9911796707
TMI Blog2017 (12) TMI 1519X X X X Extracts X X X X X X X X Extracts X X X X ..... By Revenue ) ( A.Y. 2009-10) 2. These cross appeals are filed against the order of CIT (Appeals)-II, Nashik dated 26-02-2013. The relevant facts of the case include that the assessee is a Builder and Land developer and engaged in the business of construction of residential/commercial projects and trading in lands/plots etc. In the A.Y. 2009- 10, the assessee filed return of income declaring total income of Rs. 2,15,76,850/-. At the end of the assessment proceeding, the AO finalized assessee's assessed income for the year at Rs. 13,75,96,300/-. AO made various additions. However, the CIT(A) granted partly relief to the assessee in the First Appellate Proceedings. 3. Aggrieved with the additions deleted by the CIT(A), the assessee filed appeal vide ITA No.706/PUN/2013. Further, aggrieved by the relief granted by the CIT(A), the Revenue filed cross appeal vide ITA No. 902/PUN/2013. Now, we shall take up the assessee's appeal first. ITA No. 706/PUN/2013 ( By Assessee- A.Y. 2009-10) 4. Grounds raised by the assessee in this appeal are as under : "1. On the facts and in the prevailing circumstances of the case, the learned CIT(A) has grossly erred in confirming ad-hoc addition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed additional income of Rs. 6,00,000/- for taxation on this account of differential market rates of sale of flats. The said offer is made for bringing the litigation to the end and also to buy peace of mind. However, the AO found the offer is far below the variation in sale price of the flats, i.e. around Rs. 30,00,000/-. Eventually, AO rejected the said assessee's offer of Rs. 6,00,000/- and proceeded to make a round sum addition of Rs. 30,00,000/-. The relevant paras from the A.O's order are extracted as under: "On this point vide letter dated 20/12/2011, the assessee vide para 1 has stated as under: " As regards difference between agreement rate and average rate of flat-total amounting to Rs. 18,87,880/-, it is submitted that : Although the difference can be very well answered ( Commercial expediency), but to avoid litigation and to purchase/buy peace of mind, an amount of Rs. 6,00,000/- is agreed for addition as discussed and directed by your honor, subject to non initiation of any penalty proceedings." 4.1. Thus, the assessee's written argument has no force. The assessee vide letter dated NIL filed on 11/11/11 has worked out the difference of 3 flats only where the avera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t price. In real estate business this practice is unheard of . In normal real-estate business the discount offered on sale of flats is very nominal/modest and it is offered on sale price. Appellant's behavior strongly corroborates the presumption that it has taken part of the sale consideration in cash outside its regular books of accounts. The appellant's involvement in cash transactions in real estate was also seen in the books of accounts of 'chhoriyas' of Jalgaon (seized p. 42 of Ann.B-19 during search of Chhoriyas on 22/08/2008 and a copy of which is given in Smt. Taradevi's Appeal order AY.2009-10) in regard to plots at Shridi. In view of the facts and circumstances of the case, I am of the considered opinion that AO was justified in making addition of Rs. 30 Lakhs. The addition is confirmed." 7. Aggrieved with the above decision of the CIT(A) who confirmed the addition of Rs. 30,00,000/-, the assessee raised ground No. 1 and 2 in this appeal. It is the argument of Ld. Counsel of the assessee that making such an addition of Rs. 30,00,000/- on ad-hoc is unsustainable when sell proceeds are duly accounted and the transactions are supported by documentary evidence. He further a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the average sales price. Therefore, there is variation in figures of the assessee, i.e. Rs. 18.88 lakhs against Rs. 30 lakhs of the Revenue. It is also clearly inferable that the offer of Rs. 6 lakhs is not without any sustainable reasons and one such reason includes that the offer of discount to certain customers is not exclusively for business purposes. 10. It is undisputed fact that assessee sold the residential flats at different rates of sell price. The assessee, in response to the above queries, furnished explanation and they were considered and dismissed as general in nature. Therefore, AO rejected not only explanation of the assessee but also the offer of additional income of Rs. 6,00,000/- for the A.Y. 2009-10 given by the assessee. As such, the AO did not have any direct evidence to demonstrate that the sale price is received by the assessee in cash in part and the same is unaccounted in the books of account. Therefore, it is not a case of outright suppression of sale proceeds. AO also failed to prove the fact of granting discount towards bulk purchases, known persons and the social obligations etc., is not genuine. Therefore, in our view, it is a case of ad-hoc addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect, the basis, which is considered prudent by the assessee, while offering the said additional income of Rs. 6,00,000/- is approved. Accordingly ground No. 1 and 2 raised by the assessee in appeal are partly allowed. 12. Ground No. 3 relates to confirming the disallowance of interest of Rs. 44,50,212/- u/s.36(1)(iii) of the I.T Act and disallowance of Rs. 25,114/- u/s. 14A r.w.r 8D of the Act. 13. Relevant facts in this regard include that the assessee debited the interest expenditure of Rs. 45,88,660/-. It includes the amount of Rs. 44,50,212/- paid for delay in making payment for purchase of development rights against the site - Anmol's Nayantara Empire. This payment of interest was paid to four co-owners of the land and the same was paid despite absence of any specific clause in the agreement enabling the assessee to pay for said interest payment for delay, if any. Doing assessment proceedings, AO noted that assessee never borrowed any funds and therefore, held that the said payment of interest is not for business purpose. Therefore, AO disallowed the entire amount u/s. 36(1) (iii) of the Act r.w.s 14A of the Act. Another amount of Rs. 25,114/- i.e. 0.5% of investment is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... why the said provisions were invoked. The interest claim mentioned in section 36 of the Act relates to the claim of interest linked to the capital borrowed by the assessee. In this case there is no capital borrowed by the assessee. More facts are needed for adjudication of this issue. Therefore, we dismiss the Ld. AR's request for not remanding to the file of AO. Therefore, in the interest of principle of natural justice, the matter is remanded to the file of AO for fresh examination. AO shall give reasonable opportunity of hearing to the assessee. As such, we have no evidence linking the interest claim to the business purposes or personal payments or otherwise. AO shall examine all parameters while deciding the issue by passing a speaking order on each of the objection raised by the assessee. Accordingly, ground No. 3 raised by the assessee is allowed for statistical purposes. 18. In the result, appeal of the assessee is partly allowed for statistical purposes. ITA No. 902/PUN/2013 ( By Revenue-A.Y. 2009-10 ) 19. In the Revenue has raised following grounds of appeal : "1. On the facts and circumstances of the case Ld. CIT(A)-II, Nashik erred in deleting the addition made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning of the construction. It is also a case where Smt. Taradevi Ratanlal Bafna is the first customer and proposed to be a landlord of branded shop in her premises of the commercial property. The assessee justified the sales to Smt. Taradevi Ratanlal Bafna at the rate of 1389 per sq.ft. at the discount of nearly 30%. Thus, the assessee justified the sale of said commercial area to Smt. Taradevi Ratanlal Bafna for sum of Rs. 2,55,75,000/- against the market rate of Rs. 3.41 crore. He also argued against the invoking provision of Section 28(iv) of the Act and relied on various decisions. AO rejected the same and proceeded to make addition of Rs. 2,44,62,169/- being difference between the sell price and the market value. 21. In the First Appellate Proceeding, on this issue, the assessee made various submissions the details of which are provide in Para No. 6.3. Finally, CIT(A) deleted the addition as per discussion given in Para No. 6.3.5 of the impugned order. The contents of the same are extracted as under : "6.3.5 In the facts and circumstances of the case and taking into consideration the legal provisions in this regard the addition of Rs. 2,44,62,169/- in the hands of the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es would also be collected immediately. This would result into saving of interest for the firm. f) The AO's reliance on the cases cited in the assessment order in this respect is not in order. An analysis of the facts involved in the relevant case has been given in detail in para 18 of the submission. g) Since the firm has transferred shop premises at cost of Rs. 3,41,00,000/- and this is as per the decision of the Hon'ble Apex Court in the course of Sir Kikubhai Premchand Vs. CIT(1953) 24 ITR 506 SC and since the difference between cost price and market price does not amount to profit, there is no case for addition as made out by the AO." 23. The above reasons given by the assessee are exhaustive. No evidence is brought on to the records by the AO to controvert the same. It is known practice in the market that the initial customers enjoy huge discount in the sale price. Further, the early payers of consideration also enjoy the discounts in sale prices. In this case, Smt. Taradevi Ratanlal Bafna with 60% share in the firm, gave huge deposit/advance of Rs. 5 Crore well in advance before construction really commenced. She also set a trend for good precedent of sales to the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to addition of Rs. 1,46,475/- on account of unsupported expenses. Relevant facts are given in page 5 of the CIT(A)'s order. It is claim of the assessee all the expenditures are incurred wholly and exclusively for business purpose and they all duly supported with evidences. However, the AO is of the view that the said expenditure relates to the subcontracted works and therefore, the claims are not allowable. Accordingly, AO made addition on the entire claim of Rs. 1,46,475/-. 29. The CIT(A) discussed this issue and restricted to the disallowance of Rs. 1,46,475/- on adhoc basis to the sum of Rs. 46,475/-and allowed balance amount of Rs. 1 Lakh in favour of the assessee. Revenue is aggrieved on this relief. 30. Before us, Ld. DR for the Revenue submitted for confirming the addition made by the AO. Per contra, Ld. A.R. requested for confirming the order of the CIT(A). 31. We heard both the parties and perused orders of the Revenue in general and the contents of Para 6.2 of the CIT(A)'s order is particular. We find the said para is required to be extracted as under : " 6.2 I find that the appellant during the assessment proceedings agreed for an addition of Rs. 46,475/- subject to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances of the case, the learned CIT(A) has grossly erred in confirming the disallowance of Interest of Rs. 2,35,910/-under section 36(1)(iii) and sec.40A(2)(b) of the I.T. Act. Therefore, addition may please be deleted. 4. On the facts and in the prevailing circumstances of the case, the learned CIT(A) has grossly erred in confirming the addition of Rs. 70,118/- under section 14A of the I.T. Act, rw rule 8D. Therefore, addition may please be deleted." 35. The general facts relating to the assessee were already narrated in the preceding paragraphs. We shall now take up the facts relating to each of the ground in the following paragraphs. 36. Ground No.1 raised by the assessee relates to the addition of Rs. 39,48,000/- on account of difference in sale rates of the flats. This issue is identical to the Ground No.1 of the appeal in ITA No.706/PUN/2013 for the A.Y. 2009-10. In that year, the addition of Rs. 30 lakhs was made on adhoc basis against the offer of Rs. 6 lakhs by the assessee during the assessment proceedings. In the said assessment order, the AO held that there was variation in sale rates of flats. In response, the assessee submitted that the reasons for variation in ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifference in sale price of the flats. It is an admitted fact that there is variation in the sale price and the same varies from customer to customer, one floor to the other etc. It is not the case that low sale price is quoted in the lower flats uniformly and higher price is charged on higher floors. That shows that discount offered by the assessee in many cases are not wholly and exclusively for business purposes. We have given similar finding in the identical issue pertaining to the appeal of the assessee for the A.Y. 2009-10 in the preceding paragraphs of this order. We have considered the un-retracted letter of the assessee for the A.Y. 2009-10 whereby assessee offered additional income of Rs. 6 lakhs and confirmed the said offer of Rs. 6 lakhs for the detailed reasons given by us. In principle, we dismissed the addition of Rs. 30 lakhs in that year giving reasons. We approved the working of assessee in arriving at the variation of Rs. 18.88 lakhs. For the same reasons, in principle, we find it is appropriate to uphold the decision of the AO in making additions. However, we have considered the fact that on the addition of Rs. 39,48,000/-, the profit rate of assessee for this ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f natural justice. AO is also directed to follow the precedents if any on this issue. Accordingly, Ground No.3 raised by the assessee is allowed for statistical purposes. 46. Ground No.4 relates to the disallowance of Rs. 70,118/- u/s.14A r.w. Rule 8D of the I.T. Rules. AO invoked clause 8D(2)(ii) and 8D(2)(iii) r.w.s.14A of the Act in making said disallowance. CIT(A) confirmed the same as per the discussion given in page 27 of his order. 47. Before us, Ld. Counsel for the assessee fairly mentioned that this issue can also re-visit to the file of the AO for fresh adjudication on the fact that there is no need for disallowance on account of clause 8D(2)(ii) and 8D(2)(iii). Further, he submitted that assessee is having excess interest free funds to meet the investment which yielded exempt income of Rs. 57,055/-. He also submitted that the AO need to consider the settled legal propositions on this issue of disallowance u/s.8D(2)(i) of the I.T. Rules, 1962. 48. On hearing both the parties, we are of the view that this issue also should be remanded to the file of AO for fresh adjudication. AO is directed to apply binding judgments on this issue relating to investment of the excess fu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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