DCIT 25(2), MUMBAI V. RAJENDRA G SHAH, NAVI MUMBAI

ITA 3728/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 5009 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 06-06-2013
• Assessment Year: misc
• Appeal Filed On: 10-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARIGOVIND SINGH
• Assessee Lawyers: VIJAY C KOTHARI
• Keywords: Deemed owner of house property; Business income; Deemed dividend
• Section: 44AD

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - D BENCH. . .. . , !' !' !' !' # # # # $%&' $%&' $%&' $%&' , % % % % () () () () BEFORE S/SH.D.MANMOHAN,VICE-PRESIDENT & RAJENDR A,ACCOUNTANT MEMBER ./ ././ ./ ITA NO.3728/MUM/2010 , + + + +/ // / ASSESSMENT YEAR-2007-08 DCIT - 25(2), C - 11, 1 ST FLOOR PRATYAKSHKAR BHAVAN, BANDRA (E) -MUMBAI- 400 051 VS. SHRI RAJENDRA G.SHAH 005, B-WING, HINAL HERITAGE, S.V.P.ROAD, BEHIND DIGAMBAR JAIN TEMPLE, BORIVALI(W) MUMBAI- 400 092 PAN: ALCPS7884H ( ,- / // / APPELLANT ) ( ./,- / RESPONDENT ) ,- ,- ,- ,- 0 0 0 0 % %% % / APPELLANT BY : SHRI HARIGOVIND SINGH ./,- 1 0 % / RESPONDENT BY : SHRI VIJAY C.KOTHARI 1 11 1 2 2 2 2 / DATE OF HEARING :02/09/2013 3+ 1 2 / DATE OF PRONOUNCEMENT :13/09/2013 , 1961 1 11 1 254(1) % %% % &242 &242 &242 &242 (%5 (%5 (%5 (%5 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, A.M: CHALLENGING THE ORDER DT.23-02-2010 OF THE CIT(A)-3 5,MUMBAI ASSESSING OFFICER(AO) HAS FILED FOLLOWING GROUNDS OF APPEAL: I )ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS.43,14,000/- MADE BY THE A.O. ON ACCOUNT OF DEEMED DIVIDEND ULS.2(22)(E) OF THE L.T.ACT, 1961 II)ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS.24,30,650/- MADE BY THE A.O. ON ACCOUNT OF DISALLOWANCE OF PART OF THE LABOUR CHARGES CLAIMED BY THE ASSESSEE AND DIRECTING TO ES TIMATE THE NET PROFIT AT THE RATE OF 8% OF TURNOVER AND MAKE SUITABLE ADDITION. III)ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS.83,225/- MADE BY THE A.O. ON ACC OUNT OF DEEMED RENT IN RESPECT OF VISHWA GANGA FLAT OUT OF THE TOTAL ADDITION MADE OF RS.1,4 7,7171-. IV)ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS.1,35,9501- MADE BY THE A.O. ON A CCOUNT OF DISALLOWANCE OF PART OF INTEREST EXPENSES CLAIMED BY THE ASSESSEE. V)THE APPELLANT PRAYS THAT THE ORDER OF THE ID. CIT (A) ON THE ABOVE GROUNDS TO BE SET ASIDE AND THAT OF THE A.O. BE RESTORED. VI)THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND. ASSESSEE,AN INDIVIDUAL AND PROPRIETOR OF M/S APPOLL O ASSOCIATES,ENGAGED IN THE BUSINESS OF INFR -ASTRUCTURE DEVELOPMENT CONTRACT AND RE-DEVELOPMENT OF BUILDINGS,FILED HIS RETURN OF INCOME ON 26.10.2007 ADMITTING THE TOTAL INCOME AT RS.30.16 L ACS.AO FINALISED THE ASSESSMENT U/S.143(3) OF THE ACT ON 27.11.2009 DETERMINING THE INCOME OF THE ASSESSEE AT RS.1.05 CRORES. 2. FIRST GROUND OF APPEAL IS ABOUT DELETING THE ADDITI ON OF RS.43.4 LACS,AO ON ACCOUNT OF DEEMED DIVIDEND U/S.2(22)(E) OF THE ACT.DURING THE ASSESSM ENT PROCEEDINGS,AO FOUND THAT ASSESSEE HAD RECEIVED UNSECURED LOAN OF RS.43,14,000/-FROM ONE M /S KONARK STRUCTURAL ENGINEERING PVT. LTD. (KSEPL).HE DIRECTED THE ASSESSEE TO FILE DETAILS TO SUCH LOANS ALONG WITH CONFIRMATION OF THE ACCOUNT FROM KSEPL.AFTER GOING THROUGH THE COPY OF LEDGER ACCOUNT OF KSEPL HE FOUND THAT ASSESSEE WAS HOLDING MORE THAN 10% SHARES OF THE SA ID COMPANY AND WAS HAVING SUBSTANTIAL 2 ITA NO. 3728/MUM/2010(AY-2007-08) SHRI RAJENDRA G. S HAH INTEREST IN IT.HE WAS OF THE OPINION THAT AMOUNT OF LOANS RECEIVED BY THE ASSESSEE WERE LIABLE TO BE TAXED AS DEEMED DIVIDEND IN THE HANDS OF THE ASS ESSEE WITHIN THE MEANING OF PROVISIONS OF SECTION 2(22)(E) OF THE ACT.VIDE HIS ORDER-SHEET EN TRY DATED 16.11.2009 HE ASKED THE ASSESSEE AS TO WHY THE AMOUNT OF LOANS AMOUNTING TO RS.43.14 LA CS RECEIVED FROM KSEPL SHOULD NOT BE TAXED AS DEEMED DIVIDEND.ASSESSEE FILED HIS REPLY O N 23.11.2009 AND ALSO FILED FURTHER WRITTEN SUBMISSIONS ON 25.11.2009 IN THIS REGARD. AFTER CON SIDERING THE SUBMISSIONS OF THE ASSESSEE,AO HELD THAT SAME WERE NOT ACCEPTABLE.HE HELD THAT THE ADVANCE CLAIMED TO HAD BEEN RECEIVED BY THE ASSESSEE ON ACCOUNT OF CONTRACT WAS NOT SUPPORTED B Y ANY DOCUMENTARY EVIDENCE,THAT AUTHORISED REPRESENTATIVE(AR) OF THE ASSESSEE HAD AGREED THAT AMOUNT OF RS. 18.5 LACS WAS NOT FOR BUSINESS CONTRACT,THAT LATER ON THE ASSESSEE FILED A COPY OF MOU,THAT THE CLAIM OF ASSESSEE ABOUT TREATING THE AMOUNT IN QUESTION AS BUSINESS ADVANCE WAS AN A FTER-THOUGHT,THAT THE MOU WAS NEITHER NOTARISED NOR REGISTERED, THAT THE MOU WAS SHOWN TO HAVE BEEN EXECUTED ON 10.06.2006 BUT WAS PREPARED ON THE STAMP PAPER ON 28.12.2005, THAT NO ENTRY OF ANY RESOLUTION IN THIS REGARD IF ANY, PASSED BY THE COMPANY FOR SUCH A BIG AMOUNT OF MOU, HAD BEEN PRODUCED FOR VERIFICATION, THAT NOWHERE IN THE FINAL ACCOUNTS AND THE AUDIT REPORT OF KSEPL REFERENCE OF SUCH MOU WAS FOUND, THAT THE AUDITOR IN COLUMN 24 OF THE TAX AUDIT REPO RT HAD SHOWN THE AMOUNT RECEIVED FROM KSEPL AS LOAN AND NOT AS ADVANCE AGAINST THE BOOKIN G,THAT THE CLAIM OF THE ASSESSEE THAT AMOUNT OF RS. 26.64 LACS WAS TOWARDS FLAT SOLD TO T HE COMPANY (ON 01.06.2006) WAS NOT CORRECT, THAT THE ASSESSEE HAD NOT FILED FULL SET OF CONVEYA NCE DEED OF THE FLAT SOLD TO KSEPL.FINALLY, HE HELD THAT COMPANY POSSESSED HUGE ACCUMULATED PROFIT TO THE TUNE OF RS.3,00,42,563/-AS ON 31. 03.2007 AND THE AMOUNT OF ADVANCE AT RS.43.4 LACS R ECEIVED BY THE ASSESSEE FROM KSEPL WAS LIABLE TO BE TAXED IN THE HANDS OF THE ASSESSEE AS DEEMED DIVIDEND. 2.1. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY(FAA).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER,HE HELD THAT THE TRANSACTIONS WHICH WERE THE SUBJECT MATTER OF ADDITION WERE AVAILABLE IN FORM OF ACCOUNT COPY OF THE KSPEL IN THE BOOKS OF ACCOUNT OF THE ASSESSEE,THAT THE ASSESSEE FIRST DEBITED RS. 24,64,000/- TOWARDS SALE OF FLAT THAT RS.64,000/- WERE RECEIVED BY CHEQUE AND W AS EVIDENCED BY THE REGISTERED AGREEMENT, THAT SUBSEQUENTLY THE ASSESSEE RECEIVED RS. 24,00, 000/- IN ACCORDANCE WITH THE OTHER AGREEMENT, THAT THE AO DID NOT DISPUTE THE FACT THAT THE APPEL LANT SOLD THE PREMISES MENTIONED IN THE ABOVE AGREEMENT TO THE COMPANY,THAT ONLY OBJECTION RAISED BY THE AO WAS THAT THE APPELLANT DID NOT FILE THE ENTIRE COPY OF REGISTERED AGREEMENT,THAT T HE ASSESSEE HAD RECEIVED RS.64,000/ -AS PER REGISTERED AGREEMENT,THAT TOTAL CONSIDERATION MENTI ONED IN THE AGREEMENT WAS RS. 24,64,000/-, THAT SAID FACT WAS ALSO MENTIONED IN THE REGISTERED AGREEMENT ,.THAT SUBSEQUENTLY THE ASSESSEE HAD RECEIVED RS. 24,00,000/- ON 03.06.2006.,THAT THERE WAS NO DISPUTE THAT THE PAYMENT WAS RECEIVED TOWARDS SALE OF PREMISES.RELYING UPON THE JUDGMENT OF THE HONBLE SUPREME COURT DELIVERED IN THE CASE OF SMT.TARULATHA SHAYM & OTHERS (108 ITR 3 45)HE HELD THAT THERE WERE FOUR CONDITIONS THAT MUST BE SATISFIED BEFORE SECTION2(22)(E) COULD BE INVOKED.HE FURTHER HELD TRADE ADVANCE WHICH WERE IN THE NATURE OF MONEY TRANSACTED TO GIV E EFFECT TO A COMMERCIAL TRANSACTION COULD NOT BE TREATED AS DEEMED DIVIDEND.APPLYING THE RATI ON OF DECISION OF THE HONBLE DELHI HIGH COURT DELIVERED IN THE CASE OF VIJAYA KUMAR(181TAXM AN155)HE HELD THAT THERE WAS NO OBLIGA - TION FOR REPAYMENT OF RS. 24,64,000 AS THE SAME WAS RECEIVED TOWARDS SALE OF PREMISES, THAT THERE WAS NO JUSTIFICATION FOR TAXING RS. 24,64,000 /- AS DEEMED DIVIDEND U/S.2(22)(E) OF THE ACT . REGARDING THE BALANCE AMOUNT OF RS. 18,50,000/-,HE OBSERVED THAT THE SAME WAS RECEIVED IN FOUR INSTALLMENTS AND REPAID IN TWO INSTALLMENTS SUBSEQU ENTLY,THAT THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH COMPANY FOR SALE OF GROUND FLOOR OF BRAMKSHATRIYA PROJECT FOR A CONSIDERATION OF RS.1.40 CRORES AND ACCORDINGLY RECEIVED RS.18,50,00 0 AS ADVANCE ON VARIOUS DATES,THAT THE COMPANY COULD NOT PAY THE BALANCE AMOUNT,THAT CONSE QUENTLY THE AMOUNT WAS REFUNDED,THAT THE AO DID NOT ACCEPT THE CLAIM OF THE APPELLANT ON THE GROUND THAT THE AGREEMENT IS NEITHER REGISTERED NOR NOTARISED.FAA HELD THAT ANY UNREGIST ERED AGREEMENT WHICH WAS NOT NOTARISED WAS VALID IN THE EYES OF LAW,THAT THERE WAS NO REASON T O REJECT SUCH UNREGISTERED AGREEMENT,THAT THERE WAS NO NECESSITY TO ENTER THE TRANSACTIONS PERTAINI NG TO LOAN AND LEASE OF IMMOVEABLE PROPERTY IN 3 ITA NO. 3728/MUM/2010(AY-2007-08) SHRI RAJENDRA G. S HAH THE REGISTER U/S.301 OF THE COMPANY ACT,THAT THE CO MPANY HAD PAID ONLY ADVANCE TO THE ASSESSEE, THAT THE SALE DID NOT CONCLUDE IN THE YEAR UNDER CO NSIDERATION,THAT THERE WAS NO NECESSITY TO ENTER THE SAID TRANSACTION IN THE REGISTER U/S.301 OF THE COMPANY ACT.FAA REFERRED TO THE COPY OF MIN -UTES OF MEETING OF THE BOARD OF THE DIRECTORS OF K SEPL,DTD.22.5.2006,IN WHICH THE DECISION TO PURCHASE THE PREMISES WAS RECORDED.HE HELD THAT A P ERUSAL OF THE MINUTES SHOWED THAT THE ASSESSEE HAD PAID RS.18.5LACS ON VARIOUS DATES WITH THE INTENTION OF PURCHASING COMMERCIAL AREA OF ABOUT 2250SQ.FT.FOR RS.1.40 CRORES WHICH WAS TO BE PAID WITHIN 6 MONTHS, THAT THE COMPANY COULD NOT MOBILISE THE REQUIRED AMOUNT, THAT THE AM OUNT WAS REFUNDED BACK,THAT THE AGREEMENT WAS ENTERED ON 10.6.2006,THAT COMPANY INTIMATED THE ASSESSEE BY LETTER DT.10.1.2007 THAT THEY COULD NOT FUNDS FOR PURCHASE OF PREMISES FOR RS.1,4 0,00,000/-,THAT THE ASSESSEE ULTIMATELY REPAID THE AMOUNT ON 11.01.2007(RS.14,50,000/-) AND ON 19. 01.2007(RS.4,00,000/-),THAT THE AGREEMENT WAS GENUINE, THAT THE ASSESSEE DID NOT RECEIVE LOAN OR ADVANCE AND WHAT WAS RECEIVED WAS ONLY PAYMENT IN THE NORMAL COURSE OF THE BUSINESS OF THE ASSESSEE, THAT PROVISIONS OF SECTION 2(22)(E) WERE NOT APPLICABLE. 2.2. BEFORE US,DEPARTMENTAL REPRESENTATIVE (DR)WRITTEN A GREEMENT WAS NOT PRODUCED DURING THE ASSESSMENT PROCEEDINGS,THAT TOTAL SALE AGREEMENT WA S NOT FILED BEFORE THE AO,THAT FAA HAS NOT CONSIDERED THE FACTOR OF ACCUMULATED PROFITS WHILE DECIDING THE APPEAL,THAT IN THE TAX AUDIT REPORT SAID TRANSACTION WAS SHOWN AS LOAN,THAT FLAT WAS NO T SHOWN IN THE BALANCE SHEET OF KSEPL AS CURRENT ASSEST,THAT FAA DID NOT CALL FOR ANY REMAND REPORT FROM THE AO.AUTHORISED REPRESENTATI -VE(AR)SUBMITTED THAT AN AGREEMENT WAS ENTERED IN T O BETWEEN THE ASSESSEE AND KSPEL,THAT IT WAS SUBMITTED DURING THE ASSESSMENT PROCEEDINGS,THA T NO DISCREPANCY WAS POINTED OUT BY THE AO IN THE MOU,THAT AO DID NOT MAKE ANY INQUIRY WITH THE PURCHASER OR THE WITNESSES,THAT BANK STATEMENT PROVED THAT THE TRANSACTION APPEARING THE BOOKS HAD TAKEN PLACE, THAT SECTION 301 OF THE COMPANY ACT WAS NOT APPLICABLE IN THE MATTER UN DER CONSIDERATION.HE REFERRED TO PAGES 80, 84 AND 91-156 OF THE PAPER BOOK. 2.3. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL AVAILABLE ON RECORD.WE FIND THAT THE ASSESSEE HAS INFORMED THE AO FROM TIME TO TIME ABOUT THE TRANSACTION ENTERED BY HIM WITH KSEPL.AS EARLY AS 23.11.2009 HE INFORMED THE A O THAT LOAN TAKEN AND GIVEN TO KSEPL WAS IN NATURE OF CURRENT ACCOUNT,THAT RS.24.64 LACS WERE RECEIVED TOWARDS SALE OF FLAT ON 27.05. 2006 AND 03.06.2006,THAT TRANSACTION IN QUESTION WA S NOT COVERED BY THE PROVISIONS OF SECTION 2 (22)(E)OF THE ACT.HE FURTHER STATED THAT RS.18.50 L ACS WERE RETURNED BACK BY HIM AS BUSINESS DEAL DID NOT MATERIALISE(PG.84 OF THE PB).ON 25.11.2009 HE SUBMITTED THE AGREEMENTS,AS DESIRED BY THE AO.(PG.80 OF THE PB).AND STATED THAT THE MOU WA S SIGNED WITH KESPL FOR A BUSINESS DEAL, THAT ADVANCE WAS RECEIVED BY HIM,THAT LATER ON SAME AMOUNT WAS RETURNED AS THE DEAL WAS CANCEL -ED SUBSEQUENTLY, HE ALSO INFORMED THE AO THAT AGRE EMENT BETWEEN HIM AND KESPL WAS OF RS. 24.64 LAKHS.IN THE BOOKS OF A/CS OF KSPEL THERE ENT RY IS ABOUT FLAT.WE HAVE ALSO CONSIDERED THE AGREEMENT.FROM THESE PAPERS IT CAN SAFELY BE SAID T HAT TRANSACTIONS IN QUESTION WERE BUSINESS ADVANCES.WE FIND THAT THE FAA HAS DEALT THE ISSUE A BOUT THE PROVISIONS OF COMPANY-ACT IN DETAIL AND THERE IS NO LEGAL INFIRMITY IN HIS ORDER .HE HAS TAKEN NOTE OF MINUTES OF MEETING OF KESPL.IN THESE CIRCUMSTANCES WE ARE OF THE OPINION THAT AMOUNT INVOLVED WAS A PURE AND SIMPLE BUSINESS TRANSACTION-IT WAS NEITHER LOAN NOR ADVANCE. THEREFORE,RESPECTFULLY FOLLOWING THE JUDGMENTS RELI ED UPON BY THE FAA,WE DECIDE GROUND NO.1 AGAINST THE AO 3. NEXT GROUND OF APPEAL IS ABOUT DISALLOWANCE MADE UN DER THE HEAD LABOUR CHARGES.DURING THE ASSESSMENT PROCEEDINGS,AO FOUND THAT ASSESSEE H AD DEBITED RS. 1,16,52,896/- UNDER THE HEAD MATERIAL TRANSPORT AND LABOUR CHARGES.HE DIRECTED T HE ASSESSEE TO FILE DETAILS OF LABOUR-CHARGES- CLAIM ALONG WITH DETAILS OF TDS MADE THEREON AND JU STIFICATION FOR ALLOWABILITY OF THE CLAIM MADE BY HIM.HE FOUND THAT OUT OF TOTAL EXPENSES AN AMOUNT OF RS. 96,22,600/- WAS TOWARDS THE DIRECT LABOUR CHARGES AND RS. 19,30,296/- WAS TOWAR DS SUB-CONTRACT CHARGES. ON VERIFICATION OF THE DETAILS,AO HELD THAT THE ASSESSEE HAD CLAIMED T O HAVE MADE PAYMENTS TO DIFFERENT PARTIES, 4 ITA NO. 3728/MUM/2010(AY-2007-08) SHRI RAJENDRA G. S HAH THAT ALL THE PAYMENTS HAD BEEN MADE BY WAY OF CASH, THAT IT WAS NOT ASCERTAINABLE AS FOR WHICH SIDE HOW MANY LABOURERS WERE EMPLOYED,THAT THERE WA S NO CHECK OVER THE CLAIM MADE BY THE ASSESSEE.HE DIRECTED THE ASSESSEE TO PRODUCE VOUCHE RS FOR THE SAID EXPENSES.ON VERIFICATION OF A FEW OF THE VOUCHERS,HE NOTICED THAT VOUCHERS WERE P REPARED ON A SINGLE DAY.HE HELD THAT THE VOUCHERS INDICATED THAT THEY WERE PREPARED ON THE L AST DAY OF THE YEAR, THAT THE LABOUR CHARGES WORKED OUT TO 76.94 % OF THE TOTAL CONTRACT RECEIPT S IN ADDITION TO THE SUB-CONTRACT CHARGES OF 19.3 LACS.FINALLY, HE HELD THAT LABOUR CHARGES WERE ON HIGHER SIDES AS COMPARED TO THE OTHER CASES OF THE SAME CATEGORY,THAT THE EXPENSES CLAIME D UNDER THE HEAD LABOUR-CHARGES HAD GREAT EFFECT ON FALL IN PROFIT,THAT PROFIT DECLARED BY TH E ASSESSEE HAD GONE DOWN TO ALMOST 1/5, THAT PAYMENTS HAD BEEN MADE IN CASH AND THE ASSESSEE HAD NOT FULLY PROVED THE GENUINENESS OF THE TRANSACTION.AS A RESULT, HE MADE AN ADDITION OF RS. 24.30 LACS(25% OUT OF THE EXPENSES) TO THE TOTAL INCOME OF THE ASSESSEE. 3.1. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA.AFTER C ONSIDERING THE ASSESSMENT ORDER AND THE SUBMISSIONS MADE BY THE ASSESSEE,HE HELD THAT THE A SSESSEE HAD MAINTAINED REGULAR BOOKS OF ACCOUNTS AND SAME WERE AUDITED,THAT AUDIT REPORT U/ S.44ABWAS FILED,THAT THE AO HAD NOT POINTED OUT ANY SPECIFIC DEFECTS,THAT HE ONLY STATED THAT T HE BILLS WERE PREPARED ON THE LAST DAY WITHOUT POINTING OUT AS TO HOW HE REACHED TO THAT CONCLUSIO N,THAT THE REASON FOR HIGH PERCENTAGE OF LABOUR CHARGES WAS,THAT THE THE ASSESSEE HAD UNDERT AKEN DE-SLUDGING AND CLEANING OF DRAINAGE LINES WHICH WAS MAINLY LABOUR ORIENTED,THAT THE AO COULD HAVE ONLY REJECTED THE BOOKS OF ACCOU -NTS AND ESTIMATED 8% OF THE CONTRACT VALUE AS INCO ME FROM THIS BUSINESS AS PER THE PROVISIONS OF SECTION 44AD OF THE ACT.AS THE AR OF THE ASSESSEE D ID NOT OBJECT TO SAID ESTIMATION OF 8% PROFIT ON THE CONTRACT VALUE IN RESPECT OF M/S. APPOLLO SO HE DIRECTED THE TO REWORK THE ADDITION. 3.2. BEFORE US,DR SUBMITTED THAT GP RATE HAD FALLEN DURI NG THE YEAR,THAT LABOUR CHARGES WERE EXCESSIVE.AR SUBMITTED THAT ASSESSEE WAS EXECUTING A CONTRACT FOR BMC DURING THE YEAR UNDER CONSIDERATION,THAT HE WAS THE LOWEST BIDDER,THAT IT WAS BECAUSE OF THE SAID CONTRACT THERE WAS VARIATION IN GP RATE,THAT COMPARATIVE CHART OF EARL IER YEARS REVEALED THAT GP RATE WAS OTHERWISE MORE OR LESS SAME,THAT THE ASSESSEE HAD DEDUCTED TD S ON PAYMENTS MADE,THAT AO HAD ASKED THE ASSESSEE TO PRODUCE ONLY A FEW VOUCHERS. 3.3. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL AVAILABLE ON RECORD.WE FIND THAT THE ASSESSEE WAS SHOWING GP @ FOR PREVIOUS AYS ,THAT IN THE YEAR UNDER CONSIDERATION HE GOT CONTRACT FROM THE MUNICIPALITY FOR CLEANING DRA INAGE AND IT WAS A BASICALLY LABOUR ORIENTED JOB.IT IS ALSO A FACT THAT AO HAS NOT POINTED OUT A NY DEFECT IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE.THOUGH THE AO HAS MENTIONED THAT VO UCHERS WERE PREPARED ON THE LAST DAY OF THE ACCOUNTING YEAR,BUT IT IS NOT CLEAR AS HOW HE ARRIV ED AT THAT PARTICULAR CONCLUSION.IN THESE CIRCUM -STANCES,IF FAA HAS TRIED TO RESTRICT THE DISALLOWA NCE ON PERCENTAGE METHOD NO FAULT CAN BE FOUND WITH HIS DECISION.NO ADDITION CAN BE MADE BY THE AO ON AD-HOC BASIS WITHOUT RELYING ON SOME DOCUMENTARY OR ORAL EVIDENCES-FOR FASTENING TAX LIA BILITY TO AN ASSESSEE SOME KIND OF MATERIAL IS REQUIRED PROVING THAT HE HAD HIGHER INCOME THAN SHO WN IN THE BOOKS OF ACCOUNTS.SUSPICON, HOWEVER STRONG,CANNOT TAKE PLACE OF EVIDENCE.IN THE CASE UNDER CONSIDERATION AO HAD MADE ADDITION ONLY ON SUSPCICION.THEREFORE,IN OUR OPINIO N,FAA HAD RIGHTLY DELETED THE SAME. CONFIRMING HIS ORDER WE DECIDE GROUN D NO.2 AGAINST THE AO. 4. NEXT GROUND OF APPEAL IS ABOUT DEEMED RENT IN RESPE CT OF VISHWA GANGA FLAT.DURING THE ASSESS -MENT PROCEEDINGS, AO FOUND THAT ASSESSEE WAS OWNER OF FIVE HOUSE PROPERTIES, THAT HE HAD NOT SHOWN ANY DEEMED HOUSE PROPERTY INCOME OTHER THAN T HE SELF OCCUPIED PORPERTY.HE DIRECTED THE ASSESSEE TO SUBMIT REASONS FOR NOT SHOWING DEEMED I NCOME FROM HOUSE PROPERTY U/S. 23(4) OF THE ACT AND TO PROVIDE THE ANNUAL LET-ABLE VALUE OF THO SE PROPERTIES.AFTER CONSIDERING THE LETTER FILED BY THE ASSESSEE ON 27.07.2009,HE HELD THAT ASSESSEE HAD NOT SUBMITTED ANY EVIDENCE TO PROVE THAT PROPERTY AT VISHWA GANGA WAS UTILISED FOR PURPOSE O F PROVIDING TEMPORARY ACCOMMODATION TO THE TENANTS, THAT HE HAD NOT PROVIDED ANY NOTIONAL RENT FROM SUCH HOUSE PROPERTY.RELYING UPON THE DECISION OF THE HONBLE HIGH COURT OF ALLAHABAD DELIVERED IN THE CASE OF RADHA DEVI 5 ITA NO. 3728/MUM/2010(AY-2007-08) SHRI RAJENDRA G. S HAH DALMIA (125 ITR 134),HE HELD THAT GROSS ANNUAL VALU E @ 12% OF THE INVESTMENT HAD TO BE TAKEN AS REASONABLE RENT.ALLOWING A DEDUCTION @ 30% U/S. 24 OF THE ACT, HE DECIDED THE INCOME FROM HOUSE PROPERTY AT RS. 1,47,717/-. OUT OF THE SAID A MOUNT RS. 83,225/- WAS HELD TO BE THE INCOME FROM VISHWA GANGA PROPERTY. 4.1. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA.AFTER H EARING THE ASSESSEE HE HELD THAT VISHWA GANGA FLAT WAS USED FOR THE PURPOSE OF PROVIDING TE MPORARY ACCOMMODATION TO THE TENANT,THAT THE ASSESSEE WAS IN THE BUSINESS OF REDEVELOPMENT OF THE BUILDING,THAT THE AO HAD SUMMARILY REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUND TH AT NO DOCUMENTARY EVIDENCE WAS FILED,THAT THE AO HAD MENTIONED THAT AS WHEN AND WHAT TYPE OF DOCU MENTARY EVIDENCE HE REQUIRED FROM THE ASSESSEE,THAT THE AO DID NOT PROVE THAT THAT THE PR OPERTY WAS NOT USED FOR GIVING ACCOMMODATION TO THE TENANT BY CONDUCTING APPROPRIATE ENQUIRY.HE DELETED THE ADDITION MADE BY THE AO UNDER THE HEAD DEEMED RENT IN RESPECT OF VISHWA GANGA FLA T. 4.2. BEFORE US,DR SUBMITTED THAT THERE WAS NO EVIDENCE T HAT VISHWA GANGA FLAT WAS USED FOR TENANTS FOR TEMPORARY ACCOMMODATION,THAT FAA DID NO T MAKE FURTHER INQUIRIES IN THIS REGARD.AR SUBMITTED THAT ALTERNATE ACCOMMODATION WAS PROVIDED BY THE ASSESSEE TO THE TENANTS,CLAUSE (G)OF THE AGREEMENT DEALS WITH THE ISSUE OF ALTERNATE ACC OMMODATION.HE REFERRED TO THE PG.NO 168 OF THE PB. 4.3. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL AVAILABLE ON RECORD.WE FIND THAT ASSESSEE HAD PRODUCED THE AGREEMENT ENTERED IN TO BETWEEN HIM AND THE SEA LORD CHS FOR REDEVELOPMENT(PG.159OF THE PB).AS PER ONE OF THE CO NDITION OF THE AGREEMENT ASSESSEE HAD TO PROVIDE ALTERNATE ACCOMMODATION TO THE EXISTING TEN ANTS OR HAD TO PAY RENT. IN PURSUANCE OF THE SAID AGREEMENT HE ALLOWED THE TENANTS TO STAY IN TH E VISHWA GANGA FLAT.FAA,HAS TAKEN A NOTE OF THE FACT THAT THERE WAS AN AGREEMENT AND ONLY AFTER CONSIDERING IT HE HAS DECIDED THE ISSUE.IN THESE CIRCUMSTANCES, WE DO NOT ANY REASON TO DISTUR B HIS FINDINGS. CONFIRMING THE ORDER OF THE F AA,WE DECIDE GROUND NO.3 AGAINST THE AO. 5. THE LAST GROUND OF APPEAL IS ABOUT DELETING THE ADD ITION OF RS. 1,35,950/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF PART INTEREST.DURING THE ASSESSMENT PROCEEDINGS,AO FOUND THAT HE HAD SHOWN INTEREST PAYMENT AT RS. 1.35 LACS AGAINST COMMISSION EARNED.HE DIRECTED THE ASSESSEE TO FILE PARTY WISE DETAILS OF INTEREST PAID AND JUS TIFICATION FOR ALLOWABILITY OF SUCH CLAIM IN VIEW OF SPECIFIC PROVISIONS OF SECTION 36(1)(III) R.W.S. 37 OF THE ACT.ASSESSEE FILED PARTY WISE DETAILS OF INTEREST PAID AND THE DETAILS OF TDS MADE THEREON.F ROM THE SAID DETAILS AO NOTICED THAT ASSESSEE HAD CLAIMED INTEREST PAYMENT AT RS.1.35 LACS AGAINS T THE COMMISSION RECEIVED AT RS.3,10,474/-, THAT HE HAD ADVANCED CERTAIN AMOUNTS TO DIFFERENT P ARTIES AND HAD NOT CHARGED ANY INTEREST.AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE INTERES T SHOULD NOT BE DISALLOWED AS BORROWED FUNDS WERE NOT UTILISED FOR BUSINESS AND THERE WAS NO NEE D TO BORROW FUNDS FOR EARNING OF COMMISSION INCOME.AFTER CONSIDERING THE SUBMISSIONS OF THE ASS ESSEE,AO HELD THAT MAJOR PORTION WAS SHOWN BY THE WAY OF INVESTMENT FOR FIXED ASSETS,THAT NO I NCOME WAS EARNED FROM SUCH INVESTMENT,THAT ASSESSEE HAD NOT PROVED ANY NEXUS OF BORROWED FUNDS AND INTEREST PAID THEREON WITH THE ACTIVITIES CARRIED OUT FOR EARNING TAXABLE INCOME.F INALLY,HE HELD THAT ENTIRE AMOUNT OF RS.1.35 LACS WAS DISALLOWABLE IN VIEW OF SPECIFIC PROVISION S OF SECTION 36(1)(III) R.W.S. 37 OF THE ACT. 5.1.A SSESSEE PREFERRED AN APPEAL BEFORE THE FAA.AFTER HE ARING THE ASSESSEE.FAA HELD THAT THE ASSESSEE HAD CLAIMED INTEREST AMOUNT OF ONLY RS.1.3 1LACS WHEREAS THE AO MISTOOK THE SAME AS RS.1,35,950/- AND MADE ADDITION IN THE ASSESSMENT O RDER, THAT THE ASSESSEE HAD CONTENDED BEFORE THE AO THAT THE BORROWALS WERE MADE IN THE EARLIER YEARS AND SAME WERE USED FOR BUSINESS OF REDEVELOPMENT,THAT THE AO DID NOT CONDUCT FURTHER V ERIFICATION AND DISALLOWED THE INTEREST ON THE GROUND THAT THE ASSESSEE HAD MADE INVESTMENT IN FIXED ASSETS AS SEEN FROM THE BALANCE-SHEET, THE AO DID NOT EXAMINE THE ISSUE IN RIGHT PERSPECTI VE,THAT THE ADDITION WAS MADE ON THE BASIS OF ASSUMPTION AND SUSPICION WITHOUT EXAMINING THE FACT S THOROUGHLY,THAT THERE WERE MINIMUM BORROWING DURING THE YEAR UNDER CONSIDERATION,THAT THE FUNDS WERE USED FOR THE BUSINESS OF REDEVELOPMENT IN THE EARLIER YEAR,THAT SAME WERE EN TITLED TO DEDUCTION WHILE COMPUTING THE 6 ITA NO. 3728/MUM/2010(AY-2007-08) SHRI RAJENDRA G. S HAH BUSINESS INCOME.HE DIRECTED THE AO TO DELETE THE AD DITION MADE. 5.2. BEFORE US,DR SUBMITTED THAT THE ASSESSEE WAS SHOWIN G INCOME FROM COMMISSION,THAT THERE WAS NO NEED TO BORROW FUNDS OR DOING COMMISSION INC OME,THAT BORROWED FUNDS WERE USED FOR MAKING INVESTMENTS.AR SUBMITTED THAT MONEY WAS BORR OWED FOR REDEVELOPMENT,THAT BORROWED FUNDS WERE USED IN EARLIER YEARS,THAT AO HAD MADE D ISALLOWANCE U/S.14A OF THE ACT AMOUNTING TO RS.3.93 LACS,THAT THE ASSESSEE DID NOT AGITATE T HE SAID ADDITION BEFORE THE FAA,THAT HE DID NOT UTILISED THE FUND FOR MAKING INVESTMENT,THAT SEPARA TE DISALLOWANCE WAS NOT CALLED FOR, 5.3. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL AVAILABLE ON RECORD.WE FIND THAT AO HAD GIVEN ANY FINDING AS HOW THE ASSESSEE H AD NOT USED THE BORROWED FUNDS FOR BUSINESS PURPOSES OR HAD INVESTED THE BORROWED MONEY TO MAKE INVESTMENTS.HE HAD NOT MENTIONED THE NAMES OF THE PARTIES TO WHOM THE MONEY WAS ADVANCED AS LOANS AND INTEREST WAS NOT CHARGED.FOR DISALLOWING THE INTEREST EXPENDITURE AO HAS NOT BRO UGHT ON RECORD ANY MATERIAL.SO,IF THE FAA HAS DELETED THE SAME AFTER APPRECIATING THE FACTS O F THE CASE,THEN HIS ORDER HAS TO BE CONFIRMED. LAST GROUND OF APPEAL IS DECIDED AGAINST THE AO. AS A RESULT APPEAL FILED BY THE AO STANDS REJECTED. 6 )7 62 8 ( 9 $: 1 $ 2 ;. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH SEPTEMBER, 2013 (%5 1 3+ % & < =( 13, 2 2013 1 4 > SD/- SD/- ( . / D. MANMOHAN ) ( $%&' $%&' $%&' $%&' / RAJENDRA) !' !' !' !' / VICE-PRESIDENT % % % % () () () () /ACCOUNTANT MEMBER / MUMBAI, =( /DATE: 13.09 . 2013 SK (%5 (%5 (%5 (%5 1 11 1 .2? .2? .2? .2? @%?+2 @%?+2 @%?+2 @%?+2 / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / ,- 2. RESPONDENT / ./,- 3. THE CONCERNED CIT(A)/ A B , 4. THE CONCERNED CIT / A B 5. DR D BENCH, ITAT, MUMBAI / ?C 4 .2 . , . . & . 6. GUARD FILE/ 4 D / ?2 .2 //TRUE COPY// (%5 / BY ORDER, / $ DY./ASST. REGISTRAR , /ITAT, MUMBAI