M/s Hi Tech Land Developers & Builders, Khanna V. Addl. CIT, Khanna

ITA 901/CHANDI/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86116 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 23-12-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 12-09-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Proportionate interest
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R. SOOD, ACCOUNTANT MEMBER ITA NO. 901/CHD/2013 ASSESSMENT YEAR: 2010-11 M/S HI TECH LAND DEVELOPERS VS THE ADDL. CIT, & BUILDERS, G.T. ROAD, RANGE, KHANNA KHANNA PAN NO.AADFH7914D (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUDHIR SEHGAL RESPONDENT BY : SHRI MANJIT SINGH DATE OF HEARING : 23.12.2014 DATE OF PRONOUNCEMENT : 12.01.2015 ORDER PER T.R.SOOD, A.M. THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINS T THE ORDER DATED 15.7.2013 OF CIT(A)-II, LUDHIANA. 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS:- 1. THAT THE WORTHY COMMISSIONER OF INCOME TAX (APPE ALS) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 39,62,500/- BEING THE ADDITION MADE BY THE ASSESSING BY DISALLOWING EXPENDITURE U/ S 40A(3) OF THE INCOME TAX ACT, 1961. 2. THAT ADDITION/DISALLOWANCE OF EXPENDITURE U/S 40 A(3) HAS BEEN CONFIRMED BY THE WORTHY CIT(A) BY NOT CONSIDERING O UR SUBMISSIONS MADE DURING THE COURSE OF HEARING PROPERLY AND THE DISALLOWANCE WAS NOT JUSTIFIED SINCE IT IS COVERED IN CLAUSE (J) OF RULE-6DD. 3. THAT THE WORTHY CIT(A) HAS ALSO ERRED IN CONFIRM ING THE ADDITION OF RS. 4,79,230/- MADE BY THE ASSESSING OF FICER BY DISALLOWING PROPORTIONATE INTEREST ON ALLEGED INTEREST FREE ADV ANCES U/S 36(1)(III) OF THE INCOME TAX ACT. 2 4. THAT THE DISALLOWANCE OF PROPORTIONATE INTEREST HAS BEEN MADE BY THE WORTHY CIT(A) AGAINST THE FACTS AND CIRCUMST ANCES OF THE CASE AND BY NOT CONSIDERING PROPERLY THAT THE ASSESSEE H AD NOT BORROWED ANY INTEREST BEARING FUNDS FROM THE MARKET AND AMOUNT A DVANCED TO SISTER CONCERN WAS OUT OF HIS NON-INTEREST BEARING FUNDS. 3. GROUND NOS.1 & 2; AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS IT WAS NOTICED THAT ASSESSEE HAS PAID CASH FOR PURCHASE OF LAND TO CERTAIN PERSONS AND THEREFORE THE ASSESS EE WAS ASKED TO EXPLAIN THE CIRCUMSTANCES FOR CASH PAYMENT. IN RESPONSE TO THE SAME, IT WAS SUBMITTED VIDE LETTER DATED 23.1.2013 AS UNDER:- AS ENQUIRED BY YOUR GOOD REGARDING THE PURCHASE O F LAND. IN THIS REGARD I WANT TO STATE THAT MY CLIENT IS RUNNING T HE BUSINESS OF COLONIZER. DURING THE F.Y. 2009-10 MY CLIENT PURCHASE AGRICULT URAL LAND FROM S. DILBAG SINGH S/O KEHAR SINGH RESIDENT OF 65, WESTERN NEW O FFICER COLONY, PALIALA TEHSIL & DISTT. PATIALA(SELF) AND SH. SUKHWINDERPAL SINGH S/O SH. NIRMAL SINGH RESIDENT OF VILL. BIJA TEHSIL KHANNA, DISTT. LUDHIANA ATTORNEY OF SMT. NACHHTER KUAR WIDOW OF SH. KULWANT SINGH, SH. SHING ARA SINGH S/O SH. KULWANT SINGH AND SH. TEJWINDER SINGH S/O SH KULWAN T SINGH RESIDENT OF VILLAGE BULLEPUR TEHSIL KHANNA DISTT. LUDHIANA VIDE AGREEMENT DATED 16.12.2009 FOR WHICH TITLE DEED REGISTERED ON DATED 30.03.2010 (PHOTOCOPY OF THE AGREEMENT DATED 16.12.2009 IS ATTACHED HEREWITH ) MY CLIENT PAID RS. 2,00,000/- (RS. TWO LAC ONLY) IN CASH TO THE SELLERS ON DATED 16.12.2009. THROUGH HIS AGENT SH. INDERJIT SINGH RE SIDENT OF KHANNA, RS. 37,50,000/- (RS. THIRTY SEVEN LAC FIFTY THOUSAND ON LY) IN CASH ON AGREED DATE I.E. 28.03.2010 AS PER AGREEMENT DATED 16.12.2009 A ND RS. 12,500/- (RS. TWELVE THOUSAND FIVE HUNDRED ONLY) ON DATED 29.03.2 010. AS REGARDS DISALLOWANCE OF AMOUNT U/S 40A(3) ON ACC OUNT OF CASH PURCHASE OF LAND IS NOT APPLIED TO OUR CASE BECAUSE AS PER CLAU SE NO.J AND CLAUSE NO. K RULE 6DD CLEARLY STATE THAT NO DISALLOWANCE UNDER SUB SE CTION (3A) OF SECTION 40A SHALL BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFIT AND GAINS OF THE BUSINESS OR PROFESSIONS U/S SUB (3A) OF SECTION 40A WHERE THE PAYMENT OR AGGREGATE OF PAYMENT MADE TO A PERSON IN A DAY, OTH ERWISE ON ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, EXCEED RS. 20,000/- IN THE CASES AND CIRCUMSTANCES SPECIFIED UNDER NAMELY J) WHERE THE PAYMENT WAS REQUIRED TO BE MADE ON A D AY ON WHICH THE BANKS WERE CLOSED EITHER ON ACCOUNT OF HOLIDAY OR STRIKE. K) WHERE THE PAYMENT IS MADE BY ANY PERSON TO HIS A GENT WHO IS REQUIRED TO MAKE PAYMENT IN CASH FOR GOODS OR SERVICES ON BEHAL F OF SUCH PERSON. 3 MY CLIENT MADE THE PAYMENT TO SELLERS AMOUNTING RS. 20,00,000/- (RS. TWO LAC ONLY ) ON DATED 16.12.2009. THROUGH HIS AGENT AND R S. 37,50,000/- (RS. THIRTY SEVEN LAC FIFTY THOUSAND ONLY) ON DATED 28.03.2010. (SUNDAY) WHICH WAS ALREADY FIXED ON THE AGREEMENT WRITTEN ON DATED 16. 12.2009. BETWEEN MY CLIENT AND DILBAG SINGH S/O KEHAR SINGH RESIDENT OF 65, W ESTERN NEW OFFICE COLONY, PATIALA TEHSIL & DISTT. PATIALA (SELF) AND SH. SUKH WINDERPAL SINGH S/O SH. NIRMAL SINGH RESIDENT OF VILL. BIJA TEHSIL KHANNA, DISTT. LUDHIANA ATTORNEY OF SMT. NACHHTER KAUR WIDOW OF SH. KUWANT SINGH, SH. S HINGARA SINGH S/O KULWANT SINGH AND SH. TEJWINDER SINGH S/O SH. KULWA NT SINGH RESIDENT OF VILLAGE BULLEPUR TEHSIL KHANNA DISTT. LUDHIANA. (CO PY OF A/C OF SELLERS IN THE BOOKS OF FIRM ARE ATTACHED HEREWITH). MY CLIENT APPROACH THE SELLERS TO EXTEND THE DATE R EGISTRATION OF TITLE DEED BECAUSE ON DETERMINED DATE THERE WAS A SUNDAY BUT B OTH THE SELLER INSIST MY CLIENT TO MAKE THE BALANCE PAYMENT ON DETERMINED DA TED I.E. 28.03.2010. OTHER-WISE THEY WILL NOT REGISTERED THE TITLE DEEDS IN FAVORS OF MY CLIENT AND FORFEIT THE EARNEST MONEY. KEEPING IN VIEW THE BUSI NESS EXPEDIENCY, UNAVOIDABLE CIRCUMSTANCES AND PAYMENT BY DRAFT WERE NOT PRACTICABLE ON 28.03.2010 MY ASSESSEE FORCED TO MAKE THE PAYMENT I N CASH ON DETERMENT DATE I.E. 28.03.2010, WHICH WAS A SUNDAY (BANK HOLIDAY). (AFFIDAVITS FROM SELLERS ARE ATTACHED HEREWITH). SINCE THE PAYMENT MADE BY MY CLIENT COMES UNDER THE EXCEPTIONS GIVEN IN CLAUSE J AND K OF RULE 6DD OF INCOME TAX ACT, 1961 HENCE THERE IS NO VIOLATION OF SECTION 40A(3). THE ASSESSING OFFICER NOTED THAT RULE 6DD(J) READS AS UNDER:- 6DD(J) : WHERE THE PAYMENT WAS REQUIRED TO BE MADE ON A DAY ON WHICH THE BANK WERE CLOSED EITHER THE ACCOUNT OF HO LIDAY OR STRIKE. 4. ACCORDING TO HIM, THIS RULE PROVIDES FOR URGENT CIRCUMSTANCES FOR PAYMENT ON A DAY WHEN BANK IS CLOSED. HE FURTHER O BSERVED THAT ASSESSEE HAS NOT SHOWN ANY EXCEPTIONAL CIRCUMSTANCES WHY IT WAS NECESSARY TO MAKE PAYMENT ON SUNDAY. HE ALSO NOTED THAT AS PER AGREEMENT TO SELL THE DATE OF REGISTRATION WAS FIXED ON 28.3.2010 AND THE ASSESSEE WAS REQUIRE D TO MAKE PAYMENT BEFORE THE REGISTRY BUT ASSESSEE HAD TIME OF THREE MONTHS 12 DAYS AND ASSESSEE COULD HAVE MADE PAYMENT DURING THAT PERIOD. IN THIS BACK GROUND THE ASSESSING OFFICER DISALLOWED THE CASH PAYMENT AND MADE ADDITI ON OF RS. 39,62,500/-. 4 5. ON APPEAL, THE SUBMISSIONS MADE BEFORE ASSESSING OFFICER WERE REITERATED. THE LD. CIT(A) DISCUSSED THE SUBMISSIO NS IN DETAIL AND ULTIMATELY CONFIRMED THE ADDITION. 6. BEFORE US LD. COUNSEL FOR THE ASSESSEE REITERATE D THE SUBMISSIONS AND REFERRED TO THE AGREEMENT TO SELL AND POINTED OUT T HAT DATE OF EXECUTION OF THE SALE DEED WAS FIXED ON 28.3.2010 AND ASSESSEE WAS R EQUIRED TO MAKE PAYMENT BEFORE THIS DATE. LATER ON, IT WAS REALIZED THAT 2 8.2.2010 WAS SUNDAY AND IN ORDER TO HONOUR THE AGREEMENT SO THAT ASSESSEE IS ABLE TO EXECUTE THE SALE DEED, THE PAYMENT WAS MADE ON 28.3.2010 WHICH WAS ADMITTE DLY SUNDAY. HE FURTHER SUBMITTED THAT SAME IS COVERED BY THE EXCEPTION IN RULE 6DD(J). HE ALSO REFERRED TO PAGE 8 OF THE PAPER BOOK WHICH SHOWS TH AT CASH WAS ARRANGED BETWEEN 24.3.2010 TO 28.3.2010 AND PAYMENT HAS BEEN MADE ON 28.3.2010 AND THEREFORE, THE SAME IS COVERED BY THE EXCEPTION. 7. ON THE OTHER HAND LD. DR STRONGLY SUPPORTED THE ORDER OF CIT(A) AND SUBMITTED THAT ASSESSEE HAD PLENTY OF TIME BEFORE 2 8.3.2010 TO MAKE PAYMENT. THE EXCEPTION PROVIDED UNDER RULE 6DD(J) APPLIED TO THE EXCEPTIONAL CIRCUMSTANCES AND NOT IN A CASE WHERE ASSESSEE HAD WAITED TILL SUNDAY. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND FORCE IN THE SUBMISSIONS OF LD. COUNSEL FOR THE ASSESSEE. IT IS NOT DOUBTED THAT IN THE AGREEMENT TO SELL IT WAS AGREED THAT SALE DEED WOUL D BE EXECUTED I.E. REGISTERED ON OR BEFORE 28.3.2010 AND ASSESSEE WAS REQUIRED TO MAKE FULL PAYMENT BEFORE THAT DATE. LATER ON, IT WAS FOUND THAT 28.3.2010 TE LL ON SUNDAY, NATURALLY NOBODY WOULD LIKE TO LEAVE THE LAND DEAL, THEREFORE, ASSES SEE PAID CASH ON THAT DATE. WE ARE NOT IMPRESSED BY THE CONTENTION THAT ASSESSEE S HOULD HAVE MADE THE PAYMENT BEFORE THAT DATE. WHEN A PARTICULAR AGREEMENT PROVI DES FOR A PAYMENT ON OR BEFORE A PARTICULAR DATE, IT IS NOT NECESSARY THAT JUST TO MEET THE TECHNICAL 5 REQUIREMENT OF INCOME-TAX PROVISIONS, PAYMENT SHOUL D BE MADE EARLIER. PAYMENT HAS BEEN MADE ON 28.3.2010 WHICH FALLS ON S UNDAY AND IS SQUARELY COVERED BY THE EXCEPTION PROVIDED UNDER RULE 6DD(J) WHICH HAS BEEN EXTRACTED BY THE ASSESSING OFFICER ABOVE. FURTHER, THE SALE D EED WAS ALSO EXECUTED ON 30.3.2010. THEREFORE, IN OUR OPINION, THE CASH PAY MENT WOULD COVERED BY THE EXCEPTION UNDER RULE 6DD(J) AND ACCORDINGLY WE SET ASIDE THE ORDER OF LD. CIT(A) AND DELETE THIS ADDITION. 9. GROUND NOS. 3 & 4: DURING ASSESSMENT PROCEEDINGS IT WAS NOTICED THAT ASSESSEE HAS GIVEN CERTAIN ADVANCES OUT OF WHICH A SUM OF RS. 88,50,000/- WAS PAID TO M/S P.P. CONSTRUCTIONS WHICH WAS A SISTER C ONCERN. NO INTEREST WAS CHARGED ON THIS LOAN. IN RESPONSE TO THE QUERY WHY PROPORTIONATE INTEREST SHOULD NOT BE DISALLOWED, IT WAS SUBMITTED AS UNDER:- AS REGARDS NO INTEREST CHARGED ON ADVANCE GIVEN T O SISTER CONCERN I/S. PPR CONSTRUCTIONS IN THIS RESPECT, I WANT TO S TATE THAT AMOUNT ADVANCE TO SISTER CONCERN OUT OF UNSECURED LOANS/MA INTENANCE DEPOSIT AND FROM PARTNERS CAPITAL. NO INTEREST PAID ON UNS ECURED LOANS. DURING THE F.Y. 2009-10 MY CLIENT DEBITED PROFIT & LOSS ACCOUNT WITH RS. 4,79,203/- ON ACCOUNT OF INTEREST PAID TO PARTN ERS CAPITAL ACCOUNT. 10. THE ASSESSING OFFICER REFERRED TO THE PROVISION S OF SECTION 36(I) (III) AND CALCULATED THE PROPORTIONATE DISALLOWANCE AT RS. 9, 58,256/-. HOWEVER, HE NOTED THAT SINCE CLAIM FOR INTEREST IS ONLY RS. 4,79,230/ -, THE DISALLOWANCE WAS RESTRICTED TO THIS AMOUNT. 11. ON APPEAL, DISALLOWANCE WAS CONFIRMED BY LD. CI T(A) IN VIEW OF THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS ABHISHEK INDUSTRIES 286 ITR 1 12. BOTH THE PARTIES WERE HEARD. 13. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT IT IS AN ADMITTED FACT THAT ASSESSEE HAS DIVERTED INTEREST BEARING FUNDS T O THE SISTER CONCERN, THEREFORE, 6 PRINCIPLES LAID DOWN BY HON'BLE PUNJAB & HARYANA HI GH COURT IN THE CASE OF CIT VS ABHISHEK INDUSTRIES (SUPRA) WOULD GET ATTRAC TED AND PROPORTIONATE INTEREST HAD TO BE DISALLOWED. THE ASSESSING OFFICE R HAD CALCULATED THE DISALLOWANCE @ 12% AS UNDER:- CREDIT DEBIT DR OR CR BALANCE DAYS INTEREST DATE AMOUNT DATE AMOUNT 01.04.2009 DR 2000000.00 14 9205.00 15.04.2009 500000.00 DR 2500000.00 9 7397.00 24.04.2009 1000000.00 DR 3500000.00 34 39123.00 28.05.2009 1500000.00 DR 5000000.00 22 36164.00 19.06.2009 800000.00 DR 5800000.00 6 11441.00 25.06.2009 200000.00 DR 6000000.00 18 35507.00 13.07.2009 1000000.00 DR 7000000.00 20 46027.00 02.08.2009 1000000.00 DR 8000000.00 33 86795.00 04.09.2009 1200000.00 DR 9200000.00 55 166356.00 29.10.2009 600000.00 DR 9800000.00 5 16110.00 03.11.2009 200000.00 DR 10000000.00 63 207123.00 05.01.2010 1000000.00 DR 11000000.00 2 7233.00 07.01.2010 250000.00 DR 11250000.00 54 199726.00 02.03.2010 1000000.00 DR 10250000.00 2 6740.00 04.03.2010 1000000.00 DR 9250000.00 14 42575.00 18.03.2010 400000.00 DR 8850000.00 14 40734.00 -2400000.00 9250000.00 958256.00 14. THE ASSESSING OFFICER HAS FAIRLY RESTRICTED THE DISALLOWANCE AT RS. 4,79,230/- WHICH WAS AMOUNT OF INTEREST CLAIMED BY THE ASSESSEE. THE PROPORTIONATE DISALLOWANCE IS TOTALLY IN CONSONANCE WITH THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS ABHISHEK INDUSTRIES (SUPRA), THEREFORE, WE FIND NOTHING WRONG WITH THE ORDER OF THE LD. CIT(A) AND CONFIRM THE SAME. 15. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12.01.2015 SD/- SD/- (BHAVNESH SAINI) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 12 TH JANUARY, 2015 RKK COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR 7