Chiranjeevi Traders Private Limited, Hyderabad V. Deputy Commissioner of Income Tax, Circle-1(2), Hyderabad

ITA 235/Hyd/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 1722 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 07-04-2021
• Assessment Year: 2013-2014
• Appeal Filed On: 02-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P MURALI MOHANA RAO
• Keywords: Business income; Business expenditure; Scheme of amalgamation; Commercial expediency; TDS; Set aside; Capital Gains; FORM 26AS
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD (THROUGH VIDEO CONFERENCE) BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER I.T.A. NO. 235/HYD/2018 ASSESSMENT YEAR: 2013-14 CHIRANJEEVI TRADERS PRIVATE LIMITED, HYDERABAD [PAN: AABCC1964F] VS DCIT, CIRCLE-1(2), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI P.MURALI MOHANA RAO, AR FOR REVENUE : SHRI ROHIT MUJUMDAR, DR DATE OF HEARING : 07-04-2021 DATE OF PRONOUNCEMENT : 02-07-2021 O R D E R PER S.S.GODARA, J.M. : THIS ASSESSEES APPEAL FOR AY.2013-14 ARISES FROM TH E CIT(A)-1, HYDERABADS ORDER DATED 03-10-2017 PASSED IN CASE NO.0023/CIT(A)-1/HYD/2016-17/2017-18, IN PROCEEDING S U/S.143(3) OF THE INCOME TAX ACT, 1961 [IN SHORT, THE ACT]. HEARD BOTH THE PARTIES. CASE FILE PERUSED. 2. THE ASSESSEE HAS RAISED THE FOLLOWING SUBSTANTIVE GROUNDS IN THE INSTANT APPEAL: 1. THE ORDER OF THE LD. CIT (A) IS ERRONEOUS BOTH ON FACTS AND IN LAW TO PREJUDICIAL TO THE INTERESTS OF THE APPELLANT. 2. THE LD.CIT(A) OUGHT TO HAVE ALLOWED THE APPEAL I N FULL. ITA NO. 235/HYD/2018 :- 2 -: 3.THE LD.CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF RS.94,28,655/-. 4.THE LD.CIT(A) GROSSLY ERRED IN OBSERVING THAT NO DUE DELIGENCE REPORT AND ACQUISITION DETAILS IN WHICH FINANCIAL I MPACT IS ENTAILED, HAS BEEN SUBMITTED BY THE APPELLANT IN RESPECT OF T HE INTEREST LIABILITY OF RS.94,28,655/-. 5.THE LD.CIT(A) GROSSLY ERRED IN IGNORING THE FACT THAT THE SCHEME OF AMALGAMATION OF M/S.EVERBIG PROPERTIES & FINVEST PR IVATE LTD AND THE APPELLANT COMPANY IS EFFECTIVE FROM 01-04-2012, WHICH IS RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION IN RESPE CT OF THE LIABILITY OF RS.94,28,655/- AS PER A.P. HIGH COURT ORDER IN C .P.NOS. 75 & 76 OF 2013 DATED 02-07-2013. 6.THE LD.CIT(A) ERRED IN OBSERVING THAT NO DUE DILI GENCE REPORT AND ACQUISITION DETAILS IN WHICH FINANCIAL IMPACT IS EN TAILED HAS BEEN SUBMITTED BY THE APPELLANT WITH REGARD TO THE LIABI LITY OF RS. 94,28,655/- DE HORS THE FILING OF PAPER BOOK BEFORE HER IN WHICH THE REQUISITE INFORMATION IS AVAILABLE. 7.THE LD.CIT(A) ERRED IN OBSERVING THAT THE APPELLA NT HAS NOT BEEN ABLE TO PROVE THAT THERE WAS A LIABILITY OF RS. 94, 28,655/- PAYABLE TO M/S GAJMUKH INVESTMENTS PRIVATE LIMITED. 8.THE LD.CIT (A) OUGHT TO HAVE ALLOWED THE CLAIM FO R RS.50,32,183/ - MADE TOWARDS TDS AND ADVANCE TAX. 9.THE LD.CIT(A) HAS ERRED IN DIRECTING THE A.O TO V ERIFY THE CLAIM OF THE APPELLANT TOWARDS TDS AND ADVANCE TAX AMOUNTING TO RS.50,32,183/- IN SPITE OF THE FACT THAT FULL DETAI LS IN SUPPORT OF THE CLAIM HAVE BEEN FILED BEFORE HER THROUGH PAPER BOOK . 10. THE APPELLANT MAY ADD OR ALTER OR MEND OR MODIF Y OR SUBSTITUTE OR DELETE AND / OR RESCIND ALL OR ANY OF THE GROUNDS O F APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL . 3. WE COME TO THE FORMER ISSUE OF INTEREST DISALLOWANCE OF RS.94,28,655/-. THE CIT(A)S DETAILED DISCUSSION UPH OLDING THE ASSESSING OFFICERS ACTION TO THIS EFFECT READS AS UND ER: 5.GROUND 1: DISALLOWANCE U/S.37(1) OF RS.94,28,655/ - TOWARDS THE INTEREST PAYMENT TO M/S.GAJMUKH INVESTMENTS PRIVATE LIMITED: 5.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED EXPEN DITURE OF RS.94,28,655/- ON ACCOUNT OF INTEREST PAID TO M/S.G AJMUKH INVESTMENTS PRIVATE LIMITED. HOWEVER, IT WAS FOUND THAT THE TOTAL OUTSTANDING ADVANCE FROM GAJMUKH IN THE BOOKS OF AS SESSEE COMPANY (POST MERGER) WAS ONLY RS.55LAKHS. THUS, TH E INTEREST ITA NO. 235/HYD/2018 :- 3 -: CLAIMED IS INCOMMENSURATE TO THE PRINCIPAL AMOUNT O N WHICH THE INTEREST HAS BEEN CLAIMED TO HAVE BEEN PAID. THUS, THE ASSESSEE WAS ASKED TO PROVIDE THE DETAILED WORKING OF SUCH INTER EST CHARGED TO P & L STATEMENT. IN RESPONSE, THE ASSESSEE STATED T HAT INTEREST PAID WAS RS.94,24,577/- TO M/S.GQJMUCKH INVESTMERITS PRI VATE LIMITED FOR THE AMOUNT BORROWED FROM IT. RATE OF INTEREST WAS 1 8%. THE ASSESSEE FURTHER SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE TOTAL INTEREST PAID WAS RS.94,24,577/- BY M/S EVERB IG PROPERTIES & FINVEST PRIVATE LIMITED TO M/S',GAJMUKH INVESTMENTS PRIVATE LIMITED FOR THE AMOUNT BORROWED FROM IT IN THE YEAR 2005-06 . RATE OF INTEREST WAS 18%. AS M/S.EVERBIG WAS NOT HAVING FUNDS TO REP LY TO M/S. GAJMUKH INVESTMENTS PRIVATE LIMITED & HENCE UNDERST ANDING WAS REACHED BETWEEN THEM TO RETURN MONEY ALONG WITH INT EREST OF18% FROM 01.04.2004 IN THE YEAR OF SALE OF PROPERTY. ACCORDINGLY, LOAN ALONG WITH INTEREST WAS REPAID IN THE ACCOUNTING YEAR 2012-13 (YEAR OF SALE OF PROPERTY). THE ASSESS ING OFFICER CONCLUDED THAT- A) EVEN THOUGH SPECIFICALLY ASKED TO PROVIDE THE DE TAILED WORKING OF THE INTEREST CLAIMED, THE ASSESSEE, DESPITE AVAILIN G SUFFICIENT TIME TO FILE THE EXPLANATION, COULD NOT, PROVIDE THE YEAR-W ISE WORKING OF THE INTEREST. B) NO SUPPORTIN9!LOCUMENTARYEVIDENCESHAVE BEEN FILE D TO SUPPORT THE AUTHENTICITY AND VALIDITY OF ANY SUCH AGREEMENT ENT ERED INTO BY THE ASSESSEE WITH M/S.GAJMUKH INVESTMENTS. C) NO EVIDENCE ILLUSTRATING THE ACTUAL TRANSACTION PERTAINING TO PAYMENT OF ANY SUCH INTEREST, HAS BEEN FILED BY THE ASSESSEE. D) THE ASSESSEE IS FOLLOWING MERCANTILE BASIS OF AC COUNTING. THE ASSESSEE WAS ALREADY AWARE OF THE ARRANGEMENT THAT INTEREST WILL ACCRUE YEARLY. THUS IT SHOULD HAVE CHARGED INTEREST TO ITS PROFIT AND LOSS ACCOUNT, AS AND WHEN IT ACCRUED I.E. ON YEARLY BASIS. CHARGING OF THE INTEREST IN ONE GO LN THE CURRENT YEAR HAS B EEN DONE(JUST TO BRING DOWN ITS TAXABLE PROFITS. E) EVEN IF THE CONTENTION OF THE ASSESSEE IS ACCEPT ED FOR ONCE, THE CONTRACT ENTERED INTO WITH M/S. GAJMUKH INVESTMENT IS CONTINGENT TO THE SALE OF PROPERTY. THUS, THE INTEREST IS ATTACHE D DIRECTLY TO THE PROPERTY IN QUESTION. IN SUCH CIRCUMSTANCES, IT IS IMPORTANT TO SEE WHETHER SUCH PROPERTY IS GENERATING ANY INCOME FROM BUSINESS OR NOT. IT IS SEEN FROM THE RECORDS, THAT INCOME FROM SALE OF THIS PROPERTY HAS NOT BEEN ACCOUNTED FOR A BUSINESS INCOME, BUT AS LO NG TERM CAPITAL GAINS, AFTER TAKING THE BENEFIT OF INDEXATION. THUS , THERE IS NO ROOM FOR ANY DOUBT THAT THE INTEREST AT RS.94,28,655/- EVEN IF HAS BEEN REALLY PAID, DOES NOT PERTAIN TO THE BUSINESS OF THE ASSES SEE AT ALL. ITA NO. 235/HYD/2018 :- 4 -: UNDER THE PROVISIONS OF SECTION 37(1), IT IS CONSTR UED THAT THE INTEREST OF RS.94,28,655/- CLAIMED TO HAVE BEEN PAID BY THE ASSESSEE IS NOT RELATED TO THE BUSINESS OF THE ASSESSEE. THUS, THE ASSESSING OFFICER DISALLOWED THE SAME AND ADDED TO THE RETURNED INCOM E OF THE ASSESSEE. 5.2 BEFORE ME, THE APPELLANT SUBMITTED THE FOLLOWIN G: (1) THE APPELLANT SUBMITTED THAT IN THE YEAR UNDER CONSIDERATION M/S.EVERBIG PROPERTIES & FINVEST PVT LTD HAS MERGED INTO THE ASSESSEE COMPANY WITH EFFECT FROM 01.04.2012 AS PER HIGH COURT OF ANDHRA PRADESH ORDER DT.02.07 :2013. (2) THE APPELLANT SUBMITTED THAT DURING THE FINANCI AL YEARS 2004-05 AND 2006-07 I.E., BEFORE MERGER M/S. EVERBIG PROPER TIES & FINVEST PVT LTD HAS BORROWED AN AMOUNT OF RS.54,75,000/- FROM M /S.GAJMUKH INVESTMETS PVT LTD. THIS MONEY HAS BEEN RECEIVED BY THE MIS. EVERBIG PROPERTIES & FINVEST PVT LTD, THROUGH THE BANKING C HANNEL VIA INDIAN OVERSEAS BANK ACCOUNT NO. 043202000002838. THIS FAC T CAN BE APPRECIATED FROM THE LEDGER OF GAJMUKH INVESTMENT P VT LTD AND INDIAN OVERSEAS BANK LEDGER IN BOOKS OF M/S. EVERBI G PROPERTIES & FINVEST PVT LTD FOR THE PERIOD 01.04.2003 TO 31.03. 2013. (3) THE APPELLANT SUBMITTED THAT M/S.EVERBIG PROPER TIES & FINVEST PVT LTD DOES NOT HAVING FUNDS TO REPAY THE ABOVE, LOAN AMOUNT TO M/S,GAJMUKH INVESTMENTS PVT LTD ACCORDINGLY AN UNDE RSTANDING WAS REACHED BETWEEN THEM TO REPAY ALONG WITH INTEREST A T 18% P.A FROM THE DATE OF BORROWINQ. AS PER THE UNDERSTANDING, IN TEREST FROM 2004- 05 BECAME DUE ON 2012-13 ONLY. TOTAL INTEREST WORKE D OUT TO BE RS.94,24,577/-. ACCORDINGLY THE LOAN ALONQ WITH THE INTEREST WAS REPAID IN THE ACCOUNTING YEAR 2012-13 FOR AN TOTAL AMOUNT OF RS.1,39,57,119/- WHICH IS INCLUSIVE OF PRINCIPAL AN D INTEREST AFTER THE TDS, IT IS SUBMITTED THAT ON THE ABOVE INTEREST PAY MENT TDS WAS MADE AND PAID @10% TO INCOME TAX DEPARTMENT FOR RS. 9,42,458/- VIA CHALLAN NO 26078 DATED 11.07.2012 OF ICICI BANK, UT TAM NAGAR BRANCH, NEW DELHI. THEREFORE IT IS VERY CLEAR THAT ASSESSEE HAS PAID THE INTEREST TO THE M/S. GAJMUKH INVESTRNENTS PVT L TD AS PER THE PROVISIONS OF LAW AND DEDUCTED THE RESPECTIVE TDS A ND DEPOSITED THE SAME. (4) THE APPELLANT FURTHER SUBMITTED THAT THE BORROW ED. FUNDS WERE USED FOR BUSINESS PURPOSES ONLY AND HENCE INTEREST EXPENDITURE PAID ON THE SAME IS BUSINESS EXPENDITURE. M/S.EVERBIG PR OPERTIES & FINVEST PVT LTD HAS TAKEN THE ADVANCE IN RESPECT OF THE BUSINESS PURPOSE ONLY AND FUNDS ALSO UTILIZED FOR THE BUSINE SS ACTIVITIES ONLY AND SAME SHOULD BE ALLOWED U/S.37 OF THE ACT AS BUS INESS EXPENDITURE. THE INTEREST PAID ON ADVANCES IS AN AL LOWABLE EXPENDITURE U/S.37(1) OF THE ACT. THE EXPENDITURE I S PURELY INCURRED FOR THE PURPOSE OF BUSINESS AND IT IS NECESSARY FOR THE SMOOTH ITA NO. 235/HYD/2018 :- 5 -: FUNCTIONING OF BUSINESS THEREFORE SHOULD BE ALLOWED U/S. 37 OF THE ACT. FURTHER IT IS SUBMITTED THAT EXPENDITURE INCUR RED FOR THE PURPOSE OF BUSINESS AND IT IS ALLOWABLE AS, BUSINESS EXPEND ITURE IF IT IS INCURRED ON GROUND OF COMMERCIAL EXPEDIENCY. (5) THE APPELLANT SUBMITTED THE FOLLOWING DOCUMENTS : 1.STATEMENT SHOWING CALCULATION OF INTEREST AND LOA N REPAYMENT. UNSIGNED & UN AUTHETICATED 2.LEDGER EXTRACT OF M/S.GAJMUKH INVESTMENTS PVT LTD IN THE BOOKS OF M/S. EVERBIG PROPERTIES & FINVEST PVT. LTD TOWARDS ADVANCE. 3.LEDGER EXTRACT OF INDIAN OVERSEAS BANK IN THE BOO KS OF M/S.EVERBIG PROPERTIES & FINVEST PVT. LTD 4.BANK STATEMENT OF INDIAN OVERSEAS BANK A/C NO.043202000002838 FOR THE PERIOD FROM 01.04.2012 T O 13.02.2013. 5.3 THE SUBMISSIONS OF THE APPELLANT HAS BEEN CONSI DERED CAREFULLY. THE APPELLANT SUBMITTED THAT THEY HAVE PAID RS.94,2 4,577/- TO M/S. GAJMUKH INVESTMENTS PVT LTD ON BEHALF OF THE M/S. E VERBIG PROPERTIES & FINVEST PVT. LTD. THIS WAS A LIABILITY WHICH WAS INHERITED BY THE APPELLANT COMPANY AFTER THE MERGE. HOWEVER, NO 'DUE DILIGENCE REPORT' AND WHICH FINANCIAL IMPACT 15 ENTAILED, HAS BEEN SU BMITTED BY THE APPELLANT. THIS CASTS DOUBT REGARDING 'THE LIABIIIT Y OF THE APPELLANT AFTER THE MERGER. NO EVIDENCE HAS BEEN BROUGHT BEFO RE ME TO SHOW THAT THIS AMOUNT STANDS PAYABLE. NO BANK ACCOUNT HA S BEEN GIVEN BY THE APPELLANT WHERE THEY HAVE PAID THE SAID AMOUNT TO MIS. GAJMUKH INVESTMENTS PVT LTD, SECONDLY, IN THE SUBMISSIONS O F THE APPELLANT, I~ HAS BEEN REFERRED TO AN 'UNDERSTANDING'. NO SUCH DO CUMENTATION REGARDING SO CALLED UNDERSTANDING OR ANY AGREEMENT HAS BEEN- SUBMITTED TO SUPPORT THE CONTENTION OF THE APPELLAN T. THIRDLY, IN THE LEGER ACCOUNT OF M/S.GAJRRIUKH INVESTMENTS PVT 'LTD IN THE BOOKS OF M/S.EVERBIG PROPERTIES & FINVEST PVT. LTD, THERE IS A DIFFERENCE RS.39,49,577/- (RS.94,24,577 - RS.54,75,000) IN TER MS OF PAYABLES AS REFERRED BY THE APPELLANT. HENCE, THE ACCOUNTS A LSO ARE NOT SUPPORTABLE. EVEN THE CONTENTION REGARDING DEDUCTIO N OF TDS IN THE ABOVE PAYMENT ALSO IS NOT PROVED BY ANY EVIDENCE LI KE FORM 26AS, OR PAYMENT CHALLAN. IN LIGHT OF THIS, THE APPELLANT HA S NOT ABLE TO PROVE THAT THERE WAS SUCH A LIABILITY TO PAY TO M/S.GAJMU KH INVESTMENTS PVT LTD. NO DOCUMENTARY EVIDENCE COULD BE' PROVIDED BY THE APPELLANT AS TO WHETHER THIS WAS A BUSINESS RELATED EXPENDITU RE' OR JUST AN ADJUSTMENT. IN THIS BACKGROUND} THE FINDINGS OF THE ASSESSING OFFICER IS UPHELD AND I UPHOLD THE ADDITION MADE BY THE ASS ESSING OFFICER. 4. WE HAVE HEARD RIVAL SUBMISSIONS AGAINST AND IN SU PPORT OF THE IMPUGNED INTEREST DISALLOWANCE AND FIND NO MERI T IN ITA NO. 235/HYD/2018 :- 6 -: REVENUES STAND IN PRINCIPLE. THIS IS FOR THE REASON THAT THE HON'BLE JURISDICTIONAL HIGH COURTS ORDER APPROVING AMALGAMATION SCHEME WITH EFFECT FROM THE APPOINTED DATE I.E., 01-04-2012 (FALLING IN THE RELEVANT PREVIOUS YEAR) M AKES IT CLEAR THAT THE ASSESSEE HAD UNDERTAKEN ALL THE LIABILITI ES AND DUTIES OF TRANSFERER COMPANY, M/S.EVERBIG PROPERTIES & FINVEST PRIVATE LTD., WHO INFACT HAD BORROWED THE PRIN CIPLE AMOUNT OF RS.54.75 LAKHS IN FY.2004-05 AND 2006-07 I .E. WELL BEFORE MERGER. WE FURTHER NOTICE THAT THE ASSESSEE HAS ALSO FILED A PETITION DT.26-12-2020 INTE ALIA PLACING ON RECORD AUDITED FINANCIAL STATEMENTS OF M/S.GAJMUKH INVESTMENTS PVT. LTD., (FY.2012-13) FORM-26AS OF M/S.GAJMUKH INVESTMEN TS PVT. LTD., FOR THE AY.2013-14 AND DETAILED COPY OF THE AMALGAMATION SCHEME; RESPECTIVELY. FACED WITH THIS SITUATION, WE DEEM IT APPROPRIATE TO EXPRESS OUR AGREEMENT WITH THE REVENUES STAND QUA THE FOREGOING ADDITIONAL EXPENDITURE THAT ALL THESE DOCUMEN TS REQUIRE THE ASSESSING OFFICERS NECESSARY FACTUAL VE RIFICATION. WE THEREFORE RESTORE THE INSTANT FORMER ISSUE OF INTERES T DISALLOWANCE AMOUNTING TO RS.94,28,655/- BACK TO THE ASSESSING OFFICER FOR HIS VERIFICATION AS PER LAW WI THIN THREE EFFECTIVE OPPORTUNITIES OF HEARING. THIS FORMER SUBSTAN TIVE ISSUE IS ACCEPTED FOR STATISTICAL PURPOSES. 5. NEXT COMES THE ASSESSEES LATTER SUBSTANTIVE GRIEVANC E THAT THE CIT(A) HAD ERRED IN LAW AND ON FACTS IN RESTORI NG THE ISSUE OF TDS AND ADVANCE TAX CLAIM(S) OF RS.50,32,18 3/- SINCE THE POWER TO SET ASIDE IS NO MORE AVAILABLE TO HIM IN LIGHT OF SECTION 251(1)(A) CONTAINING THE OMISSION TO THIS EFF ECT VIDE FINANCE ACT, 2001 W.E.F.01-06-2001. WE FIND MERIT IN THE ITA NO. 235/HYD/2018 :- 7 -: ASSESSEES GRIEVANCE IN PRINCIPLE AND DEEM IT APPROP RIATE TO RESTORE THE INSTANT LATTER ISSUE BACK TO THE ASSESSING OF FICER AT THE SAME TIME TO VERIFY THE CORRESPONDING FACTS PERTAININ G TO THE IMPUGNED TWIN HEADS. ORDERED ACCORDINGLY. 6. THIS ASSESSEES APPEAL IS TREATED AS ALLOWED FOR S TATISTICAL PURPOSES IN FOREGOING TERMS. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND JULY, 2021 SD/- SD/- (LAXMI PRASAD SAHU) (S.S.G ODARA) ACCOUNTANT MEMBER JUDICIAL MEM BER HYDERABAD, DATED: 02-07-2021 TNMM ITA NO. 235/HYD/2018 :- 8 -: COPY TO : 1.CHIRANJEEVI TRADERS PRIVATE LIMITED, C/O. P. MURA LI & CO., CHARTERED ACCOUNTANTS, 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD. 2.THE DCIT, CIRCLE-1(2), HYDERABAD. 3.CIT(APPEALS)-1, HYDERABAD. 4.PR.CIT-1, HYDERABAD. 5.D.R. ITAT, HYDERABAD. 6.GUARD FILE.