Shri Manoj Pavecha, Indore V. THE ACIT Circle-2(1), Indore

CO 70/IND/2013

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 0551 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 10 month(s) 5 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 15-05-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 10-07-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business expenditure; Retrospective amendment
• Section: 37(1); 68; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, J.M. AND SHRI B.C.MEENA, A .M. I.T.A.NO. 307/IND/2013 A.Y. : 2009-10 ACIT, CIRCLE 2(1), INDORE. VS. SHRI MANOJ PAVECHA , PROP. M/S.HARSHVARDHAN JEWELLERS, INDORE. APPELLANT RESPONDENT PAN NO. : AABCM8126D C.O.NO. 70/IND/2013 (ARISING OUT OF I.T.A.NO. 307/IND/2013) A.Y. : 2009-10 SHRI MANOJ PAVECHA, PROP. M/S.HARSHVARDHAN JEWELLERS, INDORE VS. ACIT, CIRCLE 2(1), INDORE. CROSS OBJECTOR RESPONDENT DEPARTMENT B Y : SHRI R. A. VERMA, SR. DR ASSESSEE BY : SHRI S.S.DESHPANDE, C. A. -: 2: - 2 DATE OF HEARING : 07 . 04 .201 5 DATE OF PRONOUNCEMENT : 15 . 0 5 .201 5 O R D E R PER GARASIA, J.M. APPEAL FILED BY THE DEPARTMENT AND THE CROSS OBJECT ION FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDE R OF CIT(A)-I, INDORE, DATED 23.01.2013 FOR THE ASSESSMENT YEAR 2 009-10. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE DEPARTMENT :- ON THE FACTS & IN LAW AND IN THE CIRCUMSTANCES OF T HE CASE, THE CIT (A) HAS ERRED IN : - 1. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 422604/- ON ACCOUNT OF PROCESSING CHARGES PA ID FOR AVAILING PERSONAL AND HOME LOANS NOT CONNECTED WITH BUSINESS AND FURTHER ERRED IN AL LOWING IT U/S 37(1) OF THE 1. T. ACT WHICH RULES OUT ALLOWABILITY OF CAPITAL OR PERSONAL NATUR E OF EXPENSES. 2. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.486734/- MADE BY THE AO U/S 68 OF THE 1. T. ACT BECAUSE THE CREDITWORTHINESS OF THE LOAN PROVIDERS AND THE GENUINENESS OF THE TRANSACTION WA S NOT ESTABLISHED. 2.1 WHILE HOLDING SO THE LD. CIT(A) ERRED IN BANKIN G UPON ADDITIONAL AND CORROBORATIVE EVIDENCE PRODUCT BY THE ASSESSEE DURING APPELLATE P ROCEEDINGS IN THE FORM OF AFFIDAVITS OF SH. RAHUL JAIN AND SH. KAMLESH PANCHA L AND THE BANK STATEMENT OF SH. -: 3: - 3 ANAND JAIN WITHOUT CONFRONTING IT TO THE AO AS PER PR OVISIONS OF RULE 46A OF THE I . T. RULES. 2.2. WHILE HOLDING SO THE ID. CIT(A) FAILED TO APPRECIATE THAT THE CASH WAS DEPOSITED IN THE ACCOUNTS OF THE LOAN CREDITORS JUST BEFORE CLEA RING THE LOAN AMOUNT AND THE BANK PASSBOOK WAS SHOWING NEGLIGIBLE BALANCE BEFORE AND AFTER CLE ARING OF THE LOAN CHEQUES. 3. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE THE ID. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 405448/- MADE BY THE AO U/S 41 (1) OF THE 1. T. ACT IN CONSONANCE WITH PROVISIONS OF LIMITATION ACT WHEN THERE WAS NO MOVEMENT OF FUND/T RANSACTION WITH THE SUNDRY CREDITORS FOR THE LAST 03 YEARS AND WHEN ASSESSEE FAILED TO PRODU CE THE CONFIRMATIONS FROM THE SAID CREDITORS. 3.1. WHILE HOLDING SO THE LD. CIT(A) ERRED IN RELY ING UPON THE ARGUMENTS OF THE ASSESSEE TAKEN BEFORE HIM WHICH WERE NOT SUBMITTED BEFORE THE AO WITHOUT CALLING FOR ANY COUNTER COMMENTS OF THE AO. 4. 2. GROUND NO. 1 OF DEPARTMENTS APPEAL AND GROUND NO.1 OF ASSESSEES CROSS APPEAL ARE COMMON, THEREFORE, T HEY ARE DISPOSED OF BY THIS COMMON ORDER. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE DERIV ES INCOME FROM MANUFACTURING GOLD AND SILVER ORNAMENTS BUSINESS AND CAPITAL GAINS. THE ASSESSEE HAS FILED THE RETURN OF INCOME ON 22.09.2009 DECLARING TOTAL INCOME OF LOSS AT RS. 19,01,700/-. THE AO HAS PERUSED THE BOOKS OF ACCOUN T AND OTHER DOCUMENTS. THE AO FOUND THAT THE ASSESSEE HAS TAKEN A LARGE NUMBER OF PERSONAL LOANS. THE ASSESSEE WAS AS KED TO -: 4: - 4 SUBMIT THE LOAN AGREEMENTS, SO THAT THE NATURE OF L OANS TAKEN COULD BE VERIFIED. THE ASSESSEE HAS PAID INTEREST A ND THE INTEREST HAS BEEN DEBITED TO THE PROFIT AND LOSS AC COUNT. THE ASSESSEE HAS TAKEN LOANS FROM VARIOUS BANKS AND COM PANIES, WHICH IS REPRODUCED IN THE ASSESSMENT ORDER READS A S UNDER :- NAME OF BANK/COMPANY INTEREST PAID AXIS BANK (PERSONAL LOAN) 72,858.17 INTEREST TO BARCLYAS 99,578.59 INTEREST TO CITI LOAN 1,15,719.38 HDFC BANK 70,620 HOME LOAN ICICI O/D 1,730.00 ICICI (PERSONAL LOAN) 1,06,177.27 ICICI (PERSONAL LOAN)II 22,970.71 INDIABULLS HOUSING FINANCE 23,00,444.62 HOME LOAN INDIABULLS (PERSONAL LOAN) 46,943.62 HOME LOAN RELIANCE CAPITAL (PERSONAL LOAN) 1,78,990.72 TOTAL RS. 31,16,033.08 PROCESSING CHARGES PAID (AS SHOWN IN SCHEDULE 14 OF THE BALANCE SHEET MINUS PROCESSING FEES OF CAR LOAN RS. 3,350/-) 4,22,604.00 TOTAL RS. . 35,38,637.08 4. THE AO HAS OBSERVED THAT THE ASSESSEE HAS TAKEN LOANS JOINTLY WITH OTHERS AND HAVE DEBITED ALL THE EXPENSES IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE HAS ALSO TAKEN UNSECURED LOAN. THE ASSESSEE HAS PAID INTEREST BUT NO TDS WAS DEDUCTED ON INTEREST AND PROCESSING CHARGES PAID/CREDITED TO THE ABOVE FINANCE COMPANIES AND HE NCE THE -: 5: - 5 INTEREST AND PROCESSING CHARGES ARE NOT OTHERWISE A LLOWABLE UNDER THE PROVISIONS OF SECTION 40(A)(IA). THUS, TH E AO HAS DISALLOWED THE EXPENSES OF RS. 35,38,637/- U/S 40(A )(IA) OF THE ACT, ON THE GROUND THAT NO TDS HAS BEEN MADE BY THE ASSESSEE. THE AO HAS VERIFIED THE CONFIRMATION WITH REFERENCE TO UNSECURED LOANS TAKEN DURING THE YEAR. THE ASSESSEE HAS NOT SUBMITTED THE INCOME TAX RETURN ACKNOWLEDGEMENT OF THE DEPOSITORS. THE ASSESSEE HAS ACCEPTED THE LOAN FROM THE FOUR PERSONS, WHICH ARE AS UNDER :- 1. SHRI KAMLESH PANCHAL RS. 1,00,000/- 2. SHRI RAHUL JAIN RS. 1,93,000/- 3. SHRI ANAND JAIN RS. 1,70,000/- 4. SHRI GULAB CHAND PAREKH RS. 23,734/- 5. THE AO WAS OF THE VIEW THAT THE ASSESSEE HAS ACCEPT ED THE LOANS IN CASH WHICH HAS BEEN DEPOSITED JUST BEF ORE CLEARING THE LOAN AMOUNT CHEQUE. FURTHER, THE BANK PASS BOOK SHOWING NEGLIGIBLE BALANCE BEFORE AND AFTER CLEARIN G OF LOAN -: 6: - 6 CHEQUE. THEREFORE, THE AO HAS DISALLOWED RS. 4,86,7 34/- AS NON BUSINESS EXPENDITURE. 6. THE MATTER CARRIED TO CIT(A) AND THE LD. CIT(A) HAS DELETED THE ADDITION OF RS. 4,22,604/- ON ACCOUNT O F PROCESSING CHARGES AND DISALLOWED THE INTEREST PAYM ENT OF RS. 25,26,377/- WHICH IS AGGREGATE OF THE CONCERNS, NAM ELY, INDIA BULLS FINANCIAL SERVICES LIMITED AND RELIANCE CAPIT AL LIMITED U/S 40(A)(IA) OF THE ACT. 4.3 I HAVE CONSIDERED THE AOS ORDER AS WELL AS T HE APPELLANTS SUBMISSION. HAVING CONSIDERED BOTH, I FIND THAT ALL THE LOANS INCLUDING THE PERSONAL AND HOME LOANS HAVE BEEN UTILIZED OF THE PURPOSE OF BUSINESS OF THE APPELLANT. HAVING CONSIDERED THE APPELLANTS SUBMISSIONS, IT IS EVIDENT THAT THE APPELLANT BEING INDIVIDUAL BORROWED FUND FROM DIFFERENT BANK AS DETAILED IN APPELLANTS SUBMISSIO N UNDER THE HEAD HOUSING LOAN/PERSONAL LOAN. MERELY WITH AN INTENTION AT LOWER RATE OF INTEREST, I AM IN AGREEMENT WITH THE APPELLANTS BUSINESS AND UTILIZED FOR THE BUSINESS PURPOSES. THE BORROWED FUND MIGHT HAVE BEEN TAKEN FOR DIFFERENT PURPOSE BU T THE FACT REMAINS THAT THE SAME WERE UTILIZED FOR BUSINESS PURPOSES. IN THIS BACKGROUND, I AM IN -: 7: - 7 AGREEMENT WITH THE APPELLANT THAT PROVISIONS OF TDS ARE NOT APPLICABLE ON BANK LIKE AXIS BANK, CITI BAN K, HDFC BANK AND ICICI BANK, AS THESE BANKS ARE OUT OF PURVIEW OF PROVISIONS OF SECTION 194A(3)(III). ACCORDINGLY, THE ADDITIONS MADE ON THIS ACCOUNT BY THE ASSESSING OFFICER FOR NON DEDUCTION OF TAX VIS- - VIS PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ARE COMPLETELY INCORRECT AND UNJUSTIFIED. HENCE, THE ADDITION SO MADE BY THE ASSESSING OFFICER IS DELETE D. 4.4 HOWEVER, THE INTEREST PAYMENT MADE BY THE APPELLANT TO CONCERN NAMELY INDIA BULLS FINANCIAL SERVICES LIMITED AND RELIANCE CAPITAL LIMITED, WHIC H IS AGGREGATE OF RS. 25,26,377/- ATTRACTS THE PROVISIONS OF SECTION 40(A)(IV) OF THE ACT AND AS T HE APPELLANT DID NOT ADHERE STATUTORILY PROVISIONS THEREON, HENCE HE CONTRAVENED THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. ACCORDINGLY, THE DISALLOWANCE SO MADE BY THE ASSESSING OFFICER TO TH E EXTENT OF RS. 25,26,377/- IS COMPLETELY JUSTIFIED A ND HENCE THE ADDITION SO MADE IS CONFIRMED. 7. THE DEPARTMENT IS IN APPEAL AGAINST DELETING THE ADDITION OF RS. 4,22,604/- ON ACCOUNT OF PROCESS CH ARGES. THE -: 8: - 8 ASSESSEE IS IN APPEAL BY WAY OF GROUND NO.1 AND GRO UND NO.2 BEFORE US. 8. THE LD. SENIOR D.R. SUBMITTED BEFORE US THAT THE ASSESSEE HAS TAKEN LOANS FROM HDFC BANK AND INDIABU LLS HOUSING FINANCE. THE ASSESSEE HAS TAKEN THIS LOAN F OR CONSTRUCTION OF HOUSE. THE ASSESSEE HAS PAID PROCES SING CHARGES FOR THIS HOME LOAN. THE HOME LOAN IS TAKEN FOR CONSTRUCTION OF HOUSE AND NOWHERE IT IS CONNECTED W ITH THE BUSINESS OF THE ASSESSEE. THE PROCESS CHARGES FOR T AKING THE LOAN IS NOT A BUSINESS EXPENDITURE. THE LD. CIT(A) HAS TREATED THIS EXPENDITURE AS BUSINESS EXPENDITURE, BUT WHEN THE HOME LOAN IS TAKEN FOR CONSTRUCTION OF THE HOUSE, IT CAN NOT BE TREATED AS BUSINESS OF THE ASSESSEE. THE ASSESSEE I S IN GOLD BUSINESS, THEREFORE, WHEN THE HOUSE IS CONSTRUCTED FOR RESIDENCE, IT CANNOT BE AT ALL CONNECTED WITH THE B USINESS OF THE ASSESSEE. 9. THE LD. SENIOR D.R. FURTHER SUBMITTED THAT THE ASSESSEE HAS TAKEN LOANS FROM INDIABULLS HOUSING FI NANCE AND RELIANCE CAPITAL. THESE TWO LOANS ARE AS STATED IN THE ASSESSMENT ORDER, ARE HOUSING LOANS AND ANY INTERES T PAID ON -: 9: - 9 THIS HOUSING LOAN CANNOT BE TERMED AS BUSINESS EXPE NDITURE. THE LD. CIT(A) HAS RIGHTLY DISALLOWED THE INTEREST PAID TO THIS COMPANY AND HELD THAT IT ATTRACTS THE PROVISIONS OF SECTION 40(A)(IA) OF THE INCOME-TAX ACT, 1961. 10. THE ASSESSEE IS IN APPEAL BEFORE US FOR CONFIRMING THE DISALLOWANCE OF RS. 25,26,377/-. 11. THE LD. SENIOR D.R. SUBMITTED BEFORE US THAT THE ASSESSEE HAS TAKEN LOAN FROM HDFC BANK AND INDIABUL LS HOUSING FINANCE. THE ASSESSEE HAS TAKEN THIS LOAN A S HOME LOAN AND THE ASSESSEE HAS PAID THE PROCESSING CHARG ES FOR TAKING THESE HOME LOAN, WHICH IS NOWHERE CONNECTED WITH THE BUSINESS LOSS, THEREFORE, WHATEVER AMOUNT WAS PAID FOR PROCESSING CHARGES WAS TAKEN AS HOME LOAN CANNOT BE ALLOWED AND THE LD. CIT(A) IS NOT JUSTIFIED IN ALLOWING THE SAME. MOREOVER THE LD. SENIOR D.R. SUBMITTED THAT THE ASS ESSEE HAS TAKEN THE LOAN FROM INDIABULLS HOUSING FINANCE AND RELIANCE CAPITAL AND INTEREST PAID TO THESE TWO INSTITUTIONS IS NOT FOR ANY BUSINESS PURPOSE AND WHEN THE LOAN IS NOT TAKEN FOR BUSINESS PURPOSES, IF THE INTEREST PAID TO THESE CO MPANIES, CANNOT ATTRACT THE PROVISIONS OF SECTION 40(A)(IA). THEREFORE, -: 10: - 10 THE LD. CIT(A) IS JUSTIFIED IN CONFIRMING THE INTER EST PAYMENT PAID TO THESE TWO COMPANIES. 12. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED BEFORE US A WRITTEN SUBMISSIONS AFTER CONCLUDING THE PLEADINGS AND IN RESPECT OF PAYMENT MADE TO TWO COMPANIES, NAMELY INDIABULLS AND RELIANCE CAPIT AL, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE T WO COMPANIES TO WHOM INTEREST HAD BEEN PAID, THEY HAD ACCOUNTED THIS INTEREST IN THEIR ACCOUNTS, THEREFOR E, IT MAY BE ALLOWED AND HIS WRITTEN SUBMISSION IS AS UNDER :- THE ASSESSEE IS AN INDIVIDUAL DOING THE BUSINESS OF GOLD AND SILVER ORNAMENTS ON SEMI WHOLESALE BASI S. NO COMMODITY TRADING HAS BEEN DONE IN THIS YEAR. TH E BOOKS OF ACCOUNTS ARE AUDITED AND TAR IS FILED. THE RETURN OF INCOME WAS FILED DECLARING THE LOSS OF RS.19,01,700/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE LD. AO DISALLOWED THE CLAIM OF THE ASSESSEE FOR INTEREST PAYMENT ON PAGE 2&3 PARA 4 - ON THE GROUND THAT THE INTEREST AND PROCESSING CHARGES PAID ON PERSONAL LOAN AND THE HOME LOAN IS ADDED TO THE INCOME OF THE ASSESSEE AS THESE LOANS WERE NOT USED -: 11: - 11 FOR THE BUSINESS PURPOSES. HE FURTHER OBSERVED THAT THE TDS HAS NOT BEEN MADE AND AS SUCH THE DEDUCTION IS NOT ALLOWABLE AS PER PROVISIONS OF SEC 40A(I)(A) . THE LD CIT(A) EXAMINED THE FULL DETAILS AND IN PARA 4.3 AT PAGE 4 OBSERVED THAT THE HOUSING LOAN OR THE PERSON AL LOAN HAVE BEEN CREDITED IN THE BOOKS OF ACCOUNTS AN D HAVE BEEN UTILIZED FOR THE BUSINESS PURPOSES. HE THEREFORE ALLOWED THE CLAIM OF THE ASSESSEE FOR THE INTEREST PAYMENT TO THE BANKS. HE HOWEVER DISALLOWE D THE CLAIM U/S 40A(I)(A) AT RS 25,26,377/- BEING INT EREST PAID TO INDIA BULLS FINANCIAL SERVICES AND RELIANCE CAPITAL LIMITED FOR NON DEDUCTION OF TAX. HE FURTHE R ALLOWED THE PAYMENT OF PROCESSING FEES PAID TO THES E COMPANIES U/S 37. IT IS HUMBLY SUBMITTED THAT THE SECOND PROVISO TO SECTION 40A(I)(A) HAS BEEN INTRODUCED BY FINANCE AC T 2012 WHICH IS AS UNDER: PROVIDED FURTHER THAT WHERE AN ASSESSEE FAILS TO DEDUCT THE . WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH T HE PROVISIONS OF CHAPTER XVII-B ON ANY SUCH SUM BUT IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER THE FIRST PROVISO OF SECTION (1) OF SECTION 201, THEN, FOR THE PURPOSE OF THIS SUB CLAUSE, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN 'OF INCOME BY T HE -: 12: - 12 RESIDENT PAYEE REFERRED TO IN SAID PROVISO. PROVIDED THAT ANY PERSON, INCLUDING THE PRINCIPAL OFFICER OF A COMPANY, WHO FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISI ONS OF THIS CHAPTER ON THE SUM PAID TO A RESIDENT OR ON THE SUM CREDITED TO THE ACCOUNT OF A RESIDENT SHALL NOT BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT O F SUCH TAX IF SUCH RESIDENT- I. HAS FURNISHED HIS RETURN OF INCOME UNDER SECTION 139; U. HAS TAKEN INTO ACCOUNT SUCH SUM FOR COMPUTING INCOME IN SUCH RETURN OF INCOME; AND III. HAS PAID THE TAX DUE ON THE INCOME DECLARED BY HIM IN SUCH RETURN OF INCOME, AND THE PERSON FURNISHES A CERTIFICATE TO THIS EFFECT FROM AN ACCOUNTANT IN SUCH FORM AS MAY BE PRESCRIBED. IT IS HUMBLY SUBMITTED THAT THE RESPECTIVE RECIPIENTS ARE NATIONAL COMPANIES AND ONE OF THEM HAS GIVEN A CERTIFICATE ABOUT INCLUSION OF INTEREST IN ITS RETURN. THE PRESCRIBED FORM AS REQUIRED HAS ALSO BE EN FURNISHED WHICH IS ENCLOSED HEREWITH. THE HON'BLE INDORE TRIBUNAL IN THE CASE OF PRATIBHA EXIME REPORTED IN 22 ITJ PAGE 287 HAS HELD THAT THE SECON D PROVISO HAS A RETROSPECTIVE EFFECT AND IN THE IDENT ICAL -: 13: - 13 CIRCUMSTANCES HAS ALLOWED THE ASSESSEE APPEALS BY SETTING ASIDE THE CASE ON THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION. THE SAME VIEW HAS BEEN TA KEN BY THE JABALPUR BENCH IN THE CASE OF RAJKUMAR AGRAWAL REPORTED IN 24 ITJ PAGE 727. THUS IT IS HUMBLY PRAYED THAT THE CROSS OBJECTION OF THE ASSESSEE MAY PLEASE BE ALLOWED. REGARDING THE DISALLOWANCE OF PROCESSING FEES IT IS SUBMITTED THAT THE SAME HAS BEEN PAID PRIOR TO SANCTION OF THE LOAN AND AS SUCH CANNOT CONSTITUTE THE PAYMENT IN RESPECT OF MONEYS BORROWED OR DEBT INCURRED. THE LD CIT(A) HAS CORRECTLY ALLOWED THE CLAIM U/S 37 OF THE ACT. 13. WE HAVE HEARD THE RIVAL CONTENTIONS OF THE PARTIES. THE ASSESSEE HAS PAID INTEREST ON HOUSING LOAN AND CLAI MED AS BUSINESS EXPENDITURE. WE FIND FROM THE ORDER THAT T HE ASSESSEE HAS TAKEN HOUSING LOAN FROM HDFC BANK AND HE HAS ALSO TAKEN HOUSING LOAN FROM INDIABULLS PRIVATE LIM ITED. IT IS THE CONTENTION OF THE ASSESSEE THAT THE ASSESSEE HA S TAKEN THIS HOUSING LOAN BUT THIS LOAN HAS BEEN USED IN HIS JEW ELLERY BUSINESS. THEREFORE, THIS MAY BE ALLOWED AS BUSINES S EXPENDITURE, BUT WE FIND THAT THE HOUSING LOAN IS T AKEN FROM -: 14: - 14 INDIABULLS AND RELIANCE CAPITAL FOR CONSTRUCTION OF HOUSE, THEREFORE, WE ARE OF THE VIEW THAT THE AO, HAS NOT VERIFIED WHETHER THIS HOUSING LOAN HAS BEEN USED FOR CONSTRU CTION FOR CONSTRUCTION OF HOUSE OR NOT. THE AO HAS ALSO NOT V ERIFIED FROM THE BANK AS TO HOW THE ASSESSEE HAS TAKEN HIS LOAN FROM INDIABULLS AND RELIANCE CAPITAL FOR CONSTRUCTION OF HOUSE AND HOUSING LOAN HAS BEEN USED IN BUSINESS PURPOSE. THE REFORE, WE RESTORE THIS ISSUE TO THE FILE OF AO AND THE AO IS DIRECTED TO VERIFY FROM BANK AND CONCERNED COMPANIES FOR WHAT P URPOSE THE ASSESSEE HAS TAKEN THIS LOAN AND HOUSING LOAN AND HOW IT WAS USED AND HOW IT WAS SHOWN TO BE TAKEN FROM INDI A BULLS HOUSING FINANACE AND RELIANCE CAPITAL. THE AO IS DI RECTED TO MAKE THE INQUIRY AND IF THE AO FINDS THAT THE ASSES SEE HAS TAKEN THIS HOUSING LOAN FOR WHICH HOUSING LOANS ARE GIVEN FOR BUSINESS PURPOSE, THEN PROCESSING CHARGES AND INTER EST PAYMENT SHOULD BE DECIDED ACCORDINGLY. THE AO IS DI RECTED TO VERIFY WHETHER SECTION 40A(IA) IS APPLICABLE TO IT OR NOT. 14. IN THE RESULT, DEPARTMENTAL APPEAL AND ASSESSEES CROSS OBJECTION ARE ALLOWED FOR STATISTICAL PURPOSE S. -: 15: - 15 15. REGARDING SECOND GROUND OF DEPARTMENTS APPEAL, THE BRIEF FACTS OF THE CASE THAT THE ASSESSEE HAS TAKEN LOAN FROM FOUR PARTIES ,NAMELY, 1) SHRI KAMLESH PANCHAL RS. 1,00,000/-, 2) SHRI RAHUL JAIN RS. 1,93,000/-, 3) SHRI ANAND JAIN RS. 1,70,000/- AND SHRI GULAB CHAND P AREKH RS. 23,734/- . THE AO FOUND THAT THE ASSESSEE HAS N OT SUBMITTED ANY EVIDENCE REGARDING THE CREDITWORTHINE SS OF THE CREDITORS, INCOME TAX RETURNS AND OTHER DOCUMENTS H AVE NOT BEEN FILED. HE HAS ALSO HELD THAT IN TWO CASES, THE CASH HAS BEEN DEPOSITED IN THE ACCOUNT AND THE CHEQUE HAS BE EN GIVEN TO THE ASSESSEE. THEREFORE, THE AO HAS MADE THE ADD ITION U/S 68 OF THE INCOME-TAX ACT, 1961. 16. THE MATTER TRAVELLED TO CIT(A. THE LD. CIT(A) DELE TED THE ADDITIONS OBSERVING AS UNDER IN PARAGRAPHS 5.3 :- 5.3 I HAVE CONSIDERED THE AOS ORDER AS WELL AS TH E APPELLANTS SUBMISSION. HAVING CONSIDERED BOTH, I FIND THAT THE APPELLANT HAVE TAKEN LOAN FROM THE AFORESAID PERSON AND THE APPELLANT HAS FILED COPY O F THE BANK ACCOUNT OF ALL PERSONS, WHEREIN REGULAR TRANSACTION OF WITHDRAWAL/DEPOSITS WAS AFFECTED. -: 16: - 16 BESIDES THIS, THEY ARE ALSO HAVING PAN NUMBER AND THE PAYMENTS HAVE BEEN MADE BY ACCOUNT PAYEE AND EVEN THE APPELLANT HAS MADE PAYMENT ON INTEREST ON SUCH LOAN TAKEN. EVEN TDS HAS BEEN MADE ON SUCH INTEREST PAYMENT. 17. THE LD. SENIOR D.R. SUBMITTED THAT THE ASSESSEE H AS TAKEN UNSECURED LOAN FROM THE ABOVE PARTIES. THE AS SESSEE HAS NOT SUBMITTED THE INCOME TAX RETURNS OF THE DEP OSITORS. IT WAS ALSO OBSERVED FROM THE BANK THAT THE ASSESSEE H AS ACCEPTED THE LOAN/DEPOSITS FROM THE PERSONS IN WHIC H THE CASH HAS BEEN DEPOSITED JUST BEFORE CLEARING THE LOAN AM OUNT CHEQUE AND THE BANK PASS BOOK SHOWS THAT THERE IS N EGLIGIBLE BALANCE BEFORE AND AFTER CLEARING LOAN CHEQUE. THER EFORE, HE HAS MADE THE ADDITION U/S 68 OF THE INCOME-TAX ACT, 1961. 18. THE LD. SENIOR D.R. SUBMITTED THAT THE ASSESSEE HAS SUBMITTED ALL THE EVIDENCES IN THE APPELLATE PROCEE DINGS IN THE FORM OF AFFIDAVIT BEFORE THE LD. CIT(A) AND THE ASS ESSEE WAS NOT GIVEN PROPER OPPORTUNITY OF HEARING. 19. AS PER RULE 46A OF THE INCOME-TAX RULES, 1962, THE LD. CIT(A) HAS TO DECIDE ALL THE EVIDENCES GIVEN TO HIM AND DECIDE -: 17: - 17 THE ISSUE AFRESH AFTER GIVING THE PROPER OPPORTUNIT Y TO BOTH THE SIDES. HENCE, WE RESTORE THIS ISSUE TO THE FILE OF LD. CIT(A) WITH THE DIRECTION TO CONSIDER ALL THE ADDITIONAL EVIDEN CES PRODUCED IN THE APPELLATE PROCEEDINGS IN THE FORM OF AFFIDAV IT AND SHALL GIVE OPPORTUNITY TO ASSESSEE AND DECIDE THE ISSUE A FRESH. 20. THE THIRD GROUND RELATES TO DELETION OF ADDITION OF RS. 4,05,448/-. 21. THE SHORT FACTS OF THE CASE ARE THAT THE AO HAS VER IFIED THE BALANCE SHEET AND LIST OF SUNDRY CREDITORS FOR THE YEAR UNDER CONSIDERATION. THE AO FOUND THAT THERE WAS NO MOVEMENT SINCE LAST THREE YEARS OF TWO AMOUNTS I.E. CHANDRA KUMAR JAIN RS. 3.5 LAKHS AND M/S. R. D. JEWELLER , MUMBAI. THE AO FOUND THAT AS PER THE PROVISIONS OF LIMITATI ON ACT, WHEN THE AMOUNT IS BARRED BY THE LIMITATION, THIS A MOUNT BECOMES THE INCOME OF THE ASSESSEE, THEREFORE, THE AMOUNT OF RS. 4,05,448/- WAS ADDED U/S 41(1) OF THE INCOME-TA X ACT, 1961. 22. THE MATTER CARRIED TO THE LD. CIT(A). THE LD. CIT(A ) DELETED THE ADDITION BY OBSERVING AS UNDER :- -: 18: - 18 7.3 I HAVE CONSIDERED THE AOS ORDER AS WELL AS TH E APPELLANTS SUBMISSION. HAVING CONSIDERED BOTH, I FIND THAT IN THE SAID CASE THERE MAY NOT BE ANY TRANSACTION DURING THE YEAR BUT IT IS NOT THE CASE THAT LIABI8LITY HAS BEEN DENIED OF PAYMENT OF SUCH CLAIM BY EITHER PARTY. TAKING NOTE OF THE APEX COURT DECISION IN THE CASE OF SUGAULI SUGARS REPORTED IN 236 ITR 518 AND THE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF CIT VS. COMBINED TRANSPORT REPORTED IN 174 ITR 528, THE ADDITION SO MADE BY TH E ASSESSING OFFICER IS DELETED. 23. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ASSESSEE HAS SUBMITTED THE BALANCE SHEET AND LIST OF SUNDRY CREDITORS. THE ACCOUNTS OF THE TWO B ORROWERS SHOW THAT THERE WAS NO MOVEMENT IN THE ACCOUNTS OF THE TWO PARTIES. THE BORROWING AMOUNT WAS NOT PAID SINCE LA ST THREE YEARS, THEREFORE, THE AO HAS HELD THAT LIABILITY IS CEASED. THEREFORE, HE HAS ADDED IT U/S 41(1) OF THE ACT. WE FIND THAT HON'BLE SUPREME COURT IN THE CASE OF SUGAULI SUGARS REPORTED IN 236 ITR 518, WHEREIN IT IS CLEARLY HELD THAT IF ANY LIABILITY WHICH THE ASSESSEE WANTED TO PAY THIS AMOUNT, THEN THE -: 19: - 19 LIMITATION ACT WOULD NOT APPLY AND THE LIABILITY ST ILL REMAINS. THEREFORE, THE LD. CIT(A) IS JUSTIFIED IN HIS ACTIO N AND OUR PINTERFERENCE IS NOT REQUIRED. 24. IN THE RESULT, THE DEPARTMENTAL APPEAL ON THIS GROU ND IS DISMISSED. 25. GROUND NO. 2 TAKEN BY THE ASSESSEE IN THE CROSS OBJECTION IS THAT THE LD. CIT(A) HAS ERRED IN MAINT AINING THE GROSS PROFIT ADDITION BY 2 %. 26. THE SHORT FACTS OF THE CASE ARE THAT THE AO HAS VER IFIED THE TRADING ACCOUNT AND FOUND THAT THERE WAS FALL O F GROSS PROFIT RATIO BY 5.18 %. DURING THE YEAR UNDER CONSI DERATION, IT WAS 13.59 %, WHILE IN PRECEDING YEAR IT WAS 18.77 % . THE ASSESSEE WAS ASKED TO EXPLAIN WITH EVIDENCE THE RE ASON FOR SO MUCH FALL IN GROSS PROFIT RATIO. THE ASSESSEE HAS S UBMITTED VERBALLY THAT DUE TO, INCREASE IN SALES, THE GROSS PROFIT HAS REDUCED. THE AO DID NOT SATISFY WITH THE EXPLANATIO N OF THE ASSESSEE, THEREFORE, HE MADE THE ADDITION OF 3 % AM OUNTING TO RS. 5,40,465/-. 27. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. WE FIND THAT THE AO HAS NOT POINTED OUT AN Y SPECIFIC -: 20: - 20 EXPLANATION OR EVIDENCE IN REJECTING THE CLAIM OF L OW GROSS PROFIT RATE. THE BOOKS OF THE ASSESSEE ARE AUDITED BY STATUTORY AUDITORS. THE ASSESSEE HAS GIVEN THE REASONS THAT T HERE WAS FALL IN GROSS PROFIT DUE TO THE MARKET CONDITION ON ACCOUNT OF RATE OF FLUCTUATION IN GOLD AND SILVER ORNAMENTS. L OOKING TO THESE FACTS IN TO CONSIDERATION, WE ARE OF THE VIEW THAT IT IS PROPER AND APPROPRIATE TO RESTRICT THE ADDITION ON ACCOUNT OF GROSS PROFIT @ 2.5 % INSTEAD OF 2% ADOPTED BY THE L D. CIT(A). IN THE RESULT, THIS GROUND IS PARTLY ALLOWED. 28. IN THE RESULT, THE APPEAL OF THE REVENUE AND CROSS OBJECTION FILED BY THE ASSESSEE ARE PARTLY ALLOWED AS INDICATED ABOVE. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 15 TH MAY, 2015. S D / - (B. C. MEENA) ACCOUNTANT MEMBER S D/ - ( D.T.GARASIA) JUDICIAL MEMBER DATED : 15 TH MAY, 2015. CPU*284