BLITZ BUILDWELL PVT. LTD.,NOIDA vs. DCIT, CIRCLE- 5(1), NEW DELHI

Brief facts of the case are that the assessee has been engaged in the business of promoters, developers, proprietors etc in real estate activities. For the assessment year 2012-13, they have filed their return of income declaring a loss of Rs. 3,99,39,027/-. Assessment under section 143(3) of the Act Income Tax Act, 1961 (for short “the Act”) was complete by order dated 9/3/2015 at a loss of Rs. 9,107/-after making additions, interalia, disallowance on loan to the tune of Rs.4,08,10,354/- and disallowance under section 14A of the Act read with Rule 8D of the Income Tax Rules1962 (“the Rules”) to the tune of Rs. 14, 97, 017/-.

Aggrieved by the said additions, assessee preferred an appeal before the Ld. CIT(A). It is seen from the impugned order that there was no representation before the assessee before the Ld. CIT(A) and notices to the addresses given in form No. 35 were returned answered, and therefore the notice was served by affixture.

Ld. CIT(A), however, noted the facts of the case, and observing that there no one has attended the proceedings on behalf of the assesseenor any details regarding the additions were filed, decided the issues ex parte.

Felt aggrieved by such an order passed ex parte, assessee preferred this appeal on several grounds relating to the additions, and also stating that the proceedings before the authorities below were conducted in violation of the principles of natural Justice and the assessee was not granted sufficient and proper opportunity of being heard and to address evidence in its support. In the grounds of appeal assessee tried to demonstrate that the additions made were unsustainable.

When the matter is called, neither the assessee nor any authorised representative entered appearance. It could be seen from the record that the notice was sent to the address given in form No. 36. If the assessee is available in such address, such notice should have been served on the assessee. If for any reason, the assessee is not available there, it is for the assessee to make arrangements for service of such notice by furnishing the address where the assessee would be available, or to deliver it to some authorised person, or by making request to the postal department to detain the mail till the assessee claims the same. Since the assessee does not seem to have adopted any of these methods, we are the considered opinion that no time could be granted. Basing on the record we proceed to hear the counsel for Revenue and decide the matter on merits.

It could be seen from the impugned order that on one occasion the notice sent to the assessee by the Ld. CIT(A) was returned un-served with the endorsement that “no such person at this address” and on another occasion with the endorsements that “address not correct”. The AR of the assessee appeared on 14/10/2016 and submitted a new address. Notices sent to this new address was returned and on verification, it was found that the premiseswas locked from outside.

Insofar as this appeal is concerned, assessee called in question three additions. First one is in respect of Rs. 4,08,10,354/-on account of disallowance of interest on the loan taken by the assessee treating the same as for non-business purposes, second one is on account of disallowance of Rs. 14,97 017/-by invoking section 14A of the Act read with Rule 8D of the Rules, and the last was in respect of the addition of Rs. 18,468/- on account of disallowance of interest on late payment of TDS. Insofar as the 1st addition of Rs.4,08,10,354/- is concerned, during 10. the scrutiny learned Assessing Officer noticed that the assessee had taken a loan of Rs. 25 crores from M/s ECL finance Ltd and paid an interest of Rs.4,08,10,354/-. Though the assessee pleaded that no part of such loan was utilised for purchase of shares and the shares were purchased in the earlier years, learned Assessing Officer on verification of the Balance Sheet found that out of the loan of Rs. 25 crores obtained during the financial year 2011-12, the assessee advanced a sum of Rs. 15 crores for purchase of land and a sum of Rs. 8.13 crores and 1.75 crores was utilised for repayment of the loan taken during the previous year. Learned Assessing Officer recorded that there was no proper explanation on this aspect and therefore drew an inference that the assessee paid the interest-bearing loan for repayment of the earlier year loan utilised for purchase of shares and therefore the assessee cannot be heard to say that no interest-bearing loan was used for purchase of shares.

Nextly, learned Assessing Officer noticed that a sum of Rs.15 crores was advanced to Demas Developers Ltd for purchase of property on 30 /4/2011 but even after lapse of 4 years, no registration of land on the name of the assessee had taken place nor the entire amount of advance was returned. Only a sum of Rs. 3.71 crore was received back by the assessee. In these circumstances, learned Assessing Officer held that the interest on loan amounting to Rs. 4,08,10,354/-was not allowable and accordingly he added it back to the income of the assessee.

On this issue, Ld. CIT(A) also appreciated the facts available on record and recorded that there was no material on record to take a contrary view to the one taken by the learned Assessing Officer. It is quite improbable that even after the lapse of so much of time, the assessee would not be in a position to produce any document to demonstrate the bona fides of the transaction of advancing the amount to Demas Developers Ltd. There is nothing on record to show that the repayment of amounts from out of the interest-bearing loan during the financial year 2011-12 was not for the amount borrowed during the earlier financial year to purchase the shares.

In the circumstances, we find it difficult to go by the contention of the assessee that the entire interest-bearing loan was used for business purpose during this year. We, therefore, while subscribing to the view taken by the authorities below do not find any substance in the contentions of the assessee and no merits in the ground taken on this aspect. We accordingly dismiss grounds relating to this addition.

Now coming to the other addition of Rs. 14,97,017/-, it is an admitted fact that during the year under consideration the assessee earned dividend income of Rs. 23.96 Lacs and the Long Term Capital Gain (LTCG) of Rs. 8,40,282/-. Assessee did not claim exemption of this income. Assessing Officer noted that just to avoid the disallowance as under section 14A of the Act read with Rule 8D of the Rules, the assessee had not claimed dividend income and long-term capital gain on sale of listed shares as exempt income, although it is allowed as per the provisions of the Act. Further, learned Assessing Officer took note of the fact that the interest had already been disallowed, and, therefore, did not make any disallowance of interest in section 14A of the Act. In the circumstances learned Assessing Officer held that the expenses incurred by way of demat charges and loan processing fees totalling to Rs.14,97,017/-was to be disallowed.

Impugned order speaks that neither the assessee nor anyone on behalf of the assessee entered appearance in the appellate proceedings to submit anything contrary to the opinion entertained by the learned Assessing Officer. In view of the provisions under section 14A of the Act, Ld. CIT(A) held that no deduction shall be allowed in respect of expenditure incurred in relation to exempt income and therefore, upheld the addition made by the learned Assessing Officer.

Before us also, there was no submissions to reach a different conclusion from the one reached by the authorities below. In the circumstances, we hold that the findings of the authorities below have to be confirmed. We accordingly dismiss the other grounds of appeal relating to the addition of Rs. 14, 97, 017/-.

Lastly coming to the addition of Rs. 18,468/-, learned Assessing Officer made such an addition on account of disallowance of interest on TDS. It is not explained before as to how this finding is incorrect. We therefore dismiss this ground of appeal also.