Maganti Narasimha Murthy, Hyd, Hyderabad V. DCIT, Circle-1(1), Hyderabad, Hyderabad

ITA 1282/HYD/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3949 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 30-07-2018
• Assessment Year: 2010-2011
• Appeal Filed On: 03-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M SITHARAM
• Assessee Lawyers: S RAMA RAO
• Keywords: Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B , HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 1 282 /HYD/201 6 ASSESSMENT YEAR: 20 10 - 11 MAGANTI NARASIMHA MURTHY, HYDERABAD. PAN AFAPM 7615Q VS. DY. COMMISSIONER OF INCOME - TAX, CIRCLE 1(1), HYDERABAD. ( APPELLANT ) (RESPONDENT) ASSESSEE BY : SHRI S. RAMA RAO REVENUE BY : SHRI M. SITHARAM DATE OF HEARING 3 0 / 0 7 /2018 DATE OF PRONOUNCEMENT 1 0 / 0 8 / 201 8 O R D E R PER S . RIFAUR RAHMAN , A .M. : T H IS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 14 / 0 6 / 20 16 OF CIT(A) 1 , HYDERABAD FOR AY 20 10 - 11 . 2. BRIEF FACTS OF THE CASE ARE, THE ASSESSEE , A MANAGING DIRECTOR OF M/S ARCA PROJECTS PVT. LTD., FILED RETURN OF INCOME FOR THE AY 2010 - 11 ON 25/03/2011 ADMITTING TOTAL INCOME OF RS. 11,40,090/ - . SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AN D NOTICE U/S 143(2) WAS ISSUED. AO COMPLETED THE SCRUTINY ASSESSMENT U/S 143(3) ON 18/03/2013 DETERMINING THE TOTAL INCOME OF RS. 38,10,080/ - BY MAKING THE FOLLOWING DISALLOWANCES: 1. DISALLOWANCE OF INTEREST OF RS. 17,52,892/ - U/S 40A(2) 2. ADDITION OF RS. 35,591/ - . 3. ON APPEAL, THE CIT(A) CONFIRMED THE ORDER OF AO. 2 ITA NO. 1282 /HYD/1 6 MAGANTI NARASIMHA MURTHY 4. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US RAISING FIVE GROUNDS OF APPEAL. GROUND NOS. 1 & 5 ARE GENERAL IN NATURE. GROUND NOS. 2 & 3 ARE PERTAINING TO DISALL OWANCE U/S 40A(2) AND GROUND NO. 4 IS TOWARDS ADDITION OF RS. 35,591/ - , WHICH WAS NOT PRESSED BEFORE US. THEREFORE, THE EFFECTIVE GROUND TO BE DECIDED BY US IS WITH REGARD TO DISALLOWANCE U/S 40A(2). 5. THE FACTS RELATING TO THIS GROUND ARE, D URING THE ASSESSMENT PROCEEDINGS , THE AO NOTICED THAT THE ASSESSEE CLAIMED LOSS OF RS. 17,52,892/ - FROM OTHER SOURCES. ON VERIFICATION OF THE DETAILS, THE AO FOUND THAT THE LOSS CLAIMED WA S THE INTEREST EXPENDITURE ON BANK BORROWINGS AT RS. 17,52,892/ - , WHICH WAS GOT SET - OFF AGAINST INCOME FROM SALARIES. WHEN ASKED TO EXPLAIN HOW THE SAID LOSS IS ALLOWABLE AS HE DID NOT HAVE ANY FINANCE BUSINESS, I T WAS EXPLAINED THAT THE ASSESSEE WAS THE MD AND PROMOTER OF M / S A RCA PROJECT PVT. LTD AND SINCE THE SAID FIRM WAS IN NEED OF FUNDS, THE ASSESSEE BORROWED FROM BANKS AND OTHER PRIVATE PERSONS IN HIS PERSONAL CAPACITY AND DEPOSITED THE SAME WITH THE COMPANY AS IF IT WAS HIS OWN MONEY. THE BORROWED AMO UNTS WERE LENT TO RELATED PARTY. THE ASSESSING OFFICER NOTED T HAT THE ASSESSEE USED TO PAY EMI TO THE BANK WHEREAS RECEIVED INTEREST FROM THE FIRM. HOWEVER, THERE WAS MISMATCH BETWEEN INTEREST RECEIPT AND PAID. THE ASSESSING OFFICER DI SALLOWED THE AMOUNT U NDER INTEREST LOSS. 6. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), WHO CONFIRMED THE DISALLOWANCE ON THE GROUND THAT NO FURTHER SUBMISSION WAS MADE BEFORE HIM ON THIS ISSUE. 7. A GGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 8. LD. AR OF THE ASSESSEE SUBMITTED THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH OF THIS 3 ITA NO. 1282 /HYD/1 6 MAGANTI NARASIMHA MURTHY TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2009 - 10 IN ITA NO. 1267/HYD/2013, WHICH WAS FILED BY THE REVENUE. A COPY OF ORDER IS ON RECORD. 9. LD. DR, ON THE OTHER HAND, NEITHER CONTROVERTED THE SUBMISSION OF THE LD. AR NOR BROUGHT ANY CONTRARY DECISION IN THIS REGARD. 10. CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIAL ON RECORD. IN AY 2009 - 10 (SUPRA), THE COORDINATE BENCH ON SIMILAR ISSUE HELD AS UNDER: 12. WE FIND THAT AT PARA 6.3 OF HIS ORDER THE CIT(A) HAS HELD AS FOLLOWS: 'IN THIS CASE THE PAYMENT OF RS. 52,32,035/ - AND THE LOAN PROCESSING CHA RGES WERE PAID TO SRIRAM CITY UNION FINANCE AND SECTION 40A(2) IS APPLICABLE ONLY IN RESPECT OF ANY EXCESS PAYMENT MADE TO A RELATED PARTY, AS PER THE PROVISIONS' OF THE SAID SECTION BUT THE APPELLANT SHOULD HAVE MADE THE PAYMENT OF INTEREST TO A RELATED P ARTY IN ORDER TO ATTRACT THE PROVISIONS OF SECTION 40A(2) OF THE ACT BUT THE APPELLANT IN THIS CASE MADE THE PAYMENT OF RS. 52,32,035/ - TOWARDS INTEREST TO SRIRAM CITY UNION FINANCE, A THIRD PARTY AND NOT A RELATED PARTY. THEREFORE, IT IS HELD THAT THE AS SESSING OFFICER APPLIED THE PROVISIONS OF SECTION 40A(2) WRONGLY TO THE TRANSACTIONS UNDER CONSIDERATION WHICH IS NOT CORRECT AND NOT JUSTIFIED. ' 13. IN THE GROUNDS OF APPEAL RAISED BY THE DEPARTMENT IT HAS BEEN STATED THAT THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION MADE TOWARDS CLAIM OF LOSS OF RS. 13,57,218 BY INVOKING THE PROVISIONS OF SECTION 40A(2) OF THE ACT WHEREAS AS STATED ABOVE, THE CIT(A) HAS MADE IT CLEAR THAT THE CORRECT SECTION TO BE APPLIED IN THIS CASE IS S. 36(1)(III) AND NOT S. 40A(2). NO CASE WAS MADE OUT AS TO WHY THE PROVISIONS OF S. 40A(2) ARE APPLICABLE WHEN PAYMENT WAS MADE TO THIRD PARTY. THE GROUNDS OF APPEAL BY THE DEPARTMENT THAT THE CIT(A) ERRED IN DELETING THE ADDITION MADE TOWARDS CLAIM OF LOSS OF RS. 13,57,218 BY INVOKING THE PROVISIONS OF SECTION 40A(2) OF THE IT ACT HAD BEEN WRONGLY RAISED AS THE CIT(A) WAS OF THE VIEW THAT PROVISIONS OF S. 36(1)(III) APPLY. 14. HOWEVER, AFTER PERUSING THE ORDERS OF THE AO AND THE CIT(A), WE ARE OF THE VIEW THAT BOTH THE LOWER AUTHORITIES ARE INCORRECT IN DETERMINING THE SECTION UNDER WHICH THE 4 ITA NO. 1282 /HYD/1 6 MAGANTI NARASIMHA MURTHY DISALLOWANCE IS TO BE MADE. THE FACT IS THAT THE ASSESSEE HAS DECLARED IN HIS RETURN OF INCOME UNDER THE HEAD 'INCOME FROM OTHER SOURCES', INTEREST RECEIVED FROM ARCA PROJECTS RS. 45,65, 970 AND BANK INTEREST OF RS. 6,566. IN THESE CIRCUMSTANCES, IN THE ABSENCE OF BUSINESS INCOME THE AO IS DIRECTED TO RE - WORK THE COMPUTATION U/ S. 57(III) OF, THE IT ACT AND DECIDE IN ACCORDANCE WITH LAW. WITH THIS DIRECTION WE SET - ASIDE THE ISSUE TO THE FILE OF THE AO. AS THE ISSUE UNDER CONSIDERATION IS IDENTICAL TO AY 2009 - 10, FOLLOWING THE DECISION THEREIN, WE REMIT THE ISSUE TO THE FILE OF AO WITH A DIRECTION TO DECIDE THE SAME FOLLOWING THE DIRECTIONS OF ITAT IN AY 2009 - 10 (SUPRA). ACCORDINGLY THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 10 TH AUGUST , 2018 . SD/ - SD/ - ( P. MADHAVI DEVI ) (S . RIFAUR RAHMAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 10 TH AUGUST , 2018 KV C OPY TO: - 1) MAGANTI NARASIMHA MURTHY, C/O SRI S. RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYAS ELEGANCE, 3 - 6 - 643, STREET NO. 9, HIMAYATNAGAR, HYDERABAD 500 029. 2) DC IT, CIRCLE 1(1), IT TOWERS, AC GUARDS, HY DERABAD 3) CIT(A) 1 , HYDERABAD. 4) PR. CIT 1 , HYD. 5 ) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD. 6 ) GUARD FILE