THE ACIT, CIRCLE - 1, Rajahmundry V. Dr Mullapudi Harischandra Prasad, Tanuku

ITA 46/VIZ/2014

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 6792 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 07-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M BHUPAL REDDY
• Keywords: Business income; Depreciation; Additional evidence; Bad and doubtful debts; Corroborative evidences; Notional interest; Revised return; Reason to believe
• Section: 143(3); 139(5); 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO , HONBLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , HONBLE ACCOUNTANT MEMBER ITA NO. 46 / VIZ /201 4 (ASST. YEAR : 20 0 9 - 1 0 ) ACIT, CIRCLE - 1, RAJAHMUNDRY. V S . DR. MULLAPUDI HARISCHANDRA PRASAD, D.NO. 22 - 11 - 13, KAMADHENU COMPLEX, TCLS ROAD, TANUKU. PAN NO. AACHM 0073 M (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI G.V.N. HARI ADV OCATE . DEPARTMENT BY : SHRI M. BHUPAL REDDY CIT DR DATE OF HEARING : 15 / 0 6 /201 7 . DATE OF PRONOUNCEMENT : 11 / 0 8 /201 7 . O R D E R PER V. DURGA RAO, JUDICIAL MEMBER THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LD.CIT(A) , VISAKHAPATNAM , DATED 29/11/2013 FOR THE ASSESSMENT YEAR 2009 - 10 . 2. FACTS OF THE CASE, IN BRIEF, ARE THAT ASSESSEE IS A HUF , ENGAGED IN THE BUSINESS OF COTTON TRADING, LAND TRA D I NG AND HAVING INCOME FROM FINANCE BUSINESS & ALSO RENTAL INCOME, HAS FILED HIS RETURN OF INCOME FOR THE A SSESSMENT Y EAR UNDER CONSIDERATION B Y DECLARING TOTAL INCOME OF 6,88,47,553/ - AND CLAIMED REFUND OF 92,34,259/ - DATED 30/09/2009 . THE ASSESSEE HAS REVISED THE RETURN FILED ON THE SAME DAY I.E. ON 2 ITA NO. 46 /VIZ/2014 ( DR. MULLAPUDI HARISCHANDRA PRASAD ) 30/09/2009 DECLARING TOTAL INCOME OF 1,81,69,196/ - AND REFUND OF 65,06,808/ - . IT IS TO BE NOTED TH A T IN THE SEC O ND REVISED RETURN, THE ASSESSEE HAD CLAIMED CARRY FORWARD LOSS OF 8,70,16,808 / - AND SOUGHT SET OFF OF ITS BUSINESS INCOME OF 6,84,53,630/ - . IN THE SECOND REVISED RETURN, THE ASSESSEE HAS DECLARED LONG TERM CAPITAL GAINS OF RS.1,81,69,196/ - . THE ASSESSING OFFICER PROCESSED THE FIRST REVISED RETURN ON 26 / 03 / 2011 U/S.143(1) AND RAISED A DEMAND OF RS.1,62,11,937/ - . IN RESPONSE TO THAT , ASSESSEE HA S REQUESTED THE ASSESSING OFFICER TO CONSIDER THE SECOND REVISED RETURN. HOWEVER, THE ASSESSING OFFICER NOTED FROM THE TDS CERTIFICATES THAT ONE M/S.A.P.RAJIV SWA G RUH A CORPORATION LTD. HAS PAID AN AMOUNT OF RS.9.35 CR ORES TO THE ASSESSEE U/S.194 - I , THE ASSESSEE HAS NOT SHOWN THE ABOVE RENTAL INCOME IN THE RETURN OF INCOME FILED ON 30 / 09 / 2009. HENCE, THE ASSESSING OFFICER FORMED A REASON TO BELIEVE THAT RENTAL INCOME HAS ESCAPED ASSESSMENT AND ISSUED NOTICE U/S.148 OF THE ACT . DURING THE ASSESSMENT, AFTER MAKING VE RIFICATION , IT IS NOTED THAT M/S.A. RAJIV SWA G RUHA CORPORATION LTD. HAD DEDUCTED TDS U/S.194 LA AND NOT UNDER SECTION 19 4 - I , AND THE CORRESPONDING INCOME WAS ADMITTED BY THE ASSESSEE. M/S.RAJIV SWAGRUHA CORPORATION LTD. HAD ALSO FILED REVISED TDS CERTIFICATES U/S.194LA. THE ASSESSING OFFICER FURTHER NOTICED THAT CERTAIN DISCREPANCIES IN THE INTEREST OFFERED IN RESPECT OF F INANCE BUSINESS. THE ASSESSING OFFICER FOUND THAT THE 2 ND REVISED RETURN IS NOT VALID AND DID NOT ALLOW THE CARRY FORWARD OF BUSINESS LOSS AND 3 ITA NO. 46 /VIZ/2014 ( DR. MULLAPUDI HARISCHANDRA PRASAD ) DEPRECIATION OF EARLIER YEARS TO BE SET OFF OF AGAINST THE CURRENT YEAR INCOME. THUS , THE ASSESSING OFFICER HAS COMPLETED THE ASSESSMENT BY CONSIDERING THE FIRST REVISED RETURN BY MAKING THE F O LLOWING ADDITIONS: - A) DISALLOWANCE OF ACCRUED INTEREST 3,54,73,780/ - B) CUSTOMERS ADVANCES 44,99,500/ - C) DISALLOWANCE OF INTEREST PAID 5,09,706/ - D) LONG TERM CAPITAL GAIN 1,81,69,196/ - 12,74,99,105/ - 3 . ON BEING AGGRIEVED , THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) . BEFORE THE LD. CIT(A), THE AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS SUBMITTED THAT THE ORIGINAL RETURN DECLARING POSITIVE INCOME OF 6,88,47,553/ - WAS FILED WELL WITHIN THE TIME AS PRESCRIBED UNDER SECTION 139(1) ON 30/09/2009 . THE FIRST REVISED RETURN WAS ALSO FI L ED ON THE SAME DAY. IT WAS POINTED OUT THAT THE SECOND REVISED RETURN WAS FILED ON 21/03/2011 DECLARING CAPITAL GAINS OF RS. 1,81,69,196/ - AND CLAIMING SET OFF OF BUSINESS LOSS OF RS. 6,84,53,631/ - AGAINST CARRY FORWARD OF BUSINESS LOSS OF EARLIER YEARS . IT WAS ALSO POINTED OUT THAT THE ORIGINAL RETURN WAS PROCESSED U / S . 143 ( 1 ) ON 26/03/2011 AND BY THE TIME , THE SECOND REVISED RETURN WAS ALREADY FILED ON THE SAME DAY. IT WAS ALSO SUBMITTED BEFORE THE LD.CIT(A) THAT THE ASSESSEE HAS SATISFIED THE STATUTORY CONDITIONS PRESCRIBED U / S 139(5) IN RESPECT TO FILING OF REVISED RETURN . IT WAS FURTHER CONTENDED BEFORE THE LD.CIT(A) THAT IN ALL THE RETURN S, THE 4 ITA NO. 46 /VIZ/2014 ( DR. MULLAPUDI HARISCHANDRA PRASAD ) ASSESSEE HAS DECLARED POSITIVE INCOME AND IT WAS THE EARLIER YEARS LOSS WHICH WAS SOUGHT TO BE SET OFF IN THE SECOND REVISED RETURN . IT HAS ALSO BEEN CONTENDED THAT THE RETURN OF LOSS FOR THE EARLIER YEARS FILED IN TIME AS PRESCRIBED IN SECTION 139 ( 1 ) AND SUBMITTED THAT THE ASSESSEE IS ENTITLED FOR CLAIM OF SET TING OFF OF THESE LOSSES. 4 . THE LD. CIT(A) AFTER CONSIDERING THE DETAIL ED SUBMISSIONS MADE BY THE ASSESSEE, OBSERVED THAT THE SECOND REVISED RETURN FILED BY THE ASSESSEE DATED 21/03/2011 IS A VALID RETURN AS PER SECTION 139(5) OF THE ACT AND BY CONSIDERING THE SECOND REVISED RETURN, THE LD. CIT(A) ADJUDICATED THE GROUND RAISE D BY THE ASSESSEE. FOR THE SAKE OF CONVENIENCE, THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS UNDER: - 6.7 I HAVE CONSIDERED THE SUBMISSIONS MADE. AT THE OUTSET, IT HAS TO BE SEEN WHETHER THE SECOND REVISED RETURN IS VALID AND IS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 139(5) WHICH PROVIDES AS FOLLOWS: - (5) IF ANY PERSON, HAVING FURNISHED A RETURN UNDER SUB - SECTION (1), OR IN PURSUANCE OF A NOTICE ISSUED UNDER SUB - SECTION (1) OF SECTION 142, DISCOVERS ANY OMISSION OR ANY WRONG STATEMENT THEREIN , HE MAY FURNISH A REVISED RETURN AT ANY TIME BEFORE THE EXPIRY OF ONE YEAR FROM THE END OF THE RELEVANT ASSESSMENT YEAR OR BEFORE THE COMPLETION OF THE ASSESSMENT, WHICHEVER IS EARLIER : PROVIDED THAT WHERE THE RETURN RELATES TO THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 1988, OR ANY EARLIER ASSESSMENT YEAR, THE REFERENCE TO ONE YEAR AFORESAID SHALL BE CONSTRUED AS A REFERENCE TO TWO YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. IN THE INSTANT CASE THE ASSES SEE HAS FILED THE 2 ND REVISED RETURN ON 21.03.2011, WHICH IS WITHIN ONE YEAR FROM THE END OF THE RELEVANT ASSESSMENT YEAR I.E, ON OR BEFORE 31.03.2011, AND BEFORE THE COMPLETION OF ASSESSMENT. IN THE ASSESSEE'S CASE THE PROCESSING OF THE ORIGINAL RETURN WAS DONE ON 26.03.2011, AND BY THAT THE 2 REVISED RETURN WAS ALREADY FILED. THUS IT IS EVIDENT THAT THE 2 ND R EVISED RETURN IS FILED WITHIN THE PERMISSIBLE TIME LIMIT SPECIFIED IN SECTION 139(5) OF THE I.T.ACT. IT IS TO BE NOTED THAT THE PARTICULARS OF INCO ME SHOWN IN THE 2 REVISED NAMELY - INCOME FROM HOUSE PROPERTY OF RS.3,93,982 / - , INCOME FROM ' BUSINESS RS.6,84,53,571/ - REMAIN THE SAME AS IN THE 5 ITA NO. 46 /VIZ/2014 ( DR. MULLAPUDI HARISCHANDRA PRASAD ) INITIAL RETURN FILED. THE MODIFICATION IN THE 2 ND REVISED RETURN ARE (A) THE RETURNING OF CAPITAL GAINS OF RS. 1,81,69,196/ - & (B) SET OFF THE BUSINESS INCOME OF RS.6,84,53,630/ - AGAINST CARRY FORWARD LOSS OF EARLIER YEARS. THUS, APPARENTLY THE ASSESSEE HAS REVISED CERTAIN OMISSIONS AND WRONG STATEMENT MADE IN THE EARLIER RETURNS, AND WHICH WERE WITHIN THE PURVIEW OF SECTION 139(5) OF THE I.T.ACT. 5. ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 6 . THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THE ASSESSEE HAS FILED TWO REVISED RETURNS , ONE IS ON 30/09/20 09 AND ANOTHER ONE IS ON 21/03/2011. THEREFORE, SECOND REVISED RETURN CANNOT BE ACCEPTED. 7 . ON THE OTHER HAND, L EARNED COUNSEL FOR THE ASSESSEE HAS STRONGLY SUPPORTED THE ORDER PASSED BY THE LD. CIT(A). 8 . WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND ORDERS OF THE AUTHORITIES BELOW . 9. THE ASSESSEE HAS FILED HIS RETURN OF INCOME ON 30/09/2009 , ON THE VERY SAME DAY, HE FILED REVISED RETURN . SUBSEQU E NTLY, THE ASSESSEE HAS FILED A SECOND REVISED RETURN ON 21/03/2011 BY CLAIMING CARRY FORWARD LOSS AND SOUGHT FOR SET OFF OF ITS BUSINESS INCOME. IN THE SECOND REVISED RETURN , THE ASSESSEE HAS ALSO DECLARED LONG TERM CAPITAL GAIN. THE ASSESSING OFFICER PROCESSED THE FIRST RETURN ON 26/03/2011 . WE FIND THAT ASSESSEE HAS FILED SECOND REVISED RETURN ON 21/0 3/2011 I . E. B EFORE PROCESSING THE FIRST REVISED RETURN. WE FIND THAT LD. CIT(A) HAS GIVEN CATEGORICAL FINDING THAT THE SECOND REVISED RETURN FILED BY THE ASSESSEE IS WITHIN THE TIME PERMISSIBLE UNDER SECTION 139(5) OF THE ACT. WE ALSO FIND THAT THE ASSESSEE HAS FILED SECOND REVISED RETURN WITHIN THE TIME 6 ITA NO. 46 /VIZ/2014 ( DR. MULLAPUDI HARISCHANDRA PRASAD ) PERMISSIBLE UNDER SECTION 139(5) OF THE ACT. WE FIND THAT THERE IS NO JUSTIFICATION FOR THE ASSESSING OFFICER TO NOT TO CONSIDER THE SECOND REVISED RETURN AND HE HAS ALSO NOT GIVEN ANY VALID REASONS. WE FIND THAT THE LD. CIT(A) BY CONSIDERING THE PROVISIONS OF ACT PARTICULARLY , SECTION 139(5) HELD TH A T SECOND REVISED RETURN FILED BY THE ASSESSEE IS IN TIME . ACCORDINGLY, W E FIND THAT THE VIEW TAKEN BY THE LD. CIT(A) IS IN ACCORDANCE WI TH LAW. THUS, THIS GROUND OF APPEAL RAISED BY THE DEPARTMENT IS DISMISSED. 10 . THE ASSESSING OFFICER HAS ALSO C ONSIDERED THE ISSUE OF CAPITAL GAINS. THE LD. CIT(A) HAS OBSERVED THAT THE ASSESSEE HAS ALRE A DY RETURN ED INCOME ON CAPITAL GAINS OF 1,81,69,196/ - , HENCE, SEPARATE ADDITION MADE BY THE ASSESSING OFFICER TOWARDS CAPITAL GAIN IS SUPERFLUOUS AND DIRECTED TO BE DELETED. WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A). THUS, THIS GROUND OF APPEAL RAISED BY THE DEPARTMENT IS DISMISSED. 11 . THE NEXT GROUND OF APPEAL RAISED BY THE REVENUE RELATING TO SET OFF OF CARRY FORWARD LOSS. 12 THE ASSESSEE HAS CLAIMED SET OFF OF CARRY FORWARD LOSS IN THE ASSESSMENT YEARS 200 1 - 0 2 TO 200 4 - 0 5 TO THE TUNE OF 6,84,53,631/ - A S PER THE DETAILS FILED. THE LD. CIT(A) OBSERVED FROM THE ACKNOWLEDGMENTS THAT , THE RETURN OF INCOME FOR THE ASSESSMENT YEARS 2001 - 02 TO 2004 - 05 FILED IN TIME IN VIEW OF THE PROVISIONS OF SECTION 80 READ WITH SECTION 139(9) OF THE ACT, IT IS HELD THAT THE ASSESSEE WOULD BE ENTITLED TO CARRY 7 ITA NO. 46 /VIZ/2014 ( DR. MULLAPUDI HARISCHANDRA PRASAD ) FORWARD THE LOSSES RELATING TO ASSESSMENT YEARS 2001 - 02 TO 2004 - 05 TO SET OFF OF THE BUSINESS INCOME OF CURRENT YEAR. H O WEVER, THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE CORRECTNESS OF THE DATES OF FILING OF THE RETURN S AND THE AMOUNT OF LOSS RETURNED FOR THOSE Y EARS FROM THE RECORDS AND ALLOW THE RELIEF OF SET OFF OF LOSS IN THE MANNER AS PROVIDED IN SECTION 72 OF THE ACT. HE FURTHER OBSERVED THAT FOR THE ASSESSMENT YEAR S 2004 - 05 , THE LOS S WAS DETERMINED IN THE O RDER PASSED UNDER SECTION 143(3) AT 1,68,06,237/ - ON ACCOUNT OF CERTAIN ADDITIONS, THOUGH THE LOSS CLAIMED IN THE RETURN WAS 4,07,75,218/ - . THE AR REPRESENTED THA T THE ASSESSEE HAS CLAIMED CARRY FORWARD AND SET OFF OF ONLY TO THE TUNE OF 1,68,06,237/ - RELATING TO THE LOSS OF ASSESSMENT YEAR 2004 - 05 , WHICH CLAIM APPEARS TO BE IN ORDER. IT IS ALSO NOTED TH A T FOR ASSESSMENT YEAR 2005 - 06 , THE ASSESSEE HAS FILED THE RETURN OF INCOME ON 01/1 1 /2005 , AS PER THE COPY OF ACKNOWLEDGMEN T FILED , B UT THE DUE DATE WAS 30/10/2005 . H ENCE, ASSESSEE WOULD NOT BE ENTITLED TO CARRY FORWARD OF THIS LOSS. WITH THE ABOVE OBSERVATIONS, THE LD.CIT(A) DISPOSED OF THE ABOVE GROUND RAISED BY THE ASSESSEE BY ALLOWING PARTLY FOR STATISTICAL PURPOSE . 13 THE L EARNED DEPARTMENTAL REPRESENTATIVE HAS NOT RAISED ANY OBJECTION IN RESPECT OF THIS GROUND DECIDED BY THE LD. CIT(A). 14 WE HAVE GONE TH R OUGH THE ABOVE O RDER PASSED BY THE LD. CIT(A). WE FIND THAT LD. CIT(A) AFTER EXAMINING THE BUSINESS LOSS RELATING TO ASSESSMENT YEAR S 2001 - 02 TO 2004 - 05 , DIRECTED TO VERIFY THE 8 ITA NO. 46 /VIZ/2014 ( DR. MULLAPUDI HARISCHANDRA PRASAD ) CORRECTNESS OF THE DATES OF FILING OF THE RETURNS AND THE AMOUNT OF LOSS RETURN FOR THOSE YEARS AND ALLOW THE REL IEF TO SET OFF OF LOSS AS PER SECTION 72 OF THE ACT. WE FIND TH A T LD. CIT(A) CO RRECTLY PASSED THE ORDER BY CONSIDERING THE RELEVANT FACTS. WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A). THUS, WE UPHOLD THE ORDER OF THE LD. CIT(A) AND THIS GROUND OF APPEAL RAISED BY THE DEPARTMENT IS DISMISSED. 15 . THE NEXT GROUND OF APPEAL RELATING TO DISALLOWANCE OF INTEREST ACCRUED OF 3,54,73,780/ - . 16 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE ASSESSING OFFICER CALLED THE ASSESSEE TO EXPLA I N FOR THE LOSS INCURRED BY M/S. VENKATARAYA ENTERPRISES. IN RESPONSE TO THAT, THE ASSESSEE HAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT M/S. VENKATARAYA ENTERPRISES WAS FORMED IN 1997 - 98 AND DOING BUSINESS OF COTTON TRADING, INVESTMENTS IN VARIOUS BUSINESS BY WAY OF ACCEPTING DEPOSITS FROM PUBLIC. THE ASSESSEE DID NOT DO COTTON TRADING IN THE ACCOUNTING YEAR 2008 - 09 . VIDE LETTER DATED 17/09/2012, THE AR HAS SUBMITTED THAT THE LOSS OF 55,61,848/ - INCURRED DURING THE Y E AR IS DUE TO MO N THLY INTEREST CHEQUES PAID TO VARIOUS DEPOSITORS AND OTHER ADMINISTRATIVE EXPENSES INCURRED DURING THE Y E AR , BUT NOT RECEIVED ANY INTEREST INCOME. A LL THE ADVANCES ARE BECAME NON - PERFORMING ASSETS (NPA) . THE EARLIER YEARS INTEREST ALSO NOT RECEIVED SO FAR TILL TODAY, THE ASSESSEE CONSIDERED NOT TO CHARGE INTEREST BECAUSE THE DE BTS ARE BECAME BAD DEBTS , EVEN THE RECEIPT OF PRINCIPAL IS DOUBTFUL OF RECOVERY, 9 ITA NO. 46 /VIZ/2014 ( DR. MULLAPUDI HARISCHANDRA PRASAD ) AND OTHER REASONS THAT ARE MENTIONED ABOVE . THE ASSESSING OFFICER AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE HAS OBSERVED THAT ASSESSEE HAS MADE SUBSTANTIAL ADVANCE S TO HIS SISTER CONCERNS AND HAS NOT ADMITTED ANY INTEREST INCOME FROM SUCH ADVANCES NAMELY ; VENKATARAYA FINANCE COMPANY, VENKATARAYA FINANCIERS, VENKATARAYA CONSRUCTIONS LTD., VENKATARAYA POWER LTD., VENKATARAYA FOODS (P) LTD., DR. MULLAPUDI RENUKA, SREE VENKATARAYA COTTON MILLS (P) LTD., D. KOTESWARA RAO , D.S. KAMALA, VENKATARAYA CONSTRUCTIONS LTD. II, VENKATARAYA FOODS (P) LTD. II, SREE VENKATARAYA CHIT FUND (P) LTD. AND SREE VENKATARAYA CHIT FUND (P) LTD. ACCORDINGLY, THE ASSESSING OFFICER HAS MADE THE ADDITION OF 3,54,73,780/ - ADOPTING INTEREST AT 12% ON THE OUTSTANDING AMOUNT OF 29,56,14,836/ - . 17 ON APPEAL BEFOR E THE LD. CIT(A) , THE ASSESSEE HAS SUBMITTED IN RESPECT OF M/S. VENKATARAYA FINANCE COMPANY WHICH IS PARTNERSHIP FIRM, IT IS NOTED THAT THERE WAS NO FRESH ADVANCES. THE OPENING AND CLOSING BALANCE WAS 2.38 CRORES. IT WAS SUBMITTED THAT THE FIRM HAS NOT FILED RETURN FOR THIS REL E VANT YEAR ON ACCOUNT OF LOSS, AND IT HAS ACCUMULATED LOSS FROM 2000 - 11. 1 7(1) WITH REFERENCE TO M/S. VE NKATARAYA FINANCIERS (A PROPRIETRIX CONCERNS OF THE ASSESSEES WIFE) IT WAS SUBMITTED THAT THE NET ADVANCES MADE DURING THE Y E AR WAS 6,95,127/ - AND INTEREST WAS NOT CHARGED ON THESE ADVANCES. IT WAS REPRESENTED THAT THE ADVANCES WERE MADE TO SETTLE THE AMOUNT TO DEPOSIT HOLDERS OF VENKATARAYA FINANCIERS. IT WAS 10 ITA NO. 46 /VIZ/2014 ( DR. MULLAPUDI HARISCHANDRA PRASAD ) FURTHER SUBMITTED THAT THE CONCERN HAS A NEGATIVE NET WORTH, FOR WHICH COPY OF THE BALANCE SHEET WAS FILED. ON PERUSAL OF THE PROFIT & LOSS ACCOUNT , SHOWED THAT INTEREST WAS NOT DEBITED ON THESE ADVANCES AND ITS LOSS UPTO THE YEAR ENDING 31/03/2008 WAS 2.03 CRORES. 17(2) WITH REFERENCE TO ADVANCE MADE TO M/S. VENKATARAYA CONSTRUCTIONS P. LTD., IT WAS SUBMITTED THAT THERE WAS NO FRESH ADV A NCE MADE DURING THE YEAR. A COPY OF THE ANNUAL REPORT OF THE SAID COMPANY WAS FILED TO SHOW THAT IT HAS ACCUMULATED LOSS OF 25.86 CRORES . A PERUSAL OF THE PROFIT & LOSS ACCOUNT SHOWED THAT IT HAS NOT DEBITED ANY INTEREST TOWARDS THE SAID UNSECURED LOAN. 17(3) WITH REFERENCE TO VENKATARAYA POWER LTD., IT W AS SUBMITTED THAT THERE WAS NO FRESH ADVANCE AND THAT THE OUTSTANDING LOAN WAS 1.18 CRORES . IT WAS ALSO SUBMITTED THAT THE LOAN WAS CONVERTED INTO SHARE CAPITAL IN OCT O BER, 2008, AS THE COMPANY WAS TAKEN OVER BY M/S. SIMHADRI SRINIVAS GROUP . THE PROFIT & LOSS ACCOUNT SHOWED DEBIT OF 9,41,897/ - TOWARDS INTEREST AND IT WAS CLARIFIED VIDE SUBMISSION FILED ON 28/11/2013 THAT IT RELAT ES TO INTEREST DEBITED FOR LOAN AVAILED FROM THE BANK AND NO INTEREST WAS DEBITED ON THE IMPUGNED ADVANCE. 17(4) WITH REFERENCE TO M/S. VENKATARAYA FOODS P. LTD., IT WAS SUBMITTED THAT ADVANCE OF 17,81,540/ - WAS MADE DURING THE YEAR . A COPY OF THE PROFIT & LOSS ACCOUNT OF THE SAID COMPANY WAS FILED TO SHOW THAT IT HAS ACCUMULATED LOSS OF 50,76,654/ - . IT WAS ALSO SEEN TH A T NO 11 ITA NO. 46 /VIZ/2014 ( DR. MULLAPUDI HARISCHANDRA PRASAD ) INTEREST WAS DEBITED IN THE PROFIT & LOSS ACCOUNT TOWARDS INTEREST ON UNSECURED LOAN. 17(5) WITH REFERENCE TO MULLAPUDI RENUKA, IT IS SEEN THAT THE OUTSTANDING BALANCE AS PER THE BOOKS OF ASSESSEE WAS 1,70,15,980/ - AND AS PER THE BOOKS OF MULLAPUDI RENUKA WAS 1,60,40,800/ - . THERE WAS NO FRESH TRANSACTION DURING THE YEAR . AS PER THE PROFIT & LOSS ACCOUNT OF DR. M. RENUKA THE LOSSES FOR THE YEAR WAS 15,67,700/ - AND INTEREST DEBITED IN THE PROFIT & LOSS ACCOUNT WAS 13,76,483/ - . IT WAS CLARIFIED VIDE SUBMISSION FILED ON 28/11/2013 THAT THE INTEREST DEBITED RELATED TO TERM LOAN AND ADVANCE FROM DHANALAKSHMI COTTON SYNDICATE. 17(6) WITH REFERENCE TO VENKATARAYA COTTON MILLS PVT. LTD. , IT WAS SUBMITTED THAT THERE WAS NO FRESH LOAN TRA NSACTION DURING THE Y E AR AND THE AMOUNT OUTSTANDING WAS 32,21,077/ - . THE ANNUAL REPORT OF THE COMPANY WAS FILED TO SHOW ACCUMULATED LOSS OF 44 LAKHS . FROM THE PROFIT & LOSS ACCOUNT, IT IS SEEN THAT THE COMPANY HAS NOT DEBITED ANY INTEREST IN ITS PROF IT & LOSS ACCOUNT TOWARDS LOAN TAKEN FROM DIRECTOR. 17(7) WITH REFERENCE TO M/S. VENKATARAYA CHIT FUND LTD., IT IS SEEN FROM THE COPY OF LEDGER EXTRACT OF THAT COMPANY IT HAS PROVIDED INTEREST AT 12.50% AMOUNTING TO 1,30,625/ - . 1 8 . AFTER CONSIDERING THE ABOVE , THE LD. CIT(A) HAS OBSERVED THAT IT COULD BE SEEN THAT THE FRESH ADVANCES WERE MADE ONLY IN THE CASE OF VENKATARAYA FINANCIERS & VENKATARAYA FOODS PVT. LTD. FURTHER , THE SISTER CONCERNS HAVE ALSO NOT DEBITED INTEREST ON THE LOANS RECEIVED BY 12 ITA NO. 46 /VIZ/2014 ( DR. MULLAPUDI HARISCHANDRA PRASAD ) THEM EXCEPT IN THE CASE OF VENKATARAYA CHIT FUND PVT. LTD. ALL THE SISTER CONCERNS HAVE SHOWN CONSIDERABLE LOSSES EXCEPT VENKATARAYA POWER LTD., AND VENKATARAYA CHIT FUNDS PVT. LTD. IN THE ABOVE FACTUAL BACK - GROUND, THE LD. CIT(A) FIND TH A T THE ASSESSING OFFICER IS JUSTIFIED IN CHARGING INTEREST IN THE CASE OF VENKATARAYA CHIT FUNDS P. LTD. AND INTEREST SHALL BE BROUGHT TO TAX OF 1,30,625/ - . IN ALL OTHER CASES THERE IS NO JUSTIFICATION TO ADOPT NOTIONAL INTEREST, WHEN BOTH THE PARTIES H A VE NOT CHARGED INTEREST. LEARNED LD. CIT(A) FURTHER OBSERVED BY FOLLOWING THE DECISION OF THE ITAT, MUMBAI IN THE CASE OF RIA HOLDING LTD. VS. ITO TH A T NOTIONAL INTEREST CANNOT BE CHARGED. THE ITAT OBSERVED THAT LEVY OR NON - LEVY OF INTEREST IS A CONTRACTUAL OBLIGATION OF THE PARTIES AND WHEN THERE IS EVIDENCE ON RECORD THAT THE OTHER PARTY HAS NOT PROVIDED FOR IN ITS BOOKS AND THE ASSESSEE HAS NOT ACCOUNTED FOR, AS ACCRUED, AND WHEN NEITHER PARTY HAS RECOGNIZED THE INCOME NO R EXPENDITURE IN RESPECTIVE ACCOUNTS AND WHEN THE PRINCIPAL ITSELF IS DOUBTFUL OF RECOVERY, THERE IS NO BASIS FOR CHARGING NOTIONAL INTEREST. HENCE, THE ASSESSING OFFICER IS DIRECTED TO DELETE THE IMPUGNED ADDITION OF 3,54,73,780/ - MADE TOWARDS NOTIONAL INTEREST ACCRUED. HOWEVER, AS IT IS SEEN THAT INTEREST BEARING FUNDS HAVE BEEN ADVANCED TO THE REL A TED PARTIES, AND THE ASSESSEE HAS CLAIMED INTEREST EXPENDITURE IN ITS PROFIT & LOSS, IT WOULD BE APPROPRIATE TO DISALLOW THE INTEREST EXPENDITURE CLAIMED OF 50,90,767/ - . ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO DISALLOW CLAIM OF 50,90,767/ - . 13 ITA NO. 46 /VIZ/2014 ( DR. MULLAPUDI HARISCHANDRA PRASAD ) 19 . WITH REFERENCE TO THE ADVANCES MADE TO D. KOTESWARA RAO & D.S. KAMALA, IT WAS REPRESENTED THAT THERE WAS NO CHANCE OF RECOVERY O F THESE ADVANCES AND HENCE INTEREST WAS NOT ADMITTED . THE ASSESSEE HAS NOT FURNISHED ANY SUPPORTING EVIDENCE TO SHOW THAT THE PRINCIPAL IS DIFFICULT TO RECOVER , OR THAT INTEREST WAS NOT DEBITED BY THESE PARTIES . THE LD. CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER WITH THE ABOVE OBSERVATION . 20 . BY CONSIDERING THE ARGUMENTS OF BOTH THE SIDES, WE FIND THAT LD.CIT(A) HAS CONSIDERED THE NON - CHARGING OF INTEREST IN RESPECT OF EACH PARTY AND BY FOLLOWING THE D ECISION OF THE ITAT IN THE CASE OF RIA HOLDING LTD. (SUPRA) NOTIONAL INTEREST CANNOT BE CHARGED. WE FIND THAT WHEN THE ASSESSEE IS EXPLAINED ALL THE DETAILS AND SUBMITTED THAT THE RECOVERY OF PRINCIPAL ITSELF IS DOUBTFUL BECAUSE THE COMPANIES TO WHOM THE ADVANCES MADE BY THE ASSESSEE ARE NPAS , THERE IS NO BASIS FOR CHAGRINING NOTIONAL INTEREST. IN VIEW OF THE ABOVE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A). THUS, WE UPHOLD THE ORDER OF THE LD.CIT(A) AND THIS GROUND OF APPEAL RAISED BY THE DEPA RTMENT IS DISMISSED. 2 1 . ANOTHER GROUND OF APPEAL RELATING TO ADDITION OF 44,99,500/ - . 2 2 . IN THE ASSESSMENT ORDER , THE ASSESSING OFFICER HAS NOTED THAT THE ASSESSEE HAD GIVEN ADVANCE TO P. LATHA 1 LAKH , JASPREATH SINGH 1,25,000/ - AND 42,74,500/ - TO SREE ANANATHALAKSHMI TEXTILES PVT. LTD. AND SHOWN AS CUSTOMERS ADVANCE IN THE BALANCE SHEET AND UNDER 14 ITA NO. 46 /VIZ/2014 ( DR. MULLAPUDI HARISCHANDRA PRASAD ) THE LIABILITY SIDE. AS THE ASSESSEE HAD NOT CARRIED ON COTTON BUSINESS, THE ASSESSING OFFICER WAS OF THE OPINION THAT THERE IS NO JUSTIFICATION FOR THE SAID ADVANCE S AND MADE THE IMPUGNED ADDITION. 2 3 . ON APPEAL BEFORE THE LD. CIT(A), THE ASSESSEE HAS FILED A COPY OF STATEMENT OF THE ASSESSEE APPEARING BOOKS FOR SREE ANANATHALAKSHMI TEXTILES PVT. LTD., BY WAY OF ADDITIONAL EVIDENCE . ON THIS ASSESSING OFFICER HAS SUBMITTED HIS COMMENTS AND GIVEN A DETAILED REPORT DATED 09/11/2013 . THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS UNDER: - THE AR FURTHER SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATIO N, THE ASSESSEE DID NOT MAKE ANY COMMERCIAL ACTIVITY LIKE SUPPLY OF COTTON WITH THE OTHER COMPANY M/S. SRI ANANATHA LAKSHMI TEXTILES PVT. LTD., IN WHICH HE IS EX - DIRECTOR. DURING THE FINANCIAL YEAR 2008 - 2009 RELEVANT TO THE ASSESSMENT YEAR 2009 - 2010, THE ASSESSEE HAS RECEIVED AN AMOUNT OF RS.42,74,500/ - . THE AMOUNTS WERE RECEIVED THROUGH ACCOUNT PAYEE CHEQUES AND RECORDED IN THE BOOKS OF ACCOUNT OF BOTH THE PARTIES. THE OPENI N G BALANCES FOR THE FINANCIAL YEAR 2008 - 2009 IS NIL IN THE BOOKS OF BOTH THE PARTI ES. BUT, THE ASSESSEE OBTAINED RS.42,74,500/ - THROUGH BANK CHEQUES. ON THE OTHER HAND, THE COMPANY NAMELY M/S.SRI ANANTHA LAKSHMI TEXTILES PRIVATE LIMITED CONVERTED THIS AMOUNT AS SHARE APPLICATION MONEY ON 31.03.2009. BUT, THE ASSESSEE CONVERTED THE SAME AS SHARE APPLICATION MONEY ON 31.03.2010. DURING THE FINANCIAL YEAR 2008 - 2009, THE OPENING BALANCES REFLECTED 'ZERO' IN BOTH THE BOOKS. THOUGH TRADING ACTIVITY DID NOT EXIST AT ALL DURING THE YEAR UNDER CONSIDERATION WITH M/S. ANANTHA LAKSHMI TEXTILES PR IVATE LIMITED, THE ASSESSEE RECEIVED THE AMOUNTS FROM M/S. SALT TOWARDS ROAN ON THE PREMISE THAT HE WAS HAVING SOME SHARE APPLICATION MONEY WITH SALT. ALL THE TRANSACTIONS ARE CHANNELIZED THROUGH BANK ACCOUNTS. THE UNDERSIGNED EXAMINED THE BANK ACCOUNTS, A CCOUNT COPIES AND THEY ARE TALLYING WITH THE OTHER. THE CONFUSION THAT ERUPTED IN THIS TRANSACTION IS ON ACCOUNT OF THE NOMENCLATURE OR CHARACTER OF THE TRANSACTION APPENDED TO IT BY BOTH THE PARTIES. THE COMPANY SALT TERMED THE SAID AMOUNT AS SHARE APPLIC ATION MONEY IN THE NAME OF THE ASSESSEE ON 31 - 03 - 2009 WHEREAS THE ASSESSEE HAS SHOWN THE SAME AS SHARE APPLICATION MONEY ON 31.03.2010 AS PER THE EXPLANATION OF THE ASSESSEE. THE ACCOUNT COPIES, BANK ACCOUNT 15 ITA NO. 46 /VIZ/2014 ( DR. MULLAPUDI HARISCHANDRA PRASAD ) AND THE EXPLANATIONS OF THE ASSESSEE CONFIRM TH E TRANSACTION. THE PREDECESSOR ASSESSING OFFICER OBSERVED THAT THE ASSESSEE FAILED TO FURNISH THE BANK ACCOUNT STATEMENT. NOW THAT THE ASSESSEE HAS FURNISHED THE ACCOUNT COPY, THE UNDERSIGNED COULD EXAMINE THE SANE IN DETAIL. IN THE ABSENCE OF ANY DETAILS, THE ASSESSING OFFICER MADE THE ADDITION. NOW THAT THE ACCOUNT COPIES AND BANK ACCOUNT ARE EXAMINED, THE TRANSACTION IS FOUND TO BE CORRECTLY CHANNELIZED. BASED ON THE ABOVE SUBMISSIONS, THE ISSUE MAY BE DECIDED ON MERITS. 2 4 . L D. CIT(A) AFTER CONSIDERI NG THE REMAND REPORT SUBMITTED BY THE ASSESSING OFFICER HAS OBSERVED THAT THE AMOUNT OF 44,99,500/ - WAS SHOWN AS CURRENT LIABILITY WITH THE DESCRIPTION CUSTOMER ADVANCES (SALES) IN THE BALANCE SHEET OF M/S. M/S. VENKATARAYA ENTERPRISES. THUS, AT THE OUTSET THE SAID AMOUNT IS A LIABILITY IN THE BOOKS OF THE ASSESSEE I.E. THE AMOUNTS RECEIVED AS ADVANCE BY THE ASSESSEE SAID TO BE RECEIVED AGAINST FUTURE SUPPLY OF COTTON. IT WAS WRONGLY VIEW AND DISCUSSED AS P AYMENT MADE BY THE ASSESSEE IN THE IMPUGNED ORDER . IT IS FURTHER NOTED , AS PER THE LEDGER EXTRACTS FILED , TH A T THE AMOUNT OF 1 LAKH IN THE NAME OF P. LATHA AND 1,25,000/ - IN THE NAME OF JASPREATH SINGH REPRESENT OPENING BALANCE AND NOT CURRENT YEAR TR ANSACTION. HENCE, THERE IS NO JUSTIFICATION TO MAKE ADDITION OF THESE TWO AMOUNTS IN THE IMPUGNED ASSESSMENT. HENCE, ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITIONS IN THIS REGARD. 25 . WITH REGARD TO AMOUNT OF 42,74,500/ - , IT IS SEEN THAT THESE AMOUNTS WERE RECEIVED DURING THE YEAR FROM M/S. SREE ANA NATHALAKSHMI TEXTILES PVT. LTD. THE ASSESSING OFFICER IN THE REMAND PROCEEDINGS HAS VERIFIED THIS ASPECT AND FOUND TH A T THE AMOUNTS WERE 16 ITA NO. 46 /VIZ/2014 ( DR. MULLAPUDI HARISCHANDRA PRASAD ) RECEIVED THROUGH BANKING CHANNEL AND D ECL A RED IN THE BOOKS OF ACCOUNT. HOWEVER, THE AMOUNT IS SHOWN AS SHARE APPLICATION MONEY IN THE BOOKS OF SREE ANANATHALAKSHMI TEXTILES PVT. LTD. IT WAS CLARIFIED THAT THE ASSESSEE HAS ALSO ADJUSTED THIS AMOUNT TOWARDS SHARE APPLICATION MONEY IN THE F INANCIAL Y EAR 2009 - 10. THE FACTS ARE NO W CLEAR THAT THE AMOUNT REPRESENT MONEY RECEIVED BY THE ASSESSEE THROUGH BANKING CHANNEL AND DECLARED IN HIS BOOKS OF ACCOUNT . IRRESPECTIVE OF THE NOMENCLATURE UNDER WHICH IT IS ACCOUNTED BY THE PARTIES, THE FACT TH AT IT REPRESENTS MONEY RECEIVED BY THE ASSESSEE CLEARLY INDICATES THAT THERE IS NO JUSTIFICATION TO SUSTAIN THE IMPUGNED ADDITION. ACCORDINGLY, ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION. WE FIND TH A T LD.CIT(A) AFTER VER I F Y ING THE BOOKS OF ACCOUNT OF THE ASSESSEE AND ALSO OF M/S. SREE ANANATHALAKSHMI TEXTILES PVT. LTD., HE GAVE A CATEGORICAL FINDING THAT THE IMPUGNED AMOUNTS WERE RECEIVED THROUGH BANKING CHANNELS AND WERE RECOR D ED IN THE BOOKS OF ACCOUNT. WE FIND NO REASON TO INTER FERE WITH THE ORDER OF THE LD. CIT(A). THUS, WE UPH OLD THE ORDER OF THE LD. CIT(A) AND THIS GROUND OF APPEAL RAISED BY THE DEPARTMENT IS DISMISSED. 26. I N THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON TH IS 1 1 T H DAY OF AUGUST , 201 7 . S D / - S D / - ( D.S. SUNDER SINGH ) ( V. DURGA RAO ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 1 1 T H AUGUST , 201 7 . 17 ITA NO. 46 /VIZ/2014 ( DR. MULLAPUDI HARISCHANDRA PRASAD ) VR/ - COPY TO: 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT 4. THE CIT(A) 5. THE D.R . 6. GUARD FILE. BY ORDER (VUKKEM RAMBABU) SR. PRIVATE SECRETARY, ITAT, VISAKHAPATNAM.