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TMI Blog2001 (7) TMI 267X X X X Extracts X X X X X X X X Extracts X X X X ..... ealing, etc. He filed his return showing total income of Rs. 1,00,570. During the course of assessment under s. 143(3), the AO made several disallowances/additions and the income was finally assessed at Rs. 11,63,740. Aggrieved by the order of the AO, the assessee filed his appeal to CIT(A) and alleged that the AO has failed to appreciate the facts of the case. By the alleged order the CIT(A) deleted major additions, against which the Revenue is now in appeal before us. 3. The first ground of appeal is regarding sustaining the disallowance of expenditure of Rs. 41,383. 4. During the course of assessment, the AO held that view that the said proprietary concern of the assessee had earned only commission income of Rs. 40,111 and, therefore, the expenditure of Rs. 61,438 incurred by the said concern is not provided to be wholly and exclusively incurred for earning of the said commission income. He, therefore, estimated that the expenditure for earning the commission income earned, was Rs. 20,055 and thereby balance of Rs. 41,383 was disallowed. 5. It was submitted before the CIT(A) that the assessee's business in ball-bearing was in the state of dormancy during the year and there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es below and carefully perused the paper book filed by the learned authorised representative. We are of the view that the AO's basic misapprehension is that the entire expenditure is relatable to the earning of commission. Expenditure relating to commission income alone, as estimated by the AO if comes to Rs. 20,055, the balance amount, viz., Rs. 41,383 would logically become admissible against the income derived from other activities as taken by the assessee. As per the statement of sources of income placed at Sl. No. 2 of the paper book, it shows that there were interest income of Rs. 2,63,251, shares dealing income of Rs. 6,07,200 and also income by way of share of profit from several firms and AOPs. We are also impressed by the submission of learned authorised representative when all the business of the assessee have common management, common capital and common establishment, they have a unity that makes all the business into one individual whole. Reliance was placed on the decision of Hon'ble Supreme Court in the case of Produce Exchange Corporation Ltd. vs. CIT (1970) 77 ITR 739 (SC) and CIT vs. Prithvi Insurance Co. (1967) 63 ITR 632 (SC). Thus, we can safely reach to the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said company. The assessee advanced loan to the company as it was in acute crisis for dearth of money. It was in the interest of the assessee that the advances were made so that the company could get out of its difficulty and its development plan could succeed to the benefit of the assessee as a person has substantial interest in it. The advances were interest bearing interest had been received in the past, but the company was further in financial difficulties disabling it from paying interest. Therefore, at a meeting of the Board of Directors of the company, a decision was taken to suspend the accrual of interest from 1st April, 1991. The decision applied to all the directors including the assessee. It was quite clear that the company had no money available to pay the interest. Further, it was clear that if all the creditors would make demand of interest, the same will drive the company to a liquidation proceedings. The assessee has produced the balance sheet of the company before the AO. The AO however, wrongly observed that seven loan creditors did not accept the suspension of accrual of interest and insisted on its payment and also forced the company to pay. From this the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be charged only on what a man has received and not what he might have received but for his wilful default. In this case ratio of Hon'ble Supreme Court in CIT vs. M/s Shoorji Vallabh Das Co. (1962) 46 ITR 144 (SC) is applicable. In the case of Shoorji Vallabh, a managing agency firm agreed to receive a lesser commission in the books of account. However, the commission as originally fixed was shown as having accrued to the assessee, but on question as to what income was to be assessed, it was held that mere book entry was not conclusive and what was to be considered was the real commission to which the managing agent became entitled in consequence of the agreement between the parties. 18. Thus, on the facts and circumstances of the case and the judicial precedents relied on above, we are of the considered opinion that the AO was not justified in taxing the notional interest income of Rs. 2,02,734. We do not find any infirmity in the order of the CIT(A), therefore, this ground of Revenue's appeal is also dismissed. 19. The last grievance of Revenue is regarding CIT(A)'s action in allowing the interest of Rs. 8,03,116 paid to the other parties, disallowed by the AO. 20. During ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24. We have heard the rival submissions, gone through the orders of the authorities below and carefully perused the paper book filed by the assessee. From the order of the AO we understand that the basis of disallowance of interest is that the assessee had debited the interest expenses instead of capitalising the interest and thereby utilisation of the borrowed fund against specific assets/investment have not been shown. The AO has grossly failed in appreciating the facts of the case. From the paper book filed by the learned authorised representative, it is crystal clear that the assessee was earning income from estate dealing continuously since last three years. Therefore, assessee's employment of capital for estate dealing and estate development was not investment but trading activities. The assessee acquired properties and developed it with the set purpose of selling the same at profit. This is the reason that assessee has made out trading and P L a/c for the estate under development and the interest on borrowed fund used in said business must come as a debit. The manner and method of maintaining account could not be faulted and the AO is not correct when the holds that in such ..... X X X X Extracts X X X X X X X X Extracts X X X X
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