2003 (12) TMI 266 - AT - Income Tax

Summary

Issues Involved:
1. Addition of alleged 'on money' payment for property purchase.
2. Disallowance of provision for machine hire charges.
3. Disallowance of motor car expenses.
4. Disallowance of loss in Wonder World division.
5. Addition of undisclosed sale receipts for flats sold.
6. Addition of Rs. 40 lakhs on protective basis for property sale to S.K. Trust.
7. Disallowance of miscellaneous expenses.
8. Addition of 'on money' received on sale of flats.
9. Timing of taxation for 'on money' receipts.

Issue-wise Detailed Analysis:

1. Addition of alleged 'on money' payment for property purchase:
The first ground concerns the deletion of an addition of Rs. 47,68,599 for alleged 'on money' payment by the assessee for a property purchase. The CIT(A) deleted the addition but suggested it may be considered in the assessment of O.P. Navani (individual). The Tribunal had set aside the CIT(A)'s order and remanded the matter for re-decision. The Tribunal held that no further directions could be provided regarding the entity in whose hands the 'on money' payment should be assessed since the matter was before the CIT(A). The ground was dismissed as infructuous, with the assessee allowed to raise all contentions before the CIT(A).

2. Disallowance of provision for machine hire charges:
The second ground relates to the disallowance of Rs. 66,500 for machine hire charges. The AO initially allowed Rs. 32,000 supported by a bill and disallowed Rs. 34,500 for lack of evidence. The CIT(A) directed the AO to verify and allow the entire amount if evidence was provided. The AO disallowed the entire provision upon reassessment due to lack of evidence. The Tribunal held that the disallowance could not exceed the original disallowance of Rs. 34,500, deleting the additional disallowance of Rs. 32,000. The ground was partly allowed.

3. Disallowance of motor car expenses:
The third ground involves the disallowance of Rs. 15,590 for motor car expenses due to personal use by a director. The assessee argued that personal use by a director should not be considered as personal use by the company. The Tribunal upheld the disallowance under s. 38(2), considering it fair and reasonable. The ground was dismissed.

4. Disallowance of loss in Wonder World division:
For the asst. yr. 1985-86, the assessee appealed against the disallowance of Rs. 1,14,000 for machinery hire charges. The AO and CIT(A) disallowed the provision due to lack of evidence. The Tribunal upheld the disallowance, noting the absence of bills and agreement with Bush India Ltd. The ground and appeal were dismissed.

5. Addition of undisclosed sale receipts for flats sold:
The Department appealed against the deletion of Rs. 3,80,000 for alleged undisclosed sale receipts. The AO based the addition on comparative sales and the DVO's report. The CIT(A) deleted the addition, finding no evidence of understated sale prices. The Tribunal upheld the CIT(A)'s decision, citing the Supreme Court's judgment in K.P. Verghese and the Bombay High Court's judgment in CIT vs. Smt. Archana R. Dhanwatay. The appeal was dismissed.

6. Addition of Rs. 40 lakhs on protective basis for property sale to S.K. Trust:
The Department appealed against the deletion of Rs. 40 lakhs added on a protective basis. The CIT(A) held that the property belonged to S.K. Trust, which was not a bogus entity, and the sale was genuine. The Tribunal upheld the CIT(A)'s decision, noting that the Trust had accepted the order. The ground was dismissed.

7. Disallowance of miscellaneous expenses:
For the asst. yr. 1986-87, the assessee appealed against the disallowance of Rs. 12,500 for presentation of silver coins to clients. The Tribunal considered it routine business expenditure and deleted the disallowance. The ground was allowed.

8. Addition of 'on money' received on sale of flats:
For the asst. yr. 1987-88, the assessee appealed against the addition of Rs. 5,23,600 for alleged 'on money' received on sale of flats. The CIT(A) restored the matter to the AO to consider the 'on money' receipts in the year of project completion, allowing the assessee to raise all arguments. The Tribunal upheld this decision, allowing the assessee to argue that the addition should be made in the asst. yr. 1983-84, the year of agreement. The appeal was partly allowed.

9. Timing of taxation for 'on money' receipts:
The Department appealed against the CIT(A)'s direction to consider 'on money' receipts in the year of project completion. The Tribunal, having allowed the assessee to raise the timing issue before the AO, dismissed the Department's ground as premature. The appeal was dismissed.