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Joynest Premises Pvt. Ltd. Versus ITO, 5 (3) (4) , Mumbai

2016 (7) TMI 1096 - ITAT MUMBAI

Assessment of interest received on compulsory FDR - 'income from other sources' OR 'business activity' - Held that:- Interest earned by the assessee on FDRs has intrinsic and inseggregable nexus with the work undertaken and, therefore, the interest earned by the assessee is capital in nature and shall go towards adjustment against the project expenditure and the same cannot be assessed as income from other sources. SEE CIT vs. Bokaro Steel Ltd. (1998 (12) TMI 4 - SUPREME Court ) and CIT vs. Karn .....

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decided in favour of the assessee. See CIT Vs. Dhoomketu Builders and Development P. Ltd. [2013 (4) TMI 668 - DELHI HIGH COURT ] wherein held there may be an interval between a business which is set up and a business which is commenced and all expenses incurred after the setting up of the business and before the commencement of the business would be permissible deductions/business loss. - Decided in favour of assessee - I.T.A. No. 6717/Mum/2014, I.T.A. No. 6718/Mum/2014 - Dated:- 15-6-2016 - SH .....

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t the issues involved in both the appeals are almost identical in nature and further that the assessment relevant to assessment year 2009-10 was reopened on the basis of observation made by the Assessing Officer [hereinafter referred to as AO] for A.Y. 2010-11. He therefore, has submitted that the facts from appeal for assessment year 2010-11 be taken for adjudication of the above appeals. We, accordingly, take the ITA No.6718/Mum/2014 for A.Y.2010-11 as lead case. ITA No. 6718/Mum/2014 (A.Y.201 .....

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) ought to have directed the Assessing Officer to consider the same as business receipt since it was inextricably linked with the business activities of the appellant; and, as such, deductible from the work-in-progress. 3. Without prejudice to the above and in the alternative, the Learned CIT (A) ought to have directed the Assessing Officer to grant the benefit of netting off of such income against interest expenditure. 4. The Learned CIT (A) has erred in law and on facts in concurring the disal .....

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and do not require any adjudication. Ld. AR has stated at bar that he does not want to press ground no.3 and thus ground no.3 is dismissed as not pressed. Now, we are left with ground no.2&4 for adjudication. Ground No.2:- 4. The brief facts of the case relating to issues taken vide these grounds of appeal are that the assessee is a Private Limited company engaged in the business of Builders and Civil Contractors. The assessee had entered into an agreement with the Government of Maharashtra .....

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-10 aggregating to ₹ 1,19,33,273/- from the said FDR with Dena Bank. During the year under consideration, assessee reduced the entire interest income of ₹ 1,19,33,273/- from its work in progress. During assessment proceedings, the AO asked the assessee as to why the gross interest income on FDR earned by the assessee should not be brought to tax. In response, the assessee submitted that the FDR was in the nature of compulsory fixed deposit into bank as a project performance guarantee .....

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sit by the assessee under the head Income from other Sources . AO while relying upon judgemnet of Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilisers Ltd [227ITR172] rejected the above contention of the assessee and taxed the interest. 5. Being aggrieved by the above action of the AO, the assessee filed appeal before the Ld. CIT(A). Before the ld. CIT(A), the assessee explained that Supreme Court decision in the case of Tuticorin Alkali Chemicals and Fertilisers Ltd. (supra) .....

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on of various assets of the company and the payments received from such utilization are directly linked with the activity of setting up the business of the assessee and such receipts are inextricably linked with the setting up of the capital structure of the assessee-company, then these receipts must be viewed as capital receipts going to reduce the cost of construction. 6. The ld. CIT(A), however did not accept the above contention of the assessee and observed that in the instant case, the asse .....

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e in appeal before us. Ld. AR of the assessee at the outset has relied upon various case laws including that of the Hon ble Supreme Court in the case of CIT vs. Bokaro Steel Ltd. (supra) and in the case of CIT vs. Karnal Co-operative Sugar Mills Ltd.[243 ITR 2] (Supreme Court). He further has strongly relied upon the decision of Hon ble Delhi High Court in the case of CIT vs. Jaypee DSC Ventures Ltd [335 ITR 132] (Delhi). He has invited our attention to the question of law framed by the Delhi Hi .....

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in deleting the addition of ₹ 16,36,039/- on the ground that interest earned by the assessee on the fixed deposit receipt being capital in nature cannot be assessed as income from other sources solely on the foundation that the fixed deposit was made for submitting the performance guarantee to the National Highways Authority of India? The Hon ble Delhi High Court while relying upon various case laws including that of the Hon ble Supreme Court in the case of CIT vs. Bokaro Steel Ltd. (supra .....

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ertaken and, therefore, the interest earned by the assessee is capital in nature and shall go towards adjustment against the project expenditure and the same cannot be assessed as income from other sources. 8. We find that the facts of the case in hand are squarely covered by the above various decisions of the Hon ble Supreme court as well as of the Hon ble Delhi High Court. Respectfully following the same, this issue is decided in favour of the assessee. Ground No.4 9. In ground no.4, the asses .....

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IT(A). The ld. CIT(A) however also rejected the contention of the assessee observing that since the project of the assessee had not started yielding any revenue hence all the expenses relating to the incomplete project should have been capitalized. 11. Being aggrieved by the order of CIT(A), the assessee has come in appeal before us. The assessee before us had relied upon the decision of Hon ble Delhi High Court in the case of CIT Vs. Dhoomketu Builders and Development P. Ltd. [2014]368 ITR 680 .....

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