ACIT 22(3), NAVI MUMBAI V. SURESH G. WADHWA, NAVI MUMBAI

ITA 6404/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88632 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 12-01-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 19-10-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Assessee Lawyers: S C TIWARI
• Keywords: Business income; Additional evidence
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUM BAI , , BEFORE SHRI JOGINDER SINGH, JM AND SHRI SANJAY ARO RA, AM ./ I.T.A. NO. 6404/MUM/2012 ( / ASSESSMENT YEAR: 2009-10) ASST. CIT-22(3), 3 RD FLOOR, TOWER NO.6, VASHI RLY. STATION COMPLEX, VASHI, NAVI MUMBAI / VS. SURESH G. WADHWA, 429, ARENJA CORNER, SECTOR-17, VASHI, NAVI MUMBAI-400 705 ./! ./PAN/GIR NO. AAAPW 0812 A ( ' /APPELLANT ) : ( #$ ' / RESPONDENT ) ' % & / APPELLANT BY : SHRI NEIL PHILIP #$ ' % & / RESPONDENT BY : SHRI S. C. TIWARI ' ()* % +, / DATE OF HEARING : 12.01.2015 -./ % +, / DATE OF PRONOUNCEMENT : 18 .03.2015 0 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE REVENUE DIRECTED AGAINST T HE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-33, MUMBAI (CIT(A) FOR SH ORT) DATED 09.08.2012, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSES SMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEAR (A.Y.) 2009-10 VIDE ORDER DATED 26.12.2011. 2. THE ONLY ISSUE ARISING IN THIS APPEAL IS THE MAI NTAINABILITY OR OTHERWISE IN LAW OF THE ASSESSEES CLAIM IN RESPECT OF THE INTEREST EXP ENDITURE IN THE SUM OF RS.22,18,124/-, HAVING BEEN SINCE ALLOWED BY THE FIRST APPELLATE AU THORITY. 2 ITA NO. 6404/MUM/2012 (A.Y. 2009-10) ASST. CIT VS. SURESH G. WADHWA 3. THE FACTS IN BRIEF ARE THAT THE ASSESSING OFFICE R (A.O.) EXAMINING THE ASSESSEES RETURN DURING THE COURSE OF ASSESSMENT PROCEEDINGS, OBSERVED THAT THOUGH THERE WERE SEVERAL PROJECTS; THE ASSESSEE BEING A BUILDER AND DEVELOPER, UNDER IMPLEMENTATION, THE FUNDS WERE DEPLOYED IN PRINCIPALLY TWO PROJECTS, I. E., SAI SAMARTH AND SAI SWAR, SO THAT THE INTEREST EXPENDITURE STOOD ALLOCATED (BY T HE ASSESSEE) AMONGST THE TWO AT RS.15,79,416/- (SAI SMARTH) AND RS.6,38,708/- (SAI SWAR). HOWEVER, THE ADVANCES FROM CUSTOMERS FOR THE TWO PROJECTS FAR EXCEEDED THE WO RK-IN-PROGRESS (WIP) AS AT THE YEAR- END FOR THE TWO PROJECTS, AS UNDER: (AMT. IN RS. CRORES) PROJECT WIP ADVANCE FROM CUSTOMER SAI SMARTH 8.47 20.75 SAI SWAR 20.82 27.24 THERE WAS, ACCORDINGLY, NO QUESTION OF THE ASSESSE E HAVING INCURRED ANY INTEREST ON THE SAID PROJECTS, THE FUNDS FROM WHICH IN FACT FUNDED THE ACQUISITION OF LAND, WITH THE INTEREST BEARING FUNDS BEING DIVERTED BY THE ASSESS EE FOR INVESTMENT IN RBI BONDS AND OTHER INVESTMENTS, YIELDING INTEREST (REFER PARA 5. 2 OF THE ASSESSMENT ORDER). THE ASSESSEES CLAIM FOR THE INTEREST EXPENDITURE WAS, ACCORDINGLY, DISALLOWED. IN APPEAL, HOWEVER, THE ASSESSEE FOUND FAVOUR WITH THE LD. CIT(A), IN WHOSE VIEW THE A.O. HAD NOT ASKED FOR THE FUND FLOW STATEMENT IN SUPPORT OF HIS OBSERVATIONS. IN THAT VIEW OF THE MATTER, IT WAS NOT OPEN FOR HIM TO CONT END THAT THE BUSINESS FUNDS WERE DIVERTED FOR INVESTMENT IN RBI BONDS. NO SUCH NEXUS BEING SHOWN OR PROVED, NO DISALLOWANCE COULD BE MADE (PARA 6.2). AGGRIEVED, T HE REVENUE IS IN APPEAL BEFORE US. 4. THE ASSESSEES PRINCIPAL CASE BEFORE US WAS THAT THE A.O. WAS NOT CORRECT IN ASSUMING THAT THE TWO PROJECTS, SAI SMARTH AND SAI SWAR, ONLY SIGNIFIED THE DEPLOYMENT OF BUSINESS FUNDS BY THE ASSESSEE FOR BUSINESS PURP OSES DURING THE RELEVANT YEAR. FURTHER, AS ALSO CONTENDED BEFORE THE LD. CIT(A), THE A.O. C OULD NOT QUESTION THE ASSESSEES DECISION OF INVESTMENT IN RBI BONDS, OR TREAT THE S AME AS A NON-BUSINESS ASSET IN-AS-MUCH AS THE SAME ONLY REPRESENTED FUNDS KEPT ASIDE FOR T HE TIME BEING. ON BEING QUESTIONED AS TO WHETHER THE INVESTMENT IN RBI BONDS (OR OTHER IN VESTMENTS) STOOD ASSESSED AS 3 ITA NO. 6404/MUM/2012 (A.Y. 2009-10) ASST. CIT VS. SURESH G. WADHWA BUSINESS INCOME OR AS INCOME FROM OTHER SOURCES , HE WOULD SUBMIT THAT THE SAME WAS NOT CLEAR, EVEN THOUGH THE ASSESSMENT ORDER REFLECT S INCOME OF RS.11,78,186/- AS INCOME FROM OTHER SOURCES. HE WOULD FURTHER ADD THAT THAT , HOWEVER, WAS NOBODYS CASE. THE LD. DEPARTMENTAL REPRESENTATIVE (DR) WOULD, ON THE OTHER HAND, SUBMIT THAT THE A.O. HAD ISSUED SPECIFIC FINDINGS OF FACT, WHIC H HAD NOT BEEN CONTROVERTED BY THE LD. CIT(A), WHO HAD ALSO, IN DECIDING THE ASSESSEES AP PEAL, ADMITTED ADDITIONAL EVIDENCE/S, WITHOUT AFFORDING OPPORTUNITY TO THE A.O. TO EXAMIN E THE SAME, SO THAT HIS ORDER WAS IN CONTRAVENTION OF RULE 46A, AND WHICH CONSTITUTES TH E REVENUES SECOND GROUND BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 5.1 WE SHALL BEGIN BY REPRODUCING THE OPERATING PAR T OF THE IMPUGNED ORDER, WHICH READS AS UNDER: 6.2 I HAVE GONE THROUGH THE SAME. THE A.O. HAS NOT ASKED FOR A FUND FLOW STATEMENT TO SUPPORT HIS OBSERVATION. ON THE OTHER HAND APPELLANT HAS ALSO NOT SUBMITTED FUND FLOW FOR THE YEAR TO SHOW IF AT ANY POINT OF TIME THE BUSINESS FUNDS WERE DIVERTED TO RBI BONDS. IN VIEW OF ANY NEXUS NOT BEING PROVED, I AM OF THE OPI NION THAT ADDITIONS MADE BY WAY OF DISALLOWANCE OF INTEREST E XPENSE ARE NOT SUSTAINABLE AND HENCE ADDITION MADE FOR THIS AMOUNT IS DELETED HEREWITH. GROUND NO.4 IS ALLOWED. TRUE, THE A.O. DID NOT CALL FOR THE FUND FLOW STAT EMENT, BUT THEN THE ONUS TO ESTABLISH ITS RETURN, AND THE CLAIM/S PREFERRED THE REBY, IS ONLY ON THE ASSESSEE. FURTHER, THE SAME WAS NOT BEEN CALLED FOR AND EXAMINED BY THE LD . CIT(A) AS WELL, SO THAT HE HAD NO BASIS TO ARRIVE AT HIS FINDINGS, ONLY ON THE STRENG TH OF WHICH COULD THAT BY THE A.O. BE MODIFIED OR REVERSED BY HIM. WE ARE, ACCORDINGLY, I NCLINED TO AGREE WITH THE REVENUES CASE THAT THE LD. CIT(A) HAS ALLOWED THE ASSESSEES CLAIM WITHOUT IN ANY MANNER DISTURBING OR REBUTTING THE A.O.S FINDINGS, BASED ON PRIMARY FACTS AND FIGURES, DRAWN FROM THE ASSESSEES ANNUAL ACCOUNTS, AND WHICH REMA IN UNCONTROVERTED. YES, THE A.O. HAS PROCEEDED ON THE BASIS THAT THE ASSESSEES ENTIRE W ORKING CAPITAL STANDS DEPLOYED IN THE TWO PROJECTS, SAI SAMARTH AND SAI SWAR, WHICH MAY N OT BE CORRECT IN-AS-MUCH AS THE ASSESSEE MAY HAVE OTHER BUSINESS ASSETS AS WELL. HO WEVER, IT WAS FOR THE ASSESSEE TO STATE 4 ITA NO. 6404/MUM/2012 (A.Y. 2009-10) ASST. CIT VS. SURESH G. WADHWA SO AND SPECIFY, WHILE WE FIND NO SUCH SPECIFICATION . WHERE THE ADVANCES ARE RECEIVED FROM CUSTOMERS FOR A PARTICULAR PROJECT, THE INVEST MENT THEREIN WOULD ONLY STAND TO BE SET OFF OR ADJUSTED AGAINST THE SAME, AND THERE COULD B E NO PRESUMPTION TO THE CONTRARY. RATHER, AS APPARENT, THE ADVANCES ARE IN SURPLUS OR IN EXCESS, I.E., WITH REFERENCE TO THE INVESTMENT IN THE SPECIFIED PROJECTS (REFER PARA 3 (SUPRA)), AND TO THAT EXTENT COULD ONLY BE CONSIDERED AS TOWARD FINANCING OTHER PROJECTS, WITH THE A.O. SPEAKING OF INVESTMENT IN LAND, WHICH FORMS PART OF THE ASSESSEES STOCK-IN-T RADE, WHETHER IN RELATION TO A CURRENT OR IN FUTURE PROJECT/S. HOWEVER, THE VOLUME OF SUCH IN VESTMENT/S AND, ACCORDINGLY, THEIR FINANCING BY ADVANCES REMAINS UNSPECIFIED BY EITHER AUTHORITY. COMING TO THE INVESTMENT IN RBI BONDS, THE ASSESSEE HAS NOWHERE STATED THEIR BUSINESS PURPOSE, MUCH LESS ESTABLISHED THEIR CHARACTER WITH REFERENCE TO ANY M ATERIAL; THERE BEING NO CONTENTION IN RESPECT THEREOF. EVEN THEIR TERM, SO AS TO ASCERTAI N IF IT REPRESENTS PARKING OF FUNDS ON A SHORT TERM BASIS, I.E., DEEMED SURPLUS FOR THE TIME BEING, HAS NOT BEEN SPECIFIED. AS IT APPEARS, THE INTEREST THEREON STANDS ASSESSED AS I NCOME FROM OTHER SOURCES, IN WHICH CASE, TO THE EXTENT FINANCED BY BORROWED CAPITAL, T HE ASSESSEES CLAIM U/S.57(III) SHOULD SUCCEED. WE MAY THOUGH ADD THAT WHERE THE INTEREST RATE ON BORROWING IS HIGHER THAN THAT ACCRUING ON THE BONDS/INVESTMENTS, THE CLAIM FOR EX CESS INTEREST WOULD HAVE TO BE EXAMINED FOR ITS MAINTAINABILITY IN LAW. FURTHER, I F THE INTEREST INCOME THEREON IS TAX EXEMPT, SECTION 14A WOULD STAND ATTRACTED, AND WHIC H WOULD BE SO EVEN WHERE THE SAID INVESTMENTS REPRESENTS A BUSINESS ASSET [REFER: ITO VS. DAGA CAPITAL MANAGEMENT PVT. LTD. [2009] 312 ITR (AT) 1 (MUM.) (SB) AND D. H. SECURITIES (P.) LTD. VS. DY. CIT [2014] 146 ITD 1 (MUM) (TM)]. 5.2 UNDER THE CIRCUMSTANCES, THE FACTS BEING INDETE RMINATE, WE ONLY CONSIDER IT FIT AND PROPER THAT THE MATTER IS RESTORED BACK TO THE FILE OF THE FIRST APPELLATE AUTHORITY FOR RE- ADJUDICATION OF THE ASSESSEES CLAIM BY ISSUING DEF INITE FINDINGS OF FACT AFTER HEARING BOTH THE PARTIES BEFORE HIM. FURTHER, HIS ADMISSION OR R ELIANCE ON ANY MATERIAL OR EVIDENCE THAT MAY BE ADDUCED OR LED BY THE ASSESSEE IN SUBSTANTIA TION OF ITS CLAIM/S, WOULD BE SUBJECT TO AN OPPORTUNITY TO THE A.O. TO, LIKEWISE, EXAMINE TH E SAME, AS WELL AS LEAVE TO LEAD EVIDENCE TO THE CONTRARY. WE DECIDE ACCORDINGLY. 5 ITA NO. 6404/MUM/2012 (A.Y. 2009-10) ASST. CIT VS. SURESH G. WADHWA 6. IN THE RESULT, THE REVENUES APPEAL IS ALLOWED F OR STATISTICAL PURPOSES. 1/+2 ) % 3% 456 7 ) 8 + % + 9 ORDER PRONOUNCED IN THE OPEN COURT ON MARCH 18 , 20 15 SD/- SD/- (JOGINDER SINGH) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ' :* MUMBAI; ;( DATED :18 .03.2015 ).(. ./ ROSHANI , SR. PS ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. #$ ' / THE RESPONDENT 3. ' <+ ( ) / THE CIT(A) 4. ' <+ / CIT - CONCERNED 5. ?)@ #+(A , , A/ , ' :* / DR, ITAT, MUMBAI 6. CD E* / GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , ' :* / ITAT, MUMBAI