JAYANT VANECHAND VASA,,SANGLI vs. INCOME-TAX OFFICER,,

आदेश / ORDER PER R.S. SYAL, VP : This batch of six appeals by the assessee arising out of common order dated 29-02-2016 involve assessment years 2002- 03 to 2007-08. Since all the appeals have some common issues, we are, therefore, proceeding to dispose them off by this consolidated order for the sake of convenience. A.Y. 2002-03 : 2. Only two issues were pressed by the ld. AR, namely, confirmation of addition of Rs.4,17,350/- towards interest from

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money lending business; and confirmation of addition of

Rs.6,67,857/- towards unexplained investment in residential

house.

and seizure action u/s.132(1) of the Income-tax Act, 1961

(hereinafter also called ‘the Act’) was taken on 18-10-2007 at the

residential and business premises of Vasa Group at Sangli. The

assessee is part of this group. Notice u/s.153A(a) was issued

requiring the assessee to furnish return of income. The assessee

filed a return declaring total income of Rs.1,87,910/-. The

Assessing Officer (AO) noted that the search transpired that the

assessee had not maintained any books of account for the

previous year relevant to the assessment year under consideration

nor had filed any income-tax return. The assessee produced

before the AO cash book, bank account extracts, details of current

assets for verification, which were prepared on the basis of

material found during the course of search. The AO observed that

total investment by the assessee in FDRs as on 31-03-2002 stood

at Rs.29,59,000/-. The assessee declared interest income of

Rs.1,17,414/- on FDRs worth Rs.7,59,000/- in his return u/s 153A

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of the Act. The AO observed that no interest income was shown

on the remaining FDRs amounting to Rs.22.00 lakh. In addition

to that, the AO further observed that the assessee was engaged in

money lending activity. No interest income from money lending

activity was shown in such return. Applying 2% rate of interest

per month on the money lending activity, the AO computed

interest income of Rs.9,74,221/-, which was in addition to certain

interest income determined on FDRs. The ld. CIT(A) accepted

the assessee’s contention anent to the interest income on FDRs.

As regards the interest on money lending activity, the ld. CIT(A)

observed that the assessee was engaged in money lending activity

and the advances made were active accounts even in later years.

The assessee’s contention that the money lending activity did not

fructify because even the principal amounts were not recoverable,

did not find countenance with the ld. CIT(A). He, however,

noticed that the AO computed disallowance of interest on money

lending activity at Rs.9.72 lakh on the basis of total advances

taken at Rs.40.59 lakh on which interest rate of 24% per annum

was applied. He accepted the assessee’s contention that some of

the advances given were towards purchase of land, being the core

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business activity. He went with the assessee’s figure of loans and

advances given in money lending business at Rs.23,18,590/-.

Taking into consideration the fact that rate of interest on bank

FDRs was 15%, he applied interest rate on money lending activity

at 18% p.a. This is how, he computed the amount of interest

includible in the assessee’s income at Rs.4,17,350/-. No credit

was given towards interest income offered by the assessee in the

return pursuant to search because the same was in respect of

FDRs matured during the year. Aggrieved thereby, the assessee

has come up in appeal before the Tribunal.

relevant material on record. There is no duality of opinion that

the assessee was also engaged in money lending activity in

addition to his main business of construction. Such money

lending activity was carried on outside the books of accounts. It

was only during the course of search that some incriminating

material were found, which divulged the involvement of the

assessee in money-lending activity. This fact was also admitted

by the assessee in his statement recorded u/s 132(4) of the Act. As

regards the extant addition, the ld. CIT(A) considered the amount

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of investment in the money lending activity at Rs.23,18,590 and

applied 18% rate of interest. Initially, the ld. AR contested the

amount of advances taken up by the ld. CIT(A) at Rs.23,18,590/-

on which interest income was chargeable. However, on being

pointed out that this was the same figure which was given by the

assessee to the ld. CIT(A) as pertaining to the money lending

activity, the ld. AR did not press this argument. His submission

was confined only to the rate of interest applied by the ld. CIT(A)

at 18%. The ld. AR argued that the interest income did not accrue

because the money advanced had become bad. Except the bald

assertion as to the non-recoverability of the principal amount of

the advances or the interest income thereon, no evidence, much

less any cogent evidence, has been placed on record to

substantiate the same. It is seen that the AO adopted rate of

interest at 24%, which the ld. CIT(A) brought down to 18%. On

being called upon to put forth any evidence about the rate of

interest at which the assessee lent the money, the ld. AR failed to

put across any material or document. We have also examined the

submission of the assessee recorded u/s.132(4) of the Act in

which he admitted to have been involved in money lending

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activity but there is no reference to the rate of interest at which the

money was lent. Considering the fact that the assessee was

engaged in the money lending activity, which is obviously with a

purpose of earning interest income, a reasonable rate of interest

has to be applied. Taking into account the peculiar facts of the

case, we are satisfied that the ld. CIT(A) was more than

reasonable in applying interest rate of 18%, as against the interest

rate of FDRs prevailing at that time at 15%. We, therefore,

approve the computation of interest at Rs.4,17,350/-.

as interest income in the return filed u/s.153A(a) should be

reduced from the amount of interest computed by the ld. CIT(A).

This contention of the ld. AR does not hold water for the reason

that the amount of interest offered by the assessee at Rs.1,17,414/-

is on the FDRs which were encashed during the year. Though the

AO made addition of interest income in respect of remaining

FDRs worth Rs.22.00 lakh also, but the ld. CIT(A) deleted the

same and the Revenue is not in appeal. In that view of the matter,

it becomes graphically clear that the amount of interest offered by

the assessee as income at Rs.1,17,414/- is only qua the FDRs,

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which is distinct from money lending activity separately carried

out by the assessee. Since no interest income was suo motu

offered by the assessee on the money lending activity, the amount

as computed by the ld. CIT(A) on this score at Rs.4,17,350/- is

held to be correctly added. This issue is, therefore, determined

against the assessee.

against the confirmation of addition of Rs.6,67,857/- towards

unexplained investment in the residential house construction.

Rs.5,40,256/- towards construction of Bungalow ‘Hemangini

Palace”. As per the report of the District Valuation Officer

(DVO), the cost of construction during the F.Y. 2001-02 was

computed at Rs.11,74,700/-. On being called upon to explain as

to why the differential amount of Rs.6,34,444/- be not added to

the total income, the assessee submitted that the total value of the

property as per DVO report was Rs.58,73,500/- as against

Rs.37,51,000/- determined by the Registered Valuer. The assessee

submitted, inter alia, that the DVO applied CPWD rates while

valuing the property at Rs.58.73 lakh, instead of the local PWD

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rates. Certain other objections were also raised by the assesee, all

of which got repelled by the AO, eventually making an addition

of Rs.6,34,444/- on this count. The ld. CIT(A) did not accept the

assessee’s contention for adoption of the value determined by the

Registered Valuation Officer. He went with the value determined

by the DVO at Rs.52,86,150/- (after allowing rebate for self-

supervision). After reducing the total cost shown by the assessee

over a period of three years at Rs.19,47,895/-, he worked out the

amount of unexplained investment at Rs.33,38,250/-, which was

bifurcated over a period of three years during which the

construction continued, as under :

Asst. yr. % Completion Addition 2002-03 20% 6,67,651/- 2003-04 48% 16,02,360/- 2004-05 32% 10,68,240/-

In this way, he sustained the addition at Rs.6,67,651/- for the year

under consideration. Aggrieved thereby, the assessee has come

up in appeal before the Tribunal.

relevant material on record, the first issue raked up by the

assessee is about the applicability of State PWD rates as against

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CPWD rates applied by the DVO in computing the value of the

property. In principle, it is a fairly settled position that while

determining the value, the recourse should be taken to the State

PWD rates rather than Central PWD rates. The Hon’ble Supreme

Court in CIT Vs. Sunita Mansingha (2017) 393 ITR 121 (SC)

accorded its imprimatur to the judgment of the Hon’ble High

Court approving the view taken by the Tribunal, wherein local

PWD rates were held to be applicable for valuation of property

rather than the Central PWD rates. In view of the fact that the

value has to be determined on the basis of State PWD rates and

the ld. AR contended that the DVO applied Central PWD rates,

we set aside the impugned order and remit the matter to the file of

the AO for examining the rates applied by the DVO in

determining the value of the property. In case, he applied the

CPWD rates in determining the value of the property, then such

value should be re-worked out by applying the State PWD rates.

interest income added by the AO for which the addition has been

sustained by the ld. CIT(A) should be telescoped in the

unexplained investment in construction of Bungalow. Once an

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addition is made towards earning undisclosed income, then no

addition should be made towards undisclosed investment to that

extent. For example, if an assessee earns an undisclosed income

of Rs.100/- and makes an unexplained investment of Rs.170/-, it

is the higher of these two, namely, Rs.170/-, which can be added

to the income and not the both: Rs.170/- towards unexplained

investment and Rs.100/- towards unexplained income. The

raison d’etre is that the inflow of Rs.100/- gets utilized in the

outflow of Rs.170/-. If we add Rs.100/- as well as Rs.170/-, it

will amount to double taxation of Rs.100/-. Coming back to the

facts of the instant case, it is seen that the amount of unexplained

interest income on money lending activity for the assessment year

under consideration has been found out at Rs.4,17,350/-, as

against the unexplained investment in Bungalow at Rs.6,67,651/-.

We, therefore, order to reduce the amount of addition towards

unexplained investment in Bungalow by a sum of Rs.4,17,350/-,

being, interest income from the money lending activity which was

not originally disclosed. This relief would be in addition to the

effect of the conversion of valuation of the property from the

CPWD rates, if applied by the DVO, to the State PWD rates. The

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impugned order is set aside and the matter is restored to the file of

the AO for doing accordingly.

A.Yrs. 2003-04 and 2004-05 :

those of the A.Y. 2002-03 as discussed above except for the

amount of addition sustained by the ld. CIT(A) towards interest

on money lending activity and the amount of unexplained

investment in Bungalow. For the A.Y. 2003-04, the amount of

interest on money lending activity on the amount of investment as

per the assessee’s own version has been computed by the ld.

CIT(A) at Rs.4,17,350/- as per para 20 of the impugned order.

For the A.Y. 2004-05, the amount of such interest on money

lending activity, calling for the addition, has been computed at

Rs.4,65,280/-. The impugned order is upheld on this score and

the issue of interest income on money lending activity to that

extent is decided against the assessee.

investment in the Bungalow which has been sustained by the ld.

CIT(A) at Rs.16,02,360/- for the assessment year 2003-04 and

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Rs.10,68,240/- for the assessment year 2004-05. Following the

view taken hereinabove for the assessment year 2002-03, we

direct to reduce the amount of addition towards unexplained

investment in bungalow for the two years under consideration by

the amount of the above interest income on money lending

activity, which relief will be in addition to the effect of converting

the valuation from the CPWD rates, if applied by the DVO, to the

State PWD rates.

A.Yrs. 2005-06, 2006-07, 2007-08 :

years is about the sustenance of addition of interest income on

money lending activity. As the facts for these years are mutatis

mutandis similar, following the view taken hereinabove, we

uphold the addition of Rs.4,91,400/- for the assessment year

2005-06; Rs.4,17,350/- for the assessment year 2006-07; and

Rs.4,17,350/- for the assessment year 2007-08 towards interest

income from money lending activity.

13 ITA Nos. 977 to 982/PUN/2016 Jayant V. Vasa

Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 06th April, 2022 Satish

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order is forwarded to: 1. अपीलाथ� / The Appellant; 2. ��यथ� / The Respondent; 3. The CIT(A)-11, Pune 4. The Pr.CIT(Central, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “A” / 5. DR ‘A’, ITAT, Pune गाड� फाईल / Guard file 6.

आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

14 ITA Nos. 977 to 982/PUN/2016 Jayant V. Vasa

Date 1. Draft dictated on 05-04-2022 Sr.PS 2. Draft placed before author 05-04-2022 Sr.PS 3. Draft proposed & placed before the JM second member 4. Draft discussed/approved by Second JM Member. 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *