M/s. Micromega Projects, SILVASSA V. The Dy. Commissioner of Income Tax, Central Circle-1, Vapi

ITSSA 285/AHD/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 3491 (ITAT-SURAT)
• Duration Of Justice: 4 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 11-11-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Appeal Filed On: 19-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P VAISHNAV
• Assessee Lawyers: HARDIK VORA ADV
• Keywords: Income from undisclosed sources; Notional interest; TDS
• Section: 143(3); 142(1); 153A; 143(2)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, HON'BLE JUDICIAL MEMBER AND SHRI DR.ARJUN LAL SAINI, HON'BLE ACCOUNTANT MEMBER (VIRTUAL HEARING) . . ./ I.T(SS)A NO.285/AHD/2016 [ [ / ASSESSMENT YEAR: 2013-14 M/S.MICROMEGA PROJECTS, 01, PARK CITY, OPP. YOGI HOSPITAL, KILAVANI ROAD, AMLI, SILVASSA 396 230. [PAN: AARFM 6047 N] V S. THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, VAPI. / APPELLANT /RESPONDENT [ /ASSESSEE BY SHRI HARDIK VORA ADV. AR /REVENUE BY SHRI O.P.VAISHNAV CIT(DR) / DATE OF HEARING: 11 . 1 1 .20 20 /PRONOUNCEMENT ON: 11 . 1 1 .20 20 /O R D E R PER PAWAN SINGH, JM: 1. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LD. LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-4, [LD.CIT(A)], SURAT DATED 20.07.2016, WHICH IN TURN ARISES FROM THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) R.W.S 153A OF THE ACT DATED 17.03.2016 FOR ASSESSMENT YEAR 2013-14. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT, AFTER ACCEPTING SUBMISSION OF ASSESSEE ON ADDITION MADE BY ASSESSING OFFICER THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE PART OF DISALLOWANCE ON A NEW GROUND WHICH WAS NOT EVEN BRIEFED IN ASSESSMENT ORDER. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS M/S.MICROMEGA PROJECTS VS. DCIT, CENTRAL CIRCLE-1, VAPI/ IT(SS)A NO.285/AHD/2016/ FOR A.Y. 2013-14 2 ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST EXPENSE TO THE EXTENT OF RS.70,00,000/-. 3. IT IS PRAYED THAT ABOVE ADDITIONS/DISALLOWANCES MADE BY ASSESSING OFFICER AND CONFIRMED BY COMMISSIONER OF INCOME-TAX (APPEALS) MAY PLEASE BE DELETED. 4. APPELLANT CRAVES LEAVE TO ADD, ALTER OR DELETE ANY GROUND(S) EITHER BEFORE OR IN THE COURSE OF HEARING OF THE APPEAL. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF BUILDERS AND DEVELOPERS. A SEARCH WAS CARRIED OUT ON THE ASSESSEE FIRM ON 18.06.2013. DURING THE SEARCH ACTION, CERTAIN INCRIMINATING MATERIAL WAS FOUND. THE STATEMENT OF PARTNER OF THE ASSESSEE WAS RECORDED. THE PARTNER OF THE ASSESSEE MADE DISCLOSURE OF INCOME OF RS.10 CRORE. A NOTICE UNDER SECTION 153A OF THE ACT DATED 06.02.2014 WAS SERVED UPON THE ASSESSEE. IN RESPONSE TO NOTICE UNDER SECTION 153A OF THE ACT, THE ASSESSEE FILED ITS RETURN OF INCOME ON 21.06.2014 DECLARING TOTAL INCOME OF RS.8.76 CRORES. IN THE RETURN OF INCOME FILED IN RESPONSE TO NOTICE UNDER SECTION 153A, THE ASSESSEE CLAIMED THAT ADDITIONAL INCOME DISCLOSED IN THE SEARCH IS OFFERED FOR TAXATION. THE LEARNED ASSESSING OFFICER (AO) AFTER SERVING STATUTORY NOTICE UNDER SECTION 143(2) OF THE ACT AND 142(1) OF THE ACT PROCEEDED FOR ASSESSMENT. ASSESSMENT UNDER SECTION 143(3) R.W.S. 153A WAS COMPLETED ON 17.03.2016. THE AO WHILE GOING THROUGH THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE NOTED THAT ASSESSEE HAS CLAIMED INTEREST EXPENSES OFRS.90,11,978/- ON UNSECURED LOANS. IT WAS FURTHER NOTED THAT ASSESSEE HAS PAID HIGHER INTEREST ON LOAN COMPARATIVE TO PREVIOUS YEAR. THE AO TOOK HIS VIEW THAT IN THE STATEMENT M/S.MICROMEGA PROJECTS VS. DCIT, CENTRAL CIRCLE-1, VAPI/ IT(SS)A NO.285/AHD/2016/ FOR A.Y. 2013-14 3 RECORDED DURING THE SEARCH, THE ASSESSEE DISCLOSED ADDITIONAL INCOME OF RS.10 CRORE, HOWEVER, WHILE FILING THE RETURN OF INCOME DECLARED INCOME OF RS.8.76 CRORE, WHICH IS LOWER THAN THE INCOME DECLARED IN SEARCH. THE ASSESSEE HAS CLAIMED HUGE INTEREST OF AMOUNT TO REDUCE THE RETURNED INCOME AND THAT INTEREST EXPENSES ARE AFTERTHOUGHT. 4. THE AO ISSUED SHOW CAUSE NOTICE AS TO WHY THE INTEREST CLAIMED SHOULD NOT BE DISALLOWED. THE AO NOTED THAT THE REPLY WAS FURNISHED BY THE ASSESSEE IN RESPONSE TO SHOW CAUSE NOTICE, HOWEVER, THE CONTENTS OF REPLY IS NOT REFERRED IN THE ASSESSMENT ORDER. THE AO SIMPLY RECORDED THAT THE REPLY OF ASSESSEE IS CONSIDERED AND IS NOT ACCEPTABLE AND DISALLOWED THE ENTIRE INTEREST EXPENSES OF RS. 90,11,978/-. 5. AGGRIEVED BY THE DISALLOWANCE OF INTEREST EXPENSES, THE ASSESSEE FILED APPEAL BEFORE THE LD.CIT(A). BEFORE THE LD.CIT(A), THE ASSESSEE FILED DETAIL WRITTEN SUBMISSIONS, WHICH ARE RECORDED ON PAGE 3, PARA 6 OF THE IMPUGNED ORDER. IN ITS WRITTEN SUBMISSION, THE ASSESSEE SUBMITTED THAT ASSESSEE UTILISED UNSECURED LOAN FOR ITS BUSINESS PURPOSE AND PAID INTEREST AS PER TERMS AND CONDITIONS AGREED BETWEEN THE LENDER AND THE ASSESSEE. THE ASSESSEE DEDUCTED THE TAX AT SOURCE (TDS) AND PAID TO THE GOVERNMENT BEFORE THE DATE OF SEARCH, THUS, THE EXPENSES CLAIMED BY ASSESSEE ON ACCOUNT OF INTEREST ARE NOT AFTERTHOUGHT AND ARE FULLY ALLOWABLE UNDER SECTION 36(1)(III) OF THE ACT. THE AO DISALLOWED THE INTEREST EXPENSES WITHOUT APPRECIATING THE FACT IN ARBITRARY AND IN UNLAWFUL M/S.MICROMEGA PROJECTS VS. DCIT, CENTRAL CIRCLE-1, VAPI/ IT(SS)A NO.285/AHD/2016/ FOR A.Y. 2013-14 4 MANNER. IT WAS ALSO STATED THAT EITHER DURING THE SEARCH OR ASSESSMENT PROCEEDINGS NO INCRIMINATING MATERIAL OR INFORMATION ABOUT THE INTEREST EXPENSES ON UNSECURED LOAN WAS UNEARTHED. THUS, DISALLOWANCE OF INTEREST EXPENSES IS NOT BASED ON INCRIMINATING MATERIAL. THE ASSESSEE ALSO RELIED ON VARIOUS CASE LAWS. 6. THE LD.CIT(A) AFTER CONSIDERING THE SUBMISSION OF ASSESSEE AGREED WITH THE CONTENTION OF THE ASSESSEE THAT AO MADE DISALLOWANCE IN ARBITRARY AND UNLAWFUL MANNER. IT WAS ALSO HELD THAT THE AO HAS NOT POINTED OUT THAT EXPENSES ARE NOT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 7. HOWEVER, THE LD.CIT(A) WHILE EXAMINING THE PROFIT AND LOSS ACCOUNT ISSUED SHOW CAUSE NOTICE TO ASSESSEE WHY BORROWING COST BE NOT TAKEN TO WORK IN PROGRESS. IT WAS ALSO ASKED IN THE SHOW CAUSE AS TO WHY UNDISCLOSED INCOME BE NOT HELD TO BE CONSUMED IN BUSINESS OR TO BE CONSIDERED TO HAVE LED TO INCREASED INTEREST EXPENSES IN BOOKS BY TAKING MONEY THROUGH ACCOUNTING CHANNEL, RE-ROUTING OWN UNACCOUNTED MONEY AS LOANS OR UTILIZING UNACCOUNTED INCOME TO EARN INTEREST. THE LD.CIT(A) RECORDED THAT NO REPLIES WERE FILED BY THE ASSESSEE ON THESE ISSUES. THE LD. CIT(A) TOOK HIS VIEW THAT DURING SEARCH ASSESSEE DISCLOSED INCOME OF RS.10 CRORE, OUT OF ITS BOOKS OF ACCOUNT. THIS AMOUNT WAS AVAILABLE TO ASSESSEE FOR USED IN THE PROJECT AND INTEREST INCOME IS CLAIMED IN THE BOOKS ONLY BECAUSE INCOME WAS KEPT UNACCOUNTED. THE LD.CIT(A) FURTHER HELD THAT EVEN IF THE AVERAGE UNACCOUNTED M/S.MICROMEGA PROJECTS VS. DCIT, CENTRAL CIRCLE-1, VAPI/ IT(SS)A NO.285/AHD/2016/ FOR A.Y. 2013-14 5 INCOME IS HELD TO BE AVAILABLE IN PREVIOUS YEAR, THE AMOUNT OF RS.5 CRORE WAS AVAILABLE WITH THE ASSESSEE. ON THE BASIS OF AFORESAID OBSERVATION, THE LD.CIT(A) WORKED OUT A NOTIONAL INTEREST @ 14% ON SUCH RS.5 CRORE, ALLEGEDLY AVAILABLE WITH THE ASSESSEE AND THEREBY ADDED RS.70 LAKHS ON ACCOUNT OF NOTIONAL INTEREST INCOME. FURTHER AGGRIEVED, THE ASSESSEE HAS FILED PRESENT APPEAL BEFORE THIS TRIBUNAL. 8. WE HAVE HEARD THE SUBMISSION OF LD. AUTHORISED REPRESENTATIVE (AR) OF THE ASSESSEE AND LEARNED DEPARTMENTAL REPRESENTATIVE (LD. DR) FOR THE REVENUE. WE HAVE ALSO GONE THROUGH THE ORDERS OF LOWER AUTHORITIES WITH THE ACTIVE ASSISTANCE OF LD. REPRESENTATIVE OF THE PARTIES. GROUND NO.1 IS OF GENERAL IN NATURE WHICH NEEDS NO SPECIFIC ADJUDICATION. 9. GROUND NO.2 RELATES TO CONFIRMING ADDITION OF NOTIONAL INTEREST INCOME OF RS.70 LAKHS. THE LD.AR OF THE ASSESSEE SUBMITS THAT ASSESSEE FIRM IS IN THE DEVELOPMENT OF REAL ESTATE PROJECTS. DURING THE RELEVANT PERIOD, THE ASSESSEE HAS UNDERTAKING THREE REAL ESTATE PROJECTS. A SEARCH WAS CARRIED OUT AT THE ASSESSEES FIRM ON 18.06.2013. IN THE SEARCH, CERTAIN INCRIMINATING MATERIAL WAS FOUND. ONE OF THE PARTNERS DURING SEARCH ACTION MADE A DISCLOSURE STATEMENT AND DISCLOSED ADDITIONAL INCOME OF RS.10 CRORE (APROX). THE ADDITIONAL INCOME WAS OFFERED TO TAX IN THE RETURN OF INCOME, FILED IN RESPONSE TO NOTICE UNDER SECTION 153A OF THE ACT. DURING THE ASSESSMENT, THE AO MADE DISALLOWANCE OF INTEREST EXPENSES OF RS.90,11,978/- BY TAKING VIEW THAT INTEREST EXPENSES IS HIGHER M/S.MICROMEGA PROJECTS VS. DCIT, CENTRAL CIRCLE-1, VAPI/ IT(SS)A NO.285/AHD/2016/ FOR A.Y. 2013-14 6 COMPARATIVELY IMMEDIATELY PRECEDING ASSESSMENT YEAR. THE AO DISALLOWED THE ENTIRE INTEREST EXPENSES BY HOLDING THAT INTEREST EXPENSE IS CLAIMED ONLY TO REDUCE THE INCOME BEING AFTERTHOUGHT. IN THE FIRST APPEAL THE LD. CIT(A) ACCEPTED THE CONTENTION THAT INTEREST EXPENSES WERE PAID DURING THE COURSE OF BUSINESS AND TDS WAS MADE ON INTEREST PAYMENT AND ACCORDINGLY ALLOWABLE. 10. THE LD.CIT(A) MADE ADDITION OF INTEREST INCOME ON NOTIONAL BASIS ON DIFFERENT ASPECTS HOLDING THAT IF UNDISCLOSED INCOME DECLARED BY ASSESSEE WOULD HAVE BEEN AVAILABLE IN THE BOOKS OF ACCOUNTS OF ASSESSEE, NOTIONAL INTEREST OF APPROXIMATELY 14% OF AVERAGE INTEREST RATE OF SUCH AVAILABLE UNACCOUNTED ON MONEY, THE ASSESSEE WOULD HAVE BEEN EARNED INTEREST, ACCORDINGLY, THE LD.CIT(A) MADE ADDITION OF RS.70 LAKHS. THE LD.AR FOR ASSESSEE SUBMITS THAT THE INTEREST DISALLOWANCE MADE BY THE LD. CIT(A) IS ARBITRARILY AND UNCALLED FOR. THERE IS NO CONCEPT OF NOTIONAL INCOME IN THE INCOME TAX ACT. NO ADDITION CAN BE MADE BY PRESUMING THAT ASSESSEE WOULD HAVE EARNED NOTIONAL INCOME WHEN THE ASSESSEE IN FACT HAS NOT EARNED SUCH INTEREST INCOME. THE AMOUNT DISCLOSED DURING THE SEARCH IS PROFIT DECLARED BY ASSESSEE AND IS ITS OWN MONEY. THE ENTIRE MONEY IS INTEREST FREE FUNDS AVAILABLE AT THE DISPOSAL OF ASSESSEE AND THE ASSESSEE CAN USE THE SAME AS PER ITS CHOICE. MERELY FOR THE REASONS THAT INTEREST FREE FUNDS AVAILABLE, NO DISALLOWANCE CAN BE MADE OUT OF INTEREST EXPENSES. THE ASSESSEE INCURRED INTEREST EXPENSES WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. IN SUPPORT OF HIS SUBMISSION, THAT NO ADDITION ON ACCOUNT OF NOTIONAL INTEREST M/S.MICROMEGA PROJECTS VS. DCIT, CENTRAL CIRCLE-1, VAPI/ IT(SS)A NO.285/AHD/2016/ FOR A.Y. 2013-14 7 INCOME IS WARRANTED RELIED ON THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. ARIHANT AVENUE & CREDIT LTD, [2013] 36 TAXMANN.COM 14 (GUJ) AND HON'BLE DELHI COURT IN SHIVANANDAN BUILDCON (P) LTD., VS. CIT [2015] 60 TAXMANN.COM 347 (DEL HC). 11. ON THE OTHER HAND, THE LD. CIT-DR FOR THE REVENUE SUPPORTED THE ORDER OF LD.CIT(A). THE LD. CIT-DR FOR THE REVENUE FURTHER SUBMITTED THAT THE LD.CIT(A) HAS GIVEN A PROPER REASONING WHILE MAKING ADDITION OF NOTIONAL INTEREST OF RS.70 LAKHS. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES, WE HAVE ALSO DELIBERATED OF VARIOUS CASE LAWS RELIED BY LD. AR OF THE ASSESSEE. THERE IS NO DISPUTE THAT WHILE FILING THE RETURN OF INCOME, IN RESPONSE TO NOTICE UNDER SECTION 153A OF THE ACT THE ASSESSEE OFFERED ADDITIONAL INCOME DISCLOSED DURING THE SEARCH ACTION. THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT FILED WITH THE RETURN OF INCOME, IN RESPONSE TO NOTICE UNDER SECTION 153A, CLAIMED INTEREST EXPENSES OF RS.90,11,978/-. THE A.O. MADE DISALLOWANCE OF ENTIRE INTEREST EXPENSES BY TAKING VIEW THAT INTEREST EXPENSES IND CLAIMED TO REDUCE THE INCOME AND IS AFTERTHOUGHT. HOWEVER, ON APPEAL BEFORE THE LD.CIT(A), THE LD.CIT(A) HELD THAT THE AO HAS NOT POINTED OUT THAT THE EXPENSES CLAIMED BY THE ASSESSEE IS NOT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THAT EXPENSES ARE NOT RECORDED IN THE BOOKS OF ACCOUNTS. THE OBSERVATION OF AO THAT INTEREST EXPENSES IS AN AFTERTHOUGHT HAS NO LEGAL OR LOGICAL BACKING, THUS, THE CONTENTION OF THE ASSESSEE WAS ACCEPTED BY THE LD.CIT(A). ACCORDINGLY, IT WAS ACCEPTED THAT M/S.MICROMEGA PROJECTS VS. DCIT, CENTRAL CIRCLE-1, VAPI/ IT(SS)A NO.285/AHD/2016/ FOR A.Y. 2013-14 8 INTEREST EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 13. HOWEVER, THE LD.CIT(A) MADE ADDITION OF RS.70 LAKHS ON DIFFERENT ASPECT BY TAKING VIEW THAT UNDISCLOSED INCOME WOULD HAVE BEEN AVAILABLE IN THE BOOKS OF THE ASSESSEE. THE LD.CIT(A) PRESUMED THAT IF RS.5 CRORE WERE AVAILABLE WITH THE ASSESSEE, THE NOTIONAL INTEREST OF RS.@14% ON SUCH AVERAGE ACCOUNT, THE ASSESSEE MUST HAVE EARNED RS.70 LAKHS AND THEREBY ADDED RS.70 LAKHS. 14. BEFORE US, THE LD.AR OF THE ASSESSEE VEHEMENTLY SUBMITTED THAT THERE IS NO CONCEPT OF NOTIONAL INCOME AND THAT NO ADDITION CAN BE MADE OR NO PRESUMPTION BASIS THAT ASSESSEE WOULD HAVE EARNED NOTIONAL INTEREST ON SURPLUS AVAILABLE WITH THEM. IF INTEREST FREE FUNDS ARE AVAILABLE, IT IS THE CHOICE OF BUSINESSMAN/ASSESSEE TO ARRANGE HIS BUSINESS AFFAIRS. THE HON'BLE GUJARAT HIGH COURT IN CIT VS. ARIHANT AVENUE CREDIT LTD. (SUPRA) HELD THAT NO ADDITION ON ACCOUNT OF NOTIONAL INTEREST IS WARRANTED. SIMILARLY, THE HON'BLE DELHI HIGH COURT IN SHIVNANDAN BUILDCON (P.) LTD., VS. CIT (SUPRA) ALSO HELD THAT IN ABSENCE OF ANY SPECIFIC PROVISIONS UNDER INCOME TAX ACT, NO NOTIONAL INTEREST IS WARRANTED. WE ARE CONSCIOUS OF THE SETTLED POSITION IN LAW THAT THE INCOME TAX OFFICER (ITO) CANNOT DECIDE AFFAIRS OF BUSINESSMAN AS TO HOW THE BUSINESSMAN SHOULD INCUR THE EXPENSES OR EARN THE INTEREST. IT IS THE SOLE DISCRETION OF BUSINESSMAN TO MANAGE ITS AFFAIRS AND NOT THE ITO. CONSIDERING THE AFORESAID FACTS AND THE CASE LAWS REFERRED THROUGH, WE ARE OF THE VIEW THAT NO ADDITION ON ACCOUNT OF NOTIONAL INTEREST IN ABSENCE OF ANY CO-GENT EVIDENCE, AGAINST THE ASSESSEE. ACCORDINGLY GROUND M/S.MICROMEGA PROJECTS VS. DCIT, CENTRAL CIRCLE-1, VAPI/ IT(SS)A NO.285/AHD/2016/ FOR A.Y. 2013-14 9 NO.2 OF THE APPEAL IS ALLOWED. GROUND NO.3 & 4 ARE GENERAL AND NEEDS NO ADJUDICATION. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11-11-2020. SD/- SD/- (DR. ARJUN LAL SAINI) (PAWAN SINGH) ( /ACCOUNTANT MEMBER) ( /JUDICIAL MEMBER) / SURAT, DATED : 11 TH NOV , 2020 / S.GANGADHARA RAO, SR.PS COPY OF ORDER SENT TO- ASSESSEE/AO/PR. CIT/ CIT (A)/ ITAT (DR)/GUARD FILE OF ITAT. BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR, SURAT