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IN THE INCOME TAX APPELLATE TRIBUNAL "E" BENCH, MUMBAI
, ,
BEFORE SHRI JOGINDER SINGH, JM AND SHRI SANJAY ARORA, AM
./I.T.A. No. 6404/Mum/2012
( / Assessment Year: 2009-10)
Asst. CIT-22(3), Suresh G. Wadhwa,
3rd Floor, Tower No.6, / 429, Arenja Corner,
Vashi Rly. Station Complex, Sector-17, Vashi,
Vs.
Vashi, Navi Mumbai Navi Mumbai-400 705
. / . /PAN/GIR No. AAAPW 0812 A
( /Appellant) : ( / Respondent)
/ Appellant by : Shri Neil Philip
/Respondent by : Shri S. C. Tiwari
/ : 12.01.2015
Date of Hearing
/
: 18 .03.2015
Date of Pronouncement
/ 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.
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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
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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
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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.
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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.
Order pronounced in the open court on March 18 , 2015
Sd/- Sd/-
(Joginder Singh) (Sanjay Arora)
/ Judicial Member / Accountant Member
Mumbai; Dated :18 .03.2015
. ../Roshani, Sr. PS
/Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent
3. () / The CIT(A)
4. / CIT - concerned
5. , , / DR, ITAT, Mumbai
6. / Guard File
/ BY ORDER,
/ (Dy./Asstt. Registrar)
, / ITAT, Mumbai
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