ITO, New Delhi V. M/s Ratiional Builders & Developers, New Delhi

ITA 2988/DEL/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7369 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 16-10-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 14-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SHAMEER SHARMA
• Keywords: Assessment record; Notional interest
• Section: 143(3); 131; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : F NEW DELHI BEFORE SHRI H.S. SIDHU, J .M. AND SHRI J.SUDHAKAR REDDY, A.M. ITA NO.2988/DEL/2013 ASSESSMENT YEAR : 2009-10 ITO VS. M/S. RATIONAL BUILDERS & DEVELOPERS, WARD 31 (1), 9 TH FLOOR, DLF CENTRE, NEW DELHI. SANSAD MARG, NEW DELHI 110 001 (PAN AAFFR2590B) (APPELLANT) (RESPONDENT) ASSESSEE BY :- SHRI SHAMEER SHARMA, SR. DR DEPARTMENT BY:- SH. R.S. SINGHVI, CA AND SHRI SATYAJEET GOEL, CA O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AGA INST THE ORDER OF LD.CIT(APPEALS) NEW DELHI DT. 7.2.2013 FOR THE ASSE SSMENT YEAR 2009-10. 2. THE ASSESSEE IS A PARTNERSHIP FIRM CONSISTIN G OF THREE PARTNERS NAMELY DLF LTD., KIRTIMAN BUILDERS LTD. AND ALANKRIT ESTAT ES LTD.. IT IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT. IT FILED I TS RETURN OF INCOME ON 25.9.2009 DECLARING A LOSS OF RS. 3,18,650/-. THE A O HAS PASSED AN ORDER U/S 143(3) ON 26.12.2011 AT AN INCOME OF RS. 3,75,8 5,219/- INTER ALIA MAKING AN ADDITION OF RS. 2,88,98,869/- U/S 68 AND RS. 90,50,000/- AS NOTIONAL INTEREST ON INTEREST FREE ADVANCES. ITA NO. 2988/DEL/2013 AY 2009-10 ITO VS. M/S. RATIONAL BUILDERS DEVELOPERS PAGE 2 OF 7 3. AGGRIEVED THE ASSESSEE CARRIED THE MATTER I N APPEAL. THE FIRST APPELLATE AUTHORITY DELETED THE ADDITION. AGGRIEVED WITH THIS ORDER THE REVENUE IS IN APPEAL ON THE FOLLOWING GROUNDS :- 1. THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 2,88,98,869/- MADE BY THE AO ON ACCOUNT OF SUNDRY CREDITORS REMAINED UNESTABLISHED. 2. THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS . 90,05,000/- MADE BY THE AO ON ACCOUNT OF NOTIONAL INTEREST WHEN ADVANCES AS EXTENDED BY THE ASSESSEE WERE INTEREST FREE AND FOR THE PURPOSE OTHER THAN THE BU SINESS. 4. WE HAVE HEARD SHRI SHAMEER SHARMA ON BEHALF OF THE REVENUE AND SHRI R.S. SINGHVI LD. COUNSEL FOR THE ASSESEE. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PERU SAL OF THE PAPERS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW WE H OLD AS FOLLOWS :- 4.1. ON THE FIRST ISSUE OF ADDITION U/S 68, W E FIND THAT THE AO MADE ADDITION OF OPENING BALANCES WITHOUT PROPERLY VERIF YING THE RECORD. THE LD. CIT(A) AT PAGE 11 OBSERVED AS FOLLOWS :- 10.3 SIMILARLY IN THE CASE OF M/S. TALVI BUILDER S AND DEVELOPERS PVT. LTD. VIDE REMAND REPORT DATED 8.1.2013, IT WAS SUBM ITTED BY THE ASSESSING OFFICER THAT ON 31.3.2009, THEIR CREDIT B ALANCE WAS RS. 28,21,500/- WHEREAS THE APPELLANT HAD PAID TO THE C REDITOR AN AMOUNT OF RS. 1,49,00,000/- ON 25.7.2008. IN FACT T HE AR OF THE APPELLANT ARGUED THAT THE ASSESSING OFFICER DID NOT BOTHER TO PURSUE THE COPY OF THE ACCOUNT PROPERLY OF THE ABOVE MENTI ONED CREDITOR WHICH WAS SUBMITTED. IT WAS CLARIFIED THAT THE APPE LLANT HAD A CREDIT BALANCE WITH THE SAID PARTY AMOUNTING TO RS. 2,94,6 1,000/- AS ON ITA NO. 2988/DEL/2013 AY 2009-10 ITO VS. M/S. RATIONAL BUILDERS DEVELOPERS PAGE 3 OF 7 25.7.2008 AND THIS BALANCE WAS PAID UP ON 3.3.2009. THEREAFTER, THE APPELLANT RECEIVED A CHEQUE OF RS. 28,21,500/- ON 6 .3.2009 FROM THE SAID CREDITOR DRAWN ON ICICI BANK. IT IS PERTINENTL Y MENTIONED HERE THAT THE APPELLANT FURNISHED THE DETAILS OF THE SUN DRY CREDITORS GIVING NAME ADDRESS AND PAN VIDE LETTER DATED 7.11.2011 TO ESTABLISH THE IDENTITY OF THE CREDITORS. MOST OF THE CREDITORS AR E TRADE CREDITORS BROUGHT FORWARD FROM EARLIER YEARS AS PER THE DETAI LS SUBMITTED BY THE APPELLANT. THESE CREDIT BALANCES WERE ACCEPTED IN T HE EARLIER YEARS AND ASSESSMENT ORDERS WERE PASSED U/S 143(3). IT WA S ALSO STATED BY THE APPELLANT THAT AS THE TRANSACTIONS WERE CONDUCT ED THROUGH BANKING CHANNELS AND WERE EXAMINED AND ACCEPTED IN THE ASSESSMENT ORDER FOR THE EARLIER YEARS. ON PERUSAL OF THE ASSE SSMENT RECORD, I FIND THAT THE ASSESSING OFFICER ISSUED SUMMONS UNDER SEC TION 131 OF THE I.T. ACT 1961 TO ALL THE SUNDRY CREDITORS AND VIDE HIS REMAND REPORT DATED 8.1.2013, THE ASSESSING OFFICER DID NOT REPOR T STATING THAT ANY OF THE CREDITOR HAD DENIED ANY TRANSACTION WITH THE AP PELLANT. IN THE CONFIRMATIONS, THE CREDITORS ADMITTED THAT LOANS/AD VANCES WERE RECEIVED FOR THE APPELLANT FOR PURCHASE OF LAND. IT WAS ALSO STATED BY THE ASSESSING OFFICER IN THE SAID REPORT THAT MOST OF THE SO CALLED CREDITORS WERE FILING THE RETURN OF INCOME AT LOSS. THE VERY FACT THAT THE CREDITORS ARE FILING THE RETURN OF INCOME ITSEL F ESTABLISHES THE IDENTITY IN SO FAR THE INCOME OR LOSS IS CONCERNED AND IT IS FOR THE JURISDICTIONAL OFFICERS TO TAKE APPROPRIATE ACTION IN THE MATTER. THE APPELLANT PUT FORTH BEFORE THE ASSESSING OFFICER EV IDENCE REGARDING THE IDENTITY, CREDIT WORTHINESS AND GENUINENESS OF THE SUNDRY CREDITORS ITA NO. 2988/DEL/2013 AY 2009-10 ITO VS. M/S. RATIONAL BUILDERS DEVELOPERS PAGE 4 OF 7 AND ALSO PRODUCED BOOKS OF ACCOUNT FOR NECESSARY VE RIFICATION. HOWEVER THE ASSESSING OFFICER DID NOT POINT OUT ANY DISCREPANCY WHILE EXAMINING THE CREDITORS U/S 131 AND GAVE A FINDING THAT AN X CREDITOR WAS BOGUS. THE ASSESSING OFFICER DID NOT PLACE ANY MATERIAL ON RECORD OR EVIDENCE TO SUPPORT THAT THE APPELLANT HAD IN SO ME WAY GENERATED UNACCOUNTED FUNDS AND ROTATED ITS OWN UNACCOUNTED F UNDS THROUGH THESE CREDITORS. THESE OBSERVATIONS OF THE ASSESSIN G OFFICER IN THE REMAND ARE AGAINST THE PROVISIONS LAID DOWN IN SECT ION 68 OF THE I.T. ACT AS HE DID NOT BRING ANY ADVERSE FINDING WITH CO RROBORATIVE EVIDENCE THAT THE SUNDRY CREDITORS WERE NOT GENUINE . THE PROVISIONS OF SECTION 68 ARE NOT APPLIC ABLE, DUE TO THE FACT THAT ALL THE CREDITORS ARE EITHER OLD OR HAVING A RUNNING AC COUNT WITH THE APPELLANT WHICH IS APPARENT FROM THE CHART SHOWING THE BALANC ES OF THE PARTIES AS ON 1.4.2008 AND 1.4.2009 AND THE COPIES OF ACCOUNTS IN THE BOOKS OF THE APPELLANT AS WELL AS THEIR CONFIRMATIONS WHICH HAVE ALREADY BEEN FURNISHED. ON PERUSAL OF THE OBSERVATIONS OF THE ASSESSING OFF ICER IN THE REMAND REPORT PERTAINING TO THE ACCOUNT OF M/S. CHEVALIERS BUILDE RS AND CONSTRUCTION PVT. LTD. I FIND THAT THE SAID PARTY HAD A CREDIT BALANC E OF RS. 11,46,86,625/- AS ON 1.4.2008 I.E. AT THE BEGINNING OF THE ASSESSMENT YEAR 2009-10 WHICH WAS REDUCED DURING THE FINANCIAL YEAR 2008-09 TO 12,52, 625/- AS ON 31.3.2009 THEREBY IMPLYING THAT DURING THE YEAR THE APPELLANT HAD PAID BACK THE TOTAL AMOUNT OF RS. 11,34,34,000/-. IN THE REMAND REPORT DATED 8.1.2013, IT WAS CONFIRMED BY THE ASSESSING OFFICER THAT THE APPELLA NT DURING THE YEAR PAID TO ITA NO. 2988/DEL/2013 AY 2009-10 ITO VS. M/S. RATIONAL BUILDERS DEVELOPERS PAGE 5 OF 7 HIS CREDITORS AN AMOUNT OF RS. 11,34,33,600/- AS PE R THE BIFURCATION GIVEN BELOW : DATE AMOUNT 25.3.2009 RS. 6,90,00,000/- 06.02.2009 RS. 4,28,01,000/- 3.6.2008 RS.16,33,000/- THEREFORE, THE CLOSING BALANCE OF RS. 12,52,6 25/- CANNOT BE TREATED AS A FRESH CREDIT COVERED UNDER THE PROVISIONS OF SECTIO N 68 OF THE I.T. ACT 1961. 5. THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT CONTROVERT THIS FACTUAL FINDING OF THE FIRST APPELLATE AUTHORITY. THERE ARE NO FRESH CREDIT DURING THE YEAR. HENCE SECTION 68 CANNOT BE INVOKED DURING THE YEAR. HENCE WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS THIS GROUND OF THE REVENUE. 6. ON THE DELETION OF AN ADDITION OF RS. 90,50, 000/- BEING NOTIONAL INTEREST ON LOANS AND ADVANCES THERE IS NO PROVISI ON OF INCOME TAX ACT WHICH AUTHORIZES THE AO TO TAX NOTIONAL INCOME. 7. THE HONBLE GAUHATI HIGHCOURT IN THE CASE OF M/S. HIGHWAYS CONSTRUCTION CO. (P) LTD. VS. CIT 199 ITR 702 (GAU ) HELD AS FOLLOWS :- (II) THAT THERE WAS NO FINDING OF FACT TO THE EFFE CT THAT ACTUALLY THE LOAN HAD BEEN GRANTED TO THE MANAGING DIRECTOR OR ANY OT HER PERSON ON INTEREST, OR THAT INTEREST HAD ACTUALLY BEEN COLLEC TED BUT THE COLLECTION OF THE INTEREST WAS NOT REFLECTED IN THE ACCOUNTS. THE FINDING OF THE INCOME- TAX OFFICER WAS THAT THE ASSESSEE OUGHT TO HAVE COL LECTED INTEREST. IF THE ASSESSEE HAD NOT BARGAINED FOR INTEREST, OR HAD NOT COLLECTED INTEREST, THE INCOME-TAX AUTHORITIES COULD NOT FIX A NOTIONAL INTEREST AS DUE, OR AS COLLECTED BY THE ASSESSEE. THERE WAS NO PROVISION I N THE INCOME-TAX ACT EMPOWERING THE INCOME-TAX AUTHORITIES TO INCLUDE IN THE INCOME INTEREST WHICH WAS NOT DUE OR NOT COLLECTED. THE ADDITION OF AMOUNTS AS NOTIONAL INTEREST WAS NOT JUSTIFIED. ITA NO. 2988/DEL/2013 AY 2009-10 ITO VS. M/S. RATIONAL BUILDERS DEVELOPERS PAGE 6 OF 7 8. THE HONBLE SUPREME COURT IN THE CASE OF E XCEL INDUSTRIES 358 ITR 295 (SC ) HELD AS FOLLOWS :- APPLYING THE THREE TESTS LAID DOWN BY VARIOUS DECI SIONS OF THIS COURT, NAMELY, WHETHER THE INCOME ACCRUED TO THE ASSESSEE IS REAL OR HYPOTHETICAL ; WHETHER THERE IS A CORRESPONDING LIA BILITY OF THE OTHER PARTY TO PASS ON THE BENEFITS OF DUTY FREE IMPORT T O THE ASSESSEE EVEN WITHOUT ANY IMPORTS HAVING BEEN MADE : AND THE PROB ABILITY OR IMPROBABILITY OF REALIZATION OF THE BENEFITS BY THE ASSESSEE CONSIDERED FROM A REALISTIC AND PRACTICAL POINT OF VIEW (THE A SSESSEE MAY NOT HAVE MADE IMPORTS), IT IS QUITE CLEAR THAT IN FACT NO RE AL INCOME BUT ONLY HYPOTHETICAL INCOME HAD ACCRUED TO THE ASSESEE AND SECTION 28(IV) OF THE ACT WOULD BE INAPPLICABLE TO THE FACTS AND CIRC UMSTANCES OF THE CASE. ESSENTIALLY, THE ASSESSING OFFICER IS REQUIRE D TO BE PRAGMATIC AND NOT PEDANTIC. 9. APPLYING THE PROPOSITION LAID DOWN IN THE SE JUDGMENTS TO THE FACT OF THE CASE, WE UPHOLD THE FOLLOWING FINDINGS OF THE L D. CIT(A) HAVE CONSIDERED THE FACTS OF THE CASE, CONSIDERE D THE WRITTEN SUBMISSIONS OF THE APPELLANT, AND PERUSED THE ASSES SMENT ORDER AND ALSO THE ASSESSMENT RECORD. I HAVE ALSO PERUSED THE CITATIONS OF THE CASE LAWS RELIED UPON BY THE APPELLANT IN SUPPORT O F HIS CONTENTIONS. THE FACT THAT THE LOANS AND ADVANCES THAT WERE GIVE N BY THE APPELLANT IN THE COURSE OF ITS NORMAL BUSINESS ACTIVITIES FOR ACQUIRING LAND IS NOT IN DISPUTE WHICH IS ALSO AGREED BY THE ASSESSING OFFIC ER IN HIS REMAND REPORT. THIS FACT HAS ALSO BEEN CONFIRMED IN WRITIN G BY THE CONCERNED PARTIES. IT IS ALSO TRUE THAT THE INCOME TAX ACT, D OES NOT ENVISAGE TAXABILITY OF ANY NOTIONAL INCOME AS SUCH. FURTHER, THE ASSESSING OFFICER IN HIS REMAND REPORT HAS NOT DOUBTED THE NATURE OF ADVANCES BUT HAS GIVEN A VAGUE REASONING FOR UPHOLDING THE ADDITION MADE. I HAVE PERUSED THE DEFINITION OF INCOME IN SECTION 2(24) O F THE INCOME TAX ACT 1961 AND THE VARIOUS JUDICIAL DECISIONS RELIED UPON BY THE APPELLANT. SINCE THE ASSESSING OFFICER DID NOT ESTABLISH WITH ANY SUPPORTING MATERIAL OR EVIDENCE THAT INTEREST WAS EARNED OR AC CRUED TO THE APPELLANT, NOTIONAL INCOME OR INTEREST CANNOT BE TAXED UNDER THE PROVISIONS OF LAW. ACCORDINGLY, THE ADDITION OF RS. 90,05,000/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF NOTIONAL INTERE ST IS HERE WITH DELETED. ITA NO. 2988/DEL/2013 AY 2009-10 ITO VS. M/S. RATIONAL BUILDERS DEVELOPERS PAGE 7 OF 7 10. THIS GROUND OF THE REVENUE IS DISMISSED 11. IN THE RESULT APPEAL OF THE REVENUE IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH OCTOBER, 2014. SD/- SD/- (H.S. SIDHU) ( J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 29 TH OCTOBER, 2014 *VEENA COPY OF THE ORDER FORWARDED TO: 1.APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5.DR; 6.GUARD FILE BY ORDER ASST. REGISTRAR