2016 (11) TMI 961 - AT - Income Tax

Unexplained investment u/s.69 - unexplained expenditure u/s 69C - survey conducted - Held that - The whole exercise of revenue was based on conjectures and surmises and there was no material on record which proved that the renovation work was met out of money other than the borrowed from the Bank, nor could the AO or ld.CIT(A) record any findings that the assessee had any other source of income apart from its regular income of the assessee. In our opinion, the assessee has explained the source of expenditure and the nature of expenditure incurred and therefore the Additions made by the AO u/s 69 of the Act as unexplained investments and u/s 69C unexplained expenditure could not be sustained in the present facts and circumstances. Moreover, the co-ordinate bench of the Tribunal for the assessment year 2004-05 deleted the addition by ld. CIT(A) which was made by the AO on the basis of loose papers page no 4 and 5 impounded during the course survey action - Decided in favour of assessee Disallowance of depreciation on hotel building - Held that - We find that the assessee has already proved before the authorities below that the assessee has incurred expenditure for the purpose of construction and renovation of the hotel for creating some more space/rooms for residential purposes and the source was out of money borrowed from Corporation Bank. We have already decided in grounds no.1 and 2 above that the source of renovation and repairs were out of funds arranged from the Corporation Bank by the assessee firm. Accordingly we are of the considered opinion that money spent by the assessee towards construction and renovation in the block of assets was eligible for depreciation as the same was being used for the purpose of business of the assessee as the fact of expenditure having incurred on renovation was proved - Decided in favour of assessee Disallowance of interest paid to the Corporation Bank - Held that - We find that the assessee has already proved that the renovation and construction of hotel out of funds borrowed from the Corporation Bank which has already been elaborately discussed while deciding grounds of appeal no.1 and 2 of this appeal and decided in favour of the assessee. In our opinion, the assessee has proved that the loan was taken ,borrowed and used for the purpose of business of the assessee and therefore , the assessee is entitled to claim the depreciation on the amount of expenditure capitalized during the year. On the same analogy , the interest on loan from Corporation Bank would be allowed as admissible expenses.- Decided in favour of assessee Unexplained expenditure u/s 69C - Held that - We find merit in the contentions of the assessee that since the assessee has already offered and added a sum of ₹ 50 lakhs suo mottu at the time of filing of return and the benefit of unexplained transactions ₹ 44,81,000/- should be allowed to be adjusted against the said voluntary disclosure which was specifically made to cover any expenses , notings or cash transactions as per the affidavit as in respect of suo motto disclosure no other materials was found. We are, therefore, not in agreement with the findings of the ld. CIT(A) in upholding the addition. In our opinion, the same should be allowed to be covered and adjusted against the surrender of ₹ 50 lakhs at the time of filing of return of income - Decided in favour of assessee Addition u/s 69C - Held that - We find that the ld.CIT(A) has recorded the finding of the facts while deleting the said addition and by holding that the entries in the said papers/sheets did not belong to the assessee or sister concern or its partners. We are in agreement with conclusion drawn by the ld.CIT(A) as nothing to controvert the finding of ld.CIT(A) has been brought before us by the ld. DR. Therefore we dismiss the appeal of the revenue - Decided in favour of assessee

Summary

Issues Involved:
1. Addition of ?6,76,23,000/- as unexplained investment under Section 69.
2. Addition of ?11,97,000/- as unexplained expenditure under Section 69C.
3. Disallowance of depreciation of ?22,99,096/-.
4. Disallowance of interest of ?22,75,714/- paid to Corporation Bank.
5. Addition of ?44,81,000/- as unexplained expenditure under Section 69C.
6. Deletion of addition of ?1,57,85,000/- by CIT(A) under Section 69C.
7. Disallowance of depreciation of ?59,37,593/- and ?69,13,144/- for subsequent assessment years.
8. Disallowance of interest of ?77,65,935/- and ?1,08,04,969/- for subsequent assessment years.

Detailed Analysis:

1. Addition of ?6,76,23,000/- as Unexplained Investment under Section 69:
The assessee's appeal against the addition of ?6,76,23,000/- as unexplained investment was upheld by the CIT(A) and AO based on loose papers found during a survey. The assessee argued that the source of funds was a loan from Corporation Bank, used for hotel renovation. The AO and CIT(A) dismissed this claim due to lack of corroborative evidence. The Tribunal found that the renovation was indeed carried out and funded by the loan, dismissing the addition as based on conjectures and surmises. The Tribunal directed the deletion of the addition.

2. Addition of ?11,97,000/- as Unexplained Expenditure under Section 69C:
The Tribunal also addressed the addition of ?11,97,000/- as unexplained expenditure, which was similarly based on the same loose papers. The assessee's explanation of the expenses being part of the renovation funded by the bank loan was accepted by the Tribunal, leading to the deletion of this addition as well.

3. Disallowance of Depreciation of ?22,99,096/-:
The AO disallowed depreciation on the grounds that the capital expenditure was based on bogus bills. The CIT(A) upheld this disallowance. However, the Tribunal found that the renovation and construction were indeed carried out and funded by the bank loan. Since the expenditure was genuine and used for business purposes, the Tribunal directed the AO to allow the depreciation.

4. Disallowance of Interest of ?22,75,714/- Paid to Corporation Bank:
The AO disallowed the interest on the grounds that the loan was not used for business purposes. The CIT(A) upheld this disallowance. The Tribunal, however, found that the loan was used for the renovation of the hotel, a business purpose, and directed the AO to allow the interest expense.

5. Addition of ?44,81,000/- as Unexplained Expenditure under Section 69C:
The AO made an addition based on computer files found during the survey, which the assessee disowned. The CIT(A) partly allowed the appeal, deleting ?1,57,85,000/- but sustaining ?44,81,000/-. The Tribunal found that the assessee had already made a suo-motto disallowance of ?50 lakhs to cover such discrepancies and directed the deletion of the sustained addition.

6. Deletion of Addition of ?1,57,85,000/- by CIT(A) under Section 69C:
The revenue's appeal against the deletion of ?1,57,85,000/- was dismissed. The CIT(A) found that the entries related to property transactions not connected to the assessee. The Tribunal upheld this finding, noting that the revenue failed to provide evidence to the contrary.

7. Disallowance of Depreciation of ?59,37,593/- and ?69,13,144/- for Subsequent Assessment Years:
The disallowances for subsequent years were based on the same grounds as the initial disallowance of ?22,99,096/-. The Tribunal applied the same reasoning and directed the AO to allow the depreciation for these years as well.

8. Disallowance of Interest of ?77,65,935/- and ?1,08,04,969/- for Subsequent Assessment Years:
Similarly, the disallowances of interest for subsequent years were based on the same grounds as the initial disallowance of ?22,75,714/-. The Tribunal directed the AO to allow the interest expenses for these years as well, following the same reasoning.

Conclusion:
The Tribunal allowed the appeals of the assessee, directing the deletion of the additions and disallowances made by the AO and upheld by the CIT(A). The revenue's appeal was dismissed. The Tribunal's decisions were based on the finding that the renovations were genuine, funded by a bank loan, and used for business purposes.