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TMI Blog2020 (9) TMI 406X X X X Extracts X X X X X X X X Extracts X X X X ..... ear (AY) 2009-10. The appeal raises three grounds, each of which we shall take up in seriatim. 2. The first issue (Gd.1) is qua disallowance u/s. 36(1)(iii) of the Act at Rs. 15,74,250/-. The basis for the same is the interest-free advances (at Rs. 114.02 lacs) by the assessee-proprietor to his close relatives (Rs. 98.08 lacs) and to an associate concern (at Rs. 15.94 lacs). The assessee having incurred interest expenditure, in the main on bank borrowings (Rs. 14.41 lacs), at Rs. 21.60 lacs, the Assessing Officer (AO) disallowed interest on borrowed capital u/s. 36(1)(iii) to that extent by inferring the application of the borrowed capital (Rs. 156.46 lacs) toward the said interest-free advances. The same was confirmed in first appeal inas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same. The primary burden to prove his return, and the claims prefer thereby, is on the assessee. His case of sufficient interest-free capital to fund the admitted non-business (purpose) advances, made on interest-free basis, has not been stated, much less substantiated before the Revenue's authorities, who have, we are afraid, also not applied themselves. How could they appreciate, much less counter, the assessee's case without being informed of the same? The issue under reference is wholly factual, i.e., whether the borrowed funds, on which interest has been claimed as a business expense, has been utilized by the assessee in whole for the purpose/s of his business during the relevant year, and if not, the extent of non-utilization? The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... secured loans (at least as on 31.3.2009), so that an adequate asset base comprising the security, would itself exhibit the utilization thereof for the stated purpose. For example, a stock hypothecation borrowing, with a margin of 25% (say), would imply a utilization of bank borrowing and 'own' capital in the relevant stock in terms of the borrowing contract. A hypothecated stock of Rs. 100/- (say), of course reckoned at net of trade creditors (which are spontaneous liabilities on the purchase of goods), would thus exhibit utilization of bank borrowing and own capital to the extent of Rs. 75/- and Rs. 25/- respectively. Likewise, for a term loan, with the repayment thereof over time increasing the own capital component to that extent. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under-valuation for the Township project and, accordingly, an under-statement of income to that extent, i.e., Rs. 27,40,000/- (6850 sq. ft. @ Rs. 400 per sq. ft.). The assessee's explanation that the Datt Township was located on a highway (Mandla Road), on the outskirts (Tilheri) of the city, while the other two projects are in the heart of the city (i.e., at Napier Town and YMCA), did not find favour with the ld. CIT(A). How could, he wondered, the locational factor result in an unfathomable increase in cost by over 200%; the location primarily affecting the sale value of a real estate product, and confirmed the addition on that basis. 5. We have heard the parties, and perused the material on record. We find little merit in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Appeal' as the date of sanction of the map of the Township project, being a public holiday, is clearly incorrect. It may perhaps be the date of commencement of construction, wrongly mentioned. The question, however, is if there is a valid basis for comparison, and which we find as not. The ld. CIT(A) has, again, misdirected himself, reproducing several case law deliberating section 145A. The said section provides for inclusion of tax, duty, or any other levy on the goods bought and sold, in the valuation of purchases, sales, and inventory thereof. How, we wonder, is the same relevant? Again, sure, the assessee has not clarified the matter properly. The Revenue having raised the issue of valuation of one of his ongoing projects, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ichever is less. Cost is a matter of fact, and ought to have been required to be justified and, in any case, matched with that reflected in the books of account, and which has not been. That is, at no stage has the assessee been called upon to prove his case. There was thus no occasion for it to furnish the cost details, which rather ought to have been asked by the AO. The deficiency is not made good at the first appellate level as well, whereat the ld. CIT(A) fails to appreciate the issue, purely factual in nature. Even though not specifically mentioned, land cost, without doubt, forms an integral part of a real estate project cost. His conclusion, i.e., on under-valuation, is sans any factual finding, or even reference to the assessee's a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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