THE BUSINESS EXPENDITURE AGGREGATING TO RS.69,77,956/- WAS DISALLOWED. THE AO THUS, TREATED TH E ENTIRE INTEREST INCOME OF RS.48,92,066/- AS INCOME FROM OTHE R SOURCES AND BUSINESS INCOME WAS COMPUTED AT NIL. 3. BEFORE THE LD. CIT (A) THE ASSESSEE HAD SUBMITTED TH AT THE PROJECT UNDERTAKEN BY THE ASSESSEE WAS UNDER CONSTRUCTI ON AND ALL THESE CONSTRUCTION EXPENSES WERE CAPITALIZED TO THE WORK -IN-PROGRESS ACCOUNT. APART FROM THAT, THE ASSESSEE HAD ALSO GIVEN I CD OF RS.4 CRORES TO M/S. RADIANT TRADEVEST PRIVATE LIMITED, A BOD Y CORPORATE AT SIMPLE INTEREST RATE OF 12% P.A. THE ASSESSEE HAD ALS O DEBITED INTEREST EXPENSES ON LOAN AMOUNTING TO RS.62,52,903/- AND CONTENDED THAT IT WAS DIRECTLY ATTRIBUTABLE TO THE EARNING O F INTEREST INCOME OF RS.48 LAKHS. THE OTHER COST OF EXPENDITURES AGGREGATING TO RS.7,25,051/- WERE FIXED COST AND WAS CLAIMED THAT IT H AS NOTHING TO DO WITH THE EXISTENCE OF ANY PROJECT. THE LEARNED CIT( A) NOTED THAT OUT OF TOTAL EXPENSES DEBITED TO THE PROFIT & LOSS ACCOUN T, THE MAJOR COMPONENT CONSISTS OF RS.62,52,905/- WHICH IS ON ACC OUNT OF INTEREST EXPENDITURE AND OTHER EXPENSES AGGREGATING ONLY TO RS.7 ,25,051/-. OUT OF THE SAID EXPENSES, LD. CIT (A) PARTLY ALLOWED AS REVENUE EXPENDITURE AND PARTLY HELD THAT THE SAME NEEDS TO BE CAP ITALIZED. ONE ITEM OF 34,140/-, WHICH WAS ON ACCOUNT OF INTERE ST ON DELAYED PAYMENT OF TAXES WAS DISALLOWED AS THE ASSESSEE ITSELF HAD DISALLOWED THE SAID AMOUNT. HOWEVER, AS REGARD THE CLAIM OF DEDUC TION OF INTEREST EXPENSES OF RS.62,52,905/- AGAINST THE INTEREST INCOME OF RS.48 LAKHS FROM ICD DEPOSIT (ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES), HE OBSERVED THAT THE INTEREST HAS BEEN RECEIVED @12% P.A. WHILE THE PAYMENT OF INTEREST HAS BEEN MADE A T WEIGHTED AVERAGE RATE OF 16.75%, WHICH WAS LATER ON CLARIFIE D BY THE ASSESSEE THAT IT IS 14.20%. ON PERUSAL OF THE BANK STATEMENT, HE NO TED THAT ITA NO.5507/MUM/2015 JOYOUS HOUSING LIMITED 4 THE AMOUNT OF RS.4 CRORES, WHICH WAS ADVANCED AS ICD ON 10.10.2008, @ 12% P.A., WAS OUT OF THE FUND OF RS.11. 25 CRORES RECEIVED BY THE ASSESSEE FROM M/S. CHINSHA PROPERTY PVT. LTD. (AN ASSOCIATE COMPANY) ON 29.08.2008. ON THIS FUND THE ASS ESSEE HAS NOT PAID ANY INTEREST, HENCE IT WAS INTEREST FREE FUND, WHEREAS THE ASSESSEE HAS INCURRED INTEREST EXPENDITURE OF RS.62, 52,905/- WHICH CANNOT BE SAID TO BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING INTEREST INCOME OF RS.48 LAKHS. ACCORDING LY, HE CONFIRMED THE ACTION OF THE AO. 4. BEFORE US THE LEARNED COUNSEL, SHRI VIJAY MEHTA THO UGH DID NOT PRESSED GROUND NO.1, HOWEVER, HE MAINLY CONTENDED THA T THE ISSUE RAISED IN ADDITIONAL GROUND SHOULD BE ADMITTED, BECAUS E IF THE INTEREST EXPENDITURE HAS BEEN HELD TO BE NOT RELATABLE TO EARNING OF INTEREST INCOME, THEN IT, INTER ALIA, IT MEANS THAT IT IS FOR THE PURPOSE OF ON-GOING PROJECT AND, HENCE, SUCH AN INTEREST EXPEN DITURE ALSO NEEDS TO BE CAPITALIZED AS DONE BY THE CIT (A) WITH RE GARD TO CERTAIN OTHER EXPENSES. 5. ON THE OTHER HAND, LEARNED CIT-DR STRONGLY RELYING UPON THE ORDER OF THE CIT (A), SUBMITTED THAT THE ISSUE RAISED IN ADDITIONAL GROUND HAS NOT BEEN TAKEN EITHER BEFORE THE AO OR BEFOR E THE LD. CIT (A), ALBEIT, THE ASSESSEES CASE HAD BEEN THAT THE INTEREST EXPENDITUR E IS ATTRIBUTABLE TO EARNING INTEREST INCOME OF RS.48 LAKH S AND, THEREFORE, THE SAME SHOULD BE ALLOWED AS DEDUCTION. IF THE ASSESSEE IS CLAIMING THAT THE INTEREST PERTAINED TO THE PROJECT, THEN THE MATTER SHOULD GO BACK TO THE AO FOR A PROPER VERIFICATION AND EXAMINATION AND ASSESSEE NEEDS TO PROVE THE NEXUS BETWEEN THE INTE REST EXPENDITURE AND ITS UTILIZATION IN THE PROJECT. 6. AFTER CONSIDERING THE AFORESAID SUBMISSIONS AND RELEVANT FINDINGS IN THE IMPUGNED ORDERS, WE FIND THAT IT IS AN UNDISPUTED FACT ITA NO.5507/MUM/2015 JOYOUS HOUSING LIMITED 5 THAT THE ASSESSEE DURING THE RELEVANT ASSESSMENT YEAR WAS IN THE PROCESSING OF DEVELOPMENT OF PROJECT AND THE OPENING WORK-IN- PROGRESS WAS RS.190.55 CRORES AND THE CLOSING WORK -IN-PROGRESS STOOD AT RS.224.77 CRORES, THUS, IT HAD SHOWN CONSTRUCT ION COST OF RS.31.22 CRORES ON THE SAID ON-GOING PROJECT DURING THE YEAR UNDER CONSIDERATION. IN THE PROFIT & LOSS ACCOUNT THE ASSESS EE HAD CLAIMED FOLLOWING EXPENDITURE:- SR NO. PARTICULARS AMOUNT I . INT EREST COST (APPORTIONED TOWARDS ADVANCE GIVEN TO RADIANT TRADEVEST PVT. LTD.) 62 , 52,905 II . TRANSPORT CHARGES (HO) 1 , 24,626 III . PROFESSIONAL FEES 1 , 81,995 IV . EXPENSES WRITTEN OFF 81,153 V . ADVERTISING EXPENSES 22,385 VI . STATUTORY AUDIT FEES 1 , 68,540 VII . LIMITED REV IEW FEES 33,090 VIII . OFFICE EXPENSES 500 IX . PROFESSIONAL TAX 2,500 X . BANK CHARGES 35,123 XI . INTEREST ON DELAYED PAYMENT OF TAXES 34,140 TOTAL 69 , 77,957 OUT OF THE AFORESAID EXPENDITURE, THOSE GIVEN AT SR. NO S. II TO V HAVE BEEN ALLOWED BY THE LD. CIT (A) TO BE CAPITALIZED AND THOSE AT SR. NOS. VI TO X HAVE BEEN ALLOWED AS REVENUE EXPENDITURE. TH E ITEM AT SR. NO. XI HAS BEEN DISALLOWED BY THE ASSESSEE ITSELF. THE MA JOR ISSUE BEFORE US IS MAINLY THE INTEREST COST, WHICH HAS BEEN APPORTIO NED TOWARDS ADVANCE GIVEN TO RADIANT TRADEVEST PRIVATE LIMITED IN TH E FORM OF ICD ITA NO.5507/MUM/2015 JOYOUS HOUSING LIMITED 6 FOR SUMS AGGREGATING TO RS.62,52,905/-. THE LEARNED CIT (A) HAS GIVEN A VERY CATEGORICAL FINDING THAT THIS INTEREST EXP ENDITURE HAS NO CO-RELATION WITH THE EARNING OF RS.48 LAKHS OF INTERES T INCOME FROM ICD, BECAUSE THE FUNDS ADVANCED FOR ICD WAS OUT OF TH E INTEREST FREE FUND OF RS.11.25 CRORES RECEIVED FROM THE ASSOCIATE C OMPANY. NOW THE ONLY CONTENTION, WHICH HAS BEEN RAISED BY THE LEARN ED COUNSEL SHRI VIJAY MEHTA BEFORE US IS THAT, THIS INTEREST EXPEN DITURE RS.62,52,905/- SHOULD BE CAPITALIZED, BECAUSE IT PERTA INS TO THE ON- GOING PROJECT. IT IS PURELY A NEW PLEA/GROUND, WHICH HAS BEEN TAKEN FOR THE FIRST TIME AT THIS STAGE, BUT AT THE SAME TIME IT GOE S TO THE ROOT OF THE ISSUE INVOLVED BECAUSE, WHENCE, THIS INTEREST E XPENDITURE IS NOT ATTRIBUTABLE TO INCOME FROM OTHER SOURCES, THEN IT INDIC ATES THAT THE SAME MAY HAVE BEEN FOR THE PURPOSE OF CONSTRUCTION BUSINESS/ONGOING PROJECT. BEING A CORE ISSUE WHICH G OES TO THE DETERMINATION OF CORRECT TAX LIABILITY OF THE ASSESSEE, WE THEREFORE DEEM FIT TO ADMIT THE ADDITIONAL GROUND. SINCE THIS ASPEC T HAS NEITHER BEEN CONTENTED BY THE ASSESSEE BEFORE THE AO NOR HAS B EEN EXAMINED BY THE AO, THEREFORE, IN THE INTEREST OF JUSTICE, WE REM IT BACK THE MATTER TO THE FILE OF THE AO, WHO SHALL EXAMINE THE UTILI ZATION OF THE BORROWED FUND FOR THE PURPOSE OF BUSINESS AND THE NEX US OF INTEREST EXPENDITURE WHICH HAS BEEN INCURRED ON SUCH BORROWED FUNDS. IF THE INTEREST EXPENDITURE IS ON THE BORROWED FUNDS, WHICH HA S BEEN UTILIZED FOR THE BUSINESS PURPOSE, THEN THE SAME NEED TO BE CAPITALIZED AS PART OF WORK-IN-PROGRESS, IF NOT, THEN A O CAN DRAW ADVERSE INFERENCE. ACCORDINGLY, WE AGREE WITH THE CON TENTION OF THE LEARNED CIT-DR AND SET ASIDE THIS ISSUE TO THE FILE OF THE AO TO DECIDE THE SAME IN THE LIGHT OF THE DIRECTIONS GIVEN ABOVE. 7. IN VIEW OF OUR FINDING WITH REGARD TO THE ADDITIONA L GROUND, THE MAIN GROUND RAISED BY THE ASSESSEE DOES NOT SURVIVE. ITA NO.5507/MUM/2015 JOYOUS HOUSING LIMITED 7 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH MARCH, 2017. SD/- SD/- (RAJESH KUMAR) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 10.03.2017. SA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR H BENCH //TRUE COPY// BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI