Paduchuru Pratahap (HUF), Aantapur, Anantapur V. ACIT, Circle-1, Anantapur, Anantapur

ITA 1100/HYD/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2425 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 22-02-2018
• Assessment Year: 2011-2012
• Appeal Filed On: 19-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN MALIK
• Assessee Lawyers: K A SAI PRASAD
• Keywords: Business income; Business expenditure; Opportunity of being heard
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 1100/HYD/2016 ASSESSMENT YEAR: 2011-12 PADUCHURU PRATHAP (HUF), ANANTAPUR. PAN AAIHP6001J VS. ASST. COMMISSIONER OF INCOME-TAX, CIRCLE 1, ANANTAPUR. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K.A. SAIPRASAD REVENUE BY : SMT. SUMAN MALIK DATE OF HEARING 22/02/2018 DATE OF PRONOUNCEMENT 21/03/2018 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 24/05/2016 OF CIT(A), KURNOOL FOR AY 2011-12 WHEREIN THE ASSESSEE HAS FILED THE FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF BROKERA GE OF RS.1,13,930 (RS.1,05,180 AND RS.8,750) WITHOUT CONS IDERING THE QUANTUM OF SALE CONSIDERATION OF TWO PROPERTIES ( O F RS.52,59,000 AND RS.8,75,000 RESPECTIVELY) AND THE PREVAILING PRACTICE IN THE MARKET. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) , IS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF RS.10,7 5,000/- REPRESENTING DEVELOPMENT EXPENDITURE, INCURRED ON T HE SITES, IN SPITE OF THE FACT THAT THE APPELLANT FILED CONFIRMA TION LETTERS FROM THE PERSONS CONCERNED EVEN BEFORE THE ASSESSING OFF ICER, WHO DID NOT CONTRADICT/COUNTER THE CONTENTS CONFIRMED B Y THEM. 2 ITA NO. 1100 /HYD/2016 PADUCHURU PRATHAP (HUF) 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) , IN THE FACTS AND CIRCUMSTANCES OF THE CASE, IS NOT JUSTIFI ED IN CONFIRMING THE ENTIRE DISALLOWANCE OF RS.11,89,758/ - REPRESENTING INTEREST. 4. THE APPELLANT RESERVES HIS RIGHT TO ADD, ALTER, AMEND OR SUBSTITUTE ANY GROUND OR GROUNDS DURING THE COURSE OF HEARING. 2. BRIEFLY THE FACTS OF THE CASE ARE, ASSESSEE FILE D HIS RETURN OF INCOME FOR AY 2011-12 ON 01/02/2013 ADMITTING A TOT AL INCOME OF RS. 16,54,400/-. ASSESSMENT U/S 143(3) WAS COMPLETED ON 29/03/2014 DETERMINING ASSESSED INCOME AT RS. 65,52,535/- BY M AKING VARIOUS ADDITIONS/DISALLOWANCES. 3. AS REGARDS GROUND NO. 1 REGARDING DISALLOWANCE OF BROKERAGE OF RS. 1,13,930/-, DURING THE YEAR UNDER CONSIDERAT ION, ASSESSEE HAD ADMITTED LONG TERM CAPITAL GAINS FOR WHICH HE CLAIM ED THE BROKERAGE OF RS. 8,750/- ON ONE PROPERTY AND RS. 1,05,180 ON ANOTHER PROPERTY. WHEN THE AO ASKED THE ASSESSEE TO PRODUCE THE PROOF FOR HAVING INCURRED THE EXPENDITURE, ASSESSEE FAILED TO PRODUC E THE SAME, HENCE, THE AO DISALLOWED THE AGGREGATE SUMS OF THE ABOVE OF RS. 1,13,390/- AND BROUGHT TO TAX. 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) AND SUBMITTED THAT IT IS A COMMON PRACTICE IN PROPE RTY TRANSACTIONS TO HAVE MEDIATORS OR BROKERS, WHO COLLECT BROKERAGE, W HICH IS NORMALLY CHARGED DEPENDING UPON THE AMOUNT OF SALE CONSIDERA TION. FURTHER, HE SUBMITTED THAT THE SALE CONSIDERATIONS INVOLVED IN THE TWO PROPERTIES SOLD WERE RS. 52,59,000/- AND RS. 8,75,0 00/- AS PER THE SCHEDULE 3 AND 2 TO THE STATEMENT OF TOTAL INCOME A ND THE QUANTUM OF BROKERAGE CLAIMED WAS VERY REASONABLE. 5. SINCE, THE ASSESSEE FAILED TO FURNISH ANY EVIDEN CE AS TO WHOM THE BROKERAGE PAID, PROOF OF PAYMENT OF SUCH BROKER AGE, MANNER OF PAYMENT OF THE SAID BROKERAGE AND THE BANK ACCOUNT DETAILS OF THE 3 ITA NO. 1100 /HYD/2016 PADUCHURU PRATHAP (HUF) RECEIPT WHO RECEIVED THE BROKERAGE, THE CIT(A) CONF IRMED THE DISALLOWANCE MADE BY THE AO. 6. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 7. LD. AR SUBMITTED THAT IT IS NORMAL PRACTICE AND PRAYED THAT REASONABLE PERCENTAGE OF BROKERAGE MAY BE ALLOWED. 8. LD. DR RELIED ON THE ORDER OF CIT(A). 9. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE HAS SOLD THE PROPERTIES DURIN G THIS YEAR AND AS REGULAR PRACTICE, HE HAS TO INCUR THIS EXPENDITURE IN ORDER TO FIND THE SUITABLE BUYERS. WE FIND THAT IT IS REGULAR PRACTIC E AND FOR SMALL PROPERTIES, 0.50% AND FOR BIG PROPERTIES 1% ONLY BE ALLOWED. ACCORDINGLY, AO IS DIRECTED TO ALLOW THE SELLING EX PENSES AS PER ABOVE DIRECTION. 10. AS REGARDS GROUND NO. 2 REGARDING DISALLOWANCE OF DEVELOPMENT EXPENDITURE OF RS. 10,75,000/- IN CONNECTION WITH C OMPUTATION OF CAPITAL GAIN, THE AO OBSERVED THAT THE ASSESSEE HAD CLAIMED DEVELOPMENT EXPENSES OF RS. 10,75,000/-. WHEN THE A SSESSEE WAS ASKED TO PRODUCE PROOF FOR HAVING INCURRED THE SAID EXPENDITURE, ASSESSEE FAILED TO PRODUCE THE SAME. HENCE, THE AO DISALLOWED THE SAID EXPENSES OF RS. 10,75,000/-. 11. BEFORE THE CIT(A), THE ASSESSEE PRODUCED THE CO NFIRMATION LETTERS FROM THE FOLLOWING PERSONS TO SHOW THAT THE ASSESSEE HAS INCURRED THE DEVELOPMENT EXPENSES: 1. K. NARAYANASWAMY SUPPLY OF GRAVEL - RS. 4,27, 360/- 2. V. BALASWAMY - SUPPLY OF LABOUR - RS. 3, 83,040/- 3. GOLLA GOWARAMMA - HIRE CHARGE OF JCB RS. 2,6 4,600/- 4 ITA NO. 1100 /HYD/2016 PADUCHURU PRATHAP (HUF) 12. THE CIT(A) OBSERVED THAT ON PLAIN READING OF TH E ABOVE LETTERS SHOWS THAT THE SAME WERE SELF DECLARATION LETTERS O NLY AND THE PAYMENT OUGHT TO HAVE MADE BY CASH WERE NOT EVIDENC ED BY ANY RECEIPTS AND THESE SELF MADE LETTERS & NOT EVEN VOU CHERS, DO NOT CARRY ANY EVIDENTIARY VALUE FOR THE NATURE OF DEVEL OPMENT WORK STATED TO HAVE UNDERTAKEN. ACCORDINGLY, THE CIT(A) UPHELD THE DISALLOWANCE MADE BY THE AO BY HOLDING THAT THE ASSESSEE FAILED TO DEMONSTRATE THE TRUE NATURE OF THE DEVELOPMENT EXPENSES. AGGRIE VED, THE ASSESSEE IS IN APPEAL BEFORE US. 13. LD. AR SUBMITTED THAT THESE ARE SMALL SERVICE P ROVIDERS AND BY CONFIRMING THE TRANSACTION, THEY CONFIRMED THAT THE SE EXPENDITURES WERE INCURRED BY THE ASSESSEE. IT IS TO BE NOTED TH AT THEY HAVE DECLARED THEIR PAN DETAILS, IT SHOWS THAT THEY ARE ASSESSED TO TAX. HE SUBMITTED THAT AO SHOULD HAVE VERIFIED BEFORE DISAL LOWANCE. 14. LD. DR RELIED ON THE ORDER OF CIT(A). 15. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL ON RECORD. EVEN THOUGH, IT IS NOT A BILL/PROOF FOR THE TRANSACTION, STILL THEY HAVE CONFIRMED THAT THEY HAVE CARRIED THE DEVELOPME NT ACTIVITIES AND ALSO THEY ARE INCOME TAX ASSESSEES BY HAVING VALID PAN. HENCE, WE DIRECT THE AO TO VERIFY THEIR CONFIRMATIONS AND EXA MINE THE GENUINENESS OF THE TRANSACTION. ACCORDINGLY, WE REM IT THIS MATTER BACK TO THE FILE OF AO TO VERIFY THE TRANSACTION DE NOVO. 16. AS REGARD GROUND NO. 3, RELATING TO DISALLOWANC E OF RS. 11,89,758/- REPRESENTING INTEREST, THE AO NOTICED F ROM THE PROFIT & LOSS ACCOUNT THAT ASSESSEE HAD DEBITED A SUM OF RS. 11,89,758/- TOWARDS INTEREST EXPENDITURE AND THE ASSESSEE HAD R ECEIVED AN AMOUNT OF RS. 38,55,015/- DURING THE YEAR AS PER P& L A/C AND HAD CLAIMED AN AMOUNT OF RS. 21,35, 989/- INCLUDING THE ABOVE SAID INTEREST AMOUNT OF RS. 11,89,758/-. THUS, THE AO OP INED THAT THE 5 ITA NO. 1100 /HYD/2016 PADUCHURU PRATHAP (HUF) ASSESSEE HAD SPENT ONLY RS. 9,46,231/- DURING THE Y EAR BY EXCLUDING THE SAID INTEREST. THEREFORE, ACCORDING TO HIM, THE ASSESSEE HAD DECLARED A LOSS OF RS. 9,84,525/- FROM THE BUSINESS BY WRONGLY CLAIMING THE ABOVE SAID INTEREST WITHOUT EVIDENCE O F GENUINE EXPENDITURE. SINCE, THE ASSESSEE FAILED TO SUBSTAN TIATE THE INTEREST EXPENDITURE, AO DISALLOWED THE SAME AND BROUGHT TO TAX. 17. THE CIT(A), CONFIRMED THE DISALLOWANCE BY HOLD ING THAT THE ASSESSEE IS TRYING TO JUSTIFY THE EXTRANEOUS TRANSA CTIONS BY INTERPOLARIZING THEM WITH THE INTEREST ACCOUNT. 18. LD. AR SUBMITTED THAT INTEREST EXPENSES INCURRE D DUE TO PRE- MATURE CLOSURE OF FD ON 08/04/2010, DUE TO MERCANTI LE SYSTEM OF ACCOUNTING, ASSESSEE HAS DECLARED THE INTEREST INCO ME IN THE FY 2009-10. THEREFORE, THIS SHOULD BE ALLOWED AS EXPEN DITURE. FURTHER, HE SUBMITTED THAT ASSESSEE HAS INVESTED IN THE PART NERSHIP FIRM (JYOTHI FIBRE GLASS) IN WHICH HE IS A PARTNER BY AV AILING LOAN FROM OUTSIDE. SINCE, THE INTEREST INCOME IN THE PARTNER SHIP FIRM IS ASSESSABLE AS BUSINESS INCOME, IT SHOULD ALSO BE AL LOWED AS BUSINESS EXPENDITURE. FURTHER, HE PRAYED THAT THE INDIVIDUAL S, P. PUSHPALATAMMA, P. NAGAJYOTHI, AND P. PRATAP FOR THE AMOUNT LENT TO THE ASSESSEE, WHO ARE INCOME TAX ASSESSEES, AFTER D UE VERIFICATION, CAN ALSO BE ALLOWED AS INTEREST EXPENDITURE. 19. LD. DR RELIED ON THE ORDERS OF REVENUE AUTHORIT IES AND SUBMITTED THAT THE MATTER MAY BE SENT BACK TO THE F ILE OF THE AO FOR VERIFICATION. 20. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL ON RECORD. WE FIND THAT THERE IS MERIT IN THE SUBMISSI ON OF ASSESSEE THAT THE PREMATURE CLOSURE OF FDS, THE ASSESSEE HAS DECL ARED INTEREST INCOME IN THE IMMEDIATE PRECEDING YEAR AND IN THIS AY, IT INCURS THE PRECLOSURE CHARGES ON INTEREST. IT CAN BE CONSIDERE D AS EXPENDITURE, 6 ITA NO. 1100 /HYD/2016 PADUCHURU PRATHAP (HUF) IN CASE, THE ASSESSEE HAS DECLARED THE SAME AS INCO ME IN THE PREVIOUS YEAR. FURTHER, ASSESSEE HAS BORROWED FUNDS FOR INVESTMENT IN FIRM, IN WHICH HE IS A PARTNER, AND ALSO BORROW ED FUNDS FROM OTHER INDIVIDUALS, WHO ARE ALSO INCOME TAX ASSESSEES. AO IS DIRECTED TO VERIFY THE GENUINENESS OF THE CLAIM OF THE ASSESSEE , WHETHER THE STATED INDIVIDUALS HAVE ALREADY DECLARED THE ABOVE INTEREST AS INCOME IN THEIR RETURNS OF INCOME. IF IT IS FOUND THAT IT IS PROPER THESE INTEREST EXPENDITURE MAY BE ALLOWED. SIMILARLY, WITH REFEREN CE TO THE PRECLOSURE OF FDS AND INTEREST CLAIMED ON INVESTMEN T IN FIRM ALSO SHOULD BE VERIFIED WITH THE PREVIOUS RETURN OF INCO ME AND WHETHER THE INTERST IS DECLARED AS INCOME. THEREFORE, IT IS REM ITTED TO THE FILE OF AO TO VERIFY THE CLAIM OF THE ASSESSEE AFTER GIVING PR OPER OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 19. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 21 ST MARCH, 2018. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHM AN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 21 ST MARCH, 2018 KV COPY TO:- 1) PADUCHURU PRATHAP, C/O K. PARTHASARATHY & CO., A DVOCATE & TAX CONSULTANT, 1 ST FLOOR, SOWBHAGYA AVENUE, STREET 1, ASHOK NAGAR, HYDERABAD 500 016. 2) ACIT, CIRCLE 1, AAYAKAR BHAVAN, 3 RD ANANTHAPUR 515 004. 3) CIT(A), KURNOOL 4) PR. CIT, KURNOOL 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD