Income Tax Appellate Tribunal - Ahmedabad
Purshottam B. Pitroda, Ahmedabad vs Assessee on 12 February, 2016
आयकर अपील य अ
धकरण, अहमदाबाद यायपीठ 'ए' अहमदाबाद।
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH, AHMEDABAD
BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER
AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA No. 3513/Ahd/2010
नधा रण वष /Assessment Year: 2007-08
ACIT,
Circle-12,
Ahmedabad ..... Appellant
Vs
Shri Purshottam B. Pitroda,
Prop: J.P. Fabricators,
Opp. Ambalal Estate, NH No.8,
Ghodasar, Ahmedabad ..... Respondent
PAN : ABWPM 6274 B
आयकर अपील सं./ ITA No. 428/Ahd/2011
नधा रण वष /Assessment Year: 2007-08
Shri Purshottam B. Pitroda,
Prop: J.P. Fabricators,
Opp. Ambalal Estate, NH No.8,
Ghodasar, Ahmedabad ..... Appellant
PAN : ABWPM 6274 B
Vs
ACIT,
Circle-12,
Ahmedabad ..... Respondent
:
Revenue by Shri A.K. Panday, Sr-DR
Assessee(s) by : Shri Tushar P Hemani, AR
सन
ु वाई क तार ख/ Date of Hearing 07/12/2015
घोषणा क तार ख /Date of Pronouncement 12/02/2016
आदे श/O R D E R
PER SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER:
ITA Nos. 3513/Ahd/2013 & 428/Ahd/2011
Assessee: Shri Purshottam B. Pitroda Cross-Appeals: AY : 2007-08 2 These cross appeals by the Revenue and assessee are directed against the order of the Commissioner of Income Tax (Appeals)-XX, Ahmedabad dated 08.10.2010 for Assessment Year 2007-08.
ITA No. 3513/Ahd/2010 : AY 2007-08 - appeal by Revenue2. The sole ground raised by the Revenue in this appeal reads as under:-
The ld. CIT(A)-XX, Ahmedabad has erred in law and on facts in accepting the book results of the Assessee and in deleting the addition of Rs.1,76,91,830/- made by the Assessing Officer, without considering the facts and circumstances of the case as brought on record in the assessment order.ITA No. 428/Ahd/2011 : AY 2007-08 - appeal by Assessee
2.1 In this appeal, the assessee has raised following grounds of appeal:-
1. The Id. CIT(A) has erred in law and on the facts of the case in confirming the action of ld. AO in estimating agriculture expenditure @ 40% instead of 17% actually incurred by the Appellant and accordingly erred in making addition of Rs. 1,20,232/-as undisclosed income being agriculture expenditure incurred but not disclosed by the Appellant.
2. The ld. CIT(A) has erred in law and on the facts of the case in partly confirming the action of ld. AO in disallowing interest expenditure u/s 36(l)(iii) of the Act out of total disallowance of Rs.74,36,118/- made u/s 36(1)(iii) of the Act by the ld. AO.
3. The ld. CIT(A) has rightly quashed the action of AO in rejecting the books of accounts u/s 145 of the Act and ITA Nos. 3513/Ahd/2013 & 428/Ahd/2011 Assessee: Shri Purshottam B. Pitroda Cross-Appeals: AY : 2007-08 3 further rightly deleted estimated gross profit addition made by the AO. However, having allowing the said ground of appeal, Id. CIT(A) ought to have allowed the alternate ground in respect of disallowance of diesel expenditure of Rs.3,29,25,850/- out of total diesel expenditure of Rs.14,06,78,823/- which was one of the grounds for rejecting the books of account rather than not adjudicating the said ground of appeal at all.
4. The ld. CIT(A) has erred in law and on the facts of the case in confirming the action of Id. AO in making addition of Rs.5,05,432/- as income from house property chargeable to tax u/s 22 of the Act.
5. The Id. CIT(A) has erred in law and on the facts of the case in confirming the action of ld. AO in disallowing Rs.1,48,866/- being l/5th of the depreciation claimed on cars after holding that such entire expenditure has not been incurred for the purpose of business of the Appellant. The Id. CIT(A) further erred in confirming the action of Id. AO in disallowing ad hoc disallowance of Rs.1,48,866/- in respect of other vehicle expenditure on the same ground.
6. Both the lower authorities have passed the orders without properly appreciating the fact and that they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order.
7. The ld. CIT(A) has erred in law and on facts in confirming the action of ld. AO in charging interest u/s 234B/C/D of the Act.
8. The ld. CIT(A) has erred in law and on facts in confirming the action of ld.AO in initiating penalty proceedings u/s 271(1)(c) of the Act.
3. The only issue in the Revenue's appeal is with regard to the deletion of addition of Rs.1,76,91,830/- made by the Assessing Officer by adopting GP ratio @ 53.32%. The ITA Nos. 3513/Ahd/2013 & 428/Ahd/2011 Assessee: Shri Purshottam B. Pitroda Cross-Appeals: AY : 2007-08 4 Assessing Officer made the addition of Rs.1,76,91,830/-, by observing as under:-
"5. Further the auditors have also remarked in para 2(1) of notes on accounts that "Previous years figures have- been re- grouped to the possible extent wherever necessary to make them comparable with the figures of the current year. Previous years figures given of Ahmedabad office. During F.Y. No separate books of account maintained at sites. Consolidated transactions in books of Ahmedabad office maintained. Consolidated figures of previous year given to make them comparable with the figures of the current year. Para2(2) A/I balances excluding bank balances is subject to confirmation. Para2(3) Physical verification of stock taken and valued by the proprietor is taken. Para 2(4) It is informed to us by the proprietor that, there are no expenses of personal nature which are debited to the profit & loss A/c. para2(5) Whenever supporting vouchers are not available proprietor have certified that all the expenses are pertaining to the business of Firm. In his reply dated 20/4/2009 the assessee has stated that "Books of Accounts of different site were maintained site-wise up to 31/3/2006. after 01/04/2006 i.e. from the commencement of this financial year 2006-07, we have not maintained site wise Books of Accounts and kept the books on single sets of Books of Accounts". Further in this very same letter the assessee also admitted that no separate accounts were maintained for personal investments made by him and the same were reflected in the books of the business. Further in para 11 the assessee has stated "Details of site and nature of work undertaken during the year are as under:
Name of Site Nature of Work undertaken
Nirma Ltd. Bhavnagar Salt Harvesting and earth
excavation
GMDC - Panandhro Lignite Mining Work
GMDC - Tadkeshwar Lignite Mining Work
Dholu KCL JPF lignite Mining Work
JV GIPCL
As stated in para 8-2. We have not kept separate books of accounts for sites".
6. The list of books of accounts maintained by the assessee clearly show-that no stock register, site register, work in progress register were maintained at any of the sites of the ITA Nos. 3513/Ahd/2013 & 428/Ahd/2011 Assessee: Shri Purshottam B. Pitroda Cross-Appeals: AY : 2007-08 5 assessee. It is also clear that no books for recording the quantitative details were also maintained by the assessee. Thus the vital connecting links of the books of accounts are totally missing and the leakage in gross profit can not be ruled out. It is an admitted position that in contracts given by government bodies the profit margins are quite attractive and the assessee always quotes prices which always results in substantial profits and in case of adverse conditions the price escalation clause in the agreements always takes care of the price increase. Detailed records of work done and cost incurred are the prerequisites for preparation of the running bills and for this purpose detailed records have to be maintained. But the assessee has only maintained the above books from which verification of the work done and the costs incurred can not be easily be done and ascertained.
7. Even closing stock details filed by the assessee shows that it is not prepared or extracted from any register maintained in the course of carrying on of business but prepared on the basis of estimation after physical examinations of the material found on the valuation date i.e. at the end of the accounting year. This clearly indicates that the balance material is to be assumed as consumed as only the residue is reflected in the closing stock. The consumption of material is not deduced from any records. Day to day consumption of material has not been recorded by the assessee and in the contract business this is a vital defect. Moreover when the assessee fills in the tender application he has taken note of all the cost factors and hence at the time of execution of the contract he will strictly ensure that the costs are controlled and kept in check so that his estimates do not go haywire and ruin his profits. For this purpose and to achieve his objective basic primary record would be scrupulously be maintained and constantly monitored to prevent escalation in costs, pilferage, wastage and incurring of unnecessary expenditure. Thus he will take all measures to obtain the desired profits as envisaged by him in his tendering process.
The comparative Gross Profit chart is as under:
A.Y.2005- A.Y.2006-07 A.Y. 20O7-08 06 Turnover 24590653 247697501 3591 76574 Closing stock 3243300 4144388 4600000 ITA Nos. 3513/Ahd/2013 & 428/Ahd/2011 Assessee: Shri Purshottam B. Pitroda Cross-Appeals: AY : 2007-08 6 Total 249203953 251841889 363776574 Direct Expenses Opening stock 2342045 3243300 4144388 Direct 106727268 121384805 185811067 Expenses Total 109069313 1 24628105 189955455 Gross Profit 140134640 127213783 173821119 GP% 56. 97% 51.35% 48.39% Net Profit 13338467 -8379765 8992825 NP% 5.32% -3.38% 2.50%
The comparative Gross Profit chart of last 4 years is as under:
A.Y. 2007-08 2006-07 2005-06 2004-05 G.P. rate 48.39 51.35 56.97 56.60
8. The assessee has declared a gross profit rate of 48.39% for the year under consideration which is much lower than the gross profit rates declared by him in the earlier years. As mentioned by the auditors there is no change in the business of the assessee from earlier years, hence there are no reasons for the G.P. rate to decline considerably from earlier years. There ought to be specific valid reasons for the gross profit rate to fall from the rates achieved in previous years. An analysis of the expenses incurred by the assessee shows that the assessee has incurred diesel expenses of Rs.14,06,78,823/- which works out to be 39.16% of his contract receipts amounting to Rs. 35,91,76,574/-. The assessee has filed copy of agreement entered into Gujarat Mineral Development Corporation Ltd. On going through the terms of the agreement it is seen that as per article 4.3, the GMDC has considered the diesel cost component at 30% of the agreed contract rate. This factor of 30% has been implemented by the GMDC in RA Bill No 14 and 15 for the month of September and October 2006 (copy of bill placed on record by the assessee). In the bill from the gross bill amount of Rs. 58,98,149/- raised by the assessee on GMDC, GMDC has made recovery of excess diesel cost Rs.
ITA Nos. 3513/Ahd/2013 & 428/Ahd/2011Assessee: Shri Purshottam B. Pitroda Cross-Appeals: AY : 2007-08 7 27,35,337'/- and in view of this in RA bill no. 14 and 15 net amount recoverable has been determined at Rs, 8,27,410/-. Similar fact is also observed in RA bill No. 29 & 30A where the JVC has also deducted the excess diesel consumption of the assessee. Thus it becomes an accepted fact that the diesel cost should not exceed 30% of the agreed contract rate, whereas the diesel cost incurred by the assessee and debited to the profit and loss account is 39.16% of the contract receipts. Moreover as already mentioned above and admitted by the assessee, the assessee has not maintained site wise accounts for working out the profits earned from each site. Keeping in view the above factual position the diesel cost is required to be restricted at 30% of the contract receipts. Taking the above factor in to consideration the allowable diesel expenses works out to Rs.10,77,52,972/-. The assessee has claimed diesel expenses of Rs.14,06,78,823/- and so the excess claim of diesel expenses to the tune of Rs.3,29,25,850/- is disallowable.
9. The site wise diesel expenses incurred by the assessee as submitted during the course of hearing are as under:
Site Receipt Diesel expense % to receipt Bhavnagar 5,75,64,201 1,83,74,401 31.91% (Nrma) GIPCL 16,58,86,794 9,05,03,219 54.55%
Panandhro 7,37,42,109 3,14,87,909 42. 70% Tadkeshwar 5,43,21,542 - -
Total 35,15,14,646 14,03,65,529 39. 93% The above facts also indicate that the provisions of section 145 are squarely applicable. The same is therefore invoked and the income of the assessee is estimated by adopting the average G.P rate declared by the assessee in the immediately preceding years. The business results declared by the assessee in the past are taken as a base in estimating the income of the assessee as it is the surest guide. This is the settled principle. The average G.P. rate for A.Y 2004-05 to A. Y. 2007-08 works out to 53.32%. [The average G.P. rate for A. Y 2004-05 to A. Y. 2006-07 works out to 54.97% which is definitely more than the average G.P. rate for A.Y. 2004-05 to A.Y. 2007-08 worked out at 53.32%.]Though the G P rate of 51.35% has been accepted in A.Y. 2006-07 the GP rate of 53.32% [which is the average G.P. rate for A.Y. 2004-05 to A. Y. 2007-08] is ITA Nos. 3513/Ahd/2013 & 428/Ahd/2011 Assessee: Shri Purshottam B. Pitroda Cross-Appeals: AY : 2007-08 8 adopted for computing the gross profits earned by the assessee for the year under consideration as each year is a separate year and the contract is a continuing contract and moreover there is no change in the circumstances/conditions of the business conducted by the assessee from earlier years. The adoption of the average gross profit rate smoothens out all fluctuating factors and the conditions that the business encounters. The G.P. at the rate of 53.32% of Rs.35,91,76,574/- works out to Rs. 19,15,12,949/- resulting in addition of Rs.1,76,91,830/- (19,15,12,949- 17,38,21,119). Addition of Rs. 1,76,91,830/- is made on account of low gross profit declared by the assessee. This addition is also justified as the other expenses like machinery oils, machinery repairs, site expenses, vehicle repairs, over time expenses are also not totally and fully verifiable. The expenses under these heads are also quite substantial. Like vehicle repairs is Rs. 1,25,02,363/- where as depreciation claim on vehicle is Rs. 3,29,40,654/-. Site expenses are Rs. 33,55,714/-, salary expenses Rs. 73,45,127/-, overtime expenses Rs. 12,07,526/, miscellaneous expenses Rs.12,58,156/-, mining expenses Rs.20,55,169/- and so on. Further it is a/so noticed that RTO expenses claimed by the assessee also contains expenses pertaining to earlier years but the assessee is unable to segregate the figures. However it is stated that it may be approximately be around Rs.1,00,000/-. The site wise expenses available on record are reproduced here under for ready reference.
Particular Head office Bhavnagar GIPCL Tadkeshwar Panandhro Receipts - 5,75,64,201 16,58,86,794 5,43,21,542 7,37,42,109 Machine 9,13,471 80,75,482 33, 740 4,85,022 Repairs Over Time 8,73,816 3,33,710 Machinery 5,53,797 69,28,169 14,11,656 Oil Site 6,47,577 9,88,532 9,11,845 8,07,760 expenses Salary 18,37,178 6,60,423 26,81,135 14,47,161 7,19,230 Vehicle 2,45,376 11,31,078 1,01,89,842 1,77,721 7,58,344 Repairs ITA Nos. 3513/Ahd/2013 & 428/Ahd/2011 Assessee: Shri Purshottam B. Pitroda Cross-Appeals: AY : 2007-08 9
Though the disallowance of diesel expenses has been worked out to Rs.3,15,45,851/-. The addition is restricted to the G.P addition as computed above at Rs.1,76,91,830/-. Addition of Rs.1,76,91,830/- is therefore made on application of section 145 of the IT Act which is squarely applicable to the facts of the instant case."
3.1 The matter was carried before the First Appellate Authority, wherein various contentions were raised on behalf of the assessee and having considered the same, the CIT(A) has deleted the addition in question. The same has been opposed before us on behalf of the Revenue, inter alia, submitting that on the facts and in the circumstances the CIT(A) erred in accepting the book result of the assessee and in deleting the addition of Rs.1,76,91,830/- made by the Assessing Officer. The ld. Departmental Representative further submitted that the CIT(A) erred in relying solely on the brief submission of the assessee's representative while ignoring the detailed findings and arguments of the Assessing Officer which clearly showed that the books of account of the assessee were neither fully verifiable nor reliable. The ld. Departmental Representative, thus, submitted that the order of the CIT(A) be set aside and that of the Assessing Officer be restored. On the other hand, ld. Authorized Representative supported the order of the CIT(A).
3.2 Having considered the rival contentions of both the sides and material on record, we find that the assessee is engaged in the business of salt harvesting, matikam, transportation and excavation work, manufacture of structure fabrication and cold storage. The Assessing Officer rejected the assessee's book of ITA Nos. 3513/Ahd/2013 & 428/Ahd/2011 Assessee: Shri Purshottam B. Pitroda Cross-Appeals: AY : 2007-08 10 accounts by invoking section 145 of the Act by adopting average GP rate of Assessment Year 2004-05 to 2007-08 @ 53.32% and discarded GP of the year under consideration being 48.39%. Accordingly, the impugned addition of Rs.1,76,91,830/- was made on account of low GP. The Assessing Officer rejected assessee's books mainly viz. (i) not accepting closing stock details submitted by assessee, (ii) the GP @ 48.39% of AY 07-08 is less than GP @ 51.35% of AY 06- 07 and (iii) the assessee has claimed diesel expenses of Rs.14,03,65,529/- which works out to 39.93% which ought to have been restricted to 30%. Regarding closing stock, assessee has carried out valuation of stock as per Accounting Standards and accepted principles. The Assessing Officer merely got carried away by the fact that the assessee has not maintained stock register. Merely non-maintenance of stock register cannot be a ground for rejection of books. Regarding low GP, the Assessing Officer has not appreciated that assessee's turnover has increased from Rs.24,76,97,501/- in earlier year to Rs.35,91,76,573/-, which is substantial increase in the turnover. Mere decrease in GP cannot be a ground for rejection of books of accounts.
3.3 With regard to the diesel expenses @ 39.93% of total receipts, the Assessing Officer analyzed the provisions of Article 4.3 of agreement with GMDC w.r.t. "Panandhro" project, wherein diesel component was specified @ 30%. As per the agreement, the GMDC shall provide diesel cost to the extent of 30% and any cost beyond 30% shall be borne by assessee. It does not mean that diesel cost will not exceed 30% since ITA Nos. 3513/Ahd/2013 & 428/Ahd/2011 Assessee: Shri Purshottam B. Pitroda Cross-Appeals: AY : 2007-08 11 consumption of diesel depends on variety of factors viz. efficiency of earth moving machinery like hydraulic excavators, dumpers and other vehicles, surface of land, thickness of lime and such other unanticipated factors. There is no change in the method of accounting regularly employed by assessee. The assessee has duly followed Accounting Standards as applicable and the assessee's books of accounts are duly audited. The Assessing Officer has not brought on record anything to the effect that assessee' s books are incorrect or incomplete. In light of the above, the CIT(A) rightly observed that the action of Assessing Officer in rejecting assessee's books of accounts and adopting average GP rate of AY 04-05 to AY 07-08 for making the impugned addition on account of low GP was not tenable in the eyes of law and accordingly, the CIT(A) has rightly deleted the impugned addition on this count. This reasoned finding of the CIT(A) needs no interference from our side, which is confirmed. We uphold the same. This also takes care of corresponding issue in assessee's appeal.
4. Coming to the assessee's appeal, the first issue is with regard to the estimation of agricultural expenditure @ 40% instead of 17% actually incurred and accordingly making addition of Rs.1,20,232/-. The Assessing Officer estimated agricultural expenditure @ 40% instead of 17% claimed to be incurred by the assessee. The assessee has earned gross agricultural income of Rs.5,40,251/- and has incurred agricultural expenditure of Rs.95,686/-, which was worked out @ 17%. Accordingly, net agricultural income of Rs. 4,44,565/- was claimed. The Assessing Officer held that the Tribunal has ITA Nos. 3513/Ahd/2013 & 428/Ahd/2011 Assessee: Shri Purshottam B. Pitroda Cross-Appeals: AY : 2007-08 12 consistently taken a view that expenditure to earn agricultural income should be around 40-41%; accordingly, the Assessing Officer estimated such expenditure @ Rs.2,16,100/- being 40% and made the impugned addition on the ground that the assessee has shown less agricultural expenditure and the same has been confirmed by the CIT(A) in appeal.
4.1 In this regard, the stand of the assessee has been that the lower authorities ought to have appreciated that no presumption could be made for taxing agricultural income especially when no defects have been pointed out either in agricultural income or in expenditure claimed by the assessee. Moreover, the assessee had earned "Net agricultural income" of Rs. 7,26,760/- in AY 2005-06 and Rs.6,38,120/- in AY 2006-07 and the has been accepted by the Revenue in the past, which has been not disputed by the Revenue.
4.2 In these facts and circumstances, the estimation of agricultural expenditure @ 40% by the Assessing Officer is not justified. Accordingly, the claim of the assessee is allowed and the Assessing Officer is directed accordingly.
5. Next issue is with regard to the partial confirmation of action of Assessing Officer in disallowing interest expenditure u/s 36(1)(iii) out of total disallowance of Rs.74,36,118/-. The Assessing Officer has made this addition by observing as under:-
"The assessee has claimed the interest expenditure of Rs.3,51,12,087/- paid to bank and Rs.43,58,684/- paid to others and Rs.21,37,580/- paid to bank (GEC). On an ITA Nos. 3513/Ahd/2013 & 428/Ahd/2011 Assessee: Shri Purshottam B. Pitroda Cross-Appeals: AY : 2007-08 13 analysis of the balance sheet it is seen that the assessee had made huge personal investment in lands and other personal assets. The Investment total Rs.3,81,23,670/-. Further the assessee has made loans and advances totaling Rs.8,10,47,890/-. On going through the list of advances made it is seen that no interest was charged on advances totaling Rs.3,62,37,518/-. The fixed assets worth Rs 38,95,50,105/-, closing stock of Rs.46,00,000/- and cash and bank balances and sundry debtors of Rs.8,44,54,566/- entirely gobbled up to the unsecured loans and capital of the assessee that is the interest free funds available with the assessee. Thus it is apparent that the interest-bearing borrowings taken by the assessee have been used up for making personal and not business investment and interest free advances by the assessee. Thus the borrowings have been put to not business purposes produced. Thus rupees seven,43,61,188 of the interest bearing borrowings have been put to not business purposes. The above amount also includes the interest free advances made to M/s. Ketan Construction Company. The interest free advances made to M/s. Ketan Construction Company cannot effectively guided by commercial expediency as M/s. Ketan Construction Co. is one of the members of the JVC i.e. a part of the assessee himself and hence it can conclusively be held that no commercial expediency is involved. The assessee has not filed any evidence on record to prove that the interest free advances were made by him for the business purposes and as a matter of commercial expediency. Thus it can be inferred from the fact of the case that the borrowings have not been used for the purposes of business of the assessee and hence the claim of interest on these borrowings have to be regulated in terms of section 36(1) (iii) of the Act. Since the interest paid on this amount is not for the purposes of business, the same is disallowed under section 36(1)(iii) of the Act as the capital borrowed to this extent is not capital borrowed for the purposes of business of the assessee. The assessee has paid interest at the rate of 8 to 12%. Thus the average rate of interest at which interest has been paid by the assessee is 10%. Thus the interest disallowance under section 36(1) (iii) of the IT Act is made at the rate of 10%. Hence interest at the rate of ITA Nos. 3513/Ahd/2013 & 428/Ahd/2011 Assessee: Shri Purshottam B. Pitroda Cross-Appeals: AY : 2007-08 14 10% on the advances given by the assessee work out to Rs.74,36,118/-. Therefore, disallowance under section 36(1) (iii) of Rs.74,36,118/- is made and included in the total income computation. Support for picking this disallowance under section 36(1) (iii) is derived from the decision of the honorable Supreme Court given in the case of SA Builders Ltd. reported in 288 ITR 1( SC). Further reliance is also placed on the decisions reported in 254 ITR 248 (Ker) and 318 ITR 210 (Ker.) and on 25 TTJ (Coch.) 131. The assessee has not raised any material to fulfill the criteria of commercial expediency."
5.1 Matter was carried before the First Appellate Authority, wherein various contentions were raised on behalf of the assessee and having considered the same, the CIT(A) granted partial relief, which has been opposed before us by the assessee by raising various legal and factual arguments. On the other hand, ld. Departmental Representative supported the order of the authorities below.
5.2 We have heard both the parties and perused the material placed before us. We find that the Assessing Officer observed that assessee has made "Loans and Advances" of Rs.8,10,47,890/-, whereas the assessee has incurred substantial interest expenditure @ 8% to 12% during the year under consideration. The Assessing Officer has concluded that Rs.7,43,61,188/- out of interest bearing funds have been put to non-business purposes; hence, by applying average interest of 10%, the Assessing Officer disallowed interest of Rs.74,36,118/- u/s 36(1)(iii) of the Act. According the ld. Authorized Representative, the Assessing Officer ought to have appreciated the fact that the total "loans and advances" of Rs.8,10,47,890/- could be divided into three categories; i.e, (i) ITA Nos. 3513/Ahd/2013 & 428/Ahd/2011 Assessee: Shri Purshottam B. Pitroda Cross-Appeals: AY : 2007-08 15 loan on which interest has been charged amounting to Rs.4,39,34,142/-, (ii) advance income-tax/TDS/others amounting to Rs.1,14,21,350/- and (iii) business advances amounting to Rs.2,56,92,398/-. With regard to advances of Rs.4,39,34,142/-, the assessee submitted that on this amount the interest was charged; therefore, question of disallowing interest would not arise. To substantiate this claim of the assessee, ledgers of the parties were placed at page no.209 to 212 of the paper-book. The CIT(A) in his order stated that the details called for in respect of interest charged from such parties have not been furnished which is factually incorrect, which the details of the same was provided in page no.125 of the paper-book. With regard to the advance income-tax/ TDS/others aggregating to Rs.1,14,21,350/-, the Authorized Representative of the assessee submitted that the same do not fall within the ambit of advances for non-business purposes. Regarding business advances of Rs.2,56,92,398/-, the business purposes for which the same have been advanced were clarified as per the details given in page no.248 to 266 of the paper- book. No interest can be disallowed in respect of funds advanced for business purposes out of commercial expediency. Out of the total business advances of Rs.2,56,92,398/-, the CIT(A) has directed the Assessing Officer to disallow interest on the advances of Rs.1,72,98,112/- on the ground that such advances are for non-business purposes. In this regard, the stand of the assessee has been that the details of interest free funds had already been furnished before the lower authorities vide letter dated 11.12.2009, which was placed at page No.129 ITA Nos. 3513/Ahd/2013 & 428/Ahd/2011 Assessee: Shri Purshottam B. Pitroda Cross-Appeals: AY : 2007-08 16 & 130 of the paper-book. In view of aforesaid facts and circumstances of the case, we set aside the order of the CIT(A) and restore the issue back to the file of the Assessing Officer with the direction to decide the same as per facts and law, after providing due opportunity of hearing to the assessee.
6. Next issue is with regard to the rejection of books of accounts and estimation of Gross Profit. This ground goes academic in view of our finding in Revenue's appeal (supra).
7. Next issue is with regard to the addition of Rs.5,05,432/- as income from house property chargeable to tax u/s 22 of the Act. The Assessing Officer made the addition of Rs.5,05,432/- u/s 22 of the Act, by observing as under:-
"13. On verification of the balance sheet it is seen that the assessee is in possession of residential properties / commercial properties which are as under:-
Building A/c - Dev Kutir 2877345
Building A/c - Hariom 2002523
Building A/c - Luwara 288115
Building A/c - Samrpan 2252751
Building A/c - Shilaj 602000
New Vaishali Society (land) 650908
New Vaishali Society (Building) 5110232
The assessee is occupying the Vaishali Society Bunglow and using the same as his residential premises. Thus the Vaishali Society Bunglow is his self occupied property All other properties are being used by other persons. No property income has been declared by the assessee from these properties.
Both Section 23 (2)(a) and Section 23(2)(b) are not applicable to the facts of the case of the assessee. The annual value of the property is therefore to be determined ITA Nos. 3513/Ahd/2013 & 428/Ahd/2011 Assessee: Shri Purshottam B. Pitroda Cross-Appeals: AY : 2007-08 17 as per the provisions of section 23(1)(a) of the IT Act. The investment made in the property is Rs.80,22,734/- and applying the interest percentage of 9% the yield of the property works out to Rs.7,22,046/-. The annual value of the property is therefore adopted at Rs.7,22,046/-. The assessee is entitled to deduction/s 24 of Rs.2,16,613/-. The taxable annual value therefore works out to Rs.5,05,432/-. Accordingly property income of the assessee in respect of the above properties is computed at Rs.5,05,432/-."
7.1 Matter was carried before the First Appellate Authority, wherein various contentions were raised on behalf of the assessee and having considered the same, the CIT(A) confirmed the order of the Assessing Officer.
7.2 We have heard both the parties and perused the material placed on record. We find that the Assessing Officer has made out a clear case, as indicated above, as to why the income of the unoccupied house properties of the assessee are chargeable to tax and the CIT(A) has also rightly upheld the order of the Assessing Officer, which needs no interference from our side. We uphold the same.
8. Next issue is with regard to the disallowance of Rs.1,48,866/- being 1/5th of depreciation claimed on cars and Rs.1,48,866/- being ad-hoc disallowance in respect of other vehicle expenditure. The Assessing Officer found that assessee owned 12 cars and concluded that five cars must be used by family members of the assessee for personal use. The Assessing Officer disallowed Rs.1,48,866/- being 1/5th of depreciation on such five vehicle. The Assessing Officer further disallowed an equivalent amount of Rs.1,48,866/- on ad-hoc basis on ITA Nos. 3513/Ahd/2013 & 428/Ahd/2011 Assessee: Shri Purshottam B. Pitroda Cross-Appeals: AY : 2007-08 18 account of fuel and repairing expenses since no material was available for determining the same. These additions were confirmed by CIT(A) in appeal.
8.1 Having considered the rival contentions and material on record, we find that these additions have been be made merely on the basis of assumption of involvement of personal element in motor car; whereas the assessee's claim was that such expenditure had been incurred wholly and exclusively for the business of the assessee. Under these facts and circumstances, in our considered view, it would meet the ends of justice if the disallowance is restricted to 1/8th on both the counts. We order accordingly.
9. In the result, the appeal filed by the assessee is partly allowed while the appeal of the Revenue is dismissed.
Order pronounced in the Court on 12th February 2016 at Ahmedabad.
Sd/- Sd/-
(RAJESH KUMAR) (SHAILENDRA KUMAR YADAV)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 12/02/2016
Biju T., PS
आदे श क त!ल"प अ#े"षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. संब!ं धत आयकर आय#
ु त / Concerned CIT
4. आयकर आय#
ु त(अपील) / The CIT(A)
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