Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “H” Bench, Mumbai
Before: Shri B.R. Baskaran (AM) & Shri Amit Shukla (JM)
O R D E R Per B.R. Baskaran (AM) :-
The appeal filed by the assessee is directed against the order dated 12.6.2014 passed by the learned CIT(A)-2, Mumbai and it relates to A.Y. 2009- 10. 2. At the time of hearing learned AR did not press ground No. 1 and hence the same is dismissed as not pressed.
Ground No. 2 relates to disallowance made u/s. 35D of the Act and ground No. 3 relates to double disallowance of ` 3.28 crores.
The assessee is engaged in the business of Third party logistics operations for containerized/break-bulk impex/domestic cargo with the impetus on creating Pan India Network of Multimodal Logistics Park/Free
2 M/s. Horizon Countrywide Logistics Ltd.
Trade Warehousing Zone/Inland Clearance Depot/Container Freight Stations/Warehousing. The Assessing Officer noticed that the assessee has incurred share issue expenses aggregating to ` 4.76 crores. After disallowing the preliminary expenses of ` 34,100/-, assessee claimed 1/5th of share issue expenses amounting to ` 95,45,587/- u/s. 35D of the Act. The Assessing Officer, by placing reliance on the decision rendered by Hon'ble madras High Court in the case of Sakthi Finance Ltd. (256 ITR 488), held that the amount spent for increasing the share capital does not qualify for deduction u/s. 35D of the Act. Accordingly, he disallowed claim of ` 95,45,587/- made by the assessee. The learned CIT(A) also confirmed the same.
We have heard the parties on this issue and perused the record. The learned CIT(A) has given finding that the assessee has not issued any shares for public subscription and the same appears to be a case of private placement of equity. The learned CIT(A) has also stated that the assessee has not met any of the required criteria specified in section 35D of the Act. Accordingly, the learned CIT(A) held that the disallowance made by the Assessing Officer was justified. Even though, learned AR argued that the claim made by the assessee is allowable u/s. 35D of the Act, yet he could not convincingly explain as to how this expenditure would fall in the list of expenses specified u/s. 35D of the Act. Further Hon'ble Supreme Court in the case of Brooke Bond India Ltd. (225 IR 798) has held that expenditure incurred in augmenting the share capital is capital in nature. Hence, we do not find any reason to interfere with the order passed by the learned CIT(A) on this issue.
Next issue relates to double addition of interest income. The Assessing Officer noticed that the assessee was engaged in the process of setting up of Mutimodal logistics park/Inland clearance Depot (ICD) at Jhansi in UP and Warehousing Complex at Village Govirle at Navi Mumbai. The company through its subsidiary Fastlane Distripark & Logistics Private Ltd. is setting up a Container Freight Station (CFS), near JNPT at Dighode Village, Panvel Taluka, Raigad District, Maharashtra and through its subsidiary Chiplun
3 M/s. Horizon Countrywide Logistics Ltd.
FTWZ Private Ltd., has initiated plans to set up FTWZ as a Co Developer at Change Village, in Raigad District. The company is also in process of acquisition of land at various places including Umbergaon and Pipavav in Gujarat, Chennai and National capital region to set up CRS/ICD/Multimodal project is classified. The assessee capitalized expenditure incurred in construction of this project under the head “Pre-operative expenditure pending capitalization” (may also be referred as “Capital work in progress”). The Assessing Officer noticed that the assessee has earned interest income of ` 3,28,17,073/- from banks out of fixed deposits. The assessee deducted this interest income from pre-operative expenses and accordingly did not offer the same as its income while computing total income. The Assessing Officer, by pacing reliance on the decision of Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. (227 ITR 172) and also on the decision rendered by Hon'ble Madras High Court in the case of South India Shipping Corporation Ltd. (240 ITR 24) held that interest income is assessable as income of the assessee under the head “income from other sources” u/s. 56 of the Act. Accordingly, he assessed the above said income of ` 3,28,17,073/- as income of the assessee under the head income from other sources. The assessee contested this addition before the learned CIT(A) but did not get any favourable decision. However, the assessee has accepted the decision of Ld CIT(A) rendered on this issue.
We have already noticed that the assessee has reduced interest income from Capital work-in-progress. After deduction of interest income, the assessee disclosed capital work-in-progress at ` 1,02,37,039/-. The Assessing Officer noticed that the Capital work-in-progress actually works out to ` 4,30,54,112/-, after exclusion of interest income. Accordingly the Assessing Officer took the view that increase in work-in-progress by Rs.3,18,17,073/- would also increase the current year’s business profit by ` 3,28,17,073/-. Accordingly, he assessed the above said sum of ` 3,28,17,073/- as business income of the assessee towards under valuation of work-in-progress. The 4 M/s. Horizon Countrywide Logistics Ltd.
learned CIT(A) also confirmed the same. The contention of the assessee is that the tax authorities have made double addition of same item.
We have heard the parties on this issue. We have also noticed that the assessee has reduced capital work-in-progress by interest income of ` 3.28 crores and accordingly disclosed net amount as capital work-in-progress in the books of account. It is pertinent to note that the “Capital work in progress” was not shown in Profit and Loss account, but was rightly shown as a Balance Sheet item. The Assessing Officer has assessed the interest income as income of the assessee under the head ‘income from other sources’. After assessing the said amount, the Assessing Officer has again taken the view that increase in capital work-in-progress would increase business profit of the assessee.
9. In our view there is fallacy in the approach of the Assessing Officer. First of all, it is well settled proposition that entries made in the books of account are not determinative factors for the purpose of determining total income. Hence the assessing officer has assessed interest income, even if it was reduced from Capital work in progress i.e., even if it was shown in Balance Sheet. The question of increase in profit due to enhancement of value of work in progress will arise, only if the work in progress finds place in the credit side of Profit and Loss account. Normally “Revenue work in progress” alone shall be credited to the Profit and Loss account. In the instant case, the Capital work-in-progress was shown as a Balance sheet item and its increase by removing the interest income would increase its value, in the asset side of Balance Sheet. Under double entry system of accounting the “Asset side” of Balance Sheet refers “Debit entry” and hence there should be a corresponding credit entry, which was interest income, in the instant case. The assessing officer has already assessed the interest income.
Any increase in the Asset side of Balance Sheet should have corresponding increase either in Capital Liability (Liability side of Balance Sheet) or in the income (credit side of Profit and Loss account). In the instant
5 M/s. Horizon Countrywide Logistics Ltd. case, we have noticed that the assessing officer has already assessed the interest income (credit entry), whose corresponding debit entry is the increase in the amount of “Capital work in progress”. In any case, since Capital work- in-progress is a Balance sheet item, its increase will not increase the business profit of the assessee, as presumed by the Assessing Officer. Hence, we are unable to agree with the view taken by the tax authorities as the same is against the accounting principles. Accordingly, we set aside the order passed by the learned CIT(A) on this issue and direct the Assessing Officer to delete the addition of ` 3.28 crores made towards under valuation of work-in- progress, as the same results in double addition of same item.
In the result, appeal filed by the assessee is partly allowed. Order has been pronounced in the Court on 21.12.2016