THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, VISAKHAPATNAM vs. ATR WAREHOUSING PRIVATE LIMITED, VISAKHAPATNAM

PER BENCH:

The captioned appeals are filed by the Revenue against the

order of the Learned Commissioner of Income Tax (Appeals)-3,

Visakhapatnam [Ld. CIT (A)] in appeal Nos. 211, 212 &

213/2017-18/CIT(A)-3/VSP/2019-20, dated 31/10/2019 arising

out of the orders passed u/s. 143(3) r.w.s 153A of the Income Tax

Act, 1961 [the Act] for the AYs 2013-14, 2014-15 & 2015-16.

Cross Objections are filed by the assessees in connection with

the appeals filed by the Revenue. Since issues raised in these

appeals are inter-connected, for the sake of convenience, these

appeals are clubbed, heard together and disposed off in this

consolidated order. Appeal wise adjudication is given in the

following paragraphs of this order.

the assessee – M/s. ATR Warehousing Pvt Ltd., Visakhapatnam –

engaged in the business of warehousing filed its return of income

for the AY 2013-14 on 31/10/2013 declaring a total income of

Rs. 1,97,91,850/-. The Directors of the assessee company are

Sri A. T. Rayudu and Sri A. Avnash who hold each 45% of share

holding in the company. The case was selected for scrutiny by

3 CASS and a notice U/s. 143(2) was issued on 15/09/2014 but

the assessment got abated as search and seizure operations U/s.

132 of the Act were conducted on 14/10/2015 in the case of the

assessee and also in the case of Sri A.T. Rayudu, Smt. Ammaji,

Sri A. Avnash and Smt. A. Harshitha simultaneously. During the

search proceedings certain documents and loose sheets were

found and seized and tagged as Annexure No. A/ATR/PO/Res/1

etc. Accordingly, notice U/s. 153A was issued to the assessee on

18/07/2016 which was served on 20/07/2016 and called for

filing of the e-return of income for the AY 2013-14. In response,

the assessee vide its letter dated 26/07/2016 stated that the

income filed U/s. 139 on 31/10/2013 may be treated as return

filed in response to the notice U/s. 153A of the Act. Again the

assessee was asked to file its return of income U/s. 153A

electronically and submit a copy accordingly the assessee filed its

return of income U/s. 153A electronically without any changes

prior to and after the search operations. Thereafter, notice U/s.

143(2) was issued and served on the assessee on 19/6/2017 in

response to which the assessee’s representative furnished details

of computation of income. Subsequently notice U/s. 142(1) was

issued on 21/7/2017 called for copies of financial statements,

books of account, bank account statements, Wealth Tax return,

4 details of TDS etc., and the assessee furnished the required

details.

that during the year the assessee company availed certain loans

from various parties during the year and the assessee was asked

to explain the same along with proper documentary evidence.

After considering the submissions of the assessee and on perusal

of the material available before the Ld. AO, the Ld. AO was of the

opinion that the assessee failed to prove that the purported loan

transactions with the companies mentioned in the books of

accounts are genuine unsecured loans and thereby assessee did

not discharge the onus cast on it. Accordingly, the sum of Rs.

15,11,00,000/- appearing in the books of account of the assessee

under the head unsecured loan, was treated by the Ld. AO as

unexplained cash credit U/s. 68 of the Act and added the same to

the total income of the assessee. The Ld.AO also made addition of

Rs. 97 lakhs u/s. 68 of the Act as the said amount was

mentioned in the books of account under the head unsecured

loans from 11 individual loan creditors and was not properly

explained by the assessee. Further, the Ld. AO made addition of

Rs. 32,56,608/- by disallowing the claim made by the assessee as

5 interest on unsecured loans availed during the year as well as

during the FYs 2010-11 and 2011-12. Further, the Ld. AO made

addition of Rs.75,05,08,016/- U/s. 56(2)(viib) of the Act, being

the amount collected for the 1,93,655 shares in excess of fair

market value of such shares issued by the company to the seven

companies as mentioned in the assessment order. The Ld. AO

made another disallowance of Rs. 8,66,489/- by invoking the

provisions of section 14A of the Act. Further, the Ld. AO made

addition of Rs. 1,33,58,461/- by invoking the provisions of

section 40(a)(ia) of the Act as the assessee failed to deduct the

tax at source on the impugned interest claimed. Further, the Ld.

AO by observing that since the peak advance given by M/s. Usha

Tubes & Pipes Ltd amounting to Rs. 44,06,653/- to the assessee

company qualifies as deemed dividend u/s. 2(22)(e) of the Act the

same is liable to be treated as income from other sources and

added the total amount to the income returned by the assessee.

The Ld. AO also made addition of Rs. 2,13,211/- as the long term

loans and advances given by the assessee are not related to the

business activities carried out by the assessee and therefore the

interest paid to the bank relatable to such interest free advances

are not allowable U/s. 36(1)(iii) of the Act. The Ld. AO made

addition of Rs. 1,19,23,200/- by invoking the provisions of

6 section 56(2)(viia) of the Act. Accordingly, the Ld. AO computed

the income of the assessee under normal provisions and

determined the net tax payable at Rs. 49,37,72,670/- and Rs.

31,31,34,641/- under the MAT provisions and passed the

assessment order on 29/12/2017 u/s. 143(3) r.w.s 153A of the

Act.

appeal before the Ld. CIT(A)-3, Visakhapatnam by agitating that

since the notice issued by the Ld. AO u/s. 153A is perverse in

law as no incriminating material was found during the course of

search and therefore the assessment made pursuant to section

153A is not justified. Before the Ld. CIT(A), the assessee also

raised grounds against the additions made by the Ld. AO.

and consequent to assessment proceedings, called for the remand

report from the Ld. AO. On perusal of the Remand Report as well

as the Rejoinder of the assessee, the search conducted by the Ld.

Revenue Authorities is held to be valid and following assessment

proceedings were also held valid by the Ld. CIT(A). Accordingly,

the Ld. CIT(A) rejected the assessee’s grounds of appeal on these

issues.

absence of any incriminating material found during the search

and seizure action 132 of Act, the Ld. CIT(A) held that since the

Ld. AO made additions on the basis of the details sought / filed

by the assessee during the course of assessment proceedings and

the examination of the accounts of the assessee. The Ld. CIT (A)

held that the additions are not based on seized material which

was also not denied by the Ld. AO in his remand report.

Accordingly, the Ld. CIT(A) held that some of the additions made

by the Ld. AO are not warranted and granted part relief to the

assessee in respect of the grounds raised by the assessee on this

issue.

No. 104/Viz/2020 (AY 2013-14):

“1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition U/s. 68 of the Act.

8 4. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the adtion made by the AO U/s. 40(a)(ia) without appreciating the fact that interest was paid to one of its group companies without deducting the tax at source.

Departmental representative argued that the assessee has taken

unsecured loans for which no confirmations were submitted

before the Ld. AO. The Ld. DR further submitted that these loans

were taken from unrelated parties without any security. The Ld.

DR also submitted that the rate of interest charged by unsecured

loan creditors is 3% as against the prevailing market rates. The

Ld. DR therefore pleaded that in this scenario the loans are not

9 genuine and hence the Ld. AO has rightly made the addition u/s.

68 of the Act. Further, the Ld. DR submitted that no

confirmation replies were received from the parties for the letters

written by the Ld. AO. The Ld. DR therefore pleaded that the

order of the Ld. AO be upheld.

Per contra, the Ld. AR submitted that the rate of interest is

not 3% as alleged by the Ld. DR but it is 12% where the assessee

has paid 9% of interest on the unsecured loans accounted

through the books of account subject to deduction of tax at

source. The Ld. AR further submitted that the 3% interest rate is

paid by cash outside the books of account of the assessee.

Therefore, the Ld. AR vehemently argued that the loans are of a

genuine nature since interest payments have been made by the

assessee after deduction of tax at source. The Ld. AR further

submitted that these loans were repaid in the AY 2014-15. The

Ld. AR further submitted that all confirmations were provided to

the Ld. AO but the Ld. AO failed to examine the same. Therefore,

the Ld. AR pleaded that the order of the Ld. CIT (A) be upheld.

available on record and the orders of the Ld. Revenue

Authorities. It is seen from the records that the assessee has

10 taken unsecured loans from various parties aggregating to Rs.

16,08,00,000/-. It is also not disputed by the Revenue that the

interest payments were made @ 9% which was subjected to

deduction of tax at source. We also find from the impounded

material that the names of the lenders, the amounts lent to the

assessee and his group companies has been recorded in loose

sheets for the purpose of calculation of interest @ 3% which was

paid outside the books of accounts. It was the case of the

Assessing Officer that the assessee has routed their own cash

through fictitious lenders. However, there is no evidence found

by the Revenue during the search and seizure operations that the

assessee has paid the cash to the extent of loans received.

Further, we find from the order of the Authorities below that

there is no record of details of the back to back cash receipt for

the payment of interest made through banking channels. The

fact brought out by the Ld. AR that the seized material wherein

the details of the names of the lenders and the amounts borrowed

by the assessee and its group companies was before the Ld.

Revenue Authorities. The Ld. CIT(A) therefore has rightly deleted

the addition made by the Ld. AO with respect to the unsecured

loans and hence no interference is required in his order.

11 Accordingly, the Grounds No.1, 2 &3 raised by the Revenue are

dismissed.

1,33,58,461/- u/s. 40(a)(ia) of the Act being the interest payment

on loans borrowed from Andhra Pradesh State Finance

Corporation (APSFC) U/s 194A of the Act. The Ld.AR argued that

the assessee company was required to extend corporate

guarantee for repayment of terms loans along with interest in

addition to the collateral securities and the personal guarantees

of Promoter Directors. The said term loan was later transferred to

the assessee company on 1/4/2012 by way of journal entries in

the books of accounts. Since the loan was sanctioned to M/s.

ATR Cars Pvt Ltd., a subsidiary of the assessee company, the

assessee company made interest payments to M/s. ATR Cars Pvt

Ltd, payable to APSFC, which was subsequently paid to APSFC.

The Ld. AR argued that since the assessee company could not

avail additional loans, the assessee availed loans from APSFC

through M/s. ATR Cars Pvt Ltd, and hence there is no

requirement of deduction of tax at source and hence no

disallowance is warranted. The Ld. AR therefore pleaded that the

order of the Ld. CIT(A) be upheld on this ground.

12 Per contra, the Ld. DR submitted that the loan is in the

name of M/s. ATR Cars Pvt Ltd., and the payment of interest was

made to M/s. ATR Cars Pvt Ltd. Therefore, the Ld. DR pleaded

that the provisions of section 40(a)(ia) are attracted since the

payments are not directly made to APSFC.

available on record. It is not disputed that the term loan taken

in the name of M/s. ATR Cars Pvt Ltd., has been transferred to

the assessee company on 1/4/2012. The claim of the Ld. AR that

the assessee could not avail any term loan and hence it was

availed in the name of M/s. ATR Cars Pvt Ltd., needs to be

considered. Further, from the Ld. AR’s submissions we note that

M/s. ATR Cars Pvt is a subsidiary of the assessee company.

Since the assessee has guaranteed the loan ultimately the

liability will devolve on the assessee in case of failure by M/s.

ATR Cars Pvt Ltd. It is also not disputed by the Revenue that the

amount of Rs. 9,58,38,166/- transferred on 1/4/2012 was fully

utilized by the assessee company and not by M/s. ATR Cars Pvt

Ltd. The Ld. CIT(A) in his findings has observed that based on

the peculiar facts of the case, since the interest is ultimately paid

to APSFC, deduction of tax at source is not required in the

13 instant case and hence the provisions of section 40(a)(ia) are not

applicable. We find that the Ld. CIT(A) has rightly considered the

facts in these peculiar circumstances and has deleted the

addition made by the Ld. AO. We therefore find no interference is

required in the order of the Ld. CIT(A) on this ground.

Accordingly, Ground No.4 raised by the Revenue is dismissed.

assessee has advanced Rs. 1,31,83,437/- to Smt. D. Jhansi

Lakshmi and Rs. 94,16,363/- to Sri D. Seshagiri Rao which are

not related to the business activity carried out by the assessee.

The Ld. DR submitted that these advances are made out of the

borrowed funds of the assessee and therefore the interest paid by

the assessee to be proportionately disallowed. The Ld. DR

therefore pleaded that the order of the Ld. AO be upheld.

The Ld. AR submitted that these advances were made out of

the interest free funds available with the assessee and the details

have been submitted before the Ld. AO. Further, the Ld. AR

submitted that these advances have been closed within one

month. The Ld. AR also submitted that these advances were

utilized for purchase of property by the assessee which was

registered on 30/04/2012 and hence these funds are utilized for

14 the purpose of business of the assessee. He therefore pleaded

that the order of the Ld. CIT(A) be upheld.

available on record. We find from the order of the Ld. CIT(A), the

Ld. AO has submitted his remand report that these impugned

sums were utilized for acquisition of a capital asset and cannot

be allowed as revenue expenditure. The Ld. AO therefore

disallowed the proportionate interest u/s. 36(1)((iii) of the Act.

However, the Ld. AO failed to consider the fact that Smt. D.

Jhansi Lakshmi and Sri D. Seshagiri Rao are the owners of the

property located at Chinna Waltair and the advances was paid by

the assessee company for the purpose of purchase of the property

which was registered on 30/4/2012 in favour of the assessee.

Purchase of property by an assessee is part of a business

strategy and shall be considered for the purpose of business and

hence the disallowance made by the Ld. AO is rightly deleted by

the Ld. CIT(A). We therefore do not wish to interfere with the

order of the Ld. CIT(A) and dismiss the Ground No.5 raised by

the Revenue.

Crs as income from other sources u/s. 56(2)(viib) of the Act, the

15 Ld. DR argued that the shares were issued at a huge premium of

Rs. 3,900/- per share as against the face value of Rs. 100/- per

share. The Ld. DR submitted that the assessee has revalued its

immovable properties at Rs. 565.44 Crs by a Registered Valuer

and that valuation of immovable properties has been applied in

the calculation of Net Asset Value per share by the assessee

company. The Ld. DR submitted that the Valuer was summoned

U/s. 131(1A) of the Act, to examine the basis for such huge

valuation. The Ld. DR submitted that the Valuer could not

provide any scientific basis or documentary evidence with respect

to the valuation of the immovable property and hence should be

rejected. The Ld. DR submitted that the Ld. CIT (A) has also

erred in applying the provisions of section 56(2) r.w. Rule 11UA

of the IT Rules, 1962 for the AY 2013-14 stating that the Rule

was introduced w.e.f 25/11/2012 only. The Ld. DR also

submitted that the SRO value of the immovable properties stood

at Rs. 107.51 Crs as against Rs. 565.44 Crs valued by the

Registered Valuer. The Ld. DR therefore pleaded that the SRO

value should be used in the valuation of immovable properties

and accordingly share premium shall be decided. The Ld. DR

therefore pleaded to uphold the order of the Ld. AO.

16 Per contra, the Ld. AR submitted that the assessee was

purchasing lands from its seven group companies located at

Polepalli Village of Bhogapuram Mandal for a sale consideration

of Rs. 83.22 Crs. The Ld. AR submitted that Rs. 5,75,84,000/-

was paid by way of cash and the balance was paid by way of

allotment of 1,93,655 shares in the assessee company with a face

value of Rs. 100/- issued at a premium of Rs. 3,900/- per share.

The Ld. AR submitted that the Ld. Revenue Authorities have not

disputed the agreed sale consideration of Rs. 83.22 Crs, proposed

to be purchased by assessee. The Ld. AR submitted that as per

section 56(2)(viib), the fair market value has to be taken for the

purpose of valuation of immovable properties. The Ld. AR also

submitted that the SRO valuations are for the purpose of

calculating the stamp duty and always fair market value of the

property will be more than the SRO value. Further, he submitted

that the Registered Valuer is a CBDT Empanelled Valuer. The Ld.

AR also submitted that the valuation of share was also done

under Discounting Cash Flow Method (DCF Method) at Rs 4100

per share, which was also submitted to the Ld. CIT(A). The Ld.

AR also submitted that the allottees have also disclosed the sale

value of the land to the assessee company while filing their

respective return of income. The Ld. AR further submitted that

17 section 56(2)(viib) was introduced by the Finance Act, 2012 which

was assented by the Hon’ble President of India on 28/5/2012

whereas the allotment of share in the assessee company was

made on 25/2/2012. Further, he submitted that the Rule 11UA

was introduced on 29/11/2012 and therefore cannot be applied

in the allotments made on 25/2/2012 as there was no notified

manner as on the date of allotment, in which the fair market

value of the unquoted equity shares are to be determined. The

Ld. AR therefore pleaded that the order of the Ld. CIT (A) be

upheld.

available on record. Admitted facts are that the assessee has

entered into an agreement for buying a property for an agreed

sale consideration of Rs. 83.22 Crs from its seven group

companies which was not disputed by the Revenue and it has

also been disclosed in the respective returns of the group

companies. The only issue is with respect to valuation of the

immovable properties held by the assessee for the purpose of

allotment of equity shares as a sale consideration for the

purchase of land from seven group companies. The Finance Act,

2012 introduced the applicability of section 56(2)(viib) of the Act

18 to curb the black money in the form of exorbitant premium of

equity shares. In the instant case, there is no dispute on the

sale consideration payable towards purchase of property by the

assessee from its group companies and hence the deployment of

black money in the form of share premium does not arise.

Further, we note that there is a merit in the argument of the Ld.

AR that when the Rule 11UA was introduced w.e.f 29/11/2012

deserves consideration, as the date of allotment of equity shares

was much before the introduction of Rule 11UA, i.e on

25/2/2012 on which date there is no prescribed method for

valuation of unquoted equity shares. Further, the appellant

under DCF Method valuing the equity shares of Rs. 4,100/- was

also not disputed by the Revenue. The Value under DCF Method

is also above the share premium issued to the various companies.

In the light of the above, we find that the Ld. CIT(A) has rightly

deleted the addition of Rs. 75,05,08,016/- with respect to the

share premium and therefore we are of the considered view that

no interference is required in the order of the Ld. CIT(A) on this

Ground. Accordingly, Ground No.6 raised by the Revenue is

dismissed.

19 16. Grounds No.1 and 7 are general in nature and therefore needs no adjudication.

आयकर अपील सं./ I.T.A. Nos. 105 & 106/Viz/2020 (�नधा�रण वष� / Assessment Years: 2014-15 & 2015-16)

20 56(2)(viib) which is raised in the AY 2013-14. Therefore, since the issues raised in the Revenue’s appeal for the AY 2013-14 are identical to that of the grounds raised in AYs 2014-15 & 2015-16 (except ground no.6 in AY 2013-14), our decision given in ITA No.104/Viz/2020 applies mutatis mutandis to the appeals in ITA No.105 & 106/Viz/2020 also. Accordingly, grounds raised by the Revenue in these appeals are dismissed. 21. In the result, both the appeals filed by the Revenue are dismissed. CO. Nos. 31 & 32/Viz/2021 आयकर अपील सं./ I.T.A. Nos.105 & 106/Viz/2020 (�नधा�रण वष� / Assessment Years: 2014-15 & 2015-16)

21 24. Ex-consequenti, three appeals filed by the Revenue are dismissed and the Cross Objections filed by the assessee are dismissed as infructuous.

Pronounced in the open Court on the 21st December, 2022.

Sd/- Sd/- (दु�वू� आर.एल रे�डी) (एस बालाकृ�णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) �या�यकसद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER Dated : 21.12.2022 OKK - SPS आदेशक���त�ल�पअ�े�षत/Copy of the order forwarded to:- �नधा�रती/ The Assessee–Shri Anumolu Tirupati Rayudu (HUF), D.No. 11- 1. 8-34, Daspalla Hills, Visakhapatnam, Andhra Pradesh-530002. (ii) M/s. ATR Warehousing (P) Limited, D.No. 11-8-34, Daspalla Hills, Visakhapatnam, Andhra Pradesh-530002. राज�व/The Revenue –The Deputy Commissioner of Income Tax, Central 2. Circle-2, D.No. 11-8-34, Daspalla Hills, Visakhapatnam, Andhra Pradesh – 530002. 3. The Principal Commissioner of Income Tax (Central), Visakhapatnam. आयकरआयु�त (अपील)/ The Commissioner of Income Tax (Appeals)-3, 4. Visakhapatnam. �वभागीय��त�न�ध, आयकरअपील�यअ�धकरण, �वशाखापटणम/ DR,ITAT, 5. Visakhapatnam गाड�फ़ाईल / Guard file 6. आदेशानुसार / BY ORDER

Sr. Private Secretary ITAT, Visakhapatnam