TMI Blog2017 (12) TMI 1519X X X X Extracts X X X X X X X X Extracts X X X X ..... n of ₹ 30,00,000/- could not be sustained in full as the AO failed to consider the average sale price of the flats, while working out the variation in it. Hence, we approve the assessee’s variation of ₹ 18.88 lakhs say 19 lakhs rounded off). Therefore, we direct the AO to restrict the addition to the said assessee’s offer of ₹ 6 lakhs, which constitutes around 31.50% of the variation of ₹ 18.88 lakhs for this year. In effect, the basis, which is considered prudent by the assessee, while offering the said additional income of ₹ 6,00,000/- is approved. Accordingly ground No. 1 and 2 raised by the assessee in appeal are partly allowed. Disallowance of interest u/s.36(1)(iii) and disallowance u/s. 14A r.w.r 8D - Held that:- On facts, we find the provisions of section 36(1)(iii) of the Act and its proviso and explanation are inapplicable to the facts of this case. Similarly, AO has not properly made out if the provisions of section 14A r.w.r 8D (2) of the I.T Rule apply to facts discussed in his order. Further, the applicability of the provisions of section 37 of the Act is completely given a miss. Further, we find the claim of payment of interest to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee. Considering the fact that the AO failed to bring any evidence on record to demonstrate the bogus nature of the expenditure, in our view, the CIT(A) fairly restricted the disallowance to ₹ 46,475/-. Therefore, we are of the view that decision of CIT(A) is fair and reasonable Difference in sale price of the flats - Held that:- We approved the working of assessee in arriving at the variation of ₹ 18.88 lakhs. For the same reasons, in principle, we find it is appropriate to uphold the decision of the AO in making additions. However, we have considered the fact that on the addition of ₹ 39,48,000/-, the profit rate of assessee for this year is phenomenonally high which is not there in this line of business. Therefore, there is requirement for downward revision of the said adhoc addition. In our view, the principle laid down by us for A.Y. 2009-10 is relevant to this year too. Therefore, we direct the AO to restrict the addition in this year too to 31.50% of the variation calculated adopting the average sale price of the flats sold in this year. AO shall adopt the manner of working the variation in sale price as done by the assessee in the A.Y. 2009- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 ( By Assessee- A.Y. 2009-10) 4. Grounds raised by the assessee in this appeal are as under : 1. On the facts and in the prevailing circumstances of the case, the learned CIT(A) has grossly erred in confirming ad-hoc addition of ₹ 30,00,000/- made on accounts difference in sale rate, even though, all the sales proceeds are duly supported by documentary evidence. Therefore, addition may please be deleted. 2. On the facts and in the prevailing circumstances of the case, the learned CIT(A) has grossly erred in confirming the said ad-hoc addition of ₹ 30,00,000/-, merely because of some flats were sold out below average selling price and below cost price, even though appellant has shown overall a substantial profit at ₹ 2,15,76,850/-, during the year under consideration and Income Tax law does not mandate how tax payers should conduct their business and maximize profits. Therefore, addition may please be deleted. 3. On the facts and in the prevailing circumstances of the case, the learned CIT(A) has grossly erred in confirming the disallowance of interest of ₹ 44,50,212/- under section 36(1) (iii) of the I.T Act and confirming disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of ₹ 6,00,000/- is agreed for addition as discussed and directed by your honor, subject to non initiation of any penalty proceedings. 4.1. Thus, the assessee s written argument has no force. The assessee vide letter dated NIL filed on 11/11/11 has worked out the difference of 3 flats only where the average sale rate was taken only at 1350/- as against the various sale rate quoted above. Thus, keeping all the facts in mind, I make an adhoc addition of ₹ 30,00,000/- on this account for residential flats only. The above letter of assessee contains the details of working of the assessee, who arrived at his figure of ₹ 18.88 lakhs of variation in sale price. By offering ₹ 6 lakhs, the assessee worked out approximately 30% of the said variation as an additional income (Rs.18.88 lakhs x 30/100 = ₹ 6.30 lakhs). Assessee considered the average sale price as the standard one for working out the variation. 6. On this issue, during the First Appellate Proceedings, assessee made written submissions, contents of which are extracted in Para No. 5. of the CIT(A) s Order. In the written submissions, apart from relying on his submissions before the AO, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above decision of the CIT(A) who confirmed the addition of ₹ 30,00,000/-, the assessee raised ground No. 1 and 2 in this appeal. It is the argument of Ld. Counsel of the assessee that making such an addition of ₹ 30,00,000/- on ad-hoc is unsustainable when sell proceeds are duly accounted and the transactions are supported by documentary evidence. He further argued that when the overall profits of project is substantially high then profit loss account should not be correct in the books of account maintained by the assessee. Further, Ld. Counsel for the assessee submitted that it is merely a case of ad-hoc addition. Therefore, the addition of ₹ 30,00,000/- requires to be deleted. 8. Per contra, Ld. DR for the Revenue argued vehemently and stated that variation in the per sq. ft sell price of the flats of the project is extremely high. There is huge gap between cost of construction and cost of sale of the constructed area and the same is unexplicable. AO treated the explanation of the assessee as very general. AO analyzed each of the assessee s explanation and rejected the same as general in nature. General explanation include (1) giving discount for initial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch, the AO did not have any direct evidence to demonstrate that the sale price is received by the assessee in cash in part and the same is unaccounted in the books of account. Therefore, it is not a case of outright suppression of sale proceeds. AO also failed to prove the fact of granting discount towards bulk purchases, known persons and the social obligations etc., is not genuine. Therefore, in our view, it is a case of ad-hoc addition. Of course, all is not well with the sale prices recorded by the assessee in the books of accounts and there is need for some addition of income. It is a settled legal proposition that in principle, the business discounts constitute an allowable deduction. However, the discounts given for personal reasons are not allowable. From the list of such discounts-beneficiary, we find all the discounts are not business linked discounts. For example, the lower sale price given in respect of flats sold to the landlord, Govt. authorities etc. Further, at the same time, we find that it is a case of AO directing the assessee to do his business of sale flats in a particular fashion in matters of granting such discount ignoring practical obligations and social ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid to four co-owners of the land and the same was paid despite absence of any specific clause in the agreement enabling the assessee to pay for said interest payment for delay, if any. Doing assessment proceedings, AO noted that assessee never borrowed any funds and therefore, held that the said payment of interest is not for business purpose. Therefore, AO disallowed the entire amount u/s. 36(1) (iii) of the Act r.w.s 14A of the Act. Another amount of ₹ 25,114/- i.e. 0.5% of investment is also disallowed u/s. 14A of the Act r.w. Rule 8D of the I.T Rules. 14. During First Appellate Proceedings, CIT(A) discussed this issue in Para No. 6.4 of his order and confirmed addition in the following manner. The contents of Para No. 6.4 are extracted as under : In view of the above, disallowance of interest of ₹ 44,50,202 shown to have been paid to Shri Rahul, Shri Sushil K. Bafna, Shri Rajkumar Bafna and Shri Siddharth Bafna is confirmed. Further, a perusal of Audit reports for AYs 2008-09 and 2009-10 reveals that the appellant had made investments in Mutual funds, agricultural lands and Raj Ginning and Pressing (P) Ltd. amounting to ₹ 49,22,850/- and ₹ 51,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts or otherwise. AO shall examine all parameters while deciding the issue by passing a speaking order on each of the objection raised by the assessee. Accordingly, ground No. 3 raised by the assessee is allowed for statistical purposes. 18. In the result, appeal of the assessee is partly allowed for statistical purposes. ITA No. 902/PUN/2013 ( By Revenue-A.Y. 2009-10 ) 19. In the Revenue has raised following grounds of appeal : 1. On the facts and circumstances of the case Ld. CIT(A)-II, Nashik erred in deleting the addition made by AO out of sale of shop made below market price to the partner by ₹ 2,44,62,169/-. The addition is made by AO after taking into consideration the factual position. 2. On the facts and circumstances of the case Ld. CIT(A)-II, Nashik erred in not accepting the suppression of sale proceeds worked out by the AO. 3. On the facts and circumstances of the case Ld. CIT(A)-II, Nashik erred in deleting unexplained investment in plot u/s.69B ₹ 8,37,72,550/-, when the addition made by AO was the basis of Stamp Duty Valuation in view of provisions of Section 50C of the I.T Act, 1961. 4. On the facts and circumstances of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O rejected the same and proceeded to make addition of ₹ 2,44,62,169/- being difference between the sell price and the market value. 21. In the First Appellate Proceeding, on this issue, the assessee made various submissions the details of which are provide in Para No. 6.3. Finally, CIT(A) deleted the addition as per discussion given in Para No. 6.3.5 of the impugned order. The contents of the same are extracted as under : 6.3.5 In the facts and circumstances of the case and taking into consideration the legal provisions in this regard the addition of ₹ 2,44,62,169/- in the hands of the appellant is deleted. The AO is however, directed to take the follow up action if any, in this regard in the year when sale deed is registered in the favour of Smt. Taradevi Ratanlal Bafna. 22. Before us, Ld. DR for the Revenue relied on the order of AO. Per contra, Ld. Counsel for the assessee submitted to consider the fact of giving discount to Smt. Taradevi Ratanlal Bafna after analysing the reasons submitted by the assessee. The discussion is given in pages 30 and 31 of the impugned order. The same reads as under : i) The AO ascertained position of shops constructed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the difference between cost price and market price does not amount to profit, there is no case for addition as made out by the AO. 23. The above reasons given by the assessee are exhaustive. No evidence is brought on to the records by the AO to controvert the same. It is known practice in the market that the initial customers enjoy huge discount in the sale price. Further, the early payers of consideration also enjoy the discounts in sale prices. In this case, Smt. Taradevi Ratanlal Bafna with 60% share in the firm, gave huge deposit/advance of ₹ 5 Crore well in advance before construction really commenced. She also set a trend for good precedent of sales to the assessee of the constructed area for the later buyers in the market. 24. Considering the above submission, we find that the discussion of granting discount to Smt. Taradevi Ratanlal Bafna constitutes a case of commercial expediency. Merely rejecting the assessee submissions by the AO without disapproving the assessee s claim when documentary evidence, is not sustainable. Therefore, the provision of section 28(iv) is not relevant to this issue. The said provisions are relevant, when the benefit is accrued to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29. The CIT(A) discussed this issue and restricted to the disallowance of ₹ 1,46,475/- on adhoc basis to the sum of ₹ 46,475/-and allowed balance amount of ₹ 1 Lakh in favour of the assessee. Revenue is aggrieved on this relief. 30. Before us, Ld. DR for the Revenue submitted for confirming the addition made by the AO. Per contra, Ld. A.R. requested for confirming the order of the CIT(A). 31. We heard both the parties and perused orders of the Revenue in general and the contents of Para 6.2 of the CIT(A) s order is particular. We find the said para is required to be extracted as under : 6.2 I find that the appellant during the assessment proceedings agreed for an addition of ₹ 46,475/- subject to non-initiation of penalty. The AO however, did not agree to the contention of the appellant and made the addition of ₹ 1,46,475/-. During the appellate proceedings the appellant has furnished details of the aforesaid expenditure. AO's contention that the work was given to a sub contractor and hence there was no need on the part of the appellant to have incurred such expenditure is simply AO's personal opinion with no sound reasoning. Ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 8D. Therefore, addition may please be deleted. 35. The general facts relating to the assessee were already narrated in the preceding paragraphs. We shall now take up the facts relating to each of the ground in the following paragraphs. 36. Ground No.1 raised by the assessee relates to the addition of ₹ 39,48,000/- on account of difference in sale rates of the flats. This issue is identical to the Ground No.1 of the appeal in ITA No.706/PUN/2013 for the A.Y. 2009-10. In that year, the addition of ₹ 30 lakhs was made on adhoc basis against the offer of ₹ 6 lakhs by the assessee during the assessment proceedings. In the said assessment order, the AO held that there was variation in sale rates of flats. In response, the assessee submitted that the reasons for variation in rates are identical to the ones already discussed in connection with the addition of ₹ 30 lakhs in the A.Y. 2009-10. To summarise, the discount, is offered in certain cases where there are bulk purchases, where the buyers are known authorities of the Government, lower floors, higher floors, flats etc. These reasons were considered very general and rejected the same. The discussion gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not wholly and exclusively for business purposes. We have given similar finding in the identical issue pertaining to the appeal of the assessee for the A.Y. 2009-10 in the preceding paragraphs of this order. We have considered the un-retracted letter of the assessee for the A.Y. 2009-10 whereby assessee offered additional income of ₹ 6 lakhs and confirmed the said offer of ₹ 6 lakhs for the detailed reasons given by us. In principle, we dismissed the addition of ₹ 30 lakhs in that year giving reasons. We approved the working of assessee in arriving at the variation of ₹ 18.88 lakhs. For the same reasons, in principle, we find it is appropriate to uphold the decision of the AO in making additions. However, we have considered the fact that on the addition of ₹ 39,48,000/-, the profit rate of assessee for this year is phenomenonally high which is not there in this line of business. Therefore, there is requirement for downward revision of the said adhoc addition. In our view, the principle laid down by us for A.Y. 2009-10 is relevant to this year too. Therefore, we direct the AO to restrict the addition in this year too to 31.50% of the variation calcul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .s.14A of the Act in making said disallowance. CIT(A) confirmed the same as per the discussion given in page 27 of his order. 47. Before us, Ld. Counsel for the assessee fairly mentioned that this issue can also re-visit to the file of the AO for fresh adjudication on the fact that there is no need for disallowance on account of clause 8D(2)(ii) and 8D(2)(iii). Further, he submitted that assessee is having excess interest free funds to meet the investment which yielded exempt income of ₹ 57,055/-. He also submitted that the AO need to consider the settled legal propositions on this issue of disallowance u/s.8D(2)(i) of the I.T. Rules, 1962. 48. On hearing both the parties, we are of the view that this issue also should be remanded to the file of AO for fresh adjudication. AO is directed to apply binding judgments on this issue relating to investment of the excess funds qua the applicability of the provisions of section 14A of the Act. AO is directed to grant reasonable opportunity of being heard to the assessee in accordance with the set principles of natural justice. AO is also directed to follow the precedents if any on this issue. Accordingly, Ground No.4 raised by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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