Suresh G. Wadhwa, Navi Mumbai vs Department Of Income Tax

ी जो ग दर संह, या यक सद य एवं ी संजय अरोड़ा, लेखा सद य के सम । BEFORE SHRI JOGINDER SINGH, JM AND SHRI SANJAY ARORA, AM

आयकर अपील सं./I.T.A. No. 6404/Mum/2012 ( नधा रण वष / Assessment Year: 2009-10)

Asst. CIT-22(3), Suresh G. Wadhwa, 3rd Floor, Tower No.6, बनाम/ 429, Arenja Corner, Vashi Rly. Station Complex, Sector-17, Vashi, Vs. Vashi, Navi Mumbai Navi Mumbai-400 705

थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. AAAPW 0812 A (अपीलाथ" /Appellant) : (#$यथ" / Respondent)

अपीलाथ" क% ओर से / Appellant by : Shri Neil Philip

#$यथ" क% ओर से/Respondent by : Shri S. C. Tiwari

सनु वाई क% तार,ख / : 12.01.2015 Date of Hearing घोषणा क% तार,ख / : 18 .03.2015 Date of Pronouncement

आदे श / O R D E R Per Sanjay Arora, A. M.:

This is an Appeal by the Revenue directed against the Order by the Commissioner of Income Tax (Appeals)-33, Mumbai ('CIT(A)' for short) dated 09.08.2012, partly allowing the Assessee's appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) for the assessment year (A.Y.) 2009-10 vide order dated 26.12.2011.

2. The only issue arising in this appeal is the maintainability or otherwise in law of the assessee's claim in respect of the interest expenditure in the sum of Rs.22,18,124/-, having been since allowed by the first appellate authority.

2 ITA No. 6404/Mum/2012 (A.Y. 2009-10) Asst. CIT vs. Suresh G. Wadhwa

3. The facts in brief are that the Assessing Officer (A.O.) examining the assessee's return during the course of assessment proceedings, observed that though there were several projects; the assessee being a builder and developer, under implementation, the funds were deployed in principally two projects, i.e., 'Sai Samarth' and 'Sai Swar', so that the interest expenditure stood allocated (by the assessee) amongst the two at Rs.15,79,416/- (Sai Smarth) and Rs.6,38,708/- (Sai Swar). However, the 'advances from customers' for the two projects far exceeded the work-in-progress (WIP) as at the year- end for the two projects, as under:

(Amt. in Rs. crores) Project WIP Advance from customer Sai Smarth 8.47 20.75 Sai Swar 20.82 27.24

There was, accordingly, no question of the assessee having incurred any interest on the said projects, the funds from which in fact funded the acquisition of land, with the interest bearing funds being diverted by the assessee for investment in RBI bonds and other investments, yielding interest (refer para 5.2 of the assessment order). The assessee's claim for the interest expenditure was, accordingly, disallowed.

In appeal, however, the assessee found favour with the ld. CIT(A), in whose view the A.O. had not asked for the fund flow statement in support of his observations. In that view of the matter, it was not open for him to contend that the business funds were diverted for investment in RBI bonds. No such nexus being shown or proved, no disallowance could be made (para 6.2). Aggrieved, the Revenue is in appeal before us.

4. The assessee's principal case before us was that the A.O. was not correct in assuming that the two projects, Sai Smarth and Sai Swar, only signified the deployment of business funds by the assessee for business purposes during the relevant year. Further, as also contended before the ld. CIT(A), the A.O. could not question the assessee's decision of investment in RBI bonds, or treat the same as a non-business asset in-as-much as the same only represented funds kept aside for the time being. On being questioned as to whether the investment in RBI bonds (or other investments) stood assessed as 3 ITA No. 6404/Mum/2012 (A.Y. 2009-10) Asst. CIT vs. Suresh G. Wadhwa

'business income' or as 'income from other sources', he would submit that the same was not clear, even though the assessment order reflects income of Rs.11,78,186/- as 'income from other sources'. He would further add that that, however, was nobody's case.

The ld. Departmental Representative (DR) would, on the other hand, submit that the A.O. had issued specific findings of fact, which had not been controverted by the ld. CIT(A), who had also, in deciding the assessee's appeal, admitted additional evidence/s, without affording opportunity to the A.O. to examine the same, so that his order was in contravention of rule 46A, and which constitutes the Revenue's second ground before the Tribunal.

5. We have heard the parties, and perused the material on record. 5.1 We shall begin by reproducing the operating part of the impugned order, which reads as under:

'6.2 I have gone through the same. The A.O. has not asked for a fund flow statement to support his observation. On the other hand appellant has also not submitted fund flow for the year to show if at any point of time the business funds were diverted to RBI Bonds. In view of any nexus not being proved, I am of the opinion that additions made by way of disallowance of interest expense are not sustainable and hence addition made for this amount is deleted herewith. Ground No.4 is allowed.' True, the A.O. did not call for the fund flow statement, but then the onus to establish its return, and the claim/s preferred thereby, is only on the assessee. Further, the same was not been called for and examined by the ld. CIT(A) as well, so that he had no basis to arrive at his findings, only on the strength of which could that by the A.O. be modified or reversed by him. We are, accordingly, inclined to agree with the Revenue's case that the ld. CIT(A) has allowed the assessee's claim without in any manner disturbing or rebutting the A.O.'s findings, based on primary facts and figures, drawn from the assessee's annual accounts, and which remain uncontroverted. Yes, the A.O. has proceeded on the basis that the assessee's entire working capital stands deployed in the two projects, Sai Samarth and Sai Swar, which may not be correct in-as-much as the assessee may have other business assets as well. However, it was for the assessee to state 4 ITA No. 6404/Mum/2012 (A.Y. 2009-10) Asst. CIT vs. Suresh G. Wadhwa

so and specify, while we find no such specification. Where the advances are received from customers for a particular project, the investment therein would only stand to be set off or adjusted against the same, and there could be no presumption to the contrary. Rather, as apparent, the advances are in surplus or in excess, i.e., with reference to the investment in the specified projects (refer para 3 (supra)), and to that extent could only be considered as toward financing other projects, with the A.O. speaking of investment in land, which forms part of the assessee's stock-in-trade, whether in relation to a current or in future project/s. However, the volume of such investment/s and, accordingly, their financing by advances remains unspecified by either authority. Coming to the investment in RBI bonds, the assessee has nowhere stated their business purpose, much less established their character with reference to any material; there being no contention in respect thereof. Even their term, so as to ascertain if it represents parking of funds on a short term basis, i.e., deemed surplus for the time being, has not been specified. As it appears, the interest thereon stands assessed as 'income from other sources', in which case, to the extent financed by borrowed capital, the assessee's claim u/s.57(iii) should succeed. We may though add that where the interest rate on borrowing is higher than that accruing on the bonds/investments, the claim for excess interest would have to be examined for its maintainability in law. Further, if the interest income thereon is tax exempt, section 14A would stand attracted, and which would be so even where the said investments represents a business asset [refer: ITO vs. Daga Capital Management Pvt. Ltd. [2009] 312 ITR (AT) 1 (Mum.) (SB) and D. H. Securities (P.) Ltd. vs. Dy. CIT [2014] 146 ITD 1 (Mum) (TM)].

5.2 Under the circumstances, the facts being indeterminate, we only consider it fit and proper that the matter is restored back to the file of the first appellate authority for re-

adjudication of the assessee's claim by issuing definite findings of fact after hearing both the parties before him. Further, his admission or reliance on any material or evidence that may be adduced or led by the assessee in substantiation of its claim/s, would be subject to an opportunity to the A.O. to, likewise, examine the same, as well as leave to lead evidence to the contrary. We decide accordingly.

5 ITA No. 6404/Mum/2012 (A.Y. 2009-10) Asst. CIT vs. Suresh G. Wadhwa

6. In the result, the Revenue's appeal is allowed for statistical purposes.

प1रणामतः राज व क% अपील सां3यक%य उ5े6य के लए वीकृत क% जाती है ।

Order pronounced in the open court on March 18 , 2015

Sd/- Sd/-

(Joginder Singh) (Sanjay Arora) या यक सद य / Judicial Member लेखा सद य / Accountant Member मुंबई Mumbai; ;दनांक Dated :18 .03.2015 व. न.स./Roshani, Sr. PS

आदे श क" # त%ल&प अ'े&षत/Copy of the Order forwarded to :

1. अपीलाथ" / The Appellant

2. #$यथ" / The Respondent

3. आयकर आय< ु त(अपील) / The CIT(A)

4. आयकर आय< ु त / CIT - concerned

5. ?वभागीय # त न ध, आयकर अपील,य अ धकरण, मंब ु ई / DR, ITAT, Mumbai

6. गाडD फाईल / Guard File आदे शानस ु ार/ BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai