ISLAND STAR MALL DEVELOPERS P. LTD, MUMBAI v. ASST CIT 6(1), MUMBAI

ITA 5078/MUM/2014 | 2010-2011
Pronouncement Date: 31-07-2015 | Result: Partly Allowed

Appeal Details

RSA Number 507819914 RSA 2014
Assessee PAN AABCI4988F
Bench Mumbai
Appeal Number ITA 5078/MUM/2014
Duration Of Justice 11 month(s) 25 day(s)
Appellant ISLAND STAR MALL DEVELOPERS P. LTD, MUMBAI
Respondent ASST CIT 6(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2015
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted SMC
Tribunal Order Date 31-07-2015
Assessment Year 2010-2011
Appeal Filed On 05-08-2014
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH MUMBAI BEFORE SHRI G.S. PANNU ACCOUNTANT MEMBER ITA NO . 5 078 / MUM./ 2014 ( ASSESSMENT YEAR : 20 10 11 ) M/S. ISLAND STAR MALL DEVELOPERS P. LTD. C/O MARKET CITY RESOURCES PVT. LTD. R.R. HOISERY BUILDING SHRI L AXMI WOLLEN MILLS ESTATE DR. E. MOSES ROAD MAHALAXMI MUMBAI 400 011 PAN AABCI4988F .. APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 6(1) MUMBAI .... RESPONDENT ASSESSEE BY : SHRI VIJAY MEHTA REVENUE BY : SHRI G .N. MAKAWANA DATE OF HEARING 1 6 .0 7 .2015 DATE OF ORDER 31.07.2015 O R D E R PER G.S. PANNU ACCOUNTANT MEMBER TH E PRESENT APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE IMPUGNED ORDER DATED 11 TH JUNE 2014 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) 14 MUMBAI FOR THE ASSESSMENT YEAR 20 10 11 . THE G ROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS FOLLOWS : ' 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED AO ERRED IN CONSIDERING THE INTEREST INCOME OF ` 7 35 675 AS INCOME FROM OTHER SOURCES. THE APPELLANT M/S. ISLAND STAR MALL DEVELOPERS P. LTD. 2 PRAYS THAT THE SAID TREATMENT OF THE A.O. MAY KINDLY BE ORDERED TO BE DELETED AND THE ACTION OF THE APPELLANT OF REDUCING THE SAME FROM THE CAPITAL WORK IN PROGRESS BE UPHELD. 2. WITHOUT PREJUDICE TO THE CONTENTIO N RAIDED IN GROUND NO.1 IN RELATION TO NON TAXABILITY OF THE INTEREST INCOME AND ASSUMING THAT THE INTEREST INCOME IS TAXABLE AS INCOME FROM OTHER SOURCES WE SUBMIT THAT THE APPELLANT BE GRANTED DEDUCTION UNDER SECTION 57 OF THE ACT. ACCORDINGLY THE APP ELLANT PRAYS THAT THE A.O. BE DIRECTED TO ASSESS THE INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES AFTER ALLOWING THE PERMISSIBLE DEDUCTIONS AND INTEREST PAID UNDER SECTION 57 OF THE ACT. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAS RECEI VED INTEREST ON DEPOSIT FROM CORPORATION BANK AMOUNTING TO ` 7 35 675 AND IT WAS OBSERVED BY THE ASSESSING OFFICER FROM AUDIT REPORT THAT THE ASSESSEE HAS NETTED OFF INTEREST EARNED ON FIXED DEPOSIT S OF ` 7 35 674 AGAINST VARIOUS EXPENDITURES UNDER THE H EAD PROJECT DEVELOPMENT EXPENSES . IT WAS ALSO OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS NOT COMMENCED BUSINESS DURING THE IMPUGNED ASSESSMENT YEAR AND HENCE NETTING OFF OF INTEREST CANNOT BE ALLOWED AGAINST THE PROJECT DEVELOPMENT EXPENDI TURE. THE ASSESSEE SUBMITTED BEFORE THE ASSESSING AUTHORITY THAT IT IS IN THE BUSINESS OF DEVELOPMENT OF COMMERCIAL RETAIL AND ENTERTAINMENT COMPLEX ES . DURING THE CURRENT YEAR THE ASSESSEE WA S ENGAGED IN A PROJECT OF DEVELOPMENT OF INTEGRATED MARKET COMP LEX AND EXPENSES INCURRED ARE CAPITALISED AS CAPITAL WORK IN PROGRESS HENCE THE ASSESSEE COMPANY HAS NOT CLAIMED ANY EXPENDITURE DURING THE YEAR. THE ASSESSEE SUBMITTED THAT M/S. ISLAND STAR MALL DEVELOPERS P. LTD. 3 IT HAD FILED THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION DECLARING THE INCOME OF ` NIL AS NO PROFIT & LOSS ACCOUNT WAS PREPARED. THE ASSESSEE SUBMITTED THAT THE PROJECT HAS NOT YET BEGUN AND IT IS IN THE PRE OPERATIVE STAGE AND IT INVESTED TEMPORARILY THE FUNDS IN ULTRA SHORT TERM FIXED DEPOSIT WHICH YIELDED INCOME OF ` 7 3 5 674 WHICH WAS SET OFF AGAINST THE TOTAL CAPITAL WORK IN PROGRESS OF ` 28 65 84 591 AS ON 31 ST MARCH 2010. THE ASSESSEE ALSO SUBMITTED THAT THE INTEREST HAS BEEN EARNED BY INVESTING THE LOAN FUNDS AVAILABLE WITH I T IN ULTRA SHORT TERM FIXED DEPOSIT OF 1 1 TO 30 DAYS AND EARNED INTEREST @ 2% TO 4% WHEREAS THE COST OF THE BORROWING WAS ABOUT 13%. THE ASSESSING OFFICER REJECTED THE CONTENTION OF THE ASSESSEE AND HELD THAT IT IS THE DEPLOYMENT OF THE SURPLUS FUNDS AND THE INTEREST INCOME ON FDR IS TO BE CHA RGED TO TAX AS INCOME FROM OTHER SOURCES UNDER SECTION 56 OF THE ACT. THE ASSESSING OFFICER HELD THAT THE HON'BLE SUPREME COURT IN TUTICORIN ALKALI CHEMICALS & FERTILISERS LTD. V/S CIT [1997] 227 ITR 172 (SC) HAS UPHELD THAT THE INTEREST ON DEPLOYMENT OF SURPLUS FUNDS IS CHARGEABLE TO TAX UNDER SECTION 56 OF THE ACT. 3. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER THE ASSESSEE FILED APPEAL BEFORE THE LEARNED CIT(A) AND REITERATED ITS STAND WHICH WAS REJECTED BY THE LEARNED CIT(A) . AGGRIEVED THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. M/S. ISLAND STAR MALL DEVELOPERS P. LTD. 4 4. THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED BEFORE ME THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF COMMERCIAL RETAIL AND ENTERTAINMENT COMPLEX. THE ASSESSEE TOOK ME THROUGH THE AUDIT ED ACCO UNTS FOR THE YEAR ENDING 31 ST MARCH 2010 WHICH SHOWED THAT ` 359.04 CRORE HAS BEEN INVESTED TOWARDS THE FIXED ASSETS INCLUDING CAPITAL WORK IN PROGRESS. THE ASSESSEE SAID THAT THERE IS NO INCOME EARNED DURING THE YEAR AS THE CAPITAL WORK IN PROGRESS WAS TH ERE FOR THE CONSTRUCTION AND DEVELOPMENT OF AN INTEGRATED MARKET COMPLEX AT W HITE F IELD BANGALORE. THE ASSESSEE SUBMITTED THAT IT HAS RAISED LOANS OF ` 194.43 CRORES AS AT 31 ST MARCH 2000 FOR THE SAID PROJECT. THE ASSESSEE STATED THAT IT HAD BORROWED FUN DS FROM DIFFERENT BANKS VIDE COMMON LOAN AGREEMENT DATED 23 RD MARCH 2007 OF WHICH CORPORATION BANK IS ONE OF THE LENDERS. THE ASSESSEE HAS DEPLOYED THE FUND FOR ULTRA SHORT TERM FIXED DEPOSIT OF ABOUT 11 TO 30 DAYS OUT OF BORROWINGS FROM THE BANKS AND EAR NED INTEREST INCOME THEREON @ 2% TO 4% WHILE THE BORROWING S FOR THE PROJECT CARRIED INTEREST RATE OF 13%. THE ASSESSEE ALSO SUBMITTED THAT THE ENTIRE INTEREST EXPENDITURE ON BORROWINGS FROM THE BANK IS BEING ADDED TO THE CAPITAL WORK IN PROGRESS AS THE PRO JECT IS IN THE PRE OPERATIVE STAGE. INTEREST INCOME OF ` 7 35 674 EARNED ON THESE ULTRA SHORT TERM FIXED DEPOSIT WITH THE BANK IS REDUCED FROM THE CAPITAL WORK IN PROGRESS AS THE FUNDS RAISED FROM THE BANKS ARE INEXTRICABLY M/S. ISLAND STAR MALL DEVELOPERS P. LTD. 5 LI NKED WITH THE SETTING UP OF T HE INTEGRATED MARKET COMPLEX. THE ASSESSEE ALSO RELIED UPON THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN INDIAN OIL PANIPAT POWER CONSORTIUM LTD. V/S ITO [2009] 315 ITR 235 (DEL.). IT WAS CONTENDED THAT THE HON' BLE DELHI HIGH COURT HAS DULY CONSIDERED THE DECISIONS OF HON'BLE SUPREME COURT IN TUTICORIN ALKALI CHEMICALS & FERTILISERS LTD. (SUPRA) AND CIT V/S BOKARO STEEL LTD. (SUPRA) AND IT SQUARELY APPLIES TO THE PRESENT CASE . HENCE THE ASSESSEE SUBMITTED THAT THE ADDITION OF ` 7 35 674 BEING INTEREST ON FDR S NEED TO BE DELETED AS THE FUNDS DEPOSITED IN FDR S ARE IN EXTRICABLY LINKED TO THE SETTING UP OF THE PROJECT. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT IN VIEW OF THE DECISIONS OF THE HON 'BLE SUPREME COURT IN TUTICORIN ALKALI CHEMICALS & FERTILISERS LTD. (SUPRA) THIS ADDITION NEEDS TO BE UPHELD. 6. I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS OBSERVED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION OF SHOPPING CENTERS SHOPPING MALLS ARCADES AS PER THE MAIN OBJECT OF MEMORANDUM OF ASSOCIATION OF THE ASSESSEE COMPANY. IN THE CURRENT YEAR ASSESSEE IS ENGAGED IN THE DEVELOPMENT OF AN INTEGRATED MARKET COMPLEX AT WHITE FIELD BANGALORE A ND THE SAID PROJECT IS STILL UNDER THE IMPLEMENTATION STAGE. THE ASSESSEE HAS M/S. ISLAND STAR MALL DEVELOPERS P. LTD. 6 RAISED TERM LOANS FROM BANK FOR THE PROJECT AND DURING THE YEAR ITS TERM LOAN FROM THE BANK HAS INCREASED TO ALMOST ` 194.36 CRORES FROM AN AMOUNT OF ` 114.29 CRORES LAST YEAR. THE VALUE OF CAPITAL WORK IN PROGRESS AS ON 31 ST MARCH 2010 STANDS AT ` 194.34 CRORES AS AGAINST ` 106.01 CRORES AS ON 31 ST MARCH 2009. THE ASSERTION OF THE ASSESSEE IS THAT THE TERM LOANS RAISED FROM THE BANK ARE FULLY RAISED FOR THE PURPOSE OF THE P R OJ ECT AND THE INTEREST PAYABLE ON SUCH LOANS IS BEING CAPITALIZED. THE ASSESSEE HAS NOT EARNED ANY INCOME DURING THE YEAR EXCEPT THE INTEREST OF ` 7 35 674 ON ULTRA SHORT TERM FIXED DEPOSIT S. THE SAID INCOME HAS BEEN CAPITALIZED I.E. ASSESSEE HAS REDUCED IT FROM THE FIGURE OF CAPITAL WORK IN PROGRESS. THE CLAIM OF THE ASSESSEE IS THAT THE IMPUGNED INTEREST INCOME IS INEXTRICABLY LINKED TO THE SETTING UP OF THE PROJECT AND THUS IT IS A CAPITAL RECEIPT WHICH IS PERMISSIBLE TO BE SET OFF AGAINST THE CAPITAL W ORK IN PROGRESS. ON THE CONTRARY THE STAND OF THE REVENUE IS THAT SINCE THE ASSESSEE HAS NOT COMMENCED ITS BUSINESS THE NETTING OFF OF INTEREST INCOME OF FDRS IS NOT PERMISSIBLE AND SUCH INCOME OF ` 7 35 675 IS TO BE TAXED AS INCOME FROM OTHER SOURCES FOLLOWING THE RATIO OF THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILISERS LTD. (SUPRA). 7. FIRST OF ALL IT IS FACTUALLY EVIDENT THAT THE INTEREST HAS BEEN EARNED ON FDRS KEPT WITH BANKS FOR A VERY SHORT PERIO D OF TIME. THE M/S. ISLAND STAR MALL DEVELOPERS P. LTD. 7 DETAILS ARE PLACED IN THE PAPER BOOK AT PAGES 23 TO 25 WHICH SHOW THAT THE FDRS ARE PLACED FOR PERIODS RANGING FROM 10 TO 30 DAYS. THE LEARNED REPRESENTATIVE EXPLAINS THAT THE TERM LOAN WAS BORROWED FOR THE PURPOSE OF THE PROJECT AND IN THE INTERREGNUM I.E. BETWEEN THE DATE OF RECEIPT OF LOAN FUNDS FROM BANK AND ITS DISBURSAL TOWARDS THE PROJECT ASSESSEE USED TO PLACE IT TEMPORARILY FOR AN ULTRA SHORT PERIOD IN FDRS WHICH HAVE YIELDED INCOME. THE AFORESAID FACT / SITUATION IS NOT IN DISPU TE. THUS IT IS QUITE APPARENT THAT THE FUNDS DEPLOYED IN FDRS ARE TIED UP FUNDS AND NOT SURPLUS FUNDS. RATHER IN MY CONSIDERED OPINION THE IMPUGNED FUNDS ARE INEXTRICABLY LINKED TO THE DEVELOPMENT AND CONSTRUCTION OF ASSESSEES PROJECT OF INTEGRATED MAR KET COMPLEX AT WHITE FIELD BANGALORE. IN THE BACKGROUND OF THE AFORESAID FACTUAL POSITION IN MY VIEW THE INCOME ON FDRS IS REQUIRED TO BE CAPITALIZED TO BE REDUCD FROM THE CAPITAL WORK IN PROGRESS AND IS FULLY COVERED BY THE RATIO OF THE JUDGMENT OF TH E HON'BLE SUPREME COURT IN THE CASE OF CIT V/S BOKARO STEEL LTD. [1999] 236 ITR 315 (SC) AND NOT BY THE JUDGMENT OF HON'BLE SUPREME COURT IN T U TICORIN ALKALI CHEMICALS & FERTILISERS LTD. (SUPRA) AS CONTENDED BY THE REVENUE. THE DISTINCTION IN THE APPLIC ATION OF THE TWO AFORESAID JUDGMENTS OF THE HON'BLE SUPREME COURT HAS BEEN APTLY BROUGHT OUT BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. (SUPRA) IN THE FOLLOWING WORDS: M/S. ISLAND STAR MALL DEVELOPERS P. LTD. 8 IN OUR OPINION THE TRIBUNAL HAS MISCONS TRUED THE RATIO OF THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS [1997] 227 ITR 172 AND THAT OF BOKARO STEEL LTD [1999] 236 ITR 315. THE TEST WHICH PERMEATES THROUGH THE JUDGMENT OF THE SUPREME COURT IN TUTICORIN ALKA LI CHEMICAL [1997] 227 ITR 172 IS THAT IF FUNDS HAVE BEEN BORROWED FOR SETTING UP OF A PLANT AND IF THE FUNDS ARE SURPLUS AND TEHN BY VIRTUE OF THAT CIRCUMSTANCE THEY ARE INVESTED IN FIXED DEPOSITS THE INCOME EARNED IN THE FORM OF INTEREST WILL BE TAXABL E UNDER THE HEAD INCOME FROM OTHER SOURCES. O N THE OTHER HAND THE RATIO OF THE SUPREME COURT JUDGMENT IN BOKARO STEEL LTD. [1999] 236 ITR 315 TO OUR MIND IS THAT IF INCOME IS EARNED WHETHER BY WAY OF INTEREST OR IN ANY OTHER MANNER ON FUNDS WHICH ARE OTHERWISE INEXTRICABLY LINKED TO THE SETTING UP OF THE PLANT SUCH INCOME IS REQUIRED TO BE CAPITALIZED TO BE SET OFF AGAINST PRE OPERATIVE EXPENSES. 8. IN THE CASE BEFORE THE HON'BLE DELHI HIGH COURT ISSUE RELATED TO THE TREATMENT TO BE ACCORDED TO THE INTEREST EARNED THE MONIES RECEIVED AS SHARE CAPITAL BY THE ASSESSEE WHICH WERE TEMPORARILY PUT IN A FIXED DEPOSIT AWAITING ACQUISITION OF LAND WHICH HAD RUN INTO LEGAL ENTANGLEMENTS. THE REVENUE TREATED SUCH INCOME AS INCOME UNDER THE HEAD INCOME FROM O THER SOURCES . AS PER THE HON'BLE HIGH COURT SINCE THE FUNDS INFUSED IN THE ASSESSEE WERE INEXTRICABLY LINKED WITH THE SETTING UP OF THE PLANT THE INTEREST INCOME COULD NOT BE TREATED AS INCOME FROM OTHER SOURCES. SINCE IT HAS FOUND TO HAVE BEEN EARNED I N A PERIOD PRIOR TO COMMENCEMENT OF BUSINESS IT WAS HELD TO BE IN THE NATURE OF A CAPITAL RECEIPT AND WAS LIABLE TO BE SET OFF AGAINST THE PRE OPERATIVE EXPENSES. 9. IN MY VIEW THE JUDGMENT OF THE HON'BLE SUPREME COURT FULLY COVERS THE CONTROVERSY BEFORE M E. ON FACTS IT IS QUITE CLEAR THAT THE M/S. ISLAND STAR MALL DEVELOPERS P. LTD. 9 FUNDS AVAILABLE WITH THE ASSESSEE FOR DEPLOYING THE ULTRA SHORT PERIOD FDRS WERE NOT SURPLUS FUNDS AND THEREFORE THE RATIO OF THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FE RTILISERS LTD. (SUPRA) WOULD NOT GOVERN THE PRESENT SITUATION. 10. I CONCLUDE BY HOLDING THAT THE ASSESSEE HAS RIGHTLY REDUCED THE SAID INTEREST INCOME FROM THE CAPITAL WORK IN PROGRESS BECAUSE THE FUND S DEPLOY ED ARE ONLY FOR AN ULTRA SHORT PERIOD WHICH IN I N E X TRICA BLY LINKED WITH THE PROJECT. HENCE I SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) AND HOLD THAT THE ADDITION OF ` 7 35 675 NEEDS TO BE DELETED. I ORDER ACCORDINGLY. THE G ROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS ALLOWED. 11. INSOFAR AS THE GROUND OF APPEAL NO.2 IS CONCERNED IT IS ONLY AN ALTERNATE PLEA. SINCE ASSESSEE HAS SUCCEEDED ON THE MAIN GROUND AS ABOVE THE GROUND OF APPEAL NO.2 IS INFRUCTUOUS AND THE SAME IS DISMISSED. 8. IN THE RESULT ASSESSEES APPEAL I S PARTLY ALLOWED AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT O N SD/ - G.S. PANNU ACCOUNTANT MEMBER MUMBAI DATED : 31.07.2015 M/S. ISLAND STAR MALL DEVELOPERS P. LTD. 10 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT MUMBAI CITY CONCERNED; (5) THE DR ITAT MUMB AI; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (DY./ASSTT. REGISTRAR) ITAT MU MBAI