TaxTMI 
TaxTMI 
2015 (7) TMI 447
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....siness purposes. 2. During hearing of these appeals, we have heard, Shri Neil Philip, Ld. DR and Shri Vijay Kothari, ld. counsel for the assessee. The crux of arguments advanced on behalf of the Revenue is identical to the ground raised by further submitting that the reasons were validly recorded by the Assessing Officer as there was valid information from another ITO, which was the basis of reopening the assessment. Our attention was invited to page-5 (para-4) and the finding contained in para-5.8 of the assessment order to the fact that the impugned amount was for non-business purposes. It was asserted that interest bearing funds were diverted by the assessee for non-commercial purposes. It was further contended that the funds are from overdraft account. 2.1. On the other hand, Shri Vijay Kothari, ld. counsel for the assessee, invited our attention to the reasons recorded by the Assessing Officer by submitting that the Assessing Officer has not made any independent investigation of facts and the satisfaction was borrowed one. The necessary documents were very much available with the Assessing Officer for which our attention was invited to page-31 of the paper book. The decree f....
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....nardhari Thakur (Proprietor of M/s. PRS Developers), it came to light that the aforesaid party is in receipt total amount of Rs. 43,50,00,000/- from the assessee company on various dates in F. Y. 2007-08. Further, the said party accounted such receipts as advances towards the expenses related to the development works at Kandiuali project in the capacity of a partner of S.P. Group, for which no documentary evidences have been maintained by the said concern. The ITO in the course of assessment proceedings made third party enquiries with the assessee company and accordingly, held that the assessee company though made substantial payments to M/s. PRS Developers (Prop. Shri Nilesh J. Thakur), do not have any documentary evidences to substantiate such advances towards acquisition of land on behalf of the assessee company. Importantly, the ITO in his letter categorically reported that the said entity has no business activity that is to say no capacity to acquire land on behalf of the assessee company besides the assessee company itself is having its own machinery of legal/technical/ marketing/financial department, etc., for doing such job i.e., for acquisition of land. The ITO further not....
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....d information in my possession the assessment in this case has been re-opened by issuing notice u/s.148 of the Act on 25-05- 2012 after properly recording the reasons for the same. Further, the reason for re-opening of the assessment has been duly provided to Shri A. L. Arokiadas, AR of the assessee on 06-12-2012. Thereafter, the assessee vide its letter dated 07-01-2013 received in this office filed its objection for the re-opening of the assessment which are as under:- "We had filed our return of income for A. Y. 2008-09 on 29.9.2008 declaring total income of Rs. 188,50,28,066/-. The return of income was processed u/s. 143(1) on 27.7.2009. Notice u/s. 143(2) was issued on 4.8.2009, selecting our case for scrutiny. We have furnished all such details and records called for by the AO vide various notices issued and as per the details called for during assessment proceedings. The AO vide his order u/.s. 143(3) dated 27.12.2010 assessed the total income at Rs. 191,99,06,040/-. A notice u/s.148 dated 25.5.2012 was served upon us on 28.5.2012. We have been provided with a copy of reasons recorded in writing for reopening of assessment on 6.12.2012. The summarized reasons recorded for ....
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....ince we have claimed (interest & financial cost' in the accounts, the element of interest bearing funds siphoned of for non business purpose under the garb of advances has direct impact over the profits of the company to the extent of funds doled out for nonbusiness purposes; We follow 'percentage completion method' for recognizing revenue from various projects; Therefore, it is clear that some interest expenditure has been debited to the Profit & Loss Account thereby reducing the taxable profits; The source of funds has to be examined for these payments of Rs. 43,50,00,000/ -. Interest bearing funds diverted for non-business purpose would result in disallowance of proportionate interest expense Our books of account contain entries in respect of non-genuine expense which has direct impact over the interest bearing funds which have been deployed for non-business purpose. At the outset we have to submit that we have not made any payments to M/s. PRS Developers or to Shri Nilesh. Janardhan Thakur. We have made payments for acquisition of land to AI/ s. PRS Enterprises (Proprietor Shri Nilesh Janardhan Thakur) and Acecard Infrasol Ltd. Secondly, it is submitted that ....
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....und 2005, we wanted to acquire large tracts of land in the Panvel, Alibag, Pen and Raigad areas ("Project Areas") for our business activities. We were approached by several persons who were land aggregators. Around 2007, we were approached by one Nilesh Janardhari Thakur who represented that he and his team were in the business of assisting in the acquisition of large parcels of land. Shri Nilesh. Jariardhan. Thakur also claimed that he was from the Alibag area and was conversant with the local people and issues, rules and procedures applicable with land acquisition in the Project Areas. Since Nilesh Janardhan Thakur through his concerns, had worked with SD Corporation Pvt. Ltd. ("SDCL), in SDCL's project at Samta Nagar, Kandivili, we entrusted Shri Nilesh Thakur with the task of indentifying and aggregating 900 acres of lands for us in the Project Areas. By Letter of Appointment dated 16th July, 2007, we appointed Shri Nilesh Janardhari Thakur through his entity PRS Enterprise to identify, assist and aggregate for us, the lands in the Project Areas, inter alia on the terms and conditions therein. The said letter required that 300 acres be acquired within 3 years by 2010 & th....
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....sh Janardhan Thakur informed us that the payment received was used for acquiring properties and that the surplus had been kept in fixed deposit i. e. that our money was secured either by properties and/or fixed deposits. Subsequent to regular follow-up and discussions with Shri Nilesh Janardhan Thakur between 2010 and July 2011, Shri Nilesh Janardhan Thakur finally agreed to refund the monies received (both by handing over deposits/money/investments and also by transfer of immoveable properties) to us. However thereafter, Shri Nilesh Janardhan Thakur, wrongfully failed to comply and refund the monies and/ or transfer the properties to us. In the circumstances, we were constrained to file Suit No, 2576 of 2011 against Shri Nilesh. Janardhan Thakur, PRS Enterprises & others in September 2011, We also threatened to initiate criminal action against him. In the suit) the aforesaid letters of appointment & facts were referred to. Subsequent thereto Shri Nilesh Janardhan Thakur agreed to settle the matter by transferring all the moveable (deposit Receipts & Bank accounts) and immoveable assets in our favour. Accordingly, by an Order dated 19th October 2011 passed by the Hon'ble Bomb....
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....ose under the garb of advances It would be wrong to ay that we have made payments to M/s PRS Enterprises (Proprietorship concern of Shri Nilesh Janardhan Thakur) and Acecard Infrasol Pvt. Ltd. for non business purposes. As regards the issue of source of funds from which advances have been given, kindly refer to the submissions at para 10 hereinabove (e) Since we have claimed 'interest & financial cost' in the accounts, the element of interest bearing funds siphoned off for non business purpose under the garb of advances has direct impact over the profits of the company to the extent of funds doled out for nonbusiness purposes Kindly refer to the submissions made hereinabove. As regards the source of funds from which the payments to M/ s. PRS Enterprises (Proprietorship concern of Shri Nilesh Janardhan Thakur) and Acecard Infrasol Pvt. Ltd. towards (advance for land' we have to submit as hereunder: As per the Balance Sheet as at 31.3.2008 the Net, Worth (Shareholders Funds + Reserves) is higher than the amounts paid to M/s. PRS Enterprises (Proprietorship concern of Shri Nilesh Janardhan Thakur) and Acecard Infrasol Pvt. Ltd. towards 'advance for land. ....
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....servations/findings. We also have to request that we be given an opportunity of cross examining Shri Nilesh Janardhari Thakur, in case any adverse conclusion/Inferences are being drawn against us in relation to the business transactions we had with him through his proprietorship concern M/s. PRS Enterprises and Ace Card Infrasol Pvt. Ltd. 5. The objections raised by the assessee company have been examined thoroughly and the same are being rebutted as under: (i) The assessment has been reopened within a periods of four years. Hence, in view of the judgment of the Hon'ble Supreme Court in Court in the case of CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC), 1 am acting within jurisdiction while reopening the assessment on the basis of "tangble material" in my possession from which 1 came to the conclusion that there is an escapement of income from assessment. (ii) In the instant case, during the original assessment proceedings, no query was raised by the then Assessing Officer in respect of genuineness of payments made to Shri Nilesh Janardhan Thakur and his concerns and no reference of this issue is there in the original Assessment order. Hence, this is not a case wher....
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....evant assessment year, the test to be applied is whether there is tangible material to do so. What is tangible is something which is not illusory, hypothetical or a matter of conjecture. From any stretch of imagination it cannot be said that the material in the form of information from the ITO 25(1)(4) is "illusory, hypothetical or a matter of conjecture". Hence I was well within my jurisdiction while reopening the assessment of the assessee based on the information shared by the other assessing authority. (vi) The contention of the assessee that reopening of assessment on the basis of information received from other Assessing Officer tantamount to (borrowed satisfaction'Q is not maintainable, as the ITO 25(1)(4) has just passed on information regarding transactions of the assessee with the concerns of Shri Nilesh Jariardhari Thakur to me for necessary action at my end and it is me who formed reason to believe' based on this new information in his possession and after examining this vis-a-vis case records of the assessee for the concerned year. (vii) In most part of the objections filed by the assessee for re Opening the assessment is focused on merits of the issue. In my....
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....e facts show that the Assessing Officer overlooked the aforestated item; That, he noticed it subsequently. That, at the time of. passing the original order of assessment, he could not be said to have opined on the above item. Therefore, there was no change of opinion." (x) In a recent decision the Hon'ble High Court Of Delhi in the case of Commissioner of Income-tax v. Nova Promoters & Finlease (P) Ltd. *[18 taxmann.com 217 (Delhi)] [2012] held that at stage of issuing notice under section 148 merits of matter are not relevant and Assessing Officer at that stage is required to form only a prima facie belief or opinion that income chargeable to tax has escaped assessment and once that stage is crossed and reassessment proceedings are set in motion, material on basis of which requisite belief was formed by Assessing Officer has to be appraised and examined. (xi) The Hon'ble High Court Of Madras in the case of M/s Tamil Nadu. Petro products Ltd. v. Commissioner of Income-tax* [11 taxmann.com 311 (Mad.)] [2011] held that while dismissing the writ petition filed by the assessee against reopening its assessment for A. Y. 2001-02 u/s 148 that since it was open to assessee to pro....
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....of the matter, the validity of the proceedings initiated by the Assessing Officer under section 1471 148 was to be upheld." 6. Thus it is held that the objection raised by the assessee is not correct and are hereby rejected by this speaking order and accordingly the decision of Hon'ble Supreme Court in the case of G. K. N. Driveshafts has been complied. Therefore, the proceeding have rightly been initiated u/ s.14 7 of the 1. T. Act, 1961 on the basis of the reasons recorded after taking into account the facts, circumstances and the law involved in the case and the notice HI s. 148 of the I.T. Act, 1961 has been validly issued as per law. 7. Lastly, the request for the copies of assessment/ appellate orders of Shri Nilesh Janardhan Thakur has not been considered at this moment which will be considered in the course of assessment proceedings. ............" 3. After disposing off the assesee's objection for re-opening the assessment, a fresh notice u/s.143(2) of the Act dated 22-01-2013 has been issued and served on the assessee. In response, Shri Vijay Agarwal, CA & AR, duly authorized by the assessee company, attended the assessment proceedings and furnished the details ....
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.... made towards acquisition of lands with clear and marketable title in and around Alibaug, other areas in Raigad District. During the previous years 2007-08, 2008-09 and 2009-10 (relevant to A. Y.2008-09, A. Y.2009-10, and A. Y. 2010-2011) the company made advances as under tor acquisition of lands aggregating to Rs. 141.50 crores, details of which are provided in Annexure File. Name of Entity Total PRS Enterprise 845,000,000/- Ace Card Infrasol Pvt. Ltd. 570,000,00/- Kindly note that no payments were made by the Company to Shri Nilesh J. Thakur and PRS Developers. A detailed note together with relevant documents on the nature of transactions with Mr. Nilesh Thakur is provided in the Annexure File. Q.2. Details of payment made to M/ s. PRS Enterprise/ PRS Developers /M/ s. ACE Card Infrasol Pvt. Ltd. proprietary concerns of Mr. Nilesh J. Thakur. A. We have made payments as stated above. No payments have been made either to PRS Developers nor to Mr. Nilesh J. Thakur. Q.3 Details of services provided by M/ s. PRS Enterprise/ PRS Developers/M/s. ACE Card Infrasol Pvt. Ltd. proprietary concerns of Mr. Nilesh J. Thakur with bills along with bills and nature of treatment....
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....d on 11.07.2007, which is even before the issue of appointment letter by M/s. SPCL which is dated 16th July 2007 and confirmation. of the appointment letter filed by M/ s. PRS Enterprises vide letter dated 19th July, 2007. Kindly explain how the payment had been released prior to the issuance as well as acceptance of appointment letter. Is there any board resolution in that effect? Further, did you have any prior business relation with M/s. PRS Enterprises or associated concerns? Kindly explain how and when you came in contact with NI/ s. PRS Enterprises and associated concerns. Ans. From around 2005, SPCL wanted to acquire large tracts of land in the Panvel, Alibauq, Pen and Raigad areas ("Project Areas") for their business activities. SPCL was approached by several persons who were land aggregators. Around 2007, SPCL was approached by one Nilesh Thakur who represented that he and his team were in the business of assisting in the acquisition of large parcels of land. Niiesli Thakur also claimed that he was from the Alibauq area and was conversant with the local people and issues, rules and procedures applicable with land acquisition in the Project Areas. Since Nilesh Thakur thro....
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.... costs or expenses to Company". From the above, it would be seen that SPCL had agreed to pay on account advances and the advances had to be made either to M/s. PRS Enterprises or to any such other entity as may be advised by M/ s. PRS Enterprises. In view of the aforesaid clause and on advise of M/s. PRS Enterprises, SPCL has made on account advances to M/s. ACE Card Infrasol Pvt. Ltd. I am not aware of the shareholding of the M/ s. ACE Card Infrasol Pvt. Ltd. Q.10 Kindly provide the letter of nomination in the name of M/s. ACE Card Infrasol Pvt. Ltd. as filed by M/s. PRS Enterprises a proprietorship of Mr. Nilesn J. Thakur. Ans. I will verify the record and submit the requisite details within seven days. Q.11 Kindly produce the bills and vouchers as submitted by Shri N. J. Thakur and his associated concerns like PRS Enterprises, M/s. ACE Card Infrasol Pvt. Ltd etc on the basis of which payments have been released? Ans. Subsequent to the agreement, lands in the Project Areas were identified by Nilesh Thakur/M/s. PRS Enierprises. Since these were agricultural lands) it was necessary that the aggregator arranged for clear and marketable title, resolved internal disputes) ensure ....
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....on or in the nature of commission or in the nature of payment release under the terms of contract/ agreement(without prejudice to the nature of each payment)? Ans. No Since the amounts paid were merely advances for land, TDS was not required to be deducted. Further, since the relationship between PRS Enterprises and M/s. ACE Card Infrasol Pvt. Ltd. was on a principal to principal basis and they were only independent land aggregators, no TDS was required to be deducted as pr the provisions of the IT Act, 1961 . Q.16 How such payments have accounted in the books? Ans. Such advances given to M/ s. PRS Enterprises and M/ s. ACE Card Infrasol Pvt. Ltd. have been reflected as current assets in the balance sheet in the nature of advances for land. The same has never been claimed as expenditure in the Profit & Loss Account till date. 5.4.3 Further, vide letter dated 16-07-2012 the AR of Shri NJ Thakur submitted before the DDIT as under: "Details of Nature of Business: PRS Enterprises & PRS Developers PRS Enterprises and PRS Developers are Sole Proprietorship Finns of Shri Nilesh J. Thakur. The firms are into business of real estate development. They were formed in the year 2007-08 so....
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....frasol Pvt. Ltd. It is a group company of Shri Nilesh J. Thakur The company is into business of real estate development. It was formed in the year 2008 so as to undertake development of project viz.; World Trade City located at Garodia Nagar, Ghatkopar jointly, with Shapoorji Pallonji & Co. Ltd. The films had being receiving payments in the nature of ADVANCES as per the progress of project from Shapoorji Pallonji & Co. Ltd. and S. D. Corporation Pvt. Ltd. for meeting project expenses and acquisitions of land, development rights, TDR, FSI, etc Inter company advances have been paid and received from Ace Card Infrasol Put. Ltd. by both PRS Enterprises & PRS Developers. Enclosed find copy of Ledger account of Ace Card Infrasol Pvt. Ltd., in the books of PRS Enterprises &,PRS Developers. 5.4.4 Subsequently the assessee again submitted before the DDIT as under: "SPCL wished to acquire large tracts of land in the Panvel, Alibaug, Pen and Raigad areas for their business activities and around 2007, SPCL was approached by N. J. TF.AKUR as sale proprietor of PRS Enterprises and as Director of Ace Card Infrasol Pvt. Ltd. that he had the necessary resources and expertise and that they can pro....
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.... Court remains unenforced. The advances given by SPCL to N. J. THAKUR and Ace Card Infrasol Pvt. Ltd. are reflected under the head (advance payments for land acquisition." 5.4.5 From the above it is clear that the assessee and Shri NJ Thakur are contracting each other. On one hand the assessee claims that these payments were made towards acquisition of land in and around Alibaugh and other areas in Raigad District. While Shri N. J. Thakur states that the amounts were received towards the development of project at Samata Nagar, Kandivali (E), Mumbai and for development of World Trade City at Garodia Nagar, Goregaon, Mumbai. Further light on the .nature of these transactions is thrown by the findings of the ITO-25(1)(4), Mumbai and CIT(A)-35, Mumbai in the individual assessments of Sh.ri NJ Thakur for the A.Y.2008-09. This is discussed hereunder: B. Assessment order of Shri N J Thakur A.Y.2008-09 by the ITO- 25(1)(4), Mumbai The ITO / AO of Shri N. J. Thakur has examined the transactions in depth as well as called for the details from my assessee. The relevant conclusion of the AO is reproduced hereunder: "Despite being given ample opportunities vide notices/summons referred abov....
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....wn version is to be taken as true the question arises as to why he has written for entering into a formal agreement of partnership after five years of claimed association. In his submissions the assessee has claimed to be associated with various companies, etc., but he has failed to produce supporting and corroborating evidences to substantiate any relationship. The assessee was asked in question no. 15th & 16th of the statement recorded on oath recording proof for assessee being engaged in business of construction activity or having any partnership with M/s. SPCL and was asked to produce copy of minutes of meeting and supporting for projects, etc. as stated by the assessee. The assessee submitted that all projects belongs to tenants or central government. Process of sanction is going on but failed to submit even single documentary evidence on the basis of which he can be treated as a businessman engaged in construction activity or a partner of M/s. SPCL. In the name of evidence the assessee has submitted few letters written by the assessee to various authorities. As the correspondences relied upon by the assessee are unilateral act of the assessee the same has no evidentiary value....
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....rn. 12 Why the amount of Rs. 43,50,00,000/- received from M/s. Shapoorjee & Pallonjee & Co. Ltd. shall not be treated as income received without consideration and be brought to tax u/ s.56 of the IT Act, 1961? Ans. Please refer to page no.13 and Page no.269 of our submission dated 03- 12-2010 in which we have explained our efforts and workings for the last ten years for the successful identification and submission execution and part completion of 15.72 crore FSI for SP Group and we have deposited all papers to Mr. Vinay Karve, Legal Head of SP Group. Please confirm. 13. DO you have any proof of handing the above papers to Mr. Karve? Ans. No. 14. M/s.Shapoorjee & Pallonjee & Co. has submitted its reply in response to notice u/ s.133(6) of the IT Act, 1961 that they have given advance for purchase of land in their income. Have you purchased any land in their behalf Ans. No money given to our group is for project and not for land which can be proved by a general meeting of 5000 people addressed by and chaired by Shri Shapoorjee Pallonjee Mistry himself. 15. Can you produce the minutes of meeting? Ans. This....
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.....2010 in which on page no.65 in the first line we have mentioned that our group is working for the last 7 years for SP Group for which all evidences as per Evidence Act and all cheque payments and cash payments made from our books of accounts are mentioned. 2. Project sites of Samta Nagar Garodia Salt Pan, Kannamuar Nagar and Tagore Nagar are acquired for SP Group by cheque and cash payments. 3. All original project sanctions and receipts of MADA payments to the tune of Rs .60 crore with our group and not with SP Group. 4. Project of 15. 72 crore FSI is submitted to Central Govt. by my group and not by SP Group. 5. Letter from Central Gout. is issued to my Advocate and not the Advocate of SP Group. 6. Please refer to page no.65 & 66 in last para in which we have explained criminal conspiracy against our group to Chairman SP Group in which office bearers of SP Group were caught red handed and charges criminal breach of trust, criminal conspiracy, attempt 19. In your answers you have referred to various payments. Can you corroborate your submissions by way of evidences in the form of books/ vouchers and accounts etc Ans. Yes. We have evidences in the form of ....
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....ssessee. Based on the above findings, the AO of Shri N. J. Thakur proceeded to assess the amounts received by his proprietorship concern viz., PRS Enterprises u/s.56(2)(vi) as an amount received without consideration. The AO of Shri N. J. Thakur has clearly given the findings that there is no business relation between Shri NJ Thakur and my assessee. C. The order of CIT(A)-35, Mumbai in the case Shri NJ Thakur for A.Y.2008-09 In the order of the CIT(A)-35, Mumbai in Appeal No.CIT(A)-35/ITO- 25(1)(4)/IT.446/10-11 dated 29-03-2012, the entire matter was again analyzed in-depth by the CIT(A)-35 in the appellate proceedings of Shri N J Thakur for A.Y.2008-09. Additional evidences was filed before the CIT(A). A remand report was also called for from the AO of Shri N J Thakur and after consideration the additional evidence produced and the remand report, the CIT(A) has clearly held that there is no business relation between M/s. Shapoorji & Palanji & Co. Ltd., and Mj s.PRS Enterprises or M/s. Acecard Infrasol Pvt. Ltd. The relevant findings of the Id.CIT(A) are produced hereunder: 10.1.2 Shapoorji Pallonji Group In its reply, which has been reproduced earlier to the Assessing Officer, ....
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.... appellant as a partner. 10.3.4.1 Regarding written agreement with M/s. SPCL and M/s. SDCL the appellant submitted that it had requested Chairman, SPCL for completion of procedure of partnership agreement - It means the appellant had not entered into any partnership agreement with M/s. SPCL and M/s. SDCL. 10.3.4.2 As regards details of services rendered for above two companies, the appellant has failed to furnish any documentary evidences regarding partnership as also for services rendered. Hence the contention of the appellant is rejected. 10.3.4.3 The appellant submitted before A.O. that his records were destroyed. During the present proceeding, nothing better have been argued. 10.4 During the appellate proceedings also, the appellant has failed to prove its business relation with the Shapoorji Pallonji Group. Prior to this, despite being given ample opportunities by Assessing Officer, the appellant failed to produce books of accounts or any other documentary evidences regarding his business activities to substantiate and corroborate its submissions. The tall claims made by the appellant, prima-facie appears to be hollow in the absence of any substantiating/corroborating docu....
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....llant being engaged in business of construction activity or having any partnership with M/ s. SPCL and was asked to produce copy of minutes of meeting and supporting for projects, etc. as stated by the appellant. The appellant submitted that all projects belongs to tenants or central government. Process of sanction is going on but failed to submit even single documentary evidence on the basis of which he can be treated as a businessman engaged in construction activity and a partner of M/ s. SPCL. In the name of evidence, the appellant has submitted few letter written by the appellant to various authorities. As the correspondences relied upon by the appellant are unilateral act of the appellant, the same has no evidentiary value in my view. As the appellant has failed to prove any business activity during the F. Y.2007-0B, it is held that the appellant was not engaged in any business activity. The amount received from M/s. SDCL and J.W/ s. SPCL have been dealt with in separate paragraphs. In view of the above discussion, the accounting entries shown by the appellant in the balance sheet are not acceptable. It is a fact that the appellant has received the amount of Rs. 43,50,00,000/-....
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....ut consideration and be brought to tax u/ s.56 of the IT Act, 1961. The appellant answered that page no.13 and page no.269 of submission dated 03.12.2010 be referred. The appellant further stated that the papers pertaining to 15. 72 cr. FSI for SP Group - we have deposited all papers with Mr. Vinay Karve, Legal Head of MI s. SPCL. In question no.13 the appellant was asked whether he has any proof for submission of paper pertaining to stated 15.72 crore FSI to Mr. Vinay Karue, Legal Head of M/s. SPCL. The appellant replied in negative. The Assessing Officer after going through the page no.13 of appellant's submissions dated 03.12.2010 submission dated 03.12.2010 which speaks about projects of M/ s. Lucky Angel Group held that the appellant has failed to submit the identification of M/ s. Lucky Angel Group and its association with the appellant. Page no.269 is the letter dated 10.11.2010 written to Hon'ble Pallonjee Shapoorjee Mistry. Both these submissions were not acceptable to Assessing Officer as they were devoid of merits and corroborating evidences. M/ s. SPCL was asked by the Assessing Officer about the subsequent settlement of these advances, they replied through lett....
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....nts withou.t any kind of bills raised on them by Shri NJ Thakur and his concerns and also that in no other companies, it has released such payments without invoices. 5.6 My assessee has stated that there is no written agreement with Shri NJ Thakur before or after advancing these funds. This action on my part of the assessee clearly goes against commercial logic. Shri NJ Thakur has admitted on oath before his AO that he has not acquired any land/right/asset on behalf of my assessee. In light of these facts the series of doubts cast over the genuineness of the nature of transactions. 5.7 The payments have been made over three financial years including the assessment year under consideration and at no point of time did my assessee even check whether any properties are being acquired or in the process of being acquired by Shri N J Thakur. Without conducting this basic due diligence the assessee would have me believe that they kept on releasing the payment over the three years for the same. My assessee has also denied entering into any partnership agreement or project development with Shri N. J. Thakur as partner/director. 5.8 In view of the above discus1sion It IS amply clear that t....
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....accounts clearly means that the capital borrowed has been diverted for nonbusiness purposes. In principle, the proportionate interest on this borrowed capital diverted is to be disallowed. The examination of the bank accounts shows that there are number of other transactions pertaining to the assessee's regular business. With a view to compute the interest to be disallowed I have examined the date of actual disbursement, the particular account from which the payment was made, the balance outstanding in that account on that particular date and the rate of interest. Overdraft account having negative balance which shows that the assessee has borrowed money from the bank on which he is paying the interest and at any point if the balance is positive then, it means no interest is paid by the assessee for the period for which the balance was positive. With this back-ground ground the details are tabulated as under:- A. Financial Year 2007-08 relevant to A.Y. 2008-09 Bank debit date Principal Amount Bank Interest from To No. of days Remarks Interest @ 12% Party Name 26-09-07 20000000 SCB-2 26-09-07 11-10-07 16 Balance became positive on 11-10-07 105205 PRS Enterpri s....
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.... Rs. Total Income (as per Order Giving Effect dated 06-07-2012 to the Order of CIT(A) dated 21-02-2012) 188,59,74,436 Add: Interest Disallowed (para 8) 34,01,095 Total Income 188,93,75,531 Rounded off to 188,93,75,530 7. Assessed u/s 143 (3) of the Income-tax Act, 1961. Credit for prepaid taxes and computation of tax is as per ITNS 150A enclosed separately and forms part of the order. Interest u/s.234A, 234B, 2343C and 234D is charged as per law. Demand Notice and Challan is issued with this order. Issue notice u/s.274 r.w.s. 271(1)(c) of the Act." 2.3. If the observation made in the assessment order, reasons for reopening the reassessment, material available on record, reasoning contained in the impugned order and the assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, we find that the facts, in brief, are that the assessee declared income of Rs. 188,50,28,066/- in its return filed on 29/09/2008 which was processed on 27/07/2009, u/s 143(1) of the Act. Since the case was selected for scrutiny notice u/s 143(2) of the Act was issued to the assessee on 04/08/2009. The Assessing Officer vide order dated 27/12/2010, framed u/s 143(3....
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....ts/situation and the information, which came to the light/possession of the Assessing Officer, later on, the case was reopened, resulting into issuance of notice u/s 148 of the Act on 25/05/2012 after properly recording the reasons, which were also duly provided to the assessee on 06/12/2012. The assessee also objected reopening u/s 148/147 of the Act vide letter dated 07/01/2013. 2.5. Now question arises whether the ld. Commissioner of Income Tax (Appeals) was justified in holding the reassessment proceedings, initiated u/s 148 of the Act, as invalid and further whether a new material was available with the Assessing Officer for reopening the assessment? 2.6. We have perused the assessment order, reasons recorded, information provided by the ITO of Shri Nilesh Thakur, factual finding recorded in the impugned order and also considered the arguments advanced from respective side. We find that the primary facts relating to all the transactions entered by the assessee during financial year 2007-08 were very much available before the Assessing Officer when he framed the original assessment u/s 143(3) of the Act, therefore, no new material was made available at the later stage. Broadl....
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.... i.e. own fund and borrowed funds and at the time of advancing excess funds were available in comparison to advanced money. The assessee gets the benefit of the decision from Hon'ble Apex Court in Munjal Sales & Corporation vs CIT and from Hon'ble Bombay High Court in Relaince utilities and Power Ltd., wherein, it was held that where the capital and profits are more than the interest free funds advanced, then it has to presumed that interested free advances were given out of interest free capital available. As on 31/03/2008 the assessee was having total amount of Rs. 500,81,91,218/- (Rs. 203,02,00,000 as share capital and Rs. 297,79,91,248 as reserve and surplus) and as on 31/03/2009, total Rs. 621,01,17,406/-. The totality of facts clearly indicates that the notice u/s 148 was solely issued on the basis of information received from ITO 25(1)(4), having jurisdiction upon Shri Nilesh Thakur. The basic requirement section 148 is that the Assessing Officer should have reason to believe that income chargeable to tax has escaped assessment, thus, the law does not permit such a action. The following decisions supports our view:- 1) CIT vs Kelvinator of India Ltd. (2002) 256 ITR ....
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....nd, the conceptual difference between power to review and power to reassess. The Hon'ble Apex Court in CIT vs Bhanji Lavaji 79 ITR 582 (SC) held that mere change of opinion cannot form the basis of reassessment. In Shri Krishna Pvt. Ltd. Vs ITO 221 ITR 538 (SC), it was held that the power conferred upon the ITO by section 147 and 148 are not unbridled one. Identical ratio was laid down in Sirpur Paper Mills Ltd. Vs ITO 114 ITR 404 (AP) supports our view. The Hon'ble Calcutta High Court in S.P. Agrawal vs ITO 140 ITR 1010 held that statement by third parties cannot form the basis for reopening. We find that the ld. Assessing Officer merely on the basis of information received from another ITO without ascertaining the correctness of the information mechanically issued notice u/s 148. The only basis of issuing the notice u/s 148 was merely the later information received from ITO 25(1)(iv). The totality of facts clearly indicates that no new material came to the possession of the Assessing Officer leading to conclude that the income has escaped assessment, thus, issuance of notice for reopening and reassessment order passed u/s 143(3) r.w.s.147 of the Act was rightly held to be....
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....led Suit No. 2576 of 2011 against Shri Nilesh Janardhan Thakur, PRS Enterprises & others in. September 2011. Subsequent thereto Shri Nilesh Janardhan Thakur agreed to settle the matter by transferring all the moveable and immoveable assets in favour of the appellant. The Hon'ble Bombay High Court passed an order dated 19th October 2011 in the aforesaid Suit and decreed the monies, assets and properties, illegally misappropriated by ShriJanardhan Thakur and his entities in favour of the appellant. 13.3. Having regard to the above admitted facts recorded in the suit filed by the appellant before the Hon'ble Bombay High Court which are duly supported by records and documents filed as annexure before the Hon'ble Bombay High Court, the amounts advanced by the appellant are only for acquisition of lands in the Project areas of Panvel, Alibaugh, Pen and Raigad district. The appellant has produced records and documents in support of the transactions entered into with Shri Nilesh Janardhan Thakur and his group entities. All facts obtained from the records and documents reveal that the appellant had provided funds to Shri Nilesh Thakur for land acquisition in the project areas. ....
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....of appointment issued by the appellant company dated 16/07/2007 in favour of Shri Nilesh J Thakur and subsequent acceptance fetter dated 19/07/2007given by Shri Nilesh J. Thakur to the appellant. The land acquisition in project areas is during the course of the regular business activity of the appellant. The funds advanced by the appellant to Shri Nilesh Janardhan Thakur are thus held to be for appellant's business purposes. Accordingly, it is held that the disallowance computed out of claim of deduction of interest u/s. 36(1)(iii) was not called for In the aforesaid facts. 13.5. Even further to the afore-stated facts, the appellant's A.R's have also submitted that the appellant has a common pool of funds i.e. own funds and borrowed funds and that the appellant had sufficient own funds as on the date of advancing funds to Shri Nilesh Janardhan Thakur. It was submitted that the funds in the bank account were fungible and merely because there was negative balance in the current account on a particular date, it cannot be inferred that the payments made was out of borrowed fund It was also submitted that the factum that the funds were fungible has been accepted by the AD h....
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....High Court in the case of Phalton Sugar Works Lid, 208 ITR 989 disallowed the said interest of Rs. 11,19,382/-. Being aggrieved the assessee filed appeal before the first appellate authority. 5.2 It was contended on behalf of the assessee that assessee's own funds were far in excess of the interest free loans given to its subsidiaries: It was contended that as per audited accounts .. assessee's own funds as on 31/3/2002 stood at Rs. 25, 136.76 crores and, therefore, interest free loans given to its subsidiaries should be considered as having been given out of its own funds. It was contended that assessee had' not taken any specific interest bearing loans for advancing interest free loans to its subsidiaries. It was submitted that in view of the fungibility of the funds available, it can be legitimately presumed that the interest free loans given to the subsidiaries had been given out of own funds of the assessee company deployed in the business. It was also contended that the net profit after tax and before depreciation during the year stood at Rs. 7054.84 crores. Thus, the net profit for the year under consideration exceeded not only the incremental loans given to the....
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....sidiary companies. The Hon'ble Bombay High Court has held in the case of Reliance Utilities & Power Ltd. (supra) that if there were funds available both interest free and overdraft / or loans taken, then presumption would arise that investment would be out of interest free funds generated or available with the company. It was held that if interest free funds were sufficient 10 meet the investments mode, in that case a presumption is established that the borrowed capital was used for the purpose of business and the interest expenditure is deductible under section 36(1)(iii) of the Act. The similar view has also been considered by the Hon 'ble Calcutta High Court in Wool Combers of India Ltd., J 34 ITR 219 (Cal) s wherein it was held that if there were sufficient profits available to meet the advance fax liability and the profits were deposited in the overdraft account of the assessee,' in such a case it should be presumed that the taxes were paid out of profits of the year and not out of the overdraft account for the running of the business. Considering subsequent decision of the Hon'ble Jurisdictional High Court in the case of Reliance Utilities & Power Ltd. (supra)....
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....'s these grounds of appeal arc allowed. " 3.1. If the observation made In the assessment order, conclusion drawn in the impugned order, material available on record, assertion made by the ld. respective counsel, if kept in juxtaposition and analyzed, we find that the assessee was having 500.81 crores consisting of capital and reserves as on 31/03/2008, whereas, the assessee advanced Rs. 43.50 crores to Nilesh Thakur for aggregating land in terms of appointment letter dated 16/07/2007, thus, we find no infirmity in the conclusion drawn in the impugned order as the ld. CIT (A) has already placed reliance upon the decision from Hon'ble Apex Court in Munjal Sales Corporation, from Hon'ble jurisdictional High Court in Reliance Utilities & Powers Ltd. (supra) and the decision of the Tribunal in Reliance Industries ltd. (ITA No.3082/Mum/2006) order dated 28/05/2012. His stand is affirmed. This ground of the Revenue is also dismissed. 4. So far as, the merits of the case is concerned the factual finding recorded by the ld. Commissioner of Income Tax (Appeals) is reproduced hereunder for ready reference and analysis:- "13.1. As held by me hereinabove, the order passed by the ....
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....1-03-2008. We will now examine the submission of the assessee and Shri N.J. Thakur before various authorities and their findings as under:" e. Para 5.4.5 From the above it is clear that the assessee and Shri NJ Thakur are contracting each other. On one hand the assessee claims that these payments were made towards acquisition of land in and around Alibaugh and other areas in Raigad District. While Shri N. J. Thakur states that the amounts were received towards the development of project at Samata Nagar, Kandivali (E), Mumbai and for development of World Trade City at Garodia Nagar, Goregaon, Mumbai. Further light on the .nature of these transactions is thrown by the findings of the ITO-25(1)(4), Mumbai and C!T(A)-35, Mumbai in the individual assessments of Shri N.J Thakur for the A.Y.2008- 09. This is discussed hereunder: f. Para 5.4.7 From the above it is clear that Shri NJ Thakur claimed to be a partner with my assessee and claims to have received money as advance for various projects in Bombay. However, neither Shri NJ Thakur nor my assessee have submitted a single documentary evidence regarding their association with each other through partnership or through appointment as co....
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....ar that the sum paid by SPCL to PRS Enterprises and Ace Card Infrasol Pvt. Ltd., allegedly for the purpose of business being land aggregation is not for the stated purposes. There is no evidence brought out on record either by my assessee or Shri N. J. Thakur to show what is the business purpose between them. It is therefore held that the sums paid has not been utilized by my assessee for the purpose of its business. I therefore hold that no deduction out of the same can be allowed either as expenditure or allowed to be capitalized under the head 'work-in-progress'. This being the case, the only other issue to be seen is the source in the hands of the assessee for having advanced this Doney and the tax implication thereon. Accordingly, in the course of assessment proceedings, the AR of the assessee has been asked to explain as to why proportionate disallowance for the interest bearing funds utilized for non business purposes should not be disallowed for which the assessee simply stated that the payments are wholly and exclusively for the purpose of business. The submission of the assessee has been considered, however the same is not acceptable in absence of any evidences. A....
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....t there was any income which has escaped assessment in the hands of your assessee. 12.It is also submitted that the appellant had borrowed funds solely for the purposes of its business activities. The lands proposed to be acquired in the project areas was wholly and exclusively for the purposes of our business. The entire amount of advance was reflected in the Balance sheet under the head 'Current Assets- Advance for land.' 1.The appellant has a common pool of funds i.e. own funds and borrowed funds and the own funds, as on the date of advancing funds to Shri Nilesh Janardhan Thakur, were in excess of the amounts lent. We rely on the decisions in cases of Hon'ble Supreme Court in the case of Munjal Sales Corporation vs CIT and Hon'ble Bombay High Court in CIT vs Reliance Utilities and Power Ltd. wherein it was held that where the capital and profits are more than the interest free funds advanced, then it has to be presumed that such interest free advance were given out of interest free capital available. The appellants own funds as on 31.3.2007 and 31.3.2008 were as under:- As on 31.3.2007 As on 31.3.2008 Share Capital 82,00,000 203,02,00,000 Reserve....
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.... Pvt. Ltd. The said amounts have been reflected in the Balance Sheets of the appellant as 'Advances/or land'. Shri Nilesh Janardhan Thakur by his letter dated 22nd March 2010, informed the appellant that the payment received was used for acquiring properties and that the surplus funds had been kept in fixed deposit and that the properties would be transferred in favour of the appellant as soon as possible. However thereafter, Shri Nilesh Janardhan Thakur, neither refunded the monies nor transferred the properties to the appellant. In these circumstances, the appellant filed Suit No. 2576 of 2011 against Shri Nilesh Janardhan Thakur, PRS Enterprises & others in. September 2011. Subsequent thereto Shri Nilesh Janardhan Thakur agreed to settle the matter by trans/erring all the moveable and immoveable assets in favour of the appellant. The Hon'ble Bombay High Court passed an order dated 19th October 2011 in the aforesaid Suit and decreed the monies, assets and properties, illegally misappropriated by Shri Janardhan Thakur and his entities in favour of the appellant . 13.3 Having regard to the above admitted facts recorded in the suit filed by the appellant before the Hon&....
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....Shri Nilesh Thakur in the appellate proceedings for A. Y 2009-10 is considered, there is no contradiction in between the explanation given as regards the nature and purpose of advances given by the appellant to Shri Nilesh Thakur. The admitted stand of Shri Nilesh Thakur in the appellate proceedings for A. Y 2009-10 is duly supported by the records. Hence, the only inevitable conclusion that can be inferred is that the appellant had advanced monies for acquisition of lands at Alibaug, Pen, Panvel and other areas in and around Raigad district, which is explicitly evident from the 'letter of appointment issued by the appellant company dated 16/07/2007 in favour of Shri Nilesh J Thakur and subsequent acceptance fetter dated 19/07/2007given by Shri Nilesh J Thakur to the appellant. The land acquisition in project areas is during the course of the regular business activity of the appellant. The funds advanced by the appellant to Shri Nilesh Janardhan Thakur are thus held to be for appellant's business purposes. Accordingly, it is held that the disallowance computed out of claim of deduction of interest u/s. 36(J)(iil) was not called for In the aforesaid facts. 13.5. Even furthe....
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.... and interest free or' own funds available with the assessee. The assessee filed details and stated that the assessee had given loans and advances of Rs. 2988.98 crores to its subsidiaries as on 31/03/2002, out its own funds and internal accruals except to the extent of relying 'upon the decision of Hon'ble Kerala High Court in the case of V.I. Baby &: Company, 254 ITR 248 and decision of the Hon'ble Bombay High Court in the case of Phalton Sugar Works Lid, 208 ITR 989 disallowed the said interest of Rs. 11,19,382/-. Being aggrieved the assessee filed appeal before the first appellate authority. 5.2 It was contended on behalf of the assessee that assessee's own funds were far in excess of the interest free loans given to its subsidiaries: It was contended that as per audited accounts.. assessee's own funds as on 31/3/2002 stood at Rs. 25,136.76 crores and, therefore, interest free loans given to its subsidiaries should be considered as having been given out of its own funds. It was contended that assessee had' not taken any specific interest bearing loans for advancing interest free loans to its subsidiaries. It was submitted that in view of the fungibi....
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....the authorities below. 5.6 We have carefully considered the submissions of the ld. representatives of the parties and orders of the authorities below. We have also considered the cases relied upon by the authorities below as well as the cases cited by ld. A.R (supra). There is no dispute to the fact that the assessee's own funds are far in excess of the interest free loans and advances given by the assessee to its subsidiary companies. The Hon'ble Bombay High Court has held in the case of Reliance Utilities & Power Ltd. (supra) that if there were funds available both interest free and overdraft / or loans taken, then presumption would arise that investment would be out of interest free funds generated or available with the company. It was held that if interest free funds were sufficient 10 meet the investments mode, in that case a presumption is established that the borrowed capital was used for the purpose of business and the interest expenditure is deductible under section 36(1)(iii) of the Act. The similar view has also been considered by the Hon'ble Calcutta High Court in Wool Combers of India Ltd., 134 ITR 219 (Cal), wherein it was held that if there were sufficie....
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....to the facts as in the year under consideration, the reopening of assessment in annulled and the disallowance of interest of Rs. 2,46,16,438/- is deleted in the year under consideration for the reasons stated in my appellate order For A.Y.2008-09. Thus, taking note of all the factual position of the case, I consider in proper and appropriate to hold that the A.O. was not justified in his action. Accordingly the appellant's these grounds of appeal are allowed." 4.1. If the factual finding recorded by the ld. Commissioner of Income Tax (Appeals), we note that (as contained in para-13.4) Shri Nilesh Thakur, during the course of assessment proceedings for AY 2008-09 and 2009-10 duly explained that he received the amounts and during the course of enquiries before various authorities he took a consistent stand that advances were given for land aggregation and admitted to have received the funds from the assessee company. Shri Nilesh Thakur also admitted before the Hon'ble High Court regarding true nature of transaction and took a diametrically opposite stands on the nature of purpose of advances. The admitted stand of Nilesh Thakur in appellate proceeding for AY 2009-10 is duly ....