ITO, WARD - 1(1), KOLKATA, KOLKATA vs. M/S. AMBA HIGH-RISE PVT. LTD., KOLKATA

आयकर अपील�य अधीकरण, �यायपीठ – “B” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH “B” KOLKATA Before Shri N.V.Vasudevan, Judicial Member and Shri Waseem Ahmed, Accountant Member ITA No.2291/Kol/2010 Assessment Year :2007-08 Income Tax Officer, V/s. M/s Amba High-Rise Pvt. Ward-1(1), P-7, Ltd., 68/2, Harish Chowringhee Square, Mukherjee Road, 7th Floor, Kolkata-69 Kolkata-25 [PAN No.AAFCA 7094 L] .. अपीलाथ� /Appellant ��यथ�/Respondent Shri S. Dasgupta, Addl. CIT-DR अपीलाथ� क� ओर से/By Appellant Shri S.S. Gupta, FCA ��यथ� क� ओर से/By Respondent 14-02-2018 सुनवाई क� तार�ख/Date of Hearing 27-04-2018 घोषणा क� तार�ख/Date of Pronouncement आदेश /O R D E R PER Waseem Ahmed, Accountant Member:- This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-I, Kolkata dated 15.09.2010. Assessment was framed by ITO Ward-1(1), Kolkata u/s 144 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 31.12.2009 for assessment year 2007-08 by taking the following effective grounds of appeal:- “1. On the fact and in the circumstances of the case as well as in law, the Ld. CIT(A) erred in deleting the addition of interest received on bank deposits to the extent of Rs.62,57,436/- as income from other sources. 2. On the facts and in the circumstances of the case as well as in law, the Ld. CIT(A) erred in deleting the addition of capital expenditure claimed under the head Loan Syndication charges of Rs.1,26,27,000/- 3. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the disallowance interest expenses of Rs.86,90,220/- on account of Term loan from central Bank of India which was not

ITA No.2291/Kol/2010 A.Y. 2007-08 ITO Wd-1(1), Kol. Vs. M/s Amba High Rise Pvt. Ltd. Page 2 utilized for business purpose and was placed in fixed deposit to earn interest. 4. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the disallowance of compensation paid for Rs.12,60,000/- incurred for acquisition of land without appreciating the fact that the assessee failed to deduct tax at source u/s. 194LA of the IT Act. 5. The appellant craves leave to amend, modify and alter any grounds of al during the course of hearing of this case.” Shri S. Dasgupta, Ld. Departmental Representative appeared on behalf of Revenue and Shri S.S. Gupta, Ld Authorized Representative appeared on behalf of assessee. 2. First issue raised by Revenue in ground No.1 is that Ld. CIT(A) erred in deleting the addition made by the Assessing Officer for ₹62,57,436/- by holding the same as “income from other source”. 3. Briefly stated facts are that assessee is a private limited company which was incorporated on 25.01.2006 and the nature of business of assessee is developing and promoting of land and property. The assessee during the year has taken a term loan from Central Bank of India vide agreement dated 15.11.2006 for the purpose of construction of building. However, there was no utilization of such loan amount, therefore the assessee deposited the same with the ICICI Bank as fixed deposit. Thus, assessee incurred interest cost payable to Central Bank of India for ₹88,99,809/- and simultaneously earned interest income on fixed deposit made with ICICI Bank amounting to ₹71,47,436//- only. Thus, assessee treated the excess amount of interest for ₹17,52,373/- (88,99,809 – 71,47,436) as capital work-in-progress (WIP). 3.1 However, AO was of the opinion that the interest income does not arrive to assessee out of its business activities. Therefore, the same should be treated as income from other sources. Accordingly, AO show caused the assessee for seeking explanation regarding the interest income to be treated as income from other sources. However, the assessee failed to make any reply therefore, AO after having reliance in the judgment of Hon'ble Supreme Court in the case of Tuticorin Alkah Chemicals & Fertilizers Ltd. vs. CIT (1997)

ITA No.2291/Kol/2010 A.Y. 2007-08 ITO Wd-1(1), Kol. Vs. M/s Amba High Rise Pvt. Ltd. Page 3 227 ITR 172 (SC) held that interest will be taxed under the head “income from other sources”. However, the AO while computing the income from other sources has treated 10% of interest expense pertaining to the impugned interest income. Thus, AO disallowed the sum of ₹62,57,636/- (71,47,436 – 8,90,000) treated the same as income from other sources. 4. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that it has commenced its building construction activities by purchasing piece of land and incurring the cost on the same. The assessee has incurred cost of ₹4,15,17,650/- as evident from the Schedule-5 of the balance-sheet along with the land purchased of ₹47.41 crores only. Thus, the principle laid down in the case of Tuticorin Alkah Chemicals & Fertilizers Ltd. (supra) is not applicable to the instant facts of the case. The assessee also referred to the notes issued by the Institute of Chartered Accountant of India for the treatment of expenditure incurred during the construction period. As per the ICAI interest income earned during the construction period may be set off against the interest expenditure incurred during the year. In view of above, assessee prayed before Ld. CIT(A) that the interest income should be treated as income under the head “business” as it was earned after commencement of its construction / business activities. Ld. CIT(A) after considering the submission of assessee deleted the addition made by the AO by observing as under:- “The issue relates to the commencement of the business activities for claiming the interest expenses as part of the construction expenses which has been capitalized during the year. The Appellant provided the details of Balance sheet wherein the details of Land purchase, work in progress expenses, loans secured and unsecured taken by the company are reflected. Reliance was placed on the Andhra Pradesh High Court decision in the case of CIT vs. A.P. Forest Development Corporation in 171 ITR 663. The notes made by the ICAI also suggest that if any particular item of income can be directly attributable to a particular item of expenditure, the net amount should be treated in the appropriate manner depending upon its nature of activities. In the instant case, the Appellant had set off the interest income earned on unutilized amount of secured loan from Central Bank against the interest paid and capitalizing the same as work in progress. In any circumstances, the expenses incurred on interest paid on loan taken for

ITA No.2291/Kol/2010 A.Y. 2007-08 ITO Wd-1(1), Kol. Vs. M/s Amba High Rise Pvt. Ltd. Page 4 working capital is always allowable in the construction bus. The Appellant earned interest because the Appellant made F.D with ICICI Bank on unutilized amount to reduce the cost of interest to the company. The AO's contention of not allowing the interest expenses and treating the interest earned as income from other sources was based on the facts that the business activities had not yet commenced. However, on going through the evidence filed by the appellant, it clearly suggests that the Appellant had commenced its business activity of construction. Therefore, the Appellant is granted the set off of interest income earned with the interest expenses and the balance amount of interest expenses of Rs.17,52,373/- being allowed to be capitalized towards the work in progress. Therefore thee grounds are decided in favour of the Appellant and the Assessing Officer is directed to act accordingly.” Aggrieved by this now Revenue is in appeal before us. 5. Before us Ld. DR submitted that the activities of the assessee has not commenced during the year under consideration as it has not prepared any profit and loss account for the under consideration. The ld. DR further submitted that the land purchased has been classified as fixed assets. Had the business been commenced then the same should have been shown as stock-in-trade. The interest expenses incurred by assessee are intrinsically linked with the business of assessee though the interest income is not arising from the carrying on the business. There is a difference between setting up of the business and commencement of the business. As such there is no evidence suggesting that business of the assessee has been commenced. Ld. DR also submitted that assessee was given an opportunity to justify for treating the impugned interest income as income under the head “business & profession” but assessee failed to avail the same before AO at the time of assessment proceedings. Ld. DR vehemently relied on the order of AO. On the other hand, Ld. AR for the assessee filed paper book which is running pages from 1 to 42 and submitted that the activities of assessee has commenced during the year under consider in the business of real estate. The Act of purchasing the land justifies the commencement of the business of assessee. Ld. AR in support of assessee’s claim relied on the judgment of

ITA No.2291/Kol/2010 A.Y. 2007-08 ITO Wd-1(1), Kol. Vs. M/s Amba High Rise Pvt. Ltd. Page 5 Hon'ble Delhi High Court in the case of CIT vs. Dhomkeetu Builders & Development (P) Ltd. (2013) 368 ITR 680 (Del) and Ld. AR in support of assessee’s claim also relied on the judgment of Hon'ble Gujarat High Court in the case of CIT vs. Saurashtra Cement & Chemical Industries Ltd. (1973) 91 ITR 170 (Guj). In view of above Ld. AR submitted that the amount of interest income should be treated as income from business and profession. Ld. AR also relied on the order of Ld. CIT(A).

ITA No.2291/Kol/2010 A.Y. 2007-08 ITO Wd-1(1), Kol. Vs. M/s Amba High Rise Pvt. Ltd. Page 6 suggesting that interest income during the construction period may be set off against interest expenses incurred during the year. 6.1 From the foregoing discussion, we note that there is no doubt that the assessee has purchased the lands and also incurred cost under the head capital work in progress as evident from the audited balance sheet filed by the assessee which is placed on page 25 of the paper book. Accordingly we are of the view that the principles laid down by the Hon’ble Supreme Court in the case of Tuticorin Alkah Chemicals & Fertilizers Ltd (SUPRA) are not applicable in the case on hand as in that case the activity of the assessee was not commenced. However in the case on hand the activity of the assessee has already been commenced. In this connection, we find support and guidance from the judgment of Andhra Pradesh High Court in the case of CIT vs. Nagarjuna Steel Ltd. reported in 171 ITR 663 (AP) wherein it was held that once the land has been purchased by the assessee, it implies that the activity of the assessee has commenced. The relevant extract of the judgment is reproduced below : “The object of the assessee was not to earn interest on deposits but to do business. It was in the course of setting up a plant, and since all the borrowed money was not needed at once, it put certain moneys in deposits, which earned interest. Hence, the said interest earned on deposits should be set off against the interest paid by the assessee on the loans obtained by it and the balance of the interest amount was to be capitalised.” Besides the above we also note that there is a direct nexus between the interest income and interest expenditure and accordingly if the interest income is to be brought to tax then corresponding expenses should be adjusted against such income. Thus the AO in our considered view erred in treating the interest income as income from other sources without adjusting the cost incurred in earning such interest income.

6.2 In view of above we’re of the view that the order passed by the learned CIT(A) does not require any interference. The order of the ld. CIT(A) is correct

ITA No.2291/Kol/2010 A.Y. 2007-08 ITO Wd-1(1), Kol. Vs. M/s Amba High Rise Pvt. Ltd. Page 7 and as per the provisions of law. Hence the ground of appeal filed by the Revenue is dismissed.

ITA No.2291/Kol/2010 A.Y. 2007-08 ITO Wd-1(1), Kol. Vs. M/s Amba High Rise Pvt. Ltd. Page 8 discussed the unreasonableness of the expenditure incurred by the company. Mere payments made to the company where the directors of the assessee are same does not ipso facto attract section 40A(2)(b) of the Income Tax Act, 1961. Therefore, the Appellant is allowed the expenditure of loan syndication charged and the same is allowed to be capitalized to work in progress. Therefore the above ground is decided in favour of the Appellant.” The Revenue being aggrieved by this order of Ld. CIT(A) is in appeal before us. 10. Before us Ld. DR submitted that necessary details were not furnished by assessee regarding the syndication charges. He stated that assessee has not prepared any profit and loss account for the year under consideration and the impugned expenditures were classified under capital WIP. In view of above, Ld. DR submitted that the AO was handicapped to examine whether the expenditures are unreasonable or excessive. He vehemently relied on the order of AO. On the other hand, Ld. AR submitted that the accounting treatment is not sacrosanct for allowability of the expense. The expenses were incurred for the purpose of assessee’s business which is intrinsically link and therefore same was classified under the head capital WIP. He relied on the order of Ld. CIT. 11. We have heard rival contentions of both the parties and perused the material available on record. At this juncture we find relevant to reproduce the provisions of section 40A of the Act which reads as under : Expenses or payments not deductible in certain circumstances. 4540A. (1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head “Profits and gains of business or profession”. 46(2)(a) Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person47 referred to in clause (b) of this sub-section, and the 48[Assessing] Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction.

ITA No.2291/Kol/2010 A.Y. 2007-08 ITO Wd-1(1), Kol. Vs. M/s Amba High Rise Pvt. Ltd. Page 9 The conditions specified under section 40A of the Act inter alia require to establish the fact that the expenses are excessive and unreasonable. But it has not been pointed out as to how the expenses incurred are excessive or unreasonable having regard to the fair market value of the goods/services/facilities for which payment is made or for the legitimate needs of the business of the assessee or for benefit derived or accruing there from. As to which of those requirements the case of the assessee fell, had not been stated by the Assessing Officer. Therefore, such expenditure cannot be disallowed by invoking the provisions of Section 40(A)(2) of the Act.

The allegation of the AO that the assessee failed to furnish the explanation for making the payment of loan syndication charges is not tenable. It is because the assessee has given the bill raised by AIL which is placed on pages 16 of the paper book. 11.1 We also note that the Revenue cannot put itself in the armchair of the businessman and assume the role to decide as to how much expenditure is reasonable having regard to the circumstances of the case. No businessman can be compelled to maximize his profit. The IT authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act, the authorities must not look at the matter from their viewpoint, but from that of a prudent businessman keeping the commercial expediency.

In view of above, we do not find any infirmity in the order passed by Ld. CIT(A). Therefore the appeal filed by the Revenue is dismissed.

ITA No.2291/Kol/2010 A.Y. 2007-08 ITO Wd-1(1), Kol. Vs. M/s Amba High Rise Pvt. Ltd. Page 10 the AO during the course of assessment proceedings observed that assessee has obtained a loan of ₹ 35 crores from Central Bank of India during the year but the same has not been utilized for the purpose of assessee’s business. Accordingly, the AO disallowed the same and added to the total income of assessee. 14. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who deleted the addition made by the AO.

The Revenue, being aggrieved, is in appeal before us. 15. Before us both parties relied on the order of Authorities Below as favorable to them. 16. We have heard the rival contentions of both the parties and perused the material available on record. At the outset, it was observed that we have already held that assessee has commenced its business activity during the year in ground No. 1 vide Para 5 & 6 of this order. Therefore, we hold that the expenditure by way of interest on term loan has been incurred in connection with the assessee’s business and accordingly same is eligible to be capitalized in the books of account of assessee. Hence we find no infirmity in the order passed by Ld. CIT(A). We uphold the same. This ground of Revenue is dismissed. 17. Last issue raised by Revenue in ground No.4 is that Ld. CIT(A) erred in deleting the disallowance of ₹12.60 lacs on account of compensation paid for the acquisition of land without TDS. 18. The Assessee during the year has purchased the land from M/s Seeyok Niwas and Nivash Pvt Ltd. and Shri Sushil Poddar for ₹ 12 crores and 60 lakh respectively by virtue of sale deed/ agreement of land dated 28.06.2006. However, the AO observed that assessee has not deducted TDS on the payment of purchase of land u/s 194LA of the Act. Accordingly, AO disallowed the same and added to the total income of assessee. 19. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that the land purchased by it was not

ITA No.2291/Kol/2010 A.Y. 2007-08 ITO Wd-1(1), Kol. Vs. M/s Amba High Rise Pvt. Ltd. Page 11 compulsory acquired. Therefore, the provision of Section 194LA of the Act cannot be applied. The Ld. CIT(A) after considering the submission of assessee deleted the addition made by the AO by observing as under:- “This ground relates to the non-deduction of TDS u/s 194LA against payment of compensation of Rs.12,60,00,000/- incurred for acquisition of land. The Appellant argued that the deduction of TDS u/s. 194LA is applicable when there is compulsory acquisition. Further, the Appellant argued that in the instant case, the payment was made for purchase of land to M/s Seeyok Nivash and Nivesh (P) Ltd for Rs.12.00 crores and Shri Sushil Poddar for Rs.60 lakhs respectively on the basis of sale deed agreement of land dated 28.06.2006. In this context, the Assessing Officer’s contention of TDS applicability u/s 194lA, in the instant case is incorrect since the Appellant had purchased the land through sale agreement and the Assessing Officer had not brought any material to prove the contrary. Therefore, the Assessing Officer’s could not prove that the assessee had made compulsory acquisition of this land, so as attract the provisions of section 194LA of the Act. Therefore, the Appellant is allowed to capitalized to the cost of land of Rs.12.60 crores. The AO is directed to revisit this iss9ue and decide this iss9ue afresh.” The Revenue, being aggrieved, is in appeal before us.

ITA No.2291/Kol/2010 A.Y. 2007-08 ITO Wd-1(1), Kol. Vs. M/s Amba High Rise Pvt. Ltd. Page 12 A plain look at the above statutory provision makes it clear that the question of TDS arise when the land has been purchased on account of compulsory acquisition under any law for the time being in force. As there is no ambiguity that no land was purchased by assessee under compulsory acquisition as evident from the sale deed which is placed on pages 21 to 38 of the paper book. Thus, we hold that the impugned transaction for the acquisition of land is outside the purview the provision of Section 194LA of the Act. Hence, we uphold the order of Ld. CIT(A). This ground of Revenue’s appeal is dismissed. 22. In the result, Revenue’s appeal stands dismissed. Order pronounced in the open court 27/04/2018 Sd/- Sd/- (�या$यक सद&य) (लेखा सद&य) (N.V.Vasudevan) (Waseem Ahmed) (Judicial Member) (Accountant Member) Kolkata, *Dkp, Sr.P.S (दनांकः- 27/04/2018 कोलकाता । आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant-ITO, Ward-1(1), P-7, Chowringhee Sq. 7th Floor, Kolkata-69 2. ��यथ�/Respondent-M/s Amba High-Rise Pvt. Ltd. 68/ Harish Mukherjee Road, Kol-25 3. संबं3धत आयकर आयु4त / Concerned CIT Kolkata 4. आयकर आयु4त- अपील / CIT (A) Kolkata 5. 7वभागीय �$त$न3ध, आयकर अपील�य अ3धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड< फाइल / Guard file. By order/आदेश से, /True Copy/ Sr. Private Secretary, Head of Office/DDO आयकर अपील�य अ3धकरण, कोलकाता ।