SMT. GUMAN KHANDELWAL, Jaipur V. ACIT, Jaipur

ITA 1333/JPR/2010

• Counselvise Citation: 133323114 RSA 2010
• Duration Of Justice: 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 15-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: K L MOOLCHANDAN I; R K KHUNTETA
• Keywords: Depreciation; Rule of consistency; Source of fund
• Section: 153A; 145; 37; 132

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH AJAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO.1333/ JP/2010 ASSESSMENT YEAR 2008-09 PAN: ADRPK 6455 F SMT. GUMAN KHANDELWAL VS. THE ACIT A-2, RANA PRATAP NAGAR CENTRAL CIRCLE- 1 JHOTWARA, JAIPUR JAIPUR (APPELLANT ) (RESPONDENT) ITA NO.1385/ JP/2010 ASSESSMENT YEAR 2008-09 PAN: ADRPK 6455 F THE ACIT VS SMT GUMAN KHANDELWAL CENTRAL CIRCLE- 1 A-2, RANA PRATAP NAGAR JAIPUR JHOTWARA, JAIPUR (APPELLANT ) (RESPONDENT) ASSESSEE BY : SHRI K.L. MOOLCHANDANI & SHRI R .K. KHUNTETA DEPARTMENT BY : SHRI SUNIL MATHUR DATE OF HEARING: 02-08-2011 DATE OF PRONOUNCEMENT: 26-08-2011 ORDER PER N.L. KALRA, AM:- THE ASSESSEE AS WELL AS REVENUE HAVE FILED APPEAL S AGAINST THE ORDER OF THE LD. CIT(A), CENTRAL JAIPUR DATED 29-09-2010 FOR THE ASSESSMENT YEAR 2008-09. 2 2.1 THE FIRST GROUND OF THE ASSESSEE IS THAT THE LD . CIT(A) HAS ERRED IN ESTIMATING THE TAXI INCOME AT RS. 2.00 LACS AS AGAI NST TAXI INCOME ESTIMATED BY THE AO AT RS. 4.00 LACS THEREBY RESULTING IN CON FIRMING THE ADDITION TO THE EXTENT OF RS. 57,404/-. 2.2 THE FIRST GROUND OF APPEAL OF THE REVENUE IS AS UNDER:- 1(I) WHETHER ON THE FACTS AND CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) (CENTRAL), JAIPUR HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE DISALLOWANCE REGARDING TAX I HIRING EXPENSES SAT 20% INSTEAD OF 33.33% MADE BY THE AO D ESPITE THE FACTS THE LD. CIT(A) HIMSELF HAS UPHELD THE ACT ION OF THE AO IN ESTIMATING THE INCOME FROM TAXI OF THE ASSESSEE IN THE ABSENCE OF BILLS AND VOUCHERS OF EXPENSES INCURRED. 1(II) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) (CENTRAL), JAIPUR HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE AO TO ALLOW DEPRECIATION TO THE EXTENT OF AVAILABLE PROFITS OUT OF TAXI INCOME DESPITE THE FA CT THAT THE ASSESSEE HAD NOT CLAIMED DEPRECIATION IN THE ORIGIN AL RETURN FILED U/S 139(1). 1(III) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) (CENTRAL), JAIPUR HAS ERRE D IN LAW AND ON FACTS IN DIRECTING THE AO TO ASSESS TAXI INCOME AT NIL DESPITE THE FACT THAT THE ASSESSEE HAS SUBMITTED THE ALTERN ATIVE PLEA OF ASSESSING HIS INCOME AS PER PROVISIONS OF SECTION 4 4AE WHICH WOULD HAVE GIVEN A POSITIVE INCOME. 3 2.3 THE ASSESSEE BELONGS TO SHANKAR LAL KHANDELWAL GROUP AND IN THAT GROUP SEARCH PROCEEDINGS U/S 132 OF THE ACT WERE C ONDUCTED. DURING THE COURSE OF SEARCH, SHRI SHANKAR LAL KHANDELWAL SURRE NDERED SOME UNDISCLOSED INCOME. HOWEVER, WHILE FILING THE RETUR N OF INCOME FOR THIS GROUP, AN UNDISCLOSED INCOME OF RS. 223.33 LACS HAS BEEN DISCLOSED. IN THE CASE OF THE ASSESSEE, THE UNDISCLOSED INCOME HAS BE EN DECLARED AT RS. 19.12 LACS FOR ALL THE ASSESSMENT YEARS FOR WHICH PROCEED INGS U/S 153A HAS BEEN INITIATED. 2.4 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E AO NOTICED THAT THE ASSESSEE HAS SHOWN INCOME FROM TAXI RUNNING AT RS. 1,42,596/- BEFORE CLAIMING DEPRECIATION TO THE EXTENT OF RS. 3,97,558 /-. THE RECEIPTS ON VEHICLES HAVE BEEN SHOWN AT RS. 11,17,875/- AND THE EXPENSES HAVE BEEN CLAIMED OF RS. 9,75,268/-. NEITHER THE EXPENSES NOR THE RECEIPTS ARE VERIFIABLE FROM THE VOUCHERS OR THE BILLS. THE AO A CCORDINGLY ASSESSED THE NET INCOME FROM TAXI AT RS. 4.00 LACS BEFORE ALLOWI NG DEPRECIATION OF RS. 3,97,558/-.THUS THE NET INCOME OF RS. 2,442/- HAS B EEN ASSESSED BY THE AO, 2.5 THE LD. CIT(A) AFTER CONSIDERING THE FACT THAT THE RECEIPTS AND THE EXPENSES ARE NOT VERIFIABLE, ESTIMATED THE INCOME F ROM TAXI BUSINESS AFTER ALLOWING DEPRECIATION ETC AT RS. 2.00 LACS. 4 2.6 WE HAVE HEARD BOTH THE PARTIES. DURING THE YEAR UNDER REFERENCE, THE ASSESSEE WAS HAVING ONE VEHICLE WHICH WAS PLIED FOR WHOLE OF THE YEAR WHILE OTHER TWO VEHICLES WERE AVAILABLE FOR PART OF THE Y EAR. THE ASSESSEE HAS ESTIMATED THE EXPENSES PER KILOMETER. THE EXPENSES PER KILOMETER FORTAVERA AND INNOVA VEHICLES HAS BEEN TAKEN AT RS. 4.50 WHIL E RECEIPTS HAS BEEN TAKEN AT RS. 6.00 AND RS. 6.50 PER K.M. IT IS THEREFORE, CLEAR THAT THE INCOME FROM TAXI BUSINESS IS NOT AT ALL VERIFIABLE. THUS ONE IS LEFT WITH NO ALTERNATIVE BUT TO ESTIMATE THE INCOME. THE AO HAS ESTIMATED THE NE T INCOME AT RS. 2,442/-. THE LD. CIT(A) HAS REDUCED THE NET INCOME FROM RS. 4.00 LACS TO 2.00 LACS AS ADOPTED BY THE AO BEFORE ALLOWING DEPRECIATION. 2.7 WE HAVE REPRODUCED THE GROUNDS OF APPEAL RAISED BY THE REVENUE. THE GROUNDS OF APPEAL FOR ASSESSMENT YEAR 2008-09 R AISED BY THE REVENUE ARE NOT RELEVANT. PERHAPS SUCH GROUND OF APPEAL HAS BEEN TAKEN BECAUSE SUCH GROUNDS OF APPEAL ARE FOR THE ASSESSMENT YEAR 2002- 03 TO 2007-08. HENCE THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE DIS MISSED AS BEING NOT RELEVANT TO THE ISSUE DECIDED BY THE LD. CIT(A).WE FEEL THAT THE LD. CIT(A) WAS JUSTIFIED IN ESTIMATING THE NET INCOME FROM TAX I BUSINESS AT RS. 2.00 LACS BEFORE ALLOWING DEPRECIATION. HENCE, GROUND NO. 1 O F THE ASSESSEE IS ALSO DISMISSED. 5 3.1 THE SECOND GROUND OF THE ASSESSEE IS THAT THE L D. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 12,47,85/- AND RS. 5,38,403/- TOTALING TO RS. 17,86,253/- BY CONFIRMING THE DISALLOWANCE OUT OF W IP EXPENSES AND CONSTRUCTION EXPENSES RESPECTIVELY TO THE EXTENT OF 20% AS AGAINST ADDITION OF RS. 75,78,260/- MADE BY THE AO BY DISALLOWING 10 0% OF WIP EXPENSES AND 50% OF CONSTRUCTION EXPENSES. 3.2 THE SECOND GROUND OF THE REVENUE IS THAT THE L D. CIT(A) HAS ERRED IN DISALLOWING THE WIP EXPENSES AND BUILDING CONSTRUCT ION EXPENSES AT 20% INSTEAD OF 33.33% MADE BY THE AO. THE GROUND OF APP EAL FOR ASSESSMENT YEAR 2008-09 IS RELEVANT FOR ASSESSMENT YEAR 2007-0 8 AND GROUND OF APPEAL RAISED FOR ASSESSMENT YEAR 2007-08 IS RELEVANT FOR ASSESSMENT YEAR 2008-09 AND ACCORDINGLY THE GROUNDS OF APPEAL ARE ADJUDICAT ED. 3.3 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, T HE AO REQUIRED THE ASSESSEE TO GIVE THE DETAILS REGARDING INVESTMENT I N CONSTRUCTION OF PROPERTY. THE DETAILS SO SOUGHT HAVE BEEN MENTIONED AT PAGE 2 AND 3 OF THE ASSESSMENT ORDER. SINCE DETAILS WERE NOT FURNISHED, THEREFORE, THE AO APPLIED THE PROVISIONS OF SECTION 145 OF THE ACT. THE AO DISALL OWED 50% OF THE COST OF CONSTRUCTION. THE INTEREST EXPENSES DEBITED AS DIR ECT EXPENSES TO WIP AT RS. 62,39,252/- WAS DISALLOWED. ACCORDINGLY THE AO MADE THE ADDITION OF RS. 75,85,260/-. 6 3.4 BEFORE THE LD. CIT(A), THE ASSESSEE MADE THE FO LLOWING SUBMISSIONS 3.2 BEFORE ME, IT WAS SUBMITTED THAT (I) CONSTRUCTION EXPENSES AND WIP EXPENSES WERE NOT DEBITED TO P&L ACCOUNT BUT ENTIRE EXPENSES WERE CAR RIED TO BALANCE-SHEET AS CLOSING STOCK. SINCE THESE EXPE NSES WERE NOT CLAIMED AS DEDUCTION IN COMPUTING THE TOTA L INCOME, NO DISALLOWANCE CAN BE MADE OUT OF THAT.(II ) DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN THE CASE OF SH. SHANKER KHANDELWAL, THE A.R HAS SUBMITTED ESTIMATED CONSTRUCTION COST AND LD. A.O. HAS NOT MA DE ANY ADVERSE COMMENT ON THAT. (III) THE APPELLANT HA S FURNISHED LEDGER ACCOUNT OF WIP EXPENSES, WHICH MAI NLY ARE INTEREST EXPENSES. THE LEDGER ACCOUNTS OF CONST RUCTION EXPENSES WERE ALSO FURNISHED.(IV) MOST OF THE LOANS ARE FROM BANKS AND FINANCIAL INSTITUTIONS AND INTEREST HAVE BEEN PAID TO BANKS/FINANCIAL INSTITUTIONS AND LEDGE R ACCOUNT OF THE INTEREST WAS FILED. (KNOWN AS WIP EXPENSES).THERE IS NO BASIS FOR THE A.O TO DISALLOW 1/3 RD OF THE EXPENSES. THE ESTIMATE OF THE A.O. IS WILD G UESS. IF THE BOOKS ARE NOT FOUND PROPER, THEN PROPER WAY WAS TO APPLY CERTAIN PROFIT RATE ON GROSS RECEIPTS. 3.3 IN RESPECT OF A.Y. 2008-09 APART FROM THE AFORESAID ARGUMENTS, IT WAS FURTHER SUBMITTED THAT (I) THE APPELLANT HAS NEVER MENTIONED THAT DURING THE YEAR 2000 SQ.FT AREA WAS SOLD AND COST OF CONSTRUCTION COMES TO RS.197/- PER SQ.FT. ON REQUEST MADE TO A.O. UNDER R TI ACT TO SUPPLY THE CERTIFIED COPIES OF ALL THE REPLI ES FILED BY A.R., THE LD. A.O. HAS PROVIDED COPIES BUT THERE IS NO SUCH LETTER. (II) THE APPELLANT HAS FILED TRIAL BAL ANCE AND ALSO FILED THE LEDGER ACCOUNT OF THE INTEREST EXPEN SES (III) THE APPELLANT HAS FILED DATE WISE CASH BOOK. 7 IT WAS FURTHER SUBMITTED THAT IN A Y 2007-08 THE A,.O. HAS DISALLOWED 1/3 RD OUT OF CONSTRUCTION EXPENSES AS WELL AS OUT OF WIP EXPENSES (WHICH ARE BASICALLY AND MAINLY THE INTEREST EXPENSES), WHEREAS IN A.Y 2008- 09 THE A.O. HAS ARBITRARILY ENHANCED THE DISALLOWANCE TO 50% OUT OF CONSTRUCTION EXPENSES AND 100% OUT OF WI P EXPENSES, WITHOUT ANY BASIS AND REASON. 3.5 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S REDUCED THE ADDITION AFTER OBSERVING AS UNDER:- 3.4 I HAVE CONSIDERED THE ARGUMENT OF THE A.R AND HAVE PERUSED THE ASSESSMENT ORDER AND RELEVANT RECORD. IT IS SEEN THAT THE APPELLANT HAS FILED CO PY OF TRIAL BALANCE, P&L ACCOUNT AND GROUP SUMMARY OF WIP EXPENSES, WHICH INDICATED THE INTEREST EXPENSES PAID/PAYABLE BY THE APPELLANT ON VARIOUS LOANS TAKE N FROM BANK/FINANCIAL INSTITUTIONS. ACCORDINGLY, IT C ANNOT BE SAID THAT APPELLANT HAS FAILED TO FILE ANY DETAI LS REGARDING CONSTRUCTION EXPENSES AND WIP EXPENSES. HOWEVER, IT IS ALSO CLEAR THAT THE APPELLANT HAS FA ILED TO PRODUCE BILLS AND VOUCHERS OF THE EXPENSES BEFORE T HE A.O. ACCORDINGLY, ON ACCOUNT OF VARIOUS DEFECTS POI NTED OUT BY THE A.O., THE DISALLOWANCE OUT OF CONSTRUCTI ON EXPENSES AND WIP EXPENSES (WHICH IS MAINLY INTEREST EXPENSES) IS JUSTIFIED. THE ARGUMENT OF THE A.R. TH AT THE CONSTRUCTION EXPENSES AND WIP EXPENSES HAS NOT BEEN 8 DEBITED IN THE P&L ACCOUNT IS OF NO AVAIL AS BOTH T HE EXPENSES ARE PART OF THE TRADING ACCOUNT OF THE APP ELLANT, (PARTICULARLY CONSIDERING THAT WIP EXPENSES IS DIRE CT INTEREST EXPENSES ON LOANS TAKEN FOR PURCHASE OF LAND/PLOTS AS CONTENDED BY THE APPELLANT HIMSELF) A ND THUS HAS BEEN DEBITED IN THE BOOKS OF ACCOUNTS. 3.5 NOW COMING TO THE QUANTUM OF DISALLOWANCE, IT IS SEEN THAT A.O. , IN A.Y 2007-08 HAS MADE DISALLOWANCE OF 1/3 RD OF BOTH THE EXPENSES, WHEREAS IN A.Y 2008-09, HE HAS MADE DISALLOWANCE OF 50% OF CONSTRUCTION EXPENSES AND 100% OF WIP EXPENSES, WITHOUT GIVING ANY BASIS AND REASONS FOR SUCH DEVIA TION. ON PERUSAL OF THE WIP EXPENSES, IT IS SEEN THAT IT CONSISTS OF MAINLY INTEREST PAYMENT TO VARIOUS BANKS/FINANCI AL INSTITUTIONS, WHICH HAS BEEN CLAIMED TO BE TAKEN FO R PURCHASE OF PLOTS/LANDS. MAJOR ENTRIES UNDER WIP EXPENSES (FINANCE/INTEREST EXPENSES) FOR A.Y 2007-0 8 ARE AS BELOW:- INTEREST ON CENTURION BANK 12318 RS. 3 ,15,038/- INTEREST ON CITI BANK LOAN RS. 3,50,573/- INTEREST ON HDFC 760109 RS. 3,88,757/- INTEREST ON HSBC 220 RS. 3,52,431/- INTEREST ON HSBC 221 RS. 2,28,306/- INTEREST ON ICICI 1451100 RS. 58,184/- INTEREST ON ICICI P.L 2794819 R S. 12,595/- INTEREST ON ICICI 1398161 RS. 1,07,193/- INTEREST ON IDBI 80765100007016 RS. 43,127/- 9 INTEREST ON LIC LOAN RS. 1,53,936/- INTEREST ON PI GE 697 RS 63,040/- INTEREST ON SBI RS 85,010/- INTEREST ON UCO BANK RS. 1,24,613/- INTEREST ON UTI 245010600085232 RS. 2,21,884/- INTEREST ON LORD KRISHNA BANK RS 3,62,616/- LOAN PROCESSING FEES RS. 1,40,617/- PRE PAYMENT CHARGES RS. 52,431/- A.O. HAS MENTIONED THAT INTEREST FREE ADVANCES HAVE BEEN GIVEN TO GROUP CONCERNS/INDIVIDUAL. THE A.R OF THE APPELLANT HAS NOT REBUTTED THIS OBSERVATION OF THE A.O, BY FU RNISHING SPECIFIC DETAILS OF EACH OF INTEREST FREE ADVANCES AND SOURCE OF FUNDING OF THOSE ADVANCES ETC. EXCEPT MENTIONING THAT THE APPELLANT HAS GOT HER OWN CAPITAL, OUT OF WHICH INT EREST FREE ADVANCE COULD HAVE BEEN GIVEN. IT WAS NOTICED BY T HE UNDERSIGNED THAT TOTAL LOANS AND ADVANCES GIVEN AT THE YEAR END (I.E 31.3.2007) WAS RS. 1.02 CRORES, WHEREAS CA PITAL IS ONLY RS. 40.24 LAKHS. ALL THESE ADVANCES ARE APPARE NTLY INTEREST FREE AS NO DETAILS OF RECEIPT OF INTEREST ARE AVAILABLE IN DOCUMENT FURNISHED BEFORE THE A.O. MOREOVER MOST OF THE CAPITAL, BEING OLD, MUST HAVE BEEN UTILIZED IN OTHE R ASSETS AND WHOLE OF THE CAPITAL CANNOT BE TREATED TO HAVE BEEN GIVEN FOR INTEREST FREE ADVANCE, UNLESS THE APPELLANT PROVES THE NEXUS. THUS CONSIDERING THE TOTALITY OF FACTS AND CIRCUMST ANCES, IT WILL BE REASONABLE AND APPROPRIATE TO RESTRICT THE DISALLOWANCE OUT OF WIP EXPENSES (WHICH MAINLY CONS ISTS 10 FINANCE/INTEREST CHANGES) AT 20%, WHICH COMES TO RS . 5,65,453/-. ALMOST SAME FACTS ARE THERE FOR A.Y 2008-09. THE A. O. HAS DISALLOWED WHOLE OF THE EXPENSES ON THE GROUND THAT THERE IS NO EVIDENCE TO PROVE THAT INTEREST HAS BEE N PAID. IT IS VERY MUCH CLEAR THAT THE INTEREST IS PAID/PAYABLE T O VARIOUS BANKS/FINANCIAL INSTITUTIONS ON THE VARIOUS LOANS T AKEN WHICH ARE REFLECTED IN THE TRIAL BALANCE OF A.Y 2008-09. MOREOVER, WIP EXPENSES OF A.Y 2008-09 REFLECTS ALMOST THE SA ME POSITION AS GIVEN IN THE EARLIER PARA FOR A.Y 2007- 08. ACCORDINGLY, DISALLOWANCE FOR WHOLE OF THE WIP EXPE NSES IS NOT AT ALL JUSTIFIED AND DISALLOWANCE TO THE EXT ENT OF 20% IS UPHELD IN THIS YEAR ALSO IN VIEW OF THE DISCUSSION MADE IN EARLIER PARA FOR A.Y 2007-08. 3.6 CONSIDERING THAT CONSTRUCTION EXPENSES ARE NOT FULLY VOUCHED AND ALSO CONSIDERING THE OBSERVATIONS OF THE A.O. THAT APPELLANT HAS FAILED TO FURNISH DETAILS O F TDS ON LABOUR PAYMENTS AND THUS THESE FALL WITHIN THE MIS CHIEF OF SECTION 40(A)(I) AND ALSO CONSIDERING THE FACT THAT MAJOR PART OF THE CONSTRUCTION EXPENSES IS ON MATERIAL PAYMENT , IT WILL BE APPROPRIATE TO UPHOLD DISALLOWANCE AT SAME RATE OF 20% OUT OF THE CONSTRUCTION EXPENSES FOR BOTH THE YEAR S A.Y 2007-08 AND 2008-09 IN PLACE OF 33.3% AND 50% AS TH E FACTS OF BOTH THE YEARS ARE SAME, WHICH COMES TO RS. 5,75 ,296/- AND RS. 5,38,403/- RESPECTIVELY. 11 3.6 DURING THE COURSE OF PROCEEDINGS BEFORE US, THE LD. AR HAS FILED THE FOLLOWING SUBMISSIONS GROUND NO.2 REGARDING ADDITION OF RS.17,86,253/- (RS.12,47,850/- ON ACCOUNT OF WIP+RS.5,38,403/- ON ACCOUNT OF CONSTRUCTION EXPENSES)_ CONFIRMED OUT OF TOTAL ADD ITION OF RS.75,85,260/- /- MADE BY THE A.O: (RS. 62,39,252/- ON ACCOUNT OF WIP + RS.13,46,008/- ON ACCOUNT OF CONSTRUCTION EXPENSES) THE A.O. HAS DISCUSSED THIS ADDITION AT PAGES NO. 2 TO 4 OF THE ASSESSMENT ORDER. HE HAD MADE THE ADDITION OF RS.75 ,85,260/- ON ADHOC BASIS BY DISALLOWING 100% EXPENSES WIP OF RS.62,39,252/-/- AND 50% OF THE CONSTRUCTION EXPEN SES OF RS.26,92.015/- ON THE PLEA THAT NO PROOF COULD B E FURNISHED BY THE APPELLANT REGARDING INTEREST EXPENSES, SIMILARL Y NO DETAILS REGARDING AREA PURCHASED & THE CONSTRUCTED AREA SOLD DURING THE YEAR WAS FURNISHED. IN ABSENCE OF ALL THESE DET AILS, THE BOOKS PRODUCED BY THE APPELLANT WERE REJECTED U/S 145 OF THE ACT AND DISALLOWANCE OF THESE EXPENSES WERE MADE ON ADHOC B ASIS WITHOUT APPRECIATING THE FACT THAT DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT HAD NO BUSINESS INCOM E FROM THIS SOURCE AS NO PROPERTY WHAT-SO-EVER WAS SOLD DURING THIS YEAR. IN THE CIRCUMSTANCES, NONE OF THE EXPENSES AS DISCUSSE D BY THE LD. AO HAD EVER BEEN CLAIMED FOR WORKING OUT ANY BUSINE SS INCOME OR LOSS. THUS THE ENTIRE EXERCISE OF ESTIMAT ING DISALLOWANCE OF THE CONSTRUCTION EXPENSES AND THE E XPENSES OF INTEREST PAYMENT ETC. WAS A FUTILE EXERCISE AS SUCH EXPENSES WERE NEVER TAKEN INTO ACCOUNT TO WORK OUT ANY INCOM E OR LOSS FROM THIS SOURCE. THE EXPENSES AS SHOWN UNDER THIS HEAD AND AS SHOWN IN THE BOOKS WERE NOT DEBITED TO ANY P& L A/C , BUT THE SAME WERE DIRECTLY SHOWN IN THE BALANCE SHEET AS AS SETS OF THE APPELLANT FOR THE YEAR. HOWEVER, THE LD AO DID NOT TAKE NOTE OF ALL THESE FACTS AND STRAIGHT AWAY PROCEEDED TO ESTI MATE DISALLOWANCE ON ACCOUNT OF SUCH EXPENSES. WHILE WO RKING OUT SUCH DISALLOWANCE, THE AO HAD MENTIONED THAT DURING THE YEAR, 2000 SQ. FT. OF CONSTRUCTED AREA WAS SOLD. THIS FACT IS INCORRECT AS THE APPELLANT HAD INFORMED SUCH FACT TO THE AO AS ALLEGED IN THE BODY OF THE ASSESSMENT ORDER. THUS O N SUCH INCORRECT AND DISTORTED FACTS, HE HAD PROCEEDED TO MAKE SUCH 12 DISALLOWANCE WHICH WAS PATENTLY INCORRECT. THE LD. AO HAD MADE ADDITION OF 50% IN RESPECT OF CONSTRUCTION EXP ENSES AND 100% IN RESPECT OF WIP EXPENSES, WHEREAS IN EARLIER YEARS HE HAD DISALLOWED 1/3 OF THESE EXPENSES. THEREFORE THE PERCENTAGE OF THE DISALLOWANCE HAD BEEN GUIDED BY THE PERSONAL WHIMS OF THE AO WITHOUT FOLLOWING THE RULE OF CONSISTENCY W HICH IS BAD IN LAW AND THE DESERVES TO BE QUASHED IN LIMINE . IN APPEAL, THE FINDINGS OF THE LEARNED AO WERE VEHEMENTLY DISPUTED ON THE PLEA THAT THE LD. AO HAD INCORRECTLY POINTED OUT THAT NO DETAILS OF THE AREA PURCHASED A ND THE CONSTRUCTED AREA SOLD WAS FURNISHED BY THE APPELLAN T. IN FACT, NO CONSTRUCTED AREA WAS SOLD DURING THE YEAR SO THE QU ESTION OF FURNISHING SUCH DETAILS DID NOT ARISE. CASH BOOK O R THE CASH FLOW STATEMENT AND OTHER REQUIRED DETAILS AND DOCUM ENTS WERE HOWEVER DULY PRODUCED SHOWING THEREIN THE CASH FLOW OF THE FUNDS DULY INVESTED IN SUCH CONSTRUCTION WORKS ETC. THE COPY OF THE SAID CASH BOOK ALONG WITH ALL OTHER SUPPORTI NG DOCUMENTS AND DETAILS LIKE COPIES OF THE INSTRUMENTS OF THE P URCHASE AND SALE DEEDS ETC. WERE AGAIN SUBMITTED BEFORE THE LD. CIT (A) ALONG WITH WRITTEN SUBMISSIONS. THE FACT REGARDING SUBMITTING A LETTER INTIMATING THEREIN THE SALE OF THE CONSTRU CTED AREA WAS CATEGORICALLY AND SPECIFICALLY DENIED. AFTER DUE VE RIFICATION, HE HAD ADMITTED THIS FACT SPECIFICALLY IN THE BODY OF THE APPEAL ORDER AND ACCORDINGLY REDUCED THE DISALLOWANCE TO 2 0%. WHILE DOING SO, THE LD. CIT (A) HAD ALSO OVER-LOOKED THE VITAL FACT THAT THESE EXPENSES WERE NOT CLAIMED BY THE APPELLANT TO COMPUTE HER INCOME OR LOSS FROM THIS SOURCE, SO THERE WAS N O REASON AT ALL TO DISALLOW ANY OF SUCH EXPENSES. THUS THE DISA LLOWANCE AS MADE AND CONFIRMED BY THE AUTHORITIES BELOW IS PATE NTLY INCORRECT AND DESERVES TO BE DELETED SUMMARILY. 3.7 ON THE OTHER HAND, THE LD. DR DREW OUR ATTENTIO N TO THE ORDER OF THE AO. BEFORE THE AO, THE ASSESSEE HAS NOT FURNISHED N ECESSARY DETAILS. IN ABSENCE OF THE DETAILS, THE AO WAS LEFT WITH NO ALT ERNATIVE BUT TO DISALLOW ENTIRE CLAIM OF INTEREST EXPENDITURE. IN ABSENCE OF VOUCHERS, THE EXPENSES 13 DEBITED AND CLAIMED IN WIP WERE ALSO DISALLOWED. IT WAS SUBMITTED THAT THE ONUS WAS ON THE ASSESSEE TO HAVE ESTABLISHED THE CL AIM OF EXPENDITURE. 3.8 WE HAVE HEARD BOTH THE PARTIES. DURING THE YEAR UNDER REFERENCE, THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE. THE EXPEN DITURE INCURRED DURING THE YEAR HAS BEEN INCLUDED IN THE CLOSING STOCK. IF THE DISALLOWANCE IS MADE OUT OF COST OF CONSTRUCTION THEN THE CLOSING STOCK WILL STAND REDUCED AND ACCORDINGLY THE OPENING STOCK WILL ALSO REDUCED BY SAME FIGURE IN THE SUBSEQUENT YEAR IF THE OPENING STOCK IN THE SUBSEQU ENT YEAR IS REDUCED THEN THE PROFIT TO THAT EXTENT WILL STAND REDUCED THUS T HE DISALLOWANCE MADE IS REVENUE NEUTRAL. HOWEVER, ONE WILL HAVE TO CONSIDER THE PROFIT RATE WHEN THE PROPERTY IS SOLD AFTER CONSIDERING THE FACT THAT CO ST OF CONSTRUCTION WAS MADE IN EARLIER YEARS. THE MARGIN OF PROFIT WILL STAND I NCREASED IF THE CONSTRUCTION IS DONE PARTLY IN ONE YEAR AND PROPERTY IS SOLD AFT ER SOME PERIOD. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS N AGRI MILLS LTD. , 33 ITR 681 OBSERVED THAT IF THE RATE OF TAX IS THE SAM E THEN THE DEPARTMENT SHOULD NOT FITTER AWAY THE ENERGY IN FIGHTING SUCH MATTERS. SINCE NO SALES HAS BEEN MADE DURING THE YEAR AND THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE, THEREFORE, THE LD. CIT(A) WAS NOT JUSTIFIED IN CONF IRMING THE DISALLOWANCE OF RS. 5,38,403/-.. 14 3.9 THE LD. CIT(A) IN HIS ORDER HAS MENTIONED THAT THE ASSESSEE HAS MADE INTEREST FREE FUNDS TO GROUP CONCERNS/ INDIVIDUALS. THE HON'BLE APEX COURT IN THE CASE S.A. BUILDERS, 288 ITR 1 HAS HELD THAT REQUIREMENT OF ALLOWING DEDUCTION OF INTEREST U/S 36(1)(III) IS THE SAME A S PER SECTION 37 OF THE ACT. IN CASE THE LOANS AND ADVANCES ARE FOR COMMERCIAL E XPEDIENCY THEN NO DISALLOWANCE ON ACCOUNT OF INTEREST IS TO BE MADE. THE GROUP CONCERNS/ INDIVIDUALS HAVE UTILIZED THE ADVANCE RECEIVED FROM THE ASSESSEE FOR THE PURPOSE OF BUSINESS AND THUS THE COMMERCIAL EXPEDIE NCY STANDS ESTABLISHED. HENCE, THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMI NG THE ADDITION OF RS. 12,47,850/-. HENCE THE GROUND NO. 2 OF THE ASSESSEE IS ALLOWED WHILE GROUND NO. 2 OF THE REVENUE IS DISMISSED. 4.1 THE THIRD GROUND OF THE ASSESSEE IS THAT THE LD . CIT(A) HAS ERRED IN NOT ANNULLING THE ASSESSMENT ORDER. 4.2 WE HAVE HEARD BOTH THE PARTIES. THIS ISSUE HAS BEEN DECIDED BY US IN THE CASE OF SHANKAR LAL KHANDELWAL IN ITA NO.155/JP /2010 DATED 12-08- 2011. FOLLOWING THAT ORDER, WE HOLD THAT THE LD. CI T(A) WAS JUSTIFIED IN NOT ANNULLING THE ASSESSMENT ORDER. THUS GROUND NO. 3 O F THE ASSESSEE IS DISMISSED. 15 5.1 THE FOURTH GROUND OF THE REVENUE IS THAT THE LD . CIT(A) HAS ERRED IN REDUCING THE ESTIMATE OF THE DISALLOWANCE OF EXPENS ES TO 20% WITHOUT ANY BASIS AS AGAINST 33.33% MADE BY THE AO. 5.2 WE HAVE HEARD BOTH THE PARTIES. THE PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE AO HAS NOT MADE ANY ADDITION AS THE ASSESSEE HAS NOT SHOWN ANY INCOME FROM THE CONCERN M/S. SUNIL FURNITURE. H ENCE, GROUND NO. 4 OF THE REVENUE IS NOT ARISING FROM THE ORDER OF THE AU THORITIES BELOW. THUS GROUND NO. 4 OF THE REVENUE IS DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED AND THAT OF THE REVENUE IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 26-08 -2011. SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 26 /08/2011 *MISHRA COPY FORWARDED TO :- 1. SMT GUMAN KHANDELWAL, JAIPUR 2. THE ACIT, CENTRAL CIRCLE- 1, JAIPUR 3. THE LD. CIT BY ORDER 4. THE LD. CIT(A) 5. THE LD.DR 6. THE GUARD FILE (ITA NO.1333/JP /10) A.R, ITAT, JAIPUR 16 17 18