ACIT, CHENNAI V. Shri T.Chittybabu, CHENNAI

ITA 934/CHNY/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51900 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 19-09-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 11-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AJI P JACOB IRS
• Assessee Lawyers: S SRIDHAR
• Keywords: Cost of acquisition; Deemed dividend; Commercial expediency
• Section: 143(3); 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI GEORGE MATHAN, JUDICIAL MEMBER ITA NO.934(MDS)/2010 ASSESSMENT YEAR: 2007-08 THE ASSISTANT COMMISSIONER OF INCOME-TAX, BUSINESS CIRCLE III, CHENNAI. VS. SHRI T.CHITTYBABU, 46-G SQUARE, OLD MAHA- BALIPURAM RD., KANDAN- CHAVADY, CHENNAI-33. PAN AABPC6145K. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SH AJI P JACOB, IRS, SR.DR. RESPONDENT BY : SHRI S.SRID HAR, ADVOCATE. DATE OF HEARING : 19 TH SEPTEMBER, 2011 DATE OF PRONOUNCEMENT : 19 TH SEPTEMBER, 2011 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT: THIS APPEAL IS FILED BY THE REVENUE. THE RELEVAN T ASSESSMENT YEAR IS 2007-08. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS)-VI II AT CHENNAI DATED 26-3-2010. THE APPEAL ARISES OUT OF THE - - ITA NO.934 OF 2010 2 ASSESSMENT COMPLETED UNDER SECTION 143(3) OF THE IN COME-TAX ACT, 1961. 2. THE FIRST GROUND RAISED BY THE REVENUE IN THE PRESENT APPEAL IS THAT THE COMMISSIONER OF INCOME-T AX(APPEALS) HAS ERRED IN DELETING THE ADDITION MADE BY THE ASSE SSING OFFICER BY TRANSFERRING PROPORTIONATE EXPENSES ON ACCOUNT O F INTEREST PAYMENTS TO THE ELIGIBLE PROJECT FOR THE PURPOSE OF COMPUTING THE DEDUCTION UNDER SECTION 80IB OF THE ACT. SIMILAR I S THE GROUND NO.2 RAISED BY THE REVENUE TO THE EFFECT THAT THE C OMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN DELETING THE AD DITION MADE BY THE ASSESSING OFFICER BY TRANSFERRING PROPORTION ATE EXPENSES ON ACCOUNT OF RATES AND TAXES TO THE ELIGIBLE PROJE CT FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80IB O F THE ACT. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT OF HOUSING PROJECT. I N THE PREVIOUS YEAR, RELEVANT TO THE ASSESSMENT YEAR UNDE R APPEAL, THE ASSESSEE WAS HAVING DIFFERENT PROJECTS ON HAND. ON E OF THE PROJECTS WAS ENTITLED FOR DEDUCTION UNDER SECTION 8 0IB, WHEREAS THE REMAINING PROJECTS WERE NOT SO ENTITLED. - - ITA NO.934 OF 2010 3 4. IN COMPUTING THE DEDUCTION AVAILABLE TO THE ASSESSEE UNDER SECTION 80IB, THE ASSESSING AUTHORIT Y BIFURCATED THE INTEREST PAYMENTS AND RATES AND TAXES ON THE BA SIS OF TURNOVER TO ALLOCATE BETWEEN ELIGIBLE PROFITS AND N ON ELIGIBLE PROFITS. IN FIRST APPEAL, THE COMMISSIONER OF INCO ME-TAX(APPEALS) FOUND THAT IN RESPECT OF INTEREST PAYMENT, THE ASSE SSEE HAS MAINTAINED A SEPARATE BANK ACCOUNT FOR THE ELIGIBLE PROJECT AND THE INTEREST INCURRED IN RESPECT OF THAT ELIGIBLE P ROJECT IS CLEARLY DISCERNIBLE FROM THE ACCOUNTS MAINTAINED BY THE ASS ESSEE. HE ACCORDINGLY DIRECTED THE ASSESSING OFFICER TO DO AW AY WITH THE ALLOCATION OF INTEREST EXPENDITURE ON THE BASIS OF THE TURNOVER AND THEN DIRECTED HIM TO ACCEPT THE ACTUAL INTEREST EXP ENDITURE INCURRED BY THE ASSESSEE WITH REFERENCE TO ELIGIBLE PROJECT. IN THE CASE OF RATES AND TAXES ALSO, THE ASSESSEE HAS MAIN TAINED SEPARATE DETAILS ATTRIBUTABLE TO THE ELIGIBLE PROJE CT. SIMILAR DIRECTION WAS GIVEN BY THE COMMISSIONER OF INCOME-T AX(APPEALS) HERE ALSO. THE REVENUE IS AGGRIEVED. 5. APPORTIONMENT OF EXPENDITURE ON THE BASIS OF CERTAIN PARAMETERS MIGHT BE ACCEPTABLE IN CASES WHE RE THE EXACT DETAILS OF THE EXPENDITURE ATTRIBUTABLE TO DI FFERENT PROJECTS - - ITA NO.934 OF 2010 4 ARE NOT AVAILABLE IN THE BOOKS OF ACCOUNT. IN THE PRESENT CASE, REGARDING THE INTEREST PAYMENTS, THE ASSESSEE HAS M AINTAINED AN INDEPENDENT BANK ACCOUNT WITH ANDHRA BANK, WHERE FROM THE ENTIRE INTEREST EXPENDITURE BOOKED IN THE ELIGIBLE PROJECT IS DISCERNIBLE. THEREFORE, THERE IS NO NEED TO ADOPT A DIFFERENT METHOD. LIKEWISE, IN THE CASE OF RATES AND TAXES A S WELL, THE ASSESSEE HAS MAINTAINED INDIVIDUAL DETAILS AND THER E IS NO REASON TO GO FOR AN ALLOCATION ON THE BASIS OF TURN OVER. THEREFORE, WE FIND THAT THE ORDER OF THE COMMISSION ER OF INCOME- TAX(APPEALS) IS JUST AND PROPER IN RESPECT OF BOTH THE ISSUES. 6. THE THIRD GROUND RAISED BY THE REVENUE IS THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS FAILED TO A PPRECIATE THAT AS PER THE PROVISIONS OF SECTION 2(22)(E) ANY AMOUNT GIVEN AS LOAN OR ADVANCE IS DEEMED TO BE A DIVIDEND AND C OMMERCIAL TRANSACTIONS ARE NOT OUTSIDE THE PURVIEW OF THIS SE CTION. 7. IN THE PRESENT CASE, THE COMPANY HAD GIVEN ADVANCES TO THE ASSESSEE AMOUNTING TO ` 5,74,92,000/-. THE ASSESSEE HAS UTILIZED THE AMOUNT TO PURCHASE LAND F ROM DIFFERENT PARTIES. AFTER A PERIOD OF TWO YEARS, ALL SUCH PLO TS WERE CONSOLIDATED AND TRANSFERRED BY THE ASSESSEE TO THE COMPANY AT - - ITA NO.934 OF 2010 5 THE COST PRICE. AS PER RECORDS, THE ASSESSEE HAD N OT MADE ANY PROFIT OUT OF THE TRANSACTION. 8. IT IS THE EXPLANATION OF THE ASSESSEE THAT THE COMPANY GIVING ADVANCES TO THE ASSESSEE, THE MANAGI NG DIRECTOR OF THE COMPANY, AND HIS PURCHASING OF LAND AND ULTIMATELY TRANSFERRING THE LAND TO THE COMPANY WER E ALL PART AND PARCEL OF COMMERCIAL TRANSACTION, ULTIMATELY TO ENA BLE THE COMPANY TO CARRY ON ITS HOUSING DEVELOPMENT PROJECT S. THE ASSESSEE EXPLAINED THAT PURCHASE OF LAND WAS MORE E CONOMICAL BY THE MANAGING DIRECTOR AS AN INDIVIDUAL WITHOUT D ISCLOSING THE PROPOSED PROJECTS, WHEREAS IF THE PURCHASES WERE DI RECTLY INITIATED BY THE COMPANY, THE PRICE OF THE LAND WOU LD GO UP AND ALSO FOR VARIOUS OTHER PRACTICAL CONSIDERATIONS, TH E MANAGING DIRECTOR OF THE COMPANY WAS IN FACT ACTING FOR THE COMPANY AND IN SUCH CIRCUMSTANCES THERE CANNOT BE A CASE OF DEE MED DIVIDEND. 9. THE SAME ISSUE WAS CONSIDERED BY THE D-BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS. HARSHAD V DOS HI, 130 ITD 137. IN THAT CASE THE ASSESSEE, MANAGING DIRECTOR OF A COMPANY, WAS HAVING SUBSTANTIAL HOLDING OF SHARES. THE - - ITA NO.934 OF 2010 6 ASSESSEE, IN ADDITION TO THE MANAGING DIRECTOR OF T HE COMPANY, WAS ALSO PARTNER IN VARIOUS CONSTRUCTION FIRMS. TH E COMPANY WAS ENGAGED IN THE BUSINESS OF PROPERTY DEVELOPMENT . DURING THE RELEVANT PREVIOUS YEAR THE COMPANY GAVE CERTAIN ADVANCES TO THE ASSESSEE. THERE WAS A QUERY AS TO WHY THE P ROVISIONS OF SECTION 2(22)(E) SHOULD NOT BE APPLIED AND THE SUMS TO BE CONSIDERED AS DEEMED DIVIDEND IN HIS HANDS. THE AS SESSEE REPLIED THAT ALL ADVANCES RECEIVED WERE UTILIZED FO R ACQUIRING LAND WHICH WAS TO BE DEVELOPED BY THE COMPANY AND THE DE CISION TO HOLD OWNERSHIP, DIFFERENT FROM THAT OF THE COMPANY, WAS A PURE BUSINESS DECISION FOR REDUCING COST OF REGISTRATION AS PER TAMIL NADU STAMP ACT, 1974. THE TRIBUNAL IN THE SAID CASE HELD THAT IN THAT PROCESS EVEN THOUGH THE ASSESSEE DERIVED SOME BENEFIT ON ACCOUNT OF CAPITAL GAINS WHEN ULTIMATE TRANSFER OF UNDIVIDED SHARE IN THE LAND WAS MADE TO CUSTOMER BY THE COMPA NY, YET IT WOULD NOT IN ANY WAY CHANGE THE COLOUR OF TRANSACTI ON WHICH CLEARLY WAS MOTIVATED BY BUSINESS CONSIDERATION AND COMMERCIAL EXPEDIENCY. THE TRIBUNAL HELD THAT THE ADVANCES CA NNOT BE TREATED AS DIVIDEND UNDER SECTION 2(22)(E) OF THE A CT. - - ITA NO.934 OF 2010 7 10. THE ABOVE SAID DECISION SQUARELY APPLIES TO TH E PRESENT CASE IN HAND. FROM THE FACTS AND CIRCUMSTA NCES OF THE CASE, IT IS CLEAR THAT THE ASSESSEE HAD PURCHASED P LOTS OF LAND ONLY FOR THE PURPOSE OF THE COMPANY. THE PRESENT C ASE IS BETTER THAN THE CASE CONSIDERED BY THE TRIBUNAL, AS STATED IN THE ABOVE PARAGRAPH. IN THAT CASE THE ASSESSEE HAD MARGINAL BENEFIT WHILE THE UNDIVIDED RIGHT IN THE LAND WAS ULTIMATELY TRAN SFERRED TO THE BUYERS OF THE APARTMENTS. IN THE PRESENT CASE THE ASSESSEE HAS TRANSFERRED ALL THE PLOTS PURCHASED BY HIM UTILIZIN G THE ADVANCES RECEIVED FROM THE COMPANY, TO THE COMPANY ITSELF AT THE PURCHASE COST. THE ASSESSEE HAD NO BENEFIT AT ALL. THEREFORE IT IS TO BE SEEN THAT THAT THE TRANSACTIONS INCLUDING GIVING OF ADVANCES WERE ALL PART OF A BUSINESS SCHEME AND THE ADVANCES ARE NOT TO BE TREATED AS DEEMED DIVIDEND. 11. THE LAST GROUND RAISED BY THE REVENUE IS THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ADMITTED FR ESH EVIDENCE AGAINST THE PROVISIONS OF RULE 46A. WE DO NOT FIND MUCH FORCE IN THE GROUND RAISED BY THE REVENUE. TH E ASSESSEE HAS PRODUCED ALL THE BOOKS OF ACCOUNT AND THE RELEV ANT - - ITA NO.934 OF 2010 8 PASSBOOK AND THE OTHER DETAILS BEFORE THE ASSESSING AUTHORITY. THEREFORE THERE IS NO CASE OF VIOLATION OF RULE 46A . 12. IN RESULT THIS APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON MONDAY, THE 19 TH OF SEPTEMBER, 2011 AT CHENNAI. SD/- SD/- (GEORGE MATHAN) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 19 TH SEPTEMBER, 2011. V.A.P. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F.