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Income Tax Appellate Tribunal, DELHI BENCHES, NEW DELHI
Before: SHRI I.C. SUDHIR & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. 1. These are the appeals filed by the assessee and the revenue against the order of the learned Commissioner of Income tax (Appeals), Meerut dated 20.08.2014 for the Assessment Year 2010-11. 2. The assessee has raised the following grounds:-
Page 2 of 18 “1. That under the facts & circumstances of the case, the learned lower authority has erred to hold, that appellant was engaged in trading of property as a property dealer. The finding is arbitrary, unjust, uncalled- for and in any case against the history and material placed on record.
That under the facts & circumstances of the case, the learned lower authority has erred to compute tax on long term capital gain at regular rate and not at specific rate of 20%, computed and disclosed by the appellant and assessed by the A.O, The finding of capital gain treating the same as business income is, therefore, arbitrary, unjust, uncalled-for and in any case illegal.
3. That under the facts & circumstances of the case, the learned CIT (Appeals) was not justified to disallow the development charges at Rs. 5,53,400/-. The confirmation of disallowance at Rs.5,53,400/- is arbitrary, unjust, uncalled-for and in any case highly excessive and without any basis.
4. That under the facts & circumstances of the case, the learned ITO has erred, not to allow the exemption u/s 54F at Rs.10,41,901/- for purchase of the residential flat, ignoring the provision of section 45(2). Nor allowance of deduction is, therefore, arbitrary, unjust, uncalled-for and in any case illegal.
5. That under the facts & circumstances of the case, the learned CIT( Appeals) has erred to apply section 68 for cash deposit in bank and treated the same as unexplained to the extent of Rs.9,76,805/-. The application of section 68 and sustaining the addition of Rs.9,76,805/- is, therefore, arbitrary, unjust, uncalled-for, illegal and in any case highly excessive.
The revenue has raised the following grounds:- “
1. Whether in the facts and circumstances of the case, the CIT(A) was justified in allowing the expenditure of Rs.4,00,000/- under the head 'development charges' ignoring the fact that the assessee did not submit any bills and vouchers in respect of the same.
2. Whether in the facts and circumstances of the case, the CIT(A) was justified in deleting the addition of Rs.19,62,400/- made by the A.O u/s 68 of the IT. Act, on account of unexplained cash investment in purchase of property ignoring the fact that the assessee failed to file any documentary evidence to explain the source of this cash investment.
3. Whether in the facts and circumstances of the case, the CIT(A) was justified in deleting the addition of Rs.19,48,985/- made by the A.O as unexplained cash credit u/s 68 ignoring the fact that the assessee did not furnish any explanation regarding the nature and source of acquisition of this cash deposit in bank.
Page 3 of 18 4. Whether in the facts and circumstances of the cased, the CIT(A) was justified in deleting the addition of Rs.47,135/- which had been made by the AO on proportionate basis as interest which had not been charged on loans advanced by the assessee.
5. Whether in the facts and circumstances of the case, the CIT(A) erred in deleting the addition of Rs.42,289/- that was made by the AO u/s 37(1), being 20% of various miscellaneous expenses such as car running and maintenance expenses, telephone expenses, etc. ignoring the fact that personal use by the assessee cannot be ruled out.”
Brief facts of the case are that assessee is an individual and earns income from partnership firm M/s Tirupati Enterprises, long-term capital gain, bank interest, brokerage and commission income. Assessee filed his return of income on 31–03– 2011, showing income of RS 914240/–. The return of income was processed u/s 143 (1). In A.Y. 2005 – 06 assessee purchased some propertiesalong with others and in A. Y. 2009 – 10 and subsequent year sold this property in parts after sub plotting. According to assesseee Plot of land were capital assets and later on converted in to stock in trade. Therefore, applying the provisions of section 45 (2) of the act fair market value of the property as on the date of conversion shall be treated as full value of consideration received and capital gain tax shall be charged on the converted assets in the year in which stock in trade is sold. Assessing officer rejected the explanation of the assessee as he has not maintained any books of accounts and the business of the assessee is trading inproperty because of the reason that assessee has purchased severalproperties in earlier years and during the year and has sold many plots and therefore profit shown by the assessee is business income from trading of property. During the year assessee has claimed the development charges of Rs. 9 53400/- against the sale of plots.It was explained that these expenses are incurred for preparing the plan of the plot, approval from the development authority, leveling, filling of the roads, construction of the roads and other expenses without which the products sold could not have been sold in small pieces and fetch good value. All these expenses are Page 4 of 18 incurred and bifurcated over total area of land anddevelopment charges on the proportionate basis of land sold during the year works out to Rs. 623.59 per square meter. Ld. assessing officer also rejected the explanation of the assessee that as assessee has not submitted any bills and vouchers in respect of development ofproperty, so he did not allow the deduction of Rs. 953400/- to the assessee. Further assessee has claimed deduction under section 54F of the Act of Rs. 1041901/- in computation as assessee has purchased a flat of Rs. 1962,400/- and deduction of Rs. 1041901/- was claimed by the assessee. This deduction was examined and AO was of the view that assessee is a dealer in the property and has more than tworesidential house hence, this deduction is not allowable. Further, the above-impugned property was purchased for Rs. 1962400/– in cash. As the assessee could not explain source of investment in the property is added back to the income of the assessee as unexplained investment. Further during the year assessee has deposited cash of Rs. 2925000/- in the IDBI bank account of the assessee but assessee could not furnish the sources of cash deposit to the satisfaction of the assessing officer is added to the income of the assessee. Further, some other minor disallowances additions were made and the assessed income of the assessee was determined at Rs. 78,76,365/–.
Against this, assessee preferred an appeal before the Commissioner of income tax, who in turn granted partial relief to the assessee. Regarding the taxability of the head of the income, whether under capital gain or under the income from business, CIT (A) was of the view that assessee has sold 40 plots through 32 sale deeds out of which 18 plots were sold up to 08/02/2010. Further, it was noted by him that the appellant has entered into similar activity of the sale of property during the assessment year 2009–10 also and furthermore, the appellant has purchased many properties during the assessment year 2010-11; therefore, It is a clear- cut pattern of sale and purchase of property on regular basis. He noted
Page 5 of 18 that assessee has incurred several expenditure under different heads during the year and therefore these expenses according to him clearly show that the appellant is engaged in the business. It was not at all shown by the assessee during the course of assessment proceedings that it has some other business other than the real estate therefore, it was noted by CIT (A) that the above expenses are incurred for the sale of property and in such situation, the assessee’s activities are according to him indeed of business. It was also noted by the CIT appeal that the assessee has sold the plot of land and beforesale of those plots; assessee has developed property in a very professional manner by providing electricity line, transformer,roads andboundary wall etc. This activity clearly showed, according to him, that appellant is developing the property not for his own personal use but by selling it for the commercial consideration. According to him, intention of the assessee was to earn profit out of the sale of land, which was developed by him in a professional manner. Therefore, according to him, the income on sale of plot is not chargeable to tax under the head capital gain, but is chargeable to tax as business income of the assessee. Further regarding the expenditure of development charges of Rs. 953400/- it was noted by CIT (A) that the assessing officer has taken a contradictory stand on this issue, and as appellant is a Trader in property it will have to incur some expenses for development of the property before it can be sold for a profit. Therefore, CIT (A) appeal restricted the disallowance made by the assessing officer of Rs 953400/- to Rs 553400/- and in turn allowed a deduction of Rs. 4 lakhs as expenditure under the head development expenses for the property. Regarding the claim of deduction under section 54F of the act as he has already held that the assessee has not earned any capital gain, but is carrying on the business in the sale of the property and therefore the deduction under section 54F is not allowable. Regarding purchase property for Rs. 1962400/- paid in cash by the assessee It was noted by him that that appellant has received cash Page 6 of 18 on sale of plots Rs. 5049900/- and Rs. 36,98, 000/-thereforeaccording to him, it cannot be said that the assessee has acquired this property by payment of cash which is unexplained. Hence, he deleted the addition of Rs. 19,62,400/- made to the income of the assessee. Regarding deposit of cash amounting to Rs. 2925000/– in his account with IDBI bank, it was noted by CIT (A) appeal that that as major part of the business income of the appellant has come in cash and further, the appellant has also withdrawn money from his bank account from time to time, but also shows that the withdrawal of cashmade, which has been generated from property sold by the appellant along with other parties. Further, before CIT (A) it was argument of the assessee that the entire deposit cannot be taken for making addition under section 68 of the income tax act. Therefore, the peak deposit can only be taken for making addition. Therefore based on the submission of the appellant who has worked out the peak depositin IDBI bank account at Rs. 9,76,805/– the CIT (A) confirmed this addition.
Against the order of the CIT (A) both the parties, revenue as well as the assessee are in appeal before us raising countergrounds of appeal
7. Now we first consider the appeal of the assessee.
8. The first ground of appeal of the assessee is that that both the lower authorities have erredin law to hold that the appellant was engaged in the trading of property. This finding is arbitrary and just uncalled for and in any case against the history and material placed on record as per assessee. The second ground of appeal was that the income of the assessee is charged to tax under the head business income, whereas the assessee has offered same as long-term capital gain under the head capital gain. In nutshell ground No. 1 and 2 are against the order of the CIT (A) confirming the action of the assessing officer that assessee is a Trader in real estate and therefore his income is chargeable to tax as business income and not under the head capital gains.
Page 7 of 18 9. Ld. AR submitted before us the detailed paper book containing 94 pages and a chart covering ground wise facts. Regarding this ground, he took us to the page No. 85 of the paper book wherein he submitted that assessee purchased plot of land along with Shri Pawan Kumar Arora admeasuring 1672.24 m² on 7th of August 2004 for Rs. 880,000. He further purchased another plot of land admeasuring 4379.10 m² in 2005 for Rs. 2304500/-. At page No. 62 of the paper book, he submitted details of investment in purchase of property. He has made an investment of Rs. 51,95,804/- and properties were converted into 64 small size plots out of which 18 plots have been sold and colony was developed by construction of road and electrification along with transformer installed therein. Therefore, it was a submission that property was purchased on 07/08/2004 andin 2005 which was held by assessee along with others since then and therefore this long period of holding itself proves that the assessee is not a Trader in plots or real estate, but the income arising out of the sale of this plots, shall be capital gain. The only purpose of development of this plot was to earn maximum price on the sale of its assets. Therefore, it was his contention that the assessee has purchased the land in June 2004, it remained intact up to February 2008, and when land was developed by way of plotting construction of road electrification, etc., therefore, assets cannot be said to be a business asset but it is a capital asset of the assessee. He further submitted that the very intention of assessee at the time of the purchase of asset is a relevant factor to decide whether itwas the stock in trade or the capital asset and in the purchase of these properties the intention of the assessee was to keep it for a very long time and develop them and then sell them off to maximize the profit. He further stated that he converted these properties into stock in trade during the year and according to the provisions of the Income tax act when a capital asset is converted into a stock in trade, capital gains shall be chargeable at the time of sale of those assets. He therefore offered the capitalgain in this year. Therefore, Page 8 of 18 according to him the computation of capital gain, placed at page No. 18 of the paper book, may be accepted. He further explained that during the year, total land area soldis 149.43 square yards. Against sale consideration received by him he has incurred an expenditure of Rs. 1639142, comprising of selling expenses, development expenses of Rs 953, 400/- and interest paid. Therefore, according to him, net consideration received is Rs 3455161/- and out of which the indexed cost of acquisition was granted as deduction of Rs. 1620704/- resulting into the capital gain of Rs. 1834457/-. He further submitted that assessee does not maintain any books of accountsbut prepares statement of affairs at page No. 19 to 22 of the paper book the property is shown as an asset. Regarding the sale of the plots, he submitted year wise chart showing that in each year he has shown sale of plots. Therefore, it was his contention that he is not a dealer in real estate, but as an investor and therefore the profit on sale of the property should be chargeable to tax under the head capital gains only.
Against this learned DR relied on the orders of lower authorities and submitted that assessee is a dealer in property and according to the remand report assessee is dealing in various properties which are listed at page No. 84 and 85 of the paper book and therefore it is clear that assessee was engaged in business in trading of purchase and sale of properties from A Y. 2008 – 09 to 2010 – 11. He vehemently argued that that the property was further developed to exploit commercially by the assessee and therefore the reasons given by the CIT (A) for holding that assessee is a Trader in plot and real estate is correct finding of the fact. Therefore, he submitted that income of assessee is not chargeable to tax on sale of these plots under the head capital gains, but is chargeable to tax as business income.
We have carefully considered the rival contentions. It is not in dispute that assessee has purchased the properties way back in 2004-2005 and held these properties for almost 5 to 6 years. Therefore, if the length of holding
Page 9 of 18 of those properties is to be seen, one of the characteristics of capital asset is satisfied. However, assessee has also dealt with in numerous properties, which are listed by the assessing officer in remand report based on the report of inspector. However, on looking at the details of the properties, it is apparent that some of the properties included by the assessing officer while holding that assessee has dealt with in numerous properties, he also included the property which is not owned by the assessee. Before the CIT (A), assessee has furnished an affidavit dated fourth of October 2013 where he has mentioned the chronological events of the transaction. It was stated that that the land was purchased in assessment year 2005-2006 and up to 02/02/2009, the land stated above was kept as a capital asset and no activities on this land was carried out by assessee. Though assessee wanted to sale of this land as a whole, but there was no potential buyer to purchase the land as the land was in slum area and therefore assessee along with the co-owners planned to sell of the land in small pieces by developing it and therefore they developed it into a 64 plots. He submitted that the real development of the entire land was made during the period from March 2009 to March 2010 by way of constructing the guardroom, boundary wall, or filling on road, interlocking tiles, civil lines, water lines, boundary wall, fixing of electric line, steel pole and RCC poll. It was further stated that that electricity line was put somewhere in the month of January 2010. However, on reading of the entire documents placed before us, we could not find the relevant dates when the assessee converted this capital asset into stock in trade, if at all and what price(value), prevalent circle rates thereof,documents and actions of assessee for such conversion to convert the capital asset into stock in trade is not demonstrated. Further, from the remand report it is apparent not only the properties owned by the assessee, but the properties owned by the other person is also listed. Therefore, we are of the view that the finding of the assessing officer was not based on the list of properties purchased or owned by the assessee. It is Page 10 of 18 also apparent that assessee has not shown any business income from the sale of stock in trade, which was stated to have been converted from the capital asset. If the assessee has converted capital asset into stock in trade in prior years, then part of the profit arising on sale of land, shall be chargeable to tax under the head capital gains and part of the profit under the head business income.On verification of computation of total income furnished by the assessee at page No. 16 of the paper book for assessment year 2010-11, we did not find any income offered by the assessee under the head business income on sale of the plots. As these vital facts are not brought on record, either by the assessee or by the revenue, in the interest of the Justice, we set-aside these grounds of appeal to the file of the assessing officer to verify the facts and then to decide issue accordingly. That assessing officer shall afford proper opportunity to the assessee to substantiate its claim before deciding the issue on the merit. In the result,we allow ground No. 1 and 2 of the appeal of the assessee with above direction.
12. The third ground of appeal was against conformation of the disallowance of the development charges at Rs. 553400/-. It was noted that assessee has incurred an expenditure of Rs. 9 53 400/- out of which assessee has been granted deduction of Rs. 4 lakhs only and the balance of Rs. 5 53 400 /- was disallowed and confirmed by CIT (A).
13. Before us ld. AR has submitted detailed expenditure chart at page No. 25 of the paper book which showed that total development charges are amounting to Rs. 4785909/- and actually incurred and claimed by the assessee is only Rs. 45 lakhs. Therefore, it was argued that that CIT (A)has arbitrarily restricted the disallowance to Rs. 553 400 /- where he should have allowed the complete expenditure of Rs. 9 53 400/-
14. Learned departmental representative relied on the orders of lower authorities and submitted that that CIT (A) has wrongly allowed the deduction of Rs. 4 lakhs also which is also the ground of the appeal of Page 11 of 18 revenue. He submitted that as no details were filed for evidence of the expenses incurred deductioncould not be granted to the assessee.
We have carefully considered the rival contentions. Before the assessing officer, assessee submitted explanation about expenditure to be incurred and has worked out Rs. 623.59 as cost of development on land of approximately 1528.89 m² sold by the assessee. However, before the assessing officer, assessee did not submit any bills and vouchers in respect of the development expenditure incurred by the assessee. Hence, AO madedisallowances. CIT (A), while allowing Rs. 4 lakhs and disallowing Rs. 553 400/-did not give any reason for such bifurcation. It is also not apparent that even despite the assessee has not furnished the bills and vouchers related to these expenses under this head how he has come to the conclusion that Rs. 5 53 400 is disallowable. Therefore, as these expenses are related to the development of the above said property which has been dealt with by us in ground No. 1 and 2 of the appeal, We also set aside this ground of appeal
to the file of the assessing officer to verify the amount of expenditure incurred by the assessee with the supporting bills and other relevant materials. If the assessee is found to have incurred thisexpenditure, it should be granted to assessee as deduction under the head of business income if AO treats the activity of the sale of plot as business income and if the activity is found to be of sale of capital asset. Then this expenditure should be allowed as cost of improvement of the asset. With above direction the ground No. 3 of the appeal is allowed.
16. The ground No. 4 of the appeal of the assessee is against not granting exemption under section 54F of the act at Rs. 1 041 914/- for purchase of the residential flat ignoring the provisions of section 45 (2) of the Act.
17. We have considered the rival contentions. However, the deduction under section 54F of the income tax act is allowable onlyif the assessee has earned any capital gain on sale of the property. No such deduction is allowable if the income is chargeable to tax under the head business Page 12 of 18 income. As we have already set aside Ground No. 1 and 2 of the appeal of the assessee to the file of assessing officer, we also set aside this ground of appeal to the file of assessing officer and to grant deduction under section 54F if income of the assessee is chargeable to tax under the head capital gains. We also direct assessing officer to verify the claim of the assessee in accordance with the provisions of the law while granting deduction under section 54F of the income tax act after affording reasonable opportunity of hearing and to produce relevant evidence before him. In the result ground No. 4 of the appeal is allowed with above direction.
18. Ground No. 5 of the appeal is against the addition of Rs. 976805/- confirmed by the CIT (A) for the cash deposited in IDBI bank account of the assessee. During the course of assessment proceedings. It was found that the assessee has deposited Rs. 29,25,000/- in bank account maintained with the IDBI –. The assessee submitted that that the source of such cash depositsmoney, which was received from sale of plot of land. It was further submitted by the assessee that though the deposit is of more than 28 Lacs in cash but the peak deposit has never exceeded Rs. 8 Lacs . Based on this finding the CIT (A) was of the opinion that the assessee does not satisfactorily explain the deposit of cash in IDBI bank. Therefore, he restricted the addition to the peak deposit at Rs. 976805/-and deleted the balance addition. Against this, assessee is in appeal before us.
19. Ld. AR submitted that that the assessee has assessee has deposited a sum of Rs. 28,35,000 in the IDBI bank account and for this amount source is cash withdrawal from syndicate bank of the assessee amounting to Rs. 34 lakhs. He submitted detailed chart showing the source of funds that has been withdrawn from the syndicate bank stating the amount of withdrawal, the date of withdrawal andlinked it with the amount deposited in the IDBI bank in cash. Therefore, it was submitted that that there is no cash deposited in banks, which are not explained.
Page 13 of 18 20. Learned DR submitted that that the assessee could not explain the source of deposit of the cash inIDBI bank and even before the CIT (A) submitted that the cash deposited in in IDBI bank could not be explained and, therefore, he offered for the peak credit and accordingly CIT (A) has confirmed this addition. He submitted that that the chart, which is now being relied upon by the assessee was not before the assessing officer and therefore the source of depositing cash in IDBI bank account cannot be said to have been explained out of the withdrawal of the assessee from syndicate bank. It was further submitted that that the assessee himself accepted addition of peak deposit now, therefore assessee cannot contest this ground.
We have carefully considered the rival contentions. It is undisputed fact that amount of Rs. 29,25,000/- was reportedly deposited in the IDBI bank account of the assessee in cash. During the course of assessment proceedings, the assessee was asked to explain the source of the deposit whereassessee submitted that he has deposited cash in IDBI from time to time, which was withdrawn from either the syndicate bank or IDBI bank before depositing that amount. It was further submitted by the assessee that the assessee has sold land along with other parties in which cash was received against sale for which details are available with the assessing officer. It was further submitted that though there is a deposit of more than 28 Lacs in cash the peak deposited never exceeded the Rs. 8 Lacs. Before the assessing officer assessee has further submitted a chart of deposited source of deposited wide letter dated 26th may 2012. However, AO has rejected all the contentions of the assessee and made an addition of Rs. 2925000/-.
Before us, appellant submitted a chart, which it is placed at paper book paper book page No. 47 to 48. According to the chart Rs. 28,35,000/- has been deposited in cash in the IDBI bank account of the assessee. The assessee is stated that out of those Rs 34 lakhs are withdrawn on various Page 14 of 18 dates from syndicate bank and IDBI bank by the assessee. Precisely an amount of Rs. 5,75,000/- has been withdrawn from IDBI bank account itself and Rs 34 lakhs from Syndicate bank on various dates. These facts were shown by a cash flow chart. Argument of taxing peak credit is only an alternative argument and it was not the only contention of the assessee when it is submitted the detailed cash flow chart before lower Authorities.The particular chart either was not controverted by the assessing officer, CIT (A) or learned DR before us. In view of this, we are of the view that the addition of rupees, 976805/- confirmed by the CIT appeal is not proper and we reverse his findings on this count. In the result, we allow ground No. 5 of the appeal of the assessee.
In the result, appeal of the assessee is allowed for the statistical purposes.
Now we come to the appeal of the revenue.
The first ground of appeal
is against the allowance of expenditure of Rs. 4 lakhs under the head development charges ignoring the fact that the assessee did not submit any bills and vouchers in respect of the same.
26. Rival parties agreed that that this ground of appeal of the revenue is interlinked with ground No. 1, 2and 3 of the appeal of the assessee. Assessee has claimed to have incurred an expenditure of Rs. 45 lakhs on development of the properties, and out of that the claim of Rs. 953,400/- has been made. Learned CIT (A) out of the disallowance of Rs. 9 53 400/- allowed expenditure of Rs. Four lakhs and confirmed disallowance of Rs. 5 53 400/- Both the parties contested the respective aggrieved action of CIT appeal. We have already set aside Ground No. 1, 2 and 3 of the appeal of the assessee to the file of assessing officer for determining head of taxability of income and verification of details of expenditure and then grant deduction. Therefore, we also set aside this ground of the appeal of the revenue to the file of assessing officer subject to the direction contained while deciding the appeal of the assessee. In the result ground No. 1 of the appeal of the revenue is allowed.
Page 15 of 18 27. Now we come to the ground No. 2 of the appeal of the revenue. Ld. CIT (A) has deleted an addition of Rs. 19 62, 400 made by the on account of purchase of property in cash.
Learned departmental representative submitted that during the year, assessee has purchased the property of Rs. 19,62,400/- in cash and the assessee before the assessing officer did not substantiate the source of which. It was further submitted that the CIT (A) has deleted this addition holding that that appellant has received part of the cash from sale of plot and deleted the addition.
Learned AR relied on the orders of CIT appeal and submitted a chart at page No. 64 to 66 of the paper book. It page No. 64, he has prepared a chart showing availability of case before purchase of House. According to that chart, where in receipt of funds from the partnership frim, receipt on account of sale of plots shows total availability of the cash of Rs. 3 8,63,905/-. Out of that investment in residential flat on 08/02/2010 has been made of Rs. 19,62,400/-. Therefore, it was submitted that assessee had enough cash on hand available for the purpose of purchase of the property. Hence, he submitted that the addition made by the assessing officer because of purchase of property in cash may be deleted.
We have carefully considered the rival contentions. It is an admitted fact that assessee has purchased residential flat on 08/02/2010 for an investment of Rs. 1962400 in cash. For the purpose of availability of the cash assessee has shown that it is received Rs. 3863905/-as its source, which has derived from sale of plot before date of investment in residential house and firm. This statement of the funds is not disputed. Therefore, in our opinion assessee has enough sources of funds available to buy that property in cash on 08/02/2010. In the result ground No. 2 of the appeal is dismissed and the action of the CIT (A) in deleting the addition of Rs. 1962,400/- is confirmed.
Page 16 of 18 31. The next round of appeal is against the deletion of addition of Rs. 29,25,000/- made by the AO is being unexplained cash deposited in the bank account of the assessee. The brief facts of the cases that assessee has deposited Rs. 29,25,000/- in his account with IDBI bank Meerut. Before the assessing officer a chart was submitted but before the CIT (A) assessee submitted that the deposit has never exceeded Rs. 8 Lacs rupees, and, therefore, CIT (A) deleted the addition of Rs. 19,48,985/- and confirmed the addition of Rs. 9,76,805/-.
Rival parties stated that the above ground is interlinked with the ground No. 5 of the appeal of the assessee. We have already decided. Ground No. 5 of the appeal of the assessee where we have reversed the finding of the CIT (A) in confirming the addition of Rs. 976805/-. Therefore, in view of our decision in that ground of appeal
, we dismiss ground No. 3 of the appeal of revenue.
33. Ground No. 4 of the appeal of the revenue is against the deletion of addition of Rs. 47, 135/- by assessing officer on proportionate basis as interest, which it not been charged on loans and advances givenby the assessee. The brief facts of the case of this disallowance are that during the course of assessment proceedings it was seen that the assessee has given loan to Sahil distributors of Rs. 1324500/- however, no interest has been charged on these loans. As per the record assessee has given interest on unsecured loan to various parties therefore the amount of Rs. 47,135/- was disallowed by the assessing officeron proportionate basis. On appeal before the CIT (A), he deleted the disallowance holding that there is no finding given by the assessing officer whether the loan has been advanced out of the appellant’s own fun, or from some interest-bearing funds borrowed by the assessee.
34. Ld. DR has submitted that that the CIT (A) has deleted this disallowance without any basis. Learned AR relied on the order of CIT (A) deleting the disallowance.
Page 17 of 18 35. We have carefully considered the rival contentions. It is an admitted fact that assessee has advanced a sum of Rs. 13,24, 500/- to others without charging any interest and assessee is paying interest on other loans. Assessee has submittedstatement of affairs as on 31/03/2010where assessee has own fund of Rs. 49,51,036/-. Therefore, a presumption can be drawn that the amount that has been invested by the assessee in the interest-free advances given to some parties is out of the capital of the assessee, which is free of interest. Therefore, in view of the above, we confirm the action of the CIT (A) in deleting the disallowance on account of interest expenditure of Rs. 47135/-. In the result ground No. 4 of the revenues appeal is dismissed.
Ground No. 5 of the appeal of the assessee is regarding deletion of the disallowance made by the assessing officer under section 37 (1) being 20% of various miscellaneous expenses ignoring the fact that the personal use by the assessee cannot be ruled out. On appeal before the CIT (A), it was deleted that there is no reason given by the assessing officer for disallowing proportionate expenses at the rate of 20% holding that such routine and ad-hoc additions/disallowance cannot be sustained and therefore he deleted the disallowance at the rate of 20% of these expenses. On appeal before us, revenue contended that the assessee might have incurred certain expenditure for the personal purposes and therefore the assessing officer has rightly made the disallowance. Authorized representative of the assessee relied upon the order of CIT appeal.