TMI Blog2021 (9) TMI 756X X X X Extracts X X X X X X X X Extracts X X X X ..... made and any unexplained/overstated expenditure etc. in its books of account pertaining to the year under appeal, therefore, we are of the view that the mode and manner of the additions made in the orders passed u/s 153A deserves to be held bad in law. Rejection of books of accounts - Whether CIT(A) erred in allowing books of accounts in spite of the facts the assessee failed to furnish any evidence of bills of entry to determine whether the plant and machinery and other items for the year under consideration were actually received at any part of India and were being used for business purposes? - HELD THAT:- AO has not mentioned the fact that books of accounts were provided to him in the electronic form on 29-12-2016. More so that audit report with requisite performa was also provided to him. The AO s requisition of all the bills and vouchers was not feasible seeing the qty. of bills and vouchers and also that such requisition was made on the fag end of the time barring date. These books and entire bills etc. were provided in the remand proceedings to the AO. In the remand proceedings the AO has not pointed a single defect in the books, bills or vouchers or the audit reports ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s income and not otherwise. In this case, the expenses have been capitalized and carried forward as capital work in progress to next year and no deduction in computation of business income is claimed and therefore, Section 43B is inapplicable in this case. Since, the ld. CIT(A) has deleted this addition on the basis that it is not a business deduction, therefore, Section 43B is not applicable in the case of the assessee. No new facts or circumstances have been brought before us by the ld AR in order to controvert or rebut the factual findings recorded by the ld. CIT(A), therefore, we see no reason to interfere into or deviate from the findings so recorded by the ld. CIT(A) qua this issue and we uphold the same. Addition u/s 69C - assessee failed to produce any documentary evidences regarding address, PAN and TIN of the suppliers - CIT-A deleted the addition - HELD THAT:- As in course of search are only bills of brick purchased from unregistered dealers for use in construction of hotels and are recorded in books of accounts of assessee company. The books of accounts and copy of relevant A/c of purchases are produced for verification. The full address of those unregistered suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the findings so recorded by the ld. CIT(A) qua this issue and we uphold the same. Addition made on account of excess payment of interest @18% on unsecured loan given to the related parties - as per AO interest @ 12.83% was determined after considering SBI s basic rate and risk factor or say on unsecured loan and assessee itself has taken loan from IDBI @ 14% per annum - CIT-A deleted the addition - HELD THAT:- In this case the support required was high regular and therefore, the promoters who obviously are related persons had to infuse the required amount in the form of unsecured loans without any stipulation of repayment on interest @ 18%. The minimum market rate of interest of unsecured loan through brokers in the year was 14.40% p.a. plus brokerage @ 1.2% and interest payment is to be made by monthly in advance and loan was to be for stipulated fixed period after which repayment has to be made and such loans are available only to persons having credit in market while the loan taken by assessee from above specified concerns who are promoters of company is @ 18% interest. The interest is only credited at year end and not actually paid and loan is unsecured without any sti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted as per Rule 12(2) of the Income Tax Rules, 1962? 4. Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in allowing deduction u/s 35AD of the Act in spite of the fact the assessee has not got its recognition in two star or above category classified by the Central Government during the year under consideration as mandated u/s 35AD of the Income-tax Act, 1961? 5. Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of ₹ 62,31,856.00 made u/s 43B of the Act, on account of non-payment of interest payment during the financial year since no documentary evidences have been produced that payment of the same pertains to A.Y. 2011-12 instead of A.Y. 2012-13? 6. Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of ₹ 8,59,200.00 made u/s 69C in spite of the fact the assessee failed to produce any documentary evidences regarding address, PAN and TIN of the suppliers? 7. The Appellant crave, leave or reserving the right to amend modify, alter add or forego any grounds of appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se seized documents but was unable to prove the genuineness of the parties mentioned therein. In this connection it is submitted that papers seized from assessee company being ann. A-2 are only bills of bricks purchased from local unregistered dealers for use in construction of hotel and payment therefor was made in cash which too was not in violation of section 40A (3) and those payments for purchase are duly recorded in regular books of accounts which is verifiable therefrom. The Ld. A.O. is thus absolutely wrong in giving finding that evidences in respect of out of books purchases/expenses were found. The Ld. A.O. except giving reference of Ann. A-2 which is already explained mentioned nothing nor brought any instance or evidence in support of said finding and thus the same is without any basis and arbitrary. It is thus clear that in search no incriminating material/documents etc. were found from assessee company. The soft copy of books of accounts were also available before A.O. in assessment proceedings and copy of books of accounts showing the said entries were filed in paper book in appeal proceedings which was also forwarded to Ld. A.O. in these remand proceedings. The Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i High Court has reiterated the above settled legal proposition that since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed .. Rajasthan High Court in the case of Jai Steel (India) vs ACIT reported in 259 CTR (Raj.) 281 .. The requirement of assessment or reassessment under the said section has to be read in the context of sections 132 or 132A, in as much as, in case nothing incriminating is found on account of such search or requisition, then the question of reassessment of the concluded assessments does not arise, which would require more reiteration and it is only in the context of the abated assessment under second proviso which is required to be assessed. . . Para 26 of the Judgement: The plea raised on behalf of the assessee that as the first proviso provides for assessment of the total income in respect of each assessment year falling within the six assessment years, is merely reading the said provision in isolation and not in the context of the entire section. The words assess or reassess have been used at more than one place in the Section and a h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2012-13 30-09-2013 30-09-2014 15-10-2014 7.2 It is clear from the table above that assessments stood completed on the date of search and there was no time left to issue the notice u/s 143(2). Careful perusal of the assessment orders indicated that none of the additions/disallowances (except Ground of Appeal 4 in A.Y. 2011-12) made are based on seized material found during the course of search on the appellant premises. 7.3 in the remand report the Ld. AO has reffered to decision of Hon ble High Court of Rajasthan in the case of CIT Vs Ravi Mathur (citation not provided) to counter the legal grounds taken. In my view the decision cited is a dated decision and the issue is now settled by the decision of Hon'ble Supreme Court (discussed below). Recently Hon'ble Supreme court vide order dated 02-07-2018 in Meeta Gutgutia Vs. Pr CIT ( 96 Taxmann.com 468) has held that Invocation of section 153A to re-open concluded assessments of assessment years earlier to year of search was not justified in absence of incriminating material found during search qua each such earlier assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39; i Once a search takes place under Section 132 o] the Act, notice under Section 153 A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date o/ the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the total income' of' the aforementioned six years in separate assessment orders for each of the six years. In other words, there will be only one assessment order in respect of each of the six AYs in which both the disclosed and the undisclosed income would be brought to tax . iv. Although Section 153 A does not say that additions should be strictly made on the basis o] evidence found in the course of the search, or other post-search material or information available with the AO which con be related to the evidence foun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act for the instant A.Yr. Following information which came from assessment order is necessary to mention here, which is as under: A.Y. ROI Filling date 143(2) notice time expiry Date of Search 2010-11 30-09-2011 30-09-2012 15-10-2014 2011-12 29-09-2012 30-09-2013 15-10-2014 2012-13 30-09-2013 30-09-2014 15-10-2014 It is clear from the table above that those assessments stood completed on the date of search and there was no time left to issue the notice u/s 143(2) of the Act. Careful perusal of the assessment orders indicated that none of the additions/disallowances (except Ground of Appeal 4 in A.Y. 2011-12) made are based on seized material found during the course of search on the assessee s premises. 11. We also observed that in the remand report, the AO has referred to decision of Hon ble High Court of Rajasthan in the case of CIT Vs Ravi Mathu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. We also draw strength from the decision of the Hon ble Delhi High Court as relied by the ld. CIT(A) in his order, in the case of Kabul Chawla vs. ACIT 380 ITR 573 (Del HC), wherein it was held as under: 37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light o/ the law exploited in the aforementioned decisions, the legal position that emerges is as under.' i Once a search takes place under Section 132 o] the Act, notice under Section 153 A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date o/ the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the total income' of' the aforementioned six years in separate assessment orders for each of the six years. In other words ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efor and repeated what is stated in assessment order. No document/loose paper was found/seized during the course of search at the business/residential premises of the assessee indicating any on money receipt/investment/advances made and any unexplained/overstated expenditure etc. in its books of account pertaining to the year under appeal, therefore, we are of the view that the mode and manner of the additions made in the orders passed u/s 153A deserves to be held bad in law. The ld. CIT(A) has passed a well-reasoned order discussing all material facts and legal position. No new facts or circumstances have been brought before us by the ld AR in order to controvert or rebut the factual findings recorded by the ld. CIT(A), therefore, we see no reason to interfere into or deviate from the findings so recorded by the ld. CIT(A) qua this issue and we uphold the same. 13. Ground No. 2 raised by the Revenue relates to challenging the order of the ld. CIT(A) in allowing books of accounts in spite of the facts the assessee failed to furnish any evidence of bills of entry to determine whether the plant and machinery and other items for the year under consideration were actually received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessee if so required which is not attended to by A.O. The assessee however, produced bills of CIF imports and other bills before Ld. CIT(A) and Ld. AO in response to remand report. The Ld. A.O. is thus wrong and has erred in law in invoking provisions of section 145 (3) thereby rejecting audited books of accounts in a very casual manner, on filmsy grounds in an arbitrary manner. The Ld. A.O. having not found any defect or discrepancy in books of accounts is not correct in law to reject books of accounts. The A.O. has not pointed out any specific mistake or deficiency in the books of accounts maintained and produced by the assessee. The correctness of the book results cannot be challenged without pointing out any specific mistake or deficiency in the books of accounts or without giving a firm finding that the method of accounting followed by the assessee was such that profit and gains cannot properly be deduced from such books of accounts. The A.O. is also required to give a finding that the books are incomplete or incorrect in any manner more so when accounts are statutorily audited and audit report has no qualification. Unless such a specific finding is given invoking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e also observed from perusal of the record that the A.O. has not mentioned the fact that books of accounts were provided to him in the electronic form on 29-12-2016. More so that audit report with requisite performa was also provided to him. The AO s requisition of all the bills and vouchers was not feasible seeing the qty. of bills and vouchers and also that such requisition was made on the fag end of the time barring date. These books and entire bills etc. were provided in the remand proceedings to the AO. In the remand proceedings the AO has not pointed a single defect in the books, bills or vouchers or the audit reports (both internal and external audit). In the remand proceedings the CIF bill, which were not produced before the AO were also produced. Even the allegation of unaccounted cash purchase of bricks of ₹ 8,59,200/- was seen to be duly incorporated in the cash book also not adversely commented by the AO/auditor. The action of AO is not backed by any factual defect in the books of bills, vouchers or the audit report. The ld. CIT(A) has passed a well-reasoned order and no new facts or circumstances have been brought before us by the ld AR in order to controvert o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Hotel of 2 star or above category as classified by the Central Govt. is not satisfied as it applied for catagorisation of the Hotel in A.Y. 2014-15 and certificate is issued on 31-3-2016 by competent authority showing commencement of operation of Hotel 1-4-2011 while assessee declared it 26-3-2011 in Form 10CCB. (c) That in the year under consideration it declared nominal income from operation and therefore it seems it is totally an entry to show commencement of operations and further in A.Y. 2011-12 it has capital expenditure/investment at ₹ 13,86,30,120/- while in A.Y. 2012-13 such investment is ₹ 73,22,98,854/- so it is not practical that hotel of 2 star and above can commence in A.Y. 2011-12 when only 16% of capital expenditure was incurred. (d) The assessee company failed to furnish bills of CIF imports of ₹ 9,18,16,770/- included in total capital expenditure in assessment proceedings before A.O. and as per ledger A/c of CIF imports the total figure is 8,67,71,584/- and as such there is difference. The Ld. A.O. on these grounds held that assessee failed to fulfill any of the pre-condition to be an eligible entity u/s 35AD and so disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of the certificate but it also does not mean that the hotel was operated for lower than two star category from the date of application till the issuance of three-star rated certificate. Naturally, in order to get the certificate, the assessee has designed the hotel rooms and all other amenities according to the terms and conditions specified for three-star hotel. As per provisions of section 35AD, the expenditure incurred wholly and exclusively for the purpose of any specified business shall be allowed as deduction during the previous year in which he commences operations. The admitted fact is that assessee got the certification of categorization for above 2 star category from competent authority. The commencement of operation of hotel from 26-3-2011 has also been admitted by A.O. as he assessed the income from operation of hotel from 26-3-2011 to 31-3-2011. The deduction u/s 35AD would have been available to assessee even the operation of hotel would have commenced after 31-3-2011 or even thereafter and therefore, no additional benefit was derived so as make it antidate. The findings of A.O. that it seems that it is totally an entry to commencement of business is based ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 32. The assessee thus prays that in case it do not succeed in his claim for allowance of deduction u/s 35AD, the assessee may kindly be held entitled to depreciation on such capital expenditure at prescribed rates and same may kindly be allowed to it. 19. We have considered the rival contentions of both the parties and perused the material placed on record. The ld. CIT(A) has dealt with the issue in para No. 17 18 of his order and the same is reproduced below: 17. I have perused the written submissions submitted by the Ld. A/R and the other of AO. I have also gone through various judgements cited by the Ld. A/R and those contained in the order of AO. I find the Ld. AO has disallowed claim u/s 35AD citing following reasons: 1. That the appellant company did not file 10CCB report alongwith the return of income. 2. That the approval for star categorization as obtained on 31-3-2016 while the appellant company declared it on 26-03-2011. 3. That the appellant company declared notional income for business operations. 4. That the appellant company fail to furnish CIF import bills of ₹ 9.18 crores while also there is difference of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a three star category hotel only during next assessment year - Tribunal noted that revenue had not disputed operation of new hotel from relevant financial year 2010-11, as it had accepted income which was offered to tax - It was also found that assessee had filed application for classification of hotel in three star category in assessment year in question itself and, thereupon, manner in which inspection was conducted and time frame taken by Competent Authority were all beyond control of assessee - Tribunal thus taking a view that holistic interpretation of provisions of section 35AD was to be made, allowed assessee's claim - Whether since revenue failed to controvert aforesaid findings of fact, impugned order passed by Tribunal did not require any interference - Held, yes [Paras 9, 10 and 16] [In favour of assessee] 18.2 Thus in the present case to the Ld. AO has accepted the part operation of the hotel and the revenue earned also is accepted or is not disputed. It may not be the out of place to extract the para 9, 10 16 of the aforesaid judgment; 9. The facts noted by the Tribunal clearly show thot the application filed by the assessee for such a classifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r avoiding benefit of a three star hotel under section 35AD, what is not relevant is date of certification for classification as two or more star hotel but existence of classification as two or more star hotel; therefore, once assessee engaged in hotel business, was granted certification for categorization of its hotel as three star hotel, entire capital expenditure incurred by assessee in respect of its hotel was to be allowed for deduction under section 35AD - Held, yes [Para 10] [In favour of assessee) Thus the case of appellant is squarely covered by the aforesaid two judgments. That the aspect of not furnishing of from 10CCB with the return is a bonafide error, as is submitted by the appellant. In any case it is not mandatory requirement as is duly supported by various case laws furnished by the Ld. A/R. namely; A CIT Vs. Berger paints 254 ITR 503 Section 32A8, read with section 139, o/ the Income-tax Act, J961 - Investment deposit account - Assessment year 1988-89 - Auditing of assessee s claim for investment allowance and ids accounts was duly completed - Whether furnishing of auditor s report on date of filing of return is not mandatory, but on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. AO is directed to allow the claim of appellant u/s 35AD of the Act. The ground is allowed. 20. From perusal of the record, we observed that the AO has disallowed claim u/s 35AD of the Act citing following reasons: 1. That the appellant company did not file 10CCB report alongwith the return of income. 2. That the approval for star categorization as obtained on 31-3-2016 while the appellant company declared it on 26-03-2011. 3. That the appellant company declared notional income for business operations. 4. That the appellant company fail to furnish CIF import bills of ₹ 9.18 crores while also there is difference of CIF import figure of ₹ 8.68 crores in the ledger. We observed that the only condition for claim benefit u/s 35AD is that it could be claimed by any person. No approval is required for the same. However, the hotel should be classified as 2-star category or above by the Central Govt. which is precisely the case here. The assessee did construct a hotel which was more than 2-star categories and an application was made on 26-3-2011 to a competent authority. In this application it was well reflected the said hotel is 4-star hotel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich stated to show interest detail of ₹ 3,63,51,274/- hence Ld. A.O. disallowed the alleged difference of ₹ 62,31,856/- invoking section 43B. In this connection we submit the detail of interest paid on term loan and copy of A/c of term loan and Bank statement of term loan evidencing payment of interest of ₹ 4,25,88,123/-. The Ld. A.O. is thus wrongly arrived at the difference of ₹ 62,31,856/- and disallowed the same u/s 43B which is wrong in law. Without prejudice the above section 43B can be invoked if expenses for which deduction is claimed under chapter IV while computation of business income and not otherwise. In the case of assessee the expenses have been capitalized and carried forward as capital work in progress to next year and so no deduction therefor in computation of business income is claimed and so section 43B is inapplicable and disallowance made by A.O. for the sum of ₹ 62,31,856/- u/s 43B is wrong and bad in law on this ground also. 23. We have considered the rival contentions of both the parties and perused the material placed on record. The ld. CIT(A) has dealt with the issue in para No. 26.2 of his order and the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and PAN of above parties so that its genuineness can be examined. In the reply furnished by the assessee no required details were provided. Therefore, it is clear that said expenses have been made out of books hence addition of ₹ 859200/- is being made u/s 69C of the I. T. Act, 1961 to the total income of the assessee. In this connection it is submitted that the above Ann.A-2 seized in course of search are only bills of brick purchased from unregistered dealers for use in construction of hotels and are recorded in books of accounts of Assessee Company. The books of accounts and copy of relevant A/c of purchases are produced herewith for verification. The full address of those unregistered suppliers are available on seized bills itself but being petty unregistered dealers they have no PAN or TIN but this does not make them unverifiable and as expenses are duly recorded in regular audited books of accounts and cash payment which is not in violation of provision of section 40A (3) and its source is verifiable therefrom and, therefore, Ld. A.O. is wrong on facts as well as in law to hold that these expenses have been made out of books. The Ld. A.O. also wrongly invoked provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch have been verified by the auditor with no adverse remark in the report by the auditor. There is no adverse verification in the remand proceedings too by the AO. No new facts or circumstances have been brought before us by the ld AR in order to controvert or rebut the factual findings recorded by the ld. CIT(A), therefore, we see no reason to interfere into or deviate from the findings so recorded by the ld. CIT(A) qua this issue and we uphold the same. 29. In the result, this appeal of the Revenue stands dismissed. 30. Now we take ITA No. 1159/JP/2019 for the A.Y. 2012-13, wherein the Revenue has taken following grounds of appeal: 1. Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition without any reference to incriminating material of cash purchase (Annexure-2) seized during the search action u/s 132 of the I.T. Act, 1961? 2. Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in allowing books of accounts in spite of the facts the assessee failed to furnish any evidence of bills of entry to determine whether the plant and machinery and other items ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the ld. CIT(A) in deleting the addition of ₹ 5719/- made u/s 36(1)(va) of the Act (i.e. PF/ESI addition) relying on the ratio of CIT Vs SBBJ 265 CTR 471 which is sub judice as SLP has been admitted by the Hon ble Apex Court. In this regard, the ld CIT-DR has vehemently supported the order of the A.O. 33. The ld. AR appearing on behalf of the assessee has reiterated the same arguments as were raised before the ld. CIT(A) and also relied on the written submissions filed before the Bench and the contents of the same qua the issue under consideration are as under: As regards to ESI PF payment of ₹ 5,719/- the Ld. A.O. with reference to 3CD audit report has stated that the same has been made after due date. However from the said audit report it is also evident that the payment was made before due date of filing of return hence allowable. The complete details thereof was available in Tax Audit Report which A.O. overlooked and made addition. However we submit following information to support our claims. a. ESI Payment challan b. Copy of bank statement. The Ld. A.O. referred SLP filed before Supreme Court. However filing of SLP be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PB pages 18 and 19 can be seen. Further, reliance has been placed on the decisions of the Hon ble Rajasthan High Court in the case of CIT, Udaipur Vs. Udaipur Dugdh Utpadak Sahakari Sangh Ltd (2013) 35 taxmann.com 616 and also in the case of CIT vs. State Bank of Bikaner and Jaipur 265 CTR 471. 32.3 In view of the above discussions, I find that it is not disputed that the payments on account of ESU and PF have not been deposited by the appellant. Further, in view of the above judgments of the Hon ble Supreme Court which has been subsequently followed by the jurisdictional High Court, I find that there is no justification in the action of the AO in making a disallowance on account of delay in deposition of ESI and PF. On the facts and in the circumstances of the case, these payments have been made before the due date of filing of return and therefore such addition of ₹ 5719 is directed to be deleted for A.Y. 2012-13 as well as amount of ₹ 601811/- for A.Y. 2013-14. On the facts and in the circumstances of the case, appellant s appeal in Ground No.4 is allowed for A.Y. 2012-13 and 2013-14. 35. From the record, we observed that the ld. CIT(A) has given relief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A, 194C, 194I and 194J of the Act. Whereas assessee has shown the other source income at ₹ 27,28,256/- only and TDS has been claimed at ₹ 10,48,661/-. In this regard vide show cause notice dated 23.12.2016 assessee was asked to state its case but no suitable reply was furnished by the assessee as no such reconciliation of TDS claimed and receipts shown was furnished during the course of assessment proceedings. In view of the above, facts, it is clear that income to the extent of ₹ 1,41,26,418/- (i.e. 1,68,51,674/- minus 27,25,256/-) has not been shown by the assessee in the relevant Return of Income. Therefore, receipts of ₹ 1,41,26,418/- is treated as other source income and added to the total income of the assessee. In this connection it is submitted that Ld. A.O. has wrongly understood that TDS deducted by persons under the provisions of the Act are from Income from other sources declared by assessee while the same is not correct. The taxes deducted at source under various sections of the Act are against the services rendered by the assessee in the form of sale of room nights, food and beverages and other operating revenues such as laundry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8358 an income from other sources. 39. From perusal of the impugned order, we noticed that the ld. CIT(A) had given relief to the assessee on the ground that the AO has misconstrued the revenue receipt as income. The assessee had received ₹ 1,68,51,674/- as gross revenue receipt from various operations. Out of which ₹ 27,28,256/- are shown as income from other sources wherein TDS was claimed for ₹ 10,48,661/-. The AO concluded that ₹ 1,68,51,674 ₹ 27,28,256/- is the income not disclosed and added the same. The TDS is for various services rendered to corporate clients for room clients for room service, laundry, guest transportation etc. thus out of the total revenue of ₹ 9,87,22,256/- only, ₹ 1,68,51,674/- was subjected to TDS. Thus ₹ 1,68,51,674/- is not income from other sources. Necessary evidence like 26AS forms with TDS reconciliation vis a vis receipt and detailed ledger extracts have been furnished and the same were subjected to remand proceedings too. No new facts or circumstances have been brought before us by the ld AR in order to controvert or rebut the factual findings recorded by the ld. CIT(A), therefore, we see ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in the circumstances of the case in law the Ld. CIT(A) has erred in deleting the addition of ₹ 3,61,58,258/- made under the income from other sources without determining the fact whether the receipt shown in form no. 26AS has been duly accounted for under the head revenue from operation ? 8. The Appellant crave, leave or reserving the right to amend modify, alter add or forego any grounds of appeal at any time before or during the hearing of this appeal. 42. In this appeal, grounds, facts and submissions of both the parties are identical to the facts and submissions of ITA No. 1158/JP/2019 and 1159/JP/2019 for the A.Y. 2011-12 and 2012-13 respectively, therefore, our findings given in ITA No. 1158/JP/2019 and 1159/JP/2019 for the A.Y. 2011-12 and 2012-13 shall apply mutatis mutandis in this appeal also. 43. Now we take ITA No. 1161/JP/2019 for the A.Y. 2014-15 wherein following grounds have been taken by the Revenue. 1. Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of ₹ 2,15,56,804/- made u/s 43B of the Act, on account of non-payment of interest payment during the finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 3,68,16,604/- instead of total interest paid amounting to ₹ 5,16,52,007/-, hence adding back excess interest of ₹ 1,48,35,603/- to the total income of the assessee and in not appreciating that the loan taken from associated enterprise cannot be compared with the bank loan as in the case in hand loan given by the associated enterprise are unsecured whereas loans provided by the bank are secured and further in not appreciating that income tax department has allowed the interest payment on unsecured loans at 18 percent per annum to the related parties in earlier year. In this connection it is submitted that company has set up a Hotel at Durgapura, Jaipur in 2011 with the financial assistance from IDBI Bank Limited. The Company has availed loan for an amount of INR 70 crores in the year 2009 from IDBI Bank Limited, bearing an interest rate of 14%. The said loan was secured by first charge on all the movable and immoveable assets of the Hotel, Corporate Guarantee and personal guarantees of the promoters. The Hotel operations were commenced in the year 2011. However, the business did not progress as envisaged, resulting in liquidity issues. Due to liquidity issues, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson is justified and within the market rates of interest on such loans and are at arms length. According to the audit report of M/s Royal Orchid Hotels Ltd. it is clearly mentioned that the company has obtained short term borrowings @ 18% and loans provided to Ksheer Sagar Developers Pvt. Ltd. also carries an interest rate of 18%. It is also reported that the interest rate on secured loans from different banks/financial institutions ranges from 14.75% to 18.99%. A comparison of the business loans from different banks shows the rate of interest ranges from 15.50% to 19.99%. In the related party transactions it is also informed by the auditors that there were no transactions of material nature with the promoters, the directors or the management, their subsidiaries or relatives etc. that have potential conflict with the interest of the company. The various legal decisions on the issue also held that interest on unsecured loans between 18% to 24% cannot be held unreasonable or excessive in terms of section 40A (2) (b) of the Act so they are to be taken at arms length price as section 92BA (i) covers the same field as section 40A (2) (b). That in the case of Vipul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alcutta Bench in case of I.T.O Vs. Emami Chisel Art Pvt. Ltd. (ITA No. 1702/Kol/2011 decided on 2-12-2013) wherein interest ranging from 15-18% on unsecured and unguaranteed loan has been held unreasonable. The ITAT, Ahmedabad Bench in case of Murardas Shilpa bhai Co. Vs. I.T.O. (ITA No. 89/And/2017 order dated 30-5-18 copy submitted) has held that taking loans from related persons could avoid a lot of formalities and in this view that payment of interest at a little higher rate to persons covered u/s 40A (2) (b) cannot be termed excessive. The Jaipur Bench of ITAT in case of ACIT Vs. Shiv Agrevo Ltd. (ITA No. 995 1055 (JP) of 2007 order dated 13-2-2009) where in Hon'ble Bench relying on several judgements categorically held that prevailing market rate of interest on loans of the permanent nature and long term unsecured loans is between 18% to 24% and so held interest rate of 18% allowed to related persons as reasonable. The above judgement of Jaipur Bench of ITAT has now been confirmed by Hon'ble Rajasthan High Court reported at CIT Vs. Shiv Agrevo Ltd. (2018) 99 taxman.com 402 (Raj.) wherein Hon'ble High Court held that the market rate of interest for long term lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the above the TPO recommended the adjustment of ₹ 1,83,73,764/- which was reiterated by the learned AO in his order for the A Yr. 12.4 After careful consideration f the matter and the written submissions the appellant I am of the view that TPO and the learned AO is not making an addition of ₹ 1,83,73,764/- for the following reasons; I. That the TPO has not given cognizance of interest payment @ 15 to 24% while explicitly mentioning it in the para 7.2 of his order. It simply implied that interest rate is not static and is dependent on various factors like time, person advancing it etc. II That the TPO is -not correct in treating loan from related party as in the nature of secured loan. Nature of loan, being secured or unsecured, does not depend relationship with the person. It depend on the fact that whether such loan is backed up with some security or assets mortgaged etc. in simple terms With a secured loan, the lender can take possession of the collateral if you don't repay the loan as you have agreed. A car loan and mortgage are the most common types of secured loan. An unsecured loan is not protected by any collateral. Thus the loan from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord, we observed that, as per view of the ld. CIT(A) that the TPO has not agreed to the interest payment @ 18% to the related party, loan taken from the family member of Tambi Group (detail can be seen on page l and 2 of the TPO order). After careful consideration of the matter and the written submissions the assessee we are of the view that TPO and the AO is not making an addition of ₹ 1,83,73,764/- for the following reasons; I. That the TPO has not given cognizance of interest payment @ 15 to 24% while explicitly mentioning it in the para 7.2 of his order. It simply implied that interest rate is not static and is dependent on various factors like time, person advancing it etc. II That the TPO is not correct in treating loan from related party as in the nature of secured loan. Nature of loan, being secured or unsecured, does not depend relationship with the person. It depend on the fact that whether such loan is backed up with some security or assets mortgaged etc. in simple terms With a secured loan, the lender can take possession of the collateral if you don't repay the loan as you have agreed. A car loan and mortgage are the most common types of secured loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iated enterprise are unsecured whereas loans provided by the bank are secured and further in not appreciating that income tax department has allowed the interest payment on unsecured loans at 18 percent per annum to the related parties in earlier year. We further observed that the company has set up a Hotel at Durgapura, Jaipur in 2011 with the financial assistance from IDBI Bank Limited. The Company has availed loan for an amount of INR 70 crores in the year 2009 from IDBI Bank Limited bearing an interest rate of 14%. The said loan was secured by first charge on all the movable and immoveable assets of the Hotel, Corporate Guarantee and personal guarantees of the promoters. The Hotel operations were commenced in the year 2011. Due to liquidity issues, there were delays in payment of interest, resulting in levy of penal interest/charges from the bank at 2% p.a. This resulted in the effective interest charge of 16% p.a. The promoters had to infuse money into the Company, in order to service the principal repayment of the loan. The promoters infused money in the company in the form of unsecured loans bearing an interest rate of 18% p.a. The prevailing market rates for unsecured loans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ratio of CIT Vs SBBJ 265 CTR 471 which is sub judice as SLP has been admitted by the Hon ble Apex Court? 3. Whether on the facts and in the circumstances of the case in law the Ld. CIT(A) has erred in deleting the addition of ₹ 1,83,73,764/- made on account of excess payment of interest @18% on unsecured loan by the assessee company to the related parties ignoring the fact that the interest @ 12.83% was determined after considering SBI s basic rate and risk factor or say on unsecured loan and assessee itself has taken loan from IDBI @ 14% per annum? 4. Whether on the facts and in the circumstances of the case in law the Ld. CIT(A) has erred in deleting the addition of ₹ 3,99,616/- made on account of excess payment of interest @14% on convertible debentures by the assessee company to the related parties ignoring the fact that the interest @ 13% was determined after considering Arm s Length price of interest on debentures. The Appellant crave, leave or reserving the right to amend modify, alter add or forego any grounds of appeal at any time before or during the hearing of this appeal. 52. In this appeal, grounds appeal, facts and submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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