TMI Blog2020 (8) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... les and telephone were also admittedly used for non-business purpose as the assessee had not maintained any log books etc. to show their exclusive user for business purpose. Non-offering of such disallowance on account of personal use came to the notice of the AO during the course of proceedings u/s 147 - Once the position was such, we find no hesitation in holding that the test of such escaped income coming to the notice of the AO during the course of proceedings u/s 147, got fully satisfied inasmuch as the disallowance of the instant expenses duly answered the description of any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently, in the course of proceedings in this section . Ex consequenti, the submission of the ld. AR in this regard is jettisoned. Coming to the merits of the addition, it is seen that the assessee could not adduce proper evidence in support of Vehicle and Telephone expenses having been incurred wholly and exclusively for the purpose of business inasmuch as no log books for vehicle etc., were produced despite the AO s specific requisition. We are satisfied that sustenance of disallowance at 10% of the expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee emanates from the order dated 25.07.2017 passed by the CIT (A)-2, Pune, in relation to the assessment year 2011-12. 2. The first issue, on merits, in this case is against the confirmation of addition of ₹ 27,16,280/- towards Hawala purchases made by the assessee from M/s. Parshwa Trading Company. 3. Facts anent to this issue are that the Assessing Officer (AO) obtained some information from the Sales Tax Department indicating that the assessee was one of the beneficiaries of transactions shown by some Hawala operators. The assessee had recorded purchases amounting to ₹ 27,16,280/- from M/s Parshwa Trading Company, which was one of such Hawala operators. On this basis, a notice u/s.148 was issued. During the course of assessment proceedings u/s 147, the AO confronted the assessee with the details obtained qua the hawala transactions indicating bogus purchases of ₹ 27,16,280/-. The assessee tried to explain the genuineness of the transactions but without success for the reasons indicated in the assessment order. This led to disallowance of ₹ 27,16,280/-. The ld. CIT(A) affirmed the assessment order on this point. 4. We have heard the ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns and gone through the relevant material on record. The ld. AR took a preliminary objection assailing the making of such addition in proceedings u/s.147 of the Act. It was contended that no fresh material qua the above addition came to the notice of the AO in the proceedings u/s 147 and hence he could not have made this addition on the basis of roving enquiries in the reassessment proceedings. He harped on the words which comes to his notice subsequently as employed in section 147 for bolstering his submission. This was countered by the ld. DR. 8. Relevant part of section 147 of the Act provides that : If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section . This provision primarily refers to two components of income. The first component deals with the triggering of the jurisdiction of the AO and forms the basis for initiation of assessment or r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 147, he should confront the assessee with his point of view and seek comments before making the addition, if warranted, after making further enquiry. There is a palpable difference in two situations, viz., one, where some ex facie escaped income comes to the notice of the AO and he makes enquiry before making the addition and two, where enquiry is made before some ex facie escaped income comes to the notice of the AO. To put the second situation simply, the enquiry itself results in digging out the escaped income coming to the notice of the AO in the proceedings u/s 147. What is prohibited u/s 147 is the second situation, namely, the enquiry preceding the escaped income coming to the notice of the AO and not vice-versa. 11. Adverting to the facts of the instant case, we find that the assessee claimed Vehicle and Telephone expenses in entirety without offering any suo motu disallowance on account of personal use by the partners, more so, when the vehicles and telephone were also admittedly used for non-business purpose as the assessee had not maintained any log books etc. to show their exclusive user for business purpose. Non-offering of such disallowance on account of person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the overall expenditure of ₹ 1,97,430/- under the head Subscription fees is held as deductible. As regards the remaining amount, the assessee could not substantiate the claim of such expenditure passing the test of commercial expediency and having been incurred wholly and exclusively for the purpose of business. The finding of the ld. CIT(A) is ergo affirmed pro tanto and the disallowance is sustained at ₹ 59,555/-. 16. The only other issue on merits which is involved in this appeal is against the confirmation of addition of ₹ 31,54,535/- made by the AO u/s. 36(1)(iii) of the Act. 17. Briefly stated, the facts of this ground are that the AO noticed that out of total investments of ₹ 41 crore recorded in the books of assessee, investments to the extent of ₹ 6.74 crore were in Plots/lands. As the assessee had incurred huge interest expenditure, the AO did not allow interest u/s.36(1)(iii) to the extent of ₹ 31,54,535/- in relation to six investments made by the assessee, which have been tabulated at page 18 of the assessment order. The contention of the assessee that it was having enough own funds to invest in these properties and hence no di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income from house property . Due to paucity of details, he was unable to classify as to which of these six properties were meant for earning Business income or Income from house property . In view of the foregoing discussion, there can be no doubt that the provisions of section 36(1)(iii) will apply to allow interest in respect of the Investments made by the assessee for earning Business income . We, therefore, set-aside the impugned order on this score and direct the AO to verify the six investments, one by one, for ascertaining which of these were made for earning Business income . There can be no question of disallowance of interest in respect of such Investments. 21. However, any interest relatable to investments meant for earning income under the head Income from house property cannot be allowed as deduction under the head Profits and gains from business or profession as the business purpose is wanting. The ld. AR strenuously argued that the assessee s capital was much more than the amount of investments and hence no disallowance was called for. He relied on the judgment of Hon ble Bombay High court in CIT Vs. Reliance Utilities and Power Ltd. (2009) 313 IT ..... 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