M/s Surasa Green Lands Private Limited, Hyderabad V. Dy.CIT, Circle-9, Hyderabad

ITA 753/HYD/2013

• Counselvise Citation: 75322514 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
• Keywords: Assessment record
• Section: 143(3); 263

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.753/HYD/2013 ASSESSMENT YEAR 2008-09 M/S. SURASA GREEN LANDS (P) LTD., HYDERABAD. PAN AAKCS-2496K 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 09.07.2014 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 T HE INCOME TAX ACT, 1961 DATED 25.03.2013 INVOKING THE JURISDI CTION 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, HYDERABAD HAD COMPLETED THE ASSESSMENT UNDER SECTIO N 143(3) OF THE I.T. ACT AND IN THE COURSE OF ASSESSM ENT CONSIDERED AN AMOUNT OF RS.33,72,55,000/- AS AN AD VANCE MADE TO M/S. SATYAM COMPUTER SERVICES LIMITED ON WH ICH ASSESSEE CLAIMED 18% INTEREST BY FILING A SUIT BEFO RE THE CITY CIVIL COURT, SECUNDERABAD. ACCORDINGLY, A.O. WORKE D OUT INTEREST ON THE ADVANCE AMOUNT OF RS.33,72,55,000/- AND BROUGHT TO TAX AN AMOUNT OF INTEREST OF RS.3,53,66, 264/- IN THE ASSESSMENT MADE. 2 ITA.NO.753/HYD/2013 M/S. SURASA GREEN LANDS P. LTD., HYDERABAD 2.1. THE LD. CIT(C) NOTICED THAT THE TOTAL ADVANCE S MADE BY THE ASSESSEE WAS AT RS.34,72,00,000/- (WHIC H INCLUDED AN AMOUNT OF RS.7,80,00,000/- WHICH WAS AD VANCED ON 10.08.2007) AS AGAINST RS.33,72,55,000/- TAKEN B Y THE A.O. AND AS THERE WAS AN OMISSION OF CALCULATION OF INTEREST AT 18% ON THE BALANCE OF RS.1,00,00,000/-. FURTHER, LD . CIT(C) OBSERVED THAT ASSESSEE HAS ADVANCED A SUM OF RS.4,20,00,000/- ON 10.08.2007 THROUGH ING VYSYA BA NK, BANJARA HILLS AND THE SAME WAS WRONGLY TAKEN AS RS.4,20,55,000/-. WHILE CALCULATING THE INTEREST IN COME DURING THE COURSE OF ASSESSMENT A.O. OUGHT TO HAVE CALCULA TED INTEREST & 18% ON 50,000/- (BEING BROUGHT FORWARD B ALANCE) FROM 01.04.2007 TO 31.03.2008 AND ON RS.4,20,00,000 /- W.E.F. 10.08.2007. 2.2. IN THE COURSE OF PROCEEDINGS, ASSESSEE SUBMI TTED THAT OUT OF THE AMOUNT OF RS.7,80,00,000/-, AN AMOU NT OF RS. 6,80,00,000/- WAS REPAID ON 25.11.2008 AND AT THE T IME 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.1,00,00,000/- 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. WITH RES PECT TO SECOND ASPECT OF DIFFERENCE OF RS.50,000/- IT WAS T HE SUBMISSION BY THE LEARNED A.R. BEFORE THE LD. CIT(C ) THAT THE SAID AMOUNT IS REPRESENTING ADVANCE FOR EXPENSES AND IT IS BORNE OUT OF ASSESSMENT RECORDS AND THE FINANCIAL S TATEMENTS AND THE LAW IS CLEAR ON THIS ASPECT THAT IT IS NOT CORRECT TO TAX ON NOTIONAL INCOME. ASSESSEE OBJECTED TO THE PROCEE DINGS 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.1,00,00,000/ - FOR THE 3 ITA.NO.753/HYD/2013 M/S. SURASA GREEN LANDS P. LTD., HYDERABAD PURPOSE OF CALCULATION AND CHARGING OF INTEREST. HE CAME TO THE CONCLUSION THAT INTEREST HAS BEEN UNDER-ASSESSED. A CCORDINGLY, HE SET ASIDE THE ASSESSMENT ORDER WITH A DIRECTION TO RE- COMPUTE THE INCOME OF THE ASSESSEE COMPANY AFTER MA KING NECESSARY VERIFICATION OF THE ISSUE. 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 INTEREST AS WAS DONE BY THE A.O. WAS SUBJECT MATTER OF APPEAL BEFORE THE LD. CIT(A) AND SUBSEQUENTLY BY THE ITAT. THE ITAT VIDE ITS ORDER IN ITA.NO.66/HYD/2010 DATED 28.05.20 14 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 O F THE SHARE APPLICATION MONIES AND TEMPORARY ADVANCES. IT IS SO STATED ON THE BASIS OF ENTRIES IN THE BALANCE SH EET AND THE PROFIT & LOSS ACCOUNTS OF THE RESPECTIVE ASSES SEES FILED ALONG WITH THEIR RETURNS OF INCOME. IN THE AB SENCE OF ANY CONTRACT BETWEEN THE ASSESSEE COMPANIES AND M/S . SCSL FOR CHARGING OF INTEREST ON THE ADVANCES, THE ASSESSEES ARE NOT ENTITLED TO RECEIVE ANY INTEREST INCOME ON SUCH ADVANCES. THEREFORE, MERELY BECAUSE THE ASSESSEE IS FOLLOWING MERCANTILE IS SYSTEM OF ACCOU NTING, IT CANNOT BE SAID THAT THE INTEREST HAS ACCRUED TO THE ASSESSEES. FURTHER, MERELY BECAUSE THE ASSESSEES HA VE CLAIMED INTEREST AT THE RATE OF 18% PER ANNUM IN TH E SUITS FILED FOR RECOVERY OF ADVANCES, IT CANNOT BE SAID T HAT THE SAID RATE OF INTEREST IS APPLICABLE AS M/S. SCSL HA S NOT ADMITTED THE LIABILITY OF EVEN THE AMOUNTS OF ADVAN CE. AS SUCH, WE FIND THAT THERE IS NO CERTAINTY WITH REGAR D TO THE SAID RATE OF INTEREST. THEREFORE, IT CANNOT BE PRE SUMED THAT THE INTEREST ACCRUED TO THE ASSESSEE AT THE RA TE OF 18% P.A. AS CLAIMED BY THE ASSESSEES IN THE SUITS F ILED FOR RECOVERY OF ADVANCES. THE CIVIL COURTS WOULD CONSIDER 4 ITA.NO.753/HYD/2013 M/S. SURASA GREEN LANDS P. LTD., HYDERABAD AND DECIDE THE LIABILITY OF M/S. SCSL TO REPAY THE AMOUNTS OF ADVANCES AND WOULD ALSO CONSIDER THE LIA BILITY OF M/S. SCSL TO PAY INTEREST THEREON AND THE RATE O F INTEREST AT WHICH THE ADVANCES SHOULD BE REPAID. THEREFORE, UNLESS AND UNTIL THE LIABILITY TO PAY TH E ADVANCES AND THE RATE OF INTEREST AT WHICH THE TEMP ORARY ADVANCES ARE TO BE REPAID IS DETERMINED BY THE CIVI L COURT, IT CANNOT BE SAID THAT THE SAME HAS ACCRUED OR ARISEN TO THE ASSESSEES. HOWEVER, IF THE ASSESSEES HAD ADVANCED INTEREST BEARING FUNDS AS INTEREST FREE ADVANCES, THE INTEREST PAID BY THE ASSESSEES TOWARD S SUCH BORROWED FUNDS WOULD HAVE TO BE DISALLOWED AND TREATED AS THE INCOME OF THE RESPECTIVE ASSESSEES. THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE O F ABHISHEK INDUSTRIES (SUPRA) HAS HELD THAT THE NEXUS BETWEEN THE INTEREST BEARING FUNDS AND THE 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) H AS EXAMINED THE ISSUE FROM THIS ANGLE. THEREFORE, THE ORDERS OF THE CIT(A) AND THE ASSESSING OFFICERS ARE SET AS IDE 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 OBSERVATIONS ABOVE. FURTHER, WE HOLD T HAT IF THE AMOUNTS ADVANCED TO M/S. SCSL BY THE RESPECTIVE ASSESSEES ARE FROM THEIR OWN FUNDS, THEN THE INTERE ST EXPENDITURE CANNOT BE DISALLOWED AND BROUGHT TO TAX . NEEDLESS TO MENTION THAT THE ASSESSING OFFICER SHAL L GIVE FAIR OPPORTUNITY OF HEARING TO THE ASSESSEES BEFORE PASSING ANY ORDERS IN THE LIGHT OF OUR ABOVE OBSERV ATIONS AND IN ACCORDANCE WITH LAW. 5. IT WAS THE SUBMISSION THAT THE VERY BASIS OF ACCRUAL OF INTEREST WAS SUBJECT MATTER OF APPEAL. T HEREFORE, CIT(C) COULD NOT HAVE BEEN INVOKED JURISDICTION UND ER SECTION 263. EVEN OTHERWISE, IT WAS SUBMITTED THAT THERE IS NO QUESTION OF LEVY OF INTEREST DURING THE YEAR. THERE FORE, 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 5 ITA.NO.753/HYD/2013 M/S. SURASA GREEN LANDS P. LTD., HYDERABAD SAID SATYAM COMPUTERS SERVICES LTD., HOWEVER, THE D ISPUTE IS WITH REFERENCE TO LEVY OF INTEREST ON THE AMOUNT AD VANCED. ASSESSEE HAS NOT ADVANCED THE FUNDS ON INTEREST BAS IS AND SUBSEQUENTLY, IT CLAIMED RECOVERY OF PRINCIPAL AMOU NT WITH INTEREST AT 18% BY FILING A SUIT IN CITY CIVIL COUR T, HYDERABAD. THIS IS THE BASIS FOR A.O. TO MAKE AN ADDITION ON N OTIONAL BASIS. THIS MATTER WAS ALREADY CONSIDERED AND DECID ED IN FAVOUR OF THE ASSESSEES IN THE GROUP BY THE ITAT I N THE ABOVE REFERRED CASE WITH A DIRECTION THAT THE AMOUNT OF I NTEREST CAN BE BROUGHT TO TAX IN THE YEAR IN WHICH THE CITY CIV IL 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 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 OPINING THAT HIGHER AMOUNT SHOULD HAVE BEEN CONSIDERED FOR LEVY OF INTEREST. IN OUR OPINION, THERE IS NO BASIS FOR LEA RNED CIT(C) INVOKING JURISDICTION UNDER SECTION 263 IN THE FACT S OF THE CASE. ACCORDINGLY, THE ORDER OF CIT(C) IS SET ASIDE. A.O. HAS THE OPTION TO EXAMINE 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 SETTLED 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.753/HYD/2013 M/S. SURASA GREEN LANDS P. LTD., HYDERABAD COPY TO 1. M/S. SURASA GREEN LANDS 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.