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Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद� राजे� के अनुसार PER RAJENDRA, AM- Challenging the orders dt.25.03.2013 of CIT(A)-24, Mumbai, the Assessing Officer (AO) has filed the above mentioned two appeals for the two AY.s. As the issue in both the appeals are almost similar, therefore,we are adjudicating the appeal by a single common order.
Assessee, an individual is proprietor of Gandhi Construction and Co. and is engaged primarily in the business of development of properties.He is also partner in Neelesh Kumar & Vinod Chandra & Co. (NVC),H. Chandrakant & Co. (HCC) and Gandhi Exim(GE). He filed his return on 30.3.2007 declaring income of Rs.1.09 lacs. On 26.9.2007 he filed revised return declaring income of Rs.47,870/-.The AO reopened the case after issue of notice u/s. 148 of the Act.He finalised the assessment on 9.4.2010, u/s. 143 of the Act,determining the income of the assessee at Rs.23,23,259/-. 2.1.First Ground of appeal is about deleting the disallowance on interest expenditure of Rs.6,22,483/- during the assessment proceedings the AO observed that an action u/s. 133A of the Act was carried out at the business premises of the assessee on 14.9.2007, that having regard to nature of complexities involved in the accounts of the assessee, in the books of account of the assessee, accounts were audited in accordance with the provision of section 142(2A) of the Act. He found that the special auditors in their report had pointed out that in the balance sheet of 31.3.2006, the assessee had shown on the asset side interest receivable at Rs.1.39crore, that the amount comprised of interest and capitalized the work-in-progress (WIP) upto 31.3.2005, that the interest expenses pertained to the year under consideration, that the projects had been completed during the earlier A.Y. The AO held that the interest expenses claimed for the year under consideration was not incurred wholly and exclusively for the business, that he had failed to prove the genuineness of the loans taken from NVC on which interest had been paid.Finally, he disallowed the amount and added it back to the total income of the assessee .
ITA4758-59/M/13-Suryakant 2.2 Aggrieved by the order of the AO the assessee preferred an appeal before the First appellate Authority( FAA). After considering the submission of the assessee and the assessment order he held that the assessee had not claimed the expenses in question while filing the return of income, that the expenses had been capitalized in the books of account, that the expenses were in respect of a project which were under dispute, that the assessee had received the interest and compensation during FY relevant to AY 2007-08, that AO had made the addition without considering the facts of assessee’s case and system of accounting followed by it. He allowed the appeal filed by the assessee. 2.3.Before us, the(Departmental Representative) DR supported the order of the AO. As stated above none appeared on behalf of the assessee . We have perused the material before us.We find that the AO had made addition on account interest expenses of Rs.6.22 lacs in respect of loan taken from NBC, that the FAA had given a categorical finding of fact that the disputed amount was not claimed as an expenditure by the assessee in the books of account, that the transaction did not pertain to the year under appeal. In our opinion the order of the FAA does not suffer from any legal or factual infirmity.Therefore, confirming the same we decide Ground No.1 against the AO. 3.Ground No.2 is about deleting the addition and admitting fresh evidence in contravention of the provision of Rule 46A of the Income tax Rules, 162(Rules). 3.1.During the assessment proceedings,the AO observed that in the audit report the Special auditor has pointed out that the assessee had shown loans from LIC Housing of Rs.13,07,106/- .That he had further shown a loan of Rs.1.20 lacs from LIC of India, that the assessee had not produced any documentary evidence in that regard. The AO held that the assessee had taken housing loan in year 2000 on which interest @ 5% amounting to Rs.62,243/- was calculated, that the loan including the interest totaling to Rs.13.07 lacs had not been repaid by the assessee. The assessee had failed to produce any documentary evidence during the time of verification, that he had also not filed any reference of loan taken from LIC of India, that the amounts in question had to be treated as unexplained cash paid. 3.2.In the appellate proceedings before the FAA,the assessee filed a paper book and requested the FAA to admit additional evidence in accordance with Rule 46A of the rules. The FAA after considering the submission of assessee and the additional evidences held that both the loans were genuine and deleted the addition made by the AO. 3.3Before us,the DR contended that the FAA admitted the additional evidences without calling for remand report or without affording an opportunity to the AO to verify the correctness of the claim.We find that the assessee had made request to FAA for admitting additional evidences, that he did not call follow the procedure as envisaged by the provisions of Rule 46A of the Rules, that he has not mentioned the s/sec under which the additional evidences were accepted. Therefore,we are of the opinion that in the interest of the justice matter should be restored back to the file of AO for fresh adjudication.He is directed to decide the issue after affording reason - able opportunity to the assessee and after considering the additional evidences produced by the assessee before the FAA.Ground No.2 allowed in favour of the AO in part.
4.Last Ground of appeal is about deleting the addition of Rs.20,290/- on account of unexplained cash credit due to failure on part of the assessee to furnish documentary evidence.
ITA4758-59/M/13-Suryakant 4.1.During the course of hearing before us, the DR fairly conceded that the disputed amount did not find place in the audit report, that assessee had not made any claim about it, the FAA had directed the AO to verify the correct position. 4.2In our opinion the FAA rightly directed the assessee to verify the claim made by the assessee to decide the issue on merits. Therefore, we are of opinion that the order of the FAA does not need any interference from our side.Ground is decided against the AO.
ITA 4759/M/2013-AY-2007-08 5. First Ground of appeal deals with deleting the disallowance of interest expense of Rs.1.50 crores. 5.1.Referring to the report of the auditors the AO observed that the assessee had credited to the P&L account interest income of Rs.1.47 crores from Charkop Woodland Co-operative Hsg. Soc., that it had received compensation of Rs.60.00 lacs that the interest and compensation were received in view of the MOU dated 23.3.2003 entered between the assessee and the Co- operative Hsg. Soc., that in the year 1994 the assessee had paid Rs.60.49 lacs to MHADA by way of lease premium, lease rent, that the society had granting selling rights of additional flat to the assessee, that the project was delayed and could not be executed, that later on it was agreed that the assessee would receive Rs.60.49 lacs, that he would be paid Rs.1.47crore as interest for the period upto 30.8.2003, that he would be paid compensation of Rs.60.00 lacs, that in the return filed for the AY 2003-04 the assessee offered an amount of Rs.60.49 lacs for tax, that the balance amount of Rs.2.07 crores was credited to the P&L account for the year under consideration, that after claiming interest expenditure of Rs.1.05 crores net amount was offered for taxation, that the auditors had made a remark that out of the total interest expenditure (Rs.1,50,21,941/-) interest of Rs.1.39 crores pertain to the earlier A.Ys and had been capitalized by the assessee, that there was no relation between the receipt and payment of interest . He further held that interest of Rs.1.39 crores related to the part of WIP of the earlier A.Ys., that it did not pertain to current AY,that interest of Rs.10.92 lacs could not be linked to the interest credited to the P&L account, that while filing the return of income the assessee had shown interest income (Rs.1.47 crores) and compensation (Rs.60.00 lacs), under the head income from other sources, that during the course of assessment proceedings he submitted revised statement of computation of income, that in the revised computation the assessee treated the transaction under the head business income. The AO finally held that interest income and compensation recd could be treated as income from other sources only, that same could not be given colour of business receipts, that deduction could be allowed as per the provisions of section 57 of the Act, that expenditure incurred wholly and exclusively for earning such income could be allowed, that the interest expenses pertain to the projects carried out during the earlier A.Ys, that the assessee could not claim the same amount in the subsequent assessment year, that the claim made by the assessee under the head interest expenses, totaling to Rs.1,50,21,941/- had to be rejected.
5.2Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority (FAA). After considering the submission of the assessee and the order of the AO the FAA held that the builder and the developers would follow a particular system of accounting, that in their cases the expenses would be capitalized to work in progress account, that later on entries for expenses appearing as WIP would be reversed in the year when the major part of sale 3
ITA4758-59/M/13-Suryakant realization would take place, that the assessee had offered that component of income which was already completed upto end of AY 05-06 and had paid taxes accordingly, that the assessment records for the earlier AYs were available with AO at the time of framing assessment for AY 07- 08, that the assessee had borrowed fund from NVC for depositing Rs.60.49 lacs with MHADA, that interest on borrowings was capitalized by the assessee as WIP in the hope of settlement of dispute, that the expenses were directly relatable to the third building project, that assessee had borrowed fund from outside, that interest expenditure had direct nexus with earning of interest in compensation, that the interest receipt of Rs.1.47 crores from the society was itself indicative of the fact that the receipts had a direct nexus with incurring of expenses of Rs.1.50crores.Finally, he allowed the appeal filed by the assessee. 5.3.Before us, the DR supported the order of the AO.We find that the assessee had received certain amount under the head interest and compensation,that he had paid interest during the year under consideration,that the AO disallowed the claim made by the assessee , that he was of the opinion that expenditure was not incurred wholly and exclusively for earning the income.We find that the FAA had given a categorical finding that there was a direct relation between interest received by the assessee and the interest paid by him, that because of the dispute the assessee was following a particular method of accounting. In these circumstances we are of the opinion that the FAA had rightly held that the transaction related with interest receipt/payment were directly related to the business activity of the assessee.Confirming his order, we decide Ground No.1 against the AO. 6.Ground No.2 is about LIC loans. While deciding the identical issue for the earlier year we have restored the matter to the file of the AO.Following the same Ground No.2 is decided in favour of the AO in part with a direction to decide the issue after hearing the assessee . 7.Last ground of appeal pertains to deleting the addition of Rs.22.00 lacs made by the AO on account of unexplained cash credit and contravention of provisions of Rule 46A of the Rules. 7.1.During the assessment proceedings the AO found that the assessee had debited a sum of Rs.25.90 lacs in the name of MIDC plot, that the amount was paid by way of demand draft by NVC, that later on same was transferred in the books of assessee by way of journal entries through assessee’s accounts with the party/firm, that ultimately it was shown as deposit in the balance sheet of the assessee, that the MIDC plot account was credited on various dates, that the Xerox copies of the receipts indicated that the refund had not been received from MIDC but from some 3rd party. As per the AO assessee did not file any explanation about the above transactions, that the refund was received from a person other than MIDC, that it was obligatory on part of the assessee to prove the credit worthiness and nature of the transaction, that the amount received by the assessee i.e. Rs.22.00 lacs were in the nature of unexplained cash entries. Accordingly he made an addition of Rs.22.00 lacs. 7.2After considering the submission of the assessee and the assessment order the FAA anaylsed the MIDC plot account for the period 1.4.2006 to 31.3.2007.He found that Rs.24.90 lacs were appearing on the Debit side and Rs.22.00lacs appearing on the Credit side of the account.He held that NVC, in which the assessee was a partner paid on behalf of the assessee debiting his capital account, that the refund received form MIDC had been taken into account in assessee’s books, 4
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