Dy.CIT, Circle-16(2), Hyderabad V. M/s Maheshwari Mega Ventures Limited, Hyderabad

ITA 367/HYD/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6158 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 08-11-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 21-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: U. MINI CHANDRAN
• Keywords: Unexplained investment; Unexplained expenditure; Search and seizure; Document seized; Earning of tax free income; Rule 8D
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 69C; 11; 15; 271(1)(b); 139; 143(3); 92; 14A; 48

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 367/HYD/2013 ASSESSMENT YEAR: 2009-10 DY. COMMISSIONER OF INCOME- TAX, CIRCLE 16(2), HYDERABAD. VS. M/S MAHESWARI MEGA VENTURES LTD., HYDERABAD. PAN AADCM9780D (APPELLANT) (RESPONDENT) REVENUE BY : SMT. U. MINI CHANDRAN ASSESSEE BY : SHRI K.C. DEVDAS DATE OF HE ARING 25-01-2017 DATE OF PRONOUNCEMENT 03-02-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF CIT(A) - V, HYDERABAD, DATED 24/12/2012 FOR AY 2 009-10 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND REAL ES TATE. FOR THE AY 2009-10, THE ASSESSEE COMPANY FILED ITS RETURN OF I NCOME ON 30/09/2009 ADMITTING A TOTAL INCOME OF RS. 2,38,14, 880/-. ASSESSMENT U/S 143(3) OF THE ACT WAS COMPLETED DETERMINING THE TOTAL INCOME AT RS. 14,86,33,805/- BY MAKING THE FOLLOWING DISALLOW ANCES: I) PAYMENT OF ON-MONEY FOR PURCHASE OF LAND RS. 12 ,14,50,000 II) UNEXPLAINED EXPENDITURE RS. 29,90, 050 III) DISALLOWANCE U/S 14A RS. 3,78,8 75 3. WHEN THE ASSESSEE CARRIED THE MATTER IN APPEAL B EFORE THE CIT(A), THE CIT(A) DELETED ALL THE SAID DISALLOWANC ES AND AGGRIEVED WITH THE ORDER OF THE CIT(A), THE REVENUE IS IN APP EAL BEFORE US. 2 ITA NO. 367/H/13 M/S MAHESWARI MEGA VENTURES LTD. 4. AS REGARDS THE DISALLOWANCE OF PAYMENT OF ON-MON EY FOR PURCHASE OF LAND AMOUNTING TO RS. 12,14,50,000/-, I T IS OBSERVED THAT DURING SURVEY IN THE BUSINESS PREMISES OF THE ASSES SEE ON 20.10.2008, AN AGREEMENT OF SALE DATED 07.08.2006 W AS FOUND. AS PER THIS AGREEMENT, LAND OF 20 ACRES AT HAFEEZPET W AS SUPPOSED TO BE PURCHASED AT RS. 5 CRORE PER ACRE BY M/S OM META L DEVELOPERS PVT LTD., MUMBAI FROM 11 VENDORS. OUT OF THE 11 VEN DORS, 8 INDIVIDUAL VENDORS WERE REPRESENTED BY 9 TH PERSON, MRS INDRANI PRASAD, WHO IS ALSO A DIRECTOR OF M/S GOLD STONE EXPORTS PVT LTD ( 10 TH VENDOR). THE 10 TH AND 11 TH VENDORS, BEING COMPANIES, WERE REPRESENTED BY DR. P.S. PRASAD AND SRI R. SUBRAMANYAM. SMT INDRANI PRA SAD IS WIFE OF DR. P.S. PRASAD. THE VENDEE AS PER THIS AGREEMENT I S M/S OM METAL DEVELOPERS PVT. LTD., REPRESENTED BY SRI RAJ KUMAR MALPANI. SRI MALPANI WAS ALSO THE MANAGING DIRECTOR OF THE ASSES SEE-COMPANY AND M/S MAHESWARI MEGA VENTURES LTD. IT IS HERE BAS ED ON THE MULTI- FACETED POSITIONS OF THE VENDORS AND VENDEES THEIR REPRESENTATIVES, THE ASSESSING OFFICER HAD DRAWN A CONCLUSION THAT I N ESSENCE THE ABOVE AGREEMENT IS BETWEEN M/S GOLD STONE EXPORTS L TD AND M/S OM METAL DEVELOPERS PVT. LTD. IT IS IN M/S OM METAL DE VELOPERS PVT. LTD., THE ASSESSEE-COMPANY HOLDS 35% SHARE HOLDING AND TH E BALANCE BY M/S METRO MANAGEMENT SERVICES PVT LTD., NEW DELHI. 4.1 THOUGH THE AGREEMENT WAS FOR 20 ACRES OF LAND @ RS. 5 CRORE PER ACRE, AS PER REGISTERED SALE DEED DT.18.04.2008 , ONLY 10 ACRES OF LAND WAS TRANSFERRED @ RS.1.8 CRORES PER ACRE, AGGREGATING TO RS. 18.00 CRORES. 4.2 DURING THE COURSE OF SEARCH AND SEIZURE PROCEE DINGS CONDUCTED BY DDLT, NEW DELHI ON 06.01.2011 AT THE PREMISES OF SHIV-VANI GROUP OF COMPANIES, HAVING INTERESTS IN M/S METRO MANAGEM ENT SERVICES PVT. LTD., A SIMILAR AGREEMENT OF SALE WAS FOUND FO R THE LAND AT HAFEEZPET, HYDERABAD BETWEEN THE 11 VENDORS AS ABOV E AND M/S OM 3 ITA NO. 367/H/13 M/S MAHESWARI MEGA VENTURES LTD. METAL DEVELOPERS PVT. LTD (OMDPL). AS PER THE DDIT( LNV.), NEW DELHI, THE AMOUNT FOR PURCHASE OF 10 ACRES OF LAND WAS SHOWN AT RS. 20.30 CRORES IN THE BOOKS OF M/S OMDPL AND A FURTHE R AMOUNT OF RS. 21.6 CRORES WAS SHOWN AS 'ADVANCES AGAINST LAND IN THE BALANCE SHEET. AS PER THE AGREEMENT FOUND AT NEW DELHI, RS. 30.00 CRORES HAS BEEN PAID BY M/S OMDPL TO THE VENDORS ON THE DA TE OF AGREEMENT. THE SALE MENTIONS THAT A FURTHER AMOUNT OF RS. 18.00 CRORES HAS BEEN PAID TO THE VENDORS, TAKING THE AGG REGATE CONSIDERATION FOR 10 ACRES OF LAND TO RS. 48.00 CRO RES. IN A STATEMENT RECORDED FROM THE REPRESENTATIVES OF SHIV-VANI GROU P, WHICH HOLDS METRO MANAGEMENT SERVICES PVT. LTD (A COMPANY HAVIN G 65% SHARE HOLDING IN M/S OMDPL ALONG WITH THE ASSESSEE-COMPAN Y), IT WAS CONFIRMED THAT 10 ACRES OF LAND AT HYDERABAD WAS PU RCHASED FOR A CONSIDERATION OF RS. 55 CRORES (INCLUDING EXPENSES) . 4.3 FROM THE ABOVE FACTUAL BACKGROUND, THE ASSESSIN G OFFICER CONCLUDED THAT THE COMPONENT OF CASH, OUT OF THE AB OVE AMOUNT OF RS. 55 CRORES, WAS RS. 34.70 CRORES. AS THE ASSESSE E-COMPANY HOLDS 35% OF SHARE IN M/S OM METAL DEVELOPERS PVT LTD., T HE UNACCOUNTED/ UNDISCLOSED INVESTMENTS MADE BY THE ASSESSEE COMPAN Y IN M/S OMDPL WAS TAKEN AT 35% OF THE CASH COMPONENT OF RS. 34.70 CRORES, WHICH WORKED OUT TO RS. 12,14,50,000/-. IN SUPPORT OF THE ABOVE, THE ASSESSING OFFICER FURTHER BROUGHT IN THE CONTENTS O F OS FILED BY M/S OMDPL AGITATING OVER THE LANDS AT HAFEEZPET, HYDERA BAD FILED BEFORE 1 ST ADDL. DISTRICT JUDGE, R.R. DISTRICT. IN THE SAID O S, THERE WAS MENTION OF PAYING RS. 30 CRORES AS ADVANCE (PARTLY IN CASH AND PARTLY IN CHEQUES) ON SIGNING THE AGREEMENT FOR SALE. FINA LLY, IT WAS CONCLUDED THAT THE ASSESSEE-COMPANY MADE UNDISCLOSE D INVESTMENT IN M/S OMDPL IN THE FORM OF CAPITAL TO THE TUNE OF RS. 12,14,50,000/- AND BROUGHT THIS AMOUNT TO TAX. 5. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE P REFERRED AN APPEAL BEFORE THE CIT(A). 4 ITA NO. 367/H/13 M/S MAHESWARI MEGA VENTURES LTD. 6. DURING APPEAL PROCEEDINGS, THE ASSESSEE SUBMITT ED THAT THEY HAD NOT PURCHASED ANY PROPERTY IN HAFEEZPET AND THA T THE ALLEGED UNRECORDED PAYMENT OF ON-MONEY IN PURCHASING THE AB OVE LAND SHOULD NOT BE CONSIDERED IN ITS HANDS. THE ASSESSEE FURTHER CONTENDED THAT THERE IS NO MATERIAL TO INDICATE THA T THEY HAD PAID PART OF MONEY FOR PURCHASE OF LAND BY M/S OM METAL DEVEL OPERS PRIVATE LIMITED AND THAT THE SAME WAS TREATED AS THEIR SHAR E HOLDING. THE SCRIBBLING RELIED BY THE ASSESSING OFFICER IN THE A SSESSMENT, IN NO WAY PERTAIN TO THEM AND THE AO ALSO WITHOUT EXPLAIN ING THE SOURCE OF THE SAID SCRIBBLING HAD SIMPLY CONCLUDED THAT THEY HAD MADE UNEXPLAINED INVESTMENT IN THE SHARE CAPITAL OF M/S OMDPL. IT WAS ALSO CONTENDED THAT THE ASSESSING OFFICER FAILED TO DEMONSTRATE THE CIRCUMSTANCES UNDER WHICH THE ALLEGED ADDITION IS M ADE IN THEIR HANDS. THE ASSESSEE FURTHER POINTED OUT SOME INCONS ISTENCIES IN THE VERSION OF THE ASSESSING OFFICER IN CONCLUDING THAT THE ASSESSEE HAD PAID UNRECORDED SALE CONSIDERATION FOR PURCHASE OF LAND IN THE NAME OF M/S OMDPL, THE GIST OF WHICH IS AS UNDER: (A) IN PARA 3.2, THE ASSESSING OFFICER WHILE BRINGI NG THE RELATION BETWEEN THE PURCHASER OF LAND, M/S OMDPL AND THE AS SESSEE COMPANY, STATED THAT IN ESSENCE THE AGREEMENT FOR S ALE OF LAND WAS BETWEEN M/S GOLD STONE EXPORTS LTD AND M/S OMDP L, SINCE THERE WERE COMMON DIRECTORS/ INTERESTED PARTIES IN BOTH THE COMPANIES. BY STATING SO, THE ASSESSING OFFICER HAD NOT CONSIDERED THE CORPORATE STATUS OF THESE TWO PARTIE S AND THE SHARE HOLDERS/DIRECTORS WERE EQUATED WITH THE COMPA NIES. THE ASSESSEE FURTHER BROUGHT OUT THAT THE LEGAL FRAMEWO RK PERTAINING TO A COMPANY'S OPERATIONS AND OBLIGATIONS ACKNOWLED GES SEPARATE LEGAL EXISTENCE AS A KEY FEATURE OF THE CO MPANY STRUCTURE AND LIFTING THE VEIL OF CORPORATE PERSONA LITY MEANS THAT THE COMPANY IS LONGER VIEWED AS A DISTINCT ENTITY. (B) IN PARA 3.1 THE ASSESSING OFFICER REFERS TO AN AGREEMENT OF SALE DATED 07.08.2006 FOR TRANSFER OF 20 ACRES OF L AND FOR A CONSIDERATION OF RS. 100 CRORES. THERE IS NO MENTIO N OF ANY CONSIDERATION BEING PARTED BY THE PURCHASER TO THE SELLER IN THIS AGREEMENT. HOWEVER, IN PARA 3.5, THE ASSESSING OFFI CER REFERS TO PAGES 135 TO 146 OF ANNEXURE A-5 FOUND IN THE PREMI SES OF SHIV- VANI GROUP OF COMPANIES, AS THE SAME AGREEMENT OF S ALE DT.07.08.2006. IT WAS FURTHER BROUGHT OUT IN PARA 3 .6 THAT THIS 5 ITA NO. 367/H/13 M/S MAHESWARI MEGA VENTURES LTD. AGREEMENT OF SALE MENTIONS THAT RS. 30 CRORES WAS P AID BY M/S OMDPL TO THE VENDORS ON THE DATE OF AGREEMENT. IF T HE AGREEMENT FOUND AT DELHI MENTIONS PAYMENT OF RS. 30 CRORES, HOW THE SAME AGREEMENT FOUND IN THE PREMISES OF THE ASSESSEE DURING SURVEY FAILS TO MAKE A MENTION OF THE CONSID ERATION PARTED ON THE DATE OF AGREEMENT IS NOT BROUGHT OUT BY THE ASSESSING OFFICER. (C) ANOTHER APPARENT INCONSISTENCY IS THAT IN PARA 3.3 WHILE REFERRING TO SALE DEED EXECUTED ON 12.02.2008 AND R EGISTERED ON 18.04.2008 FOR TRANSFER OF 10 ACRES OF LAND, THE TO TAL SALE CONSIDERATION WAS MENTIONED AT RS. 18 CRORES, I.E., RS. 1.8 CRORE PER ACRE. HOWEVER, IN PARA 3.6, THE ASSESSING OFFIC ER REFERRING TO THE SAME SALE DEED FOUND IN DELHI BRINGS OUT THE SA LE CONSIDERATION TO A 'FURTHER' AMOUNT OF RS.18 CRORES , I.E., RS. 30 CRORES ALREADY PAID ON THE DATE OF EXECUTION OF SAL E AGREEMENT AND ANOTHER AMOUNT OF RS. 18 CRORES ON THE DATE OF REGISTRATION, TOTALING TO RS. 48 CRORES. THE ASSESSEE CONTENDS TH AT EVEN CONSIDERING THAT THE REGISTERED DOCUMENT INDICATE T HAT M/S OMDPL HAD PARTED RS. 48 CRORES FOR PURCHASE OF LAND , THE SAME SHOULD BE CLARIFIED FROM M/S OMDPL AND NOT FROM THE ASSESSEE, WHO IS ONLY A SHARE HOLDER WITH 35% STAKE HOLDING I N M/S OMDPL. WITHOUT ANY VERIFICATION FROM THE ACTUAL PUR CHASER OR FROM THE SELLERS, THE ASSESSING OFFICER CONCLUDED T HAT THE ASSESSEE HAD PAID CONSIDERATION OUTSIDE BOOKS AND A DDED RS. 1214.50 LAKHS. THE APPLICANT FINALLY CONCLUDED THAT WHAT ALL THE MATERIAL REFERRED TO BY THE ASSESSING OFFICER FOR M AKING THE ABOVE ADDITION IS AGREEMENT OF SALE AND REGISTERED SALE DEEDS, INDICATING THAT M/S OMDPL HAD PAID SOME CONSIDERATI ON FOR PURCHASE OF LAND, THEN IT IS OPEN FOR THE DEPARTMEN T TO QUESTION THE PURCHASER AND THE ASSESSEE CANNOT BE SAID TO HA VE PAID ANY ON-MONEY. 7. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E AS WELL AS THE ASSESSMENT ORDER, THE CIT(A) OBSERVED THAT ORDI NARILY, ANY FINDING OF THE ASSESSING OFFICER SHALL BE BASED ON THE MATE RIAL HE POSSESSES AND CONCLUSIONS COULD BE DRAWN EMANATING FROM THE M ATERIAL AVAILABLE. THE AVAILABLE MATERIAL SHOULD INDICATE T HE COURSE OF CONCLUSION THAT CAN BE DRAWN. HE NOTED THAT FROM TH E ASSESSMENT ORDER, AO HAD COME TO A CONCLUSION FIRST AND THEN B ROUGHT IN THE AVAILABLE MATERIAL TO FIT INTO THE ALREADY DRAWN CO NCLUSION - CONCLUSION PRECEDING THE AVAILABLE MATERIAL. CIT(A) OBSERVED T HAT WHATEVER MATERIAL WAS FOUND IN POSSESSION OF THE ASSESSEE AB OUT THE LAND TRANSACTION WAS NOT CONSIDERED AS INCRIMINATING BUT THE MATERIAL FOUND 6 ITA NO. 367/H/13 M/S MAHESWARI MEGA VENTURES LTD. FROM THE PREMISES OF M/S SHIV-VANI GROUP AT NEW DEL HI WAS FOUND TO BE INCRIMINATING AND THE ASSESSEE WAS CONFRONTED WI TH SUCH MATERIAL FOUND AT NEW DELHI. AS CONTENDED BY THE ASSESSEE, T HIS MATERIAL HAS TO BE FIRST CLARIFIED FROM THE PARTIES DIRECTLY INV OLVED IN THE TRANSACTION, I.E., M/S OMDPL AND THE VENDORS. HOWEV ER, NO EFFORT APPEARS TO HAVE BEEN MADE IN THIS DIRECTION. ANY AD VERSE CONCLUSION FROM A TRANSACTION AGAINST OUTSIDE PARTIES, IN WHAT EVER WAY THESE OUTSIDE PARTIES WERE CONNECTED WITH THE MAIN PARTIE S CONCERNED TO THE TRANSACTION, SHOULD ORIGINATE FROM AN INDEPENDENT E NQUIRY BEING CARRIED OUT, WHICH WAS MISSING IN THE CASE ON HAND. THE ASSESSING OFFICER HAD SIMPLY CONCLUDED THAT THE ASSESSEE HAD PAID CONSIDERATION OUTSIDE BOOKS FOR PURCHASE OF LAND IN THE NAME OF A COMPANY, IN WHICH THEY HAD 35% STAKE HOLDING, ON TH E BASIS OF SOME SCRIBBLING MADE BY OTHER PARTIES AND LINKING THEIR COMMON INTERESTS/ SHARE HOLDING RATIOS IN COMPANIES. HE OBSERVED THAT NO MATERIAL EVIDENCE WAS BROUGHT OUT TO HOLD THAT THE ASSESSEE HAD ACTUALLY INVESTED MONEY IN THE SHARE HOLDING OF M/S OMDPL OU TSIDE BOOKS OR ACTUALLY PAID CONSIDERATION TO THE VENDORS OF LAND ON BEHALF OF M/S OMDPL. IN VIEW OF THE ABOVE OBSERVATIONS MADE, THE CIT(A) HELD THAT THE ADDITION OF RS. 12,14,50,000/- MADE CANNOT BE SUSTAINED AND THE ASSESSING OFFICER WAS DIRECTED TO DELETE THE AD DITION SO MADE. 8. LD. DR SUBMITTED THAT AO HAD ESTABLISHED THAT ON MONEY WAS PAID IN THIS TRANSACTION AND HE HAD RIGHTLY CHARGED IN THE HANDS OF ASSESSEE, AS THE ASSESSEE BEING ONE AMONG THE SHARI NG PARTIES AND HAVING SUBSTANTIAL INTEREST IN THE TRANSACTION. ALL THE STAKE HOLDERS ARE CLOSELY INVOLVED. HE SUPPORTED THE FINDINGS OF THE AO. 9. LD. AR SUBMITTED THAT AS PER THE DOCUMENT SEIZED DURING THE SEARCH PROCEEDINGS IN THE CASE OF M/S SHIV-VANI GRO UP, THERE IS NO MENTION OF THE ASSESSEES NAME ANYWHERE IN THE HAND WRITTEN NOTE (REFER PAGE 55 OF PAPER BOOK). IN ABSENCE OF ANY SU CH LINK, IT IS WRONG TO BRING THE ASSESSEES INVOLVEMENT IN THOSE TRANSA CTIONS. IT IS 7 ITA NO. 367/H/13 M/S MAHESWARI MEGA VENTURES LTD. CONTENDED THAT THE ASSESSEES NAME WAS INVOLVED IN THOSE TRANSACTIONS MERELY BECAUSE ASSESSEE IS HOLDING 35% SHARE HOLDING IN M/S OMDPL. OTHERWISE, THERE IS NO OTHER EVIDENCE TO SHOW THAT ASSESSEE HAD ACTUALLY INVOLVED IN THOSE TRANSACTION S. HE RELIED ON THE DECISION IN THE CASE OF CIT VS. SALORA INTERNATIONA L LTD., [2016] 386 ITR 58(DELHI). 10. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. AS UNDERSTOOD FROM THE FACTS, DURING THE SURVEY AN AGREEMENT OF SALE WAS FOUND IN THE BUSINESS PREMISE S OF THE ASSESSEE, AS PER WHICH, M/S OMDPL PROPOSED TO BUY L AND FROM 11 VENDORS. IN THE ABOVE COMPANY, THE ASSESSEE IS HOLD ING 35% OF SHARES. IN A SEPARATE SEARCH PROCEEDINGS IN DELHI, SIMILAR AGREEMENT OF SALE WAS FOUND IN THE PREMISES OF M/S SHIV-VANI GROUP, WHICH IS HAVING INTEREST IN M/S METRO MANAGEMENT SERVICES PV T. LTD. (MMSPL). M/S MMSPL IS HOLDING 65% SHARES IN M/S OMD PL. THE AO BROUGHT TO TAX THE ON MONEY PAYMENT WHICH WAS MADE BY M/S OMDPL TO THE LAND OWNERS BASED ON THE SHAREHOLDERS IN M/S OMDPL. AO FAILED TO APPRECIATE THAT COMPANY IS AN INDEPENDENT ENTITY AND DISTINCT PERSON. THE ACTION OF THE COMPANY WILL NOT HAVE ANY BEARING ON THE SHAREHOLDERS. AO HAS NO JURISDICTION TO CHAR GE ANYTHING IN THE CASE OF ASSESSEE OVER THE DEALINGS OF ANY OTHER PER SON. IT IS BROUGHT ON RECORD THAT ON MONEY WAS PAID IN THE DEALINGS BY M/S OMDPL TOWARDS THE PURCHASE OF LAND, IF AT ALL ANY ADDITIO N CAN BE MADE, IT CAN BE IN THE HANDS OF M/S OMDPL AND NOT IN THE HA NDS OF THE ASSESSEE. IT IS MISCONCEIVED IDEA TO CHARGE PAYMENT OF ON MONEY TO THE SHAREHOLDERS OF THE COMPANY, IN WHICH COMPANY E NTERED IN THE TRANSACTION. WE CANNOT ACCEPT AND APPRECIATE THE AC TION OF THE AO. ACCORDINGLY, WE UPHOLD THE FINDINGS OF THE CIT(A) I N THIS REGARD AND DISMISS THE GROUND RAISED BY THE REVENUE. 11. AS REGARDS THE DISALLOWANCE OF EXPENDITURE AMOU NTING TO RS. 29,90,050/- UNDER SECTION 69C OF THE ACT, THE ASSES SING OFFICER 8 ITA NO. 367/H/13 M/S MAHESWARI MEGA VENTURES LTD. REFERRED TO IMPOUNDED MATERIAL ANNEXURE-3, PAGE 32, WHEREIN CERTAIN PAYMENTS TO VARIOUS VENDORS/ PROVISIONS LIKE MILK, WATER, VEGETABLES WERE NOTED. THE TOTAL OF SUCH PAYMENTS WAS RS. 29,9 0,050/-. THE ASSESSING OFFICER HELD THAT AS THESE EXPENSES WERE NOT RECORDED IN THE BOOKS, HENCE, THE SAME WERE TREATED AS UNEXPLA INED EXPENDITURE UNDER SECTION 69C OF THE ACT. 12. ON APPEAL BEFORE THE CIT(A), THE ASSESSEE SUBMI TTED THAT THE NOTINGS IN THE IMPOUNDED PAPER DO NOT BELONG TO THE IR BUSINESS AND THEREFORE THE ADDITION CANNOT BE MADE IN THEIR HAND S. 13. THE CIT(A) OBSERVED THAT THE ASSESSING OFFICER HAD NOT BROUGHT ON RECORD HOW THE CONTENTS OF PAGE 32 WERE CONNECTE D WITH THE ASSESSEE, EXCEPT STATING THAT THIS WAS FOUND DURING SURVEY. NO STATEMENT OR CONFIRMATION WAS OBTAINED FROM THE ASS ESSEE / ITS DIRECTORS ABOUT THE VERACITY OF THE EXPENSES WRITTE N. FURTHER, HE OBSERVED THAT WITHOUT PROVING THAT THE ASSESSEE HAD ACTUALLY INCURRED SUCH EXPENSES, BASED ON SOME ROUGH PAPERS IT CANNOT BE SAID THAT THE ASSESSEE HAD INCURRED EXPENDITURE ON PROVISIONS , MILK, WATER, VEGETABLES, ETC., TO THE TUNE OF RS. 29,90,050/-. T HE CIT(A) OBSERVED THAT IN THE ASSESSMENT ORDER ALSO, NO REASON WHATSO EVER WAS ADDUCED FOR LINKING THE SAID EXPENDITURE TO THE BUS INESS OF THE ASSESSEE OR FOR THAT MATTER THAT THE ASSESSEE HAD A CTUALLY INCURRED SUCH EXPENDITURE ON THESE ITEMS. THEREFORE, THE CIT (A) DIRECTED THE AO TO DELETE THE ADDITION OF RS. 29,90,0501- TREATE D AS UNEXPLAINED EXPENDITURE. 14. LD. DR RELIED ON THE FINDINGS OF AO. 15. LD. AR SUBMITTED THAT THERE IS NO EVIDENCE TO S HOW THAT ASSESSEE HAD ACTUALLY INCURRED THE ABOVE EXPENDITUR E AND THESE ARE NOT IN THE NATURE OF EXPENDITURE IN WHICH THE ASSES SEE IS NORMALLY DEALING WITH. 9 ITA NO. 367/H/13 M/S MAHESWARI MEGA VENTURES LTD. 16. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. AO HAS NOT BROUGHT ANY COGENT MATERIAL TO PROVE THAT ASSESSEE HAS ACTUALLY INCURRED THESE EXPENSES EXCEP T FINDING LOOSE SHEET IN THE PREMISES IN WHICH SUCH DETAILS WERE RE CORDED. WE ARE INCLINED TO ACCEPT THE FINDINGS OF LD. CIT(A). ACCO RDINGLY GROUND RAISED BY THE REVENUE IS DISMISSED. 17. AS REGARDS THE DISALLOWANCE OF RS. 3,78,875/- UNDER SECTION L4A READ WITH RULE 8D, THE AO OBSERVED THAT THE ASS ESSEE INVESTED HUGE AMOUNTS AS SHARE CAPITAL IN DIFFERENT COMPANIE S OUT OF BORROWED FUNDS AND INTEREST OF RS. 69,07,096/- WAS DEBITED A S INTEREST ON THESE LOANS. ACCORDINGLY, THE ASSESSING OFFICER HAD WORKE D OUT THE DISALLOWANCE UNDER SECTION L4A READ WITH RULE 8D AN D DISALLOWED AN AMOUNT OF RS. 3,78,878/-. 18. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT (I) THE SAID INVESTMENTS WERE NOT MADE DURING THE YEAR UNDER CON SIDERATION AND WERE ACCUMULATED OVER A PERIOD OF TIME, (II) IN THE ABSENCE OF ANY EXEMPTED INCOME, THE PROVISIONS OF 14A CANNOT BE IN VOKED, (III) THEY HAVE RESERVES OF AROUND 603.48 CRORES AS AGAINST T HE INVESTMENTS OF RS. 7.27 CRORES MADE AND THEREFORE, WITHOUT PROVING THE NEXUS BETWEEN THE LOANS OBTAINED AND THE INVESTMENTS MADE , THE PROVISIONS OF SECTION 14A CANNOT BE INVOKED FOR MAKING DISALLO WANCE OF INTEREST. THE ASSESSEE ALSO RELIED ON A NUMBER OF CASE LAWS O N THIS ISSUE. 19. THE CIT(A) OBSERVED THAT THE SUBMISSIONS OF THE ASSESSEE WERE AGREEABLE AND N NEXUS BETWEEN THE FUNDS BORROWED AN D THE FUNDS INVESTED BY THE ASSESSEE WAS BROUGHT OUT BY THE ASS ESSING OFFICER. THEREFORE, HE DIRECTED THE ASSESSING OFFICER TO DEL ETE THE ADDITION MADE. 20. LD. DR RELIED ON THE FINDINGS OF AO. 10 ITA NO. 367/H/13 M/S MAHESWARI MEGA VENTURES LTD. 21. LD. AR SUBMITTED THAT ASSESSEE HAD NOT EARNED A NY EXEMPT INCOME AND IN THE ABSENCE OF ANY EXEMPT INCOME, PRO VISIONS OF SECTION 14A CANNOT BE APPLIED. MOREOVER, THE ASSES SEE HAD INCURRED FINANCIAL CHARGES ON THE WORKING CAPITAL LOAN AND N O PORTION OF WORKING CAPITAL LOAN WAS DIVERTED. 22. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. AS PER THE P&L ACCOUNT AND BALANCE SHEET SUBMITTED BEFORE US, THE ASSESSEE HAD NOT EARNED ANY EXEMPT I NCOME. THE PROVISIONS OF SECTION 14A WILL BE APPLIED TO FIND T HE EXPENDITURE RELATING TO EXEMPT INCOME. IN THE ABSENCE OF SUCH E XEMPT INCOME, NO EXPENDITURE CAN BE DISALLOWED IN RELATION TO EXEMPT INCOME. ACCORDINGLY, WE UPHOLD THE DECISION OF CIT(A) AND D ISMISS THE GROUND RAISED BY THE REVENUE. 23. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. PRONOUNCED IN THE OPEN COURT ON 3 RD FEBRUARY, 2017. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHM AN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 3 RD FEBRUARY, 2017 KV COPY TO:- 1) DCIT/ACIT, CIRCLE - 16(2), 7 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD 2) M/S MAHESWARI MEGA VENTURES LTD., 4-1-833, 3 RD FLOOR, MPM MALL, ABIDS, HYD. 3) CIT(A) - V, HYDERABAD 4 CIT IV, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE