JOYNEST PRREMISES P.LTD, MUMBAI V. ITO 5(3)(4), MUMBAI

ITA 6717/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3192 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Assessment Year: 2009-2010
• Appeal Filed On: 05-11-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASGHAR ZAIN
• Keywords: Business income; Business expenditure; Question of law; Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUM BAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ./ I.T.A. NO. 6717/MUM/2014 & ./ I.T.A. NO. 6718/MUM/2014 ( / ASSESSMENT YEARS: 2009-10 & 2010-11) JOYNEST PREMISES PVT. LTD. CTS NO.469-A, NEAR JAIN TEMPLE, R.C. MARG, CHEMBUR, MUMBAI-400 071. / VS. ITO, 5(3)(4), R. NO.565 AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400 020. ./ ./PAN/GIR NO. AAACZ 3360M ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI ANUJ KISNADWALA / RESPONDENT BY : SHRI ASGHAR ZAIN / DATE OF HEARING : 08/06/2016 / DATE OF PRONOUNCEMENT : 15.06.2016 / O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE ABOVE TITLED APPEALS HAVE BEEN PREFERRED BY THE ASSESSEE AGAINST THE TWO SEPARATE ORDERS OF THE COMMISSIONER OF INCOME TAX ( APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] OF EVEN DATE 14.08.2014 RELEVANT TO A.Y. 2009-10 & 2010-11 RESPECTIVELY. ITA NO. 6717&6718/MUM/14 JOVNEST PREMISES PVT. LTD. VS. ITO 2. AT THE OUTSET, LD.AR OF THE ASSESSEE HAS STATED THAT THE ISSUES INVOLVED IN BOTH THE APPEALS ARE ALMOST IDENTICAL IN NATURE AND FURT HER THAT THE ASSESSMENT RELEVANT TO ASSESSMENT YEAR 2009-10 WAS REOPENED ON THE BASIS O F OBSERVATION MADE BY THE ASSESSING OFFICER [HEREINAFTER REFERRED TO AS AO] F OR A.Y. 2010-11. HE THEREFORE, HAS SUBMITTED THAT THE FACTS FROM APPEAL FOR ASSESSMENT YEAR 2010-11 BE TAKEN FOR ADJUDICATION OF THE ABOVE APPEALS. WE, ACCORDINGLY, TAKE THE ITA NO.6718/MUM/2014 FOR A.Y.2010-11 AS LEAD CASE. ITA NO. 6718/MUM/2014 (A.Y.2010-11): THE ASSESSEE IN THIS APPEAL HAS TAKEN THE FOLLOWIN G GROUNDS OF APPEAL: 1. THE LEARNED CIT (A) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE ORDER PASSED BY THE ASSESSING OFFICER U/S. 143 (3) OF THE INCOME-TAX ACT, 1961. 2. THE LEARNED CIT (A) HAS ERRED IN LAW AND ON FACTS I N CONFORMING THE ASSESSMENT OF INTEREST RECEIVED OF RS.69,42,577/- O N COMPULSORY FDR AS 'INCOME FROM OTHER SOURCES' AS AGAINST RECEIPT FROM BUSINESS ACTIVITY AS TREATED BY THE APPELLANT. THE LEARNED CIT (A) OUGHT TO HAVE DIRECTED THE ASSESSING OFFICER TO CONSIDER THE SAME AS BUSINESS RECEIPT SI NCE IT WAS INEXTRICABLY LINKED WITH THE BUSINESS ACTIVITIES OF THE APPELLANT; AND, AS SUCH, DEDUCTIBLE FROM THE WORK-IN-PROGRESS. ITA NO. 6717&6718/MUM/14 JOVNEST PREMISES PVT. LTD. VS. ITO 3. WITHOUT PREJUDICE TO THE ABOVE AND IN THE ALTER NATIVE, THE LEARNED CIT (A) OUGHT TO HAVE DIRECTED THE ASSESSING OFFICER TO GRA NT THE BENEFIT OF NETTING OFF OF SUCH INCOME AGAINST INTEREST EXPENDITURE. 4. THE LEARNED CIT (A) HAS ERRED IN LAW AND ON FACTS I N CONCURRING THE DISALLOWANCE OF LOSS OF RS.4,92,485/-, WHICH INCLUD ES BUSINESS EXPENDITURE OF RS.5,73,031/-, SOLELY FOR THE REASON THAT NO INCOME WAS EARNED BY THE APPELLANT DURING THE RELEVANT PREVIOUS YEAR. THE LEARNED CIT( A) OUGHT TO HAVE DIRECTED THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE AS THE APPELLANT HAD ALREADY COMMENCED ITS BUSINESS ACTIVITIES, ITS PROJECT WAS VERY MUCH IN PROGRESS; AND THE CLAIM HAS NOT BEEN DOUBTED OR DISPROVED IN ANY MANNER. 3. GROUND NOS.1,3&5 ARE GENERAL IN NATURE AN D DO NOT REQUIRE ANY ADJUDICATION. LD. AR HAS STATED AT BAR THAT HE DOES NOT WANT TO P RESS GROUND NO.3 AND THUS GROUND NO.3 IS DISMISSED AS NOT PRESSED. NOW, WE ARE LEFT WITH GROUND NO.2&4 FOR ADJUDICATION. GROUND NO.2:- 4. THE BRIEF FACTS OF THE CASE RELATING TO ISSUES T AKEN VIDE THESE GROUNDS OF APPEAL ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF BUILDERS AND CIVIL CONTRACTORS. THE ASSESSEE HAD ENTERED INT O AN AGREEMENT WITH THE GOVERNMENT OF MAHARASHTRA FOR CONSTRUCTION AND DEVE LOPMENT OF A PROJECT AT PLOT CTS NO.469-A AT CHEMBUR, MUMBAI. AS PER THE TERMS O F THE AGREEMENT WITH GOVERNMENT OF MAHARASHTRA, THE ASSESSEE HAD TO KEEP A PERFORMANCE SECURITY DEPOSIT ITA NO. 6717&6718/MUM/14 JOVNEST PREMISES PVT. LTD. VS. ITO OF RS.6,70,00,000/-. THE ASSESSEE HAD DELIVERED TO THE GOVERNMENT OF MAHARASHTRA PERFORMANCE SECURITY FOR CONSTRUCTION IN THE FORM O F FDR OF RS.6,70,00,000/- WITH DENA BANK. THE ASSESSEE EARNED INTEREST OF RS.40,90 ,696/- FOR F.Y. 2008-09 AND RS.69,42,577/- FOR F.Y. 2009-10 AGGREGATING TO RS.1 ,19,33,273/- FROM THE SAID FDR WITH DENA BANK. DURING THE YEAR UNDER CONSIDERATION , ASSESSEE REDUCED THE ENTIRE INTEREST INCOME OF RS.1,19,33,273/- FROM ITS WORK I N PROGRESS. DURING ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESSEE AS TO WHY TH E GROSS INTEREST INCOME ON FDR EARNED BY THE ASSESSEE SHOULD NOT BE BROUGHT TO TAX . IN RESPONSE, THE ASSESSEE SUBMITTED THAT THE FDR WAS IN THE NATURE OF COMPULS ORY FIXED DEPOSIT INTO BANK AS A PROJECT PERFORMANCE GUARANTEE AND THAT THE SAME WAS INCIDENTAL TO THE BUSINESS OF THE ASSESSEE. THE ASSESSEE THEREBY SUBMITTED THAT THE I NTEREST EARNED ON COMPULSORY FIXED DEPOSIT WAS INEXTRICABLY LINKED TO THE PROJECT OF T HE ASSESSEE AND HENCE HAD RIGHTLY BEEN REDUCED OUT OF WORK IN PROGRESS. THE ASSESSEE THEREFORE SUBMITTED THAT THE SAME SHOULD NOT BE TAXED AS INCOME FROM OTHER SOURCES. T HE AO FURTHER DID NOT ACCEPT THE CONTENTION PUT-FORTH BY THE ASSESSEE AND TAXED THE INTEREST OF RS.69,42,577/- EARNED ON FIXED DEPOSIT BY THE ASSESSEE UNDER THE HEAD INCOM E FROM OTHER SOURCES. AO WHILE RELYING UPON JUDGEMNET OF SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILISERS LTD [227ITR172] REJECTED THE ABOVE CONTENTION OF THE ASSESSEE AND TAXED THE INTEREST. ITA NO. 6717&6718/MUM/14 JOVNEST PREMISES PVT. LTD. VS. ITO 5. BEING AGGRIEVED BY THE ABOVE ACTION OF THE AO, T HE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). BEFORE THE LD. CIT(A), THE A SSESSEE EXPLAINED THAT SUPREME COURT DECISION IN THE CASE OF TUTICORIN ALKALI CH EMICALS AND FERTILISERS LTD. (SUPRA) WAS NOT APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEE AS IN THAT CASE THE CONCERNED ASSESSEE HAD SURPLUS FUNDS IN ITS HANDS AND IN ORDE R TO EARN INCOME OUT OF THE SURPLUS FUNDS THE SAME WERE INVESTED FOR THE PURPOSE OF EAR NING INTEREST INCOME. FURTHER IN THE CASE OF THE ASSESSEE, THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF CIT VS. BOKARO STEEL LTD [236 ITR 315] WAS APPLIC ABLE WHEREIN, THE HONBLE SUPREME COURT IN SOMEWHAT SIMILAR CIRCUMSTANCES HAS HELD THAT WHERE THE UTILIZATION OF VARIOUS ASSETS OF THE COMPANY AND THE PAYMENTS R ECEIVED FROM SUCH UTILIZATION ARE DIRECTLY LINKED WITH THE ACTIVITY OF SETTING UP THE BUSINESS OF THE ASSESSEE AND SUCH RECEIPTS ARE INEXTRICABLY LINKED WITH THE SETTING U P OF THE CAPITAL STRUCTURE OF THE ASSESSEE-COMPANY, THEN THESE RECEIPTS MUST BE VIEWE D AS CAPITAL RECEIPTS GOING TO REDUCE THE COST OF CONSTRUCTION. 6. THE LD. CIT(A), HOWEVER DID NOT ACCEPT THE ABOVE CONTENTION OF THE ASSESSEE AND OBSERVED THAT IN THE INSTANT CASE, THE ASSESSEE HAD NOT ACTUALLY STARTED BUSINESS IN REAL TERMS AS THE DEPOSITS WERE MADE IN THE PROCESS OF STARTING BUSINESS AND UNDER THESE CIRCUMSTANCES, THE INTEREST INCOME EARNED ON THE FDRS WAS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. HE OBSERVED THAT THE FUNDS UTILIZED FOR MAKING THE ITA NO. 6717&6718/MUM/14 JOVNEST PREMISES PVT. LTD. VS. ITO FDRS HAD NOT BEEN GENERATED FROM THE BUSINESS ACTI VITY OF THE ASSESSEE. HE ACCORDINGLY UPHELD THE FINDING OF THE AO ON THIS IS SUE. 7. BEING AGGRIEVED BY THE ABOVE FINDINGS OF THE CIT (A), THE ASSESSEE HAS COME IN APPEAL BEFORE US. LD. AR OF THE ASSESSEE AT THE OUT SET HAS RELIED UPON VARIOUS CASE LAWS INCLUDING THAT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. BOKARO STEEL LTD. (SUPRA) AND IN THE CASE OF CIT VS. KARNAL CO-O PERATIVE SUGAR MILLS LTD.[243 ITR 2] (SUPREME COURT). HE FURTHER HAS STRONGLY RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. JAYPEE DSC VENTUR ES LTD [335 ITR 132] (DELHI). HE HAS INVITED OUR ATTENTION TO THE QUESTION OF LAW FRAMED BY THE DELHI HIGH COURT IN THAT CASE AND STATED THAT THE IDENTICAL ISSUE REGAR DING THE TAXABLILITY OF THE INTEREST INCOME ON FDRS MADE FOR SUBMITTING THE PERFORMANCE GUARANTEE TO THE NATIONAL HIGHWAYS AUTHORITY OF INDIA HAS BEEN ANSWERED BY TH E HONBLE DELHI HIGH COURT IN FAVOUR OF THE ASSESSEE. THE QUESTION OF LAW FRAMED BY THE HONBLE DELHI HIGH COURT FOR THE PURPOSE OF READY REFERENCE IS REPRODUCED AS UNDER: WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE INCOME-TAX APPELLATE TRIBUNAL WAS JUSTIFIED IN DELETING THE AD DITION OF RS.16,36,039/- ON THE GROUND THAT INTEREST EARNED B Y THE ASSESSEE ON THE FIXED DEPOSIT RECEIPT BEING CAPITAL IN NATURE CANNO T BE ASSESSED AS INCOME FROM OTHER SOURCES SOLELY ON THE FOUNDATION THAT THE FIXED DEPOSIT WAS MADE FOR SUBMITTING THE PERFORMANCE GUARANTEE T O THE NATIONAL HIGHWAYS AUTHORITY OF INDIA? ITA NO. 6717&6718/MUM/14 JOVNEST PREMISES PVT. LTD. VS. ITO THE HONBLE DELHI HIGH COURT WHILE RELYING UPON VA RIOUS CASE LAWS INCLUDING THAT OF THE HONBLE SUPREME COURT IN THE CASE OF CI T VS. BOKARO STEEL LTD. (SUPRA) AND IN THE CASE OF CIT VS. KARNAL CO-OPERATIVE SUGA R MILLS LTD.[243 ITR 2] (SUPREME COURT) AND ALSO OTHER DECISION OF THE DELHI HIGH CO URT IN THE CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. VS. ITO [2009] 315 I TR 255 (DELHI) AND ALSO CONSIDERING THE DISTINGUISHING FACTS IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS. CIT (SUPRA) HAS UPHELD THE FI NDING OF THE TRIBUNAL THAT THE INTEREST EARNED BY THE ASSESSEE ON FDRS HAS INTRINSIC AND IN SEGGREGABLE NEXUS WITH THE WORK UNDERTAKEN AND, THEREFORE, THE INTEREST EARNED BY T HE ASSESSEE IS CAPITAL IN NATURE AND SHALL GO TOWARDS ADJUSTMENT AGAINST THE PROJECT EXP ENDITURE AND THE SAME CANNOT BE ASSESSED AS INCOME FROM OTHER SOURCES. 8. WE FIND THAT THE FACTS OF THE CASE IN HAND ARE S QUARELY COVERED BY THE ABOVE VARIOUS DECISIONS OF THE HONBLE SUPREME COURT AS W ELL AS OF THE HONBLE DELHI HIGH COURT. RESPECTFULLY FOLLOWING THE SAME, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. GROUND NO.4 9. IN GROUND NO.4, THE ASSESSEE HAS AGITATED THE DI SALLOWANCE OF BUSINESS EXPENDITURE OF RS.5,73,031/-. THE AO DISALLOWED THE SAID EXPENDITURE ON THE GROUND ITA NO. 6717&6718/MUM/14 JOVNEST PREMISES PVT. LTD. VS. ITO THAT THE ASSESSEE HAD NOT EARNED ANY INCOME DURING THE YEAR UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS OR PROFESSION. HE REJECTED THE CONTENTION OF THE ASSESSEE THAT THE ASSESSEE HAD ALREADY SET UP HIS BUSINESS AND THE AB OVE STATED EXPENSES WERE ROUTINE BUSINESS EXPENDITURE. 10. AGGRIEVED BY THE SAID DISALLOWANCE, THE ASSESSE E PREFERRED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HOWEVER ALSO REJECTED TH E CONTENTION OF THE ASSESSEE OBSERVING THAT SINCE THE PROJECT OF THE ASSESSEE HA D NOT STARTED YIELDING ANY REVENUE HENCE ALL THE EXPENSES RELATING TO THE INCOMPLETE P ROJECT SHOULD HAVE BEEN CAPITALIZED. 11. BEING AGGRIEVED BY THE ORDER OF CIT(A), THE ASS ESSEE HAS COME IN APPEAL BEFORE US. THE ASSESSEE BEFORE US HAD RELIED UPON T HE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. DHOOMKETU BUILDERS AND DEVELOPMENT P. LTD. [2014]368 ITR 680 (DELHI), WHEREIN, HONBLE DELHI HIGH COURT HAS HELD THAT THERE IS A DIFFERENCE BETWEEN THE SETTING UP AND COMMENCEMENT OF BUSINESS. WHEN A BUSINESS IS ESTABLISHED AND IS READY TO COMMENCE, THEN IT CAN B E SAID OF THAT BUSINESS HAS BEEN SET UP. THE HONBLE DELHI HIGH COURT HAS OBSERVED THAT THERE MAY BE AN INTERVAL BETWEEN A BUSINESS WHICH IS SET UP AND A BUSINESS WHICH IS COMMENCED AND ALL EXPENSES INCURRED AFTER THE SETTING UP OF THE BUSINESS AND B EFORE THE COMMENCEMENT OF THE BUSINESS WOULD BE PERMISSIBLE DEDUCTIONS/BUSINESS L OSS. ITA NO. 6717&6718/MUM/14 JOVNEST PREMISES PVT. LTD. VS. ITO 12. IN VIEW OF THE ABOVE PROPOSITION OF LAW LAID DO WN BY THE HONBLE DELHI HIGH COURT, THE ROUTINE EXPENSES INCURRED BY THE ASSESSE E AFTER SETTING OF THE BUSINESS IN OUR VIEW ARE ALLOWABLE AS BUSINESS EXPENDITURE. THIS IS SUE IS ACCORDINGLY DECIDED IN FAVOUR OF THE ASSESSEE. 13. NOW, COMING TO ASSESSEE APPEAL FOR A.Y.2009-10, THE ASSESSEE IN THIS APPEAL HAS TAKEN SIX GROUNDS OF APPEAL. THE LD. AR OF THE ASSESSEE AT THE OUTSET HAD STATED THAT HE DOES NOT PRESS GROUND NO.1,2&4 ARE THEREFOR E DISMISSED AS NOT PRESSED. WE FIND THAT GROUND NO.6 IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION. NOW WE ARE LEFT WITH GROUND NO.3 &5. GROUND NO.3 14. THE ISSUE INVOLVED IN GROUND NO.3 IS IDENTICAL TO THE GROUND NO.2 OF THE ASSESSEES APPEAL FOR A.Y. 2010-11 RELATING TO TAXA BILITY OF INTEREST RECEIVED ON COMPULSORY FDR MADE AS PROJECT PERFORMANCE GUARANTE E.IN VIEW OF OUR FINDINGS GIVEN ABOVE WHILE ADJUDICATING THE GROUND NO.2 OF T HE ASSESSEE APPEAL FOR AY. 2010- 11, THIS ISSUE IS ACCORDINGLY DECIDED IN FAVOUR OF THE ASSESSEE. ITA NO. 6717&6718/MUM/14 JOVNEST PREMISES PVT. LTD. VS. ITO GROUND NO.5 15. THE ISSUE TAKEN BY THE ASSESSEE IN GROUND NO.5 IS IDENTICAL TO THE ISSUE TAKEN IN GROUND NO.4 OF THE ASSESSEE APPEAL FOR A.Y.2010-11, IN RELATION TO THE ALLOWABILITY OF THE EXPENDITURE INCURRED DURING THE YEAR, WHEN NO I NCOME WAS EARNED BY THE ASSESSEE FROM ITS BUSINESS ACTIVITY. IN VIEW OF OUR FINDINGS GIVEN ABOVE, THIS ISSUE IS ACCORDINGLY DECIDED IN FAVOUR OF THE ASSESSEE. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASSES SEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 JUNE, 2016 SD/- SD/- (G.S. PANNU) (SANJAY GARG) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; DATED :15.06.2016 PS. ASHWINI / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE ITA NO. 6717&6718/MUM/14 JOVNEST PREMISES PVT. LTD. VS. ITO / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI