M/s. Vijay Builders, Nashik V. ITO, Ward 2(2), Nashik

ITA 863/PUN/2013

• Counselvise Citation: 86324514 RSA 2013
• Duration Of Justice: 1 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 18-12-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 16-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR
• Keywords: Unexplained investment; Unexplained expenditure; Business income; Source of fund
• Section: 14A; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.863/PN/2013 (ASSESSMENT YEAR: 2008-09) M/S. VIJAY BUILDERS, 11, CITY PLAZA, OPP. KALIKA MANDIR, OLD AGRA ROAD, NASHIK 422101 . APPELLANT PAN: AABFV0930D VS. THE INCOME TAX OFFICER, WARD 2 (2), NASHIK . RESPONDENT APPELLANT BY : SHRI PRAMOD SHINGTE RESPONDENT BY : SHRI B.C. MALAKAR DATE OF HEARING : 20-01-2015 DATE OF PRONOUNCEMENT : 25-02-2015 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 15-02-2013 OF THE CIT(A)-II, NASHIK, RE LATING TO ASSESSMENT YEAR 2008-09. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A FIRM ENGAGED IN THE BUSINESS OF BUILDING CONSTRUCTION AN D LAND DEVELOPMENT. IT FILED ITS RETURN OF INCOME ON 06-0 3-2009 DECLARING TOTAL INCOME AT RS.81,560/. DURING THE C OURSE OF ASSESSMENT PROCEEDINGS THE AO NOTED THAT ASSESSEE H AS PAID ITA NO.863/PN/2013 M/S. VIJAY BUILDERS 2 INTEREST OF RS.9,26,418/- ON LOANS AVAILED FROM COO PERATIVE SOCIETIES, I.E. ANAND NAGARI PAT SANSTHA AND SINNAR NAGARI SAHAKARI PAT SANSTHA. THE AO, THEREFORE, ASKED THE ASSESSEE TO SUBSTANTIATE THE JUSTIFICATION OF SUCH INTEREST PAI D AT RS.9,26,418/- TO THE ABOVE SAID COOPERATIVE CREDIT SOCIETIES AND ALSO TO EXPLAIN AS TO WHY NO TAX HAS BEEN DEDUCTED U/S.194A FROM SUCH PAYMENT. IT WAS EXPLAINED BY THE ASSESSEE THAT WHEN THE COOPER ATIVE CREDIT SOCIETY CONSTITUTES WITH ITS MEMBERS ONLY AND NO OT HER PERSON OR PUBLIC IS INVOLVED, THE INTEREST PAYMENT IS TO SELF AND AS SUCH PROVISIONS OF SECTION 194A AND SECTION 40(A)(IA) AR E NOT ATTRACTED. HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPLANAT ION GIVEN BY THE ASSESSEE AND HELD THAT THE ASSESSEE HAS CONTRAV ENED THE PROVISIONS OF SECTION 40(A)(IA) R.W.S.194A(3)(III)( A) R.W.S.80P(2)(A)(I) R.W.S. 80P(4). HE THEREFORE DIS ALLOWED THE PAYMENT OF RS.9,26,418/-. 3. THE AO SIMILARLY NOTED THAT ASSESSEE HAS FORWARD ED LOANS AND ADVANCES FOR BUSINESS AND NON-BUSINESS PURPOSES . THE ASSESSEE FURNISHED THE RELEVANT DETAILS OF INFORMAT ION PERTAINING TO THE FINANCIAL STATEMENTS. THE AO ASKED THE ASSESSE E TO SUBSTANTIATE INCIDENCES OF INTEREST ATTRIBUTED ON S UCH LOANS AND ADVANCES FORWARDED WITHIN THE MEANING OF SECTION 14 A OF THE I.T. ACT R.W. RULE 8D OF THE I.T. RULES. IT WAS EXPLAIN ED BY THE ASSESSEE THAT INTEREST CANNOT BE DISALLOWED AS LONG AS NEXUS BETWEEN INTEREST BEARING FUNDS AND INTEREST FREE AD VANCES IS NOT ITA NO.863/PN/2013 M/S. VIJAY BUILDERS 3 ESTABLISHED. IT WAS EXPLAINED THAT SINCE THE ASSES SEE HAS BORROWED FUNDS AND ALSO HAS INTEREST FREE DEPOSITS AND PROFI T ETC. AND KEEPS THE SAME IN A MIXED ACCOUNT, THEN NO PRESUMPTION CA N BE DRAWN THAT INTEREST FREE ADVANCES OR INVESTMENTS MADE BY THE ASSESSEE WERE ONLY OUT OF THE BORROWED FUNDS. HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSE E. APPLYING THE PROVISIONS OF SECTION 14A R.W. RULE 8D HE MADE ADDI TION OF RS.3,04,000/- TO THE TOTAL INCOME OF THE ASSESSEE. 4. IN APPEAL THE LD.CIT(A) OBSERVED THAT THE ADDITI ON MADE BY THE AO U/S.14A R.W. RULE 8D AMOUNTING TO RS.3,04,00 0/- IS NOT CORRECT. HE HOWEVER OBSERVED THAT ASSESSEE HAD MAD E INVESTMENT IN THE SHARES OF COOPERATIVE BANKS/SAHAKARI PAT SAN STHAS IN ORDER TO OBTAIN LOAN. THEREFORE, IT IS REALLY NOT IN THE NATURE OF INVESTMENT. HOWEVER, THE ASSESSEE HAS PAID INTERES T AMOUNTING TO RS.5,55,005/- TO VARIOUS PERSONS ON LOAN OBTAINED A MOUNTING TO RS.26,63,020/-. THE ASSESSEE HAD ALSO GIVEN LOANS AMOUNTING TO RS.27,98,411/- ON WHICH IT HAS NOT RECEIVED ANY INT EREST. THEREFORE, THE ASSESSEES SUBMISSION THAT DEPARTMEN T HAS NOT PROVED NEXUS BETWEEN INTEREST BEARING FUNDS AND INT EREST FREE ADVANCES AND THEREFORE NO DISALLOWANCE OF INTEREST CAN BE MADE IS NOT TENABLE. HE OBSERVED THAT ASSESSEE FAILED TO P ROVE THAT THE BORROWED FUNDS WERE UTILIZED FOR BUSINESS PURPOSES ONLY. ACCORDING TO THE LD.CIT(A) INTEREST IS ALLOWABLE U/ S.36(1)(III) IF IT IS PROVED THAT THE BORROWED FUNDS WERE USED FOR THE BUSINESS ITA NO.863/PN/2013 M/S. VIJAY BUILDERS 4 PURPOSES ONLY. SINCE THE ASSESSEE HAS NOT PROVED T HAT THE INTEREST FREE AMOUNTS ADVANCED WERE INFACT FOR THE PURPOSE O F BUSINESS, THEREFORE, FOLLOWING THE DECISION OF THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF RAVINDRA SINGH ARORA VS. CI T REPORTED IN 53 SOT 124 THE LD.CIT(A) DISALLOWED SUCH INTEREST U /S.36(1)(III) OF THE I.T. ACT. 4.1 SO FAR AS THE ADDITION OF RS.9,26,418/- U/S.40( A)(IA) IS CONCERNED, HE OBSERVED THAT THE PROVISIONS OF SECTI ON 194A ARE NOT APPLICABLE IN REGARD TO LOANS OBTAINED FROM THE COO PERATIVE SOCIETIES. WHILE DOING SO, HE FOLLOWED THE DECISIO N OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF SYNDICATE BANK EMP LOYEES COOPERATIVE THRIFT AND CREDIT SOCIETY LTD. VS. ITO REPORTED IN 287 ITR 40 AND THE DECISION OF THE PUNE BENCH OF TH E TRIBUNAL IN THE CASE OF MAHARASTRA AROGYA MANDAL. SINCE THE RE VENUE IS NOT IN APPEAL AGAINST DELETION OF THE ABOVE AMOUNT, WE ARE NOT CONCERNED WITH THE ABOVE ISSUE. 4.2 THE LD.CIT(A) HOWEVER OBSERVED THAT A SURVEY U/ S.133A OF THE I.T. ACT IN THE CASE OF THE SANKLECHAS HAD TAKE N PLACE ON 17- 10-2007. DURING THE COURSE OF SURVEY PROCEEDINGS C ERTAIN ENTRIES RELATING TO LABOUR AND MATERIAL EXPENSES IN CONNECT ION WITH GAIKWAD SANKUL PROJECT WERE FOUND RECORDED ON PAGE 43 OF ANNEXURE 60. SHRI PRAKASH SANKLECHA, ONE OF THE PA RTNER IN HIS STATEMENT RECORDED ON 17-10-2007 HAD STATED THAT TH ESE FIGURES WERE NOT RECORDED IN THE REGULAR BOOKS OF ACCOUNT O F M/S. VIJAY ITA NO.863/PN/2013 M/S. VIJAY BUILDERS 5 BUILDERS FOR WHICH HE SURRENDERED THIS AMOUNT OF RS .25 LAKHS AS ADDITIONAL INCOME IN THE HANDS OF M/S. VIJAY BUILDE RS FOR A.Y. 2008-09. THE DETAILS OF ENTRIES FOUND ON PAGE 43 O F ANNEXURE 60 ARE AS FOLLOWS : MATERIAL PURCHASES LABOUR PAYMENTS 03-04-2007 2,10,000 10-04-2007 2,50,000 15-04-2007 1,75,000 10-06-2007 2,80,000 06-05-2007 2,35,000 29-06-2007 3,00,000 28-05-2007 2,50,000 20-07-2007 2,25,000 10-06-2007 1,55,000 30-07-2007 1,45,000 12-07-2007 2,75,000 TOTAL 13,00,00 TOTAL 12,00,000 4.3 THE LD.CIT(A) NOTED THAT WHILE THE ASSESSEE HAS SHOWN LABOUR CHARGES AT RS.14,38,060/- NO EXPENSES UNDER THE HEAD MATERIAL HAS BEEN SHOWN IN WORK EXPENSES. HE THEREF ORE ISSUED AN ENHANCEMENT NOTICE TO THE ASSESSEE ASKING HIM TO EX PLAIN AS TO WHY THE INCOME SHOULD NOT BE ENHANCED BY RS.25 LAKH S ON ACCOUNT OF FIGURES MENTIONED AT PAGE 43 OF ANNEXURE 60 ESPE CIALLY WHEN SHRI PRAKASH SANKLECHA IN HIS STATEMENT GIVEN ON OA TH DURING THE SURVEY ON 17-10-2007 HAD REPLIED THAT THE SAID FIGU RES WERE NOT RECORDED IN THE REGULAR BOOKS OF ACCOUNTS. THE ASS ESSEE VIDE LETTER DATED 20-12-2012 OBJECTED TO THE PROPOSED ENHANCEME NT OF THE INCOME BY RS.25 LAKHS STATING THAT AN AMOUNT OF RS. 25 LAKHS WAS OFFERED FOR TAXATION UNDER WRONG NOTION AND HENCE N O ADDITIONAL INCOME WAS SHOWN IN THE RETURN OF INCOME. IT WAS F URTHER SUBMITTED THAT THIS ISSUE WAS DULY CONSIDERED AND E XAMINED BY THE AO AND HE HAD NOT MADE ANY ADDITION. ITA NO.863/PN/2013 M/S. VIJAY BUILDERS 6 5. HOWEVER, THE LD.CIT(A) WAS NOT SATISFIED WITH TH E EXPLANATION GIVEN BY THE ASSESSEE. HE NOTED THAT T HE ASSESSEE FAILED TO PROVE THAT THE FIGURES REFLECTED ON PAGE 43 OF ANNEXURE 60 ARE PART OF ITS REGULAR BOOKS OF ACCOUNT. THE R ETRACTION OF THE ASSESSEE FROM ITS STATEMENT IS WITHOUT ANY DOCUMENT ARY EVIDENCE. THE AO HAS ALSO NOT BROUGHT ON RECORD ANY DOCUMENTA RY EVIDENCE TO PROVE THAT THE FIGURES RECORDED ON PAGE 43 OF AN NEXURE 60 ARE PART OF THE REGULAR BOOKS OF ACCOUNT. HE OBSERVED THAT THE FIGURES MENTIONED AT PAGE 43 OF ANNEXURE 60 PERTAINS TO EXP ENDITURE INCURRED ON ACCOUNT OF LABOUR AND MATERIAL FOR ITS GAIKWAD SANKUL PROJECT. THE ASSESSEE HAS UNDERTAKEN THE SAID PROJ ECT DURING THE IMPUGNED ASSESSMENT YEAR. THERE IS A DIRECT NEXUS BETWEEN THE ACTIVITY OF THE ASSESSEE AND THE FIGURES REFLECTED ON PAGE 43 OF ANNEXURE 60. SINCE THE ASSESSEE HAD ADMITTED DURIN G THE SURVEY THAT THESE FIGURES WERE OUTSIDE ITS REGULAR BOOKS O F ACCOUNT, THEREFORE, THE CIT(A) WAS OF THE OPINION THAT THE F IGURES MENTIONED ON PAGE 43 OF ANNEXURE 60 ARE ASSESSEES UNEXPLAINED EXPENDITURE OUTSIDE THE REGULAR BOOKS OF ACCOUNT. HE THEREFORE ENHANCED THE INCOME OF THE ASSESSEE BY RS.25 LAKHS. 6. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSE SSEE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED ASSESSING OFFICER IS NOT JUSTIFIED IN DISALLOW ING AND THE LEARNED CIT(A) II, NASHIK CONFIRMING THE PROPORT IONATE INTEREST UNDER SECTION 36(1)(III) ON ACCOUNT OF NON-B USINESS PURPOSES. THE FUNDS WERE FULLY UTILISED FOR THE PURPOSES OF THE ITA NO.863/PN/2013 M/S. VIJAY BUILDERS 7 BUSINESS BY THE SISTER CONCERNS WHO ARE ENGAGED IN THE SI MILAR BUSINESS. THE ADDITION MAY PLEASE BE DELETED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED ASSESSING OFFICER IS NOT JUSTIFIED IN DISALLOW ING AND THE LD. CIT(A) II, NASHIK CONFIRMING THE PROPORTION ATE INTEREST UNDER SECTION 36(1)(III) WHEN THERE ARE NO NEXUS BETW EEN THE FUNDS BORROWED AND THE FUNDS ADVANCED TO THE SIST ER CONCERNS. THE ADDITION MAY BE PLEASE BE DELETED. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED ASSESSING OFFICER IS NOT JUSTIFIED IN DISALLOW ING AND THE LEARNED CIT(A) II, NASHIK CONFIRMING THE PROPORT IONATE INTEREST UNDER SECTION 36(1)(III) WHEN THE APPELLANT HAD SUFFICIENT NON-INTEREST BEARING FUNDS, PROFIT AND SUFFICIENT CAP ITAL. THE ADDITION MAY BE PLEASE BE DELETED. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED CIT(A) IS NOT JUSTIFIED IN APPLYING THE D ECISION IN CASE OF RAVINDRA SINGH ARORA VS. ACIT (2012) 53 SOT 124 ( HYD) IGNORING THE SUPREME COURT'S DECISION IN THE CASE OF S .A. BUILDERS VS CIT (2007) 288 ITR 1(S). THE ADDITION MAY PLEASE B E DELETED. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED CIT(A) IS NOT JUSTIFIED IN IGNORING PLETH ORA OF DECISIONS QUOTED WITHOUT ANY COMMENTS OR DISTINGUISH THE M. THE DECISIONS MAY PLEASE WEIGHED IN THEIR PROPER AND PRAGM ATIC PERSPECTIVE AND THE ADDITION MAY PLEASE BE DELETED. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED CIT(A) IS NOT JUSTIFIED IN ENHANCING THE INCOME BY RS. 25,00,000. THE ADDITION MAY PLEASE BE DELETED. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED CIT(A) IS NOT JUSTIFIED IN ENHANCING THE INCOME ON THE BASIS OF A DUMB DOCUMENT. THE ADDITION MAY PLEASE BE D ELETED. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED CIT(A) IS NOT JUSTIFIED IN NOT MAKING TH E DUMB DOCUMENT AS A PART OF APPELLATE ORDER FOR WEIGHING T HE EVIDENTIARY VALUE THEREOF. THE ADDITION MAY PLEASE B E DELETED. COPY OF THE PAPER FORMS PART OF GROUNDS OF APPEAL. 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED CIT(A) IS NOT JUSTIFIED IN ENHANCING THE INCOME ON THE BASIS OF A DUMB DOCUMENT, WHICH IS NEITHER IN THE HAND WRITING OF ANY OF THE PARTNER, NOT IT BEARS THE SIGNATURE OF ANY PARTNER. THE ADDITION MAY PLEASE BE DELETED. 10. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR WITHDRAW ANY OF THE GROUNDS OF APPEAL. ITA NO.863/PN/2013 M/S. VIJAY BUILDERS 8 7. GROUNDS OF APPEAL NO.1 TO 5 BY THE ASSESSEE RELA TES TO DISALLOWANCE OF RS.3,04,000/- U/S.36(1)(III) OF THE I.T. ACT. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASS ESSEE WAS HAVING BOTH INTEREST FREE AND INTEREST BEARING FUND S. REFERRING TO PAGE 14 OF THE PAPER BOOK HE SUBMITTED THAT THE CAP ITAL ACCOUNT OF THE PARTNERS AS ON 31-03-2008 WAS RS.31,03,627/-. REFERRING TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF RELIANCE UTILITIES AND POWER LTD. REPORTED IN 313 I TR 340 HE SUBMITTED THAT THE HONBLE HIGH COURT HAS HELD THAT IF THERE WAS FUNDS AVAILABLE BOTH INTEREST FREE AND OVERDRAFT AN D/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENT WOUL D BE OUT OF INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FUNDS WERE AVAILABLE TO MEET THE INVE STMENTS. HE SUBMITTED THAT SINCE IN THE INSTANT CASE THE CAPITA L ACCOUNT OF THE PARTNERS AT RS.31,03,327/- IS MORE THAN THE INTERES T FREE ADVANCES GIVEN AT RS.27,89,411/-, THEREFORE, BY APPLYING THE RATIO OF THE DECISION OF THE JURISDICTIONAL HIGH COURT, NO ADDIT ION/DISALLOWANCE IS CALLED FOR U/S.36(1)(III) OF THE I.T. ACT. 8. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND RELIED ON THE ORDER OF THE CIT(A). 9. AFTER HEARING BOTH THE SIDES, WE FIND FROM THE A UDITED ACCOUNTS THAT THE CAPITAL ACCOUNT OF THE PARTNERS A S ON 31-03-2008 STOOD AT RS.31,03,627/- AS PER PAGE 14 OF THE PAPER BOOK. SIMILARLY, THE ASSESSEE HAS ALSO OBTAINED INTEREST FREE ADVANCES ITA NO.863/PN/2013 M/S. VIJAY BUILDERS 9 FROM RELATIVES AT RS.11,91,358/- AS PER PAGE 17 OF THE PAPER BOOK. THUS, FROM THE VARIOUS DETAILS FURNISHED BY THE ASS ESSEE IN THE AUDITED ACCOUNTS IT IS SEEN THAT THE PARTNERS CAPIT AL AT RS.31,03,627/-AND INTEREST FREE LOANS AND ADVANCES OBTAINED FROM RELATIVES AT RS.11,91,358/- COMES TO RS.42,94,985/- . AS AGAINST THIS THE ASSESSEE HAS ADVANCED INTEREST FREE LOANS AT RS.27,98,411/- 9.1 WE FIND THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA) HAS HELD THAT IF THERE WAS FUNDS AVAILABLE BOTH INTEREST FREE AND OVERDRAFT AN D/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENT WOUL D BE OUT OF INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FUNDS WERE AVAILABLE TO MEET THE INVE STMENTS. ACCORDINGLY, THE DISALLOWANCE U/S.36(1)(III) DELETE D BY THE TRIBUNAL WAS UPHELD BY THE HONBLE HIGH COURT. SIN CE IN THE INSTANT CASE THE OWN CAPITAL AND INTEREST FREE FUND S ARE MORE THAN THE INTEREST FREE ADVANCES GIVEN, THEREFORE, FOLLOW ING THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF REL IANCE UTILITIES AND POWER LTD. (SUPRA) WE ARE OF THE CONSIDERED OPI NION THAT NO DISALLOWANCE U/S.36(1)(III) IS CALLED FOR. GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED. 10. GROUNDS OF APPEAL NO.6 TO 9 BY THE ASSESSEE REL ATES TO THE ENHANCEMENT OF RS.25 LAKHS BY THE LD.CIT(A). ITA NO.863/PN/2013 M/S. VIJAY BUILDERS 10 11. THE LD. COUNSEL FOR THE ASSESSEE MADE TWO FOLD ARGUMENTS. SO FAR AS THE VALIDITY OF THE ENHANCEMENT IS CONCER NED, HE SUBMITTED THAT ALTHOUGH THE CIT(A) HAS GOT ENORMOUS POWERS TO ENHANCE THE INCOME OF THE ASSESSEE, HOWEVER, HE CAN NOT INTRODUCE A NEW SOURCE OF INCOME AS HIS POWER OF ENHANCEMENT IS RESTRICTED ONLY TO INCOME WHICH WAS SUBJECT MATTER OF CONSIDER ATION FOR PURPOSES OF ASSESSMENT BY THE AO. FOR THE ABOVE PR OPOSITION, HE RELIED ON THE FOLLOWING DECISIONS : I. CIT VS. SHAPOORJI PALLONJI MISTRY 44 ITR 891 (SC) II. CIT VS. RAI BAHADUR HARDUTROY MOTILAL CHAMARIA 6 6 ITR 443 (SC) III. CIT VS. SARDARILAL AND COMPANY 120 TAXMANN 295 (DELHI) IV. CIT VS. UNION TYRES 107 TAXMANN 447 (DELHI) 11.1 REFERRING TO THE ABOVE DECISIONS HE SUBMITTED THAT IT HAS BEEN HELD IN THE ABOVE DECISIONS THAT WHENEVER QUES TION OF TAXABILITY OF INCOME FROM A NEW SOURCE OF INCOME IS CONCERNED WHICH HAD NOT BEEN CONSIDERED BY THE AO, JURISDICTI ON TO DEAL WITH SAME IN APPROPRIATE CASES MAY BE DEALT WITH U/S.147 /148 AND SECTION 263 IF REQUISITE CONDITIONS ARE SATISFIED A ND IT IS INCONCEIVABLE THAT IN PRESENCE OF SUCH SPECIFIC PRO VISIONS SIMILAR POWER IS AVAILABLE TO A FIRST APPELLATE AUTHORITY. 12. SO FAR AS THE MERIT OF THE CASE IS CONCERNED, H E SUBMITTED THAT ALTHOUGH THE LD.CIT(A) WHILE DECIDING THE ISSU E HAS CALLED FOR A REMAND REPORT, HOWEVER, THE AO HAS NOT APPLIE D HIS MIND PROPERLY. REFERRING TO THE COPY OF THE LETTER DATE D 10-12-2000 ADDRESSED TO THE AO, A COPY OF WHICH IS PLACED AT P AGES 9 AND 10 ITA NO.863/PN/2013 M/S. VIJAY BUILDERS 11 OF THE PAPER BOOK HE SUBMITTED THAT THE ASSESSEE DU RING THE COURSE OF ASSESSMENT PROCEEDINGS IN ITS REPLY HAS SUBMITTE D TO THE AO THAT UNDER TENSION THE ASSESSEE HAD OFFERED RS.25 L AKHS FOR TAXATION AS UNACCOUNTED ADVANCES FOR THE A.Y. 2008- 09. HOWEVER, ALL THE ADVANCES RECEIVED AND PAID ARE ALR EADY RECORDED IN THE REGULARLY MAINTAINED BOOKS OF ACCOUNT. THE ASSESSEE HAD PRODUCED ALL THOSE DOCUMENTS BEFORE THE AO FOR VERI FICATION. HE SUBMITTED THAT ON THE BASIS OF DETAILED SUBMISSIONS FILED BEFORE THE AO, HE ACCEPTED THE CONTENTION OF THE ASSESSEE. RE FERRING TO THE WORKS ACCOUNTS FOR THE YEAR ENDING 31-03-2008, A CO PY OF WHICH IS PLACED AT PAGE 14 OF THE PAPER BOOK HE SUBMITTED TH AT THE ASSESSEE HAS SHOWN THE WORKS EXPENSES AT RS.75,42,955,- THE DETAILS OF WHICH ARE AVAILABLE IN SCHEDULE-M. REFERRING TO THE DETAILS OF SCHEDULE-M, WHICH IS PLACED AT PAGE 23 OF THE PAPER BOOK HE SUBMITTED THAT THE ASSESSEE HAD SHOWN LABOUR CHARGE S AT RS.14,38,060/-. SIMILARLY, THE ASSESSEE HAD ALSO S HOWN PURCHASES OF MATERIALS TO THE TUNE OF RS.68,11,278/- AS PER W ORKS ACCOUNT FOR THE YEAR ENDING 31-03-2008, A COPY OF WHICH IS PLAC ED AT PAGE 15 OF THE PAPER BOOK. THEREFORE, IT IS WRONG TO SAY T HAT THE ASSESSEE HAD NOT SHOWN THE LABOUR CHARGES OR MATERIAL PURCHA SED. HE ACCORDINGLY SUBMITTED THAT NO ADDITION IS CALLED FO R. 13. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND REFERRING TO PARA 10 OF THE ORDER OF THE LD.CIT(A) DREW THE ATTENTION OF THE BENCH TO THE FINDINGS GIVEN BY HIM AND SUBMITTED ITA NO.863/PN/2013 M/S. VIJAY BUILDERS 12 THAT THE LD.CIT(A) HAS THOROUGHLY DISCUSSED THE ISS UE. THE ASSESSEE IN HIS STATEMENT RECORDED DURING THE COURS E OF SURVEY HAS OFFERED AN AMOUNT OF RS.25 LAKHS AS HIS UNDISCLOSED INCOME ON THE GROUND THAT THE SAID FIGURES WERE NOT RECORDED IN T HE REGULAR BOOKS OF ACCOUNT. THEREFORE, NOW THE ASSESSEE CANNOT BAC K TRACK. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE LD.CIT( A) SHOULD BE UPPHELD. 14. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON BEING QUES TIONED BY THE AO, THE ASSESSEE VIDE LETTER DATED 10-12-2010 HAD C LARIFIED THAT ALL THE ADVANCES RECEIVED AND PAID HAVE ALREADY BEEN PR OPERLY RECORDED IN THE REGULARLY MAINTAINED BOOKS OF ACCOU NTS. IT WAS ALSO BROUGHT TO THE NOTICE OF THE AO THAT DURING TH E SURVEY OPERATION THE PARTNER SHRI PRAKASH SANKLECHA WAS UP SET AND COULD NOT GIVE PROPER ANSWERS DUE TO TENSION. RELYING ON VARIOUS DECISIONS THE ASSESSEE HAD ARGUED BEFORE THE AO THA T NO ADDITION IS CALLED FOR. THE ASSESSEE HAD ALSO PRODUCED THE BOOKS OF ACCOUNTS BEFORE THE AO TO SUBSTANTIATE THAT ALL THO SE FIGURES ARE ALREADY RECORDED IN THE BOOKS OF ACCOUNT. ON THE B ASIS OF THE ABOVE THE AO HAS NOT MADE ANY ADDITION. FROM THE C OPY OF THE AUDITED ACCOUNTS FILED IN THE PAPER BOOK WE FIND TH E ASSESSEE HAS ITA NO.863/PN/2013 M/S. VIJAY BUILDERS 13 SHOWN WORKS EXPENSES AT RS.75,42,955/- AS PER SCHED ULE-M. THE SCHEDULE-M ANNEXED TO THE AUDITED ACCOUNTS SHOWS LA BOUR CHARGES AT RS.14,38,060/-. SIMILARLY, THE ASSESSEE HAS ALS O SHOWN PURCHASES TO THE TUNE OF RS.68,11,278/-. WE THEREF ORE FIND MERIT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESS EE THAT THE FIGURES IN THE IMPOUNDED DOCUMENT AREA ALREADY ENTE RED IN THE REGULAR BOOKS OF ACCOUNT AND THEREFORE NO ADDITION IS CALLED FOR. ACCORDINGLY, WE HOLD THAT THE ORDER OF THE LD.CIT(A ) ENHANCING THE INCOME BY RS.25 LAKHS IS NOT PROPER. 14.1 EVEN OTHERWISE ALSO WE ARE OF THE CONSIDERED O PINION THAT THE LD.CIT(A) WAS NOT JUSTIFIED IN ENHANCING THE IN COME OF THE ASSESSEE BY RS.25 LAKHS. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. SHAPOORJI PALLONJI MISTRY (SUPRA) HAS HE LD THAT IT WOULD NOT BE OPEN TO THE AAC TO INTRODUCE INTO ASSE SSMENT NEW SOURCES, AS HIS POWER OF ENHANCEMENT IS RESTRICTED ONLY TO INCOME WHICH WAS SUBJECT MATTER OF CONSIDERATION FOR PURPO SES OF ASSESSMENT. THE HONBLE SUPREME COURT IN THE CASE OF RAI BAHADUR HARDUTROY MOTILAL CHAMARIA (SUPRA) HAS HEL D THAT THE POWER OF ENHANCEMENT OF AAC IS RESTRICTED TO SUBJEC T MATTER OF ASSESSMENT OR SOURCES OF INCOME WHICH HAVE BEEN CON SIDERED EXPRESSLY OR BY CLEAR IMPLICATION BY ITO FROM POINT OF VIEW OF TAXABILITY OF ASSESSEE. THEREFORE, AAC HAD NO JURI SDICTION TO ASSESSEE A SOURCE OF INCOME WHICH HAD NOT BEEN PROC ESSED BY ITO AND WHICH WAS NOT DISCLOSED EITHER IN RETURN FILED BY THE ASSESSEE ITA NO.863/PN/2013 M/S. VIJAY BUILDERS 14 OR IN ASSESSMENT ORDER. WE FIND THAT FOLLOWING THE ABOVE DECISIONS THE HONBLE DELHI HIGH COURT IN THE CASE OF SARDARILAL AND COMPANY (SUPRA) HAS HELD THAT WHENEVER QUESTIO N OF TAXABILITY OF INCOME FROM A NEW SOURCE OF INCOME IS CONCERNED WHICH HAS NOT BEEN CONSIDERED BY THE AO, JURISDICTI ON TO DEAL WITH SAME IN APPROPRIATE CASES MAY BE DEALT WITH U/S.147 /148 AND SECTION 263 IF REQUISITE CONDITIONS ARE SATISFIED. IT IS INCONCEIVABLE THAT IN PRESENCE OF SUCH SPECIFIC PROVISIONS A SIMI LAR POWER IS AVAILABLE TO THE FIRST APPELLATE AUTHORITY. THE HO NBLE DELHI HIGH COURT IN THE CASE OF UNION TYRES (SUPRA) HAS ALSO H ELD SIMILAR VIEW AND HELD THAT IT IS NOT OPEN TO THE APPELLATE COMMISSIONER TO INTRODUCE IN ASSESSMENT A NEW SOURCE OF INCOME AND ASSESSMENT HAS TO BE CONFINED TO THOSE ITEMS OF INCOME WHICH W AS SUBJECT MATTER OF ORIGINAL ASSESSMENT. THE RELEVANT OBSERV ATIONS OF HONBLE DELHI HIGH COURT AT PARA NOS. 11 TO 13 OF T HE ORDER READS AS UNDER : 11. A QUESTION REGARDING POWERS OF THE FIRST APPELLAT E AUTHORITY CAME UP FOR CONSIDERATION BEFORE THE SUPREME COURT R ECENTLY IN CIT V. NIRBHERAM DALURAM [1977] 224 ITR 610/ 91 TAX MAN 181. FOLLOWING THEIR EARLIER DECISIONS IN KANPUR COAL SYND ICATE'S CASE (SUPRA) AND JUTE CORPN. OF INDIA LTD.'S CASE (SUPRA) TH OUGH THEIR LORDSHIPS REITERATED THAT THE APPELLATE POWERS CONFERR ED ON THE COMMISSIONER UNDER SECTION 251 COULD NOT BE CONFINED T O THE MATTER WHICH HAD BEEN CONSIDERED BY THE ITO, AS THE COMMISSIONER IS VESTED WITH ALL THE PLENARY POWERS WHICH THE ITO MAY HAVE WHILE MAKING THE ASSESSMENT, BUT DID NOT COMMENT ON THE ISSUE WHETHER THESE WIDE POWERS ALSO INCL UDE THE POWER TO DISCOVER A NEW SOURCE OF INCOME. THEREFO RE, THE PRINCIPLE OF LAW LAID DOWN IN SHAPOORJI PALLONJI MI STRY'S CASE (SUPRA) AND RAI BAHADUR HARDUTROY MOTILAL CHAMARIA'S CASE (SUPRA) STILL HOLDS THE FIELD. ITA NO.863/PN/2013 M/S. VIJAY BUILDERS 15 12. THUS, THE PRINCIPLE EMERGING FROM THE AFORENOTED PRONOUNCEMENTS OF THE SUPREME COURT IS, THAT THE FIRST APPELLATE AUTHORITY IS INVESTED WITH VERY WIDE POWERS UNDER SECTI ON 251(1)(A) AND ONCE AN ASSESSMENT ORDER IS BROUGHT BEFORE THE AUTHORITY, HIS COMPETENCE IS NOT RESTRICTED TO EXAMINI NG ONLY THOSE ASPECTS OF THE ASSESSMENT ABOUT WHICH THE ASSESSEE MAKE A GRIEVANCE AND RANGES OVER THE WHOLE ASSESSMENT TO CORR ECT THE ASSESSING OFFICER NOT ONLY WITH REGARD TO A MATTER RAISE D BY THE ASSESSEE IN APPEAL BUT ALSO WITH REGARD TO ANY OTHER MAT TER WHICH HAS BEEN CONSIDERED BY THE ASSESSING OFFICER AND DETERMINED IN THE COURSE OF ASSESSMENT. HOWEVER, THERE I S A SOLITARY BUT SIGNIFICANT LIMITATION TO THE POWER OF R EVISION, VIZ., THAT IT IS NOT OPEN TO THE COMMISSIONER TO INTRODUCE I N THE ASSESSMENT A NEW SOURCE OF INCOME AND THE ASSESSMENT HAS TO BE CONFINED TO THOSE ITEMS OF INCOME WHICH WERE THE SU BJECT- MATTER OF ORIGINAL ASSESSMENT. 13. APPLYING THE ABOVE WELL-SETTLED PRINCIPLES OF LAW TO THE FACTS OF THE INSTANT CASE, WE ARE OF THE VIEW THAT THE TRIB UNAL WAS JUSTIFIED IN HOLDING THAT IN CALLING FOR A REMAND RE PORT ON THE AFORENOTED FOUR POINTS, THE COMMISSIONER HAD EXCEEDED HIS JURISDICTION. WHILE COMPUTING THE TOTAL BUSINESS INCOME OF THE ASSESSEE, THE ASSESSING OFFICER HAD ESTIMATED THE SALES AT AN ENHANCED FIGURE AND HAD APPLIED A HIGHER RATE OF GR OSS PROFIT. THUS, THE ONLY MATTER DEALT WITH BY THE ASSESSING OFFIC ER IN THE ASSESSMENT ORDER WAS THE ESTIMATION OF PROFITS AND GAIN OF THE BUSINESS OF THE ASSESSEE. NONE OF THE AFORENOTED FOUR POIN TS HAD ANY BEARING ON THE QUESTION OF ESTIMATION OF EITHER T HE SALES OR THE GROSS PROFIT RATE. FROM THE OBSERVATIONS, EXTRACTED ABOVE', IT IS EVIDENT THAT THE COMMISSIONER HAD HIS DOUBTS ABOUT TH E CAPACITY OF THE ASSESSEE TO RAISE FINANCES FOR THE PURCHA SE OF GOODS AND SHOW A HUGE TURNOVER IN THE VERY FIRST YEAR OF HIS BUSINESS. IN OTHER WORDS, THE ENQUIRY ORDERED BY THE COMMISSIONER WAS TO SATISFY HIMSELF ABOUT THE SOURCE OF INVESTMENT BY THE ASSESSEE. IT IS AXIOMATIC THAT FAILURE TO PROVE THE SOURCES OF INVESTMENT WILL RESULT IN ADDITION IN TH E HANDS OF THE ASSESSEE UNDER A DIFFERENT PROVISION OF LAW AND WILL NOT HAVE MUCH RELEVANCE IN THE ESTIMATION OF SALES AND GROSS PRO FIT RATE ADOPTED BY THE ASSESSING OFFICER. IN OUR. OPINION, ANY ADDITION ON ACCOUNT OF UNEXPLAINED INVESTMENT WOULD CONSTITUTE A NEW SOURCE OF INCOME WHICH WAS NOT THE SUBJECT-MATTER OF ASSESSMENT BEFORE THE ASSESSING OFFICER AND, THEREFORE, IT WAS NOT OPEN TO THE FIRST APPELLATE AUTHORITY TO DIRECT THE ASSESSING OFFICER TO CONDUCT ENQUIRY ON THE SAID FOUR POINTS. 14. FOR THE FOREGOING REASONS, WE ANSWER THE QUESTION I N THE AFFIRMATIVE, I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. NO ORDER AS TO COSTS. 14.2 IN VIEW OF THE ABOVE DECISIONS WE HOLD THAT TH E LD.CIT(A) HAS NO POWER TO ENHANCE THE INCOME OF THE ASSESSEE BY INTRODUCING ITA NO.863/PN/2013 M/S. VIJAY BUILDERS 16 A NEW SOURCE OF INCOME WHICH HAD NOT BEEN CONSIDERE D BY THE AO. ADDITION, IF ANY, ON THAT ACCOUNT CAN BE MADE BY TA KING RECOURSE INTO PROVISIONS OF SECTION 147/148 AND SECTION 263. WE ACCORDINGLY HOLD THAT BOTH FACTUALLY AS WELL AS LEG ALLY THE LD.CIT(A) IS NOT JUSTIFIED IN ENHANCING THE INCOME OF THE ASSESSEE BY RS.25 LAKHS. WE ACCORDINGLY SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ADDIT ION. 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 25-02-2015. SD/- SD/- (SUSHMA CHOWLA) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 25 TH FEBRUARY, 2015. SATISH COPY OF THE ORDER IS FORWARDED TO: - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-II, NASHIK 4) THE CIT-II, NASHIK; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER // // TRUE COPY // ASSISTANT REGISTRAR I.T.A.T., PUNE