DELHI-6 DEVELOPERS P.LTD,NEW DELHI V. ITO, WARD-7(2), NEW DELHI

ITA 4961/DEL/2018

AI Insights

The case involves Delhi-6 Developers P. Ltd., which appealed against the assessment order passed by the Income Tax Officer, Ward 7(2), New Delhi, for the Assessment Year 2014-15. The primary issues in the appeal were the additions made to the income of the appellant, which included disallowed expenses and interest, and the rejection of the books of accounts. The Tribunal examined the validity of the additions and the rejection of the books, considering the provisions of the Income Tax Act and the submissions made by both parties. The Tribunal's decision focused on the adherence to procedural norms and the substantive correctness of the additions made by the Assessing Officer.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 314327 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Other Referred Cases: SA Builders Ltd. Vs CIT, Abhishek Industries Ltd. vs. CIT, CIT vs. Globus Securities & Finance (P) Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ADVANCING BORROWED; ADVANCING BORROWED
• Keywords: Set aside; Proportionate interest; Rejection of books of accounts; Rule of consistency; Onus to prove; Commercial expediency
• Section: 144; 143(3); 145; 37; 37(1); 139(5)

Judgement Text

"1 ITA No. 4961/Del/2018 Delhi-6 Developers P. Ltd. (A.Y. 2014-15) IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “B ”: NEW DELHI BEFORE SHRI M. BALAGANESH, ACCOUNTANT MEMBER AND Ms. MADHUMITA ROY, JUDICIAL MEMBER ITA No. 4961/DEL/2018 Assessment Year: 2014-15 Delhi-6 Developers P. Ltd., 818, 8th Floor, Devika Tower, 6, Nehru Place, New Delhi-110019. PAN: AAHCA 3394 B Vs ITO, Ward-7(2), New Delhi. APPELLANT RESPONDENT Assessee represented by Shri Rajeshwar Prasad Painuly, CA Department represented by Shri Rajesh Kumar Dhanesta Sr. DR Date of hearing 18.02.2025 Date of pronouncement 07.05.2025 O R D E R PER Ms. MADHUMITA ROY, JM: The instant appeal, preferred by the assessee, is directed against the order dated 01.05.2018 passed by the learned Commissioner of Income-tax (Appeals)-3, New Delhi, arising out of the assessment order dated 23.11.2016 passed by the Income Tax Officer, Ward 7(2), New Delhi under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for Assessment Year 2014-15. 2 Appellant company in its return of income dated 26.9.2014 has declared a loss of Rs. 4,98,987/- and the case was selected for scrutiny under CASS vide notice dated 28.08.2015 u/s 143(2) of the Act. The appellant company undertakes the business of maintenance of mall namely Golden Souk Grande located at Jaipur (hereinafter referred to as “Mall”) and derived income as CAM charges and rental income during the year under reference. Ld. AO stated that a MOU was executed on 31.10.2013 with effect from 1.11.2013 between M/s Aeren Goldsouk 2 ITA No. 4961/Del/2018 Delhi-6 Developers P. Ltd. (A.Y. 2014-15) International Limited, a company having its registered office at Pitampura New Delhi and appellant company, whereby appellant company has to look after and keep maintenance of the aforesaid mall and collect common area maintenance charges (CAM) charges as well. According to ld. AO the appellant company accounted for receipts of CAM from operation and other misc. income amounting to Rs. 21,74,223/- for period post of the execution of MOU i.e. 1.11.2013 to 31.3.2014, in the return of income for the relevant year, however has shown expenses amounting to Rs. 99,65,353/- which were accounted for the entire financial year 2013- 14.Thus he issued show cause notice dated 21.10.2016 to explain as to why the expenses claimed during the year under reference should not be restricted to afterward period of execution of MOU viz. 01.11.2013. In response thereto appellant has submitted that it has accounted the receipts from 01.11.2013 onwards and expenditure claimed also pertain to the same period. However having not satisfied with the reply filed by appellant, ld. AO has proceeded to made addition of Rs. 69,28,023/- . Relevant excerpts of order of assessment in respect of addition of Rs. 69,28,023/- is reproduced hereunder: “1. The assessee company undertakes the business of maintenance of mall namely golden Souk Grande located at Jaipur and derived income as CAM Charges and rental income during the year under reference. 1.2 The MOU executed on 31.10.2013 between M/s Aeren Goldsouk International Limited, a company duly incorporated under the companies act, 1956, having its registered office at Pitampura New Delhi and M/s Delhi-6 developers Pvt. Ltd., the assessee company empower the assessee to look after & keep maintenance of the above referred commercial complex and collect Common area maintenance (CAM) charges as well. The assessee company has also entered in to duly executed various agreements for purchase of various units/shops situated in the said commercial complex in financial year 2012-13. The assessee company has undertaken upkeep of said commercial complex along with maintenance of terrace and all other common areas. The assessee company vide terms and condition of this agreement was conveyed the right to maintenance of the said commercial complex w, e f. 01.11.2013. and the assessee company accounted for receipts of common area Maintenance(CAM) charges from operation and other misc, income amounting to Rs. 21,74,223/- in the return of income for the relevant year. Perusal of P&L account and details furnished by the assessee reveals that assessee has shown expenses amounting to Rs. 99,65,353/- which were accounted for the entire financial year 2013-14. The assessee vide show cause dated 21.10.2016 was asked to explain and put forward his contention as to why the expenses claimed during the year under reference should not be restricted to afterward period of execution of MOU viz 01.11.2013 which is also cut off date to account for the receipt and expenditure as well, 3 ITA No. 4961/Del/2018 Delhi-6 Developers P. Ltd. (A.Y. 2014-15) as incorporated in memorandum of understanding (MOU) signed between the above referred both parties. The assessee vide letter dated 28.10.2016 submitted that company has accounted the receipts from 01.11. 2013 onward and expenditure claimed also pertain to the same period. 1.3 Examination of details furnished in the proceedings postulates that assessee has accounted for receipts afterwards 1.11.2013 but expenditure claimed in the P&L accounts stands for the complete financial year from 01.04.3013 to 31.03.2014 which is in contravention of the provisions of MOU and not borne out facts, as asserted by the assessee. Contention of the assessee is untenable in the light of material available on record. The status of bills raised and incurred before 01.11.2013 which relates to the prior period of execution of the MOU are produced as under: Date Party name Amount of expenditure 04.09.2013 13.08.2013 & 24.09.2013 Professional charges (Sanderson group) (Achal Kataria & Inderjit Maitra & Associates) 24,60,347/- 27.07.2013 Iddu Khan 5,50,956/ 1,52,129/- Travelling expenses prior to 01.11.2013 Travelling expenses incurred as per ledger account 5,37,294/- Expenditure in terms of assessee failed to furnish the evidence of payment 32,27,297/- 1.4 The table drawn above, transpires that expenditures amounting to Rs. 69,28,023/- either relates to prior period of execution of MOU or evidence with respect to, were not furnished during the assessment proceedings. Taking in to consideration the facts available on file amount of Rs. 69,02,823/- is disallowed and added back in the total income of the assessee as additional income to tax for the year under consideration.” 2.1 Further ld. AO on examination of the audited financial statement of the appellant company for the period under consideration has noted that, the appellant has taken advance/loans amounting to Rs. 20,94,99,160/- from associate enterprises and others and giving interest of Rs. 9,92,500/- on the borrowed amount of Rs. 99,22,000/- @ 24% per annum. Similarly assessee has also given loan/advances to related persons amounting to Rs. 7,28,98,206/- which bears no interest. Thus he issued show cause notice dated 21.10.2016 to explain as to why the proportionate interest expenses should not be disallowed and added back in the total income of 4 ITA No. 4961/Del/2018 Delhi-6 Developers P. Ltd. (A.Y. 2014-15) the appellant as additional income for the year under reference and finally after not convinced with the reply of the appellant, the ld. AO has proceeded to disallowance of interest expenses of Rs. 9,92,500/-. Relevant excerpts of order of assessment in respect of addition of Rs. 9,92,500/- is reproduced hereunder: “2 Examination of the audited balance sheet and P&L account of the assessee for the relevant period transpires that assess has taken advance/ loans amounting to Rs. 20,94,99,160/-from associate enterprises and others and giving interest of Rs.9,92,500/- on the borrowed amount of Rs. 99,22,000/- @ 24% per annum. Similarly assessee has also given loan /advances to related persons amounting to Rs.7,28,98,206/- which bears no interest. The assess vide this office show cause dated 21.10.2016 was confronted with the findings and asked as to why the proportionate amount of Rs. 9,92,500/- should not be disallowed and added back in the total income of the assessee as additional income for the year under reference. The assessee vide office letter dated 28.09.2016 contended which is as here-under: \"Out of loan/advance of Rs. 20,94,99,160/- company has paid interest of Rs. 9.9,500/-24% per annum. The same has been paid out to meet out commercial obligations which is allowable as per provisions of section 37(1) of the IT act\" The contention of the assessee has been considered carefully. The assessee has taken interest bearing advances/loans and paid interest to other persons from whom loans were borrowed. The loans advanced to associated entities/sister concerns are interest free and assessee has paid interest on the instant loans which are under reference. In this way tax liability on the part of the assessee company has been dwindled by debiting the expenditure in its P&L account. The assessee company deliberately lent, interest born funds to other associate concerns in the form of interest free funds which is inadmissible and in contravention to business ethics. The assessee could not substantiate principal of consistency and commercial expediency in this case. In the similar case of SA Builders Ltd. Vs CIT 288 ITR-1(SC)/(2007)158-Taxman-74 it is held that \"matrix of the case is that assessee borrowed money and lent to its sister/related concerns free of interest. The apex court discussed the concept of commercial expediency. In relation to commercial expediency, the Hon'ble Supreme court approved the decision of Hon'ble High Court in the case of Abhishek Industries Ltd. (2006)286ITR(P&H) that the onus to prove lies on the assessee. The commercial expediency is the matter of fact and onus of proving the existence lies on assessee. In this case, borrowed funds on which interest was paid, were advanced interest free to related persons. The assessee failed to prove need of commercial expediency for advancing interest free loan to the others and put its existence of prudence on stake. The purpose of the loan is to expand dimensions of business and derive revenue. But in this case assessee has dwindled its revenue by advancing borrowed interest bearing funds to others, as interest free loans. 5 ITA No. 4961/Del/2018 Delhi-6 Developers P. Ltd. (A.Y. 2014-15) 2.3 Considering the facts mentioned above, a proportionate amount of Rs. 9,99,250/- paid as interest to related concerns stands inadmissible and added back in the total income the assessee as additional income to tax for the year under reference.” 2.2 Apart thereof, ld. AO on analysis of return of income filed by appellant for the period under consideration noted that the appellant has shown nil opening stock, however, closing stock of Rs. 12,51,31,390/- has been shown in the return of income for the preceding assessment year 2013-14, which should have been opening stock in the return of income for period under consideration i.e. assessment year 2014-15. The AO vide notices issued during the course of assessment proceedings directed the appellant to file reconciliation of opening and closing stock and justification not to post the opening as well as closing stock in the return of income filed during the period under consideration. Appellant in response thereto submitted before the ld. AO that, inadvertently details of opening and closing stock were not filed in the return of income and also in profit and loss account for the year under consideration. However, the same has been mentioned in Schedule No. 8 of Balance Sheet at the end of year under consideration. Appellant further contended that the period available under statute to revise the return of income has also been expired, thus, it could not avail the immunity extended in section 139(5) of the Act. However, according to the Learned Assessing Officer appellant could not produce corroborative evidence that stock under examination is still in its possession. Further, appellant was also failed to submit the reconciliation of receipt as per Bank Statement with its income, loan, borrowed during the year under consideration. Thus, Learned Assessing Officer was of the view that books of account of the appellant are not reliable in view of the aforesaid facts and thus he has rejected the same by invoking the provision of u/s 145(3) of the Act. Finally, he estimated the profit at the rate of 10% of stock of Rs. 12,51,31,390/- at Rs. 1,25,13,139/-, being profit arising out of deemed sale of stock under consideration and added back in the total income of appellant as additional income to tax, for year under reference. 2.3 Thus, Learned Assessing Officer has assessed the total income of Rs. 1,99,35,675/- by making aforesaid three additions into loss of Rs. 4,98,987/- declared in return of income by appellant. 6 ITA No. 4961/Del/2018 Delhi-6 Developers P. Ltd. (A.Y. 2014-15) 3. Being aggrieved, the assessee has challenged the aforesaid order of assessment before the First Appellate Authority, however, was not able to get any relief from the First Appellant Authority. 3.1 First Appellant Authority has dismissed the grounds in respect of addition of Rs. 69,29,023/- by holding as under:- “2.1 I have carefully considered the assessment order, the submissions of the appellant and the facts on record. The finding of AO in the assessment order which has been included in the submission of appellant at para 2.0 above clearly states that appellant has accounted for receipts after 31.10.2013 which is the date of execution of MOU between it and M/s Aerens Goldsouk International Limited, by which appellant was authorized to look after upkeep and maintenance of impugned commercial complex and collect Common Area Maintenance (CAM) charges with effect from 01.11.2013. It was found during the course of assessment proceedings that bill dated 04.09.2013 pertaining to professional charges paid to Sanderson Group and bill dated 13.08.2013 and 24.09.2013 pertaining to Achal Kataria and Inderjit Maitra & Associates amounting to Rs. 24,60,347/- pertain to period before 01.11.2013 which is prior to the execution of MOU. Bills dated 27.07.2013 in the name of Inddu Khan amounting to Rs. 5,50,956/- and Rs. 1,52,129/ were also raised and incurred before 01.11.2013. Travelling expenses as per ledger account prior to 01.11.2013 amounting to Rs. 5,37,294/- and expenditure in respect of which assessee failed to furnish evidence of payment of Rs. 32,27,297/- are all prior to 01.11.2013 and in respect of expenses of Rs. 32,27,297/ no evidence were furnished regarding their admissibility during appeal proceedings. The case laws relied upon by appellant are on a different footing. The submission of Ld. AR of appellant that the presumption of AO that the appellant failed to satisfy him on proof of payment does not mean that expenditure has not been incurred is irrelevant because even during appeal proceedings the appellant has not furnished any proof or submission in support of its contention that the expenses were incurred after the date of MOU i.e. 31.10.2013. The appellant received income in consequence of the MOU signed on 31.10.2013 till 31.03.2014. AO has correctly held that the expenses claimed in respect of income earned after 31.10.2013 should also been incurred after 31.10.2013 which is clearly not the case. Considering above discussion I uphold the action of AO in disallowing expenses of Rs. 69,29,023/-. Hence ground of appeal 1 is dismissed.” 3.2 First Appellant Authority has further dismissed the grounds in respect of addition of Rs. 9,92,500/- by holding as under:- 7 ITA No. 4961/Del/2018 Delhi-6 Developers P. Ltd. (A.Y. 2014-15) “3.1I have perused the submissions of the appellant, the assessment order and the facts on record. The appellant has submitted that it has taken advance/loan amounting to Rs. 20,94,99,160/- from its associate enterprise and others which included an amount of Rs. 99,22,000/- on which it has paid interest at the rate of 24% per annum of Rs. 9,92,500/-. The rate of interest appears to be inflated because it actual fact it appears to be a little more than 10% per annum. The appellant has given loan/advance to related persons amounting to Rs. 7,28,98,206/- which is totally interest free. In its submission before the AO appellant has submitted that out of loan/advance of Rs. 20,94,99,160/ company has paid interest of Rs. 9,92,500/- @ 24% per annum. The same has been paid out to meet out commercial obligations which is allowable as per provisions of sections 37(1) of the IT Act, which is the same as saying that the company has paid interest of Rs. 9,92,500/- at the rate of 24% per annum which is allowable as per provision of section 37(1) of the IT Act, without giving any justification for advancing interest free loan to its related parties without charging any interest whatsoever on the loan/advance given of Rs. 7,28,98,206/-. Nowhere has appellant complied with or substantiated the principle of consistency and commercial expediency. I find that the AO has correctly relied on the finding of Hon'ble Supreme Court in the case of SA Builders Ltd. Vs CIT 288 ITR-1 (SC)/ (2007)158- Taxman-74 where it was held that the tact matrix of the case is that assessee borrowed money and lent to its sister/related concerns free of interest. The Apex Court discussed the concept of commercial expediency. In relation to commercial expediency, the Hon'ble Supreme court while discussing the case of Abhishek Industries Ltd. (2006)286ITR(P&H) held that the onus to prove lies on the assessee. The commercial expediency is a matter of fact and onus of proving commercial expediency lies on assessee. In this case, borrowed funds on which interest was paid, were advanced interest free to related persons. The assessee failed to prove either commercial expediency or prudence for advancing interest free loan to related parties out of interest paid funds. The appellant has nowhere stated that the loans/advance to Shashank Dewan, Akshay Dewan, Dresier Commodities Pvt. Ltd. were either to subsidiary company or for the purpose of its own business. In this case assessee has dwindled its revenue by advancing borrowed interest bearing funds to others, as interest free loans. Considering the above discussion, a proportionate amount of interest of Rs. 9,92,500/- on loan to related concerns which was added back in the total income of the assessee as additional income to tax for the year under reference by assessing officer sustained. The alternate submission of the appellant that the impugned interest of Rs. 9,92,500/- must be allowed as per the provision of section 37(1) or as per provisions of section 36(1)(iii) does not have any merit. Accordingly this ground of appeal is dismissed.” 3.3 First Appellant Authority has also dismissed the grounds in respect of addition of Rs. 1,25,13,139/- by holding as under:- “4.1 I have considered the submission of the appellant assessment order and the facts of record. The observation of AO even quoted by appellant as reproduced at para 4.0 above. The assessee vide notice issued by AO dated 29.06.2016 and 21.10.2016 requested 8 ITA No. 4961/Del/2018 Delhi-6 Developers P. Ltd. (A.Y. 2014-15) assessee to file details of opening and closing stock because in the return for AY 2014-15 the assessee has shown nil opening stock while closing-stock of Rs. 12,51,31,390/-has been shown in the return of income for AY 2013-14 which should have been opening stock in the return of AY 2014-15. The submission of AR of assessee before the AO the opening and closing stock were not filed in the income tax return inadvertently' while filing the return of income is contradicted by the fact that details of opening and closing stock were also returned as blank in the P & L account and the income tax return even though they were mentioned it schedule 8 of the balance sheet. It was also submitted that assessee that immunity given in section 139(5) was barred by limitation. The assessee did not produce any corroborating evidence that figure of closing stock of Rs. 12,51,31,390/- was in its possession and contended that the shops (stock) was purchased in FY 2012-13 which is beyond ambit of ongoing scrutiny proceedings. The details sought by AO vide show cause letter dated 21.10.2016 seeking clarification about the details of opening and closing stock were not furnished and the show cause notice remained unanswered. Analysis of the return of income for assessment year 2015-16 by assessing officer also revealed that no figures of opening and closing stock were shown by appellant. In this context the AO came to the conclusion that the books of account are not reliable and trustworthy and therefore rejected the books by invoking provisions of section 145(3), Accordingly 10% of the stock of Rs. 12,51,31,390/- which comes to Rs. 1,25,13,139/- was estimated as net profit of sale of stock (shops). In the course of appellate proceedings AR of appellant while giving written submission has nowhere submitted the figures of opening and closing stock for AY 2014-15, the impugned assessment year. In this case I find that the AO gave sufficient opportunity in the course of assessment proceedings for the appellant to submit figures of opening stock and closing stock for the impugned AY. Nowhere was the AO acting arbitrarily or capriciously by exercising his jurisdiction for invoking section 145(3). This is a case in which assessee is trying the wriggle out of its statutory responsibility of disclosing the figures of opening and closing stock in the return of income and in the balance sheet as well as p & L account which it has not done to conceal its income from the sale of shops which had acquired in FY 2012-13. Perusal of the copy of bank account by AO without any submission regarding the exact figure of opening and closing stock for this AY is akin to looking for a needle in a hay stack. The fact that the appellant has with premeditated intention sought to mislead the assessing officer by not filing figures of opening and closing stock for AY 2014-15 and 2015-16 shows that this is a brazen attempt to conceal particulars of its income by furnishing inaccurate particulars of opening and closing stock. The AO gave sufficient opportunity to the assessee to furnish details of opening stock and closing stock. Reliance as placed by AO upon the decision of jurisdictional High Court of Delhi in the case of CIT vs. Globus Securities & Finanace (P) Ltd. in ITA no 409/2012 dated 10.12.2013 which held that the onus to prove identity, creditworthiness and genuineness of transaction is on the assessee as fact are in his knowledge. In this case even though estimation has been done after rejection of the books of account, profit has been estimated on the basis of proper material available on record, which in this case is the figure of closing stock for FY 2012- 13 i.e. AY 2013-14 which is Rs. 12,51,31,390/. Accordingly I uphold the action of the AO in making addition of Rs. 1,25,13,139/-. Hence this ground of appeal is dismissed.” 9 ITA No. 4961/Del/2018 Delhi-6 Developers P. Ltd. (A.Y. 2014-15) 4. Being aggrieved by the aforesaid order passed by the First Appellant Authority, the assessee has preferred the appeal before us, raising the following grounds of appeal: Ground No.-1 That Ld CIT Appeal has not followed the procedure laid down vide instruction no. F.No.279/misc 53/2003-ITJ dated 19th June 2015 in continuation of its instruction no. 20/2003 dated 23.12.2003 Date of last hearing was 17/04/2018 and copy of Appeal Order was received by the assessee company by speed post on 06/06/2018 after 50 days This must be viewed adversely because as per above CBDT instruction the appellate order should be issued within 15 days of the last hearing. The order passed by Honorable CIT (A) is unlawful, null and void. Ground No.-2 That the Hon'ble Commissioner of Income Tax (Appeal) has erred in law and on facts by arbitrary confirming the addition of Rs. 1,25,13,139/- on 10% of stock valuation on clerical error while filing tax return and rejected accounts book u/s 145(3) without adhering norms laid down U/s 144 of the Income Tax Act, 1961. Ground No.-3 That the Hon'ble Commissioner of Income Tax (Appeal) has erred in law and on facts by confirming the addition of Rs. 69,29,023/- by upholding the action of AO in disallowing expenses where as assessee has claimed total expenses of Rs. 27,33,852/-only Ground No.-4 That the Hon'ble Commissioner of Income Tax (Appeal) has erred in law and on facts by confirming the addition of Rs.9,92,500/-. Disallowance interest of Rs. 9,92,500/- allowable provision of section 37 (1) of income tax Act, 1961. The assessee has not clamed Interest expenses so no question to disallow interest of Rs. 9,92,500/- arises. Ground No.-5 That the provisions of section 234A, 2348, 2340 & 234D are not at all applicable. Ground No.-6 That the impugned appeal order is arbitrary, illegal, bad in law and in violation of rudimentary principles of contemporary jurisprudence. Ground No.-7 10 ITA No. 4961/Del/2018 Delhi-6 Developers P. Ltd. (A.Y. 2014-15) That the Appellant craves leave to add/alter any/all grounds of appeal before or at the time of hearing of the Appeal. 5 We have heard the rival submission made by the respected parties and we have also perused the available materials available including paper book filed by appellant and the order by the Jurisdiction of High Court and Judgment relied by the assessee. 6 Ground No. 1 is not pressed by the appellant, therefore, dismissed. 7 Ground No. 2,challenging the addition of Rs. 1,25,13,139/- of 10% of stock valuation on clerical error by the appellant while filing income tax return and rejection of books of accounts by ld. AO by invocation of provision of section 145(3) of the Act. We have gone through the order of lower authority below, ld. AO in absence of granting any opportunity of hearing during assessment proceedings, has rejected audited books of accounts, directly in the order of assessment by invoking provisions u/s 145(3) of the Act. Ld. AO has rejected the books of accounts, primarily on the reasoning that, the details of opening and closing stock has not been filed either in statement of profit and loss account for the year under consideration or Return of Income filed by the appellant for the year under consideration, though he has not disputed the submission of the appellant, the details of the opening and closing stock was duly mentioned in Schedule no. 8 of audited financial statement of the appellant company. After rejecting the books of accounts of appellant company u/s 145(3) of the Act, learned AO, instead of making assessment in the manner providing u/s 144 of the Act, has proceeded to make addition/disallowance by relying upon that very rejected books of accounts and has made the assessment u/s 143(3) of the Act, wherein income of the appellant has been computed at Para 5 order of assessment, which is reproduced as under:- “5. After taking into consideration, income of the assessee is computed as under:- Amount (in Rs.) Loss declared in the ITR 4,98,987/- Add as discussed in para 1.3 supra 69,29,023/- Add as discussed in para 2.3 supra 9,92,500/- Add as discussed in Para 3. 1,25,13,139/- Total taxable income 1,99,35,675/- 11 ITA No. 4961/Del/2018 Delhi-6 Developers P. Ltd. (A.Y. 2014-15) 7.1 It is thus, evident that while computing the taxable income of the appellant, Ld. AO begins from loss, declared in the return of income which is based on the books of accounts of the appellant and, thus ld. AO, has made the assessment by relying upon the same books of accounts which has been rejected by AO and has made the assessment u/s 143(3) of the Act, which in our opinion is not in accordance with the provision of section 145(3) of the Act. 7.2 Section 145(3) of the Act postulates that, where the Assessing Officer is not satisfied about the correctness, completeness of the account of the assessee, and where the method of accounting provided in sub-section 1 of the section 145 of the Act has not been regularly followed by the assessee or income has not been completed in accordance with the Standards notified under sub-section 2 of section 145 of the Act, then AO may make an assessment in the manner provided u/s 144 of the Act. However in the order of assessment, the learned AO has failed to record his satisfaction about incorrectness or incompleteness of the account of the assessee. Also, it is not the case of the AO that appellant is not following the method of accounting as provided u/s sub-section 1 of the section 145 of the Act or that the appellant has not computed its income in accordance with the standard notified under sub-section 2 of section 145 of the Act. In the facts of the appellant company, as there is no purchase and sale of items of inventory, during the year under consideration and there is only few expenditures that was on account of Work in Progress (WIP), having no impact on the income chargeable to tax for the year under consideration. Thus, mere non mentioning of the details of stock in the return of income as well as closing stock and, statement of profit and loss account, inadvertently, however, details of the same is duly stated in Schedule No. 8 (Inventory) being common schedule for profit and loss account & Balance Sheet, which is not disputed by ld. AO, is not a valid basis for rejection of audited books of accounts, in accordance with the provision of section 145 of the Act. Therefore, the action learned AO, rejecting the books of accounts is set aside. 7.3 Now, as far as addition made by the learned AO on account of profit arising out of deemed sale of stock under consideration, estimated the at the rate of 10% of value of closing stock of Rs. 12,51,31,390/- for assessment year 2013-14, computed to Rs. 1,25,13,139, it is relevant to analyse the Schedule no. 8 of the audited financial statement of the appellant company, which is reproduced here under:- 12 ITA No. 4961/Del/2018 Delhi-6 Developers P. Ltd. (A.Y. 2014-15) 7.4 It is evident from the aforesaid schedule that the closing stock for the preceeding assessment year 2013-14 has been brought forward as opening stock for the year under consideration i.e. assessment year 2014-15 and there is no sales during the year under consideration. All what has happened is that the closing stock has been brought forward as 13 ITA No. 4961/Del/2018 Delhi-6 Developers P. Ltd. (A.Y. 2014-15) opening stock and the some further expenditure has been incurred which has increased the value of stock from Rs. 12,51,31,390/- to Rs. 13,50,96,743/-.Thus, there is no doubt that the stock under examination was still in appellant possession till 31.03.2014, and therefore, there is no question of deemed sale of stock and to estimate profit on alleged deemed sale. We, therefore, inclined to accept the contention of the appellant and directed the learned AO to delete addition. In the result ground no. 2 of the assessee is allowed. 8. Ground 3 is in respect of disallowance of Rs. 69,29,023/-. Details of expenses of Rs. 69,29,023/- which has been disallowed by Learned AO as stated by him at para 1.3 of his order (supra), are as under: Sr. No. Date Party name Amount of expenditure i) 04.09.2013 13.08.2013 & 24.09.2013 Professional charges (Sanderson group) (AchalKataria&Inderjit Maitra & Associates) 24,60,347/- ii) 27.07.2013 Iddu Khan 5,50,956/ 1,52,129/- iii) Travelling expenses prior to 01.11.2013 Travelling expenses incurred as per ledger account 5,37,294/- iv) Expenditure in terms of assessee failed to furnish the evidence of payment 32,27,297/- v) Total 69,28,023/-* though addition has been made for Rs. 69,29,023/- 8.1 Appellant vide in submission dated 17.04.2018, before First Appellate Authority has submitted that as against disallowance of expenditure of Rs. 69,29,023/-, appellant has claimed total expenditure of Rs. 26,89,652/- only. Relevant part of submission is reproduced hereunder under: “1.22 Ld. AO has disallowed expenditure in tune of Rs. 69,29,023/- and whereas Appellant has claimed expenses of Rs. 21,59,309/- as direct Expenses and Rs. 5,29,635/- as Other Expenses. Total Expenses claimed was Rs. 26,89,652/- only as per Audited Profit and Loss Account, Tax Return filled as well as Computation of Income. Copy of Audited Balance Sheet and Computation of Income Attached herewith for your kind perusal as annexure 1 and 2.” 14 ITA No. 4961/Del/2018 Delhi-6 Developers P. Ltd. (A.Y. 2014-15) 8.2 Thus it is relevant to analyse the expenditure incurred and claimed by appellant as per audited financial statement of appellant company are reproduced hereunder:- 15 ITA No. 4961/Del/2018 Delhi-6 Developers P. Ltd. (A.Y. 2014-15) 8.3 On comparison of expenditure disallowed by ld. AO (supra) and expenditure claimed by appellant, out of expenditure incurred by appellant, it is evident that expenditure of Rs.32,27,297/- has been transferred to WIP as is evident from schedule 14, Other Expenses. Thus we find force in submission of appellant that ld. AO has erroneously disallowed expenditure of Rs. 69,29,023/-, as appellant has not even claimed expenses to such extent, it is evident from statement of profit and loss account, read with computation of income, that appellant has claimed expenditure to the tune of Rs. 21,59,309/- only. Thus we are remitting the 16 ITA No. 4961/Del/2018 Delhi-6 Developers P. Ltd. (A.Y. 2014-15) issue to ld. AO for limited purpose, to verify, whether expenditure as disallowed, was actually claimed by appellant or not and if appellant has not claimed the expenditure for the year under consideration, same should be deleted as such. In result, we allow ground No.3 of appeal for statistical purpose. 9 Ground 4 is in respect of disallowance of Rs. 9,92,500/-. As stated above, ld. AO has disallowed the interest expenditure of Rs. 9,92,500/-. It is evident from expenditure incurred and claimed by appellant as per audited financial statement of appellant company as reproduced above and schedule no.8 of audited financial statement reproduced above, that appellant has not claimed interest expenditure for the year under consideration, on the contrary it has been capitalised as WIP in inventory. Thus, once appellant has not claimed the interest expenditure of Rs. 9,92,500/-, there is no question of disallowance of the same, therefore, we direct the ld. AO to delete the same. In result, ground No. 4 of appeal is allowed. 10. In the result, the appeal of the assessee in ITA No. 4961/Del/2018 is partly allowed. Order pronounced in open court on 07.05.2025. Sd/- Sd/- (M. BALAGANESH ) (Ms. MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER *MP* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "