9911796707
TMI Blog2013 (11) TMI 676X X X X Extracts X X X X X X X X Extracts X X X X ..... imposed by the State Government, the assessee had indulged by roping in the individuals by advancing monies to buy agricultural lands on its behalf and get them converted into non-agricultural purposes etc. Assessee had entered into agreement on 3.5.2002 with Shri Raja Bagmane, Managing Director of the assessee, his wife Smt Vasundhara Raja and Shri V Veerappa [father-in-law of Shri Raja Bagmane] to purchase the agricultural lands in their names, convert them for non-agricultural use and subsequently transfer them to the assessee – Reliance has been placed on the judgment of the Hon'ble Supreme Court in the case of S.A. Builders v. CIT reported in [2006 (12) TMI 82 - SUPREME COURT], wherein it was held that "the interest-free loan was given to the sister company (which is a subsidiary of the assessee) as a measure of commercial expediency, and if it was, it should have been allowed. The expression "commercial expediency" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as business expenditure if it was incurred o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssues are as under: The assessee company is carrying on its business as real estate developer and builder. A search operation u/s 132 of the Act was conducted in the case of the assessee on 14.9.2006. During the course of search proceedings for the AY under consideration, the assessee was required to explain certain cash book entries relating to the period 1.4.2005 to 3.9.2006. It appears that the MD of the assessee vide his letter dated 9.11.2006, among others, stated that the payments of Rs.15.5 lakhs made part of the year 2006-07 being inadmissible expenditure which shall not be claimed as admissible expenditure while arriving at taxable income for the said year. However, it was the case of AO that in the computation of income for the AY 2007-08, the assessee had not offered the said amount of Rs.15.5 lakhs for taxation. Being queried by the AO during the course of assessment proceedings, the assessee vide its letter dated 25.11.2008 had explained that "It is written under the head 'Miscellaneous expenditure' and the same is disallowed in the computation". However, the AO had disallowed the said sum on the premise that no such disallowance was made by the assessee in its computa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was the view of the AO that the total funds available with the assessee including deferred tax liability other than borrowed funds was only Rs.103.13 crores whereas the assessee had advanced loans to the group of companies and directors was Rs.259.06 crores. After taking into account the assessee's lengthy submissions as well as his reasoning as recorded in the order under dispute, the AO had concluded thus: "3.6. The assessee has not charged any interest on the loans and advances given to its sister concerns also. The assessee claims that the advances were given to the sister concerns on arms' length basis with an intention to make or earn profits from the venture and on total commercial understanding. The assessee claimed that the advances are made in the course of business and for the purposes of business and for commercial reasons. However, it can be inferred that the funds advanced by the assessee were not for its business exigencies. The funds required for those companies could have been borrowed in the name of those companies itself. But instead the assessee company preferred to borrow the money in its own name and give it to those companies. It is a planning of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd also extracting the findings of the earlier Bench of this Tribunal in ITA No.183 for the AY 2003-04 and in ITA No.382 for the AY 2004-05, dated 3.12.2010 in the assessee's own case, the CIT (A) had concluded as under: "3.3. (On page 23) In view of the facts as stated above and also in view of the judgment of the Hon'ble Supreme Court reported in 288 ITR 1 in the case of S.A. Builders v. CIT which is quoted by the jurisdictional Tribunal in the appellant's own case for AYs 2003-04 and 2004-05 and has held the issue in favour of the appellant, following the jurisdictional Tribunal's order on the same issue in the same assessee's case for earlier years, it is held that AO was not correct in disallowing proportionate interest debited in the accounts on advances made to its sister concerns and the directors. Hence, the addition of Rs.51,87,552/- is deleted. A.Y. 2008-09: (i) Disallowance of interest on borrowed capital: Comprehensively quoting and also reproducing the findings of the earlier Bench of this Tribunal in the assessee's own case (supra), the CIT (A) had concluded that: "3.3. (On page 20) In view of the facts as stated above and also in view of the judgment of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failed to distinguish the fact that in the case of S A Builders, interest free advances relate only to advances from a holding company to a subsidiary company and, hence, the judgment of the Hon'ble Supreme Court has no relevance to the issue on hand; 6.2. In respect of similar deletion of interest disallowance of Rs.16.56 crores for the AY 2008-09, the learned DR took the same line of argument as in the AY 2007-08 and urged that there was no plausible reason for the CIT (A) to resort to delete the disallowances of interest made by the AO for both the AYs under dispute. In conclusion, it was pleaded that the stand of the AO requires to be restored. 6.3. On the other hand, the submissions made by the learned AR are summarized as under: Cash drawings of Rs.15.5 lakhs: - that during the course of search, it was observed by the AO that expenses of Rs.42.15 lakhs and Rs.15.5 lakhs incurred for the AY 2006-07 and for the period from 1.4.06 to 3.9.06 were not admissible as per the Act and, accordingly, agreed not to claim the aforesaid amount while arriving at taxable income of those two years; - that as agreed upon, for the current year even while preparing the P L account, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchases Rs.18.36 crores; (b) total sale consideration Rs.30.70 crores; (c) net profit Rs.12.50 crores The assessee's share of profit of Rs.11.88 crores from the above transaction was offered in the AYs 2008-09 and 2009-10 in the ratio of Rs.6.07 crores and Rs.5.8 crores respectively. - that the main object of the assessee was to carry on the real estate operations. In the process of acquiring and dealing with the properties, it extended certain advances to its sister concerns for acquiring properties in the course of business and for the purpose of business only; - that the advances were made on arm's length basis with an intention to make profits from the venture and complete commercial understanding and, thus, such advances were made in the course of business and for the purposes of business; - that merely because borrowed funds were advanced to the subsidiary companies without charging interest, the interest on borrowed funds cannot be disallowed and such interest was deductible if the advances were given out of commercial expediency; - that as observed by the Hon'ble Supreme Court, if the advances given to the subsidiary company are used by that company for the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt. Ltd and the assessee subscribe that - "Whereas pursuant to the above, the first party (Chandra Developers Pvt. Ltd) shall assemble the properties in the peripheries of Old madras Road and other areas and construct commercial/residential complex on the lands so acquired as per the designs approved by the second party (assessee)" - that the intention of the agreements was to acquire the property being auctioned by NGEF Ltd located on the peripheries of Old Madras Road for which amount was advanced to Chandra Developers Pvt. Ltd. Though Chandra Developers Pvt. Ltd won in the bidding, claims of NGEF's bankers and employees have been upheld by the Hon'ble Supreme Court. However, Chandra Developers Pvt. Ltd was successful in its bidding for a land ad-measuring 63.32 acres from M/s Coduras Exports Private Limited. 6.3.2. In conclusion, it was the plea of the assessee that it had made advances to its directors and sister concerns during the normal course of business. It was, further, submitted that the present issue is squarely covered by the order of the earlier Bench of this Hon'ble Tribunal in ITA Nos. 182, 183, 382 383(BNG)/2010 dated 3.12.2010 for the AYs 2002-03 to 2005 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earch, it was noticed by the Department that the expenses of Rs.42,15,000 incurred for the AY 2006-07 and a sum of Rs.15.5. lakhs for the period from 1.4.2006 to 3.9.2006 are not admissible as per the Income-tax Act. The assessee had agreed not to claim the aforesaid sum while arriving at the taxable income for these two assessment years. For the A.Y. 2006-07, since the P L account was already finalised, the assessee filed a computation statement whereby a sum of Rs.42,15,000 was added back and offered as inadmissible expenses. For the current year, the P L account was not completed as on the date of search and the assessee did not take into consideration the said sum of Rs.15.5. lakhs as deduction while computing the taxable income. On a perusal of various expenses, it is very evident that the said sum has not been claimed as a deduction and was not debited in the P L account. Under the head 'Misc. expenses', the amount debited in P L account was only a sum of Rs.52,932/- on a total turnover of Rs.52,78,53,632/- and, therefore, the impugned amount of Rs.15.5 lakhs was not an expenditure that was claimed as an expenditure. Thus, the disallowance of Rs.15.5 lakhs will not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the individuals by advancing monies to buy agricultural lands on its behalf and get them converted into non-agricultural purposes etc. As a matter of fact, the assessee had entered into agreement on 3.5.2002 with Shri Raja Bagmane, Managing Director of the assessee, his wife Smt Vasundhara Raja and Shri V Veerappa [father-in-law of Shri Raja Bagmane] to purchase the agricultural lands in their names, convert them for non-agricultural use and subsequently transfer them to the assessee [Courtesy: P 21 to 33 of PB AR]. As far as the advancing of monies to the assessee's sister concerns without charging interest are concerned, it is noticed, by examining the agreements/MOU entered into with its sister concerns, that the monies advanced for example to (i) Bagmane Builders Pvt. Ltd.,(ii) Chandra Developers Pvt. Ltd and (iii) Bagmane Constructions Pvt. Ltd were to acquire and develop lands and also finance the construction till such a time the sister concern was able to secure finance from the bank(s) for the project or find an investor for the project and that on completion of construction on the properties so acquired, the sister concern(s) shall assign the area on the basis of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and as such, the transactions are still incomplete. One of the reasons given by the AO for rejecting the agreements was that they were not found at the time of search. This observation of the AO is irrelevant since the search party was not expected to record or seize every paper. In other words, non-seizure of agreement copies by the search party is not an indication about the existence/genuineness of the agreements. Yet another reason given by the AO for rejecting the agreements is that they were time- barred. It is to be mentioned that the limitation starts from the date of default and not earlier. Moreover, even if the remedy under specific Relief Act is not available, the aggrieved party can seek relief under CPC. 7.2.4 It is, further, observed that the assessee had made an application on 3.3.2006 with the Competent Authority for setting up a Special Economic Zone [SEZ]. As certain conditions were to be fulfilled for establishing SEZ, one of which was to establish Electronic Hardware and Software or Information Technology enabled services, a minimum area requirement of 10 Hectares of land with minimum built up area of one lakh square meters. It is noticed that since Bagmane B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. When the issue went before the earlier Bench of this Tribunal, it was decided that the advances given were business advances out of commercial expediency and not a loan/advance coming within the purview of the provisions of s. 2 (22)(e) of the Act. Accordingly, the entire additions made in the hands of the assessee's sister concerns and directors as 'deemed dividend' u/s 2(22) (e) of the Act were deleted. Following are the orders passed by the Tribunal in respect of the sister concerns and director Shri Raja Bagmane: M/s. Vagai Investments Pvt. Ltd v. ACIT - ITA NO.453/Bang/2010; Bagamane Builders Pvt. Ltd v. ACIT - ITA No.447 to 450/Bang/2010; Bagamane Realtors Pvt. Ltd v. ACIT - ITA No.445/Bang/2010; Chandra Developers Pvt. Ltd v. ACIT - ITA No.458 to 461/Bang/2010; Bagamane Constructions Pvt. Ltd v. ACIT - ITA No.446/Bang/2010; Bagamane Leasing Fin. Pvt. Ltd v. ACIT - ITA Nos.442 to 444/B/2010; Raja Bagamane v. ACIT - ITA Nos. 484 to 490/Bang/2010 7.2.8. As rightly pointed out by the learned AR, the earlier Bench of this Tribunal had an occasion to consider an identical issue to that of the present one in the assessee's own case in ITA Nos.182, 183, 382 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
