HEMRAJ SHANKARLAL MUNDADA,PUNE vs. INCOME-TAX OFFICER,

आदेश / ORDER

PER VIKAS AWASTHY, JM

This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-3, Pune dated 15.03.2016 for the assessment year 2011-12.

2 ITA No. 1066/PUN/2016 A.Y.2011-12

housing project. During scrutiny assessment proceedings, the Assessing

Officer made addition of Rs.14,06,671/- in respect of interest free advances

given to relatives and sister concerns. The assessee had given interest free

advances to the following persons:

i) Anjali R Mundada Rs. 1,00,000/- ii) R.B Kharade Rs. 2,75,000/- iii) Saj Realtors Rs.41,25,000/- iv) Sangram Patil Rs.22,25,000/- v) Sanjay Ruikar Rs. 2,00,000/- Total Rs.87,25,000/-

The ld. AR submitted that a perusal of the Balance Sheet at page 5 of

the paper book would show that own funds of the assessee are much more

than the loans and advances given by assessee to sister concerns/relatives.

Hence, no disallowance is called for in the light of decision by the Hon'ble

Bombay High Court in the case of CIT Vs. Reliance Utilities and Power Ltd.

reported as 313 ITR 340.

2.1 The ld. AR submitted that during assessment proceedings, the

Assessing Officer further made additions on following counts:

- Commission on sale of flats Rs. 21,65,596/-

- Bank finance charges and interest Rs.1,42,31,004/- - Flat cancellation compensation Rs. 5,39,002/- Total Rs.1,69,35,602/-

3 ITA No. 1066/PUN/2016 A.Y.2011-12

The ld. AR submitted that though all these amounts were debited to

P & L account under the head “Other Expenses”, however, all these

expenditures were capitalized while computing closing work in progress.

The Assessing Officer in scrutiny assessment proceedings has failed

to appreciate that the expenditures have been capitalized and were not

separately claimed as expenditure in the assessment year under appeal. In

proceedings before the Commissioner of Income Tax (Appeals), the assessee

reiterated the submissions and further explained that entire construction

cost of current financial year has been carried forward as work in progress.

However, the Commissioner of Income Tax (Appeals) failed to appreciate the

contentions of the assessee and confirmed the findings of Assessing Officer.

vehemently defended the order of Commissioner of Income Tax (Appeals)

and prayed for dismissing the appeal of assessee. The ld. DR submitted

that assessee after debiting the expenditure in respect of commission on

sale of flats, bank finance charges and interest and flat cancellation

charges in the P & L Account has not added back the same in the

computation of income at the time of filing return of income. Hence, it

cannot be inferred that the assessee has claimed expenditure in the

current financial year.

sides and have perused the orders of Authorities below. The assessee in

appeal has raised five grounds.

- Ground No.1 and 2 is in respect of disallowance of bank interest and finance charges to the tune of Rs.1,42,31,004/-.

4 ITA No. 1066/PUN/2016 A.Y.2011-12

- In ground No. 3 of the appeal, assessee has assailed disallowance of interests Rs.14,06,671/- on interest free advances to sister concerns/relatives.

- In ground No. 4, the assessee has assailed disallowance of compensation paid on cancellation of flats of Rs.5,39,002/-

- The assessee has raised additional ground of appeal challenging disallowance of commission paid Rs.21,65,596/-

concern and relatives raised in ground No.3 of the appeal. The assessee has

paid bank finance charges and interest to the tune of Rs.1,42,31,004/-.

This includes interest on vehicle loan and other credit facilities. Admittedly,

the assessee had advanced Rs.87.25 lacs to sister concerns and relatives

without charging interest. The Assessing Officer disallowed interest to the

tune of Rs.14,06,671/- on notional basis in respect of abovementioned

interest free advances. A perusal of the Balance Sheet at page 5 of the

paper book shows that own funds of the assessee in capital account are to

the tune of Rs.12,11,33,809/-. Thus, own funds of the assessee are

sufficient to cover interest free advances made to sister concerns/relatives.

The Hon'ble Bombay High Court in the case of CIT Vs. Reliance Utilities

and Power Ltd. (supra.) has held that where both interest free funds and

interest bearing funds are available and the interest free funds are more

than the investment made, the presumption is that the investments are

made out of interest free funds available with the assessee. In the light of

the ratio laid down by the Hon'ble Jurisdictional High Court, we find merit

in the submission of the assessee. Hence, disallowance of interest

expenditure Rs.14,06,671/- in respect of interest free advances made to

5 ITA No. 1066/PUN/2016 A.Y.2011-12

sister concerns/relatives is directed to be deleted. Accordingly, ground No.

3 of the appeal is allowed.

Rs.1,42,31,004/-, disallowance of compensation paid on cancellation of

booking flats Rs.5,39,002/- and commission on sale of flats

Rs.21,65,596/- are concerned, the contention of the assessee is that the

same have been capitalized. A perusal of the P & L Account of the assessee

for the financial year 2010-11 at page 32 to 34 shows that these

expenditures have been debited to P & L account. The assessee has also

placed on record return of income along with computation at page 1 and 2

of the paper book. A perusal of the computation of income reveals that the

assessee has carried negative balance of P & L account, while computing

total income, however, afore-mentioned amounts have not been added back

while computing the total income. This itself shows that the assessee has

claimed the expenditures in the current assessment year. Purported

capitalization of expenditure by adding the same to closing work in

progress would not result in nullifying the effect of debiting expenditure in

P & L Account, unless the same has been added back while computing

total taxable income of the relevant assessment year. We do not find merit

in the submissions of the ld. A.R. of assessee. The finding of Authorities

below qua the above mentioned three additions are upheld. Accordingly,

ground Nos. 1, 2, 4 and additional ground raised in the appeal are

dismissed being devoid of any merit.

requires no adjudication.

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Order pronounced on Monday, the 26th day of November, 2018.

Sd/- Sd/- R.S. SYAL VIKAS AWASTHY VICE-PRESIDENT JUDICIAL MEMBER पुणे / Pune; �दनांक / Dated : 26th November, 2018. SB

आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to :

अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT (Appeals)-3, Pune. 4. The Pr. CIT-2, Pune. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “बी” ब�च, 5. पुणे / DR, ITAT, “B” Bench, Pune. गाड� फ़ाइल / Guard File. 6.

// True Copy // आदेशानुसार / BY ORDER,

�नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.