M/s. Meghmallar Eastate & Services (p) Ltd., Guwahati V. Income Tax Officer, Ward-3(2), Guwahati

ITA 93/GTY/2020

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 8348 (ITAT-GUWAHATI)
• Duration Of Justice: 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 26-05-2020
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: DEVRAJ SAHU
• Keywords: TDS; Set aside
• Section: 201

Judgement Text

ITA NOS. 92,93 & 94/GAU/2020 M/S MEGHMALLAR ESTATES & SERVICES PVT. LTD. A.YS. 2012-13 TO 2014-15 1 | P A GE IN THE INCOME TAX APPELLATE TRIBUNAL GAUHATI BENCH: GUWAHATI VIRTUAL HEARING AT KOLKATA [BEFORE SHRI A. T. VARKEY, JM] I.T.A. NOS. 92,93 & 94/GAU/2020 ASSESSMENT YEARS: 2012-13 TO 2013-14 M/S MEGHMALLAR ESTATE & SERVICES PVT. LTD. (PAN: AABCM 4362 R ) VS. ITO, WARD-3(2), GUWAHATI APPELLANT RESPONDENT DATE OF HEARING (VIRTUAL) 13.01.2021 DATE OF PRONOUNCEMENT 15.01.2021 FOR THE APPELLANT SHRI DEVRAJ SAHU, ADVOCATE FOR THE RESPONDENT SHRI ARUP CHATTERJEE, ADDL. CIT SR. D.R ORDER THESE ARE APPEALS FILED BY THE ASSESSEE AGAINST THE ORDERS OF LD. CIT(A)- GUWAHATI DATED 23.12.2019 FOR A.YS. 2012-13 TO 201 4-15. 2. AT THE OUTSET, THE LD. ADVOCATE REPRESENTING THE ASSESSEE COMPANY SHRI DEVRAJ SAHU SUBMITTED THAT ONLY ONE ISSUE IS INVOLVED IN T HESE THREE APPEAL AND GROUND NO. 3 WHICH IS REGARDING CERTAIN DIRECTIONS GIVEN BY THE LD. CIT(A) TO THE AO IN THE IMPUGNED ORDERS ARE NOT BEING PRESSED. 3. PER CONTRA, THE LD. D.R FOR THE DEPARTMENT SHRI ARUP CHATTERJEE, ADDL. CIT SR. D.R ACCEPTED THAT OTHER THAN THE DIRECTION OF LD. CIT(A), THERE WAS ONLY ONE ISSUE IN THESE APPEALS I.E. IN RESPECT OF TAXABILITY OF INTEREST INCOME . IN THE LIGHT OF THE AFORESAID SUBMISSIONS, I NOTE THAT THE ONLY ISSUE THAT IS BEING ASSAILED BEFORE ME IS IN RESPECT OF TAXABILITY OF INTEREST INCOME, WHICH TH E ASSESSEE HAS RECEIVED IN ALL THE THREE ASSESSMENT YEARS. THE LD. ADVOCATE FOR THE AS SESSEE HAS SUBMITTED THAT HE IS NOT ITA NOS. 92,93 & 94/GAU/2020 M/S MEGHMALLAR ESTATES & SERVICES PVT. LTD. A.YS. 2012-13 TO 2014-15 2 | P A GE PRESSING THE GROUNDS REGARDING THE DIRECTIONS GIVEN BY THE LD. CIT(A) IN THE IMPUGNED ORDERS. SINCE THE ISSUES ARE COMMON, THE A PPEAL FOR AY 2012-13 IS TAKEN AS LEAD CASE AND THE DECISION ON IT WILL BE FOLLOWED I N THE OTHER TWO APPEALS. 4. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE FOR AY 2012-13 READS AS UNDER: 1. THE LD. CIT(A), GUWAHATI-2, IS LEGALLY NOT JUST IFIED TREATING THE INTEREST INCOME RECEIVED FROM THE FIXED DEPOSIT CREATED OUT OF THE LOAN FUND RECEIVED FROM NEDFI. HENCE, THE IMPUGNED ORDER IN APPEAL IS NOT S USTAINABLE IN LAW AND LIABLE TO BE SET ASIDE. 2. THE LD. CIT(A), GUWAHATI-2, COMMITTED AN ERROR I N INTERPRETING THE PROVISIONS OF SECTION 57(III) OF THE IT ACT, 1961 A ND FAILED TO SET OFF THE INTEREST INCOME / RECEIPT AGAINST THE INTEREST EXPENDITURE P AYABLE TO NEDFI. HENCE, THE IMPUGNED ORDER-IN-APPEAL IS NOT SUSTAINABLE IN LAW AND IS LIABLE TO BE SET ASIDE IN THE ENDS OF JUSTICE. 3. THAT THE LD. CIT(A), GUWAHATI-2, IS NOT LEGALLY JUSTIFIED DIRECTING THE AO TO REVIEW THE SHARE PREMIUM ACCOUNT WHICH IS NOT THE D ISPUTE IN THE ASSESSMENT ORDER WHICH WAS APPEALED BEFORE THE LD. CIT(A), GUWAHATI- 2. 5. GROUND NO.3 SINCE NOT BEING PRESSED BY THE ASSES SEE WHICH IS REGARDING DIRECTIONS GIVEN BY THE LD. CIT(A), STANDS DISMISSE D. 6. COMING TO THE SOLE ISSUE THAT IS BEING CANVASSED IN GROUND NO. 1 AND 2 IS REGARDING THE TAXABILITY OF INTEREST INCOME THE ASS ESSEE HAD RECEIVED FROM THE FIXED DEPOSITS. 7. BRIEF FACTS OF THE CASE AS NOTED BY THE AO IS T HAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND IS ENGAGED IN THE BUSINESS OF R EAL ESTATE DEVELOPMENTS & CONSTRUCTION OF FLATS. THE AO OBSERVED THAT THE ASS ESSEE DURING THE COURSE OF CARRYING ON THE BUSINESS OF CONSTRUCTION PROJECTS HAD CAPITA LIZED ITS DIRECT AND INDIRECT EXPENSES ATTRIBUTABLE TO PROJECTS UNDERTAKEN AS WORK-IN-PROG RESS AND SHOWN THE SAME IN THE BALANCE SHEET. THE AO NOTED THAT THE ASSESSEE HAS C LAIMED TDS CREDIT IN RESPECT OF INTEREST INCOME FROM BANKS. HOWEVER, ACCORDING TO AO, CORRESPONDING INTEREST INCOME IS NOT SHOWN WHILE COMPUTING TOTAL INCOME FO R THE YEAR UNDER CONSIDERATION. THE AO ALSO NOTED THAT THE ASSESSEE HAS INTEREST IN COME FROM FIXED DEPOSITS IN PUNJAB ITA NOS. 92,93 & 94/GAU/2020 M/S MEGHMALLAR ESTATES & SERVICES PVT. LTD. A.YS. 2012-13 TO 2014-15 3 | P A GE & SINDH BANK AND M/S ASSAM GRAMIN BIKASH BANK TO TH E TUNE OF RS. 12,69,212/-. (THE DETAILS OF WHICH HE HAS REPRODUCED AT PAGE 2 O F THE ASSESSMENT ORDER). ACCORDING TO AO, THE INTEREST INCOME RECEIVED BY TH E ASSESSEE SHOULD BE TAXED AND HE ACCORDINGLY TAXED IT. 8. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFOR E THE LD. CIT(A) WHO CONFIRMED THE ORDER OF THE AO BY OBSERVING AS UNDER : I HAVE GONE THROUGH THE ABOVE SUBMISSIONS OF THE A PPELLANT AND HAVE CONSIDERED THE FACTS AND EVIDENCES ON RECORD. IN THE PRESENT APPEAL THE APPELLANT HAS RAISED TWO GROUNDS OF APPEAL. HOWEVER, BOTH THESE GROUNDS IMPUGN THE DISALLOWANCE OF INTEREST CLAIMED BY THE APPELLANT WITH RESPECT TO THE LOAN FROM NORTH EASTERN DEVELOPMENT FINANCE CORPORATION LTD (NEDFI). THE APPELLANT HAS STATED THAT THE LOAN AVAILED BY THE APPELLANT FROM NEDFI WAS USED BY IT FOR SOURCING THE FDRS. IT WAS ON THESE FDRS THAT THE APPELLANT HAD E ARNED INTEREST INCOME, WHICH WAS DULY APPEARING IN THE ITS DATA/26AS OF THE APPELLANT. TH E AO FOUND THAT THE APPELLANT DID NOT OFFER THE INTEREST INCOME FOR TAXATION AND, IN THE ABSENCE OF ANY EXPLANATION FORTHCOMING, THE AO ADDED THE INTEREST INCOME EARNED FROM FDR AS THE INCOME OF THE APPELLANT. PER CONTRA, THE APPELLANT HAS STATED THAT IT HAD DU LY OFFERED THE CORRESPONDING INCOME FOR TAXATION. THE APPELLANT HAS CONTENDED THAT THE INTE REST INCOME WAS EARNED FROM FDRS AND THE CORRESPONDING FDRS WERE SOURCED OUT OF THE LOAN FROM NEDFI. SINCE THE INTEREST COST ON LOAN FROM NEDFI WAS HIGHER THAN THE INTEREST INCOME FROM FDR, THE APPELLANT HAS DEDUCTED THE INTEREST COST AGAINST THE INTEREST INCOME AND T HE EXCESS DEFICIT OF INTEREST COST OVER INTEREST INCOME WAS DEBITED BY THE APPELLANT TO THE CAPITAL WORK IN PROGRESS IN THE BOOKS OF ACCOUNTS OF THE APPELLANT. THUS, THE CONTENTION OF THE APPEL LANT IS THAT THE AO DID NOT APPRECIATE THIS ASPECT AND HAS INSTEAD MADE THE ADDITION ON ACCOUNT OF INTEREST INCOME. BE THAT AS IT MAY BE, IT IS NOTED THAT AT THE FIRST INSTANCE, THE APPELLANT HAD NOT OFFERED THE INTEREST INCOME FOR TAXATION AND UPON BEING SO CONF RONTED BY THE AO AND UPON THE AFORESAID INTEREST INCOME BEING SO ADDED TO ITS RETURNED TOTA L INCOME, DURING THE COURSE OF APPELLATE PROCEEDINGS, THE APSE ANT HAD MADE AN ALTERNATIVE C LAIM OF ALLOWABILITY OF THE INTEREST COST UNDER SECTION 57(1)(III) CONTENDING THAT THE SAID I NTEREST COST HAD BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING THE SAID INT EREST INCOME. IT IS NOTED THAT THE CLAIM OF THE APPELLANT THAT T HE SAID INTEREST INCOME WAS REQUIRED TO BE NETTED AND BE EITHER REDUCED OR INCREASED FROM THE COST OF CAPITAL WIP WOULD HAVE BEEN PERMISSIBLE HAD THE BUSINESS OF THE APPELLANT NOT C OMMENCED. IN THIS CASE, AS WOULD BE NOTED IN THE SUBSEQUENT PARAS, THE APPELLANT HAD RECEIVED SUBSTANTIAL AMOUNTS OF ADVANCES AGAINST THE BOOKING OF SPACES AND, THUS, IT IS UNDISPUTED T HAT THE BUSINESS OF THE APPELLANT HAD COMMENCED AND, THEREFORE, IT IS CLEAR THAT THE INIE REST INCOME WAS REQUIRED TO BE TAXED AND CANNOT BE ALLOWED TO BE SET-OFF WITH THE INTEREST C OST [REFER THE JUDGMENT OF THE HON'BLE APEX COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. (1997) 227 ITR 172], FURTHER, THE APPELLANT HAS NOT BEEN ABLE TO PROVE A S TO HOW THE INTEREST RECEIVED WAS 'INEXTRICABLY LINKED' WITH THE CAPITAL WIP AND, THU S, IT IS CLEAR THAT THE INTEREST INCOME WAS LIABLE TO BE TAXED. ITA NOS. 92,93 & 94/GAU/2020 M/S MEGHMALLAR ESTATES & SERVICES PVT. LTD. A.YS. 2012-13 TO 2014-15 4 | P A GE ALSO, IN THE ABSENCE OF LINKAGE OF THE INTEREST IN COME WITH THE INTEREST CLAIMED, IT CANNOT BE SAID AS TO WHETHER THE PURPORTED INTEREST COST WAS IN RESPECT OF THE INTEREST INCOME EARNED. THEREFORE, THE CONTENTIONS RAISED BY THE APPELLANT IN THE APPELLATE SUBMISSIONS ARE EITHER UNTENABLE OR ARE INCORRECT. IN VIEW OF THE ABOVE DI SCUSSION, THE IMPUGNED ADDITION MADE BY THE AO IS, HEREBY, SUSTAINED. THE ABOVE GROUNDS OF APPEAL ARE, ACCORDINGLY, DISMISSED. 9. AGGRIEVED THE ASSESSEE HAS PREFERRED THE GROUND NO. 1 AND 2 [ SUPRA ] BEFORE ME. 10. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORDS. THE LD. ADVOCATE FOR THE ASSESSEE SHRI DEVRAJ SAHU HAS SUBMITTED THAT THE AS SESSEE COMPANY IS INTO THE REAL ESTATE DEVELOPMENT AND CONSTRUCTION OF FLATS AND HA D COMMENCED THE PROJECT NAMED TARUN NAGAR PROJECT IN THIS ASSESSMENT YEAR. ACCORD ING TO LD. ADVOCATE, FOR THIS PROJECT, THE ASSESSEE HAD ACQUIRED THE LAND AND GOT NECESSARY APPROVAL FOR THE CONSTRUCTION OF FLATS FROM GUWAHATI MUNICIPAL DEVEL OPMENT AUTHORITY ( HEREINAFTER REFERRED TO AS THE GMDA). ACCORDING TO LD. ADVOCATE, FOR THE EXECU TION OF THE PROJECT / CONSTRUCTION OF FLATS AT TARUN NAGAR PROJ ECT, THE ASSESSEE HAD TAKEN LOAN OF RS. 3 CRORES (APPROXIMATELY) FROM NEDFI (FINANCIAL INSTITUTION IN NORTH EAST). HOWEVER, ACCORDING TO LD. ADVOCATE, SOME LOCAL DISP UTE AROSE WHICH LED TO LITIGATION AND THE PROJECT DURING THESE ASSESSMENT YEARS BECAM E STAND-STILL. THEREFORE, ACCORDING TO HIM, THOUGH THE PROJECT COMMENCED, BY ACQUIRI NG AND HAVING TAKEN THE APPROVAL FROM GMDA, THE FLATS COULD NOT BE CONSTRUCTED AT T HE PROJECT SITE DUE TO LIS-PENDENS . AND SINCE RS. 3 CRORES WAS BORROWED FROM NEDFI FOR THE PROJECT (TARUN NAGAR), THOUGH THE PROJECT GOT STALLED, THE ASSESSEE HAD TO INCUR RECURRING COST OF BORROWING TO THE LENDER/NEDFI. IN SUCH A SCENARIO, THE ASSESSEE IN ORDER TO REDUCE THE COST OF BORROWING HAD DEPOSITED LOAN AMOUNT IN PUNJAB & SIN DH BANK AS WELL AS IN ASSAM GRAMIN BIKASH BANK AS NOTED BY THE AO AT PAGE 2 OF HIS ORDER. BY DOING SO, THE ASSESSEE RECEIVED INTEREST INCOME TO THE TUNE OF RS . 12,69,212/- FROM THE SAID FIXED DEPOSITS AND AT THE SAME TIME THE ASSESSEE HAD INCU RRED THE INTEREST EXPENDITURE TO NEDFI, WHICH HAS BEEN NETTED BY THE ASSESSEE IN ITS COMPUTATION/BOOKS AND THE NET AMOUNT WAS CAPITALIZED AND SHOWN AS WORK IN PROGRES S (HEREINAFTER REFERRED TO AS WIP) WHICH ACTION OF ASSESSEE HAS NOT BEEN ACCEPTED BY THE AO AND THE AO HAS TAXED ITA NOS. 92,93 & 94/GAU/2020 M/S MEGHMALLAR ESTATES & SERVICES PVT. LTD. A.YS. 2012-13 TO 2014-15 5 | P A GE THE INTEREST INCOME OF RS. 12,69,212/- UNDER THE HE AD OTHER INCOME AND TAXED IT. ACCORDING TO LD. ADVOCATE SINCE THE ASSESSEE HAS CO MMENCED THE PROJECT, THE INTEREST EXPENDITURE SHOULD BE NETTED WITH THAT OF THE INTER EST RECEIVED AND ONLY THE NET AMOUNT SHOULD BE BROUGHT TO TAX. I NOTE THAT THE LD. CIT(A ) HAS NOTED THAT THE ASSESSEE HAS COMMENCED ITS PROJECT (TARUN NAGAR PROJECT) AND SIN CE THE INTEREST AMOUNT FROM THE FIXED DEPOSITS ARE INTRINSICALLY LINKED TO THE BUSI NESS/PROJECT WHICH HAS ADMITTEDLY COMMENCED, THEREFORE THE INTEREST EXPENDITURE NEED TO BE ALLOWED U/S 36(1)(III) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS TH E ACT); AND IN THAT EVENT ONLY THE NET AMOUNT CAN BE TAXED [ I.E. THE INTEREST RECEIVED MINUS INTEREST EXPENDITU RE ]. THEREFORE, THE IMPUGNED ORDERS ARE SET ASIDE AND IT IS DIRECTED THAT ONLY THE NET INTEREST AMOUNT SHOULD BE TAXED AND IT CAN ONLY BE BROUGHT T O TAX IN ACCORDANCE TO LAW. 11. IN THE RESULT, THE THREE APPEALS OF THE ASSESSE E ARE PARTLY ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 15 TH JANUARY, 2021. SD/- ( (A. T. VARKEY) VICE PRESIDENT JUDICIAL MEMBER DATED: 15 TH JANUARY, 2021. SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. APPELLANT- M/S MEGHMALLAR ESTATES & SERVICES PVT. L TD., H. NO. 39, B. N. SAIKIA ROAD, SURVEY, BELTOLA, GUWAHATI, 28, PIN-78 1028 2. RESPONDENT- ITO, WARD-3(2), GUWAHATI 3. THE CIT(A)- GUWAHATI 4. CIT- , GUWAHATI 5. DR, GAUHATI BENCH, GUWAHATI TRUE COPY BY ORDER SR. PRIVATE SECRETARY ITAT, KOLKATA BENCHES, KOLKATA