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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI GEORGE MATHAN & SHRI S. JAYARAMAN
आदेश / O R D E R PER GEORGE MATHAN, JUDICIAL MEMBER:
ITA No.2389/Chny/2017 is an appeal filed by the assessee against the Order of the Commissioner of Income Tax (Appeals)-5, Chennai, in dated 20.07.2017 for the AY 2010-11 & Order of the Commissioner of Income Tax (Appeals)-5, Chennai, in ITA No.15/CIT(A)-5/2014-15 dated 20.07.2017 for the AY 2011-12. & 2390/Chny/2017 :- 2 -:
Shri N.Madhavan, JCIT, represented on behalf of the Revenue and Shri D.Anand, Adv., represented on behalf of the assessee.
As the appeals are related to the same assessee and have common issues, the same are being disposed off by this common order.
The appeals filed by the assessee were delayed by one day, for which, the assessees have filed necessary Affidavits for condonation of the delay, to which, the Revenue has not raised nay serious objection.
Consequently, the delay of one day in filing of the appeals stand condoned and the appeals are disposed off on merits.
ITA No.2389/Chny/2017 for the AY 2010-11:
In the assessee’s appeal, the assessee has raised the following grounds:
1. The order of the learned Commissioner of Income (Appeals)-3, is wrong, illegal and is opposed to law.
2. The learned CIT(A) erred in disallowing the Cost of Operation of Rs.1,81,50,000/- against which the appellant has earned income during the year under appeal. 3. The learned CIT(A) ought to have seen that the appellant had declared interest income under the head other sources and claimed the interest paid under section 57 of the Income Tax Act. The learned CIT(A) erred in law in disallowing the appellants claim of interest expenditure made under section 57 of the Income Tax Act. 4. The learned CIT(A) ought to have seen that as per section 57(iii) any expenditure which is not capital in nature and which is expended wholly and exclusively for the purpose of earning income from other sources shall be allowed as deduction. In the instant case, the expenditure of interest is expended wholly and exclusively for the purpose of earning interest and is for the purpose of earning interest income therefore is allowable under section 57(iii) of the Income Tax Act. 5. The learned CIT(A) erred in law in not adjudicating the ground raised by the appellant with regard to Tax credit of Rs.2,03,95,000/- which is duly reflected in Form 26AS and Annual tax Statement under section 203AA of the Income Tax Act.
& 2390/Chny/2017 :- 3 -:
6. The learned CIT(A) erred in law in not directing the Assessing Officer to give credit to taxes which are duly reflected in Form 26AS and Annual tax Statement under section 203AA of the Income Tax Act.
7. The learned CIT(A) erred in law in levying interest under section 234B, 234D and 244A of the Income Tax Act. For these and other grounds that may be rendered at the time of hearing it is most humbly prayed that the Hon’ble Tribunal may be pleased to allow the appellants appeal and thus render justice.
It was submitted by the Ld.AR that in regard to Ground No.2 the assessee is in the business of civil contract and other related works. The assessee had during the relevant Assessment Year been awarded a contract work by its holding company M/s.Marg Ltd., for the development work at the site of M/s.Dishman Infrastructure Ltd., for SEZ at Ahmedabad, Gujarat. The assessee had entered into contract as per the MOA for 10,20,408 Sq. Mtrs. The same was sub-contracted by the assessee to M/s.Coastal Projects Pvt. Ltd., wherein, the area mentioned was 10,60,000 Sq. Mtrs. Consequently, the AO questioned the genuineness of the expenditure claimed in respect of the cost of operations in respect of the said sub-contract of Rs.9,88,56,012/-. It was a submission that there was a survey on the premises of the assessee and in the course of the survey and amount of Rs.6.00 Crs. had been admitted by the assessee. It was a submission that the AO treated the said amount of Rs.6.00 Crs. admitted as part of the expenditure in respect of the sub- contract and out of the balance of Rs.3.60 Crs. he disallowed Rs.1,81,50,000/-. The Ld.AR drew our attention to the Work Order issued by the assessee to M/s.Coastal Projects Pvt. Ltd. It was a submission that the original sub-contract was dated 08.01.2010 which was subsequently & 2390/Chny/2017 :- 4 -:
after discussion revised and issued on 02.02.2010. It was a submission that the Invoice raised by M/s.Coastal Projects Pvt. Ltd., on the assessee was only for 9 lakhs Sq. Mtrs. and that too on estimated basis. The Ld.AR drew our attention to Page No.5 of the Paper Book. The Ld.AR further drew our attention to Page No.6 which was a copy of the Ledger which showed the payment of Rs.9,63,25,000/- in respect of the SEZ Project and the Invoice raised by M/s.Coastal Projects Pvt. Ltd., on 20.03.2010. It was a submission that the quantification of the area as taken by the AO on 08.01.2010 had been revised and the Invoice was for an area of only 9 lakhs Sq. Mtrs. It was a submission that the AO in his Assessment Order has recognized the figure of Rs.9,63,,25,478/- which, in fact, is the Ledger value of Rs.9,63,25,000/- and the Invoice amount. It was a submission that no disallowance in respect of the same was called for in the hands of the assessee. It was a further submission that in respect of Ground Nos.3 to 6, the issue was identical to the issue decided in the case of sister concern company M/s.Arohi Infrastructure Pvt. Ltd., and M/s.Aparti Constructions Pvt. Ltd., in & ITA No.2392/Chny/2017 respectively dated 03.05.2018. It was a submission that moneys had been taken on loan from M/s.Marg Ltd., which is a holding company and as the funds were not immediately required, the same had been advanced to sister concerns and the interest received was set off as against the interest expenditure and the surplus offered to tax.
It was a submission that the AO did not allow the assessee the benefit of the claim of expenditure u/s.57 of the Act. & 2390/Chny/2017 :- 5 -:
In reply, the Ld.DR vehemently supported the order of the AO & the Ld.CIT(A).
The Ld.DR drew our attention to Para Nos.7.1 to 7.3 of the order of the Ld.CIT(A). It was a submission that the order of the AO and the Ld.CIT(A) are liable to be sustained.
We have considered the rival submissions.
A perusal of the Assessment Order as also the order of the Ld.CIT(A) shows that the allegation is that the assessee has sub- contracted the work taken from M/s.Marg Ltd., to M/s.Coastal Projects Pvt. Ltd. and the area of the contract work sub-contracted was higher than the area which has been taken on contract by the assessee from M/s.Marg Ltd. A perusal of the Work Order dated 02.02.2010 tallies with that of the Assessment Order but a copy of the Invoice raised by M/s.Coastal Projects Pvt. Ltd., clearly shows that the area to be approximately 9 lakhs Sq. Mtrs. which is less than the area 10,20,408 Sq.
Mtrs. contracted by the assessee. This being so, it cannot be said that the sub-contract given by the assessee to M/s.Coastal Projects Pvt. Ltd., is not genuine or that it is not proved. A perusal of the sub-contract as also the Invoice clearly shows that the area is an estimated quantity only. This being so, we find no reason to disallow the expenditure nor is there any evidence to show that the transaction entered into between the assessee & 2390/Chny/2017 :- 6 -: and M/s.Coastal Projects Pvt. Ltd., was not genuine. In these circumstances, the addition as made by the AO in respect of the sub- contracting of the contract work to M/s.Coastal Projects Pvt. Ltd. representing the expenses claimed towards cost of operation stands deleted.
In regard to the issue of disallowance of the expenditure towards interest to an extent of Rs.5,73,85,943/- disallowed by the AO, it is noticed that the issue is squarely covered by the decision of this Tribunal in the case of sister concerns of the assessee being M/s.Arohi Infrastructure Pvt. Ltd., and M/s.Aparti Constructions Pvt. Ltd., in & ITA No.2392/Chny/2017 respectively dated 03.05.2018, wherein it has been held as follows:
9. A perusal of the order of the Ld.CIT(A) shows that though opportunities had been granted to the assessees, the assessees have not represented its case before the Ld.CIT(A). The reason for non-representation before the Ld.CIT(A) has been clarified by the Ld.AR stating that the Managing Director of the assessees company was in substantial problems which had resulted in him not being able to give adequate attention. Considering the fact that all the details in respect of the issue have not been considered by the AO and the fact that the assessees have not represented before the Ld.CIT(A) by restoring the issue to the file of the Ld.CIT(A), it would not serve any purpose in so far as any evidence produced before the Ld.CIT(A) on this issue would have to be sent to the AO for his Remand Report. This being so, we are of the view that the issue in this appeal is liable to be restored to the file of the AO for re-adjudication. The AO is to verify whether the loan has actually been taken from the holding company and whether the interest has been paid to such holding company. If the loan has been taken by the assessees from any source and the assessees have paid interest on such loans taken clearly, if the assessees have used such loans for the purpose of giving further loans then the interest paid is liable to be allowed and it is only the net of the interest which is liable to be assessed as the income of the assessees. The AO shall also verify as to whether the Memorandum and Articles of Association of the assessees company permit the assessees company to give loans. The AO shall, after verifying the same, re-adjudicate the issue in accordance with law.
Respectfully following the decision of the Co-ordinate Bench of this Tribunal, the issue is restored to the file of the AO for re-adjudication on identical lines as decided in & ITA & 2390/Chny/2017 :- 7 -:
No.2392/Chny/2017 dated 03.05.2018. Consequently, the appeal filed by the assessee is partly allowed for statistical purposes.
In the assessee’s appeal, the assessee has raised the following grounds:
The order of the learned Commissioner of Income (Appeals)-3, is wrong, illegal and is opposed to law.
2. The learned CIT(A) erred in disallowing the Cost of Operation of Rs.9,00,00,000/- against which the appellant has earned income during the year under appeal.
3. The learned CIT(A) ought to have seen that the appellant had declared interest income under the head other sources and claimed the interest paid under section 57 of the Income Tax Act. The learned CIT(A) erred in law in disallowing the appellants claim of interest expenditure made under section 57 of the Income Tax Act.
4. The learned CIT(A) ought to have seen that as per section 57(iii) any expenditure which is not capital in nature and which is expended wholly and exclusively for the purpose of earning income from other sources shall be allowed as deduction. In the instant case the expenditure of interest is expended wholly and exclusively for the purpose of earning interest and is for the purpose of earning interest income therefore is allowable under section 57(iii) of the Income Tax Act.
5. The learned CIT(A) erred in law in levying interest under section 234B, 234D and 244A of the Income Tax Act.
For these and other grounds that may be rendered at the time of hearing it is most humbly prayed that the Hon’ble Tribunal may be pleased to allow the appellants appeal and thus render justice.
In regard to Ground No.2, it was submitted by the Ld.AR that the AO in the course of the assessment made an addition of Rs.9.00 Crs. on the ground that the same was offered in the course of the survey but the assessee had not disclosed the same in the return. It was a submission that the AO had called for certain details vide letter dated 22.07.2014 and the assessment was completed on 31.03.2014. The assessee was unable to substantiate the details before the AO as the assessee was stuck in & 2390/Chny/2017 :- 8 -:
certain litigations. It was a submission that he has no objection if the issue is restored to the file of the AO for re-adjudication.
In reply, the Ld.DR vehemently supported the order of the AO & the Ld.CIT(A). It was a submission that the details had not been produced before the AO and the Ld.CIT(A).
In regard to Ground Nos.3 & 4, it was submitted by the Ld.AR that the issue was identical to the issue of the disallowance of the interest expenditure as made for the AY 2010-11. To this also the Ld.DR vehemently supported the order of the AO & the Ld.CIT(A).
We have considered the rival submissions.
A perusal of the Assessment Order clearly shows that the assessee did not have adequate opportunity to substantiate its claim before the AO.
This being so, the issue in respect of the addition of Rs.9.00 Crs. is restored to the file of the AO for re-adjudication. Here, it is to be kept in mind that an addition cannot be made merely on the basis of a statement recorded or a unsupported disclosure made by an assessee in the & 2390/Chny/2017 :- 9 -: statement recorded in the course of a survey. Assessment is to be made on the basis of evidences. In regard to the issue of the disallowance of the interest expenditure u/s.57, it is noticed that the issue is squarely covered by the decision of the Co-ordinate Bench of this Tribunal in the case of the sister concern company M/s.Arohi Infrastructure Pvt. Ltd., and M/s.Aparti Constructions Pvt. Ltd., referred to supra, which is also been extracted earlier. In these circumstances, on identical findings, the issue in this appeal is restored to the file of the AO for re-adjudication after granting the assessee adequate opportunity to substantiate its case.
Consequently, the appeal filed by the assessee is partly allowed for statistical purposes.
In the result, the appeals filed by the assessee in & 2390/Chny/2017 are partly allowed for statistical purposes.
Order pronounced in the Open Court on May 09, 2018, at Chennai.