Appeal details
Counselvise Citation
146624514 RSA 2013
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 8 month(s) 28 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
10-04-2015
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Next Hearing Date
04-03-2015
Assessment Year
2008-2009
Appeal Filed On
12-07-2013
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NOS.1465 & 1466/PN/2013 ASSESSMENT YEAR: 2008-09 UNIVERSAL CONSTRUCTION MACHINERY AND EQUIPMENTS LTD., UNIVERSAL HOUSE, NEAR OLD JAKAT NAKA, WARJE, KOTHRUD, PUNE 411029 . APPELLANT PAN: AAACU7808B VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 7, PUNE . RESPONDENT ITA NO.975/PN/2013 ASSESSMENT YEAR: 2009-10 UNIVERSAL CONSTRUCTION MACHINERY AND EQUIPMENTS LTD., UNIVERSAL HOUSE, NEAR OLD JAKAT NAKA, WARJE, KOTHRUD, PUNE 411029 . APPELLANT PAN: AAACU7808B VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 7, PUNE . RESPONDENT APPELLANT BY : SHRI NIKHIL PATHAK RESPONDENT BY : SHRI RAJESH DAMOR DATE OF HEARING : 04-03-2015 DATE OF PRONOUNCEMENT : 10-04-2015 ORDER PER SUSHMA CHOWLA, JM: TWO APPEALS FILED BY THE ASSESSEE ARE AGAINST ORDER OF CIT(A)-III, PUNE, DATED 01.03.2013 RELATING TO ASSESSMENT YEAR 2008-0 9 AGAINST ORDER PASSED UNDER SECTIONS 143(3) AND 143(3) R.W.S. 263 R.W.S. 144 OF THE INCOME TAX ACT, 1961. THE ASSESSEE HAS ALSO FILED ANOTHER APPEAL A GAINST ORDER OF CIT(A)-III, ITA NO.975/PN/2013 ITA NOS.1465 & 1466/PN/2013 UNIVERSAL CONSTRUCTION MACHINERY AND EQUIPMENT PVT LTD 2 PUNE, DATED 31.10.2012 RELATING TO ASSESSMENT YEAR 2009-10 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961. 2. ALL THE APPEALS RELATING TO THE SAME ASSESSEES W ERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FO R THE SAKE OF CONVENIENCE. ITA NO.1465/PN/2013 :: ASSESSMENT YEAR 2008-09 3. IN ITA NO.1465/PN/2013, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1] THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDIT ION OF RS.7,20,452/- ON ACCOUNT OF DISALLOWANCE OF INTEREST U/S 36(1)(II I) ON THE GROUND THAT THE ASSESSEE HAD UTILIZED INTEREST BEARING FUN DS FOR MAKING INTEREST FREE ADVANCES TO SISTER CONCERNS AND THERE FORE, THE INTEREST ATTRIBUTABLE TO SUCH ADVANCES WAS TO BE DISALLOWED WHILE COMPUTING THE BUSINESS INCOME OF THE ASSESSEE FOR THIS YEAR. 2] THE LEARNED CIT(A) ERRED IN HOLDING THAT ONCE IT IS BORNE OUT THAT THE ASSESSEE HAD BORROWED CERTAIN FUNDS AND MADE CE RTAIN INTEREST FREE ADVANCES WITHOUT ANY BUSINESS PURPOSE, THE INT EREST ATTRIBUTABLE TO SUCH ADVANCES WAS TO BE DISALLOWED U/S 36(1)(III) IRRESPECTIVE OF THE FACT AS TO WHETHER THERE WERE S UFFICIENT OWN FUNDS WITH THE ASSESSEE OR NOT AND THEREFORE, THE D ISALLOWANCE MADE IN THE CASE OF THE ASSESSEE WAS JUSTIFIED. 3] THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THA T THE A.O. HAD NOT PROVED ANY NEXUS BETWEEN THE FUNDS BORROWED BY THE ASSESSEE AND MAKING OF INTEREST FREE ADVANCES TO SISTER CONC ERNS AND HENCE, THERE WAS NO REASON TO MAKE ANY DISALLOWANCE IN RES PECT OF THE INTEREST ATTRIBUTABLE TO SUCH ADVANCES ON PRESUMPTI VE BASIS. 4] WITHOUT PREJUDICE TO THE ABOVE GROUND, THE ASSES SEE SUBMITS THAT THE OWN FUNDS AVAILABLE WITH THE ASSESSEE WERE FAR MORE THAN THE INTEREST FREE ADVANCES MADE BY THE ASSESSEE AND THU S, THE DISALLOWANCE OF INTEREST U/S OUGHT TO HAVE BEEN DEL ETED. 5] THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADHOC DISALLOWANCE OF RS.3,14,540/-, BEING 5% OF THE TOTAL SALES PROMOTIO N EXPENSES WITHOUT APPRECIATING THAT THE SAID EXPENSES WERE IN CURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS AND TH EREFORE, THE ADHOC DISALLOWANCE MADE IN RESPECT OF THE SAME WAS NOT JUSTIFIED. 6] THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADHOC DISALLOWANCE OF RS.4,23,768/- BEING 5% OF THE TOTAL LEGAL AND PROFE SSIONAL FEES WITHOUT APPRECIATING THAT THE SAID EXPENSES WERE IN CURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS AND TH EREFORE, THE ADHOC DISALLOWANCE MADE IN RESPECT OF THE SAME WAS NOT JUSTIFIED. ITA NO.975/PN/2013 ITA NOS.1465 & 1466/PN/2013 UNIVERSAL CONSTRUCTION MACHINERY AND EQUIPMENT PVT LTD 3 7] THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADHOC DISALLOWANCE OF RS.8,26,814/- BEING 5% OF THE TOTAL TRAVELLING AND CONVEYANCE EXPENSES WITHOUT APPRECIATING THAT THE SAID EXPENSE S WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS AND THEREFORE, THE ADHOC DISALLOWANCE MADE IN RESPECT O F THE SAME WAS NOT JUSTIFIED. 8] THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADHOC DISALLOWANCE OF RS.3,19,810/- BEING 5% OF THE TOTAL COMMUNICATION E XPENSES WITHOUT APPRECIATING THAT THE SAID EXPENSES WERE IN CURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS AND TH EREFORE, THE ADHOC DISALLOWANCE MADE IN RESPECT OF THE SAME WAS NOT JUSTIFIED. 9] THE LEARNED CIT(A) ERRED CONFIRMING THE ADHOC DI SALLOWANCE OF RS.5,00,508/- BEING 5% OF THE TOTAL ADMINISTRATIVE EXPENSES WITHOUT APPRECIATING THAT THE SAID EXPENSES WERE INCURRED W HOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS AND THEREF ORE, THE ADHOC DISALLOWANCE MADE IN RESPECT OF THE SAME WAS NOT JU STIFIED. 10] WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE ASS ESSEE SUBMITS THAT THE DISALLOWANCE MADE IN RESPECT OF SALES PROMOTION EXPENSES, LEGAL AND PROFESSIONAL FEES, TRAVELLING AND CONVEYA NCE EXPENSES, COMMUNICATION EXPENSES AND OTHER ADMINISTRATIVE EXP ENSES IS VERY HIGH AND THE SAME MAY BE REDUCED SUBSTANTIALLY. 11] THE LEARNED CIT(A) ERRED IN ENHANCING THE INCOM E OF THE ASSESSEE COMPANY WITHOUT GIVING ANY NOTICE TO THE ASSESSEE A ND HENCE, THE ENHANCEMENT MADE BY THE LEARNED CIT(A) WAS NOT JUST IFIED IN LAW. 11.1] THE LEARNED CIT(A) ERRED IN ENHANCING THE DIS ALLOWANCE MADE IN RESPECT OF DC FEES TO RS.4,50,000/- ON THE GROUND T HAT THE SAID EXPENDITURE WAS CAPITAL IN NATURE AND HENCE, THE SA ME COULD NOT BE ALLOWED AS A BUSINESS DEDUCTION U/S 37(1) OF THE AC T. 11.2] WITHOUT PREJUDICE TO THE ABOVE GROUND, THE AS SESSEE SUBMITS THAT THE EXPENDITURE INCURRED TOWARDS PAYMENT OF ROC FEE S WAS ALLOWABLE AS A DEDUCTION U/S 35D OF THE ACT AND HEN CE, THE LEARNED CIT(A) WAS NOT JUSTIFIED IN ENHANCING THE ADDITION BY DISALLOWING THE ENTIRE AMOUNT OF ROC FEES IN THIS YEAR. 12] THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 4. THE ISSUE IN GROUNDS OF APPEAL NO.1 TO 4 IS AGAI NST THE DISALLOWANCE UNDER SECTION 36(1)(III) OF THE ACT AT RS.7,20,452/ -. 5. THE ISSUE IN GROUNDS OF APPEAL NO.5 TO 10 IS AGA INST THE ADHOC DISALLOWANCE OUT OF VARIOUS HEADS OF EXPENDITURE. ITA NO.975/PN/2013 ITA NOS.1465 & 1466/PN/2013 UNIVERSAL CONSTRUCTION MACHINERY AND EQUIPMENT PVT LTD 4 6. THE GROUNDS OF APPEAL NO.11 TO 11.2 ARE NOT PRES SED AND HENCE, THE SAME ARE DISMISSED AS NOT PRESSED. 7. THE BRIEF FACTS RELATING TO THE ISSUE OF DISALLO WANCE UNDER SECTION 36(1)(III) OF THE ACT ARE THAT THE ASSESSING OFFICER FROM THE PERUSAL OF DETAILS SUBMITTED IN FORM NO.3CD NOTED THAT SUM OF RS.48,00,000/- WAS SH OWN AS UNSECURED LOANS GIVEN TO M/S. UNIVERSAL CONSTRUCTION PROJECT. ON T HE OTHER HAND, THE ASSESSEE HAD DEBITED INTEREST EXPENDITURE OF RS.4.03 CRORES DURING THE YEAR. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY NOTIONAL IN TEREST SHOULD NOT BE ADDED TO TOTAL INCOME AS PER THE PROVISIONS OF SECTION 36 (1)(III) OF THE ACT. IN REPLY, THE ASSESSEE SUBMITTED THAT THE SAID AMOUNT WAS NOT IN TERMS OF LOANS PERSE, BUT WERE JUST PAYMENTS MADE ON BEHALF OF THE SAID PARTI ES AND IT WAS FURTHER EXPLAINED THAT THE OUTSTANDING BALANCE AT THE END O F THE YEAR WAS RS.40,12,563/- IT WAS FURTHER NOTED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD ALSO ADVANCED RS.76,09,303/- TO M/S. UNIVERSAL CIVIL INF RACON PVT. LTD. AND RS.41,56,370/- TO M/S. UNIVERSAL SALES CORPORATION. THE EXPLANATION OF THE ASSESSEE IN THIS REGARD WAS THAT THESE WERE OUT OF BUSINESS TRANSACTIONS WITH THE SAID PARTIES. THE ASSESSING OFFICER REJECTING THE EXPLANATION OF THE ASSESSEE OBSERVED THAT WHERE INTEREST BEARING FUNDS WERE DIV ERTED AS INTEREST FREE LOANS TO SISTER CONCERN, INTEREST @ 12% NEEDS TO BE ADDED ON SUCH LOANS / ADVANCES. THE ASSESSING OFFICER WORKED OUT THE DISALLOWANCE U NDER SECTION 36(1)(III) OF THE ACT AT RS.19,87,880/-. 8. THE CIT(A) IN RESPECT OF LOAN ADVANCED TO M/S. U NIVERSAL CONSTRUCTION PROJECT, OBSERVED THAT THOUGH THE PLEA OF THE ASSES SEE WAS THAT THE SAID CONCERN WAS IN THE CONSTRUCTION BUSINESS, WHEREAS THE ASSES SEE WAS THE MANUFACTURER OF THE CONSTRUCTION EQUIPMENT AND THE SAID AMOUNT WAS ADVANCED TO A PROSPECTIVE CUSTOMER, WAS NOT ACCEPTED BY THE CIT(A). THE CIT( A) FURTHER OBSERVED THAT THE AMOUNTS ADVANCED TO THE SAID CONCERN WERE FOR NON-B USINESS PURPOSE AND THE ITA NO.975/PN/2013 ITA NOS.1465 & 1466/PN/2013 UNIVERSAL CONSTRUCTION MACHINERY AND EQUIPMENT PVT LTD 5 INTEREST ATTRIBUTABLE TO SUCH ADVANCES COULD NOT BE ALLOWED AS EXPENDITURE UNDER SECTION 36(1)(III) OF THE ACT. THE CIT(A) RE-WORKE D THE INTEREST ATTRIBUTABLE TO THE ADVANCES ON THE BASIS OF DATE(S) OF ADVANCES MADE D URING THE YEAR AND RESTRICTED THE DISALLOWANCE TO RS.2,21,688/- AS AGA INST THE DISALLOWANCE OF RS.5,76,000/- MADE BY THE ASSESSING OFFICER. 9. IN RESPECT OF SECOND ADVANCE MADE TO M/S. UNIVER SAL CIVIL INFRACON PVT. LTD. OF RS.76,09,303/-, THE CIT(A) HELD THE SAME TO BE A BUSINESS ADVANCE AND THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS.9,13 ,116/- WAS DELETED BY THE CIT(A). 10. FURTHER, IN RESPECT OF THE ADVANCE TO M/S. UNIV ERSAL SALES CORPORATION, THE CONTENTION OF THE ASSESSEE THAT IT HAD AGENCY RELAT IONSHIP WITH THE SAID PARTY WAS REJECTED IN THE ABSENCE OF ANY EVIDENCE FILED BY TH E ASSESSEE AND CONSEQUENTLY, THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS.4,98 ,764/- WAS UPHELD BY THE CIT(A). 11. THE ASSESSEE IS IN APPEAL AGAINST THE PARTIAL C ONFIRMATION OF DISALLOWANCE UNDER SECTION 36(1)(III) OF THE ACT. 12. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE A SSESSEE POINTED OUT THAT THE ADVANCES HAD BEEN MADE TO THE SISTER CONCERN WE RE OUT OF OWN FUNDS, WHICH WERE INTEREST FREE. OUR ATTENTION WAS DRAWN TO THE COPY OF BALANCE SHEET PLACED AT PAGE 10 OF THE PAPER BOOK, WHICH REFLECTED THE S URPLUS INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. FURTHER, RELIANCE WAS PLACED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE ON THE R ATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM) AND THE PUNE BENCH OF THE TRIBUNAL IN TRI NITY INDIA LIMITED VS. DCIT IN ITA NO.666/PN/2012 RELATING TO ASSESSMENT YEAR 2 008-09 VIDE ORDER DATED 28.08.2013. ITA NO.975/PN/2013 ITA NOS.1465 & 1466/PN/2013 UNIVERSAL CONSTRUCTION MACHINERY AND EQUIPMENT PVT LTD 6 13. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF CIT(A). 14. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. IN THE FACTS OF THE PRESENT CASE, ADMITTEDLY, THE ASSESSEE HAD M ADE CERTAIN INTEREST FREE ADVANCES TO TWO OF ITS CONCERNS I.E. RS.40,12,563/- TO M/S. UNIVERSAL CONSTRUCTION PROJECT AND RS.41,56,370/- TO M/S. UNI VERSAL SALES CORPORATION. THE ASSESSEE HAD MADE THE SAID INTEREST FREE ADVANC ES TO ITS SISTER CONCERNS AND ON THE OTHER HAND, HAD INCURRED INTEREST EXPEND ITURE OF RS.4.03 CRORES DURING THE YEAR UNDER CONSIDERATION. THE AUTHORITIES BELO W HAD DISALLOWED PART OF THE INTEREST EXPENDITURE UNDER SECTION 36(1)(III) OF TH E ACT ON THE PROPOSITION THAT THE ADVANCES MADE TO THE SISTER CONCERNS WERE FOR NON-B USINESS PURPOSES AND INTEREST ATTRIBUTABLE TO SUCH ADVANCES COULD NOT BE ALLOWED AS EXPENDITURE UNDER SECTION 36(1)(III) OF THE ACT. HOWEVER, THE CLAIM OF THE ASSESSEE BEFORE US WAS THAT IN VIEW OF JUDGMENT OF HONBLE BOMBAY HIGH COU RT IN CIT VS. RELIANCE UTILITIES AND POWER LTD. (SUPRA), WHEREIN IT HAD BE EN HELD THAT WHERE THE ASSESSEE HAD MADE INTEREST FREE ADVANCES TO ITS SIS TER CONCERN, PRESUMPTION COULD BE DRAWN THAT THE FUNDS ADVANCED TO THE SISTE R CONCERN WERE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. IN THIS RE GARD, THE ASSESSEE HAD POINTED OUT THAT THE TOTAL INTEREST FREE FUNDS AVAILABLE WI TH IT NAMELY, THE SHARE CAPITAL AND THE RESERVES AND SURPLUSES WERE SUFFICIENT TO COVER IMPUGNED INTEREST FREE FUNDS MADE TO THE SISTER CONCERN. THE PERUSAL OF BALANCE SHEET PLACED AT PAGE 10 OF THE PAPER BOOK REFLECTS THAT THE OPENING SHARE CAPI TAL AND FREE RESERVES WERE ENOUGH TO COVER INTEREST FREE ADVANCES MADE TO THE SISTER CONCERNS. THE PROFIT FOR THE YEAR UNDER CONSIDERATION AFTER DEPRECIATION AND INTEREST EXPENDITURE WAS RS.3,66,80,769/-, WHICH ITSELF IS ENOUGH TO COVER T HE IMPUGNED ADVANCEMENT OF INTEREST FREE LOANS TO THE SISTER CONCERNS. IN VIE W OF THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UTILI TIES AND POWER LTD. (SUPRA), WHERE THE INTEREST FREE FUNDS AVAILABLE WITH THE AS SESSEE WERE SUFFICIENT TO COVER ITA NO.975/PN/2013 ITA NOS.1465 & 1466/PN/2013 UNIVERSAL CONSTRUCTION MACHINERY AND EQUIPMENT PVT LTD 7 INTEREST FREE ADVANCES MADE TO SISTER CONCERN, THEN IN CASES WHERE BOTH THE INTEREST BEARING AND INTEREST FREE FUNDS ARE AVAILA BLE WITH THE ASSESSEE, THE PRESUMPTION IS THAT THE IMPUGNED INTEREST FREE ADVA NCES HAVE BEEN MADE TO THE SISTER CONCERN OUT OF INTEREST FREE FUNDS. IN VIEW THEREOF, THERE IS NO MERIT IN DISALLOWANCE OF ANY PART OF THE INTEREST EXPENDITUR E MADE BY THE ASSESSING OFFICER AND PARTIALLY UPHELD BY THE CIT(A) WHILE WO RKING OUT DAY-TO-DAY BASIS, THE ADVANCES MADE. 15. THE CIT(A) VIDE PARA 6.3.2 HAD NOT FOUND IT FIT TO APPLY THE SAID PROPOSITION LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT V S. RELIANCE UTILITIES AND POWER LTD. (SUPRA) TO THE FACTS OF THE PRESENT CASE . AS PER THE CIT(A), THE SAID PROPOSITION LAID DOWN BY THE HONBLE BOMBAY HIGH CO URT IS APPLICABLE WHERE THE INVESTMENTS ARE MADE WITH A VIEW TO BUILD LONG TERM BUSINESS PROSPECTS AND WHERE THE ADVANCES WERE MADE FOR INVESTMENT IN THE RELATED ENERGY SECTOR AND WERE NOT MADE TO SISTER CONCERN. IN SUCH SCENARIO, THE FINDING OF CIT(A) WAS THAT THE HONBLE BOMBAY HIGH COURT HELD THAT THERE WERE INTEREST FREE FUNDS AVAILABLE WITH THE SAID ASSESSEE TO MEET ITS INVESTMENTS AND AT THE SAME TIME WHERE THE ASSESSEE HAS RAISED LOAN, IT COULD BE PRESUMED THAT THE INVESTMENTS WERE MADE FROM INTEREST FREE FUNDS AVAILABLE. THE CIT(A) DIS TINGUISHED THE FACTS OF THE PRESENT CASE AND OBSERVED THAT THE AMOUNTS WERE ADV ANCED TO TWO SISTER CONCERNS FOR NON-BUSINESS PURPOSES AND THERE WAS NO BENEFIT TO THE ASSESSEE FROM SUCH ADVANCES EITHER DIRECTLY OR INDIRECTLY AN D THEREFORE, THE CASE STOOD ON DIFFERENT FOOTING. 16. WE FIND THAT SIMILAR ASPECT AND PROPOSITION MAD E BY THE CIT(A) WERE CONSIDERED BY THE TRIBUNAL IN TRINITY INDIA LIMITED VS. DCIT (SUPRA) AND IT WAS OBSERVED AS UNDER:- 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. OSTENSIBLY, IN THIS CASE, IT WAS FOUND THAT ASSESSEE HAD ADVANCED INTEREST-FREE FUNDS OF RS.2,44,74,710/- TO TWO SISTER-CONCERNS AS ON 31.03 .2008. THE OPENING BALANCE OF SUCH ADVANCES AS ON 01.04.2007 WAS RS.23 ,09,460/- AND THE ITA NO.975/PN/2013 ITA NOS.1465 & 1466/PN/2013 UNIVERSAL CONSTRUCTION MACHINERY AND EQUIPMENT PVT LTD 8 BALANCE OF RS.2,21,65,250/- WAS ADVANCED DURING THE YEAR UNDER CONSIDERATION. ON THE OTHER HAND, ASSESSEE INCURRED INTEREST EXPENDITURE OF RS.2,85,38,397/- ON BORROWINGS. THE REVENUE HAS DISALLOWED THE INTEREST PROPORTIONATE TO THE IMPUGNED INTEREST-FRE E ADVANCES BY INVOKING SECTION 36(1)(III) OF THE ACT PROFESSING THAT THE S AME IS FOR NON-BUSINESS PURPOSES. THAT SUCH ADVANCES ARE FOR NON-BUSINESS P URPOSES IS NOT AN ISSUE FOR CONSIDERATION BEFORE US INASMUCH AS THE A SSESSEE HAS NOT DISPUTED THE POSITION ARRIVED AT BY THE CIT(A) THAT SUCH ADVANCES ARE FOR NON-BUSINESS PURPOSES. HOWEVER, BEFORE US, THE DISA LLOWANCE HAS BEEN SOUGHT TO BE RESISTED ON THE BASIS OF THE PROPOSITI ON EMERGING FROM THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF RELIANCE UTILITIES & POWER LTD. (SUPRA) WHEREBY IT CAN BE SA ID THAT WHERE AN ASSESSEE HAS ADVANCED INTEREST-FREE FUNDS TO THE SI STER CONCERNS AND THE ASSESSEE HAS BOTH INTEREST BEARING AND INTEREST FRE E FUNDS, AND IF THE INTEREST FREE FUNDS ARE SUFFICIENT TO COVER THE ADV ANCES TO SISTER CONCERNS, A PRESUMPTION CAN BE DRAWN THAT FUNDS ADVANCED TO T HE SISTER CONCERNS ARE OUT OF INTEREST-FREE FUNDS AVAILABLE WITH THE A SSESSEE. IN THIS CONNECTION, THE APPELLANT HAS SOUGHT TO POINT OUT T HAT THE TOTAL INTEREST-FREE FUNDS AVAILABLE WITH IT, NAMELY, SHARE CAPITAL PLUS FREE RESERVES ARE SUFFICIENT TO COVER THE IMPUGNED INTEREST-FREE ADVA NCES MADE TO THE SISTER CONCERNS. IN THIS CONNECTION, BALANCE-SHEET AS ON 3 1.03.2008 HAS BEEN REFERRED TO, WHICH IS PLACED IN THE PAPER BOOK. FAC TUALLY SPEAKING, IT IS SEEN THAT AS ON 01.04.2007 I.E. AT THE BEGINNING OF THE YEAR THE FUNDS AVAILABLE WITH THE ASSESSEE BY WAY OF SHARE CAPITAL AND RESERVES & SURPLUS WAS ENOUGH TO COVER THE SAID IMPUGNED INTER EST-FREE ADVANCES TO THE SISTER CONCERNS. IN-FACT, AS PER THE PROFIT AND LOSS ACCOUNT FOR YEAR ENDING 31.03.2008 THE PROFIT FOR THE YEAR AFTER DEP RECIATION AND TAX IS TO THE EXTENT OF RS.5,14,84002/-, WHICH ALONE IS ENOUG H TO COVER THE IMPUGNED INTEREST-FREE ADVANCES. IN OUR CONSIDERED OPINION, THE PARITY OF REASONING LAID DOWN BY THE HONBLE BOMBAY HIGH COUR T IN THE CASE OF RELIANCE UTILITIES & POWER LTD. (SUPRA) IS CLEARLY APPLICABLE IN THE PRESENT CASE INASMUCH AS THERE ARE FUNDS AVAILABLE WITH THE ASSESSEE BOTH INTEREST-FREE AND INTEREST BEARING, AND THE INTERES T-FREE FUNDS AVAILABLE WITH THE ASSESSEE ARE SUFFICIENT TO COVER THE IMPUG NED INTEREST-FREE ADVANCES MADE TO THE SISTER CONCERNS, THEN THE PRES UMPTION IS THAT THE IMPUGNED INTEREST-FREE ADVANCES MADE TO THE SISTER CONCERNS ARE OUT OF INTEREST-FREE FUNDS. IN SUCH A SITUATION, FOLLOWING THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT THE DISALLOWANCE OF INTER EST EXPENDITURE MADE BY THE ASSESSING OFFICER BECOMES UNTENABLE. 7. IN-FACT, THE FACTUAL ASPECTS OF THE SAID PROPOSI TION HAVE NOT BEEN FAULTED BY THE CIT(A), THOUGH HE HAS NOT FOUND IT F IT TO APPLY THE SAID PROPOSITION TO THE ASSESSEES CASE. AS PER THE DISC USSION MADE BY THE CIT(A) IN PARA 5.3.2 IT EMERGES THAT ACCORDING TO T HE CIT(A) THE AFORESAID PROPOSITION LAID DOWN BY THE HONBLE BOMBAY HIGH CO URT IS APPLICABLE ONLY IN A SITUATION WHERE THE ADVANCES/INVESTMENTS ARE M ADE FOR BUSINESS PURPOSES ALONE. AS PER THE CIT(A) WHERE ADVANCES TO SISTER CONCERNS ARE FOR NON-BUSINESS PURPOSES, THE AFORESAID PROPOSITIO N LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IS NOT APPLICABLE. IN OUR CONSIDERED OPINION, THE INTERPRETATION PLACED BY THE CIT(A) ON THE JUDG EMENT OF THE HONBLE BOMBAY HIGH COURT IS QUITE MISPLACED. IN-FACT, TO S AY THAT THE PROPOSITION THAT WHERE THERE ARE FUNDS AVAILABLE BOTH INTEREST- FREE AND INTEREST BEARING, THEN A PRESUMPTION WOULD ARISE THAT INVEST MENTS ARE OUT OF INTEREST-FREE ONLY IF INTEREST-FREE ARE SUFFICIENT TO COVER THE INVESTMENT IS A PROPOSITION WHICH IS AVAILABLE ONLY IN A SITUATION WHERE THE INVESTMENTS ARE FOR BUSINESS PURPOSES, IS WRONG. WE SAY SO FOR THE REASON THAT IF THE ITA NO.975/PN/2013 ITA NOS.1465 & 1466/PN/2013 UNIVERSAL CONSTRUCTION MACHINERY AND EQUIPMENT PVT LTD 9 INVESTMENTS/ADVANCES TO THE SISTER CONCERNS WERE FO R BUSINESS PURPOSES THEN THE QUESTION OF DISALLOWANCE UNDER SECTION 36( 1)(III) WOULD NOT ARISE AT ALL, AS SECTION 36(1)(III) EXPLICITLY PERMITS DE DUCTION FOR THE AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR TH E PURPOSES OF BUSINESS OR PROFESSION. ONCE INTEREST IS PAID IN RESPECT OF FUN DS USED FOR PURPOSES OF BUSINESS THERE IS NO QUESTION OF ITS DISALLOWANCE U NDER SECTION 36(1)(III) OF THE ACT AND THERE WOULD NOT BE A NECESSITY TO SEE A S TO WHETHER THE FUNDS ADVANCED TO SISTER CONCERN ARE OUT OF INTEREST-BEAR ING BORROWINGS OR NOT. IN OUR VIEW, THE CIT(A) ERRED IN NOT APPRECIATING T HE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE U TILITIES & POWER LTD. (SUPRA) IN ITS PROPER RESPECTIVE. ACCORDINGLY, ON T HIS GROUND THE ORDER OF THE CIT(A) IS SET-ASIDE AND THE ASSESSING OFFICER I S DIRECTED TO DELETE THE ADDITION OF RS.29,36,965/- MADE UNDER SECTION 36(1) (III) OF THE ACT. ON THIS GROUND ASSESSEE SUCCEEDS. 17. FOLLOWING THE SAME PROPOSITION LAID DOWN BY THE TRIBUNAL, WHERE THE INVESTMENTS / ADVANCES WERE MADE TO SISTER CONCERN FOR BUSINESS PURPOSES, THEN THERE IS NO QUESTION OF ANY DISALLOWANCE UNDER SECT ION 36(1)(III) OF THE ACT AND THERE WOULD BE NO NECESSITY TO SEE AS TO WHETHER TH E ADVANCES MADE TO THE SISTER CONCERN WERE OUT OF INTEREST BEARING BORROWI NGS OR NOT. IN VIEW THEREOF, WE FIND NO MERIT IN THE ORDER OF CIT(A) IN THIS REGARD AND THE SAME IS SET-ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADD ITION OF RS.12,67,428/-. 18. THE ASSESSEE VIDE GROUNDS OF APPEAL NO.5 TO 10 HAS RAISED THE ISSUE AGAINST THE DISALLOWANCE MADE OUT OF FOLLOWING EXPE NSES:- I) SALES PROMOTION EXPENSES : RS.3,14,540/- II) LEGAL AND PROFESSIONAL FEES : RS.4,23,768/- III) TRAVELLING AND CONVEYANCE EXPENSES : RS.8,26, 814/- IV) COMMUNICATION EXPENSES : RS.3,19,810/- V) ROC FEES : RS.3,74,920/- VI) OTHER ADMINISTRATIVE EXPENSES : RS.5,00,508/- 19. THE ASSESSING OFFICER HAD MADE THE SAID DISALLO WANCES BEING EXCESSIVE AND ALSO IN SOME CASES, EXPENDITURE HAVING NOT BEEN INCURRED EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IN RESPECT OF THE DISALLOWANC E OUT OF COMMUNICATION EXPENSES, THE SAID DISALLOWANCE WAS MADE FOR PERSON AL USE BY THE ASSESSEE. THE ASSESSING OFFICER DISALLOWED 5% OF THE EXPENSES IN RESPECT OF ITEM NOS. (I) TO (IV) AND 80% IN RESPECT OF ROC FESS AND 10% OUT OF OTHER ADMINISTRATIVE ITA NO.975/PN/2013 ITA NOS.1465 & 1466/PN/2013 UNIVERSAL CONSTRUCTION MACHINERY AND EQUIPMENT PVT LTD 10 EXPENSES. THE CIT(A) CONFIRMED THE DISALLOWANCES M ADE IN RESPECT OF THE SAID ITEMS. 20. THE ASSESSEE IS NOT IN APPEAL IN RESPECT OF ROC FEES EXPENSES AND IS IN APPEAL AGAINST THE BALANCE EXPENDITURE. 21. THE FIRST ITEM OF EXPENDITURE TO BE CONSIDERED IS SALES PROMOTION EXPENSES AND IT WAS POINTED OUT BY THE LEARNED AUTHORIZED RE PRESENTATIVE FOR THE ASSESSEE THAT FBT HAS BEEN PAID ON THE SAID EXPENDI TURE AND THERE WAS NO MERIT IN THE SAID DISALLOWANCE. WE ARE OF THE VIEW THAT WHERE THE EXPENDITURE HAS BEEN SUBJECTED TO FRINGE BENEFIT TAX, THE NATUR E OF EXPENDITURE STANDS ESTABLISHED AND THE SAME IS TO BE ALLOWED AS BUSINE SS EXPENDITURE. IN VIEW THEREOF, THERE IS NO MERIT IN MAKING ANY DISALLOWAN CE OUT OF SALES PROMOTION EXPENDITURE. SIMILARLY, NO DISALLOWANCE WAS WARRAN TED OUT OF TRAVELLING AND CONVEYANCE EXPENSES, COMMUNICATION EXPENSES AS THE ASSESSEE HAD PAID FBT AGAINST THE SAID EXPENSES. WE ALSO FIND NO MERIT I N THE ORDER OF ASSESSING OFFICER IN DISALLOWING ANY PART OF THE SAID EXPENDI TURE FOR PERSONAL USE IN THE HANDS OF THE ASSESSEE COMPANY BEING A PRIVATE LIMIT ED CONCERN. FURTHER DISALLOWANCE OF 10% OUT OF LEGAL AND PROFESSIONAL F EES PAID BY THE ASSESSEE IN THE ABSENCE OF ANY FINDING THAT THE EXPENDITURE HAS NOT BEEN INCURRED FOR THE PURPOSE OF BUSINESS, THERE IS NO MERIT IN THE SAID DISALLOWANCE AND THE SAME IS DELETED. THE LAST HEAD OF EXPENDITURE IS OTHER ADM INISTRATIVE EXPENSES WHICH INCLUDE OFFICE EXPENSES AND OTHER MISCELLANEOUS EXP ENSES BEING ROUTINE BUSINESS EXPENSES. THE ASSESSING OFFICER HAD MADE DISALLOWANCE @ 10% OUT OF THE SAID EXPENDITURE, WHICH WAS RESTRICTED TO 5% BY CIT(A). THE EXPENDITURE HAS BEEN DISALLOWED SINCE CERTAIN EVIDENCES WERE IN THE FORM OF SELF-MADE VOUCHERS. WE UPHOLD THE ORDER OF CIT(A) TO RESTRIC T THE DISALLOWANCE TO 5% OF THE TOTAL EXPENDITURE. ACCORDINGLY, THE GROUNDS OF APP EAL NO.5 TO 8 ARE ALLOWED AND GROUNDS OF APPEAL NO.9 AND 10 ARE PARTLY ALLOWED. ITA NO.975/PN/2013 ITA NOS.1465 & 1466/PN/2013 UNIVERSAL CONSTRUCTION MACHINERY AND EQUIPMENT PVT LTD 11 ITA NO.1466/PN/2013 :: ASSESSMENT YEAR 2008-09 22. THE PRESENT APPEAL IS FILED BY THE ASSESSEE AGA INST THE ORDER PASSED UNDER SECTION 143(3) R.W.S. 263 OF THE ACT. 23. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE A SSESSEE POINTED OUT THAT THE ORDER PASSED BY THE COMMISSIONER UNDER SECTION 263 OF THE ACT HAS BEEN QUASHED BY THE TRIBUNAL IN ITA NO.199/PN/2012, RELA TING TO ASSESSMENT YEAR 2008-09, VIDE ORDER DATED 12.08.2013 AND CONSEQUENT LY, THERE IS NO MERIT IN THE IMPUGNED ASSESSMENT ORDER PASSED UNDER SECTION 143( 3) R.W.S. 263 OF THE ACT AND THE APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) IN UPHOLDING THE ADDITION ON MERITS SHOULD BE ALLOWED. WE FIND MERIT IN THE SAID PLEA OF THE ASSESSEE AS PURSUANT TO QUASHING OF 263 PROCEEDINGS IN THE HANDS OF THE ASSESSEE BY THE TRIBUNAL, THE CONSEQUENT ORDER PASS ED BY THE ASSESSING OFFICER UNDER SECTION 143(3) R.W.S. 263 OF THE ACT, DOES NO T SURVIVE AND THE SAME IS HEREBY CANCELLED. THE APPEAL OF THE ASSESSEE IS TH US, ALLOWED. ITA NO.975/PN/2013 :: ASSESSMENT YEAR 2009-10 24. IN ITA NO.975/PN/2013, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1] THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDIT ION OF RS.56,16,000/-MADE BY THE LEARNED A.O. ON ACCOUNT O F UNEXPLAINED INVESTMENT IN LAND PURCHASED FROM SHRI RAJU TUNGATK AR WITHOUT APPRECIATING THAT THE TOTAL CONSIDERATION ACTUALLY PAID BY THE APPELLANT WAS RECORDED IN THE BOOKS AND NO SUCH ADD ITION WAS JUSTIFIED. 2] THE LEARNED CIT(A) ERRED IN HOLDING THAT THE TO TAL CONSIDERATION PAID BY THE APPELLANT TO SHRI RAJU TUNGATKAR AGAINST PUR CHASE OF LAND WAS RS. 2,80,80,000/- AS PER THE MOU AND THE SEIZED PAPER FOUND DURING THE SURVEY AS AGAINST THE ACTUAL CONSIDERATI ON PAID OF RS.2,24,64,000/- AS PER THE REGISTERED SALE DEED. 3] THE LEARNED CIT(A) FAILED TO APPRECIATE THA T - ITA NO.975/PN/2013 ITA NOS.1465 & 1466/PN/2013 UNIVERSAL CONSTRUCTION MACHINERY AND EQUIPMENT PVT LTD 12 A. THE APPELLANT HAD NOT PAID ANY CONSIDERATION OVE R AND ABOVE THE AMOUNT OF RS.2,24,64,000/- WHICH WAS RECORDED I N THE REGISTERED SALE DEED AND HENCE, THE ADDITION MADE W AS NOT JUSTIFIED. B. SUBSEQUENT TO THE MOU, THE APPELLANT AND THE VEN DOR HAD AGREED THAT A PART OF LAND WHICH WAS FOUND TO BE EA RMARKED FOR PRIVATE FORESTATION AND HENCE, THE AMOUNT OF RS.56, 16,000/- WAS TO BE PAID ONLY AFTER THE VENDOR GOT THE REQUIRED C LEARANCE FOR THIS PART OF LAND AND THEREFORE, NO SUCH PAYMENT WA S MADE BY THE APPELLANT TO THE VENDOR. C. THE ABOVE UNDERSTANDING WAS DULY CONFIRMED BY TH E VENDOR, SHRI TUNGATKAR AND HENCE, THERE WAS NO REASON TO MA KE ANY ADDITION ON ACCOUNT OF UNEXPLAINED INVESTMENT IN LA ND. 4] THE LEARNED CIT(A) ERRED IN CONFIRMING A TOTAL D ISALLOWANCE OF RS. 1,23,83,286/- OUT OF THE FOLLOWING ITEMS OF EXPENDI TURE I. TRAVELLING AND CONVEYANCE EXPENSES - RS.43,98, 650/- II. LABOUR CHARGES - RS.61,47,485/- III. ADVERTISEMENT EXPENSES - RS.14,17,312/- IV. GUEST HOUSE EXPENSES - RS.4,19,839/- 5] THE LEARNED CIT(A) FAILED TO APPRECIATE TH AT - A. THE EXPENSES WERE PROPERLY VOUCHED AND THEREFORE , THERE WAS NO REASON FOR MAKING ANY DISALLOWANCE. B. THE EXPENSES HAD INCREASED DURING THE YEAR AS THE BUSINESS AND THE TURNOVER ALSO HAD INCREASED AND CONSIDERING THE VOLUME OF BUSINESS, THE EXPENDITURE WAS REASONABLE. C. THERE WAS NO REASON FOR DISALLOWANCE OF THESE EXPEN SES WHEN THEY WERE SUPPORTED BY VOUCHERS AND IT WAS NOT PROVED BY THE A.O. THAT ANY PERSONAL EXPENDITURE WA S DEBITED BY THE APPELLANT UNDER THESE HEADS. 6] THE APPELLANT REQUESTS FOR ADMISSION OF ADDITION AL EVIDENCES IF ANY REQUIRED DURING THE COURSE OF APPEAL HEARING. 7] THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 25. THE ISSUE IN THE GROUNDS OF APPEAL NO.1 TO 3 IS AGAINST THE ADDITION OF RS.56,16,000/- ON ACCOUNT OF UNEXPLAINED INVESTMENT IN THE LAND PURCHASED BY THE ASSESSEE. 26. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT DURING THE COURSE OF SURVEY UNDER SECTION 133A OF THE ACT ON 14.10.2011 A DOCUM ENT WAS FOUND, UNDER ITA NO.975/PN/2013 ITA NOS.1465 & 1466/PN/2013 UNIVERSAL CONSTRUCTION MACHINERY AND EQUIPMENT PVT LTD 13 WHICH THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WI TH SHRI RAJU TUNGATKAR FOR SUM OF RS.2,80,80,000/- VIDE AGREEMENT DATED 09.06. 2008. HOWEVER, THE REGISTERED SALE DEED WAS EXECUTED ON 12.09.2008 FOR RS.2,24,64,000/- ONLY. THE SURVEY TEAM ASKED THE MANAGING DIRECTOR OF THE ASSE SSEE COMPANY TO CLARIFY THE DIFFERENCE OF RS.56,16,000/-, PARTICULARLY WITH REF ERENCE TO PAGE 91 OF UNIVERSAL BOX FILE, WHEREIN THE BIFURCATION PAYMENT BY CHEQUE AND CASH IN THE RATIO OF 80:20 HAD BEEN MENTIONED. IN REPLY, HE AGREED THAT THE TRANSACTION FOR SHIVARE LAND WAS FOR RS.2.80 CRORES, AS PER MOU. HOWEVER, SINCE PART OF THE SAID LAND WAS FOR PRIVATE FORESTATION, IT WAS DECIDED THAT BA LANCE AMOUNT WOULD BE PAID ONLY AFTER THE POSSESSION OF CLEAR LAND WOULD BE GI VEN. HE PROMISED TO PRODUCE SHRI R.N. TUNGATKAR BEFORE THE ASSESSING OFFICER WI THIN 7 DAYS, BUT HE FAILED TO PRODUCE THE SAID PERSON. IN VIEW THEREOF, THE ASSE SSING OFFICER TREATED SUM OF RS.56,16,000/- AS UNEXPLAINED INVESTMENT UNDER SECT ION 69 OF THE ACT. 27. THE CIT(A) UPHELD THE ORDER OF ASSESSING OFFICE R, IN VIEW OF THE EVIDENCE FOUND DURING THE COURSE OF SURVEY AND ALSO IN VIEW OF THE FACT THAT THE NOTIFICATION FOR PRIVATE FORESTATION WAS ISSUED MUCH EARLIER I.E . BEFORE ENTERING INTO MOU AND THE ASSESSEE WAS AWARE OF SUCH RESTRICTION ON A POR TION OF LAND AND THEN ONLY HE AGREED TO PAY THE CONSIDERATION OF RS.52,00,000/- P ER ACRE. THE CIT(A) ALSO NOTED THAT ONLY THE CASH COMPONENT OF 20% IN THE SA LE CONSIDERATION WAS CLAIMED TO HAVE BEEN WITHHELD AND REJECTING THE EXP LANATION OF THE ASSESSEE, THE CIT(A) UPHELD THE ORDER OF ASSESSING OFFICER. 28. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 29. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE A SSESSEE POINTED OUT THAT THE SAID AMOUNT WAS WITHHELD IN VIEW OF THE RESTRIC TION ON PORTION OF LAND AND THE AMOUNT AS PER THE SALE DEED WAS THE AMOUNT PAID TO THE SELLER. ITA NO.975/PN/2013 ITA NOS.1465 & 1466/PN/2013 UNIVERSAL CONSTRUCTION MACHINERY AND EQUIPMENT PVT LTD 14 30. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF CIT(A). 31. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS IN RELATION TO THE UNEXPLAINED INVESTMENT IN THE SHIVARE LAND PURCHASED BY THE ASSESSEE FROM SHRI RA JU TUNGATKAR. DURING THE COURSE OF SURVEY AT THE PREMISES OF THE ASSESSEE CO NDUCTED ON 14.10.2011 CERTAIN DOCUMENTS WERE FOUND FROM THE POSSESSION OF ASSESSEE, UNDER WHICH IT HAD ENTERED INTO AGREEMENT WITH SHRI RAJU TUNGATKAR FOR PURCHASE OF LAND FOR SUM OF RS.2.80 CRORES THROUGH A DEED OF AGREEMENT D ATED 09.06.2008. HOWEVER, AGAINST THE SAID AGREEMENT OF SALE, THE SA LE DEED EXECUTED ON 12.09.2009 REFLECTED THE CONSIDERATION AT RS.2,24,6 4,000/-. ANOTHER DOCUMENT WAS ALSO FOUND FROM THE POSSESSION OF THE ASSESSEE FOR MAKING THE PAYMENT FOR PURCHASE OF THE SAID LAND IN CHEQUE AND CASH IN THE RATIO OF 80:20. WHEN CONFRONTED WITH THE SAID EVIDENCE, THE EXPLANATION OF THE ASSESSEE WAS THAT PART OF THE CONSIDERATION WAS WITHHELD BECAUSE OF CERTAI N RESTRICTIONS ON A PORTION OF LAND. THE ASSESSEE FAILED TO PRODUCE THE SELLER BE FORE THE ASSESSING OFFICER AND CONSEQUENTLY, THE DIFFERENCE WAS ADDED IN THE HANDS OF THE ASSESSEE. BEFORE THE CIT(A), THE ASSESSEE FURNISHED A LETTER FROM TH E SELLER PLEADING THAT THE SAME MAY BE ADMITTED AS AN ADDITIONAL EVIDENCE. THE SAI D ADDITIONAL EVIDENCE FURNISHED BY THE ASSESSEE WAS FORWARDED TO THE ASSE SSING OFFICER, WHO IN TURN SUBMITTED HIS REPORT VIDE LETTER DATED 11.09.2012. THE STATEMENT OF SELLER WAS ALSO RECORDED BY THE ASSESSING OFFICER. THE CIT(A) THEREAFTER, REFERRED TO THE CONTENTS OF MOU EXECUTED ON 09.06.2008 AND THE SUBS EQUENT SALE DEED EXECUTED ON 12.09.2008 AND OBSERVED AS UNDER:- 4.4 THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE APPELLANT ARE EXAMINED WITH REFERENCE TO THE CONTENTS OF THE MOU DATED 09 TH JUNE 2003 AND SUBSEQUENT SALE DEED DATED 12/09/2008 AND CORRE CTION DEED DATED 18/02/2011. TO RESOLVE THE ISSUE, IT IS ESSENTIAL T O REFER TO THE FOLLOWING CLAUSES IN THE MOU, WHICH HAVE BEARING ON THE ISSUE :- ITA NO.975/PN/2013 ITA NOS.1465 & 1466/PN/2013 UNIVERSAL CONSTRUCTION MACHINERY AND EQUIPMENT PVT LTD 15 '..THE FIRST PARTY AND THE SECOND PARTY HAVE FRIEND LY RELATIONS WITH EACH OTHER. THE SECOND PARTY WAS IN SEARCH OF THE L ANDED PROPERTY AND MET FIRST PARTY. AS THE FIRST PARTY IS NEED OF MONEY FOR SATISFYING HIS LEGAL MEETS, DUE NEGOTIATIONS TOOK PLACE BETWEE N THE PARTIES OF SALE OF THE SAID PROPERTY AND RATE OF RS.52,00,000/ - ( RUPEES FIFTY TWO LACS ONLY) PER ACRE IS AGREED BETWEEN THE PARTI ES. THUS THE TOTAL CONSIDERATION AGREED BETWEEN THE PARTIES IS O F RS. 2,80,80,000/- (RUPEES TWO CRORES, EIGHTY LACS EIGHT Y THOUSAND ONLY) AND AS PER THIS MOU THE TERMS AND CONDITIONS AGREED BETWEEN THE PARTIES ARE AS UNDER- A) 'THE FIRST PARTY HAS AGREED TO SELL AND TRANSF ER THE SAID PROPERTY TO THE SECOND PART FOR THE TOTAL CONSIDERATION AGRE ED BETWEEN THE PARTIES IS OF RS.2,80,80,000/- (RUPEES TWO CRORES, EIGHTY LACS EIGHTY THOUSAND ONLY) B) THE SECOND PARTY HAS PAID AN AMOUNT OF RS.70,00,00 0/- (RUPEES SEVENTY LACS) TO THE FIRST PARTY ON THE EXE CUTION OF THIS MOU VIDE TWO CHEQUES NO.276435 OF RS.50,00,000/- AND NO. 276435 OF RS.20,00,000/- DATED 11106/2008 DRAWN ON SBI. C) IT IS AGREED BETWEEN THE PARTIES THAT THE SECOND P ARTY SHALL PAY AN AMOUNT OF RS.50,00,000/- (RUPEES FIFTY LACS) TO THE FIRST PARTY AT THE TIME OF THE SALE DEED. D) IT IS AGREED BETWEEN THE PARTIES AS PER THIS MOU T HAT THE SECOND PARTY SHALL PAY 50% OF THE REMAINING AMOUNT AFTER DEDUCTING THE AMOUNTS PAID AS PER CLAUSES A, B, C H EREINABOVE BY CHEQUE OF THIRD MONTH TO THE FIRST PARTY AT THE TIM E OF THE SALE DEED. E) IT IS AGREED BETWEEN THE PARTIES AS PER THIS MOU THAT THE SECOND PARTY SHALL PAY THERE AFTER DEDUCTING THE AMOUNT PA ID AS PER CLAUSE D HEREINABOVE BY CHEQUE OF SIXTH MONTH TO THE FIRST PARTY AT THE TIME OF THE SALE DEED. F) THE SAID PROPERTY IS ABSOLUTELY FREE AND MARKETA BLE. THE SAID PROPERTY IS NOT ENCUMBERED BY WAY OF MORTGAGE WITH ANY BANK OR BY WAY OF GIFT. THE FIRST PARTY WILL HAND OVER 7/12 EXTRACTS, SEARCH REPORT BY ADVOCATE FOR LAST THIRTY YEARS AND ALL DO CUMENTS REFERRED TO ABOVE ESSENTIAL FOR REGISTERED INDENTURE PRIOR T O SALE DEED. G) THE FIRST PARTY HAS GIVEN PERMISSION BY THIS MOU TO PUBLISH PUBLIC NOTICE IN THE LOCAL NEWS PAPER IN RESPECT OF THE SAID PROPERTY AND TO PUT UP BOARD ON THE SAID PROPERTY. H] THE FIRST PARTY HAS ASSURED THAT THERE IS 20 F EET ACCESS ROAD TO THE SAID PROPERTY FROM THE NATIONAL HIGHWAY NO.4. 3] THE SECOND PARTY SHALL HAVE RIGHT FOR SPECIFIC P ERFORMANCE THROUGH COURT IN CASE THE FIRST PARTY AVOIDS TO EXE CUTE SALE DEED IN SPITE OF THE FACT THAT THE SECOND PARTY IS READY TO GET EXECUTED SALE DEED WITHIN ABOVE REFERRED STIPULATED TIME LIMIT. THE FIRST PARTY SHALL BE PERSONALLY LIABLE TO BEAR THE COST OF SUCH SUIT. 4) IT IS AGREED BETWEEN THE PARTIES THAT AFTER THE EXECUTION OF THIS MOU THE FIRST PARTY SHALL SHOW THE BOUNDARIES OF TH E SAID PROPERTY ITA NO.975/PN/2013 ITA NOS.1465 & 1466/PN/2013 UNIVERSAL CONSTRUCTION MACHINERY AND EQUIPMENT PVT LTD 16 AS PER THIS MOU. IT IS AGREED BETWEEN THE PARTIES A S PER THIS MOU THAT THE SECOND PARTY AT ITS OWN COST GET THE GOVER NMENT DEMARCATION DONE OF DIE SAID PROPERTY BEFORE SALE D EED. 5) THE EXPENSES OF THE REGISTERED INDENTURE LIKE ST AMP DUTY, REGISTRATION CHARGES, ADVOCATE FEES, OTHER INCIDENT AL SHALL BE BORNE BY THE SECOND PARTY. 32. THE COPY OF THE SAID MOU WAS ALSO MADE AVAILABL E TO THE ASSESSEE DURING THE COURSE OF APPELLATE PROCEEDINGS. THE CIT(A) TH EREAFTER, HELD AS UNDER:- 4.4.2 THE NEXT CLAIM OF THE APPELLANT IN THE WRITT EN SUBMISSIONS IS THAT THE APPELLANT HAS PAID ONLY RS,2,24,64,000/- ONLY OUT OF TOTAL CONSIDERATION OF RS.2,80,80,000/- SHOWN IN THE MOU AND THE BALANC E AMOUNT OF RS.56,16,000/- WAS NEVER PAID TO THE VENDOR AND IN SUPPORT OF ITS CONTENTION, THE APPELLANT ALSO FILED A LETTER DATED 25/10/2011 FROM THE VENDOR, NAMELY, MR. RAJU TUNGATKAR. IN THE LETTER, IT WAS STATED THAT THERE WERE FEW DISPUTES REGARDING THE MEASUREMENT OF LAND AND CLASSIFICATION OF A PART THE AREA AS PRIVATE FORESTATION LAND AND THE REFORE, THEY AGREED TO HOLD 20% OF THE CONTRACT VALUE I.E. RS,56,16,000/- TILL THE TIME THE LAND IS DEFORESTED AND ALL THE DISPUTES ARE RESOLVED. THE C LAIM OF THE APPELLANT IS NOT WELL FOUNDED. IT MAY BE NOTICED FROM THE ABOVE RECITALS IN THE MOU, AFTER DUE NEGOTIATIONS THAT HAD TAKEN PLACE BETWEEN THE PARTIES OF THE SALE, THE RATE OF RS.52,00,000/- 'PER ACRE AND THE TOTAL CONSIDERATION OF RS.2,80,80,000/- FOR THE ENTIRE LAND WAS AGREED UPO N BETWEEN THE PARTIES. THE MOU ALSO PROVIDES THE PAYMENT SCHEDULE FOR THE TOTAL CONSIDERATION OF RS.2,80,00,000/- VIDE CLAUSES A TO E OF PARAGRAP H 2 OF THE MOU. AS PER CLAUSE E, THE APPELLANT SHALL PAY THE FINAL INS TALLMENT TO THE VENDOR AT THE TIME OF EXECUTION OF SALE DEED. IT IS ALSO STAT ED IN PARAGRAPH 4 OF THE MOU THAT IT WAS AGREED BETWEEN THE PARTIES THAT AFT ER THE EXECUTION OF THE MOU, THE FIRST PARTY WOULD SHOW THE BOUNDARIES OF T HE SAID PROPERTY AS PER THE SAID MOU. IT WAS FURTHER AGREED BETWEEN THE PAR TIES THAT THE SECOND PARTY WOULD AT ITS OWN COST GET THE GOVERNMENT DEMA RCATION DONE OF THE SAID PROPERTY BEFORE THE SALE DEED IS EXECUTED. CLA USE 7 OF THE MOU ALSO STATES THAT THE VENDOR HAS TAKEN ALL THE F RESPONSI BILITY AS PER THE MOU OF GIVING SIGNATURES, CONSENTS, AFFIDAVITS REQUIRED FO R OBTAINING NECESSARY PERMISSION AS PER PROVISION OF 63(1)(A) OF BOMBAY T ENANCY & AGRICULTURAL LANDS ACT, 1948 AS THE BUYER IS PURCHASING THE SAID PROPERTY IN THE NAME OF THE COMPANY, IT IS ALSO MENTIONED THEREAFTER THA T THE VENDOR SHALL EXECUTE THE SALE DEED OF THE PROPERTY IN FAVOR OF T HE BUYER AFTER FORTHWITH CLEARING UP THE LEGAL OBJECTIONS OF ANY PERSON, IF ANY, BY THE VENDOR RECEIVED AS A RESULT OF PUBLIC NOTICE PUBLISHED IN RESPECT OF THE SAID PROPERTY. ALL THESE CLAUSES IN THE MOU CLEARLY INDI CATE THAT THE VENDOR HAD TAKEN THE COMPLETE RESPONSIBILITY FOR OBTAINING NEC ESSARY PERMISSIONS AS PER THE PROVISIONS OF THE BOMBAY TENANCY AND AGRICU LTURAL ACT, 1998 AND THE VENDOR SHALL EXECUTE THE SALE DEED IN FAVOR OF THE APPELLANT AFTER FORTHWITH CLEARING ALL THE OBJECTIONS OF ANY PERSON IF, ANY, BY THE VENDOR. SUBSEQUENTLY, AS MENTIONED EARLIER THE SALE DEED WA S EXECUTED ON 12/09/2008 WHICH CLEARLY SHOWS THAT ALL THE ISSUES RELATING TO THE TITLE OF THE PROPERTY, AND PRIVATE FORESTATION ZONE ETC. WER E CLEARED OR DEEMED TO HAVE BEEN CLEARED AS ON THE DATE OF EXECUTION OF TH E SALE DEED. THEREFORE, IT IS NOT CORRECT TO SAY THAT EVEN, AFTE R THE EXECUTION OF THE SALE DEED, THE REMAINING AMOUNT OF RS.56,16,000/- WAS TO BE PAID TO THE VENDOR AND WAS NOT PAID AS ON DATE. IN FACT, AS ST ATED IN THE ASSESSMENT ITA NO.975/PN/2013 ITA NOS.1465 & 1466/PN/2013 UNIVERSAL CONSTRUCTION MACHINERY AND EQUIPMENT PVT LTD 17 ORDER, PAGE NO.91 OF THE UNIVERSAL BOX FILE IMPOUND ED DURING THE SURVEY CLEARLY GIVES THE BIFURCATION OF THE PAYMENT TO BE MADE BY CHEQUE AND CASH IN THE RATIO OF 80:20. ACCORDINGLY, THE CASH PORTION OF THE CONSIDERATION WAS RS.56,16,000/- AND SINCE THE SALE DEED WAS ALREADY EXECUTED DURING THE YEAR, THE APPELLANT WOULD HAVE PAID THE CASH COMPONENT ALSO BEFORE OR AT LEAST AT THE TIME OF EX ECUTION OF THE SALE DEED. WITH REGARD TO THE LETTER FURNISHED BY VENDOR SHRI R.N.TUNGATKAR, SUCH LETTERS AND AFFIDAVITS ARE ONLY SELF SERVING L ETTERS AND AFFIDAVITS AS BOTH THE PERSONS ARE INTERESTED PERSONS IN THE TRAN SACTIONS AND NO CREDENCE CAN BE GIVEN TO SUCH SELF-SERVING LETTERS. 4.4.3 THE EVIDENCE UNEARTHED DURING THE SURVEY IN T HE FORM OF MOU AND THE PAGE NO. 91 OF THE UNIVERSAL BOX FILE FOUND DUR ING THE SURVEY CLEARLY SHOW THAT THE CONSIDERATION AGREED UPON WAS RS.2,80 ,80,000/- BY CHEQUE AND CASH IN THE OF 80:20 RESPECTIVELY AND THE AMOUN T WAS TO BE PAID ON OR BEFORE THE EXECUTION OF THE SALE DEED. IN THE ABSEN CE OF ANY CORROBORATIVE EVIDENCES TO THE CONTRARY, THE SELF SERVING LETTER NOW FILED BY THE APPELLANT IN SUPPORT OF ITS CLAIM THAT THE PART OF THE CONSID ERATION AGREED UPON AS PER THE MOU WAS NOT ACTUALLY PAID IS ONLY AN AFTERTHOUG HT AND CANNOT BE ACCEPTED. IT IS ALSO COMMON KNOWLEDGE THAT NO PERSO N WOULD EXECUTE THE SALE DEED WITHOUT RECEIVING THE FULL SALE CONSIDERA TION AGREED UPON AS PER THE AGREEMENT OR MOU. MOREOVER, FROM THE DETAILS P LACED ON RECORD, IT IS ALSO OBSERVED THAT THE NOTIFICATION FOR PRIVATE FOR ESTATION WAS ISSUED MUCH EARLIER I.E. BEFORE ENTERING INTO THE MOU AND THE A PPELLANT WAS AWARE OF SUCH RESTRICTIONS ON A PORTION OF THE LAND AND THEN ONLY APPELLANT AGREED FOR THE CONSIDERATION OF RS.52,00,000/- PER ACRE. I T IS ALSO INTERESTING TO NOTE THAT IT IS ONLY THE CASH COMPONENT OF 20% IN T HE SAFE CONSIDERATION THAT WAS CLAIMED TO HAVE BEEN WITHHELD TILL THE TIM E THE LAND IS DEFORESTED AND ALL THE DISPUTES ARE RESOLVED. 33. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE A SSESSEE HAS FAILED TO CONTROVERT THE FINDINGS OF THE CIT(A) IN THIS REGAR D AND CONSEQUENTLY, WE FIND NO MERIT IN THE GROUNDS OF APPEAL NOS.1 TO 3 RAISED BY THE ASSESSEE AND DISMISSING THE SAME, WE UPHOLD THE ADDITION OF RS.56,16,000/-. 34. THE ISSUE IN GROUNDS OF APPEAL NO.4 AND 5 IS WI TH REGARD TO THE DISALLOWANCE OF RS.1,23,83,286/- OUT OF THE FOLLOWI NG ITEMS OF EXPENDITURE:- I. TRAVELLING AND CONVEYANCE EXPENSES - RS.43, 98,650/- II. LABOUR CHARGES - RS.61,47,485/- III. ADVERTISEMENT EXPENSES - RS.14,17,312/- IV. GUEST HOUSE EXPENSES - RS.4,19,839/- 35. THE ASSESSING OFFICER HAD DISALLOWED THE ABOVE SAID EXPENDITURE IN VIEW OF THE DISPROPORTIONATE INCREASE IN OVERALL EXPENDI TURE COMPARED TO THE INCREASE IN THE TURNOVER AND ALSO IN VIEW OF THE RATIO OF EX PENDITURE COMPARED TO THE ITA NO.975/PN/2013 ITA NOS.1465 & 1466/PN/2013 UNIVERSAL CONSTRUCTION MACHINERY AND EQUIPMENT PVT LTD 18 PRECEDING YEAR. THE DISALLOWANCE WORKED OUT BY THE ASSESSING OFFICER, WHICH WAS UPHELD BY THE CIT(A) WERE AS UNDER:- SR. NO. ITEM OF EXPENDITURE EXPENDITURE CLAIMED (RS) % INCREASE IN THE EXPENDITURE % OF INCREASE DISALLOWED (D-14%)* EXCESS EXPENDITURE DISALLOWED* (A) (B) (C) (D) (E) (F) 1. TRAVELLING AND CONVEYANCE EXPENSES 2,32,52,401 40.6% 26.6% 43,98,650 3. LABOUR CHARGES 4,96,97,347 30.1% 16.1% 61,47,485 4. ADVERTISEMENT EXPENSES 64,05,865 46.4% 32.4% 14,17,312 5. GUEST HOUSE EXPENSES 7,85,264 145% 131% 4,19,839 TOTAL 1,23,83,286 * OVER LAST YEARS CORRESPONDING EXPENDITURE . 36. THE CLAIM OF THE ASSESSEE BEFORE US WAS THAT TH E EXPENDITURE HAD BEEN INCURRED IN THE COURSE OF CARRYING ON THE BUSINESS AND 90% OF THE PAYMENTS IN RESPECT THEREOF WERE MADE BY CHEQUE. FURTHER, COMP LETE VOUCHERS WERE MAINTAINED BY THE ASSESSEE IN THIS REGARD AND THERE WAS NO MERIT IN DISALLOWING 25% OUT OF THE SAID EXPENDITURE. THE ASSESSEE BEFO RE US IS A PRIVATE LIMITED COMPANY AND WAS ENGAGED IN MANUFACTURING OF CONSTRU CTION MACHINERY AND EQUIPMENT. THE IMPUGNED EXPENDITURE UNDER REFERENC E HAD BEEN INCURRED BY THE ASSESSEE WHILE CARRYING ON ITS BUSINESS. THE A SSESSING OFFICER HAD ACCEPTED THE PLEA OF THE ASSESSEE THAT THE SAID EXP ENDITURE WAS INCURRED IN THE COURSE OF BUSINESS CARRIED ON BY THE ASSESSEE BY AL LOWING MAJOR PORTION OF THE EXPENDITURE. HOWEVER, DISALLOWANCE WAS MADE IN THE HANDS OF THE ASSESSEE BECAUSE OF INCREASE IN RATIO OF EXPENDITURE VIS--V IS TURNOVER. WE FIND NO MERIT IN THE SAID STAND OF THE ASSESSING OFFICER IN THE ABSE NCE OF ANY EVIDENCE FOUND TO PROVE THAT THE EXPENDITURE IS NOT RELATABLE TO THE BUSINESS OF ASSESSEE. MERELY BECAUSE THERE IS AN INCREASE IN THE QUANTUM OF EXPE NDITURE DOES NOT MERIT THE DISALLOWANCE IN THE HANDS OF THE ASSESSEE. WE FIND NO MERIT IN THE ADHOC DISALLOWANCE MADE BY THE ASSESSING OFFICER IN THE A BSENCE OF ANY EVIDENCE BROUGHT ON RECORD TO SUBSTANTIATE THE DISALLOWANCE. ACCORDINGLY, WE REVERSE THE ITA NO.975/PN/2013 ITA NOS.1465 & 1466/PN/2013 UNIVERSAL CONSTRUCTION MACHINERY AND EQUIPMENT PVT LTD 19 ORDER OF CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW THE SAID EXPENDITURE IN ENTIRETY. THE GROUNDS OF APPEAL NO.4 AND 5 RAISED BY THE ASSESSEE ARE THUS, ALLOWED. 37. IN THE RESULT, THE APPEAL OF THE ASSESSEE VIDE ITA NO.1465/PN/2013 IS PARTLY ALLOWED AND THE OTHER TWO APPEALS OF THE ASS ESSEE VIDE ITA NO.1466/PN/2013 AND ITA NO.975/PN/2013 ARE ALLOWED. ORDER PRONOUNCED ON THIS 10 TH DAY OF APRIL, 2015. SD/- SD/- (G.S. PANNU) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 10 TH APRIL, 2015 GCVSR COPY OF THE ORDER IS FORWARDED TO: - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-III, PUNE; 4) THE CIT-III, PUNE; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE
Mehul