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2015 (7) TMI 447 - ITAT MUMBAI

2015 (7) TMI 447 - ITAT MUMBAI - TMI - Validity of reassessment proceedings - Disallowance u/s 36(1)(iii) of Income tax Act, 1961 - Charges of interest bearing funds advanced for non-business purposes - Reopening is not permissible on the basis of borrowed satisfaction rather there should be live link with the formation of belief and conclusion for escapement of income - Held that:- Validity of reassessment proceedings - We find that there was no new tangible material with the Assessing Officer .....

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fter 01/04/1989, concept of 'change of opinion' was not removed.

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 unsustainable in law. The existence of tangible material is necessary to ensure against an arbitrary exercise of power, thus, we f .....

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ection 36(1)(iii) of the Act. - Decided against the revenue. - ITA No. 5766 and 5767/Mum/2013 - Dated:- 10-4-2015 - Joginder Singh, JM And Rajendra, AM,JJ. For the Appellant : Shri Neil Philip-DR For the Respondent : Shri Vijay Kothari ORDER Per Joginder Singh (Judicial Member): The Revenue is aggrieved by the impugned orders both dated 17/05/2013 of the ld. First Appellate Authority, Mumbai, on the ground whether on the facts and in the circumstances of the case and in law, the ld. Commissioner .....

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iii) of the Act without appreciating the fact that interest bearing funds were advanced for non-business 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 reopeni .....

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g 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 from Hon'ble High Court was already available with the Assessing Officer, meaning thereby, all the documents which have been relied upon by him for reopening were already available with him before issu .....

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8,50,28,066/- on 29-09-2008. The assessee's case has been selected for scrutiny and assessment u/s 143(3) of the I.T. Act, 1961 was completed on 27-12-2010, determining the total income at ₹ 191,99,06,040/. 2. Based on the information received from the ITO-25(1)(4), Mumbai, 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 reopening of the assessment has been duly .....

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-tax Act, 1961 The assessee filed its return of income for A. Y.2008-09 declaring total income at ₹ 188,50,28,066/- on 29-09-200. The case of the assessee has been selected for scrutiny and assessment u/ s.143(3) of the I. T. Act, 1961 was completed on 27- 12-2010, determining the total income at ₹ 191,99,06,040/-. 2. In this case the ITO-25(1)(4), Mumbai vide his letter dated 25-04-2012 received in this office on 01-05-2012 intimated in respect of certain payments made by the assess .....

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ces 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 advan .....

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has no partnership with SP Group. Apart from the above, the ITO in his letter has also raised serious doubts about the genuineness of transactions for the following reasons:' (i) No land has been purchased or procured by the said entity in the name of assessee company ie., M/s. Shapoorji Pallonji & Co. Ltd. (in short M/s. SPCL) (ii) No details of progress in work were furnished by M/s SPCL (iii) The money was received by the said entity almost four years back but so for no settlement of .....

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e said entity. Importantly, the assessee company simply made the aforesaid amounts without entering into any agreements for acquisition of land by the said entity, which clearly indicates the doling out of interest bearing funds for non-business purpose. Thus, prima facie the assessee company namely M/s. Shapoorji Pallonji & Co. Ltd., has doled out interest bearing funds for non business purpose under the garb of advances for which the assessee company has no documentary evidences in its pos .....

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d to the profit and loss account thereby reducing the taxable profits. Apart from the above, source of funds in the hands of the assessee have to be examined for these payments of ₹ 43,50,00,000/-. Interest bearing funds diverted for non-business purpose would result in disallowance of proportionate interest expense. 4. With the above stated 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 recordi .....

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.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 ₹ 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 as .....

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ers is in receipt of total amount of ₹ 43,50,00,000/ - from us on various dates; Shri Nilesh. Janardhan Thak-ur has accounted such receipts as advances towards expenses related to the development works at Kandivali project in the capacity of a partner of S.P. Group; From our records such payments are evident from the bank statements but for which no documentary evidences have been maintained by us; The ITO, in the course of assessment proceedings, made third party enquiries with us; The IT .....

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the following reasons: No land has been purchased or procured by M/ s. PRS Developers in our name; No details of progress in work were furnished by us; The money was received almost four years back but so far no settlement of the account has been done by us; No interest has been charged; No action has been taken for recovery by us. Based on the aforesaid reasons, your kindself has recorded the following at para3 & 4 of the notice. It is evident that we have paid an amount of ₹ 43,50,0 .....

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st' 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 .....

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yments for acquisition of land to AI/ s. PRS Enterprises (Proprietor Shri Nilesh Janardhan Thakur) and Acecard Infrasol Ltd. Secondly, it is submitted that your kindlself is seeking reopening of assessment solely on the basis of the letter of the ITO 25(1)(4) and the observations/findings of the ITO during the assessment of Shri Nilesh Janardhan Thakur (Proprietor of M/s. PRS Enterprises). It is submitted that the initiation of reopening proceedings, on the basis of the allegations of Assessing .....

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d tantamount to change of opinion on the basis of the findings of another officer and not on the basis of formation of belief that income has escaped assessment. There should be a reason to believe as pointed out by the Supreme Court in CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC). The decision of the Supreme Court in Green World Corporation v. ITO [2009] 314 ITR 81 (SC) had held that "the order passed by the Assessing Officer at the dictate of the Commissioner of Income-tax is & .....

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at the prerequisite condition, which can be said to be sine qua non is that the Assessing Officer "has reason to believe "that income chargeable to tax has escaped assessment", Further the belief has to be on basis of valid reasons and not on non-existing facts. The basis should have a proximate and live nexus to the real facts: It is submitted that having regard to the following facts {relating to the payment of advances to Shri Nilesh Jariardhari Thakur (Proprietor of M/s. PRS E .....

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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 App .....

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to time, lands in the Project Areas were identified by Nillesh Janardhan Thakur/ PRS Enterprises. Since these were agricultural lands, it was necessary that the aggregator arranged for clear and marketable title, resolved internal disputes, ensure continuity of land holding conversion of status of lands from agricultural status to NA status, etc. before the same was formally transferred to us. Shri Nilesh Janrdhan Thakur/PRS Enterprises represented that monies were needed to be paid to the hold .....

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ween July 2007 and mid 2009) by account payee cheques to Shri Nilesh Janardhan Thakur's concerns i.e. PRS Enterprises and Acecard Infrasol Pvt. Ltd. for these purposes. The said amounts have been duly reflected in our Balance Sheets as (Advances for land'. In fact) we have consistently (over the years) reflected in our audited balance sheets that the payments made to Nilesh Janardhan Thakur and his nominees are advance payments for land acquisition. Shri Nilesh Janardhan Thakur was in to .....

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art of our funds to purchase several other properties (not entirely connected with those sought for by us) in their own name and in the names of their nominee entities. By his letter dated 22nd March 2010 Shri Nilesh 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 .....

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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 Bombay High Court in the aforesaid Suit, the said monies, assets and properties, .....

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several Powers of Attorney in our favour. Accordingly, we have adopted proceedings against Shri Nilesh Janardhan Thakur & his concerns and has substantially secured the amounts advanced,'misappropriated by the said Nilesh. Janardhan Thakur. The facts stated above in para 7 are supported by the suit along with the annexures filed before the Hon'ble Bombay High Court in Suit No. 2576 of 2011. Copy of the consent terms arrived at the suit and the annexures thereto are being furnished he .....

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stantiate such huge payments to M/s PRS Developers As per the evidences, records and documents supported by the suit filed before the Hon'ble Bombay High Court in Suit NO. 2576 of 2011 and the consent terms arrived at it cannot be said that there is no documentary evidence to substantiate the payments (c) We have made such huge payments without entering into any agreements for acquisition of lands by M/s PRS Developers We had appointed PRS Enterprises vide appointment letter dated 16th July, .....

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rasol 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 .....

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ce for land. Particulars 31.03.2008 Own Funds: Net Worth: Shareholder Funds (Share Capital + Reserves) 500,81,91,248 Less: Payments to M/ s. PRS Enterprises (Proprietorship concern of Shri Nilesh Janardhan Thakur) and Acecard Infrasol Pvt. Ltd. towards (advance for land's during the previous years 2007-08, 2008-09 and 2009-2010 (relevant to A. Y. 2008-09, A. Y. 2009-10 and A. Y. 2010- 2011) 141,50,00,000 Thus we thus submit that there is a clear demonstration that owned funds have been used .....

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Utilities and Power Ltd. [313 ITR 340] it has been held that if interest free funds available to the appellant are sufficient to meet its investments, it can be presumed that investments were made from its interest free funds available. The total income computed under the head (income from business or Profession 'in the Assessment order u/s 143(3) dated 27.12.2010 was determined at ₹ 129,88,95,857/- by following the formulae stated in para 3 of the assessment order as against the prof .....

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elf to dispose them off in accordance with the decision of the Hon'ble Supreme Court in the case of GKN Drives hafts , (259 ITR 19). Without prejudice to the above, we have to request your kindself to kindly provide us with copy of the assessment/appellate order of Shri Niiesh. Janardhan Thakur as also all other material/ documents/ records on the basis of which ITO 25(1)(4) has arrived at various conclusions/observations/findings. We also have to request that we be given an opportunity of c .....

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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 T .....

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mation and further after examining this vis-a-vis case records of the assessee for A.Y. 2008-09, I formed 'reason to believe' that income of the assessee for the Assessment Year under consideration has escaped the assessment to the extent of interest paid and allowed on borrowed funds diverted to the concerns of Shri Nilesh Janardhan Thakur for apparently non-business purpose. (iv) The expression "reason to believe" in Section 147 has been construed in the judgment of the Supre .....

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ication to know or suppose that income has escaped and it does not mean that Assessing Officer should have ascertained the facts by legal evidence or conclusion. At the stage of notice, the only question is whether there was relevant material on his reasonable person could have formed a requisite to belief. Whether material could conclusively proved the escapement is not the concern at that stage. This is so because, the formation of belief by Assessing Officer is within the realm of subjective .....

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eopened within a period of four years of the end of the relevant 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 o .....

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; 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 considered opinion, this is not proper stage to go into the merits of the issues. The sole question pending before me is that whether I was in limits of my powers conferred upon me by the provisions of section 147 and 148 while reop .....

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fficer to embark upon a reassessment exercise. Notwithstanding that, power to make assessment or re-assessment within four years of the end of the relevant assessment year would be attracted even in cases where there has been complete disclosure of all relevant facts upon which the assessment might have been based at the. first instance, but for or in case of a mistake, as per amended provisions of section 147 of the Income-tax Act." (ix) In the case of Dr.Amin's Pathalogy Laboratory Vs .....

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y item has escaped from assessment which was otherwise. includible within the assessment and the Assessing Officer notices it subsequently by his own investigation or by reason of some information received by him, one cannot say that it constitutes change of opinion. "Under Explanation 1 to the proviso, mere production of account books from which material evidence could have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the proviso. .....

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#39;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 .....

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while submitting original return, proceedings initiated for reassessment could not be quashed at threshold. (xii) The Hon'ble ITAT Chandigarh Bench 'A' held in the case of Shri Vikrant Dutt Chaudhary v. Assistant Commissioner of Income tax, Panchkula* [12 taxmann.com 359 (Chd.)] [2011] that the main provisions of section 147 authorize and permit the Assessing Officer to assess or re-assess income chargeable to tax if he has reason to believe that income chargeable to tax for the rele .....

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n that the Assessing Officer should have finally ascertained the facts giving rise to his formation of belief by legal evidence. What is contemplated by section 147 is prima facie belief by the Assessing Officer that income chargeable to tax has escaped assessment. In order to test the validity of initiation of proceedings under the main 'provisions of section 147, only one aspect has to be considered and that is whether there was relevant material or reasonable ground on the basis of which .....

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s available with him was in order as the information given by the ADIT (Inv.) or the materials available with him on record could not be said to be irrelevant. It also could not be said that the initiation of proceedings under section 1471 148 was motivated by suspicion, rumor or gossip. In this view 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 c .....

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ssessment/ 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 proce .....

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head 'current assets' an amount of ₹ 43.50 crore has been shown as advance towards land purchase. The said amount has been paid by the company to M/s. PRS Enterprises, a proprietorship concern of one Shri N.J. Thakur. 5.2 The assessee states that these amounts are in the nature of advance payments towards acquisition of land with clear and marketable title in an around Aliabagh and other areas of Raigad District. 5.3 The transactions with Shri N.J. Thakur and his group of concerns .....

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amount of ₹ 43.50 crore in his profit and loss account as expenses nor has he included this amount in his work-in-progress. It is an admitted fact that these amounts stands as 'advance for land purchase' under 'current assets' in his balance-sheet as on 31-03- 2008. We will now examine the submission of the assessee and Shri N.J. Thakur before various authorities and their findings as under: A. Before the Investigation Wing: 5.4.1 The transactions between the assessee and .....

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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 ₹ 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 P .....

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. ACE Card Infrasol Pvt. Ltd. proprietary concerns of Mr. Nilesh J. Thakur with bills along with bills and nature of treatment given in the books for these payments. A. No services were provided by M/ s. PRS Enterprise/ PRS Developers /M/s. ACE Card Infrasol Pvt. Ltd. The payments are accounted as 'advances' in our books of accounts for acquisition of lands. Q.4. Details of any TDS made on the payment to M/ s. PRS Enterprise/ PRS Developers / M/s. ACE Card Infrasol Put. Ltd. proprietary .....

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had appointed M/ s. PRS Enterprises vide appointment letter dated 16th July, 2007 to acquire lands with clear and marketable title in an around Alibaug, other areas in Raigad District. The same was accepted by M/s. PRS Enterprises vide letter dated 19th July, 2007 (copies enclosed in Annexure File)". 5.4.2 The statement of Mr. Feroz K. Bhatena, Director and Principal Officer of the assessee on oath u/s.131 was recorded by the DDIT(Inv.), Unit I(2), Mumbai on 04-07-2012. The relevant questio .....

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ns, before making the first payment? Ans. The payments were made to M/ s. PRS Enterprise and M/ s. ACE Card Infrasol Pvt. Ltd. towards land aggregation in Panvel, Alibaug, Pen and Raigarh area. We have appointed M/s. PRS Enterprises vide letter dated 16th July, 2007 and as per the understanding, the first payment of ₹ 2 crore was made on 11th July; 2007 (clause 6 of the agreement). The copy of the original appointment letter is being produced herewith Q.8. As per your submission, the first .....

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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 acqui .....

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he Project Areas. By Letter of Appointment dated 16th July, 2007, SPCL appointed Shri Nilesh Thakur through his entity 1.1/ s. PRS Enterprise to identify, assist and aggregate for SPCL, 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 & the balance 600 within 5 years. The said Letter of Appointment was accepted by Shri Nilesh. Thakur/PRS Enterprises by its letter dated 19th July, 2007. .....

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Ltd. Kindly substantiate the reason for the same in view of the above fact as well as that M/s. ACE Card Infrasol Pvt. Ltd. is primarily owned by Mr. Nilesh. Thakur (80% shareholding). Ans. As per the letter of appointment to M/ s. PRS Enterprise dated 16th July, 2007 it was agreed in clause 2 that "During the period till completion of assignment, you shall be paid on-account advances from time to time to enable acquisition/obtaining approvals "at various stages. The advances as afores .....

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our duty and obligation to fully pay the land owners for the transfer of the lands. In the name of Company and obtain all approvals and clearances without any further 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 m .....

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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 continuity of land holding conversion of status of lands from agricultural status to NA status etc before the same was formally transf .....

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ntations, SPCL made payments of an aggregate amount of ₹ 141.S0 crs from time to time (i.e. between July 2007 and' mid 2009) by account payee cheques to Shri Nilesh Thakur's concem i.e. M/s. PRS Enterprises and ACE Card Infrasol Pvt. Ltd for these purposes. The said amounts have been duly reflected in SPCL's Balance Sheets as Advances for land. In fact SPCL has consistently (over the years) reflected in its audited balance sheets that the payments made to Nilesh Thakur and his .....

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Ans. No Payments made against services etc rendered are on the basis of the authorization memo for release of payments. The authorization Memo is given on the basis of supporting bills or vouchers. However, advances are given on the basis of the approval given by the concerned department. Q.14. Kindly produce the approvals given by the concerned department for releasing such payments to above mentioned concerns. Ans. I will verify the record and submit the requisite details within seven days. Q. .....

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ired 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 advan .....

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f two project viz. Samta Nagar located at Samta Nagar, Kandiuali East and. World Trade City located at Garodia Naqar, Ghatkopar jointly with Shapoorji Pallonji Group uiz. Shapoorji Pallonji & Co. Ltd. and S. D. Corporation Pvt. Ltd. The firms 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 for bot .....

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ated at Samta Nagar Kandivali Ea.st and World Trade City at Garodia Nagar, Ghatkopar. PRS Enterprises has received following amounts from Shapoorji Pallonji & Co. Ltd.: Date Party Name Amount TDS Total 26-Sep-07 Shapoorji Pallonji & co. Ltd. 30,000,000 - 30,000,000 26-Sep-07 Shapoorji Pallonji & co. Ltd. 20,000,000 - 20,000,000 1-0ct-07 Shapoorji Pallonji & co. Ltd. 30,000,000 - 30,000,000 31-Oct-07 Shapoorji Pallonji & co. Ltd. 50,000,000 - 50,000,000 29-Nov-07 Shapoorji Pal .....

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00,000,000 - 100,000,000 Total 845,000,000 - 845,000,000 All the above amounts have been received in the Current A/c. No. 10216008637 of M/s. PRS Enterprises maintained with Greater Bombay Co-operative Bank Ltd. Andheri Branch, Bank Statement of the same is enclosed for your ready reference. III. Ace Card Infrasol 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 proje .....

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osed 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 exp .....

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Areas. By Letter of Appointment dated 16th July, 2007 SPCL appointed Shri Nilesh. Thakur through his entity FRS Enterprise to identify: assist and aggregate for SPCL, the lands in the Project Areas) inter alia on the terms and conditions therein. The said letter required the 300 acres be acquired within 3 years - by 2010 & the balance 600 within 5 years. The said Letter of Appointment was accepted Shri Nilesh Thakur/ PRS Enterprises by its letter dated 19th July, 2007. SPCL made payments of .....

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e several other properties in their own name and by letters dated 22.3.2010 of PRS Enterprises addressed to SPCL and letter dated 22.3.2010 of Ace Card Infrasol Pvt. Ltd. addressed to SPCL, it was informed the payments were used for acquiring properties and FDs 'and the same shall be transferred soon. Further since N. J. THAKUR failed to comply or refund the monies or transfer the properties to SPCL, SPCL filed a suit in Bombay High Court and as per the 'Consent Terms' arrived at in .....

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o 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), Mu .....

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y assessee. The relevant conclusion of the AO is reproduced hereunder: "Despite being given ample opportunities vide notices/summons referred above, the assessee failed to produce books of accounts or any other documentary evidences regarding his business activities to substantiate and corroborate its submissions through various letters and books. In his submission the tall claims made by the assessee prima facie appear to be hollow in the absence of any substantiating/ corroborating docume .....

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they have advanced money to the assessee for procuring land and M/s. SDCL has stated that they have paid fee to the assessee. If assessee's version is to be accepted the assessee is a partner of SPCL, if SPCL version is to be accepted he becomes an agent of SPCL for purchasing land on behalf of SPCL and if the version of SDCL is to be accepted the assessee is a professional who has received fee for consultancy works. All the three replies are contradicting each other. It is surprising that n .....

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heet. The accounting entries shown by the assessee is not substantiated by way of documentary evidence or third party confirmations. Hence, the accounting entries done by the assessee is not acceptable. The assessee has claimed 'himself to be a partner of SPCL. The claim is not acceptable on the ground that M/s. SPCL has not recognized him as a partner, no partnership agreement has been made, the letter dated 10.11.2010 written by the assessee to M/s. SPCL has been written only after initiat .....

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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 .....

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ragraphs. In view of the above discussion the accounting entries shown by the assessee in the balance sheet are not acceptable." 5.4.6 More importantly the AO recorded a statement on oath of Shri N. J. Thakur on 14-12-2010 which throws light on the transactions. The relevant questions and answers are reproduced hereunder: 5. Do you have any written agreement with M/s. Shapoorjee & Pallonjee & Co. and M/s. SD Corporation Pvt. Ltd. Ans. No. We have acquired these 15 crores FDS for M/s .....

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PRS, Developers - ₹ 31,67,50,000/- as fee). A copy of the reply is handed over to you. Please go through and offer your comment as to why this amount should not be taxed. Ans. Please refer to our submission dated 03.12.2010 in page No.24 & 25, point no. 8. 9. In reply to Notice u/ s. 133(6) MI s. Shapoorjee & Pallonjee & Co. Ltd. has submitted that they have given you advance of ₹ 43, 50,00,000/- for purchase of land in their behalf The copy of reply is handed over to yo .....

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any other than M/s SD Corporation in past and till date? Ans. No. We have not received any fee from any other concern. 12 Why the amount of ₹ 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 .....

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eir 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 meeting is for inauguration of project and not for inauguration land. Invitation and photographs of meeting and expenses given to various groups for the meeting are done by our group. It is clear from available evidences under Indian Evidence A .....

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mission of project to High Power Committee of Govt. of Maharashtra. If money is given for purchase of land then how Shapoorjee & Pallonjee & Co. has signed registered deed for the project. 16. Do You have any sanction from any of the Government Authorities in your name or in the name of your proprietary concerns? Ans. All project lands belong to tenants or MHADA or Central Government. Process of sanction is going on and Central Government has issued letter dated 02.07.2010 after submissi .....

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refer to page no.57 of our submission dated 03.12.2010 18. Page no. 57 is a letter written by you on the letter head of M/s. Lucky Angel Group addressed to Shri Pallonjee Shapoorjee Mistri, Chairman SP Group on 10.11.2010, i.e. after initiation of scrutiny proceedings. Have you received any communication in reply from M/s. Shapoorjee & Pallonjee & Co. Ltd.? Please also explain as to why the letter written by you should not be deemed an attempt made by you to explain the entries in the b .....

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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 .....

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nfirmations from the persons to whom cheques have been paid explaining the nature of receipts in their hand along with their IT returns and reflections in their books of accounts. You have already been asked these details vide earlier notices in 2-3 occasions but you have failed to submit details viz. name, address and confirmations along with evidences. Ans. We will file separate submission on this point by 20 days, i.e. by 3rd January, 2011. 21. It is seen from your balance sheet that you have .....

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d in our name will be part of final sales strategy and agreement of project between our group and SP Group. 22. where the original agreements pertaining to the assets shown in the balance sheet. Ans. On 16.02.2010 our office premises were raided by Service Tax Officers. We are developing projects of 10,000 tenements and we can locate these agreements after details of papers taken away and seized by Service Tax Officers. We have given seven reminders for return of documents. we are submitting cop .....

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ip agreement was made. Shri N. J. Thakur could not produce any evidence whatsoever regarding the alleged projects he has undertaken on behalf of my assessee. 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. .....

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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, has accepted that they had given more than ₹ 200 crores on 38 different dates without issuance of bill and without having received land agre .....

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ADA is also not substantiated by way of documentary evidences. Moreover, this submission has nothing to do with the financial activity of the assessee during F.Y.2007-08. 10.2.2 The appellant has argued that he did various works and transactions pertaining to the joint venture with SP Group. The submission of the appellant is rejected as neither M/s. SPCL nor M/s. SDCL has recognized him as their partner or prospective partner. In reply to notice u/s.133(6) and u/ s.131 of the IT Act, 1961, they .....

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ons made to various authorities by the assessee in the capacity of Director of M/ s. Ace Card Infrasol Pvt. Ltd. have nothing to do with the activities of the appellant during the relevant F.Y.2007-08. No documentary evidence has been submitted with regard to existence of such company or its association with the appellant. Hence the book containing various representations, maps are hereby held to be having no relevance. 10.3.3 The appellant has tried in vain to argue that he is a partner of M/ s .....

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to 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 h .....

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ith construction activity and other activity but has not been able to produce single documentary evidence in support of his claim. Through out his submission the appellant has been putting undue emphasis on his claim of partnership with M/ s. SPCL but he has failed to submit any documentary evidence to substantiate his claim. On the contrary, M/s SPCL has stated that they have advanced money to the appellant Jar procuring land and M/s. SDCL has stated that they have paid fee to the appellant. If .....

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as consultant or agent or any other relationship. The only thing which is clear from the above is that there is huge influx of funds in the appellant's account through cheque from these two concerns namely SPCL and SDCL. The appellant has shown these two concerns as sundry creditors in the un-audited balance sheet. The nature of accounting entries shown by the appellant is not substantiated by way of documentary evidence or third party confirmations. Hence the accounting entries done by the .....

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partnership after lapse of so many years of claimed association. In his submissions, the appellant has claimed to be associated with various companies etc., but he has failed to produce supporting and corroborating evidences to substantiate any relationship. The appellant was asked by A.O., in the statement recorded on oath, regarding proof for appellant being engaged in business of construction activity or having any partnership with M/ s. SPCL and was asked to produce copy of minutes of meeti .....

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n 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 app .....

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ntered into any written agreement with the appellant before or after advancing of such a huge sum. The version of M/s. SPCL is difficult to believe as the huge amount has been forwarded without any written agreement. The appellant is not big businessman. In the balance sheet the opening capital is shown at ₹ 5 lakhs only. His credit worthiness as a businessman and his business acumen are not proved from the Balance Sheet and its Opening Capital. In absence of any written agreement} nobody .....

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fficer to comment on the reply of M/s. SPCL through question no.9 of the statement} the appellant referred to page-269 of book containing submissions dated 29.12.2010 which is a letter addressed to Hon'ble Pallonjee and Shapoorjee Mistry on 10.11.2010 for entering into partnership. The said letter has no evidentiary value in my view as the same is written on 10.11.2010 after the initiation of scrutiny proceedings by Assessing Officer and the contents of the letter are devoid of merits and su .....

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ax 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 negat .....

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id of merits and corroborating evidences. M/ s. SPCL was asked by the Assessing Officer about the subsequent settlement of these advances, they replied through letter dated 01.12.2010 the amount given as advances are stiil outstanding as advances. No settlement has been reached in this matter so far. They also confirmed that so far they have not initiated any legal action for recovery. Keeping in view of entire facts of the case, the contention of appellant that he has received money for project .....

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and huge experience of dealing in property and construction activities, then the question of advancing a huge sum to the man like appellant raises serious doubts about the nature of transaction. The money was received by the appellant quite a few years back but so far no settlement of the account has been done, no action for recovery has been reported by M/s SPCL; no land has been proved to have been purchased by the appellant in the name of M/s SPCL as has' been confirmed by appellant as we .....

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Shri NJ Thakur. 5.5 From the detailed facts narrated above it is very clear that there is a clear contradiction between the claim of my assessee and Shri NJ Thakur. The assessee claims to have paid the sum as advance towards purchase of land in and around Raigad District. While Shri NJ Thakur claimed to have received this money for project development at Samata Nagar, Kandivali (E), Murnbai and World Trade City, Garodia Nagar, Goregaon. Mr. Feroz K. Bhatena Director and Principal Officer of the .....

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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 .....

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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. A .....

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uch payments is discussed hereunder: 5.9 As discussed above, the assessee has made a payment of ₹ 43.50 crore, the source of the payment is from two bank accounts namely Standard Chartered Bank, Mumbai Main Branch, current AI c.No.22205268192 and Deustche Bank. Both these accounts are Overdraft accounts on which the assessee pays interest. Given my finding that the entire amount advanced to M/ s. PRS Enterprises is not for the purpose of business, it naturally follows that the interest bea .....

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nterest to the banks and therefore they represent capital borrowed by the assessee. The action of the assessee in sourcing the payment to M/s. PRS Enterprises from these 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. Wit .....

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hich 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 se 26-09-07 30000000 SCB-2 26-09-07 11-10-07 16 Balance became positive on 11-10-07 157808 PRS Enterpri se 01-10-07 30000000 SCB-2 01-10-07 11-10-07 1 .....

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it is clear that on 26-09-2007, ₹ 5 crore (through two cheques of Rs .2 crores and ₹ 3 Crore) was disbursed to M/s PRS Enterprises from -Standard Chartered Bank Account. On this date the account balance was negative and therefore the assessee was paying interest to the bank. On 11-10- 2007 there was a deposit of ₹ 101 crore due to which the account balance became positive and the assessee was not charged any interest by the bank. Therefore, the interest bearing funds to the ex .....

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ues to be negative balance as on 31- 03-2008. Based on the above working the total interest to be disallowed for the present A.Y.2008-09 is ₹ 34,01,095/ -. The same is hereby disallowed u/s.36(1)(iii) as not for the purpose of business. Thus, an 'addition of ₹ 34,01,095/- is made to the total income of the assessee. 5.11 Penalty proceedings u/s.271(1)(c) of the Act, is being initiated for furnishing inaccurate particulars and concealing the taxable income. 6. Subject to above, as .....

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s 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 ₹ 188,50,28,066/- in its return filed o .....

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certain payments amounting to ₹ 43,50,00,000/- were made by the assessee company by way of advances to M/s PRS Developers (proprietor Shri Nilesh J. Thakur) on various dates in Financial year 2007-08 and the said parties accounted such receipts towards expenses related to development works at Kandivali Project for which no documentary evidences were maintained by the said concern. The Assessing Officer made enquiries with the assessee company and found that the assessee company made subst .....

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tity in the name of assessee company ie., M/s. Shapoorji Pallonji & Co. Ltd. (in short M/s. SPCL) (ii) No details of progress in work were furnished by M/s SPCL (iii) The money was received by the said entity almost four years back but so for no settlement of the account has been done by M/s. SPCL (iv) No interest is charged on the amount received by the said entity (v) No action for recovery has been taken by M/s. SPCL 2.4. It was also found that the assessee made the huge payments to Shri .....

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fit. At the same time, the source of the funds were also to be examined resulting into disallowance of proportionate interest expenses. In view of these facts/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 o .....

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ed 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. Broadly, the reason for reopening is based upon the finding arrived at by the ITO of Shri Nilesh Thakur and it can be said it was a merely borrowed sati .....

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d on the opinion of the Assessing Officer of other party, is 'borrowed satisfaction', consequently, not sufficient reason to believe for escapement of income. Further, the Hon'ble Apex Court dismissed the SLP of the Department (C No.8167 of 2009) against the aforesaid decision from Hon'ble Rajashthan High Court. We note that there is no finding in the assessment order that any independent enquiry was made by the Assessing Officer of the present assessee rather he reopened the ass .....

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(page-31 to 35) supports the case of the assessee. Shri Nilesh Thakur (PRS Enterprises) was given advances from time to time in terms of resolution passed by the Board of Directors. The amount advanced by the assessee to Shri Nilesh Thakur, was duly reflected in the audited accounts of the assessee under the head 'advances for land' and since Shri Nilesh Thakur could not perform in terms of appointment letter a suit bearing 2576 of 2011 was filed before the Hon'ble Bombay High Court .....

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m 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 ₹ 500,81,91,218/- (Rs. 203,02,00,000 as share capital and ₹ 297,79,91,248 as reserve and surplus) and as on 31/03/2009, total ₹ 621,01,17,406/-. T .....

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IT (2001) 251 ITR 270 (Guj.) 3) CIT vs Corporation Bank Ltd. (2002) 254 ITR 791 (SC) 4) Garden Silk Mills P. Ltd. Vs DCIT (1999) 237 ITR 668 (Guj.) 5) CIT vs Hickson & Dadajee Ltd. (1980) 121 ITR 368 (Born.) 6) Jindal Photo Films Ltd. vs DCIT (1998) 234 ITR 170 (Del.) 7) Garden Silk Mills vs DCIT (1996) 222 ITR 68 (Guj.) 8) Mercury Travels DCIT (2002) 258 ITR 533 (Cal.) 9) JCIT vs George Williamson (Assam) Ltd. (2002) 258 ITR 126 (Gauhati) 10) CIT vs Sambhar Salt ltd. (2003) 262 ITR 675 (Raj .....

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Born.) supports our view. Even after 01/04/1989, concept of 'change of opinion' was not removed. Prior to direct tax laws (amendment) Act, 1987, reopening could be done under two conditions viz, if (a) the ITO had reason to believe that, by reason of the omission or failure on the part of the assessee to make a return u/s 139 for any assessment year to the ITO or to disclose fully and truly all material facts for his assessment for that year, income chargeable to tax had escaped assessme .....

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ble to tax had escaped assessment, consequently, the section itself confers jurisdiction to reopen the assessment. Therefore, post 01/04/1989, power to reopen is much wider. At the same time, powers u/s 147 also does not give arbitrary power to the Assessing Officer to reopen the assessment merely on the basis of 'change of opinion'. One must keep in mind, the conceptual difference between power to review and power to reassess. The Hon'ble Apex Court in CIT vs Bhanji Lavaji 79 ITR 58 .....

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ng 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 orde .....

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. First Appellate Authority for ready reference:- "13.3. I have considered the A.O.'s order as well as the appellant's AIR submission. Further 1 have perused the matter in its entirety and the aforesaid findings of the A.0, I have also perused the copy of the plaint along with the records and documents filed before the Hon'ble Bombay High Court in Suit No. 2576 of 2011 and the order of Hon'ble Bombay High Court. On perusal of the plaint and the records and documents it is se .....

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on of the Board of Directors of the appellant company. The appellant has made payments of on aggregate amount of ₹ 141.50 crores from time to time (i.e. between July 2007 and mid 2009, A.Y- 08-09- ₹ 43.50crores, A.Y,09-10-Rs.53.00 crores, A.Y-I0-11- ₹ 45.00 crores) by account payee cheques to Shri Nilesh Janardhan Tahkur's concerns i.e. PRS Enterprises and Acecard Infrasol Pvt. Ltd. The said amounts have been reflected in the Balance Sheets of the appellant as 'Advances .....

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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. Ha .....

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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. In view of the same, any contrary submissions/explanations given by Shri Nilesh Thakur during the course of his assessment and appellate proceedings cannot be considered as a foundation for arriving at any negative inference in the case of the appellant. 13.4. The fact that Shri Nilesh Thakur, during the course of .....

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rse of the inquiry before the various Authorities has taken a consistent stand that the advances were given for land aggregation in the project areas. The claim of the appellant is supported by the various records and documents. Credence cannot be given 10 explanations given by Shri Nilesh Thakur during his assessment proceedings for A. Y 2008-09 and 2009-10 since he himself, in the appellate proceedings for A. Y 2009-10, has admitted to having received the funds from the appellant company for l .....

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akur 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 ar .....

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siness 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 b .....

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ed on the decisions in cases of Hon'ble Supreme Court in the case of Munjal Sales Corporation v CIT (supra) and Hon'ble Bombay High Court in CIT v Reliance Utilities and Power Ltd. (supra) 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. 13.6 I find that the appellants own funds as on 31.3.2007 and 31.3.2008 were as under: As .....

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esh J. Thakur. Respectfully following the decisions of the Hon'ble Supreme Court in case of Munjal Sales Corporation (supra) and Hon 'ble Bombay High Court in the case of CIT v Reliance Utilities and Power Ltd. (supra), the advances given to Shri Nilesh J. Thakur are presumed to be from the Interest free own funds of the appellant. In the recent decision of the Hon'ble ITAT in the case 01 Reliance Industries Ltd. v DCIT (ITA No. 3082/Mum/2006 dated 28/05/2012) it was held as under: & .....

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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 ₹ 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 .....

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timately 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 ₹ 7054.84 crores. Thus, the net profit for the year under consideration exceeded not only the incremental loans given to the subsidiaries during the year but even exceeded the total interest free loans of ₹ 2988.98 crores given to t .....

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page 18 of the impugned order, held that borrowed funds to the extent of ₹ 9.89 crores was actually utilized for advancing interest free advances to subsidiaries. Therefore, ld C1T(A) confirmed the action of the 110 in disallowing interest on account of diversion of funds for nonbusiness purposes, which comes to ₹ 11,19,382/- Hence, the assessee is in appeal before the Tribunal. 5.4 During the course of hearing the Id. A.R reiterated the submissions as were made before the first app .....

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ase of SA. Builders Ltd., vs. CIT, 288 ITR 1 that when loan to its subsidiary is given in the course and for the purpose of business of its business, no disallowance of interest has to be made. He submitted that in view of above decisions, the disallowance of interest is not justified and the same should be deleted. 5.5 On the other hand, ld. D.R relied on the orders of the authorities below. 5.6 We have carefully considered the submissions of the ld. representatives of the parties and orders of .....

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ken, 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 I .....

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supra), wherein it was specifically held that if interest free funds available to an assessee is sufficient to meet its investment, it can be presumed that the investments were made from the interest free funds available with the assessee. Therefore, considering the fact that the assessee had its own funds more than the loans given to its subsidiaries and also in the absence of any nexus establishing that the interest bearing 'borrowed funds were given us interest free to its subsidiaries, w .....

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1/03/08, whereas during the year under consideration, the appellant has advanced ₹ 43.50 crores to Shri Nilesh J Thakur for the purpose of aggregating land in terms of appointment letter dated 16/07/2007. In view of the same and also keeping reliance on the decision of Apex Court in the case of Munjal Sales Corporation v CIT (298 ITR 298) and the decision of the Hon'ble Bombay High Court in the case of CIT vs Reliance Utilities and Power LId [313 ITR 340] & also the jurisdictional .....

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ical to the facts as in the year under consideration, the reopening of assessment in annulled and the disallowance of interest of ₹ 2,46,16,438/- is deleted in the year under consideration for the reasons stated in my appellate order For A. Y2008- 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 arc allowed. " 3.1. If the obs .....

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ned 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. Commission .....

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scussed at para 5 of the assessment order. According to the AO, the transactions of the appellant with Shri Nilesh J. Thakur, through his proprietorship concern PRS Enterprises and Acecard Infrasol Pvt. Ltd., were for non-business purposes. For arriving at this conclusion, the AO has referred to the enquiries made by the DDIT (Inv), Unit I(2), Mumbai; the statement recorded of Mr. Feroze K. Bhatena Director & Principal Officer of the appellant company; assessment order for A.Y. 2008-09 in ca .....

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.2 The assessee states that these amounts are in the nature of advance payments towards acquisition of land with clear and marketable title in an around Aliabagh and other areas of Raigad District. c. Para 5.3 The transactions with Shri N.J. Thakur and his group of concerns have received detailed attention from various authorities in the Department namely Investigation Wing, ITO- 25(1)(4) in the assessment of Shri N.J. Thakur for A.Y.2008-09 and 2009-10 and CIT(A)-35 in the appellate order in th .....

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9; under 'current assets' in his balance-sheet as on 31-03-2008. 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 th .....

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ee 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 consultant / agent / any other relationship. My assessee has not recognized Shri N. J. Thakur as a partner and no partnership agreement was made. Shri N. J. Thakur could not produce any evidence whatsoever regarding the alleged projects .....

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he claim of my assessee and Shri NJ Thakur. The assessee claims to have paid the sum as advance towards purchase of land in and around Raigad District. While Shri NJ Thakur claimed to have received this money for project development at Samata Nagar, Kandivali (E), Murnbai and World Trade City, Garodia Nagar, Goregaon. Mr. Feroz K. Bhatena Director and Principal Officer of the assessee on oath admitted that the assessee has released all the payments withou.t any kind of bills raised on them by Sh .....

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over the genuineness of the nature of transactions. i. Para 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 .....

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at 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 t .....

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9;s AIR has strongly pleaded against the A.O's action and filed a detailed written submission in. support of his contention, the relevant portion of the same is extracted as under.: 1. On the merits of the case we have to reiterate the submissions mode by us before the AO vide our letter dated 7.1.2013 2. We further reiterate and submit that we had given advances to Shri Nilesh Thakur and his group concerns for acquiring large tracts of land in the Panvel, Aligabh, Pen and Raigad areas (&quo .....

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in the project orcas on the basis of the terms and conditions staled in the appointment letter (copy enclosed at page 283 of paper book). 6. Shri Nilesh Janardhan Thakur/PRS Enterprises were given advances from time to time in terms of the resolutions passed by the Board of Directors and on the basis of the representations made by Shri Nilesh Janardhan Thakur on the status of land acquisitions. 7. The amounts advanced by us to Shri Nilesh Janardhan Thakur were reflected in our Audited Balance S .....

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he suit plaint and the annexures filed before the Hon'ble Bombay High Court in Suit No. 2576 of 2011. 11. It is submitted that merely because Shri Nilesh Thakur had given certain explanations, which are bereft of any facts, records or documents, it could not be said that 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 acqu .....

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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 Reserves & Surplus 171,45,01,507 297,79,91,24 .....

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maintained by the appellant with its bankers. The AO has computed the disallowance of interest only for the period during which there was' a negative balance the moment the balance in the overdraft account turned positive, the AO has not computed any disallowance. Disallowance computed 011 this basis was recently considered in the decision of the Hon'ble ITAT in the case of Reliance industries Ltd. v DCIT (ITA No. 3082/Mum/2006 dated 28/05/2012) and the Hon'ble ITAT has deleted the .....

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etter of appointment dated 16.7.2007, had appointed Shri Nilesh Thakur for land aggregation in Panvel, Aligabh, Pen and Raigad areas. The said Letter of appointment was accepted by Shri Nilesh Janardhan Thakur/PRS Enterprises by letter dated 19th July, 2007. In terms of the said letteragreement, the appellant has provided funds to Shri Nilesh Thakur, by way of advances for purchase of lands. The payments to Shri Nilesh Thakur have been made in terms of the resolution of the Board of Directors of .....

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n 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 Janardh .....

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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 annexures 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, Allbaugh, 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 fact .....

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2008-09 and 2009-10 had explained that he had received amounts towards the development of project at Samata Nogar, Kandivali (E) Mumbai and (or development of World Trade City at Garodia Nagar, Goregaon. Mumbai is clearly borne /1'0171 the findings recorded in his assessment order for A.Y. 2008-09 and 2009-10. But it is equally relevant [0 note that Shri Nilesh Thakur could not produce/furnish any evidence in support of the said claim. The appellant, during the course of the inquiry before t .....

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lso admitted that the record and documents furnished by the appellant company before the Hon'ble Bombay High Court depicted the true nature 0/ transaction in between them. Thus it is seen that Shri Nilesh Thakur has taken a diametrically opposite stand on the nature and purpose of advances given by the appellant 10 him as compared to the stand taken by him during the course of assessment proceedings for A. Y. 2008-09 and 2009-10. In case the stand taken by Shri Nilesh Thakur in the appellate .....

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gad 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. Accor .....

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ble 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 AO himself in so far as the AO has restricted the disallowance of interest only till the date when there was positive balance in the current account maintained with the bank. The appellant's A.R"s in support, relied on the decisions .....

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he net profit for the year is ₹ 126,19,01,513/-. The profits of the year are also included in the current overdraft account maintained with "the banks. Thus the funds in the bank account are fungible. The appellant has not made any specific borrowing for the purposes of advancing funds for purchase of land by Sheri Nilesh J. Thakur. Respectfully following the decisions of the Hon'ble Supreme Court in case of Munjal Sales Corporation (supra) and Hon'ble Bombay High Court in the .....

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een source of funds out of which advances were given to its subsidiary companies 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 ₹ 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& .....

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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 .....

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iven to subsidiaries and considering the fungibility of funds and the fact that own funds far' exceeded such loans, it has to be presumed that such interest free loans had been given out of own funds. 5.3 The ld. CIT(A) after considering the submissions of the assessee and cases relied upon on behalf of the assessee, details given at page 18 of the impugned order, held that borrowed funds to the extent of ₹ 9.89 crores was actually utilized for advancing interest free advances to subsi .....

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the decision of the Hon'ble Bombay High Court in the case of Reliance Utilities & Power Ltd., vs. CIT 313 ITR 340 submitted that no disallowance out of interest expenditure is to be made if interest free funds were sufficient to meet the investment made. He further submitted that the Hon'ble Apex Court has also held in the case of S.A. Builders Ltd., vs. CIT, 288 ITR 1 that when loan to its subsidiary is given in the course and for the purpose of business of its business, no disallow .....

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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 .....

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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), wherein it was specifically held that if interest free funds available to an assessee is sufficient to meet its investment, it can be presumed that the inve .....

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ken by the assessee is allowed. " 13.8 Thus, having taken note of the entire facts available on record and also after taking note of appellant's own fund availability, which is evident from the appellant's Balance Sheet, the appellant's own fund was ₹ 500.81 crores, which consists of capital and reserves as on 3! 103108, whereas during the year under consideration, the appellant has advanced ₹ 43.50 crores to Shri Nilesh J Thakur for the purpose of aggregating land i .....

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owance made by the A.O. u/s 36(1)(iii) of the Act of ₹ 34,01,095/- in the given facts of the case is completely unjustified and incorrect. In view of the same, the addition so made by the A. 0. is deleted. Thus, this ground of appeal is allowed. 3.4 In view of my decision in appeal for A.Y.-08-09, wherein the facts are identical to the facts as in the year under consideration, the reopening of assessment in annulled and the disallowance of interest of ₹ 2,46,16,438/- is deleted in th .....

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dings 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 .....

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