M/s. Narne Estates (P) Ltd, Hyderabad V. DCIT, Circle-16(1), Hyderabad

ITA 23/HYD/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74663 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 30-04-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 05-01-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Assessee Lawyers: S RAMA RAO
• Keywords: Opportunity of being heard; Cost of acquisition; Bad and doubtful debts; Difference of opinion; Validity of assessment; Change of opinion
• Section: 147; 148; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI P.M. JAGTAP, ACCOUNTANT MEMBER ITA.NO.23/HYD/2012 ASSESSMENT YEAR 2005-2006 M/S. NARNE ESTATES P. LTD., SECUNDERABAD. PAN AAACN4669F VS. THE DCIT, CIRCLE 16(1) HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. S. RAMA RAO FOR REVENUE : MR. RAJAT MITRA DATE OF HEARING : 30.04.2015 DATE OF PRONOUNCEMENT : 06.05.2015 ORDER PER P.M. JAGTAP, A.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-V, HYDERABAD DA TED 31.10.2011 WHEREBY HE UPHELD THE VALIDITY OF ASSESS MENT MADE BY THE A.O. UNDER SECTION 143(3) READ WITH SEC TION 147 AND ALSO CONFIRMED THE VARIOUS ADDITIONS MADE THERE IN TO THE TOTAL INCOME OF THE ASSESSEE. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WHICH IS ENGAGED IN THE BUSINESS OF REAL ESTATE. TH E RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED B Y IT ON 23.03.2006 DECLARING TOTAL INCOME OF RS.90,77,150 I NCLUDING INCOME FROM LONG TERM CAPITAL GAIN OF RS.59,51,747. THE SAID RETURN FILED BY THE ASSESSEE WAS ORIGINALLY PROCESS ED BY THE A.O. UNDER SECTION 143(1) ON 19.04.2006. SUBSEQUENT LY, THE A.O. REOPENED THE ASSESSMENT FOR THE YEAR UNDER CON SIDERATION 2 ITA.NO.23/HYD/2012 M/S. NARNE ESTATES P. LTD., SECUNDERABAD. AND ISSUED NOTICE UNDER SECTION 148 ON 04.01.2010 A FTER RECORDING THE FOLLOWING REASONS : IT IS OBSERVED FROM THE COMPUTATION OF LONG TERM C APITAL GAINS THAT IT HAS BEEN ADMITTED AT RS.59,51,747/- I NSTEAD OF AT RS.63,45,547/- AND HENCE THERE IS SHORT ADMIS SION OF CAPITAL GAINS OF RS.3,93,800/-. IT IS ALSO SEEN FROM THE P & L ACCOUNT THAT THE ASS ESSEE HAS WRITTEN OF AMOUNTS UNILATERALLY OF RS.35,08,327 /- FOR WHICH A QUESTION ARISES AS TO THEIR ALLOWABILITY SI NCE THEY ARE NOT MENTIONED AS BAD DEBTS. THE ASSESSEE CHOS E TO WRITE OFF CERTAIN AMOUNTS WITHOUT ANY REASON MENTIO NED IN THE NOTES TO ACCOUNTS ALSO. HENCE, THE SAME IS R EQUIRED TO BE ADDED BACK IN THE COMPUTATION OF INCOME WHICH HAS NOT BEEN DONE. 2.1. IN REPLY, A LETTER WAS FILED BY THE ASSESSEE REQUESTING THE A.O. TO TREAT THE RETURN ORIGINALLY FILED BY HIM ON 23.03.2006 AS THE RETURN FILED IN RESPONSE TO TH E NOTICE UNDER SECTION 148. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE A.O. THAT OUT OF THE TOTAL 11 TRANSACTIONS OF SALE OF LAND GIVING RISE TO THE LON G TERM CAPITAL GAINS TO THE ASSESSEE, ONE TRANSACTION WITH M/S. GO KUL DEEP ESTATES P. LTD., HAD GIVEN RISE TO THE LONG TERM CA PITAL GAIN OF RS.25,65,445 (SALE CONSIDERATION OF RS.67,64,350 INDEXED COST OF ACQUISITION OF RS.41,99,205) AS AGAINST THE LONG TERM CAPITAL GAIN OF RS.21,71,245 OFFERED BY THE ASSESSE E IN RESPECT OF THIS TRANSACTION. ALTHOUGH, THE ASSESSEE FURNISH ED A FRESH STATEMENT JUSTIFYING THE LONG TERM CAPITAL DECLARED BY IT, THE A.O. FOUND THAT THE SAME WAS NOT SUPPORTED BY DOCUM ENTARY EVIDENCE IN THE FORM OF COPIES OF RELEVANT SALE/PUR CHASE DEED. HE THEREFORE TREATED THE DIFFERENCE OF RS.3,93,800 AS UN- RECONCILED AND ADDED THE SAID AMOUNT TO THE TOTAL I NCOME OF THE ASSESSEE. 3 ITA.NO.23/HYD/2012 M/S. NARNE ESTATES P. LTD., SECUNDERABAD. 2.2. IT WAS ALSO NOTICED BY THE A.O. DURING THE CO URSE OF ASSESSMENT PROCEEDINGS THAT A SUM OF RS.35,08,32 7 HAS BEEN DEBITED BY THE ASSESSEE TO ITS P & L ACCOUNT O N ACCOUNT OF AMOUNTS WRITTEN OFF. WHEN THE ASSESSEE COMPANY WAS CALLED UPON BY THE A.O. TO JUSTIFY ITS CLAIM, THE F OLLOWING SUBMISSION WAS MADE BY THE ASSESSEE BEFORE THE A.O. DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2005-06 AN AMOUNT OF RS.35,08,327 WAS WRITTEN OFF AS IRRECOVER ABLE IN THE BOOKS OF THE COMPANY, THE DETAILS OF WHICH A RE FURNISHED HEREWITH. FROM A PERUSAL OF THE SAID DETA ILS, IT CAN BE OBSERVED THAT THE AMOUNT OF RS.12,29,797 REPRESENTS INTEREST RECEIVABLE FROM THE MEMBERS (PL OT BUYERS). THE COMPANY CALCULATED INTEREST DUE FROM T HE PLOT BUYERS FOR DEFAULT IN PAYMENT OF INSTALLMENTS OF SALE CONSIDERATION WITHIN THE STIPULATED TIME LIMIT AND OFFERED THE SAID AMOUNT AS INCOME IN THE EARLIER YEARS. DES PITE THE BEST EFFORTS MADE BY THE COMPANY, IT COULD NOT RECOVER THIS AMOUNT SINCE THE PLOTS WERE ALREADY REGISTERED IN THE NAME OF THE SAID PARTIES AND ARE NOT RESPONDING TO THE INNUMERABLE LETTERS WRITTEN BY THE COMPANY FOR RECO VERING THE SAME AND HENCE TOOK A CONSCIOUS DECISION TO WRI TE OFF THE INTEREST RECEIVABLE IN THE BOOKS OF THE COMPANY . APART FROM THE INTEREST RECEIVABLE, THE REMAINING A MOUNT REPRESENTS THE AMOUNT OF INVESTMENTS MADE BY THE COMPANY FOR ADVANCEMENT OF ITS BUSINESS OBJECTIVES. SINCE THE COMPANIES IN WHICH THE INVESTMENTS ARE MA DE HAVE BECOME SICK AND DEFUNCT AND THE CHANCES OF REV IVAL OF THESE COMPANIES BECAME BLEAK THE COMPANY DECIDED TO WRITE OFF THESE INVESTMENTS AS BUSINESS LOSS FOR TH E REASON THAT THESE INVESTMENTS WERE MADE BY THE COMPANY FROM OUT OF ITS PROFITS OF THE EARLIER YEAR S WHICH WERE SUBJECTED TO TAX IN THOSE YEARS. 2.3. THE ABOVE EXPLANATION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE A.O. AND REJECTING THE SAME FOR THE REASONS GIVEN IN HIS ASSESSMENT ORDER, THE A.O. MAD E DISALLOWANCE OF RS.35,08,327 ON ACCOUNT OF ASSESSE ES CLAIM FOR THE AMOUNTS WRITTEN OFF. SIMILARLY A FURTHER SUM OF RS.4,92,678 CLAIMED BY THE ASSESSEE ON ACCOUNT OF B AD DEBTS 4 ITA.NO.23/HYD/2012 M/S. NARNE ESTATES P. LTD., SECUNDERABAD. WRITTEN OFF WAS DISALLOWED BY THE A.O. FOR THE FAIL URE OF THE ASSESSEE TO FURNISH THE RELEVANT DETAILS AND DOCUME NTS. ACCORDINGLY, THE TOTAL INCOME OF THE ASSESSEE WAS D ETERMINED BY THE A.O. AT RS.1,34,71,955 IN THE ASSESSMENT COM PLETED UNDER SECTION 143(3) READ WITH SECTION 147 OF THE A CT VIDE ORDER DATED 31.12.2010. 3. AGAINST THE ORDER PASSED BY THE A.O. UNDER SECT ION 143(3) READ WITH SECTION 147 OF THE ACT, AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LD. CIT(A) CHA LLENGING THE VALIDITY OF THE SAID ASSESSMENT AS WELL AS DISPUTIN G THE ADDITIONS MADE THEREIN BY THE A.O. TO ITS TOTAL IN COME. AFTER CONSIDERING THE SUBMISSION MADE BY THE ASSESSEE AS WELL AS THE MATERIAL AVAILABLE ON RECORD, THE LD. CIT(A) RE JECTED THE CONTENTION OF THE ASSESSEE THAT THE REOPENING WAS B ASED ON A MERE CHANGE OF OPINION OBSERVING THAT THE ORIGINAL RETURN HAVING BEEN PROCESSED UNDER SECTION 143(1), THERE W AS NO EXPRESSION OF ANY OPINION BY THE A.O. HE ACCORDINGL Y UPHELD THE VALIDITY OF THE ASSESSMENT MADE BY THE A.O. UND ER SECTION 143(3) READ WITH SECTION 147 OF THE ACT. 3.1. AS REGARDS THE ADDITIONS MADE BY THE A.O. IN THE ASSESSMENT, THE MAIN CONTENTION RAISED BY THE ASSES SEE BEFORE THE LD. CIT(A) WAS THAT SUFFICIENT OPPORTUNITY WAS NOT AFFORDED BY THE A.O. DURING THE COURSE OF ASSESSMENT PROCEED INGS TO FURNISH THE RELEVANT FACTS AND FIGURES AS WELL AS R ELEVANT DOCUMENTARY EVIDENCE TO SUPPORT ITS STAND ON THE VA RIOUS ISSUES. THE LD. CIT(A) HOWEVER DID NOT FIND MERIT I N THIS CONTENTION OF THE ASSESSEE AND PROCEEDED TO CONFIRM ALL THE ADDITIONS/DISALLOWANCES MADE BY THE A.O. IN THE ASS ESSMENT COMPLETED UNDER SECTION 143(3) READ WITH SECTION 14 7 BY HIS APPELLATE ORDER DATED 31.10.2011, WHICH IS IMPUGNED BY THE 5 ITA.NO.23/HYD/2012 M/S. NARNE ESTATES P. LTD., SECUNDERABAD. ASSESSEE IN THE PRESENT APPEAL FILED BEFORE THE TRI BUNAL. IN ITS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUN DS : 1. THE ORDER OF THE LD. CIT(A) CONFIRMING THE ORDER O F THE A.O. IS ERRONEOUS BOTH ON FACTS AND IN LAW IN SO FA R AS IT IS PREJUDICIAL TO THE ASSESSEE. 2. THE LD. CIT(A) ERRED IN UPHOLDING THE INITIATION OF PROCEEDINGS UNDER SECTION 147. 3. THE LD. CIT(A) ERRED IN CONFIRMING ASSESSING CAPITA L GAINS AT RS.63,45,547 WITHOUT APPRECIATING THE FACT THAT ACTUAL CAPITAL GAINS IF INDEXED COST OF ACQUIS ITION IS REDUCED WILL BE LESS AND THE DETAILS FOR SUCH WO RKING WAS ALREADY FILED BEFORE THE A.O. 4. THE LD. CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF RS.35,03,327 IN SPITE OF THE FACT THAT THEY ARE AMO UNTS WRITTEN OFF IN THE BOOKS OF ACCOUNT AS BAD DEBTS ON THE GROUND THAT NOT A S SINGLE DOCUMENT IS PRODUCED WITHOUT APPRECIATING THE FACT THAT THE A.O. EXAMINE D THE BOOKS OF ACCOUNT INCLUDING LEDGER AND THESE AMOUNTS ARE APPEARING IN THE LEDGER AS WRITTEN OFF. 5. THE LD. CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF RS.4,92,678 BEING BAD DEBTS WRITTEN OFF, ON THE GRO UND THAT PARTY WISE DETAILS AND REASON AS TO WHY THEY A RE WRITTEN OFF IS NOT PROVIDED THOUGH THE SAME WAS AVAILABLE IN THE BOOKS OF ACCOUNT THAT WAS EXAMINED BY THE A.O. DURING THE ASSESSMENT PROCEEDINGS. 6. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF HEARING. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. GROUND NOS.1 AND 6 RAISED BY THE ASSESSEE IN THIS A PPEAL ARE GENERAL IN NATURE WHICH DO NOT REQUIRE ANY SPECIFIC ADJUDICATION. AS REGARDS THE PRELIMINARY ISSUE RAIS ED IN GROUND NO.2 RELATING TO THE VALIDITY OF ASSESSMENT MADE BY THE A.O. UNDER SECTION 143(3) READ WITH SECTION 147, TH E LD. COUNSEL FOR THE ASSESSEE HAS REITERATED BEFORE US T HE 6 ITA.NO.23/HYD/2012 M/S. NARNE ESTATES P. LTD., SECUNDERABAD. CONTENTIONS TAKEN BEFORE THE LD. CIT(A) THAT THE RE OPENING OF ASSESSMENT HAVING BEEN MADE ON THE SAME SET OF FACT S AND MATERIAL AVAILABLE ON RECORD AND THERE BEING NO NE W MATERIAL COMING TO THE POSSESSION OF THE A.O. TO SUPPORT THE REOPENING, THE INITIATION OF ASSESSMENT PROCEEDINGS ITSELF WAS BAD IN LAW AS THE SAME WAS BASED ON A MERE CHANGE OF OPINION. WE DO NOT FIND MERIT IN THIS CONTENTION OF THE LD. COUNSEL FO R THE ASSESSEE. AS RIGHTLY HELD BY THE LD. CIT(A) IN THIS CONTEXT, THE ORIGINAL RETURN FILED BY THE ASSESSEE WAS PROCESSED BY A.O. UNDER SECTION 143(1) OF THE ACT AND THERE BEING NO OPINION EXPRESSED BY THE A.O. ON THE RELEVANT ISSUE WHILE P ROCESSING THE RETURN OF INCOME OF THE ASSESSEE UNDER SECTION 143(1), THERE IS NO QUESTION OF ANY CHANGE OF OPINION AS SO UGHT TO BE CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE. WE, THEREFORE, UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DISMISS GROUND NO.2 OF THE ASSESSEES APPEAL. 5. AS REGARDS OTHER ISSUES RAISED BY THE ASSESSEE IN GROUND NOS. 3 TO 5 OF ITS APPEAL RELATING TO ADDITI ONS/ DISALLOWANCES MADE BY THE A.O., THE LD. COUNSEL FOR THE ASSESSEE HAS MAINLY REITERATED BEFORE US THE STAND TAKEN BEFORE THE LD. CIT(A) THAT PROPER AND SUFFICIENT OP PORTUNITY WAS NOT AFFORDED BY THE A.O. DURING THE COURSE OF A SSESSMENT PROCEEDINGS TO FURNISH THE RELEVANT DETAILS AND DOC UMENTS TO SUPPORT AND SUBSTANTIATE THE STAND OF THE ASSESSEE. HE HAS ALSO TAKEN US THROUGH SUCH DETAILS AND DOCUMENTS PL ACED IN HIS PAPER BOOK AND SUBMITTED THAT THE SAME BEING RE LEVANT TO THE ISSUES INVOLVED IN THE CASE OF THE ASSESSEE, ON E MORE OPPORTUNITY MAY BE GIVEN TO THE ASSESSEE TO MAKE OU T ITS CASE BEFORE THE A.O. ON THE BASIS OF THE SAID DETAILS AN D DOCUMENTS. SINCE THE LEARNED D.R. HAS NOT RAISED ANY SERIOUS O BJECTION IN 7 ITA.NO.23/HYD/2012 M/S. NARNE ESTATES P. LTD., SECUNDERABAD. THIS REGARD, WE SET ASIDE THE IMPUGNED ORDER OF THE LD. CIT(A) ON THE ISSUES INVOLVED IN GROUND NOS. 3 TO 5 OF ASS ESSEES APPEAL AND RESTORE THE SAME TO THE FILE OF THE A.O. FOR DECIDING THE SAME AFRESH AFTER GIVING PROPER AND SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND NOS. 3 TO 5 ARE ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURP OSES. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS T REATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 06.0 5.2015. SD/- SD/- (G.C. GUPTA) (P.M. JAGTAP) VICE PRESIDENT ACCOUNTANT MEMBER HYDERABAD, DATED 06 TH MAY, 2015 VBP/- COPY TO 1. M/S. NARNE ESTATES P. LTD., 10, GUNROCK ENCLAVE, SECUNDERABAD. C/O. MR. K. VASANTKUMAR & MR. A.V. RAGHURAM, ADVOCATES, 610, 6 TH FLOOR, BABUKHAN ESTATE, BASHEERBAGH, HYDERABAD-1. 2. THE DCIT, CIRCLE 16(1), HYDERABAD. 3. CIT(A)-V, HYDERABAD. 4. CIT-IV, HYDERABAD 5. D.R. ITAT B BENCH, HYDERABAD. 6. GUARD FILE.