ACIT 12(1), MUMBAI vs. ALLIANCE HOTELS, MUMBAI

Per RAJESH KUMAR, Accountant Member: These are the fours appeals filed by the respective parties. ITA No.4075/Mum/2011 and ITA No.4739/Mum/2011 are cross appeals and they are directed against the order dated 31.3.2011 passed by the ld.CIT(A) for the assessment year 2007-08. Appeals bearing I.T.A. Nos.5498/Mum/2011 and 5111/Mum/2012 for the assessment years 2008-09 & 2009-10 are filed by the assessee against the orders dated 21.6.2011 and 24.5.2012 passed by ld.CIT(A) for the assessments years 2008-09 and 2009-10 respectively. Since these appeals before us pertain to the same assessee, therefore, for the sake of convenience, they are clubbed together, heard together and are being disposed of by this consolidated order. 2. ITA No.4075/Mum/2011( by the asseseee) Grounds of appeal taken by the assessee are as under : “1 . On the facts and in the e circumstances of the case, the learned Commissioner of Income Tax (Appeals) erred in upholding the addition of Rs.6,76,23,000/- made by the AO as unexplained investment u/s.69 on the basis of noting made in page 4 and 5 of the loose papers file Annexure A found and impounded at the premises of the appellant. 2. On the facts and in the circumstances of the case, the learned Commissioner of Income tax (Appeals) erred in upholding the addition

3 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals of Rs.11,97,000/- made by the Assessing Officer as unexplained expenditure u/s.69C of the Income Tax Act, 1961. 3. On the facts and in the circumstances of the case, the learned Commissioner of Income tax (Appeals) erred in upholding the disallowance of depreciation of Rs.22,99,096/- made by the Assessing Officer in the absence of supporting vouchers. 4. On the facts and in the circumstances of the case, the learned Commissioner of Income tax (Appeals) erred in holding disallowance of interest of Rs.22,75,714/- paid to Corporation Bank. 5. On the facts and in the circumstances of the case, the learned Commissioner of Income tax (Appeals) erred in upholding the addition as unexplained expenditure under section 69C amounting to Rs. 44,81,000/- made by the Assessing Officer on account of the following: File Name (Computer date) Total amount of Unexplained Expenditure Rs. Empire Hotels CD\city4\d\c backup 25.11.06\My 7,30,000/- Documents Oct 06 cash.xls Empire Hotels CD\city4\d\c backup 25.11.06\My 14,61,000/- Documents\Oct. cash.xls Empire Hotels CD\city4\d\c backup 25.11.06\My 22,90,000/- Documents\ total 44,81,000/-

4 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals u/s 133A of the Act on the premises of the assessee on 11 th and 12th May, 2007 by ADIT V(4), Mumbai during which certain loose papers which contained the details of cash receipts and payments were found and seized and were accordingly communicated by the Investigation Wing through Survey Report vide F.No.Addl./DIT(Inv.)/Unit-V/Survey Report/2007-08 dated 14.11.2007 to the AO. The AO after considering the survey report and submissions of the assessee on the various points finally framed the assessment at Rs.9,36,10,810/- u/s 143(3) of the Act on 31.12.2009 by making various additions as mentioned in para 8 of the assessment order.

Facts in brief are that during the course of survey proceedings on 11th 5. /12th May, 2007 made on the premises of the assessee, the survey team found that some loose papers numbered as 4 & 5 file-A which were confronted to the assessee during survey. In the said loose papers the total amount of Rs.6,88,22,000/- was shown as expenditure in cash and the assessee was requested to identify the various heads under which the above

5 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals amounts have been spent during the recording of statement u/s 131 of the Act on 12.05.2007. The assessee replied to question no.11 that he was not able to identify the heads under which the said amounts were spent and therefore he voluntarily offered this amount for taxation of Rs.6,88,22,000/- as additional income over and above the regular income for the assessment year 2006-07. Just 3 days after another statement of Mr Kashan Ghaswala, Partner of the assessee was recorded on 15.05.2007 u/s 131 of the Act in which he stated while answering query no 2 that sources of Rs. 6,88,22,000/- were from the Corporation Bank and the details of pay orders issued by the bank were also given. Subsequently, the assessee vide letter dated 4.6.2007 which was filed on 7.6.2007 retracted surrender/disclosure made vide statement recorded u/s 131 of the Act on 12.5.2007 of Mr Kashan Ghaswala one of the partner in the assessee firm. In the retraction letter the assessee claimed that the source of expenditure incurred qua Rs.6,88,22,000/- was out of borrowings from Corporation Bank and the assessee furnished copies of pay orders issued by the Corporation Bank to various parties on behalf of the assessee firm i.e.M/s Alliance Hotel. The assessee submitted that some renovation work at third floor of Empire Building was carried out for converting the same into residential rooms for hotel purpose and therefore, the assessee required substantial amount of money which was arranged by the assessee from Corporation bank by way of loan. The disbursements from the Corporation Bank were released through pay orders in the name of the suppliers of goods and contractors in

6 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals term of condition of sanction of loan by the bank. Since the suppliers and contractors who were appointed by the assessee to carry out the renovations and repair work were not interested and inclined to accept payments through cheques, therefore, the assessee managed somehow to get the pay orders in the names of those parties who did not actually supplied any materials or carried out any construction work but returned the cash to the assessee after deducting one percent commission. In other words the said parties only provided accommodation entries. The said cash received back by the assessee through the said accommodation entries was used to pay the contractors and suppliers who actually carried out the renovation and repair /civil work of the assessee hotel. A statement was recorded during the survey proceedingsof Mr Kashan Ghaswala and in reply to the question no.2, the assessee stated that the source of expenditure shown at pages 4 and 5 of the paper book were from the Corporation Bank the details whereof were also furnished. In reply to question no.3, the assessee replied that these parties were suppliers of furniture, fixtures, building material, electrical fittings etc. The assessee was also asked to tally the figures on the left hand side(receipts)with the figures of the right hand side(payments), which according to the assessee were not exactly tallied because these were estimated figures. The assessee clarified “Corp Cash” represented the payment received from Corporation Bank and the assessee time and again submitted that the said cash received from the parties who provided accommodation entries after commission of one per cent was used in the

7 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals construction of hotel. The details of parties in whose names the pay orders were issued by the assessee were also given by the AO at page no.5 of the Assessment Order. Lastly, the assessee submitted that since the source of expenditure of Rs.6,88,22,000/- was fully explained out of the cash taken/returned by the five suppliers/contractors to whom the bank directly issued pay orders and thus sources of expenditure were fully explained and no additional income of Rs.6,88,22,000/- could be offered in the hands of the assessee for the assessment year 2007-08. During the assessment proceedings, the Assessing officer deputed an Inspector for verification of five parties from whom the assessee claimed to have received the cash back, however, the Inspector from the Department reported in most of the cases these parties were not found as the premises were used for residences and only in the case of M/s Priyanka Corporation, it was confirmed by the watchman that the letters in the name of M/s Priyanka Corporation were received off and on. The AO observed that the assessee failed to submit the details of expenditure incurred on various dates and also name and addressed of the parties who actually supplied the materials and carried out the construction work. The AO also observed that the payment made by the assessee could not be proved to be on account of expenditure incurred by the assessee on the construction but went on to guess and surmise that it could be receivable in future and were unexplained investments. The AO also observed that the amounts disbursed to various parties could be for the expenditure incurred on behalf of the assessee. However, since the parties to

8 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals whom the payments not available, therefore, the exact nature of expenditure could not be ascertained. At page 13 of the assessment order, the assessee noted that out of Rs.6,88,22,000/- some outflow were for the purpose of construction and renovation and also for the purpose of investments. The AO also noted that the assessee has not recorded expenditure made in the November 2006 amounting to Rs.11,97,000/- in the books of account, therefore, treated the same as unexplained expenditure u/s 69C of the Act and balance of Rs.6,76,23,000/- was treated as unexplained investments u/s 69 of the Act. 6. During the appellate proceedings, the ld. CIT(A) dismissed the appeal of the assessee on ground no.1 and 2 after considering the submissions of the ld. AR by observing and holding as under : “2.3 The assessment order, submissions made for the appellant and materials on record have been considered. The appellant has claimed that the source of moneys for construction and the expenditure all ultimately came out of loans raised from Corporation Bank, that the appellant obtained loan for construction from Corporation Bank, that the loan disbursement was made by way of pay orders issued by the bank directly to the contractors named by the appellant, that the appellant had named bogus parties as contractors, that these parties issued accommodation bills and on receipt of the pay orders from the bank, discounted them for a fee @ 1 % and then returned the balance amount in cash to the appellant. Though the method of financing construction as claimed is ingenuous, the appellant has not been able to support his claim, either by producing the parties who furnished accommodation bills and after discounting returned the money to the appellant, the Assessing Officer's enquiries have also not been able to prove the existence of the parties at the addresses provided by the appellant, nor has the appellant been able to provide the bills furnished by the contractor's/workmen from whom he claims to have ultimately got the work done, nor has the appellant even produced any of such contractors/workmen. Further the amounts mentioned at pages 4 & 5 of the impounded papers (Rs. 6.88 crore) referred to by the Assessing

9 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals Officer do not match with the amount of pay orders issued by Corporation Bank (Rs.7.85 crore). Even if the explanation of the appellant that the amounts mentioned are amounts disbursed by Corporation Bank less the discounting fee, (of 1%), the amount would work out to Rs.7.78 crore. Further page 5 mentions on the left hand side, besides 'Corp Cash' entries also entries containing the details as 'CR (JK) 5,000,000.00', 'From Sanjay 1,000,000.00' and 'From Sanjay 300,000.00', which have not been explained, and taking into account these facts the figure from Corp Cash would only remain at Rs.6.08 crore which is still lesser than Rs.7.85 crore. The appellant's explanation even with the reconciliation furnished thus cannot be accepted, merely on the basis of the appellant's statement without any corroboration, none has been provided either by producing the parties who discounted, parties who completed the work. No link has been established between the funds raised from the bank and the outgoings, either on the basis of dates of receipt and expenditure other evidence as discussed above. Similarly as regarding the addition u/s 69C, the appellant has claimed firstly that these are out of funds raised from Corporation Bank and hence source is explained and secondly that the expenses were for the nature of business. The link between the funds raised from the Bank and the expenses has not been established as mentioned above, further the description of the expenses, e.g., for wedding, iftekar, hotel hotel exp etc. also do not indicated that these are incurred for the purpose of business. No evidence in support of such claim has been produced either. Thus, the additions made by the Assessing Officer, both referred t to in under grounds 1 and 2 are accordingly upheld.” Aggrieved by the order of ld.CIT(A), the assessee is in appeal before us.

10 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals in future. The AO also noted that alternatively that these could also be reimbursement to various parties for construction expenditure incurred on behalf of the assessee. Thus, the ld. AR argued that there was no doubt in the mind of the Assessing Officer that the assessee carried out the renovation and restoration work of hotel during the said period. Once it was accepted by the AO that that renovation has taken place, the same would definitely require funds for renovation and only source of the assessee was by way of loan from Corporation Bank. It was also corroborated from the loose papers impounded during the search /survey operation which stated the source of funds for making various payments as detailed therein from the Corporation Bank. The ld. AR further argued that the AO could not establish that there was any other source of money available with the assessee apart from the loan from the Corporation bank which was used for the purposes of renovation and the modus operandi was that the assessee was to get pay orders issued in the name of material suppliers and contractors who actually were not carrying out the work and accordingly arranged the pay orders in their names who after deducting 1% commission returned cash to the assessee. Ultimately, the assessee paid the said money to the material suppliers and contractors who actually undertook and performed the renovation work of the hotel. The ld. AR submitted that the findings of the AO for unaccounted money in the assessment order were nothing but guess work and imagination of the assessing officer without any corroborating evidences and materials. The ld. AR drew our attention to the page 13 of

11 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals the assessment order in which the AO has noted that “Apart from this the sheer quantum of Rs.6.88 crores indicates that the outflow must have been utilized for building assets (construction/renovation/loans). Thus, there was no doubt in the minds of the AO that renovation was carried out in the hotel and the assessee required money for the purpose of such renovation, the source whereof was explained out of the bank loan taken from the Corporation Bank as has been stated by the partner Mr Kashan Ghaswala in reply to query No.2 during his second statement by the department on 15.05.2007. The AO has failed to prove any other source of income of the assessee. The ld. AR also submitted that the ld.CIT(A) who has accepted the contention and also admitted that renovation work was done by the assessee in its hotel while upholding the order of the AO which was confusing and contradictory. The ld. AR also placed a copy the decision in the case of ITO V/s Shri Parvez Mohammed Hussain Ghaswala in ITA No.3314/Mum/2013 for the assessment year 2004-05 and ITA No.819/Mum/2012 for the assessment year 2007-08 composite order dated 30.10.2015, wherein the Tribunal while deciding the departmental appeal for the assessment year 2007-08 has considered the issue of Rs.2,62,40,000/- which was comprised in and part of Rs.6,88,22,000(Rs.6,76,23,000/- in ground no.1 and Rs.11,97,000/- in ground no.2) as apparent from page 4 of the paper book. The ld. AR specifically brought to the attention of the Bench para 6 page 11 and also para 10 at page 15 of the said Tribunal order, wherein the Co-ordinate

12 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals Bench has upheld the decision of addition by CIT(A) as made by the AO on the basis of some loose papers no 4 & 5 found during the survey on the assessee by holding that the additions were based on conjectures and surmises without any concrete evidence in his possession and also held that the provisions of section 69A of the Act has no application in the case of the assessee and was rightly deleted by the First Appellate Authority Rs.2,62,40,000/- + Rs 40,00,000/- aggregating to Rs.3,02,42,000/-. Finally, it was vehemently argued that since the addition of Rs.2,62,40,000/- was based on same loose papers no 4 and 5 has deleted by the by the CIT(A) which was upheld by the Tribunal and therefore the addition of Rs.6,88,22,000/- made in the case of M/s Alliance Hotel for the assessment year 2007-08 on the same materials could not be survived and sustained in the hands of the assessee as being without any basis and based on surmises and conjectures. The ld AR argued that the addition of Rs. 6,76,23,000/- made u/s 69 of the Act as unexplained investments deserved to be deleted on the same analogy as the similar additions made on the basis of loose paper no 4 and 5 were deleted by CIT(A) and upheld by the Tribunal specially in view of the fact that the renovation and repairs were duly explained with sources out of the loan taken from the Corporation Bank, and praying that the addition of Rs.6,76,23,000/- be deleted. Similarly, an amount of Rs.11,97,000/- was incurred as expenditure on renovation of hotel and on the same analogy the said addition be deleted in view of the

13 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals facts and arguments considered by the Mumbai Bench of the Tribunal in the case of Shri Parvez Mohammed Hussain Ghaswala(supra).

14 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals assessee and the said construction and renovation was completed out of the cash received by the assessee from those five parties the details whereof were given at page 5 of the assessment order. The facts were proved by the verification carried out by the Inspector deputed by the AO that none of the parties were in existence except M/s Priyanka Corporation. All these facts showed that retraction of the assessee was an afterthought and therefore there was no merit in the argument of the ld.AR. Ld. DR finally submitted that an amount of Rs.6,76,23,000/- was rightly brought to tax by the AO by invoking the provisions of section 69 of the Act on the basis of noting at pages 4 and 5 of the impounded during the survey proceedings and same was the position with regard to the addition of Rs.11,97,000/- which was also rightly made u/s 69C of the Act and prayed that the same be upheld for the above reasons. 9. We have carefully considered the rival submissions and perused the material placed before us including the orders of authorities below. We find that a survey was conducted u/s 133A on the assessee on 11th and 12th May, 2007 and a surrender/disclosure of Rs.6,88,22,000/- was made on 12.5.2007 at the time of recording the statement u/s 131 of the Act in relation to the assessment year 2007-08 when the Mr Kashan Ghaswala a partner in the assessee firm could not explain the entries in the loose sheets no 4 and 5 containing some cash receipts and payments of Rs. 6,88,22,000/-. We further find that in the second statement recorded on 15.05.2007, Mr Kashan Ghaswala stated in reply to query no 2 that the said

15 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals expenditure was incurred out of bank loan taken from Corporation Bank. The surrender/disclosure was retracted by the assessee vide letter dated 4.6.2007 filed on 7.6.2007. At the time of the survey, the assessee could not explain the source of Rs.6,88,22,000/- and various heads under which the expenditures were incurred and debited. However, in the retraction letter, the assessee submitted that the expenditure was incurred on the hotel renovation as recorded at page 4 and 5 of the impounded documents during the course of survey and the sources of the said expenditure were out of loan taken by the assessee from the Corporation Bank. The assessee also submitted that one of the condition by the bank for sanctioning the loan was that all the pay orders would be issued only in the name of the third parties i.e suppliers and contractors and no money would be disbursed in the name of the assessee directly. The ld. AR further submitted that due to reluctance of the contractors and suppliers to accept the payments by cheques in cash the pay orders from the bank were got issued in the name of suppliers and contractor who actually did not carry out the work. The said suppliers/contractors returned the cash to the assessee after deducting one per cent commission which was used by the assessee for the purpose of payment to the contractors and suppliers of material who carried out the renovation and repairs on the 3rd floor of the hotel for creating residential rooms. We find that at page 4 and 5 of impounded documents there were details of receipts and payments. As per descriptions on the paper no 4 and 5 the assessee received Rs.6,88,22,000/- and there were payments to

16 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals various parties for the capital expenditure and cash in hand Rs.4,70,000/- qua the page no 5 titled as “Corp Cash” (cash expenditure details) dated 19.12.2006, it was stated to represent the money from Corporation Bank. The ld.AR submitted before us that the expenditure incurred for the purpose of renovation was duly explained out of cash received by the assessee from the suppliers and contractors in whose names pay orders were issued by the bank originally and who after retaining 1 per cent commission returned the balance cash to the assessee. After hearing both the sides it is apparent that the assessee has carried out renovation and repairs of the hotel for creating more residential rooms for the purpose of which the assessee has raised loan from the Corporation Bank and the said renovation/construction was financed out of cash received by the assessee by making necessary arrangement with the bank. Further, the AO and ld. CIT(A) has also admitted that the assessee might have incurred some expenditure on renovation /construction/loans. We also find that the fact of repairs and renovation having been carried out by the assessee i.e Alliance Hotel was noted and accepted by the coordinate bench while adjusting the one of another partner in the assessee firm by holding that the M/S alliance Hotel carried out some illegal renovations and repairs which were subsequently demolished as evident from the order of Brihyan Mumbai Mahanagar Palika bearing no. ACA/180/MOH-A/di 19.03.2009. The source of such expenditure was out of loan taken by the assessee from the corporation bank. In our opinion, the whole exercise of revenue was based on

17 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals conjectures and surmises and there was no material on record which proved that the renovation work was met out of money other than the borrowed from the Bank, nor could the AO or ld.CIT(A) record any findings that the assessee had any other source of income apart from its regular income of the assessee. In our opinion, the assessee has explained the source of expenditure and the nature of expenditure incurred and therefore the Additions made by the AO u/s 69 of the Act as unexplained investments of Rs.6,76,23,000/- and u/s 69C of the Act unexplained expenditure of Rs.11,97,000/- could not be sustained in the present facts and circumstances. Moreover, the co-ordinate bench of the Tribunal in the case of Shri Parvez Mohammed Hussain Ghaswala (supra) has dismissed the departmental appeal for the assessment year 2007-08 by upholding the order of the ld.CIT(A) wherein the CIT(A) deleted the addition of Rs.2,62,40,000/- made on the basis of page 4 and 5 impounded during the course of survey from the assessee and which were also the basis for making additions in the hands of the assessee which are subject matter of the current appeal before us. The additions in the hands of Mr.Parvez Ghaswala, the partner of the assessee-firm was made on the basis of same documents page no 4 and 5 found during the survey action as in the case of assessee. The Tribunal vide para 6 has held as under : “6. After going through the rival submissions and material on record we find that the addition has been made mainly on the basis of “Parvez Sir” appearing on the loose paper bearing No. 4 & 5 and cash statement dated 18.11.2006. In this regard the consistent stand of the assessee has been that “Parvez Sir” appearing on the loose paper

18 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals bearing No. 4 & 5 and cash statement dated 18.11.2006 does not relate to him. He stated that he seized to be a partner with effect from 15.11.2006 in the firm of Alliance Hotel and the amounts shown as having been paid to “Parvesh Sir” did not relate to him, as stated by Kasam Ghaswala, partner of Alliance Hotel. Further stand of the assessee has been that these slips of paper were recovered from the business premises of Alliance Hotel and not from assessee. These slips of paper bearing No. 4 & 5 and cash statement dated 18.11.2006 were not in his handwriting. Assessee was also not called by the survey party for recording his statement in relation to papers found during the course of survey proceedings in the premises of Alliance Hotel and to record the statement to verify whether the payments made to “Parvez Sir” in the papers found is the payment made to assessee or not. Assessee was not called for recording his statement by the Assessing Officer of Alliance Hotel during the course of assessment proceedings of the said firm. However, the Assessing Officer of the assessee in his case recorded the statement of the assessee wherein assessee had denied that he is not “Pervez Sir” as mentioned in the papers found during the course of survey action conducted at the premises of Alliance Hotel. It is undisputed that papers showing the name of “Parvez Sir” were found in the premises of Alliance Hotel during the course of search action and not from assessee. Papers found were not in his handwriting. The partner of Alliance Hotel, Shri Kasam Ghaswala in his statement has stated that payment made to “Parvez Sir” is not the amount paid to the assessee. Neither the survey party nor the Assessing Officer of Alliance Hotel recorded the statement of assessee. Assessee, in his statement before the Assessing Officer, has categorically stated that he is not “Pervez Sir” as mentioned in the papers found from the premises of Alliance Hotel. Assessee also objected to the action of the Assessing Officer in making addition under section 69 of the Act. For invoking provisions of section 69 of the Act assessee should be the owner of any money, bullion, jewellery or any other valuable articles. In this case of assessee he was not found to be the owner of any money, bullion, jewellery or any other valuable articles in previous year relevant to assessment year. In such a situation invoking of provisions of section 69 was not justified. The entries made on pages 4 & 5 of the impounded papers were not made contemporaneously. The right hand top corner of page 5 shows that the entries were made on 19.12.2006 (after the assessee retired from the firm), the transactions as such relate to 11.11.2006, 11.12.2006, 16.12.2006 and 19.12.2006 showing that the entries were made a few days after the transactions were completed. In this background the stand of the assessee has been that the amounts alleged to have been paid to “Parvez Sir” (as per the impounded papers) also show that such amounts were disbursed by him to the various heads of labourers in

19 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals getting the renovation work executed. Having considered the same the CIT(A) rightly held that assessee was not found to be owner of any money, bullion, jewellery or other valuable articles. No concrete evidence has been brought on record by Assessing Officer to establish that the entry “Parvez Sir” in the impounded paper establishes the fact that it refers to the assessee, i.e. Shri Parvez Mohammed Hussain Ghaswala. Similarly the amount of Rs.2,62,40,000/- mentioned against the entry of “Parvez Sir” was ever paid to the assessee. Assessing Officer had made the addition only on surmise that the impounded papers bearing No. 4 & 5 were containing entries which are dated 11.11.2006 whereas the assessee retired from the firm on 15.11.2006. Assessee in his statement before the Assessing Officer has categorically denied that he is not “Parvez Sir” as mentioned in the impounded papers in respect of Alliance Hotel. Apart from the above, the Assessing Officer did not have any other ground for arriving at the conclusion that the entry “Parvez Sir” is referring to assessee. It is undisputed fact that Alliance Hotel had carried out reconstruction work which was subsequently turned out to be illegal and was demolished. This fact was further corroborated by the order of the Brihyan Mumbai Mahanagar Palika bearing No. ACA/180/MOHA/di. 19.03.2009, clearing mentioned that the said firm had constructed unauthorized construction of mezzanine floor and additional room with attached toilet in Alliance Hotel, 3rd floor, Empire Building. The fact of reconstruction of Alliance Hotel was accepted by Shri Kasan Ghaswala, being Managing Partner of the firm. In view of this it is absolutely evident that the Assessing Officer has made the addition on conjuncture and surmises without concrete evidence in his possession. ”

Similarly, at para 10 of the said order, the Tribunal has held as under: “10. The Assessing Officer of Alliance Hotel did not make any separate addition of Rs.40,00,000/-. In fact in the aforesaid computer sheet did not add this amount to the total income of Alliance Hotel. This sum of Rs.1.08 Crores included the sum of Rs.4000,000/-, added by Assessing Officer of the assessee to the total income of the assessee. Thus, Assessing Officer of Alliance Hotel was of the opinion that over and above Rs.2,62,40,000/-, no further addition of Rs.40,00,000/- is required to be made. In view of our discussion coupled with the fact that provisions of section 69A has no application on the act of assessee’s case therefore, the addition of Rs.40,00,000/- made by Assessing Officer under section 69A of the Act was rightly directed to be deleted. Accordingly, both the additions of Rs.2,62,40,000/- plus Rs.40,00,000/-, aggregating to Rs.3,02,40,000/-, were rightly directed

20 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals to be deleted. This reasoned findings of the CIT(A) need not any interference from our side. We uphold the same. In the result, appeal of the Revenue is dismissed.” 10. From the above facts and discussions, we find that the coordinate bench of the Tribunal has upheld the deletion of addition by ld. CIT(A) which was made by the AO on the basis of loose papers page no 4 and 5 impounded during the course survey action to the tune of Rs.2,62,40,000/- + Rs.40,00,000/- totaling to Rs.3,02,40,000 holding that the same were made on the basis of surmises and conjuncture and rightly deleted by the ld.CIT(A). Following the same analogy and the ratio laid down in the said decision and also the facts that no corroborating materials were found by the department to make these additions. Therefore, we set aside the order of the ld. CIT(A) on issue of confirmation of additions of Rs.6,76,23,000/- as unexplained investment u/s 69 of the Act and Rs.11,97,000/- as unexplained expenditure u/s 69C of the Act and the AO is directed to delete the same.

21 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals page 15 of the assessment order. The assessee has capitalized only Rs.4,59,81,929/- out of Rs.7,85,01,143/- in assessment year 2007-08 and depreciation was also claimed accordingly at Rs.22,99,096/- in assessment year 2007-08 and notwithstanding the payments by the assessee out of cash which was generated out of bank loan from Corporation Bank ,the assessee claim of depreciation was based on the bogus bills issued by the parties who did not actually carry out the work of renovation and construction but passed on the money to the assessee after retaining 1 per cent commission and therefore depreciation amounting to Rs.22,99,096/- could not be allowed as not being genuine and further held that the depreciation on the rest of the additions would be disallowed in the year of addition as depreciation on the addition were unsupported by the vouchers and could not be allowed for the various reasons as given in para 6.9 at page 22 which are reproduced below:- “6.9 The disbursements made by Corporation Bank on account of bogus bills amounts to Rs.7.,85,01,143/-. As the assessee has capitalized only Rs 4,59,81,928/- out of the above in the AY 2007-08. Hence the depreciation on the same being Rs.22,99,096/- is disallowed in the AY 2007-08. Depreciation on the rest of the additions will be disallowed in the year of addition. Similarly the depreciation on the addition of Rs 4,59,81,928/- will not be allowed in the subsequent years also. Thus the depreciation on the additions to the capital assets, unsupported by the vouchers, cannot be allowed because of the following reasons: » The assessee in the course of the survey operation u/ s 133A admitted the unaccounted expenditure of Rs 688.20 lacs. Later he retracted his statement and to explain the papers he took resort of dual explanation. On the one hand he explained that the source of the funds was loan from the bank. On the other hand, he contended that the expenditure mentioned in the sheet

22 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals is the expenditure for the renovation of the hotel. He indeed capitalized the same, without the bills supporting that. In the FY 2006-07, as per the submissions of the assessee, he capitalized Rs 4,59,81,928/- of expenses. » The assessee failed to produce the supporting evidences of the capitalization of the expenses. » Assessee failed to produce the parties, through whom he claimed to withdraw cash, for verification. In the course of the verification by the department, it was found that none of the parties exist at the addresses mentioned by the assessee. » Thus both the contentions of the assessee do not stand the test of the evidence. » Loan mentioned by the assessee was sanctioned only in Nov 2006 and the expenditure on the renovation of the assessee was incurred by the assessee much earlier therefore the contention of the assessee is again factually incorrect. » Assessee has submitted the wrong cost estimate of the renovation of the hotel to the bank and the difference is almost equal to the amount of bogus bills entered by the assessee. Therefore the cash received from the bogus bill parties cannot be related to the expenditure on the renovation of hotel. » Even the assessee has not taken the BMC approval for the renovation of the hotel. Which further indicates that the contention of the assessee related to the capital expenditure is not correct. » Even the bills submitted by the assessee to the bank are apparently bogus. As stated earlier, it is impossible to utilize the material as stated in the bills in the locality, where the hotel exists”.. No depreciation can be allowed when the department and the assessee, be are in agreement that the bills for addition to fixed asset are bogus. All these facts together clearly establish that the contention of the assessee is not correct and depreciation cannot be allowed to the asseseee”.

23 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals 13. During the appellate proceedings, the ld.CIT(A) also upheld the action of the AO in disallowing the depreciation of Rs.22,99,096/- by rejecting the submissions of the assessee vide para 3.3 of the appellate order by observing and holding as under:- “3.3 The assessment order, submissions made for the appellant and materials on record have been considered. In view of the fact tht appellant has not been able to prove the capital expenditure the depreciation has rightly been disallowed. Reliance upon the case of Mysore Minerals Ltd (supra) is inapt since the case cited is on the issue of whether possession on payment of part price even without registration constitutes ownership and therefore that depreciation is allowable. In the present case the appellant has not proved the capital expenditure incurred ”

24 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals 16. After considering the rival submissions and on perusal of material including the orders of authorities below, we find that the assessee has already proved before the authorities below that the assessee has incurred expenditure for the purpose of construction and renovation of the hotel for creating some more space/rooms for residential purposes and the source was out of money borrowed from Corporation Bank. We have already decided in grounds no.1 and 2 above that the source of renovation and repairs were out of funds arranged from the Corporation Bank by the assessee firm. Accordingly we are of the considered opinion that money spent by the assessee towards construction and renovation in the block of assets was eligible for depreciation as the same was being used for the purpose of business of the assessee as the fact of expenditure having incurred on renovation was proved . Accordingly, we set aside the order of the ld.CIT(A) and direct the AO to allow the depreciation.

25 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals expenditure. Accordingly, on the same analogy the interest paid of Rs.22,75,714/- was disallowed by the AO. 19. In the appellate proceedings, the ld.CIT(A) also upheld the action of the AO.

26 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals 22. During the course of assessment proceedings, the AO provided with 16 page printout, numbered 1-16 of the files recovered from the assessee’s premises, which the assessee disowned during the course of assessment proceedings, and therefore the AO not satisfied and convinced with the reply of the assessee ultimately made an addition of Rs.2,02,66,000/- as unexplained expenditure u/s 69C of the Act on the basis of the said papers which contained some cash transactions of receipts and payments.

27 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals entries on file RELlABLE_EXPS.xls pertain to Botawala Building and Upadastras Bldg, Maria Developers, on the same reasoning as in appeal for AY 2006-07, addition in respect of expenses relating to file RELlABLE_EXPS.xls are deleted. Accordingly this ground is partly allowed.”

28 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals Add: income offered to cover any expenses, noting jottings, shortfall in cash expenses, or any other item, any defect, in reconciliation of the impounded material, any defect in the regular books of accounts on account of the cash transactions or for any other items of discrepancy which may come upto at alter date. Vide affidavit dated 11.6.2007”

We find merit in the contentions of the assessee that since the assessee has already offered and added a sum of Rs.50 lakhs suo mottu at the time of filing of return and the benefit of unexplained transactions Rs.44,81,000/- should be allowed to be adjusted against the said voluntary disclosure which was specifically made to cover any expenses , notings or cash transactions as per the affidavit as in respect of suo motto disclosure no other materials was found. We are, therefore, not in agreement with the findings of the ld. CIT(A) in upholding the addition. In our opinion, the same should be allowed to be covered and adjusted against the surrender of Rs.50 lakhs at the time of filing of return of income. Accordingly, we set aside the order of the ld.CIT(A) and direct the AO to delete the addition of Rs. 44,81,000/- made u/s 69C of the Act.

29 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals 1 (a) While doing so the Id. CIT(A) failed to appreciate the fact that its mere denial of relation of the firm in the data stored in the name of Javed Ghaswala and also the assessee has not produced any supporting evidence to prove his contention. 2) "The appellant prays that the order of the CIT(A) on the above ground(s) be set aside and that of the Assessing Officer be restored". 27. The issue raised by the revenue in the ground No.1 is against the deletion of addition of Rs.1,57,85,000/- by the ld. CIT(A) as made by the AO u/s 69C of the Act. 28. During the course of assessment proceedings, the assessee on the basis of document founds during the course of survey confronted the assessee, which the assessee denied altogether by submitting that notings in the said pages did not relate to M/s Alliance Hotel or any partner of the assessee. The assessee submitted that notings were related to some property transactions and balance sheet of Upadrasta Group which was not in any way related to assessee. However, the AO added the same to the total income of the assessee u/s 69C of the Act . During the appellate proceedings, the ld. CIT(A) deleted the said addition by holding that : 5.3……. However with regard to addition with regard to file RELlABLE_EXPS.xls, it has been stated in appeal order dated 31/03/2011 in the appellant's appeal for AY 2006-07 in appeal No. CIT(A)-23/ACIT 12(1)/IT- 357//08/09 that "It is seen that entries on the sheets referred to by the AO relate to Upadastra account, Stamp House (Botawala), Reliable Investments & Developers and Maria Developers. In view of the fact that the photocopy of property card filed shows the names of owners as earlier owned by Upadrasta Group which was transferred in the names of Javed Mohd Hussein, Irfan M Yusuf Vaid, Abrar Irfan Vaid (carrying n business in the name and style of Reliable Investments & Developers). Further that Shri Javed Mohd Hussian and Shri Javed

30 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals Ghaswala are one and the same person, no addition can be made in the hands of the appellant in respect of these entries.". Since the entries on file RELlABLE_EXPS.xls pertain to Botawala Building and Upadastras Bldg, Maria Developers, on the same reasoning as in appeal for AY 2006-07, addition in respect of expenses relating to file RELlABLE_EXPS.xls are deleted.

31 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals 5. ITA No.5498/Mum/2011 ( by the assessee) 32. Grounds of appeal taken by the assessee are as under : “1. On the facts and in the circumstances of the case, the learned Commissioner 0f Income tax (Appeals) erred in upholding the action of the AO in disallowing depreciation of Rs.69,13,144/- in the absence of supporting vouchers. 2. On the facts and in the circumstances of the case, the learned Commissioner 0f Income tax (Appeals) erred in upholding the action of AO in disallowing interest of Rs.1,08,04,969/- paid to Corporation Bank AO“

32 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals

आदेश की प्रतिलऱपप अग्रेपिि/Copy of the Order forwarded to : अऩीरधथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आमुक्त(अऩीर) / The CIT(A)- concerned 3. आमकय आमुक्त / CIT concerned 4. ववबधगीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भुंफई / 5. DR, ITAT, Mumbai concerned 6. गधर्ा पधईर / Guard file. आदेशधनुसधय/ BY ORDER, True copy सहधमक ऩंजीकधय (Asstt. Registrar) आमकय अऩीरीम अधधकयण, भुंफई /ITAT, Mumbai

33 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals आयकर अपीऱीय अधिकरण, म ुंबई न्यायपीठ “ए” म ुंबई IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI BEFORE HON’BLE S/SHRI JOGINDER SINGH (JM), AND RAJESH KUMAR,(AM) आमकय अऩीर सं./I.T.A. No.4075/Mum/2011 (ननधधायण वषा / Assessment Year :2007-08) M/s Alliance Hotels, बनाम/ Asstt. Commissioner of Income 121, City Terrace, Tax, Central circle-12(1), Vs. W H Marg, Fort, Aayakar Bhavan, Mumbai-400001 M K Road, Mumbai-400020. (अऩीरधथी /Appellant) (प्रत्मथी / Respondent) .. आमकय अऩीर सं./I.T.A. No.4739/Mum/2011 (ननधधायण वषा / Assessment Year :2007-08) बनाम/ Asstt. Commissioner of Income M/s Alliance Hotels, Tax, Central circle-12(1), 121, City Terrace, Vs. Aayakar Bhavan, W H Marg, Fort, M K Road, Mumbai-400001 Mumbai-400020. (अऩीरधथी /Appellant) (प्रत्मथी / Respondent) .. आमकय अऩीर सं./I.T.A. Nos.5498/Mum/2011 And 5111/Mum/2012 (ननधधायण वषा / Assessment Years :2008-09 & 2009-10) बनाम/ M/s Alliance Hotels, Asstt. Commissioner of Income 121, City Terrace, Tax, Central circle-12(1), Vs. W H Marg, Fort, Aayakar Bhavan, Mumbai-400001 M K Road, Mumbai-400020. (अऩीरधथी /Appellant) (प्रत्मथी / Respondent) ..

CORRIGENDUM The Tribunal has passed order in these appeals on 08.11.2016 and in the said order following mistakes have been crept: “At Item No.5 at page 31 “5. ITA No.5498/Mum/2011 ( by the assessee)” is mentioned.

34 ITA No 4075, 4739/Mum/2011 Alongwith two other appeals The above mistake has been rectified and the same may be read as under: “5. ITA No.5111/Mum/2012 (by the assessee)” At page 31, para 33 reads as under “33. The issues raised in ITA No.5498/Mum/2011 & ITA No.5498/Mum/2011 are identical to the ones as decided by us in ITA No ITA 4075/Mum/2011 supra vide para no 16 and 20 and therefore our decisions in ITA No 4075/Mum/2011 would,mutatis mutandi, apply to these grounds as well.” The above para has been replaced by this para : “33. The issues raised in ITA No.5498/Mum/2011 & ITA No.5111/Mum/2011 are identical to the ones as decided by us in ITA No ITA 4075/Mum/2011 supra vide para no 16 and 20 and therefore our decisions in ITA No 4075/Mum/2011 would,mutatis mutandi,apply to these grounds as well.” Sd sd (JOGINDER SINGH) ( RAJESH KUMAR) Judicial Member Accountant Member भुंफई Mumbai: 20th Feb, 2017 व.नन.स./ SRL , Sr. PS आदेश की प्रतिलऱपप अग्रेपिि/Copy of the Order forwarded to : अऩीरधथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आमुक्त(अऩीर) / The CIT(A)- concerned 3. आमकय आमुक्त / CIT concerned 4. ववबधगीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भुंफई / 5. DR, ITAT, Mumbai concerned 6. गधर्ा पधईर / Guard file. आदेशधनुसधय/ BY ORDER, True copy सहधमक ऩंजीकधय (Asstt. Registrar) आमकय अऩीरीम अधधकयण, भुंफई /ITAT, Mumbai