M/S.RICH PRINTS PRIVATE LIMITED,MUMBAI vs. INCOME TAX OFFICER -13(3)(2), MUMBAI

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ITA 5810/MUM/2017Status: DisposedITAT Mumbai23 May 2018AY 2013-145 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal restored the issue to the Assessing Officer for de novo adjudication. The assessee needs to provide documentary evidence to prove that the fixed deposits were kept as margin money against borrowings, as claimed.

What were the facts?

The assessee company earned interest income of Rs. 41,80,326 on fixed deposits, which it did not offer to tax. The assessee claimed this interest was deducted from expenditure and capitalized as business was not yet commenced. The Assessing Officer added this interest income to the assessee's total income.

What were the issues?

Whether interest earned on fixed deposits kept as margin money against borrowings can be reduced from capitalized expenditure instead of being treated as income from other sources. The burden of proof lies with the assessee to establish this claim with documentary evidence.

Which sections of the Income-tax Act were involved?

Section 115JB

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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI

Before: SHRI SAKTIJIT DEY & SHRI MANOJ KUMAR AGGARWAL

For Respondent: Ms. N. Hemalatha

Aforesaid appeal by the assessee is against order dated 1st June 2017, passed by the learned Commissioner (Appeals)–21, Mumbai, for the assessment year 2013–14.

2.

When the appeal was called for hearing, no one was present for the assessee despite service of hearing notice issued through RPAD which is evident from the postal acknowledgment kept on record. In view of the above, we proceed to dispose off the appeal ex–parte qua

2 M/s. Rich Prints Pvt. Ltd. the assessee after hearing the learned Departmental Representative and on the basis of material on record.

3.

The only disputed issue in the present appeal is relating to addition of ` 41,80,326, on account of interest earned on fixed deposits.

4.

Brief facts are, the assessee a company is engaged in the business and manufacturing activity of various types of printers. For the assessment year under dispute, assessee filed its return of income on 9th December 2013, declaring nil income both under the normal provisions as well as under section 115JB of the Income Tax Act, 1961 (for short “the Act”). During the assessment proceedings, on the basis of AIR data, the Assessing Officer found that assessee has received interest income of ` 41,80,326, which was not offered to tax. When the Assessing Officer called upon the assessee to explain the reason for not offering the interest income, it was submitted by the assessee that the interest received during the year along with other income was deducted from total expenditure and only the net expenditure was capitalized. The Assessing Officer did not find merit in the submissions of the assessee. He observed, the assessee has received interest on fixed deposit on which tax has been deducted at source. The assessee has also claimed credit of TDS in the return of income. Therefore, the 3 M/s. Rich Prints Pvt. Ltd.

interest income received has to be treated as income from other sources and added back to the income of the assessee. Accordingly, the Assessing Officer proceeded to complete the assessment. Being aggrieved with the aforesaid addition, assessee preferred an appeal before the first appellate authority.

5.

At the time of hearing of appeal before the first appellate authority it was submitted by the assessee that the fixed deposits giving rise to the interest income were kept towards margin money against the loans borrowed from the Bank. Therefore, it cannot be treated as income from other sources, but, has to be reduced from the expenditure incurred and capitalized. Learned Commissioner (Appeals), however, did not accept the claim of the assessee. Relying upon the decision of the Hon'ble Supreme Court in Tuticorin Alkali Chemical and Fertilizers Ltd. v/s CIT, [1997] 227 ITR 172 (SC) he upheld the addition made by the Assessing Officer. While doing so, he also observed that the assessee did not furnish any evidence in support of its claim that the fixed deposits were in respect of margin money against the borrowings.

6.

We have heard the learned Departmental Representative and perused materials on record. As could be seen, the learned Commissioner (Appeals) has upheld the addition of interest income

4 M/s. Rich Prints Pvt. Ltd. relying upon the decision of the Hon'ble Supreme Court in Tuticorin Alkali Chemical and Fertilizers Ltd. (supra). In the said case, the Hon'ble Supreme Court was called upon to decide the nature of receipt pertaining to interest earned on deposit of surplus funds prior to commencement of business. However, in the present case, it is the claim of the assessee that the fixed deposits on which it has earned the interest income are kept as margin money against borrowings made. It was further claimed that since the business has not commenced, the assessee has reduced the interest income from total expenditure and only net expenditure has been capitalized. Thus, if the aforesaid claim of the assessee is found to be correct, the ratio laid down in case of Tuticorin Alkali Chemical and Fertilizers Ltd. (supra) may not be applicable. However, learned Commissioner (Appeals) has observed that assessee’s claim that the fixed deposits were towards margin money kept against borrowings were not established through documentary evidences. In view of such finding of the learned Commissioner (Appeals), onus is on the assessee to establish on record through proper documentary evidence that fixed deposits on which it has earned interest income are towards margin money kept against the borrowings made. Since, the assessee has not established this fact either before the Departmental Authorities or before us, we are inclined to restore the issue to the Assessing Officer for de novo

5 M/s. Rich Prints Pvt. Ltd. adjudication keeping in vew the facts and materials on record as well as relevant case laws including the decision of the Hon'ble Supreme Court in case of Bokaro Steels v/s CIT, 236 ITR 315 (SC). Needless to say, the Assessing Officer must afford reasonable opportunity of being heard to the assessee. Grounds raised are allowed for statistical purposes.

7.

In the result, assessee’s appeal is allowed for statistical purposes. Order pronounced in the open Court on 23.05.2018

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