Deputy Commissioner of Income-tax,, v. Pune Mumbai Realty Pvt. Ltd.,, Pune

ITA 123/PUN/2014 | 2008-2009
Pronouncement Date: 30-09-2016 | Result: Dismissed

Appeal Details

RSA Number 12324514 RSA 2014
Assessee PAN AADCP8622M
Bench Pune
Appeal Number ITA 123/PUN/2014
Duration Of Justice 2 year(s) 8 month(s) 14 day(s)
Appellant Deputy Commissioner of Income-tax,,
Respondent Pune Mumbai Realty Pvt. Ltd.,, Pune
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2016
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 30-09-2016
Date Of Final Hearing 13-07-2016
Next Hearing Date 13-07-2016
Assessment Year 2008-2009
Appeal Filed On 16-01-2014
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE BEFORE MS. SUSHMA CHOWLA JM AND SHRI ANIL CHATURVEDI AM . / ITA NO. 123 /PN/20 1 4 / ASSESSMENT YEAR: 200 8 - 09 THE DY. COMMISSIONER OF INCOME TAX CIRCLE 4 PUNE . / APPELLANT VS. PUNE MUMBAI REALTY PVT. LTD. 2 ND FLOOR KUMAR CAPITAL 2413 EAST STREET CAMP PUNE 41100 1 . / RESPONDENT PAN: AADCP8622M PAN: AADCP8622M / APPELLANT BY : SHRI ANIL KUMAR CHAWARE / RESPOND ENT BY : SHRI NIKHIL PATHAK / DATE OF HEARING : 2 1 .0 9 .201 6 / DATE OF P RONOUNCEMENT: 30 . 0 9 .201 6 / / ORDER PER SUSHMA CHOWLA JM: THIS APPEAL FILED BY THE REVENUE IS AGAINST ORDER OF CIT (A) - II PUNE DATED 3 0 . 0 9 .201 3 RELATING TO ASSESSMENT YEAR 200 8 - 09 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961 (IN SHORT THE ACT) . ITA NO . 123 /PN/201 4 PUNE MUMBAI REALTY PVT. LTD. 2 2. THE REVENUE IS IN APPEAL AGAINST THE ORDER OF CIT(A) AND HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - 01) THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN HOLDING THAT ASSESSEE HAD SUFFICIENT FUNDS TO JUSTIFY THE ADVANCES MADE TO THE GROUP CONCERNS THEREBY ALLOWING PROPORTIONATE INTEREST OF RS.64 27 901/ - U/S.36(I)(III) OF THE ACT WITHOUT APPRECIATING THAT EVERY LOAN GRANTED TO SUBSIDIARY WAS PRECEDED BY RECEIPT OF MONEY AS LOAN FROM OTHER ENTITIES. 02) THE LEARN ED COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN ACCEPTING THE ASSESSEE'S CLAIM THAT LOANS TO SUBSIDIARIES WERE FROM ITS INTERNAL SOURCES & NOT FROM BORROWED CAPITAL WITHOUT APPRECIATING THAT HAD THE INTEREST BEARING LOAN NOT BEEN AVAILED ASSESSEE COULD NOT HAVE MET ITS FUND REQUIREMENT FROM INTERNAL SOURCES. 03) THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN NOT APPRECIATING THAT BORROWED FUNDS ON INTEREST FOR BUSINESS PURPOSES WAS BEING USED FOR SUPPLEMENTING CASH DIVERTED BY ASSESSEE AND AS SUCH THE A.O WAS JUSTIFIED IN DISALLOWING THE PROPORTIONATE INTEREST ON DIFFERENTIAL RATES. 04) THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN DELETING THE DISALLOWANCE MADE U/S.41(1)(A) OF THE ACT OF RS.1 96 64 687/ - WHEN THE LIABILI TY O N ACCOUNT OF CREDITORS FOR PROPERTIES WAS NOT ESTABLISHED BY THE ASSESSEE EITHER IN THE ASSESSMENT PROCEEDINGS OR APPELLATE PROCEEDINGS. 05) THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN NOT APPRECIATING THAT THE OUT OF THE TOTAL SUNDRY CRED ITORS FOR PROPERTIES OF RS.14 43 59 639/ - THE LIABILITY IN RESPECT OF RS.1 96 64 687/ - COULD NOT BE ESTABLISHED BY THE ASSESSEE AND AS SUCH THE ASSESSING OFFICER WAS JUSTIFIED IN HOLDING THAT THE LIABILITY PERTAINING THERETO HAD CEASED U/S.41 JUSTIFIED IN HOLDING THAT THE LIABILITY PERTAINING THERETO HAD CEASED U/S.41 (1)(A) OF TH E ACT. 06) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT APPRECIATING THAT THE ASSESSEE CANNOT BE ALLOWED TO ENJOY AN AMOUNT AS LIABILITY FOR UNLIMITED PERIOD WITHOUT ANY INTENTION TO PAY ON THE EXCUSE THAT THE AMOUNT HAS NOT BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNTS. 3 . BRIEFLY IN THE FACTS OF THE CASE THE ASSESSEE HAD FURNISHED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.8 76 06 180/ - . THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT AND SALE. THE ASSESSEE D URING THE YEAR UNDER CONSIDERATION HAD SOLD PART OF ITS LAND AT HINJEWADI. THE CASE OF ASSESSEE WAS PICKED UP FOR SCRUTINY. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD ACCEPTED THE LOAN FROM THIRD PARTIES AND PAID INTEREST TO THEM @ 18%. THE TOTAL INTEREST DERIVED DURING THE YEAR WAS RS. 1 46 25 053/ - AS AGAINST THE SAME THE ASSESSEE ADVANCED LOAN TO GROUP CONCERN AND HAD RECEIVED INTEREST FROM THEM @ 12%. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE PROPORTIONATE INTEREST BE NOT DISALLOWED AND ADDED BACK TO THE TOTAL INCOME . THE ASSESSEE FAILED TO FURNISH ITA NO . 123 /PN/201 4 PUNE MUMBAI REALTY PVT. LTD. 3 ANY SPECIFIC OBJECTIONS AND ASSESSING OFFICER NOTES THAT THE ASSESSEE CONSENTED FOR THE ADDITION ON THE ISSUE AND ACCORDINGLY SUM OF RS. 64 27 701/ - WAS DISALLOWED UNDER SECTION 36(1)(III) OF THE ACT. THE ASSESSING OFFICER FURTHER NOTED THAT THE ASSESSEE HAD SHOWN SUNDRY CREDITORS FOR PROPERTIES AMOUNTING TO RS. 14 43 59 639/ - . THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS ALONG WITH THE DETAILS OF PAYMENTS MADE IN SUBSEQUENT YEARS. FROM THE DETAILS FILED BY THE ASSESSEE THE ASSESSING OFFICER NOTED THAT THE PAYMENTS WERE NOT MADE TO CERTAIN PARTIES DUE TO LITIGATION PROOF OF WHICH WAS FILED ON RECORD. HOWEVER PROOF REGARDING NON - PAYMENT FOR SUNDRY CREDITORS IN RESPECT OF CERTAIN CASES COU LD NOT BE PROVIDED BY THE ASSESSEE. THE LIABILITY IN RESPECT OF BALANCE PAYMENTS TO THE SAID PARTIES AMOUNTED TO RS. 1 96 64 687/ - WHICH COULD NOT BE ESTABLISHED AND THU S THE LIABILITY PERTAINING THERETO WAS HELD TO HAVE CEASED UNDER SECTION 41(1)(A) OF T HE ACT AND THE SAID AMOUNT WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4 . BEFORE THE CIT(A) THE ASSESSEE EXPLAINED THAT UNSECURED LOANS 4 . BEFORE THE CIT(A) THE ASSESSEE EXPLAINED THAT UNSECURED LOANS OUTSTANDING AS ON 31.03.2008 WERE BORROWED AT INTEREST @ 12% ONLY WHICH IN TURN WAS ADVANCED TO THE GROUP CONCERN @ 12% ITSELF. THE OTHER FUNDS WHICH BORE THE HIGHER RATE OF INTEREST AT 18% WERE REPAID DURING THE YEAR BY THE ASSESSEE. HENCE THERE WAS NO MERIT IN THE PROPORTIONATE DISALLOWANCE MADE BY THE ASSESSING OFFICER. THE ASSESSEE FURTHER EXPLAINED THAT IT H AD INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES AMOUNTING TO RS. 77 39 54 344/ - AS ON 31.03.2008 WHICH FACT WAS ALSO OVERLOOKED BY THE ASSESSING OFFICER. THE ASSESSEE STRESSED THAT THERE WAS NO MERIT IN THE SAID DISALLOWANCE MADE BY THE A SSESSING OFFICER UNDER SECTION 36(1)(III) OF THE ACT. WITH REGARD TO THE ADDITION MADE UNDER SECTION 41(1)(A) OF THE ACT THE ASSESSEE EXPLAINED THE LIABILIT Y OUTSTANDING WAS IN RESPECT OF BUSINESS TRANSACTION ENTERED INTO BY THE ASSESSEE IN THE PAST YEAR S AND THE SAID LIABILITY WAS BEING RECOGNIZED BY THE ASSESSEE. FURTHER NONE OF THE PARTIES HAD WAIVED THEIR RIGHT TO RECEIVE THE OUTSTANDING DUES ITA NO . 123 /PN/201 4 PUNE MUMBAI REALTY PVT. LTD. 4 AND HENCE THERE WAS NO JUSTIFICATION FOR MAKING THE DISALLOWANCE UNDER SECTION 41(1)(A) OF THE ACT. REGARD ING OBSERVATIONS OF ASSESSING OFFICER THAT THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAD CONSENTED TO THE ADDITION POINTED OUT THAT THE SAME WAS NOT CORRECT AND AN AFFIDAVIT TO THAT EFFECT WAS FILED DURING THE COURSE OF APPELLATE PROCEEDINGS. THE OBJECTIONS OF THE ASSESSEE ALONG WITH AFFIDAVIT WERE FORWARDED TO THE ASSESSING OFFICER WHO DISMISSED THE SAME AS FALSE AND AN AFTERTHOUGHT AND REITERATED THAT THE ADDITION WAS MADE AFTER THE CONSENT OF LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSE SSEE BY THE ASSESSING OFFICER. THE ASSESSING OFFICER ALSO FORWARDED THE COPY OF ORDER SHEET ALONG WITH AFORESAID REPORT. THE COUNSEL OF THE ASSESSEE IN ITS REJOINDER STATED THAT THE REPORT OF ASSESSING OFFICER AND ALSO THE ORDER SHEET ENTRIES DOES NOT ST ATE THAT THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAD CONSENTED TO THE ADDITION AS PER ORDER SHEET NOTING DATED 29.12.2010. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE WAS SEEN TO HAVE AGREED TO THE ADDITION OF EXCEPTIONAL ITEMS O F EXPENSES TO THE WORK - IN - PROGRESS AND NOWHERE IN THE ORDER SHEET THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAD AGREED TO THE DISALLOWANCE OF INTEREST OF RS. 64 27 701/ - . THE CIT(A) DECIDED THE FIRST ISSUE RAISED WITH REGARD TO DISALLOWANCE O F INTEREST UNDER SECTION 36(1)(III) OF THE ACT AT RS. 64 27 701/ - . THE FIRST ASPECT OF THE ISSUE WAS WHETHER THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAD CONSENTED TO THE SAID ADDITION OF PROPORTIONATE INTEREST. THE CIT(A) IN THIS REGARD AFT ER REFERRING TO THE ORDER SHEET ENTRIES OF DATE TO DATE OBSERVED THAT THE SAME WAS PRIMA FACIE NOT CORRECT. HE ACCEPTED THE EXPLANATION OF ASSESSEE THAT THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAD AGREED TO THE ADDITION OF EXCEPTIONAL ITEM EXPENSES TO THE WORK - IN - PROGRESS ONLY. REGARDING THE MERITS OF ISSUE INVOLVED THE CIT(A) NOTED FROM THE DETAILS OF FUNDS THAT THE ASSESSEE HAD RECEIVED SUM OF RS.13.29 CRORES AS UNSECURED LOANS FROM KUMAR URBAN DEVELOPMENT LTD. AND FURTHER WITHDRAWALS FR OM THE PARTNERSHIP FIRM APPEARING IN THE CURRENT ACCOUNT OF RS.8.80 CRORES WERE ITA NO . 123 /PN/201 4 PUNE MUMBAI REALTY PVT. LTD. 5 SUFFICIENT TO JUSTIFY THE ADVANCES MADE TO THE GROUP CONCERN OF RS.7.74 CRORES. THE CIT(A) ALSO NOTED THAT THE RATES OF INTEREST OF ALL THE ABOVE AMOUNTS WERE @ 12% . THE CIT( A) ALSO TOOK NOTE OF THE FACT THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES AMOUNTING TO RS.77.39 CRORES AS ON 31.03.2008. AS PER THE CIT(A) THE ASSESSING OFFICER HAD NOT EXAMINED ALL THESE VITAL FACTS BEF ORE DISALLOWING PROPORTIONATE INTEREST ON DIFFERENT RATES. RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM) AND IN THE ABSENCE OF ANY INSTANCE OF MONEY HAVING BEEN DIVERTED FOR GIVING INTEREST FREE LOANS OR FOR NON - BUSINESS PURPOSES DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS DELETED. 5 . THE SECOND ISSUE BEFORE THE CIT(A) WAS AGAINST THE ADDITION MADE UNDER SECTION 41(1) OF THE ACT AT RS. 1 96 64 687/ - . TH E ASSESSING OFFICER HAD MADE THE AFORESAID ADDITION AS THE ASSESSEE HAD NOT BEEN ABLE TO PROVIDE PROOF WITH RESPECT AFORESAID ADDITION AS THE ASSESSEE HAD NOT BEEN ABLE TO PROVIDE PROOF WITH RESPECT TO THE SAID LIABILITY. HOWEVER THE ASSESSEE WAS RECOGNIZING THE LIABILITY AND ALSO NONE OF THE PARTIES HAD WAIVED THEIR RIGHT TO RECEIVE T HE DUES AND THE CLAIM OF ASSESSEE BEFORE THE CIT(A) WAS THAT THE ASSESSING OFFICER HAD MADE ADDITION WITHOUT MAKING ANY ENQUIRY OR VERIFICATION THAT THE LIABILITIES HAVE CEASED TO EXIST. THE CIT(A) FOLLOWING THE RATIO LAID DOWN BY THE APEX COURT IN CIT VS . SUGAULI SUGAR WORKS (P) LTD. (1999) 236 ITR 518 (SC) AND IN CCIT VS. KESARIA TEA CO. LTD. (2002) 254 ITR 434 (SC) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER WHERE THE AMOUNTS HAVE NOT BEEN WRITTEN OFF BY THE ASSESSEE OR ITS RECOVERY BECOME BARRED BY LIMITATION AND WHERE THE ASSESSING OFFICER HAD NOT QUESTIONED THE GENUINENESS OF CREDITS AS NO MATERIAL IN THIS REGARD WAS AVAILABLE ON RECORD. 6 . THE REVENUE HAS ALSO RAISED AN ADDITIONAL GROUND OF APPEAL WHICH READS AS UNDER: - ITA NO . 123 /PN/201 4 PUNE MUMBAI REALTY PVT. LTD. 6 THE LD. CIT(A) ERRE D IN NOT ISSUING ENHANCEMENT NOTICE FOR THE DISALLOWANCE OF RS.149.6 LACS BEING INTEREST ETC. OF PRIOR PERIOD WHICH WAS AGREED BY THE AR OF THE ASSESSEE IN COURSE OF THE ASSESSMENT PROCEEDINGS VIDE ORDER SHEET NOTING DATED 29.12.2010 BUT WAS INADVERTENTLY NOT MADE BY THE AO IN THE ASSESSMENT ORDER THOUGH THIS OMISSION OF THE AO HAD COME IN THE NOTICE OF THE CIT(A) WHILE EXAMINING THE RECORDS OF THE ASSESSEE DURING THE APPELLATE PROCEEDINGS AS IS EVIDENT FROM PARA 3.6 OF HIS ORDER. 7. FIRST WE SHALL TAKE UP THE ADDITIONAL GROUND OF APPEAL RAISED BY THE REVENUE UNDER WHICH THE REVENUE IS AGGRIEVED BY THE ORDER OF CIT(A) IN NOT ISSUING ENHANCEMENT NOTICE TO THE ASSESSEE AGAINST DISALLOWANCE OF RS. 149.60 CRORES BEING INTEREST ETC. OF PR IOR PERIOD WHICH WAS AGREED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS . THE CASE OF REVENUE BEFORE US WAS THAT VIDE ORDER SHEET NOTING DATED 29.12.2010 THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAD AGRE ED TO THE SAID ADDITION BUT INADVERTENTLY THE ASSESSING OFFICER HAD NOT MADE ADDITION IN THE ASSESSMENT ORDER AND THE CIT(A) OUGHT TO HAVE ISSUED ENHANCEMENT NOTICE IN THIS REGARD. 8. WE FIND NO MERIT IN THE ADDITIONAL GROUND OF APPEAL RAISED BY THE REV ENUE AGAINST NON - ISSUANCE OF ENHANCEMENT NOTICE BY THE CIT(A). THE ADDITION IF ANY ON ACCOUNT OF ADMISSION MADE BY THE ASSESSEE AT THE FIRST INSTANCE WAS TO BE MADE BY THE ASSESSING OFFICER HIMSELF. THEREAFTER THE CIT(A) HAS NOT REFERRED TO ANY SUCH ADDITION. THE TRIBUNAL HAS NO POWER OF ENHANCEMENT AS HELD BY THE HONBLE SUPREME COURT IN MCORP GLOBAL (P) LTD. VS. CIT (2009) 309 ITR 434 (SC) AND HENCE THERE IS NO MERIT IN THE ADDITIONAL GROUND OF APPEAL RAISED . ANOTHER ASPECT OF THE ISSUE IS THAT TH E ASSESSING OFFICER HAD ISSUED ORDER UNDER SECTION 154 OF THE ACT IN THIS REGARD WHEREIN THE ADDITION WAS MADE ON ACCOUNT OF EXCEPTIONAL ITEMS OF EXPENSES TOTALING RS.1.49 CRORES. HOWEVER THE SAID ADDITION HAS BEEN DELETED BY THE CIT(A) VIDE ORDER DATED 30.09.2013 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS POINTED OUT THAT THE REVENUE IS NOT IN APPEAL AGAINST THE ORDER OF CIT(A) PASSED AGAINST ORDER UNDER SECTION 154 ITA NO . 123 /PN/201 4 PUNE MUMBAI REALTY PVT. LTD. 7 OF THE ACT. IN VIEW THEREOF THERE IS NO MERIT IN THE ADDITIONAL GRO UND OF APPEAL RAISED BY THE REVENUE. 9 . NOW COMING TO THE ISSUE ON MERITS RAISED BY WAY OF GROUNDS OF APPEAL NO.1 TO 3 AGAINST DISALLOWANCE MADE UNDER SECTION 36(1)(III) OF THE ACT. WE HAVE HEARD CONTENTIONS RAISED BY BOTH THE LEARNED AUTHORIZED REPRESE NTATIVES AND HAVE PERUSED THE RECORD. 10 . THE FACTUAL ASPECTS OF THE CASE HAVE BEEN NOTED BY THE CIT(A) IN PARA 3.5 WHICH CLARIFIES THAT THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAD SHOWN UNSECURED LOANS OUTSTANDING AS ON 31.03.2008 AT RS.13.29 CRORE S WHICH WAS RECEIVED FROM M/S. KUMAR URBAN DEVELOPMENT LTD. ON WHICH THE ASSESSEE WAS PAYING INTEREST @ 12%. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD CLEARED ALL INTEREST BEARING UNSECURED LOANS AND ON SOME OF WHICH THE ASSESSEE WAS PAYING INTEREST @ 18%. THE ASSESSEE HAD ALSO MADE WITHDRAWALS FROM THE WAS PAYING INTEREST @ 18%. THE ASSESSEE HAD ALSO MADE WITHDRAWALS FROM THE PARTNERSHIP FIRM IN WHICH IT WAS PARTNER AND THE OUTSTANDING CREDIT BALANCE OF THE CURRENT ACCOUNT AS ON 31.03.2008 WAS RS.8.80 CRORES WHICH WAS SHOWN UNDER CURRENT LIABILITIES IN SCHEDULE A TO BALANCE SHEET. AS AGAINST THE SAME TOTAL AMOUNT ADVANCED TO GROUP CONCERN AS ON 31.03.2008 WAS RS.7.74 CRORES ON WHICH INTEREST WAS CHARGED @ 12%. THE EXPLANATION OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW WAS THAT IT HAD TOTAL FUNDS AVAILABLE WITH IT AMOUNTING TO RS.22.09 CRORES OUT OF WHICH ADVANCE S TO THE GROUP CONCERN WAS MADE TO THE TUNE OF RS.7.74 CRORES @ 12%. THE ASSESSING OFFICER IN ADDITION TO ALL THIS THE ASSESSEE FURTHER HAD INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVE S TO THE TUNE OF RS.77.39 CRORES. THE ASSESSING OFFICER HAD DISALLOWED THE PROPORTIONATE AMOUNT OF INTEREST EXPENDITURE TOTALING RS.64 27 701/ - ON THE PREMISE THAT THE ASSESSEE WAS PAYING INTEREST @ 18% ON THE UNSECURED LOANS AS AGAINST WHICH IT HAD ADVA NCED THE AMOUNT AND CHARGED INTEREST @ 12%. THE ASSESSEE HAD CLAIMED THAT IT HAD PAID INTEREST OF RS. 1 46 25 053/ - AND HAD RECEIVED INTEREST OF ITA NO . 123 /PN/201 4 PUNE MUMBAI REALTY PVT. LTD. 8 RS. 1 28 55 402/ - . THE FINDING OF THE CIT(A) IS THAT THE ASSESSEE HAD NOT DIVERTED ANY AMOUNT BY WAY OF INTERES T FREE LOANS OR FOR NON - BUSINESS PURPOSES. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE HAS NOT CONTROVERTED THE SAID FIN DING. IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES WHERE THE ASSESSEE HAD INTEREST BEARING FUNDS ON WHICH IN TEREST WAS PAID @ 12% AND HAD FURTHER MADE WITHDRAWALS FROM THE PARTNERSHIP FIRM TO THE TUNE OF RS.8.80 CRORES AND ALSO HAD INTEREST FREE FUNDS AVAILABLE IN THE FORM OF SHARE CAPITAL AND RESERVES TOTALING RS.77.39 CRORES THEN THE ADVANCES MADE TO THE GROU P CONCERN OF RS.7.74 CRORES ON WHICH THE ASSESSEE WAS RECEIVING INTEREST @ 12% DOES NOT JUSTIFY THE DISALLOWANCE OF ANY PROPORTIONATE AMOUNT OF INTEREST EXPENDITURE. THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UTILITIES AND POWER LTD. (SUPRA) IS SQUARELY APPLICABLE. UPHOLDING THE ORDER OF CIT(A) WE DISMISS THE GROUNDS OF APPEAL NO.1 TO 3 RAISED BY THE REVENUE. 1 1 . NOW COMING TO THE SECOND ISSUE RAISED BY THE REVENUE BY WAY OF GROUNDS 1 1 . NOW COMING TO THE SECOND ISSUE RAISED BY THE REVENUE BY WAY OF GROUNDS OF APPEAL NO.4 TO 6 I.E. AGAINST DELET ION OF DISALLOWANCE MADE UNDER SECTION 41(1)(A) OF THE ACT AT RS.1.96 CRORES. 1 2 . THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT AND SALES AND HAD MADE INVESTMENTS IN BUSINESS ASSETS AGAINST WHICH IT HAD SHOWN CERTAIN LIABILITIES. T HE LIABILITIES WERE ON ACCOUNT OF CREDITORS FOR PROPERTIES WHICH TOTALED RS.14.43 CRORES OUT OF WHICH ADDITION WAS MADE OF RS. 1.96 CRORES. THE ASSESSEE FURNISHED COMPLETE INFORMATION IN THIS REGARD BEFORE THE ASSESSING OFFICER AND POINTED OUT THAT THE LI ABILITY HAD NOT GOT TIME BARRED AND FURTHER THE SAID LIABILITY WAS RECOGNIZED BY THE ASSESSEE AND ALSO BY T HE CREDITORS AND THERE WAS NO WRITE OFF OF THE SAID ACCOUNT. HOWEVER THE ASSESSING OFFICER WAS OF THE VIEW THAT WHERE THE LIABILITY WAS OLD AND THE RE WAS NO LITIGATION PENDING THEN THE SAME HAD CEASED UNDER SECTION 41(1)(A) OF THE ACT. ONCE A LIABILITY HAS BEEN RECOGNIZED BY THE ASSESSEE AS PAYABLE IN ITS BOOKS OF ACCOUNT AND NO BOOK ENTRY ITA NO . 123 /PN/201 4 PUNE MUMBAI REALTY PVT. LTD. 9 HAS BEEN PASSED FOR ITS ADJUSTMENT EITHER BY THE ASSESSEE O R THE SUNDRY CREDITORS CESSATION OF SUCH LIABILITY AS ENVISAGED UNDER SECTION 41(1) OF THE ACT DOES NOT ARISE. WE FIND SUPPORT FROM THE RATIO LAID DOWN BY THE APEX COURT IN CIT VS. SUGAULI SUGAR WORKS (P) LTD. (SUPRA) AND IN CCIT VS. KESARIA TEA CO. LTD. (SUPRA) . FURTHER THE ASSESSEE HAS SHOWN THE AMOUNTS OUTSTANDING AS ON 31.03.2008 AND IN SUCH CASES WHERE THE ASSESSEE CONTINUES TO RECOGNIZE ITS LIABILITY THERE IS NO JUSTIFICATION FOR INVOKING THE PROVISIONS OF SECTION 41(1) OF THE ACT AGAINST THE ASS ESSEE . UPHOLDING THE ORDER OF CIT(A) IN THIS REGARD WE DISMISS THE GROUNDS OF APPEAL NO.4 TO 6 RAISED BY THE REVENUE. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE THUS DISMISSED. 1 3 . IN THE RESULT APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 30 TH DAY OF SEPTEMBER 201 6 . SD/ - SD/ - ( ANIL CHATURVEDI ) ( SUSHMA CHOWLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; D ATED : 30 TH SEPTEMBER 201 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT (A) - II PUNE ; 4. / THE CIT - II PUNE ; 5. / DR A ITAT PUNE; 6. / GUARD FILE . / BY ORDER // TRUE COPY // / SR. PRIVATE SECRETARY / ITAT PUNE