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TMI Blog2015 (7) TMI 447X X X X Extracts X X X X X X X X Extracts X X X X ..... l came to the possession of the Assessing Officer leading to conclude that the income has escaped assessment, thus, issuance of notice for reopening and reassessment order passed u/s 143(3) r.w.s.147 of the Act was rightly held to be unsustainable in law. The existence of tangible material is necessary to ensure against an arbitrary exercise of power, thus, we find no infirmity in the conclusion drawn by the ld. Commissioner of Income tax (Appeals). Disallowance u/s 36(1)(iii) of Income tax Act, 1961 - Considering the fact that the assessee had its own funds more than the loans given to its subsidiaries and also in the absence of any nexus establishing that the interest bearing 'borrowed funds were given us interest free to its subsidiaries, we hold that the disallowance of interest is not justified. Therefore, interest is allowable under section 36(1)(iii) of the Act. - Decided against the revenue. - ITA No. 5766 and 5767/Mum/2013 - - - Dated:- 10-4-2015 - Joginder Singh, JM And Rajendra, AM,JJ. For the Appellant : Shri Neil Philip-DR For the Respondent : Shri Vijay Kothari ORDER Per Joginder Singh (Judicial Member): The Revenue is aggrieved by the imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roducing hereunder the relevant portion from the assessment order and the reasons for reopening the assessment alongwith the information received from ITO-25(1)(4), Mumbai, for ready reference:- The assessee filed its return of income for A.Y. 2008-09 declaring total income at ₹ 188,50,28,066/- on 29-09-2008. The assessee's case has been selected for scrutiny and assessment u/s 143(3) of the I.T. Act, 1961 was completed on 27-12-2010, determining the total income at ₹ 191,99,06,040/. 2. Based on the information received from the ITO-25(1)(4), Mumbai, the assessment in this case has been re-opened by issuing notice u/s.148 of the Act on 25-05:-2012 after properly recording the reasons for the same. Further, the reason for reopening of the assessment has been duly provided to Shri A.L. Arokiadas, AR of the assessee on 06-12-2012. Thereafter, the assessee vide its letter dated 07-01-2013 received in this office filed its objection for the re-opening of the assessment, which were disposed off by passing speaking order on 22-01-2013 which was duly served. The relevant extract of the order dated 22-01-2013 is reproduced as under: . Order rejecting object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. SPCL) (ii) No details of progress in work were furnished by M/s SPCL (iii) The money was received by the said entity almost four years back but so for no settlement of the account has been done by M/s. SPCL (iv) No interest is charged on the amount received by the said entity (v) No action for recovery has been taken by M/s. SPCL 3. From the above fact it is evident that the assessee company paid an amount of ₹ 43,50,00,000/- to M/s. PRS Developers (Prop. Shri Nilesh J. Thakur) during the year under consideration, towards advance for acquisition of land, however, do not have any documentary evidences to substantiate its claim of such huge payments to the said entity. Importantly, the assessee company simply made the aforesaid amounts without entering into any agreements for acquisition of land by the said entity, which clearly indicates the doling out of interest bearing funds for non-business purpose. Thus, prima facie the assessee company namely M/s. Shapoorji Pallonji Co. Ltd., has doled out interest bearing funds for non business purpose under the garb of advances for which the assessee company has no documentary evidences in its possession. Since t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2008-09 in the case of Shri Nilesh Janardhan Thakur, it came to light that M/ s. PRS Developers is in receipt of total amount of ₹ 43,50,00,000/ - from us on various dates; Shri Nilesh. Janardhan Thak-ur has accounted such receipts as advances towards expenses related to the development works at Kandivali project in the capacity of a partner of S.P. Group; From our records such payments are evident from the bank statements but for which no documentary evidences have been maintained by us; The ITO, in the course of assessment proceedings, made third party enquiries with us; The ITO held that though we have made substantial payments to M/s. PRS Developers, we do not have any documentary evidences to substantiate such advances were given towards acquisition of land; The ITO reported that Shri Nilesh Janardhan Thakur has no business activity, that is to say no capacity to acquire land on our behalf; We have our own machinery of legal/technical/marketing/ financial department etc. for acquisition of land; The ITO has raised serious doubts about the nature of transactions for the following reasons: No land has been purchased or procured by M/ s. PRS Developer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings, on the basis of the allegations of Assessing Officer assessing Shri Nilesh Janardhan Thakur, cannot be the basis for validly initiating proceedings against us. The primary facts relating to all the transactions entered into by us during the F. Y. 2007-08, were before the Assessing Officer when he made the assessments under sub-section (3) of section 143. Hence, it is not open to invoke the provisions of section 147 of the Act to reopen the assessments because of the findings arrived at in the assessment order of Shri Nilesh Thakur. It would tantamount to change of opinion on the basis of the findings of another officer and not on the basis of formation of belief that income has escaped assessment. There should be a reason to believe as pointed out by the Supreme Court in CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC). The decision of the Supreme Court in Green World Corporation v. ITO [2009] 314 ITR 81 (SC) had held that the order passed by the Assessing Officer at the dictate of the Commissioner of Income-tax is nullity , The High Court, in CIT v. Shree Rajasthan Syntex Ltd. [2009] 313 ITR 231, (Raj), had held 'that initiation based on opinion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Enterprises. Since these were agricultural lands, it was necessary that the aggregator arranged for clear and marketable title, resolved internal disputes, ensure continuity of land holding conversion of status of lands from agricultural status to NA status, etc. before the same was formally transferred to us. Shri Nilesh Janrdhan Thakur/PRS Enterprises represented that monies were needed to be paid to the holders of land within specific time frames and that upon such amounts being paid to the land holders the necessary documentation would be entered into with the said land holders, Shri Nilesh Janardhan Thakur also represented that since the tracts of land sought to be purchased were vast, the 'aggregation of lands were to be on an ongoing basis. In the circumstances and relying upon such representations, we made payments of an aggregate amount of ₹ 141.50 crores from time to time (i.e. between July 2007 and mid 2009) by account payee cheques to Shri Nilesh Janardhan Thakur's concerns i.e. PRS Enterprises and Acecard Infrasol Pvt. Ltd. for these purposes. The said amounts have been duly reflected in our Balance Sheets as (Advances for land'. In fact) we have cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able properties in the Raigad area on account of the likely applicability of certain provisions of the Maharashtra Land Revenue Code, 1960, the Bombay Tenancy and Agricultural Lands Act, 1948 and such other legislations, the same were not included in the decree, but Shri Nilesh. Janardhan Thakur and others executed several Powers of Attorney in our favour. Accordingly, we have adopted proceedings against Shri Nilesh Janardhan Thakur his concerns and has substantially secured the amounts advanced,'misappropriated by the said Nilesh. Janardhan Thakur. The facts stated above in para 7 are supported by the suit along with the annexures filed before the Hon'ble Bombay High Court in Suit No. 2576 of 2011. Copy of the consent terms arrived at the suit and the annexures thereto are being furnished herewith marked as annexure 'A'. Having regard to the evidences} records and documents} if the following issues listed out by you in para 3 4 of the notice are considered} the following position emerges: (a) Amount of ₹ 43,50,00,000/- was paid to M/s PRS Developers towards acquisition of land Yes, we have made payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for land. Particulars 31.03.2008 Own Funds: Net Worth: Shareholder Funds (Share Capital + Reserves) 500,81,91,248 Less: Payments to M/ s. PRS Enterprises (Proprietorship concern of Shri Nilesh Janardhan Thakur) and Acecard Infrasol Pvt. Ltd. towards (advance for land's during the previous years 2007-08, 2008-09 and 2009-2010 (relevant to A. Y. 2008-09, A. Y. 2009-10 and A. Y. 2010- 2011) 141,50,00,000 Thus we thus submit that there is a clear demonstration that owned funds have been used wholly and exclusively for the purposes of our business of land acquisition. In the decision of the Hon'ble Supreme Court in the case of Munjal Sales Corporation v CIT (298 ITR 298) it was held that where the assessee had capital and profits more than the interest free funds advanced, then it has to be presumed that such interest free advance were given out of interest free capital available with the assessee. In the decision of the Hon'ble Bombay High Court in the case of CIT v Reliance Utilities and Power Ltd. [313 ITR 340] it has been held that if i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Nilesh Janardhan Thakur and his concerns and no reference of this issue is there in the original Assessment order. Hence, this is not a case where the Assessing Officer sought to review his earlier findings, nor is case of 'change of opinion'. (iii) 1 am in possession of 'tangible material' in form of information received from ITO 25(1)(4), assessment order passed by him for A. Y. 2008-09 in the case of shri Nilesh Janardhan Thakur and order of Ld. CIT(A) confirming his action. Based on this information and further after examining this vis-a-vis case records of the assessee for A.Y. 2008-09, I formed 'reason to believe' that income of the assessee for the Assessment Year under consideration has escaped the assessment to the extent of interest paid and allowed on borrowed funds diverted to the concerns of Shri Nilesh Janardhan Thakur for apparently non-business purpose. (iv) The expression reason to believe in Section 147 has been construed in the judgment of the Supreme Court in Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) 291 ITR 500, to mean a cause or justification. However, at the stage when the assessing officer reopens an assessment, it is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the concerned year. (vii) In most part of the objections filed by the assessee for re Opening the assessment is focused on merits of the issue. In my considered opinion, this is not proper stage to go into the merits of the issues. The sole question pending before me is that whether I was in limits of my powers conferred upon me by the provisions of section 147 and 148 while reopening the assessment of the assessee and merits of the issues can be dealt with during the course of proceeding subsequently. (viii) The Gujarat He in the case of Gruh Finance Ltd. 243 ITR 482 held that reassessment proceedings can be initiated on the issues wherein mistake had occurred and observed as under- It is true that even after the amendment in the provision of section 147 of the Income-tax Act, 1961, a mere change of opinion, ipso facto, would not confer or empower the Assessing Officer to embark upon a reassessment exercise. Notwithstanding that, power to make assessment or re-assessment within four years of the end of the relevant assessment year would be attracted even in cases where there has been complete disclosure of all relevant facts upon which the assessment might have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11] held that while dismissing the writ petition filed by the assessee against reopening its assessment for A. Y. 2001-02 u/s 148 that since it was open to assessee to produce records and satisfy assessing authority that there was no suppression of true and full accounts while submitting original return, proceedings initiated for reassessment could not be quashed at threshold. (xii) The Hon'ble ITAT Chandigarh Bench 'A' held in the case of Shri Vikrant Dutt Chaudhary v. Assistant Commissioner of Income tax, Panchkula* [12 taxmann.com 359 (Chd.)] [2011] that the main provisions of section 147 authorize and permit the Assessing Officer to assess or re-assess income chargeable to tax if he has reason to believe that income chargeable to tax for the relevant assessment year has escaped assessment. The relevant Para of this judgment is quoted verbatim hereunder: The word 'reason' in the phrase 'reason to believe' in section 147 would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income has escaped assessment, he can be said to have reason to believe that income chargeable to tax has escaped ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and served on the assessee. In response, Shri Vijay Agarwal, CA AR, duly authorized by the assessee company, attended the assessment proceedings and furnished the details and explanation called for from time to time. 4. The assessee is engaged in the business of Civil Construction and related activities. There is no material change in the nature of business as compared to the earlier years. After examination, the assessment is completed as under: 5. Transactions with Shri Nilesh Janardhan Thakur (proprietor of PRS Enterprises) M/s.Acecard Infrasol Pvt. Ltd. 5.1 In the balance-sheet of the assessee as on 31-03-2008 under the head 'current assets' an amount of ₹ 43.50 crore has been shown as advance towards land purchase. The said amount has been paid by the company to M/s. PRS Enterprises, a proprietorship concern of one Shri N.J. Thakur. 5.2 The assessee states that these amounts are in the nature of advance payments towards acquisition of land with clear and marketable title in an around Aliabagh and other areas of Raigad District. 5.3 The transactions with Shri N.J. Thakur and his group of concerns have received detailed attention from various aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A. We have made payments as stated above. No payments have been made either to PRS Developers nor to Mr. Nilesh J. Thakur. Q.3 Details of services provided by M/ s. PRS Enterprise/ PRS Developers/M/s. ACE Card Infrasol Pvt. Ltd. proprietary concerns of Mr. Nilesh J. Thakur with bills along with bills and nature of treatment given in the books for these payments. A. No services were provided by M/ s. PRS Enterprise/ PRS Developers /M/s. ACE Card Infrasol Pvt. Ltd. The payments are accounted as 'advances' in our books of accounts for acquisition of lands. Q.4. Details of any TDS made on the payment to M/ s. PRS Enterprise/ PRS Developers / M/s. ACE Card Infrasol Put. Ltd. proprietary concerns of Mr. Nilesh J. Thakur. A. No TDS is made on the payments to M/ s. PRS Enterprise and M/s. ACE Card Infrasol Pvt. Ltd. since the payments are in the nature of advances for acquisition of lands. Q.5 Copy of written agreement, if any, signed with Shri. Nilesh J. Thakur, by M/ s. PRS Enterprise/ M/ s. ACE Card Infrasol Pvt. Ltd. A. There is no written agreement, if any, signed with Shri Nilesh J. Thakur, proprietor of AI/ s. PRS Enterprise/ M/ s. ACE Card Infrasol pvt. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as approached by one Nilesh Thakur who represented that he and his team were in the business of assisting in the acquisition of large parcels of land. Niiesli Thakur also claimed that he was from the Alibauq area and was conversant with the local people and issues, rules and procedures applicable with land acquisition in the Project Areas. Since Nilesh Thakur through his concerns, had worked with SD Corporation Pvt. Ltd. (SDCL), (an associate of SPCL) in SDPL's project at Samta Nagar, Kandivali, SPCL, entrusted Shri Niiesh Thakur with the taksk of identifying and aggregating 900 areas of lands for SPCL in the Project Areas. By Letter of Appointment dated 16th July, 2007, SPCL appointed Shri Nilesh Thakur through his entity 1.1/ s. PRS Enterprise to identify, assist and aggregate for SPCL, the lands in the Project Areas, inter alia on the terms and conditions therein. The said letter required that 300 acres be acquired within 3 years - by 2010 the balance 600 within 5 years. The said Letter of Appointment was accepted by Shri Nilesh. Thakur/PRS Enterprises by its letter dated 19th July, 2007. As per clause 6 of the appointment letter dated 16-07-2007, the advance given o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ociated concerns like PRS Enterprises, M/s. ACE Card Infrasol Pvt. Ltd etc on the basis of which payments have been released? Ans. Subsequent to the agreement, lands in the Project Areas were identified by Nilesh Thakur/M/s. PRS Enierprises. Since these were agricultural lands) it was necessary that the aggregator arranged for clear and marketable title, resolved internal disputes) ensure continuity of land holding conversion of status of lands from agricultural status to NA status etc before the same was formally transferred to SPCL. Shri Nilesh Thakur/M/s. PRS Enterprises represented that monies needed to be paid to the holders of lands within specific time frames and that upon such amounts being paid to the land holders) the necessary documentation would be entered into 'with the said land holders. Shri Nilesh. Thakur also represented that since the tracts of land sought to be purchased were vast, the aggregation of lands were to be on any ongoing basis. In the circumstances and relying upon such representations, SPCL made payments of an aggregate amount of ₹ 141.S0 crs from time to time (i.e. between July 2007 and' mid 2009) by account payee cheques to Shri Nil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as expenditure in the Profit Loss Account till date. 5.4.3 Further, vide letter dated 16-07-2012 the AR of Shri NJ Thakur submitted before the DDIT as under: Details of Nature of Business: PRS Enterprises PRS Developers PRS Enterprises and PRS Developers are Sole Proprietorship Finns of Shri Nilesh J. Thakur. The firms are into business of real estate development. They were formed in the year 2007-08 so as to undertake development of two project viz. Samta Nagar located at Samta Nagar, Kandiuali East and. World Trade City located at Garodia Naqar, Ghatkopar jointly with Shapoorji Pallonji Group uiz. Shapoorji Pallonji Co. Ltd. and S. D. Corporation Pvt. Ltd. The firms had being receiving payments in the nature of ADVANCES as per the progress of project from Shapoorji Pallonji Co. Ltd. and S. D. Corporation Pvt. Ltd. for meeting project expenses and acquisitions of land, development rights, TDR, FSI, etc for both projects. Since both are Proprietorship Firms, the Income tax return for both firms are clubbed together with Income Tax return of Shri Nilesh J. Thakur. Enclosed find copy of Income Tax Return acknowledgement along with copy of firm's Balance She ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000 ---- 845,000,000 All the above amounts have been received in the Current A/c. No. 10216008637 of M/s. PRS Enterprises maintained with Greater Bombay Co-operative Bank Ltd. Andheri Branch, Bank Statement of the same is enclosed for your ready reference. III. Ace Card Infrasol Pvt. Ltd. It is a group company of Shri Nilesh J. Thakur The company is into business of real estate development. It was formed in the year 2008 so as to undertake development of project viz.; World Trade City located at Garodia Nagar, Ghatkopar jointly, with Shapoorji Pallonji Co. Ltd. The films had being receiving payments in the nature of ADVANCES as per the progress of project from Shapoorji Pallonji Co. Ltd. and S. D. Corporation Pvt. Ltd. for meeting project expenses and acquisitions of land, development rights, TDR, FSI, etc Inter company advances have been paid and received from Ace Card Infrasol Put. Ltd. by both PRS Enterprises PRS Developers. Enclosed find copy of Ledger account of Ace Card Infrasol Pvt. Ltd., in the books of PRS Enterprises ,PRS Developers. 5.4.4 Subsequently the assessee again submitted before the DDIT as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the moveable (deposit Receipts Bank accounts) and immoveable assets held by N. J. THAKUR others., in favour of SPCL. Accordingly, an Order dated 19th October 2011 was passed by the Hon'ble Bombay High Court in the aforesaid Suit, in terms of the consent terms. Till date, however, the decree issued by the Hon'ble Bombay High Court remains unenforced. The advances given by SPCL to N. J. THAKUR and Ace Card Infrasol Pvt. Ltd. are reflected under the head (advance payments for land acquisition. 5.4.5 From the above it is clear that the assessee and Shri NJ Thakur are contracting each other. On one hand the assessee claims that these payments were made towards acquisition of land in and around Alibaugh and other areas in Raigad District. While Shri N. J. Thakur states that the amounts were received towards the development of project at Samata Nagar, Kandivali (E), Mumbai and for development of World Trade City at Garodia Nagar, Goregaon, Mumbai. Further light on the .nature of these transactions is thrown by the findings of the ITO-25(1)(4), Mumbai and CIT(A)-35, Mumbai in the individual assessments of Sh.ri NJ Thakur for the A.Y.2008-09. This is discussed hereunder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee has claimed 'himself to be a partner of SPCL. The claim is not acceptable on the ground that M/s. SPCL has not recognized him as a partner, no partnership agreement has been made, the letter dated 10.11.2010 written by the assessee to M/s. SPCL has been written only after initiation of scrutiny proceedings and if assessee's own version is to be taken as true the question arises as to why he has written for entering into a formal agreement of partnership after five years of claimed association. In his submissions the assessee has claimed to be associated with various companies, etc., but he has failed to produce supporting and corroborating evidences to substantiate any relationship. The assessee was asked in question no. 15th 16th of the statement recorded on oath recording proof for assessee being engaged in business of construction activity or having any partnership with M/s. SPCL and was asked to produce copy of minutes of meeting and supporting for projects, etc. as stated by the assessee. The assessee submitted that all projects belongs to tenants or central government. Process of sanction is going on but failed to submit even single documentary eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The copy of reply is handed over to you. Please go through the reply and offer our comments thereof. Ans. Please refer to our submission dated 03.12.2010 in page No:269 in which we have explained our workings for last 10 years to the Chairman M/s SP Group 10. Have you received similar advances for undertaking similar nature of work from any other company other than M/s Shapoorjee Pallonjee Co. Ltd. in past and till date? Ans. No. 11. Have you received similar fee for undertaking similar nature of work from any other company other than M/s SD Corporation in past and till date? Ans. No. We have not received any fee from any other concern. 12 Why the amount of ₹ 43,50,00,000/- received from M/s. Shapoorjee Pallonjee Co. Ltd. shall not be treated as income received without consideration and be brought to tax u/ s.56 of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or in the name of your proprietary concerns? Ans. All project lands belong to tenants or MHADA or Central Government. Process of sanction is going on and Central Government has issued letter dated 02.07.2010 after submission of project by our group. All clearances are sanctioned in the name of tenant organizations and after due process of rehabilitation sanctions and resale FSI will be trans erred in the name of our Group. Sanctions are procured by Architects appointed by our Group under Architect Act. 17. Do you have any correspondence with Shapoorjee Pallonjee Co. Ltd. and M/s. SD Corporation Pvt. Ltd. with regard to advances and fee received from them? Can you produce a single document? Ans. Please refer to page no.57 of our submission dated 03.12.2010 18. Page no. 57 is a letter written by you on the letter head of M/s. Lucky Angel Group addressed to Shri Pallonjee Shapoorjee Mistri, Chairman SP Group on 10.11.2010, i.e. after initiation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We will file separate submission on this point by 20 days, i.e. by 3rd January, 2011. 21. It is seen from your balance sheet that you have acquired fixed assets, i.e. land, building, hotels, resorts in your name out of money received from M/s. Shapoorjee Pallonjee Co. Ltd. and M/s. SD Corporation Pvt. Ltd. which is contradictory to the version of Shapoorjee Pallonjee and even yours. Please offer your comments. Ans. As explained earlier in point no.1S money given for project and not for land. Please refer to page no. 26 of our submission. We have to market 15. 72 crore free sale PSI in future and all properties purchased in our name will be part of final sales strategy and agreement of project between our group and SP Group. 22. where the original agreements pertaining to the assets shown in the balance sheet. Ans. On 16.02.2010 our office premises were raided by Service Tax Officers. We are developing projects of 10,000 tenements and we can loc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is evident from the replies of M/s. SPCL. Therefore, the contention of the appellant that he is doing his business with M/s. SPCL and he is tied to them for last many years, is not proved and hence not acceptable. The appellant has submitted that he has received 1.2 crore salable FSI from MHADA is also not substantiated by way of documentary evidences. Moreover, this submission has nothing to do with the financial activity of the assessee during F.Y.2007-08. 10.2.2 The appellant has argued that he did various works and transactions pertaining to the joint venture with SP Group. The submission of the appellant is rejected as neither M/s. SPCL nor M/s. SDCL has recognized him as their partner or prospective partner. In reply to notice u/s.133(6) and u/ s.131 of the IT Act, 1961, they have categorically denied to have entered into any written agreement with the appellant. The appellant has also not submitted any partnership deed or any other substantiating or corroborating evidence. 10.2.3 The appellant has relied upon a letter sent to SP Group for preparing and signing the partnership agreement. The same has no relevance. Nowhere in reply from M/s. SPCL or M/s. SDCL, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... documentary evidence to substantiate his claim. On the contrary, M/s SPCL has stated that they have advanced money to the appellant Jar procuring land and M/s. SDCL has stated that they have paid fee to the appellant. If appellant's version is to be accepted he becomes an agent of SPCL for purchasing land on behalf of SPCL and if the version of SDCL is to be accepted the appellant is a professional who has received fee' for consultancy services. All the three replies are contradicting each other. It is surprising that none of the above entities including the appellant has submitted a single documentary evidence regarding their association with each other either through partnership or though appointment as consultant or agent or any other relationship. The only thing which is clear from the above is that there is huge influx of funds in the appellant's account through cheque from these two concerns namely SPCL and SDCL. The appellant has shown these two concerns as sundry creditors in the un-audited balance sheet. The nature of accounting entries shown by the appellant is not substantiated by way of documentary evidence or third party confirmations. Hence the accounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ashion} M/ s. SPCL has stated that they have not advanced to any other person in such a manner. M/s. SPCL has not entered into any written agreement with the appellant before or after advancing of such a huge sum. The version of M/s. SPCL is difficult to believe as the huge amount has been forwarded without any written agreement. The appellant is not big businessman. In the balance sheet the opening capital is shown at ₹ 5 lakhs only. His credit worthiness as a businessman and his business acumen are not proved from the Balance Sheet and its Opening Capital. In absence of any written agreement} nobody will advance such huge amounts to a novice person like appellant who does not have any repayment capacity. It is pertinent to mention here that the appellant has filed return of income for the first time. The appellant IS not an expert in property matters. In statement recorded u/s.131 on 14.12.2010, in question no.6 the appellant was asked by Assessing Officer that whether he have acquired any land/right/ asset on behalf of M/s. SPCL the appellant answered in negative. When asked by Assessing Officer to comment on the reply of M/s. SPCL through question no.9 of the statement} t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ney for project is not acceptable in view of the above discussions. Further, the reply of M/s. SPCL is also not plausible as nobody will advance such a huge sum without written agreement. Advance against purchases of land is given to the person who is owner of the land arid not to the third party, the appellant is a novice man and has no experience in property related matters as discussed above, whereas M/s SPCL is a corporate giant having its own machinery of legal, technical, marketing/financial departments and huge experience of dealing in property and construction activities, then the question of advancing a huge sum to the man like appellant raises serious doubts about the nature of transaction. The money was received by the appellant quite a few years back but so far no settlement of the account has been done, no action for recovery has been reported by M/s SPCL; no land has been proved to have been purchased by the appellant in the name of M/s SPCL as has' been confirmed by appellant as well as NI/ s. SPCL; no interest has been charged on the amount received by the appellant - all these factors raises serious doubt about the genuineness of the transactions involved. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is therefore held that the sums paid has not been utilized by my assessee for the purpose of its business. I therefore hold that no deduction out of the same can be allowed either as expenditure or allowed to be capitalized under the head 'work-in-progress'. This being the case, the only other issue to be seen is the source in the hands of the assessee for having advanced this Doney and the tax implication thereon. Accordingly, in the course of assessment proceedings, the AR of the assessee has been asked to explain as to why proportionate disallowance for the interest bearing funds utilized for non business purposes should not be disallowed for which the assessee simply stated that the payments are wholly and exclusively for the purpose of business. The submission of the assessee has been considered, however the same is not acceptable in absence of any evidences. Accordingly, the interest disallowance on such payments is discussed hereunder: 5.9 As discussed above, the assessee has made a payment of ₹ 43.50 crore, the source of the payment is from two bank accounts namely Standard Chartered Bank, Mumbai Main Branch, current AI c.No.22205268192 and Deustche Bank. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 30000000 SCB-2 26-09-07 11-10-07 16 Balance became positive on 11-10-07 157808 PRS Enterpri se 01-10-07 30000000 SCB-2 01-10-07 11-10-07 11 Balance became positive on 11-10-07 108493 PRS Enterpri se 31-10-07 50000000 SCB-2 Balance became positive on 11-10-07 0 PRS Enterpri se 29-11-07 45000000 SCB-2 Balance became positive on 11-10-07 0 PRS Enterpri se 26-12-07 95000000 Deustc he Bank 26-12-07 31-03-08 97 3029589 PRS Enterpri se 10-01-08 65000000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Disallowed (para 8) 34,01,095 Total Income 188,93,75,531 Rounded off to 188,93,75,530 7. Assessed u/s 143 (3) of the Income-tax Act, 1961. Credit for prepaid taxes and computation of tax is as per ITNS 150A enclosed separately and forms part of the order. Interest u/s.234A, 234B, 2343C and 234D is charged as per law. Demand Notice and Challan is issued with this order. Issue notice u/s.274 r.w.s. 271(1)(c) of the Act. 2.3. If the observation made in the assessment order, reasons for reopening the reassessment, material available on record, reasoning contained in the impugned order and the assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, we find that the facts, in brief, are that the assessee declared income of ₹ 188,50,28,066/- in its return filed on 29/09/2008 which was processed on 27/07/2009, u/s 143(1) of the Act. Since the case was selected for scrutiny notice u/s 143(2) of the Act was issued to the assessee on 04/08/2009. The Assessing Officer vide order dated 27/12/2010, framed u/s 143(3) of the Act, determining the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and the information, which came to the light/possession of the Assessing Officer, later on, the case was reopened, resulting into issuance of notice u/s 148 of the Act on 25/05/2012 after properly recording the reasons, which were also duly provided to the assessee on 06/12/2012. The assessee also objected reopening u/s 148/147 of the Act vide letter dated 07/01/2013. 2.5. Now question arises whether the ld. Commissioner of Income Tax (Appeals) was justified in holding the reassessment proceedings, initiated u/s 148 of the Act, as invalid and further whether a new material was available with the Assessing Officer for reopening the assessment? 2.6. We have perused the assessment order, reasons recorded, information provided by the ITO of Shri Nilesh Thakur, factual finding recorded in the impugned order and also considered the arguments advanced from respective side. We find that the primary facts relating to all the transactions entered by the assessee during financial year 2007-08 were very much available before the Assessing Officer when he framed the original assessment u/s 143(3) of the Act, therefore, no new material was made available at the later stage. Broadly, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own fund and borrowed funds and at the time of advancing excess funds were available in comparison to advanced money. The assessee gets the benefit of the decision from Hon'ble Apex Court in Munjal Sales Corporation vs CIT and from Hon'ble Bombay High Court in Relaince utilities and Power Ltd., wherein, it was held that where the capital and profits are more than the interest free funds advanced, then it has to presumed that interested free advances were given out of interest free capital available. As on 31/03/2008 the assessee was having total amount of ₹ 500,81,91,218/- (Rs. 203,02,00,000 as share capital and ₹ 297,79,91,248 as reserve and surplus) and as on 31/03/2009, total ₹ 621,01,17,406/-. The totality of facts clearly indicates that the notice u/s 148 was solely issued on the basis of information received from ITO 25(1)(4), having jurisdiction upon Shri Nilesh Thakur. The basic requirement section 148 is that the Assessing Officer should have reason to believe that income chargeable to tax has escaped assessment, thus, the law does not permit such a action. The following decisions supports our view:- 1) CIT vs Kelvinator of India Ltd. (2002) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion'. One must keep in mind, the conceptual difference between power to review and power to reassess. The Hon'ble Apex Court in CIT vs Bhanji Lavaji 79 ITR 582 (SC) held that mere change of opinion cannot form the basis of reassessment. In Shri Krishna Pvt. Ltd. Vs ITO 221 ITR 538 (SC), it was held that the power conferred upon the ITO by section 147 and 148 are not unbridled one. Identical ratio was laid down in Sirpur Paper Mills Ltd. Vs ITO 114 ITR 404 (AP) supports our view. The Hon'ble Calcutta High Court in S.P. Agrawal vs ITO 140 ITR 1010 held that statement by third parties cannot form the basis for reopening. We find that the ld. Assessing Officer merely on the basis of information received from another ITO without ascertaining the correctness of the information mechanically issued notice u/s 148. The only basis of issuing the notice u/s 148 was merely the later information received from ITO 25(1)(iv). The totality of facts clearly indicates that no new material came to the possession of the Assessing Officer leading to conclude that the income has escaped assessment, thus, issuance of notice for reopening and reassessment order passed u/s 143(3) r.w.s.147 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant. In these circumstances, the appellant filed Suit No. 2576 of 2011 against Shri Nilesh Janardhan Thakur, PRS Enterprises others in. September 2011. Subsequent thereto Shri Nilesh Janardhan Thakur agreed to settle the matter by transferring all the moveable and immoveable assets in favour of the appellant. The Hon'ble Bombay High Court passed an order dated 19th October 2011 in the aforesaid Suit and decreed the monies, assets and properties, illegally misappropriated by ShriJanardhan Thakur and his entities in favour of the appellant. 13.3. Having regard to the above admitted facts recorded in the suit filed by the appellant before the Hon'ble Bombay High Court which are duly supported by records and documents filed as annexure before the Hon'ble Bombay High Court, the amounts advanced by the appellant are only for acquisition of lands in the Project areas of Panvel, Alibaugh, Pen and Raigad district. The appellant has produced records and documents in support of the transactions entered into with Shri Nilesh Janardhan Thakur and his group entities. All facts obtained from the records and documents reveal that the appellant had provided funds to Shri Nilesh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, which is explicitly evident from the 'letter of appointment issued by the appellant company dated 16/07/2007 in favour of Shri Nilesh J Thakur and subsequent acceptance fetter dated 19/07/2007given by Shri Nilesh J. Thakur to the appellant. The land acquisition in project areas is during the course of the regular business activity of the appellant. The funds advanced by the appellant to Shri Nilesh Janardhan Thakur are thus held to be for appellant's business purposes. Accordingly, it is held that the disallowance computed out of claim of deduction of interest u/s. 36(1)(iii) was not called for In the aforesaid facts. 13.5. Even further to the afore-stated facts, the appellant's A.R's have also submitted that the appellant has a common pool of funds i.e. own funds and borrowed funds and that the appellant had sufficient own funds as on the date of advancing funds to Shri Nilesh Janardhan Thakur. It was submitted that the funds in the bank account were fungible and merely because there was negative balance in the current account on a particular date, it cannot be inferred that the payments made was out of borrowed fund It was also submitted that the factum tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 2988.98 crores to its subsidiaries as on 3110312002, out its own funds and internal accruals except to the extent of relying upon the decision of Hon'ble Kerala High Court in the case of V.I. Baby : Company, 254 ITR 248 and decision of the Hon'ble Bombay High Court in the case of Phalton Sugar Works Lid, 208 ITR 989 disallowed the said interest of ₹ 11,19,382/-. Being aggrieved the assessee filed appeal before the first appellate authority. 5.2 It was contended on behalf of the assessee that assessee's own funds were far in excess of the interest free loans given to its subsidiaries: It was contended that as per audited accounts .. assessee's own funds as on 31/3/2002 stood at ₹ 25, 136.76 crores and, therefore, interest free loans given to its subsidiaries should be considered as having been given out of its own funds. It was contended that assessee had' not taken any specific interest bearing loans for advancing interest free loans to its subsidiaries. It was submitted that in view of the fungibility of the funds available, it can be legitimately presumed that the interest free loans given to the subsidiaries had been given out of own fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers of the authorities below. We have also considered the cases relied upon by the authorities below as well as the cases cited by ld. A.R (supra). There is no dispute to the fact that the assessee's own funds are far in excess of the interest free loans and advances given by the assessee to its subsidiary companies. The Hon'ble Bombay High Court has held in the case of Reliance Utilities Power Ltd. (supra) that if there were funds available both interest free and overdraft / or loans taken, then presumption would arise that investment would be out of interest free funds generated or available with the company. It was held that if interest free funds were sufficient 10 meet the investments mode, in that case a presumption is established that the borrowed capital was used for the purpose of business and the interest expenditure is deductible under section 36(1)(iii) of the Act. The similar view has also been considered by the Hon 'ble Calcutta High Court in Wool Combers of India Ltd., J 34 ITR 219 (Cal) s wherein it was held that if there were sufficient profits available to meet the advance fax liability and the profits were deposited in the overdraft account of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of interest of ₹ 2,46,16,438/- is deleted in the year under consideration for the reasons stated in my appellate order For A. Y2008- 09. Thus, taking note of all the factual position of the case, I consider in proper and appropriate to hold that the A.O. was not justified in his action. Accordingly the appellant's these grounds of appeal arc allowed. 3.1. If the observation made In the assessment order, conclusion drawn in the impugned order, material available on record, assertion made by the ld. respective counsel, if kept in juxtaposition and analyzed, we find that the assessee was having 500.81 crores consisting of capital and reserves as on 31/03/2008, whereas, the assessee advanced ₹ 43.50 crores to Nilesh Thakur for aggregating land in terms of appointment letter dated 16/07/2007, thus, we find no infirmity in the conclusion drawn in the impugned order as the ld. CIT (A) has already placed reliance upon the decision from Hon'ble Apex Court in Munjal Sales Corporation, from Hon'ble jurisdictional High Court in Reliance Utilities Powers Ltd. (supra) and the decision of the Tribunal in Reliance Industries ltd. (ITA No.3082/Mum/2006) order dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.4 At this point it may be noted that the assessee has not debited such amount of ₹ 43.50 crore in his profit and loss account as expenses nor has he included this amount in his work-in-progress. It is an admitted fact that these amounts stands as 'advance for land purchase' under 'current assets' in his balance-sheet as on 31-03-2008. We will now examine the submission of the assessee and Shri N.J. Thakur before various authorities and their findings as under: e. Para 5.4.5 From the above it is clear that the assessee and Shri NJ Thakur are contracting each other. On one hand the assessee claims that these payments were made towards acquisition of land in and around Alibaugh and other areas in Raigad District. While Shri N. J. Thakur states that the amounts were received towards the development of project at Samata Nagar, Kandivali (E), Mumbai and for development of World Trade City at Garodia Nagar, Goregaon, Mumbai. Further light on the .nature of these transactions is thrown by the findings of the ITO-25(1)(4), Mumbai and C!T(A)-35, Mumbai in the individual assessments of Shri N.J Thakur for the A.Y.2008- 09. This is discussed hereunder: f. Para 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... J Thakur. Without conducting this basic due diligence the assessee would have me believe that they kept on releasing the payment over the three years for the same. My assessee has also denied entering into any partnership agreement or project development with Shri N. J. Thakur as partner/director. j. Para 5.8 In view of the above discussion it is amply clear that the sum paid by SPCL to PRS Enterprises and Ace Card Infrasol Pvt. Ltd., allegedly for the purpose of business being land aggregation is not for the stated purposes. There is no evidence brought out on record either by my assessee or Shri N. J. Thakur to show what is the business purpose between them. It is therefore held that the sums paid has not been utilized by my assessee for the purpose of its business. I therefore hold that no deduction out of the same can be allowed either as expenditure or allowed to be capitalized under the head 'work-in-progress'. This being the case, the only other issue to be seen is the source in the hands of the assessee for having advanced this Doney and the tax implication thereon. Accordingly, in the course of assessment proceedings, the AR of the assessee has been asked to ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire set of facts in relation to the transaction in between Shri Nilesh Janardlian Thakur arc set out in the suit plaint and the annexures filed before the Hon'ble Bombay High Court in Suit No. 2576 of 2011. 11. It is submitted that merely because Shri Nilesh Thakur had given certain explanations, which are bereft of any facts, records or documents, it could not be said that there was any income which has escaped assessment in the hands of your assessee. 12.It is also submitted that the appellant had borrowed funds solely for the purposes of its business activities. The lands proposed to be acquired in the project areas was wholly and exclusively for the purposes of our business. The entire amount of advance was reflected in the Balance sheet under the head 'Current Assets- Advance for land.' 1.The appellant has a common pool of funds i.e. own funds and borrowed funds and the own funds, as on the date of advancing funds to Shri Nilesh Janardhan Thakur, were in excess of the amounts lent. We rely on the decisions in cases of Hon'ble Supreme Court in the case of Munjal Sales Corporation vs CIT and Hon'ble Bombay High Court in CIT vs Reliance Utilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... July, 2007. In terms of the said letteragreement, the appellant has provided funds to Shri Nilesh Thakur, by way of advances for purchase of lands. The payments to Shri Nilesh Thakur have been made in terms of the resolution of the Board of Directors of the appellant company. The appellant has made payments 0/ on aggregate amount of ₹ 141. 50 crores from time to time (i.e. between July 2007 and mid 2009, A.Y.-08-09-Rs.43.50 crores,A.Y-09-10- ₹ 53.00 crores, A.Y.-10-11-Rs.45.00 crores) by account payee cheques to Shri Nilesh Janardhan Tahkur's concerns i.e. PRS Enterprises and Acecard Infrasol Pvt. Ltd. The said amounts have been reflected in the Balance Sheets of the appellant as 'Advances/or land'. Shri Nilesh Janardhan Thakur by his letter dated 22nd March 2010, informed the appellant that the payment received was used for acquiring properties and that the surplus funds had been kept in fixed deposit and that the properties would be transferred in favour of the appellant as soon as possible. However thereafter, Shri Nilesh Janardhan Thakur, neither refunded the monies nor transferred the properties to the appellant. In these circumstances, the appellant fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf, in the appellate proceedings for A. Y 2009-10, has admitted to having received the funds from the appellant company for land aggregation. J-Je has also admitted that the record and documents furnished by the appellant company before the Hon'ble Bombay High Court depicted the true nature 0/ transaction in between them. Thus it is seen that Shri Nilesh Thakur has taken a diametrically opposite stand on the nature and purpose of advances given by the appellant 10 him as compared to the stand taken by him during the course of assessment proceedings for A. Y. 2008-09 and 2009-10. In case the stand taken by Shri Nilesh Thakur in the appellate proceedings for A. Y 2009-10 is considered, there is no contradiction in between the explanation given as regards the nature and purpose of advances given by the appellant to Shri Nilesh Thakur. The admitted stand of Shri Nilesh Thakur in the appellate proceedings for A. Y 2009-10 is duly supported by the records. Hence, the only inevitable conclusion that can be inferred is that the appellant had advanced monies for acquisition of lands at Alibaug, Pen, Panvel and other areas in and around Raigad district, which is explicitly evident from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on (supra) and Hon'ble Bombay High Court in the case of CIT v Reliance Utilities and Power Ltd. (supra), the advances given to Shri Nilesh J. Thakur are presumed to be from the Interest free own funds of the appellant. In the recent decision of the Hon'ble ITAT in the case of Reliance Industries Ltd. v DCIT (ITA No. 3082/Mum/2006 dated 28/05/2012) it was held as under: 5.1. The A 0 has slated that assessee has advanced interest free loans to its subsidiary companies. The AD has stated that assessee was asked to prove the nexus between source of funds out of which advances were given to its subsidiary companies and interest free or' own funds available with the assessee. The assessee filed details and stated that the assessee had given loans and advances of ₹ 2988.98 crores to its subsidiaries as on 31/03/2002, out its own funds and internal accruals except to the extent of relying 'upon the decision of Hon'ble Kerala High Court in the case of V.I. Baby : Company, 254 ITR 248 and decision of the Hon'ble Bombay High Court in the case of Phalton Sugar Works Lid, 208 ITR 989 disallowed the said interest of ₹ 11,19,382/-. Being aggrieved the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in the case of Reliance Utilities Power Ltd., vs. CIT 313 ITR 340 submitted that no disallowance out of interest expenditure is to be made if interest free funds were sufficient to meet the investment made. He further submitted that the Hon'ble Apex Court has also held in the case of S.A. Builders Ltd., vs. CIT, 288 ITR 1 that when loan to its subsidiary is given in the course and for the purpose of business of its business, no disallowance of interest has to be made. He submitted that in view of above decisions, the disallowance of interest is not justified and the same should be deleted. 5.5 On the other hand, ld. D.R relied on the orders of the authorities below. 5.6 We have carefully considered the submissions of the ld. representatives of the parties and orders of the authorities below. We have also considered the cases relied upon by the authorities below as well as the cases cited by ld. A.R (supra). There is no dispute to the fact that the assessee's own funds are far in excess of the interest free loans and advances given by the assessee to its subsidiary companies. The Hon'ble Bombay High Court has held in the case of Reliance Utilities Power Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporation v CIT (298 ITR 298) and the decision of the Hon'ble Bombay High Court in the case of CIT v Reliance Utilities and Power Ltd. [313 ITR 340] also the jurisdictional ITA T, Mumbai in the case of Reliance Industries Ltd. v DCIT (ITA No. 3082/Mum/2006 dated 28/05/2012), I consider it proper and appropriate to hold that the disallowance made by the A.O. u/s 36(1)(iii) of the Act of ₹ 34,01,095/- in the given facts of the case is completely unjustified and incorrect. In view of the same, the addition so made by the A. 0. is deleted. Thus, this ground of appeal is allowed. 3.4 In view of my decision in appeal for A.Y.-08-09, wherein the facts are identical to the facts as in the year under consideration, the reopening of assessment in annulled and the disallowance of interest of ₹ 2,46,16,438/- is deleted in the year under consideration for the reasons stated in my appellate order For A.Y.2008-09. Thus, taking note of all the factual position of the case, I consider in proper and appropriate to hold that the A.O. was not justified in his action. Accordingly the appellant's these grounds of appeal are allowed. 4.1. If the factual finding recorded by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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