ITO, Bangalore V. M/s MVR Constructions, Bangalore

ITA 976/BANG/2011

• Counselvise Citation: 97621114 RSA 2011
• Duration Of Justice: 1 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 30-10-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 02-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A SUNDAR RAJAN JT
• Assessee Lawyers: B P SACHIN KUMAR
• Keywords: Business income; Commercial expediency
• Section: 44AD

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NOS. 976 TO 978/BANG/2011 ASSESSMENT YEARS : 2005-06, 2007-08 & 2008-09 THE INCOME TAX OFFICER, WARD 1(4), BANGALORE. VS. M/S. MVR CONSTRUCTIONS, NO.23, ARCHANA COMPLEX, J.C. ROAD, BANGALORE 560 002. PAN: AAGFM 8017K APPELLANT RESPONDENT APPELLANT BY : SHRI A. SUNDAR RAJAN, JT. CIT(DR) RESPONDENT BY : SHRI B.P. SACHIN KUMAR, C.A. DATE OF HEARING : 30.10.2012 DATE OF PRONOUNCEMENT : 09.11.2012 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER ITA NO.976/B/2011 THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDE R DATED 11.08.2011 OF THE CIT(APPEALS)-I, BANGALORE RELATING TO A.Y. 2 005-06. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READ S AS FOLLOWS:- ITA NOS.976 TO 978/BANG/11 PAGE 2 OF 18 1. THE ORDER OF THE LEARNED CIT (APPEALS), IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE, IS OPPOSED TO LAW AND THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED CIT (A) HAS ERRED IN DELETING THE AD DITIONS MADE OF RS.46,44,632/- , APPLYING THE PERCENTAGE CO MPLETION METHOD AS PER AS-7 ON ACCOUNT OF ESTIMATED PROFITS IN RESPECT OF 2 COMMERCIAL PROJECTS BY NAME, RAJATHA PLAZA AND 'RAJATHA PALM GARDEN, WITHOUT APPRECIATING THE FACTS AND CI RCUMSTANCES OF THE CASE UNDER WHICH THE ADDITION WAS MADE BY TH E ASSESSING OFFICER. 3. THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THA T THE PERCENTAGE COMPLETION METHOD OF COMPUTATION OF INCO ME IS SQUARELY APPLICABLE TO THE ASSESSEES CASE, AS THE ASSESSEE FIRM ENTERED INTO A CONTRACT/JDA WITH THE OWNER OF THE L AND TO DEVELOP THE LAND FOR COMMERCIAL EXPLOITATION, WHICH IS A CO NSTRUCTION CONTRACT AS PER TERMS OF AS-7. 4. THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THA T THE COMPLETED CONTRACT METHOD OF ACCOUNTING HAS BEEN DE LETED FROM THE PROVISIONS OF AS-7 BY THE INSTITUTE OF CHARTERE D ACCOUNTANTS OF INDIA W.E.F. 1.4.2003, THUS MAKING IT MANDATORY FOR THE ASSESSEE TO FOLLOW THE PERCENTAGE COMPLETION METHOD EXCLUSIVELY. 5. THE LEARNED CIT(A), OVERLOOKING THE FACT THAT T HE PROVISIONS OF AS-7 DO NOT DISTINGUISH BETWEEN BUILD INGS BUILT FOR SALE OR BUILDINGS BUILT FOR LETTING OUT, HAS ERRED IN HOLDING THAT NO INCOME ACCRUES TO THE ASSESSEE FIRM IN RESPECT OF RAJATHA PLAZA, A BUILDING CLEARLY MEANT FOR COMMERCIAL EXPLOITATIO N, SINCE THE BUILDING IS ONLY LET OUT AND NOT MEANT FOR SALE OF INDIVIDUAL UNITS. 6. THE LEARNED CIT(A), IGNORING THE FACT THAT THE PROVISIONS OF AS-7 DOES NOT DISTINGUISH BETWEEN A DEVELOPER AN D A CONTRACTOR, HAS ERRED IN HOLDING THAT NO INCOME ACC RUES TO THE ASSESSEE FIRM IN RESPECT OF THE ABOVE TWO PROJECTS, SINCE THE ASSESSEE FIRM HAD NOT CARRIED OUT THE ACTUAL CONSTR UCTION WORK BUT HAD SUB-CONTRACTED THE SAME. 7. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE UR GED AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE ORDER OF THE CIT(A) BE REVERSED IN SO FAR AS THE ABOVE MENTIONED ISSUE IS CONCERNED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 8. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, TO AMEND OR TO DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL. ITA NOS.976 TO 978/BANG/11 PAGE 3 OF 18 3. THE ASSESSEE IS A PARTNERSHIP FIRM. IT IS ENGAG ED IN THE BUSINESS OF CIVIL CONSTRUCTION. AS A CIVIL CONTRACTOR, THE ASS ESSEE CARRIED OUT CONSTRUCTION WORK FOR NATIONAL PROJECT & CONSTRUCTI ON COMPANY LTD., MTP RAILWAYS COMPOUND, GOVT. ESTATE, CHENNAI ETC. APAR T FROM THE BUSINESS OF CONSTRUCTION CONTRACTOR, THE ASSESSEE ALSO UNDER TOOK JOINT DEVELOPMENT AGREEMENT IN RESPECT OF TWO PROPERTIES. THE FIRST P ROJECT WAS CALLED RAJATHA PLAZA WHICH WAS LOCATED AT MARATHAHALLI, BANGALORE . THIS WAS A PROJECT FOR BUILDING COMMERCIAL COMPLEX ON THE LAND OWNED B Y SRI HEMA REDDY & OTHERS. AS PER THE TERMS OF JOINT DEVELOPMENT AGRE EMENT DATED 04.12.2003, THE ASSESSEE HAS TO CONSTRUCT AND DELIV ER 40% OF THE SANCTIONED BUILT-UP AREA AS PER THE PLAN APPROVAL T O THE OWNERS IN CONSIDERATION OF THE OWNERS PARTING WITH 60% RIGHT, TITLE & INTEREST OF THE UNDIVIDED SHARE OF LAND OVER THE PROPERTY. IN THE YEAR 2007, A COMMERCIAL BUILDING WAS CONSTRUCTED AT A COST OF Q 8.97 CRORES. AS ON THE LAST DAY OF A.Y. 2005-06 & 2006-07, THE PROPORTIONATE COST OF C ONSTRUCTION WAS SHOWN AS CAPITAL WORK-IN-PROGRESS. IT IS NOT IN DISPUTE THAT THE ASSESSEE INTENDED TO RETAIN THEIR SHARE OF THE BUILT-UP AREA AND DID NOT INTEND TO SELL THEM TO ANY THIRD PARTIES. IT IS ON RECORD THAT THE COMMER CIAL COMPLEX AFTER THE COMPLETION OF CONSTRUCTION WAS LET OUT TO PANTALOON S INDIA P. LTD. BY THE OWNERS AS WELL AS THE ASSESSEE TOGETHER. THE ASSE SSEE HAD APPOINTED LAKSHMI NIRMAN BANGALORE PVT. LTD. FOR CONSTRUCTION AND MANAGEMENT SERVICES WERE AWARDED TO M/S. SYCON. THE TOTAL CO ST OF CONSTRUCTION OF THE PROJECT WAS Q 8,95,75,312. ITA NOS.976 TO 978/BANG/11 PAGE 4 OF 18 4. THE SECOND PROJECT WHICH THE ASSESSEE UNDERTOOK AS A DEVELOPER WAS CONSTRUCTION OF RESIDENTIAL COMPLEX CALLED RAJ ATHA PALM GARDENS. AS FAR AS THIS PROJECT IS CONCERNED, THE OWNERS HAD TO BE GIVEN 20% OF THE BUILT-UP AREA AS PER THE SANCTIONED PLAN AND 80% OF THE BUILT-UP AREA WAS EARMARKED FOR THE ASSESSEE AS A DEVELOPER. THE ASS ESSEE HAD IN TURN APPOINTED M/S. JURONG INFRASTRUCTURE PVT. LTD. FOR CONSTRUCTION OF BUILDING FOR THIS PROJECT FOR A TOTAL CONSIDERATION OF Q 35.71 CRORES. AS FAR AS THIS PROJECT IS CONCERNED, UPTO 31.03.2006 BASEMENT WORK WAS COMPLETED AND COLUMNS FOR GROUND FLOOR WERE ERECTED. THEREAFTER, THE PACE OF WORK GOT CONSIDERABLY REDUCED DUE TO LITIGATION OVER THE OWN ERSHIP OF THE PROPERTY. AS ON 31.03.2008, THE WORK CAME TO A COMPLETE HALT DUE TO CASES FILED OVER TITLE OF THE LAND AND ISSUE OF AN ORDER OF STAY BY THE HONBLE KARNATAKA HIGH COURT DURING NOVEMBER, 2008. 5. IN THE RETURN OF INCOME FILED FOR THE A.Y. 2005- 06, THE ASSESSEE DID NOT DECLARE ANY INCOME FROM THE AFORESAID TWO PROJE CTS WHICH THE ASSESSEE HAD UNDERTAKEN AS A DEVELOPER. ACCORDING TO THE A O, AS PER ACCOUNTING STANDARDS AS-7 EFFECTIVE FROM 1.4.2003, WHICH RELAT ES TO ACCOUNTING STANDARDS FOR ASSESSEES ENGAGED IN THE BUSINESS OF CONSTRUCTION CONTRACTS, IT WAS MANDATORY FOR CONTRACTORS UNDERTA KING CONSTRUCTION CONTRACTS TO FOLLOW PERCENTAGE COMPLETION METHOD O F ACCOUNTING. ACCORDING TO THE AO, THOUGH THE ASSESSEE WAS DEVELO PING THE AFORESAID TWO PROJECTS UNDER A JOINT DEVELOPMENT AGREEMENT, Y ET AS-7 WOULD BE APPLICABLE AND THE ASSESSEE HAD TO ACCOUNT FOR THE PROFITS IN EACH OF THE YEARS FOR WHICH THE CONSTRUCTION CONTRACT WAS BEING CARRIED OUT ON THE BASIS OF PERCENTAGE OF PROFITS THAT ARE LIKELY TO BE DERI VED FROM THE AFORESAID TWO ITA NOS.976 TO 978/BANG/11 PAGE 5 OF 18 PROJECTS. ACCORDING TO THE AO, AS THE ASSESSEE H AD ENTERED INTO JOINT DEVELOPMENT FOR CONSTRUCTION OF 2 COMMERCIAL/RESIDE NTIAL COMPLEXES, IT WAS NECESSARY FOR THE ASSESSEE FROM THE VERY 1 ST YEAR WHEN THE PROJECT HAD COMMENCED TO OFFER PROFITS ON PERCENTAGE COMPLETION METHOD. BY NOT DOING SO THE ASSESSEE HAS VIOLATED THE PRINCIPLES OF AS7. THE PROFITS ESTIMATED PER YEAR SHOULD HAVE BEEN DECLARED AS INCOME. THE A O HELD THAT AS7 DOES NOT DISTINGUISH PROPERTIES MEANT FOR SALE AND PROPERTIES MEANT AS INVESTMENT OR FOR RENTING OUT. THERE IS NO EXEMPTIO N FROM APPLYING PROVISION OF AS7 IN CASE OF CONSTRUCTION CONTRACTS WHICH IN FUTURE MIGHT LEAD TO A COMMERCIAL COMPLEX, BEING RENTED OUT AND NOT SALE OF INDIVIDUAL UNITS. EVEN IN RESPECT OF PROJECTS STAYED/STALLED D UE TO VARIOUS REASONS, DURING THE PERIOD OF STAY WHEN NO FURTHER CONSTRUCT ION HAS MATERIALIZED THE ASSESSEE IS DUTY BOUND TO DECLARE PROFITS, BUT FOR THE EARLIER YEARS WHEN THE CONSTRUCTION WORK WAS GOING ON, FOR EACH YEAR THE P ERCENTAGE PROFITS SHOULD HAVE BEEN DECLARED. THEREFORE, THE ASSESSEE OUGHT TO HAVE OFFERED PERCENTAGE PROFIT FOR TAX. 6. THEREAFTER THE AO ESTIMATED THE PROFIT THAT SHOU LD BE OFFERED TO TAX BY THE ASSESSEE ON THE BASIS OF PERCENTAGE COMPLETI ON CONTRACTS METHOD AS PRESCRIBED BY AS-7 AS FOLLOWS:- III) THE CONSTRUCTION OF THE RAJATHA PLAZA WAS AWARDED TO M/S. LAKSHMI NIRMAN (BANGALORE) P LTD, AND CONSTRUC TION MANAGEMENT SERVICES WERE AWARDED TO M/S. SYCON. AS PER THE PROVISION OF AS7, THE ASSESSEE OUGHT TO HAVE DECLAR ED PERCENTAGE OF PROFIT ADOPTING THE PERCENTAGE COMPLETION METHOD . SUBSEQUENTLY ON RECEIPT OF BUSINESS INCOME/SALES, T HE ASSESSEE COULD HAVE SET OFF THE PROFIT SO DECLARED UNDER PER CENTAGE COMPLETION METHOD. THE ASSESSEE HAS NOT FURNISHED T HE PROJECT REPORT WHICH COULD INDICATE THE ESTIMATED PROFIT PE RCENTAGE THE ASSESSEE WAS EXPECTING FROM THIS PROJECT. THEREFORE , I ADOPT A ITA NOS.976 TO 978/BANG/11 PAGE 6 OF 18 PROFIT PERCENTAGE OF 8% (AS INDICATED IN PROVISION OF SEC 44AD OF THE I.T. ACT SINCE THAT IS THE ONLY REFERABLE PROFI T PERCENTAGE FOR ADOPTION). THE TOTAL COST OF CONSTRUCTION OF THE PR OJECT IS RS.89575312. AS ON 31-3-2005, AS PER THE BALANCE SH EET THE COST OF CONSTRUCTION IN RESPECT OF THIS PROJECT WHICH HA S BEEN CAPITALISED AS WORK IN PROGRESS IS RS.31526287/-.TH E PERCENTAGE PROFIT TO BE DECLARED BY THE ASSESSEE FOR THE YEAR 31-3-2005 IS COMPUTED AS FOLLOWS: COST OF CONSTRUCTION AS ON 31-3-2005 = 31526287 = 35.19% TOTAL VALUE OF PROJECT/COST OF CONSTRUCTION. 8977 5312 THE PROPORTION OF COST OF CONSTRUCTION AS ON 31-3-2 005 TO THE TOTAL COST OF PROJECT IS 35.19%. THEREFORE, WORK CO MPLETED AS ON 31-3-2005 IS TO THE EXTENT OF 35% OF THE TOTAL PROJ ECT. ON THE TOTAL COST OF THE PROJECT, THE PROFIT IS ESTIMATED @ 8%. PROFIT ESTIMATED 8% OF = 89575312 = RS.7166025. ESTIMATED PROFIT OF THE PROJECT = RS.71,66,025 PERCENTAGE PROFIT AS ON 31-3-2005 = 35% OF 71,66,02 5 = RS.2,50,811 THEREFORE, THE ASSESSEE SHOULD HAVE DECLARED RS.250 811/- AS PROPORTIONATE PROFITS ON PERCENTAGE COMPLETION. ACC ORDINGLY, ADOPTING PROVISIONS OF AS7, I, ADD BACK A SUM OF RS .250811/- BEING UNDECLARED INCOME OF THE ASSESSEE. PENALTY PR OCEEDINGS ARE INITIATED SEPARATELY. B) RAJATHA PALM GARDENS : DURING THE YEAR, THE ASSESSEE HAD ALSO ENTERED INTO JOINT DEVELOPMENT WITH 26 OWNERS OF A PLOT OF LAND NEXT T O NIMHANS, BANGALORE. THE JOINT DEVELOPMENT WAS TO CONSTRUCT R ESIDENTIAL APARTMENTS FOR SALE AND M/S. MVR CONSTRUCTION HELD 80% OF SHARE IN THE JOINT DEVELOPMENT. THE CONTRACT FOR CO NSTRUCTION WAS AWARDED TO M/S. JURONG INFRASTRUCTURE P LTD, FOR A SUM OF RS.35.71 CRORES ON 30-5- 2005. THIS IS THE INDICATI VE COST OF CONSTRUCTION AS PER CONSTRUCTION CONTRACT. SUBSEQUE NTLY, IN VIEW OF VARIOUS LITIGATIONS OVER THE LEGAL TITLE OF THE PROPERTY, WORK WAS HALTED AFTER TWIN BASEMENT AND COLUMNS FOR GROUND F LOOR WERE COMPLETED. THE ASSESSEE HAD NOT OFFERED/DECLARED PR OFITS BASED ON PERCENTAGE COMPLETION METHOD AS DIRECTED IN AS7 THOUGH IT HAS ENTERED INTO A CONTRACT. THE ASSESSEE HAS NOT F URNISHED THE PROJECT REPORT, PLAN SANCTION ETC, BUT COPY OF CONT RACT AWARDED TO M/S. JURONG INTERNATIONAL AND COPY OF JOINT DEVELOP MENT AGREEMENT ARE SUBMITTED. SINCE PROJECT REPORT IS NO T SUBMITTED, I ADOPT AN ESTIMATED PROFIT PERCENTAGE OF 8% FOLLOWIN G THE ITA NOS.976 TO 978/BANG/11 PAGE 7 OF 18 PROVISIONS OF SEC 44AD OF THE I.T. ACT. THE COST OF CONSTRUCTION AS ON 31-3-2005 AS PER BALANCE SHEET IS RS.5,49,19, 533/-. THE TOTAL COST OF PROJECT (AS PER INITIAL CONTRACT AWAR DED) IS RS.357105098. THEREFORE, THE PROPORTION OR PERCENTA GE OF COMPLETION OF THE PROJECT AS ON 31-3-2005 IS 15.38% . COST OF CONSTRUCTION AS ON 31-3-2005 = 5,49,19,533 = 15.38%. TOTAL COST OF CONSTRUCTION 35,71,05,098 THE TOTAL COST OF CONTRACT AWARDED IS RS.35,71,05,0 98/- AND HENCE THE PROFIT (ESTIMATED) AT 8% IS RS.28,56,84,087 ON THE TOTAL PROJECT. SINCE ONLY 15.38% OF THE PROJECT IS COMPLE TED AS ON 31- 3-2005, THE ASSESSEE OUGHT TO HAVE DECLARED 15.38% OF RS.28568408/- AS ESTIMATE PROFITS FOR THE YEAR ENDE D 31-3-2005 ADOPTING THE PERCENTAGE COMPLETION METHOD AS PER AS 7. TOTAL COST OF CONSTRUCTION = RS.35,71,05,098 ESTIMATED PROFITS AT 8% = RS. 2,85,68,408 15.38% OF TOTAL PROFITS = 15.38% OF RS.2,85,68,408 = RS.43,93,821. I, THEREFORE, ADD BACK A SUM OF RS.43,93,821/- AS B EING UNDECLARED INCOME, RELATABLE TO ESTIMATED PROFIT PE RCENTAGE AS ON 31-3-2005 IN RESPECT OF M/S. RAJATHA PALM GARDEN RESIDENTIAL COMPLEX, ESTIMATED AS PER PERCENTAGE COMPLETION MET HOD OF AS7. 7. AGGRIEVED BY THE AFORESAID ORDER OF THE AO, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(APPEALS). BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT THE AFORESAID TWO PROJECTS WERE BEIN G UNDERTAKEN BY THE ASSESSEE AS A DEVELOPER AND THAT AS-7 RELIED UPON B Y THE AO WAS NOT APPLICABLE TO A DEVELOPER, BUT WAS APPLICABLE ONLY TO A PERSON WHO DOES PURE CIVIL CONSTRUCTION CONTRACT. THE ASSESSEE POI NTED OUT THAT IN THE CASE OF PURE CONSTRUCTION CONTRACTS, INCOME ACCRUES AS A ND WHEN THE WORK IS EXECUTED BY THE CONTRACTOR WHEREAS IN THE CASE OF A DEVELOPER, PROFITS WOULD ACCRUE WHEN THE PROPERTY IS SOLD. THE ASSESS EE POINTED OUT THAT AS FAR AS THE PROJECT RAJATHA PLAZA IS CONCERNED, TH E ASSESSEE NEVER ITA NOS.976 TO 978/BANG/11 PAGE 8 OF 18 INTENDED TO SELL ANY PORTION OF THE BUILT-UP AREA A ND HAD RETAINED THE ENTIRE SHARE OF THE DEVELOPERS SHARE IN THE BUILT-UP AREA AND LET OUT THE SAME TO PANTALOON FASHIONS. THE ASSESSEE THEREFORE SUBMITT ED THAT WHEN A PERSON PUTS UP CONSTRUCTION FOR HIS OWN USE, THERE CAN BE NO ACCRUAL OF INCOME. 8. ALTERNATIVELY, THE ASSESSEE SUBMITTED THAT AS-7 WAS NOT APPLICABLE TO A DEVELOPER AND IN THIS REGARD RELIED ON THE DEC ISION OF THE HONBLE MUMBAI BENCH OF THE ITAT IN THE CASE OF AWADESH BUI LDERS AND UNIQUE ENTERPRISES V. ITO, 2010 TIOL 737 ITAT MUM, DATED 2 0.08.2010, WHEREIN IT WAS HELD THAT IN RESPECT OF A CONTRACTOR, INCOME ACCRUES TO HIM AS THE CONTRACT PROGRESSES; WHEREAS IN RESPECT OF A DEVELO PER INCOME ACCRUES AS AND WHEN THE DEVELOPER SELLS THE BUILT-UP AREA. TH E MUMBAI BENCH OF THE ITAT FOLLOWED THE DECISION OF THE BANGALORE BENCH O F THE TRIBUNAL ON IDENTICAL FACTS IN THE CASE OF M/S. PRESTIGE ESTATE S PROJECT PVT. LTD. 9. AS FAR AS THE PROJECT RAJATHA PALM GARDENS IS CONCERNED, THE ASSESSEE POINTED OUT THAT NO CONSTRUCTION ACTIVITY PROGRESSED AND THERE WAS A COMPLETE HALT OF CONSTRUCTION. THERE WAS NO S ALE OF ANY BUILT-UP AREA AND THEREFORE THERE WAS NO QUESTION OF OFFERING ANY INCOME TO TAX ON THE BASIS OF PERCENTAGE COMPLETION METHOD PRESCRIBED BY AS-7. 10. THE CIT(APPEALS) AFTER CONSIDERING THESE SUBMIS SIONS ON BEHALF OF THE ASSESSEE DELETED THE ADDITION MADE BY THE AO OB SERVING AS FOLLOWS:- 6. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE, REASONS ADDUCED BY THE AO IN MAKING THE ADDITIONS AND THE S UBMISSIONS MADE BY THE APPELLANT. I FIND THAT THE APPELLANT I S IN THE LINE OF CONSTRUCTION OF BUILDING AS A CONTRACTOR. THE INCO ME FROM THESE PROJECTS HAD BEEN OFFERED FOR ASSESSMENT AND ACCEPT ED BY THE AO. ALONGSIDE, THE APPELLANT HAD ALSO COMMENCED CONSTRU CTION OF TWO ITA NOS.976 TO 978/BANG/11 PAGE 9 OF 18 BUILDINGS RAJATHA PLAZA AND RAJATHA PALM GARDEN, BY ENTERING INTO A JOINT VENTURE AGREEMENT WITH THE RESPECTIVE LAND OWNERS. IT IS CLEAR THAT THE AO HAD PROCEEDED ON THE BASIS THA T IN RESPECT OF EVERY BUILDING PUT UP BY THE APPELLANT, INCOME ACCR UES ON A PERCENTAGE OF COMPLETION METHOD. AS RIGHTLY POINTE D OUT BY THE APPELLANT, THE AO HAD BEEN CARRIED AWAY BY THE FACT THAT THE APPELLANT HAD ENTERED INTO AN AGREEMENT FOR CONSTRU CTION WITH TWO CONTRACTORS, LAKSHMI NIRMAN (BANGALORE) P LTD. IN R ESPECT OF RAJATHA PLAZA AND M/S. JURANG INFRASTRUCTURE P LTD. IN RESPECT OF RAJATHA PALM GARDEN. I HAVE ALSO GONE THROUGH THE CASE LAWS RELIED UPON BY THE A.R. I OBSERVE A. THE DISTINCTION BETWEEN THE ROLE OF A CONTRACTOR AND A DEVELOPER HAD BEEN ELABORATED AND HIGHLIGHTED IN TH E DECISION OF THE BANGALORE BENCH OF TRIBUNAL IN THE CASE OF PRES TIGE ESTATE PROJECTS (P) LTD. IN RESPECT OF A CONTRACTOR, INCO ME ACCRUES TO HIM AS THE CONTRACT PROGRESSES; WHEREAS IN RESPECT OF A DEVELOPER INCOME ACCRUES AS AND WHEN HE SELLS THE BUILT UP AR EA. THIS DECISION HAD BEEN FOLLOWED BY THE MUMBAI BENCHES OF TRIBUNAL IN THE CASES OF AWADESH BUILDERS AND UNIQUE ENTERPR ISES VS ITO - JUDGMENT DATED 20TH AUGUST 2010 (2010 TIOL - 737 - ITAT - MUM). 6.1. THE CASE ON HAND IS A BETTER CASE, WHERE THE APPELLANT NEVER CONTEMPLATED OF SELLING THE BUILT UP AREA IN NEAR FUTURE. IN FACT THE AO HIMSELF HAS RECORDED THAT NO AGREEMENT FOR SALE HAD BEEN ENTERED INTO NOR ANY ADVANCE TAKEN BY THE APPE LLANT. I AM THEREFORE OF THE VIEW THAT NO INCOME ACCRUES TO THE APPELLANT DURING THE YEAR FROM RAJATHA PLAZA AND RAJATHA PALM GARDEN. 6.2. COMING TO ACCOUNTING STANDARD (AS-7), RELIED ON BY THE AO, IT APPLIES IN THE CASE OF A CONTRACT FOR CONSTR UCTION BUT NOT TO A DEVELOPER AS HELD BY THE BANGALORE BENCH OF TRIBU NAL IN PRESTIGE ESTATE PROJECTS (P) LTD AFORESAID. AS-7 CA NNOT AND DOESNT ENLARGE THE AMBIT OF TAXATION BUT IT IS ONL Y A MEASURE OF THE INCOME AND POINT OF TAXATION OF SUCH ACCRUED IN COME. 7. TURNING TO THE FACTS, I FIND THAT EVEN BEFORE T HE CONSTRUCTION WAS COMPLETE, THE ENTIRE BUILDING RAJA THA PLAZA INCLUDING THE SHARE OF LAND OWNERS WAS AGREED TO BE LET OUT TO M/S.PANTALOONS, WHICH MEANS THAT THE BUILDING WAS S OUGHT TO BE ENJOYED BY THE APPELLANT ITSELF AND INTENDED NOT TO BE SOLD. IN RESPECT OF RAJATHA PALM GARDEN THE CONSTRUCTION HAD TO BE HALTED MID WAY BY VIRTUE OF COURT ORDERS. EVEN THERE, NO A GREEMENTS FOR SALE WERE ENTERED INTO NOR ANY ADVANCE TAKEN. ARGUM ENTS HAVE BEEN ADVANCED ON THE APPLICABILITY OF SEC.44AD OF T HE INCOME- TAX ACT. SIMILARLY, ARGUMENTS WERE ADVANCED BY THE APPELLANT ITA NOS.976 TO 978/BANG/11 PAGE 10 OF 18 AGAINST, ESTIMATION OF INCOME IN RESPECT OF RAJATHA PLAZA AND RAJATHA PALM GARDEN. IN VIEW OF MY FINDING THAT NO INCOME ACCRUES EITHER FROM RAJATHA PLAZA OR RAJATHA PALM G ARDEN, THE DISCUSSION WOULD BE ACADEMIC AND THEREFORE DOESNT REQUIRE ANY ADJUDICATION. FOR ALL THE AFORESAID REASONS, I DELE TE THE ADDITIONS OF RS.2,50,811/- AND RS. 43,93,821/-. 11. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. WE HAVE HEARD THE SUBMISSIONS OF THE LD. DR, WHO REITERATED THE STAND OF THE AO AS REFLECTED IN THE ORDER OF ASSESSMENT. THE LD. COUNSEL FOR TH E ASSESSEE REITERATED THE SUBMISSIONS AS WERE MADE BEFORE THE CIT(A) AND RELI ED ON THE ORDER OF THE CIT(APPEALS). 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. ADMI TTEDLY, AS FAR AS THE TWO PROJECTS VIZ., RAJATHA PLAZA AND RAJATHA PALM G ARDENS ARE CONCERNED, THE ASSESSEE WAS DEVELOPING THESE TWO PROJECTS AS A DEVELOPER. AS FAR AS THE PROJECT RAJATHA PLAZA IS CONCERNED, IT IS ON RECORD THAT THE ASSESSEE DID NOT SELL ITS SHARE OF THE BUILT-UP AREA AND ALW AYS INTENDED TO RETAIN THE SAME FOR THE PURPOSE OF LETTING IT OUT. IT IS ON R ECORD THAT THE PROPERTY HAS BEEN LET OUT BY THE ASSESSEE AFTER COMPLETION OF IT S CONSTRUCTION. IT IS THEREFORE CLEAR THAT AS FAR AS RAJATHA PLAZA IS CON CERNED, THE ASSESSEE NEVER INTENDED TO SELL ANY BUILT-UP AREA. IN SUCH CIRCUMSTANCES, THE QUESTION WOULD ARISE AS TO WHETHER ANY INCOME CAN B E ATTRIBUTED AS HAVING ACCRUED TO THE ASSESSEE FROM THIS PROJECT. SECTION 5 OF THE ACT DEFINES THE SCOPE OF TOTAL INCOME AND IT REFERS TO INCOME WHICH ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE TO THE ASSESSEE. THUS WH AT IS CHARGEABLE TO TAX IS INCOME WHICH ACCRUES OR ARISES TO A PERSON. THE CASE OF A BUILDER AND ITA NOS.976 TO 978/BANG/11 PAGE 11 OF 18 CONSTRUCTION CONTRACTOR ENGAGED IN CIVIL CONSTRUCTI ON ON BEHALF OF OTHERS STANDS ON A DIFFERENT FOOTING. IN THE CASE OF A CO NTRACTOR ENGAGED IN CIVIL CONSTRUCTION ON BEHALF OF OTHERS, THE GROSS REVENUE IS KNOWN OR CAN BE REASONABLY ESTIMATED; WHEREAS IN THE CASE OF A DEVE LOPER, HE BUILDS FOR THE PURPOSE OF ULTIMATE SALE TO A THIRD PARTY. UNLESS AND UNTIL THERE IS AN EVENT OF SALE, THERE CANNOT BE ANY ACCRUAL OF INCOME. TR ANSACTION OF SALE IN THE CASE OF A DEVELOPER WILL BE COMPLETE ONLY WHEN THE BUILDING IS COMPLETED AND ULTIMATELY SOLD. TILL SUCH TIME, IT CANNOT BE SAID THAT ANY INCOME HAS ACCRUED TO A DEVELOPER. 13. AS FAR AS AS-7 IS CONCERNED, AS ALREADY STATED, THE REVISED AS-7 EFFECTIVE FROM 1.4.2003 PRESCRIBES ONLY ONE METHOD I.E., PERCENTAGE COMPLETION METHOD FOR ACCOUNTING PROFITS. AS WE HA VE ALREADY OBSERVED, THE SAID METHOD OF ACCOUNTING IS APPLICABLE ONLY TO A CONSTRUCTION CONTRACTOR AND NOT TO A DEVELOPER. 14. WE ARE THEREFORE OF THE VIEW THAT INCOME IN THE CASE OF THE ASSESSEE CANNOT BE COMPUTED ON THE BASIS OF AS-7 AS PROPOSED BY THE AO. IN FACT, THE EXPERT ADVISORY COMMITTEE OF THE ICAI HAS OPINE D THAT AS-7 WOULD NOT APPLY TO BUILDERS CARRYING ON CONSTRUCTION ON THEIR OWN ACCOUNT FOR SALE OF CONSTRUCTED UNITS. WE ARE, THEREFORE, OF THE VIEW THAT THE ORDER OF THE LD. CIT(A) HAS TO BE UPHELD. 15. THE ABOVE DISCUSSION WILL BE EQUALLY APPLICABLE TO THE PROJECT RAJATHA PALM GARDENS ALSO AS THIS PROJECT DID NOT TAKE OFF AND NO CONSTRUCTION WHATSOEVER WAS CARRIED OUT NOR WAS THE RE ANY SALE OF ANY UNITS PROPOSED TO BE BUILT IN THIS PROJECT. WE AR E ALSO OF THE VIEW THAT AS FAR AS THE PROJECT RAJATHA PLAZA IS CONCERNED, TH E SAME WAS NEVER ITA NOS.976 TO 978/BANG/11 PAGE 12 OF 18 INTENDED TO BE SOLD BY THE ASSESSEE AND THEREFORE T HERE WOULD BE NO COMPUTATION OF INCOME FROM THE AFORESAID PROJECTS. 16. FOR THE REASONS GIVEN ABOVE, WE ARE OF THE VIEW THAT THE ORDER OF THE LD. CIT(APPEALS) IS JUST AND PROPER AND CALLS FOR N O INTERFERENCE. CONSEQUENTLY, THE APPEAL BY THE REVENUE IS DISMISSE D. ITA 977/B/11 17. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER DATED 11.08.2011 OF THE CIT(APPEALS)-I, BANGALORE RELATING TO A.Y. 2007 -08. 18. GROUND NOS. 1 TO 5 RAISED BY THE REVENUE IN THI S APPEAL ARE IDENTICAL TO THE GROUNDS RAISED BY THE REVENUE FOR THE A.Y. 2 005-06. THESE GROUNDS RELATE TO ESTIMATION OF INCOME FROM RAJATHA PALM G ARDENS ON THE BASIS OF AS-7. WHILE DECIDING THE APPEAL OF THE REVENUE FO R THE A.Y. 2005-06, WE HAVE ALREADY HELD THAT AS-7 IS NOT APPLICABLE TO TH E ASSESSEE AS FAR AS THE PROJECT RAJATHA PALM GARDENS IS CONCERNED. FOR T HE REASONS GIVEN WHILE DECIDING IDENTICAL GROUNDS FOR A.Y. 2005-06, WE ARE OF THE VIEW THAT THERE IS NO MERIT IN THE GROUNDS NO.1 TO 5 RAISED BY THE REV ENUE IN ITS APPEAL. CONSEQUENTLY THE SAME ARE DISMISSED. 19. GROUND NOS. 6 TO 8 RAISED BY THE REVENUE READ A S FOLLOWS:- 6. THE LEARNED CIT(A) HAS ERRED IN DELETING THE AD DITION OF RS.2,90,833/- MADE OUT OF THE SUNDRY CREDITORS, WIT HOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CAS E UNDER WHICH THE ADDITION WAS MADE BY THE ASSESSING OFFICER. 7. THE LEARNED CIT(A) ERRED IN DELETING THE ADDITIO N HOLDING THAT THE LIABILITY TO THE PARTIES MIGHT HAVE BEEN P AID THROUGH CHEQUES AND THUS, THE LIABILITY EXISTED AS ON 31.3. 2007, WHEN THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE TO THIS EFFE CT. ITA NOS.976 TO 978/BANG/11 PAGE 13 OF 18 8. THE LEARNED CIT(A) ERRED IN DELETING THE ADDITIO N MADE TOWARDS BOGUS LIABILITY BY HOLDING THAT THE CONFIRM ATIONS AND LEDGER ACCOUNTS RECEIVED FROM SUCH ALLEGED CREDITOR S WERE NOT PUT TO THE ASSESSEE, WHEN IN FACT THEY HAD BEEN PUT TO THE ASSESSEE. 20. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD CLAIMED A SUM OF RS.3323847/- AS LIABI LITY TOWARDS SUNDRY CREDITORS. LEDGER ACCOUNTS WERE PRODUCED AND INDEPE NDENT CONFIRMATION WERE ALSO SOUGHT FOR FROM THE CREDITORS. ACCORDING TO THE AO, IN THE CASE OF M/S. SYCONE & SRI BALAJI COMPANY THE BALANCE CLAIME D AS PAYABLE BY THE ASSESSEE WAS NOT CONFIRMED BY THESE PARTIES. IN CAS E OF M/S. SYCONE THERE WAS NO FURTHER DEALING AND THE PARTY HAS CLEARED TH E ACCOUNT. NO DUES WERE PENDING TOWARDS M/S. BALAJI & COMPANY ALSO. AC CORDING TO THE AO, THE ASSESSEES CLAIM TO THE CONTRARY WAS NOT ACCEPT ABLE. THE CREDITORS BALANCE SHOWN IN RESPECT OF THESE 2 PARTIES WAS BRO UGHT TO TAX AS A BOGUS LIABILITY. SYCONE : 41,318 BALAJI & COMPANY : 2,49,515 TOTAL : 2,90,833 21. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) DE LETED THE ADDITION MADE BY THE AO OBSERVING AS FOLLOWS:- 3. I HAVE CAREFULLY CONSIDERED THE REASONS ADDUCE D BY THE ASSESSING OFFICER AND THE SUBMISSIONS MADE BY APPEL LANT. IT IS NOT CLEAR FROM THE ASSESSMENT ORDER AS TO WHETHER T HE ASSESSING OFFICER HAD MADE ANY DIRECT ENQUIRY/CORRESPONDENCE WITH THE CREDITORS. HE STATES THAT THE BALANCE IS NOT CONFIR MED BY THE PARTIES; BUT THE BASIS OF THIS STATEMENT IS NOT SPE LT OUT. IF ANY COMMUNICATION HAD BEEN RECEIVED TO THE CONTRARY, TH E SAME SHOULD HAVE BEEN PUT TO THE APPELLANT. I ALSO FIND THAT ALL THE TRANSACTIONS ARE BY CHEQUES ONLY. IN THE CASE OF M/ S SYCONE, THE ASSESSING OFFICER STATES THAT THE PARTY HAS CLEARED ALL DUES. IT ITA NOS.976 TO 978/BANG/11 PAGE 14 OF 18 MIGHT HAVE BEEN CLEARED SUBSEQUENTLY, BUT THE POINT IS WHETHER THERE EXISTED A LIABILITY AS ON 31.3.2007. THEREFOR E, I DO NOT FIND ANY JUSTIFICATION FOR THE ADDITION. THE ADDITION IS ACCORDINGLY DELETED. 22. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE R EVENUE HAS RAISED GROUNDS 6 TO 8 BEFORE THE TRIBUNAL. 23. WE HAVE HEARD THE SUBMISSIONS OF THE LD. DR AND THE LD. COUNSEL FOR THE ASSESSEE. AS CONTENDED BY THE REVENUE IN GROUN D NO.7 OF ITS APPEAL, IT IS NECESSARY TO HAVE A LOOK AT THE LEDGER ACCOUNT O F THE AFORESAID TWO PARTIES TO FIND OUT AS TO THE DATES ON WHICH THE AS SESSEE DISCHARGED THE LIABILITIES. WE ARE OF THE VIEW THAT NEITHER THE AO NOR THE CIT(APPEALS) HAVE GIVEN A FINDING WITH REGARD TO THE EXISTENCE O F LIABILITY AS ON 31.3.2007 IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND THE DA TE ON WHICH THESE LIABILITIES WERE ACTUALLY DISCHARGED BY PAYMENT. W E THEREFORE DEEM IT PROPER TO SET ASIDE THE ORDER OF THE LD. CIT(APPEAL S) ON THIS ISSUE AND REMAND THIS ISSUE TO THE ASSESSING OFFICER FOR FRES H CONSIDERATION. THE AO WILL EXAMINE THE ISSUE AFRESH AND THE ASSESSEE WILL ESTABLISH THAT THE LIABILITY IN QUESTION WAS OUTSTANDING AS ON 31.3.20 07 AND COULD NOT BE TREATED AS INCOME OF THE ASSESSEE. 24. THUS, THE APPEAL BY THE REVENUE IS PARTLY ALLOW ED. ITA 978/B/2011 25. THIS IS AN APPEAL BY THE REVENUE AGAINST THE OR DER DATED 11.08.2011 OF THE CIT(APPEALS)-I, BANGALORE RELATING TO A.Y. 2 008-09. 26. GROUND NOS. 1 TO 5 RAISED BY THE REVENUE IN THI S APPEAL ARE IDENTICAL TO THE GROUNDS RAISED BY THE REVENUE FOR THE A.Y. 2 005-06. THESE GROUNDS ITA NOS.976 TO 978/BANG/11 PAGE 15 OF 18 RELATE TO ESTIMATION OF INCOME FROM RAJATHA PALM G ARDENS ON THE BASIS OF AS-7. WHILE DECIDING THE APPEAL OF THE REVENUE FO R THE A.Y. 2005-06, WE HAVE ALREADY HELD THAT AS-7 IS NOT APPLICABLE TO TH E ASSESSEE AS FAR AS THE PROJECT RAJATHA PALM GARDENS IS CONCERNED. FOR T HE REASONS GIVEN WHILE DECIDING IDENTICAL GROUNDS FOR A.Y. 2005-06, WE ARE OF THE VIEW THAT THERE IS NO MERIT IN THE GROUNDS NO.1 TO 5 RAISED BY THE REV ENUE IN ITS APPEAL. CONSEQUENTLY THE SAME ARE DISMISSED. 27. GROUNDS 6 TO 9 RAISED BY THE REVENUE READ AS FO LLOWS:- 6. THE LEARNED CIT(A) HAS ERRED IN DELETING THE AD DITION OF RS.18,12,527/- MADE OUT OF DISALLOWANCE OF INTEREST , WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CAS E UNDER WHICH THE ADDITION WAS MADE BY THE ASSESSING OFFICER. 7. THE LEARNED CIT(A), WITHOUT PROPER UNDERSTANDING THE FACTS OF THE CASE, HAS ERRED IN RELATING THE PAYMEN T OF INTEREST PAID ON CAPITAL TO THE PARTNERS, WITH DISALLOWANCE OF IN TEREST MADE IN THE HANDS OF THE FIRM HOLDING THAT INTEREST BEARING BORROWED FUNDS WERE UTILIZED FOR NON-BUSINESS PURPOSES. 8. THE LEARNED CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT THAT SIMILAR ADDITION MADE REGARDING INTEREST PAID/ PAYABLE ON THE FUNDS NOT USED FOR BUSINESS PURPOSES, HAS BEEN CONF IRMED BY HIM IN AY 2007-08, AND HAS ERRED IN NOT APPRECIATING TH AT THE UNDERLYING FACTS ARE SIMILAR IN BOTH THE ASSESSMENT YEARS. 9. THE LEARNED CIT(A) OUGHT TO HAVE TAKEN COGNIZANC E OF THE FACT THAT THE FIRMS ACTION IN GIVING INTEREST FREE LOANS TO THE PARTNERS WHILE THE FIRM WAS ITSELF BORROWING INTERE ST BEARING FUNDS FOR ITS ACTIVITIES, WAS NOT IN THE BEST INTER EST OF THE FIRM AND CANNOT BE HELD TO HAVE BEEN USED FOR THE PURPOSES O F ASSESSEES BUSINESS. 28. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD GIVEN ADVANCES TO PARTNERS AND RELATIV ES OF PARTNERS TOTALING TO Q 1,25,00,190. THE AO ALSO NOTICED THAT IN THE PROF IT & LOSS ACCOUNT, THE ITA NOS.976 TO 978/BANG/11 PAGE 16 OF 18 ASSESSEE HAD DEBITED A SUM OF Q 94,98,166 AND Q 1,77,790 AS INTEREST PAID ON BORROWINGS. THE AO WAS OF THE VIEW THAT ON THE ADVANCES PAID TO THE PARTNERS, NO INTEREST WAS CHARGED. THE AO WAS OF THE FURTHER VIEW THAT INTEREST EXPENSES DEBITED TO THE PROFIT & LOSS ACCO UNT COULD NOT BE ALLOWED AS A DEDUCTION BECAUSE THE AMOUNTS BORROWED ON WHIC H INTEREST WAS PAID WAS USED FOR GIVING INTEREST-FREE ADVANCES TO PARTN ERS AND RELATIVES OF PARTNERS. THE AO ACCORDINGLY COMPUTED INTEREST @ 1 4.5% ON ADVANCES TO RELATIVES AND ARRIVED AT A SUM OF Q 18,12,527 WHICH WAS THE INTEREST DISALLOWED BY THE AO OUT OF THE INTEREST DEBITED IN THE PROFIT & LOSS ACCOUNT. 29. ON APPEAL BY THE ASSESSEE, THE LD. CIT(A) DELET ED THE ADDITION MADE BY THE AO BY OBSERVING AS FOLLOWS:- 5.1. CONTESTING THE ADDITION, THE APPELLANT HAS S UBMITTED THE FOLLOWING: IN THIS CONNECTION IT IS SUBMITTED THAT THE BORROWINGS HAD BEEN USED ONLY FOR BUSINESS PURPOSES. THE AO OU GHT TO HAVE SEEN THAT AS PER THE BALANCE SHEET THE PARTNERS CAPITAL IS RS 10,92,12,082/= THE FUNDS WITHDRAWN BY TH E PARTNERS IS ONLY A SUM OF RS.L,25,00,190. INTEREST ON PARTNERS CAPITAL IS COMPUTED ONLY ON THE ACTUAL AMOUNT OUTSTANDING. IT IS HENCE SUBMITTED THAT THE DISALLOWANCE OF INTEREST IS UNWARRANTED. 5.2 I HAVE CONSIDERED THE FACTS AND THE SUBMISSION S MADE. AS RIGHTLY POINTED OUT BY THE APPELLANT, THE PARTNERS CAPITAL AS PER THE BA1ANCE SHEET AS AT 3 1-03-2008 IS RS. 10,92,12,082 /-. I ALSO FIND THAT INTEREST HAS BEEN PAID TO THE PARTNERS ONLY ON THE ACTUAL CAPITAL STANDING TO THEIR CREDIT. THERE IS NO JUSTI FICATION FOR THE DISALLOWANCE OF INTEREST SO FAR AS THE ADVANCES TO THE PARTNERS ARE CONCERNED. HOWEVER, WITH REGARD TO THE FUNDS ADVANC ED TO THEIR RE1ATIVE, NO MATERIAL HAD BEEN PLACED BEFORE ME TO SHOW THAT THE FUNDS PROVIDED TO THEM ARE INTEREST FREE FUNDS OR T HAT THERE EXISTED ANY COMMERCIAL EXPEDIENCY. I WOULD THEREFORE DIRECT THE ASSESSING OFFICER TO SEPARATELY COMPUTE THE INTERES T REFERABLE TO THE ADVANCES TO THE RELATIVES OF THE PARTNERS AND R EDUCE THE ITA NOS.976 TO 978/BANG/11 PAGE 17 OF 18 DISALLOWANCE TO THAT FIGURE. APPEAL IS ALLOWED PART LY ON THIS ISSUE. 30. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVEN UE HAS RAISED GROUNDS 6 TO 9 BEFORE THE TRIBUNAL. THE LD. DR PO INTED OUT THAT ON A SIMILAR ISSUE IN A.Y. 2007-08, THE CIT(A) HAS SUSTA INED THE ADDITION MADE BY THE AO AND ON SIMILAR FACTS THE CIT(A) DELETED T HE ADDITION IN THIS ASSESSMENT YEAR. THE LD. DR SUBMITTED THAT THERE I S NO CLEAR FINDING WITH REGARD TO THE ACTUAL UTILIZATION OF BORROWED FUNDS ON WHICH INTEREST WAS PAID AND WITH REGARD TO THE AVAILABILITY OF INTEREST-FRE E FUNDS. IT WAS THEREFORE SUBMITTED THAT THE ISSUE REQUIRES FRESH CONSIDERATI ON BY THE AO. IT WAS ALSO SUBMITTED THAT THE ASSESSEE SHOULD BE DIRECTED TO EXPLAIN THE UTILIZATION OF BORROWED FUNDS ON WHICH INTEREST WAS PAID FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. 31. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, REITERATED THE SUBMISSIONS AS WERE MADE BEFORE THE CIT(APPEALS). 32. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AR E OF THE VIEW THAT THE FINDINGS OF THE LD. CIT(A) ON THIS ISSUE ARE NO T CLEAR. IT WOULD THEREFORE BE APPROPRIATE TO SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND REMAND THE SAME TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION WITH A VIEW TO ASCERTAIN THE UTILIZATION OF BORROWED FUNDS ON WHICH INTEREST WAS PAID FOR THE PURPOSE OF BUSINESS AND ALSO TO VERIFY IF THE ASSESSEE HAD INTEREST FREE FUNDS WHICH COULD BE ATTRIBUTED TO TH E INTEREST-FREE FUNDS GIVEN TO THE RELATIVES OF THE PARTNERS. ITA NOS.976 TO 978/BANG/11 PAGE 18 OF 18 33. THE APPEAL BY THE REVENUE FOR THE A.Y. 2008-09 IS PARTLY ALLOWED, FOR STATISTICAL PURPOSES. 34. IN THE RESULT, THE APPEAL IN ITA NO.976/B/11 IS DISMISSED, WHILE THE APPEALS IN ITA NOS.977 & 978/B/11 ARE PARTLY AL LOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 9 TH DAY OF NOVEMBER, 2012. SD/- SD/- ( JASON P. BOAZ ) ( N.V. VAS UDEVAN ) ACCOUNTANT MEMBER JUDICIA L MEMBER BANGALORE, DATED, THE 9 TH NOVEMBER , 2012. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.