M/s. Jana Priya Engineers Syndicate (J.V), Hyderabad V. Dy.CIT, Central Circle-2, Hyderabad

ITA 1251/HYD/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69950 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 21-08-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Keywords: Unexplained investment; Unexplained expenditure; Business income; Depreciation; Search and seizure; Rule of consistency; Earning of tax free income; Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER I TA NO. ASSESSMENT YEAR APPELLANT RESPONDENT 12 5 0 /HY D/201 2 1251 /HYD/201 2 1252 /HYD/201 2 1253 /HYD/201 2 200 5 - 0 6 200 6 - 0 7 200 7 - 0 8 200 8 - 0 9 M/S. JANAPRIYA ENGINEERS SYNDICATE (JV), HYDERABAD (PAN: AAEFJ 4368 G) DY. COMMISSIONER OF INCOME - TAX , CENTRAL CIRCLE 2, HYDERABAD 1359 /HYD/201 2 1 360 /HYD/201 2 1 361 /H YD/201 2 13 62 /HYD/201 2 200 5 - 0 6 200 6 - 0 7 200 7 - 0 8 200 8 - 0 9 DY. COMMISSIONER OF INCOME - TAX , CENTRAL CIRCLE 2, HYDERABAD M/S. JANAPRIYA ENGINEERS SYNDICATE (JV), HYDERABAD (PAN: AAEFJ 4368 G) 15 7 7/HYD/2012 200 6 - 0 7 M/S. JANAPRIYA ENGINEERS SYNDICATE, HY DERABAD ( PAN: AABFJ 7649 B ) DY. COMMISSIONER OF INCOME - TAX , CENTRAL CIRCLE 6, HYDERABAD 1594/ HYD/201 2 1595 /HYD/201 2 2007 - 08 2008 - 09 M/S. JANAPRIYA PROPERTIES PVT. LTD. HYDERABAD ( PAN: AABCJ 9001 E ) DY. COMMISSIONER OF INCOME - TAX , CENTRAL CI RCLE 6, HYDERABAD 1614/HYD/2012 1622/HYD/2012 2005 - 06 2006 - 07 ASST. COMMISSIONER OF INCOME - TAX , CENTRAL CIRCLE 2, HYDERABAD M/S. JANAPRIYA ENGINEERS SYNDICATE, HYDERABAD (PAN: AABFJ 7649 B) 1623/HYD/2012 1624/HYD/2012 2007 - 08 2008 - 09 ASST. COMMISSIO NER OF INCOME - TAX , CENTRAL CIRCLE 2, HYDERABAD M/S. JANAPRIYA PROPERTIES (PREVIOUSLY KNOWN AS JANAPRIYA E NGINEERS SYNDICATE ) HYDERABAD (PAN: AABFJ 7649 B) 547/HYD/2011 548/HYD/2011 2002 - 03 2003 - 04 DY. COMMISSIONER OF INCOME - TAX, CENTRAL CIRCLE 2, HYDE RABAD M/S. ENGINEERS REDDY HOMES PVT. LTD., HYDERABAD (PAN AABCE 4434 H) ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 2 580/HYD/2011 581/HYD/2011 582/HYD/2011 583/HYD/2011 2002 - 03 2003 - 04 2004 - 05 2005 - 06 M/S. ENGINEERS REDDY HOMES PVT. LTD., HYDERABAD (PAN AABCE 4434 H) DY. COMMISSIONER OF INCOME - TAX, CENTRAL CIRCLE 2, HYDERABAD ASSESSEE S BY : SHRI A.SRINIVAS DEPARTMENT BY : S HRI D.SUDHAKAR RAO DR DATE OF HEARING 04 . 1 0.2013 DATE OF PRONOUNCEMENT O R D E R PER CHANDRA POOJARI , ACCOUNTANT MEMBER: THERE ARE TWENTY ONE A PPEALS IN THIS BUNCH, CONCERNING ASSESSEES CONNECTED WITH EACH OTHER. THEY ARE DIRECTED AGAINST SEPARATE ORDERS OF THE COMMISSIONER OF INCOME - TAX (APPEALS) I, HYDERABAD , CONCERNING FOUR ASSESSEES, IN THIS BUNCH. THEY ARE DIRECTED AGAINST SEPARATE ORDERS OF THE COMMISSIONER OF WEALTH - TAX(APPEALS) I, HYDERABAD. SINCE ISSUES INVOLVED IN THESE APPEALS ARE COMMON /CONNECTED, THESE APPEALS ARE BEING DISPOSED OF WITH THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. M/S. JANAPRIYA ENGINEERS SYNDICATE (JV), HYDE RABAD CROSS APPEALS FOR ASSESSMENT YEARS 2005 - 06 TO 2008 - 09 ASSESSEES APPEAL S : ITA NO.1250 TO 1253/HYD/2012 DEPARTMENTS APPEALS : ITA NOS.1359 TO 1362/HYD/2012 2. LET US TAKE UP FIRST FOR CON S IDE R ATION THE CROSS APPEALS O F THE ASSE SSMENT YEARS 2005 - 06 TO 2008 - 09 CO N CERNING JANAYAPRIYA ENGINEERS SYN D I C ATE (JV), WHICH ARE DIRECTED AGAINST C OMMON ORDER OF THE COMMISSIONER OF INCOME - TAX(APPEALS) DATED 18.6.2012. ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 3 3. THE FIRST COMMON GROUND IN ASSESSEES APPEALS IS WITH REGARD TO DISA LLOWANCE OF DEDUCTION UNDER S.80IB OF THE A C T . 4. FACTS RELATING TO THIS ISSUE ARE THAT ASSESSEE HAS CLAIMED DEDUCTION UNDER S.8 0 IB OF THE ACT FOR THE ASSESSMENT YEARS 2005 - 06 TO 2008 - 09. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS NOT FURNISHE D THE REQUISITE INFORMATION W ITH REGARD TO FULFILMENT OF CONDITIONS LAID DOWN UN D ER S.80IB AND ALSO NOT FURNISHED THE CERTIFIC AT E IN PR E SCRIBED FORM, VI Z . FORM NO.10CCB FOR CLAIMING THE DE D UCT I ON UNDER S .80IB. THE ASSESSING OFFICER FURTHER O BSERVED THAT T HE ASSESSEE JOINT VENTURE IS NOT DOIN G ANY HO U SING PROJECT, AND ON THE CONTRARY , THE HOUSING PROJECT WAS CARRIED IN THE NAME AND STYLE OF JANAPRIYA UTOPIA WHICH WAS PROMOTED BY SHRI T.K.PURUSHOTAM REDDY , M/S. ENGIN E ERS REDDY HOMES PRIVATE L I MITED REP RESENTED BY SHRI K.KRANTHI REDDY AND M/S. JANAPRIYA ENGINEERS SYNDI C ATE REPRESENTED BY S H R I K.R A VINDER REDDY. THE ASSESSING OFFICER, AFTER EXAMINING THE SALE DEEDS SEI Z ED FROM THE OFFICE PREMIS E S OF THE ASSESSEE DURING THE SEARCH OBSERVED ON THE BASIS OF SEIZED MATERIAL, M A RK E D AS A/JES/PO - 4/1, A ND ALSO INFORMATION GATHERED FROM THE MUNICIPAL COMMISSIONER, RAJENDRANAGAR MUNICIPALITY, THAT THE ASSESSEE I S NO T ENTI T LED FOR DEDUCTION UNDER S.80IB OF THE ACT FOR THESE ASSESSMENT YEARS. 5 . ON APPEAL, THE CIT(A) OB S ER V ED THAT FROM TH E ASSESSMENT YEAR 2005 - 06, ASSESSEE I S REQUIRED TO FURNISH THE COMPLETION CERTIFICATE COMPULSORY FROM THE L OCAL AUTHORITY. HOWEVER, ON PERUSAL OF THE LETTER FROM MUNICIP A L COMMISSION E R, RAJENDRANAGAR CIRCLE, DATED 17.2.2012, IT WAS CLEAR THAT THE P ROJECT HAS NO T B E EN COMP L ETED , SINCE A PORTION IN BLOCK NO.1 WAS COMPLETED IN THE MONTH OF AUGU S T, 2010, THO U GH THE ASSESSEES H OUSING PROJECT WAS REQUIRED TO B E COMPL E TED BEFO R E 31.3.2008. THERE WAS CLEARLY LAPSE ON THE PART OF T HE ASSESSEE IN AS MUCH AS BLOCK 1 IS PART OF THE HOUSING PROJECT HAVING ALL AMENITIES FOR THE REMAINING PLOTS SITUATED ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 4 IN OTHER THREE BLOCKS, AND WITHOUT COMPLETING BLOCK 1, THE PROJECT CANNO T BE SAID AS COMPLETE IN VIEW OF THE FACT THAT ALL AMENITIES ARE INTEGRAL PART OF THE RESIDENTIAL UNITS IN ALL BLOCKS. FURTHER, IT WAS OBSERVED THAT THE ASSESSEE INCURRED CERTAIN EXPENDITURE AFTER 31.3.2008. THE CIT(A) ACCORDINGLY CONFIRMED THE ORDERS OF THE ASSESSING OFFICER DECLINING THE ASSESSEES CLAIM FOR DEDU CTION UNDER S.80IB OF THE ACT. 6 . AGGRIEVED BY THE ORDER OF THE CIT(A) IN THE CONTEST OF DENIAL OF DEDUCTION UNDER S.80IB OF THE AC T, ASSESSEE PREFERRED PRESENT APPEALS BEFORE US. 7 . BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ASSESSEES PROJECT WAS COMPLETED IN ALL RESP E CTS AND CERT A IN EXPENDITURE AMOUNTING TO RS.10 , 50,355 WAS INCURRED AFTER 31.3.2008 WITH REGARD TO REGULARIZATION OF UNAUTHORIZED CONSTRUCTIONS. IT WAS SUB M I T TED THAT THIS EXPENDITURE CANNOT B E CONSIDERED AS F OR THE PURPOSE OF COMPLETION OF HOU S IN G PROJECT. ACCORDING TO THE AUTHORISED REPRESENTATIVE, PROJECT WAS COMPLETED IN ALL R E SPECTS AND THE EXPENDITURE INCURRED FOR REGULARISING THE UNAUTHORISED CONSTRUCTION CANNO T B E CON S I D ERED AS INCURRED FOR THE PURPOSE S OF COMPLETION OF TH E PROJECT. HE SUBMI T TED THAT AS ON 31.3.2008 TOTAL EXPENDITURE INCURRED IS RS.4 , 30 , 64 , 926 AND THERE WAS NO FURTHER EXPENDITURE INCURRED OVER AND ABOVE THIS AMOUNT, AND THE SAME AMOUNT CONTINUED EVEN O N INCURRED AS ON 31.3.2009. FOR T HIS PU R POSE, HE DREW OUR ATTENTION TO THE WORK IN PROGRESS ACCOUNT AS ON 31.3.2008 AS WELL AS 31.3.2009 PLACED ON RECORD, AT PAGES 53 AND 120 OF THE PAPER - BOOK. HE ALSO RELIED ON THE PUNE BENCH DECISION OF THE TRIBUNAL IN THE CASE OF RAMSUKH PROPERTIES V /S. DCIT(138 ITD 278) TO SUGGEST THAT DEDUCTION UDNERS.80IB(10) TO BE GRANTED ON PARTIALLY COMPLETED PROJECT. ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 5 8 . ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE PLACED STRONG RELIANCE ON THE ORDERS OF THE LOWER AUTHORITIES. 9 . WE HAVE HEARD BOTH SIDES AND PERUSED THE M A TERIAL ON RECORD. I N THIS CA S E, THE PLAN WAS APPROVED ON 30.7.2003 FOR CONSTRUCTION OF RESIDENTIAL FLATS IN SURVEY NOS.2, 193A, 193AA, 194A, 194AA, 195/1, 195/2, 196, 197, 198A, 198AA, 203 AND 207, SITUATED AT HYDERGUDA VILLA GE, R A JENDRANAGAR MANDAL, RANGA REDDY DI S TRICT, BELONGING TO SHRI K.PURUSHOTAM REDDY, E N GINEER REDDY HOMES P. LTD. REPRESENTED BY SHRI K.KRANTHI KIR AN R E DDY, AND M/S. JANA PRIYA ENGINEERS SYNDICATE REPR E SENTED BY SHRI K.RAVIN D ER REDDY. IT IS FURTHER EVID ENT FROM THE RECORD THAT HUDA, VIDE LETTER NO. 2332/PIV/HYDA/2002 DATED 31.1.2003 HAS COMMUNI C ATED TECHNICAL APPROVAL FOR THE PROJECT. FURTHER, MUNICIPAL COMMISSION E R, R A JENDRANAGAR MUNICIPALITY APPROVED THE LAY OUT PLAN VIDE NO. G/270/MCR/976/2002 - 03 DATE D 30.7.2003. BEING SO, THE ASSESSEE COMPANY, A JOINT VENTURE, WHICH CAME INTO EXISTENCE ONLY ON 29.3.2004 CANN O T BE SAID TO HAVE GOT THE REQUISITE APPROV ALS FROM THE CONCERNED AUTHORITIES IN ITS NAME. FURTHER, THE TOTAL NUMBER OF RESIDENTIAL UNITS TO BE BUILT AS PER THE PR O JECT APPROVAL BY THE MUNICIPAL CORPORATION LETTER DATED 16.7.2010 IS 880. EVEN AS PER TH E ARGUM E N T OF TH E ASSESSEE, FLATS THAT CAME INTO EXISTENCE UNDER THE PROJECT ARE 491 W HICH CAME UP FOR MUNICIPAL TAX ASSESSMENT IN THE YEAR 2009 - 10 AND 11 3 FLATS CAME FOR MUNICIPAL TAX ASSESSMENT IN THE YEAR 2001 - 11. SO, THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT ONLY 604 RESIDENTIAL UNITS WERE ASSESSED BY THE MUNICIPALITY IN TH E YE A RS 2009 - 10 AND 2010 - 11 AND THE BALANCE UNITS HAVE NOT COM E INTO EXI S TENCE. EVEN THE PLAN ALLEGED TO HAVE BEEN APPROVED BY THE MUNICIPAL AUTHORITY ON 30.7.2003, THE ASSESSEE IS REQUIRED TO COMPLETE THE PROJECT ON OR BEFORE 31.3.2008, AS PER THE PRE - AMENDED PROVI S ION S OF S.80IB OF THE ACT. THE PLEA OF THE LEARNED COUNSEL FOR THE ASSESSEE IS THAT THE ASSESSEE HAS INCURRED ONLY RS.10,50,355 SUBSEQUENTLY, TOWARDS REGULARIZATION OF THE UNAUTHORISED CONSTRU C TION S , ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 6 AND THERE IS NO FURTHER ADDITION TO THE HOUSING PROJECT AND INCURRING OF THIS EXPENDITURE CANNOT B E CONSI DERED AS EXPENDITURE IN CONNECTION WITH THE HOU S ING PROJECT AND THE ASSESSEE HAS TO BE GRANTED DE D UC T ION UNDER S.80IB(10 ) . THIS PLEA OF THE ASSESSEE CANNOT B E ACCEPTED, AS THE EVIDENCE BROUGHT ON RECO R D BY THE ASSESSING OFFICER CLEARLY INDICATES IN THE FIR ST PLACE THAT THE PLAN APPROVAL IS NOT IN THE NAME OF THE ASSESSEE AND EVEN OTHERWISE, THE ASSESSEE HAS NO T COMPLETED THE ENTIRE HOUSING PROJECT COMPRISING OF 880 UNITS, WHICH ARE REQUIRED TO BE BUILT BY THE ASSESSEE AS PER THE APPROVED PLAN , AND THAT TOO WITHIN THE TIME PRESCRIBED . BEING SO, THE PRIMARY CON D ITION LAID DOWN IN S.80IB(10 ) IS NOT AT ALL FULFILLED BY THE ASSESSEE , BY FURNISHING THE PRE S C R IBED FORM IN 10CCB OF THE ACT, TO SHOW THAT THE ASSESSEE HAS CO M PLIED WITH TH E STATUTORY REQUIREMENTS PRES CRIBED IN S.80IB OF THE ACT. IN OUR OPINION, THEREFORE, THE ASSESSING OFFICER WAS CORRECT AND JUSTIFIED IN DISALLOWING THE CLAIM O F THE ASSESSEE FOR DEDUC T ION UNDER S.80IB OF THE ACT, FOR THE YEARS UNDER APPEAL. CONSEQUENTLY, WE FIND NO INFIRMITY IN THE ACTION OF TH E CIT(A) , IN CONFIRMING THE VIEW TAKEN BY THE ASSESSING OFFICER WHILE DENYING THE ASSESSEES CLAIM FOR DEDUCTION UNDER S.80IB OF THE ACT. WE ACCORDINGLY UPHOLD THE ORDERS OF THE LOWER AUTHORITIES ON THIS ISSUE AND REJ E CT THE GROUNDS OF THE ASS ESSEE IN ITS APPEAL FOR ALL THE FOUR YEARS. 10 . NEXT COMMON GROUND IN TH E SE APPEALS OF THE ASSESSEE I S WITH REGARD TO DISALLOWANCE OF FINANCE CHARGES. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS SHOWN A LIABILITY OF RS .4.18 CRORES IN THE NAME OF ENGINEER RED D Y HOMES P. LTD. AND RS.7.13 CRORES AS AD V ANCE FROM CUSTOMERS. ON EXAMINATION OF THE ACCOUNTS OF M/S. REDDY HOMES L TD., IT WAS NOTICED THAT NO IN T ER E ST WAS PAID BY THE ASSESSEE TO THAT COMPANY. HOWEVER, IT WAS OBSERVED THAT THE IN T ER E S T A M OUN T PAID BY THE ASSESSEE WAS TO AP STATE FINANCE CORPORATION ON THE LOANS AVAILED BY THAT COMPANY, VIZ . M/S. E N G INEERS REDDY HOM E S LIMI T ED AND THE S AME WAS PASSED ON TO THE ASSESSEE, AND TH E R E FORE, THE ASSESSEE IN TURN , MADE THE ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 7 IN T ER E ST PAYMENT TO AP STATE FI N ANCE CORPORATION DIRECTLY AND CLAIMED THE DEDUCTION TOWARDS THIS INTER E ST. THE ASSESSING OFFICER FURTHER OBSERVED T HAT AS PER S.40(BA) OF THE ACT, ANY PAYMENT MADE BY AN AOP TO ANY MEMBER OF SUCH ASSOCIATION UNDER THE HEAD INTEREST, SALARY, BONU S, COMMISSION AND REMUNERATION IS NOT ALLOWABLE AS DEDUCTION IN THE HANDS OF THE AOP. IN THIS VIEW OF THE MATTER, THE ASSESSING OFFICER HELD THAT IN VIEW OF APPLICATION OF PROVI SI ON S OF S.40(B A ) OF THE ACT, THE PAYMENT IN THE PRESENT CASE, BEING TO CONST I T UENT OF THE JOIN T VENTURE, I.E. TO ENGINEERS REDDY HOMES P. LTD., IS NOT ALLO W ABL E AS DEDUCTION. AS PER S.40(BA) OF THE ACT, ANY PAYMENT MADE BY AN AOP TO ANY MEMBER OF SUCH ASSOCIATION UNDER THE HEAD INTER E ST, SALARY, BONUS, COMMISSION AND REMUNERATI ON IS NOT ALLO W ABL E AS DEDUCTION I N THE HANDS O F THE AOP. THE ASSESSING OFFICER ACCORDINGLY DISALLOWED TH E CLAIM OF THE ASSESSEE FOR DEDUCTION IN RESPE C T OF FINANCE CHARGES. THE CIT(A), ON APPEAL , CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICE R. 11 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED BEFORE US THAT THOUGH THE LOAN WAS TAKEN BY ENGINEERS RED D Y HOMES P. LTD., WHO PASSED ON THE SAME TO THE ASSESSEE, AND SINCE THE ASSESSEE HAS TAKEN THE BENEFIT OF THE LOAN , IT HAS PAID IN T ER E ST DIRE CTLY TO THE AP S T ATE FIN A NCE CORPORATION AND IN TH E SE CIRCUMSTANCES, IT HAS TO BE ALLOWED. 1 2 . THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE CONTRARY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 1 3 . WE HAVE CONSIDERED THE RIVAL SUBMISSION AND P ERUSED THE ORDERS OF THE LOWER AUTHORITIES AND OTHER MATERIAL ON RECORD. A S PER THE PROVIS I ON S OF S.40(BA ) OF THE INCOM E - TAX ACT, ANY PAYMENT BY A JO IN T VENTURE TO MEMBER - CONSTITUENT UNDER THE HEAD INTER E ST, SALARY, BONUS, COMMISSION AND REMUNERATION IS NO T ALLOWABLE AS DEDUCTION . BEING SO, THE LEARNED AUTHORISED REPRESENTATIVE IS NOT ABLE TO CONTROVERT THE ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 8 FINDINGS OF TH E CIT(A) WITH REGARD TO APPLICABILITY OF PROVI S ION S O F S .40(BA) OF THE ACT TO THE FACTS OF THE PRESENT CA S E. SINCE THE ASSESSEE ITS ELF HAS NOT AVAILED THE LOAN, AND IT IS THE CONSTITUENT OF THE ASSESSEES JV WHICH AVAILED THE LOAN, ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION IN RESPECT OF INTEREST ON SUCH LOAN, EVEN IF IT WAS PAID BY THE ASSESSEE DIRECTLY TO THE AP STATEE FIN A N C E CORPO RA TI ON. WE TH E R E FORE, FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE CIT(A) ON THIS ISSUE. W E ACCORDINGLY UPHOLD THE ORDER O F THE CIT(A), AND REJ E CT THE G R OUNDS OF THE ASSESSEE ON THIS ISSUE. 1 4 . NEXT GROUND OF THE ASSESSEE COMMON ONLY IN ITA NOS.1252/H YD/2012 AND 1253/HYD/2012 FOR ASSESSMENT YEARS 2007 - 08 AND 2008 - 09 IS WITH REGARD TO DISALLOWANCE OF DIRECT AN D INDIRECT EXPENDITURE. 1 5 . FOR THE ASSESSMENT YEAR 2007 - 08, THE ASSESSING OFFICER DISALLOWED RS.2,62,34,832 TOWARDS DIRECT AND INDIRECT EXPEN SES, SIN C E THE ASSESSEE HAS NO T FURNISHED ANY EVIDENCE BEFORE THE ASSESSING OFFICER . ON APPEAL, THE CIT(A) OBSERVING THAT THOUGH THE ASSESSEE HAS VEHEMENTLY ARGUED THAT ALL EXPENSES ARE MEANT FOR BUSIN E SS, IT CANNOT B E RULED OUT THAT SOME ELEMENT OF I NFLATION AND PERSONAL NATURE OF EXPENSES EMBEDDED I N THE EXPENDITURE INCURRED BY CASH CANNOT B E RUL E D OUT. ON OVERALL APP RE C I ATION OF FACTS AND QUANTUM INVOLVED IN EACH ITEM, THE CIT(A) WAS OF THE VIEW THAT DI SA LLO W ANCE O F 10% OF CASH EXPENDITURE OF RS .3 ,59,97,869, WORKING OUT TO RS .35,99,786 WOULD B E REASONABLE. HE ACCORDIN G LY SUSTAINED DIS A LLO W ANCE TO THAT EXTENT, DELETING THE BALANCE DISALLO W ANCE MADE BY THE ASSESSING OFFICER. SIMILARLY, FOR ASSESSMENT YEAR 2008 - 09, THE ASSESSING OFFICER DISALLOWED D IRECT AND INDIRECT EXPENSES AMOUNTING TO RS.3,24,76,233, AND ON APPEAL, THE CIT(A), AS IN PRECEDING YEAR, HAS SUSTAINED 10% OF CASH COMPONENT OF THE DIRECT AND INDIRECT EXPENSES, WORKING OUT TO RS.23,87,770, DELETING REST OF THE DISALLOWANCE MADE BY THE A SSESSING OFFICER. ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 9 1 6 . AGGRIEVED BY THE DISALLOWANCE SUSTAINED BY THE CIT(A), ASSESSEE IS IN SECOND APPEAL BEFORE US FOR TH E SE TWO YEARS. 1 7 . WE HEARD BOTH SIDES AND PERUSED THE MATERIAL ON RECORD. CONSIDERING THE QUANTUM AND NATURE OF EXPENDITURE CLAIMED, WHICH IS NOT VERIFIABLE, WE AGREE WITH THE CIT(A) THAT CERTAIN ELEMENT OF INFLATION AND PERSONAL NATURE OF EXPENDITURE CANNOT BE RULED OUT. CONSEQUENTLY, DISALLOWANCE OF A PORTION OF THE EXPENDITURE CLAIMED BY THE ASSESSEE IS CALLED FOR. THE AP PROACH OF THE CIT(A) IN ESTIMATING SUCH DISALLOWABLE EXPENDITURE AT 10% OF THE CASH COMPONENT OF DIRECT AND INDIRECT EXPENDITURE IS QUITE REASONABLE. WE FIND NO INFIRMITY IN HIS ACTION IN SUSTAINING DISALLO W AN C E TO THAT EXTENT. WE ACCORDINGLY UPHOLD THE ORDER OF THE CIT(A) ON THIS ASPECT, AND REJECT THE GROUNDS OF THE ASSESSEE ON THIS ISSUE IN THE APPEALS FOR THE ASSESSMENT YEARS 2007 - 08 AND 2008 - 09. 1 8 . NEXT GROUND THAT SURVIVES FOR CONSIDERATION IN THIS BUNCH OF APPEALS, IS IN ITA NO.1251/HYD/2012 F OR ASSESSMENT YEAR 2006 - 07, AND I T IS WITH REGARD TO DISALLOWANCE UNDER S.40A(3) OF RS.12,97,613. AT THE TIME OF HEARING, THIS GROUND IS NOT PRESSED. HENCE, THE SAME IS REJECTED. 1 9 . NEXT GROUND THAT SURVIVES FOR CONSIDERATION IN THIS BUNCH OF APPE ALS BY THE ASSESSEE IS IN ITA NO.1253/HYD/2012 FOR ASSESSMENT YEAR 200 8 - 0 9 , AND IT IS WITH REGARD TO ADDITION OF RS.59,11,992 MADE ON ACCOUNT OF SUPPRESSION OF RECEIPTS ON SALE OF FLATS SITUATED IN JANAPRIYA UTOPIA. 20 . BRIEF FACTS IN RELATION TO THIS I S SUE ARE THAT IN TH E COU R SE OF SEARCH, TWO DOCUM E N T S W E RE FOUND AND SEIZED. THEY REPRESENT SALE AGREEMENTS ENTERED INTO WITH ONE L.RAMBRAMHAM DATED 26.6.2007 AND WITH M . N AGARAJU DATED 22.12.2007. ASSESSEE COULD NO T FURNISH THE DETAILS O F SALE PROCEEDS ACCO UN TE D IN THE BOOK S OF THE ASSESSEE IN THE ASSESSMENT ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 10 PROCEEDINGS. THE ASSESSING OFFICER PROCEEDED TO ADD THIS SUM AS S U PPRESSION OF SALES ON AC C OUN T O F FLATS SOLD DURING THE Y EAR UNDER CONSIDERATION. 21 . ON APPEAL BEFORE THE CIT(A), IT WAS ARGUED FOR THE ASSESSEE THAT THE SALE CON S I D ERATION WAS RECEIVED IN THE SUBSEQUENT YEARS AND ACCORDINGLY ACCOUNTED FOR IN TH A T Y E AR AND THER E FORE, NO AMOUNT CAN BE ADDED IN THE ASSESSMENT YEAR 200 8 - 0 9 . THE CIT(A) F I NDING NO MERIT IN THE CONTENTION OF THE ASSESSEE AN D OBSERVING THAT IRRESPECTIVE OF THE FACT WHETHER CONSIDERATION WAS RECEIVED OR NO T , AS PER THE METHOD OF ACCOUNTING FOLLO WE D BY THE ASSESSEE, ASSESSEE IS REQUIRED TO DECLARE THE SALE VALUE IN THE YEAR IN WHICH AGREEMENT WAS E N TERED INTO OR DEED WAS REGIS TERED. HE ACCORDINGLY UPHELD THE ADDITION MADE BY THE ASSESSING OFFICER. HENCE, ASSESSEE I S IN APPEAL ON THIS ISSUE. 2 2 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMI T TED B EF ORE US THAT THIS AMOUN T WAS OFFERE D TO TAX IN THE SUCCEEDING ASSESSMENT YEAR AND TAXING THE SAME IN THE Y E AR UNDER CONSIDE R ATION, AMOUNTS TO DOUBLE TAXATION. HE DREW OU R ATTENTION TO PAGE 146 AND 147 OF TH E P A PER - BOOKS, WHICH GI V ES THE LEDGER ACCOUNT OF L.RAMBRAMHAM. HE ALSO DR E W OUR ATTENTION TO C O PY OF SALE DEED DATED 5 TH FEBRUARY, 2008, WHICH IS AT PAGE 148 OF THE PAPER - BOO K TO SUGGEST THAT THE PAYMENT WAS OUTSTANDING ON TH E DATE OF REGISTRATION OF SALE DEED. 2 3 . THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND, SUBMI T TED THAT THE S ALE DEED WAS RE GI S TERED ON 5 TH FEBRUARY, 2008, AND TH E R E FO R E, AS PER THE METHOD O F ACC O UNTIN G FOLLOWED BY THE ASSESSEE, THE AMOUNT HAS TO BE OFFERED TO TAX IN THE YEAR UNDER APPEAL ONLY, AND CONSEQUENTLY, THE ADDITION MADE BY THE REVENUE AUTHORITIES IS JUSTIFIED. ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 11 2 4 . WE HEARD BOTH SIDES AND PE RUSED THE MATERIAL ON RECORD. IT IS AN ADMITTED FACT THAT THE SALE DEED WAS REGISTERED IN FEBRUARY, 2008. IT IS ALSO AN ADMITTED FACT THAT THE ASSESSEE HAS BEEN FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THAT BEING SO, IRRESPECTIVE OF ACTUAL RECEIPT O R OTHERWISE OF AN AMOUNT, INCOME HAS TO BE RECOGNISED IN THE YEAR IN RELATION TO WHICH IT HAS ARISEN OR ACCRUED. IN THE FACTS OF THE PRESENT CA S E, SINCE THE REGISTRATION OF TH E SALE DEED HAS TAKEN PLACE IN FEBRUARY, 2008, WHICH FALLS IN THE ASSESSMENT YE AR 2008 - 09, EVEN THOUGH CERTAIN AMOUNT OF CONSIDERATION IS DUE FROM THE PURCHASER OF THE FLATS AS ON THE DATE OF REGISTRATION, INCOME IN RE S P E CT OF SALE OF TH E FLAT S HAS TO BE RECOGNIZED IN THE YEAR UNDER APPEAL ONLY, AND NOT IN ANY OTHER YEAR. ANY INCOME IS ASSESSABLE ONLY IN THE RELEVANT YEAR IN WHICH IT IS ASSESSABLE, AS PER THE METHOD OF ACCOUNTING CONSISTENTLY FOLLOWED BY THE ASSESSEE. MERELY BECAUSE IT WAS DISCLOSED IN A SUBSEQUENT YEAR, IT CANNOT BE SAID THAT TH E RE IS NO JUSTIFICATION FOR THE AD D IT ION IN THE YEAR UNDER APPEAL. IN THIS VIEW OF THE MATTER, WE UPHOLD THE ORDERS OF THE REVENUE AUTHORITIES ON THIS ISSUE AND REJECT THE GROUNDS OF THE ASSESSEE IN THIS APPEAL. 2 5 . IN THE RESULT, ALL THE FOUR APPEALS OF THE ASSESSEE FOR ASSESSMENT Y EARS 2005 - 06 TO 2008 - 09 ARE DISMISSED. REVENUES APPEALS: ITA NO.1359/HYD/2012 TO 1362/HYD/2012 2 6 . THE FIRST GRIEVANCE OF THE REVENUE COMMON IN ALL THESE APPEALS RELATES TO DISALLOWANCE OF DIRECT AND INDIRECT EXPENSES . 2 7 . WE HEARD BOTH SIDES AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES ON THIS ISSUE. 2 8 . AT THE OUTSET, IT MAY BE NOTED THAT A S FOR THE OTHER TWO YEARS, VIZ. ASSESSMENT YEAR 2007 - 08 AND 2008 - 09, WHILE THE ASSESSING OFFICER ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 12 DISALLOWED ENTIRE DIRECT AND INDIRECT EXPENSES CLAIM ED BY THE ASSESSEE AS DEDUCTION, ON ACCOUNT OF THEIR NON - VERIFIABLE NATURE, THE CIT(A), OBSERVING THAT POSSIBILITY OF CERTAIN AMOUNT OF INFLATION OF EXPENDITURE INCURRED IN CASH AND ALSO PERSONAL ELEMENT INVOLVED IN SUCH EXPENDITURE, CANNOT BE RULED OUT, M ADE AN AD HOC DISALLOWANCE WORKED OUT AT 10% OF THE DIRECT AND INDIRECT EXPENDITURE INCURRED IN CASH. IN THE CONTEXT OF THE ASSESSEES APPEALS ON THIS VERY ISSUE FOR ASSESSMENT YEARS 200 6 - 0 7 AND 200 7 - 0 8 , VIZ. ITA NOS.1251 AND 1252/HYD/2012, WE HAVE ALREADY CONSIDERED THIS ISSUE, AND FINDING THE DISALLOWANCE SUSTAINED TO BE JUSTIFIED AND REASONABLE, REJECTED THE GROUNDS OF THE ASSESSEE. FOR THE DETAILED REASONS GIVEN IN THAT CONTEXT IN PARA 1 7 HEREINABOVE, AS FOR THE REVENUES APPEALS FOR ASSESSMENT YEARS 20 07 - 08 AN 2008 - 09, VIZ. ITA NOS.1361 AN 1362/HYD/2012, WE FIND NO MERIT IN THE GRIEVANCE OF THE REVENUE ON THIS ISSUE. WE ACCORDINGLY UPHOLD THE IMPUGNED ORDER OF THE CIT(A) FOR THESE TWO YEARS AND REJECT THE GROUNDS OF THE REVENUE IN THESE APPEALS ON THIS ISSUE. 2 9 . AS FOR THE ASSESSMENT YEARS 2005 - 06 AND 2006 - 07, THE ASSESSING OFFICER HAS MADE AN AD - HOC DISALLOWANCE OUT OF DIRECT AND INDIRECT EXPENSES WORKED OUT AT 10% OF THE AMOUNTS CLAIMED BY THE ASSESSEE, ON ACCOUNT OF UNVERIFIABLE NATURE OF SUCH E XPENDITURE. THE CIT(A), ON APPEAL, TOOK NOTE OF THE FACT THAT THE ASSESSMENT FOR THESE YEARS WAS FRAMED UNDER S.143(3) OF THE ACT. HE FURTHER OBSERVED THAT ADDITIONS IN AN ASSESSMENT MADE UNDER S.153A OF THE ACT HAVE TO BE ONLY ON THE BASIS OF CREDIBL E EVIDENCES ESPECIALLY IN A CASE WHERE ORIGINAL ASSESSMENTS WERE COMPLETED UNDER S.143(3) OF THE ACT. THE CIT(A) ACCORDINGLY DELETED THE AD - HOC DISALLOWANCE MADE BY THE ASSESSING OFFICER. FOLLOWING THE PRINCIPLE OF CONSISTENCY, CONSIDERING THE VIEW TAKE N WITH REGARD TO DISALLOWANCE OUT OF DIRECT AND INDIRECT EXPENSES MADE FOR ASSESSMENT YEARS 2007 - 09 AND 2008 - 09, IN PARA 1 7 IN THE CONTEXT OF ASSESSEES APPEALS AND IN PRECEDING PARA IN THE CONTEXT OF REVENUES ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 13 APPEALS, WE SET ASIDE THE IMPUGNED ORDER O F THE CIT(A) ON THIS ISSUE FOR THE ASSESSMENT YEARS 2005 - 06 AND 2006 - 07 , AND DIRECT THE ASSESSING OFFICER TO MAKE AD HOC DISALLOWANCE OUT OF THE DIRECT AND INDIRECT EXPENSES INCURRED BY THE ASSESSEE IN CASH , WORKING OUT THE SAME ONLY TO THE EXTENT OF 10% OF SUCH EXPENDITURE. WE ACCORDINGLY RESTORE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER TO THAT EXTENT, PARTLY ALLOWING THE GROUNDS OF THE REVENUE IN THE APPEAL FOR THESE TWO YEARS. 30 . THE ONLY OTHER GRIEVANCE OF THE REVENUE IN THESE APPEALS IS CO NFINED TO ASSESSMENT YEAR 2008 - 09, VIZ. APPEAL ITA NO.1362/HYD/2012, AND IT RELATES TO DELETION OF ADDITION MADE BY THE ASSESSING OFFICER UNDER S.69C OF THE ACT. 3 1 . FACTS OF THE CASE IN BRIEF REL A TING TO THIS ISSUE ARE THAT THE ASSESSING OFFICER SCANN ED THE CONTENTS OF CERTAIN DOCUMENTS WHICH WAS FOUND DURING SEARCH AND SEIZURE OPERATIONS CARRIED OUT IN THE CASE OF THE ASSESSEE , AND AFFIXED THE SAME IN THE ASSESSMENT ORDER, AND OB S ERVED THAT THE SAID DOCUM E N T S DETAIL SOME OFFICIAL AND UNOFFICIAL PAYM E N T S OF R S .3.50 CRORES AND RS.1.50 CRORES IN RESPECT OF A TTAPUR RESIDENTIAL AND RS. 1.25 CRORES AND R S .50 LAKH S IN RESPECT OF AT TAPU R IT RESIDENTIAL . THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE INCURRED THE UNOFFICIAL SUMS REFERRED THEREIN OF BO T H ATTAPUR IT R E SIDENTIAL AND ATTAPUR RESIDENTIAL UNITS AND ADDED AN AMOUNT O F RS .2.0 - CRORES UNDER S.69C OF THE AC T. 3 2 . ON APPEAL BEFORE THE CIT(A), IT WAS ARGU E D THAT THE SO CALLED PAPER FOUN D WITH THE ASSESSEE WAS NOTHING BUT A DUMB DOCUM E N T , WHIC H DOES NO T R E FER TO ANY EXPENDITURE INCURRED BY THE ASSESSEE NOR PAYM E N T S MADE BY IT. IT WAS ONLY A PAPER PREPARED BY EMPLOYEES OF THE PLANNING DEPARTMENT FOR PROBABLE ESTIM A TED EXPENDITURE ON VARIOUS PROJECTS. IT WAS ALSO SUBMITTED THAT THE SAID DOES NO T REPRESENT ANY ACTUAL PAYM E N T S ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 14 MADE BY THE ASSESSEE AT ALL. IT WAS ALSO SUBMITTED THAT THE VERY FIRST ITEM REFERS TO SOUTH CIRCLE, WHICH I S A PROJECT PROPOSED IN BANGALORE, WHICH NEVER RESULTED IN ANY PROJECT, AS THE LAND WAS PURCHASED AND SOLD. AFTER C ONSI D ERIN G VARIOUS CONTENTION S OF THE ASSESSEE IN THIS BEHALF, THE CIT(A), CONCURRING WITH THE AVERMENTS MADE BY THE ASSESSEE, DELETED THE ADDITION OF R S .2 CRORES MADE BY THE ASSESSING OFFICER. 3 3 . W E HEARD BOTH SIDES AND PERUSED THE ORDERS OF THE LOW ER AUTHORITIES AND OTHER MATERIAL ON RECORD. IT IS EVIDENT FROM THE IMPUGNED ORDERS OF THE LOWER AUTHORITIES THAT THE CONTENTS OF THE DOCUM E N T S REFERRED BY THE ASSESSING OFFICER DO NO T SP E CIFY ANY EXPENDITURE EXCEPT STATING OFFICIAL AND UNOFFICIAL ON E ACH PROJECT, AND THEY DENOTE ONLY AN ESTIMATION AND NO T ACTUAL FIGURES DEALT BY THE ASSESSEE . W E AGRE E WITH THE CIT(A) THAT BE F ORE FASTENING ANY LIABILITY ON THE ASSESSEE, IT IS NECESSARY FOR THE ASSESSING OFFICER TO ESTABLISH SOME NEXUS TO THE CONTENTS OF THE DOCUM E N T R E LIED UPON AND UNLESS THE SO CALLED UNOFFICIAL PAYM E N T S OR RECEIPTS ARE LINKED TO ANY LAND OR CON S TRUC T ION OF THE PROJECT UNDER TAKEN BY THE ASSESSEE , I T I S DIFFICULT TO ASSUME THAT THE ENTRIES IN THOSE DOCUMENTS INDICATE UNEXPLAINED EXPE NDITURE OR INVESTMENT, LIABLE FOR ADDITION UNDER S.69C OF THE ACT. WE DO NOT FIND ANY INFIRMITY IN THE REASONING GIVEN BY THE CIT(A) FOR DELETING THIS ADDITION IN PARA 29.1 OF THE IMPUGNED ORDER. WE ACCORDINGLY UPHOLD THE OR D ER OF THE CIT(A) AND REJECT T HE GROUND OF THE REVENUE IN THIS BEHALF, IN THE APPEAL FOR ASSESSMENT YEAR 2008 - 09. 3 4 . IN THE RESULT, WHILE APPEALS OF THE REVENUE FOR THE ASSESSMENT YEAR 2005 - 06 AND 2006 - 07 ARE PARTLY ALLOWED, APPEALS OF THE REVENUE FOR ASSESSMENT YEA RS 200 7 - 0 8 TO 200 8 - 0 9 ARE DISMISSED. M/S. JANAPRIYA ENGINEERS SYNDICATE, HYDERABAD ASSESSEES APPEAL : ITA NO.15 7 7/HYD/2012 : ASSESSMENT YEAR 2006 - 07 ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 15 REVENUES APPEAL S : ITA NO.1614/HYD/2012 : ASSESSMENT YEAR 200 5 - 0 6 ITA NO.1622/HYD/2012 : ASSESSMENT YEAR 2006 - 07 M/S. JANAPRIYA PROPERTIES PRIVATE LTD., HYDERABAD ASSESSEES APPEAL : ITA NO.15 94 /HYD/2012 : ASSESSMENT YEAR 200 7 - 0 8 ITA NO.15 95 /HYD/2012 : ASSESSMENT YEAR 200 8 - 0 9 REVENUES APPEAL S : ITA NO.16 23 /HYD/2012 : ASSESSMENT YEAR 200 7 - 0 8 ITA NO.1624/HYD/2012 : ASSESSMENT YEAR 2008 - 09 3 5 . THE FIRST GRIEVANCE OF THE ASSESSEES COMMON IN ITA NOS.1577/HYD/2012 AND 1594/HYD/2012 FOR ASSESSMENT YEARS 2006 - 07 AND 2007 - 08 IS WITH REGARD TO DISALLOWANCE OF DEDUCTION UN DER S.80IA(4)(III) IN R E SP E CT OF INCOME FROM HOUSE PROPERTY. 3 6 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE OWNS, MAINTAINS AND OPERATES AN INDUSTRIAL PARK BY NAME FORTUNE 9, SOMAJIGUDA. ASSESSEE HAS CLAIMED RELIEF UNDER S.80IA(4) OF THE ACT, IN R ESPECT OF LEASE INCOME DERIVED FROM THE UNITS LEASED OUT IN THIS INDUSTRIAL PARK. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE IN THIS BEHALF , TREATING THE LEASE INCOME AS INCOME FROM PROPERTY AS AGAINST THE CLAIM OF THE ASSESSEE TO ASSESS TH E SAME AS INCOME FROM BUSINESS AND MADE VARIOUS ADDITIONS AND DISALLOWANCES. IN RELATION TO THE TOTAL INCOME ASSESSED BY THE ASSESSING OFFICER, TWO ASPECTS ARE RELATED TO THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER S.80IA(4)(III). THEY ARE DISALLOWANCE OF DEPRECIATION ON BUIL D IN G OF R S .2,23,89,840 AND TREATMENT OF INCOME FROM UNITS IN INDU S TRIAL PARK UNDER THE HEAD INCOME FROM PROPERTY AS AGAINST ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 16 INCOME FROM BUSINESS, AS CLAIMED BY THE ASSESSEE , AND MADE CONSEQUENT ADDITIONS/DISALLOWANCES . FOR THE A SSESSMENT YEAR 2007 - 08, THE ASSESSEE E ARNED AMONG OTHERS, LEASE INCOME FROM UNITS LET OUT IN THE INDUSTRIAL PARK, VIZ. FORTUN E 9, R E FERRED TO ABOVE. AN APPLI C A T ION HAS BEEN MADE UNDER THE NON - AUTOMATIC ROUTE VIDE P A RA 7 OF THE S C H E ME. THE APPROVAL AS GRAN TED IN SEPT E MB ER , 2006 AND SUBSEQUENTLY NOTIFICATION BY THE CBDT UN D ER RULE 18C, SUB - RULE (4) HAS BEEN GIVEN IN NOVEMEBR,2006. THE PRIMARY CONDITIONS LAID DOWN IN THE APPROVAL GRANTED BY THE MINISTRY OF COMMERCE AND I N DU S TRY VIDE THEIR LETTER NO.1/157/2005 - IP & ID, DATED 25.9.2006 W A S THAT THE TOTAL INVESTMENT PROPOSED IS RS.22 CRORES. NUMBER OF INDUSTRIAL UNI T S PROPOSED TO B E LOCATED IN THE INDUSTRIAL P A RK 3 UNI T S AND EXPE C TED DATE OF COMMENCEMENT OF INDUSTRIAL PARK IS SEP T EMBER, 2005. ASSESSEE SUBMITTED THAT IT HAS FULFILLED THE CON D IT I ONS. COPIES OF LEASE DEEDS WITH THE TENANTS ARE ALSO FIL E D AND THE ASSESSEE CLAIMED THAT THE AGREEMENTS HAVE BEEN ENTERED INTO IN THE FINANCIAL YEAR 2005 - O6 ITSELF, AND THE INDUSTRIAL PARK HAS BE E N OPERATIONAL SINCE TH E N. HO WEV ER, SIN C E THE PROJECT HAS BEEN APPROVED BY THE MINISTRY OF COMMERCE, GOVERNMENT OF INDIA IN SEPTEMBER, 2006 AND THE NOTIFICATION HAS COME FROM THE CBDT IN NOVEMEBR,2006, I.E. IN THE YEAR 2006 - 07 RELEVANT TO ASSESSMENT YEAR 2007 - 08, THE CLAIM HAS B EEN M A DE UNDER S.80IA(4)(III) FOR THE FIRST TIME IN ASSESSMENT YEAR 2007 - 08, ASSESSEE HAS ALSO FURNISHED THE DETAILS OF BREAK UP OF INVESTMENT MADE IN THE BUILDING AND THE INCOME FROM WHICH IT CALMED DEDUCTION UDNERS.80IA(4)(III). ASSESSEE HAS ALSO FIL E D THE LAY OUT COPY AND OTHER PARTICULARS WITH RESPECT TO THE OWN E RS H IP AND THE CON S TRUC T ION OF THE INDUSTRIAL PARK. WHILE T H E ASSESSING OFFICER NOT CONVINCED WITH THE CONTENTION S FO THE ASSESSEE, DISALLOWED THE CLAM OF THE ASSESSEE FOR DEDUCTION UNDER S.8 0IA(4)(III) OF THE ACT , O N APPEAL, THE CIT(A) TOO UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER . IN THE FIRST PLACE, THE CIT(A) DEALT WITH THE HEAD UNDER WHICH THE INCOME OF TH E ASSESSEE FROM LEASE OF THE UNITS OF THE INDUSTRIAL PARK ARE ASSESSAB LE, AND AFTER ANALYZING THE UTILIZATION OF THE AREAS OF THE INDUSTRIAL ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 17 PARK, FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF ANNAPURNA BUILDERS VIDE ORDER DATED 30.1.2011 IN ITA NO.1177/HYD/2011, THAT THE SAME IS ASSE SS ABLE UNDER THE HEAD BUSINESS IN COME . HE FURTHER HELD, WITH REGARD TO ALLOWABILITY OF DEDUCTION UNDER S.80IA(4) OF THE ACT AS FOLLOWS - 07.1 APART FROM THE ABOVE, THE ASSESSEE ALSO IS NOT ENTITLED TO CLAIM THE RELIEF FOR THE FOLLOWING REASONS. IN THIS CASE, THE ASSESSEE DEVELOPED A BUILDING AND LET OUT TO VARIOUS TENANTS. AS CONTENDED, THE APPELLANT IS NOT PROVIDING ANY OTHER SERVICE OF MAINTENANCE AS WELL AS OPERATING ANY UNIT IN THE BUILDING. IT ONLY DEVELOPED THE STRUCTURE. AS PER THE OVER ALL SCHEME OF ENCOURAGING THE INDUSTRIA L PARKS, GROWTH CENTRES, INDUSTRIAL MODEL TOWNS, THE INTENTION OF THE LEGISLATURE IS TO PROVIDE ALL FACILITIES REQUIRED BY VARIOUS ENTREPRENEURS TO CARRY OUT THEIR BUSINESS OR PROFESSION WITHOUT FURTHER ADDING' ANY INFRASTRUCTURE FACILITY TO THE EXISTING M ODELS. IN EFFECT, IT IS REQUIRED BY THESE PERSONS WHO ARE DEVELOPING INDUSTRIAL MODEL TOWNS, INDUSTRIAL PARKS AND GROWTH CENTRES TO CREATE NOT ONLY THE BU ILDING STRUCTURES BUT ALSO TO EQUIP THESE BUILDINGS WITH VARIOUS FACILITIES OF DISH, SERVERS, MODEMS, ROUTERS AND OTHER WORK STATIONS SO AS TO ENABLE THE .ENTREPRENEURS TO START THEIR BUSINESS STRAIGHT AWAY WITHOUT FURTHER LOSS OF TIME AND SPENDING MONEY ON THESE FACILITIES. THEY HAVE TO COMPLY WITH VARIOUS LAWS IN RESPECT OF ENERGY CONSERVATION, POLLUTION CONTROL, ECO - FRIENDLY ETC. IN FACT, THE INTENTION IS TO ENSURE THAT ALL FACILITIES ARE PROVI D ED FOR ANY ENTREPRENEUR TO PLUG AND CARRY OUT THE BUSINESS. WH E REAS IN THE IN S T ANT CASE, THE APPELLANT HAS CONSTRUCTED A MERE BUILDING WITH LIFTS AND OTHER ELE C T RICAL EQUIPMENT LIKE ANY OTHER COMMERCIAL COMPLEX FOR LETTING OUT. NO ADDITIONAL REQUIRED FACILITIES ARE CREATED ON THIS SO CALLED INDUSTRIAL PARK. THERE IS NO DIFFERENCE BETWEEN NORMAL BUILDER OF A COMMERCIAL COMPLEX FOR THE PURPOSE OF GETTING RENTAL INCO ME AND THE STRUCTURE CREATED BY THE ASSESSEE IN THE INSTANT CASE. THE APPELLANT DEVELOPED THE BUILDING AND LET OUT TO VARIOUS ENTITIES ON RENT. THE APPELLANT IS NOT MAINTAINING THE PROPERTY NOR OPERATING ANY UNIT IN THE COMPLEX. IT ONLY DEVELOPED THE STRUC TURE OF THE BUILDING. 07.2. ONE OF THE TENANTS ION THIS B UILDING IS ENGINEERS SYNDICATE I NTERNATIONAL, WHICH IS A PART OF THE ASSESSEE GROUP, AND AS ADM ITTED BY THE APPELLANT, THEY ARE IN THE BUSINESS OF PR OV IDING ENGINEERING SERVICES. BEYOND SUCH SUB MISSION, THE APPELLANT COULD NOT SUBSTANTIATE THE NATURE OF PROFESSION CARRIED BY THE ABOVE TENANT WITH ANY ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 18 INDEPENDENT MATERIAL OR EVIDENCES TO PROVE SUCH CONTENTION. IN ORDER TO GET RELIEF U/S.80IA(4), THE TENANTS ARE SUPPOSED TO CARRY OUT LIMITED PROFES SIONAL ACTIVITY SUCH AS ENGINEERING SERVICES, SOFTWARE SERVICE PROVIDER, DATA PROCESSING, BUSINESS PROCESSING, OUTSOURCING ETC. UNLESS THE TENANT IS SOLELY ENGAGED IN SUCH ACTIVITY FROM THIS INDUSTRIAL UNIT, THE ASSESSEE CANNOT AVAIL THE BENEFIT OF SEC.80I A( 4) AS CLAIMED. THEREFORE, IN VIEW OF THE ABOVE DISCUSSION, THE CLAIM OF DEDUCTION U/S.80IA( 4 )(III) IS NOT ALLOWABLE TO THE ASSESSEE ON MORE THAN ONE COUNT ON THE LEASE INCOME GENERATED FROM LETTING OUT OF THE BUILDING 'FUSION - 9'. ACCORDINGLY, THE CLAI M OF THE ASSESSEE IS REJECTED AND THE LEASE INCOME IS REQUIRED TO BE ASSESSED .AS INCOME FROM HOUSE PROPERTY AND THE ACTION OF THE AO IS SUSTAINED. FURTHER, THE CLAIM OF DEPRECIATION ON T H IS BUILDING IS ALSO REQUIRED TO BE REJECTED IN VIEW OF THE ABOVE FIN DING. CONSEQUENTLY, THE AO'S ACTION IS UPHELD. AGGRIEVED BY THE ORDER OF THE CIT(A) ON THIS ISSUE, ASSESSEE IS IN APPEAL BEFORE US. 3 7 . WE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THERE IS NO DISPUTE WITH REGARD TO THE FACTUAL AS PECTS OF THE MATTER ANALYSED BY THE CIT(A) IN THE IMPUGNED ORDER. IN THIS CASE, THE ASSESSEE HAS BEEN GRANTED APPROVAL UNDER INDUSTRIAL PARK SCHEME, 2002 - AUTOMATIC APPROVAL SCHEME - AND THE ASSESSEE HAS BEEN DULY NO T I FI ED BY MINI S TRY OF FINANCE (DEPARTME NT OF R E VENU E )(CBDT), NEW DELHI, VIDE NOTIFICATION D A TED 13 TH N OVEMB E R, 2006. A COPY OF THE SAID NO T IFICATION IS FURNISHED BY THE ASSESSEE AT PAGES 30 TO 33 OF THE PAPER - BOOK. AS PER THIS NOTIFICATION, ASSESSEE HAS BEEN NOTIFIED AS AN UNDERTAKING BEING DE VELOPED, BEING MAI NT AIN E D AND OPERATED BY M/S. JANAPRIYA ENGINEERS SYN D I C ATE, AS AN INDUSTRIAL PARK FOR THE PURPOSE OF CLAUSE (III) OF SUB - SECT I ON (4) OF S.80IA OF THE I.T. ACT. ACCORD ING TO THE LEARNED COUNSEL FOR THE ASSESSEE , EVEN IF THERE IS ANY DEVIA TION FROM THE APPROVED SCHEME, ASSESSEE CANNOT BE DEPRIVED OF ITS ENTITLEMENTS FROM THE SCHEME, SO LONG AS THE APPROVAL GRANTED IN ITS FAVOUR BY THE SAID NOTIFICATION HAS NOT BEEN CANCELLED. WE FIND MERIT IN THIS CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE, AND REFER IN THIS BEHALF TO CL A U S E 11 OF THE SAID NOTIFICATION, WHICH READS AS FOLLOWS - ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 19 11. THE CONDITIONS MENTIONED IN THIS NOTIFICATION AS WELL AS THOSE ICNLDUED IN THE INDUSTRIAL PARK SCHEME, 2002 SHOULD BE ADHERED TO DURING THE PERIOD FOR WHICH BENEFITS UNDER THIS SCHEME ARE TO BE AVAILED. THE CENTRAL GOVERNMENT MAY WITHDRAW TH E ABOVE APPROVAL IN CA S E M/S. JANAPRIYA ENGINEERS SYNDI C ATE, HYDERABAD, FAILS TO COMPLY WITH ANY OF THE CONDITIONS. FURTHER, THE ISSUE RELATING TO THE HEAD UNDER WH ICH THE INCOME FROM THE LEASING OF THE UNITS OF THE UNITS OF THE ASSESSEE IN THE INDUSTRIAL PARK, IS COVERED BY THE DECISION OF THE TRIBUNAL IN THE CA S E OF ANNAPURNA B UILDE R S IN ITA NO.1117/ H YD/2011 FOR ASSESSMENT YEAR 2007 - 08 . THE TRIBUNAL, VIDE ITS OR DER DATED 30.11.2011 IN THAT CASE, AFTER ANALYZING THE FACTS OF THAT CASE, HELD AS FOLLOWS - '27. FURTHER, IT IS SEEN THAT THIS TRIBUNAL IN THE CASE OF MEENAKSHI INFRASTRUCTURES PVT. LTD. VS. DCIT (SUPRA) HAVE OPINED THAT 'WHEN THE CENTRAL GOVERNMENT APPROV ES THE ASSESSEE'S PROJECT UNDER INDUSTRIAL PARK SCHEME FRAMED BY THE CENTRAL GOVERNMENT, THE CONDITIONS UNDER SEC. 80IA(4)(III) ARE SATISFIED.' IT IS CLEAR THAT WHILE THE ASSESSEE HAS RECEIVED SUCH APPROVAL AND NOTIFICATION, THE SAME HAS NOT BEEN WITHDRAWN TILL DATE FOR CONTRAVENTION OF ANY OF THE CONDITIONS, EVEN THOUGH THERE IS A SPECIFIC PROVISION FOR WITHDRAWAL, IN CASE THE CENTRAL GOVERNMENT FINDS THAT THE CONDITIONS PRESCRIBED THEREIN HAVE NOT BEEN ADHERED TO. HOWEVER, IT IS ALSO CLEAR THAT SUCH WITHD RAWAL HAS TO BE DONE BY THE CENTRAL GOVERNMENT ONLY AND AS LONG AS THIS IS NOT DONE, THE ASSESSEE HAVING SUCH APPROVAL AND NOTIFICATION CANNOT BE DENIED THE DEDUCTION. UNDER THE CIRCUMSTANCES, I AM OF THE VIEW THAT SINCE THE ASSESSEE HAD DEVELOPED THE INDU STRIAL PARK DULY APPROVED AND NOTIFIED BY THE CENTRAL GOVERNMENT AND THE SAME HAS NOT BEEN WITHDRAWN FOR ANY REASONS, THE ASSESSEE WOULD BE ENTITLED TO THE BENEFIT OF DEDUCTION U/S 80IA(4)(III). 28. FURTHER, IN THE CASE OF GANESH HOUSING CORPORATION LTD., VS. PADAM SINGH, UNDER SECRETARY & ORS. (2011) 61 DTR (GUJ.) 1, THE GUJARAT HIGH COURT HELD THAT 'WHAT WAS REQUIRED TO BE DONE BY THE ASSESSEE WAS TO PROVIDE FOR INFRASTRUCTURAL FACILITIES BEFORE THE LAST DATE ENVISAGED UNDER THE SCHEME AND THEREAFTER, THE RE WAS NO OBLIGATION ON ITS PART TO ENSURE THAT INDUSTRIAL UNITS ON SUCH PLOTS MUST ALSO COME INTO EXISTENCE AND COMMENCE THEIR PRODUCTION ACTIVITIES, IMPUGNED SHOW CAUSE NOTICE FOR WITHDRAWAL OF APPROVAL OF ASSESSEE'S INDUSTRIAL PARK IS LIABLE TO BE QUASH ED AND CBDT IS DIRECTED TO NOTIFY THE SAME.' 3 8 . AS SEEN FROM THE ABOVE ORDER, IN THE CASE OF AN ASSESSEE ENG AG ED IN TH E BU S IN ES S OF DEVELOPING INDUSTRIAL PARK AND LETTING OUT THE ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 20 SAME , INCOME FROM LETTING OUT IS ASSESSABLE UNDER THE HEAD BUSINESS. H ENCE, THE I NCOME DERIVED FROM SUCH LETTING OUT SHOULD B E CONSIDERED AS INCOME FROM BUSINESS INCOME ONLY , AND NOT OTHERWISE, AS ENVISAGED IN S.80IA(4)(IV) OF THE ACT. ACCORDINGLY, WE SET ASIDE THE IMPUGNED ORDER OF THE CIT(A) ON THIS ISSUE AND DIRECT THE A SSESSING OFFICER TO RE - EXAMINE THE CLAIM OF THE ASSESSEE FOR RELIEF UNDER S.80IA(4)(IV) OF THE ACT, AND ALLOW THE SAME, IF THE ASSESSEE IS OTHERWISE ELIGIBLE FOR THE SAME. HE SHALL OF COURSE, RE - DECIDE THIS ISSUE IN ACCORDANCE WITH LAW AND AFTER GIVING RE ASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE GROUNDS OF THE ASSESSEE ON THIS ASPECT ARE TREATED AS ALLOW E D. 3 9 . THE NE X T ISSUE INVOLVED IN TH E APPEALS OF M/S. JANAPRIYA PROPERTIES (FORMERLY JANAPRIYA ENGINEERS SYNDICATE), FOR THE ASSESSMENT YEA RS 2006 - 07 TO 2008 - 09, BEING ITA NOS.1577, 1594 & 1595/HYD/2012, RELATES TO DISALLOWANCE OF DEPRECIATION. SIN C E WE H A VE HELD HEREINABOVE THAT THE IN C OM E FROM LETTING OUT HAS TO BE ASSESSED AS BUSINESS INCOME, AND NO T AS HOU S E PROPERTY INCOME AS DONE BY T HE REVENUE AUTHORITIES, ASSESSEE IS ENTITLED TO DEPRECIATION AS ADMISSIBLE UN D ER THE INCOME - TAX RULES. CONSEQUENTLY, ASSESSEES GROUNDS ON THIS ASPECT ALSO ARE ALLOWED, AND THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE CLAIM OF THE ASSESSEE AND ALLOW TH E DEPRECIATION, AS MAY BE ADMISSIBLE UNDER THE ACT. 40 . THE NEXT GRIEVANCE O F THE ASSESSEE IN THESE APPEALS IS WITH REGARD TO DISALLOWANCE OUT OF DIRECT AND INDIRECT EXPENSES. 4 1 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF TH E LOWER AUTHORITIES AND OTHER MATERIAL ON RECORD. WE CONSIDERED SIMILAR ISSUE IN THE CONTEXT OF CROSS - APPEALS IN THE CA S ES OF JANAPRIYA ENGINEERS SYNDICATE(JV). FOR THE DETAILED REASONS GIVEN IN PARA 1 7 READ WITH PARAS 2 8 AND 2 9 H ER EINABOVE, WE SET AS IDE THE IMPUGNED ORDER O F THE CIT(A), AND DIRECT THE ASSESSING OFFICER TO R E STRICT THE ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 21 DISALLOWANCE TO 10% OF THE DIRECT AND INDIRECT EXPENSES INCURRED BY THE ASSESSEE IN CASH. CONSEQUENTLY, ASSESSEES GROUNDS ON THIS ISSUE ARE TREATED AS PARTLY ALLOWED. 4 2 . NEXT COMMON GROUND THAT ARISES FOR CONSIDERATION IS IN THE APPEALS OF M/S. JANAPRIYA PROPERTIES (FORMERLY JANAPRIYA ENGINEERS SYNDICATE) FOR ASSESSMENT YEARS 2006 - 07 AND 2007 - 08, BEING ITA NOS.1577 AND 1594/HYD/2012, AND IT IS WITH REGARD TO DISAL LOWANCE UNDER S.40A(3) MADE BY THE ASSESSING OFFICER, WHICH HAS BEEN CONFIRMED BY THE CIT(A). 4 3 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON THIS ISSUE AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND OTHER MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE HAS NOT OFFERED ANY EXPLANATION BEFORE THE LOWER AUTHORITIES JUSTIFYING THE PAYMENTS MADE IN CASH IN VIOLATION OF PROVISIONS OF S.40A(3) OF THE ACT. EVEN BEFORE US, THE POSITION REMAINS THE SAME AND THE ASSESSEE HAS NOT EXPLAINED THE CIRCUMSTAN CES, WHICH CON S TRAIN E D IT TO MAKE THE PAYMENTS IN QUESTION IN CASH. THAT BEING SO, WE FIND NO INFIRMITY IN THE ACTION OF THE LOWER AUTHORITIES. WE ACCORDINGLY UPHOLD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER FOR THE ASSESSMENT YEARS 2006 - 07 AND 2007 - 08, AND REJECT THE GROUNDS OF THE ASSESSEE ON THIS ASPECT IN ITS APPEALS ITA NOS.1577/HYD/2012 AND 1594/HYD/2012. 4 4 . NEXT GRIEVANCE OF THE ASSESSEE , M/S. JANAPRIYA PROPERTIES (FORMERLY JANAPRIYA ENGINEERS SYNDICATE), IS IN ITA NO.1577/HYD/2012 FOR AS SESSMENT YEAR 2006 - 07, AND IT IS AGAINST THE ADDITION OF RS.7,00,000 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNDISCLOSED SALES. 4 5 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER NOTED FROM THE STATEMENT OF WORK IN PROGRESS THAT A SUM OF RS.7 LAKHS WAS SHOWN AS OPENING BALANCE OF JANAPRIYA AVENUE II AND THE SAME WAS ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 22 REDUCED IN THE RELEVANT YEAR AND THE CLOSING WORK IN PROGRESS WAS SHOWN AS NIL. THE CONTENTION OF THE ASSESSEE IS THAT THE SAID AMOUNT OF RS.7 LAKHS REPRESENTING WORK IN PROG R ESS HAS BEEN CREDITED TO EXPENDITURE ACCOUNT, AND THEREFORE NO ADDITION IS WARRANTED TO THE TOTAL INCOME OF ASSESSEE. HOWEVER, IT IS OBSERVED BY THE CIT(A) THAT THE ASSESSEES EXPLANATION IS NOT SUPPORTED BY ANY EVIDENCE OF CREDITING TO THE ACCOUNT OF W ORK IN PROGRESS. EVEN BEFORE US, THE ASSESSEE HAS FAILED TO SUBSTANTIATE ITS CLAIM OF HAVING CREDITED THE SAID AMOUNT OF RS.7 LAKHS IN THE ACCOUNTS. BEING SO, IT IS REASONABLE TO DRAW AN INFERENCE THAT THE ASSESSEE HAS MADE AN UNACCOUNTED/SUPPRESSED SALE OF RS.7 LAKH S . CONSEQUENTLY, WE FIND NO JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE CIT(A) ON THIS ASPECT. WE ACCORDINGLY UPHOLD THE SAME, REJECT THE GROUND OF THE ASSESSEE ON THIS ISSUE. 4 6 . NEXT COMMON GROUND IN THE APPEALS OF THE ASSESSEE, M/ S. JANAPRIYA PROPERTIES (FORMERLY JANAPRIYA ENGINEERS SYNDICATE) FOR THE ASSESSMENT YEAR 200 6 - 0 7 AND 200 7 - 0 8 , VIZ. ITA NO.1577HYD/2012 AND 1594/HYD/2012 RESPECTIVELY, RELATES TO THE ADDITIONS OF RS.63,75,000 AND RS.93,00,000 RESPECTIVELY, MADE UNDER THE HEAD UNEXPLAINED EXPENDITURE . 4 7 . BRIEF FACTS OF THE CASE COMMON IN BOTH THESE APPEALS EXCEPT FOR THE AMOUNTS INVOLVED, AS TAKEN FROM THE APPEAL FOR ASSESSMENT YEAR 2007 - 08, ARE THAT ON EXAMINATION OF THE SEIZED MATERIALS, IT WAS NOTICED THAT BY TH E ASSESSING OFFICER THAT THE ASSESSEE HAS INCURRED VARIOUS EXPENDITURE IN THE F ORM OF CASH FOR PURCHASE OF LANDS. IN SPITE OF SHOW - CAU S E NOTICES ISSUED F R OM TIME TO TIME AND A FINAL SHOW CAU S E NOTICE DATED 8.7.2010 IS S UED ON THE ASSESSEE, ASSESSEE HAS CH OSEN NOT TO APP E AR AND NO T TO FILE ANY REPLY, U NDER T H E CIRCUMSTANCES, THE ASSESSING OFFICER MADE AN ADDITION OF RS.63.75 LAKHS, UNDER S.69C OF THE ACT, TREATING THE FOLLOWING PAYMENTS AS REPRESENTING UNEXPLAINED EXPENDITURE . ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 23 PAGE NO. ANNEXURE DESCRIPT ION QUANTUM RS. 86 - 89 A/JES/18 AGREEMENT OF SALE DT.07.03.07 ENTERED BETWEEN TH E ASSESSEE - FIRM AND SRI D.E.NAGARAJ AND SRI J.SRINIVAS (LANDLORDS) FOR PURCHASE OF AC.1.38 GT. SITUATED AT KOTHAPEET (V) FOR A CONSIDERATION OF RS .1.55 CRO RE S. OUT OF THIS, A SUM OF R S.38 , 75,000/ - WAS PAID ON10.03.2007 38,75,000 96 - 97 A/JES/18 A SUM OF RS.50,000/ - AND RS.1,50,000 WERE PAID IN CASH TO SRI T.RAJASEKHAR REDDY FOR PU R CH A SE OF LAND ON 03.11.2006 AND 01.11.2006, TOTALING TO RS.2,00,000/ - 3,00,000 133 A/JES/18 RECEI P T DAT E D 29.12.2006 GIVEN BY SRI T.MADAN MOHAN REDDY TOWARDS SALE OF HIS LAND SITUATE AT BADANGPET (V ) . AS P E R THIS RECEIPT, A SUM O F R S .30,00,00./ WAS PAID BY THE ASSESSEE, WHICH IN C LU D E PA YM ENT OF R S .10,L00,000 IN CASH ON 03.11.2006 10,00,000 138 A/JES /18 RECEIPT DATED 03.11.2006 GIVEN BY SRI T.LAKSHMI NARASIMHA REDDY TOWARDS SALE OF HIS LAND SITUATED AT BADANGPET(V). AS PER THIS RECEIPT, A SUM OF RS .30,00,000/ WAS P A I D BY TH E ASSESSEE , WHICH INCLUDES PAYMENT OF RS.10,00,000/ IN CASH ON 03.11.2006. 10, 00,000 146 A/JES/18 RECEIPT GIVEN BY SRI N.SATYANARAYANA, TOWARDS SALE OF HIS LAND SITUATED AT BADA N GPET (V). AS P E R THIS RECEIP T A SUM OF R S.2,00,00/ WAS PAID BY THE 2,00,000 ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 24 ASSESSEE TOTAL 63,75,000 ON APPEAL, THE CIT(A) TOO SUSTAINED THE ABOVE ADD ITION OF RS.63,75,000 MADE BY THE ASSESSING OFFICER, IN THE ABSENCE OF ANY EVIDENCE TO THE CONTRARY BROUGHT ON RECORD BY THE ASSESSEE, TO DISPROVE THE OBSERVATIONS OF THE ASSESSING OFFICER, BEFORE HIM. 4 8 . FOR THE ASSESSMENT YEAR 2008 - 09 AS WE LL, THE ASSESSING OFFICER MADE ADDITION OF RS.1,16,25,000, IN RELATION TO UNEXPLAINED PAYMENT OF SALE CONSIDERATION IN RESPECT OF THE LAND PURCHASED BY THE ASSESSEE AT KOTHAPET. AS AGAINST THIS, THE CIT(A) BY THE IMPUGNED ORDER DATED 24.8.2012, ACCEPTED THE EXPLANATION OF THE ASSESSEE IN RELATION TO THE PAYMENTS TO THE EXTENT OF RS.23,25,00, BUT SUSTAINED THE BALANCE ADDITION OF RS.93,00,000 MADE BY THE ASSESSING OFFICER , WITH THE FOLLOWING OBSERVATIONS - 11.0 ..THE AO MADE ADDITION BASED ON SCHED ULE OF PAYMENTS IN RESPECT OF BALANCE OF SALE CONSIDERATION FOR RS.1,16,25,OOO/ - IN RESPECT OF THE PROPERTY SITUATED AT KOTHAPET VILLAGE AND ENTERED AGREEMENT OF SALE D.E.NAGARAJ AND J.SRINIVASA YADAV ON 7 - 3 2007. A SUM OF RS. 38,75,OOOJ - WAS PAID THROUGH CHEQUES BEARING NO.703725 AND 703726 DATED 10 - 3 - 2007 DRAWN ON ING VYSYA BANK, ABIDS BRANCH, HYDERABAD. IN ADDITION TO THE ABOVE PAYMENT, THE ASSESSEE IS REQUIRED TO MAKE BALANCE AMOUNT OF RS.1,16,25,000/ - ON VARIOUS DATES STARTING FROM 5 TH JUNE 2007 TO 5 TH MARCH 2008. THE ASSESSING OFFICER MADE THE ADDITION ON THE ASSUMPTION THAT THE ASSESSEE INCURRED IN CASH TO MAKE THE ABOVE PAYMENTS. HOWEVER, IT IS FURNISHED BY THE APPELLANT THAT THE SUM OF RS.8 LAKHS WAS PAID ON 26 - 6 - 2007 VIDE CHEQUE NO.704124, ING VYSY A BANK TO MR. D.E.NAGRAJ AND RS.2 LAKHS VIDE CHEQUE NO.7O'4125.DRAWN ON ING VYSYA BANK TO J.SRINIVASA YADAV. SIMILARLY ON 17 - 10 2007 THE ASSESSEE CLAIMED TO HAVE PAID RS. 6,62,500/ - VIDE CHEQUE NO.394471 DRAWN ON ING VYSYA BANK TO D.E. NAGARAJ AND RS. 6,62 ,000/ - VIDE CHEQUE NO.394470 DRAWN ON ING VYSYA BANK TO J.SRINIVASA YADAV. THUS IN TOTAL THE ASSESSEE PAID A SUM OF RS.62,OO,OOO/ - VIDE CHEQUES TO THESE TWO PERSONS FROM MARCH, 2007 ONWARDS. THE SAID SUBMISSION OF THE APPELLANT REQUIRES CONSIDERATION IN VI EW OF THE PAYMENTS MADE BY CHEQUES. ACCORDINGLY, THE AO IS DIRECTED TO VERIFY ONCE AGAIN ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 25 THE PAYMENT DETAILS VIS - A - VIS BOOKS OF ALE AND BANK. A/C AND IF ON VERIFICATION FOUND CORRECT, THE SAME IS TO BE GIVEN CREDIT WHILE COMPUTING THE ADDITION UNDER THIS H EAD. OUT OF 1,16,25,000/ - (BALANCE OF CONSIDERATION AFTER PAYMENT OF RS.38,75,000/ - ), ONLY RS.23,25,OOO/ - IS TO BE ALLOWED IF THE AO FINDS THAT THE PAYMENTS ARE REFLECTED IN THE BOOKS OF A/C. FOR THE BALANCE OF RS.93,00,000/ - THE ASSESSEE HAS NO EXPLANATIO N TO OFFER ABOUT THE SOURCES FOR THE PAYMENTS, ETC. THE ONLY SUBMISSION OF THE APPELLANT ON THIS GROUND IS THAT NO FURTHER PAYMENTS HAVE BEEN MADE TO THE ABOVE SELLERS SUBSEQUENTLY. IT IS VERY DIFFICULT TO ACCEPT THAT THE SELLERS OF PROPERTY WOULD KEEP, QU IET IF SCHEDULED PAYMENTS ARE NOT EFFECTED AS AGREED IN AGREEMENT FOR SALE. IT IS NOT THE CASE THAT THE LAND SO REFERRED IN THE AGREEMENT WAS RETURNED TO THE SELLERS. ON THE OTHER HAND, IT REMAINED WITH THE APPELLANT AND BEING USED IN ITS BUSINESS. NO PRUD ENT PERSON WOULD PART WITH THE VALUABLE LAND WITHOUT REALIZING THE AGREED SALE CONSIDERATION. ACCORDINGLY, THE SUBMISSION OF THE APPELLANT IS REJECTED AND ADDITION IS SUSTAINED TO THE EXTENT OF RS.93 LAKHS AND THE BALANCE OF RS.23,25,000/ - IS DIRECTED TO B E DELETED IF THE PAYMENTS ARE DULY REFLECTED IN THE BOOKS OF A/C OF THE ASSESSEE. 4 9 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON THIS ISSUE AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND OTHER MATERIAL ON RECORD. IT IS THE CONTENTION OF THE L EARNED COUNSEL FOR THE ASSESSEE THAT THE PAYMENTS IN RELATION TO THE RELEVANT AMOUNTS WERE TAKEN INTO ACCOUNT, WHILE FINALIZING THE UNEXPLAINED INCOME IN THE HANDS OF JANAPRIYA ENGINEERS SYNDICATE LTD., AND THAT BEING SO NO FURTHER ADDITION ON THIS ACCOUNT IS WARRANTED IN THE HANDS OF THE ASSESSEE. WE FIND THAT T HE REVENUE AUTHORITIES EXAMINED THE CASH FLOW STATEMENT OF JANA PRIYA ENGINEERS SYNDICATE LTD. AND OBSERVED THAT NO SUCH ENTRIES OF CASH PAYMENTS WERE FOUND ON THE RELEVANT DATES AS MENTIONED IN TH E RELEVANT SEIZED MATERIALS. BEFORE US ALSO, THE LEARNED COUNSEL FOR THE ASSESSEE IS UNABLE TO EXPLAIN THE SOURCE OF PAYMENTS MADE ON VARIOUS DATES, AS MENTIONED IN PARA 5.1 OF THE ASSESSMENT ORDER. ACCORDINGLY, WE FIND NO REASON TO INTERFERE WITH THE ORDERS OF THE LOWER AUTHORITIES. THIS DISALLOWANCE IS CONFIRMED, AND THE GROUND OF THE ASSESSEE IS REJECTED. 50 WITH REGARD TO THE ADDITION OF RS.93,00,000 SUSTAINED BY THE CIT(A) AS AGAINST THE ADDITION OF RS.1,16,25,000 MADE BY THE ASSESSING ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 26 OFFIC ER FOR THE ASSESSMENT YEAR 2008 - 09, WE ARE IN AGREEMENT WITH THE REASONS DISCUSSED BY THE CIT(A) IN PARA 11 OF THE IMPUGNED ORDER, RELEVANT PORTION OF WHICH IS EXTRACTED ABOVE. WE ACCORDINGLY UPHOLD THE SAME AND REJECT THE GROUND OF THE ASSESSEE ON THIS I SSUE. 5 1 . NEXT GROUND TO BE CONSIDERED IS IN THE APPEAL FOR ASSESSMENT YEAR 2008 - 09, VIZ. IN ITA NO.1595/HYD/2012 , AND IT RELATES TO AN ADDITION OF RS.3,70,000 MADE UNDER THE HEAD UNEXPLAINED INVESTMENT . AT THE TIME OF HEARING, THIS GROUND IS NOT PR ESSED. IT IS ACCORDINGLY REJECTED. 5 2 . NEXT GRO U ND TO B E CON S IDER E D IS ALSO IN THE APPEAL FOR ASSESSMENT YEAR 2008 - 09, BEING I TA NO.1595./HYD/2012, AND IT REL A TES TO DISALLOWANCE OF FINANCE CHARGES AMOUNTIN G TO R S .3,19,55,149. 5 3 . FACTS OF TH E CASE IN BRIEF ARE THAT THE ASSESSEE CLAIMED A SUM OF R S .3,19,55,148 AS FINANCE CHARGES, PAID TO BANKS AND FINANCIAL IN S TITUTION S AND DEBITED THE SAME TO DIRECT EXPENSES. AS AGAINST THIS, SINCE ASSESSEE HAS CLAIMED DEDUCTION UNDER S.80IA(4) OF THE ACT, THE ASSESSING OFFICER ARRIVED AT A FIGURE OF RS.2,85,94,351 AS ATTRIBUTABLE TO SUCH EXEMPT INCOME CLAIMED BY TH E ASSESSEE , AND DISALLOWED THE SAME IN TERMS OF S.14A OF THE ACT. ON APPEAL BEFORE THE CIT(A), ASSESSEE MADE ELABORATE ARGUMENTS AGAINST THE ADDIT ION MADE AS ABOVE, AND CONTENDED INTER - ALIA THAT A CLAIM FOR DEDUCTION UNDER VARIOUS PROVISION S OF THE ACT, SUCH AS S.80IA IS DISTINCT FROM THE CLAIM OF EXEMPTION OF ANY INCOME FROM THE VERY TAX NET. THE CIT(A) WAS NOT CONVINCED WITH THE ARGUMENTS OF THE ASSESSEE ON THIS ISSUE, AND TAKING NOTE OF THE VARIOUS CONTENTION S OF THE ASSESSEE AGAINST THE DISALLOWANCE MADE BY THE ASSESSING OFFICER, OBSERVED THAT THOU G H THE ASSESSEE STATED TO HAVE INCURRED TOTAL EXPENSES UNDER FINANCE CHARGES AT R S .3,19,55,148, N ON E O F THE LOANS BORROWED BY T H E ASSESSEE H A D BEEN UTILIZED FOR ANY OF ITS BUSINESS ACTIVITY, AS CONTENDED BY TH E ASSESSEE . HE NOTED THAT ALL TH E B O R ROWED FUN D S HAVE ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 27 BEEN FIN D IN G THEIR WAY TO OTHER ENTITIES OF ASSESSEE GROUP RATHER THAN THEIR UTLISATION I N THE ASSESSEES OWN BUSINESS ACTIVITY. EVEN IF, FOR THE SAKE OF ARGUMENT, I T IS ASSUMED THAT S.14A HAS NO APPLI C ATION IN THIS CASE, STILL, THE CIT(A), HELD THE INTER E ST CLAIM CANNOT B E ALLOWED IN THE HANDS O F THE ASSESSEE UNLESS AND UNTIL THE ASSESSEE I S ABL E TO PROVE THAT THE BORROWED FUN D S ARE USED IN ITS OWN COMMERCIAL AC T IVITY. INVESTMENT IN JOINT VENTURE CANNOT B E CONSIDERED AS BUSINESS ACTI V ITY OF THE ASSESSEE. THE CIT(A), ACCORDINGLY HOLDING THAT THE ASSESSEE HAS ROUTED ALL ITS BORROWED FUNDS TO OTHER ENTITIES OF THE GROUP CONCERNS, DISALLOW E D THE TOTAL FINANCE CHARGES OF R S .3,19,55,149. THE CIT(A) THUS, ENHANCED THE SAID DISALLOWANCE MADE BY THE ASSESSING OFFICER TO RS.3,19,55,149 AND DIRECTED THE ASSESSING OFFICER TO RECOMPUTE THE INCOME AC CORDINGLY. AGGRIEVED BY THE ORDER OF THE CIT(A), ASSESSEE IS IN SECOND APPEAL BEFORE US. 5 4 . WE HAVE CONSIDERED THE RIVAL SUBMISSION AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND OTHER MATERIAL ON RECORD. WHILE THE ASSESSING OFFICER HAS DISALLO WED ONLY PART OF THE FIN A NCE CHARGES CLAIMED, IN TERMS OF S.14A OF THE ACT, AS ATTRIBUTABLE TO THE INCOME CLAIMED BY THE ASSESSEE AS EXEMPT, THE CIT(A) OBSERVING THAT THE ASSESSEE HAS DIVERTED ITS ENTIRE BORROWED FUNDS TO THE GROUP ENTITIES OF THE ASSESSEE , AND NOT UTILI S ED THE SAME IN ITS OWN BUSINESS ACTIVITIES. THIS FINDING O F THE CIT(A) COULD NOT BE CONTROVERTED BY THE ASSESSEE BEFORE US, BY BRIN G ING ON RECORD ANY COGENT EVIDENCE ON RECORD. I N THE CIR C UM S TANCES, WE FIND NO JUSTIFICATION TO IN T ERFERE WITH THE ORDER OF THE CIT(A). WE ACCOR D INGLY UPHOLD THE SAME, REJ E CTING THE G R OUNDS OF THE ASSESSEE ON THIS ISSUE. 5 5 . IN THE RESULT, APPEALS ITA NOS.1577, 1594 AND 1595/HYD/2012 ARE PARTLY ALLOWED. ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 28 REVENUES APPEALS CONCERNING JANAPRIYA ENGINEERS SYNDICATE ITA NO.16 22 /HYD/2012 : ASSESSMENT YEAR 200 6 - 0 7 ITA NO.16 23 /HYD/2012 : ASSESSMENT YEAR 200 7 - 0 8 ITA NO.16 24 /HYD/2012 : ASSESSMENT YEAR 200 8 - 0 9 I TA NO.1614/HYD/2012 : ASSESSMENT YEAR 2005 - 06 56. THE FIRST EFFECTIVE GRIEVANCE OF TH E REVENUE, COMMON IN THESE APPEALS, IS THAT THE CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE UNDER S.40(A)(IA) OF THE I.T. ACT., 57. WE HEARD BOTH SIDES AND PERUSED THE IMPUGNED ORDERS OF THE LOWER AUTHORITIES. WE FIND THAT THE DECISION OF THE CIT(A) WHILE DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER S.40(A)(IA) OF THE ACT, IS BASED ON THE SPECIAL BENCH DECISION OF THE VISAKHAPATNAM TRIBUNAL IN THE CASE OF MERILYN SHIPPING & TRANSPORT IN ITA NO.477/ VIZ/2008 DATED 29.3.2012. WE FIND THAT THE SAID DECISION OF THE SPECIAL BENCH HAS BEEN STAYED BY THE HONBLE HIGH COURT OF ANDHRA PRADESH VIDE ITS INTERIM ORDER DATED 8 TH OCTOBER, 2012. THAT BEING SO, IN THE INTERESTS OF JUSTICE, WE SET ASIDE THE IMPUGNE D ORDER OF THE CIT(A) ON THIS ISSUE AND RESTORED THIS ASPECT OF THE MATTER TO THE FILE OF THE ASSESSING OFFICER, WITH A DIRECTION TO REDECIDE THE DISALLOWANCE IF ANY THAT MAYBE WARRANTED IN TERMS OF S.40A(IA) OF THE ACT, IN CONSONANCE WITH THE VIEW THAT TH E HONBLE HIGH COURT MAY TAKE ON THE ABOVE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL. THE ASSESSING OFFICER IS DIRECTED TO REDECIDE THIS ISSUE IN ACCORDANCE WITH LAW AND AFTER GIVING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 58. THE NEXT E FFECTIVE GRIEVANCE IN ITA NO.1623/HYD/2012 FOR ASSESSMENT YEAR 2007 - 08 IS WITH REGARD TO ADDITION OF AN AMOUNT OF RS.1.5 CRORES MADE BY THE ASSESSING OFFICER, WHICH HAS BEEN DELETED BY THE CIT(A). ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 29 59. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSING OF FICER ON A PE RU SAL OF THE SEIZED DOCUMENT ANNEXURE A/JES/PO - 4/1, THAT A SUM O F R S .2.75 CROR E S AND RS.1.50 CRORES WERE PAID TOWARDS KOWKOOR LAND AND CLAIMED AS OFFICIAL AND UNOFFICIAL EXPENSES RESPECTIVELY. THE ASSESSING OFFICER PROPOSED TO MAKE ADDITION OF RS.1.50 CRORES TREATING THE UNOFFICIAL EXPENDITURE CLAIMED TO HAVE BEEN INCURRED BY THE ASSESSEE, AS UNEXPLAINED INVESTMENT, AND ULTIMATELY NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE AGAINST THE ADDITION PROPOSED, MADE THE IMPUGNED ADDITION OF R S.1.50 CRORES UNDER S.69C OF THE ACT. ON APPEAL, THE CIT(A) DELETED THE SAID ADDITION MADE BY THE ASSESSING OFFICER, OBSERVING THAT THE SEIZED DOCUMENT CONTAINED MERE SCRIBBLING, WHICH CANNOT LEAD TO ANY ADDITION IN THE ABSENCE OF CORROBORATIVE EVIDENCE. AGGRIEVED BY THE ACTION OF THE ASSESSING OFFICER, REVENUE PREFERRED APPEAL BEFORE THE TRIBUNAL. 60. WE HEARD BOTH SIDES AND PERUSED THE MATERIAL ON RECORD. IT IS EVIDENT FROM THE MATERIAL ON RECORD THAT THE SEIZED DOCUMENT BASED ON WHICH THE IMPUGNED ADDITION OF RS.1.50 - CRORES WAS MADE BY THE ASSESSING OFFICER, WAS A DUMB DOCUMENT, WHICH LACKS CREDIBILITY AND EVIDENTIARY VALUE. THE SAID DOCUMENT IS AN UNSIGNED ONE AND THE CONTENTION OF THE ASSESSEE IS THAT THE PROJECTS IN RELATION TO WHICH THE AMOUN TS MENTIONED IN THE SAID DOCUMENT WERE RECORDED, WERE NOT TAKEN UP AT ALL BY THE ASSESSEE. IT IS TAKING NOTE OF THESE FACTUAL ASPECTS ONLY THAT THE CIT(A) DELETED THE ADDITION OF RS.1.50 CRORES MADE BY THE ASSESSING OFFICER. IN THE ABSENCE OF ANYTHING T O THE CONTRARY BROUGHT ON RECORD BY THE REVENUE BEFORE US, WE ARE IN AGREEMENT WITH THE REASONING GIVEN BY THE CIT(A) FOR DELETING THE IMPUGNED. IN THE CIRCUMSTANCES, WE UPHOLD THE ORDER OF THE CIT(A) AND REJECT THE GROUNDS OF THE REVENUE ON THIS ISSUE. ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 30 61. IN THE RESULT, THESE FOUR APPEALS OF THE REVENUE, VIZ. ITA NO.1614 AND 1622 TO 1624/HYD/2012 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. APPEALS CONCERNING M/S. ENGINEERS REDDY HOMES PVT. LTD., HYDERABAD ASSESSEES APPEALS : ITA NO.580/HYD/2011 : ASSESSMENT YEAR 2002 - 03 ITA NO.581/HYD/2011 : ASSESSMENT YEAR 2003 - 04 ITA NO.582/HYD/2011 : ASSESSMENT YEAR 2004 - 05 I TA NO.583/HYD/2011 : ASSESSMENT YEAR 2005 - 06 62. THE ONLY GRIEVANCE OF THE ASSESSEE, COMMON IN THE APPEALS FOR ASSESS MENT YEARS 2002 - 03 TO 2004 - 05, VIZ. ITA N O .580 TO 582/HYD/2011, DIRECTED AGAINST A COMMON ORDER OF THE CIT(A) I, HYDERABAD 31.1.2011, IS WITH REGARD TO ADDITIONS RELATING TO OPENING WORK IN PROGRESS. 6 3 . BRIEF FACTS OF THE CASE ARE THAT THE A SSESSEE C OMMENCED CONSTRUCTION OF THE PROJECT AT ATTAPUR AND SP E NT AMOUNTS ON THE PROJECT DURING THE Y EA RS UN D ER CON S I D ERATION. THE AMOUNTS SO SPENT WERE ACCOUN T ED FOR AS WORK - IN - PROGRESS IN TH E BA LAN C E S HEET O F THE RELEVANT YE A RS, AS NO SALES WERE AFFECTED. THE ASSESSING OFFICER HOWEVER, CONSIDERED A PERCENTAGE OF 15% AS PROFIT ON WORK - IN - PROG RES S AND TAXED THE SAME AC C OR D INGLY, WHICH R E SULTED IN THE IMPUGNED ADDITIONS OF RS.21,51,276 FOR ASSESSMENT YEAR 2002 - 03; RS.24,11,619 FOR ASSESSMENT YEAR 2003 - 04; AND RS. 18,12,501 FOR ASSESSMENT YEAR 2004 - 05. 64 . ON APPEAL BEFORE THE CIT(A), IT WAS SU B MI T TED THAT IN THE YEAR ENDING 31.3.2005, THIS PROJECT WAS TRANSFERRED TO A JOIN T VENTURE BY THE NAME, M/S. JANAPRIYA ENGINEERS SYNDICATE(JV), AND THE AMOUNT TRANSFERRED WAS RS.4,18,05,343. FROM THE YE A R ENDING 31.3.205 ONWARDS, THIS JOINT VENTURE COMPLETED THE PROJECT AND OFFERED THE INCOME OF THE VENTURE FOR TAX IN ITS HAND. IT WAS SUBMI T T E D T HAT THE TOTAL WORK WAS TRAN S FE R RED TO THE JV, AND IN EFFECT, NO PART OF TH E P ROCEEDS OR EXPENDITURE ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 31 WAS CLAIMED BY THE ASSESSEE, AND THE JV HAD FILED THE R ETURN FOR THE WORK AND THE SAME WAS ASSESSED IN TH E HANDS OF THE JV IN THE CIR C UM S TANC E S, IT WAS SUBMITTED THAT TAXING THE WORK - IN - PROGRESS, WHICH WAS TRANSFE R RED TO THE J V AGAI N IN ITS HANDS IS NOT CORRECT AND IN FACT , FOR THE ASSESSMENT YEAR 2005 - 06, WHEN THE TRANSFER HAS TAKEN PL A CE, THE ASSESSMENT OF ASSESSEE HA S BEEN COMPLETED UNDER S.143(3) AND THE ASSESSING OFFICER HAS ACCEPTED THE P ROPOSIT I ON AND HAS NO T MADE ANY ADDITI ON IN THE HANDS OF THE ASSESSEE IN RELATION TO THIS TRANSACTION. IN VIEW OF THE SUBMISSIONS OF THE ASSESSEE BEFORE HIM, WITH REGARD TO ASSESSMENT IN RELATION TO THE ATTAPUR PROJECT IN THE HANDS OF THE JV, THE CIT(A) CALLED FOR THE COMMENTS OF THE ASSESSI NG OFFICER . THE ASSESSING OFFICER IN HIS REPORT SUBMITTED THAT THE PROFIT WAS CORRECTLY ESTIMATED AS PER PERCENTAGE COMPLETION METHOD, SINCE THE ASSESSEE HAS NO T R EC OGNISED ANY REVENUE IN THE ASSESSMENT YEARS 2002 - 03 TO 2004 - 5. HE NOTED T H A T THE QUEST ION OF TRANSFER OF TH E WORK - IN - PROGR E SS TO JANAPRIYA ENGINEERS SYNDI C ATE (JV) CANNO T BE LINKED WITH THE ASSESSMENT OF THE ASSESSEE COMPANY, SIN C E THE JV CAME INTO EXISTENCE MUCH LATER, AND THE ENTIRE PROFIT WAS CLAIMED AS DEDUCTION UNDER S.80 - IB(10) OF THE ACT. IT WAS FURTHER SUBMI T TED THAT AT THE TIM E OF INITIAL BUSINESS OPERATION OF THE ASSESSEE COMPANY, THE JV WAS NOT IN PICTURE AT ALL. THE SAID OBSERVATIONS OF THE ASSESSING OFFICER IN HIS REPORT, HAVE BEEN COUNTERED BY THE ASSESSEE BY SUB M I T TING THA T THE JV CAME INTO EXISTENCE DURING THE YEAR 2004 - 05 AND THE WORK IN PROGRESS WAS TRANSFERRED TO THE JV IN THE SAID YEAR, AND TRANSFER OF THE WO R K IN PROGRESS WAS NOT AN AFT E R THOUGHT TO AVOID OR EVADE TAX. THE CIT(A) ON ELABORATE CONSIDERATION OF THE C ON T ENTION S O F THE PARTI E S, OBSERVED THAT THE ASSESSEE HAS BE E N FOLLOW I N G MERCANTILE SYSTEM O F ACCOUN T IN G , BUT NO INCOME HAS BE E N RECOGNIZED IN THE ASSESSMENT YEARS UNDER CONSIDERATION, THOUGH IN SCHEDULE ATTACHED TO THE REPORT, IT HAS BEEN STA T ED THAT T HE COMPANY RECOGNIZES INCOME AND EXPENDITURE ON ACCRUAL BASIS. HE ALSO NOTED THAT NOWHERE IT HAS BEEN STATED THAT THE ASSESSEE HAS BEEN FOLLOWING PROJECT COMPLETION METHOD. T HE CIT(A) ULTIMATELY CONFIRMED THE ADDITIONS MADE ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 32 BY THE ASSESSING OFFICER BY ESTIMATING THE PROFIT ON THE WORK - IN - PROGRESS DISCLOSED FOR THE YEARS UNDER APPEAL , IN THE FOLLOWING MANNER - 04.3. I FIND FROM THE AUDITORS REPORT THAT THE APPELLANT IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING BUT NO INCOME HAS BEEN RECOGNIZED IN TH E ASSESSMENT YEARS UNDER CONSIDERATION THOUGH IN SCHEDULE ATTACHED TO TH E REPORT IT HAS BEEN STATED THAT THE COMPANY RECOGNISES INCOME AND EXPENDITURE ON ACCRUAL BASIS. NO WHERE IN THE ACCOUNTS THE APPELLANT HAS SPECIFICALLY MENTIONED THAT IT IS FOLLOWING PROJECT COMPLETION METHOD . IT IS A FACT ON RECORD THAT AT THE TIME WHEN THE CONSTRUCTION ACTIVITIES HAVE BEEN UNDERTAKEN BY THE APPELLANT COMPANY THE JV WAS NOT AT ALL IN EXISTENCE. IT IS ALSO A FACT ON RECORD THAT THE APPELLANT COMPANY HAS INCURRED SUBSTA NTIAL EXPENDITURE AGAINST ITS PROJECT AND HAS STARTED RECEIVING ADVANCE TOWARDS SALE OF FLAT. SINCE THE APPELLANT HAS NOT SPECIFICALLY ADOPTED PROJECT COMPLETION METHOD IN ITS ACCOUNTING I AM OF THE VIEW THAT T HE AO WAS NOT WRONG IN WORKING OUT THE PROFIT ON PERCENTAGE COMPLETION BASIS WHICH IS ALSO A RECOGNIZED METHOD OF ACCOUNTING IN THIS LINE OF BUSINESS. THE TRANSFER OF THE WORK IN PROGRESS TO THE JV IS A SUBSEQUENT EVENT WHICH CANNOT INFLUENCE IT S TAXABILITY IN AN EARLIER YEAR. AT THE SAME TIME, I MAY ALSO OBSERVE THAT INCOME FROM THE SAME SOURCE CANNOT BE TAXED TWICE. ACCORDINGLY, WHATEVER INCOME FROM A SOURCE HAS BEEN COMPUTED AND BROUGHT TO TAX IN AN EARLIER YEAR SHOULD BE REDUCED WHILE ASSESSING THE INCOME OF THE SAME SOURCE IN A SUBSEQUENT YEAR IF THE SAME INCOME HAS ACTUALLY BEEN OFFERED FOR TAXATION. IT IS NOT DISPUTED BY THE AO THAT THE WORK IN PROGRESS OF THE PROJECT HAS BEEN TRANSFERRED TO THE JV IN A SUBSEQUENT YEAR AND THE APPELLANT CLAIMS THAT INCOME FROM THE SAME SOURCE HAS BEEN OFFERED IN THE HAND OF THE JOINT VENTURE. THE AO IN HIS REPORT HAS OBSERVED THAT SET OFF OF THE PROFIT ESTIMATED IN THE CASE OF THE APPELLANT COMPANY MAY BE CONSIDERED IN THE CASE OF THE JOINT VENTURE. I THINK THIS PROPOSITION OF THE AO IS IN THE INTEREST OF EQUITY A ND JUSTICE AND ALSO IN LINE WITH THE BASIC PRINCIPLE OF TAXATION THAT THE SAME INCOME CANNOT BE TAXED TWICE. SINCE THE APPELLANT HAS BEEN FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, I DO NOT FIND ANY IN F IRMITY IN THE ORDER OF THE AD ESTIMATING THE PROFIT BA SED ON THE EXPENDITURE INCURRED BY THE APPELLANT COMPANY FOR ALL THE THREE ASSESSMENT YEARS IN APPEAL . AT THE SAME TIME , THE AO IS ALSO DIRECTED TO EXAMINE IN DETAIL WHETHER THE CONTENTION OF THE APPELLANT THAT THE ENTIRE PROJECT HAS BEEN TRANSFERRED TO TH E JV AND WHETHER THE IN COME FROM THE SAME PROJECT HAS ALREADY BEEN OFFERED TO TAX IN THE HANDS OF THE JV . IN THAT CASE , THE APPELLANT MAY MOVE THE AO FOR NECESSARY REMEDIAL MEASURE WITHIN THE FOUR CORNERS OF THE LAW AND THE AO MAY DECI D E THE ISSUE THEREAFT ER ON MERIT. IN THE RESULT THE ADDITION MADE BY THE AO IS CONFIRMED SUBEJCTG TO MYT OBSERVATION AS ABOVE.. AGGRIEVED, ASSESSEE PREFERRED THESE SECOND APPEALS BEFORE US. ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 33 65 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LO WER AUTHORITIES AND OTHER MATERIAL ON RECORD. IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS BEEN FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THE AUDITORS REPORT, AS NOTED BY THE CIT(A) MENTION S THAT THE ASSESSEE RECOGNIZES THE INCOME AND EXPENDITURE ON ACCRUAL BASIS, AND NOWHERE MENTION S THAT THE ASSESSEE FOLLOWS PROJECT C OMPLETION METHOD FOR RECOGNITION OF REVENUE. W E ARE IN AGREEMENT WITH THE ELABORATE REASONS DISCUSSED BY THE CIT(A) IN PARA 4.3 OF THE IMPUGNED ORDER, RELEVANT PORTION OF WHICH HAS BEEN EXTRACTED HEREINABOVE. WE ACCORDINGLY UPHOLD THE ORDER OF THE CIT(A), AND REJECT THE GROUNDS OF THE ASSESSEE ON THIS ISSUE. 66 . IN THE RESULT, THESE THREE APPEALS OF THE ASSESSEE FOR ASSESSMENT YEAR 2002 - 03 TO 2004 - 05 , ITA NOS.580 TO 582/HYD/2011 , ARE DISMISSED. 67 . FIRST EFFECTIVE GROUND OF THE ASSESSEE IN ITS APPEAL FOR ASSESSMENT YEAR 2005 - 06, VIZ. ITA NO.583/HYD/2011, DIRECTED AGAINST THE ORDER OF THE CIT(A) I, HYDERABAD DATED 31.1.2011, IS WITH REGARD TO THE ADDITION TOWARDS UNPROVED LIAB ILITIES. 6 8 . BRIEF FACTS OF THE CASE IN REL A TION TO THIS ISSUE ARE THAT THE ASSESSING OFFICER OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION, THERE WERE ADVANCES APPEARING IN THE BALANCE SHE E T OF THE ASSESSEE COMPANY OF R S .4,61,800 IN RESPECT OF J ANAPRIYA SOUTH CITY PROJECTS. TH E SE ADVANC E S, HE NOTED WERE WRONGLY TRANSFERRED TO THE JANAPRIYA ENGIN E ERS SYN D I C ATE JV DURING THE YEAR UNDER CON S I D ERATION, AND THE EN T RY WAS RE S ER V ED IN THE ASSESSMENT YEAR 2006 - 07. THE ASSESSEE COMPANY HAD COLLECTED ADVA NCE FOR JANAPRIYA SOUTH C ITY PROJECT, P RIOR TO ASSESSMENT YEAR 2002 - 03 AND THI S PROJECT WAS CANCELLED BY TH E COMPANY, AND ADVANCE REPAID TO THE ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 34 CUSTOMERS OVER THE YEARS. HOWEVER, SIN C E THE ADVANCE OF R S .4,61,800 WAS REMAINING OUTSTANDING OVER THE LAST F OUR TO FIVE YEARS AND THE ASSESSEE COMPANY FAILED TO FILE ANY CONFIRMATION REL A TING TO THIS LIABILITY, THE ASSESSING OFFICER ADDED B A CK THIS AMOUNT OF RS.4,61,800 AS UNPROVED LIABILITIES, TR E ATING THE S AME AS THE INCOME OF THE ASSESSEE . 6 9 . ON APPEAL, TH E CIT(A) , OBSERVING THAT THE ASSESSEE EXCEPT FOR SU B MITTING THAT THE ASSESSING OFFICER HAS NOT MADE THE ADDITION BASED ON ANY INCRIMINATING MATERIAL, HE HAS NO T GIVEN ANY OTHER REASON AS TO WHY THE ADDITION MADE BY THE ASSESSING OFFICER IS NO T JUSTIFIED, S U S TAINED THE ADDITION MADE BY THE ASSESSING OFFICER. HENCE, ASSESSEE PREFERRED THIS SECOND APPEAL ON THIS ISSUE. 70 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON THIS ISSUE AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND OTHER MATERIAL ON RECORD. AD MITTEDLY, THE AMOUNT OF THE UNPROVED LIABILITIES APPEARED IN THE BALANCE SHEET, AND THEY HAVE NOT ARISEN DURING THE YEAR UNDER APPEAL, HAVING BEEN BROUGHT FORWARD FROM THE PAST YEARS. THUS, THE AMOUNT OF RS.4,61,800 REPRESENTS THE OPENING BALANCE OF THE YEAR UNDER APPEAL. BEING SO, THE SAME CANNOT BE CON S I D ERED FOR ADDITION IN THE ASSESSMENT YEAR UNDER CON S I D ERATION, VIZ. 2005 - 06. IF THE ASSESSING OFFICER INTENDS TO TREAT THE LIABILITIES IN QUESTION AS UNPROVED, THE SAME HAVE TO BE DONE IN THE VERY FIRS T YEAR IN WHICH THEY AROSE, WHICH IS THE RELEVANT ASSESSMENT YEAR, AND NOT IN THE ASSESSMENT YEAR UNDER APPEAL, IN WHICH IT WAS MERELY BROUGHT FORWARD AS OUTSTANDING FROM EARLIER YEARS. WE ACCORDINGLY, SET ASIDE THE IMPUGNED ORDER OF THE CIT(A), AND DELE TE THE ADDITION OF RS.4,61,800 MADE BY THE ASSESSING OFFICER, ALLOWING THE GROUNDS OF THE ASSESSEE ON THIS ISSUE. 71 . NEXT GRIEVANCE OF THE ASSESSEE IN THIS APPEAL IS WITH REGARD TO ADDITION OF RS.11,02,000 TOWARDS LOAN PROCESSING CHARGES. ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 35 72 . FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE DURING THE YEAR UNDER CONSIDER ATION RECEIVED A LOAN OF RS.5 CRORES FROM AP STATE FI NANCE CORPORATION, INCURRING THE LOAN PROCESSING CHARGES OF RS.11,02,000. TAKING NOTE THAT THE ENTIRE LOAN WAS TRANSFERRED BY THE ASSESSEE TO THE GROUP COMPANY JANAPRIYA ENGINEERS SYNDI C ATE JV , T HE ASSESSING OFFICER OBSERV ED THAT THE LOAN IN QUESTION WAS NOT UTILIZED BY THE ASSESSEE FOR ITS BUSINESS PU RPOSE. HE ACCORDINGLY HELD THAT THE LOAN PROCESSING CHARGES CANNOT B E TREA TED AS ALLOWABLE EXPENDITURE UNDER S.37(1) OF THE ACT , AND MADE CONSEQUENT DISALLOWANCE OF R S .11,02,000 . 73 . ON APPEAL, THE CIT(A) SUSTAINED THE SAID DISALLOWANCE MADE BY THE ASSESSING OFFICER. HENCE, ASSESSEE IS IN SECOND APPEAL ON THIS ISSUE. 7 4 . W E HAVE CONSIDERED THE RIVAL SUBMISSIONS ON THIS ISSUE AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND OTHER MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE LOAN OF RS.5 C R ORES TAKEN BY THE ASSESSEE FROM APSFC HAS BEEN TRANSFERRED TO ITS JOINT V ENTURE PARTNER, JANAPRIYA ENGINEERS SYNDICATE JV. SINCE THE LOAN AMOUNT HAS NOT BEEN UTILIZED BY THE ASSESSEE FOR ITS OWN BUSINESS PURPOSE, IT CANNOT BE SAID THAT THE EXPENDITURE INCURRED BY WAY OF P R OCESSING CHARGES FOR SECURING SUCH A LOAN, IS AN EXPEN DITURE INCURRED FOR THE PUPOSE OF THE BUSINESS OF THE ASSESSEE. THAT BEIN G SO, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS IN ORDER AND THE CIT(A) IN OUR OPINION, WAS JUSTIFIED IN SUSTAINING THE SAME. WE ACCORDINGLY FIND NO MERIT IN THE GROUNDS OF THE ASSESSEE ON THIS ISSUE, WHICH ARE ACCORDINGLY REJECTED. 75 . THE NEXT EFFECTIVE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL REL A TES TO AN ADDITION OF R S.7,14,968 BEING 30% OF THE OP E NIN G WORK - IN - PROGRESS. THE ASSESSING OFFICER OBSERVED THAT AGAINST SALE OF RS.70,22,290 THE ASSESSEE H A D SHOWN A PROFIT OF R S .5,90,172 WHICH INCLUDED WAIVER OF ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 36 IN T ER E ST ON TERM LOAN OF RS .13,73,949, AND IF THIS WAIVER IS EXCLUDED, THERE WAS IN FACT A LO S S OF AROUND RS.7 LAKH ON SALE OF FLAT. IN THE ABSENCE OF PROPER EX PLANATION FIL E D BY THE ASSESSEE WITH REGARD TO THE LO S S ON SALE OF FLAT, AND OBSERVING THAT THE ASSESSEE H A D CL A IM E D AN EXPENDITURE OF R S .23,83,227 UN D ER THE HEAD OPENING WORK IN PROGRESS IN RESP E CT OF SALE OF FLAT, FOR WHI C H NO BREAK - UP OF EXPENSE WERE FURNISHED AND NO BILLS AND VOUCH E RS WERE SUBMITTED FOR VERIFI C ATION, THE ASSESSING OFFICER DI S ALLO W ED 30% OF THE WORK IN PROGRES S , WHICH R E SUL T ED IN ADDITION OF RS. 7 LAKHS . 7 6. THE CIT(A), ON APPEAL, RELYING ON THE DECISION OF THE TRIBUNAL IN THE CASE OF VISHNU AGARWAL AND OTHERS IN ITA NOS.585 TO 5 97/HYD/2008 , SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER IN THIS BEHALF. HENCE, ASSESSEE IS IN SECOND APPEAL ON THIS ISSUE. 7 7 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND OTHER MATERIAL ON RECORD. THE ASSESSING OFFICER MADE THE ADDITION OF RS.7,14,968 REPRESENTING 30% OF THE OPENING WORK IN PROGRESS, IN THE ABSENCE OF PROPER EXPLANATION FROM THE ASSESSEE WITH REGARD TO THE DISCREPANCY POINTED OUT BY HIM, AND ALSO CONSIDERING THE FACT THAT NO BREAK OF EXPENSES CLAIMED BY THE ASSESSEE TO THE EXTENT OF RS.23,83,227 UNDER THE HEAD - OPENING WORK IN PROGRESS - IN RESPECT OF SALE OF FLAT, HAS BEEN GIVEN AND NO BILLS AND VOUCHERS WERE SUBMITTED. THE ONLY PLEA OF THE ASSESSEE AGAINST THE ADDITION MADE IS THAT O F INCRIMINATING MATERIAL WARRANTING SUCH AN ADDITION WAS FOUND DURING THE SEARCH . THE CIT(A), RELYING ON THE DECISION OF THE T RIBUNAL IN TH E CASE OF VISHNU AGARWAL AND OTHERS (SUPRA), WHEREIN IT WAS HELD THAT IT WAS OPEN TO THE ASSESSING OFFICER TO COMPU T E THE IN C OM E UNDER S.153A ON TH E BASIS OF THE ENTIRE MATERIAL AVAILABLE ON RECORD AND IT IS NOT N E C E SSARY FOR HIM TO CONFINE HIMSELF TO SEIZED MATERIAL FOUND DURING THE COURSE OF S EARCH OPERATION S ON LY, REJECTED THE PLEA OF THE ASSESSEE IN THAT BEHALF, AND SUSTAINED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. WE FIND NO ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 37 INFIR M ITY IN THE ACTIONS OF THE REVENUE AUTHORITIES. WE ACCORDINGLY UPHOLD THE ADDITION MADE AND REJECT THE GROUNDS OF THE ASSES SEE ON THIS ISSUE. 7 8 . THIS APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2005 - 06, BEING ITA NS.583/HYD/2011 IS PARTLY ALLOWED. DEPARTMENTS APPEALS: ITA NO.54 7 /HYD/2011 : ASSESSMENT YEAR 2002 - 03 ITA NO.54 8 /HYD/2011 : ASSESSMENT YEAR 200 3 - 04 7 9 . THE ONLY ISSUE INVOLVED IN TH E SE APPEALS REL A TES TO DELETION OF ADDITIONS MADE BY THE ASSESSING OFFICER FOR THE YE A RS UNDER APPEAL, ON ACCOUNT OF DEEMED DIVIDENDS. 80 . FACTS OF THE CASE IN BRIEF ARE THAT DURING TH E ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE SHARE HOL D ERS OF TH E ASSESSEE COMPANY, VIZ. K.R A VINDER REDDY, K.KRANTI KIRAN REDDY AND SMT.PIRIYAMVADA REDDY, WHO WERE HAVING MORE THAN 10% SHARE HOL D IN G IN THE ASSESSEE COMPANY ARE ALSO HOL D IN G SHARES WORKING OUT TO MORE THAN 1 0% IN M/S. ENGINEERS SYNDICATE INDIA PVT. LT D . SINCE ENGINEER SYNDICATE LTD., WAS HAVING SUFFICIENT RESERVE, THE ASSESSEE WAS REQUESTED TO EXPLAIN AS TO WHY THE ADVANCE/LOAN AMOUNT RECEIVED BY THE ASSESSEE COMPANY SHALL NO T BE TREATED AS DEEMED DIVI DE ND UNDER S.2(22)(E) OF THE ACT. IT WA S EX PLAIN E D BY THE ASSESSEE THAT THE AMOUNTS WERE PAID BY JANAPRIYA ENGIN E ERS S Y NDI C ATE INDIA PVT. LTD. TO THE ASSESSEE COMPANY ON AC C OUN T OF IN T ER - CORPO R ATE DEPOSITS AND HENCE THE PROVISION S O F S.2(22)(E) A RE NO T APPLICABLE. THE ASSESSING OFFICER NOT CONVIN C ED WITH THE EXPLANATION OF THE ASSESSEE, AND OB S ERVIN G THAT THERE IS NO EXCEPTION FOR INT E R - CORPORATE DEPOSI T S FOR THE PURPOSES OF S.2(2) (E ) OF THE ACT, IF OTHER CON D I T IONS ARE ACCEPTED, HELD THAT THE A D V ANCE/LOAN AMOUN T RECEIVED BY THE ASSESSEE COMPANY WAS LIABLE TO BE TREATED AS D E EMED DIVIDEND. HE ACCOR D IN G LY MADE ADDITIONS OF RS.65,24,145 FOR ASSESSMENT YEAR 2002 - 03 AND OF ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 38 RS.82,50,490 FOR ASSESSMENT YEAR 2003 - 04. ON APPEAL, THE CIT(A), FOLLOWING AMONG OTH E RS, THE SP E CIAL BENCH DECISION OF THE TRIBUNAL IN THE CASE OF BHAUMIK COLOUR LAB ( 118 ITD 1), HE L D AS FOLLOWS - 03.1 IDENTICAL VIEW HAS BEEN TAKEN BY HONBLE ITAT HYDERABAD A BENCH IN THE CA S E OF MTAR TECHNOLOGIES P. LTD. VS . ACIT CR.14(2) HY DERABAD 2010 (39 SOT 465) WHEREIN IT WAS HELD THAT DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF THE PERSON, WHO I S SHARE HOL D ER OF THE LENDER - COMP A NY AND NO T IN THE HANDS OF A PERSON OTHER THAN THE SHA R EHOL D ER. I N TH E CA S E UNDER CON S ID ER ATION I T IS NO T CL E AR FROM TH E ASSESSMENT ORDER WHETHER THE APPELLANT COMPANY WAS A R E GISTER E D SHARE HOL D ER OF TH E LENDIN G COMPANY. THE ASSESSING OFFICER IS THEREFORE DIRECTED TO VERIFY THE SAME AND IF IT IS FOUND THAT THE APPELLANT COMPANY IS NO T A REGISTERED SHAREHOLDER OF TH E E LENDIN G COMPANY THEN FOL L OWIN G THE DECISION O F ITAT SP E CIAL BENCH IN THE CA S E OF BHAUMIK COLOUR LAB REFERRED TO ABO V E AS ALSO THE DECISION OF OTHER TRIBUNALS INCLU D IN G THAT OF ITAT HYDERABAD AS ABOVE WILL NO T B E JUSTIFIED AND THE SAME IS DIRECTED TO BE DELETED. 81 . WE HEARD BOTH THE PARTIES AND PERU S ED THE M A TE R IALS ON RECORD. I N THIS CASE, THE ASSESSEE HAS ACC E PTED INTER - CORPORATE DEPOSI T S FROM ITS GROUP COMPANIES AND ASSESSEE IS NO T A SHARE HOL D ER IN THAT C OMPANIES. BEING SO, THE PROVISIONS OF S.2 ( 22 )(E) OF THE ACT , IN OUR CONSIDERED OPINION, ARE NOT APPLICABLE AS HELD BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT V/S. BHAUMIK COLOUR PVT. LTD. (118 ITD 1). FURTHER, HONBLE KOLKATA HIGH COURT HAS ALSO TAKEN SIMILAR VIEW IN THE CASE OF PRADIP KUMAR MALHOTRA V/S. CIT(338 ITR 538), WHEREIN IT HAS BEEN HELD , VIDE HEAD - NOTE OF THE REPORTS(338 ITR), AS FOLLOWS - THE PHRASE BY WAY OF ADVANCE OR LOAN APPEARING IN SUB - CLAUSE (E) OF SEC T ION 2(22) OF TH E INCOME - TAX ACT, 1 961, MU S T BE CONSTRUED TO MEAN THOSE ADVANCES OR LOANS WHICH A SHAREHOLDER ENJOYS SIMPLY ON ACCOUNT OF BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPAT E IN PROFITS) HOL D ING NOT LESS THAN TEN PER CENT, OF THE VOTING POWER; BUT IF SUCH LOAN OR AD V ANCE IS GIVEN TO SUCH SHAREHOLDER AS A CONSEQUENCE OF ANY FURTHER CON S IDERATION WHICH IS BENEFICIAL TO TH E COMPANY RECEIVED FROM SUCH A SHAREHOLDER, IN SUCH CASE, SUCH ADVANCE OR LOAN CANNOT B E SAID TO B E DEEMED DIVIDEND WITHIN THE MEANING OF THE ACT. THU S , GRATUITOUS LOAN OR ADVANCE GIVEN BY A COMPANY TO THOSE CLASSES OF SHAREHOLDERS WOULD C OME WITHIN THE PURVIEW OF SECTION 2(22) BUT NOT CASES WH E RE THE LOAN OR AD V ANCE IS GIVEN IN ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 39 RETURN TO AN ADVANTAGE CONFERRED WIT UPON THE COMPANY BY SUCH A SHAREHOLDER. SINCE THE CIT(A) IN THE IMPUGNED ORDER HAS FOLLOWED THE DECISION OF THE SP E CIAL BENCH IN THE CASE OF BHAUMIK COLOUR P. LTD. (SUPRA), WE FIND NO INFIRMITY IN TH E ACTION OF THE CIT(A) IN DELETING THE ADDITION S MADE BY THE ASSESSING OFFICER. WE ACCORDINGLY UPHOLD THE SAME, REJECTING THE GROUN D S OF THE REVENUE IN THESE APPEALS. 82 . IN THE RESULT, BOTH THE REVENUE APPEALS ARE DISMISSED. 83 . IN THE RESULT, REVEN UES APPEAL ITA NO.1614/YD/2012 IS TR E ATED AS ALLOWED FOR STATISTICAL PURPOSES. 84 . TO SUM UP - ( A ) ASSESSEES APPEALS ITA NOS.1250 TO 1253/HYD/2012 FOR ASSESSMENT YEARS 2005 - 06 TO 208 - 09 ARE DISMISSED . ( B ) O UT OF THE REVENUES APPEALS , WHILE THOSE FOR ASS ESSMENT YEARS 2005 - 06 AND 2006 - 07, BEING ITA NOS.1359 AND 1360/HY/D2012 ARE PARTLY ALLOWED , THE SAME FOR ASSESSMENT YEARS 2007 - 08 AN 2008 - 09, BEING ITA NOS.1361 AND 1362/HYD/2012 ARE DISMISSED. ( C ) ASSESSEES A PPEALS ITA NOS.1577, 1594 AND 1595/HYD/2012 ARE PARTLY ALLOWED. ( D ) F OUR APPEALS OF THE REVENUE, VIZ. ITA NO.1614, 1622 TO 1624/HYD/2012 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1250 / HYD/201 2 AND OTHERS M/S. JANAPRIYA ENGINEERS SYNDICATE (JV) & OTHERS, HYDERABAD 40 ( E ) WHILE ASSESSEES APPEALS 580 TO 582/HYD/2011 ARE DISMISSED, ITA NO.583/HYD/2011 IS PARTLY ALLOWED ( F ) REVENUE APPEALS ITA N OS.547 AND 548/HYD/2011 ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 29.11.2013 SD/ - SD/ - ( SAKTIJIT DEY ) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTA NT MEMBER DATED/ - 29 TH NOVEMBER , 2013 COPY FORWARDED TO: 1 2. 3. 4. 5 M/S. JANAPRIYA ENGINEERS SYNDICATE (JV), 8 - 2 - 120/86, PLOT NO.11 & 12, KEERTHI AND PRIDE TOWERS, ROAD NO.2, BANJARA HILLS, HYDERABAD 34. M/S. JANAPRIYA ENGINEERS S YNDICATE, 8 - 2 - 120/86, PLOT NO.11 & 12, KEERTHI AND PRIDE TOWERS, ROAD NO.2, BANJARA HILLS, HYDERABAD 34. M/S. JANAPRIYA PROPERTIES PVT. LTD. , 8 - 2 - 120/86, PLOT NO.11 & 12, KEERTHI AND PRIDE TOWERS, ROAD NO.2, BANJARA HILLS, HYDERABAD 34. M/S. JANAPRIYA PROPERTIES (PREVIOUSLY KNOWN AS JANAPRIYA E NGINEERS SYNDICATE ) 8 - 2 - 120/86, PLOT NO.11 & 12, KEERTHI AND PRIDE TOWERS, ROAD NO.2, BANJARA HILLS, HYDERABAD 34. M/S. ENGINEERS REDDY HOMES PVT. LTD., 3 - 6 - 115/A, JANAPRIYA HOUSE, HIMAYATNAGAR, HYDERABAD 6 DY. COMMISSIONER OF INCOME - TAX CENTRAL CIRCLE 2 HYDERABAD 7 ASSTT. COMMISSIONER OF INCOME - TAX CENTRAL CIRCLE 2, HYDERABAD 8 COMMISSIONER OF INCOME - TAX(APPEALS) I, HYDERABAD 9 COMMISSIONER OF INCOME - TAX CENTRAL, HYDERABAD 10 DEPARTMENTAL REPRESENTAT IVE ITAT, HYDERABAD B.V.S