Er. A.Veerappan & Associates (TN) Private Limited, CHENNAI V. ITO, CHENNAI

ITA 2210/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95883 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2015
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 08-06-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 03-09-2014
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: Y SRIDHAR
• Keywords: Capital asset; Proportionate interest; Revenue expenditure; Capital expenditure
• Section: 194C

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . !' , # $% BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ./ ITA NO. 2210/MDS/2014 / ASSESSMENT YEAR : 2008-09 M/S. ER. A. VEERAPPAN & THE INCOME-TAX OFFICER, ASSOCIATES (TN) PVT. LTD., COMPANY CIRCLE-II(1), C/O M/S. RAMESH AND RAMACHANDRAN, CAS NEW NO.39, OLD NO.29/3, VISWANATHAPURAM MAIN ROAD,KODAMBAKKAM CHENNAI 600 0024. PAN AABCE4073H APPELLANT) V. CHENNAI. RESPONDENT) / APPELLANT BY : SHRI Y. SRIDHAR, CA / RESPONDENT BY : SHRI A.V.SREEKANTH, JCIT ! / DATE OF HEARING : 08.06.2015 '# ! / DATE OF PRONOUNCEMENT: 07.08.2015 & / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) DATED 21 .5.2014. - - ITA 2210/ 14 2 2. THE FIRST GROUND IN THIS APPEAL IS WITH REGARD T O DISALLOWANCE OF INTEREST PAID AT ` 2,31,982/-. 3. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE F . Y . 2007-08, THE ASSESSEE CLAIMED A SUM OF ` 4,15,064/- AS THE INTEREST PAID ON THE UNSECURED LOANS. THE ASSESSING OFFICER, IN HIS ORDER U/S.143(3) R.W.S.14 7, OBSERVED THAT OUT OF THE TOTAL UNSECURED LOANS OF ` 36,00,235 / -, AN AMOUNT OF ` 8,00,000/- WAS CONSIDERED AS NON-GENUINE LOAN AND DISALLOWED (BROUGHT TO TAX) IN THE ASSESSMENT OF A.Y.2006-07, ALONG WITH THE INTEREST CLAIMED TO HAVE BEEN PAID O N THE SAID LOAN. DURING THE CURRENT FINANCIAL YEAR AL SO THE ASSESSEE CLAIMED INTEREST PAYMENT ON THE SAID LOAN OF ` 8,00,000/-. HENCE THE ASSESSING OFFICER DISALLOWED INTEREST CLAIM (OF ` 96,000/- CALCULATED @ 12%) ON THE SAID NON-GENUINE UNSECURED LOAN OF ` 8,00,000/- AND INCLUDED IN THE TOTAL LOANS OF ` 36,00,235/ . THE ASSESSING OFFICER, IN HIS ORDER ALSO OBSERVED THAT AN AMOUNT OF ` 11,33,188/ - WAS UTILIZED FOR PURCHASE OF LAND WHICH WAS DIRECTLY TAKEN TO THE BALANCE SHEET. - - ITA 2210/ 14 3 HENCE THE ASSESSING OFFICER CONSIDERED THE SAID PURCHASE OF LAND AS A CAPITAL ASSET AND DISALLOWED PROPORTIONATE INTEREST AMOUNTING TO ` L,35,982/-. AGGRIEVED BY THIS, THE ASSESSEE WENT IN APPEAL BEFO RE THE CIT(APPEALS). 4. IT IS NOTICED THAT EVEN BEFORE THE CIT(APPEALS), THE ASSESSEE COULD NOT SUBSTANTIATE ITS CLAIMS REGARDING THE INTEREST PAYMENTS. ACCORDING TO THE CIT(APPEALS), SINCE A LOAN OF ` 8,00,000/- INCLUDED IN THE TOTAL UNSECURED LOANS OF ` 36,00,235/-, WAS CONSIDERED AS NON-GENUINE IN THE ASSESSMENT OF A.Y. 2006-07, NO INTEREST ON THE CORRESPONDING LOAN CAN BE ALLOWED IN THE CURRENT ASSESSMENT YEAR ALSO. THEREFORE, THE CIT(APPEALS) HELD THAT THE ASSESSING OFFICER'S ACTION OF CALCULATING INTEREST PAYMENT ON THE SAID LOAN OF ` 8,00,000/- @ 12%, AMOUNTING TO ` 96,000/-, AND DISALLOWING THE SAME IS JUSTIFIED AND CONFIRMED. FURTHER, THE CIT(APPEALS) OBSERVED THAT SIMILARLY, THE PURCHASE OF LAND WAS NOT A REVENUE TRANSACTION NOR IT WAS REQUIRED FOR THE PURPOSE OF - - ITA 2210/ 14 4 ASSESSEE'S BUSINESS. IT WAS A PURE INVESTMENT AND THE PURCHASE OF PROPERTY THEREFORE AMOUNTS TO DIVERSION OF INTEREST BEARING FUNDS. ACCORDINGLY, T HE CIT(APPEALS) HELD THAT THE ASSESSING OFFICER HAS RIGHTLY CALCULATED THE INTEREST @ 12% OF THE SAID DIVERTED FUNDS AND DISALLOWED FROM THE TOTAL INTERE ST PAYMENT OF ` 4,15,064/- AND REJECTED THIS GROUND OF APPEAL. AGAINST THIS, THE ASSESSEE IS IN APPEAL BE FORE US. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IT IS ALREADY OBSERVED THAT TH E LOAN IS NOT GENUINE IN EARLIER ASSESSMENT YEARS. WHEN TH E PRINCIPAL LOAN ITSELF IS NOT GENUINE, THERE IS NO Q UESTION OF ALLOWING OF ANY INTEREST ON SUCH NON-GENUINE LOA N. BEING SO, DISALLOWANCE OF INTEREST ON ON-GENUINE LO AN IS JUSTIFIED. REGARDING THE DISALLOWANCE OF INTERE ST ON THE UNSECURED LAND UTILIZED FOR THE PURCHASE OF LAN D, IN OUR OPINION, THE INTEREST INCURRED UPTO THE DATE OF SALE DEED REGISTRATION OF THE LAND TO BE CONSIDERED AS CAPITAL EXPENDITURE, IF IT IS TREATED AS CAPITAL AS SET BY - - ITA 2210/ 14 5 THE ASSESSEE AND TO BE ADDED TO THE COST OF THE LAN D AND INTEREST INCURRED AFTER THE PURCHASE OF THE LAN D TO BE CONSIDERED AS REVENUE EXPENDITURE. ON THE OTHER HAND, IF THE LAND IS TREATED AS STOCK-IN-TRADE, THE ENTIRE INTEREST ON THE LOAN USED TO PURCHASE THE LAND TO B E TREATED AS REVENUE EXPENDITURE IF THE LOAN IS GENUI NE. WITH THIS OBSERVATION, WE DIRECT THE AO TO RECONSID ER THE ISSUE. ACCORDINGLY, THIS GROUND IS PARTLY ALLO WED. 6. THE NEXT GROUND IN THIS APPEAL IS WITH REGARD TO DISALLOWANCE OF SUB-CONTRACT EXPENSES U/S.40(A)(IA) OF THE ACT. 7. THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER, IN HIS ASSESSMENT ORDER U/S.143(3) R.W.S.1 47 OF THE ACT, OBSERVED THAT THERE WERE CERTAIN INTERE ST AND SUB-CONTRACTUAL PAYMENTS OF ` 1,83,082/- AND ` 15,90,215/-,RESPECTIVELY, DEBITED IN THE P&L ACCOUN T. ON VERIFICATION, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS NEITHER DEDUCTED ANY TDS AS PER THE PROVISIONS OF SECTIONS 194A AND 194C OF THE ACT, NO R REMITTED TO THE GOVT. OF INDIA AS ON 31.03~2008. - - ITA 2210/ 14 6 HENCE THE ASSESSING OFFICER DISALLOWED THE CORRESPONDING AMOUNT OF INTEREST ( `1 ,83,082) AND SUB-CONTRACT PAYMENTS ( ` 15,90,215/-), U/S.40(A)(IA) OF THE ACT, FOR NON-DEDUCTION AND/OR NON-REMITTANCE OF TDS IN TO THE GOVERNMENT ACCOUNT. ON APPEAL, THE CIT(APPEALS) CONFIRMED THE FINDING OF THE ASSESSING OFFICER. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFO RE US. 8. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. THE MAIN CONTENTION OF THE LD. AR IS THAT THESE PAYMENTS ALREADY PAID BEFORE THE END OF THE CLOSE OF THE YEAR AND NOT PAYABLE BY THE END OF THE CLOSE OF THE FINANCIAL YEAR 2008 RELEVANT TO TH E ASSESSMENT YEAR 2008-09. IN OUR OPINION, SIMILAR ISSUE WAS CONSIDERED BY THIS TRIBUNAL IN THE CASE O F SHRI N. PALANIVELU V. ITO (40 ITR (TRI) 325), WHERE IN IT WAS HELD AS UNDER : 3. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING AND TRANSPORTS VS. ACIT (2012) 136 ITD 23 - - ITA 2210/ 14 7 (VISAKHAPATNAM) AND JUDGMENT OF GUJARAT HIGH COURT IN THE CASE OF CIT VS. M/S. VECTOR SHIPPING SERVICE S (P) LTD IN ITA NO.122 OF 2013 DATED 09.7.2013 HELD THAT SEC 40(A)(IA) IS NOT APPLICABLE WHEN THERE IS NO OUTSTANDING BALANCE AT THE END OF THE CLOSE OF THE YEAR RELEVANT TO THE ASSESSMENT YEA IN RESPECT OF THESE PAYMENT. HOWEVER, THE ASSESSEE HAS NOT BROUGHT ON RECORD, THE DETAILS OF OUTSTANDING EXPENSES OR SCHEDULE OF SUNDRY CREDITORS SHOWING WHETHER THE IMPUGNED AMOUNT IS OUTSTANDING AT THE END OF THE CLOSE OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSME NT YEAR EITHER IN THE NAME OF THE PARTY OR OUTSTANDING EXPENSES. HENCE, IN THE INTEREST OF JUSTICE,WE ARE REMITTING THE ISSUE BACK TO THE FILE OF THE ASSESSI NG OFFICER WITH DIRECTION TO VERIFY THE CLAIM OF THE ASSESSEE AND THE ASSESSEE SHALL PLACE NECESSARY EVIDENCE IN SUPPORT OF HIS CLAIM. 4. FURTHER, WE MAKE IT CLEAR THAT IF THE IMPUGNED AMOUNT IS NOT OUTSTANDING AT THE END OF THE CLOSE O F THE ASSESSMENT YEAR IN RESPECT OF THE EXPENSES EITHER AS OUTSTANDING EXPENSES OR AS SUNDRY CREDITORS, THIS AMOUNT CANNOT BE DISALLOWED. THIS GROUND IS REMITTED BACK TO THE ASSESSING OFFICER FO R FRESH CONSIDERATION. - - ITA 2210/ 14 8 IN VIEW OF THE ABOVE ORDER, WE REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 07 TH OF AUGUST, 2015 AT CHENNAI. SD/- SD/- ( . $ % ) ( & ' ( ) ) *+,-./01023 45067.082290.:3 ; $< /JUDICIAL MEMBER ! $<=>>2-6?06?@ABCA. &; /CHENNAI, D$ /DATED, THE 07 TH AUGUST, 2015. MPO* $E FGHG /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. I3 /CIT(A) 4. I /CIT 5. GJ% K /DR 6. %LM /GF.