Meridien Buildtech P. Ltd., New Delhi vs Department Of Income Tax

BEFORE SHRI G. C. GUPTA, HON'BLE VICE PRESIDENT AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. No.1223 /Del/2012 Assessment year : 2008-09 ITO, Ward 6(4), Vs. M/s. Meridien Buildtech P. Ltd., New Delhi 84, Chardham Apartment, Sector 9, Rohini, Delhi-110 085. GIR / PAN:AAFCM0657D (Appellant) (Respondent)

Appellant by : Shri Kamal Khosla, CA Respondent by : Shri P Dam Kanunjha, Sr. DR

Date of hearing : 17.03.2015 Date of pronouncement : 25.03.2015

ORDER

PER T.S. KAPOOR, AM:

This is an appeal filed by Revenue against the order of Ld. CIT(A) dated 29.11.2011. At the outset, Ld. A.R. invited our attention to an order passed by Tribunal vide order dated 29.06.2012 and submitted that the Tribunal had already restored the issue before A.O. and while restoring the same, the Tribunal had restored all the grounds of appeal whereas at the time of hearing, ground No.3 was heard and where there was no violation of Rule 46A and, therefore, on a miscellaneous application filed by Revenue, ground NO.3 was recalled to be heard on merits vide Tribunal Order dated 10th January 2014. Therefore, only ground No.3 is to be disposed off in this appeal. Ld. D.R. agreed with the factual position as narrated by Ld. A.R. 2 ITA No.1223/Del/2012

Ground No.3 of Revenue's appeal is reproduced below:

"3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in netting off interest expense of Rs.9,63,162/- from the interest payment on account of unsecured loans."

2. Ld. D.R. submitted that the assessee had earned income from Fixed Deposits which was earned on surplus funds lying with the assessee company and, therefore, the A.O. had rightly made the income taxable under the head 'income from other sources' and Ld. CIT(A) had wrongly deleted the same.

3. Ld. A.R. on the other hand heavily relied upon the order of Ld. CIT(A) and submitted that fixed deposits placed with banks were from monies raised through loans and was not raised from bookings of flats and therefore, the interest paid on loans was reduced by interest earned on fixed deposits and net interest was capitalized.

4. We have hard rival parties and have gone through the material placed on record. We find that A.O. had made the addition by holding as under:

"Ld AR filed part replies on 23/10/2010, 17/12/2010 and 23/12/2010 On 15/11/2010 Ld. AR was asked to provide purpose of loan advances given to M/s Utkal Steel Ltd. and Mr. V Chand Ld. AR was also asked to provide this information on 17/12/2010. On verification of the details furnished it is noticed t'rat this is the first year of the assessee company because of assessee company was incorporated on 27 104/2007 and is engaged in the activity of builder and colonizer For to achieve the objective, the company during the year purchased land and building at Udit Nagar, Orissa for constructions of flats for sale. During the year company availed unsecured loan from various parties and as at 31/03/20008 a sum of Rs 4,95,44,331/- was outstanding. The company also received booking advance from various parities of Rs 1,33,32.500/- and advanced loan to M/s Utkal Steel Ltd. of Rs.

3 ITA No.1223/Del/2012 1,83,61,4001- and Mr. V. Chand, director of the company of Rs. 9,74,5181-. The company capitalized the interest paid on unsecured loan by Rs 39,27,309/- and deducted interest Income of Rs 9,63,1621- accrued I received on the fixed deposit with UCO Bank of Rs. 1.30 crore. As per the submissions made by the assessee the company dated 17/12/2010 the work in the project had hardly started and all expenses incurred for the project have been taken as work in progress.

That the Hon'ble Supreme Court in Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs. CIT (1997) 227 ITR 172 and in CIT Vs. Coromandal Cement Ltd (1998) 234 ITR 412 Supreme Court held that heads of income as given in section 14 of Act are sacrosanct and any interest Income accrued / received prior to commencement of business is taxable under the head "income from other sources" and cannot be set off against any other expenses incurred for the project. The Ld. AR of the assessee by order sheet entry dated 15/09/2010 was asked to justify why interest income be not taxed under the head "income from other sources" The AR vide letter dated 17/12/2010 submitted "the company is engaged in the business of builders I colonizers Company purchased the land for construction of flats in the month of October 2007. The company has raised loans for purchase of land but the funds could not be utilized. Therefore, the amount was deposited in bank and interest earned on fixed deposits and interest paid on loan adjusted towards the expenses of land." However, no evidence/ detail was filed to establish that whether the FDRs were with the bank out of the unsecured loans raised or out of the advance deposits received towards the purchase of flats. Since the assessee company earned I accrued interest of Rs 9.63.162/- on the fixed deposits which were made out of surplus fund deployed during the project period therefore, by following Hon'ble Supreme Court judgment the same is not being allowed to be set off against the interest paid on unsecured loan and is being taxed as income from other sources. (ADDITION OF RS. 9,63,162/-)."

5. Ld. CIT(A) has deleted the addition by holding as under:

"5.6 I have considered the findings recorded by the Id. AO as per the assessment order, the submissions made by the Id. AR and the facts of 4 ITA No.1223/Del/2012

the case on record. The Id. AO made an addition of RS.9,63,162/- on account of interest earned on fixed deposits with the bank holding that no evidence I details were filed to establish that the said deposits were made out of unsecured loans or the advances received towards the purchase of flats. The appellant on the other hand has submitted that such deposits were made out of unsecured loans raised in the recent past i.e. in the months of May and June, 2007 and since the same remained unutilized, the available funds were parked in the fixed deposits with the bank also in the months of May and June, 2007. The appellant has further explained that the advances against booking of flats were received much later i.e. in the months of February and March, 2008. It has further been explained by the appellant that the fixed deposits of Rs4.89 crores were made out of the unsecured loans of RS.5,84,50,000/-, whereas an amount of Rs.1,33,50,000/- only was received as flat booking amount. It is seen that a sum of Rs. 39,27,300/- paid as interest on unsecured loan was added to be the cost of the project (WIP), whereas the interest earned of Rs. 9,63,162/- on the fixed deposit was reduced from the cost of project in the same manner. I do not find anything wrong in the treatment given by the appellant to the interest paid on the unsecured loans and that earned on the fixed deposits. The reliance by the appellant on the decision of Hon'ble Apex Court in the case of Bokaro Steel Ltd. (supra) has been found to be well placed. I, therefore, do not find any justification in the approach of the Ld. AO treating the interest earned on fixed deposits as income from other sources. I am in agreement with the appellant that in case, the interest of Rs.9,63,162/- earned on fixed deposits was to be treated income from other sources, the deduction of Rs.21,26,190/- as interest paid on the unsecured loans was to be allowed. The above would have resulted in a loss of Rs.11 ,63,028/- (Rs.21,26,190 - Rs.9,63,162). In the light of the aforesaid discussion and the ratio of the decision of Hon'ble Supreme Court relied upon by the appellant, I do not find myself in a position to confirm the addition made by the Id. AO. The same is, therefore, directed to be deleted and the ground no. 2 is allowed to the appellant."

5 ITA No.1223/Del/2012 6. We have heard the rival parties and have gone through the material placed on record. We find that during the year under consideration the assessee had purchased land for construction of flats and raised interest bearing unsecured loans and a part of the funds so raised were kept in the form of fixed deposits with banks. The assessee thus incurred interest cost on unsecured loans and simultaneously earned interest from fixed deposits which were made out of funds raised through unsecured loans and therefore, net interest was capitalized. The advances against booking of flats were received by the assessee in the months of Feb. and March and assessee had received only 1.33 crores as advances and therefore, the deposits to the tune of Rs.4.89 crores could not have been made out of such flat bookings. The Ld. CIT(A) has recorded clear findings that fixed deposits were made out of funds raised through unsecured loans and therefore, he had rightly relied upon the case law of Bokaro Steel Ltd. decided by Hon'ble Supreme Court. In view of above, we are in agreement with the findings of Ld. CIT(A) and, therefore, ground No.3 is dismissed. Ground No. 1 & 2 has already been adjudicated by Hon'ble Tribunal vide order dated 29.06.2012 followed by order dated 10.01.2014 in miscellaneous application.

7. In view above, appeal filed by Revenue consisting of only ground No.3 is dismissed.

8. Order pronounced in the open court on 25th March, 2015.

Sd./- Sd./- ( G. C. GUPTA) (T.S. KAPOOR) VICE PRESIDENT ACCOUNTANT MEMBER Date: 25th March, 2015 6 ITA No.1223/Del/2012

Sp Copy forwarded to:- 1. The appellant 2. The respondent 3. The CIT 4. The CIT (A)-, New Delhi.

5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi. True copy.

By Order (ITAT, New Delhi).

S.No. Details Date Initials Designation 1 Draft dictated on 20/3 Sr. PS/PS 2 Draft placed before author 23,24, Sr. PS/PS Draft proposed & placed before the 3 JM/AM Second Member Draft discussed/approved by Second 4 AM/AM Member 5 Approved Draft comes to the Sr. PS/PS 25/3 Sr. PS/PS 6 Kept for pronouncement 25/3 Sr. PS/PS 7 File sent to Bench Clerk 25/3 Sr. PS/PS Date on which the file goes to Head 8 Clerk 9 Date on which file goes to A.R. 10 Date of Dispatch of order