Rama Agarwal, Hyd, Hyderabad V. ITO, Ward - 7(3), Hyderabad, Hyderabad

ITA 401/HYD/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6652 (ITAT-HYDERABAD)
• Duration Of Justice: 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-04-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 04-04-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 10-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R B NAIK
• Assessee Lawyers: K A SAI PRASAD
• Keywords: Business income; Business expenditure; Proportionate interest
• Section: 143(3); 263; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA.NO.401/HYD/2015 ASSESSMENT YEAR 2012-2013 SMT. RAMA AGARWAL, HYDERABAD. PAN AEXPA9470R VS. THE INCOME TAX OFFICER, WARD-7(3), HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. K.A. SAI PRASAD FOR REVENUE : MR. R.B. NAIK DATE OF HEARING : 04.04.2016 DATE OF PRONOUNCEMENT : 07 .04.2016 ORDER PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y. 2012- 2013. IN THIS APPEAL, THE ASSESSEE IS AGGRIEVED BY THE ORDER OF THE CIT UNDER SECTION 263 OF THE I.T. ACT, 1961. 2. THOUGH THE ASSESSEE HAS RAISED GROUND OF APPEAL NO.1 THAT THE ORDER UNDER SECTION 263 PASSED BY THE CIT IS NOT CORRECT EITHER ON FACTS OR ON LAW AN D IN BOTH, THE LD. COUNSEL FOR THE ASSESSEE, MR. K.A. SA I PRASAD, AT THE TIME OF HEARING, SUBMITTED THAT THE ASSESSEE IS NOT PRESSING THIS GROUND OF APPEAL. HE FURTHER SUBMITTED THAT HE IS ONLY SEEKING THE MODIFICATION OF THE 2 ITA.NO.401/HYD/2015 SMT. RAMA AGARWAL, HYDERABAD. DIRECTIONS GIVEN BY THE CIT UNDER SECTION 263 OF TH E I.T. ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, AN INDIVIDUAL AND PROPRIETOR OF M/S. TIRUPATI TRANSPOR T CO., IS ENGAGED IN THE BUSINESS OF TRANSPORT AND ALSO EA RNED INCOME FROM COMMISSION. SHE FILED HER RETURN OF INC OME FOR THE A.Y. 2012-2013 ON 21.09.2012 DECLARING TAXA BLE INCOME OF RS.7,79,210. THE ASSESSMENT WAS THEREAFTE R COMPLETED UNDER SECTION 143(3) OF THE I.T. ACT BY M AKING AN ADHOC DISALLOWANCE OF EXPENDITURE OF RS.1,50,000 ON THE GROUND THAT THE TRANSPORT COMMISSION AMOUNTING TO RS.14,46,000 IS NOT SUPPORTED BY PROPER VOUCHERS OR RECEIPTS. THE TOTAL INCOME WAS THUS COMPUTED AT RS.9,29,210 AND BROUGHT TO TAX. 4. SUBSEQUENTLY, THE CIT BY ASSUMING JURISDICTION UNDER SECTION 263 OF THE ACT, OBSERVED THAT THE ASSESSEE HAS CLAIMED INTEREST EXPENDITURE OF RS.8,69,973 UNDER THE HEAD INCOME FROM OTHER SOURC ES AND SET OFF AGAINST THE BUSINESS INCOME. HE OBSERVE D THAT AS PER THE PROVISIONS OF SECTION 57(III) OF THE I.T . ACT, THE EXPENSES INCURRED WHOLLY AND EXCLUSIVELY BE FOR THE PURPOSE OF EARNING INCOME ONLY IS TO BE ALLOWED AS DEDUCTION AND AS NO INCOME WAS OFFERED AGAINST THE INVESTMENT AND EXPENDITURE INCURRED, INTEREST PAID AND CLAIMED AS EXPENDITURE HAS TO BE DISALLOWED AND BRO UGHT TO TAX. IN VIEW OF THE SAME, NOTICE UNDER SECTION 2 63 WAS 3 ITA.NO.401/HYD/2015 SMT. RAMA AGARWAL, HYDERABAD. ISSUED TO THE ASSESSEE TO SHOW CAUSE AS TO WHY THE ASSESSMENT SHOULD NOT BE REVISED OR SET ASIDE. 5. IN RESPONSE TO THE SHOW CAUSE UNDER SECTION 263 OF THE ACT, THE ASSESSEE, VIDE LETTER DATED 01. 01.2015, EXPLAINED THAT THE EXPENDITURE OF RS.8,69,973 WAS TOWARDS INTEREST PAID UNDER THE HEAD INCOME FROM O THER SOURCES. IT WAS SUBMITTED THAT AFTER SETTING OFF T HE SAME FROM INTEREST RECEIVED, THE NET RESULT UNDER THE HE AD INCOME FROM OTHER SOURCES WAS THE NEGATIVE FIGURE OF RS.8,57,412 WHICH WAS SET OFF FROM THE ASSESSEES I NCOME UNDER OTHER HEADS I.E., INCOME FROM HOUSE PROPERTY AND INCOME FROM BUSINESS. THE ASSESSEE ALSO SEGREGATE D THE INTEREST PAID FOR DIFFERENT PURPOSES AND SUBMITTED THAT THE INTEREST WAS PAID TO DIFFERENT LOAN CREDITORS F OR THE LOANS OBTAINED FROM 2004-05 TO 2012-2013 AND THE BORROWING HAVE BEEN UTILISED FOR ACQUISITION/INVEST MENTS IN ASSETS. IT WAS SUBMITTED THAT THE ASSESSEE HAS I NVESTED A SUM OF RS.33,78,700 DURING THE F.Y. 2005-06 FOR PURCHASE OF LAND AT INDORE AND THE INVESTMENT DURIN G THE DIFFERENT YEARS RANGING FROM F.YS. 2006-07 TO 2010- 2011 WAS TOWARDS RESIDENTIAL HOUSE AT CHAPPAL BAZAAR AND THE TOTAL INVESTMENT IN THIS HOUSE PROPERTY IS RS.71,51 ,070 AND ASSESSEE IS EARNING INCOME FROM HOUSE PROPERTY WHICH IS ALSO OFFERED TO TAX. IT WAS FURTHER SUBMIT TED THAT THE ASSESSEE HAS MADE INVESTMENTS DURING DIFFERENT YEARS RANGING FROM F.Y. 2006-2007 TO F.Y. 2010-2011 TOWAR DS CONSTRUCTION OF RESIDENTIAL COMPLEX AT MANCHIRYAL U NDER THE NAME AND STYLE OF M/S. POONAM BUILDERS AND THE TOTAL 4 ITA.NO.401/HYD/2015 SMT. RAMA AGARWAL, HYDERABAD. INVESTMENT IN THIS COMPLEX IS RS.74,50,000 AND THAT ALL OF THESE WERE REFLECTED BY THE ASSESSEE IN THE RELEVAN T ASSESSMENT YEARS. 6. THE CIT HOWEVER, WAS NOT CONVINCED BY THE ASSESSEES CONTENTIONS AND OBSERVED THAT THE ASSESS EE HAS INCURRED EXPENDITURE FOR PAYMENT OF INTEREST TO WARDS HOUSE PROPERTY AND THEREFORE, THE SAME CANNOT BE ADJUSTED AGAINST BUSINESS INCOME. FURTHER, HE ALSO OBSERVED THAT THE INTEREST ON FUNDS UTILISED FOR IN VESTMENT IN M/S. POONAM BUILDERS SHOULD BE SET OFF AGAINST T HE INCOME OR LOSS ON PROPERTIES AND IN THE INITIAL PER IOD OF CONSTRUCTION, INTEREST SHOULD BE CAPITALIZED. HE FU RTHER DIRECTED THE A.O. TO VERIFY THE GENUINENESS OF THE UNSECURED LOANS TAKEN FROM VARIOUS PERSONS AND ALSO VERIFY WHETHER THE RETURNS WERE FILED AND CONFIRMAT ION LETTERS SUBMITTED BY THEM. HE DIRECTED THE A.O. TO VERIFY AND OBTAIN THE COPY OF THEIR RETURNS WHILE COMPLETI NG THE ASSESSMENT IN THE CASE OF THE ASSESSEE. THUS, THE ASSESSMENT WAS SET ASIDE WITH A DIRECTION TO RE-DO THE SAME AFTER PROPER EXAMINATION AS PER LAW. 7. THE LD. COUNSEL FOR THE ASSESSEE, SUBMITTED THAT THOUGH THE ASSESSEE HAS GIVEN DETAILED SUBMISS IONS BEFORE THE CIT EXPLAINING THE NATURE OF THE INTERES T PAID, THE CIT, WITHOUT VERIFYING THE GENUINENESS OF THE ASSESSEES CLAIM HAS HELD THAT THE INTEREST EXPENDI TURE CLAIMED UNDER THE HEAD INCOME FROM OTHER SOURCES CANNOT BE ADJUSTED AGAINST THE BUSINESS INCOME. THU S, 5 ITA.NO.401/HYD/2015 SMT. RAMA AGARWAL, HYDERABAD. ACCORDING TO HIM, THE ORDER OF THE CIT IS ON AN ERR ONEOUS ASSUMPTION, AS UNDER SECTION 72 OF THE ACT, THE INC OME FROM ONE HEAD OF INCOME CAN BE ADJUSTED AGAINST INC OME UNDER ANOTHER HEAD OF INCOME. HE FURTHER SUBMITTED THAT THE CIT HAS TRAVELLED BEYOND HIS SCOPE UNDER SECTIO N 263 OF THE ACT BY DIRECTING THE A.O. TO VERIFY THE GENU INENESS OF THE UNSECURED LOANS TAKEN FROM VARIOUS PERSONS F OR INVESTMENT IN RESIDENTIAL COMPLEX CONSTRUCTED BY TH E ASSESSEE IN THE NAME OF POONAM BUILDERS. HE SUBMITT ED THAT THIS WAS NOT A GROUND ON WHICH THE CIT HAD SOU GHT TO REVISE THE ASSESSMENT ORDER AND THEREFORE, HE CO ULD NOT HAVE GIVEN SUCH A DIRECTION. 8. THE LD. D.R. HOWEVER, SUPPORTED THE ORDERS OF THE CIT AND SUBMITTED THAT THE ASSESSMENT ORDER WAS CLEARLY ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND THEREFORE, THE DIRECTIONS OF THE CIT AR E TO BE UPHELD. 9. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE ASSESSMENT ORD ER IS ADMITTED TO BE ERRONEOUS BY THE LD. COUNSEL FOR THE ASSESSEE BEFORE US AS THE A.O. HAS NOT VERIFIED THE CLAIM OF INTEREST EXPENDITURE MADE BY THE ASSESSEE, BUT N OT PREJUDICIAL TO THE INTEREST OF THE REVENUE AS BEFOR E THE CIT, THE ASSESSEE HAD GIVEN DETAILED SUBMISSIONS AN D THE BIFURCATION OF THE INTEREST EXPENDITURE AND THAT TH E INTEREST BELONGED TO VARIOUS EARLIER FINANCIAL YEAR S AND THE ASSESSEE HAD REFLECTED THESE TRANSACTIONS IN THE RE LEVANT 6 ITA.NO.401/HYD/2015 SMT. RAMA AGARWAL, HYDERABAD. ASSESSMENT YEARS AND THEREFORE, THE DIRECTIONS OF T HE CIT ARE CLEARLY WITHOUT VERIFICATION OF FACTS. WE FIND THAT THE DISALLOWED INTEREST EXPENDITURE CONSISTS OF INTERES T PAID ON BORROWINGS FOR ACQUISITION OF LANDED AND RESIDEN TIAL PROPERTY OVER A NUMBER OF YEARS AND THEREFORE, THE PROPORTIONATE INTEREST FOR THE RELEVANT FINANCIAL Y EAR HAS TO BE SET OFF AGAINST THE INCOME FROM HOUSE PROPERT Y FOR THE RELEVANT ASSESSMENT YEAR. THE OTHER COMPONENT O F INTEREST IS, INTEREST PAID ON LOANS TAKEN BY THE AS SESSEE FOR THE FUNDS INVESTED IN CONSTRUCTION OF RESIDENTI AL COMPLEX AT MANCHIRYAL UNDER THE NAME AND STYLE OF M /S. POONAM BUILDERS. THE ASSESSEE ALSO SUBMITTED THAT T HESE INVESTMENTS ARE MADE DURING THE F.YS. 2006-07 TO 20 10- 2011. THEREFORE, THE ENTIRE INTEREST EXPENDITURE CA NNOT BE TREATED AS INTEREST PERTAINING TO THE RELEVANT ASSE SSMENT YEAR. FURTHER, THE INCOME FROM THE SALE OF THE RESI DENTIAL PROPERTIES AT MANCHIRYAL, SHOULD BE OFFERED AND ACC EPTED AS THE BUSINESS INCOME OF THE ASSESSEE AND THEREFOR E, THE INTEREST PAID ON LOANS TAKEN FOR CONSTRUCTION OF RE SIDENTIAL COMPLEX HAS TO BE TREATED AS BUSINESS EXPENDITURE A ND ALLOWED TO BE SET OFF AGAINST THE BUSINESS INCOME. WE FIND THAT THE CIT HAS NOT VERIFIED THE DETAILS AND HAS D IRECTED THE A.O. TO RE-DO THE ASSESSMENT DENOVO. FURTHER, T HE CIT HAS ALSO TRAVELLED BEYOND THE SCOPE OF HIS JURISDIC TION UNDER SECTION 263 BY DIRECTING THE A.O. TO VERIFY T HE GENUINENESS OF THE UNSECURED LOANS ON WHICH THE ALL EGED INTEREST WAS PAID THOUGH THERE WAS NO SUCH REASON F OR INITIATION OF REVISION PROCEEDINGS. THEREFORE, WE M ODIFY THE ORDER OF THE CIT WITH A DIRECTION TO THE A.O. TO RE -CONSIDER 7 ITA.NO.401/HYD/2015 SMT. RAMA AGARWAL, HYDERABAD. THE VERACITY OF THE CLAIM OF THE ASSESSEE AND ALLOW THE INTEREST EXPENDITURE FOR THE RELEVANT ASSESSMENT YE AR UNDER THE RESPECTIVE HEADS IN ACCORDANCE WITH LAW. THE DIRECTION OF THE CIT TO THE A.O. TO VERIFY THE GENU INENESS OF THE LOANS IS THEREFORE QUASHED. 10. IN THE RESULT, THE ORDER OF THE CIT IS MODIFIE D AND ASSESSEES APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 07.04.2016. SD/- SD/- (B. RAMAKOTAIAH) (SMT. P. MADHAVI DEVI) ACOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 07 TH APRIL, 2016 VBP/- COPY TO : 1. SMT. RAMA AGARWAL, HYDERABAD. C/O. MR. CH. PARTHASARATHY & CO. 1-1-298/2/B/3, 1 ST FLOOR, SOWBHAGYA AVENUE, ST. NO.1, ASHOKNAGAR, HYDERABAD 500 020. 2. THE INCOME TAX OFFICER, WARD - 7(3), HYDERABAD. 3. PR. CIT - 3, HYDERABAD. 4. ADDL. CIT, RANGE - 7, HYDERABAD. 5. D.R. ITAT B BENCH, HYDERABAD. 6. GUARD FILE