TMI Blog2017 (11) TMI 1290X X X X Extracts X X X X X X X X Extracts X X X X ..... Accordingly, the orders of the Ld. CIT(A) and A.O. are set aside and assessee’s grounds on the issue are treated as allowed. The receipts are to be considered as capital receipts only. In the light of the above decision of treating the “rental receipts” as “capital receipts” during the impugned years, hereby direct the A.O. to exclude the rent received from M/s. Ramdharam Kanta only as capital receipt. Since the proceedings initiated are u/s 147 of the Act, on the return of income filed by the assessee declaring house property income following the principles laid down by the Hon’ble Supreme Court in the case of CIT vs. Sun Engineering Work P. Ltd., (1992 (9) TMI 1 - SUPREME Court) the amounts already offered cannot be excluded. The proceedings u/s 147 are for the benefit of the revenue aimed at gathering the escaped income of the assessee, as held by the Hon’ble Supreme Court. To that extent, in AY 2008-09 assessee’s offering of rental income in the return filed is to be accepted and cannot be excluded. In other years, the rental receipts are to be treated as capital receipts and therefore gets excluded to be adjusted in capital work in progress of the project. Appeals of asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aya Mining - - 7,50,000/- 2,25,000/- - 9,75,000/- 3.1. Assessee submitted before the A.O. that the company purchased the property in Uppal from two companies and an individual. These properties were tenanted at the time of registration of the property and the company has spent a lot of money for evicting them. In the course of these proceedings, the company collected the rentals from the tenants. All these receipts happened in the course of evicting the tenants and therefore, the amounts received were set off against the expenditure incurred by the company in evicting the tenants. Since the property was purchased for setting up an Industrial Park and the assessee wanted vacant possession, the properties were immediately purchased and with a lot of delay in project, assessee could successfully evict the tenants incurring big loss of interest as well as delay in execution. Rentals were collected in course of evicting the tenants and, they were rightly credited to work-in-progress account as capital receipts . 4. Assessing Officer was of the opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aised by the assessee, it was also contended that notice issued u/s 148 of the Act is without jurisdiction and raised other grounds that the amounts cannot be brought to tax under the head house property and should have been set off against the expenditure, ie. work-in-progress. 7. Ld. Counsel reiterated the submissions made before the Ld. CIT(A) and submitted that assessee has incurred substantial amounts on the project and also, as explained before A.O. and CIT (A), has spent more than ₹ 27 lakhs for evicting the tenants. These amounts should not have been brought to tax as income from house property and should have been set off to work-in-progress. Ld Counsel relied on the principles laid down by the Hon ble Supreme Court in the case of CIT vs. Bokaro Steel Limited (236 ITR 315) (SC); CIT vs. Karnataka Power Corporation (247 ITR 268) (SC); CIT vs. Karnal Co-operative Sugar Mills Limited (243 ITR 2) (SC) and Bongaigaon Refinery And Petrochemicals Ltd vs. CIT (251 ITR 329) (SC). He further submitted that the amounts received during the period of setting up of its project, particularly income received from house property, guest house, charges from equipment and recover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d assessment years. The issue is whether the amounts can be brought to tax as income from house property or can be set off against the project expenditure as the properties were acquired for the purpose of setting up of an Industrial Park. 10. In the case of Thermal Powertech Corporation India Ltd vs. DCIT (164 ITD 449) the issue is whether the interest earned on the unutilised borrowed funds kept in short term fixed deposits during the construction of power plant would be taxed as income from other sources . Analysing the principles laid down by the Hon ble Supreme Court in the case of Tuticorin Alkalin Chemicals Fertilizers Ltd vs. CIT (227 ITR 172) and various other cases on the subject and also following the jurisdictional High Court decision in the case of CIT vs. Raasi Cements Ltd (232 ITR 554) (AP), it was held that the interest earned on borrowed funds deposited in banks during the inception of the company, prior to commencement of the business has to be brought to tax as income from other sources u/s 57 of the Act. However, in the present case, it is not the interest earned on the deposits made either of own funds or borrowed funds. It is the rents received on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est receipts and hire charges from contractors, by holding that the same are in the nature of capital receipts which would go to reduce capital cost? The Hon ble Supreme Court held that it is not in dispute that the question must be answered in the affirmative and in favour of the assessee having regard to the judgment of this Court in CIT vs. Bokaro Steel Ltd [1999] (236 ITR 315) (SC). The same principle is also reiterated in the case of CIT vs. Karnal Co-operative Sugar Mills Ltd (243 ITR 2) (SC) wherein also interest received on amounts deposited to open a letter of credit for purchase of the machinery required for setting up its plant was held to be capital receipt . The Hon ble Supreme Court followed the principles laid down in the decision of CIT vs. Bokaro Steel Ltd (supra) while referring to the principles laid down in the case of Tuticorin Alkali Chemicals and Fertilizers Limited vs. CIT (227 ITR 272). 12. In the later decision of the CIT vs. Bongaigaon Refinary and Petrochemicals Ltd vs. CIT (252 ITR 329), the Hon ble Supreme Court held that income from house property, guest house, charges for equipment and recoveries from contractors for supply of water and electrici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of treating the rental receipts as capital receipts during the impugned years, I hereby direct the A.O. to exclude the rent received from M/s. Ramdharam Kanta only as capital receipt. Since the proceedings initiated are u/s 147 of the Act, on the return of income filed by the assessee declaring house property income at ₹ 1,66,630/-, following the principles laid down by the Hon ble Supreme Court in the case of CIT vs. Sun Engineering Work P. Ltd., (1992) 198 ITR 297 (SC), the amounts already offered cannot be excluded. The proceedings u/s 147 are for the benefit of the revenue aimed at gathering the escaped income of the assessee, as held by the Hon ble Supreme Court. To that extent, in AY 2008-09 assessee s offering of rental income in the return filed is to be accepted and cannot be excluded. In other years, the rental receipts are to be treated as capital receipts and therefore gets excluded to be adjusted in capital work in progress of the project. 15. Assessee also questioned the reopening of the assessments u/s 147 of the Act. As the information has come to the knowledge of the Assessing Officer in A.Y. 2012-13 and as no scrutiny assessments have been compl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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