DCIT CIR 3(3), MUMBAI V. SHAPOORJI PALLONJI & CO LTD, MUMBAI

ITA 5766/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92261 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 13-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 24-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIPDR
• Assessee Lawyers: VIJAY KOTHARI
• Keywords: Reopening of assessment; Sale consideration of property below Jantri Value; Depreciation; Search and seizure; Source of fund; Proportionate interest; Tangible material; Difference of opinion; Corroborative evidences; Reason to believe; Change of opinion; Reassessment proceedings; Borrowed satisfaction
• Section: 143(3); 133(6); 147; 148; 139

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO.5766 AND 5767/MUM/2013 ASSESSMENT YEARS:2008-09 AND 2009-10 DCIT, CIRCLE-3(3), ROOM NO.609, 6 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 / VS. M/S SHAPOORJI PALLONJI & CO. LTD. SHAPPORJI PALLONJI CENTRE, 41- 44 MINOO DESAI MARG, COLABA MUMBAI-400005 ( / REVENUE) ( /ASSESSEE) P.A. NO. AAACS6994C / REVENUE BY SHRI NEIL PHILIP-DR / ASSESSEE BY): SHRI VIJAY KOTHARI / DATE OF HEARING : 13/03/2015 !'#$ / DATE OF PRONOUNCEMENT : 10/04/2015 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) : THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDERS BOT H DATED 17/05/2013 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI, ON THE GROUND WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE AND IN LAW, THE LD. COMMISSIONER OF INCOME TAX (APP EALS) WAS M/S SHAPOORJI PALLONJI & CO. LTD. . 2 JUSTIFIED IN HOLDING THE REASSESSMENT PROCEEDINGS I NITIATED BY ISSUANCE OF NOTICE U/S 148 OF INCOME TAX ACT,1961 ( HEREINAFTER THE ACT) AS INVALID BY OPINING THE SAME IN ROUTINE MANN ER ON THE BASIS OF BORROWED SATISFACTION WITHOUT APPRECIATING THE F ACT THAT INITIATION WAS ON THE BASIS OF STATEMENT OF SHRI NILESH THAKUR AND OTHER MATERIAL WHICH WERE CONTRARY TO THE FACTS STATED BY THE ASSESSEE AND FURTHER DELETING THE DISALLOWANCE OF RS.34,01,0 95/- MADE U/S 36(1)(III) OF THE ACT WITHOUT APPRECIATING THE FACT THAT INTEREST BEARING FUNDS WERE ADVANCED FOR NON-BUSINESS PURPOS ES. 2. DURING HEARING OF THESE APPEALS, WE HAVE HEARD, SHRI NEIL PHILIP, LD. DR AND SHRI VIJAY KOTHARI, LD. COUNSEL FOR THE ASSESSEE. THE CRUX OF ARGUMENTS ADVANCED ON BEHALF OF THE REV ENUE IS IDENTICAL TO THE GROUND RAISED BY FURTHER SUBMITTIN G THAT THE REASONS WERE VALIDLY RECORDED BY THE ASSESSING OFFI CER AS THERE WAS VALID INFORMATION FROM ANOTHER ITO, WHICH WAS THE B ASIS OF REOPENING THE ASSESSMENT. OUR ATTENTION WAS INVITE D TO PAGE-5 (PARA-4) AND THE FINDING CONTAINED IN PARA-5.8 OF T HE ASSESSMENT ORDER TO THE FACT THAT THE IMPUGNED AMOUNT WAS FOR NON-BUSINESS PURPOSES. IT WAS ASSERTED THAT INTEREST BEARING FU NDS WERE DIVERTED BY THE ASSESSEE FOR NON-COMMERCIAL PURPOSES. IT WA S FURTHER CONTENDED THAT THE FUNDS ARE FROM OVERDRAFT ACCOUNT . 2.1. ON THE OTHER HAND, SHRI VIJAY KOTHARI, LD. COU NSEL FOR THE ASSESSEE, INVITED OUR ATTENTION TO THE REASONS RECO RDED BY THE ASSESSING OFFICER BY SUBMITTING THAT THE ASSESSING OFFICER HAS NOT MADE ANY INDEPENDENT INVESTIGATION OF FACTS AND THE SATISFACTION WAS BORROWED ONE. THE NECESSARY DOCUMENTS WERE VER Y MUCH M/S SHAPOORJI PALLONJI & CO. LTD. . 3 AVAILABLE WITH THE ASSESSING OFFICER FOR WHICH OUR ATTENTION WAS INVITED TO PAGE-31 OF THE PAPER BOOK. THE DECREE FR OM HONBLE HIGH COURT WAS ALREADY AVAILABLE WITH THE ASSESSING OFFI CER, MEANING THEREBY, ALL THE DOCUMENTS WHICH HAVE BEEN RELIED U PON BY HIM FOR REOPENING WERE ALREADY AVAILABLE WITH HIM BEFORE IS SUANCE OF NOTICE. OUR ATTENTION WAS INVITED TO PAGE-32 OF TH E PAPER BOOK. 2.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIAL AVAILABLE ON RECORD. BEFORE COMING TO ANY CONCLUSION WE ARE REPRODUCING HEREUNDER THE RELEVANT PORTION FROM THE ASSESSMENT ORDER AND THE REASONS FOR REOPENING THE ASSESSMENT ALONGWITH THE INFORMATION RECEIVED FROM ITO-25(1)(4 ), MUMBAI, FOR READY REFERENCE:- THE ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 2 008-09 DECLARING TOTAL INCOME AT RS.188,50,28,066/- ON 29- 09-2008. THE ASSESSEES CASE HAS BEEN SELECTED FOR SCRUTINY AND ASSESSMENT U/S 143(3) OF THE I.T. ACT, 1961 WAS COM PLETED ON 27-12-2010, DETERMINING THE TOTAL INCOME AT RS.191, 99,06,040/. 2. BASED ON THE INFORMATION RECEIVED FROM THE ITO-2 5(1)(4), MUMBAI, THE ASSESSMENT IN THIS CASE HAS BEEN RE-OPE NED BY ISSUING NOTICE U/ S.148 OF THE ACT ON 25-05:-2012 AFTER PROPERLY RECORDING THE REASONS FOR THE SAME. FURTHER, THE RE ASON FOR RE- OPENING OF THE ASSESSMENT HAS BEEN DULY PROVIDED TO SHRI A.L. AROKIADAS, AR OF THE ASSESSEE ON 06-12-2012. THEREA FTER, THE ASSESSEE VIDE ITS LETTER DATED 07-01-2013 RECEIVED IN THIS OFFICE FILED ITS OBJECTION FOR THE RE-OPENING OF THE ASSES SMENT, WHICH WERE DISPOSED OFF BY PASSING SPEAKING ORDER ON 22-0 1-2013 WHICH WAS DULY SERVED. THE RELEVANT EXTRACT OF THE ORDER DATED 22-01-2013 IS REPRODUCED AS UNDER: '. ORDER REJECTING OBJECTION RAISED AGAINST THE NOTICE ISSUED UNDER SECTION 148 OF THE INCOME-TAX ACT, 1961 THE ASSESSEE FILED ITS RETURN OF INCOME FOR A. Y.2008-09 DECLARING TOTAL INCOME AT RS.188,50,28,066/- ON 29- 09-200. THE M/S SHAPOORJI PALLONJI & CO. LTD. . 4 CASE OF THE ASSESSEE HAS BEEN SELECTED FOR SCRUTINY AND ASSESSMENT U/ S.143(3) OF THE I. T. ACT, 1961 WAS COMPLETED ON 27- 12-2010, DETERMINING THE TOTAL INCOME AT RS.191,99, 06,040/-. 2. IN THIS CASE THE ITO-25(1)(4), MUMBAI VIDE HIS LETTER DATED 25-04-2012 RECEIVED IN THIS OFFICE ON 01-05-2012 IN TIMATED IN RESPECT OF CERTAIN PAYMENTS MADE BY THE ASSESSEE COMPANY BY WAY OF ADVANCES TO M/S . PRS DEVELOPERS (PROPRIETOR SHRI NILESH J. THAKUR), ASSESSED WITH HIM. IN THE SAID LETTER THE ITO REPORTED THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS FOR A. Y.20 0S-09 IN THE CASE OF SHRI NILESH JANARDHARI THAKUR (PROPRIETOR OF M/ S. PRS DEVELOPERS), IT CAME TO LIGHT THAT THE AFORESAID PA RTY IS IN RECEIPT TOTAL AMOUNT OF RS. 43, 50,00,000/- FROM THE ASSESSEE COMPANY ON VARIOUS DATES IN F. Y. 2007-08. FURTHER, THE SAID PARTY ACCOUNTED SUCH RECEIPTS AS ADVANCES TOWARDS THE EXPENSES RELATED TO THE DEVELOPMENT WORKS AT KANDIUALI PROJECT IN THE CAPAC ITY OF A PARTNER OF S.P. GROUP, FOR WHICH NO DOCUMENTARY EVIDENCES H AVE BEEN MAINTAINED BY THE SAID CONCERN. THE ITO IN THE COUR SE OF ASSESSMENT PROCEEDINGS MADE THIRD PARTY ENQUIRIES W ITH THE ASSESSEE COMPANY AND ACCORDINGLY, HELD THAT THE ASSESSEE COMPANY THOUGH MADE SUBSTANTIAL PAYMENTS TO M/S. PR S DEVELOPERS (PROP. SHRI NILESH J. THAKUR), DO NOT HAVE ANY DOCUMENTARY EVIDENCES TO SUBSTANTIATE SUCH ADVANCES TOWARDS ACQUISITION OF LAND ON BEHALF OF THE ASSESSEE COMPANY. IMPORTANTLY, THE ITO IN HIS LETTER CATEGORICALLY REPORTED THAT T HE SAID ENTITY HAS NO BUSINESS ACTIVITY THAT IS TO SAY NO CAPACITY TO ACQUIRE LAND ON BEHALF OF THE ASSESSEE COMPANY BESIDES THE ASSESSEE COMPANY ITSELF IS HAVING ITS OWN MACHINERY OF LEGAL/TECHNICAL/ MARKETING/FINANCIAL DEPARTMENT, ETC., FOR DOING SUC H JOB I.E., FOR ACQUISITION OF LAND. THE ITO FURTHER NOTED FROM THE REPLY OF THE ASSESSEE COMPANY THAT THE SAID ENTRY HAS NO PARTNERSHIP WITH SP GROUP. APART FROM THE ABOVE, THE ITO IN HIS LETTER HAS ALSO RAISED SERIOUS DOUBTS ABOUT THE GENUINENESS OF TRANSACTION S FOR THE FOLLOWING REASONS:' (I) NO LAND HAS BEEN PURCHASED OR PROCURED BY THE SAID ENTITY IN THE NAME OF ASSESSEE COMPANY IE., M/S. SHAPOORJI PA LLONJI & CO. LTD. (IN SHORT M/S. SPCL) (II) NO DETAILS OF PROGRESS IN WORK WERE FURNISHED BY M/S SPCL (III) THE MONEY WAS RECEIVED BY THE SAID ENTITY AL MOST FOUR YEARS BACK BUT SO FOR NO SETTLEMENT OF THE ACCOUNT HAS BE EN DONE BY M/S. SPCL (IV) NO INTEREST IS CHARGED ON THE AMOUNT RECEIVED BY THE SAID ENTITY (V) NO ACTION FOR RECOVERY HAS BEEN TAKEN BY M/S . SPCL M/S SHAPOORJI PALLONJI & CO. LTD. . 5 3. FROM THE ABOVE FACT IT IS EVIDENT THAT THE ASSES SEE COMPANY PAID AN AMOUNT OF RS.43,50,00,000/- TO M/S. PRS DEV ELOPERS (PROP. SHRI NILESH J. THAKUR) DURING THE YEAR UNDER CONSIDERATION, TOWARDS ADVANCE FOR ACQUISITION OF LAND, HOWEVER, D O NOT HAVE ANY DOCUMENTARY EVIDENCES TO SUBSTANTIATE ITS CLAIM OF SUCH HUGE PAYMENTS TO THE SAID ENTITY. IMPORTANTLY, THE ASSES SEE COMPANY SIMPLY MADE THE AFORESAID AMOUNTS WITHOUT ENTERING INTO ANY AGREEMENTS FOR ACQUISITION OF LAND BY THE SAID ENTI TY, WHICH CLEARLY INDICATES THE DOLING OUT OF INTEREST BEARING FUNDS FOR NON-BUSINESS PURPOSE. THUS, PRIMA FACIE THE ASSESSEE COMPANY NAM ELY M/S. SHAPOORJI PALLONJI & CO. LTD., HAS DOLED OUT INTEREST BEARING FUNDS FOR NON BUSINESS PURPOSE UNDER THE GARB OF ADVANCES FOR WHICH THE ASSESSEE COMPANY HAS NO DOCUMENTARY EVIDENCES IN IT S POSSESSION. SINCE THE ASSESSEE HAS CLAIMED (INTERES T AND FINANCIAL COST' IN THE ACCOUNTS, THE ELEMENT OF INTEREST BEAR ING FUNDS SIPHONED OFF FOR NON-BUSINESS PURPOSE UNDER THE GAR B OF ADVANCES HAS DIRECT IMPACT OVER THE PROFIT OF THE COMPANY TO THE EXTENT OF FUNDS DOLED OUT FOR NON-BUSINESS PURPOSE. THE ASSES SEE FOLLOWS PERCENTAGE COMPLETION METHOD FOR RECOGNIZING REVENU E FROM VARIOUS PROJECTS. IT IS THEREFORE CLEAR ON THE ABOV E FACTS THAT SOME PERCENTAGE OF INTEREST EXPENDITURE HAS BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT THEREBY REDUCING THE TAXABLE PROFI TS. APART FROM THE ABOVE, SOURCE OF FUNDS IN THE HANDS OF THE ASSE SSEE HAVE TO BE EXAMINED FOR THESE PAYMENTS OF RS.43,50,00,000/-. I NTEREST BEARING FUNDS DIVERTED FOR NON-BUSINESS PURPOSE WOU LD RESULT IN DISALLOWANCE OF PROPORTIONATE INTEREST EXPENSE. 4. WITH THE ABOVE STATED INFORMATION IN MY POSSESSI ON THE ASSESSMENT IN THIS CASE HAS BEEN RE-OPENED BY ISSUI NG NOTICE U/ S.148 OF THE ACT ON 25-05- 2012 AFTER PROPERLY RECO RDING THE REASONS FOR THE SAME. FURTHER, THE REASON FOR RE-OPENING OF THE ASSESSMENT HAS BEEN DULY PROVIDED TO SHRI A. L. AROKIADAS, AR OF THE ASSESSEE ON 06-12-2012. THEREAFTER, THE ASSESSE E VIDE ITS LETTER DATED 07-01-2013 RECEIVED IN THIS OFFICE FIL ED ITS OBJECTION FOR THE RE-OPENING OF THE ASSESSMENT WHICH ARE AS UNDER :- 'WE HAD FILED OUR RETURN OF INCOME FOR A. Y. 2008-0 9 ON 29.9.2008 DECLARING TOTAL INCOME OF RS. 188,50,28,066/-. THE RETURN OF INCOME WAS PROCESSED U/S. 143(1) ON 27.7.2009. NOTI CE U/S. 143(2) WAS ISSUED ON 4.8.2009, SELECTING OUR CASE F OR SCRUTINY. WE HAVE FURNISHED ALL SUCH DETAILS AND RECORDS CALLED FOR BY THE AO M/S SHAPOORJI PALLONJI & CO. LTD. . 6 VIDE VARIOUS NOTICES ISSUED AND AS PER THE DETAILS CALLED FOR DURING ASSESSMENT PROCEEDINGS. THE AO VIDE HIS ORDER U/.S. 143(3) DATED 27.12.2010 ASSESSED THE TOTAL INCOME AT RS. 191,99, 06,040/-. A NOTICE U/S.148 DATED 25.5.2012 WAS SERVED UPON US ON 28.5.2012. WE HAVE BEEN PROVIDED WITH A COPY OF REA SONS RECORDED IN WRITING FOR REOPENING OF ASSESSMENT ON 6.12.2012. THE SUMMARIZED REASONS RECORDED FOR REOPENING THE A SSESSMENT, AS RECORDED IN PARA 2 OF THE NOTICE ARE AS UNDER: ITO 25(1)(4), VIDE HIS LETTER DATED 25.4.2012 HAS I NTIMATED THAT CERTAIN PAYMENTS WERE MADE BY US BY WAY OF ADVANCES TO M/S. PRS DEVELOPERS (PROPRIETOR SHRI NILESH J. THAKUR); IN THE AFORESAID LETTER, THE ITO REPORTED THAT IN T HE COURSE OF ASSESSMENT PROCEEDINGS FOR A. Y. 2008-09 IN THE CAS E OF SHRI NILESH JANARDHAN THAKUR, IT CAME TO LIGHT THAT M/ S . PRS DEVELOPERS IS IN RECEIPT OF TOTAL AMOUNT OF RS. 43, 50,00,000/ - FROM US ON VARIOUS DATES; SHRI NILESH. JANARDHAN THAK-UR HAS ACCOUNTED SUCH RECEIPTS AS ADVANCES TOWARDS EXPENSE S RELATED TO THE DEVELOPMENT WORKS AT KANDIVALI PROJECT IN THE C APACITY OF A PARTNER OF S.P. GROUP; FROM OUR RECORDS SUCH PAYMENTS ARE EVIDENT FROM THE BANK STATEMENTS BUT FOR WHICH NO DOCUMENTARY EVIDENCES H AVE BEEN MAINTAINED BY US; THE ITO, IN THE COURSE OF ASSESSMENT PROCEEDINGS, M ADE THIRD PARTY ENQUIRIES WITH US; M/S SHAPOORJI PALLONJI & CO. LTD. . 7 THE ITO HELD THAT THOUGH WE HAVE MADE SUBSTANTIAL P AYMENTS TO M/S. PRS DEVELOPERS, WE DO NOT HAVE ANY DOCUMENTARY EVIDENCES TO SUBSTANTIATE SUCH ADVANCES WERE GIVEN TOWARDS AC QUISITION OF LAND; THE ITO REPORTED THAT SHRI NILESH JANARDHAN THAKUR HAS NO BUSINESS ACTIVITY, THAT IS TO SAY NO CAPACITY TO AC QUIRE LAND ON OUR BEHALF; WE HAVE OUR OWN MACHINERY OF LEGAL/TECHNICAL/MARKET ING/ FINANCIAL DEPARTMENT ETC. FOR ACQUISITION OF LAND; THE ITO HAS RAISED SERIOUS DOUBTS ABOUT THE NATURE OF TRANSACTIONS FOR THE FOLLOWING REASONS: NO LAND HAS BEEN PURCHASED OR PROCURED BY M/ S. PRS DEVELOPERS IN OUR NAME; NO DETAILS OF PROGRESS IN WORK WERE FURNISHED BY US ; THE MONEY WAS RECEIVED ALMOST FOUR YEARS BACK BUT S O FAR NO SETTLEMENT OF THE ACCOUNT HAS BEEN DONE BY US; NO INTEREST HAS BEEN CHARGED; NO ACTION HAS BEEN TAKEN FOR RECOVERY BY US. BASED ON THE AFORESAID REASONS, YOUR KINDSELF HAS R ECORDED THE FOLLOWING AT PARA3 & 4 OF THE NOTICE. IT IS EVIDENT THAT WE HAVE PAID AN AMOUNT OF RS. 43 ,50,00,000/- TO M/ S. PRS DEVELOPERS TOWARDS ACQUISITION OF LAND; WE DO NOT HAVE ANY DOCUMENTARY EVIDENCES TO SUBSTAN TIATE SUCH HUGE PAYMENTS TO M/S. PRS DEVELOPERS; . WE HAVE MADE SUCH HUGE PAYMENTS WITHOUT ENTERING IN TO ANY AGREEMENTS FOR ACQUISITION OF LANDS BY M/ S. PRS DE VELOPERS; M/S SHAPOORJI PALLONJI & CO. LTD. . 8 WE HAVE DOLED OUT INTEREST BEARING FUNDS FOR NON BU SINESS PURPOSE UNDER THE GARB OF ADVANCES FOR WHICH WE' DO NOT HAV E ANY DOCUMENTARY EVIDENCES IN OUR POSSESSION; SINCE WE HAVE CLAIMED (INTEREST & FINANCIAL COST' I N THE ACCOUNTS, THE ELEMENT OF INTEREST BEARING FUNDS SIPHONED OF F OR NON BUSINESS PURPOSE UNDER THE GARB OF ADVANCES HAS DIRECT IMPAC T OVER THE PROFITS OF THE COMPANY TO THE EXTENT OF FUNDS DOLED OUT FOR NON- BUSINESS PURPOSES; WE FOLLOW 'PERCENTAGE COMPLETION METHOD' FOR RECOGN IZING REVENUE FROM VARIOUS PROJECTS; THEREFORE, IT IS CLEAR THAT SOME INTEREST EXPENDITU RE HAS BEEN DEBITED TO THE PROFIT & LOSS ACCOUNT THEREBY REDUCI NG THE TAXABLE PROFITS; THE SOURCE OF FUNDS HAS TO BE EXAMINED FOR THESE PA YMENTS OF RS. 43,50,00,000/ -. INTEREST BEARING FUNDS DIVERTED FOR NON-BUSINESS PU RPOSE WOULD RESULT IN DISALLOWANCE OF PROPORTIONATE INTEREST EX PENSE OUR BOOKS OF ACCOUNT CONTAIN ENTRIES IN RESPECT OF NON-GENUINE EXPENSE WHICH HAS DIRECT IMPACT OVER THE INTEREST B EARING FUNDS WHICH HAVE BEEN DEPLOYED FOR NON-BUSINESS PURPOSE. AT THE OUTSET WE HAVE TO SUBMIT THAT WE HAVE NOT MA DE ANY PAYMENTS TO M/S. PRS DEVELOPERS OR TO SHRI NILESH. JANARDHAN THAKUR. WE HAVE MADE PAYMENTS FOR ACQUISITION OF LA ND TO AI/ S. PRS ENTERPRISES (PROPRIETOR SHRI NILESH JANARDHAN T HAKUR) AND ACECARD INFRASOL LTD. SECONDLY, IT IS SUBMITTED THAT YOUR KINDLSELF IS SE EKING REOPENING OF ASSESSMENT SOLELY ON THE BASIS OF THE LETTER OF THE ITO 25(1)(4) M/S SHAPOORJI PALLONJI & CO. LTD. . 9 AND THE OBSERVATIONS/FINDINGS OF THE ITO DURING THE ASSESSMENT OF SHRI NILESH JANARDHAN THAKUR (PROPRIETOR OF M/S. PR S ENTERPRISES). IT IS SUBMITTED THAT THE INITIATION O F REOPENING PROCEEDINGS, ON THE BASIS OF THE ALLEGATIONS OF ASS ESSING OFFICER ASSESSING SHRI NILESH JANARDHAN THAKUR, CANNOT BE T HE BASIS FOR VALIDLY INITIATING PROCEEDINGS AGAINST US. THE PRIM ARY FACTS RELATING TO ALL THE TRANSACTIONS ENTERED INTO BY US DURING THE F. Y. 2007-08, WERE BEFORE THE ASSESSING OFFICER WHEN HE MADE THE ASSESSMENTS UNDER SUB-SECTION (3) OF SECTION 143. H ENCE, IT IS NOT OPEN TO INVOKE THE PROVISIONS OF SECTION 147 OF THE ACT TO REOPEN THE ASSESSMENTS BECAUSE OF THE FINDINGS ARRIVED AT IN THE ASSESSMENT ORDER OF SHRI NILESH THAKUR. IT WOULD TA NTAMOUNT TO CHANGE OF OPINION ON THE BASIS OF THE FINDINGS OF A NOTHER OFFICER AND NOT ON THE BASIS OF FORMATION OF BELIEF THAT IN COME HAS ESCAPED ASSESSMENT. THERE SHOULD BE A REASON TO BELIEVE AS POINTED OUT BY THE SUPREME COURT IN CIT V. KELVINATOR OF INDIA LTD. [2010] 320 ITR 561 (SC). THE DECISION OF THE SUPREME COURT IN GREEN WORLD CO RPORATION V. ITO [2009] 314 ITR 81 (SC) HAD HELD THAT 'THE ORDER PASSED BY THE ASSESSING OFFICER AT THE D ICTATE OF THE COMMISSIONER OF INCOME-TAX IS 'NULLITY', THE HIGH C OURT, IN CIT V. SHREE RAJASTHAN SYNTEX LTD. [2009] 313 ITR 231, (RA J), HAD HELD 'THAT 'INITIATION BASED ON OPINION OF THE ASSESSING OFFICER OF OTHER PARTY, IS (BORROWED SATISFACTION', NOT SUFFICIENT R EASON TO BELIEVE ESCAPEMENT OF INCOME', THE HON'BLE SUPREME COURT HA S DISMISSED THE DEPARTMENT'S SPECIAL LEAVE PETITION (S.L.P. (C) NO. 8167 OF 2009) AGAINST THE AFORESAID JUDGMENT (313 ITR 231). A LOOK AT THE PROVISION OF S. 148 SHOWS THAT THE PR EREQUISITE CONDITION, WHICH CAN BE SAID TO BE SINE QUA NON IS THAT THE ASSESSING OFFICER 'HAS REASON TO BELIEVE 'THAT INCO ME CHARGEABLE TO M/S SHAPOORJI PALLONJI & CO. LTD. . 10 TAX HAS ESCAPED ASSESSMENT', FURTHER THE BELIEF HAS TO BE ON BASIS OF VALID REASONS AND NOT ON NON-EXISTING FACTS. THE BASIS SHOULD HAVE A PROXIMATE AND LIVE NEXUS TO THE REAL FACTS: IT IS SUBMITTED THAT HAVING REGARD TO THE FOLLOWING FACTS {RELATING TO THE PAYMENT OF ADVANCES TO SHRI NILESH JARIARDHARI THAKUR (PROPRIE TOR OF M/S. PRS ENTERPRISES), IT CANNOT BE SAID THAT ANY INCOME CHA RGEABLE TO TAX HAS ESCAPED ASSESSMENT: FROM AROUND 2005, WE WANTED TO ACQUIRE LARGE TRACTS OF LAND IN THE PANVEL, ALIBAG, PEN AND RAIGAD AREAS ('PROJECT AREAS') FOR OUR BUSINESS ACTIVITIES. WE WERE APPROACHED BY SEVERAL PERSONS WHO WERE LAND AGGREGATORS. AROUND 2007, WE WERE APPROAC HED BY ONE NILESH JANARDHARI THAKUR WHO REPRESENTED THAT HE AN D HIS TEAM WERE IN THE BUSINESS OF ASSISTING IN THE ACQUISITIO N OF LARGE PARCELS OF LAND. SHRI NILESH. JARIARDHAN. THAKUR ALSO CLAIM ED THAT HE WAS FROM THE ALIBAG AREA AND WAS CONVERSANT WITH THE LO CAL PEOPLE AND ISSUES, RULES AND PROCEDURES APPLICABLE WITH LA ND ACQUISITION IN THE PROJECT AREAS. SINCE NILESH JANARDHAN THAKUR THROUGH HIS CONCERNS, HAD WORKED WITH SD CORPORATION PVT. LTD. ('SDCL), IN SDCL'S PR OJECT AT SAMTA NAGAR, KANDIVILI, WE ENTRUSTED SHRI NILESH THAKUR W ITH THE TASK OF INDENTIFYING AND AGGREGATING 900 ACRES OF LANDS FOR US IN THE PROJECT AREAS. BY LETTER OF APPOINTMENT DATED 16TH JULY, 2007, WE APPOINTED SHRI NILESH JANARDHARI THAKUR THROUGH HIS ENTITY PR S ENTERPRISE TO IDENTIFY, ASSIST AND AGGREGATE FOR US, THE LANDS IN THE PROJECT AREAS, INTER ALIA ON THE TERMS AND CONDITIONS THERE IN. THE SAID LETTER REQUIRED THAT 300 ACRES BE ACQUIRED WITHIN 3 YEARS BY 2010 & THE BALANCE 600 WITHIN 5 YEARS. THE SAID LETTER O F APPOINTMENT M/S SHAPOORJI PALLONJI & CO. LTD. . 11 WAS ACCEPTED SHRI NILESH JANARDHARI THAKUR/ PRS ENT ERPRISES BY LETTER DATED 19TH JULY, 2007. SUBSEQUENT THERETO AND FROM TIME TO TIME, LANDS IN THE PROJECT AREAS WERE IDENTIFIED BY NILLESH JANARDHAN THAKUR/ PRS ENTERPRISES. SINCE THESE WERE AGRICULTURAL LANDS, I T WAS NECESSARY THAT THE AGGREGATOR ARRANGED FOR CLEAR AND MARKETAB LE TITLE, RESOLVED INTERNAL DISPUTES, ENSURE CONTINUITY OF LA ND HOLDING CONVERSION OF STATUS OF LANDS FROM AGRICULTURAL STA TUS TO NA STATUS, ETC. BEFORE THE SAME WAS FORMALLY TRANSFERRED TO US . SHRI NILESH JANRDHAN THAKUR/PRS ENTERPRISES REPRESENTED THAT MO NIES WERE NEEDED TO BE PAID TO THE HOLDERS OF LAND WITHIN SPE CIFIC TIME FRAMES AND THAT UPON SUCH AMOUNTS BEING PAID TO THE LAND HOLDERS THE NECESSARY DOCUMENTATION WOULD BE ENTERED INTO W ITH THE SAID LAND HOLDERS, SHRI NILESH JANARDHAN THAKUR ALSO REP RESENTED THAT SINCE THE TRACTS OF LAND SOUGHT TO BE PURCHASED WER E VAST, THE 'AGGREGATION OF LANDS WERE TO BE ON AN ONGOING BASI S. IN THE CIRCUMSTANCES AND RELYING UPON SUCH REPRESENTATIONS , WE MADE PAYMENTS OF AN AGGREGATE AMOUNT OF RS.141.50 CRORES FROM TIME TO TIME (I.E. BETWEEN JULY 2007 AND MID 2009) BY ACCOU NT PAYEE CHEQUES TO SHRI NILESH JANARDHAN THAKUR'S CONCERNS I.E. PRS ENTERPRISES AND ACECARD INFRASOL PVT. LTD. FOR THES E PURPOSES. THE SAID AMOUNTS HAVE BEEN DULY REFLECTED IN OUR BALANC E SHEETS AS (ADVANCES FOR LAND'. IN FACT) WE HAVE CONSISTENTLY (OVER THE YEARS) REFLECTED IN OUR AUDITED BALANCE SHEETS THAT THE PA YMENTS MADE TO NILESH JANARDHAN THAKUR AND HIS NOMINEES ARE ADVANC E PAYMENTS FOR LAND ACQUISITION. SHRI NILESH JANARDHAN THAKUR WAS IN TOUCH WITH OUR LAND ACQUISITION DEPARTMENT ON A REGULAR BASIS AND LED U S TO BELIEVE M/S SHAPOORJI PALLONJI & CO. LTD. . 12 THAT THE LAND AGGREGATION AND ACQUISITION WAS BEING UNDERTAKEN SUCCESSFULLY BY HIM. IT WAS ONLY IN LATE 2009, THAT WE BEGAN TO DOUBT TH E BONA FIDES OF THE SAID NILESH JANARDHAN THAKUR, WHEN WE CONFRONTE D HIM AS TO THE STATUS OF THE LAND ACQUISITION. UPON INQUIRY BY US, IT CAME TO LIGHT THAT THE SAID NILESH JANARDHAN THAKUR/ PRS EN TERPRISES HAD INSTEAD OF PURCHASING/AGGREGATING LANDS FOR US, HAD WRONGFULLY MISUSED PART OF OUR FUNDS TO PURCHASE SEVERAL OTHER PROPERTIES (NOT ENTIRELY CONNECTED WITH THOSE SOUGHT FOR BY US) IN THEIR OWN NAME AND IN THE NAMES OF THEIR NOMINEE ENTITIES. BY HIS LETTER DATED 22 ND MARCH 2010 SHRI NILESH JANARDHAN THAKUR INFORMED US THAT THE PAYMENT RECEIVED WAS US ED FOR ACQUIRING PROPERTIES AND THAT THE SURPLUS HAD BEEN KEPT IN FIXED DEPOSIT I. E. THAT OUR MONEY WAS SECURED EITHER BY PROPERTIES AND/OR FIXED DEPOSITS. SUBSEQUENT TO REGULAR FOLLOW-UP AND DISCUSSIONS WIT H SHRI NILESH JANARDHAN THAKUR BETWEEN 2010 AND JULY 2011, SHRI N ILESH JANARDHAN THAKUR FINALLY AGREED TO REFUND THE MONIE S RECEIVED (BOTH BY HANDING OVER DEPOSITS/MONEY/INVESTMENTS AN D ALSO BY TRANSFER OF IMMOVEABLE PROPERTIES) TO US. HOWEVER T HEREAFTER, SHRI NILESH JANARDHAN THAKUR, WRONGFULLY FAILED TO COMPL Y AND REFUND THE MONIES AND/ OR TRANSFER THE PROPERTIES TO US. IN THE CIRCUMSTANCES, WE WERE CONSTRAINED TO FILE S UIT NO, 2576 OF 2011 AGAINST SHRI NILESH. JANARDHAN THAKUR, PRS ENT ERPRISES & OTHERS IN SEPTEMBER 2011, WE ALSO THREATENED TO INI TIATE CRIMINAL ACTION AGAINST HIM. IN THE SUIT) THE AFORESAID LETT ERS OF APPOINTMENT & FACTS WERE REFERRED TO. SUBSEQUENT THERETO SHRI N ILESH M/S SHAPOORJI PALLONJI & CO. LTD. . 13 JANARDHAN THAKUR AGREED TO SETTLE THE MATTER BY TRA NSFERRING ALL THE MOVEABLE (DEPOSIT RECEIPTS & BANK ACCOUNTS) AND IMMOVEABLE ASSETS IN OUR FAVOUR. ACCORDINGLY, BY AN ORDER DATE D 19TH OCTOBER 2011 PASSED BY THE HON'BLE BOMBAY HIGH COURT IN THE AFORESAID SUIT, THE SAID MONIES, ASSETS AND PROPERTIES, ILLEG ALLY MISAPPROPRIATED BY SHRI NILESH JANARDHAN THAKUR AND HIS ENTITIES WERE TRANSFERRED OVER TO US. SINCE THE HON'BLE COUR T WAS NOT INCLINED TO PASS A DECREE REGARDING IMMOVEABLE PROP ERTIES IN THE RAIGAD AREA ON ACCOUNT OF THE LIKELY APPLICABILITY OF CERTAIN PROVISIONS OF THE MAHARASHTRA LAND REVENUE CODE, 19 60, THE BOMBAY TENANCY AND AGRICULTURAL LANDS ACT, 1948 AND SUCH OTHER LEGISLATIONS, THE SAME WERE NOT INCLUDED IN THE DEC REE, BUT SHRI NILESH. JANARDHAN THAKUR AND OTHERS EXECUTED SEVERA L POWERS OF ATTORNEY IN OUR FAVOUR. ACCORDINGLY, WE HAVE ADOPTE D PROCEEDINGS AGAINST SHRI NILESH JANARDHAN THAKUR & HIS CONCERNS AND HAS SUBSTANTIALLY SECURED THE AMOUNTS ADVANCED,'MISAPPR OPRIATED BY THE SAID NILESH. JANARDHAN THAKUR. THE FACTS STATED ABOVE IN PARA 7 ARE SUPPORTED BY T HE SUIT ALONG WITH THE ANNEXURES FILED BEFORE THE HON'BLE BOMBAY HIGH COURT IN SUIT NO. 2576 OF 2011. COPY OF THE CONSENT TERMS AR RIVED AT THE SUIT AND THE ANNEXURES THERETO ARE BEING FURNISHED HEREWITH MARKED AS ANNEXURE 'A. HAVING REGARD TO THE EVIDENCES} RECORDS AND DOCUMENT S} IF THE FOLLOWING ISSUES LISTED OUT BY YOU IN PARA 3 & 4 OF THE NOTICE ARE CONSIDERED} THE FOLLOWING POSITION EMERGES: (A) AMOUNT OF 43,50,00,000/- WAS PAID TO M/S PRS DEVELOPERS TOWARDS ACQUISITION OF LAND YES, WE HAVE MADE PAYMENTS TO M/S PRS ENTERPRISES (PROPRIETORSHIP CONCERN OF SHRI NILESH JANARDAN THAKUR) AND M/S SHAPOORJI PALLONJI & CO. LTD. . 14 ACECARD INFRASOL PVT. LTD. (B) WE DO NOT HAVE ANY DOCUMENTARY EVIDENCES TO SUBSTANTIATE SUCH HUGE PAYMENTS TO M/S PRS DEVELOPERS AS PER THE EVIDENCES, RECORDS AND DOCUMENTS SUPPORTED BY THE SUIT FILED BEFORE THE HONBLE BOMBAY HIGH COURT IN SUIT NO. 2576 OF 2011 AND THE CONSENT TERMS ARRIVED AT IT CANNOT BE SAID THAT THERE IS NO DOCUMENTARY EVIDENCE TO SUBSTANTIATE THE PAYMENTS (C) WE HAVE MADE SUCH HUGE PAYMENTS WITHOUT ENTERING INTO ANY AGREEMENTS FOR ACQUISITION OF LANDS BY M/S PRS DEVELOPERS WE HAD APPOINTED PRS ENTERPRISES VIDE APPOINTMENT LETTER DATED 16 TH JULY, 2007 TO ACQUIRE LANDS WITH CLEAR AND MARKETABLE TITLE IN AND AROUND ALIBAUG, OTHER AREAS IN RAIGAD DISTRICT. THE SAME WAS ACCEPTED BY PRS ENTERPRISES VIDE LETTER DATED 19 TH JULY 2007. HENCE THERE ARE VALID AGREEMENTS ENTERED INTO FOR ACQUISITION OF LANDS. (D) WE HAVE DOLED OUT INTEREST BEARING FUNDS FOR NON BUSINESS PURPOSE UNDER THE GARB OF ADVANCES IT WOULD BE WRONG TO AY THAT WE HAVE MADE PAYMENTS TO M/S PRS ENTERPRISES (PROPRIETORSHIP CONCERN OF SHRI NILESH JANARDHAN THAKUR) AND ACECARD INFRASOL PVT. LTD. FOR NON BUSINESS PURPOSES. AS REGARDS THE ISSUE OF SOURCE OF FUNDS FROM WHICH ADVANCES HAVE BEEN GIVEN, KINDLY REFER TO THE SUBMISSIONS AT PARA 10 HEREINABOVE (E) SINCE WE HAVE CLAIMED INTEREST & FINANCIAL COST IN THE ACCOUNTS, THE ELEMENT OF INTEREST BEARING FUNDS SIPHONED OFF FOR NON BUSINESS PURPOSE UNDER THE GARB OF ADVANCES HAS DIRECT IMPACT OVER THE PROFITS OF THE COMPANY TO THE EXTENT OF FUNDS DOLED OUT FOR NON- BUSINESS PURPOSES KINDLY REFER TO THE SUBMISSIONS MADE HEREINABOVE. AS REGARDS THE SOURCE OF FUNDS FROM WHICH THE PAYME NTS TO M/ S. PRS ENTERPRISES (PROPRIETORSHIP CONCERN OF SHRI NIL ESH JANARDHAN THAKUR) AND ACECARD INFRASOL PVT. LTD. TOWARDS (ADV ANCE FOR LAND' WE HAVE TO SUBMIT AS HEREUNDER: M/S SHAPOORJI PALLONJI & CO. LTD. . 15 AS PER THE BALANCE SHEET AS AT 31.3.2008 THE NET, W ORTH (SHAREHOLDERS FUNDS + RESERVES) IS HIGHER THAN THE AMOUNTS PAID TO M/S. PRS ENTERPRISES (PROPRIETORSHIP CONCER N OF SHRI NILESH JANARDHAN THAKUR) AND ACECARD INFRASOL PVT. LTD. TOWARDS ADVANCE FOR LAND. PARTICULARS 31.03.2008 OWN FUNDS: NET WORTH: SHAREHOLDER FUNDS (SHARE CAPITAL + RESERVES) 500,81,91,248 LESS: PAYMENTS TO M/ S. PRS ENTERPRISES (PROPRIETORSHIP CONCERN OF SHRI NILESH JANARDHAN THAKUR) AND ACECARD INFRASOL PVT. LTD. TOWAR DS (ADVANCE FOR LAND'S DURING THE PREVIOUS YEARS 2007-08, 2008-09 AND 2009-2010 (RELEVA NT TO A. Y. 2008-09, A. Y. 2009-10 AND A. Y. 2010- 201 1) 141,50,00,000 THUS WE THUS SUBMIT THAT THERE IS A CLEAR DEMONSTRA TION THAT OWNED FUNDS HAVE BEEN USED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF OUR BUSINESS OF LAND ACQUISITION. IN THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF MUNJAL SALES CORPORATION V CIT (298 ITR 298) IT WAS HELD T HAT WHERE THE ASSESSEE HAD CAPITAL AND PROFITS MORE THAN THE INTE REST FREE FUNDS ADVANCED, THEN IT HAS TO BE PRESUMED THAT SUCH INTE REST FREE ADVANCE WERE GIVEN OUT OF INTEREST FREE CAPITAL AVA ILABLE WITH THE ASSESSEE. IN THE DECISION OF THE HON'BLE BOMBAY HIG H COURT IN THE CASE OF CIT V RELIANCE UTILITIES AND POWER LTD. [31 3 ITR 340J IT HAS BEEN HELD THAT IF INTEREST FREE FUNDS AVAILABLE TO THE APPELLANT ARE SUFFICIENT TO MEET ITS INVESTMENTS, IT CAN BE PRESU MED THAT INVESTMENTS WERE MADE FROM ITS INTEREST FREE FUNDS AVAILABLE. THE TOTAL INCOME COMPUTED UNDER THE HEAD (INCOME FR OM BUSINESS OR PROFESSION 'IN THE ASSESSMENT ORDER U/S 143(3) DATE D 27.12.2010 WAS DETERMINED AT RS. 129,88,95,857/- BY FOLLOWING THE FORMULAE STATED IN PARA 3 OF THE ASSESSMENT ORDER AS AGAINST THE PROFIT AS PER PROFIT & LOSS ACCOUNT OF RS.175,81,47,280/-. THUS T HE INCOME HAS BEEN DETERMINED NOT ON THE BASIS OF THE PROFIT & LO SS ACCOUNT BUT ON THE BASIS OF THE CONSISTENT PRACTICE OF DETERMINATI ON OF PROFITS FROM INCOMPLETE CONTRACTS. IN THE CIRCUMSTANCES THERE CA N BE NO INCOME M/S SHAPOORJI PALLONJI & CO. LTD. . 16 ESCAPING ASSESSMENT MERELY FOR THE REASON THAT 'INT EREST & FINANCE CHARGES HAVE BEEN DEBITED TO THE PROFIT & LOSS ACCO UNT. HAVING REGARD TO THE AFORESAID OBJECTIONS, WE HAVE TO REQUEST YOUR KINDSELF TO DISPOSE THEM OFF IN ACCORDANCE WITH THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF GKN DRIVES HAF TS , ( 259 ITR 19). WITHOUT PREJUDICE TO THE ABOVE, WE HAVE TO REQUEST YOUR KINDSELF TO KINDLY PROVIDE US WITH COPY OF THE ASSESSMENT/ APPE LLATE ORDER OF SHRI NIIESH. JANARDHAN THAKUR AS ALSO ALL OTHER MAT ERIAL/ DOCUMENTS/ RECORDS ON THE BASIS OF WHICH ITO 25(1)( 4) HAS ARRIVED AT VARIOUS CONCLUSIONS/ OBSERVATIONS/FINDINGS. WE A LSO HAVE TO REQUEST THAT WE BE GIVEN AN OPPORTUNITY OF CROSS EX AMINING SHRI NILESH JANARDHARI THAKUR, IN CASE ANY ADVERSE CONCLUSION/INFERENCES ARE BEING DRAWN AGAINST US IN RELATION TO THE BUSINESS TRANSACTIONS WE HAD WITH HIM THROUGH HIS P ROPRIETORSHIP CONCERN M/ S. PRS ENTERPRISES AND ACE CARD INFRASOL PVT. LTD. 5. THE OBJECTIONS RAISED BY THE ASSESSEE COMPANY HA VE BEEN EXAMINED THOROUGHLY AND THE SAME ARE BEING REBUTTED AS UNDER: (I) THE ASSESSMENT HAS BEEN REOPENED WITHIN A PERIO DS OF FOUR YEARS. HENCE, IN VIEW OF THE JUDGMENT OF THE HON'BLE SUPRE ME COURT IN COURT IN THE CASE OF CIT V. KELVINATOR OF INDIA LTD . [2010J 320 ITR 561 (SC), 1 AM ACTING WITHIN JURISDICTION WHILE REO PENING THE ASSESSMENT ON THE BASIS OF 'TANGBLE MATERIAL' IN MY POSSESSION FROM WHICH 1 CAME TO THE CONCLUSION THAT THERE IS AN ESC APEMENT OF INCOME FROM ASSESSMENT. (II) IN THE INSTANT CASE, DURING THE ORIGINAL ASSES SMENT PROCEEDINGS, NO QUERY WAS RAISED BY THE THEN ASSESSING OFFICER I N RESPECT OF GENUINENESS OF PAYMENTS MADE TO SHRI NILESH JANARDH AN THAKUR AND HIS CONCERNS AND NO REFERENCE OF THIS ISSUE IS THERE IN THE ORIGINAL ASSESSMENT ORDER. HENCE, THIS IS NOT A CAS E WHERE THE ASSESSING OFFICER SOUGHT TO REVIEW HIS EARLIER FIND INGS, NOR IS CASE OF 'CHANGE OF OPINION'. (III) 1 AM IN POSSESSION OF 'TANGIBLE MATERIAL' IN FORM OF INFORMATION RECEIVED FROM ITO 25(1)(4), ASSESSMENT ORDER PASSED BY HIM FOR A. Y. 2008-09 IN THE CASE OF SHRI NILESH JANARDHAN THAKUR AND ORDER OF LD. CIT(A) CONFIRMING HIS ACTION. BASED ON THIS INF ORMATION AND FURTHER AFTER EXAMINING THIS VIS-A-VIS CASE RECORDS OF THE ASSESSEE FOR M/S SHAPOORJI PALLONJI & CO. LTD. . 17 A.Y. 2008-09, I FORMED 'REASON TO BELIEVE' THAT INC OME OF THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER CONSIDERATIO N HAS ESCAPED THE ASSESSMENT TO THE EXTENT OF INTEREST PAID AND A LLOWED ON BORROWED FUNDS DIVERTED TO THE CONCERNS OF SHRI NIL ESH JANARDHAN THAKUR FOR APPARENTLY NON-BUSINESS PURPOSE. (IV) THE EXPRESSION 'REASON TO BELIEVE' IN SECTION 147 HAS BEEN CONSTRUED IN THE JUDGMENT OF THE SUPREME COURT IN R AJESH JHAVERI STOCK BROKERS PVT. LTD. (2007) 291 ITR 500, TO MEAN A CAUSE OR JUSTIFICATION. HOWEVER, AT THE STAGE WHEN THE ASSES SING OFFICER REOPENS AN ASSESSMENT, IT IS NOT NECESSARY THAT THE MATERIAL BEFORE HIM SHOULD CONCLUSIVELY PROVE OR ESTABLISH THAT INC OME HAS ESCAPED ASSESSMENT. A REASON TO BELIEVE AT THE STAGE OF REO PENING IS ALL THAT IS RELEVANT. IT WAS HELD THAT, 'REASON' AND 'REASON TO BELIEVE' SIGNIFIES THAT THE ASSESSING OFFICER HAS CAUSED OR JUSTIFICATION TO KNOW OR SUPPOSE THAT INCOME HAS ESCAPED AND IT DOES NOT MEAN THAT ASSESSING OFFICER SHOULD HAVE ASCERTAINED THE FACTS BY LEGAL EVIDENCE OR CONCLUSION. AT THE STAGE OF NOTICE, THE ONLY QUESTION IS WHETHER THERE WAS RELEVANT MATERIAL ON HIS REASONAB LE PERSON COULD HAVE FORMED A REQUISITE TO BELIEF. WHETHER MATERIA L COULD CONCLUSIVELY PROVED THE ESCAPEMENT IS NOT THE CONCE RN AT THAT STAGE. THIS IS SO BECAUSE, THE FORMATION OF BELIEF BY ASSE SSING OFFICER IS WITHIN THE REALM OF SUBJECTIVE SATISFACTION'. IN TH E INSTANT CASE, IT IS EVIDENT FROM THE FACTS NARRATED ABOVE THAT I HAVE S UFFICIENT CAUSE AND JUSTIFICATION FOR REOPENING THE CASE OF THE ASS ESSEE FOR THE A. Y. 2008-09. (V) IN A RECENT ORDER DATED JANUARY 10/11, 2013, TH E HON'BLE JURISDICTIONAL HIGH COURT OF BOMBAY IN THE CASE OF M/S EXPORT CREDIT GUARANTEE CORPORATION OF INDIA LTD. VS. THE ADDITIONAL COMMISSIONER OF INCOME TAX AND OTHERS IN WRIT PETIT ION NO. 502 OF 2012 HELD THAT WHEN AN ASSESSMENT IS SOUGHT TO BE REOPENED WITHIN A PERIOD OF FOUR YEARS OF THE END O F THE RELEVANT ASSESSMENT YEAR, THE TEST TO BE APPLIED IS WHETHER THERE IS TANGIBLE MATERIAL TO DO SO. WHAT IS TANGIBLE IS SOMETHING WH ICH IS NOT ILLUSORY, HYPOTHETICAL OR A MATTER OF CONJECTURE. FROM ANY ST RETCH OF IMAGINATION IT CANNOT BE SAID THAT THE MATERIAL IN THE FORM OF INFORMATION FROM THE ITO 25(1)(4) IS 'ILLUSORY, HYP OTHETICAL OR A MATTER OF CONJECTURE'. HENCE I WAS WELL WITHIN MY JURISDIC TION WHILE REOPENING THE ASSESSMENT OF THE ASSESSEE BASED ON T HE INFORMATION SHARED BY THE OTHER ASSESSING AUTHORITY. M/S SHAPOORJI PALLONJI & CO. LTD. . 18 (VI) THE CONTENTION OF THE ASSESSEE THAT REOPENING OF ASSESSMENT ON THE BASIS OF INFORMATION RECEIVED FROM OTHER ASSESS ING OFFICER TANTAMOUNT TO (BORROWED SATISFACTION' IS NOT MAINT AINABLE, AS THE ITO 25(1)(4) HAS JUST PASSED ON INFORMATION REGARDI NG TRANSACTIONS OF THE ASSESSEE WITH THE CONCERNS OF SHRI NILESH JA RIARDHARI THAKUR TO ME FOR NECESSARY ACTION AT MY END AND IT IS ME W HO FORMED REASON TO BELIEVE' BASED ON THIS NEW INFORMATION IN HIS POSSESSION AND AFTER EXAMINING THIS VIS-A-VIS CASE RECORDS OF THE ASSESSEE FOR THE CONCERNED YEAR. (VII) IN MOST PART OF THE OBJECTIONS FILED BY THE A SSESSEE FOR RE OPENING THE ASSESSMENT IS FOCUSED ON MERITS OF THE ISSUE. IN MY CONSIDERED OPINION, THIS IS NOT PROPER STAGE TO GO INTO THE MERITS OF THE ISSUES. THE SOLE QUESTION PENDING BEFORE ME IS THAT WHETHER I WAS IN LIMITS OF MY POWERS CONFERRED UPON ME BY THE PROVISIONS OF SECTION 147 AND 148 WHILE REOPENING THE ASSESSMENT OF THE ASSESSEE AND MERITS OF THE ISSUES CAN BE DEALT WITH DURING THE COURSE OF PROCEEDING SUBSEQUENTLY. (VIII) THE GUJARAT HE IN THE CASE OF GRUH FINANCE L TD.243 ITR. 482 HELD THAT REASSESSMENT PROCEEDINGS CAN BE INITIATED ON THE ISSUES WHEREIN MISTAKE HAD OCCURRED AND OBSERVED AS UNDER- IT IS TRUE THAT EVEN AFTER THE AMENDMENT IN THE PR OVISION OF SECTION 147 OF THE INCOME-TAX ACT, 1961, A MERE CHANGE OF O PINION, IPSO FACTO, WOULD NOT CONFER OR EMPOWER THE ASSESSING OF FICER TO EMBARK UPON A REASSESSMENT EXERCISE. NOTWITHSTANDING THAT, POWER TO MAKE ASSESSMENT OR RE-ASSESSMENT WITHIN FOUR YEARS OF TH E END OF THE RELEVANT ASSESSMENT YEAR WOULD BE ATTRACTED EVEN IN CASES WHERE THERE HAS BEEN COMPLETE DISCLOSURE OF ALL RELEVANT FACTS UPON WHICH THE ASSESSMENT MIGHT HAVE BEEN BASED AT THE. FIRST INSTANCE, BUT FOR OR IN CASE OF A MISTAKE, AS PER AMENDED PROVISIONS OF SECTION 147 OF THE INCOME-TAX ACT. (IX) IN THE CASE OF DR.AMIN'S PATHALOGY LABORATORY VS. P.N, PRASAD JCIT (252 ITR 673), THE BOMBAY HIGH COURT HAS HELD :- 'AFTER THE INTRODUCTION OF CHANGES WITH EFFECT FROM APRIL 1, 1989, THE SCOPE OF REASSESSMENT HAS BEEN WIDENED. AFTER THE A MT:FLDLR1ENT, THE ONLY RESTRICTION PUT IN THE SECTION IS 'REASON TO BELIEVE'. THAT M/S SHAPOORJI PALLONJI & CO. LTD. . 19 REASON HAS TO BE A REASON OF A PRUDENT PERSON. THAT REASON SHOULD BE FAIR AND NOT NECESSARILY DUE TO FAILURE OF THE A SSESSEE TO DISCLOSE FULLY OR PARTIALLY SOME MATERIAL FACTS RELEVANT FOR ASSESSMENT. THAT, IF ANY ITEM HAS ESCAPED FROM ASSESSMENT WHICH WAS O THERWISE. INCLUDIBLE WITHIN THE ASSESSMENT AND THE ASSESSING OFFICER NOTICES IT SUBSEQUENTLY BY HIS OWN INVESTIGATION OR BY REASON OF SOME INFORMATION RECEIVED BY HIM, ONE CANNOT SAY THAT IT CONSTITUTES CHANGE OF OPINION. 'UNDER EXPLANATION 1 TO THE PROVISO, MERE PRODUCTIO N OF ACCOUNT BOOKS FROM WHICH MATERIAL EVIDENCE COULD HAVE BEEN DISCOVERED BY THE ASSESSING OFFICER WILL NOT NECESSARILY AMOUNT T O DISCLOSURE WITHIN THE MEANING OF THE PROVISO. THEREFORE, MERE PRODUCTION OF THE, BALANCE-SHEET PROFIT AND LOSS ACCOUNT OR ACCOUNT BO OKS WILL NOT NECESSARILY AMOUNT TO DISCLOSURE WITHIN THE MEANING OF THE PROVISO. IN THE PRESENT CASE, THE FACTS SHOW THAT THE ASSESS ING OFFICER OVERLOOKED THE AFORESTATED ITEM; THAT, HE NOTICED I T SUBSEQUENTLY. THAT, AT THE TIME OF. PASSING THE ORIGINAL ORDER OF ASSESSMENT, HE COULD NOT BE SAID TO HAVE OPINED ON THE ABOVE ITEM. THEREFORE, THERE WAS NO CHANGE OF OPINION. (X) IN A RECENT DECISION THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF COMMISSIONER OF INCOME-TAX V. NOVA PROMOTERS & FINL EASE (P) LTD. *[18 TAXMANN.COM 217 (DELHI)] [2012] HELD THAT AT S TAGE OF ISSUING NOTICE UNDER SECTION 148 MERITS OF MATTER ARE NOT R ELEVANT AND ASSESSING OFFICER AT THAT STAGE IS REQUIRED TO FORM ONLY A PRIMA FACIE BELIEF OR OPINION THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT AND ONCE THAT STAGE IS CROSSED AND REASS ESSMENT PROCEEDINGS ARE SET IN MOTION, MATERIAL ON BASIS OF WHICH REQUISITE BELIEF WAS FORMED BY ASSESSING OFFICER HAS TO BE AP PRAISED AND EXAMINED. (XI) THE HON'BLE HIGH COURT OF MADRAS IN THE CASE O F M/S TAMIL NADU. PETRO PRODUCTS LTD. V. COMMISSIONER OF INCOME -TAX* [11 TAXMANN.COM 311 (MAD.)] [2011J HELD THAT WHILE DISM ISSING THE WRIT PETITION FILED BY THE ASSESSEE AGAINST REOPENING IT S ASSESSMENT FOR A. Y. 2001-02 U/S 148 THAT SINCE IT WAS OPEN TO ASS ESSEE TO PRODUCE RECORDS AND SATISFY ASSESSING AUTHORITY THAT THERE WAS NO SUPPRESSION OF TRUE AND FULL ACCOUNTS WHILE SUBMITT ING ORIGINAL M/S SHAPOORJI PALLONJI & CO. LTD. . 20 RETURN, PROCEEDINGS INITIATED FOR REASSESSMENT COUL D NOT BE QUASHED AT THRESHOLD. [XII) THE HON'BLE ITAT CHANDIGARH BENCH 'A' HELD IN THE CASE OF SHRI VIKRANT DUTT CHAUDHARY V. ASSISTANT COMMISSIONER OF INCOME TAX, PANCHKULA* [12TAXMANN.COM 359 (CHD.)] [2011] THAT T HE MAIN PROVISIONS OF SECTION 147 AUTHORIZE AND PERMIT THE ASSESSING OFFICER TO ASSESS OR RE-ASSESS INCOME CHARGEABLE TO TAX IF HE HAS REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX FOR THE RELEV ANT ASSESSMENT YEAR HAS ESCAPED ASSESSMENT. THE RELEVANT PARA OF T HIS JUDGMENT IS QUOTED VERBATIM HEREUNDER: 'THE WORD 'REASON' IN THE PHRASE 'REASON TO BELIEVE ' IN SECTION 147 WOULD MEAN CAUSE OR JUSTIFICATION. IF THE ASSESSING OFFICER HAS CAUSE OR JUSTIFICATION TO KNOW OR SUPPOSE THAT INCOME HAS ESCAPED ASSESSMENT, HE CAN BE SAID TO HAVE REASON TO BELIEV E THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THE EXPRE SSION 'REASON TO BELIEVE' CANNOT BE HELD TO MEAN THAT THE ASSESSI NG OFFICER SHOULD HAVE FINALLY ASCERTAINED THE FACTS GIVING RISE TO H IS FORMATION OF BELIEF BY LEGAL EVIDENCE. WHAT IS CONTEMPLATED BY SECTION 147 IS PRIMA FACIE BELIEF BY THE ASSESSING OFFICER THAT INCOME C HARGEABLE TO TAX HAS ESCAPED ASSESSMENT. IN ORDER TO TEST THE VALIDI TY OF INITIATION OF PROCEEDINGS UNDER THE MAIN 'PROVISIONS OF SECTION 1 47, ONLY ONE ASPECT HAS TO BE CONSIDERED AND THAT IS WHETHER THE RE WAS RELEVANT MATERIAL OR REASONABLE GROUND ON THE BASIS OF WHICH A REASONABLE PERSON COULD HAVE FORMED' THE REQUISITE., BELIEF WH ETHER THOSE MATERIALS AND GROUNDS WOULD CONCLUSIVELY PROVE THE ESCAPEMENT OF INCOME IS NOT THE CONCERN AT THE INITIATION STAGE. THIS IS SO BECAUSE THE FORMATION OF BELIEF BY THE ASSESSING OFFICER IS WITHIN THE REALM OF HIS SUBJECTIVE SATISFACTION. TESTED ON THE AFORESAI D PRINCIPLES, THE ACTION OF THE ASSESSING OFFICER IN INITIATING THE P ROCEEDINGS UNDER SECTION 147 ON THE BASIS OF THE REPORT OF THE ADIT (INV.) AND OTHER M/S SHAPOORJI PALLONJI & CO. LTD. . 21 MATERIALS AVAILABLE WITH HIM WAS IN ORDER AS THE IN FORMATION GIVEN BY THE ADIT (INV.) OR THE MATERIALS AVAILABLE WITH HIM ON RECORD COULD NOT BE SAID TO BE IRRELEVANT. IT ALSO COULD NOT BE SAID THAT THE INITIATION OF PROCEEDINGS UNDER SECTION 1471 148 WA S MOTIVATED BY SUSPICION, RUMOR OR GOSSIP. IN THIS VIEW OF THE MAT TER, THE VALIDITY OF THE PROCEEDINGS INITIATED BY THE ASSESSING OFFICER UNDER SECTION 1471 148 WAS TO BE UPHELD. 6. THUS IT IS HELD THAT THE OBJECTION RAISED BY THE ASSESSEE IS NOT CORRECT AND ARE HEREBY REJECTED BY THIS SPEAKING OR DER AND ACCORDINGLY THE DECISION OF HON'BLE SUPREME COURT I N THE CASE OF G. K. N. DRIVESHAFTS HAS BEEN COMPLIED. THEREFORE, THE PROCEEDING HAVE RIGHTLY BEEN INITIATED U/ S.14 7 OF THE 1. T. ACT, 1961 ON THE BASIS OF THE REASONS RECORDED AFTER TAKING INTO ACCOUNT THE FACTS, CIRCUMSTANCES AND THE LAW INVOLVED IN THE CASE AND THE NOTICE HI S. 148 OF THE I.T. ACT, 1961 HAS BEEN VALIDLY ISSUED A S PER LAW. 7. LASTLY, THE REQUEST FOR THE COPIES OF ASSESSMENT / APPELLATE ORDERS OF SHRI NILESH JANARDHAN THAKUR HAS NOT BEEN CONSID ERED AT THIS MOMENT WHICH WILL BE CONSIDERED IN THE COURSE OF AS SESSMENT PROCEEDINGS. ' 3. AFTER DISPOSING OFF THE ASSESEE'S OBJECTION FOR RE-OPENING THE ASSESSMENT, A FRESH NOTICE U/S.143(2) OF THE ACT DA TED 22-01-2013 HAS BEEN ISSUED AND SERVED ON THE ASSESSEE. IN RESP ONSE, SHRI VIJAY AGARWAL, CA & AR, DULY AUTHORIZED BY THE ASSESSEE C OMPANY, ATTENDED THE ASSESSMENT PROCEEDINGS AND FURNISHED T HE DETAILS AND EXPLANATION CALLED FOR FROM TIME TO TIME. 4. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION AND RELATED ACTIVITIES. THERE IS NO MATERIAL CHANGE IN THE NATURE OF BUSINESS AS COMPARED TO THE EARLIER YEARS. AFTER EX AMINATION, THE ASSESSMENT IS COMPLETED AS UNDER: 5. TRANSACTIONS WITH SHRI NILESH JANARDHAN THAKUR (PRO PRIETOR OF PRS ENTERPRISES) & M/S.ACECARD INFRASOL PVT. LTD . M/S SHAPOORJI PALLONJI & CO. LTD. . 22 5.1 IN THE BALANCE-SHEET OF THE ASSESSEE AS ON 31-0 3-2008 UNDER THE HEAD 'CURRENT ASSETS' AN AMOUNT OF RS.43.50 CRORE H AS BEEN SHOWN AS ADVANCE TOWARDS LAND PURCHASE. THE SAID AMOUNT H AS BEEN PAID BY THE COMPANY TO M/S. PRS ENTERPRISES, A PROPRIETO RSHIP CONCERN OF ONE SHRI N.J. THAKUR. 5.2 THE ASSESSEE STATES THAT THESE AMOUNTS ARE IN T HE NATURE OF ADVANCE PAYMENTS TOWARDS ACQUISITION OF LAND WITH C LEAR AND MARKETABLE TITLE IN AN AROUND ALIABAGH AND OTHER AR EAS OF RAIGAD DISTRICT. 5.3 THE TRANSACTIONS WITH SHRI N.J. THAKUR AND HIS GROUP OF CONCERNS HAVE RECEIVED DETAILED ATTENTION FROM VARI OUS AUTHORITIES IN THE DEPARTMENT NAMELY INVESTIGATION WING, ITO-25(1) (4) IN THE ASSESSMENT OF SHRI N.J. THAKUR FOR A.Y.2008-09 AND 2009-10 AND CIT(A)-35 IN THE APPELLATE ORDER IN THE CASE OF SHR I N.J. THAKUR IN THE A.Y.2008-09. EXHAUSTIVE SUBMISSIONS HAVE BEEN MADE BY BOTH THE ASSESSEE AS WELL AS SHRI N.J. THAKUR WITH RESPECT T O THESE TRANSACTIONS. THE SAME ARE DISCUSSED HEREUNDER: 5.4 AT THIS POINT IT MAY BE NOTED THAT THE ASSESSEE HAS NOT DEBITED SUCH AMOUNT OF RS.43.50 CRORE IN HIS PROFIT AND LOS S ACCOUNT AS EXPENSES NOR HAS HE INCLUDED THIS AMOUNT IN HIS WOR K-IN-PROGRESS. IT IS AN ADMITTED FACT THAT THESE AMOUNTS STANDS AS 'A DVANCE FOR LAND PURCHASE' UNDER 'CURRENT ASSETS' IN HIS BALANCE-SHE ET AS ON 31-03- 2008. WE WILL NOW EXAMINE THE SUBMISSION OF THE ASS ESSEE AND SHRI N.J. THAKUR BEFORE VARIOUS AUTHORITIES AND THEIR FI NDINGS AS UNDER: A. BEFORE THE INVESTIGATION WING : 5.4.1 THE TRANSACTIONS BETWEEN THE ASSESSEE AND PRS ENTERPRISES/ACECARD INFRASOL PVT. LTD., (A RELATED COMPANY WHEREIN SHRI N. J. THAKUR IS HAVING 80% SHAREHOLDING) WERE EXAMINED BY THE DDIT(INV.), UNIT 1(2), MUMBAI. VIDE LETTER DATED 10 -05-2012 THE ASSESSEE HAS SUBMITTED AS UNDER: Q.1 DETAILS OF TRANSACTIONS ENTERED WITH MR. NILES H J. THAKUR, PROPRIETOR OF M/ S. PRS ENTERPRISE/ PRS DEVELOPERS/ M/ S. ACE CARD INFRASOL PVT. LTD. TRANSACTIONS ARE IN THE NATURE OF ADVANCE PAYMENTS MADE TOWARDS ACQUISITION OF LANDS WITH CLEAR AND MARKETABLE TITL E IN AND AROUND M/S SHAPOORJI PALLONJI & CO. LTD. . 23 ALIBAUG, OTHER AREAS IN RAIGAD DISTRICT. DURING THE PREVIOUS YEARS 2007-08, 2008-09 AND 2009-10 (RELEVANT TO A. Y.2008 -09, A. Y.2009-10, AND A. Y. 2010-2011) THE COMPANY MADE AD VANCES AS UNDER TOR ACQUISITION OF LANDS AGGREGATING TO RS.14 1.50 CRORES, DETAILS OF WHICH ARE PROVIDED IN ANNEXURE FILE. NAME OF ENTITY TOTAL PRS ENTERPRISE 845,000,000/- ACE CARD INFRASOL PVT. LTD. 570,000,00/- KINDLY NOTE THAT NO PAYMENTS WERE MADE BY THE COMPA NY TO SHRI NILESH J. THAKUR AND PRS DEVELOPERS. A DETAILED NOT E TOGETHER WITH RELEVANT DOCUMENTS ON THE NATURE OF TRANSACTIONS WI TH MR. NILESH THAKUR IS PROVIDED IN THE ANNEXURE FILE. Q.2. DETAILS OF PAYMENT MADE TO M/ S. PRS ENTERPRIS E/ PRS DEVELOPERS /M/ S. ACE CARD INFRASOL PVT. LTD. PROPR IETARY CONCERNS OF MR. NILESH J. THAKUR. A. WE HAVE MADE PAYMENTS AS STATED ABOVE. NO PAYMEN TS HAVE BEEN MADE EITHER TO PRS DEVELOPERS NOR TO MR. NILES H J. THAKUR. Q.3 DETAILS OF SERVICES PROVIDED BY M/ S. PRS ENTER PRISE/ PRS DEVELOPERS /M/ S. ACE CARD INFRASOL PVT. LTD. PROPR IETARY CONCERNS OF MR. NILESH J. THAKUR WITH BILLS ALONG WITH BILLS AND NATURE OF TREATMENT GIVEN IN THE BOOKS FOR THESE PAYMENTS. A. NO SERVICES WERE PROVIDED BY M/ S. PRS ENTERPRIS E/ PRS DEVELOPERS /M/S. ACE CARD INFRASOL PVT. LTD. THE PA YMENTS ARE ACCOUNTED AS ADVANCES' IN OUR BOOKS OF ACCOUNTS FO R ACQUISITION OF LANDS. Q.4. DETAILS OF ANY TDS MADE ON THE PAYMENT TO M/ S . PRS ENTERPRISE/ PRS DEVELOPERS / M/S. ACE CARD INFRASOL PUT. LTD. PROPRIETARY CONCERNS OF MR. NILESH J. THAKUR. A. NO TDS IS MADE ON THE PAYMENTS TO M/ S. PRS ENTE RPRISE AND M/S. ACE CARD INFRASOL PVT. LTD. SINCE THE PAYMENTS ARE IN THE NATURE OF ADVANCES FOR ACQUISITION OF LANDS. Q.5 COPY OF WRITTEN AGREEMENT, IF ANY, SIGNED WITH SHRI. NILESH J. THAKUR, BY M/ S. PRS ENTERPRISE/ M/ S. ACE CARD INF RASOL PVT. LTD. A. THERE IS NO WRITTEN AGREEMENT, IF ANY, SIGNED WI TH SHRI NILESH J. THAKUR, PROPRIETOR OF AI/ S. PRS ENTERPRISE/ M/ S. ACE CARD INFRASOL PVT. LTD. HOWEVER, SPCL HAD APPOINTED M/ S. PRS ENTERPRISES V IDE APPOINTMENT LETTER DATED 16TH JULY, 2007 TO ACQUIRE LANDS WITH CLEAR AND MARKETABLE TITLE IN AN AROUND ALIBAUG, OT HER AREAS IN M/S SHAPOORJI PALLONJI & CO. LTD. . 24 RAIGAD DISTRICT. THE SAME WAS ACCEPTED BY M/ S. PRS ENTERPRISES VIDE LETTER DATED 19TH JULY, 2007 (COPIES ENCLOSED IN ANNEXURE FILE)'. 5.4.2 THE STATEMENT OF MR. FEROZ K. BHATENA, DIRECT OR AND PRINCIPAL OFFICER OF THE ASSESSEE ON OATH U/S.131 WAS RECORDE D BY THE DDIT(INV.), UNIT I(2), MUMBAI ON 04-07-2012. THE RE LEVANT QUESTIONS AND ANSWERS ARE REPRODUCED HEREUNDER: Q.6. KINDLY PROVIDE THE DETAILS OF PAYMENTS MADE B Y SPCL, PRS ENTERPRISES & ACE CARD INFRASOL PVT. LTD.? ANS. WE HAVE ADVANCED' RS.B4.50 CRORES TO PRS ENTER PRISES AND RS.57 CRORES TO M/S. ACE CARD INFRASOL PUT. LTD. TO WARDS PURCHASE OF LAND. THE DETAILS THEREOF HAVE ALREADY SUBMITTED VIDE LETTER DATED 10.05.2012. Q.7. PLEASE EXPLAIN THE PURPOSE OF THE PAYMENTS? KI NDLY PRODUCE THE ORIGINAL AGREEMENT, IF ANY ENTERED INTO WITH TH ESE CONCERNS, BEFORE MAKING THE FIRST PAYMENT? ANS. THE PAYMENTS WERE MADE TO M/ S. PRS ENTERPRISE AND M/ S. ACE CARD INFRASOL PVT. LTD. TOWARDS LAND AGGREGATIO N IN PANVEL, ALIBAUG, PEN AND RAIGARH AREA. WE HAVE APPOINTED M/ S. PRS ENTERPRISES VIDE LETTER DATED 16TH JULY, 2007 AND A S PER THE UNDERSTANDING, THE FIRST PAYMENT OF RS.2 CRORE WAS MADE ON 11TH JULY; 2007 (CLAUSE 6 OF THE AGREEMENT). THE COPY OF THE ORIGINAL APPOINTMENT LETTER IS BEING PRODUCED HEREWITH Q.8. AS PER YOUR SUBMISSION, THE FIRST PAYMENT OF R S.2 CRORES WAS RELEASED ON 11.07.2007, WHICH IS EVEN BEFORE THE IS SUE OF APPOINTMENT LETTER BY M/S. SPCL WHICH IS DATED 16TH JULY 2007 AND CONFIRMATION. OF THE APPOINTMENT LETTER FILED B Y M/ S. PRS ENTERPRISES VIDE LETTER DATED 19 TH JULY, 2007. KINDLY EXPLAIN HOW THE PAYMENT HAD BEEN RELEASED PRIOR TO THE ISSUANCE AS WELL AS ACCEPTANCE OF APPOINTMENT LETTER. IS THERE ANY BOAR D RESOLUTION IN THAT EFFECT? FURTHER, DID YOU HAVE ANY PRIOR BUSINE SS RELATION WITH M/S. PRS ENTERPRISES OR ASSOCIATED CONCERNS? KINDLY EXPLAIN HOW AND WHEN YOU CAME IN CONTACT WITH NI/ S. PRS ENTERP RISES AND ASSOCIATED CONCERNS. ANS. FROM AROUND 2005, SPCL WANTED TO ACQUIRE LARGE TRACTS OF LAND IN THE PANVEL, ALIBAUQ, PEN AND RAIGAD AREAS ( 'PROJECT AREAS') FOR THEIR BUSINESS ACTIVITIES. SPCL WAS APPROACHED BY SEVERAL PERSONS WHO WERE LAND AGGREGATORS. AROUND 2007, SPC L WAS APPROACHED BY ONE NILESH THAKUR WHO REPRESENTED THA T HE AND HIS TEAM WERE IN THE BUSINESS OF ASSISTING IN THE ACQU ISITION OF LARGE PARCELS OF LAND. NIIESLI THAKUR ALSO CLAIMED THAT H E WAS FROM THE ALIBAUQ AREA AND WAS CONVERSANT WITH THE LOCAL PEOP LE AND ISSUES, M/S SHAPOORJI PALLONJI & CO. LTD. . 25 RULES AND PROCEDURES APPLICABLE WITH LAND ACQUISITI ON IN THE PROJECT AREAS. SINCE NILESH THAKUR THROUGH HIS CONCERNS, HAD WORKE D WITH SD CORPORATION PVT. LTD. (SDCL), (AN ASSOCIATE OF SPCL ) IN SDPL'S PROJECT AT SAMTA NAGAR, KANDIVALI, SPCL, ENTRUSTED SHRI NIIESH THAKUR WITH THE TAKSK OF IDENTIFYING AND AGGREGATIN G 900 AREAS OF LANDS FOR SPCL IN THE PROJECT AREAS. BY LETTER OF APPOINTMENT DATED 16TH JULY, 2007, SPC L APPOINTED SHRI NILESH THAKUR THROUGH HIS ENTITY 1.1/ S. PRS E NTERPRISE TO IDENTIFY, ASSIST AND AGGREGATE FOR SPCL, THE LANDS IN THE PROJECT AREAS, INTER ALIA ON THE TERMS AND CONDITIONS THERE IN. THE SAID LETTER REQUIRED THAT 300 ACRES BE ACQUIRED WITHIN 3 YEARS - BY 2010 & THE BALANCE 600 WITHIN 5 YEARS. THE SAID LETTER OF APPO INTMENT WAS ACCEPTED BY SHRI NILESH. THAKUR/PRS ENTERPRISES BY ITS LETTER DATED 19TH JULY, 2007. AS PER CLAUSE 6 OF THE APPOINTMENT LETTER DATED 16-07-2007, THE ADVANCE GIVEN OF RS.2 CRORES ON 11T H JULY, 2007 HAS BEEN RATIFIED. AS REGARDS BOARD RESOLUTION, I WILL VERIFY AND SUBM IT THE REQUISITE DETAILS WITHIN SEVEN DAYS. Q.9. AS PER APPOINTMENT LETTER SUBMITTED BY YOU, ON LY M/S. PRS ENTERPRISES WAS SUPPOSEDLY APPOINTED AS LAND AGGREG ATOR HOWEVER, AS PER DERAILS OF PAYMENT SUBMITTED BY YOU ) IT IS SEEN THAT THE PAYMENTS OF RS.57 CRORES HAVE BEEN MADE TO M/S. ACE CARD INFRASOL PVT. LTD. KINDLY SUBSTANTIATE THE REA SON FOR THE SAME IN VIEW OF THE ABOVE FACT AS WELL AS THAT M/S. ACE CARD INFRASOL PVT. LTD. IS PRIMARILY OWNED BY MR. NILESH. THAKUR (80% SHAREHOLDING). ANS. AS PER THE LETTER OF APPOINTMENT TO M/ S. PRS ENTERPRISE DATED 16TH JULY, 2007 IT WAS AGREED IN CLAUSE 2 THAT 'DUR ING THE PERIOD TILL COMPLETION OF ASSIGNMENT, YOU SHALL BE PAID ON -ACCOUNT ADVANCES FROM TIME TO TIME TO ENABLE ACQUISITION/OB TAINING APPROVALS 'AT VARIOUS STAGES. THE ADVANCES AS AFORE SAID SHALL BE MADE TO YOU OR ANY SUCH OTHER ENTITY AS MAY BE ADVI SED BY YOU AT THE RELEVANT TIME. ALL SUCH PAYMENTS SHALL BE TREAT ED STRICTLY AS ON- ACCOUNT ADVANCES FOR THE SOLE PURPOSE OF PURCHASING AND TRANSFERRING THE LANDS TO COMPANY. THE PARTIES AGRE E THAT HAVING REGARD TO THE LOCALIZED EXPERTISE REQUIRED FOR PURC HASE OF LANDS IN THE PROJECT AREA AND THE VAGARIES OF PURCHASING LAN D IN THE MOFUSIL, ALL ON-ACCOUNT ADVANCES SHALL BE MADE BY COMPANY TO YOU ALONE OR TO YOUR ENTITIES. IT SHALL BE YOUR DUTY AND OBLIGAT ION TO FULLY PAY THE LAND OWNERS FOR THE TRANSFER OF THE LANDS. IN THE N AME OF COMPANY AND OBTAIN ALL APPROVALS AND CLEARANCES WITHOUT ANY FURTHER COSTS OR EXPENSES TO COMPANY'. M/S SHAPOORJI PALLONJI & CO. LTD. . 26 FROM THE ABOVE, IT WOULD BE SEEN THAT SPCL HAD AGRE ED TO PAY ON ACCOUNT ADVANCES AND THE ADVANCES HAD TO BE MADE EI THER TO M/S. PRS ENTERPRISES OR TO ANY SUCH OTHER ENTITY AS MAY BE ADVISED BY M/ S. PRS ENTERPRISES. IN VIEW OF THE AFORESAID CLA USE AND ON ADVISE OF M/S. PRS ENTERPRISES, SPCL HAS MADE ON AC COUNT ADVANCES TO M/S. ACE CARD INFRASOL PVT. LTD. I AM N OT AWARE OF THE SHAREHOLDING OF THE M/ S. ACE CARD INFRASOL PVT. LT D. Q.10 KINDLY PROVIDE THE LETTER OF NOMINATION IN THE NAME OF M/S. ACE CARD INFRASOL PVT. LTD. AS FILED BY M/S. PRS EN TERPRISES A PROPRIETORSHIP OF MR. NILESN J. THAKUR. ANS. I WILL VERIFY THE RECORD AND SUBMIT THE REQUIS ITE DETAILS WITHIN SEVEN DAYS. Q.11 KINDLY PRODUCE THE BILLS AND VOUCHERS AS SUBMI TTED BY SHRI N. J. THAKUR AND HIS ASSOCIATED CONCERNS LIKE PRS ENTE RPRISES, M/S. ACE CARD INFRASOL PVT. LTD ETC ON THE BASIS OF WHIC H PAYMENTS HAVE BEEN RELEASED? ANS. SUBSEQUENT TO THE AGREEMENT, LANDS IN THE PROJ ECT AREAS WERE IDENTIFIED BY NILESH THAKUR/M/S. PRS ENIERPRISES. S INCE THESE WERE AGRICULTURAL LANDS) IT WAS NECESSARY THAT THE AGGREGATOR ARRANGED FOR CLEAR AND MARKETABLE TITLE, RESOLVED I NTERNAL DISPUTES) ENSURE CONTINUITY OF LAND HOLDING CONVERSION OF STA TUS OF LANDS FROM AGRICULTURAL STATUS TO NA STATUS ETC BEFORE THE SAM E WAS FORMALLY TRANSFERRED TO SPCL. SHRI NILESH THAKUR/M/S. PRS EN TERPRISES REPRESENTED THAT MONIES NEEDED TO BE PAID TO THE HO LDERS OF LANDS WITHIN SPECIFIC TIME FRAMES AND THAT UPON SUCH AMOU NTS BEING PAID TO THE LAND HOLDERS) THE NECESSARY DOCUMENTATION WO ULD BE ENTERED INTO 'WITH THE SAID LAND HOLDERS. SHRI NILESH. THAK UR ALSO REPRESENTED THAT SINCE THE TRACTS OF LAND SOUGHT TO BE PURCHASED WERE VAST, THE AGGREGATION OF LANDS WERE TO BE ON A NY ONGOING BASIS. IN THE CIRCUMSTANCES AND RELYING UPON SUCH R EPRESENTATIONS, SPCL MADE PAYMENTS OF AN AGGREGATE AMOUNT OF RS.141 .S0 CRS FROM TIME TO TIME (I.E. BETWEEN JULY 2007 AND' MID 2009) BY ACCOUNT PAYEE CHEQUES TO SHRI NILESH THAKUR'S CONCE M I.E. M/S. PRS ENTERPRISES AND ACE CARD INFRASOL PVT. LTD FOR THESE PURPOSES. THE SAID AMOUNTS HAVE BEEN DULY REFLECTED IN SPCL'S BALANCE SHEETS AS ADVANCES FOR LAND. IN FACT SPCL HAS CONSI STENTLY (OVER THE YEARS) REFLECTED IN ITS AUDITED BALANCE SHEETS THAT THE PAYMENTS MADE TO NILESH THAKUR AND HIS NOMINEES ARE ADVANCE PAYMENTS FOR LAND ACQUISITION. SINCE THESE ARE ADVANCES THER E ARE NO ANY BILLS OR VOUCHERS RAISED BY SHRI NILESH THAKUR/HIS CONCER NS REFERRED ABOVE. Q.12 HAVE SH. N. J. THAKUR OR HIS ASSOCIATED CONCEM S EVER RAISED ANY BILLS OR VOUCHERS TO SPCL? M/S SHAPOORJI PALLONJI & CO. LTD. . 27 ANS. NO. NILESH THAKUR OR HIS CONCERNS HAVE NOT RAI SED ANY BILLS OR VOUCHERS TO SPCL, EVER. Q.13 WHETHER IT IS A NORMAL PRACTICE IN YOUR COMPAN Y TO RELEASE PAYMENTS WITHOUT ANY SUPPORTING VOUCHERS? IF YES, P RODUCE PROOF FOR THE SAME? ANS. NO PAYMENTS MADE AGAINST SERVICES ETC RENDERED ARE ON THE BASIS OF THE AUTHORIZATION MEMO FOR RELEASE OF PAYM ENTS. THE AUTHORIZATION MEMO IS GIVEN ON THE BASIS OF SUPPORT ING BILLS OR VOUCHERS. HOWEVER, ADVANCES ARE GIVEN ON THE BASIS OF THE APPROVAL GIVEN BY THE CONCERNED DEPARTMENT. Q.14. KINDLY PRODUCE THE APPROVALS GIVEN BY THE CON CERNED DEPARTMENT FOR RELEASING SUCH PAYMENTS TO ABOVE MEN TIONED CONCERNS. ANS. I WILL VERIFY THE RECORD AND SUBMIT THE REQUIS ITE DETAILS WITHIN SEVEN DAYS. Q. 15. WHETHER ANY TDS. HAS BEEN DEDUCTED BY. M/S. SPCL ON THESE PAYMENTS MADE TO M/ S. PRS ENTERPRISES OR M/ S. ACE CARD INFRASOL PVT. LTD. IN VIEW OF THE FACT THAT AS PER YOUR OWN SUBMISSION THE' PAYMENTS WERE MADE FOR PROVIDING TH E SERVICES OF LAND AGGREGATION OR IN THE NATURE OF COMMISSION OR IN THE NATURE OF PAYMENT RELEASE UNDER THE TERMS OF CONTRACT/ AGREEM ENT(WITHOUT PREJUDICE TO THE NATURE OF EACH PAYMENT)? ANS. NO SINCE THE AMOUNTS PAID WERE MERELY ADVANCES FOR LAND, TDS WAS NOT REQUIRED TO BE DEDUCTED. FURTHER, SINCE THE RELATIONSHIP BETWEEN PRS ENTERPRISES AND M/S. ACE C ARD INFRASOL PVT. LTD. WAS ON A PRINCIPAL TO PRINCIPAL BASIS AND THEY WERE ONLY INDEPENDENT LAND AGGREGATORS, NO TDS WAS REQUIRED T O BE DEDUCTED AS PR THE PROVISIONS OF THE IT ACT, 1961 . Q.16 HOW SUCH PAYMENTS HAVE ACCOUNTED IN THE BOOKS? ANS. SUCH ADVANCES GIVEN TO M/ S. PRS ENTERPRISES A ND M/ S. ACE CARD INFRASOL PVT. LTD. HAVE BEEN REFLECTED AS CURR ENT ASSETS IN THE BALANCE SHEET IN THE NATURE OF ADVANCES FOR LAND. T HE SAME HAS NEVER BEEN CLAIMED AS EXPENDITURE IN THE PROFIT & L OSS ACCOUNT TILL DATE. 5.4.3 FURTHER, VIDE LETTER DATED 16-07-2012 THE AR OF SHRI NJ THAKUR SUBMITTED BEFORE THE DDIT AS UNDER: 'DETAILS OF NATURE OF BUSINESS: PRS ENTERPRISES & PRS DEVELOPERS PRS ENTERPRISES AND PRS DEVELOPERS ARE SOLE PROPRIE TORSHIP FINNS OF SHRI NILESH J. THAKUR. THE FIRMS ARE INTO BUSINESS OF REAL ESTATE M/S SHAPOORJI PALLONJI & CO. LTD. . 28 DEVELOPMENT. THEY WERE FORMED IN THE YEAR 2007-08 SO AS TO UNDERTAKE DEVELOPMENT OF TWO PROJECT VIZ. SAMTA NAG AR LOCATED AT SAMTA NAGAR, KANDIUALI EAST AND. WORLD TRADE CITY LOCATED AT GARODIA NAQAR, GHATKOPAR JOINTLY WITH SHAPOORJI PAL LONJI GROUP UIZ. SHAPOORJI PALLONJI & CO. LTD. AND S. D. CORPORATION PVT. LTD. THE FIRMS HAD BEING RECEIVING PAYMENTS IN THE NATURE OF ADVANCES AS PER THE PROGRESS OF PROJECT FROM SHAPOORJI PALLONJI & CO. LTD. AND S. D. CORPORATION PVT. LTD. FOR MEETING PROJECT EXPENS ES AND ACQUISITIONS OF LAND, DEVELOPMENT RIGHTS, TDR, FSI, ETC FOR BOTH PROJECTS. SINCE BOTH ARE PROPRIETORSHIP FIRMS, THE INCOME TAX RETURN FOR BOTH FIRMS ARE CLUBBED TOGETHER WITH INCOME TAX RETURN OF SHRI NILESH J. THAKUR. ENCLOSED FIND COPY OF INCOME TAX RETURN ACKNOWLEDGEMENT ALONG WITH COPY OF FIRM'S BALANCE S HEET AND P & L A/ C. 2 . DETAILS OF TRANSACTIONS WITH FOLLOWING PARTIES: I. M/S. SHAPOORJI PALLONJI & CO. LTD. AS EXPLAINED ABOVE IN POINT NO. 1 UNDER PRS ENTERPRISES, SHRI NILESH J. THAKUR HAD JOINTLY UNDER TAKEN DEVELOPMENT OF SAMTA NAGAR LOCATED AT SAMTA N AGAR KANDIVALI EA.ST AND WORLD TRADE CITY AT GARODIA NAG AR, GHATKOPAR. PRS ENTERPRISES HAS RECEIVED FOLLOWING AMOUNTS FROM SHAPOORJI PALLONJI & CO. LTD.: DATE PARTY NAME AMOUNT TDS TOTAL 26-SEP-07 SHAPOORJI PALLONJI & CO. LTD. 30,000,000 ----- 30,000,000 26-SEP-07 SHAPOORJI PALLONJI & CO. LTD. 20,000,000 ---- 20,000,000 1-0CT-07 SHAPOORJI PALLONJI & CO. LTD. 30,000,000 ---- 30,000,000 31-OCT-07 SHAPOORJI PALLONJI & CO. LTD. 50,000,000 ---- 50,000,000 29-NOV- 07 SHAPOORJI PALLONJI & CO. LTD. 45.000,000 ---- 45.000,000 26-DEC- 07 SHAPOORJI PALLONJI & CO. LTD. 95,000,000 ---- 95,000,000 10-JAN- 08 SHAPOORJI PALLONJI & CO. LTD. 65,000,000 ---- 65,000,000 10-MAR- 08 SHAPOORJI PALLONJI & CO. LTD. 1 00,000,000 ---- 1 00,000,000 7-APR-08 SHAPOORJI PALLONJI & CO. LTD. 165,000,000 ---- 165,000,000 9-JUN-08 SHAPOORJI PALLONJI & CO. LTD. 95,000,000 ---- 95,000,000 14-JUL-08 SHAPOORJI PALLONJI & CO. LTD. 50,000,000 ---- 50,000,000 21-JUL-08 SHAPOORJI PALLONJI & CO. LTD. 1 00, 000, 000 ---- 1 00, 000, 000 TOTAL 845,000,000 ---- 845,000,000 ALL THE ABOVE AMOUNTS HAVE BEEN RECEIVED IN THE CUR RENT A/ C. NO. 10216008637 OF M/S. PRS ENTERPRISES MAINTAINED WITH GREATER BOMBAY CO-OPERATIVE BANK LTD. ANDHERI BRANCH, BANK STATEMENT OF M/S SHAPOORJI PALLONJI & CO. LTD. . 29 THE SAME IS ENCLOSED FOR YOUR READY REFERENCE. III. ACE CARD INFRASOL PVT. LTD. IT IS A GROUP COMPANY OF SHRI NILESH J. THAKUR THE COMPANY IS INTO BUSINESS OF REAL ESTATE DEVELOP MENT. IT WAS FORMED IN THE YEAR 2008 SO AS TO UNDERTAKE DEVELOPMENT OF PROJECT VIZ.; WORLD TRADE CITY LOCATED AT GARODIA NAGAR, GHATKOPA R JOINTLY, WITH SHAPOORJI PALLONJI & CO. LTD. THE FILMS HAD BEING RECEIVING PAYMENTS IN THE NATURE OF ADVANCES AS PER THE PROGRESS OF PROJECT FROM SHAPOORJI PALLONJI & CO. LTD. AND S. D. CORPORATION PVT. LTD. FOR MEETING PROJECT EXPENSES AND ACQUISIT IONS OF LAND, DEVELOPMENT RIGHTS, TDR, FSI, ETC INTER COMPANY ADV ANCES HAVE BEEN PAID AND RECEIVED FROM ACE CARD INFRASOL PUT. LTD. BY BOTH PRS ENTERPRISES & PRS DEVELOPERS. ENCLOSED FIND COPY OF LEDGER ACCOUN T OF ACE CARD INFRASOL PVT. LTD., IN THE BOOKS OF PRS ENTERPRISES &, PRS DEVELOPERS. 5.4.4 SUBSEQUENTLY THE ASSESSEE AGAIN SUBMITTED BEF ORE THE DDIT AS UNDER: SPCL WISHED TO ACQUIRE LARGE TRACTS OF LAND IN THE PANVEL, ALIBAUG, PEN AND RAIGAD AREAS FOR THEIR BUSINESS ACTIVITIES AND AROUND 2007, SPCL WAS APPROACHED BY N. J. TF.AKUR AS SALE PROPRI ETOR OF PRS ENTERPRISES AND AS DIRECTOR OF ACE CARD INFRASOL PVT. LTD. THAT HE HAD THE NECESSARY RESOURCES AND EXPERTISE AND TH AT THEY CAN PROCURE AND FACILITATE ACQUISITION OF LANDS ADMEASU RING APPROX. 900 ACRES, WITHIN A PERIOD OF 5 YEARS, SITUATE AT ALIBAG, PEN) PANUEL AREAS IN AND AROUND RAIGAD DISTRICT AND ENSURE THE TRANSFER OF THE SAME WITH CLEAR 'AND MARKETABLE TITLE FREE FROM ALL ENCU MBRANCES TO SPCL, WITH THE FREE CONSENT OF OWNERS OF LAND WITHO UT ANY LITIGATION OR PROBLEM, AND WAS CONVERSANT WITH THE LOCAL PEOPL E AND ISSUES, RULES AND PROCEDURES APPLICABLE WITH LAND ACQUISITI ON IN THE PROJECT AREAS. BY LETTER OF APPOINTMENT DATED 16 TH JULY, 2007 SPCL APPOINTED SHRI NILESH. THAKUR THROUGH HIS ENTITY FRS ENTERPRISE TO IDENTIF Y: ASSIST AND AGGREGATE FOR SPCL, THE LANDS IN THE PROJECT AR EAS) INTER ALIA ON THE TERMS AND CONDITIONS THEREIN. THE SAID LETTER R EQUIRED THE 300 ACRES BE ACQUIRED WITHIN 3 YEARS - BY 2010 & THE BALANCE 600 WITHIN 5 YEARS. THE SAID LETTER OF APPOINTMENT WAS ACCEPTED SHRI NILESH THAKUR/ PRS ENTERPRISES BY ITS LETTER DATED 19T H JULY, 2007. SPCL MADE PAYMENTS OF AN AGGREGATE AMOUNT OF RS.141 .50 CRS FROM TIME TO TIME (I.E. BETWEEN JULY 2007 AND MID 2009) BY ACCOUNT PAYEE CHEQUES TO SHRI NILESH THAKUR'S CONCERNS I. E. PRS ENTERPRISES AND ACE CARD INFRASOL PVT. LTD IN TERMS OF THE LETTER O F APPOINTMENT DATED 16.7.2007. M/S SHAPOORJI PALLONJI & CO. LTD. . 30 IN LATE 2009, SP BEGAN TO DOUBT THE BONA FIDES OF T HE SAID N. J. THAKUR AND CONFRONTED HIM REGARDING THE STATUS OF L AND ACQUISITION AND UPON INQUIRY BY SPCL, IT CAME TO LIGHT THAT HE HAD WRONGFULLY MISUSED SP'S FUNDS TO PURCHASE SEVERAL OTHER PROPERTIES IN THEIR OWN NAME AND BY LETTERS DATED 22.3.2010 OF PRS ENTE RPRISES ADDRESSED TO SPCL AND LETTER DATED 22.3.2010 OF ACE CARD INFRASOL PVT. LTD. ADDRESSED TO SPCL, IT WAS INFORMED THE PA YMENTS WERE USED FOR ACQUIRING PROPERTIES AND FDS 'AND THE SAME SHALL BE TRANSFERRED SOON. FURTHER SINCE N. J. THAKUR FAILED TO COMPLY OR REFUND THE MONIES OR TRANSFER THE PROPERTIES TO SPCL, SPCL FILED A SUIT IN BOMBAY HIGH COURT AND AS PER THE CONSENT T ERMS' ARRIVED AT IN BETWEEN SPCL AND N. J. THAKUR & OTHERS, IT WAS AGREED TO SETTLE THE DISPUTE BY TRANSFERRING ALL THE MOVEABLE (DEPOSIT RECEIPTS & BANK ACCOUNTS) AND IMMOVEABLE ASSETS HELD BY N. J. THAKUR & OTHERS., IN FAVOUR OF SPCL. ACCORDINGLY, AN ORDER D ATED 19 TH OCTOBER 2011 WAS PASSED BY THE HON'BLE BOMBAY HIGH COURT IN THE AFORESAID SUIT, IN TERMS OF THE CONSENT TERMS. TILL DATE, HOWEVER, THE DECREE ISSUED BY THE HON'BLE BOMBAY HIGH COURT REMAINS UNENFORCED. THE ADVANCES GIVEN BY SPC L TO N. J. THAKUR AND ACE CARD INFRASOL PVT. LTD. ARE REFLECTE D UNDER THE HEAD (ADVANCE PAYMENTS FOR LAND ACQUISITION. 5.4.5 FROM THE ABOVE IT IS CLEAR THAT THE ASSESSEE AND SHRI NJ THAKUR ARE CONTRACTING EACH OTHER. ON ONE HAND THE ASSESSEE CLAIMS THAT THESE PAYMENTS WERE MADE TOWARDS ACQUIS ITION OF LAND IN AND AROUND ALIBAUGH AND OTHER AREAS IN RAIG AD DISTRICT. WHILE SHRI N. J. THAKUR STATES THAT THE AMOUNTS WERE RECEIVED TOWARDS THE DEVELOPMENT OF PROJECT AT SAMATA NAGAR, KANDIVALI (E), MUMBAI AND FOR DEVELOPMENT OF WORLD TRADE CITY AT GARODIA NAGAR, GOREGAON, MUMBAI. FURTHER LIGHT ON THE .NATU RE OF THESE TRANSACTIONS IS THROWN BY THE FINDINGS OF THE ITO-2 5(1)(4), MUMBAI AND C!T(A)-35, MUMBAI IN THE INDIVIDUAL ASSE SSMENTS OF SH.RI NJ THAKUR FOR THE A.Y.2008-09. THIS IS DIS CUSSED HEREUNDER: B. ASSESSMENT ORDER OF SHRI N J THAKUR A.Y.2008-09 BY THE ITO- 25(1)(4), MUMBAI THE ITO / AO OF SHRI N. J. THAKUR HAS EXAMINED THE TRANSACTIONS IN DEPTH AS WELL AS CALLED FOR THE DETAILS FROM MY ASSESSEE. THE RELEVANT CONCLUSION OF THE AO IS REPR ODUCED HEREUNDER: 'DESPITE BEING GIVEN AMPLE OPPORTUNITIES VIDE NOTIC ES/SUMMONS REFERRED ABOVE, THE ASSESSEE FAILED TO PRODUCE BOOKS OF ACCOUNTS OR M/S SHAPOORJI PALLONJI & CO. LTD. . 31 ANY OTHER DOCUMENTARY EVIDENCES REGARDING HIS BUSIN ESS ACTIVITIES TO SUBSTANTIATE AND CORROBORATE ITS SUBMISSIONS THR OUGH VARIOUS LETTERS AND BOOKS. IN HIS SUBMISSION THE TALL CLAIM S MADE BY THE ASSESSEE PRIMA FACIE APPEAR TO BE HOLLOW IN THE ABS ENCE OF ANY SUBSTANTIATING/ CORROBORATING DOCUMENTS. THE ASSESS EE CLAIMED THAT HE IS ASSOCIATED WITH CONSTRUCTION ACTIVITY OR OTHER ACTIVITY BUT HAS NOT BEEN ABLE TO PRODUCE SINGLE DOCUMENTARY EVI DENCE IN SUPPORT OF HIS CLAIM TO HAVE BEEN ENGAGED IN THE CO NSTRUCTION ACTIVITY. THROUGHOUT HIS SUBMISSION THE ASSESSEE HA S BEEN PUTTING UNDUE EMPHASIS ON HIS CLAIM OF PARTNERSHIP WITH M/ S. SPCL BUT HE HAS FAILED TO SUBMIT ANY DOCUMENTARY EVIDENCE TO SU BSTANTIATE HIS CLAIM THAT HE IS A PARTNER OF M/S. SPCL. ON THE CONTRARY, M/S. SPCL HAS STATED THAT THEY HAVE ADVANCED MONEY TO THE ASS ESSEE FOR PROCURING LAND AND M/S. SDCL HAS STATED THAT THEY HAVE PAID FEE TO THE ASSESSEE. IF ASSESSEE'S VERSION IS TO BE ACCEPT ED THE ASSESSEE IS A PARTNER OF SPCL, IF SPCL VERSION IS TO BE ACCEPTED HE BECOMES AN AGENT OF SPCL FOR PURCHASING LAND ON BEHALF OF SPCL AND IF THE VERSION OF SDCL IS TO BE ACCEPTED THE ASSESSEE IS A PROFESSIONAL WHO HAS RECEIVED FEE FOR CONSULTANCY WORKS. ALL THE THR EE REPLIES ARE CONTRADICTING EACH OTHER. IT IS SURPRISING THAT NON E OF THE ABOVE ENTITIES INCLUDING THE ASSESSEE HAS SUBMITTED A SIN GLE DOCUMENTARY EVIDENCE REGARDING THEIR ASSOCIATION WITH EACH OTHE R EITHER THROUGH PARTNERSHIP OR THROUGH APPOINTMENT AS CONSULTANT OR AGENT OR ANY OTHER RELATIONSHIP. THE ONLY THING WHICH IS CLEAR F ROM THE ABOVE IS THAT THERE IS HUGE INFLUX OR FUNDS IN THE ASSESSEE'S ACCOUNT THRO UGH CHEQUE FROM THESE TWO CONCERNS NAMELY SPCL AND SDCL. THE ASSESSEE HAS SHOWN THESE TWO CONCERNS AS SUNDRY CRE DITORS IN HIS UN-AUDITED BALANCE SHEET. THE ACCOUNTING ENTRIES SH OWN BY THE ASSESSEE IS NOT SUBSTANTIATED BY WAY OF DOCUMENTARY EVIDENCE OR THIRD PARTY CONFIRMATIONS. HENCE, THE ACCOUNTING EN TRIES DONE BY THE ASSESSEE IS NOT ACCEPTABLE. THE ASSESSEE HAS CLAIME D 'HIMSELF TO BE A PARTNER OF SPCL. THE CLAIM IS NOT ACCEPTABLE ON THE GROUND THAT M/ S. SPCL HAS NOT RECOGNIZED HIM AS A PARTNER, NO PARTNERSHIP AGREEMENT HAS BEEN MADE, THE LETTER DATED 10.11.2010 WRITTEN BY THE ASSESSEE TO M/S. SPCL HAS BEEN WRITTEN ONLY AFTER INITIATION OF SCRUTINY PROCEEDINGS AND IF ASSESSEE'S OWN VERSION IS TO BE TAKEN AS TRUE THE QUESTION ARISES AS TO WHY HE HAS WRITTEN F OR ENTERING INTO A FORMAL AGREEMENT OF PARTNERSHIP AFTER FIVE YEARS OF CLAIMED ASSOCIATION. IN HIS SUBMISSIONS THE ASSESSEE HAS CL AIMED TO BE ASSOCIATED WITH VARIOUS COMPANIES, ETC., BUT HE HAS FAILED TO PRODUCE SUPPORTING AND CORROBORATING EVIDENCES TO SUBSTANTI ATE ANY RELATIONSHIP. THE ASSESSEE WAS ASKED IN QUESTION NO . 15 TH & 16 TH OF THE STATEMENT RECORDED ON OATH RECORDING PROOF FOR ASSESSEE BEING ENGAGED IN BUSINESS OF CONSTRUCTION ACTIVITY OR HAVING ANY M/S SHAPOORJI PALLONJI & CO. LTD. . 32 PARTNERSHIP WITH M/S. SPCL AND WAS ASKED TO PRODUCE COPY OF MINUTES OF MEETING AND SUPPORTING FOR PROJECTS, ETC . AS STATED BY THE ASSESSEE. THE ASSESSEE SUBMITTED THAT ALL PROJECTS BELONGS TO TENANTS OR CENTRAL GOVERNMENT. PROCESS OF SANCTION IS GOING ON BUT FAILED TO SUBMIT EVEN SINGLE DOCUMENTARY EVIDENCE O N THE BASIS OF WHICH HE CAN BE TREATED AS A BUSINESSMAN ENGAGED IN CONSTRUCTION ACTIVITY OR A PARTNER OF M/S. SPCL. IN THE NAME OF EVIDENCE THE ASSESSEE HAS SUBMITTED FEW LETTERS WRITTEN BY THE A SSESSEE TO VARIOUS AUTHORITIES. AS THE CORRESPONDENCES RELIED UPON BY THE ASSESSEE ARE UNILATERAL ACT OF THE ASSESSEE THE SAM E HAS NO EVIDENTIARY VALUE IN MY VIEW. AS THE ASSESSEE HAS F AILED TO PROVE ANY BUSINESS ACTIVITY DURING THE F.Y. 2007-08 IT IS HELD THAT THE ASSESSEE IS ENGAGED IN ANY BUSINESS ACTIVITY. THE A MOUNT RECEIVED FROM M/ S. SDCL AND M/S. SPCL IS BEING DEALT WITH IN SUBSEQUENT PARAGRAPHS. IN VIEW OF THE ABOVE DISCUSS ION THE ACCOUNTING ENTRIES SHOWN BY THE ASSESSEE IN THE BALANCE SHEET ARE NOT ACCEPTABLE. 5.4.6 MORE IMPORTANTLY THE AO RECORDED A STATEMENT O N OATH OF SHRI N. J. THAKUR ON 14-12-2010 WHICH THROW S LIGHT ON THE TRANSACTIONS. THE RELEVANT QUESTIONS A ND ANSWERS ARE REPRODUCED HEREUNDER: 5. DO YOU HAVE ANY WRITTEN AGREEMENT WITH M/S. SHAPOOR JEE & PALLONJEE & CO. AND M/S. SD CORPORATION PVT. LTD. ANS. NO. WE HAVE ACQUIRE D THESE 15 CRORES FDS FOR M/S. SHAPOORJEE & PALLONJEE & CO. LTD. AS PER DIRECTIONS OF SHRI SHAP ORJEE PALLONJEE MISTRY, CHAIRMAN OF SP GROUP HIMSELF SD CORPORATION CAME IN TO EXISTENCE AFTE THREE MONTHS OF ACQUISITION OF PROJECT FOR MIS. SHA POORJEE & PALLONJEE & CO. LTD. 6. HAVE YOU ACQUIRED ANY LAND/ RIGHT/ ASSET ON BEHALF OF M/S. SHAPOORJEE & PALLONIEE & CO ANS. NO. 8. IN REPLY TO NOTICE U/S.133(6) OF THE IT ACT, 1961 M /S. SD CORPORATION HAS SUBMITTED THAT THEY HAVE PAID YOU (PR OPRIETARY CONCERN M/S. PRS, DEVELOPERS - RS.31,67,50,000/- AS FEE). A CO PY OF THE REPLY IS HANDED OVER TO YOU. PLEASE GO THROUGH AND OFFER Y OUR COMMENT AS TO WHY THIS AMOUNT SHOULD NOT BE TAXED. ANS. PLEASE REFER TO OUR SUBMISSION DATED 03.12. 2010 IN PAGE NO.24 & 25, POINT NO. 8. 9. IN REPLY TO NOTICE U/ S. 133(6) MI S. SHAPOORJEE & PALLONJEE & CO. LTD. HAS SUBMITTED THAT THEY HAVE GIVEN YOU ADVANCE OF R S. 43, 50,00,000/- M/S SHAPOORJI PALLONJI & CO. LTD. . 33 FOR PURCHASE OF LAND IN THEIR BEHALF THE COPY OF RE PLY IS HANDED OVER TO YOU. PLEASE GO THROUGH THE REPLY AND OFFER OUR COM MENTS THEREOF . ANS. PLEASE REFER TO OUR SUBMISSION DATED 03.12.2010 IN PAGE NO:269 IN WHICH WE HAVE EXPLAINED OUR WORKINGS FOR LAST 10 YE ARS TO THE CHAIRMAN M/S SP GROUP 10. HAVE YOU RECEIVED SIM ILAR ADVANCES FOR UNDERTAKING SIMILAR NATURE OF WORK FROM ANY OTHER COMPANY OTHER THAN M/S SHAPOORJ EE & PALLONJEE & CO. LTD. IN PAST AND TILL DATE? ANS. NO. 11. HAVE YOU RECEIVED SIMILAR FEE FOR UNDERTAKING SIMIL AR NATURE OF WORK FROM ANY OTHER COMPANY OTHER THAN M/S SD CORPORATIO N IN PAST AND TILL DATE? ANS. NO. WE HAVE NOT RECEIVED ANY FEE FROM ANY OTHER CON CERN. 12 WHY THE AMOUNT OF RS.43,50,00,000/ - RECEIVED FROM M/S. SHAPOORJEE & PALLONJEE & CO. LTD. SHALL NOT BE TREATED AS INCOME RECEIVED WITHOUT CONSIDERATION AND BE BROUGHT TO TAX U/ S.56 OF THE IT ACT, 1961? ANS. PLEASE REFER TO PAGE NO.13 AND PAGE NO.269 OF OUR S UBMISSION DATED 03 - 12-2010 IN WHICH WE HAVE EXPLAINED OUR EFFORTS AND WORKINGS FOR THE LAST TEN YEARS FOR THE SUCCESSFUL IDENTIFICATION AN D SUBMISSION EXECUTION AND PART COMPLETION OF 15.72 CRORE FSI FOR SP G ROUP AND WE HAVE DEPOSITED ALL PAPERS TO MR. VINAY KARVE, LEGAL HEAD OF SP GROUP. PLEASE CONFIRM. 13. DO YOU HAVE ANY PROOF OF HANDING THE ABOVE PAPERS T O MR. KARVE? ANS. NO. 14. M/S. SHAPOORJEE & PALLONJEE & CO. HAS SUBMITTED ITS REPL Y IN RESPONSE TO NOTICE U/ S.133(6) OF THE IT ACT, 1961 THAT THEY HAVE GIVEN ADVANCE FOR PURCHASE OF LAND IN THEIR INCOME. HAVE YOU PU RCHASED ANY LAND IN THEIR BEHALF ANS. NO MONEY GIVEN TO OUR GROUP IS FOR PROJECT AND NOT FOR LAND WHICH CAN BE PROVED BY A GENERAL MEETING OF 5000 PEOPLE ADDRESSE D BY AND CHAIRED BY SHRI SHAPOORJEE PALLONJEE MISTRY HIMSELF. 15. CAN YOU PRODUCE THE MINUTES OF MEETING? ANS. THIS MEETING IS FOR INAUGURATION OF PROJECT AND NOT FOR INAUGURATION LAND. INVITATION AND PHOTOGRAPHS OF MEETING AND EXPENSES GIVEN TO VARIOUS GROUPS FOR THE MEETING ARE DONE BY OUR G ROUP. IT IS CLEAR FROM AVAILABLE EVIDENCES UNDER INDIAN EVIDEN CE ACT THAT MONEY GIVEN IS FOR PROJECT AND NOT FOR LAND. PLEASE REFER TO PAGE N0.2 97, 348 AND 414 OF OUR SUBMISSION DATED 03.12.2010 IN WHICH M/ S. SHAPOORJ EE & PALLONJEE & CO. HAS SIGNED REGISTERED DEED WITH GOUERNMENI OJ M AHARASHTRA AND GIVEN CONSENT FOR GOVT. PROJECT AND NOT FOR GOVT. L AND AND SO MONEY GIVEN TO OUR GROUP IS FOR PROJECT AND NOT FOR LAND. THIS PROJECT IS SUBMITTED TO GOVERNMENT OF INDIA AND GOI VIDE THEIR LETTER DATED 02.07.2010 ON PAGE NO.297 ADDRESSED TO OUR GROUP FO R SUBMISSION OF PROJECT TO HIGH POWER COMMITTEE OF GOVT. OF MAHARAS HTRA. IF MONEY IS M/S SHAPOORJI PALLONJI & CO. LTD. . 34 GIVEN FOR PURCHASE OF LAND THEN HOW SHAPOORJEE & PA LLONJEE & CO. HAS SIGNED REGISTERED DEED FOR THE PROJECT. 16. DO YOU HAVE ANY SANCTION FROM ANY OF THE GOVERNMENT AUTHORITIES IN YOUR NAME OR IN THE NAME OF YOUR PROPRIETARY CONCER NS? ANS. ALL PROJECT LANDS BELONG TO TENANTS OR MHADA OR CEN TRAL GOVERNMENT. PROCESS OF SANCTION IS GOING ON AND CENTRAL GOVERNM ENT HAS ISSUED LETTER DATED 02.07.2010 AFTER SUBMISSION OF PROJECT BY OUR GROUP. ALL CLEARANCES ARE SANCTIONED IN THE NAME OF TENANT ORG ANIZATIONS AND AFTER DUE PROCESS OF REHABILITATION SANCTIONS AND RESALE FSI WILL BE TRANS ERRED IN THE NAME OF OUR GROUP. SANCTIONS ARE PRO CURED BY ARCHITECTS APPOINTED BY OUR GROUP UNDER ARCHITECT ACT. 17. DO YOU HAVE ANY CORRESPONDENCE WITH SHAPOORJEE & PA LLONJEE & CO. LTD. AND M/S. SD CORPORATION PVT. LTD. WITH REGARD TO ADVANCES AND FEE RECEIVED FROM THEM? CAN YOU PRODUCE A SINGLE DOCUME NT? ANS. PLEASE REFER TO PAGE NO.57 OF OUR SUBMI SSION DATED 03.12.2010 18. PAGE NO. 57 IS A LETTER WRITTEN BY YOU ON THE LETTE R HEAD OF M/S. LUCKY ANGEL GROUP ADDRESSED TO SHRI PALLONJEE SHAPOORJEE MISTRI, CHAIRMAN SP GROUP ON 10.11.2010, I.E. AFTER INITIATION OF SCRUT INY PROCEEDINGS. HAVE YOU RECEIVED ANY COMMUNICATION IN REPLY FROM M/S. SHAPO ORJEE & PALLONJEE & CO. LTD.? PLEASE ALSO EXPLAIN AS TO WHY THE LETTER WRITTEN BY YOU SHOULD NOT BE DEEMED AN ATTEMPT MADE BY YOU TO EXPLAIN THE ENTRIES IN THE BOOKS AND TO CREATE EVIDENCES IN Y OUR FAVOUR? ANS. 1. PLEASE REFER TO PAGE NO. 60, 66, 67, 68 & 69 OF OUR SUBMISSION DATED 03.12.2010 IN WHICH ON PAGE NO.65 IN THE FIRS T LINE WE HAVE MENTIONED THAT OUR GROUP IS WORKING FOR THE LAST 7 YEARS FOR SP GROUP FOR WHICH ALL EVIDENCES AS PER EVIDENCE ACT AND ALL CHE QUE PAYMENTS AND CASH PAYMENTS MADE FROM OUR BOOKS OF ACCOUNTS ARE M ENTIONED. 2. PROJECT SITES OF SAMTA NAGAR GARODIA SALT PAN, KANNAMUAR NAGAR AND TAGORE NAGAR ARE ACQUIRED FOR SP GROUP BY CHEQU E AND CASH PAYMENTS. 3. ALL ORIGINAL PROJECT SANCTIONS AND RECEIPTS OF MADA PAYMENTS TO THE TUNE OF .60 CRORE WITH OUR GROUP AND NOT WITH SP GROUP. 4. PROJECT OF 15. 72 CRORE FSI IS SUBMITTED TO CENT RAL GOVT. BY MY GROUP AND NOT BY SP GROUP. 5. LETTER FROM CENTRAL GOUT. IS ISSUED TO MY ADVOCA TE AND NOT THE ADVOCATE OF SP GROUP. 6. PLEASE REFER TO PAGE NO.65 & 66 IN LAST PARA IN WHICH WE HAVE EXPLAINED CRIMINAL CONSPIRACY AGAINST OUR GROUP TO CHAIRMAN SP GROUP IN WHICH OFFICE BEARERS OF SP GROUP WERE CAUGHT RED HANDED AND CHARGES CRIMINAL BREACH OF TRUST, CRIMINAL CONSPIRA CY, ATTEMPT 19. IN YOUR ANSWERS YOU HAVE REFERRED TO VARIOUS PAYMENTS. CAN YOU CORROBORATE YOUR SUBMISSIONS BY WAY O F EVIDENCES IN THE FORM OF BOOKS/ VOUCHERS AND ACCOUNTS ETC ANS. YES. WE HAVE EVIDENCES IN THE FORM OF CHEQUE PAYMEN TS TO VARIOUS TENANT GROUPS AND EVIDENCES FOR OTHER PROJECT WO RKS. BUT DUE TO CRIMINAL BREACH OF 100 STRONG GANGSTERS ON OUR O FFICE TWICE THEY ARE M/S SHAPOORJI PALLONJI & CO. LTD. . 35 DESTROYED. 20. CA N YOU FILE CONFIRMATIONS FROM THE PERSONS TO WHOM C HEQUES HAVE BEEN PAID EXPLAINING THE NATURE OF RECEIPTS IN THEIR HAN D ALONG WITH THEIR IT RETURNS AND REFLECTIONS IN THEIR BOOKS OF ACCOUNTS. YOU HAVE ALREADY BEEN ASKED THESE DETAILS VIDE EARLIER NOTICES IN 2- 3 OCCASIONS BUT YOU HAVE FAILED TO SUBMIT DETAILS VIZ. NAME, ADDRESS AN D CONFIRMATIONS ALONG WITH EVIDENCES. ANS. WE WILL FILE SEPARATE SUBMISSION ON THIS POINT BY 2 0 DAYS, I.E. BY 3 RD JANUARY, 2011. 21. IT IS SEEN FROM YOU R BALANCE SHEET THAT YOU HAVE ACQUIRED FIXED ASSETS , I.E. LAND, BUILDING, HOTELS, RESORTS IN YOUR NAME O UT OF MONEY RECEIVED FROM M/S. SHAPOORJEE & PALLONJEE & CO. LTD. AND M/S . SD CORPORATION PVT. LTD. WHICH IS CONTRADICTORY TO THE VERSION OF SHAPOORJEE PALLONJEE AND EVEN YOURS. PLEASE OFFER YOUR COMMENTS. ANS. AS EXPLAINED EARLIER IN POINT NO.1S MONEY GIVEN FOR PROJECT AND NOT FOR LAND. PLEASE REFER TO PAGE NO. 26 OF OUR SUBMISSION . WE HAVE TO MARKET 15. 72 CRORE FREE SALE PSI IN FUTURE AND ALL P ROPERTIES PURCHASED IN OUR NAME WILL BE PART OF FINAL SALES STRATEGY AND AGREEMENT OF PROJECT BETWEEN OUR GROUP AND SP GROUP. 22. WHERE THE ORIGINAL AGREEMENTS PERTAINING TO THE A SSETS SHOWN IN THE BALANCE SHEET. ANS. ON 16.02.20 10 OUR OFFICE PREMISES WERE RAIDED BY SERVICE TAX O FFICERS. WE ARE DEVELOPING PROJECTS OF 10,000 TENEMENTS AND WE CAN LOCATE THESE AGREEMENTS AFTER DETAILS OF PAPERS TAKEN AWAY AND S EIZED BY SERVICE TAX OFFICERS. WE HAVE GIVEN SEVEN REMINDERS FOR RET URN OF DOCUMENTS. WE ARE SUBMITTING COPY OF LATEST LETTER NOW. 5.4.7 FROM THE ABOVE IT IS CLEAR THAT SHRI NJ THAKUR C LAIMED TO BE A PARTNER WITH MY ASSESSEE AND CLAIMS TO HAVE RECEIVED M ONEY AS ADVANCE FOR VARIOUS PROJECTS IN BOMBAY. HOWEVER, NEITHER SHR I NJ THAKUR NOR MY ASSESSEE HAVE SUBMITTED A SINGLE DOCUMENTARY EVIDEN CE REGARDING THEIR ASSOCIATION WITH EACH OTHER THROUGH PARTNERSHIP OR THROU GH APPOINTMENT AS CONSULTANT /AGENT / ANY OTHER RELATIONSHIP. MY ASSE SSEE HAS NOT RECOGNIZED SHRI N. J. THAKUR AS A PARTNER AND NO PA RTNERSHIP AGREEMENT WAS MADE. SHRI N. J. THAKUR COULD NOT PRODUCE ANY EV IDENCE WHATSOEVER REGARDING THE ALLEGED PROJECTS HE HAS UNDERTAKEN ON BEHALF OF MY ASSESSEE. BASED ON THE ABOVE FINDINGS, THE AO OF SHRI N. J. THA KUR PROCEEDED TO ASSESS THE AMOUNTS RECEIVED BY HIS PROPRIETORSHIP C ONCERN VIZ., PRS ENTERPRISES U/S.56(2)(VI) AS AN AMOUNT RECEIVED WIT HOUT CONSIDERATION. THE AO OF SHRI N. J. THAKUR HAS CLEARLY GIVEN THE FIN DINGS THAT THERE IS NO BUSINESS RELATION BETWEEN SHRI NJ THAKUR AND MY ASSESSEE. C. THE ORDER OF CIT(A)-35, MUMBAI IN THE CASE SHRI NJ THAKUR FOR A.Y.2008-09 M/S SHAPOORJI PALLONJI & CO. LTD. . 36 IN THE ORDER OF THE CIT(A)-35, MUMBAI IN APPEAL NO. CIT(A)-35/ITO- 25(1)(4)/IT.446/10-11 DATED 29-03-2012, THE ENTIRE MATTER WAS AGAIN ANALYZED IN-DEPTH BY THE CIT(A)-35 IN THE APPELLATE PROCEEDINGS OF SHRI N J THAKUR FOR A.Y.2008-09. ADDITIONAL EVIDENC ES WAS FILED BEFORE THE CIT(A). A REMAND REPORT WAS ALSO CALLED FOR FRO M THE AO OF SHRI N J THAKUR AND AFTER CONSIDERATION THE ADDITIONAL EVI DENCE PRODUCED AND THE REMAND REPORT, THE CIT(A) HAS CLEARLY HELD THAT THERE IS NO BUSINESS RELATION BETWEEN M/S. SHAPOORJI & PALANJI & CO. LTD., AND MJ S.PRS ENTERPRISES OR M/S. ACECARD INFRASOL PVT. LTD . THE RELEVANT FINDINGS OF THE ID.CIT(A) ARE PRODUCED HEREUNDER: 10.1.2 SHAPOORJI PALLONJI GROUP IN ITS REPLY, WHICH HAS BEEN REPRODUCED EARLIER TO THE ASSESSING OFFICER, HAS AC CEPTED THAT THEY HAD GIVEN MORE THAN RS.200 CRORES ON 38 DIFFERENT D ATES WITHOUT ISSUANCE OF BILL AND WITHOUT HAVING RECEIVED LAND A GREEMENT. 10.2.1 CLAIM OF PARTNERSHIP WITH SPCL M/S. SPCL H AVE NOT RECOGNIZED THE APPELLANT AS PARTNER. THERE IS NO PA RTNERSHIP AGREEMENT WITH N!I S. SPCL. THEY HAVE NOT RECOGNIZE D THE APPELLANT AS PARTNER AS IS EVIDENT FROM THE REPLIES OF M/S. SPCL . THEREFORE, THE CONTENTION OF THE APPELLANT THAT HE IS DOING HIS BU SINESS WITH M/S. SPCL AND HE IS TIED TO THEM FOR LAST MANY YEARS, IS NOT PROVED AND HENCE NOT ACCEPTABLE. THE APPELLANT HAS SUBMITTED T HAT HE HAS RECEIVED 1.2 CRORE SALABLE FSI FROM MHADA IS ALSO N OT SUBSTANTIATED BY WAY OF DOCUMENTARY EVIDENCES. MOREOVER, THIS SUB MISSION HAS NOTHING TO DO WITH THE FINANCIAL ACTIVITY OF THE AS SESSEE DURING F.Y.2007-08. 10.2.2 THE APPELLANT HAS ARGUED THAT HE DID VARIOUS WORKS AND TRANSACTIONS PERTAINING TO THE JOINT VENTURE WITH S P GROUP. THE SUBMISSION OF THE APPELLANT IS REJECTED AS NEIT HER M/S. SPCL NOR M/S. SDCL HAS RECOGNIZED HIM AS THEIR PART NER OR PROSPECTIVE PARTNER. IN REPLY TO NOTICE U/S.133(6) AND U/ S.131 OF THE IT ACT, 1961, THEY HAVE CATEGORICALLY DENIED TO HAV E ENTERED INTO ANY WRITTEN AGREEMENT WITH THE APPELLANT. THE APPELLANT HAS ALSO NOT SUBMITTED ANY PARTNERSHIP DEED OR ANY OTHER SUBSTAN TIATING OR CORROBORATING EVIDENCE. 10.2.3 THE APPELLANT HAS RELIED UPON A LETTER SENT TO SP GROUP FOR PREPARING AND SIGNING THE PARTNERSHIP AGREEMENT. TH E SAME HAS NO RELEVANCE. NOWHERE IN REPLY FROM M/S. SPCL OR M/S. SDCL, THE APPELLANT HAS BEEN RECOGNIZED AS A PARTNER. M/S SHAPOORJI PALLONJI & CO. LTD. . 37 10.2.4 THE VARIOUS PROPOSALS, LETTERS AND OTHER REP RESENTATIONS MADE TO VARIOUS AUTHORITIES BY THE ASSESSEE IN THE CAPAC ITY OF DIRECTOR OF M/ S. ACE CARD INFRASOL PVT. LTD. HAVE NOTHING TO DO W ITH THE ACTIVITIES OF THE APPELLANT DURING THE RELEVANT F.Y.2007-08. NO D OCUMENTARY EVIDENCE HAS BEEN SUBMITTED WITH REGARD TO EXISTENC E OF SUCH COMPANY OR ITS ASSOCIATION WITH THE APPELLANT. HENC E THE BOOK CONTAINING VARIOUS REPRESENTATIONS, MAPS ARE HEREBY HELD TO BE HAVING NO RELEVANCE. 10.3.3 THE APPELLANT HAS TRIED IN VAIN TO ARGUE THA T HE IS A PARTNER OF M/ S. SPCL. THE SAME IS NOT ACCEPTABLE AS THERE IS NO WRITTEN AGREEMENT WITH M/S. SPCL. IN RESPONSE TO NOTICE U/ S.133(6) AND 131 OF THE IT ACT, 1961 M/S. SPCL AND M/S. SDCL HAVE DE NIED TO HAVE ANY AGREEMENT WITH THE APPELLANT. THEY HAVE NOT REC OGNIZED THE APPELLANT AS A PARTNER. 10.3.4.1 REGARDING WRITTEN AGREEMENT WITH M/S. SPCL AND M/S. SDCL THE APPELLANT SUBMITTED THAT IT HAD REQUESTED CHAIR MAN, SPCL FOR COMPLETION OF PROCEDURE OF PARTNERSHIP AGREEMENT - IT MEANS THE APPELLANT HAD NOT ENTERED INTO ANY PARTNERSHIP AGRE EMENT WITH M/S. SPCL AND M/S. SDCL. 10.3.4.2 AS REGARDS DETAILS OF SERVICES RENDERED FO R ABOVE TWO COMPANIES, THE APPELLANT HAS FAILED TO FURNISH ANY DOCUMENTARY EVIDENCES REGARDING PARTNERSHIP AS ALSO FOR SERVICE S RENDERED. HENCE THE CONTENTION OF THE APPELLANT IS REJECTED. 10.3.4.3 THE APPELLANT SUBMITTED BEFORE A.O. THAT H IS RECORDS WERE DESTROYED. DURING THE PRESENT PROCEEDING, NOTHING B ETTER HAVE BEEN ARGUED. 10.4 DURING THE APPELLATE PROCEEDINGS ALSO, THE APP ELLANT HAS FAILED TO PROVE ITS BUSINESS RELATION WITH THE SHAPOORJI PALL ONJI GROUP. PRIOR TO THIS, DESPITE BEING GIVEN AMPLE OPPORTUNITIES BY AS SESSING OFFICER, THE APPELLANT FAILED TO PRODUCE BOOKS OF ACCOUNTS OR AN Y OTHER DOCUMENTARY EVIDENCES REGARDING HIS BUSINESS ACTIVI TIES TO SUBSTANTIATE AND CORROBORATE ITS SUBMISSIONS. THE T ALL CLAIMS MADE BY THE APPELLANT, PRIMA-FACIE APPEARS TO BE HOLLOW IN THE ABSENCE OF ANY SUBSTANTIATING/CORROBORATING DOCUMENTS. THE APPELLA NT CLAIMED THAT HE IS ASSOCIATED WITH CONSTRUCTION ACTIVITY AND OTH ER ACTIVITY BUT HAS NOT BEEN ABLE TO PRODUCE SINGLE DOCUMENTARY EVIDENC E IN SUPPORT OF HIS CLAIM. THROUGH OUT HIS SUBMISSION THE APPELLANT HAS BEEN PUTTING UNDUE EMPHASIS ON HIS CLAIM OF PARTNERSHIP WITH M/ S. SPCL BUT HE HAS FAILED TO SUBMIT ANY DOCUMENTARY EVIDENCE TO SU BSTANTIATE HIS M/S SHAPOORJI PALLONJI & CO. LTD. . 38 CLAIM. ON THE CONTRARY, M/S SPCL HAS STATED THAT TH EY HAVE ADVANCED MONEY TO THE APPELLANT JAR PROCURING LAND AND M/S. SDCL HAS STATED THAT THEY HAVE PAID FEE TO THE APPELLANT. IF APPELL ANT'S VERSION IS TO BE ACCEPTED HE BECOMES AN AGENT OF SPCL FOR PURCHASING LAND ON BEHALF OF SPCL AND IF THE VERSION OF SDCL IS TO BE ACCEPTE D THE APPELLANT IS A PROFESSIONAL WHO HAS RECEIVED FEE' FOR CONSULTANCY SERVICES. ALL THE THREE REPLIES ARE CONTRADICTING EACH OTHER. IT IS S URPRISING THAT NONE OF THE ABOVE ENTITIES INCLUDING THE APPELLANT HAS SUBM ITTED A SINGLE DOCUMENTARY EVIDENCE REGARDING THEIR ASSOCIATION WI TH EACH OTHER EITHER THROUGH PARTNERSHIP OR THOUGH APPOINTMENT AS CONSULTANT OR AGENT OR ANY OTHER RELATIONSHIP. THE ONLY THING WHI CH IS CLEAR FROM THE ABOVE IS THAT THERE IS HUGE INFLUX OF FUNDS IN THE APPELLANT'S ACCOUNT THROUGH CHEQUE FROM THESE TWO CONCERNS NAMELY SPCL AND SDCL. THE APPELLANT HAS SHOWN THESE TWO CONCERNS AS SUNDRY CR EDITORS IN THE UN-AUDITED BALANCE SHEET. THE NATURE OF ACCOUNTING ENTRIES SHOWN BY THE APPELLANT IS NOT SUBSTANTIATED BY WAY OF DOCUME NTARY EVIDENCE OR THIRD PARTY CONFIRMATIONS. HENCE THE ACCOUNTING ENT RIES DONE BY THE APPELLANT IS NOT ACCEPTABLE. THE APPELLANT HAS CLAI MED HIMSELF TO BE A PARTNER OF SPCL. THE CLAIM IS NOT ACCEPTABLE ON THE GROUND THAT M/ S. SPCL HAS NOT RECOGNIZED HIM AS A PARTNERS, NO PARTN ERSHIP AGREEMENT HAS BEEN MADE, THE LETTER DATED 10.11.2010 WRITTEN BY THE APPELLANT TO 1\// S. SPCL WAS WRITTEN ONLY AFTER INITIATION OF SCRUTINY PROCEEDINGS AND IF APPELLANT'S OWN VERSION IS TO BE TAKEN AS TRUE, THE QUESTION ARISES AS TO WHY HE HAS WRITTEN FOR ENTERI NG INTO A FORMAL AGREEMENT OF PARTNERSHIP AFTER LAPSE OF SO MANY YEA RS OF CLAIMED ASSOCIATION. IN HIS SUBMISSIONS, THE APPELLANT HAS CLAIMED TO BE ASSOCIATED WITH VARIOUS COMPANIES ETC., BUT HE HAS FAILED TO PRODUCE SUPPORTING AND CORROBORATING EVIDENCES TO SUBSTANTI ATE ANY RELATIONSHIP. THE APPELLANT WAS ASKED BY A.O., IN T HE STATEMENT RECORDED ON OATH, REGARDING PROOF FOR APPELLANT BEI NG ENGAGED IN BUSINESS OF CONSTRUCTION ACTIVITY OR HAVING ANY PAR TNERSHIP WITH M/ S. SPCL AND WAS ASKED TO PRODUCE COPY OF MINUTES OF ME ETING AND SUPPORTING FOR PROJECTS, ETC. AS STATED BY THE APPE LLANT. THE APPELLANT SUBMITTED THAT ALL PROJECTS BELONGS TO TENANTS OR C ENTRAL GOVERNMENT. PROCESS OF SANCTION IS GOING ON BUT FAILED TO SUBMI T EVEN SINGLE DOCUMENTARY EVIDENCE ON THE BASIS OF WHICH HE CAN B E TREATED AS A BUSINESSMAN ENGAGED IN CONSTRUCTION ACTIVITY AND A PARTNER OF M/ S. SPCL. IN THE NAME OF EVIDENCE, THE APPELLANT HAS SU BMITTED FEW LETTER WRITTEN BY THE APPELLANT TO VARIOUS AUTHORITIES. AS THE CORRESPONDENCES RELIED UPON BY THE APPELLANT ARE UN ILATERAL ACT OF THE APPELLANT, THE SAME HAS NO EVIDENTIARY VALUE IN MY VIEW. AS THE APPELLANT HAS FAILED TO PROVE ANY BUSINESS ACTIVITY DURING THE F. Y.2007-0B, IT IS HELD THAT THE APPELLANT WAS NOT EN GAGED IN ANY BUSINESS ACTIVITY. THE AMOUNT RECEIVED FROM M/S. SD CL AND J.W/ S. M/S SHAPOORJI PALLONJI & CO. LTD. . 39 SPCL HAVE BEEN DEALT WITH IN SEPARATE PARAGRAPHS. I N VIEW OF THE ABOVE DISCUSSION, THE ACCOUNTING ENTRIES SHOWN BY T HE APPELLANT IN THE BALANCE SHEET ARE NOT ACCEPTABLE. IT IS A FACT THAT THE APPELLANT HAS RECEIVED THE AMOUNT OF RS.43,50,00,000/-FROM M/ S. SPCL. M/S. SPCL TREATS IT AS ADVANCE FOR PROCURING LAND AND AP PELLANT CLAIMS IT TO BE AMOUNT RECEIVED FROM PARTNER. M/ S. SPCL HAS FAI LED TO ESTABLISH WITH SUPPORTING AND CORROBORATING EVIDENCE THAT THE AMOUNT REPRESENTS ADVANCE ON ACCOUNT OF LAND. WITH REGARD TO ADVANCING SIMILAR SUM TO ANY OTHER PERSON IN SIMILAR FASHION} M/ S. SPCL HAS STATED THAT THEY HAVE NOT ADVANCED TO ANY OTHER PER SON IN SUCH A MANNER. M/S. SPCL HAS NOT ENTERED INTO ANY WRITTEN AGREEMENT WITH THE APPELLANT BEFORE OR AFTER ADVANCING OF SUCH A H UGE SUM. THE VERSION OF M/S. SPCL IS DIFFICULT TO BELIEVE AS THE HUGE AMOUNT HAS BEEN FORWARDED WITHOUT ANY WRITTEN AGREEMENT. THE A PPELLANT IS NOT BIG BUSINESSMAN. IN THE BALANCE SHEET THE OPENING C APITAL IS SHOWN AT RS.5 LAKHS ONLY. HIS CREDIT WORTHINESS AS A BUSINES SMAN AND HIS BUSINESS ACUMEN ARE NOT PROVED FROM THE BALANCE SHE ET AND ITS OPENING CAPITAL. IN ABSENCE OF ANY WRITTEN AGREEMEN T} NOBODY WILL ADVANCE SUCH HUGE AMOUNTS TO A NOVICE PERSON LIKE A PPELLANT WHO DOES NOT HAVE ANY REPAYMENT CAPACITY. IT IS PERTINE NT TO MENTION HERE THAT THE APPELLANT HAS FILED RETURN OF INCOME FOR T HE FIRST TIME. THE APPELLANT IS NOT AN EXPERT IN PROPERTY MATTERS. IN STATEMENT RECORDED U/S.131 ON 14.12.2010, IN QUESTION NO.6 THE APPELLA NT WAS ASKED BY ASSESSING OFFICER THAT WHETHER HE HAVE ACQUIRED ANY LAND/RIGHT/ ASSET ON BEHALF OF M/S. SPCL THE APPELLANT ANSWERED IN NE GATIVE. WHEN ASKED BY ASSESSING OFFICER TO COMMENT ON THE REPLY OF M/S. SPCL THROUGH QUESTION NO.9 OF THE STATEMENT} THE APPELLA NT REFERRED TO PAGE-269 OF BOOK CONTAINING SUBMISSIONS DATED 29.12 .2010 WHICH IS A LETTER ADDRESSED TO HON'BLE PALLONJEE AND SHAPOORJE E MISTRY ON 10.11.2010 FOR ENTERING INTO PARTNERSHIP. THE SAID LETTER HAS NO EVIDENTIARY VALUE IN MY VIEW AS THE SAME IS WRITTEN ON 10.11.2010 AFTER THE INITIATION OF SCRUTINY PROCEEDINGS BY ASS ESSING OFFICER AND THE CONTENTS OF THE LETTER ARE DEVOID OF MERITS AND SUPPORTING EVIDENCES. THROUGH QUESTION NO.10 OF THE STATEMENT} THE APPELLANT WAS ASKED WHETHER HE HAS TAKEN SIMILAR ADVANCE FOR UNDERTAKING SIMILAR NATURE OF WORK FROM ANY COMPANY OTHER THAN M/S. SPCL IN PAST OR TILL DATE. THE APPELLANT REPLIED IN NEGATIV E. THROUGH QUESTION NO.12, THE APPELLANT WAS ASKED BY ASSESSING OFFICER TO EXPLAIN 'PLEASE STATE WHY THE AMOUNT OF RS.43,50,00,000/- RECEIVED FROM M/S. SPCL SHALL NOT BE TREATED AS AMOUNT RECEIVED WITHOUT CON SIDERATION AND BE BROUGHT TO TAX U/ S.56 OF THE IT ACT, 1961. THE APP ELLANT ANSWERED THAT PAGE NO.13 AND PAGE NO.269 OF SUBMISSION DATED 03.12.2010 BE REFERRED. THE APPELLANT FURTHER STATED THAT THE PAP ERS PERTAINING TO 15. 72 CR. FSI FOR SP GROUP - WE HAVE DEPOSITED ALL PAP ERS WITH MR. VINAY M/S SHAPOORJI PALLONJI & CO. LTD. . 40 KARVE, LEGAL HEAD OF MI S. SPCL. IN QUESTION NO.13 THE APPELLANT WAS ASKED WHETHER HE HAS ANY PROOF FOR SUBMISSION OF PA PER PERTAINING TO STATED 15.72 CRORE FSI TO MR. VINAY KARUE, LEGAL HE AD OF M/S. SPCL. THE APPELLANT REPLIED IN NEGATIVE. THE ASSESSING OF FICER AFTER GOING THROUGH THE PAGE NO.13 OF APPELLANT'S SUBMISSIONS D ATED 03.12.2010 SUBMISSION DATED 03.12.2010 WHICH SPEAKS ABOUT PROJ ECTS OF M/ S. LUCKY ANGEL GROUP HELD THAT THE APPELLANT HAS FAILE D TO SUBMIT THE IDENTIFICATION OF M/ S. LUCKY ANGEL GROUP AND ITS ASSOCIATION WITH THE APPELLANT. PAGE NO.269 IS THE LETTER DATED 10.11.2010 WRITTEN TO HON'BLE PALLONJEE SHAPOORJEE MISTRY. BOTH THESE SUBMISSIONS WERE NOT ACCEPTABLE TO ASSESSING OFFICER AS THEY WERE DEVOID OF MERITS AND CORROBORATING EVIDENCES. M/ S. SPCL WAS ASKED BY THE ASSESSING OF FICER ABOUT THE SUBSEQUENT SETTLEMENT OF THESE ADVANCES, THEY REPLI ED THROUGH LETTER DATED 01.12.2010 THE AMOUNT GIVEN AS ADVANCES ARE S TIIL OUTSTANDING AS ADVANCES. NO SETTLEMENT HAS BEEN REACHED IN THIS MATTER SO FAR. THEY ALSO CONFIRMED THAT SO FAR THEY HAVE NOT INITI ATED ANY LEGAL ACTION FOR RECOVERY. KEEPING IN VIEW OF ENTIRE FACTS OF TH E CASE, THE CONTENTION OF APPELLANT THAT HE HAS RECEIVED MONEY FOR PROJECT IS NOT ACCEPTABLE IN VIEW OF THE ABOVE DISCUSSIONS. FURTHER, THE REPL Y OF M/S. SPCL IS ALSO NOT PLAUSIBLE AS NOBODY WILL ADVANCE SUCH A HU GE SUM WITHOUT WRITTEN AGREEMENT. ADVANCE AGAINST PURCHASES OF LAN D IS GIVEN TO THE PERSON WHO IS OWNER OF THE LAND ARID NOT TO THE THI RD PARTY, THE APPELLANT IS A NOVICE MAN AND HAS NO EXPERIENCE IN PROPERTY RELATED MATTERS AS DISCUSSED ABOVE, WHEREAS M/S SPCL IS A C ORPORATE GIANT HAVING ITS OWN MACHINERY OF LEGAL, TECHNICAL, MARKE TING/FINANCIAL DEPARTMENTS AND HUGE EXPERIENCE OF DEALING IN PROPE RTY AND CONSTRUCTION ACTIVITIES, THEN THE QUESTION OF ADVAN CING A HUGE SUM TO THE MAN LIKE APPELLANT RAISES SERIOUS DOUBTS ABOUT THE NATURE OF TRANSACTION. THE MONEY WAS RECEIVED BY THE APPELLAN T QUITE A FEW YEARS BACK BUT SO FAR NO SETTLEMENT OF THE ACCOUNT HAS BEEN DONE, NO ACTION FOR RECOVERY HAS BEEN REPORTED BY M/S SPCL; NO LAND HAS BEEN PROVED TO HAVE BEEN PURCHASED BY THE APPELLANT IN THE NAME OF M/S SPCL AS HAS' BEEN CONFIRMED BY APPELLAN T AS WELL AS NI/ S. SPCL; NO INTEREST HAS BEEN CHARGED ON THE AMOUNT RECEIVED BY THE APPELLANT - ALL THESE FACTORS RAISES SERIOUS DOUBT ABOUT THE GENUINENESS OF THE TRANSACTIONS INVOLVED. IN VIEW OF THE ABOVE DISCUSSION, I AM IN AGREEMENT WITH THE ASSESSING OFFICER IN TREATING THE AMOUNT OF RS. 43, 50, 00, 0 00/ - AS RECEIVED WITHOUT CONSIDERATION AND UPHOLD THE ACTION OF THE A.O. IN TAXING THIS AMOUNT U/S.56(2)(VI) OF THE IT ACT, 1961.- ' BASED ON THE ABOVE, THE CIT(A) DISMISSED THE APPEAL OF SHRI NJ M/S SHAPOORJI PALLONJI & CO. LTD. . 41 THAKUR. 5.5 FROM THE DETAILED FACTS NARRATED ABOVE IT IS V ERY CLEAR THAT THERE IS A CLEAR CONTRADICTION BETWEEN THE CLAIM OF MY ASSESSEE AND SHRI NJ THAKUR. THE ASSESSEE CLAIMS TO HAVE PAID TH E SUM AS ADVANCE TOWARDS PURCHASE OF LAND IN AND AROUND RAIGAD DISTR ICT. WHILE SHRI NJ THAKUR CLAIMED TO HAVE RECEIVED THIS MONEY FOR P ROJECT DEVELOPMENT AT SAMATA NAGAR, KANDIVALI (E), MURNBAI AND WORLD TRADE CITY, GARODIA NAGAR, GOREGAON. MR. FEROZ K. BHATENA DIRECTOR AND PRINCIPAL OFFICER OF THE ASSESSEE ON OATH ADMIT TED THAT THE ASSESSEE HAS RELEASED ALL THE PAYM ENTS WITHOU.T ANY KIND OF BILLS RAISED ON THEM BY SHRI NJ THAKUR AND HIS CONCERNS AND ALSO THAT IN NO OTHER COMPANIES, IT HAS RELEASED SUCH PAYMENT S WITHOUT INVOICES. 5.6 MY ASSESSEE HAS STATED THAT THERE IS NO WRITTEN AGREEMENT WITH SHRI NJ THAKUR BEFORE OR AFTER ADVANCING THESE FUNDS . THIS ACTION ON MY PART OF THE ASSESSEE CLEARLY GOES AGAI NST COMMERCIAL LOGIC. SHRI NJ THAKUR HAS ADMITTED ON OATH BEFORE HIS AO T HAT HE HAS NOT ACQUIRED ANY LAND/RIGHT/ASSET ON BEHALF OF MY ASSESSEE . IN LIGHT OF THESE FACTS THE SERIES OF DOUBTS CAST O VER THE GENUINENESS OF THE NATURE OF TRANSACTIONS. 5.7 THE PAYMENTS HAVE BEEN MADE OVER THREE FINANCIA L YEARS INCLUDING THE ASSESSMENT YEAR UNDER CONSIDERATION AND AT NO P OINT OF TIME DID MY ASSESSEE EVEN CHECK WHETHER ANY PROPERTIES ARE B EING ACQUIRED OR IN THE PROCESS OF BEING ACQUIRED BY SHRI N J THAKUR . WITHOUT CONDUCTING THIS BASIC DUE DILIGENCE THE ASSESSEE WO ULD HAVE ME BELIEVE THAT THEY KEPT ON RELEASING THE PAYMENT OVE R THE THREE YEARS FOR THE SAME. MY ASSESSEE HAS ALSO DENIED ENTERING INTO ANY PARTNERSHIP AGREEMENT OR PROJECT DEVELOPMENT WITH S HRI N. J. THAKUR AS PARTNER/DIRECTOR. 5.8 IN VIEW OF THE ABOVE DISCUS1SION IT IS AMPLY CL EAR THAT THE SUM PAID BY SPCL TO PRS ENTERPRISES AND ACE CARD INFRAS OL PVT. LTD., ALLEGEDLY FOR THE PURPOSE OF BUSINESS BEING LAND AG GREGATION IS NOT FOR THE STATED PURPOSES. THERE IS NO EVIDENCE BROUGHT OUT ON RECORD EITHER BY MY ASSESSEE OR SHRI N. J. THAKUR TO SHOW WHAT IS THE BUSINESS PURPOSE BETWEEN THEM. IT IS THEREFORE HELD THAT THE SUMS PAID HAS NOT BEEN UTILIZED BY MY ASSESSEE FOR THE P URPOSE OF ITS BUSINESS. I THEREFORE HOLD THAT NO DEDUCTION OUT OF THE SAME CAN BE ALLOWED EITHER AS EXPENDITURE OR ALLOWED TO BE CAPI TALIZED UNDER THE HEAD 'WORK-IN-PROGRESS'. THIS BEING THE CASE, THE O NLY OTHER ISSUE TO BE SEEN IS THE SOURCE IN THE HANDS OF THE ASSESSEE FOR HAVING ADVANCED M/S SHAPOORJI PALLONJI & CO. LTD. . 42 THIS DONEY AND THE TAX IMPLICATION THEREON. ACCORDI NGLY, IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AR OF THE ASSESSEE H AS BEEN ASKED TO EXPLAIN AS TO WHY PROPORTIONATE DISALLOWANCE FOR TH E INTEREST BEARING FUNDS UTILIZED FOR NON BUSINESS PURPOSES SHOULD NOT BE DISALLOWED FOR WHICH THE ASSESSEE SIMPLY STATED THAT THE PAYMENTS ARE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE SUBMIS SION OF THE ASSESSEE HAS BEEN CONSIDERED, HOWEVER THE SAME IS N OT ACCEPTABLE IN ABSENCE OF ANY EVIDENCES. ACCORDINGLY, THE INTEREST DISALLOWANCE ON SUCH PAYMENTS IS DISCUSSED HEREUNDER: 5.9 AS DISCUSSED ABOVE, THE ASSESSEE HAS MADE A PAY MENT OF RS.43.50 CRORE, THE SOURCE OF THE PAYMENT IS FROM TWO BANK A CCOUNTS NAMELY STANDARD CHARTERED BANK, MUMBAI MAIN BRANCH, CURREN T AI C.NO.22205268192 AND DEUSTCHE BANK. BOTH THESE ACCO UNTS ARE OVERDRAFT ACCOUNTS ON WHICH THE ASSESSEE PAYS INTER EST. GIVEN MY FINDING THAT THE ENTIRE AMOUNT ADVANCED TO M/ S. PR S ENTERPRISES IS NOT FOR THE PURPOSE OF BUSINESS, IT NATURALLY FOLLO WS THAT THE INTEREST BEARING FUND IS DIVERTED FOR NON-BUSINESS PURPOSES AND SHOULD RESULT IN INTEREST DISALLOWANCE UJS.36(1)(III) OF THE ACT. SECTION 36(1)(III) CLEARLY STATES THAT ONLY THAT INTEREST IN RESPECT O F CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS IS AN ALLOWABLE DEDUCTION. THE BANK ACCOUNT STATEMENTS PERTAINING TO THESE ACCOUNTS FROM THE PE RIOD 01-04-2007 TO 31-03-2008 HAVE BEEN CALLED FOR AND KEPT ON RECO RD. IT IS AN ADMITTED FACT THAT BOTH THESE ACCOUNTS ARE OVERDRAF T ACCOUNTS ON WHICH THE ASSESSEE PAYS INTEREST TO THE BANKS AND T HEREFORE THEY REPRESENT CAPITAL BORROWED BY THE ASSESSEE. THE ACT ION OF THE ASSESSEE IN SOURCING THE PAYMENT TO M/S. PRS ENTERPRISES FRO M THESE ACCOUNTS CLEARLY MEANS THAT THE CAPITAL BORROWED HAS BEEN DI VERTED FOR NON- BUSINESS PURPOSES. IN PRINCIPLE, THE PROPORTIONATE INTEREST ON THIS BORROWED CAPITAL DIVERTED IS TO BE DISALLOWED. THE EXAMINATION OF THE BANK ACCOUNTS SHOWS THAT THERE ARE NUMBER OF OTHER TRANSACTIONS PERTAINING TO THE ASSESSEE'S REGULAR BUSINESS. WITH A VIEW TO COMPUTE THE INTEREST TO BE DISALLOWED I HAVE EXAMINED THE D ATE OF ACTUAL DISBURSEMENT, THE PARTICULAR ACCOUNT FROM WHICH THE PAYMENT WAS MADE, THE BALANCE OUTSTANDING IN THAT ACCOUNT ON TH AT PARTICULAR DATE AND THE RATE OF INTEREST. OVERDRAFT ACCOUNT HAVING NEGATIVE BALANCE WHICH SHOWS THAT THE ASSESSEE HAS BORROWED MONEY FR OM THE BANK ON WHICH HE IS PAYING THE INTEREST AND AT ANY POINT IF THE BALANCE IS POSITIVE THEN, IT MEANS NO INTEREST IS PAID BY THE ASSESSEE FOR THE PERIOD FOR WHICH THE BALANCE WAS POSITIVE. WITH THI S BACK-GROUND GROUND THE DETAILS ARE TABULATED AS UNDER:- A. FINANCIAL YEAR 2007-08 RELEVANT TO A.Y. 2008-09 M/S SHAPOORJI PALLONJI & CO. LTD. . 43 BANK DEBIT DATE PRINCIPAL AMOUNT BANK INTEREST FROM TO NO. OF DAYS REMARKS INTEREST @ 12% PARTY NAME 26-09-07 20000000 SCB-2 26-09-07 11-10-07 16 BALANCE BECAME POSITIVE ON 11-10-07 105205 PRS ENTERPRI SE 26-09-07 30000000 SCB-2 26-09-07 11-10-07 16 BALANCE BECAME POSITIVE ON 11-10-07 157808 PRS ENTERPRI SE 01-10-07 30000000 SCB-2 01-10-07 11-10-07 11 BALANCE BECAME POSITIVE ON 11-10-07 108493 PRS ENTERPRI SE 31-10-07 50000000 SCB-2 BALANCE BECAME POSITIVE ON 11-10-07 0 PRS ENTERPRI SE 29-11-07 45000000 SCB-2 BALANCE BECAME POSITIVE ON 11-10-07 0 PRS ENTERPRI SE 26-12-07 95000000 DEUSTC HE BANK 26-12-07 31-03-08 97 3029589 PRS ENTERPRI SE 10-01-08 65000000 SCB-2 BALANCE BECAME POSITIVE ON 11-10-07 0 PRS ENTERPRI SE 10-03-08 10000000 SCB-2 BALANCE BECAME POSITIVE ON 11-10-07 0 PRS ENTERPRI SE 43,50,00,000 34,01,95 5.10. FROM THE ABOVE CHART, IT IS CLEAR THAT ON 26- 09-2007, .5 CRORE (THROUGH TWO CHEQUES OF .2 CRORES AND .3 CRORE) WAS DISBURSED TO M/S PRS ENTERPRISES FROM -STANDARD CHA RTERED BANK ACCOUNT. ON THIS DATE THE ACCOUNT BALANCE WAS NEGAT IVE AND THEREFORE THE ASSESSEE WAS PAYING INTEREST TO THE B ANK. ON 11-10- 2007 THERE WAS A DEPOSIT OF RS.101 CRORE DUE TO WHI CH THE ACCOUNT BALANCE BECAME POSITIVE AND THE ASSESSEE WAS NOT CH ARGED ANY INTEREST BY THE BANK. THEREFORE, THE INTEREST BEARI NG FUNDS TO THE EXTENT OF RS.5 CRORE WERE DIVERTED FOR NON-BUSINESS PURPOSE FOR TH E PAYMENT MADE TO M/ S. PRS ENTERPRISE FOR THE PERIOD 26-09-2007 TO 11-10-2007, WHICH CALLS FOR AN INTEREST DISALLOWANC E FOR 16 DAYS @ 12%, ON THIS SUM. THE SAME PRINCIPLE IS APPLIED TO ALL THE ENTRIES. IT MAY BE OBSERVED THAT IN F.Y.2007 -08 OUT OF TOTAL P AYMENTS OF RS.43.5 CRORE A SUM OF RS.9.50 CORE BEING THE PAYME NT MADE FROM M/S SHAPOORJI PALLONJI & CO. LTD. . 44 DEUSTCHE BANK IS CARRIED FORWARD TO F.Y.2008-09, BE CAUSE THE DEUSTCHE BANK ACCOUNT CONTINUES TO BE NEGATIVE BALA NCE AS ON 31- 03-2008. BASED ON THE ABOVE WORKING THE TOTAL INTER EST TO BE DISALLOWED FOR THE PRESENT A.Y.2008-09 IS RS.34,01, 095/ -. THE SAME IS HEREBY DISALLOWED U/S.36(1)(III) AS NOT FOR THE PURPOSE OF BUSINESS. THUS, AN 'ADDITION OF RS.34,01,095/- IS MADE TO THE TOTAL INCOME OF THE ASSESSEE. 5.11 PENALTY PROCEEDINGS U/S.271(1)(C) OF THE ACT, IS BEING INITIATED FOR FURNISHING INACCURATE PARTICULARS AND CONCEALIN G THE TAXABLE INCOME. 6. SUBJECT TO ABOVE, ASSESSMENT IS COMPLETED AND TO TAL INCOME IS COMPUTED AS UNDER: RS. TOTAL INCOME (AS PER ORDER GIVING EFFECT DATED 06- 188,59,74,436 07 -2012 TO THE ORDER OF CIT(A) DATED 21-02-2012) ADD: INTEREST DISALLOWED (PARA 8) 34,01,095 TOTAL INCOME 188,93,75,531 ROUNDED OFF TO 188,93,75,530 7. ASSESSED U/S 143 (3) OF THE INCOME-TAX ACT, 1961 . CREDIT FOR PREPAID TAXES AND COMPUTATION OF TAX IS AS PER ITNS 150A ENCLOSED SEPARATELY AND FORMS PART OF THE ORDER. INTEREST U/ S.234A, 234B, 2343C AND 234D IS CHARGED AS PER LAW. DEMAND NOTICE AND CHALLAN IS ISSUED WITH THIS ORDER. ISSUE NOTICE U/S.274 R.W .S. 271(1)(C) OF THE ACT. 2.3. IF THE OBSERVATION MADE IN THE ASSESSMENT ORDE R, REASONS FOR REOPENING THE REASSESSMENT, MATERIAL AVAILABLE ON R ECORD, REASONING CONTAINED IN THE IMPUGNED ORDER AND THE A SSERTIONS MADE BY THE LD. RESPECTIVE COUNSEL, IF KEPT IN JUXT APOSITION AND ANALYZED, WE FIND THAT THE FACTS, IN BRIEF, ARE THA T THE ASSESSEE DECLARED INCOME OF RS.188,50,28,066/- IN ITS RETURN FILED ON 29/09/2008 WHICH WAS PROCESSED ON 27/07/2009, U/S 1 43(1) OF THE ACT. SINCE THE CASE WAS SELECTED FOR SCRUTINY N OTICE U/S 143(2) M/S SHAPOORJI PALLONJI & CO. LTD. . 45 OF THE ACT WAS ISSUED TO THE ASSESSEE ON 04/08/2009 . THE ASSESSING OFFICER VIDE ORDER DATED 27/12/2010, FRAM ED U/S 143(3) OF THE ACT, DETERMINING THE TOTAL INCOME AT RS.191, 99,06,040/- (ASSESSMENT YEAR 2008-09). THE ASSESSING OFFICER RECEIVED INFORMATION FROM ITO-25(1)(4), MUMBAI, VIDE LETTER DATED 25/04/2012 (RECEIVED BY THE ASSESSING OFFICER ON 01 /05/2012) THAT CERTAIN PAYMENTS AMOUNTING TO RS.43,50,00,000/ - WERE MADE BY THE ASSESSEE COMPANY BY WAY OF ADVANCES TO M/S P RS DEVELOPERS (PROPRIETOR SHRI NILESH J. THAKUR) ON VA RIOUS DATES IN FINANCIAL YEAR 2007-08 AND THE SAID PARTIES ACCOUNT ED SUCH RECEIPTS TOWARDS EXPENSES RELATED TO DEVELOPMENT WO RKS AT KANDIVALI PROJECT FOR WHICH NO DOCUMENTARY EVIDENCE S WERE MAINTAINED BY THE SAID CONCERN. THE ASSESSING OFFIC ER MADE ENQUIRIES WITH THE ASSESSEE COMPANY AND FOUND THAT THE ASSESSEE COMPANY MADE SUBSTANTIAL PAYMENTS TO M/S PRS DEVELO PERS. THERE WAS ALSO INFORMATION WITH THE ASSESSING OFFIC ER THAT M/S PRS DEVELOPERS HAD NO BUSINESS ACTIVITY/CAPACITY TO ACQ UIRE LAND ON BEHALF OF THE ASSESSEE COMPANY BESIDES THE ASSESSEE IS HAVING ITS OWN MACHINERY OF LEGAL/TECHNICAL/MARKETING/FINANCIA L PERSONS FOR DOING THE JOB I.E. FOR ACQUISITION OF LAND. THE IT O RAISED SERIOUS DOUBTS ABOUT THE GENUINENESS OF THE TRANSACTIONS ON THE FOLLOWING REASONS: (I) NO LAND HAS BEEN PURCHASED OR PROCURED BY THE SAID ENTITY IN THE NAME OF ASSESSEE COMPANY IE., M/S. SHAPOORJI PA LLONJI & CO. LTD. (IN SHORT M/S. SPCL) (II) NO DETAILS OF PROGRESS IN WORK WERE FURNISHED BY M/S SPCL (III) THE MONEY WAS RECEIVED BY THE SAID ENTITY AL MOST FOUR YEARS BACK BUT SO FOR NO SETTLEMENT OF THE ACCOUNT HAS BE EN DONE BY M/S SHAPOORJI PALLONJI & CO. LTD. . 46 M/S. SPCL (IV) NO INTEREST IS CHARGED ON THE AMOUNT RECEIVED BY THE SAID ENTITY (V) NO ACTION FOR RECOVERY HAS BEEN TAKEN BY M/S . SPCL 2.4. IT WAS ALSO FOUND THAT THE ASSESSEE MADE THE H UGE PAYMENTS TO SHRI NILESH J. THAKUR WITHOUT ENTERING INTO ANY AGREEMENT FOR ACQUISITION OF LAND, MEANING THEREBY, THE ASSESSEE DOLED OUT INTEREST BEARING FUNDS FOR NON-B USINESS PURPOSES UNDER THE GARB OF ADVANCES AND FURTHER THE ASSESSEE CLAIMED INTEREST AND FINANCIAL COST IN HIS ACCOUN TS AS THE ELEMENT OF INTEREST BEARING FUNDS WERE SIPHONED OFF FOR NON- BUSINESS PURPOSES HAVING DIRECT IMPACT OR THE PROFI T OF THE ASSESSEE TO THE EXTENT OF FUNDS DOLED OUT FOR NON-B USINESS PURPOSES, REDUCING THE TAXABLE PROFIT. AT THE SAME TIME, THE SOURCE OF THE FUNDS WERE ALSO TO BE EXAMINED RESULT ING INTO DISALLOWANCE OF PROPORTIONATE INTEREST EXPENSES. IN VIEW OF THESE FACTS/SITUATION AND THE INFORMATION, WHICH CA ME TO THE LIGHT/POSSESSION OF THE ASSESSING OFFICER, LATER ON , THE CASE WAS REOPENED, RESULTING INTO ISSUANCE OF NOTICE U/S 148 OF THE ACT ON 25/05/2012 AFTER PROPERLY RECORDING THE REAS ONS, WHICH WERE ALSO DULY PROVIDED TO THE ASSESSEE ON 06/12/2012. THE ASSESSEE ALSO OBJECTED REOPENING U /S 148/147 OF THE ACT VIDE LETTER DATED 07/01/2013. 2.5. NOW QUESTION ARISES WHETHER THE LD. COMMISSIONER O F INCOME TAX (APPEALS) WAS JUSTIFIED IN HOLDING THE REASSESS MENT PROCEEDINGS, INITIATED U/S 148 OF THE ACT, AS INVAL ID AND FURTHER M/S SHAPOORJI PALLONJI & CO. LTD. . 47 WHETHER A NEW MATERIAL WAS AVAILABLE WITH THE ASSES SING OFFICER FOR REOPENING THE ASSESSMENT? 2.6. WE HAVE PERUSED THE ASSESSMENT ORDER, REASONS RECORDED, INFORMATION PROVIDED BY THE ITO OF SHRI N ILESH THAKUR, FACTUAL FINDING RECORDED IN THE IMPUGNED OR DER AND ALSO CONSIDERED THE ARGUMENTS ADVANCED FROM RESPECT IVE SIDE. WE FIND THAT THE PRIMARY FACTS RELATING TO AL L THE TRANSACTIONS ENTERED BY THE ASSESSEE DURING FINANCI AL YEAR 2007-08 WERE VERY MUCH AVAILABLE BEFORE THE ASSESSI NG OFFICER WHEN HE FRAMED THE ORIGINAL ASSESSMENT U/S 143(3) OF THE ACT, THEREFORE, NO NEW MATERIAL WAS MADE AVA ILABLE AT THE LATER STAGE. BROADLY, THE REASON FOR REOPENING IS BASED UPON THE FINDING ARRIVED AT BY THE ITO OF SHRI NILE SH THAKUR AND IT CAN BE SAID IT WAS A MERELY BORROWED SATISFA CTION. IN A LANDMARK DECISION THE HON'BLE APEX COURT IN KELV INATOR OF INDIA LTD (2010) 320 ITR 561 HAS EVOLVED A BROAD PR INCIPLE AS UNDER WHAT CIRCUMSTANCES REASSESSMENT CAN BE FRA MED. LIKEWISE IN GREEN WORLD CORPORATION VS ITO (2009) 3 14 ITR 81 (SC), THE HON 'BLE APEX COURT HELD THAT THE ORDER PASSED BY THE ASSESSING OFFICER AT THE DICTATE OF THE CIT IS 'NULLITY'. LIKEWISE THE HON 'BLE HIGH COURT OF RAJASHTHAN IN SYNTEX LTD. (2009) 313 ITR 221 HELD THAT 'INITIATION BASED ON T HE OPINION OF THE ASSESSING OFFICER OF OTHER PARTY, IS 'BORROW ED SATISFACTION', CONSEQUENTLY, NOT SUFFICIENT REASON TO BELIEVE FOR ESCAPEMENT OF INCOME. FURTHER, THE HON'BLE APEX COURT DISMISSED THE SLP OF THE DEPARTMENT (C NO.8167 OF 2 009) AGAINST THE AFORESAID DECISION FROM HON 'BLE RAJASHTHAN HIGH M/S SHAPOORJI PALLONJI & CO. LTD. . 48 COURT. WE NOTE THAT THERE IS NO FINDING IN THE ASSE SSMENT ORDER THAT ANY INDEPENDENT ENQUIRY WAS MADE BY THE ASSESSING OFFICER OF THE PRESENT ASSESSEE RATHER HE REOPENED THE ASSESSMENT MERELY ON THE INFORMATION RECEIVED F ROM ITO OF ANOTHER PARTY. WE FURTHER FIND THAT THERE IS NO NEW TANGIBLE MATERIAL CAME TO THE LIGHT OF THE ASSESSI NG OFFICER AND HE ACTED MERELY ON THE BORROWED SATISFACTION/INFORMATION. THE ASSESSING OFFICER MER ELY SAYS THAT THERE WAS NO DOCUMENTARY EVIDENCE REGARDING PA YMENT OF HUGE AMOUNT RATHER A DECREE FROM THE HON'BLE HIGH COURT WAS ALREADY WITH HIM. CONFIRMATION OF THE ACQUISITI ON OF ABOUT 900 ACRES OF LAND, LETTER DATED 16/07/2007 (P AGE-31 TO 35) SUPPORTS THE CASE OF THE ASSESSEE. SHRI NILE SH THAKUR (PRS ENTERPRISES) WAS GIVEN ADVANCES FROM TIME TO T IME IN TERMS OF RESOLUTION PASSED BY THE BOARD OF DIRECTOR S. THE AMOUNT ADVANCED BY THE ASSESSEE TO SHRI NILESH THAK UR, WAS DULY REFLECTED IN THE AUDITED ACCOUNTS OF THE A SSESSEE UNDER THE HEAD 'ADVANCES FOR LAND' AND SINCE SHRI N ILESH THAKUR COULD NOT PERFORM IN TERMS OF APPOINTMENT LE TTER A SUIT BEARING 2576 OF 2011 WAS FILED BEFORE THE HON 'BLE BOMBAY HIGH COURT AND IN TERMS OF THE CONSENT TERMS , A DECREE WAS PASSED IN FAVOUR OF THE ASSESSEE BY HON' BLE HIGH COURT, THE FACTS OF PAYMENTS WERE DULY MENTIONED IN THE SUIT/PLAINT FILED BEFORE THE HON'BLE HIGH COURT. TH E ASSESSEE WAS HAVING COMMON POOL OF FUNDS I.E. OWN FUND AND BORROWED FUNDS AND AT THE TIME OF ADVANCING EXCESS FUNDS WERE AVAILABLE IN COMPARISON TO ADVANCED MONEY. THE ASSESSEE GETS THE BENEFIT OF THE DECISION FROM HON' HLE APEX M/S SHAPOORJI PALLONJI & CO. LTD. . 49 COURT IN MUNJAL SALES & CORPORATION VS CIT AND FROM HON'BLE BOMBAY HIGH COURT IN RELAINCE UTILITIES AND POWER LTD., WHEREIN, IT WAS HELD THAT WHERE THE CAPITAL A ND PROFITS ARE MORE THAN THE INTEREST FREE FUNDS ADVANCED, THE N IT HAS TO PRESUMED THAT INTERESTED FREE ADVANCES WERE GIVE N OUT OF INTEREST FREE CAPITAL AVAILABLE. AS ON 31/03/2008 T HE ASSESSEE WAS HAVING TOTAL AMOUNT OF RS.500,81,91,21 8/- (RS. 203,02,00,000 AS SHARE CAPITAL AND RS.297,79,9 1,248 AS RESERVE AND SURPLUS) AND AS ON 31/03/2009, TOTAL RS.621,01,17,406/-. THE TOTALITY OF FACTS CLEARLY I NDICATES THAT THE NOTICE U/S 148 WAS SOLELY ISSUED ON THE BA SIS OF INFORMATION RECEIVED FROM ITO 25(1)(4), HAVING JURI SDICTION UPON SHRI NILESH THAKUR. THE BASIC REQUIREMENT SECT ION 148 IS THAT THE ASSESSING OFFICER SHOULD HAVE REASO N TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, THUS, THE LAW DOES NOT PERMIT SUCH A AC TION. THE FOLLOWING DECISIONS SUPPORTS OUR VIEW:- 1) CIT VS KELVINATOR OF INDIA LTD. (2002) 256 ITR 1 (D EL.) 2) SHETH BROTHER VS JCIT (2001) 251 ITR 270 (GUJ.) 3) CIT VS CORPORATION BANK LTD. (2002) 254 ITR 791 (SC ) 4) GARDEN SILK MILLS P. LTD. VS DCIT (1999) 237 ITR 66 8 (GUJ.) 5) CIT VS HICKSON & DADAJEE LTD. (1980) 121 ITR 368 (BORN.) 6) JINDAL PHOTO FILMS LTD. VS DCIT (1998) 234 ITR 170 (DEL.) 7) GARDEN SILK MILLS VS DCIT (1996) 222 ITR 68 (GUJ.) 8) MERCURY TRAVELS DCIT (2002) 258 ITR 533 (CAL.) 9) JCIT VS GEORGE WILLIAMSON (ASSAM) LTD. (2002) 258 I TR 126 (GAUHATI) 10) CIT VS SAMBHAR SALT LTD. (2003) 262 ITR 675 (RA J.) M/S SHAPOORJI PALLONJI & CO. LTD. . 50 WE FIND THAT THERE WAS NO NEW TANGIBLE MATERIAL WIT H THE ASSESSING OFFICER TO FORM A BELIEF THAT INCOME CHAR GEABLE TO TAX HAD ESCAPED ASSESSMENT, THUS, IN VIEW OF THE DE CISION FROM HON'BLE RAJASTHAN HIGH COURT (SUPRA) REOPENING IS NOT PERMISSIBLE ON THE BASIS OF BORROWED SATISFACTION R ATHER THERE SHOULD BE LIVE LINK WITH THE FORMATION OF BELIEF AN D CONCLUSION FOR ESCAPEMENT OF INCOME. THE RATIO LAID DOWN BY HON'BLE JURISDICTIONAL HIGH COURT IN AVENTIS PHARMA LTD. VS ACIT 323 ITR 570 (BORN.) SUPPORTS OUR VIEW. EVEN AF TER 01/04/1989, CONCEPT OF CHANGE OF OPINION WAS NOT REMOVED. PRIOR TO DIRECT TAX LAWS (AMENDMENT) ACT, 1987, REO PENING COULD BE DONE UNDER TWO CONDITIONS VIZ, IF (A) THE ITO HAD REASON TO BELIEVE THAT, BY REASON OF THE OMISSION O R FAILURE ON THE PART OF THE ASSESSEE TO MAKE A RETURN U/S 139 F OR ANY ASSESSMENT YEAR TO THE ITO OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS FOR HIS ASSESSMENT FOR THAT YEAR, IN COME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT FOR THAT Y EAR, OR (B) THE ITO HAD IN CONSEQUENCE OF INFORMATION IN HI S POSSESSION HAD REASON TO BELIEVE THAT INCOME CHARGE ABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR. THE FULFILLMENT OF THE SAID CONDITIONS ALONE CONFERRED JURISDICTION ON THE ASSESSING OFFICER TO MAKE A BACK ASSESSMENT, BUT IN SECTION 147 WITH EFFECT FROM 01/04/1989 THOSE CONDI TIONS ARE GIVEN GO-BY AND ONLY ONE CONDITION HAS REMAINED WHERE THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT, CONSEQUEN TLY, THE SECTION ITSELF CONFERS JURISDICTION TO REOPEN THE A SSESSMENT. THEREFORE, POST 01/04/1989, POWER TO REOPEN IS MUCH WIDER. M/S SHAPOORJI PALLONJI & CO. LTD. . 51 AT THE SAME TIME, POWERS U/S 147 ALSO DOES NOT GIVE ARBITRARY POWER TO THE ASSESSING OFFICER TO REOPEN THE ASSESSMENT MERELY ON THE BASIS OF CHANGE OF OPINIO N. ONE MUST KEEP IN MIND, THE CONCEPTUAL DIFFERENCE BETWEE N POWER TO REVIEW AND POWER TO REASSESS. THE HONBLE APEX C OURT IN CIT VS BHANJI LAVAJI 79 ITR 582 (SC) HELD THAT MERE CHANGE OF OPINION CANNOT FORM THE BASIS OF REASSESSMENT. IN SHRI KRISHNA PVT. LTD. VS ITO 221 ITR 538 (SC), IT WAS H ELD THAT THE POWER CONFERRED UPON THE ITO BY SECTION 147 AND 148 ARE NOT UNBRIDLED ONE. IDENTICAL RATIO WAS LAID DOWN IN SIRPUR PAPER MILLS LTD. VS ITO 114 ITR 404 (AP) SUPPORTS O UR VIEW. THE HONBLE CALCUTTA HIGH COURT IN S.P. AGRAWAL VS ITO 140 ITR 1010 HELD THAT STATEMENT BY THIRD PARTIES CANNO T FORM THE BASIS FOR REOPENING. WE FIND THAT THE LD. ASSE SSING OFFICER MERELY ON THE BASIS OF INFORMATION RECEIVED FROM ANOTHER ITO WITHOUT ASCERTAINING THE CORRECTNESS OF THE INFORMATION MECHANICALLY ISSUED NOTICE U/S 148. TH E ONLY BASIS OF ISSUING THE NOTICE U/S 148 WAS MERELY THE LATER INFORMATION RECEIVED FROM ITO 25(1)(IV). THE TOTAL ITY OF FACTS CLEARLY INDICATES THAT NO NEW MATERIAL CAME TO THE POSSESSION OF THE ASSESSING OFFICER LEADING TO CONCLUDE THAT T HE INCOME HAS ESCAPED ASSESSMENT, THUS, ISSUANCE OF NOTICE FO R REOPENING AND REASSESSMENT ORDER PASSED U/S 143(3) R.W.S.147 OF THE ACT WAS RIGHTLY HELD TO BE UNSUSTA INABLE IN LAW. THE EXISTENCE OF TANGIBLE MATERIAL IS NECESSAR Y TO ENSURE AGAINST AN ARBITRARY EXERCISE OF POWER, THUS, WE FI ND NO INFIRMITY IN THE CONCLUSION DRAWN BY THE LD. COMMIS SIONER OF INCOME TAX (APPEALS). THIS GROUND OF THE REVENUE IS , M/S SHAPOORJI PALLONJI & CO. LTD. . 52 THEREFORE, DISMISSED. 3. SO FAR AS, DELETING THE DISALLOWANCE OF RS.34,01 ,095/- , U/S 36(1)(III) OF THE ACT IS CONCERNED, WE ARE REPRODUC ING HEREUNDER THE RELEVANT FINDING OF THE LD. FIRST APP ELLATE AUTHORITY FOR READY REFERENCE:- '13.3. I HAVE CONSIDERED THE A.O.'S ORDER AS WELL A S THE APPELLANT'S AIR SUBMISSION. FURTHER 1 HAVE PERUSED THE MATTER IN ITS ENTIRETY AND THE AFORESAID FINDINGS O F THE A. 0, I HAVE ALSO PERUSED THE COPY OF THE PLAINT ALONG WITH THE RECORDS AND DOCUMENTS FILED BEFORE THE HON'BLE BOMB AY HIGH COURT IN SUIT NO. 2576 OF 2011 AND THE ORDER OF HON'BLE BOMBAY HIGH COURT. ON PERUSAL OF THE PLAINT AND THE RECORDS AND DOCUMENTS IT IS SEEN THAT THE APPELLANT, BY ITS LETTER OF APPOINTMENT DATED 16.7.2007, HAD APPOINTED SHRI NIL ESH THAKUR FOR LAND AGGREGATION IN PANVEL, ALIGABH, PEN AND RAIGAD AREAS. THE SAID LETTER OF APPOINTMENT WAS AC CEPTED BY SHRI NILESH JANARDHAN THAKUR/PRS ENTERPRISES BY LETTER DATED 19TH JULY, 2007. IN TERMS OF THE SAID LETTER- AGREEMENT, THE APPELLANT HAS PROVIDED FUNDS TO SHRI NILESH THAKUR, BY WAY OF ADVANCES FOR PURCHASE OF LANDS. T HE PAYMENTS TO SHRI NILESH THAKUR HAVE BEEN MADE IN TE RMS OF THE RESOLUTION OF THE BOARD OF DIRECTORS OF THE APP ELLANT COMPANY. THE APPELLANT HAS MADE PAYMENTS OF ON AGGREGATE AMOUNT OF RS.141.50 CRORES FROM TIME TO T IME (I. E. BETWEEN JULY 2007 AND MID 2009, A.Y- 08-09- RS.43.50CRORES, A.Y,09-10-RS.53.00 CRORES, A.Y-I0-1 1- RS. 45 . 00 CRORES) BY ACCOUNT PAYEE CHEQUES TO SHRI NILESH JANARDHAN TAHKUR'S CONCERNS I.E. PRS ENTERPRISES AN D ACECARD INFRASOL PVT. LTD. THE SAID AMOUNTS HAVE BE EN REFLECTED IN THE BALANCE SHEETS OF THE APPELLANT AS 'ADVANCES/OR LAND'. SHRI NILESH JANARDHAN THAKUR BY HIS LETTER DATED 22ND MARCH 2010, INFORMED THE APPELLAN T THAT M/S SHAPOORJI PALLONJI & CO. LTD. . 53 THE PAYMENT RECEIVED WAS USED FOR ACQUIRING PROPERT IES AND THAT THE SURPLUS FUNDS HAD BEEN KEPT IN FIXED DEPOS IT AND THAT THE PROPERTIES WOULD BE TRANSFERRED IN FAVOUR OF THE APPELLANT AS SOON AS POSSIBLE. HOWEVER THEREAFTER, SHRI NILESH JANARDHAN THAKUR, NEITHER REFUNDED THE MONIE S NOR TRANSFERRED THE PROPERTIES TO THE APPELLANT. IN THE SE CIRCUMSTANCES, THE APPELLANT FILED SUIT NO. 2576 OF 2011 AGAINST SHRI NILESH JANARDHAN THAKUR, PRS ENTERPRIS ES & OTHERS IN. SEPTEMBER 2011. SUBSEQUENT THERETO SHRI NILESH JANARDHAN THAKUR AGREED TO SETTLE THE MATTER BY TRANSFERRING ALL THE MOVEABLE AND IMMOVEABLE ASSETS IN FAVOUR OF THE APPELLANT. THE HON'BLE BOMBAY HIGH CO URT PASSED AN ORDER DATED 19 TH OCTOBER 2011 IN THE AFORESAID SUIT AND DECREED THE MONIES, ASSETS AND PROPERTIES, ILLEGALL Y MISAPPROPRIATED BY SHRIJANARDHAN THAKUR AND HIS ENT ITIES IN FAVOUR OF THE APPELLANT. 13.3. HAVING REGARD TO THE ABOVE ADMITTED FACTS REC ORDED IN THE SUIT FILED BY THE APPELLANT BEFORE THE HON'BLE BOMBAY HIGH COURT WHICH ARE DULY SUPPORTED BY RECORDS AND DOCUM ENTS FILED AS ANNEXURE BEFORE THE HON'BLE BOMBAY HIGH CO URT, THE AMOUNTS ADVANCED BY THE APPELLANT ARE ONLY FOR ACQU ISITION OF LANDS IN THE PROJECT AREAS OF PANVEL, ALIBAUGH, PEN AND RAIGAD DISTRICT. THE APPELLANT HAS PRODUCED RECORDS AND DO CUMENTS IN SUPPORT OF THE TRANSACTIONS ENTERED INTO WITH SHRI NILESH JANARDHAN THAKUR AND HIS GROUP ENTITIES. ALL FACTS OBTAINED FROM THE RECORDS AND DOCUMENTS REVEAL THAT THE APPE LLANT HAD PROVIDED FUNDS TO SHRI NILESH THAKUR FOR LAND ACQUISITION IN THE PROJECT AREAS. IN VIEW OF THE SAME, ANY CONTRARY SUBMISSIONS/EXPLANATIONS GIVEN BY SHRI NILESH THAKU R DURING THE COURSE OF HIS ASSESSMENT AND APPELLATE PROCEEDI NGS CANNOT BE CONSIDERED AS A FOUNDATION FOR ARRIVING A T ANY NEGATIVE INFERENCE IN THE CASE OF THE APPELLANT. 13.4. THE FACT THAT SHRI NILESH THAKUR, DURING THE COURSE OF HIS ASSESSMENT PROCEEDINGS FOR A.Y.2008-09 AND 2 009- 10 HAD EXPLAINED THAT HE HAD RECEIVED AMOUNTS TOWARDS THE DEVELOPMENT OF PROJECT AT SAMATA NOGAR, KANDIVALI ( E) MUMBAI M/S SHAPOORJI PALLONJI & CO. LTD. . 54 AND (OR DEVELOPMENT OF WORLD TRADE CITY AT GARODIA NAGAR, GOREGAON. MUMBAI IS CLEARLY BORNE FROM THE FINDINGS RECORDED IN HIS ASSESSMENT ORDER FOR A. Y 2008-09 AND 2009-1 0. BUT IT IS EQUALLY RELEVANT NOTE THAT SHRI NILESH THAKUR CO ULD NOT PRODUCE/FURNISH ANY EVIDENCE IN SUPPORT OF THE SAID CLAIM. THE APPELLANT, DURING THE COURSE OF THE INQUIRY BEFORE THE VARIOUS AUTHORITIES HAS TAKEN A CONSISTENT STAND THAT THE A DVANCES WERE GIVEN FOR LAND AGGREGATION IN THE PROJECT AREA S. THE CLAIM OF THE APPELLANT IS SUPPORTED BY THE VARIOUS RECORDS AND DOCUMENTS. CREDENCE CANNOT BE GIVEN 10 EXPLANATIONS GIVEN BY SHRI NILESH THAKUR DURING HIS ASSESSMENT PROCEED INGS FOR A. Y 2008-09 AND 2009-10 SINCE HE HIMSELF, IN T HE APPELLATE PROCEEDINGS FOR A. Y 2009-10, HAS ADMITTE D TO HAVING RECEIVED THE FUNDS FROM THE APPELLANT COMPAN Y FOR LAND AGGREGATION. HE HAS ALSO ADMITTED THAT THE REC ORD AND DOCUMENTS FURNISHED BY THE APPELLANT COMPANY BEFORE THE HON'BLE BOMBAY HIGH COURT DEPICTED THE TRUE NATURE TRANSACTION IN BETWEEN THEM. THUS IT IS SEEN THAT S HRI NILESH THAKUR HAS TAKEN A DIAMETRICALLY OPPOSITE STAND ON THE NATURE AND PURPOSE OF ADVANCES GIVEN BY THE APPELLA NT 10 HIM AS COMPARED TO THE STAND TAKEN BY HIM DURING TH E COURSE OF ASSESSMENT PROCEEDINGS FOR A. Y 2008-09 A ND 2009-10. IN CASE THE STAND TAKEN BY SHRI NILESH THA KUR IN THE APPELLATE PROCEEDINGS FOR A.Y. 2009-10 IS CONSI DERED, THERE IS NO CONTRADICTION IN BETWEEN THE EXPLANATIO N GIVEN AS REGARDS THE NATURE AND PURPOSE OF ADVANCES GIVEN BY THE APPELLANT TO SHRI NILESH THAKUR. THE A DMITTED STAND OF SHRI NILESH THAKUR IN THE APPELLATE PROCEE DINGS FOR A.Y. 2009-10 IS DULY SUPPORTED BY THE RECORDS. HENC E, THE ONLY INEVITABLE CONCLUSION THAT CAN BE INFERRED IS THAT THE APPELLANT HAD ADVANCED MONIES FOR ACQUISITION OF LA NDS AT ALIBAUG, PEN, PANVEL AND OTHER AREAS IN AND AROUND RAIGAD DISTRICT, WHICH IS EXPLICITLY EVIDENT FROM THE 'LET TER OF APPOINTMENT ISSUED BY THE APPELLANT COMPANY DATED 16/07/2007 IN FAVOUR OF SHRI NILESH J THAKUR AND SUBSEQUENT ACCEPTANCE FETTER DATED 19/07/2007GIVEN BY SHRI NILESH J. THAKUR TO THE APPELLANT. THE LAND AC QUISITION IN PROJECT AREAS IS DURING THE COURSE OF THE REGULA R BUSINESS M/S SHAPOORJI PALLONJI & CO. LTD. . 55 ACTIVITY OF THE APPELLANT. THE FUNDS ADVANCED BY TH E APPELLANT TO SHRI NILESH JANARDHAN THAKUR ARE THUS HELD TO BE FOR APPELLANT'S BUSINESS PURPOSES. ACCORDINGLY, IT IS HELD THAT THE DISALLOWANCE COMPUTED OUT OF CLAIM OF DEDU CTION OF INTEREST U/S. 36(1)(III) WAS NOT CALLED FOR IN THE AFORESAID FACTS. 13.5. EVEN FURTHER TO THE AFORE-STATED FACTS, THE APPELLANT'S A.R'S HAVE ALSO SUBMITTED THAT THE APPELLANT HAS A COMMON POOL OF FUNDS I.E. OWN FUNDS AND BORROWED FUNDS AND THAT THE APPELLANT HAD SUFFICIENT OWN FUNDS AS ON THE DA TE OF ADVANCING FUNDS TO SHRI NILESH JANARDHAN THAKUR. IT WAS SUBMITTED THAT THE FUNDS IN THE BANK ACCOUNT WERE F UNGIBLE AND MERELY BECAUSE THERE WAS NEGATIVE BALANCE IN TH E CURRENT ACCOUNT ON A PARTICULAR DATE, IT CANNOT BE INFERRED THAT THE PAYMENTS MADE WAS OUT OF BORROWED FUND IT WAS ALSO SUBMITTED THAT THE FACTUM THAT THE FUNDS WERE FUNGIBLE HAS BEEN ACCEPTED BY THE AD HIMSELF IN SO FAR AS THE AD HAS RESTRICTED THE DISALLOWANCE OF INTEREST ONLY TILL T HE DATE WHEN THERE WAS POSITIVE BALANCE IN THE CURRENT ACCOUNT MAINTAINED WITH THE BANK. THE APPELLANT'S A.RS IN SUPPORT, RELIED ON THE DECISIONS IN CASES OF HON'BLE SUPREME COURT IN THE CASE OF MUNJAL SALES CORPORATION V CIT (SUPRA) AND HON'BLE BOMBAY HIGH COURT IN CIT V RELIANCE UTILITIES AND POWER LTD. (SUPRA) WHEREIN IT WAS HELD THAT WHERE T HE CAPITAL AND PROFITS ARE MORE THAN THE INTEREST FREE FUNDS ADVANCED, THEN IT HAS TO BE PRESUMED THAT SUCH INTE REST FREE ADVANCE WERE GIVEN OUT OF INTEREST FREE CAPITAL AVA ILABLE. 13.6 I FIND THAT THE APPELLANTS OWN FUNDS AS ON 31. 3.2007 AND 31.3.2008 WERE AS UNDER: AS ON 31.3.2007 AS ON 31.3.2008 SHARE CAPITAL 82,00,000 203,02,00,000 RESERVES & SURPLUS 171,45,01,507 297,79,91,248 TOTAL 172,27,01,507 500,81,91,248 M/S SHAPOORJI PALLONJI & CO. LTD. . 56 13.7 I ALSO FIND THAT THE NET PROFIT FOR THE YEAR IS RS. 126,19,01,513/-. THE PROFITS OF THE YEAR ARE ALSO I NCLUDED IN THE CURRENT OVERDRAFT ACCOUNT MAINTAINED WITH THE BANKS . THUS THE FUNDS IN THE BANK ACCOUNT ARE FUNGIBLE. THE APPELLA NT HAS NOT MADE ANY SPECIFIC BORROWING FOR THE PURPOSES OF ADV ANCING FUNDS FOR PURCHASE OF LAND BY SHERI NILESH J. THAKUR. RES PECTFULLY FOLLOWING THE DECISIONS OF THE HON'BLE SUPREME COUR T IN CASE OF MUNJAL SALES CORPORATION (SUPRA) AND HON 'BLE BOMBA Y HIGH COURT IN THE CASE OF CIT V RELIANCE UTILITIES AND P OWER LTD. (SUPRA), THE ADVANCES GIVEN TO SHRI NILESH J. THAKU R ARE PRESUMED TO BE FROM THE INTEREST FREE OWN FUNDS OF THE APPELLANT. IN THE RECENT DECISION OF THE HON'BLE ITAT IN THE C ASE 01 RELIANCE INDUSTRIES LTD. V DCIT (ITA NO. 30821MUML2006 DATED 28105/2012) IT WAS HELD AS UNDER: '5.1. THE A 0 HAS SLATED THAT ASSESSEE HAS ADVANCED INTEREST FREE LOANS TO ITS SUBSIDIARY COMPANIES. THE AD HAS STATED THAT ASSESSEE WAS ASKED TO PROVE THE NEXUS BETWEEN SOURC E OF FUNDS OUT OF WHICH ADVANCES WERE GIVEN TO ITS SUBSI DIARY COMPANIES AND INTEREST FREE OR OWN FUNDS AVAILABLE WITH THE ASSESSEE. THE ASSESSEE FILED DETAILS AND STATED THA T THE ASSESSEE HAD GIVEN LOANS AND ADVANCES OF RS. 2988.98 CRORES TO ITS SUBSIDIARIES AS ON 3110312002, OUT ITS OWN F UNDS AND INTERNAL ACCRUALS EXCEPT TO THE EXTENT OF RELYING U PON THE DECISION OF HON'BLE KERALA HIGH COURT IN THE CASE O F V.I. BABY &: COMPANY, 254 ITR 248 AND DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF PHALTON SUGAR WORKS LID, 208 ITR 989 DISALLOWED THE SAID INTEREST OF RS. 11,19,382/-. BE ING AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE THE FIRS T APPELLATE AUTHORITY. M/S SHAPOORJI PALLONJI & CO. LTD. . 57 5.2 IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THAT ASSESSEE'S OWN FUNDS WERE FAR IN EXCESS OF THE INTEREST FREE L OANS GIVEN TO ITS SUBSIDIARIES: IT WAS CONTENDED THAT AS PER AUDI TED ACCOUNTS .. ASSESSEE'S OWN FUNDS AS ON 31/3/2002 STOOD AT RS.25 , 136.76 CRORES AND, THEREFORE, INTEREST FREE LOANS GIVEN TO ITS SUBSIDIARIES SHOULD BE CONSIDERED AS HAVING BEEN GI VEN OUT OF ITS OWN FUNDS. IT WAS CONTENDED THAT ASSESSE E HAD' NOT TAKEN ANY SPECIFIC INTEREST BEARING LOANS FOR A DVANCING INTEREST FREE LOANS TO ITS SUBSIDIARIES. IT WAS SUB MITTED THAT IN VIEW OF THE FUNGIBILITY OF THE FUNDS AVAILA BLE, IT CAN BE LEGITIMATELY PRESUMED THAT THE INTEREST FREE LOA NS GIVEN TO THE SUBSIDIARIES HAD BEEN GIVEN OUT OF OWN FUNDS OF THE ASSESSEE COMPANY DEPLOYED IN THE BUSINESS. IT WAS A LSO CONTENDED THAT THE NET PROFIT AFTER TAX AND BEFORE DEPRECIATION DURING THE YEAR STOOD AT RS. 7054.84 C RORES. THUS, THE NET PROFIT FOR THE YEAR UNDER CONSIDERATI ON EXCEEDED NOT ONLY THE INCREMENTAL LOANS GIVEN TO TH E SUBSIDIARIES DURING THE YEAR BUT EVEN EXCEEDED THE TOTAL INTEREST FREE LOANS OF RS. 2988.98 CRORES GIVEN TO THE SUBSIDIARIES AS ON 31/3/2002. IT WAS ALSO CONTENDED THAT IN THE ABSENCE OF ANY NEXUS BETWEEN THE INTEREST BE ARING BORROWED FUNDS AND THE INTEREST FREE LOANS GIVEN TO SUBSIDIARIES AND CONSIDERING THE FUNGIBILITY OF FUN DS AND THE FACT THAT OWN FUNDS FAR' EXCEEDED SUCH LOANS, I T HAS TO BE PRESUMED THAT SUCH INTEREST FREE LOANS HAD BEEN GIVEN OUT OF OWN FUNDS. 5.3 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S OF THE M/S SHAPOORJI PALLONJI & CO. LTD. . 58 ASSESSEE AND CASES RELIED UPON ON BEHALF OF THE ASS ESSEE, DETAILS GIVEN AT PAGE 18 OF THE IMPUGNED ORDER, HEL D THAT BORROWED FUNDS TO THE EXTENT OF RS. 9.89 CRORES WAS ACTUALLY UTILIZED FOR ADVANCING INTEREST FREE ADVANCES TO SU BSIDIARIES. THEREFORE, LD C1T(A) CONFIRMED THE ACTION OF THE 11 0 IN DISALLOWING INTEREST ON ACCOUNT OF DIVERSION OF FUN DS FOR NON- BUSINESS PURPOSES, WHICH COMES TO RS. 11,19,382/- HENCE, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5.4 DURING THE COURSE OF HEARING THE ID. A.R REITER ATED THE SUBMISSIONS AS WERE MADE BEFORE THE FIRST APPELLATE AUTHORITY THAT THE ASSESSEE HAD ITS OWN FUNDS FAR M ORE THAN THE INTEREST FREE LOANS AND ADVANCES GIVEN TO ITS S UBSIDIARY COMPANY. THE ID. A.R RELYING OIL THE DECISION OF TH E HON'BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD., VS. CIT 313 ITR 340 SUBMITTED THAT NO DISALLOWANCE OUT OF INTEREST EXPENDITURE IS TO BE MADE IF INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT MADE. HE FURTHER SUBMITTED THAT THE HON 'BLE APEX COURT HAS ALSO HELD IN THE CASE OF SA. BUILDERS LTD., VS. CIT, 288 ITR 1 THAT WHEN LOAN TO ITS SUBSIDIARY IS GIVEN IN THE COURSE AND FOR THE PURPOSE OF BUSINESS OF ITS BUSINESS, NO DISALLO WANCE OF INTEREST HAS TO BE MADE. HE SUBMITTED THAT IN VIEW OF ABOVE DECISIONS, THE DISALLOWANCE OF INTEREST IS NOT JUST IFIED AND THE SAME SHOULD BE DELETED. 5.5 ON THE OTHER HAND, LD. D.R RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. M/S SHAPOORJI PALLONJI & CO. LTD. . 59 5.6 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES AND ORDERS OF TH E AUTHORITIES BELOW. WE HAVE ALSO CONSIDERED THE CASE S RELIED UPON BY THE AUTHORITIES BELOW AS WELL AS THE CASES CITED BY LD. A.R (SUPRA). THERE IS NO DISPUTE TO TH E FACT THAT THE ASSESSEE'S OWN FUNDS ARE FAR IN EXCESS OF THE I NTEREST FREE LOANS AND ADVANCES GIVEN BY THE ASSESSEE TO IT S SUBSIDIARY COMPANIES. THE HON'BLE BOMBAY HIGH COURT HAS HELD IN THE CASE OF RELIANCE UTILITIES & POWER LTD. (SUPRA) THAT IF THERE WERE FUNDS AVAILABLE BOTH INTEREST FREE AND OVERDRAFT / OR LOANS TAKEN, THEN PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OUT OF INTERES T FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY. IT W AS HELD THAT IF INTEREST FREE FUNDS WERE SUFFICIENT 10 MEET THE INVESTMENTS MODE, IN THAT CASE A PRESUMPTION IS ESTABLISHED THAT THE BORROWED CAPITAL WAS USED FOR THE PURPOSE OF BUSINESS AND THE INTEREST EXPENDITURE IS DEDUCTIBLE UNDER SECTION 36(1)(III) OF THE ACT. THE SIMILAR VIEW HAS ALSO BEEN CONSIDERED BY THE HON 'BLE CALCUTTA HIGH COURT IN WOOL COMBERS OF INDIA LTD., J 34 ITR 219 (CAL) S WHEREIN IT WAS HELD THAT IF THERE WERE SUFFICIENT PROFITS AVAILABLE TO MEET THE ADVANCE FAX LIABILITY AND THE PROFITS WERE DEPOSITED IN THE OVERDRAFT ACCOUNT OF THE ASSESSEE, ' IN SUCH A CASE IT SHOULD BE PRESUMED THAT THE TAXES WERE PAID OUT OF PROFITS OF THE YEAR AND NOT OUT OF THE OVERDRAFT AC COUNT FOR THE RUNNING OF THE BUSINESS. CONSIDERING SUBSEQUENT DEC ISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F RELIANCE UTILITIES & POWER LTD. (SUPRA), WHEREIN IT WAS SPECIFICALLY HEL D THAT IF INTEREST FREE FUNDS AVAILABLE TO AN ASSESSEE IS SUF FICIENT M/S SHAPOORJI PALLONJI & CO. LTD. . 60 TO MEET ITS INVESTMENT, IT CAN BE PRESUMED THAT THE INVESTMENTS WERE MADE FROM THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. THEREFORE, CONSIDERING THE FACT THAT THE ASSESSEE HAD ITS OWN FUNDS MORE THAN THE LOANS GIVE N TO ITS SUBSIDIARIES AND ALSO IN THE ABSENCE OF ANY NEXUS E STABLISHING THAT THE INTEREST BEARING 'BORROWED FUNDS WERE GIVE N US INTEREST FREE TO ITS SUBSIDIARIES, WE HOLD THAT THE DISALLOWANCE OF INTEREST IS NOT JUSTIFIED. THEREFORE, INTEREST I S ALLOWABLE UNDER SECTION 36(1)(III) OF THE ACT. HENCE, GROUND NO.2 OF THE APPEAL TAKEN BY THE ASSESSEE IS ALLOWED. ' 13.8 THUS, HAVING TAKEN NOTE OF THE ENTIRE FACTS AV AILABLE ON RECORD AND ALSO AFTER TAKING NOTE OF APPELLANT'S OW N FUND AVAILABILITY, WHICH IS EVIDENT FROM THE APPELLANT'S BALANCE SHEET, THE APPELLANT'S OWN FUND WAS RS.500.81 CRORE S, WHICH CONSISTS OF CAPITAL AND RESERVES AS ON 31 / 03/08, WHEREAS DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT HAS ADVANCED RS.43.50 CRORES TO SHRI NILESH J THAKUR FO R THE PURPOSE OF AGGREGATING LAND IN TERMS OF APPOINTMENT LETTER DATED 16/07/2007. IN VIEW OF THE SAME AND ALSO KEEP ING RELIANCE ON THE DECISION OF APEX COURT IN THE CASE OF MUNJAL SALES CORPORATION V CIT (298ITR 298) AND THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS REL IANCE UTILITIES AND POWER LID [313 ITR 340] & ALSO THE JURISDICTIONAL ITA T, MUMBAI IN THE CASE OF RELIANC E INDUSTRIES LTD. V DCIT (ITA NO. 30821MUML2006 DATED 28105/2012), I CONSIDER IT PROPER AND APPROPRIATE T O HOLD THAT THE DISALLOWANCE MADE BY THE A.O. U/S 36(1)(III) OF THE ACT OF RS.34,01,095/- IN THE GIVEN FACTS OF THE CAS E IS M/S SHAPOORJI PALLONJI & CO. LTD. . 61 COMPLETELY UNJUSTIFIED AND INCORRECT. IN VIEW OF TH E SAME, THE ADDITION SO MADE BY THE A. O. IS DELETED. THUS, THIS GROUND OF APPEAL IS ALLOWED. 3.4 IN VIEW OF MY DECISION IN APPEAL FOR A.Y-08-09, WHEREIN THE FACTS ARE IDENTICAL TO THE FACTS AS IN THE YEAR UNDER CONSIDERATION, THE REOPENING OF ASSESSMENT IN ANNULLED AND THE DISALLOWANCE OF INTEREST OF RS. 2,46,16,438/- IS DELETED IN THE YEAR UNDER CONSIDER ATION FOR THE REASONS STATED IN MY APPELLATE ORDER FOR A. Y2008- 09. THUS, TAKING NOTE OF ALL THE FACTUAL POSITION O F THE CASE, I CONSIDER IN PROPER AND APPROPRIATE TO HOLD THAT T HE A.O . WAS NOT JUSTIFIED IN HIS ACTION. ACCORDINGLY THE AP PELLANT'S THESE GROUNDS OF APPEAL ARC ALLOWED. ' 3.1. IF THE OBSERVATION MADE IN THE ASSESSMENT ORDE R, CONCLUSION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSERTION MADE BY THE LD. RESP ECTIVE COUNSEL, IF KEPT IN JUXTAPOSITION AND ANALYZED, WE FIND THAT THE ASSESSEE WAS HAVING 500.81 CRORES CONSISTING OF CAPITAL AND RESERVES AS ON 31/03/2008, WHEREAS, THE ASSESSEE ADVANCED RS.43.50 CRORES TO NILESH THAKUR F OR AGGREGATING LAND IN TERMS OF APPOINTMENT LETTER DATED 16/07/2007, THUS, WE FIND NO INFIRMITY IN THE CONCLUSION DRAWN IN THE IMPUGNED ORDER AS THE LD. C IT (A) HAS ALREADY PLACED RELIANCE UPON THE DECISION FROM HON'BLE APEX COURT IN MUNJAL SALES CORPORATION, FROM HON'BL E JURISDICTIONAL HIGH COURT IN RELIANCE UTILITIES & POWERS LTD. M/S SHAPOORJI PALLONJI & CO. LTD. . 62 (SUPRA) AND THE DECISION OF THE TRIBUNAL IN RELIANCE INDUSTRIES LTD. (ITA NO.3082/MUM/2006) ORDER DATED 28/05/2012. HIS STAND IS AFFIRMED. THIS GROUND OF THE REVENUE IS ALSO DISMISSED. 4. SO FAR AS, THE MERITS OF THE CASE IS CONCERNED T HE FACTUAL FINDING RECORDED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IS REPRODUCED HEREUNDER FOR READY REFE RENCE AND ANALYSIS:- 13.1. AS HELD BY ME HEREINABOVE, THE ORDER PASSED BY THE AO IS NOT SUSTAINABLE SINCE THE NOTICE ISSUED FOR REOPENI NG OF ASSESSMENT WAS INVALID. HOWEVER, THE ISSUE RAISED IN GROUND OF APPEAL NO.3 IS ALSO ADJUDICATED HEREUNDER SINCE THE A.R.S HAVE MADE DETAILED SUBMISSIONS ON MERITS OF THE CASE ALS O. ON MERITS OF THE CASE ALSO, I FIND THAT THE AO HAS COMPUTED D ISALLOWANCE OF INTEREST FOR THE REASONS DISCUSSED AT PARA 5 OF THE ASSESSMENT ORDER. ACCORDING TO THE AO, THE TRANSACTIONS OF TH E APPELLANT WITH SHRI NILESH J. THAKUR, THROUGH HIS PROPRIETORSHIP C ONCERN PRS ENTERPRISES AND ACECARD INFRASOL PVT. LTD., WERE FO R NON-BUSINESS PURPOSES. FOR ARRIVING AT THIS CONCLUSION, THE AO HAS REFERRED TO THE ENQUIRIES MADE BY THE DDIT (INV), UNIT I(2), MU MBAI; THE STATEMENT RECORDED OF MR. FEROZE K. BHATENA DIRECTO R & PRINCIPAL OFFICER OF THE APPELLANT COMPANY; ASSESSMENT ORDER FOR A.Y. 2008-09 IN CASE OF SHRI NILESH THAKUR AND THE APPEL LATE ORDER PASSED BY THE CIT(A) FOR A.Y. 2008-09 IN CASE OF SH RI NILESH THAKUR. BASED ON THE ABOVE, THE AO IN PARA 5 HAS H ELD AS UNDER:- A. PARA 5.1 IN THE BALANCE-SHEET OF THE ASSESSEE AS ON 31- 03-2008 UNDER THE HEAD 'CURRENT ASSETS' AN AMOUNT O F RS.43.50 CRORE HAS BEEN SHOWN AS ADVANCE TOWARDS LAND PURCHA SE. THE SAID AMOUNT HAS BEEN PAID BY THE COMPANY TO M/S. PR S ENTERPRISES, A PROPRIETORSHIP CONCERN OF ONE SHRI N .J. THAKUR. M/S SHAPOORJI PALLONJI & CO. LTD. . 63 B. PARA 5.2 THE ASSESSEE STATES THAT THESE AMOUNTS ARE IN THE NATURE OF ADVANCE PAYMENTS TOWARDS ACQUISITION OF L AND WITH CLEAR AND MARKETABLE TITLE IN AN AROUND ALIABAGH AN D OTHER AREAS OF RAIGAD DISTRICT. C. PARA 5.3 THE TRANSACTIONS WITH SHRI N.J. THAKUR AND HIS GROUP OF CONCERNS HAVE RECEIVED DETAILED ATTENTION FROM VARIOUS AUTHORITIES IN THE DEPARTMENT NAMELY INVESTIGATION WING, ITO- 25(1)(4) IN THE ASSESSMENT OF SHRI N.J. THAKUR FOR A.Y.2008-09 AND 2009-10 AND CIT(A)-35 IN THE APPELLATE ORDER IN THE CASE OF SHRI N.J. THAKUR IN THE A.Y.2008-09. EXHAUSTIVE SUB MISSIONS HAVE BEEN MADE BY BOTH THE ASSESSEE AS WELL AS SHRI N.J. THAKUR WITH RESPECT TO THESE TRANSACTIONS. THE SAME ARE DISCUSSED HEREUNDER: D. PARA 5.4 AT THIS POINT IT MAY BE NOTED THAT THE ASS ESSEE HAS NOT DEBITED SUCH AMOUNT OF RS.43.50 CRORE IN HI S PROFIT AND LOSS ACCOUNT AS EXPENSES NOR HAS HE INCLUDED THIS A MOUNT IN HIS WORK-IN-PROGRESS. IT IS AN ADMITTED FACT THAT THESE AMOUNTS STANDS AS 'ADVANCE FOR LAND PURCHASE' UNDER 'CURREN T ASSETS' IN HIS BALANCE-SHEET AS ON 31-03-2008. WE WILL NOW EXA MINE THE SUBMISSION OF THE ASSESSEE AND SHRI N.J. THAKUR BEF ORE VARIOUS AUTHORITIES AND THEIR FINDINGS AS UNDER: E. PARA 5.4.5 FROM THE ABOVE IT IS CLEAR THAT THE ASSE SSEE AND SHRI NJ THAKUR ARE CONTRACTING EACH OTHER. ON O NE HAND THE ASSESSEE CLAIMS THAT THESE PAYMENTS WERE MADE T OWARDS ACQUISITION OF LAND IN AND AROUND ALIBAUGH AND OTHE R AREAS IN RAIGAD DISTRICT. WHILE SHRI N. J. THAKUR STATES THAT THE AMOUNTS WERE RECEIVED TOWARDS THE DEVELOPMENT OF PR OJECT AT SAMATA NAGAR, KANDIVALI (E), MUMBAI AND FOR DEVELOP MENT OF WORLD TRADE CITY AT GARODIA NAGAR, GOREGAON, MUMBAI . FURTHER LIGHT ON THE .NATURE OF THESE TRANSACTIONS IS THROW N BY THE FINDINGS OF THE ITO-25(1)(4), MUMBAI AND C!T(A)-35, MUMBAI IN THE INDIVIDUAL ASSESSMENTS OF SHRI N.J THAKUR FOR T HE A.Y.2008- 09. THIS IS DISCUSSED HEREUNDER: F. PARA 5.4.7 FROM THE ABOVE IT IS CLEAR THAT SHRI NJ THAKUR CLAIMED TO BE A PARTNER WITH MY ASSESSEE AND CLAIMS TO HAVE RECEIVED MONEY AS ADVANCE FOR VARIOUS PROJECTS IN BOMBAY. HO WEVER, NEITHER SHRI NJ THAKUR NOR MY ASSESSEE HAVE SUBMITTED A SIN GLE DOCUMENTARY EVIDENCE REGARDING THEIR ASSOCIATION WITH EACH OTHE R THROUGH M/S SHAPOORJI PALLONJI & CO. LTD. . 64 PARTNERSHIP OR THROUGH APPOINTMENT AS CONSULTANT / AGENT / ANY OTHER RELATIONSHIP. MY ASSESSEE HAS NOT RECOGNIZED SHRI N . J. THAKUR AS A PARTNER AND NO PARTNERSHIP AGREEMENT WAS MADE. SHRI N. J. THAKUR COULD NOT PRODUCE ANY EVIDENCE WHATSOEVER REGARDING THE ALLEGED PROJECTS HE HAS UNDERTAKEN ON BEHALF OF MY ASSESSEE . BASED ON THE ABOVE FINDINGS, THE AO OF SHRI N. J. THAKUR PROCEEDED TO ASSESS THE AMOUNTS RECEIVED BY HIS PROPRIETORSHIP CONCERN VIZ. , PRS ENTERPRISES U/S.56(2)(VI) AS AN AMOUNT RECEIVED WITHOUT CONSIDE RATION. THE AO OF SHRI N. J. THAKUR HAS CLEARLY GIVEN THE FINDINGS TH AT THERE IS NO BUSINESS RELATION BETWEEN SHRI NJ THAKUR AND MY ASS ESSEE. G. PARA 5.5 FROM THE DETAILED FACTS NARRATED ABOVE IT IS VERY CLEAR THAT THERE IS A CLEAR CONTRADICTION BETWEEN T HE CLAIM OF MY ASSESSEE AND SHRI NJ THAKUR. THE ASSESSEE CLAIMS TO HAVE PAID THE SUM AS ADVANCE TOWARDS PURCHASE OF LAND IN AND AROUND RAIGAD DISTRICT. WHILE SHRI NJ THAKUR CLAIMED TO HA VE RECEIVED THIS MONEY FOR PROJECT DEVELOPMENT AT SAMATA NAGAR, KAND IVALI (E), MURNBAI AND WORLD TRADE CITY, GARODIA NAGAR, GOREGA ON. MR. FEROZ K. BHATENA DIRECTOR AND PRINCIPAL OFFICER OF THE ASSESSEE ON OATH ADMITTED THAT THE ASSESSEE HAS RELEASED ALL TH E PAYMENTS WITHOU.T ANY KIND OF BILLS RAISED ON THEM BY SHRI N J THAKUR AND HIS CONCERNS AND ALSO THAT IN NO OTHER COMPANIES, IT HAS RELEASED SUCH PAYMENTS WITHOUT INVOICES. H. PARA 5.6 MY ASSESSEE HAS STATED THAT THERE IS NO W RITTEN AGREEMENT WITH SHRI NJ THAKUR BEFORE OR AFTER ADVAN CING THESE FUNDS. THIS ACTION ON MY PART OF THE ASSESSEE CLEAR LY GOES AGAINST COMMERCIAL LOGIC. SHRI NJ THAKUR HAS ADMITTED ON OA TH BEFORE HIS AO THAT HE HAS NOT ACQUIRED ANY LAND/RIGHT/ASSET ON BEHALF OF MY ASSESSEE. IN LIGHT OF THESE FACTS THE SERIES OF DOU BTS CAST OVER THE GENUINENESS OF THE NATURE OF TRANSACTIONS. I. PARA 5.7 THE PAYMENTS HAVE BEEN MADE OVER THREE FIN ANCIAL YEARS INCLUDING THE ASSESSMENT YEAR UNDER CONSIDERA TION AND AT NO POINT OF TIME DID MY ASSESSEE EVEN CHECK WHETHER ANY PROPERTIES ARE BEING ACQUIRED OR IN THE PROCESS OF BEING ACQUIRED BY SHRI N J THAKUR. WITHOUT CONDUCTING THIS BASIC D UE DILIGENCE THE ASSESSEE WOULD HAVE ME BELIEVE THAT THEY KEPT O N RELEASING THE PAYMENT OVER THE THREE YEARS FOR THE SAME. MY A SSESSEE HAS ALSO DENIED ENTERING INTO ANY PARTNERSHIP AGREEMENT OR PROJECT DEVELOPMENT WITH SHRI N. J. THAKUR AS PARTNER/DIREC TOR. M/S SHAPOORJI PALLONJI & CO. LTD. . 65 J. PARA 5.8 IN VIEW OF THE ABOVE DISCUSSION IT IS AMPL Y CLEAR THAT THE SUM PAID BY SPCL TO PRS ENTERPRISES AND AC E CARD INFRASOL PVT. LTD., ALLEGEDLY FOR THE PURPOSE OF BU SINESS BEING LAND AGGREGATION IS NOT FOR THE STATED PURPOSES. THERE I S NO EVIDENCE BROUGHT OUT ON RECORD EITHER BY MY ASSESSEE OR SHRI N. J. THAKUR TO SHOW WHAT IS THE BUSINESS PURPOSE BETWEEN THEM. IT IS THEREFORE HELD THAT THE SUMS PAID HAS NOT BEEN UTIL IZED BY MY ASSESSEE FOR THE PURPOSE OF ITS BUSINESS. I THEREFO RE HOLD THAT NO DEDUCTION OUT OF THE SAME CAN BE ALLOWED EITHER AS EXPENDITURE OR ALLOWED TO BE CAPITALIZED UNDER THE HEAD 'WORK-I N-PROGRESS'. THIS BEING THE CASE, THE ONLY OTHER ISSUE TO BE SEE N IS THE SOURCE IN THE HANDS OF THE ASSESSEE FOR HAVING ADVANCED TH IS DONEY AND THE TAX IMPLICATION THEREON. ACCORDINGLY, IN THE CO URSE OF ASSESSMENT PROCEEDINGS, THE AR OF THE ASSESSEE HAS BEEN ASKED TO EXPLAIN AS TO WHY PROPORTIONATE DISALLOWANCE FOR THE INTEREST BEARING FUNDS UTILIZED FOR NON BUSINESS PURPOSES SH OULD NOT BE DISALLOWED FOR WHICH THE ASSESSEE SIMPLY STATED THA T THE PAYMENTS ARE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE SUBMISSION OF THE ASSESSEE HAS BEEN CONSIDERED, HOWEVER THE SAME IS NOT ACCEPTABLE IN ABSENCE OF ANY EVIDEN CES. ACCORDINGLY, THE INTEREST DISALLOWANCE ON SUCH PAYM ENTS IS DISCUSSED HEREUNDER; 13.2 AMID APPELLATE PROCEEDINGS, THE APPELLANT'S AI R HAS STRONGLY PLEADED AGAINST THE A.O'S ACTION AND FILED A DETAIL ED WRITTEN SUBMISSION IN. SUPPORT OF HIS CONTENTION, THE RELEV ANT PORTION OF THE SAME IS EXTRACTED AS UNDER.: L. ON THE MERITS OF THE CASE WE HAVE TO REITERATE T HE SUBMISSIONS MODE BY US BEFORE THE AO VIDE OUR LETTER DATED 7.1. 2013 2. WE FURTHER REITERATE AND SUBMIT THAT WE HAD GIVE N ADVANCES TO SHRI NILESH THAKUR AND HIS GROUP CONCERNS FOR ACQUI RING LARGE TRACTS OF LAND IN THE PANVEL, ALIGABH, PEN AND RAIGAD AREA S (' PROJECT AREAS'). M/S SHAPOORJI PALLONJI & CO. LTD. . 66 3. THE LANDS PROPOSED TO BE ACQUIRED IN THE PROJECT AREAS WERE WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF OUR BUSI NESS ACTIVITIES. 4. WE HAD APPOINTED SHRI NILESH JANARDHAN THAKUR 10 ACQUIRE THE LANDS IN THE PROJECT AREAS, VIDE OUR LETTER OF APPO INTMENT DATED 16 TH JULY, 2007 (COPY ENCLOSED AT PAGES 279 TO 282 OF PA PER BOOK). 5. SHRI NILESH JANARDHAN THAKUR/FRS ENTERPRISES ACC EPTED THE APPOINTMENT LETTER VIDE HIS LETTER DATED 19 TH JULY, 2007 AND AGREED TO ACQUIRE THE LANDS IN THE PROJECT ORCAS ON THE BA SIS OF THE TERMS AND CONDITIONS STALED IN THE APPOINTMENT LETTER (CO PY ENCLOSED AT PAGE 283 OF PAPER BOOK). 6. SHRI NILESH JANARDHAN THAKUR/PRS ENTERPRISES WER E GIVEN ADVANCES FROM TIME TO TIME IN TERMS OF THE RESOLUTI ONS PASSED BY THE BOARD OF DIRECTORS AND ON THE BASIS OF THE REPRESEN TATIONS MADE BY SHRI NILESH JANARDHAN THAKUR ON THE STATUS OF LAND ACQUISITIONS. 7. THE AMOUNTS ADVANCED BY US TO SHRI NILESH JANAR DHAN THAKUR WERE REFLECTED IN OUR AUDITED BALANCE SHEETS UNDER THE HEAD ADVANCES/OR LAND'. 8. AS SHRI NILESH JANARDHAN THAKUR DID NOT PERFORM IN TERMS OF THE APPOINTMENT LETTER, A SUIT BEARING NO. 2576 OF 2011 WAS FILED BY US BEFORE THE HON'BLE BOMBAY HIGH COURT. 9. THE HONBLE BOMBAY HIGH COURT IN TERMS OF THE CO NSENT TERMS ARRIVED (IT IN BETWEEN SHRI NILES' JANARDHAN THAKUR AND US, PASSED A DECREE IN OUR FAVOUR. M/S SHAPOORJI PALLONJI & CO. LTD. . 67 10. THE ENTIRE SET OF FACTS IN RELATION TO THE TRAN SACTION IN BETWEEN SHRI NILESH JANARDLIAN THAKUR ARC SET OUT IN THE SU IT PLAINT AND THE ANNEXURES FILED BEFORE THE HONBLE BOMBAY HIGH COUR T IN SUIT NO. 2576 OF 2011. 11. IT IS SUBMITTED THAT MERELY BECAUSE SHRI NILESH THAKUR HAD GIVEN CERTAIN EXPLANATIONS, WHICH ARE BEREFT OF ANY FACTS , RECORDS OR DOCUMENTS, IT COULD NOT BE SAID THAT THERE WAS ANY INCOME WHICH HAS ESCAPED ASSESSMENT IN THE HANDS OF YOUR ASSESSE E. 12.IT IS ALSO SUBMITTED THAT THE APPELLANT HAD BORR OWED FUNDS SOLELY FOR THE PURPOSES OF ITS BUSINESS ACTIVITIES. THE L ANDS PROPOSED TO BE ACQUIRED IN THE PROJECT AREAS WAS WHOLLY AND EXCLUS IVELY FOR THE PURPOSES OF OUR BUSINESS. THE ENTIRE AMOUNT OF ADV ANCE WAS REFLECTED IN THE BALANCE SHEET UNDER THE HEAD CURR ENT ASSETS- ADVANCE FOR LAND. 1.THE APPELLANT HAS A COMMON POOL OF FUNDS I.E. OWN FUNDS AND BORROWED FUNDS AND THE OWN FUNDS, AS ON THE DATE OF ADVANCING FUNDS TO SHRI NILESH JANARDHAN THAKUR, WERE IN EXCE SS OF THE AMOUNTS LENT. WE RELY ON THE DECISIONS IN CASES OF HONBLE SUPREME COURT IN THE CASE OF MUNJAL SALES CORPORATION VS CI T AND HONBLE BOMBAY HIGH COURT IN CIT VS RELIANCE UTILITIES AND POWER LTD. WHEREIN IT WAS HELD THAT WHERE THE CAPITAL AND PROF ITS ARE MORE THAN THE INTEREST FREE FUNDS ADVANCED, THEN IT HAS TO BE PRESUMED THAT SUCH INTEREST FREE ADVANCE WERE GIVEN OUT OF INTERE ST FREE CAPITAL AVAILABLE. THE APPELLANTS OWN FUNDS AS ON 31.3.200 7 AND 31.3.2008 WERE AS UNDER:- AS ON 31.3.2007 AS ON 31.3.2008 SHARE CAPITAL 82,00,000 203,02,00,000 RESERVES & SURPLUS 171,45,01,507 297,79,91,248 TOTAL 172,27,01,507 500,81,91,248 M/S SHAPOORJI PALLONJI & CO. LTD. . 68 2. EVEN FOR THE PREVIOUS YEAR THE NET PROFIT OF THE APPELLANT COMPANY WAS RS. 126,19,01,513/- WHICH IS IN EXCESS OF THE AMOUNTS GIVEN TO SHRI NILESH J. THAKUR OF RS. 43.50 CRORES. 3. IT IS FURTHER SUBMITTED THAT THE AO HAS NOT ESTA BLISHED ANY NEXUS IN BETWEEN THE BORROWED FUNDS AND TILE AMOUNT S GIVEN TO SHRI NILCSH J. THAKUR FOR LAND AGGREGATION. THE AO HAS MERELY COMPUTED THE DISALLOWANCE ON THE BASIS OF THE ENTRI ES IN THE 'OVER DRAFT ACCOUNT' MAINTAINED BY THE APPELLANT WITH ITS BANKERS. THE AO HAS COMPUTED THE DISALLOWANCE OF INTEREST ONLY F OR THE PERIOD DURING WHICH THERE WAS' A NEGATIVE BALANCE THE MOME NT THE BALANCE IN THE OVERDRAFT ACCOUNT TURNED POSITIVE, T HE AO HAS NOT COMPUTED ANY DISALLOWANCE. DISALLOWANCE COMPUTED 01 1 THIS BASIS WAS RECENTLY CONSIDERED IN THE DECISION OF TH E HON'BLE ITAT IN THE CASE OF RELIANCE INDUSTRIES LTD. V DCIT (ITA NO. 3082/MUM/2006 DATED 28/05/2012) AND THE HON'BLE ITA T HAS DELETED THE DISALLOWANCE OF INTEREST. 13.3 .I HAVE CONSIDERED THE A.O.'S ORDER AS WELL AS THE APPELLANT'S A/R SUBMISSION. FURTHER 1 HAVE PERUSED THE MATTER I N ITS ENTIRETY AND THE AFORESAID FINDINGS OF THE AO, J HAVE ALSO P ERUSED THE COPY OF THE PLAINT ALONG WITH THE RECORDS AND DOCUM ENTS FILED BEFORE THE HON'BLE BOMBAY HIGH COURT IN SUIT NO. 25 76 OF 2011 AND THE ORDER OF HON'BLE BOMBAY HIGH COURT. ON PERU SAL OF THE PLAINT AND THE RECORDS AND DOCUMENTS IT IS SEEN THA T THE APPELLANT, BY ITS LETTER OF APPOINTMENT DATED 16.7. 2007, HAD APPOINTED SHRI NILESH THAKUR FOR LAND AGGREGATION I N PANVEL, ALIGABH, PEN AND RAIGAD AREAS. THE SAID LETTER OF A PPOINTMENT WAS ACCEPTED BY SHRI NILESH JANARDHAN THAKUR/PRS EN TERPRISES BY LETTER DATED 19TH JULY, 2007. IN TERMS OF THE SA ID LETTER- AGREEMENT, THE APPELLANT HAS PROVIDED FUNDS TO SHRI NILESH M/S SHAPOORJI PALLONJI & CO. LTD. . 69 THAKUR, BY WAY OF ADVANCES FOR PURCHASE OF LANDS. T HE PAYMENTS TO SHRI NILESH THAKUR HAVE BEEN MADE IN TE RMS OF THE RESOLUTION OF THE BOARD OF DIRECTORS OF THE APPELLA NT COMPANY. THE APPELLANT HAS MADE PAYMENTS 0/ ON AGGREGATE AMOUNT OF RS.141. 50 CRORES FROM TIME TO TIME (I.E. BETWEEN J ULY 2007 AND MID 2009, A.Y.-08-09-RS.43.50 CRORES,A.Y-09-10- RS. 53.00 CRORES, A.Y.-10-11-RS.45.00 CRORES) BY ACCOUNT PAYE E CHEQUES TO SHRI NILESH JANARDHAN TAHKUR'S CONCERNS I.E. PRS EN TERPRISES AND ACECARD INFRASOL PVT. LTD. THE SAID AMOUNTS HAV E BEEN REFLECTED IN THE BALANCE SHEETS OF THE APPELLANT AS 'ADVANCES/OR LAND'. SHRI NILESH JANARDHAN THAKUR BY HIS LETTER D ATED 22 ND MARCH 2010, INFORMED THE APPELLANT THAT THE PAYMENT RECEIVED WAS USED FOR ACQUIRING PROPERTIES AND THAT THE SURP LUS FUNDS HAD BEEN KEPT IN FIXED DEPOSIT AND THAT THE PROPERTIES WOULD BE TRANSFERRED IN FAVOUR OF THE APPELLANT AS SOON AS P OSSIBLE. HOWEVER THEREAFTER, SHRI NILESH JANARDHAN THAKUR, N EITHER REFUNDED THE MONIES NOR TRANSFERRED THE PROPERTIES TO THE APPELLANT. IN THESE CIRCUMSTANCES, THE APPELLANT FI LED SUIT NO. 2576 OF 2011 AGAINST SHRI NILESH JANARDHAN THAKUR, PRS ENTERPRISES & OTHERS IN. SEPTEMBER 2011. SUBSEQUENT THERETO SHRI NILESH JANARDHAN THAKUR AGREED TO SETTLE THE M ATTER BY TRANS/ERRING ALL THE MOVEABLE AND IMMOVEABLE ASSETS IN FAVOUR OF THE APPELLANT. THE HON'BLE BOMBAY HIGH COURT PASSED AN ORDER DATED 19 TH OCTOBER 2011 IN THE AFORESAID SUIT AND DECREED TH E MONIES, ASSETS AND PROPERTIES, ILLEGALLY MISAPPROPR IATED BY SHRI JANARDHAN THAKUR AND HIS ENTITIES IN FAVOUR OF THE APPELLANT . 13.3 HAVING REGARD TO THE ABOVE ADMITTED FACTS RECO RDED IN THE SUIT FILED BY THE APPELLANT BEFORE THE HON'BLE BOMB AY HIGH COURT WHICH ARE DULY SUPPORTED BY RECORDS AND DOCUMENTS F ILED AS ANNEXURES BEFORE THE HON'BLE BOMBAY HIGH COURT, THE AMOUNTS M/S SHAPOORJI PALLONJI & CO. LTD. . 70 ADVANCED BY THE APPELLANT ARE ONLY FOR ACQUISITION OF LANDS IN THE PROJECT AREAS OF PANVEL, ALLBAUGH, PEN AND RAIGAD D ISTRICT. THE APPELLANT HAS PRODUCED RECORDS AND DOCUMENTS IN SU PPORT OF THE TRANSACTIONS ENTERED INTO WITH SHRI NILESH JANARDH AN THAKUR AND HIS GROUP ENTITIES. ALL FACTS OBTAINED FROM THE RECORDS AND DOCUMENTS REVEAL THAT THE APPELLANT HAD PROVIDED FU NDS TO SHRI NILESH THAKUR FOR LAND ACQUISITION IN THE PROJECT A REAS. IN VIEVV OF THE SAME, ANY CONTRARY SUBMISSIONS/EXPLANATIONS GIV EN BY SHRI NILESH THAKUR DURING THE COURSE OF HIS ASSESSMENT A ND APPELLATE PROCEEDINGS CANNOT BE CONSIDERED AS A FOUNDATION FO R ARRIVING AT ANY NEGATIVE INFERENCE IN THE CASE OF THE APPELLANT . THE FACT THAT SHRI NILESH THAKUR, DURING THE COURSE OF HIS ASSESS MENT PROCEEDINGS FOR A. Y 2008-09 AND 2009-10 HAD EXPLAI NED THAT HE HAD RECEIVED AMOUNTS TOWARDS THE DEVELOPMENT OF PRO JECT AT SAMATA NOGAR, KANDIVALI (E) MUMBAI AND (OR DEVELOPM ENT OF WORLD TRADE CITY AT GARODIA NAGAR, GOREGAON. MUMBAI IS CLEARLY BORNE /1'0171 THE FINDINGS RECORDED IN HIS ASSESSME NT ORDER FOR A.Y. 2008-09 AND 2009-10. BUT IT IS EQUALLY RELEVAN T [0 NOTE THAT SHRI NILESH THAKUR COULD NOT PRODUCE/FURNISH ANY EV IDENCE IN SUPPORT OF THE SAID CLAIM. THE APPELLANT, DURING THE COURSE OF THE INQUIRY BEFORE THE VARIOUS AUTHORITIES HAS TAKENA C ONSISTENT STAND THAT THE ADVANCES WERE GIVEN FOR LAND AGGREGA TION IN THE PROJECT AREAS. THE CLAIM OF THE APPELLANT IS SUPPOR TED BY THE VARIOUS RECORDS AND DOCUMENTS. CREDENCE CANNOT BE G IVEN 10 EXPLANATIONS GIVEN BY SHRI NILESH THAKUR DURING HIS ASSESSMENT PROCEEDINGS FOR A. Y. 2008-09 AND 2009-10 SINCE HE HIMSELF, IN THE APPELLATE PROCEEDINGS FOR A. Y 2009-10, HAS ADM ITTED TO HAVING RECEIVED THE FUNDS FROM THE APPELLANT COMPAN Y FOR LAND AGGREGATION. J-JE HAS ALSO ADMITTED THAT THE RECORD AND DOCUMENTS FURNISHED BY THE APPELLANT COMPANY BEFORE THE HON'BLE BOMBAY HIGH COURT DEPICTED THE TRUE NATURE 0/ M/S SHAPOORJI PALLONJI & CO. LTD. . 71 TRANSACTION IN BETWEEN THEM. THUS IT IS SEEN THAT S HRI NILESH THAKUR HAS TAKEN A DIAMETRICALLY OPPOSITE STAND ON THE NATURE AND PURPOSE OF ADVANCES GIVEN BY THE APPELLANT 10 H IM AS COMPARED TO THE STAND TAKEN BY HIM DURING THE COURS E OF ASSESSMENT PROCEEDINGS FOR A. Y. 2008-09 AND 2009-1 0. IN CASE THE STAND TAKEN BY SHRI NILESH THAKUR IN THE APPELL ATE PROCEEDINGS FOR A. Y 2009-10 IS CONSIDERED, THERE I S NO CONTRADICTION IN BETWEEN THE EXPLANATION GIVEN AS R EGARDS THE NATURE AND PURPOSE OF ADVANCES GIVEN BY THE APPELLA NT TO SHRI NILESH THAKUR. THE ADMITTED STAND OF SHRI NILESH TH AKUR IN THE APPELLATE PROCEEDINGS FOR A. Y 2009-10 IS DULY SUPP ORTED BY THE RECORDS. HENCE, THE ONLY INEVITABLE CONCLUSION THAT CAN BE INFERRED IS THAT THE APPELLANT HAD ADVANCED MONIES FOR ACQUISITION OF LANDS AT ALIBAUG, PEN, PANVEL AND OT HER AREAS IN AND AROUND RAIGAD DISTRICT, WHICH IS EXPLICITLY EVI DENT FROM THE 'LETTER OF APPOINTMENT ISSUED BY THE APPELLANT COMP ANY DATED 16/07/2007 IN FAVOUR OF SHRI NILESH J THAKUR AND SU BSEQUENT ACCEPTANCE FETTER DATED 19/07/2007GIVEN BY SHRI NIL ESH J THAKUR TO THE APPELLANT. THE LAND ACQUISITION IN PR OJECT AREAS IS DURING THE COURSE OF THE REGULAR BUSINESS ACTIVITY OF THE APPELLANT. THE FUNDS ADVANCED BY THE APPELLANT TO SHRI NILESH JANARDHAN THAKUR ARE THUS HELD TO BE FOR APPELLANT'S BUSINESS PURPOSES. ACCORDINGLY, IT IS HELD THAT THE DISALLOWANCE COMPU TED OUT OF CLAIM OF DEDUCTION OF INTEREST U/S. 36(J)(IIL) WAS NOT CALLED FOR IN THE AFORESAID FACTS. 13.5. EVEN FURTHER TO THE AFORE-STATED FACTS, THE A PPELLANT'S A.R'S HAVE ALSO SUBMITTED THAT THE APPELLANT HAS A COMMON POOL OF FUNDS I.E. OWN FUNDS AND BORROWED FUNDS AND THAT TH E APPELLANT HAD SUFFICIENT OWN FUNDS AS ON THE DATE OF ADVANCIN G FUNDS TO SHRI NILESH JANARDHAN THAKUR. IT WAS SUBMITTED THAT THE FUNDS M/S SHAPOORJI PALLONJI & CO. LTD. . 72 IN THE BANK ACCOUNT WERE FUNGIBLE AND MERELY BECAUS E THERE WAS NEGATIVE BALANCE IN THE CURRENT ACCOUNT ON A PARTIC ULAR DATE, IT CANNOT BE INFERRED THAT THE PAYMENTS MADE WAS OUT O F BORROWED FUND. IT WAS ALSO SUBMITTED THAT THE FACTUM THAT T HE FUNDS WERE FUNGIBLE HAS BEEN ACCEPTED BY THE AO HIMSELF IN SO FAR AS THE AO HAS RESTRICTED THE DISALLOWANCE OF INTEREST ONLY TI LL THE DATE WHEN THERE WAS POSITIVE BALANCE IN THE CURRENT ACCOUNT M AINTAINED WITH THE BANK. THE APPELLANT'S A.R'S IN SUPPORT, RE LIED ON THE DECISIONS IN CASES OF HON'BLE SUPREME COURT IN THE CASE OF MUNJAL SALES CORPORATION V CIT (SUPRA) AND HON'BLE BOMBAY HIGH COURT IN CIT V RELIANCE UTILITIES AND POWER LTD. (SUPRA) WHEREIN IT WAS HELD THAT WHERE THE CAPITAL AND PROFITS ARE MORE TH AN THE INTEREST FREE FUNDS ADVANCED, THEN IT HAS TO BE PRESUMED THA T SUCH INTEREST FREE ADVANCE WERE GIVEN OUT OF INTEREST FR EE CAPITAL AVAILABLE. 13.6 I FIND THAT THE APPELLANTS OWN FUNDS AS ON 31. 3.2007 AND 31.3.2008 HERE AS UNDER: AS ON 31.3.2007 AS ON 31.3.2008 SHARE CAPITAL 82,00,000 203,02,00,000 RESERVES & SURPLUS 171,45,01,507 297,79,91,248 TOTAL 172,27,01,507 500,81,91,248 13.7 I ALSO FIND THAT THE NET PROFIT FOR THE YEAR IS RS. 126,19,01,513/-. THE PROFITS OF THE YEAR ARE ALSO I NCLUDED IN THE CURRENT OVERDRAFT ACCOUNT MAINTAINED WITH 'THE BANK S. THUS THE FUNDS IN THE BANK ACCOUNT ARE FUNGIBLE. THE APPELLA NT HAS NOT MADE ANY SPECIFIC BORROWING FOR THE PURPOSES OF ADV ANCING FUNDS FOR PURCHASE OF LAND BY SHERI NILESH J. THAKUR. RES PECTFULLY FOLLOWING THE DECISIONS OF THE HON'BLE SUPREME COUR T IN CASE OF MUNJAL SALES CORPORATION (SUPRA) AND HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V RELIANCE UTILITIES AND P OWER LTD. M/S SHAPOORJI PALLONJI & CO. LTD. . 73 (SUPRA), THE ADVANCES GIVEN TO SHRI NILESH J. THAKU R ARE PRESUMED TO BE FROM THE INTEREST FREE OWN FUNDS OF THE APPELLANT. IN THE RECENT DECISION OF THE HON'BLE ITAT IN THE C ASE 0/ RELIANCE INDUSTRIES LTD. V DCIT (ITA NO. 3082/MUM/2006 DATED 28/05/2012) IT WAS HELD AS UNDER: '5.1. THE A 0 HAS SLATED THAT ASSESSEE HAS ADVANCED INTEREST FREE LOANS TO ITS SUBSIDIARY COMPANIES. T HE AD HAS STATED THAT ASSESSEE WAS ASKED TO PROVE THE NEXUS BETWEEN SOURCE OF FUNDS OUT OF WHICH ADVANCES WERE GIVEN TO ITS SUBSIDIARY COMPANIES AND INTEREST FREE OR' OWN FUND S AVAILABLE WITH THE ASSESSEE. THE ASSESSEE FILED DETAILS AND S TATED THAT THE ASSESSEE HAD GIVEN LOANS AND ADVANCES OF RS.2988.98 CRORES TO ITS SUBSIDIARIES AS ON 31/03/2002, OUT ITS OWN FUND S AND INTERNAL ACCRUALS EXCEPT TO THE EXTENT OF RELYING ' UPON THE DECISION OF HON'BLE KERALA HIGH COURT IN THE CASE OF V.I. BA BY &: COMPANY, 254 ITR 248 AND DECISION OF THE HON'BLE BO MBAY HIGH COURT IN THE CASE OF PHALTON SUGAR WORKS LID, 208 I TR 989 DISALLOWED THE SAID INTEREST OF RS. 11,19,382/-. BE ING AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLAT E AUTHORITY. 5.2 IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THAT ASSESSEE'S OWN FUNDS WERE FAR IN EXCESS OF THE INTEREST FREE L OANS GIVEN TO ITS SUBSIDIARIES: IT WAS CONTENDED THAT AS PER AUDITED ACCOUNTS.. ASSESSEE'S OWN FUNDS AS ON 31/3/2002 STOOD AT RS.25 ,136.76 CRORES AND, THEREFORE, INTEREST FREE LOANS GIVEN TO ITS SUBSIDIARIES SHOULD BE CONSIDERED AS HAVING BEEN GIVEN OUT OF IT S OWN FUNDS. IT WAS CONTENDED THAT ASSESSEE HAD' NOT TAKEN ANY S PECIFIC INTEREST BEARING LOANS FOR ADVANCING INTEREST FREE LOANS TO ITS SUBSIDIARIES. IT WAS SUBMITTED THAT IN VIEW OF THE FUNGIBILITY OF THE FUNDS AVAILABLE, IT CAN BE LEGITIMATELY PRESUME D THAT THE M/S SHAPOORJI PALLONJI & CO. LTD. . 74 INTEREST FREE LOANS GIVEN TO THE SUBSIDIARIES HAD B EEN GIVEN OUT OF OWN FUNDS OF THE ASSESSEE COMPANY DEPLOYED IN THE B USINESS. IT WAS ALSO CONTENDED THAT THE NET PROFIT AFTER TAX AN D BEFORE DEPRECIATION DURING THE YEAR STOOD AT RS. 7054.84 C RORES. THUS, THE NET PROFIT FOR THE YEAR UNDER CONSIDERATION EXC EEDED NOT ONLY THE INCREMENTAL LOANS GIVEN TO THE SUBSIDIARIES DUR ING THE YEAR BUT EVEN EXCEEDED THE TOTAL INTEREST FREE LOANS OF RS. 2988. 98 CRORES GIVEN TO THE SUBSIDIARIES AS ON 31/3/2002. I T WAS ALSO CONTENDED THAT IN THE ABSENCE OF ANY NEXUS BETWEEN THE INTEREST BEARING BORROWED FUNDS AND THE INTEREST FREE LOANS GIVEN TO SUBSIDIARIES AND CONSIDERING THE FUNGIBILITY OF FUN DS AND THE FACT THAT OWN FUNDS FAR' EXCEEDED SUCH LOANS, IT HAS TO BE PRESUMED THAT SUCH INTEREST FREE LOANS HAD BEEN GIVEN OUT OF OWN FUNDS. 5.3 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE AND CASES RELIED UPON ON BEHALF OF THE ASS ESSEE, DETAILS GIVEN AT PAGE 18 OF THE IMPUGNED ORDER, HEL D THAT BORROWED FUNDS TO THE EXTENT OF RS. 9.89 CRORES WA S ACTUALLY UTILIZED FOR ADVANCING INTEREST FREE ADVANCES TO SU BSIDIARIES. THEREFORE, LD C1T(A) CONFIRMED THE ACTION OF THE 11 0 IN DISALLOWING INTEREST ON ACCOUNT OF DIVERSION OF FUN DS FOR NON- BUSINESS PURPOSES, WHICH COMES TO RS. 11,19,382/- H ENCE, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5.4 DURING THE COURSE OF HEARING THE ID. A.R REITER ATED THE SUBMISSIONS AS WERE MADE BEFORE THE FIRST APPELLATE AUTHORITY THAT THE ASSESSEE HAD ITS OWN FUNDS FAR MORE THAN T HE INTEREST FREE LOANS AND ADVANCES GIVEN TO ITS SUBSIDIARY COM PANY. THE ID. A.R RELYING OIL THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD., VS. CI T 313 ITR 340 SUBMITTED THAT NO DISALLOWANCE OUT OF INTEREST EXPE NDITURE IS TO BE MADE IF INTEREST FREE FUNDS WERE SUFFICIENT TO M EET THE INVESTMENT MADE. HE FURTHER SUBMITTED THAT THE HON BLE APEX M/S SHAPOORJI PALLONJI & CO. LTD. . 75 COURT HAS ALSO HELD IN THE CASE OF S.A. BUILDERS LT D., VS. CIT, 288 ITR 1 THAT WHEN LOAN TO ITS SUBSIDIARY IS GIVEN IN THE COURSE AND FOR THE PURPOSE OF BUSINESS OF ITS BUSINESS, NO DIS ALLOWANCE OF INTEREST HAS TO BE MADE. HE SUBMITTED THAT IN VIEW OF ABOVE DECISIONS, THE DISALLOWANCE OF INTEREST IS NOT JUST IFIED AND THE SAME SHOULD BE DELETED. 5.5 ON THE OTHER HAND, LD. D.R RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 5.6 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES AND ORDERS OF THE AU THORITIES BELOW. WE HAVE ALSO CONSIDERED THE CASES RELIED UPON BY TH E AUTHORITIES BELOW AS WELL AS THE CASES CITED BY LD. A.R (SUPRA) . THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE'S OWN FUNDS A RE FAR IN EXCESS OF THE INTEREST FREE LOANS AND ADVANCES GIVE N BY THE ASSESSEE TO ITS SUBSIDIARY COMPANIES. THE HON'BLE B OMBAY HIGH COURT HAS HELD IN THE CASE OF RELIANCE UTILITIES & POWER LTD. (SUPRA) THAT IF THERE WERE FUNDS AVAILABLE BOTH INT EREST FREE AND OVERDRAFT / OR LOANS TAKEN, THEN PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OUT OF INTEREST FREE FUNDS GENE RATED OR AVAILABLE WITH THE COMPANY. IT WAS HELD THAT IF INT EREST FREE FUNDS WERE SUFFICIENT 10 MEET THE INVESTMENTS MODE, IN TH AT CASE A PRESUMPTION IS ESTABLISHED THAT THE BORROWED CAPITA L WAS USED FOR THE PURPOSE OF BUSINESS AND THE INTEREST EXPEND ITURE IS DEDUCTIBLE UNDER SECTION 36(1)(III) OF THE ACT. THE SIMILAR VIEW HAS ALSO BEEN CONSIDERED BY THE HONBLE CALCUTTA HIGH C OURT IN WOOL COMBERS OF INDIA LTD., 134 ITR 219 (CAL), WHEREIN I T WAS HELD THAT IF THERE WERE SUFFICIENT PROFITS AVAILABLE TO MEET THE ADVANCE FAX LIABILITY AND THE PROFITS WERE DEPOSITED IN THE OVERDRAFT ACCOUNT OF THE ASSESSEE,' IN SUCH A CASE IT SHOULD BE PRESUMED M/S SHAPOORJI PALLONJI & CO. LTD. . 76 THAT THE TAXES WERE PAID OUT OF PROFITS OF THE YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINE SS. CONSIDERING SUBSEQUENT DECISION OF THE HON'BLE JURISDICTIONAL H IGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD. (SUPRA) , WHEREIN IT WAS SPECIFICALLY HELD THAT IF INTEREST FREE FUNDS AVAIL ABLE TO AN ASSESSEE IS SUFFICIENT TO MEET ITS INVESTMENT, IT C AN BE PRESUMED THAT THE INVESTMENTS WERE MADE FROM THE INTEREST FR EE FUNDS AVAILABLE WITH THE ASSESSEE. THEREFORE, CONSIDERIN G THE FACT THAT THE ASSESSEE HAD ITS OWN FUNDS MORE THAN THE LOANS GIVEN TO ITS SUBSIDIARIES AND ALSO IN THE ABSENCE OF ANY NEXUS E STABLISHING THAT THE INTEREST BEARING 'BORROWED FUNDS WERE GIVE N US INTEREST FREE TO ITS SUBSIDIARIES, WE HOLD THAT THE DISALLOW ANCE OF INTEREST IS NOT JUSTIFIED. THEREFORE, INTEREST IS ALLOWABLE UNDER SECTION 36(1 )(III) OF THE ACT. HENCE, GROUND NO.2 OF THE APPEAL TAKEN BY THE ASSES SEE IS ALLOWED. ' 13.8 THUS, HAVING TAKEN NOTE OF THE ENTIRE FACTS AV AILABLE ON RECORD AND ALSO AFTER TAKING NOTE OF APPELLANT'S OW N FUND AVAILABILITY, WHICH IS EVIDENT FROM THE APPELLANT'S BALANCE SHEET, THE APPELLANT'S OWN FUND WAS RS.500.81 CRORE S, WHICH CONSISTS OF CAPITAL AND RESERVES AS ON 3! 103108, W HEREAS DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT HAS ADVANCED RS.43.50 CRORES TO SHRI NILESH J THAKUR FO R THE PURPOSE OF AGGREGATING LAND IN TERMS OF APPOINTMENT LETTER DATED 16/07/2007. IN VIEW OF THE SAME AND ALSO KEEP ING RELIANCE ON THE DECISION OF APEX COURT IN THE CASE OF MUNJAL SALES CORPORATION V CIT (298 ITR 298) AND THE DECIS ION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V RELI ANCE UTILITIES AND POWER LTD. [313 ITR 340] & ALSO THE J URISDICTIONAL ITA T, MUMBAI IN THE CASE OF RELIANCE INDUSTRIES LT D. V DCIT M/S SHAPOORJI PALLONJI & CO. LTD. . 77 (ITA NO. 3082/MUM/2006 DATED 28/05/2012), I CONSIDE R IT PROPER AND APPROPRIATE TO HOLD THAT THE DISALLOWANC E MADE BY THE A.O. U/S 36(1)(III) OF THE ACT OF RS.34,01,0 95/- IN THE GIVEN FACTS OF THE CASE IS COMPLETELY UNJUSTIFIED A ND INCORRECT. IN VIEW OF THE SAME, THE ADDITION SO MADE BY THE A. 0. IS DELETED. THUS, THIS GROUND OF APPEAL IS ALLOWED. 3.4 IN VIEW OF MY DECISION IN APPEAL FOR A.Y.-08-09 , WHEREIN THE FACTS ARE IDENTICAL TO THE FACTS AS IN THE YEA R UNDER CONSIDERATION, THE REOPENING OF ASSESSMENT IN ANNUL LED AND THE DISALLOWANCE OF INTEREST OF RS. 2,46,16,438/- I S DELETED IN THE YEAR UNDER CONSIDERATION FOR THE REASONS STA TED IN MY APPELLATE ORDER FOR A.Y.2008-09. THUS, TAKING NOTE OF ALL THE FACTUAL POSITION OF THE CASE, I CONSIDER IN PROPER AND APPROPRIATE TO HOLD THAT THE A.O. WAS NOT JUSTIFIED IN HIS ACTION. ACCORDINGLY THE APPELLANT'S THESE GROUNDS O F APPEAL ARE ALLOWED. 4.1. IF THE FACTUAL FINDING RECORDED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS), WE NOTE THAT (AS CONTAINED IN PARA-13.4) SHRI NILESH THAKUR, DURING T HE COURSE OF ASSESSMENT PROCEEDINGS FOR AY 2008-09 AND 2009-10 DULY EXPLAINED THAT HE RECEIVED THE AMOUNTS AND DURING THE COURSE OF ENQUIRIES BEFORE VARIOUS AUTHO RITIES HE TOOK A CONSISTENT STAND THAT ADVANCES WERE GIVEN FOR LAND AGGREGATION AND ADMITTED TO HAVE RECEIVED THE FUNDS FROM THE ASSESSEE COMPANY. SHRI NILESH THAKUR ALSO ADMITTED BEFORE THE HONBLE HIGH COURT REGARDING TR UE NATURE OF TRANSACTION AND TOOK A DIAMETRICALLY OPPO SITE M/S SHAPOORJI PALLONJI & CO. LTD. . 78 STANDS ON THE NATURE OF PURPOSE OF ADVANCES. THE ADMITTED STAND OF NILESH THAKUR IN APPELLATE PROCEED ING FOR AY 2009-10 IS DULY SUPPORTED BY THE RECORD, WHI CH IS FURTHER SUPPORTED BY THE LETTER OF THE ASSESSEE COM PANY DATED 16/07/2007 AND SUBSEQUENT ACCEPTANCE VIDE LET TER DATED 19/07/2007 GIVEN BY SHRI THAKUR TO THE ASSESSE E COMPANY. IN PARA 13.6 (PAGE-45) OF THE IMPUGNED OR DER THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS DUL Y EXAMINED THE AVAILABILITY OF OWN FUNDS AS ON 31/03/ 2007 AND 31/03/2008, WHEREIN THE NET PROFIT OF THE YEAR WAS RS.126,19,01513/- WHICH INCLUDES CURRENT YEARS OVER DRAFT MAINTAINED WITH THE BANK AND THE ASSESSEE HAS NOT M ADE ANY SPECIFIC BORROWING FOR ADVANCING THE FUNDS TO S HRI NILESH THAKUR. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ALREADY PLACED RELIANCE FROM THE DECI SION FROM HONBLE APEX COURT IN MUNJAL SALES CORPORATION , CIT VS RELIANCE UTILITIES AND POWER LTD. FROM HONBLE BO MBAY HIGH COURT AND THE DECISION OF THE TRIBUNAL IN RELIAN CE INDUSTRIES LTD. VS DCIT (ITA NO.3082/MUM/2006) ORDER DATED 28/05/2012. IN PARA 13.8 (PAGE-48), THERE IS A FINDING THAT THE OWN FUNDS OF THE ASSESSEE WERE TO THE TUNE OF RS.500.81 CRORES WHICH IS CONSISTING OF CAPITAL A ND RESERVES AS ON 31/03/2008 AND THE ASSESSEE ADVANCED RS.43.50 CRORES TO SHRI NILESH THAKUR FOR AGGREGATIN G THE LAND. WE FURTHER NOTE THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WHILE DELIBERATING UPON THE ISSUES HAS DULY MET WITH THE OBSERVATION MADE IN THE ASSESSMENT ORD ER M/S SHAPOORJI PALLONJI & CO. LTD. . 79 AND JUSTIFIABLY REACHED TO A CONCLUSION. THUS, ON MERIT ALSO, THE ASSESSEE IS HAVING A STRONG CASE; CONSEQU ENTLY, WE AFFIRM THE UNCONTROVERTED FINDING OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). THUS, FROM TH IS ANGLE ALSO THE REVENUE HAS NO CASE AT ALL. 4.2. FACTS/ISSUES IN BOTH THE APPEALS ARE IDENTICA L, THEREFORE, BOTH THE APPEALS ARE DISPOSED OF ON THE SAME REASONING. FINALLY, THE APPEALS OF THE REVENUE ARE DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 10/04/2015 . SD/ - (RAJENDRA) SD/ - (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER MUMBAI; ' DATED : 10/04/201 5 F{X~{T? P.S/. .. %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. )* +, / THE APPELLANT 2. -.+, / THE RESPONDENT. 3. / / 0 ( )* ) / THE CIT, MUMBAI. 4. / / 0 / CIT(A)- , MUMBAI 5. 234 -5 , / )* )5$ , / DR, ITAT, MUMBAI 6. 46 7 / GUARD FILE. / BY ORDER, .2* - //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI