The ACIT, 3(1), v. M/s Bee Jay Realtors Pvt. Ltd.,,

ITA 479/IND/2007 | 2004-2005
Pronouncement Date: 24-05-2010 | Result: Dismissed

Appeal Details

RSA Number 47922714 RSA 2007
Assessee PAN AAACB7188D
Bench Indore
Appeal Number ITA 479/IND/2007
Duration Of Justice 2 year(s) 8 month(s) 14 day(s)
Appellant The ACIT, 3(1),
Respondent M/s Bee Jay Realtors Pvt. Ltd.,,
Appeal Type Income Tax Appeal
Pronouncement Date 24-05-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 24-05-2010
Date Of Final Hearing 23-02-2010
Next Hearing Date 23-02-2010
Assessment Year 2004-2005
Appeal Filed On 10-09-2007
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH INDORE BEFORE SHRI JOGINDER SINGH JUDICIAL MEMBER AND SHRI V.K. GUPTA ACCOUNTANT MEMBER ITA NO.479/IND/2007 A.Y. 2004-05 ASSTT. COMMISSIONER OF INCOME TAX 3(1) INDORE . APPELLANT VS M/S. BEE JAY REALTORS PVT. LTD. 16/2 NEW PALASIA INDORE PAN AAACB 7188 D . RESPONDENT APPELLANT BY : SHRI K.K. SINGH CIT DR RESPONDENT BY : S/SH. PRAKASH JAIN & V.K. JHAVAR CAS O R D E R PER JOGINDER SINGH JM THIS APPEAL IS BY THE REVENUE AGAINST THE ORDER OF THE LEARNED CIT(A)-I INDORE DATED 15.6.2007 ON THE FOLLOWING GROUNDS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN: 1. DELETING THE ADDITION OF RS.6 59 71 379/- MADE BY THE ASSESSING OFFICER U/S 41(1) OF THE I.T. ACT 1961. 2 2. DELETING THE ADDITION OF RS.13 67 304/- MADE BY THE AO ON ACCOUNT OF ACCRUED INTEREST. 3. RESTRICTING THE DISALLOWANCE OUT OF INTEREST EXPENSES TO RS.2 56 875/- FROM RS.7 42 338/-. 4. DELETING THE ADDITION OF RS.12 000/- MADE BY THE AO ON ACCOUNT OF RENT PAID WITHOUT AGREEMENT. 2. DURING HEARING OF THIS APPEAL WE HAVE HEARD SHR I K.K. SINGH LD. CIT DR AND SHRI PRAKASH JAIN LD. COUNSEL FOR THE ASSESSEE. THE CRUX OF ARGUMENTS ON BEHALF OF THE REVENUE IS IN SUPPORT OF THE ASSESSMENT ORDER WHEREAS THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED THE IMPUGNED ORDER. THE ASSESSEE HAS ALSO FILED WRITTE N SYNOPSIS WHICH IS AVAILABLE ON RECORD. 3. SO FAR AS THE GROUND NO. 1 IS CONCERNED THE FAC TS ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN TH E BUSINESS OF PURCHASE SALE AND DEVELOPMENT OF PROPERTIES. THE ASSESSEE CLASSIFIED THE SHARES OF BEE JAY COMPANY PRIVATE LIMITED IN IT S BALANCE-SHEET WHICH IT WAS HAVING. THE ASSESSEE COMPANY ON 3 RD FEBRUARY 1998 ENTERED INTO MEMORANDUM OF UNDERSTANDING WITH M/S M A-SHA CONSTRUCTION LIMITED (IN SHORT MSCCL) FOR SALE OF 1252 SHARES. AS PER THE MEMORANDUM OF UNDERSTANDING MSCCL WAS TO PAY TH E CONSIDERATION WITHIN A PERIOD OF NINE MONTHS FROM T HE DATE OF MEMORANDUM OF UNDERSTANDING. AS PER THE ASSESSEE TH E PURCHASER 3 FAILED TO MAKE THE PAYMENT WITHIN THE SPECIFIED TIM E. DUE TO NON- FULFILMENT OF CONDITIONS THE PARTIES MUTUALLY AGRE ED TO REFER THE MATTER TO THE SOLE ARBITRATOR SHRI P.D. MULEY (RETIRED JUSTIC E FROM HONBLE M.P. HIGH COURT) FOR RECOVERY OF OUTSTANDING AMOUNT PLUS INTEREST ON THE DELAYED PAYMENTS. VIDE AWARD DATED IST FEBRUARY 2 002 THE SOLE ARBITRATOR DIRECTED THE PURCHASER TO PAY AN AMOUNT OF RS.13 55 000/- TO THE ASSESSEE ALONG WITH INTEREST OF RS.87 31 135/- BEFORE 31 ST MAY 2002 AND THEREAFTER THE ASSESSEE WILL BE FURTHER ENTITLE D TO INTEREST AT THE RATE OF 18% PER ANNUM ON THE DELAYED PAYMENT IF ANY AF TER 31 ST MAY 2002. AS PER THE ASSESSEE TILL DATE NEITHER THE PURCHASE R MADE ANY PAYMENT NOR THE ASSESSEE TRANSFERRED THE SHARES TO THE PURC HASER CONSEQUENTLY THE ASSESSEE APPROACHED THE CIVIL COURT ON 12 TH AUGUST 2002 AND THE MATTER IS STILL SUB JUDICE. 4. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER ASKED THE ASSESSEE AS TO WHY THE UNCLAIMED LIABILITY OF R S.6 59 71 370/- SHOULD NOT BE ADDED U/S 41(1) OF THE ACT. IN REPLY THE A SSESSEE VIDE LETTER DATED 28.11.2006 EXPLAINED THAT EXCEPT THE PAYMENT TO MSCCL ALL THE PAYMENTS WERE MADE IN SUBSEQUENT YEARS AND AGAINST THE SALE OF SHARES OF BEE JAY COMPANY PRIVATE LIMITED WHICH AR E CLASSIFIED AS INVESTMENT IN THE BALANCE-SHEET THEREFORE SECTION 41(1) OF THE ACT IS NOT APPLICABLE AS THE ASSESSEE HAS NOT TAKEN ANY DEDUCT ION ALLOWANCE LOSS OR EXPENDITURE AGAINST THE SAID RECEIPT IN EARLIER YEARS AND THE MATTER IS 4 PENDING BEFORE THE HONBLE COURT. HOWEVER THE LEA RNED ASSESSING OFFICER MADE THE ADDITION OF RS.6 59 71 370/- U/S 4 1(1) OF THE ACT. ON APPEAL THE IMPUGNED ADDITION WAS DELETED BY THE LE ARNED COMMISSIONER OF INCOME TAX (APPEALS) WHICH IS UNDER CHALLENGE BEFORE THE TRIBUNAL BY THE REVENUE. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD. REPRESENTATIVES OF BOTH SIDES AND PERUSED THE MATERIAL AVAILABLE ON RE CORD. BEFORE COMING TO ANY CONCLUSION THE PARTYWISE DETAILS OF SUNDRY CREDITORS AND ITS NATURE (LIABILITY) ARE SUMMARIZED AS UNDER :- S.NO. NAME OF THE PARTY NATURE OF ACCOUNT AMOUNT (IN RS.) REMARK 1 TDS PAYABLE AMOUNT OF TDS DEDUCTED AT THE END OF THE YEAR 91 329 PAID ON 19.05.04 AND 31.05.04 2 PRAKASH S. JAIN & CO. PROVISION OF AUDIT FEES 4 320 AUDIT FEES PAID ON 16.12.04 3 V.K. JHAVAR & CO. PROVISION OF LEGAL FEES 750 LEGAL FEES PAID ON 16.12.04 4 BEENE ENTERPRISES TRADE CREDITOR 13 635 THAT THE PAYMENT TO THE SAID CREDITOR WAS MADE 5 MASHA CONSTRUCTION LTD. ADVANCE RECEIVED ON ACCOUNT OF PROPOSED SALE OF SHARES OF BEE JAY CO.(P) LTD. 6 58 54 865 THAT THE SAID TRANSACTION IS UNDER LITIGATION AND MATTER IS SUB JUDICE AND PENDING BEFORE THE COURT 6 RAKESH GARG PROFESSIONAL FEES PAYABLE FOR COMPANY LAW MATTERS 6 480 THAT THE PAYMENT OF THE SAID AMOUNT IS MADE ON 13.09.04 WE HAVE FOUND THAT THE LEARNED COMMISSIONER OF INCO ME TAX (APPEALS) CAME TO A PARTICULAR CONCLUSION BY FOLLOWING THE DE CISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF COMBINED T RANSPORT COMPANY 5 (174 ITR 528 (M.P.) ALONG WITH THE DECISION FROM TH E HONBLE APEX COURT IN THE CASE OF SUGAULI SUGAR WORKS LIMITED; 236 ITR 518. EVEN OTHERWISE FOR APPLYING THE PROVISIONS OF SECTION 4 1(1) OF THE ACT THE FOLLOWING CONDITIONS MUST BE FULFILLED :- 1. IN THE COURSE OF ASSESSMENT FOR AN EARLIER YEAR ALLOWANCE OR DEDUCTION HAS TO BE MADE IN RESPECT OF TRADING LIA BILITY INCURRED BY THE ASSESSEE 2. SUBSEQUENTLY A BENEFIT IS OBTAINING IN RESPECT OF SUCH TRADING LIABILILTY BY WAY OF REMISSION OR CESSATION THEREOF DURING THE YEAR IN WHICH SUCH EVENTS OCCURRED. 3. IN THAT SITUATION THE VALUE OF THE BENEFIT ACCR UING TO THE ASSESSEE IS DEEMED TO BE PROFITS AND GAINS OF BUSINESS WHICH OTHERWISE NOT BE HIS INCOME. 4. SUCH VALUE OF THE BENEFIT IS MADE CHARGEABLE TO INCOMETAX AS INCOME OF THE PREVIOUS YEAR WHEREIN SUCH BENEFIT WA S OBTAINED. UNLESS IT IS PROVED THAT THE ALLOWANCE OR DEDUCTION HAS BEEN CLAIMED IN ANY PREVIOUS YEAR IN RESPECT OF LOSS EXPENDITUR E OR TRADING LIABILITY IT IS NOT OPEN TO THE REVENUE TO REFER TO SECTION 41(1 ) FOR CHARGING THE TAX ON THE RECEIPT BY THE ASSESSEE BY REFUND OR OTHERWI SE OF SUCH EXPENDITURE IN A SUBSEQUENT YEAR. IF ALL THESE CON DITIONS ARE KEPT IN JUXTAPOSITION WITH THE FACTS OF THE PRESENT APPEAL THEN BY NO STRETCH OF IMAGINATION THE PROVISIONS OF SECTION 41(1) DO NOT ATTRACT TO THE OUTSTANDING AMOUNTS TO BE RECEIVED FROM MSCCL WHICH WAS SHOWN AS SUNDRY CREDITORS ON ACCOUNT OF PENDING DISPUTE. H OWEVER SUCH AMOUNT AT BEST CAN BE ADJUSTED U/S 51 OF THE ACT IN CASE S UCH SHARES ARE EVENTUALLY NOT TRANSFERRED BY THE ASSESSEE COMPANY TO MSCCL AND SUCH MONEY IS FORFEITED AND SUCH SHARES ARE SOLD TO THIRD PARTY. 6 WHAT IT MAY BE IT CANNOT BE BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE BECAUSE THE ASSESSEE DISCHARGED SUCH LIABILITY IN T HE IMMEDIATELY SUCCEEDING MONTHS AND AT MOST BY THE END OF DECEMBE R 2004. ALL SUCH LIABILITIES WERE APPARENTLY CURRENT ALSO. IN VIEW O F THESE FACTS THERE IS NO INFIRMITY IN THE IMPUGNED ORDER. THE ASSESSEE IS A LSO FORTIFIED BY THE DECISION FROM THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF COMBINED TRANSPORT COMPANY LIMITED (174 ITR 528) (M .P.) CIT V. SUGAULI SUGAR WORKS PRIVATE LIMITED; 236 ITR 518 (S C) AND THE RATIO LAID DOWN IN THE CASE OF CHIEF CIT V. KESARIA TEA C OMPANY LIMITED; 254 ITR 434 (SC) TIRUNELVELI MOTOR BUS SERVICE COMPANY PRIVATE LIMITED V. CIT; 78 ITR 55 (SC). RESULTANTLY THIS GROUND OF T HE REVENUE IS HAVING NO MERIT THEREFORE DISMISSED. 6. THE NEXT GROUND PERTAINS TO DELETING THE ADDITIO N OF RS.13 67 304/- ON ACCOUNT OF ACCRUED INTEREST. THE LEARNED CIT DR SUPPORTED THE ASSESSMENT ORDER WHEREAS THE LD. COUNSEL FOR THE AS SESSEE DEFENDED THE IMPUGNED ORDER. 7. BRIEF FACTS ARE THAT THE ASSESSING OFFICER MADE ADDITION OF THE IMPUGNED AMOUNT I.E. RS. 13 67 304/- BEING INTERES T AT THE RATE OF 18% ON THE AMOUNT OF RS.75 96 135/- DUE FROM MSCCL BY P RESUMING THAT IN THE AWARD THE LEARNED ARBITRATOR HAS MENTIONED THAT MSCCL SHALL PAY INTEREST AT THE RATE OF 18%. UNDISPUTEDLY THE ASS ESSEE IS MAINTAINING ITS ACCOUNTS ON MERCANTILE BASIS AND HAS NOT ACCOUNTED FOR THE SAME. ON 7 THE OTHER HAND THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE IMPUGNED ADDITION AS THE MATTER IS STIL L PENDING ADJUDICATION BEFORE THE HONBLE COURT. IF THE TOTALITY OF FACTS IS ANALYSED WE HAVE FOUND THAT THE IMPUGNED ADDITION IS MADE MERELY ON THE BASIS OF THE ORDER OF THE LEARNED ARBITRATOR. THE OPPOSITE PARTY HAS NOT ACCEPTED THE SAME AND THE MATTER IS PENDING BEFORE THE HONBLE C OURT AND EVEN THE PRINCIPAL AMOUNT IS UNDER DISPUTE THEREFORE THERE IS NO QUESTION OF CHARGING OF INTEREST CONSEQUENTLY THERE IS NO INF IRMITY IN THE STAND OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). IT IS AFFIRMED THEREFORE THIS GROUND IS ALSO DISMISSED. 8. THE NEXT GROUND PERTAINS TO RESTRICTING THE DISA LLOWANCE TO RS. 2 56 875/- FROM RS. 7 42 338/- OUT OF INTEREST EXPE NSES. THE LEARNED CIT DR SUPPORTED THE ASSESSMENT ORDER WHEREAS THE L D. COUNSEL FOR THE ASSESSEE DEFENDED THE IMPUGNED ORDER. ON PERUSAL OF RECORD AND AFTER HEARING THE RIVAL S UBMISSIONS WE HAVE FOUND THAT THE LEARNED ASSESSING OFFICER MADE THE IMPUGNED ADDITION MERELY ON THE GROUND THAT SINCE THE AMOUNT IS BORROWED FOR THE PURPOSE OF MAKING INVESTMENTS IN SHARES AND THE ASS ESSEE COMPANY APPEARS TO BE AN INVESTMENT COMPANY ENGAGED IN ARRA NGING FINANCES FOR ITS SISTER CONCERN BEE JEE COMPANY PRIVATE LIMI TED WHEREIN IT HAS INVESTED RS. 6 80 10 000/- OUT OF UNSECURED LOANS O F RS.72 99 423/- AND SUNDRY CREDITS OF RS.6 58 54 865/- FROM MSCCL THER EFORE THE AMOUNT 8 OF INTEREST DEBITED IS NOT ALLOWABLE AS THE ASSESSE E HAS NOT UTILISED THE BORROWED FUNDS FOR EARNING ANY INCOME. HOWEVER WE HAVE FOUND THAT THE LEARNED ASSESSING OFFICER COULD NOT APPRECIATE THE FACT THAT INTEREST WAS PAID FOR THE PURPOSE OF THE AMOUNT BORROWED TO RECOUP THE LOSSES INCURRED IN CIVIL CONSTRUCTION IN EARLIER YEARS AND THE INVESTMENT MADE IN FIXED ASSETS FOR EXECUTING THE CONTRACTS. THE DETA ILS OF LOSSES INCURRED IN EARLIER YEARS AND INVESTMENT MADE IN FIXED ASSETS A RE SUMMARIZED AS UNDER :- ASSESSMENT YEAR INVESTMENT IN FIXED ASSETS CASH AND BANK BALANCE TOTAL INVESTMENT IN CIVIL CONSTRUCTION BUSINESS LOSS AS PER AUDITED P&L ACCOUNT (RS.) 2001-02 32 30 206 2002-03 3 63 505 2003-04 2 62 448 TOTAL 38 56 159 RS. 9 01 696 1 24 988 48 82 843 IF THE ABOVE AMOUNTS ARE CALCULATED AT THE RATE OF INTEREST OF 15% PER ANNUM THE INTEREST PAYABLE WORKS OUT TO RS.7 32 42 6/- WHEREAS THE ASSESSEE HAS CLAIMED NET INTEREST PAID AT RS.7 42 3 38/-. IF THE POSITION OF BORROWED FUNDS AND ON FUNDS VIZ.A.VIZ INVESTMENT IN SHARES OF SISTER CONCERN I.E. M/S BEE JEE COMPANY PRIVATE LIMITED I S EXAMINED FROM THE BALANCE-SHEET IT EMERGES THAT AGAINST THE INVE STMENT OF RS.680.10 LACS IN SHARES OF BEE JEE COMPANY PRIVATE LIMITED THE ASSESSEE RECEIVED RS. 658.55 LACS FROM MSCCL AGAINST SALE OF SUCH SHARES AND 9 BESIDES ITS OWN FUNDS IN THE FORM OF ISSUED SUBSCR IBED AND PAID UP CAPITAL OF RS. 1 LAC THEREFORE AT BEST A SUM OF R S.20.55 LACS OUT OF BORROWED FUNDS CAN BE SAID TO BE INVESTED IN SHARES OF BEE JEE COMPANY PRIVATE LIMITED. IN VIEW OF THESE FACTS IN THE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) DI RECTED THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE OF I NTEREST ON THE SUM OF RS.20.55 LACS AT THE RATE OF INTEREST BEING PAID ON BORROWED FUNDS TO SHRI UTTAM JHAVAR (9%) MOURYA FINANCE CORPORATION (16%) THE AVERAGE RATE COMES TO 12.5% THEREFORE THERE IS NO INFIRMI TY IN RESTRICTING THE DISALLOWANCE OF INTEREST TO RS.2 56 875/- AND FURTH ER IN DIRECTING TO DELETE THE REMAINING DISALLOWANCE OF RS.4 85 463/-. THIS STAND OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS THEREFORE AFFIRMED. 9. THE LAST GROUND PERTAINS TO DELETING THE ADDITIO N OF RS.12 000/- MADE ON ACCOUNT OF RENT PAID WITHOUT AGREEMENT. THE LEARNED CIT DR SUPPORTED THE ASSESSMENT ORDER WHEREAS THE LD. COUN SEL FOR THE ASSESSEE RELIED UPON THE IMPUGNED ORDER. ON PERUSAL OF RECORD AND AFTER HEARING THE RIVAL S UBMISSIONS IT IS SEEN THAT THE LEARNED ASSESSING OFFICER MADE THE DI SALLOWANCE OF RENT FOR WANT OF PRODUCTION OF RENT AGREEMENT. THE ASSES SEE IS CLAIMING PAYMENT OF RENT FOR THE TENANTED PROPERTY AND SUCH RENT WAS NOT FOUND UNREASONABLE OR EXCESSIVE OR BOGUS THEREFORE THER E IS NO REASON TO 10 MAKE ANY SUCH DISALLOWANCE WITHOUT BRINGING ANY CON GENT MATERIAL ON RECORD. WE THEREFORE CONFIRM THE ORDER OF THE LEA RNED CIT(A). FINALLY THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PROCEEDINGS-NOUNCED IN OPEN COURT ON 24 TH MAY 2010. SD/ SD/- (V.K. GUPTA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MAY 24TH 2010 COPY TO: APPELLANT RESPONDENT CIT CIT(A) DR G UARD FILE D/-