PANNALAL SHIVRATAN BAGDIA,,JALNA vs. DEPUTY COMMISSIONER OF INCOME-TAX,, JALNA

ORDER

PER DR. DIPAK P. RIPOTE, AM:

by the assessee are as under : “1. The learned CIT(A) erred in making addition of Rs.5,32,734 towards sales tax paid and written off in Profit & Lost Account.

2. The learned AO and CIT(A) erred in making addition of 17,80,000 by capitalizing interest expenditure over the value of agriculture lands without appreciating the facts and submission of the Appellant that borrowed loans were used for business purposes and hence, interest was a deductible revenue expenditure.

A.Y. 2012-13 Pannalal Shivratan Bagadia [A]

3. The learned AO and CIT(A) erred in making an adhoc addition of Rs.3,00,000 estimating agriculture income at Rs.12,61,447 instead of Rs.1561,447 claimed by the Appellant.” 2. Brief facts of the case are that the assessee filed Return of Income for A.Y. 2012-13 on 15.09.2012 declaring total income of Rs.71,24,570/-. However, assessee filed revised return on 30.03.2013 revising the total income To Rs.47,27,330/-. The case was selected for scrutiny. The Assessing Officer(AO) passed assessment order on 28.03.2015. As per the assessment order, assessee is an individual engaged in the business of ginning and pressing. There was a survey under section 133A of the Act in the case of assessee on 02.02.2012. The assessee had declared additional income of Rs.2,14,44,972/- for A.Y. 2012-13. The declaration was on account of excess stock and excess cash.

2.1 The Assessing Officer(AO) in the assessment order has disallowed an amount of Rs.5,32,734/- which was claimed by assessee as sales tax refund receivable written-off. The AO disallowed interest of Rs.17,80,000/-. The AO reduced the agricultural income of the assessee. Aggrieved by the same, the assessee filed appeal before the ld.CIT(A).

A.Y. 2012-13 Pannalal Shivratan Bagadia [A]

A.Y. 2012-13 Pannalal Shivratan Bagadia [A] A.Y. 2012-13 Pannalal Shivratan Bagadia [A] A.Y. 2012-13 Pannalal Shivratan Bagadia [A]

A.Y. 2012-13 Pannalal Shivratan Bagadia [A] Ground No.1: Sales Tax written-off of Rs.5,32,734/-:- 7. In the assessment order, the AO has observed that assessee had written-off of Rs.5,32,734/- as sales tax refund receivable written- off. Assessee was entltled for sales tax refund amount of Rs.9,46,906/- for earlier years. However, the sales tax authority determined refund at Rs.4,14,172/-. Therefore, assessee write-off the remaining amount of Rs.5,32,734/-.

The assessee claimed that the said sales tax was on account of purchases. However, the ld.CIT(A) has given the finding that assessee was maintaining separate account for collection and payment of sales tax and it was not routed through Profit and Loss Account.

A.Y. 2012-13 Pannalal Shivratan Bagadia [A] submitted before us. Therefore, the issue is set-aside to AO for re- adjudication after giving opportunity to the assessee. Accordingly, Ground No.1 is allowed for statistical purpose.

8.1 In the result, Ground No.1 raised by the Assessee is Allowed for Statistical Purpose.

Ground No.2 - Disallowance of Interest of Rs.17,80,000/-:- 9. In the original Return of Income, the assessee had not claimed Rs.17,80,000/- as interest expenditure and the said amount was capitalized, however, in the revised return, assessee claimed it as business expenditure, and had submitted before the AO that it was wrongly capitalized. The AO stated that assessee had purchased lands for which assessee had borrowed money and therefore interest paid of Rs.17,80,000/- is not Revenue Expenditure. The ld.CIT(A) has verified the books of the assessee and specifically observed that assessee had capitalized interest amount in the agricultural land account. However, before us, the ld.AR submitted that assessee had wrongly capitalized the said amount and it was a business expenditure. Assessee also submitted that assessee had sufficient funds and therefore, the investments made in the agricultural land were sourced from the capital account and the amount of Rs.17,80,000/- is interest for business purposes. It is observed that in the ld.CIT(A)’s order, the ld.CIT(A) has categorically mentioned that A.Y. 2012-13 Pannalal Shivratan Bagadia [A] assessee had capitalized the interest amount in the agricultural land account. It means, assessee in his books of account had accepted the fact that interest was paid towards the borrowed amounts which were used for purchasing agricultural land by capitalizing the interest amount in the books, assessee had accepted that borrowed funds were used for purchasing agricultural land. Once the assessee himself accepts that borrowed funds were used for purchasing agricultural land, assessee cannot take the stand that assessee had sufficient capital and own funds were used for purchasing agricultural land. Assessee’s books were audited. Assessee has relied on various case laws, however, the case laws are distinguishable on facts as in the case of assessee, assessee himself has accepted that borrowed funds were utilized for purchasing agricultural land by capitalizing the interest. Therefore, from the facts of the case, we are of the opinion that AO has rightly disallowed the amount of Rs.17,80,000/-. Accordingly, Ground No.2 of the assessee is dismissed.

9.1 In the result, Ground No.2 raised by the Assessee is Dismissed Ground No.3 - Ad-hoc Addition of Rs.3,00,000/-:- 10. Assessee had shown gross agricultural income of Rs.20,77,174/-, claimed expenses of Rs.5,15,727/- and had shown net agricultural income of Rs.15,61,447/-. The AO stated that some

A.Y. 2012-13 Pannalal Shivratan Bagadia [A] of these sales proceeds were not supported by bills, therefore, the AO made addition of Rs.3 lakhs and reduced the agricultural income to Rs.12,61,447/-. In this case, the AO has clearly estimated without any basis, therefore, the AO is directed to delete the Ad-hoc disallowance of Rs.3 lakhs, accordingly, Ground No.3 of the assessee is allowed.

10.1 In the result, Ground No.3 raised by the Assessee is Allowed.