PRAFUL N SATRA, MUMBAI v. ACIT CEN CIR 33, MUMBAI

ITA 6048/MUM/2009 | 2001-2002
Pronouncement Date: 05-01-2011 | Result: Allowed

Appeal Details

RSA Number 604819914 RSA 2009
Assessee PAN AHZPS4559A
Bench Mumbai
Appeal Number ITA 6048/MUM/2009
Duration Of Justice 1 year(s) 1 month(s) 19 day(s)
Appellant PRAFUL N SATRA, MUMBAI
Respondent ACIT CEN CIR 33, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 05-01-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 05-01-2011
Date Of Final Hearing 23-12-2010
Next Hearing Date 23-12-2010
Assessment Year 2001-2002
Appeal Filed On 16-11-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH MUMBAI BEFORE SHRI D. MANMOHAN VICE PRESIDENT AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NOS. 6048 TO 6050/MUM/2009 (ASSESSMENT YEARS: 2001-02 TO 2003-04) SHRI PRAFUL N. SATRA ACIT CENTRAL CIRCLE 33 DEV PLAZA 2ND FLOOR OPP. ANDHERI AAYAKAR BHAVAN M.K. ROAD FIRE STATION S.V. ROAD VS. MUMBAI 400020 ANDHERI (W) MUMBAI 400058 PAN - AHZPS 4559 A APPELLANT RESPONDENT ITA NOS. 305 & 306/MUM/2010 (ASSESSMENT YEARS: 2004-05 & 2005-06) SHRI PRAFUL N. SATRA DCIT CENTRAL CIRCLE 33 DEV PLAZA 2ND FLOOR OPP. ANDHERI AAYAKAR BHAVAN M.K. ROAD FIRE STATION S.V. ROAD VS. MUMBAI 400020 ANDHERI (W) MUMBAI 400058 PAN - AHZPS 4559 A APPELLANT RESPONDENT ITA NO. 340/MUM/2010 (ASSESSMENT YEAR: 2005-06) DCIT CENTRAL CIRCLE 33 SHRI PRAFUL N. SATRA ROOM NO. 32(2) GROUND FLOOR DEV PLAZA 2ND FLOOR OPP. ANDHERI AAYAKAR BHAVAN M.K. ROAD VS. FIRE STATION S.V. ROAD MUMBAI 400020 ANDHERI (W) MUMBAI 400058 PAN - AHZPS 4559 A APPELLANT RESPONDENT ASSESSEE BY: SHRI VIJAY MEHTA REVENUE BY: SHRI AJIT KUMAR SINHA O R D E R PER B. RAMAKOTAIAH A.M. THESE ARE FIVE APPEALS BY THE ASSESSEE AND ONE CROS S APPEAL FOR A.Y. 2005- 06 BY THE REVENUE ARISING OUT OF THE ORDERS OF THE CIT(A) CENTRAL VIII MUMBAI DATED 21.08.2009. THESE APPEALS ARE CONSEQUENT TO T HE ORDERS PASSED UNDER SECTION 153A/143(3) FOR ASSESSMENT YEARS 2001-02 T O 2005-06. ITA NOS. 6048 6049 &6050/MUM/2009 ITA 305 306 & 340/MUM/2010 SHRI PRAFUL N. SATRA 2 2. THERE WAS SEARCH AND SEIZURE OPERATION IN ASSESSEE S RESIDENTIAL/ BUSINESS PREMISES OF PRIME/SATRA GROUP OF CASES AND CONSEQUENT TO THAT THE A.O. ISSUED NOTICES UNDER SECTION 153A FOR THE RESPECTIVE ASSESSMENT YEARS AND IN THE ASSESSMENT/REASSESSMENT COMPLETED VARIOUS DISALLOWANCES HAVE BEEN MADE BY THE A.O. WHICH ARE AGITATED BY TH E ASSESSEE UNSUCCESSFULLY BEFORE THE CIT(A) AS WELL. THE CIT(A ) HAS GIVEN SMALL RELIEF IN A.Y. 2005-06 ON WHICH THE REVENUE IS ALSO AGGRIEVED IN THEIR CROSS APPEAL. 3. THE ASSESSEE RAISED AN ADDITIONAL GROUND ON THE ISSUE OF JURISDICTION WHICH IS AS UNDER: - THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) H AS ERRED IN LAW AND IN FACTS IN MAKING ADDITIONS/DISALLOWANCES U.S 153A OF THE INCOME TAX ACT PROCEEDINGS WHICH IS WITHOUT JURISDICTION A ND BAD IN LAW AS NEITHER THE ASSESSMENT WAS PENDING NOR ANY INCRIMIN ATING DOCUMENTS WERE FOUND. 4. IT WAS HIS SUBMISSION THAT THERE WAS NO SEIZURE OF ANY MATERIAL AND THE ASSESSING OFFICERS COMPLETION OF ASSESSMENT WI THOUT THERE BEING ANY INCRIMINATING DOCUMENTS IS BEING QUESTIONED AS THIS ISSUE IS VITAL FOR ACQUIRING JURISDICTION. THE LEARNED COUNSEL FAIRLY ADMITTED THAT IN A.Y. 2003- 04 ALONE THERE WAS AN ASSESSMENT UNDER SECTION 143( 3) WHEREAS IN OTHER ASSESSMENT YEARS THE RETURNS FILED EARLIER WERE ACC EPTED UNDER SECTION 143(1) AND NO SCRUTINY WAS DONE UNDER SECTION 143(3 ). SINCE IN THIS CASE THE A.O. HAS NOT CONSIDERED THE ISSUES PROPERLY ON FACT S AND ASSESSEE WAS ALSO NOT ABLE TO FURNISH EVIDENCE DUE TO LAPSE OF TIME HE HAS NO OBJECTION TO CONSIDER THE ISSUES ON MERITS PROVIDED HE WAS ALLOW ED TO KEEP THE RIGHT TO CHALLENGE THE JURISDICTION AT A AT A LATER POINT OF TIME WITHOUT CONCEDING THE ISSUE. THE LEARNED COUNSEL HOWEVER PLACED ON RECORD VARIOUS CASES IN SUPPORT OF HIS ARGUMENT THAT JURISDICTION WAS NOT T HERE TO COMPLETE THE ASSESSMENT WITHOUT ANY INCRIMINATING MATERIAL. THE LEARNED D.R. HOWEVER SUBMITTED THAT THERE ARE ORDERS IN SUPPORT OF REVEN UE ALSO AND REFERRED TO THE DECISION OF THE ITAT DELHI D BENCH IN THE CAS E OF SHIVNATH RAI HARNARAIN (INDIA) LTD. VS. DCIT 117 ITD 74 TO SUBMI T THAT AFTER THE SEARCH AND SEIZURE IN THE NEW ASSESSMENT PROCEDURE THERE IS NO REQUIREMENT FOR AN ASSESSMENT/ REASSESSMENT UNDER SECTION 153A BEIN G PASSED ON ANY ITA NOS. 6048 6049 &6050/MUM/2009 ITA 305 306 & 340/MUM/2010 SHRI PRAFUL N. SATRA 3 MATERIAL SEIZED IN THE COURSE OF SEARCH. IT WAS HIS SUBMISSION THAT THE MATTER CAN BE CONSIDERED ON MERIT ALONE WITHOUT ADM ITTING THE ADDITIONAL GROUND. 5. AFTER HEARING THE RIVAL SUBMISSIONS AND EXAMINING T HE RECORD WE ARE OF THE OPINION THAT THERE IS NO NEED TO CONSIDER AD DITIONAL GROUND AT THIS JUNCTURE AS THE ISSUES CAN BE DECIDED ON MERITS. AS RIGHTLY SUBMITTED BY THE LEARNED A.R. THESE APPEALS CAN BE CONSIDERED ON ME RIT WITHOUT GOING INTO THE ISSUE OF JURISDICTION AT THE MOMENT AND HIS SUG GESTION THAT THIS ADDITIONAL GROUND NEED NOT TO BE CONSIDERED AT THE MOMENT SO AS TO AGITATE AT THE APPROPRIATE FORUM IN FUTURE IF NEED ARISES IS ACCEPTED. THE ADDITIONAL GROUND IS THUS NOT ADMITTED ISSUES ON MERIT AS RAISED BY THE ASSESSEE IN THE RE SPECTIVE YEARS 6. IN ALL THE APPEALS GROUND NO. 1 IS GENERAL IN NATU RE HENCE NOT CONSIDERED. ITA NO. 6048/MUM/2009 A.Y.: 2001-02 7. ASSESSEE HAS RAISED THE FOLLOWING GROUND: - 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACT S IN CONFIRMING THE DISALLOWANCE OF LOSS ON SALE OF CAR AMOUNTING TO RS .2 16 936/-. 3. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE DISALLOWANCE OF SUM OF RS.9 332/- BEING INTEREST U/ S 14A OF THE INCOME TAX ACT 1961 4.W.R. 8D OF THE INCOME TAX RU LE 1962. 4. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE RETROSPECTIVE APPLICABILITY OF THE RULE 8D OF THE I NCOME TAX RULES 1962 R.W.S. 14A OF THE INCOME TAX ACT 1961. 5. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING ADDITION OF SUM OF ` 3 00 000/- BEING ALLEGED UNEXPLAINED CREDITS U/S 68 OF THE ACT IN RESPECT OF LOAN TAKEN FROM S. MUKESH & CO.. 8. GROUND NO. 2 PERTAINS TO THE ISSUE OF CLAIM OF LOSS ON SALE OF CAR. ASSESSEE HAS CLAIMED LOSS OF ` 2 16 936/- ON ACCOUNT OF SALE OF MOTORCAR BY DEBITING THE SAME IN THE P & L ACCOUNT OF M/S. HENR Y HILL A PROPRIETARY CONCERN OF THE ASSESSEE. ASSESSEE HAS BEEN CARRYING ON THE BUSINESS OF IMPORT AND EXPORT OF TRADING GOODS IN THE NAME AND STYLE OF PROPRIETARY CONCERN M/S. HENRY HILL. THE ASSESSEE HAS PURCHASED A CAR FOR ` 3 11 936/- ITA NOS. 6048 6049 &6050/MUM/2009 ITA 305 306 & 340/MUM/2010 SHRI PRAFUL N. SATRA 4 DURING F.Y. 1999-00 WHICH WAS EVIDENCED BY THE BAL ANCE SHEET AS ON 31.03.2000. THE RETURN FOR AY 2001-02 HAS BEEN ACCE PTED BY THE DEPARTMENT. THE CAR WAS SOLD IN A.Y. 2001-02 FOR A CONSIDERATION OF ` 95 000/- AND SINCE THE CAR WAS ONLY ONE ASSET IN TH E BLOCK OF ASSETS THE LOSS ON SALE OF CAR AMOUNTING TO ` 2 16 936/- WAS DEBITED TO THE P & L ACCOUNT. THE RECEIPT OF SALE DEPOSITED BY WAY OF CH EQUE WAS EVIDENCED BY THE ENTRY IN THE PASS BOOK OF BHANDRAI CO-OPERATIVE BANK LTD. GOREGAON BRANCH ON 23.10.2000. THE A.O. ASKED FOR DETAILS OF THE SALE AND THE PERSON TO WHOM THE CAR WAS SOLD WHICH THE ASSESSEE EXPRESS ED HIS INABILITY IN VIEW OF LAPSE OF TIME. THE A.O. TREATED THE AMOUNT AS CA PITAL LOSS BUT DID NOT ALLOW THE SAME TO BE SET OFF TO THE CAPITAL GAINS STATING THAT THE GENUINENESS OF THE SALE HAS NOT BEEN PROVED. THE ASSESSEE AGITA TED THE SAME BEFORE THE CIT(A) AND THE CIT(A) WHILE ACCEPTING THAT BOTH TH E PURCHASE AND SALE ARE DISCLOSED IN THE BANK STATEMENT DID NOT AGREE ABOU T THE GENUINENESS OF THE LOSS IN THE SALE OF CAR IN THE ABSENCE OF ANY CONFI RMATION ABOUT THE NAME OF THE PARTY AND SALE OF CAR BEING FURNISHED BY THE AS SESSEE. THE ASSESSEE IS AGITATING THE ABOVE. 9. ON CONSIDERING THE SUBMISSION OF THE LEARNED COUNSE L AND THE LEARNED D.R. AND EXAMINING THE ISSUE WE ARE OF THE OPINION THAT THE CLAIM OF LOSS ON CAR IS TO BE ALLOWED TO THE ASSESSEE. THERE IS NO D ISPUTE WITH REFERENCE TO PURCHASE OF THE CAR AND ITS REFLECTION IN THE BALAN CE SHEET AS ON 31.03.2000. THE ASSESSEE HAS COMMUNICATED TO THE A. O. AND CIT(A) THAT THE CAR WAS SOLD FOR AN AMOUNT OF ` 95 000/- AND EVIDENCE OF RECEIPT OF CHEQUE ON 31.10.2000. THERE IS A GENUINE DIFFICULTY IN CON SIDERING THE CONFIRMATION OF SALE AFTER A LAPSE OF 7 TO 8 YEARS AS THE ASSESS EE HAD NOT KEPT THOSE RECORDS AFTER FILING THE RETURN WHICH WAS ACCEPTED IN THOSE YEARS. EVEN IN THE SEARCH NO INCRIMINATING MATERIAL WAS UNEARTHED SO AS TO ESTABLISH THAT THE ASSESSEE HAS RECEIVED ANY AMOUNT OVER AND ABOVE THE AMOUNT REFLECTED BY WAY OF CHEQUE IN THE BANK ACCOUNT. SINCE THE ENT RIES IN THE BANK ACCOUNT ARE PRIMA FACIE EVIDENCING THE PURCHASE AND SALE OF CAR THE LOSS IN THE TRANSACTION WHICH ASS DEBITED IN THE P & L ACCOUNT OF F.Y. 2000-01 HAS TO BE ALLOWED IN THE ABSENCE OF ANY EVIDENCE TO THE C ONTRARY. SINCE THE ASSESSMENTS WERE BEING DONE UNDER SECTION 153A AND AS THERE IS NO ITA NOS. 6048 6049 &6050/MUM/2009 ITA 305 306 & 340/MUM/2010 SHRI PRAFUL N. SATRA 5 INCRIMINATING MATERIAL THAT ASSESSEE HAS SOLD FOR M ORE MONEY THAN WHAT WAS REFLECTED IN THE BOOKS OF ACCOUNT THE CLAIM CA NNOT BE DISALLOWED ON THE PRETEXT THAT THE ASSESSEE HAS NOT BEEN ABLE TO PROV E THE TRANSACTIONS AS A GENUINE TRANSACTION AT THIS POINT OF TIME. CONSIDER ING THE FACTS OF THE CASE WE DIRECT THE A.O. TO ALLOW THE LOSS AS CAPITAL LOS S. GROUND 2 IS TREATED AS ALLOWED. 10. GROUND NOS. 3 & 4 IS ON THE ISSUE OF DISALLOWANCE U NDER SECTION 14A OF A SUM OF ` 9 322/-. THE A.O. HAVING NOTICED THAT THE ASSESSEE HAS MADE EXEMPT INVESTMENTS IN SHARES AND PF DELETED AN AMOU NT OF % OF AVERAGE VALUE OF EXEMPT INVESTMENTS ALLOWED AT ` 18 64 475/- AND DISALLOWED AN AMOUNT OF ` 9 322/- UNDER SECTION 14A R.W. RULE 8D. IT WAS THE CONTENTION OF THE LEARNED COUNSEL THAT THERE WAS NO EXEMPT INCOME CLAIMED IN THE RETURN AND SO INVOKING PROVISIONS OF SECTION 14A DOES NOT ARISE AT ALL. FURTHER THE DECISION IN THE CASE OF DAGA CAPITAL MANAGEMENT P. LTD. WAS REVERSED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG. CO. LTD. VS. DCIT 328 ITR 81 WHEREIN APPLICATION OF RULE 8D FOR THE IMPUGNED YEAR WAS HELD NOT TO BE APPLICABLE. 11. THE LEARNED D.R. HOWEVER HAS NO OBJECTION IF THE MATTER IS RESTORED TO THE A.O. TO REFIX THE REASONABLE AMOUNT FOR DISA LLOWANCE. 12. WE HAVE CONSIDERED THE ISSUE. AS SEEN FROM THE FACT S APPLICABLE FOR THE YEAR UNDER CONSIDERATION THE INVESTMENT IN SHAR ES CANNOT BE CONSIDERED AS EXEMPT INCOME YIELDING INVESTMENT AS THE ASSESSE E HAS SHOWN SHORT TERM CAPITAL GAIN ON SALE OF SHARES WHICH WAS OFFERED TO INCOME. THE ONLY AMOUNT WHICH WAS INVESTED IN PPF ACCOUNT IS A SMALL AMOUNT OF ` 6 534/- DURING THE YEAR ON WHICH NO INCOME WAS OFFERED AND ASSESSEE HA S ENOUGH OF HIS CAPITAL IN HIS PERSONAL ACCOUNT TO MAKE THE INVESTMENT. ISS UE OF ALLOWANCE OF INTEREST U/S 36(1)(III) IS ANOTHER MATTER WHICH MAY ARISE IF FUNDS ARE DIVERTED OUT OF INTEREST BEARING LOANS BUT THE ISSUE IS NOT OF DISALLOWANCE UNDER THAT SECTION. IN VIEW OF THIS INVOKING OF SECTION 14A R .W. RULE 8D ON THE FACTS OF THE CASE IS NOT WARRANTED. SINCE THERE IS NO EXEMPT INCOME CLAIMED AT ALL QUESTION OF DISALLOWANCE OF EXPENDITURE DOES NOT AR ISE UNDER SECTION 14A. ACCORDINGLY THE GROUNDS ON THE ISSUE ARE TREATED AS ALLOWED. A.O. IS DIRECTED ITA NOS. 6048 6049 &6050/MUM/2009 ITA 305 306 & 340/MUM/2010 SHRI PRAFUL N. SATRA 6 TO DELETE THE SUM OF ` 9 322/- DISALLOWED UNDER SECTION 14A IN THIS ASSESSMENT YEAR. 13. GROUND NO. 5 PERTAINS TO ADDITION OF ` 3 00 000/- UNDER SECTION 68 OF THE I.T. ACT. IN THE COURSE OF ENQUIRY OF VARIOUS L OANS OBTAINED BY THE ASSESSEE THE A.O. EXAMINED THE TOTAL UNSECURED LOA NS AMOUNTING TO ` 57 75 237/-. ASSESSEE HAS FURNISHED CONFIRMATION LE TTERS IN ALMOST ALL CASES AND AO ACCEPTED EXCEPT 2 CASES ONE OF ` 3 00 000/- RECEIVED ON 16.05.200 BY WAY OF CROSSED ACCOUNT PAYEE CHEQUE FR OM M/S. S. MUKESH & CO. WHICH WAS REPAID ON 19.04.2001 BY WAY OF CROSS ACCOUNT PAYEE CHEQUE. ASSESSEE FURNISHED EVIDENCE IN THE FORM OF BANK STA TEMENT IN THE COURSE OF ASSESSMENT PROCEEDINGS FOR RECEIPT AS WELL AS PAYME NT BUT COULD NOT FURNISH CONFIRMATION OF THE SAID PARTY DUE TO CHANGE IN THE ADDRESS AND DISCONTINUATION OF BUSINESS RELATION WITH THE SAID PARTY. SINCE THE ASSESSEE WAS UNABLE TO FURNISH LOAN CONFIRMATION FROM THE SA ID PARTY THE AMOUNT OF ` 3 00 000/- WAS TREATED AS UNEXPLAINED AND BROUGHT T O TAX. THE OTHER AMOUNT WAS OF ` 1 00 000/- FROM MR. LADHA N. PATEL ALSO TREATED AS UNEXPLAINED INCOME UNDER SECTION 68 ON THE FACT THA T EVEN THOUGH CONFIRMATION FROM THE CREDITOR WAS FILED THERE WAS NO ADDRESS. ASSESSEE HAS FURNISHED THE ADDRESS IN THE COURSE OF APPELLATE PR OCEEDINGS BEFORE THE CIT(A) AND THE CIT(A) DIRECTED THE A.O. TO VERIFY A ND ACCEPT THE SAID CREDIT. WITH REFERENCE TO THE AMOUNT OF ` 3 00 000/- THE CIT(A) WAS OF THE VIEW THAT THE ASSESSEE DID NOT PROVE THE CREDIT AS GENUINE ON E AND ACCORDINGLY CONFIRMED THE ADDITION. 14. IT WAS THE SUBMISSION OF THE LEARNED COUNSEL THAT T HE ASSESSEE HAS SUBMITTED THE EVIDENCE OF RECEIPT INTEREST FREE LOA N OF ` 3 00 000/- BY WAY OF CROSSED ACCOUNT PAYEE CHEQUE ON 16.05.2000 WHICH WA S REPAID ON 19.04.2001 AND SINCE THE PROCEEDINGS WERE TAKEN UP IN THE YEAR 2008 I.E. AFTER NEARLY 8 YEARS OF THE TRANSACTION HAVING BEEN CONCLUDED HE WAS NOT IN A POSITION TO FURNISH THE FORMAL CONFIRMATION. HOWE VER SINCE THE RELEVANT DETAILS OF RECEIPT OF PAYMENT HAVE BEEN PROVED THRO UGH BANK TRANSACTIONS THE TRANSACTION HAS TO BE TREATED AS A GENUINE LOAN TRANSACTION. ITA NOS. 6048 6049 &6050/MUM/2009 ITA 305 306 & 340/MUM/2010 SHRI PRAFUL N. SATRA 7 15. THE LEARNED D.R. HOWEVER SUBMITTED THAT THE ASSES SEE HAS NOT FURNISHED THE PRIMARY RESPONSIBILITY OF PROVING THE CREDIT AS GENUINE. 16. WE HAVE CONSIDERED THE ISSUE. AS SEEN FROM THE ASSE SSMENT ORDER AND THE CIT(A)S ORDER THE ASSESSEE HAS FURNISHED THE CONFIRMATION IN MOST OF THE CASES OUT OF THE UNSECURED LOANS RECEIVED OF ` 57 75 237/- AND THE A.O. HAS ACCEPTED THE CONFIRMATION LETTERS. WITH REFEREN CE TO THE AMOUNT OF ` 3 00 000/- THE ASSESSEE HAS EXPRESSED HIS INABILITY TO FURNISH THE CONFIRMATION AFTER LAPSE OF TIME BUT PROVIDED THE E VIDENCES IN SUPPORT OF RECEIPT THROUGH BANK AND PAYMENT THROUGH BANK WHICH WAS NOT DOUBTED BY THE A.O. CONSIDERING THE FACT THAT THE ASSESSEE WAS ASKED TO DISCHARGE THE ONUS AFTER LAPSE OF EIGHT YEARS AND THE FACT THAT T HERE WAS SEARCH AND SEIZURE OPERATION IN WHICH NOTHING INCRIMINATING WA S AVAILABLE THE ASSESSEES EXPLANATION CAN BE ACCEPTED AS BONAFIDE EXPLANATION IN SUPPORT OF THE CREDIT OF THE AMOUNT. IN VIEW OF THIS WE AR E OF THE OPINION THAT CONSIDERING THE FACTS OF THE CASE THE RECEIPT OF ` 3 00 000/- BY WAY OF CHEQUE FROM M/S. S. MUKESH & CO. WHICH WAS ALSO REPAID WI THIN A SHORT SPAN OF 11 MONTHS IS A GENUINE TRANSACTION. CONSEQUENTLY THE L OAN CAN BE ACCEPTED AS A GENUINE LOAN. THE A.O. IS DIRECTED TO ACCEPT THE LOAN AS GENUINE. GROUND IS ALLOWED. 17. APPEAL ALLOWED. ITA NO. 6049/MUM/2009 A.Y. : 2002-03 18. IN THIS YEAR ASSESSEE HAS RAISED THE FOLLOWING GROU NDS: - 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACT S IN PARTLY CONFIRMING THE DISALLOWANCE OF INTEREST EXPENSES AMOUNTING TO RS.35 000/- ON INTEREST FREE LOAN GIVEN TO MR. PANKAJ JOSHI AMOUNT ING TO RS.7 00 000/-. 3. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE DISALLOWANCE OF INTEREST AMOUNTING TO RS.24 000/- C OMPUTED @ 12% ON INTEREST FREE LOAN GIVEN TO MR. INDRABHAN SINGH AMOUNTING TO RS.2 00 000/-. 4. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE DISALLOWANCE OF INTEREST AMOUNTING TO RS.1 47 228/- U/S 14A OF THE INCOME TAX ACT 1961 R W R. 8D OF THE INCOME TAX R ULE 1962. ITA NOS. 6048 6049 &6050/MUM/2009 ITA 305 306 & 340/MUM/2010 SHRI PRAFUL N. SATRA 8 5. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACT S IN CONFIRMING THE RETROSPECTIVE APPLICABILITY OF THE RULE 8D OF THE I NCOME TAX RULES 1962 R.W.S. 14A OF THE INCOME TAX ACT 1961. 6. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING ADDITION OF SUM OF RS.16 50 000/- BEING ALLEGED UNE XPLAINED CREDITS U/S 68 OF THE ACT IN RESPECT OF LOAN TAKEN FROM (I) K. FINANCE TRADE LTD. AMOUNTING TO RS.11 50 00 0/- AND (II) NISHA KAVIRAN AMOUNTING TO RS.5 00 000/- 19. GROUND NOS. 2 & 3 PERTAINS TO ADVANCING OF AN AMOUN T OF ` 7 00 000/- INTEREST FREE LOAN TO SHRI PANKAJ JOSHI AND ` 2 00 000/- TO SHRI INDRABHAN SINGH OUT OF THE FUNDS AVAILABLE WITH THE ASSESSEE. THE A.O. WAS OF THE VIEW THAT ASSESSEE HAS BORROWED FUNDS AND ADVANCED INTER EST FREE. ACCORDINGLY INTEREST AT 12% WITH THE AVERAGE RATE OF INTEREST O N THE BORROWED FUNDS WAS DISALLOWED. HE DISALLOWED THE INTEREST OF ` 84 000/- ON THE LOAN GIVEN TO SHRI PANKAJ JOSHI AND ` 24 000/- ON THE LOAN GIVEN TO SHRI INDRABHAN SINGH OUT OF THE TOTAL CLAIM OF INTEREST EXPENDITURE OF ` 1 61 661/-IT WAS ASSESSEES CONTENTION THAT THERE WAS ONLY UNSECURED LOAN BORRO WED TO THE TUNE OF ` 19 50 000/- FOR WHICH INTEREST WAS PAID AND NONE O F THE AMOUNT BORROWED IN THE PROPRIETARY CONCERN WERE ADVANCED FREE BUT U SED FOR BUSINESS. IT WAS SUBMITTED THAT THE AMOUNT PAID TO MR. PANKAJ JOSHI WAS PAID FROM THE ACCUMULATED BALANCE SALES PROCEEDS RECEIVED AND AN AMOUNT OF ` 2 00 000/- RECEIVED FROM SHRI DIVESH H. TREIVEDI WH ICH WAS ALSO INTEREST FREE AND IN SUPPORT THAT ASSESSEE HAD OWN FUNDS T HE EXTRACTS OF BOOKS FROM 02.11.01 TO 08.11.2001 ON THE DATE ON WHICH ASSESS EE HAS ADVANCED ` 7 00 000/- WAS SUBMITTED TO THE A.O. FURTHER IT WAS ASSESSEES CONTENTION THAT OUT OF THE TOTAL BORROWALS OF ` 42 50 000/- THE INTEREST FREE AMOUNTS BORROWED WERE TO THE TUNE OF ` 23 00 000/- AND COUPLED WITH THE CAPITAL BALANCE OF ` 17 75 375/- THE ASSESSEE HAD INTEREST FREE FUNDS OF ` 40 75 375/-. IN VIEW OF THIS ADVANCING OF ` 7 00 000/- TO SHRI PANKAJ JOSHI AND ` 2 00 000/- TO SHRI INDRABHAN SINGH CANNOT BE CONSID ERED AS AMOUNTS ADVANCED FROM BORROWED FUNDS. THE CIT(A) HOWEVER DID NOT ACCEPT THE ABOVE SUBMISSIONS STATING THAT THE EXTRACT OF BANK ACCOUNT IS NOT RELEVANT AS IT SHOWS DISTORTED PICTURE AND CONFIRMED THE DIS ALLOWANCE BUT RESTRICTED THE AMOUNT TO ` 35 000/- AS THE ADVANCE WAS ONLY FOR A PERIOD OF SE VEN ITA NOS. 6048 6049 &6050/MUM/2009 ITA 305 306 & 340/MUM/2010 SHRI PRAFUL N. SATRA 9 MONTHS IN THE YEAR. WITH REFERENCE TO ` 2 00 000/- THE CIT(A) CONFIRMED THE DISALLOWANCE OF ` 24 000/- AS THE ASSESSEE MADE A CLAIM OF INTEREST O F ` 4 54 000/- IN THE PERSONAL BALANCE SHEET AND ACCORD INGLY THE SAME WAS ALSO STATED TO BE ADVANCED OUT OF THE BORROWED FUND S. ASSESSEE IS AGGRIEVED. 20. IT WAS THE SUBMISSION OF THE LEARNED COUNSEL THAT T HE A.O. HAS NOT EXAMINED THE ISSUE IN THE CORRECT PERSPECTIVE AS TH E ASSESSEE HAD SUBSTANTIAL INTEREST FREE BORROWED FUNDS AND FOLLOW ING THE PRINCIPLES ESTASBLISHED BY THE HON'BLE JURISDICTIONAL HIGH COU RT IN THE CASE OF RELIANCE UTILITIES 313 ITR 340 THIS ADVANCES WERE DEEMED TO HAVE ADVANCED OUT OF INTEREST FREE FUNDS ACCORDINGLY THE DISALLOWANCE I S NOT REQUIRED. HE HOWEVER HAD NO OBJECTION IF THE ISSUE IS RESTORED B ACK TO THE A.O. FOR FRESH EXAMINATION AS THIS ISSUE WAS NOT EXAMINED BY THE A .O. IN THE CORRECT PERSPECTIVE. 21. THE LEARNED D.R. HOWEVER RELIED ON THE ORDERS OF THE A.O. AND THE CIT(A). 22. CONSIDERING THE RIVAL SUBMISSIONS AND EXAMINING THE RECORD WE ARE OF THE VIEW THAT THE ISSUE REQUIRE RE-EXAMINATIONS BY THE A.O. IT IS ASSESSEES CONTENTION THAT IT HAD BORROWED FUNDS INTEREST FREE ALSO AND THE INTEREST FREE FUNDS WERE AVAILABLE FOR ADVANCING TO THE ABOVE TWO PERSONS INTEREST FREE. THIS ASPECT HAS NOT BEEN CONSIDERED IN THE CORRECT PERSPECTIVE AND THE A.O. DISALLOWED WITHOUT ESTABLISHING WHETHER THE INTERES T BEARING FUNDS HAVE BEEN ADVANCED FOR NON-BUSINESS PURPOSES. THEREFORE WE ARE OF THE VIEW THAT THE ISSUE REQUIRE RE-EXAMINATION BY THE A.O. HE IS DIRECTED TO KEEP IN MIND THE FACTS AS SUBMITTED BY THE ASSESSEE AND THE PRIN CIPLES OF LAW GOVERNING THE ISSUE OF DISALLOWANCE UNDER SECTION 36(1)(III) AND DETERMINE WHETHER THE ASSESSEE HAS INDEED DIVERTED INTEREST BEARING FUNDS TO ADVANCE INTEREST FREE. IN VIEW OF THIS THE ISSUE IN GROUND NOS. 2 & 3 IS RESTORED TO THE FILE OF THE A.O. FOR FRESH CONSIDERATION ON FACTS AND ON LAW. A SSESSEE SHOULD BE GIVEN AN OPPORTUNITY BEFORE DECIDING THE ISSUE. GROUNDS A RE CONSIDERED ALLOWED FOR STATISTICAL PURPOSE. 23. GROUND NOS. 4 & 5 PERTAIN TO THE ISSUE OF DISALLOWA NCE UNDER SECTION 14A R.W. RULE 8D. THE A.O. DISALLOWED AN AMOUNT OF ` 1 47 228/- INVOKING ITA NOS. 6048 6049 &6050/MUM/2009 ITA 305 306 & 340/MUM/2010 SHRI PRAFUL N. SATRA 10 SECTION 14A WHERE IT WAS THE SUBMISSION OF THE ASSE SSEE THAT ONLY AN AMOUNT ` 6 000/- WAS INVESTED IN RESPECT OF PPF AND THE BALA NCE ARE INVESTED IN SHARES WHICH CANNOT BE CONSIDERED AS TA X FREE INCOME EARNING INVESTMENT. FURTHER THE ASSESSEE HAS NOT INCURRED A NY EXPENSES NOR THERE WAS ANY EXEMPT INCOME IN THE YEAR. SINCE THE INVOCA TION OF RULE 8D WHILE CONSIDERING DISALLOWANCE UNDER SECTION 14A WAS NOT UPHELD BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG . CO. LTD. VS. DCIT 328 ITR 81 AND SINCE THE CIT(A) HAS FOLLOWED THE DE CISION IN THE CASE DAGA CAPITAL MANAGEMENT SERVICES LTD WHILE CONFIRMING TH E DISALLOWANCE OF ` 1 47 228/- WITHOUT THERE BEING ANY INCOME SO CLAIME D AS EXEMPT THE ISSUE REQUIRE RESTORATION TO THE FILE OF THE A.O. TO VERI FY WHETHER THERE WAS ANY INCOME WHICH CLAIMED AS EXEMPT AND IF SO WHETHER AN Y AMOUNT CAN BE DISALLOWED UNDER SECTION 14A KEEPING IN VIEW THE PR INCIPLES AS ESTABLISHED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE AB OVE REFERRED CASE. ACCORDINGLY THE MATTER IS RESTORED TO THE FILE OF T HE A.O. FOR FRESH CONSIDERATION. GROUNDS ARE CONSIDERED ALLOWED FOR S TATISTICAL PURPOSES. 24. GROUND NO. 6 PERTAINS TO THE ADDITION OF ` 16 50 000/- BEING UNEXPLAINED CREDIT IN RESPECT OF LOAN TAKEN FROM K. FINANCE TRADE LTD. AND NISHA KAVIRAN. THE A.O. DISALLOWED AN AMOUNT OF ` 17 00 000/- OUT OF THE TOTAL BORROWALS OF ` 61 00 237/- SHOWN BY HIM. ASSESSEES CONTENTION WAS THAT HE COULD NOT FILE CONFIRMATION IN RESPECT OF T HE THREE PARTIES DUE TO LAPSE OF TIME. THE CIT(A) WHILE DIRECTING THE A.O. TO EXAMINE THE CREDIT OF ` 50 000/- IN THE CASE OF JULLI KOTHARI CONFIRMED THE ADDITIONS MADE IN THE CASE OF K.K. FINANCE TRADE LTD. AND NISHA KAVIRAN T OTALLING TO ` 16 50 000/- WHICH THE ASSESSEE IS CONTESTING. IT WAS ASSESSEES CONTENTION THAT THE RECEIPTS AND PAYMENTS IN THE ABOVE TWO CASES WERE S UPPORTED BY HANK STATEMENTS AS WELL AS COPIES OF LEDGER ACCOUNTS AND THE CONFIRMATIONS OBTAINED DURING THE ORIGINAL ASSESSMENT PROCEEDINGS FOR A.Y. 2003-04 WAS RE-SUBMITTED IN THE REASSESSMENT PROCEEDINGS AND SI NCE THE TRANSACTIONS PERTAIN TO THE YEAR 2004 ASSESSEE COULD NOT FURNISH ANY CONFIRMATION DUE TO LAPSE OF TIME AND THE PRESENT POSITIONS OF THE PART IES ARE NOT AVAILABLE. THE CIT(A) DID NOT ACCEPT THE CONTENTION STATING THAT H E FAILED TO UNDERSTAND WHY THE REPLY HAS BEEN FILED IN THE ASSESSMENT PROC EEDINGS FOR A.Y. 2004-05 ITA NOS. 6048 6049 &6050/MUM/2009 ITA 305 306 & 340/MUM/2010 SHRI PRAFUL N. SATRA 11 AND NOT IN FOR ASSESSMENT PROCEEDINGS FOR A.Y. 2001 -02. HE ALSO REJECTED THE CONTENTION THAT ASSESSEE HAS FILED INFORMATION OF 3 5 PARTIES AND UNDER THE CIRCUMSTANCES BEYOND THE CONTROL OF THE ASSESSEE LO AN CONFIRMATIONS COULD NOT BE OBTAINED. THE CIT(A) CONFIRMED THE ABOVE TWO AMOUNTS. 25. IT WAS THE SUBMISSIONS OF THE LEARNED COUNSEL THAT GIVEN AN OPPORTUNITY THE ASSESSEE WOULD FURNISH THE RELEVANT CONFIRMATIONS AS THERE IS NO INCRIMINATING MATERIAL FOUND IN THE SEARCH AN D THE A.O. COULD NOT HAVE MADE THE ADDITION WHICH WAS ACCEPTED IN THE ORIGINA L ASSESSMENT AS ASSESSEE HAS FURNISHED CONFIRMATION IN THE ASSESSME NT PROCEEDINGS. 26. THE LEARNED D.R. HOWEVER SUBMITTED THAT THE ASSES SEE HAS NOT CONFIRMED THE CREDITS HENCE THE ADDITION IS WARRAN TED. 27. AFTER CONSIDERING THE RIVAL CONTENTIONS AND EXAMINI NG THE RECORD WE ARE OF THE VIEW THAT THE MATTER REQUIRES RE-EXAMINA TION BY THE A.O. IT IS A FACT THAT THE ASSESSEE HAS FURNISHED CONFIRMATION O F 35 PARTIES TOTALLING TO ` 61 00 237/-. WITH REFERENCE TO THE CREDIT OF ` 50 000/- IN THE CASE OF JULLI KOTHARI THE CIT(A) HAS ALSO ACCEPTED AND DIRECTED T HE A.O. TO EXAMINE AND ACCEPT IT. CONSIDERING THAT THE MAJOR CREDIT OF ` 11 50 000/- WAS FROM A COMPANY THE ASSESSEE SUBMITS THAT THE DETAILS CAN BE FILED IF OPPORTUNITY IS GIVEN. IN THE INTEREST OF JUSTICE WE RESTORE THE M ATTER BACK TO THE FILE OF THE A.O. TO EXAMINE AFRESH BEFORE DECIDING THE ISSUE WH ETHER THE ADDITION IS WARRANTED UNDER SECTION 68. THERE IS GENUINENESS IN THE SUBMISSION OF THE ASSESSEE EVIDENCES WERE FURNISHED IN LATER ASSESSME NT YEARS THE CREDITS ARE TO BE ACCEPTED. AS SEEN FROM THE CIT(A)S ORDER THE RE WAS SOME CONFUSION ABOUT SCRUTINY PROCEEDINGS IN A.Y. 2004-05 WHEREAS THE SCRUTINY WAS COMPLETED IN A.Y. 2003-04. SINCE THE ORDERS IN RESP ECT OF THE YEARS WERE NOT ON RECORD AND AS ASSESSEE SUBMITTED THAT THREE IS O NLY SCRUTINY IN A.Y. 2003-04 THIS ASPECT COULD NOT BE VERIFIED IN WHICH YEAR THE ASSESSEE HAS FURNISHED CONFIRMATIONS WITH REFERENCE TO THE LOAN CREDITS WHICH WAS ACCEPTED BY THE A.O. IN 143(3). THIS ALSO REQUIRES EXAMINATION BEFORE DECIDING THE ISSUE. IN CASE THE ASSESSEE HAS FURNIS HED CONFIRMATIONS IN SCRUTINY ASSESSMENT UNDER SECTION 143(3) AND THE A. O. ACCEPTED THEM IN THE ORIGINAL ASSESSMENT THE QUESTION OF RE-CONSIDERATI ON UNDER 143(3) R.W.S. ITA NOS. 6048 6049 &6050/MUM/2009 ITA 305 306 & 340/MUM/2010 SHRI PRAFUL N. SATRA 12 153A DOES NOT ARISE UNLESS THERE IS INCRIMINATING M ATERIAL ABOUT THE SAME. THE A.O. IS DIRECTED TO KEEP IN THIS ASPECT IN MIND WHILE EXAMINING THE CREDITS AFRESH. THE ISSUE IN GROUND NO. 6 IS ACCORD INGLY RESTORED TO THE FILE OF THE A.O. TO DECIDE AFRESH AFTER GIVING DUE OPPORTUN ITY TO THE ASSESSEE. 28. IN THE RESULT APPEAL IS CONSIDERED ALLOWED FOR ST ATISTICAL PURPOSES. ITA NO. 6050/MUM/2009 A.Y.: 2003-04 29. THE GROUNDS RAISED IN THIS ARE AS UNDER: - 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE DISALLOWANCE OF INTEREST EXPENSES AMOUNTING TO RS.8 4 000/- ON INTEREST FREE LOAN GIVEN TO MR. PANKAJ JOSHI AMOUNT ING TO RS.7 00 000/-. 3. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE DISALLOWANCE OF SUM OF RS.4 50 899/- COMPUTED @ 12% ON INTEREST FREE LOAN (RESTRICTED TO INTEREST EXPENSES CLAIMED. ) 4. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE DISALLOWANCE OF INTEREST AMOUNTING TO RS.4 50 899/- BEING INTEREST U/S 14A OF THE ACT R.W. RULE 8D OF THE INCOME TAX R ULE 1962. 5. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE RETROSPECTIVE APPLICABILITY OF THE RULE 8D OF THE I NCOME TAX RULES 1962 R.W.S. 14A OF THE INCOME TAX ACT 1961. 6. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN ENHANCING THE ASSESSMENT ORDER WITHOUT ISSUING NOTICE OF ENHANCEM ENT AND GRANTING AN OPPORTUNITY OF PERSONAL HEARING. 7. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN ISSUING INSTRUCTIONS TO ENHANCE THE DISALLOWANCE OF EXPENSE S AS PER RULE 8D BY TAKING % OF AVERAGE INVESTMENT. 8. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING ADDITION OF SUM OF RS.19 00 000/- BEING ALLEGED UNE XPLAINED CREDITS U/S 68 OF THE ACT IN RESPECT OF LOAN TAKEN FROM G.D. COMMERCIAL. 30. GROUND NOS. 2 & 3 ARE CONSEQUENTIAL DISALLOWANCES M ADE FOR THIS ASSESSMENT YEAR CONSEQUENT TO THE FINDINGS OF THE A .O. THAT BORROWED FUNDS WERE ADVANCED INTEREST FREE TO SHRI PANKAJ JOSHI OF ` 7 00 000/- AND SHRI INDRABHAN SINGH AND OTHERS. ACCORDINGLY THE INTERES TS WERE DISALLOWED OUT OF INTEREST EXPENSES CLAIMED. KEEPING IN VIEW OF TH E DISCUSSION IN A.Y. 2002- 03 AGAINST GROUND NOS. 2&3 IN THAT YEAR THE A.O. WA S DIRECTED TO EXAMINE THE ISSUE AFRESH. SINCE THE DISALLOWANCES ARE CONSE QUENTIAL THIS ISSUE IS ITA NOS. 6048 6049 &6050/MUM/2009 ITA 305 306 & 340/MUM/2010 SHRI PRAFUL N. SATRA 13 ALSO RESTORED TO THE FILE OF THE A.O. FOR FRESH CON SIDERATION. THE A.O. SHOULD KEEP IN MIND THE AVAILABILITY OF INTEREST FREE FUND S BORROWED FUNDS AND NEXUS WITH THE ADVANCES AND DECIDE THE ISSUE KEEPIN G IN VIEW THE LAW GOVERNING THE ISSUE OF DISALLOWANCE UNDER SECTION 3 6(1)(III). GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSES. 31. GROUND NOS. 4 TO 7 PERTAIN TO THE ISSUE OF DISALLOW ANCE UNDER SECTION 14A WHICH WAS CONFIRMED BY THE CIT(A) INVOKING RULE 8D. 32. KEEPING THE PRINCIPLES ESTABLISHED BY THE HON'BLE B OMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCI T 328 ITR 81 AND ALSO THE FACT THAT THE ASSESSEE HAS NOT EARNED INTEREST FREE INCOME DURING THE YEAR THE DISALLOWANCE UNDER SECTION 14A IS TO BE RECONSI DERED BY THE A.O. SIMILAR ISSUE IS ALSO RESTORED IN GROUND NOS. 4 & 5 FOR A.Y . 2002-03 ABOVE. ACCORDINGLY THE ISSUE IN THESE GROUNDS ALSO ARE ALS O RESTORED TO THE FILE OF THE A.O. WITH A DIRECTION TO CONSIDER THE DISALLOWA NCE UNDER SECTION 14A ON FACTS AND KEEPING THE PRINCIPLES OF LAW IN MIND. GR OUNDS ARE CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. 33. GROUND NO. 8 PERTAINS TO ADDITION OF ` 19 00 000/- IN RESPECT OF LOAN TAKEN FROM G.D. COMMERCIAL. IT WAS SUBMITTED THAT T HE CREDIT IN THE NAME OF G.D. COMMERCIAL WAS ONLY AN AMOUNT OF ` 9 00 000/- AND THE AMOUNT OF ` 10 00 000/- WAS RECEIVED M/S. MAA DANTESHWARI HITEC H HERBAL FARM AND BOTH THE CHEQUES WERE DEPOSITED BY WAY OF A SINGLE PAY-IN-SLIP HENCE IT WAS SHOWN AS A SINGLE CREDIT OF ` 19 00 000/- MISTAKENLY ACCOUNTED BY THE ACCOUNTANT AS A CREDIT FROM G.D. COMMERCIAL. IT WAS THE SUBMISSION THAT THE ACTUAL CREDIT WAS ONLY ` 9 00 000/- AND IN THE SECOND YEAR THE ERROR WAS RECTIFIED AND THESE CONFIRMATIONS WERE ALSO BEFORE THE AO/ CIT(A). IT WAS SUBMITTED FURTHER THAT THE LEDGER ACCOUNT ALONG WIT H THE BANK STATEMENT WAS SUBMITTED BEFORE THE CIT(A) AND LOAN DETAILS TA KEN FROM BOTH THE PARTIES OF ` 9 00 000/- AND ` 10 00 000/- RESPECTIVELY WERE ALSO SUBMITTED BUT TH E A.O. PROCEEDED IN HASTE TO TREAT THE LOAN OF ` 19 00 000/- AS BORROWED FROM M/S. G.D. COMMERCIAL AS AGAINST THE AMOUNT OF ` 9 00 000/-. THE CIT(A) HOWEVER DID NOT ACCEPT THE EXPLANATION GIVEN BY TH E ASSESSEE AND ALSO REFUSED TO CONSIDER THE ACCEPTANCE OF THE LOAN IN T HE CASE OF MAA ITA NOS. 6048 6049 &6050/MUM/2009 ITA 305 306 & 340/MUM/2010 SHRI PRAFUL N. SATRA 14 DANTESHWARI HITECH HERBAL FARM IN A.Y. 2004-05 AND CONFIRMED THE AMOUNT. IT WAS THE CONTENTION OF THE LEARNED COUNSE L THAT INSPITE OF THE EXPLANATION GIVEN BY THE ASSESSEE THAT CREDIT FROM M/S. G.D. COMMERCIAL WAS ONLY ` 9 00 000/- AND ` 10 00 000/- WAS RECEIVED FROM MAA DANTESHWARI HITECH HERBAL FARM THE A.O. AND THE CIT(A) DID NOT ACCEPT THE FACT AND CONFIRMED THE ADDITION. IT WAS FURTHER SUBMITTED TH AT THE LOAN CONFIRMATIONS WERE FURNISHED TO THE A.O. AND BY MISTAKE THESE WER E NOT CONSIDERED AND ADDITION OF ` 19 00 000/- WAS MADE. IN VIEW OF THIS IT WAS REQUES TED THAT THE MATTER CAN BE RESTORED TO THE FILE OF THE A.O. FOR FRESH EXAMINATION. 34. THE LEARNED D.R. HOWEVER RELIED ON THE ORDERS OF THE A.O. AND CIT(A). 35. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND EXAMINI NG THE RECORD WE ARE OF THE VIEW THAT THAT THE A.O. FAILED TO CONSID ER THE EXPLANATION GIVEN BY THE ASSESSEE WITH REFERENCE TO THE CREDITS. IT WAS ASSESSEES CONTENTION THAT ` 19 00.000/- WAS WRONGLY ACCOUNTED AS RECEIVED FROM M/S. G.D. COMMERCIAL WHEREAS TWO CHEQUES WERE RECEIVED OF ` 9 00 000/- FROM M/S. G.D. COMMERCIAL AND ` 10 00 .000/- FROM MAA DANTESHWARI HITECH HERBAL FARM AND THESES AMOUNTS WERE REPAID IN LATER YEARS WHICH WERE ACCEPTED BY THE A.O. WE ARE OF THE VIEW THAT THE MATTER REQU IRES RE-EXAMINATION BY THE A.O. HE IS DIRECTED TO EXAMINE THE CREDITS FROM THE ABOVE TWO CONCERNS AND EXAMINE THE BANK DEPOSIT SLIPS TO SEE WHETHER T HE ASSESSEES EXPLANATION IS GENUINE OR NOT AND IF THE ASSESSEES EXPLANATION IS GENUINE ACCEPT THE CONFIRMATIONS AND DECIDE THE ISSUE ACCOR DINGLY. ASSESSEE IS DIRECTED TO FURNISH NECESSARY EVIDENCES BEFORE THE A.O. IN VIEW OF THIS THE ISSUE IN GROUND NO. 8 IS RESTORED TO THE FILE OF TH E A.O. FOR FRESH EXAMINATION AND DECIDING ACCORDING TO THE FACTS AND LAW. 36. BEFORE PARTING WITH THE GROUNDS IT IS NOTICED THAT THE ASSESSMENT UNDER SECTION 143(3) WAS COMPLETED FOR THIS ASSESSM ENT YEAR MAKING CERTAIN DISALLOWANCES IN THE SCRUTINY ASSESSMENT. SINCE THE ASSESSMENT UNDER SECTION 143(3) WAS COMPLETED EARLIER THE A.O. IS A LSO DIRECTED TO KEEP IN MIND THAT THE ISSUES WHICH WERE CRYSTALLISED IN THE ORIGINAL ASSESSMENT SHOULD NOT BE RE-AGITATED IN THE ASSESSMENT UNDER S ECTION 143(3) W.R.S. 153A UNLESS THERE IS INCRIMINATING MATERIAL. SINCE THE ASSESSMENT ITA NOS. 6048 6049 &6050/MUM/2009 ITA 305 306 & 340/MUM/2010 SHRI PRAFUL N. SATRA 15 PROCEEDINGS HAVE BEEN ALREADY CONCLUDED AND NOT ABA TED FOR THIS ASSESSMENT YEAR THE ISSUE OF RE-EXAMINATION WILL A RISE ONLY IF THERE IS INCRIMINATING MATERIAL OR ON THE ISSUES WHICH ARE N OT CONSIDERED IN THE ASSESSMENT U/S143(3). 37. WITH DIRECTION THE APPEAL IS CONSIDERED ALLOWED FO R STATISTICAL PURPOSES. ITA NO. 305/MUM/2010 A.Y. : 2004-05 38. ASSESSEE HAS RAISED THE FOLLOWING GROUNDS FOR THIS ASSESSMENT YEAR: - 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE DISALLOWANCE OF INTEREST EXPENSES AMOUNTING TO RS.8 4 000/- ON INTEREST FREE LOAN GIVEN TO MR. PANKAJ JOSHI AMOUNT ING TO RS.7 00 000/-. 3. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE DISALLOWANCE OF SUM OF RS.9 65 92/- COMPUTED @ 12% ON INTEREST FREE LOAN GIVEN (RESTRICTED TO INTEREST EXPENSES CL AIMED.) 4. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE DISALLOWANCE OF INTEREST AMOUNTING TO RS.10 17 325/ - BEING INTEREST U/S 14A OF THE ACT R.W. RULE 8D OF THE INC OME TAX RULE 1962. 5. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE RETROSPECTIVE APPLICABILITY OF THE RULE 8D OF THE I NCOME TAX RULES 1962 R.W.S. 14A OF THE INCOME TAX ACT 1961. 6. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN FURTHER DISALLOWING EXPENSES AS PER RULE 8D BEING % OF THE AVERAGE INVESTMENT. 7. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN ENHANCING THE ASSESSMENT ORDER WITHOUT ISSUING NOTICE OF ENHANCEM ENT AND GRANTING AN OPPORTUNITY OF PERSONAL HEARING. 8. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING ADDITION OF SUM OF RS.3 50 000/- BEING ALLEGED UNEX PLAINED CREDITS U/S 68 OF THE ACT IN RESPECT OF LOAN TAKEN FROM A. R.C. TRIVEDI AMOUNTING RS.2 00 000/-. 9. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS C ONFIRMING THE CHARGING INTEREST UNDER SECTION 234B AND 234C OF TH E ACT. 39. IN THE COURSE HEARING THE ASSESSEE DID NOT PRESS GR OUND NO. 8 AS THE CIT(A) HAS DIRECTED THE MATTER TO BE EXAMINED BY TH E A.O. AND THE GROUND WAS WRONGLY RAISED. ITA NOS. 6048 6049 &6050/MUM/2009 ITA 305 306 & 340/MUM/2010 SHRI PRAFUL N. SATRA 16 40. GROUND NOS. 2 & 3 PERTAIN TO THE ISSUE OF DISALLOWA NCE OF INTEREST ON THE INTEREST FREE LOANS GIVEN TO SHRI PANKAJ JOSHI AND ` 7 00 000/- IN A.Y. 2002-03 AND TO OTHERS. FOR THE REASONS STATED IN A. Y. 2002-03 THE ISSUE IS RESTORED BACK TO THE FILE OF THE A.O. TO CONSIDER T HE DISALLOWANCE AFTER EXAMINING THE FACTS AND SUBMISSIONS OF THE ASSESSEE AND KEEPING IN MIND THE PRINCIPLES ESTABLISHED JUDICIALLY FOR DISALLOWA NCE UNDER SECTION 36(1)(III). THE ISSUE IS RESORTED TO THE FILE OF THE AO FOR FRE SH CONSIDERATION. 41. GROUND NOS. 4 TO 7 PERTAIN TO THE ISSUE OF DISALLOW ANCE UNDER SECTION 14A OF A SUM OF ` 10 17 325/-. SIMILAR ISSUE IS CONSIDERED IN A.Y. 20 02-03 IN ITA NO. 6049/MUM/2009 ABOVE AND IN AY 2003-04 AND R ESTORED TO THE AO. FOR THE SAME REASONS THE ISSUE OF DISALLOWANCE U/S 14A FOR THIS YEAR ARE ALSO RESTORED TO THE FILE OF AO FOR RECONSIDERATION . 42. GROUND NO. 9 IS WITH REFERENCE TO LEVY OF INTEREST UNDER SECTION 234B AND 234C WHICH IS CONSEQUENTIAL IN NATURE. 43. APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 306/MUM/2010 A.Y. 2005-06 44. ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN THIS A PPEAL: - 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE DISALLOWANCE OF INTEREST EXPENSES AMOUNTING TO RS.8 4 000/- ON INTEREST FREE LOAN GIVEN TO MR. PANKAJ JOSHI AMOUNT ING TO RS.7 00 000/-. 3. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE DISALLOWANCE OF INTEREST AMOUNTING TO RS.4 60 830/- BEING INTEREST U/S 14A OF THE ACT R.W. RULE 8D OF THE INCOME TAX R ULE 1962. 4. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE RETROSPECTIVE APPLICABILITY OF THE RULE 8D OF THE I NCOME TAX RULES 1962 R.W.S. 14A OF THE INCOME TAX ACT 1961. 5. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING ADDITION OF SUM OF RS.5 00 000/- BEING ALLEGED UNEX PLAINED CREDITS U/S 68 OF THE ACT IN RESPECT OF LOAN TAKEN FROM IMPACT INFORMATION MARKETING PVT. LTD. 6. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS C ONFIRMING THE CHARGING INTEREST UNDER SECTION 234B AND 234C OF TH E ACT. 45. GROUND NOS. 2 PERTAINS TO THE ISSUE OF DISALLOWANC E OF INTEREST ON THE INTEREST FREE LOANS GIVEN TO SHRI PANKAJ JOSHI ` 7 00 000/- IN A.Y. 2002-03 ITA NOS. 6048 6049 &6050/MUM/2009 ITA 305 306 & 340/MUM/2010 SHRI PRAFUL N. SATRA 17 AND TO OTHERS. FOR THE REASONS STATED IN A.Y. 2002- 03/2003-04/2004-05 THE ISSUE IS RESTORED BACK TO THE FILE OF THE A.O. TO CONSIDER THE DISALLOWANCE AFTER EXAMINING THE FACTS AND SUBMISSIONS OF THE AS SESSEE AND KEEPING IN MIND THE PRINCIPLES ESTABLISHED JUDICIALLY FOR DISA LLOWANCE UNDER SECTION 36(1)(III). THE ISSUE IS RESORTED TO THE FILE OF TH E AO. 46. GROUND NOS. 3 & 4 PERTAIN TO THE ISSUE OF DISALLOWA NCE UNDER SECTION 14A OF A SUM OF `4 60 380 /-. SIMILAR ISSUE IS CONSIDERED IN A.Y. 2002-03 IN ITA NO. 6049/MUM/2009 ABOVE AND IN AY 2003-04 AND R ESTORED TO THE AO. FOR THE SAME REASONS THE ISSUE OF DISALLOWANCE U/S 14A FOR THIS YEAR ARE ALSO RESTORED TO THE FILE OF AO FOR RECONSIDERATION . GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSES. 47. GROUND NO. 5 PERTAINS TO DISALLOWANCE UNDER SECTION 68 OR ` 5 00 000/- PERTAINING TO IMPACT INFORMATION MARKETI NG PVT. LTD. A.O. OBSERVED THAT AN AMOUNT OF ` 5 00 000/- APPEARS AS CREDIT IN THE NAME OF IMPACT INFORMATION MARKETING PVT. LTD. AND ASSESSEE HAS NOT EVEN FILED CONFIRMATION LETTER IN SPITE OF REPEATED REQUESTS A ND SINCE THE ASSESSEE HAS NOT ESTABLISHED THE IDENTITY AND CREDITWORTHINESS O F THE LENDER THE AMOUNT OF ` 5 00 000/- HAS BEEN ADDED TO THE INCOME OF THE ASSE SSEE UNDER SECTION 68. THE CIT(A) CONFIRMED THE ADDITION STATING THAT MERE FILING OF COPY OF LEDGER ACCOUNT IS NOT SUFFICIENT TO PROVE THE LOAN CLAIMED BY THE ASSESSEE AS GENUINE. 48. IT WAS THE SUBMISSION OF THE LEARNED COUNSEL THAT G IVEN AN OPPORTUNITY THE ASSESSEE WOULD BE IN A POSITION TO FURNISH THE CONFIRMATION. SINCE THE ASSESSMENT YEAR IS 2005-06 AND NOT MUCH T IME HAS ELAPSED BY THE TIME ASSESSMENTS WERE TAKEN UP AND FURTHER SINC E THE CREDIT IS FROM A COMPANY IN THE INTEREST OF JUSTICE WE ARE OF THE OPINION THAT THE ASSESSEE SHOULD BE GIVEN ONE MORE OPPORTUNITY TO EXPLAIN THE CREDIT. IN VIEW OF THIS THE ISSUE IN GROUND NO. 5 IS RESTORED TO THE FILE O F THE A.O. TO EXAMINE THE CREDIT AFRESH. ASSESSEE IS DIRECTED TO FURNISH NECE SSARY CONFIRMATION IN SUPPORT OF THE CREDIT. ACCORDINGLY THE GROUND IS RE STORED TO THE FILE OF THE A.O. ITA NOS. 6048 6049 &6050/MUM/2009 ITA 305 306 & 340/MUM/2010 SHRI PRAFUL N. SATRA 18 49. GROUND NO. 6 IS WITH REFERENCE TO LEVY OF INTEREST UNDER SECTION 234B AND 234C WHICH IS CONSEQUENTIAL IN NATURE. APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO.340/MUM/2010 A.Y. : 2005-06 50. REVENUE HAS RAISED THE FOLLOWING THREE GROUNDS: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT NO PART OF THE INTEREST BEARING LOAN HAS BEEN DIVERTED BY THE ASSESSEE FOR NON BUSINESS PURPOSES AND CONSEQUENTLY THE DISALLOWANCE OF RS.28 24 970/- BY THE ASSESSING OFFICER OUT OF INTEREST EXPENSES WAS JUSTIFIED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) HAS ERRED IN NOT APPRECIATING THE FA CT THAT THE ASSESSEES EXPLANATION PROVIDED TO HIM REGARDING TH E SOURCE OF INTEREST FREE ADVANCES OF RS.2.5 CRORES DURING THE YEAR WAS DIFFERENT TO THE ONE SUBMITTED BY HIM BEFORE THE AS SESSING OFFICER. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE U/S. 14A R.W. RULE 8D OF THE INCOME-TAX RULES 1962 OUT OF THE INTEREST EXPENSES TO RS.4 60 380/- (AS COMPUTED BY THE ASSESSEE) AFTER VERIFICATION EVEN THOUGH THE SAID DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D WORKS O UT TO RS.15 05 830/- AND NOT RS.4 60 380/-. THESE ISSUES ARE LINKED TO ASSESSEES APPEAL. 51. GROUND NO. 1 & 2 PERTAINS TO THE DISALLOWANCE OF I NTEREST WHICH THE CIT(A) HAS DELETED. SINCE THE ISSUE IN GROUND 2 OF DISALLOWANCE OF INTEREST ON DIVERSION OF FUNDS WAS RESTORED TO THE FILE OF THE A.O. THIS ISSUE ALSO IS RESTORED TO THE FILE OF THE A.O. FOR FRESH EXAMINAT ION. ACCORDINGLY THE GROUND IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 52. GROUND NO. 3 PERTAINS TO THE ISSUE OF DISALLOWANCE UNDER SECTION 14A MODIFIED BY THE CIT(A) FOLLOWING RULE 8D. SINCE THE ISSUE IS ALSO RESTORED TO THE FILE OF THE A.O. IN GROUND NOS. 3 & 4 IN ASSESS EES APPEAL ITA NO. 306/MUM/2010 THIS ISSUE IS ALSO TO BE RESTORED TO THE FILE OF THE A.O. TO CONSIDER IT AFRESH ACCORDING TO THE FACTS AND LAW. ACCORDINGLY THE GROUND IS CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. 53. APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ITA NOS. 6048 6049 &6050/MUM/2009 ITA 305 306 & 340/MUM/2010 SHRI PRAFUL N. SATRA 19 54. IN THE RESULT APPEAL IN ITA NO. 6048/MUM/2009 IS A LLOWED AND THE APPEALS IN ITA NO. 6049/MUM/2009 ITA 6050/MUM/2009 ITA NO. 305/MUM/2010 ITA NO. 306/MUM/2010 AND ITA NO. 340/ MUM/2010 ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH JANUARY 2011. SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI DATED: 5 TH JANUARY 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CENTRAL VIII MUMBAI 4. THE CIT CENTRAL III MUMBAI CITY 5. THE DR C BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.