IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "A" : HYDERABAD
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
AND
SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
ITA.No.98/Hyd/2013
Assessment Year 2009-2010
M/s. Jayadarshini Housing DCIT, Circle 2(2)
P. Ltd. Hyderabad vs. Hyderabad.
PAN AAACJ 5050E
(Appellant) (Respondent)
For Assessee : Mr. S. Rama Rao
For Revenue : Mr. P. Somasekhar Reddy
Date of Hearing : 03.04.2014
Date of pronouncement : 16.04.2014
ORDER
PER B. RAMAKOTAIAH, A.M.
This is an assessee's appeal against the Order of the
CIT(A)-III, Hyderabad dated 26th November, 2012. The assessee
has raised six grounds in its appeal and an additional ground
on the issue of allowance under section 40(a)(ia) which is as
under :
"The Assessing Officer and the Ld. CIT(A) erred in
disallowing an amount of Rs.1,83,16,079/- u/s. 40(a)(ia) of
the I.T. Act. The authorities ought to have seen that the
entire amount of TDS was remitted to the account of the
Central Government before the due date for filing the return
of income and, therefore, the entire amount would have been
allowed."
2. The Ld. Counsel submitted that consequent to the
amendment to section 40(a)(ia) brought out by Finance Act,
2010 which was interpreted to be retrospectively applicable by
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various High Courts including the jurisdictional High Court,
assessee has raised an additional ground which is legal in
nature as all facts are available on record.
2.1. Ld. D.R. however, objected allowing additional
ground as it will result in reduction of returned income.
Therefore, the additional ground need not be
admitted/adjudicated.
3. Having considered the rival contentions, we are of
the opinion that this being a legal ground is allowable, on the
principles laid down by Hon'ble Supreme Court on the issue of
admitting additional grounds. Therefore, the additional ground
is admitted for consideration.
4. Briefly stated, the issues in this appeal arise on
the following facts. The assessee-company is engaged in the
business of purchase and sale of plots and construction
activities. It filed its return of income for the A.Y. 2009-10 on
06.04.2010 declaring total income of Rs.92,29,100/-. The A.O.
completed the assessment order u/s.143(3) by making the
following additions :
(i) disallowance of expenditure Rs. 14,46,530/-
(ii) disallowance u/s.40(a)(ia) Rs.1,83,16,079/-
(iii) disallowance on of interest
on borrowed secured loans Rs. 31,18,462/-
(iv) disallowance of employees
Contribution. Rs. 5,89,931/-
4.1. Ld. CIT(A) on the above issues rejected the
assessee's contentions. Therefore, the present appeal. Ground
no 1 is general in nature.
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5. Ground Nos. 2 and 3 pertain to the disallowance of
interest on loans of Rs.31,18,462/-. The A.O. made
disallowance of Rs.31,18,462/- on the following reason :
"2. Disallowance of interest on borrowed secured loans
During the year relevant to the A.Y. under consideration,
the assessee company borrowed cash credit from Axis Bank
amounting to Rs.2.00 crores and term loan to the tune of Rs.
1.70 crores. For securing the said loans, it paid interest on
cash credit amounting to Rs.17,45,981/- and on term loan
Rs.13,72,481/-. On verification it is noticed that these funds
are not utilized by the company for business purpose but
they are given as advance to sister concerns and others on
which not interest is charged. As the borrowed funds are not
utilized for the purpose of business, the interest expenditure
is not to be allowed atleast in proportion to the unutilized
funds. Hence, the interest charged on these funds
amounting to Rs.31,18,462/- is disallowed and added to the
income returned."
5.1. The Ld. CIT(A) considering the assessee's written
submissions that it has not diverted any funds from business,
however, did not agree by stating as under :
"4.2. I have considered carefully the facts and evidence.
It is very clear that the sister concerns are independent
companies having their own business and books of account.
For conducting their own business and purchase of land,
these companies obtained funds from various sources. There
was no commercial expediency for the appellant to obtain
interest bearing loans from bank and transfer the same to
the sister concerns free of interest. Further, the argument of
the appellant that borrowed funds were not given to sister
concerns is not correct because there was no requirement for
the appellant to borrow funds in case advances were not to
be given to the sister concerns. For its own use, it had
enough advances received from customers. I am fortified in
my view by the judgment of the Hon'ble Punjab & Haryana
Court in the case of CIT vs. Abishek Industries 286 ITR 1.
Similarly the decisions of the Hon'ble Supreme Court in the
case of Maddhav Prasad Jatia vs. CIT (SC) 118 ITR 200 and
the decision of the Hon'ble Karnataka High Court in the case
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of CIT vs. VM Salgacar and Brothers Pvt. Ltd. (Kar) 198 ITR
738, are directly applicable in this case".
6. Ld. Counsel submitted that assessee has advanced
funds for the purpose of business and has not diverted any of
the funds for non-business purposes and trade advances
cannot be considered as interest free loans. In support, Ld.
Counsel relied on the orders of the ITAT in some of the
advances given earlier, wherein proceedings under section
2(22)(e) were initiated in the case of G. Saibaba and G. Sailaja
(of the Group) to submit that the ITAT has deleted the deemed
dividend under section 2(22)(e) on the reason that funds have
been advanced for business purposes. It was the submission
that details of utilization of borrowed funds were furnished to
the Ld. CIT(A) which were not considered.
7. Ld. D.R. however, submitted that the orders under
section 2(22)(e) does not pertain to the A.Y. under
consideration but earlier years. Therefore, there is no co-
relation of that order to the facts of the case. He relied on the
Orders of the A.O. and CIT(A).
8. We have considered the issue and examined the
facts on record. As seen from the balance sheet, the term loan
obtained by assessee among various other secured loans was
in fact carried-over term loan which was reflected in the
Balance Sheet as on 31st March, 2008 as well. The outstanding
term loan at the end of that year was Rs.3.70 crores which has
gone upto Rs.4.50 crores. Therefore, we are unable to verify
from where the A.O. has picked-up the term loan of Rs.1.70
crores considered for disallowance. Even though `cash credit'
was sanctioned during the year, it is very easy to verify the
cash flow to examine whether that cash credit was diverted for
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non-business purposes. Just because assessee has advanced
funds to sister concerns, without examining whether they are
for the purpose of business or not, A.O. cannot estimate the
disallowance on pure surmises and observations. The assessee
has submitted detailed explanation before the Ld. CIT(A) that it
has its own funds available and no part of the borrowed funds
were diverted. Unfortunately, the Ld. CIT(A) did not examine
the facts and went by the observations of the A.O. Even
though, Ld. CIT(A) accepted that funds were given to the sister
concern for purchase of land, he was of the opinion that it is
diversion of funds. Since the contentions of assessee were
examined by the authorities, we are of the opinion that the
entire issue is to be re-examined on the basis of the
submissions made by the assessee that no part of the
borrowed funds were diverted. Therefore, in the interest of
justice, we set aside the orders of the A.O. and CIT(A) on this
issue and restore it to the file of the A.O. to examine the
borrowed funds mentioned above and see whether any part of
the amount has been diverted for non-business purposes. We
will make it clear that only those two amounts which are
mentioned by the A.O. for consideration should be examined
and decided. With these observations, the grounds are
considered allowed for statistical purposes.
9. Ground No.4 and additional ground are on the
issue of disallowance under section 40(a)(ia).
9.1. Brief facts are that during the course of
assessment proceedings, it was noticed from the TDS
particulars that assessee deducted the tax but failed to remit
the same into Government account. The details are as under :
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S.No. U/s. Nature of Work Amount
Quantified(Rs)
1 u/s. 194J Professions & Consultancy 184396
2 u/s. 194A Interest 1295159
3 u/s. 194C Contract works 15180524
Total 18316079
10. Assessing Officer relying on the provisions of
section 40(a)(ia) made the disallowance of Rs.1,83,16,079/-.
Assessee contended before the CIT(A) that the entire amount
was paid during the year and A.O. was not correct in
disallowing the amount which has already added back by the
assessee in the computation of income, to that extent, addition
made was duplicated. On analyzing that assessee has not
advanced any arguments for the balance amount of
Rs.33,99,622/- Ld. CIT(A) confirmed the addition to that
extent with a direction to the A.O. to verify whether the
contention of the assessee that amount of Rs.1,49,16,457/-
was already added back by it. Assessee raised the disallowance
under section 40(a)(ia) at Rs.33,99,622/- in ground No.4,
whereas, the addition of Rs.1,49,16,457/- was contested in the
additional ground.
10.1. The Hon'ble A.P. High Court in the case of CIT(A)-
IV, Hyderabad vs. PEC Electronics Pvt. Ltd. Secunderabad in
ITA.No.263 of 2013 dated 12.07.2013 has held that provisions
of section 40(a)(ia) introduced by Finance Act, 2010 are
retrospective in operation. The relevant observations of the
Hon'ble High Court in the case of PEC Electronics Pvt. Ltd. are
as under :
"With regard to the next question, the Tribunal by
following the decision of the Kolkata High Court in
CIT V/s. Virgin Creations (GA.No.3200/2011),
wherein it has been held that the amendment to the
provisions of section 40(a)(ia) is retrospective in
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operation and consequently in respect of any
payment to TDS made before the due date for the
filing of the return of income, the provisions of
section 40(a)(ia) cannot be invoked. Therefore, we
do not find any reason to see that any further
decision on this point is required by this Court."
10.2. Consequently, assessee's contention that amount
added back need not be added back is correct. However, since
the CIT(A) has already directed the A.O. to verify and as
submitted by the assessee the details of payments are already
stated in the 3CD report as well as enclosure to the returns
(copy placed at page 20 of the paper book filed), A.O. is
directed to allow the amount, if the amounts are paid by due
date as per the amended provisions of the Act. It was the
contention that the amount of Rs.33,99,622/- was also paid
within the period. This amount is also required to be verified
and if paid with in the dates as permitted by amended
provision, no addition can be made. A.O. is directed to examine
and allow the amounts as per the provisions of the Act.
11. Ground No.5 pertain to the issue of claim of
Rs.14,46,530/- made by the assessee but disallowed by the
A.O. for want of evidence. It is an admitted fact that the
assessee failed to produce any bills or vouchers and in the
absence of necessary evidence, A.O. disallowed the amount,
The same was also confirmed by the CIT(A). Even though, Ld.
A.R. argued that aforementioned disallowance pertains to
amounts paid to various Government organisations for land
development, permissions, approvals etc., in the absence of
any evidence of such expenditure, the same cannot be allowed
as these amounts are stated to have been paid in cash.
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Therefore, we do not see any reason to allow the assessee's
claim. The ground is rejected.
12. Ground No.6 pertain to levy of interest under
section 234B and 234C which are consequential in nature,
which does not require any adjudication. Accordingly, ground
is rejected.
13. In the result, appeal of the assessee is partly
allowed for statistical purposes.
Order pronounced in the open Court on 16.04.2014.
Sd/- Sd/-
(ASHA VIJAYARAGHAVAN) (B. RAMAKOTAIAH)
JUDICIAL MEMBER ACOUNTANT MEMBER
Hyderabad, Dated 16th April, 2014
VBP/-
Copy to :
1. M/s. Jayadarshini Housing P. Ltd. Plot No.129/2, Level-1,
G.S. Arkade, Beside India Bank, Srinagar Colony,
Hyderabad 500 073. C/o. S. Rama Rao, Advocate,
Flat No. 102, Shriya's Elegance, H.No.3-6-643, Street No.9,
Himayatnagar, Hyderabad 500 029.
3. DCIT, Circle 2(2), Hyderabad.
4. CIT(A)-III, Hyderabad
5. CIT-II, Hyderabad
8. D.R. ITAT, `A' Bench, Hyderabad.
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