M/s Billigiri Agro Farms (P) Limited, Hyderabad V. Dy.CIT, Circle-9, Hyderabad

ITA 751/HYD/2013

• Counselvise Citation: 75122514 RSA 2013
• 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.751/HYD/2013 ASSESSMENT YEAR 2008-09 M/S. BILLIGIRI AGRO FARMS (P) LTD., HYDERABAD. PAN AADCB-3655-N 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 ASSESSEE IS AGAINST THE ORDER O F THE CIT-(CENTRAL), HYDERABAD UNDER SECTION 263 OF THE I NCOME TAX ACT, 1961 DATED 25.03.2013 INVOKING THE JURISDICTIO N AND SETTING ASIDE THE ASSESSMENT ORDER PASSED BY THE A.O. UNDER SECTION 143(3) FOR A.Y. 2008-09 DATED 30.12.2010. 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.10,00,00,000/- 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.751/HYD/2013 M/S. BILLIGIRI AGRO FARMS (P) LTD., HYDERABAD. ACCORDINGLY, A.O. WORKED OUT INTEREST ON THE ADVANC E AMOUNT OF RS.10,00,00,000/- AND BROUGHT TO TAX AN AMOUNT OF I NTEREST OF RS.16,27,397/- IN THE ASSESSMENT MADE. THE LD. CIT (C) NOTICED THAT THE TOTAL ADVANCES MADE BY THE ASSESSEE WAS AT RS.25,00,00,000/- AS AGAINST RS.10,00,00,000/- TAKE N BY THE A.O. AND AS THERE WAS AN OMISSION OF CALCULATION OF INTEREST AT 18% ON THE BALANCE OF RS. 15,00,00,000/-, LD. CIT( C) INVOKED JURISDICTION UNDER SECTION 263 OF THE I.T. ACT. 2.1. IN THE COURSE OF PROCEEDINGS, ASSESSEE SUBMIT TED THAT OUT OF THE AMOUNT OF RS.25,00,00,000/-, AN AMOUNT O F RS. 15,00,00,000/- WAS REPAID ON 06.10.2008 AND AT THE TIME OF ADVANCE / SHARE APPLICATION MONEY, THERE WAS NO DEM AND OF INTEREST AND THEREFORE, ASSESSEE HAS NOT CHARGED AN Y INTEREST. HOWEVER, SINCE THE AMOUNT OF RS.10,00,00,000/- WAS OUTSTANDING, ASSESSEE FILED SUIT FOR RECOVERY AT 18 % AND ACCORDINGLY, A.O. HAD ALREADY CONSIDERED THE AMOUNT FOR BRINGING TO TAX INTEREST ON ACCRUAL BASIS. ASSESSEE OBJECTED TO THE PROCEEDINGS UNDER SECTION 263. HOWEVER, CIT(C) VIDE HIS PARA 3 EXTRACTED THE AMOUNTS ADVANCED AND OPINED IN PARA 4 THAT A.O. SHOULD HAVE CONSIDERED THE ABOVE AMOUNT OF RS.25,00 ,00,000/- FOR THE PURPOSE OF CALCULATION AND CHARGING OF INTE REST. HE CAME TO THE CONCLUSION THAT INTEREST HAS BEEN UNDER-ASSE SSED. 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 ITA.NO.751/HYD/2013 M/S. BILLIGIRI AGRO FARMS (P) LTD., HYDERABAD. 3. QUESTIONING THE ABOVE ORDER OF THE CIT(C) UNDER SECTION 263, ASSESSEE RAISED FIVE GROUNDS ALL PERTA INING TO THE ISSUE OF JURISDICTION AND LEVY OF INTEREST. 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.68/HYD/2014 DATED 28.05.2014 IN ASSESSEE S OWN CASE DISMISSED THE 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 4 ITA.NO.751/HYD/2013 M/S. BILLIGIRI AGRO FARMS (P) LTD., HYDERABAD. 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 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(C) COULD NOT HAVE BEEN INVOKED JURISDICTION UNDER SECTION 26 3. EVEN OTHERWISE, IT WAS SUBMITTED THAT THERE IS NO QUESTI ON OF LEVY OF INTEREST DURING THE YEAR. THEREFORE, DIRECTIONS OF THE CIT(C) ARE SUPERFLUOUS. 6. LD. D.R. HOWEVER, RELIED ON THE ORDERS OF THE A .O. 7. WE HAVE CONSIDERED THE ISSUE, EXAMINED THE DOCUMENTS AND ORDERS ON RECORD. THERE IS NO DISPUTE WITH REFERENCE TO THE FACT THAT ASSESSEE HAS ADVANCED FU NDS TO THE SAID SATYAM COMPUTERS SERVICES LTD., HOWEVER, THE DISPUT E IS WITH REFERENCE TO LEVY OF INTEREST ON THE AMOUNT ADVANCE D. ASSESSEE HAS NOT ADVANCED THE FUNDS ON INTEREST BASIS AND SU BSEQUENTLY, IT 5 ITA.NO.751/HYD/2013 M/S. BILLIGIRI AGRO FARMS (P) LTD., HYDERABAD. CLAIMED RECOVERY OF PRINCIPAL AMOUNT WITH INTEREST AT 18% BY FILING A SUIT IN CITY CIVIL COURT, HYDERABAD. THIS IS THE BASIS FOR A.O. TO MAKE AN ADDITION ON NOTIONAL BASIS. THIS MA TTER WAS ALREADY CONSIDERED AND DECIDED IN FAVOUR OF THE ASS ESSEES BY THE ITAT IN THE ABOVE REFERRED CASE WITH A DIRECTION TH AT THE AMOUNT OF INTEREST CAN BE BROUGHT TO TAX IN THE YEAR IN WH ICH THE CITY CIVIL COURT CONSIDERED AND DECIDED THE LIABILITY TO REPAY THE AMOUNTS OF ADVANCE AND INTEREST THEREON AND ALSO RA TE OF INTEREST ON WHICH ADVANCE SHOULD BE REPAID. IN THESE CIRCUMS TANCES, THE QUESTION OF BRINGING TO TAX INTEREST ON DIFFERENCE AMOUNT AS DIRECTED BY THE CIT(C) DOES NOT ARISE. NOT ONLY THA T, WHEN THE VERY BASIS OF LEVY IS SUBJECT MATTER OF APPEAL, THE CIT( C) COULD NOT HAVE INVOKED THE JURISDICTION UNDER SECTION 263 IN OPINI NG THAT HIGHER AMOUNT SHOULD HAVE BEEN CONSIDERED FOR LEVY OF INTE REST. IN OUR OPINION, THERE IS NO BASIS FOR LEARNED CIT(C) INVOK ING JURISDICTION UNDER SECTION 263 IN THE FACTS OF THE CASE. ACCORDI NGLY, THE ORDER OF CIT(C) IS SET ASIDE. A.O. HAS THE OPTION TO EXAM INE THE PRINCIPAL AS WELL AS INTEREST AS DIRECTED BY THE ITAT IN THE ABOVE REFERRED ORDER ON QUANTUM APPEAL, AS AND WHEN THE ISSUE IS S ETTLED BY THE ORDERS OF THE COURT. 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.751/HYD/2013 M/S. BILLIGIRI AGRO FARMS (P) LTD., HYDERABAD. COPY TO 1. M/S. BILLIGIRI AGRO FARMS (P) LTD., PLOT NO.80, ROA D 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, HYDERABAD.