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Income Tax Appellate Tribunal, MUMBAI BENCHES “J”, MUMBAI
Before: Shri Joginder Singh, & Shri N.K. Pradhan
सुनवाई क" तार"ख / Date of Hearing : 09/07/2018 25/07/2018 आदेश क" तार"ख /Date of Order:
2 M/s Sears Construction Pvt. Ltd. आदेश / O R D E R Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned order dated 26/09/2016 of the Ld. First Appellate Authority, Mumbai. The first ground raised by the assessee pertains to deleting the addition of Rs.9,54,958/- and further not treating the interest received from Oriental Bank of Commerce as income from other sources.
During hearing, the ld. CIT-DR, Shri C.S.Gulati, defended the addition made by the Ld. Assessing Officer and advanced arguments which is identical to the ground raised by inviting our attention to the observation made in the assessment order. On the other hand, the ld. counsel for the assessee, Shri Rakesh Mohan, defended the impugned order by claiming that the issue in hand is covered in favour of the assessee by the order of the Tribunal dated 05/08/2015 (ITA No.6173/Mum/2014) in the case of assessee itself for Assessment Year 2011-12. This factual matrix was not controverted by the Revenue.
3 M/s Sears Construction Pvt. Ltd. 2.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the aforesaid order of the Tribunal dated 05/08/2015 for ready reference and analysis:-
“The assessee has filed this appeal challenging the order dated 29- 08-2014 passed by Ld CIT(A)-7, Mumbai and it relates to the assessment year 2011-12. The assessee is aggrieved by the decision of Ld CIT(A) in confirming the assessment or interest income of Rs.3,44,411/- as income from other sources.
2. I heard the parties and perused the record. The assessee is engaged in the business of construction and development of properties. The assessee purchased a land at Sahar, Andheri by availing loan from bank and also started construction of a commercial building by name Fulcrum. Since the repayment of loan is required to be made in fixed instalments, the assessee company parked its funds in short term deposit. During the year under consideration, the assessee earned interest income of Rs.3,44,411/- from the short term deposits. The assessee treated the same as its business income and accordingly adjusted the same against the Work in Progress account by treating the same as part of business receipts. Since the said interest income was not offered to tax, the assessing officer, by following the decision rendered by the Hon’ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilisers Ltd (227 ITR 172), held that the said interest income is assessable as income from other sources. The Ld CIT(A) also confirmed the same.
Before me, the ld A.R submitted that the decision rendered in the case of Tuticorin Alkali Chemicals and Fertilisers Ltd is not applicable to the assessee, since the said decision was rendered in respect of income earned during the construction period of the project. He 4 M/s Sears Construction Pvt. Ltd. submitted that, in the instant case, the business of the assessee has commenced immediately on purchase of land and hence the income earned during the running of business should be considered as Business income only. Accordingly he submitted that there is no question of determining about the assessment of interest income earned during construction period. In support of this proposition about commencement of business, the Ld A.R placed reliance on the decision rendered by Hon’ble Bombay High Court in the case of CIT Vs. Ralliwolf Ltd (121 ITR 262). He further submitted that an identical issue was considered by the SMC bench of Tribunal in the case of M/s Gamma Constructions P Ltd (ITA No.530/Mum/2012 dated 25.5.2012) and the SMC bench held that the interest earned on short term deposits has nexus with the business of the assessee and hence the same cannot be assessed under the head Income from other sources.
The Ld A.R further submitted that the assessee has reduced the interest income from Work in Progress amount and the WIP amount shall be claimed as revenue expenditure in the subsequent years, meaning thereby the WIP amount shall be allowed only net of interest income. Accordingly he submitted that, at the most, the year of taxation only would get shifted.
On the contrary, the Ld D.R placed reliance on the decision rendered by Hon’ble Madras High Court in the case of South India Shipping Corporation Ltd (240 ITR 24), wherein the Hon’ble Madras High Court has held that the interest income earned from short term deposits is assessable as income from other sources. He also placed his reliance on the decision rendered by Hon’ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilisers Ltd (supra) and submitted that the interest income should be assessed under income from other sources.
I heard rival contentions and perused the record. The undisputed fact is that the assessee is engaged in the business of construction and development of properties. It has purchased land by availing loan from banks and the said land was developed into a commercial building. During the year under consideration, the construction was in progress and hence the amount spent on construction 5 M/s Sears Construction Pvt. Ltd. was declared as “Work in Progress”. Hence there is merit in the contention of the assessee that the business of the assessee has commenced upon purchase of land, since the said land is being developed by constructing a commercial complex thereon.
Now the next question that arises is about the nature of interest income earned from short term deposits parked with banks. The Ld D.R placed reliance on the decision rendered by the Hon’ble Madras High Court in the case of South India Shipping Corporation Ltd (supra). The following observations made by Hon’ble Madras High court are relevant here: “As noticed earlier, the income is required to be brought under one or other heads, having regard to the manner in which it has been earned, or received, the interest received on bank deposits cannot be treated as profits or gains received from carrying on business and once it is not capable of being treated as business income, it has necessarily to be treated as income received from other sources, and taxed accordingly.” Hence, in my view, the nature of interest income should be determined on the basis of facts and circumstances prevailing in each case.
In the instant case, it is stated that the assessee has availed loan for the purpose of purchase of land and the same had to repaid in fixed instalments. Accordingly it is stated that, in order to reduce the interest burden, it has parked surplus funds in short term fixed deposits. Hence, in the instant case, the purpose of parking of funds in deposits is to compensate the part of interest expenditure. Hence, I agree with the contentions of the assessee that the said interest income, under these set of facts, should be assessed as business income only. I find support to my view in the order passed by the SMC bench of Tribunal in the case of M/s Gamma Constructions P Ltd (ITA No.530/Mum/2012 dated 25.5.2012). Accordingly, I set aside the order of Ld CIT(A) on this issue and direct the AO to delete the assessment of interest income under the head income from other sources.
In the result, the appeal filed by the assessee is allowed.”
6 M/s Sears Construction Pvt. Ltd. 2.2. The facts, in brief, are that a search and seizure action under section 132 of the Act and survey action 133A were initiated in the case of Hiranandani Group of cases on 11/03/2014, wherein, the key persons of the group and their premises along with bank lockers were searched/covered. The Ld. Assessing Officer treated the interest income of Rs.9,54,958/-, received from Oriental Bank of Commerce, on Short Term Fixed Deposits as income from other sources. On appeal before the Ld. Commissioner of Income Tax (Appeal), the factual matrix was considered and it was noted that the amount of Rs.9,54,958/-, being the interest on FDR, was reduced from total project development expenses and in the balance sheet, it was shown as project development expenses.
The assessee borrowed the funds from the bank and the Ld. Commissioner of Income Tax (Appeal) considering the decision in the case of CIT vs Bokaro Steel Ltd. 236 ITR 315(Supreme Court), CIT vs Maharashtra Electrosmelt Limited 214 ITR 489(Bom.), CIT vs A.P. Forest Development Corpo. 171 ITR 663(A.P.), Sanam Progetti S.P.A. vs Addl. CIT 132 ITR 70 (Del.), Indian Oil Panipat Power Consortium Ltd. vs Income 7 M/s Sears Construction Pvt. Ltd. Tax Officer 181 taxman 249 (Del.) and another decision from Hon'ble Chennai High Court in CIT vs VGR Foundation 298 ITR 132 (Chennai) and also the decision from Hon'ble Apex Court in Tuticorin Alkali Chemical and Fertilizers Ltd. 227 ITR 172 (Supreme Court), the addition so made was deleted. The Revenue is aggrieved and is in appeal before this Tribunal.
Considering the totality of facts, judicial pronouncements discussed hereinabove and the decision of the Tribunal ((supra)), we find no infirmity in the conclusion drawn in the impugned order as interest earned on FDR, before commencement of projects, was to be treated as capital receipt to be adjusted against pre-operated expenses and is having a direct link with the project/business. It is also noted that in the case of the assessee for Assessment Year 2011-12, similar addition was made, which was decided in favour of the assessee, therefore, even on the principle of consistency unless and until contrary facts are brought on record, no U-turn is permitted. Thus, the stand taken in the impugned order by the First Appellate Authority is quite justified, therefore, we find 8 M/s Sears Construction Pvt. Ltd. no infirmity in the conclusion, resultantly, this ground of the Revenue is dismissed.
3. The next ground raised
by the Revenue is with respect to allowing the claim of purchases made of Rs.50,27,217/- as genuine. The crux of argument on behalf of the Revenue is identical to the ground raised. The Ld. CIT-DR contended that the Ld. Commissioner of Income Tax (Appeal) while coming to a particular conclusion, did not appreciate the crucial aspect and the incriminating evidences gathered by the Revenue during search action and statement of the Managing Director admitting the modus-operandi with respect to bogus purchases. Our attention was invited to various paras of the assessment order as well as impugned order. The crux of the argument is in support of the addition made by the Ld. Assessing Officer. On the other hand, the ld. counsel for the assessee defended the impugned order by inviting our attention to the finding recorded by the Ld. Commissioner of Income Tax (Appeal) by further pleading that the onus cast upon the assessee has been duly discharged as the relevant
9. M/s Sears Construction Pvt. Ltd. details along with supporting evidences were filed by the assessee.
3.1. We have considered the rival submissions and perused the material available on record. Before adverting further, we are reproducing hereunder the relevant finding recorded by the First Appellate Authority for ready reference and analysis:-
“6.3. In Ground NO.3, the appellant has challenged the addition made on account of disallowance of Purchases made from Abhinav Buildmat Pvt. Ltd of Rs. 7,848/-, H.H. Enterprises of Rs 98,618/- and Krishna Structural Steel (India) of Rs 49;20,751/-. 6.3.1. The facts as emerged from the impugned order are that during the course of search action, it was found that the appellant company had shown purchases from these parties in different financial years, which according to the AO were merely accommodation entry providers and not supplying any actual material. Thus in order to verify and ascertain, the statement on oath of Shri Deepak Tukaram Vibhute, Sr. Project Manager Purchase of M/s. Hiranandani Constructions Pvt Ltd and other group concerns were recorded u/s 132(4) on 13.03.2014. In the statement of oath of Shri Deepak Vibhute, it was explained by him that in case of genuine bills, various documents like delivery challan, test report, excise gatepass, weightment slip etc were attached with the bills. The same were found missing in bills of various parties like M/s Pride Steels Pvt. Ltd. Further, the standard operating procedures were not followed. Shri Vibhute further admitted that in case of these bogus bills, out of six checking stages, only two were followed. Further Shri Vibhute admitted that he was unable to justify the purchases debited in the books of accounts of the Hiranandani Group companies. The statement of Shri Vibhute was confronted to Shri Niranjan 10 M/s Sears Construction Pvt. Ltd. Hiranandani and his statement on oath u/s. 132(4) was recorded on 14.03.2014. In the said statement, Shri Niranjan Hiranandani has clearly stated that he is unable to prove the genuineness of the certain allegedly bogus purchases. The company wise breakup furnished by Shri Niranjan Hiranandani in respect of appellant company is tabulated below:
Abhinav Buildmat Pvt. Ltd. Rs.7,848 M/s. Krishna Structural Steel(India) Rs.49,20,751/- H.H. Enterprises Rs.98,618/- Rs.50,27,217 6.3.2. In view of the statement made by Shri Niranajan Hiranandani, the appellant was asked to show-cause as to why the purchases of Rs.50,27,217/- made from the aforesaid parties should not be held non- genuine purchase and WIP be reduced accordingly. 6.3.3. In response, the appellant has submitted that the above purchases are regular purchases in routine course of business. The parties have notpaid the necessary sales tax and, therefore, these parties have been treated as bogus parties. The appellant submitted that they have genuinely made purchases from Abhinav Buildmat Pvt. Ltd, H.H. Enterprises and Krishna Structural Steel (India) and produced copies of the purchase invoices; goods received note and purchase orders in respect of their contention. The appellant also submitted that the payment against these purchases have been made through account payee cheque and produced copy of bank statement in support of the same. 6.3.4. The AO, however, noted that the contention of the appellant is not correct considering the crucial and incriminating evidences unearthed and gathered and the modus operandi detected during the course of search and seizure proceedings and in view of the admission made by the Managing Director, after being confrontation of the evidences gathered. The AO further noted that in the application u/s. 245C m de by the Group Concern of the appellant company before the Settlement Commission, appellant group has admitted to inflation of purchase through bogus purchases accommodation entries. In the appellant case also, bogus purchase bills have been procured 11 M/s Sears Construction Pvt. Ltd. from the same bogus entry providers, which has been admitted as bogus entries by the appellant group in their application u/s. 254C of the I TAct, 1961. The AO thus treated the above purchases of Rs.50,27,217/- as non- genuine purchases and disallowed and added back to the total income of the appellant. 6.3.5. In the appeal, the appellant has submitted that in post search investigation, statement of Shri Niranjan Hiranandani was recorded on 12.05.2014, the total non-genuine purchases quantified during post search proceedings aggregating to Rs.60,28,51,896.50. The said amount was determined by aggregating purchases from parties listed by Maharashtra VAT authorities as suspicious dealers in case of various entities of the group. Group has filed application for settlement in the eleven group cases where amount of purchases involved is Rs.58,47,66,021/-. The said amount of Rs.60,28,51,896.50 included both genuine and non-genuine purchases, which have not been segregated. Purchases from Abhinav Buildmat Pvt. Ltd of Rs. 7,848/-, H.H. Enterprises of Rs 98,618/- and Krishna Structural Steel (India) of. Rs 49,20,751/- which are included in above are genuine purchases. The appellant further submitted that during the course of the search, it was found that entries for purchases were made from parties, who were declared as bogus hawala dealers by sales tax department, by the user ID 'CLA0016' and thus these entries of purchases are bogus. However, in present case, entries in respect of purchases made from Abhinav Buildmat Pvt. Ltd of Rs. 7,848/-, H.H. Enterprises of Rs 98,618/- and Krishna Structural Steel (India)- of Rs 49,20,751/- are passed by user ID 'CLA0076 and E0425'. Thus the above purchases are genuine and fully allowable.
6.3.6. I have considered the facts on hand. The AO has disallowed the appellant's claim of purchases considering the fact with respect to evidences unearthed and gathered and the modus operandi detected during the course of search and in view of the admission made by Shri Niranjan Hiranandani, Managing Director, after having confrontation of the evidences gathered and also application u/s 245C made by the Group Concern of the appellant company before the Settlement Commission for admitting to inflation of purchases through bogus purchases. The AO has, however, not verified the fact that in the appellant'c case the 12 M/s Sears Construction Pvt. Ltd. transactions of purchases were made by the User 'CLA0076 and E0425, which was found to be related to the genuine purchases, and not by the user ID CLA0016, which was found as bogus entry provider of purchase during the course of search. It may be relevant to mention here that the appellant had approached the Settlement Commission in respect of the bogus purchases which were made through entry provider using ID CLA0016 and not through CLA0076 and E0425, which was used for genuine purchases. Hence, I agree with the contention of the appellant that the purchases made from Abhinav Buildmat Pvt. Ltd. of Rs.7,848/-, H. H. Enterprises of Rs.98,618/- and Krishna Structural Steel (India) of Rs.49,20,751/- are genuine and thus, fully allowable. This ground raised by the appellant is also allowed.”
3.2. In the light of the above recording, we are reproducing hereunder a decision from Hon'ble jurisdictional Ltd. (2015) 372 ITR 619 (Bom.):-
7. We have considered the submission on behalf of the Revenue. However, from the order of the Tribunal dated April 30, 2010, we find that the Tribunal has deleted the additions on account of bogus purchases not only on the basis of stock statement, i.e., reconciliation statement but also in view of the other facts. The Tribunal records that the books of account of the respondent-assessee have not been rejected. Similarly, the sales have not been doubted and it is an admitted position that substantial amount of sales have been made to the Government Department, i.e., Defence Research and Development Laboratory, Hyderabad. Further, there were confirmation letters filed by the suppliers, copies of invoices for purchases as well as copies of bank statement all of which would indicate that the purchases were in fact made. In our view, merely because the suppliers have not appeared before the Assessing Officer or the Commissioner of Income-tax (Appeals), one cannot conclude that the purchases were not 13 M/s Sears Construction Pvt. Ltd. made by the respondent-assessee. The Assessing Officer as well as the Commissioner of Income-tax (Appeals) have disallowed the deduction of Rs. 1.33 crores on account of purchases merely on the basis of suspicion because the sellers and the canvassing agents have not been produced before them. We find that the order of the Tribunal is well a reasoned order taking into account all the facts before concluding that the purchases of Rs. 1.33 crores was not bogus. No fault can be found with the order dated April 30, 2010, of the Tribunal.
3.3. If the aforesaid decision is analyzed with the facts of the present appeal, we note that the addition was made by the Ld. Assessing Officer on the basis of information available with the Maharashtra VAT authorities with respect to suspicious dealers. The amount of purchases involved in the present appeal includes both genuine and non-genuine purchases.
There is uncontroverted finding in the impugned order that the purchases from Abhinav Buildmat Pvt. Ltd. of Rs.7,848/-, H.
H. Enterprises of Rs.98,618/- and Krishna Structural Steel of Rs.49,20,751/- which are included in the addition are genuine purchases, which are passed by user ID CLA0076 and EO425. No adverse material was brought to our notice by the Revenue.
So far as, remaining non-genuine purchases are concerned, the assessee approached the settlement commission and a particular decision, wherein, vide application under section 245C made by the Group companies admitted of inflating the 14 M/s Sears Construction Pvt. Ltd. purchases. Thus, for the remaining purchases, we find no infirmity in the conclusion drawn by the Ld. Commissioner of Income Tax (Appeal), consequently, this ground of the Revenue is dismissed.
Finally, the appeal of the Revenue is dismissed.