KASUSALYA AVENUES PRIVATE LIMITED ,KARIMNAGAR vs. DY. COMMISSIONER OF INCOME TAX , CENTRAL CIRCLE-2(3), HYDERABAD

First, we will deal with assessee’s appeal in ITA No.681/Hyd/ 2020 for A.Y. 2012-13.

The brief facts of the case are that the appellant is a private limited company engaged in the business of construction and sale of residential and commercial flats. The assessee has filed its return of income for the assessment year 2012-13 on 26.04.2018 admitting total income of Rs.54,580/-. A search and seizure operation under Section 132 of the Act was conducted on 07-04-2017 on the assessee, as part of the search conducted on M/s.Kapil Consultancy Services Pvt. Ltd. and others. Consequent to the search, the assessment was completed under Section 143(3) r.w.s. 153A of the Income Tax Act, 1961 on 27.12.2019 and determined the total

On appeal, the ld. CIT(A) for the reasons stated in their order dated 18.09.2020 had confirmed the addition made towards disallowance of finance charges to an extent of Rs.54,22,428/-, however, deleted the addition made under Section 14A of the Act.

The assessee preferred a further appeal before the ITAT, and the ITAT, vide its common order in ITA No.681/Hyd/2020 dated 21- 03-2022, set aside the issue to the file of AO for verification. The assessee filed an appeal before the Hon'ble High Court of Telangana against the common order passed by the Tribunal and contested that the Tribunal can decide only those issues which are subject to appeal before the Tribunal, and the issues already decided by the ld. CIT(A) and not challenged by the Department cannot be decided, nor can the appeal be set aside in total. The Hon'ble High Court of Telangana vide its order dated 02-02-2023, set aside the common order of the Tribunal passed on 21-03-2022, and directed the Tribunal to hear the appeals before it on the limited grounds urged by the appellant, namely, disallowance of finance charges under Section 36(1)(iii) of the Act to the extent disallowed by the first appellate authority as well as the validity of the reassessment proceedings.

The solitary issue that came up for our consideration in Ground Nos.2 to 4 of the assessee's appeal is the disallowance of finance charges of Rs.54,22,428/- confirmed by the ld.CIT(A) under Section 36(1)(iii) of the Income Tax Act, 1961. During the course of the assessment proceedings, the AO noticed that the real estate companies of Kapil Group have been accepting advance for sales of residential / commercial office space by entering into an MOU with potential customers. As per the MOU, the potential customer has to pay 80% of the sale consideration and choose an advance PUT option for redeeming the advance given. Depending upon the period of advance PUT option, interest will be paid ranging from 10% to 14%. The potential customer can get the office space or flat registered by paying the balance 20% of the consideration before the advance PUT option period ended. If the potential customer withdraws the advance amount earlier to advance PUT option, he will be given much lesser interest than the promised interest. The AO observed that as per Schedule 17 annexed to the Profit and Loss Account filed by the assessee, an amount of Rs.67,85,773/- has been claimed as interest charges under the head Revenue Expenses and added to work-in-progress. The AO called upon the assessee to file necessary evidence and also justification for the interest debited under the head Revenue Expenses added to work-in-progress. In response, the assessee submitted that it has paid interest amounting to Rs.67,85,773/- to customers on advance paid by them in light of MOUs and as the same was incidental to the business, it has debited to the Profit and Loss Account. However, the said amount was taken to the balance sheet under the head work-in- progress for claiming the same proportionately against the revenue from sale of flats in the future. The assessee further submitted that 4

The AO, however, was not convinced with the explanation furnished by the assessee. According to the AO, although the assessee has furnished general reply regarding the purpose of the funds received as an advance for the purchase of office space, but failed to explain the utility of the advances for the purpose of the business of the assessee. The AO further observed that the appellant has diverted advances received from customers to various other group companies. Therefore, the AO opined that the interest paid can not be justified just because TDS has been deducted on the said interest. Accordingly, the AO disallowed the interest debited under finance charges and carried forward to work-in-progress amounting to Rs.67,85,773/- under Section 36(1)(iii) of the Income Tax Act, 1961.

The assessee carried the matter in appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee submitted that the interest paid on customers' advance is wholly and exclusively incurred for the purpose of business and further, the assessee has paid interest on customers' advance, as per the terms of MOU with customers. The ld. CIT(A), after considering the relevant submissions of the

The learned counsel for the assessee, Shri S. Rama Rao, submitted that the ld. CIT(A) is erred in sustaining the addition made by the AO towards disallowance of finance charges on altogether a different ground, even though, the AO disallowed interest on the ground that the appellant has not established utilization of advances from customers for the purpose of business of the assessee. The learned counsel for the assessee further submitted that the assessee is into the business of real estate development, collects advances from customers for sale of residential flats and commercial space. The customers pay 80% of consideration in advance in terms of MOU. The MOU provides for payment of interest @ of 10% to 14% in case of delay in delivery of flats. As per the agreement between customers, the appellant has paid interest on customers' advance and the same has been debited under the head finance charges. The ld.CIT(A) without appreciating the relevant facts, confirmed the addition to an extent of Rs.54,22,428/- out of the total disallowance of Rs.67,85,773/- and the order should be set aside.

The ld.DR Ms. Reema Yadav, on the other hand, supporting the order of ld. CIT(A), submitted that the assessee has received advance from customers and also diverted funds to various group companies in the form of share capital and loans and advances. The assessee has not filed any evidence to prove utilization of advances received from the customers for the purpose of business of the assessee. Therefore, the AO has rightly disallowed interest expenses and therefore, their order should be upheld.

We have heard the rival submissions and perused the material on record and gone through the orders of the authorities below. The fact borne out from the record indicates that the assessee being in the business of real estate development, has collected advances from customers for sale of flats / commercial complexes in terms of MOU. As per the terms of MOU between the appellant and the customers, there is a provision for payment of interest ranging from 10% to 14% in case of any delay in delivery of flats to the customers. As per the contractual agreement with the customers in terms of MOU, the assessee has paid interest on customers' advances and debited under the head finance charges. The AO has disallowed interest expenses on the ground that the appellant failed to prove utilization of advances received from customers for the purpose of business. The ld. CIT(A) went on a different footing and computed disallowance of interest for diversion of interest-bearing funds for non-business purpose. We find that the basic business of the assessee is real estate development, and in that process, the assessee collected advances from customers for sale of flats. As per 7

In the result, the appeal filed by the assessee is allowed.

The brief facts of the case are that the appellant is a private limited company engaged in the business of construction and sale of residential and commercial flats. The assessee has filed its return of income for the assessment year 2013-14 on 26.04.2018 declaring total income of Rs.5,56,67,561/-. A search and seizure operation under Section 132 of the Act was conducted on 07-04-2017 on the assessee, as part of the search conducted on M/s.Kapil Consultancy Services Pvt. Ltd. and others. Consequent to the search, the assessment was completed under Section 143(3) r.w.s. 153A of the Income Tax Act, 1961 on 27.12.2019 and determined the total income at Rs.5,56,67,561/- by making addition towards disallowance of finance charges, disallowance under Section 14A of the Act and disallowance towards interest on redeemable debentures. 14. The assessee carried the matter in appeal before the ld.CIT(A). The ld.CIT(A) for the reasons stated in their order dated 18-09-2020, has deleted the additions towards finance charges and disallowance u/s 14A of the Act, however, confirmed the addition made on account of interest on redeemable debentures.

The assessee preferred a further appeal before the ITAT, and the ITAT, vide its common order in ITA No.682/Hyd/2020 dated 21- 03-2022, set aside the issue to the file of AO for verification. The assessee filed an appeal before the Hon'ble High Court of Telangana

The solitary issue that came up for our consideration in Ground No.2 of the assessee's appeal is the addition towards estimated interest receivable on redeemable debentures for Rs. 1,47,63,000/-.

The learned counsel for the assessee Shri S. Rama Rao, submitted that the addition made by the AO towards estimated interest on redeemable debentures is unsustainable in law because said addition is not based on any material found during the course of the search. The ld.AR further referring to dates, and events, submitted that the assessment for the impugned assessment year is unabated / concluded as on the date of search i.e., on 07-04-2017, because the original assessment was completed under Section 143(3) of the Act on 03-03-2016 i.e., much before the date of search

The ld.DR Ms. Reema Yadav, on the other hand, submitted that during the course of the search, the modus operandi of Kapil Group of companies was unearthed, and as per the said information, the AO has made addition towards interest on redeemable debentures where the appellant was not offered any income even though interest on debentures is taxable. The ld.CIT(A) after considering the facts, has rightly confirmed the addition made by the AO, and therefore, their order should be upheld.

We have heard both the parties and gone through the orders of the authorities below. There is no dispute with regard to the fact that the assessment for the impugned assessment year has been unabated as on the date of search, because the original assessment under section 143(3) of the Act has been completed on 03.03.2016 i.e., much before the date of search in the group of Kapil Consultancy Services Pvt. Ltd. on 07.04.2017. Once the assessment is completed, then no additions can be made in the absence of any incriminating material, and this principle is supported by the decision of Hon'ble Supreme Court in the case of CIT Vs. Abhisar Builders Pvt. Ltd (supra). A similar view has been taken by the Hon'ble Supreme Court in the case of PCIT v. Jay Ambey Aromatics

In the result, the appeal of the assessee is allowed.

The brief facts of the case are that the appellant is a private limited company engaged in the business of construction and sale of residential and commercial flats. The assessee has filed its return of income for the assessment year 2016-17 on 26.04.2018 admitting total income of Rs.69,77,200/-. A search and seizure operation under Section 132 of the Act was conducted on 07-04-2017 on the assessee, as part of the search conducted on M/s.Kapil Consultancy Services Pvt. Ltd. and others. Consequent to the search, the assessment was completed under Section 143(3) r.w.s. 153A of the Income Tax Act, 1961 on 27.12.2019 and determined the total income at Rs.4,94,32,582/- by making additions towards disallowance of finance charges and disallowance under Section 14A of the Act.

On appeal, the ld. CIT(A) for the reasons stated in their order dated 18.09.2020 had confirmed the addition made towards disallowance of finance charges to an extent of Rs.54,95,788/-, however, deleted the addition made under Section 14A of the Act.

The assessee preferred a further appeal before the ITAT, and the ITAT, vide its common order in ITA No.683/Hyd/2020 dated 21- 03-2022, set aside the issue to the file of AO for verification. The assessee filed an appeal before the Hon'ble High Court of Telangana against the common order passed by the Tribunal and contested that the Tribunal can decide only those issues which are subject to appeal before the Tribunal, and the issues already decided by the ld. CIT(A) and not challenged by the Department cannot be decided, nor can the appeal be set aside in total. The Hon'ble High Court of Telangana vide its order dated 02-02-2023, set aside the common order of the Tribunal passed on 21-03-2022, and directed the Tribunal to hear the appeals before it on the limited grounds urged by the appellant, namely, disallowance of finance charges under Section 36(1)(iii) of the Act to the extent disallowed by the first appellate authority as well as the validity of the reassessment proceedings.

The solitary issue that came up for our consideration in Ground Nos.2 to 4 of the assessee's appeal is the disallowance of finance charges of Rs.54,95,788/- confirmed by the ld.CIT(A) under Section 36(1)(iii) of the Income Tax Act, 1961. During the course of the assessment proceedings, the AO noticed that the real estate companies of Kapil Group have been accepting advance for sales of 13

The AO, however, was not convinced with the explanation furnished by the assessee. According to the AO, although the assessee has furnished general reply regarding the purpose of the funds received as an advance for the purchase of office space, but failed to explain the utility of the advances for the purpose of the business of the assessee. The AO further observed that the appellant has diverted advances received from customers to various other group companies. Therefore, the AO opined that the interest paid cannot be justified just because TDS has been deducted on the said interest. Accordingly, the AO disallowed the interest debited under finance charges and carried forward to work-in-progress amounting to Rs.4,16,72,042/- under Section 36(1)(iii) of the Income Tax Act, 1961.

The assessee carried the matter in appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee submitted that the interest paid on customers' advance is wholly and exclusively incurred for the purpose of business and further, the assessee has paid interest on customers' advance, as per the terms of MOU with customers. The ld. CIT(A), after considering the relevant submissions of the assessee and also taken note of the fact that the assessee has made investments in various group companies, amounting to Rs. 9,22,77,008/- whereas own funds being shareholder funds and long-term borrowings is not sufficient to cover investments and

The learned counsel for the assessee, Shri S. Rama Rao, submitted that the ld. CIT(A) is erred in sustaining the addition made by the AO towards disallowance of finance charges on altogether a different ground, even though, the AO disallowed interest on the ground that the appellant has not established utilization of advances from customers for the purpose of business of the assessee. The learned counsel for the assessee further submitted that the assessee is into the business of real estate development, collects advances from customers for sale of residential flats and commercial space. The customers pay 80% of consideration in advance in terms of MOU. The MOU provides for payment of interest @ of 10% to 14% in case of delay in delivery of flats. As per the agreement between customers, the appellant has paid interest on customers' advance and the same has been debited under the head finance charges. The ld.CIT(A) without appreciating the relevant facts, confirmed the addition to an extent of Rs.54,95,788/- out of the total disallowance of Rs.4,16,72,042/- and the order should be set aside.

The ld.DR Ms. Reema Yadav, on the other hand, supporting the order of ld. CIT(A), submitted that the assessee has received advance from customers and also diverted funds to various group companies in the form of share capital and loans and advances. The assessee has not filed any evidence to prove utilization of advances received from the customers for the purpose of business of the assessee. Therefore, the AO has rightly disallowed interest expenses and therefore, their order should be upheld.

We have heard the rival submissions and perused the material on record and gone through the orders of the authorities below. The fact borne out from the record indicates that the assessee being in the business of real estate development, has collected advances from customers for sale of flats / commercial complexes in terms of MOU. As per the terms of MOU between the appellant and the customers, there is a provision for payment of interest ranging from 10% to 14% in case of any delay in delivery of flats to the customers. As per the contractual agreement with the customers in terms of MOU, the assessee has paid interest on customers' advances and debited under the head finance charges. The AO has disallowed interest expenses on the ground that the appellant failed to prove utilization of advances received from customers for the purpose of business. The ld. CIT(A) went on a different footing and computed disallowance of interest for diversion of interest-bearing funds for non-business purpose. We find that the basic business of the assessee is real estate development, and in that process, the assessee collected advances from customers for sale of flats. As per the agreement with the customers, the assessee has paid interest in

In the result, the appeal filed by the assessee is allowed.

The brief facts of the case are that the appellant is a private limited company engaged in the business of construction and sale of residential and commercial flats. The assessee has filed its return of income for the assessment year 2017-18 on 30.10.2017 admitting total income of Rs.27,59,640/-. A search and seizure operation under Section 132 of the Act was conducted on 07-04-2017 on the assessee, as part of the search conducted on M/s.Kapil Consultancy Services Pvt. Ltd. and others. Consequent to the search, the assessment was completed under Section 143(3) r.w.s. 153A of the Income Tax Act, 1961 on 27.12.2019 and determined the total income at Rs.5,36,76,693/- by making additions towards disallowance of finance charges and disallowance under Section 14A of the Act.

On appeal, the ld. CIT(A) for the reasons stated in their order dated 18.09.2020 had confirmed the addition made towards disallowance of finance charges to an extent of Rs.95,48,200/-, however, deleted the addition made under Section 14A of the Act.

The assessee preferred a further appeal before the ITAT, and the ITAT, vide its common order in ITA No.684/Hyd/2020 dated 21- 03-2022, set aside the issue to the file of AO for verification. The assessee filed an appeal before the Hon'ble High Court of Telangana against the common order passed by the Tribunal and contested that the Tribunal can decide only those issues which are subject to

The solitary issue that came up for our consideration in Ground Nos.2 to 4 of the assessee's appeal is the disallowance of finance charges of Rs.95,48,200/- confirmed by the ld.CIT(A) under Section 36(1)(iii) of the Income Tax Act, 1961. During the course of the assessment proceedings, the AO noticed that the real estate companies of Kapil Group have been accepting advance for sales of residential / commercial office space by entering into an MOU with potential customers. As per the MOU, the potential customer has to pay 80% of the sale consideration and choose an advance PUT option for redeeming the advance given. Depending upon the period of advance PUT option, interest will be paid ranging from 10% to 14%. The potential customer can get the office space or flat registered by paying the balance 20% of the consideration before the advance PUT option period ended. If the potential customer withdraws the advance amount earlier to advance PUT option, he will be given much lesser interest than the promised interest. The AO observed that as per Schedule 17 annexed to the Profit and Loss

The AO, however, was not convinced with the explanation furnished by the assessee. According to the AO, although the assessee has furnished general reply regarding the purpose of the funds received as an advance for the purchase of office space, but failed to explain the utility of the advances for the purpose of the business of the assessee. The AO further observed that the appellant has diverted advances received from customers to various other group companies. Therefore, the AO opined that the interest paid

The assessee carried the matter in appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee submitted that the interest paid on customers' advance is wholly and exclusively incurred for the purpose of business and further, the assessee has paid interest on customers' advance, as per the terms of MOU with customers. The ld. CIT(A), after considering the relevant submissions of the assessee and also taken note of the fact that the assessee has made investments in various group companies, amounting to Rs. 9,24,36,370/- whereas own funds being shareholder funds and long-term borrowings is not sufficient to cover investments and thus, opined that the appellant diverted funds to the tune of Rs. Rs.7,95,68,339/-, therefore, worked out interest expenses @ 12% of Rs.7,95,68,339/- on funds diverted to other group companies and partly confirmed the addition made by the AO towards disallowance of finance charges.

The learned counsel for the assessee, Shri S. Rama Rao, submitted that the ld. CIT(A) is erred in sustaining the addition made by the AO towards disallowance of finance charges on altogether a different ground, even though, the AO disallowed interest on the ground that the appellant has not established

The ld.DR Ms. Reema Yadav, on the other hand, supporting the order of ld. CIT(A), submitted that the assessee has received advance from customers and also diverted funds to various group companies in the form of share capital and loans and advances. The assessee has not filed any evidence to prove utilization of advances received from the customers for the purpose of business of the assessee. Therefore, the AO has rightly disallowed interest expenses and therefore, their order should be upheld.

We have heard the rival submissions and perused the material on record and gone through the orders of the authorities below. The fact borne out from the record indicates that the assessee being in the business of real estate development, has collected

In the result, the appeal filed by the assessee is allowed.

The brief facts of the case are that the appellant is a private limited company engaged in the business of construction and sale of residential and commercial flats. The assessee has filed its return of income for the assessment year 2018-19 on 01.10.2018 admitting total income of Rs.29,42,310/-. A search and seizure operation under Section 132 of the Act was conducted on 07-04-2017 on the assessee, as part of the search conducted on M/s.Kapil Consultancy Services Pvt. Ltd. and others. Consequent to the search, the assessment was completed under Section 143(3) of the Income Tax Act, 1961 on 27.12.2019 and determined the total income at Rs.5,01,47,232/- by making additions towards disallowance of finance charges and disallowance under Section 14A of the Act.

On appeal, the ld. CIT(A) for the reasons stated in their order dated 18.09.2020 had confirmed the addition made towards disallowance of finance charges to an extent of Rs.79,87,930/-, however, deleted the addition made under Section 14A of the Act.

The assessee preferred a further appeal before the ITAT, and the ITAT, vide its common order in ITA No.685/Hyd/2020 dated 21- 03-2022, set aside the issue to the file of AO for verification. The assessee filed an appeal before the Hon'ble High Court of Telangana against the common order passed by the Tribunal and contested that the Tribunal can decide only those issues which are subject to appeal before the Tribunal, and the issues already decided by the ld. CIT(A) and not challenged by the Department cannot be decided, nor can the appeal be set aside in total. The Hon'ble High Court of Telangana vide its order dated 02-02-2023, set aside the common order of the Tribunal passed on 21-03-2022, and directed the Tribunal to hear the appeals before it on the limited grounds urged by the appellant, namely, disallowance of finance charges under Section 36(1)(iii) of the Act to the extent disallowed by the first appellate authority as well as the validity of the reassessment proceedings.

The solitary issue that came up for our consideration in Ground Nos.2 to 4 of the assessee's appeal is the disallowance of finance charges of Rs.79,87,930/- confirmed by the ld.CIT(A) under Section 36(1)(iii) of the Income Tax Act, 1961. During the course of the assessment proceedings, the AO noticed that the real estate companies of Kapil Group have been accepting advance for sales of 26

The AO, however, was not convinced with the explanation furnished by the assessee. According to the AO, although the assessee has furnished general reply regarding the purpose of the funds received as an advance for the purchase of office space, but failed to explain the utility of the advances for the purpose of the business of the assessee. The AO further observed that the appellant has diverted advances received from customers to various other group companies. Therefore, the AO opined that the interest paid can not be justified just because TDS has been deducted on the said interest. Accordingly, the AO disallowed the interest debited under finance charges and carried forward to work-in-progress amounting to Rs.4,63,82,272/- under Section 36(1)(iii) of the Income Tax Act, 1961.

The assessee carried the matter in appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee submitted that the interest paid on customers' advance is wholly and exclusively incurred for the purpose of business and further, the assessee has paid interest on customers' advance, as per the terms of MOU with customers. The ld. CIT(A), after considering the relevant submissions of the assessee and also taken note of the fact that the assessee has made investments in various group companies, amounting to Rs. 7,97,30,442/- whereas own funds being shareholder funds and long-term borrowings is not sufficient to cover investments and

The learned counsel for the assessee, Shri S. Rama Rao, submitted that the ld. CIT(A) is erred in sustaining the addition made by the AO towards disallowance of finance charges on altogether a different ground, even though, the AO disallowed interest on the ground that the appellant has not established utilization of advances from customers for the purpose of business of the assessee. The learned counsel for the assessee further submitted that the assessee is into the business of real estate development, collects advances from customers for sale of residential flats and commercial space. The customers pay 80% of consideration in advance in terms of MOU. The MOU provides for payment of interest @ of 10% to 14% in case of delay in delivery of flats. As per the agreement between customers, the appellant has paid interest on customers' advance and the same has been debited under the head finance charges. The ld.CIT(A) without appreciating the relevant facts, confirmed the addition to an extent of Rs.79,87,930/- out of the total disallowance of Rs.4,63,82,272/- and the order should be set aside.

The ld.DR Ms. Reema Yadav, on the other hand, supporting the order of ld. CIT(A), submitted that the assessee has received advance from customers and also diverted funds to various group companies in the form of share capital and loans and advances. The assessee has not filed any evidence to prove utilization of advances received from the customers for the purpose of business of the assessee. Therefore, the AO has rightly disallowed interest expenses and therefore, their order should be upheld.

We have heard the rival submissions and perused the material on record and gone through the orders of the authorities below. The fact borne out from the record indicates that the assessee being in the business of real estate development, has collected advances from customers for sale of flats / commercial complexes in terms of MOU. As per the terms of MOU between the appellant and the customers, there is a provision for payment of interest ranging from 10% to 14% in case of any delay in delivery of flats to the customers. As per the contractual agreement with the customers in terms of MOU, the assessee has paid interest on customers' advances and debited under the head finance charges. The AO has disallowed interest expenses on the ground that the appellant failed to prove utilization of advances received from customers for the purpose of business. The ld. CIT(A) went on a different footing and computed disallowance of interest for diversion of interest-bearing funds for non-business purpose. We find that the basic business of the assessee is real estate development, and in that process, the assessee collected advances from customers for sale of flats. As per the agreement with the customers, the assessee has paid interest in

In the result, the appeal filed by the assessee is allowed.

To sum up, all the appeals of assessee are allowed.