WHISTLING WOODS INTERNATINAL LTD, MUMBAI v. ITO 9(3)(4), MUMBAI

1 IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH MUMBAI BEFORE SHRI RAJENDRA SINGH(AM) AND SHRI V.D.RAO (JM) ITA NO.2311/M/2010 ITA NO.2312/M/2010 ASSESSMENT YEAR 2004-05 ITA NO.2313/M/2010 ASSESSMENT YEAR 2005-06 M/S.WHISTLING WOODS INTERNATIONAL LTD. THE ITO 9(3 )(4) MUMBAI FILM CITY COMPLEX GOREGAON (EAST) MUMBAI 400 065. PAN : AAACW 4307 R APPELLANT RESPONDENT ASSESSEE BY : SHRI K.SHIVRAM AND SHRI PA RAS SAVLA REVENUE BY : SHRI PRADEEP HEDAOO O R D E R PER RAJENDRA SINGH (AM) THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST DIFFERENT ORDERS OF CIT(A) DATED 2.2.10 1.2.10 AND 2.2.10 FOR A.YRS. 2 004-05 2004-05 AND 2005- 06 RESPECTIVELY. AS THE ISSUE INVOLVED IN ALL THE A PPEALS ARE SIMILAR THESE APPEALS ARE BEING DISPOSED OFF BY A SINGLE CONSOLID ATED ORDER FOR THE SAKE OF CONVENIENCE. THE ISSUE INVOLVED IS REGARDING ASSESS MENT OF INCOME FROM INTEREST ETC. DURING THE PRE-COMMENCEMENT OF BUSINE SS AS INCOME FROM OTHER SOURCES AS WELL AS LEVY OF PENALTY UNDER SECTION 27 1(1)(C). 2 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE DURING THE RELEVANT PERIOD WAS SETTING UP A RESEARCH AND TRAIN ING INSTITUTE CUM INTEGRATED STUDIO. THE PROJECT WAS STILL UNDER CONSTRUCTION IN THE ASSESSMENT YEARS UNDER REFERENCE. THE SURPLUS FUNDS RECEIVED BY WAY OF SHA RE CAPITAL SUBSCRIPTION HAD BEEN INVESTED BY THE ASSESSEE IN FDR UNITS OF MUTU AL FUNDS AND IN THE FORMS OF LOANS AND ADVANCES. THE TOTAL INCOME FROM RENT INTEREST AND DIVIDEND RECEIVED IN A.YR.2004-05 AND 2005-06 WERE RS.76 40 047/- AND RS. 19 24 204/- RESPECTIVELY AS PER DETAILS GIVEN BELOW : INCOME A.Y.2004-05 A.Y.2005-06 RENT - 15 480 INTEREST ON FD 1 23 411 88 047 INTEREST ON LOANS & ADVANCES 26 93 042 7 11 717 INCOME FROM UNITS OF MUTUAL FUNDS 48 23 594 11 08 963 TOTAL 76 40 047 19 24 204 3. THE AO TREATED THE INCOME FROM INTEREST ETC MENT IONED ABOVE AS INCOME FROM OTHER SOURCES FOLLOWING THE JUDGMENT OF HONBL E SUPREME COURT IN CASE OF TUTICORIN ALKALIS AND CHEMICALS LTD. (272 ITR 172) IN WHICH IT WAS HELD THAT EVEN IN THE PRE-COMMENCEMENT PERIOD INTEREST ON FUN DS BORROWED INVESTED TEMPORARILY IN BANK DEPOSITS HAS TO BE TREATED AS I NCOME FROM OTHER SOURCES. IN APPEAL CIT(A) CONFIRMED THE ADDITIONS MADE IN BO TH THE YEARS. IN ITA NO.2313/M/2010 FOR A.Y.2005-06 THE ASSESSEE HAS CHA LLENGED THE DECISION OF CIT(A) CONFIRMING THE ADDITION. IN ITA NO.2312/M/20 10 IS AGAINST THE ORDER OF CIT(A) CONFIRMING THE APPEAL EFFECT ORDER DATED 25. 5.2009 OF THE AO IN WHICH THE AO DID NOT ALLOW ANY EXPENDITURE RELATING TO TH E INCOME FROM OTHER SOURCES AS THE ASSESSEE GAVE NO DETAILS. IN THE EARLIER ORD ER DATED 14.12.2007 CIT(A) HAD DIRECTED THAT EXPENDITURE INCURRED FOR EARNING THE INCOME FROM OTHER 3 SOURCES SHOULD BE ALLOWED BY THE AO. THE ITA NO.231 1/M/2010 IS THE APPEAL OF THE ASSESSEE AGAINST THE ORDER OF CIT(A) DATED 2.2. 10 CONFIRMING THE PENALTY LEVIED BY THE AO UNDER SECTION 271(1)(C) FOR A.YR.2 004-05. ALL THESE ORDERS HAVE BEEN PASSED EX PARTE WITHOUT HEARING THE ASSES SEE. CIT(A) HAS MENTIONED THAT DESPITE SEVERAL OPPORTUNITIES GIVEN THERE WERE NO COMPLIANCES FROM THE ASSESSEE. ACCORDINGLY THE ORDERS OF AO HAV E BEEN CONFIRMED IN THE EX-PARTE ORDERS. 4. THE LEARNED AR FOR THE ASSESSEE SUBMITTED THAT E VEN IF THERE WAS NO COMPLIANCE FROM THE ASSESSEE CIT(A) WAS REQUIRED TO PASS A REASONED AND SPEAKING ORDER AFTER CONSIDERING THE ENTIRE MATERIA L ON RECORD WHICH HAS NOT BEEN DONE IN THESE CASES. THE ISSUES HAD NOT BEEN E XAMINED PROPERLY. EVEN THE CLAIM OF EXEMPTION OF DIVIDEND INCOME HAS BEEN REJECTED SUMMARILY IN THE APPEAL FOR A.Y.2005-06. THOUGH CIT(A) HAD MADE REFE RENCE TO THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF BOKARO STEEL (232 ITR 315) THE SAME HAS NOT BEEN EXAMINED IN DETAIL. IN CASE OF A.Y.2004-05 CIT (A) HAS DISMISSED THE APPEAL OF THE ASSESSEE IGNORING THE FACT THAT THE A O HAD ALLOWED ONLY ONE OPPORTUNITY FOR SUBMITTING DETAILS OF EXPENSES. IT WAS REQUESTED THAT THE MATTER MAY BE REFERRED BACK TO THE CIT(A) FOR PASS ING A DETAILED AND SPEAKING ORDER AFTER HEARING THE ASSESSEE. THE LEARNED DR RA ISED NO SERIOUS OBJECTION IN THE MATTER. 5. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE M ATTER CAREFULLY. WE FIND THAT ALL THE APPELLATE ORDERS HAVE BEEN PASSED EX-PARTE. THE APPEALS INVOLVE SUBSTANTIAL QUESTION OF LAW AS TO THE ASSES SABILITY OF INCOME FROM RENT INTEREST ETC DURING THE PRE-COMMENCEMENT PERIOD PE NALTY ETC. THE AUTHORITIES BELOW HAVE FOLLOWED THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF 4 TUTICORIN ALKALIS AND CHEMICALS LTD. (SUPRA) IN WHI CH IT HAS BEEN HELD THAT IN THE PRE-COMMENCEMENT PERIOD INTEREST FROM DEPOSITS HAS TO BE ASSESSED INCOME FROM OTHER SOURCES. THE SAID JUDGMENT HAD BE EN SUBSEQUENTLY CONSIDERED BY THE HONBLE SUPREME COURT IN CASE OF BOKARO STEEL LTD. (236 ITR 315) IN WHICH IT WAS HELD THAT INCOME RECEIVED FROM UTILIZATION OF ASSETS DURING THE SETTING UP OF THE PROJECT IN THE PRE-COMMENCEME NT PERIOD SUCH AS INTEREST INCOME FROM ADVANCES TO CONTRACTORS RENT FROM LETT ING OUT OF SPACE TO CONTRACTORS AND HIRE CHARGE OF PLANT AND MACHINERY HAVE TO BE TREATED AS CAPITAL RECEIPT WHICH WOULD GO TO REDUCE THE COST O F THE PROJECT. IN THIS CASE THE MATTER HAS NOT BEEN EXAMINED PROPERLY IN THE LIGHT OF THE SAID JUDGMENT. IT HAS NOT BEEN EXAMINED WHETHER THE FIXED DEPOSITS AND TH E UNITS OF MUTUAL FUNDS WHICH WERE ASSETS OF THE ASSESSEE HAD BEEN USED IN CONNECTION WITH SETTING UP OF THE PROJECT BY WAY OF SECURITY DEPOSIT ETC OR NO T. IT IS ALSO NOT CLEAR WHETHER THE LOANS FROM WHICH THE INTEREST HAS BEEN RECEIVED HAVE BEEN ADVANCED IN CONNECTION WITH SETTING UP OF THE PROJECT OR WERE N OT CONNECTED TO THE PROJECT. THE NATURE OF RENTAL INCOME IN A.Y.2005-06 IS ALSO NOT CLEAR. IN A.Y.2004-05 THE AO DISALLOWED THE CLAIM OF EXPENDITURE IN RELAT ION TO EARNING THE INCOME FROM OTHER SOURCES AFTER ALLOWING ONLY ONE OPPORTUN ITY AND IT IS ALSO NOT CLEAR WHETHER ANY LETTER WAS SERVED ON THE ASSESSEE. CIT( A) HAS CONFIRMED THE ORDER OF AO IN AN EX-PARTE ORDER. THE APPEALS INVOLVED SU BSTANTIAL ADDITIONS AS WELL AS PENALTY. IN OUR VIEW THE ISSUES NEED TO BE EXAMI NED IN DETAIL AND ONE MORE OPPORTUNITY IS REQUIRED TO BE GIVEN TO THE ASSESSEE IN THE INTEREST OF JUSTICE MAKING IT CLEAR THAT IN THE ABSENCE OF ANY RESPONSE IT WILL BE PRESUMED THAT THE ASSESSEE HAS NO EXPLANATION TO OFFER OR HAS NO EVID ENCE TO PRODUCE. WE THEREFORE SET ASIDE THE ORDERS OF CIT(A) AND RESTOR E THE MATTER BACK TO HIM FOR PASSING A DETAILED REASONED AND SPEAKING ORDER AFT ER NECESSARY EXAMINATION IN 5 THE LIGHT OF OBSERVATIONS MADE ABOVE AND AFTER ALLO WING OPPORTUNITY OF HEARING THE ASSESSEE. 6. IN THE RESULT ALL THE APPEALS OF THE ASSESSEE AR E ALLOWED FOR STATISTICAL PURPOSES. 7. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 28.02.2011). SD/- SD/- ( V.D. RAO ) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 28.02.2011 AT :MUMBAI COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) MUMBAI CONCERNED 4. THE CIT MUMBAI CITY CONCERNED 5. THE DR G BENCH ITAT MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI ALK