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TMI Blog2016 (8) TMI 871X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer in computing the income from Avalon Pub as per the regular books of account. Therefore, he concluded that 15% of the sales claimed by the assessee towards cost of liquor is very much reasonable. The findings of the Ld. CIT(A) are very much logical and it is commonsense that unless there are unaccounted purchases, there cannot be unaccounted sales. The Revenue is not disputed that in the regular books of account assessee has claimed the cost of Bar sales in the range of 19 to 26% and such cost of sales were allowed as deduction in computing the income. It is also evident from the seized materials that the assessee paid amounts to liquor shops i.e. Vishal wines. This shows that there are unaccounted purchases of liquor. In the circumstances, we find that the claim of the assessee 15% towards cost of liquor is very much reasonable. Thus, we sustain the order of the Ld. CIT(A) in directing the Assessing Officer to allow deduction of 15% from the gross sales made from Avalon Pub towards cost of purchases of liquor. This ground of the Revenue is rejected. Disallowance u/s. 36(i)(iii) out of bank interest paid - CIT(A) allowed claim - Held that:- In this case it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears while computing the deemed dividend taxable u/s. 2(22)(e) of the Act during this assessment year. This ground is partly allowed. Disallowance of benefit of telescoping in respect of unexplained income against the substantial disclosure of income in the hands of group of concerns of the assessee - Held that:- We failed to understand why the Assessing Officer has not made additions based on seized materials rather than going by the additional income offered by the assessee. We also see that the income from suppressed sales of Avalon Pub have been fully taxed as suppressed income and the very same income is disallowed in the hands of the Director i.e. assessee treating the same as unexplained income which would result in double addition. Therefore, we are of the considered view that it is unjust in denying telescoping of these amounts among the group of the assessee. However, we make it clear that if Vijaydeep Hotels Pvt. Ltd utilized these amounts for any other sources other than for advancing such amounts to the Director Mr. Karanveer Singh Bawa, to that extent it cannot be used for telescoping. Therefore, the Assessing Officer shall examine these aspects. In the circumstanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invoices for liquor purchases which were not recorded in the books of account. But the assessee has not substantiated its claim with evidences. The contention of the assessee was that search party did not find any discrepancy in the stock of liquor and therefore there cannot be any sales of liquor without any purchase of such liquor. It was the contention of the assessee that since there was no discrepancy in the stock then there are bound to be purchases of liquor not recorded in the books of account. Further, it was contended that seized materials contained details of bottles purchased and not accounted and also certain expenses such as payment of salaries and incentives to the Manager, payments made to police, RTO, Municipal Staff and Excise staff etc. It was contended before the Assessing Officer that the expenses claimed by the assessee at 15% towards cost of liquor is very much reasonable and much below the actual expenditure, therefore, should be allowed. This was not accepted by the Assessing Officer and he has treated the entire gross sales of ₹ 53,34,070/- as income of the assessee. 4. On appeal, the Ld. CIT(A) directed the Assessing Officer to allow deduction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer. The Ld. CIT(A) considering the submissions of the assessee and the seized documents directed the Assessing Officer to allow deduction of 15% from the Avalon Pub sales towards cost of liquor observing that the seized materials contains the recording of sales and payments were made for purchase of liquor outside the books of account and further on verification of the Foreign Liquor Register (FLR) each and every bottle of liquor sold is accounted for in the FLR. He further observed that if there were any unaccounted sales of liquor, it has to come out of unaccounted purchases of liquor only. The Ld. CIT(A) also held that as per the regular books of accounts, the cost of Bar sales is around 19% to 26% and therefore the deduction claimed by the assessee @ 15% is reasonable and in fact it is less than what has been allowed by the Assessing Officer in computing the income from Avalon Pub as per the regular books of account. Therefore, he concluded that 15% of the sales claimed by the assessee towards cost of liquor is very much reasonable. The findings of the Ld. CIT(A) are very much logical and it is commonsense that unless there are unaccounted purchases, there cannot be unaccount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bay High Court in the case of Murli Agro Products Ltd. (49 taxmann.com 172). 10. On merits, the Ld. Counsel for the assessee submits that the disallowance of interest is not at all justified for the reason that interest free funds available with the assessee are far excess than the funds utilized for making investments/giving advance to group concerns. He submits that when assessee has sufficient interest free funds available, presumption is that investments/interest free advances given are out of interest free funds available with the assessee. For this proposition, he places reliance on the decision of the Jurisdictional High Court in the case of CIT Vs Reliance Utilities Power Ltd., (313 ITR 340). The Ld. Counsel for the assessee further submits that the interest free advances made to sister concerns are for the purpose of business only and due to commercial expediency and therefore he submits that no disallowance is warranted u/s. 36(i)(iii) of the Act. 11. In so far as the contention that no addition is possible when no incriminating material is found in the course of search when the assessment already completed is not abated is concerned, the Ld. Departmental Represen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew of the decision of the Jurisdictional High Court in the case of Murli Agro Products (supra). Though this contention was raised before the Ld. CIT(A), we find that the Ld. CIT(A) has not decided this issue and the issue was left open. The Ld. CIT(A) has decided the issue on merits. Further, the assessee has neither filed an appeal nor petition under Rule 27 of ITAT Rules raising the above contentions before us. The assessee is making only oral submissions. In such circumstances, we are not inclined to go into such contentions raised by the assessee. Coming to the merits of disallowance made u/s. 36(i)(iii), the Ld. CIT(A) after considering the submission of the assessee and the case laws relied on by the assessee concluded that sufficient interest free funds were available with the assessee for advancing interest free loans, therefore deleted the disallowance made u/s. 36(i)(iii) observing as under: 6.6. I have carefully considered the issue. The appellant has claimed that current liabilities should be treated as Interest free funds available with them. I find no merits in the contentions of the appellant. The current liabilities is a part of working capital and cannot be e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e be interest-free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest-free funds available. In our opinion the Supreme Court in East India Pharmaceutical Works Ltd had the occasion to consider the decision of the Calcutta High Court in Woolcombers of India Ltd. where a similar issue had arisen. Before the Supreme Court it was argued that it should have been presumed that in essence and true character the taxes were paid out of the profits of the relevant year and not out of the overdraft account for the running of the business and in these circumstances the appellant was entitled to claim the deductions. The Supreme Court noted that the argument had considerable force, but considering the fact that the contention, had not been advanced earlier it did not require to be answered. It then noted that in Woolcomber s case the Calcutta High Court had come to the conclusion that the profits were sufficient to meet the advance tax liability and the profits were deposited in the overdraft account of the assessee and in such a case it should be presumed that the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cond grounds are similar to the appeal in ITA No. 3291/M/11, the decision rendered therein applies mutatis and mutandis to these grounds. Therefore, on similar lines and for similar reasons, the grounds raised on 1st and 2nd issue of cost of liquor purchases and disallowance of interest u/s. 36(1)(iii) by the Revenue in ITA No. 3384/M/11 for assessment year 2006-07 are dismissed. 17. The third issue in the appeal of the revenue for Assessment Year 2006-07 is that the Ld. CIT(A) erred in deleting the addition made u/s. 2(22)(e) as deemed dividend. 17.1. Brief facts are that the Assessing Officer while completing the assessment noticed that assessee has received loan of ₹ 65,63,000/- from M/s. Gunjyot Properties Pvt. Ltd., a company in which public are not substantially interested. He also noticed that one of the Directors Shri Karanveer Singh Bawa had substantially interested in both assessee company as well as M/s. Gunjyot Properties Pvt. Ltd., holding 47.7.% and 49.3% of share holding respectively. He also noticed that M/s. Gunjyot Properties Pvt. Ltd is having accumulated profits and there are no business transactions either with the assessee company or with the benef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Ld. CIT(A) on this issue. This ground is therefore rejected. ITA No. 3385/M/2011 A.Y. 2007-08 22. The first and second ground raised by the Revenue in this appeal is identical in Ground No.1 2 in ITA No.3291/M/2011 for Assessment Year 2004-05 though quantum may differ therefore, on similar lines and for similar reasons, the grounds raised by the Revenue in ITA No. 3385/M/11 for assessment year 2007-08 is also dismissed. 23. The third issue in the appeal of the revenue for Assessment Year 2007-08 is that the Ld. CIT(A) erred in deleting the addition made u/s. 2(22)(e) as deemed dividend. 24. Brief facts are that the Assessing Officer while completing the assessment noticed that assessee has received loan of ₹ 78,85,000/- from M/s. Backbay Properties Pvt. Ltd., a company in which public are not substantially interested. He also noticed that one of the Directors Shri Karanveer Singh Bawa had substantially interested in both assessee company as well as M/s. Backbay Properties Pvt. Ltd., holding 47.7.% and 50% share holding respectively. He also noticed that M/s. Backbay Properties Pvt. Ltd is having accumulated profits and there are no business transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jurisdictional High Court, we uphold the orders of the Ld. CIT(A) on this issue. This ground is therefore rejected. ITA No. 3241/M/2011 Assessee s appeal 29. The assessee has raised following grounds of appeal: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the Assessing Officer to assessed rental received as Business income as against income from House Property. Looking to the facts and in the circumstances of the case and in law the appellant submits that Ld. CIT(A) ought to have held that the rentals received should be assessed as Income from House property. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming addition of ₹ 41,32,500/- on account of the alleged deemed dividend u/s. 2(22)(e) of the I.T. Act 1961. Looking to the facts and in the circumstances of the case and in law the appellant submits that Ld. CIT(A) ought to have held that the said addition is incorrect and invalid and ought to have deleted the said addition. 3. On the facts and in the circumstances of the case and in law, the additions made on account of the Rental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates Pvt. Ltd. Vs ACIT in ITA No. 1451/M/2010 dated 20.4.2011. The Ld. Counsel for the assessee submits that the decision of the Calcutta High Court relied on by the Assessing Officer in the case of Mukherjee Estate (P) Ltd (supra) has been considered by the Co-ordinate Bench in this case and on identical circumstances it has been held that income from letting out of the terrace for putting up its mobile tower by the telecom companies is assessable under the head income from house property and not under the head Income from other sources . The Ld. Counsel for the assessee also placed reliance on the decision of the Delhi Bench of the Tribunal in the case of Manpreet Singh Vs ITO (53 taxmann.com 244) and submits that the Tribunal held that income earned by the assessee from renting of terrace for installation of mobile antenna was taxable as Income from house property . The Ld. Counsel for the assessee submits that even in this case the decision of the Calcutta High Court in the case of Mukherjee Estate (P) Ltd (supra) has been considered. The Ld. Counsel for the assessee further places reliance on the decision of the Delhi High Court in the case of Niagara Hotels Builders (P) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purtenant thereto. The Hon ble High Court held that the licence fee received by the assessee for letting out the terrace space is to be taxed as income from house property. While coming to such conclusion, the Hon ble High Court also considered the decision of the Calcutta High Court in the case of Mukherjee Estate (P) Ltd Vs CIT (supra). Similar issue has arisen in the case of Manpreet Singh Vs ITO (supra) wherein the Delhi Tribunal held that income received from letting out of terrace for setting up for installation of mobile antenna is taxable under the head income from house property only. Similar view has been taken by the Co-ordinate bench in the case of Kamlesh Real Estates Pvt. Ltd. Vs ACIT in ITA No. 1451/M/2010 dated 20.4.2011. Respectfully following the above said decisions, we hold that the income received by the assessee from letting out of terrace space for erection of antenna tower for Reliance Infocom is to be assessed under the head income from house property only and not under the head income from business or under the head income from other sources as was assessed by the Ld. CIT(A)/Assessing Officer . This ground of the assessee is therefore allowed. 36. The s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Vs DCIT (207) 11 SOT 302 (Mum) 39.1. He further submits that the concept of deeming certain payments or loans or advances to substantial shareholders as income was introduced with the object of curbing tax evasion. Upto 31.5.1997 dividend was taxed in the hands of the recipient of the dividend. However many closely held companies never declared any dividend and accumulated profits in the company itself. Since no dividend was declared the same could not be taxed. However, the companies did give loans or advances to substantial shareholders or to their concerns/companies who presumably enjoyed these funds but were not liable to pay any tax on the same as the amounts were loans or advances liable to be returned. These amounts of loans or advances are sought to be taxed as dividend by section 2(22)(e) of the Act by way of a deeming fiction. 39.2. He further submits that it is not the intention of the legislature to treat the bonafide transactions between two associate parties out of commercial expediency as deemed dividend. Various group concerns of the appellant have bank account with the same bank. If the bank manager finds that the bank balance in the bank account of a parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s. 2(22)(e) of the Act, addition has to be restricted to such percentage of accumulated profits as corresponding to assessee s share holding in the company as was rightly done by the Assessing Officer while completing the assessment. The Revenue did not bring to our notice any other decision contrary to the Pune Bench. Therefore, respectfully following the said decision, we direct the Assessing Officer to restrict the addition only to such percentage of share holding of the assessee to the accumulated profits in line with the decision of the Pune Bench of ITAT. Similarly, following the decision of the Pune Bench in the case of Kewal Kumar Jain (supra), we direct the Assessing Officer to exclude loan/advances given to the assessee in earlier years which are assessable as deemed dividend in the hands of the assessee in the past years while computing the deemed dividend taxable u/s. 2(22)(e) of the Act during this assessment year. This ground is partly allowed. ITA No. 3243/M/2011 A.Y. 2007-08 42. Ground No. 1 is regarding challenging the order of the Ld. CIT(A) in directing the Assessing Officer to assess rental income received by the assessee as business income as aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of this company cannot be allowed with regard to the unexplained and unaccounted income of the assessee who is an individual. The Assessing Officer also observed that the unexplained amount is in round figures and therefore telescoping cannot be given against suppressed sale of Avalon Pub relating to Vijay Deep Hotels Pvt. Ltd. Thus, he denied possibility of giving telescoping of unexplained income for all the three years and brought to tax. 46. On appeal, the Ld. CIT(A) agreed with the view taken by the Assessing Officer. The Ld. Counsel for the assessee submits that the Assessing Officer failed to carry out the directions of the Tribunal in allowing telescoping. The Ld. Counsel for the assessee submits that it is not in dispute that all these receipts are generated out of unaccounted sales made from Avalon Pub of M/s. Vijay Deep Hotels Pvt. Ltd., which is a group concern of the assessee and the sales from Avalon Pub have been completely taxed and therefore there is no justification in not allowing telescoping. He further submits that telescoping was denied on the ground that these are all round figures. He submits that this is not a ground for rejecting the plea of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Avalon Pub of Vijay Deep Hotels Pvt. Ltd and this suppressed sales have already been taxed in the hands of Vijay Deep Hotels Pvt. Ltd. There is one more reason for denying telescoping that assessee has not fully disclosed the amount as agreed in the declaration. If this is the contention of the Assessing Officer for not allowing telescoping, he could have made additions based on the seized materials ignoring the declaration. We failed to understand why the Assessing Officer has not made additions based on seized materials rather than going by the additional income offered by the assessee. We also see that the income from suppressed sales of Avalon Pub have been fully taxed as suppressed income and the very same income is disallowed in the hands of the Director i.e. assessee treating the same as unexplained income which would result in double addition. Therefore, we are of the considered view that it is unjust in denying telescoping of these amounts among the group of the assessee. However, we make it clear that if Vijaydeep Hotels Pvt. Ltd utilized these amounts for any other sources other than for advancing such amounts to the Director Mr. Karanveer Singh Bawa, to that extent it c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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