MANGLA HOMES P. LATD, MUMBAI v. ITO WD 3(2)(2), MUMBAI

ITA 7078/MUM/2008 | 2003-2004
Pronouncement Date: 23-07-2010 | Result: Dismissed

Appeal Details

RSA Number 707819914 RSA 2008
Assessee PAN AAACM7102Q
Bench Mumbai
Appeal Number ITA 7078/MUM/2008
Duration Of Justice 1 year(s) 7 month(s) 11 day(s)
Appellant MANGLA HOMES P. LATD, MUMBAI
Respondent ITO WD 3(2)(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 23-07-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted F
Tribunal Order Date 23-07-2010
Date Of Final Hearing 08-07-2010
Next Hearing Date 08-07-2010
Assessment Year 2003-2004
Appeal Filed On 12-12-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'F' BENCH MUMBAI BEFORE SHRI N.V. VASUDEVAN JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NOS. 7077 & 7078/MUM/2008 (ASSESSMENT YEARS: 2002-03 & 2003-04) M/S. MANGLA HOMES PVT. LTD. INCOME TAX OFFICER - 3 (2)(2) 161-C MITTAL TOWERS AAYAKAR BHAVAN M.K. ROAD NARIMAN POINT MUMBAI 400021 VS. MUMBAI 400020 PAN - AAACM 7102 Q APPELLANT RESPONDENT APPELLANT BY: SHRI NARAYAN ATAL RESPONDENT BY: SHRI R.M. TIWARI O R D E R PER B. RAMAKOTAIAH A.M. THESE APPEALS BY THE ASSESSEE IS AGAINST THE ORDERS OF THE CIT(A)- III MUMBAI DATED 12.09.2008. 2. IN BOTH THE APPEALS THE ISSUE IS COMMON AND THE ASS ESSEE HAS RAISED SIMILAR GROUNDS. 3. THE ASSESSEE IS A PRIVATE LIMITED COMPANY FORMED TO CONDUCT BUSINESS IN REAL ESTATE DEVELOPMENT BUT THE ASSESSEE HAS NOT COMMENCED BUSINESS. IN EARLIER YEARS THE ASSESSEE HAD A PROPERTY WHICH WAS EXPLOITED BY RENTAL METHOD AND SUBSEQUENTLY THE SAME WAS ALSO SOLD AND EARNED GAINS WHICH WERE OFFERED AS BUSINESS INCOME. DURING THE IMPUGNE D YEARS THE ONLY SOURCE OF INCOME WAS INTEREST ON FIXED DEPOSITS WH ICH WERE OFFERED AS BUSINESS INCOME CLAIMING CERTAIN EXPENSES. THESE RE TURNS WERE INITIALLY PROCESSED UNDER SECTION 143(1)(A) AND THE A.O. INIT IATED PROCEEDINGS UNDER SECTION 147 FOR ASSESSING INCOME UNDER THE HEAD OT HER SOURCES RATHER THAN BUSINESS INCOME. IN THE PROCESS THE CLAIM OF E XPENDITURE WAS RESTRICTED BY THE A.O. WHILE UPHOLDING THAT FIXED D EPOSIT INTEREST INCOME IS TO BE ASSESSED UNDER THE HEAD OTHER SOURCES THE C IT(A) HOWEVER ALLOWED CERTAIN INCIDENTAL EXPENSES TO THE ASSESSEE. CARRY FORWARD LOSS FROM ASSESSMENT YEAR 1998-99 AND 1999-2000 WERE CLAIMED SET OFF BUT WERE NOT ITA NO. 7077 & 7078/MUM/2008 M/S. MANGLA HOMES PVT. LTD. 2 ALLOWED. ACCORDINGLY GROUNDS WERE RAISED QUESTIONIN G REOPENING OF THE ASSESSMENT UNDER SECTION 147 AND ON MERITS. THESE G ROUNDS ARE CONSIDERED IN DETAIL AS UNDER. 4. WE HAVE HEARD THE LEARNED A.R. AND LEARNED D.R. 5. GROUND NO. 1 PERTAINS TO THE ISSUE OF VALIDITY OF R EOPENING UNDER SECTION 147. AS ALREADY STATED PROCEEDINGS UNDER S ECTION 143 (1) WAS COMPLETED AND SUBSEQUENTLY IT WAS NOTICED THAT CERT AIN INCOMES HAVE ESCAPED ASSESSMENT. THE A.O. RECORDED REASONS AND I SSUED NOTICE UNDER SECTION 148. THE REASONS FOR REOPENING AS PER THE A SSESSMENT ORDER IS AS UNDER: - IN THE PRESENT CASE ASSESSMENT PROCEEDINGS WERE REOPENED AS INCOME HAD ESCAPED ASSESSMENT ON ACCOUNT OF THE FOL LOWING REASONS: 1) IMPROPER CLASSIFICATION OF INCOME BY THE ASSESSEE I .E. INTEREST INCOME OFFERED UNDER THE HEAD BUSINESS AND PROFESSI ON WHEN THERE WAS NO BUSINESS ACTIVITY. 2) VERIFICATION OF CORRECTNESS OF CLAIM OF EXPENDITURE . 3) ADJUSTMENT OF BROUGHT FORWARD BUSINESS LOSS WHEN SU CH A LOSS WAS EARLIER ASSESSED AND DISALLOWED OR ASSESSED UND ER THE DIFFERENT HEAD. 4) NOTWITHSTANDING AFORESAID NO BUSINESS LOSS COULD B E ADJUSTED AS IN THE PRESENT YEAR ALSO ASSESSEE HAD NO BUSINES S ACTIVITY AND INCOME OFFERED FOR TAXATION HAD TO BE DETERMINE D AND ASSESSED UNDER DIFFERENT HEAD OTHER THAN BUSINESS A ND PROFESSION. 6. ASSESSEE HAS OBTAINED THE REASONS AND HAS NOT FILED ANY OBJECTION FOR THE PROCEEDINGS. A.O. WENT ON TO COMPLETE THE ASSES SMENT IN CONSIDERING THE FIXED DEPOSIT UNDER THE HEAD INCOME FROM OTHER SOU RCES AND DISALLOWED THE EXPENDITURE. IT WAS ASSESSEES CONTENTION THAT THE A.O. DID NOT HAVE ANY REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMEN T AND REOPENING OF THE ASSESSMENT IS INVALID. 7. AFTER CONSIDERING THE ARGUMENTS OF THE LEARNED A.R. AND LEARNED D.R. WE ARE OF THE OPINION THAT THE CIT(A) WAS CORRECT I N UPHOLDING REOPENING OF THE ASSESSMENT. FIRST OF ALL THERE IS NO ASSESSMENT UNDER SECTION 143(3) IN THESE ASSESSMENT YEARS ORIGINALLY. SINCE ONLY A PRO CESSING UNDER SECTION 143(1) WAS DONE WHICH CANNOT BE CONSIDERED AS ASSES SMENT FOLLOWING THE PRINCIPLES ESTABLISHED BY THE HON'BLE SUPREME COURT IN THE CASE OF ACIT VS. ITA NO. 7077 & 7078/MUM/2008 M/S. MANGLA HOMES PVT. LTD. 3 RAJESH JHAVERI STOCK BROKERS P. LTD. 291 ITR 500 T HE REOPENING UNDER SECTION 147 IS TO BE UPHELD. ONE OF THE CONTENTIONS OF THE LEARNED A.R. WAS THAT THERE IS NO ESCAPEMENT OF INCOME AND PROVISION S OF SECTION 147 ARE NOT APPLICABLE. HOWEVER EXPLANATION 2 TO SECTION 147 I NDICATES VARIOUS CIRCUMSTANCES IN WHICH IT WAS DEEMED TO BE A CASE W HERE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. ONE SUCH CASE IS WHE RE A RETURN OF INCOME HAS BEEN FURNISHED BY THE ASSESSEE BUT NO ASSESSMEN T HAS BEEN MADE AND IT IS NOTICED BY THE A.O. THAT THE ASSESSEE HAS UND ERSTATED THE INCOME OR CLAIMED EXCESSIVE LOSS DEDUCTION ALLOWANCE OR REL IEF IN THE RETURN. THE ASSESSEES FACTS OF THE CASE ARE COVERED BY EXPLANA TION 2(B) OF SECTION 147 AND ACCORDINGLY WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). GROUND NO. 1 IS ACCORDINGLY REJECTED. 8. GROUND NO. 2 IS WITH REFERENCE TO ASSESSMENT OF INT EREST INCOME ON FIXED DEPOSIT AS INCOME FROM OTHER SOURCE INSTEAD O F BUSINESS INCOME. 9. THE FINDINGS OF THE CIT(A) FOR AY 2002-03 IN PARA 4 IS AS UNDER. SIMILAR FINDING WAS GIVEN FOR AY 2003-04 AS WELL: - 4. . I HAVE PERUSED THE FACTS OF THE CASE. IN THE INSTANT CASE I AGREE THAT FIXED DEPOSITS WERE MADE WITH THE BANK WITH TH E PRIMARY MOTIVE OF CREATING BANK LIMITS. TO MY MIND THIS ACTIVITY OF MAKING A FIXED DEPOSIT IN CREATING BANK LIMITS IN ITSELF IS NOT A BUSINESS ACTIVITY AT ALL. IT MAY BE NECESSARY IN UNDERTAKING A BUSINESS ACTIVITY THAT A PPELLANT MIGHT BE CONTEMPLATING BUT THAT BUSINESS ACTIVITY IS ALTOGET HER ABSENT OF ANY ACTUAL ACTIVITY OF BUSINESS. MERE CREATING OF DEPOS IT FOR OBTAINING BANK LIMITS WILL NOT MAKE THIS ACTIVITY AS BUSINESS ACTI VITY. CONSEQUENTLY THE RESULTANT INCOME FROM BUSINESS INCOME WILL NOT BE B USINESS INCOME. IT IS THEREFORE HELD THAT THE INTEREST OF RS.27 53 021/- ON FIXED DEPOSIT IS TAXABLE AS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. THE SECOND GROUND OF APPEAL IS CONSEQUENTLY REJECTED. G ROUNDS OF APPEAL NO. 3 AND 4 ARE CONSEQUENTIAL TO ABOVE DECISIONS AND AR E REJECTED. 10. BEFORE THE CIT(A) THE LEARNED COUNSEL EXPLAINED THA T THE ASSESSEE HAS OBTAINED CREDIT LIMITS AND FILED LETTER DATED 19 TH JUNE 2000 ISSUED BY BANQUE NATIONALE DE PARIS GRANTING OVERDRAFT AGAINS T FIXED DEPOSIT OF RS.1 35 00 000/-. HOWEVER ON ENQUIRY IT WAS ADMITT ED THAT THE FIXED DEPOSITS WERE MADE EARLIER AND THE ASSESSEE HAS ONL Y OBTAINED THE SANCTION OF CREDIT FACILITIES BUT HAS NOT AVAILED ANY CREDIT FACILITIES. THERE WERE NO CLAIMS OF INTEREST AGAINST THE FIXED DEPOSITS AS TH E ASSESSEE HAS NOT BORROWED ANY FUNDS FROM THE BANK WITH REFERENCE TO THE CREDIT FACILITIES. ITA NO. 7077 & 7078/MUM/2008 M/S. MANGLA HOMES PVT. LTD. 4 WHILE AGREEING PARTLY WITH THE CIT(A)S OPINION THA T THERE IS NO NEXUS WITH THE FIXED DEPOSIT AND BUSINESS ACTIVITY WE ARE OF THE OPINION THAT FIXED DEPOSITS WERE MADE OUT OF ASSESSEES OWN FUNDS IN T HE BANK AND SUBSEQUENTLY TRIED TO OBTAIN OVERDRAFT FACILITIES O N THE STRENGTH OF THE FIXED DEPOSIT FOR BUSINESS PURPOSES BUT THERE IS NO NEXUS OF MAKING THE FIXED DEPOSITS WITH THAT OF ANY BUSINESS ACTIVITY. 11. THE LEARNED COUNSEL IN THE ARGUMENT RELIED UPON T HE FOLLOWING CASE LAWS TO SUBMIT THAT INTEREST ON FIXED DEPOSIT IS TO BE CONSIDERED AS PART OF BUSINESS INCOME: - I) CIT VS. KOSHIKA TELECOM LTD. 286 ITR 479 (DEL) II) CIT VS. CHINA NACHIMUTHA CONSTRUCTIONS 297 ITR 70 ( KAR) III) CIT VS. LOK HOLDINGS 308 ITR 356 (BOM) IV) CIT VS. DALMIA PROMOTERS DEVELOPERS PVT. LTD. 281 I TR 346 (DEL) 12. IN ALL THE CASED RELIED UPON BY THE ASSESSEE THE FA CTS ARE THAT THERE WAS BUSINESS ACTIVITY AND THAT MONIES OR RECEIPTS I N THE COURSE OF BUSINESS ACTIVITY WERE KEPT AS SHORT TERM DEPOSIT OR AS MAR GIN MONEY ON WHICH INTEREST INCOME WAS EARNED. IN THOSE SETS OF FACTS THE INTEREST INCOME IS CONSIDERED AS PART OF BUSINESS INCOME. HOWEVER IN THE PRESENT CASE THE ASSESSEE HAD NO BUSINESS ACTIVITY IN ANY OF THESE Y EARS EXCEPT EXPLOITING THE ONLY PROPERTY BY GIVING ON LEASE IN A.Y. 1998-99 AN D 1999-2000 AND SUBSEQUENTLY SELLING THE SAME IN A.Y. 2000-01. THE MONIES DEPOSITED ARE SURPLUS FUNDS ON WHICH THERE WAS NO INTEREST CLAIM ALSO. ON THESE FACTS THE CASE LAW RELIED UPON BY THE ASSESSEE ARE NOT APPLIC ABLE. WE DO NOT INTENT TO REPEAT THE VARIOUS PROPOSITIONS RELIED IN THOSE CAS ES. SUFFICE TO SAY THAT ON THE FACTS OF THE ASSESSEES CASE THE A.O. AND CIT( A) ARE CORRECT IN TREATING THE INTEREST INCOME ON FIXED DEPOSIT EARNED TO THE EXTENT OF RS.27 53 021/- IN A.Y. 2002-03 AND RS.25 92 598/- FOR A.Y. 2003-04 UNDER THE HEAD INCOME FROM OTHER SOURCES AND ACCORDINGLY THE SAM E IS UPHELD. GROUND NO. 2 IS REJECTED. 13. GROUND NO. 3 IS WITH REFERENCE TO NOT ALLOWING SET OFF OF BROUGHT FORWARD BUSINESS LOSS FOR A.Y. 1998-99 AND 1999-200 0. ITA NO. 7077 & 7078/MUM/2008 M/S. MANGLA HOMES PVT. LTD. 5 14. CONSEQUENT TO THE TREATMENT OF INCOME ON FIXED DEPO SIT UNDER THE HEAD INCOME FROM OTHER SOURCES THE SET OF CARRY F ORWARD LOSSES WERE NOT ALLOWED TO THE ASSESSEE. THE SAME WAS ALSO UPHELD B Y THE CIT(A). CONSEQUENT TO REJECTION OF GROUND NO. 2 THE CARRY F ORWARD BUSINESS LOSSES CANNOT BE ALLOWED TO BE SET OFF TO THE INCOME FROM OTHER SOURCES IN THESE ASSESSMENT YEARS. THE LEARNED COUNSEL IS FAIRLY ADM ITTED THAT THESE LOSSES CLAIMED IN THOSE YEARS ARE ALSO NOT CONSIDERED AS B USINESS LOSSES AS THE INCOME FROM RENTALS ON EXPLOITING THE PROPERTY WAS ASSESSED UNDER HOUSE PROPERTY INCOME WHICH WAS ALSO UPHELD BY THE ITAT I N THE RESPECTIVE ASSESSMENT YEARS. ACCORDINGLY THE LOSSES QUANTIFIED IN THOSE YEARS WERE LOSS FROM HOUSE PROPERTY INCOME AND NOT BUSINESS LOSS. ACCORDINGLY ON FACTS ALSO THE SAME CANNOT BE SET OFF. IN VIEW OF THIS T HE GROUND IS REJECTED. 15. GROUND NO. 4 IS WITH REFERENCE TO CONFIRMING THE DI SALLOWANCE OF EXPENSES OF RS.61 009/- FOR A.Y. 2002-03 AND RS. 38 917/- FOR A.Y. 2003- 04. 16. CONSEQUENT TO TREATMENT OF INTEREST INCOME UNDER TH E HEAD OTHER SOURCES THE CLAIM OF EXPENDITURE OF RS.2 62 045/- FOR A.Y. 2002-03 AND RS.1 83 867/- MADE BY THE ASSESSEE IN THE P & L ACC OUNT WAS DISALLOWED. THE CIT(A) AFTER EXAMINING THE NATURE OF EXPENDITURE HELD THAT EXPENSES INCURRED TO MAINTAIN THE CORPORATE STATUS OF THE COMPANY ARE TO BE ALLOWED. HE DIRECTED THE A.O. TO ALLOW THE EXPENDITURE OF AUDIT FEES LE GAL AND PROFESSIONAL EXPENSES SALARY PRELIMINARY EXPENSES AND ROC CHARGES. THE O THER EXPENSES LIKE CAR HIRE CHARGES CONVEYANCE DIWALI AND SERVICE CHARGE S WERE NOT ALLOWED. 17. AFTER CONSIDERING THE ARGUMENTS AND NATURE OF EXPEN DITURE WHICH WAS EXTRACTED IN THE CIT(A) ORDER WE DO NOT SEE ANY RE ASON TO INTERFERE WITH THE ORDER OF THE CIT(A) IN THIS REGARD. THESE EXPENDITU RES CAN NOT BE CONSIDERED AS ANY EXPENDITURE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME UNDER 57(I II) OF THE IT ACT. ACCORDINGLY GROUND NO. 4 IS ALSO REJECTED. 18. FIFTH GROUND OF APPEAL IS WITH REFERENCE TO LEVY OF INTEREST UNDER SECTION 234A 234B AND 234D. ITA NO. 7077 & 7078/MUM/2008 M/S. MANGLA HOMES PVT. LTD. 6 19. THESE ARE CONSEQUENTIAL IN NATURE AND ACCORDINGLY T HEY DO NOT REQUIRE ANY ADJUDICATION. 20. IN THE RESULT BOTH THE APPEALS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD JULY 2010. SD/- SD/- (N.V. VASUDEVAN) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED: 23 RD JULY 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) III MUMBAI 4. THE CIT III MUMBAI CITY 5. THE DR F BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.