TMI Blog2012 (12) TMI 285X X X X Extracts X X X X X X X X Extracts X X X X ..... al rate to sister concern, the same does not call for disallowance of proportionate interest u/s.36(1)(iii) of the I.T. Act - borrowed funds from Axis bank has gone towards purchase of the property and the amount advanced to the sister concern is out of redemption of Prudential ICICI liquid fund – addition deleted – In favor of assessee - ITA No. 475/PN/2010 - - - Dated:- 8-6-2012 - Shri Shailender Kumar Yadav And Shri R.K. Panda JJ. Assessee by : Sri Sunil Pathak Respondent by : Sri Alok Mishra ORDER Per R.K. Panda, AM This appeal filed by the assessee is directed against the order dated 30-10- 2009 of the CIT(A)-I, Pune relating to Assessment Year 2006-07. 2. The first issue raised by the assessee in the Grounds of appeal relates to the order of the CIT(A) in confirming the addition of Rs. 35,07,844/- made by the AO being the forfeiture of deposit as revenue receipt. 3. Facts of the case, in brief, are that during the course of assessment proceedings the AO noted that assessee has credited Rs. 35,07,884/- as other income on account of forfeiture of deposit . However, while computing the income the assessee has reduced the same with a note which reads ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... days of signing this Letter of Intent. (or such later as may be agreed by the parties), the Proposed Licensee shall forfeit the advance security deposit paid by the Proposed Licensee to the Proposed Licensors as per clause 13 of this Letter of Intent . 5. It was submitted that due to certain reasons no lease agreement was entered into between both the parties for which the assessee forfeited the security deposit of Rs. 35,07,844/- as per the terms of clause 19 of the MOU. 6. However, the AO was not satisfied with the explanation given by the assessee and treated the amount as revenue receipt. While doing so, he noted that as per the terms of the letter of Intent the lease agreement was to be signed within 30 days of signing the letter of Intent on payment of security deposit equivalent to one month s rent and on the failure of which the deposit shall be forfeited. This according to the AO indicated that the amount was in the nature of compensation for not executing the agreement within the given period thereby depriving the assessee of the monthly rent for the said period. Rent being in the nature of revenue receipt, any compensation for loss of such rent is in nature of rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tock in trade and therefore any receipt arising out of commercial exploitation of such stock in trade is a revenue receipt. Relying on a couple of decisions he held that the deposit forfeited by the assessee in the course of its business of purchase and sale of property is a business receipt and the same was rightly brought to tax under the head business by the AO. He accordingly upheld the addition made by AO. Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 9. The learned counsel for the assessee reiterated the same arguments as made before the AO and the CIT(A). Referring to the decision of the Hon ble Bombay High Court in the case of Fort properties Pvt. Ltd., Vs. CIT reported in 208 ITR 233 he submitted that the way in which the entries are recorded by the assessee in the books of account is not determinative for deciding the issue. He accordingly submitted that merely because the assessee has wrongly mentioned the asset as stock in trade, the same cannot be held against the assessee. Referring to Page 4 of the Paper Book he submitted that the only item shown under the head stock in trade is the commercial premises at Mumbai valued at Rs. 18,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the learned counsel for the assessee that this is the only commercial premises at Mumbai which is valued at Rs. 18,09,77,712/- and is still appearing in the balance sheet. Further according to the ld. Counsel for the assessee entries made by the assessee in the books of account is not determinative to decide the question as to whether the asset was held as a capital asset or stock in trade. It is also the submission of the learned counsel for the assessee that forfeiture of the security deposit on account of failure of the licensee to enter into leave and license agreement is a capital receipt and therefore not chargeable to tax. 13. We find the Hon ble Bombay High Court in the case of Mangla Homes Pvt. Ltd. (supra) has held that rental income from licensing the flat held by the assessee as stock in trade is assessable as income from house property and not as income from business. 14. We find the Mumbai Bench of the Tribunal in the case of Addl. CIT Vs. Rama Leasing Pvt. Ltd., (supra) has held that compensation received by the assessee for premature termination of lease agreement, though revenue receipt is not chargeable to tax. It has been held in the said decision that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... house property in view of the decision of the Hon ble Bombay High Court in the case of Mangla Homes Pvt. Ltd. still the same cannot be brought to tax in view of the decision of the Coordinate Bench of the Tribunal in the case of Datar Co. (supra). In this view of the matter we set aside the order of the CIT(A) and direct the AO to delete the addition. 17. The second issue in the Grounds raised by the assessee relates to the order of the CIT(A) in confirming the disallowance of interest of Rs. 1,39,096/- u/s. 36(1)(iii) of the I.T. Act. 18. Facts of the case, in brief, are that during the course of assessment proceedings the AO observed from the details furnished by the assessee that the assessee company has given loans to its sister concern Selvac Investment Pvt. Ltd. by charging interest @4%. However, he observed that the assessee is paying interest @8% on borrowed funds. The AO therefore asked the assessee to show cause as to why the interest paid on borrowings should not be disallowed to the extent of short fall of interest received from the sister concern to whom loans were given at concessional rate of interest. 19. It was submitted by the assessee that the loan of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the argument of the appellant on this issue is that the learned Assessing Officer compared interest rate of two different transactions and disallowed part of the interest claimed u/s. 36(1)(iii) without appreciating the fact that the first loan, i.e., loan from Axis Bank was for purchase of property whereas the loan given by the appellant was altogether a different transaction and such advance was made out of redemption of units of mutual funds. According to the appellant, in the absence of nexus of money borrowed at 8% with the money advanced by the appellant to another company at 4%, the comparison of interest rate is fallacious and the disallowance of interest was not warranted. The claim of the appellant does not stand to reason. Firstly, it is not case of the appellant that the advances were made to the sister concern for the purpose of the business of the appellant. Secondly, if profit from redemption of mutual funds had been utilised by the appellant for repayment of loan instead of making advance to sister concern at lower rate of interest, borrowings to the extent of profits derived from redemption of mutual funds would have come down and the interest being paid by the app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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