Shri Ajay D. Shridhar, Ahmedabad V. The CIT-Ahmedabad-III, Ahmedabad

ITA 2471/AHD/2006

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0159 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 02-09-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 17-11-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHELLEY JINDAL
• Assessee Lawyers: S N DIVETIA
• Keywords: Capital asset; Proportionate interest; Reasonable cause; Capital expenditure; Set aside
• Section: 143(3); 68; 263; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD C BENCH (BEFORE S/SHRI R.V.EASWAR, VICE-PRESIDENT AND P.K. BANSAL, ACCOUNTANT MEMBER) ITA NO.2471/AHD/2006 [ASSTT.YEAR : 2002-2003] SHRI AJAY D. SHRIDHAR 13, NEW RAJDEEP SOCIETY MEMNAGAR, AHMEDABAD. VS. CIT-AHMEDABAD-III AHMEDABAD. ITA NO.277/AHD/2007 AND 3810/AHD/2008 [ASSTT.YEAR : 2002-2003] ITO, WARD-6(2) AHMEDABAD . VS. SHRI AJAY D. SHRIDHAR 13, NEW RAJDEEP SOCIETY MEMNAGAR, AHMEDABAD. ASSESSEE BY : SHRI S.N.DIVETIA REVENUE BY : SHRI SHELLEY JINDAL O R D E R PER R.V.EASWAR, VICE-PRESIDENT : SINCE THESE THREE APPEALS WERE HEARD TOGETHER THEY ARE DISPOSED OF BY A SINGLE ORD ER. 2. ITA NO.2471/AHD/2006 IS AN APPEAL BY THE ASSESSE E AGAINST THE ORDER PASSED BY THE CIT UNDER SECTION 263 OF THE INCOME T AX ACT ON 4-9-2006 FOR THE ASSESSMENT YEAR 2002-2003. ITA NO.3810/AHD/200 8 IS AN APPEAL BY THE DEPARTMENT ARISING OUT OF THE ASSESSMENT ORDER PASS ED BY THE ASSESSING OFFICER UNDER SECTION 143(3) READ WITH SECTION 263. ITA NO .277/AHD/2007 IS AN APPEAL BY THE DEPARTMENT ARISING OUT OF THE ASSESSM ENT ORDER ORIGINALLY PASSED BY THE AO ON 29-3-2005 UNDER SECTION 143(3) OF THE ACT. 3. WE MAY FIRST TAKE THE APPEAL OF THE ASSESSEE FIL ED AGAINST THE ORDER OF THE CIT UNDER SECTION 263. THE APPEAL IS DELAYED BY TH IRTEEN DAYS. AN APPLICATION FOR CONDONATION OF THE DELAY HAS BEEN F ILED. THE ASSESSEE HAS STATED THEREIN THAT THE APPEAL WAS FILED ON 17-11-2006 AGA INST THE ORDER PASSED BY THE CIT ON 4-9-2006. THE DATE ON WHICH THE SAID ORDER WAS SERVED ON THE ASSESSEE PAGE - 2 CIT VS. SHRI AJAY D. SHRIDHAR (ASSTT.YEAR 2002-2003) -2- WAS NOT KNOWN TO HIM. ON FURTHER INQUIRY HE WAS IN TIMATED BY THE OFFICE OF THE CIT THAT THE ORDER WAS SENT TO HIM BY SPEED POST ON 8-9-2006 WHICH WAS FRIDAY. THE ASSESSEE HAS PRESUMED THAT THE ORDER W AS SERVED ON HIM ON MONDAY, THE 11TH OF SEPTEMBER, 2006. IN THESE CIRC UMSTANCES, IT IS POINTED OUT THAT THE DELAY IS ONLY SIX DAYS AND NOT THIRTEEN DA YS. THE APPEAL OUGHT TO HAVE BEEN FILED ON OR BEFORE 10-11-2006 BUT WAS ACTUALLY FILED ON 17-11-2006. THE DELAY WOULD THUS BE SEVEN DAYS AND NOT SIX DAYS. I T IS STATED BY THE ASSESSEE THAT HE HAD GONE ABROAD (AUSTRALIA) AND LANDED AT M UMBAI ON 8-11-2006 AND IMMEDIATELY PREPARED AND FILED THE APPEAL. THE RE LEVANT EXTRACTS FROM THE PASSPORT HAVE BEEN ATTACHED TO THE APPLICATION. IT IS PLEADED THAT THE DELAY WAS ON ACCOUNT OF REASONABLE CAUSE. 4. ON GOING THROUGH THE APPLICATION FOR CONDONATION AND AFTER HEARING BOTH THE SIDES, WE ARE OF THE VIEW THAT THE DELAY OF SEV EN DAYS WAS DUE TO SUFFICIENT CAUSE AND REQUIRES TO BE CONDONED. ACCORDINGLY, WE CONDONE THE DELAY AND ADMIT THE APPEAL FOR ADJUDICATION. 5. THE APPEAL ARISES IN THIS MANNER. IN THE ASSESS MENT COMPLETED ON 29-3- 2005, THE ASSESSING OFFICER DISALLOWED DEDUCTION IN RESPECT OF THE INTEREST OF RS.16,87,324/- PAID TO M/S.DHANRAJ ELECTRONICS. TH E CIT THEREAFTER TOOK PROCEEDINGS UNDER SECTION 263 OF THE ACT ON THE GRO UND THAT THE AO DID NOT CARRY OUT DEEP INVESTIGATION INTO THE FINANCIAL TRA NSACTIONS AND REAL-ESTATE TRANSACTIONS OF THE ASSESSEE. HE OBSERVED FROM THE BALANCE SHEET THAT THE ASSESSEE HAD TAKEN INTEREST FREE LOANS OF RS.44,54, 075/- BUT HAS GIVEN INTEREST- FREE LOANS OF RS.2,79,52,246/-. ACCORDING TO THE C IT THE AO DID NOT EXAMINE THE SOURCE OF THE INTEREST-FREE ADVANCES GIVEN BY T HE ASSESSEE AND DID NOT DISALLOW THE PROPORTIONATE INTEREST PAID IN RESPECT OF SUCH ADVANCES. ON THIS BASIS, A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESS EE WHO SUBMITTED THAT THE COMPLETE DETAILS WERE FILED BEFORE THE AO AT THE TI ME OF THE ASSESSMENT PROCEEDINGS, INCLUDING DETAILS OF THE LOANS GIVEN A ND RECEIVED, ALONG WITH COPIES OF ACCOUNTS OF THE PARTIES, DETAILS OF INTER EST RECEIVED AND PAID ETC. HE PAGE - 3 CIT VS. SHRI AJAY D. SHRIDHAR (ASSTT.YEAR 2002-2003) -3- ALSO SUBMITTED THAT THE DETAILS OF THE PURCHASE OF AGRICULTURAL LAND AND THE BUSINESS ACTIVITIES CARRIED ON BY THE ASSESSEE WERE ALSO FILED BEFORE THE AO. IT WAS POINTED OUT THAT THE BALANCE SHEET SHOWED AN AM OUNT OF RS.4,32,67,677/- AS INTEREST FREE ADVANCE RECEIVED FOR THE PURCHASE OF LAND WHICH THE CIT DID NOT CONSIDER BEFORE ISSUING THE NOTICE UNDER SECTION 26 3. IT WAS FURTHER POINTED OUT THAT AN APPEAL WAS PENDING AGAINST THE ASSESSME NT ORDER BEFORE THE CIT(A). A REQUEST WAS THEREFORE MADE FOR DROPPING THE PROCE EDINGS. 6. THE CIT NOTED THAT THE ASSESSEE HAS PAID INTERES T OF RS.14,16,408/- AGAINST THE INTEREST OF RS.22,66,545/- RECEIVED BY HIM, THAT THE AO HAS DISALLOWED THE INTEREST PAID TO DHANRAJ ELECTRONICS BUT HAS NOT EXAMINED THE OTHER INTEREST CLAIMED BY THE ASSESSEE, THAT THE AS SESSEE DID NOT HAVE SUFFICIENT INTEREST-FREE FUNDS TO MAKE THE INTEREST-FREE ADVAN CES AND IN THESE CIRCUMSTANCES, THERE WAS A CASE FOR FURTHER INQUIRY BY THE AO WHICH HE DID NOT CARRY OUT. THE CIT FURTHER OPINED THAT NO EVIDENCE WAS ADDUCED BY THE ASSESSEE BEFORE THE AO TO SHOW THAT THE ADVANCE REC EIPT FOR PURCHASE OF LAND WAS UTILISED FOR GIVING INTEREST-FREE LOANS. HE PO INTED OUT THAT THE TRANSACTIONS IN THE PURCHASE OF THE LAND REQUIRED INVESTIGATION WHICH THE AO OMITTED TO CARRY OUT. IN THIS VIEW OF THE MATTER, HE SET ASID E THE ASSESSMENT ORDER DATED 29-3-2005 TO THE ABOVE EXTENT AND DIRECTED THE AO T O EXAMINE BOTH THE FINANCIAL TRANSACTIONS AND THE TRANSACTIONS FOR PUR CHASE OF LAND AND ALSO EXAMINE THE SOURCE OF THE ADVANCES GIVEN BY THE ASS ESSEE INTEREST FREE AND DISALLOW THE PROPORTIONATE INTEREST PAID IN RESPECT OF SUCH ADVANCES. THE AO WAS DIRECTED TO PASS A FRESH ASSESSMENT ORDER AFTER HEARING THE ASSESSEE. 7. IT IS AGAINST THE AFORESAID ORDER OF THE CIT THA T THE ASSESSEE HAS COME IN APPEAL BEFORE US. THE SUBMISSION OF THE LEARNED C OUNSEL FOR THE ASSESSEE MAINLY WAS THAT THE AO HAD MADE THE RELEVANT AND NE CESSARY INQUIRIES INTO THE INTEREST CLAIMED BY THE ASSESSEE AND THIS WILL BE A PPARENT ON A PERUSAL OF THE QUERIES MADE BY HIM IN THE COURSE OF THE ASSESSMENT PROCEEDINGS AND THE ASSESSEES REPLY. IN THIS CONNECTION OUR ATTENTIO N WAS DRAWN TO THE RELEVANT PAGE - 4 CIT VS. SHRI AJAY D. SHRIDHAR (ASSTT.YEAR 2002-2003) -4- PAGES IN THE PAPER BOOK. IT WAS SUBMITTED THAT IT WAS ONLY ON CONSIDERATION OF THE SUBMISSIONS OF THE ASSESSEE AND EVIDENCE ADDUCE D BY HIM THAT THE AO HAD ALLOWED THE INTEREST AND IT WAS NOT CORRECT FOR THE CIT TO SAY THAT THE AO FAILED TO CARRY OUT THE NECESSARY AND RELEVANT INVESTIGATI ONS. IN SUPPORT OF THE SUBMISSIONS, THE FOLLOWING CASES WERE RELIED UPON: I) CIT VS. GABRIEL INDIA LTD., 203 ITR 108 (BOM) II) HARI IRON TRADING CO. VS. CIT, 263 ITR 437 (P&H) 8. ON THE OTHER HAND THE LEARNED CIT-DR CONTENDED T HAT REVISION PROCEEDINGS WERE TAKEN BY THE CIT ON THE GROUND THA T THE AO HAD NOT CARRIED OUT A DEEP INVESTIGATION OR VERIFICATION INTO THE A SSESSEES CLAIM AS WAS REQUIRED BY THE FACTS AND CIRCUMSTANCES OF THE CASE AND THIS ITSELF CONSTITUTED SUFFICIENT GROUND FOR TAKING PROCEEDINGS ON THE FOO TING THAT THE ASSESSMENT ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST S OF THE REVENUE. RELIANCE WAS PLACED ON THE JUDGMENT OF THE HONBLE GUJARAT H IGH COURT M.A.UNNEERI KUTTY VS. CIT, 198 ITR 144. 9. ON A CAREFUL CONSIDERATION OF THE RIVAL CONTENTI ONS, WE ARE OF THE VIEW THAT THE REVISION PROCEEDINGS TAKEN BY THE CIT UNDE R SECTION 263 CANNOT BE SUSTAINED. AT PAGES 13 AND 15 OF THE ASSESSEES PAP ER BOOK, THE QUERY LETTERS ISSUED BY THE AO HAVE BEEN COMPILED. IN THE FIRST LETTER DATED 15-3-2005, THE ASSESSEE WAS REMINDED THAT HE SHOULD FILE A FUND-FL OW STATEMENT DATE-WISE FOR THE BORROWED AMOUNT EITHER WITH INTEREST OR WITHOUT INTEREST AND DATE-WISE AMOUNTS ADVANCED BY THE ASSESSEE. THE ASSESSEE WAS ALSO DIRECTED TO FILE A COPY OF ANY BANAKHAT OR AGREEMENT FOR PROPOSED PURCHASE OF THE LAND FOR WHICH MONIES WERE CLAIMED TO HAVE BEEN ADVANCED TO THE ASSESSEE BY SOME CHENNAI PARTIES. THE ASSESSEE HAD EARLIER STATED BEFORE THE AO THAT SEVEN PARTIES FROM CHENNAI WANTED TO BUY LAND IN AHMEDABA D DISTRICT FOR WHICH AN AMOUNT OF RS.4,32,67,677/- WAS GIVEN TO THE ASSESSE E FREE OF INTEREST. THE AO CALLED UPON THE ASSESSEE TO STATE WHEN THE AFORESAI D AMOUNTS WERE GIVEN AND THE MODE OF PAYMENT. IN PARA-6 OF THE LETTER, THE AO CALLED UPON THE ASSESSEE PAGE - 5 CIT VS. SHRI AJAY D. SHRIDHAR (ASSTT.YEAR 2002-2003) -5- TO FILE A FUND FLOW STATEMENT, DATE-WISE, CONSIDERI NG THAT THEY WERE ABNORMAL FINANCIAL TRANSACTIONS OF LOANS AND ADVANCES AND TH E TRANSACTIONS WERE ALSO OF LARGE MAGNITUDE. IN THIS PARAGRAPH THE AO ALSO RAI SED A DOUBT AS TO WHETHER THE ASSESSEE WAS DOING FINANCIAL TRANSACTIONS OUTSIDE T HE BOOKS OF ACCOUNT SINCE HE WAS HAVING A LARGE CASH BALANCE ON HAND. IN THE S ECOND LETTER DATED 2-3-2005 THE FOLLOWING QUERY WAS RAISED BY THE AO (PAGE 18 O F THE PAPER BOOK) : 11. PLEASE STATE WHY YOU HAVE BORROWED LOANS OR D EPOSITS AND RATE OF INTEREST PAID AND ALSO EXPLAIN WHY NON-BEARING INTE REST LOANS ARE ADVANCED TO THE PARTIES AT NO.(VI) TO (IX) ABOVE TO YOU AND WHY YOU HAVE ADVANCED LOANS FREE OF INTEREST TO THE PARTIES AT SERIAL NUMBER (1) TO (30) AS SHOWN NI THE CURRENT ASSETS WHICH ARE MORE THAN FREE OF INTEREST LOANS RECEIVED BY YOU. PLEASE FILE DETAIL ED CHART WITH AMOUNT AND DATES OF RECEIPT OF INTEREST FREE LOANS AND DAT ES OF ADVANCES OR LOANS MADE BY YOU WITH AMOUNTS OF LOAN. PLEASE FILE FUND FLOW STATEMENT DATE WISE FOR THE BORROWED AMOUNT WITH INTEREST OR WITHO UT INTEREST AND DATE WISE AMOUNTS ADVANCED OR GIVEN ON LOAN BY YOU. IN THIS CHART PLEASE STATE SPECIFICALLY LOANS BORROWED WITHOUT INTEREST AND LOANS ADVANCED FREE OF INTEREST. 11.1 ALSO FILE COMPLETE DETAILS OF INTEREST AND NON -INTEREST BEARING LOANS GIVEN OF RS.1,44,02,403.47 AND RS.2,79,51,246 .93 I.E. THEIR PA NO., ADDRESSES AND WHERE THEY ARE ASSESSED. PLEASE STATE REASONS FOR WIDE VARIATIONS IN THE RATES OF INTERESTS (PAID/REC EIVED). ALSO SUBMIT THE DETAILS OF INTEREST (PAID/RECEIVED) WITH RATE OF IN TEREST FOR LAST TWO YEARS. IS THERE ANY AGREEMENT FOR RATE OF INTEREST, PLEASE FILE COPY THEREOF, IF ANY. PLEASE EXPLAIN WHY INTEREST ON NON-INTEREST B EARING LOANS ADVANCED BY YOU IN EXCESS OF NON-INTEREST BEARING L OANS RECEIVED BY COMPUTED AND DISALLOWED OUT OF INTEREST CLAIM MADE BY YOU AND BE TREATED AS YOUR INCOME. PLEASE FILE DETAILS OF HOU SE HOLD EXPENSES, NUMBER OF FAMILY MEMBERS, AND NAMES OF EARNING MEMB ERS OF FAMILY AND THEIR INCOME AND COPIES OF IT RETURNS, IF ASSES SED TO TAX. 10. THE ASSESSEES REPLY DATED 9-3-2005 IS AT PAGE 22 TO 26 OF THE PAPER BOOK. THERE ARE SEVERAL ANNEXURES TO THIS REPLY AN D THEY ARE ALL FILED IN THE PAPER BOOK. IN THE ASSESSEES REPLY TO THE AOS QU ERY REGARDING EXECUTION OF BANAKHAT FOR PURCHASE OF LAND FOR THE CHENNAI PARTIES, IT W AS STATED BY THE ASSESSEE THAT THE AMOUNTS WERE SHOWN IN THE BALANCE SHEET AND SO FAR NO LAND HAS BEEN EITHER ALLOTTED OR SOLD TO THEM AND HENCE NO BANAKHAT WAS EXECUTED PAGE - 6 CIT VS. SHRI AJAY D. SHRIDHAR (ASSTT.YEAR 2002-2003) -6- WITH THEM. THE ASSESSEE ALSO STATED THAT NO INTER EST WAS PAID TO ANY OF THE CHENNAI PARTIES, SIX OF WHOM WERE RESIDING AT CHENN AI. THE ASSESSEE HAS ALSO STATED THAT THE CHENNAI PARTIES HAVE BEEN REQUESTED BY INTIMATION SENT BY SPEED POST TO SEND THE CONTRA ACCOUNTS TO THE ASSESSEE AT AN EARLY DATE. THE CONFIRMATION FROM ALL THE CHENNAI PARTIES ALONG WIT H THEIR INCOME TAX FILE NUMBERS WERE HOWEVER FURNISHED BY THE ASSESSEE. AS REGARDS THE QUERY ABOUT THE EXISTENCE OF INTEREST-FREE FUNDS FROM WHICH THE ASSESSEE COULD HAVE GRANTED THE INTEREST-FREE ADVANCES, DATE-WISE DETAILS OF TH E LOANS RECEIVED AND GIVEN WERE FURNISHED IN ANNEXURE-A TO THE LETTER AND IT W AS SUBMITTED THAT THESE DETAILS WOULD SHOW THAT THE ASSESSEE HAD SUFFICIENT INTEREST-FREE FUNDS TO MAKE THE INTEREST-FREE ADVANCES. THE ASSESSEE ALSO FURN ISHED THE FUNDS FLOW POSITION IN ANNEXURE-D TO THE LETTER. PAGE 39 OF THE PAPER BOOK IS A COPY OF ANNEXURE-C TO THE AFORESAID LETTER IN WHICH THE DETAILS OF LOA NS, BOTH INTEREST BEARING AND INTEREST-FREE, WERE FURNISHED. UNDER THE HEAD NON -INTEREST BEARING LOANS RECEIVED THE ADVANCES FROM SEVEN CHENNAI PARTIES H AVE BEEN SHOWN. OUR ATTENTION WAS ALSO DRAWN TO THE LETTER DATED 17-2-2 005 WRITTEN TO THE AO. IN PARA-4 OF THIS LETTER, THE ASSESSEE HAS EXPLAINED T HE PAYMENT OF INTEREST OF RS.9,65,618/- TO THE FOUR PARTIES BY NAME M/S.POSHA K INDUSTRIES, M/S.PARIDHAN EXPORTS, M/S.P.S.APPARELS AND M/S.P.S.APPARELS (MEP Z). IT WAS EXPLAINED THAT THE ABOVE PARTIES HAD ALSO GIVEN MONIES FOR PU RCHASE OF LAND IN AHMEDABAD FOR INDUSTRIAL PURPOSES IN THE ACCOUNTING YEAR RELEVANT TO THE ASSESSMENT YEAR 1996-97, THAT DUE TO ADVERSE MARKET CONDITIONS NO LANDS COULD BE ACQUIRED FOR THEM, THAT IT WAS AGREED THAT THE A SSESSEE WOULD PAY INTEREST ON THE AFORESAID AMOUNTS ONLY UPTO 10-9-2001, THAT THE INTEREST PAID HAS BEEN ADJUSTED AGAINST THE INTEREST EARNED BY UTILISING T HE MONIES FOR ADVANCING LOANS ON INTEREST AND THAT THE SURPLUS INTEREST INCOME HA S BEEN OFFERED FOR INCOME TAX PURPOSES. OUR ATTENTION WAS ALSO DRAWN TO PAGES 4 2 AND 47 OF THE PAPER BOOK WHICH CONTAIN DETAILS ABOUT THE INTEREST PAID AND R ECEIVED DURING THE YEAR AND THE SOURCE AND APPROPRIATION OF FUNDS AS ON 31-3-20 02 RESPECTIVELY. PAGE - 7 CIT VS. SHRI AJAY D. SHRIDHAR (ASSTT.YEAR 2002-2003) -7- 11. IN RESPECT OF THE OBSERVATION OF THE CIT THAT N O EVIDENCE WAS ADDUCED TO SHOW THAT THE ADVANCES RECEIVED FROM THE CHENNAI PA RTIES WERE UTILISED FOR GIVING INTEREST-FREE LOANS, WE FIND THAT FIRSTLY TH IS ISSUE HAS NOT BEEN RAISED BY THE CIT IN HIS SHOW CAUSE NOTICE DATED 14-8-2006, A COPY OF WHICH HAS BEEN FILED AT PAGE 138 OF THE PAPER BOOK. THERE IS REFE RENCE ONLY TO THE ASSESSEES FINANCIAL TRANSACTIONS AND TRANSACTIONS IN REAL-EST ATE. IN ANY CASE, WE CONSIDER THE REFERENCE TO THE FINANCIAL TRANSACTIONS WOULD I NCLUDE THE MANNER IN WHICH THE ASSESSEE UTILISED THE MONIES RECEIVED FROM THE CHENNAI PARTIES. THE ASSESSEE ALSO CONTENDED THAT THERE IS NO REFERENCE IN THE SHOW CAUSE NOTICE TO THE TRANSACTIONS IN THE PURCHASE OF LAND REQUIRING INVESTIGATION. HOWEVER, WE FIND THAT THERE IS A REFERENCE TO REAL-ESTATE TRANS ACTIONS IN THE SHOW CAUSE NOTICE WHICH WE CONSIDER BROAD ENOUGH TO INCLUDE THE TRANS ACTIONS IN THE PURCHASE OF LAND. HOWEVER, THE AFORESAID DETAILS WHICH ARE PA RT OF THE RECORD OF THE ASSESSMENT PROCEEDINGS FILED BY THE ASSESSEE BEFORE THE AO IN RESPONSE TO THE QUERY LETTERS ISSUED BY THE AO DO SHOW THAT THERE W AS NO LACK OF INQUIRY INTO THE FINANCIAL AND REAL-ESTATE TRANSACTIONS OF THE A SSESSEE. APPARENTLY THE AO CONSIDERED THE DETAILS FURNISHED BY THE ASSESSEE AS CONVINCING AND THEREFORE DID NOT DISALLOW ANY PART OF THE INTEREST CLAIMED AGAIN ST THE INTEREST INCOME. IT CANNOT BE SAID THAT THE AO DID NOT APPLY HIS MIND I NTO THE FINANCIAL AND REAL- ESTATE TRANSACTIONS OF THE ASSESSEE OR FAILED TO MA KE ANY INQUIRY INTO THEM. HE MAY NOT HAVE RECORDED IN THE ASSESSMENT ORDER IN EX PLICIT TERMS THAT HE WAS SATISFIED WITH THE CORRECTNESS OF THE ASSESSEES EX PLANATION AND THEREFORE WAS NOT MAKING ANY DISALLOWANCE OF THE INTEREST PAID. HOWEVER, AS RIGHTLY POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE MA NNER IN WHICH THE ASSESSMENT ORDER IS WRITTEN IS NOT IN ASSESSEES CONTROL. FUR THER, IT IS THE PRACTICE FOR THE AOS., IF WE MAY SAY SO WITH RESPECT, TO DISCUSS IN THE ASSESSMENT ORDER ONLY WHAT THEY ARE NOT ACCEPTING AND NORMALLY NOTHING IS SAID THEREIN ABOUT CLAIMS WHICH ARE ACCEPTED. IT IS ALSO PERTINENT TO NOTE T HAT PERHAPS RECOGNISING THIS POSITION AND TAKING A PRACTICAL VIEW OF THE MATTER THAT SECTION 263(1) ITSELF GIVES THE POWER TO THE CIT TO CALL FOR AND EXAMINE THE RECORD OF ANY PAGE - 8 CIT VS. SHRI AJAY D. SHRIDHAR (ASSTT.YEAR 2002-2003) -8- PROCEEDINGS UNDER THE ACT BEFORE TAKING A VIEW THAT THE ORDER PASSED BY THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF TH E REVENUE. THE PRESENT CASE IS ONE WHERE THE AO HAS MADE ALL THE RELEVANT INQUIRIE S INTO THE FINANCIAL AND REAL-ESTATE TRANSACTIONS OF THE ASSESSEE TO WHICH T HE ASSESSEE HAS ALSO SUBMITTED COPIOUS DETAILS. THOUGH THESE DETAILS DO NOT FIND PLACE IN THE ASSESSMENT ORDER, THERE CAN BE NO DISPUTE THAT BOTH THE INQUIRY CONDU CTED BY THE AO AND THE EVIDENCE AND DETAILS FURNISHED BY THE ASSESSEE ARE PART OF THE RECORD OF THE PROCEEDINGS BEFORE THE AO. THE CIT WAS THEREFORE NOT JUSTIFIED IN OPINING THAT THE AO FAILED TO CARRY OUT AN INQUIRY INTO THE FINANCIAL AND REAL-ESTATE TRANSACTIONS OF THE ASSESSEE. 12. WE ARE THEREFORE UNABLE TO AGREE WITH THE CIT T HAT THE ASSESSMENT ORDER PASSED ON 29-3-2005 IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS TO THE REVENUE ON THE GROUND THAT NO INQUIRY WAS CARRIED OUT BY TH E AO INTO THE FINANCIAL AND REAL-ESTATE TRANSACTIONS OF THE ASSESSEE. WE ACCOR DINGLY SET ASIDE THE ORDER PASSED UNDER SECTION 263 AND ALLOW APPEAL FILED BY THE ASSESSEE. 13. WE MAY NOW TAKE UP ITA NO.277/AHD/2007 WHICH IS AN APPEAL FILED BY THE DEPARTMENT. IT ARISES OUT OF THE ASSESSMENT OR DER ORIGINALLY FRAMED UNDER SECTION 143(3) ON 29-3-2005. THE FIRST GROUND IS T HAT THE CIT(A) OUGHT NOT TO HAVE PASSED THE IMPUGNED ORDER ON 13-10-2006, BY WH ICH DATE THE ASSESSMENT ORDER HAD BEEN SET ASIDE BY THE CIT UNDER SECTION 2 63 BY ORDER DATED 4-9-2006. THE OPERATIVE PORTION OF THE CITS ORDER SHOWS THAT THE ASSESSMENT ORDER IS SET ASIDE ONLY TO THE EXTENT THAT NO INQUIRIES WERE MAD E INTO THE FINANCIAL AND LAND TRANSACTIONS OF THE ASSESSEE AND ALSO TO DIRECT AN EXAMINATION OF THE SOURCE OF THE INTEREST FREE ADVANCES MADE BY THE ASSESSEE SO THAT PROPORTIONATE DISALLOWANCE OF INTEREST PAID MAY BE CONSIDERED. THE OTHER PARTS OF THE ORDER OF ASSESSMENT WERE NOT DISTURBED BY THE CIT. THE A SSESSES APPEAL BEFORE THE CIT(A) WAS ONLY AGAINST THE DISALLOWANCE OF THE INT EREST OF RS.16,87,324/- PAID TO A PARTNERSHIP FIRM BY NAME M/S.DHANRAJ ELECTRONI CS. SINCE THIS INTEREST WAS ALSO ALREADY DISALLOWED BY THE AO IN THE ASSESSMENT MADE ON 29-3-2005, THERE PAGE - 9 CIT VS. SHRI AJAY D. SHRIDHAR (ASSTT.YEAR 2002-2003) -9- WAS NO QUESTION OF THE CIT CONSIDERING THAT PART OF THE ORDER TO BE ERRONEOUS OR PREJUDICIAL TO THE INTERESTS OF THE REVENUE. ACCOR DINGLY WE HOLD THAT THE APPEAL BEFORE THE CIT(A) SURVIVED THE ORDER OF THE CIT UND ER SECTION 263 AND THE CIT(A) WAS JUSTIFIED IN DEALING WITH THE GROUND TAK EN BY THE ASSESSEE AND PASSING AN ORDER ON 13-10-2006. THE FIRST GROUND I S DISMISSED. 14. THE SECOND GROUND IS ON THE MERITS OF THE DISAL LOWANCE OF THE INTEREST. WHILE COMPLETING THE ASSESSMENT, THE AO NOTICED THA T THE ASSESSEE HAD SHOWN OVERALL INTEREST LOSS FROM THREE PARTNERSHIP FIRMS. THE LOSS CLAIMED AMOUNTED TO RS.8,15,326/-. THE ASSESSEE ADJUSTED THE REMUN ERATION RECEIPTS FROM M/S.DHANRAJ ELECTRONICS AND M/S.DHANRAJ LEASE & FIN ANCE AMOUNTING TO RS.66,546/- AND THE INTEREST LOSS, WHICH WAS ACTUAL LY A BUSINESS LOSS, WAS SHOWN AT RS.7,48,780/-. THE AO NOTICED THAT THERE WAS A SPECIFIC PROVISION IN THE PARTNERSHIP DEED OF DHANRAJ ELECTRONICS FOR PAY MENT OF INTEREST ON THE CAPITAL OF THE PARTNERS, BUT IN RESPECT OF INTEREST ON DEBIT BALANCES IN THE CAPITAL ACCOUNTS OF THE PARTNERS THERE WAS NO SPECIFIC PROV ISION FOR CHARGING INTEREST. IN THE CASE OF M/S.SUNRISE ELECTRONICS, ANOTHER FIR M FROM WHICH THE ASSESSEE RECEIVED INTEREST, THERE WAS A SPECIFIC PROVISION I N THE PARTNERSHIP DEED FOR CHARGING INTEREST ON THE DEBIT BALANCES IN THE CAPI TAL ACCOUNTS. THE POSITION IN THE CASE OF DHANRAJ LEASE & FINANCE WAS THAT THERE WAS NO STIPULATION IN THE PARTNERSHIP DEED FOR CHARGING INTEREST ON THE DEBIT BALANCES IN THE CAPITAL ACCOUNTS OF THE PARTNERS. THE AO WAS OF THE VIEW O N THESE FACTS, THAT THE PAYMENT OF INTEREST OF RS.16,87,324/- ON THE DEBIT BALANCE IN THE ASSESSEES CAPITAL ACCOUNT WITH M/S.DHANRAJ ELECTRONICS WAS AG AINST THE TERMS OF THE PARTNERSHIP DEED. WHEN HE CONFRONTED THE ASSESSEE WITH HIS PROPOSAL TO DISALLOW THE INTEREST, THE ASSESSEE RAISED VARIOUS OBJECTIONS IN WRITING AND AFTER CONSIDERING THEM THE AO INFERRED THAT THE INTEREST WAS NOT CLAIMED UNDER THE HEAD INCOME FROM OTHER SOURCE AND THEREFORE IT CO ULD BE CONSIDERED ONLY AS CAPITAL EXPENDITURE BECAUSE THE ASSESSEE COULD NOT SHOW THAT THE WITHDRAWALS FROM THE FIRM WHICH RESULTED IN THE DEBIT BALANCE W ERE FOR THE PURPOSE OF MAKING INVESTMENTS, THE INCOME FROM WHICH WOULD BE SHOWN UNDER ABOVE PAGE - 10 CIT VS. SHRI AJAY D. SHRIDHAR (ASSTT.YEAR 2002-2003) -10- HEAD. THE AO ALSO HELD THAT IN ANY CASE THE INTERES T WAS NOT ALLOWABLE UNDER SECTION 57(III) OF THE ACT. THE AO WAS ALSO OF THE VIEW THAT M/S.DHANRAJ ELECTRONICS WAS ENGAGED IN TRADING IN ELECTRONICS G OODS AND IT WAS NOT ITS BUSINESS TO BORROW AND LEND MONIES FOR INTERESTS. THE FIRM, IN VIOLATION OF THE PARTNERSHIP DEED, HAD SHOWN INTEREST INCOME FROM TH E ASSESSEE-PARTNER ON THE ASSESSEES DEBIT BALANCE IN THE CAPITAL ACCOUNT WHI CH WAS NOT AUTHORISED BY THE PARTNERSHIP DEED. ACCORDINGLY, THE AO TOOK THE VIE W THAT IN THE ASSESSEES HANDS THE INTEREST WAS NOT A PERMISSIBLE DEDUCTION. 15. BEFORE THE CIT(A) THE ASSESSEE RAISED SEVERAL C ONTENTIONS AND IT WAS POINTED OUT THAT THE WITHDRAWALS FROM ALL THE FOUR FIRMS WERE INVESTED FOR INTEREST AND INTEREST INCOME OF RS.8,50,137/- WAS S HOWN IN THE RETURN UNDER THE HEAD INCOME FROM OTHER SOURCES. IT WAS POINTED O UT THAT AGAINST THE AFORESAID INTEREST AND THE SALARY RECEIVED FROM TWO FIRMS AMO UNTING TO RS.66,546/-, THE ASSESSEE CLAIMED INTEREST PAYMENT OF RS.16,87,324/- WHICH WAS DEDUCTIBLE IN COMPUTING THE INCOME UNDER THE ABOVE HEAD. IT WAS POINTED OUT THAT EVEN AFTER THE PAYMENT OF THE INTEREST TO DHANRAJ ELECTRONICS THERE WAS SURPLUS OF RS.1,01,357/- WHICH SHOWED THAT THERE WAS NO DIVERS ION OF THE FUNDS WITHDRAWN FROM THE FIRM. IT WAS POINTED OUT THAT T HE INTEREST PAID BY THE ASSESSEE TO DHANRAJ ELECTRONICS WAS SHOWN AS THE IN COME OF THE SAID FIRM IN ITS INCOME FOR THE ASSESSMENT YEAR 2002-2003 AND HAS AL SO BEEN TAXED. IT WAS URGED THAT SINCE THE INTEREST IS PAID ON FUNDS WITH DRAWN AND INVESTED FOR EARNING INCOME, THERE WAS A NEXUS BETWEEN THE INTER EST AND THE INCOME EARNED JUSTIFYING THE ALLOWANCE OF THE INTEREST IN THE ASS ESSMENT. 16. IN SUPPORT OF THE ABOVE SUBMISSIONS THE ASSESSE E RELIED ON THE FOLLOWING ORDERS OF THE AHMEDABAD/LUCKNOW BENCHES OF THE TRIB UNAL: I) TORRENT FINANCIERS VS. ACIT, 73 TTJ 624 (AHD) II) MANAKSHI SYNTHETICS P. LTD. VS. ACIT, 84 ITD 563 (L UCK); III) UNITED AGENCIES VS. ITO, 37 TTJ 374 (AHD); IV) SHAHIBAUG ENTREPRENEURS VS. ITO (AHD); PAGE - 11 CIT VS. SHRI AJAY D. SHRIDHAR (ASSTT.YEAR 2002-2003) -11- V) ITO VS. NEELAM CINE ENTERPRISES, 58 TTJ 403 (AHD) 17. ON AN EXAMINATION OF THE ABOVE SUBMISSIONS THE CIT(A) RECORDED THE FOLLOWING FINDINGS: A) A COMBINED READING OF CLAUSES (6) AND (13) OF THE P ARTNERSHIP DEED OF DHANRAJ ELECTRONICS SHOWS THAT IT WAS OPEN TO THE FIRM TO CHARGE INTEREST ON THE DEBIT BALANCES OF THE PARTNE RS, OF WHICH ASSESSEE WAS ONE. B) THE ASSESSEE WAS RECEIVING INTEREST AT THE RATE OF 18% ON HIS CREDIT BALANCES AND WAS PAYING INTEREST AT THE SAME RATE ON THE DEBIT BALANCES IN HIS CAPITAL ACCOUNT. C) THERE WAS A NET SURPLUS OF RS.1,01,357/- AS INTERES T WHICH WAS SHOWN BY THE ASSESSEE IN HIS RETURN WHICH HAS BEEN TAXED. IN VIEW OF THE ABOVE FINDINGS, THE CIT(A) HELD THAT THE INTEREST PAID BY THE ASSESSEE TO DHANRAJ ELECTRONICS IS ALLOWABLE AS DED UCTION. 18. IT IS AGAINST THE AFORESAID FINDING OF THE CIT( A) THAT THE DEPARTMENT HAS FILED THE PRESENT APPEAL. IT IS CONTENDED ON BEHALF OF THE DEPARTMENT THAT THE CIT(A) WAS WRONG IN ALLOWING THE INTEREST AS A DEDU CTION AND HIS DECISION WAS CONTRARY TO THE JUDGMENT OF THE SUPREME COURT IN MU NJAL SALES CORPORATION VS. CIT, (2008) 298 ITR 298. IN THAT CASE IT WAS H ELD THAT IN ORDER TO CLAIM DEDUCTION UNDER SECTION 36(1)(III), IT WAS NECESSAR Y TO ESTABLISH THAT ALL THE CONDITIONS OF THE SECTION ARE SATISFIED AND IN THE CASE OF A FIRM, IT WAS FURTHER NECESSARY TO SHOW THAT AMOUNT OF INTEREST DOES NOT EXCEED THE LIMIT FIXED BY SECTION 40(B)(IV). ANOTHER PROPOSITION LAID IN TH IS JUDGMENT WAS THAT IF THE PROFITS OF THE ASSESSEE WERE SUFFICIENT TO COVER TH E LOAN GIVEN TO A SISTER CONCERN, THE TRIBUNAL OUGHT TO HOLD THAT THE LOAN G IVEN WAS FROM THE ASSESSEES OWN FUND. IN THE PRESENT CASE IT IS SEEN FROM THE STATEMENT OF TOTAL INCOME FILED AT PAGES 2 AND 3 OF THE ASSESSEES PAPER BOOK FILED IN ITA NO.2471/AHD/2006 THAT THE INTEREST OF RS.16,87,324/- PAID TO M/S.DHA NRAJ ELECTRONICS WAS CLAIMED PAGE - 12 CIT VS. SHRI AJAY D. SHRIDHAR (ASSTT.YEAR 2002-2003) -12- AS DEDUCTION AGAINST THE INTEREST OF RS.2,42,100/- RECEIVED FROM M/S.DHANRAJ LEASE & FINANCE AND RS.6,29,898/- RECEIVED FROM M/S .SUNRISE ELECTRONICS. THE INTEREST WAS NOT CLAIMED AS DEDUCTION UNDER THE HEAD INCOME FROM OTHER SOURCES. THE NET INTEREST INCOME SHOWN IN THE STA TEMENT OF INCOME UNDER THIS HEAD IS RS.8,50,137/- AND THIS IS A FIGURE ARRIVED AT AFTER ADJUSTING THE INTEREST OF RS.14,16,408/- PAID TO VARIOUS PERSONS AGAINST THE INTEREST INCOME OF RS.22,66,545/- RECEIVED FROM VARIOUS PERSONS. THE FIRST PAGE OF THE STATEMENT OF TOTAL INCOME (PAGE 2 OF THE PAPER BOOK) IS REPRO DUCED BELOW: STATTEMENT OF TOTAL INCOME I. INCOME FROM BUSINESS A) INTEREST RECEIVED FROM FOLLOWING FIRMS ON CAPITAL A CCOUNT. 1. M/S.DHANRAJ LEASE & FINANCE 242100 2. M/S.SUNRISE ELECTRONICS 629898 3. M/S.DHANRAJ ELECTRONICS (-)1687324 (-)815326 B) REMUNERATION RECEIVED FROM FOLLOWING FIRMS AS WORKING PARTNER: 1. M/S.DHANRAJ ELECTRONICS 57569 2. M/S.DHANRAJ LEASE & FINANCE 8977 66546 (-)748780 II. INCOME FROM OTHER SOURCES INTEREST RECEIVED (NET) AS PER NOTE (3) 850137 GROSS INCOME 101357 SAY 101360 TAX PAYABLE ON ABOVE INCOME RS.9272/- LESS: ALLOWABLE U/S.88: CONT. TO LIP AS PER ATTACHED STATEMENT BUT RESTRICTED TO RS.60000/- @ 20% RS.12000/- NET TAX PAYABLE RS.NIL. 19. THE OBJECTION OF THE AO APPEARS TO BE THAT THE INTEREST PAID TO DHANRAJ ELECTRONICS CANNOT BE ALLOWED AS A DEDUCTION AGAINS T THE INTEREST INCOME FROM DHANRAJ LEASE AND FINANCE AND SUNRISE ELECTRONICS. ON A CAREFUL CONSIDERATION OF THE OBJECTION IN THE LIGHT OF THE ARGUMENTS ADVA NCED BEFORE US, WE ARE OF THE VIEW THAT THE OBJECTION IS WELL- FOUNDED, THE REASO N BEING THAT THE INCOME PAGE - 13 CIT VS. SHRI AJAY D. SHRIDHAR (ASSTT.YEAR 2002-2003) -13- WHICH AROSE OUT OF THE INVESTMENT OF THE WITHDRAWAL S FROM M/S.DHANRAJ ELECTRONICS WAS SHOWN BY THE ASSESSEE UNDER THE HEA D INCOME FROM OTHER SOURCES. IT WAS THE CONTENTION OF THE ASSESSEE BE FORE THE CIT(A) WHICH HAS BEEN REFERRED TO BY HIM AT PAGE 5 OF THE IMPUGNED O RDER OF THE CIT(A) THAT THE INCOME FROM THE INVESTMENT OF THE FUNDS RECEIVED FR OM THE FIRMS WAS SHOWN UNDER THE HEAD INCOME FROM OTHER SOURCES. IN PA RA-5 OF THE ORDER, THE CIT HIMSELF HAS RECORDED A FINDING THAT THE ASSESSEE HA S SHOWN THE INTEREST INCOME, ARISING OUT OF THE INVESTMENT MADE OUT OF WITHDRAWA LS FROM THE FIRM, AS INCOME FROM OTHER SOURCES. IF THE INCOME IS SHOWN UNDER T HE HEAD INCOME FROM OTHER SOURCES, WE ARE UNABLE TO APPRECIATE HOW THE INTER EST PAID IN RESPECT OF THE WITHDRAWALS FROM THE CAPITAL ACCOUNT OF THE ASSESSE E IN M/S.DHANRAJ ELECTRONICS CAN BE CLAIMED AS EXPENDITURE UNDER SEC TION 36(1)(III) AGAINST THE INTEREST RECEIVED FROM SOME OTHER FIRMS, VIZ. M/S.D HANRAJ LEASE & FINANCE AND M/S.SUNRISE ELECTRONICS. HOWEVER, IT CANNOT BE DI SPUTED THAT THE INCOME BY WAY OF INTEREST RECEIVED BY THE ASSESSEE OUT OF THE INVESTMENTS MADE FROM THE WITHDRAWALS FROM DHANRAJ ELECTRONICS HAS BEEN DECLA RED UNDER THE HEAD INCOME FROM OTHER SOURCES. THE QUESTION FOR CONS IDERATION CAN THEREFORE ONLY BE WHETHER THE INTEREST PAID TO DHANRAJ ELECTR ONICS CAN BE CLAIMED UNDER SECTION 57(III) OF THE ACT. ON THIS ASPECT, THE AO HAS OBSERVED THAT EITHER IT IS A CAPITAL EXPENDITURE OR IT IS NOT PERMISSIBLE AS A DEDUCTION UNDER THE ABOVE PROVISION AS THE INTEREST WAS NOT LAID OUT OR EXPEN DED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING THE INCOME. WE ARE UNAB LE TO UPHOLD THIS VIEW OF THE AO. THE INTEREST CANNOT BE CONSIDERED AS A CAP ITAL EXPENDITURE AS IT DOES NOT PERTAIN TO ANY BORROWING MADE FOR THE PURPOSE O F ACQUIRING A CAPITAL ASSET IN THE CASE OF A BUSINESS WHICH IS YET TO BE SET UP OR COMMENCED. IT IS ALLOWABLE AS A DEDUCTION UNDER SECTION 57(III) SINC E IT HAS BEEN PAID IN RESPECT OF AMOUNTS WITHDRAWN FROM THE CAPITAL ACCOUNT OF TH E ASSESSEE IN THE BOOKS OF DHANRAJ ELECTRONICS AND IT IS NOT IN DISPUTE THAT T HE WITHDRAWALS HAVE BEEN UTILISED FOR MAKING INVESTMENTS WHICH HAVE EARNED I NCOME, WHICH HAS BEEN SHOWN IN THE RETURN UNDER THE HEAD INCOME FROM OTH ER SOURCES. THERE IS THUS PAGE - 14 CIT VS. SHRI AJAY D. SHRIDHAR (ASSTT.YEAR 2002-2003) -14- A DIRECT NEXUS BETWEEN THE INVESTMENT AND THE BORRO WINGS AND THEREFORE THE INTEREST PAID IS ALLOWABLE UNDER SECTION 57(III). IT IS ALSO IN OUR OPINION IMMATERIAL THAT THE PARTNERSHIP DEED OF DHANRAJ ELE CTRONICS DID NOT SPECIFICALLY PROVIDE FOR THE PAYMENT OF INTEREST BY THE PARTNER ON THE DEBIT BALANCES IN HIS CAPITAL ACCOUNT. PARTNERSHIP IS MATTER OF CONTRAC T AND IN FACT IN CLAUSE (13) OF THE PARTNERSHIP DEED IT WAS STIPULATED THAT IN RESP ECT OF ANY MATTER CONNECTED WITH THE AFFAIRS OF THE FIRM NOT SPECIFICALLY PROVI DED FOR IN THE DEED, THE PARTIES MAY MAKE SUCH AGREEMENTS THEREFOR AND MAY SET IN SU CH MANNER WITH REGARD THERETO AS MAY BE AGREED UPON BY AND BETWEEN THEMSE LVES. APPARENTLY, THE CHARGING OF INTEREST ON THE DEBIT BALANCE IN THE AS SESSEES CAPITAL ACCOUNT IS REFERABLE TO THIS CLAUSE. IT CANNOT ALSO BE SAID T HAT THE CHARGING OF INTEREST IS ILLUSORY OR IS A DIVERSIONARY TACTICS ADOPTED BY TH E ASSESSEE OR THE FIRM BECAUSE THE FIRM HAS SHOWN THE INTEREST OF RS.16,87,324/- A S ITS INCOME IN THE RETURN FILED FOR THE ASSESSMENT YEAR 2002-2003 AND SAME HA S ALSO BEEN TAXED AS FOUND BY THE CIT(A) IN PARA-6 OF THE IMPUGNED ORDER. WE ACCORDINGLY HOLD THAT THE CIT(A) WAS RIGHT IN DELETING THE DISALLOWANCE OF TH E INTEREST PAID BY THE ASSESSEE TO DHANRAJ ELECTRONICS, THOUGH FOR DIFFERE NT REASONS. IN OUR OPINION, THE INTEREST WAS RIGHTLY DISALLOWED WHILE COMPUTING THE INCOME UNDER THE HEAD BUSINESS BUT IT HAS TO BE ALLOWED WHILE COMPUTING THE INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. THUS, THE SECOND GRO UND IS DISMISSED. 20. THE THIRD GROUND IS GENERAL AND REQUIRES NO DEC ISION. THE APPEAL IS THUS DISMISSED. 21. ITA NO.3810/AHD/2008 IS AN APPEAL FILED BY THE DEPARTMENT ARISING OUT OF THE FRESH ASSESSMENT ORDER PASSED BY THE AO UNDE R SECTION 143(3) R.W.S. 263 ON 31-12-2007. GROUND NOS.4 AND 5 ARE GENERAL. TH E FIRST THREE GROUNDS ARE AS BELOW: 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.4,32,67,677/- MADE U/S.68 TOWARDS AD VANCE FOR PURCHASE OF LAND. PAGE - 15 CIT VS. SHRI AJAY D. SHRIDHAR (ASSTT.YEAR 2002-2003) -15- 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN D ELETING THE ADDITION MADE OF RS.14,16,408/- TOWARDS THE DISALLO WANCE OF INTEREST EXPENDITURE. 3. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE OF RS.16,87,324/- TOWARDS THE DISALLO WANCE OF INTEREST EXPENDITURE. 22. THESE GROUNDS ARISE OUT OF THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER ON 31-12-2007 UNDER SECTION 143(3) R.W.S. 2 63. SINCE WE HAVE HELD THAT THE CIT HAD NO JURISDICTION TO INVOKE HIS POWE RS UNDER SECTION 263 OF THE ACT AND WE HAVE SET ASIDE HIS ORDER DATED 4-9-2006 VIDE OUR DECISION IN ITA NO.2471/AHD/2006 (SUPRA), THE ASSESSMENT ORDER PASS ED BY THE ASSESSING OFFICER ON 31-12-2007, IN SO FAR AS IT RELATES TO T HE ADDITION OF RS.4,32,67,677/- MADE UNDER SECTION 68 TOWARDS ADVANCE FOR PURCHASE OF LAND AND THE DISALLOWANCE OF THE INTEREST EXPENSES OF RS.14,16,4 08/-, HAS BECOME INFRUCTUOUS. THE FIRST TWO GROUNDS OF THE DEPARTME NT ARE ACCORDINGLY DISMISSED AS INFRUCTUOUS. SO FAR AS THE THIRD GROUND IS CONC ERNED, THE SAME HAS ALREADY BEEN DEALT WITH IN ITA NO.277/AHD/2007 (SUPRA) AND IS ACCORDINGLY DISMISSED. 23. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED AND THE APPEALS FILED BY THE REVENUE ARE DISMISSED. NO COSTS. ORDER PRONOUNCED IN THE OPEN COURT 30 TH OCTOBER, 2009. SD/- SD/- (P.K. BANSAL) ACCOUNTANT MEMBER (R.V.EASWAR) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 30-10-2009 COPY OF THE ORDER FORWARDED TO: PAGE - 16 CIT VS. SHRI AJAY D. SHRIDHAR (ASSTT.YEAR 2002-2003) -16- 1) : ASSESSEE 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR, ITAT, AHMEDABAD