Krupajal Trust, Bhubaneswar V. DCIT (Exemptions), Bhubaneswar

ITA 58/CTK/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 4386 (ITAT-CUTTACK)
• Duration Of Justice: 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Appeal Filed On: 15-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K BANDYOPADHYAY
• Assessee Lawyers: P K MISHRA
• Keywords: Source of fund; Capital expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE SHRI N.S.SAINI, AM & SHRI PAV AN KUMAR GADALE, JM ITA NO. 57 & 58 /CTK/2017 ( / ASSESSMENT YEAR : 2012 - 2013 & 2013 - 2014 ) KRUPAJAL TRUST, PLO T NO. - B - 20, BJB NAGAR, BHUBANESWAR - 751014 VS. DCIT(EXEMPTION), BHUBANESWAR ./ ./ PAN/GIR NO. : A ABTK 1988 L ( / APPELLANT ) .. ( / RESPONDENT ) /AS SESSEE BY : SHRI P.K.MISHRA, AR /REVENUE BY : SHRI S.K.BANDYOPADHYAY , DR / DATE OF HEARING : 04 / 01 /201 8 / DATE OF PRONOUNCEMENT 22 / 01 /201 8 / O R D E R PER SHRI N.S.SAINI , A M : TH ESE ARE THE APPEALS FILED BY THE ASSESSEE AGAINST THE ORDE R OF THE CIT(A) - 3 , BHUBANESWAR BOTH DATED 24.10.2016. 2. THE COMMON GROUND TAKEN BY THE ASSESSEE IN BOTH THE APPEALS IS THAT THE CIT(A) ERRED IN DISALLOWING EXPENSES OF RS.65,85,019/ - IN ASSESSMENT YEAR 20 1 2 - 2013 AND RS. 87,06,354/ - IN THE ASSESSMENT YEAR 2013 - 2014 FROM THE INTEREST INCOME EARNED BY THE ASSESSEE. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A TRUST WH I CH WAS FORMED ON 20.04.2007 WITH REGISTRATION NO. 605 AND THE TRUST DEED WAS SUBSEQUENTLY AMENDED ON 17.03.2008 WITH AN OBJECTIVE TO GE T DEEMED UNIVERSITY IN THE NAME AND STYLE OF KRUPAJAL UNIVERSITY. THE TRUST IS NOT REGISTERED U/S.12AA OF THE ACT. ON VERIFICATION OF INCOME & EXPENDITURE A/C., THE A.O. FOUND THAT THE TRUST HAS NOT COMMENCED ANY ACTIVITY DURING THE YEAR AND SIMPLY BUILT UP THE INFRASTRUCTURE BY RAISING LOAN FROM ITS OWN ITA NO. 57&58 /17 2 SISTER CONCERN, THAT NO REGISTRATION U /S.12AA WAS GRANTED, THAT ITS UN IVERSITY TO FUNCTION AS A DEEMED UNIVERSITY COULD NOT BE MATERIALIZED AND THE BORROWED FUNDS WERE PURPORTEDLY BEEN UTILIZED FOR PROCUR EMENT AND DEVELOPMENT OF LAND AND DEPOSITS IN BANKS, THAT THE TRUST IS DERIVING INCOME FROM FIXED DEPOSITS AND SAVINGS BANK DEPOSITS AND INTEREST ACCRUED DURING THE YEAR FROM SUCH DEPOSITS WAS RS.65,85,019/ - . FURTHER, THE A.O. OBSERVED THAT THE EQUAL AMOUN T OF INTEREST RECEIVED FROM BANK HAS BEEN DEBITED TO THE INCOME & EXPENDITURE A/C. TOWARDS INTEREST PAYABLE TO THE SISTER CONCERNS, THAT THE ALLEGED INTEREST PAYABLE TO THE SISTER CONCERN IS NOT AN ADMISSIBLE EXPENDITURE SINCE THE LOAN TAKEN WAS NOT USED W HOLLY AND EXCLUSIVELY FOR THE PURPOSE OF SETTING UP OF THE PROPOSED UNIVERSITY AND THEREFORE, THE ASSESSEE IS NOT ENTITLED TO CLAIM SET OFF THE INTEREST PAYABLE TO THE SISTER CONCERN AGAINST THE ACCRUED INTEREST. IN VIEW OF THE ABOVE, THE A.O. HELD THAT AC CRUED INTEREST IS ASSESSABLE AS INCOME FROM OTHER SOURCE AND SINCE THE INTEREST PAYABLE TO THE SISTER CONCERN HAS NO NEXUS WITHIN THE MEANING OF SEC.57(III) AND SUCH PAYABLE INTEREST SHOULD BE CAPITALIZED WITH THE COST OF DEVELOPMENT OF INFRASTRUCTURE, HE ADDED THE ACCRUED INTEREST OF RS.65,85,019/- IN ASSESSMENT YEAR 2012 - 2013 AND RS.87,06,354/ - IN THE ASSESSMENT YEAR 2013 - 2014 AND AFTER ADJUSTMENT OF LOSS, HE ASSESSED THE INCOME OF THE YEAR AT RS.65,22,906/ - IN ASSESSMENT YEAR 2012 - 2013 AND RS.86,34,450/ - IN THE ASSESSMENT YEAR 2013 - 2014, RESPECTIVELY. 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) AND CONTENDED THAT THE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE AT ITA NO. 57&58 /17 3 RS. 65,85,019/ - IN THE ASSESSMENT YEAR 2012 - 2013 AND RS. 87,06,354/ - FOR T HE ASSESSMENT YEAR 2013 - 2014 SHOULD BE ALLOWED DEDUCTION FROM THE INTEREST RECEIVED BY THE ASSESSEE ON BANK FIXED DEPOSIT AND SAVINGS BANK ACCOUNT. THE CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE OBSERVING THAT THE OUTSTANDING OPENING BALANCE OF LOAN AS ON 1 ST APRIL, 2009 WAS RS.6,51,67,140/ - , INTEREST ON LOAN PAYABLE WAS RS.90,61,409/ - AND THE TOTAL LOAN OUTSTANDING OF LOAN WAS RS. 7,42,28,549/ - AS ON 31.03.2010 . THERE IS NO EVIDENCE OF PAYMENT OF INTEREST PAYABLE TO THE LENDER IN THAT YEAR AND THEREFORE , THE OPENING BALANCE OF NEXT FOLLOWING PREVIOUS YEAR OUGHT TO HAVE BEEN RS. 7,42,28,549/ - . BUT, THE OPENING BALANCE AS ON 1 ST APRIL, 2010 WAS TAKEN AT THE SAME FI G URE OF OPENING BALANCE AS ON 1 ST APRIL, 2009 AND AFTER CREDIT OF INTEREST ON LOAN PAYABLE AT RS.1,27,27,654/ - , REPAYMENT OF LOAN OF RS.30,00,000 / - AND CREDIT OF FRESH LOAN OF RS .4 ,91,00,000 / - , THE CLOSING BALANCE HAS BEEN SHOWN AT RS.12,39,94,794 / - . THE OPENING BALANCE OF THE LOAN AS ON 1 ST APRIL, 2011 WAS RS.12,39,94,794 / - . THIS INDICATES THAT INTEREST PAYABLE IN F.Y.2010 - 11 HAS BEEN CAPITALIZED TO THE LOAN A C COUNT. THE INTEREST PAYABLE IN THE YEAR WAS RS.65,85,019 / - AND AFTER REPAYMENT OF RS.11,80,000 / - , CLOSING BALANCE OF OUTSTANDING AS ON 31.03.2012 WAS RS.12,93,99,813 / - . THERE IS NO EVIDENCE OF PAYMENT OF INTEREST PAYABLE TO THE SISTER CONCERN IN THE YEAR UNDER APPEAL AND FROM THE ACCOUNTING PRINCIPLE ADOPTED FOR F.Y.2010 - 11, AN INFERENCE CAN BE DRAWN THAT THE INTEREST PAYABLE IN THE YEAR HAS BEEN CAPITALIZED TO THE LOAN ACCOUNT. HE OBSERVED THAT THE ITA NO. 57&58 /17 4 ASSESSEE INVESTED THE ALLEGED LOAN IN PROCUREMENT AND DEVELOPMENT OF LAND, FIXED DEPOSITS WITH ICICI BANK, AXIS BANK BESIDES HUGE AMOUNT KEPT IDLE BY DEPOSITING IN SAVINGS BANK ACCOUNT WITH AXIS BANK AND OTHER BANKS. SUCH DIVERSION OF LOAN TO THE FIXED DEPOSITS AND DEPOSITS WITH BANK ACCOUNT IS GENERATING HUGE INTEREST EVERY YEAR . THE ASSESSEE HAS NOT DISCLOSED THE INTEREST INCOME SEPARATELY AS INCOME FROM OTHER SOURCE IN THE YEAR UNDER CONSIDERATION AND IN EARLIER YEARS. IN THE F.Y.2009 - 10, THE AS SESSEE HAS SET OFF INTEREST INCOME OF RS.59,70 ,422/ - AGAINST ACQUISITION OF FIXED ASSETS BY TREATING IT AS APPLICATION OF INCOME. BUT, SUCH CLAIM IS NOT ADMISSIBLE SINCE THE ASSESSEE IS NOT REGISTERED U/ S.12AA OF THE ACT. IN THE F.Y.2010 - 11 & 2011 - 12, THE ASSESSEE HAS SET OFF THE INTEREST INCOME AGAINST INTEREST PAYABLE TO ITS OWN CONCERN. THE CLAIM IS NOT ADMISSIBLE SINCE THE GENUINENESS OF THE TRANSACTION WITH ITS OWN CONCERN HAS NOT BEEN PROVED, THAT THE ASSESSEE HAS NOT UTILIZED THE ALLEGED LOAN FOR THE PURPOSE IT WAS TAKEN AND DIVERTED THE LOAN FOR ACQUISITION OF LAND AND FOR INVESTMENT IN BANKS WITH THE INTENTION OF EARNING INCOME. THE ALLEGED LOAN IS CLAIMED AS RAISED FOR INFRASTRUCTURE DEVELOPMENT AND CORPUS FUND, BUT THIS CLAIM IS CONTRADICTORY TO T HE CLAIM OF THE ASSESSEE THAT INTEREST IS PAYABLE EVERY YEAR AGAINST THE FUND AND THEREFORE, DEBITING INCOME & EXPENDITURE A/C . WITH EQUAL AMOUNT OF INTEREST RECEIVED FROM BANK AS INTEREST PAYABLE TO THE LENDER IS SELF - DEFEATING IN NATURE. THE ASSESSEE IS NOT ENTITLED FOR EXEMPTION U/S.11 OR U/S.10(23C) OF THE ACT, 1961. THE INCOME & EXPENDITURE ACCOUNT AND OTHER FINANCIAL STATEMENTS ARE REQUIRED TO BE PREPARED AS PER THE COMMERCIAL PRINCIPLES OF ACCOUNTING ITA NO. 57&58 /17 5 AND IN COMMERCIAL SENSE. THE ALLEGED LOAN TAKEN FR OM ITS OWN CONCERN WAS NOT FULLY UTILIZED AS PER ITS OBJECTIVE TO ESTABLISH A DEEMED UNIVERSITY. THE IDLE FUND LYING WITH THE ASSESSEE WAS KEPT IN THE BANKS AND INTEREST FROM THE BANK AGAINST THE DEPOSITS ACCRUED TO THE INTEREST OF RS.65,85,019/ - AND THIS INCOME IS REQUIRED TO BE ASSESSED SEPARATELY AS INCOME FROM OTHER SOURCES. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE TRUST EARNED INTEREST INCOME OF RS.65,85,019/ - IN THE ASSESSMENT YEAR 2012 - 2013 AND RS.87,06,354/ - IN THE ASSESSMENT YEAR 2013 - 2014 ON ITS INVESTMENT IN FDR AND SAVINGS BANK ACCOUNT. THE ASSESSEE ALSO INCURRED INTEREST EXPENDITURE OF RS.65,85,019/ - IN ASSESSMENT YEAR 2012 - 2013 AND RS.87, 06,354/ - IN THE ASSESSMENT YEAR 2013 - 2014 ON FUNDS BORROWED. THE ASSESSEE CLAIMED DEDUCTION ON THE SAID INTEREST EXPENDITURE AGAINST THE ABOVE INTEREST INCOME WHICH WAS DENIED BY THE AO ON THE GROUND THAT INTEREST EXPENDITURE INCURRED BY THE ASSESSEE IS TO BE CAPITALIZED. 6. ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF THE AO. 7. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE TRUST HAS BEEN FORMED FOR SETTING UP OF AN EDUCATIONAL UNIVERSITY. IMPARTING OF EDUCATION HAS NOT COMMENCED UPTO THE PREVIO US YEAR UNDER CONSIDERATION. A BUILDING FOR UNIVERSITY WAS UNDER CONSTRUCTION DURING THE PREVIOUS YEAR. A PERUSAL OF THE BALANCE SHEET OF THE ASSESSEE OF THE YEARS UNDER CONSIDERATION SHOW THAT CAPITAL FUND OF THE ASSESSEE WAS ITA NO. 57&58 /17 6 LESS THAN RS.2 LAKHS IN BOTH THE ASSESSMENT YEARS UNDER CONSIDERATION AND MAIN SOURCE OF FUNDS WAS UNSECURED LOAN ON WHICH INTEREST EXPENSES OF RS. 65,85,019/ - WAS INCURRED IN THE ASSESSMENT YEAR 2012 - 2013 AND RS.87,06,354/ - IN THE ASSESSMENT YEAR 2013 - 2014. THUS, IT IS APPARENT THAT T HE LOAN FUND WAS UTILIZED FOR MAKING INVESTMENT IN FDR AND SAVINGS DEPOSIT ON WHICH INTEREST INCOME WAS EARNED. 8. SECTION 57(III) OF THE INCOME TAX ACT, 1961, READS AS UNDER : - 57 . THE INCOME CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES SHALL BE COMPUTED AFTER MAKING THE FOLLOWING DEDUCTIONS, NAMELY (III) ANY OTHER EXPENDITURE (NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME; THUS, IT IS OBSERVED TH AT INTEREST EXPENDITURE OF RS.65,85,019/ - IN THE ASSESSMENT YEAR 2012 - 2013 AND RS.87,06,354/ - IN THE ASSESSMENT YEAR 2013 - 2014 WAS INCURRED FOR EARNING INTEREST INCOME OF EQUAL AMOUNT . I N VIEW OF THE ABOVE PROVISIONS OF LAW , IN OUR CONSIDERED VIEW , THE SAI D INTEREST EXPENDITURE WAS TO BE DEDUCTED FROM INTEREST RECEIVED FOR COMPUTING INCOME CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES . 9. WE, THEREFORE, SET ASIDE THE ORDERS OF LOWER AUTHORITIES ON THE ISSUE AND DIRECT THE AO TO ALLOW INTEREST EXPEND ITURE OF RS.65,85,019/ - IN THE ASSESSMENT YEAR 2012 - 2013 AND RS.87,06,354/ - IN THE ASSESSMENT YEAR 2013 - 2014 FOR COMPUTING INCOME FROM OTHER SOURCES IN THE APPELLANT - ASSESSEE. THUS, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ITA NO. 57&58 /17 7 10 . IN THE RESULT, BOTH APP EALS FILED BY THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 22 / 01 /201 8 . SD/ - ( PAVAN KUMAR GADALE ) SD/ - (N. S. SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER CUTTACK ; DATED 22 /01/2018 . . / PKM , SENIOR PRIVATE SECRETARY / COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( SENIOR PRIVATE SECRETARY ) , / ITAT, CUTTACK 1. / THE APPELLANT - 2. / THE RESPONDENT - 3. ( ) / THE CIT(A), 4. / CIT 5. , , / DR, ITAT, CUTTACK 6. / GUARD FILE. //TRUE COPY//