ACIT CENTRAL CIRCLE 1(2), CHENNAI vs. TVH ENERGY RESOURCES PRIVATE LIMITED, CHENNAI

आदेश / O R D E R

Per A. Mohan Alankamony, AM:-

The appeal by the assessee and Revenue are directed against

the order passed by the Ld. Commissioner of Income Tax (Appeals)-

2 ITA No.3183 & 3117/Chny/2017 18, Chennai, dated 22.09.2017 in ITA No.39/15-16 for the

assessment year 2012-13 passed U/s. 250(6) r.w.s. 143(3) of the Act.

The assessee has raised two grounds in its appeal which is

briefly stated herein below for adjudication:-

(i) The Ld.CIT(A) has erred in confirming the addition made by the

Ld.AO amounting to Rs.15,66,57,691/- towards deemed interest

@ 21% per annum on the loan amount of Rs.74,59,89,006/-

extended by the assessee company to its sister concern M/s.

True Value Homes (I) Pvt. Ltd.

(ii) The Ld.CIT(A) has erred in confirming the addition made by the

Ld.AO amounting to Rs.7,60,32,100/- towards unaccounted cash

expenditure under Section 69C of the Act.

The Revenue has raised three grounds in its appeal

however the crux of the issue is that the Ld.CIT(A) has erred in

deleting the disallowance made by the Ld.AO U/s. 40(a)(ia) of the Act

towards payment made for civil contract works without deducting TDS

from the sub-contractors viz., M/s. R R Tulsi Builders(India) Pvt. Ltd.,

3 ITA No.3183 & 3117/Chny/2017 M/s. Tavas Constructions Pvt. Ltd. and M/s. Sasta Constructions

based on the fresh evidence produced which was not produced

before the Ld.AO thereby violating Rule 46A of the IT Rules.

limited company engaged in the business of Wind Turbine

operations, Energy Conservation Projects, Civil Constructions, filed

its return of income for the assessment year 2012-13 on 30.09.2012

admitting ‘Nil’ income. The case was selected for scrutiny and notice

U/s.143(2) & 142(1) of the Act was issued on 19.08.2013 and

17.06.2014 respectively. Finally assessment order was passed

U/s.143(3) of the Act on 31.03.2015 wherein the Ld.AO made several

additions along with additions towards deemed interest, unaccounted

cash expenditure and disallowance of expenditure invoking the

provisions of Section 40(a)(ia) of the Act.

Assessee’s Appeal: 5. Ground No.2 (i): Addition of Rs.15,66,57,691/- towards deemed interest:- During the course of scrutiny assessment proceedings, it was

observed by the Ld.AO that the assessee company had extended

4 ITA No.3183 & 3117/Chny/2017 loan to its sister concern M/s. True Value Homes (I) Pvt. Ltd., for

Rs.74,59,89,006/-. It was further noticed that M/s. True Value Homes (I) Pvt. Ltd., was holding shares worth Rs.15,71,85,000/- out of the total equity shares issued by the assessee company amounting to

Rs.5210,10,00,000/-. Thus 30% of the shares of the assessee company were held by M/s. True Value Homes (I) Pvt. Ltd. It was further noticed that the assessee company was having accumulated

reserves and surplus of Rs.18,08,50,648/-. Since the assessee company had extended loan to the company who was holding substantial shares of the assessee company the Ld.AO was of the

view that provisions of Section 2(22)(e) of the Act will be attracted. Accordingly the Ld.AO treated 30% of the accumulated profit as deemed dividend in the hands of the assessee which works out to Rs.5,45,62,397/- rejecting the plea of the Ld.AR that deemed

dividend U/s.2(22)(e) of the Act can only be taxed in the hands of the recipient of the advances and not in the hands of the company who has advanced them.

5.1 On appeal, the Ld.CIT(A) agreed with the view of the Ld.AR that deemed dividend shall be taxable only in the hands of the

recipient of the advances and not in the hands of the company who

5 ITA No.3183 & 3117/Chny/2017 had advanced the amount and accordingly he deleted the addition

made by the Ld.AO invoking the provisions of Section 2(22)(e) of the Act. However the Ld.CIT(A) was of the view that since the assessee company had extended interest free loan to its sister company,

interest @ 21% on the loan extended which works out to Rs.15,66,57,691/- should be taxable as deemed interest in the hands of the assessee company, rejecting the plea of the assessee that the

loan was extended due to commercial exigencies. Accordingly the Ld.CIT(A) enhanced the addition to Rs.15,66,57,691/- as deemed interest. Aggrieved by the order of the Ld.CIT(A), the assessee in

appeal before us.

5.2 At the outset, we do not find any merit in the order of the Ld.CIT(A) with respect to the addition made for Rs.15,66,57,691/-

though we agree with the view of the Ld.CIT(A) for deleting the addition of Rs.5,45,62,397/- made by the Ld.AO invoking the provisions of Section 2(22)(e) of the Act. It is obvious that the addition

with respect to Section 2(22)(e) of the Act can be only invoked in the hands of the registered / beneficial shareholder having 10% or more shares in the company which has advanced the loan as per the

recent judgment dated 04.01.2017 of the Hon’ble Apex Court in the

6 ITA No.3183 & 3117/Chny/2017 case Gopal & Sons HUF vs. CIT in Civil Appeal No.12274 of 2016. In

the case of the assessee, the shareholder having such substantial interest in the assessee company is M/s. True Value Homes (I) Pvt. Ltd. Therefore provisions of Section 2(22)(e) of the Act cannot be

invoked in the hands of the assessee company which has extended loan to its sister company.

5.3 Further from the facts of the case, it is apparent that the assessee company’s equity share capital is Rs.5210,10,00,000/- coupled with reserves & surplus amounting to Rs.18,08,50,648/-.

Thus the assessee possess non-interest bearing fund of Rs.5228,18,50,648/- (Rs.5210,10,00,000 + Rs.18,08,50,648). The assessee has extended loan only to the extent of Rs.74,59,89,006/- from its non-interest bearing fund of Rs.5228,18,50,648/-. There is no

restriction on the assessee to deploy its non-interest bearing own fund in whatever manner it desires. Only if interest bearing funds are deployed outside the business of the assessee without recovering

interest, additions can be made, because in such case it would be a dubious method to shift the profit of the assessee to another assessee which cannot be accepted as per the provisions of the Act,

and that is not the case of the assessee company. Therefore the

7 ITA No.3183 & 3117/Chny/2017 addition made by the Ld.CIT(A) treating the amount of 21% of

deemed interest on Rs.74,59,89,006/- which works out to

Rs.15,66,57,691/- is not justified. Hence we hereby delete the

enhancement made by the Ld.CIT(A) amounting to Rs.15,66,57,690/-

towards deemed interest and further uphold the order of the

Ld.CIT(A) for deleting the addition of Rs.5,45,62,397/- made by the

Ld.AO towards deemed dividend invoking the provisions of Section

2(22)(e) of the Act. Thus the ground raised by the assessee is

allowed in its favour.

8 ITA No.3183 & 3117/Chny/2017 made addition of Rs.7,60,22,100/- in the hands of the assessee invoking

provisions of Section 69C of the Act..

6.1 Before the Ld.CIT(A) the assessee had made submission that

it had neither incurred such cash expenditure nor made such cash

payment to sub-contractors. However the Ld.CIT(A) upheld the order of

the Ld.AO by observing as under:-

While dealing with similar issue for the A.Y.2011-12 in ITA No. 196/16-17 dated 08.08.2017, I have observed in my order as under:

(i) "First of all, the so-called details of cash payments were not written on any loose sheets which can be brushed aside as scribbling. In fact, these details have been found in the excel sheets and were retrieved by the Department from the "deleted records". In respect of a particular payment, cash voucher for Rs. 50,00,000/- was prepared, which was approved by Shri T. Selva Mani, Director and signed by Shri Manoj C, representative of M/s. Leitner Shriram in the "received payment" column. It is seen that the above transaction relate to the A. Y. 2013-14 and the appellant admitted the above amount in the return of income filed. Accordingly, against the assessment order, the appellant did not prefer any appeal against the quantum and only filed an appeal against the levy of penalty u/s. 271 (1)(c). This itself is an indication that the amounts shown in the excel sheets were really payments made to various agencies in the form of kickbacks and that is the reason why the appellant is hesitant to admit the real truth.

(ii) From the above, it can be asserted that the claim of the appellant that out of the entire payments contained in the excel sheet, the one and only payment actually made was the above Rs. 50,00,000/- cannot be by any means acceptable. Either the appellant should have proved that not even a single payment was made or it should have accepted that all payments were made.

(iii)It is seen that the entries contained in the excel sheet relate to the period 3.8.2010 to 31.5.2012. Amongst the entries there appear

9 ITA No.3183 & 3117/Chny/2017

payments relating to "TNEB Liaison exp". Everyone knows that TNEB does not collect any 'Liaison charges". Hence it is to be construed that the so called TNEB Liaison exp" is nothing but payment of mamool to the said agency. From this it is anybody's guess that the amounts mentioned in these excel sheets are nothing but payment of mamool to various persons/agencies. In fact, the payment under the caption "21- May-12 Shriram Leitner 50,00,000" was offered by the appellant in the Assessment Year 2013-14. Penalty proceedings was also initiated for the assessee's failure to disclose fully and truly all material facts during the course of assessment proceedings. The appellant did not prefer any appeal against the quantum and only filed an appeal against the levy of penalty. The non-filing of appeal against the quantum itself brings to surface the fact that the amounts mentioned in the excel sheets were really paid and that only made the assessee to accept the said addition by not filing an appeal against the quantum.

(iv) No prudent business man would prepare a list containing details of cash payments unless it really happened and more so, keep the same without destroying it. Going by this evidence, the appellant's submission that except this lone and solitary transaction of cash payment, no other cash payments as evidenced by the excel sheets were made, cannot be accepted by any stretch of imagination as true. The irresistible conclusion that one can arrive will certainly be that the appellant is not coming forward with the truth in that it says all the transactions did not happen except the one for which the department had the unequivocal and unambiguous evidence in the form of the above said voucher.

(v) The AD has proved beyond doubt that one such transaction among the whole transactions that appear in Excel sheet has taken place. In such circumstances, the logical corollary and the preponderance of human probability indicates that all the transactions finding a place in the excel sheet have actually taken place. This is in the light of the fact that it has well been established that one among those transactions appearing in the EXCEL sheet has been undertaken by the appellant. In this regard, it would be worthwhile to note that the Hon'ble Supreme Court in the case of Suma Dayal (214 ITR 801) and in the case of Durga Prasad More (82 ITR 540) has held that where preponderance of human probability indicates that a transaction has taken place, it may well be taken to have occurred. Further the onus cast upon the appellant has not been discharged by it satisfactorily in any manner

10 ITA No.3183 & 3117/Chny/2017 whatsoever. Hence, I am of the considered view that all the transactions in the EXCEL sheets have taken place.

(vi) The very fact that Ms. Kuzhali, the ex-employee was not aware of these transactions is a clear proof that the said transactions being shady, the top management wanted to keep these as secret and did not want to involve lower level cadre and that is the reason even Ms. Kuzhali was kept aloof.

6.1 Based on the above findings and respectfully following the Apex Court's decisions cited supra, I am of the considered view that certainly the explanations of the appellant cannot be acceptable and the action of the AO in brushing aside the appellant's submission and adding the entire cash payments found in the excel sheets as 'unaccounted cash expenses" is by all means a right approach and hence no interference is needed. Accordingly, this ground of appeal is dismissed"

As the facts are similar for this year also as held in the above cited order, I uphold the action of the AD in adding a sum of Rs. 7,60,22,100/. Hence, this ground of appeal is dismissed.

6.2 Before us the Ld.AR submitted that the Hon’ble Tribunal vide

order dated 30.11.2017 in ITA No.2484/Mds/2017 for the assessment

year 2011-12 in the assessee’s own case had remitted the matter back

to the file of Ld.AO in order to pass speaking order. The Ld.AR further

submitted that the Tribunal had also made serious observations against

the functioning of the Revenue Authorities in its order. The Ld.AR further

argued stating that the Ld.AO had not passed a speaking order for the

relevant assessment year also and further decided the issue only based

on the observations of the investigation unit of the Revenue which was

not substantiated with any evidence other than certain noting of the

11 ITA No.3183 & 3117/Chny/2017 assessee companies’ erstwhile employees. The Ld.AR further submitted that there was no corroborative evidence to establish that the assessee had incurred unaccounted cash expenditure and made cash payment to sub-contractors. Further the Ld.CIT(A) in the relevant assessment year has upheld the order of the Ld.AO by relying on his earlier order passed for the assessment year 2011-12 which was remitted back by the Hon’ble Tribunal to the Ld.AO with directions to re-examine the matter and pass a speaking order. Therefore it was pleaded that the addition made by the Ld.AO towards unaccounted cash expenditure and cash payment aggregating to Rs.7,60,22,100/- may be deleted. The Ld.DR on the other hand relied on the orders of the Ld.Revenue Authorities and argued in support of the same.

6.3 We have heard the rival submissions and carefully perused the materials on record. From the order of the Ld.AO, it is apparent that the Ld.AO had simply endorsed the observation of the Ld.DDIT(Inv) without making any further relevant enquiry or enquiring from the persons who had received the payment from assessee company or obtaining any corroborative evidence to justify the inference made out from the seized materials. In fact, the Ld.AO has also not mentioned in his order as to what are the seized materials which justifies the addition, the veracity of the seized materials and to what extent reliance could be

12 ITA No.3183 & 3117/Chny/2017

placed on the same. Further it is apparent that the order of the

Ld.CIT(A) for the assessment year 2011-12 was remitted back to the file

of Ld.AO by the Tribunal vide order dated 30.11.2017 (with the following

observations) which was relied by the Ld.CIT(A) while passing the Order

for the relevant assessment year:

“4. We heard Shri Sriram Bharath, the Ld. Departmental Representative also. It is not in dispute that this Tribunal directed the Assessing Officer to re-examine the matter afresh and pass a speaking order. This Tribunal specifically observed that it is incumbent upon the Assessing Officer to discuss the reason in the assessment order while allowing or disallowing the claim of the assessee. Inspite of the specific direction of the Tribunal, the Assessing Officer has simply referred the issue in the assessment order which was set aside by the Principal Commissioner and confirmed by this Tribunal and made addition. Therefore, as rightly submitted by the Ld. representative for the assessee, the Assessing Officer has not complied with the direction of the Tribunal. The Assessing Officer is bound to comply with the direction of the Tribunal. If at all the Assessing Officer feels that he is aggrieved by the order of this Tribunal, it is open to him to take up the matter in appeal before the High Court. In this case, admittedly, no appeal was filed before the High Court. The Department allowed the order of this Tribunal to attain finality, therefore, the Assessing Officer is not justified in making addition on the basis of the order dated 24.03.2014, which was not in existence at all. Therefore, the CIT(Appeals) is also not correct in disposing of the matter on merit.

13 ITA No.3183 & 3117/Chny/2017

From the above, it is abundantly clear that the Revenue has not produced any cogent materials before us to substantiate the addition made for Rs.7,60,22,100/-. Hence we do not have any other option but to delete the addition made and sustained by the Ld.CIT(A). Accordingly we hereby direct the Ld.AO to delete the addition of Rs.7,60,22,100/- made by the Ld.AO which was further sustained by the Ld.CIT(A). Thus these grounds raised by the assessee are also decided in its favour.

Revenue’s Appeal:- 7. Ground No.3: Disallowance U/s. 40(a)(ia) of the Act towards

payment made for civil contract works without deducting TDS :-

During the course of scrutiny assessment proceedings, it was

observed by the Ld.AO that the assessee had deducted tax at

source amounting to Rs.16,84,056/- against payment made to sub-

contractors instead of deducting Rs.19,85,498/- as detailed herein

below:

14 ITA No.3183 & 3117/Chny/2017

Sl. Name of the Amount TDS TDS Short Proportionate No. Party Paid Deducted Deductable Deduction Contract Value 1 M/s. R.R. 5,63,26,285 10,60,000 11,26,526 66,525 33,26,285 Thulasi Builders India Private Limited 2 M/s. TAVAS 1,57,35,737 2,30,612 3,14,715 84,103 42,05,152 Construction Private Limited 3 M/s. Sasthaa 5,23,99,329 3,80,000 5,23,993 1,43,993 1,43,99,329 Constructions 4 M/s. R.S.R. 10,62,310 7,000 10,623 3,623 3,62,310 Earth Movers 5 M/s. M.R. 9,64,112 6,444 9,641 3,197 3,19,712 Constructions Total 12,64,87,773 16,84,056 19,85,498 3,01,441 2,26,12,788

Thus there was a short deduction of tax of Rs.3,01,441/-.

Therefore the Ld.AO disallowed proportionate payments made to

sub-contractors with respect to the short deduction of tax at source

as allowable expenditure which works out to Rs.2,26,12,788/-,

invoking the provisions of Section 40(a)(ia) of the Act. On appeal

the Ld.CIT(A) after verifying Form 16A issued to the sub-

contractors deleted the addition made with respect to viz., M/s.R.R.

Thulasi Builders India Pvt. Ltd., M/s. Tavas Constructions Pvt. Ltd.,

and M/s.Sasthaa Constructions and confirmed the addition made

with respect to sub-constructor M/s.R.S.R.Earth Movers and

M/s.M.R. Constructions. Aggrieved by the Order of the Ld.CIT(A)

the assessee is now in appeal before us.

15 ITA No.3183 & 3117/Chny/2017 7.1 The Ld.DR argued before us by stating that the Ld.CIT(A)

failed to comply with Rule 46A of the Rules because he had not

obtained remand report from the Ld.AO with respect to the

additional evidence produced by the assessee before him viz., the

Form 16 issued to the sub-contractors. Thus the Ld.AO was

deprived from verifying the documents produced before the

Ld.CIT(A) for the first time. Hence it was pleaded that the matter

may be remitted back to the file of Ld.AO in order to provide an

opportunity for the Ld.AO to verify the documents which was

produced before the Ld.CIT(A) for the first time. The Ld.AR could

not controvert to the submission of the Ld.DR.

7.2 After hearing both sides, we are of the view that the matter

needs to be remitted back to the file of Ld.AO in order to provide

the Ld.AO with an opportunity to verify the documents produced

before the Ld.CIT(A) for the first time and thereby comply with the

Rule 46A of the Rules. Accordingly the issue with respect to

invoking the provisions of Section 40(a)(ia) of the Act is hereby

remitted back to the file of Ld.AO for de-nova consideration.

16 ITA No.3183 & 3117/Chny/2017 8. In the result the appeal of the assessee is allowed and the appeal of the Revenue is allowed for statistical purposes.

Order pronounced on the 8th November, 2018 at Chennai.

Sd/- Sd/- (धु�वु� आर.एल रे�डी) (ए. मोहन अलंकामणी) ( Duvvuru RL Reddy ) ( A. Mohan Alankamony ) �या�यक सद�य /Judicial Member लेखा सद�य / Accountant Member चे�नई/Chennai, �दनांक/Dated 8th November, 2018 RSR आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A) 4. आयकर आयु�त/CIT 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF