JCIT, Bangalore V. M/s Siddivinayaka Property Developers, Bangalore

ITA 207/BANG/2012

AI Insights

The case involves M/s. Siddivinayaka Property Developers, a partnership firm engaged in real estate, which contested the assessment of Rs. 2 crores as bad debts for the assessment year 2006-07. The matter reached the Income Tax Appellate Tribunal after a series of appeals and remands, including a significant remand from the Karnataka High Court. The primary legal issues revolved around the allowability of the bad debts claimed and the validity of the assessment order issued under section 153C of the Income Tax Act, which the assessee argued was invalid as no notice was served and no material belonging to the assessee was seized during the search operation.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 124298 (ITAT-BANGALORE)
• Duration Of Justice: 8 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2022
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 13-11-2022
• Assessment Year: misc
• Appeal Filed On: 08-10-2014
• Other Referred Cases: Pepsi Foods Pvt. Ltd. vs. ACIT, TRF Ltd. vs. CIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: V. SRINIVASAN
• Keywords: Depreciation; Bad and doubtful debts
• Section: 131; 132; 143(3); 234B; 13; 153C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBERA AND SMT. BEENA PILLAI, JUDICIAL MEMBER Appeal No. Appellant Respondent Assessment Year ITA No. 165/Bang/2012 M/s. Siddivinayaka Property Developers, #10/1, Lakshminarayana Complex, Palace Road, Bangalore – 560 052. PAN: ABJFS2900B The Deputy Commissioner of Income Tax, Central Circle – 1[1], Bangalore. 2006-07 ITA No. 207/Bang/2012 The Joint Commissioner of Income Tax (OSD), Central Range, Bangalore. M/s. Siddivinayaka Property Developers, #10/1, Lakshminarayana Complex, Palace Road, Bangalore – 560 052. PAN: ABJFS2900B C.O. No. 79/Bang/2012 (in ITA No. 207/Bang/2012) M/s. Siddivinayaka Property Developers, #10/1, Lakshminarayana Complex, Palace Road, Bangalore – 560 052. PAN: ABJFS2900B The Joint Commissioner of Income Tax (OSD), Central Range, Bangalore. M.P. No. 213/Bang/2017 (in ITA No. 207/Bang/2012) The Deputy Commissioner of Income Tax, Central Circle – 1[1], Bangalore. Assessee by : Shri V. Srinivasan, Advocate Revenue by : Shri Gudimella VP Pavan Kumar, JCIT DR Date of Hearing : 14-11-2022 Date of Pronouncement : 30-11-2022 Page 2 ITA Nos. 165 & 207/Bang/2012, C.O. No. 79/Bang/2012 & M.P. No. 213/Bang/2017 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeals arises out of the order dated 05/02/2021 passed by the Hon'ble Karnataka High Court in ITA No. 01/2018 for A.Y. 2006-07. 2. The Ld.AR submitted that, it is a remand from the Hon'ble Karnataka High Court, wherein the Hon’ble High Court remitted the matter to this Tribunal by observing as under: “7. The Appeal is allowed. The Order passed by the Income Tax Appellate Tribunal, Bengaluru "A' Bench in ITA No.165/Bang/2012, CO No.79/Bang/2012, ITA No.207/Bang/2012 dated 28.04.2017 and Misc. Petition in MP No.213/Bang/2013 [in ITA No.207/Bang/2012] dated 21.11.2017 for the assessment year 2006-07 is hereby set aside. The matter is remitted back to the Tribunal for fresh consideration in accordance with law. 8. The parties shall appear before the Tribunal on 22.02.2021 and are at liberty to canvass all such points available to them and the Tribunal is directed to dispose of the Misc. Petition filed by the assessee in accordance with law.” 3. The question of law was raised before the Hon'ble Karnataka High Court was regarding the allowability of sum of Rs.2 crores treated as bad debts u/s. 36(1)(vii) of the Act by the assessee. The assessee had also challenged the validity of the order passed u/s. 153C without serving notice. 4. The brief facts for considering the above two issues are as under: 4.1 The assessee is a registered partnership firm carrying on business in real estate and developing including sale of immovable property. The assessee has filed its return of income for the assessment year 2006-07 on 15.04.2008 declaring nil Page 3 ITA Nos. 165 & 207/Bang/2012, C.O. No. 79/Bang/2012 & M.P. No. 213/Bang/2017 income. Subsequently revised return was filed on 31.03.2009 declaring total income as Rs. 1,41,37,910/, claiming Rs.2,00,00,000/- as bad debts receivable from Sri Byregowda. There was a search under Section 132 of the Act on 26.07.2007 on one Srinivasa Raju and others in order to discover receipt if any by Mr. Dayanand Pai, one of the partners of the assessee firm. The Assessing Officer disallowed the claim by an Order dated 29.12.2003 passed under Section 143(3) read with Section 153C of the Act. 4.2 An appeal was preferred before the Ld.Commissioner of Income Tax who dismissed the appeal in limine, vide order dated 30.09.2010. 4.3 Aggrieved by the said Order, appeal was also preferred before the Tribunal and by an order dated 28.09.2011 Tribunal remitted back the matter to the Commissioner of Income Tax. 4.4 In the remand proceedings, the Commissioner of Income Tax partly allowed the appeal with respect to the disallowance of bad debts and dismissed the appeal with respect to the levy of interest under Section 234A, 234B and 234C of the Act. Again, the assessee approached the Tribunal by raising legal grounds regarding the validity of the assessment under Section 153C of the Act. The Revenue also preferred an appeal against the order of the Commissioner of Income Tax, wherein the assessee filed cross objections. 4.5 The Tribunal considered both the appeals and by a common order dated 28.04.2017 allowing the appeal of the Revenue and dismissed the appeal of the assessee and its cross objections. Page 4 ITA Nos. 165 & 207/Bang/2012, C.O. No. 79/Bang/2012 & M.P. No. 213/Bang/2017 Thereafter, the appellant filed a Misc. Petition under Section 254(2) of the Income Tax Act which was also dismissed by the Tribunal on 21.11.2017. 4.6 The miscellaneous petition filed by the assessee was in respect of certain mistakes pointing out factual errors that have crept in the order of the Tribunal dated 21/11/2017. The Tribunal however dismissed the miscellaneous petition stating that the matter pertains to depreciation. Against the miscellaneous petition also, assessee was before the Hon'ble Karnataka High Court. 5. Based on the facts as narrated hereinabove, Hon'ble Karnataka High Court, passed the order wherein all the appeals and miscellaneous petition along with Cross Objection was remanded to this Tribunal. 5.1 Before us, in the remand proceedings by Hon’ble High Court, the assessee pressed on the additional ground which reads as under: “1. The order of assessment made under the order dated 29/12/2009 which is appealed against is bad in law as there is no material belonging to the appellant which was seized in the course of the search action in the case of Sri Srinivasa Raju Et Others for validly assuming jurisdiction u/s.153C of the Act against the appellant, under the facts and in the circumstances of the appellant's case. 2. Without prejudice to the above, no notice u/s.153C rws 153A of the Act was issued on the appellant by the learned A.O. as mandatorily required to proceed and frame an assessment against the appellant.” 5.2 Before us, the Ld.AR submitted that, the document seized does not belong to assessee, based on which he is challenging the validity of the order passed u/s. 153C. Page 5 ITA Nos. 165 & 207/Bang/2012, C.O. No. 79/Bang/2012 & M.P. No. 213/Bang/2017 In support, the Ld.AR relied on the decision of Hon'ble Karnataka High Court in case of Pepsi Foods Pvt. Ltd. vs. ACIT reported in 376 ITR 112. For the sake of convenience, we reproduce the notice u/s. 153C placed in the paper book as under: Page 6 ITA Nos. 165 & 207/Bang/2012, C.O. No. 79/Bang/2012 & M.P. No. 213/Bang/2017 5.3 It is submitted that there was a search in case of Shri B.N. Byre Gowda and a loose sheet reflecting the transaction of land at Utthanahalli was found and seized as page 91 and marked as A/BNB/4. The extract of the seized document forms part of the assessment order. However for the sake of convenience, we are reproducing the same as under: 5.4 The statement was recorded of Shri B.N. Byre Gowda relating to the above seized document, which is at question no. 28 of the statement recorded and the extract of the same is as under: “Qn.28 I am showing you Pg. 90 & 91 of A/BNB/4. Pl go thorough this & explain the transaction. Ans. Page 91 of seized material shown to me pertains to the land transactions I had with Dayanand Pai. Mr. Pai purchased lands from various landlords at Huthanahalli. On discussion with me, he gave me a GPA to sell the lands Page 7 ITA Nos. 165 & 207/Bang/2012, C.O. No. 79/Bang/2012 & M.P. No. 213/Bang/2017 for which I was to give him 4.5 crores. I agreed and sold 8 acres to one Mr. Prabhakar Reddy & Mr. Sridhar Reddy for which I received Rs. 1.25 crores in cash and Rs. 25 lakhs by cheque. Another 6 acres was sold to srinivasaraju who paid Rs. 50 lakhs in cash and Rs. 25 lakhs by cheque. For these transactions, I received margin money of Rs. 60 lakhs from Mr. Reddy and Rs. 50 lakhs from Srinivasaraju totally in cash. I have paid Rs. 2.5 crores to Mr. Dayanand Pai of which Rs. 2 crores was given in cash and Rs. 50 lakhs by cheque. My margin money amounting to 1.1 crores on these transactions, I am offering for taxation for A.Y. 2007-08. I also undertake to pay the taxes with it along with interest applicable and file the return of income accordingly. Survey nos. involved in these transactions are 106/2, 107/1, 107/2, 106/3, 73/9, 118 & 143, Huttanahalli.” We also note that statement u/s. 131 was recorded of Shri Dayananda Pai, as per the submissions dated 30/03/2009 filed by the assessee placed in the paper book at page_____ which reads as under: Page 8 ITA Nos. 165 & 207/Bang/2012, C.O. No. 79/Bang/2012 & M.P. No. 213/Bang/2017 Page 9 ITA Nos. 165 & 207/Bang/2012, C.O. No. 79/Bang/2012 & M.P. No. 213/Bang/2017 Page 10 ITA Nos. 165 & 207/Bang/2012, C.O. No. 79/Bang/2012 & M.P. No. 213/Bang/2017 Page 11 ITA Nos. 165 & 207/Bang/2012, C.O. No. 79/Bang/2012 & M.P. No. 213/Bang/2017 5.5 On perusal of the totality of the facts, based on the admission by Shri Dayananda Pai regarding the income that arose out of the sale of Utthanahalli property, dealt with by Shri B.N. Byre Gowda, falls in the hands of the firm, and therefore the legal plea Page 12 ITA Nos. 165 & 207/Bang/2012, C.O. No. 79/Bang/2012 & M.P. No. 213/Bang/2017 that the document does not belong to assessee being the partnership firm in the style and name “Siddivinayaka Property Developers” does not hold in the eyes of law. 5.6 In respect of the taxability, all the amount in the reply scanned hereinabove dated 30/03/2009, it is submitted that the sale consideration of Rs. 4.5 crores is submitted to have been offered to tax by deducting the proportionate cost of Rs.1,08,62,089/- which is attributable to the sale of land at Utthanahalli admeasuring at 13 acres and 6 guntas. It has been submitted by the assessee in the reply dated 30/03/2009 that the amount has been offered to tax for A.Y. 2006-07. 6. Now coming to the claim of bad debts of Rs. 2 crores, the Ld.AR submitted that, Mr. Byre Gowda being the GPA holder of Utthanahalli properties and Chikkajala properties agreed to sell all the properties of Utthanahalli of 36 Acres 21 Guntas and Chikkajala of 20 Acres and had agreed to pay P. Dayananda Pai Rs.4.5 Crores as advance in this regard. 6.1 He submitted that, on the basis of this arrangement the sale of Utthanahalli properties has been recorded at Rs.4.5 Crores including the registered sales documents of Rs.1,15,42,000/- (the balance of Rs.3,34,58,000 as nomination fees) during the financial year 2005-06 on accrual basis. Admittedly, Shri B.K. Byre Gowda paid Rs.2 Crores in cash and Rs.50 Lakhs by two cheques of Rs.25 Lakhs each only, and remaining balance of Rs.2 Crores he has not yet paid, apart from several reminders. 6.2 It is submitted that, the reminders and follow ups are almost in an informal way, like telephone conversations and personal Page 13 ITA Nos. 165 & 207/Bang/2012, C.O. No. 79/Bang/2012 & M.P. No. 213/Bang/2017 meetings the proof of which cannot be produced. Mr. Byre Gowda was not systematic throughout in his conduct especially with regard to his responsibility to submit periodical statements of account and facts as he is from an agriculture background and not supposed to know the importance or impact of those procedures. The Ld.AR submitted that, due to these reasons the financial accounts were prepared for the financial year 2004-05 and 2005-06 by gathering whatever information available with much difficulty, only during financial year 2008-09. The Ld.AR submitted that by the time the assessee prepared the financial statements, nothing out of the outstanding balance of Rs.2 Crores could have been collected, and therefore the assessee claimed the same as bad debts keeping in view the considerable uncertainty from the conduct of the agent. 6.3 We note that, in the assessment order for the year under consideration, the receipt of Rs. 1 crore has been admitted and shows outstanding of Rs. 2 crores. The Ld.CIT(A) while granting relief to the assessee had relied on the decision of Hon’ble Supreme Court in case of TRF Ltd. vs. CIT reported in 323 ITR 397. The settled proposition by Hon’ble Supreme Court is that it is not necessary for an assessee to establish that the debts infact has become irrecoverable. 6.4 In our view, as the debt is written off as irrecoverable in the accounts of the assessee. However, a verification has to be sought of having offered the amount claimed as bad debt to tax in any of the preceding assessment years as per sec. 36(1)(vii) r.w.sec. 36(2) of the Act as submitted by the assessee. As the Page 14 ITA Nos. 165 & 207/Bang/2012, C.O. No. 79/Bang/2012 & M.P. No. 213/Bang/2017 assessee in its reply dated 30/03/2009 has already submitted that the sale consideration of Rs.4.5 crores has been offered to tax, needs verification. We therefore remand the issue to the Ld.CIT(A) for a limited verification in respect of this issues and in the event if it is found that the amount has been offered to tax by assessee, no disallowance can be made in respect of the bad debts claimed and accordingly the same is upheld. In the result, the appeal filed by revenue stands partly allowed for statistical purposes, the C.O. and M.P. filed by the assessee becomes infructuous and the appeal filed by assessee stands dismissed on legal issue. Order pronounced in the open court on 30 th November, 2022. Sd/- Sd/- (CHANDRA POOJARI) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 30 th November, 2022. /MS / Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order Assistant Registrar, ITAT, Bangalore