ACIT, CC-8, V. Aerens Developers & Engg.,

ITA 1518/DEL/2006

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4206 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 30-03-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 01-05-2006
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: REENA SINHAPURI
• Assessee Lawyers: K R MANJANI
• Keywords: Bogus Share capital; Document seized; Opportunity of being heard; Additional evidence; Notional interest; Onus to prove; Documents seized; Revenue expenditure; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI DELHI DELHI DELHI, BENCH , BENCH , BENCH , BENCH C CC C, , , , NEW DELHI NEW DELHI NEW DELHI NEW DELHI BEFORE SHRI C. L. SETHI, JUDICIAL MEMBER AND SHRI K. D. RANJAN, ACCOUNTANT MEMBER ITA NO. 1518 /DEL/2006 (ASSESSMENT YEAR2002-03) ACIT ,CC-8, NEW DELHI VS. M/S. ARENS DEVELOPERS & ENGG. 6 TH FLOOR, MAHENDRA TOWER, 2A, BHIKAJI CAMA PLACE, NEW DELHI. (APPELLANT) (RESPONDENT) PAN AAACA2199R APPELLANT BY: SMT. REENA SINHA PURI, CIT DR RESPONDENT BY: SHRI K. R. MANJANI, ADV. ORDER ORDER ORDER ORDER PER K. D. RANJAN, AM: PER K. D. RANJAN, AM: PER K. D. RANJAN, AM: PER K. D. RANJAN, AM: 1. THIS APPEAL BY THE REVENUE FOR THE ASSESSMENT YE AR 2002-03 ARISES OUT OF THE ORDER LD. CIT(A) II, NEW DELHI. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE REPRODUCED AS UNDE R: 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A), HAS ERRED IN DELETING THE ADDITION OF ` 3,37,25,075/- MADE ACCOUNT OF BOGUS SHARE APPLICATION MONEY RECEI VED IGNORING THE FACT THAT THE SHARE HOLDERS ARE INGENU INE AND THEIR IDENTITY CREDIT WORTHINESS AND GENUINENESS OF THE TRANSACTIONS HAVE NOT BEEN PROVED. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF ` 3,37,25,075/- MADE ACCOUNT OF BOGUS SHARE APPLICATION MONEY RECEI VED ACCEPTING THE ADDITIONAL EVIDENCE IN CONTRAVENTION OF RULE 46A OF THE I T RULE 1962. 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF ` 3,52,66,096/- MADE ON ACCOUNT OF SALE CONSIDERATION OF THE PROPER TY. 4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE O F ` I.T.A.NO. 1518/DEL/2006 2 74,47,868/- MADE ON ACCOUNT OF NOTIONAL INTERESTS F OR ADVANCING INTEREST BEARING FUNDS TOWARDS INTEREST F REE LOANS. 5) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE O F EXPENSE ` 14,19,152/- BEING EXCESSIVE AND NOT SUPPORTED BY TH E PROPER EVIDENCE. 2. THE FIRST ISSUE FOR CONSIDERATION RELATES TO DEL ETION OF ADDITION OF ` 3,37,25,075/- MADE ON ACCOUNT OF BOGUS SHARE A PPLICATION MONEY RECEIVED BY THE ASSESSEE. THE FACTS OF THE C ASE STATED IN BRIEF ARE THAT THE ASSESSEE COMPANY BELONGS TO AREN S GROUP OF COMPANIES. THE MAIN BUSINESS INTEREST OF ARENS GRO UP IS IN REAL ESTATE RELATING TO INVESTMENT AND RENTING ETC. DU RING THE COURSE OF ASSESSMENT PROCEEDINGS, IT HAS BEEN NOTED THAT THE GROUP HAS FLOATED SEVERAL COMPANIES FOR THE PURPOSE OF INVEST MENT IN REAL ESTATE AND THE ASSESSEE COMPANY IS ONE OF THEM. IT HAS ALSO FURTHER BEEN NOTED THAT HUGE FUNDS HAVE BEEN INFUSED IN THE REAL ESTATE COMPANIES TO MAKE INVESTMENTS. THE FUNDS HAVE BEEN GENERATED EITHER AS DIRECT SHARE APPLICATION MONEY OR UNSECUR ED LOANS/ADVANCES AGAINST THE PROPERTIES AND THE FUNDS HAVE BEEN FLOATED THROUGH SOME OF THE INVESTMENT COMPANIES CO NTROLLED BY THE GROUP. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS HAS NOTED THAT THE ASSESSEE COMPANY HAD RECEIVED IN THE FORM OF SHARE APPLICATION MONEY INCLUDING PREMI UM FROM SIX GROUP COMPANIES DETAILED AS UNDER: I) IHP TRADERS LTD. / GLOBAL DISTRIBUTORS LTD. ` 2 ,59,98,500/- II) SRINIWAS LEASING & FINANCE LTD. ` 5,00,000/- III) LAXMAN INDUSTRIAL RESORTS LTD., ` 5,00,000/- IV) SUPRIYA AGROTECH LTD., ` 28,26,575/- V) FINSTOCK LTD., ` 30,00,000/- VI) SHREYA FINCAP LTD., ` 15,00,000/- 3. THE ASSESSING OFFICER AFTER DISCUSSING THE STATU S OF THE COMPANIES REQUIRED THE ASSESSEE TO EXPLAIN THE GENU INENESS OF I.T.A.NO. 1518/DEL/2006 3 CREDITS. IT WAS SUBMITTED BY THE ASSESSEE THAT ALL THE TRANSACTIONS WERE ROUTED THROUGH ACCOUNTS PAYEE CHEQUES. THE C ONFIRMATIONS FROM THE INVESTORS HAVE BEEN FILED ALONG WITH SUPPO RTING EVIDENCES. THEREFORE, THE ASSESSEE HAD DISCHARGED THE ONUS TO PROVE THE CASH CREDIT. THIS CONTENTION OF THE ASSESSEE WAS REJECT ED BY THE ASSESSING OFFICER ON THE GROUND THAT ALL THE COMPAN IES FORM WHOM THE SHARE APPLICATION MONEY WAS RECEIVED, MET ALL T HE PARAMETERS OF A BOGUS ACCOMMODATION ENTRY PROVIDER. THE ASSESS ING OFFICER THEREFORE ADDED THE AMOUNT OF ` 3,37,25,075/- HAS U NEXPLAINED CASH CREDIT. 4. ON APPEAL, LD. CIT(A) AFTER CONSIDERING VARIOUS DECISIONS OBSERVED THAT THE SHARE APPLICANTS WERE INCOME TAX PAYEES. THEREFORE, IT COULD NOT BE PRESUMED THAT SHAREHOLDE RS WHO WERE ASSESSED TO TAX WERE NOT IN EXISTENCE. LD. CIT(A), THEREFORE, CAME TO THE CONCLUSION THAT SHARE APPLICATION MONEY WAS GENUINE AND HE ACCORDINGLY DELETED THE ADDITION. 5. BEFORE US, LD. CIT DR SUBMITTED THAT SIMILAR ISS UE CAME UP BEFORE ITAT DELHI BENCH D NEW DELHI IN THE CASE O F M/S. PMC ENTERTAINMENT (P) LTD. IN I.T.A. NO. 2175/DEL/2006 FOR THE ASSESSMENT YEAR 2002-03. ITAT VIDE THEIR ORDER DAT ED 31.03.2008 SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OF FICER. SHE, THEREFORE, REQUESTED THAT THE ISSUE SHOULD BE SET A SIDE TO THE FILE OF THE ASSESSING OFFICER WITH THE SIMILAR DIRECTIONS. ON THE OTHER HAND, LD. A.R. FOR THE ASSESSEE OF THE ASSESSEE SUBMITTED THAT THE ISSUE HAS BEEN DECIDED IN ACCORDANCE WITH THE PROVISIONS OF LAW AND THEREFORE, THERE WAS NO NEED FOR SETTING ASIDE THE ISSUE. 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE THAT ASSESSEE HAD RECEIVED SHARE APPLICATION MONEY FROM GROUP CONCERN S. ITAT IN THE I.T.A.NO. 1518/DEL/2006 4 CASE OF PMC ENTERTAINMENT PVT. LTD. SET ASIDE THE O RDER BY OBSERVING AS UNDER: 8. IN THE CASE BEFORE US THE ASSESSEE HAS ESTABLIS HED IDENTITIES OF THE INVESTOR COMPANIES. THE ASSESSIN G OFFICER BY TRACING THE HISTORY OF THE AREN GROUP OF COMPANY HA D POINTED OUT AS TO HOW THE MONEY BY WAY OF SHARE APPLICATION CAPITAL HAD BEEN INTRODUCED IN VARIOUS COMPANIES. IN THE I NSTANT CASE, THE ASSESSEE HAD NOT YET COMMENCED THE BUSINE SS BUT THE SHARES HAD BEEN ISSUED ON PREMIUM OF ` 30 PER S HARE. THE CREDITWORTHINESS OF THE INVESTOR COMPANIES WAS NOT ESTABLISHED. AS HELD BY HON'BLE DELHI HIGH COURT I N THE CASE OF DEVINE LEASING & FINANCE LTD. THE ASSESSING OFFI CER IS DUTY BOUND TO INVESTIGATE THE CREDITWORTHINESS OF CREDITORS/SUBSCRIBERS, THE GENUINENESS OF TRANSACTI ON AND THE VERACITY OF REPUDIATION. FROM ASSESSMENT ORDER WE FIND THAT ASSESSING OFFICER HAS NOT CARRIED OUT THOROUGH INVE STIGATION ABOUT THE GENUINENESS OF TRANSACTIONS AND CREDITWOR THINESS OF THE INVESTORS/SUBSCRIBERS. LD. CIT(A) HAD DELETED THE ADDITION MERELY ON THE GROUND THAT THE IDENTITIES OF THE SUB SCRIBER WERE ESTABLISHED. THE RELIANCE PLACED BY HIM ON TH E DECISION OF SOPHIA FINANCE LTD., (SUPRA) IS NOT CORRECT AS I N THAT CASE THE ISSUE RELATED TO PUBLIC ISSUE AND NOT THE PRIVA TE PLACEMENT. ADMITTEDLY, THE ASSESSEE COMPANY IS A P RIVATE LIMITED COMPANY, WHICH HAD NOT STARTED ANY BUSINESS AT THE RELEVANT TIME. THEREFORE, IT WAS UNBELIEVABLE THAT AN OUTSIDER WILL INVEST MONEY IN A PRIVATE LIMITED COMPANY FORM WHICH HE MIGHT NOT GET ANY BENEFIT BY WAY OF DIVIDEND OR THE CAPITAL APPRECIATION AS ITS SHARES WERE NOT QUOTED. THEREF ORE THE ASSESSEES CASE IS ALSO TO BE EXAMINED IN THE LIGHT OF DECISION OF HON'BLE SUPREME COURT IN THE CASE OF SUMMATE DEA L (214 ITR 810). ACCORDINGLY, WE SET ASIDE THE ISSUE TO T HE FILE OF ASSESSING OFFICER WITH THE DIRECTION TO CARRY OUT I NVESTIGATION IN THE LIGHT OF DECISION OF DELHI HIGH COURT IN THE CASE OF DEVINE LEASING & FINANCE LTD., 7. WE ALSO FIND THAT HON'BLE DELHI HIGH COURT IN TH E CASE OF CIT VS OASIS HOSPITALITIES PVT. LTD. IN I.T.A. NO. 209 3/10 DATED 31.01.2011 HAS AFTER EXAMINING THE VARIOUS DECISION S HELD THAT INITIAL BURDEN IS UPON THE ASSESSEE TO EXPLAIN THE NATURE AND SOURCE OF SHARE APPLICATION MONEY RECEIVED BY THE ASSESSEE . IN ORDER TO DISCHARGE THIS BURDEN, THE ASSESSEE IS REQUIRED TO PROVE: (A) IDENTITY OF THE SHAREHOLDER; (B) GENUINENESS OF TRANSACTION; AND (C) CREDITWORTHINESS OF SHAREHOLDERS. HONBLE COURT H AS FURTHER HELD I.T.A.NO. 1518/DEL/2006 5 THAT IN CASE THE INVESTOR/SHAREHOLDER IS AN INDIVID UAL, SOME DOCUMENT WILL HAVE TO BE FILED OR THE SHAREHOLDER W ILL HAVE TO BE PRODUCED BEFORE THE ASSESSING OFFICER TO PROVE ITS IDENTITY. IF THE CREDITOR/SUBSCRIBER IS A COMPANY THEN THE DETAILS I N THE FORM OF REGISTERED ADDRESS, PAN IDENTITY, ETC. CAN BE FURNI SHED. THE GENUINENESS OF TRANSACTION IS TO BE DEMONSTRATED BY SHOWING THAT THE ASSESSEE HAD, IN FACTS, RECEIVED MONEY FROM THE SAID SHAREHOLDERS AND IT HAD COME FROM THE COFFERS OF TH AT VERY SHAREHOLDER. THE DIVISION BENCH HAS FURTHER HELD T HAT WHEN MONEY IS RECEIVED BY CHEQUES AND IS TRANSMITTED THROUGH B ANKING OR OTHER UNDISPUTABLE CHANNEL, GENUINENESS OF TRANSACTION WO ULD BE PROVED. THE DOCUMENTS SHOWING THE GENUINENESS OF TRANSACTIO N CAN BE THE COPY OF SHAREHOLDER REGISTER, SHARE APPLICATION FOR M, SHARE TRANSFER REGISTER ETC. AS FAR AS THE CREDITWORTHINESS AND F INANCIAL STRENGTH OF THE CREDITOR/SUBSCRIBER IS CONCERNED, THIS CAN BE P ROVED BY PRODUCING THE BANK STATEMENT OF THE CREDITOR/SUBSCR IBER SHOWING THAT IT HAD SUFFICIENT BALANCE IN ITS ACCOUNT TO EN ABLE IT TO SUBSCRIBE TO THE SHARE CAPITAL. IT HAS BEEN HELD THAT ONCE T HESE DOCUMENTS ARE PRODUCED, THE ASSESSEE WOULD HAVE SATISFACTORIL Y DISCHARGED THE ONUS CASTE UPON HIM. THEREAFTER, IT IS FOR THE ASS ESSING OFFICER TO SCRUTINIZE THE SAME AND IN CASE HE NURTURES ANY DOU BT ABOUT THE VERACITY OF THESE DOCUMENTS HE MAY PROBE THE MATTER FURTHER. HOWEVER, TO DISCREDIT THE DOCUMENT PRODUCED BY THE ASSESSEE ON THE AFORESAID ASPECTS, THERE HAS TO BE SOME COGENT REASON AND MATERIAL FOR THE ASSESSING OFFICER AND HE CANNOT GO INTO THE REALM OF SUSPICIONS. 8. FROM THE RECENT DECISION OF HON'BLE DELHI HIGH C OURT IT IS CLEAR THAT ASSESSEE HAS TO DEMONSTRATE THE GENUINENESS OF TRANSACTION BY PROVING THAT THE MONEY HAD COME FROM THE COFFERS OF THE SHAREHOLDERS. SINCE IN THE CASE BEFORE US, THE ISS UE INVOLVED IS IDENTICAL TO THE ISSUE WHICH WAS INVOLVED IN PMC EN TERTAINMENT (P) I.T.A.NO. 1518/DEL/2006 6 LTD. (SUPRA) WE SET ASIDE THE ISSUE OF SHARE APPLIC ATION MONEY TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE THE MATTER IN THE LIGHT OF DECISION OF ITAT AS WELL AS LATEST DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF OASIS HOSPITALITIES PVT. LTD. (SUPRA). THE ASSESSING OFFICER WILL DECIDE THE MATTER AFTER AFFORDING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD. 9. THE NEXT ISSUE FOR CONSIDERATION RELATES TO DELE TION OF ADDITION OF ` 3,52,66,096/- MADE ON ACCOUNT OF SALE CONSIDER ATION OF THE PROPERTY. THE FACTS OF THE CASE STATED IN BRIEF AR E THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTED THAT THE ASSESSEE HAD SUPPRESSED SALE CONSIDERATION ON SALE OF IMMOVA BLE PROPERTY. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE TOOK ADVANTAGE OF THE FACT THAT IN SUCH SALE CONSIDERATION, THE BUYER ALS O CONFIRMS THE CONSIDERATION BECAUSE THE BUYER IS ALSO A BENEFICIA RY AS FAR AS EVASION OF INCOME TAX WAS CONCERNED. IT WAS IN SUC H SITUATION, VERY DIFFICULT FOR THE DEPARTMENT TO ESTABLISH THAT THE SALE CONSIDERATION HAD BEEN SUPPRESSED. THE ASSESSING OFFICER FURTHE R NOTED THAT HE HAD COME ACROSS SEVERAL SALE TRANSACTIONS ENTERED I NTO BY THE ASSESSEE WHEREIN THE PROPERTIES WERE ON RENT WHEN S ALE WAS UNDERTAKEN BY THE ASSESSEE. THE ASSESSING OFFICER IDENTIFIED THE PROPERTIES AND THE RENT RECEIVED PER MONTH FROM THO SE PROPERTIES. SINCE THE RENT RECEIVED BY THE ASSESSEE FROM THE FL ATS SOLD, WAS VERY HIGH AS COMPARED TO THE SALE CONSIDERATION, THE ASS ESSING OFFICER WAS OF THE VIEW THAT THE RETURN OF CAPITAL IN FINAN CIAL YEAR 2001-02 WAS BETWEEN 10-12% PER ANNUM. HE FURTHER NOTED THA T EVEN IF ASSESSEE WAS CONSIDERED TO HAVE ENTERED INTO BAD DE AL THE RETURN ON CAPITAL FROM BUYER SHOULD NOT BE MORE THAN 20% P ER ANNUM BY ANY STRETCH OF IMAGINATION. THE ASSESSING OFFICER IN VIEW OF THESE FACTS, ESTIMATED THE SALE CONSIDERATION IN SUCH A W AY THAT THE PROPERTIES COULD GIVE 15% RETURN TO THE BUYER. THI S RESULTED IN ADDITION OF ` 3,52,66,096/-. I.T.A.NO. 1518/DEL/2006 7 10. ON APPEAL, LD. A.R. OF THE ASSESSEE SUBMITTED T HAT THE ASSESSING OFFICER HAD ESTIMATED THE SALE CONSIDERAT ION APPLYING THE RENT CAPITALIZATION METHOD. THE ASSESSEE HAD FILED ELABORATE REPLY TO THE NOTICE ISSUED BY THE ASSESSING OFFICER. THE RENT CAPITALIZATION METHOD WAS APPLICABLE ONLY FOR COMPUTATION OF MARKE T VALUE OF PROPERTY FOR THE PURPOSE OF WEALTH TAX. THIS METHO D HAS NO APPLICABILITY IN THE CASES OF INCOME TAX PROCEEDING S. THE EVIDENCE REGARDING THE SALE OF PROPERTY HAD ALREADY BEEN SUB MITTED. SOME OF SALE DOCUMENTS WERE PART OF SEIZED DOCUMENTS. T HE PARTIES TO WHOM PROPERTIES WERE SOLD, HAD BEEN THOROUGHLY EXAM INED BY THE INCOME TAX DEPARTMENT AND ALL THE PARTIES HAVE CONF IRMED THE TRANSACTION. THE ASSESSEE HAD FURNISHED COMPLETE D ETAILS REGARDING THE SALE AND PURCHASE OF PROPERTIES INCLUDING THE F LATS BUYER AGREEMENT. THE DEPARTMENT HAD CONDUCTED SEARCH OP ERATIONS AT THE PREMISES OF THE ASSESSEE DURING THE RELEVANT PR EVIOUS YEAR. NO DOCUMENT WAS FOUND DURING THE COURSE OF SEARCH OPER ATION WHICH COULD GIVE ANY INDICATION THAT THE PROPERTY WAS SOL D FOR ANY CONSIDERATION HIGHER THAN THE CONSIDERATION STATED IN THE AGREEMENTS. IN THE ABSENCE OF ANY MATERIAL TO INDI CATE THAT THE TRANSACTIONS HAD TAKEN PLACE AT HIGHER CONSIDERATIO N THAN WHAT WAS STATED IN THE SALE AGREEMENT, IT WOULD NOT BE APPRO PRIATE TO SUBSTITUTE THE ACTUAL SALE CONSIDERATION BY ANY OTH ER HYPOTHECATED VALUE. THE ASSESSEE PLACED RELIANCE ON SEVERAL DEC ISIONS. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS MADE BY TH E ASSESSEE, OBSERVED THAT THE ASSESSING OFFICER HAD NOT BROUGHT OUT ON RECORD ANY MATERIAL TO ESTABLISH THAT SALE CONSIDERATION O F THE PROPERTY WAS MORE THAN THE RECORDED VALUE. THE ADDITION HAD BEEN MADE PURELY ON ESTIMATION AND ON THE ASSUMPTIONS AND SUR MISES. MOREOVER, THE ASSESSING OFFICER WAS NOT COMPETENT T O VALUE THE IMMOVABLE PROPERTY. IF THE ASSESSING OFFICER HAD A NY APPREHENSION ABOUT THE VALUE OF THE CAPITAL, THE CORRECT COURSE WOULD HAVE BEEN I.T.A.NO. 1518/DEL/2006 8 TO REFER THE PROPERTY FOR VALUATION TO THE VALUATIO N OFFICER. HOWEVER, SINCE NO SUCH ATTEMPT WAS MADE, THE ADDITION MADE B Y THE ASSESSING OFFICER ON RENT CAPITALIZATION METHOD WAS NOT JUSTIFIED. HE ACCORDINGLY DELETED THE ADDITION. 11. BEFORE US, LD. CIT DR SUBMITTED THAT THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION THAT FOR THE PURPOSE OF ESTIMATING THE VALUE OF THE PROPERTY, THE MATTER MAY BE REFERRED TO THE VALUATION OFFICER. O N THE OTHER HAND, LD. A.R. FOR THE ASSESSEE STRONGLY OBJECTED THE ARG UMENT MADE BY THE LD. CIT DR 12. WE HAVE HARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER HAD EST IMATED THE VALUE OF THE PROPERTY BASED ON RENT CAPITALIZATION METHOD WHICH IS APPLICABLE TO WEALTH TAX PROCEEDINGS. DURING THE C OURSE OF SEARCH NO MATERIAL WAS FOUND TO SUGGEST THAT PROPERTIES WE RE SOLD AT HIGHER PRICE THAN THE PRICE MENTIONED IN SALE DEEDS. THE ASSESSING OFFICER HAD PROCEEDED TO VALUE THE PROPERTY ON RENT CAPITAL IZATION METHOD MERELY ON ASSUMPTION AND SURMISES. NO MATERIAL HAS BEEN BROUGHT ON RECORD TO JUSTIFY THAT THE SALE VALUE WAS LOWER THAN THE ACTUAL PRICE FOR WHICH THE PROPERTIES WERE SOLD. IN THE A BSENCE OF ANY MATERIAL ON RECORD TO ESTABLISH THAT THE SALE CONSI DERATION OF THE PROPERTIES WAS MORE THAN THE RECORDED VALUE, IN OUR CONSIDERED OPINION, ASSESSING OFFICER WAS NOT JUSTIFIED IN EST IMATING THE SALE CONSIDERATION ON THE BASIS OF RENT CAPITALIZATION M ETHOD. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE OR DER OF LD. CIT(A) DELETING THE ADDITION. 13. THE NEXT ISSUE FOR CONSIDERATION RELATES TO DEL ETION OF DISALLOWANCE OF ` 74,47,868/- MADE ON ACCOUNT OF NO TIONAL INTEREST FROM ADVANCING OF INTEREST BEARING FUNDS TOWARDS IN TEREST FREE I.T.A.NO. 1518/DEL/2006 9 LOANS. THE FACTS OF THE CASE STATED IN BRIEF ARE T HE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED T HAT THE ASSESSEE HAD INCURRED INTERESTS EXPENDITURE OF ` 74 ,47,868/-. ON PERUSAL OF THE BALANCE SHEET AND THE BOOKS OF ACCOU NT OF THE ASSESSEE, THE ASSESSING OFFICER FOUND THAT THE ASSE SSEE HAD MADE INTEREST FREE LOANS AND ADVANCES OF ` 2.47 CRORES. THE OTHER DEBTS HAD BEEN SHOWN AT ` 6.50 CRORES. LIST OF DEBTORS D ISCLOSE THAT MOST OF THEM WERE GROUP CONCERNS. ON THE BASIS OF THE A BOVE FACTS, THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT INTER EST BEARING FUNDS HAVE BEEN UTILIZED BY THE ASSESSEE FOR MAKING INTER EST FREE ADVANCES. THE ASSESSING OFFICER FURTHER NOTED THAT THE ASSESSEE HAD ASSETS WORTH ` 9 CRORES UNDER THE HEAD INTERES T FREE LOANS AND ADVANCES AND OTHER DEBTORS. HE NOTED THAT IT W AS ABSOLUTELY IMPRUDENT ON THE PART OF THE ASSESSEE TO PROCURE IN TEREST BEARING LOANS AND MAKE INTEREST FREE LOANS AND ADVANCES. T HEREFORE, THERE WAS NEXUS BETWEEN THE INTEREST FREE ADVANCES AND BO RROWED FUNDS. THE ASSESSING OFFICER DISALLOWED INTEREST @ 12% ON ` 9 CRORES. HOWEVER SINCE THE AMOUNT WORKED OUT WAS 1.08 CRORES AS AGAINST THE INTEREST PAID OF ` 74,47,868/- HE DISALLOWED TH E ENTIRE INTEREST PAID AMOUNTING TO ` 74,47,868/-. 14. ON APPEAL, IT WAS SUBMITTED THAT THE ADDITION M ADE BY THE ASSESSING OFFICER WAS UNWARRANTED. THE DETAILS OF ADVANCES AS PER BALANCE SHEET OF THE ASSESSEE INCLUDED ADVANCES TO PARTIES AT ` 19,21,568; ADVANCES AGAINST PROPERTY/PROJECT ` 1,86 ,74,750/-; SHARE APPLICATION MONEY PAID ` 41,50,000/- TOTALING ` 2,4 7,46,318/-. ON THE BASIS OF ABOVE, IT WAS SUBMITTED THAT ADVANCES WERE MADE FOR BUSINESS PURPOSES AND THEY WERE NOT PURE LOANS AND ADVANCES TO SISTER CONCERNS. THE ADVANCES WERE GIVEN TO OUTSID E PARTIES FOR BUSINESS TRANSACTIONS. THE ASSESSEE HAD OWN CAPITA L/RESERVES TO THE EXTENT OF ` 3,67,90,762/- ON WHICH NO INTEREST WAS PAID BY THE ASSESSEE. IN VIEW OF THESE FACTS, IT WAS SUBMITTED THAT THE ASSESSEE I.T.A.NO. 1518/DEL/2006 10 HAD PAID INTEREST TO THE BANK AND FINANCIAL COMPANI ES FOR LOANS TAKEN FOR THE PURPOSES OF ASSETS OF THE COMPANY AND THEREFORE, NO DISALLOWANCE COULD BE MADE. LD. CIT(A) AFTER CONSI DERING THE SUBMISSIONS MADE BY THE ASSESSEE, DELETED THE ADDIT ION BY OBSERVING THAT THE ASSESSING OFFICER HAD NOT POINTE D OUT ANY CASE WHERE BORROWED FUNDS HAVE BEEN USED FOR NON BUSINES S PURPOSES IN THE FORM OF ADVANCES AND LOANS TO SISTER CONCERNS. 15. BEFORE US, LD .CIT DR SUBMITTED THAT THE ASSES SING OFFICER HAD DISALLOWED THE ACTUAL INTEREST PAID AND NOT NOT IONAL INTEREST. ON THE OTHER HAND, LD. A.R. FOR THE ASSESSEE SUPPORTED THE ORDER OF LD. CIT(A). 16. WE HAVE HARD BOTH THE PARTIES. FROM THE FACTS STATED ABOVE IT IS EVIDENT THAT ASSESSING OFFICER HAD NOT POINTED O UT A SINGLE CASE WHERE INTEREST BEARING LOANS HAVE BEEN DIVERTED AS INTEREST FREE LOAN TO SISTER CONCERNS. IN THE ABSENCE OF ANY NEX US HAVING BEEN ESTABLISHED BETWEEN THE INTEREST BEARING FUNDS AND INTEREST FREE LOANS DIVERTED TO SISTER CONCERNS, NO DISALLOWANCE COULD BE MADE IN THE HANDS OF THE ASSESSEE. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) DELETING THE ADDITION. 17. THE LAST ISSUE FOR CONSIDERATION RELATES TO DEL ETING OF DISALLOWANCE OF ` 14,19,152/- ON ACCOUNT OF EXPENSE S. THE ASSESSING OFFICER FROM P & L ACCOUNT FOUND THAT THE ASSESSEE HAD CLAIMED DEFERRED REVENUE EXPENDITURE OF ` 99,48,380 /-. HOWEVER, IN THE COMPUTATION OF INCOME, ENTIRE EXPENDITURE OF ` 1,41,91,527/- WAS CLAIMED AS DEDUCTION. DURING THE COURSE OF ASS ESSMENT, IT WAS EXPLAINED BY THE ASSESSEE THAT ALL THE EXPENSES WER E OF REVENUE IN NATURE AND WERE INCURRED IN THE YEAR UNDER CONSIDER ATION. THE ASSESSING OFFICER HOWEVER NOTED THAT THE DIRECTORS OF THE ASSESSEE COMPANY HAVE MADE SEVERAL TRIPS WHICH HAVE NO LINK OR RAMIFICATION I.T.A.NO. 1518/DEL/2006 11 ON THE BUSINESS ACTIVITIES OF THE ASSESSEE COMPANY. MANY OF THE EXPENSES WERE UNSUPPORTED WITH VOUCHERS AND THE VOU CHES WERE SELF PREPARED BY THE ASSESSEE AND THEREFORE, COULD NOT BE RELIED UPON. THE ASSESSING OFFICER, HOWEVER, DISALLOWED A N AMOUNT OF ` 14,19,152/- ON THE GROUND THAT THE SAME WAS NOT SUP PORTED BY PROPER EVIDENCE. 18. ON APPEAL, IT WAS SUBMITTED THAT TREATMENT OF E XPENSES GIVEN IN THE BOOKS OF ACCOUNT WAS NOT RELEVANT AND FOR TH E PURPOSE OF ALLOWABILITY OF THE CLAIM, THE EXPENSES MUST SATISF Y THE CONDITIONS LAID DOWN IN SECTION 37(1). THE EXPENDITURE WAS IN CURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THERE FORE THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING DISAL LOWANCE OF ` 14,19,152/-. LD. CIT(A) OBSERVED THAT THE ASSESSIN G OFFICER HAD NOT BROUGHT OUT ANY MATERIAL ON RECORD THAT THE PAYMENT S WERE BOGUS OR HAVE BEEN INFLATED. THE ASSESSING OFFICER HAD MADE GENERAL REMARKS WITHOUT POINTING OUT SPECIFIC DISCREPANCY I N THE CLAIM MADE BY THE ASSESSEE FOR THE EXPENSES UNDER VARIOUS HEAD S. HE, THEREFORE, IN THE ABSENCE OF ANY MATERIAL/EVIDENCE ON RECORD TO JUSTIFY THE DISALLOWANCE, DELETED THE ADDITION. 17. BEFORE US, LD. CIT DR SUBMITTED THAT THE ASSESS ING OFFICER HAD DISALLOWED THE EXPENDITURE IN RESPECT OF FOREIGN TR AVEL AS ASSESSEE HAVE NOT BEEN ABLE TO PROVE THE EXPENSES WITH SUPPO RTING VOUCHERS. ON THE OTHER HAND LD. A.R. FOR THE ASSESSEE SUBMITT ED THAT FOREIGN TRIPS WERE MADE FOR THE PURPOSE OF BUSINESS IN ORDE R TO UNDERSTAND THE TREND OF BUSINESS IN FOREIGN COUNTRIES. THEREF ORE THE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINES S. 18. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICE R HAD MADE DISALLOWANCE ON THE GROUND THAT THE ASSESSEE HAD NO T FILED I.T.A.NO. 1518/DEL/2006 12 EVIDENCES FOR FOREIGN VISITS. THE PURPOSE OF FOREI GN TRIPS WAS NOT EXPLAINED. HOWEVER FROM THE ASSESSMENT ORDER WE FI ND THAT ASSESSEE HAD INCURRED ` 20,46,533/- UNDER THE HEAD TRAVELING EXPENSE OUT OF WHICH ` 13,03,215/- WERE TREATED AS DEFERRED REVENUE EXPENDITURE. THE ASSESSING OFFICER HAD NOT DISCUSSED ABOUT THE FOREIGN VISITS MADE BY THE ASSESSEE. CIT (A) HAS ALSO NOT DISCUSSED ANYTHING AS TO HOW THE EXPENDITURE INCURR ED BY THE ASSESSEE ON FOREIGN VISIT WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IN THE ABSENCE OF ANY SUC H FINDING BY LD. CIT(A) AS WELL AS THE ASSESSING OFFICER, WE FEEL IT PROPER TO SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WIT H THE DIRECTION TO EXAMINE THE CLAIM OF THE ASSESSEE FOR FOREIGN TRAVE L UNDERTAKEN BY THE EMPLOYEES OF THE ASSESSEE COMPANY. HE WILL EXA MINE THE PURPOSE AND THE PERSONS WHO MADE FOREIGN TRIPS AND IN WHAT MANNER THE FOREIGN TRAVEL WERE CONNECTED WITH THE B USINESS OF THE ASSESSEE COMPANY. THE ASSESSEE IS DIRECTED TO PROD UCE NECESSARY EVIDENCE IN SUPPORT OF ITS CLAIM. WE ORDER ACCORDI NGLY. 19. IN THE RESULT, APPEAL FILED BY THE REVENUE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSES. 20. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST APR., 2011. SD./- SD./- (C. L. SETHI) (K. D. RANJAN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:21 ST APR., 2011 SP. COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT TRUE COPY: BY ORDER 4. CIT(A) 5. DR DY. REGISTRAR, ITAT, NEW DELHI