THE ITO, Vijayawada V. Madira Ramu Constructions,, Vijayawada

ITA 644/VIZ/2014

• Counselvise Citation: [2016] 130 COUNSELVISE.COM (IT) 9636 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 15-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M NARAYANA RAO
• Keywords: Unexplained cash credit; Rejection of books of accounts; Capital asset; Business income; Business expenditure; Proportionate interest; Capital receipt; Capital expenditure
• Section: 143(3); 142(1); 68; 145

Judgement Text

ITA NO.286/VIZAG/2013 & 586&644/VIZAG/2014 SRI MADIRA RAMU & SMT. MANDAVA SANGEETHA, VIJAYAWAD A 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.286/VIZAG/2013 ( / ASSESSMENT YEAR: 2009-10) ITO, WARD - 2(3), VIJAYAWADA VS. SRI MADIRA RAMU, VIJAYAWADA [PAN: AGJPM8657N ] ( % / APPELLANT) ( &'% / RESPONDENT) ./I.T.A.NO.586/VIZAG/2014 ( / ASSESSMENT YEAR: 2009-10) ITO, WARD - 1(1), VIJAYAWADA VS. SMT. MANDA VA SANGEETHA, VIJAYAWADA [PAN: AIDPM6091L ] ( % / APPELLANT) ( &'% / RESPONDENT) ./I.T.A.NO.644/VIZAG/2014 ( / ASSESSMENT YEAR: 2010-11) ITO, WARD - 2(3), VIJAYAWADA VS. SRI MADIRA RAMU, VIJAYAWADA [PAN: AGJPM8657N ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI M. NARAYANA RAO, DR / RESPONDENT BY : SHRI A. CHANDRA MOHANA RAO, AR ITA NO.286/VIZAG/2013 & 586&644/VIZAG/2014 SRI MADIRA RAMU & SMT. MANDAVA SANGEETHA, VIJAYAWAD A 2 / DATE OF HEARING : 07.12.2016 / DATE OF PRONOUNCEMENT : 23.12.2016 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THESE APPEALS FILED BY THE REVENUE ARE DIRECTED AG AINST SEPARATE, BUT IDENTICAL ORDERS OF THE COMMISSIONER OF INCOME TAX (A), VIJAYAWADA FOR THE ASSESSMENT YEARS 2009-10 & 2010- 11. SINCE, THE FACTS ARE IDENTICAL AND ISSUES ARE COMMON, THEY ARE CLUBBED, HEARD TOGETHER AND DISPOSED-OFF BY WAY OF THIS COMMON ORD ER FOR THE SAKE OF CONVENIENCE. 2. THE BRIEF FACTS EXTRACTED FROM ITA NO.286/VIZAG/ 2013 ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION OF FLATS AND REAL ESTATE UNDER THE NAME AND STYLE OF M/S. SRI RAAM CO NSTRUCTIONS, FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-1 0 ON 30.9.2009 DECLARING TOTAL INCOME OF ` 4,11,500/- CONSISTING OF INCOME FROM BUSINESS AND INCOME FROM SHORT TERM CAPITAL GAIN. THE CASE WAS SELECTED FOR SCRUTINY THROUGH CASS AND ACCORDINGLY, NOTICES U/S 143(2) & 142(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CAL LED AS 'THE ACT') WERE ISSUED. IN RESPONSE TO NOTICES, THE AUTHORIZE D REPRESENTATIVE OF ITA NO.286/VIZAG/2013 & 586&644/VIZAG/2014 SRI MADIRA RAMU & SMT. MANDAVA SANGEETHA, VIJAYAWAD A 3 THE ASSESSEE APPEARED FROM TIME TO TIME AND FURNISH ED BOOKS OF ACCOUNTS AND OTHER INFORMATION CALLED FOR. THE ASS ESSMENT WAS COMPLETED U/S 143(3) OF THE ACT, DETERMINING TOTAL INCOME OF ` 76,67,070/-. WHILE COMPLETING THE ASSESSMENT, THE A SSESSING OFFICER HAS REJECTED BOOKS OF ACCOUNTS U/S 145 OF THE ACT A ND ESTIMATED NET PROFIT OF 12.5% ON GROSS RECEIPTS FROM BUSINESS. T HE A.O. ALSO RE- WORKED SHORT TERM CAPITAL GAIN FROM TRANSFER OF LAN D IN PURSUANCE OF JOINT DEVELOPMENT AGREEMENT BY DISALLOWING EXPENSES OF TRANSFER BEING MUNICIPAL APPROVAL CHARGES AND PROPORTIONATE INTERE ST PAID ON BORROWED CAPITAL AND RE-WORKED SHORT TERM CAPITAL GAIN OF ` 24,70,055/-, AS AGAINST SHORT TERM CAPITAL GAIN ADMITTED BY THE ASS ESSEE OF ` 23,190/-. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE HAS FILED ELABORATE WRITTEN SUBMISSIONS AND SUBMITTED THAT TH E A.O. WAS ERRED IN REJECTION OF BOOKS OF ACCOUNTS AND ESTIMATION OF NE T PROFIT FROM BUSINESS. THE ASSESSEE FURTHER CONTENDED THAT THE A.O. WAS ERRED IN RE- WORKING SHORT TERM CAPITAL GAIN FROM TRANSFER OF LA ND BY DISALLOWING EXPENSES OF TRANSFER BEING MUNICIPAL CHARGES AND DI SALLOWANCE OF PROPORTIONATE INTEREST PAID ON BORROWED CAPITAL. T HE CIT(A) AFTER CONSIDERING THE EXPLANATIONS OF THE ASSESSEE, DIREC TED THE A.O. TO ESTIMATE NET PROFIT OF 8% ON TOTAL TURNOVER OF FLAT S OF ` 2,17,50,000/- AS ITA NO.286/VIZAG/2013 & 586&644/VIZAG/2014 SRI MADIRA RAMU & SMT. MANDAVA SANGEETHA, VIJAYAWAD A 4 AGAINST TOTAL TURNOVER CONSIDERED BY THE A.O. OF ` 4,31,08,500/-. IN SO FAR AS INCOME FROM SHORT TERM CAPITAL GAINS, THE CI T(A) DIRECTED THE A.O. TO ALLOW INTEREST ON BORROWED CAPITAL CLAIMED BY TH E ASSESSEE, HOWEVER CONFIRMED DISALLOWANCE MADE BY THE A.O. TOWARDS EXP ENSES ON TRANSFER BEING MUNICIPAL APPROVAL CHARGES. AGGRIEVED BY THE CIT(A) ORDER, THE REVENUE IS IN APPEAL BEFORE US. 4. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS ESTIMATION OF NET PROFIT FROM THE BUSINESS OF CONSTRUCTION OF FLA TS AND REAL ESTATE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A. O. CALLED UPON THE ASSESSEE TO PRODUCE BOOKS OF ACCOUNTS ALONG WITH BI LLS AND VOUCHERS IN SUPPORT OF EXPENDITURE DEBITED TO THE P&L ACCOUNT. THOUGH THE ASSESSEE PRODUCED BOOKS OF ACCOUNTS, HE FAILED TO P RODUCE PROPER BILLS AND VOUCHERS IN SUPPORT OF EXPENDITURE CLAIMED. TH E A.O. AFTER CONSIDERING THE BOOKS OF ACCOUNTS FURNISHED BY THE ASSESSEE, OPINED THAT THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESS EE ARE NOT SUSCEPTIBLE FOR VERIFICATION, AS MOST OF THE EXPEND ITURES ARE SUPPORTED BY SELF-MADE VOUCHERS, PARTICULARLY TOWARDS DIRECT EXPENDITURE, VEHICLE MAINTENANCE, PRINTING AND STATIONERY, SALARY AND AL LOWANCES AND OTHER EXPENDITURE ARE SUPPORTED BY SELF-MADE VOUCHERS. T HEREFORE, REJECTED BOOKS OF ACCOUNTS UNDER THE PROVISIONS OF SECTION 1 45 OF THE ACT AND ESTIMATED NET PROFIT OF 12.5% ON GROSS RECEIPTS ADM ITTED BY THE ITA NO.286/VIZAG/2013 & 586&644/VIZAG/2014 SRI MADIRA RAMU & SMT. MANDAVA SANGEETHA, VIJAYAWAD A 5 ASSESSEE OF ` 4,31,08,500/- INCLUDING WORK IN PROGRESS OF ` 90,79,500/- BY RELIED UPON THE DECISION OF ITAT, HYDERABAD B BENCH IN THE CASE OF KNR CONSTRUCTIONS LTD. VS. DCIT IN ITA NO.9/HYD/07. IT IS THE CONTENTION OF THE ASSESSEE THAT NET PROFIT ESTIMATE D BY THE A.O. IS ON HIGHER SIDE WHEN COMPARED TO THE NATURE OF BUSINESS OF THE ASSESSEE. THE ASSESSEE FURTHER SUBMITTED THAT THE A.O. WAS ER RED IN CONSIDERING WORK IN PROGRESS FOR THE PURPOSE OF DETERMINATION O F TOTAL TURNOVER FOR ESTIMATION OF NET PROFIT AS, WORK IN PROGRESS IS DO NOT FORM PART OF TOTAL TURNOVER OF THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT THE ITAT, VISAKHAPATNAM BENCH IN SIMILAR TYPE OF CASES HAS DI RECTED THE A.O. TO ESTIMATE NET PROFIT OF 9% ON GROSS RECEIPTS, NET OF ALL DEDUCTIONS, THEREFORE, REQUESTED TO ADOPT 9% NET PROFIT ON GROS S TURNOVER. IN SUPPORT OF HIS ARGUMENTS, HE RELIED UPON THE DECISI ON OF ITAT, VISAKHAPATNAM BENCH IN THE CASE OF RATNA CONSTRUCTI ONS IN ITA NO.301/VIZAG/2013 DATED 4.12.2015. 5. HAVING HEARD BOTH THE PARTIES AND CONSIDERED MAT ERIALS ON RECORD, WE FIND THAT THE A.O. REJECTED BOOKS OF ACCOUNTS U/ S 145 OF THE ACT AND ESTIMATED NET PROFIT OF 12.5% ON GROSS TURNOVER INC LUDING WORK IN PROGRESS. THE A.O. WAS OF THE OPINION THAT THE BOO KS OF ACCOUNTS MAINTAINED BY THE ASSESSEE ARE NOT SUSCEPTIBLE FOR VERIFICATION, AS THE ASSESSEE FAILED TO PRODUCE RELEVANT BILLS AND VOUCH ERS IN SUPPORT OF ITA NO.286/VIZAG/2013 & 586&644/VIZAG/2014 SRI MADIRA RAMU & SMT. MANDAVA SANGEETHA, VIJAYAWAD A 6 EXPENDITURE. IT IS THE CONTENTION OF THE ASSESSEE THAT THE A.O. WAS ERRED IN DETERMINING TOTAL TURNOVER OF ` 4,31,08,500/- INCLUDING WORK IN PROGRESS, AS WORK IN PROGRESS DO NOT FORM PART OF T HE TOTAL TURNOVER OF THE ASSESSEE. THE ASSESSEE FURTHER CONTENDED THAT NET PROFIT ESTIMATED BY THE A.O. IS ON HIGHER SIDE AS THE ASSESSEE HAS S UBMITTED BILLS AND VOUCHERS IN RESPECT OF MOST OF THE EXPENDITURES, HO WEVER IN FEW CASES, THE EXPENDITURE IS SUPPORTED BY SELF-MADE VOUCHERS. 6. THE ONLY ISSUE CAME UP FOR OUR CONSIDERATION IS ESTIMATION OF NET PROFIT FROM BUSINESS. THE A.O. ESTIMATED NET PROFI T OF 12.5% ON A TOTAL TURNOVER OF ` 4,31,08,500/- AS ADMITTED BY THE ASSESSEE IN HIS B OOKS OF ACCOUNTS INCLUDING WORK IN PROGRESS. THE CIT(A) HA S DIRECTED THE A.O. TO ESTIMATE NET PROFIT OF 8% ON TOTAL FLAT SALES OF ` 2,17,15,000/- EXCLUDING LAND SALES AND ADDITIONAL WORKS ADMITTED BY THE ASSESSEE IN HIS BOOKS OF ACCOUNTS. THE CIT(A) HAS FAILED TO GI VE JUSTIFIABLE REASONS FOR EXCLUSION OF LAND SALES AND ADDITIONAL WORK, EV EN THOUGH TWO ITEMS OF RECEIPTS ARE INCLUDED IN THE TOTAL TURNOVER. TH E ASSESSEE HIMSELF HAS ADMITTED TURNOVER OF ` 3,40,29,000/- INCLUDING LAND SALES AND ADDITIONAL WORK RECEIPTS. THOUGH, THE A.O. WAS NOT CORRECT IN INCLUDING CLOSING WORK IN PROGRESS FOR THE PURPOSE OF DETERMINATION O F TURNOVER, OTHER TWO ITEMS OF SALES I.E. LAND SALES AND ADDITIONAL WORK RECEIPTS ARE VERY MUCH FORM PART OF THE TOTAL TURNOVER, WHICH CANNOT BE EX CLUDED FROM GROSS ITA NO.286/VIZAG/2013 & 586&644/VIZAG/2014 SRI MADIRA RAMU & SMT. MANDAVA SANGEETHA, VIJAYAWAD A 7 RECEIPTS. THEREFORE, WE ARE OF THE VIEW THAT THE C IT(A) WAS ERRED IN CONSIDERING TURNOVER OF FLAT SALES FOR THE PURPOSE OF ESTIMATION OF NET PROFIT FROM THE BUSINESS. ACCORDINGLY, WE DIRECT T HE A.O. TO ESTIMATE NET PROFIT ON TOTAL TURNOVER OF ` 3,40,29,000/- EXCLUDING CLOSING WORK IN PROGRESS. IN SO FAR AS ESTIMATION OF NET PROFIT @ 12.5% IS CONCERNED, THE ASSESSEE CONTENDED THAT ESTIMATION MADE BY THE A.O. IS ON HIGHER SIDE. WE FIND MERITS IN THE ARGUMENTS OF THE ASSESS EE FOR THE REASON THAT THE A.O. HAS ESTIMATED NET PROFIT OF 12.5% BY RELIED UPON THE DECISION OF HYDERABAD BENCH IN THE CASE OF KNR CONS TRUCTIONS LTD. (SUPRA). ON PERUSAL OF THE CASE LAW RELIED UPON BY THE LD. D.R., WE FIND THAT THE FACTS OF THE CASE LAW RELIED UPON BY THE D .R. ARE DIFFERENT FROM THE FACTS OF THE ASSESSEES CASE. ON THE OTHER HAN D, THE ASSESSEE HAS RELIED UPON THE DECISION OF RATNA CONSTRUCTIONS IN ITA NO.301/VIZAG/2013, WHEREIN, THE COORDINATE BENCH OF THIS TRIBUNAL UNDER SIMILAR SET OF FACTS HAS DIRECTED THE A.O. TO ESTIMATE NET PROFIT OF 9% ON THE TOTAL TURNOVER EXCLUDING WORK IN PROGRESS . THEREFORE, BY RESPECTFULLY FOLLOWING THE DECISION OF COORDINATE B ENCH IN ITA NO.301/VIZAG/2013, WE DIRECT THE A.O. TO ESTIMATE N ET PROFIT OF 9% ON GROSS TURNOVER OF ` 3,40,29,000/- EXCLUDING WORK IN PROGRESS. ITA NO.286/VIZAG/2013 & 586&644/VIZAG/2014 SRI MADIRA RAMU & SMT. MANDAVA SANGEETHA, VIJAYAWAD A 8 7. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATIO N IS COMPUTATION OF SHORT TERM CAPITAL GAIN TOWARDS TRANSFER OF LAND IN PURSUANCE OF JOINT DEVELOPMENT AGREEMENT. DURING THE COURSE OF ASSESS MENT PROCEEDINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS COMPUTED SHO RT TERM CAPITAL GAIN OF ` 2,39,190/-, THEREFORE, ASKED THE ASSESSEE TO FURNI SH DETAILS OF COMPUTATION OF SHORT TERM CAPITAL GAIN. IN RESPONS E TO NOTICES, THE ASSESSEE SUBMITTED THAT DURING THE RELEVANT FINANCI AL YEAR, HE HAD TRANSFERRED LAND ADMEASURING 1,476 SQ.YDS. BY VIRTU E OF A JOINT DEVELOPMENT AGREEMENT WITH M/S. SAI BALAJI CONSTRUC TIONS. AS PER JOINT DEVELOPMENT AGREEMENT, HE HAD RECEIVED 15 FLATS AND COMPUTED SHORT TERM CAPITAL GAIN FROM SALE OF 15 FLATS. THE A.O. ON VERIFICATION OF COMPUTATION OF SHORT TERM CAPITAL GAIN, OBSERVED TH AT THE ASSESSEE HAS CLAIMED EXPENSES OF TRANSFER BEING MUNICIPAL APPROV AL CHARGES OF ` 16,34,902/- AND INTEREST PAID TO REPCO HOUSING FINA NCE LTD. FOR ` 47,30,821/-. TO ASCERTAIN THE CORRECTNESS OF CLAIM MADE BY THE ASSESSEE, THE A.O. CALLED UPON THE ASSESSEE TO FURN ISH DETAILS OF MUNICIPAL APPROVAL CHARGES AND ALSO INTEREST PAID O N BORROWED CAPITAL. IN RESPONSE TO NOTICES, THE ASSESSEE SUBMITTED THAT IT HAS INCURRED MUNICIPAL APPROVAL CHARGES OF ` 16,34,902/- AND THE SAME HAS BEEN CLAIMED AS DEDUCTION. SIMILARLY, THE ASSESSEE HAS CLAIMED INTEREST TO REPCO HOME FINANCE LTD. TOWARDS BORROWED CAPITAL FO R THE PURPOSE OF ITA NO.286/VIZAG/2013 & 586&644/VIZAG/2014 SRI MADIRA RAMU & SMT. MANDAVA SANGEETHA, VIJAYAWAD A 9 PURCHASE OF PROPERTY. THE A.O. AFTER CONSIDERING T HE DETAILS FURNISHED BY THE ASSESSEE, OBSERVED THAT MUNICIPAL CHARGES CL AIMED BY THE ASSESSEE HAS BEEN INCURRED BY THE BUILDER M/S. SAI BALAJI CONSTRUCTIONS, THEREFORE, DISALLOWED THE CLAIM OF EXPENSES OF TRAN SFER. SIMILARLY, THE A.O. OBSERVED THAT THE ASSESSEE HAS CLAIMED INTERES T PAID ON BORROWED CAPITAL UP TO THE DATE OF CLOSURE OF LOAN ACCOUNT. THEREFORE, OPINED THAT THE INTEREST PAID ON BORROWED CAPITAL IS ALLOWABLE AS DEDUCTION UP TO THE DATE OF TRANSFER OF CAPITAL ASSET AND ACCORDINGLY R E-WORKED INTEREST PAID TO REPCO HOME FINANCE LTD. AND ALLOWED INTEREST UP TO THE DATE OF TRANSFER OF CAPITAL ASSET AND BALANCE AMOUNT HAS BE EN DISALLOWED. 8. WE HAVE HEARD BOTH THE PARTIES AND CONSIDERED MAT ERIALS AVAILABLE ON RECORD. THE A.O. HAS RE-WORKED SHORT TERM CAPIT AL GAIN BY DISALLOWING EXPENSES OF TRANSFER BEING MUNICIPAL AP PROVAL CHARGES AND DISALLOWANCE OF PROPORTIONATE INTEREST PAID TO BANK ON BORROWED CAPITAL. THE A.O. OBSERVED THAT EXPENSES OF TRANSFER BEING M UNICIPAL APPROVAL CHARGES HAVE BEEN INCURRED BY THE DEVELOPER. SIMIL ARLY, THE A.O. OBSERVED THAT INTEREST PAID ON BORROWED CAPITAL IS ALLOWABLE AS DEDUCTION UP TO THE DATE OF TRANSFER OF CAPITAL ASS ETS. IT IS THE CONTENTION OF THE ASSESSEE THAT IT HAD INCURRED MUN ICIPAL APPROVAL CHARGES. THE ASSESSEE FURTHER CONTENDED THAT HE HA D BORROWED LOAN FROM BANK FOR THE PURPOSE OF PURCHASE OF PROPERTY A ND PAID INTEREST UP ITA NO.286/VIZAG/2013 & 586&644/VIZAG/2014 SRI MADIRA RAMU & SMT. MANDAVA SANGEETHA, VIJAYAWAD A 10 TO THE DATE OF CLOSURE OF LOAN ACCOUNT, THEREFORE, THE A.O. WAS ERRED IN ALLOWING INTEREST UP TO THE DATE OF TRANSFER OF CAP ITAL ASSET. 9. HAVING HEARD BOTH THE SIDES, WE FIND THAT EXPENS ES OF TRANSFER BEING MUNICIPAL APPROVAL CHARGES OF ` 16,34,902/- HAS BEEN INCURRED BY THE BUILDER. THE A.O. BROUGHT ON RECORD CLEAR FACT S THAT THE BUILDER HAS ADMITTED THAT SAID AMOUNT HAS BEEN INCURRED BY THEM , BUT NOT THE ASSESSEE. THEREFORE, WE ARE OF THE VIEW THAT THE A .O. HAS RIGHTLY DISALLOWED EXPENSES OF TRANSFER BEING MUNICIPAL APP ROVAL CHARGES. IN SO FAR AS INTEREST PAID ON BORROWED CAPITAL, WE FIND T HAT THE ASSESSEE HAS BORROWED LOAN FOR THE PURPOSE OF PURCHASE OF PROPER TY AND PAID INTEREST OF ` 47,30,821/- UP TO THE DATE OF CLOSURE OF LOAN. WE FURTHER OBSERVED THAT THE A.O. ALLOWED INTEREST UP TO THE DATE OF TR ANSFER BY HOLDING THAT INTEREST PAID ON BORROWED CAPITAL IS ALLOWABLE AS D EDUCTION UP TO THE DATE OF TRANSFER OF CAPITAL ASSET. WE FIND NO MERI TS IN THE FINDINGS OF THE A.O., FOR THE REASON THAT WHEN INTEREST IS PAID UP TO THE DATE OF CLOSURE OF LOAN AND ALSO IT IS FACT THAT THE ASSESSEE HAD C OMPUTED CAPITAL GAIN FROM SALE OF FLATS WHICH IS SUBSEQUENT TO THE DATE OF JOINT DEVELOPMENT AGREEMENT, THE A.O. WAS ERRED IN DISALLOWING INTER EST SUBSEQUENT TO THE DATE OF JOINT DEVELOPMENT AGREEMENT. THEREFORE , WE ARE OF THE VIEW THAT THE A.O. WAS ERRED IN ALLOWING INTEREST UP TO THE DATE OF TRANSFER OF CAPITAL ASSETS. THE CIT(A) AFTER CONSIDERING THE R ELEVANT FACTS, DIRECTED ITA NO.286/VIZAG/2013 & 586&644/VIZAG/2014 SRI MADIRA RAMU & SMT. MANDAVA SANGEETHA, VIJAYAWAD A 11 THE A.O. TO ALLOW INTEREST AS CLAIMED BY THE ASSESS EE. WE DO NOT FIND ANY REASONS TO INTERFERE WITH THE ORDER OF THE CIT( A), HENCE, WE INCLINED TO UPHOLD THE CIT(A) ORDER AND REJECT THE GROUND RA ISED BY THE REVENUE. 10. IN THE RESULT, APPEAL FILED BY THE REVENUE IN I TA NO.286/VIZAG/2013 IS PARTLY ALLOWED AND APPEAL FILE D BY THE REVENUE IN ITA NO.586/VIZAG/2014 IS DISMISSED. ITA NO.644/VIZAG/2014: 11. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF CONSTRUCTION AND SALE OF FLATS FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11 ON 15.10. 2010 DECLARING TOTAL INCOME OF ` 5,05,540/-. THE CASE WAS SELECTED FOR SCRUTINY AN D THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT, DET ERMINING TOTAL INCOME OF ` 59,88,230/- BY MAKING DISALLOWANCE TOWARDS (I) UNE XPLAINED RECEIPT SHOWN IN NIDAMANURU SITE ACCOUNT TREATED AS UNEXPLAINED INCOME U/S 68 OF THE ACT OF ` 32,82,150/- (II) UNACCOUNTED RECEIPT OF SALE CONSIDERATION RECEIVED IN CASH OF ` 7,78,000/- (III) DISALLOWANCE OF AUDIT FEES U/S 40(A)(IA) OF THE ACT OF ` 40,000/- (IV) DISALLOWANCE OF EXCESS CLAIM OF INTEREST ON LOAN OF ` 30,611/- (V) EXCESS LIABILITY OF OUTSTANDING BALANCE OF LOAN FROM ICICI BANK TREATED AS UNEXPLAINED CREDIT OF ` 10,039/- (VI) DISALLOWANCE OF INTEREST ON REPCO LO AN OF ITA NO.286/VIZAG/2013 & 586&644/VIZAG/2014 SRI MADIRA RAMU & SMT. MANDAVA SANGEETHA, VIJAYAWAD A 12 ` 12,69,942/- (VII) DISALLOWANCE OF INTEREST ON REPC O LOAN OF ` 71,945/- AND (VIII) DIFFERENCE IN INCOME RETURNED. 12. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED A APPEAL BEFORE THE CIT(A). THOUGH THE ASSESSEE HAS CHALLENGED ALL THE ADDITIONS MADE BY THE A.O., HE HAD CONTESTED ONLY 3 ISSUES I.E. (I) ADDITIONS TOWARDS UNEXPLAINED RECEIPT OF ` 32,82,150/- (II) ADDITIONS TOWARDS UNEXPLAINED RECEIPT OF ` 7,78,000/- & (III) DISALLOWANCE OF INTEREST EXPENDITURE OF ` 12,69,942/-. THE CIT(A) AFTER CONSIDERING THE EXPLANATIONS OF THE ASSESSEE, PARTLY ALLOWED APPEAL FILED BY THE ASSESSEE. THE CIT(A), FOR THE DETAILED DISCUSSIONS IN HIS ORDER, SUSTAINED ADDITIONS OF ` 20,04,150/-, OUT OF TOTAL ADDITIONS OF ` 32,82,150/- MADE BY THE A.O. TOWARDS NIDAMANURU SIT E ACCOUNT. SIMILARLY, THE CIT(A) DIRECTED THE A.O. TO DELETE A DDITIONS MADE TOWARDS UNEXPLAINED RECEIPTS OF ` 7,78,000/- AND DISALLOWANCE OF INTEREST EXPENDITURE OF ` 12,69,942/-. AGGRIEVED BY THE CIT(A) ORDER, THE REVENUE IS IN APPEAL BEFORE US. 13. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERAT ION IS ADDITION TOWARDS UNEXPLAINED RECEIPT OF ` 32,82,150/- SHOWN IN NIDAMANURU SITE ACCOUNT. DURING THE COURSE OF ASSESSMENT PROCEEDIN GS, THE A.O. NOTICED FROM THE LEDGER ACCOUNT OF NIDAMANURU SITE ACCOUNT THAT THE ASSESSEE ITA NO.286/VIZAG/2013 & 586&644/VIZAG/2014 SRI MADIRA RAMU & SMT. MANDAVA SANGEETHA, VIJAYAWAD A 13 WAS IN RECEIPT OF AGGREGATE AMOUNT OF ` 32,82,150/- ON FOUR DIFFERENT DATES. WHEN ASSESSEE WAS CALLED UPON TO EXPLAIN TH E NATURE AND SOURCE OF CREDITS FOUND IN THE BOOKS OF ACCOUNTS, THE ASSE SSEE SUBMITTED THAT HE HAS SOLD A SITE TO M/S. SAI ANNAPOORNA HOTEL PVT . LTD. FOR WHICH RECEIVED AN AMOUNT OF ` 32,82,150/-. THE A.O. AFTER CONSIDERING THE EXPLANATIONS FURNISHED BY THE ASSESSEE HELD THAT ON PERUSAL OF THE SALE DEED COPY FURNISHED BY THE ASSESSEE, THE AMOUNT REC ORDED IN THE SALE DEED AND AMOUNT ACCOUNTED BY THE BOOKS OF ACCOUNTS ARE NOT MATCHING. THE A.O. FURTHER OBSERVED THAT THE ASSESSEE HAS SOL D A PROPERTY FOR A CONSIDERATION OF ` 12,78,000/-, WHEREAS HE HAD RECORDED RECEIPT OF ` 32,82,150/-. THE DATE OF RECEIPT OF MONEY IN THE C ASH BOOK AND DATE OF RECEIPT OF AMOUNT IN THE SALE DEED ARE NOT MATCHING . THEREFORE, OPINED THAT THE ASSESSEE HAS FAILED TO EXPLAIN THE SOURCES AND NATURE OF CREDIT FOUND IN THE BOOK OF ACCOUNT AND ACCORDINGLY MADE A DDITIONS OF ` 32,82,150/-. IT IS THE CONTENTION OF THE ASSESSEE THAT HE HAD SOLD PROPERTY FOR A CONSIDERATION OF ` 32,82,150/- AND OUT OF WHICH RECEIVED AN AMOUNT OF ` 12,78,000/- WHICH WAS RECORDED IN THE SALE DEED. THEREFORE, ADDITION SHOULD BE RESTRICTED TO ` 20,04,150/-, BEING DIFFERENCE BETWEEN UNEXPLAINED CREDITS OF ` 32,82,150/- AND SALE CONSIDERATION OF ` 12,78,000/-. ITA NO.286/VIZAG/2013 & 586&644/VIZAG/2014 SRI MADIRA RAMU & SMT. MANDAVA SANGEETHA, VIJAYAWAD A 14 14. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATE RIALS ON RECORD, WE FIND THAT THERE IS A MERIT IN THE ARGUMENTS OF T HE ASSESSEE, FOR THE REASON THAT THE CIT(A) RECORDED A CATEGORICAL FINDI NG THAT THE ASSESSEE HAS SOLD A PROPERTY FOR A CONSIDERATION OF ` 12,78,000/-. THE DETAILS OF PAYMENTS WERE MENTIONED IN THE SALE DEED. THE PURC HASER ALSO CONFIRMED THE PAYMENT OF THIS AMOUNT TO THE ASSESSE E. WHEN THE ASSESSEE HAS FURNISHED PROOF OF SALE OF PROPERTY, T HE CONSIDERATION RECORDED IN THE SALE DEED CANNOT BE IGNORED. THERE FORE, WE ARE OF THE VIEW THAT THE A.O. WAS ERRED IN MAKING ADDITIONS OF ` 32,82,150/- IGNORING THE EVIDENCES FILED BY THE ASSESSEE TO THE EXTENT OF ` 12,78,000/-. THE CIT(A) AFTER CONSIDERING THE RELE VANT FACTS HAS DIRECTED THE A.O. TO RESTRICT ADDITIONS TO ` 20,04,150/- BEING DIFFERENCE OF UNEXPLAINED CREDITS OF ` 32,82,150/- AND SALE CONSIDERATION OF ` 12,78,000/-. WE DO NOT FIND ANY ERRORS OR INFIRMITY IN THE ORDER OF CIT(A). HENCE, WE INCLINED TO UPHOLD THE CIT(A) OR DER AND REJECT THE GROUND RAISED BY THE REVENUE. 15. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS ADDITION OF ` 7,78,000/- TOWARDS UNACCOUNTED RECEIPTS. THE A.O. MADE ADDITIONS OF ` 7,78,000/- ON THE GROUND THAT THE ASSESSEE HAS NOT ACCOUNTED SALE CONSIDERATION OF ` 7,78,000/- IN THE BOOKS OF ACCOUNTS. IT IS THE ITA NO.286/VIZAG/2013 & 586&644/VIZAG/2014 SRI MADIRA RAMU & SMT. MANDAVA SANGEETHA, VIJAYAWAD A 15 CONTENTION OF THE ASSESSEE THAT HE HAS SOLD SITE FO R A CONSIDERATION OF ` 12,78,000/- WHICH INCLUDES CASH RECEIPT OF ` 7,78,000/-. THEREFORE, THE A.O. WAS INCORRECT IN MAKING ADDITIONS OF ` 7,78,000/- IGNORING THE EVIDENCES FILED IN THE FORM OF SALE DEED. WE FIND F ORCE IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT THE ASSESSEE HA S FILED SALE DEED COPY WHEREIN SALE CONSIDERATION OF ` 7,78,000/- RECEIVED IN CASH HAS BEEN RECORDED. THEREFORE, WE ARE OF THE VIEW THAT THE A SSESSEE HAS EXPLAINED THE SOURCES OF ` 7,78,000/- AND ACCORDINGLY, THE A.O. WAS INCORRECT IN MAKING ADDITIONS OF ` 7,78,000/-. THE CIT(A) AFTER CONSIDERING THE DETAILS FURNISHED BY THE ASSESSEE, RIGHTLY DELETED ADDITIONS MADE BY THE A.O. WE DO NOT SEE ANY REASO NS TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). HENCE, WE INCLINED TO UPHOLD THE CIT(A) ORDER AND REJECT THE GROUND RAISED BY THE ASSESSEE. 16. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DISALLOWANCE OF INTEREST PAID ON REPCO LOAN ACCOUNT OF ` 12,69,942/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS CLAIMED EXPENDITURE TOWARDS INTEREST ON REPCO L OAN OF ` 12,69,942/-. THE A.O. FURTHER OBSERVED THAT THE AS SESSEE HAS BORROWED SAID LOAN FOR THE PURPOSE OF PURCHASE OF PEARL VILL A SITE WHICH WAS GIVEN FOR DEVELOPMENT AND THE FLATS WERE SOLD DURING THE FINANCIAL YEAR 2008- ITA NO.286/VIZAG/2013 & 586&644/VIZAG/2014 SRI MADIRA RAMU & SMT. MANDAVA SANGEETHA, VIJAYAWAD A 16 09. THE A.O. FURTHER OBSERVED THAT THE RELEVANT RE CEIPTS WERE ASSESSED AS SHORT TERM CAPITAL GAIN FOR THE ASSESSMENT YEAR 2008-09 AND THE ASSESSEE HAS CLAIMED INTEREST PAID ON LOAN AGAINST INCOME FROM SHORT TERM CAPITAL GAIN. SINCE, THE LOAN WAS OBTAINED FO R THE PURPOSE OF PURCHASE OF CAPITAL ASSET AND THE FACT THAT THE ASS ESSEE HAS CLAIMED SUCH INTEREST AGAINST CAPITAL GAINS, THE INTEREST P AID FOR THE REMAINING PERIOD AND DEBITED TO THE PROFIT & LOSS ACCOUNT CAN NOT BE ALLOWED AS A BUSINESS EXPENDITURE AND ACCORDINGLY, DISALLOWED IN TEREST DEBITED AMOUNTING TO ` 12,69,942/-. 17. THE LD. D.R. SUBMITTED THAT THE LD. CIT(A) IS N OT JUSTIFIED IN ALLOWING INTEREST PAID ON REPCO LOAN. THE ASSESSEE HAS CAPITALIZED INTEREST PAID ON REPCO LOAN AND CLAIMED AS DEDUCTIO N AGAINST CAPITAL GAINS FROM TRANSFER OF PROPERTY. THE D.R. FURTHER SUBMITTED THAT THE ASSESSEE HAS BORROWED LOAN FOR THE PURPOSE OF PURCH ASE OF PROPERTY, WHICH WAS GIVEN FOR JOINT DEVELOPMENT AND THE RESUL TANT GAIN IS OFFERED FOR THE ASSESSMENT YEAR 2009-10 UNDER THE HEAD INCO ME FROM SHORT TERM CAPITAL GAIN. THE ASSESSEE HAS CLAIMED INTERE ST PAID ON SUCH LOAN AS DEDUCTIBLE EXPENDITURE AGAINST SALE CONSIDERATIO N RECEIVED TOWARDS TRANSFER OF CAPITAL ASSETS. THEREFORE, FURTHER DED UCTIONS TOWARDS INTEREST PAID ON LOAN BORROWED FOR THE PURPOSE OF ACQUISITIO N OF PROPERTY, WHICH ITA NO.286/VIZAG/2013 & 586&644/VIZAG/2014 SRI MADIRA RAMU & SMT. MANDAVA SANGEETHA, VIJAYAWAD A 17 IS IN THE NATURE OF CAPITAL EXPENDITURE AGAINST BUS INESS INCOME IS INCORRECT. 18. THE LD. A.R. FOR THE ASSESSEE, ON THE OTHER HAN D, SUBMITTED THAT INTEREST PAID ON BORROWED CAPITAL WAS CAPITALIZED U P TO THE END OF THE FINANCIAL YEAR 31.3.2009 AND INTEREST PAID FROM 1.4 .2009 TO SEPTEMBER, 2009 HAS BEEN CONSIDERED AS BUSINESS EXPENDITURE. THEREFORE, THE A.O. WAS ERRED IN DISALLOWING INTEREST WHICH WAS ACTUALL Y PAID ON BORROWED CAPITAL. THE CIT(A) AFTER CONSIDERING THE RELEVANT DETAILS HAS RIGHTLY DIRECTED THE A.O. TO DELETE INTEREST AND HIS ORDER SHOULD BE UPHELD. 19. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE A.O. DISALLOWED INTEREST PAID ON REPCO LOAN FOR THE REASON THAT THE ASSESSEE HAS BORROWED LOAN FOR THE PURPOSE OF ACQUI SITION OF CAPITAL ASSET AND ANY INTEREST PAID ON SUCH LOAN IS CAPITAL IN NATURE AND CANNOT BE ALLOWED AS DEDUCTION AGAINST BUSINESS INCOME. T HE A.O. FURTHER OBSERVED THAT THE ASSESSEE HAS CLAIMED SUCH INTERES T AGAINST COMPUTATION OF CAPITAL GAIN IN THE ASSESSMENT YEAR 2009-10, THEREFORE, OPINED THAT IT CANNOT BE ALLOWED AS BUSINESS EXPEND ITURE. IT IS THE CONTENTION OF THE ASSESSEE THAT IT HAS CAPITALIZED INTEREST UP TO THE DATE OF 31.3.2009 AND CLAIMED AGAINST CAPITAL RECEIPTS A ND SUBSEQUENT INTEREST HAS BEEN CONSIDERED AS BUSINESS EXPENDITUR E. ITA NO.286/VIZAG/2013 & 586&644/VIZAG/2014 SRI MADIRA RAMU & SMT. MANDAVA SANGEETHA, VIJAYAWAD A 18 20. HAVING HEARD BOTH THE SIDES, WE DO NOT FIND ANY MERITS IN THE ARGUMENTS OF THE ASSESSEE, FOR THE REASON THAT THE ASSESSEE HIMSELF HAS ADMITTED THAT SAID LOAN HAS BEEN BORROWED FOR THE P URPOSE OF PURCHASE OF PROPERTY. WE FURTHER OBSERVED THAT THE ASSESSEE HAS TRANSFERRED THE SAID PROPERTY BY VIRTUE OF A JOINT DEVELOPMENT AGRE EMENT AND COMPUTED SHORT TERM CAPITAL GAIN BY CLAIMING INTEREST PAID O N LOAN AS DEDUCTIBLE EXPENDITURE. ONCE LOAN IS BORROWED FOR THE PURPOSE OF ACQUISITION OF CAPITAL GAINS AND ALSO CLAIMED AS DEDUCTION AGAINST CAPITAL ASSET, SUBSEQUENT PERIOD INTEREST CANNOT BE CLAIMED AS BUS INESS EXPENDITURE, UNLESS OTHERWISE PROVED THAT THE LOAN IS USED FOR T HE PURPOSE OF BUSINESS. IN THE PRESENT CASE ON HAND, IT IS ABUND ANTLY CLEAR THAT THE ASSESSEE HAS BORROWED LOAN FOR THE PURPOSE OF ACQUI SITION OF PROPERTY. IT IS ALSO CLEAR THAT THE ASSESSEE HAS CLAIMED SUCH INTEREST AGAINST CAPITAL RECEIPTS WHILE COMPUTING SHORT TERM CAPITAL GAIN. THEREFORE, WE ARE OF THE VIEW THAT THE A.O. HAS RIGHTLY MADE DISA LLOWANCE OF INTEREST PAID ON REPCO LOAN. THE CIT(A) WITHOUT APPRECIATIN G FACTS, SIMPLY DELETED ADDITIONS MADE BY THE A.O. TOWARDS DISALLOW ANCE OF INTEREST. THEREFORE, WE REVERSE THE ORDER OF THE CIT(A) AND U PHOLD ADDITIONS MADE BY THE A.O. TOWARDS DISALLOWANCE OF INTEREST. ITA NO.286/VIZAG/2013 & 586&644/VIZAG/2014 SRI MADIRA RAMU & SMT. MANDAVA SANGEETHA, VIJAYAWAD A 19 21. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IN ITA NO.644/VIZAG/2014 IS PARTLY ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT O N 23 RD DEC16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE ITO, WARD-2(3), VIJAYAWADA 2. / THE APPELLANT THE ITO, WARD-1(1), VIJAYAWADA 3. / THE RESPONDENT SRI MADIRA RAMU, PROP: SRI RAAM CONSTRUCTIONS, 52-1-7-2, 3 RD LANE, NTR COLONY, VIJAYAWADA 4. / THE RESPONDENT SMT. MANDAVA SANGEETHA, D.NO.10 -263, SOCIETY PET, GANNAVARAM, KRISHNA DIST. 5. + / THE CIT, VIJAYAWADA 6. + ( ) / THE CIT (A), VIJAYAWADA 7. # . , . , # / DR, ITAT, VISAKHAPATNAM 8 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM