Dy.CIT, Circle-1(2), Hyderabad V. M/s Dakshin Infocomm Projects Private Limited, Hyderabad

ITA 392/HYD/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6055 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-08-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 26-03-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A SITARAMA RAO
• Assessee Lawyers: V SIVA KUMAR
• Keywords: Tax effect; Reason to believe; Revenue expenditure
• Section: 40A(3); 133A; 148; 28

Judgement Text

ITA NO 392 OF 2013 DAKSHIN INFOCOMM PROJE CTS P LTD HYDERABAD PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.392/HYD/2013 (ASSESSMENT YEAR: 2007-08) DY. COMMISSIONER OF INCOME TAX, CIRCLE 17(1) HYDERABAD VS M/S. DAKSHIN INFOCOMM PROJECTS PRIVATE LIMITED HYDERABAD PAN: AACCD 5118 R FOR REVENUE: SHRI A. SITARAMA RAO, DR FOR ASSESSEE: SHRI V. SIVA KUMAR O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS REVENUES APPEAL FOR THE A.Y 2007-08. IN THI S APPEAL, THE REVENUE HAS RAISED THE FOLLOWING GROUND S OF APPEAL: 1. THE ORDER OF THE LEARNED CIT (A) IS ERRONEOUS IN LAW AND ON FACTS OF THE CASE. 2. THE LEARNED CIT (A) ERRED IN DELETING THE ADDITION MADE TOWARDS NON-REFUNDABLE ADVANCE OF RS.3,50,00,000/- RECEIVED BY THE ASSESSEE WHICH IS SUPPORTED BY THE MOU ENTERED INTO BY THE ASSESSEE WITH M/S MANTRI DEVELOPERS (P) LTD ON 8.3.2006. 3. THE LEARNED CIT (A) ERRED IN DELETING THE ADDITION MADE U/S 40A(3) ON THE GROUND THAT THE PAYMENTS IN QUESTION ARE CAPITALIZED AND CANNOT BE CONSIDERED AS REVENUE EXPENDITURE DISREGARDING THE FACTS BROUGHT OUT BY THE AO. DATE OF HEARING : 18.08.2016 DATE OF PRONOUNCEMENT : 28.10.2016 ITA NO 392 OF 2013 DAKSHIN INFOCOMM PROJE CTS P LTD HYDERABAD PAGE 2 OF 7 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY DID NOT FILE ITS RETURN OF INCOME FOR THE RELEVANT A.Y. THE COMPANY WAS INITIALLY INCORPORATED FOR I.T. INFRASTRUCTURE DEVELOPMENT PROJECTS, BUT DUE TO INSUFFICIENT FUNDS, THE COMPAN Y WAS ACTING AS A FACILITATOR BETWEEN THE LAND OWNERS AND DEVELOPER S DURING THE RELEVANT FINANCIAL YEAR. DURING THE COURSE OF SURVE Y OPERATION U/S 133A OF THE ACT IN THE CASE OF M/S DAKSHIN INFRASTR UCTURE PVT. LTD, A SISTER CONCERN OF THE ASSESSEE AND AS THE AS SESSEE WAS ALSO OPERATING FROM THE SAME BUSINESS PREMISES, IT WAS F OUND THAT THE ASSESSEE COMPANY HAD ENTERED INTO A DEVELOPMENT AGR EEMENT WITH M/S MANTRI DEVELOPERS ON BEHALF OF SOME OF THE LAND OWNERS AND AS PER THE MOU, THE ASSESSEE COMPANY AND THE LA ND OWNERS WERE TO GET NON REFUNDABLE SECURITY DEPOSIT OF RS.5 0,000 PER ACRE AS CONSIDERATION. 3. SINCE, IN VIEW OF THE ABOVE, THERE WAS A REASON TO BELIEVE THAT THE INCOME CHARGEABLE TO TAX HAS ESCAP ED THE ASSESSMENT, THE AO ISSUED A NOTICE U/S 148 OF THE A CT DATED 31.08.2009. IN RESPONSE TO THE SAID NOTICE, THE ASS ESSEE FILED ITS RETURN OF INCOME ON 22.09.2009 DECLARING TOTAL INCO ME OF RS. NIL. DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143 (3) R.W.S. 147 OF THE ACT, THE ASSESSEE COMPANY WAS ASKED TO S HOW CAUSE AS TO WHY THE NON REFUNDABLE SECURITY DEPOSIT OF RS.50 ,000 PER ACRE RECEIVED BY THE ASSESSEE ALONG WITH THE LAND OWNERS SHOULD NOT BE TREATED AS INCOME OF THE ASSESSEE. ASSESSEE, VIDE L ETTER DATED 16.12.2010 SUBMITTED THAT THE ASSESSEE COMPANY HAS ENTERED INTO AN AGREEMENT DATED 6.3.2006 WITH M/S MANTRI DE VELOPERS FOR DEVELOPMENT OF THE PROJECT AND THE CONSIDERATION FO R THE SERVICES OF THE ASSESSEE WAS TO BE PAID IN FUTURE IN THE FOR M OF BUILT UP AREA WHICH WILL BE HANDED OVER TO THE ASSESSEE AFTE R COMPLETION OF ITA NO 392 OF 2013 DAKSHIN INFOCOMM PROJE CTS P LTD HYDERABAD PAGE 3 OF 7 THE ENTIRE PROJECT IN ALL RESPECTS AND THEREFORE, T HE AMOUNT RECEIVED BY THE ASSESSEE IS NOT THE INCOME OF THE A SSESSEE. FURTHER, THE ASSESSEE HAS ALSO SUBMITTED THAT THESE TERMS WERE FURTHER REVISED VIDE LETTER DATED 22.06.2006 AND TH EREFORE, IT CANNOT BE TREATED AS AN ASSESSEES INCOME FOR THE R ELEVANT A.Y. AO, HOWEVER, OBSERVED THAT THE MOU DATED 6.3.2006 A S WELL AS THE REVISED TERMS DATED 22.06.2006 ARE NOT REGISTER ED DOCUMENTS AND THEREFORE, ARE NOT LEGALLY ENFORCEABLE. FURTHER, THE AO ALSO OBSERVED THAT THE ASSESSEE HAS NOT PLAYED ANY ROLE IN RESPECT OF PAYMENTS TO THE LANDLORDS/LAND OWNERS AS THE DEVELO PER HAS PAID DIRECTLY PAID TO THE LANDLORDS. THEREFORE, THE AMOU NT OF RS.3,35,00,000 RECEIVED BY THE ASSESSEE IS TREATED AS PAYMENT MADE IN ACCORDANCE WITH THE MOU DATED 6.3.2010 AS N ON REFUNDABLE SECURITY DEPOSIT AND THE AO HELD THAT TH E ASSESSEE IS INTENTIONALLY SHOWING THE AMOUNT AS A LIABILITY INS TEAD OF INCOME FOR AVOIDING THE TAX EFFECT. SHE ACCORDINGLY BROUGH T THE SUM OF RS.3,35,00,000 TO TAX U/S 28 OF THE ACT. 4. FURTHER, THE AO ALSO OBSERVED THAT THE ASSESSEE H AD MADE PAYMENTS IN CASH OF ABOVE RS.20,000 TO THE TUN E OF RS.36,00,000 TO ONE SHRI P. DAYAKAR TOWARDS SITE DE VELOPMENT. THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF CA SH PAYMENT OF ABOUT RS.36,00,000 WHICH THE ASSESSEE FURNISHED ALO NG WITH A FEW ORIGINAL DEBIT VOUCHERS FOR THE EXPENSES INCURR ED. ON VERIFICATION OF THE SAME, THE AO NOTICED THAT ONLY FEW DEBIT VOUCHERS WERE SIGNED AND ALMOST ALL OF THE DEBIT VO UCHERS WERE UNSIGNED AND SELF-MADE. THE ASSESSEE ALSO EXPRESSE D ITS INABILITY TO PRODUCE THE DETAILS OF THE EXPENDITURE IN THE DE BIT VOUCHERS AND DETAILS OF PAYMENTS OF ABOVE RS.20,000. IN VIEW OF THE SAME, THE AO DISALLOWED THE SUM OF RS.36,00,000 U/S 40(A) (3). ITA NO 392 OF 2013 DAKSHIN INFOCOMM PROJE CTS P LTD HYDERABAD PAGE 4 OF 7 5. AGAINST THESE ADDITIONS, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) WHO ALLOWED THE SAME AND AGAINST THE ORDER OF THE CIT (A), THE REVENUE IS IN APPEAL BEFO RE US. 6. AS REGARDS THE ADDITION OF THE SUM OF RS.3,35,00 ,000, THE CIT (A) HELD THAT IT IS NOT THE INCOME OF THE A SSESSEE, BUT IS ONLY A REFUNDABLE SECURITY DEPOSIT AND HENCE NOT SU STAINABLE. AS REGARDS THE DISALLOWANCE U/S 40(A)(3), HE OBSERVED THAT THE ASSESSEE NEVER CLAIMED THE AMOUNT AS EXPENDITURE IN ITS P&L A/C, THEREFORE, THE DISALLOWANCE U/S 40(A)(3) ALSO IS NO T SUSTAINABLE. 7. AS FAR AS THE DISALLOWANCE U/S 40(A)(3) IS CONCE RNED, THE LEARNED DR SUPPORTED THE ORDER OF THE AO. AS RE GARDS DELETION OF THE ADDITION OF RS.3,35,00,000 IS CONCERNED, THE LEARNED DR SUBMITTED THAT THE ASSESSEE HAS RECEIVED A SUM OF RS.3,35,00,000 AS PER CLAUSE (IV) OF THE MOU DATED 6.3.2006 AND THAT THE DEVELOPER HAS ALSO NOT MADE THE PAYMENTS T O THE LANDLORDS THROUGH THE ASSESSEE, BUT HAS PAID THE PA YMENTS DIRECTLY. AS PER THE SAID CLAUSE, THE LANDLORDS AND THE ASSESSEE, (THE FACILITATOR), WERE TO RECEIVE RS.75.00 LAKHS A ND RS.50.00 LAKHS PER ACRE AS REFUNDABLE AND NON REFUNDABLE SECURITY DEPOSITS RESPECTIVELY AND THE ASSESSEE WAS TO RETAIN THE DIF FERENCE OF THE AMOUNT AFTER MAKING PAYMENT TO THE LANDLORDS AS PER THE AGREEMENT BETWEEN THE ASSESSEE AND THE LANDLORDS BU T ACCORDING TO THE LEARNED DR, THOUGH THE DEVELOPER HAD AGREED TO MAKE THE ENTIRE PAYMENT TO THE ASSESSEE AND THE ASSESSEE WAS REQUIRED TO MAKE THE PAYMENT TO THE LANDLORDS AS PER THEIR AGRE ED TERMS, IN EFFECT, THE DEVELOPER HAS PAID DIRECTLY TO THE LAND LORDS AND THE ITA NO 392 OF 2013 DAKSHIN INFOCOMM PROJE CTS P LTD HYDERABAD PAGE 5 OF 7 ASSESSEE SEPARATELY AND THEREFORE, THE RECEIPT IS I NCOME OF THE ASSESSEE. 8. THE LEARNED COUNSEL FOR THE ASSESSEE HOWEVER, RE LIED UPON THE ORDER OF THE CIT (A) AND ALSO DREW OUR ATT ENTION TO THE SUBMISSIONS OF THE ASSESSEE BEFORE THE CIT (A), WHE REIN IT WAS STATED THAT THIS AMOUNT WAS RECEIVED BY THE ASSESSE E INDEPENDENTLY FROM THE DEVELOPER AS A TEMPORARY ADV ANCE AND THE SAME IS REFLECTED AS SUCH IN THE BOOKS OF THE PARTI ES. THUS, ACCORDING TO HIM, THE INTENTION OF THE PARTIES IS C LEAR THAT THE PAYMENT IS NOT IN ACCORDANCE WITH THE MOU BUT IS A LIABILITY IN THE HANDS OF THE ASSESSEE. 9. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, IT IS SEEN THAT AS PER THE MOU, THE CONS IDERATION TO BE RECEIVED BY THE ASSESSEE FOR ITS SERVICES, IS IN TH E FORM OF CONSTRUCTED AREA. FROM THE READING OF THE RELEVANT C LAUSE, IT IS SEEN THAT THE ASSESSEE IS NOT TO BE PAID REFUNDABLE OR NON REFUNDABLE SECURITY DEPOSITS. IT IS THE LANDLORDS W HO ARE RECEIVING THE REFUNDABLE AND NON REFUNDABLE SECURITY DEPOSITS FOR TRANSFER OF THEIR LAND FOR DEVELOPMENT. THOUGH WE AGREE WITH THE CONTENTION AND THE FINDINGS OF THE CIT (A) THAT CLA USE (IV) OF THE MOU HAS NOT BEEN STRICTLY ACTED UPON, WE ALSO FIND THAT IT IS NOT DISPUTED THAT THE LANDLORDS HAVE BEEN PAID DIRECTLY BY THE DEVELOPER AND THE ASSESSEE HAS ALSO BEEN PAID A SUM OF RS.3,35,00,000. IT IS ALSO THE CASE OF THE ASSESSEE THAT THIS SUM OF RS.3.35 CRORES IS TO BE REFUNDED TO THE DEVELOPER A ND ON FAILURE TO REFUND, IT IS TO BE ADJUSTED AGAINST THE BUILT UP A REA TO BE RECEIVED BY THE ASSESSEE. ON A QUERY BY THE BENCH, IT WAS CL ARIFIED THAT THE ALLEGED REFUNDABLE DEPOSIT WAS NOT REFUNDED AS THE PROJECT GOT ITA NO 392 OF 2013 DAKSHIN INFOCOMM PROJE CTS P LTD HYDERABAD PAGE 6 OF 7 MIRED IN CONTROVERSIES AND THE ASSESSEE WAS REQUIRE D TO SETTLE THE CONTROVERSIES. 10. THE LEARNED COUNSEL FOR THE ASSESSEE HAD DRAWN OUR ATTENTION TO THE LETTERS WRITTEN BY M/S. MANTRI DEV ELOPERS TO THE ASSESSEE, BRINGING TO THE ASSESSEES NOTICE, THE CO NTROVERSIES THAT HAVE ARISEN IN THE PROJECT AND THEREFORE, THERE IS MODIFICATION OF THE PAYMENT SCHEDULE. HOWEVER, THERE IS NO BASIS F OR THE FINDING OF CIT (A) THAT THE AMOUNT RECEIVED BY THE ASSESSEE IS A REFUNDABLE SECURITY DEPOSIT. CIT (A) HAS RELIED UPO N THE FACT THAT THE ASSESSEES AS WELL AS THE DEVELOPERS HAVE SHOWN THIS AMOUNT AS WORK-IN-PROGRESS OR ADVANCES/DEPOSITS IN THEIR B OOKS OF ACCOUNT, TO HOLD AS ABOVE. WE FIND THAT THE ASSESSE E WAS TO RECEIVE THE CONSIDERATION FOR ITS SERVICES AND AS P ER THE MOU, THE ASSESSEE WAS TO RETAIN ITS CONSIDERATION IN ACCORDA NCE WITH THE TERMS OF AGREEMENT WITH THE LANDLORDS FROM THE REFU NDABLE AND NON-REFUNDABLE DEPOSIT TO BE PAID BY M/S. MANTRI DE VELOPERS TO THE ASSESSEE. THOUGH, THE PAYMENT WAS NOT ROUTED TH ROUGH THE ASSESSEE, THE OTHER TERMS OF THE MOU WERE ACTED UPO N AND THE PAYMENTS WERE MADE TO THE LANDLORDS AND THE ASSESSE E INDEPENDENTLY. WHETHER THE RECEIPT OF THE SUM OF RS .3,35,00,000 IS FOR THE SERVICES RENDERED BY THE ASSESSEE TO M/S . MANTRI DEVELOPERS FOR FACILITATING THE ACQUISITION OF THE LAND FOR THEIR PROJECT OR IS IT A TEMPORARY ADVANCE AS CLAIMED BY THE ASSESSEE HAS NOT BEEN VERIFIED BY THE CIT (A). THE MOU HAD B EEN ENTERED INTO IN THE FINANCIAL YEAR 2006-07 AND BY NOW THE F ATE OF THE PROJECT WOULD BE KNOWN I.E. WHETHER THE PROJECT IS COMPLETED AND WHETHER THE ASSESSEE HAS RECEIVED THE CONSTRUCTED A REA OR THIS SUM HAS BEEN ADJUSTED TOWARDS SUCH CONSTRUCTED AREA . IF THE ASSESSEE HAS RECEIVED THE CONSTRUCTED AREA AS AGREE D TO AS WELL ITA NO 392 OF 2013 DAKSHIN INFOCOMM PROJE CTS P LTD HYDERABAD PAGE 7 OF 7 AS, THE SUM OF RS.3,35,00,000 WHICH HAS BEEN UNDISP UTEDLY NOT REFUNDED BY THE ASSESSEE, THEN THIS RECEIPT WILL HA VE TO BE BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE. ALL THESE FACT S NEED VERIFICATION. THEREFORE, WE DEEM IT FIT AND PROPER TO REMAND THE ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO VER IFY THESE DETAILS AND COMPLETE THE ASSESSMENT ACCORDINGLY 11. AS REGARDS THE DELETION OF THE ADDITION U/S 40( A)(3) OF THE ACT IS CONCERNED, THE LEARNED DR HAS NOT BEEN A BLE TO REBUT THE FINDINGS OF THE CIT (A) THAT THE ASSESSEE HAS N OT CLAIMED THE SAME AS EXPENDITURE AND THEREFORE, IS NOT TO BE DIS ALLOWED. THEREFORE, WE CONFIRM THE FINDINGS OF THE CIT (A) O N THIS ISSUE. 12. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH OCTOBER, 2016. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 28 TH OCTOBER, 2016. VINODAN/SPS COPY TO: 1 DY. COMMISSIONER OF INCOME TAX, CIRCLE 17(1) 6 TH FLOOR, B BLOCK, IT TOWERS, AC GUARDS, HYDERABAD 2 M/S. DAKSHIN INFOCOMM PROJECTS P LTD, 202 METRO R ESIDENCY, RAJ BHAVAN ROAD, SOMAJIGUDA, HYDERABAD 3 CIT (A)-V HYDERABAD 4 CIT 1 HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER