P.Ragunathan, Salem V. ACIT, Salem

ITA 333/CHNY/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7722 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 07-01-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 09-02-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N MADHAVAN
• Assessee Lawyers: T S LAKSHMIVENKATARAMAN
• Keywords: Business expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , . !'# ! , % !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NOS. 333 & 334/MDS/2015 ( )( / ASSESSMENT YEAR : 2009-10 SHRI P. RAGHUNATHAN, C/O SH. T.S.LAKSHMI VENKATARAMAN, CHARTERED ACCOUNTANT, NO.55/135, RAJAJI ROAD, SALEM 636 007. PAN : AAYPR 3825 L V. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE III, SALEM. (+,/ APPELLANT) (-.+,/ RESPONDENT) +, / 0 / APPELLANT BY : SH. T.S. LAKSHMI VENKATARAMAN, CA -.+, / 0 / RESPONDENT BY : SHRI N. MADHAVAN, JCIT 1 / 2% / DATE OF HEARING : 07.01.2016 3') / 2% / DATE OF PRONOUNCEMENT : 18.03.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: BOTH THE APPEALS OF THE ASSESSEE ARE DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), SALEM, DATED 28.11.2014 AND PERTAIN TO ASSESSMENT YEAR 2009-10. 2 I.T.A. NOS.333 & 334/MDS/15 2. FIRST, LET US TAKE ASSESSEES APPEAL IN I.T.A. NO.334/MDS/2015. 3. THE FIRST ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO DISALLOWANCE OF ` 7,12,795/- BEING THE INTEREST PAID TO CENTRAL BANK OF INDIA. 4. SH. T.S. LAKSHMI VENKATARAMAN, THE LD. REPRESENT ATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE BORROWED FUNDS FOR BUSINESS PURPOSE AND CLAIMED THE INTEREST PAYMENT A S EXPENDITURE. HOWEVER, THE SAME WAS DISALLOWED BY THE ASSESSING O FFICER ON THE GROUND THAT THE BORROWED FUNDS WERE USED FOR PURCHA SE OF AGRICULTURAL LAND. ACCORDING TO THE LD. REPRESENTA TIVE, THERE IS NO DIRECT LINK BETWEEN THE BORROWED FUNDS AND THE INVE STMENT MADE IN THE AGRICULTURAL LAND. IT IS FOR THE ASSESSING OFF ICER TO ESTABLISH THE NEXUS BETWEEN THE BORROWED FUNDS AND THE AMOUNT INV ESTED IN PURCHASE OF AGRICULTURAL LAND. IN THE ABSENCE OF A NY NEXUS, ACCORDING TO THE LD. REPRESENTATIVE, THERE IS NO JU STIFICATION FOR MAKING ANY DISALLOWANCE. 5. ON THE CONTRARY, SHRI N. MADHAVAN, THE LD. DEPAR TMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE PURCHAS ED THE 3 I.T.A. NOS.333 & 334/MDS/15 AGRICULTURAL LAND BY UTILIZING THE BORROWED FUNDS. IN FACT, THE LOAN WAS BORROWED IN THE NAME OF M/S AMMAN AGENCIES, THE PROPRIETARY CONCERN OF THE ASSESSEE. AS WAS SEEN FROM THE BALA NCE SHEET OF M/S AMMAN AGENCIES AS ON 31.03.2008, THE BANK LOAN WAS ` 50,44,329/- AND THERE WAS NO CORRESPONDING LAND ACC OUNT ON THE ASSET SIDE. THE INTEREST PAYMENT WAS ALLOWED IN FU LL IN THE YEAR ENDED 31.03.2008. REFERRING TO THE ORDER OF THE AS SESSING OFFICER, THE LD. D.R. POINTED OUT THAT THE ASSESSEE BORROWED OVERDRAFT FOR PURCHASE OF THE AGRICULTURAL LAND AND PAYING THE IN TEREST FROM THE BUSINESS. ACCORDING TO THE LD. REPRESENTATIVE, FOR THE YEAR ENDED 31.03.2008, THERE WAS NO DIVERSION OF FUNDS, THEREF ORE, THE ASSESSING OFFICER FAIRLY ALLOWED THE CLAIM OF THE A SSESSEE. IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE INVESTED THE FUNDS IN THE AGRICULTURAL LAND. THE BALANCE SHEET OF THE ASSESS EE SHOWED INVESTMENT IN THE LAND. ON THE ASSET SIDE, THE ASS ESSEE HAS SHOWN THE ADVANCE OF ` 40,00,000/-. HOWEVER, IN THE LIABILITY SIDE, OUTSTANDING ON THE OVERDRAFT IS ` 50,97,999/-. FROM THIS, IT IS CLEAR THAT THE ASSESSEE CLOSED THE BUSINESS AND INVESTED THE MONEY FROM OVERDRAFT TOWARDS ADVANCE FOR PURCHASE OF AGRICULTU RAL LAND. THEREFORE, THE ASSESSING OFFICER RIGHTLY CONCLUDED THAT THE OVERDRAFT AVAILED BY THE ASSESSEE WAS DIVERTED FOR NON-BUSINE SS PURPOSE. 4 I.T.A. NOS.333 & 334/MDS/15 HENCE, THE ASSESSEE IS NOT ELIGIBLE FOR CLAIMING IN TEREST PAYMENT AS BUSINESS EXPENDITURE. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS BORROWED OVERDRAFT AN D PAID INTEREST OF ` 71,975/-. AS PER THE BALANCE SHEET AS ON 31.03.200 8, THE LOAN AMOUNT OUTSTANDING IS ` 50,44,329/-. THERE WAS NO CORRESPONDING ASSET DISCLOSED IN THE BALANCE SHEET. IT IS NOBODY S CASE THAT THE ASSESSEE HAS BORROWED ANY MONEY EITHER BY WAY OF OV ERDRAFT OR OTHERWISE DURING THE YEAR UNDER CONSIDERATION. THE BALANCE SHEET AS ON 31.03.2009 DISCLOSED LAND ADVANCE AT ` 32,00,000/-. THE LOAN OUTSTANDING ON THE OVERDRAFT AS DISCLOSED IN THE CO PY OF THE BALANCE SHEET AS ON 31.03.2009 FILED BEFORE THIS TRIBUNAL I S ` 30,31,105/-. APART FROM THAT, THE ASSESSEE HAS ALSO BORROWED TWO HOUSING LOANS FROM ICICI BANK. THE ASSESSING OFFICER, HOWEVER, F OUND THAT IN THE BALANCE SHEET AS ON 31.03.2009, THE ASSESSEE HAS DI SCLOSED THE LAND ADVANCE AS ` 40,0,000/- AND THE LIABILITY TO THE OVERDRAFT OF TH E BANK IS ` 50,97,999/-. THEREFORE, THERE WAS A DIFFERENCE OF AMOUNT DISCLOSED IN THE BALANCE SHEET FILED BEFORE THIS TR IBUNAL AND THE BALANCE SHEET WHICH WAS EXTRACTED BY THE ASSESSING OFFICER AND THE 5 I.T.A. NOS.333 & 334/MDS/15 CIT(APPEALS). THEREFORE, THIS TRIBUNAL IS OF THE C ONSIDERED OPINION THAT THE DIFFERENCE BETWEEN THE AMOUNT SHOWN IN THE BALANCE SHEET FILED BEFORE THIS TRIBUNAL AND THE BALANCE SHEET FI LED BEFORE THE LOWER AUTHORITIES NEEDS TO BE EXAMINED BY THE ASSES SING OFFICER. IN OTHER WORDS, WHAT WAS THE ACTUAL AMOUNT ADVANCED FO R LOAN AS ON 31.03.2009 AND WHAT WAS THE ACTUAL LIABILITY TOWARD S OVERDRAFT FACILITY IS TO BE ASCERTAINED ON THE BASIS OF BALAN CE SHEET AND BOOKS OF ACCOUNT OF THE ASSESSEE. SINCE THERE WAS DIFFER ENCE BETWEEN THE AMOUNT SHOWN IN THE ORDERS OF THE LOWER AUTHORI TIES AND SHOWN IN THE COPY OF THE BALANCE SHEET FILED BY THE ASSES SEE, THE MATTER NEEDS TO BE REMITTED BACK TO THE FILE OF THE ASSESS ING OFFICER. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES AR E SET ASIDE. THE ADDITION OF ` 7,12,795/- IS REMITTED BACK TO THE FILE OF THE ASSE SSING OFFICER. THE ASSESSING OFFICER SHALL RE-EXAMINE TH E MATTER AFRESH IN THE LIGHT OF THE BALANCE SHEET AND OTHER BOOKS OF A CCOUNT FURNISHED BY THE ASSESSEE AND THEREAFTER DETERMINE THE NEXUS BETWEEN THE BORROWED FUNDS AND THE INVESTMENT MADE IN THE AGRIC ULTURAL LAND AND THEREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING REASONABLE OPPORTUNITY TO THE ASSESSEE. 6 I.T.A. NOS.333 & 334/MDS/15 7. THE NEXT GROUND OF APPEAL IS WITH REGARD TO ADDI TION OF ` 2,32,276/- IN RESPECT OF SALE OF MEGAMALAI ESTATE O N 19.05.2008. 8. SH. T.S. LAKSHMI VENKATARAMAN, THE LD. REPRESENT ATIVE FOR THE ASSESSEE, SUBMITTED THAT EXCESS CAPITAL AMOUNT TO THE EXTENT OF ` 2,32,276/- IN RESPECT OF SALE OF MEGAMALAI ESTATE O N 19.05.2008 WAS BROUGHT TO ASSESSMENT. ACCORDING TO THE LD. RE PRESENTATIVE, THE CAPITAL ACCOUNT OF THE ASSESSEE FOR THE YEAR 31 .03.2009 SHOWS A CREDIT OF ` 1,78,25,276/-. HOWEVER, THE ASSESSING OFFICER HAS TAKEN THE CREDIT OF CAPITAL ACCOUNT AT ` 1,75,93,000/- AS PROFIT ON SALE OF LAND AND ACCORDINGLY, BROUGHT THE DIFFERENCE OF ` 2,32,276/- FOR ASSESSMENT. EXPLAINING THE METHOD OF CALCULATION, THE LD. REPRESENTATIVE SUBMITTED THAT THE TOTAL SALE CONSID ERATION WAS ` 3,65,00,000/-. AFTER CONSIDERING THE LAND COST AND TREES COST, THE TOTAL COST COMES TO ` 1,86,74,724/-. THEREFORE, PROFIT ON SALE OF AGRICULTURAL LAND COMES TO ` 1,78,25,276/-. REFERRING TO THE ORDER OF THIS TRIBUNAL IN THE CASE OF ASSESSEES WIFE SMT. R . VASANTHI IN I.T.A. NO.282/MDS/2014 DATED 15.05.2015, THE LD. RE PRESENTATIVE SUBMITTED THAT A SIMILAR ADDITION MADE ON SIMILAR F ACTS OF THE CASE WAS DELETED BY THIS TRIBUNAL. ACCORDING TO THE LD. REPRESENTATIVE, THE ASSESSING OFFICER IS NOT JUSTIFIED IN TAKING TH E CREDIT IN THE CAPITAL 7 I.T.A. NOS.333 & 334/MDS/15 ACCOUNT AT ` 1,75,93,000/-. IN FACT, THE CREDIT WAS ` 1,78,25,276/-, WHICH IS THE PROFIT ON SALE OF AGRICULTURAL LAND AF TER CONSIDERING THE COST OF LAND AND COST OF TREES. THEREFORE, THERE I S NO JUSTIFICATION IN MAKING ANY ADDITION. 9. ON THE CONTRARY, SHRI N. MADHAVAN, THE LD. DEPAR TMENTAL REPRESENTATIVE, SUBMITTED THAT THE SALE CONSIDERATI ON WAS ` 3,65,00,000/-. THE ASSESSING OFFICER COMPUTED THE SALE CONSIDERATION AFTER EXCLUDING THE COST OF THE BUILD ING AND DEVELOPMENT EXPENSES AT ` 2,11,65,000/-. THE PROFIT ON SALE OF LAND IS ` 1,75,93,000/- AND THE PROFIT CREDITED IN CAPITAL AC COUNT IS ` 1,78,25,276/-. THEREFORE, THE EXCESS CREDIT OF ` 2,32,276/- WAS BROUGHT FOR TAXATION. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE SALE CONSIDERATION OF MEGAMALAI ESTATE WAS THE SUBJECT M ATTER OF DISCUSSION BEFORE THIS TRIBUNAL IN THE ASSESSEES W IFE CASE IN I.T.A. NO.282/MDS/2014 DATED 15.05.2015. THIS TRIBUNAL, A FTER CONSIDERING THE SALE CONSIDERATION REFLECTED IN THE SALE DEED AT ` 3,45,00,000/-, FOUND THAT THE ASSESSEE HAS NO OTHER SOURCE OF INCOME AND THE CREDIT FOUND IN THE CAPITAL ACCOUNT IS ONLY FROM THE 8 I.T.A. NOS.333 & 334/MDS/15 SALE OF AGRICULTURAL LAND. ACCORDINGLY, THE DIFFER ENCE OF ` 29,61,484/- WAS DELETED. IN THE CASE BEFORE US ALSO, THE SALE CONSIDERATION ALONG WITH COST OF THE LAND AND TREES WAS TAKEN AT ` 3,65,00,000/-. THIS WAS ADMITTED BY THE ASSESSING OFFICER. THE AS SESSING OFFICER EXCLUDED ` 1,53,35,000/- BEING THE LAND AND DEVELOPMENT EXPENS ES. WITHOUT EXCLUDING THIS, THE ASSESSEE HAS TAKEN THE COST OF THE LAND AND TREES AT ` 1,86,74,724/-. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT FOR THE PURPOSE OF COMPUTING CAPITAL G AIN OR PROFIT ON SALE OF LAND, COST OF THE LAND HAS TO BE REDUCED FR OM SALE CONSIDERATION. SINCE THE SALE CONSIDERATION WAS NO T IN DISPUTE AND THE COST OF LAND ALONG WITH TREES IS ALSO NOT IN DI SPUTE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT TAKING THE PROFIT ON SALE OF LAND AT ` 1,75,93,000/- BY THE ASSESSING OFFICER INSTEAD OF ` 1,78,25,276/- IS NOT JUSTIFIED. ACCORDINGLY, THE ORDERS OF THE LOWE R AUTHORITIES ARE SET ASIDE AND THE ADDITION OF ` 2,32,276/- IS DELETED. 11. NOW LETS TAKE THE ASSESSEES APPEAL IN I.T.A. NO.333/MDS/2015 WHEREIN THE ASSESSING OFFICER LEVIE D PENALTY UNDER SECTION 271B OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') FOR NOT OBTAINING THE AUDIT REPORT. 9 I.T.A. NOS.333 & 334/MDS/15 12. SH. T.S. LAKSHMI VENKATARAMAN, THE LD. REPRESEN TATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE IS HAVING TWO PROPRIETARY CONCERNS, NAMELY, M/S AMMAN AGENCIES AND M/S AMMAN TRADING COMPANY. THE TURNOVER OF M/S AMMAN TRADING COMPANY IS ` 37,42,330/-. HOWEVER, IN THE CASE OF M/S AMMAN AGE NCIES, THE TURNOVER EXCEEDED THE LIMIT PRESCRIBED UNDER SECTIO N 44A OF THE ACT. THE LD. REPRESENTATIVE FURTHER SUBMITTED THAT THE ASSESSEE WAS UNDER THE BONAFIDE IMPRESSION THAT M/S AMMAN AG ENCIES WAS OWNED BY HUF. DUE TO THIS MISUNDERSTANDING, THE AS SESSEE COULD NOT GET THE BOOKS OF ACCOUNT AUDITED. THEREFORE, L EVY OF PENALTY UNDER SECTION 271B OF THE ACT IS NOT JUSTIFIED. 13. ON THE CONTRARY, SHRI N. MADHAVAN, THE LD. DEPA RTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE HAS TWO PROPRIETARY CONCERNS, ONE IS M/S AMMAN AGENCIES AND ANOTHER IS M/S AMMAN TRADING COMPANY. THE TURNOVER OF M/S AMMAN AGENCIE S IS ` 78,62,240/-. THE ASSESSEE HAS NOT DISCLOSED ANY IN COME FROM M/S AMMAN AGENCIES. HOWEVER, IN RESPECT OF THE OTHER P ROPRIETARY CONCERN M/S AMMAN TRADING COMPANY, THE TURNOVER WAS ONLY ` 37,42,330/- AS PER THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE. WHEN THE ASSESSING OFFICER BROUGHT TO THE NOTICE OF THE ASSESSEE IN 10 I.T.A. NOS.333 & 334/MDS/15 RESPECT OF M/S AMMAN AGENCIES, THE INCOME WAS OFFER ED FOR TAXATION. IN THE EARLIER YEAR, THE ASSESSEE EXPLAI NED BEFORE THE ASSESSING OFFICER THAT M/S AMMAN AGENCIES BELONGED TO HUF, THEREFORE, THE INCOME WAS NOT OFFERED IN THE INDIVI DUAL TAXATION. ACCORDING TO THE LD. D.R., WHEN THE ASSESSEE HIMSEL F OFFERED THE INCOME FROM M/S AMMAN AGENCIES FOR TAXATION IN THE INDIVIDUAL ASSESSMENT, THE CLAIM OF THE ASSESSEE THAT IT BELON GED TO HUF IS NOT JUSTIFIED. THEREFORE, THERE IS NO REASON FOR N OT GETTING THE AUDIT REPORT. ACCORDINGLY, THE ASSESSING OFFICER RIGHTLY LEVIED THE PENALTY. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. BOTH THE PROPRIETARY CONCERNS, NAMELY, M/S AMMAN AGENCIES AN D M/S AMMAN TRADING COMPANY BELONG TO THE ASSESSEE. IT I S NOT IN DISPUTE THAT IN THE EARLIER ASSESSMENT YEAR, THE AS SESSEE HAD OFFERED THE INCOME FROM M/S AMMAN AGENCIES IN THE I NDIVIDUAL CAPACITY. THEREFORE, AS RIGHTLY POINTED OUT BY THE LD. D.R., THERE IS NO JUSTIFICATION IN CLAIMING THAT M/S AMMAN AGENCIE S BELONGS TO HUF, THEREFORE, THE INCOME WAS NOT OFFERED FOR TAXA TION. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT WHEN THE INCOME EXCEEDED THE LIMIT PRESCRIBED UNDER SECTION 44AB OF THE ACT, 11 I.T.A. NOS.333 & 334/MDS/15 OBTAINING THE AUDIT REPORT IS MANDATORY. IN THE CA SE BEFORE US, THE ASSESSEE ADMITTEDLY OBTAINED THE AUDIT REPORT ON 23 .12.2011. THE ASSESSING OFFICER FOUND THAT IT IS A DEFECTIVE ONE. THERE WAS NO REASON FOR NOT OBTAINING THE AUDIT REPORT WITHIN TH E TIME LIMIT. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT WHEN THE TURNOVER EXCEEDED THE LIMIT PRESCRIBED UNDER SECTION 44AB OF THE ACT, THE ASSESSEE IS EXPECTED TO OBTAIN THE AUDIT REPORT WIT HIN THE SPECIFIED TIME. IT IS A WELL SETTLED PRINCIPLE OF LAW THAT O BTAINING THE AUDIT REPORT IS MANDATORY UNDER SECTION 44AB OF THE ACT. HOWEVER, FILING OF THE SAME BEFORE THE CONCERNED AUTHORITY IS DISCR ETIONARY. IN THE CASE BEFORE US, THE AUDIT REPORT WAS OBTAINED ONLY ON 23.12.2011 AND THERE WAS NO EXPLANATION FROM THE ASSESSEE FOR NOT OBTAINING THE AUDIT REPORT WITHIN THE TIME PRESCRIBED UNDER S ECTION 44AB OF THE ACT. THE EXPLANATION OF THE ASSESSEE THAT M/S AMMAN AGENCIES OWNED BY HUF IS FAR-FETCHED ONE. IT CANNO T BE ACCEPTED. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINI ON THAT THE CIT(APPEALS) HAS RIGHTLY CONFIRMED THE PENALTY LEVI ED BY THE ASSESSING OFFICER UNDER SECTION 271B OF THE ACT. 12 I.T.A. NOS.333 & 334/MDS/15 15. IN THE RESULT, THE ASSESSEES APPEAL IN I.T.A. NO.333/MDS/2015 IS DISMISSED AND APPEAL IN I.T.A. NO.334/MDS/2015 IS PARTLY ALLOWED FOR STATISTICAL P URPOSES. ORDER PRONOUNCED ON 18 TH MARCH, 2016 AT CHENNAI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 18 TH MARCH, 2016. KRI. / -267 87)2 /COPY TO: 1. +, /APPELLANT 2. -.+, /RESPONDENT 3. 1 92 () /CIT(A), SALEM 4. 1 92 /CIT, SALEM 5. 7: -2 /DR 6. ( ; /GF.