ITO WD 3(1)(4), MUMBAI V. GRAND VIEW ESTATES P.LTD, MUMBAI

ITA 91/MUM/2012

• Counselvise Citation: 9119914 RSA 2012
• Duration Of Justice: 2 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 22-07-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 05-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ADAGIRI
• Assessee Lawyers: BEHARILAL
• Keywords: Business income
• Section: 143(3); 56

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G , BENCH MUMBAI , BEFORE : SHRI R.C.SHARMA , A M & SHRI SANJAY GARG, J M ITA NO. 91 / MUM/20 12 ( ASSESSMENT YEAR : 200 8 - 0 9 ) ITO - WARD - 3(1)4, MUMBAI VS. M/S GRAND VIEW ESTATES PVT. LTD., SHAPOORJI PALLONJI CENTRE, 41/44, MINOO DESAI MARG, COLABA, MUMBAI - 400 005. PAN/GIR NO. : A A B C G 44 86 A ( APPELLANT ) .. ( RESPONDENT ) /REVENUE BY : SHRI B. YADAGIRI /ASSESSEE BY : SHRI BEHARILAL DATE OF HEARING : 22 ND JULY , 201 4 DATE OF PRONOUNCEME NT : 25 TH JULY , 201 4 O R D E R PER R.C.SHARMA ( A .M.) : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A ) DATED 29 - 9 - 20 11 FOR AY 200 8 - 0 9 , IN THE MATTER OF ORDER PASSED U/S. 143(3) OF TH E ACT, WHEREIN FOLLOWING GROUND HA S BEEN TAKEN : - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN TAXING AS BUSINESS INCOME, THE INTEREST INCOME EARNED OF RS. 1,20,30,131/ - INSTEAD OF TAXING IT AS INCOME FROM OTHER SOURCES WITHOUT APPRECIATING TH E FACT THAT IF THE ASSESSEE HAS SURPLUS FUNDS AND IF IT IS INVESTED TO EARN INTEREST INCOME, THE INTEREST INCOME SO EARNED WILL HAVE TO BE TAXED AS INCOME FROM OTHER SOURCES AS HELD BY HONBLE SUPREME COURTS DECISION IN THE CASE OF TUTICORIN ALKALI CHEMIC ALS & FERTILIZERS LTD. VS. CIT (227 ITR 172) . 2 . RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED . FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROPERTY ITA NO. 91 / 12 2 DEVELOPMENT. IN THE PROCESS OF ACQUIRING THE SWADESHI MILLS CO. LTD. FROM T HE OFFICIAL LIQUIDATOR, ASSESSEE OBTAINED ICD FROM HDFC BANK LTD., WHICH WAS UTILIZED FOR ACQUIRING DEBTS OF SWADESHI MILLS CO. LTD. THE ASSESSEE COMPANY HAS ADVANCED RS. 14.90 CRORES TO M/S S.D CORPORATION PVT. LTD. ON WHICH IT HAS RECEIVED INTEREST INCOME OF RS.1,21,31,131/ - . THE ASSESSEE COMPANY HAS NETTED THE INTEREST RECEIVED WITH INTEREST PAYMENT AND CAPITALIZED THE SAME. THE AO TREATED THE INTEREST INCOME AS INCOME FROM OTHER SOURCES BY OBSERVING THAT ASSESSEE HAD ADVANCED FUNDS AVAILABLE WITH THEM AT A HIGHER RATE OF INTEREST. BY REFERRING TO THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT (227 ITR 172) , THE AO HELD THAT BUSINESS OF THE ASSESSEE HAD NOT BEEN COMMENCED, THEREFORE, INTEREST INCO ME WAS LIABLE TO BE TAXED AS INCOME FROM OTHER SOURCES. 3 . BY THE IMPUGNED ORDER, THE CIT(A) DELETED THE ADDITION MADE ON ACCOUNT OF INTEREST INCOME BY TREATING THE SAME AS INCOME FROM OTHER SOURCES AFTER HAVING THE FOLLOWING OBSERVATIONS : - 3.6 I HAVE GONE THROUGH THE AO.'S ORDER AS WELL AS 'APPELLANT AR'S SUBMISSION. I HAVE ALSO TAKEN NOTE OF THE FACTS BROUGHT ON RECORD. HAVING CONSIDERED THE SAME, I FIND THAT THE APPELLANT COMPANY HAS STARTED ITS OPERATION OF BUSINESS FROM THE DATE WHEN THE DEED OF A SSIGNMENT TOOK PLACE FOR ACQUIRING THE AFORESAID PROPERTY OF SWADESHI MILLS CO. LTD. IN ADDITION TO THIS, AFTER THE SAID DEED OF ASSIGNMENT, THE APPELLANT COMPANY ACQUIRED THE BORROWED FUNDS FROM ITS GROUP COMPANY AND ALSO FROM HDFC LTD. FOR PERFORMING NEC ESSARY COMPLIANCE IN TERMS OF SAID DEED OF ASSIGNMENT. I EVEN FIND THAT THE APPELLANT COMPANY HAS MADE THE PAYMENT TO THE CREDITORS OF SWADESHI MILLS CO LTD. AND ALSO ENTERED INTO SETTLEMENT AGREEMENT, COPY OF WHICH WAS ALSO SUBMITTED BEFORE ME IN THE COUR SE OF APPELLATE PROCEEDINGS. THE APPELLANT COMPANY HAS MADE THE NECESSARY PAYMENT TO THE DIFFERENT CREDITORS WHICH WAS OWNED BY SWADESHI MILLS CO. LTD. I EVEN FIND THAT THE CASE LAWS ITA NO. 91 / 12 3 REFERRED BY THE APPELLANT COMPANY, ESPECIALLY CIT VS. ESPN SOFTWARE INDIA PVT. LTD., CIT VS. WHIRLPOOL OF INDIA LTD. AND CIT VS. HUGHES ESCORTS COMMUNICATION LTD. CLEARLY SUPPORT THE CONTENTION OF THE APPELLANT COMPANY THAT THE APPELLANT COMPANY HAS SET UP ITS BUSINESS AND HENCE THE EXPENDITURE INCURRED THEREON DURING THE SAID PROCESS IS AN ALLOWABLE EXPENDITURE. TAKING NOTE OF THE AO.'S ORDER AS WELL AS APPELLANT AR'S SUBMISSION AND ALSO AFTER TAKING NOTE OF THE DECISIONS OF VARIOUS COURTS CITED BY THE APPELLANT'S AR, COPY OF WHICH WAS SUBMITTED DURING THE APPELLATE PROCEEDINGS , I CONSIDER IT PROPER AND APPROPRIATE TO HOLD THAT THE APPELLANT COMPANY HAS COMMENCED ITS BUSINESS. HENCE, IN MY CONSIDERED VIEW, THE INTEREST INCOME EARNED BY THE APPELLANT COMPANY IS TAXABLE AS BUSINESS INCOME AND HENCE TAXING OF SAID INTEREST INCOME U NDER THE HEAD 'INCOME FROM OTHER SOURCES WAS NOT CORRECT ON THE PART OF THE AO. IN VIEW OF THE AFORESAID DISCUSSION AND FACTS OF THE CASE, I CONSIDER IT PROPER AND APPROPRIATE TO DIRECT THE AO. TO DELETE THE ADDITION SO MADE BY THE AO UNDER THE HEAD INCOM E FROM OTHER SOURCES. THE APPELLANT COMPANY SHOULD BE ALLOWED THE RETROSPECTIVE DEDUCTION CLAIM OF EXPENDITURE UNDER THE PROVISIONS OF LAW AND THE INCOME SO EARNED BY THE APPELLANT COMPANY SHOULD BE TAXED UNDER THE HEAD BUSINESS INCOME. ACCORDINGLY, THI S GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE APPELLANT. 4 . AGAINST THE ABOVE ORDER OF CIT(A), THE REVENUE IS IN FURTHER APPEAL BEFORE US. 5 . IT WAS CONTENDED BY LEARNED DR THAT INTEREST INCOME EARNED BY ASSESSEE WAS PRIOR TO COMMENCEMENT OF BUSINESS, THEREFORE, LIABLE TO BE TAXED AS INCOME FROM OTHER SOURCES AND ASSESSEE IS NOT ENTITLED TO CLAIM ANY SET OFF OF EXPENDITURE INCURRED BY IT. RELIANCE WAS ALSO PLACED ON THE DECISION REPORTED IN 284 ITR 110, 327 ITR 19 & 29 ITR 289. 6 . ON THE OTHER HAND, LE ARNED AR CONTENDED THAT BUSINESS OF ASSESSEE HAVE ALREADY BEEN COMMENCED AND THE ASSESSEE HAS NEITHER CLAIMED ANY INTEREST EXPENDITURE NOR ANY INTEREST INCOME W A S SHOWN AS REVENUE RECEIPT DURING THE YEAR UNDER CONSIDERATION AND THE SAME HAVE BEEN CAPITALIZ ED. HE FURTHER SUBMITTED THAT EVEN THE INTEREST EXPENDITURE INCURRED WAS MORE THAN THE INTEREST INCOME ITA NO. 91 / 12 4 EARNED. OUR ATTENTION WAS INVITED TO PAGE 49 OF THE PAPER BOOK CONTAINING DETAIL OF INTEREST RECEIPT AMOUNTING TO RS. 1.20 CRORES, AS AGAINST INTEREST EXP ENDITURE INCURRED DURING THE YEAR AT RS. 5.83 CRORES, DETAILS OF WHICH WAS PLACED AT PAGE 47 OF THE PAPER BOOK. 7 . WE HAVE CONSIDERED RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND ALSO DELIBERATED ON THE JUDICIAL PRONOUNC EMENTS CITED AT BAR BY LEARNED AR AND DR AS WELL AS JUDICIAL PRONOUNCEMENTS DISCUSSED BY THE AO IN HIS ORDER. FROM THE RECORD WE FOUND THAT THE AO HAS DECLINED ASSESSEES CLAIM FOR NETTING OFF INTEREST EXPENDITURE AND OTHER EXPENSES AGAINST THE INTEREST IN COME ON THE PLEA THAT BUSINESS OF THE ASSESSEE HAS NOT COMMENCED. F OR THIS PURPOSE H E HAS RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT, 227 ITR 172 , WHEREIN INTEREST INCOME WAS TRE ATED AS INCOME FROM OTHER SOURCES BECAUSE BUSINESS OF THE ASSESSEE W AS NOT COMMENCED. THE PRECISE OBSERVATION OF THE HON BLE SUPREME WAS THAT, INTEREST INCOME EARNED ON SHORT TERM DEPOSIT OF FUNDS BEFORE COMMENCEMENT OF BUSINESS DURING SETTING UP OF FACTO RY COULD NOT BE SET OFF AGAINST LOSS OF THE COMPANY. THE COMPANY HAD SURPLUS FUNDS IN ITS HANDS. IN ORDER TO EARN INCOME OUT OF THE SURPLUS FUNDS, IT INVESTED THE AMOUNT FOR THE PURPOSE OF EARNING INTEREST. THE INTEREST, THUS, EARNED IS CLEARLY OF THE REVE NUE NATURE AND WILL HAVE TO BE TAXED ACCORDINGLY. IN OTHER WORDS, IF THE CAPITAL OF A COMPANY IS FRUITFULLY UTILIZED INSTEAD OF KEEPING IT IDLE, THE INCOME, THUS, GENERATED WILL BE OF THE REVENUE NATURE AND NOT ITA NO. 91 / 12 5 ACCRETION OF CAPITAL. HOWEVER, THE FACTS OF THE INSTANT CASE ARE FULLY DISTINGUISHABLE INSOFAR AS FOR BUSINESS OF THE COMPANY HAD COMMENCED DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE COMPANY HAS ALREADY SET UP ITS BUSINESS AND INCURRED EXPENDITURE BY WAY OF PAYMENT OF INTEREST AS WELL AS EARN ED INTEREST ON ADVANCES GIVEN OUT OF SUCH FUNDS. THE AO WAS OF THE OPINION THAT BUSINESS OF THE ASSESSEE WAS NOT COMMENCED AND, THEREFORE, TAXED THE INTEREST RECEIVED BY WRONGLY APPLYING THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF TUTI CORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA) . FROM THE RECORD, WE FOUND THAT BUSINESS OF PROPERTY DEVELOPMENT WAS ALREADY COMMENCED. IN THIS PROCESS, THE ASSESSEE HAS OBTAINED ICD FROM HDFC LTD. FOR ACQUIRING THE DEBTS OF SWADESHI MILLS CO. LTD. FROM THE OFFICIAL LIQUIDATOR, HIGH COURT , MUMBAI . THUS, THERE IS NO MERIT IN AOS OBSERVATION THAT BUSINESS OF THE ASSESSEE WAS NOT COMMENCED. FURTHERMORE, EVEN TREATING THE INTEREST INCOME AS INCOME FROM OTHER SOURCES, ASSESSEE IS FULLY ELIGIBLE TO CLAIM INTE REST EXPENDITURE INCURRED FOR EARNING SUCH INTEREST INCOME U/S. 56 OF THE I.T. ACT. SINCE THE INTEREST EXPENDITURE WAS RS. 5.83 CRORES AS AGAINST INTEREST INCOME OF RS. 1.20 CRORES , THERE IS NO JUSTIFICATION FOR NOT ALLOWING THE INTEREST EXPENDITURE AGAINST T HE INTEREST INCOME. THUS, AFTER SETTING OF INTEREST EXPENDITURE, NO POSITIVE INCOME REMAINS IN THE HANDS OF THE ASSESSEE. FURTHER, THE ASSESSEE HAS NOT CLAIMED INTEREST EXPENDITURE NOR INTEREST INCOME AS REVENUE RECEIPT BUT CAPITALIZED THE SAME IN ITS BOOK S OF ACCOUNTS. ACCORDINGLY, WE DO NOT FIND ANY MERIT IN ITA NO. 91 / 12 6 THE AOS ACTION FOR NOT ALLOWING THE INTEREST EXPENDITURE AND TREATING THE GROSS INTEREST INCOME AS INCOME FROM OTHER SOURCES BY WRONGLY PRESUMING THAT BUSINESS OF THE ASSESSEE HAS NOT BEEN STARTED. 8 . IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 25/07/ 201 4 . 2014 SD/ - SD/ - ( ) ( SANJAY GARG ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 25 / 0 7 /2014 /PKM , PS COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI 1. / THE A PPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) - X, MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//