Ravindra Rajaram Patil, Kolhapur V. Additional Commissioner of Income-tax,

ITA 1070/PUN/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0375 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 28-06-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 21-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K.J. KAWADE
• Assessee Lawyers: M.K. KULAKARNI
• Keywords: Depreciation; Business expenditure; Income from undisclosed sources; TDS
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 69C; 11; 15; 271(1)(b); 139; 143(3); 92; 234B; 44AB; 13; 145(3)

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , ! , # $ BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO.1070 & 1071/PN/2014 & & / ASSESSMENT YEAR : 2009-10 & 2010-11 SHRI RAVINDRA RAJARAM PATIL, R.S.NO.1-B,1/1, PLOT NO.11, NEAR NH-4, AIRPORT ROAD, UJALAIWADI, KOLHAPUR 416004. PAN : ABFPP5476M. . / APPELLANT V/S ADDL.COMMISSIONER OF INCOME TAX, RANGE 1, KOLHAPUR. . / RESPONDENT / APPELLANT BY : SHRI M.K. KULAKARNI / RESPONDENT BY : SHRI K.J. KAWADE ' / ORDER PER ANIL CHATURVEDI, AM : THESE TWO APPEALS FILED BY THE ASSESSEE ARE EMANATIN G OUT OF THE TWO ORDERS OF COMMISSIONER OF INCOME TAX (A), K OLHAPUR, BOTH DT.15.01.2014 FOR THE ASSESSMENT YEARS 2009-10 AN D 2010-11. / DATE OF HEARING :10.11.2016 / DATE OF PRONOUNCEMENT: 25.11.2016 2 ITA NO.1070/PN/2014 ITA NO.1071/PN/2014 2. BEFORE US, AT THE OUTSET LD.AR SUBMITTED THAT THOUGH THE APPEALS FILED BY THE ASSESSEE ARE FOR DIFFERENT ASSESSM ENT YEARS BUT THE FACTS AND ISSUES INVOLVED IN BOTH THE APPEALS ARE IDENTICAL EXCEPT FOR THE ASSESSMENT YEAR AND THE AMOUNTS INVOLVE D AND THEREFORE THE SUBMISSIONS MADE BY HIM WHILE ARGUING ONE AP PEAL WOULD BE EQUALLY APPLICABLE TO THE OTHER APPEAL ALSO AND THEREFORE, BOTH THE APPEALS CAN BE HEARD TOGETHER. THE AFORESAID SUBMISSION OF THE LD.AR HAS NOT BEEN OBJECTED TO BY LD.DR. WE THERE FORE FOR THE SAKE OF CONVENIENCE PROCEED TO DISPOSE OF BOTH THE APPEALS BY A CONSOLIDATED ORDER HOWEVER, WE PROCEED WITH NARRATING THE FACTS FOR ASSESSMENT YEAR 2009-10. 3. THE FACTS AS CULLED OUT FROM THE MATERIAL ON RECORDS ARE AS UNDER: ASSESSEE IS AN INDIVIDUAL STATED TO BE ENGAGED AS A CONTRACTOR DOING THE WORKS OF EARTHMOVING / EXCAVATION. ASSESSEE ELECTRONICALLY FILED HIS RETURN OF INCOME FOR AY 2009-10 ON 30.09.2009 DECLARING TOTAL INCOME OF RS.1,22,47,740/-. THE CAS E WAS TAKEN UP FOR SCRUTINY AND THEREAFTER THE ASSESSMEN T WAS FRAMED BY THE ASSESSING OFFICER (AO) U/S 143(3) OF THE INCOM E TAX ACT, 1961 VIDE ORDER DT.12.12.2011 AND THE TOTAL INCOME WA S DETERMINED AT RS.1,52,46,280/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT (A), WHO VIDE OR DER DT.15.01.2014 (IN APPEAL NO.KOP/544/11-12) GRANTED PART IAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US AND RAISED THE FOLLOWING GROUNDS: '1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDIT ION MADE BY THE A. O. OF RS. 69,670/- ON ACCOUNT OF NON-BOOKING OF SUC H EXPENDITURE OF 3 ITA NO.1070/PN/2014 ITA NO.1071/PN/2014 ROAD TAX PAYMENT ON VEHICLE PURCHASED WHEN IT WAS S UBMITTED THAT PURCHASE PRICE OF THE VEHICLE WAS INCLUSIVE OF ROAD TAX. THE DISALLOWANCE MADE BY A. O. AND CONFIRMED BY LD. CIT(A) IS UNWARRANTED. IT BE DELET ED. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOW ANCE OF EXCESS DEPRECIATION OF RS. 24,767/- MADE BY THE A. O. THE CLAIM BEING PROPER BE ALLOWED DELETING THE DISALLOWANCE. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOW ANCE MADE BY A. O. OF RS. 1,49,634/- INVOKING S. 41(1) OF THE ACT. THE ADDITION BE DELETED. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOW ANCES OF RS. 2,22,157/- MADE BY A. O. INVOKING S.36(1)(III) OF T HE ACT. THE APPELLANT-ASSESSEE IS HAVING SUFFICIENT INTEREST FR EE FUNDS AT HIS DISPOSAL. IN THE CIRCUMSTANCES IT IS DEEMED THAT TH E ADVANCES ARE NOT OUT OF BORROWED FUNDS. THE DISALLOWANCE BEING I LLEGAL AND WITHOUT JURISDICTION BE DELETED. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOW ANCE MADE BY A. O. OF RS. 3,45,758/- INVOKING SEE. 36(1)(III) R.W.S . 40A(2)B) OF THE ACT. THE ADDITION BE DELETED. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOW ANCE OF RS. 10,19,529/- MADE BY THE A. O. AS ACCORDING TO HIM T HE ASSESSEE FAILED TO EXPLAIN THE INCREASE IN THE CONTRACT PAYM ENT EXPENSES. THE REASONS ACCORDED FOR SUCH DISALLOWANCE ARE NOT PLAU SIBLE ESPECIALLY WITHOUT CONSIDERING THE BUSINESS EXPEDIENCY AND PEC ULIAR NATURE OF THE BUSINESS THAT TOO WITHOUT REJECTING THE BOOKS O F ACCOUNT U/S 145(3) OF THE ACT. THE DISALLOWANCE BE DELETED. 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LEVY OF INTEREST U/S 234B AND 234C IS NOT JUSTIFIED . 8. THE APPELLANT CRAVES/LEAVE TO ADD, AMEND OR ALTE R ANY OF THE ABOVE GROUNDS OF APPEAL. 4. BEFORE US, AT THE OUTSET, LD. A.R. SUBMITTED THAT HE DID NOT WISH TO PRESS GROUND NO.2. CONSIDERING THE AFORESAID SUBMISSION OF THE LD.AR, GROUND NO.2 RAISED BY THE ASSESSE E IS DISMISSED AS NOT PRESSED. 5. GROUND NO.1 IS WITH RESPECT TO ADDITION OF RS.69,670/- ON ACCOUNT OF NON-BOOKING OF ROAD PAYMENT TAX. 4 ITA NO.1070/PN/2014 ITA NO.1071/PN/2014 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ON PERUSING THE DETAILS FILED BY THE ASSESSEE, AO NOTICED THAT THE ASSESSEE HAD PURCHASED MAHENDRA BOLERO FOR RS.6,37,300/ -. HE ALSO NOTICED THAT THE ROAD TRANSPORTATION TAX AND REGIS TRATION FEE PAID FOR PURCHASE OF VEHICLE WAS NOT CAPITALIZED. THE ASSE SSEE WAS THEREFORE ASKED TO SHOW CAUSE AND ALSO EXPLAIN AS TO W HETHER THE REGISTRATION FEE AND RTO TAX WAS CLAIMED AS REVENUE EX PENSES. THE ASSESSEE INTER-ALIA SUBMITTED THAT ASSESSEE HAD PURCHASED THE VEHICLE WHICH INCLUDED THE TAX AND THEREFORE THERE WAS NO REASON FOR SEPARATE CAPITALIZATION OF RTO TAX AND REGISTRATION FEES . AO CONCLUDED THAT SINCE NO RTO TAX WAS REFLECTED SEPARATEL Y IN THE ACCOUNTS AND SINCE ONLY THE AMOUNT OF PURCHASE PRICE O F MAHENDRA BOLERO WAS REFLECTED IN THE ACCOUNTS AND IN THE ABSENCE OF PROPER EXPLANATION, HE CONCLUDED THAT RTO TAX AND RE GISTRATION FEE OF RS.69,670/- FOR THE REGISTRATION OF BOLERO WAS PAID B Y THE ASSESSEE FROM HIS UNACCOUNTED INCOME. HE ACCORDINGLY M ADE ADDITION OF RS.69,670/- U/S 69C OF THE ACT. AGGRIEVED BY THE ORDER OF THE AO, ASSESSEE CARRIED THE MATTER BEFORE THE LD.CIT, WHO UPHELD THE ORDER OF AO BY HOLDING AS UNDER: 4. DURIN G TH E YEA R TH E ASSESSEE H AS AC QUIR E D S E V E R A L A SS ETS WHICH INCLUDED C E RT A IN V E HI C L E S. IN R E SP E CT OF ON E OF THE VEHICLE , THE CAPITALIZ E D V A LU E WA S SHO W N A T RS.6,37,300/ - IN C LUDING ACCESSORIES. THIS WA S M A HINDRA BOLERO MAK E . TH E AS S E S S IN G OFFIC E R HAS FOUND THAT NO E X PENDITURE . ON AC COUNT OF RO A D T AX W AS EITHER C A PIT A LI ZE D OR BOOK E D IN THE EXP E NS ES . AFT E R G IVIN G OPPORTUNITY TO TH E AS SE S S EE, TH E A SSESSING OFFIC E R H AS COM E TO TH E CON C LUSION TH A T EXP E NDITURE OF RS.69,670/- WAS MAD E FROM UNE X PL A INED SOURCE S A ND , TH E REFOR E , THE AMOUNT HAS BEEN ADDED A S UNACCOUNT E D INCOME . 5 . IN APPEAL IT WAS CONT E NDED THAT PRICE OF RS. 6,36,030/- IN RESPECT OF THIS VEHICL E WAS INCLUSIVE OF T A X. FROM THE DETAILS AVAILABLE IT IS SEEN THAT A MAHIRIDRA S C ORPIO WAS PURCH A SED FROM 5 ITA NO.1070/PN/2014 ITA NO.1071/PN/2014 KOLHAPUR OF WHICH PURCHASE PRICE OF RS. 9,65,986/- AND RO A D TAX OF RS. 69,670/-W A S PAID . SECOND VEHICLE - M A RUTI S W IFT D E SIRE WA S PURCHASED FROM GOA ON WHICH RS. 6,83,727/- AND ROAD TA X OF RS. 41,946/- W AS P A ID. THIRD VEHICLE MAHINDRA BOLERO W AS AL S O P U R C H ASE D FROM GOA FOR WHICH PUR C HA SE PRIC E OF RS. 6,36,030/- W AS P A ID A ND IT I S CL A IM E D THAT THIS W A S INCLUSIV E OF RO A D T A X . N O D OC UM E NTS H A V E B EE N FURNI S H E D IN S UPPOR T TH A T PURCH ASE P R IC E O F THI S V E HI C L E I S INCLU S I VE OF RO A D TA X. WH E N IN C A S E OF M A RUTI SWIFT D E SI RE W HICH W AS A L S O PURCHA S ED IN GOA TH E PURCHA S E PRICE DO E S NOT INCLUD E D ROAD T A X THIS R EAS ON COULD NOT BE APPRECIATED IN CASE OF MAHINDR A B O L E RO, PARTICUL A RL Y WH E N THERE IS NO SUPPORTING DOCUMENT. THEREFORE, THE ADDITION MADE BY THE ASSESSING OFFICER IS CONFIRMED. 7. AGGRIEVED BY THE ORDER OF LD.CIT(A) ASSESSEE IS IN APPEAL BEFORE US. 8. BEFORE US, LD.AR REITERATED THE SUBMISSIONS MADE BEFORE AO AND LD.CIT(A) AND SUBMITTED THAT THE PURCHASE P RICE OF THE VEHICLE INCLUDED ROAD TAX AND THEREFORE THE AMOUNT W AS NOT SEPARATELY CAPITALIZED. HE THEREFORE SUBMITTED THAT THE ADDITION BE DELETED. LD.DR ON THE OTHER HAND SUPPORTED THE ORDER OF AO AND LD. CIT(A) AND FURTHER SUBMITTED THAT DESPITE OPPORTUNITY BEING GRANTED TO ASSESSEE, ASSESSEE HAS NOT PLACED ANY MATE RIAL ON RECORD TO DEMONSTRATE THE PAYMENT OF ROAD TAX. IN S UCH A SITUATION THE AO WAS FULLY JUSTIFIED IN MAKING THE ADDITION. H E THUS SUPPORTED THE ORDER OF LD.CIT(A). 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO ADDITION OF RS.69,670/- ON ACCOUNT OF ROAD TAX. IT IS AN UNDISPUTED FACT THAT ASSESSEE HAD PURCHASED MAHENDRA BOLERO DURING THE ASSESSMENT YEAR. DURING THE COURSE OF ASSES SMENT PROCEEDINGS, ASSESSEE WAS ASKED TO PRODUCE THE PROOF OF PAYMENT 6 ITA NO.1070/PN/2014 ITA NO.1071/PN/2014 OF ROAD TAX WHICH THE ASSESSEE HAS FAILED TO DO. EVEN BEFORE THE LD.CIT(A) ASSESSEE DID NOT PRODUCE ANY EVIDENCE DEMONSTR ATING THE PAYMENT OF ROAD TAX. EVEN BEFORE US LD.AR HAS ONLY REIT ERATED THE SUBMISSION OF THE PURCHASE PRICE THAT IS REFLECTED ON THE BOOKS OF ACCOUNTS TO BE INCLUSIVE OF ROAD TAX BUT HAS HOWEVER NO T PLACED ANY MATERIAL ON RECORD TO DEMONSTRATE THAT THE PRICE PAID FOR PURCHASE OF VEHICLE WAS INCLUSIVE OF ROAD TAX. IN SUCH A S ITUATION, WE FIND THAT NO REASON TO INTERFERE WITH THE ORDER OF LD.C IT(A). THUS, THE GROUND OF ASSESSEE IS DISMISSED. 10. GROUND NO.3 IS WITH RESPECT TO DISALLOWANCE OF RS.1,49,634/-. 11. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ON PERUSING THE TAX AUDIT REPORT, AO NOTICED THAT ASSESSEE HAD SHOWN AN AGGREGATE AMOUNT OF RS.1,49,634/- AS LIABILITY, THE DETAILS OF WHICH ARE LISTED AT PAGE 7 OF THE ASSESSMENT ORDER. HE ALSO NOTED THAT WHILE COMPUTING THE INCOME, NO DISALLOWANCE WAS MAD E EVEN THOUGH THE ASSESSEE WAS FOLLOWING CASH SYSTEM OF ACCOUNT ING. THE ASSESSEE WAS THEREFORE ASKED TO EXPLAIN AS TO WHY THE AGGREGATE AMOUNT OF RS.1,49,634/- NOT BE TREATED AS CES SATION OF LIABILITY U/S.41(1) OF THE ACT, TO WHICH ASSESSEE INTER ALIA SUBMITTED THAT THE AMOUNT REPRESENTED AMOUNT PAYABLE IN RESPECT OF EXPENDITURE AND NON-RECOVERY OF TDS BY PARTIES. IT W AS FURTHER SUBMITTED THAT THE EXPENDITURE WAS REVERSED AND OFFERE D TO TAX IN AY 2010-11. EXPLANATION WAS ALSO OFFERED WITH RESPECT TO THE NON- RECOVERY OF TDS. THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE AO BECAUSE AS PER AO, NO LIABILITY SHOULD HAVE BEEN REFLECTED BY THE ASSESSEE AND SHOWN IN THE ACCOU NTS OF THE 7 ITA NO.1070/PN/2014 ITA NO.1071/PN/2014 ASSESSEE SINCE THE ASSESSEE WAS FOLLOWING CASH SYSTEM O F ACCOUNTING. HE ACCORDINGLY TREATED THE AGGREGATE AMOU NT TO RS.1,49,634/- SHOWN BY THE ASSESSEE AS CESSION OF LIABILITY U/S 41(1) AND MADE IT ADDITION. 12. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A) WHO UPHELD THE ORDER OF AO BY HOLD ING AS UNDER : 7. A S S ES S EE I S A CON TRAC T OR A N D FO LL OWS C AS H SYSTE M OF AC C OUN T IN G . THI S F A C T HA S B EE N M E NTION E D B Y TH E A U D ITO R S AL SO IN FORM NO. 3CD . IN TH E BAL A NCE SH EE T A LIABILITY OF RS.1,49,634/- HA S BE E N SHO W N . IN THE C A SH SYSTEM OF ACCOUNTIN G TH ERE C A NNOT B E AN Y LI A BILIT Y IN THE ACCOUNTS. ASSESS EE W A S S HO W CAU SE D A ND HE STATED TH A T TH E P AY ABL E S OF 1,49,634/- H AVE A RI SE N ON A C CO UNT OF EX P E NDI T U RE A ND NON-R E COVER Y OF TD S B Y PA R TI E S. THI S EX P EN D I T URE WAS B OO K E D IN ASSESS M EN T YEA R 200 8 - 09 W ITH O UT P AYME NT A ND H AS B EEN R E FL EC T E D AN D OFFER E D TO T AX IN AS S ESSMENT YE A R 2010 - 11 . SINCE THE LI A BILIT Y W AS S HOWN INCORRECTL Y, TH E ASSESSI N G OF FICE R H AS HE L D TH A T ASSESSEE WAS NOT E NTITL E D TO M AKE TH E E NT RIES AS LI ABILITY P AY A B L E WHEN HE WAS MA I NT A I NI N G C ASH SYS T EM OF ACCOUNTING . T HEREFORE, T H E A MOUNT WAS ADD E D TO INCOME AS CESSATION O F LI AB ILI TY UN DER SECTION 4 1(1). 8. S A M E F ACTS WE R E M E NT IONE D DU R I NG APP EAL A ND IT W AS CONT E ND E D TH A T TH E A SSESS IN G OFFI CER H AS W R O N G L Y M AKE TH E A DDITION WITHOUT APPRECI A TIN G TH E F AC T S . H OWEVE R , I A M OF TH E O PI NION TH A T SI NCE TH ERE C A N N O T BE A LI A BIL I T Y IN CASH SYS T EM OF A C CO UNT A ND A SS E S SEE HIM SE L F H AS R EFLECTE D I T TWO YEARS L ATER WHICH I TSE L F SHOWS T HAT I N T H E CUR RENT YEAR T HE L IAB ILI TY H AS CEASED T O EX I ST T H EREF O RE , T H E ASSESSING O FFICE R WA S RIGHT IN A DDIN G B A CK TH E SAME T O TH E I N C O M E. TH E A DDITION I S SUST A IN E D. 13. AGGRIEVED BY THE ORDER OF LD. CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US. 14. BEFORE US LD.AR REITERATED THE SUBMISSIONS MADE BEFORE AO AND LD CIT(A) AND FURTHER SUBMITTED THAT THE AFO RESAID 8 ITA NO.1070/PN/2014 ITA NO.1071/PN/2014 SUM HAVE BEEN OFFERED TO TAX IN AY 2010-11 AND IF TH E SAME AMOUNT IS TAXED IN THE YEAR UNDER CONSIDERATION, IT WOULD AMOUNT TO DOUBLE TAXATION OF THE SAME AMOUNT. HE THEREFORE S UBMITTED THAT THE ADDITION BE DELETED. LD.D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF AO AND LD. CIT(A). 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO ADDITION MADE ON ACCOUNT OF CESSATION OF LIABILITY. IT IS AN UNDISPUTED FACT THAT ASSESSEE IS FOLLOWING CASH SYSTEM OF ACCOUNTING. AO HAS MADE THE ADDITION MAINLY FOR THE REAS ON THAT THERE COULD NOT BE ANY LIABILITY RECORDED IN THE BOOKS OF A CCOUNTS WHEN ASSESSEE WAS FOLLOWING CASH METHOD OF ACCOUNTING. BE FORE US LD. AR HAS NOT CONTROVERTED THE FINDINGS OF LOWER AUTHO RITIES BUT HE HOWEVER SUBMITTED THAT THE SAME AMOUNT HAVE BEEN OFFERED TO TAX IN SUBSEQUENT YEARS. HOWEVER, BEFORE US THE LD. AR C OULD NOT PRODUCE ANY EVIDENCE IN SUPPORT OF THE CONTENTION THAT THE AMOUNT WAS TAXED IN SUBSEQUENT YEARS. IN VIEW OF THE AFORESAID FACTS, WE ARE OF THE VIEW THAT NO INTERFERENCE OF THE ORDER OF LD . CIT(A) IS CALLED FOR. HOWEVER WE DIRECT THE AO TO VERIFY THE CONTE NTION OF THE ASSESSEE OF HAVING THE AMOUNT OFFERED TO TAX IN SUBSEQU ENT YEARS AND IF THE ASSESSEES CONTENTION IS FOUND CORRECT THEN H E HAS TO ENSURE THAT NO DOUBLE ADDITION OF THE SAME AMOUNT TAKES PLACE. WE ALSO DIRECT THE ASSESSEE TO PRODUCE THE RELEVANT DE TAILS AS CALLED BY THE AO. IN CASE, ASSESSEE FAILS TO PRODUCE THE RELEVANT DETAILS, AO SHALL BE FREE TO DECIDE THE MATTER ON THE BASIS OF MATERIAL ON RECORD. THUS, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 9 ITA NO.1070/PN/2014 ITA NO.1071/PN/2014 16. NEXT GROUND IS WITH RESPECT TO DISALLOWANCE OF RS.2,22,157/- U/S 36(1)(III) OF THE ACT. 17. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ON PERUSING THE DETAILS FURNISHED BY THE ASSESSEE, THE AO NOTICED THAT ASSESSEE HAD GIVEN ADVANCES AND DEPOSITS TO VAR IOUS PARTIES COVERED U/S 40A(2)(B) OF THE ACT AND HAD NOT RECOVERED ANY INTEREST FROM THEM. (THE DETAILS OF ADVANCES ARE LISTED O N PAGE 9 OF THE ORDER.) HE ALSO NOTICED THAT ASSESSEE HAD ALSO BOR ROWED FUNDS FROM THE BANKS AND HAD PAID INTEREST ON SUCH BORROWINGS . THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE DISALLOWANCE OF INTEREST NOT BE MADE, TO WHICH THE ASSESSEE INTER-ALIA SUBMITTED THAT IN SOME OF THE CASES, ASSESSEE HAD RECOVERED INTER EST AND IN OTHER CASES IT WAS PAID OUT OF BUSINESS EXIGENCY AND THA T ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS AND THE AMOUNT LEN T WAS OUT OF INTEREST FREE FUNDS. THE SUBMISSION OF THE ASSESSE E WAS NOT FOUND ACCEPTABLE TO THE AO. OUT OF THE VARIOUS PARTIES T O WHOM THE ASSESSEE HAD ADVANCED MONEY, AO WAS OF THE VIEW TH AT FROM FOUR PARTIES (LISTED ON PAGE 13 OF THE ORDER), ASSESSEE SH OULD HAVE RECOVERED INTEREST. HE THEREAFTER WORKED OUT THE INTER EST @ 14% THAT ASSESSEE SHOULD HAVE CHARGED, AND ACCORDINGLY AN AMOUNT OF RS.2,22,157/- AS WORKED OUT BY HIM WAS DISALLOWED U/S 36( 1)(III) OF THE ACT. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CAR RIED THE MATTER BEFORE THE LD. CIT(A) WHO UPHELD THE ORDER OF AO BY HOLDING AS UNDER: 9 . A SSESSEE HA S M A D E SEVE R A L A D VA N CES O N W HI C H NO INTER ES T H A S B EE N C H ARGED. M AN Y OF THESE ADVA N CES HA VE B EE N M A D E TO INTER ES TED PARTIES CO VE RED UNDER S ECTION 40A(2)(B) . ON THE OTH E R HAND INTEREST OF RS. 46,82,899/- HAS BEEN PAID TO BANKS 10 ITA NO.1070/PN/2014 ITA NO.1071/PN/2014 ON BORROWED FUNDS AND RS.6,26,100/- TO OTHER PERSONS. ASSESSEE WAS ASKED TO EXPLAIN THE REASON FOR MAKING ADVANCES AND AFTER OBTAINING THE REPLY, THE ASSESSING OFFICER HAS CONCLUDED THAT EXCEPT FOU R PERSONS, ADVANCES TO THE OTHER PERSONS WERE MADE DUE TO BUSINESS EXPEDIENCY. ADVANCES MADE TO THE FOUR PERSONS TOTALING TO RS. 2,22,157/-, THE ASSESSING OFFICER HAS FOUND TO BE NOT FOR THE PURPOSE OF BUSINESS AND SINCE THE ASSESSEE HAS BEEN PAYING INTEREST ON LOANS, INTEREST @ 14% HAS BEEN COMPUTED AND ADDED BACK . 10. IN APPEAL IT HAS BEEN EXPLAINED THAT OUT OF THE SE FOUR PERSONS, ADVANCE TO MAHALAXMI PANI PURAVATHA WAS MADE FOR IRRIGATION SCHEME AS THE ASSESSEE IS UNDERTAKING AGRICULTURE AND AGRICULTURAL INCOME IS BEEN OFFERED TO TAX FOR RATE PURPOSES. MAHALAXMI PANI PURAVATHA IS A CO- OPERATIVE SOCIETY UNDER THE GOVERNMENT SCHEME. AS PER THE ASSESSEE, THE ADVANCE HAS BEEN MADE OUT OF HIS OWN FUNDS AND FOR THE PURPOSE OF IRRIGATION FACILITIES. 11. I FIND THAT EVEN IF THE ADVANCE IS GIVEN FOR NO N- BUSINESS PURPOSES BUT IT WAS FOR EARNING AGRICULTURAL INCOME AND GIVEN OUT OF CAPITAL WHICH ALSO INCLUDED AGRICULTURAL INCOME EARNED OVER THE YEARS, THEREFORE, THE INTEREST OF RS.10,214/- ON TH IS ADVANCE CANNOT BE DISALLOWED. 12. IN RESPECT OF SANGRAM R PATIL (HUF), THE ADVANCE WAS STATED TO BE GIVEN BECAUSE ASSESSEE TAKES MACHINERY ON HIRE FROM THIS PERSON. APPELLANTS CASE IS NOT THAT IT HAS GIVEN MACHINERY ON HIRE WITHOUT PAYING ANY HIRE CHARGES. THEREFORE , NOT CHARGING OF INTEREST ON ADVANCE CANNOT BE ALLOWED AND THIS IS DIVERSION OF A PART OF TAXABLE INCOME. THE DISALLOWANCE IS SUSTAINED. 13. ADVANCE TO MRS.M. R. PATIL WAS MADE FOR DOMESTIC NEEDS. THEREFORE, THIS CANNOT BE ALLOWED AS BUSINESS EXPENDITURE. ACCORDINGLY, THE DISALLOWANCE IS SUSTAINED. 14. AD VA N CE T O SHRI YE SH W A NT D K A D A M W AS MAD E FOR PUR C HASING A N OPEN PLOT IN A VILLA GE. THIS ADV A NCE WA S C L A IMED TO BE OUT OF HIS O W N FUNDS. THERE IS NO EVIDENCE ON RECORD THAT THE ADVANCE WAS OUT OF OWN FUNDS. IT IS ALSO NOT ON RECORD WHETHER THE STATED AMOUNT HAS BEEN SUBSEQUENTLY ACQUIRED OR NOT. THEREFORE, THE ADDITION IS SUSTAINED. 18. AGGRIEVED BY THE ORDER OF LD. CIT(A), ASSESSEE IS IN APPEAL BEFORE US. 11 ITA NO.1070/PN/2014 ITA NO.1071/PN/2014 19. BEFORE US THE LD. AR REITERATED SUBMISSIONS MADE BY THE AO AND LD. CIT(A) AND FURTHER SUBMITTED THAT ASSESSE E WAS HAVING SUFFICIENT INTEREST FREE FUNDS AND THAT THE AMOUNT T HAT WERE ADVANCED WAS OUT OF INTEREST FREE FUNDS AND WAS DUE TO BUSINESS EXIGENCY. IN SUPPORT OF HIS CLAIM OF HAVING SUFFICIENT INTERE ST FREE FUNDS, HE PLACED ON RECORD THE COPY OF THE BALANCE-SHEET AS AT 31.03.2009. HE THEREFORE SUBMITTED THAT ONCE ASSESSEE H AS SUFFICIENT INTEREST FREE FUNDS THE ASSESSEE WAS NOT REQUIR ED TO HAVE SEPARATE ACCOUNTS IN RESPECT OF NON-INTEREST BEARING FU NDS AND WAS ALSO NOT REQUIRED TO ESTABLISH THAT THE AMOUNT HAS BEEN ADVANCED FROM INTEREST FREE FUNDS AND FOR THIS PROPOSITION HE RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CAS E OF CIT- 10 VS. MAHANAGAR GAS LTD. [2014] 42 TAXMAN.COM 40 (BOMBAY). HE THEREFORE SUBMITTED THAT THE ADDITION BE DELETED. LD.D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF AO AN D LD. CIT(A). 20. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WIT H RESPECT TO DISALLOWANCE OF EXPENDITURE U/S 36(1)(III) OF THE ACT. IN THE PRESENT CASE, WE FIND THAT AO HAD PROCEEDED TO MAKE DIS ALLOWANCE ON THE BASIS OF THE PRESUMPTION THAT ASSESSEE HAS DIVE RTED FUNDS FROM INTEREST BEARING FUNDS TO PARTIES FOR NON-BUSINESS PU RPOSES. BEFORE US LD. AR HAS PLACED ON RECORD THE COPY OF THE B ALANCE- SHEET OF THE ASSESSEE WHICH SHOWS THAT THE ASSESSEE H AS CAPITAL WHICH IS FAR IN EXCESS OF THE AMOUNT THAT HAS BEEN ADVAN CED, ON WHICH THE DISALLOWANCE OF INTEREST HAS BEEN WORKED OUT BY THE AO. WE FURTHER FIND THAT THE DISALLOWANCE HAS BEEN MADE ON AD -HOC 12 ITA NO.1070/PN/2014 ITA NO.1071/PN/2014 BASIS AND WITHOUT BRINGING ANY MATERIAL TO SHOW THAT INTER EST BEARING FUNDS HAVE BEEN USED BY THE ASSESSEE FOR ADVAN CING INTEREST FREE ADVANCES. CONSIDERING THE TOTALITY OF THE A FORESAID FACTS AND RELYING ON THE AFORESAID DECISION RENDERED IN T HE CASE OF MAHANAGAR GAS (SUPRA), WE ARE OF THE VIEW THAT NO DISALLOW ANCE OF INTEREST IS CALLED FOR IN THE PRESENT CASE. WE THEREFORE D IRECT THE DELETION OF ADDITION. THUS, THE GROUND OF ASSESSEE IS ALLOWED. 21. NEXT GROUND IS WITH RESPECT TO DISALLOWANCE OF RS.3,45,758/-. 22. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ON PERUSING THE DETAILS FILED BY THE ASSESSEE, THE AO NOTICED THAT THE ASSESSEE WAS MAINTAINING CASH CREDIT ACCOUNT WITH KARAD URBAN BANK LIMITED. HE ALSO NOTICED THAT THERE WAS NO INVENTO RY OF STOCK OR DEBTORS AS ON 31.03.09 THOUGH THE OUTSTANDING BALANCE ON THAT DATE IN THE C.C ACCOUNT WAS RS.3,59,94,276/- . HE ALSO NOTICED THAT THE INTEREST PAID TO BANK AMOUNTING TO RS.46,82,899/- HAS BEEN CLAIMED AS BUSINESS EXPENDITURE. AO ALSO NOTICED THAT DURING THE YEAR ASSESSEE HAS ACQUIRED IMMOVABLE AND MOVABLE ASSETS WORTH RS.1,83,51,096/- WHICH INCLUDED AGRICULTURAL LAND WORTH RS.28,91,780/- AND RESIDENTIAL PLOT OF RS.12,97,280/-. AO WAS OF THE VIEW THAT THE FUNDS FROM C.C ACCOUNT HAS BEEN USED BY THE ASSESSEE FOR ACQUISITION OF ASSETS MORE SO, AS ASSESSEE COULD NOT PROVE WITH THE HELP OF CA SH FLOW AND FUND FLOW STATEMENT THAT THE AMOUNT FROM C.C ACCOUNT HAS NOT BEEN USED FOR ACQUISITION OF ASSETS. HE ACCORDINGLY C ONCLUDED THAT THE INTEREST PAID ON THE AMOUNTS USED FOR ACQUISITION OF ASSE TS IS FOR NON-BUSINESS PURPOSES, THEREFORE CANNOT BE ALLOWED AS BUSINESS EXPENDITURE. HE ACCORDINGLY WORKED OUT THAT T HE 13 ITA NO.1070/PN/2014 ITA NO.1071/PN/2014 DISALLOWANCE OF INTEREST AT RS.3,45,758/-. AGGRIEVED BY THE ORDER OF AO ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) TO U PHELD THE ORDER OF AO BY HOLDING AS UNDER : 15. THE APPELLANT HAS CASH CREDIT WITH KARAD URBAN BANK WHICH WAS RS.3,59,94,276/-. THE ASSESSING OFFICER HAS NOTED THAT THERE IS NO STOCK IN THE BALANCE SHEET AND THERE ARE NO BUSINESS ASSETS. THE. CASH CREDIT LIMIT APPEARED TO HAVE BEEN UTILIZED FOR ACQUIRING IMMOVABLE ASSETS FROM WHICH NO INCOME WAS RECEIVED / GENERATED AND ALSO INTEREST FREE ADVANCES WERE MADE. THE ASSESSEE HAS EXPLAINED THAT ALTHOUGH HE MAINTAINED ACCOUNTS ON CASH SYSTEM, THERE ARE ALWAYS RECEIVABLE AGAINST THE INCOME AND PAYABLES AGAINST THE EXPENDITURE PERTAINING TO BUSINESS ACTIVITIES. THE PAYABLES HAVE TO BE MANAGED FROM THE CASH CREDIT. ALSO, THE ASSESSEE HAS TO EXTEND CREDIT TO HIS CUSTOMERS. ALTHOUGH THERE ARE NO DEBTORS REFLECTED IN THE BALANCE SHEET , THERE ARE ALWAYS DEBTORS AND WORK IN PROGRESS WHICH REQUIRE FUNDING FROM THE BANKS. THE ASSESSING OFFICER HAS FOUND THAT THIS EXPLANATION O F THE ASSESSEE CANNOT EXPLAIN THE FACT THAT IN THE BALANCE SHEET MOST OF THE CASH CREDIT HAS BEEN UTILIZED FOR ACQUIRING NON-INCOME EARNING ASSETS. ALTHOUGH THE CLAIM THAT HE HAD SUFFICIENT CAPITAL BALANCE FOR ACQUIRING THESE ASSETS BUT ASSESSING OFFICER HAS FOUND THAT THIS EXPLANATION IS NOT SUPPORTED BY CASH BALANCE. THEREFORE, INTEREST. ATTRIBUTABLE TO INVESTMENT MADE IN THE AGRICULTURAL LAND AND RESIDENTIAL PLOT CALCULATED BY THE ASSESSEE BEING RS.3,45,758/- WAS ADDED BACK. 16. APPEAL IT WAS CONTENDED THAT INVESTMENT OF RS.28,91,780/- IN BUYING AGRICULTURAL LAND AND RS.12,97,280/ - IN BUYING RESIDENTIAL PLOT WAS MADE OUT OF OWN CAPITAL AND PROFITS OF THE YEAR. HOWEVER, THIS EXPLANATION HAS NOT BEEN SUPPORTED BY CASH FLOW AND BALANCE SHEET. THEREFORE, THE REASONING OF THE ASSESSING OFFICER IS FOUND TO BE CORRECT AND THE ADDITION MADE IS SUSTAINED. 23. AGGRIEVED BY THE ORDER OF LD. CIT(A) ASSESSEE IS IN APPEAL BEFORE US. 24. BEFORE US THE LD. AR REITERATED THE SUBMISSIONS MADE BEFORE AO AND LD. CIT(A) AND FURTHER SUBMITTED THAT SINCE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS, PRESUMPTION IS THAT THE INVESTMENTS ARE OUT OF INTEREST FREE FUNDS AND NOT BORRO WED FUNDS AND FOR THIS PROPOSITION HE RELIED ON THE DECISION OF HONBLE 14 ITA NO.1070/PN/2014 ITA NO.1071/PN/2014 BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES A ND POWER LTD., REPORTED IN 313 ITR 340. HE FURTHER SUBMITTE D THAT THE AO HAS PRESUMED THAT THE FUNDS FROM THE CASH CRED IT ACCOUNT OF THE BANK HAVE BEEN UTILIZED FOR ACQUISITION OF ASSETS AND THAT THE PRESUMPTION IS NOT BACKED BY ANY EVIDENCE. HE T HEREFORE SUBMITTED THAT NO ADDITION IS CALLED FOR IN THE PRESENT CAS E. LD.D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF AO AN D LD. CIT(A). 25. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO DISALLOWANCE OF INTEREST. THE DISALLOWANCE OF INTEREST HAS BE EN MADE BY THE AO BY PRESUMING THAT THE FUNDS FROM C.C ACC OUNT HAS BEEN UTILIZED BY THE ASSESSEE FOR ACQUISITION OF ASSETS MORE SO WHEN THERE WERE NO DEBTORS OR STOCK AT THE YEAR END . WE FIND THAT FOR REACHING THE CONCLUSION OF HAVING ASSETS ACQUIRED OUT OF BORROWED FUNDS, NO EVIDENCE HAS BEEN PLACED ON RECORD BY AO. ON THE OTHER HAND, ON THE BASIS OF BALANCE-SHEET OF THE ASSESSEE THAT HAS BEEN FILED, WE FIND THAT THE CAPITAL OF THE ASSESS EE WAS MUCH MORE THAN THE AMOUNT OF INVESTMENTS THAT HAS BEE N MADE BY THE ASSESSEE. WE FURTHER FIND THAT THE HONBLE BOMBA Y HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD., (SUPRA) HAS HELD THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST F REE AND OVERDRAFT / OR LOAN TAKEN, THEN A PRESUMPTION WOULD ARIS E THAT INVESTMENTS WOULD BE OUT OF INTEREST FREE FUNDS GENERATE D OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. WE FURTHER FIND THAT TH E HONBLE UNDER BOMBAY HIGH COURT IN THE CASE OF CIT V S. 15 ITA NO.1070/PN/2014 ITA NO.1071/PN/2014 MAHANAGAR GAS LTD. (2014) 42 TAXMANN.COM 40 (BOM) HAS H ELD THAT THERE IS NO REQUIREMENT UNDER SECTION 36(1)(III) THAT A SSESSEE SHOULD HAVE SEPARATE ACCOUNT IN RESPECT OF NON-INTEREST BEARING FUNDS FROM THAT OF INTEREST BEARING FUNDS TO ESTABLISH THAT INVESTMENTS HAVE BEEN MADE OUT OF ITS OWN FUNDS I.E., NON- INTEREST BEARING FUNDS . IN VIEW OF THE AFORESAID FACTS AND RELYING ON THE AFORESAID DECISIONS OF HONBLE HIGH COURTS, WE ARE OF THE VIE W THAT NO ADDITION ON ACCOUNT OF DISALLOWANCE OF INTEREST IS CALLED FO R IN THE PRESENT CASE. THUS, THIS GROUND OF ASSESSEE IS ALLOWED. 26. NEXT GROUND IS WITH RESPECT TO DISALLOWANCE OF RS.10,19,529/-. 27. ON PERUSING THE CONTRACT PAYMENTS (MACHINERY EXPENSES ACCOUNT) AO NOTICED THAT ASSESSEE HAS CLAIMED EXPENSES OF RS.3,19,92,736/- AS AGAINST THE CLAIM OF EXPENSES OF RS.1,59,66,593/- CLAIMED IN AY 2008-09 AND THAT THE RATIO O F EXPENSES TO THE CONTRACT WORK CARRIED OUT BY THE AS SESSEE WAS MUCH HIGHER IN THE YEAR UNDER CONSIDERATION. THE ASSESS EE WAS ASKED TO JUSTIFY THE INCREASE. AO NOTED THAT ASSESSEE COULD NOT JUSTIFY THE INCREASE IN EXPENSES AND FURTHER THE EXPEN SES WERE PAID BY SELF MADE VOUCHERS AND THE VOUCHERS WERE NOT FULLY V ERIFIABLE AS PAYMENTS WERE ALSO MADE TO PARTIES COVERED U/S 40A(2)(B ) OF THE ACT. HE ACCORDINGLY, WORKED OUT THE CONTRACT WORK CAR RIED OUT BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION VISA-V IS WITH EXPENSES INCURRED AND AFTER MAKING A COMPARISON WITH SIM ILAR RATIO OF EARLIER YEAR PROCEEDED TO HOLD THAT THE TOTAL A MOUNT OF EXPENSES THAT CAN BE ALLOWED IS ONLY TO THE EXTENT OF 16 ITA NO.1070/PN/2014 ITA NO.1071/PN/2014 RS.3,09,73,207/- AS AGAINST THE CLAIM OF 3,19,92,736/-. HE ACCORDINGLY DISALLOWED THE EXCESS OF RS.10,19,529/- (RS.3,19,92,736 RS.3,09,73,207/-). 28. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A), WHO UPHELD THE ORDER OF AO BY HOLD ING AS UNDER : 19. IN THE LAST GROUND THE APPELLANT HAS CONTESTED DISALLOWANCE OF RS.10,19,529/- ON ACCOUNT OF CONTRACT PAYMENTS (MACHINERY EXPENSES). THESE EXPENSES WERE RS.3,19,92,736/- IN THE CURRENT YEAR AS AGAINST RS.1,59,66,593/- IN LAST YEAR. THE PERCENTAGE OF TURNOVER OF SUCH EXPENDITURE WAS 16.10% THIS YEAR AS COMPARED TO 10.03% LAST YEAR. DUE TO SUBSTANTIAL INCREASE IN THE EXPENDITURE ASSESSEE WAS ASKED TO EXPLAIN THE REASON. IT WAS STATED THAT CLIENTS OF THE ASSESSEE ARE CORPORATE CUSTOMERS WHO MAINTAIN THE RECORDS RELATED TO THE QUANTITY OF WORK DONE AT THE WORK SITE. ON THAT BASIS BILLS ARE RAISED AND THE ASSESSEE ACCEPTED THE BILLS OF SUB-CONTRACTORS BY FURNISHING TO THEM THE DATA REGARDING THE QUANTITY OF WORK DONE. THE ASSESSING OFFICER HAS NOTED THAT THIS GENERAL EXPLANATION WAS NOT ACCEPTABLE AS THE ASSESSEE HAS NOT EXPLAINED INCREASE IN THE CONTRACT PAYMENT EXPENSES. MOREOVER, SINCE SUBSTANTIAL PAYMENT WAS MADE TO PARTIES COVERED UNDER SECTION 40A(2)(B) OF THE ACT, AN AMOUNT OF RS.10,19,529/- WAS DISALLOWED. 20. IN APPEAL, IT WAS STATED THAT THE BILLS ARE RAISED ON THE BASIS OF RECORD SUPPLIED BY CUSTOMERS AND, THEREFORE, ON THE BASIS OF SAME INFORMATION BILLS ARE RAISED BY CONTRACTORS ON THE ASSESSEE. 21. BASICALLY, THE ASSESSEE HAS TRIED TO CONVEY THAT THERE IS NO INTERFERENCE BY HIM IN RAISING THE BILLS, THEREFORE, THE INCREASE IN THE EXPENSES SHOULD BE ACCEPTED. HOWEVER, THERE IS NO EXPLANATION WITH RESPECT TO THE INCREASE IN THE EXPENDITURE AS COMPARED TO THE LAST YEAR, WHICH IS EXORBITANT. THIS INCREASE, WHEN VIEWED WITH THE FACT THAT THE PAYMENTS WERE MADE TO PARTIES COVERED UNDER SECTION 40A(2)(B), THE ASSESSING OFFICER IS JUSTIFI ED IN MAKING THE DISALLOWANCE. THEREFORE, THE DISALLOWANCE IS CONFIRMED AND THE APPELLANTS GROUND IS REJECTED. 17 ITA NO.1070/PN/2014 ITA NO.1071/PN/2014 29. AGGRIEVED BY THE ORDER OF LD. CIT(A) ASSESSEE IS IN APPEAL BEFORE US. 30. BEFORE US, THE LD. AR REITERATED SUBMISSIONS MADE BY AO AND LD. CIT(A) AND FURTHER SUBMITTED THAT AO HAS MADE AN AD- HOC DISALLOWANCE WITHOUT BRINGING ON RECORD THE EXPENSES WHICH WERE NOT FOR THE PURPOSE OF BUSINESS. HE FURTHER SUBMIT TED THAT BUSINESS EXIGENCIES HAS TO BE CONSIDERED AS PERCEIVED BY THE ASSESSEE AND THE REVENUE CANNOT DECIDE AS TO HOW TH E ASSESSEE SHOULD CONDUCT THE BUSINESS. HE THEREFORE SUBMITTED THA T NO DISALLOWANCE IS CALLED FOR IN THE PRESENT CASE. LD.D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF AO & LD. CIT(A). 31. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN THE PRESENT CASE, WE FIND THAT AO COMPARED THE RATIO OF EXPENSES WITH CONTRACT IN THE YEAR UNDER C ONSIDERATION AND IMMEDIATELY PRECEDING YEAR AND ON THAT BASIS HE C ONCLUDED THAT ASSESSEE HAS INCURRED EXPENDITURE WHICH ARE NOT FO R THE PURPOSE OF BUSINESS. BEFORE US APART FROM THE GENERAL SUBMISSIONS, REVENUE HAS ALSO NOT PLACED ANY MATERIAL ON R ECORD TO DEMONSTRATE THAT WHICH OF THE EXPENDITURE WAS NOT FO R THE PURPOSE OF BUSINESS. CONSIDERING THE TOTALITY OF THE FACTS AND MORE SO WHEN THE EXPENDITURE HAS BEEN DISALLOWED ON AD-HOC BASIS AND WITHOUT BRINGING ANY MATERIAL ON RECORD TO DEMONSTRATE AS TO WHICH ALL THE EXPENSES ARE NOT ALLOWABLE, WE ARE OF THE VIEW THAT AO WAS NOT JUSTIFIED IN WORKING OUT THE DISALLOWANCE OF EXPENDITURE. WE THEREFORE DIRECT ITS DELETION. THUS, THE GROUND OF ASSESSEE IS ALLOWED. 18 ITA NO.1070/PN/2014 ITA NO.1071/PN/2014 32. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 33. WE NOW TAKE UP ASSESSEES APPEAL IN ITA NO.1071/PN/2014 FOR A.Y. 2010 11. THE GROUNDS RAISED BY THE ASSESSEE READS AS UNDER:- 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LD.D.R.CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE D ISALLOWANCES OF RS.2,48,975/- MADE BY A. O. INVOKING S. 36(1)(III) OF THE ACT. THE APPELLANT-ASSESSEE IS HAVING SUFFICIENT INTEREST FR EE FUNDS AT HIS DISPOSAL. IN THE CIRCUMSTANCES IT IS DEEMED THAT T HE ADVANCES ARE NOT OUT OF BORROWED FUNDS. THE DISALLOWANCE BEING ILLEGAL AND WITHOUT JURISDICTION BE DELETED. 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LD.D.R.CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE D ISALLOWANCE MADE BY A. O. OF RS.3,88,226/- INVOKING SEC. 36(1)(II) R .W.S 40A(2)B) OF THE ACT. THE ADDITION BE DELETED. 3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LD.D.R.CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE D ISALLOWANCE MADE BY A. O. AND BEING CONTESTED IN GROUND NOS. 1 AND 2 ABOVE WITHOUT REJECTING THE BOOKS OF ACCOUNT U/S 145(3) OF THE AC T, REGULARLY MAINTAINED AND DULY AUDITED U/S 44AB OF THE ACT. T HE DISALLOWANCE BEING ILLEGAL AND WITHOUT JURISDICTION BE DELETED. 4) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LEVY OF INTEREST U/S 234B AND 234C IS NOT JUSTIFIED. 5) THE APPELLANT CRAVES/LEAVE TO ADD, AMEND OR ALTER A NY OF THE ABOVE GROUNDS OF APPEAL. 34. AS FAR AS APPEAL FOR AY 2010-11 IS CONCERNED, SINCE BO TH THE PARTIES BEFORE US HAVE SUBMITTED THAT THE FACTS OF THE C ASE FOR THE ASSESSMENT YEAR 2009-10 AND 2010-11 ARE IDENTICAL & T HE GROUND NO.1 & 2 OF THE PRESENT APPEALS BEING IDENTICAL TO THE GRO UND NO.4 & 5 OF A.Y. 2009 10. WE, THEREFORE, FOR THE REASONS STAT ED HEREIN WHILE DISPOSING OF THE APPEAL FOR A.Y. 2009-10 AND FOR SIMILAR REASONS, ALLOW GROUND NO. 1 & 2. 19 ITA NO.1070/PN/2014 ITA NO.1071/PN/2014 35. AS FAR AS GROUND NO.3 IS CONCERNED, WE ARE OF THE VIE W THAT SINCE WE HAVE DECIDED THE GROUND NO.1 & 2 IN ASSESSEES FAVOUR, THE GROUND NO.3 HAS BEEN RENDERED ACADEMIC & THEREFORE REQUIRES NO ADJUDICATION. 36. GROUND NO.4 IS WITH RESPECT TO LEVY OF INTEREST U/S 234B & 234C. SINCE IT RELATES TO CHARGING OF INTEREST U/S 234B & 234C OF THE ACT, WE ARE OF THE VIEW THAT IT BEING CONSEQUENTIAL, R EQUIRES NO SPECIFIC ADJUDICATION. 37. THUS, THE APPEAL OF ASSESSEE IS ALLOWED. 38. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR A.Y. 2009 10 IS PARTLY ALLOWED & APPEAL FOR A.Y. 2010 11 IS ALLOWED. ORDER PRONOUNCED ON THIS FRIDAY, THE 25 TH DAY OF NOVEMBER, 2016. SD/- SD/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) / JUDICIAL MEMBER # / ACCOUNTANT MEMBER PUNE; ! DATED : 25 TH NOVEMBER, 2016. YAMINI ' ( ) *+ ,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEAL S ) - KOLHAPUR 4. 5 6. THE CIT-I / II, KOLHAPUR / CIT (CENTRAL), PUNE #$% &&'(, * '(, A / DR, ITAT, A PUNE; %+, - / GUARD FILE. ' / BY ORDER , //TRUE / / TRUE COPY / / ./0 &1 '2 / SR. PRIVATE SECRETARY * '( , / ITAT, PUNE