DEPUTY COMMISSIONER OF INCOME-TAX vs. SHRI MUKUND JAISHANKAR DHARIYA,, PUNE

आदेश आदेश / ORDER आदेश आदेश

PER D. KARUNAKARA RAO, AM :

These are the cross appeals filed against the order of CIT(A)-3, Pune, dated 30-01-2015 for the Assessment year 2010-11.

on 30-08-2010 declaring total income of Rs.69,00,670/-. Assessee is a

Director of Dhariya Infrastructure Development Pvt. Ltd. (in short

‘DIDPL’). Earlier, this company was known as Aryan Udyog Pvt. Ltd.

These companies are engaged in the business of Government Contracts

for construction of Dams and Canals and Rehabilitation of Villages.

During the assessment proceedings, AO noticed various discrepancies

in the accounts of the assessee. AO computed the assessed income at

Rs.1,83,70,700/- after making following additions :

Addition as discussed in Para No.5 of the Rs.84,50,000 Assessment Order Addition as discussed in Para No.6 of the Rs.12,18,863 Assessment Order Addition as discussed in Para No.7 of the Rs,9,199 Assessment Order Addition as discussed in Para No.8 of the Rs.2,07,696 Assessment Order Addition as discussed in Para No.9 of the Rs.15,74,272 Assessment Order

The addition of Rs.84,50,000/- was made invoking the provisions of

section 2(22)(e) of the Act, Rs.2,07,696/- was made invoking the

provisions of section 14A and the other additions were made by way of

disallowance of expenses claimed in the profit and loss account

invoking the provisions of section 37 of the Act.

addition of Rs.84,50,000/-, CIT(A) granted part relief of Rs.60,00,000/-

holding that the same was paid by the company in the normal course of

business activities of the assessee. He also confirmed the addition

made u/s.14A of the Act. On other issues, CIT(A) granted part relief.

appeal. Further, aggrieved with the decision of the CIT(A) in confirming

of additions partly or fully, the assessee is in appeal with the grounds

mentioned in the order.

We shall take up the assessee’s appeal first.

ITA No.330/PUN/2015 – By Assessee A.Y. 2010-11

“On facts and circumstances of the case and in law, 1. The Ld.DCIT, Circle-3, Pune, has erred in assessing income under the pretext of section 2(22)(e) of the Act and the Ld.CIT(A)-3, Pune has erred in confirming the same to the extent of Rs.24,50,000/-. 2. The Ld.DCIT, Circle-3, Pune, has erred in disallowing expenses of Rs.2,07,696/- under the pretext of section 14A of the Act and the Ld.CIT(A)-3, Pune has erred in confirming the same. 3. The Ld.DCIT, Circle-3, Pune and the Hon.CIT(A)-3, Pune has erred in ignoring evidence or records and making addition which are beyond provision of the Income Tax Act, 1961 (the Act). 4. The appellant craves leave to add, amend, alter, omit or substitute any of the grounds of appeal.”

Rs.24,50,000/-. It is a part of the gross addition of Rs.84,50,000/-

made by the AO u/s.2(22)(e) of the Act. CIT(A) confirmed only addition

to the extent of Rs.24,50,000/-.

Mentioning that this amount of Rs.24,50,000/- has two

segments, Ld. Counsel for the assessee submitted that Rs.15 lakhs was

received by the assessee towards the security deposit in connection with

the letting of his property to the company DIDPL. Assessee owns a

property which was let out to the company at the monthly rent of

Rs.10,000/- and which works out to Rs.1,20,000/- per year. Rs.15

lakhs was the security deposit. As per the assessee, the same is done

in normal course and therefore, this transaction is outside the scope of

section 2(22)(e) of the Act. AO allowed only Rs.50,000/- before

disallowing the rest of the amount of Rs.14,50,000/- u/s.2(22)(e) of the

Act. CIT(A) confirmed the same. Further, on the other segment of

Rs.10 lakhs, Ld. Counsel assessee submitted that a sum of Rs.10 lakhs

was received from Dhariya Construction Pvt. Ltd. on 04-12-2009. In

this connection, without going into the facts and arguments, Ld.

Counsel fairly submitted that this part of addition is not seriously

contested by the assessee. Therefore, the Tribunal may decide the issue

as per the law. Otherwise, this part of the addition confirmed by the

CIT(A) is ‘not pressed’.

assessee, we perused the order of CIT(A) and find this issue has been

discussed by the CIT(A) in Para No.4 with its sub-paras and confirmed

this part of Rs.10 lakhs by stating the following :

“4.6.1 . . . . . . . . . . . Further, the appellant has also not been able to justify the payment received of Rs.10 lacs from the company DCPL and also not able to bring on record such material in support of the claim to show that the amount received was towards the business of the company . . . . . . . . 4.6.2 Thus, in the light of the foregoing discussion the addition made by the Assessing Officer of Rs.24.50 lacs is liable to be upheld. In the result out of the total addition made by the Assessing Officer of Rs.84,50,000/-, addition to the extent of Rs.24.50 lacs is upheld and the remaining amount of Rs.60 lacs is directed to be deleted.”

From the above, invoking of provisions of section 2(22)(e) of the

Act in respect of Rs.10 lakhs is concerned, it is agreed position that the

same is not pressed by the Ld. Counsel before us. Accordingly, we hold

the order of CIT(A) on the addition of Rs.10 lakhs is fair and reasonable

on this issue. Thus, this part of Ground No.1 raised by the assessee is

dismissed.

7.1 Regarding the addition of Rs.14,50,000/-, we find the same is

received in the name of security deposit in the context of letting out of

the property of the assessee. AO disallowed only Rs.50,000/- towards

security deposit and added the balance amount of Rs.14,50,000/-.

Though the AO is not right person to decide what amount constitutes

the right amount of security deposit for letting of the property,

assessee’s explanation that the same was received in the normal course

of business activity requires special attention. It is an admitted fact

that the business of the assessee is not letting out of the properties.

Notwithstanding to the same, it may be true that the requirement of

payment of security deposit do exist in the free market of letting out of

the property. Interpreting the deeming provisions strictly, we are of the

opinion that the payment of Rs.15 lakhs received by the assessee is

outside the provisions of section 2(22)(e) of the Act. Therefore, we are of

the opinion that the assessee should be entitled to relief of

Rs.14,50,000/- on this aspect. To that extent, the finding of CIT(A)

given in Para No.4.6.2 stands reversed. Thus, Ground No.1 by the

assessee is partly allowed.

disallowance of exempt income earned by the assessee u/s.14A of the

Act amounting to Rs.2,07,696/-.

Relevant facts on this issue include that assessee earned dividend

and interest on PPF as exempt income. From the profit and loss

account of the assessee, AO noticed that assessee made expenditure

under several heads which are indirectly related to earning the exempt

income. Eventually, the AO, relying on the decision of Mumbai Bench

of the Tribunal in the case of Daga Capital Management Services Ltd.

and others quantified the expenditure attributable to earning of exempt

income at Rs.2,07,696/- and added the same to the assessed income.

CIT(A), after elaborately discussing the law laid down in the Finance Act

2001, Finance Act, 2006 and the scope of Rule 8D of the I.T. Rules,

came to the conclusion that the assessee has undisputedly earned

exempt income and hence, section 14A is applicable in the case of the

assessee. While reaching the said conclusion, he relied on the

judgment of Hon’ble Bombay High Court in the case of Godrej & Boyce

Mfg. Co. Ltd. Vs. DCIT 328 ITR 81 (Bom.) and the decision in the case of

ACIT Vs. Champion Commercial Co. Ltd. 139 ITD 108 (Kol.).

Eventually, the CIT(A) confirmed the said disallowance made by the AO.

Aggrieved with the same, the assessee is in appeal before us.

that the disallowance made by the AO and confirmed the CIT(A)

exceeded the exempt income quantitatively. For this purpose, assessee

relied on the decision of Mumbai Bench of the Tribunal in the case of

Daga Global Chemicals Pvt. Ltd. Vs. ACIT 82 taxmann.com 254

(Mumbai-Trib.) as well as the decision of Delhi Bench of the Tribunal in

the case of M/s. Amar Packaginig Pvt. Ltd. Vs. ITO – ITA

No.2358/Del./2013, dated 29-04-2016 and submitted that the

disallowance if any cannot exceed the exempt income earned by the

assessee.

requires to revisit the file of AO in the light of the decision of Mumbai

Bench of the Tribunal in the case of Daga Global Chemicals Pvt. Ltd.

Vs. ACIT (supra) wherein the Tribunal has observed (Held portion) as

under :

“Held that no borrowed funds were utilised for earning the exempt income by the assessee and further the dividend were directly credited in the bank account of the assessee and no expenditure was claimed. Further, the assessee only received Rs.1,82,362/- as dividend income,

therefore, there is no question of disallowance of Rs.14,58,412/- by invoking section 14A read with rule 8D under the facts available on record. Further, disallowance under section 14A read with rule 8D cannot exceed the exempt income.”

Considering the same, we are of the opinion that the issue should

be remanded to the file of AO for applying the aforesaid ratio of the

decisions/judgments. Accordingly, we direct the AO to follow the

directions given by the Tribunal (supra) and re-adjudicate the issue in

the light of the same and other decisions if any as per law. Accordingly,

this issue raised by the assessee is allowed for statistical purposes.

statistical purposes.

We shall now take up appeal of the Revenue.

ITA No.754/PUN/2015 – By Revenue A.Y. 2010-11

“1. On the facts and circumstances of the case, the Ld. CIT(A) erred in deleting addition at deemed dividend u/s 2(22)(e) to the extent of Rs. 60 lacs received from M/s. Dhariya Infrastructure Development Pvt. Ltd. (DIDPL) in which his share holding is 23.04% without appreciating the fact that the so called mobilization advance of Rs. 60 lacs is nothing but a loan.

b. On the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the disallowance made by the AO of Rs.15,74,272/- on account of payment to six labour contractors even though the assessee has neither submitted the address of the six sub-contractors nor their PANs

and consequently, it was not possible for the AO to verify genuineness of payments to such contractors. c. On the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the disallowance made by the AO of Rs.15,74,272/- on account of payment to six labour contractors even though the assessee has not discharged onus on him to prove the genuineness of such expenses incurred.”

CIT(A) holding that the same is outside the scope of section 2(22)(e) of

the Act.

Briefly stated relevant facts are that the assessee owns

agricultural lands and the same were to be sold to DIDPL, the company

in which the assessee is a Director. To that extent, an agreement was

reached between the parties on 24-08-2009 (page 20 of the paper book).

As per the agreement, the said agricultural land requires to be

converted into Non-Agricultural land by the assessee and obtain the

requisite permissions in this regard for use of the said land for erecting

a stockyard for the company. Subject to the said condition, assessee

would receive a sum to the tune of Rs. 1 crore depending on the

progress of work. The first instalment of Rs.50 lakhs would be paid

immediately. These advances would be converted into the deposit and

advance rent on completion of the development work. It is also

mentioned that assessee should refund the same with interest, in case

of non-compliance to the condition by the assessee. During the year,

assessee received Rs.60 lakhs from DIDPL. In the assessment

proceedings, the same was treated by the AO as loan or advance in

violation of the provisions of section 2(22)(e) of the Act. Assessee

submitted that the said amounts were received in the normal course of

the business activities of the assessee and the same was rejected by the

AO. Further, assessee submitted that the said transaction of sale of

lands did not fructify due to failure on part of the assessee in obtaining

necessary permissions from the State Govt. Further also, assessee

submitted that the said amount of Rs.60 lakhs was refunded eventually

with interest due to non-compliance to item No.10 of the terms and

conditions of the agreement. In such circumstances, as per assessee,

the provisions of section 2(22)(e) of the Act should not be invoked.

Aggrieved with the same, the Revenue is in appeal before us.

Revenue submitted that the facts relating to application to Govt.

authorities for conversion of agricultural lands into NA lands is not on

record. Referring to page 24 of the paper book, Ld. DR submitted that

the same relates to application made by Shri Mohan Riswadkar and not

the assessee under consideration. The same does not indicate the

eventual failure on part of the assessee to obtain the NA lands

permission. He further submitted that the facts relating to refunding of

the amounts are also not on record. Even before us, assessee could

not demonstrate the date of repayment of said sum of Rs.60 lakhs to

the DIDPL. Without going into the integrity of these facts and

transactions, Ld. DR opined that the relief granted by the CIT(A) to the

assessee is premature.

the order of the CIT(A) as well as referred to the relevant papers in the

paper book.

and the paper book filed before us. It is an admitted fact that the

assessee owns certain lands and the said lands were to be sold to

DIDPL which is engaged in sale of earth moving equipment of L&T

Komatsu & L&T Case Equipment Pvt. Ltd. This company is a dealer for

18 districts of Maharashtra and it has a proposal to develop stock yard,

workshop, parts outlet etc. For the said purpose, the company selected

a land owned by Shri Mukund Dhariya, the assessee who is the

proprietor of Aryan Construction. Assessee offered his land situated at

Gut No.35 of Village Maan for the said purpose. It is an undisputed fact

that assessee received Rs. 60 lakhs as advance and is a director of the

company. However, he argues that the said amount is received not as a

shareholder from the company but in the normal course of business

activities of the assessee.

On hearing both the parties, we find the assessee’s business is

not sale of agricultural lands after obtaining the permissions. He is the

proprietor of Aryan Construction engaged in the construction activities.

We do not have the financial statements of the assessee for the year

under consideration. Though the explanation of the assessee includes

non-compliance of the conditions set by the company in the agreement,

the documentation is not clearly made out before the CIT(A) or even

before us. Further, the argument relating to the refund of the money

with interest was also not demonstrated conclusively before us.

Further, it is not clear as to how the said payment of Rs.60 lakhs by the

company to the assessee constitutes payment in normal course of

business when the assessee’s business is not sale of lands after

obtaining the requisite permissions. It may be a case of payment in

normal transactions but we are of the opinion that the same cannot be

considered as payment in the normal course of business activities of the

assessee. The sale of land cannot be considered as business activity of

the assessee on the given facts. However, we are of the opinion that

this aspect requires some more scrutiny of the relevant documents.

Therefore, assessee is directed to furnish the same before the CIT(A).

We direct the CIT(A) to entertain the same and re-adjudicate the issue

afresh after granting reasonable opportunity of being heard to the

assessee. Accordingly, Ground No.1 raised by the Revenue is allowed

for statistical purposes.

the allowability of claim of expenditure of Rs.15,74,272/- incurred by

the assessee.

Relevant facts include that assessee paid the said sum to six

labour contractors. According to the information, these six contractors

bear PAN numbers, paid taxes on the receipts. However, it is

undisputed fact that the assessee did not further the requisite

addressed to the AO for scrutiny as to the genuineness of the payments.

AO disallowed the same. However, CIT(A) granted relief relying on the

order of the Tribunal in assessee’s own case in ITA No.516/PN/2011,

dated 09-08-2002 for the A.Y. 2006-07.

the Tribunal in assessee’s own case (supra), Ld. DR for the Revenue

submitted that the issue raised in Ground No.2 – making payments to

the sub-contractor, is different from the labour charges incurred by the

assessee directly in connection with the business activities. To that

extent, the decision of the Tribunal relied on by the CIT(A) is on wrong

facts. Therefore, Ld. DR for the Revenue requested for remanding this

issue to the file of CIT(A) for fresh adjudication.

CIT(A). He however submitted that the payments made by the assessee

in that A.Y. 2006-07 were not direct payments to labour unlike the

payments through the contractors in the year under consideration. He

argued that furnishing of PAN numbers of the sub-contractors is good

enough for the AO to conduct investigation into the genuineness of the

transactions, if he so desires.

failure in discharging of onus by the assessee when claim of deduction

is made. In our view, the assessee has not discharged the same and did

not furnish the basic details relating the payments to the sub-

contractors. Assessee is under obligation to demonstrate that the said

parties received the payments, income-tax details of the said payees,

particulars of the TDS etc. For this purpose, we find it relevant to

remand this issue raised vide Ground No.2 with its sub-grounds to the

file of CIT(A) for fresh adjudication. CIT(A) shall grant reasonable

opportunity of being heard to the assessee as per law.

purposes.

purposes and the appeal of the Revenue is allowed for statistical

purposes.

Order pronounced in the open court on this 11th day of April,

2018.

Sd/- Sd/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) �याियक �याियक सद�य �याियक �याियक सद�य सद�य /JUDICIAL MEMBER लेखा सद�य लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य पुणे Pune; �दनांक Dated : 11th April, 2018 सतीश

आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : अ�ेिषत

अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. 3. The CIT(A)-3, Pune 4. CIT-3, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “A Bench” Pune; 5. गाड� फाईल / Guard file. 6.

आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार

स�यािपत �ित //True Copy// //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune