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TMI Blog2020 (8) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO confronted the assessee with the details obtained qua the hawala transactions indicating bogus purchases of Rs. 27,16,280/-. The assessee tried to explain the genuineness of the transactions but without success for the reasons indicated in the assessment order. This led to disallowance of Rs. 27,16,280/-. The ld. CIT(A) affirmed the assessment order on this point. 4. We have heard the rival submissions and gone through the relevant material on record. The ld. AR did not seriously press the ground of genuineness of purchases, but insisted that even if the purchases were from hawala operators, still only the excess gross profit element ought to have been added instead of full amount of purchase. It is seen that the issue of bogus purchases came up for consideration before the Hon'ble Bombay High Court in Pr.CIT Vs. Mohommad Haji Adam & Co. Vide its judgment dated 11-02-2019 in ITA No.1004 of 2016 and others, the Hon'ble jurisdictional High Court has held that no ad hoc addition for bogus purchases can be made. It laid down that the addition should be made to the extent of difference between the gross profit rate on genuine purchases and gross profit rate on hawala purchases. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section ...'. This provision primarily refers to two components of income. The first component deals with the triggering of the jurisdiction of the AO and forms the basis for initiation of assessment or reassessment u/s 147, being the outcome of the AO having reason to believe about a specific income chargeable to tax escaping assessment. The second component, starts with the words 'and also' any other income chargeable to tax which has escaped assessment and which comes to the notice of the AO subsequently in the course of the proceedings under this section. This latter component is naturally de hors the subject matter of initiation of reassessment. An income is said to come to the notice of the AO when he finds for the first time during the course of proceedings u/s 147 that such income escaped earlier assessment. Whereas the first component must necessarily satisfy the relevant jurisdictional conditions of formation of valid reasons to believe by the AO, there is no such requirement for the second component to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lephone expenses in entirety without offering any suo motu disallowance on account of personal use by the partners, more so, when the vehicles and telephone were also admittedly used for non-business purpose as the assessee had not maintained any log books etc. to show their exclusive user for business purpose. Non-offering of such disallowance on account of personal use came to the notice of the AO during the course of proceedings u/s 147 of the Act. Once the position was such, we find no hesitation in holding that the test of such escaped income 'coming to the notice of the AO' during the course of proceedings u/s 147, got fully satisfied inasmuch as the disallowance of the instant expenses duly answered the description of "any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently, in the course of proceedings in this section". Ex consequenti, the submission of the ld. AR in this regard is jettisoned. 12. Coming to the merits of the addition, it is seen that the assessee could not adduce proper evidence in support of Vehicle and Telephone expenses having been incurred wholly and exclusively for the purpose of business inasmuch as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture, the AO did not allow interest u/s.36(1)(iii) to the extent of Rs. 31,54,535/- in relation to six investments made by the assessee, which have been tabulated at page 18 of the assessment order. The contention of the assessee that it was having enough own funds to invest in these properties and hence no disallowance was called for, did not find favour with the AO. He found that the assessee had taken interest bearing loan of Rs. 10.83 crore and had also paid interest on capital contribution of partners. As the assessee claimed deduction for interest paid to partners at Rs. 1.04 crore and to others at Rs. 83.92 lakh, the AO held that interest relatable to Investments of Rs. 6.74 crore was not deductible, which amount was computed at Rs. 31,54,535/-. The ld. CIT(A) countenanced the assessment order on this count. 18. We have heard the rival submissions and gone through the relevant material on record. Section 36(1)(iii) provides for deduction of : 'the amount of the interest paid in respect of capital borrowed for the purposes of business or profession'. It is thus overt that so long as the 'business purpose' test is satisfied, there can be no disallowance of interest. 'Busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urpose' is wanting. The ld. AR strenuously argued that the assessee's capital was much more than the amount of investments and hence no disallowance was called for. He relied on the judgment of Hon'ble Bombay High court in CIT Vs. Reliance Utilities and Power Ltd. (2009) 313 ITR 340 (Bom.) for contending that if interest free funds available with the assessee are sufficient to meet its investment and at the same time, a loan is raised, it can be safely presumed that the investments were from interest free funds. 22. There is no quarrel on the proposition advanced by the ld. AR as the same is duly supported by the judgment of Hon'ble jurisdictional High Court. The moot question which is required to be answered here is as to whether any interest bearing funds were available with the assessee which could be construed to have been utilised for making such investments for non-business purpose. The ld. AR accentuated on the capital contribution by the partners for fortifying his point of view of the availability of interest free funds. Au contraire, the AO has categorically noted that the assessee paid interest of Rs. 1.04 crore on partners' capital balances. Once interest gets paid o ..... 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