Deputy Commissioner of Income-tax,, v. Shraddha Constructions & Power Generation Pvt. Ltd.,, Pune

ITA 457/PUN/2015 | 2006-2007
Pronouncement Date: 28-11-2017 | Result: Dismissed

Appeal Details

RSA Number 45724514 RSA 2015
Assessee PAN AAICS6691L
Bench Pune
Appeal Number ITA 457/PUN/2015
Duration Of Justice 2 year(s) 7 month(s) 15 day(s)
Appellant Deputy Commissioner of Income-tax,,
Respondent Shraddha Constructions & Power Generation Pvt. Ltd.,, Pune
Appeal Type Income Tax Appeal
Pronouncement Date 28-11-2017
Appeal Filed By Department
Tags No record found
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 28-11-2017
Date Of Final Hearing 22-11-2017
Next Hearing Date 22-11-2017
Last Hearing Date 22-11-2017
Assessment Year 2006-2007
Appeal Filed On 13-04-2015
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B PUNE . BEFORE SHRI D.KARUNAKARA RAO AM AND SHRI VIKAS AWASTHY JM . / ITA NOS.457 & 458/PUN/2015 / ASSESSMENT YEARS : 2006-07 & 2008-09 DCIT CENTRAL CIRCLE-2(1) PUNE . /APPELLANT VS. SHRADDHA CONSTRUCTIONS & POWER GENERATION PVT. LTD. A-1 PLOT NO.887 A SHIROLE ROAD PUNE 411 004 PAN : AAICS6691L . / RESPONDENT ASSESSEE BY : SHRI KISHOR PHADKE REVENUE BY : DR. VIVEK AGGARWAL CIT-DR / DATE OF HEARING : 22.11.2017 / DATE OF PRONOUNCEMENT: 28.11.2017 / ORDER PER D. KARUNAKARA RAO AM : THERE ARE 2 APPEALS OF THE REVENUE UNDER CONSIDERATION BELONGING TO SHRADDHA GROUP OF CASES FOR THE ASSESSMENT YEARS 2006-07 & 2008-09. THEY ARE FILED AGAINST THE COMMON OR DER OF CIT(A)-12 PUNE DATED 30-01-2015. 2. REVENUE RAISED COMMON GROUNDS IN BOTH THE ASSESSME NT YEARS 2006-07 AND 2008-09. HOWEVER FOR THE SAKE OF REFERENCE WE PROCEED TO EXTRACT THE GROUNDS RAISED IN A.Y. 2006-07 HEREUNDER : 1. ON THE FACTS AND CIRCUMSTANCES OF CASE AND IN L AW THE LD.CIT(A) WAS NOT JUSTIFIED IN ALLOWING RENT PAID T O RAJ INFRASTRUCTURE ON ACCOUNT OF MACHINERY HIRED AS IT IS CLEARLY NOTI CEABLE THAT PAYMENT WAS MADE BY THE ASSESSEE COMPANY. ITA NOS.457 & 458/PUN/2015 SHRADDHA CONSTRUCTIONS & POWER GENERATION PVT. LTD. 2 2. ON THE FACTS AND CIRCUMSTANCES OF CASE AND IN LA W THE LD.CIT(A) ERRED IN ALLOWING INTEREST ON BORROWED FU NDS WHICH WERE UTILIZED BY THE ASSESSEE FOR NON-BUSINESS PURPOSE I.E. INVESTMENT IN AGRICULTURAL LAND. THE LD.CIT(A) ALSO FAILED TO AP PRECIATE THAT THE ASSESSEE IS IN THE BUSINESS OF CONTRACTING ON HIRE AND CORRESPONDING BORROWED FUNDS NEEDS TO BE DISALLOWED. 3. ON THE FACTS AND CIRCUMSTANCES OF CASE AND IN LA W THE LD.CIT(A) ERRED IN ALLOWING INTEREST ON BORROWED FU NDS WHICH WERE UTILIZED BY THE ASSESSEE FOR NON-BUSINESS PURPOSE I.E. GIVING LOANS TO SOME BUSINESS CONCERNS HAVING NO BUSINESS NEXUS WIT H THE ASSESSEE COMPANY. THE LD.CIT(A) ALSO FAILED TO APPRECIATE T HAT THE ASSESSEE IS IN THE BUSINESS OF CONTRACTING AND HENCE CORRESPOND ING INTEREST ON BORROWED FUNDS WHICH WERE UTILIZED FOR NON-BUSINESS PURPOSE WAS RIGHTLY DISALLOWED BY THE AO. 3. IN THESE APPEALS RELEVANT ASSESSMENTS WERE MADE U /S.153A OF THE ACT. AO MADE ADDITIONS (1) ON ACCOUNT OF RENT PAID TO M/S. RAJ INFRASTRUCTURE DEVELOPERS ON ACCOUNT OF MACHINERY HIRED BY THE ASSESSEE; AND (2) INTEREST PAID ON BORROWED CAPITAL WHICH WAS UTILIZED BY THE ASSESSEE FOR NON-BUSINESS PURPOSES I.E. INVESTMENT S IN AGRICULTURAL LAND (GROUND NO.2) AND WITH SISTER CONCERNS (GR OUND NO.3). THESE ADDITIONS WERE MADE BY THE AO IN THE REGULA R ASSESSMENT MADE U/S.143(3) OF THE ACT AS WELL AS IN THE PRESENT ASSESSMENTS MADE U/S.153A OF THE ACT. CIT(A) IS STILL SEIZE D UP WITH THE APPEALS QUA THE ADDITIONS IN REGULAR ASSESSMENT U/S.143(3) OF TH E ACT. 4. BACKGROUND FACTS OF THESE APPEALS INCLUDE THAT ASSES SEE IS A COMPANY BELONGING TO SHRADDHA GROUP AND ENGAGED IN EXE CUTION OF IRRIGATION CONTRACTS AND GENERATION OF ENERGY FROM WINDMILLS . SEARCH U/S.132 OF THE ACT WAS CONDUCTED ON THE ASSESSEE ON 0 8-09-2010. THERE WAS DISCLOSURE OF ADDITIONAL INCOME OF RS.10.99 CRORES BY THE GROUP ON ACCOUNT OF ON-MONEY PAYMENTS IN PURCHASE OF LA NDS AND SUPPRESSION OF CLOSING STOCK DURING THE SEARCH. AO FOUN D CERTAIN DISCREPANCIES WITH REGARD TO THE RENT PAID TO M/S. RAJ I NFRASTRUCTURE ITA NOS.457 & 458/PUN/2015 SHRADDHA CONSTRUCTIONS & POWER GENERATION PVT. LTD. 3 DEVELOPERS AND INTEREST RECEIVED FROM M/S. RAJ INFRASTRUC TURE DEVELOPERS AND ITS UTILISATION FOR NON-BUSINESS PURPOSES AN D ACCORDINGLY DISALLOWED RS.29 40 000/- (BEING 50% OF THE REN T) ON ACCOUNT OF RENT PAID TO M/S. RAJ INFRASTRUCTURE DEVELOPE RS. AO ALSO DISALLOWED RS.9 75 697/- BEING INVESTMENT MADE IN THE AGRICULT URE IS NOT RELATED TO ASSESSEES BUSINESS. ON FINDING THAT SUCH ADDITIONS WITHOUT THE STRENGTH OF INCRIMINATING MATERIALS ARE UNSUSTA INABLE IN THE NON-ABATED ASSESSMENT CIT(A) GRANTED RELIEF TO THE ASSESSEE AND THEREFORE THE REVENUE IS IN APPEAL BEFORE US ON THE ABO VE 3 CORE ISSUES FOR BOTH THE A.YRS. 2006-07 & 2008-09. 5. BEFORE US LD. DR FOR THE REVENUE SUBMITTED THAT CIT(A) GRANTED RELIEF TO THE ASSESSEE ON BOTH THE COUNTS. WHILE GRANTING RELIEF ON THE FIRST ISSUE OF DISALLOWANCE ON ACCOUNT OF RENT PAID TO M/S. RAJ INFRASTRUCTURE DEVELOPERS CIT(A) DISCUSSED THIS IS SUE IN PARA NOS. 2.1.4 TO 2.1.7 AND HELD THAT THE AO IS NOT AUTHO RIZED TO INVOKE THE PROVISIONS OF SECTION 37(1) OF THE ACT QUA THE REASONABLENESS OF THE RENT PAID BY THE ASSESSEE. FOR T HE SAKE OF COMPLETENESS WE EXTRACT OPERATIONAL PARA NO.2.1.7 AND THE SAME READS AS UNDER : 2.1.7 ACCORDING TO ME THE LEARNED AO HAS TAKEN C ONTRADICTORY POSITIONS. ON ONE HAND HE HAS SUGGESTED THAT BECA USE OF THE EXCESSIVE NATURE OF THE PAYMENT THE TRANSACTION AP PEARS TO BE SHAM. HOWEVER ON THE OTHER HAND HE HAS PARTLY ALLOWED T HE DEDUCTION. IT IS ALTOGETHER DIFFERENT MATTER THAT THE LEARNED AO DOES NOT HAVE ANY EVIDENCE BUT ONLY LOGIC TO CONCLUDE THAT THE RENT P AYMENT IS EXCESSIVE. HOWEVER AS STATED THE AO CANNOT QUESTION THE REAS ONABLENESS OF THE PAYMENT MADE BY THE ASSESSEE U/S.37(1). ACCORDING TO ME THE DISALLOWANCE MADE BY THE LEARNED AO CANNOT BE SUSTA INED AND THEREFORE IT DESERVES TO BE DELETED. ACCORDINGLY I DELETE THE ADDITION MADE BY THE LEARNED AO OF RS.89 40 000/-. ITA NOS.457 & 458/PUN/2015 SHRADDHA CONSTRUCTIONS & POWER GENERATION PVT. LTD. 4 6. ON THE OTHER ISSUE OF DISALLOWANCE OF INTEREST ON PAR T CAPITAL LINKED TO THE NON-BUSINESS PURPOSES THE CIT(A) GAVE A FIND ING OF FACT ON MERITS ABOUT EXISTENCE OF ASSESSEES OWN FUNDS AND DELETED THE ADDITIONS. THEREFORE THE REVENUE FILED THE APPEAL BEFORE U S AND GROUND NOS. 2 AND 3 OF THE APPEALS IN BOTH THE ASSESSME NT YEARS ARE RELEVANT. FOR THE SAKE OF COMPLETENESS THE RELEVANT FINDIN G OF CIT(A) IS EXTRACTED AS UNDER : 2.2.4 HOWEVER I DO NOT AGREE WITH THE LEARNED AO THAT THE CORRESPONDING INTEREST AMOUNT SHOULD BE DISALLOWED BECAUSE IT IS NOT ESTABLISHED THAT THE APPELLANT HAS DIVERTED ITS BOR ROWED CAPITAL FOR THE NON-BUSINESS PURPOSES. THE DIVERSION OF THE BORROW ED CAPITAL FOR THE NON-BUSINESS PURPOSES IS PREFERABLY ESTABLISHED BY WAY OF DRAWING CASH FLOW STATEMENT OR WITH THE ANALYSIS OF THE BALANCE SHEET ON AVAILABILITY OF INTEREST FREE FUNDS AND INTEREST BE ARING FUNDS. THE LEARNED AO HAS DONE NEITHER. AS AGAINST THIS THE APPELLANT HAS SUBMITTED THAT IT HAD INTEREST FREE FUNDS AT ITS DISPOSAL TO MAKE INVESTMENT FOR NON-BUSINESS PURPOSES. THEREFORE AFTER THE APPELLANTS THIS ARGUMENT THE DISALLOWANCE ON PAYM ENT OF INTEREST CAN BE MADE ONLY AFTER THE APPELLANTS CONTENTION I S PROVED INCORRECT. AS LONG AS THE LEARNED AO DOES NOT ESTABLISH THAT T HE APPELLANT HAS DIVERTED BORROWED CAPITAL FOR THE NON-BUSINESS PURP OSES CORRESPONDING INTEREST DISALLOWANCE CANNOT BE MADE. ACCORDINGLY I DELETE THE DISALLOWANCE OF RS.9 75 697/-. 7. BEFORE US REFERRING TO THE CLOSED/NON-ABATED ASSESSME NTS QUA THE MAKING OF ADDITIONS IN THE ABSENCE OF SEIZED MATERIAL L D. DR FOR THE REVENUE SUBMITTED THAT THE CIT(A) HAS NOT GONE INTO THIS ASPECT AT ALL WHILE GRANTING RELIEF. FURTHER LD. DR FOR THE REVENUE SUBMITTED THAT THE ADDITION ON ACCOUNT OF DISALLOWANCE OF EXCESSIVE RENT PAID TO M/S. RAJ INFRASTRUCTURE DEVELOPERS IS FAIR A ND SUSTAINABLE. ON THE ASPECTS OF INCRIMINATING MATERIAL LD. DR FOR THE REVENUE SUBMITTED THAT THE SEARCH RESULTED IN SEIZURE O F 2 BLANK LETTER HEADS OF M/S. RAJ INFRASTRUCTURE DEVELOPERS AT THE PREMISES OF THE ASSESSEE AND THE SAME SHOULD BE CONSIDERED AS INCR IMINATING MATERIAL. THE LETTER HEADS ARE BLANK AND NO FIGURES OR WO RDS ARE MENTIONED THEREIN. FURTHER LD. DR BROUGHT OUR ATTENTION TO OTHER ITA NOS.457 & 458/PUN/2015 SHRADDHA CONSTRUCTIONS & POWER GENERATION PVT. LTD. 5 ENTRIES INVOLVING M/S. RAJ INFRASTRUCTURE DEVELOPERS AND T HE ASSESSEE AND SUBMITTED THAT THEY ARE DULY ACCOUNTED IN THE BOOKS OF ASSESSEE AS WELL AS M/S. RAJ INFRASTRUCTURE DEVELOPERS. ACCORDING TO HIM ON THE EXISTENCE OF INCRIMINATING MATERIAL THE VERY FACT SOME PAPERS BEARING NAME OF M/S. RAJ INFRASTRUCTURE DEVELOPER S ARE FOUND IN SEARCH THE SAME SHOULD BE CONSIDERED AS INCRIMINATING M ATERIAL. IN THAT CASE THE ISSUE RAISED IN GROUND NO.1 RELATING TO RENT PAID TO M/S. RAJ INFRASTRUCTURE DEVELOPERS SHOULD NOT BE DELETED ON LEGAL GROUND. FURTHER ON MERITS LD. DR ARGUED STATING THAT T HE CIT(A) IS WRONG IN HOLDING THAT THE ISSUES OF REASONABILITY IS OUTSIDE THE SCOPE OF SECTION 37 OF THE ACT. HE BROUGHT TO OUR NOTICE VAR IOUS CASE LAWS TOO. 8. ON THE OTHER HAND ON THE LEGAL ISSUE LD. COUNSEL FOR THE ASSESSEE SUBMITTED IN CONNECTION WITH DISALLOWANCE OF RENT PAID TO M/S. RAJ INFRASTRUCTURE DEVELOPERS THAT MERE DISCOVERY OF BLANK LETTER HEADS OF M/S. RAJ INFRASTRUCTURE DEVELOPERS DOES NOT AMOU NT TO ANY INCRIMINATION. INCRIMINATION IS ALWAYS UNDERSTOOD IN THE CONTEXT OF UNACCOUNTED NATURE OF TRANSACTIONS APPEARING ON THE SAID DOCUMENTS IN THE BOOKS OF ACCOUNT. ELABORATING THE SAME LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LETTER HEAD S ARE BLANK AND NO FIGURES OR WORDS OF ANY KIND ARE MENTIONED THEREIN . IN THAT CASE THERE IS NO QUESTION OF ANY INCRIMINATION QUA THE BOO KS OF ACCOUNT OF ASSESSEE OR THE RELATED PARTIES. 9. CONSIDERING THE ABOVE REASONING AND INTERPRETATION ON THE EXPRESSION INCRIMINATING MATERIAL WE ARE OF THE OPINION THA T THE SAID BLANK LETTER HEADS DO NOT CONSTITUTE THE INCRIMINATING MATERIAL. THERE CAN BE MANY LEGAL VALID AND SUSTAINABLE REASONS WHY THE ITA NOS.457 & 458/PUN/2015 SHRADDHA CONSTRUCTIONS & POWER GENERATION PVT. LTD. 6 LETTER HEADS OF OTHER PERSONS I.E. IN THE PREMISES OF THE A SSESSEE. THEREFORE FOR THESE REASONS TOO THE ORDER OF THE CIT(A ) ON THIS ISSUE IS FAIR AND REASONABLE. IT DOES NOT CALL FOR ANY INTERFERENCE ON THIS. 10. REFERRING TO GROUND NOS. 2 AND 3 RAISED BY THE REVEN UE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE IS NO DISP UTE ABOUT THE ABSENCE OF ANY INCRIMINATING MATERIAL ON THESE TWO ITEMS OF DISALLOWANCE. THEREFORE THE CIT(A) IS JUSTIFIED IN DELETING THE ADDITIONS FOR THIS LEGAL REASON ALSO. 11. LD. COUNSEL FOR THE ASSESSEE DEVIATING FROM THE ABOVE LINE OF ARGUMENTS SUBMITTED THAT SIMILAR DISALLOWANCES WERE MADE B Y THE AO IN THE REGULAR ASSESSMENT U/S.143(3) OF THE ACT AND TH E ADJUDICATION IS NOW PENDING BEFORE THE CIT(A). FOR BRINGING FINALITY EARLY ON THESE ISSUES LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT HE SHALL HAVE NO OBJECTION IF THE FINDINGS OF CIT(A) ARE REVERSE D AND THE GROUND NOS. 2 & 3 OF THE REVENUE ARE ALLOWED NOTWITHSTAN DING THE STRONG CASE THE ASSESSEE HAS ON ALL THESE ISSUES. LD. CO UNSEL FOR THE ASSESSEE GIVES CONCESSION IN THIS REGARD ONLY IN VIEW OF EARLY FINALITY ON THE ISSUES. HE CONCEDED THE SAME IN THESE APPEALS AND OPINED TO A REQUEST TO THE LD.CIT(A) WITH APPROPRIATE REQUEST FOR GRANTING RELIEF IN THE APPEALS PENDING WITH HIM ON THE SIMILAR ADDITIONS. IN THIS REGARD LD. COUNSEL FILED WRITTEN SUBMISSIONS AND RELIED ON TH E CONTENTS OF PARA NOS. 4 AND 5 OF HIS SYNOPSIS. FOR THE S AKE OF COMPLETENESS THE SAME ARE EXTRACTED AS UNDER : AS SUCH THE REGULAR ASSESSMENT ORDER DATED 26-11- 2008 (AND THE APPEAL FILED AGAINST THE SAME FILED IN YEAR 2008) D OES NOT ABATE. IN OTHER WORDS THE SAID APPEAL OUGHT TO CONTINUE AS S UCH AND THE RELIEF (IF ANY) AGAINST THE SAID APPEAL OUGHT TO BE REAPED IN THE SAID APPEAL ONLY. IT IS SUBMITTED AN ASSESSEE OUGHT NOT TO GE T RELIEF AGAINST THE REGULAR ASSESSMENT IN THE SEARCH BASED APPEAL FOR SUCH YEAR SINCE SUCH A YEAR IS NOT PENDING BEFORE THE ASSESSING AUT HORITY. ITA NOS.457 & 458/PUN/2015 SHRADDHA CONSTRUCTIONS & POWER GENERATION PVT. LTD. 7 5. CONCLUSION AS SUCH THE ASSESSEE FEELS THE GROUNDS OF APPE AL NO.3 OF THE REVENUE FOR A.Y. 2006-07 CHALLENGING R ELIEF OF RS.4 09 201/- OUGHT TO BE ALLOWED AND BE DECIDED AS SUCH. 12. ON HEARING BOTH THE PARTIES ON THE ISSUES DISCUSSED ABOVE WE FIND THAT THE REVENUE IS AGGRIEVED WITH THE RELIEF GRANTED BY THE CIT(A) WITH REGARD TO (1) THE DISALLOWANCE OF RENT PAID BY TH E ASSESSEE TO M/S. RAJ INFRASTRUCTURE DEVELOPERS VIDE GROUND NO.1 A S WELL AS (2) THE DISALLOWANCE OF INTEREST RECEIVED BY THE ASSESSEE ON BORROWED FUNDS WHEN UTILIZED FOR NON-BUSINESS PURPOSES VIDE GROUND NOS. 2 & 3 OF APPEAL OF REVENUE. DURING THE PROCEEDINGS BEFORE US ASSESSEE RAISED AN ORAL GROUND SUPPORTED BY THE WRITTEN SYNOPSIS RELATING TO THE DISALLOWABILITY OF ADDITIONS ON LEGAL REASONING RELATING TO ABSENCE OF ANY INCRIMINATING MATERIAL AND UNSUSTAINABILITY OF SUCH ADDIT IONS NOT SUPPORTED BY ANY INCRIMINATING MATERIAL. AS SUCH IT IS AN ADMITTED FACT THAT THE BLANK LETTER HEADS ARE THE ONLY SEIZED MATERIAL PERTAINING TO THIS ISSUE. WE HAVE ALREADY HELD THAT SUCH BLANK LETTER HEADS DO NOT AMOUNT TO THE INCRIMINATING MATERIAL. THEREFO RE WE ARE OF THE OPINION THAT GROUND NO.1 OF REVENUE NEEDS TO BE D ISMISSED ON THIS LEGAL REASONING. 13. REGARDING THE GROUND NOS. 2 & 3 OF THE REVENUE WE FIN D THE CIT(A) GRANTED RELIEF ON FINDING THE EXISTENCE OF EXCESS OWN FUNDS OF THE ASSESSEE. NOTWITHSTANDING THE ABOVE LD. COUNSEL FOR T HE ASSESSEE SUBMITTED THAT ASSESSEE HAS CONCEDED AND RE QUESTED FOR REVERSAL OF THE FINDING OF THE CIT(A) ON THIS ISSUE AND DECID E THE ISSUE AGAINST THE ASSESSEE. WE FIND THE SAID CONCESSION IS NOT IN TUNE WITH THE SETTLED LEGAL POSITION ON THE ISSUE. THEREFORE WE DIS MISS THE SAME. ITA NOS.457 & 458/PUN/2015 SHRADDHA CONSTRUCTIONS & POWER GENERATION PVT. LTD. 8 14. ON PERUSAL OF THE ABOVE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE ON THESE ISSUES QUA THE DISALLOWANCE OF INTERE ST ON PART BORROWED CAPITAL WE ARE OF THE VIEW THAT THE FINDING OF TH E CIT(A) IS FAIR AND REASONABLE AS THE SAID DECISION HAS THE BACKING OF THE JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF CIT VS . RELIANCE UTILITIES AND POWER LTD. REPORTED IN 313 ITR 340 AND CIT VS. HDFC LTD. REPORTED IN 366 ITR 505. THUS THE DECISION GIVEN BY THE CIT(A) STANDS CONFIRMED. THUS GROUND NOS. 2 & 3 RAISED BY THE REVENUE ARE DISMISSED. ACCORDINGLY GROUND NO.1 RAISED BY THE REVENUE IN BOTH T HE YEARS IS DISMISSED ON TECHNICAL GROUNDS AND GROUND NOS. 2 AND 3 RAISED BY THE REVENUE IN BOTH THE YEARS ARE DISMISSED. 15. IN THE RESULT APPEALS OF THE REVENUE FOR BOTH THE A SSESSMENT YEARS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF NOVEMBER 2017. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) /JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE; DATED : 28 TH NOVEMBER 2017. / COPY OF THE ORDER FORWARDED TO : BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY / ITAT PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A) - 1 2 PUNE 4. CIT - 1 2 PUNE 5. B BENCH PUNE; 6. / GUARD FILE.