Paramount Builders, Sec'bad, Hyderabad V. ITO, Ward-10(1), Hyd, Hyderabad

ITA 60/HYD/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5979 (ITAT-HYDERABAD)
• Duration Of Justice: 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 17-10-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 14-01-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A SITARAMA RAO
• Assessee Lawyers: S RAMA RAO
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA.NO.60/HYD/2016 ASSESSMENT YEAR 2010-2011 PARAMOUNT BUILDERS SECUNDERABAD. PAN AAHFP4040N VS., THE INCOME TAX OFFICER, WARD-10(1), HYDERABAD. (APPELLANT) (RESPONDENT) ITA.NO.61/HYD/2016 ASSESSMENT YEAR 2010-2011 GREENWOOD ESTATES SECUNDERABAD. PAN AAHFG0711B VS., THE INCOME TAX OFFICER, WARD-10(4), HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI S. RAMA RAO FOR REVENUE : SHRI A. SITARAMA RAO DATE OF HEARING : 17.10.2016 DATE OF PRONOUNCEMENT : 07.12.2016 ORDER PER D. MANMOHAN, V.P. THESE TWO APPEALS ARISE OUT OF THE ORDERS PASSED BY C IT(A)- VI, HYDERABAD AND THEY PERTAIN TO THE A.Y. 2010-2011. IN THE CASE OF PARAMOUNT BUILDERS THE ISSUE IS LIMITED TO NON-CONSIDER ATION OF THE MISCELLANEOUS INCOME AND FORFEITED AMOUNTS FOR THE PU RPOSE OF WORKING OUT THE INCOME DERIVED FROM THE BUSINESS OF REAL ESTATE I.E., FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 80IB (10) OF THE ACT. IN THE CASE OF GREENWOOD ESTATE, THE ASSESSEE-FIRM INCL UDED NOT ONLY THE MISCELLANEOUS INCOME AND FORFEITED AMOUNT BUT ALSO INTEREST ON 2 ITA.NOS. 60 & 61/H/2016 PARAMOUNT BUILDERS, AND GREENWOOD ESTATES, SECUNDERABAD. FDRS IN HDFC BANK AS PART OF THE PROFITS DERIVED FROM THE BUSINESS WHEREAS THE A.O. AS WELL AS THE LD. CIT(A) WERE OF THE OPINION THAT THE RECEIPTS DO NOT HAVE THE FIRST DEGREE NEXUS WITH THE BUS INESS OF THE ASSESSEE I.E., CONSTRUCTION AND DEVELOPMENT OF FLATS. S INCE THE ISSUE INVOLVED IN BOTH THESE APPEALS ARE MORE OR LESS COMMO N, WE PROCEED TO DISPOSE OF THESE APPEALS BY A COMBINED ORDER FOR THE SAKE OF CONVENIENCE. 2. ADMITTEDLY, THE ASSESSEES ARE ENGAGED IN THE BUSIN ESS OF REAL ESTATE I.E., CONSTRUCTION OF RESIDENTIAL BUILDING AND P ROVIDING CERTAIN AMENITIES IN THE SAID BUILDINGS. THE ASSESSEES CLAIME D DEDUCTION UNDER SECTION 80IB OF THE ACT FOR THE A.Y. 2010-2011. BOTH THE ASSESSEES DECLARED NIL INCOME AFTER CLAIMING DEDUCTION UNDER SECTION 80IB(10) OF THE I.T. ACT. DURING THE COURSE OF SCRUTINY PROCEEDI NGS, THE A.O. NOTICED THAT THE ASSESSEES INCLUDED CERTAIN ITEMS OF INC OME WHICH CANNOT BE SAID TO HAVE BEEN DERIVED FROM THE BUSINES S OF HOUSING DEVELOPMENT AND THE SAME REPRESENTED INCOME FROM OTH ER SOURCES. HE ACCORDINGLY EXCLUDED THE SAME AND ON THE BALANCE AMO UNT THE A.O. COMPUTED THE ELIGIBLE DEDUCTION UNDER SECTION 80IB(10) OF THE ACT. ON APPEALS FILED BY THE ASSESSEES, THE LD. CIT(A) PARTLY ALLOWED THE APPEALS; INTEREST RECEIVED FROM THE CUSTOMERS ON DELAYED PAYMEN T OF INSTALMENTS WAS ALLOWED BY THE LD. CIT(A) BUT ON OTHER ISSUES THE O RDERS OF THE A.O. WERE UPHELD. FURTHER AGGRIEVED, THE ASSESSEES ARE IN APPEAL BEFORE THE TRIBUNAL. 3. DURING THE COURSE OF HEARING, LEARNED COUNSEL AP PEARING ON BEHALF OF THE ASSESSEES, SUBMITTED THAT THE MISCELLANEOUS INCOME REPRESENTS VARIOUS RECOVERIES MADE FROM THE CONTRACTOR S ETC., WITH A VIEW TO REDUCE THE COST OF CONSTRUCTION. IT WAS MAINLY IN THE NATURE OF RENTALS RECEIVED FROM THE LABOURERS WHO WORKED AT THE SITE. IT WAS TO 3 ITA.NOS. 60 & 61/H/2016 PARAMOUNT BUILDERS, AND GREENWOOD ESTATES, SECUNDERABAD. FACILITATE SMOOTH FUNCTIONING OF THE BUSINESS. SIMILARLY , WITH REGARD TO THE FORFEITED AMOUNT IT WAS CONTENDED THAT IT WAS TO PREVEN T FRIVOLOUS BOOKINGS BY CASUAL CUSTOMERS BECAUSE OF WHICH SUBSTA NTIAL LOSS WOULD BE CAUSED TO THE DEVELOPERS IN THE FORM OF BLOCKAGE OF CERTAIN UNITS WHICH WOULD BE AVAILABLE FOR SALE TO OTHER CUSTOMERS. UNDER THESE CIRCUMSTANCES, AS PER THE STANDARD TERMS AND CONDITIONS WITH THE CUSTOMERS, AT THE TIME OF BOOKING, A FORFEITURE CLAUSE I S INCLUDED WHEREBY A NOMINAL AMOUNT IS COLLECTED FROM THE CUSTOME RS. THIS FORMS PART OF THE REGULAR COURSE OF BUSINESS AND THEREFORE, THIS INCOME SHOULD BE TREATED AS DERIVED FROM THE BUSINESS. 4. IN THE CASE OF GREENWOOD ESTATES, ADDITIONAL ISSUE IS WITH REGARD TO THE TREATMENT OF INTEREST ON FDRS. IT WAS CON TENDED THAT THE FIRM, AS PART OF TREASURY MANAGEMENT, KEPT FIXED DEPO SITS WITH THE BANKS TO MEET AVERAGE EXPENDITURE EQUAL TO 2 TO 4 WEEKS . AT THE TIME OF FINANCIAL NEEDS OVERDRAFT EQUAL TO 90% OF THE FIXED D EPOSITS WAS TAKEN. RECEIPTS FROM SALES ARE UNPREDICTABLE AND ERRATIC WHER EAS PAYMENTS FOR LABOUR AND BUILDING MATERIAL HAD TO BE MADE ON WEEKL Y BASIS. THE OVERDRAFT LIMITS HELPED IN ENSURING POSITIVE WEEKLY CA SH FLOW. IT WAS THUS CONTENDED THAT INTEREST EARNED ON FDRS, AFTER MEETING THE INTEREST PAID ON ODS, HAS TO BE TREATED AS INCOME DERIVED FROM THE BUSINESS SINCE THE FIXED DEPOSITS ARE PART OF THE SCHEME OF THE BUSINES S. IT WAS ALSO CONTENDED THAT THE ASSESSEE WAS ENGAGED ONLY IN ONE BUS INESS I.E., DEVELOPMENT OF PROJECT AND THEREFORE THE INCOME DERIVE D ON FDS HAS TO BE CONSIDERED AS INCOME DERIVED FROM THE HOUSING PRO JECT WHICH, IN TURN, IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OF THE ACT. 5. ON THE OTHER HAND, LD. D.R. CONTENDED THAT THE RENT RECOVERED FROM THE LABOURERS HAS NO DIRECT NEXUS TO THE BUSINESS CARRIED ON BY THE ASSESSEE AND HENCE IT DOES NOT HAVE THE FIRST DEGREE 4 ITA.NOS. 60 & 61/H/2016 PARAMOUNT BUILDERS, AND GREENWOOD ESTATES, SECUNDERABAD. NEXUS. SIMILARLY, INTEREST RECEIVED ON FDRS AND AMOUN TS FORFEITED ON THE BOOKINGS MADE BY CERTAIN CUSTOMERS AND LATER CANC ELLED, CANNOT BE TREATED AS HAVING ANY FIRST DEGREE NEXUS WITH THE BUSI NESS CARRIED ON BY THE ASSESSEES. HE THUS STRONGLY RELIED UPON THE ORDE RS PASSED BY THE LD. CIT(A). 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE LIMITED ISSUE IN THESE CASES IS WITH REFERENCE TO THE INTERPRETATION OF THE WORDS DERIVED FROM BUSINESS IN THE FACTUAL CONTEXT IN WHICH THE INCOME WAS EARNED BY THE ASSESSEE S. WE HAVE NOTICED THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE I TAT A BENCH, HYDERABAD IN THE CASE OF ALPINE ESTATES, SECUNDERABAD VS. ITO, WARD- 10(4), HYDERABAD (ITA.NO.62/HYD/2016 DATED 03.08.20 16 WHEREIN ONE OF THE MEMBER IS THE PARTY). IN PARA-4 OF THE SAID ORD ER THE TRIBUNAL OBSERVED THAT THE INTEREST EARNED ON THE FDRS WAS NOT DERI VED FROM THE BUSINESS OF HOUSING DEVELOPMENT AND THEREFORE THE SAID INCOME CANNOT BE INCLUDED FOR THE PURPOSE OF WORKING OUT THE BENEFI T UNDER SECTION 80IB OF THE ACT. THE BENCH RELIED UPON THE DECISION O F THE HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA 183 TAXMAN 349 WHEREIN THE HONBLE SUPREME COURT ELABORATELY DISCUSSED THE FIN E DIFFERENCE BETWEEN THE EXPRESSION DERIVED FROM THE INDUSTRIAL UN DERTAKING AS AGAINST PROFITS ATTRIBUTABLE TO AN INDUSTRIAL UNDERTAKIN G. CONSISTENT WITH THE VIEW TAKEN BY THE ITAT A BENCH, HYDERABAD, WE HOLD THAT THE INTEREST EARNED ON FDRS CANNOT BE INCLUDED AS FORMING PART OF THE INCOME DERIVED FROM THE BUSINESS OF REAL ESTATE. 7. AS REGARDS THE FORFEITED AMOUNT, THE ITAT A BENC H IN THE CASE OF ALPINE ESTATES VS. ITO, WARD-10(4), HYDERABA D (SUPRA) OBSERVED THAT THE FORFEITURE OF THE AMOUNT IS RESULT OF THE FAILURE ON THE PART OF THE CUSTOMERS TO HONOUR THEIR COMMITMENT AS PER THE AGRE EMENT. THUS 5 ITA.NOS. 60 & 61/H/2016 PARAMOUNT BUILDERS, AND GREENWOOD ESTATES, SECUNDERABAD. AMOUNT ACCRUED UPON CANCELLATION OF THEIR BOOKING CAN BE SAID TO BE INCOME DERIVED FROM THE BUSINESS. HOWEVER THE MATTE R WAS REMANDED TO THE FILE OF THE A.O. FOR THE PURPOSE OF VERIFICATION OF THE FORFEITURE AMOUNT. IN CASES BEFORE US, THE AMOUNT FORFEITED HAVIN G NOT BEEN IN DISPUTE, WE DO NOT FIND ANY NEED TO SET ASIDE THE MATTER SINCE IN PRINCIPLE WE FOLLOW THE DECISION OF THE TRIBUNAL TO H OLD THAT THERE IS A FIRST DEGREE NEXUS WITH THE ELIGIBLE BUSINESS VIS--V IS THE AMOUNT AVAILABLE WITH THE ASSESSEE IN THE FORM OF FORFEITURE. 8. IN SO FAR AS MISCELLANEOUS INCOME IS CONCERNED, THE ITAT A BENCH, HYDERABAD, IN THE CASE OF ALPINE ESTATES (SUP RA) HAD AN OCCASION TO CONSIDER AN IDENTICAL ISSUE. IN THE SAID CASE, THE C LAIM OF THE ASSESSEE WAS THAT THE ROOM RENTALS WERE RETAINED BY THE ASSESSEE F ROM THE CHARGES PAYABLE TO THE CONTRACT LABOURERS AND THE ROOMS WERE PROVIDED FOR THE SMOOTH FUNCTIONING AND PARTICULARLY FOR COMPLETI ON OF THE PROJECT. THE BENCH HAD ALSO TAKEN INTO CONSIDERATION THE FACT THAT IT WAS IN THE INTEREST OF BUSINESS THE ROOMS ARE PROVIDED SO TH AT THE WORK WOULD BE COMPLETED ON TIME. THE BENCH ALSO NOTED THAT I F THE ASSESSEES DO NOT PROVIDE SUCH FACILITIES TO ITS EMPLOYEES THEN THE LABOURERS WOULD BE LIVING IN A REMOTE AREA AND THE ASSESSEE MAY HAVE TO PAY ADDITIONAL COST FOR ACCOMMODATION AND TRANSPORT CHARGES; INSTEAD THE ASSESSEE PROVIDED HOUSING ACCOMMODATION AT THE WORK SITE AND HA D CHARGED RENTALS AND OTHER INCIDENTAL CHARGES LIKE ELECTRICITY A ND WATER FOR THE LABOURERS. HOWEVER THE BENCH WAS OF THE VIEW THAT THERE IS NO DIRECT RELATIONSHIP BETWEEN THE BUSINESS OF THE ASSESSEE AND THE INCOME DERIVED ON ACCOUNT OF LODGING, ELECTRICITY AND WATER C HARGES AND THEREFORE, THE ORDER PASSED BY THE A.O. AS WELL AS THE LD. CIT(A) WAS UPHELD. CONSISTENT WITH THE VIEW TAKEN BY THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ALPINE ESTATES VS. ITO (SUPRA ), WE UPHOLD THE 6 ITA.NOS. 60 & 61/H/2016 PARAMOUNT BUILDERS, AND GREENWOOD ESTATES, SECUNDERABAD. ORDERS OF THE LOWER AUTHORITIES ON THIS ISSUE AND REJE CT THE GROUND OF THE ASSESSEES ON THIS COUNT. 9. IN THE RESULT, APPEALS OF THE ASSESSEES ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 07.12.2016. SD/- SD/- (B.RAMAKOTAIAH) (D.MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT HYDERABAD, DATED 07 TH DECEMBER, 2016. VBP/- COPY TO 1. PARAMOUNT BUILDERS, SECUNDERABAD. C/O. SHRI S. RAMA RAO, ADVOCATE, FLAT NO.102, SHRIYAS ELEGANCE, 3-6-643, STREET NO.9, HIMAYATNAGAR, HYDERABAD 500 029. 2. GREENWOOD ESTATES, SECUNDERABAD. 3. INCOME TAX OFFICER, WARD-10(1), I.T. TOWERS, A.C . GUARDS, HYDERABAD. 4. INCOME TAX OFFICER, WARD-10(4), I.T. TOWERS, A.C . GUARDS, HYDERABAD. 5. CIT (A)-VI, HYDERABAD. 6. PR. CIT-VI, HYDERABAD 7. D.R. ITAT A BENCH, HYDERABAD. 8. GUARD FILE.