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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAMIT KOCHAR
Aforesaid appeal of the assessee is directed against the order dated 6th February 2013, passed by the learned Commissioner (Appeals)–20, Mumbai, for the assessment year 2009–10.
Ground no.1, is in relation to claim of interest income as income from business as against income from other sources as held by the Assessing Officer.
2 Neha Home Builders Pvt. Ltd.
Briefly stated the facts are, assessee a company filed its return of income on 23rd September 2009, declaring total income of ` 45,96,355. Assessee is engaged in business as a builder and developer. During the assessment proceedings, Assessing Officer while verifying the Profit & Loss account noticed that assessee has credited interest on fixed deposit amounting to ` 5,20,821 and interest on loan amounting to ` 53,02,988, as business income. He, therefore, called upon the assessee to show cause as to why the interest income earned should not be treated as income from other sources. In response to the query raised by the Assessing Officer, it was submitted by the assessee that as the surplus found available was temporarily parked in fixed deposit and advancement of loan, interest earned therefrom should be treated as business income. The Assessing Officer, however, did not accept the claim of the assessee. He observed, assessee is not in the business of giving loans and advances as he is engaged in the business as a developer and builder. He further observed, assessee during the year has not earned any business income from such activities, whereas, against the interest income earned, assessee has claimed various expenses. Ultimately, Assessing Officer held that the interest income earned by the assessee has to be treated as income from other sources. As a consequence he also disallowed the expenses claimed and included them in the work–in–progress (WIP). Being
3 Neha Home Builders Pvt. Ltd. aggrieved of such decision of the Assessing Officer, assessee preferred appeal before the first appellate authority.
Before the learned Commissioner (Appeals), though the assessee reiterated its stand taken before the Assessing Officer and supported the same by relying upon the decision of the learned Commissioner (Appeals) in case of Mamta Enterprises, however, learned Commissioner (Appeals) did not found merit in the submissions of the assessee. He held, the surplus funds invested in fixed deposit and advancement of loan is without any business consideration. Therefore, income derived therefrom is not incidental to the business activities. Distinguishing the facts of the case relied upon, learned Commissioner (Appeals) observed, in the case relied upon, advance received from customers was temporarily invested with bank and other concerns, whereas, that is not the fact in assessee’s case. With the aforesaid observation, learned Commissioner (Appeals) upheld the decision of the Assessing Officer. Being aggrieved, assessee is in appeal before the Tribunal.
Learned Authorised Representative, more or less, reiterating the stand taken before the departmental authorities and submitted, in assessee’s case also, advance received from customers was utilized for investment in fixed deposit and loans. In support of such contention,
4 Neha Home Builders Pvt. Ltd. he referred to Schedule–VII and VIII of Balance Sheet as on 31st March 2009. Learned Authorised Representative submitted, advance received since could not be utilized at a time as the construction was carried on stage by stage, the unutilized fund was temporarily invested in loans and fixed deposits with bank till its utilization for development work. He, therefore submitted, the interest earned thereon has to be treated as business income. Learned Authorised Representative submitted, in case of assessee’s sister concern, similar nature of dispute has been decided in favour of the assessee by the Tribunal. Further, he submitted, there is no dispute that the assessee has incurred the expenditure as the Assessing Officer has added the same to WIP. He submitted, therefore, the expenditure incurred in any case of the matter has to be allowed. Therefore, whether the income is assessed as business income or income from other sources, effect would be same as it is tax neutral. Finally, learned Authorised Representative submitted, though the assessee had been carrying on its business activity from earlier years and shown the interest income earned on temporary investment of unutilized funds in fixed deposits and loans as business income, the Assessing Officer has never assessed it as income from other sources in any earlier or subsequent assessment years even though assessments had all along been completed under section 143(3) of the Act. In support of such 5 Neha Home Builders Pvt. Ltd. contention, assessee invited attention of the Bench to the assessment orders passed for the assessment year 2010–11 and 2011–12. He, therefore, submitted, there is no reason to treat the interest income of the assessee as income from other sources in the impugned assessment year. Further, in support of his contention, learned Authorised Representative relied upon the decisions of ITAT in case of DCIT v/s Gundecha Builders, ITA no.3906/Mum./2014, dated 5th January 2016.
Learned Departmental Representative relying upon the observations of the learned Commissioner (Appeals) submitted, as the funds utilized for investment on fixed deposit or loan has no relevance to the business of the assessee, the interest earned thereon cannot be treated as business income.
We have considered the submissions of the parties and perused the material available on record. As could be seen, the issue in dispute is whether the interest income earned on fixed deposit / loans to be treated as business income as claimed by the assessee or income from other sources as held by the authorities below. It is the contention of the assessee that the idle funds lying with the assessee since could not be utilized at a time in the business activities were temporarily parked in fixed deposit and loans till they are needed for construction work. In 6 Neha Home Builders Pvt. Ltd.
this context, the assessee has referred to Schedule–VIII to the Balance Sheet to show that the funds received were from advances from customers and till they were required to be expended were invested in fixed deposits and loans. We find substantial force in the aforesaid contention of the assessee. There is no dispute to the fact that assessee is engaged in the business as builder and developer. Therefore, though funds were available with the assessee for utilization in the business activities from advances received capital and reserve, etc., but they cannot be utilized at a time as the construction activity carries on over a period of time. Therefore, as a prudent businessman if the assessee decides to park the unutilized idle fund available in fixed deposit / loan till they are required for the business activity, in our view, it cannot be considered to be not connected with the business activity of the assessee. In any case of the matter, the funds available with the assessee are receipts from business activity. It is further observed, similar dispute also arose in case of assessee’s sister concern Gundecha Builders, ITA no.3906/Mum./2014, dated 5th January 2016. Tribunal referring to its earlier order in case of the same assessee and other sister concerns, held as under:–
“22. We have considered the submissions of the parties and perused the material available on record. The dispute in the aforesaid ground is confined to the issue whether interest income earned on utilization of surplus business
7 Neha Home Builders Pvt. Ltd. fund is to be assessed under the head “Business” as claimed by the assessee or as “Income From Other Sources” as held by the Assessing Officer. The learned Commissioner (Appeals) has decided the issue in favour of the assessee by following the orders of the Tribunal passed in case of two other sister concerns of the assessee viz. Minal Enterprises and Mamta Enterprises wherein the Tribunal upheld assessee‟s claim that interest earned on surplus business funds is to be assessed under the head “Business”. Though, we agree with the learned Departmental Representative that the co–ordinate bench of the Tribunal in Mamta Enterprises for the assessment year 2005–06 and 2006–07 has decided the issue against the assessee but fact remains that subsequently the co– ordinate bench of the Tribunal in the case of same assessee i.e., Mamta Enterprises while deciding the appeal for the assessment year 2004–05 in ITA no.8713/Mum./2010, order dated 27th June 2013, has decided the issue in favour of the assessee by following the decision of the co–ordinate bench in case of another sister concern Minal Enterprises vide ITA no.8185/Mum./ 2010, dated 16th April 2013. The observation of the Tribunal is as under:– 2. At the outset it was pointed out by Ld. A.R that similar appeal was filed by the revenue in the case of the group concern namely M/s. Minal Enterprises and Tribunal vide its order dated 16/04/2013 in has upheld the order of Ld. CIT(A). A copy of the said order was placed on our record and a copy was also given to Ld. D.R. It was observed that the ground raised by the revenue in the present case is exactly similar to the aforementioned group case. For the sake of completeness the said order is reproduced below: “The present appeal is directed against the order dt.14.10.2010 passed by the CIT(A)-34, Mumbai. Following Grounds of Appeal have been raised by the Assessing Officer (AO) 1. “On the facts & in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the Assessing Officer to treat the interest income of the assessee as business income instead of income from other sources
8 Neha Home Builders Pvt. Ltd. ignoring the fact that the case is covered by the decision of High Court, Bombay in the case of Shree Krishna Polyster Ltd. Vs. Deputy Commissioner of Income tax (274 ITR 271).
2. On the facts and circumstances of the case and in law, the Ld. CIT(‟4} erred in allowing the interest paid on unsecured loans against the above stated interest income considering it to be business income. The appellant prays that the order of the CIT‟A,) on the grounds be set aside and matter may he decided according to law. The appellant craves leave to amend or alter any ground or add new ground which may be necessary.” 2.Assessee-firm,engaged in the business of builders and developers, filed its return of income on 31.10.2007 declaring total income at Rs 1.76 Crores. Assessment was finalized u/s. 143(3) of the Act by the AO on 15.12.2009 determining total income of the assessee at Rs.1.83 Crores. 2.1..Effective Ground of the appeal is about treating the interest income amounting to Rs. 1,92, 00,094/- earned by the assessee under the head „business income‟ and not under the head „income from other sources‟ .During the assessment proceedings, AU found that assessee had claimed that income earned by it for the AY under consideration should be assessed as business income and interest paid by it should be allowed u/s.57 of the Act. After considering the facts of the case AO held that income of the assessee was to be taxed under the head income from other sources. He further held that interest paid by the assessee was not allowable either u/s. 36(l)(iii) or u/s 57 of the Act. 2.2.Assessee preferred an appeal before the First Appeal Authority(FAA).After considering the submissions of the assessee and the assessment order he held that the same issue in the case of sister concern M/s. Mamta Enterprises (ME) for the same assessment year had arisen before his predecessor and it was decided in favour of the appellant, that same AO had passed the orders for M/s. ME for AYs. 2005-06 & 2006-07 as well as for the assesse firm, that there was no material difference in either the action of the AO or 9 Neha Home Builders Pvt. Ltd.
the facts and circumstances of both the cases. Following the Order of his predecessor in the case of M/s. ME and relying upon the judgments of the Hon‟ble High Courts of Karnataka and Bombay in the cases Satish Chandra & Co.(234 ITR 70) and Lok Holdings(3081TR356) decided the issue in favour of the assessee. He held that interest earned on surplus funds of business should be assessed as business income and not as income from other sources. He further directed the AO to allow the interest paid against the same , accordingly as per the provisions of Act. 2.3. Before us, Departmental Representative(DR) supported the order of the AO. Authorised Representative (AR) submitted that AO had treated the interest-income as business income in the case of M/s.ME, the sister concern, on identical facts, that assessee was engaged in the business of advancing money and the interest received by it was to be assessed under the head business. He relied upon the judgment of jurisdictional High Court delivered in the case of Lok Holdings (supra).The brief relevant facts of the case are that M/s. Lok Holdings, a firm involved in the business of development of properties, received monies in advance from customers intending to purchase flats in the properties as developed by it. These monies were of the nature of booking! advances. Since these monies received could not be immediately utilised for the business of the firm, so surplus amounts from such money received was temporarily invested with banks and other concerns. Such deposits with accrued interest and same was assessed by the AU as income from other sources. FAA and Tribunal held that interest income was to be assessed as business income. Revenue preferred an appeal before the Hon‟ble High Court. While deciding the question of law as whether the interest income earned by the assessee was assessable as „income from business‟ or as „income from other source Hon‟ble Court dismissed the appeal of the Revenue. We find that the facts of the case under consideration are similar to the facts of M/s. Lok Hodings. We also find that on similar facts AO; in the case of the sister concern; has held that the interest- income had to be assessed as business income. Respectfully, following the judgment of the Hon‟ble Jurisdictional High Court delivered in the case of Lok Holdings we confirm the order of the FAA.
10 Neha Home Builders Pvt. Ltd.
Grounds of appeal filed by the AO are decided against him. As a result appeal filed by the AO stands dismissed.
3. In this view of the situation, after hearing both the parties, respectfully following the aforementioned order passed by the Co-ordinate Bench, as the facts are and circumstances are same we dismiss the appeal filed by the revenue.
23. Therefore, following the view expressed by the Tribunal in case of Mamta Enterprises and Minal Enterprises, which have been passed subsequent to the order of the Tribunal in case of Mamta Enterprises for the assessment year 2005–06 and 2006–07, we uphold the view of the learned Commissioner (Appeals) to the effect that interest income earned by the assessee under the head “Business”. Accordingly, ground no.4, raised by the Department is dismissed.”
The ratio laid down in the aforesaid decision clearly applies to the facts of the present case. Even otherwise also, as could be seen, the assessee had been earning interest income on fixed deposits and loans right from the start of its business activities from the preceding assessment year and all along had treated it as business income. It is also evident from record the Assessing Officer for the preceding and subsequent assessment years, had accepted assessee’s claim by treating it as business income. Though, the principle of res judicata do not strictly apply to tax statutes as each assessment year is a independent unit but if a particular issue permeating through different assessment years has been accepted by both the parties, consistently,
11 Neha Home Builders Pvt. Ltd. then such view should not be disturbed unless there is change in fact and law. In the present case, the Department has not been able to demonstrate any change either in the facts or law between the earlier assessment years and in the impugned assessment year. That being the case, there is no justifiable reason on the part of the Assessing Officer to take a different view as far as the interest income earned for the impugned assessment year is concerned. In the aforesaid view of the matter, we accept assessee’s claim that interest income earned on fixed deposit and loans are the business income of the assessee. This ground is allowed.
In ground no.2, assessee has challenged the disallowance of expenditure claimed of ` 16,40,533.
As could be seen, from the assessment order, the Assessing Officer having treated the interest income earned as income from other sources instead of business income as claimed by the assessee, disallowed the expenditure claimed of ` 16,40,533 and included it in work–in–progress. However, considering the fact that while deciding ground no.1, we have directed the Assessing Officer to treat interest income earned on fixed deposit and loan as assessee’s business income, corresponding expenditure claimed by the assessee has to be 12 Neha Home Builders Pvt. Ltd.
allowed. Accordingly, we direct the Assessing Officer to allow the same. Ground no.2, is allowed.
In ground no.3, assessee has raised the issue of claim of deduction of ` 67,500 under section 80G of the Act.
The assessee, in its return of income, claimed deduction of ` 67,500 under section 80G of the Act. However, while framing the assessment, the Assessing Officer completely ignored assessee’s claim of deduction.
The learned Commissioner (Appeals), while deciding the ground raised by the assessee claiming deduction under section 80G, directed the Assessing Officer to verify assessee’s claim of deduction under section 80G and if upon verification it is found that assessee has made such claim in the return of income and donation was to an approved institution, deduction is to be allowed.
Having heard the parties, we do not find any infirmity in the directions of the learned Commissioner (Appeals). Though, in the course of hearing, learned Authorised Representative has brought to our notice certain receipts to substantiate its claim that assessee has made donation to approve institutions but in our view, such claim has to be verified by the Assessing Officer as at the time of assessment, he
13 Neha Home Builders Pvt. Ltd. has not examined the same. In the aforesaid view of the matter, we direct the Assessing Officer to verify assessee’s claim of deduction under section 80G, after taking into consideration facts and materials brought on record and decide the issue in accordance with the provisions of law. Ground no.3, is allowed for statistical purposes.
Ground no.4, relating to interest charged under section 234B and 234C of the Act, being consequential and ground no.5, against initiation of penalty proceedings under section 271(1)(c, being pre– mature at this stage, are not required to be adjudicated upon.
In the result, appeal is partly allowed. Order pronounced in the open Court on 23.03.2016