Income Tax Appellate Tribunal - Delhi
Dcit, Faridabad vs M/S. Ilabs Info Techonology Centre Pvt. ... on 16 April, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES: BENCH "C" NEW DELHI
BEFORE SRI R.K.PANDA, ACCOUNTANT MEMBER
AND
SMT. BEENA A PILLAI, JUDICIAL MEMBER
ITA No. 1785/Del/2015
A.Y. 2011-12
DCIT vs. iLab Info Technology Centre
Circle-1, Block-1-B, Pvt. Ltd.
CGO Complex 404-405, Phase-III,
Faridabad Udyog Nagar
Gurgaon
PAN : AABC13779E
(Appellant) (Respondent)
Revenue by : Sh. S.L.Anuragi, Sr. DR
Assessee by : None
Date of hearing: 10.04.2018
Date of Pronouncement: 16.04.2018
ORDER
PER BEENA A PILLAI, JUDICIAL MEMBER
The present appeal has been filed by revenue against order dated 16/01/15 passed by Ld. CIT (A), Faridabad for assessment year 2011-12 on the following grounds of appeal:
1. "On the facts and circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 8,00,000/- made by the Assessing Officer on account of disallowance made u/s 40A(3) of the Income tax Act, 1961 disregarding the fact that the payments have been made in contravention of the provisions of section 40A(3) of the Income tax Act, 1961 and not being expenditure was capital in nature."
2. "On the facts and circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 9,00,000/- made by the Assessing Officer not declaring the sale of scrap on account of construction of new building disregarding the facts that generation of scrap
2 ITA no. 1785.Del.2015 (iLab Info Technology Centre P. Ltd.) was on account of construction of new building in the form of Packing Boxes/ bags sanitary items, paints, cement etc.
3. "On the facts and circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of disallowance of interest of Rs. 19,00,000/- made by the Assessing Officer out of interest paid on loan disregarding the facts that the assessee had used borrowed funds in granting as interest free loans to other persons.
4. "On the facts and circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition made by the Assessing Officer even though the decision of Hon,ble Supreme Court's case relied upon by the ld. CIT(A) do not squarely applicable to the facts of the case as the assessee had furnished the return of loss as such it cannot be said that the interest free advances were given out of profits of the assessee during the years and moreover the addition was based on decision of Hon,ble Supreme Court in the case of S.A. builders of which facts are similar to the Assessing Officer4s relied upon the case as well as case under consideration.
5. "The appellant craves for the permission to add, delete or amend the grounds of appeal before or at the time of hearing of appeal."
2. Brief facts of the case are as under:
Assessed filed its return of income declaring loss of Rs.7,08,79,89/-. Return was processed under section 143 (1) of the Act and statutory notices were issued to assessee in response to which representative of assessee appeared before Ld.AO and attended proceedings from time to time.
3. Ld.AO observed that assessee is engaged in business of infrastructure development, sale/lease thereof and to undertake maintenance for Information Technology and IT enabled products and service centre. Ld. AO observed that the main source of income was from business of providing infrastructure to IT and IT enabled services.
4. During the year Ld.AO observed that assessee made payments in cash to various persons in connection with building work. Ld.AO observed that payments have been made in 3 ITA no. 1785.Del.2015 (iLab Info Technology Centre P. Ltd.) contravention to section 40A (3), and the same was disallowed by adding it back to returned income of assessee.
5. Ld.AO further observed that assessee had not shown any income from sale of scrap nor any closing stock at the end of the year. Ld.AO estimated sale of scrap at Rs.75,000/- per month and Rs. 9 lakh for the entire year as he was of the view that most of the materials used for construction of building came in packing that the sanitary items, paints, cement etc and after the use of these items packing material remains as scrap. He was of the opinion that keeping in view the material used for construction of building sale of scrap can't be ruled out during the construction period.
6. Ld.AO observed that assessee paid interest on loan amounting to Rs.5,85,14,074/- whereas assessee had advanced as interest free loan to M/s.Chintalapati. Ld.AO was of the view that assessee had not used borrowed funds for its business, but diverted it in granting interest-free loans to other person. He, therefore, disallowed interest on borrowed funds as deduction. Ld.AO recomputed income of assessee at a loss of Rs.6,72,79,889/-.
7. Aggrieved by order of Ld.AO, assessee preferred appeal before Ld.CIT (A) who allowed appeal of assessee. Aggrieved by the order of Ld. CIT (A) revenue is in appeal before us now.
8. On behalf of the assessee none had appeared before us for hearing. However it is observed that the notice of hearing has been dispatched from this office and has not been returned back till date. We therefore proceed to decide this appeal Ground No. 1 4 ITA no. 1785.Del.2015 (iLab Info Technology Centre P. Ltd.)
8. Revenue raised this ground against deleting the addition of Rs.8 Lacs made by Ld.AO on account of disallowance under section 40 A (3) of the Act. Ld. Sr.DR submitted that Ld.CIT(A) placed reliance upon CBDT Circular No. 34 [F.NO. 13A/92/69-IT (A-II)], dated 05/03/70 and has deleted the addition by holding that the payments were made towards purchase price of capital asset. He submitted that these were not in the nature of purchase price of capital asset such payments made in cash to various persons in connection with building work. He placed reliance upon the chart in the assessment order, wherein purpose of payments has been towards works like removal of debris, removal of excess earth, dismantling of temporary office block, cleaning silver line, shifting material, scrap collection, store room water drainage system, rainwater harvesting etc. He submitted that these payments have not been verified by Ld.CIT(A) and assessee has not justified any of the above payments that are made in cash in order to fall out of the rigours of section 40A(3). Ld. Sr. DR submitted that specific observation of assessing officer regarding average wages of labourer during relevant period has been ignored by Ld.CIT(A). It has already been submitted by assessee in its reply reproduced in order of Ld. CIT (A) that persons to whom payments have been made in cash were petty labourers, and therefore Ld. DR submitted that it is not possible for one day work such huge payments would be advanced for the kind of work undertaken. Ld.Sr.DR submitted that the issue may be set aside back to Ld.CIT (A) for due verification of entire records in respect of the payments made.
5 ITA no. 1785.Del.2015 (iLab Info Technology Centre P. Ltd.)
9. We have perused the submissions advanced by Ld.Sr.DR. It is observed that the CBDT circular relied upon by Ld.CIT(A) do not cover the issue in favour of assessed, as the exceptional portion relied upon by Ld.CIT(A) speaks of any payment towards purchase price of capital asset such as plant and machinery not for resale. Whereas in the facts of the present case, admittedly assessee made huge payments to petty labourers in cash which has not been verified and for which no justification has been given by assessee.
10. In our considered opinion the order of Ld.CIT(A) is not a detailed decision wherein the issue of payments being made in cash has been dealt with on the basis of records/documents/evidences filed by assessee. We are therefore inclined to set aside this issue back to Ld.CIT(A) for proper verification of this issue. Ld.CIT(A) is directed to call for relevant details/information and upon verification of the same speaking order shall be passed in respect of the claim of assessed as per law.
In the result this ground raised by revenue stands allowed for statistical purposes.
Ground No. 211. Revenue raised this ground against deleting addition of Rs. 9 Lacs on account of sale of scrap.
Ld.Sr.DR submitted that assessing officer made addition on account of presumption that sale of scrap of Rs.75,000/- was generated each month. He submitted that this presumption was based upon the chart that is reproduced in the assessment order wherein payments has been made by assessee in cash to various 6 ITA no. 1785.Del.2015 (iLab Info Technology Centre P. Ltd.) persons for scrap collection. Ld.Sr.DR pointed out assessee's submition before Ld. CIT (A) that assessee was not engaged in manufacture of any product wherein a by-product of scrap generated. It has been submitted that building was constructed by contractor who was responsible for the scrap. It is submitted by assessee that issue regarding generation sale of scrap was not discussed during the course of assessment proceedings and therefore assessee did not get opportunity to deal with the same. He thus submitted that the issue may be set aside for proper verification of facts, since Ld. CIT(A) blindly accepted what has been submitted by assessee.
12. We have perused the submissions advanced by Ld.Sr.DR. It is observed from order of Ld. CIT (A) that he has blindly accepted the submissions of assessee without verifying the same or directing Ld. AO to call for necessary details since assessing officer failed to give opportunity to assessee before making addition on this issue.
13. There is nothing that has been placed on record by assessee nor any materials relied by Ld. CIT (A) in allowing this issue. Assessing officer has made addition on the basis of estimation which is also not correct. We do agree with submissions of Ld.Sr.DR that assessee has made payments towards scrap collection in cash to various parties on the same date therefore possibility of genuation of sale cannot be overlooked. Therefore observation of Ld. CIT(A) in approving that no scrap has been generated is not accepted. We therefore set aside this issue to Ld. CIT (A) to give a detailed finding by placing reliance upon the accounts of assessee. Assessee is directed to file entire details 7 ITA no. 1785.Del.2015 (iLab Info Technology Centre P. Ltd.) like bills/ vouchers of in regards activity carried on by assessee during the year, which shall be verified by Ld. CIT(A) as per law. In the result this ground raised by revenue stands allowed for statistical purposes.
Ground No. 314. Revenue raised this ground against deleting addition amounting to Rs.19 Lacs on account of disallowance of interest under section 36 (1) (iii) of the Act.
15. Ld.Sr.DR places reliance upon the observations of Ld.AO. It is observed that Ld. CIT (A) decided this issue by placing reliance upon the decision of Hon'ble Supreme Court in the case of Munjal sales Corporation versus CIT reported in 298 ITR ____. Ld. CIT (A) dealt with this issue as under:
"12. I have perused the order of the AO, and in this order the AO has failed to bring out any nexus or even a hint to the fact that only the borrowed funds were utilised by the appellant to make this short term advances to M/s. Chintalapati Holding Pvt. Ltd. The AO has only relied upon the judgment of Abhishek Industries and in the case of S.A. Builders to justify his addition. On the other hand the appellant has given the complete financial statements and form of Annexures C to I of the paper book. Perusal of the same reveals that there has been a infusion of fresh share capital by the promoters to the tune of roughly 20 Crores. Thus as on 31.03.2011 the total share application money of the Company stands at Rs. 456,850,000/- as against Rs. 268,500,000/-. During this period the company has also repaid loan of Rs. 10 Crores to the Banks out of his own funds. This clearly proves that there was a sufficient interest free funds available with the company at the time these advances were made.
13. It is pertinent to note that in the case of Abhishek Industries Ltd. (Supra) Hon'ble P & H High Court have followed its earlier decision in the case of S.A Builders Ltd. Vs. CIT 269 ITR 535 to arrive at a conclusion that theory of direct nexus of funds between borrowings of the funds and diversion thereof for not business purposes cannot be accepted. It was held that there could be nexus to use of funds for the purpose of business to claim deduction u/s 8 ITA no. 1785.Del.2015 (iLab Info Technology Centre P. Ltd.) 36(1) (iii) of the Act. The judgment of Hon'ble P & H High Court in the case of S.A. Builders was later on set aside by the Hon'ble Supreme Court as per order dated 14.12.2006. Thus, the decision of Hon'ble P & H High Court in the case of Abhishek Industries Ltd. (supra) relied upon by the AO is not correct. In its subsequent decision, the Hon'ble Supreme Court in the case of Munjal Sales Corporation vs. CIT 298 ITR (SC) has been pleased to hold that no disallowance of interest on borrowed funds could be made when the interest free advances are established to be out of capital or profits of the assessee during the year. Thus, in view of these facts and on the straight of the above cited judicial decisions this Grounds of the appellant is allowed."
16. We do not find any infirmity in the above observations of Ld. CIT (A) accordingly the same is upheld.
In the result this ground raised by revenue stands dismissed.
17. In the result appeal filed by the revenue stands partly allowed.
Order pronounced in the open court on16/04/2018.
Sd/- Sd/-
(R.K.PANDA) (BEENA A PILLAI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dt. 16th April, 2018
Binita
Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT
TRUE COPY -
By Order,
ASSISTANT REGISTRAR
ITAT Delhi Benches
9 ITA no. 1785.Del.2015
(iLab Info Technology Centre P. Ltd.)
S.No. Details Date
1 Draft dictated on 12.04.2018
2 Draft placed before author 12.04.2018
Draft proposed & placed before the
3
Second Member
Draft discussed/approved by
4
Second Member
Approved Draft comes to the Sr.
5
PS/PS
6 Kept for pronouncement on 16.04.2018
7 File sent to Bench Clerk
Date on which the file goes to the
8
Head Clerk
9 Date on which file goes to the A.R.
10 Date of Dispatch of order