WINDSOR RESIDENCY P.LTD, MUMBAI V. ITO 5(3)4, MUMBAI

ITA 7183/MUM/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1900 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 29-09-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 03-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H M WANARE
• Keywords: Capital asset

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G, MUMBAI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.7183/M/2012 ASSESSMENT YEAR: 2009-10 M/S. WINDSOR RESIDENCY PVT. LTD., JINDAL MANSION, 5A, DR. G. DESHMUKH MARG, MUMBAI 400 026 PAN: AAACW 6607N VS. INCOME TAX OFFICER 5(3)4, AAYAKAR BHAVAN, MUMBAI (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI HIRO RAI, A.R. REVENUE BY : SHRI H.M. WANARE, D.R. DATE OF HEARING : 29.09.2015 DATE OF PRONOUNCEMENT : 18.12.2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 17.09.2012 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT Y EAR 2009-10. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED COMMISSIONER OF INCOME TAX-(APPEALS ) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DISALLOWING INTEREST EXPE NSE OF RS. 34,50,354/- CLAIMED AS DEDUCTION U/S 24(B) AGAINST INCOME FROM HOUSE PROPE RTY OF THE INCOME TAX ACT, 1961 ('THE ACT'). 2. WITHOUT PREJUDICE TO GROUND NO. 1, IF AS HELD BY THE HON'BLE COMMISSIONER OF INCOME TAX (APPEALS), THE PROPERTY IS UNDER CONS TRUCTION AND THE INTEREST OF RS.34,50,354/- CANNOT BE ALLOWED AS DEDUCTION UNDER SECTION 24 OF THE ACT THEN THE COMPENSATION OF RS.96,00,000/- ALSO OUGHT TO BE REDUCED FROM 'WORK-IN- PROGRESS' AND NOT TAXED AS INCOME UNDER THE PROVISI ONS OF THE ACT. 3. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER OR OTHE RWISE AMEND THE ABOVE MENTIONED GROUNDS OF APPEAL. ITA NO.7183/M/2012 M/S. WINDSOR RESIDENCY PVT. LTD. 2 3. APART FROM THAT THE ASSESSEE HAS TAKEN ONE ADDIT IONAL GROUND WHICH READ AS UNDER: 1. WITHOUT PREJUDICE TO THE GROUNDS ORIGINALLY RAI SED IN THIS APPEAL, THE INTEREST OF RS.34,50,354/- SHOULD BE ALLOWED AS A D EDUCTION U/S 36(1)(III)/37(1) OF THE ACT. 4. THE FACTS IN BRIEF OF THE CASE ARE THAT THE ASSE SSEE HAD ACQUIRED A PROPERTY KNOWN AS MORENA IN OCTOBER, 2007. A POR TION OF THE SAID PROPERTY WAS OCCUPIED FOR THE PAST SO MANY YEARS BY THE CONS ULATE GENERAL OF BELGIUM, MUMBAI (CONSULATE), BEING TENANTS OF THE ERSTWHILE OWNERS. ON ACQUIRING THE PROPERTY, THE ASSESSEE COMPANY REQUESTED THE CONSUL ATE TO VACATE THE PORTION OCCUPIED BY THEM AND HANDOVER PEACEFUL POSSESSION O F THE SAME. HOWEVER, IN SPITE OF SEVERAL FOLLOW UPS BY THE COMPANY, THE CON SULATE DID NOT COMMIT TO ANY TIME FRAME FOR VACATING THE PREMISES AND HAD RE PEATEDLY BEEN REQUESTING FOR ADDITIONAL TIME TO VACATE THE SAID PREMISES. AS ON 31 ST MARCH, 2008 AS WELL AS UPTO THE DATE OF CLOSING OF ACCOUNTS FOR THE YEA R ENDED 31 ST MARCH, 2008, THE QUANTUM OF LEASE RENT RECEIVABLE FROM THE CONSULATE GENERAL OF BELGIUM WAS NOT FINALIZED. THAT CONSIDERING THE UNCERTAINTY IN THE QUANTIFICATION OF SUCH RENT TILL THE DATE OF CLOSING OF THE ACCOUNTS, NO R ENT HAD ACCRUED IN THE PREVIOUS YEAR ENDED 31-03-2008. AFTER LOT OF FOLLOW UP WITH THE CONSULATE, THEY ENTERED INTO AN AGREEMENT WITH THE ASSESSEE AND AT THE TIME OF VACATING THE PREMISES, AGREED TO GIVE LEASE RENT OF RS.8,00,000/- PER MONT H FOR THE PERIOD OCTOBER 2007 TO SEPTEMBER 2008. THE ASSESSEE HAD PLANS OF REDEVELOPMENT OF THE MORENA PROPERTY AND ACCORDINGLY THE EXPENSES INCU RRED FOR REDEVELOPMENT OF THE SAID PROPERTY HAD BEEN DEBITED UNDER THE HEAD CAPITAL WORK IN PROGRESS. SINCE INTEREST EXPENSE INCURRED BY THE ASSESSEE WER E TOWARDS DEVELOPMENT OF THE MORENO PROPERTY, AS PER THE NORMALLY ACCEPTED ACCOUNTING PRACTICE AND AS PER THE INDIAN ACCOUNTING STANDARDS, INTEREST EXPEN SE OF RS.34,50,354/- INCURRED BY THE ASSESSEE WAS DEBITED AS CAPITAL WO RK IN PROGRESS. DEBITING THE INTEREST EXPENSE TO CAPITAL WORK DOES NOT BAR THE ASSESSEE FORM CLAIMING IT AS EXPENSE UNDER THE INCOME TAX ACT. ON EXAMINING THE ASSESSEES SUBMISSIONS, ITA NO.7183/M/2012 M/S. WINDSOR RESIDENCY PVT. LTD. 3 THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS T HE AO) FOUND THAT THE ASSESSEE HAD CLAIMED DOUBLE DEDUCTION OF INTEREST I .E. THE ASSESSEE HAD INCREASED ITS CLOSING WIP BY RS.34,50,354/- AND ON THE OTHER HAND IT HAD ALSO CLAIMED THE DEDUCTION OF INTEREST WHILE COMPUTING I NCOME FROM HOUSE PROPERTY. SINCE SUBSEQUENT TO THE RETURN OF ASSESSM ENT YEAR 2009-10, THE ASSESSEE FINALIZED ITS ACCOUNT FOR A.YS 2010-11 AND 2011-12 ALSO, MODIFYING THE WIP OF THE ASSESSEE WAS NOT POSSIBLE. HENCE, HE MADE THE DISALLOWANCE OF RS.34,50,354/- VIDE THE RELEVANT ASSESSMENT ORDER. 5. IN APPEAL, THE LD. CIT(A) ALSO CONFIRMED THE SAI D DISALLOWANCE MADE BY THE AO. NOW THE ASSESSEE HAS COME IN APPEAL BEFORE US RAISING THE ABOVE GROUNDS OF APPEAL. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE ALS O GONE THROUGH THE RECORDS. THE LD. A.R. OF THE ASSESSEE HAS SUBMITTE D THAT THE INTEREST EXPENDITURE HAS BEEN CLAIMED IN THE COMPUTATION OF INCOME UNDER SECTION 24(B) OF THE ACT, WHEREAS IN THE BOOKS OF ACCOUNT, THE SAME HAS BEEN ADDED INTO WORK IN PROGRESS. HE, IN THIS RESPECT, HAS SU BMITTED THAT THE ACCOUNTING TREATMENT IN THE BOOKS AND TAX TREATMENTS ARE TWO D IFFERENT ASPECTS. FURTHER, IT HAS BEEN STATED THAT EVEN IF IT IS ASSUMED THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCTION UNDER SECTION 24(B) OF THE ACT, THEN THE COMPENSATION OF RS.96 LAKHS SHOULD ALSO BE REDUCED FROM WORK IN PROGRESS AND TH E SAME SHOULD NOT BE TAXED AS INCOME FOR THE YEAR UNDER CONSIDERATION. IN THE ALTERNATIVE, IT HAS BEEN SUBMITTED THAT THE SAID EXPENDITURE BE ALLOWED AS A DEDUCTION UNDER SECTION 36(1)(III)/37(1) OF THE ACT. IN THIS RESPECT, THE LD. A.R. HAS RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F DCIT VS. CORE HEALTHCARE LTD. (2008) 298 ITR 194 (SC) WHEREIN IT HAS BEEN HELD THAT SECTION 36(1)(III) OF THE ACT MAKES NO DISTINCTION BETWEEN MONEY BORROWED TO OBTAIN A CAPITAL ASSET OR A REVENUE ASSET; ALL THAT IS REQUIRED IS THAT THE ASSESSEE MUST BORROW CAPITAL AND THE PURPOSE OF BORROWING MU ST BE FOR BUSINESS WHICH IS CARRIED ON BY THE ASSESSEE IN THE YEAR OF ACCOUN T. HE HAS FURTHER RELIED UPON ITA NO.7183/M/2012 M/S. WINDSOR RESIDENCY PVT. LTD. 4 THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF CIT VS. LOKHANDWALA CONSTRUCTIONS INDIA LTD. 260 ITR 579 W HERE THE SIMILAR PROPOSITION HAS BEEN LAID DOWN. THE LD. D.R., ON THE OTHER HAND, HAS RELIED UPON TH E FINDINGS OF THE LOWER AUTHORITIES. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. ADMIT TEDLY, THE ASSESSEE WAS IN THE BUSINESS OF DEVELOPMENT AND SALE OF PROPERTI ES. THE ASSESSEE HAD ACQUIRED THE BUILDING IN QUESTION IN THE FINANCIAL YEAR 2007-08. THE ASSESSEE DURING THE YEAR HAD STARTED THE DEVELOPING PROJECT ON THE SAME AND BOOKED THE INTEREST EXPENDITURE INCURRED ON THE CONSTRUCTION/D EVELOPMENT OF THE PROPERTY IN QUESTION AS WORK IN PROGRESS IN ITS BOOKS OF ACC OUNTS. THE COMPENSATION AMOUNT OF RS.96 LAKHS RECEIVED DURING THE YEAR WAS IN RELATION TO THE RENT SETTLED AND QUANTIFIED FOR THE PERIOD OCTOBER 2007 TO SEPTEMBER 2008, WHICH INCLUDED THE RENT FOR THE PREVIOUS ASSESSMENT YEAR ALSO WHICH WAS NOT OFFERED BY THE ASSESSEE IN THE A.Y. 2008-09 ON ACCOUNT OF U NCERTAINTY IN THE QUANTIFICATION OF THE RENT. THE INTEREST EXPENDITU RE INCURRED BY THE ASSESSEE ON THE CONSTRUCTION/REDEVELOPMENT OF THE PROPERTY HAS NO NEXUS WITH THE RENT RECEIVED BY THE ASSESSEE ON THE PROPERTY IN QUESTIO N. UNDER THE CIRCUMSTANCES, WE HOLD THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCT ION OF THE AMOUNT IN QUESTION UNDER SECTION 24(B) OF THE ACT. THE ASSESSEE IS AL SO NOT ENTITLED TO ADD THE COMPENSATION OF RS.96 LAKHS TOWARDS THE WORK IN PRO GRESS AS THE SAID INCOME IS NOT RELATED TO THE BUSINESS ACTIVITY OF THE SAID PROJECT. 8. THE INTEREST EXPENDITURE, AS IS REVEALED FROM TH E FACTS ON THE FILE, WAS INCURRED BY THE ASSESSEE ON THE BORROWED AMOUNT TAK EN FOR THE DEVELOPMENT OF THE PROPERTY WHICH HAS BEEN TREATED AS A TRADING AS SET OF THE ASSESSEE AND NOT A CAPITAL ASSET. THOUGH THE ASSESSEE, IN ITS ACCOUNT S, HAS BOOKED IT AS WORK IN PROGRESS, HOWEVER, IN THE LIGHT OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. LOKHANDWALA CONSTRUCT IONS INDIA LTD. (SUPRA) WHEREIN IT HAS BEEN HELD THAT FOR THE LOAN RECEIVED FOR OBTAINING STOCK IN TRADE, ITA NO.7183/M/2012 M/S. WINDSOR RESIDENCY PVT. LTD. 5 THE INTEREST THEREUPON IS AN ALLOWABLE DEDUCTION UN DER SECTION 36(1)(III) OF THE ACT. HOWEVER, FROM THE FACTS OF THE CASE, IT IS NO T REVEALED AS TO ON WHAT DATE THE ASSESSEE HAS CONVERTED THE SAID PROPERTY/BUILDI NG AS ITS BUSINESS ASSET AND AS TO WHETHER THE ASSESSEE WAS FOLLOWING PERCENTAGE COMPLETION METHOD OR PROJECT COMPLETION METHOD. 9. IN VIEW OF THE ABOVE, THE MATTER IS RESTORED TO THE FILE OF THE AO TO MAKE NECESSARY VERIFICATION AND DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CORE HEAL THCARE LTD. (SUPRA) AND OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CI T VS. LOKHANDWALA CONSTRUCTIONS INDIA LTD. (SUPRA) AND OTHER CASE LA WS AS MAY BE RELIED UPON BY THE ASSESSEE OR AS APPLICABLE TO THE FACTS AND CIRC UMSTANCES OF THE CASE. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TR EATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 18.12.2015. SD/- SD/- (N.K. BILLAIYA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 18.12.2015. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.