Mr. Ashok Tapiram Patil Parola, Nashik V. ACIT Cent. Cir.-2, Nashik

ITA 467/PUN/2006

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49823 (ITAT-PUNE)
• Duration Of Justice: 5 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 08-04-2011
• Assessment Year: misc
• Appeal Filed On: 24-04-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARESHWAR SHARMA
• Assessee Lawyers: SUNIL PATHAK
• Keywords: Unexplained expenditure; Depreciation; Business expenditure; Search and seizure; Salary income; Document seized; Block assessment; Documents seized
• Section: 32; 132; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JM AND SHRI G.S. PANNU, AM ITA NO. 786/PN/2006 BLOCK PERIOD 1-4-1996 TO 16-1-2 003 ASSTT. CIT CENT. CIR. 2 NASIK APPELLANT VS. SHRI ASHOK TAPIRAM PATIL HOUSE NO. 4, BORI COLONY, PAROLA, DIST. JALGAON RESPONDENT ITA NO. 467/PN/2006, 293 TO 296/PN/2007 (BLOCK PERIOD: 1997-98 TO 2004-05, 1998-99 TO 2001- 02) SHRI ASHOK TAPIRAM PATIL HOUSE NO. 4, BORI COLONY, PAROLA, DIST. JALGAON APPELLANT VS. ASSTT. CIT CENT. CIR. 2, NASIK RESPONDENT ASSESSEE BY : SHRI SUNIL PATHAK AND SHRI NIKHIL PAT HAK DEPARTMENT BY : SHRI HARESHWAR SHARMA ORDER PER SHAILENDRA KUMAR YADAV, JM ALL THESE APPEALS PERTAIN TO SAME ASSESSEE. ITA NO 786 & 467/PN/06 ARE CROSS APPEALS ARISING FROM THE ORDER OF THE CIT(A)-I NASIK DATED 27-3-2006 FOR THE BLOCK PERIOD 1-4-1996 TO 16-1-2003 . APPEALS IN ITA NO. 293 TO 296/PN/200 8 ARE FILED BY THE ASSESSEE AGAINST DIFFERENT ORDERS OF T HE CIT(A) NASIK. SO THEY ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE REVENUE IN ITS APPEAL IN ITA NO. 786/PN/2006 HAS RAISED FOLLOWING GROUNDS IN IT APPEAL: ITA NO. 447/PN/06 ETC. ASHOK PATIL 2 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(A) HAS ERRED IN GRANTING RELI EF OF RS. 12,59,107/- ON ACCOUNT OF SHORTAGE AND LOSS OF MILK , THOUGH SUCH CLAIM IS ALREADY COVERED BY THE PROFIT RATIO APPLIED BY THE ASSESSING OFFICER IN COMPUTING THE UNDISCLOSED INCOME FROM UNDISCLOSED TURNOVER OF MIL K BUSINESS. 2. THAT ON THE FACTS AD IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN GRANTING RELIEF O F RS. 18,908,368/- ON ACCOUNT OF SMP EXPENSES THOUGH THE RELEVANT ENTRIES IN THE SEIZED DOCUMENTS DO NOT EVI DENCE ANY OUTGOINGS OF THE APPELLANT BUT SHOW HIS RECEIPT S. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) HAS ERRED IN GRANTING RELIEF O F RS. 13,84,250/- ON ACCOUNT OF TRANSPORT CHARGES WITHOUT THERE BEING ANY EVIDENCE IN THE SEIZED DOCUMENTS. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES F THE CASE, THE LEARNED CIT(A) HAS ERRED IN GRANTING RELI EF OF RS. 8,78,597/- ON ACCOUNT OF PROFIT ON SALE OF DEVELOPM ENT RIGHTS. 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LEARNED CIT(A) HAS ERRED IN DELETING THE A DDITION OF RS. 12,00,000/- ON ACCOUNT OF INVESTMENT IN COTT ON BUSINESS BY PRESUMING THE SAID AMOUNT OF RS. 12,00,000/- WAS RE-CIRCULATED OUT OF THE EARLIER INVESTMENT OF RS. 15,00,000/-. 6. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LEARNED CIT(A) HAS ERRED IN DELETING THE A DDITION OF RS. 13,78,400/- ON ACCOUNT OF INTEREST PAID TO S HRI CHANDULAL DAGA. 7. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT(A) HAS ERRED IN ADMITTING NEW EVIDENCE WITHOUT FOLLOWING THE PROVISIONS OF RULE 4 6A WHILE DELETING THE ADDITION OF RS. 13,78,400/- ON A CCOUNT OF INTEREST PAID TO SHRI CHANDULAL DAGA. 8. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 49,963/- ON ACCOUNT OF INTEREST PAID TO SHRI RAMESH DAGA. 9. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT(A) HAS ERRED IN ADMITTING NEW EVIDENCE WITHOUT FOLLOWING THE PROVISIONS OF RULE 4 6A ITA NO. 447/PN/06 ETC. ASHOK PATIL 3 WHILE DELETING THE ADDITION OF RS. 49,963/- ON ACCO UNT OF INTEREST PAID TO SHRI RAMESH DAGA. 10. THAT ON THE FACTS AND N THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF THE CLAIM OF RS. 1,05,120/- ON ACCO UNT OF DEPRECIATION ON PUNE OFFICE. 3. THE ASSESSEE IN ITS APPEAL IN ITA NO. 467/PN/200 6 HAS RAISED THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. C.I T. (A) HAS ERRED IN ESTIMATING SHORTAGE OF MILK AT 1 % OF PURCHASE AMOUNT AS AGAINST CLAIM OF THE APPELLANT AT 2.5%. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. C.L.T. (A) HAS ERRED IN NOT CONSIDERING THE FACT THAT THE MILK COLLECTED FROM FARMERS FROM SURROUNDING VI LLAGES OF PAROLA IS TO BE TRANSPORTED IN CANS BY TRUCKS/TE MPOES ON ROUGH ROADS AND THEREFORE, AS PER GOVERNMENT (DA IRY) NORMS ADDITIONAL ALLOWANCE OF 0.5% IS TO BE ALLOWED . 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. C.LT. (A) HAS ERRED IN ESTIMATING AND ALLOW ING TRANSPORTATION EXPENSES AT 40 PAISE PER LITER OF MI LK , TRANSPORTED FOR A.Y. 1999-00 AND 2000-01 AND 45 PAI SE FOR A.Y. 2001-02 AND 200203 AS AGAINST REASONABLE C LAIM OF 45 PAISE FOR A.Y. 1999-00 AND 51 PAISE FOR A.Y. 2000- 01 AND 58 PAISE FOR A.Y. 2001-02 AND 2002-03. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. C.I.T. (A) HAS ERRED IN NOT CONSIDERING THE TRANSPORTATION EXPENSES OF TRANSPORTING MILK FROM SURROUNDING VILLAGES TO PAROLA BY TRUCKS AND TEMPOE S WHILE ARRIVING AT ALLOWABLE TRANSPORTATION EXPENSES OF MILK PER LITER. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. C.LT. (A) HAS ERRED IN HOLDING THAT PROFIT ON SALE OF DEVELOPMENT RIGHTS ON PLOTS AT PUNE IS TO BE ASSESS ED IN BLOCK PERIOD ASSESSMENT AND NOT IN REGULAR ASSESSME NT. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. C.I.T. (A) HAS ERRED IN NOT CONSIDERING DEF INITION OF UNDISCLOSED INCOME IN SECTION 15 8B (B) WHILE HOLDI NG THAT PROFIT ON SALE OF DEVELOPMENT RIGHTS ON PLOTS AT PUNE ITA NO. 447/PN/06 ETC. ASHOK PATIL 4 IS TO BE ASSESSED IN BLOCK PERIOD ASSESSMENT AND NO T IN REGULAR ASSESSMENT. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. C.L T. (A) HAS ERRED IN NOT APPRECIATING TH E FACT THAT AS THE APPELLANT HAD DECLARED PROPORTIONATE PR OFIT ON SALE OF DEVELOPMENT RIGHTS OF PLOTS ON RECEIPTS OF PART OF CONSIDERATION IN RETURNED FILED FOR A.Y. 2001-02 PR IOR TO ACTION U/S 132, IT WAS CERTAIN THAT ON RECEIPTS OF BALANCE CONSIDERATION THE APPELLANT WOULD HAVE DECLARED REMAINING PROFIT IN A.Y. 2002-03. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. C.I.T. (A) HAS ERRED IN NOT A OWING CREDIT FOR AGRICULTURAL INCOME FROM LAND OF MOTHER S. T. PATIL AND FROM ANCESTRAL AGRICULTURAL LAND BELONGING TO PATIL FAMILY WHILE ARRIVING AT UNDISCLOSED INVESTMENT IN COTTON BUSINESS AT RS. 6,01,000/-. 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. C.I.T. (A) HAS ERRED IN HOLDING THAT THE IN TEREST AND REMUNERATION EARNED BY THE APPELLANT FROM PARTNERSHIP FIRMS AND CLEARLY REFLECTED AND DECLARE D IN THE RETURNS FILED BY THE FIRM PRIOR TO ACTION U/S 1 32 WOULD NOT HAVE BEEN DISCLOSED BY THE APPELLANT IN H IS REGULAR RETURN FOR A.V:2002-03 AND THEREFORE, TAXIN G THE SAME IN BLOCK PERIOD ASSESSMENT. 10. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. C.I.T. (A) HAS ERRED IN NOT CONSIDERING DEF INITION OF UNDISCLOSED INCOME IN SECTION 158B (B) WHILE HOLDIN G THAT THE INTEREST AND REMUNERATION EARNED BY THE APPELLANT FROM PARTNERSHIP FIRMS AND CLEARLY REFLEC TED AND DECLARED IN THE RETURNS FILED BY THE FIRM PRIOR TO ACTION U/S 132 WOULD NOT HAVE BEEN DISCLOSED BY THE APPELLANT IN HIS REGULAR RETURN FOR A.Y.2002-03 AND THEREFORE, TAXING THE SAME IN BLOCK PERIOD ASSESSME NT. 11. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. C.I.T. (A) HAS ERRED IN GIVING THE FINDING THAT APPELLANTS CLAIM VIDE PARA 3 OF THE GROUNDS OF APPE AL IS GENERAL IN NATURE. YOUR APPELLANT CRAVES LEAVE TO ADD, ALTER, DELETE A BOVE OR ANY OTHER GROUND/S OF APPEAL AND OBLIGE. ITA NO. 447/PN/06 ETC. ASHOK PATIL 5 ASSESSEE HAS ALSO RAISED AN ADDITIONAL GROUND IN IT S APPEAL ON THE ISSUE OF SMP WHICH READS AS UNDER: THE LEARNED CIT(A) ERRED IN NOT ALLOWING SOME EXPENDITURE ON ACCOUNT OF SCHEME MILK POWDER (SMP) FOR A.Y. 1998-99, 1999-00 AND 2001-02. 4. THE ASSESSEE IS CARRYING ON BUSINESS OF PROCUREM ENT OF MILK IN PAROLA AND TRANSPORTING AS WELL AS DISTRIBU TING/SELLING THE SAME IN MUMBAI. A SEARCH ACTION U/S 132 OF THE INCOME- TAX ACT WAS CONDUCTED ON 16.1.2003 AT THE RESIDENCE AND OFFICE OF MEMBERS OF THE GROUP AT PAROLA, NASHIK, T HANE AND MUMBAI. IN CONSEQUENCE THEREOF, THE ASSESSMENT UNDE R REFERENCE WAS MADE. THE AO MADE ADDITION TO THE INC OME OF THE ASSESSEE FOR VARIOUS ACCOUNTS WHICH ARE BEING D EALT WITH IN THE FOLLOWING PARAS. 5. THE FIRST ISSUE IS WITH REGARD TO UNDISCLOSED IN COME FROM SALE OF MILK. DURING THE COURSE OF SEARCH, SEIZED P APER WERE FOUND REGARDING UNACCOUNTED SALE OF MILK FOR 4 YEAR S. THE ASSESSEE ADMITTED THAT UNACCOUNTED SALE WAS CARRIED OUT BY HIM. HOWEVER, THE ASSESSEE CLARIFIED THAT PART OF T HE TRANSACTIONS WERE ACCOUNTED IN THE NAME OF SHEETAL DAIRY. THE AO ACCEPTED THAT PART OF THE SALES WERE DISCLOSED I N THE RETURN OF SHEETAL DAIRY AND, THEREFORE, HE GAVE CREDIT FOR THE SALES DISCLOSED BY SHEETAL DAIRY. THE SEIZED PAPERS WERE FOUND FOR PART OF THE YEAR AND THE AO ESTIMATED THE SALES FOR THE BALANCE PERIOD. ACCORDINGLY, THE AO HAS COMPUTED THE UNDISC LOSED ITA NO. 447/PN/06 ETC. ASHOK PATIL 6 TURNOVER FOR ASSESSMENT YEARS 1999-2000 TO 2002-03 AS UNDER (AS REFERRED ON PAGE 26 OF THE ASSESSMENT ORDER): ASSTT. YEAR UNDISCLOSED TURNOVER (RS) 1999-2000 2,59,22,433/- 2000-2001 6,83,29,735/- 2001-2002 79,49,712/- 2002-2003 4,03,24,678/- 6. THIS UNDISCLOSED TURNOVER HAS NOT BEEN DISPUTED. AFTER COMPUTING THE UNDISCLOSED TURNOVER FOR THE 4 YEARS, THE AO APPLIED THE GP RATE BY ADOPTING THE RATE SHOWN IN T HE CASE OF SHEETAL DAIRY FOR THE RESPECTIVE YEARS. THUS, HE CO MPUTED THE GP FOR THE ABOVE YEARS AS UNDER: ASSTT.YEAR UNDISCLOSED TURNOVER (RS) GP RATE AS SHOWN BY SHEETAL DAIRY GROSS PROFIT 99-2000 2,59,22,433 13,36% 34,63,237 2000-01 6,83,29,735 12.16% 83,08,895 2001-02 79,49,712 13.28% 10,55,722 2002-03 4,03,24,678 11.63% 46,89,760 TOTAL 1,75,17,614 7. AFTER COMPUTING THE G.P, THE ASSESSEE HAD POINTE D OUT TO THE AO THAT THE GP SHOULD BE REDUCED ON ACCOUNT F TRANSPORTATION EXPENSES, SCHEME MILK POWDER EXPENSE S, SHORTAGE OF MILK, OTHER EXPENSES. THE AO ALLOWED TRANSPORTATION EXPENSES AT 30 PAISE PER LITRE. ACCO RDINGLY, TOTAL TRANSPORTATION EXPENDITURE ALLOWED FOR THE 4 YEARS WAS ARRIVED AT RS 35,71,737 AS DISCUSSED IN PARA 17.12 PAGE 30 OF ITA NO. 447/PN/06 ETC. ASHOK PATIL 7 ASSESSMENT ORDER. FURTHER THE AO ALLOWED RS 6,03,10 7/- IN RESPECT OF THE EXPENDITURE OF SCHEME MILK POWDER (H EREAFTER REFERRED TO AS SMP) ON THE BASIS OF NOTINGS ON THE SEIZED PAPERS. THE AO FURTHER ALLOWED EXPENDITURE ON SALAR Y OF RS 1,28,000/- AND OTHER EXPENSES OF RS 1,36,044/-. AS REGARDS THE CLAIM OF SHORTAGE, THE AO STATED THAT HE HAS AD OPTED THE GP AND, THEREFORE, THE CLAIM OF SHORTAGE WAS NOT AL LOWABLE. HOWEVER, ACCORDING TO THE AO, THERE WERE CERTAIN NO TINGS OF SPOILAGE AND HENCE HE ALLOWED RS 3,39,171/-. ULTIMA TELY, THE AO REDUCED THE ABOVE EXPENSES AGGREGATING TO RS 47, 78,059/- FROM THE GP OF RS 1,75,17,614/- AND COMPUTED THE NE T INCOME FROM DAIRY BUSINESS AT RS 1,27,39,555/- AS DISCUSSE D IN PARA 17.18 AT PAGE 32 OF ASSESSMENT ORDER. IN APPEAL, TH E CIT(A) HAS GRANTED PARTIAL RELIEF ACCEPTING THE CONTENTION OF THE ASSESSEE. BOTH THE PARTIES HAVE RAISED THEIR RESPEC TIVE CLAIMS WHICH ARE BEING DEALT WITH AS UNDER. 8. FIRST ISSUE IS WITH REGARDS SMP EXPENSE. THE ASS ESSING OFFICER FOUND THAT THE SEIZED PAPERS INDICATE EXPEN DITURE INCURRED OF RS 25,01,475/-. OUT OF THIS EXPENDITURE , THE AO HAS ALLOWED RS 6,03,107/-. IN APPEAL CIT(A) ALLOWED THE BALANCE MOUNT OF RS 18,98,368/- BY OBSERVING THAT T HE SEIZED PAPERS INDICATE UNACCOUNTED EXPENDITURE AND, THEREF ORE, THE SAME SHOULD BE ALLOWED. THE SEIZED PAPERS CLEARLY I NDICATED UNACCOUNTED EXPENDITURE INCURRED ON SMP AND THEREFO RE THE ITA NO. 447/PN/06 ETC. ASHOK PATIL 8 CIT(A) ALLOWED FURTHER AMOUNT OF RS 18,98,368/- AS DISCUSSED IN PARA 3.26 OF CIT(A)S ORDER. 8.1 REVENUE HAS RAISED ITS GRIEVANCE VIDE GROUND NO . 1 OF ITS APPEAL WHILE THE ASSESSEE HAS RAISED AN ADDITIONAL GROUND WITH REGARD TO SMP EXPENSES IN OTHER YEARS. THE STA ND OF THE ASSESSEE WAS EVIDENCED FOR ASSESSMENT YEAR 2000-01 AS: ASSESSING OFFICER RS 60,03,000 CIT(A) RS 18,98,36,368 --------------------- TOTAL: RS 25,00,000/- = 3.5% THE STAND OF THE ASSESSEE WAS THAT THE ESTIMATION A T THE STRENGTH OF EVIDENCE FOR FEW MONTHS SHOULD BE PROJE CTED FOR WHOLE PERIOD FOR THE PURPOSE OF CALCULATING THE EXP ENDITURE ON THIS ACCOUNT FOR WHOLE PERIOD. MOREOVER EMPTY BAGS OF SMP WAS FOUND DURING THE COURSE OF SEARCH, WHICH IS EVI DENT FROM EVIDENCE AT PAGE 53, 54. IN RESPONSE TO QUESTION NO . 15 IN SHEETAL DAIRY SIMILAR RESPONSE WAS FOUND. THIS FACT UAL FINDING NEEDS NO INTERFERENCE FROM OUR SIDE. THE MODUS OPER ANDI IS SIMILAR IN OTHER YEARS. SO, FOLLOWING SAME ANALOGY WE HOLD THAT SMP EXPENSES MUST HAVE BEEN INCURRED IN OTHER YEARS AS WELL. TAKING ALL FACTS AND CIRCUMSTANCES, WE HOLD THAT AS SESSEE MIGHT HAVE INCURRED THE EXPENSES OF 2% OF PURCHASE AMOUNT ON THIS ACCOUNT. ASSESSING OFFICER IS DIRECTED ACCO RDINGLY. ITA NO. 447/PN/06 ETC. ASHOK PATIL 9 9. NEXT ISSUE IS WITH REGARDS TO TRANSPORTATION EXP ENSES. THE AO HAS ALLOWED 30 PAISE PER LITRE ON THE BASIS OF UNACCOUNTED EXPENDITURE FOUND FOR F.Y 2001-02. IN A PPEAL, THE CIT (A) NOTED THAT THE UNACCOUNTED EXPENDITURE WAS FOUND FOR ALL THE YEARS AND THE EXPENDITURE VARIED FROM 3 0 PAISE PER LITRE TO 88 PAISE PER LITRE AS DISCUSSED BY CIT(A) IN PARA 3.28 AT PAGES 20 & 21 OF HIS ORDER. THE CIT(A) HELD THAT EV EN AS PER THE WORKING GIVEN BY THE ASSESSEE, THE TRANSPORTATI ON COST OF 45 PAISE PER LITRE WAS VERY REASONABLE. ACCORDINGLY , THE CIT(A) ALLOWED TRANSPORTATION EXPENSES AT 40 PAISE PER LIT RE FOR F.Y 1998-99 AND 1999-2000 AND 45 PAISE PER LITRE FOR F. Y 2000-01 AND 2001-02 AS DISCUSSED IN PARA 3.30 OF PAGE 23 OF HIS ORDER. 9.1 WE FIND THAT THE REGARDING EXPENDITURE ON ACCOU NT OF TRANSPORTATION, THE AO HAS ALLOWED 30 PAISE PER LIT RE. THE CIT(A) ALLOWED 40 PAISE PER LITRE FOR FIRST TWO YEA RS AND 45 PAISE PER LITRE FOR REMAINING TWO YEARS. WE FIND THAT THE CIT(A) IS JUSTIFIED IN ALLOWING THE TRANSPORTATION AT 40 PAISE PER LITRE FOR FIRST TWO YEARS AND 45 PAISE FOR REMA INING TWO YEARS. ACCORDINGLY, THE ORDER OF THE CIT(A) IS UPH ELD ON THIS ISSUE. 10. NEXT ISSUE IS WITH REGARD TO THE SHORTAGE. THE ASSESSEE HAS CLAIMED SHORTAGE AT 2.5% OF TURNOVER. THE ASSES SING OFFICER HAS NOT ALLOWED ANY SHORTAGE. IN APPEAL, T HE CIT(A) ALLOWED THE SHORTAGE AT 1%. THE CIT(A) DISCUSSED T HIS ISSUE IN ITA NO. 447/PN/06 ETC. ASHOK PATIL 10 PARAS 3.2 TO 3.6 OF HIS ORDER. IN FACT, THE ASSESSE E HAD POINTED OUT THAT THE GOVERNMENT OF MAHARASHTRA HAS ISSUED A CIRCULAR REGARDING REASONABLE LOSS TO BE CONSIDERED AT VARIO US STAGES OF HANDLING OF MILK. THE RELEVANT PORTION OF THE CIRCU LAR IS REPRODUCED IN PARA 3.3 OF PAGE 6 OF THE CIT(A)S OR DER, WHICH IS BEING REPRODUCED AS UNDER: 2. THE GOVERNMENT IS PLEASED TO AUTHORIZE THE REGI ONAL DEVELOPMENT OFFICERS AND THE SUPERINTENDENTS/MANAGE RS IN-CHARGE OF THE GOVT. MILK SUPPLY SCHEME TO WRITE OFF LOSSES SUSTAINED BY THE GOVT. MILK SCHEME AT VARIOU S STAGES OF HANDLING MILK AS DETAILED BELOW, UPTO THE LIMITS INDICATED AGAINST AT EACH SUCH STAGE SUBJECT TO THE PROVISO THAT THE LOSS IS NOT DUE TO DEFECT IN THE S YSTEM, THEFT, FRAUD OR NEGLIGENCE N THE PART OF THE GOVERN MENT SERVANTS CONCERNED: 1. PROCUREMENT LOSS 0.2% 2. PROCESSING AND BOTTLING LOSS 0.3% 3. TRANSIT LOSS I) BY RAIL TANKERS 0.1% II) BY ROAD TANKERS (ON ALL ROADS) 0.1% III) BY TRUCKS IN CANS A) ON ROUGH ROADS 0.5% B) ON FAIR ROADS 0.3% 4. DISTRIBUTION LOSS UPTO RS 5/- IN EACH CASE 5. CURDLING LOSS 0.1% 6. THIS LETTER ISSUES WITH THE CONCURRENCE OF THE GOVERNMENT DEPARTMENT VIDE ITS UNOFFICIAL REFERENCE NO. 4611/1313/1 DATED THE 20 TH MARCH, 1971 10.1. THE AO DID NOT ALLOW ANY SHORTAGE ON THE GRO UND THAT IN THE REGULAR BOOKS OF SHEETAL DAIRY, THE SHO RTAGE CLAIMED WAS VERY NEGLIGIBLE. THIS VIEW HAS NOT BEEN APPRECIATED BY THE CIT(A) AND HE STATED THAT IT IS AN ACCEPTED FACT THAT THERE ARE HANDLING LOSSES AT VARIOUS STAG ES AND ITA NO. 447/PN/06 ETC. ASHOK PATIL 11 HENCE, RELIANCE PLACED BY THE AO ON THE BOOKS OF SH EETAL DAIRY FOR NOT ALLOWING SHORTAGE WAS NOT JUSTIFIED. THE CI T (A) ALSO HELD THAT IT IS ACCEPTED BY THE AO THAT MILK IS COL LECTED FROM THE RURAL AREA AND, THEREAFTER TRANSPORTED FROM PAR OLA TO MUMBAI. SO. THERE IS BOUND TO BE SOME LOSS ON ACCOU NT OF TRANSPORTATION. THE CIT(A) HAS ALSO REFERRED TO THE ORDER OF THE ITAT, PUNE BENCH IN THE CASE OF BHARAT DIARY WHEREI N SHORTAGE AT THE RATE OF 1.25% WAS ALLOWED AS DISCUS SED IN PAGE 9 OF THE SAID ORDER AS UNDER: ON PERUSAL OF THE ORDERS OF AO AS WELL AS CIT(A), IT IS SEEN THAT THE SHORTAGE OF MILK CLAIMED BY THE ASSES SEE AT THE HEAD OFFICE WAS 0.77% AND AT THANE OFFICE AT 0. 21% MAKING TOTAL SHORTAGE OF 0.98% IN THE YEAR UNDER CONSIDERATION AGAINST THIS SHORTAGE THE SHORTAGE IN THE IMMEDIATE PRECEDING YEAR 90-91 WAS 1.78%. SHORTAGE ALLOWED IN THE AY 90-91 WAS 1.25%. IT IS THUS SEEN THAT HIGHER SHORTAGE WAS ALLOWED IN THE EARLIER ASSESSME NT YEAR. THEREFORE, SHORTAGE CLAIMED BY THE ASSESSEE I N THE YEAR UNDER CONSIDERATION CANNOT BE HELD TO BE EXCES SIVE. IN VIEW OF ABOVE, THE CIT(A) HAS ALLOWED SHORTAGE A T THE RATE OF 1% OF THE TOTAL PURCHASES. TAKING OVER ALL VIEW OF SITUATION, SHORTAGES AT THE RATE OF 1.25% IS JUSTIFIED. ASSES SING OFFICER IS DIRECTED ACCORDINGLY. 11. THE NEXT ISSUE IS WITH REGARD TO THE ADDITION O F RS 17,58,000/- ON ACCOUNT OF INVESTMENT MADE IN COTTON BUSINESS OF A.T. PATIL & CO. THE AO HELD THAT THE INVESTMENT IN COTTON BUSINESS IS UNACCOUNTED ONE AND THEREBY M ADE AN ADDITION OF RS 17,58,000/-. IN APPEAL, THE CIT(A) S USTAINED ADDITION OF RS 6,01,00/- OUT OF TOTAL ADDITION OF R S ITA NO. 447/PN/06 ETC. ASHOK PATIL 12 17,58,000/-. THE STAND OF THE ASSESSEE IS THAT THE ASSESSEE OWNS AGRICULTURAL LAND OF 3.48 HECTER AND HENCE AGR ICULTURAL INCOME WAS AVAILABLE FOR MAKING INVESTMENT. HOWEVE R, THIS STATEMENT WAS NOT ACCEPTED BY THE CIT(A) BECAUSE TH E ASSESSEE COULD NOT SUBSTANTIATE CORRESPONDING INCOM E FROM THE AGRICULTURAL LAND UNLESS CLAIMED TO BE POSSESSE D BY THE ASSESSEE AND INVESTMENT IS CLAIMED TO BE MADE AS SA LE OF AGRICULTURAL PRODUCE FROM THE SAID AGRICULTURAL LAN D. THE CIT(A) HAS GRANTED A RELIEF TO THE ASSESSEE CORRESP ONDING TO THE AGRICULTURAL HOLDING AND INCOME THEREOF. UNDER THE FACTS AND CIRCUMSTANCES, THE ORDER OF THE CIT(A) ON THE ISSUE IS REASONED ONE AND IT NEEDS NO INTERFERENCE FROM OUR SIDE. THE SAME IS UPHELD. 12. THE NEXT ISSUE IS WITH REGARD TO DISALLOWANCE O F INTEREST TO SHRI CHANDULAL DAGA AND SHRI RAMESH DAGA. THE A O DISALLOWED INTEREST OF RS 15,29,700/- TO SHRI CHAND ULAL DAGA AND SHRI RAMESH DAGA. PARA 6 OF THE STATEMENT OF FA CTS HAS PROVIDED THE BREAK UP OF THE PAYMENTS TO THEM AS UN DER: A) INTEREST TO SHRI CHANDULAL DAGA RS 13,87,400/- B) INTEREST TO SRI RAMESH DAGA RS 1,42,300/- ----------------- TOTAL RS 15,29,700/- =========== THE AO MADE ADDITION ON THIS ACCOUNT ON THE GROUND THAT BORROWAL OF RS. 2 CRORES FROM SHRI CHANDULAL DAGA WAS USED TO PURCHASE PROPERTY AT PUNE BEARING CTS NO 1125 AN D FINAL PLOT NO 499 FOR THE PURPOSE OF BUSINESS OF M/S. SH EETAL CONSTRUCTIONS, PROMOTERS AND BUILDERS AND NOT FOR A SSESSEES ITA NO. 447/PN/06 ETC. ASHOK PATIL 13 OWN BUSINESS AND, HENCE INTEREST PAID TO SHRI CHAND ULAL DAGA WAS NOT ALLOWABLE. 12.1. IN APPEAL, THE CIT(A) OBSERVED THAT THE DECI SION OF THE ITAT, MUMBAI BENCH IN THE CASE OF SANTOSHKUMAR AGRAWAL V ACIT (2001) 78 ITD 394 (MUM) WAS APPLICAB LE TO THE FACTS OF THE ASSESSEES CASE. THE TRIBUNAL FOLLOWIN G THE DECISION OF HONBLE APEX COURT IN THE CASE OF R M CHIDAMBARAM PILLI ETC. (1977) 106 ITR 292 (SC) HAS OBSERVED AS UNDER: ON THIS REASONING, THE SC HELD THAT WHAT HAS BEEN PAID AS SALARY Y THE FIRM TO A PARTNER IS REALLY THE SHA RE OF PROFITS PAID TO HIM. IT WOULD APPEAR THAT THE LEGIS LATURE HAS RECOGNIZED THIS PRINCIPLE BY ENACTING FICTION I N SECTION 28(V). IF REALLY THE REMUNERATION HAS TO BE TREATED AS RETURN OF THE SHARE OF PROFIT BY THE FIRM TO THE PARTNER, IT FOLLOWS THAT THE PARTNER SHOULD BE ENTITLED TO A LL THE DEDUCTIONS WHICH HE WAS HITHERTO ENTITLED WHILE COMPUTING HIS SHARE OF PROFIT IN THE FIRM INCLUDING THE DEDUCTION IN RESPECT OF INTEREST PAID ON MONEY BORR OWED FROM INVESTMENT IN THE FIRM AS CAPITAL U/S 67(3). S ECTION 36(1)(III) OF THE ACT ENACTS THE SAME PRINCIPLE. TH E ASSESSEE IN THE PRESENT CASE IS, THEREFORE, ENTITLE D TO THE DEDUCTION OF INTEREST PAID ON MONEY BORROWED FOR INVESTMENT IN THE FIRM IN WHICH HE IS A PARTNER, AG AINST THE AMOUNT RECEIVED BY HIM FROM THE FIRM AS REMUNERATION AS ASSESSED UNDER THE HEAD BUSINESS. 12.2 . THE ASSESSEE FURTHER RELIED ON THE RATIO OF DECISION IN THE CASE OF CIT V MADANLAL JAIN (1982) 136 ITR 4 09 (DEL) TO EMPHASIZE THAT INTEREST ON BORROWAL INVESTED AS CA PITAL IN THE PARTNERSHIP FIRM WAS ALLOWABLE EVEN IF NO SHARE PRO FIT IS RECEIVED DURING A PARTICULAR YEAR. IN THIS REGARD, THE ASSESSEE HAD FILED THE COMPUTATION OF TOTAL INCOME FILED WIT H THE RETURN FOR AY 2003-04 WHERE THE SALARY INCOME FROM SNEH BU ILDERS WAS INCLUDED AS HIS INCOME, BUT NO INCOME WAS SHOWN AGAINST IT. THE STAND OF THE ASSESSEE WAS THAT INTEREST ON BORROWAL USED FOR INVESTING IN PARTNERSHIP FIRM SNEH BUILDER S, WHERE HE ITA NO. 447/PN/06 ETC. ASHOK PATIL 14 WAS A PARTNER, WAS ALLOWABLE AS EXPENSES. FURTHER S TAND OF THE ASSESSEE WAS THAT PAYMENT OF RS 50 LAKH ON 11.1 .2001 WAS MADE TOWARDS PURCHASE OF PLOT FROM M/S THAKKAR HOUSING P. LTD. FOR THE PURCHASE OF PLOT AT NASHIK. IT WAS STATED THAT THE PLOT BELONGED TO THE ASSESSEE IN HI S INDIVIDUAL CAPACITY AND HE INTENDED TO CONDUCT THE BUSINESS AN D EARN PROFIT OUT OF DEVELOPMENT PLOT IN HIS INDIVIDUAL CA PACITY ONLY. HE PRODUCED COPY OF HIS BALANCE SHEET AS ON 31.3.20 02 TO SUBSTANTIATE HIS CONTENTION. IT WAS FOUND THAT THE LOANS AND ADVANCES OF RS 80,69,679/- HAVE BEEN DISCLOSED ON T HE ASSET SIDE OF THE BALANCE SHEET. THE BREAKUP OF THE ITEM WAS FURNISHED WHICH SHOWED THE BALANCE RECEIVABLE OF RS 39 LAKHS FROM THAKKAR HOUSING P. LTD. ON ACCOUNT OF LOANS AN D ADVANCES. THE LEDGER ACCOUNT OF THAKKAR HOUSING P. LTD. FILED BEFORE THE CIT (A) ON BEHALF OF THE ASSESSEE FIRM S HOWED THAT PAYMENT OF RS 50 LAKHS WAS MADE TO THAKKAR HOUSING P. LTD. VIDE CHEQUE ON ACCOUNT NO 35048 IN HDFC BANK, PUNE. THUS, IT WAS CLEAR THAT ADVANCE MADE TO THAKKAR HOUSING P . LTD., HAS BEEN DISCLOSED BY THE ASSESSEE IN HIS INDIVIDUA L BALANCE SHEET AND, THEREFORE, THE CONTENTION F THE ASSESSEE THAT THE AMOUNT OF RS 50 LAKHS RECEIVED FROM SHRI CHANDULAL DAGA WAS INVESTED IN PURCHASE OF PLOT FROM THAKKAR HOUSI NG P. LTD., FOR THE BUSINESS OF THE ASSESSEE IN HIS INDIV IDUAL CAPACITY WAS FOUND CORRECT. THE ASSESSEE FURTHER SUBSTANTIAT ED HIS CLAIM BY FILING THE SALE AGREEMENT FOR THE SAME PLO T. IT WAS EXPLAINED THAT THE ASSESSEE COULD NOT GATHER SUFFIC IENT FINANCE FOR THE PURPOSE AND, THEREFORE, THE PLOT UNDER REFE RENCE WAS SOLD VIDE TWO SEPARATE AGREEMENTS REGISTERED ON 9.9 .2004, BOTH BEING BETWEEN GAUTAM LANDSCAPE P LTD, REPRESEN TED THROUGH SHRI C D DAGA AND THAKKER DEVELOPERS LTD. IN EACH OF AGREEMENT, THE ASSESSEE GOT RS 75,000/-. IT WAS CLARIFIED THAT THE INCOME OF RS 1,50,000/- WOULD BE OFFERED T O TAX IN ITA NO. 447/PN/06 ETC. ASHOK PATIL 15 INDIVIDUAL RETURN OF ASSESSEE AND THE BALANCE ON AC COUNT OF THAKKER HOUSING P. LTD, WOULD BE DULY REFLECTED IN THE BALANCE SHEET AS ON 31.3.2005. IN VIEW OF THE DOCUMENTS AND EVIDENCES, THE INTEREST ON BORROWAL TO THE EXTENT O F INVESTMENT IN THAKKAR HOUSING P. LTD; WAS ALLOWED AS ASSESSEE S BUSINESS EXPENSES. 12.3 . FURTHER, IT WAS STATED ON BEHALF OF THE ASSE SSEE THAT REMAINING PART OF BORROWAL WAS INVESTED IN PURCHASI NG PLOT BEARING CTS NO 1125, FINAL PLOT NO 499 AT BHAMBURDA , SHIVAJI NAGAR, PUNE. IT WAS STATED IN PARA 6(1) OF STATEMEN T OF FACTS THAT RS 15 LAKHS WAS WITHDRAWN ON 11.7.2001 FOR PAY MENT OF STAMP DUTY IN CONNECTION WITH PURCHASE OF SAID PLOT . FURTHER, RS 37.5 LAKHS AND RS 22.5 LAKHS WAS PAID FOR MAKING PURCHASE OF ABOVE PLOT. IT WAS FURTHER STATED THAT THE PURCHASE OF THE ABOVE PLOT WAS MADE BY THE ASSESSEE IN HIS I NDIVIDUAL CAPACITY AND FOR THIS PURPOSE, COPY OF TWO SALE DEE DS DT 26.7.2001 WAS FILED, WHICH REVEALED THAT PLOT UNDER REFERENCE WAS PURCHASED BY SHRI ASHOK T. PATIL AND SAU HEMLAT A ASHOK PATIL AS INDIVIDUAL FROM SMT MADHURI ANANDRAO PANTS ACHIV AND OTHERS AS WELL AS SMT JYOTSNA ANANDRAO PANTSACH IV AND OTHERS. IT WAS ALSO STATED THAT INVESTMENT N THE SA ID PLOT WAS MADE BY THE ASSESSEE ONLY AND THE NAME OF SMT. HEML ATA ASHOK PATIL WAS INCLUDED ONLY AS A MATTER OF PRECAU TION. IT WAS CLARIFIED THAT NO INVESTMENT WAS MADE BY SMT HE MLATA ASHOK PATIL IN THIS REGARD. THE ASSESSEE FILED COPY OF HIS BALANCE SHEET AS ON 31.3.2002 TO SUPPORT THIS CONTE NTION. IT WAS OBSERVED THAT THE PLOT BEARING CTS NO 1125, FIN AL PLOT NO 499 WAS SHOWN ON THE ASSETS SIDE OF THE BALANCE SHE ET AT RS 1,12,06,232/- AS DISCUSSED IN PARA 8(A) OF CIT(A)S ORDER. THE ASSESSEE FURTHER FILED COPY OF AGREEMENT MADE WITH PURCHASER IN RESPECT OF COMMERCIAL/OFFICE UNIT CONSTRUCTED ON THE SAID ITA NO. 447/PN/06 ETC. ASHOK PATIL 16 PLOT. THE ASSESSEES REPRESENTATIVE FILED THE FOLLO WING DOCUMENTS IN SUPPORT OF HIS CLAIM VIDE LETTER DT 16 .8.2005: A) SALE DEED DT 6.2.2004 OF OFFICE NO 101 TO GURUNATH DATTATRAY CHILLA FOR RS 15,59,000/- AND OTHER PAYME NT OF RS 75,000/-. B) SALE DEED DT 1.7.2004 IN RESPECT OF OFFICE NO 103, 104 & 105 TO AMAR SEEDS P LTD THROUGH DIRECTOR VIKRAMVEERSINGH KADAM & OTHER DIRECTOR MRS SUREKHA V KDAM FOR RS 46,29,000/- AND FOR FURTHER PAYMENT OF RS 75,000/- AS MISCELLANEOUS CHARGES. 12.4 . THE REGISTERED DEED OF AGREEMENT FOR SALE FI LED BY THE ASSESSEES REPRESENTATIVE REVEALED THAT THE ASS ESSEE HAS SOLD THE INDIVIDUAL UNIT OF CONSTRUCTION ON SAID PL OT, AS INDIVIDUAL. THUS, THE FACT WAS BROUGHT ON RECORD BY THE ASSESSEES AUTHORIZED REPRESENTATIVE TO ESTABLISH T HE VERACITY OF HIS CLAIM THAT REMAINING PART OF AMOUNT BORROWED FROM SHRI CHANDULAL DAGA WAS USED FOR HIS OWN BUSINESS. THIS SHOWS THAT THE BORROWAL FROM SHRI CHANDULAL DAGA WAS USED IN INTRODUCTION OF/AUGMENTATION OF ASSESSEES CAPITAL IN M/S SNEH BUILDERS, PURCHASE OF PLOT FROM THAKKAR HOUSIN G P. LTD. IN NASHIK AN FOR PURCHASE OF PLOT AT PUNE FROM SMT JYOTSNA A PANTSACHIV, SMT MADHURI A PANTSACHIV AND OTHERS. TH E FACTS AND EVIDENCES PLACED ON BEHALF OF THE ASSESSEE CLEA RLY ESTABLISHED THAT THE AMOUNT SO ADVANCED WAS USED FO R THE PURPOSE OF BUSINESS CONDUCTED BY THE ASSESSEE IN HI S INDIVIDUAL CAPACITY AND, THEREFORE, THE FINDING OF THE AO THAT THE BORROWAL WAS MADE AND SO INTEREST WAS PAID BY THE ASSESSEE NOT FOR THE PURPOSE OF HIS OWN BUSINESS BU T FOR THE PURPOSE OF BUSINESS OF M/S SHEETAL CONSTRUCTIONS, P ROMOTERS & BUILDERS IS BASED ON INCORRECT ASSUMPTIONS. IN VI EW OF THE ABOVE DISCUSSION, THE PAYMENT OF INTEREST TO SHRI C HANDULAL DAGA OF RS 13,87,400/- WAS RIGHTLY ALLOWED BY THE C IT(A) AS ITA NO. 447/PN/06 ETC. ASHOK PATIL 17 BUSINESS EXPENDITURE. AFTER CONSIDERING THE SUBMISS IONS OF RIVAL PARTIES AND GOING THROUGH THE ORDERS OF THE A UTHORITIES BELOW, IN OUR OPINION THE REASONS AND FACTUAL FINDI NGS GIVEN BY THE CIT(A) ON THIS ACCOUNT NEED NO INTERFERENCE ON OUR SIDE. WE UPHOLD THE SAME. 13. WITH REGARD TO INTEREST OF RS 1,42,300/- TO SHR I RAMESH DAGA WAS DISALLOWED BY THE ASSESSING OFFICER. IN AP PEAL, THE ASSESSEE ELABORATED HIS CLAIM VIDE PARA 6(C)(II) O N PAGE 33 OF THE STATEMENT OF FACTS BEFORE THE CIT(A) WHEREIN I T WAS EXPLAINED THAT THE AMOUNT OF RS 25 LAKHS RECEIVED F ROM SHRI RAMESH DAGA WAS ADVANCED TO ONE SHRI PARAG SHINDE. OUT OF PAYMENT SO MADE TO SHRI PARAG SHINDE, THE AMOUNT OF RS 8,77,781/- CONSTITUTED REPAYMENT OF LOAN OF RS 7 LA KHS AND INTEREST CHARGED OF RS 1,77,781/- ON SUCH LOAN .THE REMAINING AMOUNT OF RS 16,22,219/- WAS STATED TO BE INTEREST FREE ADVANCE MADE TO SHRI PARAG SHINDE FOR THE PURPOSE O F BUSINESS OF FIRM M/S SHEETAL CONSTRUCTIONS, PROMOTE RS & BUILDERS. 13.1 . THUS, IT WAS ADMITTED THAT RS 16,22,219/- WA S ADVANCED TO SHRI PARAG SHINDE FOR THE PURPOSE OTHER THAN THE BUSINESS OF ASSESSEE. ON PAGE 34 OF THE STATEMENT OF FACTS, THE ASSESSEE HIMSELF HAS ADMITTED THAT PROPORTIONAT E INTEREST OF RS 92,337/- WAS NOT ALLOWABLE AS BUSINESS EXPEND ITURE. THE DISALLOWABLE AMOUNT HAS BEEN CALCULATED AS UNDER: 16,22,219 X 1,42,300 - = RS 92,337/- 25,00,000 THE FACT WAS ADMITTED BY THE ASSESSEES REPRESENTAT IVE DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORIT Y. IN VIEW OF THE FACTS DISCUSSED ABOVE, IT WAS FOUND THAT THE PR OPORTIONATE INTEREST AS CALCULATED ABOVE WAS PAID FOR THE LOAN WHICH WAS USED FOR THE PURPOSE OF ASSESSEES BUSINESS AND IT WAS NOT ITA NO. 447/PN/06 ETC. ASHOK PATIL 18 ALLOWABLE IN VIEW OF THE RATIO OF DECISION IN THE C ASE OF CIT V H. R. SUGAR FACTORY LTD (1991) 187 ITR 363 (ALL). THE ADDITION MADE BY THE AO WAS CONFIRMED BY THE CIT (A) TO THE EXTENT OF RS 92,337/-. 13.2 . AS DISCUSSED ABOVE, THE ASSESSEE RELIED UPON HIS BALANCE SHEET AND CAPITAL ACCOUNT OF M/S SNEH BUILD ERS P LTD. IN HIS BOOKS TO PROVE HIS CONTENTION THAT HE MADE I NVESTMENT IN SNEH BUILDERS P LTD IN HIS INDIVIDUAL CAPACITY. THE LEDGER ACCOUNT OF SNEH BUILDERS P LTD IN ASSESSEES BOOKS SHOWED THE OPENING BALANCE OF RS 10 LAKHS BUT THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE COULD NOT FURNISH TH E BALANCE SHEET OF PREVIOUS YEAR IN ORDER TO SUBSTANTIATE HIS CONTENTION THAT THE SAME WAS BROUGHT FORWARD FROM THE EARLIER YEARS. IT WAS EXPLAINED BY THE ASSESSEES AUTHORIZED REPRESEN TATIVE THAT THE OPENING BALANCE WAS CREATED IN THE MANNER MENTI ONED AS UNDER: ON 8.3.01, THE ACCOUNT PAYEE CHEQUES WAS RECEIVED FROM KASTURI HSG. BHARAT AGRAWAL RS 10 LAKHS AND DEPOS ITED IN HDFC BANK A/C NO 35048, PUNE. ON 9.3.2001 OUT OF ABOVE, ACCOUNT PAYEE CHEQUES WAS ISSUED TO SNEH BUILDERS TOWARDS CAPITAL OF RS 10 LAKHS. HOWEVER, THE COPY OF CAPITAL BALANCE IN SNEH BUILDE RS P LTD COULD NOT BE FOUND TO BE RECORDED IN THE DOCUMENTS SEIZED DURING SEARCH AND SEIZURE PROCEEDINGS. HENCEFORTH, THE MERIT OF THE ISSUE COULD NOT BE CONSIDERED HERE, BUT THE AO WAS FREE TO MAKE INVESTIGATIONS AND DECIDE THE ISSUE IN NORM AL ASSESSMENT IN RESPONSE TO RETURN FILED U/S 139(1)/1 39(4) FOR AY 2002-03 RELEVANT TO THE ACCOUNTING YEAR 1.4.2001 TO 31.3.2002. THUS THE ASSESSEE WAS GRANTED PARTIAL RE LIEF. THIS REASONED FACTUAL FINDING NEEDS NO INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. ITA NO. 447/PN/06 ETC. ASHOK PATIL 19 14. NEXT ISSUE RAISED BY THE REVENUE IS WITH REGARD TO ADDITION ON ACCOUNT OF INVESTMENT IN LAND HOLDING. 14.1 THE AO MADE AN ADDITION OF RS 41,76,700/- ON A CCOUNT OF INCOME FROM SALE OF PLOT AND DEVELOPMENT RIGHTS AT PUNE. THE ASSESSEE TOOK TWO-FOLD ARGUMENTS IN THIS REGARD . FIRSTLY IT WAS ARGUED THAT PROFIT OF RS 8,78,597/- WAS DISCLOS ED BY HIM BEFORE SEARCH ACTION U/S 132 FOR A.Y 2001-02 IN HIS RETURN OF INCOME AND THAT OF RS 32,98,103/- FOR AY 2002-03 IN RETURN FILED AFTER THE ACTION. IT WAS FURTHER STATED THAT NOTHING WAS FOUND DURING THE COURSE OF SEARCH, WHICH COULD REVE AL THAT DEVELOPMENT RIGHT FOR PLOTS AT PUNE WAS FOUND TO BE RECORDED IN SEIZED MATERIAL AND HENCE NO ADDITION ON ACCOUNT OF UNDISCLOSED INCOME WAS DESIRABLE ON THE ISSUE. THE AO IN PARA 19 OF HIS ASSESSMENT ORDER HAS DISCUSSED IN DE TAIL THE EVIDENCES SHOWING RECEIPT ON ACCOUNT OF SALE OF PLO T AND DEVELOPMENT RIGHTS. THE DISCUSSION MADE IN PARA 19. 9 AND 19.10 OF THE ASSESSMENT ORDER REVEALS THAT THE ASSE SSEE BEFORE THE AO HAD TAKEN A PLEA THAT RS 15 LAKHS RECEIVED F ROM KASTURI CONSTRUCTIONS FOR THE PROPOSED SALE OF LAND /RIGHTS WERE DISCLOSED AS ADVANCE FROM CUSTOMERS. THE ASSES SEE CLARIFIED THAT HE RECEIVED RS 5 LAKHS FROM KASTURI HOUSING P. LTD. AND RS 10 LAKHS FROM SHRI AGRAWAL OF M/S KASTU RI HOUSING P. LTD. THE AO DOUBTED THE ASSESSEES CLAIM OF RECEIPT OF RS 15 LAKHS FOR SALE OF DEVELOPMENT RIGHT ALSO O N THE GROUND THAT RS 10 LAKHS RECEIVED FROM SHRI AGRAWAL OF M/S KASTURI HOUSING P. LTD. WAS RETURNED TO HIM AFTER 1.4.2001. HOWEVER, IT WAS CLARIFIED THAT TOTAL PROCEEDS RECEIVED FROM KASTURI HOUSING P. LTD. EXCEEDED FULL AMOUNT OF CONSIDERATI ON, I.E. RS 71 LAKHS AND THEREFORE, THE EXCESS AMOUNT OF RS 10 LAKHS WAS RETURNED TO HIM SUBSEQUENTLY. THUS, THE RETURN OF T HE AMOUNT IS NOT RELATABLE TO RECEIPT OF RS 10 LAKHS BEFORE 3 1.3.2001 AND ITA NO. 447/PN/06 ETC. ASHOK PATIL 20 IT TOGETHER WITH RS 5 LAKHS RECEIVED ON 27.3.2001, CONSTITUTED PART OF SALE PROCEEDS FOR A.Y 2001-02. IN THIS RESP ECT, IT WAS FOUND UNDISPUTED THAT RECEIPT OF RS 15 LAKHS FROM M /S KASTURI HOUSING P.LTD. WAS DISCLOSED IN THE BALANCE SHEET OF THE ASSESSEE AS ON 31.3.2001 ON THE LIABILITY SIDE AS ADVANCE RECEIVED. THE CIT(A) OBSERVED THAT ONCE IT IS PROVE D THAT RS 15 LAKHS WAS RECEIVED FROM OR ON BEHALF OF M/S KASTURI HOUSING P. LTD. AND THE DEVELOPMENT RIGHT IN PLOT WAS SOLD TO IT ONLY, LOGICAL INFERENCE IS THAT THE PLOT WAS SOLD IN FULL OR PART, AND THE INCOME DECLARED CONSTITUTED THE PROFIT ON SUCH SALE. IN CASE OF ASSESSING OFFICER CHARGING ASSESSEE OF DISC LOSING THE SALE PROCEEDS OF DEVELOPMENT RIGHTS OTHER THAN PLOT UNDER REFERENCE, THE ONUS IS ON HIM TO PROVE THAT SOME OT HER PLOT DIFFERENT THAN THE PLOT UNDER REFERENCE, WAS SOLD T O SOME OTHER PERSON. BUT NO SUCH EVIDENCE HAS BEEN BROUGHT ON RE CORD BY THE ASSESSING OFFICER. THE FINDING THAT INVESTMENT IN PLOT OR DEVELOPMENT RIGHT WAS NOT DISCLOSED ON ASSET SIDE O F BALANCE SHEET AS ON 31.3.2001, ONLY LEADS TO THE CONCLUSION THAT INVESTMENT IN PLOT OR DEVELOPMENT RIGHTS WAS MADE B Y THE ASSESSEE OUT OF SOME UNACCOUNTED SOURCE. THE ASSESS ING OFFICER WAS FREE TO TAKE ACTION TO TAX SUCH INCOME ON THE BASIS OF SUCH FACTS, BUT THE CLAIM OF ASSESSEE THAT HE HA S DECLARED PROFIT OF RS 8,78,597/- ON SALE OF DEVELOPMENT RIGH TS IN PART OF PLOTS MAY NOT BE DENIED. THE TRANSACTION WAS FOUND TO BE RECORDED IN BALANCE SHEET AS ON 31.3.2001 AND PROFI T ON SALE OF PLOTS, FOUND TO BE DISCLOSED IN PROFIT & LOSS AC COUNT WITH THE RETURN OF INCOME OF A Y 2001-02 FILED ON 18.4.2 002, I.E. PRIOR TO DATE OF SEARCH ON 16.1.2003 AND, THEREFORE , AS PER PROVISIONS OF SECTION 158BB(1)(A) AND (B), THE SAME HAS TO BE EXCLUDED FOR THE PURPOSE OF COMPUTATION OF UNDISCLO SED INCOME OF THE ASSESSEE UNDER CHAPTER XIV-B OF THE A CT. SO, THE CIT(A) RIGHTLY HELD THAT THE ASSESSING OFFICER MAY ALLOW THE ITA NO. 447/PN/06 ETC. ASHOK PATIL 21 INCOME OF RS 8,78,597/- DECLARED IN THE RETURN FOR ASSESSMENT YEAR 2001-02 FROM COMPUTATION OF UNDISCLOSED INCOME FOR THE BLOCK PERIOD UNDER CONSIDERATION. 14.2 . HOWEVER, THE FACTS REGARDING THE CLAIM OF R EMAINING BALANCE OF RS 32,98,103/- AS INCOME OF AY 2002-03 I S DIFFERENT FROM THAT OF AY 2001-02. THE DUE DATE FOR FILING THE RETURN OF INCOME FOR AY 2002-03 FELL ON 31.8.2002 B UT THE RETURN WAS NOT FILED WITHIN DUE DATE. THE ACTION U/ S 132 WAS CONDUCTED ON THE BUSINESS AND RESIDENTIAL REMISES O F APPELLANT ON 16.1.2003. THE ASSESSEE FILED RETURN O NLY ON 11.9.2003. THE ASSESSING OFFICER IN PARA 19.5 OF TH E ASSESSMENT ORDER HAS DISCUSSED IN DETAIL THE FACTS DISCLOSING THAT BEFORE SEARCH AND SEIZURE PROCEEDINGS. THE KAS TURI HOUSING P. LTD. MADE FULL PAYMENT OF ENTIRE CONSIDE RATION FOR ACQUISITION OF DEVELOPMENT RIGHT FROM ASSESSEE, (A) IT TOOK POSSESSION OF THE PIECES OF LAND UNDER CONSIDERATION, (B) ALL THE DEVELOPMENT AGREEMENTS WERE FINALIZED; (C) THE DEVELOPER STARTED CONSTRUCTION AND COULD COMPLE TE IT IN CASE OF SEVERAL BUILDINGS, CONCLUDED AGREEMEN TS WITH BUYERS AND STARTED TO RECEIVE THE SALE PROCEED S OF SUCH RESIDENTIAL/COMMERCIAL UNITS. 14.3 . THE ASSESSEE VIDE PARA 4.2(V)(III)(IV) OF ST ATEMENT FACTS HAS CANVASSED THE ARGUMENT THAT BY THE TIME D ECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF C.D. KAPADIA 260 ITR 491(BOM) CAME OUT, THE DATE OF FILING RETUR N FOR AY 2001-02 HAS ALREADY EXPIRED AND TIME BARRED AND HEN CE THE BALANCE AMOUNT OF RS 32,98,103/- WAS OFFERED AS INC OME FOR AY 2002-03. HOWEVER, THE ASSESSEE IS CLAIM WAS NOT TENABLE. THE RATIO OF ONLY EXISTING DECISION APPLIED ON THE FACTS AND CIRCUMSTANCES OF CASE OF ANY PERSON, BUT IN EXPECTA TION OF FAVOURABLE DECISIONS, NO PERSON IS ENTITLED TO EXCL UDE ANY ITA NO. 447/PN/06 ETC. ASHOK PATIL 22 PARTICULAR ITEM FROM SCOPE OF COMPUTATION OF HIS TO TAL INCOME. FOR A.Y 2002-03, THE DUE DATE U/S 139(1) OF ACT FOR FILING THE RETURN FELL ON 31.8.20002. BUT THE ASSESSEE FAILED TO FILE RETURN WITHIN TIME. IT COULD BE FILED ONLY ON 11.9.2003, I .E. AFTER THE DATE OF SEARCH ON 16.1.2003. THE CIT(A) OBSERVED TH AT THE ASSESSEE WAS NOT MAINTAINING ANY BOOKS FOR RECEIPT AND EXPENSES OF HIS BUSINESS NOR ANY BOOKS OF ACCOUNTS WERE FOUND TO HAVE BEEN MAINTAINED BY HIM ON OR BEFORE T HE DATE OF SEARCH. SO AS PER SECTION 158BB(1)(CA), THE ASSESSE E WAS NOT ENTITLED FOR DEDUCTION OF INCOME OFFERED OF RS 32,9 8,103/- IN HIS RETURN OF INCOME FILED AFTER THE DATE OF SEARCH I.E. THE DUE DATE U/S 139(1) OF THE ACT. FURTHER FACT OF SALE OF DEVELOPMENT RIGHTS CAME TO THE NOTICE OF REVENUE AS A RESULT OF VERIFICATION OF BANK ACCOUNTS DETECTED DURING THE SEARCH AND SEI ZURE PROCEEDINGS. ANY UNDECLARED INCOME FOUND AS A RESUL T OF VERIFICATION MADE IN PURSUANCE OF FACT DETECTED DUR ING SEARCH AND SEIZURE PROCEEDINGS COME WITHIN THE AMBIT OF CH APTER XIV-B OF THE ACT AND HENCE ASSESSEE COULD NOT MAKE OUT A CASE FOR CLAIMING THAT THE SAID AMOUNT SHOULD BE EX CLUDED FOR THE PURPOSE OF COMPUTATION OF HIS UNDISCLOSED INCOM E. ACCORDINGLY, THE ACTION OF THE ASSESSING OFFICER IN MAKING ADDITION TO THE EXTENT OF RS 32,98,103/- BEING THE PROFIT ON SALE OF DEVELOPMENT RIGHTS IN PLOT UNDER CONSIDERAT ION WAS CONFIRMED FOR A.Y. 2002-03. 14.4 THE STAND OF THE ASSESSEE IS THAT THE CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS. 32,98,1 01/- BEING PROFIT ON SALE OF DEVELOPMENT RIGHTS IN PLOT UNDER CONSIDERATION. AS DISCUSSED ABOVE, THE ASSESSEE HA S SOLD DEVELOPMENT RIGHTS OF PLOT TO KASTURI HOUSING. THE TOTAL CONSIDERATION RECEIVABLE WAS RS. 75.00 LAKHS AND OU T OF WHICH RS. 15.00 LAKHS WERE RECEIVED IN A.Y. 2001-02 AND T HE BALANCE OF RS. 60.00 LAKHS WAS RECEIVED IN A.Y. 2002-03. T HE ASSESSEE ITA NO. 447/PN/06 ETC. ASHOK PATIL 23 HAS DECLARED PROPORTIONATE PROFIT PERTAINING TO RS. 15.00 LAKHS IN THE RETURN FOR A.Y. 2001-02 FILED PRIOR TO SEARC H. THUS, THE DEPARTMENT WAS AWARE THAT THE ASSESSEE HAS SOLD DEV ELOPMENT RIGHTS IN RESPECT OF PLOTS IN QUESTION. THE CIT(A) HAS STATED THE FACT THAT THE ASSESSEE SOLD DEVELOPMENT RIGHTS CAME TO NOTICE OF THE REVENUE ONLY ON VERIFICATION OF BANK ACCOUNTS DETECTED DURING THE SEARCH PROCEEDINGS, IS NOT CORR ECT AS PER RECORD. BECAUSE PART OF THE AMOUNT I.E. RS. 15.00 LAKHS RECEIVED BY THE ASSESSEE PRIOR TO SEARCH AND THE SA ME WAS OFFERED TO TAX BY HIM. HENCE IT IS NOT JUSTIFIED T O STATE THAT SALE OF DEVELOPMENT RIGHTS WAS NOT DISCLOSED BY THE ASSESSEE. SINCE THE BALANCE OF THE CONSIDERATION WAS NOT RECE IVED IN A.Y. 2001-02 THE INCOME IN RESPECT OF BALANCE WAS NOT OF FERED FOR A.Y. 2001-02. THE DECISION IN THE CASE OF CHATURBH UJ DWARKADAS KAPADIA (260 ITR 491) WAS DELIVERED AFTER FILING OF THE RETURN BY THE ASSESSEE FOR A.Y. 2001-02. HENCE IT COULD NOT BE STATED THAT THE CLAIM OF THE ASSESSEE WAS TOTALL Y INCORRECT. SECONDLY, THE AMOUNT OF RS. 15.00 LAKHS RECEIVED IN 2001-02 IS A PART AND PARCEL OF THE TOTAL CONSIDERATION OF RS. 75.00 LAKHS TO BE RECEIVED ON SALE OF DEVELOPMENT RIGHTS TO KASTURI HOUSING AND THE SAME HAS ALREADY BEEN PARTLY OFFERE D TO TAX. THUS, IT CANNOT BE STATED THAT THE TRANSACTION OF T RANSFER OF DEVELOPMENT RIGHTS WAS NOT DISCLOSED BY THE ASSESSE E PRIOR TO SEARCH. THE FACT THAT THE ASSESSEE HAS TRANSFERRED DEVELOPMENT RIGHT IS EVIDENT FROM THE FACT THAT THE RETURN OF INCOME FILED FOR A.Y. 2001-02 AND THE SAME WAS FILE D PRIOR TO SEARCH. SO, THE CIT(A) WAS NOT JUSTIFIED IN HOLDIN G THE TRANSACTION ON SALE OF DEVELOPMENT RIGHT WAS DETECT ED ONLY AFTER VERIFICATION OF BANK ACCOUNT AFTER THE SEARCH . THUS, THE AMOUNT OF RS. 32.00 LAKHS WHICH IS PART AND PARCEL OF THE WHOLE TRANSACTION CANNOT BE SAID TO BE UNDISCLOSED FOR THE PURPOSE OF ASSESSMENT IN BLOCK ASSESSMENT. IT MAY BE ITA NO. 447/PN/06 ETC. ASHOK PATIL 24 ASSESSED IN REGULAR ASSESSMENT BECAUSE PART OF THE AMOUNT WAS DISCLOSED IN A.Y. 2001-02 AS DISCUSSED ABOVE. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 15. THE NEXT ISSUE IS WITH REGARDS TO ADDITION ON A CCOUNT OF INTEREST AND REMUNERATION EARNED FROM PARTNERSHIP F IRM FOR A.Y. 2002-03. THE ASSESSEE HAD NOT FILED RETURN OF INCOME FOR A.Y. 2002-03 BEFORE SEARCH. THE ASSESSEE HAD EARNE D SALARY AND INTEREST FROM SHITAL CONSTRUCTION AND SNEH BUIL DERS. THESE FIRMS HAD FILED THE RETURNS PRIOR TO SEARCH A ND WHEREIN THE SALARY AND INTEREST PAID TO THE ASSESSEE WAS CL AIMED TO BE REFLECTED. THE RELEVANT CAPITAL ACCOUNTS HAVE BEEN GIVEN ON PAGES 230 TO 238 OF THE PAPER BOOK. FURTHER, THE A SSESSEE WAS GETTING SALARY AND INTEREST WHICH IS CLAIMED TO BE EVIDENT FROM THE FACT THAT FOR A.Y. 2001-02 THE SAME WAS DE CLARED IN ITS RETURN. THE RELEVANT COMPUTATION OF INCOME IS ON PAGE 234 TO 235 OF THE PAPER BOOK FILED ON BEHALF OF THE ASS ESSEE. IN THIS BACKGROUND, WE ARE OF THE VIEW THAT SIMPLY BEC AUSE TE RETURN OF A.Y. 2002-03 WAS NOT FILED PRIOR TO SEARC H DOES NOT MEAN THAT THE SALARY AND INTEREST RECEIVED FROM THE PARTNERSHIP FIRM IS TO BE TAXED AS AN UNDISCLOSED I NCOME. THIS VIEW IS FORTIFIED BY THE JUDGMENT OF BOMBAY HI GH COURT IN THE CASE OF SHAMLAL B. GURBANI (249 ITR 501). THE A SSESSING OFFICER IS DIRECTED ACCORDINGLY. 16. AS FAR AS THE GROUNDS RAISED IN ITA NO. 293 TO 296/PN/20078, WITHOUT PREJUDICE TO THE MERITS OF TH E CLAIM, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE LIGHT OF UNDISCLOSED INCOME AS DISCUSSED IN ITA NO. 786 AND 467/PN/2006 IN PRECEDING PARAGRAPHS, THE ADDITIONS SHOULD NOT BE MADE IN REGULAR ASSESSMENT AS BLOCK ASSESSME NT. IN THE INTEREST OF JUSTICE, THE CREDIT OF THE SAME SHO ULD BE GIVEN IN REGULAR ASSESSMENT. WE ARE AWARE THAT DOUBLE AD DITIONS ARE NOT WARRANTED ON ACCOUNT OF THE SAME ADDITION W ITH ITA NO. 447/PN/06 ETC. ASHOK PATIL 25 REGARDS TO THE SAME ADDITION IN BLOCK ASSESSMENT AN D REGULAR ASSESSMENT. SO IN THE INTEREST OF JUSTICE, WE REST ORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTI ON TO DECIDE THE ISSUE IN THE LIGHT OF OUR OBSERVATION IN THE PRECED ING PARAGRAPHS, SO THAT THE DOUBLE ADDITION SHOULD BE A VOIDED. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 17. IN VIEW OF ABOVE, THE CROSS APPEALS OF REVENUE AND ASSESSEE IN ITA NO. 786/PN/2006 AND 467/PN/2006 FOR BLOCK PERIOD 1-4-1996 TO 16-1-2003 ARE DISPOSED OFF AS IN DICATED IN PARA 1 TO 15 ABOVE, WHILE ASSESSEES APPEALS FOR A. Y. 1998-99 TO 2001-02 ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST MAY 2011. SD/- SD/- (G.S. PANNU) (SHAISLENDRAKUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE DATED THE 31ST MAY 2011 ANKAM COPY FORWARDED TO 1. ASSESSEES 2. DEPARTMENT 3. CIT(A) III PUNE 4. CIT - IV PUNE 5. ITAT, D.R. B BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR