ITO, Ward-8(2), Hyderabad V. M/s Hallmark Constructions, Hyderabad

ITA 699/HYD/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5540 (ITAT-HYDERABAD)
• Duration Of Justice: 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 09-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K HARITA
• Assessee Lawyers: V RAGHAVENDRA RAO
• Keywords: Notional interest; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 133A; 37(1); 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA.NO.699/HYD/2013 ASSESSMENT YEAR 2008-2009 ITO, WARD 8(2) HYDERABAD VS. M/S. HALLMARK CONSTRUCTIONS, HYDERABAD PAN AADFH-4865R (APPELLANT (RESPONDENT) FOR REVENUE : MS. K. HARITA FOR ASSESSEE : MR. V. RAGHAVENDRA RAO DATE OF HEARING : 24.03.2014 DATE OF PRONOUNCEMENT : 28.03.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS IS REVENUE APPEAL AGAINST THE ORDER OF THE CIT(A), VIJAYAWADA DATED 27.02.2013. 2. ASSESSEE IS IN THE BUSINESS OF DEVELOPMENT AND CONSTRUCTION OF RESIDENTIAL APARTMENTS. IN THE COUR SE OF SCRUTINY ASSESSMENT, CONSEQUENT TO SURVEY UNDER SEC TION 133A WHICH WAS CONDUCTED ON THE BUSINESS PREMISES OF THE ASSESSEE ON 10.01.2008 AND ALSO ON EXAMINATION OF BOOKS OF A CCOUNTS A.O. MADE ADDITIONS IN AS MANY AS 21 ITEMS AND DETE RMINED THE TOTAL INCOME AT RS.2,97,18,633/- AS AGAINST RS.1,46,36,566/- RETURNED BY THE ASSESSEE. IN THE C OURSE OF 2 ITA.NO.699/HYD/2013 M/S. HALL MARK CONSTRUCTIONS, HYDERABAD APPELLATE PROCEEDINGS BEFORE THE LD. CIT(A), ASSESS EE MADE ELABORATE SUBMISSIONS WHICH WERE SENT TO THE A.O. F OR A REMAND REPORT. AFTER OBTAINING THE REMAND REPORT FR OM THE A.O. AND ALSO COMMENTS FROM THE ASSESSEE, LD. CIT(A ) GAVE SUBSTANTIAL RELIEF ON ALL THE ISSUES. ASSESSEE IS N OT IN APPEAL WHEREAS REVENUE IS AGGRIEVED ON ONLY THREE ITEMS, W HICH ARE CONTENDED AS UNDER : 2. THE LD. CIT(A) ERRED IN ALLOWING THE EXPENDITUR E OF CAPITAL NATURE AS REVENUE EXPENDITURE IN SPITE OF T HE PROVISIONS OF SECTION 37(1) OF I.T. ACT WHICH CLEAR LY SPECIFIES THE NATURE OF EXPENDITURE THAT HAS TO BE ALLOWED UNDER REVENUE HEAD. 3. THE LD. CIT(A) ERRED IN DELETING THE INTEREST ON LOANS GRANTED TO RELATED PERSONS FROM THE FUNDS TAKEN ON LOANS ON INTEREST VIOLATING THE PROVISIONS OF SECTI ON 40(A)(2B). 4. THE LD. CIT(A) ERRED IN RELYING ON THE JUDGMENT GIVEN BY ITS OFFICE FOR A COMPLETELY DIFFERENT TRANSACTION AND DIFFERENT FINDINGS IN THE SURVEY WHILE DELETING THE ADDITIONS MADE BY THE A.O. 3. WE HAVE HEARD THE LEARNED D.R. AND LD. COUNSEL IN DETAIL AND PERUSED THE PAPER BOOK PLACED ON RECO RD FROM PAGES 1 TO 83. 4. GROUND 2 PERTAINS TO ALLOWANCE OF RS.1 ,69,850/- CLAIMED TOWARDS GENERAL POWER OF ATTORNEY CHARGES. ASSESSEE IN THE COURSE OF BUSINESS ENTERS INTO VARIOUS GPAS AND CLAIMED EXPENDITURE ON THAT AS REVENUE EXPENDITURE. THE A.O . TREATED THE SAME AS CAPITAL EXPENDITURE AND DISALLOWED. LD. CIT(A) NOTICING THAT THE SAME EXPENDITURE WAS ALLOWED IN E ARLIER YEARS GIVEN THE FOLLOWING FINDINGS : GROUND NO.14 : THIS GROUND RELATES ALLOWANCE OF GP A CHARGES. IT IS SEEN FROM THE RECORDS THAT THE A.O. HAS FAILED 3 ITA.NO.699/HYD/2013 M/S. HALL MARK CONSTRUCTIONS, HYDERABAD TO APPRECIATE THE LEGITIMATE EXPENDITURE INCURRED O N REGISTRATION OF GPA FOR COMMENCING THE WORKS IN THE SITE. THE EXPENDITURE INCURRED TO FACILITATE RIGHTS TO THE FI RM FOR COMMENCING THE WORK AND IS WHOLLY INCURRED FOR THE BUSINESS WHICH IS NOT A CAPITAL EXPENDITURE SINCE I T IS INTIMATELY RELATED TO THE CONSTRUCTION ACTIVITY IN WHICH THE FIRM IS ENGAGED. CONSIDERING THE PRUDENT NATURE OF EXPENDITURE, THE A.O. SHOULD HAVE ALLOWED THE ENTIR E EXPENDITURE OF RS.164850 BEING BALANCE AMOUNT AFTER APPROPRIATING THE SAID EXPENDITURE YEAR ON YEAR IN THE EARLIER YEARS. THE ENTIRE EXPENDITURE IS COMPLETELY REVENUE IN NATURE SINCE IT IS INCURRED FOR CARRYING OUT THE DE VELOPMENT ACTIVITY OF THE CONSTRUCTION PROJECT IN WHICH THE F IRM IS ENGAGED. IT IS RELEVANT TO NOTE HERE THAT THE ENTIR E AMOUNT SPENT WAS CLAIMED IN EARLIER YEARS ALSO AND THE ONE CLAIMED IN THIS IS THE REMAINING AMOUNT. IT IS ALSO OBSERVE D THAT SUCH CLAIMS OF THE APPELLANT WHICH WERE NOT ALLOWED BY T HE A.O. WERE ALLOWED IN APPEALS. THUS, GIVEN THE FACTS AND CIRCUMSTANCES OF EXPENDITURE, IN MY OPINION, THE A. O. COULD HAVE ALLOWED THE SAME AND HENCE, HE IS ACCORDINGLY DIRECTED TO ALLOW THE SAME NOW. 4.2. SINCE THE LD. CIT(A) CORRECTLY ALLOWED THE EXPENDITURE AS REVENUE EXPENDITURE, WE DO NOT SEE A NY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). GROUND I S ACCORDINGLY REJECTED. 5. GROUND NO.3 PERTAINS TO THE ISSUE OF BRINGING T O TAX AN AMOUNT OF RS.2,73,732/- AS INCOME. A.O. IN H IS BRIEF ORDER CONSIDERED ASSESSEES OBJECTION ON NOT CHARGI NG INTEREAT ON ADVANCES BY EXTRACTING IN PARA 36 AND REJECTING THE SAME ON THE REASON THAT PLEA OF THE ASSESSEE CANNOT BE A CCEPTED AS THE ASSESSEE FIRM IS PAYING USAGE INTEREST ON LOANS ( SIC ). ACCORDINGLY AN AMOUNT OF RS.2,73,732/- WAS TREATED AS UNEXPLAINED INCOME ON NOTIONAL BASIS AND ADDED THE INCOME OF THE ASSESSEE. 5.1. FACTS LEADING TO THIS ISSUE WAS THAT ASSESSEE HAS ADVANCED CERTAIN AMOUNTS TO MR. K. GOPALAKRISHNA PA RTNER. IT 4 ITA.NO.699/HYD/2013 M/S. HALL MARK CONSTRUCTIONS, HYDERABAD WAS THE SUBMISSION THAT THE FIRM HAD GRANTED ADVANC E IN THE BUSINESS INTEREST OF THE FIRM AND HENCE, BRINGING NOTIONAL INTEREST TO TAX IS NOT WARRANTED. LD. CIT(A) CONSID ERED THE ISSUE ALONG WITH SIMILAR ADDITION MADE IN THE CASE OF V. SITARAMAIAH WHO IS NOT RELATED UNDER SECTION 40(A)(2B) AND DELE TED THE ADDITION BY HOLDING AS UNDER : GROUND NO 7 AND 8: THESE GROUNDS RELATE TO CHARGIN G OF NOTIONAL INTEREST ON TWO PERSONS, WHO HAVE GIVEN CO LLATERAL SECURITY TO THE APPELLANT. IT IS SEEN FROM THE RECO RDS THAT THE AO HAD CONSIDERED NOTIONAL INTEREST OF RS.34983 FRO M MR. V. SEETHARAMAIAH AND RS.273732 FROM MR. K. GOPALAKRISH NA, WHO HAVE IN FACT, HELPED THE GUARANTEES TO THE FIRM FOR SECURING A PROJECT LOAN FROM APSFC WITH THEIR TITLE DOCUMENTS WHICH OTHER WISE WOULD HAVE COSTED THE FI RM WITH SUBSTANTIAL EXPENDITURE BY WAY OF COMMISSION. IN RECIPROCATION, DURING THE COURSE OF BUSINESS THE FI RM HAD TEMPORARILY HELPED THEM WITH AN ADVANCE PART OF WHI CH WAS REFUNDED LATER. IN VIEW OF THE COMMERCIAL EXPEDIENC Y, IT HAS BECOME INEVITABLE TO CONSIDER THEIR REQUEST FOR TEM PORARY ADVANCE, ON WHICH NO INTEREST WAS CHARGED. THE IMPU GNED TRANSACTION HAS A BUSINESS NEXUS AND BUSINESS CONNE CTION AND HENCE, IN MY HUMBLE OPINION, CHARGING OF NOTION AL INTEREST IS NOT WARRANTED AND ACCORDINGLY, THE AO I S DIRECTED TO DELETE THE SAME. 5.2. SINCE THERE IS FINDING THAT AMOUNT ADVANCED W AS IN VIEW OF COMMERCIAL EXPEDIENCY, THAT TOO AFTER EX AMINING THE ASSESSEES SUBMISSIONS AND REMAND REPORT FROM AO, WE DO NOT SEE ANY REASON TO INTERFERE WITH SUCH DECISION. MOR EOVER, IT IS NOTICED THAT A.O. SHOULD HAVE INVOKED THE PROVISION S OF SECTION 36(I)(III), IF THERE ARE ANY DIVERSION OF BORROWED FUNDS BUT CANNOT BRING NOTIONAL INTEREST TO TAX ON THE SO-CAL LED ADVANCES MADE, WITHOUT ESTABLISHING THAT THE BORROWED FUNDS ARE DIVERTED FOR NON-BUSINESS PURPOSES. THE ENTIRE ADDI TION MADE BY THE A.O. ITSELF IS BAD IN LAW. GROUND IS REJECTE D. 5 ITA.NO.699/HYD/2013 M/S. HALL MARK CONSTRUCTIONS, HYDERABAD 6. WITH RESPECT TO GROUND NO.4 EVEN THOUGH THIS GROUND IS GENERAL IN NATURE AND DOES NOT SPECIFY WH AT IS THE ISSUE ON WHICH REVENUE IS AGGRIEVED, OUT OF THE OTH ER 19 ISSUES WHICH LD. CIT(A) CONSIDERED, THE D.R. HAS ARGUED ON THE ISSUE OF ADDITION OF AN AMOUNT OF RS. 1 CRORE MADE ON THE BASIS OF DOCUMENT FOUND IN THE COURSE OF SURVEY UNDER SECTIO N 133A CONSIDERED BY THE LD. CIT(A) IN GROUNDS NO. 19 TO 2 6. IN ORDER TO APPRECIATE THE FACTS IT IS BETTER TO EXTRACT THE LD. CIT(A) ORDER ITSELF WHICH READS AS UNDER : GROUND NO 19 TO 26: THESE GROUNDS RELATE TO THE DO CUMENT FOUND IN COURSE OF THE ACTION UNDER SECTION 133A. I T IS SEEN FROM SUCH A DOCUMENT THAT TWO GROUPS WERE, MENTIONE D AND CERTAIN AMOUNTS WERE MENTIONED AGAINST THE NAMES RECORDED THERE ON. NO DATE, NO PURPOSE, NO OTHER DE TAILS WERE MENTIONED. IN THIS SLIP DESCRIPTION OF MKD SIT E WAS MENTIONED AND UNDER BOTH THE GROUPS RS. 55,00,000 A ND RS.45,00,000 WAS MENTIONED; GIVING RISE TO THE CONC LUSION BY THE AO THAT SINCE MKD SITE INDICATED MANIKONDA S ITE, THE AO WAS OF THE VIEW THAT RS.1,00,00,000 INVOLVED AS PER THIS SLIP AND THUS CONCLUDED THAT INCOME CHARGEABLE TO TAX TO THE EXTENT OF RS.1,00,00,000 WAS NOT DISCLOSED BY T HE APPELLANT AND MADE 'THE IMPUGNED ADDITION OF RS.1100,00,000. IN COURSE OF THE APPELLATE PROCEEDI NGS, THE AR HAS HIGHLIGHTED 2 POINTS. POINT ONE RELATES TO A DDITION OF RS.1, ,25,00,000 IN THE ASSESSMENT YEAR 2006-07 BY THE AO FROM THE SAME SLIP FOUND DURING THE COURSE OF SURVE Y, WHICH THE CIT(A)-III, HYDERABAD IN THE ORDER IN ITA NO. 0215/CIT(A)-1I1/0B-09, DATED 26.03.2009 HAS DELETED . A COPY OF THE SAID ORDER FILED WAS PERUSED AND PLACED ON RECORD. HENCE, IT IS CONTENDED THAT THE SAME SHOULD BE TRUE FOR THE IMPUGNED ASSESSMENT YEAR ALSO. POINT TWO RE LATES TO THE INFORMATION FURNISHED BY THE AR DURING THE APPE LLATE PROCEEDINGS, I.E., THE -TRANSACTION REFERRED TO IN THE SLIP HAD IN FACT TAKEN PLACE IN THE MONTH OF FEBRUARY,2007 P ERTAINING TO THE ASST YEAR 2007 -08 AND CANNOT BE BROUGHT IN THE CURRENT ASSESSMENT YEAR AT ALL. DURING FEBRUARY 200 7 THE APPELLANT ALONG WITH OTHERS ENTERED INTO AN AGREEME NT (MOU) WITH LANDLORDS OF THE PROPERTY AT MANIKONDA ADMEASU RING B ACRES 12 GUNTAS AND PAID AN ADVANCE OF RS.1,75,00,0 00/- 6 ITA.NO.699/HYD/2013 M/S. HALL MARK CONSTRUCTIONS, HYDERABAD AS ON 31/03/2008 , WHEREIN OBTAINING ULC BY THE LANDLORDS WAS ONE OF THE CONDITIONS. IT IS EXPLAINED THAT THE ULC COULD NOT BE OBTAINED AND THE PLAN HAS BEEN ABANDONED AND RETURN OF ADVANCE MONEY WAS ALSO COMPLETED ON VARIO US DATES IN THE RECENT FINANCIAL YEAR 2011-12. IN THE CIRCUMSTANCES, SINCE THE PROPOSED PROJECT HAD BEEN ABANDONED, NO COGNIZANCE SHOULD BE TAKEN ON THE SLI P FOUND IS THE SUBMISSION, WHICH IS ACCEPTABLE. SINCE, NO M ATERIAL WAS BROUGHT ON RECORD BY THE REVENUE TO REFUTE THE APPELLANT NOR ANY COGENT REASONS WERE MENTIONED BY THE DEPARTMENT, AND ALSO IN VIEW OF THE VARIOUS CITATIO NS RELIED ON BY THE APPELLANT, THE ADDITION MADE BY THE AO CA NNOT BE SUSTAINED AND ACCORDINGLY THE AO IS DIRECTED TO DEL ETE THE SAME. 6.1. LEARNED D.R. ARGUED THAT THE FINDINGS OF THE LD. CIT(A) IS NOT CORRECT AS SOME OF THE TRANSACTIONS W ERE ACCEPTED BY THE ASSESSEE IN THE COURSE OF STATEMENT RECORDED UNDER SECTION 131 ON 11.01.2008 AS PERTAINING TO YEAR UND ER CONSIDERATION AND THEREFORE, THE AMOUNTS ARE TO BE BROUGHT TO TAX. 6.2. LEARNED A.R. SUBMITTED THAT SIMILAR ADDITIONS MADE IN A.Y. 2006-07 ON THE BASIS OF SAME DOCUMENT WERE DELETED BY THE CIT(A), WHICH WAS ALSO SUBJECT MATTE R OF APPEAL BEFORE THE ITAT AND ITAT VIDE ITS ORDER IN ITA. NO. 594/HYD/2009 DATED 07.03.2013 HELD THAT THE DOCUMEN T WAS DUMB DOCUMENT AND WITHOUT ANY CORROBORATIVE MATERIA L AMOUNT CANNOT BE BROUGHT TO TAX. SINCE THE DELETION OF ADDITION BY THE CIT(A) IN EARLIER YEAR ON THE SAME DOCUMENT IS UPHELD BY THE ITAT, THERE IS NO MERIT IN THE REVENU ES CONTENTION. 6.3. WE HAVE CONSIDERED THE ISSUE AND PERUSED THE SAID DOCUMENT ON THE BASIS OF WHICH ADDITION WAS MA DE AND ALSO STATEMENT OF MR. K. GOPALAKRISHNA DATED 11.01. 2008 7 ITA.NO.699/HYD/2013 M/S. HALL MARK CONSTRUCTIONS, HYDERABAD PLACED ON RECORD BY THE LEARNED D.R. AFTER CONSIDER ING THE SAME, WE DO NOT SEE ANY REASON TO INTERFERE WITH TH E ORDER OF THE CIT(A) AS LD. CIT(A) HAS CONSIDERED THE ISSUE F ACTUALLY. AS FAR AS THE LEGAL PROPOSITION IS CONCERNED, SAME DOC UMENT ON WHICH ADDITION WAS MADE IN EARLIER YEAR WAS ALSO HE LD BY THE ITAT AS A DUMB DOCUMENT. IN VIEW OF THIS, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). A CCORDINGLY, THIS GROUND IS REJECTED. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.03.2014. SD/- SD/- (ASHA VIJAYARAGHAVAN) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 28 TH MARCH, 2014 VBP/- COPY TO 1. THE ITO, WARD 8(2), 8 TH FLOOR, D-BLOCK, I.T. TOWERS, A.C. GUARDS, HYDERABAD. 2. M/S. HALLMARK CONSTRUCTIONS, 1-103, WHITE FIELDS , BOTONICAL GARDENS, KONDAPUR, HYDERABAD 3. CIT(A), VIJAYAWADA 4. CIT-II, HYDERABAD 5. D.R. ITAT, A BENCH, HYDERABAD.