AJAY C MEHTA & AKSHAY J DOSHI,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX 24(1), MUMBAI

I heard the parties and perused the record. The assessee is a partnership firm and is engaged in the business of purchase and sale of TDR rights.

The first issue relates to the addition of Rs.10.00 lakhs received from M/s Pansu Construction. During the course of assessment proceeding, the AO noticed that the assessee has shown liability of Rs.10.00 lakhs against the name of M/s Pansu Construction & Development P Ltd. The assessee submitted that it has received advance from the above said party against

Before Ld CIT(A), the assessee contended that it is still liable to pay Rs.10.00 lakhs to M/s Pansu Construction and further the AO did no confront the information received from the above said party with the assessee. The Ld CIT(A) was not convinced with the contentions of the assessee. He took the view that it is the responsibility of the assessee to show that the above said amount of Rs.10.00 lakhs was still outstanding. Accordingly he confirmed the above said addition.

Before me, the Ld A.R reiterated the contentions made before the tax authorities. On the contrary, the Ld D.R supported the order passed by Ld CIT(A).

I notice that the AO has assessed the above said amount of Rs.10.00 lakhs on the basis of information received from M/s Pansu Construction. I notice that the assessing officer did not confront the same with the assessee. The contention of the assessee is that the above said amount of Rs.10.00 lakhs is still outstanding, while the above said party has stated that it has already received TDR rights. In view of contradictory stand between the parties, in my view, the AO should have confronted the information received from M/s Pansu Construction with the assessee as it would have promoted the cause of natural justice. Accordingly I am of the view that this issue requires fresh examination at the end of the AO. Accordingly I set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO with the direction to confront the information received from M/s Pansu Construction and also to comply with the requirement of law in this regard. Thereafter, the AO may take appropriate decision in accordance with the law.

The next addition relates to cessation of liability of Rs.3.00 lakhs standing in the name of M/s Chauhan brothers. Since the amount was shown outstanding for more than four years, the AO assessed the above said amount as ceased liability u/s 41(1) of the Act. The Ld CIT(A) also confirmed the same. The case of the assessee is that the above said amount is still outstanding. The Ld A.R also placed reliance on host of case laws to contend that the amount shown as liability cannot be assessed u/s 41(1) of the Act. However, I am of the view that it is the duty of the assessee to show that the amount is still payable, since the assessee has claimed that it has received excess payment from the above said assessee. Under the theory of human probabilities, no one will leave the excess payment uncollected for about four years. I notice that the assessee has not furnished any document to prove that the liability is still payable. Hence, in the interest of natural justice, I am of the view that the assessee should be given one more opportunity to prove the liability. Accordingly I set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO for examining this issue afresh.

The next issue relates to the disallowance of interest expenditure of Rs.4,49,674/-. The AO noticed that the assessee has advanced loans aggregating to Rs.2.09 crores and has taken loans to the tune of Rs.2.65 crores. The AO noticed that the assessee was paying interest @ 12%, while it was collecting interest @ 6%. Hence the AO disallowed claim of extra interest of Rs.4,49,674/-, being interest paid in excess of 6%. The Ld CIT(A) also confirmed the same.

The case of the Ld A.R is that the assessee has taken interest bearing loan of Rs.70.00 lakhs and the remaining loans are interest free. He further submitted that the assessee has used interest free funds to make loans at lower rate of interest. I notice the AO has failed to consider these basic facts and hence I am of the view that this issue also requires fresh examination. Accordingly I set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO for examining it afresh.

Needless to mention, the assessee should be given adequate opportunity of being heard.

In the result, the appeal of the assessee is treated as allowed for statistical purposes. Order has been pronounced in the Court on 21.2.2018.