The ACIT, Circle-1, Ahmedabad V. M/S Arpan Reality P Ltd, Ahmedabad

ITA 2615/AHD/2002

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 8951 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2009
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 11-09-2009
• Assessment Year: 1998-1999
• Appeal Filed On: 09-08-2002
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P M MEHTA; S N SOPARKAR
• Keywords: Commercial expediency; Revised return; TDS; 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 AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH C CC C AHMEDABAD AHMEDABAD AHMEDABAD AHMEDABAD BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI H.L. KARWA H.L. KARWA H.L. KARWA H.L. KARWA, , , , JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER AND AND AND AND SHRI SHRI SHRI SHRI N NN N. .. .S. SAINI S. SAINI S. SAINI S. SAINI, , , , ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE OF HEARING : 11.09.2009 DRAFTED ON:11.09.2009 ITA NO.2615/AHD/2002 CROSS OBJECTION NO.122/AHD/2003 ASSESSMENT YEAR : 1998-99 ACIT, CIRCLE.1, 4 FLOOR INSURANCE BUILDING, ASHRAM ROAD, AHMEDABAD VS. ARPAN REALITY P. LTD. 363, SWAGAT BLDG., C.G.ROAD, AHMEDABAD. PAN/GIR NO. : (APPELLANT) .. (RESPONDENT) ITA NO.3540/AHD/2002 ASSESSMENT YEAR : 1998-99 ARPAN REALITY P. LTD. 363, SWAGAT BLDG., C.G.ROAD, AHMEDABAD. VS. ACIT, CIRCLE.1, 4 FLOOR INSURANCE BUILDING, ASHRAM ROAD, AHMEDABAD PAN/GIR NO. : (APPELLANT) .. (RESPONDENT) ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 2 - APPELLANT BY : SHRI ANIL KUMAR CIT DR RESPONDENT BY: SHRI S.N.SOPARKAR & P.M.MEHTA O R D E R O R D E R O R D E R O R D E R PER PER PER PER N.S.SAINI N.S.SAINI N.S.SAINI N.S.SAINI , ACCOUNTANT MEMBER , ACCOUNTANT MEMBER , ACCOUNTANT MEMBER , ACCOUNTANT MEMBER :- THESE ARE THE CROSS APPEALS FILED BY THE REVENUE AND ASSESSEE AND THE CROSS OBJECTION FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD.CIT(APPEALS)-V, AHMEDABAD, DATED 09.05.2002. REVENUES APPEAL; ITA 2615/AHD/2002 REVENUES APPEAL; ITA 2615/AHD/2002 REVENUES APPEAL; ITA 2615/AHD/2002 REVENUES APPEAL; ITA 2615/AHD/2002 2. THE FIRST GROUND OF APPEAL OF THE REVENUE IS DIRECTED AGAINST DELETING THE ADDITION OF RS.1,31,61,685/- ON ACCOUNT OF INTEREST EXPENDITURE. 3. THE LEARNED ASSESSING OFFICER OBSERVED THAT IN THE PROFIT AND LOSS ACCOUNT, ASSESSEE HAS CREDITED RS.9,58,21,670/- ON ACCOUNT OF INTEREST INCOME AND HAS DEBITED RS.10,89,83,355/- AS INTEREST AND FINANCE CHARGES. THUS, THERE IS A NET EXPENDITURE OF RS.1,31,61,685/-. THE ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 3 - LEARNED ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE IS NOT HAVING FINANCING BUSINESS AS MAIN ACTIVITY OF THE COMPANY. FURTHER, THE LEARNED ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS CREDITED RS.70.18 CRORES AS BOOKING ADVANCE AGAINST WHICH THE ASSESSEE COMPANY HAS INVESTED RS.73 CRORES TOWARDS VARIOUS SCHEME AS ADVANCE TO NTCS AND SOCIETIES. THE BORROWED FUNDS OF RS.69.13 CRORES INCLUDES RS.22 CRORES FROM FINANCIAL INSTITUTION AND RS.46.97 CRORES FROM COMPANIES. ON LOAN TAKEN FROM FINANCIAL INSTITUTION, TOTAL INTEREST OF RS.4.70 CRORES HAS BEEN PAID DURING THE YEAR WHICH WORKS OUT TO 21.50%. ON LOANS TAKEN FROM COMPANY INTEREST OF RS.6.17 CRORES WAS PAID @ 14% TO 19%. ON LOANS OF RS.66 CRORES GIVEN TO VARIOUS PARTIES, INTEREST OF RS.9.58 CRORES IS EARNED @ 16% TO 19%. IN VIEW OF THE ABOVE OBSERVATION, THE LEARNED ASSESSING OFFICER OBSERVED THAT THE BORROWED FUNDS AT HIGHER RATE HAVE BEEN ADVANCED AT LOWER RATE OF INTEREST. THE COMPANIES TO WHOM LOAN AND ADVANCES ARE GIVEN ARE GROUP CONCERNS. THE LEARNED ASSESSING OFFICER STATED INSTANCES OF BORROWING AND ADVANCES ON THE SAME DAYS AND OBSERVED THAT THE NEXUS BETWEEN THE FUNDS BORROWER AT HIGHER RATE AND FUNDS GIVEN AT LOWER RATE CAN BE FOUND ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 4 - AND THEREFORE, ARGUMENT OF THE ASSESSEE THAT THERE IS NO NEXUS IN NOT ACCEPTABLE. THE LEARNED ASSESSING OFFICER FURTHER OBSERVED THAT IN LAST YEAR WHEN LOANS WERE RECEIVED FROM FINANCIAL INSTITUTE, THE RATE OF INTEREST CHARGED FROM COMPANIES WAS HIGHER AND THE INTEREST PAYMENT WAS CAPITALIZED. THE INTEREST CHARGE THIS YEAR IS 15% AND THUS, THERE I S REDUCTION IN THE RATE OF INTEREST. THE ARGUMENT OF THE ASSESSEE THAT GENERAL REDUCTION IN THE RATE OF INTEREST IS NOT ACCEPTED BY THE LEARNED ASSESSING OFFICER STATING THAT IT IS NOT SUPPORTED BY EVIDENCE. THE LEARNED ASSESSING OFFICER HAS ALSO NOT ACCEPTED THE SUBMISSION THAT THE ASSESSEE HAS INTEREST FREE FUNDS AVAILABLE WITH ASSESSEE FOR THE REASON THAT AGAINST THE BOOKING ADVANCE RECEIVED FROM THE MEMBER THE ASSESSEE COMPANY HAS PAID RS.70 CRORES TO THE SOCIETY AS THE INTEREST FREE ADVANCE. THE LEARNED ASSESSING OFFICER HAS OBSERVED THAT THE BOOKING ADVANCE INCLUDES MAJOR PORTION RECEIVED FROM ARVIND MILLS LTD. TOWARDS SCHEME WHICH WERE UTILISED BY THE SOCIETIES FOR ACQUIRING LAND. THEREFORE, THERE WAS NO SURPLUS FUND AVAILABLE WITH THE COMPANY OUT OF THE INTEREST FREE ADVANCES RECEIVED. THUS, THE LEARNED ASSESSING OFFICER CONCLUDED AS UNDER. ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 5 - A. THE ASSESSEE IS NOT ENGAGED IN THE BUSINESS OF FINANCING. B. THE INTEREST PAID ON FUNDS BORROWED IS AT HIGHER RATE THAN THE INTEREST RECEIVED ON THE FUNDS ADVANCED. C. THERE IS DIRECT NEXUS BETWEEN THE FUNDS BORROWED AT HIGHER RATE AND THE FUNDS ADVANCED AT LOWER RATE OF INTEREST. D. THE LOANS FROM FINANCIAL INSTITUTIONS ARE NOT UTILISED FOR THE BUSINESS OF THE ASSESSEE COMPANY. E. THE FUNDS ARE ADVANCED FROM THE BORROWED FUNDS. NO SURPLUS INTEREST FREE FUNDS WERE AVAILABLE FOR EARNING INTEREST INCOME. F. LOANS AND ADVANCES WERE MOSTLY TO GROUP CONCERNS. G. IN THE EARLIER YEARS, THE INTEREST CHARGED FROM THE SAME PARTIES WAS AT HIGHER RATE. H. THE INTEREST EXPENSES ARE NOT INCURRED FOR THE BUSINESS OF THE ASSESSEE COMPANY. I. THE INTEREST EXPENSES ARE MORE THAN INTEREST INCOME ONLY DUE TO THE FACT THAT INTEREST IS CHARGED AT LOWER RATE ON THE LOANS GIVEN. J. THE EXPLANATION OFFERED BY THE ASSESSEE COMPANY IS FACTUALLY INCORRECT. THEREFORE, THE LEARNED ASSESSING OFFICER DISALLOWED INTEREST OF RS.1,31,61,685/-. ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 6 - 4. IN APPEAL BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS), DELETED THE ADDITION BY OBSERVING AS UNDER. 3.2 I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE SUBM ISSIONS MADE BY THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASS ESSEE ON THIS ISSUE. THE MAIN TRUST OF THE LEARNED ASSESSING OFFICE R WITH REGARD TO DISALLOWANCE OF THE INTEREST IS ON VARIOUS GROUNDS AS MENTIONE D IN THE PARA. IT IS TRUE THAT THE ASSESSEE IS NOT ENGAGED IN THE B USINESS OF FINANCING AND IT IS ALSO EQUALLY TRUE THAT THE ASSESSEE HAS GENERATED INCOME FROM DEPLOYMENT OF THE FUNDS AS AND WHEN IT IS FOUN D NECESSARY. SO THIS ACTIVITY OF DEPLOYMENT OF THE FUNDS RA ISED EITHER THROUGH THE BORROWING OR THROUGH THE BOOKINGS IS THE REGULAR BUSINESS ACTIVITY OF THE ASSESSEE COMPANY. FROM THE FACTS MENTIONED AND DISCUSSED HEREINABOVE IT I S CLEAR THAT IT IS TOTALLY INCORRECT TO STATE THAT THE ASSESSEE COMPA NY HAS BORROWED AT HIGHER RATE AND ADVANCED AT LOWER RATE. THE APPELLANT COMPANY HAS HEREINABOVE SHOWN THAT SUM OF RS.58 CRORES WERE ONCE UPON A TIME ADVANCED TO THE COMPANIES AND WERE NOT AT AL L ATTRACTING ANY INTEREST. THE APPELLANT COMPANY HAS CLEARLY POINTED OUT THE FACT THAT THE INTEREST FREE FUNDS WERE MANY TIMES AVAILABLE FOR MA KING ADVANCES. SO THE POINT NO.(D) HAS NO BASIS AND IT IS FACTUALLY INC ORRECT. SO FAR AS POINT NO.(C) IS CONCERNED THE APPELLANT COMPANY HAS STAT ED THAT THERE WAS A COMMON POOL AND MANY TIMES THE FUNDS ONCE ADVAN CED WERE RECOVERED AND THEN REDEPLOYED. THIS FACT HAS BEEN GROS SLY OVERLOOKED BY THE LEARNED ASSESSING OFFICER. SO FAR AS POINT NO.(D) IS CONCERNED THE APPELLANT COMPANYS ARGUMENT IS THAT THE BORROWINGS FROM THE FINANCIAL INSTITUTIONS WERE FOR RAISING FUNDS FOR BUSINES S AND TILL IT IS DEPLOYED IN THE BUSINESS IT HAS TO BE DEPLOYED FOR EARN ING SOME FUNDS ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 7 - WHICH REDUCES DIRECTLY THE COST OF BORROWINGS AND GENER ATES INCOME FOR THE COMPANY. IT IS A PRUDENT BUSINESSMANS BUSINESS. I AGREE WITH THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE IN THIS RESPECT THAT IN MANY CASES, IT IS NOT POSSIBLE FOR TH E COMPANY TO DEPLOY THE FUNDS FOR THE PURPOSE OF THE BUSINESS AND THE REFORE, THE COMPANY MAY DEPLOY THE FUNDS FOR GENERATING INCOME FOR THE OVERALL INTEREST OF THE BUSINESS. THE POINT RAISED IN CLAUSE (E) IS AGAIN COVERED BY THE EXPLANATION PROVIDED BY THE APPELLANT COMPANY FOR CLAUSE ( B) AND SO IT RESOLVES THAT ISSUE. FOR THE DIFFERENTIAL INTEREST RATE AND THE OTHER ARGUMENTS P UT FORTH BY THE LEARNED ASSESSING OFFICER, THE APPELLANT COMPANY H AS STATED THAT THERE WAS A COMMON POOL AND THE LEARNED ASSESSING OFFICER HAS GROSSLY OVERLOOKED THE FACTUAL BASIS AND HAS NOT AT AL L ESTABLISHED THE DIRECT NEXUS FOR GIVING THE POINTS WHICH HAVE BEEN ME NTIONED. ON THE OTHER HAND THE APPELLANT COMPANY HAS POINTED OUT THAT THER E WAS HUGE INTEREST FREE FUNDS AVAILABLE BY WAY OF BOOKING DEPOSITS AND CAPITAL AND THEY ARE ALSO GONE TO THE COMMON POOL. MOREOVER, THE UTI LIZATION OF FUNDS WERE FOR THE BEST INTEREST OF THE BUSINESS AND TO SAV E COST OF THE BORROWINGS. LOOKING TO THIS I FULLY AGREE TO THE APPELLANT COMPANYS ARGUMENT THAT BORROWED FUNDS HAVE GONE TO THE COMMON POOL. I APPR ECIATE THAT THE BORROWED FUNDS HAVE GONE TO THE COMMON POOL AND NO NEXUS WITH THE INTEREST FREE ADVANCES COULD BE ESTABLISHED BY THE L EARNED ASSESSING OFFICER. THE AMOUNT RECEIVABLE FROM THE SOCIETI ES WHICH IS REFERRED TO BY THE LEARNED ASSESSING OFFICER IS ON ACCO UNT OF THE BUSINESS DEBTORS AND IT CANNOT BE SAID THAT IT IS AN ADVA NCE BY WAY OF LOANS GIVEN TO THE SOCIETY. ON THE OTHER HAND THE AMOUNT RECEIVED FROM THE MEMBERS BY WAY OF BOOKING DEPOSITS IS INTEREST FREE WHICH AS SHOW N ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 8 - IN THE APPELLANTS SUBMISSION IS ALSO USED FOR THE ADVA NCE AND IN FACT THUS APPELLANT COMPANY HAS EARNED INTEREST. IN THIS VIEW OF THE MATTER ON THE FACTS OF THE APPELLANTS CASE THERE IS NO REASON FOR MAKING ANY DISALLOWANCE OUT OF THE CLAIM FOR INTEREST PAYMENT FOR THE I NTEREST FREE FUNDS GIVEN BY THE APPELLANT. THE DECISION OF THE ITAT, AH MEDABAD IN THE CASE OF SHAHIBAUG ENTREPRENEURS PVT. LTD. IS ALSO A PPLICABLE TO THE APPELLANTS CASE. CONSIDERING THIS ASPECT THE ADDITION O F RS.1,31,61,685/- IS DELETED. THE LD. D.R. RELIED ON THE DECISION OF HON PUNJAB AND HARYANA HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ABHISHEK INDUSTRIES LTD. (2006) 286 ITR 1 (P&H) AND SUBMITTED THAT IT HAS BEEN HELD BY THE HON. HIGH COURT THAT ONCE ASSESSEE HAS BORROWED CERTAIN FUNDS ON WHICH LIABILITY TO PAY TAX IS BEING INCURRED AND ON THE OTHER HAND, CERTAIN AMOUNTS HAVE BEEN ADVANCED TO SISTER-CONCERNS WITHOUT CARRYING ANY INTEREST AND WITHOUT ANY BUSINESS PURPOSE, THE INTEREST TO THE EXTENT THE ADVANCE HAD BEEN MADE WITHOUT CARRYING ANY INTEREST IS TO BE DISALLOWED; ONUS IS ON THE ASSESSEE TO PROVE THE NEXUS BETWEEN THE BORROWED FUNDS AND THE FUNDS ADVANCED TO OTHERS WITHOUT INTEREST. 5. HE FURTHER SUBMITTED THAT THE ASSESSEE ON THE LOAN OF RS. 22 CRORES OBTAINED FROM ICICI SECURITIES & FINANCE CO LTD. AND HOUSING ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 9 - DEVELOPMENT FINANCE CORPORATION LTD., THE INTEREST PAID IS AT THE AVERAGE RATE OF 21.50% P.A. THE LOAN IS RS. 12.00 CRORES FROM ICICI SECURITIES & FINANCE CO LTD WAS RECEIVED ON 20-3-1997 [LAST YEAR] AND ON THE SAME DAY A LOAN OF RS. 10.26 CRORES WAS GIVEN TO SHARAD ELECTRICALS PVT. LTD. FROM WHOM INTEREST CHARGED DURING THIS YEAR IS @ 15% ONLY AS AGAINST INTEREST @ 21.5% CHARGED LAST YEAR. A LOAN OF RS. 5 CRORES WAS RECEIVED FROM HOUSING DEVELOPMENT FINANCE CORPORATION LTD. ON 26-3-1997 AND ON THE NEXT DAY A LOAN OF RS. 11 CRORES WAS GIVEN TO BAGADE PISE ENGINEERING CO. LTD. FROM WHOM THE INTEREST CHARGED IS @ 15% ONLY AS AGAINST INTEREST @ 21.5% CHARGED LAST YEAR. FURTHER, RS. 10 CRORES RECEIVED AS LOAN FROM ANAGRAM SECURITIES LTD AT THE INTEREST RATE OF 15%. SIMILARLY RS. 4 CRORES RECEIVED FROM ANAGRAM FINANCE LTD. ON 26-3-1998 WAS GIVEN TO ANAGRAM SECURITIES LTD. ON THE SAME DAY. THESE ARE THE DIRECT EVIDENCES SHOWING NEXUS BETWEEN THE FUNDS BORROWED AT HIGHER RATE OF INTEREST AND THE FUNDS GIVEN AT LOWER RATE OF INTEREST. THUS, THE ASSESSEES EXPLANATION THAT THERE IS NO NEXUS BETWEEN THESE TWO IS FACTUALLY INCORRECT. ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 10 - 6. HE RELIED ON THE DECISION OF HON. ORISSA HIGH COURT IN THE CASE OF INDIAN METALS & FERRO ALLOYS LTD. VS. COMMISSIONER OF INCOME TAX. 193 ITR 344 [ORI.] WHEREIN IT WAS HELD THAT ONCE ASSESSEE HAS BORROWED CERTAIN FUNDS ON WHICH LIABILITY TO PAY TAX IS BEING INCURRED AND ON THE OTHER HAND, CERTAIN AMOUNTS HAVE BEEN ADVANCED TO SISTER-CONCERNS WITHOUT CARRYING ANY INTEREST AND WITHOUT ANY BUSINESS PURPOSE, THE INTEREST TO THE EXTENT THE ADVANCE HAD BEEN MADE WITHOUT CARRYING ANY INTEREST IS TO BE DISALLOWED; ONUS IS ON THE ASSESSEE TO PROVE THE NEXUS BETWEEN THE BORROWED FUNDS AND THE FUNDS ADVANCED TO OTHERS WITHOUT INTEREST. 7. HE ALSO RELIED ON THE DECISION OF THE HON. SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. VS. COMMISSIONER OF INCOME TAX (APPEALS) & ANR. (2007) 288 ITR 1 (SC) WHEREIN IT WAS HELD THAT INTEREST ON BORROW ED FUNDS CANNOT BE DISALLOWED IF THE ASSESSEE HAS ADVANCED INTEREST-FREE LOAN TO A SISTER-CONCERN AS A MEASURE OF COMMERCIAL EXPEDIENCY; WHAT IS TO BE SEEN IS 'BUSINESS PURPOSE' AND WHAT THE SISTER-CONCERN DID WITH THE MONEY ADVANCED. ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 11 - 8. THE LD. D.R. FURTHER ARGUED THAT THE DEDUCTION FOR INTEREST IS ALLOWABLE TO THE ASSESSEE U/S. 36(1)(III) WHEREIN HEAVY BURDEN IS CAST ON THE ASSESSEE TO SHOW BORROWED FUNDS ARE UTILIZED FOR THE BUSINESS OF THE ASSESSEE. THE ADVANCING OF FUNDS TO SISTER CONCERN CANNOT BE SAID TO BE A BUSINESS ACTIVITY. ONUS IS ON ASSESSEE TO PROVE THAT THE FUNDS WERE UTILIZED FOR THE BUSINESS OF THE ASSESSEE AND NOT ON THE DEPARTMENT. THE ASSESSING OFFICER AT PAGE-7 PARA 2.3 OF THE ORDER HAS BUILT IN THE NEXUS BY WHICH HE HAS SHOWN THAT THE BORROWED FUNDS WERE UTILIZED FOR GIVING INTEREST FREE ADVANCES TO THE SISTER CONCERN, WHICH HAS NOT BEEN CONTROVERTED DURING THE APPELLATE PROCEEDINGS BEFORE THE CIT(A) AND EVEN BEFORE THE TRIBUNAL TILL TODAY. 9. THE LD. D.R. FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE COMPANY HAS CLAIMED THAT TOTAL INTEREST FREE FUNDS AVAILABLE WAS NOT LESS THAN RS. 70.17 CRORES AND FURTHER FUNDS OF RS. 1.82 CRORES IN FORM OF CURRENT LIABILITIES WAS ALSO AVAILABLE ON WHICH NO INTEREST IS PAID. ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 12 - AS PER THE BALANCE SHEET AS ON 31-3-1998, THE ASSESSEE COMPANY RECEIVED INTEREST FREE ADVANCES TO THE EXTENT OF RS. 70.18 CRORES FROM THE MEMBERS OF THE SOCIETIES AND NTCS TOWARDS BOOKING OF THE BUNGALOWS / FLATS BEING DEVELOPED BY THE ASSESSEE COMPANY. THE SAID ADVANCES WERE RECEIVED BY THE ASSESSEE COMPANY ON BEHALF OF THE SOCIETIES AND NTCS AND IN TURN THE ASSESSEE COMPANY PAID RS. 73 CRORES TO THE SOCIETIES AND THE NTCS AS INTEREST FREE ADVANCES TOWARDS SCHEME. FURTHER, THE BOOKING ADVANCES OF RS. 70.18 CRORES RECEIVED FROM ARVIND MILLS LTD. TOWARDS THE SCHEME OF GANGA COOP. HOUSING SOC. LTD.[38 CRORES] AND SUDIP COOP. HOUSING SOC. [28.50 CRORES] WHICH THE ASSESSEE COMPANY HAS PAID TO THE RESPECTIVE SOCIETY AND THE SAME IS UTILIZED BY THE SOCIETIES FOR THE PURCHASE OF LAND BEING DEVELOPED BY THE ASSESSEE COMPANY. THEREFORE, THERE WAS NO SURPLUS FUND AVAILABLE WITH THE ASSESSEE COMPANY OUT OF THE INTEREST FREE ADVANCES RECEIVED. ON THE CONTRARY, THE ASSESSEE COMPANY WAS IN SHORTAGE OF FUNDS FOR GIVING ON INTEREST. AS AGAINST INTEREST BEARING BORROWED FUNDS OF RS. 69.40 ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 13 - CRORES THE LOANS AND ADVANCES GIVEN WERE OF RS. 66.40CRORES ONLY. THUS, THIS APPLICATION IS ALSO FACTUALLY INCORRECT. 10. THE LD. D.R. FURTHER SUBMITTED THAT THE ORDER OF THE CIT(A) IS ONE SIDED AND THAT THE CIT(A) HAS GONE ON THE PRESUMPTION THAT THE FUNDS HAVE GONE THROUGH THE COMMON FUND. 11. THE LD. D.R. ALSO SUBMITTED THAT BEFORE THE CIT(A) ASSESSEE ADMITTED THAT IT IS NOT IN THE BUSINESS OF FINANCING. THEREFORE IT IS CLEARL Y AN ADJUSTMENT ENTRY OR BENEFICIAL INTEREST WHICH GUIDED THE ASSESSEE TO GIVE ADVANCES. 12. THE LD. A.R. OF THE ASSESSEE ON THE OTHER HAND, SUBMITTED THAT THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS RELIED ON THE DECISION OF THE HON. PUNJAB AND HARYANA HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ABHISHEK INDUSTRIES LTD [SUPRA] WHICH DECISION WAS FOLLOWED BY THE HON. PUNJAB AND HARYANA HIGH COURT IN CIT V. MUNJAL SALES CORPORATION V. CIT(A) AND ANR. 298 ITR 294 [P&H} AND THE DECISION IN THE CASE OF MUNJAL SALES CORPORATION WAS OVER REVERSED BY ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 14 - THE HON. SUPREME COURT IN MUNJAL SALES CORPORATION V. CIT 298 ITR 298 [SC] WHEREIN IT WAS HELD THAT THE TRIBUNAL ALLOWED DEDUCTION FOR ASST. YRS. 1992-93 AND 1993-94. IN VIEW OF CHANGE OF LAW, THE TRIBUNAL DISALLOWED PAYMENT OF THE INTEREST FOR ASST. YRS. 1994-95, 1995-96, 1996-97 AND 1997- 98. HOWEVER, THE POINT WHICH HAS BEEN LEFT OUT FROM CONSIDERATION IS THAT THE LOANS WHICH WERE GIVEN IN AUGUST/SEPTEMBER, 1991 TO THE SISTER CONCERNS GOT WIPED OUT ONLY IN ASST. YR. 1997-98. FOR ASST. YR. 1992-93 AND ASST. YR. 1993-94, THE TRIBUNAL HELD THAT THE LOANS GIVEN TO THE SISTER CONCERNS WERE OUT OF THE FIRMS FUNDS AND THAT THEY WERE ADVANCED FOR BUSINESS PURPOSES. ONCE IT IS FOUND THAT THE LOANS GRANTED IN AUGUST/SEPTEMBER, 1991 CONTINUED UPTO ASST. YR. 1997-98 AND THAT THE SAID LOANS WERE ADVANCED FOR BUSINESS PURPOSES AND THAT INTEREST PAID THEREON DID NOT EXCEED 18/12 PER CENT PER ANNUM, THE ASSESSEE WAS ENTITLED TO DEDUCTIONS UNDER S. 36(1)(III) R/W S. 40(B)(IV). ONE ASPECT NEEDS TO BE MENTIONED DURING THE ASST. YR. 1995-96, APART FROM THE LOAN GIVEN IN AUGUST/SEPTEMBER, 1991, THE ASSESSEE ADVANCED INTEREST FREE LOAN TO ITS SISTER CONCERN AMOUNTING TO RS. 5 LACS. ACCORDING TO THE TRIBUNAL, THERE WAS NOTHING ON RECORD TO SHOW THAT THE LOANS WERE GIVEN ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 15 - TO THE SISTER CONCERN BY THE ASSESSEE FIRM OUT OF ITS OWN FUNDS AND, THEREFORE, IT WAS NOT ENTITLED TO CLAIM DEDUCTION UNDER S. 36(1)(III). THI S FINDING IS ERRONEOUS. THE OPENING BALANCE AS ON 1ST APRIL, 1994 WAS RS. 1.91 CRORES WHEREAS THE LOAN GIVEN TO THE SISTER CONCERN WAS A SMALL AMOUNT OF RS. 5 LACS. THE PROFITS EARNED BY THE ASSESSEE DURING THE RELEVANT YEAR WERE SUFFICIENT TO COVER THE IMPUGNED LOAN OF RS. 5 LACS. 13. THE LD. A.R. FURTHER ARGUED THAT THE HON. BOMBAY HIGH COURT IN THE CASE OF CIT V. RELIANCE UTILITIES AND POWER LTD. [2009] 313 ITR 340 [BOM] AND SUBMITTED THAT THE HON. HIGH COURT HAS HELD AS UNDER:- WE HAVE HEARD THE LD. COUNSEL FOR BOTH THE PARTIES. IN OUR OPINION, THE VERY BASIS ON WHICH THE REVENUE HAD SOUGHT TO CONTENT OR ARGUE THEIR CASE THAT THE SHAREHOLDERS FUNDS TO THE TUNE OF OVER RS. 172 CRORES WAS UTILIZED FOR THE PURPOSE OF FIXED ASSETS IN TERMS OF THE BALANCE SHEET AS ON 31 MARCH 1999, IS FALLACIOUS. FIRSTLY, WE ARE NOT CONCERNED WITH THE BALANCE SHEET AS OF 31 MARCH 1999. WHAT WOULD BE RELEVANT WOULD BE BALANCE SHEET AS ON 31 MARCH 2000. APART FROM THAT, THE LD. COUNSEL HAS BEEN UNABLE TO POINT OUT TO US FROM THE BALANCE SHEET THAT ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 16 - THE BALANCE SHEET OF 31 MARCH 1999 SHOWED THAT THE SHAREHOLDERS FUNDS WERE UTILIZED FOR THE PURPOSE OF FIXED ASSETS. TO OUR MIND THE P&L A/C AND THE BALANCE SHEET WOULD NOT SHOW WHETHER SHAREHOLDERS FUNDS HAVE BEEN UTILIZED FOR INVESTMENTS. THE ARGUMENT HAS TO BE REJECTED ON THIS COUNT ALSO. APART FROM THAT WE HAVE NOTED EARLIER THAT BOTH IN THE ORDER OF THE CIT(A) AS ALSO THE TRIBUNAL, A CLEAR FINDING IS RECEIVED THAT THE ASSESSEE HAD INTEREST FREE FUNDS OF ITS OWN WHICH HAD BEEN GENERATED IN THE COURSE OF THE YEAR COMMENCING FROM 1 APRIL 1999. APART FROM THAT IN TERMS OF THE BALANCE SHEET THERE WAS A FURTHER AVAILABILITY OF RS. 398.19 CRORES INCLUDING RS. 180 CRORES OF SHARE CAPITAL. IN THIS CONTEXT, IN OUR OPINION, THE FINDING OF THE FACT RECORDED BY CIT(A) AND TRIBUNAL AS TO AVAILABILITY OF INTEREST FREE FUNDS REALLY CANNOT BE FAULTED. IF THERE BE INTEREST FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HAD RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM THE INTEREST FREE ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 17 - FUNDS AVAILABLE. IN OUR OPINION, THE SUPREME COURT IN EAST INDIA PHARMACEUTICAL WORKS LTD. [(1997)224 ITR 627(SC)] HAD THE OCCASION TO CONSIDER THE DECISION OF THE CALCUTTA HIGH COURT IN WOOL COMBERS OF INDIA LTD., [(1982)134 ITR 219(CAL)] WHERE A SIMILAR ISSUE HAD ARISEN. BEFORE THE SUPREME COURT IT WAS ARGUED THAT IT SHOULD HAVE BEEN PRESUMED THAT IN ESSENCE AND TRUE CHARACTER THE TAXES WERE PAID OUT OF THE PROFITS OF THE RELEVANT YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS AND IN THESE CIRCUMSTANCES THE APPELLANT WAS ENTITLED TO CLAIM THE DEDUCTIONS. THE SUPREME COURT NOTED THAT THE ARGUMENT HAD CONSIDERABLE FORCE, BUT CONSIDERING THE FACT THAT THE CONTENTION HAD NOT BEEN ADVANCED EARLIER. IT DID NOT REQUIRE TO BE ANSWERED. IT THEN NOTED THAT IN WOOL COMBERS CASE [SUPRA] THE CALCUTTA HIGH COURT HAD COME TO THE CONCLUSION THAT THE PROFITS WERE SUFFICIENT TO MEET THE ADVANCE TAX LIABILITY AND THE PROFITS WERE DEPOSITED IN THE OVERDRAFT ACCOUNT OF THE ASSESSEE AND IN SUCH A CASE IT SHOULD BE PRESUMED THAT THE TAXES WERE PAID OUT OF THE PROFITS OF THE YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS. IT NOTED THAT TO RAISE THE PRESUMPTION, THERE WAS SUFFICIENT MATERIAL AND THE ASSESSEE HAD ARGUED THE CONTENTION ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 18 - BEFORE THE HIGH COURT. THE PRINCIPLE THEREFORE WOULD BE THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY. IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE, THIS PRESUMPTION IS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE CIT(A) AND TRIBUNAL. CONSIDERING THE ABOVE, IN OUR OPINION, THERE IS NO MERIT IN THIS APPEAL WHICH IS ACCORDINGLY DISMISSED. 14. THE LD. A.R. REFERRED TO THE FOLLOWING CHART FILED AT PAGE-17 OF THE PAPER BOOK:- ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 19 - BY REFERRING TO THE ABOVE CHART, THE A.R. SUBMITTED THAT IT WILL BE SEEN THAT THE BOOKING AMOUNT RECEIVED FROM MEMBERS WAS UTILIZED FOR GIVING INTEREST FREE ADVANCE TO SISTER CONCERNS. THEREFORE, THE ASSESSING OFFICER WAS NOT RIGHT IN SAYING THAT BORROWED FUNDS WERE UTILIZED BY THE ASSESSEE FOR GIVING INTEREST FREE ADVANCE TO SISTER CONCERNS. 15. FINALLY THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT IF BORROWED FUNDS WOULD HAVE BEEN INVESTED IN FIXED DEPOSIT WITH BANK NO DISALLOWANCE WOULD HAVE BEEN MADE BY THE DEPARTMENT. IN SUCH CIRCUMSTANCES, THE ASSESSEE WOULD HAVE EARNED INTEREST AT THE MAXIMUM RATE OF 11% -12%. THE ASSESSEE INSTEAD OF INVESTING WITH BANK INVESTED WITH OTHERS AS A PRUDENT PERSON AND EARNED ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 20 - INTEREST AT A HIGHER RATE. LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE EXPLAINED THAT THE BORROWINGS WERE NOT FOR THE PURPOSE OF ADVANCING LOANS BUT WAS FOR THE PURPOSE OF BUSINESS. AS THE FUNDS MIGHT NOT HAVE BEEN AVAILABLE EXACTLY AT THE POINT OF TIME, WHEN BUSINESS NEEDS ARISES, THEREFORE, THE ASSESSEE ACCEPTED BORROWED FUNDS AS AND WHEN IT WAS AVAILABLE. THE FUNDS WHICH WERE NOT IMMEDIATELY REQUIRED FOR BUSINESS PURPOSES WERE ONLY GIVEN AS ADVANCE AND INTEREST WAS RECEIVED THEREON AND SUCH INTEREST GOES ON TO REDUCE THE INTEREST BURDEN OF THE ASSESSEE. 16. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE LEARNED ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS PAID INTEREST ON BORROWED FUNDS AT A HIGHER RATE THAN THE RATE OF INTEREST WHICH IT CHARGED ON ADVANCES GIVEN BY IT TO SISTER CONCERN. LEARNED ASSESSING OFFICER OBSERVED THAT THE TOTAL BORROWING OF THE ASSESSEE WAS RS.69.13 CRORES AND TOTAL ADVANCE WAS RS.66 CRORES. THE TOTAL INTEREST WAS PAID BY THE ASSESSEE WAS RS.10,89,83,355/- AND INTEREST RECEIVED ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 21 - WAS RS.9,58,21,670/-. THE LEARNED ASSESSING OFFICER THEREFORE DISALLOWED THE BALANCE INTEREST EXPENDITURE OF RS.1,31,61,685/- CLAIMED DEDUCTION BY THE ASSESSEE. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE ABOVE DISALLOWANCE BY ACCEPTING THE CONTENTION OF THE ASSESSEE THAT BORROWED FUNDS WERE FOR THE BUSINESS PURPOSES OF THE ASSESSEE AND AS THE FUNDS WERE NOT IMMEDIATELY REQUIRED FOR THE PURPOSES OF BUSINESS THE SAME WAS ADVANCED TO SISTER CONCERNS AND OTHERS TO REDUCE THE BURDEN OF INTEREST AS A PRUDENT BUSINESSMAN. BEFORE US THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT IF BORROWED FUNDS WOULD HAVE BEEN INVESTED IN FIXED DEPOSIT WITH BANK NO DISALLOWANCE WOULD HAVE BEEN MADE BY THE DEPARTMENT. IN SUCH CIRCUMSTANCES, THE ASSESSEE WOULD HAVE EARNED INTEREST AT THE MAXIMUM RATE OF 11% -12%. THE ASSESSEE INSTEAD OF INVESTING WITH BANK INVESTED WITH OTHERS AS A PRUDENT PERSON AND EARNED INTEREST AT A HIGHER RATE. LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE EXPLAINED THAT THE BORROWINGS WERE NOT FOR THE PURPOSE OF ADVANCING LOANS BUT WAS FOR THE PURPOSE OF BUSINESS. AS THE FUNDS MIGHT NOT HAVE BEEN AVAILABLE EXACTLY AT THE POINT OF TIME, WHEN BUSINESS ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 22 - NEEDS ARISES, THEREFORE, THE ASSESSEE ACCEPTED BORROWED FUNDS AS AND WHEN IT WAS AVAILABLE. THE FUNDS WHICH WERE NOT IMMEDIATELY REQUIRED FOR BUSINESS PURPOSES WERE ONLY GIVEN AS ADVANCE AND INTEREST WAS RECEIVED THEREON AND SUCH INTEREST GOES ON TO REDUCE THE INTEREST BURDEN OF THE ASSESSEE. WE FIND THAT THE CONTENTION OF THE ASSESSEE THAT INTEREST FREE FUNDS OF RS.70 CRORES WHICH WERE RECEIVED FROM THE CUSTOMERS ADVANCE WERE GIVEN AS ADVANCE TO OTHERS CANNOT BE ACCEPTED AS THE ASSESSEE HAS GIVEN ADVANCE OF RS.73 CRORES AS AGAINST THE RECEIPT OF RS.70 CRORES TO OTHER ENTITIES FOR THE PURPOSES OF BOOKING OF LAND ETC. BE THAT AS IT MAY, IN OUR CONSIDERED OPINION AS THE MONEY WAS BORROWED FOR BUSINESS PURPOSES INTEREST THEREON CANNOT BE DISALLOWED. HOWEVER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ACCEPTED THE CONTENTION OF THE ASSESSEE THAT THE MONEY BORROWED WERE FOR THE PURPOSES OF THE BUSINESS AND NOT FOR THE PURPOSES OF ADVANCING LOAN WITHOUT BRINGING ON RECORD ANY RELEVANT MATERIAL. IN OUR CONSIDERED OPINION, BEFORE ACCEPTING THE ABOVE CONTENTION OF THE ASSESSEE, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) SHOULD HAVE VERIFIED IT FROM THE RELEVANT MATERIAL. FURTHER IT IS OBSERVED THAT THE LEARNED ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 23 - ASSESSING OFFICER HAS ALSO NOT VERIFIED THE FACTS IN VIEW OF THE ABOVE SUBMISSION OF THE ASSESSEE. NO MATERIAL IS AVAILABLE BEFORE US TO SHOW THAT BORROWED FUNDS WERE SUBSEQUENTLY RECEIVED BACK FROM THE PERSONS TO WHOM THE ASSESSEE HAS GIVEN ADVANCE AND UTILISED FOR ITS BUSINESS PURPOSES. FURTHER, FROM THE MATERIALS AVAILABLE ON RECORD, IT IS NOT CLEAR THAT WHETHER THERE WAS ANY BUSINESS RELATION BETWEEN THE ASSESSEE AND THE PERSONS TO WHOM ADVANCES WERE GIVEN BY THE ASSESSEE. IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. VS. COMMISSIONER OF INCOME TAX (APPEALS) & ANR. (2007) 288 ITR 1 (SC) INTEREST CANNOT BE DISALLOWED MERELY BECAUSE ADVANCE WAS GIVEN TO THE SISTER CONCERN WHERE SUCH ADVANCE WAS GIVEN ON ACCOUNT OF COMMERCIAL EXPEDIENCY OF THE ASSESSEE. IN THE ABOVE CIRCUMSTANCES, IN OUR CONSIDERED OPINION, IT SHALL BE IN THE INTEREST OF JUSTICE, TO RESTORE BACK THIS ISSUE TO THE FILE OF THE LEARNED ASSESSING OFFICER FOR PROPER VERIFICATION IN LIGHT OF THE DISCUSSION MADE HEREINABOVE, AFTER ALLOWING PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE. WE THEREFORE, SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES IN RESPECT OF THIS ISSUE AND REMAND THE MATTER BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER TO RE-ADJUDICATE ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 24 - THE ISSUE AS PER LAW. THUS, THIS GROUND OF APPEAL OF REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 17. GROUND NO. 2 OF THE APPEAL OF THE REVENUE RELATES TO DELETING OF DISALLOWANCE OF RS. 88,013 ON ACCOUNT OF FOREIGN TRAVELLING EXPENSES. 18. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS DEBITED RS. 88,013 ON ACCOUNT OF FOREIGN TRAVELLING EXPENSES. THE ASSESSEE EXPLAINED THAT SHRI NIMISH VASA, CHAIRMAN AND SHRI SAURAV PATWA, EXECUTIVE DIRECTOR OF THE CO. VISITED DUBAI T O ATTEND HOUSING MELA HOSTED BY HOUSING DEVELOPMENT FINANCE CORPORATION LTD. TO ATTRACT NRIS TO INVEST IN REAL ESTATE BUSINESS. HOWEVER, NO EVIDENCE SUPPORTING THE CLAIM THAT IT WAS A BUSINESS TOUR IS PRODUCED. THEREFORE, THIS EXPENDITURE OF RS. 88,013 WAS DISALLOWED BY THE ASSESSING OFFICER TREATING IT AS NOT BEING INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE ASSESSEE CO. 19. IN APPEAL BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT TWO SENIOR EXECUTIVES WENT TO DUBAI TO ATTEND A HOUSING MELA, WHICH WAS A ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 25 - BUSINESS TRIP. THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM MERELY OBSERVING THAT NO EVIDENCE SUPPORTING THE CLAIM THAT IT WAS A BUSINESS TOUR WAS PRODUCED. IT WAS SUBMITTED THAT WHEN THE PURPOSE WAS FOR ATTENDING A HOUSING MELA AND THE ASSESSEE CO. IS IN THE BUSINESS OF DEVELOPMENT AND CONSTRUCTION OF REAL ESTATE, THE PURPOSE IS CLEARLY BUSINESS AND DEDUCTION WAS AVAILABLE. IT WAS ALSO SUBMITTED THAT IN THE SUBSEQUENT YEAR, BECAUSE OF THIS TOUR, THE ASSESSEE RECEIVED IN THE FORM OF DOLLARS FROM RAJESH J. TRIPATHI, ASIT J. TRIPATHI, UTPALA TRIPATHI FROM PALENTINE, 60,067 EQUIVALENT TO RS. 11,84,249 FOR BOOKING APARTMENTS. IT WAS THEREFORE PRAYED THAT THE DISALLOWANCE MAY BE DELETED. 20. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT ASSESSEE WAS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF REAL ESTATE AND THE FACT THAT THE EXECUTIVES VISITED DUBAI TO ATTEND A HOUSING MELA, THE PURPOSE OF VISIT IS ESTABLISHED TO BE FOR THE BUSINESS. THIS IS FURTHER SUPPORTED FROM THE FACT THAT ASS ESSEE RECEIVED SUBSTANTIAL AMOUNT OF RS. 11.00 LACS FOR BOOKING OF APARTMENTS FROM FOREIGN COUNTRIES. THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFI ED ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 26 - IN MAKING THE DISALLOWANCE ON ACCOUNT OF FOREIGN TRAVELLING EXPENSES AND DELETED THE ADDITION. 21. THE LD. LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LEARNED ASSESSING OFFICER. 22. THE LD. A.R. SUPPORTED THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 23. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. DURING THE YEAR THE ASSESSEE CLAIMED DEDUCTION OF RS.88,013/- ON ACCOUNT OF FOREIGN TRAVELLING EXPENSES WHICH WAS DISALLOWED BY THE LEARNED ASSESSING OFFICER ON THE GROUND THAT NO EVIDENCE SUPPORTING THE CLAIM THAT IT WAS A BUSINESS TOUR WAS PRODUCED. IN APPEAL THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE OBSERVING THAT ASSESSEE WAS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF REAL ESTATE AND THE FACT THAT THE EXECUTIVES VISITED DUBAI TO ATTEND A HOUSING MELA, THE PURPOSE OF VISIT IS ESTABLISHED TO BE ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 27 - FOR THE BUSINESS. THIS IS FURTHER SUPPORTED FROM THE FACT THAT ASSE SSEE RECEIVED SUBSTANTIAL AMOUNT OF RS. 11.00 LACS FOR BOOKING OF APARTMENTS FROM FOREIGN COUNTRIES. THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFI ED IN MAKING THE DISALLOWANCE ON ACCOUNT OF FOREIGN TRAVELLING EXPENSES. THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT CONVERT THE ABOVE FINDINGS OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) BY BRINGING ANY COGENT MATERIALS ON RECORD. THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY MISTAKE IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) . HENCE WE DO NOT FIND ANY GOOD REASONS TO INTERFERE IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WHICH IS CONFIRMED AND THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 24. GROUND NO. 3 OF THE APPEAL RELATES TO DELETING ADDITION OF RS. 1,34,06,590 IN RESPECT OF KHAR AND ANDHERI PROJECTS. 25. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT THE CO. LALBHAI REALITY LTD. MERGED WITH THE ASSESSEE CO. W.E.F. 1- ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 28 - 4-1997. HOWEVER, THE BUSINESS IN THE NAME OF THE SAID CO. CONTINUED AS A UNIT OF THE ASSESSEE. THE SAID CO. WAS BEING ASSESSED BY THE ASSESSING OFFICER AT MUMBAI. FOR THE PRESENT A.Y. ALSO, RETURN OF INCOM E WAS FILED AT MUMBAI. HOWEVER, AFTER SANCTION OF THE SCHEME OF MERGER, A REVISED RETURN WAS FILED BY THE ASSESSEE CO. INCLUDING THE RESULT OF THE SAID LALBHAI REALITY LTD. THE ASSESSING OFFICER HAS OBSERVED THAT LALBHAI REALITY LTD. WAS IN THE BUSINESS OF REAL ESTATE AT BOMBAY. IT HAD TWO PROJECTS IN ANDHERI AREA, VIZ. KHAR AND ANDHERI PROJECTS. THERE WAS A PROJECT AT BANDRA WHICH IS COMPLETED AND SOLD DURING THE YEAR. THERE WAS ALSO ANOTHER PROJECT AT BANGALORE. THE ASSESSING OFFICER OBSERVED THAT NO INCOME WAS DISCLOSED FOR KHAR AND ANDHERI PROJECT DURING THE YEAR UNDER THE CONSIDERATION FOR THE REASON THAT THE METHOD OF ACCOUNTING FOLLOWED IS COMPLETED CONTRACT BASIS. HOWEVER, IN A.Y. 1996- 97, AND 1997-98, THE ASSESSING OFFICER OF LALBHAI REALITY LTD. HAS NOT ACCEPTED THE ACCOUNTING METHOD AND THE INCOME OF THE TWO PROJECTS WAS ESTIMATED AT 8% OF WORK IN PROGRESS. THE ASSESSING OFFICER ALSO OBSERVED THAT FOR A.Y. 1996-97, THE APPEAL OF THE ASSESSEE WAS ALLOWED BY THE CIT(A) BUT THE SAID ORDER OF THE LEARNED COMMISSIONER OF INCOME ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 29 - TAX(APPEALS) WAS NOT ACCEPTED BY THE DEPARTMENT. AS THE FACTS FOR THE PRESENT YEAR ARE THE SAME, NET PROFIT FROM THESE TWO PROJECTS AT 8% OF THE ADDITION IN THE WORK IN PROGRESS IS MADE. ACCORDINGLY, THE ASSESSING OFFICER COMPUTED PROFIT OF RS. 1,24,02,700 FOR KHAR PROJECT AND RS. 1,03,390 FOR THE ANDHERI PROJECT AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 26. IN APPEAL, THE LD. CIT(A) OBSERVING THAT THE FACTS OF THE ASSESSEES CASE FOR THE PRESENT YEAR ARE SIMILAR TO THE FACTS OF THE A.Y . 1997-98 IN THE CASE OF AMALGAMATING CO LALBHAI REALITY LTD. FOLLOWING THE DECISION OF CIT(A) IN THE CASE FOR A.Y. 1996-97 AND 1997-98, HE DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. 27. THE LD. D.R. SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 28. THE A.R. OF THE ASSESSEE ON THE OTHER HAND, FILED A COPY OF THE ORDER OF THE MUMBAI B-BENCH OF TRIBUNAL IN THE CASE OF LALBHAI REALITY LTD. PASSED IN A.Y. 1997-98 IN ITA NO. 2351/MUM ORDER DATED 20-2-2009 AND SUBMITTED THAT THE TRIBUNAL UPHELD THE ORDER OF THE CIT(A) DELETING ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 30 - THE ADDITION ON ACCOUNT OF PROFIT ON THE PROJECTS MADE @ 8% OF THE WORK IN PROGRESS AND DISMISSED THE APPEAL OF THE REVENUE. THEREFORE, FOLLOWING THE SAME, IN THE PRESENT YEAR OF APPEAL ALSO, THE APPEAL OF THE REVENUE SHOULD BE DISMISSED. 29. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS NOT SHOWN ANY PROFIT FROM KHAR AND ANDHERI PROJECTS OF THE COMPANY M/S LALBHAI REAITY LTD. WHICH WAS MERGED WITH THE ASSESSEE COMPANY W.E.F. 1-4-1997. SINCE ADDITION WAS MADE FOR PROFIT @ 8% OF WORK IN PROGRESS, ON ACCOUNT OF THESE PROJECTS IN THE A.Y. 1996-97 AND 1997-98, THE ASSESSING OFFICER MADE ADDITION OF NET PROFIT COMPUTED @ 8% OF THE ADDITION IN THE WORK IN PROGRESS THEREBY ADDITION OF RS. 1,24,02,700 FOR KHAR PROJECT AND RS. 10,03,390 FOR ANDHERI PROJECT, WHICH WAS DELETED BY THE CIT(A) FOLLOWING ITS ORDER FOR A.Y. 1997-98 . WE FIND THAT FOR A.Y. 1997-98, THE REVENUE FILED AN APPEAL AGAINST THE ORDER OF THE CIT(A) BEFORE THE TRIBUNAL AND THE ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 31 - TRIBUNAL DISMISSED THE APPEAL OF THE REVENUE BY CONFIRMING THE ORDER OF THE CIT(A) OBSERVING AS UNDER:- AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, WE OBSERVE THAT THE AFORE-NOTED ORDER PASSED BY THE LD. CIT(A) IN THE IMMEDIATELY PRECEDING YEAR CAME UP FO R ADJUDICATION BEFORE THE TRIBUNAL IN I.T.A. NO. 3276/MUM/2000. VIDE ITS ORD ER DT. 27-5- 2004, A COPY OF WHICH HAS BEEN PLACED AT PAGES 17 ON WARDS LF THE PA[PER BOOK, THE TRIBUNAL HELD THAT THE LD. LEARNED COMM ISSIONER OF INCOME TAX(APPEALS) HAS TAKEN A CORRECT VIEW IN DELETIN G SUCH ADDITION AS THE ASSESSEE WAS FOLLOWING PROJECT COMPLETION METHO D. RESPECTFULLY FOLLOWING THE PRECEDENT AND IN THE ABSENCE OF ANY DISTIN GUISHING FEATURE HAVING BEEN BROUGHT TOUR NOTICE BY THE LD. D.R. WE UP HOLD THE IMPUGNED ORDER ON THIS ISSUE. 30. FACTS BEING IDENTICAL TO THE FACTS OF A.Y. 1997-98 AND AS NO DISTINGUISHING FEATURES WERE POINTED OUT BY THE LD. D.R. IN THE ABOVE CITED ORDER OF THE TRIBUNAL FOR A.Y. 1997-98 PASSED IN THE CASE OF THE ASSESSEE, RESPECTFULLY FOLLOWING THE ABOVE QUOTED DECISION WE CONFIRM THE ORDER OF THE CIT(A) AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 31. GROUND NO. 4 OF THE APPEAL OF THE REVENUE RELATES TO DELETING THE DISALLOWANCE OF CLAIM FOR INTEREST AMOUNTING TO RS. 1,20,69,695. ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 32 - 32. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT IN THE PLA OF LALBHAI REALITY LTD. INTEREST OF RS. 1,20,69,695 W AS DEBITED. THE ASSESSEE EXPLAINED BEFORE THE ASSESSING OFFICER THAT TOTAL EXPENSES INCURRED WERE RS. 4,58,25,056 OUT OF WHICH RS. 3,37,55,361 WERE CAPITALIZED TOWARDS PROJECT AND BALANCE AMOUNT OF RS. 1,20,69,695 IS CLAIMED AS DEDUCTION. IN THE A.Y. 1996-97, ENTIRE AMOUNT OF INTEREST WAS CAPITALIZED AND IN A.Y. 1997-98 90.5% OF THE TOTAL EXPENSES WERE CAPITALIZED AND IN THE PRESENT YEAR, 73.66% OF THE TOTAL EXPENSES ARE CAPITALIZED. THE ASSESSING OFFICER HAS STATED THAT THE REASON FOR VARIATION IN THE CAPITALIZATION IS NOT KNOWN. IN A.Y. 1997- 98 THE DEDUCTION CLAIMED BY WAY OF INT. WAS DISALLOWED AND FOR THE SAME REASONS, THE CLAIM FOR THIS YEAR IS DISALLOWED. 33. IN APPEAL, THE LD. CIT(A) OBSERVED THAT THE FACTS OF THE PRESENT YEAR ARE SIMILAR TO THE FACTS FOR A.Y. 1997-98 AND FOLLOWING THE ORDER FOR A.Y. 1997-98, THE LD. CIT(A) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 33 - 34. THE LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER. 35. THE A.R. OF THE ASSESSEE ON THE OTHER HAND, FILED A COPY OF THE ORDER OF THE MUMBAI B-BENCH OF TRIBUNAL IN THE CASE OF LALBHAI REALITY LTD. PASSED IN A.Y. 1997-98 IN ITA NO. 2351/MUM ORDER DATED 20-2-2009 AND SUBMITTED THAT THE TRIBUNAL UPHELD THE ORDER OF THE CIT (A) DELETING THE ADDITION ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENDITURE AND DISMISSED THE APPEAL OF THE REVENUE. THEREFORE, FOLLOWING THE SAME, IN THE PRESENT YEAR OF APPEAL ALSO, THE APPEAL OF THE REVENUE SHOULD BE DISMISSED. 36. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. THE ASSESSING OFFICER OBSERVED THAT IN THE PLA OF LALBHAI REALITY LTD. INTEREST OF RS. 1,20,69,695 WAS DEBITED. THE ASSESSEE EXPLAINED BEFORE THE ASSESSING OFFICER THAT TOTAL EXPENSES INCURRED WERE RS. 4,58,25,056 OUT OF WHICH RS. 3,37,55,361 WERE CAPITALIZED TOWARDS PROJECT AND BALANCE AMOUNT OF RS. 1,20,69,695 IS CLAIMED AS DEDUCTION. IN THE A.Y. 1996-97, ENTIRE AMOUNT OF INTEREST WAS CAPITALIZED AND IN A.Y. 1997-98 ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 34 - 90.5% OF THE TOTAL EXPENSES WERE CAPITALIZED AND IN THE PRESENT YEAR, 73.66% OF THE TOTAL EXPENSES ARE CAPITALIZED. THE ASSESSING OFFICER HAS STATED THAT THE REASON FOR VARIATION IN THE CAPITALIZATION ARE NOT KNOWN. IN A.Y. 1997- 98 THE DEDUCTION CLAIMED BY WAY OF INT. WAS DISALLOWED AND FOR THE SAME REASONS, THE CLAIM FOR THIS YEAR IS DISALLOWED. IN APPEAL, THE CIT(A) DELETED THE ADDITION FOLLOWING HIS ORDER FOR THE A.Y. 1997-98. WE FIND THAT THE REVENUE FILED AN APPEAL BEFORE THE TRIBUNAL AGAINST THE SAID ORDER OF CIT(A) FOR A.Y. 1997-98 AND THE TRIBUNAL CONFIRMED THE ORDER OF THE CIT(A) AND DISMISSED THE APPEAL OF THE REVENUE BY OBSERVING AS UNDER:- AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD WE FIND THAT IT IS AMPLY CLEAR THAT THE ASSESSEE WAS CAPITALIZING THE INTEREST EXPENDITURE TO THE COST OF THE P ROJECT IN THE PRECEDING YEAR. OUT OF THE TOTAL INTEREST OF RS. 7.45 CRORES , ONLY A SUM OF RS. 6.74 CRORES WAS CAPITALIZED AND THE REMAINING AM OUNT OF RS. 71.32 LACS WAS CLAIMED AS DEDUCTION. THERE CAN BE POSS IBILITY THAT SUCH INTEREST CLAIMED AS DEDUCTION IN THE PLA IS INCURRED IN RELATION TO THE OTHER INCOMES EARNED BY THE ASSESSEE WHICH HAVE BEEN OFFERED FOR TAXATION. BUT THE ONUS IS UPON THE ASSESSEE TO SHOW THAT S UCH INTEREST CLAIMED AS DEDUCTION RELATES TO THE INCOMES OFFERED FOR TAXATION. THE LEARNED AR COULD NOT POINT OUT ANY SPECIFIC MATERIAL TO I NDICATE THAT THIS MUCH INTEREST DID NOT RELATE TO THE CONSTRUCTION PROJEC T. WE ARE, ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 35 - THEREFORE, NOT INCLINED TO ACCEPT THE VIEW POINT OF THE LD. C IT(A) AND SET ASIDE THE SAME AT THE SAME TIME, WE FEEL THAT THE ASSESSING OFFICER HAS ALSO ERRED IN MAKING THE ADDITION FOR THE SAID SUM WITHO UT SIMULTANEOUSLY ALLOWING PROTANTO INCREASE IN THE COST OF PROJECT. WE DIRECT THAT NO DEDUCTION CAN BE ALLOWED TOWARDS INTEREST O F RS. 71.32 LACS BUT THE SAME MAY BE CAPITALIZED TO THE COST OF THE PROJECT. 37. FACTS BEING IDENTICAL TO THE FACTS OF A.Y. 1997-98 AND AS NO DISTINGUISHING FEATURES WERE POINTED OUT BY THE LD. D.R. IN THE ABOVE CITED ORDER OF THE TRIBUNAL FOR A.Y. 1997-98 PASSED IN THE CASE OF THE ASSESSEE, RESPECTFULLY FOLLOWING THE ABOVE QUOTED DECISION WE CONFIRM THE ORDER OF THE CIT(A) AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. C.O. NO. 122/AHD/2003 C.O. NO. 122/AHD/2003 C.O. NO. 122/AHD/2003 C.O. NO. 122/AHD/2003 38. GROUND NO.1 IN THE CROSS OBJECTIONS OF THE ASSESSEE RELATES TO ADDITION OF RS. 83.00 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DEVELOPMENT CHARGES. 39. THE BRIEF FACTS ARE THAT ASSESSING OFFICER OBSERVED THAT THE ASSESSEE CONTINUED THE BUSINESS OF DEVELOPMENT OF REAL ESTATE. HOWEVER, NO INCOME FOR DEVELOPMENT CHARGES IS DISCLOSED IN THE PLA. ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 36 - THE ASSESSING OFFICER OBSERVED THAT IN RESPECT OF THE SCHEME KNOWN AS ARPAN CHAMBERS-II, AS PER THE AGREEMENT WITH ARYAN NON-TRADING ASSOCIATION DATED 26-2-1992, THE ASSESSEE WAS GIVEN A RIGHT TO CONSTRUCT AND DEVELOP A COMMERCIAL COMPLEX ON A LAND MEASURING 933 SQ.YDS. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE CO. WAS TO GET NOT LESS THAN RS. 83 LACS AS DEVELOPMENT CHARGES. RS. 50 LACS WAS TO BE RECEIVED AT THE TIME OF APPROVAL OF PLANS AND NECESSARY PERMISSION FROM THE MUNICIPAL CORPORATION AND THEREAFTER, 12 EQUAL INSTALLMENTS OF RS. 2.75 LACS FROM THE DATE OF RECEIPT OF APPROVAL UPTO MARCH 1998. THE NECESSARY PERMISSION FROM MUNICIPAL CORPORATION WAS RECEIVED ON 14- 10-1996 AND THEREFORE THE ASSESSEE CO. SHOULD HAVE RECEIVED RS. 83 LACS AS DEVELOPMENT CHARGES BY 31-3-1998. THIS AMOUNT OF RS. 83 LACS IS TAXABLE AS ACCRUED INCOME WHICH HAS NOT BEEN DISCLOSED BY THE ASSESSEE IN ITS RETURN OF INCOME. FURTHER, THE ASSESSING OFFICER HAS ALS O NOTED THAT A SUPPLEMENTARY AGREEMENT DT. 1-4-1997 WAS ENTERED INTO ARYAN NON-TRADING ASSOCIATION AND AS PER THIS AGREEMENT, THE ASSESSEE HAD COMPLETED THE WORK OF DEVELOPMENT BUT SIMPLY BECAUSE ASSOCIATION COULD NOT BEAR THE LOSS THE ASSESSEE CO. AS DEVELOPER AGREED TO BEAR THE ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 37 - LOSS AND ALSO FOREGO THE DEVELOPMENT CHARGES TO BE RECEIVED FROM THE ASSOCIATION. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE CO. WAS TO RECEIVE THE DEVELOPMENT CHARGES ON COMPLETION OF THE WORK AS PER THE ORIGINAL AGREEMENT AND WAS NOT OBLIGED TO BEAR THE LOSS. THE SUPPLEMENTARY AGREEMENT HAS BEEN ENTERED WITH THE MOTIVE OF BEARING LOSS ON BEHALF OF THE ASSOCIATION. THERE WAS NO BUSINESS EXPEDIENCY IN MAKING THIS AGREEMENT. THE AGREEMENT WAS MADE TO AVOID TAX ON THE INCOME BY WAY OF DEVELOPMENT CHARGES ACCRUED TO THE ASSESSEE SINCE THE PROPERTY HAS BEEN ULTIMATELY ALLOTTED IN FEB. 2000 TO ARPAN ENTERTAINMENT LTD., THE ASSESSING OFFICER RELYING ON THE DECISION OF HON. SUPREME COURT IN THE CASE OF SHIV PRAKASH JANAK RAY AND CO. 222 ITR 583, WHERE IT WAS HELD THAT WAIVER OF INTEREST BY PASSING RESOLUTION AFTER END OF THE PREVIOUS YEAR WAS NOT BASED ON COMMERCIAL CONSIDERATION AND HENCE, TAXABLE ON ACCRUAL BASIS IN VIEW OF THIS, THE ASSESSING OFFIC ER HELD THAT DEVELOPMENT CHARGES OF RS. 83 LACS ACCRUED TO THE ASSESSEE AND ADDED THE SAME TO BE INCOME OF THE ASSESSEE. ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 38 - 40. IN APPEAL, THE CIT(A) OBSERVED THAT THE REASONS GIVEN BY THE ASSESSING OFFICER ARE CONVINCING IN AS MUCH AS THE ASSESSEE WAS CLEARLY ENTITLED TO RECEIVE DEVELOPMENT CHARGES FROM THE SOCIETY AT RS. 83 LACS. THE ARGUMENT OF THE ASSESSEE THAT THE REAL ESTATE MARKET HAD GONE DOWN AND THEREFORE THERE WAS NO SURPLUS WHICH THE ASSESSEE COULD RECEIVE BY WAY OF DEVELOPMENT CHARGES. IT IS WORTHWHILE TO NOTE THAT IN THE ASSESSMENT ORDER IT HAS BEE N OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS RECEIVED DEVELOPMENT CHARGES IN RESPECT OF TWO OTHER SOCIETIES THE DEVELOPMENT WORK OF WHICH WAS ALSO TAKEN UP. THEREFORE, THE CIT(A) HELD THAT THERE WAS NO REASON TO ACCEPT THE ARGUMENT OF THE ASSESSEE AND THE SUPPLEMENTARY AGREEMENT CANNOT HELP THE ASSESSEE TO SUPPORT THE ARGUMENTS. ACCORDINGLY, HE CONFIRMED THE ORDER OF THE ASSESSING OFFICER MAKING ADDITION OF RS. 83 LACS TO BE INCOME OF THE ASSESSEE. 41. THE LD. AR OF THE ASSESSEE ARGUED AND SUBMITTED THAT IN FACT, THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SHIV PRAKASH JANAKRAY AND CO. PVT. LTD,. 222 ITR 583 [SC] RELIED UPON BY THE ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 39 - ASSESSING OFFICER SUPPORTS THE CASE OF THE ASSESSEE. IN THAT CASE, THE HON. SUPREME COURT HAS HELD THAT WHEN THE INTEREST INCOME WAS GIVEN UP BY THE ASSESSEE BY PASSING A RESOLUTION BEFORE THE END OF THE ACCOUNTING YEAR, THEN NO INCOME HAD ACCRUED TO THE ASSESSEE AND THEREFORE, NOTHING WAS TAXABLE IN THE HANDS OF THE ASSESSEE. HE ARGUED AND SUBMITTED THAT OUT OF RS. 83 LACS, SUM OF RS. 50 LACS WAS TO BE RECEIVED BY THE ASSESSEE IN THE EARLIER YEAR WHEN APPROVAL OF THE PLANS AND NECESSARY PERMISSION WAS RECEIVED FROM THE MUNICIPAL CORPORATION WHICH PERMISSION WAS RECEIVED ON 14-10-1996 AND THAT THE BALANCE AMOUNT OF RS. 33 LADS WAS ONLY TO BE RECEIVED IN THE PRESENT YEAR OF APPEAL. SINCE THE SUPPLEMENTARY AGREEMENT WAS ENTERED INTO WITH ARYAN NON-TRADING CORPORATION ON 1-4-1997 FOR FOREGOING THE DEVELOPMENT CHARGES, WHICH IS AT THE BEGINNING OF THE FINANCIAL YEAR, THEREFORE, IN VIEW OF THE DECISION OF THE HON. SUPREME COURT OF THE CASE OF SHIV PRAKASH JANAK RAY AND CO. [SUPRA] NOTHING ACCRUED TO THE ASSESSEE BY WAY OF DEVELOPMENT CHARGES AND THEREFORE, NO INCOME WAS TAXABLE IN THE YEAR UNDER CONSIDERATION. THEREFORE THE CIT(A) WAS NOT JUSTIFIED IN ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 40 - CONFIRMING THE ADDITION OF RS. 83 LACS ON ACCOUNT OF DEVELOPMENT CHARGES MADE BY THE ASSESSING OFFICER. 42. THE LD. DR ON THE OTHER HAND SUPPORTED THE ORDER OF THE LOWER AUTHORITIES. 43. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE ENTERED INTO AN AGREEMENT WITH M/S. ARYAN NON-TRADING ASSOCIATION ON 26.06.1992. AS PER THE SAID AGREEMENT ASSESSEE WAS AUTHORISED TO RECEIVE A MINIMUM REMUNERATION OF RS.83 LACS WHICH WAS RS.50 LACS ON APPROVAL OF PLANS FROM AHMEDABAD MUNICIPAL CORPORATION AND BALANCE IN 12 EQUAL MONTHLY INSTALLMENT OF RS.2.75 LACS. THE APPROVAL WAS RECEIVED FROM THE AHMEDABAD MUNICIPAL CORPORATION ON 14.10.1996. THE MONTHLY CHARGES FROM 16.10.1996 TO 31.3.1997 FOR 5 MONTHS WAS RS.13.75 LACS (5X 2.75) AND THE ASSESSEE WAS TO RECEIVE TOTAL REMUNERATION OF RS.63.75 LACS FOR THE YEAR ENDING ON 31.03.1997 RELATING TO ASSESSMENT YEAR 1997-98. ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 41 - THE BALANCE AMOUNT OF REMUNERATION RECEIVABLE BY THE ASSESSEE FOR THE YEAR ENDING ON 31.03.1998 RELATING TO THE ASSESSMENT YEAR 1998-99 WAS RS.19.25 LACS (7 X 2.75). THE LEARNED ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS NOT DECLARED THE REMUNERATION OF RS.83 LACS IN ITS RETURN OF INCOME. THE ASSESSEE FILED BEFORE THE LEARNED ASSESSING OFFICER A SUPPLEMENTARY AGREEMENT DATED 1.04.1997 ENTERED INTO WITH ARYAN NON-TRADING ASSOCIATION ACCORDING TO WHICH DUE TO DOWNWARD TREND IN THE REAL ESTATE MARKET AND FINANCIAL DIFFICULT POSITION OF THE ARYAN NON-TRADING ASSOCIATION, IT WAS AGREED THAT THE ASSESSEE WILL NOT BE ENTITLED FOR RECEIPT OF RS.83 LACS FROM THAT NTC AND THE ASSESSEE CAN MONEY DIRECTLY FROM THE ALLOTEE OF FLATS. ACCORDING TO THE LEARNED ASSESSING OFFICER THE INCOME OF RS.83 LACS WAS FORGONE BY THE ASSESSEE AFTER ITS APPROVAL AND THEREFORE, IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SHIV PRAKASH JANAKRAY & CO. (222 ITR 583) THE LEARNED ASSESSING OFFICER TREATED RS.83 LACS AS INCOME OF THE ASSESSEE FOR THE ASSESSMENT YEAR 1998-99. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ALSO CONFIRMED THE ABOVE ACTION OF THE LEARNED ASSESSING OFFICER. WE FIND THAT IT IS NOT IN DISPUTE THAT THE PERMISSION ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 42 - FROM AHMEDABAD MUNICIPAL CORPORATION WAS RECEIVED ON 14.10.1996. THUS, AS PER THE ORIGINAL AGREEMENT, THE ASSESSEE WAS ENTITLED TO RECEIVE RS.63.75 LACS OUT OF RS.83 LACS DURING THE ASSESSMENT YEAR 1997-98 AND ONLY RS.19.25 LACS ACCRUED TO THE ASSESSEE DURING THE ASSESSMENT YEAR 1998-99. THEREFORE, IN OUR CONSIDERED OPINION RS.63.75 LACS CANNOT BE HELD TO HAVE ACCRUED TO THE ASSESSEE DURING THE ASSESSMENT YEAR 1998-99 BY ANY STRETCH OF IMAGINATION AND THEREFORE, THE LOWER AUTHORITIES WERE NOT JUSTIFIED IN ASSESSING THE SAME IN THE ASSESSMENT YEAR 1998-99. FURTHER, IT IS OBSERVED THAT THE RIGHT TO RECEIVE THE BALANCE AMOUNT OF RS.19.25 LACS DURING THE ASSESSMENT YEAR 1998-99 WAS EXTINGUISHED BY THE SUPPLEMENTARY AGREEMENT ENTERED INTO ON 1.04.1997 I.E. THE VERY FIRST DAY OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1998-99. THE VALIDITY OF THE SUPPLEMENTARY AGREEMENT IS NOT IN DISPUTE BEFORE US. THUS, IN VIEW OF THE ABOVE SUPPLEMENTARY AGREEMENT, IT CANNOT BE HELD THAT ANY PORTION OF THE INCOME OF RS.19.25 LACS WAS GIVEN UP BY THE ASSESSEE AFTER ITS ACCRUAL TO THE ASSESSEE AS THE RIGHT TO RECEIVE THE SAID AMOUNT WAS GIVEN UP BY THE ASSESSEE ON THE VERY FIRST DAY OF THE RELEVANT PREVIOUS ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 43 - YEAR. IN THE ABOVE FACTS AND CIRCUMSTANCES, IN OUR CONSIDERED OPINION, THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SHIV PRAKASH JANAKRAY & CO. (222 ITR 583) IS DISTINGUISHABLE FROM THE FACTS AND IS NOT APPLICABLE. RATHER THE RATIO LAID DOWN IN THAT CASE SUPPORTS THE CASE OF THE ASSESSEE THAT AS THE RIGHT TO RECEIVE EXTINGUISHED BEFORE ACCRUAL OF THE RELEVANT INCOME AND THEREFORE THE SAID AMOUNT CANNOT BE TREATED AS THE INCOME OF THE ASSESSEE. IN THE ABOVE FACTS AND CIRCUMSTANCES, IN OUR CONSIDERED OPINION, THE LOWER AUTHORITIES WERE ALSO NOT JUSTIFIED EVEN IN INCLUDING THE BALANCE AMOUNT OF RS.19.25 LACS OUT OF THE TOTAL AMOUNT OF RS.83 LACS IN THE INCOME OF THE ASSESSEE. WE THEREFORE, DELETE THE ENTIRE ADDITION OF RS.83 LACS. THUS, THIS GROUND OF CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. 44. GROUND NO. 2 OF THE CROSS OBJECTIONS RELATES TO SUSTAINING ADDITION OF RS. 14,73,621 FOR ALLEGED CONTRACT RECEIPT IN THE HANDS OF LALBHAI REALITY LTD. SIMPLY BECAUSE TDS WAS DEDUCTED @ 2% BY LALBHAI REALITY FINANCE PVT. LTD. WHILE REIMBURSING EXPENSES TO LALBHAI REALITY LTD. ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 44 - 45. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT IN THE RETURN OF INCOME FILED BY THE ASSESSEE FOR LALBHAI REALITY LTD. CREDIT OF TDS OF RS. 29,472 WAS CLAIMED. THE TDS CERTIFICATE WAS ISS UED BY LALBHAI REALITY FINANCE LTD. NEW DELHI AND AS PER THE CERTIFICATE, THE PAYER HAD CREDITED / PAID ON 31-3-1998 TO LALBHAI REALITY LTD. RS. 14,73,621 FOR PAYMENT TO CONTRACTOR AND DEDUCTED TAX AT SOURCE AT RS. 29,472. THIS AMOUNT OF CONTRACT RECEIPT WAS NOT DISCLOSED IN THE ACCOUNT OF LALBHAI REALITY LTD. AND THEREFORE, ADDITION WAS MADE TO THE INCOME OF THE ASSESSEE. 46. IN APPEAL, THE LD. CIT(A) OBSERVED THAT WHEN THE PAYER HAS SHOWN THE PAYMENT TOWARDS CONTRACTORS PAYMENT, THE SAME IS RECEIVED BY WAY OF INCOME OF THE ASSESSEE AND CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. 47. THE LD. AR SUBMITTED THAT THIS PAYMENT OF RS. 14,73,621 WAS MADE BY M/S LALBHAI REALITY FINANCE LTD. TOWARDS REIMBURSEMENT OF EXPENSES TO THE ASSESSEE AND TDS WAS WRONGLY DEDUCTED FROM THE SAID AMOUNT. SINCE THIS WAS REIMBURSEMENT OF EXPENSES, THEREFORE, THE SAME WAS NOT SHOWN AS INCOME IN THE PROFIT AND LOSS ACCOUNT. IT WAS FURTHER ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 45 - SUBMITTED THAT AS BOTH THE AUTHORITIES HAVE NOT VERIFIED THE FACTS ON THIS ISSUE AND AS THE RELEVANT FACTS ARE NOT ON RECORD, EITHER IN THE ORDER OF THE ASSESSING OFFICER OR IN THE ORDER OF THE CIT(A), THE MATTER SHOUL D BE RESTORED TO THE FILE OF THE ASSESSING OFFICER TO VERIFY THAT IF THE SUM OF RS. 14,73,621 IS TOWARDS REIMBURSEMENT OF EXPENSES TO THE ASSESSEE AND THE ASSESSEE HAS NOT CLAIMED DEDUCTION FOR THE EXPENSES IN HIS ACCOUNTS, THEN NO ADDITION SHOULD BE MADE TO THE INCOME OF THE ASSESSEE AND IF IT IS FOUND OTHERWISE, THEN THE ADDITION SHOULD BE SUSTAINED IN THE HANDS OF THE ASSESSEE. 48. THE LD. D.R. DID NOT HAVE ANY OBJECTION TO THE SUBMISSION MADE BY THE AR OF THE ASSESSEE. 49. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDER OF THE LOWERS AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS CLAIMED CREDIT FOR TDS OF RS. 29,472 FOR WHICH THE INCOME OF RS. 14,73,621 BEING THE CONTRACT RECEIPT ON WHICH TDS WAS DEDUCTED HAS NOT BEEN SHOWN BY THE ASSESSEE. THE ASSESSING OFFICER THEREFORE, MADE ADDITION OF THE SAME TO BE INCOME OF THE ASSESSEE WHICH WAS CONFIRMED IN APPEAL BY THE CIT(A). BOTH THE ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 46 - PARTIES BEFORE US AGREED THAT AS THE ENTIRE FACTS OF THE ISSUE ARE NOT ON RECORD, THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER TO VERIFY WHETHER THE AMOUNT IN QUESTION IS REIMBURSEMENT OF EXPENSES TO THE ASSESSEE WHICH HAS NOT BEEN CLAIMED AS DEDUCTION FROM THE INCOME BY THE ASSESSEE AND IF IT IS FOUND TO BE SO, THEN NO ADDITION SHOULD BE MADE TO THE INCOME OTHERWISE THE AMOUNT SHOULD BE ADDED TO THE INCOME OF THE ASSESSEE. WE THEREFORE, SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND REMAND THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATING AFRESH IN THE LIGHT OF THE OBSERVATIONS MADE HEREINABOVE, AFTER PROPER VERIFICATION AND THEN TO DECIDE THE ISSUE AS PER LAW. NEEDLESS TO SAY THAT HE SHALL AFFORD PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE RE-ADJUDICATING THE ISSUE AFRESH TO THE ASSESSEE. THUS, THIS GROUND OF CROSS OBJECTION OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. I.T.A. NO. 3540/AHD/2000 I.T.A. NO. 3540/AHD/2000 I.T.A. NO. 3540/AHD/2000 I.T.A. NO. 3540/AHD/2000 50. IN THE APPEAL FILED BY THE ASSESSEE , THE ASSESSEE HAS TAKEN THE SAME GROUND OF APPEAL WHICH HAVE BEEN TAKEN IN THE CROSS OBJECTIONS FILED BY THE ASSESSEE BEING C.O. NO. 122/AHD/2003. AT THE TIME OF ITA NO. M/S.ARPAN REALITY PVT. LTD. . ASST.YEAR - - 47 - HEARING, THE LD. AR FOR THE ASSESSEE SUBMITTED THAT AS THE APPEAL FILED BY THE ASSESSEE IS BARRED BY LIMITATION OF 122 DAYS, THEREFORE , HE IS NOT PRESSING HIS APPEAL. HENCE, THE APPEAL OF THE ASSESSEE IS DISMISSED AS NOT PRESSED. 51. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.2615/AHD/2002 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND CROSS OBJECTION OF THE ASSESSEE IN C.O. 122/AHD/2003 IS ALLOWED. THE APPEAL OF THE ASSESSEE IN ITA NO.3540/AHD/2002 IS DISMISSED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 18/09/2009. SD/- SD/- ( ( ( ( H.L. KARWA H.L. KARWA H.L. KARWA H.L. KARWA ) )) ) ( N.S. SAINI ) ( N.S. SAINI ) ( N.S. SAINI ) ( N.S. SAINI ) JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER