TaxTMI 
TaxTMI 
2013 (12) TMI 58
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....-2009 2. Brief facts of the case are that the assessee is a Private Limited Company and has filed its return of income for the assessment year 2008-2009 on 29.09.2008 declaring an income of Rs.45,33,010/-. The same was processed under section 143(1) of the Act. Later, search and seizure operation was conducted in assessee's case on 12.08.2009. Accordingly, notice under section 153A was issued on 28.04.2010 and the assessee filed return of income on 19.07.2010 declaring income of Rs.45,33,010/-. The assessment was completed under section 143(3) read with section 153A of the Act determining total income at Rs.1,29,26,848/-. The relevant observations of Assessing Officer reads as under : "04.0. During the course of assessment proceedings, the Assessing Officer noticed that the ledger extract of Sri Radha Charan Reddy, Director, in the assessee's books shows a debit balance of Rs.65,00,000/- as on 27-9-2007. The account had been further credited by way of journal entries on various dates from 4-10-2007 to 29-3-2008 by an amount of Rs.25 lakhs and outstanding balance as on 31-3-2008 showed a debit balance of Rs. 40 lakhs. On verification with the individual balance sheet and profi....
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.... of sec.40(a)(ia) are not applicable to salary payments and the commission paid to the Director based on the turnover of the company, is part of salary only. He pointed out that in the computation of income, the recipient had offered such commission as salary only and accordingly the provisions of sec.40(a)(ia) could not have been applied". 3. On appeal by the assessee before the CIT(A), the learned CIT(A) observed after going through the facts of the case and the submissions of the assessee that it can be seen that the Assessing Officer disallowed the expenditure of Rs. 25 lakhs paid as "commission to Directors", as no TDS was deducted thereon. The CIT(A) pointed out that in the course of appellate proceedings, the assessee has firstly contended that the recipient Director had offered such amount as income and 'paid taxes thereon in the Assessment Years 2008-09 and 2009-10, and therefore the same amount should not be taxed twice. The learned CIT(A) observed that it was further submitted by the assessee that in the instant case a disallowance of expenditure claimed by the assessee towards "commission to Director" has been made in terms of the provisions of sec. 40(a)(ia) of the ....
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....ssing Officer under the provisons of section 40(a)(ia) of the I.T. Act. 3. The CIT(A) failed to appreciate that the amount of Rs. 25,00,000/- paid to Director of the Company is part of salary and therefore, provisions of section 40a(ia) of the Act are not applicable to such payment. 4. Without prejudice, the CIT(A) ought to have appreciated that the provisions of section 40a(ia) of the Act are applicable in respect of amounts payable, and not where the amounts are already paid". 7. The learned D.R., on the other hand, submitted that required Form-16 is to be furnished so as to find-out from the return of income whether the amount which has been stated as salary is received by the Director and is reflected in the return of income. The learned D.R. relied on the decision of the Supreme Court in the case of CIT (Central) vs. Standard Vacuum Oil Co. (1969) 59 ITR 685 (SC). The learned D.R. also further relied on the decision in the case of CIT vs. Manmohan Das (1966) 59 ITR 699 (SC) and requested to explain the characteristic of the receipt to be treated under the head salary for the purpose of income-tax. According to D.R., in the case of CIT vs. Manmohan Das (supra), the AO,....
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....under the head salary.--Ram Prashad vs. CIT 1972 CTR (SC) 97 : (1972) 86 ITR 122 (SC) relied on; State of Gujarat & Anr. vs. Raman Lal Keshav Lal Soni & Ors. AIR 1984 SC 161 distinguished. 9. In these circumstances, we direct the Income Tax Officer to examine the issue in the light of Sajid Mowjee vs. ITO (supra) and to verify the return of the assessee as to whether the amount of Rs.25,00,000/- has been declared as salary income in the return of income and decide accordingly. 10. In the result, ITA.No.162/Hyd/2013 of the assessee is allowed for statistical purposes. ITA.No.163/Hyd/2013 - Assessment year 2010-2011 : 11. This appeal also filed by M/s. Charans Life Devices Pvt. Ltd. against the Order passed by the Deputy Commissioner of Income Tax, Central Circle-2, Hyderabad, u/s. 143(3) on 27.12.2011 for the assessment year 2010-11 before CIT(A). By way of the said order, the total income of the assessee was determined at Rs.2,00,51,003/-, as against the total income of Rs.1,15,00,230/-. The only issue raised by the assessee in the appeal before the CIT(A) is relating to addition of interest of Rs.13,21,936/- paid on the bank loan, claimed as utilized for expansion of a....
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.... for the purpose of investment in PHEPL and the same had not been utilized directly for the own business of the assessee company. As regards the contention that the business of the company being so promoted by the assessee was similar to the assessee's own business, the CIT(A) observed that it is clear that the assessee is only dealing in life saving devices and appliances, such as pacemakers, stents, etc., whereas PHEPL was promoted to develop a health care unit. The CIT(A) held that firstly it is clear that the business of PHEPL was never likely to augment the business of the assessee company, as admittedly the said health care unit aimed to prevent health problems and business of the assessee company can thrive only when there are serious health/heart problems. 15. Secondly, the CIT(A) held that it is clear that the investment in PHEPL cannot be said as diversification of the assessee's activity in the field of life saving and medical category, as the assessee itself is only dealing in life saving devices and does not do any activity of life saving directly. 16. Lastly, as regards the reliance of the Authorised Representative of the assessee on the decision in the case of ....
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....e disallowance as the object of the sister concern is to prevent health problem which was not the interest or objectives of the assessee company. 19. The learned Counsel for the assessee in the rejoinder stated that both the assessee company and the sister company were helping each other as pointed out at pages 62 to 67 of the paper book where the sister company stood as guarantor for the loan raised by the assessee company. (Page-185 of paper book). 20. We have heard both the parties. We find that the Supreme Court in its decision in the case of SA Builders Ltd. vs. CIT(A) and another (2007) 288 ITR 1 (S.C.) has held as follows : "32. We wish to make it clear that it is not our opinion that in every case interest on borrowed loan has to be allowed if the assessee advances it to a sister-concern. It all depends on the facts and circumstances of the respective case. For instance, if the directors of the sister-concern utilise the amount advanced to it by the assessee for their personal benefit, obviously it cannot be said that such money was advanced as a measure of commercial expediency. However, money can be said to be advanced to a sister-concern for commercial expedienc....
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.... Ltd. paid the money to assessee, the assessee recorded the money received from GMS Medimall Pvt. Ltd. which is not in existence by error. This was only an error but not concealment or unexplained investment. The investment was made by Shri P. Venugopal Reddy but received from GMS Medimall Pvt. Ltd. and hence, it was exhibited in the name of GMS Medimall Pvt. Ltd. inadvertently. The learned Counsel for the assessee has also submitted the certificate dated 22.12.2011 from Mr. P.Venugopal Reddy to this effect. The CIT(A) has held as follows : "6.0. I have gone through the facts of the case and submissions of the appellant. Admittedly, the amount of Rs.11,64,800/- had been shown as due to GMS Medi Mall (P) Ltd. in the balance sheet of the appellant as at 31.3.2005. It is now claimed that the amount actually pertained to Sri P. Venugopal Reddy and it was shown in the name of GMS as Shri Reddy had directed GMS to refund his investment to the appellant. The appellant has also sought to furnish a certificate from P. Venugopal Reddy in this regard. 06.1. On going through the said certificate/ confirmation, it is seen that Shri Venugopal Reddy therein has stated that he had invested R....
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.... Reddy the assessee herein. Needless to mention herein that a reasonable opportunity of being heard to be given to the assessee. 25. In the result, ITA.No.373/Hyd/2013 of the assessee is allowed for statistical purposes. ITA.No.374/Hyd/2013 - A.Y. 2006-07 ( Shri G. Radhacharan Reddy) AND ITA.No.377/Hyd/2013 - A.Y. 2006-2007 (Smt. G. Niveditha Reddy) : 26. Since common grounds are raised in both these appeals for the assessment year 2006-2007 with respect to undisclosed long term capital gains and short term capital gains of Rs.12,67,790/- and Rs.7,41,160/- in the case of Shri G. Radhacharan Reddy and Rs.13,46,210/- and Rs.7,87,000/- in the case of Smt. G. Niveditha Reddy, we are passing a common order in these two appeals. 27. The brief facts of the case are that during the course of search, an unregistered agreement of sale, executed by the assessee, along with her husband, Sri. G. Radhacharan Reddy, with M/s. VNR Constructions on 21/12/2005, was found. The total sale consideration received for the property at Hasmathpet had been shown at Rs.19,78,000/- and the entire amount had been given through cheques drawn on Bank of Baroda, dated April, 2006. The Assessing Office....
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....itted that in view of the legal problems, this was agreed upon. The assessee contended that they had not received any sale proceeds as per the registered development agreement and that all the sale proceeds were received by VNR Constructions. 29. The Assessing Officer noted that the assessee was denying the development agreement without any basis, whereas from the documents of sale of flats, it was clear that he and his wife were parties as sellers. The A.O. opined that if the property had already been transferred before entering into the development agreement, as claimed by the assessee, there was no necessity of becoming a party to the sale of flats. It was noted by the A.O. that the agreement was of sale was dated 21.12.2005 and on that basis, capital gains were admitted by the assessee. However, the said agreement of sale was not a registered document, whereas, the development agreement dated 21.1.2006 was registered. From the sale documents executed in favour of buyers of flats also the A.O. found that the assessee and his wife had obtained permission from the Municipality for the construction of multi-storeyed building and had offered to sell out their 40% share. Therefore....
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....,18,25,564/- in 2 years. The learned A.R. therefore, claimed before the CIT(A) that the Development Agreement was entered and executed only in the process of sale of the residential flats, while the assessee never had the idea of entering into any development agreement, as concluded by the Assessing Officer. The learned A.R. also submitted that the A.O. did not allow indexation while arriving at long term capital gain. 31. After hearing the submissions of the assessee as well as the Assessing Officer, the learned CIT(A) held as follows : "06.0. I have gone through the facts of the case and submissions of the assessee. Despite contending that the assessee and her husband had entered into an Agreement of Sale on 21-12- 2005, it has not been disputed that the same was not a registered document. Even if the Agreements of Sale may not need compulsory registration, it is an undisputed fact that the Development Agreement was indeed a registered document, duly enforceable by Law. Besides, it was also found that the assessee and her husband were made a party to sale of flats constructed subsequently and they only had obtained permission from the Municipality for construction. Therefor....
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.....1,10,00,000/- for the total constructed area of 29,930 square feet. Accordingly, the Assessing Officer made addition of Rs. 7,41,160/- in the assessment year 2006-07 in the hands of Shri Reddy and of Rs.7,87,000/- in the hands of the assessee. Likewise, additions of Rs.4,22,860/- and Rs.4,49,020/- were made in the Assessment Year 2007-08 in their hands". 32. Aggrieved, assessee filed appeals before us and has raised the following grounds : "1. On the facts and in the circumstances of the case, the order of the CIT(A)-I, Hyderabad is erroneous, illegal and unsustainable in law. 2. The CIT(A) erred in sustaining the addition of Rs.12,67,790/- towards the alleged undisclosed long term capital gains in the hands of the appellant. The CIT(A) failed to appreciate that the appellant based on the agreement of sale dated 21.12.2005 had already admitted long term capital gains based on alleged development agreement dt.31.01.2006 is totally unwarranted. 3. The CIT(A) failed to appreciate that so far as the appellant and his wife is concerned, they had acted upon only the agreement of sale dt. 21.12.2005 and they have got nothing to do with the development agreement dt.31.01.2006 ....
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....see contended that the CIT(A) failed to appreciate that the so-called development agreement could not have been relied upon in as much as the assessee and his wife already executed agreement of sale pursuant to which they had received consideration. Contrary to this, the CIT(A) ought to have appreciated that assessee and his wife have not received the alleged advance mentioned in the development agreement and consequently, there is no 'transfer' under the said development agreement. Therefore, the CIT(A) erred in sustaining the levy of short term capital gains of Rs.7,41,160/- in the hands of the assessee. Further, the learned Counsel for the assessee submitted that the CIT(A) erred in upholding the value per sq. feet worked out by the Assessing Officer at Rs.367.52ps. It was submitted by the learned Counsel for the assessee, that the cost of construction should be worked-out based on the cost of construction to M/s. VNR Constructions/developer and that would be at Rs.782/- per sq. feet. 34. On the other hand, the learned D.R. relied upon the Order of the Assessing Officer. 35. We have heard both the parties. From the perusal of the Order of the revenue authorities, we find t....
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....o Financial Year 2006-07. Considering the cost of acquisition for the total construction area of 11,972 square feet being Rs.44 lakhs, value per square foot was worked out at Rs.367.52. Accordingly, the Assessing Officer worked out the Short Term Capital Gain for the Financial Year 2005-06 and 2006- 07 at Rs.15,25,164/- and Rs.8,71,886/-, respectively. 36.1. The CIT(A) held that the short term capital gain of Rs.7,41,160/- and Rs.4,22,860/- have been worked out after adopting the value per sq. foot of Rs.367.52 in view of the total cost of acquisition of Rs.44,00,000/- for 11,972 sq. feet. Since the cost of acquisition is well supported by the Sub Registrar value shown in the Encumbrance Certificate and the assessee could not furnish any evidence to establish that the same was lower than that, the learned CIT(A) held that it cannot be said that the short term capital gain have been so calculated only on assumptions. Finding no infirmity in the additions made in the assessment years 2006-07 and 2007-08 on this ground, the grounds raised in this regard are decided by the CIT(A) against the assessee. 37. We are of the view that the cost of construction should be worked out based....
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....7, the assessee has sold 8 flats for total sale consideration of Rs.68 lakhs. The year-wise bifurcation is Rs.43,25,000/- for financial years 2005-2006 and 2006-2007 respectively. The Assessing Officer computed short term capital gains for financial years 2005-2006 and 2006-2007 relevant to assessment year 2006-2007 and 2007-2008 is Rs.24,00,050/-. The assessee stated that the cost of construction has to be adopted at Rs.782/- per sq. feet on the basis of the total cost of construction by M/s. VNR Constructions. The Assessing Officer did not accept the contention of the assessee and adopted cost of construction of Rs.367.52ps per sq. feet. 41. On further appeal before the CIT(A), the CIT(A) upheld the Order of the Assessing Officer. 42. The grounds No.2 to 4 have been dealt with by us in ITA.No.374/Hyd/2013 in the case of Shri G. Radhacharan Reddy at paras 33 to 37 hereinabove. Respectfully following the same, the appeals are partly allowed for statistical purposes. ITA.No.375 & 378/H/2013 for the assessment year 2007-2008. 43. With respect to grounds No. 5 and 6 relating to sale of terrace rights, the learned counsel submitted that in the assessment year 2007-08, an addit....
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.... 9 lakhs only, whereas the consideration shown in the books of CLD was Rs.30 lakhs, the appellant share of Rs.14,55,000/- in such short term capital gains of Rs.30 lakhs has been rightly brought to tax. The grounds raised in this regard are therefore decided against the appellant." 44. The learned Counsel for the assessee submitted before us that the terrace rights have been sold and accounted by VNR Constructions and submitted the account at pages 406 to 440 of the paper book. It was submitted that nothing was received through the development agreement as presumed by the CIT(A). It was also submitted that the terrace rights cannot be retained by any one except the prospective purchasers. It was submitted that M/s. Charans Life Devices Pvt. Ltd. has purchased the pent house area for office purposes and the amounts were paid by the company showing the building in their books of accounts. 45. The learned D.R. on the other hand, submitted that the issue has to be verified as to whether the consideration is towards terrace rights has been received by VNR Constructions. 46. We have heard both the parties. In view of the above circumstances, we deem it fit to set aside the issue....
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....ed to change this process and decided to transfer the personnel assets to the company to obviate these situations for future. The assessee has faced serious problem when they applied for the loan for the investment in its subsidiary PHEPL. The Directors decided to sell their personnel properties to the company. The Directors entered into the agreement to sell the properties. The total value arrived for sale consideration is Rs.1,70,00,000/-. The copies of the agreement of sale are on record. As on the date the full consideration was not received. To facilitate the transfer of the properties the company has paid the advances in parts for the transfer of properties. The Directors have decided to transfer of the office property jointly owned by them and the Company has advanced Rs.60,50,000/- for this purpose. Shri G. Radha Charan Reddy decided to sell the property Aparna County (Villa) to the company, for which the company has paid the advance of Rs.94,75,000/- as part payment. However, the property was not totally handed over by the builder by the time of search. The registration process could not be completed as the original documents were pledged with the Bank for the purpose of o....
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....et and profit and loss account of CLD and the assessee for the accounting year ending on 31.3.2008. It was further submitted by the learned Counsel for the assessee that in the books of the company, the advance paid for the building had been shown and the Directors have also shown the advance received for sale of the property in their books. 52. On appeal before the CIT(A), the learned CIT(A) dismissed the appeal of the assessee. 53. On appeal before us, the learned Counsel for the assessee reiterated the contentions raised before the CIT(A). 54. The learned D.R. on the other hand, relied on the order of the Assessing Officer. 55. We have heard both the parties and perused the material available on record. From the perusal of the record, it is noticed by us that the Directors of the company have intended to transfer the property to the Company in order to obtain loan facility from the Banks, Financial Institutions for conducting the business. It is also noted that to facilitate the transfer of the properties to the company, advances were paid by the company to the Directors. However, the fact remains that as of today i.e., even-after six years, the transfer of the prope....