DCIT, New Delhi v. M/s Som Construction & Developers Ltd., Guwahati

ITA 5525/DEL/2010 | 2006-2007
Pronouncement Date: 29-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 552520114 RSA 2010
Assessee PAN AAICS4071N
Bench Delhi
Appeal Number ITA 5525/DEL/2010
Duration Of Justice 7 month(s) 22 day(s)
Appellant DCIT, New Delhi
Respondent M/s Som Construction & Developers Ltd., Guwahati
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted G
Tribunal Order Date 29-07-2011
Date Of Final Hearing 22-07-2011
Next Hearing Date 22-07-2011
Assessment Year 2006-2007
Appeal Filed On 07-12-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH G DELHI ] BEFORE THE HONBLE VICEPRESIDENT SHRI G.E. VEERABHA DRAPPA AND SHRI I. P. BANSAL JUDICIAL MEM BER. I. T. APPEAL NO. 5525 (DEL) OF 2010 ASSESSMENT YEAR : 2006-07. DY. COMMISSIONER OF INCOME-TAX M/S. SOM C ONSTRUCTION & DEVELOPERS LTD. CENTRAL CIRCLE : 08 JHANDEWALAN V S. DOSI BHAWAN PALTAN BAZAR N E W D E L H I. G A U W H A T I 781 008. P A N / G I R NO. AAI CS 4071 N. ( APPELLANT ) ( RESP ONDENT ) ASSESSEE BY : N O N E; DEPARTMENT BY : MS. S. MOHANTY SR. D. R. O R D E R. PER I. P. BANSAL JM : THIS IS AN APPEAL FILED BY THE REVENUE. IT IS DIR ECTED AGAINST THE ORDER PASSED BY THE LD. CIT (APPEALS) DATED 15 TH SEPTEMBER 2010 FOR ASSESSMENT YEAR 2006-07. 2. GROUNDS OF APPEAL READ AS UNDER :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE LD. CIT (APPEALS) HAS ERRED IN GIVING RELIEF OF RS.39 02 330/- ON ACC OUNT OF INTEREST FREE LOAN ADVANCED TO INDEPENDENT COMPANIES; 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT (APPEALS) HAS ERRED IN GIVING RELIEF OF RS.13 76 006/- ON ACC OUNT OF ADDITION MADE ON PROPORTIONATE BASIS UNDER SECTION 14-A OUT OF TO TAL EXPENDITURE CLAIMED BY THE ASSESSEE; 2 I. T. APPEAL NO. 5525 (DEL) OF 2010 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT (APPEALS) HAS ERRED IN GIVING RELIEF OF RS.1 40 000/- INTERES T ACCRUED FROM ADVANCE MADE TO M/S. SHEEL BUILDCON PVT. LTD. FOR THE FINANCIAL YEAR 2004-05 IN THE ASSESSMENT YEAR 2005-06; 4. THE ORDER OF THE CIT (APPEALS) IS ERRONEO US AND NOT TENABLE IN LAW AND ON FACTS. 3.1 NOTICE OF HEARING WAS SENT TO THE ASSESSEE. HO WEVER NONE WAS PRESENT ON BEHALF OF THE ASSESSEE. THEREFORE WE PROCEED TO DECIDE T HE PRESENT APPEAL EX-PARTE QUA THE ASSESSEE AFTER HEARING THE LD. SR. DR AND AFTER CONSIDERING THE MATERIAL AVAILABLE ON OUR RECORD. 3.2 APROPOS FIRST GROUND DURING THE COURSE OF ASSE SSMENT PROCEEDINGS THE ASSESSING OFFICER FOUND THAT ASSESSEE HAD ADVANCED HUGE AMOUNTS TO DI FFERENT PARTIES DURING THE YEAR UNDER CONSIDERATION WHICH WERE AS UNDER :- SL.NO . NAME OF THE PARTY AMOUNT OF LOAN & ADVANCE DATE OF LOAN & ADVANCE 1. WELLGROW BUILDCON (P) LTD. OB RS. 30 00 000/- OB 16/3/2006 5 00 00 000/- 2. SURVI TRADE & AGENCY (P) LTD. RS.2 00 00 000 /- OB 6/3/2006 RS.1 50 00 000/- 3. INDUSLOGIC INDIA (P) LTD. RS.1 48 67 014/- OB 4. SHEEL BUILDCON (P) LTD. RS.4 19 38 539/- OB & 16/4/2005 3.3 HE ALSO NOTED THAT FROM SHEEL BUILDCON PVT. LTD . AND FROM INDUSLOGIC INDIA PVT. LTD. THE ASSESSEE HAD RECEIVED INTEREST TO THE TUNE OF R S.18 27 813/- AND RS.25 02 231/- RESPECTIVELY BUT NO INTEREST WAS SHOWN TO HAVE BEEN RECEIVED FRO M THE REMAINING TWO PARTIES. HE ASKED THE ASSESSEE TO EXPLAIN AS TO WHY SUCH INTEREST WAS NOT RECEIVED. IN RESPONSE IT WAS SUBMITTED THAT THESE WERE INTEREST-FREE LOANS GIVEN IN RESPEC T OF BUSINESS CONNECTION WITH THE MANAGEMENT. THESE COMPANIES WERE WELL-KNOWN TO THE MANAGEMENT O F THE ASSESSEE AND WERE IN DIRE NEED OF THE FUNDS AND HAD APPROACHED THE ASSESSEE TO FIN ANCE THEM WITH THE STIPULATION THAT NO 3 I. T. APPEAL NO. 5525 (DEL) OF 2010 INTEREST WOULD BE CHARGED AS THEY ARE NOT IN A POSI TION TO SERVE THE DEBT AND THE ASSESSEE LOOKING INTO THE LONG TERM ASSOCIATION HAD ACCEPTED THEIR D EMAND. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE IS NBFC AND ITS MAIN BUSINESS ACTIVITY CONSISTS OF GRANTING OF LOANS AND ADVANCES WITH A VIEW TO EARN INTEREST AND THEREFOR E HE CALCULATED THE INTEREST AT THE RATE OF 15 PER CENT ON THE ADVANCES MADE BY THE ASSESSEE TO WELLGROW BUILDCON PVT. LTD. AND SURVI TRADE & AGENCY PVT. LTD. AND COMPUTED THE INTEREST AT RS.39 02 330/- WHICH HAS BEEN ADDED TO THE INCOME OF THE ASSESSEE. 4. BEFORE THE LD. CIT (APPEALS) IT WAS PLEADED THAT ASSESSEE DID NOT INCUR ANY EXPENDITURE ON ACCOUNT OF INTEREST. THEREFORE QUESTION OF DEP LOYING ANY INTEREST-BEARING FUNDS FOR NON- INTEREST BEARING ADVANCES TO BOTH THE ABOVE CONCERN S CANNOT ARISE. THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF NOTIONAL INTEREST S HOULD BE DELETED. THE LD. CIT (APPEALS) HAS CONSIDERED THESE SUBMISSIONS OF THE ASSESSEE AND RE LYING UPON THE TWO DECISION OF HONBLE GAUHATI HIGH COURT FIRSTLY IN THE CASE OF B AND A PLANTATION & INDUSTRIES LTD. VS. CIT [2001] 117 TAXMAN 325 (GAU.) WHEREIN IT WAS HELD TH AT WHEN THERE IS NO FINDING THAT ASSESSEE HAD IN FACT RECEIVED INTEREST ON ADVANCE MADE TO A SISTER CONCERN OR A DEBTOR PAID THE INTEREST TO THE ASSESSEE NOTIONAL INTEREST CANNOT BE CHARGE D TO TAX AND SECONDLY ON THE DECISION IN THE CASE OF HIGHWAYS CONSTRUCTION CO. PVT. LTD. VS. CI T [1993] 111 CTR (GAU.) 143 IN WHICH IT WAS HELD THAT THE ASSESSEE CLAIMED THAT IT MADE INTEREST-FREE ADVANCES TO A SISTER CONCERN AND THERE IS NO FINDING THAT THE ASSESSEE HAD RECEI VED INTEREST OR THE DEBTOR HAD PAID INTEREST TO THE ASSESSEE NOTIONAL INTEREST COULD NOT BE CHA RGED AND THE LD. CIT (APPEALS) ALSO RELYING UPON THE FACT THAT ASSESSEE DID NOT BORROW ANY FUND DURING THE RELEVANT PERIOD AND THE ENTIRE LOAN INCLUDING INTEREST-FREE LOAN WAS ADVANCED OUT OF OWN FUNDS OF THE ASSESSEE. NO INTEREST ON BORROWED FUNDS WAS ALSO DEBITED IN THE INCOME AN D EXPENDITURE ACCOUNT DURING THE RELEVANT PERIOD HAS HELD THAT NOTIONAL INTEREST COULD NOT BE ADDED TO THE INCOME OF THE ASSESSEE. IN THIS MANNER HE HAS DELETED THE DISALLOWANCE OF RS.39 02 330/-. 5. THE LD. SR. DR AFTER NARRATING THE FACTS RELYING UPON THE ASSESSMENT ORDER PLEADED THAT THE LD. ASSESSING OFFICER HAD RIGHTLY ADDED THE AFO RESAID AMOUNT TO THE INCOME OF THE ASSESSEE AND THE LD. CIT (APPEALS) HAS WRONGLY DELETED THE S AME. 4 I. T. APPEAL NO. 5525 (DEL) OF 2010 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD. SR. DR AND THE OBSERVATIONS OF THE ASSESSING OFFICER AND THE LD. CIT (APPEALS). T HE FACTS AS FOUND BY THE LD. CIT (APPEALS) ARE THAT THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE O N ACCOUNT OF INTEREST PAID UNDER CONSIDERATION. THE AMOUNT ADVANCED TO THESE TWO PA RTIES WERE OUT OF NON-INTEREST BEARING OWN FUNDS. THE INTEREST WAS NOT RECEIVED BY THE ASSESS EE FROM THESE TWO PARTIES. IF THESE FACTS ARE UNCONTROVERTED THEN IN OUR CONSIDERED OPINION THE LD. CIT (APPEALS) HAS RIGHTLY DELETED THE ADDITION AS NO ADDITION CAN BE MADE ON ACCOUNT OF N OTIONAL INTEREST. WE DECLINE TO INTERFERE AND THIS GROUND OF REVENUE IS DISMISSED. 7. APROPOS SECOND GROUND THE ASSESSING OFFICER FOUN D THAT THE ASSESSEE HAS DECLARED AN INCOME OF RS.16 03 928/- BEING INTEREST INCOME ON A RS BONDS WHICH IS EXEMPT FROM TAX. CONSIDERING THE FACT THAT THE TOTAL EXPENDITURE IS DEBITED TO PROFIT AND LOSS ACCOUNT IS A SUM OF RS.58 58 704/- AGAINST THE TOTAL RECEIPTS OF RS.68 29 139/- HE CALCULATED PROPORTIONATE DISALLOWANCE AT RS.13 76 006/- AND ADDED THE SAME U NDER THE PROVISIONS OF SECTION 14-A OF THE INCOME-TAX ACT 1961 [ACT]. THE AFORE-MENTIONED DI SALLOWANCE WAS CHALLENGED IN APPEAL BEFORE THE LD. CIT (APPEALS). THE LD. CIT (APPEALS) HAS D ELETED THE SAID DISALLOWANCE ON THE GROUND THAT THE ASSESSEE DID NOT INCUR ANY EXPENDITURE ON EARNING OF THE SAID INTEREST AND IN THE ABSENCE OF NEXUS DISALLOWANCE COULD NOT BE MADE. 8. THE LD. SR. DR RELYING UPON THE ORDER OF THE ASS ESSING OFFICER SUBMITTED THAT THE ASSESSING OFFICER HAS RIGHTLY APPLIED THE PROVISIONS OF RULE 14-A. SHE REFERRED TO THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG . CO. LTD. VS. DCIT 328 ITR 81 (BOM) ACCORDING TO WHICH IT WAS HELD THAT RULE 8-D HAVING BEEN NOTIFIED WITH EFFECT FROM 24 TH MARCH 2008 IS APPLICABLE WITH EFFECT FROM ASSESSMENT YEAR 2008-09 AND NOT FOR THE EARLIER YEARS. SHE SUBMITTED THAT THOUGH RULE 8-D IS NOT APPLICABLE TO THE YEAR UNDER CONSIDERATION AS THE SAME FOR ASSESSMENT YEAR 2006-07 BUT AT THE SAME TIME I T WAS HELD THAT THE ASSESSING OFFICER IS DUTY BOUND TO COMPUTE THE DISALLOWANCE BY APPLYING A REA SONABLE METHOD HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE. THUS SHE SUB MITTED THAT THE LD. CIT (APPEALS) HAS COMMITTED AN ERROR WHEN HE HAS DELETED THE ENTIRE D ISALLOWANCE. SHE SUBMITTED THAT IT WILL SERVE 5 I. T. APPEAL NO. 5525 (DEL) OF 2010 THE INTEREST OF JUSTICE IF THE MATTER IS RESTORED B ACK TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO RE-ADJUDICATE THE ISSUE OF DISALLOWA NCE BY FOLLOWING THE AFORE-MENTIONED DECISION OF HONBLE BOMBAY HIGH COURT. 9. WE HAVE CAREFULLY CONSIDERED THE LD. SR. DR AND ALSO GONE THROUGH THE ORDER OF THE ASSESSING OFFICER AND THE LD. CIT (APPEALS). IN TH E AFORE-MENTIONED DECISION OF HONBLE BOMBAY HIGH COURT IT HAS BEEN CLEARLY HELD THAT THE ASSESS ING OFFICER IS DUTY BOUND TO COMPUTE THE DISALLOWANCE BY APPLYING A REASONABLE METHOD HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE. THEREFORE THE DELETION IN ENTIRETY B Y THE LD. CIT (APPEALS) IS NOT IN ACCORDANCE WITH THE MANDATE OF LAW. THUS FINDING FORCE IN TH E CONTENTION OF THE LD. SR. DR WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WIT H A DIRECTION TO RE-ADJUDICATE THE DISALLOWANCE AS PER OBSERVATIONS OF HONBLE BOMBAY HIGH COURT IN THE AFORE-MENTIONED CASE AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEAR D. 10. FOR STATISTICAL PURPOSES THIS GROUND OF APPEAL OF THE REVENUE IS TREATED TO BE ALLOWED. 11. APROPOS GROUND NO. 3 AN ADDITIONAL GROUND WAS TAKEN BY THE ASSESSEE BEFORE THE LD. CIT (APPEALS) THAT THE ASSESSING OFFICER HAS ERRED IN N OT ALLOWING DEDUCTION OF RS.1 40 000/- BEING INTEREST DUE FROM M/S. SHEEL BUILDCON PVT. LTD. FOR THE FINANCIAL YEAR 2004-05 RELEVANT TO ASSESSMENT YEAR 2005-06 WHICH WAS OFFERED TO TAX B Y THE ASSESSEE IN ASSESSMENT YEAR 2006-07 BUT WAS CONSIDERED AND TAXED BY THE ASSESSING OFFIC ER IN ASSESSMENT YEAR 2005-06 IN ORDER UNDER SECTION 143(3) OF THE ACT. ON SUCH ADDITIONAL GROU ND THE FINDINGS OF THE LD. CIT (APPEALS) ARE THAT THE SAID AMOUNT OF RS.1 40 000/- HAS BEEN TAXE D IN THE ASSESSMENT FOR ASSESSMENT YEAR 2005- 06 AND THE ASSESSEE ALSO CONTESTED THE TAXABILITY O F INTEREST IN ASSESSMENT YEAR 2005-06 BUT THE SAID CLAIM OF THE ASSESSEE WAS TURNED DOWN BY THE L D. CIT (APPEALS) AND SINCE THE SAID AMOUNT OF RS.1 40 000/- HAS BEEN TAXED IN ASSESSMENT YEAR 2005-06 EQUIVALENT DEDUCTION HAS TO BE ALLOWED TO THE ASSESSEE IN ASSESSMENT YEAR 2006-07. THEREFORE HE DIRECTED THE ASSESSING OFFICER TO GIVE CORRESPONDING DEDUCTION OF RS.1 40 000/-. 6 I. T. APPEAL NO. 5525 (DEL) OF 2010 12. AFTER HEARING THE LD. SR. DR AND AFTER CONSIDER ING THE FACTS STATED IN THE ORDER OF THE LD. CIT (APPEALS) WE FIND NO INFIRMITY IN THE ORDE R OF THE LD. CIT (APPEALS) AS THE SAME AMOUNT WAS ALREADY ADDED TO THE INCOME OF THE ASSES SEE IN ASSESSMENT YEAR 2005-06. THEREFORE WE DECLINE TO INTERFERE AND THIS GROUND OF APPEAL O F THE REVENUE IS DISMISSED. 13. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 29 TH JULY 2011. SD/- SD/- [ G. E. VEERABHADRAPPA ] [ I. P. BANSAL ] VICE PRESIDENT. JUDICIAL MEM BER DATED : 29 TH JULY 2011. *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT 4. CIT (APPEALS) 5. DR ITAT NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR ITAT. 7 I. T. APPEAL NO. 5525 (DEL) OF 2010