SMT. TARADEVI RATANLAL BAFNA,JALGAON vs. JOINT COMMISSIONER OF INCOME-TAX,

आदेश आदेश / ORDER आदेश आदेश

PER D. KARUNAKARA RAO, AM :

There are 3 appeals under consideration. There are cross

appeals for the A.Y. 2009-10 and they are ITA Nos. 732/PUN/2013 and

904/PUN/2013. These appeals are filed by the Assessee and the

Revenue against the order of CIT(A)-II, Nashik dated 26-02-2013.

Further, there is another appeal filed by the assessee vide ITA

No.447/PUN/2015 for the same assessment year and the same has

genesis in the rectification order passed u/s.154 of the I.T. Act.

Bafna Builders and Land Developers, Jalgaon. Assessee is engaged in

the business of trading activity in Gold and bullion & ornaments,

diamond and diamond ornaments. Assessee filed the return of income

declaring total income of Rs.30,11,75,820/-. Assessment was

completed u/s.143(3) of the Act determining the assessed income at

Rs.36,07,76,280/-. Number of additions were made by the AO and the

details in summary are given in page 17 of the assessment order.

the CIT(A)-II, Nashik. At the end of the First Appellate Proceedings,

CIT(A) partly allowed the appeal of the assessee. Subsequently, the

CIT(A) also found apparent mistake in his order and therefore, he

invoked the provisions of section 154 of the Act and rectified his order

vide rectification order dated 13-01-2015 after following due process of

law and after giving opportunity to the assessee. Aggrieved with the

relief granted by the CIT(A), the Revenue is in appeal before us vide ITA

No.904/PUN/2013. Further, aggrieved with the additions confirmed by

the CIT(A) the Assessee is in appeal vide ITA No.732/PUN/2013.

3 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna

Further, aggrieved with the decision of the CIT(A) in assuming

jurisdiction u/s.154 of the Act, the assessee filed another appeal ITA

No.447/PUN/2015 requesting for cancelling the said rectification

order. We shall now take up the appeal-wise adjudication in the

following paragraph.

ITA No.904/PUN/2013 (By Revenue – A.Y.2009-10) ITA No.732/PUN/2013 (By Assessee – A.Y.2009-10) ITA No.447/PUN/2015 (By Assessee – A.Y. 2009-10)

assessee’s appeal in particular, Ld. Counsel for the assessee filed a

chart giving the details of the grounds raised originally in the appeal as

well as the additional grounds raised during the course of the

proceedings before the Tribunal. The issues, the issue-wise arguments

of the parties and the decision of the Tribunal on each of them, are

given in the following paragraphs.

of interest of Rs.49,23,531/-”. It has two segments namely (1) the

disallowance of interest of Rs.8,10,106/- relating to the diversion of

funds for non-business purposes; and (2) the disallowance of an

amount of Rs.41,13,425/- u/s.36(1)(iii) of the Act.

debited interest expenditure as well as credited the interest income

earned by her. The AO disallowed the interest expenditure of

Rs.49,23,531/- and added to the income returned by the assessee. In

this regard, the Assessee’s argument includes that the said interest

constitutes an allowable expenditure u/s.37 of the Act. AO held that

the claim of the assessee is not allowable as the same constitute

diversion of funds for non-business purposes. Further, in connection

with the claim of other part of interest, AO invoked the provisions of

4 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna

section 36(1)(iii) of the Act for denying the claim of the assessee. It is

the argument of the Ld. Counsel for the assessee that the lower

authorities erred in relying on the provisions of section 36(1)(iii) for

denying the claim as the advances received are for business purposes

and therefore, the interest claimed if any is allowable u/s.37 of the Act.

Ld. Counsel for the assessee filed the written submissions mentioning

the following :

“…The AO has made the addition on the ground of diversion of funds for non business purpose and u/s.36(1)(iii) of the I.T. Act, 1961. The appellant had filed her explanation before Ld.CIT(A) vide page Nos. 55 to 69 of paper book which has been quietly ignored by the Ld.CIT(A) who has drawn erroneous conclusions of his own. Basically all the advances were for business considerations, i.e. advances were given during the course of carrying on the business on which no interest was charged. The Ld. AO made the disallowance on account of diversion of funds for non business purposes and also u/s. 36(1)(iii) of the I.T. Act, 1961 and Ld.CIT(A) made the disallowance only u/s.36(1)(iii) which is incorrect and if at all the disallowance was to be made it should have been made u/s.37. The appellant most respectfully submits that the matter cannot be restored to the lower authorities to ascertain the applicability of provisions of section 37 of the I.T. Act, 1961 and reliance is placed on three high court decisions submitted in the case of Bafna Builders and Developers which is simultaneously heard.”

that the issue may be restored to the file of the AO and the same will be

in tune with the decision of the Tribunal in the case of M/s. Bafna

Builders and Land Developers - ITA Nos. 706/PUN/2013 and ITA

No.162/PUN/2015 & ITA No.902/PUN/2013 order dated 30-10-2017

where Ground No.3 was already remanded to the file of the AO for fresh

adjudication as per the discussion given in Para 17 of the said order of

the Tribunal (supra). In the remand proceedings, AO was directed to

grant reasonable opportunity to the assessee.

the CIT(A).

5 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna

should revisit to the file of the AO. Therefore, Ground No.1 in its

entirety, is remanded to the file of the AO for fresh adjudication.

Accordingly, Ground No.1 is allowed for statistical purposes.

“disallowance of interest of 17,41,441/- u/s.14A r.w. Rule 8D of the

I.T. Rules”. On this issue also, Ld. Counsel for the assessee submitted

in the written submissions that this issue also needs to revisit to the

file of the AO submitting the following arguments :

“1. The Ld.CIT(A) has failed to properly analyse the facts in proper perspective and his conclusions drawn on page no.47 & 48 of the impugned order are erroneous and hence deserve to be rejected. 2. Both the lower authorities have failed to appreciate that the appellant had surplus funds of her own and therefore a presumption arises that the investments were made out of own funds. The appellant therefore requests that the issue may please be restored to the file of the Ld. AO in the light of the developed legal position in this respect with a direction that the disallowance should not exceed the exempt income.”

the CIT(A).

assessee has excess funds which were invested in the shares which

yielded dividend income and the interest claimed by the assessee is

nothing to do with the investments made by him in the exempt income

yielding investments. For examining the claim of the assessee as well

as applying the correct law on this issue, Ld. Counsel desires that the

matter should be restored to the file of the AO.

an identical issue raised in Ground No.3 of the appeal adjudicated by

us in the case of M/s.Bafna Builders and Land Developers, we are of

6 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna

the opinion that this should also re-visit to the file of the AO with

identical directions. Accordingly, Ground No.2 raised by the assessee

is allowed for statistical purposes.

u/s.69B of the Act. Background facts of this issue include that

Chhoriya Group was searched u/s.132 of the Act. Search resulted in

seizure of a document involving Shri Ratanlal C. Bafna for the A.Y.

2009-10. According to the said document, the assessee purchased

Shirdi plots amounting to Rs.1,13,75,000/-. However, on verification

of the records, it was noticed that an amount of Rs.50 lakhs only was

reflected in the books of the assessee. Considering the fact there was

settlement of loan between Chhoriya group and Shri Ratanlal C. Bafna.

The differential amount of Rs.63,75,000/- was added in her hands and

her husband hands u/s.69B of the Act. In this regard, assessee

furnished the following arguments/objections to the decision of the

lower authorities :

“1. The transaction was a distress sale entered into by the appellant after the search and seizure action on the said group. 2. Mr. Ratanlal C. Bafna in his case has challenged the addition. 3. The addition has been made on presumptions and surmises without giving an opportunity to the appellant to cross examine the author of the document from Chhoriya group. 4. There is no evidence with the department that the appellant has paid the amount to her husband. 5. Once the amount is added in the hands of the husband of the appellant the same amount cannot be added in the hands of the appellant as then it would be a case of double addition.”

same amount in the cases of the assessee as well as her husband, is

unsustainable in law. Further, referring to the violation of principles of

natural justice, Ld. AR submitted that the said seized paper was never

7 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna

supplied to the assessee and the opportunity was also not granted by

the AO before any addition is made. Furnishing a copy to her husband

during the course of his assessment proceedings does not cure the

legal defect. It is the prayer of the Ld. Counsel before us that this issue

should also revisit to the file of the AO for proper adjudication following the principles of natural justice.

relied heavily on the orders of the AO and the CIT(A), we find prima-

facie, mistake in taxing the same amount both in the assessee’s case

and her husband’s case. Further, supplying the copy of the document

to the assessee is her legitimate right before any addition is made in

her hands relying on the said document. Therefore, AO is directed to

supply the same and also cross examination if any before making any

addition in her case and in the remand proceedings. Accordingly, as

requested, the issue is restored to the file of the AO for fresh

adjudication. AO is directed to grant reasonable opportunity of being

to the assessee in accordance with law. Accordingly, Ground No.3

raised by the assessee is allowed for statistical purposes.

Rs.1,67,54,510/-. Background facts of this issue includes that

assessee is a co-owner of a property which was given to M/s. Bafna

Builders and Land Developers. As per the AO, Assessee has 1/5th

share in the said property along with other 4 members. Value of the

property as per the stamp duty purposes is around Rs.13.38 crores

(rounded off). However, as per records, her share of sale consideration

of the property is around Rs.1 crore in equal proportion. This property

was referred to the valuation during the remand proceedings. However,

there was delay in receipt of the said DVO’s report by the AO and the

8 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna

assessment was completed considering the assessee’s share of

consideration at Rs.2,67,54,510/- out of Rs.13.38 crores. After

reducing the accounted portion of Rs.1 crore, the AO proceeded to

make addition of the balance amount of Rs.1,67,54,510/- u/s.50C of

the Act (Rs.2,67,54,510 – Rs.1,00,00,000/-).

said valuation report of the DVO and found the DVO’s value is much

less than the said figure of Rs.13.38 crores. Considering the objections

raised by the assessee before the CIT(A), the matter was once again

referred to the DVO. As per the valuation submitted by the DVO, the

property value was conclusively determined at Rs.6,72,51,553/-

against the Sub Registrar’s price of Rs.13.38 crores. Ld.CIT(A)

considered the DVO’s final report which reiterated the figure of

Rs.6,72,51,553/- and, as per the discussion given in Para No.7.2.2 of

his order, the CIT(A) deleted the entire addition made by the AO in the

assessment. The said para is relevant and the relevant lines are

extracted as under :

“7.2.2. . . . . . . . .In view of the legal position and decisions of the various courts, AO was not justified in taking the value ascertained by stamp duty valuation officer as FMV of the property. AO was required to adopt the DVO’s valuation as FMV. However, since it was not available at the time of finalization of the assessment proceedings on 21-12-2011, AO should have taken the necessary remedial action post assessment order. The AO seems to be under a mistaken belief that the DVO’s valuation is not binding on the AO. In my considered opinion this view is totally in disregard to the provisions of sec.50C that the AO has supplied in the case of the appellant. In view of the above addition of Rs.1,67,54,510/- is not legally sustainable and hence deleted, I find that on similar facts in the case of Shri Rahul Bafna, the matter has been decided in favour of the appellant vide me appeal order No.Nsk/CIT(A)- II/390/11/12, dt.31-12-2012.”

given in Para 7.2.2 of his order. CIT(A) invoked the provisions of section

154 of the Act and rectified his order vide his order dated 13-01-2015

restricting the addition to Rs.34,50,311/- only against the original

9 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna

addition of Rs.1,67,54,510/- (supra). In this order, the CIT(A)

considered the DVO’s figure of Rs.6,72,51,553/- and distributed the

same among the 5 co-owners of the property and determined the share

of each co-owner at Rs.1,34,50,311/-, after giving credit to the

accounted consideration of Rs.1 crore, the balance to be taxed u/s.50C

of the Act, is determined at Rs.34,50,311/- (Rs.6,72,51,553/5 =

Rs.134,50,311/- - Rs.1,34,50,311 – Rs. 1 Crore = Rs.34,50,311/-)

rectification as well as aggrieved with the original addition of

Rs.1,67,54,510/-, in toto, the assessee has raised the said Ground

No.4 as well as 3 other grounds vide ITA No.447/PUN/2015 (relating to

proceedings u/s.154 of the Act.

In this appeal assessee raised the objections against rectification

done by the CIT(A) and demanded cancellation of the same. However,

during the assessment proceedings before us, Ld. Counsel for the

assessee fairly submitted that these issues gets covered by the

adjudication of the Tribunal if any in the present appeal vide Ground

Nos. 4 to 6 raised in the main appeal of the assessee. Accordingly, the

said appeal No.447/PUN/2015 is dismissed.

We shall deal with all these grounds in a composite manner in

the next paragraph along with cross appeals.

of the Act, Ld. Counsel for the assessee filed the following written

submissions :

“1. Though the development agreement was registered on 02-04-2008, in fact the possession of the property was given on 01-08-2007. Refer page Nos. 46 & 47 of paper book filed. During the course of assessment proceedings the appellant filed a reply dt. 20-12-2011 as to why the impugned addition be not made and the said reply has been reproduced by the learned AO. in his impugned

10 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna

assessment order. But the learned AO mechanically made the addition. However both the lower authorities have held that the value of the property as on 02-04-2008 had to be considered for making addition u/s.50C of the I.T. Act, 1961 and accordingly the addition has been made. 2. The plans were submitted to Nashik Municipal Corporation on 28-12-2007.

1 & 2) raised before us, Ld. Counsel for the assessee submitted that

these grounds also have nexus to Ground No.4 discussed above. While

additional Ground No.1 deals with applicability of provisions of section

45(3) of the Act qua the section 50C of the Act, the additional Ground

No.2 deals with the nature of the property if the same constitutes stock

in trade, in which case the provisions of section 50C has no application

in the relevant assessment year.

section 45(3) of the Act overrides the provisions of section 50C of the

Act and they are not mutually exclusive. Fairly mentioning that whole

11 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna

of these issues needs to revisit to the file of the AO for comprehensive

adjudication of the various aspects of the issues raised in grounds as

well as in the additional grounds, Ld. Counsel submitted that

provisions of section 50C of the Act have no application to this

property, which has become the stock-in-trade of the firm to the extent

the partner transferred her share of property in which assessee is a

partner. Further, Ld. AR also identified certain bonafide mistakes

occurred in the rectification order passed by the CIT(A) u/s.154 of the

Act and submitted that addition, if any, should be restricted to only

Rs.43,27,403/- and not Rs.34,50,311/-. In this regard, Ld. AR

brought our attention to the written submission in Item No.7 extracted

in Para 21 above.

the AO and the CIT(A) and submitted that lower authorities have

rightly applied the provisions of section 50C of the Act as the asset

transferred by the partner does not constitute stock in trade in the

hands of the assessee or the firm. Referring to the arguments of the

Ld. Counsel for the assessee that the provisions of section 45(3) of the

Act overrides the provisions of section 50C of the Act, Ld. DR relied on

the decision of the Lucknow Bench of the Tribunal in the case of

Carlton Hotel Pvt. Ltd. Vs. ACIT in order dated 14-11-2008.

No.4/Additional Ground Nos. 4, 5 & 6 requires fresh consideration and

comprehensive adjudication by the lower authorities. We find the

DVO’s report was not available when the assessment was originally

finalized vide AOs’ order dated 21-12-2011. AO relied heavily on the

Sub Registrar Office price of the property rather than the Fair Market

Value as determined by the DVO. CIT(A) deleted the entire penalty on

12 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna

technical grounds as per the discussion given in Para 7.2.2 of his

order. However, he rectified his order and adopted an expert’s figure of

Rs.6,72,51,553/-. The said amount was divided equally among the 5

co-owners before confirming the amount of Rs.34,50,311/- in the

assessee’s hands. Assessee’s counsel has not only questioned his

computation and the division of property qua Mr.Rahul Bafna another

co-owner of the other properties. It is the counsel’s argument that the

fair market value of Rs.6,72,51,533/- is required to be adjusted to

arrive at a figure of Rs.5,65,09,612/- after excluding the figure of

Rs.1,07,41,941/- (the value of the property sold by Mr. Rahul Bafna).

AO needs to verify these calculations and the ownership of the

properties. In that case adjusted figure of Rs.5,65,09,612/- is required

to be adjusted among 4 co-owners only. In that case, assessee’ share

comes to Rs.1,41,27,403/-. After giving credit to the accounted sum of

Rs.1 crore in the books of account, the balance required to be added is

Rs.43,27,403/- and not the lesser amount of Rs.34,50,311/-, as

adopted by the CIT(A) in his order. To that extent of Rs. 6,77,092/-,

(Rs.41,27,403 – Rs.34,50,311), there is loss to the Revenue. Further,

we find the decision of the Andhra Pradesh High Court in the case of

CIT Vs. S. Venkat Reddy vide ITA No.501/2013 was not considered

which is relevant for the proposition that date of possession of property

prevails over the date of registration of property for the purpose of

determination of the market value. As per the Ld. Counsel for the

assessee, the date for determining the value of the property required to

be considered is 01-08-2007. Considering the large number of issues

and the arguments raised by the Ld. Counsel for the assessee, we are

of the view that there is a need for bringing out the facts relating to the

ownership of the property, requirement of exclusion of

Rs.1,07,41,941/- of Mr. Rahul Bafna, the date of registration of

13 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna

property vs. the date of possession of the property qua the applicability

of judgment of Hon’ble Andhra Pradesh High Court (supra), whether

the property transferred by the partner to the firm constitutes stock in

trade or otherwise etc.

proceedings, we direct the AO to examine all the above referred aspects

of the issue and decide the requirement of making addition in the

hands of the assessee u/s.50C of the Act. AO shall grant reasonable

opportunity of being heard to the assessee in connection with the set

principles of natural justice. Accordingly, Ground No. 4 and the

additional grounds raised in his chart (Ground Nos. 5 and 6) are

admitted and allowed for statistical purposes.

not pressed. Accordingly, the said ground is dismissed as ‘not

pressed’.

with direction given by the CIT(A) to the AO to take follow up action, if

any, in accordance with the provisions of section 28(iv) of the Act.

CIT(A) noticed that the assessee purchased commercial property from

her firm at the rate of sale price/sq.ft., which is lesser than the market

rate. According to CIT(A), the difference in the said rate constitutes a

taxable benefit u/s.28(iv) of the Act. Therefore, the CIT(A) gave the said

direction to the AO.

commercial property/shops from M/s. Bafna Builders and Land

Developers, the firm in which the assessee is a partner. This issue was

discussed at length in connection with Ground No.1 of the Revenue’s

14 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna

appeal for the A.Y. 2009-10 vide ITA No.902/PUN/2013. It is the

allegation of the Revenue that the firm conferred benefit to the extent of

Rs.2,44,62,169/-. AO invoked the provisions of section 28(iv) of the

Act on the firm. CIT(A), in the case of the firm, deleted the addition

holding that there is sustainable reasons for the firm for selling the

property at lower sale price to Ms. Taradevi Ratanlal Bafna, the present

assessee. Some of the reasons include the payment of advance of Rs.5

crores to the firm by Ms. Taradevi Ratanlal Bafna well before the

commencement of the construction apart from many other reasons. In

any case, the provisions of section 28(iv) of the Act applies on the

recipients benefitted and not the firm-giver. Accordingly, the CIT(A)

deleted the addition and the Revenue was in appeal on this relief. This

issue was dealt by the Tribunal in Para Nos. 20 to 24 of the said

Tribunal’s order in the case of the M/s. Bafna Builders and Land

Developers (supra). The Tribunal confirmed the said decision of the

CIT(A) holding that

“24…… Therefore, the provisions of section 28(iv) is not relevant to this issue. The said provisions are relevant, when the benefit is accrued to the assessee and not in a case like the present one where the assessee is a seller and the discount is allowed to the partner of the firm. Accordingly, we are of the view that the decision of CIT(A) is plausible view taken by him and it does not require any interference. Accordingly, ground No.1 and 2 raised by the Revenue are dismissed.”

required to be analysed at length in the case of the present assessee,

the beneficiary of the benefit.

provisions of section 28(iv) are not applicable to the assessee who

happened to purchase part of the constructed area which constituted

stock in trade. He also made various arguments in support of the said

claim. In the chart submitted by Ld. Counsel for the assessee he

15 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna

submitted that the said purchase transacstion constitutes the

transaction of withdrawal of the stock in trade at cost price and the

same outside the scope and ambit of provisions of section 28(iv) of the

Act.

under :

“4. In our case, the AO has taxed it under section 28(iv) i.e. perquisite or benefit accrued to assessee in exercise of doing business. Here, the assessee got shops at concessional rate as she is a 60% partner of the firm. So it is clearly a benefit as per section 28(iv). The AO has spelt out in the detail the benefit accrued to assessee by comparing the sale of shops to other unrelated parties.

28(iv) of the Act. We find this issue requires remanding to the file of AO

for fresh consideration both on facts as well as the law. AO is directed

to pass a speaking order on the issue if the benefits are actually flown

to the assessee. If the answer is ‘Yes’, they fall within the scope of

section 28(iv) of the Act. AO shall also adjudicate each and every

argument raised before him on this issue by the counsel by passing a

speaking order accepting or rejecting the arguments of the assessee.

Further, on the issue of giving direction by the CIT(A), we find the

requirement of going into the background facts of the said direction.

For this, we perused the relevant text of the direction from the order of

the CIT(A). On perusal of the same, we find the said direction is

absolutely superfluous and unwarranted as mentioned in Para

16 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna

No.6.5.5 at page 44 of the order of CIT(A) and the relevant lines

containing the direction is extracted here asunder :

“6.5.5 . . . . . . . . . . . The AO is however directed to take the follow up action if any, in this regard in the year when sale deed is registered in favour of Smt. Taradevi Bafna.”

The above direction of the CIT(A) has a background and the same

is evident in the preceding lines of the said Para No.6.5.5. We

discussed the relevant facts in the preceding paragraphs of this order.

We have also considered the written submissions filed by the Ld.

Counsel for the assessee vide letter dated 13-11-2017 (Para No.4). To

brief the same, this is a case where the assessee purchased commercial

premises for a lesser consideration qua the fair market value of the

same. Originally, the AO taxed the differential cost u/s.28(iv) of the Act

in the hands of the firm who sold the commercial premises to the

assessee. The assessee has 60% shareholder in the said firm by name

M/s. Bafna Builders and Land Developers. It is the finding of the

CIT(A) that the assessee got the benefit to the tune of Rs.2,44,62,169/-.

It is the finding of the Tribunal as well as the CIT(A) that the said

amount is not taxable in the hands of the firm.

In the background of these facts, the CIT(A) have given the above

direction, which in our view is consequential comment of the CIT(A)

Even if the said direction is absent in the said paragraph, the

authorities below would anyway initiate the consequential proceedings.

From that point of view, we are of the view that the direction given by

the CIT(A) does not warrant any amendment. Therefore, the argument

of the assessee’s counsel extracted above in this regard are relevant

when consequential effect if any, is to be given in the course of the

proceedings before the AO. Therefore, we are of the opinion that the

impugned direction per se is consequential. Therefore, the Additional

17 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna

Ground No.4 of the appeal raised by the assessee is admitted and

dismissed.

dismissed and ITA No.732/PUN/2013 filed by the assessee is partly

allowed for statistical purposes.

ITA No.904/PUN/2013 A.Y. 2009 - 10

“1. On the facts and circumstances of the case and in law, the Ld.CIT(A)-II, Nashik erred in granting the relief of Rs.7,87,262/- as against addition made of Rs.10,87,262/- on account of vehicle expenses and deleted the addition of Rs.1,00,000/- on account of shop expenses. These additions is made by Assessing Officer after taking into consideration the factual position. 2. On the facts and circumstances of the case, the Ld.CIT(A)-II, Nashik erred in deleting the addition made by AO on account of boxes of Rs.15,00,000/-. The additions is made by Assessing Officer after taking into consideration that boxes/bag have clear cut nexus with sales. 3. On the facts and circumstances of the case, the Ld.CIT(A)-II, Nashik erred in deleting the addition made by AO on account of Kavi Samelan expenses of Rs.2,15,675/-. The additions is made by Assessing Officer after taking into consideration that organization of such function is a personal pride and to show the status in society and not for business purpose. 4. On the facts and circumstances of the case, the Ld.CIT(A)-II, Nashik erred in deleting addition on account of business profit u/s.28(iv) of Rs.2,44,62,169/-. The additions is made by Assessing Officer after taking consideration that firm has sold two shops to its partner for the price less than market price. 5. On the facts and circumstances of the case, the Ld.CIT(A)-II, Nashik erred in deleting addition of Rs.2,55,550/- made by the AO u/s.40A(2)(b). The additions is made by Assessing Officer for increase in salary & bonus as compared to last year. 6. On the facts and circumstances of the case the Ld.CIT(A)-II, Nashik erred in granting the relief of Rs.10,41,440/- on account of disallowance u/s.14A r.w.r 8D. The additions is made by Assessing Officer after considering the diverted borrowed funds and given interest free advances. 7. On the facts and circumstances of the case the Ld.CIT(A)-II, Nashik erred in deleting of Rs.1,67,54,510/- made by AO u/s.50C of Act. The additions is made by Assessing Officer after taking out the base of Stamp duty valuation in view of provisions of section 50C of the I.T. Act, 1961.”

18 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna

Rs.7,87,262/- against addition of Rs.10,87,262/- on account of vehicle

expenses. This ground raises the issue on deletion of addition of Rs.1

lakh shop expenses.

Assessee owns 11 cars. 6 cars out of them are shown as fixed assets in

the year under consideration. Considering absence of maintenance of

log books of each vehicle and also considering the fact that the vehicles

are held in the name of Smt. Taradevi Bafna, the AO rejected the claim

of the assessee. AO commented by stating that these luxury vehicles

are utilized by the assessee and the family members for purposes more

than the business use. In the absence of details, the AO held as under:

“5. . . . . . The cost of vehicles and variety of vehicles shown by the assessee clearly shows that these are luxury vehicles and therefore its use by the assessee and by her family members are more than the business use. However, in absence of details for business and personal purposes, the actual use cannot be worked out vehicle wise. Therefore, considering the totality of facts and circumstances of the case, I disallow 50% of expenses including Driver’s salary and depreciation for personal use and allow 50% for business use.”

AO worked out 50% disallowance at Rs.9,95,788/-. Further, AO

also disallowed another amount of Rs.91,474/- debited to the profit

and loss account.

discussion given in Para Para No.6.2.2 of his order holding that the

disallowance is on the higher side. Relevant discussion is extracted

here as under :

“6.2.2 . . . . . AO has made 50% disallowance of Rs.19,91,576/- claimed by the appellant on vehicle expenses, Drivers’ salary and depreciation. In my considered view 50% disallowance is on a very higher side. The same is restricted to Rs.3,00,000/- roughly 15% of the total expenses.”

19 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna

the view that the order of the CIT(A) is fair and reasonable and it does

not call for any interference. Accordingly, relevant part of Ground No.1

by the Revenue is dismissed.

expenses, we find the CIT(A) vide discussion given in Para No.6.2.2 held

as under:

“6.2.2. . . . . .As regards disallowances on account of personal use and shop expenses, there is no dispute that tea/coffee/cold drinks are frequently served to the customers in a jewellery show room. I don’t think that the appellant would claim bogus expenses on tea/coffee/cold drinks. I therefore, delete the addition of Rs.1 lac made by the AO in this regard.”

Rs.1 lakh made by the AO is fair and reasonable and does not call for

any interference. Accordingly, this part of Ground No.1 by the Revenue

is also dismissed.

Rs.15 lakhs on account of boxes, i.e. the packing material. Relevant

discussion is given in Para Nos. 6.3 and 6.3.1 of the CIT(A)’s order.

Assessee debited the said expenses on account of consumption of

boxes, i.e. packing material given to the customers on extra sales of

gold items in Jalgaon Branch. Assessee made claim of expenses on

account of purchase of packing material amounting to Rs.21,75,879/-

and Rs.5,88,189/- for Aurangabad and Jalgaon Branches respectively

on this account of packing material. AO disallowed Rs.15 lakhs out of

the same on adhoc basis-cum-estimations. On these facts, CIT(A) held

that exercise of disallowance is purely out of surmises and doubt. The

addition made by the AO does not have any corroborative evidence.

Relevant lines from the order of CIT(A) is extracted here asunder :

20 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna

“6.3.1. . . . . . .Carry bags are given liberally for publicity and I am of the considered view that the appellant with this social and economic standing will not indulge in inflating the expenses through bogus boxes account. Unless some corroborative evidence is brought on record showing that the appellant has made bogus payment on account of any expense claimed by her in the P&L a/c, no addition, simply on assumption or theoretical/classroom exercise, can be made. Any addition merely on the basis of theoretical exercise will not stand to the test of the legal scrutiny. In view of the above, I am of the considered opinion that the addition of Rs.15 lac made by the AO without any corroborative evidence is not justified. The same is deleted.”

corroborative evidence that the assessee has made bogus payments nor

prove the expenses to be untrue. Therefore, we uphold the decision of

the CIT(A) on this issue.

Rs.2,15,673/- on account of Kavi Sammelan Expenses. Relevant facts

include that the AO disallowed the said claim of expenses holding the

same as non business expenditure. Assessee holds that the

expenditure incurred on Hasya Kavi Sammelan constitutes an

advertisement for her business. Considering the fact that the assessee

failed to establish the nexus, the AO disallowed the said expenditure,

In the First Appellate proceedings, the CIT(A) appreciated the

assessee’s claim that the same constitutes advertisement expenditure.

Further, he elaborated the fact that the said functions are held to be

payment and not in the residential premises of the assessee and

therefore advertisement value of the said expenditure was appreciated

and the addition was deleted by the CIT(A). Relevant lines from the

order of CIT(A) are extracted here asunder :

“6.4.1. . . . .The fact however, remains that the function was organized basically for the purpose of advertisement of her business. It was a public function and not something which was confined to four wall of her residence. In view of the above, I am of the considered opinion that the expenditure on Hasya Kavi Sammelan was in the nature of business expenditure and AO was not justified in disallowing the same. The addition of Rs.2,15,675/- is deleted.”

21 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna

order of CIT(A) holding the expenses as income expenses and

consequently deleting the expenses incurred by the assessee on Haysa

Kavi Sammelan does not warrant any interference from our side.

Accordingly, Ground No.3 raised by the Revenue is dismissed.

CIT(A) in connection with the arguments revolving around the

applicability of provisions of section 28(iv) qua addition of

Rs.2,44,62,169/-. This amount constitutes taxable as a benefit in the

hands of the assessee. This issue was dealt while dealing with Ground

No.4 and the related Additional Ground No.4 of the appeal of the

assessee. Accordingly, Ground No.4 raised by the Revenue is also

remanded to the file of AO for fresh adjudication as per the direction

given by us in the said appeal of the assessee. Accordingly, Ground

No.4 raised by the revenue is allowed for statistical purposes.

u/s.40A(2)(b) of the Act. This amount was claimed as payment of

salary and bonus to the employees. The same constitutes an extra

amount paid in this year qua the last year’s claim.

the salary and bonus paid to the employees as unreasonable. CIT(A)

has rightly held that the addition made the AO is only on estimate

basis and without discharging the onus. In this view of the matter, the

decision of the CIT(A) needs to be approved and in favour of the

assessee. Accordingly Ground No.5 raised by the revenue is dismissed.

22 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna

on account of disallowance u/s.14A r.w. Rule 8D of the Act. This

ground is connected to Ground No.2 of the assessee’s appeal in ITA

No.732/PUN/2013. We have remanded this issue to the file of AO for

fresh adjudication. Consequently, this issue being common in law

should also be re-examined by the AO after considering the assessee’s

claim as well as settled legal propositions on the issue that the

disallowance is uncalled for when assessee has excess interest free

funds. AO is directed to apply relevant binding judgments on the issue

after granting reasonable opportunity of being heard to the assessee.

Accordingly, Ground No.6 raised by the revenue is allowed for

statistical purposes.

Rs.1,67,54,510/- involving the provisions of section 50C of the Act.

Infact, this issue shares with the facts relating to Ground No.4 of the

assessee’s appeal and also the issues raised by the assessee in the

appeal ITA No.447/PUN/2015 in connection with the rectification order

passed u/s.154 of the Act.

above, we are of the opinion that this ground by the revenue should

also be remanded to the file of AO with identical directions given in

Para No.26 and others. Accordingly, Ground No.7 by the revenue is

allowed for statistical purposes.

purposes.

23 ITA Nos.732 & 904/PUN/2013 & ITA No.447/PUN/2015 Smt. Taradevi Ratanlal Bafna

dismissed and the cross appeals filed by the assessee and the revenue

are partly allowed for statistical purposes.

Order pronounced in the open court on this 09th day of January,

2018.

Sd/- Sd/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) �याियक �याियक सद�य �याियक �याियक सद�य सद�य /JUDICIAL MEMBER सद�य लेखा लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य पुणे Pune; �दनांक Dated : 09th January, 2018. सतीश आदेश आदेश क� �ितिलिप अ�ेिषत आदेश आदेश क� �ितिलिप अ�ेिषत क� �ितिलिप अ�ेिषत/Copy of the Order forwarded to : क� �ितिलिप अ�ेिषत

स�यािपत �ित //True Copy// Senior Private Secretary //True Copy// आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune