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2017 (3) TMI 1463 - AT - Income TaxAddition made u/s. 14A - Held that - We find that there is no dispute that the assessee was having sufficient interest free funds available with it for making the investments in shares. It is equally true that the assessee could not demonstrate the nexus between the interest free funds and the purchases of shares. In our considered opinion and to meet the interest of justice, the disallowance u/s. 14A should be made to the extent of the exempt income claimed by the assessee. We, accordingly, direct the A.O. to restrict the disallowance to the extent of exempt income. Ground no. 1 is partly allowed. Addition of undisclosed income - AO has calculated the average rate of on money charged on the bookings and sale made by the appellant by dividing the entire on money received inrespect of bookings / sales made by the total area sold - Held that -VThe power of the assessing Officer to raise valid queries on the basis of the facts or unusual features noticed by him must be conceded. The features noticed by him in the assessees business certainly constitute a starting point of inquiry. They are, however, not to be taken as evidence or material showing any suppression or understatement of the sale price. If on further probe, the assessing Officer was able to unearth any evidence or material on the basis of which actual suppression of the sale price could be found, then the additions made on that basis would be valid. But it is not open to him, merely on the basis of what he perceives to be the market conditions, to make additions to the sale price or the profits, without any evidence of understatement. In our considered opinion, the Assessing Officer has drawn a presumption that all the units booked after 07.10.2009 must have also fetched on money to the assessee. The A.O. has not made any further enquiry to substantiate or justify his presumption. The A.O. has not pointed out a single transaction in the books of accounts as not properly accounted for in the books vis- -vis the details furnished by the assessee.No doubt, the assessee has made disclosure of additional income of ₹ 9 crores for the conveyance done and bookings done for the period between 01.04.2009 and 06.10.2009 but this by itself cannot prompt the A.O. to presume that the assessee must have done the same thing which he has done prior to 07.10.2009 - Decided in favour of assessee Disallowance of interest expenditure claimed u/s. 36(1)(iii) - Held that - A.O. has not disputed the fact that the assessee has sufficient interest free funds, therefore, the ratio laid down by the Hon ble Supreme Court in the case of Munjal Sales Corporation (2008 (2) TMI 19 - Supreme Court ) squarely apply. Further, we find that the A.O. has questioned the commercial prudence of the assessee which is against the ratio laid down by the Hon ble Supreme Court in the case of S.A. Builders Ltd. (2006 (12) TMI 82 - SUPREME COURT ) wherein the Hon ble Supreme Court has held that the businessman alone can decide the reasonableness or business expediency of the expenditure. We, further find identical additions were deleted in an earlier assessment years. - Decided in favour of assessee
Issues Involved:
1. Addition made under Section 14A of the Income Tax Act. 2. Addition of undisclosed income based on "on money" received. 3. Deletion of disallowance of interest under Section 36(1)(iii) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Addition made under Section 14A of the Income Tax Act: - The Assessee contested an addition of ?12,80,892/- made under Section 14A concerning investments in shares whose income is exempt from tax. - The Assessing Officer (A.O.) believed the Assessee failed to demonstrate a nexus between interest-free funds and the investments made in equity shares, leading to the disallowance. - The Tribunal found that although the Assessee had sufficient interest-free funds, it could not demonstrate the nexus. Therefore, the Tribunal directed the A.O. to restrict the disallowance to the extent of the exempt income claimed by the Assessee, partly allowing the Assessee's appeal. 2. Addition of undisclosed income based on "on money" received: - A search operation revealed that the Assessee had received unaccounted money on the sale of units, leading to an addition of ?1,01,63,340/- by the A.O. - The A.O. calculated this based on the assumption that the Assessee continued to receive "on money" post-search based on pre-search practices. - The Tribunal observed that the A.O.'s additions were based on mathematical calculations without any documentary evidence or material justifying the additions. - The Tribunal emphasized that additions must be based on evidence, not assumptions or market conditions. The Tribunal found the A.O.'s approach erroneous and directed the deletion of the entire addition of ?1,01,63,340/-, allowing the Assessee's ground and dismissing the Revenue's corresponding ground. 3. Deletion of disallowance of interest under Section 36(1)(iii) of the Income Tax Act: - The Revenue appealed against the deletion of a disallowance of ?9,07,942/- made under Section 36(1)(iii). - The A.O. had disallowed the interest expenditure, arguing that the Assessee provided advances at a rate lower than the average interest rate. - The CIT(A) deleted the disallowance, referencing previous years' decisions and Supreme Court rulings in Munjal Sales Corporation and S.A. Builders Ltd., which established that the businessman alone can decide the reasonableness of business expenditure. - The Tribunal upheld the CIT(A)'s decision, noting that the A.O. did not dispute the availability of sufficient interest-free funds and that questioning commercial prudence was against established legal principles. The Tribunal dismissed the Revenue's ground. Conclusion: - The Tribunal partly allowed the Assessee's appeal concerning the Section 14A disallowance and fully allowed the appeal regarding the undisclosed income addition. - The Tribunal dismissed the Revenue's appeal on both grounds, upholding the CIT(A)'s deletion of the interest disallowance and rejecting the addition based on "on money" received. - The judgment was pronounced in open court on 14-02-2017.
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