Carburettors P Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1200/CHNY/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8274 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-10-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2003-2004
• Appeal Filed On: 31-05-2013
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: S SRIDHAR
• Keywords: Reopening of assessment; Sale consideration of property below Jantri Value; Business income; Business expenditure; Principle of natural justice; Reason to believe
• Section: 143(3); 50C; 14A; 37(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . , ! . # , $ % & [ BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ] ./ I.T.A.NO.1200, 1201/MDS/2013 & 1890/MDS/2014 / ASSESSMENT YEARS : 2003-04, 2006-07 & 2003-04 M/S CARBURETTORS P. LTD RAHEJA TOWERS 7 TH FLOOR, SIGMA WING NO.177, ANNA SALAI CHENNAI 600 002 VS. THE ASSTT. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE I(3) CHENNAI [PAN AAACC 1299 E] ( '( / APPELLANT) ( )*'( /RESPONDENT) / APPELLANT BY : SHRI S. SRIDHAR, ADVOCATE /RESPONDENT BY : SHRI SHIVA SRINIVAS, JCIT / DATE OF HEARING : 17 - 08 - 2016 ! / DATE OF PRONOUNCEMENT : 20 - 1 0 - 2016 + / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER THESE APPEALS OF THE ASSESSEEE ARE DIRECTED AGA INST THE ORDERS OF THE COMMISSIONER OF INCOME-TAX (APPEALS) -IX, CHENNAI, DATED 28.1.2013 AND 18.3.2014 FOR ASSESSMENT YEAR 2 003-04 IN I.T.A.NOS.381/08-09 AND 360/13-14 AND 21.3.2013 FO R ASSESSMENT YEAR 2006-07 IN I.T.A.NO. 530/10-11 PASSED U/S 14 3(3) R.W.S 147/263 AND 250 OF THE INCOME-TAX ACT, 1961(IN SHORT THE A CT). SINCE ITA NO.1200/13 ETC :- 2 -: COMMON ISSUES ARISE FOR CONSIDERATION IN ALL THE AP PEALS, WE HEARD THEM TOGETHER AND DISPOSING OF THE SAME BY THIS CO MMON ORDER. 2. FIRST WE TAKE UP I.T.A.NO.1200/MDS/2013 FOR ASSESS MENT YEAR 2003-04. THE FIRST GROUND IS THAT THE CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENDITURE MADE BY THE ASSESSING OFFICER IRRESPECTIVE OF THE FACT THAT THE EXPENDITU RE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THE ASSESSEES BUSINESS WAS IN EXISTENCE AND THE MAIN OBJECTS OF T HE ASSESSEE- COMPANY BEING PROMOTION OF COMPANIES AND SISTER CON CERNS. GROUND NO.2 IS THAT THE CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE U/S 14A OF THE ACT IRRESPECTIVE OF THE FACT THAT THERE IS NO INCOME RECEIVED FROM THE INVESTMENT MADE IN SISTER CONCERNS. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS I N THE BUSINESS OF CARBURETORS MANUFACTURING AND FILED ITS RETURN OF INCOME ON 31.10.2003 DECLARING LOSS OF ` 25,81,919/- AND THE RETURN OF INCOME WAS PROCESSED U/S 143(1). SUBSEQUENTLY, THE ASSES SING OFFICER NOTICED THAT THERE IS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT AND ISSUED NOTICE U/S 148. IN RESPONSE , THE ASSESSEE VIDE LETTER DATED 25.3.2008 REQUESTED THE ASSESSING OFFICER TO TREAT THE ORIGINAL RETURN FILED IN COMPLIANCE TO THE NOTICE U/S 148. LD. AR OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FILED NECES SARY DETAILS. THE ITA NO.1200/13 ETC :- 3 -: ASSESSING OFFICER ON PERUSAL OF THE PROFIT & LOSS A CCOUNT FOUND THAT THE ASSESSEE HAS SHOWN THE INCOME IN RESPECT OF DI VIDEND, PROFIT ON SALE OF ASSETS, INTEREST INCOME AND RENTAL INCOME WHEREAS THE DIVIDEND WAS CLAIMED U/S 10(34) OF THE ACT, RENTAL INCOME DISCLOSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY, PROFIT O N SALE OF ASSETS UNDER THE HEAD CAPITAL GAINS. THE ASSESSING OFFICE R WAS OF THE OPINION THAT THE ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY DURING THE FINANCIAL YEAR 2002-03. FURTHER, THE ASSESSING OFF ICER VERIFIED THE FINANCIAL STATEMENTS AND WAS OF THE OPINION THAT TH E ASSESSEE HAS NOT CARRIED OUT THE BUSINESS ACTIVITY BUT HAS PARKED IT S SURPLUS FUNDS IN DIFFERENT COMPANIES AND EARNED INTEREST. A SHOW C AUSE NOTICE WAS ISSUED TO THE ASSESSEE-COMPANY TO DISALLOW THE CLAI M OF EXPENDITURE RELYING ON THE DECISION OF DELHI HIGH COURT IN THE CASE OF INTERNATIONAL MARKETING LTD VS ITO, 159 TAXMAN 24. IN COMPLIANCE TO THE SHOW CAUSE NOTICE, THE LD. AR OF THE ASSESSEE REQUESTED THE REASONS FOR REOPENING OF ASSESSMENT AND THE SAME WAS FURNISHED . IT WAS ALSO SUBMITTED THAT THE ASSESSEE IS IN THE BUSINESS FRO M THE EARLIER YEARS AND ALSO PROMOTING THE COMPANIES AND SUCH PROMOTION CANNOT TAKE PLACE ON DAY-TO-DAY BASIS AND REQUIRES SUFFICIENT T IME AND RELIED ON THE CASE LAW OF BHARAT NIDHI LTD 60 ITR 520(MAD). THE ASSESSEE- COMPANY SUBMITTED THAT IT HAS BROUGHT OVER MIKUNIS 26% STAKE IN M/S UCAL FUEL SYSTEMS LTD. BUT LD. ASSESSING OFFICE R IS OF THE OPINION ITA NO.1200/13 ETC :- 4 -: THAT THE ASSESSEE HAS NOT SUBMITTED ANY INFORMATI ON IN RESPECT OF THE TRANSACTIONS/ACTIVITIES HELD DURING THE YEAR BUT ON LY RELIED ON THE PAPER CUTTING TO PROVE THE BUSINESS ACTIVITY. THE ASSESS ING OFFICER FOUND FROM THE MATERIAL OF ASSESSMENT THAT THE ASSESSEE S MAIN ACTIVITY IS PROMOTING THE OTHER COMPANIES. THE ASSESSING OFFIC ER RELIED ON THE JUDICIAL DECISIONS REFERRED AT PAGES 5 TO 7 OF HIS ORDER AND COME TO THE CONCLUSION THAT THE ASSESSEE HAS NOT INVESTED IN THE ABOVE COMPANY NEITHER FOR THE PURPOSE OF PROTECTING ITS BUSINESS NOR ACQUIRING THE CONTROL OF THE BUSINESS AS THE SHAREHOLDING PATTERN IS LESS THAN 50%. THE ASSESSING OFFICER FURTHER FOUND THAT THE ASSES SEE HAS BEEN RECEIVING SUBSTANTIAL AMOUNT OF DIVIDEND FROM THE G ROUP COMPANIES AND THE MAIN ACTIVITY OF THE BUSINESS IS NOT IN EXI STENCE. THEREFORE, THE EXPENDITURE DEBITED IN THE PROFIT & LOSS ACCOUN T IN RESPECT OF THE ADMINISTRATIVE OVERHEADS HAS BEEN DISALLOWED AND TH E ASSESSING OFFICER ALSO FOUND THAT THE ACCOUNTS OF THE COMPANY WERE NOT AUDITED U/S 44AB OF THE ACT AND NO INCOME HAS BEEN DISCLOSE D IN THE PROFIT & LOSS ACCOUNT THEREFORE, NO DEDUCTION CAN BE ALLOWED IN RESPECT OF SUCH EXPENDITURE AND ACCORDINGLY COMPUTED THE INCOME FRO M HOUSE PROPERTY, AND INCOME FROM OTHER SOURCES AND CAPITAL GAINS AND PASSED ORDER U/S 143(3) R.W.S 147 OF THE ACT ON 18.12.200 8. ITA NO.1200/13 ETC :- 5 -: 4. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, TH E ASSESSEE HAS FILED AN APPEAL BEFORE THE CIT(A). IN THE APPELLATE PROCEEDINGS, THE LD. AR OF THE ASSESSEE ARGUED THA T THE ASSESSING OFFICER HAS ERRED IN DISALLOWING THE EXPENDITURE IR RESPECTIVE OF THE FACT THAT THE ASSESSEE IS IN THE BUSINESS IN EARLIER YE ARS AND SUBSEQUENT YEAR ALSO. THE MAIN BUSINESS OF THE ASSESSEE-COMPA NY IS PROMOTING COMPANIES. THE FINANCIAL STATEMENTS DEPICTS ALL TH E SECURED LOANS OBTAINED AND ALSO INTEREST CHARGES PAID IN RESPECT OF THE INVESTMENTS. WHEREAS THE INVESTMENT OF THE ASSESSEE IN GROUP CO MPANIES WAS WITH PROFIT MOTIVE AND DIVIDEND IS ONLY INCIDENTAL AND A LSO SUPPORTED HIS ARGUMENTS WITH JUDICIAL DECISIONS. THE CIT(A) CONS IDERED THE FINDINGS OF THE ASSESSING OFFICER AND THE SUBMISSIONS OF THE ASSESSEE IN ASSESSMENT PROCEEDINGS AND THE APPELLATE PROCEEDING S AND DEALT WITH IN HIS ORDER ELABORATELY RELYING ON THE JUDICIAL DE CISIONS ALSO. THE ASSESSEE ALSO FILED A WRITTEN SUBMISSION IN RESPECT OF THE CLAIM OF EXPENDITURE AND DISALLOWANCE IS UNJUSTIFIED. CONTE NTION OF THE ASSESSEE THAT THERE IS NO DISPUTE ON THE GENUINENES S OF THE EXPENDITURE WHILE THE ASSESSING OFFICER WAS OF THE OPINION THAT THE ASSESSEE IS NOT CARRYING ON ANY BUSINESS. THE EXPE NDITURE WAS INCURRED AS A PROMOTER OF M/S UCAL FUEL SYSTEMS AND ASSESSEE HAS SUBSTANTIAL INTEREST AND INVESTMENT HAS BEEN MADE A ND THEREFORE, PROVISIONS OF SEC. 14A ARE NOT APPLICABLE. BUT THE CIT(A) WAS OF THE ITA NO.1200/13 ETC :- 6 -: OPINION THAT THE ASSESSEE HAS CLAIMED THE EXPENDIT URE IN THE PROFIT & LOSS ACCOUNT BUT NOT CARRIED OUT ANY BUSINESS ACTIV ITY DURING THE FINANCIAL YEAR 2002-03. EVEN BEFORE THE CIT(A) THE ASSESSEE COULD NOT SUBSTANTIATE WITH EVIDENCE THAT THERE IS BUSINE SS ACTIVITY CARRIED ON IN FINANCIAL YEAR 2002-03. WITH THESE OBSERVATIONS , THE CIT(A) HAS CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 5. AGGRIEVED, THE ASSESSEE HAS FILED AN APPEAL BEFORE THE TRIBUNAL. BEFORE US, THE LD. AR ARGUED THE GROUNDS AND REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER AND T HE CIT(A). HE FURTHER EXPLAINED ON THE ACTIVITIES OF THE ASSESSE E-COMPANY. THE LD. AR FURTHER SUBMITTED THAT THE CIT(A) IS NOT JUSTIFI ED IN CONFIRMING THE DISALLOWANCE OF BUSINESS EXPENDITURE AS THERE IS NO BUSINESS ACTIVITY BY THE ASSESSEE-COMPANY. PRIMA FACIE THE EXPENDITURE HAS BEEN INCURRED FOR PROMOTING COMPANIES AND THEREFORE, THE CLAIM WA S MADE IN THE PROFIT & LOSS ACCOUNT. THE CIT(A) HAS RELIED ON TH E FINDINGS OF THE ASSESSING OFFICER WITHOUT VERIFYING THE GENUINENESS AND ALSO OBJECTIVES OF THE ASSESSEE-COMPANY AS PER THE MEMORANDUM OF AS SOCIATION AND ARTICLES OF ASSOCIATION AND PRAYED FOR ALLOWING THE CLAIM U/S 37(1) OF THE ACT AS THE EXPENDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. ITA NO.1200/13 ETC :- 7 -: 6. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDERS OF THE LOWER AUTHORITIES AND SUBMITTED THAT THE ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY DURING THE FINANCIAL YEAR 200 2-03. 7. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIA L ON RECORD AND THE JUDICIAL DECISIONS. THE SOLE CRUX O F THE ISSUE BEING THE CLAIM OF EXPENDITURE BY THE ASSESSEE-COMPANY WAS DI SALLOWED BY THE ASSESSING OFFICER ON THE GROUND THAT THERE IS NO BU SINESS ACTIVITY CARRIED ON WHEREAS THE LD. AR SUBSTANTIATED THAT TH E ASSESSEE HAS BEEN IN THE BUSINESS ACTIVITIES AS PER THE MEMORAND UM AND ARTICLES OF ASSOCIATION AD ALSO SUBMITTED THAT THE ASSESSEE-COM PANY HAS TAKEN OVER 26% STAKE IN M/S UCAL FUEL SYSTEMS AND IT WAS REPORTED IN THE BUSINESS LINES. THE LD. AR CANNOT PROVE WITH CORR ECT PICTURE OF THE ACTIVITY CARRIED ON BY THE ASSESSEE DURING THE FIN ANCIAL YEAR 2002-03. FURTHER, THE LD. AR COULD NOT ESTABLISH BEFORE US T HAT THERE WAS ANY BUSINESS ACTIVITY CARRIED ON BY THE ASSESSEE-COMPAN Y WITH ANY STATUTORY SERVICE OR ANY TRANSACTIONS WITH THE GOVE RNMENT. NO DOUBT, THE ASSESSEE-COMPANY HAS MADE SUBSTANTIAL INVESTMEN T IN SUBSIDIARY COMPANIES AND THE MAIN BUSINESS BEING PROMOTING THE COMPANIES. THE OBJECTS OF THE MEMORANDUM OF ASSOCIATION CANNOT OVERRULE THE PROVISIONS OF INCOME-TAX ACT, 1961 THOUGH THE MAIN OBJECT OF THE ASSESSEE-COMPANY IS PROMOTING THE COMPANIES AND THE OTHER OBJECT IS ITA NO.1200/13 ETC :- 8 -: TO MANUFACTURE CARBURETORS. THE ACTIVITY OF THE AS SESSEE-COMPANY HAS TO BE SEEN FROM THE PRESENT WORKING STATUS IRRESPE CTIVE OF THE FACT THAT THERE ARE MAIN OBJECTS TO BE PERUSED FROM THE MEMORANDUM OF ASSOCIATION. CONSIDERING THE APPARENT FACTS AND TH E ACTIVITIES OF THE ASSESSEE-COMPANY AND THE ASSESSING OFFICER HAS NOT VERIFIED IN DEPTH ABOUT THE BUSINESS CARRIED ON BY THE ASSESSEE DURI NG THE EARLIER YEAR. BUT IN THE INTEREST OF JUSTICE, WE REMIT THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER, THE ASSESSING OFFICER SHALL VER IFY FROM EARLIER YEARS AND SUBSEQUENT YEARS WHETHER THE ACTIVITIES OF THE ASSESSEE-COMPANY ARE BEING CARRIED ON. FURTHER THE LULLNESS IN THE BUSINESS CANNOT BE TAKEN AS NO ACTIVITIES WERE CARRIED ON. THE FACT T HAT THE COMPANIES ARE INCORPORATED UNDER THE COMPANIES ACT 1956 AND T HE COMPANY CAN CLOSE ITS ACTIVITY ONLY ON WINDING UP. FURTHER, IN SUBSEQUENT ASSESSMENT YEAR 2005-06 IT HAD TAKEN OVER THE STAKE IN UCAL THAT SHOWS STILL THERE IS EXISTENCE OF THE COMPANY AND ACTIVITIES WERE BEING CARRIED ON IRRESPECTIVE OF THE FACT THAT THERE IS N O DIRECT AND INDIRECT EXPENDITURE. WITH THESE OBSERVATIONS, WE REMIT THE ENTIRE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO DECIDE AFRESH ON D ISPUTED ISSUE. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 8. AS FAR AS THE DISALLOWANCE U/S 14A IS CONCERNED, T HE ASSESSEE HAS MADE HUGE INVESTMENTS IN THE SUBSIDIAR Y COMPANIES AND ITA NO.1200/13 ETC :- 9 -: THE CIT(A) HAS OBSERVED THAT THERE IS NO BUSINESS I NCOME RELYING ON THE ORDER OF THE ASSESSING OFFICER. THE CONTENTION OF THE ASSESSEE IS THAT SECTION 14A CANNOT BE APPLIED BECAUSE THE INV ESTMENT IN THE COMPANIES ARE MEREFOR PROMOTION OF THE BUSINESS AND DIVIDEND IS ONLY INCIDENTAL. 9. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. SINCE THE ASSESSMENT YEAR UNDER CONSIDERATION IS PRIOR TO ASS ESSMENT YEAR 2008- 09, WE IN OUR OPINION, THE JUDGMENT OF MADRAS HIGH COURT IN THE CASE OF M/S SIMPSON & CO LTD VS DCIT IN TCA NO.2621 OF 2 006 DATED 15.10.2012 IS DIRECTLY APPLICABLE TO THE FACTS OF T HIS CASE AS RULE 8D IS NOT APPLICABLE TO ASSESSMENT YEAR 2003-04. ACCORDI NGLY, IN VIEW OF THE JUDGMENT OF THE MADRAS HIGH COURT IN M/S SIMPSON & CO. LTD (SUPRA), WE DIRECT THE ASSESSING OFFICER TO DISALLOW 2% OF T HE DIVIDEND INCOME AS EXPENDITURE FOR EARNING THE EXEMPTED INCOME BY T HE ASSESSEE. THIS GROUND IS PARTLY ALLOWED. 11. IN THE RESULT, I.T.A.NO.1200/MDS/2013 IS PARTLY ALL OWED FOR STATISTICAL PURPOSES. ITA NO.1200/13 ETC :- 10 -: 12. COMING TO I.T.A.NO.1201/MDS/2013 FOR ASSESSMENT YEA R 2006-07, THE ASSESSEE HAS RAISED SIMILAR GROUNDS. WE HAVE ADJUDICATED THE ISSUES IN FORMER PART OF THIS ORDER IN DETAIL. IN VIEW THEREOF, THIS APPEAL IS ALSO PARTLY ALLOWED FOR STA TISTICAL PURPOSES. 13. COMING TO I.T.A.NO. 1890/MDS/2014 FOR ASSESSMENT YE AR 2003-04, THE ASSESSEE HAS FILED THE APPEAL AGAINS T THE ORDER OF THE CIT(A) PASSED U/S 143(3) R.W.S 263 OF THE ACT. TH E ASSESSEE HAS RAISED TWO SUBSTANTIAL GROUNDS BEING THE CIT(A) HAS ERRED IN CONSIDERING THE FINDINGS OF THE ASSESSING OFFICER A ND UPHOLDING THE ORDER OF APPLICABILITY OF PROVISIONS OF SEC. 50C AN D SECOND ISSUE IS THAT THE CIT(A) HAS ERRED IN TAXING THE AMOUNT OF ` 3,04,160/- UNDER THE HEAD INCOME FROM OTHER SOURCES IRRESPECTIVE OF THE FACT THAT THIS PERTAINS TO THE FUNDS OF THE BUSINESS AND TO BE TR EATED AS BUSINESS INCOME. 14. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURE OF CARBURETORS AND HAVING I NCOME FROM HOUSE PROPERTY AND CAPITAL GAINS AND HAS FILED RETURN OF INCOME ON 301.10.2003 ADMITTING A LOSS OF ` 25,81,919/- WHICH WAS PROCESSED U/S 143(1) OF THE ACT. SUBSEQUENTLY ORDER U/S 143 (3) R.W.S 147 WAS PASSED ON 18.12.2008 ASSESSING THE TAXABLE INCOME A T ` 1,31,31,861/- INCLUDING LONG TERM CAPITAL GAIN OF ` 50,74,985/-. THE ITA NO.1200/13 ETC :- 11 -: CIT ON PERUSAL OF THE ASSESSMENT ORDER WAS OF THE O PINION THAT THE ORDER PASSED BY THE ASSESSING OFFICER WAS WITHOUT A PPLICATION OF MIND AND IT IS ERRONEOUS AND PREJUDICIAL TO THE INTERES T OF THE REVENUE AND PASSED ORDER U/S 263 OF THE ACT DATED 8.2.2011 AN D SET ASIDE THE ASSESSMENT ORDER. THE ASSESSING OFFICER IN THE ASS ESSMENT PROCEEDINGS ON THE ISSUE OF CALCULATION OF LONG TE RM CAPITAL GAINS ON THE APPLICABILITY OF SEC. 50C A REFERENCE WAS MADE TO THE VALUATION OFFICER TO ASCERTAIN THE MARKET VALUE OF THE PROPER TY TRANSFERRED. THE LD. AR APPEARED FROM TIME TO TIME AND FILED THE DET AILED EXPLANATIONS CHALLENGING THE VALIDITY OF INVOKING THE PROVISIONS OF SECTION 50C AND ALSO EXPENDITURE CLAIMED IN THE PROFIT & LOSS ACCOU NT IN THIS REGARD. THE ASSESSING OFFICER HAS DEALTWITH THE DETAILS OF THE COMMERCIAL COMPLEX NAMED AS RAHEJA TOWERS WHERE THE ASSESSE E HAS ENTERED INTO A JOINT VENTURE DEVELOPMENT ON 28.5.94 AND ALS O CONSIDERATION WAS RECEIVED. WHEREAS THE ASSESSING OFFICER HAS MA DE THE CALCULATION IN RESPECT OF THE CONSIDERATION AND WORKED OUT LONG TERM CAPITAL GAINS AT ` 54,60,454/-. IN RESPECT OF THE CORRESPONDING BUIL T-UP AREA WHICH WAS ALLOTTED TO THE ASSESSEE THE SALE CONSIDERATIO N WAS AT ` 56,87,799/- AND THE ASSESSING OFFICER ALLOWED THE I NDEX COST OF PROPORTIONATE DIVISION OF LAND AND CALCULATED THE L ONG TERM CAPITAL GAINS AT ` 54,60,454/-. THE ASSESSING OFFICER FURTHER GAVE A FINDING THAT THE ASSESSEE HAS CLOSED DOWN ITS BUSINESS LON G BACK AND NO ITA NO.1200/13 ETC :- 12 -: ACTIVITIES WERE CONDUCTED BY THE ASSESSEE. THEREF ORE, THE CORRESPONDING EXPENDITURE IN RESPECT OF SUCH CLAIMS HAS BEEN DISALLOWED AND CALCULATED INTEREST TO BE TAXABLE O N THE DEPOSITS AT ` 3,04,160/-. FURTHER, IN THE SAID ASSESSMENT YEAR T HE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF ` 81 LAKHS AND DISALLOWANCE U/S 14A OF THE ACT WAS NOT MADE BY THE ASSESSEE. THE ASSESS EE HAS EXPLAINED THAT NO EXPENDITURE WAS INCURRED TO EARN THE DIVIDE ND INCOME AS THE DIVIDEND WAS RECEIVED FROM SUBSIDIARY COMPANIES. W ITH THESE OBSERVATIONS, THE ASSESSING OFFICER MADE TWO DISALL OWANCE IN RESPECT OF LONG TERM CAPITAL GAINS AND INCOME FROM OTHER SO URCES AND PASSED ORDER U/S 143(3) R.W.S 263 OF THE ACT DATED 31.3.2 011. 15. AGGRIEVED, THE ASSESSEE HAS FILED AN APPEAL BEFORE THE CIT(A). IN THE APPELLATE PROCEEDINGS, THE LD. AR O F THE ASSESSEE ARGUED THE GROUNDS AND SUBSTANTIATED HIS ARGUMENTS WITH FACTS AND THE FINDINGS MADE BY THE ASSESSING OFFICER WHICH AR E AGAINST THE PRINCIPLES OF NATURAL JUSTICE. IT WAS EXPLAINED TH AT THE PROVISIONS OF SEC. 50C SHALL NOT BE INVOKED. THE ASSESSEE HAS D ISCLOSED LONG TERM CAPITAL GAINS IN RESPECT OF THE PROPERTY WHERE AGRE EMENT WAS ENTERED IN 1994 AND NOT IN FINANCIAL YEARS 2001-02/2004-05. AT THE TIME OF TRANSFER, THE PROVISIONS OF SEC. 50C WERE APPLIED A ND THE DISTRICT VALUATION OFFICER HAS WORKED OUT THE VALUE OF THE P ROPERTY AND ARRIVED ITA NO.1200/13 ETC :- 13 -: AT THE LONG TERM CAPITAL GAINS. WHEREAS THE ASSESSI NG OFFICER HAS ERRED IN ENHANCING THE INCOME FROM CAPITAL GAINS FROM ` 15,74,985/- TO ` 54,60,454/- IRRESPECTIVE OF THE FACT THAT AGREEMENT WITH THE DEVELOPER FOR TRANSFER OF THE PROPERTY WAS ENTERED INTO ON 28 .5.1994 I.E LONG BEFORE THE PROVISIONS OF SEC. 50C OF THE ACT ARE IN TRODUCED IN THE ACT, THE ASSESSING OFFICER HAS NO JURISDICTION TO INVOKE THE PROVISIONS OF SEC. 50C. THE CIT(A), ON PERUSAL OF THE REVISIONAL ORDER U/S 263 OF THE ACT AND THE SUBMISSIONS MADE BY THE ASSESSEE DURING THE REVISION PROCEEDINGS AND APPELLATE PROCEEDINGS FOUN D THAT THE CIT HAS DIRECTED THE PROVISIONS OF SEC. 50C ARE APPLICA BLE. THE CIT(A) IS OF THE VIEW THAT THE ORDER U/S 263 OF THE ACT PASSED BY THE CIT SHOULD BE CHALLENGED AND NOT THE ORDER PASSED U/S 143(3) R.W.S 263. SINCE THE ORDER OF THE ASSESSING OFFICER HAS BEEN PASSED APPLYING THE PROVISIONS OF SEC. 50C, AS PER THE CITS DIRECTIONS , THE GROUNDS OF THE ASSESSEE ARE DISMISSED. 16. IN RESPECT OF THE ADDITION OF ` 3,04,160/- AS INCOME FROM OTHER SOURCES, A PROPORTIONATE DISALLOWANCE WAS MAD E CONSIDERING THE INCOME FROM DEPOSITS AND ALSO EXPENDITURE INCURRED. ITA NO.1200/13 ETC :- 14 -: 17. THE LD. AR OF THE ASSESSEE SUPPORTED HIS CASE THAT THE ASSESSING OFFICER HAS ERRED IN TAXING INTEREST INCO ME UNDER THE HEAD INCOME FROM OTHER SOURCES IRRESPECTIVE OF THE FACT THAT INTEREST PAYMENT EXCEEDED TOTAL INTEREST RECEIPT AND THE BOR ROWALS WERE MORE THAN ` 1 CRORE, THEREFORE, TELESCOPING HAS TO BE CONSIDER ED. THE CIT(A) GAVE A CATEGORICAL FINDING THAT THE LD. AR H AS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THERE IS A NEXUS BE TWEEN THE INTEREST EXPENDITURE PAID AND INTEREST INCOME RECEIVED. WIT H THIS OBSERVATION, THE CIT(A) HAS UPHELD THE ORDER OF THE ASSESSING OF FICER. THE CIT(A) FURTHER CONFIRMED ADDITION OF ` 7,19,800/- IN RESPECT OF THE INTEREST PAID FOR PURCHASE OF AC PLANT IN THE BUILDING AND D ISMISSED THE APPEAL. 18. BEFORE US, AGGRIEVED BY THE ABOVE ORDER, THE LD. AR REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSIN G OFFICER AND THE CIT(A). HE FURTHER SUBMITTED THAT THE ASSESSEE HA S CHALLENGED THE REVISION ORDER PASSED BY THE CIT U/S 263 OF THE AC T WHEREAS THIS ORDER HAS EMANATED FROM THE CONSEQUENTIAL ORDER OF THE AS SESSING OFFICER PASSED U/S 143(3) R.W.S 263 OF THE ACT IN RESPECT OF CALCULATION OF LONG TERM CAPITAL GAINS. THE ASSESSING OFFICER HAS ERRE D IN APPLYING THE PROVISIOS OF SEC. 50C WHICH IN FACT IS NOT APPLICAB LE TO THE SAID ASSESSMENT YEAR WHEREAS THE AGREEMENT WAS ENTERED I N 1994 AND THE SALES IN ASSESSMENT YEAR 2002-03 TO 2005-06, THEREF ORE, THE ITA NO.1200/13 ETC :- 15 -: CALCULATION OF ENHANCING THE LONG TERM CAPITAL GAIN S DOES NOT HAVE ANY MERIT AND THE ORDER OF THE CIT(A) IN RESPECT ON THI S GROUND BE DISMISSED. SECONDLY, THE ASSESSING OFFICER ERRED I N TREATING THE INTEREST INCOME AS INCOME FROM OTHER SOURCES IRRESP ECTIVE OF THE FACT THAT INTEREST PAYMENT WAS MADE BY THE ASSESSEE AND CLAIMED IN THE PROFIT & LOSS ACCOUNT WHEREAS THIS INCOME ALSO FORM PART OF THE BUSINESS INCOME THEREFORE, TELESCOPING SHOULD BE AL LOWED. 19. CONTRA, THE LD. DR RELIED ON THE ORDERS OF THE CIT( A) AND THE REVISIONAL ORDER OF THE CIT. 20. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE LD. ARS CONTENTION THAT TH E PROVISIONS OF SEC. 250C ARE NOT APPLICABLE SINCE THE AGREEMENT WITH TH E DEVELOPER FOR TRANSFER OF THE PROPERTY WAS ENTERED ON 28.5.1994. WE HAVE GONE THROUGH THE FINDINGS OF THE ASSESSING OFFICER. A R EFERENCE WAS MADE TO THE DVO. THE ASSESSING OFFICER HAD ENHANCED THE LONG TERM CAPITAL GAINS BUT WE FIND THAT THE CIT(A) HAS NOT GIVEN ANY PROPER FINDINGS WHETHER THE PROVISIONS OF SEC. 50C SHALL BE APPLICA BLE OR NOT AND THE GROUNDS ARE NOT PROPERLY ADJUDICATED. CONSIDERING THE FACTS AND THE ACTIVITIES OF THE ASSESSEE, WE SET ASIDE THE ORDER OF THE LOWER AUTHORITIES AND REMIT THE DISPUTED ISSUE TO THE FIL E OF THE CIT(A) FOR PASSING A SPEAKING ORDER. ITA NO.1200/13 ETC :- 16 -: 21. IN RESPECT OF THE SECOND GROUND REGARDING TAXING TH E AMOUNT OF ` 3,04,160/-, WE ARE OF THE OPINION THAT SINCE THE ASSESSEE IS A LIMITED COMPANY IT HAS VARIOUS TRANSACTIONS AND FUN DS ARE BORROWED AND INTEREST HAS BEEN PAID BY THE COMPANY TO VARIOU S FINANCIAL INSTITUTIONS. THE ASSESSING OFFICER COULD NOT PROV E THAT FUNDS ARE SURPLUS EARNED DURING THE YEAR. WE ARE OF THE OPIN ION THAT THIS INCOME HAS DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE AND COMPLY THE MATCHING CONCEPT. WE, THEREFORE, SET ASIDE THE ORD ER OF THE CIT(A) ON THIS GROUND AND DIRECT THE ASSESSING OFFICER TO TRE AT THE INTEREST INCOME OF ` 3,04,160/- AS BUSINESS RECEIPT AND THE GROUND IS A LLOWED. 22. IN THE RESULT, I.T.A.NO.1890/MDS/2014 IS PARTLY ALL OWED. 23. TO SUMMARIZE, I.T.A.NOS.1200 AND 1201/MDS/2013 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES WHEREAS I.T.A.NO.1 890/MDS/2014 IS PARTLY ALLOWED. ORDER PRONOUNCED ON 20 TH OCTOBER, 2016, AT CHENNAI. SD/- SD/- ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER ( . # ) (G. PAVAN KUMAR) $ / JUDICIAL MEMBER '# / CHENNAI $% / DATED: 20 TH OCTOBER, 2016 RD %& '()( / COPY TO: 1 . / APPELLANT 3. *+, / CIT(A) 5. (-. / / DR 2. / RESPONDENT 4. * / CIT 6. .01 / GF