Income Tax Appellate Tribunal - Hyderabad
V Ravinder Rao, Hyderabad vs Assessee on 12 November, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'B', HYDERABAD
BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER
AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER
ITA No.381/Hyd/14 : Assessment year 2009-10
Shri V.Ravidner Rao, V/s. Joint Commissioner of Income-tax,
Hyderabad Range 8, Hyderabad
(PAN - ADUPR 1057 K)
(Appellant) (Respondent)
Appellant by : Shri Y.Suryanaryan
Respondent by : Shri Rajat Mitra DR
Date of Hearing 5.11.2014
Date of Pronouncement 12.11.2014
ORDER
Per P.M.Jagtap, Accountant Member :
This appeal filed by the assessee is directed against the order of the learned Commissioner of Income-tax (Appeals) III, Hyderabad dated 6.1.2012.
2. The issue involved in ground No.1 of the assessee's appeal relates to the addition of Rs.1,29,22,613 made by the Assessing Officer and confirmed by the learned CIT(A) on account of deemed dividend under S.2(22)(e) of the Act.
3. The assessee in the present case is an individual who is Managing Director of M/s. Speed Projects & Infrastructure Pvt. Ltd. He filed his return of income for the assessment year 2009-10 on 15.10.2009 declaring total income of Rs.48,32,780 and agricultural income of Rs.2 lakhs. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee has received loans amounting to Rs.1,29,22,613 from M/s. Speed Projects and 2 ITA No.381/Hyd/2014 Shri V.Ravidner Rao, Hyderabad Infrastructure Pvt. Ltd. According to the Assessing Officer, the said amount received by the assessee was covered by the provisions of S.2(22)(e) and consequently, invoking the said provision, he added the amount of Rs.1,29,22,613 to the total income of the assessee on account of deemed dividend. On appeal, the learned CIT(A) confirmed the said addition made by the Assessing Officer.
4. We have heard the arguments of both the sides and also perused the relevant material on record. The only contention raised by the learned counsel for the assessee is that M/s. Speed Projects and Infrastructure Pvt. Ltd. had not commenced business at the relevant time and consequently, the said company did not have any accumulated profits out of which the loans in question could be said to have been advanced to the assessee. He has contended that the said loans therefore, cannot be treated as deemed dividend income of the assessee under S.2(22)(e). As rightly contended by the learned counsel for the assessee, the payment made by a company, which is covered by the provisions of S.2(22)(e), can be treated as deemed dividend only to the extent to which such company possesses accumulated profits, and this position clearly evident from the provisions of S.2(22)(e) is not disputed even by the Learned Departmental Representative. It is, however, observed that the claim of the assessee that M/s. Speed Projects and Infrastructure Pvt. Ltd. did not possess any accumulated profits at the time of advancing the amount in question to the assessee has not been verified either by the Assessing Officer or by the learned CIT(A) although such claim was specifically made in the submissions made before the Assessing Officer and a specific ground to this effect was also raised by the assessee in the appeal filed before the learned CIT(A). We therefore, consider it just and proper to restore this issue to the file of the Assessing Officer for the limited purpose of verifying the claim of the assessee as regards non-availability of any accumulated profits in the case of M/s. Speed Projects and Infrastructure Pvt. Ltd. at the time 3 ITA No.381/Hyd/2014 Shri V.Ravidner Rao, Hyderabad when the amount in question was advanced to the assessee and deciding the issue afresh in accordance with law. Needless to observe that the Assessing Officer shall afford sufficient opportunity of hearing to the assessee. Ground No.1 is accordingly treated as allowed for statistical purposes.
5. The issue raised in ground No.2 of the assessee's appeal relates to the addition of Rs.27 lakhs made by the Assessing Officer and confirmed by the learned CIT(A) on account of deemed dividend under S.2(22)(e) of the Act.
6. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee has received a loan of Rs.27 lakhs from M/s. Speed Projects and Infrastructure Pvt. Ltd. According to him, the said loan amount was covered by the provisions of S.2(22)(e) and consequently invoking the said provisions, he made addition of Rs.27 lakhs to the total income of the assessee on account of deemed dividend. On appeal, the CIT(A) confirmed the addition made by the Assessing Officer on this issue.
7. We have heard the arguments of both the sides and also perused the relevant material on record. At the time of hearing before us, the learned counsel for the assessee has raised a limited contention by pointing out that out of the total loan amount of Rs.27 lakhs in question, a sum of Rs.17 lakhs was received by the assessee in earlier years and therefore, the addition on account of deemed dividend under S.2(22)(e) can be made in the case of the assessee only to the extent of Rs.10 lakhs, being the amount received during the year under consideration. The Learned Departmental Representative, on the other hand, has contended that this aspect of the matter requires verification by the Assessing Officer. We find merit in this contention of the Learned Departmental Representative. Accordingly, we restore this issue to the 4 ITA No.381/Hyd/2014 Shri V.Ravidner Rao, Hyderabad file of the Assessing Officer for the limited purpose of verifying the claim of the assessee that out of Rs.27 lakhs, loan Rs.10 lakhs only was received in the year under consideration, and the balance amount of Rs.17 lakhs was received in earlier years and deciding the issue afresh in accordance with law. Needless to observe that the Assessing Officer shall afford sufficient opportunity of hearing to the assessee. Ground No.2 is accordingly treated as allowed for statistical purposes.
8. Grounds No.3 and 5 involve a common issue relating to addition of Rs.39,50,000 made by the Assessing Officer and confirmed by the learned CIT(A) on account of gross receipts shown by the assessee relating to his business of interior design works.
9. In his return of income for the year under consideration, a loss of Rs.19,86,680 was claimed by the assessee relating to the business of interior design works. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee has shown gross receipts from the business of interior works at Rs.39,50,000 and after claiming huge expenditure, a loss of Rs.19,86,680 was shown. On verification, the Assessing Officer found that there was absolutely no evidence relating to any interior designing work done by the assessee as well as regarding the expenditure incurred in relation to the said work. He therefore, disallowed the claim of the assessee for loss relating to his business of interior designing work and treated the entire amount of gross receipts of Rs.39,50,00 as business income of the assessee.
10. Before the learned CIT(A), the following written submissions were filed by the assessee in support of his claim for loss in relation to the business of interior designing work.
5 ITA No.381/Hyd/2014Shri V.Ravidner Rao, Hyderabad "Appellant has carried on certain Interior Works in flats Bearing no.A01, Jasmine Block of Nector Garden, Madhapur, Hyderabad and Flat no.302, Jasmine block of Nectar Garden, Madhapur, Hyderabad and has executed the interior Decoration works of False Ceiling Works, Carpentry works etc. For execution of the works the Appellant has received an amount of Rs.39,50,000/- against which the appellant has claimed incidental expenditure and Administrative and Financial expenses in the form of Finance Charges paid to the Bankers for availing loan facilities for acquiring the vehicles, which are used for the purpose of Business and apart from these expenses, the appellant has claimed Depreciation on the vehicles and Vehicle maintenance expenses, which are all part and parcel of the Business Expenses and are incidental for carrying on the contract works and they are all allowable.
The works undertaken from the owners of the Flats are the independent flats purchased by them and it has got nothing to do with the Villas sold during the year by the Company, as they are the Independent works undertaken by him and carried on the works according to the oral Instructions given by the owners of the flats but the AO mistook that the works were carried on in the flats that which were sold by the company during the year and citing that he had declined to accept the expenditure claimed by the Appellant and taxed the entire receipts as the Business Income.
The Assessing Officer ignored the fact that the Business Income comprising Business Receipts are received after incurring certain expenditure which is incidental to the Business and the legitimate Business expenses are all to be allowed as per Section 37 of the Income Tax Act, for the General Business Expenses and as per Section 32 for the Depreciation of the Asset which are put to use for the Business of the Assessee are to be allowed in total.
6 ITA No.381/Hyd/2014Shri V.Ravidner Rao, Hyderabad As such the Business expenditure of Rs.59,36,677/-, including Depreciation of Rs.26,50143/- as claimed may be allowed.
11. The learned CIT(A) did not find merit in the submissions made by the assessee and upheld the action of the Assessing Officer in treating the gross receipts of Rs.39,50,000 as income of the assessee, but chargeable to tax as income from other sources for the following reasons given in paragraphs 6.2 and 6.3 of the impugned order-
"6.2. I have seen carefully all the facts and the evidence in this regard. It is very clear that no interior designing work was carried out by the appellant. The Appellant has neither demonstrated any knowledge or skills regarding this work and has also not provided any evidence whatsoever that such designing work had indeed been done by him. Not a single voucher or evidence has been presented regarding the expenditure in question. It is also interesting to note that the appellant has not given even one detail of the type of interior designing work done by him. There is no copy of any agreement with anyone and there are no details of any kind design which was made by the appellant. I also agree with the Assessing Officer that even if someone had interior designing work, there was no justification in using a fleet of cars for such work.
6.3 From the above facts and evidence it is clear that the entire exercise in claiming interior design business is aimed at not paying taxes. The appellant had deliberately made a false claim and also claimed a huge amount of depreciation on cars owned and used by him personally. Bogus losses have been claimed to reduce the incidence of taxation. I agree with the Assessing Officer in disallowing the claim of depreciation and the unevidenced expenses. I also hold that the receipt of Rs.39,50,000/- is to be taxes as "Income from Other Sources'. The ground of appeal stands dismissed."
12. At the time of hearing before us, the learned counsel for the assessee has mainly reiterated the submissions made before the learned CIT(A). He has also contended alternatively that the income of the assessee from the business of interior designing work may be estimated by applying a net profit rate to the gross receipts of Rs.39.50 lakhs.
7 ITA No.381/Hyd/2014Shri V.Ravidner Rao, Hyderabad
13. The Learned Departmental Representative., on the other hand, strongly relied on the impugned order of the learned CIT(A) in support of the Revenue's case and submitted that the specific finding recorded by the learned CIT(A) in his impugned order while holding the claim of the assessee relating to the interior designing business as false may be taken into consideration while deciding this issue.
14. We have heard the arguments of both the sides and also perused the relevant material on record. It is observed that the claim of the assessee of having carried on the business of interior designing work was rejected by the Assessing Officer after having found that there was absolutely no evidence produced by the assessee to establish that any such business was actually done by the assessee or even to establish that any expense relating to the said business was actually incurred by the assessee. On appeal, the learned CIT(A) also found on verification of the relevant facts and evidence that no interior designing work was actually carried out by the assessee. He also noted that there was nothing brought on record by the assessee to demonstrate that any knowledge or skill required to carry out such work was possessed by him. He also found that not a single voucher or evidence was presented by the assessee in support of his claim of having incurred expenditure in relation to the said work. As noted by him, not even a copy of any agreement with any one was produced by the assessee to support its claim of having done the interior designing work and also no details were furnished to show any kind of design that was made by him. On the basis of these findings, the learned CIT(A) upheld the action of the Assessing Officer in treating the claim of the assessee of having carried on the business of interior designing work as false and added the gross receipts of Rs.39,50,000 to the total income of the assessee, although under a different head 'income from other sources'.
8 ITA No.381/Hyd/2014Shri V.Ravidner Rao, Hyderabad
15. At the time of hearing before us, the learned counsel for the assessee has not been able to rebut or controvert the findings of fact recorded by the Assessing Officer as well as the learned CIT(A) to dispute the genuineness of his claim of having carried on the business of interior designing work. He has also not been able to produce any evidence whatsoever to establish that any such business was actually carried on by him or any of the expenditure claimed in relation to the said business was actually incurred by him. This being the position, we find no justifiable reason to interfere with the impugned order of the learned CIT(A) upholding the action of the Assessing Officer in treating the claim of the assessee of having carried on the business of interior designing work as bogus or false. Having upheld the action of the authorities below in treating the claim of the assessee of having carried on the business of interior designing work as false, we also find no merit in the alternative contention of the learned counsel for the assessee that the income from the said business may be estimated by applying net profit rate. We therefore, uphold the impugned order of the learned CIT(A) on this issue and reject grounds No.3 and 5 of the assessee's appeal.
16. The issue raised in ground No.4 relates to the addition of Rs.2,56,966 made by the Assessing Officer and confirmed by the learned CIT(A) on account of reimbursement of conveyance expenses.
17. During the year under consideration, the assessee had received a sum of Rs.2,56,966 from M/s. Speed Projects and Infrastructure Pvt. Ltd. towards conveyance expenses. Since the said amount was not offered to tax by the assessee, the same was added by the Assessing Officer to the total income of the assessee. Before the learned CIT(A), it was contended on behalf of the assessee that the amount in question was received by him towards reimbursement of conveyance expenses actually incurred by him. The learned CIT(A) 9 ITA No.381/Hyd/2014 Shri V.Ravidner Rao, Hyderabad however did not accept this contention of the assessee, in the absence of any evidence or details furnished in support thereof.
18. We have heard the arguments of both the sides and also perused the relevant material on record. The learned counsel for the assessee has submitted that the amount in question received by the assessee towards reimbursement of conveyance expenses actually incurred is exempt under S.10(14)(i) of the Act. As per the said provision, any special allowance or benefit not being in the nature of perquisite, specifically granted to meet expense wholly, necessarily and exclusively incurred for in the performance of the duty of an office or employment of profit, to the extent to which such expenses are actually incurred for that purpose, is exempt from tax. There is however, no evidence brought on record by the learned counsel for the assessee before us to show that any special allowance was specifically granted to the assessee by the employer to meet conveyance expense wholly, necessarily and exclusively in the performance of his duty. There is also no evidence placed on record before us to show that the amount in question claimed to be received by the assessee on account of conveyance allowance was actually incurred for such purpose. In the absence of such details and evidence, we are unable to accept the contention of the assessee that the amount in question is exempt from tax under S.10(14)(i) and rejecting the same, we uphold the disallowance made by the Assessing Officer and sustained by the learned CIT(A) on this issue. Ground No.4 of the assessee's appeal is accordingly dismissed.
19. As regards ground Nos.6 and 7, it is observed that the issues involved therein relating to the additions of Rs.3,00,000 and Rs.13,252 have been decided by the learned CIT(A) vide paragraphs 7.2 and 8 of his impugned order as under-
10 ITA No.381/Hyd/2014Shri V.Ravidner Rao, Hyderabad "7.2 With regard to the receipt of Rs.3 lakhs, the Assessing Officer has stated that this was received from Mr. V. Agam Rao. The Assessing Officer stated that this amount was received during the current year and no details have been provided with respect to this cash credit. On the other hand, the appellant claims that this is not a new credit during the year and was shown in the earlier years balance sheet. In this regard, the Assessing Officer is directed to verify the contention of the appellant and if the same credit has been disclosed in the earlier years then no addition is to be made and if the same is new then the addition stands confirmed because no details have been provided."
********** "8. The ninth ground of appeal relates to the addition of Rs.13,252/- against medical insurance premium. I find that the Assessing Officer has not given any reasons for the aforementioned disallowance whereas the appellant claims that all evidence was presented. The Assessing Officer is directed to look at and verify the evidence and allow the claim as per law."
It is clearly evident from the relevant portions of the impugned order of the learned CIT(A) reproduced above that both the issues relating to the addition of Rs.3 lakhs and Rs.13,352 have been restored by the learned CIT(A) to the file of the Assessing Officer for deciding the same afresh after verifying the specific claims made by the assessee on these issues before him and in our opinion, the assessee cannot be said to have any grievance on these issues arising from the impugned order of the learned CIT(A). We therefore, dismiss ground Nos.6 and 7 of the assessee's appeal with a direction to the Assessing Officer to follow the directions given by the learned CIT(A) on both the issues involved in ground Nos.6 and 7 of the assessee's appeal.
11 ITA No.381/Hyd/2014Shri V.Ravidner Rao, Hyderabad
20. In the result, appeal of the assessee is partly allowed.
Order pronounced in the court on 12th November, 2014 Sd/- Sd/-
(Saktijit Dey) (P.M.Jagtap)
Judicial Member Accountant Member
Dt/- 12th November 2014
Copy forwarded to:
1. Shri V.Ravidner Rao, C/o.Shri C.R. Sekhar Reddy, Advocate, G-3, Reliance Homes, 8-2-547/R, Road no.7, Banjara Hills, Hyderabad
2. Joint Commissioner of Income-tax Range 8, Hyderabad
3. Commissioner of Income-tax(Appeals) III Hyderabad
4. Commissioner of Income-tax II, Hyderabad
5. Departmental Representative ITAT, Hyderabad B.V.S