DCIT 24(3), MUMBAI vs. SHEKHAR S. DADARKAR, MUMBAI

The issue involved in ground No.1 is against the confirmation of addition of Rs.88,85,487/- as made by the AO under section 40(a)(ia) of the Act on account of non deduction of TDS on the payments made to non banking finance companies towards interest on loans.

Having heard the Ld. D.R. and considering the facts on record, we find that the assessee has made payment of Rs.88,85,487/- as per details extracted below which represented the payment of interest to non banking finance companies on which no TDS was deducted by the assessee. M/s. Religare Finvest Ltd. : Rs.11,27,176/- M/s. Reliance Capital Ltd. : Rs.47,12,509/- M/s. Indiabulls Hsg. Fin. Ltd. : Rs. 9,45,794/- M/s. Indiabulls Hsg. Loan : Rs.19,92,710/- M/s. Cholamandalam DBS : Rs. 1,07,298/- Finance Ltd. ____________ Rs.88,85,487/- =========

The second issue raised by the assessee is as regards confirmation of addition of Rs.7,98,000/- by CIT(A) as made by the AO u/s 40A(3) of the Income Tax Act on account of cash payments exceeding Rs. 20,000/-.

In the appellate proceedings, the Ld. CIT(A) also found that the purchase of sand/water is not exempt as that is not covered under the products manufactured or processed without the aid of power in a cottage industry and consequently confirmed the addition.

Having heard the Ld. D.R. and perusing the materials on record, we find that the cash payment to the tune of Rs.7,98,000/- was made for purchase of river sand and water which was claimed to be exempt under rule 6DD(f) of the Rules on the ground that the same are the products manufactured or processed without the aid of power in a cottage industry. According to the Ld. CIT(A) the same is not covered in that category. The Ld. CIT(A) also referred to the definition of cottage industry which is not available in the Income Tax Rules and finally dismissed the appeal of the assessee. Having examined the issue in depth and after looking to the facts and circumstances and nature of

In the result, the appeal of the assessee is allowed for statistical purposes.

The various grounds raised by the Revenue are as under: “1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting disallowance of expenditure of Rs.1,39,300/- made by the Assessing officer on account of refundable deposit to BMC and MHADA ignoring the fact that the expenditure is of capital nature;

The issue raised in ground No.1 is against the deletion of addition of Rs.1,39,300/- by Ld. CIT(A) as made by the AO on account of refundable deposit to BMC and MHADA.

The facts in brief are that on the examination of details furnished by the assessee the AO observed that the assessee has paid Rs.12,25,600/- to BMC on 18.07.08 and Rs.14,38,641/- to MHADA on 19.06.08 which were inclusive of deposits of Rs.89,300/- and Rs. 50,000/- respectively. Accordingly, the AO issued show cause notice vide order sheet entry dated 23.11.11 as to why the deposit should not be disallowed to the tune of Rs.1,39,300/- which remained unresponded by the assessee.

In the appellate proceedings, the Ld. CIT(A) allowed the appeal of the assessee by observing and holding as under: “4.3 I have carefully considered the above submissions of the appellant. The above deposits have been given to BMC to ensure that the basement of the building is not used for illegal purpose or for storage of hazardous chemicals. Part of the deposit has also taken by BMC for removal of debris. These deposits are never returned by the BMC and hence consistently the appellant had been claiming the deposits as revenue expenditure. The appellant had not brought any instance of the deposits paid in the previous year's being received back from BMC. It is the submission of the appellant that in case if the same is received in future the same shall be assessed to tax. I find that no disallowance was made on this account in the earlier years and the claim was consistently accepted by the AO and hence he cannot ignore the principle of consistency. Since the above deposits were paid wholly and exclusively for the purpose of the business and they are not capital expenditure, I direct the AO to allow the same u/s.37(i) of the Income Tax Act. In view of this, the addition made by the AO is deleted and claim of the appellant is allowed. This ground of appeal is allowed.”

The issue raised in ground No.2 is against the accepting the loss incurred by proprietary concern namely, S.D. Hospitality (Restaurant) by ignoring the fact that assessee does not maintain consumption register and has shown different ratio of consumption of materials for different restaurants.

The facts in brief are that the S.D. Hospitality (Restaurant) is a proprietary concern of assessee which is engaged in operation of three restaurants. The AO during the course of assessment proceedings called upon the assessee to furnish the details of consumption of various materials as per the stock records/register maintained. However, it was found that assessee has not maintained any records of consumption of raw materials and finally the AO reworked the loss by working out the consumption at 35% of the turnover at

In the appellate proceedings, the Ld. CIT(A) allowed the appeal of the assessee by observing and holding as under: “5.3 l have carefully considered the submissions made by the appellant and the impugned assessment order on this issue. The appellant is running 3 restaurants viz. Paratha and More at Chembur and White and Zing Café at Goregaon. The Restaurant 'Paratha and More' was set up by the appellant in the F.Y.2005-06 which provides various types of parathas to the customers. Since Indian cuisine is served in this restaurant the business is popular and it got reasonably established and hence the material consumption is also reasonable. 5.3.1. The Restaurants White and Zing Cafes were serving continental food and it did not appeal to the local customers and the appellant was struggling to achieve the break even because of higher material consumption. The Assessing Officer had failed to appreciate that consumption of material depends upon the recipe and the kind of cuisine. He has also not brought any material on record to show that the average 35% of the material consumption would be same to all kinds of cuisines. As far as 'Parathas and More' is concerned, the appellant had shown the material consumption as 36.52% which is comparable to the average consumption in the industry. The nature of material consumed is different in continental cuisines and hence the normal average of 35% cannot be applicable to this special kind of cuisines. The appellant had also furnished the consumption in the F.Y.2010-11 and 2011- 12 for both the cuisines. As far as Parathas & More is concerned, the average material consumption is 40.64% and 38.47% whereas with regard to the continental food, the percentage of consumption was 100.48% and 80%. Parathas being popular, the turnover was also more. This clearly shows that the appellant is struggling to achieve the break even in respect of the restaurants White and Zing Cafe. 5.3.2. One of the reasons attributed by the appellant was that the employees food cost has not been segregated from the total consumption and the same is debited to the purchase of food items. It was also submitted that the appellant did not maintain separate account towards employee meat consumption. As mentioned above, parathas being popular, the sales turnover was also high i.e. Rs.1.66 crores and Rs.1.81 crores respectively for F.Y.2010-11 and 2011- 12, where as the sales turnover of the other restaurant at Goregaon is Rs.65.45 lacs & 64.54 lacs respectively for the same period. From this it is clear that both White and Zing Café are not a high end Restaurants which are having teething trouble which the AO fails to understand.

We have heard the Ld. D.R. and perused the relevant material on record. The ld DR contended that the assessee has not maintained the stock records as consumption of materials in the restaurants and it was not possible for the AO calculate the income correctly and the ld CIT(A) has erred in not affirming the AOs reworking of loss which should be reversed. Perusal of assessment order reveals that AO has not pointed out any specific defect in the consumption but made a general observation that in absence of consumption records , the consumption can not be relied. The issue has been examined in depth by the Ld. CIT(A) and recorded a conclusion that entire purchases were vouched and therefore, the consumption of materials cannot be doubted and thus allowed the appeal. Since there is no infirmity in the order of the Ld. CIT(A), the same is hereby affirmed on this issue by dismissing the ground raised by the Revenue.

The brief facts are that the assessee has made total purchases to the tune of Rs.5,34,77,339/- in the proprietary concern namely, S.D. Hospitality (Restaurant). During the assessment proceedings AO, in order to verify the genuineness of the purchases, issued notice under section 136(6) of the Act to the suppliers. However, in respect of three parties from whom the assessee has made purchases of Rs.20,65,289/- the notices were received back unserved. Finally, the AO after confronting the assessee with the same added the same to the income of the assessee when the assessee failed to produce the necessary details qua the said purchases and parties.

In the appellate proceedings, the Ld. CIT(A) deleted the entire addition when the assessee filed the necessary evidences as regards these three parties such as details of PAN, ledger accounts, bank statements etc. and the payments details by way of cheques and after considering the facts that all these parties were having VAT and GST numbers and thus justified the deletion the addition.

The issue raised in ground No.4 is against the deletion of Rs.8,52,725/- by Ld. CIT(A) as made by the AO on adhoc basis in respect of various expenses incurred in cash when the assessee failed to produce the necessary supporting evidences. During the assessment proceedings, the AO noticed that assessee has not maintained the bills and vouchers of expenses incurred in cash as regards miscellaneous expenses, telephone expenses, advertisement, sale promotion expenses and travelling expenses and thus disallowed 20% of the miscellaneous expenses, telephone expenses, advertisement and sale promotion expenses and

In the appellate proceedings, the Ld. CIT(A) deleted the addition by observing and holding as under: “72 I have carefully considered the submissions made by the appellant. During the course of assessment proceedings, the details such as copies of bills raised, the bank statement evidencing the payment in cheque were submitted in respect of travelling and telephone expenses and similarly with regard to the advertisement and sales promotion, the bills and vouchers were furnished before the Assessing Officer for his verification. Copies of the invoices for sales promotion and advertisement along with details of payment by way of cheque were produced before the Assessing Officer. Since the Assessing Officer did not bring any material on record to show that there was some expenditure incurred for non business purpose and he further failed to bring on record the element of personal use in respect of telephone and travelling expenses, the adhoc disallowances made by the Assessing Officer on all the heads of expenditure is hereby deleted. These grounds of appeal are allowed.”

After hearing the Ld. D.R. and perusing the relevant material on record as placed before us, we find that the disallowances to the tune Rs.8,52,725/- on account of various expenses were made purely on adhoc basis without pointing out any specific defect in the books of accounts except the general observation that there were no bills and vouchers for some expenses. We find that a general observation made by the AO that cash bills in respect of various expenses were not produced by the assessee is not sufficient to justify the adhoc disallowance. Under these circumstances, we are of the view that the order of Ld. CIT(A) is correct on this issue as no disallowance can be made on adhoc basis without pointing out specific defect and deficiency in the records maintained by the assessee. Accordingly, we dismiss the ground raised by the Revenue by affirming the order of Ld. CIT(A) on this issue.

In the result, the appeal of the Revenue is partly allowed for statistical purposes.

The issue raised in ground No.3 is against the confirmation of Rs.18,00,000/- paid to Prabodhan Goregaon, a Public Charitable Trust registered u/s 12A of the Act under an agreement entered into between the assessee and the said trust without deduction of tax at source as disallowed by the AO u/s 40(a)(ia) of the Act.

The brief facts of the case are that in the assessment proceedings the AO noticed that assessee has debited Rs.18,00,000/- as care taking charges in his business M/s. S.D. Hospitality which were paid to Prabodhan Goregaon, a Public Charitable Trust registered with the Charity Commissioner and the Director of Income Tax (Exemption) u/s 12AA and 80G. It was submitted before the AO that the said payment was made under an agreement which provided for subletting of area in Ozone Club House for running the ancillary activities on care taker basis to the assessee.

In the appellate proceedings, the Ld. CIT(A) confirmed the order of AO by holding that the said payment is covered by the provisions of section 194I of the Act and the provisions of section 40(a)(ia) of the Act were rightly invoked by the AO.

After hearing the Ld. D.R. and perusing the relevant materials on record, we certainly agree with the conclusion drawn by the Ld. CIT(A) that provisions of section 194I were applicable to any payment made by the assessee to a charitable trust even if the said trust is registered under section 12A and 80G of the Act and also that the circular No.4 dated 16.07.02 is not applicable to the present case and applicable only to those entities which was unconditionally and unequivocally mentioned in the said circular under section 10 of the Act. However, in view of the 2nd proviso to section 40(a)(ia) of the Act , we are of the view that if the trust has shown the receipts in its income and dealt with this income as per the provision, then the assessee can not be treated as assessee in default as regards non deduction at source are reached and the payment has to be allowed to the assessee

Accordingly, appeal of the assessee is allowed for statistical purposes.

The issue raised in ground Nos.1 & 2 is identical to one as decided by us in ground No.1 in ITA No.7642/M/2012 for A.Y. 2009-10 and therefore, our findings in ground No.1 in ITA No.7642/M/2012 would, mutatis mutandis, apply to this ground of the present appeal also. Accordingly, the issue is restored to the file of the AO. The ground Nos.1 & 2 are allowed for statistical purposes.

The issue raised in ground No.4 is against the confirmation of addition of Rs.11,98,862/- by Ld. CIT(A) towards deemed ALV of vacant flats which are lying in the stock in trade of the assessee’s books of accounts. The facts in brief are that the assessee has some unsold flats in the project as on 31.03.12 as per details given in para 6 of the assessment order. Accordingly, a show cause notice was issued to the assessee as to why the deemed rent should not be assessed qua these unsold flats which was replied by the assessee vide written submission dated 20.03.15 by submitting that these unsold flats were not let out during the year and therefore, no question of estimating deemed rental income under the head income from house property. The AO rejected the contentions of the assessee as not tenable and estimated the deemed rent at Rs.17,12,660/- by relying on the decision of the Hon’ble Delhi High Court in the case of CIT vs. Ansal Housing Finance & Leasing Co. Ltd. (2013) 29 taxmann.com 303 (Delhi) and added the same to the income of the assessee after allowing standard deduction at 30%.

In the appellate proceedings, the order of the AO was affirmed by the Ld. CIT(A) by holding that the decision in Ansal Housing Finance & Leasing Co. Ltd. (supra) is directly

Having heard the Ld. D.R. and perusing the relevant materials on record, we find that the issue is squarely covered in favour of the Revenue by the decision of Hon’ble Delhi High Court in the case of Ansal Housing Finance & Leasing Co. Ltd. (supra) wherein it has been held that even in the case of unsold flats held in stock in trade the income has to be assessed by way of deemed rent. Accordingly, order passed by the Ld. CIT(A) is correct and is as per law and the same is affirmed by dismissing the ground raised by the assessee.

The appeal of the assessee is partly allowed for statistical purposes.

The issue raised in ground No.3 is identical to one as decided by us in ground No.3 in ITA No.1032/M/2017 for A.Y. 2010-11 and our findings in ground No.3 in ITA No.1032/M/2017 for A.Y. 2010-11 would mutatis mutandis

The issue raised in ground No.4 is identical to one as decided by us in ground No.4 in ITA No.1033/M/2017 for A.Y. 2012-13 and our decision in ground No.4 in ITA No.1033/M/2017 for A.Y. 2012-13 would mutatis mutandis apply to this ground as well. Accordingly, the order of the Ld. CIT(A) is confirmed on this issue and ground raised by the assessee is dismissed.

The appeal of the assessee is partly allowed for statistical purposes.

In the result, appeals of assessee in ITA No.7642/M/2012, ITA No.1032/M/2017 and ITA No.2411/M/2017 are allowed and ITA No.1033/M/2017 & 2412/M/2017 are partly allowed for statistical purposes whereas the appeal by the revenue in ITA No.819/M/2013 is partly allowed for statistical purpose.