Appeal Details
Counselvise Citation
[2021] 104 COUNSELVISE.COM (IT) 5802 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
9 month(s) 15 day(s)
Appellant
Respondent
Appeal Type
Cross Objection
Pronouncement Date
21-12-2021
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Assessment Year
2014-2015
Appeal Filed On
07-03-2021
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH, ‘A’ PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER आयकर अपील सं. / ITA No.248/PUN/2018 िनधा रण वष / Assessment Year : 2014-15 ACIT, Circle-6, Pune Vs. M/s. Siddhesh Developers Pvt. Ltd., 2, Raghvansh Apartment, Model Colony, 940/4, Shivaji Nagar, Pune 411 016 PAN : AALCS4350F Appellant Respondent C.O. No.05/PUN/2021 (Arising out of ITA No.248/PUN/2018) िनधा रण वष / Assessment Year : 2014-15 M/s. Siddhesh Developers Pvt. Ltd., 2, Raghvansh Apartment, Model Colony, 940/4, Shivaji Nagar, Pune 411 016 PAN : AALCS4350F Vs. ACIT, Circle-6, Pune Appellant Respondent आदेश / ORDER PER R.S.SYAL, VP : This appeal by the Revenue and Cross Objection by the assessee arise out of the order passed by the CIT(A)-4, Pune on 22-09-2017 in relation to the assessment year 2014-15. 2. The first ground of the Revenue’s appeal is against the deletion of addition of Rs.3,82,07,505/- out of total addition of Assessee by Shri Subodh Ratnaparkhi Revenue by Shri Anurag Srivastava Date of hearing 20-12-2021 Date of pronouncement 22-12-2021 ITA No.248/PUN/2018 and CO No.05/PUN/2021 M/s. Siddhesh Developers Pvt. Ltd. 2 Rs.5,02,03,472/- made by the Assessing Officer (AO) u/s.69A of the Income-tax Act, 1961 (hereinafter also called ‘the Act’). 3. Tersely stated, the facts of the case are that the assessee company is engaged in the business as Developers and Builders. A return was filed declaring total income of Rs.2,28,61,630/-. During the course of assessment proceedings, the AO observed that there was significant rate difference in the amount charged by the assessee from sale of office space in Siddh Icon project, Baner. On being called upon to explain as to why there was such a difference in the rates, the assessee submitted the reasons which did not convince the AO. He bifurcated sale of flats in three periods. The first period consisted of February, 2012 to July, 2012. In the respective tabulation, the AO observed that the highest rate charged by the assessee against Office No.502 during the period was Rs.7981.22 per sq.ft. Certain other offices sold within that period at Rs.3109.45 per sq.ft. and Rs.5677.83 per sq.ft respectively were held to be transferred with under hand receipt in cash. Applying the peak rate of Rs.7981.22 per sq.ft. to the other sale transactions conducted during the period, the AO worked out a difference of Rs.2,29,91,046/- as chargeable to tax. Similar exercise was done ITA No.248/PUN/2018 and CO No.05/PUN/2021 M/s. Siddhesh Developers Pvt. Ltd. 3 for the second period, namely, April, 2011 to October, 2011 with the peak rate of Rs.6087.68 per sq.ft., thereby computing difference in the stated consideration at Rs.1,52,16,459/-. In the like manner, he computed the difference in consideration at Rs.1,19,95,966/- for the third period starting from December 2013 to February, 2014 with peak rate at Rs.9166.20 per sq.ft. This resulted in total difference from the three periods at Rs.5,02,03,472/-, which was added u/s.69A of the Act. The ld. CIT(A) observed that the first two periods, namely, February, 2012 to July, 2012 and April 2011 to October, 2011 did not fall in the year under consideration and hence, no addition could be made u/s.69A of the Act. This led to the deletion of addition of Rs.3,82,07,505/-, against which the Revenue has come up in appeal. 4. We have heard the rival submissions and gone through the relevant material on record. Section 69A of the Act provides that where in any financial year an assessee is found to be the owner of any money, bullion, jewellery etc., which is not recorded in the books of account and the assessee offers no explanation about the nature and source of its acquisition or the explanation offered is not found by the AO to be satisfactory, the money and the value of such bullion, jewellery etc., may be deemed to be the income of the ITA No.248/PUN/2018 and CO No.05/PUN/2021 M/s. Siddhesh Developers Pvt. Ltd. 4 assessee for such financial year. As can be seen, the AO simply took peak sale rate for the two periods under consideration and applied the same to the other properties sold by the assessee during such periods for making the addition. There is no material on record to substantiate that the assessee, in fact, received some thing over and above the declared consideration. Per contra, the assessee tendered host of reasons justifying difference in the rates charged. Secondly, section 69A can be invoked only for such financial year in which the assessee is found to be the owner of the unexplained money, bullion, jewellery etc. Admittedly, section 69A is not applicable to the first two periods which do not fall in the previous year relevant to the assessment year under consideration. We, therefore, hold that the ld. CIT(A) was justified in deleting the addition of Rs.3.82 crore. 5. Ground No.2 of the Revenue is against the setting aside and restoration of the addition of Rs.1,19,95,966/- made u/s.69A of the Act to the AO for reconsideration. 6. While disposing of the first ground, we have noted that the AO made tabulations for three different periods and the ld. CIT(A) deleted the addition for the first two periods as not falling within the financial year relevant to the assessment year under consideration. ITA No.248/PUN/2018 and CO No.05/PUN/2021 M/s. Siddhesh Developers Pvt. Ltd. 5 It is the third table qua the period from December, 2013 to February, 2014 that the AO applied the peak rate and made the addition of Rs.1,19,95,966/-, which the ld. CIT(A) restored to the AO in terms of section 43CA of the Act. 7. Section 43CA of the Act is a special provision for full value of consideration in case of transfer of assets other than capital assets in certain cases. It provides that where the consideration received etc., on transfer of any asset other than capital asset, being land or building or both is less than the stamp value, amount of profit and gain from transfer of such assets shall be computed by considering the stamp value as full value of consideration received or accruing as a result of such transfer. Sub-section (2) of section 43CA states that the provisions of section 50C(2) and (3) and shall so far as may be, apply in relation to the determination of the value adopted or assessed or assessable under sub-section (1). The ld. CIT(A) took note of the mandate of section 43CA and certain other decisions on this issue for holding that the addition of Rs.1.19 crore made on account of difference in the agreed sale consideration shown in the agreement for respective flat and that of peak rate was not called for. He, therefore, remitted the matter to the AO for referring the ITA No.248/PUN/2018 and CO No.05/PUN/2021 M/s. Siddhesh Developers Pvt. Ltd. 6 matter to the DVO and thereafter computing the addition in terms of section 43CA. 8. Section 43CA has been inserted by the Finance Act, 2013 w.e.f. 01-04-2014. The assessment year under consideration is 2014-15 and the same is, therefore, applicable. Section 251 of the Act does not empower the CIT(A) to restore any matter to the AO for reconsideration inasmuch as he can only confirm, reduce, enhance or annul the assessment in an appeal filed against the order of assessment. From that angle, the decision of the ld. CIT(A) cannot be countenanced, Howbeit, it is seen that the provision of section 43CA r.w.s.50C govern the situation under consideration. Though technically, we set-aside the view of the ld. CIT(A) in restoring the matter to the file of AO, we direct the AO to compute the amount of addition u/s.43CA with reference to stamp value and not the amount realized in respect of some other flats sold by the assessee during the period. In case the assessee disputes, a valid reference u/s.50C(2), may be ordered by the AO. This ground is disposed off accordingly. 9. Ground No.3 of the Revenue’s appeal is against the deletion of addition of Rs.51,68,089/- made by the AO u/s.36(1)(iii) of the Act. ITA No.248/PUN/2018 and CO No.05/PUN/2021 M/s. Siddhesh Developers Pvt. Ltd. 7 10. The facts of this ground are that the assessee took a loan of Rs.7.68 crore on which interest was paid. Simultaneously, certain interest bearing loans were found to have been advanced amounting to Rs.4.15 crore on which no interest was charged. On being called upon to tender an explanation for the same, the assessee submitted that it had not advanced any fresh interest bearing loans during the year and the company gave loans in earlier years. Not convinced, the AO held that the assessee diverted the funds of the business for giving advances to related parties. Applying 12% interest rate on such advances of Rs.4.30 crore, the AO computed disallowance of interest at Rs.51,68,089/-. The ld. CIT(A) deleted the addition by observing that no fresh loans were advanced during the year and that the assessee had sufficient funds available with it from which investments were made. The Revenue has come up in appeal against the impugned order on this score. 11. We have heard the rival submissions and gone through the relevant material on record. The ld. AR vehemently argued that the assessee did not make any fresh advances during the year and the amount of Rs.4.30 crore, on which interest disallowance of Rs.51,68,089/- has been made, were loans given in earlier years. We have examined the assessee’s balance sheet, a copy of which ITA No.248/PUN/2018 and CO No.05/PUN/2021 M/s. Siddhesh Developers Pvt. Ltd. 8 has been placed at page 60 onwards of the paper book. There is an item ‘Long Term Loans and Advances’ under the head ‘Non Current Assets’ with closing balance at Rs.4,30,67,413/- and opening balance at Rs.8,79,01,328/-. It is on the basis of such closing figures that the assessee claimed that no fresh loan was advanced during the year calling for disallowance of interest. Note No.9 contains details of this head, which have been given at page 63 of the paper book. On going through such details, it transpires that the assessee had given loans and advances to related parties with the closing balance at the end of the preceding year at Rs.6,34,54,712/- which came down to Nil at the end of the year under consideration. It means that the loans advanced to related parties in earlier years were totally received back. `Other loans and advances’ standing at Rs.1,04,32,416/- at the beginning of the year swelled to Rs.4,15,61,062/- at the end of the year. Thus, it can be seen that the assessee did advance fresh loans and advances during the year to the tune of Rs.3.11 crore and odd. In that view of the matter, the contention of the assessee that no fresh loans were advanced during the year does not stand. 12. Now, we come to the other reason given by the ld. CIT(A), as bolstered by the ld. AR, that the assessee’s Shareholder fund was ITA No.248/PUN/2018 and CO No.05/PUN/2021 M/s. Siddhesh Developers Pvt. Ltd. 9 more than the amount of interest free advances and hence no disallowance of interest could be made. The Hon'ble Bombay High Court in CIT vs. Reliance Utilities and Power Ltd. (2009) 313 ITR 340 (Bom), has held that where an assessee possessed sufficient interest free funds of its own which were generated in the course of relevant financial year, apart from substantial shareholders’ funds, presumption gets established that the investments in sister concerns were made by the assessee out of interest free funds and, therefore, no part of interest on borrowings can be disallowed on the basis that the investments were made out of interest bearing funds. In reaching this conclusion, the Hon’ble High Court relied on the judgment of the Hon’ble Supreme Court in the case of East India Pharmaceutical Works Ltd. Vs. CIT (1997) 224 ITR 627 (SC). Applying this ratio to the facts of the case, it can be seen from the assessee’s balance sheet that the share capital is only Rs.1.15 lakh at the beginning as well as closing of the year. The balance in the Reserves and Surplus account at the beginning of the year was at Rs.2.35 crore, which at the end of the year shot up to Rs.6.68 crore. Note No.2 gives bifurcation of such amount as indicating that the increase in the Reserves and Surplus was only because of profit during the year at Rs.4,33,62,794/-. If we exclude the amount of ITA No.248/PUN/2018 and CO No.05/PUN/2021 M/s. Siddhesh Developers Pvt. Ltd. 10 profit during the year, the amount of Share Capital and Reserves and Surplus is short of the fresh loans advanced during the year. As the amount of share capital and the opening balance in the reserves and surplus account is less than the amount of fresh loans given during the year, the presumption as countenanced in Reliance Utilities (supra) does not ipso facto apply fully to the facts of the case. On a pertinent query, the ld. AR could not point out the dates on which such fresh loans were advanced during the year so as to find out the amount of shareholders fund existing on such dates. We, therefore, set-aside the impugned order and remit the matter to the file of the AO for deciding this issue afresh in the light of the judgment of Hon’ble Jurisdictional High Court in the case of Reliance Utilities (supra). Needless to say, the assessee will be allowed reasonable opportunity of hearing. 13. Ground No.4 is against the deletion of addition of Rs.2,29,28,728/- made by the AO on account of deemed dividend u/s 2(22)(e) of the Act in the hands of the assessee on protective basis. The factual matrix of this ground is that the AO found the assessee to have advanced loan to related parties Siddhesh Properties Pvt. Ltd., Siddhesh Realty Property Pvt. Ltd., and Siddhesh Builders Pvt. Ltd. There was common shareholding of ITA No.248/PUN/2018 and CO No.05/PUN/2021 M/s. Siddhesh Developers Pvt. Ltd. 11 two directors which was more than 20% in each entity. The AO held that the assessee had advanced loans to the parties wherein the Directors’ had substantial interest. The AO observed that albeit the deemed dividend was to be taxed in the hands of the shareholders, he also chose to make protective addition in the hands of the assessee to the extent of Rs.2,29,28,728/-. The ld. CIT(A) deleted the protective addition. 14. Having heard both the sides and gone through the relevant material on record, it is seen that the protective addition has been made in the hands of the assessee, who advanced the loans to its sister concerns. The assessee is not the one to have received loans. Section 2(22)(e) applies only when a loan is received which is treated as deemed dividend. As the assessee did not receive any amount from its related companies, the provisions of section 2(22)(e) cannot be applied. We, therefore, uphold the impugned order on this legal issue. 15. The assessee in its Cross objection has raised only one issue about the confirmation of addition of Rs.18,36,968/- as annual letting value of unsold commercial units of the real estate project Siddha Icon. The facts apropos this ground are that the AO noticed certain unsold units valued at more than Rs.7.00 crore in the closing ITA No.248/PUN/2018 and CO No.05/PUN/2021 M/s. Siddhesh Developers Pvt. Ltd. 12 stock of the assessee. On being called upon to explain as to why no deemed rent/notional rental income was shown in respect of these vacant flats, the assessee tendered an explanation, which did not find favour with the AO. Applying Rs.40/- per sq.ft. as fair rent for one month, the AO computed deemed rent of unsold units in stock at the end of the year at Rs.26.24 lakh. After allowing standard deduction at 30%, he computed the net annual value chargeable to tax at Rs.18,36,968/-. The ld. CIT(A) echoed the addition, against which the assessee has filed the Cross objection before the Tribunal. 16. We have heard the rival submissions and gone through the relevant material on record. It is seen that sub-section (5) has been inserted to section 23 of the Act w.e.f. 01-04-2018 which provides that where a property consisting of a building or land appurtenant thereto is held as stock in trade and the property or any of its part is not let out, the annual value of such property or its part for the period up to one year from the end of the relevant financial year in which certificate of completion or construction was obtained, shall be taken as Nil. It implies that where any building or land appurtenant thereto, held as stock in trade, is unsold at the end of the year, the annual letting value is required to be determined in terms of section 23(5) after a period of one year from the end of the ITA No.248/PUN/2018 and CO No.05/PUN/2021 M/s. Siddhesh Developers Pvt. Ltd. 13 relevant financial year in which the construction is completed. This amendment came into effect from 01-04-2018. The assessment year under consideration is 2014-15 and hence, the insertion will not apply to the instant case. The question as to whether notional rent on the unsold flats lying as stock in trade can be charged to tax as Income from the property came up for consideration before the Pune Tribunal in Kumar Properties and Real Estate (P) Ltd. Vs. DCIT (2021) 128 taxmann.com 364 (Pune-Trib). After considering the decisions - both for and against -, the Tribunal decided the issue in favour of the assessee. Respectfully following the aforesaid precedent in Kumar Properties (supra), we set-aside the impugned order and order to delete the addition of Rs.18.36 lakh sustained in the first appeal. 17. In the result, the appeal of the Revenue is partly allowed for statistical purposes and the Cross Objection of the assessee is allowed. Order pronounced in the Open Court on 22 nd December, 2021. Sd/- Sd/- (S.S. VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; िदनांक Dated : 22 nd December, 2021 सतीश ITA No.248/PUN/2018 and CO No.05/PUN/2021 M/s. Siddhesh Developers Pvt. Ltd. 14 आदेश की ितिलिप अ ेिषत/Copy of the Order is forwarded to: 1. अपीलाथ / The Appellant; 2. थ / The Respondent; 3. The CIT(A)-4, Pune 4. 5. 6. The PCIT-3, Pune DR, ITAT, ‘A’ Bench, Pune गाड फाईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune Date 1. Draft dictated on 20-12-2021 Sr.PS 2. Draft placed before author 20-12-2021 Sr.PS 3. Draft proposed & placed before the second member JM 4. Draft discussed/approved by Second Member. JM 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *
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