Diamond Textiles Mills Ltd., Ahmedabad V. The Income Tax Officer, Ward-1(1)(4), Ahmedabad

ITA 2709/AHD/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8000 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 26-07-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 19-10-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SU RENDRA KUMAR
• Keywords: Unexplained cash credit; Business income; Cost of acquisition; Corroborative evidences; Third party statement
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI S. S. GODARA, JUDICIAL MEMBER) ITA. NO: 2709/AHD/2016 & 1071/AHD/2017 (ASSESSMENT YEAR: 2012-13 & 2013-14) DIAMOND TEXTILES MILLS LTD. 210, NIKOL ROAD, OPP. THAKKAR BAPANAGAR, AHMEDABAD-382350 V/S INCOME TAX OFFICER, WARD- 1 (1)(4), AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAACD3997L APPELLANT BY : MS. ARTI N. SHAH, AR RESPONDENT BY : SHRI SURENDRA KUMAR, CIT/ D. R. ( )/ ORDER DATE OF HEARING : 12 -12-201 7 DATE OF PRONOUNCEMENT : 21 -12-2017 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. ITA NO. 2709/AHD/2016 & ITA NO. 1071/AHD/2017 ARE T WO SEPARATE APPEALS BY THE ASSESSEE PREFERRED AGAINST TWO SEPAR ATE ORDERS OF THE LD. ITA NOS. 2709/AH D/2016 & 1071/AHD/17 . A.YS.2012-13 & 2013-14 2 CIT(A)-1, AHMEDABAD DATED 30.08.2016 & 30.01.2017 P ERTAINING TO A.YS. 2012-13 & 2013-14 RESPECTIVELY. 2. AS COMMON ISSUES ARE INVOLVED IN THE IMPUGNED APPEA LS, THEY WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER F OR THE SAKE OF CONVENIENCE AND BREVITY. WE WILL FIRST TAKE UP ITA NO. 2709/AHD/2016 FOR A.Y . 2012-13. 3. FIRST GROUND RELATES TO THE ADDITION ON ACCOUNT OF PROCESS LOSS AMOUNTING TO RS. 32,14,385/-. 4. THE ASSESSEE IS IN THE BUSINESS OF PROCESSING OF GR EY CLOTH AND IS ALSO ENGAGED IN CONSTRUCTION ACTIVITIES. RETURN FOR THE YEAR WAS FILED ON 28.09.2012 DECLARING TOTAL INCOME AT RS. 9,72,48,980/-. THE RETURN WAS S ELECTED FOR SCRUTINY ASSESSMENT AND ACCORDINGLY STATUTORY NOTICES WERE I SSUED AND SERVED UPON THE ASSESSEE. 5. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS CLAIMED PROCESS LOSS OF RS. 1 ,89,57,661/-. THE ASSESSEE WAS ASKED TO JUSTIFY THE CLAIM OF LOSS WITH SUPPORT ING EVIDENCES. ASSESSEE STATED THAT WHILE PROCESSING THE GREY CLOTH AS A RESULT OF PROCESS LOSS, SCRAP, CHINDADI ETC. ARE GENERATED AND THE SAME ARE SOLD AND THE CO MPANY HAS REALIZED RS.1,57,43,276/-. THE ASSESSEE FURTHER POINTED OUT THAT THE NET PROCESS LOSS SUFFERED IS OF RS. 32,14,385/- AND THE GROSS PROFIT IS AT 30.75% WITH NET PROFIT AT 28.75%. THE ASSESSEE HEAVILY RELIED UPON THE BOO K RESULTS. THE REPLY OF THE ASSESSEE WAS CONSIDERED BY THE A.O. BUT THE SAME WA S NOT FOUND TO BE ITA NOS. 2709/AH D/2016 & 1071/AHD/17 . A.YS.2012-13 & 2013-14 3 CONVINCING. THE A.O. OBSERVED THAT WHEN THE PARTIES GIVE THE LOT OF GREY CLOTH FOR PROCESSING TO THE PROCESS HOUSE, THE ASSESSEE H AS TO RETURN THE SAME AFTER PROCESSING. THEREFORE, THERE IS NO QUESTION OF ASSE SSEE BEARING THE PROCESS LOSS. THE A.O. FURTHER OBSERVED THAT ANY SHORTAGE WHILE P ROCESSING THE LOT WILL BE BORNE BY THE PARTY WHO HAS GIVEN GOODS FOR PROCESS AND LOSS OF SHORTAGE WILL NOT BE BORNE BY THE PROCESS HOUSE. THE A.O. FURTHER OBSERVED THAT THOUGH THE ASSESSEE HAS EXPLAINED THE PROCESS CARRIED OUT BY I T AND STATED THAT ANY SHORTAGE, WASTAGE HAS TO BE COMPENSATED BY THE ASSESSEE. BUT, AT THE SAME TIME, THE ASSESSEE HAS NOT FURNISHED ANY SUPPORTING EVIDENCES LIKE, AGREEMENT WITH PARTIES FOR THE SHORTAGE AND CONTRA CONFIRMATIONS F ROM THE PARTIES TO SUBSTANTIATE ITS CLAIM FOR LOSS IN PROCESS. NOT CON VINCED WITH THE CLAIM OF THE ASSESSEE, THE A.O. DISALLOWED THE PROCESS LOSS OF R S. 1,89,57,661/-. 6. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND REITERATED ITS CLAIM OF PROCESS LOSS. 7. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E LD. CIT(A) FOUND THAT THE ASSESSEE HAS SHOWN INCOME OF RS. 1,57,43,276/- WHIC H WAS SALE PROCEEDS OF THE SCRAP GENERATED DURING THE PROCESS OF GREY CLOTH. T HE LD. CIT(A) NETTED OFF THE LOSS AND RESTRICTED THE DISALLOWANCE TO RS. 32,14,3 85/-. 8. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. 9. THE LD. COUNSEL FOR THE ASSESSEE ONCE AGAIN EXPLAIN ED THE PROCESSING OF GREY CLOTH AND POINTED OUT THAT AFTER PROCESSING THE GRE Y CLOTH, THE QUANTITY SHRINK AND ANY LOSS IN THE QUANTITY HAS TO BE BORNE BY THE ASSESSEE. THE LD. COUNSEL FURTHER POINTED OUT THAT SOME SCRAP IS ALSO GENERAT ED WHICH HAS BEEN SOLD AT ITA NOS. 2709/AH D/2016 & 1071/AHD/17 . A.YS.2012-13 & 2013-14 4 RS. 1,57,43,276/-. IT IS THE SAY OF THE LD. COUNSEL THAT THE LOSS CLAIMED BY THE ASSESSEE IS NORMAL AND INCIDENTAL TO THE BUSINESS O F THE ASSESSEE AND THEREFORE, THE SAME SHOULD BE ALLOWED. PER CONTRA, THE LD. D. R. STRONGLY SUPPORTED THE FINDINGS OF THE A.O. 10. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. WE HAVE ALSO CAREFULLY CONSIDERED THE MODUS OPERANDI FOR THE PROCESSING OF GREY CLOTH. LET US TAKE AN EXAMPLE. T HE ASSESSEE RECEIVES GREY CLOTH OF 1000 METERS FOR PROCESSING. AFTER PROCESSI NG, THE GREY CLOTH BECOMES 990 METERS WHICH MEANS THAT THERE IS LOSS OF 10 MET ERS IN THE PROCESS. WE FAIL TO UNDERSTAND WHY WOULD THE ASSESSEE BEAR THE LOSS OF 10 METERS WHEN SUCH LOSS IS BOUND TO HAPPEN IN THIS LINE OF BUSINESS. A PERUSAL OF THE SAMPLE INVOICES SHOWS THAT THE ASSESSEE HAS BILLED THE PAR TY WITH THE QUANTITY RETURNED BACK AFTER PROCESSING. THIS MEANS THAT THE ASSESSEE IS NOT BILLING THE PARTY WITH THE QUANTITY RECEIVED BY IT FOR PROCESSING OF GREY CLOTH. IF WE CONTINUE WITH OUR EXAMPLE THEN THE ASSESSEE HAS BILLED THE PARTY WITH 990 METERS AND NOT WITH 1000 METERS. THIS CLEARLY SHOWS THAT THE ASSESSEE H AS ALREADY DISCOUNTED THE QUANTITY WITH THE PROCESS LOSS. IN OUR UNDERSTANDIN G OF THE FACTS, THE ASSESSEE CANNOT CLAIM THE PROCESS LOSS ONCE AGAIN. FURTHER, THE SALE OF SCRAP HAS GENERATED RS. 1,57,43,276/- AND THE FIRST APPELLATE AUTHORITY HAS NETTED OFF THE PROCESS LOSS OF RS. 1,89,57,661/- AND HAS RESTRICTE D THE ADDITION JUSTIFIABLY AT RS. 32,14,385/-. THE FINDING OF THE FIRST APPELLATE AUTHORITY NEEDS NO DISTURBANCE. GROUND NO. 1 IS ACCORDINGLY DISMISSED. 11. GROUND NO. 2 RELATES TO THE ADDITION OF COMMISSION EXPENSES OF RS. 10,55,028/-. ITA NOS. 2709/AH D/2016 & 1071/AHD/17 . A.YS.2012-13 & 2013-14 5 12. WHILE PROCESSING THE RETURN, THE A.O. FOUND THAT TH E ASSESSEE HAS CLAIMED COMMISSION ON SALES AT RS. 88,89,000/-. THE ASSESSE E WAS ASKED TO FURNISH THE DETAILS OF COMMISSION EXPENSES. ON VERIFICATION OF THE DETAILS FURNISHED, THE A.O. NOTICED THAT COMMISSION OF RS. 10,55,028/- HAS BEEN PAID /CREDITED IN THE NAME OF RAXABEN H. SHAH. THE ASSESSEE WAS ASKED TO JUSTIFY THE PAYMENT OF COMMISSION TO RAXABEN H SHAH. ASSESSEE FILED A D ETAILED REPLY STATING THAT RAXABEN H SHAH IS AN INCOME TAX PAYEE HAVING PAN NO . AEGPS6733J. THE ASSESSEE FURTHER FILED COPIES OF RETURN OF INCOME A ND POINTED OUT THAT ON THE SAID COMMISSION, TDS HAS BEEN DEDUCTED AS PER THE P ROVISIONS OF THE LAW. HOWEVER, THE ASSESSEE FAILED TO PRODUCE RAXABEN H S HAH. THE SUBMISSIONS OF THE ASSESSEE DID NOT FIND ANY FAVOUR WITH THE A.O. WHO DISALLOWED THE COMMISSION PAYMENT OF RS. 10,55,028/-. 13. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. 14. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REITERA TED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. THE LD. D.R. SUPPORTE D THE FINDINGS OF THE A.O. 15. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. WE FIND THAT THE ASSESSEE IN ITS REPLY HAS H EAVILY RELIED UPON THE FACT THAT RAXABEN H SHAH IS AN INCOME TAX ASSESSEE, THE COMMI SSION HAS BEEN PAID THROUGH ACCOUNT PAYEE CHEQUES AND TAX HAS BEEN DEDU CTED AT SOURCE AS PER THE PROVISIONS OF THE LAW. NOWHERE, THE ASSESSEE HAS DE MONSTRATED THE SERVICES PROVIDED BY RAXABEN H. SHAH. NOTHING HAS BEEN BROUG HT ON RECORD TO SUGGEST THAT SHE HAS ACTUALLY DONE SOME BROKING FOR THE BUS INESS OF THE ASSESSEE. MERELY BECAUSE, TAX HAS BEEN DEDUCTED AT SOURCE ON THE IMPUGNED PAYMENT WOULD NOT JUSTIFY THE GENUINENESS OF THE TRANSACTIO N. IT WOULD NOT BE OUT OF ITA NOS. 2709/AH D/2016 & 1071/AHD/17 . A.YS.2012-13 & 2013-14 6 PLACE TO MENTION HEREIN THAT RAXABEN H. SHAH IS WIF E OF ONE OF THE DIRECTORS OF THE APPELLANT COMPANY. SINCE THE ASSESSEE FAILED TO DEMONSTRATE THE BUSINESS PROCURED BY RAXABEN H SHAH THEREBY FAILED TO DEMONS TRATE THAT THE COMMISSION WAS PAID ON SUCH PROCUREMENT OF BUSINESS , WE DO NOT FIND ANY MERITS IN THE CLAIM OF THE ASSESSEE. WE, THEREFORE , DECLINE TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GROUND NO. 2 IS ACCORDI NGLY DISMISSED. 16. GROUND NO. 3 RELATES TO THE DISALLOWANCE OF INTERES T ON INTEREST FREE LOANS AND ADVANCES AMOUNTING TO RS. 49,79,253/-. 17. WHILE ANALYZING THE BALANCE SHEET OF THE ASSESSEE, THE A.O. FOUND THAT THE ASSESSEE HAS MADE INTEREST FREE LOANS AND ADVANCES TO VARIOUS PARTIES AMOUNTING TO RS. 12,78,83,916/-. THE A.O. FURTHER OBSERVED TH AT IN THE CASE OF MAJOR PARTIES, THE OPENING BALANCE AND THE CLOSING BALANC E IS THE SAME AND OBSERVED THAT THERE IS NO BUSINESS TRANSACTION DURING THE YE AR. THE ASSESSEE WAS ASKED TO JUSTIFY THAT ADVANCES WERE GIVEN FOR BUSINESS PURPO SE. ASSESSEE FIELD A DETAILED REPLY VIDE LETTER DATED 23.03.2015 IN WHICH IT EXPL AINED THAT THE ADVANCES ARE CAPITAL ADVANCES AND FURNISHED THE COPIES OF ACCOUN T OF THE PARTIES AND FURTHER EXPLAINED THAT THE ASSESSEE INCURRED CAPITAL EXPEND ITURE OUT OF THE SAID ADVANCES TOWARDS THE MACHINERY/GOODS SUPPLIED. 18. THE REPLY OF THE ASSESSEE WAS CONSIDERED BY THE A.O . WHO WAS OF THE OPINION THAT THE ASSESSEE FAILED TO JUSTIFY THE BUSINESS PU RPOSE OF THE IMPUGNED ADVANCES AND WENT ON TO COMPUTE THE DISALLOWANCE TA KING 12% AS THE RATE OF INTEREST AND MADE ADDITION OF RS. 49,79,253/-. 19. ASSESSEE WAS UNSUCCESSFUL BEFORE THE FIRST APPELLAT E AUTHORITY. ITA NOS. 2709/AH D/2016 & 1071/AHD/17 . A.YS.2012-13 & 2013-14 7 20. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REITERA TED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. THE LD. COUNSEL FURTH ER POINTED OUT THAT THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH IT TO MAKE THE IMPUGNED INTEREST FREE ADVANCES. THE LD. COUNSEL FU RTHER POINTED OUT THAT THE TERM LOAN WAS TAKEN FOR A SPECIFIC PURPOSE AND HAS BEEN UTILIZED FOR THAT PURPOSE AND THEREFORE THERE IS NO QUESTION OF DIVER SION FOR INTEREST BEARING FUNDS FOR NON BUSINESS PURPOSES. THE LD. D.R. SUPPO RTED THE FINDINGS OF THE A.O. 21. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTH ORITIES BELOW. A PERUSAL OF THE DOCUMENTARY EVIDENCES SHOWS THAT ASSESSEE WAS H AVING INTEREST FREE FUNDS AVAILABLE WITH IT TOTALING TO RS. 48.58 CRORES AND THE IMPUGNED ADVANCES WERE AT RS. 12.78 CRORES. THIS SHOWS THAT THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WERE FAR MORE IN EXCESS OF THE INTEREST FR EE ADVANCES. WE FURTHER FIND THAT LONG TERM LOAN FROM BANKS, MATURITY TERM LOAN AND UNSECURED LOANS TAKEN BY THE ASSESSEE AMOUNTING TO RS. 32.80 CRORES WHERE AS THE TOTAL PROJECT EXPENSES WHICH INCLUDED FIXED ASSETS AND CAPITAL WO RK IN PROGRESS AMOUNTED TO RS. 64.76 CRORES. THIS SHOWS THAT THE TERM LOANS TA KEN BY THE ASSESSEE HAVE BEEN UTILIZED IN FIXED ASSETS AND CAPITAL WORK IN P ROGRESS. 22. THE HONBLE HIGH COURT OF GUJARAT IN THE CASE OF CO NSUMER MARKETING (INDIA) (P.) LTD. 64 TAXMANN.COM 16, ON IDENTICAL FACTS HAS HELD THAT THE TERM LOAN ON WHICH DEDUCTION OF INTEREST WAS SOUGHT, HAD ENTIREL Y BEEN USED FOR THE PURPOSE OF PURCHASING THE ASSETS AND THE ASSESSEE HAS SUFFI CIENT INTEREST FREE FUNDS TO TAKE CARE OF THE ADVANCES. THEREFORE, THE DISALLOWA NCE OF INTEREST WAS NOT JUSTIFIED. ITA NOS. 2709/AH D/2016 & 1071/AHD/17 . A.YS.2012-13 & 2013-14 8 23. CONSIDERING THE FACTS IN TOTALITY IN THE LIGHT OF T HE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT OF GUJARAT (SUPRA), WE DO NOT FIND ANY JUSTIFICATION IN THIS DISALLOWANCE OF INTEREST. 24. WE ACCORDINGLY DIRECT THE A.O. TO DELETE THE DISALL OWANCE OF RS. 49,79,253/-. GROUND NO. 3 IS ALLOWED. 25. GROUND NO. 4 RELATES TO THE TREATMENT OF PROFIT ON SALE OF LAND AS BUSINESS INCOME INSTEAD OF CAPITAL GAIN. 26. WHILE SCRUTINIZING THE COMPUTATION OF TOTAL INCOME, THE A.O. NOTICED THAT THE ASSESSEE HAS SHOWN LONG TERM CAPITAL GAIN OF RS. 3, 52,96,322/-. ON SALE OF LAND ALONGWITH UNFINISHED FLATS. THE ASSESSEE WAS ASKED TO FURNISH THE COPY OF PURCHASE DEED AS WELL AS SALE DEED FOR THE LAND SOL D DURING THE YEAR AND WAS FURTHER ASKED TO JUSTIFY ITS CLAIM OF CAPITAL GAIN AND TO EXPLAIN WHY THE SAME SHOULD NOT BE TREATED AS BUSINESS INCOME OF THE ASS ESSEE. 27. IN ITS REPLY, THE ASSESSEE STATED THAT IT HAS PURCH ASED UNFINISHED FLATS OF THE SOCIETY ASHITA CO-OP. HOUSING SOCIETY ALONGWITH TH E LAND FOR RS. 3,08,54,400/-. IT WAS STATED THAT THE SAME WAS SHOW N UNDER THE HEAD INVESTMENT IN THE BALANCE SHEET. IT WAS FURTHER EXP LAINED THAT THE SAME WAS SOLD WITHOUT CARRYING OUT ANY CONSTRUCTION FOR A CONSIDE RATION OF RS. 8.11 CRORES TO NOBLE ANTRIX CONSTRUCTION AND THE CAPITAL GAINS HAS BEEN COMPUTED AS PER THE PROVISIONS OF THE LAW. 28. AFTER CONSIDERING THE REPLY OF THE ASSESSEE, THE A. O. OBSERVED THAT THE SAID PROPERTY WAS PURCHASED IN THREE ASSESSMENT YEARS NA MELY A.Y. 2006-07, 2008- ITA NOS. 2709/AH D/2016 & 1071/AHD/17 . A.YS.2012-13 & 2013-14 9 09 & 2009-10. THE A.O. WAS NOT CONVINCED WITH THE C ONTENTIONS OF THE ASSESSEE AND PROCEEDED BY TREATING THE ENTIRE SALE CONSIDERATION AS BUSINESS INCOME OF THE ASSESSEE. 29. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND REITERATED THAT THE LAND PURCHASED ALONG WITH UNFINISHED FLATS WERE SOLD AS IT IS WITHOUT CARRYING OUT ANY CONSTRICTION ACTIVITIES AND THEREFORE THE GAINS SHO ULD BE TREATED AS CAPITAL GAINS. 30. IT WAS FURTHER BROUGHT TO THE NOTICE OF THE LD. CIT (A) THAT THE A.O. HAS NOT EVEN CONSIDERED THE COST OF RS. 3,08,54,400/- WHICH WAS SHOWN IN THE BALANCE SHEET SINCE A.Y. 2006-07. 31. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E LD. CIT(A) OBSERVED THAT THE ASSESSEE WAS IN FACT DOING AN ADVENTURE IN THE NATURE OF TRADE AND CONFIRMED THE FINDINGS OF THE A.O. HOWEVER, THE LD. CIT(A) DIRECTED THE A.O. TO ASCERTAIN THE COST OF ACQUISITION AND RELIEF TO THAT EXTENT SHOULD BE GIVEN FROM THE TOTAL SALE CONSIDERATION OF RS. 8.25 CRORE S. 32. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. 33. THE LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY STATED THAT THE ASSESSEE PURCHASED THE LAND ALONGWITH UNFINISHED FLATS AND HAVE BEEN S HOWING AS INVESTMENT IN ITS BALANCE SHEET FROM EARLIER ASSESSMENT YEARS. THE LD . COUNSEL FURTHER STATED THAT THIS IS THE ONLY TRANSACTION DONE BY THE ASSESSEE A ND THEREFORE THE SAME CANNOT BE CONSIDERED AS AN ADVENTURE IN THE NATURE OF TRAD E. THE LD. COUNSEL CONCLUDED BY SAYING THAT SINCE THE SAID PROPERTY WAS SHOWN AS INVESTMENT, THEREFORE IN THE YEAR OF SALE THE SAME CANNOT BE TREATED AS BUSINESS ASSET OF THE ASSESSEE AND THE ITA NOS. 2709/AH D/2016 & 1071/AHD/17 . A.YS.2012-13 & 2013-14 10 SURPLUS ON SALE OF THE PROPERTY HAS TO BE TAXED AS CAPITAL GAINS DURING THE YEAR UNDER CONSIDERATION. PER CONTRA, THE LD. D.R. STRON GLY SUPPORTED THE FINDINGS OF THE A.O. 34. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. THERE IS NO DISPUTE THAT THE ASSESSEE PURCHA SED THE LAND ALONGWITH UNFINISHED FLATS. IT IS ALSO TRUE THAT ALONGWITH T HE PROCESSING OF GREY CLOTH, THE ASSESSEE IS ALSO ENGAGED IN THE CONSTRUCTION BUSINE SS . WHAT IS PARAMOUNT IS TO SEE THE MANNER IN WHICH THE SAID PIECE OF LAND ALON G WITH UNFINISHED FLATS WERE PURCHASED FROM ASHITA CO-OP. HOUSING SOCIETY. THE F OLLOWING DETAILS AS EXHIBITED ON PAGE 267 OF THE PAPER BOOK IS MOST REL EVANT:- SR. NO. FLAT NO. NAME OF INDIVIDUALS TOTAL VALUE 1 FLAT NO. C - 6 AMITBHAI V. SHAH 1149000 2 FLAT NO. A - 3 ANILABEN N PATEL 1149000 3 FLAT NO. C - 11 AS HOKBHAI C. PATEL 1149000 4 FLAT NO. A - 4 MERRABEN N PATEL 1149000 5 FLAT NO. A - 10 SUKANYABEN V. PANDYA 1149000 6 FLAT NO. B - 3 NILIMABEN S. MO DI 1200000 7 FLAT NO. C - 12 SUMANBHAI S. GUPTA 1149000 8 FLAT NO. B - 2 HASMUKHBHAI N LADIYA 1149000 9 FLAT N O. A - 5 DIMPALBHAI S. PATEL 1149000 10 FLAT NO. C - 5 SHREYA M. SHAH 1149000 11 FLAT NO. A - 2 KANUBHAI AMBALAL PATEL 1149000 12 FLAT NO. C - 1 TRIVENDRABHAI S. BHANDARI 1207800 13 FLAT NO. C - 10 UDAYABHAI D. VELVAN 1207800 14 FLAT NO. C - 9 HITESHBHAI B. P ATEL 1207800 15 FLAT NO. A - 9 NIKHILBHAI A. PATEL 1149000 16 FLAT NO. B - 1 KAUSHAL K. SHAH 1149000 17 FLAT NO. B - 5 KAMLESH R. TRIVEDI 1200000 18 FLAT NO. B - 4 ARUNBHAI B. PATEL 1149000 19 FLAT NO. A - 8 RAJENDRABHAI R. PATEL 1149000 20 FLAT NO. C - 2 S HRUTIBEN N. PATEL 1149000 21 FLAT NO. B - 6 KIRTIBHAI P. KAPASI 1149000 22 FLAT NO. A - 12 HIMANSHU K. PATEL 1649000 23 FLAT NO. A - 6 DHRUVBHAI N PATEL 1149000 24 FLAT NO. C - 4 JIGNESHBHAI P. PATEL 1649000 25 FLAT NO. C - 7 NJILESHBHAI N. SHAH 2000000 TOTAL 30854400 ITA NOS. 2709/AH D/2016 & 1071/AHD/17 . A.YS.2012-13 & 2013-14 11 35. A PERUSAL OF THE ABOVE CLEARLY SHOWS THE NUMBER OF THE FLAT AND THE NAME OF THE PERSON ON WHOSE BEHALF PAYMENTS ARE MADE FOR PU RCHASE OF FLATS. WHEN THE AFOREMENTIONED DETAILS ARE READ WITH DETAILS FURNIS HED AT EXHIBIT 216 OF THE PAPER BOOK, WE FIND THAT THE ASSESSEE HAS TO RECOVE R RS. 9,77,000/- FROM MEMBERS OF SOCIETY AS MAINTENANCE FEES. THESE FACTS GO TO SHOW THAT THE IMPUGNED TRANSACTION AND ANY GAIN ARISING OUT OF SU CH TRANSACTION HAS RIGHTLY BEEN TAXED AS BUSINESS INCOME OF THE ASSESSEE. TO T HIS EXTENT, WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE FINDINGS OF THE LD. C IT(A). HOWEVER, WE ARE OF THE OPINION THAT THE COST OF ACQUISITION HAS TO BE DEDU CTED FROM THE TOTAL SALE CONSIDERATION. THEREFORE, WE DIRECT THE AO. TO RE-C OMPUTE THE BUSINESS PROFIT ON THE IMPUGNED TRANSACTION AFTER SUITABLY REDUCING THE COST OF ACQUISITION OF THE LAND ALONGWITH UNFINISHED FLATS. WITH THE ABOVE DIRECTIONS, THE TRANSACTION IS UPHELD AS BUSINESS TRANSACTION. GROUND NO. 4 IS PARTLY ALLOWED. 36. GROUND NO. 5 RELATES TO THE ADDITION OF RS. 51,00,0 00/- U/S. 68 OF THE ACT. 37. ON VERIFICATION OF THE BALANCE SHEET, THE A.O. FOUN D THAT THE ASSESSEE HAS RECEIVED RS. 51,00,000/- FROM SHRI BHUPENDRABHAI J PATEL. THE ASSESSEE WAS ASKED TO EXPLAIN THE SAID CASH CREDIT IN THE LIGHT OF SECTION 68 OF THE ACT. ON RECEIVING NO PLAUSIBLE REPLY, THE A.O. TREATED RS. 51 LACS AS UNEXPLAINED CASH CREDIT AND MADE THE ADDITION OF RS. 51 LACS. 38. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. 39. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE SAID ADVANCE WAS TAKEN ON 01.02.2008 AND NOT DURING THE YEAR UNDER C ONSIDERATION, THEREFORE ITA NOS. 2709/AH D/2016 & 1071/AHD/17 . A.YS.2012-13 & 2013-14 12 PROVISIONS OF SECTION 68 DO NOT APPLY ON THE FACTS OF THE CASE. THE LD. D.R. FAIRLY CONCEDED TO THIS. 40. WE HAVE CAREFULLY CONSIDERED THE ISSUE VIS--VIS EX HIBIT 289 OF THE PAPER BOOK. IT IS TRUE THAT ON 01.02.2008 RS. 51 LACS WAS TAKEN BY CHEQUE NO. 432066 OF BANK OF INDIA. THE LD. COUNSEL FURTHER SHOWS THAT D URING THE YEAR UNDER CONSIDERATION, THE SAID LOAN WAS ADJUSTED BY THE AL LOTMENT OF 51,000/- SHARES OF RS. 100 EACH. SINCE, THERE WAS NO UNSECURED LOAN TA KEN DURING THE YEAR UNDER CONSIDERATION, PROVISIONS OF SECTION 68 DO NOT APPL Y. WE ACCORDINGLY DIRECT THE A.O. TO DELETE THE ADDITION OF RS. 51 LACS. GROUND NO. 5 IS ACCORDINGLY ALLOWED. 41. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ITANO. 1071/AHD/2017 FOR A.Y. 2013-14. 42. GROUND NO. 1 RELATES TO THE DISALLOWANCE OF PROCESS LOSS TO THE EXTENT OF RS. 4,48,825/-. 43. AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY US IN ITA NO. 2709/AHD/2016 (SUPRA) VIDE GROUND NO. 1 OF THAT APPEAL. FOR OUR D ETAILED DISCUSSION THEREIN AND FOR SIMILAR REASONS, GROUND NO. 1 IS DISMISSED. 44. GROUND NO. 2 RELATES TO THE DISALLOWANCE OF COMMISS ION EXPENSES AMOUNTING TO RS. 2,98,930/- PAID TO RAXABEN H. SHAH. ITA NOS. 2709/AH D/2016 & 1071/AHD/17 . A.YS.2012-13 & 2013-14 13 45. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY US IN ITA NO. 2709/AHD/2016 (SUPRA) VIDE GROUND NO. 2 OF THAT APP EAL. FOR OUR DETAILED DISCUSSION THEREIN AND FOR SIMILAR REASONS, GROUND NO. 2S IS DISMISSED. 46. GROUND NO. 3 RELATES TO THE DISALLOWANCE OF INTERES T ON INTEREST FREE LOANS AND ADVANCES AMOUNTING TO R. 43,59,961/-. 47. A SIMILAR ISSUE HAS BEEN CONSIDERED AND DECIDED BY US IN ITA NO. 2709/AHD/2016 (SUPRA) VIDE GROUND NO. 3 OF THAT APP EAL. FOR OUR DETAILED DISCUSSION THEREIN AND FOR SIMILAR REASONS, GROUND NO. 3 IS ALLOWED. 48. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 21 - 12- 20 17 SD/- SD/- (S. S. GODARA) (N. K. BILLAIYA) JUDICIAL MEMBER TRUE COPY AC COUNTANT MEMBER AHMEDABAD: DATED 21/12/2017 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD