DCIT, Circle-1(1), Hyd, Hyderabad V. Asrani Inn & Resorts (P) Ltd., Delhi

CO 20/HYD/2016

• Counselvise Citation: [2017] 123 COUNSELVISE.COM (IT) 2803 (ITAT-HYDERABAD)
• Duration Of Justice: 9 month(s) 12 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 23-02-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 11-05-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: U MINICHANDRAN
• Keywords: Unexplained cash credit; Fair market value; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 143(3); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 988/HYD/2013 AND C.O. NO. 20/HYD/2016 ASSESSMENT YEAR: 2008-09 DY. COMMISSIONER OF INCOME- TAX, CIRCLE 1(1), HYDERABAD. VS. M/S ASRANI INNS & RESORTS PVT. LTD., DELHI. PAN AACCA9781D (ASSESSEE) (RESPONDENT/CROSS OBJECTOR) REVENUE BY : SMT. U. MINI CHANDRAN ASSESSEE BY : SHRI K.C. DEVDAS DATE OF HEARING : 29-12-2016 DATE OF PRONOUNCEMENT : 23 -02-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF CIT(A)- V, HYDERABAD, DATED 22/02/2013 FOR AY 2008- 09. THE ASSESSEE ALSO FILED C.O. AGAINST THE VERY SAME ORDE R OF THE CIT(A). 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER: I) THE ORDER OF THE LEARNED CIT(APPEALS) IS ERRONEO US IN LAW AND ON FACTS OF THE CASE. II) THE CIT (A) OUGHT TO HAVE APPRECIATED THE FACTS BROUGHT ON RECORD BY THE ASSESSING OFFICER IN CONCLUDING THAT THE SALE TRANSACTION IS UNBELIEVABLE, CONSIDERING THE ABNORM AL INCREASE IN THE VALUE OF SHARES IN A SHORT SPAN OF 16 MONTHS. III) THE CIT(APPEALS) OUGHT TO HAVE CONSIDERED THE FACT THAT THE COMPANY, WHICH ISSUED SHARES TO THE ASSESSEE-COMPAN Y, DID NOT COMMENCE ITS COMMERCIAL ACTIVITIES FOR ACCUMULATING PROFITS, WITHOUT WHICH THE INCREASE OF SHARE VALUE DID NOT H APPEN AT ALL. 2 ITA NO. 988/H/2013 & C.O. 20/H/16 M/S ASRANI INN & RESORTS P. LTD. IV) IN THE GIVEN FACTS, THE CIT(APEALS) OUGHT TO HA VE CONFIRMED THE ACTION OF THE AO IN TREATING THE INCOME UNDER T HE HEAD 'OTHER SOURCES' RELYING ON THE DECISION OF PUNJAB & HARYAN A HIGH COURT IN THE CASE OF SOM NATH MAINI VS. CIT (306 ITR 414) AND HON'BLE SUPREME COURT DECISION IN THE CASE OF SUMATI DAYAL VS. CIT(214 ITR 80). V) THE LEARNED CIT(APPEALS) ERRED IN DELETING THE A DDITION MADE BY TREATING THE EXPENDITURE INCURRED DURING THE PRE - COMMENCEMENT PERIOD AS CAPITAL EXPENDITURE, AS THE FACTS CITED BY THE CIT(A) ARE DISTINGUISHABLE IN THE PRESENT CA SE. VI) ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF HEARING. 2.1 THE ASSESSEE HAS RAISED THE FOLLOWING CROSS OBJ ECTIONS IN ITS C.O.: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME -TAX (APPEALS), HYDERABAD IS NOT CORRECT IN HOLDING THAT THE INTEREST RECEIVED AT RS. 1,79,11,289 DURING THE PRECONSTRUCT ION PERIOD IS ASSESSABLE TO TAX. 2. THE LEARNED COMMISSIONER OF INCOME-TAX FAILED TO NOTE THAT THE INTEREST RECEIVED WAS AGAINST THE FIXED DEPOSIT WHICH WAS GIVEN AS A GUARANTEE TO THE GOVERNMENT WAS INCIDENT AL TO THE SET UP OF BUSINESS AND THEREFORE IS A CAPITAL RECEIPT. 3. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY FILED ITS RETURN OF INCOME ON 26/09/2008 ADMITTING INCOME OF RS. 30,45,190/- UNDER THE HEAD INCOME FROM BUSINESS A ND RS. 4,47,44,209/- UNDER THE HEAD LONG TERM CAPITAL GAI NS. ASSESSMENT U/S 143(3) OF THE ACT WAS COMPLETED DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS. 6,05,51,300/- BY MAKING VARIOUS ADDITIONS, WHICH ARE TO BE ADJUDICATED AS UNDER: 4 . AS REGARDS THE ISSUE OF TREATING RS. 4,62,11,40 0/- AS INCOME FROM OTHER SOURCES UNDER SECTION 68 OF THE ACT AGAI NST THE ADMISSION AS LONG TERM CAPITAL GAINS BY THE ASSESSEE, BRIEF F ACTS ARE THAT THE ASSESSEE PURCHASED 18000 SHARES OF M/S SHRI RADHE G OVIND ESTATES PVT. LTD, (M/S SRGEPL) A JAIPUR BASED COMPANY @ RS. 500/- ON 10.04.2006 AND ANOTHER 8220 SHARES ON 16.04.2006 @1 800/- PER SHARE AND SOLD THEM ON 21.08.2007 @ RS. 2670/- PER SHARE RESULTING 3 ITA NO. 988/H/2013 & C.O. 20/H/16 M/S ASRANI INN & RESORTS P. LTD. IN ADMISSION OF LONG TERM CAPITAL GAINS OF RS. 4,62 ,11,400/-. AO OBSERVED THAT THERE IS NO REASON FOR INCREASE IN TH E VALUE OF SHARE OF RS. 500/- TO RS. 2,670/- AND FROM RS. 1,800/- TO RS . 2,670/- WITHIN A GAP OF 16 MONTHS, THE ASSESSING OFFICER DISBELIEVE D THE TRANSACTION OFFERED AS CAPITAL GAINS AND TREATED THE AMOUNT OF RS. 4,62,11,4001- AS UNEXPLAINED CREDIT UNDER SECTION 68 OF THE ACT. FOR THIS TREATMENT, THE ASSESSING OFFICER BROUGHT IN THE RELATIONSHIP B ETWEEN THE SELLER OF THE SHARES TO THE ASSESSEE AND THE PURCHASER OF THE SHARES FROM THE ASSESSEE, THAT THEY ARE SAME DIRECTORS OF M/S SRGEP L, THERE IS NO BASIS FOR ABNORMAL INCREASE OF SHARES WITHIN A PERI OD OF 16 MONTHS FROM RS. 1,800 TO RS. 2,670/-, THE FIGURES APPEARIN G IN THE BALANCE SHEET AND PROFIT & LOSS ACCOUNT OF THE PURCHASING C OMPANY/SELLER COMPANY AND ALSO AFTER CAUSING ENQUIRIES BY THE JUR ISDICTIONAL DDIT, REJECTED THE CAPITAL GAINS OFFERED BY THE ASSESSEE AND TREATED THE SAME AS UNEXPLAINED CREDIT UNDER SECTION 68 OF THE ACT. 4. ON APPEAL BEFORE THE CIT(A), DURING APPEAL PROCE EDINGS, THE ASSESSEE SUBMITTED DETAILED NOTE ON THE TRANSACTION OF PURCHASE AND SALE OF SHARES, EVIDENCES OF THE BOARD RESOLUTIONS, REASONS FOR INCREASE IN VALUE OF SHARES, ETC. ON ENQUIRY CAUSED BY THE ASSESSING OFFICER, IT WAS SUBMITTED THAT BOTH THE PURCHASERS CONFIRMED THE TRANSACTION OF PURCHASING SHARES FROM THE ASSESSEE @ RS.2,670/- PER SHARE AND HENCE, THERE WAS NO REASON FOR THE ASSESS ING OFFICER TO DISBELIEVE THE TRANSACTION. THE MAIN REASON AS SUBM ITTED BY THE PURCHASERS OF THE SHARES IS THAT THE COMPANY M/S SR GEPL OWNS A PIECE OF LAND AT JAIPUR AND THAT AN AIRPORT WAS PRO POSED TO BE CONSTRUCTED NEAR THE SAID LAND DUE TO WHICH THE VAL UE OF THE LANDS IS LIKELY GO UP ABNORMALLY AND IN THE SAID VACANT SIT E THEY CAN DEVELOP A HOTEL. ACCORDINGLY, THE ASSESSEE CLAIMED THAT THE RE IS NO REASON TO DISBELIEVE THE TRANSACTION OF CAPITAL GAINS. 5. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E AND THE ORDER OF THE AO AS WELL AS ENQUIRY REPORT OF THE DD IT, THE CIT(A) OBSERVED THAT ADMITTEDLY, ON 10.04.2006 THE ASSESSE E PURCHASED THE 4 ITA NO. 988/H/2013 & C.O. 20/H/16 M/S ASRANI INN & RESORTS P. LTD. SHARES OF A FACE VALUE OF RS. 10/- BELONGING TO M/S SRGEPL AT A PREMIUM OF RS. 490/- PER SHARE. THE FINANCIAL POSIT ION OF M/S SRGEPL AS BROUGHT OUT BY THE ASSESSING OFFICER DURI NG THE SUBJECT ASSESSMENT YEAR IS SAME FOR THE PREVIOUS YEAR AND THERE ARE NO BIG BUSINESS TRANSACTIONS BY M/S SRGEPL. IF ONE HAS TO DOUBT THE INCREASE IN SALE VALUE OF SHARES FROM RS. 500 AND R S. 1800 TO RS. 2,670/- OVER A PERIOD OF 16 MONTHS, THE CIT(A) WAS OF THE VIEW THAT WHY THE SAME DOUBT CANNOT BE EXTENDED TO THE BUYING TRANSACTION OF SHARES AT A PREMIUM OF RS. 490/- WHEN THE FINANCIAL POSITION OF M/S SRGEPL IN THE YEAR OF PURCHASE AND SALE IS ONE AND THE SAME?. THE CIT(A) OBSERVED THAT THE ASSESSING OFFICER HAD NOT DOUBTED THE INCREASE OF SHARE FROM RS. 500 ON 10.04.2006 TO RS. 1,800 ON 16.04.2006 WHICH IS AROUND 3 TIMES IN A GAP OF 6 DA YS. WHEN THE VALUE OF SHARES IS SO FLUCTUATING FOR REASONS BEST KNOWN TO THE PURCHASER AND SELLER, TRANSACTIONS DO HAPPEN AND AS LONG AS THE RESULTANT GAINS WERE OFFERED TO TAX, NO NEED TO SEE ANY REASON TO DISBELIEVE THE TRANSACTION OF SALE/PURCHASE RATE OF SHARES WHICH ARE DETERMINED BY THE MARKET CONDITIONS AND THE INCOME TAX ACT DO NOT IMPOSE ANY RESTRICTIONS ON SUCH MARKET CONDITIONS. IN VIEW OF THE ABOVE OBSERVATIONS, THE CIT(A) HELD THAT IN THE CA SE ON HAND, THE ABNORMAL INCREASE IN THE VALUE OF SHARES WERE VERY MUCH THERE ON THE DATE OF INITIAL PURCHASE I.E. ON 10.04.2006 AND WIT HIN A GAP OF 6 DAYS IT HAS GONE THREE TIMES HIGHER AND BY THE SAME ANAL OGY THE INCREASE IN RATE OF SHARES BY RS. RS. 870/- AFTER A GAP OF 1 6 MONTHS FROM THE DATE OF PURCHASE IS IN NO WAY DISBELIEVABLE, MORE S O WHEN THE PURCHASERS ARE CONFIRMING THE RATE ADOPTED AND ADMI TTING THE SAME IN THEIR HANDS. HE, THEREFORE, WAS NOT INCLINED TO GO BY THE VIEW OF THE ASSESSING OFFICER IN TREATING LONG TERM CAPITAL GAI NS AS INCOME FROM OTHER SOURCES UNDER SECTION 68 OF THE ACT. AND DIRE CTED THE ASSESSING OFFICER TO TREAT THE AMOUNT OF RS4,62,11, 400/- AS LONG TERM CAPITAL GAINS. 6. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 5 ITA NO. 988/H/2013 & C.O. 20/H/16 M/S ASRANI INN & RESORTS P. LTD. 7. LD. DR VEHEMENTLY ARGUED THAT THE ASSESSEE HAS P URCHASED SHARES FROM M/S SRGEPL, A JAIPUR BASED COMPANY AT RS. 500/- PER SHARE ON 10/04/2006 AND BOUGHT ANOTHER SET OF SHARE S FROM THE DIRECTORS OF SUCH COMPANY @ 1800/- PER SHARE. SHE R AISED A DOUBT ON THESE TRANSACTIONS THAT WITHIN A GAP OF SIX DAYS HO W THE SHARES VALUE CAN INCREASE TO THAT EXTENT. HOWEVER, SAME SHARES W ERE BOUGHT BY THE OTHER DIRECTORS FROM THE ASSESSEE @ 2670/- PER SHARE. SHE SUBMITTED THAT M/S SREGPL HAS NOT MADE ANY COMMERCI AL TRANSACTIONS DURING THIS PERIOD EXCEPT THE COMPANY HOLDS THE LAND. SHE SUBMITTED THAT AO BEFORE COMING TO THE CONCLUSI ON THAT ASSESSEE HAS ADOPTED DUBIOUS METHOD TO INCREASE ITS NETWORTH , RELIED ON THE REPORT SUBMITTED BY DDIT, JAIPUR. LD. DR VEHEMENTL Y ARGUED THAT AO IS JUSTIFIED IN MAKING THE ADDITION U/S 68 TREATING SUCH ADDITIONAL INCOME AS INCOME FROM OTHER SOURCES. 8. LD. AR SUBMITTED THAT THE AO HAS NOT BELIEVED T HE SUBMISSIONS AND MATERIAL EVIDENCE PRODUCED BEFORE HIM BY THE AS SESSEE. IT IS SUBMITTED THAT THE ASSESSEE HAS PURCHASED SHARES IN M/S SRGEPL WITH A VIEW TO EXPAND ITS BUSINESS AND THE ASSESSEE HAS SEEN POTENTIAL TO DEVELOP THE LAND WHICH IS IN THE POSSE SSION OF THE M/S SRGEPL. IT IS SUBMITTED THAT, IN THAT PROCESS, ASSE SSEE ALSO BOUGHT FURTHER SHARES FROM SOME OF THE DIRECTORS OF THE SA ID COMPANY CONSIDERING THE MARKET VALUE OF SUCH LAND. IT IS SU BMITTED THAT SUBSEQUENTLY THE ASSESSEE FELT THAT IT MAY NOT BE A GOOD PROPOSITION TO INVEST IN THAT LAND CONSIDERING THE FACT THAT SU CH LAND CANNOT BE CONVERTED INTO COMMERCIAL PURPOSES AND, HENCE, CONS IDERING THE COMMERCIAL EXIGENCY, ASSESSEE DECIDED TO OFF-LOAD T HE SHARES. IT IS SUBMITTED THAT THE EXISTING DIRECTORS OF THE COMPAN Y AGREED TO BUY THESE SHARES @ 2670/- PER SHARE AND THIS IS A PUREL Y BUSINESS DECISION AND ALSO THE RATE WAS MUTUALLY AGREED BETW EEN THE PARTIES. HE, THEREFORE, SUBMITTED THAT THE SAID TRANSACTION SHOULD BE TREATED AS TRANSFER OF SHARES AND ANY PROFIT EARNED BY THE ASSESSEE WAS PROPERLY OFFERED TO TAX UNDER THE HEAD LONG TERM C APITAL GAINS AND SUCH PROFIT CANNOT BE TREATED AS INCOME FROM OTHER SOURCES AND 6 ITA NO. 988/H/2013 & C.O. 20/H/16 M/S ASRANI INN & RESORTS P. LTD. BRING TO TAX U/S 68 OF THE ACT. HE FURTHER SUBMITT ED THAT AO HAS TREATED THE ABOVE TRANSACTION AS INCOME FROM OTHER SOURCES MERELY BASED ON THE SUSPICION AND SURMISES/CONJECTURES, IN STEAD, HE SHOULD HAVE EXERCISED HIS DISCRETION JUDICIOUSLY WHILE MAK ING THE ADDITION U/S 68 OF THE ACT. FOR THIS PROPOSITION, HE HAS RELIED ON THE FOLLOWING CASE LAW: 1. CIT VS. TILAK RAJ KUMAR, [2014] 369 ITR 180 (T& AP) 2. HARISH KUMAR VS. DCIT, [2003] 85 ITD 366 (ITAT -HYD.) 3. CIT VS. DINESH JAIN (HUF) AND OTHERS, [2013] 35 2 ITR 629 (DEL.) 4. LALCHAND BHAGAT AMBICA RAM VS. CIT, [1959] 37 I TR 288 (SC) 5,. CIT VS. SHRI MUKESH RATILAL MAROLIA, ITA NO. 4 56 OF 2007 (BOM.), DATED 7 TH SEPTEMBER, 2011. 9. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD. THE ASSESSEE HAS INVESTED IN THE SHARES OF M/S SRGEPL FOR 18000 SHARES @ 500/- PER SHARE. THE FACE VALUE OF EACH SHARE WAS ONLY RS. 10/- AND PAID SHARE PREMIUM OF RS. 490 /- PER SHARE. THE FINANCIAL POSITION OF THE COMPANY DOES NOT JUST IFY FOR ISSUE OF SHARES AT PREMIUM OF RS. 490/- PER SHARE AS THE COM PANY HAS NOT DONE ANY CONSIDERABLE BUSINESS. THE BALANCE SHEET O F THE COMPANY DOES NOT GIVE GOOD FINANCIAL PERSPECTIVE EXCEPT THA T IT HAS A LAND WORTH RS. 80.51 LAKHS (WHICH MAY BE THE MAIN REASON S FOR OFFERING SHARES AT PREMIUM). SUBSEQUENTLY, THE ASSESSEE BUYS FURTHER 8220 SHARES @ 1800/- PER SHARE FROM THE DIRECTORS OF THE M/S SRGEPL. IT IS RELEVANT TO NOTE THAT THE ASSESSEE BOUGHT THE SH ARES FROM M/S SRGEPL @ 500/- PER SHARE AND BOUGHT FURTHER SHARES @ 1800/- PER SHARE WITHIN A SPAN OF SIX DAYS. AS UNDERSTOOD FROM THE SUBMISSION OF THE ASSESSEE THAT THE DECISION TO BUY THESE SHARES WERE PURELY TO EXPAND THE BUSINESS CONSIDERING THE LAND SITUATED I N A PARTICULAR AREA WHERE AIRPORT IS PROPOSED TO COME. SINCE THE LAND WHICH IS THE IMPORTANT PART FOR NEGOTIATION BETWEEN THESE PARTIE S IS AGRICULTURAL LAND, IT WAS FOUND THAT IT CANNOT BE CONVERTED FOR COMMERCIAL PURPOSES, IT MAY NOT BE VIABLE PROPOSITION FOR THE ASSESSEE, HENCE, IT DECIDED TO SELL THE SHARES TO THE EXISTING DIRECTOR S OF THE COMPANY, 7 ITA NO. 988/H/2013 & C.O. 20/H/16 M/S ASRANI INN & RESORTS P. LTD. WHICH WAS MUTUALLY AGREED BY THEM AND THE SAME WAS CONFIRMED BY THE EXISTING DIRECTORS OF THE COMPANY. WHAT IS RELE VANT IS NOT THE REASONS FOR INVESTMENT IN THE COMPANY, IT IS LEFT T O THE WISDOM AND COMMERCIAL DECISION OF THE PARTIES INVOLVED. THE AS SESSEE HAS INVESTED ON THE COMPANY @ 500/- PER SHARE, WHICH IS OVER AND ABOVE THE FAIR MARKET VALUE OF THE SHARES AS ON THE DATE OF PURCHASE. THERE IS NO SIGNIFICANT CHANGE IN THE FINANCIAL POSITION OF THE M/S SRGEPL. ON 21/08/2007, THE SAME SHARES WERE BOUGHT BY THE E XISTING DIRECTORS @ 2670/- PER SHARE. WE CANNOT GO BY WHAT MADE THE EXISTING DIRECTORS TO BUY THE SHARES AT AN EXORBITA NT RATE. IT IS PURELY A COMMERCIAL DECISION OF THE TWO PARTIES AND WHATEVER THE PROFIT EARNED BY THE PARTIES WERE OFFERED TO TAX. AS LONG AS TWO CONTRACTING PARTIES AGREES ON A PRICE COMMERCIALLY AND OFFERS THE INCOM E TO TAX, WE DO NOT SEE ANY REASON TO DOUBT THE INTENTION OF THE P ARTIES OR DEALING IN THESE TRANSACTIONS. 9.1 MOREOVER, THE AO HAD DISALLOWED THE CAPITAL GAI NS U/S 68 OF THE ACT. AS PER SECTION 68, WHERE ANY SUM IS FOUND CRED ITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PY, AND THE ASSES SEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE THEREOF OR THE EXPLANATION OFFERED BY HIM IS NOT IN THE OPINION OF THE AO SATI SFACTORY, THE SUM SO CREDITED, MAY BE CHARGED TO INCOME-TAX AS THE INCOM E OF THE ASSESSEE OF THAT PY. TO BRING ANY SUM TO TAX U/S 68 , A SUM HAS TO BE CREDITED, FOR SUCH SUM IT IS WELL SETTLED LAW THAT IN ORDER TO DISCHARGE THE ONUS, THE ASSESSEE MUST PROVE THE IDENTITY OF T HE CREDITOR, CAPACITY OF THE CREDITOR AND GENUINENESS OF THE TRA NSACTION. IN THE GIVEN CASE, THE AO HAS BROUGHT TO TAX THE CAPITAL G AIN, WHICH IS NOT THE SUM CREDITED IN THE BOOKS OF THE ASSESSEE, SECO NDLY, THE ASSESSEE HAS ALREADY BROUGHT ON RECORD THE IDENTITY OF THE PARTIES AND CAPACITIES OF THE PARTIES. WITH REGARD TO GENUINENE SS OF THE TRANSACTION, ASSESSEE HAS BROUGHT ON RECORD THE TRA NSACTIONS AS INVESTMENT IN ANOTHER COMPANY I.E. M/S SRGEPL. ALL THESE SHARES WERE RECORDED IN THE BOOKS OF ACCOUNT AS INVESTMENT . AO HAS NOT BROUGHT ON RECORD ANYTHING TO SUGGEST ANY SUSPICION ON THE 8 ITA NO. 988/H/2013 & C.O. 20/H/16 M/S ASRANI INN & RESORTS P. LTD. COMMERCIAL TRANSACTION IN THIS CASE. THE PAYMENTS W ERE MADE THROUGH BANKING CHANNEL AND RECEIVED SALE PROCEEDS WERE ALSO THROUGH BANK. WHEN THE BENCH ASKED THE AR TO SUBMIT THE RECEIPT OF SALE PROCEEDS IN THE BANK, THE AR HAD SUBMITTED A C OPY OF THE BANK STATEMENT AND LEDGER COPY OF TRANSACTIONS BY LETTER DATED 29/12/2016 AND IT PROVES THE GENUINENESS OF THE TRANSACTIONS. 9.2 CONSIDERING THE ABOVE OBSERVATIONS, ON BOTH COU NTS, I.E. COMMERCIAL DECISION OF THE ASSESSEE AS WELL AS GENU INENESS OF THE TRANSACTION, WE HOLD THAT THE AO WAS WRONG IN TREAT ING THIS TRANSACTION AS INCOME FROM OTHER SOURCES AND MAK ING DISALLOWANCE U/S 68 OF THE ACT, INSTEAD OF CAPITAL GAINS AS OFFE RED BY THE ASSESSEE. WE HAVE NO HESITATION TO UPHOLD THE FINDINGS OF THE CIT(A) ON THIS ISSUE AND ACCORDINGLY DISMISS THE GROUND RAISED BY THE REVENUE. 10. AS REGARDS THE ISSUE RELATING TO THE DISALLOWAN CE OF SALARIES OF RS.1,00,08,788/- AND RECRUITMENT EXPENDITURE OF RS. 12,86,288/-, THE AO OBSERVED THAT THE ASSESSEE DID NOT HAVE ANY BUSI NESS AND STARTED CONSTRUCTION OF HOTEL AT MUMBAI, WHICH IS STILL IN PROGRESS AND THEIR ONLY INCOME CREDITED TO THE P&L ACCOUNT IS INTEREST INCOME OF RS. 1,79,11,289/- UNDER INCOME FROM OTHER SOURCES. THE AO, THEREFORE, TREATED THE EXPENSES AS CAPITAL EXPENDITURE AND ALL OWED A PORTION OF THE AMOUNT OF RS. RS. 4,81,978/- AS REVENUE EXPENDI TURE UNDER THESE HEADS AND BROUGHT THE REMAINING AMOUNTS OF RS. 1,0 0,08,388/- AND RS. 12,86,288/- TO TAX. 11. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT IT HAS SET UP THE BUSINESS FROM THE DATE IT HAD ACQUIRED THE PROP ERTY ON LEASE TO RUN THE HOTEL/BOARDING & LODGING. DURING THE PREVIO US YEAR, IT MADE SUITABLE AND EFFICIENT ACTIVITIES TO EMPLOY COMPETE NT STAFF, TRAINING FOR THEM ETC. FOR THE PURPOSE OF BUSINESS. THE ASSESSEE COMPANY TRIED TO TIE UP WITH MANY HOTELS AND RESTAURANTS DURING THE YEAR UNDER CONSIDERATION. IN FACT THE ASSESSEE COMPANY HAD ENT ERED INTO AGREEMENT WITH FEW CUSTOMERS DURING THE YEAR. THE A SSESSEE COMPANY HAD APPOINTED VARIOUS SENIOR EXECUTIVES LIK E VICE PRESIDENT, 9 ITA NO. 988/H/2013 & C.O. 20/H/16 M/S ASRANI INN & RESORTS P. LTD. FINANCE CONTROLLER, MARKETING EXECUTIVES, LOGISTIC EXECUTIVES, AFFILIATION EXECUTIVES AND VARIOUS OTHER MEMBERS OF THE STAFF. THE SALARIES, WAGES AND ALLOWANCES PAID TO SUCH ACTIVITIES AND ST AFF DURING THE YEAR WERE RS. L,04,90,366/- WHICH INCLUDES STAFF INSURAN CE, GRATUITY, BONUS, LEAVE ENCASHMENT ETC., THE ASSESSEE COMPANY HAD EST ABLISHED A BUSINESS CENTRE AT MUMBAI AND HAD INCURRED A SUM OF RS. 3,17,534/- TOWARDS RENTS, RATES & TAXES, RS. 2,08,671/- TOWARD S TELEPHONE EXPENSES, RS. 1286288/- TOWARDS RECRUITMENT EXPENSE S AND RS.3,67,293/- TOWARDS UPKEEPING CHARGES. THE COMPAN Y HAD ALSO SPENT RS. 1,90,865/- FOR ACQUIRING FURNITURE & FIXT URES FOR ITS OFFICE USE. SIMILARLY THE COMPANY HAD ALSO SPENT A SUM OF RS. 36,47,815/- FOR ACQUIRING VEHICLES, RS. 36,148/- FOR OFFICE EQU IPMENT. AND RS. 5,29,766/- FOR COMPUTERS. AS SUCH THE COMPANY HAD P UT IN PLACE ALL THE INFRASTRUCTURE NECESSARY FOR CONDUCTING THE BUS INESS DURING THE YEAR. THE ASSESSEE RELIED ON THE JUDGMENT OF GUJARA T HIGH COURT IN THE CASE OF HOTEL ALANKAR VS. CIT, 133 ITR 866. 12. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, THE CIT(A) OBSERVED THAT THE ASSESSING OFFICER HAS DISALLOWED A PART OF EXPENDITURE RELATING TO SALARIES OF RS. 1,00,08,788 /- AND RECRUITMENT EXPENSES OF RS. 12,86,288/- AND HAS ALLOWED ALL THE REST OF EXPENDITURE. APPARENTLY, THE ASSESSEE HAD SET UP IT S BUSINESS THE MOMENT IT HAD ACQUIRED THE BUSINESS (TAKING BUILDIN G ON LEASE) WITH EFFECT FROM 01.04.2007 AND HAD STARTED PUTTING IT I N SHAPE. CONSIDERING THE NATURE OF EXPENDITURE OF SALARIES, RECRUITMENT, REPAIRS, ADMINISTRATIVE EXPENSES ETC. THE EXPENSES INCURRED AFTER 01.04.2007, THE CIT(A) HELD THAT THE SAME ARE ALLOW ABLE AND ACCORDINGLY DELETED THE DISALLOWANCE OF RS. 1,00,08 ,788/- TOWARDS SALARIES AND RS. 12,86,288/- TOWARDS RECRUITMENT EX PENSES MADE BY THE ASSESSING OFFICER. 13. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 10 ITA NO. 988/H/2013 & C.O. 20/H/16 M/S ASRANI INN & RESORTS P. LTD. 14. LD. DR SUBMITTED THAT THE ASSESSEE HAS NOT COMM ENCED ITS BUSINESS DURING THIS AY NOR SET UP ITS BUSINESS. SH E SUBMITTED THAT THE AO IS RIGHT IN DISALLOWING THE EXPENDITURE RELA TING TO SALARIES AND RECRUITMENT EXPENDITURE. 15. LD. AR, ON THE OTHER HAND, SUBMITTED THAT THE A SSESSEE HAS SET UP ITS BUSINESS FROM THE DATE IT HAS ACQUIRED THE P ROPERTY ON LEASE TO RUN HOTEL/BOARDING AND LODGING. IT MADE SUITABLE AN D EFFICIENT ACTIVITIES TO EMPLOY COMPETENT STAFF/TRAINING FOR T HEM ETC FOR THE PURPOSE OF BUSINESS. THE ASSESSEE COMPANY TRIED TO TIE UP MANY HOTELS AND RESTAURANTS DURING THE YEAR. IT IS SUBMI TTED THAT THE COMPANY HAD ENTERED INTO AGREEMENT WITH A FEW CUSTO MERS AND HAD APPOINTED VARIOUS EXECUTIVES LIKE VICE PRESIDENT FINANCE CONTROLLER, MARKETING EXECUTIVES, LOGISTIC EXECUTIVES, AFFILIAT ION EXECUTIVES AND VARIOUS MEMBERS OF THE STAFF. IT IS SUBMITTED THAT SALARIES, WAGES AND ALLOWANCES PAID TO SUCH ACTIVITIES WERE RECORDED AS SALARIES WHICH INCLUDES STAFF INSURANCE, GRATUITY, BONUS, LEAVE EN CASHMENT ETC. IT IS SUBMITTED THAT THE COMPANY HAS ESTABLISHED BUSINESS CENTRE AT MUMBAI AND HAD INCURRED ON RENT, RATES AND TAXES, T ELEPHONE CHARGES AND RECRUITMENT EXPENSES, IT SHOWS THAT ASSESSEE HA S SET UP THE BUSINESS DURING THE YEAR. IT IS SUBMITTED THAT THE AO HAS NOT JUSTIFIED IN DISALLOWING THE EXPENDITURE ON SALARIES AS WELL AS RECRUITMENT EXPENSES. HE FURTHER SUBMITTED THAT BUSINESS CANNOT BE ESTABLISHES AND SET UP ON OVER NIGHT , AS THE BUSINESS CAN BE I NAUGURATED ON A PARTICULAR DATE, BUT, THE SET UP AND OPERATION HAS TO BE COMMENCED WELL IN ADVANCE. HE SUBMITTED THAT WHATEVER THE EXP ENDITURE INCURRED WAS RELATING TO THE SETTING UP OF BUSINESS AND IT I S ALLOWABLE AS REVENUE EXPENDITURE. 16. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. WE HAVE NOTICED THAT THE ASSESSEE HAS AC QUIRED THE PROPERTY ON LEASE TO RUN HOTEL/BOARDING AND LODGING . THE MOMENT THE PROPERTY IS ACQUIRED FOR THE PURPOSE OF BUSINESS AN D THE ASSESSEE ALSO INCURRED ADMINISTRATIVE EXPENSES ON SETTING UP OF THE BUSINESS 11 ITA NO. 988/H/2013 & C.O. 20/H/16 M/S ASRANI INN & RESORTS P. LTD. AND APPOINTED EXECUTIVES TO OVER SEE THE BUSINESS A ND INCURRED SALARIES AND RECRUITMENT EXPENSES. IT SHOWS THAT TH E ASSESSEE HAS SET UP THE BUSINESS. THE FACTS OF THE CASE ARE SIMI LAR TO THE CASE RELIED UPON BY THE ASSESSEE BEFORE THE CIT(A) I.E. THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF HOTEL ALA NKAR VS. CIT (SUPRA). AS MENTIONED ABOVE, THE ASSESSEE HAS SET UP ITS BUSINESS THE MOMENT IT HAD ACQUIRED THE PROPERTY ON LEASE TO RUN THE BUSINESS WITH EFFECT FROM 01/04/2007 AND STARTED RECRUITING THE PEOPLE FOR THE SUITABLE POSITIONS, IN OUR VIEW, THE ASSESSEE HAS A LREADY SET UP ITS BUSINESS AND ANY EXPENDITURE IN THE NATURE OF ESTAB LISHMENT, ADMINISTRATIVE, ETC. ARE ADMISSIBLE BUSINESS EXPEND ITURE. CONSIDERING THE NATURE OF EXPENDITURE INCURRED BY THE ASSESSEE DURING THE YEAR AND THE CASE LAWS RELIED UPON BY THE ASSESSEE, WE A RE INCLINED TO AGREE WITH THE FINDINGS OF THE CIT(A) AND ACCORDING LY WE UPHOLD THE ORDER OF THE CIT(A) IN DELETING THE DISALLOWANCE MA DE BY THE AO AND DISMISS THE GROUND RAISED BY THE REVENUE. 17. AS REGARDS CO FILED BY THE ASSESSEE, WE FIND TH AT THERE WAS A DELAY OF 20 DAYS IN FILING THE CO BEFORE US. IN THE AFFIDAVIT FILED BY THE ASSESSEE, IT WAS AFFIRMED THAT THE ASSESSEE COMPANY HAD REQUESTED THE DEPARTMENT TO SHIFT ITS JURISDICTION FROM PRESE NT HYDERABAD TO MUMBAI. HOWEVER, THE DEPARTMENT HAD INTIMATED THE A SSESSEE THAT THE CASE FILE OF THE ASSESSEE COMPANY CAN BE SHIFTE D TO NEW DELHI AS ITS REGISTERED OFFICE WAS SITUATED IN NEW DELHI. TH E ASSESSEE, THEREFORE, SUBMITTED THAT SINCE IT WAS UNSURE OF TH E JURISDICTION OF ITS APPEAL THERE WAS A DELAY OF 20 DAYS IN FILING THE C.O. ACCORDINGLY, ASSESSEE PRAYED FOR CONDONATION OF THE SAID DELAY A ND ADMIT THE CO FOR ADJUDICATION. 18. AS THE ASSESSEE IS PREVENTED BY SUFFICIENT CAUS E TO FILE THE CO WITHIN THE STIPULATED TIME, WE CONDONE THE SAID DEL AY AND ADMIT THE CO FOR ADJUDICATION. 19. AS REGARDS THE CROSS OBJECTION RAISED BY THE AS SESSEE IN ITS C.O THAT THE CIT(A) IS NOT CORRECT IN HOLDING THAT THE INTEREST RECEIVED 12 ITA NO. 988/H/2013 & C.O. 20/H/16 M/S ASRANI INN & RESORTS P. LTD. AT RS. 1,79,11,289/- DURING THE PRECONSTRUCTION PER IOD IS ASSESSABLE TO TAX, WHICH IS RAISED AS AN ADDITIONAL GROUND BEF ORE THE CIT(A), THE ASSESSEE HAD SUBMITTED THAT THE INTEREST RECEIVED O F RS. 1,79,11,289/- IS TOWARDS FIXED DEPOSIT MADE AGAINST THE GUARANTEE GIVEN TO THE GOVERNMENT IS TO BE CONSIDERED AS A CA PITAL RECEIPT AND NOT A REVENUE RECEIPT. THE CIT(A) REJECTED THE CONT ENTION OF THE ASSESSEE AND REJECTED TO TREAT THE SAID INTEREST AS CAPITAL RECEIPT. 20. AGGRIEVED BY THE ORDER OF CIT(A) THE ASSESSEE F ILED CO BEFORE US. 21. LD. AR SUBMITTED THAT THE ASSESSEE IS IN THE PR OCESS OF CONSTRUCTING A HOTEL AT WAZIRPUR DISTRICT CENTRE. D ELHI ON LAND ALLOTTED BY THE DELHI DEVELOPMENT AUTHORITY. IT IS SUBMITTED THAT AS REQUIRED BY DDA, THE ASSESSEE HAS PROVIDED DDA WITH TWO BANK GUARANTEES. BOTH DATED 12TH OCTOBER 2006, FROM STATE BANK OF IN DIA FOR RS. 5.12 CRORES AND RS, 6.35 CRORES TO ENSURE TIMELY COMPLET ION OF THE HOTEL. IT IS SUBMITTED THAT AS PRE-CONDITION TO THE PROVISION OF THE BANK GUARANTEES, STATE BANK OF INDIA REQUIRED THE ASSESS EE TO PLACE WITH IT FIXED DEPOSITS OF RS. 5.15 CRORES AND RS.6.35 CRORE S RESPECTIVELY BY WAY OF 100% MARGIN MONEY TOWARDS ISSUANCE OF BANK GUARANTEES'. IT IS SUBMITTED THAT THE ASSESSEE RECEIVED INTEREST OF RS. 1,79,11,289 ON THE SAID FIXED DEPOSITS AND THE SAID AMOUNT IS NOT ASSESSABLE TO TAX IN THE LIGHT OF THE JUDGEMENTS OF THE HON'BLE S UPREME COURT IN CIT VS. BOKARO STEEL LTD 236 LTR 315. CIT V. KARNATAKA POWER CORPN 247 ITR 268 AND ERR VS. KAMAL CO-OPERATIVE SUGAR MILLS LTD 243 ITR 2 AND THAT OF THE HON'BLE DELHI HIGH COURT IN INDIAN OIL PANIPAT CONSORTIUM LTD. VS. ITO 315 ITR 255. 21.1 LD. AR SUBMITTED THAT IN CIT VS. BOKARO STEEL LTD 236 ITR 315 THE SUPREME COURT HELD THAT RECEIPTS SUCH AS RENT C HARGED BY CONTRACTORS FOR HOUSING WORKERS, HIRE CHARGES FOR P LANT AND MACHINERY GIVEN TO CONTRACTORS AND INTEREST ON ADVANCES WERE PART OF. ARRANGEMENTS WHICH WERE INTRINSICALLY CONNECTED WIT H THE CONSTRUCTION OF THE STEEL PLANT AND HAD TO GO TO REDUCE THE COST OF CONSTRUCTION. IT 13 ITA NO. 988/H/2013 & C.O. 20/H/16 M/S ASRANI INN & RESORTS P. LTD. WAS HELD THAT SUCH RECEIPTS WERE CAPITAL RECEIPTS A ND COULD NOT HE CREATED AS INCOME OF THE ASSESSEE FROM ANY INDEPEND ENT SOURCE. 21.2 HE SUBMITTED THAT IN CIT V. KARNATAKA POWER CO RPN 247 ITR 268 THE HONBLE SUPREME COURT HELD THAT INTEREST RE CEIPTS AND HIRE CHARGES FROM CONTRACTORS DURING THE CONSTRUCTION PE RIOD WAS IN THE NATURE OF CAPITAL RECEIPTS AND HAD TO GO TO REDUCE THE COST OF CONSTRUCTION. 21.3 HE SUBMITTED THAT THE CASE OF CIT VS. KARNL CO -OPERATIVE SUGAR MILLS LTD 243 ITR 2 IS DIRECTLY COMPARABLE WITH THE ASSESSEE'S FACTS. IN THAT CASE, THE ASSESSEE HAD DEPOSITED MONEY TO O PEN A LETTER OF CREDIT FOR THE PURCHASE OF THE MACHINERY REQUIRED F OR SETTING UP ITS PLANT IN TERMS OF THE ASSESSEE'S AGREEMENT WITH THE SUPPLIER. IT WAS ON THE MONEY SO DEPOSITED THAT SOME INTEREST HAS BE EN EARNED. THE SUPREME COURT HELD THAT THE DEPOSIT OF MONEY WAS DI RECTLY LINKED WITH THE PURCHASE OF PLANT AND MACHINERY AND THAT ANY IN COME EARNED ON SUCH DEPOSIT WAS INCIDENTAL TO THE ACQUISITION OF A SSETS FOR THE SETTING UP OF THE PLANT AND MACHINERY. 21.4 HE SUBMITTED THAT IN THE CASE OF INDIAN OIL PA NIPAT CONSORTIUM LTD. VS. ITO 315 LTR 255 THE ASSESSEE HAD RAISED FU NDS FOR THE PURPOSES OF PURCHASE OF LAND AND DEVELOPMENT OF INF RASTRUCTURE. OWING TO LEGAL ENTANGLEMENTS WITH RESPECT TO THE TI TLE OF THE LAND, THE SAID FUNDS WERE KEPT IN A FIXED DEPOSIT AND INTERES T WAS EARNED. THE HIGH COURT FOLLOWED THE EARLIER JUDGEMENTS OF THE S UPREME COURT ON THE ISSUE AND HELD THAT IF INCOME WAS EARNED, WHETH ER BY WAY OF INTEREST OR IN ANY OTHER MANNER ON FUNDS WHICH WERE OTHERWISE 'INEXTRICABLY LINKED' TO THE SETTING UP OF THE PLAN T, SUCH INCOME WAS REQUIRED TO BE CAPITALIZED TO BE SET OFF AGAINST PR E-OPERATIVE EXPENSES AND COULD NOT BE ASSESSED. 22. LD. DR, ON THE OTHER HAND RELIED ON THE ORDER O F CIT(A). 23. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. THE CIT(A) REJECTED THE CONTENTION OF TH E ASSESSEE THAT 14 ITA NO. 988/H/2013 & C.O. 20/H/16 M/S ASRANI INN & RESORTS P. LTD. BUSINESS HAS BEEN SET UP WITH EFFECT FROM 01/04/200 7 AND THEREFORE ALL THE INCOME AND EXPENDITURE ARE CONSIDERED AS RE VENUE AND NOT CAPITAL IN AS MUCH AS THAT THE ASSESSEE BEING A COM PANY HAS SET UP THE BUSINESS OF HOTEL WITH EFFECT FROM 01/04/2007 A ND WHOLE INTEREST EARNED IS OUT OF CAPITAL INFUSED AND THEREFORE THE ADDITIONAL GROUND RAISED BY THE ASSESSEE TO TREAT THE INTEREST AS CAP ITAL RECEIPT AND NOT REVENUE RECEIPT IS REJECTED. WE ARE IN AGREEMENT WI TH THE FINDINGS OF THE CIT(A). THE CASE LAWS RELIED UPON BY THE ASSESS EE ARE PRIOR TO SET UP OF THE BUSINESS AND ARE EARNED DURING CONSTRUCTI ON PERIOD. WHEREAS IN THE GIVEN CASE, ASSESSEE HAD ALREADY SET UP THE BUSINESS AND ON ONE HAND CLAIMING EXPENDITURE AS REVENUE AND ON THE OTHER ANOTHER HAND CLAIMING THE INCOME AS CAPITAL IN NATU RE CANNOT BE ACCEPTED. THEREFORE, THE CO RAISED BY THE ASSESSEE IS HEREBY REJECTED. 24. IN THE RESULT, BOTH THE REVENUE APPEAL AND CO F ILED BY THE ASSESSEE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 23 RD FEBRUARY, 2017. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAH MAN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 23 RD FEBRUARY, 2017 KV COPY TO:- 1) DCIT, CIRCLE 1(1), 7 TH FLOOR, B BLOCK, IT TOWERS, AC GUARDS, MASAB TANK, HYDERABAD. 2) M/S ASRANI INNS & RESORTS PVT. LTD., PLOT NO. 1& 2, NETAJI SUBHASH PLACE, WAZIRPUR DISTRICT CENTRE, PITAMPURA, DELH I 3) CIT(A) - V, HYDERABAD 4 CIT 1, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE 15 ITA NO. 988/H/2013 & C.O. 20/H/16 M/S ASRANI INN & RESORTS P. LTD. S.NO. DESCRIPTION DATE INTLS DS1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./ P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER