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Income Tax Appellate Tribunal, “B” BENCH, CHENNAI
Before: HON’BLE SHRI MAHAVIR SINGH, VP & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
आयकर अपीलीय अिधकरण “बी” �ायपीठ चे�ई म�। IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, CHENNAI माननीय �ी महावीर िसंह, उपा ! एवं माननीय �ी मनोज कुमार अ&वाल ,लेखा सद) के सम!। BEFORE HON’BLE SHRI MAHAVIR SINGH, VP AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकरअपील सं./ (िनधा*रण वष* / Assessment Year: 2013-14) DCIT M/s. J. Hotels Private Limited बनाम Central Circle-2(3), 29, Tilak Street, T. Nagar, / Vs. Chennai. Chennai-600 017. �थायीलेखासं./जीआइआरसं./PAN/GIR No. AAACJ-9423-H (अपीलाथ�/Appellant) : (� थ� / Respondent) अपीलाथ�कीओरसे/ Appellant by : Shri B. Ramakrishnan (FCA) & Shri Shrenik Chordia (CA)-Ld. ARs � थ�कीओरसे/Respondent by : Shri S. Senthil Kumaran (CIT)- Ld. DR सुनवाईकीतारीख/Date of final Hearing : 01-12-2023 घोषणाकीतारीख /Date of Pronouncement : 19-12-2023 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by revenue for Assessment Year (AY) 2013-14 arises out of the order of learned Commissioner of Income Tax (Appeals)-19, [CIT(A)] Chennai dated 23-08-2022 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s.143(3) r.w.s 153C of the Act on 31-12-2018. The grounds taken by the revenue read as under: 1.The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law. 2.The Ld.CIT(A) erred in deleting the addition of Rs.27,50,00,000/- made towards unexplained investment by the assessing officer on protective basis for the reason that the addition made in the hands of M/s. New Delta Gear Manufactures Pvt Ltd has been deleted on merits. 2.1The Ld.CIT(A) erred in deleting the addition made towards unexplained investment without considering that though the transaction had not been materialized for the reason that the property was acquired by M/s. CMRL Ltd, the source for cash available for making payment of Rs.27.50 Crore was not properly explained by the assessee and the assessing officer has rightly assessed the same as undisclosed investment made substantively in the hands of M/s. New Delta Gear Manufactures Pvt Ltd and protectively in the hands of M/s. J Hotels Pvt Ltd. 2.2. The Learned CIT(A) failed to appreciate that the addition was made on the basis of the Sworn statement recorded us/132(4) from Shri V. Selvakumar and u/s.131 from Shri. Elamaran in which he had confirmed the transaction with M/s. True Value Home Pvt Ltd, including cash payments. 2.3The Learned CIT(A) ought to have appreciated that Shri. V. Selvakumar and Shri. Elamaran had not retracted their statements at any stage during the assessment/appellate proceedings. 3.The CIT(A) erred in deleting the disallowance of expenditure u/s.14A r.w.rule 8D holding that there cannot be any disallowance in relation to any assumed income. 3.1 The CIT(A) ought to have appreciated that the assessee has to incur some expenditure in maintaining the investment and the assessee has not excluded any portion of expenditure debited in the profit and loss accounts towards the maintenance of such investments which are capable of yielding exempt income.
As is evident, two issues arise for our consideration i.e., (i) Protective Addition of unexplained investment for Rs.27.50 Crores; (ii) Disallowance u/s 14A. 2. The Ld. CIT-DR advanced arguments supporting the grounds of appeal and pleaded for restoration of assessment order. The Ld. CIT-DR submitted that the additions are backed by statement made u/s 132(4) which would have evidentiary value. The Ld. CIT-DR submitted that the agreement as found during the course of search proceedings was acted upon and therefore, the impugned additions would be sustainable in law. The Ld. AR, on the other hand, supported the impugned order and submitted that the conclusions drawn in the assessment order were erroneous. The Ld. AR submitted that there was no evidence of cash payment. In fact, no such payment was mentioned in the sale agreement which is evident from findings rendered by Ld. CIT(A) in the impugned order. The Ld. AR submitted that the finding is based on remand report of Ld. AO. The case was put for clarification which was duly responded to by both the sides. Having heard rival submissions and upon perusal of case records, our adjudication would be as follows.
3. Proceedings before Ld. AO 3.1 The assessee being resident corporate assessee is stated to be engaged in hotel business. A search was conducted by the department in the case of Shri S. Jagathrakshakan group of cases on 12.07.2016. This group include assessee which operates Accord Hotels and Resorts. Shri S. Jagathrakshakan and his family members are stated to be director of assessee-company. During search in the premises of assessee, certain documents and cash was found. Based on search proceedings, an assessment was framed on the assessee u/s 143(3) r.w.s. 153C of the Act. 3.2 During search, loose sheets marked as ANN/KSI/VS/LS/S were found which was sale agreement dated 31.05.2012 between M/s True Value Homes Private Ltd. (TVHPL) as seller and M/s New Delta Gear Manufacturers Private Ltd. (NDGML) as purchaser with respect to purchase of a property by NDGML from that entity. Consequently, similar assessment was framed in the case of NDGML on 31.12.2018 wherein substantive addition of Rs.27.50 Crores on account of alleged unexplained investment was made on the basis of seized document. 3.3 The Ld. AO, on page Nos.2 to 20 of assessment order, noted the findings rendered in assessment order of NDGML. In the assessment order of NDGML, it was noted that the impugned property was vacant Land and building bearing Plot No,51, North Phase of Guindy Industrial Estate admeasuring 40659.36 Sq. Ft. The sale agreement was for a consideration of Rs.43.89 Crores. On page No.4 of the agreement, it was seen that NDGML paid aggregate sum of Rs.35 Crores which include cash payment of Rs.27.50 Crores and payment of Rs.7.50 Crores through Cheque No.325656 dated 31.05.2012 drawn from South India Bank Ltd., T. Nagar Branch, Chennai. When this was confronted to one Shri V. Selvakumar (employee of NDGML), he stated that sale agreement belonged to his cousin Shri Elamaran and only he could explain the contents of the same. During assessment proceedings, requisite details were called from NDGML as well as from TVHPL. The transaction was confirmed by TVHPL and they confirmed having received advance of Rs.7.50 Crores from present assessee i.e., JHPL (group entity of NDGML). It was also confirmed that the agreement was cancelled since said property was acquired by Chennai Metro Rail Corporation (CMRL) against TDR. Since the sale agreement was cancelled, the advance received from present assessee i.e., JHPL was adjusted against certain flats booked by them in TVH Quadrant Project. On the basis of these facts, Ld. AO concluded that it was proved beyond doubt that the payment of Rs.7.50 Crores was made through cheque which was finally adjusted against booking of flats in TVH Quadrant Project. 3.4 The representative of NDGML Shri S. Ramasamy, Accounts Officer, during course of hearing on 22.11.2018, denied the sale agreement as well as payment stated to be made therein. It was submitted that the group had planned to buy the said property and had negotiated the price. The agreement of sale was drafted by TVHPL and for getting consent of NDGML, the sale agreement was duly signed and sent to their office for signature and payment. The agreement was signed by NDGML. However, before handing over cash and cheque, it was found that the encumbrance on the property was not cleared. Therefore, the entire deal was cancelled and original sale agreement was destroyed, copies of which may be left over in the file which was found in the premises of Shri V. Selvakumar. The agreement never materialized and no payment flowed as mentioned in the agreement. The statement of Shri Elamaran, director of NDGML was also recorded on 30.11.2018. In reply to question no.25, it was stated that agreement was draft proposal and it was not accounted for in the books of accounts. The statement made by Shri S. Ramasamy, Accounts Officer of the assessee and confirmation of TVHPL was also confronted to him. It was also confirmed by him that the original agreement was destroyed. Further, the payment stated to be made in cheque was, in fact, given by JHPL i.e., present assessee before us. 3.5 In the light of above facts, Ld. AO of NDGML concluded that the transaction for purchase of vacant land was carried out vide sale agreement dated 31.05.2012. The payment as stated therein was made. The fact that the agreement was destroyed stood controverted by the confirmation given by TVHPL from where it was evident that the transaction was existing and was in the continuous process and not closed as stated. Therefore, this could not be accepted. The Cheque payment of Rs.7.50 Crores was adjusted against subsequent flat booking in TVH Quadrant Project. The bank confirmed the clearance of cheque from the account of JHPL. Though the transaction was very much executed, original document was destroyed to suppress the actual transaction. Finally, Ld. AO made addition of Rs.27.50 Crores as unaccounted investment in the hands of NDGML. 3.6 While framing impugned assessment on assessee, Ld. AO drew same conclusion and observed that it was categorically proved that the payment of Rs.7.50 Crores was made by the present assessee for purchase of property. Since the property was subsequently taken over by CMRL, the said amount was accounted for in the books of NDGML as loans and advances in the name of assessee. The same was subsequently adjusted against sale of 2 flats at TVH Quadrant Project. Since loans and advances given on behalf of the NDGML have subsequently been adjusted towards investment for purchase of property in the name of the assessee, in the absence of any valid explanation for payment of Rs.27.50 Crores, the amount was added in the hands of the assessee as unexplained investment on protective basis. 3.7 The Ld. AO made another disallowance u/s 14A in view of the fact that the assessee had invested in exempt yielding investment. The same led Ld. AO to trigger disallowance u/s 14A. The assessee submitted that it did not make any investment in this year and it did not incur any expenditure in this regard. It also transpired that the assessee did not earn any exempt income during this year. However, Ld. AO computed disallowance of Rs.35.02 Lacs which was interest disallowance u/r 8D(2)(ii) for Rs.27.91 Lacs and indirect expense disallowance u/r 8D(2)(iii) for Rs.7.10 Lacs.
3.8 Aggrieved as aforesaid, the assessee assailed the assessment so framed before learned first appellate authority.
First Appellate Proceedings 4.1 During appellate proceedings, the assessee vehemently assailed the protective addition on the ground that the agreement dated 31.05.2012 was between TVHPL and NDGML and the assessee was not party to the agreement. Further, the said agreement did not materialize and got cancelled. The only transaction done by the assessee with TVHPL was on behalf of NDGML wherein the assessee paid advance of Rs.7.50 Crores which got adjusted against subsequent booking of 2 flats. No cash payment was made by the assessee and TVHPL only confirmed cheque payment of Rs.7.50 Crores only. The seized material as well as sworn statement nowhere reflects the name of the assessee that would attract impugned addition by any stretch of imagination. The assessee, in further submissions, pointed out that page no.4 of the impugned agreement nowhere contains the allegations made by Ld. AO that the cash payment of Rs.27.50 Crores was made. The impugned addition stem only from sworn statement of Shri Selvakumar and Shri Elamaran. However, in both these statements, they never confirmed the alleged cash payment and therefore, addition was made arbitrarily and without any basis. 4.2 The Ld. CIT(A) noted that similar substantive addition of Rs.27.50 Crores was made in the case of NDGML which was deleted in the first appellate order dated 23.08.2022. Therefore, protective addition made on same facts and circumstances would not survive. The disallowance u/s 14A was deleted in terms of decision of Hon’ble High Court of Madras in the case of Redington (India) Pvt. Ltd. (77 Taxmann.com 257) since the assessee did not earn any exempt income during the year. 4.3 Aggrieved as aforesaid, the revenue is in further appeal before us. Our findings and Adjudication 5. From the fact, it emerges that substantive addition was made in the hand of M/s New Delta Gear Manufacturing Pvt. Ltd. However, the same were deleted by first appellate authority vide order dated 23-08-2022. The revenue challenged the order of first appellate authority before this Tribunal vide wherein the first appellate order has been confirmed by us with following findings: - Our findings and Adjudication 5. From the fact, it emerges that the whole basis of impugned additions is sworn statement of Shri V. Selvakumar and Shri Elamaran. However, none of these persons have admitted payment of on-money by the assessee to TVHPL. In fact, the cheque payment of Rs.7.50 Crores has been made by group entity JHPL and the amount has been cleared from their bank account. It could also be noted that the agreement did not materialize in view of the fact that the land was acquired by CMRL and the transaction could not be completed. Against the payment so made by JHPL, certain flats were allotted by TVHPL in TVH Quadrant Project. The allegation of Ld. AO is that the agreement was acted upon between the parties and therefore, the payment as mentioned therein on page no.4 has flown between the parties. However, in the remand report, the copy of seized document has been furnished by Ld. AO. Upon perusal of page no.4, a finding has been rendered by Ld. CIT(A) that there is no mention of alleged cash payment of Rs.27.50 Crores stated be be paid by the assessee. There is no receipt for cash payment in the sale agreement and / or no separate cash receipt has been found during the search. The relevant extract of sale agreement has been reproduced in the impugned order which remain uncontroverted before us. Another pertinent finding is that in none of the recorded statements of Shri Selvakumar and Shri Elamaran, the fact of payment of on-money has been admitted by any of them. They have merely acknowledged the presence of a draft agreement unearthed during the course of search proceedings. This being so, the whole case of Ld. AO would fall flat to the ground. The impugned additions are not based on any primary or corroborative material on record. Therefore, the same has rightly been deleted by Ld. CIT(A). We order so. In the result, the appeal stands dismissed. 6.
From aforesaid adjudication, it is clear that page no.4 of the impugned sale agreement does not contain any detail of cash payment as alleged by Ld. AO. Secondly, in none of the statements, fact of payment of on- money has been admitted by any person. This being so, the protective addition has rightly been deleted in the impugned order. We order so. The corresponding grounds raised by the revenue stand dismissed.
6. Undisputedly, the assessee has not earned any exempt income during this year. In such a case, no disallowance u/s 14A could have been made in terms of binding judicial precedent in case of Redington (India) Pvt. Ltd. (77 Taxmann.com 257). Therefore, no interference is required in the impugned order on this issue.
7. In the result, the appeal stand dismissed.
Order pronounced on 19th December, 2023