IN INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR BEFORE: SHRI BHAGCHAND, AM AND SHRI KUL BHARAT, JM ITA Nos. 689 & 72/JP/2016 Assessment Year : 2004-05. M/s. Jain Construction Company, cuke Asstt. Commissioner of Income- 761/39, Aklank House, Vs. tax, (Tech.) Tikam Ganj, Ajmer. Ajmer. PAN No. AAPFM 1293 G Appellant Respondent Assessee by : Shri G.C. Jain (ITP) Revenue by: Shri R.A. Verma (Addl. CIT) Date of Hearing : 26.09.2016. Date of Pronouncement : 30/09/2016. ORDER PER SHRI KUL BHARAT, JM. These two appeals by assessee are directed against two separate order of ld. CIT & CIT (A), Ajmer dated 30.05.2012 and 06.11.2015 respectively pertaining to A.Y. 2004-05. Both these appeals are being disposed off together by this consolidated order, for sake of convenience. 2. We first take up appeal in ITA No. 689/JP/2016. grounds raised are as under :- learned Commissioner of Income ^Tax grossly erred in law and on facts in :- 1. Passing Order u/sec. 263 of I.T. Act, 1961. 2. Directing AO to re-compute Book Profit by excluding income from interest from Banks. 2 ITA Nos. 689 & 72/JP/2016. M/s. Jain Construction Company. 3. Treating interest from Banks on FDRs as Income from Other sources ignoring facts about nature of deposit. 4. Ignoring method of accounting & audited statements. action of learned CIT was injudicious, bad in law, arbitrary & capricious as such same deserve to be quashed and it is prayed that income on FDRs be held to be business income being part of book profit as shown in Profit and Loss account. 3. Briefly stated facts of case are that assessment was framed under section 148 of Income Tax Act, 1961 (hereinafter referred to as Act) on 21.09.2011 thereby AO computed total income at Rs. 13,25,180/- as against assessed income under section 143(3) of Act at Rs. 12,13,180/-. Subsequently, ld. CIT Ajmer revised order vide impugned order dated 30.05.2012 on basis that AO has allowed excess remuneration paid to partners of Rs. 1,61,825/- and credit of tax of Rs. 13,88,764/- was observed to be allowed as irregular. ld. CIT after considering facts, set aside assessment order dated 21.09.2011 and directed AO to frame denovo assessment. assessee has challenged invoking of provisions of section 263 of Act in ground of appeal. 4. learned Counsel for assessee has reiterated submissions as made in Statement of facts and in written brief. At time of hearing, it was pointed out by ld. D/R that there is delay of 1426 days in preferring present appeal. ld. Counsel for assessee submitted that appeal against order of 263 could not be filed in time due to fact that assessee was under impression that appeal was to be filed only against final order by 3 ITA Nos. 689 & 72/JP/2016. M/s. Jain Construction Company. Assessing Officer. ld. Counsel reiterated submission as are made in written brief in following terms :- present appeal has been filed against order of learned C.I.T. Ajmer passed u/s 263 of I.T. Act 1961 dated 30-05-2012, same is late by 3 years 11 months and 5 days. order u/s 263 was served upon appellant on 02-06-2012. appeal before Tribunal was required to be filed on or before 1-8-2012. appellant has therefore, filed application for condonation of delay, on ground that they were under impression that appeal was to be filed only against final order by Assessing Officer, as advised by counsel. As stated by appellant above, delay in filing of appeal has been caused due to wrong advice by local counsel attending affairs of assessee there was neither any dilatory tactic nor any malafide intention on part of appellant but delay was for sufficient and reasonable cause. As such it is prayed that delay as afore-said in filing of appeal may kindly be condoned and appeal be admitted for consideration. Reliance is placed on following decisions :- 1. Areva T&D India Ltd. v/s (2006) 203 CTR (Mad) 325 Delay in filing appeal due to advice alleged to have been given by Counsel and Tribunal erred in exercising discretion u/s 5 of limitation Act. Delay condoned. 2. Sriniwas Charitable Trust v/s Dy CIT (2006) 154 Taxman 377/ 280 ITR 357 (Mad) tribunal should adopt pragmatic approach in matter of condonation of delay as sufficient cause indicates that advancing justice is of prime importance and hence liberal construction so as to advance substantial justice, length of delay is immaterial and hence liberal construction. Delay condoned. 3. Sterlite Industries (India) Ltd v/s Addl. CIT/JC IT (2006) 6 SOT 497/102 TTJ (Mum) word "sufficient cause appearing in sub-section (5) of section 253 should receive liberal construction so as to advance substantial justice, length of delay is immaterial and acceptability of explanation is only criteria for condonation of delay. 4. Earth metal Electrics (P) Ltd. v/s ITO 9(1) (3) (2005) 4 SOT 484 (Mum) Nobody wants to delay as he does not benefit therefore. No malafide-No inaction delay of 71 days condoned by Bombay bench of Tribunal. 5. Angela J. Kazi v/s ITO (2006) 10 SOT 139 (Mum) Appeal filed before Tribunal which was late by 7 years and 192 days assessee applied for condonation of delay stating that there was no malafide intention or her part for not filing appeal within prescribed time because of procedural delay and long pendency of litigation at various stages. Held that since explanation did not smack of malafide or was not put forth as dilatory tactic, delay in filing was to be condoned. 4 ITA Nos. 689 & 72/JP/2016. M/s. Jain Construction Company. 6. Udai Plastic (P) Ltd. v/s ITO (2006) 99 ITD 231 (Jab) delay was caused for not properly guiding assessee Hence delay was condoned. 7. People Education and Economic Development society (Peeds) v/s ITO 104 ITJ 467 (Chennai) when substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for other side cannot claim to have vested right in justice being done because of non- deliberate delay. There is no presumption that every persons knows law. It is often said that everyone is presumed to know law but that is not correct statement. There is no such maxim to law. Delay condoned. 8. Pay and Accounts officer v/s ITO (2008) 219 CTR (Mad) 197 Law of limitation enacted only to give finality to proceeding and not to destroy statutory remedy. Court can condone delay if it is satisfied even if delay is enormous. 9. Advice of counsel for not filing 2nd appeal before Tribunal has been held to be sufficient cause for delayed filing of appeal later on. (Ganesh Chawla v/s ITO, Tax world XL page 45. Delay of 43 month condoned. In facts and circumstances of case, it is prayed that delay in filing of appeal may kindly be ordered to be condoned and appeal be taken up for consideration. 4.1. On contrary, ld. D/R opposed submissions and submitted that no reasonable cause is shown by assessee as to why appeal was not filed in time. 4.2. We have heard rival contentions and perused material available on record. only explanation given by assessee is that assessee was advised by its Counsel that appeal can only be filed against final order of AO. We are unable to accept explanation of assessee as in every case of delay assessee will come with explanation that he was not properly advised by his Counsel. No affidavit by Counsel to this effect is furnished by assessee. Therefore, appeal filed by assessee suffers from delay and latches, hence 5 ITA Nos. 689 & 72/JP/2016. M/s. Jain Construction Company. application for condonation of delay is dismissed and appeal is dismissed being barred by time. 5. Now we take up assessee s appeal in ITA No. 72/JP/2016. assessee has raised following grounds of appeal :- learned Commissioner of Income Tax (Appeals) grossly erred in law and on facts in confirming disallowance of Rs. 1,61,825/- out of remuneration allowable to partners. disallowance confirmed by learned Commissioner of Income Tax (Appeal) is bad in law, based on surmises & conjectures, arbitrary & capricious, injudicious, against settled principles of law, as such same deserved to be deleted. 6. only issue involved in this appeal is whether ld. CIT (A) was justified in confirming disallowance of Rs. 1,61,825/- out of remuneration allowable to partners. 6.1. ld. Counsel for assessee reiterated submissions as made in written brief. It is submitted that nature of business of firm was to furnish bank guarantee, earnest money deposit for obtaining contracts. Hence it was required to keep amount deposited in shape of FDRs in bank. During course of hearing ld. Counsel has made submissions as made in written submission as under :- 1. detailed facts have been given relating to disallowance out of remuneration paid to Partners during assessment/Appellate proceedings. In view of these facts and also facts on record claim was correctly worked out and allowable. 2. important facts for consideration is that disallowance/addition out of remuneration claimed u/s 40(b) was made solely on basis of ITAT decision of Calcutta Bench 6 ITA Nos. 689 & 72/JP/2016. M/s. Jain Construction Company. in case of Mohini Marketing v/s ITO of ITAT, Calcutta. However, we may submit that facts in our case were altogether different. In said judgment facts were that assesses had surplus funds which were invested & interest income was earned & same was held taxable as Income from Other Sources while in our case there were no surplus for investment but we were in extreme need of finance for smooth running of Business. same is evidenced from following position of Audited Balance Sheet as at 31st March, 2004 :- Partners Capital 72,26,139.00 Fixed Assets 81,35,006.00 Work in Progress Payment O/S With Depts. 2,23,80,292.00 ------------------ 3,05,15,298.00 ------------------ Capital was lying invested in Fixed Assets/Plant & Machineries and Equipments etc. There were no funds for execution of Contract work i.e. purchase of material, payment of workers etc. Hence Bank loans/Guarantees were required. (Refer Annexure-E(a) Page no. 34). As such assesses was always in need of finance. capital was hardly sufficient to run Business as such question of surplus funds does not arise. 3. total amount of FDR (including accrued interest thereon) was Rs. 49,30,828/- against which Secured loans were Rs. 1,55,00,952/- which were arranged only on basis of these FDRs. (Refer Annexure-E(a) Page No. 34). FDRs were, as such, taken for at most need of business i.e. for deposit against earnest money or obtaining Loan, Limits & Bank guarantees only. secured loan was almost thrice of investment in FDR. If assesses had not provided Bank guarantee or not placed FDR as earnest money, Dept. would have deducted security amount from Payments for which they did not provide any interest. assesses would have lost even interest on FDR. FDRs were given for obtaining Bank Guarantee & Bank Guarantee commission debited by bank. No Bank guarantee could be obtained without furnishing of FDR (Bank Certificate enclosed). (Refer Annexure-E(C) page no. 44). 7 ITA Nos. 689 & 72/JP/2016. M/s. Jain Construction Company. 4. payment of interest was Rs. 21,91,195/- while interest earned on FDR was only Rs. 3,69,360/-. No prudent businessman will invest in FDR &pay more interest on loan to Bankers higher rate. This clearly proves that interest on FDR was not on surplus funds invested but related to real business needs. As such same has been rightly credited in interest A/C. (Refer Annexure-5(a) Page no. 41). 5. Moreover we may submit that even their lordships of Calcutta High Court in case of Md. Serajuddin & Brothers v/s Commissioner of Income Tax held that interest in such circumstances cannot be brought to tax as Income from Other Sources. claim was also supported by several decisions of Apex court which were also referred in our submission. Since disallowance was made only on basis of ITAT decision without going through facts of case & not having note of said Calcutta High Court Decision, finding was not justified. decision of same Jurisdictional High Court will have more judicial value than decision of ITAT Bench of Calcutta. It appears that same has escaped attention of worthy CIT while deciding issue u/s 263 proceedings. (Refer Annexure-H page no. ). Even otherwise we have to submit that interest income in our case was taxed as Business Income only & not Income from Other Sources, question of disallowance does not arise as nothing was assessed as Income from Other Sources. It was part of Book Profit . (Refer Annexure-5(b) Page No. 42). In view of all above facts, it is thus, most humbly submitted that learned AO was not justified in disallowing remuneration of Rs. 1,61,825/- and same deserves to be deleted. ld. Counsel for assessee also drew our attention to paper book page 44 in support of contention that FDRs were kept to issue Bank Guarantee. At page 44 of paper book Certificate dated 2nd November 2015 is enclosed wherein Branch Manager has confirmed factum of issuing Bank Guarantee against margin @ 100%, 25% respectively in shape of FDR as per norms of Bank. 8 ITA Nos. 689 & 72/JP/2016. M/s. Jain Construction Company. 6.2. On contrary, ld. D/R has opposed submissions. 6.3. We have heard rival contentions, perused material available on record and gone through orders of authorities below. AO has disallowed remuneration on basis that interest earned on FDRs is income of assessee from Other sources and not Business income as claimed by assessee. On appeal to ld. CIT (A), who decided issue by observing as under :- 4.3. I have gone through assessment order, statement of facts, grounds of appeal and written submission carefully. It is seen CIT, Ajmer while passing order u/s 263 has given direction to AO to withdraw excess remuneration of Rs. 1,61,825/- paid to partner. CIT, Ajmer has relied on decision of ITAT Kolkata in ITA No. 1534 to 1536 dated 30.06.2010 in case of Mohini Marketing. It is seen that ITAT in above referred case in para 6 has observed as under : 6. I have heard parties and carefully perused orders of authorities below and material placed on record. In this case, assessee has included bank interest income earned on FDRs with business income for calculation of partners remuneration. It was submitted by assessee that FDRs were pledged with bank for obtaining loan and/or overdraft facility from bank and, therefore, interest income earned on such FDRs was business income of assessee. However, there is no evidence on record to establish that said FDRs were actually made for keeping them pledged with bank for obtaining loan and/or CC limits. It was stated by AO that assessee purchased FDRs out of its surplus funds lying with it and generated in business in form of profits. In this connection I may refer to Special Bench decision of ITAT Delhi in case of DCIT vs. Allied Construction [(2007) 105 ITD 1 (Del-SB)], wherein it has been held that even if assessee is engaged in business of execution of civil construction work and had invested certain funds in fixed deposits with bank and thereafter offered said FDs as security for various loans availed by assessee from bank, interest income on FDRs was income separate and apart from income from civil construction business and said 9 ITA Nos. 689 & 72/JP/2016. M/s. Jain Construction Company. interest income on FDRs is to be assessed as income from other sources after allowing deduction of expenses, if any, u/s 57(iii) of Act. Similarly Hon ble Madhya Pradesh High Court in Ferro Concrete Construction (India) P;. Ltd. vs. CIT (290 ITR 713 (MP) has held that interest earned on short-term bank deposits is income from other sources. In case under consideration, assessee has also argued that interest earning activity was part of his business. deposits on which interest has earned were made only for business purposes. interest activity was directly related to main business activity. However, after carefully viewing written submission, I am not convinced with argument of appellant that deposits on which interest is earned were made only for business purpose because assessee has not furnished any evidence to substantiate his argument that deposits were made only for obtaining loans, bank guarantee etc. No evidence has been furnished to show that assessee has obtained any bank guarantee against deposit made by him. In absence of any evidence to show that deposits on which interest have been earned were made to meet business needs of appellant, argument of appellant that interest earned on deposits is its business income can not be accepted. Accordingly, it is held that interest income earned by appellant on deposits made by him was income assessable under head income from other sources and this interest income can not be considered business income for purpose of computing book profit u/s 40(b). excess remuneration of Rs. 1,61,825/- as worked out by AO, paid to partners, is held to be inadmissible in view of provisions of Sec. 40(b). Accordingly, disallowance made by AO is hereby confirmed. We do not agree with finding of ld. CIT (A) as assessee has demonstrated by furnishing Certificate from Banker that FDRs were made for purpose of getting Bank Guarantee for obtaining contracts. Therefore, in our considered view interest earned on such FDRs ought to have been treated as Business income and not as Income from Other sources. In light of above discussion, we hereby direct AO to delete addition. This ground of appeal is allowed. Appeal of assessee is allowed. 10 ITA Nos. 689 & 72/JP/2016. M/s. Jain Construction Company. 7. In result, appeal in ITA No. 689/JP/2016 is dismissed whereas appeal in ITA No. 72/JP/2016 is allowed. Order is pronounced in open court on 30/09/2016. Sd/- Sd/- ( BHAGCHAND) ( KUL BHARAT ) Accountant Member Judicial Member Jaipur Dated:- 30/09/2016. Das/ Copy of order forwarded to: s 1. Appellant- M/s. Jain Construction Co., Ajmer. 2. Respondent ACIT (Tech.), Ajmer. 3. CIT(A). 4. CIT, 5. DR, ITAT, Jaipur 6. Guard File (ITA No. 689 & 72/JP/2016) By order, Assistant. Registrar M/s. Jain Construction Company v. Asstt. Commissioner of Income-tax, (Tech.) Ajmer