Alpine Estates, Sec'bad, Hyderabad V. ITO, Ward-10(4), Hyderabad, Hyderabad

ITA 62/HYD/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6401 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 27-06-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 14-01-2016
• Court: TRIBUNAL
• Department Lawyers: K E SUNIL BABU
• Assessee Lawyers: S RAMA RAO
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI LALIET KUMAR, JUDICIAL MEMBER ITA NO. 62/HYD/2016 ASSESSMENT YEAR : 2010-11 ALPINE ESTATES, SECUNDERABAD. VS. INCOME TAX OFFICER, WARD-10(4), HYDERABAD. PAN: AANFA 5250 F APPELLANT RESPONDENT FOR ASSESSEE: SHRI S. RAMA RAO (AR) FOR REVENUE: SHRI K.E. SUNIL BABU (D.R.) DATE OF HEARING: 21/07/2016 DATE OF PRONOUNCEMENT: 03/08/2016 O R D E R PER LALIET KUMAR, J.M. : THIS IS THE APPEAL FILED BY THE ASSESSEE AR ISES AGAINST THE ORDER DATED 29/01/2016 PASSED BY THE LD. CIT(A)-6, H YDERABAD FOR THE A.Y. 2010-11 WHEREIN THE ASSESSEE HAS RAISED FOLLOWING GROUNDS:- 1. THE ORDER OF THE LD. CIT(A) IS ERRONEOUS BOTH O N FACTS AND IN LAW. 2. THE LD CIT(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN NOT INCLUDING THE FOLLOWINGS I TEMS I.T.A. NO. 62/HYD/2016 ALPINE ESTATES VS ITO :- 2 -: FOR THE PURPOSE OF ARRIVING AT THE PROFITS FOR WORK ING OUT DEDUCTION U/S 80IB(10) OF THE I.T. ACT. I) FDR INTEREST-HDFC - RS. 4,32,592 II) FDR INTEREST- SBH - RS. 48,578 III) INTEREST ON NSC - RS. 8,750 IV) FORFEITED AMOUNT - RS. 1,25,000 V) MISCELLANEOUS INCOME - RS.2,99,348 VI) SUNDRY BALANCES WRITTEN OFF - RS. 588 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF REAL ESTATE/DEVELOPERS/MANAGERS. I T FILED RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 27/09/2010 DECLARING NIL INCOME AFTER CLAIMING DEDU CTION U/S 80IB(10) FOR RS. 2,03,37,343/-. THE CASE WAS SELECT ED FOR SCRUTINY. THE APPELLANT FIRM HAS SHOWN CREDIT AMOUNT TO THE P&L ACCOUNT TOTALING TO RS. 12,62,856/-. THE DETAILS OF WHICH IS AS UNDER:- I) FDR INTEREST-HDFC - RS. 4,35,592 II) FDR INTEREST- SBH - RS. 48,578 III) INTEREST RECEIVED FROM CUSTOMERS RS. 3,45,000 IV) INTEREST ON NSC - RS. 8,750 V) FORFEIT ACCOUNT - RS. 1,25,000 V) MISCELLANEOUS INCOME - RS.2,99,348 VI) SUNDRY BALANCES WRITTEN OFF -RS. 588 TOTAL RS. 12,62, 856 AFTER COMPLETING THE ASSESSMENT, THE LD. A.O. HAS EXECU TED THE INCOME AT RS. 12,62,856/- ON THE GROUND THAT THE INCO ME HAS I.T.A. NO. 62/HYD/2016 ALPINE ESTATES VS ITO :- 3 -: NOT BEEN DERIVED FROM THE HOUSING DEVELOPMENT AND THE SAME WILL BE INCOME FROM OTHER SOURCES. 3. BEING AGGRIEVED BY THE ORDER OF THE LD A.O., THE AS SESSEE CARRIED THE MATTER BEFORE THE LD CIT(A). BEFORE THE LD CIT(A), IT WAS CONTENDED THAT NETTING OF THE INTEREST IS TO BE DONE AS THE ASSESSEE HAS PAID THE INTEREST AND HAS ALSO EARNED THE INTEREST. FOR THAT PURPOSES, THE ASSESSEE HAS CALCULATED NET INTER EST WAS RS. 22,47,658.24 AS PER THE FOLLOWING TABLE: INTEREST PAID INTEREST PAID TO SBI CC ACCOUNT 23,28,880.00 INTEREST TO BANK OD 2,00,403.60 INTEREST ON SERVICE TAX 4,268.49 INTEREST ON UNSECURED LOANS 5,52,027.00 TOTAL 30,85,579.09 LESS: INTEREST EARNED INTEREST ON FDR-HDFC 4,35,592.85 . INTEREST ON FDR-SBH 48,578.00 . INTEREST FROM CUSTOMERS 3,45,000.00 . INTEREST ON NSC 8,750.00 . TOTAL 8,37,920.85 NET INTEREST PAID 22,47,658.24 I.T.A. NO. 62/HYD/2016 ALPINE ESTATES VS ITO :- 4 -: IT WAS FURTHER SUBMITTED THAT RS. 3,45,000/- WAS TOWARD S THE INTEREST FROM THE CONSUMERS FOR DELAYED PAYMENT AND RS . 3,25,000/- WAS FOR FORFEITURE OF THE AMOUNT AND RS. 2, 99,348/- WAS TOWARDS MISCELLANEOUS INCOME. THE LD CIT(A) AFTE R CONSIDERING THE ARGUMENTS HAS HELD AS UNDER:- 06.0 THE SUBMISSION OF THE APPELLANT AND THE FACTS OF THE CASE HAVE BEEN CAREFULLY CONSIDERED. (I) FDR INTEREST: SIMPLY BECAUSE THE FIXED DEPOSIT WAS GIVEN AS SECURITY FOR THE OD, ANY INTEREST ON FDR CANNOT BE TERMED AS PROFIT DERIVED FROM THE ELIGIBLE BUSINESS. THE FDR REMAINS IN THE NATURE OF INVESTMENT WHICH INCIDENTALLY WAS USED AS A COLLATERAL SECURITY FOR OD. THIS SECURITY COULD HAVE BEEN ANY OTHER INVESTMENT. THEREFORE, THE TREATMENT OF HOLDING THE INTEREST EARNED ON SUCH FDR AS INCOME FROM OTHER SOURCES BY THE ASSESSING OFFICER IS HELD TO BE CORRECT. (II) FORFEITED AMOUNT: THE AMOUNT WAS RECEIVED BY THE APPELLANT ON CANCELLATION OF BOOKINGS AND IS IN THE NATURE OF WINDFALL. IT CANNOT BE SAID TO HAVE A FIRST DEGREE OF NEXUS WITH THE ELIGIBLE BUSINESS AND CAN ONLY BE CONSIDERED TO BE INCIDENTAL TO THE CONDUCT OF BUSINESS BY THE APPELLANT. THE ASSESSING OFFICER WAS CORRECT IN NOT CONSIDERING THE SAME AS PART OF PROFITS FOR I.T.A. NO. 62/HYD/2016 ALPINE ESTATES VS ITO :- 5 -: COMPUTATION OF DEDUCTION U/S 80IB(10) OF THE ACT. (III) INTEREST RECEIVED FROM CUSTOMERS: THIS AMOUNT IS RECEIVED FROM BUYERS FOR DELAYED PAYMENTS OF INSTALLMENTS. IT CARRIES THE NOMENCLATURE OF BEING PART OF SALE PROCEEDS. JUST LIKE DISCOUNT GIVEN ON SALES FORMS PART OF THE SALE CONSIDERATION AS A NEGATIVE SALE CONSIDERATION, INTEREST RECEIVED ON DELAYED PAYMENTS IS A POSITIVE SALE CONSIDERATION. THE ASSESSING OFFICER IS DIRECTED TO INCLUDE THIS AMOUNT IN THE GROSS TOTAL INCOME FOR COMPUTATION OF DEDUCTION U/S 80IB(10) OF THE ACT. (IV) MISCELLANEOUS INCOME:- THE ROOM RENTALS CHARGED FROM THE LABOURERS IS NOT PART OF THE WORK CONTRACT WITH THE LABOURERS. THE LABOURERS COULD HAVE STAYED ELSEWHERE AND PAID RENT FOR THEIR LODGINGS WHILE THE APPELLANT WOULD HAVE STILL PAID THE WAGES DUE TO THEM. IT WAS TO SUIT ITS BUSINESS CONVENIENCE THAT IT HAS PROVED WATER, ELECTRICITY AND LODGINGS TO THE LABOURERS AND HAS CHARGED RENT FROM THEM. THIS INCOME CAN AT BEST BE SAID TO BE INCIDENTAL TO ITS BUSINESS AS IT DOES NOT CARRY JUST DEGREE OF NEXUS WITH THE ELIGIBLE BUSINESS. THEREFORE, THE ACTION OF THE ASSESSING OFFICER IN CONSIDERING IT AS INCOME FROM OTHER SOURCES CALLS FOR NO INTERFERENCE. I.T.A. NO. 62/HYD/2016 ALPINE ESTATES VS ITO :- 6 -: (V) INTEREST ON NSC AND SUNDRY BALANCES WRITTEN OFF : THE INTEREST ON NSC REPRESENTS INVESTMENT AND IS CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. THE ASSESSING OFFICER HAD NOT GIVEN ANY DETAILS REGARDING SUNDRY BALANCES WRITTEN OFF AND THE ASSESSEE HAS ALSO NOT GIVEN ANY SUBMISSION FOR THE SAME. IN VIEW OF IT, THE ADDITION MADE BY THE ASSESSING OFFICER IS CONFIRMED. 4. NOW THE ASSESSEE IS IN APPEAL BEFORE US FOR THE G ROUNDS STATED ABOVE. FOR THE INTEREST ON FDR WITH HDFC, SBH AND INTEREST ON NSC, IT WAS CONTENDED THAT THE FDR WAS KEPT IN THE BANK ACCOUNTS TO MEET THE AVERAGE EXPENDITURE EQUAL TO 2-4 WEEKS AND AT THE TIME OF FINANCIAL NEEDS OD FACILITY E QUAL TO 90% OF THE FIXED DEPOSITS WAS TAKEN. THUS THE INTEREST EAR NING ON THE FDR WAS FOR THE BUSINESS NEED AND WAS AN BUSINESS IN COME. IN OUR VIEW, THE FDR, THOUGH, WAS DEPOSITED AS SECURITY F OR ISSUANCE OF THE OD LIMIT. IN OUR VIEW, THE INCOME ARIS ING OUT OF SUCH FDRS ARE NOT DERIVED FROM THE BUSINESS OF THE HO USING DEVELOPMENT AND THEREFORE, THE ASSESSEE IS NOT ENETITLED FOR THE BENEFIT U/S 80IB OF THE ACT. WE DRAW OUR STRENGTH FROM TH E JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF LI BERTY INDIA VS CIT 2009] 183 TAXMAN 349 (SC) WHEREIN THE HONBLE COURT HAS HELD AS UNDER I.T.A. NO. 62/HYD/2016 ALPINE ESTATES VS ITO :- 7 -: ON ANALYSIS OF SECTIONS 80-IA AND 80-IB IT BECOMES CLEAR THAT ANY INDUSTRIAL UNDERTAKING, WHICH BECOMES ELIGIBLE ON S ATISFYING SUB- SECTION(2), WOULD BE ENTITLED TO DEDUCTION UNDER SU B-SECTION (1) ONLY TO THE EXTENT OF PROFITS DERIVED FROM SUCH INDUSTRIAL UNDERTAKING AFTER SPECIFIED DATE(S). HENCE, APART FROM ELIGIBILITY, S UB-SECTION(1) PURPORTS TO RESTRICT THE QUANTUM OF DEDUCTION TO A SPECIFIED PERCENTAGE OF PROFITS. THIS IS THE IMPORTANCE OF THE WORDS 'DERIV ED FROM INDUSTRIAL UNDERTAKING' AS AGAINST 'PROFITS ATTRIBUTABLE TO IN DUSTRIAL UNDERTAKING RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HONBLE SUPR EME CURT, WE HOLD THAT THE FDR INTEREST AT RS. 4,35,592 , RS. 48,578 AND RS. 8,750/- WERE RIGHTLY SUSTAINED BY THE AUTHORITI ES BELOW AND THE ASSESSEE WAS NOT ENTITLED FOR EXEMPTION U/S 80 IB OF THE ACT ON SUCH INCOME. FORFEITED AMOUNT AND INTEREST FROM CUSTOMERS:- THE AMOUNT WAS RECEIVED BY THE APPELLANT ON CANCELLATION BO OKING IN ACCORDANCE WITH THE CLAUSE 6.1 OF THE CHARGES. IT WAS C ONTENDED THAT THE SAID AMOUNT WAS ACCRUED TO THE ASSESSEE ON ACCO UNT OF THE FAILURE OF THE CUSTOMERS TO HONOR THEIR COMMITMENT IN TERMS OF THE AGREEMENT. SIMILARLY THE INTEREST WAS RECEIVED BY THE ASSESSEE ON ACCOUNT OF DELAYED PAYMENT OF INSTALLMENT. IN OUR VIEW, FOR THE PURPOSES OF CLAIMING OF FORFEITURE OF TH E AMOUNT AMD CHARGING OF INTEREST HAS BY THE ASSESSEE FROM THE CUSTOMER HAS A DIRECT NEXUS OF FIRST DEGREE WITH THE BUSINESS OF THE ASSESSEE THERE IT COMES WITH THE DEFINITION OF INCOME DRAWN I.T.A. NO. 62/HYD/2016 ALPINE ESTATES VS ITO :- 8 -: THEREFORE THE ASSESSE IS AN ELIGIBLE UNDER SECTION 80I B OF THE ACT. IN OUR VIEW, THE FORFEITURE OF THE AMOUNT WAS AN INCOME FLOWING UNDER THE FIRST DEGREE OF NEXUS WITH THE ELIGIBLE BUSIN ESS. THE FORFEITURE OF THE AMOUNT IS RESULT OF THE FAILURE ON THE PART OF THE CUSTOMER TO CANCEL THE BOOKING, WHICH IN OUR VIEW, IS AN INCOME DIRECTLY DRAWN FROM THE BUSINESS OF THE ASSESSEE. HOWE VER, WE ARE REMANDING THE MATTER TO THE FILE OF THE A.O. FOR THE PURPOSES OF VERIFICATION OF THE FORFEITURE AMOUNT AND CALCULATI ON OF THE INTEREST CHARGED FROM THE CUSTOMERS ON ACCOUNT OF DELAYE D PAYMENT. AS A RESULT THEREOF, THE ORDER OF THE LD A.O. AND THE LD CIT(A) IS SET ASIDE AND THE APPEAL OF THE ASSESSEE ON THIS ISSUE IS ALLOWED FOR STATISTICAL PURPOSES ONLY. MISCELLANEOUS INCOME: - THE ASSESSEE HAS SHOWN THE INCOME OF RS. 2,99,948/- ON ACCOUNT OF THE ROOM RENTAL CHARGES RETAINED BY IT FROM THE CHARGES PAYABLE TO ITS LABOURERS TO THE W ORK CONTRACT LABOURERS. THE ASSESSEE HAS SHOWN THE INCOME BEING INCIDENTAL TO THE BUSINESS OF THE ASSESSEE. IN OUR VI EW, THE ASSESSEE FOR THE PURPOSES OF SMOOTH FUNCTIONING AND EA RLY COMPLETION OF PROJECT WAS DUTY BOUND TO PROVIDE HOUSIN G FACILITY, ELECTRICITY AND WATER CONNECTION AT A PLACE NEAR TO THE WORK SITE OF THE ASSESSEE TO ITS EMPLOYEES AND IF THE ASSESSEE DO NOT PROVIDED SUCH FACILITIES TO ITS EMPLOYEES THEN THE LABOU RS WOULD I.T.A. NO. 62/HYD/2016 ALPINE ESTATES VS ITO :- 9 -: BE LIVING IN THE REMOTE AREA AND FOR THAT PURPOSES, THE ASSESSEE WOULD BE REQUIRED TO PAY THE ADDITIONAL COST FOR ACCOMM ODATION AND TRANSPORT CHARGES. INSTEAD THEREOF, THE ASSESSEE H AS PROVIDED HOUSING ACCOMMODATION AT THE WORK SITE AND HA D CHARGED ROOM RENTAL AND OTHER INCIDENTAL CHARGES LIKE ELECTRICITY AND WATER FOR THE LABOURERS. IN OUR VIEW, THE ASSESSE IS ALREADY CLAIMING EXPENSES FOR CONSTRUCTION OF ACCOMMODATIONS AND PROVIDING OTHER INCIDENTAL SERVICES LIKE ELECTRICITY AND WATER. THERE IS NO DIRECT RELATIONSHIP BETWEEN THE BUSINESS OF THE ASSESSEE AND THE INCOME DERIVED ON ACCOUNT OF LODGING , ELECTRICITY AND WATER CHARGES AND THEREFORE, THE ORDE R PASSED BY THE LD A.O. AS WELL AS THE LD CIT(A) ARE REQUIRED TO B E UPHOLD. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 03/08/2016 SD/- SD/- ( B. RAMAKOTAIAH ) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 03/08/2016 *RANJAN COPY FORWARDED TO: 1. ALPINE ESTATES, C/O-SRI S RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYAS ELEGANCE, 3-6-643, STREET NO. 9, HIMAY ATNAGAR, HYDERABAD-500029. I.T.A. NO. 62/HYD/2016 ALPINE ESTATES VS ITO :- 10 -: 2. THE INCOME TAX OFFICER, WARD-10(4), HYDERABAD. 3. CIT(APPEALS)-6, HYDERABAD. 4. PR.CIT-6, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.