M/s. Unitech Developers & Hotels Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 921/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91324 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 26-06-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 14-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: TARUN SEEM
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : H : NEW DELHI BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO . 921 /DEL/201 3 ASSESSMENT YEAR: 2009 - 10 M/S UNITECH DEVELOPERS VS. COMMISSIONER OF INCOME, & HOTELS PVT. LTD. , (APPEAL) - XXI, NEW DELHI 6, COMMUNITY CENTRE , SAKET, NEW DELHI (PAN: AAACU8276 H ) (APPELLANT) (RESPONDENT) APPELLANT BY : SH. GAGAN KUMAR, ADV. RESPONDENT BY : SH. TARUN SEEM, SR. DR DATE OF HEARING: 26.06.2015 DATE OF PRONOUNCEMENT: 17 .07.2015 ORDER PER INTURI RAMA RAO, A.M. : THIS IS AN APPEAL FILED BY THE ASSESEE COMPANY FOR THE ASSESSMENT YEAR 2009 - 10 AGAINST THE ORDER OF LEARNED CIT(A), DATED 19.12.2012 RAISING THE FOLLOWING GROUNDS OF APPEAL: 1) THAT ORDER MADE U/S 250 OF THE INCOME TAX ACT DATED 19/12/12 BY THE LEARNED CIT (APPEALS) - XXI IS ERRONEOUS IN NATURE AS HE HAS CONFIRMED THE ORDER OF LD. AO WHO MADE THE ADDITION IN THE TOTAL INCOME WHICH WAS ARBITRARY AND UNCALLED FOR. 2 ) THAT THE DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE COMPANY WAS INTO CONSTRUCTION & DEVELOPMENT OF HOUSING PROJECT AND WHILE INCURRING DEVELOPMENT EXPENSES ON THE PROJECT REDUCED THE INTEREST ON FDR OF RS. 21,62,418 / - FROM THE DEVELOPMENT EXPENSES THEREBY REDUCING THE CONSTRUCTION & DEVELOPMENT COST OF THE PROJECT WHICH IS AS PER ACCOUNTING NORMS AND AS PER LAWS OF THE LAND. 3) THAT ABOVE INTEREST WAS ACCRUED ON FDR'S WHICH WERE PROVIDED TO BANK AS A MARGIN MONEY FOR OBTAINING BANK GUARANTEES TO SUBMIT BEFORE VARIOUS GOVERNMENT AUTHORITIES. 2 4) THAT THE LEARNED AO MADE ADDITION OF RS. 21,62,418 / - IN THE TOTAL INCOME OF THE ASSES SEE WITHOUT GIVING CONSIDERATION TO THE ABOVE FACTS THAT FDR'S WERE PLEDGED TO BANK FOR OBTAINING BANK GUARANTEES FOR CONSTRUCTION AND DEVELOPMENT WORK. 5) THAT THE AFORESAID ADDITION OF RS. 21,62,418 / - IS UNJUSTIFIED AND BAD IN LAW PARTICULARLY IN THE LI GHT OF FACTS OF THE CASES OF CIT VS JAYPEE DSC VENTURES LTD (2011) ITA 35712010 (DELHI HC) IN THIS CASE THE HON'BLE HIGH COURT HAS UPHELD THAT INTEREST RECEIVED ON FDR SHALL NOT BE TREATED AS INCOME AND WOULD BE TAKEN TOWARDS REDUCTION IN PROJECT EXP ENDITURE, IF FDR IS PLEDGED TO BANK TOWARDS BANK GUARANTEE, WHICH IS SINE QUA NON FOR OPERATION OF PROJECT. CIT VS BOKARO STEEL LTD (1999) 236 ITR 315(SC) IN THIS CASE THE HON'BLE COURT HAS UPHELD THAT WHERE ASSESSEE COMPANY, WHICH WAS IN PROCESS OF CO NSTRUCTING AND ERECTION ITS PLANT AND HAD NOT STARTED ANY BUSINESS DURING RELEVANT ASSESSMENT YEARS, RECEIVED CERTAIN AMOUNT THROUGH: (I) RENT CHARGED BY ASSESSEE FROM ITS CONTRACTS FOR HOUSING WORKS AND STAFF EMPLOYED BY CONTACTOR FOR CONSTRUCTION WORK OF ASSESSEE, (II ) HIRE CHARGES FOR PLANT AND MACHINERY GIVEN TO CONTRACTORS FOR USE IN CONSTRUCTION WORK OF ASSESSEE, (III ) INTEREST FROM ADVANCES MADE TO CONTRACTORS FOR PURPOSE OF FACILITATING WORK OF CONSTRUCTION AND (IV) ROYALTY FOR EXCAVATION AND USE OF STONES ON ASSESSEE'S LAND FOR CONSTRUCTION WORK, FIRST THREE RECEIPTS BEING INTRINSICALLY CONNECTED WITH CONSTRUCTION OF ASSESSEE'S PLANT, WOULD BE REDUCED FROM THE COST OF THE PLANT AND SIMILARLY ROYALTY RECEIVED FROM STONE EXCAVATED FROM ASSESSEE'S LAND WOULD GO TO REDUCE COST OF PLANT AND COULD NOT BE TAXED AS INCOME. 6) THAT THE FACTS OF THE CASE OF TUTICORIAN ALKALI CHEMICALS & FERTIL IZERS LTD VS CIT (SC) ON WHICH RELIANCE HAS BEEN PLACED BY THE LD. AO AND CONSEQUENTLY BY CIT (APPEALS) ARE BASICALLY DIFFERENT IN NATURE AND THEREFORE THERE IS A DIFFERENT RATIO DECIDENDI .. IF DEEP AND IN DEPTH ANALYSIS OF THIS CASE LAW I.E. TUTICORIAN AL KALI ... AS REFERRED BY THE DEPTT., IS MADE THEN THIS CAN BE EASILY FIND OUT THAT IN THIS CASE THE COMPANY INVESTED THE SURPLUS BORROWED FUNDS IN FDR'S BUT THERE WAS NO BUSINESS COMPULSION FOR THE SAMEWHEREAS IN CASE OF ASSESSEE/APPELLANT COMPANY THE BORRO WED FUNDS WERE UTILIZED IN MAKING OF FDR'S OUT OF SHEER BUSINESS COMPULSIONS SO AS TO MEET THE STATUTORY BUSINESS REQUIREMENT OF PROVIDING BANK GUARANTEES TO CONCERNED GOVT. AUTHORITIES TO RUN THE BUSINESS SMOOTHLY OTHERWISE THE BUSINESS COULD HAVE COME TO STAND STILL. 3 IT MAY BE POINTED OUT HERE THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESEE/APPELLANT COMPANY WAS HEAVILY DEPENDENT ON BORROWED FUNDS FOR COMPLETION OF ITS PROJECT AND IT WAS NOT ITS LUXURY TO MAKE THE FDR'S FROM THE BORROWED FUNDS RATHER IT WAS A CORE BUSINESS NECESSITY. FURTHER MORE IN CIT VS JAYPEE DSC VENTURES LTD (2011) ITA 357/2010 (DELHI HC) AND CIT VS BOKARO STEEL LTD (1999) 236 ITR 315(SC) UPON WHICH RELIANCE HAS BEEN PLACED BY THE ASSESSEE/APPELLANT COMPANY THE HON'BLE COURTS H AVE DECIDED THE CASES IN FAVOUR OF THE ASSESSEE DESPITE OF THE FACTS THAT THE FUNDS UTILIZED FOR MAKING THE FDR'S WERE OWN FUNDS OF THE COMPANIES. BUT IN THE CASE OF ASSESSEE/APPELLANT COMPANY DOUBLE JEOPARDY HAS TAKEN PLACE. IN OTHER WORDS INTEREST ON FDR 'S IS ASSESSED TO TAX WHICH HAS BEEN MADE OUT OF BORROWED FUNDS WHEREAS FDR'S WERE MADE NOT FOR EARNING INTEREST BUT TO KEEP THE BUSINESS ON ITS FEET AND T O AVERT ANY KNEE JERK SITUATION . IN VIEW OF IT, IT IS PRAYED THAT THE IMPUGNED ORDER MADE U/S 250 B Y THE LD CIT (A) MAY KINDLY BE SET ASIDE AND ADDITION OF RS. 21,62,418 / - MADE BY THE LD AO MAY KINDLY BE DELETED. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE APPELLANT IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF COMPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT AND DEVELOPMENT OF HOUSING PROJECTS. THE APPELLANT FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009 - 10 ON 29 TH SEPTEMBER, 2009 D ECLARING AN INCOME OF RS. 12,58,160 / - . THIS RETURN OF INCOME WAS TAKEN FOR SCR UTINY , AND ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE INCOME - TAX ACT, 1961 (FOR SHORT THE ACT ) VIDE ORDER DATED 28.12.2011 AT A TOTAL INCOME OF RS. 34,20,580 / - . WHILE DOING SO, THE ASSESSING OFFICER MADE THE ADDITION ON INTEREST OF RS. 21 ,62,418 / - ON FDRS WHICH HAD BEEN REDUCED FROM THE DEVELOPMENT EXPENSES BY THE APPELLANT COMPANY. ON APPEAL BEFORE THE CIT(A), THE CIT(A) DISMISSED THE APPEAL. BEING AGGRIEVED, THE APPELLANT HAD COME UP WITH THE PRESENT APPEAL. 4 3. LEARNED AUTHORIZED REPRE SENTATIVE SUBMITTED BEFORE US THAT THE INTEREST IN QUESTION HAD ARISEN OUT OF THE MARGIN MONEY FOR THE PURPOSE OF OBTAINING THE BANK GUARANTIES. THE BANK GUARANTEES WERE REQUIRED TO BE SUBMITTED IN TERMS OF THE LEASE DEED ENTERED BY THE APPELLANT COMPANY. FOR ISSUANCE OF BANK GUARANTEES, THE BANKERS INSIST UPON THE DEPOSITS OF EQUIVALENT AMOUNT. ON THIS , THE INTEREST AMOUNTING TO RS. 21,62,418/ - / - WAS EARNED AND THE SAME WAS REDUCED FROM THE COST OF THE DEVELOPMENT OF THE PROJECTS. HE SUBMITTED THAT THE RAT IO LAID DOWN BY THE HON BLE SUPREME COURT IN THE CASE O F TUTICORIAN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT (SC) IS NOT APPLICABLE , AS IN THIS CASE EARNING OF INTEREST INCOME IS INEXTRICABLY CONNECTED WITH THE EXECUTION OF PROJECTS WHEREAS IN THE CASE OF TUTICORIAN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA) EARNING OF INTEREST WAS AN INDEPENDENT SOURCE OF INCOME. HE FURTHER RELIED ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. BOKARO STEEL LTD, (1999) 236 ITR 315 (SC) IN SUPPORT OF THIS PROPOSITION AND HE ALSO PLACED RELIANCE ON THE FOLLOWING DECISIONS OF THE HON BLE JURISDICTIONAL HIGH COURT: I. CIT VS. K AND CO., [2013] 31 TAXMANN.COM 228 (DEL) II. CIT VS. KOSHIKA TELECOM LTD. , [2006] 287 ITR 479 (DEL.) III. CIT VS. JAYPEE DSC VENTURES LTD., [2011] 335 IR 132 (DEL.) 4. ON THE OTHER HAND, THE LEARNED DR PLACED STRONG RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW AND HE SUBMITTED THAT THE RATIO LAID DOWN BY THE HON BLE SUPREME COURT IN THE CASE OF TUTICORIAN ALKALI CHEMICALS & FERTILIZERS LT D. (SUPRA) IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE. 5 5. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL ON RECORD. UNDISPUTEDLY, THE INTEREST INCOME IN QUESTION HAD ARISEN ON ACCOUNT OF MARGIN MON EYS PLACED WITH BANKERS FOR THE PURPOSES OF OBTAINING BANK GUARANTEES. THESE BANK GUARANTEES SO REQUIRED FOR FURNISHING LANDLORDS FOR RENTED PREMISES AND SALES TAX AUTHORITIES. RENTING UP OF PREMISES AS WELL AS REGISTRATION OF THE SALES TAX AUTHORITIES ARE IN EXTRICABLY CONNECTED WITH THE EXECUTION OF THE PROJECTS AND THEREFORE FOLLOWING THE RATIO LAID DOWN BY THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. BOKARO STEEL LTD. (SUPRA) AS WELL AS BY THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. JAY PEE DSC LTD.(SUPRA) AND CIT VS. K AND CO. (SUPRA), WE DIRECT THE ASSESSING OFFICER NOT TO TREAT AS AN INCOME FROM OTHER SOURCES BUT REDUCE IT FROM THE COST OF PROJECT. ACCORDINGLY, THE APPEAL FILED BY THE ASSESSE IS ALLOWED. 6. IN THE RESULT, THE APPEA L IS ALLOWED. THE DECISION IS PRONOUNCED IN THE OPEN COURT ON 17 TH JULY , 2015. SD/ - SD/ - ( I.C. SUDHIR ) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 17 TH JULY , 2015. RK/ - COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI