Income Tax Appellate Tribunal - Amritsar
The Asstt. Commissioner Of Income-Tax, ... vs Sahibzada Ajit Singh Educational ... on 21 February, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR
(CAMP AT JALANDHAR)
BEFORE SH. A.D.JAIN, JUDICIAL MEMBER AND
SH. T.S. KAPOOR, ACCOUNTANT MEMBER
I.T.A Nos.535 & 536(Asr)/2014
Assessment Years: 2011-12 & 2012-13
Asst. CIT, Vs. Sahibzada Ajit Singh
Central Circle-1, Educational Trust,
Jalandhar. (Regd.), 191-Gujral Nagar,
Jalandhar.
PAN: -AAFTS-5351M
(Appellant) (Respondent)
Appellant by: Sh. Bhawani Shankar (DR.)
Respondent by: Sh. Dinesh Sarna (Adv.)
Date of hearing: 18.01.2017
Date of pronouncement:21.02.2017
ORDER
PER T. S. KAPOOR (AM):
These are two appeals filed by Revenue against the separate orders of Learned CIT(A), Ludhiana, both dated 23.06.2014 for Asst. Years:
2011-12 & 2012-13 respectively.
2. The Revenue has taken identical grounds in these appeals and the only difference is with respect to difference in amounts. For the sake of convenience the grounds of appeal in ITA No.535(Asr)/2014 for Asst. Year: 2011-12 are reproduced herein below.
2 ITA Nos.535 & 536(Asr)/2014
Asst. Years: 2011-12 & 2012-13 "1.(i) That the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.10,50,00,000/- by holding it as relatable to the business income.
1.(ii) That the Ld.CIT(A) has erred in law and on facts in holding that the judgment of Punjab & Haryana High Court in the case of M/S Kim Pharma (P) Ltd. V/s CIT, ITA No.106 of 2011 is distinguishable on facts and hence not applicable in this case.
1.(iii) That the Ld.CIT(A) has erred in law and on facts in not appreciating the fact that the judgment of Punjab & Haryana High Court in the case of M/S Kim Pharma Vs. CIT is squarely applicable in this case in conformity with the views of the AO mentioned in the Asst. Order.
1.(iv) That the Ld. CIT(A) has erred in law and on facts in not appreciating the fact that the amount of Rs. 10.50 crore declared was deemed income of the assessee as discussed in the assessment order.
2.(i) That the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 33,74,000/- out of total addition of Rs. 36,74,000/- made on account of disallowance of interest u/s 36(l)(iii) of the I.T.Act, holding that the assessee has not used any interest bearing funds for non business purposes.
2.(ii) That the Ld. C1T(A) has erred in law and on facts in not appreciating the facts that it was found on verification of the assessment records that the assessee has made interest free advance and loans to the non business relatives and persons.
3. The Appellant craves leave to add or amend the grounds of appeal on or before is heard and disposed off.
4. It is prayed that the order of the Commissioner of Income Tax (Appeals), be set-aside and that of the AO be restored on merits."
3. The brief facts of the cases as noted in the assessment order are that a search and seizure operation u/s 132 of the Income Tax Act was conducted on 3.08.2011 and therefore, the assessments of the assesee were reopened u/s 153A. The assessee had declared an amount of Rs.10.50 crores and Rs. 3.50 crores as undisclosed income respectively for Asst. Year 2011-12 and for the Asst.Year: 2012-13. During Assessment Proceedings, the Assessing Officer, however observed that 3 ITA Nos.535 & 536(Asr)/2014 Asst. Years: 2011-12 & 2012-13 assessee had not separately offered these surrendered income in the returns of income and therefore, assessee was show caused as under:
"..During the course of assessment proceedings, on verification of records it is noticed that you have made surrendered of Rs.10.50 Crore. But on verification of income and expenditure accounts it is found that even after creating of Rs.10.50 Crore as surrendered amount, net profit has been declared at Rs.4,30,98,237/- and declared gross receipts have been substantially reduced from Rs.4.23 Crore to Rs.0.86 Crore. This shows that you have substantially inflated your expenses to avoid the tax required to be paid on surrendered of Rs.10.50 Crore. Moreover during the course of search, surrendered of Rs.10.50 Crore has been voluntarily admitted in the statement recorded u/s 132(4) of the I.T. Act, which required to be offered for tax directly as income from other sources without adjustment of expenses of your regular business affairs against the said surrendered of Rs.10.50 Crore. Accordingly as such the surrender amount of Rs.10.50 Crore is actually to be added to your net total income of the year as income from other sources and tax is required to be paid on surrendered amount directly in addition to tax on regular business income of the year under consideration.
02. In view of the above, you are requested to show cause as to why the surrendered amount of Rs.10.50 Crore should not be added to your total income and tax accordingly."
Similar show cause was issued for Asst. Year:2012-13 for surrendered amount of Rs.3.50 crores. The assessee in response to the above show cause notice submitted as under:
"....It is further submitted that this surrender of Rs.10,50,00,000/- was made on the basis of profits earned from different schools and some documents seized from the premises of the schools colleges, showing the profits from different schools and investment in purchase of new assets and advances against purchase of properties for opening new branches of the Trust and has been separately reflected in the profit and loss account and balance sheets of the asessee. Photocopies of profit and loss account and Balance Sheet for the year under consideration have been furnished for your kind perusal vide our previous replies."4 ITA Nos.535 & 536(Asr)/2014
Asst. Years: 2011-12 & 2012-13 Similar reply was filed for Asst. Year: 2012-13. The Assessing Officer, however, was not satisfied with the explanations of assessee and held the income surrendered during survey as undisclosed income u/s 69A and made the addition accordingly by holding as under:
"Since the assessee has declared its unaccounted/undisclosed income and has reflected it in P & L Account, the assessee is claiming the said declared income as its Business Income earned during the course of its normal business routine. However, the assessee has never explained that how the said income was earned. By merely disclosing/reflecting any income in the P&L Account the assessee cannot be considered to have discharged its liability to disclose the manner in which the said income was earned. In the case of the assessee company under consideration, the assessee has failed to explain as to how and under what head the income declared and reflected by it in the profit & loss account, was earned. Therefore, it can clearly be said that the assessee failed to explain the source o f undisclosed and unaccounted income admitted during the course of search u/s 132 (4) of the I.T. Act, 1961. Therefore, in my view, tire amount of Rs.10,50,00,000// surrendered on account of undisclosed and unaccounted income, has to be assessed u/s 69A of the Income-tax Act, 1961. Here Reliance is placed upon the judgement of Hon'ble Punjab & Haryana High Court in the ease of M/s Kim Pharma (P) Ltd. v/s CIT, 1TA No.106 of 2011. In the said judgment the Hon'bie Punjab & Haryana High Court has held that when the assessee fails to disclose as to how a particular income has been earned than the said income is deemed to be income under tire Scheme of section 69, 69A, 69B & 69C of the Act.
3.4 In view of the above discussion, income of Rs.10,50,00,000/- surrendered by the assessee u/s 132(4) of the I.T.Act is assessed as undisclosed income u/s 69A of the Act. This issue attracts Penalty u/s 271AAA of the I.T. Act, 1961 as the assessee fails to substantiate the manner in which the undisclosed income was derived."
4. Aggrieved the assessee filed appeals before Ld. CIT(A). The Ld. CIT(A) deleted the above additions by holding similar findings in respect of these two years. For the sake of convenience, the findings for Asst. Year: 2010-11 are reproduced below.
"7. It is seen that the bifurcation of the disclosed amount has been recorded in the books of account in the following manner:-
Statement of Account Period : 01/04/10 - 31/03/11 A/c : Amount surrendered 5 ITA Nos.535 & 536(Asr)/2014 Asst. Years: 2011-12 & 2012-13 Date B Narration Debit Credit Balance 30/06/2010 J A/O SURRENDERED FOR 1,00,00,000.00 1,00,00,000.00 Cr. ;
PURCHASES OF LAND 30/06/2010 J AMOUNT 1,16,18,000.00 2,16,18,000.00 Cr.
SURRENDERED FOR BUILDING 30/06/2010 J AMOUNT 19,80,000.00 2,35,98,000.00 Cr.
SURRENDERED FOR COMPUTERS 30/09/2010 J AMOUNT 52,00,000.00 2,87,98,000.00 Cr.
SURRENDERED FOR PURCHASE OF LAND 30/09/2010 J AMOUNT 30,35,000.00 3,18,33,000.00 Cr.
SURRENDERED FOR BUILDING 30/09/2010 J AMOUNT 75,00,000.00 3,93,33,000.00 Cr.
SURRENDERED FOR LAND 30/09/2010 J AMOUNT 14,70,400.00 4,08,03,400.00 Cr.
SURRENDERED FOR
PURCHASE OF FURNITURE
J AMOUNT 20,25,000.00 4,28,28,400.00 Cr.
SURRENDERED FOR
30/09/2010 COMPUTERS
30/09/2010 J AMOUNT 38,600.00 4,28,67,000.00 Cr.
SURRENDERED ON A/C
BUILDING MATERIAL
30/10/2010 J AMOUNT 1,00,00,000.00 5,28,67,000.00 Cr.
SURRENDERED ON A/C
BUILDING MATERIAL
31/10/2010 J AMOUNT 21,25,000.00 5,49,92,000.00 Cr.
SURRENDERED ON A/C
BUILDING MATERIAL
30/11/2010 J AMOUNT 75,00,000.00 6,24,92,000.00 Cr.
SURRENDERED ON A/C
BUILDING MATERIAL
31/12/2010 J AMOUNT 45,00,000.00 6,69,92,000.00 Cr.
SURRENDERED ON A/C
BUILDING MATERIAL
31/12/2010 J AMOUNT 75,00,000.00 7,44,92,000.00 Cr.
SURRENDERED ON A/C
BUILDING MATERIAL
31/12/2010 J AMOUNT 50,00,000.00 7,94,92,000.00 Cr.
SURRENDERED ON A/C
BUILDING MATERIAL
31/12/2010 J AMOUNT 50,00,000.00 8,44,92,000.00 Cr.
SURRENDERED ON A/C
BUILDING MATERIAL
31/12/2010 J AMOUNT 1,00,00,000.00 9,44,92,000.00 Cr.
SURRENDERED ON A/C
BUILDING MATERIAL
6 ITA Nos.535 & 536(Asr)/2014
Asst. Years: 2011-12 & 2012-13
31/01/2011 J AMOUNT 50,00,000.00 9,94,92,000.00 Cr.
SURRENDERED FOR
PURCHASES OF LAND
31/01/2011 J AMOUNT 50,00,000.00 9,94,92,000.00 Cr.
SURRENDERED FOR
PURCASE OFLAND
31/11/2010 J AMOUNT 26,42,000.00 10,21,34,000.00 Cr.
SURRENDERED FOR CONST
OF BUILDING
31/01/2011 J AMOUNT 16,40,000.00 10,37,74,000.00 Cr.
SURRENDERED FOR
PURCHASE OF COMPUTERS
31/01/2011 J AMOUNT 12,26,000.00 10,50,00,000.00 Cr.
SURRENDERED FOR
PURCHASE OF FURNITURE
31/01/2011 J Totals 10,50,00,000.00 10,50,00,000.00 Cr.
8. The combined reading of the seized document as well as the consequent disclosure by the appellant under section 132(4) clearly shows that the income so disclosed has been earned from activities of trust which could not be recorded in the books of accounts. There is no ambiguity as to the manner in which the said income has been earned and its direct connection with the business of the appellant trust. The Assessing Officer's arguments that this disclosure should have been included under the decision of Hon'ble Punjab & Haryana High Court in the case of M/s Kim Pharma v/s CIT vide ITA no.106 of 2011 is erroneous as the Hon'ble Court even in the said case had examined two types of items disclosed under section 133A of the Income Tax Act, 1961. The item in the form of cash for which no explanation regarding its source could be given by assessee was directed to be taxed under the head "Income from other sources" and the discrepancy leading to disclosure on account of unaccounted stocks was directed to be taxed under the head "Income from business and profession. The basic premise laid down by the Hon'ble Court is that any item of disclosure that is not relatable to business of the assessee should be taxed under the head "Income from other sources" and any item which has direct connection with the business activity should be taxed under the head "Income from business and profession". The observation of the Hon'ble Jurisdictional High Court is reproduced as under:-
"The scheme of sections 69, 69A, 69B and 69C of the Income- tax Act, 1961, would show that in cases where the nature and source of investments made by the assessee or the nature and source of acquisition of money, bullion etc., owned by the assessee or the source of expenditure incurred by the assessee are not explained at all or not satisfactorily explained, then, the value of such investments and money or the value of articles not recorded in the books of account or the unexplained expenditure may be deemed to be the income of such assessee. It follows that the moment a satisfactory explanation is given about such nature and source by the assessee, then the source would stand disclosed and will, therefore, be known and the income would be treated under the appropriate head of income for assessment as per the provisions of the Act. However, when these provisions apply because no sources is disclosed at all on the basis of which the income can be classified under one of the heads of income under section 14 of the Act, it would not be possible to classify such deemed income under any of these heads including income from "other sources" which have to be sources known or explained. When the income cannot be so classified under any one of the heads of income under section 14, it follows that the question of giving any deductions under the provisions which correspond to such any one of those heads by virtue of a satisfactory explanation being given, then these provisions of sections 69,69A, 69B and 7 ITA Nos.535 & 536(Asr)/2014 Asst. Years: 2011-12 & 2012-13 69C will not apply, in which event, the provisions regarding deductions etc. applicable to the relevant head of income under which such income falls will automatically be attracted.
The opening words of section 14 "save as otherwise provided by this Act" clearly leave scope for "deemed income" of the nature covered under the scheme of sections 69, 69A, 69B and 69C being treated separately, because such deemed income is not income from salary, house property, profits and gains of business or profession, or capital gains, nor as it income from "other sources" because the provisions of sections 69,69A, 69B and 69C treat unexplained investments, unexplained money, bullion etc. and unexplained expenditure as deemed income where the nature and sources of investment, acquisition or expenditure, as the case may be, have not been explained or satisfactorily explained. Therefore, in these cases, the source not being known, such deemed income will not fall even under the head "income from other sources". Therefore, the corresponding deductions which are applicable to the incomes under any of these various heads, will not be attracted in the case of deemed incomes which are covered under the provisions of sections 69,69A, 69B and 69C of the Act in view of the scheme of those provisions."
The perusal of the seized document as well as the disclosure made by the assessee clearly shows that all items of disclosure are directly with reference to the assets of the appellant and therefore cannot be said to be income from other sources. The decision of Hon'ble Punjab and Haryana High Court in the case of M/s Kim Pharma vs. CIT ITA no. 106 of 2011 is directly applicable to the facts of the case but not in the way as done by the Assessing Officer. The appellant's total income after the inclusion of disclosure in the Profit & Loss account has to be taxed as such and if no part of the expenses debited in the Profit & Loss account have been found to be either bogus or excessive the resultant figure has to be assessed as total income. The action of the Assessing Officer in taking out only the disclosed income and putting it under the head "Income from other sources" is incorrect as per law. The addition made is therefore directed to be deleted.
10. The ground of appeal at serial no. 3 pertains to disallowance of Rs.36,74,000/- which has been made by the Assessing Officer on the ground that the appellant had advanced amounts free of interest for non business purposes. The perusal of the assessment order shows that the Assessing Officer has highlighted certain interest free advances and loans made to family members and sister concerns. The details in this regard is as under:-
S.No. Name of the Entities Advances Amount (in lacs) Sh. Bittu Makkar 15
1. 2. Sh. Jai Pal Midha 10
3. Smt. Jaswinder Kaur 4.87
4. M/s N.K Finvest Co. 50.50 5. Sh. Narottam Singh 5
6. Smt. Preet Inder Kaur 67.81
7. M/s Shiv Rice Mills 20 Sh. Tarwinder singh 96.90
8.
9. M/s Venus Builders Pvt. Ltd. 36.05 Total 306.13 8 ITA Nos.535 & 536(Asr)/2014 Asst. Years: 2011-12 & 2012-13
11. It is seen that the assessee on being confronted with the same did Wot offer any explanation on the issue leading the Assessing Officer to conclude that the said interest free advances had been for non business purposes and therefore corresponding disallowance of interest debited in Profit & Loss account had been made.
12. During the course of appellate proceedings, the AR of the appellant submitted his arguments on the issue as under:-
"Sir, it is submitted that during the year under consideration assessee has made certain advances to the trustees, their family members and sister concern owned by trustee and also to the outsider to the tune of Rs.3,06,13,000/- listed in para 4.1 at page 4 of the assessment order and on this outstanding amount of Rs.3,06,13,000/- as on 31.03.2011 interest @ 12% to the tune of Rs.36,74,000/- has been disallowed.
Sir, at par 4.2 of the assessment order it is alleged that no explanation on the above issue was received by the Ld. Assessing Officer from the assessee side. In this regard it is submitted that we have filed a detailed reply with the Ld. Assessing Officer. We really do not know why this reply has not been considered while disallowing this amount. Copy of the reply is attached herewith for your kind perusal.
Sir, this reply is self explanatory and is as per books of accounts of assessee which have been considered by the Assessing Officer while framing assessment order. This clearly proves that assessment was framed without application of mind on account of following reasons:
A) That advances made to the outsider for purchase of property have considered as interest free advances to the trustee/ relative/sister concern of the assessee.
B) That interest is calculated on total outstanding amount as on 31.03.2011 and not on day to day use of funds. Even adjustment entries made on 31.03.2011 in some cases have attracted full year interest disallowance.
C) That interest free advances received from trustee/relatives/ sister concern have not at all been considered while calculating the disallowance of interest.
Sir, therefore, it is requested that considering the facts and circumstances of this case addition made by the Ld. Assessing Officer ignoring the facts of this case may kindly be deleted."
13. Since the Assessing Officer had recorded in the assessment order that the appellant had not offered any explanation on the issue during the assessment proceedings, the Assessing Officer was requested to attend the proceedings along with the assessment record to verify the facts of the case. It was seen that the assessee had submitted the detailed explanation on the issue during assessment proceedings which forms part of the assessment record and for some reason escaped attention of the Assessing Officer. The reply of assessee as submitted during the assessment proceedings is reproduced as under:-
"As regards disallowance of Rs.36,74,000/- on the basis of advance against property and occurrence of expenses, it is submitted that since assessee is doing a noble cause by running a chain of schools, it needs land at different locations to open new branches and for this purpose it has to make some advances as token money to different persons. This being business transaction cannot be treated an interest free advance.9 ITA Nos.535 & 536(Asr)/2014
Asst. Years: 2011-12 & 2012-13 Sir, if we go through our previous detailed replies it has clearly been explained that this amount has been given as advance for purchase of properties from different persons and out of this amount some amount has also been received back in next financial years because the deal could not be materialized due to some fault in documents.
Similarly as regards occurrence of expenses it is again submitted that assessee has incurred all the expenses of advertisement, bank interest, depreciation, development, hire purchase, insurance etc. very genuinely and increase in the expenses like advertisement as compared to last year is due to advertisement in various newspapers, electric media, FM radio and hording etc. Photocopies of all the vouchers/bills alongwith full explanation have already been furnished to your goodself vide our previous replies. It is further submitted that payment of all bills have been made through cheques after deduction of TDS and following all the provisions of chapter XVII of the Act. The same may be verified from the books of accounts.
Sir, details with regard to interest free advances and nature of each account is explained herein below for your kind consideration.
i) Advance to Sh. Bittu Makkar for Rs. 15.00 lacs:-
Sir, this amount has been given as advance against property to Sh. Bittu Makkar. It is pertinent to mention here that Sh. Bittu Makkaris neither trustee nor relative or sister concern of the assessee. Since, this is advance against property in the normal course of business, it is prayed that kindly no adverse inference may please be withdrawn.
ii. Advance to Sh. Jai Pal Midha for Rs.10.00 lacs:-
Sir, this amount has been given as advance against property to Sh. Jai Pal Midha. It is pertinent to mention here that Jai Pal Midha is neither trustee nor relative or sister concern of the assessee. Since, this is advance against property in the normal cource of business, it is prayed that kindly no adverse inference may please be drawn.
i) Advance to Smt. Jaswinder Kaur for Rs.4.87 lacs Sir, copy of account of Smt. Jaswinder kaur has already been furnished to your goodself vide our previous replies. Sir, this is not interest free advance rather advance against rent for the use of the building by the assessee. Since, this is business transaction it is prayed that no interest be disallowed in the interest of justice.
ii) Advance to M/s N.K Finvest Co. Pvt.Ltd.for Rs.50.50 lacs Copy of account of M/s N.K Finvest Co. Pvt. Ltd. has already been furnished to your goodself vide our previous replies. No doubt, this is an advance which is interest free but against this there is family deposit of Rs.1,14,66,912/- received interest free by assessee from its trustees/relatives/sister concerns as under:-
Jalandhar Construction Co. Ltd. 85,66,646.00
Venus Builders Pvt. Ltd. 22,00,000.00
Tarwinder Singh 7,00,266.00
Hence, it is prayed that kindly no interest be disallowed in the interest of justice.
v) Advance to Sh. Narotam Singh for Rs.5 lacs Copy of account of Sh. Narottam Singh has already been furnished to your goodself vide our previous replies. No doubt, this is an advance which is interest free but against this there is a family deposit of Rs.1,14,66,912/- received interest free by the assessee from its trustees/relatives/sister concerns as under:-10 ITA Nos.535 & 536(Asr)/2014
Asst. Years: 2011-12 & 2012-13 Jalandhar Construction Co. Ltd. 85,66,646.00 Venus Builders Pvt. Ltd. 22,00,000.00 Tarwinder Singh 7,00,266.00 Hence, it is prayed that kindly no interest be disallowed in the interest of justice.
vi) Advance to Smt. Preetinder Kaur for Rs.67.81 Lacs Copy of account of Smt. Preetinder Kaur has already been furnished to your goodself vide our previous replies which clearly reveals that balance for full year is credit Rs.1,66,907.00 and on 31.03.2011 an adjustment entry has been made with debit balance. Virtually, no new actual funds were given during the year under consideration.
Sir, no doubt, this is an advance which is interest free but against this there is a family deposit family deposit of Rs.1,14,66,912/- received interest free by the assessee from its trustees/relatives/sister concerns as under:-
Jalandhar Construction Co. Ltd. 85,66,646.00 Builders Pvt. Ltd. 22,00,000.00 Tarwinder Singh 7,00,266.00
Hence, it is prayed that kindly no interest be disallowed in the interest of justice.
vii) Advance to M/s Shiva Rice Mills for Rs.20.00 Lacs. Sir, if we go through the statement of account of M/s Shiva Rice Mills, it clearly shows that on 31.03.2011 a cheque amounting to Rs.20.00 lac was given which was never honoured and received back just after two days i.e. on 012.04.2011. So, no actual funds were given during the year under consideration. Statement of account of M./s Shiva Rice Mills from the books of accounts of assessee for the A.Y. 2011-12 and 2012-13 have already been furnished to your goodself vide our previous replies. Hence, it is prayed that kindly no adverse inference may please be drawn.
viii) Advance to Sh. Tarwinder Singh for Rs.96,90 Lacs. Copy of account of Sh. Tarwinder Singh has already been furnished to your goodself vide our previous replies which clearly reveals that closing balance of this account from 10.05.210 to 14.10.2010 is credit of Rs.35,25,408.00 which proves that funds of Rs.96.90 lacs have not been used for full year. Sir, no doubt, this is an advance which is interest free but against this there is a family deposit family deposit of Rs.1,14,66,912/- received interest free by the assessee from its trustees/relatives/sister concerns as under:-
Jalandhar Construction Co. Ltd. 85,66,646.00 Venus Builders Pvt. Ltd. 22,00,000.00 Tarwinder Singh 7,00,266.00
Hence, it is prayed that kindly no interest be disallowed in the interest of justice. Advance to M/s Venus Builders Pvt. Ltd. For Rs.36.05 lacs. Copy of account of M/s Venus Builders Pvt. Ltd. has already been furnished to your goodself vide our previous replied which clearly reveals that closing balance of this account for full year is credit. Only adjustment entries made on 31.03.2011 made this account with debit balance. Virtually no actual funds were given during the year under consideration. No doubt, this is an advance which is interest free but against this there is a family deposit of Rs.1,14,66,912/- received interest free by the assessee from its trustees/relatives/sister concerns as under:-
11 ITA Nos.535 & 536(Asr)/2014
Asst. Years: 2011-12 & 2012-13 Jalandhar Construction Co. Ltd. 85,66,646.00 Venus Builders Pvt. Ltd. 22,00,000.00 Tarwinder Singh 7,00,226.00 Hence, it is prayed that kindly no interest be disallowed in the interest of justice.
"14. I have considered the facts of the case, the basis of addition made by the Assessing Officer and the arguments of the AR on the issue during assessment as well as appellate proceedings. It is seen that the appellant with reference to advances given to M/s N.K Finvest Co., Sh. Narottam Singh, Smt. Preetinder Kaur, Sh. Tarwinder Singh, M/s Venus Builders Pvt. Ltd. has admitted that the said advances are free of interest but similar advances had been received from friends and family members on which no interest had been paid. The interest free advances so received, as claimed by the appellant are as under:-
Rs.
Jalandhar Construction Co. Ltd. 85,66,646.00 Venus Builders Pvt. Ltd. 22,00,000.00 Tarwinder Singh 7,00,266.00
15. The perusal of the reply of the appellant shows that the total interest free advances given to family members and friends are as under:-
Sr. No. Name of the Entities Advances Amount (in lacs) 1. Sh. Bittu Makkar 15 2. Sh. Jai Pal Midha 10
3. Smt. Jaswinder Kaur 4.87
4. M/s N.K Finvest Co. 50.50 Sh. Narottam Singh 5
5.
6. Smt. Preet Inder Kaur 67.81 7. M/s Shiv Rice Mills 20 Sh. Tarwinder singh 96.90
8.
9. M/s Venus Builders Pvt. 36.05 Ltd.
Total 306.13
16. It is further seen that if interest is charged @ 12% on debit balance as well as considered payable @ 12% on credit balance, the following calculation gets worked out:
Interest
Chargeable @ 12% Interest Payable @12%
Particulars
on Debit Balances on Credit Balances
Gurbachan Singh 22,542.39
Preetinder Kaur 17,744.53
Jalandhar Construction Co. Ltd. 34,195.51
12 ITA Nos.535 & 536(Asr)/2014
Asst. Years: 2011-12 & 2012-13
Venus Builders Pvt. Ltd. 234,010.69
Tarwinder Singh HUF 723.29
Tarwinder Singh 462,346.66
Narotam Singh 4,931.51
N.K. Finvest Co. Pvt. Ltd. 607,847.67
Total 1,075,125.84 3,09,216.41
17. The perusal of the above chart clearly shows that the appellant is availing interest free funds on which interest payable would have amounted to Rs.3,09,216/- as against Rs. 10,75,125/- that could have been charged with reference to the amounts advanced. It means that the appellant has not used the interest bearing funds for non business purpose for the year under consideration. However, the assessee has only given calculation with respect to the funds given free of interest to family members and group concern as well as received from such persons who has merely claimed the following advances to be in the nature of business advances without submitting supporting evidence to substantiate the claim:-
i) Advance to Sh. Bittu Makkar for Rs. 15.00 lacs.
ii) Advance to Sh. Jai Pal Midha for Rs.10.00 lacs.
Therefore, there is nothing on record to show that the impugned advances to persons other than close members of the group had any business purpose. Therefore, the disallowance made at the rate of 12% on such advances in respect of interest debited in profit and loss account is confirmed. The disallowance for this year to the tune of Rs.3,00,000/- is therefore confirmed. Rest of the addition made is directed to be deleted."
5. Aggrieved the Revenue is in appeal before us.
6. At the outset, the Ld. DR heavily placed his reliance on the order of authorities below whereas, the Ld. AR submitted that the provisions of Sec.69A were not applicable to the assessee as the assesse had surrendered the additional income as business income and the same was credited in P&L Account. It was submitted that Assessing Officer had made addition u/s 69 of the Act stating that assessee had failed to explain the sources of undisclosed or unaccounted income whereas the 13 ITA Nos.535 & 536(Asr)/2014 Asst. Years: 2011-12 & 2012-13 facts/ remains that the assessee had surrendered the income out of business income as is apparent from the seized documents, which the Ld. CIT(A) had made part of his order. It was submitted that at page 10 of CIT(A) order, the Ld. CIT(A) has made bifurcation of Rs.10.50 crores consisting of various amounts which were surrendered by assessee for investment in building for purchase of land, computers etc. It was submitted that the said income was earned from the business of the assesse company. It was submitted that Assessing Officer had wrongly applied the ratio of Kim Pharma Pvt. Ltd. decided by Hon'ble Punjab & Haryana High Court. He submitted that the Hon'ble Punjab & Haryana High Court had held that cash amount of Rs.5 lacs surrendered during the year which remained unexplained was to be treated as income from other sources whereas the income surrendered on account of sundry creditors repair to building and advances to staff amounting to Rs.10 lacs was held to the income from business or profession. The Ld. AR submitted that following the ratio of Kim Pharma Pvt. Ltd. the Amritsar Bench of that Tribunal in the case of M/s. Khanna Papers Mills in ITA No. 388 & 537(Asr)/ had dismissed the appeals of Revenue under similar facts and circumstances.
7. As regards the other deletion made by ld. CIT(A) it was submitted that there were surplus of non interest bearing funds available with the assessee which the Assessing officer had ignored. He submitted that Ld. CIT(A) after considering the interest free funds available with the 14 ITA Nos.535 & 536(Asr)/2014 Asst. Years: 2011-12 & 2012-13 assessee had deleted the addition. It was submitted that Ld. CIT(A) has analyzed each and every advance and has therefore, allowed relief correctly. It was submitted that while allowing part relief the Ld. CIT(A) has ignored the corpus fund of Rs.8 crores and if he had considered this amount the partial disallowance sustained by him was also not warranted. Reliance in this respect was placed on the following case laws;
(i) CIT Vs. Reliance Utilities & Power Ltd. (2009) 221 CTR 435
(ii) MBD Printographics (P) Ltd. Vs. DCIT ITA No. 534 & 621/Asr/2014
(iii) ACIT Vs. Kulwinder Singh ITA No. 659 & 660/Asr/2014
(iv) ACIT Vs. M/s Harman Builders Pvt. Ltd. ITA No. 666/Asr/2014
8. We have heard the rival parties and have gone through the material placed on record. As regards the first issue income surrendered during the year we find that the surrender was made as certain documents were seized from the premises of the School, Colleges. The said seized documents reflected investments made in new assets such as land, buildings, computers etc. The ld CIT(A) in his order at page 7 to 9 has noted down the various items of advances and new asssets. We find that the seized material found during the course of search related to purchase of computers, building construction, advances against land for school and investment was made out of unaccounted school fees and therefore it cannot be treated as income from other sources as the unaccounted income was relatable to the business of the assessee. The 15 ITA Nos.535 & 536(Asr)/2014 Asst. Years: 2011-12 & 2012-13 Hon'ble High Court of Punjab & Haryana in the case of Kim 'Pharma Private Ltd.' has laid down the ratio that where the nature and source of investment made by the assessee or the nature of the source of acquisition of money, bullion owned by the assessee or the source of expenditure incurred by the assessee are not explained at all or not satisfactorily explained, then, the value of such investments and money or the value of articles not recorded in the books of account or the unexplained expenditure may be deemed to be the income from other sources assessee. It follows that the moment a satisfactory explanation is given about such nature and source by the assessee, then the source would stand disclosed and will, therefore, be known and the income would be treated under the appropriate head of income for assessment as per the provisions of the Act. These provisions apply when no sources is disclosed at all on the basis of which the income can be classified under one of the heads of income under section 14 of the Act is when the income cannot be so classified under any one of the heads of income under section 14, then the provisions of sections 69,69A, 69B and 69C will apply. In the present cases the surrendered income related to the business of assessee which fact was apparent from seized documents of which Ld. CIT(A) has rightly noted.
In view of the above facts and circumstance and Judicial Precedents we do not find any infirmity in the order of CIT(A), therefore, the first issue is decided against the revenue.
16 ITA Nos.535 & 536(Asr)/2014
Asst. Years: 2011-12 & 2012-13
9. As regards the second issue of disallowance u/s 36(i) iii of the Income tax we find that assessee had sufficient interest free funds out of which interest free advances was given. Infact while allowing part relief to the assessee the Ld. CIT(A) had not considered the corpus fund of Rs. 8 crores and he considered only the interest free funds. The Ld CIT(A) has analyzed each and every advances given by assessee and after considering the credit balance in the form of interest free advances has rightly allowed relief to the assessee. The case laws relied upon by Ld. AR also supports the case of Assessee. Therefore, we do not find any infirmity in the order of Ld. CIT(A) therefore, this ground is also decided against the revenue.
10. In view of the above, the appeals filed by the revenue are dismissed.
Order pronounced in the open Court on 21.02. 2017.
Sd/- Sd/-
(A.D. JAIN) (T. S. KAPOOR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated:21.02.2017.
/PK/ Ps.
Copy of the order forwarded to:
(1) The Assessee:
(2) The
(3) The CIT(A),
(4) The CIT,
(5) The SR DR, I.T.A.T.,
True copy
By order