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2016 (4) TMI 699 - ITAT AHMEDABAD

2016 (4) TMI 699 - ITAT AHMEDABAD - TMI - Disallowance of interest expenses - Held that:- Once it is established that there is nexus between expenditure and the purpose of business “which need not necessarily be the business of the assessee itself”, the revenue cannot justifiably claim to put itself in the arm-chair of businessman or in position of Board of Directors and assume role to decide how much is reasonable expenditure having regard to the circumstances of case. No businessman can be com .....

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he ld. CIT(A) and direct the A.O to delete the addition - Decided in favour of assessee - ITA. No: 290 & 64/AHD/2012, ITA. No: 291/AHD/2012 - Dated:- 26-2-2016 - SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI S.S. GODARA, JUDICIAL MEMBER For The Appellant : Shri R.P. Maurya, Sr. D.R. For The Respondent : Shri S.N. Divetia, AR. ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. ITA Nos. 290/Ahd/2012 & 64/Ahd/2012 are cross appeals by the assessee against the very same order of the ld. CIT(A)-II .....

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grievance of the assessee relates to the disallowance of interest expenses of ₹ 48,74,798/-. 4. While scrutinizing the return of income, the A.O found that the assessee has shown net loss of ₹ 28,16,606/- as per financial services trading account. The A.O further noticed that the loss is on account of receipt and payment of interest. The A.O found that the assessee has received interest of ₹ 31,77,516/- and has paid interest of ₹ 56,41,978/- to Rajeev Enterprise. The A.O .....

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e has been charging interest @ 12% on loans and advances to other entities. The A.O was of the firm opinion that by charging lesser rate of interest @ 6%. the assessee has incurred a revenue loss on account of interest earning to the tune of ₹ 48,74,798/- because if the assessee had charged interest @ 12%, he would have received further interest of ₹ 48,74,798/-. The A.O. accordingly disallowed ₹ 48,74,798/- out of total interest paid by the assessee. Thus, the total disallowan .....

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r the purchase of land. It was brought to the notice of the ld. CIT(A) that from the land business, the assessee has made a gross profit of ₹ 5.45 crores. Thus, it can be seen that the funds have been utilized for the purposes of business. It was further brought to the notice of the ld. CIT(A) that the Rajeev Enterprise has received interest amounting to ₹ 52,56,223/- and has paid interest of ₹ 56,41,978/-. Thus, there was only a difference of ₹ 3,85,755/- and not ₹ .....

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sessee could sell its investment in land at Tragad - Narol and Sarkhej Okab area. It was brought to the notice of the ld. CIT(A) that the assessee is not charging any interest on the deposits and credit balance with the sister concern. After considering the facts and the submissions, the ld. CIT(A) was of the opinion that there is no business nexus of the assessee with sister concern, RJD Impex Pvt. Ltd. and accordingly confirmed the disallowance of interest of ₹ 48,74,79/-. 9. Aggrieved b .....

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ge profits in land dealings arranged by M/s. RJD Impex, therefore, the disallowance of interest is against the facts of the case since the transaction is purely on the grounds of commercial expediency. Per contra, the ld. D.R. strongly supported the findings of the ld. CIT(A) on this count. 10. We have given a thoughtful consideration to the orders of the authorities below. The issue before us is to decide whether by charging lesser rate of interest whether the assessee has diverted the borrowed .....

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see itself , the revenue cannot justifiably claim to put itself in the arm-chair of businessman or in position of Board of Directors and assume role to decide how much is reasonable expenditure having regard to the circumstances of case. No businessman can be compelled to maximize his profit and that the revenue authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that o .....

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o delete the addition of ₹ 48,74,798/-. 14. Appeal filed by the assessee is accordingly allowed. Coming to Revenue s appeal in ITA No. 290/Ahd/2012 15. The second grievance of the revenue is against the deletion of the disallowance of interest of ₹ 24,30,996/-. 16. A perusal of the factual matrix shows that the proprietary concern of the assessee M/s. Rajeev Enterprise has not used the funds for non-business purposes in fact the funds from Rajeev Enterprise have been diverted to othe .....

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e s appeal show that during the course of the scrutiny assessment proceedings, the A.O found that the assessee has shown land at Adalaj under the head stock-in-trade at ₹ 32,32,825/-. On perusal of the details filed by the assessee, the A.O found that the assessee had purchased the said land from Shri Hemendra Shah vide sale deed no. 12445 dated 08/10/2007 for a consideration of ₹ 61 lakhs. After adding stamp duty and other expenses, the total cost of the land was at ₹ 64,65,65 .....

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n for the purchase of said land since the total consideration shown by the assessee co-owner was at ₹ 61 lakhs. The A.O made an addition of ₹ 149 lakhs and divided the addition in the hands of the assessee at ₹ 74.5 lakhs and in the hands of the coowner Smt. Ashaben Desai wife of the assessee ₹ 74.5 lakhs. 19. Aggrieved by this the assessee carried the matter before the ld. CIT(A). It was strongly submitted before the ld. CIT(A) that in the statement none of the Thakor fa .....

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reed to be sold to Shri Hemendra Shah. For this purpose power of attorney was given by Shri Gandabhai Makwana, the original owner of the land, in favour of Shri Abbasbhai Malik, a broker. According to Shri Gandabhai Makwana, the land was subsequently sold by Shri Abbasbhai Malik without his knowledge to Shri Hemendra Shah for which total consideration of ₹ 57 Lacs was received. Out of this amount, ₹ 7 lakh was stated to have been received by Shri Gandabhai Makwana at the time of bana .....

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st the title clearance and consequently the sale deed dated 21/9/2007 with Shri Hemendra Shah was cancelled on 21/6/2008. The land was then sold by Shri Gandabhai Makwana to Shri Manibhai V Patel and others (total six co-owners) on 11/8/2008 for total consideration of ₹ 2.10 crores (the documented price of the land was shown at ₹ 53.5 Lacs). In the statement recorded during the course of search on 15/10/2008 Shri Gandabhai Makwana and other family members stated that they had receive .....

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basis of the statements recorded during the course of search in the case of Gandabhai Makwana and other family members, the AO came to the conclusion that the actual price of the land was ₹ 2.10 crores and therefore, the appellants must have paid ₹ 2.10 crores to Shri Hemendra Shah. On this presumption, he made the addition of the cash component of ₹ 1.45 crores (Rs.72.50 Lacs each) in the hands of the appellants. As can be seen from the above mentioned sequence of events, nei .....

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