SHUBH ENTERPRISES, MUMBAI V. ACIT CIR 15(2), MUMBAI

ITA 801/MUM/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0781 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 30-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 06-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VISHWAS MUNDHE
• Assessee Lawyers: N M PORWAL
• Keywords: Business income
• Section: 143(3); 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI JOGINDER SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 801/MUM/2012 ASSESSMENT YEAR: 2008-09 & ITA NO. 252/MUM/2013 ASSESSMENT YEAR: 2009-10 M/S. SHUBH ENTERPRISES VS. ACIT CIR 15(2) 102 WING, J NISARG BLDG. OPP. MUMBAI UTI BANK, MAHAVIR NAGAR, KANDIVALI(W) MUMBAI - 400067 PAN NO. AAYFS3688J (APPELLANT) (RESPONDENT) ASSESSEE BY : MR. N.M. PORWAL, AR REVENUE BY: MR. VISHWAS MUNDHE, DR DATE OF HEARING : 21/02 /2017 DATE OF PRONOUNCEMENT: 19/05/2017 ORDER PER N.K. PRADHAN, AM THE CAPTIONED APPEALS ARE DIRECTED AGAINST THE ORDE R OF THE COMMISSIONER (APPEALS) 26, MUMBAI AND ARISE OUT O F ORDER U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). AS SOME COMMO N ISSUES ARE INVOLVED, WE ARE PROCEEDING TO DISPOSE THEM OFF BY THIS CONSO LIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. THE GROUNDS RAISED BY THE ASSESSEE IN THESE APPE ALS ARE THAT (I) THE LEARNED CIT(A) ERRED IN CONFIRMING THE INTEREST REC EIVED BY THE APPELLANT OF RS. 56,23,221/- (A.Y. 2008-09) AND RS. 64,05,656/- (A.Y. 2009-10) AS ITA NO. 801 OF 2012 & 252 OF 2013 2 ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCE S AND NOT UNDER THE HEAD INCOME FROM BUSINESS AS CLAIMED BY THE ASSES SEE AND (II) THE LEARNED CIT(A) ERRED IN REJECTING (A) THE CLAIM OF THE ASSE SSEE THAT INTEREST RECEIVED OF RS. 56,23,221/- SHOULD BE ALLOWED TO BE SET OFF AGAINST THE INTEREST PAID OF RS. 86,04,016/- AND BALANCE AMOUNT SHOULD BE INC LUDED IN WORK-IN- PROGRESS FOR A.Y. 2008-09 AND (B) THE CLAIM OF THE ASSESSEE THAT INTEREST RECEIVED OF RS. 64,05,656/- SHOULD BE ALLOWED TO BE SET OFF AGAINST INTEREST PAID OF RS. 1,03,10,013/- AND THE BALANCE AMOUNT OF RS. 36,04,357/- ONLY SHOULD BE CONSIDERED WORK-IN-PROGRESS FOR A.Y. 2009 -10. THE OTHER GROUND FOR THE A.Y. 2009-10 IS THAT THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 3,68,325/- BEING CALCULATED @ 10% ON INCREASED WORK-IN-PROGRESS BY 57.50% OF INTEREST PAID AMOUNTING TO RS. 64,05,656/-. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E NATURE OF BUSINESS OF THE ASSESSEE-FIRM IS THAT OF A BUILDER AND DEVELOPE R. THE ASSESSING OFFICER (A.O.) FOUND DURING THE COURSE OF ASSESSMENT PROCEE DINGS THAT THE ASSESSEE HAS NETTED OFF (I) INTEREST INCOME OF RS. 56,23,221 /- AGAINST INTEREST EXPENDITURE OF RS. 86,04,016/- FOR A.Y. 2008-09 AND (II) INTEREST INCOME OF RS. 64,05,656/- AGAINST INTEREST EXPENDITURE OF RS. 1,03,10,013/- FOR A.Y. 2009-10. THE ASSESSEE SUBMITS BEFORE THE A.O. THAT WHILE VALUING WORK-IN- PROGRESS, IT HAS ALLOCATED ALL THE DIRECT EXPENSES RELATED TO EACH PROJECT AND THE EXPENSES LIKE INTEREST ETC WHICH CANNOT BE DIRE CTLY ATTRIBUTABLE TO ANY PROJECT ARE APPORTIONED TO VARIOUS PROJECTS ON A SU ITABLE BASIS I.E. ON THE BASIS OF VALUE OF WORK-IN-PROGRESS INCURRED FOR EAC H PROJECT. THE ASSESSEE FURTHER EXPLAINS TO THE A.O. THAT IT HAS EARNED THE INTEREST INCOME FOR GIVING LOAN OR ADVANCE DURING THE NORMAL COURSE OF BUSINES S TO ASSOCIATES OR OTHER CONCERNS. THE ASSESSEE ALSO SUBMITS BEFORE THE A.O. THAT IT HAS NETTED OFF ITA NO. 801 OF 2012 & 252 OF 2013 3 THE INTEREST EARNED FROM THE VALUE OF INTEREST PAID AND THE NET AMOUNT HAS BEEN CHARGED TO WORK-IN-PROGRESS. THE A.O. WAS NOT CONVINCED WITH THE ABOVE EXPLANAT ION OF THE ASSESSEE FOR THE REASONS THAT (I) THE MAIN ACTIVITY OF THE ASSESSEE IS DEVELOPMENT OF RESIDENTIAL BUILDING AND THE INTERES T RECEIVED IS NOT RELATED TO THE BUSINESS ACTIVITY AND THEREFORE, THE ENTIRE INTEREST PAID SHOULD BE DEBITED TO THE PROFIT & LOSS ACCOUNT, (II) THE ASSE SSEE HAS NOT ESTABLISHED THE BUSINESS CONNECTION I.E. THE CONSTRUCTION ACTIVITY WITH RELATED CONCERNS, (III) THE BUSINESS OF THE ASSESSEE FIRM IS NOT MONEY LEND ING, (IV) SINCE THE ASSESSEE IS FOLLOWING PERCENTAGE COMPETITION METHOD , THE ENTIRE EXPENDITURE ON ACCOUNT OF THE INTEREST PAYMENT SHOU LD BECOME THE PART OF WORK-IN-PROGRESS. THE DETAILS OF LOAN AS TABULATED BY THE A.O. ARE A S UNDER: NAME OF THE ASSOCIATE CONCERN LOAN AS ON 31.03.2006 LOAN AS ON 31.03.2007 LOAN AS ON 31.03.2008 LOAN AS ON 31.03.2009 REMARKS ARPIT SAMANI 43,545 15,13,545 34,35,569 31,47,319 I NCREASED SHUB HOTEL P LTD. NIL 15,36,003 1,43,83,433 2,08,07,427 INCREASED SHIR SHUB BUILDERS P LTD. NIL 1,72,71,840 2,73,09,016 3,60,26,172 INCREASED NISHA ENTERPRISE 2,00,000 2,00,000 2,00,000 2,00,000 NO CHANGE PARIKH GRANITO 2,00,000 2,00,000 2,00,000 2,00,000 NO CHANGE SHRI SHANKAR SANITATION 1,50,000 1,50,000 1,50,000 NO CHANGE VIJAY PARIKH & ASSOCIATES 24,00,000/- 24,00,000 24,00,000 14,00,000 NO CHANGE FOR 3 YEARS THE ASSESSEE SUBMITTED VIDE LETTER DATED 10.12.2010 TO THE A.O. THE APPLICABILITY OF A.S. 16 BORROWING COSTS WHICH IS EXTRACTED BELOW: TO THE EXTENT THAT THE FUNDS ARE BORROWED SPECIFIC ALLY FOR THE PURPOSE OF OBTAINING A QUALIFYING ASSET, THE AMOUNT OF BORROWI NG COSTS ELIGIBLE FOR ITA NO. 801 OF 2012 & 252 OF 2013 4 CAPITALIZATION ON THAT ASSET SHOULD BE DETERMINED A S THE ACTUAL BORROWING COSTS INCURRED ON THAT BORROWING DURING THE PERIOD LESS ANY INCOME ON THE TEMPORARY INVESTMENT OF THOSE BORROWINGS. THE A.O. OBSERVED THAT THE LOANS ADVANCED FOR MORE THAN THREE/FOUR YEARS TO M/S. VIJAY PARIKH & ASSOCIATES; ARPIT SAMA NI; PARIKH GRANITO, M/S. NISHA ENTERPRISE CANNOT BE TREATED AS TEMPORARY INV ESTMENT OF BORROWED FUNDS. EVEN THE LOAN PROVIDED TO M/S. SHRI SHANKAR SANITATION, SHUB HOTEL P LTD. AND SHRI SHUB BUIDERS P. LTD. HAVE CROSSED THE LIMIT OF MORE THAN TWO YEARS. IN VIEW OF THE ABOVE , THE A.O. BROUGHT TO T AX RS. 56,23,221/- IN A.Y. 2008-09 AND RS. 64,05,656/- IN A.Y. 2009-10 AS INCO ME FROM OTHER SOURCES. 4. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSEE FILED AN APPEAL BEFORE THE LEARNED CIT(A). FOR THE A.Y. 2009-10, THE LEARN ED CIT(A) HELD AS UNDER: AFTER CONSIDERING THE RIVAL SUBMISSIONS, IT IS SEE N THAT THE APPELLANT HAS SUBSTANTIAL SURPLUS FUNDS WHICH HAVE PRIMARILY COME OUT OF THE ADVANCE BOOKING OF THE FLATS, BUT SUCH SURPLUS FUNDS WERE N OT USED FOR THE BUSINESS ACTIVITIES, RATHER IN A SYSTEMATIC MANNER, SUCH FUN DS HAVE BEEN ADVANCED MAINLY TO THE TWO SISTER CONCERNS I.E. M/S. SHUB HO TELS PVT. LTD. AND SHREE SHUBH BUILDERS PVT. LTD. IN BOTH THESE CASES, IT IS NOTED THAT EVEN DURING THE YEAR UNDER CONSIDERATION, THERE WAS HUGE OPENING BA LANCE OF LOANS OF RS. 1.43 CRORE AND RS. 1.72 CRORE RESPECTIVELY (TOTALLING TO RS. 3.15 CRORES). DURING THE YEAR UNDER CONSIDERATION, LOANS TO THESE TWO CONCER NS HAVE BEEN INCREASED TO RS. 2.08 CRORE AND RS. 2.73 CRORE (TOTALLING TO RS. 4.81 CRORE). SIMILAR IS THE POSITION IN EARLIER YEARS, MEANING THEREBY, THE APP ELLANT HAS GIVEN LONG TERM ADVANCE TO THESE CONCERNS WHICH ARE PARALLEL TO THE LONG TERM FIXED DEPOSITS. SUCH LONG TERM LOANS CANNOT BE HELD AS SHORT TERM A DVANCES OF SURPLUS FUNDS. UNDER THESE CIRCUMSTANCES, INTEREST INCOME GENERATE D FROM SUCH LONG TERM DEPOSITS WITH THE SISTER CONCERNS OR BANKS IS TAXAB LE UNDER THE SPECIFIC HEAD INCOME FROM OTHER SOURCES BECAUSE SUCH LOANS HAVE NOT BEEN ADVANCED AS ROUTINE SHORT TERM BUSINESS LOANS AND THE INCOME OF INTEREST EARNED ON SUCH LOANS CANNOT BE HELD AS BUSINESS INCOME, BECAUSE NE ITHER THE BUSINESS OF THE ASSESSEE IS OF FINANCING NOR THE INTEREST INCOME HA S BEEN EARNED IN ROUTINE BUSINESS ACTIVITY. UNDER THESE CIRCUMSTANCES, I DO AGREE WITH THE A.O. THAT WHEN IN ITS MAIN CONSTRUCTION ACTIVITY, THE APPELLA NT IS FOLLOWING THE PERCENTAGE COMPLETION METHOD, THE INTEREST EXPENDIT URE SHOULD BECOME PART ITA NO. 801 OF 2012 & 252 OF 2013 5 OF THE WIP ALONGWITH THE OTHER EXPENDITURE AND IT S HOULD NOT BE NETTED OFF WITH THE INTEREST INCOME ON LONG TERM ADVANCES MADE OUT OF SURPLUS MONEY, WHICH ARE TAXABLE UNDER SEPARATE HEAD I.E. INCOME F ROM OTHER SOURCES. THEREFORE, CONSIDERING THE TOTALITY OF FACTS AND CI RCUMSTANCES OF THE CASE, IT IS NOTED THAT THE FACTS OF THE INSTANT CASE ARE DISTIN GUISHABLE FROM THE CASE OF CIT VS. M/S. LOK HOLDINGS 308 ITR 356 RELIED UPON B Y THE APPELLANT. IN THAT CASE ADVANCES RECEIVED FROM CUSTOMERS WERE TEMPORAR ILY INVESTED IN THE ADVANCES TO SOME CUSTOMERS AND BANKS, WHEREAS IN TH E INSTANT CASE, THE ADVANCES GIVEN TO SISTER CONCERNS ARE LONG TERM ADV ANCES AND NOT TEMPORARY ADVANCES. THEREFORE, ASSESSMENT OF INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES IS CONFIRMED. 4.1 ON THE SAME REASONS THE LEARNED CIT(A) CONFIRME D THE ADDITION MADE BY THE A.O. OF RS. 56,23,221/- (A.Y. 2008-09) AND R S. 64,05,656/- (A.Y. 2009-10) UNDER THE HEAD INCOME FROM OTHER SOURCES 5. BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE R ELIES ON THE DECISION IN THE CASE OF CIT VS. LOK HOLDINGS (2009) 308 ITR 356 (BOM.), SHREE KRISHNA POLYSTER LTD. VS. DCIT (2005) 274 ITR 21(BOM.), CIT VS. PARAMOUNT PREMISES (P) LTD. (1991) 190 ITR 259 (BOM.) AND CHHAGANLAL KHIMJI & CO. PVT. LTD. VS. ACIT (2015) 45 CCH 0082 MUM TRIB. 6. PER CONTRA , THE LEARNED DR RELIES ON THE ORDER OF THE HON'BLE SUPREME COURT IN THE CASE OF M/S. THE TOTGARS CO-OP SALE VS. ITO (CIVIL APPEAL NO. 1622 OF 2010) DATED 08.02.2010. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE BEGIN WITH THE DECISION RELI ED ON BY THE LEARNED COUNSEL OF THE ASSESSEE. IN THE CASE OF LOK HOLDINGS (SUPRA), THE ASSESSEE- FIRM WAS INVOLVED IN THE BUSINESS OF DEVELOPMENT OF PROPERTIES. IN THE COURSE OF ITS BUSINESS, THE ASSESSEE-FIRM RECEIVED MONIES IN ADVANCE FROM CUSTOMERS INTENDING TO PURCHASE FLATS IN THE PROPER TIES AS DEVELOPED BY THE ASSESSEE. THESE MONIES WERE OF THE NATURE OF BOOKIN G / ADVANCES. SINCE THESE MONIES RECEIVED COULD NOT BE IMMEDIATELY UTIL ISED FOR THE BUSINESS OF ITA NO. 801 OF 2012 & 252 OF 2013 6 THE FIRM, THE SURPLUS AMOUNTS FROM SUCH MONEY RECEI VED CAME TO BE TEMPORARILY INVESTED WITH BANKS AND OTHER CONCERNS. SUCH DEPOSITS WITH ACCRUED INTEREST THEREON WHICH WAS RECEIVED BY THE ASSESSEE-FIRM WAS DEDUCTED FROM THE WORK-IN-PROGRESS TILL THE CONCLUS ION OF THE PROJECT. FOR THE A.Y. 1992-93, THE INCOME FROM SUCH INTEREST WAS RS. 52,28,289/-. THE A.O. ASSESSED THIS INTEREST INCOME FROM OTHER SOURC ES AND THUS MADE AN ADDITION UNDER THE HEAD INCOME FROM OTHER SOURCES . THE HON'BLE BOMBAY HIGH COURT HAS HELD THAT THE INTEREST EARNED ON DEP OSITS OF SURPLUS MONEY IS BUSINESS INCOME AND CANNOT BE ASSESSED AS INCOME FROM OTHER SOURCES. IN SHREE KRISHANA POLYSTER LTD . (SUPRA), THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURE OF SYNTHETIC YARN AND M ONEY LENDING WAS NEVER THE BUSINESS ACTIVITY OF THE ASSESSEE. THE AS SESSEE RECEIVED SURPLUS MONEY IN PUBLIC ISSUE AND THE SAID MONEY WAS INVEST ED IN BANK DEPOSITS FOR A PERIOD OF 45 DAYS. THE HON'BLE HIGH COURT HAS OBS ERVED THAT THE FACTS WHICH HAVE BEEN FOUND BY THE TRIBUNAL LEAD TO THE C ONCLUSION THAT THE INTEREST WHICH THE ASSESSEE EARNED FROM SHORT TERM INVESTMENT OF SURPLUS MONEY RECEIVED IN PUBLIC ISSUE DID NOT SPRING OR EM ANATE FROM THE BUSINESS ACTIVITY OF THE ASSESSEE. THE HON'BLE HIGH COURT HA S HELD THAT THE INCOME OF INTEREST EARNED BY THE ASSESSEE BY INVESTING SURPLU S MONEY RECEIVED IN PUBLIC ISSUE IN BANK DEPOSITS FOR A PERIOD OF 40 DA YS WAS ASSESSABLE AS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. IN PARAMOUNT PREMISES (P) LTD . (SUPRA), FOR THE A.Y. 1978-79, THE ASSESSEE WAS ENGAGED IN THE CONSTRUCTION OF THREE B UILDINGS. THE ASSESSEE RECEIVED DEPOSITS IN INSTALMENTS FROM PROSPECTIVE P URCHASERS WHILE THE WORK OF CONSTRUCTION WAS IN PROGRESS. OF THE PURCHA SERS FAILED TO MAKE DEPOSITS BY STIPULATED DATES, THEY HAD TO PAY INTER EST. SECONDLY, THE AUTHORISED CAPITAL OF THE ASSESSEE WAS SMALL BUT TH E AMOUNTS RECEIVED AS ITA NO. 801 OF 2012 & 252 OF 2013 7 DEPOSITS WERE LARGE. IDLE AMOUNTS WERE DEPOSITED WI TH THE BANK OR GIVEN ON TEMPORARY LOANS UNTIL SUCH TIME AS THEY WERE REQ UIRED FOR CONSTRUCTION. THUS, INTEREST WAS EARNED ON THESE AMOUNTS. THE ASS ESSEE WAS ALSO REQUIRED TO GIVE A GUARANTEE TO THE STATE BANK OF I NDIA IN RESPECT OF THE LAND TAKEN ON LEASE FOR CONSTRUCTION WORK. FOR THIS PURP OSE, CERTAIN AMOUNTS WERE KEPT IN FIXED DEPOSITS ON WHICH THE ASSESSEE E ARNED INTEREST. IN THESE CIRCUMSTANCES, THE TRIBUNAL HAS GIVEN A FINDING OF FACT TO THE EFFECT THAT THE ENTIRE INTEREST SPRANG FROM THE BUSINESS ACTIVITY O F THE ASSESSEE AND DID NOT ARISE OUT OF ANY INDEPENDENT ACTIVITY. ACCORDINGLY, INTEREST INCOME WAS CONSIDERED AS THE BUSINESS INCOME OF THE ASSESSEE. IN CHHAGANLAL KHIMJI & CO. PVT. LTD. (SUPRA), APPELLANT WAS IN TO BUSINESS OF REAL ESTATE AND IT REQUIRED FUND FOR MA KING INVESTMENT AND TO CARRY ON THE CONSTRUCTION ACTIVITY. FUNDS BORROWED FROM MNRPL WAS IN TURN INVESTED IN PPL WHICH WAS ENGAGED IN CONSTRUCT ION OF A COMMERCIAL COMPLEX BY NAME MARATHONE FUTURE X. APPELLANT BEING ONE OF THE JV PARTNER THE BORROWAL WAS UTILIZED ONLY IN THE CONST RUCTION ACTIVITY AND THERE WAS NO ROOM FOR ANY DOUBT. ALTERNATIVELY IT C OULD BE TREATED AS PART OF ACTIVITY IN CONSTRUCTION BUSINESS. THE A.O., DID NO T CONTROVERT THIS CLAIM OF THE APPELLANT. THE APPELLANT DID NOT RECEIVE ANY IN TEREST FROM PPL FOR THE INVESTMENT MADE. MERE NON-RECEIPT OF INTEREST INCOM E DURING THE YEAR CANNOT LEAD TO THE CONCLUSION THAT THE APPELLANT IS NOT INTO FINANCE ACTIVITY. THE CIT(A) HELD THAT THE ASSESSEE COMPANY WAS ENGAG ED IN THE BUSINESS OF CONSTRUCTION AS WELL AS LENDING OF MONEY, BOTH CONS TITUTED ITS MAIN BUSINESS ACTIVITY. BOTH THESE OBJECTS WERE CLEAR FR OM THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF ASSESSEE-COMPANY. A S PER CLAUSE 55 OF MEMORANDUM AND ARTICLES OF ASSOCIATION, ASSESSEE WAS AUTHORIZED TO CARRY BUSINESS OF MONEY LENDING. ITA NO. 801 OF 2012 & 252 OF 2013 8 BOTH CONSTRUCTION AS WELL AS LENDING CONSTITUTED TH E BUSINESS ACTIVITY HENCE, THE CLAIM OF THE APPELLANT THAT THE INTEREST INCOME EARNED WAS FROM BUSINESS WAS IN ORDER. THE ITAT HELD THE INTEREST EARNED AS BUSINESS INCOME. 7.1 NOW WE COME TO THE DECISION RELIED ON BY THE LE ARNED DR. IN M/S. THE TOTGARS CO-OP SALE (SUPRA), THE ASSESSEE-SOCIETY WAS ASSESSED TO TAX AS A CO-OPERATIVE SOCIETY. ITS BUSINESS WAS TO PROVIDE C REDIT FACILITIES TO ITS MEMBERS AND TO MARKET THE AGRICULTURAL PRODUCE TO I TS MEMBERS. THE HON'BLE SUPREME COURT HELD AS UNDER: INTEREST ON SUCH INVESTMENTS, THEREFORE, CANNOT FA LL WITHIN THE MEANING OF THE EXPRESSION PROFITS AND GAINS OF BUSINESS. SUC H INTEREST INCOME CANNOT BE SAID ALSO TO BE ATTRIBUTABLE TO THE ACTIVITIES O F THE SOCIETY, NAMELY, CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITIES TO I TS MEMBERS OR MARKETING OF THE AGRICULTURAL PRODUCE OF ITS MEMBERS. WHEN THE A SSESSEE-SOCIETY PROVIDES CREDITS FACILITIES TO ITS MEMBERS, IT EARNS INTERES T INCOME. AS STATED ABOVE, IN THIS CASE, INTEREST HELD AS INELIGIBLE FOR DEDUCTIO N UNDER SECTION 80P(2)(A)(I) IS NOT IN RESPECT OF INTEREST RECEIVED FROM MEMBERS . IN THIS CASE, WE ARE ONLY CONCERNED WITH INTEREST WHICH ACCRUES ON FUNDS NOT REQUIRED IMMEDIATELY BY THE ASSESSEE(S) FOR ITS BUSINESS PURPOSES AND WHICH HAVE BEEN ONLY INVESTED IN SPECIFIED SECURITIES AS INVESTMENT. FURTHER, A S STATED ABOVE, ASSESSEE(S) MARKETS THE AGRICULTURAL PRODUCE OF ITS MEMBERS. IT RETAINS THE SALE PROCEEDS IN MANY CASES. IT IS THIS RETAINED AMOUNT WHICH W AS PAYABLE TO ITS MEMBERS, FROM WHOM PRODUCE WAS BOUGHT, WHICH WAS INVESTED IN SHORT-TERM DEPOSITS/SECURITIES. SUCH AN AMOUNT, WHICH WAS RETA INED BY THE ASSESSEE- SOCIETY, WAS A LIABILITY AND IT WAS SHOWN IN THE BA LANCE-SHEET ON THE LIABILITY SIDE. THEREFORE, TO THAT EXTENT, SUCH INTEREST INCO ME CANNOT BE SAID TO BE ATTRIBUTABLE EITHER TO THE ACTIVITY MENTIONED IN SE CTION 80P(2)(A)(I) OF THE ACT OR IN SECTION 80P(2)(A)(III) OF THE ACT. THEREFORE, LOOKING TO THE FACTS AND CIRCUMSTANCES OF THIS CASE, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER WAS RIGHT IN TAXING THE INTEREST INCOME, INDICATED ABOV E, UNDER SECTION 56 OF THE ACT. 7.2 NOW WE GO BACK TO THE FACTS OF THE PRESENT CASE . IN THE SUBMISSION BEFORE THE A.O. VIDE LETTER DATED 10.12.2010 , THE LEARNED AR OF THE ASSESSEE HAS EXPLAINED THAT (I) THE ASSESSEE IS ENGAGED IN T HE BUSINESS OF ITA NO. 801 OF 2012 & 252 OF 2013 9 CONSTRUCTION AND DEVELOPMENT OF HOUSING PROJECT, (I I) THE ASSESSEE HAS FOLLOWED THE PERCENTAGE COMPLETION METHOD OF ACCOUN TING, (III) THE ASSESSEE HAS EARNED INTEREST INCOME OF RS. 56,23,22 1/- FOR GIVING LOAN OR ADVANCE DURING THE NORMAL COURSE OF BUSINESS TO ASS OCIATES OR OTHER CONCERNS; THE ASSESSEE HAS NETTED OFF THE INTEREST EARNED RS. 56,23,221/- FROM THE VALUE OF INTEREST PAID RS. 86,04,016/- AND THE NET AMOUNT OF RS. 29,80,795/- HAS BEEN CHARGED TO THE WORK-IN-PROGRES S FOR THE A.Y. 2008-09 AND THIS METHOD OF VALUATION HAS BEEN FOLLOWED IN A .Y. 2009-10 ALSO. 7.3 THE LEARNED AR OF THE ASSESSEE HAS SUBMITTED BE FORE THE LEARNED CIT(A) THAT THE ASSESSEE IS A PARTNERSHIP FIRM AND THE BUSINESS CLAUSE AS PER THE PARTNERSHIP DEED OF THE FIRM IS AS UNDER: THAT THE PARTNERSHIP SHALL CARRY ON THE BUSINESS O F BUILDERS AND CONTRACTORS, CONSTRUCTION CONTRACTORS, DEVELOPERS OF LAND AND ES TATES AND CONSTRUCTION OF RESIDENTIAL FLAT, COLONIES, OFFICE BUILDING, COMMER CIAL AND MULTI-STORIED COMPLEXES, PREFABRICATED AND PRE-CAST HOUSES, AND T O ACQUIRE BY PURCHASES, LEASE, EXCHANGE OR OTHERWISE LAND, BUILDING AND HER EDITMENTS OF ANY TENURE OR DESCRIPTION AND ANY ESTATE OR INTEREST THEREIN AND ANY RIGHTS OVER OR CONNECTED WITH LAND, AND IN TURN THE SAME TO ACCOUNT AS MAY S EEM EXPEDIENT AND IN PARTICULAR BY PREPARING BUILDING SITES AND BY CONST RUCTING, RECONSTRUCTING, ALTERING, IMPROVING, REPAIRING, DECORATING, FURNISH ING AND MAINTAINING OFFICES, FLATS, HOUSES, FACTORIES, WAREHOUSES, SHOPS, WHARVE S, BUILDINGS, WORKS AND CONVENIENCE OF ALL KINDS AND BY CONSOLIDATING OR CO NNECTING OR SUBDIVIDING PROPERTIES AND BY LEASING AND DISPOSING OF THE SAME IN ANY MANNER AND / OR ANY OTHER BUSINESS UNDER THE NAME & STYLE OF M/S. S HUBH ENTERPRISES OR SUCH OTHER NAME OR NAMES AS MY BE MUTUALLY DECIDED BY AND BETWEEN THE PARTNERS FROM TIME TO TIME. 7.4 WE OBSERVE THAT THE ASSESSEE HAS NOT DISPUTED BEFORE THE LEARNED CIT(A) (I) THE DETAILS OF LOAN MENTIONED AT PAGE 4 OF THE ASSESSMENT ORDER FOR THE A.Y. 2008-09 AND AT PAGE 6-7 OF THE ASSESSM ENT ORDER FOR THE A.Y. 2009-10 AND (II) THE DETAILS OF LOAN GIVEN BY THE A SSESSEE WHERE THERE WAS ITA NO. 801 OF 2012 & 252 OF 2013 10 NO TRANSACTION DURING THE F.Y. 2008-09 MENTIONED BY THE A.O. AT PAGE 6 OF THE ASSESSMENT ORDER FOR THE A.Y. 2009-10. 7.5 WE FIND THAT THERE IS MERIT IN THE FINDING OF T HE A.O. THAT THE LOAN ADVANCED FOR MORE THAN THREE/FOUR YEARS TO M/S. VIJ AY PARIKH & ASSOCIATES, ARPIT SAMANI, PARIKH GRANITO, M/S. NISHA ENTERPRISE CANNOT BE TREATED AS A TEMPORARY INVESTMENT OF THE BORROWED FUNDS. EVEN TH E LOAN PROVIDED TO M/S. SHRI SHANKAR SANITATION, SHUBH HOTEL P. LTD. A ND SHUB BUILDERS P. LTD. HAS CROSSED THE LIMIT OF MORE THAN TWO YEARS. THUS THERE IS MERIT IN THE FINDING OF THE A.O. THAT AS-16: BORROWING COSTS I S NOT APPLICABLE IN THE PRESENT CASE. 7.6 LET US ILLUSTRATE THE FUNDS ADVANCED BY THE ASS ESSEE TO ITS TWO SISTER CONCERNS I.E. M/S. SHUB HOTELS PVT. LTD. AND SHREE SHUBH BUILDERS PVT. LTD. IN THE CASE OF SHUB HOTELS PVT. LTD. THE LOAN WAS R S. 15,36,003/- AS ON 31.03.2007, RS. 1,43,83,433/- AS ON 31.03.2008 AND RS. 2,08,07,427/- AS ON 31.03.2009. IN THE CASE OF SHREE SHUB BUILDERS P. L TD. THE LOAN WAS RS. 1,72,71,840/- AS ON 31.03.2007, RS. 2,73,09,016/- A S ON 31.03.2008 AND RS. 3,60,26,172/- AS ON 31.03.2009. 7.7 HOWEVER, THE SOLITARY ISSUE IN THE INSTANT APPE AL IS WHETHER THE INTEREST EARNED BY THE ASSESSEE ON LOANS AND ADVANC ES GIVEN TO PARTIES / CONCERNS (IN THE TABLE GIVEN AT PARA 3 HERE-IN-ABOV E) EMANATE FROM THE BUSINESS ACTIVITY OF THE ASSESSEE OR IT IS CASE OF SIMPLE DIVERSION OF FUND FOR NON-BUSINESS ACTIVITY. THE ISSUE OF NETTING OFF OF INTEREST INCOME AGAINST INTEREST EXPENDITURE SHALL ARISE WHEN THE INTEREST EARNED BY THE ASSESSEE EMANATE FROM ITS BUSINESS ACTIVITY AND THERE IS REL ATIONSHIP BETWEEN THE TWO. THE ABOVE ISSUE SHALL NOT ARISE IF THERE IS DI VERSION OF FUND FOR NON- BUSINESS ACTIVITY. THESE ASPECTS HAVE NOT BEEN EXAM INED EITHER BY THE A.O. ITA NO. 801 OF 2012 & 252 OF 2013 11 OR THE LEARNED CIT(A). IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDER OF THE LEARNED CIT(A) AND RESTORE THE MATTER TO THE FILE O F THE A.O. TO EXAMINE THE ABOVE AND PASS AN ORDER AFTER GIVING REASONABLE OPP ORTUNITY OF BEING HEARD TO THE ASSESSEE. THE ASSESSEE IS ALSO DIRECTED TO F ILE THE RELEVANT DETAILS BEFORE THE A.O. 7.8 GROUND NO. 2 OF ITA NO. 252/MUM/2013 IS CONSEQU ENTIAL. 8. IN THE RESULT, THE APPEALS ARE ALLOWED FOR STATI STICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 19/05/2017 SD/- SD/- (JOGINDER SINGH) ( N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBE R MUMBAI: DATED: 19/05/2017 BISWAJIT, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI