Jayadarshini Housing Private Limited, Hyderabad V. Dy.CIT, Central Circle-2(2), Hyderabad

ITA 98/HYD/2013

• Counselvise Citation: 9822514 RSA 2013
• Duration Of Justice: 44 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2014
• Appeal Filed By: Assessee
• Assessment Year: misc
• Appeal Filed On: 01-01-1970
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: S RAMA RAO
• Keywords: Deemed dividend; Commercial expediency
• Section: 234B; 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA.NO.98/HYD/2013 ASSESSMENT YEAR 2009-2010 M/S. JAYADARSHINI HOUSING P. LTD. HYDERABAD PAN AAACJ 5050E VS. DCIT, CIRCLE 2(2) HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. S. RAMA RAO FOR REVENUE : MR. P. SOMASEKHAR REDDY DATE OF HEARING : 03.04.2014 DATE OF PRONOUNCEMENT : 16.04.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS IS AN ASSESSEES APPEAL AGAINST THE ORDER OF T HE CIT(A)-III, HYDERABAD DATED 26 TH NOVEMBER, 2012. THE ASSESSEE HAS RAISED SIX GROUNDS IN ITS APPEAL AND AN ADDITIO NAL GROUND ON THE ISSUE OF ALLOWANCE UNDER SECTION 40(A)(IA) W HICH IS AS UNDER : THE ASSESSING OFFICER AND THE LD. CIT(A) ERRED IN DISALLOWING AN AMOUNT OF RS.1,83,16,079/- U/S. 40(A )(IA) OF THE I.T. ACT. THE AUTHORITIES OUGHT TO HAVE SEEN TH AT THE ENTIRE AMOUNT OF TDS WAS REMITTED TO THE ACCOUNT OF THE CENTRAL GOVERNMENT BEFORE THE DUE DATE FOR FILING T HE RETURN OF INCOME AND, THEREFORE, THE ENTIRE AMOUNT WOULD H AVE BEEN ALLOWED. 2. THE LD. COUNSEL SUBMITTED THAT CONSEQUENT TO TH E AMENDMENT TO SECTION 40(A)(IA) BROUGHT OUT BY FINAN CE ACT, 2010 WHICH WAS INTERPRETED TO BE RETROSPECTIVELY AP PLICABLE BY 2 ITA.NO.98/HYD/2013 M/S. JAYADARSHINI HOUSING P. LTD. HYDERABAD VARIOUS HIGH COURTS INCLUDING THE JURISDICTIONAL HI GH COURT, ASSESSEE HAS RAISED AN ADDITIONAL GROUND WHICH IS L EGAL IN NATURE AS ALL FACTS ARE AVAILABLE ON RECORD. 2.1. LD. D.R. HOWEVER, OBJECTED ALLOWING ADDITIONA L GROUND AS IT WILL RESULT IN REDUCTION OF RETURNED I NCOME. THEREFORE, THE ADDITIONAL GROUND NEED NOT BE ADMITTED/ADJUDICATED. 3. HAVING CONSIDERED THE RIVAL CONTENTIONS, WE ARE OF THE OPINION THAT THIS BEING A LEGAL GROUND IS ALLOW ABLE, ON THE PRINCIPLES LAID DOWN BY HONBLE SUPREME COURT ON TH E ISSUE OF ADMITTING ADDITIONAL GROUNDS. THEREFORE, THE ADDITI ONAL GROUND IS ADMITTED FOR CONSIDERATION. 4. BRIEFLY STATED, THE ISSUES IN THIS APPEAL ARISE ON THE FOLLOWING FACTS. THE ASSESSEE-COMPANY IS ENGAGE D IN THE BUSINESS OF PURCHASE AND SALE OF PLOTS AND CONSTRUC TION ACTIVITIES. IT FILED ITS RETURN OF INCOME FOR THE A .Y. 2009-10 ON 06.04.2010 DECLARING TOTAL INCOME OF RS.92,29,100/- . THE A.O. COMPLETED THE ASSESSMENT ORDER U/S.143(3) BY MAKING THE FOLLOWING ADDITIONS : (I) DISALLOWANCE OF EXPENDITURE RS. 14,46 ,530/- (II) DISALLOWANCE U/S.40(A)(IA) RS.1,83, 16,079/- (III) DISALLOWANCE ON OF INTEREST ON BORROWED SECURED LOANS RS. 31,18,462/- (IV) DISALLOWANCE OF EMPLOYEES CONTRIBUTION. RS. 5 ,89,931/- 4.1. LD. CIT(A) ON THE ABOVE ISSUES REJECTED THE ASSESSEES CONTENTIONS. THEREFORE, THE PRESENT APPE AL. GROUND NO 1 IS GENERAL IN NATURE. 3 ITA.NO.98/HYD/2013 M/S. JAYADARSHINI HOUSING P. LTD. HYDERABAD 5. GROUND NOS. 2 AND 3 PERTAIN TO THE DISALLOWANCE OF INTEREST ON LOANS OF RS.31,18,462/-. THE A.O. MADE DISALLOWANCE OF RS.31,18,462/- ON THE FOLLOWING REA SON : 2. DISALLOWANCE OF INTEREST ON BORROWED SECURED LOANS DURING THE YEAR RELEVANT TO THE A.Y. UNDER CONSIDE RATION, THE ASSESSEE COMPANY BORROWED CASH CREDIT FROM AXIS BANK AMOUNTING TO RS.2.00 CRORES AND TERM LOAN TO THE TU NE OF RS. 1.70 CRORES. FOR SECURING THE SAID LOANS, IT PAID I NTEREST ON CASH CREDIT AMOUNTING TO RS.17,45,981/- AND ON TERM LOAN RS.13,72,481/-. ON VERIFICATION IT IS NOTICED THAT THESE FUNDS ARE NOT UTILIZED BY THE COMPANY FOR BUSINESS PURPOS E BUT THEY ARE GIVEN AS ADVANCE TO SISTER CONCERNS AND OT HERS ON WHICH NOT INTEREST IS CHARGED. AS THE BORROWED FUND S ARE NOT UTILIZED FOR THE PURPOSE OF BUSINESS, THE INTEREST EXPENDITURE IS NOT TO BE ALLOWED ATLEAST IN PROPORTION TO THE U NUTILIZED FUNDS. HENCE, THE INTEREST CHARGED ON THESE FUNDS AMOUNTING TO RS.31,18,462/- IS DISALLOWED AND ADDED TO THE INCOME RETURNED. 5.1. THE LD. CIT(A) CONSIDERING THE ASSESSEES WRI TTEN SUBMISSIONS THAT IT HAS NOT DIVERTED ANY FUNDS FROM BUSINESS, HOWEVER, DID NOT AGREE BY STATING AS UNDER : 4.2. I HAVE CONSIDERED CAREFULLY THE FACTS AND EVI DENCE. IT IS VERY CLEAR THAT THE SISTER CONCERNS ARE INDEP ENDENT COMPANIES HAVING THEIR OWN BUSINESS AND BOOKS OF AC COUNT. FOR CONDUCTING THEIR OWN BUSINESS AND PURCHASE OF L AND, THESE COMPANIES OBTAINED FUNDS FROM VARIOUS SOURCES . THERE WAS NO COMMERCIAL EXPEDIENCY FOR THE APPELLANT TO O BTAIN INTEREST BEARING LOANS FROM BANK AND TRANSFER THE S AME TO THE SISTER CONCERNS FREE OF INTEREST. FURTHER, THE ARGUMENT OF THE APPELLANT THAT BORROWED FUNDS WERE NOT GIVEN TO SISTER CONCERNS IS NOT CORRECT BECAUSE THERE WAS NO REQUIR EMENT FOR THE APPELLANT TO BORROW FUNDS IN CASE ADVANCES WERE NOT TO BE GIVEN TO THE SISTER CONCERNS. FOR ITS OWN USE, I T HAD ENOUGH ADVANCES RECEIVED FROM CUSTOMERS. I AM FORTI FIED IN MY VIEW BY THE JUDGMENT OF THE HONBLE PUNJAB & HAR YANA COURT IN THE CASE OF CIT VS. ABISHEK INDUSTRIES 286 ITR 1. SIMILARLY THE DECISIONS OF THE HONBLE SUPREME COUR T IN THE CASE OF MADDHAV PRASAD JATIA VS. CIT (SC) 118 ITR 2 00 AND THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE 4 ITA.NO.98/HYD/2013 M/S. JAYADARSHINI HOUSING P. LTD. HYDERABAD OF CIT VS. VM SALGACAR AND BROTHERS PVT. LTD. (KAR) 198 ITR 738, ARE DIRECTLY APPLICABLE IN THIS CASE. 6. LD. COUNSEL SUBMITTED THAT ASSESSEE HAS ADVANCE D FUNDS FOR THE PURPOSE OF BUSINESS AND HAS NOT DIVER TED ANY OF THE FUNDS FOR NON-BUSINESS PURPOSES AND TRADE ADVAN CES CANNOT BE CONSIDERED AS INTEREST FREE LOANS. IN SUP PORT, LD. COUNSEL RELIED ON THE ORDERS OF THE ITAT IN SOME OF THE ADVANCES GIVEN EARLIER, WHEREIN PROCEEDINGS UNDER S ECTION 2(22)(E) WERE INITIATED IN THE CASE OF G. SAIBABA A ND G. SAILAJA (OF THE GROUP) TO SUBMIT THAT THE ITAT HAS DELETED THE DEEMED DIVIDEND UNDER SECTION 2(22)(E) ON THE REASON THAT FUNDS HAVE BEEN ADVANCED FOR BUSINESS PURPOSES. IT WAS THE SUB MISSION THAT DETAILS OF UTILIZATION OF BORROWED FUNDS WERE FURNISHED TO THE LD. CIT(A) WHICH WERE NOT CONSIDERED. 7. LD. D.R. HOWEVER, SUBMITTED THAT THE ORDERS UND ER SECTION 2(22)(E) DOES NOT PERTAIN TO THE A.Y. UNDER CONSIDERATION BUT EARLIER YEARS. THEREFORE, THERE I S NO CO- RELATION OF THAT ORDER TO THE FACTS OF THE CASE. HE RELIED ON THE ORDERS OF THE A.O. AND CIT(A). 8. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE FACTS ON RECORD. AS SEEN FROM THE BALANCE SHEET, TH E TERM LOAN OBTAINED BY ASSESSEE AMONG VARIOUS OTHER SECURED LO ANS WAS IN FACT CARRIED-OVER TERM LOAN WHICH WAS REFLECTED IN THE BALANCE SHEET AS ON 31 ST MARCH, 2008 AS WELL. THE OUTSTANDING TERM LOAN AT THE END OF THAT YEAR WAS RS.3.70 CRORE S WHICH HAS GONE UPTO RS.4.50 CRORES. THEREFORE, WE ARE UNABLE TO VERIFY FROM WHERE THE A.O. HAS PICKED-UP THE TERM LOAN OF RS.1.70 CRORES CONSIDERED FOR DISALLOWANCE. EVEN THOUGH CA SH CREDIT WAS SANCTIONED DURING THE YEAR, IT IS VERY EASY TO VERIFY THE CASH FLOW TO EXAMINE WHETHER THAT CASH CREDIT WAS D IVERTED FOR 5 ITA.NO.98/HYD/2013 M/S. JAYADARSHINI HOUSING P. LTD. HYDERABAD NON-BUSINESS PURPOSES. JUST BECAUSE ASSESSEE HAS A DVANCED FUNDS TO SISTER CONCERNS, WITHOUT EXAMINING WHETHER THEY ARE FOR THE PURPOSE OF BUSINESS OR NOT, A.O. CANNOT EST IMATE THE DISALLOWANCE ON PURE SURMISES AND OBSERVATIONS. THE ASSESSEE HAS SUBMITTED DETAILED EXPLANATION BEFORE THE LD. C IT(A) THAT IT HAS ITS OWN FUNDS AVAILABLE AND NO PART OF THE BORR OWED FUNDS WERE DIVERTED. UNFORTUNATELY, THE LD. CIT(A) DID NO T EXAMINE THE FACTS AND WENT BY THE OBSERVATIONS OF THE A.O. EVEN THOUGH, LD. CIT(A) ACCEPTED THAT FUNDS WERE GIVEN T O THE SISTER CONCERN FOR PURCHASE OF LAND, HE WAS OF THE OPINION THAT IT IS DIVERSION OF FUNDS. SINCE THE CONTENTIONS OF ASSESS EE WERE EXAMINED BY THE AUTHORITIES, WE ARE OF THE OPINION THAT THE ENTIRE ISSUE IS TO BE RE-EXAMINED ON THE BASIS OF T HE SUBMISSIONS MADE BY THE ASSESSEE THAT NO PART OF TH E BORROWED FUNDS WERE DIVERTED. THEREFORE, IN THE INT EREST OF JUSTICE, WE SET ASIDE THE ORDERS OF THE A.O. AND CI T(A) ON THIS ISSUE AND RESTORE IT TO THE FILE OF THE A.O. TO EXA MINE THE BORROWED FUNDS MENTIONED ABOVE AND SEE WHETHER ANY PART OF THE AMOUNT HAS BEEN DIVERTED FOR NON-BUSINESS PURPO SES. WE WILL MAKE IT CLEAR THAT ONLY THOSE TWO AMOUNTS WHIC H ARE MENTIONED BY THE A.O. FOR CONSIDERATION SHOULD BE E XAMINED AND DECIDED. WITH THESE OBSERVATIONS, THE GROUNDS A RE CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. 9. GROUND NO.4 AND ADDITIONAL GROUND ARE ON THE ISSUE OF DISALLOWANCE UNDER SECTION 40(A)(IA). 9.1. BRIEF FACTS ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED FROM THE TDS PARTICULARS THAT ASSESSEE DEDUCTED THE TAX BUT FAIL ED TO REMIT THE SAME INTO GOVERNMENT ACCOUNT. THE DETAILS ARE A S UNDER : 6 ITA.NO.98/HYD/2013 M/S. JAYADARSHINI HOUSING P. LTD. HYDERABAD S.NO. U/S. NATURE OF WORK AMOUNT QUANTIFIED(RS) 1 U/S. 194J PROFESSIONS & CONSULTANCY 184396 2 U/S. 194A INTEREST 1295159 3 U/S. 194C CONTRACT WORKS 15180524 TOTAL 18316079 10. ASSESSING OFFICER RELYING ON THE PROVISIONS OF SECTION 40(A)(IA) MADE THE DISALLOWANCE OF RS.1,83, 16,079/-. ASSESSEE CONTENDED BEFORE THE CIT(A) THAT THE ENTIR E AMOUNT WAS PAID DURING THE YEAR AND A.O. WAS NOT CORRECT I N DISALLOWING THE AMOUNT WHICH HAS ALREADY ADDED BACK BY THE ASSESSEE IN THE COMPUTATION OF INCOME, TO THAT EXTE NT, ADDITION MADE WAS DUPLICATED. ON ANALYZING THAT ASSESSEE HAS NOT ADVANCED ANY ARGUMENTS FOR THE BALANCE AMOUNT OF RS.33,99,622/- LD. CIT(A) CONFIRMED THE ADDITION TO THAT EXTENT WITH A DIRECTION TO THE A.O. TO VERIFY WHETH ER THE CONTENTION OF THE ASSESSEE THAT AMOUNT OF RS.1,49,1 6,457/- WAS ALREADY ADDED BACK BY IT. ASSESSEE RAISED THE D ISALLOWANCE UNDER SECTION 40(A)(IA) AT RS.33,99,622/- IN GROUND NO.4, WHEREAS, THE ADDITION OF RS.1,49,16,457/- WAS CONTE STED IN THE ADDITIONAL GROUND. 10.1. THE HONBLE A.P. HIGH COURT IN THE CASE OF C IT(A)- IV, HYDERABAD VS. PEC ELECTRONICS PVT. LTD. SECUNDE RABAD IN ITA.NO.263 OF 2013 DATED 12.07.2013 HAS HELD THAT P ROVISIONS OF SECTION 40(A)(IA) INTRODUCED BY FINANCE ACT, 201 0 ARE RETROSPECTIVE IN OPERATION. THE RELEVANT OBSERVATIO NS OF THE HONBLE HIGH COURT IN THE CASE OF PEC ELECTRONICS P VT. LTD. ARE AS UNDER : WITH REGARD TO THE NEXT QUESTION, THE TRIBUNAL BY FOLLOWING THE DECISION OF THE KOLKATA HIGH COURT IN CIT V/S. VIRGIN CREATIONS (GA.NO.3200/2011), WHEREIN IT HAS BEEN HELD THAT THE AMENDMENT TO THE PROVISIONS OF SECTION 40(A)(IA) IS RETROSPECTIVE IN 7 ITA.NO.98/HYD/2013 M/S. JAYADARSHINI HOUSING P. LTD. HYDERABAD OPERATION AND CONSEQUENTLY IN RESPECT OF ANY PAYMENT TO TDS MADE BEFORE THE DUE DATE FOR THE FILING OF THE RETURN OF INCOME, THE PROVISIONS OF SECTION 40(A)(IA) CANNOT BE INVOKED. THEREFORE, WE DO NOT FIND ANY REASON TO SEE THAT ANY FURTHER DECISION ON THIS POINT IS REQUIRED BY THIS COURT. 10.2. CONSEQUENTLY, ASSESSEES CONTENTION THAT AMO UNT ADDED BACK NEED NOT BE ADDED BACK IS CORRECT. HOWEV ER, SINCE THE CIT(A) HAS ALREADY DIRECTED THE A.O. TO VERIFY AND AS SUBMITTED BY THE ASSESSEE THE DETAILS OF PAYMENTS A RE ALREADY STATED IN THE 3CD REPORT AS WELL AS ENCLOSURE TO TH E RETURNS (COPY PLACED AT PAGE 20 OF THE PAPER BOOK FILED), A .O. IS DIRECTED TO ALLOW THE AMOUNT, IF THE AMOUNTS ARE PA ID BY DUE DATE AS PER THE AMENDED PROVISIONS OF THE ACT. IT W AS THE CONTENTION THAT THE AMOUNT OF RS.33,99,622/- WAS AL SO PAID WITHIN THE PERIOD. THIS AMOUNT IS ALSO REQUIRED TO BE VERIFIED AND IF PAID WITH IN THE DATES AS PERMITTED BY AMEND ED PROVISION, NO ADDITION CAN BE MADE. A.O. IS DIRECTE D TO EXAMINE AND ALLOW THE AMOUNTS AS PER THE PROVISIONS OF THE ACT. 11. GROUND NO.5 PERTAIN TO THE ISSUE OF CLAIM OF RS.14,46,530/- MADE BY THE ASSESSEE BUT DISALLOWED BY THE A.O. FOR WANT OF EVIDENCE. IT IS AN ADMITTED FACT T HAT THE ASSESSEE FAILED TO PRODUCE ANY BILLS OR VOUCHERS AN D IN THE ABSENCE OF NECESSARY EVIDENCE, A.O. DISALLOWED THE AMOUNT, THE SAME WAS ALSO CONFIRMED BY THE CIT(A). EVEN THO UGH, LD. A.R. ARGUED THAT AFOREMENTIONED DISALLOWANCE PERTAI NS TO AMOUNTS PAID TO VARIOUS GOVERNMENT ORGANISATIONS FO R LAND DEVELOPMENT, PERMISSIONS, APPROVALS ETC., IN THE AB SENCE OF ANY EVIDENCE OF SUCH EXPENDITURE, THE SAME CANNOT B E ALLOWED AS THESE AMOUNTS ARE STATED TO HAVE BEEN PAID IN CA SH. 8 ITA.NO.98/HYD/2013 M/S. JAYADARSHINI HOUSING P. LTD. HYDERABAD THEREFORE, WE DO NOT SEE ANY REASON TO ALLOW THE AS SESSEES CLAIM. THE GROUND IS REJECTED. 12. GROUND NO.6 PERTAIN TO LEVY OF INTEREST UNDER SECTION 234B AND 234C WHICH ARE CONSEQUENTIAL IN NA TURE, WHICH DOES NOT REQUIRE ANY ADJUDICATION. ACCORDINGL Y, GROUND IS REJECTED. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 16.04.2014. SD/- SD/- (ASHA VIJAYARAGHAVAN) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACOUNTANT MEMB ER HYDERABAD, DATED 16 TH APRIL, 2014 VBP/- COPY TO : 1. M/S. JAYADARSHINI HOUSING P. LTD. PLOT NO.129/2, LEVEL-1, G.S. ARKADE, BESIDE INDIA BANK, SRINAGAR COLONY , HYDERABAD 500 073. C/O. S. RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYAS ELEGANCE, H.NO.3-6-643, STREET NO.9, HIMAYATNAGAR, HYDERABAD 500 029. 3. DCIT, CIRCLE 2(2), HYDERABAD. 4. CIT(A)-III, HYDERABAD 5. CIT-II, HYDERABAD 8. D.R. ITAT, A BENCH, HYDERABAD.