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Income Tax Appellate Tribunal, JAIPUR BENCHES “A”, JAIPUR
Before: SHRI RAMESH C SHARMA, AM & SHRI VIJAY PAL RAO, JM vk;dj vihy la-@ITA No. 522/JP/2018
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES “A”, JAIPUR Jh jes'k lh 'kekZ] ys[kk lnL; ,oa Jh fot; iky jko] U;kf;d lnL; ds le{k BEFORE: SHRI RAMESH C SHARMA, AM & SHRI VIJAY PAL RAO, JM vk;dj vihy la-@ITA No. 522/JP/2018 fu/kZkj.k o"kZ@Assessment Year :2007-08 cuke Suncity Landmark Townships I.T.O., Vs. Pvt. Ltd., Ward 3(4), S-4, Sun N Moon Chambers, Jaipur. Linking Road, Near Ajmer Puliya, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAJCS 6847 D vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal (CA) jktLo dh vksj ls@ Revenue by : Shri J.C. Kulhari (JCIT) lquokbZ dh rkjh[k@ Date of Hearing : 23/01/2019 mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 05/02/2019 vkns'k@ ORDER PER: VIJAY PAL RAO, J.M.
This appeal by the assessee is directed against the order dated 15/03/2018 of ld. CIT(A)-I, Jaipur for the A.Y. 2007-08. The assessee has raised following grounds of appeal: “1. The Ld. CIT(A) has erred on facts and in law in upholding the order of the Assessing Officer in taxing the interest income of Rs. 11,61,823/- under the head ‘income from other sources’ but at the same time not directing the AO to compute loss under the head ‘income from business’ at Rs. 16,39,113/-.
2. The Ld. CIT(A) has erred on facts and in law in not giving finding on the alternate contention of the assessee that by assessing the interest income of Rs. 11,61,823/- as income from other sources and ITA 522/JP/2018_ 2 Suncity Landmark Vs. ITO at the same time not allowing the business loss which the assessee has made it as a part of stock-in-trade, such amount has been taxed twice.
3. The assessee craves to amend, alter and modify any of the grounds of appeal.
4. The appropriate cost be awarded to the assessee.”
The assessee is a company incorporated on 08/02/2005 with the object to construct commercial and residential complex. The assessee company participated in the auction for purchase of commercial land from Jaipur Development Authority (JDA) and was highest bidder. The assessee was accordingly allotted the land measuring 4643.36 sq.mt. at Swej Farm Scheme, New Sanganer Road, Jaipur vide letter dated 18/4/2006 for consideration of Rs. 11.83 crores which was subsequently revised to Rs. 12.62 crores. The assessee paid the initial amount of Rs. 1.18 crores and the balance amount was to be paid as per terms of the allotment letter of the JDA. However, in the mean time, a public interest petition was filed before the Hon'ble High Court and therefore, further payment was kept in abeyance. Subsequently the JDA gave no objection/assurance to Rajasthan Finance Corporation for finance of the project of the assessee and also assured that in case of any adverse decision, the JDA will refund the cost of land alongwith interest @ 6% per annum. The assessee thereafter received advance booking amount of Rs. 1.25 crores which was advanced by the assessee to various parties and ITA 522/JP/2018_ 3 Suncity Landmark Vs. ITO earned interest of Rs. 11,61,823/- during the year under consideration.
The assessee has treated the said interest income as business income of the assessee and also debited the advertisement, exhibition and loan application charges against the said income and finally shown the NIL income in the return of income. The Assessing Officer reopened the assessment to assess the said interest income as income from other sources instead of business income. The Assessing Officer held that since the lending activity of the assessee is an independent activity and not connected with the business activity, therefore, the interest income is assessed under the head income from other sources. The assessee challenged the action of the Assessing Officer before the ld. CIT(A) but could not succeed.
Before us, the ld AR of the assessee has submitted that once the assessee commenced its business in the F.Y. 2005-06 itself then the interest on the surplus amount is nothing but business income of the assessee. Since the assessee has incurred expenditure of Rs. 16,39,112/- under various head, which are mainly on advertisement, exhibition expenses, consultancy charges etc., therefore, the outcome is business loss under the head profit and gain of business. Thus, the ld AR has submitted that the receipt of interest of Rs. 11,61,823/- is assessable as business income under the head profit and gains of business and thus,
ITA 522/JP/2018_ 4 Suncity Landmark Vs. ITO the net business loss is assessable to tax. Alternatively, the ld AR has submitted that even if the interest income is assessed under the head income from other sources, it would be set off against the business loss of Rs. 16,39,112/- and the net result would be same, therefore, the ld AR has submitted that the addition made by the Assessing Officer is not sustainable and the same may be deleted. He has pointed out that since the assessee has already shown this expenditure during the year under consideration and it was not considered as part of the cost of building under construction in the subsequent year, therefore, it will amount to double taxation on the same amount.
On the other hand, the ld DR has submitted that the lending is a separate activity and has no connection with the business of the assessee, therefore, the Assessing Officer has rightly treated the interest income as income from other sources. Further the assessee has not done any business during the year under consideration, therefore, the expenditure incurred by the assessee can be capitalized to the cost of the project but cannot be allowed as business loss during the year under consideration. He has relied upon the orders of the authorities below.
We have considered the rival submissions as well as relevant material on record. The dispute is only regarding the treatment of interest
ITA 522/JP/2018_ 5 Suncity Landmark Vs. ITO income as income from other sources and the expenditure incurred by the assessee can be set off against the interest income. We find that the assessee after allotment of the land by the JDA has also received advance booking amount of Rs. 1.25 crores and in that process the assessee has incurred an expenditure of Rs. 16,39,112/- under the head advertisement, exhibition expenses, consultancy charges etc.. Thus, these activities of the assessee clearly reveals the commencement of the business by the assessee. Even otherwise the Assessing Officer while dealing with the issue has accepted the fact that the assessee has commenced its business in the F.Y. 2005-06. The relevant part of the Assessing Officer’s finding is as under:
“A private limited company can start business immediately after incorporation and does not require any certificate to commence business. Perusal of company financial statements reveal that the company has commenced its business even prior to the year under consideration i.e. FY 2005-06 where the company has given advance for land and taken booking advance from customers among other things. In the present case, the assessee was not bound by any statutory or regulatory obligations to land the funds and it was mere utilization of idle funds which the company had managed to raise. The lending of money was an independent and unrelated activity which was in no way an integral part of construction activity of the assessee. Thus, interest earned on idle funds cannot be capital receipt.”
After accepting the fact that the assessee has commenced his business, the Assessing Officer treated the lending of money as an independent and ITA 522/JP/2018_ 6 Suncity Landmark Vs. ITO unrelated activity and consequently the interest on said lending was treated as income from other sources. Though, the ld AR has contended that since the money was given on interest as it was not required for business purposes in the immediate future, however, we find that it is not a case of interest income earned by the assessee which is incidental to the business activity of the assessee but the assessee has given the loans in the market for earning the interest and therefore, the interest was earned by the assessee on intentional activity of lending. It is not a simple case of parking the money in the bank but the assessee has deliberately given the advances in the market for earning the interest. Hence, we concur with the view of the Assessing Officer on the point that the interest earned by the assessee from giving loan by the assessee in the market is income from other sources and not the business income.
However, since the assessee already commenced the business in the F.Y.
2005-06 and has now incurred expenditure of Rs. 16,39,112/- on account of advertisement, exhibition, consultancy charges which are an allowable business expenditure, then the said business expenditure will be business loss for the year under consideration for want of any business income and consequently the interest income assessed as income from other sources would be set off against the business loss as per the provisions of Section 71 of the Act. Therefore, we find merits in the alternative contention of ITA 522/JP/2018_ 7 Suncity Landmark Vs. ITO the ld AR that the business loss can be set off against the interest income.
Hence, we direct the Assessing Officer to allow the interest income to be set off against the business loss in the shape of the expenditure of Rs. 16,39,112/- subject to the verification of the fact that the said expenditure has not been added to the cost of the project in the subsequent year.
In the result, appeal of the assessee is partly allowed. Order pronounced in the open court on 05th February, 2019.
Sd/- Sd/- ¼jes'k lh 'kekZ½ ¼fot; iky jko½ (RAMESH C SHARMA) (VIJAY PAL RAO) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 05th February, 2019 *Ranjan आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- Suncity Landmark Townships Pvt. Ltd., 1. Ajmer. izR;FkhZ@ The Respondent- The I.T.O., Ward 3(4), Jaipur. 2. vk;dj vk;qDr@ CIT 3. vk;dj vk;qDr¼vihy½@The CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 522/JP/2018) 6. vkns'kkuqlkj@ By order,
सहायक पंजीकार@Aेेज. त्महपेजतंत