TaxTMI 
TaxTMI 
2013 (11) TMI 1647
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....ed of with this common order for the sake of convenience. M/s. Janapriya Engineers Syndicate (JV), Hyderabad Cross Appeals for Assessment years 2005-06 to 2008-09 Assessee's Appeals : ITA No.1250 to 1253/Hyd/2012 Department's Appeals : ITA Nos.1359 to 1362/Hyd/2012 2. Let us take up first for consideration the cross appeals of the assessment years 2005-06 to 2008-09 concerning Janayapriya Engineers Syndicate (JV), which are directed against common order of the Commissioner of Income-tax(Appeals) dated 18.6.2012. 3. The first common ground in assessee's appeals is with regard to disallowance of deduction under S.80IB of the Act. 4. Facts relating to this issue are that assessee has claimed deduction under S.80IB of the Act for the assessment years 2005-06 to 2008-09. The Assessing Officer observed that the assessee has not furnished the requisite information with regard to fulfilment of conditions laid down under S.80IB and also not furnished the certificate in prescribed form, viz. Form No.10CCB for claiming the deduction under S.80IB. The Assessing Officer further observed that the assessee joint venture is not doing any housing project, and on the contrary, the housing p....
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....be considered as incurred for the purposes of completion of the project. He submitted that as on 31.3.2008 total expenditure incurred is Rs. 4,30,64,926 and there was no further expenditure incurred over and above this amount, and the same amount continued even on incurred as on 31.3.2009. For this purpose, he drew our attention to the Work in progress Account as on 31.3.2008 as well as 31.3.2009 placed on record, at pages 53 and 120 of the paper-book. He also relied on the Pune Bench decision of the Tribunal in the case of Ramsukh Properties V/s. DCIT(138 ITD 278) to suggest that deduction udnerS.80IB(10) to be granted on partially completed project. 8. On the other hand, the learned Departmental Representative placed strong reliance on the orders of the lower authorities. 9. We have heard both sides and perused the material on record. In this case, the plan was approved on 30.7.2003 for construction of residential flats in Survey Nos.2, 193A, 193AA, 194A, 194AA, 195/1, 195/2, 196, 197, 198A, 198AA, 203 and 207, situated at Hyderguda Village, Rajendranagar Mandal, Ranga Reddy District, belonging to Shri K.Purushotam Reddy, Engineer Reddy Homes P. Ltd. represented by Shri K.Krant....
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....rescribed in S.80IB of the Act. In our opinion, therefore, the Assessing Officer was correct and justified in disallowing the claim of the assessee for deduction under S.80IB of the Act, for the years under appeal. Consequently, we find no infirmity in the action of the CIT(A), in confirming the view taken by the Assessing Officer while denying the assessee's claim for deduction under S.80IB of the Act. We accordingly uphold the orders of the lower authorities on this issue and reject the grounds of the assessee in its appeal for all the four years. 10. Next common ground in these appeals of the assessee is with regard to disallowance of finance charges. The Assessing Officer observed that the assessee has shown a liability of Rs. 4.18 crores in the name of Engineer Reddy Homes P. Ltd. and Rs. 7.13 crores as advance from customers. On examination of the accounts of M/s. Reddy Homes Ltd., it was noticed that no interest was paid by the assessee to that company. However, it was observed that the interest amount paid by the assessee was to AP State Finance Corporation on the loans availed by that company, viz. M/s. Engineers Reddy Homes Limited and the same was passed on to the asses....
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....ed order of the CIT(A) on this issue. We accordingly uphold the order of the CIT(A), and reject the grounds of the assessee on this issue. 14. Next ground of the assessee common only in ITA Nos.1252/Hyd/2012 and 1253/Hyd/2012 for assessment years 2007-08 and 2008-09 is with regard to disallowance of direct and indirect expenditure. 15. For the assessment year 2007-08, the Assessing Officer disallowed Rs. 2,62,34,832 towards direct and indirect expenses, since the Assessee has not furnished any evidence before the Assessing Officer. On appeal, the CIT(A) observing that though the assessee has vehemently argued that all expenses are meant for business, it cannot be ruled out that some element of inflation and personal nature of expenses embedded in the expenditure incurred by cash cannot be ruled out. On overall appreciation of facts and quantum involved in each item, the CIT(A) was of the view that disallowance of 10% of cash expenditure of Rs. 3,59,97,869, working out to Rs. 35,99,786 would be reasonable. He accordingly sustained disallowance to that extent, deleting the balance disallowance made by the Assessing Officer. Similarly, for assessment year 2008-09, the Assessing Offi....
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....or in that year and therefore, no amount can be added in the assessment year 2008-09. The CIT(A) finding no merit in the contention of the assessee and observing that irrespective of the fact whether consideration was received or not, as per the method of accounting followed by the assessee, assessee is required to declare the sale value in the year in which agreement was entered into or deed was registered. He accordingly upheld the addition made by the Assessing Officer. Hence, assessee is in appeal on this issue. 22. The learned Authorised Representative submitted before us that this amount was offered to tax in the succeeding assessment year and taxing the same in the year under consideration, amounts to double taxation. He drew our attention to page 146 and 147 of the paper-books, which gives the ledger account of L.Rambramham. He also drew our attention to copy of sale deed dated 5th February, 2008, which is at page 148 of the paper-book to suggest that the payment was outstanding on the date of registration of sale deed. 23. The Learned Departmental Representative on the other hand, submitted that the sale deed was registered on 5th February, 2008, and therefore, as per th....
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.... issue for assessment years 2006-07 and 2007-08, viz. ITA Nos.1251 and 1252/Hyd/2012, we have already considered this issue, and finding the disallowance sustained to be justified and reasonable, rejected the grounds of the assessee. For the detailed reasons given in that context in para 17 hereinabove, as for the Revenue's appeals for assessment years 2007-08 an 2008-09, viz. ITA Nos.1361 an 1362/Hyd/2012, we find no merit in the grievance of the Revenue on this issue. We accordingly uphold the impugned order of the CIT(A) for these two years and reject the grounds of the Revenue in these appeals on this issue. 29. As for the assessment years 2005-06 and 2006-07, the Assessing Officer has made an ad-hoc disallowance out of direct and indirect expenses worked out at 10% of the amounts claimed by the assessee, on account of unverifiable nature of such expenditure. The CIT(A), on appeal, took note of the fact that the assessment for these years was framed under S.143(3) of the Act. He further observed that additions in an assessment made under S.153A of the Act have to be only on the basis of credible evidences especially in a case where original assessments were completed under S.1....
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.... any project, as the land was purchased and sold. After considering various contentions of the assessee in this behalf, the CIT(A), concurring with the averments made by the Assessee, deleted the addition of Rs. 2 crores made by the Assessing Officer. 33. We heard both sides and perused the orders of the lower authorities and other material on record. It is evident from the impugned orders of the lower authorities that the contents of the documents referred by the Assessing Officer do not specify any expenditure except stating official and unofficial on each project, and they denote only an estimation and not actual figures dealt by the assessee. We agree with the CIT(A) that before fastening any liability on the assessee, it is necessary for the Assessing Officer to establish some nexus to the contents of the document relied upon and unless the so called unofficial payments or receipts are linked to any land or construction of the project under taken by the assessee, it is difficult to assume that the entries in those documents indicate unexplained expenditure or investment, liable for addition under S.69C of the Act. We do not find any infirmity in the reasoning given by the CIT....
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....006 and subsequently notification by the CBDT under Rule 18C, sub-rule (4) has been given in Novemebr,2006. The primary conditions laid down in the approval granted by the Ministry of Commerce and Industry vide their letter No.1/157/2005-IP & ID, dated 25.9.2006 was that the total investment proposed is Rs. 22 crores. Number of industrial units proposed to be located in the industrial park- 3 units and expected date of commencement of industrial park is September, 2005. Assessee submitted that it has fulfilled the conditions. Copies of lease deeds with the tenants are also filed and the assessee claimed that the agreements have been entered into in the financial year 2005-o6 itself, and the Industrial Park has been operational since then. However, since the project has been approved by the Ministry of Commerce, Government of India in September, 2006 and the Notification has come from the CBDT in Novemebr,2006, i.e. in the year 2006-07 relevant to assessment year 2007-08, the claim has been made under S.80IA(4)(iii) for the first time in assessment year 2007-08, Assessee has also furnished the details of break up of investment made in the building and the income from which it calmed....
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....x for letting out. No additional required facilities are created on this so called Industrial Park. There is no difference between normal builder of a commercial complex for the purpose of getting rental income and the structure created by the assessee in the instant case. The appellant developed the building and let out to various entities on rent. The appellant is not maintaining the property nor operating any unit in the complex. It only developed the structure of the building. 07.2. One of the tenants ion this building is Engineers Syndicate International, which is a part of the assessee group, and as admitted by the appellant, they are in the business of providing engineering services. Beyond such submission, the appellant could not substantiate the nature of profession carried by the above tenant with any independent material or evidences to prove such contention. In order to get relief u/s.80IA(4), the tenants are supposed to carry out limited professional activity such as engineering services, software service provider, data processing, business processing, outsourcing etc. Unless the tenant is solely engaged in such activity from this industrial unit, the assessee cannot ....
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.... assessee in the industrial park, is covered by the decision of the Tribunal in the case of Annapurna Builders in ITA No.1117/Hyd/2011 for assessment year 2007-08. The Tribunal, vide its order dated 30.11.2011 in that case, after analyzing the facts of that case, held as follows- "27. Further, it is seen that this Tribunal in the case of Meenakshi Infrastructures Pvt. Ltd. Vs. DCIT (supra) have opined that "when the Central Government approves the assessee's project under Industrial Park Scheme framed by the Central Government, the conditions under sec. 80IA(4)(iii) are satisfied." It is clear that while the assessee has received such approval and notification, the same has not been withdrawn till date for contravention of any of the conditions, even though there is a specific provision for withdrawal, in case the Central Government finds that the conditions prescribed therein have not been adhered to. However, it is also clear that such withdrawal has to be done by the Central Government only and as long as this is not done, the assessee having such approval and notification cannot be denied the deduction. Under the circumstances, I am of the view that since the assessee had ....
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....assessee in these appeals is with regard to disallowance out of direct and indirect expenses. 41. We have considered the rival submissions and perused the orders of the lower authorities and other material on record. We considered similar issue in the context of cross-appeals in the cases of Janapriya Engineers Syndicate(JV). For the detailed reasons given in para 17 read with paras 28 and 29 hereinabove, we set aside the impugned order of the CIT(A), and direct the Assessing Officer to restrict the disallowance to 10% of the direct and indirect expenses incurred by the assessee in cash. Consequently, assessee's grounds on this issue are treated as partly allowed. 42. Next common ground that arises for consideration is in the appeals of M/s. Janapriya Properties (Formerly Janapriya Engineers Syndicate) for assessment years 2006-07 and 2007-08, being ITA Nos.1577 and 1594/Hyd/2012, and it is with regard to disallowance under S.40A(3) made by the Assessing Officer, which has been confirmed by the CIT(A). 43. We have considered the rival submissions on this issue and perused the orders of the lower authorities and other material on record. We find that the assessee has not offered ....
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....appeal for assessment year 2007-08, are that on examination of the seized materials, it was noticed that by the Assessing Officer that the assessee has incurred various expenditure in the form of cash for purchase of lands. In spite of showcause notices issued from time to time and a final show cause notice dated 8.7.2010 issued on the assessee, assessee has chosen not to appear and not to file any reply, under the circumstances, the Assessing Officer made an addition of Rs. 63.75 lakhs, under S.69C of the Act, treating the following payments as representing unexplained expenditure. Page No. Annexure Description Quantum Rs. 86-89 A/JES/18 Agreement of sale dt.07.03.07 entered between the assessee-firm and Sri D.E.Nagaraj and Sri J.Srinivas (landlords) for purchase of Ac.1.38 Gt. Situated at Kothapeet (V) for a consideration of Rs. 1.55 crores. Out of this, a sum of Rs. 38,75,000/- was paid on10.03.2007 38,75,000 96-97 A/JES/18 A sum of Rs. 50,000/- and Rs. 1,50,000 were paid in cash to Sri T.Rajasekhar Reddy for purchase of land on 03.11.2006 and 01.11.2006, totaling to Rs. 2,00,000/- 3,00,000 133 A/JES/18 Receipt dated 29.12.2006 given by Sri T.Madan Mohan Reddy tow....
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.... on 17-102007 the assessee claimed to have paid Rs. 6,62,500/- vide cheque No.394471 drawn on ING Vysya Bank to D.E. Nagaraj and Rs. 6,62,000/- vide cheque No.394470 drawn on ING Vysya Bank to J.Srinivasa Yadav. Thus in total the assessee paid a sum of Rs. 62,OO,OOO/- vide cheques to these two persons from March, 2007 onwards. The said submission of the appellant requires consideration in view of the payments made by cheques. Accordingly, the AO is directed to verify once again the payment details vis-a-vis books of ale and bank. a/c and if on verification found correct, the same is to be given credit while computing the addition under this head. Out of 1,16,25,000/- (balance of consideration after payment of Rs. 38,75,000/-), only Rs. 23,25,OOO/- is to be allowed if the AO finds that the payments are reflected in the books of a/c. For the balance of Rs. 93,00,000/- the assessee has no explanation to offer about the sources for the payments, etc. The only submission of the appellant on this ground is that no further payments have been made to the above sellers subsequently. It is very difficult to accept that the sellers of property would keep, quiet if scheduled payments are not e....
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.... and it relates to disallowance of finance charges amounting to Rs. 3,19,55,149. 53. Facts of the case in brief are that the assessee claimed a sum of Rs. 3,19,55,148 as finance charges, paid to banks and financial institutions and debited the same to direct expenses. As against this, since assessee has claimed deduction under S.80IA(4) of the Act, the Assessing Officer arrived at a figure of Rs. 2,85,94,351 as attributable to such exempt income claimed by the assessee, and disallowed the same in terms of S.14A of the Act. On appeal before the CIT(A), assessee made elaborate arguments against the addition made as above, and contended inter-alia that a claim for deduction under various provisions of the Act, such as S.80IA is distinct from the claim of exemption of any income from the very tax net. The CIT(A) was not convinced with the arguments of the assessee on this issue, and taking note of the various contentions of the assessee against the disallowance made by the Assessing Officer, observed that though the assessee stated to have incurred total expenses under finance charges at Rs. 3,19,55,148, none of the loans borrowed by the assessee had been utilized for any of its busin....
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....e impugned orders of the lower authorities. We find that the decision of the CIT(A) while deleting the disallowance made by the Assessing Officer under S.40(a)(ia) of the Act, is based on the Special bench decision of the Visakhapatnam Tribunal in the case of Merilyn Shipping & Transport in ITA No.477/Viz/2008 dated 29.3.2012. We find that the said decision of the Special Bench has been stayed by the Hon'ble High Court of Andhra Pradesh vide its interim order dated 8th October, 2012. That being so, in the interests of justice, we set aside the impugned order of the CIT(A) on this issue and restored this aspect of the matter to the file of the Assessing Officer, with a direction to redecide the disallowance if any that maybe warranted in terms of S.40a(ia) of the Act, in consonance with the view that the Hon'ble High Court may take on the above decision of the Special Bench of the Tribunal. The Assessing Officer is directed to redecide this issue in accordance with law and after giving reasonable opportunity of hearing to the assessee. 58. The next effective grievance in ITA No.1623/Hyd/2012 for assessment year 2007-08 is with regard to addition of an amount of Rs. 1.5 crores made ....
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....essment years 2002-03 to 2004-05, viz. ITA No.580 to 582/Hyd/2011, directed against a common order of the CIT(A) I, Hyderabad 31.1.2011, is with regard to additions relating to opening work in progress. 63. Brief facts of the case are that the assessee commenced construction of the project at Attapur and spent amounts on the project during the years under consideration. The amounts so spent were accounted for as work-in-progress in the Balance Sheet of the relevant years, as no sales were affected. The Assessing Officer however, considered a percentage of 15% as profit on work-in-progress and taxed the same accordingly, which resulted in the impugned additions of Rs. 21,51,276 for assessment year 2002-03; Rs. 24,11,619 for assessment year 2003-04; and Rs. 18,12,501 for assessment year 2004-05. 64. On appeal before the CIT(A), it was submitted that in the year ending 31.3.2005, this project was transferred to a joint venture by the name, M/s. Janapriya Engineers Syndicate(JV), and the amount transferred was Rs. 4,18,05,343. From the year ending 31.3.205 onwards, this joint venture completed the project and offered the income of the venture for tax in its hand. It was submitted tha....
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.... disclosed for the years under appeal, in the following manner- "04.3. ...I find from the Auditor's Report that the appellant is following mercantile system of accounting but no income has been recognized in the assessment years under consideration though in schedule attached to the report it has been stated that the company recognises income and expenditure on accrual basis. No where in the accounts the appellant has specifically mentioned that it is following Project Completion method. It is a fact on record that at the time when the construction activities have been undertaken by the appellant company the JV was not at all in existence. It is also a fact on record that the appellant company has incurred substantial expenditure against its project and has started receiving advance towards sale of flat. Since the appellant has not specifically adopted project completion method in its accounting I am of the view that the AO was not wrong in working out the profit on percentage completion basis which is also a recognized method of accounting in this line of business. The transfer of the work in progress to the JV is a subsequent event which cannot influence its taxability in an ear....
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....(A), and reject the grounds of the assessee on this issue. 66. In the result, these three appeals of the assessee for assessment year 2002-03 to 2004-05, ITA nos.580 to 582/Hyd/2011, are dismissed. 67. First effective ground of the assessee in its appeal for assessment year 2005-06, viz. ITA No.583/Hyd/2011, directed against the order of the CIT(A) I, Hyderabad dated 31.1.2011, is with regard to the addition towards unproved liabilities. 68. Brief facts of the case in relation to this issue are that the Assessing Officer observed that during the year under consideration, there were advances appearing in the Balance Sheet of the assessee company of Rs. 4,61,800 in respect of Janapriya South City Projects. These advances, he noted were wrongly transferred to the Janapriya Engineers Syndicate JV during the year under consideration, and the entry was reserved in the assessment year 2006-07. The assessee company had collected advance for Janapriya South City Project, prior to assessment year 2002-03 and this project was cancelled by the company, and advance repaid to the customers over the years. However, since the advance of Rs. 4,61,800 was remaining outstanding over the last four ....
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....eal, the CIT(A) sustained the said disallowance made by the Assessing Officer. Hence, assessee is in second appeal on this issue. 74. We have considered the rival submissions on this issue and perused the orders of the lower authorities and other material on record. It is an undisputed fact that the loan of Rs. 5 crores taken by the assessee from APSFC has been transferred to its joint venture partner, Janapriya Engineers Syndicate JV. Since the loan amount has not been utilized by the assessee for its own business purpose, it cannot be said that the expenditure incurred by way of processing charges for securing such a loan, is an expenditure incurred for the pupose of the business of the assessee. That being so, the disallowance made by the Assessing Officer is in order and the CIT(A) in our opinion, was justified in sustaining the same. We accordingly find no merit in the grounds of the assessee on this issue, which are accordingly rejected. 75. The next effective grievance of the assessee in this appeal relates to an addition of Rs. 7,14,968 being 30% of the opening work-in-progress. The Assessing Officer observed that against sale of Rs. 70,22,290 the assessee had shown a pr....
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.... ITA No.547/Hyd/2011 : Assessment year 2002-03 ITA No.548/Hyd/2011 : Assessment year 2003-04 79. The only issue involved in these appeals relates to deletion of additions made by the Assessing Officer for the years under appeal, on account of deemed dividends. 80. Facts of the case in brief are that during the assessment proceedings, the Assessing Officer noted that the share holders of the assessee company, viz. K.Ravinder Reddy, K.Kranti Kiran Reddy and Smt.Piriyamvada Reddy, who were having more than 10% share holding in the assessee company are also holding shares working out to more than 10% in M/s. Engineers Syndicate India Pvt. Ltd. Since Engineer Syndicate Ltd., was having sufficient reserve, the assessee was requested to explain as to why the advance/loan amount received by the assessee company shall not be treated as deemed dividend under S.2(22)(e) of the Act. It was explained by the assessee that the amounts were paid by Janapriya Engineers Syndicate India Pvt. Ltd. to the assessee company on account of inter-corporate deposits and hence the provisions of S.2(22)(e) are not applicable. The Assessing Officer not convinced with the explanation of the assessee, and ob....