ITO, Ward-10(2), Hyderabad v. Dandamudi Avanindra Kumar, Hyderabad

CO 9/HYD/2012 | 2008-2009
Pronouncement Date: 29-02-2012 | Result: Dismissed

Appeal Details

RSA Number 922523 RSA 2012
Assessee PAN ACNPD1893R
Bench Hyderabad
Appeal Number CO 9/HYD/2012
Duration Of Justice 7 day(s)
Appellant ITO, Ward-10(2), Hyderabad
Respondent Dandamudi Avanindra Kumar, Hyderabad
Appeal Type Cross Objection
Pronouncement Date 29-02-2012
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 29-02-2012
Assessment Year 2008-2009
Appeal Filed On 22-02-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B HYDERABAD BEFORE SHRI D.KARUNAKARA RAO ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY JUDICIAL MEMBER. ITA NO.1863/HYD/2011 & C.O.NO.9/HYD/2012 THEREIN (ASSESSMENT YEAR 2008- 09) INCOME-TAX OFFICER WARD- 10(2) HYDERABAD. V/S SHRI DANDAMUDI AVANINDRA KUMAR SECUNDERABAD. (PAN - ACNPD 1893 R ) (APPELLANT) (RESPONDENT/CROSS OBJECTOR) APPELLANT BY : SHRI HARILAL NAIK RESPONDENT BY : SHRI JITENDRA KUMAR DATE OF HEARING 28 2.2012 DATE OF PRONOUNCEMENT 29.2.2012 O R D E R PER D.KARUNAKARA RAO ACCOUNTANT MEMBER: ITA NO.1863/HYD/2011: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-VI HYDERAB AD DATED 25.8.2011 FOR THE ASSESSMENT YEAR 2008-09. 2. EFFECTIVE GROUNDS OF THE REVENUE ARE AS FOLLOWS - 1. THE HONBLE CIT(A) ERRED IN FACT OR LAW OR BOTH . 2. THE CIT(A) ERRED IN DECIDING THE SYSTEM OF ACCOU NTING FOLLOWED BY THE ASSESSEE AS CASH SYSTEM ON SUBMISS ION EVEN THOUGH THE ASSESSEE HAS PRODUCED BOOKS OF ACCO UNT NEITHER BEFORE THE AO NOR BEFORE THE CIT(A) TO EST ABLISH THE METHOD OF ACCOUNTING BEING FOLLOWED. ITA NO.1863/HYD/11 & CO THEREIN SHRI DANDAMUDI AVANINDR A KUMAR SECBAD. 2 3. THE CIT(A) OUGHT TO HAVE GIVEN AN OPPORTUNITY TO THE AO UNDER RULE 46 OF THE INCOME TAX RULES 1962 FOR ESTABLISHING THE METHOD OF ACCOUNTING REGULARLY FOL LOWED BY THE ASSESSEE IN CASE EVIDENCES HAVE BEEN PRODUCED BEFORE THE CIT(A). 4. IN THE ABSENCE OF ANY EVIDENCE REGARDING THE MET HOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE THE HONBLE CIT(A) ERRED IN DELETING THE INTEREST INCOME OF RS.2 63 84 593/- TREATING IT AS NOT ACCRUED TO THE ASSESSEE THOUGH THE SAID AMOUNT WAS CREDITED INTO THE ACCOUN T OF THE ASSESSEE DURING THE PREVIOUS YEAR. 5. .. 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IS IN THE BUSINESS OF REAL ESTATE AND FILED RETURN OF INCOME ADMITTING TAXABLE INCOME OF RS.1 01 26 807 AND THE ASSESSING OFFICER ASSESSED THE SAME AT RS.3 66 11 400. IN THE SCRUTINY ASSESSMENT THE ASSESSING OFFICER MADE AN ADDITION OF RS.2 63 84 593 ON ACCOU NT OF DIFFERENCE OF INTEREST RECEIVED. 4. AGGRIEVED BY THE ABOVE ADDITION THE ASSESSEE F ILED AN APPEAL BEFORE THE CIT(A). DURING THE APPELLATE PROCEEDINGS THE ASSESSEE FILED WRITTEN SUBMISSIONS STATING THAT THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DIFFERENCE OF INTEREST IS UNW ARRANTED. THE ASSESSEE SUBMITTED THAT THE REDEEMABLE CONVERTIBLE DEBENTURE S(RCDS) ARE OF CUMULATIVE NATURE I.E. INTEREST IS ACCUMULATED ON YEAR TO YEAR BASIS TILL THE DEBENTURES ARE REDEEMED. THE DEBENTURES ARE CON VERTED OR REDEEMED AT THE OPTION OF THE ASSESSEE. AS SUCH T HE ASSESSEE HAS NO RIGHT TO RECEIVE THE INTEREST TILL THE TIME OF REDE MPTION OR CONVERSION. IN THIS REGARD ASSESSEE RELIED ON THE TERMS AND CONDI TIONS OF RCDS. AS PER THE SAID TERMS IF THE ASSESSEE OPTS FOR CONVERSION OF RCDS INTO SHARES THERE SHALL BE NO INTEREST PAYABLE STARTING FROM TH E DATE OF EXERCISE OF SUCH OPTION. IN SUMMARY THE ASSESSEE SUBMITTED TH AT WITHOUT THE RIGHT TO RECEIVE INTEREST THERE CANNOT BE ACCRUAL OF INT EREST. FOR THIS PROPOSITION ASSESSEE RELIED ON VARIOUS DECISIONS N OTED IN PARA 4.1 OF THE ITA NO.1863/HYD/11 & CO THEREIN SHRI DANDAMUDI AVANINDR A KUMAR SECBAD. 3 IMPUGNED ORDER. ON GOING THROUGH THE SAME THE CIT (A) GAVE RELIEF TO THE ASSESSEE HOLDING THAT THERE IS NO RIGHT TO THE ASSESSEE TO RECEIVE THE INTEREST WHICH THE ASSESSING OFFICER CONSIDERED AS INCOME ACCRUED IN THE ASSESSMENT PROCEEDINGS. 5. AGGRIEVED BY THE SAID ORDER OF THE CIT(A) THE REVENUE FILED THE PRESENT APPEAL BEFORE US. 6. DURING THE PROCEEDINGS BEFORE US THE LEARNED D EPARTMENTAL REPRESENTATIVE FOR THE REVENUE WAS CRITICAL OF THE DECISION OF THE CIT(A) AND MENTIONED THAT ORDER OF THE ASSESSING OFFICER O UGHT TO HAVE BEEN CONFIRMED BY THE CIT(A). 7. DURING THE COURSE OF HEARING WE HAVE REQUEST ED THE LEARNED DEPARTMENTAL REPRESENTATIVE TO DEMONSTRATE HOW THE RE CAN BE RIGHT TO RECEIVE THE INTEREST WITHOUT THERE BEING ANY ACCR UAL OF SUCH INTEREST IN THE CIRCUMSTANCES WHERE THE ACCRUAL OF INTEREST IS CONTINGENT UPON CERTAIN OPTIONS TO BE EXERCISED IN FUTURE. IN RESPONSE TH E LEARNED DEPARTMENTAL REPRESENTATIVE MERELY RELIED ON THE ORDER OF THE AS SESSING OFFICER. 8. PER CONTRA THE LEARNED COUNSEL FOR THE ASSESSE E RELIED HEAVILY ON THE CONTENTS OF PARAS 4.3 TO 4.5 OF THE IMPUGNED ORDER OF THE CIT(A). IN SUMMARIZING THE SAME HE MENTIONED THAT THE TERM S AND CONDITIONS OF THE RCDS AS DESCRIBED BY THE CIT(A) IN PARA 4.4 OF THE IMPUGNED ORDER DO NOT INDICATE THE CHANCE OF THE ACCRUAL OF THE IN TEREST WITHOUT EXERCISE OF OPTION OF CONVERSION BY THE ASSESSEE. 9. WE HAVE PERUSED THE RELEVANT PARAS OF THE ORDER OF THE CIT(A) AND THE SAME ARE REPRODUCED FOR THE PURPOSE OF COMPLETENESS OF THIS ORDER- ITA NO.1863/HYD/11 & CO THEREIN SHRI DANDAMUDI AVANINDR A KUMAR SECBAD. 4 4.3 I HAVE EXAMINED THE ASSESSMENT ORDER AND THE SUBMISSION MADE BY THE AR. WHILE REJECTING THE ASSE SSEES CLAIM OF CASH SYSTEM OF ACCOUNTING WITH REGARD TO THE INT EREST INCOME THE ASSESSING OFFICER HAS STATED THAT THE SOURCE OF FUNDS FOR DEPOSITS WERE CAUTION DEPOSITS FOR ENTERING INTO CO LLABORATIVE AGREEMENTS FOR LAND BY THE FIRM IN WHICH THE ASSESS EE WAS A PARTNER AND THAT THE ASSESSEE COULD NEITHER FILE T HE PARTNERSHIP DEEDS NOR PROVIDE INFORMATION ABOUT THE SPECIFIC AR RANGEMENTS FOR UTILIZING THE FUNDS OF THE FIRM OR FOR SHARING THE INTEREST EARNED THEREON. THE ASSESSING OFFICER ALSO NOTED THAT THE ASSESSEE HAD NOT MAINTAINED ANY BOOKS RECORDING THE PARTY-WISE A CCOUNT OF THE PAYM ENTS MADE FOR THE LAND. THE ASSESSING OFFICER CONCL UDED THAT THERE WERE NO BOOKS AVAILABLE ON THE BASIS OF WHICH IT COULD BE SAID THAT THE BOOKS IN RESPECT OF THE INTEREST EARN ED WERE MAINTAINED SEPARATELY ON CASH BASIS. THE ASSESSE E HAS NOT DENIED THAT HE DID NOT MAINTAIN ANY BOOKS OF ACCOUN T. THIS HOWEVER IS NOT RELEVANT FOR ACCEPTING OR REJECTING THE ASSESSEES CLAIM OF FOLLOWING A PARTICULAR SYSTEM OF ACCOUNTIN G. THE ASSESSEE HAS NOT MADE ANY CLAIM OF INTEREST OR OTHER EXPENSE S ON ACCRUAL BASIS FOR DEDUCTION FORM THE INTEREST INCOME ON THE BASIS OF WHICH ITS METHOD OF ACCOUNTING COULD BE REJECTED. FAILURE TO MAINTAIN BOOKS OF ACCOUNT IS ALSO NOT FATAL FOR THE ASSESSEE BEING AN INDIVIDUAL AND THE INCOME NOT BEING IN THE NATURE O F PROFITS AND GAINS OF BUSINESS. IN THE ABSENCE OF ANY EVIDENCE OR FACT TO THE CONTRARY THERE IS NO REASON TO REJECT THE ASSESSEE S RIGHT TO ADOPT CASH SYSTEM O ACCOUNTING. 4.4 THE ASSESSEE HAS ALSO FILED COPY OF THE RCD OF TAMANNA AND CONFIRMATIONS FROM BOTH THE COMPANIES A BOUT THE TERMS OF THE RCDS. THE TERMS AND CONDITIONS OF THE RCD OF TAMANNA DEVELOPERS PVT. LTD. ARE AS FOLLOWS: 1. INTEREST AT THE RATE OF 14% SHALL BE PAID ON RC DS TILL THE TIM E THE CONVERSION OPTION IS NOT EXERCISED. IF THE CONVERSION OPTION IS EXERCISED THEN NO INTEREST SHALL BE PAID STARTING FROM THE DATE OF EXERCISE OF THE OPTION. 2. THE INTEREST SHALL BE CUMULATIVE. 4.5 IT IS UNDISPUTED THAT THE INTEREST IS CUMULATI VE I.E. IT IS NOT PAYABLE TO THE ASSESSEE EVERY YEAR BUT IS AC CUMULATED AND ADDED TO THE AMOUNT INVESTED IN THE RCD. THERE IS THEREFORE MERIT IN THE ASSESSEES CLAIM THAT HE HAD NO RIGHT TO RECEIVE THE INTEREST DURING THE YEAR AND THE INTEREST HAD NOT A CCRUED. THIS VIEW IS ALSO SUPPORTED BY THE VARIOUS CASE-LAWS CIT ED BY THE ASSESSEE. THEREFORE EVEN ON ACCRUAL BASIS THE INT EREST HAD NOT ACCRUED TO THE ASSESSEE EXCEPT TO THE EXTENT OF TH E TDS AND IS NOT TAXABLE DURING THE YEAR. THE ADDITION OF RS.2 5 3 84 593 TO THE ASSESSEES INCOME IS DELETED. CONSIDERING THE ABOVE FINDINGS GIVEN BY THE CIT(A) THAT THE INTEREST WOULD NOT ACCRUE ON THE RCDS AT THE END OF EACH YEA R AND THE ASSESSEE ITA NO.1863/HYD/11 & CO THEREIN SHRI DANDAMUDI AVANINDR A KUMAR SECBAD. 5 ALSO HAS NO RIGHT TO RECEIVE THE SAID INTEREST ON A CCOUNT OF INVESTMENT IN THE SAID DEBENTURES WE ARE OF THE OPINION THAT THE SAID ORDER OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. ACCORDI NGLY THE ISSUE INVOLVED IS DECIDED IN FAVOUR OF THE ASSESSEE AND THE GROUN DS OF THE REVENUE ARE REJECTED. 10. IN THE RESULT REVENUES APPEAL IS DISMISSED. C.O.NO.9/HYD/2012(IN ITA NO.1863/HYD/2011): 11. AT THE OUTSET THE LEARNED COUNSEL FOR THE ASS ESSEE FAIRLY MENTIONED THAT THE C.O. WAS RAISED IN ORDER TO SUPPORT THE O RDER OF THE CIT(A) AND THEREFORE IN THE EVENT OF THE DISMISSAL OF THE REV ENUES APPEAL THE C.O. IS NOT PRESSED. ACCORDINGLY THE C.O. OF THE ASSESSEE IS DISMISSED AS NOT PRESSED. 12. IN THE RESULT CROSS OBJECTION OF THE ASSESSE E IS DISMISSED. 13. TO SUM APPEAL OF THE REVENUE AS WELL AS THE C .O. OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 29.2.2012 SD/- SD/- (SAKTIJIT DEY) (D.KARUNAKARA RAO) JUDICIAL MEMBER. ACCOUNTANT MEMBER. DT/- 29 TH FEBRUARY 2012 COPY FORWARDED TO: 1. SHRI DANDAMUDI AVANINDRA KUMAR 88 GUNROCK ENCLAVE SECUNDERABAD. 2. INCOME TAX OFFICER WARD 10(2) HYDERABAD 3. COMMISSIONER OF INCOME - TAX(APPEALS) VI HYDERABAD 4. COMMISSIONER OF INCOME - TAX V HYDERABAD 5. THE D.R. ITAT HYDERABAD. B.V.S.