Loading judgment…
Facts
The assessee, engaged in real estate development, filed its return for AY 2012-13. The Assessing Officer made several additions and disallowances based on scrutiny. The CIT(A) partly allowed the assessee's appeal.
Held
The Tribunal held that the CIT(A)'s finding regarding deposits from franchises was categorical and no interference was needed, dismissing ground 1. For other grounds, including disallowance of membership fees, interest expenses, and additions related to advance payments and customer advances, the Tribunal partly allowed some grounds and remanded others for fresh adjudication.
Key Issues
Whether CIT(A) was correct in deleting additions/disallowances made by AO regarding franchise deposits, membership fees, interest expenses, and advances received from customers. The revenue also raised grounds regarding disallowances confirmed by CIT(A).
Sections Cited
68, 36(1)(iii), 14A, 139(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AHMEDABAD “A” BENCH
Before: Dr. B.R.R. Kumar & Ms. Suchitra Kamble
Per Suchitra Kamble, Judicial Member:
The appeal filed the revenue and cross objection filed by the assessee are against the order dated 03-09-2019 passed by CIT(A), Ahmedabad for assessment year 2012-13.
The grounds of appeal are as under:- “1 Whether the Ld CIT(A) was correct in deleting the addition of Rs 1,02,925/ made u/s 68 of the Act for deposit received from franchises.
2 Whether the Ld CIT(A) was correct in deleting the disallowance to the extent of Rs. 2,50,000/- out of total disallowance of Rs. 6,62,728/-.
Whether the Ld. CIT(A) was correct in deleting the addition of Rs.1,73,123/- which was treated as non business expenditure in respect of proportionate of amount of work in progress.
Whether the Ld. CIT(A) was correct in deleting the addition made on account of the proportionate interest on the advance commission paid amounting to Rs 1,38,798/-.
Whether the Ld CIT(A) was correct in deleting the addition made on account of the proportionate interest on the purchase of land amounting to Rs. 5,12,580/-.
Whether the Ld CIT(A) was correct in deleting the addition made u/s 68 of the Act amounting to Rs 19,61,92,910/- made on account of advances received from customers from customers.
Whether the Ld. CIT(A) was correct in deleting the addition made u/s 14A of the Act amounting to Rs 35,360/-.
8. Whether the Ld CIT(A) was correct in deleting the addition of Rs.1,70,000/- made on account of franking expenditure.
सबं�धत �करण के त�य� व प�रि�थ�तय� के आधार पर �� आयकर आयु�त (अपी�स) को �नधा#रण अ�धकार$ के आदेश को सह$ ठहराना चा*हए था.
On the facts and circumstances of the case, Ld CIT(A) ought to have upheld the order of the Assessing Officer. 2
इसी-लए ये �ाथ#ना क/ जाती है 2क �ज आयकर आयु�त (अपी�स) के आदेश को र3 करके �नधा#रण अ�धकार$ के आदेश को पुन �था4पत 2कया जाए.
It is therefore prayed that the order of Ld CIT(A) may be set aside and that of the Assessing Officer be restored.”
3. During the year, the assessee was doing the business of real estate development. The assessee filed return of income at Rs. 1,06,34,220/- on 24-09-2012. The return was processed u/s. 143(1) of the Income Tax Act, 1961. The case was selected for scrutiny assessment and notice u/s. 143(2) of the Act dated 23-09-2012 was issued and served upon the assessee. Notice u/s. 142(1) along with questionnaire dated 11-09-2014 was issued and served upon the assessee. In response to the notice issued, chartered accountant, directors and A.R. attended the assessment proceedings and submitted the details. The Assessing Officer observed that the assessee received an amount of Rs. 9,20,180/- from its franchises. The details of franchises and the amount received along with confirmation of the franchise were called from the assessee which was not furnished as mentioned in the assessment order. After issuing the show cause notice, the assessee filed reply which was rejected by the Assessing Officer. The Assessing Officer made addition of Rs. 1,02,925/- u/s. 68 of the Act. The Assessing Officer further called upon the details related to development expenditure to the extent of Rs. 57,57,605/- . The assessee furnished details, but the Assessing Officer held that the assessee did not furnish evidence and hence CO No 15 /Ahd/2020 M/s. Ram Agri Infra Structure India Pvt. Ltd., A.Y. 2012-13 made disallowance of Rs.2,80,430/-. The Assessing Officer further made addition of Rs. 5,00,000/- in respect of the assessee’s claim regarding membership expenditure. The Assessing Officer also made disallowance of Rs. 6,62,728/- towards sales promotion expenditure. The Assessing Officer made addition of Rs. 1,73,123/- in respect of the claim of the assessee related to interest expenditure as per provisions of section 36(1)(iii) of the Act. The Assessing Officer made addition of Rs. 1,38,798/- towards interest relating to advance payment of commission. The Assessing Officer further made addition of Rs. 5,12,580/- towards proportionate interest in respect of advance payment of purchase of land. The Assessing Officer further made addition of Rs. 2,17,816/- towards late payment of Provident Fund and ESI contribution. The Assessing Officer also made disallowance of Rs. 35,360/- towards expenditure incurred relating to disallowance u/s. 14A of the Act. The Assessing Officer made addition of Rs. 1,70,000/- in respect of franking expenditure on the documents related to the plots. The Assessing Officer also made addition to Rs. 8,95,920/- related to advance payment of commission @ 12.40% and held that the assessee suppressed its sale by an amount of Rs. 8,95,902/-. The major addition made by the Assessing Officer is related to advance received from customers to the extent of Rs. 75,19,92,626/-. The Assessing Officer observed that the assessee received amount of Rs. 56,10,50,244/- upto 31-03-2011. Purchase wise details of members along with addresses, PAN confirmations etc. were called upon but the assessee could CO No 15 /Ahd/2020 M/s. Ram Agri Infra Structure India Pvt. Ltd., A.Y. 2012-13 not furnish the details and confirmation as well as the addresses of the said parties. After giving show cause notice, the assessee filed reply as cited in para 10.1 of the assessment order. Since the assessee has not furnished any details, the Assessing Officer made addition of Rs. 19,61,92,910/- (3,30,08,375/- + 75,69,75,538/- + Rs. 12,62,08,994/-) as advance received from members/customers.
4. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.
5. The ld. Departmental Representative submitted that as regards the ground no. 1 relating to addition of Rs. 1,02,925/- u/s. 68 of the Act for deposit received from franchises, the CIT(A) was not correct in deleting the addition. The A.R. relied upon the order of CIT(A).
6. We have hard both the parties and perused all the materials available on record. It is pertinent to note that the CIT(A) has given a categorical finding that the assessee has given the details of money received from various parties as deposits to run the franchises business by the assessee. The CIT(A) in para 4.3 of the order dated 3-09-2019 has given a detailed finding, there is no need to interfere with the findings of the CIT(A). Hence, the ground no. 1 is dismissed.
CO No 15 /Ahd/2020 M/s. Ram Agri Infra Structure India Pvt. Ltd., A.Y. 2012-13 7. As regards ground no. 2 relating to disallowance of membership fee paid to capital GIHED from the same as capital expenditure, the ld. D.R. relied upon the assessment order. The Ld. A.R. relied upon the order of the CIT(A).
We have heard both the parties and perused all the relevant materials available on record. The CIT(A) in para 6.7 of the appellate order dated 03-09-2019 has given a categorical finding that considering the nature of payment, frequency of payments and the benefits to be derived of having membership of this institute by paying admission fees which is not subjected to further renewal of annual basis, the expenses cannot be termed as those of revenue in nature. There is no need to interfere with the said finding. Hence, ground no. 2 is dismissed.
9. As regards ground nos. 3, 4 and 5 related to deletion of addition on account of interest expenses and other expenses, the ld. D.R. relied upon the assessment order and the ld. A.R. relied upon the order of CIT(A).
10. We have heard both the parties and perused all the materials available on record. The CIT(A) in para 8.5 of the order dated 03-09-2019 categorically observed that the assessee fully issued and subscribed the share capital of Rs. 1,00,000/- from the balance sheet and the assessee had also reserve and surplus of Rs. 1,76,89,180/- which included profit of Rs. 62,91,475/- and advances of Rs. 73,19,92,626/- as on 31-03-2022. Thus, it has sufficient CO No 15 /Ahd/2020 M/s. Ram Agri Infra Structure India Pvt. Ltd., A.Y. 2012-13 interest free fund which has also claimed to be so during the course of appellate proceedings. The details shows that the interest was paid mainly on physical loan and which was shown as outstanding at Rs. 16,80,646/- during the year under consideration. There is also addition of Rs. 11,68,450/- on account of new motor car. No interest bearing fund has been diverted to interest free advance which were provided for non-business purpose or utilizing creating capital assets or in violation of the proviso to section 36(1) of the Act. The CIT(A) has not taken cognizance of the relevant records and this needs verification as the Assessing Officer also has not verified nexus between borrowed fund and interest free advances/work in progress (not related to fixed assets). There is also some error in respect of figures of bank loan and therefore the same is remanded for verification to the file of the Assessing Officer and the Assessing Officer is directed to adjudicate the same as per Income Tax law. The assessee be given opportunity of hearing by following principles of natural justice. Thus, the ground no. 3 as well as ground nos. 4 & 5 are partly allowed for statistical purposes.
Ground no. 6 is relating to addition u/s. 68 of the Act amounting to Rs. 19,61,92,910/- made on account of advances received from customers. At the time of hearing, the A.R. submitted certain additional evidences and further submitted that in fact due to the criminal complaints against the assessee, the assessee could not produce the CO No 15 /Ahd/2020 M/s. Ram Agri Infra Structure India Pvt. Ltd., A.Y. 2012-13 details of customers during the assessment proceedings as well as during the appellate proceedings. At the time of hearing, the assessee was present and submitted that if the assessee be given opportunity, the assessee will provide all the details along with the customers identification, confirmations and creditworthiness. Thus, the matter is remanded to the file of the Assessing Officer to verify the details of all the customers from whom the advances were received and adjudicate the issue as per Income Tax law. The assessee be given opportunity of hearing by following principles of natural justice. Thus ground no. 6 is partly allowed for statistical purposes.
As regards to Ground no. 7, relating to deletion of addition made u/s. 14A of the Act amounting to Rs. 35,360/-, the CIT(A) has taken a cogent view and there is no need to interfere with the same. Hence, Ground no. 7 is dismissed.
As regards ground no. 8 relating to deletion of addition of Rs. 1,70,000/- made on account of franking expenditure, the CIT(A) in para 12.3 has considered this aspect and there is no need to interfere with the finding of the CIT(A). Hence, ground no. 8 is dismissed.
There is additional ground filed by the Revenue relating to addition of Rs. 12,80,84,131/- as profit from advance receipt but same is in consonance with the ground CO No. 15/Ahd/2020 16. The grounds of cross objection are as under:- “1. The learned CIT(A) has erred in law and fact by confirming disallowance of advertising expenditure of Rs. 2,80,413/- made by AO.
2. The learned CIT(A) has erred in law and fact by confirming disallowance membership fees of Rs 5,00,000/- paid to GIHED made by AO, treating the same as a capital expenditure.
3. The learned CIT(A) has erred in law and fact by confirming disallowance of Rs 250000/- out of sales promotion expense.
4. The learned CIT(A) has erred in law and fact by confirming disallowance of employees contribution towards PF & ESIC of Rs. 2,17,816/- on account of minor appropriate authorities, made though amount is deposited before due date of filing of return u/s 139(1).
5. The appellant craves a leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.”
17. As relates to cross objection no. 15/Ahd/2020, ground nos. 1,2 and 3 are already decided in Revenue’s appeal and hence there is no need to interfere with the findings of the CIT(A). Hence, ground nos. 1, 2 and 3 of cross objections are dismissed.
18. As relates to ground no. 4 relating to late payment of employees contribution towards PF/ESIC is decided by the Hon’ble Apex Court in case of Checkmate Services P Ltd vs. 9 CO No 15 /Ahd/2020 M/s. Ram Agri Infra Structure India Pvt. Ltd., A.Y. 2012-13 Commissioner Of Income Tax-I order dated 12 October, 2022 against the assessee. Hence, this ground no. 4 of cross objection is dismissed.
Thus, cross objection no. 15/Ahd/2022 is dismissed.
Order pronounced in the open court on 01-05-2025 Sd/- Sd/- (Dr. BRR Kumar) (Suchitra Kamble) Vice President Judicial Member Ahmedabad : Dated 01/05/2025 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील$य अ�धकरण, अहमदाबाद