DCIT, Faridabad V. M/s. iLabs Info Techonology Centre Pvt. Ltd., Gurgaon

ITA 1785/DEL/2015

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5592 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 30-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S L ANURAGI
• Keywords: Capital asset
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: BENCH C NEW DELHI BEFORE SRI R.K.PANDA, ACCOUNTANT MEMBER AND SMT. BEENA A PILLAI, JUDICIAL MEMBER ITA NO. 1785/DEL/2015 A.Y. 2011-12 DCIT VS. ILAB IN FO TECHNOLOGY CENTRE CIRCLE-1, BLOCK-1-B, PVT. LTD. CGO COMPLEX 404-405, PHASE-III, FARIDABAD UDYOG NAGAR GURGAO N PAN : AABC13779E (APPELLANT) (RESP ONDENT) REVENUE BY : SH. S.L.ANURAGI, SR. DR ASSESSEE BY : NONE DATE OF HEARING: 10.04 . 2018 DATE OF PRONOUNCEMENT : 16.04.2018 ORDER PER BEENA A PILLAI, JUDICIAL MEMBER THE PRESENT APPEAL HAS BEEN FILED BY REVENUE AGAINS T ORDER DATED 16/01/15 PASSED BY LD. CIT (A), FARIDABAD FOR ASSESSMENT YEAR 2011-12 ON THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD . CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS. 8,00,000/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE MA DE U/S 40A(3) OF THE INCOME TAX ACT, 1961 DISREGARDING THE FACT THAT THE PAYMENTS HAVE BEEN MADE IN CONTRAVENTION OF THE PROVISIONS OF SECTION 40A(3) OF THE INCOME TAX ACT, 1961 AND NOT BEING EXPENDITURE WAS CAPITAL IN NATURE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE L D. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS. 9,00,000/- MADE BY THE ASSESSING OFFICER NOT DECLARING THE SALE OF SCR AP ON ACCOUNT OF CONSTRUCTION OF NEW BUILDING DISREGARDING THE FACTS THAT GENERATION OF SCRAP 2 ITA NO. 1785.DEL.2015 (ILAB INFO TECHNOLO GY CENTRE P. LTD.) WAS ON ACCOUNT OF CONSTRUCTION OF NEW BUILDING IN T HE FORM OF PACKING BOXES/ BAGS SANITARY ITEMS, PAINTS, CEMENT ETC. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE L D. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF DISALLOWANCE OF INTEREST OF RS. 19,00,000/- MADE BY THE ASSESSING OFFICER OU T OF INTEREST PAID ON LOAN DISREGARDING THE FACTS THAT THE ASSESSEE HAD USED B ORROWED FUNDS IN GRANTING AS INTEREST FREE LOANS TO OTHER PERSONS. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE L D. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER EVEN THOUGH THE DECISION OF HON,BLE SUPREME COURTS CASE RELIED UPON BY THE LD. CIT(A) DO NOT SQUARELY APPLICABLE T O THE FACTS OF THE CASE AS THE ASSESSEE HAD FURNISHED THE RETURN OF LOSS AS SU CH IT CANNOT BE SAID THAT THE INTEREST FREE ADVANCES WERE GIVEN OUT OF PROFITS OF THE ASSESSEE DURING THE YEARS AND MOREOVER THE ADDITION WAS BASED ON DECISI ON OF HON,BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS OF WHICH FACTS A RE SIMILAR TO THE ASSESSING OFFICER 4 S RELIED UPON THE CASE AS WELL AS CASE UNDER CONSID ERATION. 5. THE APPELLANT CRAVES FOR THE PERMISSION TO ADD, D ELETE OR AMEND THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEAR ING OF APPEAL. 2. BRIEF FACTS OF THE CASE ARE AS UNDER: ASSESSED FILED ITS RETURN OF INCOME DECLARING LOSS OF RS.7,08,79,89/-. RETURN WAS PROCESSED UNDER SECTION 143 (1) OF THE ACT AND STATUTORY NOTICES WERE ISSUED TO ASSESS EE IN RESPONSE TO WHICH REPRESENTATIVE OF ASSESSEE APPEARED BEFORE LD.AO AND ATTENDED PROCEEDINGS FROM TIME TO TIME. 3. LD.AO OBSERVED THAT ASSESSEE IS ENGAGED IN BUSIN ESS OF INFRASTRUCTURE DEVELOPMENT, SALE/LEASE THEREOF AND TO UNDERTAKE MAINTENANCE FOR INFORMATION TECHNOLOGY AND IT ENABL ED PRODUCTS AND SERVICE CENTRE. LD. AO OBSERVED THAT THE MAIN S OURCE OF INCOME WAS FROM BUSINESS OF PROVIDING INFRASTRUCTUR E TO IT AND IT ENABLED SERVICES. 4. DURING THE YEAR LD.AO OBSERVED THAT ASSESSEE MA DE PAYMENTS IN CASH TO VARIOUS PERSONS IN CONNECTION W ITH BUILDING WORK. LD.AO OBSERVED THAT PAYMENTS HAVE BEEN MADE I N 3 ITA NO. 1785.DEL.2015 (ILAB INFO TECHNOLO GY CENTRE P. LTD.) CONTRAVENTION TO SECTION 40A (3), AND THE SAME WAS DISALLOWED BY ADDING IT BACK TO RETURNED INCOME OF ASSESSEE. 5. LD.AO FURTHER OBSERVED THAT ASSESSEE HAD NOT SHO WN ANY INCOME FROM SALE OF SCRAP NOR ANY CLOSING STOCK AT THE END OF THE YEAR. LD.AO ESTIMATED SALE OF SCRAP AT RS.75,000/- PER MONTH AND RS. 9 LAKH FOR THE ENTIRE YEAR AS HE WAS OF THE VIEW THAT MOST OF THE MATERIALS USED FOR CONSTRUCTION OF BUILDING CAME IN PACKING THAT THE SANITARY ITEMS, PAINTS, CEMENT ETC AND AFTER THE USE OF THESE ITEMS PACKING MATERIAL REMAINS AS SCRA P. HE WAS OF THE OPINION THAT KEEPING IN VIEW THE MATERIAL USED FOR CONSTRUCTION OF BUILDING SALE OF SCRAP CANT BE RUL ED OUT DURING THE CONSTRUCTION PERIOD. 6. LD.AO OBSERVED THAT ASSESSEE PAID INTEREST ON LO AN AMOUNTING TO RS.5,85,14,074/- WHEREAS ASSESSEE HAD ADVANCED AS INTEREST FREE LOAN TO M/S.CHINTALAPATI. LD.AO WA S OF THE VIEW THAT ASSESSEE HAD NOT USED BORROWED FUNDS FOR ITS B USINESS, BUT DIVERTED IT IN GRANTING INTEREST-FREE LOANS TO OTHE R PERSON. HE, THEREFORE, DISALLOWED INTEREST ON BORROWED FUNDS A S DEDUCTION. LD.AO RECOMPUTED INCOME OF ASSESSEE AT A LOSS OF RS.6,72,79,889/-. 7. AGGRIEVED BY ORDER OF LD.AO, ASSESSEE PREFERRED APPEAL BEFORE LD.CIT (A) WHO ALLOWED APPEAL OF ASSESSEE. A GGRIEVED BY THE ORDER OF LD. CIT (A) REVENUE IS IN APPEAL BEFOR E US NOW. 8. ON BEHALF OF THE ASSESSEE NONE HAD APPEARED BEFO RE US FOR HEARING. HOWEVER IT IS OBSERVED THAT THE NOTICE OF HEARING HAS BEEN DISPATCHED FROM THIS OFFICE AND HAS NOT BEEN R ETURNED BACK TILL DATE. WE THEREFORE PROCEED TO DECIDE THIS APPE AL GROUND NO. 1 4 ITA NO. 1785.DEL.2015 (ILAB INFO TECHNOLO GY CENTRE P. LTD.) 8. REVENUE RAISED THIS GROUND AGAINST DELETING THE ADDITION OF RS.8 LACS MADE BY LD.AO ON ACCOUNT OF DISALLOWANCE UNDER SECTION 40 A (3) OF THE ACT. LD. SR.DR SUBMITTED TH AT LD.CIT(A) PLACED RELIANCE UPON CBDT CIRCULAR NO. 34 [F.NO. 13 A/92/69-IT (A-II)], DATED 05/03/70 AND HAS DELETED THE ADDITIO N BY HOLDING THAT THE PAYMENTS WERE MADE TOWARDS PURCHASE PRICE OF CAPITAL ASSET. HE SUBMITTED THAT THESE WERE NOT IN THE NATU RE OF PURCHASE PRICE OF CAPITAL ASSET SUCH PAYMENTS MADE IN CASH TO VARIOUS PERSONS IN CONNECTION WITH BUILDING WORK. H E PLACED RELIANCE UPON THE CHART IN THE ASSESSMENT ORDER, WH EREIN PURPOSE OF PAYMENTS HAS BEEN TOWARDS WORKS LIKE REM OVAL OF DEBRIS, REMOVAL OF EXCESS EARTH, DISMANTLING OF TEM PORARY OFFICE BLOCK, CLEANING SILVER LINE, SHIFTING MATERIAL, SCR AP COLLECTION, STORE ROOM WATER DRAINAGE SYSTEM, RAINWATER HARVEST ING ETC. HE SUBMITTED THAT THESE PAYMENTS HAVE NOT BEEN VERIFIE D BY LD.CIT(A) AND ASSESSEE HAS NOT JUSTIFIED ANY OF THE ABOVE PAYMENTS THAT ARE MADE IN CASH IN ORDER TO FALL OUT OF THE RIGOURS OF SECTION 40A(3). LD. SR. DR SUBMITTED THAT SPECI FIC OBSERVATION OF ASSESSING OFFICER REGARDING AVERAGE WAGES OF LAB OURER DURING RELEVANT PERIOD HAS BEEN IGNORED BY LD.CIT(A). IT H AS ALREADY BEEN SUBMITTED BY ASSESSEE IN ITS REPLY REPRODUCED IN ORDER OF LD. CIT (A) THAT PERSONS TO WHOM PAYMENTS HAVE BEEN MADE IN CASH WERE PETTY LABOURERS, AND THEREFORE LD. DR SUB MITTED THAT IT IS NOT POSSIBLE FOR ONE DAY WORK SUCH HUGE PAYMENTS WOULD BE ADVANCED FOR THE KIND OF WORK UNDERTAKEN. LD.SR.DR SUBMITTED THAT THE ISSUE MAY BE SET ASIDE BACK TO LD.CIT (A) FOR DUE VERIFICATION OF ENTIRE RECORDS IN RESPECT OF THE PA YMENTS MADE. 5 ITA NO. 1785.DEL.2015 (ILAB INFO TECHNOLO GY CENTRE P. LTD.) 9. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY LD.S R.DR. IT IS OBSERVED THAT THE CBDT CIRCULAR RELIED UPON BY L D.CIT(A) DO NOT COVER THE ISSUE IN FAVOUR OF ASSESSED, AS THE E XCEPTIONAL PORTION RELIED UPON BY LD.CIT(A) SPEAKS OF ANY PAYM ENT TOWARDS PURCHASE PRICE OF CAPITAL ASSET SUCH AS PLANT AND M ACHINERY NOT FOR RESALE. WHEREAS IN THE FACTS OF THE PRESENT CAS E, ADMITTEDLY ASSESSEE MADE HUGE PAYMENTS TO PETTY LABOURERS IN C ASH WHICH HAS NOT BEEN VERIFIED AND FOR WHICH NO JUSTIFICATIO N HAS BEEN GIVEN BY ASSESSEE. 10. IN OUR CONSIDERED OPINION THE ORDER OF LD.CIT(A ) IS NOT A DETAILED DECISION WHEREIN THE ISSUE OF PAYMENTS BEI NG MADE IN CASH HAS BEEN DEALT WITH ON THE BASIS OF RECORDS/DOCUMENTS/EVIDENCES FILED BY ASSESSEE. WE A RE THEREFORE INCLINED TO SET ASIDE THIS ISSUE BACK TO LD.CIT(A) FOR PROPER VERIFICATION OF THIS ISSUE. LD.CIT(A) IS DIRECTED T O CALL FOR RELEVANT DETAILS/INFORMATION AND UPON VERIFICATION OF THE SA ME SPEAKING ORDER SHALL BE PASSED IN RESPECT OF THE CLAIM OF AS SESSED AS PER LAW. IN THE RESULT THIS GROUND RAISED BY REVENUE STANDS ALLOWED FOR STATISTICAL PURPOSES. GROUND NO. 2 11. REVENUE RAISED THIS GROUND AGAINST DELETING ADD ITION OF RS. 9 LACS ON ACCOUNT OF SALE OF SCRAP. LD.SR.DR SUBMITTED THAT ASSESSING OFFICER MADE ADDI TION ON ACCOUNT OF PRESUMPTION THAT SALE OF SCRAP OF RS.75, 000/- WAS GENERATED EACH MONTH. HE SUBMITTED THAT THIS PRESUM PTION WAS BASED UPON THE CHART THAT IS REPRODUCED IN THE ASSE SSMENT ORDER WHEREIN PAYMENTS HAS BEEN MADE BY ASSESSEE IN CASH TO VARIOUS 6 ITA NO. 1785.DEL.2015 (ILAB INFO TECHNOLO GY CENTRE P. LTD.) PERSONS FOR SCRAP COLLECTION. LD.SR.DR POINTED OUT ASSESSEES SUBMITION BEFORE LD. CIT (A) THAT ASSESSEE WAS NOT ENGAGED IN MANUFACTURE OF ANY PRODUCT WHEREIN A BY-PRODUCT OF SCRAP GENERATED. IT HAS BEEN SUBMITTED THAT BUILDING WAS CONSTRUCTED BY CONTRACTOR WHO WAS RESPONSIBLE FOR THE SCRAP. IT IS SUBMITTED BY ASSESSEE THAT ISSUE REGARDING GENERATION SALE OF SCRAP WAS NOT DISCUSSED DURING THE COURSE OF ASSESSMENT PROCEEDIN GS AND THEREFORE ASSESSEE DID NOT GET OPPORTUNITY TO DEAL WITH THE SAME. HE THUS SUBMITTED THAT THE ISSUE MAY BE SET ASIDE F OR PROPER VERIFICATION OF FACTS, SINCE LD. CIT(A) BLINDLY AC CEPTED WHAT HAS BEEN SUBMITTED BY ASSESSEE. 12. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY LD. SR.DR. IT IS OBSERVED FROM ORDER OF LD. CIT (A) THAT HE HA S BLINDLY ACCEPTED THE SUBMISSIONS OF ASSESSEE WITHOUT VERIFY ING THE SAME OR DIRECTING LD. AO TO CALL FOR NECESSARY DETAILS S INCE ASSESSING OFFICER FAILED TO GIVE OPPORTUNITY TO ASSESSEE BEFO RE MAKING ADDITION ON THIS ISSUE. 13. THERE IS NOTHING THAT HAS BEEN PLACED ON RECOR D BY ASSESSEE NOR ANY MATERIALS RELIED BY LD. CIT (A) IN ALLOWING THIS ISSUE. ASSESSING OFFICER HAS MADE ADDITION ON THE BASIS OF ESTIMATION WHICH IS ALSO NOT CORRECT. WE DO AGREE WITH SUBMISS IONS OF LD.SR.DR THAT ASSESSEE HAS MADE PAYMENTS TOWARDS SC RAP COLLECTION IN CASH TO VARIOUS PARTIES ON THE SAME D ATE THEREFORE POSSIBILITY OF GENUATION OF SALE CANNOT BE OVERLOOKED. THEREFORE OBSERVATION OF LD. CIT(A) IN APPROVING THAT NO SCRA P HAS BEEN GENERATED IS NOT ACCEPTED. WE THEREFORE SET ASIDE T HIS ISSUE TO LD. CIT (A) TO GIVE A DETAILED FINDING BY PLACING RELIA NCE UPON THE ACCOUNTS OF ASSESSEE. ASSESSEE IS DIRECTED TO FILE ENTIRE DETAILS 7 ITA NO. 1785.DEL.2015 (ILAB INFO TECHNOLO GY CENTRE P. LTD.) LIKE BILLS/ VOUCHERS OF IN REGARDS ACTIVITY CARRIED ON BY ASSESSEE DURING THE YEAR, WHICH SHALL BE VERIFIED BY LD. CIT (A) AS PER LAW. IN THE RESULT THIS GROUND RAISED BY REVENUE STANDS ALLOWED FOR STATISTICAL PURPOSES. GROUND NO. 3 14. REVENUE RAISED THIS GROUND AGAINST DELETING ADD ITION AMOUNTING TO RS.19 LACS ON ACCOUNT OF DISALLOWANCE OF INTEREST UNDER SECTION 36 (1) (III) OF THE ACT. 15. LD.SR.DR PLACES RELIANCE UPON THE OBSERVATIONS OF LD.AO. IT IS OBSERVED THAT LD. CIT (A) DECIDED THIS ISSUE BY PLACING RELIANCE UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MUNJAL SALES CORPORATION VERSUS CIT REPORTED IN 298 ITR ____. LD. CIT (A) DEALT WITH THIS ISSUE AS UNDER: 12. I HAVE PERUSED THE ORDER OF THE AO, AND IN TH IS ORDER THE AO HAS FAILED TO BRING OUT ANY NEXUS OR EVEN A HINT TO THE FACT THAT ONLY THE BORROWED FUNDS WERE UTILISED BY THE APPELLANT T O MAKE THIS SHORT TERM ADVANCES TO M/S. CHINTALAPATI HOLDING PV T. LTD. THE AO HAS ONLY RELIED UPON THE JUDGMENT OF ABHISHEK INDUS TRIES AND IN THE CASE OF S.A. BUILDERS TO JUSTIFY HIS ADDITION. ON THE OTHER HAND THE APPELLANT HAS GIVEN THE COMPLETE FINANCIAL STAT EMENTS AND FORM OF ANNEXURES C TO I OF THE PAPER BOOK. PERUSAL OF T HE SAME REVEALS THAT THERE HAS BEEN A INFUSION OF FRESH SHARE CAPIT AL BY THE PROMOTERS TO THE TUNE OF ROUGHLY 20 CRORES. THUS AS ON 31.03.2011 THE TOTAL SHARE APPLICATION MONEY OF THE COMPANY ST ANDS AT RS. 456,850,000/- AS AGAINST RS. 268,500,000/-. DURING THIS PERIOD THE COMPANY HAS ALSO REPAID LOAN OF RS. 10 CRORES T O THE BANKS OUT OF HIS OWN FUNDS. THIS CLEARLY PROVES THAT THERE WA S A SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH THE COMPANY AT T HE TIME THESE ADVANCES WERE MADE. 13. IT IS PERTINENT TO NOTE THAT IN THE CASE OF ABH ISHEK INDUSTRIES LTD. (SUPRA) HONBLE P & H HIGH COURT HAVE FOLLOWED ITS EARLIER DECISION IN THE CASE OF S.A BUILDERS LTD. VS. CIT 2 69 ITR 535 TO ARRIVE AT A CONCLUSION THAT THEORY OF DIRECT NEXUS OF FUNDS BETWEEN BORROWINGS OF THE FUNDS AND DIVERSION THEREOF FOR N OT BUSINESS PURPOSES CANNOT BE ACCEPTED. IT WAS HELD THAT THERE COULD BE NEXUS TO USE OF FUNDS FOR THE PURPOSE OF BUSINESS TO CLAI M DEDUCTION U/S 8 ITA NO. 1785.DEL.2015 (ILAB INFO TECHNOLO GY CENTRE P. LTD.) 36(1) (III) OF THE ACT. THE JUDGMENT OF HONBLE P & H HIGH COURT IN THE CASE OF S.A. BUILDERS WAS LATER ON SET ASIDE BY THE HONBLE SUPREME COURT AS PER ORDER DATED 14.12.2006. THUS, THE DECISION OF HONBLE P & H HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES LTD. (SUPRA) RELIED UPON BY THE AO IS NOT CORRECT. IN IT S SUBSEQUENT DECISION, THE HONBLE SUPREME COURT IN THE CASE OF MUNJAL SALES CORPORATION VS. CIT 298 ITR (SC) HAS BEEN PLEASED T O HOLD THAT NO DISALLOWANCE OF INTEREST ON BORROWED FUNDS COULD BE MADE WHEN THE INTEREST FREE ADVANCES ARE ESTABLISHED TO BE OU T OF CAPITAL OR PROFITS OF THE ASSESSEE DURING THE YEAR. THUS, IN V IEW OF THESE FACTS AND ON THE STRAIGHT OF THE ABOVE CITED JUDICIAL DEC ISIONS THIS GROUNDS OF THE APPELLANT IS ALLOWED. 16. WE DO NOT FIND ANY INFIRMITY IN THE ABOVE OBSER VATIONS OF LD. CIT (A) ACCORDINGLY THE SAME IS UPHELD. IN THE RESULT THIS GROUND RAISED BY REVENUE STANDS DISMISSED. 17. IN THE RESULT APPEAL FILED BY THE REVENUE STAND S PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON16/04/2018. SD/- SD/- (R.K.PANDA) (BEENA A PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 16 TH APRIL, 2018 BINITA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY - BY ORDER, ASSISTANT REGISTRAR ITAT DELHI BENCHES 9 ITA NO. 1785.DEL.2015 (ILAB INFO TECHNOLO GY CENTRE P. LTD.) S.NO. DETAILS DATE 1 DRAFT DICTATED ON 12.04.2018 2 DRAFT PLACED BEFORE AUTHOR 12.04.2018 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 5 APPROVED DRAFT COMES TO THE SR. PS/PS 6 KEPT FOR PRONOUNCEMENT ON 16.04.2018 7 FILE SENT TO BENCH CLERK 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE ON WHICH FILE GOES TO THE A.R. 10 DATE OF DISPATCH OF ORDER