M/S. Jana Priya Engineers Syndicate ... vs Assessee on 18 June, 2012

[Cites 17, Cited by 0]

Income Tax Appellate Tribunal - Hyderabad

M/S. Jana Priya Engineers Syndicate ... vs Assessee on 18 June, 2012

               IN THE INCOME TAX APPELLATE TRIBUNAL
                  HYDERABAD BENCH 'B', HYDERABAD
     BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
               AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER

  ITA No.        Assessment      Appellant              Respondent
                 year

1250/Hyd/2012    2005-06      M/s. Janapriya          Dy. Commissioner of
1251/Hyd/2012    2006-07      Engineers Syndicate     Income-tax , Central
1252/Hyd/2012    2007-08      (JV), Hyderabad         Circle 2, Hyderabad
1253/Hyd/2012    2008-09
                              (PAN: AAEFJ 4368 G)

1359/Hyd/2012    2005-06      Dy. Commissioner of     M/s. Janapriya
1360/Hyd/2012    2006-07      Income-tax , Central    Engineers Syndicate
1361/Hyd/2012    2007-08      Circle 2, Hyderabad     (JV), Hyderabad
1362/Hyd/2012    2008-09
                                                      (PAN: AAEFJ 4368 G)

                              M/s. Janapriya          Dy. Commissioner of
                              Engineers Syndicate,    Income-tax , Central
1577/Hyd/2012 2006-07
                              Hyderabad               Circle 6, Hyderabad

                              (PAN: AABFJ 7649 B)

1594/Hyd/2012    2007-08      M/s. Janapriya          Dy. Commissioner of
1595/Hyd/2012    2008-09      Properties Pvt. Ltd.    Income-tax , Central
                              Hyderabad               Circle 6, Hyderabad

                              (PAN: AABCJ 9001 E )

1614/Hyd/2012    2005-06      Asst. Commissioner of   M/s. Janapriya
1622/Hyd/2012    2006-07      Income-tax , Central    Engineers Syndicate,
                              Circle 2, Hyderabad     Hyderabad

                                                      (PAN: AABFJ 7649 B)

1623/Hyd/2012    2007-08      Asst. Commissioner of   M/s. Janapriya
1624/Hyd/2012    2008-09      Income-tax , Central    Properties (Previously
                              Circle 2, Hyderabad     known as Janapriya
                                                      Engineers Syndicate)
                                                      Hyderabad
                                                      (PAN: AABFJ 7649 B)
547/Hyd/2011     2002-03      Dy. Commissioner of     M/s. Engineers Reddy
548/Hyd/2011     2003-04      Income-tax, Central     Homes Pvt. Ltd.,
                              Circle 2, Hyderabad     Hyderabad
                                                      (PAN AABCE 4434 H)
                                     2
                                             ITA No.1250/ Hyd/2012 and others
                                                M/s. Janapriya Engineers
                                          Syndicate (JV) & Others, Hyderabad

580/Hyd/2011    2002-03       M/s. Engineers Reddy          Dy. Commissioner of
581/Hyd/2011    2003-04       Homes Pvt. Ltd.,              Income-tax, Central
582/Hyd/2011    2004-05       Hyderabad                     Circle 2, Hyderabad
583/Hyd/2011    2005-06
                              (PAN AABCE 4434
                              H)


                  Assessees by     :     Shri A.Srinivas

                 Department by     :     Shri D.Sudhakar Rao DR
                 Date of Hearing         04.10.2013
                 Date of Pronouncement


                               ORDER

Per Chandra Poojari, Accountant Member:

There are twenty one appeals in this bunch, concerning assessees connected with each other. They are directed against separate orders of the Commissioner of Income-tax (Appeals) I, Hyderabad, concerning four assessees, in this bunch. They are directed against separate orders of the Commissioner of Wealth-tax(Appeals) I, Hyderabad. Since issues involved in these appeals are common/connected, these appeals are being disposed of with this common order for the sake of convenience.

M/s. Janapriya Engineers Syndicate (JV), Hyderabad Cross Appeals for Assessment years 2005-06 to 2008-09 Assessee's Appeals : ITA No.1250 to 1253/Hyd/2012 Department's Appeals : ITA Nos.1359 to 1362/Hyd/2012

2. Let us take up first for consideration the cross appeals of the assessment years 2005-06 to 2008-09 concerning Janayapriya Engineers Syndicate (JV), which are directed against common order of the Commissioner of Income-tax(Appeals) dated 18.6.2012.

ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad

3. The first common ground in assessee's appeals is with regard to disallowance of deduction under S.80IB of the Act.

4. Facts relating 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, the CIT(A) observed that from the assessment year 2005-06, assessee is required to furnish the completion certificate compulsory from the local authority. However, on perusal of the letter from Municipal Commissioner, Rajendranagar Circle, dated 17.2.2012, it was clear that the project has not been completed, since a portion in Block No.1 was completed in the month of August, 2010, though the assessee's housing project was required to be completed before 31.3.2008. There was clearly lapse on the part of the assessee in as much as Block 1 is part of the housing project having all amenities for the remaining plots situated 4 ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad in other three blocks, and without completing block 1, the project cannot be said as complete in view of the fact that all amenities are integral part of the residential units in all blocks. Further, it was observed that the assessee incurred certain expenditure after 31.3.2008. The CIT(A) accordingly confirmed the orders of the Assessing Officer declining the assessee's claim for deduction under S.80IB of the Act.

6. Aggrieved by the order of the CIT(A) in the contest of denial of deduction under S.80IB of the Act, assessee preferred present appeals before us.

7. Before us, the learned Authorised Representative submitted that the assessee's project was completed in all respects and certain expenditure amounting to Rs.10,50,355 was incurred after 31.3.2008 with regard to regularization of unauthorized constructions. It was submitted that this expenditure cannot be considered as for the purpose of completion of housing project. According to the Authorised Representative, project was completed in all respects and the expenditure incurred for regularising the unauthorised construction cannot be considered as incurred for the purposes of completion of the project. He submitted that as on 31.3.2008 total expenditure incurred is Rs.4,30,64,926 and there was no further expenditure incurred over and above this amount, and the same amount continued even on incurred as on 31.3.2009. For this purpose, he drew our attention to the Work in progress Account as on 31.3.2008 as well as 31.3.2009 placed on record, at pages 53 and 120 of the paper-book. He also relied on the Pune Bench decision of the Tribunal in the case of Ramsukh Properties V/s. DCIT(138 ITD 278) to suggest that deduction udnerS.80IB(10) to be granted on partially completed project.

ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad

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 the Municipal Corporation letter dated 16.7.2010 is 880. Even as per the argument of the assessee, flats that came into existence under the project are 491 which came up for municipal tax assessment in the year 2009-10 and 113 flats came for municipal tax assessment in the year 2001-11. So, the Assessing Officer came to the conclusion that only 604 residential units were assessed by the municipality in the years 2009-10 and 2010-11 and the balance units have not come into existence. Even the plan alleged to have been approved by the municipal authority on 30.7.2003, the assessee is required to complete the project on or before 31.3.2008, as per the pre- amended provisions of S.80IB of the Act. The plea of the learned counsel for the assessee is that the assessee has incurred only Rs.10,50,355 subsequently, towards regularization of the unauthorised constructions, 6 ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad and there is no further addition to the housing project and incurring of this expenditure cannot be considered as expenditure in connection with the housing project and the assessee has to be granted deduction under S.80IB(10). This plea of the assessee cannot be accepted, as the evidence brought on record by the Assessing Officer clearly indicates in the first place that the plan approval is not in the name of the assessee and even otherwise, the assessee has not completed the entire housing project comprising of 880 units, which are required to be built by the assessee as per the approved plan, and that too within the time prescribed. Being so, the primary condition laid down in S.80IB(10) is not at all fulfilled by the assessee, by furnishing the prescribed form in 10CCB of the Act, to show that the assessee has complied with the statutory requirements prescribed in 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. Consequently, we find no infirmity in the action of the CIT(A), in confirming the view taken by the Assessing Officer while denying the assessee's claim for deduction under S.80IB of the Act. We accordingly uphold the orders of the lower authorities on this issue and reject the grounds of the assessee in its appeal for all the four years.

10. Next common ground in these appeals of the assessee is with regard to disallowance of finance charges. The Assessing Officer observed that the assessee has shown a liability of Rs.4.18 crores in the name of Engineer Reddy Homes P. Ltd. and Rs.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 7 ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad 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. Ltd., is not allowable as deduction. 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. The Assessing Officer accordingly disallowed the claim of the assessee for deduction in respect of finance charges. The CIT(A), on appeal, confirmed the disallowance made by the Assessing Officer.

11. The learned Authorised Representative submitted before us that though the loan was taken by Engineers Reddy Homes P. Ltd., who passed on the same to the assessee, and since the assessee has taken the benefit of the loan, it has paid interest directly to the AP State Finance Corporation and in these circumstances, it has to be allowed.

12. The Learned Departmental Representative on the contrary supported the orders of the lower authorities.

13. We have considered the rival submission and perused the orders of the lower authorities and other material on record. 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 8 ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad 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.

14. Next ground of the assessee common only in ITA Nos.1252/Hyd/2012 and 1253/Hyd/2012 for assessment years 2007-08 and 2008-09 is with regard to disallowance of direct and indirect expenditure.

15. For the assessment year 2007-08, the Assessing Officer disallowed Rs.2,62,34,832 towards direct and indirect expenses, since the Assessee has not furnished any evidence before the Assessing Officer. On appeal, the CIT(A) observing that though the assessee has vehemently argued that all expenses are 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 Rs.3,59,97,869, working out to Rs.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 Rs.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 Rs.23,87,770, deleting rest of the disallowance made by the Assessing Officer.

ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad

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 personal nature of expenditure cannot be ruled out. Consequently, disallowance of a portion of the expenditure claimed by the assessee is called for. The approach of the CIT(A) in estimating such disallowable expenditure at 10% of the cash component of direct and indirect expenditure is quite reasonable. We find no infirmity in his action in sustaining disallowance to that extent. We accordingly uphold the order of the CIT(A) on this aspect, and reject the grounds of the assessee on this issue in the appeals for the assessment years 2007-08 and 2008-09.

18. Next ground that survives for consideration in this bunch of appeals, is in ITA No.1251/Hyd/2012 for assessment year 2006-07, and it is with regard to disallowance under S.40A(3) of Rs.12,97,613. At the time of hearing, this ground is not pressed. Hence, the same is rejected.

19. Next ground that survives for consideration in this bunch of appeals by the assessee is in ITA No.1253/Hyd/2012 for assessment year 2008-09, and it is with regard to addition of Rs.59,11,992 made on account of suppression of receipts on sale of flats situated in Janapriya Utopia.

20. Brief facts in relation to this issue are that in the course of search, two documents were found and seized. They represent sale agreements entered into with one L.Rambramham dated 26.6.2007 and with M.Nagaraju dated 22.12.2007. Assessee could not furnish the details of sale proceeds accounted in the books of the assessee in the assessment 10 ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad proceedings. The Assessing Officer proceeded to add this sum as suppression of sales on account of flats sold during the year under consideration.

21. On appeal before the CIT(A), it was argued for the assessee that the sale consideration was received in the subsequent years and accordingly accounted for in that year and therefore, no amount can be added in the assessment year 2008-09. The CIT(A) finding no merit in the contention of the assessee and observing that irrespective of the fact whether consideration was received or not, as per the method of accounting followed by the assessee, assessee is required to declare the sale value in the year in which agreement was entered into or deed was registered. He accordingly upheld the addition made by the Assessing Officer. Hence, assessee is in appeal on this issue.

22. The learned Authorised Representative submitted before us that this amount was offered to 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.

ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad

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 case, since the registration of the sale deed has taken place in February, 2008, which falls in the assessment year 2008-09, even though certain amount of consideration is due from the purchaser of the flats as on the date of registration, income in respect of sale of the flats has to be recognized in the year under appeal only, and not in any other year. Any income is assessable only in the relevant year in which it is assessable, as per the method of accounting consistently followed by the assessee. Merely because it was disclosed in a subsequent year, it cannot be said that there is no justification for the addition in the year under appeal. In this view of the matter, we uphold the orders of the Revenue authorities on this issue and reject the grounds of the assessee in this appeal.

25. In the result, all the four appeals of the assessee for assessment years 2005-06 to 2008-09 are dismissed.

Revenue's Appeals: ITA No.1359/Hyd/2012 to 1362/Hyd/2012

26. The first grievance of the Revenue common in all these appeals relates to disallowance of direct and indirect expenses.

27. We heard both sides and perused the orders of the lower authorities on this issue.

28. At the outset, it may be noted that as for the other two years, viz. assessment year 2007-08 and 2008-09, while the Assessing Officer 12 ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad disallowed entire direct and indirect expenses claimed by the assessee as deduction, on account of their non-verifiable nature, the CIT(A), observing that possibility of certain amount of inflation of expenditure incurred in cash and also personal element involved in such expenditure, cannot be ruled out, made an ad hoc disallowance worked out at 10% of the direct and indirect expenditure incurred in cash. In the context of the assessee's appeals on this very issue for assessment years 2006-07 and 2007-08, viz. ITA Nos.1251 and 1252/Hyd/2012, we have already considered this issue, and finding the disallowance sustained to be justified and reasonable, rejected the grounds of the assessee. For the detailed reasons given in that context in para 17 hereinabove, as for the Revenue's appeals for assessment years 2007-08 an 2008-09, viz. ITA Nos.1361 an 1362/Hyd/2012, we find no merit in the grievance of the Revenue on this issue. We accordingly uphold the impugned order of the CIT(A) for these two years and reject the grounds of the Revenue in these appeals on this issue.

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 13 ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad 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 assessee in cash, working out the same only to the extent of 10% of such expenditure. We accordingly restore the disallowance made by the Assessing Officer to that extent, partly allowing the grounds of the Revenue in the appeal for these two years.

30. The only other grievance of the Revenue in these appeals is confined to assessment year 2008-09, viz. appeal ITA No.1362/Hyd/2012, and it relates to deletion of addition made by the Assessing Officer under S.69C of the Act.

31. Facts of the case in brief relating to this issue are that the Assessing Officer scanned the contents of certain documents which was found during search and seizure operations carried out in the case of the assessee, and affixed the same in the assessment order, and observed that the said documents detail some official and unofficial payments of Rs.3.50 crores and Rs.1.50 crores in respect of Attapur residential and Rs.1.25 crores and Rs.50 lakhs in respect of Attapur IT residential . The Assessing Officer was of the view that the assessee incurred the unofficial sums referred therein of both Attapur IT Residential and Attapur Residential units and added an amount of Rs.2.0-crores under S.69C of the Act.

32. On appeal before the CIT(A), it was argued that the so called paper found with the assessee was nothing but a dumb document, which does not refer to any expenditure incurred by the assessee nor payments made by it. It was only a paper prepared by employees of the planning department for probable estimated expenditure on various projects. It was also submitted that the said does not represent any actual payments 14 ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad made by the assessee at all. It was also submitted that the very first item refers to South Circle, which is a project proposed in Bangalore, which never resulted in any project, as the land was purchased and sold. After considering various contentions of the assessee in this behalf, the CIT(A), concurring with the averments made by the Assessee, deleted the addition of Rs.2 crores made by the Assessing Officer.

33. We heard both sides and perused the orders of the lower authorities and other material on record. It is evident from the impugned orders of the lower authorities that the contents of the documents referred by the Assessing Officer do not specify any expenditure except stating official and unofficial on each project, and they denote 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 15

ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad Revenue's Appeals :

ITA No.1614/Hyd/2012 : Assessment year 2005-06 ITA No.1622/Hyd/2012 : Assessment year 2006-07

M/s. Janapriya Properties Private Ltd., Hyderabad Assessee's Appeal :

ITA No.1594/Hyd/2012 : Assessment year 2007-08 ITA No.1595/Hyd/2012 : Assessment year 2008-09

Revenue's Appeals :

ITA No.1623/Hyd/2012 : Assessment year 2007-08 ITA No.1624/Hyd/2012 : Assessment year 2008-09

35. The first grievance of the assessees common in ITA Nos.1577/Hyd/2012 and 1594/Hyd/2012 for assessment years 2006-07 and 2007-08 is with regard to disallowance of deduction under S.80IA(4)(iii) in respect of income from house property.

36. Brief facts of the case are that the assessee owns, maintains and operates an industrial park by name 'Fortune 9', Somajiguda. Assessee has claimed relief under S.80IA(4) of the Act, in respect of lease income derived from the units leased out in this industrial park. The Assessing Officer disallowed the claim of the assessee in this behalf, treating the lease income as income from property as against the claim of the assessee to assess the same as income from business and made various additions and disallowances. In relation to the total income assessed by the Assessing Officer, two aspects are related to the claim of the assessee for deduction under S.80IA(4)(iii). They are disallowance of depreciation on building of Rs.2,23,89,840 and treatment of income from units in Industrial park under the head 'income from property' as against 16 ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad income from business, as claimed by the assessee, and made consequent additions/disallowances. For the assessment year 2007-08, the assessee earned among others, lease income from units let out in the industrial park, viz. Fortune 9, referred to above. An Application has been made under the non-automatic route vide para 7 of the Scheme. The approval as granted in September, 2006 and subsequently notification by the CBDT under Rule 18C, sub-rule (4) has been given in Novemebr,2006. The primary conditions laid down in the approval granted by the Ministry of Commerce and Industry vide their letter No.1/157/2005-IP & ID, dated 25.9.2006 was that the total investment proposed is Rs.22 crores. Number of industrial units proposed to be located in the industrial park- 3 units and expected date of commencement of industrial park is September, 2005. Assessee submitted that it has fulfilled the conditions. Copies of lease deeds with the tenants are also filed 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 analyzing the utilization of the areas of the industrial 17 ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad park, following the decision of the Tribunal in the case of Annapurna Builders vide order dated 30.1.2011 in ITA No.1177/Hyd/2011, that the same is assessable under the head business income. He further held, with regard to allowability of deduction under S.80IA(4) of the Act as follows-

"07.1 Apart from the above, the assessee also is not entitled to claim the relief for the following reasons. In this case, the assessee developed a building and let out to various tenants. As contended, the appellant is not providing any other service of maintenance as well as operating any unit in the building. It only developed the structure. As per the over all scheme of encouraging the Industrial Parks, Growth Centres, Industrial Model Towns, the intention of the Legislature is to provide all facilities required by various entrepreneurs to carry out their business or profession without further adding' any infrastructure facility to the existing models. In effect, it is required by these persons who are developing industrial model towns, industrial parks and growth centres to create not only the building structures but also to equip these buildings with various facilities of dish, servers, modems, routers and other work stations so as to enable the .entrepreneurs to start their business straight away without further loss of time and spending money on these facilities. They have to comply with various laws in respect of energy conservation, pollution control, eco-friendly etc. In fact, the intention is to ensure that all facilities are provided for any entrepreneur to plug and carry out the business. Whereas in the instant case, the appellant has constructed a mere building with lifts and other electrical equipment like any other commercial complex for letting out. No additional required facilities are created on this so called Industrial Park. There is no difference between normal builder of a commercial complex for the purpose of getting rental income and the structure created by the assessee in the instant case. The appellant developed the building and let out to various entities on rent. The appellant is not maintaining the property nor operating any unit in the complex. It only developed the structure of the building.

07.2. One of the tenants ion this building is Engineers Syndicate International, which is a part 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 18 ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad 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 action is upheld."

Aggrieved by the order of the CIT(A) on this issue, assessee is in appeal before us.

37. We heard both the parties and perused the material on record. There is no dispute with regard to the factual aspects of the matter analysed by the CIT(A) in the impugned order. In this case, the assessee has been granted approval under Industrial Park Scheme, 2002 -Automatic Approval Scheme- and the assessee has been duly notified by Ministry of Finance (Department of Revenue)(CBDT), New Delhi, vide notification dated 13th November, 2006. A copy of the said notification is furnished by the assessee at pages 30 to 33 of the paper-book. As per this notification, assessee has been notified as an undertaking being developed, being maintained and operated by M/s. Janapriya Engineers Syndicate, as an industrial park for the purpose of clause (iii) of sub-section (4) of S.80IA of the I.T. Act. According to the learned counsel for the assessee, even if there is any deviation from the approved scheme, assessee cannot be deprived of its entitlements from the scheme, so long as the approval granted in its favour by the said notification has not been cancelled. We find merit in this contention of the learned counsel for the assessee, and refer in this behalf to clause 11 of the said notification, which reads as follows-

ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad "11. The conditions mentioned in this notification as well as those icnldued in the industrial Park Scheme, 2002 should be adhered to during the period for which benefits under this scheme are to be availed. The Central Government may withdraw the above approval in case M/s. Janapriya Engineers Syndicate, Hyderabad, fails to comply with any of the conditions."

Further, the issue relating to the head under which the income from the leasing of the units of the units of the assessee in the industrial park, is covered by the decision of the Tribunal in the case of Annapurna Builders in ITA No.1117/Hyd/2011 for assessment year 2007-08. The Tribunal, vide its order dated 30.11.2011 in that case, after analyzing the facts of that case, held as follows-

"27. Further, it is seen that this Tribunal in the case of Meenakshi Infrastructures Pvt. Ltd. Vs. DCIT (supra) have opined that "when the Central Government approves the assessee's project under Industrial Park Scheme framed by the Central Government, the conditions under sec. 80IA(4)(iii) 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 ensure that industrial units on such plots must also come into existence and commence their production activities, impugned show cause notice for withdrawal of approval of assessee's industrial park is liable to be quashed and CBDT is directed to notify the same."

38. As seen from the above order, in the case of an assessee engaged in the business of developing industrial park and letting out the 20 ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad 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.

39. The next issue involved in the appeals of M/s. Janapriya Properties (Formerly Janapriya Engineers Syndicate), for the assessment years 2006-07 to 2008-09, being ITA Nos.1577, 1594 & 1595/Hyd/2012, relates to disallowance of depreciation. Since we have held hereinabove that the income from letting out has to be assessed as business income, and not as house property income as done by the Revenue authorities, assessee is entitled to depreciation as admissible under the Income-tax Rules. Consequently, assessee's grounds on this aspect also are allowed, and the Assessing Officer is directed to examine the claim of the assessee and allow the depreciation, as may be admissible under the Act.

40. The next grievance of the assessee in these appeals is with regard to disallowance out of direct and indirect expenses.

41. We have considered the rival submissions and perused the orders of the lower authorities and other material on record. We considered similar issue in the context of cross-appeals in the cases of Janapriya Engineers Syndicate(JV). For the detailed reasons given in para 17 read with paras 28 and 29 hereinabove, we set aside the impugned order of the CIT(A), and direct the Assessing Officer to restrict the 21 ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad disallowance to 10% of the direct and indirect expenses incurred 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.1577/Hyd/2012 and 1594/Hyd/2012.

44. Next grievance of the assessee, M/s. Janapriya Properties (Formerly Janapriya Engineers Syndicate), is in ITA No.1577/Hyd/2012 for assessment year 2006-07, and it is against the addition of Rs.7,00,000 made by the Assessing Officer on account of undisclosed sales.

45. Brief facts of the case are that the Assessing Officer noted from the statement of work in progress that a sum of Rs.7 lakhs was shown as opening balance of Janapriya Avenue II and the same was 22 ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad reduced in the relevant year and the closing work in progress was shown as NIL. The contention of the assessee is that the said amount of Rs.7 lakhs representing work in progress has been credited to expenditure account, and therefore no addition is warranted to the total income of assessee. However, it is observed by the CIT(A) that the assessee's explanation is not supported by any evidence of crediting to the account of work in progress. Even before us, the assessee has failed to substantiate its claim of having credited the said amount of Rs.7 lakhs in the accounts. Being so, it is reasonable to draw an inference that the assessee has made an unaccounted/suppressed sale of Rs.7 lakhs. Consequently, we find no justification to interfere with the order of the CIT(A) on this aspect. We accordingly uphold the same, reject the ground of the assessee on this issue.

46. Next common ground in the appeals of the assessee, M/s. Janapriya Properties (Formerly Janapriya Engineers Syndicate) for the assessment year 2006-07 and 2007-08, viz. ITA No.1577Hyd/2012 and 1594/Hyd/2012 respectively, relates to the additions of Rs.63,75,000 and Rs.93,00,000 respectively, made under the head unexplained expenditure.

47. Brief facts of the case common in both these appeals except for the amounts involved, as taken from the appeal for assessment year 2007-08, are that on examination of the seized materials, it was noticed that by the Assessing Officer that the assessee has incurred various expenditure in the form of cash for purchase of lands. In spite of show- cause notices issued from time to time and a final show cause notice dated 8.7.2010 issued on the assessee, assessee has chosen not to appear and not to file any reply, under the circumstances, the Assessing Officer made an addition of Rs.63.75 lakhs, under S.69C of the Act, treating the following payments as representing unexplained expenditure.

ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad Page No. Annexure Description Quantum Rs.

86-89 A/JES/18 Agreement of sale dt.07.03.07 entered 38,75,000 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 Rs.1.55 crores. Out of this, a sum of Rs.38,75,000/- was paid on10.03.2007 96-97 A/JES/18 A sum of Rs.50,000/- and Rs.1,50,000 3,00,000 were paid in cash to Sri T.Rajasekhar Reddy for purchase of land on 03.11.2006 and 01.11.2006, totaling to Rs.2,00,000/-

133 A/JES/18 Receipt dated 29.12.2006 given by Sri 10,00,000 T.Madan Mohan Reddy towards sale of his land situate at Badangpet (V). As per this receipt, a sum of Rs.30,00,00./ was paid by the assessee, which include payment of Rs.10,l00,000 in cash on 03.11.2006 138 A/JES/18 Receipt dated 03.11.2006 given by Sri 10,00,000 T.Lakshmi Narasimha Reddy towards sale of his land situated at Badangpet(V). As per this receipt, a sum of Rs.30,00,000/ was paid by the assessee, which includes payment of RS.10,00,000/ in cash on 03.11.2006.

146 A/JES/18 Receipt given by Sri N.Satyanarayana, 2,00,000 towards sale of his land situated at Badangpet (V). As per this receipt a sum of Rs.2,00,00/ was paid by the 24 ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad assessee Total 63,75,000 On appeal, the CIT(A) too sustained the above addition of Rs.63,75,000 made by the Assessing Officer, in the absence of any evidence to the contrary brought on record by the assessee, to disprove the observations of the Assessing Officer, before him.

48. For the assessment year 2008-09 as well, the Assessing Officer made addition of Rs.1,16,25,000, in relation to unexplained payment of sale consideration in respect of the land purchased by the assessee at Kothapet. As against this, the CIT(A) by the impugned order dated 24.8.2012, accepted the explanation of the assessee in relation to the payments to the extent of Rs.23,25,00, but sustained the balance addition of Rs.93,00,000 made by the Assessing Officer, with the following observations-

"11.0 .....The AO made addition based on schedule of payments in respect of balance of sale consideration for Rs.1,16,25,OOO/- in respect of the property situated at Kothapet village and entered agreement of sale D.E.Nagaraj and J.Srinivasa Yadav on 7-32007. A sum of Rs. 38,75,OOOj- was paid through cheques bearing No.703725 and 703726 dated 10-3-2007 drawn on ING Vysya Bank, Abids Branch, Hyderabad. In addition to the above payment, the assessee is required to make balance amount of Rs.1,16,25,000/- on various dates starting from 5th June 2007 to 5th March 2008. The Assessing Officer made the addition on the assumption that the assessee incurred in cash to make the above payments. However, it is furnished by the appellant that the sum of RS.8 lakhs was paid on 26- 6-2007 vide cheque No.704124, ING Vysya Bank to Mr. D.E.Nagraj and Rs.2 lakhs vide cheque No.7o'4125.drawn on ING Vysya Bank to J.Srinivasa Yadav. Similarly on 17-102007 the assessee claimed to have paid Rs. 6,62,500/- vide cheque No.394471 drawn on ING Vysya Bank to D.E. Nagaraj and Rs. 6,62,000/- vide cheque No.394470 drawn on ING Vysya Bank to J.Srinivasa Yadav. Thus in total the assessee paid a sum of Rs.62,OO,OOO/- vide cheques to these two persons from March, 2007 onwards. The said submission of the appellant requires consideration in view of the payments made by cheques. Accordingly, the AO is directed to verify once again 25 ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad 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 RS.38,75,000/-), only Rs.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 Rs.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 Rs.93 lakhs and the balance of Rs.23,25,000/- is directed to be deleted if the payments are duly reflected in the books of a/c of the assessee."

49. We have considered the rival submissions on this issue and perused the orders of the lower authorities and other material on record. It is the contention of the learned counsel for the assessee that the payments in relation to the relevant amounts were taken into account, while finalizing the unexplained income in the hands of Janapriya Engineers Syndicate Ltd., and that being so no further addition on this account is warranted in the hands of the assessee. We find that the Revenue authorities examined the cash flow statement of Jana Priya Engineers Syndicate Ltd. and observed that no such entries of cash payments were found on the relevant dates as mentioned in the relevant seized materials. Before us also, the learned counsel for the assessee is unable to explain the source of payments made on various dates, as mentioned in para 5.1 of the assessment order. Accordingly, we find no reason to interfere with the orders of the lower authorities. This disallowance is confirmed, and the ground of the assessee is rejected.

50 With regard to the addition of Rs.93,00,000 sustained by the CIT(A) as against the addition of Rs.1,16,25,000 made by the Assessing 26 ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad Officer for the assessment year 2008-09, we are in agreement with the reasons discussed by the CIT(A) in para 11 of the impugned order, relevant portion of which is extracted above. We accordingly uphold the same and reject the ground of the assessee on this issue.

51. Next ground to be considered is in the appeal for assessment year 2008-09, viz. in ITA No.1595/Hyd/2012, and it relates to an addition of Rs.3,70,000 made under the head 'unexplained investment'. At the time of hearing, this ground is not pressed. It is accordingly rejected.

52. Next ground to be considered is also in the appeal for assessment year 2008-09, being ITA No.1595./Hyd/2012, and it relates to disallowance of finance charges amounting to Rs.3,19,55,149.

53. Facts of the case in brief are that the assessee claimed a sum of Rs.3,19,55,148 as finance charges, paid to banks and financial institutions and debited the same to direct expenses. As against this, since assessee has claimed deduction under S.80IA(4) of the Act, the Assessing Officer arrived at a figure of Rs.2,85,94,351 as attributable 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 Rs.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 27 ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad 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 assessee is able to prove that the borrowed funds are used in its own commercial activity. Investment in joint venture cannot be considered as business activity of the assessee. The CIT(A), accordingly holding that the assessee has routed all its borrowed funds to other entities of the group concerns, disallowed the total finance charges of Rs.3,19,55,149. The CIT(A) thus, enhanced the said disallowance made by the Assessing Officer to Rs.3,19,55,149 and directed the Assessing Officer to recompute the income accordingly. Aggrieved by the order of the CIT(A), assessee is in second appeal before us.

54. We have considered the rival submission and perused the orders of the lower authorities and other material on record. 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 the assessee has diverted its entire borrowed funds to the group entities of the assessee, and not utilised the same in its own business activities. This finding of the CIT(A) could not be controverted by the assessee before us, by bringing on record any cogent evidence on record. In the circumstances, we find no justification to interfere with the order of the CIT(A). We accordingly uphold the same, rejecting the grounds of the assessee on this issue.

55. In the result, appeals ITA Nos.1577, 1594 and 1595/Hyd/2012 are partly allowed.

ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad Revenue's Appeals concerning Janapriya Engineers Syndicate ITA No.1622/Hyd/2012 : Assessment year 2006-07 ITA No.1623/Hyd/2012 : Assessment year 2007-08 ITA No.1624/Hyd/2012 : Assessment year 2008-09 I TA No.1614/Hyd/2012 : Assessment year 2005-06

56. The first effective grievance of the Revenue, common in these appeals, is that the CIT(A) was not justified in deleting the addition made on account of disallowance under S.40(a)(ia) of the I.T. Act.,

57. We heard both sides and perused the impugned orders of the lower authorities. We find that the decision of the CIT(A) while deleting the disallowance made by the Assessing Officer under S.40(a)(ia) of the Act, is based on the Special bench decision of the Visakhapatnam Tribunal in the case of Merilyn Shipping & Transport in ITA No.477/Viz/2008 dated 29.3.2012. We find that the said decision of the Special Bench has been stayed by the Hon'ble High 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 Rs.1.5 crores made by the Assessing Officer, which has been deleted by the CIT(A).

ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad

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 Rs.2.75 crores and Rs.1.50 crores were paid towards 'Kowkoor Land' and claimed as official and unofficial expenses respectively. The Assessing Officer proposed to make addition of RS.1.50 crores treating the unofficial expenditure claimed to have been incurred by the assessee, as unexplained investment, and ultimately not convinced with the explanation of the assessee against the addition proposed, made the impugned addition of Rs.1.50 crores under S.69C of the Act. On appeal, the CIT(A) deleted the said addition made by the Assessing Officer, observing that the seized document contained mere scribbling, which cannot lead to any addition in the absence of corroborative evidence. Aggrieved by the action of the Assessing Officer, Revenue preferred appeal before the Tribunal.

60. We heard both sides and perused the material on record. It is evident from the material on record that the seized document based on which the impugned addition of Rs.1.50-crores was made by the Assessing Officer, was a dumb document, which lacks credibility and evidentiary value. The said document is an unsigned one and the contention of the assessee is that the projects in relation to which the amounts mentioned in the said document were recorded, were not taken up at all by the assessee. It is taking note of these factual aspects only that the CIT(A) deleted the addition of Rs.1.50 crores made by the Assessing Officer. In the absence of anything to the contrary brought on record by the Revenue before us, we are in agreement with the reasoning given by the CIT(A) for deleting the impugned. In the circumstances, we uphold the order of the CIT(A) and reject the grounds of the Revenue on this issue.

ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad

61. In the result, these four appeals of the Revenue, viz. ITA No.1614 and 1622 to 1624/Hyd/2012 are partly allowed for statistical purposes.

Appeals concerning M/s. Engineers Reddy Homes Pvt. Ltd., Hyderabad Assessee's Appeals:

ITA No.580/Hyd/2011 : Assessment year 2002-03 ITA No.581/Hyd/2011 : Assessment year 2003-04 ITA No.582/Hyd/2011 : Assessment year 2004-05 ITA No.583/Hyd/2011 : Assessment year 2005-06

62. The only grievance of the assessee, common in the appeals for assessment years 2002-03 to 2004-05, viz. ITA No.580 to 582/Hyd/2011, directed against a common order of the CIT(A) I, Hyderabad 31.1.2011, is with regard to additions relating to opening work in progress.

63. Brief facts of the case are that the assessee commenced construction of the project at Attapur and spent amounts on the project during the years under consideration. The amounts 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 Rs.21,51,276 for assessment year 2002-03; Rs.24,11,619 for assessment year 2003-04; and Rs.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 Rs.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 31 ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad 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 fact, for the assessment year 2005-06, when the transfer has taken place, the assessment of assessee has been completed under S.143(3) and the Assessing Officer has accepted the proposition and has not made any addition in the hands of the assessee in relation to this transaction. In view of the submissions of the assessee before him, with regard to assessment in relation to the Attapur project in the hands of the JV, the CIT(A) called for the comments of the Assessing Officer. The Assessing Officer in his report submitted that the profit was correctly estimated as per percentage completion method, since the assessee has not recognised any revenue in the assessment years 2002-03 to 2004-5. He noted that the question of transfer of the work-in-progress to Janapriya Engineers Syndicate (JV) cannot be linked with the assessment of the assessee company, since the JV came into existence much later, and the entire profit was claimed as deduction under S.80-IB(10) of the Act. It was further submitted that at the time of initial business operation of the assessee company, the JV was not in picture at all. The said observations of the Assessing Officer in his report, have been countered by the assessee by submitting that the JV came into existence during the year 2004-05 and the work in progress was transferred to the JV in the said year, and transfer of the work in progress was not an after thought to avoid or evade tax. The CIT(A) on elaborate consideration of the contentions of the parties, observed that the assessee has been following mercantile system of accounting, but no income has been recognized in the assessment years under consideration, though in schedule attached to the report, it has been stated that the company recognizes income and expenditure on accrual basis. He also noted that nowhere it has been stated that the assessee has been following project completion method. The CIT(A) ultimately confirmed the additions made 32 ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad by the Assessing Officer by estimating the profit on the work-in-progress disclosed for the years under appeal, in the following manner-

"04.3. ...I find from the Auditor's Report that the appellant is following mercantile system of accounting but no income has been recognized in the assessment years under consideration though in schedule attached to the report it has been stated that the company recognises income and expenditure on 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 by the AO that the work in progress of the project has been transferred to the JV in a subsequent year and the appellant claims that income from the same source has been offered in the hand of the joint venture. The AO in his report has observed that set off of the profit estimated in the case of the appellant company may be considered in the case of the joint venture. I think this proposition of the AO is in the interest of equity and justice and also in line with the basic principle of taxation that the same income cannot be taxed twice. Since the appellant has been following mercantile system of accounting, I do not find any infirmity in the order of the AD estimating the profit based on the expenditure incurred by the appellant company for all the three assessment years in appeal. At the same time, the AO is also directed to examine in detail whether the contention of the appellant that the entire project has been transferred to the JV and whether the income from the same project has already been offered to tax in the hands of the JV. In that case, the appellant may move the AO for necessary remedial measure within the four corners of the law and the AO may decide the issue thereafter on merit. In the result the addition made by the AO is confirmed subejctg to myt observation as above....."

Aggrieved, assessee preferred these second appeals before us.

ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad

65. We have considered the rival submissions and perused the orders of the lower authorities and other material on record. It is an admitted fact that the assessee has been following mercantile system of accounting and the auditor's report, as noted by the CIT(A) mentions that the assessee recognizes the income and expenditure on accrual basis, and nowhere mentions that the assessee follows project completion method for recognition of revenue. We are in agreement with the elaborate reasons discussed by the CIT(A) in para 4.3 of the impugned order, relevant portion of which has been extracted hereinabove. We accordingly uphold the order of the CIT(A), and reject the grounds of the assessee on this issue.

66. In the result, these three appeals of the assessee for assessment year 2002-03 to 2004-05, ITA nos.580 to 582/Hyd/2011, are dismissed.

67. First effective ground of the assessee in its appeal for assessment year 2005-06, viz. ITA No.583/Hyd/2011, directed against the order of the CIT(A) I, Hyderabad 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 Rs.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 34 ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad customers over the years. However, since the advance of Rs.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 Rs.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 made the addition based on any incriminating material, he has not given any other reason as to why the addition made by the Assessing Officer is not justified, sustained the addition made by the Assessing Officer. Hence, assessee preferred this second appeal on this issue.

70. We have considered the rival submissions on this issue and perused the orders of the lower authorities and other material on record. Admittedly, the amount of the unproved liabilities appeared in the Balance Sheet, and they have not arisen during the year under appeal, having been brought forward from the past years. Thus, the amount of Rs.4,61,800 represents the opening balance of the year under appeal. Being so, the same cannot be considered for addition in the assessment year under consideration, viz. 2005-06. If the Assessing Officer intends to treat the liabilities in question as unproved, the same have to be done in the very first year in which they arose, which is the relevant assessment year, and not in the assessment year under appeal, in which it was merely brought forward as outstanding from earlier years. We accordingly, set aside the impugned order of the CIT(A), and delete the addition of Rs.4,61,800 made by the Assessing Officer, allowing the grounds of the assessee on this issue.

71. Next grievance of the assessee in this appeal is with regard to addition of Rs.11,02,000 towards loan processing charges.

ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad

72. Facts of the case in brief are that the assessee during the year under consideration received a loan of Rs.5 crores from AP State Finance Corporation, incurring the loan processing charges of Rs.11,02,000. Taking note that the entire loan was transferred by the assessee to the group company Janapriya Engineers Syndicate JV, the Assessing Officer observed that the loan in question was not utilized by the assessee for its business purpose. He accordingly held that the loan processing charges cannot be treated as allowable expenditure under S.37(1) of the Act, and made consequent disallowance of Rs.11,02,000.

73. On appeal, the CIT(A) sustained the said disallowance made by the Assessing Officer. Hence, assessee is in second appeal on this issue.

74. We have considered the rival submissions on this issue and perused the orders of the lower authorities and other material on record. It is an undisputed fact that the loan of Rs.5 crores 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 Rs.7,14,968 being 30% of the opening work-in- progress. The Assessing Officer observed that against sale of Rs.70,22,290 the assessee had shown a profit of Rs.5,90,172 which included waiver of 36 ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad interest on term loan of Rs.13,73,949, and if this waiver is excluded, there was in fact a loss of around Rs.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 the assessee had claimed an expenditure of Rs.23,83,227 under the head opening work in progress in respect of sale of flat, for which no break-up of expense were furnished and no bills and vouchers were submitted for verification, the Assessing Officer disallowed 30% of the work in progress, which resulted in addition of Rs.7 lakhs.

76. The CIT(A), on appeal, relying on the decision of the Tribunal in the case of Vishnu Agarwal and others in ITA Nos.585 to 597/Hyd/2008, sustained the addition made by the Assessing Officer in this behalf. Hence, assessee is in second appeal on this issue.

77. We have considered the rival submissions and perused the orders of the lower authorities and other material on record. The Assessing Officer made the addition of Rs.7,14,968 representing 30% of the opening work in progress, in the absence of proper explanation from the assessee with regard to the discrepancy pointed out by him, and also considering the fact that no break of expenses claimed by the assessee to the extent of Rs.23,83,227 under the head -opening work in progress- in respect of sale of flat, has been given and no bills and vouchers were submitted. The only plea of the assessee against the addition made is that of incriminating material warranting such an addition was found during the search. The CIT(A), relying on the decision of the Tribunal in the case of Vishnu Agarwal and others (supra), wherein it was held that it was open to the Assessing Officer to compute the income under s.153A on the basis of the entire material available on record and it is not necessary for him to confine himself to seized material found during the course of search operations only, rejected the plea of the assessee in that behalf, and sustained the disallowance made by the Assessing Officer. We find no 37 ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad infirmity in the actions of the Revenue authorities. We accordingly uphold the addition made and reject the grounds of the assessee on this issue.

78. This appeal of the assessee for the assessment year 2005-06, being ITA Ns.583/Hyd/2011 is partly allowed.

Department's Appeals:

ITA No.547/Hyd/2011 : Assessment year 2002-03 ITA No.548/Hyd/2011 : Assessment year 2003-04

79. The only issue involved in these appeals relates to deletion of additions made by the Assessing Officer for the years under appeal, on account of deemed dividends.

80. Facts of the case 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 Rs.65,24,145 for assessment year 2002-03 and of 38 ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad Rs.82,50,490 for assessment year 2003-04. On appeal, the CIT(A), following among others, the Special Bench decision of the Tribunal in the case of Bhaumik Colour Lab (118 ITD 1), held as follows-

"03.1... Identical view has been taken by Hon'ble ITAT Hyderabad A Bench in the case of MTAR Technologies P. Ltd. vs. ACIT Cr.14(2) Hyderabad 2010 (39 SOT 465) wherein it was held that "Deemed Dividend" can be assessed only in the hands of the person, who is share holder of the lender-company and not in the hands of a person other than the shareholder. In the case under consideration it is not clear from the assessment order whether the appellant company was a registered share holder of the lending company. The Assessing Officer is therefore directed to verify the same and if it is found that the appellant company is not a registered shareholder of thee lending company then following the decision of ITAT Special Bench in the case of Bhaumik Colour Lab referred to above as also the decision of other Tribunals including that of ITAT Hyderabad as above will not be justified and the same is directed to be deleted."

81. We heard both the parties and perused the materials on record. In this case, the assessee has accepted inter-corporate deposits from its group companies and assessee is not a share holder in that companies. Being so, the provisions of S.2(22)(e) of the Act, in our considered opinion, are not applicable as held by the Special Bench of the Tribunal in the case of ACIT V/s. Bhaumik Colour Pvt. Ltd. (118 ITD 1). Further, Hon'ble Kolkata High Court has also taken similar view in the case of Pradip Kumar Malhotra V/s. CIT(338 ITR 538), wherein it has been held, vide head-note of the Reports(338 ITR), as follows-

"The phrase "by way of advance or loan" appearing in sub-clause

(e) of section 2(22) of the Income-tax Act, 1961, must be construed to mean those advances or loans which a shareholder enjoys simply on account of being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent, of the voting power; but if such loan or advance is given to such shareholder as a consequence of any further consideration which is beneficial to the company received from such a 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 39 ITA No.1250/ Hyd/2012 and others M/s. Janapriya Engineers Syndicate (JV) & Others, Hyderabad 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 Nos.1361 and 1362/Hyd/2012 are dismissed.

            (c)      Assessee's        Appeals     ITA      Nos.1577,        1594       and
                     1595/Hyd/2012 are partly allowed.

            (d)      Four appeals of the Revenue, viz. ITA No.1614, 1622 to
                     1624/Hyd/2012        are     partly    allowed      for    statistical
                     purposes.
                                    40
                                            ITA No.1250/ Hyd/2012 and others
                                               M/s. Janapriya Engineers
                                         Syndicate (JV) & Others, Hyderabad

(e) While assessee's appeals 580 to 582/Hyd/2011 are dismissed, ITA No.583/Hyd/2011 is partly allowed

(f) Revenue appeals ITA Nos.547 and 548/Hyd/2011 are dismissed.

Order pronounced in the court on 29.11.2013 Sd/- Sd/-

           (Saktijit Dey)                       (Chandra Poojari)
          Judicial Member                      Accountant Member


Dated/-   29th November, 2013

Copy forwarded to:

1     M/s. Janapriya Engineers Syndicate (JV), 8-2-120/86, Plot No.11 & 12,

Keerthi and Pride Towers, Road No.2, Banjara Hills, Hyderabad 34.

2. M/s. Janapriya Engineers Syndicate, 8-2-120/86, Plot No.11 & 12, Keerthi and Pride Towers, Road No.2, Banjara Hills, Hyderabad 34.

3. M/s. Janapriya Properties Pvt. Ltd., 8-2-120/86, Plot No.11 & 12, Keerthi and Pride Towers, Road No.2, Banjara Hills, Hyderabad 34.

4. M/s. Janapriya Properties (Previously known as Janapriya Engineers Syndicate) 8-2-120/86, Plot No.11 & 12, Keerthi and Pride Towers, Road No.2, Banjara Hills, Hyderabad 34.

5 M/s. Engineers Reddy Homes Pvt. Ltd., 3-6-115/A, Janapriya House, Himayatnagar, Hyderabad 6 Dy. Commissioner of Income-tax Central Circle 2 Hyderabad 7 Asstt. Commissioner of Income-tax Central Circle 2, Hyderabad 8 Commissioner of Income-tax(Appeals) I, Hyderabad 9 Commissioner of Income-tax Central, Hyderabad 10 Departmental Representative ITAT, Hyderabad B.V.S

Legal Document View

Unlock Advanced Research with PRISMAI

Income Tax Appellate Tribunal - Hyderabad

M/S. Jana Priya Engineers Syndicate ... vs Assessee on 18 June, 2012