Clean City Estates Private Limited , Hyderabad V. Dy. Commissioner of Income Tax , Circle-1(2), Hyderabad

ITA 786/Hyd/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 7277 (ITAT-HYDERABAD)
• Duration Of Justice: 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 19-12-2019
• Assessment Year: 2015-2016
• Appeal Filed On: 16-05-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Period of limitation; Notional interest
• Section: 14A; 150(1); 201; 20

Judgement Text

IN THE INCOME TAX A PPELLATE TRIBUNAL HYDERABAD BENCH B ', HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER I TA NO . 7 8 6 / HYD/201 9 ASSESSMENT YEAR: 2 0 15 - 16 CLEAN CITY ESTATES PVT. LTD., HYDERABAD. PAN A A CCC 4799 H VS. DY. COMMISSIONER OF INCOME - TAX, CIRCLE 1(2), HYDERABAD. A PPELLANT RESPONDENT ASSESSEE BY: S H RI K. C. DEVDAS REVENUE BY: S MT. ESTHER N. HANGHAL DATE OF HEARING: 1 9 / 12 / 201 9 DATE OF PRONOUNCEMENT: 31 / 0 1 /20 20 O R D E R PER P. MADHAVI DEVI, J.M.: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT( A ) 1 , HYDERABAD DATED 28 /0 2 /201 9 FOR AY 20 15 - 15 . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - 1 ['CIT(A)'], IN CONFIRMING THE ASSESSMENT AND ENHANCING THE ASSESSMENT MADE BY THE LD. DCIT, CIRCLE - 1(2), NIZAMABAD, IS TOTALLY CONTRARY TO THE FACTS AND EVIDENCE ON RECORD AND IS THEREFORE U NSUSTAINABLE BOTH ON FACTS AND IN LAW. 2. THE CIT(A) FAILED TO NOTE THAT THE INVESTMENT IN PARTNERS' FIRMS DID NOT YIELD ANY PROFITS IN THE RELEVANT PREVIOUS YEAR RELATED TO AY 2015 - 16 AND THEREFORE ERRED IN CONFIRMING THE DISALLOWANCE MADE UNDER SECTION 14A AT RS. 37,49,112. I.T.A. NO. 786 /HYD/1 9 CLEAN CITY ESTATES PVT. LTD., HYD. 2 3, THE CIT(A) FAILED TO NOTE THAT THE DIRECTION TO INVOKE THE PROVISIONS OF SEC. 45(3) OF THE LT. ACT, 1961 FOR THE AY 2011 - 12 IN AN APPEAL ARISING OUT OF AY 2015 - 16 WAS NOT A 'DIRECTION' NECESSARY FOR THE DISPOSAL OF APPEAL WITHIN THE MEANING OF SECTION 150(1) OF THE I. T. ACT, 1961 AND THEREFORE THE DIRECTIONS OF THE CIT(A) IS INVALID, BAD IN LAW, AND WITHOUT JURISDICTION AND THEREFORE MUST BE QUASHED. 4, WITHOUT PREJUDICE TO GROUND NO. 3 THE CIT(A) FAILED TO NOTE THAT UNDER THE PROVISIONS OF SEC. 150(2) OF THE ITACT, 1961 NO DIRECTION COULD BE GIVEN TO INVOKE THE PROVISIONS OF SEC. 45(3) OF THE I. T . ACT, 1961 FOR THE A.Y. 2011 - 12 AS THE PERIOD OF LIMITATION HAD RUN OUT WHEN THE CIT (A) PASSED THE ORDER ON 28 - 2 - 2019 AND THEREFORE THE DIRECTION OF THE CIT(A) HAS NO LEGS TO STAND AND IS TO BE QUASHED. 5. THE DIRECTIONS OF THE CIT (A) AT PARA 7 OF THE ORDER TO CHARGE INTEREST AT 9% P.A. ON THE INVESTMENTS IS ERRONEOUS AND CONTRARY TO THE FACTS AND EVIDENCE ON RECORD AS THERE WAS NO AGREEMENT TO CHARGE INTEREST AND IS THEREFORE TO BE DELETED, 6. ANY OTHER GROUND(S) THAT MAY BE URGED AT THE TIME OT HEARING. 3. AT THE TIME OF HEARING, LD. DR SUBMITTED THAT THE ISSUE RAISED IN GROUND NO. 2 IS NOT ARISING OUT OF THE ASSESSMENT ORDER, AS THE CIT(A), SUBSEQUENTLY, HAS PASSED THE CORRIGENDUM ORDER DATED 02/05/2019 DELETING THE DISALLOWANCE MADE U/S 14A, A COPY OF WHICH IS FILED BEFORE US. TAKING THE SAME INTO CONSIDERATION, THE GROUND NO. 2 IS REJECTED AS THE SAME HA S NOT ARISEN OUT OF THE ORDER OF CIT(A). 4. AS REGARDS GROUND NOS. 3 & 4, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IT WAS ONLY AN OBSERVATION OF THE CIT(A) THAT CAPITAL GAIN HAS TO BE BROUGHT TO TAX FOR THE AY I.T.A. NO. 786 /HYD/1 9 CLEAN CITY ESTATES PVT. LTD., HYD. 3 2011 - 12 AND NOT A DIRECTION. HOWEVER, ON VERIFICATION OF THE PROCEEDINGS BEFORE THE AO FOR THE AY 2011 - 12 CONSEQUENT TO THE DIRECTIONS OF THE CIT(A), THE AO HAS REPORTED THAT THE ASSESSMENT PROCEEDINGS FOR AY 2011 - 12 COULD NOT BE REOPENED DUE TO LAPSE OF TIME LIMIT FOR REOPENING OF AY 2011 - 12, W HICH ENDED ON 31/03/2018 WHEREAS THE APPELLATE ORDER DATED 28/02/2019 WAS RECEIVED ON 18/03/2019. THEREFORE, GROUND NOS. 3 & 4 ALSO DO NOT SURVIVE AND ACCORDINGLY, REJECTED. 5. AS REGARDS GROUND NO. 5, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO HAS NOT MADE ANY ADDITION OF INTEREST ON INVESTMENTS. THE ADDITION H AS ARIS EN ON ACCOUNT OF ENHANCEMENT NOTICE GIVEN BY CIT(A) U/S 251(2) OF THE ACT, DATED 16/01/2019 , AS A CCORDING TO THE NO TICE, THE PARTNERSHIP DEED OF THE FIRM CONTAINED A CLAUSE OF INTEREST, BUT, SINCE THE ASSESSEE HAS NOT SHOWN INTEREST AS RECEIVED, THE CIT(A) HAS HELD THAT THE INTEREST @ 9% IS TO BE CHARGED ON THE INVESTMENT S . HE SUBMITTED THAT THE ASSESSEE HAS CLEARLY ST ATED BEFORE THE CIT(A) , THAT ACCORDING TO THE INTEREST CLAUSE IN THE PARTNERSHIP DEED , THE RATE OF INTEREST IS TO BE AGREED BY AND BETWEEN PARTIES FROM TIME TO TIME AND THAT IN THE CASE OF THE ASSESSEE , THERE WAS NO RATE OF INTEREST AGREED OR EVEN CHARGED BY THE PARTNERS ON THEIR INVESTMENTS AND, THEREFORE, I.T.A. NO. 786 /HYD/1 9 CLEAN CITY ESTATES PVT. LTD., HYD. 4 NOTIONAL INTEREST @ 9% ON INVESTMENT IN THE PARTNERSHIP FIRM CANNOT BE BROUGHT TO TAX. 5.1 THE LD. DR WAS ALSO HEARD. AS SEEN FROM THE INTEREST CLAUSE IN THE PARTNERSHIP DEED , WHICH WAS REPRODUCED BY THE CIT(A) AT PAGE 11 OF HIS ORDER AND ALSO THAT THE PARTNERS HA VE MUTUALLY AGREED NOT TO CHARGE ANY INTEREST SINCE THE FIRMS WERE INCURRING LOSSES AND ALSO THE FIRM HAD NOT PAID ANY INTEREST TO THE PARTNERS ON THEIR CAPITAL ACCOUNTS. HOWEVER, IF THE ASSES SEE HAD BORROWED FUNDS WHICH WERE ADVANCED TO THE PARTNERSHIP - FIRM, THE INTEREST ON SUCH FUNDS WOULD HAVE TO BE DISALLOWED. SINCE, THERE IS NO MATERIAL ON RECORD ON THIS ISSUE, WE DEEM IT FIT AND PROPER TO REMAND THIS ISSUE TO THE FILE OF THE ASSESSEE FOR THE LIMITED PURPOSE OF VERIFICATION AND IF IT IS FOUND THAT THE SHARE CAPITAL AND SURPLUSES AND RESERVES ARE MORE THAN THE ADVANCES OF THE ASSESSEE TO THE PARTNERSHIP FIRM, THEN NO DISALLOWANCE IS CALLED FOR. THEREFORE, THE ASSESSEES APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. I.T.A. NO. 786 /HYD/1 9 CLEAN CITY ESTATES PVT. LTD., HYD. 5 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY , 20 20. SD/ - SD/ - (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER ( P. MADHAVI DEVI ) JUDICIAL MEMBER HYDERABAD, DATED 31 ST JANUARY , 20 20 . KV COPY FORWARDED TO: 1. M/S CLEAN CITY ESTATES PVT. LTD., C/O SEKHAR & CO., CAS., 133/4, RASHTRAPATHI ROAD, SECUNDERABAD 500 003. 2 . DC IT, CIRCLE 1 ( 2 ), HYDERABAD . 3 . CIT(A) - 1 , HYDERABAD. 4. 5. PR. CIT 1 , HYDERABAD. THE DR, ITAT, HYDERABAD 6 . GUARD FILE