ITO, New Delhi V. M/s Matrix Infrastructure, New Delhi

ITA 5548/DEL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52915 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 31-08-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 08-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S NEGI
• Keywords: Business income; Business expenditure; Notional interest
• Section: 56

Judgement Text

ITA NOS. 5428 & 5548/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 5428/DEL/2010 A.Y. : 2007-08 M/S MATRIX INFRASTRUCTURE, C-2/398, JANAKPURI, NEW DELHI (PAN : AANFM1157B) VS. INCOME TAX OFFICER, WARD 26(2), NEW DELHI AND ITA NO. 5548 /DEL/2010 A.Y. 2007-08 INCOME TAX OFFICER, VS. M/S MATRIX INFRASTRUCTURE , WARD 26(2), D-99, TAGORE GARDEN, ROOM NO. 304-C, NEW DELHI D-BLOCK, VIKAS BHAVAN, (PAN : AANFM1157B) NEW DELHI (APPELLANTS ) (APPELLANTS ) (APPELLANTS ) (APPELLANTS ) (RESPONDENTS ) (RESPONDENTS ) (RESPONDENTS ) (RESPONDENTS ) ASSEESSEE BY : NONE DEPARTMENT BY : SH. R.S. NEGI, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM THESE CROSS APPEALS BY THE ASSESSEE AND THE REVEN UE EMANATE OUT OF ORDER OF THE LD. COMMISSIONER OF INCOME TAX ( APPEALS) DATED 20.1.2010 AND PERTAIN TO ASSESSMENT YEAR 2007-08. 2. THE GROUNDS RAISED IN THE ASSESSEES APPEAL REA D AS UNDER:- ITA NOS. 5428 & 5548/DEL/2010 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS NOT JUSTIFIE D IN TAKING THE BUSINESS INCOME AS NIL AS AGAINST LOSS OF ` 52,35,797/- BY DISALLOWING ALL EXPENSES I.E. INTERE ST OF ` 67,36,671/- PAID TO AWHO AND OTHER EXPENSES OF ` 11,42,700/-. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS NOT JUSTIFIE D IN TAKING INTEREST INCOME OF ` 26,43,583/- AS INCOME F ROM OTHER SOURCES AS AGAINST OF BUSINESS INCOME. 3. THE GROUNDS RAISED IN THE REVENUES APPEAL READ AS UNDER:- DELETING THE ADDITION OF NOTIONAL INTEREST INCOME B Y HOLDING THAT THE ASSESSING OFFICER CANNOT DICTATE TERMS AND CONDITIONS OF BUSINESS TO THE ASSESSEE FOR EARNING INCOME ON INTEREST FREE ADVANCES EITHER FOR BUSINESS AND O R OTHERWISE AS A PRUDENT BUSINESSMEN IS NOT EXPECTED TO GIVE ADVANCE FREE OF INTEREST AFTER BORROWING AND PAYIN G HUGE INTEREST. THE APPELLANT CRAVES THE RIGHT TO ADD, ALTER OR AM END ANY GROUND OF APPEAL. 4. IN THIS CASE, THE ASSESSEE FILED ITS RETURN DEC LARING LOSS OF ` 51,19,900/-. THE ASSESSEE, M/S MATRIX INFRASTRUC TURE, A PARTNERSHIP CONCERN CONSISTS OF TWO PARTNERS M/S JRC GRID ENGINE ERS (P) LTD., & M/S CHANDNA DEVELOPERS (P) LTD., A SPECIAL PURPOSE VEHI CLE, WHICH CAME INTO EXISTENCE ON 28.12.2005 AS PER PARTNERSHIP DEE D. AS PER DEED, THE FIRM IS ENGAGED IN BUSINESS OF CONSTRUCTION WOR K, ACQUIRING LAND, ITA NOS. 5428 & 5548/DEL/2010 3 DEVELOPING AND CONSTRUCTING BUILDINGS ON SUCH LAND . DURING THE PERIOD UNDER CONSIDERATION, THE ASSESSEE ENTERED INTO AN AGREEMENT WITH ARMY WELFARE HOUSING ORGANIZATION (AWHO) FOR PURCHAS ING 110 ACRES OF LAND AND BUILDING THE RESIDENTIAL ACCOMMODATION O N THIS LAND FOR AHWO. FOR THIS PURPOSE, AS PER AGREEMENT, THE APPEL LANT TOOK ADVANCE OF ` 13.0 CRORE FROM AWHQ AGAINST THE BANK GUARANTEE OF ` 13.50 CRORES GIVEN BY THE ASSESSEE. AS PER P&L ACCOU NT FILED, IT WAS NOTICED THAT THE ASSESSEE HAS DEBITED ` 67,36,671/- ON ACCOUNT OF INTEREST PAYMENT ON ADVANCE OF AWHO AND OTHER EXPEN SES AGAINST INTEREST INCOME OF ` 26,43,583/-, THEREBY COMPUTED A LOSS OF ` 52,35,797/-. AS PER BANK ACCOUNT OPENING FORM OF T HE ASSESSEE, THE ASSESSING OFFICER NOTICED THAT THERE WAS THREE PAR TNERS IN THE FIRM AS AGAINST TWO MENTIONED IN THE PARTNERSHIP DEED. FURT HER, THE ASSESSING OFFICER HAS POINTED THAT THE ASSESSEE FILED THREE DIFFERENT BALANCE SHEET AND P&L ACCOUNT FOR THE RELEVANT PERIOD DURING THE ASSESSMENT PROCEEDINGS. THE CLAIM OF INTEREST WAS NOT ADMITTED BY THE ASSESSING OFFICER MAINLY ON THE FACT THAT IT IS PENAL IN NATU RE AND NO TDS WAS DEDUCTED ON THE INTEREST. FURTHER, IN ADDITION TO THIS DISALLOWANCE OF INTEREST, THE ASSESSING OFFICER ASSESSED BUSINESS INCOME AT NIL ON THE FACT THAT THE LOSS HAS NOT BEEN CLAIMED TO BE CARRIE D FORWARD AND BOOK RESULTS ARE NOT RELIABLE. ALSO, THE ASSESSING OFFI CER WORKED OUT A SUM OF ` 38.50 LACS AS INTEREST ACCRUED ON ADVANCE OF ` 5.50 CRORES GIVEN TO VARIOUS PERSONS. 5. THE ASSESSEE APPEALED AGAINST THE ABOVE ADDITION BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS). LD. COMMISSIO NER OF INCOME TAX (APPEALS) HELD THAT ON THE ANALYSIS OF ALL THE DOCUMENTS FURNISHED BEFORE HIM, HE WAS OF THE CONSIDERED VIEW THAT THE INTEREST OF ` 50,00,000/- IS PENAL IN NATURE AS PER CLAUSE 16 OF MOU DATED 28.8.2006 ITA NOS. 5428 & 5548/DEL/2010 4 AND THE LETTER OF INTENT DATED 9.8.2006 WHERE IT HA S BEEN SPECIFICALLY PROVIDED THAT IN CASE THE PROJECT IS NOT COMPLETED W ITHIN SIX MOTHS (AS PER CLAUSE 9 OF THE MOU); THE ASSESSEE HAS TO PAY ` 50 LACS AS INTEREST AND OTHER MISCELLANEOUS EXPENDITURE. THE RATE OF I NTEREST CLAIMED @9.05% IS NOT SUPPORTED BY ANY DOCUMENT OF AWHO. LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER FOUND T HAT THIS WAS THE REASON ASSESSEE HAS PAID THIS SUM, JUST AFTER COMPL ETION OF SIX MONTHS. THEREFORE, LD. COMMISSIONER OF INCOME TAX (A PPEALS) HELD THAT DISALLOWANCE OF PENAL INTEREST OF ` 50 LACS BY THE ASSESSING OFFICER WAS JUSTIFIED. LD. COMMISSIONER OF INCOME TAX (APPE ALS) FURTHER HELD THAT THE ASSESSEE HAS NOT DEDUCTED TDS ON THE INTERE ST, PENAL AND NON PENAL, ON BORROWED FUNDS. HE HELD THAT INTEREST O N LOAN/ADVANCE IS NOT ALLOWABLE AS BUSINESS EXPENDITURE BECAUSE THE A SSESSEE HAS CONTROVERTED THE PROVISIONS OF SECTION 40(A)(IA) RE AD WITH SECTION 194A OF THE ACT. THEREFORE, LD. COMMISSIONER OF INCOME T AX (APPEALS) HELD THAT THE INTEREST EVEN IF ALLOWABLE AS BUSINESS EXP ENDITURE IN ANY OTHER SECTION CANNOT BE ALLOWED U/S 40(A)(IA) OF THE ACT. 5.1 FURTHER, LD. COMMISSIONER OF INCOME TAX (APPEALS) FOUND THAT ASSESSING OFFICER HAS DISALLOWED THE OTHER BUSINE SS EXPENDITURE OF ` 11,42,700/-. LD. COMMISSIONER OF INCOME TAX (APPEAL S) HELD THAT IT WAS UNDISPUTED FACT THAT THE PROJECT IS NOT COMPLET ED IN THE RELEVANT PERIOD; THEREFORE, ALL THE EXPENDITURE DEBITED IN T HE P&L ACCOUNT IS NOTHING BUT PART OF WORK IN PROGRESS AND THUS REQUI RE CAPITALIZATION OF IT. IN VIEW OF THIS MATTER, LD. COMMISSIONER OF I NCOME TAX (APPEALS) HELD THAT THE ACTION OF THE ASSESSING OFFICER WAS JUSTIFIED IN TREATING BUSINESS INCOME AT NIL. ITA NOS. 5428 & 5548/DEL/2010 5 5.2 FURTHER, LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT AS PER THE JUDICIAL PRONOUNCEMENTS, INTEREST DERIVE D ON PARKED FUNDS MERITS SEPARATE TREATMENT UNDER SECTION 56 OF THE AC T WHICH IS OUTSIDE THE RING OF PROFIT AND GAINS FROM BUSINESS AND PROF ESSION AS THE ASSESSEES PRINCIPLE BUSINESS IS NOT BANKING AND AD VANCING LOANS. LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT THE I NTEREST INCOME ON PARKED FUND IS HELD TO BE INCOME FROM OTHER SOURC ES. THEREFORE, HE HELD THAT ASSESSING OFFICERS ACTION IN ASSES SING ` 26,43,583/- AS INCOME FROM OTHER SOURCES IS HELD JUSTIFIED. 5.3 LASTLY, LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT ASSESSING OFFICER CANNOT DICTATE TERMS AND CONDITI ONS OF BUSINESS TO THE ASSESSEE FOR EARNING INCOME ON INTEREST FREE ADV ANCES EITHER FOR BUSINESS AND OR OTHER WISE AND THEREFORE, THE ASSES SMENT OF HYPOTHETICAL / NOTIONAL INCOME OF ` 38,50,000/- BY T HE ASSESSING OFFICER WAS HELD UNCALLED FOR AND UNJUSTIFIED. HENCE, LD. COMMISSIONER OF INCOME TAX (APPEALS) DIRECTED FOR DELETION OF ADDIT ION. 6. AGAINST THE ABOVE ORDER THE ASSESSEE AND REVENUE ARE IN CROSS APPEAL BEFORE US. 7. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIV E. NONE APPEARED ON BEHALF OF THE ASSESSEE. HOWEVER, IN O UR CONSIDERED OPINION, THE MATTER CAN BE DISPOSED OF BY HEARING THE LD. DEPARTMENTAL REPRESENTATIVE AND PERUSING THE RECORDS. 7.1 AS REGARDS THE ALLOWABILITY OF INTEREST EXPEND ITURE IS CONCERNED, WE FIND THAT THE LD. COMMISSIONER OF INCOME TAX (APP EALS) HAS GIVEN A FINDING THAT THE SAME WAS PENAL IN NATURE AND A LSO IT HAS BEEN FOUND THAT ASSESSEE HAS NOT DEDUCTED TDS ON INTEREST . IN THESE CIRCUMSTANCES, LD. COMMISSIONER OF INCOME TAX (APPEAL S) HAS ITA NOS. 5428 & 5548/DEL/2010 6 CONFIRMED DISALLOWANCE OF INTEREST EXPENDITURE. WE FIND THAT THE REASON GIVEN FOR THE DISALLOWANCE ARE COGENT, WHICH DO NOT NEED ANY INTERFERENCE ON OUR PART. HENCE, WE AFFIRM THE D ISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE CLAIMED. 7.2 AS REGARDS THE DISALLOWANCE IN THE OTHER EXPEN DITURE ` 11,42,700/- IS CONCERNED, LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS GIVEN A FINDING THAT THE PROJECT IS NOT COMPLET ED AND THUS THIS EXPENDITURE IS NOTHING, BUT PART OF THE WORK IN PR OGRESS AND REQUIRES CAPITALIZATION. WE DO NOT FIND ANY INFIRMITY IN T HIS FINDING OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). ACCORDINGLY, WE AFFIRM THE SAME. 7.3 FURTHER, WE FIND THAT THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) HAS HELD THAT THE INTEREST INCOME OF PARK ED FUND WAS INCOME FROM OTHER SOURCES. ADMITTEDLY, THE BUSINESS OF THE ASSESSEE IS NOT BANKING AND ADVANCING OF LOAN. SPECIAL BENCH OF THE ITAT IN THE CASE OF DCIT VS. ALLIED CONSTRUCTION 291 ITR AT 16 HAS HE LD THAT INTEREST INCOME ON BANK DEPOSITS HAS TO BE TAKEN AS INCOME F ROM OTHER SOURCES, UNLESS THE ASSESSEE IS CARRYING ON MONEY LENDING BUSINESS OR SOME VERY SPECIAL CIRCUMSTANCES EXIST TO HOLD INT EREST INCOME TO BE BUSINESS INCOME. HENCE, THERE IS NO INFIRMITY IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN TREATING THE INTEREST INCOME ON PARKED FUNDS AS INCOME FROM OTHER SOURCES. 7.4 WE FURTHER FIND THAT LD. COMMISSIONER OF INCOME T AX (APPEALS) HAS HELD THAT ASSESSING OFFICER CANNOT DICTATE TE RMS AND CONDITIONS OF BUSINESS TO THE ASSESSEE AND THEREFORE, HYPOTHETICA L /NOTIONAL INTEREST INCOME OF ` 38,50,000/- HAS BEEN DELETED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS). WE FIND THAT THIS ADJUDICATIO N BY THE LD. ITA NOS. 5428 & 5548/DEL/2010 7 COMMISSIONER OF INCOME TAX (APPEALS) IS ALSO A COGENT ONE. ASSESSING OFFICER HAD HYPOTHETICALLY ESTIMATED 12% INTEREST INCOME ON ` 5.5 CRORES. IT IS A SETTLED LAW THAT THE REVE NUE CANNOT SIT INTO THE SHOE OF THE BUSINESSMAN. HENCE, WE FIND THAT THERE IS NO INFIRMITY IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPE ALS) IN HOLDING THAT THE HYPOTHETICAL /NOTIONAL INTEREST INCOME WAS NOT LIABLE TO BE ADDED. HENCE, WE AFFIRM THE ORDER OF THE LD. COMMISSI ONER OF INCOME TAX (APPEALS) IN THIS REGARD. 8. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASS ESSEE AND REVENUE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30/9/201 1. SD/- SD/- [ [[ [R.P. TOLANI R.P. TOLANI R.P. TOLANI R.P. TOLANI] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 30/9/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES