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TMI Blog2013 (11) TMI 1647X X X X Extracts X X X X X X X X Extracts X X X X ..... S.80IB of the Act. In our opinion, therefore, the Assessing Officer was correct and justified in disallowing the claim of the assessee for deduction under S.80IB of the Act, for the years under appeal. - Decided against assessee. Disallowance of finance charges - Held that:- As per the provisions of S.40(ba) of the Income-tax Act, any payment by a joint venture to member-constituent under the head interest, salary, bonus, commission and remuneration is not allowable as deduction. Being so, the learned Authorised Representative is not able to controvert the findings of the CIT(A) with regard to applicability of provisions of S.40(ba) of the Act to the facts of the present case. Since the assessee itself has not availed the loan, and it is the constituent of the assessee’s JV which availed the loan, assessee is not eligible for deduction in respect of interest on such loan, even if it was paid by the assessee directly to the AP Statee Finance Corporation. We therefore, find no infirmity in the impugned order of the CIT(A) on this issue. We accordingly uphold the order of the CIT(A), and reject the grounds of the assessee on this issue. Disallowance of direct and indirect expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. We do not find any infirmity in the reasoning given by the CIT(A) for deleting this addition in para 29.1 of the impugned order. Addition u/s 80IA - Held that:- In the case of an assessee engaged in the business of developing industrial park and letting out the same, income from letting out is assessable under the head ’business’. Hence, the income derived from such letting out should be considered as income from business income only, and not otherwise, as envisaged in S.80IA(4)(iv) of the Act. Accordingly, we set aside the impugned order of the CIT(A) on this issue and direct the Assessing Officer to re-examine the claim of the assessee for relief under S.80IA(4)(iv) of the Act, and allow the same, if the assessee is otherwise eligible for the same. He shall of course, re-decide this issue in accordance with law and after giving reasonable opportunity of hearing to the assessee. The grounds of the assessee on this aspect are treated as allowed. Addition u/s 14A - Held that:- While the Assessing Officer has disallowed only part of the finance charges claimed, in terms of S.14A of the Act, as attributable to the income claimed by the assessee as exempt, the CIT(A) observing that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to this issue are that assessee has claimed deduction under S.80IB of the Act for the assessment years 2005-06 to 2008-09. The Assessing Officer observed that the assessee has not furnished the requisite information with regard to fulfilment of conditions laid down under S.80IB and also not furnished the certificate in prescribed form, viz. Form No.10CCB for claiming the deduction under S.80IB. The Assessing Officer further observed that the assessee joint venture is not doing any housing project, and on the contrary, the housing project was carried in the name and style of 'Janapriya Utopia' which was promoted by Shri T.K.Purushotam Reddy, M/s. Engineers Reddy Homes Private Limited represented by Shri K.Kranthi Reddy and M/s. Janapriya Engineers Syndicate represented by Shri K.Ravinder Reddy. The Assessing Officer, after examining the sale deeds seized from the office premises of the assessee during the search observed on the basis of seized material, marked as 'A/JES/PO-4/1', and also information gathered from the Municipal Commissioner, Rajendranagar Municipality, that the assessee is not entitled for deduction under S.80IB of the Act for these assessment years. 5. On appeal, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect. 8. On the other hand, the learned Departmental Representative placed strong reliance on the orders of the lower authorities. 9. We have heard both sides and perused the material on record. In this case, the plan was approved on 30.7.2003 for construction of residential flats in Survey Nos.2, 193A, 193AA, 194A, 194AA, 195/1, 195/2, 196, 197, 198A, 198AA, 203 and 207, situated at Hyderguda Village, Rajendranagar Mandal, Ranga Reddy District, belonging to Shri K.Purushotam Reddy, Engineer Reddy Homes P. Ltd. represented by Shri K.Kranthikiran Reddy, and M/s. Jana Priya Engineers Syndicate represented by Shri K.Ravinder Reddy. It is further evident from the record that HUDA, vide letter No.2332/PIV/HYDA/2002 dated 31.1.2003 has communicated technical approval for the project. Further, Municipal Commissioner, Rajendranagar Municipality approved the lay out plan vide No.G/270/MCR/976/2002-03 dated 30.7.2003. Being so, the assessee company, a joint venture, which came into existence only on 29.3.2004 cannot be said to have got the requisite approvals from the concerned authorities in its name. Further, the total number of residential units to be built as per the project approval by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce charges. The Assessing Officer observed that the assessee has shown a liability of ₹ 4.18 crores in the name of Engineer Reddy Homes P. Ltd. and ₹ 7.13 crores as advance from customers. On examination of the accounts of M/s. Reddy Homes Ltd., it was noticed that no interest was paid by the assessee to that company. However, it was observed that the interest amount paid by the assessee was to AP State Finance Corporation on the loans availed by that company, viz. M/s. Engineers Reddy Homes Limited and the same was passed on to the assessee, and therefore, the assessee in turn, made the interest payment to AP State Finance Corporation directly and claimed the deduction towards this interest. The Assessing Officer further observed that as per S.40(ba) of the Act, any payment made by an AOP to any member of such association under the head interest, salary, bonus, commission and remuneration is not allowable as deduction in the hands of the AOP. In this view of the matter, the Assessing Officer held that in view of application of provisions of S.40(ba) of the Act, the payment in the present case, being to constituent of the joint venture, i.e. to Engineers Reddy Homes P. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e meant for business, it cannot be ruled out that some element of inflation and personal nature of expenses embedded in the expenditure incurred by cash cannot be ruled out. On overall appreciation of facts and quantum involved in each item, the CIT(A) was of the view that disallowance of 10% of cash expenditure of ₹ 3,59,97,869, working out to ₹ 35,99,786 would be reasonable. He accordingly sustained disallowance to that extent, deleting the balance disallowance made by the Assessing Officer. Similarly, for assessment year 2008-09, the Assessing Officer disallowed direct and indirect expenses amounting to ₹ 3,24,76,233, and on appeal, the CIT(A), as in preceding year, has sustained 10% of cash component of the direct and indirect expenses, working out to ₹ 23,87,770, deleting rest of the disallowance made by the Assessing Officer. 16. Aggrieved by the disallowance sustained by the CIT(A), assessee is in second appeal before us for these two years. 17. We heard both sides and perused the material on record. Considering the quantum and nature of expenditure claimed, which is not verifiable, we agree with the CIT(A) that certain element of inflation and pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o tax in the succeeding assessment year and taxing the same in the year under consideration, amounts to double taxation. He drew our attention to page 146 and 147 of the paper-books, which gives the ledger account of L.Rambramham. He also drew our attention to copy of sale deed dated 5th February, 2008, which is at page 148 of the paper-book to suggest that the payment was outstanding on the date of registration of sale deed. 23. The Learned Departmental Representative on the other hand, submitted that the sale deed was registered on 5th February, 2008, and therefore, as per the method of accounting followed by the assessee, the amount has to be offered to tax in the year under appeal only, and consequently, the addition made by the Revenue authorities is justified. 24. We heard both sides and perused the material on record. It is an admitted fact that the sale deed was registered in February, 2008. It is also an admitted fact that the assessee has been following mercantile system of accounting. That being so, irrespective of actual receipt or otherwise of an amount, income has to be recognised in the year in relation to which it has arisen or accrued. In the facts of the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue. 29. As for the assessment years 2005-06 and 2006-07, the Assessing Officer has made an ad-hoc disallowance out of direct and indirect expenses worked out at 10% of the amounts claimed by the assessee, on account of unverifiable nature of such expenditure. The CIT(A), on appeal, took note of the fact that the assessment for these years was framed under S.143(3) of the Act. He further observed that additions in an assessment made under S.153A of the Act have to be only on the basis of credible evidences especially in a case where original assessments were completed under S.143(3) of the Act. The CIT(A) accordingly deleted the ad-hoc disallowance made by the Assessing Officer. Following the principle of consistency, considering the view taken with regard to disallowance out of direct and indirect expenses made for assessment years 2007-09 and 2008-09, in para 17 in the context of assessee's appeals and in preceding para in the context of Revenue's appeals, we set aside the impugned order of the CIT(A) on this issue for the assessment years 2005-06 and 2006-07, and direct the Assessing Officer to make ad hoc disallowance out of the direct and indirect expenses incurred by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only an estimation and not actual figures dealt by the assessee. We agree with the CIT(A) that before fastening any liability on the assessee, it is necessary for the Assessing Officer to establish some nexus to the contents of the document relied upon and unless the so called unofficial payments or receipts are linked to any land or construction of the project under taken by the assessee, it is difficult to assume that the entries in those documents indicate unexplained expenditure or investment, liable for addition under S.69C of the Act. We do not find any infirmity in the reasoning given by the CIT(A) for deleting this addition in para 29.1 of the impugned order. We accordingly uphold the order of the CIT(A) and reject the ground of the Revenue in this behalf, in the appeal for assessment year 2008-09. 34. In the result, while appeals of the Revenue for the assessment year 2005-06 and 2006-07 are partly allowed, appeals of the Revenue for assessment years 2007-08 to 2008-09 are dismissed. M/s. Janapriya Engineers Syndicate, Hyderabad Assessee's Appeal : ITA No.1577/Hyd/2012 : Assessment year 2006-07 Revenue's Appeals : ITA No.1614/Hyd/2012 : Assessment year 2005-06 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and the assessee claimed that the agreements have been entered into in the financial year 2005-o6 itself, and the Industrial Park has been operational since then. However, since the project has been approved by the Ministry of Commerce, Government of India in September, 2006 and the Notification has come from the CBDT in Novemebr,2006, i.e. in the year 2006-07 relevant to assessment year 2007-08, the claim has been made under S.80IA(4)(iii) for the first time in assessment year 2007-08, Assessee has also furnished the details of break up of investment made in the building and the income from which it calmed deduction udnerS.80IA(4)(iii). Assessee has also filed the lay out copy and other particulars with respect to the ownership and the construction of the industrial park. While the Assessing Officer not convinced with the contentions fo the assessee, disallowed the clam of the assessee for deduction under S.80IA(4)(iii) of the Act, on appeal, the CIT(A) too upheld the disallowance made by the Assessing Officer. In the first place, the CIT(A) dealt with the head under which the income of the assessee from lease of the units of the industrial park are assessable, and after analyz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee group, and as admitted by the appellant, they are in the business of providing engineering services. Beyond such submission, the appellant could not substantiate the nature of profession carried by the above tenant with any independent material or evidences to prove such contention. In order to get relief u/s.80IA(4), the tenants are supposed to carry out limited professional activity such as engineering services, software service provider, data processing, business processing, outsourcing etc. Unless the tenant is solely engaged in such activity from this industrial unit, the assessee cannot avail the benefit of sec.80IA( 4) as claimed. Therefore, in view of the above discussion, the claim of deduction u/s.80IA( 4 )(iii) is not allowable to the assessee on more than one count on the lease income generated from letting out of the building 'Fusion-9'. Accordingly, the claim of the assessee is rejected and the lease income is required to be assessed .as income from house property and the action of the AO is sustained. Further, the claim of depreciation on this building is also required to be rejected in view of the above finding. Consequently, the AO's ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are satisfied." It is clear that while the assessee has received such approval and notification, the same has not been withdrawn till date for contravention of any of the conditions, even though there is a specific provision for withdrawal, in case the Central Government finds that the conditions prescribed therein have not been adhered to. However, it is also clear that such withdrawal has to be done by the Central Government only and as long as this is not done, the assessee having such approval and notification cannot be denied the deduction. Under the circumstances, I am of the view that since the assessee had developed the industrial park duly approved and notified by the Central Government and the same has not been withdrawn for any reasons, the assessee would be entitled to the benefit of deduction u/s 80IA(4)(iii). 28. Further, in the case of Ganesh Housing Corporation Ltd., vs. Padam Singh, Under Secretary & Ors. (2011) 61 DTR (Guj.) 1, the Gujarat High Court held that "what was required to be done by the assessee was to provide for infrastructural facilities before the last date envisaged under the scheme and thereafter, there was no obligation on its part to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurred by the assessee in cash. Consequently, assessee's grounds on this issue are treated as partly allowed. 42. Next common ground that arises for consideration is in the appeals of M/s. Janapriya Properties (Formerly Janapriya Engineers Syndicate) for assessment years 2006-07 and 2007-08, being ITA Nos.1577 and 1594/Hyd/2012, and it is with regard to disallowance under S.40A(3) made by the Assessing Officer, which has been confirmed by the CIT(A). 43. We have considered the rival submissions on this issue and perused the orders of the lower authorities and other material on record. We find that the assessee has not offered any explanation before the lower authorities justifying the payments made in cash in violation of provisions of S.40A(3) of the Act. Even before us, the position remains the same and the assessee has not explained the circumstances, which constrained it to make the payments in question in cash. That being so, we find no infirmity in the action of the lower authorities. We accordingly uphold the disallowance made by the Assessing Officer for the assessment years 2006-07 and 2007-08, and reject the grounds of the assessee on this aspect in its appeals ITA Nos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing payments as representing unexplained expenditure. Page No. Annexure Description Quantum Rs. 86-89 A/JES/18 Agreement of sale dt.07.03.07 entered between the assessee-firm and Sri D.E.Nagaraj and Sri J.Srinivas (landlords) for purchase of Ac.1.38 Gt. Situated at Kothapeet (V) for a consideration of ₹ 1.55 crores. Out of this, a sum of ₹ 38,75,000/- was paid on10.03.2007 38,75,000 96-97 A/JES/18 A sum of ₹ 50,000/- and ₹ 1,50,000 were paid in cash to Sri T.Rajasekhar Reddy for purchase of land on 03.11.2006 and 01.11.2006, totaling to ₹ 2,00,000/- 3,00,000 133 A/JES/18 Receipt dated 29.12.2006 given by Sri T.Madan Mohan Reddy towards sale of his land situate at Badangpet (V). As per this receipt, a sum of ₹ 30,00,00./ was paid by the assessee, which include payment of ₹ 10,l00,000 in cash on 03.11.2006 10,00,000 138 A/JES/18 Receipt dated 03.11.2006 given by Sri T.Lakshmi Narasimha Reddy towards sale of his land situated at Badangpet(V). As per this receipt, a sum of ₹ 30,00,000/ was paid by the assessee, which includes payment of ₹ 10,00,000/ in cash on 03.11.2006. 10,00,000 146 A/JES/18 Receipt gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y once again the payment details vis-a-vis books of ale and bank. a/c and if on verification found correct, the same is to be given credit while computing the addition under this head. Out of 1,16,25,000/- (balance of consideration after payment of ₹ 38,75,000/-), only ₹ 23,25,OOO/- is to be allowed if the AO finds that the payments are reflected in the books of a/c. For the balance of ₹ 93,00,000/- the assessee has no explanation to offer about the sources for the payments, etc. The only submission of the appellant on this ground is that no further payments have been made to the above sellers subsequently. It is very difficult to accept that the sellers of property would keep, quiet if scheduled payments are not effected as agreed in agreement for sale. It is not the case that the land so referred in the agreement was returned to the sellers. On the other hand, it remained with the appellant and being used in its business. No prudent person would part with the valuable land without realizing the agreed sale consideration. Accordingly, the submission of the appellant is rejected and addition is sustained to the extent of ₹ 93 lakhs and the balance of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to such exempt income claimed by the assessee, and disallowed the same in terms of S.14A of the Act. On appeal before the CIT(A), assessee made elaborate arguments against the addition made as above, and contended inter-alia that a claim for deduction under various provisions of the Act, such as S.80IA is distinct from the claim of exemption of any income from the very tax net. The CIT(A) was not convinced with the arguments of the assessee on this issue, and taking note of the various contentions of the assessee against the disallowance made by the Assessing Officer, observed that though the assessee stated to have incurred total expenses under finance charges at ₹ 3,19,55,148, none of the loans borrowed by the assessee had been utilized for any of its business activity, as contended by the assessee. He noted that all the borrowed funds have been finding their way to other entities of assessee group rather than their utlisation in the assessee's own business activity. Even if, for the sake of argument, it is assumed that S.14A has no application in this case, still, the CIT(A), held the interest claim cannot be allowed in the hands of the assessee unless and until the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court of Andhra Pradesh vide its interim order dated 8th October, 2012. That being so, in the interests of justice, we set aside the impugned order of the CIT(A) on this issue and restored this aspect of the matter to the file of the Assessing Officer, with a direction to redecide the disallowance if any that maybe warranted in terms of S.40a(ia) of the Act, in consonance with the view that the Hon'ble High Court may take on the above decision of the Special Bench of the Tribunal. The Assessing Officer is directed to redecide this issue in accordance with law and after giving reasonable opportunity of hearing to the assessee. 58. The next effective grievance in ITA No.1623/Hyd/2012 for assessment year 2007-08 is with regard to addition of an amount of ₹ 1.5 crores made by the Assessing Officer, which has been deleted by the CIT(A). 59. Facts of the case in brief are that the Assessing Officer on a perusal of the seized document Annexure A/JES/PO-4/1, that a sum of ₹ 2.75 crores and ₹ 1.50 crores were paid towards 'Kowkoor Land' and claimed as official and unofficial expenses respectively. The Assessing Officer proposed to make addition of ₹ 1.50 crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so spent were accounted for as work-in-progress in the Balance Sheet of the relevant years, as no sales were affected. The Assessing Officer however, considered a percentage of 15% as profit on work-in-progress and taxed the same accordingly, which resulted in the impugned additions of ₹ 21,51,276 for assessment year 2002-03; ₹ 24,11,619 for assessment year 2003-04; and ₹ 18,12,501 for assessment year 2004-05. 64. On appeal before the CIT(A), it was submitted that in the year ending 31.3.2005, this project was transferred to a joint venture by the name, M/s. Janapriya Engineers Syndicate(JV), and the amount transferred was ₹ 4,18,05,343. From the year ending 31.3.205 onwards, this joint venture completed the project and offered the income of the venture for tax in its hand. It was submitted that the total work was transferred to the JV, and in effect, no part of the proceeds or expenditure was claimed by the assessee, and the JV had filed the return for the work and the same was assessed in the hands of the JV In the circumstances, it was submitted that taxing the work-in-progress, which was transferred to the JV again in its hands is not correct and in fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accrual basis. No where in the accounts the appellant has specifically mentioned that it is following Project Completion method. It is a fact on record that at the time when the construction activities have been undertaken by the appellant company the JV was not at all in existence. It is also a fact on record that the appellant company has incurred substantial expenditure against its project and has started receiving advance towards sale of flat. Since the appellant has not specifically adopted project completion method in its accounting I am of the view that the AO was not wrong in working out the profit on percentage completion basis which is also a recognized method of accounting in this line of business. The transfer of the work in progress to the JV is a subsequent event which cannot influence its taxability in an earlier year. At the same time, I may also observe that income from the same source cannot be taxed twice. Accordingly, whatever income from a source has been computed and brought to tax in an earlier year should be reduced while assessing the income of the same source in a subsequent year if the same income has actually been offered for taxation. It is not disputed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rabad dated 31.1.2011, is with regard to the addition towards unproved liabilities. 68. Brief facts of the case in relation to this issue are that the Assessing Officer observed that during the year under consideration, there were advances appearing in the Balance Sheet of the assessee company of ₹ 4,61,800 in respect of Janapriya South City Projects. These advances, he noted were wrongly transferred to the Janapriya Engineers Syndicate JV during the year under consideration, and the entry was reserved in the assessment year 2006-07. The assessee company had collected advance for Janapriya South City Project, prior to assessment year 2002-03 and this project was cancelled by the company, and advance repaid to the customers over the years. However, since the advance of ₹ 4,61,800 was remaining outstanding over the last four to five years and the assessee company failed to file any confirmation relating to this liability, the Assessing Officer added back this amount of ₹ 4,61,800 as unproved liabilities, treating the same as the income of the assessee. 69. On appeal, the CIT(A), observing that the assessee except for submitting that the Assessing Officer has not m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es taken by the assessee from APSFC has been transferred to its joint venture partner, Janapriya Engineers Syndicate JV. Since the loan amount has not been utilized by the assessee for its own business purpose, it cannot be said that the expenditure incurred by way of processing charges for securing such a loan, is an expenditure incurred for the pupose of the business of the assessee. That being so, the disallowance made by the Assessing Officer is in order and the CIT(A) in our opinion, was justified in sustaining the same. We accordingly find no merit in the grounds of the assessee on this issue, which are accordingly rejected. 75. The next effective grievance of the assessee in this appeal relates to an addition of ₹ 7,14,968 being 30% of the opening work-in-progress. The Assessing Officer observed that against sale of ₹ 70,22,290 the assessee had shown a profit of ₹ 5,90,172 which included waiver of interest on term loan of ₹ 13,73,949, and if this waiver is excluded, there was in fact a loss of around ₹ 7 lakh on sale of flat. In the absence of proper explanation filed by the assessee with regard to the loss on sale of flat, and observing that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase in brief are that during the assessment proceedings, the Assessing Officer noted that the share holders of the assessee company, viz. K.Ravinder Reddy, K.Kranti Kiran Reddy and Smt.Piriyamvada Reddy, who were having more than 10% share holding in the assessee company are also holding shares working out to more than 10% in M/s. Engineers Syndicate India Pvt. Ltd. Since Engineer Syndicate Ltd., was having sufficient reserve, the assessee was requested to explain as to why the advance/loan amount received by the assessee company shall not be treated as deemed dividend under S.2(22)(e) of the Act. It was explained by the assessee that the amounts were paid by Janapriya Engineers Syndicate India Pvt. Ltd. to the assessee company on account of inter-corporate deposits and hence the provisions of S.2(22)(e) are not applicable. The Assessing Officer not convinced with the explanation of the assessee, and observing that there is no exception for inter-corporate deposits for the purposes of S.2(2)(e) of the Act, if other conditions are accepted, held that the advance/loan amount received by the assessee company was liable to be treated as deemed dividend. He accordingly made additions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholder, in such case, such advance or loan cannot be said to be deemed dividend within the meaning of the act. Thus, gratuitous loan or advance given by a company to those classes of shareholders would come within the purview of section 2(22) but not cases where the loan or advance is given in return to an advantage conferred wit upon the company by such a shareholder." Since the CIT(A) in the impugned order has followed the decision of the Special Bench in the case of Bhaumik Colour P. Ltd. (supra), we find no infirmity in the action of the CIT(A) in deleting the additions made by the Assessing Officer. We accordingly uphold the same, rejecting the grounds of the Revenue in these appeals. 82. In the result, both the Revenue appeals are dismissed. 83. In the result, Revenue's appeal ITA No.1614/yd/2012 is treated as allowed for statistical purposes. 84. To sum up- (a) Assessee's appeals ITA Nos.1250 to 1253/Hyd/2012 for assessment years 2005-06 to 208-09 are dismissed. (b) Out of the Revenue's appeals, while those for assessment years 2005-06 and 2006-07, being ITA Nos.1359 and 1360/HY/d2012 are partly allowed, the same for assessment years 2007-08 an 2008-09, being ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X
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