Income Tax Appellate Tribunal - Pune
M/S. Brahma Associates,, vs Department Of Income Tax on 30 November, 2015
आयकर अपील य अ धकरण]] iq.ks यायपीठ "ए" iq.ks म
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
ी आर. के. पांडा, लेखा सद य
एवं ी वकास अव थी, या!यक सद य के सम"
BEFORE SHRI R.K. PANDA, AM
AND SHRI VIKAS AWASTHY, JM
आयकर अपील सं. / ITA No.133/PN/2014
!नधा$रण वष$ / Assessment Year : 2003-04
ITO, Ward-4(5), Pune .......... अपीलाथ /
Appellant
बनाम v/s
M/s. Brahma Associates, .......... यथ /
C/o. Residency Club, Respondent
3, Queens Garden Road,
Pune - 411001
PAN No. AAAJB0412B
नधा रती क ओर से / Assessee by : Shri Kishor Phadke
यथ क ओर से / Department by : Shri Rajesh Damor, CIT
सन
ु वाई क तार ख / घोषणा क तार ख /
Date of Hearing :16.09.2015 Date of Pronouncement:30.11.2015
आदे श / ORDER
PER R.K. PANDA, AM :
This appeal filed by the Revenue is directed against the order dated 18-09-2013 of the CIT(A) Central, Pune relating to Assessment Year 2003-04.
2. Facts of the case, in brief, are that the assessee, an APO, filed its return of income for A.Y. 2003-04 on 01-12-2013 declaring total income of NIL after claiming deduction of Rs.6,38,11,652/- 2 ITA No.133/PN/2014 u/s.80IB(10) of the I.T. Act. The AO completed the assessment u/s.143(3) on 27-03-2006 determining total income at Rs.6,51,79,340/- by withdrawing the deduction claimed u/s.80IB(10) of the Act, making addition on account of undisclosed sale proceeds of commercial premises and treating interest income as income from other sources.
3. In appeal the Ld.CIT(A) upheld the addition/disallowances made by the AO. On further appeal the Tribunal following the decision of Hon'ble Bombay High Court in assessee's own case directed the AO to allow deduction u/s.80IB (10) of the I.T. Act in respect of profit on 15 residential buildings on the basis of profits earned from these exclusively residential buildings on stand-alone basis.
4. So far as treatment of interest income as "income from other sources" is concerned the Tribunal observed that there is no immediate and direct relation between the housing project and earning of interest. Therefore, there is no reason to interfere with the first appellate order in this regard. For the above proposition, the Tribunal relied on various decisions of the Hon'ble Supreme Court and the decision of the Hon'ble jurisdictional High Court in the case of K.K. Doshi and Company. Accordingly, it was held that the said interest income has to be taxed as income from other sources. However, the Tribunal at Para 21 of the order observed as under :
". . . .considering the above submissions we find that there is no dispute that interest receipt must have an intricate relation with the interest expenditure, then only the balance can be considered for tax purpose. One has to examine that the expenditure incurred has a connection or there must exist nexus between receipts and payments. We fully agree with the contention of the assessee that the quantum of interest income for tax purpose has to be determined in accordance with the computation provision by allowing the expenditure incurred by way of interest which bears a direct nexus with the interest received. Since these aspects has remained to be examined by the AO, we in the interest of justice 3 ITA No.133/PN/2014 set-aside the matter to the file of the AO to decide the issue after affording opportunity to the assessee to establish nexus between the receipt and payments as per the details made available before us in the chart and after hearing the assessee in this regard. The additional grounds No.2 and 3 are thus allowed for statistical purposes."
5. The AO thereafter on the basis of the direction given by the Tribunal asked the assessee to make its submissions. The assessee vide letter dated 21-05-2012 submitted that it had obtained loan of Rs. 5,00,00,000/- from Rupee Co-operative Bank Ltd. This loan was in turn advanced to M/s. Brahma Finance Corporation. The assessee submitted a chart showing the details of amounts due to bank and amounts due from M/s. Brahma Finance Corporation, statement of Rupee Cooperative Bank Ltd. for financial year 2001-02 & 2002-03 and ledger account of Brahma Finance Corporation in the books of Brahma Associates for F. Y. 2000-01 to 2002-03. It was contended that there is a direct nexus between the loan borrowed from the bank and the amount advanced to M/s. Brahma Finance Corporation. On this premise, the assessee requested to tax the net interest only. The assessee further added that it was obliged to purchase equity shares of Rupee cooperative bank to avail the overdraft facility and therefore it had purchased 5,00,000 equity shares, from which it had earned a dividend of Rs. 8,000/-. It was accordingly contended that there is a proximate relation between the business and the dividend income.
6. However, the AO was not satisfied with the explanation given by the assessee. On the basis of the various details furnished by the assessee he noted that the assessee could substantiate the nexus of interest earned and interest paid only to the extent of Rs.38,19,238/-. He observed that the assessee could not substantiate the nexus of the remaining amount of Rs.71,75,503/-. The AO, therefore, treated the 4 ITA No.133/PN/2014 amount of Rs.71,75,503/- as income from other sources in absence of any direct nexus between the borrowed funds, loan given, interest expenditure incurred and interest earned proved by the assessee. The relevant observation of the AO at para 5 and 6 of the order read as under :
"5. The assessee in its submission dated 21/05/2012, has provided the ledger account of M/s. Brahma Finance Corporation for the financial year relevant to A.Y. 2002-03. As per the ledger account, the interest accrued to the assessee from M/s. Brahma Finance Corporation is Rs.38,19,238/- during the financial year. Further, from the examination of the bank statement and ledger accounts of M/s. Brahma Finance Corporation it is found that the assessee has partly used the borrowed loans from Rupee Co-operative Bank Ltd. in order to give interest bearing loans to M/s. Brahma Finance Corporation. On examination of the interest expenditure incurred during the year, it is clear that the interest expenditure includes interest on loans borrowed from Rupee Cooperative Bank Ltd. and certain miscellaneous expenses which have been booked as interest's expenditure by journal entries. Even, the ledger account of interest received also shows that the interest income is purely not in the nature of interest but also includes certain miscellaneous expenses which have been written off as no longer payable. Therefore, a nexus of interest earned and interest paid can be established to the extent of loans same interest bearing loan given to M/s. Brahma Finance Corporation & interest earned thereof. For the financial year under consideration, such nexus can be found only to the extent of Rs.38,19,238/-. The balance expenditure on account of interest is treated as expenditure incurred in the normal course of business in the absence of any findings to the contrary. On the other hand, the balance amount of interest earned, i.e. Rs.1,09,94,741/- (-) Rs.38,19,238/- = Rs.71,75,503/- is treated as income from other sources as per the directions of the Hon'ble ITAT. Even otherwise, on examination of the ledger account of the interest expenditure, it is clear that an amount of Rs.61,71,506/- being miscellaneous expenditure has been debited as interest expenditure. This categorization of the assessee is not acceptable because the actual nature of said expense is found to be certain miscellaneous expenses.
6. Based on the above discussion an amount of Rs.71,75,503/- is treated as income from other sources because no direct nexus between the borrowed funds, loans given, interest expenditure incurred and interest earned could be established. Further, the dividend amount of Rs.8,000/- is also taxed under the head income from other sources because it has no direct nexus with the eligible business. Penalty proceedings u/s.271(1)(c) of the I.T. Act are initiated for wrongly classifying the receipt and thereby furnishing inaccurate particulars of income."
7. In appeal the Ld.CIT(A) directed the AO to delete the addition of Rs.71,75,503/- by observing as under :
5ITA No.133/PN/2014
"3.4 I have considered the submission made by the appellant and perused material on record. The appellant has raised five grounds of appeal and in grounds of appeal No 1 & 2 has contested the disallowance of the claim of the appellant AOP of set off of interest received of Rs. 71,83,503/- against interest paid without considering that the appellant received interest only against interest paid on loan taken. During the appellate proceedings, the appellant has submitted that the AOP a joint venture decided to jointly develop property at S.No 1A/1/2 situated at village Kondhwa Khurd, Tal: Haveli, Pune. The six parties of the AOP decided to share the profit being Bramha Builders @ 60% and other five individuals @ 8% each. During the year under consideration, the appellant stated that the AOP was in receipt of interest income of Rs. 1,09,94,741/-, which was set off against interest paid to the extent of Rs. 1,10,01,275/- however, the Assessing Officer taxed the aforesaid interest income received of Rs.1,09,94,741/- as income from other sources. The appellant has brought to notice the directions of the ITAT in appellant's own case directing the Assessing Officer to examine that the expenditure incurred had connection or there must exist nexus between the receipts and payments as the same remained to be examined by the Assessing Officer, the matter was set aside to the Assessing Officer to decide the issue after affording opportunity to the assessee to establish nexus between receipt and payments. The appellant during the assessment proceedings submitted that there was a direct nexus between the amounts taken from bank and the amounts advanced to M/s. Brahma Corporation and hence only net interest be taxed. The appellant also submitted the extract of ledger account of Bramha Associates from the period 1-4-2000 to 31-3-2003, statement of Rupee Co-operative Bank Ltd for the period 30-3-2001 to 31-3-2003, date-wise chart showing details of amounts due to bank and amounts due to Bramha Finance Corporation; the loan obtained of Rs. 5 crores from Rupee Co-operative Bank Ltd was stated to be in turn advanced to M/s Bramha Finance Corporation. The appellant further states that during the F.Yrs. 2000-01 and 2001-02 the occupancy certificate from the PMC was not obtained due to the construction being incomplete, the expenditure on account of administrative, selling and other expenses were transferred to Misc. expenditure and reflected as 'current assets' in the balance-sheet. The appellant also filed the journal vouchers for the two financial years reflecting the transfer of various expenses to misc. expenditure and also the ledger extract of the misc expenditure in support of the claim. The appellant has also filed the aforesaid details during the appellate proceedings. The appellant has thus emphasized that the total interest paid during the two year was of Rs. 61,71,506/- (Rs. 9425/-) during AY. 2001-02 and Rs. 61,62,081/- during AY. 2002-03) whereas the total interest earned was of Rs. 59,28,843/- on the amounts out of bank loan advanced to Bramha Finance Corporation upto 31-3-2002. The appellant has contended that the aforesaid entries appearing in the balance sheet as at 31-3-2001 and 31-03-2002 indicates direct nexus between loan obtained from the aforesaid bank and the advances given to Bramha Finance Corporation. The appellant further stated that for the year ending 31-3-2003 i.e. AY. 2003-04, the appellant paid interest of Rs.48,29,769/- to the bank whereas earned interest of Rs. 38,19,238/- from Bramha Finance Corporation and Rs.12,54,660/- from M/s Bramha Builders. The appellant has further submitted that the first occupancy certificate was obtained from the Pune Municipal Corporation on 5-6-2002 and also handed over possession of units to various flat owners and hence the profit & loss account for the first time was prepared for the year ending 6 ITA No.133/PN/2014 31-03-2003 to book the revenue from the sale of flats and also claimed the expenses incurred till 31-03-2003, which includes various heads of expenditure such as on selling, administration, marketing etc. The details of interest expenditure thus claimed and the interest income received till 31-03-2003 are as follows :
INTEREST PAID :
a) Upto 32-03-2002 Rs.61,71,506/-
b) For F.Y. 2002-03 Rs.48,29,769/-
----------------------
Rs.1,10,01,275/-
INTEREST RECEIVED :
a. From Brahma Finance Corporation
(upto F.Y. 31-03-2002) Rs.59,20,843/-
b. From Brahma Finance Corporation
( F.Y. 2002-03) Rs.38,19,238/-
c. From Brahma Builders
(For F.Y. 2002-03) Rs.12,54,660/-
---------------------
Rs.1,09,94,741/-
---------------------
The appellant has submitted that the Assessing Officer during the assessment proceedings has considered the receipt of interest from Brahma Finance Corporation for F.Y. 2002-03 only at Rs.38,19,238/- whereas taken into consideration the interest expenditure of Rs.1,09,94,741/-, which also included the interest expenditure till 31-03- 2002. The appellant has thus contended that the Assessing Officer ought to have considered and given set off for the interest earned from Brahma Finance Corporation upto 31-3-2002 of Rs.59,20,843/- and also of M/s. Brahma Builders received during F.Y. 2002-03 of Rs.12,54,660/-. The appellant has thus contended that as there is a direct nexus between the loan taken from Rupee Co-operative Bank Ltd and amounts advanced to Brahma Finance Corporation/Brahma Builders, the set off of total interest received be given.
3.5 The submission made by the appellant has been duly considered and material on record perused. It is noticed that the Assessing Officer has considered the ledger account for the F.Y. 2002-03 of M/s. Brahma Associates whereby the interest accrued to the appellant of Rs.
38,19,238/- during the financial year 2002-03 has been taken into consideration whereas the other entries appearing in the ledger account has not been considered by the Assessing Officer so far as the receipt of interest is concerned. The Assessing Officer, however, has admitted to the fact of the amounts borrowed from Rupee Co-op Bank Ltd to have been advanced to M/s Bramha Finance Corporation and hence the nexus between the two has not been disputed. However, the Assessing Officer has considered out of the total receipt of interest of Rs. 1,09,94,741/-, a sum of Rs. 38,19,238/- only and the remaining amount of Rs. 71,75,503/- has not been considered for set off. The Assessing Officer in fact has not examined the entire details furnished by the appellant and has been guided by the heading of the expenses such as advertisement/Misc. expenditure and has concluded that interest expenditure includes number of other expenses whereas interest received includes certain misc 7 ITA No.133/PN/2014 expenses written off as no longer payable. The aforesaid conclusion drawn by the Assessing Officer is prima facie not correct as on examination of the details furnished by the appellant it becomes clear that the amount of interest received from Bramha Finance Corporation up to F.Y. 31-03 2002 amounting to Rs. 59,20,843/- and that of Bramha Builders of Rs.12,54,660/- for F.Y. 2002-03 ought to have been considered for giving the set off as there is a direct nexus between the loan taken from Rupee Co-operative Bank Ltd and amount advanced to Bramha Finance Corporation and Bramha Associates. The appellant has given the heading as Misc expenditure to the ledger account of Bramha Associates, however, the same contains the entire detail of expenses which includes the interest expenditure and also the receipt of interest and dividend for F.Y. 2001-02 wherein the journal entries 447 and 448 are also mentioned. Thus on appreciation of the entire facts on record the contention raised by the appellant is found to be correct and hence the total receipts of interest of Rs. 1,09,94,741/- qualifies as against Rs. 38,19,238/- considered by the Assessing Officer to be set off against the interest paid of Rs. 1,10,01,275/-.
3.6 In view of the above fact the disallowance made by the Assessing Officer of Rs.71,75,503/- is liable to be deleted and the grounds of appeal No.1 & 2 raised by the appellant are liable to be allowed."
8. Aggrieved with such order of the CIT(A) the Revenue is in appeal before us with the following grounds :
"1. The learned Commissioner of Income-tax (Appeals) erred in holding that the total receipts of interest of Rs. 1,09,94,741/- qualifies to be set off against the interest paid of Rs. 1,10,01,275/- when nexus between interest earned and interest paid could be established only to the extent of Rs. 38,19,238/-.
2. The learned Commissioner of Income-tax (Appeals) was not justified in deleting addition made on account of interest receipt amounting to Rs. 71,83,503/- even though expenditure on account of interest paid to the Rupee Coop. Bank is not an expenditure incurred for earning interest income from Bramha Finance Corp. and Brahma Builders to be eligible as expenditure u/s. 57(iii) of the Income-tax Act, 1961.
3. The learned Commissioner of Income-tax (Appeals) erred in holding that the amount of interest received from Brahma Finance Corporation amounting to Rs. 59,20,843/- and that of Brahma Builders of Rs. 12,54,660/- ought to have been considered for giving the set off when there is no direct nexus between the loan taken from Rupee Co-op. Bank Ltd. And amount advanced to Brahma Finance Corporation and Brahma Builders.
4. The learned Commissioner of Income-tax (Appeals) erred in holding that the amount of interest received from Bramha Builders of Rs. 12,54,660/- ought to have been considered for giving the set off even though the assessee had not produced any details or evidences to establish the nexus at any stage.
5. The appellant craves leave to add, alter or amend any or all the grounds of appeal."8 ITA No.133/PN/2014
9. The Ld. Departmental Representative strongly opposed the order of the CIT(A). Referring to the bank statement filed by the assessee in the paper book he submitted that there are certain cash withdrawals through self-cheque, therefore, entire loan has not been diverted to Brahma Finance Corporation as claimed. Referring to page 201 of the paper book the Ld. Departmental Representative submitted that the assessee has received interest @12% from Brahma Finance Corporation whereas the assessee is paying interest to the bank varying from 18 to 20% which is evident from paper book pages 176, 186 and 191. Referring to the profit and loss account of the assessee placed at page 2 of the paper book he submitted that the net profit has been shown at Rs.6.38 crores for the year ending 31-03-2003. Brahma Finance Corporation and Brahma Builders are the AOPs and the assessee has advanced loans and advances of Rs.3.48 crores to various persons as per list 4 which includes Brahma Finance Corporation and M/s. Brahma Builders. The Ld.CIT(A) has not adjudicated the issue properly. Further, the assessee follows mercantile system of accounting. It is not understood as to why interest of earlier years has been debited during the year. Further, dividend income has not been explained till today. Since the bank account contains common pool of funds and no separate books of accounts are maintained, therefore, the assessee may be allowed only proportionate interest and not the full amount which has been allowed by the Ld.CIT(A).
10. The Ld. Counsel for the assessee on the other hand heavily relied on the order of the CIT(A). Referring to page 156 of the paper book he submitted that an amount of Rs.70,89,344/- being interest has been reversed on 23-03-2002 which relates to A.Y. 2002-03. 9 ITA No.133/PN/2014 Referring to page 146 of the paper book he submitted that the interest amounting to Rs.55,31,996/- has been reversed on 29-03-2003 relating to A.Y. 2003-04. He submitted that as against payment of interest of Rs.1.10 lakhs the assessee has received interest of Rs.1.09 lakhs. Referring to the copy of the assessment order the Ld. Counsel for the assessee drew the attention of the Bench to the finding given by the AO where he has accepted the amount of Rs.38,19,238/- being interest received from Brahma Finance Corporation. Therefore, there is no justification how the AO can deny for the earlier period when he accepts the interest income for 9 months. Referring to the bank accounts he submitted that the loan obtained and given are back to back transactions. As regards the allegation of the Ld. Departmental Representative that there were certain cash withdrawals he submitted that there are simultaneous cash deposits also. Further, the assessee has not withdrawn any borrowed funds and it has withdrawn only from the capital of the assessee. He accordingly submitted that the order of the CIT(A) being in accordance with law should be upheld and the grounds raised by the Revenue should be dismissed.
11. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. The only dispute that has to be decided in the impugned appeal is regarding allowability of the interest income of Rs.71,75,503/- from the interest expenditure on the basis of nexus between the interest expenditure and the interest income. From the details furnished by the assessee we find the assessee had shown interest income of Rs.1,09,94,741/- and interest expenditure of Rs.1,10,01,275/- for the financial year ending on 31- 03-2003. The AO in the assessment order held that the assessee 10 ITA No.133/PN/2014 could establish such nexus only to the extent of R.38,19,238/-. He, therefore, treated the balance interest income of Rs.71,75,503/-, [i.e. Rs.1,09,94,741/- (-) Rs.38,19,238/-] as income from other sources and did not allow set off from the interest expenditure since according to the AO the assessee could not establish any direct nexus between the borrowed funds, loans given, interest expenditure incurred and interest earned. We find the Ld.CIT(A) on the basis of the various details filed by the assessee allowed the claim of the assessee on the ground that the AO has not examined the entire details furnished by the assessee and has been guided by the heading of the expenses such as Advertisement/Miscellaneous Expenses and concluded that interest expenditure includes number of other expenses whereas interest received includes certain miscellaneous expenses written off as nolonger payable. We find the Ld.CIT(A) has given a finding on the basis of the details filed by the assessee that the assessee has received interest amounting to Rs.59,20,843/- from Brahma Finance Corporation upto F.Y. 31-03-2002 and from Brahma Builders amounting to Rs.12,54,660/- for the F.Y. 2002-03. He has given a finding that there is a direct nexus between the loan taken from Rupee Cooperative Bank Ltd and the amount of advance to Brahma Finance Corporation and Brahma Associates. The Ld. Departmental Representative could not controvert the above factual finding given by the CIT(A). Further, the finding of the Ld.CIT(A) that the miscellaneous expenditure in the ledger account contains the entire details of expenditure which includes the interest expenditure and also the receipt of interest and dividend for F.Y. 2001-02 wherein the journal entries 447 and 448 are also mentioned could not be controverted by the Ld. Departmental Representative. The submission of the Ld. Counsel for the assessee before us that the loan 11 ITA No.133/PN/2014 obtained from the bank and given to the various concerns are back to back transactions could not be controverted by the Ld. Departmental Representative. In view of the above and in view of the detailed reasoning given by the Ld.CIT(A) we find no infirmity in his order. Accordingly, the same is upheld and the grounds raised by the Revenue are dismissed.
12. In the result, the appeal filed by the Revenue is dismissed.
Pronounced in the Open Court on 30-11-2015.
Sd/- Sd/- (VIKAS AWASTHY) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER iq.ks Pune; #दनांक Dated : 30TH November, 2015. lrh'k
आदे श क' (!त*ल प अ+े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. CIT(A) Central, Pune
4. CIT Central, Pune 'वभागीय त न*ध, आयकर अपील य अ*धकरण, "ए" iq.ks /
5. DR, ITAT, "A" Pune;
6. गाड फाईल / Guard file.
आदे शानस ु ार/ BY ORDER,स या स या'पत त //True Copy// व र/ठ नजी स*चव / Sr. Private Secretary आयकर अपील य अ*धकरण, iq.ks / ITAT, Pune