M/s. Shalivahana Estates, Secunderabad V. ACIT, Cir-10(1), Hyderabad

ITA 832/HYD/2011

• Counselvise Citation: 83222514 RSA 2011
• Duration Of Justice: 2 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 16-08-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 06-05-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: S RAMA RAO
• Keywords: Source of fund
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO. 832 & 833/HYD/2011 ASSESSMENT YEARS 2006-2007 & 2007-2008 M/S. SHALIVAHANA ESTATES, SECUNDERABAD PAN AAQFS1547L VS. ACIT, CIRCLE 10(1) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. S. RAMA RAO FOR REVENUE : MR. D. SUDHAKAR RAO DATE OF HEARING : 13.03.2014 DATE OF PRONOUNCEMENT : 26.03.2014 ORDER PER B. RAMAKOTAIAH, A.M. THESE TWO APPEALS ARE BY ASSESSEE AGAINST ORDER PASSED UNDER SECTION 263 OF THE I.T. ACT, 1961 BY C IT-5, HYDERABAD DATED 23.02.2011 FOR THE IMPUGNED ASSESSM ENT YEARS. 2. BRIEFLY STATED, ASSESSEE FILED RETURN OF INCOME FOR A.Y. 2006-07 AND 2007-08 WHICH WERE PROCESSED AND T HEN ASSESSMENTS UNDER SECTION 143(3) WERE COMPLETED. SUBSEQUENTLY, LEARNED CIT(A) CALLED FOR THE RECORD AND NOTICED THAT ASSESSEE HAS CLAIMED INTEREST ON THE BORROWED AMOUNT OF RS. 3 CRORES STATED TO HAVE BEEN PAID TO ANOTHER SI STER CONCERN WHICH, ACCORDING TO THE CIT, IS NOT ALLOWABLE. 2 ITA.NO.832 & 833/HYD/2011 M/S. SHALIVAHALA ESTATES, HYDERABAD 3. FACTS LEADING TO THE OPINION BY THE CIT ARE THA T ASSESSEE ENTERED INTO AN AGREEMENT ON 1 ST APRIL, 2001 WITH A DEVELOPER/ASSOCIATE CONCERN TO CONSTRUCT AND COMPLE TE THE CONSTRUCTION OF THE PROPOSED COMPLEX AT PREMISES BE ARING NO.91, SITUATED AT SAROJINI ROAD, SECUNDERABAD. SIN CE DEVELOPER HAS TO PUT IN ITS OWN FUNDS, RATIO AGREED BETWEEN DEVELOPER AND OWNER WAS AT 65 : 35. SUBSEQUENTLY, V IDE REVISED SUPPLEMENTARY AGREEMENT DATED 19.12.2002, THE SHARI NG RATIO WAS CHANGED TO 50 : 50 BETWEEN THE DEVELOPER AND OW NER. ASSESSEE HAD ENTERED INTO LEASE AGREEMENTS ON 04.04 .2005 WITH M/S. SECUNDERABAD HOTELS P. LTD. LEASING OUT T HE PROPERTY W.E.F. 04.01.2005 UP TO 31.12.2014. THE LE ASE PERIOD CAN BE EXTENDED FURTHER. THESE LEASE DEEDS WERE REG ISTERED. WHILE OFFERING THE INCOME, THE ASSESSEE CLAIMED INT EREST ON AN AMOUNT OF RS. 3 CRORES PAID TO THE SISTER CONCERN W HICH WAS ALLOWED IN THE COURSE OF SCRUTINY PROCEEDINGS. THE LEARNED CIT REVISED THE ORDER BY HOLDING THE SAME AS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE ON THE FOLLOWING REASONS : (I) THE SUPPLEMENTARY DEED IS COLOURABLE DEVICE IN TRODUCED BY THE ASSESSEE TO CLAIM INTEREST EXPENDITURE FROM THE RENTAL INCOME. SINCE, THERE IS NO NEED FOR THIS SUPPLEMENT ARY DEED, EXCEPT TO CLAIM THAT ASSESSEE HAS PROVIDED SOME FUN DS TO THE DEVELOPER. IF THE SUPPLEMENTARY DEED IS A REAL DEED , THE SAME SHOULD HAVE BEEN MENTIONED IN THE LEASE DEEDS ENTER ED INTO WITH THE LESSEE M/S. SECUNDERABAD HOTELS PVT. LTD. BUT IN ALL THE THREE LEASE DEEDS THE DEVELOPMENT DEED DATED 01.04.2001 IS ONLY MENTIONED, WHICH STRENGTHEN THAT THIS SUPPLEMENTARY DEED IS A SELF SERVING INSTRUMENT. TH IS HAS NOT BEEN EXAMINED BY THE A.O. (II) THE ASSESSEE HAS NOT BORROWED ANY MONEY FOR CONSTRUCTION/ACQUISITION OR RENOVATION OF PROPERTY. THE LOANS OF RS.3 CRORES AND RS. 2 CRORES OBTAINED FROM THE U CO BANK ARE NOT FOR THE PURPOSE OF ACQUISITION OF THE PROPE RTY UNDER REFERENCE. THEREFORE, THE ASSESSEES CLAIM OF INTER EST ON BORROWED CAPITAL IS NOT ALLOWABLE UNDER SECTION 24( B) OF THE I.T. ACT, 1961. THIS HAS NOT BEEN EXAMINED BY THE A .O. 3 ITA.NO.832 & 833/HYD/2011 M/S. SHALIVAHALA ESTATES, HYDERABAD 3.1. ACCORDINGLY, THE LD. CIT SET ASIDE THE ORDER TO FURTHER EXAMINE THE ALLOWABILITY OF CLAIM OF THE AS SESSEE UNDER SECTION 24(B) OF THE ACT. 4. LD. COUNSEL REFERRING TO THE PAPER BOOKS FILED IN THIS REGARD SUBMITTED THAT THE OBSERVATIONS OF THE CIT ARE NOT CORRECT AS THE A.O. EXAMINED THE ISSUE OF ORIGINAL DEED AS WELL AS THE REVISED DEED AND THE FACT OF OBTAINING LOAN AND PAYING TO SISTER CONCERN M/S. SALIVAHANA ASSOCIATES IN THE ASSESSMENT PROCEEDINGS FOR A.Y. 2005-06. HE REFERRE D TO THE ORDER OF THE SAME A.O. IN A.Y. 2005-06 DATED 31.12. 2007 WHEREIN A.O. HAD GIVEN A FINDING THAT THE ASSESSEE S SOURCE OF INCOME WAS INCOME FROM HOUSE PROPERTY AND INCOME FR OM LONG TERM CAPITAL GAINS BY VIRTUE OF LAND GIVEN TO DEVELOPMENT IN TERMS OF 50% SHARE OF THE CONSTRUCTE D AREA IN THE SAID BUILDING. NOT ONLY THIS LONG TERM CAPITAL GAIN OFFERED IN THAT YEAR OFFERING 50% OF THE CONSTRUCTED AREA WAS ALSO ACCEPTED, BY DETERMINING THE LONG TERM CAPITAL GAIN TAXABLE AT RS.67,41,150/-. LD. COUNSEL ALSO POINTED OUT THAT I NCOME FROM HOUSE PROPERTY AT RS.15,49,682/- WAS AFTER CLAIMING THE INTEREST ON THE PART PERIOD ON THE AMOUNT OF RS. 3 CRORES PAID TO M/S. SALIVAHANA ASSOCIATES. IT WAS FURTHER SUBMI TTED BY REFERRING TO THE P & L ACCOUNT OF M/S. SALIVAHANA A SSOCIATES AND THE RETURN OF INCOME FILED THEREIN TO SUBMIT TH AT RECEIPTS FROM ASSESSEE WERE SHOWN AS REVENUE INCOME FOR THE YEAR ENDED 31.03.2005, WHEREIN RECEIPTS WERE SHOWN AT RS . 3.30 CRORES. IT WAS THE SUBMISSION THAT A.O. WHO WAS ALS O ASSESSING THE SISTER CONCERN M/S. SALIVAHANA ASSOCIATES HAS E XAMINED THE TRANSACTIONS IN DETAIL AND THEREFORE, THE CIT O RDER IS NOT CORRECT. IT WAS FURTHER SUBMITTED THAT REFERRING TO THE CORRESPONDENCE WITH THE BANK, THAT A LOAN WAS OBTAI NED FROM THE BANK TO REPAY THE LOAN TAKEN FROM ORIENTAL BANK OF 4 ITA.NO.832 & 833/HYD/2011 M/S. SHALIVAHALA ESTATES, HYDERABAD COMMERCE AND THAT THE AMOUNT WAS DIRECTLY PAID BY T HE BANK TO M/S. SALIVAHANA ASSOCIATES. IT WAS FURTHER SUBMI TTED REFERRING TO THE WRITTEN SUBMISSIONS BEFORE LEARNED CIT, THAT INITIALLY THE DEVELOPER HAS TO DEPOSIT INTEREST FRE E NON- REFUNDABLE DEPOSIT OF RS. 80 LAKHS TO THE OWNER BUT SUBSEQUENTLY, DUE TO FAILURE TO PAY THE DEPOSIT, TH E DEVELOPER HAS AGREED TO ENHANCE THE SHARE RATIO FROM 35% TO 5 0% (BARE STRUCTURE) BY SUPPLEMENTARY AGREEMENT DATED 19 TH DECEMBER, 2002. THEREAFTER, FOR FINISHING WORKS, ASSESSEE AGR EED TO PAY 300 PER SQ. FEET WHICH WORKED OUT TO RS. 330 LAKHS. THIS AMOUNT WAS PAID TO THE DEVELOPER WHICH WAS ACCEPTED AS A REVENUE RECEIPT BY M/S. SALIVAHANA ASSOCIATES. SINC E THE ASSESSEE COULD NOT SELL DUE TO SLUMP IN THE REAL ES TATE MARKET, THE PROPERTY WAS LET OUT TO M/S SECUNDERABAD HOTELS PVT. LTD. (WHICH IS PART OF MINERVA HOTELS GROUP) FOR A PERIO D OF 10 YEARS. SINCE THE AMOUNT OF RS.330 LAKHS TO THE DEVE LOPER WAS PAID BY AVAILING LOAN OF RS.300 LAKHS FROM UCO BANK LTD. AGAINST FUTURE RENTS, THE INTEREST IN RESPECTIVE YE ARS WAS CLAIMED UNDER SECTION 24(B). THESE FACTS WERE DULY FURNISHED BEFORE THE A.O. BY THEIR LETTER DATED 23 RD OCTOBER, 2007 DURING THE SCRUTINY PROCEEDINGS FOR A.Y. 2005-06. LD. COUN SEL POINTED OUT THAT IN THAT YEAR AN AMOUNT OF RS.2,26,438/- WA S CLAIMED AND ALLOWED AND THERE WAS NO PROCEEDING FOR A.Y. 20 05-06. THIS BEING THE CONSEQUENTIAL ORDERS, THE CIT ORDER FOR RE- EXAMINATION IS NOT ACCORDING TO THE FACTS OF THE CA SE. 5. LD. D.R. HOWEVER, SUBMITTED THAT NOTHING WAS BROUGHT ON RECORD BY THE A.O. IN THE COURSE OF ASSE SSMENT PROCEEDINGS FOR A.Y. 2006-07 AND 2007-08 AND SO CIT WAS CORRECT IN INVOKING THE PROVISIONS OF SECTION 263. FURTHER, NO PREJUDICE CAN BE CAUSED TO THE ASSESSEE AS LD.CIT H AS NOT GIVEN ANY FINDING AND HAS ONLY SET ASIDE. THEREFORE , NO 5 ITA.NO.832 & 833/HYD/2011 M/S. SHALIVAHALA ESTATES, HYDERABAD INTERFERENCE WAS CALLED FOR AS DECIDED BY THE HONB LE KARNATAKA HIGH COURT IN THE CASE OF INFOTECH TECHNO LOGIES LTD. 341 ITR 293. LD. D.R. RELIED ON THE ORDERS OF THE L D. CIT. 6. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE PAPER BOOK PLACED ON RECORD. AS SEEN FROM THE FACTS AVAILABLE ON RECORD, ASSESSEE DID BORROW FUNDS TO PAY M/S. SA LIVAHANA ASSOCIATES FOR COMPLETION OF THE BUILDING, WHICH WA S LEASED OUT. THEREFORE, THERE IS NO DIVERSION OF FUNDS AS A LLEGED BY THE LD. CIT. MOREOVER, THERE IS NO OTHER ACTIVITY FOR T HE ASSESSEE EXCEPT OWNING 50% SHARE OF THE PROPERTY WHICH WAS L EASED OUT. AS STATED BY THE A.O. IN A.Y. 2005-06, ASSESSE ES OWN RESOURCES OF INCOME IS RENTAL INCOME AND INTEREST C LAIMED ON BORROWED FUNDS WAS EXAMINED IN A.Y. 2005-06, WHEREI N SUPPLEMENTARY DEED WAS ALSO CONSIDERED THEREBY, A.O . HAS GIVEN A FINDING THAT ASSESSEE OWNS 50% OF THE CONST RUCTED AREA IN THE BUILDING. NOT ONLY THAT ASSESSEE ALSO OFFER ED ON INCOME AT 50% OF THE BUILDING, WHICH WAS LEASED OUT, ALONG WITH M/S. SALIVAHANA ASSOCIATES. THEREFORE, SINCE ASSESSEE IS OWNING THE PROPERTY OF 50% OF THE SHARE OF THE BUILDING AND LE ASE RENT WAS ALSO OFFERED ACCORDINGLY ON THE SAME AREA, FINDING BY CIT THAT THE SUPPLEMENTARY AGREEMENT IS NOT A REAL DEED IS N OT BASED ON RECORD. JUST BECAUSE ASSESSEE REFERRED THE ORIGI NAL REGISTERED DEED WHILE LEASING OUT THE PROPERTY, IT DOES NOT MEAN THAT SUPPLEMENTARY DEED DOES NOT EXIST. FURTHE R FOR COMPLETION OF THE BUILDING, ASSESSEE PAID AN AMOUNT OF RS. 330 LAHS OUT OF WHICH RS. 300 LAKHS WAS STATED TO BE BY WAY OF LOAN FROM UCO BANK AND AS SEEN FROM THE RECORD, RS. 330 LAKHS PAID BY THE ASSESSEE WAS ALSO OFFERED BY THE SAID SISTER CONCERN AS INCOME. SINCE THESE ASPECTS WERE EXAMINE D BY THE A.O. IN A.Y. 2005-06 WHICH WAS THE FIRST YEAR, OF N OT ONLY RENTAL INCOME BUT ALSO CLAIM OF INTEREST ON THE BOR ROWED FUNDS, 6 ITA.NO.832 & 833/HYD/2011 M/S. SHALIVAHALA ESTATES, HYDERABAD THE OBSERVATIONS OF THE CIT CANNOT BE UPHELD. SINCE THE A.O. EXAMINED THIS ISSUE IN THE COURSE OF ASSESSMENT PRO CEEDINGS, ALBEIT IN ANOTHER ASSESSMENT YEAR WHILE EXAMINING T WO ASSESSMENT YEARS SIMULTANEOUSLY, ANY OTHER OPINION GIVEN BY THE CIT IS NOT SUSTAINABLE UNDER LAW. 7. EVEN THOUGH LEARNED CIT(D.R). RELIED ON THE JUDGMENT OF INFOTECH TECHNOLOGIES LTD. 341 ITR 293 FOR THE PROPOSITION THAT IT IS ALWAYS OPEN TO THE ASSESSEE TO JUSTIFY THE CLAIM AS CIT HAS NOT GIVEN ANY OPINION, IN THIS CAS E, THE CIT OPINION IS NOT BASED ON THE FACTS ON RECORD AND A. O. EXAMINED THE ISSUE AND GIVEN A FINDING THAT ASSESSEE OWNS 50 % OF THE CONSTRUCTED AREA. IT CANNOT BE SAID THAT SUPPLEMENT ARY DEED BY WHICH ASSESSEE SHARE OF PROPERTY WAS INCREASED F ROM 35% TO 50% WAS NOT IN THE KNOWLEDGE OF THE A.O. SINCE T HE CIT FINDING IS NOT BASED ON FACTS BUT ON PRESUMPTIONS, THE SAME CANNOT BE UPHELD. IN VIEW OF THIS, SINCE THE ISSUE IS ALREADY EXAMINED IN THE COURSE OF ASSESSMENT PROCEEDINGS, W E ARE OF THE OPINION THAT CIT HAS NOT EXERCISED THE JURISDIC TION CORRECTLY. IN VIEW OF THIS, WE SET ASIDE THE ORDERS OF THE CIT IN THE IMPUGNED YEARS. 8. IN THE RESULT, APPEALS OF ASSESSEE ARE ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 26.03.2014. SD/- SD/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 26 TH MARCH, 2014 VBP/- 7 ITA.NO.832 & 833/HYD/2011 M/S. SHALIVAHALA ESTATES, HYDERABAD COPY TO : 1. M/. SALIVAHANA ESTATES, 1-2-166-193-01, OXFORD STREET, S.D. ROAD, SECUNDERABAD. C/O. S. RAMA RAO, ADV OCATE, FLAT NO.102, SHRIYAS ELEGANCE, 3-6-643, STREE T NO.9, HIMAYATNAGAR, HYDERABAD 500 029. 2. ACIT, CIRCLE 10(1), HYDERABAD. 3. CIT - V, HYDERABAD. 4. ADDL.CIT, RANGE-10, HYDERABAD 5. D.R. ITAT, B BENCH, HYDERABAD.