Income Tax Appellate Tribunal - Ahmedabad
Prathana Construction Pvt. Ltd., ... vs Department Of Income Tax on 17 January, 2003
IN THE INCOME TAX APPELLATE TRIBUNAL : 'D' BENCH : AHMEDABAD
(Before Hon'ble Shri Mahavir Singh, J.M. and Hon'ble Shri D.C. Agrawal, A.M.)
I.T.A. No. 1343/AHD./2003
Assessment Year : 1995-1996
Income Tax Officer, Ward-5(2), -Vs.- Prarthana Construction P. Ltd.
Ahmedabad Ahmedabad
(Appellant) (Respondent)
Appellant by : Shri K. Madhusudan, Sr. D.R.
Respondent by : Shri Mehul K. Patel
ORDER
Per Shri D.C. Agrawal, Accountant Member :
This appeal filed by the revenue against the order dated 17.01.2003 of Learned Commissioner of Income Tax(Appeals)-XI, Ahmedabad for the assessment year 1995-96 on the following grounds :-
(1) The Learned Commissioner of Income Tax(Appeals)-XI, Ahmedabad erred in law and on facts in deleting the addition of Rs.1,01,200/- made by the Assessing Officer being the interest on the interest free advances.
(2) The Learned Commissioner of Income Tax(Appeals)-XI further erred in law and on facts in restricting the disallowance to 50% out of the total amount of Rs.6,36,118/-
under the head 'foreign travel expenses'.
(3) On the facts and circumstances of the case, the ld. CIT(A.) erred in deleting the addition of Rs.23,47,691/- made by the A.O. invoking provisions of section 40A(2)(b) of the Act.
(4) The ld. CIT(A.) erred in law and on facts in not appreciating the fact that the so called repairs have been made to the property of the director.
(5) The ld. CIT(A.) erred in law and on facts in deleting the addition of Rs.16,00,000/- made by the A.O. under the provisions of sec. 69A of the I.T. Act.
(6) The ld. CIT(A.) erred in law and on facts in not considering the factual aspect of the case that the assessee sent Rs.16,00,000/- to Bombay through L.T. Shroff, who was a carrier of the said amount.
(7) The ld. CIT(A.) erred in law and on facts in deleting the addition of Rs.1,75,000/- made by the A.O. being unaccounted receipt.
2ITA No. 1343-AHD-2003 (8) The ld. CIT(A.) grievously erred in not considering the Sky Reach Tower Apartment had given cash amount of Rs.1,75,000/- on 23.6.1994 which the assessee did not account in its regular books of accounts.
2. The facts of the case are that the assessee is engaged in the business of real estate. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has given interest-free advances to Shri N.P. Modi, Prarthana Hotels Pvt. Ltd. and Ravi Kirana Energy P. Ltd. It was claimed before the Assessing Officer that the money was paid to Shri N.P. Modi for purchase of land for future projects of Multiplex Theatre. When inquiries were carried out as to the details of these advances, it seems that no reply was filed by the assessee-company. The Assessing Officer calculated interest @ 18% at Rs.78,750/- on the advances lying with the party. In respect of Prarthana Hotels Pvt. Ltd., a loan of Rs.3,61,150/- was given without interest on which Assessing Officer worked out interest at Rs.4,453/- and disallowed the same out of interest paid by the assessee-company. In respect of Ravi Kirana Energy P. Ltd. the Assessing Officer calculated interest of Rs.18,000/- on the sum of Rs.1,00,000/- as outstanding against the party since 1992. Thus total disallowance of interest was worked out at Rs.1,01,200/-. The Learned Commissioner of Income Tax (Appeals) deleted the addition on the ground that the Assessing Officer has not contradicted the facts submitted by the assessee either in the assessment order or in the remand report. Further no nexus has been established by the Assessing Officer between money advanced and loan taken by the assessee-company.
3. We have heard the parties. It is submitted by the ld. A.R. that advance given to Shri N.P. Modi was for the purchase of land and because of dispute in prices, the agreement could not be made. No disallowance of interest has been made in respect of these advances in subsequent assessment years. In any case, the advance was for business purposes for establishing a Multiplex and for that purpose a land was to be purchased. Relying on the decision of the Hon'ble Supreme Court in the case of S.A. Builders reported in 288 ITR 1, no disallowance of any interest is called for, if advances are given for commercial purposes.
4. In respect of advances given to Prarthana Hotels P. Ltd., it was submitted that the profits of the assessee company are sufficient to cover such advances. The assessee-company had filed 3 ITA No. 1343-AHD-2003 return of income at Rs.1,01,01,157/-, where profit declares are sufficient to cover the interest- free advances, then it cannot be presumed that such interest-free advances were given out of borrowed funds. Similarly advance given to Ravi Kirana Pvt. Ltd. were outstanding since 1992 and no disallowance of interest has been made in any of the intervening period. Further, the Assessing Officer has not proved any nexus between the money advanced and loan taken. For the above proposition, support is derived from the following judgments :-
(i) CIT -vs.- Sridev Enterprises 192 ITR 165(SC);
(ii) S.A. Builders Ltd. 288 ITR 1 (SC);
(iii) Munjal Sales -vs.- CIT 298 ITR 298 (SC);
(iv) CIT -vs.- Prem Heavy Engineering Works P. Ltd. 285 ITR 554 (All.
(v) Chhotalal Ajitsingh & Co. -vs.- ITO 94 TTJ (Jd.) 911;
(vi) Escorts Ltd. -vs.- ACIT (ITAT Delhi 'G' Bench) 102 TTJ 522;
(vii) Torrent Financial -vs.- ACIT 73 TTJ 264 (ITAT AHD.);
(viii) Essar steel Ltd. -vs.- DCIT 97 TTJ 985 (AHD Third Member)/97 ITD 125
(ix) Ashok Brothers -vs.- ITO 76 TTJ 427 (Hyd.).
In view of the above, we confirm the order of Learned Commissioner of Income Tax (Appeals) on this issue and dismiss the ground filed by the Revenue.
5. Second ground of appeal relates to restricting disallowance of 50% out of total amount of Rs.6,36,118/- under the head "Foreign Travel Expenses". The two directors of the assessee- company had undertaken foreign tour to Egypt, Rome, Greece, Ethens, etc. alongwith their wives for studying designs of buildings to be constructed in Prarthana Upvan and Prarthana Vihar. Out of total claim in respect of foreign traveling expenditure of Rs.11,04,405/-, the assessee-company has suo moto treated a sum of Rs.4,68,287/- as personal expenditure of the Directors. Out of the balance claim of Rs.6,36,118/-, the Assessing Officer had disallowed the entire expenditure stating that expenditure should have been debited in the account of Prarthana Upvan or Prarthana Vihar and cannot be debited in the accounts of the assessee-company. The Learned Commissioner of Income Tax (Appeals) on the other hand allowed the expenses to the extent of 50% of the balance on the ground that the visits to foreign countries were made for studying designs of buildings to be constructed in Prathana Upvan and Prarthana Vihar. Thus it was an extension business of assessee-company and was for the business purpose. The Learned 4 ITA No. 1343-AHD-2003 Commissioner of Income Tax (Appeals) disallowed 50% of expenditure on the ground that travel of wives of the directors cannot be said to be for the business of the assessee-company. The ld. A.R. submitted that the Assessing Officer should have disallowed only actual expenditure incurred on wives and not merely 50%. In fact, actual expenditure incurred on wives of the directors was Rs.1,93,882/- and other was common expenditure for the directors, which was for the business purpose and could not be disallowed.
6. On the other hand, the ld. D.R. submitted that the expenditure could not be said to have been incurred for the business of the assessee-company and, therefore, entire expenditure should have been disallowed.
7. Since the assessee is not in appeal before us, the contention of the assessee to restrict the disallowance to Rs.1,93,882/- cannot be accepted. However, we uphold the finding of Learned Commissioner of Income Tax (Appeals) that 50% of the expenditure incurred on wives of the directors is to be allowed as no business purpose is proved in respect of them. Accordingly we uphold the order of Learned Commissioner of Income Tax (Appeals) and dismiss this ground of Revenue.
8. The next ground is regarding deletion of addition of Rs.23,47,691/- made under section 40A(2)(b). The Assessing Officer observed that the assessee-company has taken a building on rent from its Director Nimishbhai Shah. The building was residential bunglow and it was converted into office by incurring repairing expenditure of Rs.24,67,691/-. The Assessing Officer considered that payment for repairs is in fact indirect benefit given to the director and, therefore, disallowable under section 40A(2)(b) of the Act. The Learned Commissioner of Income Tax(Appeals) allowed the expenditure on the ground that payment is not made to any person specified in section 40A(2)(b) of the Act but was made to the directors, who repaired the bunglow. Further expenditure has been incurred on the building for making it compatible for business purposes and also no rent is paid to the directors in lieu of assessee-company occupying of that bunglow.
5ITA No. 1343-AHD-2003
9. We have heard the parties. In our view, the decision of Learned Commissioner of Income Tax (Appeals) is reasonable. The disallowance under section 40A(2)(b) can be made only when payment is made to the specified persons. In the present case, payment has been made to contractors who repaired the building and therefore, they are beyond the scope of section 40A(2)(b) of the Act. Unless the conditions laid down in section 40A(2)(b) are specified, such disallowance cannot be made. Firstly, there is no payment to the directors directly, secondly, the Assessing Officer has not compared the expenditure with market rate of the services for which payment is made and, therefore, he cannot come to a conclusion that payment or the benefit given to the director is excessive. Thirdly, genuineness of the expenditure has not been doubted and it has not been held as capital expenditure. In any case, repairs to a building are revenue expenditure in view of the judgment of the Hon'ble Supreme Court in the case of CIT -vs.- Madras Auto Services Pvt. Ltd. 233 ITR 468. In view of this, we uphold the order of Learned Commissioner of Income Tax (Appeals). Resultantly, this ground of revenue's appeal is rejected.
10. 4th ground of appeal is in support of ground No. 3. Even where indirect benefit appears to have been provided to the interested persons covered under section 40A)(2)(b), it has to be shown that such payment is excessive as compared to market value of such services. The Assessing Officer has not worked out what could be the market rent of the bunglow, which is not known. About charging of rent by the directors the ld. A.R. submitted that if the rent of Rs.200/- per sq.yd. per month is considered, the same would amount to Rs.21,60,000/- per annum. Even though these figures are not acceptable as there is no material in its support still the fact cannot be ignored that building was given by the directors to the Company free of rent. In absence of any challenge to the genuineness of the expenditure incurred on repairs and in absence of any material to show that expenditure incurred by the company on repairs is excessive thereby conferring some benefits to the directors the contention of the revenue cannot be accepted. Resultantly, ground no. 4 is also rejected.
11. Ground No. 5 relates to deleting the addition of Rs.16,00,000/- made under section 69A. The facts relating to this issue are that DD Enforcement, Mumbai had seized one diary from Mumbai Office of L.T. Shroff Group on 23.5.1995 in which cash receipts from various parties including name of the company were recorded. A sum of Rs.16,00,000/- was partly recorded as 6 ITA No. 1343-AHD-2003 deposited in the name of the assessee-company. The Assessing Officer accordingly treated this sum as unaccounted cash deposied within the meaning of section 69A of the Income Tax Act and added the same to the total income of the assessee. The Learned Commissioner of Income Tax(Appeals) deleted the addition on the ground that cross examination of one Shri Kalpesh Thhakkar, whose statement was recorded on the basis of which addition was made was not granted to the assessee-company. Following the decision of ITAT, 'C' Bench, Ahmedabad in Appeal No. IT(SS) 58/AHD/1998, the Learned Commissioner of Income Tax(Appeals) deleted the addition on the ground that no opportunity to cross examine to Shri Thakkar was allowed. The ld. A.R. submitted that similar additions were made in the block assessment on the basis of statement of Shri Thakkar. The Tribunal in IT(SS)A. No. 58/AHD/1998 reported in [2001] 70 TTJ Ahmedabad 122 in the case of the assessee-company deleted the addition on the ground that opportunity of cross examination was not allowed, which is reproduced hereunder :-
"After careful consideration of the matter, we are inclined to delete the addition of Rs.28 lakhs made by the AO The legal contentions raised by the ld. counsel regarding the action of the AO in roping in the so-called cash payment made to Shn Ramanbhaj for acquiring development rights have substantial merit in view of the decision of Gujarat High Court in the case N.R. Paper & Board Ltd vs. Dy CTT (1998) 146 CTR (Guj.) 612 : (1998) 234 ITR 733 (Guj.). In the instant case, no search operations have been carried out by the revenue authorities on the premises of Shri Ramanbhai or Shri Subhash Pandey amd no documents and records evidencing payment of on money by the on the Hasunagar Co-operative Society land has been seized. Therefore, provisions of s. 158BC, applicable for search cases would not come into play in so far as the impugned addition of Rs, 28 lakhs is concerned. On legal ground alone the addition is liable to be deleted. On factual merits we find that statements of Shri Ramanbhai and Shri Subhash Pandey at the back of the assessee cannot be relied upon for fastening tax against the assessee particularly when the assessee has not been opportunity of cross- examination and no supporting evidence has been on record by the AO The addition of Rs 28 lakhs is, therefore, deleted".
12. The ld. D.R. submitted that receipts of payment made by the assessee were found at the premises of L.T. Shroff Group during the course of the search at the premises on 23.05.1995, therefore, the addition is not made in vaccum.
7ITA No. 1343-AHD-2003
13. The ld. A.R., on the other hand, submitted that firstly addition could not have been made in the regular assessment but could have been made under section 158BD in the case of the assessee since documents are recovered during the course of search at the premises of L.T. Shroff Group. Further, there is no clearity of the names linking the assessee with the receipts found. In this event, the ld. A.R. referred to the following reply given by him to the Assessing Officer :-
"Your assessee has not entered into any transaction with L.T. Shroff group of companies. The Xerox copies supplied to us speaks about resembling name that does not prove that those transactions relates to us. We were informed in around August 97 by learned DC Range 6, Ahmedabad that a return of income in the name of Prarthana Construction, a partnership firm was filed in Baroda. On verification, it turned out to be a totally separate assessee. Moreover, we do not have either employees, directors or partners of the name mentioned in the Xerox copy supplied by you. We can also prove this by providing our salary register".
14. After considering the submissions, we find no case for sustaining the addition. Firstly, if a document is recovered during the course of search, then assessment could only be made under section 158BD not in regular assessment. Secondly, there is no proper mention of names in the receipts so as to fasten liability on the assessee. Thirdly no cross examination of the person, who claimed that payment has been made by the assessee-company, has been allowed to the assessee. On the issue of cross examination not allowed to the Assessing Officer we refer to following judgments :-
1. CIT v. Ratanlal Surekha [1991] 190 ITR 367 (Cal) : Levy of penalty will be bad, if assessee is not allowed to cross examine the witness in favour of Department. When assessee expresses desire to cross examine a witness who has deposed against him, if reasonable opportunity is not granted, for cross examination the order of penalty is unjustified.
2. Bangodaya Cotton Mills Ltd v CIT (2009) 224 CTR 62 (Cal). Merely on the basis of some letters seized from a third party in the absence of any corroborative evidence and without issuing summons to the concerned persons or making available for cross examination, the order passed by the tribunal upholding the addition is set a side.
3. ITO v Nova Promoters &Finlease (P) Ltd (2010) 44 DTR (Del) (Trib) 9.8
ITA No. 1343-AHD-2003 Assessee company having received share application money through account payee cheques and filed certificate of incorporation of the companies which had applied for shares, bank statements and affidavits confirming payment of money as share application money, existence of the applications is proved and therefore, no addition under section 68 could be made by simply relying on the statements of two persons who were not even allowed to be cross -examined by the assessee.
4. ITO v Bibi Rani Bansal (Smt.) (2010) 43 DTR 279 (Agra) (TM) (Trib) Assesssee having submitted copies of contract notes, bills, share certificates along with details of demand draft issued from the account of the broker to substantiate the sale of shares made by her, and the AO having failed to establish that the assessee had introduced her own unaccounted money in the shape of sale proceeds of shares, the transaction of sale of shares cannot be treated as non genuine for the reason that the broker made contradictory statements and the assessee was not allowed cross examination and therefore the sale consideration declared by the assessee is assessable as capital gain and not as income from undisclosed sources.
5. CIT v Ashwani Gupta ( 2010 ) 322 ITR 396 ( Delhi ) Where oral evidence of any party is sought to be used against an assessee, it is necessary that information relating to such statement or the copy of deposition should be furnished to the assess with opportunity to cross examination the deponent ,if required by the assessee .if it is not done ,it is violation of principle of natural justice, hence order will be bad in law.
When we apply principles laid down in these cases on the facts of the present case, we notice that addition has been made primarily on the basis of statement of Shri Kalpesh L. Thakker. Such addition cannot be sustained without affording opportunity of cross examination. As a result, this addition is rightly deleted by the Learned Commissioner of Income Tax (Appeals).
15. Ground No. 6 is in support of Ground No. 1 and, therefore, does not require any specific adjudication. It is rejected alongwith Ground No. 5.
16. Ground No. 7 and Ground No. 8 relate to deleting addition of Rs.1,75,000/- as unaccounted receipts. The facts of the issue are that the Assessing Officer found that the books of Sky Reach Tower Apartment Owners Association had shown credit entry of Rs.1,75,000/- in the name of the assessee-company but the same was not accounted by the assessee-company in 9 ITA No. 1343-AHD-2003 its books. It was treated as unaccounted deposit and taxed accordingly by the Assessing Officer. The Learned Commissioner of Income Tax (Appeals) deleted the addition on the ground that the Assessing Officer has not brought any material on record and also did not mention in the remand report against the contention of the assessee that only general entries were passed in the assessee's books as on 31.03.1995. Before us, the ld. D.R. submitted that this is a payment made by the assessee-company, which was not explained, therefore, the addition ought to have been made.
17. On the other hand, the ld. A.R. clarified that it is not in fact any payment made by the assessee-company but it was in fact receipt of money of assessee-company from Sky Reach Tower Apartment Owners Association, which was debited in June, 1994 in the books of that company but was recorded subsequently on 31.1.1995 in the books of assessee-company. Since it was not a payment, question of invoking provisions of section 69 or 69A would not arise, therefore, no addition is called for. Since the facts stated by the ld. A.R. are correct, we do not consider necessary to reverse the finding given by him. Accordingly, his order is confirmed.
18. As a result, the appeal filed by the Revenue is dismissed.
The Order was pronounced in the Court on 07.01.2011
Sd/- Sd/-
(Mahavir Singh) (D.C. Agrawal)
Judicial Member Accountant Member
DATED : 07/ 01 / 2011
Copy of the order is forwarded to :
1) The Assessee
(2) The Department.
3) CIT(A.) concerned, (4) CIT concerned, (5) D.R., ITAT, Ahmedabad.
True Copy By Order Deputy Registrar, ITAT, Ahmedabad Laha/Sr.P.S.