TMI Blog1997 (2) TMI 578X X X X Extracts X X X X X X X X Extracts X X X X ..... recorded in our order disposing of the aforesaid appeal, we set aside the appellate order on this ground and restore the issue to the file of the first appellate authority with a direction to reconsider the claim of the assessee after considering full facts of the case and after bringing on record appropriate material and finding after giving reasonable opportunity to the assessee as also to the Assessing Officer. 4. The next ground relates to an addition of ₹ 19,60,000 added as unexplained cash credits in the assessment as also against disallowance of interest of ₹ 8,94,364 on the basis that conditions laid down under section 36(1)( iii ) could not be said to have been fulfilled so as to allow the claim of interest on such loans. In this regard it would be appropriate to read the relevant portion of the assessment order extracted below : As regards the letter filed by the assessee as mentioned above, the assessee has made false statement in writing which stated that local brokers have appeared before me for verification of loans. In fact no one attended before me anytime either in past or in present. This fact has already been told to Shri A.G. Joshi, C.A. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red only is interest on security deposits from the abovesaid companies. 7. Income declared by the assessee in the last five years is given as under :- Assessment year 1984-85 Loss ₹ 1,65,570 Assessment year 1985-86 Loss ₹ 81,040 Assessment year 1986-87 Loss ₹ 8,03,060 Assessment year 1987-88 Loss ₹ 2,42,096 Assessment year 1988-89 Loss ₹ 7,17,620 The assessee has not been able to prove the purpose for which loan has been taken. In view of this, assessee has failed to prove that the conditions of the provisions of section 36(1)(iii) are fulfilled to claim the interest on such loans. In view of the same, whole interest of ₹ 8,94,364 so claimed is disallowed and added to the total income of the assessee. 5. In appeal, the CIT(A) observed that the assessee had not furnished any evidence in the form of confirmatory letters or other evidence showing the capacity and creditworthiness of the parties from whom the loans were allegedly raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioned additional evidence under rule 29 of the Appellate Tribunal Rules, 1963 for the reasons given against the respective items : Sr. No. in the Index of Paperbook Description Page No. of Paper book Reasons (1) (2) (3) (4) 28. Accounts of individual parties of broker Suchdev Co. 62-84 29. Accounts of individual parties or broker Sanjay Co. 85-104 30. Letter dated 17-2-1992 to DC which was possibly not accepted by him. 105-122 Pages 105 to 122 were tendered by the CA to the DC but the same was probably not taken on record. 31. Documents prepared for which were possibly not accepted by him. 123-180 Pages 123 to 180 were tendered by the CA to the CIT(A) but the same was probably not taken on record. 32. Confirmation, suits f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission of the same keeping in mind the ends of justice. 9. Considering the material to which our attention was drawn, we are of the opinion that the assessee s application under rule 29 of the Appellate Tribunal Rules for admission of the additional evidence be rejected. As stated earlier, though a specific ground was raised as stated in the memo of appeal when the appeal was filed by the assessee that the CIT(A) erred in not admitting the paperbook presented at the time of hearing of the appeal, yet this ground was expressly not pressed before the Tribunal. Such being the position, in our humble opinion the assessee ought not to have subsequently pressed for the same in other way vide an application dated 23-7-1993 under rule 29 of the Appellate Tribunal Rules. Because both these actions on the part of the assessee are somewhat contradic- tory. The appellate order does not make any mention in connection with the request of the assessee for filing of the additional paperbook. It appears the assessee has also not made any attempt to file the same in tapal together with the prayer in writing for taking on record the additional paperbook. Besides why this evidence could not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontinued its business during the relevant accounting year. 15. The first aspect of ground No. (1) was not admitting the paperbook by the CIT(A) which was presented at the time of hearing of the appeal. Assessee furnished papers bearing pages 123-180 of Volume II before the CIT(A). They were not taken on record by the CIT(A). A paperbook bearing pages 1 to 83 was filed before the Tribunal. Assessee applied for admission of documents of pages 62 to 275 under rule 29 of the ITAT Rules. The assessee mentioned in its application that he did not file these papers before the CIT(A) because of probability of not taking on record. The assessee mentioned that it produced the papers before the CIT(A). 16. On verification of the said papers, it was found that all these papers which were sought to be admitted were part and parcel of a letter dated 17-2-1992. However, the Assessing Officer said that there was no reply to his letter dated 23-1-1992 but it becomes clear that the letter bearing date 17-2-1992 was filed. It was vehemently submitted in this respect on behalf of the assessee that the said letter was filed on record. According to the assessee, it was filed before the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who had already appeared before the Assessing Officer during the earlier assessment years. This fact was not disputed on behalf of the Department. This fact is supported by the contents of page 35 of the paperbook. It was further submitted that the assessee was running into losses and therefore it could not file confirmatory letters. The assessee could not repay the loans to the parties and hence the parties did not sign the confirmation letters in time. Time given to the assessee was also short as confirmations had to be obtained from several parties - about a hundred. The assessment proceedings were commenced on 26-12-1991. The Assessing Officer passed the assessment orders on 25-2-1992. Thus, the whole assessment was completed within 2 months of its commencement. As it is already mentioned above, that the assessee could not file confirmatory letters before the Assessing Officer and by letter dated 17-2-1992, assessee sent enclosing hundi khokhas for verification. A bank file was also produced for verification as this fact bore from page 105 of the paperbook. The Assessing Officer did not say whether letter dated 17-2-1992 was considered by him. The assessment order cannot be sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest in the partnership firm. In January 1984, the company appointed the partnership firm as one of the selling agents for Bombay, Madras and Bangalore for its Rayala Commercial Complex at Madras. By letter of appointment, the assessee is entitled to 2 per cent commission in respect of the space booked by the firm, i.e., the assessee. The assessee is required to deposit up to ₹ 50,00,000 by way of security deposit which is to carry interest at the rate of 18 per cent. Similarly in May 1984, the company appointed the assessee-firm as one of the selling agents in Bombay for sale of flats in Charles Court at Bangalore for which the assessee is to get commission at the rate of 2 per cent in respect of the space booked, whereas the assessee is obliged to keep security deposit up to ₹ 20,00,000 which is to carry interest at 18%. Right from assessment year 1984-85, the assessee has been making continuous losses. Besides these two agreements, the assessee-firm has not undertaken any transac-tion on behalf of any other outside party. The Assessing Officer found that though in earlier years the assessee had earned some commission yet in this year there was no income by way of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made interest income from any other party except interest on security deposits. Apart from the interest the assessee has also incurred expenditure by way of discount of ₹ 1,97,000 plus as also brokerage of ₹ 57,000 plus. The net loss of ₹ 7,00,000 plus is carried to the balance sheet and added to the loss of the earlier year as shown in the balance sheet. The accounts of the partners are not before us and, therefore, we find some substance in the grievance raised by the Assessing Officer that the real picture of the assessee s business activities is not available from the material and the explanation brought on record. The CIT(A) has not given attention to this aspect of approach adopted by the Assessing Officer. Even if it is assumed that the assessee is carrying on business yet the expenditure by way of interest, etc., can be allowed only in respect of the borrowings which are utilised for the purpose of business. In the absence of necessary details, regarding utilisation of the borrowed funds in the context of disparity as pointed out earlier between the interest income and the interest expenditure, the CIT(A) ought not to have granted relief to the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receive commission at the rate of 2 per cent. 10. Pages 6 7 of the paperbook clarify that by letter dated 28-5-1984, M/s. Vira Properties Pvt. Ltd. (Bangalore) appointed the assessee as selling agent for flats in Charles Court, Bangalore. The assessee was required to pay security deposit of ₹ 20 lakhs carrying interest @ 18 per cent per annum and on the sale of flats booked by the assessee, the assessee was entitled to receive commission @ 2 per cent on the sale of the premises. 11. Page 13 of the paperbook clarifies that by letter dated 28-6-1986, the assessee demanded a commission of ₹ 65,985 @ 2 per cent on the sales of ₹ 32,99,275 in Charles Court from M/s. Vira Properties Pvt. Ltd. (Bangalore). By another letter dated 28-6-1986, the assessee demanded a commission of ₹ 1,94,520 @ 2 per cent on the sales of ₹ 97,26,000 in Rayala Commercial Complex from M/s. Vira Properties (Madras) Pvt. Ltd. The contents of page 107 of the paperbook clarify this fact. 12. The assessee filed its return of income for assessment year 1987-88 on 30-11-1986 declaring an income from commission of ₹ 2,60,505 received by it. The contents of pages 104 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses and require to be allowed as deduction. 16. Therefore, there is no good cause to set aside the issue and to remit the matter back on this point to the CIT(A) as all documents pertaining to the same were examined by the Assessing Officer as well as the CIT(A). Moreover, no fresh evidence has been brought on record for which the CIT(A) s order can be set aside and the matter can be remitted. The Assessing Officer has not brought on record to make the disallowance. The disallowance was not proved by him and there was no iota of evidence to do so. 17. All the documents are available before the Tribunal and the said documents speak for themselves. The allegation of the Assessing Officer that funds were taken by the assessee and transferred to sister concern is also not proved by the Department. There was a transfer of borrowed funds but it was in the nature of security deposits. The assessee had to do so to carry on its business. Therefore, it would be too much to say that the assessee acted as a conduit pipe to obtain loans by its sister concerns. They are two legal and different entities which are entitled to carry on their own business in their own way and therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h appeal seperately. ITA No. 6240/Bom./1993 2. In this appeal, the point reading as under has been referred to me for opinion :- Whether, on the facts and in the circumstances of the case, the Revenue s appeal requires to be dismissed ? 3. In order to appreciate the controversy involved, the facts of the case may be stated, which have been noted in the orders proposed by the learned Members who had constituted the Bench. 4. The assessee is a partnership firm consisting of three partners, viz., Shri I.S. Bhusari, Shri T.T. Vasu and M/s. Vira Properties Pvt. Ltd. (for short company), sharing 10%, 10% and 80% respectively. The business is claimed to be agency in real estate, more particularly to act as one of the selling agents of the construction business carried on by the company, which is holding 80% interest in the partnership firm. In January 1984, the company appointed the partnership firm as one of the selling agents for Bombay, Madras and Bangalore for its Rayala Commercial Complex at Madras. By letter of appointment, the assessee is entitled to 2 per cent commission in respect of the space booked by the firm, i.e., the assessee. The assessee is re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ading as under :- Interest paid ₹ 6,37,857 We have already submitted details of interest paid in fixed deposit along with confirmation of finance brokers. The rate of interest on fixed deposit is generally 18% p.a. and very few fixed deposits are paid at the rate of 20% p.a. The loans are utilised for purpose of securing deposits paid to the principal for obtaining selling agency right. This is apparent from the Balance Sheet submitted. Our client gets interest at the rate of 18% on security deposits. On perusal of the accounts, the learned Accountant Member observed that against the huge amount of interest expenditure, the assessee has shown income by way of interest of only ₹ 1,83,000 plus . He also observed that if the interest at the same rate is earned as is the rate on the borrowings as explained by the assessee in writing, then the disparity between the two amounts remains unexplained. He has noted that the assessee has not made interest income from any other party except on security deposits. Apart from the interest, the assessee had also incurred expenditure by way of discount of ₹ 1,97,000 plus as also brokerage of ₹ 57,000 plus . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him, the discount paid is nothing but the interest paid for the loan obtained. It was argued that the Assessing Officer has taken different view for similar expenditure, i.e., interest on hundi loans. My attention was also invited towards copy of the balance sheet appearing at page 3 of the compilation, which showed that hundi loans and other loans were of the order of ₹ 34,96,000 plus . He has also pointed out that the interest receivable in the earlier year as also in the current year is reflected in the balance sheet. It was pointed out that in the earlier year the security deposit was ₹ 14,00,000 plus whereas in the current year it stands reduced to ₹ 6,00,000 plus . Referring to the copy of the balance sheet of the earlier year, it was submitted that the interest received is shown on receivable basis, whereas the borrowings remained the same. Thus it was contended that the Assessing Officer was not justified in making the disallowance and the CIT (Appeals) was right in deleting the disallowance made. 9. The submissions of the assessee were opposed by the learned representative for the revenue. He has submitted that the CIT (Appeals) has not cared ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest on the borrowed funds was allowed in the earlier year. I, therefore, find myself in agreement with the view expressed by the learned Accountant Member that the matter should be restored to the file of the CIT (Appeals) for rehearing and disposal. It may be mentioned that it is not necessary that the Tribunal should record firm findings in all matters of controversy. It is open to the Tribunal to arrive at a conclusion that the matter in controversy was not considered properly or lawfully by the Assessing Officer or the Commissioner (Appeals) and direct such consideration. Since I am of the opinion that the matter requires to be restored to the file of the CIT (Appeals), I am unable to agree with the view of the learned Judicial Member that the appeal filed by the revenue deserves dismissal. ITA No. 9900/Bom./1992 11. In this appeal, the following question had been referred to me for opinion :- Whether, on the facts and in the circumstances of the appeal, the assessee is entitled for admission of additional evidence and the claim of interest, brokerage and discount ? 12. The above question has two limbs, namely, (1) whether the assessee is entitled for adm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by him. 105-122 Pages 105 to 122 were tendered by the CA to the DC but the same was probably not taken on record. (1) (2) (3) (4) 31. Documents prepared for which were possibly not accepted by him. 123-180 Pages 123 to 180 were tendered by the CA to the CIT(A) but the same was probably not taken on record. 32. Confirmation, suits filed letters, etc., from Hundi parties. 181-264 parties Pages 181 to 264 are confirmations and notices which have been received from the lenders. 33. Statement of brokerage and interest for loans through M/s. Parasram Co., Madras. 265-272 Details of brokerage and int. 34. Computation of Income. P L A/c and Balance Sheet for A.Y. 1992-93. 273-275 Income, profit loss A/c. and Bal. sheet for A.Y. 1992-93. Place : Bombay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, evidence sought to the filed should be admitted and the matter restored back to the Assessing Officer for consideration on merits. 15. The learned Advocate for the assessee has invited my attention towards the copy of the letter dated 17th February, 1992, available at page 105 of the paper book and has submitted that this letter is addressed to the Assessing Officer and as such it appears that this letter along with its annexures was filed during the assessment proceedings and, therefore, these papers cannot be termed as additional evidence. It was further submitted that the affidavit of Shri Kathuria shows that paper Nos. 123 to 180 of the paper book were filed by him before the CIT (Appeals) and for this reason also these papers cannot be described as additional evidence. It was further argued that the evidence, which is sought to be filed through the above-mentioned application, would have important bearing on the controversy involved in the appeal and, therefore, in the interests of justice these papers may be admitted in evidence. 16. The submissions of the assessee were strongly opposed by the learned departmental representative. It has been argued that no m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... negative language insofar as the rights of the parties to produce additional evidence before the Tribunal is concerned. It clearly says that the parties to the appeal shall not be entitled to produce additional evidence either oral or documentary. The Hon ble Court went on to say that such a right has specifically been taken away by prohibiting the production of additional evidence by the parties. This being so, the answer to the first limb of the point is obvious and I have no hesitation in opining that the assessee is not entitled for admission of additional evidence. It would be appropriate to mention here that I am not dealing with the stand of the assessee that the paper sought to be filed cannot be termed as additional evidence and at any rate such evidence should be admitted in the interest of justice because expression of opinion on such points would be beyond the scope of the reference made to me. The stand of the assessee on this aspect of the matter may be considered by the regular Bench at the time when the appeal comes up for hearing before it. I am of the view that as a Third Member it is not open to me to travel beyond the point referred and I am competent only to de ..... 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