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TMI Blog2021 (11) TMI 530X X X X Extracts X X X X X X X X Extracts X X X X ..... t. We accordingly direct the Assessing Officer to frame his consequential computation adding the impugned sum(s) of un-explained investment in the corresponding assessment year as per the entries in the seized material. The assessee fails in its instant grievances therefore. - ITA No.902/Hyd/2015, ITA No.927/Hyd/2015, ITA No.1002/Hyd/2016 And C.O.No.64/Hyd/2016 (in ITA No.1002/Hyd/2016) - - - Dated:- 28-10-2021 - Shri S.S. Godara, Judicial Member AND Shri Laxmi Prasad Sahu, Accountant Member For the Assessee : None For the Revenue : Sri Y.V.S.T.Sai, CIT-DR ORDER PER S. S. GODARA, J.M. The instant batch of four cases pertains to a single assessee namely Shri Alluri Krishna Reddy. The Revenue and assessee have filed their cross appeals ITA No.902 927/Hyd/2015 for A.Y. 2007-08 against the CIT(A)-11, Hyderabad s order dt.30.04.2015 passed in case No.0195/Circle-1(1)/CIT(A)-XI/13-14. The Revenue s latter appeal ITA No.1002/Hyd/2016 and assessee s cross objection C.O.64/Hyd/2016 are directed against the very CIT(A) s order dt.09.02.2016 passed in case No.0202/CC- 1(1)/Hyd/CIT(A)-11/13-14/15-16. Relevant proceedings in both these assessment years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preferred his petition dated 13.07.2016 seeking to plead the following additional substantive grounds. 1. In the matter of the above appeal, the appellant-assessee (assessee) craves leave of the Hon'ble Tribunal to file Additional Grounds of Appeal. 2. Additional Grounds of Appeal are concerning the disallowance of interest expenditure which is part of the regular accounts on the basis of which the original return has been filed. No incriminating material in respect of the interest expenditure has been discovered during search. Therefore no part of interest can be disallowed in the assessment made u/s. 153 A pursuant to the search. This is a legal ground. 3. The assessment originally made u/s. 143(1) has not abated. As a result there is already an assessment u/s. 143(1) which has not abated. Consequently in the assessment now made the income disclosed cannot be made a part of the total income determined u/s. 153A. As the assessment has been made by including the income u/s. 143(1), there is a duplicate demand in the records and registers of the Department. Additional Ground is now being taken against the legality of duplicating the assessment and demand cov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee s foregoing petition has either raised supportive grounds to the main pleadings or his only other plea is that the impugned proceedings / assessments deserve to be quashed since no proceedings had been abated . We wish to make it clear that the assessee s averments in his prayer for admission of additional grounds in Sr. Nos.1 to 7 and additional grounds themselves is that no incriminating material has been found or seized during the course of search which could trigger Sec.153A in motion and therefore, these assessment itself are not sustainable in law. This tribunal s special bench decision in All Cargo Global Logistics Vs. DCIT (2012) 137 ITD 217 (Mum); after considering hon ble apex court s landmark decision in NTPC Vs. CIT in 229 ITR 383 (SC), holds that we can very well entertain such an additional ground going to root of the matter so as to determine correctness of tax liability of an assessee provided all the relevant facts are already on record. There is hardly any quarrel that the issue herein pertains to legally of the impugned assessment(s) in light of 143(1) proceedings and lack of incriminating material found or seized during the course of search. We thus admit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r found that the assessee has obtained loans from banks and other persons and debited interest thereon in the profit and loss account. The assessee had claimed deduction of interest expenditure of ₹ 2,55,03,426/-. The Assessing Officer observed that he had diverted the interest bearing funds to the tune of ₹ 5,75,62,806/- towards interest free loans/advances to friends and relatives and sister concerns. The break up is as below: SNo Name of the debtor Amount in Rs. 1 Aarkay Projects (assessee invested as Director in the company) 4,61,62,806 2 Rampa Estates 50,00,000 3 M.Sambhisa Rao 54,00,000 4 N.Prasanna Kumar Reddy 10,00,000 TOTAL 5,75,62,806 He limited the interest debited to the P L account to the extent of funds diverted by charging interest @15% p.a. Henc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If the interest bearing fund had been utilised for the purposes of his business, the interest expenditure should be allowed as deduction even if the business or any part thereof had actually not yielded profit to him. The fact of his investment in Aarkay Project had been discussed above. Considering that the amount of ₹ 4.62 crores had been invested for purposes of such business by the assessee, interest on the borrowed fund should be allowed as deduction against his profit of business. As regards the balance loans /advances of ₹ 1.14 crore (i.e. those relating to Rampa Estates, Mr. M.Sambhisa Rao and Mr. N Prasanna Kr. Reedy) there is nothing on record to show that the same represented business investment for the purpose of earning profit. It is also noticed that the Assessing Officer considered a number of other such loans/advances but refrained from disallowing commensurate interest as he was prima facie satisfied with the assessee's explanation. His decision that interest bearing borrowed fund to the extent of ₹ 1.14 crore had been diverted for non business purposes is, therefore, upheld. He is directed to re-compute the proportionate disallowance accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 2,85,00,000/- as unexplained expenditure. 09.1 During the course of appellate proceedings, the appellant stated that he has created a liability of ₹ 2,90,54,406/- towards the labour charges payable as at 31.3.2007. The amount is claimed as an expense and shown as a liability. The liability was subsequently discharged by the appellant by payments from various sites. On being asked for the Proof of payments he had produced all the ledger account copies showing the payment of the liability in the subsequent year. Ignoring all the submissions made and evidences produced by him, the Assessing Officer has made a n addition of ₹ 2,85,00,000/- towards unexplained expenditure. The assessee has challenged the addition and reiterated his submission in appeal. 09.2 Decision Assessment order and the Written submissions submitted by the appellant Were carefully considered. According to section 69C of the IT Act, an expenditure is held to be unexplained (and deemed to be the income) if the nature and source thereof is not explained satisfactorily. The expenditure in question is claimed to be wages . In so far as it was recorded in the regular books of accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee s remaining grounds. His sole surviving grievance challenges correctness of both the lower authorities action making addition of ₹ 1,80,12,096/- allegedly representing unexplained investment made in the course of assessment reading as under : On verification of books of accounts it is found that an amount of ₹ 4,61,62,806/- was recorded in the books of accounts whereas as per the above information an amount of ₹ 6,41,74,902/- was paid as capital in Arkay projects thus the difference of ₹ 1,80,12,096/- was invested outside the books of accounts. Assessee was asked to explain called for. In response to show cause notice, assessee filed reply on 18.03.2013 stated that, I have already submitted the details of Arkey projects in my reply dated 09-01-2012. Mr. C. Rama Krishna reddy is the other partner in Arkey projects as evidenced by page No. 31-36 of Ann/ AKR/R/1. It is very clear from page No.40 and 41 of Ann/ AKR/R/1 that ₹ 2-00 crores is paid by Mr. CRK Reddy vide various cheques drawn on Federal bank and Lord Krishna Bank as per page 41 and also ₹ 50-00 lakhs vide ch. No.009906 dated 06- 11-2006 as per page No.40. Thus, a t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dvpt Ag Cum GPA registered as per page 80 of Ann/AKR/R/1 23.11.2006 6. Meetings of the landlords and Developers (Page 44-47 26.12.2007 7. Meeting of Landlords and developers (Page 48-49) 23.01.2008 As per this MOU. dated 30.10.2006, the amounts paid/payable bY AKR and CRKR as below: Paid up to 30.10.2006 by CRK 200 Lakhs Paid by AKRon 08.10.2006 1.50 Lakhs Agreed to pay by 07.11.2006 100 Lakhs by PDCs Agreed to pay by 07.12.2006 100 Lakhs by PDCs Agreed to pay PDCs before 31.12.2006 150 Lakh.by PDCs Agreed to pay PDCs before 31.01.2007 150 Lakhs by PDCs Agreed to pay PDCs before 28.02.2007 150 Lakhs by PDCs Total Deposit as per Agreement: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s entry is only 2.5 months. It is difficult to spend that much amount on the project, apart from the other amounts spent. It cannot be any advances payment also as the Assessee himself is a contractor and wanted to take up the venture on his own as the main partner. 7. When even small amounts are also recorded in the books, it is not possible for the Assessee to spend that much cash for development expenses. 8. There is no stick on the amount, whereas all the other amounts are ticked. That means the entry is doubtful and not verifiable. So, this is not ticked by the office accountant while checking with the cash book entries in his book. It is evident from the material. 9. In the subsequent minutes of the landlords and developers also, there is no mention of the development expenses incurred. 10 In the copy of legal notice dated 10.02.2010, (as per page 140,141 of the Annexure) issued by the developers to the landlords, there is no mention of having spending that much amount for the development expenses. There is the mention. of the total amounts paid as ₹ 850 Lakhs, out of which the investment related to the Assessee is recorded in the books of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... violation of the clause 10-10 of the agreement. Assessee further stated that, the amount was wrongly entered as ₹ 1,50,00,000 instead of ₹ 1,50,000. If it is so, the total amount comes to 4,93,74,601 instead of 6,41,74,901. But the investment as per balance sheet as 31.03.2008 is ₹ 4,85,63,677. So these figures do not tallying with each other. The amount was paid of ₹ 1,50,00,000 paid on 10.02.2007 to sri Sudharsnan Reddy for the development of Aarkay' Project Site. Shri sudharshan Reddy is one of the debtors in M/s AKR construction for an amount of ₹ 54,90,426. Further his name reflected in AKR construction as share application holder. Therefore its appeared that he is a key person in the assessee's business activity as on 10.02.2007.An amount of ₹ 1.5 crore was paid to him in cash as development expenses for the Aarkay Project Site. As per the clauses 10-10 the assessee paid the advances and started the developmental activity. Hence assessee incurred the expenditure as reported the above account copy. In view of this the difference amount of ₹ 1,80,12,096 can be taken to have incurred by the assessee. Therefore entire diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 10.2.2007, but as per the agreement the developers were not allowed to enter the site. Though, some amount was spent on development work viz; stone cutting which was recorded in the books as diesel expenses. According to the assessee even the legal notice issued by the developer to the landlords on 10.2.2010 made no mention of the amount of Rs.l,50,00,0000/- spent on development. There was mention of total amount of ₹ 8.50 crores only, out of which the investment relating to him was recorded in the books of account. Thus, the total amount of ₹ 1,55,10,705/- was wrongly entered in the statement. Those amounts were not vouched and did not contain verification marks. The statement which was only a rough sheet prepared by the, site accountant containing wrong and duplicate entries should be ignored. ' 07.2 The Assessing Officer did not accept the explanation given by the assessee and stated that as per clause 10-10, ₹ 10 crores was to be paid to the landlord on or before February, 2007 to start development activity. On examination of the seized material, it was clear that the assessee and his partner started the development activities and spent huge amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank account. The appellant had invested an amount of ₹ 4,61,62,806/- by 31.3.2007 and ₹ 4,85,63,677/- by 31.3.2008 out of which ₹ 4,50,00,000/- was interest free deposit to the landlords and the balance being the amount spent for site development works. Those amounts were duly accounted for in his books of accounts. During the course of search, a statement relating to the Aarkay Project was found and in that statement there 6-7 transactions amounting to Rs.l,55,10,705/- were recorded against which a question mark was put and they were not accounted for in the books of the appellant. It was explained that those entries were wrongly entered by the site accountant. The differential amounts were not entered in the regular books of the appellant.as they were wrong entries as observed by the regular accountant. 07.4 The appellant further argued that the Assessing Officer had not applied his mind in understanding the facts and in coming to a rational conclusion. The addition was made without appreciating the facts on record. The amount of Rs.l,55,10,705/- did not belong to the appellant and was therefore not accounted for in the regular books of account. The Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on any plausible explanation and, hence, is not acceptable. When other entries are matching with regular books of accounts, it has to be assumed that those not matching represent expenditure Which was not recorded in the regular books and, hence, is held to be unexplained expenditure/investment. 07.7 According to the assessee, he had entered into a Development Agreement With owners of a piece of land for its development under the banner of Aarkay Projects. As per the terms of the MoU, the development work could only be started after the agreed sum s of Rs.l0 crores had been paid to the land owners. Since that Sum could not be paid to the land owners and some dispute arose, incurring of such huge expenditure on that project, according to the assessee was not feasible. If this explanation were correct, the assessee should indeed not have incurred any development related expenditure on that project. But, as per his own admission, he had incurred development expenditure. Hence, the explanation is not acceptable. If an expenditure has been incurred in fact, it cannot be said not to have been incurred simply because the MoU did not stipulate the expenditure at that stage. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding the impugned sum(s) of un-explained investment in the corresponding assessment year as per the entries in the seized material. The assessee fails in its instant grievances therefore. His cross-appeal ITA No.927/Hyd/2015 is partly accepted for statistical purposes. 16. Next comes to A.Y. 2008-09 involving Revenue s appeal in ITA No.1002/Hyd/2016 with assessee s cross objections in C.O.No.64/Hyd/2016. Learned CIT-DR is fair enough in not disputing the clinching fact the tax effect involved in the sole section 36(i)(iii) interest amount of ₹ 72,84,552/- disallowance herein as per CBDT Circular No.03 of 2018 dated 11-07-2018 and Circular No.17 of 2019 dated 8th August, 2019; as the case may be the tax limit for filing appeal before the tribunal . We found that this appeal is covered by the aforesaid circulars and therefore is not maintainable. Its appeal ITA No.1002/Hyd/2016 fails. The assessee s cross objection C.O.No.64/Hyd/2016 supportive of the CIT(A) s order is rendered infructuous. 17. To sum up, Revenue s former appeal ITA No.902/Hyd/2015 is partly allowed and ITA No.1002/Hyd/2016 is dismissed and assessee s cross appeal No.927/Hyd/2015 is dismissed and C.O ..... X X X X Extracts X X X X X X X X Extracts X X X X
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