Surabhi Estates, Hyderabad V. ACIT., Central Circle-1, Hyderabad

ITA 1373/HYD/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6393 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 16-05-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 05-08-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M SITARAM
• Assessee Lawyers: S RAMA RAO
• Keywords: Search and seizure; Rule of consistency; Deemed dividend
• Section: 143(3); 153A; 234B; 132

Judgement Text

ITA NOS 1372 TO 1374 OF 2014 SURABHI ESTATES HYDERA BAD PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P.MADHAVI DEVI, JUDICIAL MEMBER & SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NOS.1372 TO 1374/HYD/2014 (ASSESSMENT YEARS: 2007-08, 2008-09 & 2009-10) SURABHI ESTATES HYDERABAD PAN: ABCFS 9344 L VS. ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1 HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI S. RAMA RAO FOR REVENUE : SHRI M. SITARAM, DR DATE OF HEARING : 16.05.2016 DATE OF PRONOUNCEMENT : 03 .0 8 .2016 O R D E R PER SMT. P. MADHAVI DEVI, J.M. ALL THESE THREE APPEALS ARE FILED BY THE ASSESSEE F OR THE A.Y 2007-08, 2008-09 AND 2009-10 RESPECTIVELY. IN ALL T HESE APPEALS, THE ASSESSEE IS AGGRIEVED BY THE COMMON ORDER OF TH E CIT (A), DATED 19.05.2014 CONFIRMING THE ORDER OF THE AO REJ ECTING THE ESTIMATION OF INCOME BY THE ASSESSEE ON THE ADVANCE S RECEIVED AND ESTIMATING THE INCOME @ 10% ON THE WORK-IN-PROG RESS. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FI RM, ENGAGED IN THE BUSINESS OF REAL ESTATE, FILED ITS RETURN OF INCOME FOR A.Y 2007-08 ON 26.10.2007 DECLARING INCOME OF RS.11,09, 199. THERE WAS A SEARCH AND SEIZURE OPERATION U/S 132 OF THE I .T. ACT AT THE BUSINESS PREMISES OF THE ASSESSEE ON 17.09.2008. CO NSEQUENT TO THE SEARCH, A NOTICE U/S 153A OF THE ACT, DATED 12. 10.2009 WAS ITA NOS 1372 TO 1374 OF 2014 SURABHI ESTATES HYDERA BAD PAGE 2 OF 6 ISSUED TO THE ASSESSEE AND IN RESPONSE THERETO, THE ASSESSEE FILED A LETTER STATING THAT THE RETURNS FILED EARLIER MAY BE TREATED AS RETURNS FILED IN RESPONSE TO THE NOTICE U/S 153A OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) R.W.S. 153A OF THE ACT FOR THE A.Y 2007-08, THE AO EXAMINED THE NATURE OF THE ASSESSEES BUSINESS AND FOUND THAT THE ASSESSEE IS INTO REAL ESTATE AND ALSO IN CIVIL CONSTRUCTION. HE OBSERVED THAT THE ASSESSEE IS CAPITALISING THE WORK IN PROGRESS DURIN G THE RELEVANT A.Y AND OFFERED INCOME ON ADVANCES RECEIVED @8% AND THE NOTIONAL PROFIT ADDED TO THE WORK-IN-PROGRESS AND C ARRIED OVER TO THE NEXT YEAR. HE OBSERVED THAT ONLY IN THE YEAR IN WHICH THE PROJECT IS COMPLETED, THE SALE CONSIDERATION IS SHO WN AS INCOME AND THE EXPENDITURE DEBITED IS THE RELATED WORK IN PROGRESS AND THE DIFFERENCE IS THE PROFIT ON THE PROJECT. HE OBS ERVED THAT TILL THE PROJECT IS UNDER CONSTRUCTION, THE WORK IN PROGRESS AND THE ADMINISTRATIVE EXPENDITURES ARE ADDED UP AND TAKEN TO THE BALANCE SHEET AS CLOSING WORK IN PROGRESS AND THAT FROM THE RETURNS OF INCOME FROM FOR A.YS 2003-04 TO 2007-08, ASSESSEE IS CONSTANTLY ADOPTING THE ABOVE METHOD. OBSERVING THA T THE ASSESSEE IS OFFERING THE INCOME ON ESTIMATED BASIS ON THE ADVANCES RECEIVED DURING THE YEAR, THE AO HELD THAT THE METHOD SUFFERS FROM DEFECTS, IN A WAY THAT IS UNCERTAIN. H E OBSERVED THAT IT IS NOT CERTAIN WHETHER THE ASSESSEE WILL RECEIVE ADVANCES DURING ANY YEAR OR IF ANY ADVANCES WILL BE RECEIVED AND IT IS ALSO NOT CERTAIN WHEN THE ACTUAL SALE DEED WILL BE REGIS TERED. THUS, ACCORDING TO HIM, THE METHOD OF OFFERING THE INCOME ON ADVANCES OR SALE WILL NOT YIELD A CONSISTENT RESULT AND THE ONLY CERTAINTY IS THE WORK IN PROGRESS. HE THEREFORE, ESTIMATED THE I NCOME AT 10% OF THE WORK IN PROGRESS DURING THE YEAR. AGGRIEVED, THE ASSESSEE ITA NOS 1372 TO 1374 OF 2014 SURABHI ESTATES HYDERA BAD PAGE 3 OF 6 PREFERRED AN APPEAL BEFORE THE CIT (A), WHO CONFIRM ED THE ORDER OF THE AO AND THE ASSESSEE IS IN SECOND APPEAL BEFO RE US. 3. THE LEARNED COUNSEL FOR THE ASSESSEE, WHILE REIT ERATING THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW SUBMI TTED THAT THE ASSESSEE HAS BEEN FOLLOWING THE CONSISTENT METH OD OF OFFERING NOTIONAL PROFIT AT 8% OF THE ADVANCES RECEIVED DURI NG THE RELEVANT FINANCIAL YEAR, WHILE THE AO HAS ESTIMATED THE INCO ME AT 10% OF THE WORK IN PROGRESS. HE SUBMITTED THAT THE WORK IN PROGRESS REPRESENTS ONLY THE COST OF THE PROJECT, WHEREAS TH E ADVANCES RECEIVED CONSIST OF THE INCOME OF THE ASSESSEE. THE REFORE, ACCORDING TO HIM, THE METHOD FOLLOWED BY THE ASSESS EE WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT IN THE EARLIER YEAR S SHOULD BE ADOPTED FOR THE A.YS 2007-08 AS WELL. THE LEARNED D R, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 4. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE REASONS FOR ESTIMATING THE INCOME ON WORK IN PROGRESS BY THE AUTHORITIES BELOW IS THAT T HE WORK IN PROGRESS IS CONSTANT AND CONSISTENT IN EVERY YEAR, WHEREAS THE ADVANCES MAY OR MAY NOT BE RECEIVED IN ANY PARTICUL AR YEAR. IN ADDITION TO THE RULE OF CONSISTENCY AND UNIFORMITY CANVASSED BY THE LEARNED COUNSEL FOR THE ASSESSEE, WE ALSO FIND FAVOUR WITH THE ARGUMENT OF THE LEARNED COUNSEL FOR THE ASSESSEE TH AT THE WORK IN PROGRESS ONLY RELATE TO THE COST OF THE PROJECT AND THE INCOME CANNOT BE ESTIMATED ONLY ON SUCH WORK IN PROGRESS. WE ALSO AGREE WITH HIM THAT THE ADVANCES RECEIVED BY THE AS SESSEE FORMS PART OF THE TURNOVER AND THE ESTIMATION OF INCOME O N THE TURNOVER IS A REASONABLE AND SCIENTIFIC METHOD FOR ESTIMATING THE ITA NOS 1372 TO 1374 OF 2014 SURABHI ESTATES HYDERA BAD PAGE 4 OF 6 PROFIT. IN VIEW OF THE SAME, WE ALLOW THE ASSESSEE S GROUNDS OF APPEAL NO.2 FOR THE A.Y 2007-08. SINCE THE SAME ISS UE HAS ARISEN IN A.YS, 2008-09 AND 2009-10 RESPECTIVELY, THE GROU ND NO.2 FOR THESE YEARS ALSO IS ALLOWED AND AO IS DIRECTED TO A CCEPT THE METHOD ADOPTED BY THE ASSESSEE FOR ESTIMATION OF IN COME. 5. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE DOES NOT WISH TO PRESS GROUND NO.4 FOR THE A.Y 2007-08 AND GROUND NO.3 FOR THE A.YS 20 08-09 AND 2009-10 RESPECTIVELY. THESE GROUNDS ARE ACCORDINGLY REJECTED AS NOT PRESSED. AS REGARDS GROUND NO.3 FOR THE A.Y 200 7-08, THE BRIEF FACTS ARE THAT DURING THE YEAR, ASSESSEE HAD SHOWN AN OUTSTANDING LIABILITY OF RS.1,26,615 FROM M/S. SURA BHI SHELTERS LTD AND THAT THE PARTNERS OF THE FIRM ARE ALSO THE DIRECTORS OF THAT COMPANY HOLDING MORE THAN 10% SHAREHOLDING. HE ALSO OBSERVED THAT THERE ARE ACCUMULATED PROFIT IN THE C OMPANY AND THEREFORE, ACCORDING TO HIM, THIS LOAN TRANSACTION ATTRACTS THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. HE THERE FORE, TREATED THE SAID LOAN AS DEEMED DIVIDEND IN THE HANDS OF THE AS SESSEE. ON APPEAL, THE CIT (A) CONFIRMED THE ADDITION AND THE ASSESSEE IS IN SECOND APPEAL BEFORE US. 6. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTEED THAT THE ASSESSEE, BEING A PARTNERSHIP FIRM, IS NOT THE SHAR E HOLDER OF M/S.SURABHI SHELTERS (P) LTD AND THEREFORE THE LOA N CANNOT BE TREATED AS THE DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE. IN SUPPORT OF HIS CONTENTION, HE PLACED RELIANCE UPON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL AT MUMBAI IN THE CASE OF BHAUMIK COLOUR (P) LTD (118 ITD 1 (MUM) (S.B). THER EFORE, ITA NOS 1372 TO 1374 OF 2014 SURABHI ESTATES HYDERA BAD PAGE 5 OF 6 ACCORDING TO HIM,THE ADDITION IS NOT MAINTAINABLE. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE CIT (A). 7. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE CIT (A) HAS BROUGHT OUT IN HIS ORDER THAT THE PARTNERS OF THE ASSESSEE FIRM ARE ALSO THE SHAR EHOLDERS OF THE SAID COMPANY HOLDING MORE THAN 10% SHAREHOLDINGS. T HE PROVISIONS OF SECTION 2(22)(E) OF THE ACT PROVIDES THAT A LOAN OR ADVANCE GIVEN BY A COMPANY TO A SHAREHOLDER OR ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAD SUBSTANTIAL INTEREST SHALL BE TREATED, TO TH E EXTENT TO WHICH THE COMPANY POSSESSES ACCUMULATED PROFITS, AS DEEMED DIVIDEND. IN THE CASE BEFORE US, THE ASSESSEE IS T HE CONCERN WHOSE PARTNERS ARE ALSO THE SHAREHOLDERS HAVING SUB STANTIAL INTEREST IN THE COMPANY. IN THE CASE OF BHAUMIK COL OUR (P) LTD (CITED SUPRA), THE SPECIAL BENCH HAS GONE INTO THE MATTER AND HAS HELD THAT THE DEEMED DIVIDEND HAS TO BE BROUG HT TO TAX IN THE HANDS OF THE SHAREHOLDERS. IN THE CASE BEFORE U S, ADMITTEDLY THE ASSESSEE IS NOT THE SHAREHOLDER BUT IT IS THE F IRM IN WHICH THE SHAREHOLDERS ARE THE PARTNERS. APPLYING THE ABOVE D ECISION, IF AT ALL, THE DEEMED DIVIDEND IS TO BE BROUGHT TO TAX, I T CAN BE BROUGHT TO TAX ONLY IN THE HANDS OF THE PARTNERS OF THE ASSESSEE FIRM, WHO ARE THE DIRECTORS, HAVING SUBSTANTIAL INT EREST IN THE COMPANY. THEREFORE, DEEMED DIVIDEND CANNOT BE BROUG HT TO TAX IN THE HANDS OF THE ASSESSEE U/S 2(22)(E) OF THE AC T. THIS GROUND OF APPEAL IS ACCORDINGLY ALLOWED. 8. THE LAST GROUND IN ALL THE APPEALS IS AGAINST TH E LEVY OF INTEREST U/S 234B AND 234C OF THE ACT WHICH IS CONS EQUENTIAL IN ITA NOS 1372 TO 1374 OF 2014 SURABHI ESTATES HYDERA BAD PAGE 6 OF 6 NATURE. THEREFORE, WE DIRECT THE AO TO GRANT CONSEQ UENTIAL RELIEF, IF ANY, TO THE ASSESSEE AFTER GIVING THE ASSESSEE A FAIR OPPORTUNITY OF HEARING. 9. IN THE RESULT, ASSESSEES APPEALS ARE PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD AUGUST, 2016. S D/ - S D/ - ( S. RIFAUR RAHMAN ) ( P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 3 RD AUGUST, 2016. VNODAN/SPS COPY TO: 1. SHRI S. RAMA RAO, ADVOCATE, FLAT NO.102, SHRIYAS EL EGANCE, H.NO.3-6-643, ST.NO.9, HIMAYATHNAGAR, HYDERABAD 500 029 2. ACIT, CENTRAL CIRCLE -1, AAYAKAR BHAVAN, BASHEERBAG H, HYDERABAD 3. CIT(A) I HYDERABAD 4. CIT (CENTRAL) HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE BY ORDER