Impact Metalas Limited, Medak Dist., Hyderabad V. DCIT, Circle-2(1), Hyderabad, Hyderabad

ITA 338/HYD/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1371 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-09-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 04-06-2018
• Assessment Year: 2007-2008
• Appeal Filed On: 21-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N SWAPNA
• Keywords: Unexplained investment; Business income; Depreciation; Business expenditure; Additional evidence
• Section: 68

Judgement Text

ITA NO 338 OF 2016 IMPACT METALS LTD MEDAK. PAGE 1 OF 11 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.338/HYD/2016 (ASSESSMENT YEAR: 2007-08) M/S. IMPACT METALS LTD MEDAK PAN: AAACI45 46A VS DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(1) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI MOHD. AFZAL FOR REVENUE : SMT. N. SWAPNA, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2007-08 AGAIN ST THE ORDER OF THE CIT (A)-9, HYDERABAD, DATED 29 TH JANUARY, 2016. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-9 HYDERABAD, IS AGAINST THE LAW, WEIGHT O F EVIDENCE AND PROBABILITIES OF CASE. 2. THE LEARNED COMMISSIONER OF INCOME TAX ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER WHERE IN, THE LEASE RENTAL INCOME OF RS.28,15,047 ADMITTED AS BUS INESS INCOME, WAS CONSIDERED AS INCOME FROM PROPERTY, INS PITE OF A FAVORABLE RECOMMENDATION FROM THE ASSESSING OFFIC ER. 3. THE LEARNED COMMISSIONER FURTHER ERRED IN CONFIR MING THE DISALLOWANCE OF INTEREST OF RS.16,08,014/- WHICH IS CLAIMED AS BUSINESS EXPENDITURE AS THE LOAN TAKEN FROM SBI, BALANAGAR BRANCH WAS UTILIZED FOR THE PURPOSE OF BU SINESS, DATE OF HEARING: 04.06.2018 DATE OF PRONOUNCEMENT: 0 3 . 0 9 .2018 ITA NO 338 OF 2016 IMPACT METALS LTD MEDAK. PAGE 2 OF 11 INSPITE OF A FAVORABLE RECOMMENDATION FROM THE ASSE SSING OFFICER. 4. THE LEARNED COMMISSIONER OF INCOME TAX ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER WHERE IN, THE CLAIM OF DEPRECIATION AMOUNTING TO RS.18,50,219/-WA S DISALLOWED ON THE BUILDING WHICH IS LEASED TO M/S B HEL GAS TURBINES SERVICES LTD. 5. THE LEARNED COMMISSIONER ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER WHEREIN, A NOTIONAL INTERE ST AT THE RATE OF 12% WAS ADDED, ON THE ADVANCES MADE TO SIST ER CONCERNS AMOUNTING TO RS.1,73, 71,422/-. 6. THE LEARNED COMMISSIONER ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER, WHEREIN, A NOTIONAL INTER EST OF RS.14,59,233/- WAS ADDED, ON INVESTMENTS OF RS.1,21,60,274/- WHICH WAS MADE IN UNQUOTED SHARES OF M/S KONASEEMA FINANCE PVT LTD, FOR ACQUIRING THE SA ID COMPANY, IN SPITE OF A FAVORABLE OBSERVATION BY THE ASSESSING OFFICER. 7. THE LEARNED COMMISSIONER ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER WHEREIN, A NOTIONAL INTERE ST OF RS.3,66,237 WAS ADDED ON ADVANCES MADE TO VARIOUS PARTIES FOR THE PURPOSE OF BUSINESS AMOUNTING TO RS.37,38,288/-. 8. THE LEARNED COMMISSIONER ERRED IN CONFIRMING THE ADDITION OF RS.1,10,000/-MADE U/S 68 IN SPITE OF FI LING CONFIRMATION LETTERS BEFORE THE ASSESSING OFFICER. 9. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND OR M ODIFY THE ABOVE GROUNDS OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF THE APPEAL, IF IT IS CONSIDERED NECESSAR Y. 2. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE DOES NOT WISH TO PRESS GROUND OF APPEAL NO.6 AND THEREFORE, THE SAID GROUN D IS REJECTED AS NOT PRESSED. ITA NO 338 OF 2016 IMPACT METALS LTD MEDAK. PAGE 3 OF 11 3. AS REGARDS GROUNDS OF APPEAL NO.1 & 9 ARE CONCER NED, THEY ARE GENERAL IN NATURE AND NEED NO ADJUDICATION . 4. AS REGARDS GROUND OF APPEAL NO.2, BRIEF FACTS AR E THAT THE ASSESSEE COMPANY, WHICH IS IN THE BUSINESS OF M ANUFACTURING OF ALUMINIUM CANS, ACCESSORIES, CASTINGS, ETC, FIL ED ITS RETURN OF INCOME FOR THE A.Y 2007-08 ON 31.10.2007 DECLARING NIL INCOME. INITIALLY, THE RETURN WAS PROCESSED U/S 143(1) OF T HE ACT RESULTING IN A DEMAND OF RS.11,95,930. SUBSEQUENTLY, THE CASE WAS SUBJECTED TO SCRUTINY AND VARIOUS DETAILS WERE CALL ED FOR, WHICH WERE FURNISHED BY THE ASSESSEE, FROM TIME TO TIME. ON PERUSAL OF THE INFORMATION SO FILED, THE AO OBSERVED THAT THE ASSESSEE COMPANY LEASED ITS OWN BUILDING TO M/S. BHEL GE GAS TURBINE SERVICES PVT. LTD FOR A PERIOD OF 5 YEARS AND THAT FOR THE RELEVANT A.Y, THE ASSESSEE COMPANY HAS CREDITED TO THE P&L A /C. THE NET LEASE RENT AMOUNT OF RS.28,15,047 AFTER SETTING OFF INTEREST PAID OF RS.16,08,014 ON LOAN TAKEN FROM THE GROSS LEASE REN T OF RS.44,23,061/-, THE TDS CERTIFICATE RECEIVED FROM T HE TENANTS ALSO WAS FOR RECEIPT OF RS.44,23,061. THEREFORE, THE AO WAS OF THE OPINION THAT THE ASSESSEE HAS SHORT ADMITTED RENT T O THE EXTENT OF RS.16,08,014. FURTHER, THE AO ALSO OBSERVED THAT TH E ASSESSEE HAS SET OFF THE INTEREST PAID OF RS.16,08,014 ON LO AN TAKEN FROM ITA NO 338 OF 2016 IMPACT METALS LTD MEDAK. PAGE 4 OF 11 GROSS LEASE RENT OF RS.44,23,061 AND THAT THE ASSES SEE HAS OFFERED THE LEASE RENT RECEIVED AS INCOME FROM OTHER SOURC ES. ACCORDING TO THE AO, AS PER THE PROVISIONS OF SECTION 22 OF T HE I.T. ACT, THE INCOME RECEIVED ON THE BUILDING AND LAND APPURTENAN T THERETO, IS TO BE TREATED AS INCOME FROM HOUSE PROPERTY. THER EFORE, THE AO TREATED IT AS INCOME FROM HOUSE PROPERTY AND OBSERV ING THAT ONLY THE EXPENDITURE MENTIONED U/S 24 IS TO BE ALLOWED, THE AO OBSERVED THAT THE INTEREST PORTION OF RS.16,08,014 IS NOT ALLOWABLE. FURTHER, HE ALSO DISALLOWED THE CLAIM OF DEPRECIATION OF RS.18,50,219/-. 5. FURTHER, THE AO ALSO NOTICED THAT THE ASSESSEE H AS ADVANCED INTEREST FREE LOANS AMOUNTING TO RS.1,73,7 1,422 TO ITS SISTER CONCERNS AND OBSERVING THAT THERE IS A DIREC T NEXUS BETWEEN INTEREST BEARING LOANS AND THE ADVANCES MADE, HE DI SALLOWED INTEREST @ 12% ON SUCH ADVANCES AND BROUGHT A SUM O F RS.20,84,566 TO TAX. HE ALSO OBSERVED THAT THERE WE RE ADVANCES OUTSTANDING TO THE TUNE OF RS.36,90,231. OBSERVING THAT THE ADVANCES ARE IN THE NATURE OF PERSONAL ADVANCES TO ONE OF THE DIRECTORS OF THE COMPANY, SHRI G.VENKAT REDDY, HE T REATED IT AS ADVANCE MADE TO DIRECTORS IN THE BOOKS OF THE COMPA NY AND DISALLOWED THE INTEREST @ 12% ON SUCH ADVANCES ALSO . THE AO ALSO ITA NO 338 OF 2016 IMPACT METALS LTD MEDAK. PAGE 5 OF 11 VERIFIED THE TDS CERTIFICATE FILED ALONG WITH THE R ETURN OF INCOME AND OBSERVED THAT THE ASSESSEE COMPANY RECEIVED AN AMOUNT OF RS.94,07,386 AS JOB WORK RECEIPTS, WHEREAS IN THE P &L A/C, NO SUCH INCOME HAS BEEN ADMITTED. THEREFORE, HE TREATE D THE SUM OF RS.94,07,307 AS OTHER SALES AND ADVANCES AND BROUGH T IT TO TAX AS UNDISCLOSED INCOME OF THE ASSESSEE. 6. THE AO ALSO OBSERVED THAT THE ASSESSEE COMPANY H AS UNSECURED LOANS AMOUNTING TO RS.64,70,785 DURING TH E YEAR. THE ASSESSEE WAS ASKED TO SUBSTANTIATE THE AMOUNTS INTR ODUCED AS UNSECURED LOANS, BY PROVING THE IDENTITY AND CREDIT WORTHINESS OF THE CREDITORS AND THE GENUINENESS OF THE TRANSACTIO NS. SINCE THE ASSESSEE FAILED TO PROVIDE THE INFORMATION CALLED F OR, THE AO TREATED THE SUM OF RS.64,70,785 AS INCOME FROM OTH ER SOURCES. HE ALSO OBSERVED FROM THE BALANCE SHEET FILED ALONG WITH THE RETURN OF INCOME THAT THE ASSESSEE COMPANY INTRODUC ED SHARE APPLICATION MONEY OF RS.80,00,000 BUT COULD NOT FUR NISH THE DETAILS OF THE SHARE APPLICANTS AND THE GENUINENESS OF THE TRANSACTION. THEREFORE, HE TREATED THE SUM OF RS.80 .00 LAKHS ALSO AS UNEXPLAINED INVESTMENT U/S 68 OF THE ACT AND BRO UGHT IT TO TAX. ITA NO 338 OF 2016 IMPACT METALS LTD MEDAK. PAGE 6 OF 11 7. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT (A) AND ALSO FILED ADDITIONAL EVIDENCE BEFORE T HE CIT (A). THE CIT (A) CALLED FOR A REMAND REPORT FROM THE AO WHO SUBMITTED THE SAME ON 12.12.2014. AFTER CONSIDERING THE SAME, THE CIT (A) GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGAINST THE ADDITION CONFIRMED BY THE CIT (A), THE ASSESSEE IS IN SECOND APPEAL BEFORE US BY RAISING THE GROUNDS OF APPEALS WHICH HAVE BEE N REPRODUCED HEREIN ABOVE. 8. AS FAR AS GROUNDS 2 & 3 ARE CONCERNED WITH REGAR D TO THE NATURE OF THE LEASE RENTAL INCOME I.E. WHETHER IT IS INCOME FROM OTHER SOURCES OR INCOME FROM HOUSE PROPERTY OR BUSINESS INCOME, WE FIND THAT THE ASSESSEE HAD INITIALLY OFF ERED THE INCOME AS INCOME FROM OTHER SOURCES, WHILE THE AO TREATED IT AS INCOME FROM HOUSE PROPERTY. BEFORE THE CIT (A), THE ASSESS EE HAD TAKEN AN ALTERNATIVE STAND THAT THE LEASE RENTAL INCOME S HOULD BE TREATED AS BUSINESS INCOME, BUT THE CIT (A) HAS NOT AGREED TO THE ASSESSEES CONTENTION AND HAS CONFIRMED THAT THE IN COME SHOULD BE TREATED AS INCOME FROM HOUSE PROPERTY. WE HAVE H EARD BOTH THE PARTIES AND HAVE ALSO PERUSED THE LEASE DEED FI LED BY THE ASSESSEE. FROM THE RECITALS IN THE LEASE DEED, WE F IND THAT THE ASSESSEE HAD GIVEN THE LAND AND ALSO THE BUILDING A ND STRUCTURES ITA NO 338 OF 2016 IMPACT METALS LTD MEDAK. PAGE 7 OF 11 CONSTRUCTED THEREON OR TO BE CONSTRUCTED THEREON, A S PER THE REQUIREMENTS OF THE LESSEE, FOR A PERIOD OF 5 YEARS . IT IS SEEN THAT THE ASSESSEE IS REQUIRED TO MAKE THE MODIFICATION/R EPAIRS OR CONSTRUCTION AS PER THE REQUIREMENTS OF THE LESSEE AND THEREAFTER, THE LESSEE IS REQUIRED TO TAKE CARE OF THE SAID PRO PERTY. THE ASSESSEE IS NOT RENDERING ANY SERVICES TO THE LESSE E EXCEPT LEASING OUT OF THE LAND AND THE CONSTRUCTED PROPERTY THEREO N. IN THE DECISIONS RELIED UPON BY THE ASSESSEE THE INCOME FR OM LETTING OUT OF THE I.T. PARKS HAS BEEN TREATED AS INCOME FROM BUSINESS BECAUSE THE ASSESSEES THEREIN, HAVE NOT ONLY LET OU T THE PROPERTY, BUT ALSO HAVE RENDERED SERVICES FOR THE MAINTENANCE OF THE SAME FOR EFFECTIVE CARRYING ON OF THE BUSINESS OF SUCH L ESSEES. IN THE CASE BEFORE US, THE LESSEES HAS TAKEN OVER THE POSS ESSION OF THE PROPERTY AND THEREAFTER HAD TO CONDUCT ITS BUSINESS WITHOUT ANY ASSISTANCE FROM THE ASSESSEE. THEREFORE, THE INCOME OF THE ASSESSEE IS ONLY FROM LETTING OUT OF THE PROPERTY A ND THUS, WE AGREE WITH THE FINDINGS OF THE CIT (A) THAT THE INC OME HAS TO BE TREATED AS INCOME FROM HOUSE PROPERTY AND NOT AS BUSINESS INCOME. THEREFORE, GROUND OF APPEAL NO.2 IS REJECTE D. 9. AS REGARDS GROUND NO.3, WE FIND THAT THE AO, IN THE REMAND REPORT, HAS CLEARLY STATED THAT THE LOAN HAS BEEN TAKEN ITA NO 338 OF 2016 IMPACT METALS LTD MEDAK. PAGE 8 OF 11 FROM SBI BALANAGAR BRANCH FOR THE PURPOSE OF BUSINE SS AND THEREFORE, IT HAS TO BE ALLOWED AS BUSINESS EXPENDI TURE. IRRESPECTIVE OF THE NATURE OF THE LEASE RENTAL INCO ME, THE ASSESSEE HAS UTILIZED THE SAID LOAN FOR THE BUSINESS PURPOSE S OF THE ASSESSEE WHICH IS NOT DISPUTED BY THE REVENUE. OF C OURSE, THE SAID AMOUNT CANNOT BE SET OFF FROM THE INCOME FROM HOUSE PROPERTY AS CLAIMED BY THE ASSESSEE BUT THE AO/CIT (A) CAN SET OFF THE SAME FROM THE BUSINESS INCOME IF ANY, OF TH E ASSESSEE. THEREFORE, THE AO IS DIRECTED TO ALLOW THE SAME AS BUSINESS EXPENDITURE. WE FIND THAT THE SECURITY FOR THE LOAN , IS THE LEASE RENTAL INCOME, BUT IT DOES NOT MEAN THAT IT CAN BE SET OFF AGAINST THE RENTAL INCOME. GROUND NO.3 IS THEREFORE, TREATE D AS ALLOWED FOR STATISTICAL PURPOSES. 10. AS REGARDS GROUND NO.4, SINCE WE HAVE ALREADY H ELD THAT THE INCOME FROM LEASE RENTAL IS TO BE TREATED AS INCOME FROM HOUSE PROPERTY, THE BUILDING CANNOT BE TREATED AS A BUSINESS ASSET AND THEREFORE THE DEPRECIATION THEREON OF AN AMOUNT OF RS.18,50,219/- CANNOT BE ALLOWED. GROUND NO.4 IS TH EREFORE, REJECTED. ITA NO 338 OF 2016 IMPACT METALS LTD MEDAK. PAGE 9 OF 11 11. AS REGARDS GROUND NO.5, WE FIND THAT THE ASSESS EE HAS CLAIMED THAT THESE ADVANCES ARE TRADE ADVANCES AND NOT LOANS/ADVANCES AS HELD BY THE AO. THE CIT (A) ALSO HELD THAT THE ASSESSEE HAS NOT FILED ANY EVIDENCE IN SUPPORT OF I TS CLAIM THAT THESE ARE TRADE ADVANCES. EVEN BEFORE US ALSO, THE ASSESSEE HAS NOT FILED ANY EVIDENCE. THE ASSESSEE HAS ONLY STATE D THAT THE FUNDS HAVE BEEN TRANSFERRED BETWEEN THE COMPANIES, DEPENDING ON THE BUSINESS REQUIREMENTS AND NO OTHER EXPENSES HAVE BEEN CHARGED FOR GIVING THE SECURITY FOR THE LOANS TAKEN BY SUCH CONSUMERS. THE ASSESSEE HAS RELIED UPON THE DECISI ON OF THE HON'BLE SUPREME COURT IN THE CASE OF SA BUILDERS LT D VS. CIT (A) & ANR (S.C) 288 ITR 001 (S.C) AND ALSO THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. DALMIYA CEMENTS LTD RE PORTED IN (2005) 254 ITR 377 WHEREIN IT WAS HELD THAT ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BETWEEN THE EXPENDITURE AND TH E PURPOSE OF THE BUSINESS (WHICH NEED NOT NECESSARILY BE THE BUS INESS OF THE ASSESSEE ITSELF), , THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARMCHAIR OF THE BUSINESSMAN OR IN THE POSITI ON OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMS TANCES OF THE CASE. WE FIND THAT NEITHER THE AO NOR THE CIT (A) H AVE VERIFIED THIS CLAIM OF THE ASSESSEE, EXCEPT FOR HOLDING THAT THE ASSESSEE HAS NOT ITA NO 338 OF 2016 IMPACT METALS LTD MEDAK. PAGE 10 OF 11 FILED THE NECESSARY EVIDENCE. THEREFORE, WE DEEM I T FIT AND PROPER TO REMAND THE ISSUE TO THE FILE OF THE AO FOR DENOV O CONSIDERATION. ACCORDINGLY, ASSESSEES GROUND OF APPEAL NO.5 IS TR EATED AS ALLOWED FOR STATISTICAL PURPOSES. 12. AS REGARDS GROUNDS 6 AND 7 ALSO, THE ASSESSEE H AS FAILED TO PRODUCE ANY EVIDENCE BEFORE US TO DEMONST RATE THAT THE ADVANCES WERE MADE TO VARIOUS PARTIES FOR THE PURPO SE OF BUSINESS. THEREFORE, THE ORDER OF THE CIT (A) ON TH IS ISSUE IS CONFIRMED. 13. AS REGARDS GROUND NO.8, WE FIND THAT THE ASSESS EE HAS FILED CONFIRMATION LETTERS BEFORE THE CIT (A) FOR W HICH REMAND REPORT WAS CALLED FOR. WE FIND THAT THE AO HAS OBSE RVED THAT THE ASSESSEE COULD NOT PRODUCE THE PARTIES FOR ESTABLIS HING THE GENUINENESS AND CREDITWORTHINESS OF THE TRANSACTION . THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSE E HAS FURNISHED CONFIRMATION LETTERS AS REQUIRED BY THE A O AND AS OBSERVED BY HIM IN THE REMAND REPORT AND THEREFORE, THE ADDITIONS COULD NOT HAVE BEEN CONFIRMED. COPIES OF THE CONFIR MATION LETTERS WERE ALSO FILED BEFORE US AND WE FIND THAT BOTH THE PARTIES ARE ALLEGEDLY AGRICULTURISTS AND WITH NO PAN NOS. THERE FORE, THE ITA NO 338 OF 2016 IMPACT METALS LTD MEDAK. PAGE 11 OF 11 CREDITWORTHINESS OF THE SAID PARTIES COULD NOT BE P ROVIDED BY THE ASSESSEE. IN VIEW OF THE SAME, WE DO NOT SEE ANY RE ASON TO INTERFERE WITH THE ORDER OF THE CIT (A) ON THIS ISS UE. 14. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD SEPTEMBER, 2018. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 3 RD SEPTEMBER 2018. VINODAN/SPS COPY TO: 1 SHRI MOHD. AFZAL, ADVOCATE, 11-5-465 SHERSONS RE SIDENCY, FLAT NO.402, CRIMINAL COURT ROAD, RED HILLS, HYDERABAD 5 00004 2 DY.CIT, CIRCLE 2(1) IT TOWERS, HYDERABAD 3 CIT (A) - 9 HYDERABAD 4 PR. CIT 2, HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER