M/s Netravathi Green Fields Private Limited, Hyderabad V. Dy.CIT, Central Circle-9, Hyderabad

ITA 750/HYD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77996 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 14-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M JAGDISH BABU
• Section: 143(3); 263; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA.NO.750/HYD/2013 ASSESSMENT YEAR 2008-09 M/S. NETRAVATHI GREEN FIELDS (P) LTD., HYDERABAD. PAN AACCN-4101C VS. DCIT, C.C. 9 HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE MR. K.C. DEVDAS FOR REVENUE MR. M. JAGDISH BABU DATE OF HEARING 25 .06.2014 DATE OF PRONOUNCEMENT 09 .0 7 .2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS APPEAL IS BY THE ASSESSEE AGAINST THE ORDER OF THE CIT UNDER SECTION 263 OF THE INCOME TAX ACT, 19 61 DATED 25.03.2013 INVOKING THE JURISDICTION AND SET ASIDE THE ASSESSMENT ORDER PASSED BY THE A.O. UNDER SECTION 1 43(3) FOR A.Y. 2008-09 DATED 13.12.2010. 2. BRIEFLY STATED, THE DCIT, CENTRAL CIRCLE-9, HYD ERABAD HAD COMPLETED THE ASSESSMENT UNDER SECTION 143(3) O F THE I.T. ACT AND IN THE COURSE OF ASSESSMENT CONSIDERED AN AMOUN T OF RS.33,83,00,000/- AS AN ADVANCE MADE TO M/S. SATYA M COMPUTER SERVICES LIMITED ON WHICH ASSESSEE CLAIMED 18% INTEREST BY FILING A SUIT BEFORE THE CITY CIVIL COU RT, SECUNDERABAD. 2 ITA.NO.750/HYD/2013 M/S. NETRAVATHI GREEN FIELDS (P) LTD., HYDERABAD. ACCORDINGLY, A.O. WORKED OUT INTEREST ON THE ADVANC E AMOUNT OF RS.33.83 CRORES AND BROUGHT TO TAX AN AMOUNT OF INT EREST OF RS.3,34,77,879/- IN THE ASSESSMENT MADE. THE LD. CI T(A) NOTICED THAT THE TOTAL ADVANCES MADE BY THE ASSESSEE WAS AT RS.34.83 CRORES AS AGAINST RS.33.83 TAKEN BY THE A.O. AS THE RE WAS AN OMISSION OF CALCULATION OF INTEREST AT 18% ON THE B ALANCE OF RS. 1 CRORE. THE LD. CIT(A) INVOKED JURISDICTION UNDER SE CTION 263 OF THE I.T. ACT. 2.1. IN THE COURSE OF PROCEEDINGS, ASSESSEE SUBMIT TED THAT OUT OF THE AMOUNT OF RS.34.83 CRORES, AN AMOUNT OF RS. 1 CRORE WAS REPAID ON 25.11.2008 AND AT THE TIME OF ADVANCE OF SHARE APPLICATION MONEY, THERE WAS NO DEMAND OF INTEREST AND THEREFORE, ASSESSEE HAS NOT CHARGED ANY INTEREST. H OWEVER, SINCE THE AMOUNT OF RS.33.83 CRORES WAS OUTSTANDING, ASSE SSEE FILED SUIT FOR RECOVERY AT 18% AND ACCORDINGLY, A.O. ALRE ADY CONSIDERED THE AMOUNT FOR BRINGING TO TAX INTEREST ON ACCRUAL BASIS. ASSESSEE OBJECTED TO THE PROCEEDINGS UNDER SECTION 263. HOWE VER, CIT VIDE HIS PARA 3 EXTRACTED THE AMOUNTS ADVANCED AND OPINE D IN PARA 4 THAT A.O. SHOULD HAVE CONSIDER THE ABOVE AMOUNT OF RS.34.83 CRORES FOR THE PURPOSE OF CALCULATION AND CHARGING OF INTEREST. HE CAME TO THE CONCLUSION THAT INTEREST HAS BEEN UNDER -ASSESSED. ACCORDINGLY, HE SET ASIDE THE ASSESSMENT ORDER WITH A DIRECTION TO RE-COMPUTE THE INCOME OF THE ASSESSEE COMPANY AFTER MAKING NECESSARY VERIFICATION OF THE ISSUE. 3. QUESTIONING THE ABOVE ORDER OF THE CIT UNDER SE CTION 263, ASSESSEE RAISED FIVE GROUNDS ALL PERTAINING TO THE ISSUE OF JURISDICTION AND LEVY OF INTEREST. 3 ITA.NO.750/HYD/2013 M/S. NETRAVATHI GREEN FIELDS (P) LTD., HYDERABAD. 4. LD. COUNSEL SUBMITTED THAT THE VERY LEVY OF INT EREST AS WAS DONE BY THE A.O. WAS SUBJECT MATTER OF APPEA L BEFORE THE LD. CIT(A) AND SUBSEQUENTLY BY THE ITAT. THE ITAT V IDE ITS ORDER IN ITA.NO.66/HYD/2010 DATED 28.05.2014 DISMISSED TH E REVENUE APPEAL BY HOLDING AS UNDER : 16. APPLYING THESE PRINCIPLES TO THE FACTS OF THE CASES BEFORE US, WE FIND THAT THE ASSESSEES HAVE STATED B EFORE THE CIT(A) THAT THE AMOUNTS ADVANCED ARE FROM OUT OF TH E SHARE APPLICATION MONIES AND TEMPORARY ADVANCES. IT IS SO STATED ON THE BASIS OF ENTRIES IN THE BALANCE SHEET AND THE PROFIT & LOSS ACCOUNTS OF THE RESPECTIVE ASSESSEES FILED ALONG WI TH THEIR RETURNS OF INCOME. IN THE ABSENCE OF ANY CONTRACT B ETWEEN THE ASSESSEE COMPANIES AND M/S. SCSL FOR CHARGING OF IN TEREST ON THE ADVANCES, THE ASSESSEES ARE NOT ENTITLED TO REC EIVE ANY INTEREST INCOME ON SUCH ADVANCES. THEREFORE, MEREL Y BECAUSE THE ASSESSEE IS FOLLOWING MERCANTILE IS SYSTEM OF A CCOUNTING, IT CANNOT BE SAID THAT THE INTEREST HAS ACCRUED TO THE ASSESSEES. FURTHER, MERELY BECAUSE THE ASSESSEES HAVE CLAIMED INTEREST AT THE RATE OF 18% PER ANNUM IN THE SUITS FILED FOR RE COVERY OF ADVANCES, IT CANNOT BE SAID THAT THE SAID RATE OF I NTEREST IS APPLICABLE AS M/S. SCSL HAS NOT ADMITTED THE LIABIL ITY OF EVEN THE AMOUNTS OF ADVANCE. AS SUCH, WE FIND THAT THERE IS NO CERTAINTY WITH REGARD TO THE SAID RATE OF INTEREST. THEREFORE, IT CANNOT BE PRESUMED THAT THE INTEREST ACCRUED TO TH E ASSESSEE AT THE RATE OF 18% P.A. AS CLAIMED BY THE ASSESSEES IN THE SUITS FILED FOR RECOVERY OF ADVANCES. THE CIVIL COURTS WO ULD CONSIDER AND DECIDE THE LIABILITY OF M/S. SCSL TO REPAY THE AMOUNTS OF ADVANCES AND WOULD ALSO CONSIDER THE LIABILITY OF M /S. SCSL TO PAY INTEREST THEREON AND THE RATE OF INTEREST AT WH ICH THE ADVANCES SHOULD BE REPAID. THEREFORE, UNLESS AND UN TIL THE LIABILITY TO PAY THE ADVANCES AND THE RATE OF INTER EST AT WHICH THE TEMPORARY ADVANCES ARE TO BE REPAID IS DETERMIN ED BY THE CIVIL COURT, IT CANNOT BE SAID THAT THE SAME HAS AC CRUED OR ARISEN TO THE ASSESSEES. HOWEVER, IF THE ASSESSEES HAD ADVANCED INTEREST BEARING FUNDS AS INTEREST FREE AD VANCES, THE INTEREST PAID BY THE ASSESSEES TOWARDS SUCH BORROWE D FUNDS WOULD HAVE TO BE DISALLOWED AND TREATED AS THE INCO ME OF THE RESPECTIVE ASSESSEES. THE HONBLE PUNJAB AND HARYAN A HIGH 4 ITA.NO.750/HYD/2013 M/S. NETRAVATHI GREEN FIELDS (P) LTD., HYDERABAD. COURT IN THE CASE OF ABHISHEK INDUSTRIES (SUPRA) HA S HELD THAT THE NEXUS BETWEEN THE INTEREST BEARING FUNDS AND TH E INTEREST FREE ADVANCES WILL HAVE TO BE PROVED BEFORE MAKING THE DISALLOWANCE OF INTEREST AND BRINGING IT TO TAX. WE FIND THAT NEITHER THE ASSESSING OFFICER NOR THE CIT(A) HAS EX AMINED THE ISSUE FROM THIS ANGLE. THEREFORE, THE ORDERS OF THE CIT(A) AND THE ASSESSING OFFICERS ARE SET ASIDE AND THE ISSUE IS REMITTED TO THE FILE OF THE ASSESSING OFFICER OF THE RESPECTIVE ASSESSEES FOR DE NOVO CONSIDERATION IN THE LIGHT OF OUR OBSERVATI ONS ABOVE. FURTHER, WE HOLD THAT IF THE AMOUNTS ADVANCED TO M/ S. SCSL BY THE RESPECTIVE ASSESSEES ARE FROM THEIR OWN FUNDS, THEN THE INTEREST EXPENDITURE CANNOT BE DISALLOWED AND BROUG HT TO TAX. NEEDLESS TO MENTION THAT THE ASSESSING OFFICER SHAL L GIVE FAIR OPPORTUNITY OF HEARING TO THE ASSESSEES BEFORE PASS ING ANY ORDERS IN THE LIGHT OF OUR ABOVE OBSERVATIONS AND I N ACCORDANCE WITH LAW. 5. IT WAS THE SUBMISSION THAT THE VERY BASIS OF A CCRUAL OF INTEREST WAS SUBJECT MATTER OF APPEAL. THEREFORE , CIT COULD NOT HAVE BEEN INVOKED JURISDICTION UNDER SECTION 263. E VEN OTHERWISE, IT WAS SUBMITTED THAT THERE IS NO QUESTI ON OF LEVY OF INTEREST DURING THE YEAR. THEREFORE, DIRECTIONS OF THE CIT ARE SUPERFLUOUS. 6. LD. D.R. HOWEVER, RELIED ON THE ORDERS OF THE C IT. 7. WE HAVE CONSIDERED, EXAMINED THE DOCUMENTS AND ORDERS ON RECORD. THERE IS NO DISPUTE WITH REFERENC E TO THE FACT THAT ASSESSEE HAS ADVANCED FUNDS TO THE SAID SATYAM COMPUTERS SERVICES LTD., HOWEVER, THE DISPUTE IS WITH REFEREN CE TO LEVY OF INTEREST ON THE AMOUNT ADVANCED. ASSESSEE HAS NOT A DVANCED THE FUNDS ON INTEREST BASIS AND SUBSEQUENTLY, IT FILED RECOVERY OF PRINCIPAL AMOUNT WITH INTEREST AT 18% BY FILING A S UIT IN CITY CIVIL COURT, HYDERABAD. THIS IS THE BASIS FOR A.O. TO MAK E AN ADDITION 5 ITA.NO.750/HYD/2013 M/S. NETRAVATHI GREEN FIELDS (P) LTD., HYDERABAD. ON NOTIONAL BASIS. THIS MATTER WAS ALREADY CONSIDER ED AND DECIDED IN FAVOUR OF THE ASSESSEES IN THE GROUP BY THE ITAT IN THE ABOVE REFERRED CASE WITH A DIRECTION THAT THE AMOUN T OF INTEREST CAN BE BROUGHT TO TAX IN THE YEAR IN WHICH THE CITY CIVIL COURT CONSIDERED AND DECIDED THE LIABILITY TO REPAY THE A MOUNTS OF ADVANCE AND INTEREST THEREON AND ALSO RATE OF INTER EST ON WHICH, ADVANCE SHOULD BE REPAID. IN THESE CIRCUMSTANCES, T HE QUESTION OF BRINGING TO TAX INTEREST ON DIFFERENT AMOUNTS AS DIRECTED BY THE CIT DOES NOT ARISE. NOT ONLY THAT, WHEN THE VERY BA SIS OF LEVY IS SUBJECT MATTER OF APPEAL, THE CIT COULD NOT HAVE IN VOKE THE JURISDICTION UNDER SECTION 263 IN OPINING THAT HIGH ER AMOUNT SHOULD HAVE BEEN CONSIDERED FOR LEVY OF INTEREST. I N OUR OPINION, THERE IS NO BASIS FOR LEARNED CIT INVOKING JURISDIC TION UNDER SECTION 263 IN THE FACTS OF THE CASE. ACCORDINGLY, THE ORDER OF CIT IS SET ASIDE. HOWEVER, WE ARE GIVING AN OPTION TO T HE A.O. TO EXAMINE THE PRINCIPAL AS WELL AS INTEREST AS DIRECT ED BY THE ITAT IN THE ABOVE REFERRED ORDER IN QUANTUM APPEAL. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 09.07.2014. SD/- SD/- (ASHA VIJAYARAGHAVAN) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 09 TH JULY, 2014 VBP/- 6 ITA.NO.750/HYD/2013 M/S. NETRAVATHI GREEN FIELDS (P) LTD., HYDERABAD. COPY TO 1. M/S. NETR AVATHI GREEN FIELDS (P) LTD., PLOT NO.80, ROAD NO.9, JUBILEE HILLS, HYDERABAD. 2. DCIT, CENTRAL CIRCLE - 9, HYDERABAD. 3. CIT (CENTRAL), 7 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD 4. ADDL. CIT , C.R. - 3 , HYDERABAD 7. D.R. B BENCH, ITAT, HYDE RABAD.