HAMLET CONSTRUCTIONS (I) P. LTD, MUMBAI V. DCIT CIR 1(1), MUMBAI

ITA 5845/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3694 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 19-02-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 18-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K C P PATNAIK
• Keywords: Business income; Opportunity of being heard

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI . . ,, !'#$ , % & BEFORE SHRI I.P. BANSAL, JM AND SHRI N.K. BILLAIYA , AM ./I.T.A. NO.5845/MUM/2011 ( ' ' ' ' / ASSESSMENT YEAR : 2006-07 M/S. HAMLET CONSTRUCTIONS (INDIA)PVT. LTD, 111-A, MAHATMA GANDHI ROAD, FORT, MUMBAI-400 023 / VS. THE DCIT, CIRCLE 1(1), MUMBAI ( % ./ )* ./PAN/GIR NO. : AABCH 1677E ( (+ /APPELLANT ) .. ( ,-(+ / RESPONDENT ) (+ . / APPELLANT BY: SHRI PERCY PARDIWALA SHRI MITESH JOSHI ,-(+ / . / RESPONDENT BY : SHRI K.C.P. PATNAIK / 01% / DATE OF HEARING : 06.05.2013 23' / 01% / DATE OF PRONOUNCEMENT : 08.05.2013 4 / O R D E R PER N.K. BILLAIYA, AM: THE ASSESSEE HAS PREFERRED THIS APPEAL AGAINST THE ORDER OF THE LD. CIT(A)-1, MUMBAI DT.3.3.2011 PERTAINING TO A.Y. 200 6-07. 2. THE ASSESSEE HAS RAISED FOUR SUBSTANTIVE GROUNDS OF APPEAL. GROUND NO. 1 RELATES TO DISALLOWANCE OF INTEREST AM OUNTING TO RS. 5,86,62,572/- CLAIMED AS DEDUCTION U/S. 24 WHILE CO MPUTING INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 3. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEED INGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLA IMED DEDUCTION OF RS. ITA NO. 5845/M/2011 2 12,50,04,686/- AS INTEREST UNDER THE HEAD INCOME FROM HOUSE PROPERTY. ON PERUSING THE DETAILS FILED BY THE ASSESSEE, THE AO OBSERVED THAT THE ASSESSEE HAS CLAIMED INTEREST AMOUNTING TO RS. 5,8 6,62,572/- WHICH IT HAS CAPITALIZED. THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE CLAIM OF DEDUCTION FROM INCOME FROM HOUSE PROPERTY ON ACCOUN T OF INTEREST CAPITALIZED AT RS. 5,86,62,572/- BE NOT DISALLOWED . THE ASSESSEE FILED A DETAILED REPLY VIDE LETTER DT. 24.12.2008. THE ASSE SSEE CONTENDED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AS INCURRED TOTAL INTEREST OF RS. 11,87,03,421/-, OUT OF WHICH INTERE ST AMOUNTING TO RS. 5,86,62,572/- WAS CAPITALIZED TO ASSETS AND BALANCE AMOUNT OF RS. 6,00,40,849/- WAS DEBITED TO PROFIT & LOSS ACCOUNT. IT WAS EXPLAINED THAT THE ASSESSEE HAS CLAIMED TOTAL INTEREST OF RS. 12, 50,04,686/- INCLUDING THE INTEREST CAPITALIZED AS DEDUCTION U/S. 24 OF THE AC T. IT WAS FURTHER EXPLAINED THAT THE INTEREST OF RS. 5,86,62,572/- WA S CAPITALIZED IN ACCORDANCE WITH ACCOUNTING STANDARDS -16 PRESCRIBED BY ICAI. THE ASSESSEE FURTHER EXPLAINED THE CLAIM OF INTEREST AS DEDUCTION BY RELYING UPON THE PROVISIONS OF SEC. 24(B) READ WITH EXPLANA TION. THE SUBMISSIONS OF THE ASSESSEE DID NOT FIND ANY FAVOUR FROM THE AO WHO WAS OF THE OPINION THAT SINCE THE ASSESSEE ITSELF HAS CAPITALIZED THE INTEREST LIABILITY, THE BENEFIT OF INDEXATION OVER THE INTER EST SO CAPITALIZED SHALL BE AVAILABLE TO THE ASSESSEE AT THE TIME OF SALE. IT IS THE SAY OF THE AO THAT UNDER THE HEAD INCOME FROM HOUSE PROPERTY, DEDUCTIO N WITH RESPECT TO INTEREST CAPITALIZED CANNOT BE ALLOWED AS NO SUCH D EDUCTION IS ALLOWABLE IN VIEW OF THE SPECIFIC PROVISIONS OF SEC. 24 OF TH E ACT. ACCORDINGLY, THE AO DISALLOWED THE CLAIM OF DEDUCTION OF RS. 5,86,62 ,572/-. 4. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A) BUT WITHOUT ANY SUCCESS. THE LD. CIT(A) WAS CONVINCED THAT SIN CE ASSESSEE ITSELF HAS CAPITALIZED SUCH INTEREST AMOUNT IN THE BOOKS OF AC COUNT AND ADDED THE ITA NO. 5845/M/2011 3 SAME TO THE VALUE OF ASSETS , THERE IS NO JUSTIFIC ATION IN THE CLAIM OF THE ASSESSEE AS THE CAPITALIZED INTEREST WHICH HAS BEEN ADDED TO THE VALUE OF ASSET CANNOT BE ALLOWED FURTHER DEDUCTION FROM ASSE SSEES INCOME FROM HOUSE PROPERTY. THE LD. CIT(A) WAS OF THE FIRM BE LIEF THAT IF THE INTEREST IS ALLOWED, THEN IT WILL AMOUNT TO CONTRADICTION I N THE ASSESSEES OWN ACTS I.E. AT ONE HAND THE ASSESSEE IS CLAIMING SUCH INTE REST EXPENSE AS COST OF THE ASSET AND GETTING IT CAPITALIZED AS COST OF THE PROPERTY. THEREAFTER, THE ASSESSEE INTENDS TO GET CREDIT OF SET OFF OF SUCH I NTEREST EXPENDITURE AGAINST THE PROPERTY INCOME. THE LD. CIT(A) ACCORD INGLY WENT ON TO CONFIRM THE ADDITION SO MADE BY THE AO. 5. AGGRIEVED BY THIS FINDING, THE ASSESSEE IS BEFOR E US. THE LD. SR. COUNSEL FOR THE ASSESSEE REITERATED THAT THE CLAIM OF INTEREST CAPITALIZED IS ALLOWABLE AS PER SEC. 24 OF THE ACT R.W. ITS EXPLAN ATION. RELYING UPON THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF KHEDARNATH JUTE MFG. CO. LTD. VS CIT 82 ITR 363. THE LD. COUN SEL SUBMITTED THAT ENTRIES IN THE BOOKS OF ACCOUNT CANNOT BE DECISIVE OR CONCLUSIVE IF THE CLAIM IS ALLOWABLE AS PER PROVISIONS OF LAW. THE L D. COUNSEL FURTHER RELIED UPON THE DECISION IN THE CASE OF TUTICORIN A LKALI CHEMICALS & FERTILIZERS LTD. VS CIT 227 ITR 172 WHEREIN THE HON BLE SUPREME COURT HAS ONCE AGAIN LAID DOWN THE RATIO THAT PRINCIPLES OF ACCOUNTANCY DO NOT OVER WRITE PROVISIONS OF TAX STATUTE. THE LD. COUN SEL PRAYED THAT IN THE LIGHT OF THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT, THE CLAIM OF INTEREST SHOULD BE ALLOWED AS PER PROVISIONS OF SEC . 24 OF THE ACT. 6. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE ORDERS OF THE LOWER AUTHORITIES AND THE DECISIONS OF THE H ONBLE SUPREME COURT ITA NO. 5845/M/2011 4 RELIED UPON BY THE LD. COUNSEL. IN THE LIGHT OF TH E RATIO LAID DOWN BY THE HONBLE SUPREME COURT, LET US CONSIDER THE RELEVANT PORTION OF SEC. 24 R.W. EXPLANATION. (B) WHERE THE PROPERTY HAS BEEN ACQUIRED, CONSTRUCT ED, REPAIRED, RENEWED OR RECONSTRUCTED WITH BORROWED CAPITAL, THE AMOUNT OF ANY INTEREST PAYABLE ON SUCH CAPITAL: PROVIDED THAT IN RESPECT OF PROPERTY REFERRED TO IN SUB-SEC TION (2) OF SECTION 23, THE AMOUNT OF DEDUCTION SHALL NOT EX CEED THIRTY THOUSAND RUPEES : PROVIDED FURTHER THAT WHERE THE PROPERTY REFERRED TO IN THE FIRST PROVISO IS ACQUIRED OR CONSTRUCTED WITH CAPITAL BOR ROWED ON OR AFTER THE 1ST DAY OF APRIL, 1999 AND SUCH ACQUISITI ON OR CONSTRUCTION IS COMPLETED [WITHIN THREE YEARS FROM THE END OF THE FINANCIAL YEAR IN WHICH CAPITAL WAS BORROWED], THE AMOUNT OF DEDUCTION UNDER THIS CLAUSE SHALL NOT EXCEED ONE LA KH FIFTY THOUSAND RUPEES. EXPLANATION.WHERE THE PROPERTY HAS BEEN ACQUIRED O R CONSTRUCTED WITH BORROWED CAPITAL, THE INTEREST, IF ANY, PAYABLE ON SUCH CAPITAL BORROWED FOR THE PERIOD PRIOR TO TH E PREVIOUS YEAR IN WHICH THE PROPERTY HAS BEEN ACQUIRED OR CON STRUCTED, AS REDUCED BY ANY PART THEREOF ALLOWED AS DEDUCTION UN DER ANY OTHER PROVISION OF THIS ACT, SHALL BE DEDUCTED UNDE R THIS CLAUSE IN EQUAL INSTALMENTS FOR THE SAID PREVIOUS YEAR AND FO R EACH OF THE FOUR IMMEDIATELY SUCCEEDING PREVIOUS YEARS:] 8. A PERUSAL OF THE AFORESAID SECTION SHOW THAT THE ASSESSEE IS ENTITLED FOR THE CLAIM OF INTEREST CAPITALIZED IN EQUAL INST ALMENTS FOR THE PREVIOUS YEAR AND FOR EACH OF THE FOUR IMMEDIATELY SUCCEEDIN G PREVIOUS YEAR. THEREFORE, IN OUR CONSIDERATE VIEW, THE CLAIM OF CA PITALIZED INTEREST MADE BY THE ASSESSEE IS AS PER THE PROVISIONS OF SEC. 24 AND DESERVED TO BE ALLOWED. GROUND NO. 1 IS ACCORDINGLY ALLOWED. ITA NO. 5845/M/2011 5 9. GROUND NO. 2 RELATES TO DISALLOWANCE OF THE CLAI M OF INTEREST AMOUNTING TO RS. 9,54,870/- BEING INTEREST CLAIMED UNDER THE HEAD PROFITS & GAINS OF BUSINESS OR PROFESSION. 10. WHILE SCRUTINIZING THE RETURN, DURING THE ASSES SMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAS DEBITED A SUM OF RS. 6,00,40,849/- TOWARDS FINANCE COST IN THE PROFIT & LOSS ACCOUNT. ACCORDING TO THE AO, THE SAME AMOUNT SHOULD HAVE BEEN ADDED BACK WHILE C OMPUTING THE PROFITS AND GAINS FROM BUSINESS AND PROFESSION IN T HE COMPUTATION OF INCOME. ON THE CONTRARY, THE AO OBSERVED THAT THE ASSESSEE HAS ADDED BACK ONLY THE SUM OF RS. 5,90,85,979/- WHICH LEFT R S. 9,54,870/- TO BE ADDED BACK. THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE DIFFERENCE OF RS. 9,54,870/- HAS NOT BEEN ADDED BACK. IT WAS EXPLAIN ED THAT THIS INTEREST PERTAINS TO THE PROFIT AND GAINS OF BUSINESS OF THE ASSESSEE AND IS THEREFORE ALLOWABLE UNDER THAT HEAD OF INCOME. THE AO DISMISS ED THE CLAIM OF THE ASSESSEE STATING THAT THE ASSESSEE HAS ALREADY CLAI MED DEDUCTION IN RESPECT OF INTEREST FROM ITS INCOME FROM HOUSE PROPERTY AND THEREFORE DISALLOWED THE SUM OF RS. 9,54,870/-. 11. BEFORE THE LD. CIT(A), THE ASSESSEE CLAIMED THA T THE BALANCE INTEREST AMOUNTING TO RS. 9,54,870/- REPRESENTS EXP ENSES INCURRED FOR THE PURPOSE OF ITS BUSINESS AND THEREFORE HAS NOT BEEN CONSIDERED FOR THE PURPOSE OF INCOME FROM HOUSE PROPERTY. IT WAS EXPL AINED THAT THE INTEREST OF RS. 9,54,870/- HAS BEEN INCURRED IN NORMAL COURS E OF BUSINESS THEREFORE, THE SAME HAS BEEN CLAIMED AS BUSINESS EX PENDITURE. THE LD. CIT(A) WHILE DISMISSING THE APPEAL OF THE ASSESSEE HELD THAT THE ASSESSEE HAS NOT GIVEN ANY COGENT EVIDENCE IN SUPPORT OF ITS CONTENTION THAT SUCH INTEREST WAS INCURRED FOR WHAT ACCOUNT AND WHICH WE RE UTILIZED IN WHAT MANNER FOR THE PURPOSE OF BUSINESS. ITA NO. 5845/M/2011 6 12. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REI TERATED THAT PART OF THE BORROWED FUNDS WERE UTILIZED FOR THE PURPOSE OF EARNING INTEREST INCOME, THEREFORE, THE CLAIM OF INTEREST AMOUNTING TO RS. 9,54,870/- SHOULD BE ALLOWED FROM THE HEAD INCOME FROM BUSINE SS. 13. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SU PPORTED THE FINDINGS OF THE LOWER AUTHORITIES. 14. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE ORDERS OF THE LOWER AUTHORITIES AND THE STATEMENT OF ACCOUNTS OF THE ASSESSEE, WE FIND THAT UNDER SCHEDULE L OF THE STATEMENT OF AC COUNTS , FINANCE COST HAS BEEN DEBITED AT RS. 6,00,40,849/-. A PERUSAL O F THE COMPUTATION OF INCOME EXHIBITED AT PAGE-19 OF THE PAPER BOOK SHOW THAT THE ASSESSEE HAS ADDED BACK UNDER THE HEAD PROFITS & GAINS FROM BUSI NESS & PROFESSION, INTEREST AMOUNTING TO RS. 59,085,979. HOWEVER, AT THE SAME TIME WE AGREE WITH THE REVENUE AUTHORITIES THAT THE ASSESSE E HAS NOT JUSTIFIED ITS CLAIM VIS--VIS BUSINESS INCOME. HOWEVER, IN THE I NTEREST OF JUSTICE AND FAIR PLAY, WE RESTORE THIS ISSUE BACK TO THE FILE O F THE AO. THE ASSESSEE IS DIRECTED TO FILE NECESSARY DETAILS TO SUPPORT ITS C LAIM OF INTEREST OF RS.9,54,870/-. THE AO IS DIRECTED TO VERIFY THE CLA IM OF THE ASSESSEE AFRESH AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD. GROUND NO. 2 IS ALLOWED FOR STATISTICAL PURPOSES. 15. GROUND NO. 3 RELATES TO THE GRIEVANCE THAT THE EXCHANGE FLUCTUATION LOSS OF RS. 52,29,300/- WAS NOT ALLOWED TO THE ASSE SSEE. 16. DURING THE YEAR UNDER CONSIDERATION, THE ASSESS EE HAS DEBITED A SUM OF RS. 52,29,300/- BEING NOTIONAL EXCHANGE FLUC TUATION LOSS ARISING OUT OF VALUATION OF FOREIGN CURRENCY LOAN AS ON 31. 3.2006. HOWEVER, ITA NO. 5845/M/2011 7 WHILE COMPUTING TOTAL INCOME, THE ASSESSEE HAS ADDE D BACK THE SAID AMOUNT TO ITS INCOME. IT WAS EXPLAINED THAT UNDER SIMILAR CIRCUMSTANCES IN A.Y. 2004-05, THE ASSESSEE HAD NOTIONAL EXCHANGE FLUCTUATION GAIN WHICH WAS NOT CONSIDERED AS INCOME OF THE ASSESSEE. HOWEVER, DURING THAT ASSESSMENT YEAR, THE AO ADDED THE SAID NOTIONA L EXCHANGE FLUCTUATION GAIN TO THE INCOME OF THE ASSESSEE WHIC H WAS CONFIRMED BY THE LD. CIT(A) AND THE FINDINGS OF THE LD. CIT(A) H AVE BEEN CONFIRMED BY THE TRIBUNAL. THE LD. CIT(A) OBSERVED THAT IN T HE ASSESSMENT ORDER, THERE IS NO SUCH DISCUSSION FOR NOT GIVING ALLOWAN CE OF SUCH DEDUCTION. ACCORDINGLY, THE LD. CIT(A) HELD THAT THE GRIEVANCE OF THE ASSESSEE IS INFRUCTUOUS IN NATURE AS IT DOES NOT EMANATE FROM THE ORDER OF THE AO. HOWEVER, AT THE SAME TIME, THE LD. CIT(A) DIRECTED THE AO TO VERIFY IF NOTIONAL EXCHANGE FLUCTUATION GAIN IN EARLIER YEARS HAVE BEEN TAXED IN THE HANDS OF THE ASSESSEE, THEN THE CLAIM OF LOSS SHOUL D BE ALLOWED TO THE ASSESSEE IN LINE WITH THE DECISION OF THE HONBLE S UPREME COURT IN THE CASE OF WOODWARD GOVERNOR INDIA PVT. LTD REPORTED IN 319 ITR 254 (SC). HOWEVER, THE LD. CIT(A) CONCLUDED THAT IF NO SUCH CLAIM WAS MADE DURING THE ASSESSMENT PROCEEDINGS, THEN IT HAS TO BE HELD THAT THE SAME DOES NOT EMANATE FROM THE ORDER OF THE AO. 17. BEFORE US, THE LD. SENIOR COUNSEL DREW OUR ATTE NTION TO PAGE-22 OF THE PAPER BOOK WHICH IS A LETTER DT. 26.12.2008 ADD RESSED TO DCIT, CIRCLE-1(1), MUMBAI. REFERRING TO THIS LETTER, THE LD. COUNSEL POINTED OUT THAT IT WAS EXPLAINED TO THE AO ABOUT THE NOTIONAL GAINS EARNED DURING THE ASSESSMENT YEAR 2004-05 AND THE NOTIONAL LOSS FOR T HE YEAR UNDER CONSIDERATION. IT IS THE SAY OF THE COUNSEL THAT I T CANNOT BE SAID THAT THIS CLAIM WAS NEVER MADE BEFORE THE AO. ITA NO. 5845/M/2011 8 18. THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED T HE ORDER OF THE LD. CIT(A). 19. WE HAVE CONSIDERED THE ORDERS OF THE LOWER AUTH ORITIES AND THE LETTER REFERRED BY THE LD. SENIOR COUNSEL. WE HAVE ALSO THE BENEFIT OF THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A. Y. 2004-05 IN ITA NOS. 6945 AND 7290/M/07. WE FIND THAT AT PARA 8 & 9 OF THE SAID ORDER THE TRIBUNAL HAS CONFIRMED THE EXCHANGE FLUCTUATION GAIN. THAT BEING THE FACT OF THE MATTER THE ASSESSEE IS ENTITLED FOR THE CLAIM OF EXCHANGE FLUCTUATION LOSS. ACCORDINGLY, WE RESTORE THIS ISS UE BACK TO THE FILE OF THE AO. THE AO IS DIRECTED TO ALLOW THE LOSS OF EXCHAN GE FLUCTUATION AFTER VERIFICATION IN LINE WITH THE DECISION OF THE HONB LE SUPREME COURT [SUPRA]. THIS GROUND OF THE ASSESSEE IS ALLOWED FO R STATISTICAL PURPOSE. 20. GROUND NO. 4 IS REPETITIVE OF GROUND NO. 1,2, & 3 THEREFORE NEED NO SEPARATE ADJUDICATION. 21. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 5 06 50 / 7 8/ 9:; 4 <0 / )0 =# ORDER PRONOUNCED IN THE OPEN COURT ON 08.05.2013 . 4 / 3' % 7 >6 8.5.2013 3 / ? SD/- SD/- (I.P. BANSAL ) (N. K. BILLAIYA ) /JUDICIAL MEMBER % / ACCOUNTANT MEMBER MUMBAI; > DATED 08/05/2013 . . ./ RJ , SR. PS ITA NO. 5845/M/2011 9 4 4 4 4 / // / ,0! ,0! ,0! ,0! @!'0 @!'0 @!'0 @!'0 / COPY OF THE ORDER FORWARDED TO : 1. (+ / THE APPELLANT 2. ,-(+ / THE RESPONDENT. 3. A ( ) / THE CIT(A)- 4. A / CIT 5. !B? ,0 , , / DR, ITAT, MUMBAI 6. ?C D / GUARD FILE. 4 4 4 4 / BY ORDER, -!0 ,0 //TRUE COPY// 9 99 9 / = = = = ) ) ) ) (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI