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Assessment Year 2007-2008

M/s. Chandralok Hotels
Ltd., Hyderabad

ITO, Ward 1(2)
(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

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
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
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
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.
M/s. Chandralok Hotels Ltd., Hyderabad

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
M/s. Chandralok Hotels Ltd., Hyderabad

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/-
Hyderabad, Dated 23
May, 2014

M/s. Chandralok Hotels Ltd., Hyderabad

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, 1
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.