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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, JM & SHRI MANOJ KUMAR AGGARWAL, AM
आदेश / O R D E R
Per Manoj Kumar Aggarwal (Accountant Member):- 1. Aforesaid appeal by assessee for Assessment Year [in short referred to as ‘AY’] 2012-13 contest the order of Ld. Commissioner of Income-Tax (Appeals)-17, Mumbai, [in short referred to as ‘CIT(A)’], Appeal No. CIT(A)- 17/IT-67/15-16 dated 24/03/2017 on following grounds of appeal: -
A)Disallowance of interest - Rs. 7,03,401/- 1) The learned Commissioner of Income Tax (Appeals) - 17, Mumbai [CIT(A)] erred on facts and in law in confirming the order of the Income Tax Officer - 10(3)(4), Mumbai (AO) disallowing interest of Rs.7,03,401/- without appreciating that the appellant had sufficient non-interest bearing funds to give the advances. 2) The appellant prays that the disallowance of interest of Rs.7,03,401/- as made by the AO and as confirmed by the CIT(A), may be deleted, B)Taxing rent of Rs. 21,150/- 3) The learned CIT(A) erred on facts and in law in confirming the order of the AO taxing the rent received by the appellant of Rs.21,150/- as the income of the appellant. 4) The appellant prays that the addition made by the AO of Rs. 21,150/- on account of rent and as confirmed by the CIT(A), may be deleted. C) Without prejudice taxing the rent on gross basis 5) Without prejudice to the above, the learned CIT(A) erred in confirming the rent receipt of Rs. 21,150/- on gross basis without appreciating that the appellant was entitled to deduction u/s. 24 as per law and only the net rental income could be taxed. 6) If your honours are not inclined to delete the entire income of Rs. 21,150/-, your honours may be pleased to direct the AO to tax the net rental income as against the gross income of Rs. 21,150/-. D)Taxing transfer fees received as income - Rs, 5,00,000/- 7) The learned CIT(A) erred on facts and in law in confirming the order of the AO taxing the transfer fees received by the appellant of Rs. 5,00,000/- as the income of the appellant. 8) The appellant prays that the transfer fees of Rs. 5,00,000/- taxed by the AO and as confirmed by the CIT(A), may be deleted. 9) Without prejudice to the above, the learned AO and the CIT(A) erred in not appreciating that the transfer fees of Rs. 5,00,000/- was a capital receipt and hence could not be taxed as the regular income of the appellant. 10)If your honours are not inclined to delete the entire addition on account of transfer fees of Rs. 5,00,000/-, your honour may be pleased to hold that the receipt of transfer fees is a capital receipt and hence, should be dealt with accordingly.
2.1 Facts on record reveal that the assessee being resident corporate assessee has been assessed u/s 143(3) for impugned AY on 19/03/2015 wherein the income has been assessed at Rs.5.21 Lacs as against Nil return filed by the assessee on 12/11/2012. 2.2 During assessment proceedings, it transpired that the assessee advanced interest-free deposit for Rs.58.61 Lacs whereas the assessee was paying interest @12% on its borrowings. The aggregate borrowings stood at Rs.1338.35 Lacs and the assessee debited interest of Rs.82.68 Lacs under the head work-in-progress [WIP] since the projects were not completed and the assessee was following project completion method of accounting to recognize the revenue. Accordingly, proportionate interest @12% amounting to Rs.7.03 Lacs on stated interest free deposit of Rs.58.61 Lacs was disallowed u/s 36(1)(iii) and reduced from WIP. 2.3 The second adjustment stem from the fact that the assessee received rent from tenant for Rs.21,150/- and tenancy transfer fees of Rs.5 Lacs which was reduced from WIP. However, the same, in the opinion of Ld. AO, was assessable as Income from other sources. The assessee defended its stand by submitting that the assessee was builder and developer and the income on the project would be taxed on project as a whole and not on individual income basis. Reliance was placed on the decision of this Tribunal rendered in ACIT Vs. Skylark Builder 2011 TIOL 400. However, the same could not find favor with Ld. AO who observed that the assessee had purchased bungalow from the owners along with the tenants and the said asset was disclosed as stock-in-trade. Therefore, rent and tenancy fees received did not relate to project in hand. The cited decision was distinguished since in that case TDR received by the assessee was directly related to business of construction. However, in the present case, the assessee had received rent and transfer fees from the tenant of the building purchased for redevelopment and did not relate to the assessee’s construction activities. Therefore, the aforesaid receipts of Rs.5.21 Lacs were assessed as Income from other sources and WIP was enhanced by corresponding amount.
Aggrieved, the assessee agitated the same, however, without any success before Ld. first appellate authority vide impugned order dated 24/03/2017 where the stand of Ld. AO got confirmed. Aggrieved, the assessee is in further appeal before us.
The Ld. Authorized Representative for assessee contested the stand of lower authorities whereas Ld. DR supported the stand in the impugned order. 5. We have carefully heard the rival submissions and perused relevant material on record. The perusal of financial statements as placed on record reveal that the assessee’s free funds in the shape of Share Capital and Reserves far exceeds the interest free deposits granted by the assessee. Another feature to be noted is that there is very minor increase in the deposits during the impugned AY. Therefore, a presumption was to be drawn in assessee’s favor that the stated deposits were made out of free funds available with the assessee unless the nexus of borrowed funds vis- à-vis interest free deposits granted by the assessee could be proved by the revenue. The said proposition is in line with the recent decision of Hon’ble Supreme Court rendered in CIT Vs Reliance Industries Ltd. [410 ITR 466]. Respectfully following the same, we delete disallowance u/s 36(1)(iii) made by Ld. AO. The Ld. AO is directed to nullify the adjustment of the same from WIP. Ground No. A stands allowed. 6.1 So far as the treatment of rental income as well as transfer fees received by the assessee is concerned, we find that the assessee has entered into an agreement for transfer of tenancy rights on 05/10/2011.This agreement is between the outgoing tenants, assessee as landlord and