ACIT, Cir-16(3), Hyderabad V. M/s. Prajay Engineers Syndicate Ltd, Hyderabad

ITA 321/HYD/2011

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 8966 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 23-12-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 04-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BANDI RAMA KRISHNA
• Keywords: Unexplained investment; Business income; Depreciation; Opportunity of being heard; Earning of tax free income; Commercial expediency
• Section: 133A; 14A; 69; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A ', HYDERABAD BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. ASSESSM ENT YEAR APPELLANT RESPONDENT 1415/HYD/10 2006 - 07 M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD (PAN AACCP 2287 M) ADDL. CIT, RANGE - 16, HYDERABAD 260/HYD/11 2007 - 08 32 1 /HYD/2011 2007 - 08 ASSTT. COMMISSIONER OF INCOME - TAX , CIRCLE 16(3), HYDERABAD M/S. PRAJAY ENGINEERS SYNDICATE L TD., HYDERABAD (PAN AACCP 2287 M) 368/HYD/2013 2008 - 09 260/HYD/2013 2009 - 10 ASSESSEE BY : SHRI MOHD. AFZAL DEPARTMENT BY : SHRI BANDI RAMAKRISHNA DR DATE OF HEARING 23 . 12 .201 4 DATE OF PRONOUNCEMENT 20. 0 1.2015 O R D E R PER BENCH: OUT OF THESE FIVE APPEALS, TWO APPEALS, BEING ITA NOS.260 AND 321/HYD/2011, ARE CROSS - APPEALS FOR ASSESSMENT YEAR 2007 - 08, WHILE THE APPEAL FOR ASSESSMENT YEAR 2006 - 07, BEING ITA NO.1415/HYD/2010, IS THE APPEAL FILED BY THE ASSESSEE, AND THE REMAINING TWO APPEALS BEING ITA NOS.368 AND 260/HYD/2013 ARE APPEALS FILED BY THE REVENUE FOR THE ASSESSMENT YEARS 2008 - 09 AND 2009 - 10. SINCE SOME OF THE ISSUES INVOLVED IN THESE APPEALS ARE COMMON, THE SAME HAVE BEEN HEARD TOGETHER AND ARE BEING DISPOSED OF BY A SINGL E CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 2 2. FIRST, WE SHALL TAKE UP THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2006 - 07, BEING ITA NO.1415/HYD/2010, WHICH IS DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX( APPEALS) V, HYDERABAD DATED 3.9.2010. GROUND NO.1 RAISED BY THE ASSESSEE IN THIS APPEAL IS GENERAL WHICH DOES NOT CALL FOR ANY SPECIFIC ADJUDICATION. 3. THE ISSUE RAISED IN GROUND NO.2 RELATES TO THE DISALLOWANCE OF ASSESSEES CLAIM FOR DEDUCTION UNDE R S.80IB(10) AS MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A) TO THE EXTENT OF RS.59,49,280. 4. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY, WHICH IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND HOSPITALITY. THE RETURN OF INCOME FOR THE YEA R UNDER CONSIDERATION WAS FILED BY IT ON 27.11.2006 DECLARING TOTAL INCOME OF RS.16,29,19,420, AFTER CLAIMING DEDUCTION UNDER S.80IB(10) AT RS.11,50,92,475. THE SAID DEDUCTION WAS CLAIMED IN RESPECT OF PROFIT DERIVED FROM THREE PROJECTS, NAMELY, SAI GARDE NS, PRAJAY HOMES AND PRAJAY SHELTERS AND SUCH PROFIT WAS WORKED OUT BY THE ASSESSEE AS UNDER - SAI GARDEN PRAJAY HOMES PRAJAY SHELTERS OTHERS TOTAL SALES 1,94,57,395 11,32,68,289 15,22,08,000 34,19,87,768 62,69,21,452 COST OF CONSTRUCTION 1,12,04,600 6,31,45,500 7,53,70,805 15,55,33,775 30,52,54,680 % OF SALES TO TOTAL SALES 3,1036 18,0674 24,2786 54,5503 100 APPORTIONED INDIRECT COST INCLUDING DEPRECIATION 13,80,046 80,33,731 1,07,95,591 2,42,56,019 4,44,65,387 PROFIT FROM PROJECT 68,72,749 4,20,89,058 6,60,41,604 16,21,97,974 27,72,01,385 I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 3 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER S.80IB( 10) WAS EXAMINED BY THE ASSESSING OFFICER AND ON SUCH EXAMINATION, HE FOUND THAT THE TOTAL SALES OF OTHER PROJECTS TAKEN BY THE ASSESSEE AT RS.34,19,87,767, WHILE WORKING OUT THE PROFITS OF DIFFERENT PROJECTS, WAS INCLUSIVE OF THE LAND RELATED SALES OF RS. 14,25,15,074. ACCORDING TO HIM, THE EXPENDITURE RELATABLE TO SUCH SALE OF LAND WOULD BE MEAGER AND NEGLIGIBLE AND THEREFORE, WHILE MAKING APPORTIONMENT OF INDIRECT COSTS IN THE RATIO OF SALES OF EACH PROJECT VIS - - VIS TOTAL SALES OF THE CONSTRUCTION UNIT AS DONE BY THE ASSESSEE, THE AMOUNT OF LAND SALES WAS LIABLE TO BE EXCLUDED FROM THE SALES OF OTHER PROJECTS AS WELL AS TOTAL SALES OF THE CONSTRUCTION UNIT. ACCORDINGLY, THE APPORTIONMENT OF INDIRECT COSTS TO DIFFERENT PROJECTS WAS WORKED OUT BY THE ASS ESSING OFFICER AS UNDER - SAI GARDEN PRAJAY HOMES PRAJAY SHELTERS OTHERS TOTAL SALES 1,94,57,395 11,32,68,289 15,22,08,000 19,95,72,693 48,45,06,378 % OF SALES TO TOTAL SALES 4.0159 23.3781 31.4150 41.1909 100 APPORTIONED INDIRECT COST INCLUD - ING DEPRE - CIATION 17,85,685 1,03,95,163 1,39,68,801 1,83,15,738 4,44,65,387 6. ON THE BASIS OF THE APPORTIONMENT OF INDIRECT COST TO THE DIFFERENT PROJECTS MADE BY HIM AS ABOVE, THE ASSESSING OFFICER WORKED OUT THE PROJECT - WISE PROFITS OF THE CONSTRUCTION UNIT OF THE ASSESSEE AS UNDER - I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 4 . SAI GARDEN PRAJAY HOMES PRAJAY SHELTERS OTHERS TOTAL SALES 1,94,57,395 11,32,68,289 15,22,08,000 34,19,87,768 62,69,21,452 COST OF CON - STRU C - TION 1,12,04,600 6,31,45,500 7,53,70,805 15,55,33,775 30,52,54,680 % OF SALES TO TOTAL SALES 4,0159 23,3781 31,4150 41,1909 100 APPORTI ONED INDIRECT COST INCLUD - ING DEPRE - CIATION 17,85,685 1,03,95,163 1,39,68,801 1,83,15,738 4,44,65,387 PROFIT FROM PROJECT 64,67,110 3,97,27,626 6,28,68,394 16,81,38,255 27,72,01,385 AFTER RELEVANT ADJUSTMENT OF DEPRECIATION CLAIMED AS PER COMPANY ACT AND INCOME TAX DEPRECIATION SCHEDULE, THE UNIT WISE PROFIT IS DETERMINED AS UNDER : SAI GARDEN PRAJAY HOMES PRAJAY SHELTERS OTHERS TOTAL PROFIT AFTER DEPRECIATION 64,73,192 3,97,63,031 6,29,15,971 16,82,45,153 27,73,97,347 . ON THE BASIS OF THE ABOVE WORKING, THE ASSESSEE WAS HELD TO BE ELIGIBLE FOR DEDUCTION UNDER S.80IB(10) BY THE ASSESSING OFFICER TO THE EXTENT OF RS.10,91,52,195 AS AGAINST THE CLAIM OF RS.11,50,92,475. ACCORDINGLY, A DISALLOWANCE OF RS.59,40,280 WAS MADE BY THE ASSESSING OFFICER ON THIS ISSUE IN THE ASSESSMENT COMPLETED UNDER S.143(3) VIDE ORDER DATED 24.12. 2008. I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 5 7. AGAINST THE ORDER PASSED BY THE ASSESSING OFFICER UNDER S.143(3), AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LEARNED CIT(A) CHALLENGING INTER ALIA THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF ITS CLAIM FOR DEDUCTION UNDE R S.80IB(10) TO THE EXTENT OF RS.59,40,280. BEFORE THE LEARNED CIT(A), IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT INDIRECT EXPENSES RELATED TO THE GENERAL ADMINISTRATIVE, MARKETING AND FINANCE, WERE INCURRED BY THE CONSTRUCTION DIVISION AS A WHOLE AND SUCH EXPENDITURE NOT BEING INCURRED IN RELATION TO ANY PARTICULAR PROJECT AND THE SAME BEING RELATED TO GENERAL ADMINISTRATION, MARKETING AND FINANCE OF THE CONSTRUCTION DIVISION, THE SAME WAS RIGHTLY APPORTIONED IN THE RATIO OF SALES EVEN TO THE PROJ ECTS WHERE THERE WAS NO CONSTRUCTION ACTIVITY AND THERE WAS ONLY SALE OF LAND. THIS STAND OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE LEARNED CIT(A) AND HE CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DEDUCTION UNDER S.80IB F OR THE FOLLOWING REASONS GIVEN IN PARAGRAPH 6.2 AND 6.3 OF HIS IMPUGNED ORDER - 6.2. I HAVE CONSIDERED THE ARGUMENTS OF THE APPELLANT AS WELL AS THE FACTS OF THE CASE CAREFULLY. IT IS THE DUTY OF THE APPELLANT TO KEEP PROPER ACCOUNTS FROM WHICH ALL RELEVA NT FINANCIAL COSTS CAN BE REDUCED. SINCE SUCH DETAILS PERTAINING TO INDIRECT ADMINISTRATIVE EXPENDITURE HAVE NOT BEEN KEPT, IT IS OBVIOUSLY IMPORTANT TO FIND A LOGICAL METHOD OF ALLOCATING THE TOTAL INDIRECT EXPENDITURE BETWEEN VARIOUS PROJECTS. FIRST OF A LL, IT IS SEEN THAT THE INDIRECT EXPENDITURE IS MADE UP OF GENERAL ADMINISTRATION EXPENSES, MARKETING EXPENSES, FINANCIAL CHARGES AND OTHER CORPORATE OVERHEADS. WITH RESPECT TO SALE OF LAND, THERE ARE NO MARKETING EXPENSES, NO FINANCIAL CHARGES RELATING TO CONSTRUCTION DIVISION , NEGLIGIBLE ADMINISTRATION EXPENSES AND HARDLY ANY OTHER OVERHEADS INCURRED. ON THE CONTRARY, WITH RESPECT TO CONSTRUCTION DIVISION , PEOPLE ARE EMPLOYED EVERY DAY TO OVERSEE CONSTRUCTION ACTIVITY. EVEN OTHERWISE, ELECTRICITY EXPENSES, MARKETING EXPENSES REGARDING SALES OF VILLAS AND FLATS, ETC., ARE INCURRED ONLY WITH RESPECT TO THE CONSTRUCTION DIVISION . I THEREFORE, FIND MERIT IN TH E ARGUMENT OF THE ASSESSING OFFICER THAT FOR CALCULATION OF INDIRECT EXPENSES, THE SALE VALUE OF THE LAND MUST BE REMOVED FROM TOTAL SALES BECAUSE I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 6 NEGLIGIBLE AMOUNT OF INDIRECT EXPENDITURE RELATES TO DIRECT SALE OF LAND. 6.3. GIVEN THE ABOVE FACTS AND CI RCUMSTANCES, I FIND THAT THE ASSESSING OFFICER HAS RIGHTLY RE - ALLOCATED INDIRECT EXPENDITURE AS DISCUSSED ABOVE AND CORRECTLY RECALCULATED THE DEDUCTION CLAIMED U/S.80IB OF THE ACT. ACCORDINGLY, THE ADDITION IS CONFIRMED. 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS NO DOUBT TRUE THAT THE TURNOVER OF THE PROJECT INVOLVING ONLY SALE OF LAND CANNOT BE EQUATED WITH OR COMPARED WITH THE TURNOVER OF THE PROJECT WHICH INVOLVED CONSTRUCTION AND SALE O F A COMMERCIAL OR RESIDENTIAL BUILDING FOR THE PURPOSE OF APPORTIONMENT OF INDIRECT EXPENSES INCURRED BY THE ASSESSEE COMPANY IN THE CONSTRUCTION DIVISION AND THIS POSITION IS NOT DISPUTED EVEN BY THE LEARNED COUNSEL FOR THE ASSESSEE. AT THE SAME TIME, IT IS ALSO TRUE THAT IT CANNOT BE SAID THAT THE ACTIVITY INVOLVING PURCHASE AND SALE OF LAND DOES NOT REQUIRE INCURRING OF ANY INDIRECT EXPENSE, WHICH MAINLY INVOLVED GENERAL ADMINISTRATIVE EXPENSES AND THIS POSITION IS NOT DISPUTED EVEN BY THE LEARNED DEPA RTMENTAL REPRESENTATIVE. IN THIS SITUATION, WE ARE OF THE VIEW THAT NEITHER THE APPORTIONMENT OF INDIRECT EXPENSES MADE BY THE ASSESSEE ON THE BASIS OF SALES NOR THE APPORTIONMENT OF INDIRECT EXPENSES MADE BY THE ASSESSING OFFICER ON THE BASIS OF SALES BU T EXCLUDING THE SALE OF LAND, CAN BE SAID TO BE CORRECT. IN OUR OPINION, IT WOULD BE FAIR AND REASONABLE TO MAKE SUCH APPORTIONMENT OF INDIRECT EXPENSES IN THE RATIO OF 4:1 IN THE CASE OF TURNOVER OF PROJECTS INVOLVING CONSTRUCTION AND SALE OF COMMERCIAL AND RESIDENTIAL BUILDINGS, AND PROJECTS INVOLVING ONLY SALE OF LANDS. IT MEANS THAT THE TURNOVER OF SALE OF LAND SHOULD BE TAKEN ONLY TO THE EXTENT OF 25% WHILE MAKING THE APPORTIONMENT OF INDIRECT COST TO DIFFERENT PROJECTS AND BASED ON SUCH APPORTIONME NT , THE PROFIT OF DIFFERENT PROJECTS ELIGIBLE FOR DEDUCTION UNDER S.80IB I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 7 HAS TO BE WORKED OUT. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO RECOMPUTE THE DEDUCTION ALLOWABLE TO THE ASSESSEE UNDER S.80IB AND ALLOW PARTLY GROUND NO.2 OF THE ASSESSEES APP EAL. 9. THE ISSUE INVOLVED IN GROUND NO.3 OF THE ASSESSEES APPEAL ORF 2006 - 07 RELATES TO THE ADDITION OF RS.14,39,614 MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LEARNED CIT(A) ON ACCOUNT OF INTEREST INCOME. 10. DURING THE YEAR UNDER CONSID ERATION, THE ASSESSEE HAD COMPLETED FCCB ISSUE AND THE EXPENDITURE INCURRED IN CONNECTION WITH THE SAID ISSUE WAS CAPITALIZED BY IT. FROM THE PERUSAL OF THE WORKING FURNISHED BY THE ASSESSEE IN THIS REGARD, IT WAS NOTICED BY THE ASSESSING OFFICER THAT INTE REST OF RS.14,39,614 RECEIVED BY THE ASSESSEE ON THE BANK DEPOSIT MADE FROM THE PROCEEDS OF FCCB ISSUE WAS CREDITED TO THE FCCB EXPENDITURE ACCOUNT. ACCORDING TO THE ASSESSING OFFICER, THIS TREATMENT GIVEN BY THE ASSESSEE TO THE INTEREST INCOME WAS NOT CORRECT AND RELYING ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS. CIT (227 ITR 172), HE BROUGHT TO TAX THE INTEREST INCOME OF RS.14,39,614 IN THE HANDS OF THE ASSESSEE. ON APPEAL, THE LEARNED CIT(A) CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER ON THIS ISSUE, HOLDING THAT NET INTEREST INCOME RECEIVED BY THE ASSESSEE FROM BANK DEPOSIT BEING IN THE NATURE OF REVENUE RECEIPT, THE SAME WAS CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE. 11. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS RIGHTLY SUBMITTED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, THERE BEING NO NEXUS BETWEEN THE INTEREST INCOME RECEIVED BY THE ASSESSEE ON BANK I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 8 DEPOSIT S AND THE EXPENSES INCURRED IN CONNECTION WITH FCCB ISSUE, THE NETTING OF INTEREST INCOME AGAINST SUCH EXPENDITURE AS DONE BY THE ASSESSEE IS NOT PERMISSIBLE AND THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO NOT BEEN ABLE TO ESTABLISH BEFORE US ANY SUCH NE XUS. WE THEREFORE FIND NO JUSTIFIABLE REASON TO INTERFERE WITH THE IMPUGNED ORDER OF THE LEARNED CIT(A) CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFICER TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF INTEREST INCOME RECEIVED ON BANK DEPOSITS, TREA TING THE SAME AS RECEIPT OF REVENUE NATURE TAXABLE IN THE HANDS OF THE ASSESSEE. GROUND NO. 3 OF THE ASSESSEES APPEAL IS ACCORDINGLY DISMISSED. 12. IN THE RESULT, APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2006 - 07 IS PARTLY ALLOWED. CROSS AP P EALS FOR ASSESSMENT YEAR 2007 - 08: 13. NOW, WE SHALL TAKE UP THE CROSS APPEALS FOR ASSESSMENT YEAR 2007 - 08 BEING ITA NO. 2 6 0 / H YD/2011 ( ASSESSEE S APPEAL) AND ITA NO.321/HYD/2011 (REVENUES APPEAL), WHI C H ARE DIREC T ED AGAINST THE O R DER O F THE LEARNED CIT(A) V, HYDERABAD DATED 20.12.2010. 14. GROUNDS NO.1 AND GROUN D NO.10 RAIS E D IN THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2007 - 08 ARE GENERAL IN NATURE, REQUIRING NO SPECIFIC ADJU D I C ATION. 15. THE ISSUE INVOLVED IN GROUN D NO.2 OF THE ASSESSEES APPEAL RE L A TES TO TH E ASSESSEE S CLAIM FOR APPORTIONMENT OF MANAGERIAL COMMISSION OF R S . 5.45 - CRORES BETWEEN THE CON S TRUC T ION AND HOSPITAL ITY DIVISION S. I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 9 16. IN THE RETURN O F INCOME FILED FOR ASSESSMENT YEAR 2007 - 08 ON 31.10.2 0 07, TOTAL INCOME WAS DECL A RED BY TH E ASSESSEE A T R S .37,83,65,390, AFTER CLAIMING DEDUCTION OF RS .53,43,94,191 UN D ER S.80IA. WHILE COMPU T IN G TH E PROFIT OF THE CON S TRUC T ION DIVISION ELIGIBLE FOR DEDUCTION UNDER S .80IA, THE EXPENDITURE ON MANAGERIAL COM MI SSION AMOUNTING TO RS .5.45 CRORES WAS ALLO C ATED BY THE ASSESSEE AT RS.2.93 CRORES TO H OSPITALITY DIVISION AND RS 2.51 CRORES TO CON S TRUC T ION DIVISION . I N THIS REGARD, IT WAS NO T ED BY THE ASSESSING OFFICER THAT THE SALES O F THE HOSPI T ALITY DIVISION WAS ONLY RS .12.6 CORES, WHEREAS SALES OF CON S TRUC T ION DIVISION WAS RS.188.92 CRORES. HE ALSO NOTED THAT THE DIRECT C OST OF HOSPITALITY DIVISION WAS ONLY R S .7.60 CRORES, WHEREAS IT WAS RS.85.30 CRORES IN THE CA S E OF CON S TRUC T ION DIVISION . KEEPING IN VIEW THESE FACTS AND FIGURE S , THE ASSESSEE WA S REQ UIRED BY TH E ASSESSING OFFICER TO JUSTIF Y THE ALLOCATI O N OF MA N AGERIAL COMMISSION TO THE EXTENT OF R S .2.93 CRORES TO H OSPITALITY DIVISION OUT O F THE TOTAL MANAGERIAL COMMISSION OF RS.5.4 5 CRORES. IN REPLY, I T WAS SUBMITTED B Y THE ASSESSEE THAT MO R E EFFORT S OF THE DI RE CTOR WERE DIRECTED TOWARDS H OSPITALITY DIVISION SP EC IFICALLY, SIN C E TH E SAME WAS A NEW DIVISION AND CON S I D ERING TH E S E EXTRA EFFORTS, MANAGERIAL COMMISSION TO TH E EXTENT OF RS.2.9 3 CRORES WAS ALLO C ATED TO THE H OSPITALITY DIVISION . THIS EXPLANATION OF THE ASSESSEE WAS NOT FOUND ACCEP T ABLE BY THE ASSESSING OFFICER . A CCOR D IN G TO HIM , TH E M ANAGERIAL COMMISSION WAS CLAIMED TO B E PAID TO THE D I RE CTOR FOR ENHANCING THE OVERALL PROFITAB I LITY O F THE COMPANY AND IF THIS THEORY OF THE ASSESS EE WAS TO BE ACCEPTED, NO PAYM E N T OF COMMISSION WAS REQUIRED TO BE MADE TO TH E DIR E CTORS, WHO WERE LOOKING AFTER THE HOSPI TA LITY DI VISION, AS THERE WAS NO PROFITABILITY IN THAT D I VISION. HE HELD THAT SIN C E THE MANAGERIAL COM MI S S ION WAS PAID ON TH E BASIS O F OVERALL PROFITABILITY O F TH E COMPANY, TH E RE WAS NO JU S TIF IC ATION FOR AL L OCATING RS .2.93 C R ORES O F M AN A GERIAL C OMM I SSION TO TH E HOSPI T ALITY D IVISION I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 10 AND THE SAME SHOULD BE DON E PROPORTIONAT E LY ON THE BASIS OF THE TOTAL SALES O F EACH UNI T MADE DURING THE YEAR U N DER CONSIDERATION . ACCOR D INGLY, THE MANAGERIAL COMMISSION TO THE EXTENT OF R S .1.69 C R ORES AND RS.3.76 CRORES W AS ALLOCATED BY THE ASSESSING OFFICER TO THE H OSPITALITY DI VISION AND C O NS TRUCTION DIVI SION RESPECTIVELY AND TH E CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER S.80IA WAS R E STRI C TED BY HIM TO THAT EXTENT. 17. THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER ON ACCOUNT OF I T S CL A IM FOR DEDUCTION UNDER S .80IA, BY CHANGING THE ALLO C ATION OF MANAGERIAL COMMISSION BETWEEN THE TWO DIV ISION S , WAS CHALLENGED BY THE ASSESSEE IN AN APPEAL FIL E D BEFORE THE LEARNED CIT(A). D URIN G TH E COU R SE OF APP E LL A TE PROCEEDINGS BEFORE THE LEARNED CIT(A), IT WAS SUBMITTED ON BEHALF OF TH E ASSESSEE THAT THE EFFORTS OF SHRI D.VIJAYSEN R E DDY AND SHRI M. RAVINDER REDDY, DI R ECTORS WERE UTILI S ED SOLELY FOR THE PU RP OSE OF H O S PITALITY DIVISION AND A C C OR D INGLY THE REMUN E RATION IN C LU D IN G MANAGERIAL COMMISSION PAID TO TH E S AID DIRECTORS WAS ALLOCATED TO THE H O S PI T ALITY DIVISION . THIS EXPLANATION OF THE ASSESSEE WAS NO T FOUND ACCEPTABLE BY TH E LEARNED CIT(A), AND HE PROCEEDED TO UPHOLD THE OR D ER OF THE ASSESSING OFFICER ON THIS ISSUE, FOR THE FOLLO W IN G R E ASONS GIVEN IN PARAGRAPH 5.3 OF HIS IMPUGN E D ORDER - 5.3 I HAVE CONSIDERED CAREFULLY THE ARGUMENTS OF THE APPE LLANT AND ALL THE FACTS OF THE CASE. I DO NOT FIND ANY JUSTIFICATION WHATSOEVER IN THE ARGUMENTS OF THE APPELLANT REGARDING THE APPORTIONMENT OF COMMISSION. BY ITS VERY NATURE, THE MANAGERIAL COMMISSION IS NOT A FIXED PAYMENT. IT IS INVARIABLY AN ALLOCATION IN THE FORM A VARIABLE PRODUCTIVITY LINKED PAYMENT BASED ON A CERTAIN PERCENTAGE. THE APPELLANT HAS NOT DISCLOSED THE EXACT PERCENTAGE OR THE METHODOLOGY FOR CALCULATING THE MANAGERIAL COMMISSION. HOWEVER, IT IS CLEAR THAT THE EXCESSIVE ALLOCATI ON TOWARDS THE HOSPITALITY DIVISION WHICH OTHERWISE IS SHOWING AN OPERATING LOSS IS SOLELY FOR PURPOSE OF INCREASING THE PROFITS OF THE CONSTRUCTION DIVISION SO THAT THE CLAIM OF DEDUCTION UNDER I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 11 SECTION 80IB(10) OF THE ACT IS MAXIMIZED. IT IS ALSO WORTH H IGHLIGHTING THAT THE SALES OF THE HOSPITALITY DIVISION ARE RS. 12.6 CRORES WHILE THOSE OF THE CONSTRUCTION DIVISION ARE RS. 188.2 CRORES. IN OTHER WORDS, THE TURNOVER OF THE CONSTRUCTION DIVISION IS 1493% MORE WHEN COMPARED TO HOSPITALITY DIVISION. ALL OTHE R EXPENSES, FOR EXAMPLE, THE DIRECT COST, ETC. ARE ALSO IN THE SIMILAR RATIOS. HOWEVER, WHEN IT COMES TO A HUGE COST LIKE THE COMMISSION PAID, A HUGE AMOUNT OF RS. 2.93 CRORES I.E . NEARLY 25% OF THE TURNOVER OF THE HOSPITALITY DIVISION IS ALLOCATED TO THAT DIVISION WHILE A LESSER COMMISSION OF RS. 2.51 CRORES I.E. 1.3% OF THE RELEVANT TURNOVER IS ALLOCATED TO THE CONSTRUCTION DIVISION . GIVEN THE ABOVE FACTS AND CIRCUMSTANCES, I HAVE NO HESITATION IN HOLDING THAT THE ALLOCATION IS NOT GENUINELY MADE AND HAS BE EN DONE WITH THE SOLE PURPOSE OF INCREASING THE PROFITS OF THE CONSTRUCTION DIVISION SO AS TO INCREASE THE DEDUCTION UNDER SECTION 80IB(10) OF THE ACT. ACCORDINGLY, I HOLD THAT THE REALLOCATION MADE BY THE ASSESSING OFFICER IS CORRECT AND NEEDS NO INTER FERENCE. 18. THE L EARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE HOSP ITA LITY DI VISION OF THE ASSESSEE COMPANY WAS RELATIVELY NEW AS COMP A RED TO TH E C ON S TRUC T ION D IVISION AND TH E R E FORE , M ORE EFFORTS OF THE D IR EC TORS WERE DIVERTED TO DEVELOP TH E H OSPITALITY DIVISION . HE CONTENDED THAT THE ASSESSING OFFICER AS WELL AS THE LEARNED CIT(A) , HO WE VER , OVERLOOKED THI S VITAL FA C T AND ALLOCATED THE MANAGERIAL COMMISSION ON THE BASIS O F SALES O F THE TWO DIVISION S, WHICH IS NOT JUSTIFIED. HE ALSO CONTENDED T HAT BUSINESS EXIGENCIES WERE TAKEN IN T O CONSIDERATION BY THE ASSESSEE, WHILE ALLOCATING THE MANAGERIAL COMMISSION. IN REPLY TO A QUERY RAISED BY THE B ENCH, HE , HO WE VER , COULD NO T EXPLAIN SATISFAC TOR ILY THE BASIS ADOP T ED BY THE ASSESSEE FOR ALLOCATION OF M ANAGERIAL COMMISSION OF RS.2.93 - C R ORES TO THE H OSPITALITY D I VISIO N, WHICH NOT ONLY HAD ACHIEVED SUBSTANTIALLY LOW TURNO V ER THAN THE C O N S TRUCTION DIV ISION, BUT HAD ALSO SUFFERED A LOSS DURING THE Y E AR UNDER CONSIDERATION . 19. THE LEARNED DEPARTMENTAL RE PRESENTATIVE SUBMITTED THAT THERE WAS NO BASIS THAT COULD B E GIVEN BY THE ASSESSEE FOR I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 12 APPORTIONMENT OF MORE MANAGERIAL COMMISSION TO THE HOSPI T AL ITY DIVI S ION, DESPITE THE LO S S SUFFERED BY TH E SAID DIVISION . HE CONTENDED THAT THE ASSESSING OFFICER AS WELL AS THE LEARNED CIT(A) ARE IN FACT QUITE FAIR AND REASONABLE TO APPORTION MANAGERIAL COMMISSION IN TH E RATIO O F SALES, WHICH SHOULD HAVE BEEN DO N E MOR E APPROPRIATELY ON THE BASIS OF PROFITABILITY. HE CONTENDED THAT IT I S A CL E AR CASE, WH E RE THE ASS ESSEE HAS ALLO C ATED MORE MANAGERIAL COMMI S SION TO THE H OSPITALITY DIVISION AND LOWER TO T HE C ON S TRUC T ION D IVI SION TO CLAIM HIGHER DEDUCTION U/S 80IA/80IB BY SHOWING MORE PROFITABILITY IN THE CONSTRUCTION DIVISION. 20. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS RIGHTLY SU B MI T TED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, THE BASIS OF ALLOCATION OF MANAGERIAL COMMISSION OF R S .2.93 CRORES OUT OF TOTAL OF RS.5.45 C RORES TO THE HOSPITALITY DI VISION IN SPITE OF LOWER TURNOVER AND LOSS SHOWN BY THE S AID DIVISION H AS NO T EXPLAINED BY TH E ASSESSEE BEFORE THE AUTHO R I T I E S BE LOW AND EVEN AT THE TIME O F H E ARING BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS NO T B E EN ABLE TO EXPLAIN ANY SUCH BASIS SATISFACTORILY. AS RIGHTLY OBSER V ED BY THE LEARNED CIT(A) IN HIS IMPUGNED ORDER, MANAGERIAL COMMISSION IS GENERALLY PAID ON THE BASIS OF PERFORMANCE OF TH E COMPANY AS REFLECTED IN TH E PROFITABILITY AND SINCE THE H OSPITALITY DIVISION HAD SUFFERED A LO S S FOR THE Y E AR UNDER CONSIDERATION , THERE WAS NO JU S TIFI C ATION ON THE P A RT OF THE ASSESSEE TO ALLOCATE MORE MANAGERIAL COMMISSION TO THE H OSPITALITY DIVISION AND LESS TO THE C ON ST RUCTION DI VISION, WHICH WAS PERF O RMING BE T TER AND EARNING GOO D PROFITS. AS RIGHTLY SUBMITTED BY T HE LEARNED DEPARTMENTAL REPRESENTATIVE, THIS WAS DONE APPARENTLY BY TH E ASSESSEE TO SHOW MORE PROFIT IN CON S TRUC T ION DIVISION , IN ORDER TO CLAIM MORE DEDUCTION UN D E R S.80 I A. AS SUCH, HAVING REGARD TO ALL THE FACTS AND CIR C UMSTA N CES OF I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 13 THE C A S E, WE ARE O F T HE VIEW TH A T ALLOCATION OF MANAGERIAL COMMISSION DONE BY THE AUTHO R ITIES BELOW ON THE BASIS OF SALES OF THE TWO D IVISION S OF TH E ASSESSEE IS FAIR AND REASONABLE AND TH E RE IS NO MERIT IN GROUND NO.2 RAISED IN THE APPEAL OF THE ASSESSEE. 21. THE COMMON ISSUE INVOLVED IN GROUNDS NO.3 AND 4 OF THE ASSESSEES APPEAL FOR A.Y. 2007 - 08 RELATES TO THE ADDITION OF RS.2,31,98,781 MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A) BY WAY OF RESTRICTING ASSESSEES CLAIM FOR DEDUCTION U/S 80IA BY ALTERING TH E APPORTIONMENT OF INDIRECT COSTS. 22. AT THE TIME OF HEARING BEFORE US, LEARNED REPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THE ISSUE INVOLVED IN THESE GROUNDS OF APPEAL FOR ASSESSMENT YEAR 2007 - 08 IS SIMILAR TO THE ONE INVOLVED IN GROUND NO. 2 OF THE ASSESSEES APPEAL FOR ASSESSMENT YEAR 2006 - 07, WHICH HAS BEEN DECIDED BY US IN THE FOREGOING PARAS OF THIS ORDER. AS THE MATERIAL FACTS RELATING TO THIS ISSUE, AS INVOLVED IN ASSESSMENT YEAR 2007 - 08 ARE SIMILAR TO ASSESSMENT YEAR 2006 - 07, WE FOLL OW OUR DECISION RENDERED FOR ASSESSMENT YEAR 2006 - 07 ON SIMILAR ISSUE AND DIRECT THE ASSESSING OFFICER TO CONSIDER THE TURNOVER OF SALE OF LAND ONLY TO THE EXTENT OF 25% WHILE MAKING THE APPORTIONMENT OF INDIRECT COST TO DIFFERENT PROJECTS AND TO RE - COMPUT E THE PROFIT OF DIFFERENT PROJECTS ELIGIBLE FOR DEDUCTION UNDER S.80IB BASED ON SUCH APPORTIONMENT. ACCORDINGLY, GROUNDS NO.3 AND 4 OF THE ASSESSEES APPEAL ARE TREATED AS PARTLY ALLOWED. 23. THE NEXT ISSUE INVOLVED IN GROUNDS NO.5 AND 6 RELATES TO THE DISALLOWANCE OF RS.10,38,606 MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LEARNED CIT(A) ON ACCOUNT OF INTEREST . I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 14 24. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE COMPANY HAS GIVEN ADVAN CES OF RS.64.43 CRORES AND RS.21.81 CRORES TO ITS SUBSIDIARY COMPANIES, VIZ. M/S. PRAJAY HOLDINGS PVT. LTD. AND MVL TRADING CO. LTD. RESPECTIVELY. SINCE NO INTEREST ON THE SAID ADVANCES WAS CHARGED BY THE ASSESSEE, THE ASSESSING OFFICER REQUIRED IT TO OFFE R ITS EXPLANATION IN THE MATTER. IN REPLY TO IT, IT WAS SUBMITTED BY THE ASSESSEE THAT THE AMOUNTS IN QUESTION WERE ADVANCED TO THE SUBSIDIARIES FOR OUTRIGHT PURCHASE OF LAND AT MAHESWARAM. IT WAS SUBMITTED THAT THE ASSESSEE COMPANY HAD ENVISAGED A VERY LARGE HOUSING AND COMMERCIAL PROJECT AT MAHESWRAM, WHICH REQUIRED A HUGE LAY OUT. IT WAS ALSO SUBMITTED THAT LEHMAN BROTHERS HAD AGREED TO PARTICIPATE IN THE SAID PROJECT, AND IN ORDER TO ENSURE THAT LEHMAN BROTHERS GET SHARE ONLY IN THE PROFITS AND LOSS ES OF THE DEVELOPMENT ACTIVITY OF THE PROPERTY, THE LANDS WERE PURCHASED BY THE ASSESSEE COMPANY IN THE NAMES OF ITS SUBSIDIARIES INSTEAD OF PURCHASING THE SAME IN ITS OWN NAME. IT WAS CONTENDED THAT THE BENEFIT FROM THE PROPERTY DEVELOPMENT IN ANY CASE W AS TO BE ENJOYED BY THE ASSESSEE COMPANY AND THE COMMERCIAL EXPEDIENCY WAS VERY MUCH THERE IN GIVING THE ADVANCES TO THE SUBSIDIARY COMPANIES. RELIANCE IN SUPPORT OF THIS CONTENTION WAS PLACED BY THE ASSESSEE ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SA BUILDERS LTD. V/S. CIT (288 ITR 1), WHEREIN IT WAS HELD THAT THE EXPRESSION COMMERCIAL EXPEDIENCY IS ONE OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE WHICH ASSESSEE INCURS AS A PRUDENT BUSINESS - MAN FOR THE PURPOSE OF BUSINESS. THESE S UBMISSIONS MADE BY THE ASSESSEE WERE NOT FOUND ACCEPTABLE BY THE ASSESSING OFFICER. HE HELD THAT SINCE THE OWNERSHIP OF LAND PURCHASED BY THE SUBSIDIARIE S WAS VESTED IN THEM, THERE WAS NO WAY BY WHICH THE ASSESSEE COMPANY WAS GOING TO ENJOY THE BENEFIT OF INVESTMENT MADE IN LAND, AS CLAIMED. HE I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 15 HELD THAT THE SAID INVESTMENT THUS WAS GOING TO BENEFIT ONLY THE SUBSIDIARIES AND NOT THE ASSESSEE COMPANY AND THERE WAS NO COMMERCIAL EXPEDIENCY IN THE INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE COMPANY TO ITS SU BSIDIARIES. HE, THEREFORE, WORKED OUT THE INTEREST ATTRIBUTABLE TO THE INTEREST FREE ADVANCES PAID BY THE ASSESSEE COMPANY TO ITS SUBSIDIARIES AT RS.10,38,606 AND MADE A DISALLOWANCE TO THAT EXTENT. 25. ON APPEAL, THE LEARNED CIT(A) CONFIRMED THE DISA LLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST HOLDING THAT THERE WAS NO EVIDENCE BROUGHT ON RECORD BY THE ASSESSEE IN THE FORM OF AGREEMENT, ETC. TO SUPPORT AND SUBSTANTIATE ITS CLAIM THAT THE INVESTMENT IN LAND WAS MADE BY THE ASSESSEE IN THE NAMES OF SUBSIDIARIES AND NOT IN ITS OWN NAME, SINCE LEHMAN BROTHERS HAD AGREED TO PARTICIPATE IN THE PROJECT. HE ALSO HELD THAT THE ASSESSEE ALSO COULD NOT ESTABLISH ITS CASE OF COMMERCIAL EXPEDIENCY, WHICH PROMPTED IT TO DIVERT INTEREST BEARING FUN DS FOR GIVING INTEREST FREE ADVANCES TO ITS SUBSIDIARIES. 26. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. ALTHOUGH THE LEARNED COUNSEL FOR THE ASSESSEE HAS REITERATED BEFORE US THE SUBMISSIONS MADE BE FORE THE AUTHORITIES BELOW THAT THERE BEING BUSINESS EXPEDIENCY IN GIVING INTEREST FREE ADVANCES TO THE SISTER CONCERNS FOR MAKING INVESTMENTS IN LAND, NO DISALLOWANCE OF INTEREST EXPENDITURE ATTRIBUTABLE TO SUCH ADVANCES COULD BE MADE AS HELD BY THE HON' BLE SUPREME COURT IN THE CASE OF SA BUILDERS (SUPRA), HE HAS NOT PRODUCED RELEVANT DOCUMENTARY EVIDENCE TO SUPPORT AND SUBSTANTIATE HIS STAND. AS HELD BY THE LEARNED CIT(A), NO EVIDENCE IN THE FORM OF AGREEMENT ETC. WAS PRODUCED BY THE ASSESSEE TO ESTABLIS H THAT THE LEHMAN BROTHERS HAVING AGREED TO JOIN THE I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 16 PROJECT DEVELOPMENT, THE INVESTMENT IN LAND FOR THE SAID PROJECT WAS MADE BY THE ASSESSEE IN THE NAMES OF ITS SUBSIDIARY COMPANIES AND NOT IN ITS OWN NAME. THIS PLEA OF THE ASSESSE, AS RAISED BEFORE THE AUTHORITIES BELOW AS WELL AS BEFORE US, TO ESTABLISH THE COMMERCIAL EXPEDIENCY IN GIVING INTEREST FREE ADVANCES TO ITS SUBSIDIARIES ITSELF IS NOT SUPPORTED BY ANY DOCUMENTARY EVIDENCE. IN THE ABSENCE OF SUCH DOCUMENTARY EVIDENCE, WE AGREE WITH THE LEARNED CIT(A) THAT THE CLAIM OF THE ASSESSEE FOR SUCH COMMERCIAL EXPEDIENCY IS NOT SUBSTANTIATED BY THE DOCUMENTARY EVIDENCE AND IT IS THUS A CASE OF DIVERSION OF INTEREST BEARING BORROWED FUNDS BY THE ASSESSEE TO GIVE INTEREST FREE ADVANCES TO ITS SUBSIDIARI ES, OTHER THAN FOR BUSINESS PURPOSES, AS RIGHTLY HELD BY THE ASSESSING OFFICER. THE INTEREST ATTRIBUTABLE TO SUCH ADVANCES THUS WAS RIGHTLY DISALLOWED BY THE ASSESSING OFFICER, AND WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LEARNED CIT(A) CONFIRMIN G THE SAID DISALLOWANCE. GROUNDS NO.5 AND 6 OF THE ASSESSEES APPEAL ARE ACCORDINGLY DISMISSED. 27. GROUNDS NO.7 TO 9 OF THE ASSESSEES APPEAL AND GROUNDS NO.1 AND 2 OF THE REVENUES APPEAL INVOLVE A COMMON ISSUE RELATING TO THE ADDITION OF RS.72,62,000 MADE BY THE ASSESSING OFFICER, WHICH HAS BEEN SUSTAINED BY THE LEARNED CIT(A) TO THE EXTENT OF RS.60 LAKHS. THE SAID GROUNDS READ AS UNDER - GROUNDS IN ASSESSEES APPEAL: 7. LEARNED CIT(A) OUGHT TO HAVE DELETED THE ENTIRE ADDITION OF RS .72,67,000 IN S TEA D O F REDUCING THE DISALLOWANCE TO THE EXTENT OF FACTUAL INACCURACY OF R S .12,67,000/ - . I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 17 8. THE LEARNED CIT(A) OUGHT TO H A VE APPRECIATED THAT THE ADDITION WAS MADE U/S. 69 OF T H E AC T WHICH APPLIES IN CA S ES OF FAILURE TO RECORD INVESTMENTS IN BOO K S OF ACCOUN T W HERE AS IN THE APPELLANTS CA S E, THE ADDITION IS BASED ON UNSUBSTANTIATED ALLEGATION OF RECEIPT OF EXTRA CON S ID E RATION. 9. THE LEARNED C IT(A) OUGHT NOT TO HAVE UPH E LD THE ADDITION MADE IN TH E CA S E OF THE APPELL A N T BASED ON THE PROCEEDINGS B E FORE ANOTHER AUTHORITY AN D THAT TO O WITHOUT C ONFRONTIN G THE ASSESSEE WITH FACTUAL EVIDENCE. GROUNDS IN REVENUES APPEAL: 1 . TH E LEARNED CIT(A) ERRED IN FACTS AND IN LAW IN IGNORING THE FACT THAT THE DECLARED SALE CON S ID E RATION AS ADOPTED IS A TYPOG R APHI C AL MISTAKE SIN C E THE UN D ERSTATED SALE CON S I D ERATION AS PER DE E DS VIDE ANNEX 1 & ANNEX 2 WAS ONLY RS .16,87,500/ - AND ASSESSEE S SHARE THEREIN WOULD BE R S .5,62,500/ - AS AG A IN S T T HE ACTUAL SALE CON S I D E R ATION OF R S.1.16 CRORES AFFIRMED UN D ER OATH BY THE VENDEE. HENCE, THE C IT(A) OUGHT TO HAVE NO T ONLY UPHELD THE ADDITION BUT ALSO SHOULD HAVE ENHANC E D THE ADDITION. 2 . THE LEARNED CIT(A) E RRED IN FACTS AND IN LAW IN IGNORING THE FACT THAT T HERE WAS NO BASIS O F FIGURE OF RS.56,00,000 / - TAK E N AS SALE CON SID E R ATION BY THE ASSESSING OFFICER WHICH WAS ONLY A TYPOGRAPHICAL ERROR. I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 18 28. AS NOTED BY THE ASSESSING OFFICER, THE ASSESSEE COMPANY DURING THE YEAR UNDER CONSIDERATION HAD SHOWN TO HAVE PURCHASED LAND AT BOGARAM VILLAGE FOR RS.43,33,000 AND SOLD THE SAME FOR RS.56,00,000. AS F URTHER NOTED BY THE ASSESSING OFFICER, A SURVEY UNDER S.133A WAS CARRIED OUT IN THE CASE OF SELLER, I.E. M/S. SAI KRUPA ENCLAVE (AOP), DURING THE COURSE OF WHICH A SWORN STATEMENT OF ONE SHRI G.NAGESWARA REDDY, A MEMBER OF THE AOP WAS RECORDED. IN THE SAI D STATEMENT, SHRI G.NAGESWARA REDDY STATED TO HAVE PAID AN AMOUNT OF RS.1.16 CRORES FOR THE PURCHASE OF LAND FROM THE ASSESSEE. ACCORDING TO THE ASSESSING OFFICER, THERE WAS THUS A DIFFERENCE OF RS.72,67,000 IN THE VALUE OF LAND DECLARED BY THE ASSESSEE AN D IN THE ABSENCE OF ANY DOCUMENTARY EVIDENCE PRODUCED BY THE ASSESSEE IN THE FORM OF THE COPIES OF THE RELEVANT AGREEMENTS, ETC., IN SUPPORT OF THE VALUE OF RS.43,33,000 DECLARED BY IT, THE ASSESSING OFFICER TREATED THE DIFFERENCE OF RS.72,67,000 AS THE UN EXPLAINED INVESTMENT OF THE ASSESSEE MADE IN THE PURCHASE OF LAND. THE SAME WAS ACCORDINGLY ADDED BY HIM TO THE TOTAL INCOME OF THE ASSESSEE UNDER S.69. 29. THE ADDITION MADE BY THE ASSESSING OFFICER UNDER S.69 WAS CHALLENGED BY THE ASSESSEE IN AN APPEA L FILED BEFORE THE LEARNED CIT(A) AND THE FOLLOWING SUBMISSIONS WERE MADE ON BEHALF OF THE ASSESSEE IN SUPPORT OF ITS CASE ON THIS ISSUE: '2.1 ASSESSEE PURCHASED LAND AT BOGARAM VILLAGE FOR RS.43,33,000/ - AND ALSO SOLD THE LAND FOR R S . 56,00,000/ - . IT AP PEARS THAT A SUREVY U/S.133A WAS CONDUCTED AT THE PREMISES OF AN AOP NAMED M/S.SAI KRUPA ENCLAVE . DURING THE SURVEY, A STATEMENT WAS STATED TO HAVE BEEN RECORDED FROM ONE SRI G . NAGESWARA REDDY, A MEMBER OF THE AOP. THE ASSESSING OFFICER MENTIONED THAT THE SAID SRI NAGESWARA REDDY DEPOSED THAT HE HAD PAID AN AMOUNT OF RS.1.16 CRORES FOR PURCHASE OF THESE LANDS FROM THE ASSESSEE . THE A.O MENTIONED THAT ACCORDINGLY, THERE WAS A DIFFERENCE OF R S .72,67,000 ( 1 ,16,OO,000 - 43,33,000) BETWEEN THE VALUE ADMIT TED BY THE ASSESSEE AND THE VALUE ADMITTED BY THE PURCHASER . THIS AMOUNT WAS ADDED AS UNEXPLAINED INVESTMENT IN THE ASSESSMENT OF THE ASSESSEE. I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 19 2.2 THE ASSESSING OFFICER HAS ADDED A SUM OF R S .72,67,OOO/ - WHICH WAS ALLEGED TO HAVE BEEN PAID TO THE ASSESSEE COMPANY. IN THIS CASE. THE ASSESSEE ENTERED INTO A REGISTERED AGREEMENT OF SALE CUM GPA WHEREUNDER LAND WAS PURCHASED FOR RS.43,33,OOO/ - . THE SAME WAS SOLD AGAIN UNDER A DEED OF SALE BY THE ASSESSEE . THESE DEEDS CONSTITUTE ' PRIMA FACIE EVIDENCE AS REGARDS THE AMOUNT PAID BY THE ASSESSEE FOR ACQUISITION OF THE LAND IN QUESTION AND THE AMOUNT RECEIVED BY THE ASSESSEE ON SALE OF THE LAND . 2.3 THE ASSESSING OFFICER MADE ADDITION U/S.69 OF THE I.T ACT . SEC.69 APP LIES WHERE THE ASSESSEE HAS MADE INVESTMENTS WHICH ARE NOT RECORDED IN THE BOOKS OF ACCOUNT, IF ANY, MAINTAINED BY HIM FOR ANY SOURCE OF INCOME, AND THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE OF THE INVESTMENTS OR THE EXPLANATION OFF ERED BY HIM IS NOT, IN THE OPINION OF THE ASSESSING OFFICER, SATISFACTORY. 2.4 ON THE FACTS NARRATED IN THE ASSESSMENT ORDER, IT IS CLEAR THAT THE INVESTMENT ALLEGED TO HAVE BEEN MADE BY A THIRD PARTY IS ADDED IN THE HANDS OF THE ASSESSEE . THERE IS NO BASIS FOR THE ALLEGATION THAT ASSESSEE . RECEIVED MONIES ON SALE OF LAND AND NOT RECORDED THE SAME IN ITS B OO K S . 1F AT ALL AN ADDITION IS TO BE MADE, THE SAME SHOULD HAVE BEEN UNDER SEC.69A, THAT TOO IF THE ASSESSEE WERE FOUND TO BE THE OWNER OF ANY MON EY NOT RECORDED IN THE BOOKS OF ACCOUNT . THE ASSESSEE SUBMITS THAT THE PROCEEDINGS BEFORE ANOTHER AUTHORITY OUGHT NOT TO HAVE BEEN MADE THE BASIS FOR ADDITION IN THE HANDS OF THE ASSESSEE. 2.5 IN THE CASE OF IT O WARD 14(8) VS PUKHRAJ J AIN 95 ITD 281( M UM), THE A.O MADE ADDITION BASED ON THE ORDER OF THE CUSTOM COLLECTOR AND STATEMENTS OF A THIRD PARTY. THE HON'BLE ITAT HELD THAT THE A.O BEING A QUASI - JUDICIAL AUTHORITY, COULD NOT BASE HIS DECISION ON FINDINGS/CONCLUSIONS OF ANOTHER AUTHORITY VIZ., C USTOMS COLLECTOR DRAWN UNDER CUSTOMS ACT.' 30. AFTER CONSIDERING THE ABOVE SUBMISSIONS MADE BY THE ASSESSEE AND THE MATERIAL AVAILABLE ON RECORD, THE LEARNED CIT(A) DECIDED THIS ISSUE VIDE PARA 8.2 OF THE IMPUGNED ORDER AS UNDER - 8.2 I FIND THAT THE AS SESSING OFFICER HAS CLEAR EVIDENCE ALONG WITH A SWORN STATEMENT OF SRI G. NAGESHWARA REDDY, A MEMBER OF M/S SAI KRUPA ENCLAVE(AOP), ECIL ROAD, HYDERABAD. THIS STATEMENT WAS RECORDED DURING SURVEY UNDER SECTION 133A OF THE ACT ON THE SELLER. THE APPELLANT H AS NOT PROVIDED ANY DETAILS OF TRANSACTION NOR ANY AGREEMENTS OR DEEDS EITHER DURING THE ASSESSMENT PROCEEDINGS OR DURING APPEAL PROCEEDINGS. HOWEVER, I FIND THAT THERE IS A FACTUAL INACCURACY AS FAR AS THE CALCULATION MADE BY THE ASSESSING OFFICER IS CONCERNED. THE APPELLANT IS CORRECT IN POINTING OUT THAT IT HAD SHOWN THE SALE OF LAND AT RS.56 LAKHS. ON THE OTHER HAND, THE ASSESSING OFFICER HAS SHOWN THE UNEXPLAINED PART OF I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 20 THE SALE OF LAND AS RS. 72,67,000/ - (1,16,00,000 - 43,33,000).THIS FIGURE SHOUL D BE 1,16,00,000 - 56,00,000 I.E. RS.60,00,000. ON THIS FACTUAL ISSUE, I AGREE WITH THE APPELLANT BECAUSE THE ASSESSING OFFICER HAS HIMSELF STATED THAT RS.56 LAKHS HAS BEEN DISCLOSED BY THE APPELLANT AS SALE PRICE. ACCORDINGLY, THE UNACCOUNTED PART IS ONL Y RS.60 LAKHS. THE APPELLANT GETS RELIEF ACCORDINGLY. THE LEARNED CIT(A) THUS RESTRICTED THE ADDITION OF RS.72,67,000 MADE BY THE ASSESSING OFFICER ON THIS ISSUE TO RS.60 LAKHS. 31. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALS O PERUSED THE RELEVANT MATERIAL ON RECORD. KEEPING IN VIEW THE CONTRADICTIONS IN THE FACTS RELEVANT TO THIS ISSUE AS NARRATED BY THE ASSESSING OFFICER IN HIS ORDER, AS STATED BY THE ASSESSEE IN THE SUBMISSIONS MADE BEFORE THE CIT(A) AS WELL AS BEFORE US A ND AS MENTIONED IN THE GROUNDS RAISED IN THE REVENUES APPEAL, WE HAVE DIRECTED THE LEARNED COUNSEL FOR THE ASSESSEE TO PLACE ON RECORD BEFORE US COPIES OF THE RELEVANT AGREEMENTS FOR PURCHASE AND SALE OF THE LAND IN QUESTION AT BOGARAM. ON PERUSAL OF TH E SAID AGREEMENTS, WE HAVE NOTED THAT THE LAND ADMEASURING 12 ACRES AND 24 GUNTAS WAS PURCHASED BY THE ASSESSEE FORM SHRI M. SRINIVAS AND SHRI M.RAMBABU ON 17.4.2006 FOR A TOTAL CONSIDERATION OF RS.30 LAKHS AND THE SAME WAS SUBSEQUENTLY SOLD BY TWO SEPARAT E AGREEMENTS DATED 13.12.2006 (FOUR ACRES) AND 8.1.2007 (8 ACRES AND 27 GUNTAS) TO SHRI G.NAGESWRA REDDY FOR A CONSIDERATION OF RS.8,53,000 AND RS.8,34,500 RESPECTIVELY. SHRI G.NAGESWRA REDDY THUS HAS PURCHASED THE LAND FROM THE ASSESSEE AND IT IS NOT A C ASE OF PURCHASE OF LAND BY THE ASSESSEE FORM HIM, AS PRESUMED BY THE ASSESSING OFFICER. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS THUS WRONGLY REFERRED TO SHRI G.NAGESWARA REDDY AS SELLER AT ONE PLACE AND HAS MENTIONED AT OTHER PLACE THAT SHRI G. NAGEWARA REDDY IN HIS STATEMENT ACCEPTED OF HAVING PAID AN AMOUNT OF RS.1.16 CRORES FOR PURCHASE OF LAND I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 21 FROM THE ASSESSEE. THE ASSESSING OFFICER HOWEVER FINALLY CONCLUDED THAT THE DIFFERENCE OF RS.72,67,000 REPRESENTED THE EXCESS AMOUNT INVESTED BY THE AS SESSEE IN THE PURCHASE OF LAND AND TREATED THE SAME AS UNEXPLAINED INVESTMENT MADE BY THE ASSESSEE UNDER S.69. THERE ARE THUS FACTUAL CONTRADICTIONS IN THE ORDER OF THE ASSESSING OFFICER. THE LEARNED CIT(A) TO SOME EXTENT APPRECIATED THESE FACTUAL CONTRA DICTIONS AND RIGHTLY HELD THAT THE AMOUNT OF RS.1.16 CRORES WAS STATED TO BE PAID BY SHRI G.NAGESWARA REDDY FOR PURCHASE OF LAND FROM THE ASSESSEE AS AGAINST THE CONSIDERATION OF RS.56 LAKHS DECLARED BY THE ASSESSEE. ACCORDINGLY, HE RESTRICTED THE ADDITION OF RS.72,67,000 MADE BY THE ASSESSING OFFICER UNDER S.69 TO RS.60 LAKHS, BUT WITHOUT DEALING WITH THE ARGUMENT OF THE ASSESSEE THAT EXTRA CONSIDERATION ALLEGEDLY RECEIVED BY THE ASSESSEE ON SALE OF LAND COULD NOT BE ADDED UNDER S.69. MOREOVER, THE CONS IDERATION RECEIVED BY THE ASSESSEE AGAINST THE SALE OF LAND, AS STATED IN THE RELEVANT AGREEMENT, WAS RS.16,87,500 AND NOT RS.56 LAKHS AS TAKEN BY THE LEARNED CIT(A), WHILE SUSTAINING THE ADDITION TO THE EXTENT OF RS.60 LAKHS AND RELYING ON THIS SALE CONSI DERATION MENTIONED IN THE RELEVANT SALE DEED, THE REVENUE HAS RAISED AN ISSUE IN ITS APPEAL THAT THE LEARNED CIT(A) SHOULD HAVE ENHANCED THE INCOME OF THE ASSESSEE ON THIS ISSUE. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO RAISED THE PLEA THAT THE AMOUN T OF ADDITION MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LEARNED CIT(A) IS BASED ON THE STATEMENT OF SHRI G.NAGESWRA REDDY RECORDED DURING THE COURSE OF SURVEY, BUT THE COPY OF THE SAID STATEMENT WAS NEVER MADE AVAILABLE TO THE ASSESSEE BEFORE USI NG THE SAME AS EVIDENCE AGAINST THE ASSESSEE TO MAKE THE IMPUGNED ADDITION. KEEPING IN VIEW THE FACTUAL CONTRADICTIONS MENTIONED ABOVE AND HAVING REGARD TO THE SUBMISSIONS MADE BY BOTH THE SIDES, WE CONSIDER IT FAIR AND PROPER AND IN THE IN THE INTERESTS OF JUSTICE TO SET ASIDE THE IMPUGNED ORDER OF THE LEARNED I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 22 CIT(A) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING THE SAME AFRESH, AFTER VERIFYING THE FACTS AND FIGURES FROM THE RELEVANT AGREEMENTS AND AFTER GIVING THE ASSESSEE PROPER AND SUFFICIENT OPPORTUNITY OF BEING HEARD. 32. REVENUES APPEAL FOR ASSESSMENT YEAR 2007 - 08 INVOLVING THIS SOLITARY ISSUE AS WELL AS GROUNDS NO.7 TO 9 OF THE ASSESSEES APPEAL ARE THUS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 33. IN THE RESULT, OUT OF THE CORSS APPEALS FOR ASSESSMENT YEAR 2007 - 08, REVENUES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE ASSESSEES APPEAL IS TREATED AS PARTLY ALLOWED. REVENUES APPEAL FOR ASSESSMENT YEAR 2008 - 09: 34. NOW, WE TAKE UP THE REVENUES APPEAL FOR ASSESSMENT YEAR 2009 - 10, WHICH IS DIRECTED AGAINST THE O R DER OF THE LEARNED CIT(A) V, HYDERABAD DATED 27.12.2012. 35. GROUNDS NO.1 AND 5 RAISED BY THE REVE NUE IN THIS APPEAL ARE GENERAL SEEKING NO SPECIFIC ADJUDICATION. 36. AS REGARDS THE ISSUE INVOLVED IN GROUND NO.2 RELATING TO THE ALLOCATION OF MANAGERIAL COMMISSION TO HOSPITALITY DIVISION AND CONSTRUCTION DIVISION, IT IS OBSERVED THAT A SIMILAR ISSUE HAS ALREADY BEEN DECIDED BY US WHILE DEALING WITH THE ASSESSEES APPEAL FOR ASSESSMENT YEAR 2007 - 08. THE F ACTS AND CIRCUMSTANCES FOR THE ASSESSMENT YEAR 2008 - 09 RELATING TO THIS ISSUE ARE SIMILAR TO THOSE CONSIDERED BY US FOR ASSESSMENT YEAR 2007 - 08, EXCEPT FOR THE FACT THAT IN THE ASSESSMENT YEAR 2008 - 09, THE CIT(A) HAS ACCE PTED THE I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 23 CLAIM OF THE ASSESSEE AND GRANTED RELIEF ON THIS ISSUE. HENCE, FOLLOWING OUR DECISION FOR ASSESSMENT YEAR 2006 - 07, WE SET ASIDE THE IMPUGNED ORDER OF THE CIT(A) ON THIS ISSUE AND RESTORE THE ORDER OF THE ASSESSING OFFICER MAKING DISALLOWANCE OUT O F THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER S.80I B OF THE ACT BY ALLOCATIN G THE MANAGERIAL COMMISSION BETWEEN THE CONSTRUCTION DIVISION AND HOSPITALITY DIVISION IN THE RATIO OF SALES . GROUND NO. 2 OF REVENUES APPEAL IS ACCORDINGLY ALLOWED. 37. AS REGARDS THE ISSUE INVOLVED IN GROUNDS NO.3 AND 4, IT IS OBSERVED THAT THE COMMON ISSUE INVOLVED THEREIN RELATING TO APPORTIONMENT OF INDIRECT EXPENSES FOR THE PURPOSE OF COMPUTING DEDUCTION ALLOWABLE TO THE ASSESSEE UNDER S.80IB IS SIMILAR TO THE ONE I NVOLVED IN GROUND NO.2 OF THE ASSESSEES APPEAL FOR ASSESSMENT YEAR 2006 - 07, WHICH HAS BEEN DECIDED BY US IN THE FOREGOING PARAS OF THIS ORDER. AS THE MATERIAL FACTS RELATING TO THIS ISSUE AS INVOLVED IN ASSESSMENT YEAR 2008 - 09 ARE SIMILAR TO ASSESSMENT Y EAR 2006 - 07, EXCEPT FOR THE FACT THAT THE CIT(A) IN THE IMPUGNED ORDER FOR THE ASSESSMENT YEAR 2008 - 09 HAS ALLOWED THE CLAIM OF THE ASSESSEE ON THIS ISSUE, WE FOLLOW OUR DECISION RENDERED FOR ASSESSMENT YEAR 2006 - 07 ON THIS ISSUE AND DIRECT THE ASSESSING O FFICER TO CONSIDER THE TURNOVER OF SALE OF LAND ONLY TO THE EXTENT OF 25% WHILE MAKING THE APPORTIONMENT OF INDIRECT COST TO DIFFERENT PROJECTS AND TO RE - COMPUTE THE PROFIT OF DIFFERENT PROJECTS ELIGIBLE FOR DEDUCTION UNDER S.80IB BASED ON SUCH APPORTIONME NT. ACCORDINGLY, GROUNDS NO.3 AND 4 OF THE REVENUES APPEAL ARE TREATED AS PARTLY ALLOWED. 38. IN THE RESULT, REVENUES APPEAL FOR ASSESSMENT YEAR 2008 - 09 IS TREATED AS PARTLY ALLOWED. I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 24 REVENUES APPEAL FOR ASSESSMENT YEAR 2009 - 10. 39. GROUNDS NO.1 AND 4 OF THE REVENUES APPEAL FOR A.Y. 2009 - 10 ARE GENERAL IN NATURE SEEKING NO SPECIFIC ADJUDICATION. IN GROUND NO.2, THE REVENUE HAS CHALLENGED THE ACTION OF THE LEARNED CIT(A) IN CONSIDERING CERTAIN EVIDENCES FILED BEFORE HIM FOR THE FIRST TIME TO GIVE RE LIEF TO THE ASSESSEE BY WAY OF ACCEPTING ITS CLAIM OF RETURNED INCOME OF RS.84,36,877 AS AGAINST RS.7,21,04,185 ADOPTED BY THE ASSESSING OFFICER, WITHOUT GIVING ANY OPPORTUNITY TO THE ASSESSING OFFICER TO EXAMINE THE SAID EVIDENCES, WHICH IS IN VIOLATION O F RULE 46A OF THE INCOME - TAX RULES, 1962. 40. IN THE RETURN OF INCOME FILED FOR THE YEAR UNDER CONSIDERATION, THE TOTAL INCOME OF RS.84,36,887 WAS DECLARED BY THE ASSESSEE. IN THE COMPUTATION OF TOTAL INCOME FILED ALONGWITH THE RETURN, THE TOTAL INCOME FOR THE YEAR UNDER CONSIDERATION, HOWEVER, WAS SHOWN BY THE ASSESSEE AT RS.7,21,04,185. SINCE NO SATISFACTORY EXPLANATION IN RESPECT OF THIS DIFFERENCE COULD BE OFFERED ON BEHALF OF THE ASSESSEE, THE ASSESSING OFFICER ADOPTED THE INCOME RETURNED BY THE ASSESSEE AT RS.7,21,04,185 WHILE COMPLETING THE ASSESSMENT UNDER S.143(3) VIDE ORDER DATED 30.12.2011. 41. DURING THE COURSE OF APPELLATE PROCEEDINGS, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE BEFORE THE LEARNED CIT(A) THAT THE DIFFERENCE IN TOTAL I NCOME AS SHOWN IN THE COMPUTATION AND AS DECLARED IN THE RETURN WAS DUE TO HEDGING LOSS OF RS.4.86 CRORES, WHICH WAS INADVERTENTLY ADDED IN THE COMPUTATION OF TOTAL INCOME. THE NATURE OF THE SAID LOSS WAS ALSO EXPLAINED BY THE ASSESSEE BEFORE THE LEARNED CIT(A), GIVING RELEVANT FACTS AND FIGURES. RELIANCE WAS ALSO PLACED BY THE ASSESSEE ON VARIOUS JUDICIAL I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 25 PRONOUNCEMENTS IN SUPPORT OF ITS STAND THAT THE SAID LOSS WAS ALLOWABLE AS A BUSINESS LOSS. THE LEARNED CIT(A) FOUND MERIT IN THE CLAIM OF THE ASSESSE E AND DIRECTED THE ASSESSING OFFICER TO REDUCE THE HEDGING LOSS OF RS.4.86 CRORES FROM THE RETURNED INCOME OF RS.7,21,04,185 ADOPTED BY HIM. 42. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS RIGHTLY S UBMITTED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, THE CLAIM OF THE ASSESSEE FOR HEDGING LOSS OF RS.4.,86 CRORES MADE FOR THE FIRST TIME BEFORE THE LEARNED CIT(A) WAS ACCEPTED BY HIM, WITHOUT GIVING ANY OPPORTUNITY TO THE ASSESSING OFFICER TO VERIFY THE SAME IN THE LIGHT OF THE RELEVANT DETAILS FURNISHED BY THE ASSESSEE IN THIS REGARD AS WELL AS THE EVIDENCE FILED IN SUPPORT. THE SAID DETAILS AND EVIDENCE WERE FILED BY THE ASSESSE FOR THE FIRST TIME BEFORE THE LEARNED CIT(A) AND KEEPING IN VIEW THAT THE CLAIM FOR HEDGING LOSS WAS NOT EVEN MADE BY THE ASSESSEE BEFORE THE ASSESSING OFFICER IN SPITE OF THE FACT THAT OPPORTUNITY WAS AFFORDED BY THE ASSESSING OFFICER TO THE ASSESSEE TO EXPLAIN THE DIFFERENCE IN THE INCOME DECLARED IN THE RETURN AND THE INCO ME SHOWN IN THE COMPUTATION, IT WAS INCUMBENT UPON THE LEARNED CIT(A) TO GIVE AN OPPORTUNITY TO THE ASSESSING OFFICER TO VERIFY THE SAME. KEEPING IN VIEW THESE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THERE IS CLEAR VIOLATION OF RULE 46 A OF THE INCOME - TAX RULES 1962 BY THE LEARNED CIT(A), WHILE GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND THIS POSITION IS NOT DISPUTED EVEN BY THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING BEFORE US. HE HAS ALSO FAIRLY AGREED THAT THIS IS SUE DESERVES TO BE RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR GIVING HIM AN OPPORTUNITY TO VERIFY AND EXAMINE THE CLAIM OF THE ASSESSEE FOR HEDGING LOSS OF RS.4.86 CRORES. ACCORDINGLY, THE IMPUGNED ORDER OF THE LEARNED CIT(A) ON THIS ISSUE I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 26 IS SET AS IDE AND THE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING THE SAME AFRESH IN ACCORDANCE WITH LAW, AFTER GIVING THE ASSESSEE A PROPER AND SUFFICIENT OPPORTUNITY OF BEING HEARD. GROUND NO.2 ACCORDINGLY IS ALLOWED FOR STATISTICAL PURPO SES. 43. IN GROUND NO.3, THE REVENUE HAS CHALLENGED THE ACTION OF THE LEARNED CIT(A) IN DELETING THE DISALLOWANCE OF RS.2,42,49,117 MADE BY THE ASSESSING OFFICER UNDER S.14A READ WITH RULE 8D OF THE INCOME - TAX RULES, 1962. 44. DURING THE COURSE OF ASS ESSMENT PROCEEDINGS, IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS MADE SUBSTANTIAL INVESTMENTS IN ACQUIRING SHARES OF SEVERAL COMPANIES. HE ALSO NOTICED THAT THE ASSESSEE HAS BORROWED HUGE FUNDS FROM DIFFERENT BANKS, ON WHICH INTEREST PAID AMOUNTING TO RS.17,49,53,504 WAS CLAIMED AS DEDUCTION. ALTHOUGH NO DIVIDEND INCOME, WHICH IS EXEMPT FROM TAX, WAS RECEIVED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER WAS OF THE VIEW THAT INTEREST EXPENDITURE INCURRED BY THE ASSESSEE TO THE EXTENT ATTRIBUTABLE TO THE INVESTMENT MADE IN THE SHARES OF COMPANIES WAS LIABLE TO BE DISALLOWED UNDER S.14A, BEING EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME. HE, THEREFORE, REQUIRED THE ASSESSEE TO OFFER ITS EXPLANATION IN THE MATTER. IN REPLY, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT THE PROVISIONS OF S.14A ARE NOT APPLICABLE IN ITS CASE, AS THERE WAS NO EXPENDITURE INCURRED BY IT FOR EARNING ANY EXEMPT INCOME. THIS EXPLANATION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE ASSESSING OFFICER. ACCORDING TO HIM, THE ASSESSEE MUST HAVE BORROWED FUNDS FOR THE PURPOSE OF MAKING THE INVESTMENTS IN SHARES, WHICH WAS TO THE TUNE OF RS.99.37 CORES AND THEREFORE, CERTAIN INTEREST EXPENDITURE INCURRED ON SUCH BORROWED FUNDS MIGHT HAVE BEEN IN RELATION TO THE I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 27 EXEMPT INCOME. ACCORDINGLY, SUCH INTEREST ON BORROWED FUNDS RELATABLE TO THE EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME WAS WORKED OUT BY HIM AT RS.2,42,41,117 AND DISALLOWANCE TO THAT EXTENT WAS MADE BY HIM UNDER S.14A READ WITH RULE 8D OF THE INCOME - TAX RULES. 45. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST UNDER S.14A WAS CHALLENGED BY THE ASSESSEE IN THE APPEAL BEFORE THE LEARNED CIT(A) AND THE FOLLOWING SUBMISSIONS WERE MADE ON BEHALF OF THE ASSESSEE IN SUPPO R T OF ITS CASE ON THIS ISSUE - . A) THE INV E STMENT IN TH E SHARES OF THE SUBSIDIARIES IS PURELY O F BUSINESS PERSPECTIVE OR THE SUBSIDIARIES ARE PURELY PROJECT SPECIFIC WHERE THE ENTIRE WORK O F THE COMPANY WILL BE UNDERTAKEN BY THE HOL D IN G COMPANY ONLY. B) THE INVESTMENTS ARE NO T MADE DURING THE SUBJECT FINANCIAL Y E AR, THE IN V ESTM E NTS ARE ACCUMULATIN G OVER A PERIOD O F TIME. THE INVESTMENT DETAILS ARE ENCLOSED H E REWI T H FOR YOUR REFERENCE AS ANNE X URE 1. C) SEC T ION 14A OF THE INCOM E TA X ACT COULD BE APPLIED ONLY WHEN THE TAX PAYER EARNS ANY IN C OM E WHICH DID NO T FORM PART OF THE TOTAL IN C OM E UN D ER THE ACT AND IN THE ABSENCE OF ANY SUCH INCO M E, DISALLOWANCE UN D ER S EC TION 14A OF THE INCOM E TA X A CT CANNOT B E INVOK E D. THE SAME WAS ALSO HELD BY TH E HON'BLE CHENNAI BENCH OF I TAT IN TH E CA S E OF SIVA I N D U S TRIES AND H OL D IN GS LTD. 3) THE PUNJAB & HARYANA HIGH COU R T HAD, IN THE CA S E OF CIT V/S. WINSOME TEXTILES IN D U S TRIES L TD. (319 ITR 204 (PH) , HELD THAT SECTION 14A OF THE AC T, CANNOT APPLY WHEN TH E TAX PAYER DID NO T MAKE ANY CLAIM FOR EXEMPTION IN ITS RETURN OF INCOME. E) TH E APEX COU R T IN CIT VS . WALFORT SH A RE A ND STOCK BROKERS P LTD. (326 ITR 1) (SC) HELD THAT I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 28 DISALLOWANCE UN D ER SECTION 14A CAN BE MADE WHEN THERE I S A PROXIMATE CAUSE BETWEEN THE EXPENDITURE CLAIMED AND TEE TAX EXEMPT INCOME. F) SECTION 14A OF THE ACT STATES THAT FOR THE PU R PO S E OF COMPUTIN G THE TOTAL INCOME UN D ER THI S CHAPTER AND EXPENDITURE INCURRED IN REL A TION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UN D ER THIS ACT . CLEARLY, THERE SHOULD BE INCOME AND SUCH INCOME SHOULD NO T FORM PART OF THE TOTAL INCOME UN D ER THE ACT. IF EITHER OF TH E SE CON D ITION S IS ABSENT, THEN SEC T ION 14(1) WILL HAVE NO A PPLICABILITY. G) N ONE OF THE IN V ESTM E N T S OF THE TAX PAYER GENERATED ANY DIVIDEN D INCOME DURING THE SUBJECT FINANCIAL YEAR. HENCE , THERE IS NO INCOME, WHICH I S CLAIMED AS NO T FORMING PAT OF EH TOTAL IN C OM E AND CONSEQUENTLY, NO DISALLOWANCE UN D ER SEC 14A C AN B E MA D E ON THE TAXPAYER FOR THE RELEVANT ASSESSMENT YEAR. H) WE ALSO SUBMIT BEFORE YOUR GOODSELF THAT THE SHARE CAPITAL AND RESERVES OF THE APPELLANT AMOUNTS TO RS.6,03,72,88,000/ - , WHICH ARE VERY MUCH HIGHER THAN THE INVESTMENTS OF RS.99,37,76,000. I ) W E ALSO SUBMI T THAT THE INVESTMENTS ARE MADE OUT O F INTEREST FREE FUNDS. 46. THE LEARNED CIT(A) FOUND MERIT IN THE SUBMISSIONS MADE BY THE ASSESSEE AND ACCORDINGLY DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER S.14A INTER ALIA FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH 5.2 OF HIS IMPUGNED ORDER - 5.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF THE APPELLANT. ON A CAREFUL CONSIDERATION OF THE ENTIRE CIRCUMSTANCES OF THE CASE, IT IS SEEN THAT NONE OF THE I NVESTMENTS MADE BY THE APPELLANT COMPANY HAVE GENERATED ANY EXEMPT INCOME DURING THE YEAR. THE APPELLANT ALSO SUBMITTED A STATEMENT SHOWING THE INVESTMENTS MADE BY IT. FROM THE STATEMENT, IT IS CLEAR THAT ALL THE INVESTMENTS ARE I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 29 NOT MADE DURING CURRENT FIN ANCIAL YEAR AND MOST OF THE INVESTMENTS ARE ACCUMULATED OVER A PERIOD O F TIME. IT IS ALSO SUBMITTED THAT THE SHARE CAPITAL AND RESERVES OF THE APPELLANT ARE RS.7,03,72,00/ - , WHICH IS MUCH HIGHER THAN THE INVESTMENTS MADE BY THE APPELLANT COMPANY,. THE APPE LLANT ALSO SUBMITTED A STATEMENT PERTAINING TO LOANS TAKEN AND PURPOSE OF LOANS ALONGWITH THE LOAN APPROVAL LETTERS. FROM THESE DOCUMENTS, I FIND THAT THE LOAN FROM TATA CAPITAL HAS BEEN TAKEN FOR DEVELOPING COMMERCIAL AND RESIDENTIAL COMPLEXES ALONGWITH P ROJECTS. THE LOAN FROM APSFC HAS BEEN TAKEN FOR CONSTRUCTION OF INDEPENDENT HOUSES AT MASJIDPUR (V), SHAMPEERPET (M).THE LOAN FROM INDIAN OVERSEAS BANK HAS BEEN UTILIZED FOR MEETING THE WORKING CAPITAL REQUIREMENT OF FOUR LARGE SIZE PROJECTS. THE LOAN FROM PUNJAB NATIONAL BANK HAS BEEN UTILIZED FROM WORKING CAPITAL FOR THE CONSTRUCTION OF SIX SPECIFIC HOUSING PROJECTS. FROM ABOVE, IT IS CLEAR THAT NO PART OF THE BORROWED MONEY HAD ANY LINK OR NEXUS WITH THE INVESTMENTS MADE BY THE APPELLANT COMPANY DURING T HE YEAR. THE ASSESSING OFFICER ALSO NOT PROVED ANY NEXUS OR EXPENDITURE ATTRIBUTABLE TO THE EXEMPT INCOME, WHICH IS NOT AT ALL CLAIMED DURING THE YEAR BY THE APPELLANT COMPANY. 47. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. ALTHOUGH THE LEARNED REPRESENTATIVES OF BOTH THE SIDES HAVE RAISED VARIOUS LEGAL CONTENTIONS IN SUPPORT OF THEIR RESPECTIVE STANDS ON THIS ISSUE, WE FIND FROM THE RELEVANT PORTION OF THE IMPUGNED ORDER OF LEARNED CIT(A), AS CONTAINED IN PARAGRAPH 5.2 EXTRACTED ABOVE, THAT THE RELIEF HAS BEEN ALLOWED BY THE LEARNED CIT(A) BY DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER S.14A ON APPRECIATION OF THE FACTS OF THE CASE. IT IS WORTHWHILE TO NOTE HERE THAT AS PER THE PROVISIONS OF S.14A, NO DEDUCTION SHALL BE ALLOWED, FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME UNDER CHAPTER IV, IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INC OME, WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THE BASIC I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 30 QUESTION THUS IS WHETHER THE ASSESSEE IN THE FACTS AND CIRCUMSTANCES OF THE CASE CAN BE SAID TO HAVE INCURRED ANY INTEREST EXPENDITURE IN RELATION TO THE INVESTMENT MADE IN THE SHARES OF THE CO MPANIES, WHICH IS CAPABLE OF EARNING EXEMPT DIVIDEND INCOME. IN THIS REGARD, THE LEARNED CIT(A) HAS NOTED IN THE IMPUGNED ORDER THAT THE ASSESSE, AT THE RELEVANT TIME, HAD ITS OWN FUNDS IN THE FORM OF CAPITAL AND RESERVES TO THE EXTENT OF RS.603.72 CRO RES, WHICH WERE MORE THAN THE INVESTMENT MADE IN THE SHARES OF OTHER COMPANIES. HE ALSO FOUND FROM THE FACTS AND FIGURES FURNISHED BY THE ASSESSEE THAT NO PART OF THE FUNDS BORROWED BY THE ASSESSEE HAD ANY LINK OR NEXUS WITH THE INVESTMENTS MADE IN THE SH ARES OF OTHER COMPANIES. AS HELD BY THE LEARNED CIT(A), NO INTEREST EXPENDITURE ON BORROWED FUNDS THUS WAS INCURRED BY THE ASSESSEE IN RELATION TO THE INVESTMENT MADE IN THE SHARES OF OTHER COMPANIES, WARRANTING ANY DISALLOWANCE UNDER S.14A AND THE LEARN ED DEPARTMENTAL REPRESENTATIVE HAS NOT BEEN ABLE TO DISPUTE THIS POSITION. HE, HOWEVER, HAS CONTENDED THAT ALL THESE FACTS AND FIGURES FURNISHED BY THE ASSESSEE BEFORE THE LEARNED CIT(A) AND RELIED UPON BY HIM TO GIVE RELIEF TO THE ASSESSEE ON THIS ISSUE , WERE NOT FURNISHED BEFORE THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THE ASSESSING OFFICER THEREFORE HAD NO OPPORTUNITY TO VERIFY THE SAME. WE FIND MERIT IN THIS CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE. ACCORDIN GLY, WE SET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(A) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR THE LIMITED PURPOSE OF VERIFYING THE STAND OF THE ASSESSEE THAT SUFFICIENT OWN FUNDS WERE AVAILABLE WITH IT FOR MAKI NG THE INVESTMENTS IN THE SHARES OF OTHER COMPANIES AND THAT THE INTEREST BEARING BORROWED FUNDS WERE NOT UTILISED FOR MAKING SUCH INVESTMENTS. IF THE CLAIM OF THE ASSESSEE IS FOUND TO BE CORRECT ON SUCH VERIFICATION, THE ASSESSING OFFICER SHALL NOT MAKE A NY DISALLOWANCE UNDER S.14A. I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 31 GROUND NO.3 OF THE REVENUES APPEAL FOR ASSESSMENT YEAR 2009 - 10 IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 48. IN THE RESULT, REVENUES APPEAL FOR ASSESSMENT YEAR 2009 - 10 IS ALLOWED FOR STATISTICAL PURPOSE. 49. TO SUM UP: ( A ) APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2006 - 07 IS PARTLY ALLOWED. ( B ) OUT OF THE CROSS - APPEALS FOR ASSESSMENT YEAR 2007 - 08, ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOS ES. ( C ) REVENUES APPEAL FOR ASSESSMENT YEAR 2008 - 09 IS PARTLY ALLOWED ( D ) REVENUES APPEAL FOR ASSESSMENT YEAR 2009 - 10 IS ALLOWED FOR STATISTICAL PURPOSES. ` `` ORDER PRONOUNCED IN THE COURT ON 20TH JANUARY, 2015 SD/ - SD/ - ( ASHA VIJAYARAGHAV AN) ( P.M.JAGTAP ) JUDICIAL MEMBER ACCOUNTANT MEMBER DT/ - 20 TH JANUARY, 201 5 COPY FORWARDED TO: 1. M/S. PRAJAY ENGINEERS SYNDICATE LTD., 4 - 1 - 23, EDEN GARDENS, RAM KOTI, HYDERABAD 500 001 2 . ADDL. COMMISSIONER OF INCOME - TAX RANGE 16, HYDERABAD ASST. COMMISSIONER OF INCOME - TAX CIRCLE 16(3), HYDERABAD I TA NO. 1415/HYD/2010 & FOUR OTHERS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD 32 3. 4. COMMISSIONER OF INCOME - TAX(APPEALS) V, HYDERABAD COMMISSIONER OF INCOME - TAX IV, HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HY DERABAD. B.V.S