Income Tax Appellate Tribunal - Mumbai
Deputy Commissioner Of Income-Tax vs Vira Construction Co. on 7 February, 1997
Equivalent citations: [1997]61ITD33(MUM)
ORDER
P.J. Goradia
1. This appeal arises from the order dated 29-9-1992 passed by the Commissioner of Income-tax (Appeals)-X, Bombay (Mrs. Sushma Trivedi).
2. The first ground is against non-acceptance by the CIT(A) of the paperbook claimed to have been presented at the time of appeal hearing. This ground was not pressed and, therefore, the same is rejected.
3. The second ground is in connection with addition on account of brokerage of Rs. 1,12,852 and discount of Rs. 2,72,353. It was the common contention of both the parties that on this aspect the decision taken in assessee's own case for assessment year 1988-89 in I.T.A. No. 6240 (Bom.) of 1993 be applied to the facts of the case. For the reasons recorded in our order disposing of the aforesaid appeal, we set aside the appellate order on this ground and restore the issue to the file of the first appellate authority with a direction to reconsider the claim of the assessee after considering full facts of the case and after bringing on record appropriate material and finding after giving reasonable opportunity to the assessee as also to the Assessing Officer.
4. The next ground relates to an addition of Rs. 19,60,000 added as unexplained cash credits in the assessment as also against disallowance of interest of Rs. 8,94,364 on the basis that conditions laid down under section 36(1)(iii) could not be said to have been fulfilled so as to allow the claim of interest on such loans. In this regard it would be appropriate to read the relevant portion of the assessment order extracted below :
"As regards the letter filed by the assessee as mentioned above, the assessee has made false statement in writing which stated that local brokers have appeared before me for verification of loans. In fact no one attended before me anytime either in past or in present. This fact has already been told to Shri A.G. Joshi, C.A. The assessee failed to furnish any details as mentioned above. He was further requested to furnish details to complete the assessment. As per assessee's representatives' request, another date for filing the details was fixed on 23-1-1992 with the condition that further extension may not be granted for filing the details.
3. On this date, i.e., on 23-1-1992, assessee's representative H.N. Mehta & Associates, C.A. wrote a letter stating as under :
'This has reference to the hearing our Shri Joshi has with you on 13th of this month. At the said time some information was required to be filed today. In this connection our client has informed us that the said details are not being compiled so far as the Accountant of the company who was looking after the accounts left the service. We, therefore, on behalf of our client request you to kindly adjourn today's hearing for 10 days. We hope your goodself will accede to our above request.' Considering the request, the assessee was further given opportunity to file the details and explain the return. Vide this office letter dated 23-1-1992 by fixing date of hearing on 31-1-1992 along with notice under section 142(1) of I.T. Act.
4. The assessee's representative Shri A.G. Joshi, C.A. along with Shri H.L. Kathuria stated to be accountant of Group companies attended on 31-1-1992, but neither furnished any details as required to complete the assessment nor any explanation in writing in response to said letter dated 23-1-1992 and notice under section 142(1) of I.T. Act, 1961.
5. The assessee was given several and sufficient opportunity to furnish the details and to explain the return filed. But assessee has not taken even little care to comply with the notice under section 142(1) and letter dated 23-1-1992. As time-barring assessment is involved and assessee is also not co-operative, there is no alternative but to complete the assessment on the basis of material available on the records with the following remarks :
6. The nature of business of the assessee is like last year. The firm acts as broker on behalf on M/s. Veera Properties, Bangalore and Madras to receive commission from the said company. It is stated by the representative of the firm that during the year there was no sale of flat and office premises therefore no commission or brokerage has been received by the assessee. The income declared only is interest on security deposits from the abovesaid companies.
7. Income declared by the assessee in the last five years is given as under :-
Assessment year 1984-85 Loss Rs. 1,65,570 Assessment year 1985-86 Loss Rs. 81,040 Assessment year 1986-87 Loss Rs. 8,03,060 Assessment year 1987-88 Loss Rs. 2,42,096 Assessment year 1988-89 Loss Rs. 7,17,620
The assessee has not been able to prove the purpose for which loan has been taken. In view of this, assessee has failed to prove that the conditions of the provisions of section 36(1)(iii) are fulfilled to claim the interest on such loans. In view of the same, whole interest of Rs. 8,94,364 so claimed is disallowed and added to the total income of the assessee."
5. In appeal, the CIT(A) observed that the assessee had not furnished any evidence in the form of confirmatory letters or other evidence showing the capacity and creditworthiness of the parties from whom the loans were allegedly raised as no evidence whatsoever had been furnished in respect of the amount of Rs. 19,60,000 and, therefore, she confirmed the order of the Assessing Officer on loans as well as on interest. She further observed that the losses returned year after year clearly showed that the transactions were not what they appeared to be and the assessee was allegedly giving entries of loans to the builder whose agent it claimed to be. She also took into consideration the fact that the assessee had no infrastructure to carry on business activity, did not have any telephone to its credit, did not pay any telephone charges and did not engage any employees or did not have any furniture.
6. At the time of hearing, the ld. counsel for the assessee, Mr. Harish submitted that the assessee had filed an application under rule 29 of the Appellate Tribunal Rules and, therefore, the same was required to be considered. This application has some reference to the ground No. 1 stated as above in connection with Paperbook No. II containing some papers claimed to have not been accepted by the CIT(A) during the course of appeal. In this connection, the assessee had also filed an affidavit dated 19-9-1994 of one Mr. H.L. Kathuria, authorised representative of the assessee and who appeared before the CIT(A) along with one Shri A.G. Joshi, a Chartered Accountant engaged by the assessee. In the affidavit, Mr. Kathuria has stated that during the course of appeal hearing he had presented a bunch of papers bearing pages 123 to 180 of Volume II of Paperbook to the CIT(A), (Mrs. Sushma Trivedi) and she refused to accept for reasons best known to her. This aspect of the matter has to be kept in mind while appreciating the assessee's application under rule 29 of Appellate Tribunal Rules, 1963 regarding admission of the additional evidence. Here again to focus the attention on clear controversy and the factual background it is necessary to reproduce the application, which reads as under :
"To The learned Members, ITAT 'C' Bench, Dated : 23rd July, 1993.
Bombay Application under rule 29 of Appellate Tribunal Rules, 1963 M/s. Vira Construction Co.
v/s.
Deputy Commissioner of Income-tax, Spl. Range 22, Bombay ITA No. 9900/B/92 relating to assessment year 1989-90 We crave leave to refer to and rely upon the under-mentioned additional evidence under rule 29 of the Appellate Tribunal Rules, 1963 for the reasons given against the respective items :
----------------------------------------------------------------------
Sr. No. Description Page No. Reasons in the of Paper Index of book Paperbook
----------------------------------------------------------------------
(1) (2) (3) (4)
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28. Accounts of individual 62-84 parties of broker Suchdev & Co.
29. Accounts of individual 85-104 parties or broker Sanjay & Co.
30. Letter dated 17-2-1992 to 105-122 Pages 105 to 122 DC which was possibly were tendered by not accepted by him. the CA to the DC but the same was probably not taken on record.
31. Documents prepared for 123-180 Pages 123 to which were possibly not 180 were accepted by him. tendered by the CA to the CIT(A) but the same was probably not taken on record.
32. Confirmation, suits filed 181-264 Pages 181 to 264 letters, etc., from are confirmations Hundi parties. and notices which have been received from the lenders.
33. Statement of brokerage 265-272 Details of and interest for loans brokerage and int.
through M/s. Parasram & Co., Madras.
34 Computation of Income. 273-275 Income, profit &
P & L A/c and Balance A/c. and Bal.
Sheet for A.Y. 1992-93 sheet for A.Y.
1992-93.
Sd/-
Place : Bombay (Vira Construction Co.)
Dated : 24th July, 1993. Appellants."
7. The ld. D.R. very strongly object to the prayer of the assessee regarding admission of the additional evidence highlighting the way in which the assessee was co-operating with the department and the placemeal manner in which the assessee was responding to the various requirements asked for by the tax authorities. Relying upon in the case of Jagannath Prasad Kanhaiya Lal v. CIT [1988] 171 ITR 596/36 Taxman 239 (All.), it was pointed out that the assessee had to prove why it could not produce the additional evidence at earlier stage. Further drawing support from in the case of Velji Deoraj & Co. v. CIT [1968] 68 ITR 708 (Bom.); in the case of A.K. Babu Khan v. CWT [1976] 102 ITR 757 (AP) and Gujarat State Fertilizers Co. Ltd. v. Deepak Nitrite Ltd. AIR 1979 Guj. 83 it was submitted that the assessee had no absolute right in respect of the production of additional evidence. Besides, considering the nature of additional evidence, sought to be introduced at this stage after a lapse of considerable time it appears that though this evidence was existing as is claimed the reasons for not producing the same before the hearing taken up by CIT(A) are not given.
8. Mr. Harish strongly pressed for the admission of the additional evidence and pointed out that the assessee was asked by Assessing Officer to produce parties very late vide letter dated 23-1-1992 and, therefore, there was no sufficient opportunity. He fairly agreed that Sl. Nos. 32 and 33 as stated above were fresh evidence and prayed for the admission of the same keeping in mind the ends of justice.
9. Considering the material to which our attention was drawn, we are of the opinion that the assessee's application under rule 29 of the Appellate Tribunal Rules for admission of the additional evidence be rejected. As stated earlier, though a specific ground was raised as stated in the memo of appeal when the appeal was filed by the assessee that the CIT(A) erred in not admitting the paperbook presented at the time of hearing of the appeal, yet this ground was expressly not pressed before the Tribunal. Such being the position, in our humble opinion the assessee ought not to have subsequently pressed for the same in other way vide an application dated 23-7-1993 under rule 29 of the Appellate Tribunal Rules. Because both these actions on the part of the assessee are somewhat contradictory. The appellate order does not make any mention in connection with the request of the assessee for filing of the additional paperbook. It appears the assessee has also not made any attempt to file the same in tapal together with the prayer in writing for taking on record the additional paperbook. Besides why this evidence could not be filed in office of CIT(A) before the hearing took place is also not explained. Though the representation before the CIT(A) was made by a Chartered Accountant, Shri A.G. Joshi accompanied by Shri Kathuria, the authorised representative of the assessee, an affidavit as per rule 18 of the Appellate Tribunal Rules is filed only of Shri Kathuria and not of the Chartered Accountant, Shri A.G. Joshi. Be that as it may, we would only like to state here that these are the aspects which reflect upon the assessee's prayer. Under rule 29, powers of Appellate Tribunal to admit additional evidence are limited and have to be reasonably exercised and not to allow parties to patch up weak parts or fill up omissions. We do not find that the tax authorities have decided the issue without giving sufficient opportunity to the assessee to adduce evidence. It is pertinent to note that even in application under rule 29, prepared on 23-7-1993, the assessee is not sure if really the CIT(A) refused acceptance of additional paperbook because that is why the word "probably" is used in application at various places. Hence, the application fails.
10. To the extent as above, the appellate order is modified and the CIT(A) is directed to pass appropriate order in accordance with out direction as stated above.
11. In the result, the appeal is allowed in part of statistical purposes. Per T.A. Bukte, J.M.
12. I have carefully gone through the proposed order of the learned Accountant Member and I am unable to agree with his findings. Therefore, I am passing a separate order under section 255(4) of the IT Act, 1961. My reasons for not agreeing are as follows :
13. Ground No. (1) is on two accounts. One is that the CIT(A) erred in not admitting the paperbook presented at the time of hearing of appeal and the second aspect of Ground No. (1) is that the CIT(A) erred in holding that the assessee did not carry business activities during the relevant accounting period for the assessment year 1989-90 under appeal.
14. So far as the second aspect of Ground No. (1) is concerned, I have held in the appeal for assessment year 1988-89 that the assessee did carry on business during the year. It was only on account of the glut in the market that the assessee did not earn brokerage or commission. In view of my decision for the assessment year 1988-89, I hold that the assessee continued its business during the relevant accounting year.
15. The first aspect of ground No. (1) was not admitting the paperbook by the CIT(A) which was presented at the time of hearing of the appeal. Assessee furnished papers bearing pages 123-180 of Volume II before the CIT(A). They were not taken on record by the CIT(A). A paperbook bearing pages 1 to 83 was filed before the Tribunal. Assessee applied for admission of documents of pages 62 to 275 under rule 29 of the ITAT Rules. The assessee mentioned in its application that he did not file these papers before the CIT(A) because of probability of not taking on record. The assessee mentioned that it produced the papers before the CIT(A).
16. On verification of the said papers, it was found that all these papers which were sought to be admitted were part and parcel of a letter dated 17-2-1992. However, the Assessing Officer said that there was no reply to his letter dated 23-1-1992 but it becomes clear that the letter bearing date 17-2-1992 was filed. It was vehemently submitted in this respect on behalf of the assessee that the said letter was filed on record. According to the assessee, it was filed before the Assessing Officer. Some letter dated 17-2-1992 including details was also tried to be filed before the CIT(A), and the CIT(A) did not accept the same.
17. Thus, the controversy is encircled on the letter dated 17-2-1992. Now if that letter is considered as filed, then there is no fresh evidence sought to be filed before the Tribunal. The assessee has also filed an affidavit of its representative that he did not file all papers before the CIT(A) as they were not accepted by her. All these facts show that if there is a benefit of doubt, it should go to the assessee. If that benefit of doubt is given to the assessee, in that event, we are left with no choice but to admit the evidence and restore the case back to the ITO for fresh consideration on merits.
18. There are no good reasons for us to dismiss the appeal instead of offering an opportunity to the assessee to avoid injustice. Remitting the matter back to the ITO's file would be more better because for assessment year 1990-91, the assessee is on identical footing and there the Assessing Officer on remand accepted the confirmatory letters filed by the assessee and did not dispute the same. There is no appeal to that effect by the Department. This also goes to show that benefit of doubt must go to the assessee and the assessee's statement, letters and affidavit filed, should not be disbelieved unless there are such rarest of a rare fact to disbelieve the same. Merely because in the application, the assessee has not used the word "probable" should not cause suspicion as all the time the assessee has been strongly stating that he did not tender the document to the CIT(A), this part of the statement gives us the reason to believe the assessee's contention and not to disbelieve the same.
19. Ground No. (2) also pertains to the confirmation of an addition of Rs. 19,60,000 under section 68 as unexplained cash credits. Not admitting the paperbook and confirmation of the addition as unexplained cash credits are interconnected. During the relevant accounting period, the assessee obtained fresh loans of Rs. 19,60,000. These loans were obtained from several brokers. Their details were filed by the assessee by a letter dated 13-1-1992. Page 5 of the paperbook clarifies this fact. It was submitted on behalf of the assessee that if the Assessing Officer doubted the loans, he should have summoned the brokers who had already appeared before the Assessing Officer during the earlier assessment years. This fact was not disputed on behalf of the Department. This fact is supported by the contents of page 35 of the paperbook. It was further submitted that the assessee was running into losses and therefore it could not file confirmatory letters. The assessee could not repay the loans to the parties and hence the parties did not sign the confirmation letters in time. Time given to the assessee was also short as confirmation had to be obtained from several parties - about a hundred. The assessment proceedings were commenced on 26-12-1991. The Assessing Officer passed the assessment orders on 25-2-1992. Thus, the whole assessment was completed within 2 months of its commencement. As it is already mentioned above, that the assessee could not file confirmatory letters before the Assessing Officer and by letter dated 17-2-1992, assessee sent enclosing hundi khokhas for verification. A bank file was also produced for verification as this fact bore from page 105 of the paperbook. The Assessing Officer did not say whether letter dated 17-2-1992 was considered by him. The assessment order cannot be said to be complete so far this aspect is considered. If letter dated 17-2-1992 is considered, it becomes clear that most of the details were filed.
20. In the light of the above discussed facts and documentary evidence, it would be more appropriate to hold that the CIT(A) was wrong in confirming the confirming the addition of Rs. 19,60,000. It would be just and proper to set aside the assessment order in this respect as well as confirmation of the said addition by the CIT(A). In my opinion, it appears justifiable to remit back the matter to the file of the Assessing Officer for fresh adjudication on merits and according to law after giving an opportunity of being heard to the assessee by allowing it to file all papers that have been filed before the Tribunal. It further appears just and proper to allow the Assessing Officer to pass the orders in accordance with law after considering the evidence filed before the Tribunal.
21. I have examined the facts and documentary evidence as brought on record. I have also considered the arguments advanced on behalf of both the parties. The facts on record do not allow to dismiss the assessee's appeal in this respect.
22. Ground Nos. 3 & 4 of the appeal relate to interest brokerage and discount. The Department's Appeal (ITA 6240/B/93) for assessment year 1988-89 on these grounds has been dismissed by me. I have confirmed the CIT(A)'s order allowing these items as deduction. Following the same reasons mentioned in the Department's appeal aforesaid, the assessee is entitled to succeed on these grounds in this appeal. Therefore, the appellant's appeal is allowed on Grounds (3) and (4).
P.J. Goradia
1. This appeal arises out of the order dated 13-7-1993 passed by the CIT(A)-XX, Bombay (D. Rahman) and raises the following ground :
"On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of Rs. 2,54,826 made on account of discount and brokerage expenditure."
2. The assessee is a partnership firm consisting of three partners, viz., Shri I.S. Bhusari, Shri T.T. Vasu and M/s. Vira Properties Pvt. Ltd. (for short company), sharing 10%, 10% and 80% respectively. The business is claimed to be agency in real estate, more particularly to act as one of the selling agents of the construction business carries on by the company, which is holding 80% interest in the partnership firm. In January 1984, the company appointed the partnership firm as one of the selling agents for Bombay, Madras and Bangalore for its Rayala Commercial Complex at Madras. By letter of appointment, the assessee is entitled to 2 per cent commission in respect of the space booked by the firm, i.e., the assessee. The assessee is required to deposit up to Rs. 50,00,000 by way of security deposit which is to carry interest at the rate of 18 per cent. Similarly in May 1984, the company appointed the assessee-firm as one of the selling agents in Bombay for sale of flats in Charles Court at Bangalore for which the assessee is to get commission at the rate of 2 per cent in respect of the space booked, whereas the assessee is obliged to keep security deposit up to Rs. 20,00,000 which is to carry interest at 18% Right from assessment year 1984-85, the assessee has been making continuous losses. Besides these two agreements, the assessee-firm has not undertaken any transaction on behalf of any other outside party. The Assessing Officer found that though in earlier years the assessee had earned some commission yet in this year there was no income by way of commission. Besides, the assessee had claimed huge amount of expenditure on discount and brokerage as also on interest. Besides, both the projects, for which the assessee-firm had taken agency, had already been started seven to eight years back, but it was not known why the project was not completed or why the assessee had not been able to make any sale of the space because it could not be understood how at the places like Bangalore and Madras the assessee was not able to sell any space. He was, therefore, of the opinion that the assessee-firm was not declaring the true picture of the business other than showing huge loss on account of discount, brokerage and interest and since the assessee had not offered any satisfactory explanation disallowance out of discount and brokerage was made.
3. In appeal, it was explained by the assessee that the business was not discontinued and the brokerage was paid to finance brokers for arranging hundi loans and discount, i.e., interest was paid to such parties. The CIT(A) held that since the business was not discontinued and since discount and brokerage expenditure was allowed in past, he directed the Assessing Officer to delete the disallowance.
4. the representatives of both the sides were heard. In our opinion, the CIT(A) has not properly appreciated the grievance of the Assessing Officer. We find from the paper book the explanation of the assessee vide letter dated 26-3-1990 in respect of the huge expenditure on interest as under :
"Interest paid Rs. 6,37,857 - We have already submitted details of interest paid in fixed deposit along with confirmation on finance brokers. The rate of interest on fixed deposit is generally 18% p.a. and very few fixed deposits are paid at the rate of 20% p.a. The loans are utilised for purpose of securing deposits paid to the principal for obtaining selling agency right. This is apparent from the Balance Sheet submitted. Our client gets interest at the rate of on security deposits."
On perusing the accounts it is seen that against the huge amount of interest expenditure the assessee has shown income by way of interest of only Rs. 1,83,000 plus. Now, if the interest at the same rate is earned as is rate on the borrowing as explained by the assessee in writing then we fail to understand the disparity between the two amounts. Admittedly the assessee has not made interest income from any other party except interest on security deposits. Apart from the interest the assessee has also incurred expenditure by way of discount of Rs. 1,97,000 plus as also brokerage of Rs. 57,000 plus. The net loss of Rs. 7,00,000 plus is carried to the balance sheet and added to the loss of the earlier year as shown in the balance sheet. The accounts of the partners are not before us and, therefore, we find some substance in the grievance raised by the Assessing Officer that the real picture of the assessee's business activities is not available from the material and the explanation brought on record. The CIT(A) has not given attention to this aspect of approach adopted by the Assessing Officer. Even if it is assumed that the assessee is carrying on business yet the expenditure by way of interest, etc., can be allowed only in respect of the borrowing which are utilised for the purpose of business. In the absence of necessary details, regarding utilisation of the borrowed funds in the context of disparity as pointed out earlier between the interest income and the interest expenditure, the CIT(A) ought not to have granted relief to the assessee as prayed for. In the interest of justice, therefore, we set aside the appellate order and restore the issue to the file of the CIT(A) with a direction to reduced the issue raised before him in appeal by the assessee. While doing so he shall also keep in mind the important findings recorded in the subsequent assessments. It may be stated here that the principal of the assessee-firm is the major partner in the assessee-firm and yet no explanation is given by the assessee about the reasons for delay in the project, whether the project has been completed or not or whether it is abandoned, why the assessee has not been able to book any space, etc. None of the three partners is assessed to tax in Bombay. But to appreciate really the business activities as also the accounts of the principal on whose behalf the agency is undertaken and who happens to be a major partner in the assessee-firm. It is pertinent to note that assessee is obliged to keep security deposit up to certain amount and not fixed amount of Rs. 50 lakhs or Rs. 20 lakhs. This has to be appreciated in light of other evidence.
5. The CIT(A) shall pass appropriate order after giving reasonable opportunity to the assessee as also to the Assessing Officer.
6. In the result, the appeal is allowed in part for statistical purposes.
T.A. Bukte, JM.
7. I have carefully gone through the proposed order of the learned Accountant Member and I am unable to agree with him on the findings. Therefore, I hereby propose to pass a dissenting order in accordance with the provisions of section 255(4) of the IT Act, 1961. My reasons are as follows :
8. The assessee's business for the relevant assessment year under appeal, i.e., assessment year 1988-89 was selling of flats to be constructed in Madras and Bangalore as a selling agent.
9. Pages 4 & 5 of the paperbook throw light in this respect. The assessee's sister concern M/s. Vira Properties (Madras) Pvt. Ltd. by letter dated 27-1-1984 appointed the assessee as selling agent for "Rayala Commercial Complex", a complex to be constructed at Mount Road, Madras. The assessee was required to pay security deposit of Rs. 50 lakhs which was carrying interest @ 18 per cent per annum. On the sale of flats booked through the assessee, the assessee was entitled to receive commission at the rate of 2 per cent.
10. Pages 6 & 7 of the paperbook clarify that by letter dated 28-5-1984, M/s. Vira Properties Pvt. Ltd. (Bangalore) appointed the assessee as selling agent for flats in Charles Court, Bangalore. The assessee was required to pay security deposit of Rs. 20 lakhs carrying interest @ 18 per cent per annum and on the sale of flats booked by the assessee, the assessee was entitled to receive commission @ 2 per cent on the sale of the premises.
11. Page 13 of the paperbook clarifies that by letter dated 28-6-1986, the assessee demanded a commission of Rs. 65,985 @ 2 per cent on the sales of Rs. 32,99,275 in Charles Court from M/s. Vira Properties Pvt. Ltd. (Bangalore). By another letter dated 28-6-1986, the assessee demanded a commission of Rs. 1,94,520 @ 2 per cent on the sales of Rs. 97,26,000 in Rayala Commercial Complex from M/s. Vira Properties (Madras) Pvt. Ltd. The contents of pages 107 of the paperbook clarify this fact.
12. The assessee filed its return of income for assessment year 1987-88 on 30-11-1986 declaring an income from commission of Rs. 2,60,505 received by it. The contents of pages 104 of 106 of the paperbook clarify this fact. The assessee's explanation was that it could not sell flats or premises subsequently due to the glut in the market. Therefore it did not earn the brokerage or commission, though the assessee did not discontinue its business. It was submitted that the assessee cannot be denied the treatment by the ITO as earlier. It was also explained that it was a well-known fact that the properties in Madras and Bangalore could not be sold even till today.
13. The assessee subsequently sold some properties in assessment year 1992-93. On such sale of the flats, assessee was entitled to commission of Rs. 3,70,240. The assessee declared this commission income in its return of income for the assessment year 1989-90 and this fact becomes clear from page 274 of the paperbook.
14. Thus, the sequence of events as stated above clearly showed that business was in continuance and it was only on accounts of glut in the market, that the assessee could not show brokerage in some of its returns of income. On the basis of these facts, it cannot be held that the business was discontinued by the assessee. During the year under appeal, the assessee paid Rs. 1,97,287 as discount and Rs. 57,530 as brokerage. It was argued that discount was nothing but interest. The brokerage was paid to finance brokers for obtaining loans from several other parties.
15. It would also become quite clear that the assessee paid security deposit of Rs. 70 lakhs to its sister concern. The loans were obtained to continue the deposit kept with M/s. Vira Properties Pvt. Ltd., Madras & Bangalore. It was argued that in the finance market, the loans on hundis were to be given only for a period of 3 months. Therefore, the assessee had to keep on taking new loans and to return the old loans. Thus, the loans were taken only to retain the security deposits. As security deposits were kept to obtain selling agency, the interest on loans taken and brokerage paid for such loans requires to be allowed. Moreover, they are integral part of business. To keep the security deposits the interest @ 18% was required to be paid. The assessee has been consistently declaring the interest received on security deposit in its returns of income. Thus there is no doubt that discount and brokerage are business expense and require to be allowed as deduction.
16. Therefore, there is no good cause to set aside the issue and to remit the matter back on this point to the CIT(A) as all documents pertaining to the same were examined by the Assessing Officer as well as the CIT(A). Moreover, no fresh evidence has been brought on record for which the CIT(A)'s order can be set aside and the matter can be remitted. The Assessing Officer has not brought on record to make the disallowance. The disallowance was not proved by him and there was no iota of evidence to do so.
17. All the documents are available before the Tribunal and the said documents speak for themselves. The allegation of the Assessing Officer that founds were taken by the assessee and transferred to sister concern is also not proved by the Department. There was a transfer of borrowed funds but it was in the nature of security deposits. The assessee had to do so to carry on its business. Therefore, it would be too much to say that the assessee acted as a conduit pipe to obtain loans by its sister concerns. They are two legal and different entities which are entitled to carry on their own business in their own way and therefore no attribution can be made nor there is anything on record supported by documentary evidence that the assessee acted as a conduit pipe. Another fact is that the security deposit attributed interest @ 18 per cent. The assessee's sister concern was liable to pay the interest @ 18 per cent and accordingly it was paid to the assessee and the assessee showed it in its return of income. This fact also disproves the Assessing Officer's claim. The Tribunal is a quasi-judicial body and it has to interpret the evidence brought on record. Something beyond the documentary evidence should not be reflected in the judicial order.
18. I have examined the facts from the documentary evidence as brought on record and I am of the opinion that there are no good grounds to set aside the matter and to remit it back to the file of the CIT(A). For all these reasons, I am of the opinion that the Department has to fail.
19. In the result, the revenue's appeal is dismissed.
REFERENCE UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961.
We, the Members of the Bombay Bench 'C' have taken different views in I.T.A. No. 9900/Bom./1992 in the case of M/s. Vira Construction Co. v. Dy. CIT for the assessment year 1989-90. The following questions is therefore referred to the Hon'ble President of the ITAT for resolution under section 255(4) of the I.T. Act :-
"Whether, on the facts and in the circumstances of the appeal, the assessee is entitled for admission of additional evidence and the claim of interest, brokerage and discount ?"
REFERENCE UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961.
We, the Member of the Bombay Bench 'C' have taken different views in I.T.A. No. 6240/Bom./1993 in the case of Dy. CIT v. M/s. Vira Construction Co., for the assessment year 1988-89. The following question is therefore referred to the Hon'ble President of the ITAT for resolution under section 255(4) of the I.T. Act :-
"Whether, on the facts and in the circumstances of the case, the revenue's appeal requires to be dismissed ?"
THIRD MEMBER ORDER O.P. Jain, JM
1. The above captioned appeals pertain to the same assessee. The learned Members who constituted the Bench to hear the above appeals could not agree on some points. Hence, the President of the Tribunal has referred such points to me for opinion as Third Member. I will deal with the points referred to me in each appeal separately.
ITA No. 6240/Bom./1993
2. In this appeal, the point reading as under has been referred to me for opinion :-
"Whether, on the facts and in the circumstances of the case, the Revenue's appeal requires to be dismissed ?"
3. In order to appreciate the controversy involved, the facts of the case may be stated, which have been noted in the orders proposed by the learned Members who had constituted the Bench.
4. The assessee is a partnership firm consisting of three partners, viz., Shri I.S. Bhusari, Shri T.T. Vasu and M/s. Vira Properties Pvt. Ltd. (for short company), sharing 10%, 10% and 80% respectively. The business is claimed to be agency in real estate, more particularly to act as one of the selling agents of the construction business carried on by the company, which is holding 80% interest in the partnership firm. In January 1984, the company appointed the partnership firm as one of the selling agents for Bombay, Madras and Bangalore for its Rayala Commercial Complex at Madras. By letter of appointment, the assessee is entitled to 2 per cent commission in respect of the space booked by the firm, i.e., the assessee. The assessee is required to deposit up to Rs. 50,00,000 with the company by way of security. Which is to carry interest at the rate of 13 per cent per annum. Similarly, in May 1984, the company appointed the assessee-firm as one of the selling agents in Bombay for sale of flats in Charles Court at Bangalore for which the assessee is to get commission at the rate of 2 per cent in respect of the space booked, whereas the assessee is obliged to keep security deposit up to Rs. 20,00,000, which is to carry interest at 13%. Right from assessment year 1984-85, the assessee has been making continuous losses. Besides these two agreements, the assessee-firm has not undertaken any transaction on behalf of any other outside party. The Assessing Officer found that though in earlier years the assessee had earned some commission, yet in this year there was no income by way of commission. Besides, the assessee had claimed huge amount of expenditure on discount and brokerage as also on interest. That apart, both the projects, for which the assessee-firm had taken agency, had already been started seven to eight years back, but it was not known why the project was not completed or why the assessee had not been able to make any sale of the space because it could not be understood how at the places like Bangalore and Madras the assessee was not able to sell any space. He was, therefore, of the opinion that the assessee-firm was not declaring the true picture of the business other than showing huge loss on account of discount, brokerage and interest and since the assessee had not offered any satisfactory explanation, disallowance out of discount and brokerage was made.
5. In the first appeal, it was explained by the assessee that the business was not discontinued and the brokerage was paid to finance brokers for arranging hundi loans and discount, i.e., interest was paid to such parties. The Commissioner of Income-tax (Appeals) held that since the business was not discontinued and since discount and brokerage expenditure was allowed in the past, he directed the Assessing Officer to delete the disallowance.
6. The learned Accountant Member was of the opinion that the CIT (Appeals) has not properly appreciated the grievance of the Assessing Officer. He noted from the papers filed by the assessee that in its letter dated 26th March, 1990 the assessee had offered an explanation reading as under :-
"Interest paid Rs. 6,37,857 We have already submitted details of interest paid in fixed deposit along with confirmation of finance brokers. The rate of interest on fixed deposit is generally 18% p.a. and very few fixed deposits are paid at the rate of 20% p.a. The loans are utilised for purpose of securing deposits paid to the principal for obtaining selling agency right. This is apparent from the Balance Sheet submitted. Our client gets interest at the rate of 18% on security deposits."
On perusal of the accounts, the learned Accountant Member observed that against the huge amount of interest expenditure, the assessee has shown income by way of interest of only Rs. 1,83,000 plus. He also observed that if the interest at the same rate is earned as is the rate on the borrowings as explained by the assessee in writing, then the disparity between the two amounts remains unexplained. He has noted that the assessee has not made interest income from any other party except on security deposits. Apart from the interest, the assessee had also incurred expenditure by way of discount of Rs. 1,97,000 plus as also brokerage of Rs. 57,000 plus. The net loss of Rs. 7,00,000 plus is carried to the balance sheet and added to the loss of the earlier year as shown in the balance sheet. It was also observed that the accounts of the partners are not before in Tribunal and, therefore, he opined that there is some substance in the grievance raised by the Assessing Officer that the real picture of the assessee's business activities is not available from the material and the explanation brought on record. The learned Accountant Member opined that the CIT (Appeals) has not given attention to this approach adopted by the Assessing Officer. He further observed that even if it is assumed that the assessee is carrying on business, yet the expenditure by way of interest, etc., can be allowed only in respect of the borrowings, which are utilised for the purpose of business. In absence of the necessary details regarding utilisation of the borrowed funds in the context of disparity, the CIT (Appeals) ought not to have granted relief to the assessee as prayed. He, therefore, considered it appropriate to set aside the order of the CIT (Appeals) and restore the matter to his file for rehearing and disposal with certain directions.
7. The learned Judicial Member did not agree with the order proposed by the learned Accountant Member. He has noted that the business of the assessee continued and it has sold some properties in the assessment year 1992-93. Since the assessee had to keep security deposit with the company, it had to obtain fresh loans in order to repay the old loans. The assessee had been consistently declaring the interest received on security deposit in its return of income and, therefore, there is no good cause to remit the matter back to the CIT (Appeals) inasmuch as all documents pertaining to the matter were examined by the Assessing Officer as well as the CIT (Appeals) and no fresh evidence has been placed on record.
8. The learned Advocate for the assessee has invited my attention to the copy of the profit and loss account appearing at page 2 of the assessee's compilation. He has pointed out that during the year under consideration the assessee had claimed interest payment of Rs. 6,32,857 and the same has not been disallowed. It was further pointed out that the Assessing Officer has disallowed the discount payment of Rs. 1,97,287 and brokerage paid of Rs. 57,539. According to him, the discount paid is nothing but the interest paid for the loan obtained. It was argued that the Assessing Officer has taken different view for similar expenditure, i.e., interest on hundi loans. My attention was also invited towards copy of the balance sheet appearing at page 3 of the compilation, which showed that hundi loans and other loans were of the order of Rs. 34,96,000 plus. He has also pointed out that the interest receivable in the earlier year as also in the current year is reflected in the balance sheet. It was pointed out that in the earlier year the security deposit was Rs. 14,00,000 plus whereas in the current year it stands reduced to Rs. 6,00,000 plus. Referring to the copy of the balance sheet of the earlier year, it was submitted that the interest received is shown on receivable basis, whereas the borrowings remained the same. Thus it was contended that the Assessing Officer was not justified in making the disallowance and the CIT (Appeals) was right in deleting the disallowance made.
9. The submissions of the assessee were opposed by the learned representative for the revenue. He has submitted that the CIT (Appeals) has not cared to took into the reasons given by the Assessing Officer for making the disallowance. It was also submitted that the CIT (Appeals) has not looked into the material placed on record and he has allowed relief to the assessee only for the reason that the business has not been discontinued and that brokerage expense were allowed in the past. It was also argued that while allowing relief to the assessee, the CIT (Appeals) ought to have examined the details to find out whether the discount and brokerage payment claimed during the year under consideration is allowable. Since this was not done, it was contended that the learned Accountant Member is justified in coming to the conclusion that the matter may be sent back to the CIT (Appeals) for fresh hearing and disposal.
10. I have considered the submissions advanced before me as also the material placed on record. It is the accepted position that there was no business activity during the year under consideration. From the copy of the balance sheet filed by the assessee, it is evident that during the year under consideration the amount of security deposited by the assessee stands reduced. Besides this, the assessee had paid interest on the borrowed funds at about the same rate on which the amount was received on the amount of security deposited by it. In the circumstances, there is force in the view adopted by the Assessing Officer that the real picture of the assessee's business activities is not available on the material available on record. Besides this, a perusal of the order of the CIT (Appeals) leaves the impression that he has not examined the evidence on record and was swayed by the fact that in the subsequent year some sales were made and, therefore, the business was not discontinued, and since the discount and brokerage expenses had been allowed in the past, they should be allowed during the current year as well. The expenditure claimed to have been incurred during the year under reference requires to be examined in the light of the facts obtaining in the current year. The exercise has not been done by the CIT (Appeals). Since it is claimed that brokerage and discount were paid on the funds borrowed during the year, the assessee has to establish by the cogent evidence that the borrowed funds were utilised for purposes of the business. The deduction claimed cannot be allowed only for the reason that interest on the borrowed funds was allowed in the earlier year. I, therefore, find myself in agreement with the view expressed by the learned Accountant Member that the matter should be restored to the file of the CIT (Appeals) for rehearing and disposal. It may be mentioned that it is not necessary that the Tribunal should record firm findings in all matters of controversy. It is open to the Tribunal to arrive at a conclusion that the matter in controversy was not considered properly or lawfully by the Assessing Officer or the Commissioner (Appeals) and direct such consideration. Since I am of the opinion that the matter requires to be restored to the file of the CIT (Appeals), I am unable to agree with the view of the learned Judicial Member that the appeal filed by the revenue deserves dismissal.
ITA No. 9900/Bom./1992
11. In this appeal, the following question had been referred to me for opinion :-
"Whether, on the facts and in the circumstances of the appeal, the assessee is entitled for admission of additional evidence and the claim of interest, brokerage and discount ?"
12. The above question has two limbs, namely, (1) whether the assessee is entitled for admission of additional evidence, and (2) whether the assessee is entitled to claim interest, brokerage and discount.
13. First, I would deal with the first limb of the question, i.e., whether the assessee is entitled for admission of additional evidence. Briefly stated, the Assessing Officer had made an addition of Rs. 19,60,000, being unexplained cash credits and had disallowed the payment of interest amounting to Rs. 8,94,364. The Assessing Officer has noted that no confirmatory letters have been filed and he had concluded that the capacity and creditworthiness of the parties from whom the loans were alleged to have been raised could not be proved. These additions were confirmed in appeal by the CIT (Appeals). In the appeal before the Tribunal, the assessee in the first ground of appeal had stated, inter alia, "CIT(A) erred in not admitting the paper book presented at the time of hearing of the appeal". It appears that when the appeal came up for hearing this ground was not pressed as has been noted by the learned Accountant Member in the order proposed by him. However, the assessee had filed an application dated 23rd July, 1993 for admission of additional evidence. The said application reads as under :-
"To The learned Members, ITAT 'C' Bench, Dated : 23rd July, 1993.
Bombay.
application under rule 29 of Appellate Tribunal Rules, 1963 M/s. Vira construction Co.
V/s.
Deputy Commissioner of Income-tax Spl. Range 22, Bombay ITA No. 9900/B/92 relating to Assessment year 1989-90 We crave leave to refer to and rely upon the under-mentioned additional evidence under rule 29 of the Appellate Tribunal Rules, 1963 for the reasons given against the respective items :
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Sr. No. Description Page No. Reasons in the of paper index of book paperbook
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(1) (2) (3) (4)
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28. Accounts of individual 62-84 parties of broker Suchdev & Co.
29. Accounts of individual 85-104 parties or broker Sanjay & Co.
30. Letter dated 17-2-1992 105-122 Pages 105 to 122 to DC which was possibly were tendered by accepted by him. the C.A. to the DC but the same was probably not taken or record.
31. Documents prepared for 123-180 Pages 123 to 180 CIT(A) which were were tendered by possibly not accepted the C.A. to the by him. CIT(A) but the same was probably not taken on record.
32. Confirmation, suits 181-264 Pages 181 to 264 filed letters, etc., parties. are confirmation from Hundi and notices which have been received from the lenders.
33. Statement of brokerage and interest for loans 265-272 Details of through M/s. Parasram brokerage and int.
& Co., Madras.
34. Computation of Income. Income, profit & P & L A/c and Balance 273-275 loss A/c. and Sheet for A.Y. 1992-93 Bal. sheet for A.Y. 1992-93.
Sd/-
Place : Bombay Dated : 24th July, 1993. (Vira Construction Co.) Appellants."
The assessee has also filed an affidavit dated 19th September, 1994 sworn by Shri H.L. Kathuria stating that he had represented the assessee before the CIT (Appeals) and that during the course of appeal hearing he had presented a bunch of papers bearing page Nos. 123 to 180 of Volume II of the paper book to the CIT (Appeals), which she refused to accept for reasons best known to her.
14. The application for admission of additional evidence was objected to on behalf of the revenue. The learned Accountant Member was of the opinion that since the assessee did not press ground No. 1 of the appeal, it ought not to have subsequently pressed for the same in other way vide application dated 23rd July, 1993 and both these actions on the part of the assessee are somewhat contradictory. The learned Accountant Member also observed that the order of the first appellate authority does not make any mention that any request was made for filing of the additional paper book. Besides, it is not explained why this evidence could not be filed in the office of the CIT (Appeals) before the hearing took place. The learned Member further observed that the representation before the CIT (Appeals) was made by Shri A.G. Joshi, a Chartered Accountant, accompanied by Shri Kathuria, the authorised representative of the assessee but no affidavit has been filed by Shri Joshi. Instead an affidavit as per rule 18 of the Appellate Tribunal Rules has been filed by only Shri Kathuria. The learned Accountant Member also mentioned that even in the application filed under rule 29 of the Appellate Tribunal Rules, the assessee is not sure if really the CIT (Appeals) refused acceptance of additional paper book and that is why the word 'probably' has been used in the application at various places. Therefore, he proposed the order dismissing the application. As against this, the learned Judicial Member was influenced by the assessee's letter dated 17th February, 1992 addressed to the Assessing Officer, copy of which is available at page 105 of the assessee's compilation, which suggests that paper Nos. 106 to 122 were annexed with that letter. Referring to the affidavit sworn by Shri Kathuria, the learned Judicial Member opined that benefit of doubt should go to the assessee and, therefore, evidence sought to the filed should be admitted and the matter restored back to the Assessing Officer for consideration on merits.
15. The learned Advocate for the assessee has invited my attention towards the copy of the letter dated 17th February, 1992, available at page 105 of the paper book and has submitted that this letter is addressed to the Assessing Officer and as such it appears that this letter along with its annexures was filed during the assessment proceedings and, therefore, these papers cannot be termed as additional evidence. It was further submitted that the affidavit of Shri Kathuria shows that paper Nos. 123 to 180 of the paper book were filed by him before the CIT (Appeals) and for this reason also these papers cannot be described as additional evidence. It was further argued that the evidence, which is sought to be filed through the above-mentioned application, would have important bearing on the controversy involved in the appeal and, therefore, in the interests of justice these papers may be admitted in evidence.
16. The submissions of the assessee were strongly opposed by the learned departmental representative. It has been argued that no material could be placed on record which may go to indicate that these papers had been filed during the assessment proceedings or even at the stage of the first appeal. It was pointed out that there is no mention in the orders of the revenue authorities that these papers were filed before any of the authorities below. In case these papers had been filed before any of the authorities, it was argued that the concerned authority must have dealt with the evidence and there is no reason why the concerned authority would refuse to accept the evidence presented before it. It was also highlighted that before the CIT (Appeals) representation was made by Shri A.G. Joshi, a Chartered Accountant, but he has not filed any affidavit to say that these papers were filed before the CIT (Appeals). It was also submitted that adequate opportunity had been provided by the revenue authorities to the assessee to prove genuineness of the cash credits but the assessee failed to discharge the onus which lay on it. Thus it was contended that it is not a fit case for admission of additional evidence and the application moved by the assessee deserves dismissal.
17. I have considered the submissions advanced before me. Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963 provides for production of additional evidence before the Tribunal. The said rule reads as under :-
"The parties to the appeal shall not be entitled to produce additional evidence either oral or documentary before the Tribunal, but if the Tribunal requires any documents to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders for any other substantial cause, or, if the income-tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them or not specified by them, the Tribunal, for reasons to be recorded, may allow such document to be produced or witness to be examined or affidavit to be filed or may allow such evidence to be adduced."
A bare reading of the aforesaid rule makes it clear that parties to the appeal are not entitled to produce additional evidence before the Tribunal. The said rule had come up for consideration before the High Court of Bombay in CIT v. Smt. Kamal C. Mehboobbani [1995] 214 ITR 15/81 Taxman 311. The Hon'ble Court has observed that the said rule is couched in negative language insofar as the rights of the parties to produce additional evidence before the Tribunal is concerned. It clearly says that the parties to the appeal shall not be entitled to produce additional evidence either oral or documentary. The Hon'ble Court went on to say that such a right has specifically been taken away by prohibiting the production of additional evidence by the parties. This being so, the answer to the first limb of the point is obvious and I have no hesitation in opining that the assessee is not entitled for admission of additional evidence. It would be appropriate to mention here that I am not dealing with the stand of the assessee that the paper sought to be filed cannot be termed as additional evidence and at any rate such evidence should be admitted in the interest of justice because expression of opinion on such points would be beyond the scope of the reference made to me. The stand of the assessee on this aspect of the matter may be considered by the regular Bench at the time when the appeal comes up for hearing before it. I am of the view that as a Third Member it is not open to me travel beyond the point referred and I am competent only to decide the point which has been referred to me for opinion.
18. With regard to the assessee's claim for brokerage and discount, the learned representatives of the parties have stated that the controversy involved is identical to the controversy involved in the appeal pertaining to the assessment year 1988-89 and the view that is to be taken in the appeal for that assessment year may be followed in this appeal as well. It would be of place to mention here that following his reasons mentioned in the order proposed for the assessment year 1988-89, the learned Accountant Member has held that the matter may be restored to the file of the first appellate authority with a direction to reconsider the assessee's claim after affording a reasonable opportunity of being heard to the assessee. On the other land, the learned Judicial Member, for the reasons given by him in the order pertaining to the assessment year 1988-89, has held that the assessee's claim should be allowed. For the reasons already discussed by me in the appeal pertaining to the assessment year 1988-89, I find myself in agreement with the view of the learned Account Member. This being so, I am unable to agree with the view that the assessee is entitled to the claim of brokerage and discount.
19. With regard to the claim for interest, the learned representatives of the parties had stated that it is linked with the genuineness of the cash credits and admission of the additional evidence. It was submitted that opinion on the point can be expressed only after a decision is arrived at about admission of additional evidence and genuineness of the cash credits. In the back drop of these facts, it would be premature to express any opinion on the assessee's claim for interest. This being so, I refrain myself from expressing any opinion on this aspect of the matter.
20. In view of the foregoing discussions, hold that the assessee is not entitled for admission of additional evidence and the claim of brokerage and discount. No opinion is being expressed on the assessee's claim of interest.
21. Let the record of both the appeals be forwarded to the regular Bench for further action at its end.