SHREE RAM URBAN INFRASTRUCTURE LTD,MUMBAI vs. DCIT CIR 7(2), MUMBAI

We are of the considered view that when the reason brought on record by the assessee is duly supported with affidavit filed by the director of the company, we find it sufficient cause to condone the delay in view of the decision rendered by the Honorable Supreme Court in case of Land Acquisition Collector vs. MST Katiji & Others 167 ITR 471 (SC) wherein the Hon’ble Supreme Court has held that “it is on contention of delay that when substantial justice and technical considerations are pitted against each other, the case of substantial justice deserves to be preferred, for the other side cannot claim to have a vested right in injustice being done because of a non deliberate delay” so we condone the delay in filing the present appeal.

The assessee by filing the present appeal, sought to set aside the impugned order dated 22.01.2016 passed by Commissioner of Income Tax (Appeals), Mumbai [hereinafter referred to as the CIT(A)] qua the assessment year 2010-11 on the grounds inter-alia that :- “1. The Hon'ble Commissioner of Income Tax (Appeal) has erred in confirming the Order of Assessing Officer in reducing WIP on account of proportionate disallowance of interest expense of Rs.1,73,04,183/- capitalised to WIP mainly incurred on account of Secured Loans on the pretext that interest free Loans and Advances has been extended from Secured Loans by the appellant. It is submitted that such proportionate interest disallowance worked out by Assessing Officer and confirmed by the Hon'ble Commissioner of Income Tax (Appeal) should be deleted and necessary direction should be given in this regard. 2. The Hon'ble Commissioner of Income Tax (Appeal) has erred in confirming the Order of Assessing Officer in treating business centre income of Rs.1,00,91,601/- generated from providing Business Facility as income taxable under the head "Income from House Property. It is submitted that appellant has during the year continued with the activities of running of business centre and income there from has been regularly offered as business income. It is submitted that such treatment of considering business income as Income from House 3 M/s. Shree Ram Urban Infrastructure Ltd.

We have heard the Ld. D.R. for the Revenue, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and case law relied upon.

The assessee by filing present appeal raised two grounds before the Tribunal:

The Ld. CIT(A) after duly thrashing the facts decided both the aforesaid issues against the assessee by returning following findings: “4. As regards ground No. 1, the facts are that the assessee had taken loan amounting to Rs 411.9 crores against which the interest expenses of Rs 59.91 crores is claimed. At the same time the assessee has given loans and advances amounting to Rs 208,52 crores to various parties. During the assessment proceedings, the AO proposed to disallow proportionate interest. A detailed reply of the assessee is reproduced in the assessment order. The appellant in the submissions admitted that the assessee is having common pool of fund from which advances are given. The AO disallowed interest @ 14.5% as per the ledger of the party. During the appellate proceedings the appellant reiterated the submissions made during the assessment proceedings. In the case of CIT vs. Abhishek Industries Ltd 285 ITR 1 it is held that :- "Entire money in business entity comes in a common kitty. The monies received as share capital, as term loan, as working capital loan, as sale proceeds, etc, do not have any different colour. Whatever are the receipts in the business, that have the colour of business receipts and have no separate identification. Sources have no concern whatsoever. The only thing sufficient to disallow the interest paid on the borrowing to the extent the amount is lent to sister concern without carrying any interest for non business purpose would be that the assessee has some loans or other interest bearing debts to he repaid. In case the assessee had some surplus amount which, according to it, could not be repaid prematurely to any financial institution, still the same is either required to be circulated and utilized for the purpose of business or to be invested in a manner in which it generates income and not that is diverted towards sister-concern free of interest. This would result in not presenting true and correct picture of the accounts of the assessee as at the cost being incurred by the assessee, the sister-concern would be enjoying the benefits thereof. It cannot possibly be held that the funds to the extent diverted to sister-concerns or other persons free of interest were required by the assessee for the purpose of its business and loans to that extent were required to be raised. We do not subscribe to the theory of direct nexus of the funds between borrowings of the funds and diversion thereof for non business purposes. Rather, there should be nexus of use of borrowed funds for the purpose of business to claim deduction under s. 36(1)(iii) of the Act. That being the position, there is no escape from the finding that interest being paid by the assessee to the extent the amounts are diverted to sister-concem on interest free basis are to be disallowed." 6 M/s. Shree Ram Urban Infrastructure Ltd.

As regards ground No. 2, I have considered the submissions made. As clear from the assessment order, the same income has been assessed as "House Property Income in earlier years in which the facts were identical. The appellant has not referred to any adverse decision against the findings of the AO in earlier year. The appellant has submitted that it is managing the business centre and has given amenities to the parties like provision for security, electricity, water provisions etc. It is therefore submitted that income earned is charged for providing business facilities to the parties and is not a plain rent. From the facts, it is clear that the primary intention of the assessee is to earn rent from letting out the property and the ancillary services provided are attached to such letting out of the property. Therefore relying on the decision in the case of Shambu Investments Ltd vs. CIT 263 ITR 143(SC), this ground of appeal is dismissed.”

So far as ground No.2 raised by the assessee is concerned the Ld. CIT(A) confirmed the findings returned by the AO in treating the business centre income of Rs.1,00,91,601/- generated from providing business facilities as income taxable under the head “income from house property” by following the earlier year order. There is nothing on record if the findings returned in the earlier years have been disturbed. The assessee has not come up before the Tribunal to explain as to how the said income is to be treated as business income. So we find no illegality or perversity in the impugned addition confirmed by the Ld. CIT(A). In view of what has been discussed above present appeal filed by the assessee is hereby dismissed.