TMI Blog2016 (11) TMI 961X X X X Extracts X X X X X X X X Extracts X X X X ..... ing - Held that:- We find that the assessee has already proved before the authorities below that the assessee has incurred expenditure for the purpose of construction and renovation of the hotel for creating some more space/rooms for residential purposes and the source was out of money borrowed from Corporation Bank. We have already decided in grounds no.1 and 2 above that the source of renovation and repairs were out of funds arranged from the Corporation Bank by the assessee firm. Accordingly we are of the considered opinion that money spent by the assessee towards construction and renovation in the block of assets was eligible for depreciation as the same was being used for the purpose of business of the assessee as the fact of expenditure having incurred on renovation was proved - Decided in favour of assessee Disallowance of interest paid to the Corporation Bank - Held that:- We find that the assessee has already proved that the renovation and construction of hotel out of funds borrowed from the Corporation Bank which has already been elaborately discussed while deciding grounds of appeal no.1 and 2 of this appeal and decided in favour of the assessee. In our opinion, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) for the assessments years 2008-09 and 2009-10 respectively. Since these appeals before us pertain to the same assessee, therefore, for the sake of convenience, they are clubbed together, heard together and are being disposed of by this consolidated order. 2. ITA No.4075/Mum/2011( by the asseseee) Grounds of appeal taken by the assessee are as under : 1. On the facts and in the e circumstances of the case, the learned Commissioner of Income Tax (Appeals) erred in upholding the addition of ₹ 6,76,23,000/- made by the AO as unexplained investment u/s.69 on the basis of noting made in page 4 and 5 of the loose papers file Annexure A found and impounded at the premises of the appellant. 2. On the facts and in the circumstances of the case, the learned Commissioner of Income tax (Appeals) erred in upholding the addition of ₹ 11,97,000/- made by the Assessing Officer as unexplained expenditure u/s.69C of the Income Tax Act, 1961. 3. On the facts and in the circumstances of the case, the learned Commissioner of Income tax (Appeals) erred in upholding the disallowance of depreciation of ₹ 22,99,096/- made by the Assessing Officer in the absence of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) as made by the AO u/s 69 as unexplained investment on the basis of incriminating materials comprising loose papers found during the course of survey and the issue raised in ground no.2 is against the upholding an amount of ₹ 11,97,000/- by the ld.CIT(A) as made by the AO u/s 69C of the Income Tax Act, 1961 as unexplained expenditure. Both these grounds are being decided together . 5. Facts in brief are that during the course of survey proceedings on 11 th /12th May, 2007 made on the premises of the assessee, the survey team found that some loose papers numbered as 4 5 file-A which were confronted to the assessee during survey. In the said loose papers the total amount of ₹ 6,88,22,000/- was shown as expenditure in cash and the assessee was requested to identify the various heads under which the above amounts have been spent during the recording of statement u/s 131 of the Act on 12.05.2007. The assessee replied to question no.11 that he was not able to identify the heads under which the said amounts were spent and therefore he voluntarily offered this amount for taxation of ₹ 6,88,22,000/- as additional income over and above the regular income for the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e replied that these parties were suppliers of furniture, fixtures, building material, electrical fittings etc. The assessee was also asked to tally the figures on the left hand side(receipts)with the figures of the right hand side(payments), which according to the assessee were not exactly tallied because these were estimated figures. The assessee clarified Corp Cash represented the payment received from Corporation Bank and the assessee time and again submitted that the said cash received from the parties who provided accommodation entries after commission of one per cent was used in the construction of hotel. The details of parties in whose names the pay orders were issued by the assessee were also given by the AO at page no.5 of the Assessment Order. Lastly, the assessee submitted that since the source of expenditure of ₹ 6,88,22,000/- was fully explained out of the cash taken/returned by the five suppliers/contractors to whom the bank directly issued pay orders and thus sources of expenditure were fully explained and no additional income of ₹ 6,88,22,000/- could be offered in the hands of the assessee for the assessment year 2007-08. During the assessment proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d named bogus parties as contractors, that these parties issued accommodation bills and on receipt of the pay orders from the bank, discounted them for a fee @ 1 % and then returned the balance amount in cash to the appellant. Though the method of financing construction as claimed is ingenuous, the appellant has not been able to support his claim, either by producing the parties who furnished accommodation bills and after discounting returned the money to the appellant, the Assessing Officer's enquiries have also not been able to prove the existence of the parties at the addresses provided by the appellant, nor has the appellant been able to provide the bills furnished by the contractor's/workmen from whom he claims to have ultimately got the work done, nor has the appellant even produced any of such contractors/workmen. Further the amounts mentioned at pages 4 5 of the impounded papers (Rs. 6.88 crore) referred to by the Assessing Officer do not match with the amount of pay orders issued by Corporation Bank (Rs.7.85 crore). Even if the explanation of the appellant that the amounts mentioned are amounts disbursed by Corporation Bank less the discounting fee, (of 1%), the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee carried out the renovation and restoration work of hotel during the said period. Once it was accepted by the AO that that renovation has taken place, the same would definitely require funds for renovation and only source of the assessee was by way of loan from Corporation Bank. It was also corroborated from the loose papers impounded during the search /survey operation which stated the source of funds for making various payments as detailed therein from the Corporation Bank. The ld. AR further argued that the AO could not establish that there was any other source of money available with the assessee apart from the loan from the Corporation bank which was used for the purposes of renovation and the modus operandi was that the assessee was to get pay orders issued in the name of material suppliers and contractors who actually were not carrying out the work and accordingly arranged the pay orders in their names who after deducting 1% commission returned cash to the assessee. Ultimately, the assessee paid the said money to the material suppliers and contractors who actually undertook and performed the renovation work of the hotel. The ld. AR submitted that the findings of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the addition of ₹ 2,62,40,000/- was based on same loose papers no 4 and 5 has deleted by the by the CIT(A) which was upheld by the Tribunal and therefore the addition of ₹ 6,88,22,000/- made in the case of M/s Alliance Hotel for the assessment year 2007-08 on the same materials could not be survived and sustained in the hands of the assessee as being without any basis and based on surmises and conjectures. The ld AR argued that the addition of ₹ 6,76,23,000/- made u/s 69 of the Act as unexplained investments deserved to be deleted on the same analogy as the similar additions made on the basis of loose paper no 4 and 5 were deleted by CIT(A) and upheld by the Tribunal specially in view of the fact that the renovation and repairs were duly explained with sources out of the loan taken from the Corporation Bank, and praying that the addition of ₹ 6,76,23,000/- be deleted. Similarly, an amount of ₹ 11,97,000/- was incurred as expenditure on renovation of hotel and on the same analogy the said addition be deleted in view of the facts and arguments considered by the Mumbai Bench of the Tribunal in the case of Shri Parvez Mohammed Hussain Ghaswala(supra). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered the rival submissions and perused the material placed before us including the orders of authorities below. We find that a survey was conducted u/s 133A on the assessee on 11th and 12th May, 2007 and a surrender/disclosure of ₹ 6,88,22,000/- was made on 12.5.2007 at the time of recording the statement u/s 131 of the Act in relation to the assessment year 2007-08 when the Mr Kashan Ghaswala a partner in the assessee firm could not explain the entries in the loose sheets no 4 and 5 containing some cash receipts and payments of ₹ 6,88,22,000/-. We further find that in the second statement recorded on 15.05.2007, Mr Kashan Ghaswala stated in reply to query no 2 that the said expenditure was incurred out of bank loan taken from Corporation Bank. The surrender/disclosure was retracted by the assessee vide letter dated 4.6.2007 filed on 7.6.2007. At the time of the survey, the assessee could not explain the source of ₹ 6,88,22,000/- and various heads under which the expenditures were incurred and debited. However, in the retraction letter, the assessee submitted that the expenditure was incurred on the hotel renovation as recorded at page 4 and 5 of the impound ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... coordinate bench while adjusting the one of another partner in the assessee firm by holding that the M/S alliance Hotel carried out some illegal renovations and repairs which were subsequently demolished as evident from the order of Brihyan Mumbai Mahanagar Palika bearing no. ACA/180/MOH-A/di 19.03.2009. The source of such expenditure was out of loan taken by the assessee from the corporation bank. In our opinion, the whole exercise of revenue was based on conjectures and surmises and there was no material on record which proved that the renovation work was met out of money other than the borrowed from the Bank, nor could the AO or ld.CIT(A) record any findings that the assessee had any other source of income apart from its regular income of the assessee. In our opinion, the assessee has explained the source of expenditure and the nature of expenditure incurred and therefore the Additions made by the AO u/s 69 of the Act as unexplained investments of ₹ 6,76,23,000/- and u/s 69C of the Act unexplained expenditure of ₹ 11,97,000/- could not be sustained in the present facts and circumstances. Moreover, the co-ordinate bench of the Tribunal in the case of Shri Parvez Mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the premises of Alliance Hotel during the course of search action and not from assessee. Papers found were not in his handwriting. The partner of Alliance Hotel, Shri Kasam Ghaswala in his statement has stated that payment made to Parvez Sir is not the amount paid to the assessee. Neither the survey party nor the Assessing Officer of Alliance Hotel recorded the statement of assessee. Assessee, in his statement before the Assessing Officer, has categorically stated that he is not Pervez Sir as mentioned in the papers found from the premises of Alliance Hotel. Assessee also objected to the action of the Assessing Officer in making addition under section 69 of the Act. For invoking provisions of section 69 of the Act assessee should be the owner of any money, bullion, jewellery or any other valuable articles. In this case of assessee he was not found to be the owner of any money, bullion, jewellery or any other valuable articles in previous year relevant to assessment year. In such a situation invoking of provisions of section 69 was not justified. The entries made on pages 4 5 of the impounded papers were not made contemporaneously. The right hand top corner of page 5 show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Assessing Officer of Alliance Hotel did not make any separate addition of ₹ 40,00,000/-. In fact in the aforesaid computer sheet did not add this amount to the total income of Alliance Hotel. This sum of ₹ 1.08 Crores included the sum of ₹ 4000,000/-, added by Assessing Officer of the assessee to the total income of the assessee. Thus, Assessing Officer of Alliance Hotel was of the opinion that over and above ₹ 2,62,40,000/-, no further addition of ₹ 40,00,000/- is required to be made. In view of our discussion coupled with the fact that provisions of section 69A has no application on the act of assessee s case therefore, the addition of ₹ 40,00,000/- made by Assessing Officer under section 69A of the Act was rightly directed to be deleted. Accordingly, both the additions of ₹ 2,62,40,000/- plus ₹ 40,00,000/-, aggregating to ₹ 3,02,40,000/-, were rightly directed to be deleted. This reasoned findings of the CIT(A) need not any interference from our side. We uphold the same. In the result, appeal of the Revenue is dismissed. 10. From the above facts and discussions, we find that the coordinate bench of the Tribunal has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,01,143/-. As the assessee has capitalized only ₹ 4,59,81,928/ out of the above in the AY 2007-08. Hence the depreciation on the same being ₹ 22,99,096/- is disallowed in the AY 2007-08. Depreciation on the rest of the additions will be disallowed in the year of addition. Similarly the depreciation on the addition of ₹ 4,59,81,928/- will not be allowed in the subsequent years also. Thus the depreciation on the additions to the capital assets, unsupported by the vouchers, cannot be allowed because of the following reasons: The assessee in the course of the survey operation u/ s 133A admitted the unaccounted expenditure of ₹ 688.20 lacs. Later he retracted his statement and to explain the papers he took resort of dual explanation. On the one hand he explained that the source of the funds was loan from the bank. On the other hand, he contended that the expenditure mentioned in the sheet is the expenditure for the renovation of the hotel. He indeed capitalized the same, without the bills supporting that. In the FY 2006-07, as per the submissions of the assessee, he capitalized ₹ 4,59,81,928/- of expenses. The assessee failed to produce the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent case the appellant has not proved the capital expenditure incurred 14. Before us, the ld.AR vehemently submitted that the assessee has actually incurred capital expenditure under specific heads of fixed assets and capitalized in the relevant block of assets details whereof were also filed before the AO. The ld counsel further submitted that said additions/capital expenditure were met out of the loan from Corporation Bank. Accordingly the depreciation was claimed on hotel building which was being used for the purposes of business of the assessee of running the hotel and benefit of depreciation could not be denied to the assessee and prayed that the claim of the assessee be allowed. 15. The ld. DR, heavily relied on the orders of authorities below and prayed that the order of ld.CIT(A) be upheld on this issue. 16. After considering the rival submissions and on perusal of material including the orders of authorities below, we find that the assessee has already proved before the authorities below that the assessee has incurred expenditure for the purpose of construction and renovation of the hotel for creating some more space/rooms for residential purposes and the sourc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re u/s 69C of the Act. 22. During the course of assessment proceedings, the AO provided with 16 page printout, numbered 1-16 of the files recovered from the assessee s premises, which the assessee disowned during the course of assessment proceedings, and therefore the AO not satisfied and convinced with the reply of the assessee ultimately made an addition of ₹ 2,02,66,000/- as unexplained expenditure u/s 69C of the Act on the basis of the said papers which contained some cash transactions of receipts and payments. 23. During the course of appeal proceedings, the ld. CIT(A) partly allowed the appeal of the assessee by deleting the addition to the extent of ₹ 1,57,85,000/- and sustained the remaining amount of ₹ 44,81,000/- by observing and holding as under : 5.3 The assessment order, submissions made for the appellant and materials on record have been considered. The computer was found' in the premises of and under the control of the appellant and thus the presumption is that the entries found recorded in the files on the computer belong to the appellant which presumption has not been rebutted. The appellant has merely denied the same which is not s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l income filed at pages 39 to 40 of the paper book, wherein a sum of ₹ 50 lakhs was shown as income to cover all defects and discrepancies as filed at page 39 of PB which is extracted below:- Add: income offered to cover any expenses, noting jottings, shortfall in cash expenses, or any other item, any defect, in reconciliation of the impounded material, any defect in the regular books of accounts on account of the cash transactions or for any other items of discrepancy which may come upto at alter date. Vide affidavit dated 11.6.2007 We find merit in the contentions of the assessee that since the assessee has already offered and added a sum of ₹ 50 lakhs suo mottu at the time of filing of return and the benefit of unexplained transactions ₹ 44,81,000/- should be allowed to be adjusted against the said voluntary disclosure which was specifically made to cover any expenses , notings or cash transactions as per the affidavit as in respect of suo motto disclosure no other materials was found. We are, therefore, not in agreement with the findings of the ld. CIT(A) in upholding the addition. In our opinion, the same should be allowed to be covered and adjusted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew of the fact that the photocopy of property card filed shows the names of owners as earlier owned by Upadrasta Group which was transferred in the names of Javed Mohd Hussein, Irfan M Yusuf Vaid, Abrar Irfan Vaid (carrying n business in the name and style of Reliable Investments Developers). Further that Shri Javed Mohd Hussian and Shri Javed Ghaswala are one and the same person, no addition can be made in the hands of the appellant in respect of these entries. . Since the entries on file RELlABLE_EXPS.xls pertain to Botawala Building and Upadastras Bldg, Maria Developers, on the same reasoning as in appeal for AY 2006-07, addition in respect of expenses relating to file RELlABLE_EXPS.xls are deleted. 29. We have heard the rival submissions and perused the material placed before us. We find that the ld.CIT(A) has recorded the finding of the facts while deleting the said addition and by holding that the entries in the said papers/sheets did not belong to the assessee or sister concern or its partners. We are in agreement with conclusion drawn by the ld.CIT(A) as nothing to controvert the finding of ld.CIT(A) has been brought before us by the ld. DR. Therefore we dismiss the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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