Chandralok Hotels

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “A” : HYDERABAD

BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER

AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER

ITA.No.171/Hyd/2014

Assessment Year 2007-2008 M/s. Chandralok Hotels Ltd., Hyderabad PAN AACCC-9912-A

vs.

ITO, Ward 1(2) Hyderabad.

(Appellant) (Respondent)

For Assessee : Mr. P. Muralimohan Rao

For Revenue : Mr. P. Somasekhar Reddy

Date of Hearing : 15.05.2014

Date of pronouncement : 23.05.2014

ORDER

PER B. RAMAKOTAIAH, A.M.

This is an assessee appeal against the order of Ld.

CIT(A)-II, Hyderabad dated 05.12.2013. Assessee in this appeal

is contesting claim of interest of Rs.7,18,252/- and salary

payment of Rs.2,81,700/- disallowed by A.O. and confirmed by

Ld. CIT(A).

2. Facts leading to the present appeal are that

assessee is a company which has not filed return in the

impugned year. A survey operation under section 133A was

conducted on 17.03.2011 and proceedings under section 147

were initiated. Assessee filed return of income declaring loss of

Rs.10,052/-. However, as there was no compliance to various

notices, in the absence of books of accounts and its

verification, A.O. treated the share application money of

Rs.1,21,49,236/- and unsecured loans of Rs.59,82,840/- as

income of assessee from unexplained sources. Further noticing

that unsecured loans are in the name of the firms M/s. Shiv

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ITA.No.171/Hyd/2014 M/s. Chandralok Hotels Ltd., Hyderabad

Shakti 35MM - Rs.29,82,840/- and M/s. Sandhya 70MM

Rs.30,00,000/- (treated as income above) and interest

payment was in the names of individuals as below, the A.O.

disallowed the interest of Rs.7,18,252/-.

a. Saritha Rs. 13,470

b. Brijlal Rs.4,12,500

c. Deepraj Rs. 71,025

d. Dhansri Rs. 20,205

e. B. Dheeraj Rs. 30,000

f. Gurucharan Singh

Rs. 30,000

g. Rateen Rs. 33,675

h. Bank of India Rs. 27

i. Kuldeep Rs. 40,000

j. Prudhviraj Rs. 67,350

Total Rs.7,18,252

3. In addition, the salary and bonus claim of

Rs.2,81,700/- was also disallowed on the reason of non-

production of books of accounts and evidences thereon.

4. Ld. CIT(A) after obtaining a remand report from

A.O. who subjected the share application money and

unsecured loans for verification, deleted the two additions.

However, disallowance of interest and salary payments were

confirmed.

5. Referring to the paper book of 19 pages, it was the

submission of Ld. Counsel that the A.O. accepted the

unsecured loans but did not allow the interest thereon, which

was paid on the said unsecured loans. Likewise, it was also

submitted that Ld. CIT(A) did not allow expenditure of salary

and wages the details of which were furnished to the A.O. in

the remand proceedings. It was the submission that these two

expenses are to be allowed.

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6. Learned D.R. however, referred to the orders of the

A.O. and Ld. CIT(A) to submit that there is no correlation

especially with reference to interest expenditure and no details

were furnished regarding salaries and wages.

7. We have considered the rival contentions and

examined the record. A.O. did disallow the interest even

though assessee has deducted the tax on the said amounts as

per the provisions of TDS. His reasoning was that the loans

were obtained in two firms names whereas the interest was

paid to individuals, the details of which were extracted above.

Before the Ld. CIT(A) assessee has submitted evidence with

respect to unsecured loans. On perusing the remand report of

the A.O. it was noticed that actual investments in the share

application and unsecured loans were received from

individuals and instead of entering their names as lenders, the

firms in which they are partners were shown. Consequently,

after verification A.O. accepted the genuineness of the source

of above two amounts. Prima facie, the interest claimed on the

said loans are allowable to the assessee. However, what we

noticed was that the orders of A.O. or Ld. CIT(A) including the

remand report, does not indicate the amounts invested by the

said individuals. Even though assessee furnished evidences

regarding payment of interest and consequent TDS made in

respective individuals cases and confirmations of them were

filed, we are unable to allow the amount as such in the

absence of their individual investments and the interest

calculation of amount claimed. Moreover, assessee has not

placed either the annual report or the computation of income

before us. Therefore, whether the interest is to be allowed as a

business expenditure or expenditure relating to earning any

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interest under the head “Other Sources” is also not clear. The

utilisation of the amounts for the purpose of business is

required to be established if the amounts are invested in the

‘business’ or under head ‘income from house property’ or

‘other sources’ required to be examined. Since none of the

details are placed before us except the confirmation letters

from the parties, we are unable to allow the expenditure in the

absence of necessary details of the claims and also under

which head the amounts are claimed. Likewise, even the

salaries and wages are also stated to have been paid for the

purpose of the company. As stated earlier the said details were

not on record nor placed before the A.O. and Ld. CIT(A) even

though Ld. Counsel submitted that the details were furnished

to the A.O. in the remand proceedings. In the absence of any

evidence on record that these details are furnished before the

authorities, we cannot allow the expenditure without getting it

verified by the A.O. In the result, we are of the opinion that

these two amounts are required to be verified by the A.O. and

then allow as per law and facts. The orders of AO and CIT(A)

on these issues are set aside to be redone according to facts

and law. With these directions, grounds are allowed for

statistical purposes.

8. In the result, appeal of the assessee is allowed for

statistical purposes.

Order pronounced in the open Court on 23.05.2014.

Sd/- Sd/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated 23rd May, 2014

VBP/-

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Copy to :

1. M/s. Chandralok Hotels Ltd., 1-7-1071, (C/o. Sandhya Hotels), Charminar X Roads, Hyderabad. C/o. P. Murali & Co. C.A. 6-3-655/2/3, 1st Floor, Somajiguda, Hyderabad – 82.

2. ITO, Ward 1(2), Hyderabad

3. CIT(A)-II, Hyderabad

4. CIT-I, Hyderabad

5. D.R. ITAT, ‘A’ Bench, Hyderabad.

Chandralok Hotels

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