Hansa Estates Private Limited, CHENNAI V. ACIT, CHENNAI

ITA 543/CHNY/2013

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2690 (ITAT-CHENNAI)
• Duration Of Justice: 5 year(s) 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 01-04-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S RANGARAJAN
• Assessee Lawyers: S SRIDHAR
• Keywords: Principle of natural justice; Deemed dividend
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: CHENNAI . . . , ! ' , # '$ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ./ ITA NO.543/CHNY/2013 % &% /ASSESSMENT YEAR: 2009-10 M/S. HANSA ESTATES PVT. LTD., NO.605-606, ANNA SALAI, SOUTH INDIAN FILM CHAMBER BUILDING, II FLOOR, THOUSAND LIGHTS, CHENNAI 600 006. VS. ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-II(2), CHENNAI. [PAN: AAACH 1879B ] ( '( /APPELLANT) ( )*'( /RESPONDENT) '( + , / APPELLANT BY : SHRI S. SRIDHAR, ADVOCATE )*'( + , /RESPONDENT BY : SHRI S. RANGARAJAN, JCIT - + .# /DATE OF HEARING : 11.01.2019 /0& + .# / DATE OF PRONOUNCEMENT : 18.02.2019 / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE-COMPANY DI RECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-III, CHENNAI (HEREINAFTER CALLED AS CIT(A)) DATED 17.0 1.2013 FOR THE ASSESSMENT YEAR (AY) 2009-10. 2. THE APPELLANT RAISED THE FOLLOWING GROUNDS OF AP PEAL: 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (APP EALS)-ILL, CHENNAI-600 034 DATED 17.01.2013 IN L.T.A.NO.646/11-12 FOR THE ABOVE MENTIONED ITA NO.343/CHNY/2013 (AY: 2009-10) :- 2 -: ASSESSMENT YEAR IS CONTRARY TO LAW, FACTS, AND IN T HE CIRCUMSTANCES OF THE CASE. 2. THE CIT (APPEALS) ERRED IN SUSTAINING THE DISALL OWANCE OF RS.2,09,24,5291- U/S 36(1)(III) OF THE ACT BEING THE INTEREST ON BOR ROWED CAPITAL ON THE GROUND OF DIVERSION OF BORROWED FUNDS TO M/S THIRUVENGADAM IN VESTMENTS P LTD. IN THE COMPUTATION OF TAXABLE TOTAL INCOME WITHOUT ASSIGNI NG PROPER REASONS AND JUSTIFICATION. 3. THE CIT (APPEALS) FAILED TO APPRECIATE THAT THE SUSTENANCE OF THE DISALLOWANCE OF RS.2,09,24,529/- U/S 36(1)(III) OF THE ACT BEING THE INTEREST ON BORROWED CAPITAL WAS WRONG, INCORRECT, UNJUSTIFIED, ERRONEOUS AND NOT SUSTAINABLE BOTH ON FACTS AND IN LAW. 4. THE CIT (APPEALS) FAILED TO APPRECIATE THAT THER E WAS NO DIVERSION OF BORROWED FUNDS FOR NON BUSINESS PURPOSE AND HENCE O UGHT TO HAVE APPRECIATED THAT THE SUSTENANCE OF SUCH DISALLOWANC E WAS ERRONEOUS AND INVALID. 5. THE CIT (APPEALS) FAILED TO APPRECIATE THAT THE TRANSACTION OF ADVANCE TO M/S THIRUVENGADAM INVESTMENTS P LTD. WAS FOR COMMER CIAL CONSIDERATION AND NOT FOR ANY OTHER PURPOSE AND HENCE OUGHT TO HAVE A PPRECIATED THAT THE JOINT DEVELOPMENT AGREEMENT IN RELATION THERETO WAS NOT T AKEN INTO CONSIDERATION IN PROPER PERSPECTIVE SO AS TO UNDERSTAND THE NATURE O F ADVANCE. 6. THE CIT (APPEALS) FAILED TO APPRECIATE THAT IN A NY EVENT THE BALANCE SHEET OF THE APPELLANT COMPANY WAS NOT ANALYZED/UNDERSTOO D PROPERLY AND OUGHT TO HAVE APPRECIATED THAT THERE WAS NO DIVERSION OF BOR ROWED FUNDS ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. 7. THE CIT (APPEALS) FAILED TO APPRECIATE THAT THE MISREADING OF THE DECISIONS CITED AND RELIED UPON TO SUSTAIN THE DISALLOWANCE O F INTEREST IN THE COMPUTATION OF TAXABLE TOTAL INCOME WOULD VITIATE HER ACTION IN THIS REGARD. 8. THE CIT (APPEALS) WENT WRONG IN RECORDING THE FI NDINGS IN THIS REGARD IN PARA 6.2 OF THE IMPUGNED ORDER WITHOUT ASSIGNING PR OPER REASONS AND JUSTIFICATION. 9. THE CIT (APPEALS) FAILED TO APPRECIATE THAT THER E WAS NO PROPER OPPORTUNITY GIVEN BEFORE PASSING THE IMPUGNED ORDER AND ANY ORD ER PASSED IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE IS NULLITY IN LAW . 3. THE BRIEF FACTS OF THE CASE ARE AS UNDER: THE APPELLANT IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956. THE APPELLANT-COMPANY FILE D ITS RETURN OF INCOME FOR THE AY 2009-10 ON 30.09.2009 DISCLOSING TOTAL INCOME OF RS. 1,44,89,527/-. AGAINST THE SAID RETURN OF INCOME, T HE ASSESSMENT WAS COMPLETED BY THE ACIT, COMPANY CIRCLE-II(2), CHENNA I U/S. 143(3) OF THE ITA NO.343/CHNY/2013 (AY: 2009-10) :- 3 -: ACT VIDE ORDER DATED 30.12.2011 AT A TOTAL INCOME O F RS. 6,94,76,277/- AFTER MAKING CERTAIN DISALLOWANCES. THE DISALLOWAN CE INTER ALIA INCLUDES DISALLOWANCE OF INTEREST CLAIMED U/S. 36(1)(III) OF THE ACT OF RS. 2,09,24,549/- ON THE GROUND THAT THE APPELLANT-COMP ANY HAD GIVEN INTEREST FREE ADVANCES TO M/S. TIRUVENGADAM INVESTM ENTS PVT. LTD. (TIPL), WHICH IS A HOLDING COMPANY OF THE APPELLANT . IT IS THE CONTENTION OF THE APPELLANT-COMPANY THAT THE TRANSACTION IS IN THE NATURE OF ON CURRENT ACCOUNT AND THE ADVANCE WAS MADE FOR ACQUIR ING THE LAND ON BEHALF OF THE APPELLANT FOR CONSTRUCTION OF HANSA C HITRA PROJECT. IT IS FURTHER STATED THAT THE JOINT DEVELOPMENT AGREEMENT ENTERED BETWEEN THE TIPL IN TERMS OF WHICH THE LAND SHALL DEVELOP HANSA CHITRA PROJECT AND THE PROFIT AND LOSS ARISING ON ACCOUNT OF THIS PROJ ECT WOULD BE SHARED EQUALLY BETWEEN THE APPELLANT AND THE M/S. TIPL BUT , THE AO HAD NOT ACCEPTED THE ABOVE SUBMISSION ON THE FOLLOWING ACTI ONS: A) M/S. TIRUVENGADAM INVESTMENTS PVT. LTD. HAD BORR OWED LOANS FOR ACQUISITION OF THE LAND FOR THE JOINT DEVELOPME NT PROJECT. B) THERE IS NOT NECESSITY OF PAYING ANY MONEY TO THE S AID M/S. TIPL IN TERMS OF JOINT DEVELOPMENT AGREEMENT AND TH ERE WAS NO BUSINESS EXPEDIENCY. THE AO CALCULATED THE INTE REST @ 15.56% ON THE OUTSTANDING LOAN AMOUNT AND THE AO DISALLOWED INTEREST TO THE EXTENT OF RS.2,09,24,549 /-. 4. BEING AGGRIEVED, AN APPEAL WAS PREFERRED BEFORE LD. CIT(A), AND THE ADDITION CAME TO BE CONFIRMED BY HIM, HOLDING T HAT THE APPELLANT- COMPANY HAD FAILED TO EXPLAIN ANY COMMERCIAL EXPEDI ENCY FOR ADVANCE ITA NO.343/CHNY/2013 (AY: 2009-10) :- 4 -: FREE INTEREST LOAN TO M/S. TIPL. BEING AGGRIEVED, T HE APPELLANT IS IN APPEAL BEFORE US IN THE PRESENT APPEAL. 5. BEFORE US, THE LD. COUNSEL ARGUED THAT ON THE SA ME SET OF FACTS IN THE SUBSEQUENT AY I.E., 2010-11, THE LD. CIT(A) DEL ETED THE ADDITION AND THE DEPARTMENT IS NOT IN ANY FURTHER APPEAL BEFORE THIS TRIBUNAL AND HE ALSO FILED COPY OF ORDERS OF THE LD. CIT(A)-6, CHEN NAI DATED 08.04.2016 IN ITA NO.281/CIT(A)-6/2015-16. HE FURTHER STATED THAT THE LOANS WERE ADVANCED TO M/S. TIPL DURING THE NORMAL COURSE OF T HE BUSINESS AND IN TERMS OF THE JOINT DEVELOPMENT AGREEMENT ENTERED IN TO BETWEEN THE APPELLANT AND M/S. TIPL HE ALSO FILED COPY OF THE J OINT DEVELOPMENT AGREEMENT AND HE ALSO PLACED RELIANCE ON THE DECISI ON OF THE HONBLE SUPREME COURT IN THE CASE OF S.A BUILDERS LTD. V. CIT 288 ITR 01 (SC) . ON THE OTHER HAND, THE LD. SR. DR PLACED RELIANCE O N THE ORDERS OF LOWER AUTHORITIES. 6. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE M ATERIAL ON RECORD. THE SOLITARY ISSUE IN THIS APPEAL IS WHETH ER THE DISALLOWANCE OF INTEREST TO THE EXTENT OF RS. 2,09,24,549/- U/S. 36 (1)(III) OF THE ACT HOLDING TO BE FOR NON BUSINESS PURPOSE IS JUSTIFIED. THE CO NTENTIONS ADVANCED ON BEHALF OF THE ASSESSEE THAT IT IS A BUSINESS TRANSA CTION AND THE ADVANCE WAS MADE IN TERMS OF JOINT DEVELOPMENT AGREEMENT EN TERED BETWEEN THE APPELLANT AND THE SAID COMPANY CAME TO BE REJECTED BY THE LOWER ITA NO.343/CHNY/2013 (AY: 2009-10) :- 5 -: AUTHORITIES BECAUSE INABILITY OF THE APPELLANT TO S UBSTANTIATE THE SAME. EVEN, BEFORE US THE SAME ARGUMENTS WERE REITERATED. WE HAVE ALSO PERUSED THE JOINT DEVELOPMENT AGREEMENT ENTERED BET WEEN APPELLANT AND THE SAID M/S. TIPL, WHEREIN WE DO NOT FIND ANY STIPULATION THAT APPELLANT HAS TO PAY INTEREST FREE ADVANCES TO THE SAID COMPANY. FURTHERMORE, THE SAID JOINT DEVELOPMENT AGREEMENT I S NOT A REGISTERED DOCUMENT. IT IS ALSO A MATTER OF RECORD THAT THE SA ID PAYMENT WAS TREATED AS A DEEMED DIVIDEND IN THE HANDS OF M/S. TIPL. HOW EVER, THE CONTENTION OF THE LD. COUNSEL THAT IT RESULT IN DOU BLE TAXATION IN THE HANDS OF BOTH CANNOT BE ACCEPTED, AS IN THE PRESENT CASE, WHAT WAS DISALLOWED WAS ONLY THE INTEREST CLAIM. THUS, THE APPELLANT HA D FAILED TO ESTABLISH THE BUSINESS EXPEDIENCY IN ADVANCING THE MONEY TO THE H OLDING COMPANY. THEREFORE, THE RATIO OF THE DECISION OF HONBLE SUP REME COURT IN THE CASE OF S.A. BUILDERS LTD. (SUPRA) CANNOT BE APPLIED TO THE FACTS OF THE PRES ENT CASE. THE ONUS ALWAYS WILL BE ON THE ASSESSEE TO SA TISFY THE AO THAT THE LOANS RAISED BY THE APPELLANT WERE USED FOR ITS BUS INESS PURPOSE. FAILURE TO DISCHARGE HIS ONUS WOULD RESULT INTO THE DISALLO WANCE OF INTEREST CLAIM AS HELD BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES LTD. 156 TAXMAN 256 (P&H). THUS, THE LD. CIT(A) AFTER EXAMINING THE RELEVANT MATERIAL PAPERS HAD CO ME TO CONCLUSION THAT THE APPELLANT HAD FAILED TO DISCHARGE THE ONUS OF P ROVING THAT LOANS WERE USED ONLY FOR BUSINESS PURPOSE AND THEREFORE, CLEAR LY HELD THAT THE ITA NO.343/CHNY/2013 (AY: 2009-10) :- 6 -: DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F S.A. BUILDERS LTD. (SUPRA) CANNOT BE APPLIED. THUS, WE DO NOT FIND AN Y FALLACY IN THE REASONING OF LD. CIT(A) AND THEREFORE, WE DO NOT AN Y MERIT IN APPEAL FILED BY THE ASSESSEE. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON THE 18 TH DAY OF FEBRUARY, 2019 IN CHENNAI SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ! ' ) (INTURI RAMA RAO) # /ACCOUNTANT MEMBER /CHENNAI, 1 /DATED: 18 TH FEBRUARY , 2019. EDN, SR. P.S + ).23 43&. /COPY TO: 1. '( /APPELLANT 4. - 5. /CIT 2. )*'( /RESPONDENT 5. 36 ). /DR 3. - 5. ( )/CIT(A) 6. 7% 8 /GF