ITO 9(2)(1), MUMBAI V. AVIVA HOMES P.LTD, MUMBAI

ITA 6956/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8184 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 13-01-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 29-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV
• Assessee Lawyers: PERCY PARDIWALAMS AARATI SATHE
• Keywords: Business expenditure; Proportionate interest

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -ABENCH MUMBAI , . . , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND C. N. PRASAD,JUDICIAL MEMBER ./I.T.A./6956/MUM/2013, /ASSESSMENT YEAR: 2010-11 INCOME TAX OFFICER-9(2)-1 2ND FLOOR, ROOM NO.225 AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020 VS. M/S. AVIVA HOMES PVT. LTD. C-101, 1ST FLOOR, MANATHON NEXTGEN INNOVA, GANPATRAO KADAM MARG, LOWER PAREL(W) MUMBAI-400 013. PAN:AAACJ 8037 H ( /APPELLANT) ( / RESPONDENT) / REVENUE BY: SHRI RAJESH KUMAR YADAV- DR /ASSESSEE BY: SHRI PERCY PARDIWALA/MS. AARATI SATHE / DATE OF HEARING: 09/02/2017 / DATE OF PRONOUNCEMENT: 15.02.2017 , / PER RAJENDRA A.M. - CHALLENGING THE ORDER DATED 03/09/2013 OF THE CIT ( A)-20,MUMBAI,THE ASSESSING OFFICER (AO) HAS FILED THE PRESENT APPEAL.ASSESSEE-COMPANY, ENGAGED IN THE BUSINESS OF CONSTRUCTION DEVELOP -MENT OF BUILDING,FILED ITS RETURN OF INCOM E ON 07/10/2010,DECLARING INCOME OF RS.583/-. THE AO COMPLETED THE ASSESSMENT U/S.143 ( 3) OF THE ACT,ON 7/12/2012. 2. FIRST GROUND OF APPEAL IS ABOUT DELETING THE DISALL OWANCE OF PROPORTIONATE INTEREST EXPENDITURE MADE BY THE AO.DURING THE ASSESSMENT PR OCEEDINGS,THE AO FOUND THAT ASSESSEE HAD PURCHASED A PLOT OF LAND AT BANGALORE,THAT IN T HE BOOKS OF ACCOUNTS IT WAS SHOWN AS PROJECT IN WHICH COST OF PLOT TOGETHER WITH STAMP D UTY AND INTEREST PAYMENT ON BORROWED FUNDS HAD BEEN CAPITALISED, THAT IT HAD INCREASED T HE PROJECT COST BY RS. 37.49 LAKHS BEING INTEREST ON BORROWED FUNDS, THAT OUT OF THE TOTAL U NSECURED LOANS OF RUBY 7.90 CRORES THE ASSESSEE HAD INVESTED RS. 4.42 CRORES IN PROJECT CO ST, THAT RS. 3.5 AND CRORES WERE ADVANCED AS INTEREST-FREE LOANS.THE AO ASKED THE ASSESSEE TO EX PLAIN AS TO WHY THE PROPORTIONATE INTEREST ON THE INTEREST-FREE DEPOSIT SHOULD NOT BE DISALLOW ED. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE,TH E AO HELD THAT OUT OF THE INTEREST-BEARING FROM THE ASSESSEE HAD ADVANCED AND AMOUNT OF RS. 3. 51 CRORES TO TRIANGLE REALTY VENTURES PRIVATE LTD (TRVPL),THAT IT HAD DIVERTED THE INTERE ST-BEARING FUNDS FOR NON-BUSINESS ACTIVITIES, THAT THE INTEREST CLAIMED BY IT WAS NOT FULLY ALLOWABLE AS BUSINESS EXPENDITURE ATTRIBUTABLE TO THE PROJECT COST WITHIN THE MEANING OF PROVISIONS OF SECTION 36 OF THE 6957/M/13(10-11) AVIVA HOMES 2 ACT.FINALLY,THE AO DISALLOWED 44% OF THE INTEREST E XPENDITURE (RS. 16.49 LAKHS) AND ALLOWED THE BALANCE 56% (RS. 20.19 LAKHS) FOR CAPITALISATIO N. 2.1. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA). BEFORE HIM, THE ASSESSEE STATED THAT ADVANCES WERE MADE FOR BUSINESS PURPOSES ONLY, THAT THE AO HAD ISSUED A NO TICE U/S. 133 (6) OF THE ACT TO TRVPL,THAT THE SAID PARTY HAD CONFIRMED THE RECEIPT OF ADVANCE .AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER, THE FAA HELD THA T THE AO HAD WRONGLY DISALLOW RS. 60.49 LAKHS OUT OF TOTAL DEBIT INTEREST EXPENDITURE OF RS . 37.49 LAKHS, THAT ADVANCE HAD BEEN MADE TO TRVPL FOR PROCUR -ING PLOT OF LAND,THAT THE FUNDS W ERE UTILISED FOR BUSINESS PURPOSES,THAT THERE WAS NO JUSTIFICATION TO PRESUME THAT 44% OF T HE ADVANCE WAS NOT FOR BUSINESS PURPOSES, THAT THERE WAS NO DOUBT ABOUT THE GENUINENESS OF TH E TRANSACTION, IT WAS WRONG ON PART OF THE AO TO PRESUME THAT ASSESSEE HAD NOT CAPITALISED THE ADVANCE TO THE PROJECT.FINALLY,HE DELETED THE ADDITION MADE BY THE AO. 2.2. BEFORE US,THE DEPARTMENTAL REPRESENTATIVE (DR) STAT ED THAT MATTER COULD BE DECIDED ON MERITS. THE AUTHORISED REPRESENTATIVE (AR) STATED T HAT ASSESSEE WAS CARRYING ON ONLY ONE BUSINESS OF CONSTRUCTION AND DEVELOPMENT OF PLOT OF LAND AT BANGALORE DURING THE YEAR UNDER APPEAL, THAT IT HAD GIVEN SOME OF RS. 3.51 CRORES T O TRVPL FOR DEVELOPMENT OF LAND PURCHASED, THAT THE PARTY HAD ADMITTED OF RECEIVING THE ADVANCE. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS.WE FIND THAT OU T OF INTEREST-BEARING FUNDS OF RS.7.57 CRORES THE ASSESSEE HAD CAPITALISED AND AMOUNT OF R S. 4.21 CRORES, THAT IT HAD ADVANCED AN AMOUNT OF RS. 3.51 CRORES TO TRVPL,THAT IN RESPONSE TO THE NOTICE ISSUED BY THE AO TRVPL HAD ADMITTED RECEIVING THE ADVANCE FROM THE ASSESSE E, THAT BOTH THE PARTIES ARE NOT RELATED,THAT THE AO HAD NOT BROUGHT ANY EVIDENCE ON RECORD TO PR OVE THAT ADVANCE WAS NOT FOR BUSINESS PURPOSES. IT IS A SIMPLE BUSINESS TRANSACTION RELAT ED WITH PLOT OF LAND PURCHASED AT BANGALORE BY THE ASSESSEE. THEREFORE,IN OUR OPINION,THE FAA H AD RIGHTLY HELD THAT BUSINESS EXPENDITURE INCURRED BY THE ASSESSEE DURING THE YEAR WAS OF REV ENUE NATURE AND HAD TO BE ALLOWED IN FULL.THERE IS NO JUSTIFICATION IN DISALLOWING ANY P ART OF THE INTEREST EXPENDITURE.SO,CONFIRMING HIS ORDER,WE DISMISS THE FIRST GROUND OF APPEAL. 3. DELETION OF DISALLOWANCE MADE U/S.40A(3) OF THE ACT IS THE SUBJECT MATTER OF SECOND GROUND OF APPEAL.DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD CLAIMED 6957/M/13(10-11) AVIVA HOMES 3 TOTAL PROJECT COST AT RS.4.42 CRORES, THAT THE MAJO RITY OF PAYMENTS WERE TOWARDS LAND COST AND STAMP DUTY EXPENSES. NOTICE U/S. 133 (6) WAS ISSUED TO TRVPL WITH REGARD TO EXPENSES INCURRED BY THE ASSESSEE THROUGH IT. IT WAS GATHERE D THAT PAYMENTS AMOUNTING TO RS. 2.80 CRORES WERE MADE BY TRVPL ON BEHALF OF THE ASSESSEE TOWARDS STAMP DUTY AND LAND COST.IT WAS FURTHER FOUND THAT THE ASSESSEE HAD ACCOUNTED F OR THESE EXPENSES TO JOURNAL ENTRIES IN ITS BOOKS OF ACCOUNTS. THE AO HELD THAT PAYMENTS MADE B Y THE ASSESSEE WAS CLEAR VIOLATION OF PROVISIONS OF 40(A)(3).AFTER CONSIDERING THE SUBMIS SIONS OF THE ASSESSEE IN THAT REGARD,A DISALLOWANCE OF RS. 2.80 CRORE WAS MADE. 3.1. DURING THE APPELLATE PROCEEDINGS BEFORE THE FAA,THE ASSESSEE MADE SUBMISSIONS STATING THAT THERE WAS NO VIOLATION OF 40(A)(3), THAT THERE WAS NO DOUBT ABOUT INCURRING OF THE EXPENDITURE IN QUESTION.AFTER CONSIDERING THE AVAIL ABLE MATERIAL, THE F AA HELD THAT THE ASSESSEE HAD MADE PAYMENT THROUGH ACCOUNT PAYEE CHE QUES TO TRVPL,THAT TRVPL FURTHER MADE THE PAYMENT THROUGH BANKING CHANNEL TO THE LAN D-OWNERS,THAT NO CASH WAS PAID FOR PURCHASING THE PLOT OF LAND, THAT GENUINENESS OF TH E TRANSACTION AND PAYMENT THROUGH ACCOUNT PAYEE CHEQUE IS NOT IN DISPUTE,THAT ON THE GROUND T HAT ASSESSEE HAD MADE JOURNAL ENTRY FOR ONWARD PAYMENT CANNOT BE CONSIDERED AS CASH TRANSAC TION,THAT THE AO HAD WRONGLY APPLIED THE SECTION 40(A)(3)OF THE ACT IN RESPECT OF THE DI SPUTED AMOUNT. 3.2. THE DR LEFT THE ISSUE TO THE DISCRETION OF THE BENC H. THE AR SUPPORTED THE ORDER OF THE FAA.WE FIND THAT THERE IS NO DOUBT THAT THE ASSESSE E HAD NOT MADE ANY CASH PAYMENT TO ANYBODY DURING THE YEAR UNDER CONSIDERATION, THAT I T HAD PAID RS. 2.80 CRORE TO TRVPL THROUGH BANKING CHANNELS, THAT TRVPL IN TURN MADE PAYMENT TO THE LAND-OWNERS FOR PURCHASING THE PLOT OF LAND AND TO THE REGISTRAR FO R PURCHASING STAMP PAPERS.THE PAYMENT TO THE LANDOWNERS AND THE REGISTRAR WAS MADE THROUGH C HEQUES/DEMAND DRAFT.THUS,THERE IS NO EVIDENCE OF CASH PAYMENT IN THE WHOLE TRANSACTION.W E ARE UNABLE TO UNDERSTAND AS TO HOW THE PROVISIONS OF 40(A)(3) OF THE ACT CAN BE INVOKED IN SUCH CIRCUMSTANCES. IT APPEARS THAT THE AO HAD NOT UNDERSTOOD THE PURPOSE AND INTENT OF INT RODUCING THE 40(A)(3) BY THE LEGISLATURE,WHILE DETERMINING THE INCOME OF THE ASS ESSEE. JOURNAL ENTRIES CANNOT BE BASIS FOR INVOKING THE PROVISIONS OF 40(A)(3),WHEN THERE IS N O EVIDENCE OF ANY CASH PAYMENT.THE FAA HAS GIVEN A CATEGORICAL FINDING OF FACT THAT ALL TH E PAYMENTS IN QUESTION WERE THROUGH BANKING CHANNELS.IN SPITE OF SUCH A CLEAR-CUT FINDING OF FA CT,WHY THE SECOND APPEAL WAS PREFERRED BEFORE THE TRIBUNAL, IS BEYOND OUR COMPREHENSION.AS WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE FAA,SO,CONFIRMING THE SAME,WE DECIDE G ROUND NUMBER TWO AGAINST THE AO. 6957/M/13(10-11) AVIVA HOMES 4 AS A RESULT, APPEAL FILED BY THE AO STANDS DISMISSE D. . ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH FEBRUARY , 2017. 15 , 2017 SD/- SD/- ( . . / C.N.PRASAD ) ( / RAJENDRA ) ! / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 15.02 .2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.