Yadav Developers P Ltd, Baroda V. The Dy.CIT.,Cent.Circle-1(4), Baroda

ITA 3675/AHD/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6892 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 05-04-2011
• Assessment Year: 1997-1998
• Appeal Filed On: 10-11-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus Share capital; Capital asset converted into stock in trade; Business income; Business expenditure; Income from undisclosed sources

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI D.C. AGRAWAL, ACCOUNTANT MEMBER DATE OF HEARING : 05/04/2011 DRAFTED ON: 06 /04/2011 APPEAL(S) BY SL. NO(S). ITA NO(S) ASSESSMENT YEAR(S) APPELLANT (S) RESPONDENT(S) 1. 3674/AHD/2008 1996-97 YADAV DEVELOPERS PVT.LTD. 302, 3 RD FLOOR SHAILAJA COMPLEX R.C. PATEL INDUSTRIAL ESTATE AKOTA ROAD, BARODA PAN /GIR: 31-617- CD-1090 THE DY.CIT CENTRAL CIRCLE-2 BARODA 2. 3675/AHD/2008 1997-98 -DO- -DO- 3. 3876/AHD/2008 1996-97 REVENUE ASSESSEE ASSESSEE BY : SHRI MUKUND BAKSHI, A.R. REVENUE BY : SHRI G.S. SOURYAWANSI, D.R. O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : ALL THESE THREE APPEALS PERTAIN TO ONE ASSESSEE. FOR THE ASSESSMENT YEAR 1996-97, THE ASSESSEE AS WELL AS THE REVENUE BOTH ARE IN CROSS APPEALS ARISING FROM THE ORDER OF THE LD.CIT(A)-III, VADODARA DATED 29/08/2008 AND FOR AY 1997-98 ONLY T HE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF THE LD.CIT(A)-III VA DODARA DATED 29/08/2008. ALL THESE APPEALS HAVE BEEN CONSOLIDAT ED AND HEREBY DECIDED BY THIS COMMON ORDER. ITA NOS.3674, 3675(BY ASSESSEE) & 3876/AHD/08 (BY REVENUE) YADAV DEVELOPERS P.LTD. VS. DY.CIT ASST.YEARS 1996-97 & 1997-98 - 2 - A) ASSESSEES APPEAL FOR AYS 1996-97 AND 1997-98: - 2. GROUND NO.1 READS AS UNDER : (EXTRACTED FROM A.Y.1996-97) 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II I, BARODA HAS ERRED IN LAW AND IN FACTS IN CONFIRMING ADDITION OF AN AMOUNT OF RS.1,00,000/-, OUT OF TOTAL ADDITION O F RS.2,43,650/-( RS.3,57,120/- FOR A.Y. 1997-98) , ON ACCOUNT OF ESTIMATED ON-MONEY ALLEGED TO HAVE BEEN RECEIVED /COLLETED BY THE APPELLANT IN THE BOOKING OF RUTURAJ COMPLEX IN COMPLETE DISREGARD OF AVAILABLE MATERIAL, EVIDENCES AND EXPLANATION. THE ADDITION OF RS.1,00,000/- BEING M ADE IN COMPLETE DISREGARD OF THE AVAILABLE MATERIAL, EVIDE NCES AND EXPLANATION IS PRAYED TO BE DELETED. 2.1. FOR BOTH THE YEARS, THE ASSESSMENT WAS MADE U/ S.144 OF THE I.T. ACT RESPECTIVELY DATED 23/03/1999 AND 13/03/20 00. IT WAS NOTED BY THE AO THAT A SURVEY WAS CONDUCTED U/S.133A OF THE I.T. ACT ON 23/03/1995. A SEARCH WAS ALSO CONDUCTED U/S.132 OF THE ACT AT THE RESIDENCE OF THE DIRECTORS. THEIR STATEMENT WAS ALSO RECORDED U/S.132(4) OF THE ACT. THE AO HAS REPRODUCED ONE STATEMENT OF SHRI CHANDRAKANT J.PATEL RECORDED U/S.132(4) OF THE ACT DATED 31/03/1995. ON THE BASIS OF THE SAID STATEMENT, WHEREIN THERE WAS A REFERENCE OF CHARGING OF ON-MONEY, FOR THE YEAR U NDER CONSIDERATION, I.E. FOR AY 1996-97 THE AO HAS ENQUI RED IN RESPECT OF FOUR UNITS WHICH WERE STATED TO BE BOOKED DURING TH E YEAR UNDER CONSIDERATION. THE AO HAS RECORDED CERTAIN FINDING S IN RESPECT OF THE RATES OF ON-MONEY ALLEGED TO HAVE BEEN ALSO T AKEN BY THE ASSESSEE AS PER THE FOLLOWING OBSERVATIONS:- ITA NOS.3674, 3675(BY ASSESSEE) & 3876/AHD/08 (BY REVENUE) YADAV DEVELOPERS P.LTD. VS. DY.CIT ASST.YEARS 1996-97 & 1997-98 - 3 - 6.6. IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS BOOKED FOUR UNITS (FLATS AND SHOPS) IN THE RITURAJ COMPLEX. A A COMPARISON OF THE OFFICIAL RATE AT WHICH THE BO OKING HAS BEEN SHOWN AND THE RATE ON THE BASIS OF STATEMENT O F C.J. PATEL (ACCOUNTED + ON- MONEY) AT WHICH SIMILAR UNIT WAS BOOKED IN THE EARLIER YEARS SHOWS THAT THE ASSESSEE HAS SHOWN BOOKINGS AT SUBSTANTIAL LOW RATES THAN COMPARED TO THE ACTUAL MARKET RATE OF SUCH UNITS. FOR EXAMPLE, THE SEMI B ASEMENT SHOP NO.7 WAS BOOKED IN FINANCIAL YEAR 1993-94 AT O FFICIAL RATE OF RS.460/- PER SQ.FT., ON MONEY ON THIS WAS R ECEIVED AT THE RATE OF RS.150/- PER SQ.FT., THUS, THE ACTUAL RATE COMES TO RS.610/- PER SQ.FT. AS AGAINST THIS, THE ASSESSEE HAS SHOWN BOOKING OF SHOP NO.9 IN THE SEMI BASEMENT AT THE RA TE OF RS.500/- PER SQ.FT. LOGICALLY, BECAUSE OF THE GENERAL INFLATION AND RISE IN THE PROPERTY PRICES, THE RATE S SHOULD HAVE BEEN HIKED. AS AGAINST THIS WHAT THE ASSESSEE IS SHOWING IS A FALL IN THE BOOKING RATES DESPITE THE FACT THA T THE EARLIER BOOKING (SB SHOPE NO.7) WAS MADE MORE THAN THREE YE ARS BACK. THESE FACTS PROVE THAT THE ASSESSEE HAS CONT INUED THE PRACTICE OF RECEIVING ON-MONEY OVER AND ABOVE THE OFFICIAL BOOKING RATE WHICH IS NOT REFLECTED IN THE BOOKS OF ACCOUNTS. 6.7. ON THE BASIS OF THE STATEMENT OF SHRI C.J. PATEL, THE RATES OF ON MONEY IN RESPECT OF SHOP ARE RS.150/- P ER SQ.FT. AND IN RESPECT OF FLAT ARE OF RS.75/- PER SQ.FT. T HUS THE TOTAL ON MONEY ON THE BOOKINGS MADE IN THE YEAR UNDER CONSID ERATION COMES TO RS.2,43,650/- (RS.1,26,800 FOR SHOPS + RS. 1,16,850 FOR FLATS). THE ASSESSEE WAS ASKED TO SHOW CAUSE A S TO WHY THIS AMOUNT BE NOT ADDED TO THE TOTAL INCOME. 2.2. IN THE LIGHT OF THE ABOVE SUBMISSION, THE AO H AS CONCLUDED THAT THE ASSESSEE MIGHT HAVE RECEIVED ON-MONEY I N THE CURRENT ITA NOS.3674, 3675(BY ASSESSEE) & 3876/AHD/08 (BY REVENUE) YADAV DEVELOPERS P.LTD. VS. DY.CIT ASST.YEARS 1996-97 & 1997-98 - 4 - YEAR TOO AS IN THE PAST SINCE THE BEGINNING OF THE PROJECT. FROM THE SIDE OF THE ASSESSEE, IT WAS CONTESTED THAT FOR THE YEAR UNDER CONSIDERATION THE BOOKINGS HAVE BEEN MADE AT THE EN HANCED RATE, HOWEVER, THE AO HAS NEGATED THAT EXPLANATION. THE AO HAS COMMENTED THAT LOGICALLY THERE WOULD BE SOME INCREA SE IN THE BOOKING RATE BECAUSE OF INFLATION, HENCE, THE ENHAN CED OFFICIAL RATE WERE BECAUSE OF GENERAL INFLATION. FINALLY, AN ADD ITION OF RS.2,43,650/- WAS MADE. THE SAID ADDITION WAS CHAL LENGED BEFORE LD.CIT(A). AFTER HEARING THE SUBMISSION, LD.CIT(A) HAS GRANTED PART RELIEF, RELEVANT PARA REPRODUCED BELOW : 3.2. I HAVE CONSIDERED THE SUBMISSIONS OF THE LD. A.R. AND THE FACTS OF THE CASE, THIS IS THE FIRST ASSESSMENT AFT ER THE BLOCK PERIOD, PURSUANT TO SEARCH ON 23.3.95. THE ADDITIO N HAS BEEN MADE ON THE ASSUMPTION THAT THE SAME RATE OF ON-MON EY WAS RECEIVED IN THIS YEAR ALSO. IN THIS CONNECTION, A PERTINENT FACT IS THAT THE APPELLANT HAS, DURING THE YEAR, ITSELF SUO MOTU ENHANCED THE SELLING PRICE AS RECORDED IN THE BOOKS IN COMPARISON TO THE SELLING PRICE RECORDED IN THE BOO KS DURING THE FINANCIAL YEAR 1994-95. THE ESTIMATED ADDITION IS NOT BASED ON ANY MATERIAL EVIDENCE, BUT SOLELY ON THE S TRENGTH OF THE STATEMENT MADE DURING THE SEARCH. AN ADMISSION MADE AT THE TIME OF SEARCH IS CERTAINLY BINDING SO FAR AS A SSESSMENT OF THE BLOCK PERIOD IS CONCERNED, BUT IT CANNOT BIND THE ASSESSEE IN RESPECT OF ALL FUTURE ASSESSMENTS. IF A SIMILAR ADDITION IS MADE, IT MUST BE DULY SUPPORTED WITH EVIDENCE AND C ANNOT BE BASED ONLY ON A STATEMENT. AT THE SAME TIME, IT CA NNOT BE DENIED THAT THERE IS A PREVALENT PRACTICE OF COLLEC TING ON- MONEY IN THE SALE OF REAL ESTATE. THIS IS NOT CONT ESTED BY THE APPELLANT. CONSIDERING THESE FACTS AND THE PRACTIC E IN THE TRADE, IN MY OPINION, AN INFERENCE REGARDING ADDITI ONAL ON- MONEY RECEIPT OF RS.1,00,000/- WOULD BE JUSTIFIED. THEREFORE, ITA NOS.3674, 3675(BY ASSESSEE) & 3876/AHD/08 (BY REVENUE) YADAV DEVELOPERS P.LTD. VS. DY.CIT ASST.YEARS 1996-97 & 1997-98 - 5 - THE ADDITION TO THE EXTENT OF RS.1,00,000/- IS CONF IRMED AND THE BALANCE RS.1,43,650/- IS DIRECTED TO BE DELETED. 3. ON HEARING THE SUBMISSIONS OF BOTH THE SIDES, WE HAVE FOUND THAT THE RELEVANT ISSUE BEFORE US IS THAT WHETHER O N THE BASIS OF A STATEMENT WHICH WAS RECORDED DURING THE COURSE OF S EARCH CONDUCTED IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR WHETHE R AN ADDITION CAN BE EXTRAPOLATED IN A SUBSEQUENT ASSESSMENT YEAR IN THE NORMAL COURSE OF ASSESSMENT PROCEEDINGS SPECIALLY WHEN IND EPENDENT ENQUIRY IN RESPECT OF ON-MONEY WAS ADMITTEDLY NOT CONDUCTED BY THE AO. THE ASSESSEE HAS VEHEMENTLY CONTESTED THAT FOR THE YEAR UNDER CONSIDERATION, THERE WAS NO EVIDENCE IN POSSE SSION OF THE REVENUE DEPARTMENT ON THE BASIS OF WHICH IT COULD B E HELD THAT THE ASSESSEE HAS TAKEN ON-MONEY ON BOOKING OF THE FLA TS. IT WAS ALSO EXPLAINED THAT FOR THE YEAR UNDER CONSIDERATION, TH E ASSESSEE HAS ENHANCED THE RATE PER SQ.FT. AND ONCE THE INCREASED RATES PER SQ.FT. WERE CHARGED, THEREFORE, THE ALLEGATION OF ON-MONE Y WAS BASELESS. THE APPELLANT HAS FURNISHED THE RECEIPTS OF BOOKING AS RECORDED IN ITS BOOKS OF ACCOUNTS. AREA TOTAL CONSIDERATION RS. RATE PER SQ.FT. RS. SEMI BASEMENT: SHOP NO. 254 1,27,000/- 500/- SHOP NO.16 289 1,58,950/- 550/- ITA NOS.3674, 3675(BY ASSESSEE) & 3876/AHD/08 (BY REVENUE) YADAV DEVELOPERS P.LTD. VS. DY.CIT ASST.YEARS 1996-97 & 1997-98 - 6 - GROUND FLOOR: SHOP NO.9 302 2,11,400/- 700/- FLAT: FLAT NO.301 1558 6,87,808/- 441/- TOTAL 11,85,158/- 3.1. WE FIND FORCE IN THIS GROUND OF THE ASSESSEE B ECAUSE THE AO HIMSELF HAS PRESUMED THAT THE ASSESSEE-COMPANY MIGH T HAVE RECEIVED ON-MONEY IN THE CURRENT YEAR TOO AS IN T HE PAST YEARS. IT IS EVIDENT FROM PARA 6.8 OF THE ASSESSMENT ORDER THAT THE AO WAS NOT DEFINITE THAT THE ON-MONEY HAD ACTUALLY BEEN RECE IVED BY THE ASSESSEE. MERELY ON A PRESUMPTION THAT IN THE PAST ASSESSEE WAS FOUND ACCEPTING ON-MONEY, THE AO HAD EXTRAPOLATED THE SAME RATE OF ON-MONEY FOR THE YEAR UNDER CONSIDERATION , THOUGH THERE WAS NO INDEPENDENT EVIDENCE OR ANY OTHER INFORMATIO N TO THAT EFFECT. WE HAVE ALSO NOTED THAT EVEN THE FIRST APPELLATE AU THORITY WAS NOT SURE ABOUT THE BASIS ON WHICH THE AO HAD MADE THE S AID ADDITION, HENCE, THE LD.CIT(A) HAS COMMENTED THAT AN ADMISSION AT THE TIME OF SEARCH IS BINDING AS FAR AS THE BLOCK PERIOD IN SEARCH CASE IS CONCERNED, BUT THE SAID STATEMENT SHOULD NOT FASTEN THE ASSESSEE IN RESPECT OF ALL THE FUTURE ASSESSMENTS. THE LD.CIT( A) HAS ALSO COMMENTED THE ADDITION IN RESPECT OF ON-MONEY MUST BE DULY SUPPORTED WITH EVIDENCE PERTAINING TO THE YEAR UNDE R CONSIDERATION. HOWEVER, SUSPECTING THAT RECEIVING OF ON-MONEY BEING A PREVALENT PRACTICE IN RESPECT OF REAL ESTAT E BUSINESS HE HAS ITA NOS.3674, 3675(BY ASSESSEE) & 3876/AHD/08 (BY REVENUE) YADAV DEVELOPERS P.LTD. VS. DY.CIT ASST.YEARS 1996-97 & 1997-98 - 7 - CONFIRMED AN ADHOC ADDITION UPTO RS.1 LAC AND REST OF THE AMOUNT WAS DELETED. THIS APPROACH OF LD.CIT(A), THUS CLEA RLY INDICATES THAT THE ADDITION WAS MERELY MADE ON PRESUMPTION AND TH ERE WAS NO DEFINITE EVIDENCE IN THE HANDS OF THE REVENUE. W E ARE ALSO OF THE VIEW THAT MERELY ON ASSUMPTION THE SAME RATE OF ON-MONEY SHOULD NOT HAVE BEEN EXTRAPOLATED BY THE AO FOR THE YEAR UNDER CONSIDERATION THAT TOO ON A BASIS OF A STATEMENT RE CORDED IN THE PAST NOT CONNECTED WITH THE ASSESSMENT PROCEEDINGS FOR T HE YEAR UNDER CONSIDERATION. WE ARE ALSO OF THE VIEW THAT THE L D.CIT(A) HAD NO LOGICAL BASIS FOR UPHOLDING THE ADDITION UPTO RS.1 LAC, THOUGH HE WAS IN AGREEMENT WITH THE CONTENTIONS OF THE ASSESSEE. WE, THEREFORE, HOLD THAT THERE WAS NO BASIS FOR THE SAID ADDITION, HENCE DIRECT TO DELETE THE SAME. THIS GROUND OF THE ASSESSEE I S ALLOWED. 4. GROUND NO.2 READS AS UNDER: (ASSESSMENT YEAR 1996- 97) 2. THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II I, BARODA HAS ERRED IN LAW AND IN FACTS IN CONFIRMING AN ADDITION OF RS.4,08,691/- BEING THE AMOUNT OF DIFFERENCE BETWEEN THE BALANCE AS APPEARING IN THE BOOKS OF AC COUNTS OF THE APPELLANT AS COMPARED WITH THE BALANCE APPEA RING IN THE BOOKS OF M/S.ROYA RESORTS & HOTELS PVT.LTD. T HIS DIFFERENCE, BEING THE EXCESS AMOUNT AS RECORDED IN THE BOOKS OF THE APPELLANT, IS ALLEGED TO REPRESENT UNEXPLAIN ED CASH CREDIT. THE ADDITION OF RS.4,08,691/- IS IN COMPLE TE DISREGARD OF AVAILABLE MATERIAL AND FACTS AND THE LAW AND THU S DESERVES DELETION. ITA NOS.3674, 3675(BY ASSESSEE) & 3876/AHD/08 (BY REVENUE) YADAV DEVELOPERS P.LTD. VS. DY.CIT ASST.YEARS 1996-97 & 1997-98 - 8 - 4.1. AS PER THE ASSESSMENT ORDER, THE AO HAS MIXED UP THE TWO FACTS, ONE WAS IN RESPECT OF CERTAIN UNSECURED DEPO SITS RECEIVED FROM FOUR PARTIES AMOUNTING TO RS.13,47,000/-. IN ADDI TION TO THE ABOVE FOUR UNSECURED LOANS, IT WAS ALSO FOUND BY THE AO T HAT THERE WAS DIFFERENCE IN THE BALANCES SHOWN IN RESPECT OF AN A NOTHER UNSECURED LOAN IN THE NAME OF M/S.ROYAL RESORTS AND HOTELS LT D. ON A PERUSAL OF A CONFIRMATION FILED BY M/S.ROYAL RESORTS, IT WA S FOUND THAT THERE WAS A BALANCE OF RS.31,87,889/-, WHEREAS IN THE BOO KS OF ACCOUNTS OF THE ASSESSEE, THE BALANCE OF THE SAID UNSECURED LOAN WAS RS.35,96,580/-. THE DIFFERENCE OF RS.4,08,691/- WAS ALSO TAXED IN THE HANDS OF THE ASSESSEE. IN THE ASSESSMENT ORDER, THE AO HAS TAXED RS.17,55,691/-, I.E. (RS.13,47,000 + RS.4,08, 691/-) UNDER THE HEAD UNEXPLAINED LOANS. WHEN THE SAID ADDITION WAS CHALLENGED BEFORE THE LD.CIT(A), THE ADDITION IN RESPECT OF UNSECURED DEPOSITS OF THE SAID FOUR PARTIES AMOUNTING TO RS.13,47,000/- WAS DELETED, HOWEVER, THE ADDITION IN RESPECT OF DIFFERENCE IN T HE BALANCES WAS AFFIRMED. THE ASSESSEE HAS GIVEN A RECONCILIATION OF THE SAID AMOUNT IN THE FOLLOWING MANNER:- DIFFERENCE IN OPENING BALANCE RS.180,000/- DIFFERENCE ON ACCOUNT OF CHARGING OF INTEREST BY RHPL AT RS.2,61,149/- AGAINST RS.97,900 BY THE APPELLANT RS.1,63,249/- ITA NOS.3674, 3675(BY ASSESSEE) & 3876/AHD/08 (BY REVENUE) YADAV DEVELOPERS P.LTD. VS. DY.CIT ASST.YEARS 1996-97 & 1997-98 - 9 - OTHER MISC. TRANSACTIONS RS. 65,442/- TOTAL RS.4,08,691/- 5. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES A ND ALSO ON PERUSAL OF THE CONTRA COPIES OF ACCOUNTS FILED BEFO RE US, WE FIND NO JUSTIFICATION IN THE SUSTENANCE OF THE DIFFERENCE O F RS.4,08,691/- IN THE HANDS OF THE ASSESSEE. THE ASSESSEE HAS FURNIS HED A COPY OF ACCOUNT OF M/S.ROYAL RESORTS AND HOTELS LTD. IN ITS BOOKS OF ACCOUNTS AND ALSO FURNISHED A STATEMENT OF ACCOUNTS OF THE ASSESSEE IN THE BOOKS OF THE SAID PARTY. THE LD. AR OF THE ASSESSEE MR. MUKUND BAKSHI HAS ALSO EXPLAINED THE RECONCILIATION . HE HAS POINTED OUT THAT FIRSTLY, THERE WAS A DIFFERENCE IN THE OPENING BALANCE IN THE RESPECTIVE BOOKS OF ACCOUNTS OF RS.1,80,000/ -. THERE WAS A DIFFERENCE IN RESPECT OF CHARGING OF INTEREST BECAU SE, ON ONE HAND, THE SAID PARTY HAS ACCOUNTED FOR INTEREST OF RS.2,6 1,149/-, WHEREAS, ON THE OTHER HAND, THE ASSESSEE HAS ACCOUNTED FOR O NLY RS.97,900/- WHICH HAS CREATED A DIFFERENCE OF RS.1,63,249/-. H OWEVER, HE HAS EMPHASISED THAT AS FAR AS THE QUESTION OF TOTAL TRA NSFER OF ADVANCES ON DIFFERENT DATES WAS CONCERNED, THE SAME HAS DULY BEEN RECONCILED AND NO DIFFERENCE WAS FOUND IN THOSE TRANSFERS IN T HE BOOKS OF ACCOUNTS OF BOTH THE CONCERNS. ON DUE CONSIDERATIO N OF THE RECONCILIATION FILED BEFORE US AND BEING DULY SUPPO RTED BY THE RELEVANT EVIDENCES, WE HEREBY HOLD THAT LD.CIT(A) H AS WRONGLY CONFIRMED THE ADDITION AND THE SAME IS HEREBY DELETED. ITA NOS.3674, 3675(BY ASSESSEE) & 3876/AHD/08 (BY REVENUE) YADAV DEVELOPERS P.LTD. VS. DY.CIT ASST.YEARS 1996-97 & 1997-98 - 10 - 6. GROUND NO.3 READS AS UNDER : (EXTRACTED FROM A.Y. 1996- 97) 3. THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II I, BARODA HAS ERRED IN LAW AND IN FACTS IN CONFIRMING AN ADDITION TO THE EXTENT OF RS.43,377/ ( RS.33,477/- FOR AY 97- 98) OUT OF INTEREST DISALLOWED BY THE LD. A.O. OF TOTA L AMOUNT OF RS.3,27,229/- (FOR AY 96-97) AND RS.1,63,249/- (FOR AY 97- 98). THE CONFIRMATION OF DISALLOWANCE BEING ERRONE OUS IN FACTS AND IN LAW IS PRAYED TO BE ALLOWED. 6.1. IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAD EXTENDED CERTAIN ADVANCES TO OTHER GROUP COMPANIES AS FOLLOW S:- M/S. YADAV ASSOCIATES .. RS. 1,85,984 KOTERI PROPERTIES PVT.LTD. .. RS. 55,000 ALAUKIK TRADING .. RS.49,00,000 .. RS.56,35,987 6.2. IT WAS ALLEGED BY THE AO THAT NO INTEREST WAS CHARGED ON THOSE LOANS. HOWEVER, SUBSTANTIAL BORROWINGS WERE MADE A ND SUBSTANTIAL INTEREST WAS PAID. THE ASSESSEE HAS DEBITED INTERE ST OF RS.3,27,229/- WHICH WAS DISALLOWED BY THE AO ON THE GROUND THAT B ORROWED FUNDS HAVE BEEN DIVERTED FOR NON-BUSINESS USE. WHEN TH E MATTER WAS CARRIED BEFORE LD.CIT(A), OUT OF THE AFOREMENTIONED THREE ADVANCES, IT WAS HELD THAT THE ADVANCE OF RS.49 LACS GIVEN T O M/S.ALOK TRADING WAS TOWARDS PURCHASE OF LAND, I.E. FURTHER ACTIVITIES OF THE ITA NOS.3674, 3675(BY ASSESSEE) & 3876/AHD/08 (BY REVENUE) YADAV DEVELOPERS P.LTD. VS. DY.CIT ASST.YEARS 1996-97 & 1997-98 - 11 - ASSESSEE. FOR THAT REASON, THE DISALLOWANCE OF INT EREST TO THAT EXTENT WAS REVERSED. IN RESPECT OF REST OF THE TWO PARTIE S, I.E. M/S.YADAV ASSOCIATES - RS.1,85,984/- AND IN RESPECT OF KOTERI PROPERTIES PVT.LTD. - RS.55,000/- INTEREST AT THE RATE OF 18% WAS WORKED OUT AT RS.43,377/- AND THE SAME WAS CONFIRMED. THE SHORT SUBMISSION BEFORE US BY THE LD.AR WAS THAT THE ASSESSEE HAD SUFFICIENT OWN FUNDS AND BUSINESS RECEIPTS WHICH WE RE UTILISED TOWARDS THE SAID ADVANCES AND NO PART OF THE BORROWED FUNDS WERE TRA NSFERRED FOR NON-INTEREST BEARING ADVANCES. RELIANCE WAS PLACE D ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF COMMISS IONER OF INCOME TAX VS. RELIANCE UTILITIES & POWER LTD. (2009) 221 CTR (BOM) 435 : (2009) 313 ITR 340 : (2009) 178 TAXMAN 135 : (2009) 18 DTR 1, HAS HELD AS FOLLOWS: THE VERY BASIS ON WHICH THE REVENUE HAD SOUGHT TO C ONTEND OR ARGUE THEIR CASE THAT THE SHAREHOLDERS FUNDS TO THE TUNE OF OVER RS. 172 CRORES WAS UTILISED FOR THE PURPOSE OF FIXED AS SETS IN TERMS OF THE BALANCE SHEET AS ON 31ST MARCH, 1999, IS FALLAC IOUS. FIRSTLY, THE BALANCE SHEET AS OF 31ST MARCH, 1999 IS NOR RELEVAN T. WHAT WOULD BE RELEVANT WOULD BE BALANCE SHEET AS ON 31ST MARCH , 2000. APART FROM THAT, THE COUNSEL HAS BEEN UNABLE TO POINT OUT FROM THE BALANCE SHEET THAT THE BALANCE SHEET AS ON 31ST MAR CH, 1999 SHOWED THAT THE SHAREHOLDERS FUNDS WERE UTILISED FO R THE PURPOSE OF FIXED ASSETS. THE P&L A/C AND THE BALANCE SHEET WOU LD NOT SHOW WHETHER SHAREHOLDERS FUNDS HAVE BEEN UTILISED FOR I NVESTMENTS. THE ARGUMENT HAS TO BE REJECTED ON THIS COUNT ALSO. APA RT FROM THAT BOTH IN THE ORDER OF THE CIT(A) AS ALSO THE TRIBUNAL, A CLEAR FINDING IS RECORDED THAT THE ASSESSEE HAD INTEREST-FREE FUNDS OF ITS OWN WHICH HAD BEEN GENERATED IN THE COURSE OF THE YEAR COMMEN CING FROM 1ST APRIL, 1999. APART FROM THAT IN TERMS OF THE BALANC E SHEET THERE WAS A FURTHER AVAILABILITY OF RS. 398.19 CRORES INCLUDI NG RS.180 CRORES OF SHARE CAPITAL. IN THIS CONTEXT, THE FINDING OF FACT RECORDED BY CIT(A) ITA NOS.3674, 3675(BY ASSESSEE) & 3876/AHD/08 (BY REVENUE) YADAV DEVELOPERS P.LTD. VS. DY.CIT ASST.YEARS 1996-97 & 1997-98 - 12 - AND TRIBUNAL AS TO AVAILABILITY OF INTEREST-FREE FU NDS REALLY CANNOT BE FAULTED. IF THERE BE INTEREST-FREE FUNDS AVAILABLE TO AN ASS ESSEE 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 FUNDS AVAIL ABLE. IN THIS CASE THIS PRESUMPTION IS ESTABLISHED CONSIDERING TH E FINDING OF FACT BOTH BY THE CIT(A) AND TRIBUNALWOOLCOMBERS OF INDI A LTD. VS. CIT (1981) 23 CTR (CAL) 204 : (1982) 134 ITR 219 (CAL) AND EAST INDIA PHARMACEUTICAL WORKS LTD. VS. CIT (1997) 139 CTR (S C) 372 : (1997) 224 ITR 627 (SC) RELIED ON. 6.3. SINCE THE ASSESSEE HAS DEMONSTRATED THAT THE O VERALL POSITION OF THE OWN FUNDS WAS SUFFICIENT TO MAKE THOSE ADVA NCES, THEREFORE, FOLLOWING THE ABOVE JUDGEMENT, WE HEREBY DIRECT TO DELETE THE ADDITION. THIS GROUND OF THE ASSESSEE IS ALLOWED. 7. GROUND NO.4 READS AS UNDER: (AY 1996-97) 4. THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II I, BARODA HAS FURTHER ERRED IN LAW AND IN FACTS IN CON FIRMING AN AMOUNT OF RS.97,900/- OUT OF INTEREST DISALLOWANCE BEING THE AMOUNT OF INTEREST PAID TO ROYAL RESORTS & HOTELS P VT.LTD. THIS AMOUNT OF DISALLOWANCE IS ALREADY CONSIDERED I N THE ADDITION MADE OF RS.4,08,691/- IN RESPECT OF DIFFERENCE IN THE BALANCE IN THE APPELLANTS BOOKS AS COMPARED TO BAL ANCE CONFIRMED BY M/S.ROYAL RESORTS & HOTELS LTD . AND, THEREFORE, FURTHER DISALLOWANCE OF RS.97,900/- WOU LD OTHERWISE AMOUNT TO DOUBLE ADDITION. THE ENTIRE AD DITION BEING ERRONEOUS IN LAW AND IN FACTS IS PRAYED TO BE DELETED. 7.1. THE LD.CIT(A) HAS PROCEEDED ON A WRONG PREMISE THAT THE DISALLOWANCE OF INTEREST WAS RELATABLE FROM BORROWI NGS FROM M/S.ROYAL RESORTS AND HOTELS LTD. THE ISSUE OF D ISALLOWANCE OF ITA NOS.3674, 3675(BY ASSESSEE) & 3876/AHD/08 (BY REVENUE) YADAV DEVELOPERS P.LTD. VS. DY.CIT ASST.YEARS 1996-97 & 1997-98 - 13 - INTEREST WAS UNNECESSARILY CONFUSED, HOWEVER, TO ST REAMLINE THE FACTS AS ALSO TO CUT THE MATTER SHORT ONCE THE ADMITTED F ACTUAL POSITION WAS THAT THE TRANSACTIONS WITH M/S.ROYAL RESORTS AND HO TELS LTD. WERE MEANT FOR BUSINESS PURPOSES, THEREFORE, THE PAYMENT OF INTEREST WAS ALSO ALLOWABLE AS A BUSINESS EXPENDITURE. WE HEREB Y REVERSE THE FINDINGS OF THE LD.CIT(A) AND THIS GROUND IS ALLOWED. 8. IN THE RESULT, ASSESSEES APPEALS FOR BOTH THE Y EARS ARE ALLOWED. B) REVENUES APPEAL FOR AY 1996-97 (ITA NO.3876/A HD/2008) 9. GROUND NO.1 READS AS UNDER:- 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELE4TING THE ADDITION ON ACCOUNT OF UNACCOUNTED RECEIPTS OF RS.4,81,866/- OVER LOOK ING THE FACT THAT THE ADDITION WAS NOT MADE ON PROTECTIVE BASIS . 9.1. IT WAS OBSERVED BY THE AO THAT RITURAJ HOUSING PVT.LTD. (RHPL) IS THE REAL OWNER OF THE PROJECT RITURAJ. IT WAS ALLEGED THAT THE ASSESSEE-COMPANY WAS THE CONSULTANT OF THE SAID PROJECT. SINCE THE ASSESSEE-COMPANY WAS ENGAGED IN THE BOOKI NG, ALLOTMENT, COLLECTION AND HANDING OVER OF THE POSSESSION IN RE SPECT OF SHOPS, OFFICES, FLATS, ETC., THEREFORE, ASSESSEE SHOULD HA VE SHOWN RECEIPTS FROM THE MEMBERS. AS PER PROFIT AND LOSS ACCOUNT A SSESSEE HAD NOT SHOWN ANY RECEIPTS FROM THE MEMBERS. THE AO HAS, THEREFORE, ITA NOS.3674, 3675(BY ASSESSEE) & 3876/AHD/08 (BY REVENUE) YADAV DEVELOPERS P.LTD. VS. DY.CIT ASST.YEARS 1996-97 & 1997-98 - 14 - MADE A CALCULATION OF THE PROFIT WHICH WAS ADDED ON PROTECTIVE BASIS IN THE HANDS OF THE ASSESSEE AS PER THE FOLLOWING O BSERVATION: 7.2. AS PER THE DETAILED DISCUSSION IN THE CASE OF RHPL A.YR.1994-95, AND OTHER GROUP CASES E.G. KOTEL PROP ERTIES PVT.LTD. A.Y. 1996097, THE TOTAL AMOUNT RECEIVED FR OM THE MEMBERS DURING THE YEAR AS SHOWN IN THE BOOKS OF AC COUNTS HAS TO BE CONSIDERED AS THE ACCOUNTED RECEIPTS ON W HICH NET PROFIT TO BE DETERMINED. SINCE THE ASSESSEE HAS NO T SHOWN ANY INCOME ON THE ACCOUNTED RECEIPTS, IN THE LIGHT OF T HE ORDER OF THE C.I.T. (APPEALS) IN OTHER CASES OF THIS GROUP A CCOUNTED RECEIPTS OF RS.19,27,464/- ARE BEING CONSIDERED AS RECEIPTS TOWARDS THE SALE OF VARIOUS SHOPS AND OFFICES. THE BOOK RESULTS ARE REJECTED BY INVOKING SECTION 145(1) AND 145(2) ON SIMILAR GROUNDS AS IN A.YR. 1994-95 AS THE METHOD O F ACCOUNTING IS NOT PROPER AND FURTHER THE BOOKS OF A CCOUNTS ARE ALSO NOT RELIABLE. IN THIS CASE AND IN THE OTHER G ROUP CASE, NET PROFIT ON THE ACCOUNTED RECEIPTS HAS BEEN ESTIMATED AT THE RATE OF 25%. ACCORDINGLY AN ADDITION OF RS.4,81,866/- I S MADE TO THE TOTAL INCOME OF THE ASSESSEE. THIS IS WITHOUT PREJUDICE TO ANY ADDITION ON THIS ISSUE TO BE MADE IN THE CASE O F RHPL, A.YR. 1996-97. 9.2. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST A PPELLATE AUTHORITY, IT WAS HELD AS UNDER:- 4.2.1. I FIND THAT THIS ORDER OF MY LD. PREDECESSO R HAS BEEN SUBSEQUENTLY SET ASIDE BY THE ITAT VIDE ORDER DATED 23.11.2007 IN ITA NOS.3519 & 3520/AHD/2002, 3534 & 2535/AHD/2002 (A.Y. 1996-97 AND 1997-98) AND 608/AHD/2003 (A.Y. 1998-99) IN THE CASE OF RHPL. IN VIEW OF THE TRIBUNALS DECISION, IT IS CLEAR THAT THE MATTE R RELATING TO TAXABILITY OF THE ACCOUNTED AND UNACCOUNTED RECEIPT S IS STILL OPEN. A DECISION IN THIS REGARD IS PENDING SINCE T HE SET ASIDE ITA NOS.3674, 3675(BY ASSESSEE) & 3876/AHD/08 (BY REVENUE) YADAV DEVELOPERS P.LTD. VS. DY.CIT ASST.YEARS 1996-97 & 1997-98 - 15 - ASSESSMENT HAS NOT BEEN COMPLETED SO FAR. THAT BEI NG THE POSITION, THE ISSUE IS FAR FROM SETTLED REGARDING T HE HANDS IN WHICH THE IMPUGNED RECEIPTS OF RS.19,27,464/- ARE T O BE TAXED AT G.P. RATE OF 25% I.E. PROFIT OF RS.4,81,868/-. ACCORDINGLY, THE ADDITION OF THIS AMOUNT MADE IN THE HANDS OF TH E APPELLANT ON PROTECTIVE BASIS IS CONFIRMED PRO TEMPORE. HOWE VER, THE A.O. IS DIRECTED THAT IN CASE A FINAL VIEW IS TAKEN BY THE LD. APPELLATE AUTHORITIES TO THE EFFECT THAT THE IMPUGN ED AMOUNT OF RS.19,27,464/-, BEING THE ACCOUNTED RECEIPTS, WOULD BE TAXABLE IN THE HANDS OF RHPL, THEN THE ADDITION OF RS.4,81, 868/- IN THE HANDS OF THE APPELLANT I.E. YADAV DEVELOPERS PVT.LT D. WOULD STAND DELETED. IN CASE THE FINAL DECISION IS THAT THE ACCOUNTED RECEIPTS OF RS.19,27,464/- WOULD BE TAXABLE IN THE HANDS OF YADAV DEVELOPERS PVT.LTD., THEN THE ADDITION IN THE HANDS OF THE APPELLANT WOULD STAND CONFIRMED. 10. ON HEARING THE SUBMISSIONS OF BOTH THE SIDES, W E FIND NO REASON TO INTERFERE WITH THE FINDINGS OF THE LD.CIT (A). HOWEVER, IT IS WORTH TO MENTION THAT FOR AY 1996-97, AN ASSESSMENT ORDER PASSED U/S.143(3) OF THE ACT READ WITH SECTION 254 OF THE ACT DATED 20/02/2009 FOR AY 1996-97 IN THE CASE OF M/S. RITUR AJ HOUSING PVT.LTD. IS PLACED BEFORE US AND THEREIN THE SAID S UM OF RS.4,81,866/- HAS NOW BEEN ADDED SUBSTANTIVELY. ONCE THE REVENUE DEPARTMENT HAS FINALLY SETTLED THE ISSUE IN THE HANDS OF THE SAID COMPANY, THEREFORE THERE IS NO REASON TO ASSES S THE SAME ON PROTECTIVE BASIS IN THE HANDS OF THE ASSESSEE, THER EFORE WE HEREBY AFFIRM THE FINDINGS OF THE LD.CIT(A). THIS GROUND OF THE REVENUE IS HEREBY DISMISSED. ITA NOS.3674, 3675(BY ASSESSEE) & 3876/AHD/08 (BY REVENUE) YADAV DEVELOPERS P.LTD. VS. DY.CIT ASST.YEARS 1996-97 & 1997-98 - 16 - 11. GROUND NO.2 READS AS UNDER: 2) THE LEARNED CIT(A) HAS ERRED IN DELETING THE AD DITION OF RS.15,72,882/- IN RESPECT OF UNEXPLAINED SHARE CAPITAL OVER LOOKING THE FACT THAT IN THE SUBSIDIARY REMAND REPO RT DATED 13.09.2008, NOTHING IS THERE IN RESPECT OF UNEXPLAI NED SHARE CAPITAL AND THE ASSESSEE COULD NOT SUBMIT ANY PROOF OF CREDIT WORTHINESS OF THE SUBSCRIBERS TO SUBSTANTIATE ITS C LAIM THAT THE INCREASE IN SHARE CAPITAL IS GENUINE ONE. 11.1. THE OBSERVATION OF THE AO WAS THAT THE PAID U P SHARE CAPITAL OF THE ASSESSEE-COMPANY HAD INCREASED FROM RS.7,14, 842/- TO RS.27,27,692/-. A QUERY WAS RAISED IN RESPECT OF THE INCREASE IN THE PAID UP SHARE CAPITAL AND IT WAS NOTED BY THE AO TH AT A SHARE CAPITAL IN THE NAME OF SHRI D.K. YADAV OF RS.4,39,968/- WAS ONLY EXPLAINED. THE REMAINING SHARE CAPITAL OF RS.15,72 ,882/- WAS TAXED AS INCOME FROM UNDISCLOSED SOURCES. THE MATTER WA S CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 12. THE LD.CIT(A) HAS CONSIDERED THE EXPLANATION OF THE ASSESSEE ALONGWITH CERTAIN EVIDENCES AND, THEREFORE, THOUGHT IT PROPER TO CALL FOR A REMAND REPORT FROM THE CONCERNED AO. A REPORT WAS SUBMITTED ON 25/07/2003 AND, THEREAFTER, AN ANOTHER REPORT WAS SUBMITTED ON 15/04/2004. COPIES OF THOSE REPORTS A RE ALSO BEFORE US. AFTER CAREFUL PERUSAL OF THE SAID REPORTS, LD.CIT(A ) HAS DELETED THE ADDITION. IN RESPECT OF SHARE APPLICATION MONEY, THE ASSESSEE HAS FURNISHED THE CREDITWORTHINESS OF THE CREDITORS, ID ENTITY OF THE ITA NOS.3674, 3675(BY ASSESSEE) & 3876/AHD/08 (BY REVENUE) YADAV DEVELOPERS P.LTD. VS. DY.CIT ASST.YEARS 1996-97 & 1997-98 - 17 - CREDITORS AND GENUINENESS OF THE TRANSACTION WHICH WAS FOUND CORRECT ON VERIFICATION BY THE AO, THEREFORE, A VIEW WAS TAKEN IN FAVOUR OF THE ASSESSEE. IN THE ABSENCE OF ANY CON TRARY MATERIAL FROM THE SIDE OF THE REVENUE, WE FIND NO FALLACY IN THE JUDGEMENT OF THE LD.CIT(A), HENCE AFFIRM THE SAME. THIS GROUND OF T HE REVENUE IS DISMISSED. 13. IN THE RESULT, ASSESSEES APPEALS FOR BOTH THE YEARS ((ITA NOS.3674 & 3675/AHD/2008) ARE ALLOWED AND REVENUES APPEAL FOR AY 1996-97 (ITA NO.3876/AHD/2008) IS DISMISSED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 8 TH APRIL, 2011. SD/- SD/- ( D.C. AGRAWAL) ( MUKUL KR. SH RAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBE R AHMEDABAD; DATED 08 / 04 /2011 T.C. NAIR, SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DEPARTMENT. 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-III, BARODA 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD ITA NOS.3674, 3675(BY ASSESSEE) & 3876/AHD/08 (BY REVENUE) YADAV DEVELOPERS P.LTD. VS. DY.CIT ASST.YEARS 1996-97 & 1997-98 - 18 - 1. DATE OF DICTATION.. 05/04/2011 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 06/04/2011 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S 8.4.11 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8.4.11 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER .. 9. DATE OF DESPATCH OF THE ORDER