2023 (7) TMI 1088 - AT - Income Tax

Unexplained credit u/s 68 - advance received by the assessee from alleged prospective buyers of plots where PAN details were not available - CIT-A restricted addition - HELD THAT - We have noted from the orders authorities below that the assessee had furnished PAN details in a few more cases of advances received, to the ld.CIT(A) and taking note of the same, he had deleted the addition made with respect to these advances following the directions of the ITAT. This method was followed by the Ld.CIT(A) in subsequent years also ,wherein following the direction of the ITAT in A.Y 2008-09 and based on details furnished by the assessee of available PAN numbers of advances, he deleted the addition made by the AO to the said extent. AO not being provided an opportunity to go through the details furnished by the assessee, which the ld.CIT(A) had suo moto taken cognizance of and further reduced the addition under section 68 - We do not find merit in this contention of the ld.DR. The Ld.CIT(A) has allowed relief to the assessee following the directions of the ITAT. In the process he has himself verified the fulfilment of condition directed by the ITAT. We see no infirmity in the same. Ultimately what the ld.CIT(A) has done is undisputedly in the light and in accordance with the direction of the ITAT in Asst.Year 2008- 09. Therefore, we do not find any merit in the grounds raised by the Revenue vi-a-vis restriction of addition made by the ld.CIT(A) under section 68 of the Act. Disallowance of interest expenses u/s 36(1)(iii) - CIT-A deleted addition - HELD THAT - No reason to interfere in the order of the ld.CIT(A) who has deleted the disallowance of interest u/s 36(1)(iii) of the Act giving factual finding, which have remained uncontroverted by the Revenue before us as under Interest bearing funds were not found by the AO to be utilized for non-business purpose and Interest free advances given by the assessee were made in the course of business of the assessee. In view of the above, order of the ld.CIT(A) deleting the addition of interest under section 36(1)(iii) of the Act is upheld.

Summary

Issues Involved:
1. Addition of advances received from prospective buyers treated as unexplained credits under section 68 of the Income Tax Act.
2. Disallowance of interest expenses under section 36(1)(iii) of the Income Tax Act.

Summary:

Issue 1: Addition of Advances as Unexplained Credits under Section 68
The Revenue appealed against the orders of the Commissioner of Income Tax (Appeals) [CIT(A)], who had granted substantial relief to the assessee by deleting additions made by the Assessing Officer (AO) under section 68 of the Income Tax Act. The AO had treated advances received from prospective buyers in two projects, "Nalsarovar City" and "Ahmedabad Film City," as unexplained credits due to the lack of PAN details for some buyers.

The CIT(A) directed the AO to categorize the advances into three groups:
1. Advances resulting in executed sale deeds.
2. Advances refunded due to canceled bookings.
3. Simple advances without PAN details.

Following the directions of the ITAT in a previous year (Asst. Year 2008-09), the CIT(A) sustained additions only for simple advances without PAN details, leading to a significant reduction in the additions. The Revenue's appeal contested the CIT(A)'s decision to further reduce the additions based on additional PAN details provided by the assessee without seeking the AO's comments. The Tribunal upheld the CIT(A)'s decision, finding no merit in the Revenue's contention, as the CIT(A) had followed ITAT's directions and verified the PAN details provided by the assessee.

Issue 2: Disallowance of Interest Expenses under Section 36(1)(iii)
The AO disallowed interest expenses claimed by the assessee under section 36(1)(iii) of the Income Tax Act, arguing that the assessee had made interest-free advances while incurring interest expenses on loans taken. The CIT(A) deleted the disallowance, noting that the AO had not provided evidence that interest-bearing funds were used for non-business purposes and that the advances were made for business purposes.

The Tribunal upheld the CIT(A)'s decision, agreeing that the AO had not demonstrated that interest-bearing funds were used for non-business purposes and that the interest-free advances were made in the ordinary course of the assessee's business.

Conclusion:
The Tribunal dismissed the Revenue's appeals and the assessee's cross-objections, affirming the CIT(A)'s decisions on both issues. The Tribunal found no merit in the Revenue's arguments and upheld the CIT(A)'s factual findings and application of ITAT's directions.