TaxTMI 
TaxTMI 
2015 (7) TMI 447
X X X X Extracts X X X X
X X X X Extracts X X X X
....rest bearing funds were advanced for non-business purposes. 2. During hearing of these appeals, we have heard, Shri Neil Philip, Ld. DR and Shri Vijay Kothari, ld. counsel for the assessee. The crux of arguments advanced on behalf of the Revenue is identical to the ground raised by further submitting that the reasons were validly recorded by the Assessing Officer as there was valid information from another ITO, which was the basis of reopening the assessment. Our attention was invited to page-5 (para-4) and the finding contained in para-5.8 of the assessment order to the fact that the impugned amount was for non-business purposes. It was asserted that interest bearing funds were diverted by the assessee for non-commercial purposes. It was further contended that the funds are from overdraft account. 2.1. On the other hand, Shri Vijay Kothari, ld. counsel for the assessee, invited our attention to the reasons recorded by the Assessing Officer by submitting that the Assessing Officer has not made any independent investigation of facts and the satisfaction was borrowed one. The necessary documents were very much available with the Assessing Officer for which our attention was inv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt proceedings for A. Y.200S-09 in the case of Shri Nilesh Janardhari Thakur (Proprietor of M/s. PRS Developers), it came to light that the aforesaid party is in receipt total amount of Rs. 43,50,00,000/- from the assessee company on various dates in F. Y. 2007-08. Further, the said party accounted such receipts as advances towards the expenses related to the development works at Kandiuali project in the capacity of a partner of S.P. Group, for which no documentary evidences have been maintained by the said concern. The ITO in the course of assessment proceedings made third party enquiries with the assessee company and accordingly, held that the assessee company though made substantial payments to M/s. PRS Developers (Prop. Shri Nilesh J. Thakur), do not have any documentary evidences to substantiate such advances towards acquisition of land on behalf of the assessee company. Importantly, the ITO in his letter categorically reported that the said entity has no business activity that is to say no capacity to acquire land on behalf of the assessee company besides the assessee company itself is having its own machinery of legal/technical/ marketing/financial department, etc., for doin....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... disallowance of proportionate interest expense. 4. With the above stated information in my possession the assessment in this case has been re-opened by issuing notice u/s.148 of the Act on 25-05- 2012 after properly recording the reasons for the same. Further, the reason for re-opening of the assessment has been duly provided to Shri A. L. Arokiadas, AR of the assessee on 06-12-2012. Thereafter, the assessee vide its letter dated 07-01-2013 received in this office filed its objection for the re-opening of the assessment which are as under:- "We had filed our return of income for A. Y. 2008-09 on 29.9.2008 declaring total income of Rs. 188,50,28,066/-. The return of income was processed u/s. 143(1) on 27.7.2009. Notice u/s. 143(2) was issued on 4.8.2009, selecting our case for scrutiny. We have furnished all such details and records called for by the AO vide various notices issued and as per the details called for during assessment proceedings. The AO vide his order u/.s. 143(3) dated 27.12.2010 assessed the total income at Rs. 191,99,06,040/-. A notice u/s.148 dated 25.5.2012 was served upon us on 28.5.2012. We have been provided with a copy of reasons recorded in writing fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ness purpose under the garb of advances for which we' do not have any documentary evidences in our possession; Since we have claimed (interest & financial cost' in the accounts, the element of interest bearing funds siphoned of for non business purpose under the garb of advances has direct impact over the profits of the company to the extent of funds doled out for nonbusiness purposes; We follow 'percentage completion method' for recognizing revenue from various projects; Therefore, it is clear that some interest expenditure has been debited to the Profit & Loss Account thereby reducing the taxable profits; The source of funds has to be examined for these payments of Rs. 43,50,00,000/ -. Interest bearing funds diverted for non-business purpose would result in disallowance of proportionate interest expense Our books of account contain entries in respect of non-genuine expense which has direct impact over the interest bearing funds which have been deployed for non-business purpose. At the outset we have to submit that we have not made any payments to M/s. PRS Developers or to Shri Nilesh. Janardhan Thakur. We have made payments for acquisition of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iardhari Thakur (Proprietor of M/s. PRS Enterprises), it cannot be said that any income chargeable to tax has escaped assessment: From around 2005, we wanted to acquire large tracts of land in the Panvel, Alibag, Pen and Raigad areas ("Project Areas") for our business activities. We were approached by several persons who were land aggregators. Around 2007, we were approached by one Nilesh Janardhari Thakur who represented that he and his team were in the business of assisting in the acquisition of large parcels of land. Shri Nilesh. Jariardhan. Thakur also claimed that he was from the Alibag area and was conversant with the local people and issues, rules and procedures applicable with land acquisition in the Project Areas. Since Nilesh Janardhan Thakur through his concerns, had worked with SD Corporation Pvt. Ltd. ("SDCL), in SDCL's project at Samta Nagar, Kandivili, we entrusted Shri Nilesh Thakur with the task of indentifying and aggregating 900 acres of lands for us in the Project Areas. By Letter of Appointment dated 16th July, 2007, we appointed Shri Nilesh Janardhari Thakur through his entity PRS Enterprise to identify, assist and aggregate for us, the lands in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ely connected with those sought for by us) in their own name and in the names of their nominee entities. By his letter dated 22nd March 2010 Shri Nilesh Janardhan Thakur informed us that the payment received was used for acquiring properties and that the surplus had been kept in fixed deposit i. e. that our money was secured either by properties and/or fixed deposits. Subsequent to regular follow-up and discussions with Shri Nilesh Janardhan Thakur between 2010 and July 2011, Shri Nilesh Janardhan Thakur finally agreed to refund the monies received (both by handing over deposits/money/investments and also by transfer of immoveable properties) to us. However thereafter, Shri Nilesh Janardhan Thakur, wrongfully failed to comply and refund the monies and/ or transfer the properties to us. In the circumstances, we were constrained to file Suit No, 2576 of 2011 against Shri Nilesh. Janardhan Thakur, PRS Enterprises & others in September 2011, We also threatened to initiate criminal action against him. In the suit) the aforesaid letters of appointment & facts were referred to. Subsequent thereto Shri Nilesh Janardhan Thakur agreed to settle the matter by transferring all the mov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ises vide letter dated 19th July 2007. Hence there are valid agreements entered into for acquisition of lands. (d) We have doled out interest bearing funds for non business purpose under the garb of advances It would be wrong to ay that we have made payments to M/s PRS Enterprises (Proprietorship concern of Shri Nilesh Janardhan Thakur) and Acecard Infrasol Pvt. Ltd. for non business purposes. As regards the issue of source of funds from which advances have been given, kindly refer to the submissions at para 10 hereinabove (e) Since we have claimed 'interest & financial cost' in the accounts, the element of interest bearing funds siphoned off for non business purpose under the garb of advances has direct impact over the profits of the company to the extent of funds doled out for nonbusiness purposes Kindly refer to the submissions made hereinabove. As regards the source of funds from which the payments to M/ s. PRS Enterprises (Proprietorship concern of Shri Nilesh Janardhan Thakur) and Acecard Infrasol Pvt. Ltd. towards (advance for land' we have to submit as hereunder: As per the Balance Sheet as at 31.3.2008 the Net, Worth (Sharehold....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f to kindly provide us with copy of the assessment/appellate order of Shri Niiesh. Janardhan Thakur as also all other material/ documents/ records on the basis of which ITO 25(1)(4) has arrived at various conclusions/observations/findings. We also have to request that we be given an opportunity of cross examining Shri Nilesh Janardhari Thakur, in case any adverse conclusion/Inferences are being drawn against us in relation to the business transactions we had with him through his proprietorship concern M/s. PRS Enterprises and Ace Card Infrasol Pvt. Ltd. 5. The objections raised by the assessee company have been examined thoroughly and the same are being rebutted as under: (i) The assessment has been reopened within a periods of four years. Hence, in view of the judgment of the Hon'ble Supreme Court in Court in the case of CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC), 1 am acting within jurisdiction while reopening the assessment on the basis of "tangble material" in my possession from which 1 came to the conclusion that there is an escapement of income from assessment. (ii) In the instant case, during the original assessment proceedings, no query was raised by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arantee Corporation of India ltd. Vs. The Additional Commissioner of Income Tax and others in Writ Petition No. 502 of 2012 held that when an assessment is sought to be reopened within a period of four years of the end of the relevant assessment year, the test to be applied is whether there is tangible material to do so. What is tangible is something which is not illusory, hypothetical or a matter of conjecture. From any stretch of imagination it cannot be said that the material in the form of information from the ITO 25(1)(4) is "illusory, hypothetical or a matter of conjecture". Hence I was well within my jurisdiction while reopening the assessment of the assessee based on the information shared by the other assessing authority. (vi) The contention of the assessee that reopening of assessment on the basis of information received from other Assessing Officer tantamount to (borrowed satisfaction'Q is not maintainable, as the ITO 25(1)(4) has just passed on information regarding transactions of the assessee with the concerns of Shri Nilesh Jariardhari Thakur to me for necessary action at my end and it is me who formed reason to believe' based on this new information in hi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt to disclosure within the meaning of the proviso. Therefore, mere production of the, balance-sheet profit and loss account or account books will not necessarily amount to disclosure within the meaning of the Qproviso. In the present case, the facts show that the Assessing Officer overlooked the aforestated item; That, he noticed it subsequently. That, at the time of. passing the original order of assessment, he could not be said to have opined on the above item. Therefore, there was no change of opinion." (x) In a recent decision the Hon'ble High Court Of Delhi in the case of Commissioner of Income-tax v. Nova Promoters & Finlease (P) Ltd. *[18 taxmann.com 217 (Delhi)] [2012] held that at stage of issuing notice under section 148 merits of matter are not relevant and Assessing Officer at that stage is required to form only a prima facie belief or opinion that income chargeable to tax has escaped assessment and once that stage is crossed and reassessment proceedings are set in motion, material on basis of which requisite belief was formed by Assessing Officer has to be appraised and examined. (xi) The Hon'ble High Court Of Madras in the case of M/s Tamil Nadu. Petro ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n given by the ADIT (Inv.) or the materials available with him on record could not be said to be irrelevant. It also could not be said that the initiation of proceedings under section 1471 148 was motivated by suspicion, rumor or gossip. In this view of the matter, the validity of the proceedings initiated by the Assessing Officer under section 1471 148 was to be upheld." 6. Thus it is held that the objection raised by the assessee is not correct and are hereby rejected by this speaking order and accordingly the decision of Hon'ble Supreme Court in the case of G. K. N. Driveshafts has been complied. Therefore, the proceeding have rightly been initiated u/ s.14 7 of the 1. T. Act, 1961 on the basis of the reasons recorded after taking into account the facts, circumstances and the law involved in the case and the notice HI s. 148 of the I.T. Act, 1961 has been validly issued as per law. 7. Lastly, the request for the copies of assessment/ appellate orders of Shri Nilesh Janardhan Thakur has not been considered at this moment which will be considered in the course of assessment proceedings. ............" 3. After disposing off the assesee's objection for re-opening th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bai. Vide letter dated 10-05-2012 the assessee has submitted as under: "Q.1 Details of transactions entered with Mr. Nilesh J. Thakur, Proprietor of M/ s. PRS Enterprise/ PRS Developers/ M/ s. Ace Card Infrasol Pvt. Ltd. Transactions are in the nature of advance payments made towards acquisition of lands with clear and marketable title in and around Alibaug, other areas in Raigad District. During the previous years 2007-08, 2008-09 and 2009-10 (relevant to A. Y.2008-09, A. Y.2009-10, and A. Y. 2010-2011) the company made advances as under tor acquisition of lands aggregating to Rs. 141.50 crores, details of which are provided in Annexure File. Name of Entity Total PRS Enterprise 845,000,000/- Ace Card Infrasol Pvt. Ltd. 570,000,00/- Kindly note that no payments were made by the Company to Shri Nilesh J. Thakur and PRS Developers. A detailed note together with relevant documents on the nature of transactions with Mr. Nilesh Thakur is provided in the Annexure File. Q.2. Details of payment made to M/ s. PRS Enterprise/ PRS Developers /M/ s. ACE Card Infrasol Pvt. Ltd. proprietary concerns of Mr. Nilesh J. Thakur. A. We have made payments as s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....M/s. PRS Enterprises vide letter dated 16th July, 2007 and as per the understanding, the first payment of Rs. 2 crore was made on 11th July; 2007 (clause 6 of the agreement). The copy of the original appointment letter is being produced herewith Q.8. As per your submission, the first payment of Rs. 2 Crores was released on 11.07.2007, which is even before the issue of appointment letter by M/s. SPCL which is dated 16th July 2007 and confirmation. of the appointment letter filed by M/ s. PRS Enterprises vide letter dated 19th July, 2007. Kindly explain how the payment had been released prior to the issuance as well as acceptance of appointment letter. Is there any board resolution in that effect? Further, did you have any prior business relation with M/s. PRS Enterprises or associated concerns? Kindly explain how and when you came in contact with NI/ s. PRS Enterprises and associated concerns. Ans. From around 2005, SPCL wanted to acquire large tracts of land in the Panvel, Alibauq, Pen and Raigad areas ("Project Areas") for their business activities. SPCL was approached by several persons who were land aggregators. Around 2007, SPCL was approached by one Nilesh Thakur who rep....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the project area and the vagaries of purchasing land in the mofusil, all on-account advances shall be made by Company to you alone or to your entities. It shall be your duty and obligation to fully pay the land owners for the transfer of the lands. In the name of Company and obtain all approvals and clearances without any further costs or expenses to Company". From the above, it would be seen that SPCL had agreed to pay on account advances and the advances had to be made either to M/s. PRS Enterprises or to any such other entity as may be advised by M/ s. PRS Enterprises. In view of the aforesaid clause and on advise of M/s. PRS Enterprises, SPCL has made on account advances to M/s. ACE Card Infrasol Pvt. Ltd. I am not aware of the shareholding of the M/ s. ACE Card Infrasol Pvt. Ltd. Q.10 Kindly provide the letter of nomination in the name of M/s. ACE Card Infrasol Pvt. Ltd. as filed by M/s. PRS Enterprises a proprietorship of Mr. Nilesn J. Thakur. Ans. I will verify the record and submit the requisite details within seven days. Q.11 Kindly produce the bills and vouchers as submitted by Shri N. J. Thakur and his associated concerns like PRS Enterprises, M/s. ACE Ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erns. Ans. I will verify the record and submit the requisite details within seven days. Q. 15. Whether any TDS. has been deducted by. M/s. SPCL on these payments made to M/ s. PRS Enterprises or M/ s. ACE Card Infrasol Pvt. Ltd. In view of the fact that as per your own submission the' payments were made for providing the services of land aggregation or in the nature of commission or in the nature of payment release under the terms of contract/ agreement(without prejudice to the nature of each payment)? Ans. No Since the amounts paid were merely advances for land, TDS was not required to be deducted. Further, since the relationship between PRS Enterprises and M/s. ACE Card Infrasol Pvt. Ltd. was on a principal to principal basis and they were only independent land aggregators, no TDS was required to be deducted as pr the provisions of the IT Act, 1961 . Q.16 How such payments have accounted in the books? Ans. Such advances given to M/ s. PRS Enterprises and M/ s. ACE Card Infrasol Pvt. Ltd. have been reflected as current assets in the balance sheet in the nature of advances for land. The same has never been claimed as expenditure in the Profit & Loss Account till dat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....000,000 ---- 95,000,000 14-Jul-08 Shapoorji Pallonji & co. Ltd. 50,000,000 ---- 50,000,000 21-Jul-08 Shapoorji Pallonji & co. Ltd. 100,000,000 ---- 100,000,000 Total 845,000,000 ---- 845,000,000 All the above amounts have been received in the Current A/c. No. 10216008637 of M/s. PRS Enterprises maintained with Greater Bombay Co-operative Bank Ltd. Andheri Branch, Bank Statement of the same is enclosed for your ready reference. III. Ace Card Infrasol Pvt. Ltd. It is a group company of Shri Nilesh J. Thakur The company is into business of real estate development. It was formed in the year 2008 so as to undertake development of project viz.; World Trade City located at Garodia Nagar, Ghatkopar jointly, with Shapoorji Pallonji & Co. Ltd. The films had being receiving payments in the nature of ADVANCES as per the progress of project from Shapoorji Pallonji & Co. Ltd. and S. D. Corporation Pvt. Ltd. for meeting project expenses and acquisitions of land, development rights, TDR, FSI, etc Inter company advances have been paid and received from Ace Card Infrasol Put. Ltd. by both PRS Enterprises & PRS Developers. Encl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....L, SPCL filed a suit in Bombay High Court and as per the 'Consent Terms' arrived at in between SPCL and N. J. THAKUR & others, it was agreed to settle the dispute by transferring all the moveable (deposit Receipts & Bank accounts) and immoveable assets held by N. J. THAKUR & others., in favour of SPCL. Accordingly, an Order dated 19th October 2011 was passed by the Hon'ble Bombay High Court in the aforesaid Suit, in terms of the consent terms. Till date, however, the decree issued by the Hon'ble Bombay High Court remains unenforced. The advances given by SPCL to N. J. THAKUR and Ace Card Infrasol Pvt. Ltd. are reflected under the head (advance payments for land acquisition." 5.4.5 From the above it is clear that the assessee and Shri NJ Thakur are contracting each other. On one hand the assessee claims that these payments were made towards acquisition of land in and around Alibaugh and other areas in Raigad District. While Shri N. J. Thakur states that the amounts were received towards the development of project at Samata Nagar, Kandivali (E), Mumbai and for development of World Trade City at Garodia Nagar, Goregaon, Mumbai. Further light on the .nature of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....counting entries shown by the assessee is not substantiated by way of documentary evidence or third party confirmations. Hence, the accounting entries done by the assessee is not acceptable. The assessee has claimed 'himself to be a partner of SPCL. The claim is not acceptable on the ground that M/s. SPCL has not recognized him as a partner, no partnership agreement has been made, the letter dated 10.11.2010 written by the assessee to M/s. SPCL has been written only after initiation of scrutiny proceedings and if assessee's own version is to be taken as true the question arises as to why he has written for entering into a formal agreement of partnership after five years of claimed association. In his submissions the assessee has claimed to be associated with various companies, etc., but he has failed to produce supporting and corroborating evidences to substantiate any relationship. The assessee was asked in question no. 15th & 16th of the statement recorded on oath recording proof for assessee being engaged in business of construction activity or having any partnership with M/s. SPCL and was asked to produce copy of minutes of meeting and supporting for projects, etc. as s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. Please refer to our submission dated 03.12.2010 in page No:269 in which we have explained our workings for last 10 years to the Chairman M/s SP Group 10. Have you received similar advances for undertaking similar nature of work from any other company other than M/s Shapoorjee & Pallonjee & Co. Ltd. in past and till date? Ans. No. 11. Have you received similar fee for undertaking similar nature of work from any other company other than M/s SD Corporation in past and till date? Ans. No. We have not received any fee from any other concern. 12 Why the amount of Rs. 43,50,00,000/- received from M/s. Shapoorjee & Pallonjee & Co. Ltd. shall not be treated as income received without consideration and be brought to tax u/ s.56 of the IT Act, 1961? Ans. Please refer to page no.13 and Page no.269 of our submission dated 03- 12-2010 in which we have explained our efforts and workings for the last ten years for the successful identification and submission execution and part completion of 15.72 crore FSI for SP Group and we have deposited all papers to Mr. Vinay Karve, Legal Head of SP Group. Pl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oduce a single document? Ans. Please refer to page no.57 of our submission dated 03.12.2010 18. Page no. 57 is a letter written by you on the letter head of M/s. Lucky Angel Group addressed to Shri Pallonjee Shapoorjee Mistri, Chairman SP Group on 10.11.2010, i.e. after initiation of scrutiny proceedings. Have you received any communication in reply from M/s. Shapoorjee & Pallonjee & Co. Ltd.? Please also explain as to why the letter written by you should not be deemed an attempt made by you to explain the entries in the books and to create evidences in your favour? Ans. 1. Please refer to page no. 60, 66, 67, 68 & 69 of our submission dated 03.12.2010 in which on page no.65 in the first line we have mentioned that our group is working for the last 7 years for SP Group for which all evidences as per Evidence Act and all cheque payments and cash payments made from our books of accounts are mentioned. 2. Project sites of Samta Nagar Garodia Salt Pan, Kannamuar Nagar and Tagore Nagar are acquired for SP Group by cheque and cash payments. 3. All original project sanctions and receipts of MADA payments to the tune of Rs .60 crore with our grou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce Tax Officers. We have given seven reminders for return of documents. we are submitting copy of latest letter now. 5.4.7 From the above it is clear that Shri NJ Thakur claimed to be a partner with my assessee and claims to have received money as advance for various projects in Bombay. However, neither Shri NJ Thakur nor my assessee have submitted a single documentary evidence regarding their association with each other through partnership or through appointment as consultant /agent / any other relationship. My assessee has not recognized Shri N. J. Thakur as a partner and no partnership agreement was made. Shri N. J. Thakur could not produce any evidence whatsoever regarding the alleged projects he has undertaken on behalf of my assessee. Based on the above findings, the AO of Shri N. J. Thakur proceeded to assess the amounts received by his proprietorship concern viz., PRS Enterprises u/s.56(2)(vi) as an amount received without consideration. The AO of Shri N. J. Thakur has clearly given the findings that there is no business relation between Shri NJ Thakur and my assessee. C. The order of CIT(A)-35, Mumbai in the case Shri NJ Thakur for A.Y.2008-09 In the ord....
X X X X Extracts X X X X
X X X X Extracts X X X X
....other representations made to various authorities by the assessee in the capacity of Director of M/ s. Ace Card Infrasol Pvt. Ltd. have nothing to do with the activities of the appellant during the relevant F.Y.2007-08. No documentary evidence has been submitted with regard to existence of such company or its association with the appellant. Hence the book containing various representations, maps are hereby held to be having no relevance. 10.3.3 The appellant has tried in vain to argue that he is a partner of M/ s. SPCL. The same is not acceptable as there is no written agreement with M/s. SPCL. In response to notice u/ s.133(6) and 131 of the IT Act, 1961 M/s. SPCL and M/s. SDCL have denied to have any agreement with the appellant. They have not recognized the appellant as a partner. 10.3.4.1 Regarding written agreement with M/s. SPCL and M/s. SDCL the appellant submitted that it had requested Chairman, SPCL for completion of procedure of partnership agreement - It means the appellant had not entered into any partnership agreement with M/s. SPCL and M/s. SDCL. 10.3.4.2 As regards details of services rendered for above two companies, the appellant has failed to furnish any ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e a partner of SPCL. The claim is not acceptable on the ground that M/ s. SPCL has not recognized him as a partners, no partnership agreement has been made, the letter dated 10.11.2010 written by the appellant to 1/GBP/ s. SPCL was written only after initiation of scrutiny proceedings and if appellant's own version is to be taken as true, the question arises as to why he has written for entering into a formal agreement of partnership after lapse of so many years of claimed association. In his submissions, the appellant has claimed to be associated with various companies etc., but he has failed to produce supporting and corroborating evidences to substantiate any relationship. The appellant was asked by A.O., in the statement recorded on oath, regarding proof for appellant being engaged in business of construction activity or having any partnership with M/ s. SPCL and was asked to produce copy of minutes of meeting and supporting for projects, etc. as stated by the appellant. The appellant submitted that all projects belongs to tenants or central government. Process of sanction is going on but failed to submit even single documentary evidence on the basis of which he can be trea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....etter addressed to Hon'ble Pallonjee and Shapoorjee Mistry on 10.11.2010 for entering into partnership. The said letter has no evidentiary value in my view as the same is written on 10.11.2010 after the initiation of scrutiny proceedings by Assessing Officer and the contents of the letter are devoid of merits and supporting evidences. Through question no.10 of the statement} the appellant was asked whether he has taken similar advance for undertaking similar nature of work from any company other than M/s. SPCL in past or till date. The appellant replied in negative. Through question no.12, the appellant was asked by Assessing Officer to explain 'please state why the amount of Rs. 43,50,00,000/- received from M/s. SPCL shall not be treated as amount received without consideration and be brought to tax u/ s.56 of the IT Act, 1961. The appellant answered that page no.13 and page no.269 of submission dated 03.12.2010 be referred. The appellant further stated that the papers pertaining to 15. 72 cr. FSI for SP Group - we have deposited all papers with Mr. Vinay Karve, Legal Head of MI s. SPCL. In question no.13 the appellant was asked whether he has any proof for submission of p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t of Rs. 43, 50, 00, 000/ - as received without consideration and uphold the action of the A.O. in taxing this amount u/s.56(2)(vi) of the IT Act, 1961.- " Based on the above, the CIT(A) dismissed the appeal of Shri NJ Thakur. 5.5 From the detailed facts narrated above it is very clear that there is a clear contradiction between the claim of my assessee and Shri NJ Thakur. The assessee claims to have paid the sum as advance towards purchase of land in and around Raigad District. While Shri NJ Thakur claimed to have received this money for project development at Samata Nagar, Kandivali (E), Murnbai and World Trade City, Garodia Nagar, Goregaon. Mr. Feroz K. Bhatena Director and Principal Officer of the assessee on oath admitted that the assessee has released all the payments withou.t any kind of bills raised on them by Shri NJ Thakur and his concerns and also that in no other companies, it has released such payments without invoices. 5.6 My assessee has stated that there is no written agreement with Shri NJ Thakur before or after advancing these funds. This action on my part of the assessee clearly goes against commercial logic. Shri NJ Thakur has admitted on oath before hi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntire amount advanced to M/ s. PRS Enterprises is not for the purpose of business, it naturally follows that the interest bearing fund is diverted for non-business purposes and should result in interest disallowance ujs.36(1)(iii) of the Act. Section 36(1)(iii) clearly states that only that interest in respect of capital borrowed for the purpose of business is an allowable deduction. The bank account statements pertaining to these accounts from the period 01-04-2007 to 31-03-2008 have been called for and kept on record. It is an admitted fact that both these accounts are overdraft accounts on which the assessee pays interest to the banks and therefore they represent capital borrowed by the assessee. The action of the assessee in sourcing the payment to M/s. PRS Enterprises from these accounts clearly means that the capital borrowed has been diverted for nonbusiness purposes. In principle, the proportionate interest on this borrowed capital diverted is to be disallowed. The examination of the bank accounts shows that there are number of other transactions pertaining to the assessee's regular business. With a view to compute the interest to be disallowed I have examined the date ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r the payment made to M/ s. PRS Enterprise for the period 26-09-2007 to 11-10-2007, which calls for an interest disallowance for 16 days @ 12%, on this sum. The same principle is applied to all the entries. It may be observed that in F.Y.2007 -08 out of total payments of Rs. 43.5 crore a sum of Rs. 9.50 core being the payment made from Deustche Bank is carried forward to F.Y.2008-09, because the Deustche Bank account continues to be negative balance as on 31- 03-2008. Based on the above working the total interest to be disallowed for the present A.Y.2008-09 is Rs. 34,01,095/ -. The same is hereby disallowed u/s.36(1)(iii) as not for the purpose of business. Thus, an 'addition of Rs. 34,01,095/- is made to the total income of the assessee. 5.11 Penalty proceedings u/s.271(1)(c) of the Act, is being initiated for furnishing inaccurate particulars and concealing the taxable income. 6. Subject to above, assessment is completed and total income is computed as under: Rs. Total Income (as per Order Giving Effect dated 06-07-2012 to the Order of CIT(A) dated 21-02-2012) 188,59,74,436 Add: Interest Disallowed (para 8) 34,01,095 Total Income 188,93,75,531 Ro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ished by M/s SPCL (iii) The money was received by the said entity almost four years back but so for no settlement of the account has been done by M/s. SPCL (iv) No interest is charged on the amount received by the said entity (v) No action for recovery has been taken by M/s. SPCL 2.4. It was also found that the assessee made the huge payments to Shri Nilesh J. Thakur without entering into any agreement for acquisition of land, meaning thereby, the assessee doled out interest bearing funds for non-business purposes under the garb of advances and further the assessee claimed 'interest and financial cost' in his accounts as the element of interest bearing funds were siphoned off for nonbusiness purposes having direct impact or the profit of the assessee to the extent of funds doled out for non-business purposes, reducing the taxable profit. At the same time, the source of the funds were also to be examined resulting into disallowance of proportionate interest expenses. In view of these facts/situation and the information, which came to the light/possession of the Assessing Officer, later on, the case was reopened, resulting into issuance of notice u/s 148 of the Ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....formation. The Assessing Officer merely says that there was no documentary evidence regarding payment of huge amount rather a decree from the Hon'ble High Court was already with him. Confirmation of the acquisition of about 900 acres of land, letter dated 16/07/2007 (page-31 to 35) supports the case of the assessee. Shri Nilesh Thakur (PRS Enterprises) was given advances from time to time in terms of resolution passed by the Board of Directors. The amount advanced by the assessee to Shri Nilesh Thakur, was duly reflected in the audited accounts of the assessee under the head 'advances for land' and since Shri Nilesh Thakur could not perform in terms of appointment letter a suit bearing 2576 of 2011 was filed before the Hon'ble Bombay High Court and in terms of the consent terms, a decree was passed in favour of the assessee by Hon'ble High Court, the facts of payments were duly mentioned in the suit/plaint filed before the Hon'ble High Court. The assessee was having common pool of funds i.e. own fund and borrowed funds and at the time of advancing excess funds were available in comparison to advanced money. The assessee gets the benefit of the decision from ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ke a return u/s 139 for any assessment year to the ITO or to disclose fully and truly all material facts for his assessment for that year, income chargeable to tax had escaped assessment for that year, or (b) the ITO had in consequence of information in his possession had reason to believe that income chargeable to tax has escaped assessment for any assessment year. The fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 with effect from 01/04/1989 those conditions are given go-by and only one condition has remained where the Assessing Officer has 'reason to believe' that income chargeable to tax had escaped assessment, consequently, the section itself confers jurisdiction to reopen the assessment. Therefore, post 01/04/1989, power to reopen is much wider. At the same time, powers u/s 147 also does not give arbitrary power to the Assessing Officer to reopen the assessment merely on the basis of 'change of opinion'. One must keep in mind, the conceptual difference between power to review and power to reassess. The Hon'ble Apex Court in CIT vs Bhanji Lavaji 79 ITR 582 (SC) held that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lands. The payments to Shri Nilesh Thakur have been made in terms of the resolution of the Board of Directors of the appellant company. The appellant has made payments of on aggregate amount of Rs. 141.50 crores from time to time (i.e. between July 2007 and mid 2009, A.Y- 08-09- Rs. 43.50crores, A.Y,09-10-Rs.53.00 crores, A.Y-I0-11- Rs. 45.00 crores) by account payee cheques to Shri Nilesh Janardhan Tahkur's concerns i.e. PRS Enterprises and Acecard Infrasol Pvt. Ltd. The said amounts have been reflected in the Balance Sheets of the appellant as 'Advances/or land'. Shri Nilesh Janardhan Thakur by his letter dated 22nd March 2010, informed the appellant that the payment received was used for acquiring properties and that the surplus funds had been kept in fixed deposit and that the properties would be transferred in favour of the appellant as soon as possible. However thereafter, Shri Nilesh Janardhan Thakur, neither refunded the monies nor transferred the properties to the appellant. In these circumstances, the appellant filed Suit No. 2576 of 2011 against Shri Nilesh Janardhan Thakur, PRS Enterprises & others in. September 2011. Subsequent thereto Shri Nilesh Janardhan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....admitted that the record and documents furnished by the appellant company before the Hon'ble Bombay High Court depicted the true nature transaction in between them. Thus it is seen that Shri Nilesh Thakur has taken a diametrically opposite stand on the nature and purpose of advances given by the appellant 10 him as compared to the stand taken by him during the course of assessment proceedings for A. Y 2008-09 and 2009-10. In case the stand taken by Shri Nilesh Thakur in the appellate proceedings for A.Y. 2009-10 is considered, there is no contradiction in between the explanation given as regards the nature and purpose of advances given by the appellant to Shri Nilesh Thakur. The admitted stand of Shri Nilesh Thakur in the appellate proceedings for A.Y. 2009-10 is duly supported by the records. Hence, the only inevitable conclusion that can be inferred is that the appellant had advanced monies for acquisition of lands at Alibaug, Pen, Panvel and other areas in and around Raigad district, which is explicitly evident from the 'letter of appointment issued by the appellant company dated 16/07/2007 in favour of Shri Nilesh J Thakur and subsequent acceptance fetter dated 19/07/20....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Court in case of Munjal Sales Corporation (supra) and Hon 'ble Bombay High Court in the case of CIT v Reliance Utilities and Power Ltd. (supra), the advances given to Shri Nilesh J. Thakur are presumed to be from the Interest free own funds of the appellant. In the recent decision of the Hon'ble ITAT in the case 01 Reliance Industries Ltd. v DCIT (ITA No. 3082/Mum/2006 dated 28/05/2012) it was held as under: "5.1. The A 0 has slated that assessee has advanced interest free loans to its subsidiary companies. The AD has stated that assessee was asked to prove the nexus between source of funds out of which advances were given to its subsidiary companies and interest free or own funds available with the assessee. The assessee filed details and stated that the assessee had given loans and advances of Rs. 2988.98 crores to its subsidiaries as on 3110312002, out its own funds and internal accruals except to the extent of relying upon the decision of Hon'ble Kerala High Court in the case of V.I. Baby &: Company, 254 ITR 248 and decision of the Hon'ble Bombay High Court in the case of Phalton Sugar Works Lid, 208 ITR 989 disallowed the said interest of Rs. 11,19,382/-. B....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h Court in the case of Reliance Utilities & Power Ltd., vs. CIT 313 ITR 340 submitted that no disallowance out of interest expenditure is to be made if interest free funds were sufficient to meet the investment made. He further submitted that the Hon 'ble Apex Court has also held in the case of SA. Builders Ltd., vs. CIT, 288 ITR 1 that when loan to its subsidiary is given in the course and for the purpose of business of its business, no disallowance of interest has to be made. He submitted that in view of above decisions, the disallowance of interest is not justified and the same should be deleted. 5.5 On the other hand, ld. D.R relied on the orders of the authorities below. 5.6 We have carefully considered the submissions of the ld. representatives of the parties and orders of the authorities below. We have also considered the cases relied upon by the authorities below as well as the cases cited by ld. A.R (supra). There is no dispute to the fact that the assessee's own funds are far in excess of the interest free loans and advances given by the assessee to its subsidiary companies. The Hon'ble Bombay High Court has held in the case of Reliance Utilities & Power....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oration v CIT (298 ITR 298) and the decision of the Hon'ble Bombay High Court in the case of CIT vs Reliance Utilities and Power LId [313 ITR 340] & also the jurisdictional ITA T, Mumbai in the case of Reliance Industries Ltd. v DCIT (ITA No. 3082/Mum/2006 dated 28/05/2012), I consider it proper and appropriate to hold that the disallowance made by the A.O. U/S 36(1)(iii) of the Act of Rs. 34,01,095/- in the given facts of the case is completely unjustified and incorrect. In view of the same, the addition so made by the A. O. is deleted. Thus, this ground of appeal is allowed." 3.4 In view of my decision in appeal for A.Y-08-09, wherein the facts are identical to the facts as in the year under consideration, the reopening of assessment in annulled and the disallowance of interest of Rs. 2,46,16,438/- is deleted in the year under consideration for the reasons stated in my appellate order For A. Y2008- 09. Thus, taking note of all the factual position of the case, I consider in proper and appropriate to hold that the A.O. was not justified in his action. Accordingly the appellant's these grounds of appeal arc allowed. " 3.1. If the observation made In the assessment ord....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rship concern of one Shri N.J. Thakur. b. Para 5.2 The assessee states that these amounts are in the nature of advance payments towards acquisition of land with clear and marketable title in an around Aliabagh and other areas of Raigad District. c. Para 5.3 The transactions with Shri N.J. Thakur and his group of concerns have received detailed attention from various authorities in the Department namely Investigation Wing, ITO- 25(1)(4) in the assessment of Shri N.J. Thakur for A.Y.2008-09 and 2009-10 and CIT(A)-35 in the appellate order in the case of Shri N.J. Thakur in the A.Y.2008-09. Exhaustive submissions have been made by both the assessee as well as Shri N.J. Thakur with respect to these transactions. The same are discussed hereunder: d. Para 5.4 At this point it may be noted that the assessee has not debited such amount of Rs. 43.50 crore in his profit and loss account as expenses nor has he included this amount in his work-in-progress. It is an admitted fact that these amounts stands as 'advance for land purchase' under 'current assets' in his balance-sheet as on 31-03-2008. We will now examine the submission of the assessee and Shri N.J. Thakur be....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in no other companies, it has released such payments without invoices." h. Para 5.6 My assessee has stated that there is no written agreement with Shri NJ Thakur before or after advancing these funds. This action on my part of the assessee clearly goes against commercial logic. Shri NJ Thakur has admitted on oath before his AO that he has not acquired any land/right/asset on behalf of my assessee. In light of these facts the series of doubts cast over the genuineness of the nature of transactions. i. Para 5.7 The payments have been made over three financial years including the assessment year under consideration and at no point of time did my assessee even check whether any properties are being acquired or in the process of being acquired by Shri N J Thakur. Without conducting this basic due diligence the assessee would have me believe that they kept on releasing the payment over the three years for the same. My assessee has also denied entering into any partnership agreement or project development with Shri N. J. Thakur as partner/director. j. Para 5.8 In view of the above discussion it is amply clear that the sum paid by SPCL to PRS Enterprises and Ace Card Infrasol Pvt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....). 6. Shri Nilesh Janardhan Thakur/PRS Enterprises were given advances from time to time in terms of the resolutions passed by the Board of Directors and on the basis of the representations made by Shri Nilesh Janardhan Thakur on the status of land acquisitions. 7. The amounts advanced by us to Shri Nilesh Janardhan Thakur were reflected in our Audited Balance Sheets under the head Advances/or land'. 8. As Shri Nilesh Janardhan Thakur did not perform in terms of the appointment letter, a suit bearing No. 2576 of 2011 was filed by us before the Hon'ble Bombay High Court. 9. The Hon'ble Bombay High Court in terms of the consent terms arrived (It in between Shri Niles" Janardhan Thakur and us, passed a decree in our favour. 10. The entire set of facts in relation to the transaction in between Shri Nilesh Janardlian Thakur arc set out in the suit plaint and the annexures filed before the Hon'ble Bombay High Court in Suit No. 2576 of 2011. 11. It is submitted that merely because Shri Nilesh Thakur had given certain explanations, which are bereft of any facts, records or documents, it could not be said that there was any income which has escaped assessme....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and the aforesaid findings of the AO, J have also perused the copy of the plaint along with the records and documents filed before the Hon'ble Bombay High Court in Suit No. 2576 of 2011 and the order of Hon'ble Bombay High Court. On perusal of the plaint and the records and documents it is seen that the appellant, by its letter of appointment dated 16.7.2007, had appointed Shri Nilesh Thakur for land aggregation in Panvel, Aligabh, Pen and Raigad areas. The said Letter of appointment was accepted by Shri Nilesh Janardhan Thakur/PRS Enterprises by letter dated 19th July, 2007. In terms of the said letteragreement, the appellant has provided funds to Shri Nilesh Thakur, by way of advances for purchase of lands. The payments to Shri Nilesh Thakur have been made in terms of the resolution of the Board of Directors of the appellant company. The appellant has made payments 0/ on aggregate amount of Rs. 141. 50 crores from time to time (i.e. between July 2007 and mid 2009, A.Y.-08-09-Rs.43.50 crores,A.Y-09-10- Rs. 53.00 crores, A.Y.-10-11-Rs.45.00 crores) by account payee cheques to Shri Nilesh Janardhan Tahkur's concerns i.e. PRS Enterprises and Acecard Infrasol Pvt. Ltd. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent order for A.Y. 2008-09 and 2009-10. But it is equally relevant [0 note that Shri Nilesh Thakur could not produce/furnish any evidence in support of the said claim. The appellant, during the course of the inquiry before the various Authorities has takena consistent stand that the advances were given for land aggregation in the project areas. The claim of the appellant is supported by the various records and documents. Credence cannot be given 10 explanations given by Shri Nilesh Thakur during his assessment proceedings for A. Y. 2008-09 and 2009-10 since he himself, in the appellate proceedings for A. Y 2009-10, has admitted to having received the funds from the appellant company for land aggregation. J-Je has also admitted that the record and documents furnished by the appellant company before the Hon'ble Bombay High Court depicted the true nature 0/ transaction in between them. Thus it is seen that Shri Nilesh Thakur has taken a diametrically opposite stand on the nature and purpose of advances given by the appellant 10 him as compared to the stand taken by him during the course of assessment proceedings for A. Y. 2008-09 and 2009-10. In case the stand taken by Shri Nilesh....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... available. 13.6 I find that the appellants own funds as on 31.3.2007 and 31.3.2008 here as under: 13.7 I also find that the net profit for the year is Rs. 126,19,01,513/-. The profits of the year are also included in the current overdraft account maintained with "the banks. Thus the funds in the bank account are fungible. The appellant has not made any specific borrowing for the purposes of advancing funds for purchase of land by Sheri Nilesh J. Thakur. Respectfully following the decisions of the Hon'ble Supreme Court in case of Munjal Sales Corporation (supra) and Hon'ble Bombay High Court in the case of CIT v Reliance Utilities and Power Ltd. (supra), the advances given to Shri Nilesh J. Thakur are presumed to be from the Interest free own funds of the appellant. In the recent decision of the Hon'ble ITAT in the case of Reliance Industries Ltd. v DCIT (ITA No. 3082/Mum/2006 dated 28/05/2012) it was held as under: "5.1. The A 0 has slated that assessee has advanced interest free loans to its subsidiary companies. The AD has stated that assessee was asked to prove the nexus between source of funds out of which advances were given to its subsidiary companies an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es. Therefore, ld C1T(A) confirmed the action of the 110 in disallowing interest on account of diversion of funds for nonbusiness purposes, which comes to Rs. 11,19,382/- Hence, the assessee is in appeal before the Tribunal. 5.4 During the course of hearing the Id. A.R reiterated the submissions as were made before the first appellate authority that the assessee had its own funds far more than the interest free loans and advances given to its subsidiary company. The Id. A.R relying Oil the decision of the Hon'ble Bombay High Court in the case of Reliance Utilities & Power Ltd., vs. CIT 313 ITR 340 submitted that no disallowance out of interest expenditure is to be made if interest free funds were sufficient to meet the investment made. He further submitted that the Hon'ble Apex Court has also held in the case of S.A. Builders Ltd., vs. CIT, 288 ITR 1 that when loan to its subsidiary is given in the course and for the purpose of business of its business, no disallowance of interest has to be made. He submitted that in view of above decisions, the disallowance of interest is not justified and the same should be deleted. 5.5 On the other hand, ld. D.R relied on the order....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... also after taking note of appellant's own fund availability, which is evident from the appellant's Balance Sheet, the appellant's own fund was Rs. 500.81 crores, which consists of capital and reserves as on 3! 103108, whereas during the year under consideration, the appellant has advanced Rs. 43.50 crores to Shri Nilesh J Thakur for the purpose of aggregating land in terms of appointment letter dated 16/07/2007. In view of the same and also keeping reliance on the decision of Apex Court in the case of Munjal Sales Corporation v CIT (298 ITR 298) and the decision of the Hon'ble Bombay High Court in the case of CIT v Reliance Utilities and Power Ltd. [313 ITR 340] & also the jurisdictional ITA T, Mumbai in the case of Reliance Industries Ltd. v DCIT (ITA No. 3082/Mum/2006 dated 28/05/2012), I consider it proper and appropriate to hold that the disallowance made by the A.O. u/s 36(1)(iii) of the Act of Rs. 34,01,095/- in the given facts of the case is completely unjustified and incorrect. In view of the same, the addition so made by the A. 0. is deleted. Thus, this ground of appeal is allowed. 3.4 In view of my decision in appeal for A.Y.-08-09, wherein the facts a....