Appeals allowed on suppressed sales, interest disallowance remanded for verification. Recalculation directed. Rectification petitions dismissed as moot.

The appeals regarding the addition on account of suppressed sales were partly allowed, with the issue remanded to the Assessing Officer for further examination. The disallowance of interest claimed for business purposes was also remanded for verification. The disallowance of interest against income from other sources was upheld. The recalculation of interest under sections 234B and 234C was directed. Appeals related to rectification petitions were dismissed as moot due to the main issue being remanded.

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Issues Involved:
1. Addition on account of suppressed sales from construction activities.
2. Disallowance of interest claimed for business purposes.
3. Disallowance of interest claimed against income from other sources.
4. Charge of interest under sections 234B and 234C.
5. Rectification petitions under section 154 of the Income Tax Act.

Detailed Analysis:

1. Addition on Account of Suppressed Sales from Construction Activities:
The main dispute in both appeals revolves around the addition due to alleged suppressed sales from construction activities. Both assessees were engaged in the construction business and jointly developed the Sukh Niwas Project, declaring losses for the relevant assessment year. The AO noted discrepancies in the sales details, including selling commercial properties at residential rates and selling properties at lower rates compared to earlier years. The AO issued a show cause notice estimating unaccounted receipts at Rs.1 crore and proposed adding 50% of the same to the income of each assessee. The AO's addition was based partly on the difference between the sale consideration shown (Rs.3,98,50,000) and the stamp duty value (Rs.5,34,85,000).

The assessees contended that they had not suppressed any sales and that the stamp duty value should not be substituted for sale consideration in their case, as the flats/shops were stock-in-trade. They also argued that the AO had not verified the sale considerations with the buyers. The CIT(A) confirmed the addition, noting discrepancies in the prices of different flats/shops and the general nature of the assessees' explanations.

The Tribunal found that the AO's addition was partly based on the alleged agreement by the assessees, which was not substantiated by evidence. The Tribunal noted that while the sale value declared was significantly lower than the stamp duty value, the AO had not conducted any inquiry to gather comparative material. The Tribunal set aside the CIT(A)'s order and restored the issue to the AO for fresh examination.

2. Disallowance of Interest Claimed for Business Purposes:
In the case of Mrs. Hansa L. Shah, the AO disallowed 50% of the interest claimed on the grounds that the assessee could not prove the nexus between borrowed funds and their use for business purposes. The CIT(A) confirmed the disallowance, noting the lack of a funds flow statement. The Tribunal agreed with the assessee that no disallowance should be made for the opening balance of loans if no disallowance was made in the earlier year. The issue was restored to the AO for verification and fresh adjudication.

3. Disallowance of Interest Claimed Against Income from Other Sources:
The AO disallowed 50% of the interest claimed against bank interest income, as the assessee could not prove the nexus between borrowed funds and corresponding investments. The CIT(A) confirmed the disallowance. The Tribunal upheld the disallowance, noting that the AO had been reasonable in disallowing only 50% of the interest claimed.

4. Charge of Interest Under Sections 234B and 234C:
The assessees raised a ground regarding the charge of interest under sections 234B and 234C, which was stated to be consequential. The Tribunal directed the AO to recompute the interest while giving effect to the order.

5. Rectification Petitions Under Section 154:
The assessees filed rectification petitions under section 154, requesting rectification of the assessment orders concerning the alleged agreement for addition of Rs.25 lakhs. The AO rejected the rectification applications, and the CIT(A) confirmed the rejection. The Tribunal noted that the appeals related to rectification petitions had become infructuous due to the setting aside of the CIT(A)'s order on the main issue of suppressed sales. Consequently, the appeals in relation to rectification orders were dismissed as infructuous.

Conclusion:
The appeals concerning the addition on account of suppressed sales were partly allowed for statistical purposes, with the issue restored to the AO for fresh examination. The disallowance of interest claimed for business purposes was also restored to the AO for verification. The disallowance of interest against income from other sources was upheld. The charge of interest under sections 234B and 234C was directed to be recomputed. The appeals related to rectification petitions were dismissed as infructuous.

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