CHALASANI VENKAT,,VIJAYAWADA vs. THE ITO,, VIJAYAWADA

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM

BEFORE SHRI V. DURGA RAO, HON’BLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, HON’BLE ACCOUNTANT MEMBER

ITA No. 204/VIZ/2015 (Asst. Year : 2011-12) ITO, Ward-2(2), vs. Chalasani Venkat, Vijayawada. D.No. 40-10-2B, Pent House, Ramapriya Residency, Mogalrajapuram, Vijayawada. PAN No. AHVPC 1673 P (Appellant) (Respondent)

C.O.No. 03/VIZ/2018 (ITA No. 204/VIZ/2015) (Asst. Year : 2011-12) And ITA No.255/VIZ/2015 (Asst. Year : 2011-12)

Chalasani Venkat, vs. ITO, Ward-2(2), D.No. 40-10-2B, Vijayawada. Pent House, Ramapriya Residency, Beside VP Siddartha Public School, Mogalrajapuram, Vijayawada. PAN No. AHVPC 1673 P (Appellant) (Respondent)

Assessee by : Shri C. Subrahmanyam – FCA. Department By : Shri M.R. Bangari – Sr.DR Date of hearing : 27/02/2018. Date of pronouncement : 07/03/2018.

2 ITA Nos.204 & 255 /VIZ/2015 & C.O.No. 03/VIZ/2018 (Chalasani Venkat) O R D E R PER V. DURGA RAO, JUDICIAL MEMBER

These cross appeals by the Revenue and the assessee are directed against the order of Commissioner of Income Tax (Appeals), Vijayawada, dated 30/03/2015 for the Assessment Years 2011-12. C.O.No. 03/VIZ/2018 is filed by the assessee in ITA No. 204/VIZ/2015. ITA No. 204/VIZ/2015 2. Facts of the case, in brief, are that the assessee is an individual, deriving income from construction and sale of apartments and house property, filed his return of income by admitting total income of Rs. 36,610/-. The return filed by the assessee was processed under section 143(1) of the Income Tax Act, 1961 (hereinafter referred to as 'Act') and subsequently, case was selected for scrutiny. After following due procedure, assessment is completed under section 143(3) of the Act. During the course of assessment proceedings, the Assessing Officer has observed that the assessee has shown gross receipts of Rs.2,02,55,000/- towards sale of first floor, 6 flats and interior works and admitted net profit at Rs. 13,08,735/-, which worked out to 6.26%. Assessee was asked to produce books of account,

3 ITA Nos.204 & 255 /VIZ/2015 & C.O.No. 03/VIZ/2018 (Chalasani Venkat) bills & vouchers etc. maintained in support of other expenses. On verification, it was found by the Assessing Officer that most of the bills & vouchers produced were self-made and some of them are not even acknowledged by the recipients. When these discrepancies put-forth, the Authorized Representative for the assessee has expressed his inability to explain/produce any other relevant evidence in support of the expenditure claimed. The Assessing Officer observed that as the assessee has not produced any details in support of the expenditure claimed and in absence of supportive evidence, it is difficult to believe the genuineness and reasonableness of the expenditure claimed. In view of this, expenditure incurred by the assessee, cannot be accepted as true and correct and the book results drawn as per the books of account cannot be relied upon and cannot be accepted. Accordingly, Assessing Officer rejected the books of account and estimated the income of the assessee‘s profit from gross receipts at 12.5%. 3. On appeal, ld. CIT(A) has scaled down the estimation of profit from 12.5% to 9%. 4. On being aggrieved, Revenue carried the matter in appeal before the Tribunal.

4 ITA Nos.204 & 255 /VIZ/2015 & C.O.No. 03/VIZ/2018 (Chalasani Venkat) 5. Ld. Departmental Representative has strongly supported the order passed by the Assessing Officer. 6. On the other hand, ld. Authorized Representative for the assessee has submitted that ld. CIT(A) by following in assessee’s own case for the Assessment Year 2010-11, scaled down the estimation from 12.5% to 9% which is reasonable and the same may be confirmed. 7. We have heard both the sides, perused the material available on record and orders of the authorities below. 8. In this case, the assessee is in the business of construction of sale of apartments, filed his return of income by admitting net profit at Rs. 13,08,735/-, which worked out to 6.26%. When the assessee was asked to file details and on verification of the same, the Assessing Officer found that bills / vouchers filed by the assessee are self made and the assessee is not able to substantiate the expenditure claimed by him and therefore, he rejected the books of account and estimated the business profit of the assessee at 12.5%. On appeal, ld. CIT(A) by following the case in assessee itself for the Assessment Year 2010-11, scaled down the estimation from 12.5% to 9%, by observing as under:-

“8.1 An identical issue has been decided by me in the case of the appellant for the Asst. Year 2010-11 vide my order in ITA No.46/CIT(A)/

5 ITA Nos.204 & 255 /VIZ/2015 & C.O.No. 03/VIZ/2018 (Chalasani Venkat) VJA/13-14 dated 29.05.2014. The relevant portion of the order is reproduced as under: “The Assessing Officer relied on the case of MIs KNR Constructions, where adopting 12.5% is approved on contract works, where as the appellant during the course of appeal proceedings relied on the decisions of Teja Constructions, Hyderabad vs. ACIT in ITA No.308/HYD/ 2009, dated 23.10.2009, C.Eswara Reddy & Co. vs AC1T (ITA No.668/HYD/2009, dated 31.01.2011) and SREC Projects Pvt. Ltd. vs. DCIT (ITA No.974/Hyd/2009), wherein under similar circumstances adopting 8% was considered satisfactory. Thus, the point to be noted here is that as to what is the appropriate yield depends on facts and circumstances of each case and there are no hard and fast rules to be applied on universal basis. But, in any case various appellate bodies have held the estimation of income to be between 8 to 12.5 percent on contract works. But, however having regard to facts, circumstances and the judicial opinion prevalent, I am of the considered opinion that ends of justice are met if for main contracts, a percentage of 9 is adopted in the place of 12.5 adopted by the Assessing Officer in the impugned assessment order and he-is directed accordingly." 8.2 Since the issue involved is one and same, the decision outlined in the above order will also apply to Asst. Year 2011-12. Accordingly, I hold that a percentage of 9 is adopted in the place of 12.5 adopted by the Assessing Officer in the impugned assessment order and he is directed accordingly.”

6 ITA Nos.204 & 255 /VIZ/2015 & C.O.No. 03/VIZ/2018 (Chalasani Venkat) 11. In the assessment order, the Assessing Officer has noted that the assessee has shown work-in-progress for CVR Chambers (on which income from house property offered) at Rs.1,32,70,142/- and Rs. 1,00,49,992/- for Tadigadapa Venture (on which profit offered on sale of flats) and also construction expenses at Rs. 67,17,216/- in the trading account. The assessee was asked to furnish the details of loans taken for house property in CVR Chambers and also for business separately, and also details of interest payment on such loans separately. The assessee was also asked to furnish TDS deducted, if any on such interest payments. The assessee has submitted that there is no such bifurcation of loan amounts utilized separately for house property and business, but he stated that the entire loan amounts were utilized for house property only, on which income from house property was offered and the same is allowable under section 24(b) of the Act and also submitted that the provisions of section 194A only applies to business income and not to the case of the assessee. The Assessing Officer has considered the explanation of the assessee and noted that as seen from the profit & loss account, the assessee offered an amount of Rs. 55,72,000/- on sale of first floor in CVR Chambers. Account copy from India Bulls obtained and it is noted that the assessee has repaid loan amount

7 ITA Nos.204 & 255 /VIZ/2015 & C.O.No. 03/VIZ/2018 (Chalasani Venkat) of Rs. 46,17,322/- towards loan account No.HLAPVJW00042857 in India Bulls. The source for repayment of loan is said to have been taken as advances from Smt. K. Madhavi and Smt. K. Mythri. Thus, the assessee got it back the property pledged to India Bulls and registered on first floor to Smt. K. Madhavi and Smt. K. Mythri on 09/03/2011. From this, it can be construed that the assessee utilized the loan amounts not only to house property but also to business income. The Assessing Officer was of the opinion that the provisions of section 194A clearly applicable to the case of the assessee since assessee failed to deduct TDS on interest payment made to India Bulls, the interest claimed at Rs. 31,00,530/- is disallowed under section 40(a)(ia) of the Act and added to the total income of the assessee. 12. On appeal, ld. CIT(A) has observed that the assessee has claimed interest paid on housing loan, hence, section 194A has no application and directed the Assessing Officer to delete the addition. 13. On appeal before us, ld. Departmental Representative has submitted that the assessee has borrowed funds from India Bulls and repaid the same with interest and therefore, the interest paid by the assessee is in relation to the business and, as per section 194A, TDS has to be deducted and submitted that the Assessing

8 ITA Nos.204 & 255 /VIZ/2015 & C.O.No. 03/VIZ/2018 (Chalasani Venkat) Officer has rightly by invoking section 40(a)(ia) of the Act, addition is made. 14. On the other hand, ld. Authorized Representative for the assessee has submitted that assessee has not claimed any expenditure in the profit & loss account therefore, the same cannot be disallowed. He also pointed out at page No. 10 of the profit & loss account. He alternatively submitted that once income is estimated, no separate addition can be made in the light of the decision of the Hon'ble Jurisdictional High Court in the case of Indwell Constructions vs. CIT [232 ITR 716 (AP)], the same has been considered by the coordinate bench of the tribunal in the case of N. Nageswara Rao vs. ACIT in ITA No. 441/VIZ/2010 by order dated 11/12/2013. 15. We have heard both the sides, perused the material available on record and orders of the authorities below. 16. The case of the assessee is that he has borrowed funds from India Bulls and utilized the same for the purpose of construction of house property and paid the same with interest to India Bulls. The rent received from the house property offered as ‘income from house property’ and submitted that the interest paid for the purpose of loan taken for construction of the houses hence, allowable under section 24(b) of the Act. He further submitted

9 ITA Nos.204 & 255 /VIZ/2015 & C.O.No. 03/VIZ/2018 (Chalasani Venkat) that assessee has not claimed any expenditure in profit & loss account, therefore, Assessing Officer cannot disallow the claim on account of interest paid to India Bulls. The case of the Assessing Officer is that the assessee has borrowed money from India Bulls for construction of house property in CVR Chambers and also for business separately, and the assessee has failed to bifurcate the loans received in respect of house property and the relevant interest incurred in respect of loan taken for the house property, therefore he is of the opinion that it cannot be allowed under section 24(b) and loan has taken for the business purpose and as per section 194A TDS has to be deducted. As, no TDS is deducted, the entire amount is disallowed under section 40(a)(ia) of the Act. We find that the assessee has not claimed any expenditure in the profit & loss account, therefore, the disallowance made by the Assessing Officer under section 40(a)(ia) is not warranted. We find that ld. CIT(A) has rightly directed the Assessing Officer to delete the addition. 17. So far as alternative submission is concerned, once income of the assessee is estimated, no separate addition can be made in respect of interest paid by the assessee. By following the decision of the Hon'ble Jurisdictional High Court in the case of Indwell

10 ITA Nos.204 & 255 /VIZ/2015 & C.O.No. 03/VIZ/2018 (Chalasani Venkat) Constructions (supra), the coordinate bench of the tribunal in the case of N. Nageswara Rao (supra) has held as under:- “6. We have considered the issue and examined the legal position. The coordinate bench in the case of Edco India (P) Ltd.,. vs. DCIT in ITA No. 1058/H/2011 dated 14/09/2011 considered the jurisdictional High Court in the case of Indwell Constructions vs. CIT (supra) to hold that no further addition /disallowance could be made on the basis of very same books of accounts which have been rejected by the AO. This order of the ITAT has been upheld by the Hon'ble Jurisdictional High Court vide the order dated 20/06/2013 where on the following question it was held as under:- “This appeal is sought to be admitted on the following suggested question of law:- “Whether on facts and in the circumstances of the case the appellate tribunal is justified in holding that no further disallowance under section 40(a)(ia) and 40A(3) of the Income Tax Act, can be made on the basis of the books of accounts in spite of mandatory provision and non-obstante clause contained therein, merely because the income was determined on estimate basis, by rejecting such books of accounts?” We have gone throught the impugned order of the Appellate Tribunal and we do not find any reason to interfere with the same as the Tribunal has decided the matter relying on the decision of this Court in the case of Indwell Constructions vs. CIT reported in (232 ITR 776)-AP. Accordingly, the appeal is dismissed. No order as to costs. As a sequel, miscellaneous petitions, if any pending, shall stand dismissed. 7. Respectfully following the same, since the issue is crystallized by the above judgment of the Hon'ble Jurisdictional High Court, we delete the addition made by the A.O., and confirmed by the CIT(A). The coordinate bench decision relied on by the Ld.DR stands disapproved by the later judgment of High Court. Accordingly, this ground is allowed.” 18 In view of the above, we find that the addition made by the Assessing Officer in respect of interest paid to the India Bulls

11 ITA Nos.204 & 255 /VIZ/2015 & C.O.No. 03/VIZ/2018 (Chalasani Venkat) cannot be sustained. Thus, this ground of appeal raised by the Revenue is dismissed. ITA No. 225/VIZ/2015 19 In view of our decision in the Revenue’s appeal above, no separate adjudication is required. Therefore, the same is dismissed. C.O.No. 03/VIZ/2018 20. At the time of hearing, ld. Authorized Representative for the assessee has submitted that he does not want to press this cross objection, hence, the same is dismissed as not pressed. 21. In the result, appeals filed by the Revenue and the assessee are dismissed. The Cross Objection filed by the assessee is also dismissed. Order Pronounced in open Court on this 07th day of March, 2018.

Sd/- sd/- (D.S. SUNDER SINGH) (V. DURGA RAO) Accountant Member Judicial Member Dated : 07th March, 2018. vr/-

12 ITA Nos.204 & 255 /VIZ/2015 & C.O.No. 03/VIZ/2018 (Chalasani Venkat) Copy to: 1. The Assessee - Chalasani Venkat, D.No. 40-10-2B, Pent House, Ramapriya Residency, Beside VP Siddartha Public School, Mogalrajapuram, Vijayawada. 2. The Revenue – ITO, Ward-2(2), Vijayawada. 3. The Pr.CIT, Vijayawada. 4. The CIT(A), Vijayawada. 5. The D.R., Visakhapatnam. 6. Guard file. By order

(VUKKEM RAMBABU) Sr. Private Secretary, ITAT, Visakhapatnam.