Devi Shri Charan Reddy, Hyderabad, Hyderabad V. DCIT, Circle-14(1), Hyderabad, Hyderabad

ITA 1435/HYD/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2343 (ITAT-HYDERABAD)
• Duration Of Justice: 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-05-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 24-10-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: L R AMJI RAO
• Assessee Lawyers: K C DEVADAS
• Keywords: Business income; Business expenditure; Assessment record

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ITA NO. 1435/HYD/2016 ASSESSMENT YEAR: 2012-13 SRI DEVI SHRI CHARAN REDDY, HYDERABAD. PAN AJTPR9072K VS. DCIT, CIRCLE 14(1), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K.C. DEVADAS REVENUE BY : SHRI L. RAMJI RAO DATE OF HEARING : 05-07-2017 DATE OF PRONOUNCEMENT : 12-07-2017 ORDER PER D.S. SUNDER SINGH, A.M: ALL THE GROUNDS OF THE APPEAL ARE RELATED TO THE DISALLOWANCE OF INTEREST OF RS. 25,77,134/- AND VALUATION CHARGES OF RS. 10,000/-, WHILE COMPUTING THE INCOME UNDER THE HEAD PROFIT AND GAINS FROM BUSINESS OR PROFESSION. THE ASSESSEE IS AN ADVOCATE BY PROFESSION AND FOR THE A.Y 2012-13 FILED THE RETURN OF INCOME ADMITTING THE TOTAL INCOME RS. 21,70,056/-. DURING THE ASSESSMENT PROCEEDING THE A.O FOUND THAT THE ASSESSEE HAS DEBITED A SUM OF RS. 25,77,134/- TOWARDS INTEREST ON LOAN AND RS.10000/- ON ACCOUNT OF VALUATION CHARGES AND CLAIMED THE SAME AS DEDUCTION. THE A.O FOUND THAT THE ASSESSEE IS LAWYER BY PROFESSION AND NOT CARRYING ON ANY BUSINESS THEREFORE, THE INTEREST PAID BY THE ASSESSEE ON BORROWED 2 ITA NO. 1435/HYD/2016 SRI DEVI SHRI CHARAN REDDY., HYDERABAD. FUNDS WERE HELD TO BE NOT INCURRED FOR THE PURPOSE OF CARRYING ON HIS PROFESSION AND DISALLOWED THE SAME. THE AO FURTHER OBSERVED THAT THE INTEREST IS RELATED TO THE FIXED ASSETS ACQUIRED AND INVESTMENTS MADE BY THE ASSESSEE AND THUS DISALLOWED THE INTEREST AS WELL AS THE VALUATION CHARGES AS NOT RELATED TO THE BUSINESS ACTIVITY. AGGRIEVED BY THE ORDER OF THE A.O, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A), WHO CONFIRMED THE ADDITION MADE BY THE A.O OBSERVING AS UNDER: 05.0 ACCORDING TO THE ASSESSEE, INTEREST ON LOAN TAKEN FOR MAKING INVESTMENT IN PROPERTIES WAS AN ALLOWABLE DEDUCTION U/S. 36(1)(III) OF THE ACT AS IT WAS HIS BUSINESS TO BUY AND SELL PROPERTIES AND THAT MERE NOMENCLATURE OF INVESTMENT IN THE BALANCE SHEET FOR IMMOVABLE PROPERTY SHOULD NOT BE DETERMINATIVE OF THE NATURE OF THE TRANSACTION AND THAT THE A.O SHOULD HAVE TAKEN THE SUBSTANCE RATHER THAN THE FORM. THE SUBMISSION IS CONSIDERED. 05.1 IT IS MATTER OF RECORD THAT THE PROPERTIES HAVE BEEN SHOWN AS INVESTMENT IN THE BALANCE SHEET FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND FOR THE EARLIER YEARS ALSO. ANY INTEREST PAID ON LOAN TAKEN FOR THE PURPOSES OF INVESTMENT IN LAND IS NOT AN ALLOWABLE DEDUCTION UNDER ANY PROVISION OF THE ACT. THE CLAIM OF THE ASSESSEE DURING THE APPELLATE PROCEEDING BY WAY OF ADDITIONAL/MODIFIED GROUNDS OF APPEAL THAT THE INVESTMENT MADE SHOULD BE CONSIDERED AS BUSINESS ACTIVITY ON ACCOUNT OF FREQUENT TRANSACTION OF PURCHASE AND SALE OF PROPERTIES IN THE A.Y 2013-14 IS NOT BORNE OUT FROM THE RECORDS. A PERUSAL OF ASSESSMENT RECORD OF A.Y. 2013-14 SHOWS THAT THE IMMOVABLE PROPERTIES WERE SHOWN AS INVESTMENT IN THE BALANCE SHEET AND NO PROFIT FROM BUSINESS ON ANY SALE OF PROPERTY HAD BEEN SHOWN IN THAT YEAR. MOREOVER, THE A.O IN THAT ASSESSMENT YEAR HAS ALSO DISALLOWED THE ASSESSEES CLAIM OF INTEREST ON IDENTICAL GROUNDS. HENCE, THE CLAIM OF THE ASSESSEE THAT THERE WAS FREQUENT SALE OF PROPERTY IN A.Y 2013-14 IS REJECTED AS BEING UNSUBSTANTIATED. 2. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 3 ITA NO. 1435/HYD/2016 SRI DEVI SHRI CHARAN REDDY., HYDERABAD. 3. LD.AR APPEARING FOR THE ASSESSEE ARGUED THAT THOUGH ASSESSEE IS A LAWYER BY PROFESSION, HE IS ENGAGED IN THE ACTIVITY OF PURCHASE AND SALE OF LANDS AFTER SETTLEMENT OF THE DISPUTE. EVEN THOUGH THERE IS NO SALES IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE CARRIED ON THE BUSINESS BY PURCHASING THE LANDS AND OTHER ASSETS FOR THE PURPOSE OF BUSINESS. THEREFORE, ACCORDING TO THE LD. AR, ACTIVITY OF THE ASSESSEE IS A ORGANIZED BUSINESS ACTIVITY INVOLVING FREQUENT PURCHASE AND SALE TRANSACTIONS AND HE RELIED ON THE DECISION IN THE CASE OF KEDARNATH JUTE MILLS 82 ITR 363. ACCORDING TO THE LD. AR, THE INTEREST DEBITED TO THE PROFIT AND LOSS ACCOUNT IS A BUSINESS EXPENDITURE AND THEREFORE, THE SAME SHOULD BE ALLOWED AS SUCH. 4. ON THE OTHER HAND, THE LD. DR ARGUED THAT THE ASSESSEE IS NOT DOING ANY BUSINESS BUT, HE IS MAKING INVESTMENT IN VARIOUS ASSETS. THE MAJOR INVESTMENTS WERE MADE IN THE SOURAV INFRA PVT LTD SHARES AND R.K. ETERNAL PROJECTS. THE CONDUCT OF THE ASSESSEE CLEARLY SHOWS THAT THE ASSESSEE IS NOT INVOLVING ANY TRADING OF SHARES OR PURCHASE AND SALE OF LANDS. HE IS MAKING PERIODICAL INVESTMENTS AND THE INTENTION OF THE ASSESSEE IS TO MAKE THE INVESTMENTS BUT NOT THE BUSINESS. THE ASSESSEE HAS TAKEN THE LOANS EITHER FOR THE PURPOSE OF MAKING INVESTMENTS OR FOR PERSONAL EXPENDITURE BUT, NO AMOUNT OF LOAN WAS USED FOR THE PURPOSE OF BUSINESS AND THE ASSESSEE IS NOT ENGAGED IN THE BUSINESS ACTIVITY AT ALL. THIS FACT WAS EVIDENT FROM THE PAPER BOOK, WHEREIN, THE ASSESSEE HAS NEITHER SHOWN OPENING STOCK NOR SHOWN THE CLOSING STOCK. HAD THE ASSESSEE BEEN INVOLVED IN THE BUSINESS, THE 4 ITA NO. 1435/HYD/2016 SRI DEVI SHRI CHARAN REDDY., HYDERABAD. ASSESSEE SHOULD HAVE INCLUDED THE EXPENDITURE RELATABLE TO THE BUSINESS IN THE WORK-IN-PROGRESS AND INCREASED THE VALUE OF THE CLOSING STOCK TO THE EXTENT OF EXPENDITURE INCURRED ON STOCK AND DECLARED CLOSING STOCK AS WORK IN PROGRESS INCLUSIVE OF THE BUSINESS EXPENDITURE INCURRED TILL DATE. ACCORDING TO THE LD. DR THE ASSESSEE SHOULD CAPITALIZE THE INTEREST TO THE RESPECTIVE ASSETS BY MATCHING CONCEPT, SINCE, THE ASSESSEE HAS DECLARED THE INVESTMENTS IN THE BALANCE SHEET AND THERE WAS NO ACTIVITY OF BUSINESS, THE LD. DR CONTENDED THAT THE A.O RIGHTLY DISALLOWED THE INTEREST AND THE CIT(A) UPHELD THE ORDER. ACCORDING TO THE LD. DR NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE LD. CIT(A). THE DR ALSO RELIED ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT VS. BRITISH PAINTS INDIA LIMITED (188 ITR 44) (SC). 5. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED ON RECORD. THE ASSESSEE IS A LAWYER BY PROFESSION. AS PER THE PROFIT AND LOSS ACCOUNT, THE ASSESSE IS NOT DOING ANY BUSINESS AND THE ENTIRE RECEIPTS ADMITTED IN THE P&L ACCOUNT WAS PROFESSIONAL RECEIPTS. THE ASSESSEE HAS FILED THE PAPER BOOK WITH COPIES OF THE ACKNOWLEDGEMENTS OF RETURNS OF INCOME AND P&L ACCOUNT FROM THE A.Y 2008-09 TO 2015-16 AND THE ASSESSMENT YEAR UNDER CONSIDERATION IS 2012-13. WE HAVE GONE THROUGH THE PAPER BOOK AND CAREFULLY VERIFIED THE P&L ACCOUNT. FOR THE AY 2008-2009, THE ASSESSEE RECEIVED PROFESSIONAL CHARGES OF RS. 57.99 LAKHS AND THERE WERE NO BUSINESS TRANSACTIONS. THE ASSESSEE HAS MADE INVESTMENTS IN LAND AND THE SAME WAS SHOWN UNDER THE HEAD FIXED ASSETS. FOR 5 ITA NO. 1435/HYD/2016 SRI DEVI SHRI CHARAN REDDY., HYDERABAD. THE A.Y 2009-10, THE ASSESSEE HAS FILED THE RETURN OF INCOME AND DECLARED ONLY PROFESSIOAL RECEIPTS OF RS. 24.00 LAKHS AND THERE WAS NO BUSINESS INCOME OR NO BUSINESS TRANSACTIONS MADE BY THE ASSESSEE. IN THE BALANCE SHEET, THE ASSESSEE HAS SHOWN THE INVESTMENTS PERTAINING TO INVESTMENTS IN VARIOUS PROJECTS OF VARIOUS COMPANIES. HE HAS MADE THE INVESTMENT PREDOMINANTLY IN SHARES OF KANAV FABCON PRIVATE LIMITED; R.K. ETERNAL PROJECTS AND SRI BALAJI INFRASTRUCTURE AND THERE IS NO STOCK-IN-TRADE DECLARED BY THE ASSESSEE. SIMILARLY, FOR THE A.Y 2010-11, THE ASSESSEE HAS ADMITTED PROFESSIONAL RECEIPTS OF RS. 52.20 LAKHS AND NO BUSINESS TRANSACTIONS WERE DECLARED BY THE ASSESSEE. IN THE BALANCE SHEET, THE ASSESSEE HAS DECLARED THE INVESTMENT TO THE EXTENT OF RS. 2.98 CRORES WITH VARIOUS COMPANIES. FOR THE A.Y 2011-12 ALSO, THE ASSESSEE HAS FILED THE PROFIT AND LOSS ACCOUNT AND DECLARED ONLY PROFESSIONAL INCOME OF RS. 52.77 LAKHS AND THERE WAS NO BUSINESS TRANSACTIONS AS WELL AS NO STOCK-IN-TRADE AND NO OPENING STOCK AND THE ENTIRE INVESTMENTS WERE SHOWN IN THE BALANCE SHEET. FOR THE A.Y 2012-13, THE ASSESSEE HAD DECLARED THE PROFESSIONAL RECEIPTS OF RS. 46 LAKHS IN THE PROFIT AND LOSS ACCOUNT AND NO BUSINESS TRANSACTIONS DECLARED BY THE ASSESSEE AND IN THE BALANCE SHEET, THE ASSESSEE DECLARED THE ENTIRE SUM UNDER THE INVESTMENTS. FOR ALL THE ASSESSMENT YEARS RIGHT FORM 2008-09 TO 2012- 13, THE ASSESSEE IS CLAIMING DEDUCTION OF INTEREST PAID ON LOANS BUT ADMITTING THE ASSETS UNDER THE HEAD INVESTMENTS. FROM THE ABOVE DETAILS, IT IS CLEAR THAT THE ASSESSEE IS MAKING INVESTMENTS YEAR AFTER YEAR AND THERE WERE NO SALE TRANSACTIONS RIGHT FROM A.Y 2008-09 TO 2012-13. THE 6 ITA NO. 1435/HYD/2016 SRI DEVI SHRI CHARAN REDDY., HYDERABAD. ASSESSEE HAS NEITHER DECLARED CAPITAL GAINS NOR PROFITS OF BUSINESS AND THERE WERE NO BUSINESS TRANSACTIONS IN ALL THE SIX ASSESSMENT YEARS. THE LD. AR ARGUED THAT IN VIEW OF THE FREQUENCY OF TRADING THE ACTIVITY SHOULD BE CONSTRUED AS BUSINESS, BUT AS OBSERVED EXCEPT BUYING THE LANDS AND MAKING THE INVESTMENTS, THERE IS NO SALE AT ALL. THE MAJOR INVESTMENTS WERE MADE IN R.K ETERNAL PROJECTS AND SAURAVA INFRASTRUCTURES PVT LTD. NOWHERE IN THE FINANCIAL STATEMENTS, THE ASSESSEE HAS DECLARED HIS INTENTION OF BUSINESS. THE CONDUCT OF THE ASSESSEE CLEARLY SHOWS THAT THE ASSESSEE IS MAKING INVESTMENTS WITH A INTENTION TO KEEP LONG TERM INVESTMENTS BUT NOT BUSINESS TRANSACTIONS. EVEN IN THE BALANCE SHEET, THE ASSESSEE HAS NEVER DECLARED EITHER OPENING STOCK OR CLOSING STOCK. THE CONTENTION OF THE LD. AR PLACING RELIANCE OF 82 ITR 363 THAT NOMENCLATURE IS NOT THE DECISIVE FACTOR IS NOT APPLICABLE IN THIS CASE SINCE THE ISSUE BEFORE THE HONBLE SUPREME COURT RELIED UP ON BY THE ASSESSEE WAS SALES TAX WHICH WAS LIABLE UNDER THE LAW TO PAY DURING THE RELEVANT ACCOUNTING YEAR. THE LIABILITY REMAINED INTACT EVEN AFTER THE ASSESSEE HAD TAKEN APPEALS TO HIGHER AUTHORITIES OR COURTS WHICH FAILED . IN THE ASSESSEES CASE, THE FACTS ARE CLEARLY EVIDENT THAT THERE WAS NO BUSINESS ACTIVITY AT ALL AND THE NOMENCLATURE GIVEN BY THE ASSESSEE AS INVESTMENT IN THE BALANCE SHEET FORTIFIES THE ACTIVITY OF THE ASSESSEE THAT IT IS INVESTMENT ACTIVITY. HONBLE GUJARAT HIGH COURT IN [2017] 78 TAXMANN.COM 296 (GUJARAT)COMMISSIONER OF INCOME-TAX- 1. V. TEJAS SECURITIES HELD THAT WHERE THE TRANSACTIONS IN SHARES COULD NOT BE SAID TO BE FREQUENT TRANSACTIONS OF 7 ITA NO. 1435/HYD/2016 SRI DEVI SHRI CHARAN REDDY., HYDERABAD. PURCHASE AND SALE WITH A VIEW TO EARN QUICK PROFIT ARISING FROM SALE OF THOSE SHARES WOULD BE TAXABLE AS CAPITAL GAIN. THOUGH THE HONBLE GUJARAT HIGH COURT RENDERED THE JUDGMENT IN CONNECTION WITH THE SHARES IT IS EQUALLY APPLICABLE TO ANY OTHER TRADE INCLUDING THE LAND. IN THE ASSESSEES CASE THE ASSESSEE IS MAKING INVESTMENTS BOTH IN SHARES AS WELL AS IN LAND BUT THERE IS NO SALE FROM THE A.Y 2008-09 ONWARDS. THEREFORE, WE HOLD THAT THERE IS NO BUSINESS ACTIVITY CONDUCTED BY THE ASSESSEE AND THERE IS NO INTENTION OF ASSESSEE TO MAKE THE BUSINESS. AS EVIDENT FROM THE FINANCIAL STATEMENTS, INVESTMENTS ARE MADE ONLY FOR THE PURPOSE OF ACCUMULATION OF FIXED ASSETS AND WITH AN INTENTION TO EARN LONG TERM CAPITAL GAINS AND HENCE THE INTEREST IS NOT ALLOWABLE AS ALLOWABLE EXPENDITURE. THE CIT(A) HAS RIGHTLY CONFIRMED THE ADDITION MADE BY THE A.O AND WE UPHOLD THE ORDER AND DISMISS THE APPEAL OF THE ASSESSEE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 12 TH JULY, 2017. SD/- SD/- (V. DURGA RAO) (D.S. SUNDER SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 12 TH JULY , 2017.