TaxTMI 
TaxTMI 
2018 (3) TMI 1569
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....of Income Tax (Appeals)-1, Hyderabad, dated 20-07-2016. 3. Briefly stated, assessee is a company established under the Companies Act with an objective of construction of housing schemes to the benefit of the employees of the Police Department of the Government of Andhra Pradesh. The company undertakes the construction of buildings for the housing personnel of the Police Department and for construction of the buildings for Police stations and other offices and facilities for the Police Department. The company is established only with the purpose of construction of residential houses for Police Department and Police stations. The company was established in the year 1971 and the share capital is fully subscribed by the Government of Andhra Pradesh. 4. The Government of Andhra Pradesh also issued an order vide G.O.Ms.No. 517, dated 25th September, 1980, clarifying that Government will arrange funding of the corporation for construction of houses in the shape of advances not bearing interest and the corporation shall build the houses and handed over them to Government within a reasonable time from the date of drawl of the advances. The corporation should not include interest on these ....
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....Ltd., [HUDCO]. According to the G.O.Ms.No. 517, dated 25th September, 1980, the amounts given by the Statement Government as loans to the corporation would be treated as non interest bearing advances. The advances would be given by the Government of Andhra Pradesh to repay the principal and interest for the loans taken from the HUDCO Ltd. and other financial institution and the same will be adjusted against the constructed housing quarters of the corporation which would be handed over to the Government of Andhra Pradesh. The Ld.AR submitted that there are no sales in the case of the assessee and there is no expenditure in the hands of the assessee for construction for the activity carried on by the assessee. The entire expenditure to be borne by Government of Andhra Pradesh. The entire interest required to be paid to the LIC of India, HUDCO would be given by the Government of Andhra Pradesh as interest free loan. Therefore, argued that there is no income earned by the assessee and there is no expenditure claimed towards interest in the P&L A/c. The Ld.AR invited our attention to Page No. 53 of Paper Book in Schedule-L, wherein it was mentioned that interest of Rs. 951.14 Lakhs [fro....
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....no sales involved in the entire activity and there is no income generation activity except other income interest and misc., income. For the year ending 31-03-2009, the assessee has calculated the interest payable to the public financial institutions which represents the expenditure and passed journal entries both for income and expenditure as contra entries. In fact, there is no income received by the assessee from the Government of Andhra Pradesh and there is no expenditure related to the earning of the income. Both the income and expenditure were debited to the P&L A/c under the Income and Expenditure head as contra entries. The interest expenditure on loans is payable to the public financial institutions and the same is to be reimbursed by the Government of Andhra Pradesh as interest free loans. In the result, neither income accrued to the assessee nor the expenditure claimed by the assessee. 9. The assessee relied on the decision of CIT Vs. Chamanlal Mangaldas & Co., [39 ITR 8] (SC), wherein the Hon'ble Supreme Court held that if incomes does not result at all, there cannot be tax though the book keeping entry is made about hypothetical income which does not materialize. L....
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.... Karnataka High Court held that: "The assessee in fact acted as an agent of the Governments of both the Central and the State for implementing the scheme of the Government, This being the factual position, the lower authorities committed serious error in treating the interest as income of the assessee and bringing the same to tax." Therefore, the Tribunal set aside the orders of the AO and the first appellate authority and the claim of the assessee was allowed. (Pg No.166-167)". 10. In the assessee's case, the entire amount of funds were received from Government of Andhra Pradesh as interest free advance which utlised for construction of police housing and after completion of construction, the property is handed over to the Government of Andhra Pradesh and the loan / advance interest gets adjusted towards cost of construction. The interest payment has to be received from the Government of Andhra Pradesh. Neither the income is accrued nor the assessee claimed the interest expenditure which remained unpaid. Hence, we hold that Section 43B of the Act not is applicable in assessee's case. However it is not clear from the assessment order or the P&L account whether the assessee has ....
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....lance remained was only Rs. 1,26,25,001/- for non deduction of tax at source. The Ld.DR did not dispute the fact. Therefore, we do not find any justifiable reason for the enhancement made by the CIT(A). Hence the enhanced addition made by the Ld.CIT(A) is unsustainable and accordingly deleted. 14. The next issue is with regard to the addition of Rs. 1,26,25,001/- u/s 40(a)(ia) of the act. The Ld.AR argued that the assessee has neither made the payment to the contractor nor credited the amount to the account of the contractor. Only provision was made on estimation basis in the books of account to arrive at the true and correct state of affairs. As per Section 194C of the Act, assessee is required to deduct the tax at the time of payment or at the time of crediting the amount to the contractor. In this case, since assessee neither credited the payment to the contractor nor paid the amount, the question of TDS does not arise. Only journal entries are passed by assessee and the same were reversed immediately on the first day of succeeding year. Per contra the Ld.DR supported the orders of the lower authorities. 15. We have heard both the parties and perused the material on record. As....