AMBER ERECTORS P. LTD, MUMBAI V. ITO WD 9(1)(1), MUMBAI

ITA 7476/MUM/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71339 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 22-08-2013
• Assessment Year: 2001-2002
• Appeal Filed On: 02-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MADHUK
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUM BAI , BEFORE SHRI D. MANMOHAN, VP AND SHRI SANJAY ARORA, AM I.T.A. NO. 7476/MUM/2010 ( / ASSESSMENT YEAR: 2001-02) AMBER ERECTORS PVT. LTD. M/S. P. R. GANDHI & CO. CHARTERED ACCOUNTANTS 318 VAISHALI APARTMENTS, 3 RD FLOOR, 12/14, PAREKH STREET, BEHIND GIRGAON COURT, PRARTHANA SAMAJ, MUMBAI-400 004 VS. THE COMMISSIONER OF INCOME-TAX (APPEALS)-19, MUMBAI ! ' ./PAN/GIR NO. AAABS 3051 E ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) !#& / APPELLANT BY : MISS AASIFA KHAN $%!#'& / RESPONDENT BY : SHRI S. K. MADHUK ( )*'+, / DATE OF HEARING : 22.08.2013 -./'+, / DATE OF PRONOUNCEMENT : 25.09.2013 0 O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE ARISING OUT OF TH E ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-19, MUMBAI (CIT(A) FOR SHORT ) DATED 11.08.2010, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSES SMENT U/S.143(3) R.W.S. 254 OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR TH E ASSESSMENT YEAR (A.Y.) 2001-02 VIDE ORDER DATED 27.12.2007. 2 ITA NO. 7476/MUM/2010 (A.Y. 2001-02) AMBER ERECTORS PVT. LTD. VS. CIT 2. OPENING THE ARGUMENTS FOR AND ON BEHALF OF THE A SSESSEE, IT WAS SUBMITTED BY THE LD. AUTHORIZED REPRESENTATIVE (AR), ITS COUNSEL, T HAT THIS IS THE SECOND ROUND BEFORE THE TRIBUNAL. THE ASSESSEE IS IN THE BUSINESS OF CONSTR UCTING AND SELLING INDUSTRIAL GALAS, FOLLOWING PROJECT COMPLETION METHOD OF ACCOUNTING F OR DETERMINING AND REPORTING INCOME. THE PROJECT UNDER REFERENCE, CONSISTING OF 11 GALAS, STOOD COMPLETED PRIOR TO THE CURRENT YEAR, WITH 8 OF THEM HAVING BEEN SOLD BY TH E ASSESSEE DURING THE EARLIER YEAR/S. THE REMAINING THREE (3), BEING UNSOLD FOR THE TIME BEING, WERE LET OUT. IT IS THE ASSESSMENT OF THE RENT RECEIVED THUS, AT RS.8,16,900/- FOR THE CURRENT YEAR, WHICH IS THE SUBJECT MATTER OF DISPUTE. WHILE THE ASSESSEE RETURNED IT AS BUSIN ESS INCOME, IN THE REVENUES VIEW THE SAME WAS LIABLE TO BE ASSESSED U/S.22 AS INCOME FR OM HOUSE PROPERTY. THE TRIBUNAL IN THE EARLIER ROUND HELD IN FAVOR OF THE ASSESSEE, HO LDING THAT THE GALAS WERE ONLY THE ASSESSEES STOCK-IN-TRADE, SO THAT THE INCOME DERIV ED BY WAY OF RENT, WHICH WAS ONLY A TEMPORARY ARRANGEMENT, I.E., ONLY TILL THE ASSESSEE COULD SELL THE GALAS, WOULD CONSTITUTE ITS BUSINESS INCOME. THE REVENUE, IN THE SECOND ROUND, THOUGH, THEREFORE , ALLOWED THE ASSESSEE ITS CLAIM TOWARD THE SAME, DENIES ITS CLAIM FOR INTERES T ON THE CAPITAL BORROWED FOR THE CONSTRUCTION OF THE GALAS. SHE WOULD THEN TAKE US T O A STATEMENT OF THE LOAN RECEIVED. THE ASSESSEE HAD ASSUMED LOANS FROM TIME TO TIME, BEGIN NING WITH THE YEAR 1995-96 AT RS.30 LACS, RISING TO A PEAK AT RS.60 + LACS DURING FINAN CIAL YEAR (F.Y.) 1997-98, WHILE STEADILY DECLINING THEREAFTER. THE ASSESSEE HAS BEEN REPAYIN G THE LOANS OUT OF THE SALE PROCEEDS OF THE GALAS; THE AMOUNT OUTSTANDING AS ON 31.03.2001 BEING AT RS.29.72 LACS (PB PG.19). WHILE THE ASSESSING OFFICER (A.O.) HAS COMPLETELY D ENIED THE ASSESSEES CLAIM FOR INTEREST, INCURRED AND CLAIMED IN THE SUM OF RS.4,0 5,383/- FOR THE CURRENT YEAR, THE LD. CIT(A) HAS DIRECTED ITS ALLOWANCE IN THE PROPORTION ATE SUM, I.E., AT 3/11, BEING THE RATIO OF THE UNSOLD GALAS TO THE TOTAL GALAS CONSTRUCTED BY THE ASSESSEE. THE SAME IS CLEARLY NOT WARRANTED INASMUCH AS THE ENTIRE LOAN HAD BEEN TAKE N ONLY FOR THE PURPOSE OF THE CONSTRUCTION OF THE GALAS. THE LD. DR, ON THE OTHER HAND, WOULD RELY ON THE O RDERS BY THE AUTHORITIES BELOW. 3 ITA NO. 7476/MUM/2010 (A.Y. 2001-02) AMBER ERECTORS PVT. LTD. VS. CIT 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE LAW IN THE MATTER, EVEN AS OBSERVED BY THE BENC H DURING HEARING, IS CLEAR, AND ALL THAT THE ASSESSEE IS REQUIRED TO SHOW, FOR A VA LID CLAIM OF INTEREST U/S. 36(1)(III), IS THAT THE RELEVANT BORROWINGS, I.E., ON WHICH INTEREST ST ANDS SUFFERED AND CLAIMED, HAVE BEEN MADE FOR THE PURPOSES OF, AND RETAINED IN, THE ASSE SSEES BUSINESS. THERE IS, THEREFORE, NO QUESTION OF APPORTIONING THE INTEREST FOR THE YEAR ON THE BASIS AS DIRECTED BY THE LD. CIT(A). ON PRINCIPLE, THEREFORE, THE ALLOWANCE OF I NTEREST U/S. 36(1)(III) BEING LINKED OR CORRELATED WITH THE SALE OR, AS THE CASE MAY BE, RE TENTION OF GALAS, FOR WHICH THE MONIES HAD BEEN BORROWED AND UTILIZED IN THE FIRST INSTANC E, CANNOT BE APPROVED OF. THE BASIS OF THE DISALLOWANCE AS EFFECTED, OR ITS PART SUSTENANC E, IS THUS NOT TENABLE IN LAW. THE FUNDS IN A BUSINESS ARE ALMOST ALWAYS IN A STAT E OF FLUX, AND FOR EACH YEAR IT WOULD THEREFORE BE NEEDED TO BE SEEN IF THE CAPITAL ON WHICH INTEREST IS BEING CLAIMED HAS BEEN APPLIED BY THE ASSESSE FOR ITS BUSINESS PURPOS ES OR NOT. IN FACT, IN THE INSTANT CASE, THE ASSESSEE HAS SOLD ABOUT 3/4 TH OF THE GALAS PRIOR TO THE CURRENT YEAR ITSELF, AND MAY HAVE PERHAPS REALIZED AN AMOUNT IN EXCESS OF THAT BORROW ED, EVEN AS ABOUT 50% OF IT REMAINS UNPAID AS AT THE YEAR-END. NOW, THE ALLOWANCE OF A CLAIM FOR INTEREST U/S. 36(1)(III) COULD ONLY BE ON THE BASIS OF A POSITIVE FINDING OF THE E XTANT BORROWINGS HAVING BEEN OR CONTINUING TO BE APPLIED FOR BUSINESS PURPOSES DURI NG THE RELEVANT YEAR, THE ONUS FOR WHICH IS CLEARLY ON THE ASSESSEE. THE MATTER, IT NE EDS TO BE APPRECIATED, IS PURELY FACTUAL, THOUGH HAS NOT BEEN EXAMINED BY THE REVENUE IN THE RIGHT PERSPECTIVE. THE BALANCE SHEETS FOR THE YEARS ENDING 31/3/1994 T O 31/3/2001 ARE ON RECORD (PB PG. 6). THE SAME CLEARLY SHOW THE AVENUE OF THE APP LICATION OF FUNDS, INCLUDING UNSECURED LOANS (OUTSTANDING AT RS. 29.72 LACS AS AT 31/3/200 1), OVER THE YEARS, I.E., IN DIFFERENT ASSETS OF THE BUSINESS. IN VIEW THEREOF, WE HAVE NO HESITATION IN STATING OF THERE BEING MATERIAL ON RECORD JUSTIFYING THE ASSESSEES IMPUGN ED CLAIM. WE, ACCORDINGLY, DIRECT FOR ITS ALLOWANCE. 4 ITA NO. 7476/MUM/2010 (A.Y. 2001-02) AMBER ERECTORS PVT. LTD. VS. CIT 4. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. 1/+23451+' ) 6 +'+7 ORDER PRONOUNCED IN THE OPEN COURT ON SEPTEMBER 25, 2013 SD/- SD/- (D. MANMOHAN) (SANJAY ARORA) / VICE PRESIDENT / ACCOUNTANT MEMBER ( 8* MUMBAI; 9 DATED : 25.09.2013 )3 ROSHANI , SR. PS ! ' #$%& ' &$ COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. ( :+ ; < / THE CIT(A) 4. ( :+ / CIT CONCERNED 5. =)>?$3+3@4 ,@4/ ( 8* / DR, ITAT, MUMBAI 6. ?5A* GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , ( 8* / ITAT, MUMBAI