Sri harsha Constructions, Hyderabad V. ACIT, Cir-6(1), Hyderabad

ITA 929/HYD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 98676 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 05-11-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 13-05-2011
• Court: TRIBUNAL
• Department Lawyers: B KURMI NAIDU
• Assessee Lawyers: K A SAI PRASAD
• Keywords: Business income; Opportunity of being heard
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER I.T.A. NO. 929/HYD/2011 ASSESSMENT YEAR: 2007-08 SHRI HARSHA CONSTRUCTIONS, HYDERABAD [PAN: AACFS8025M] VS THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-6(1), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI K.A. SAI PRASAD , AR FOR REVENUE : S HRI B. KURMI NAIDU , DR DATE OF HEARING : 05 - 11 - 201 5 DATE OF PRONOUNCEMENT : 13 - 1 1 - 2015 O R D E R PER SMT. P. MADHAVI DEVI, JM : THIS IS ASSESSEES APPEAL FOR THE AY. 2007-08. TH IS APPEAL WAS INITIALLY HEARD AND DISPOSED OFF VIDE ORDERS DT . 31-10-2012. SUBSEQUENTLY, VIDE M.A.NO. 144/HYD/2014, ASSESSEES APPEAL IN ITA NO. 929/HYD/2011 WAS RECALLED. THEREAFTER, ASS ESSEE MADE AN APPLICATION SEEKING MODIFICATION OF THE ORDER PA SSED BY THE TRIBUNAL. MEANWHILE, THIS TRIBUNAL TAKING NOTE OF THE MISTAKES APPARENT FROM RECORD ISSUED A CORRIGENDUM THAT THE ORDER OF THE TRIBUNAL IS NOT RECALLED IN ITS ENTIRELY BUT IS REC ALLED TO THE EXTENT OF GROUNDS NO. 8, 11 AND 12 ONLY. ASSESSEES MISCE LLANEOUS APPLICATION SEEKING MODIFICATION OF THE ORDER PASSE D IN M.A. NO. I.T.A. NO. 929/HYD/2011 SRI HARSHA CONSTRUCTIONS :- 2 -: 144/HYD/2014 WAS THEREFORE DISMISSED. IN VIEW OF T HE CORRIGENDUM ISSUED BY THE TRIBUNAL TO THE MISCELLAN EOUS APPLICATION RECALLING THE ORDER OF THE TRIBUNAL, TH IS APPEAL CAME UP FOR HEARING BEFORE US. FOR THE SAKE OF CLARITY AND CONVENIENCE AND READY REFERENCE, GROUNDS NO. 8, 11 AND 12 ARE RE-PR ODUCED HERE UNDER: 8. THE CIT(A) OUGHT TO HAVE OBSERVED THAT THE INTE REST ON MARGIN MONEY OF RS. 3,81,972/- HAS TO BE CONSIDERED AS PROFITS FROM BUSINESS AND THEREFORE NO SEPARATE ADD ITION WAS REQUIRED TO BE MADE . 11. THE CIT(A) ERRED IN HOLDING THAT ENTIRE ARBITRA TION AMOUNT OF RS. 1,31,18,770/- INCLUDED IN THE AMOUNT OF RS. 1,55,97,428/- IS LIABLE TO TAX. 12. THE CIT(A) OUGHT TO HAVE OBSERVED THAT THE ASSE SSEE INCURRED CERTAIN EXPENSES FOR HAVING THE ARBITRATIO N AMOUNT OF RS. 1,31,18,770/- AND THEREFORE ONLY PROFIT IN R ESPECT OF THE AMOUNT SHOULD BE BROUGHT TO TAX. 2. AS REGARDS THE GROUND NO.8, BRIEF FACTS ARE THAT THE ASSESSEE, A PARTNERSHIP FIRM FILED ITS RETURN OF INCOME FOR T HE AY. 2007-08 ON 30-10-2007 DECLARING TOTAL INCOME OF RS. 84,23,540/ -. DURING THE ASSESSMENT PROCEEDINGS U/S. 143(3) OF THE OF THE IN COME TAX ACT [ACT], THE ASSESSING OFFICER (AO) OBSERVED THAT THE ASSESSEES BOOKS OF ACCOUNT ARE NOT RELIABLE. HE THEREFORE, REJECTE D THE SAME AND ESTIMATED THE INCOME OF THE ASSESSEE @8% OF GROSS C ONTRACT RECEIPTS. AT THE TIME OF THE ASSESSMENT, HE ADDED THE INTEREST OF MARGIN MONEY AS ADMITTED OF RS. 3,81,972/- TO THE E STIMATED INCOME AND BROUGHT IT TO TAX. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), WHO CONFIRMED THE ADDITIO N AND ASSESSEE IS IN SECOND APPEAL BEFORE US. I.T.A. NO. 929/HYD/2011 SRI HARSHA CONSTRUCTIONS :- 3 -: 3. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CIVIL CONTRACTS AND FOR THE SAID PURPOSE, THE ASSESSEE IS REQUIRED TO DEPOSIT THE MARGIN MONE Y FOR GETTING BANK GUARANTEES TO BE FURNISHED AND THE DEPOSITS CO NTINUE IN THE BANK ACCOUNT TILL THE CONTRACT WAS IN THE PROGRESS, AND THE ASSESSEE GETS INTEREST THEREON. IT WAS SUBMITTED T HAT SUCH INTEREST IS IN INEXTRICABLY INTERLINKED WITH THE BUSINESS AC TIVITY OF THE ASSESSEE AND THEREFORE, SHOULD NOT HAVE BEEN ASSESS ED UNDER SEPARATE HEAD I.E., INCOME FROM OTHER SOURCES. H E SUBMITTED THAT THE AO AND THE CIT(A) HAVE RELIED UPON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMI CALS AND FERTILIZERS LTD., VS. CIT [227 ITR 172] TO HOLD THAT THE SAME IS ELIGIBLE TO BE TREATED AS INCOME FROM BUSINESS. 4. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS FILED THE COPIES OF THE JUDGMENT OF WHICH HE IS PLACING RELIA NCE UPON IN SUPPORT OF HIS CONTENTIONS. LD. COUNSEL FOR THE AS SESSEE HAS ALSO TRIED TO DISTINGUISH THE FACTS OF THE CASE BEFORE U S FROM THE FACTS OF THE CASE BEFORE THE HON'BLE SUPREME COURT IN THE CA SE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD., VS. CIT [227 ITR 172] (SUPRA) AND ALSO RELIED UPON THE JUDGMENT OF MADHYA PRADESH HIGH COURT IN THE CASE OF BHARAT OMAN REFINERIES LTD., VS. ITO , BHOPAL [52 TAXMANN 347 (MADHYA PRADESH)] WHEREIN THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKA LI CHEMICALS AND FERTILIZERS LTD., VS. CIT [227 ITR 172] (SUPRA) HAS BEEN DISTINGUISHED. THE LD. DR, ON THE OTHER HAND, SUPP ORTED THE ORDERS OF THE AUTHORITIES BELOW AND ALSO RELIED UPO N THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF TUTICORIN A LKALI CHEMICALS AND FERTILIZERS LTD., VS. CIT [227 ITR 172] (SUPRA) AS WELL AS THE I.T.A. NO. 929/HYD/2011 SRI HARSHA CONSTRUCTIONS :- 4 -: JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF C IT VS. SPONGE IRON INDIA LTD., [201 ITR 770]. 5. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE INTEREST INCOME EARNED BY THE ASSESSEE IS ON ACCOUNT OF MARGIN MONEY DEPOSITED WITH THE BANKS TO GET BANK GUARANTEES FOR THE CONTRACTS AWARDED TO THE ASSESSE E. THEREFORE, THE INTEREST INCOME IS DEFINITELY LINKED TO THE BUS INESS OF THE ASSESSEE. IN THE CASE OF TUTICORIN ALKALI CHEMICAL S AND FERTILIZERS LTD., VS. CIT [227 ITR 172] (SUPRA), THE HON'BLE SUPREME COURT WAS DEALING WITH A CASE WHEREIN CERTAIN FUNDS WERE DEPOSITED IN THE BANK AS MARGIN MONEY PRIOR TO SETTING UP OR COM MENCEMENT OF THE BUSINESS AND HENCE, IT WAS HELD THAT IT DOES NO T FORM OF BUSINESS INCOME. THIS FACT HAS BEEN CONSIDERED BY THE HON'BLE MADHYA PRADESH HIGH COURT IN THE CASE OF BHARAT OMA N REFINERIES LTD., VS. ITO, BHOPAL [52 TAXMANN 347 (SUPRA) AND I T WAS HELD THAT INTEREST EARNED ON MARGIN MONEY FOR THE PURPOS E OF CARRYING OUT THE BUSINESS WAS INCOME FROM BUSINESS. SIMIL AR VIEW WAS EXPRESSED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF SMS PHARMACEUTICALS LTD., VS. DCIT [50 TAXMANN.COM 135 (HYDERABAD-TRIB.)] AND THE CASE OF CIT VS. VIDYUT STEEL LTD., [219 ITR 30] BY THE AP HIGH COURT. THE ISSUE IS THEREFO RE FAIRLY COVERED BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE ABOVE CITED CASE WHEREIN IT WAS HELD THAT THE INTEREST ON MARGI N MONEY IS TO BE TREATED AS BUSINESS INCOME OF THE ASSESSEE. THE DECISION RELIED UPON BY THE LD. DR IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD., VS. CIT [227 ITR 172] (SUPRA) AND CIT VS. SPONGE IRON INDIA LTD., [201 ITR 770] (SUPRA), ARE BOTH DI STINGUISHABLE ON FACTS AS IN THOSE CASES THE INTEREST EARNED ON MARG IN MONEY WAS DEPOSITED PRIOR TO SETTING UP OF THE BUSINESS. SIN CE THE BUSINESS I.T.A. NO. 929/HYD/2011 SRI HARSHA CONSTRUCTIONS :- 5 -: INCOME WAS ESTIMATED BY THE AO, NO SEPARATE ADDITIO N IS CALLED FOR. GROUND OF APPEAL NO. 8 IS ACCORDINGLY ALLOWED. 6. AS REGARDS GROUNDS NO. 11 AND 12, WE FIND THAT T HE ASSESSEE HAS CLAIMED THE EXPENDITURE INCURRED DURING THE ARB ITRATION PROCEEDINGS AS EXPENDITURE FOR RECEIVING THE PROCEE DS. BOTH THE AO AS WELL AS THE CIT(A) HAVE DISALLOWED THE SAME H OLDING THAT THE ASSESSEE HAS ALREADY CLAIMED EXPENDITURE RELATING T O THE CONTRACT FOR WHICH THE ARBITRATION PROCEEDINGS HAVE TAKEN PL ACE AND THEREFORE, ALLOWING OF EXPENDITURE CLAIMED BY THE A SSESSEE WOULD RESULT IN ALLOWING DOUBLE DEDUCTION. LD. COUNSEL F OR THE ASSESSEE HAS DRAWN OUR PARTICULAR ATTENTION TO THE ASSESSEE S CONTENTIONS BEFORE THE AUTHORITIES BELOW THAT THE EXPENDITURE I N CONNECTION WITH THE ARBITRATION PROCEEDINGS ALONE ARE BEING CL AIMED AND NOT THE EXPENDITURE IN RELATION TO THE CONTRACT IN RELA TION TO WHICH THE ARBITRATION PROCEEDINGS HAVE TAKEN PLACE. HE HAS A LSO DRAWN OUR ATTENTION TO THE ANNEXURE TO THE PAPER BOOK WHEREIN , THE DETAILS OF THE CLAIM OF THE ASSESSEE ARE GIVEN. THE LD. DR WA S ALSO HEARD. 7. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE ASSESSEE IS NOT CLAIMING T HE EXPENDITURE IN RELATION TO THE CONTRACT BUT IS ONLY CLAIMING THE E XPENDITURE IN RELATION TO THE ARBITRATION PROCEEDINGS. THEY ARE VERY MUCH IN THE NATURE OF EXPENDITURE FOR GETTING THE ARBITRATION A WARD AND ARE ALLOWABLE AS EXPENDITURE INCURRED FOR EARNING OF T HE SAID INCOME. IN OUR OPINION, BOTH THE AO AS WELL AS THE CIT(A) H AVE MISGUIDED THEMSELVES ABOUT THE FACTS IN DISALLOWING THE SAME. IN VIEW OF THE SAME, WE DEEM IT FIT AND PROPER TO REMIT THE ISSUE TO THE FILE OF AO TO VERIFY THE ASSESSEES CLAIM AS REGARDS THE EXPEN DITURE IN RELATION TO THE ARBITRATION PROCEEDINGS AND ALLOW THE SAME I N ACCORDANCE I.T.A. NO. 929/HYD/2011 SRI HARSHA CONSTRUCTIONS :- 6 -: WITH LAW. NEEDLESS TO MENTION THAT THE ASSESSEE SH ALL BE GIVEN A FAIR OPPORTUNITY OF BEING HEARD. GROUND NOS. 11 AN D 12 ARE ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURP OSES. 8. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH NOVEMBER, 2015 SD/- SD/- (S. RIFAUR RAHMAN) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 13 TH NOVEMBER, 2015 TNMM COPY TO : 1. SRI HARSHA CONSTRUCTIONS, 8-3-940, F.NO. 202, TIRUMALA SHAH RESIDENCY, YELLAREDDYGUDA LANE, AMEERPET, HYDERABAD. C/O. B. NARSING RAO & CO., CHARTERED ACCOUNTANT, PLOT NO. 554, ROAD NO. 92, JU BILEE HILLS, HYDERABAD. 2. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-6(1 ), HYDERABAD. 3 . CIT (APPEALS) - I V , HYDERABAD. 4. CIT-III, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.