IN INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. No: 852/AHD/2012 (Assessment Year: 1998-99) Busy Bee Engineers Pvt. V/S Income Tax Officer, Ward- Ltd. C/o. Mahesh S. 1 (2), Ahmedabad Kamdar, A/601, Silicon Valley Co. op. Hous. Socy. Ltd. Besides Silicon Valley Shopping Centre, Below Fly Over, Shivranjni Cross Road, Satellite Road, Ahmedabad (Appellant) (Respondent) PAN: AABCB2108C Appellant by : Shri J.P. Shah with Anil N. Shah, A.R. Respondent by : Shri Prasoon Kabra, Sr. D.R. ( )/ORDER Date of hearing : 06 -10-2016 Date of Pronouncement : 18 -10-2016 2 ITA No. 852/Ahd/2012 . A.Y. 1998-99 PER N.K. BILLAIYA, ACCOUNTANT MEMBER 1. With this appeal, assessee has challenged correctness of order of Ld. CIT(A)-6, Ahmedabad dated 08.02.2012 pertaining to A.Y. 1998- 99. 2. grievance of assessee is three fold. (i) assessee is aggrieved by addition of Rs. 3,69,500/- as unexplained cash credits and assessee is further aggrieved by addition of Rs. 66,510/- as interest expenditure on aforementioned cash credits. (ii) (ii) assessee is aggrieved by disallowance of interest of Rs. 34,92,619/-. (iii) (iii) assessee is aggrieved by addition of Rs. 61,29,000/- as unexplained cash credits which was received by assessee- company from members of Co-op. Societies. 3. This is second round of litigation. first round of litigation emanated from assessment order dated 28.03.2001 made u/s. 143(3) of Act wherein assessment was completed by making following additions to returned loss of Rs. 4,15,862/-. (i) Unexplained cash credits Rs. 1,24,29,697/- (ii) Interest Exp. On unexplained cash credit Rs. 22,37,344/- (iii) Interest Expenses Rs. 13,21,785/- (iv) Unexplained cash credit Rs. 2,61,08,186/- 3 ITA No. 852/Ahd/2012 . A.Y. 1998-99 4. litigation travelled up to Tribunal and Tribunal vide order dated 23.12.2009 in ITA Nos. 730 & 841/Ahd/2005 had given part relief to assessee. 5. Insofar as addition of Rs. 2,61,08,186/- is concerned, ld. CIT(A) had confirmed addition of Rs. 1,49,71,718/- and Tribunal had set aside issue to files of A.O. for deciding afresh as per directions. relevant finding of Tribunal reads as under:- 10. We have considered rival submissions and perused material on record. In our considered view assessee has made out prima facie case that money actually does not belong to him but belong to members but this does not really discharge onus cast upon him to explain deposits/loans in reject of which assesses had only submitted partial details before Assessing Officer and before CIT(A) and other details are now submitted before us on which prayer has been made for admitting additional evidences. We in interest of justice admit details and require Assessing Officer to verify them. additional' details furnished by assessee are confirmation from respective members, copy of account, details of PAN, evidence from society such as allotment letter, certificate, NOC for loan, possession letter, share certificate, name of member in list of govt. audit report, resolution for admission of member, share contribution, in case of transfer, application of transfer/unit, copy of bill, proof of death, copy of will, date entered in transfer register of society municipal tax bill, electricity bill etc. assessee will submit copies of paper books to Assessing Officer along with this full chart containing 24 columns and information about all 77 members/depositors. Assessing Officer will examine them, if necessary carry out further enquiry including summoning original person depositing money with society, whether such deposits are declared in IT returns, whether 4 ITA No. 852/Ahd/2012 . A.Y. 1998-99 transfer of money to society/assessee is through banking channels. If identity of depositor is established and he owns money paid to assessee then no further questioning is required to be done and such unsecured loan/deposit should be treated as explained. This view, we are taking on basis of various judgments of Courts as under:- 1. CIT vs. Divine Leasing and Finance Ltd. (2008) 299 ITR 268 (Del); 2. One Housing Company Ltd. Vs. ITO (2008) 299 ITR (AT) 327 (Del); 3. CIT vs. Electropolychem Ltd. (2007) 294 ITR 661 (Mad) 4. CIT vs. Illac Investments (P) Ltd. (2006) 287 ITR 135 (Del) 5. Uma Polymers (P) Ltd. Vs. DCIT (2006) 284 ITR 001 (AT) Jodhpur 6. Shree Barkha Synthetics Ltd. Vs. ACIT (2006) 283 ITR 377 (Raj.) 7. CIT vs. Down Town Hospital (P) Ltd. (2004) 267 ITR 439 (Gauhati) 8. CIT vs. Sophia Finance Ltd. (2004) 205 ITR 98 (Del). 11. Assessing Officer will also calculate pro-rate disallowance of interest in those cases where deposits are not owned up by any depositor or depositor is not found in existence. He will not disallow claim of interest in respect of those deposits/unsecured loan which are treated as explained on basis of admission by depositors and existence of depositors. 12. In respect of source of money not found explained in hands of depositor then department is free to take action in his hands. 13. Thus, we set aside two appeals and restore matter to file of Assessing Officer for deciding afresh as per our direction above and as per law. 14. In result, appeal of assessee and that of Revenue both are allowed for statistical purposes. 6. In pursuance to directions of Tribunal, A.O. completed assessment and computed assessed income as follows:- Income as per statement of income Rs. -4,15,862 Add: Unexplained cash credits as discussed in Para no 5 Rs. 3,69,500 5 ITA No. 852/Ahd/2012 . A.Y. 1998-99 2, Interest expenditure on unexplained cash credits as Rs. 66,510 discussed in Para no 6 3. Interest expenses as discussed in Para no 7 Rs. 34,92,619 4. Unexplained cash credits as discussed in Para no 8 Rs. 61,29.000 Total Income Rs. 96,41,767 7. It is say of ld. counsel that while completing assessment, A.O. had made two additions which were not there in first assessment order. Therefore, assessment order to this extent is not as per directions of Tribunal and these two additions deserve to be deleted. Per contra, ld. D.R. stated that since directions of Tribunal were to decide issues afresh. Therefore, A.O. was free to make other additions also. 8. We have given thoughtful consideration to submissions made by representatives of both sides qua first grievance mentioned elsewhere. We have mentioned hereinabove, additions made in first assessment order which litigation travelled up to Tribunal. We have also mentioned specific findings of Tribunal qua issue emanated from first assessment order. perusal of directions of Tribunal (supra) clearly shows that Tribunal had set aside issue relating to addition of Rs. 2,61,08,186/- out of which ld. CIT(A) had confirmed addition of Rs. 1,49,71,718/-. A.O. has gone beyond directions of Tribunal and has made fresh additions. 6 ITA No. 852/Ahd/2012 . A.Y. 1998-99 2.4 Binding Nature of Orders of Tribunal: (1) first Appellate Authority or Assessing Officer is bound by orders of Tribunal. Even where assessee or department has pursued matter in reference proceedings, it does not act as kind of stay of operation of order of Tribunal. (2) Assessing Officer cannot ignore decision taken by Tribunal in favour of assessee and take contrary view - ITO vs. Siemens India Ltd. & Anr. 156 ITR 11 (Bom.), 28 STC 483 Sree Rajendra Mills Ltd. vs. CIT: 109 ITR 229 (CaL). Russell Properties Pvt. Ltd. vs. A. Chowdhury. Add/. CIT. West Bengal & Others. (3) Union of India & Ors. vs. Kamlakashi Finanaee Corporation Ltd. AIR (1992) 711 (SC). It cannot be too vehemently emphasized that it is of utmost importance that in disposing of quasi-judicial issues before them, revenue officers are bound by decision of appellate authorities. order of Appellate Collector is binding on Assistant Collectors working within his jurisdiction and order of Tribunal is binding upon Assistant Collectors and Appellate Collectors who function under jurisdiction of Tribunal. principles of judicial discipline require that orders of higher appellate authorities should be followed unreservedly by subordinate authorities. mere fact that order of appellate authority is not "acceptable" to department - in itself objectionable phrase - and is subject matter of appeal can furnish no ground for not following it unless its operation has been suspended by competent court. If this healthy rule is not followed, result will only be undue harassment to assessee and chaos in administration of tax laws. When order is passed by higher authority, lower authority is bound thereby keeping in view principles of judicial discipline. This aspect of matter has been highlighted by this Court in Bhopal Sugar Industries vs. Income Tax Officer. Bhopal [AIR 1961 SC 182] in following terms (Page 622): 7 ITA No. 852/Ahd/2012 . A.Y. 1998-99 (a) "If subordinate tribunal refuses to carry out directions given to it by superior tribunal in exercise of its appellate powers, result will be chaos in administration of justice and we have indeed found it very difficult to appreciate process of reasoning by which learned Judicial Commissioner while roundly condemning respondent for refusing to carry out directions of superior Tribunal, yet held that no manifest injustice resulted from such refusal. (b) It must be remembered that order of Tribunal dated April 22, 1954, was not under challenge before Judicial Commissioner. That order had become final and binding on parties, and respondent could not question it in any way. As matter of fact Commissioner of Income-tax had made application for reference, which application was subsequently withdrawn. Judicial Commissioner was not sitting in appeal over Tribunal and we do not think that, in circumstances of this case, it was open to him to say that order of Tribunal was wrong and, therefore there was no injustice in disregarding that order. As we have said earlier such view is destructive of one of basic principles of administration of justice." 9. Considering facts in totality, as stood at time of original assessment stage qua directions of Tribunal qua aforementioned judicial analysis, in our considered opinion and understanding of law present assessment order is in complete disregard to orders of appellate authorities. This would leave no choice but to quash such assessment order. Therefore, to this extent, assessment order is quashed. 10.Additions of Rs. 3,69,500/- and 66,510/- are directed to be deleted. first grievance mentioned hereinabove is allowed. 8 ITA No. 852/Ahd/2012 . A.Y. 1998-99 11.The second grievance relates to addition of Rs. 34,92,619/-. While scrutinizing return of income, A.O. noticed that assessee has debited interest expenses of Rs. 35,59,129/-. In first assessment order, A.O. has disallowed entire sum of Rs. 35,59,129/- as assessee failed to establish that interest free advances were for business purpose. In present assessment order, A.O. disallowed Rs. 34,92,619/- reducing original disallowance of Rs. 35,59,129/- by Rs. 66,510/- as this amount has been separately disallowed by A.O. 12.Assessee carried matter before ld. CIT(A) but without any success. 13.Before us, ld. counsel for assessee vehemently submitted that alleged interest free advances were made out of interest free funds available with assessee. Therefore, there is no reason why interest should be disallowed. ld. counsel drew our attention to balance sheet of assessee and pointed out that interest free funds available with assessee were Rs. 7.29 crores whereas alleged interest free advances were to tune of Rs. 6.96 crores. ld. counsel further stated that advances to Samarthkrupa Co-op. Housing Society was in fact nothing but advances for purchase of flats for facilitating execution of scheme for which company also entered into development agreement with society. ld. counsel further stated that similar is nature of interest free advances of Rs. 3,75,33,041/- in name of Silicon Valley Co-op. Housing Society and Swastik Co-op. Housing Society. ld. counsel concluded by stating that not only advances were made out of free 9 ITA No. 852/Ahd/2012 . A.Y. 1998-99 available fund with assessee-company but also advances were made purely for business purpose. Therefore, no disallowance of interest needs to be made. Per contra, ld. D.R. strongly supported findings of revenue authorities. 14.We have carefully considered orders of authorities below and with assistance of ld. counsel; we have gone through relevant documentary evidences brought on record in light Rule 18(6) of Appellate Tribunal Rules. We find force in contention of ld. counsel. As mentioned elsewhere, interest free funds available with assessee are in excess of interest free advances made by it. ratio laid down by Hon ble High Court of Bombay in case of Reliance Utilities and Power 313 ITR 340 squarely apply on facts of case wherein Hon ble High Court has held that where there is mixture of own funds and loan funds, then presumption is that interest free advances have been made out of own funds. This decision of Hon ble Bombay High Court was subsequently followed by Hon ble Court in case of HDFC Ltd. 366 ITR 505. We further find force in contention of ld. counsel that all alleged advances were for business purposes and same was explained to A.O. during course of assessment proceedings itself. relevant submission made before A.O. read as under:- 6. Reference to balance Sheet shows that, interest free advances of Rs. 3,15,41,406/- alleged to have made by assessee Company to Samarthakrupa Co. Op. Housing Socy. Ltd. is in fact nothing but sundry debtors and include amount for purchase of flats for facilitating execution of scheme for which 10 ITA No. 852/Ahd/2012 . A.Y. 1998-99 Company also entered in to development agreement with Society as stated hereinabove. Not only this, against said amount of Rs. 3,15,41,406, Company also credit balance of Rs.3,47,65,500 received from Members of said society on which Company has not paid any interest. grouping giving details of said credit is submitted herewith. It is clear from order itself that, amount of loan, advances and contribution received against booking of units from members of said society on which society need not and did not paid any interest. Considering this aspect, in fact, Company did not advanced any non bearing non business purpose interest free advances Of Rs. 3,15,41,406 to Samarthkrupa Co.op. Housing Society but as against that-, it had net credit amount of Rs.32,24,094 (Rs.3,47,65,500 Credit Less: Rs . 3,15,41,406 ). Hence, no interest is requires to be disallowed on this advance of Rs.3,15,41,406. 7. With regard to alleged interest free advances of Rs.3,75,33,041, we request to kindly refer page No. S-14 & S-15 of Paper Book -4,Part-I wherein details of advances to 7 parties is given amounting to Rs.2,25,24,633 & advances to 6 parties amounting to Rs. 18,24,754 respectively. Details shows that, Company had to receive Rs. 63,70,000 from Silicon Valley Co. Op. Housing Society Ltd. against which it had credit balance of Rs. 3,39,28,187 from Members of said society. Both advances as well as credit balance pertain to same party and it's members for development of scheme undertaken by Company and therefore no interest is disallowable on Rs.63,70,000 stated as above. 8. Reference to details given on page S-14 also shows that, purpose for which amount was advanced. amount include Rs. 1,34,90,633 paid for Swastik Co-Op. housing Society Ltd. Plot No. 85. As Company can not directly purchase plot in' it's name, with view to develop scheme, Company purchased said plot in name of related persons to director and paid advance for same. This is clear from Copy of Document/ Index-II submitted herewith. With regard to advance to other parties appearing on pg. No. 11 ITA No. 852/Ahd/2012 . A.Y. 1998-99 S-14 also, same is related to various schemes developed by Assessee Company. Considering nature of business of Company and amounts being given, out of business considerations no interest is chargeable. Prom this, facts, it is clear that, advance is purely for business purposes and no interest free advance for non business purposes is given and therefore, on this amount also no interest is required to be disallowed and we request for same. 15.Considering facts in totality in light of ratio laid down by Hon ble Bombay High Court and also considering fact that advances were made for business purposes. We set aside findings of ld. CIT(A) and direct A.O. to delete addition of Rs. 34,92,619/-. second grievance of assessee mentioned hereinabove is allowed. 16.The third grievance relates to addition of Rs. 61,29,000/-. As mentioned elsewhere, Tribunal has restored this issue to files of A.O. with specific directions. relevant findings of A.O. read as under:- As per direction of Hon ble ITAT confirmation was called for by calling information u/s 133(6). This office has not received any confirmation in respect of following persons arid"' assessee has also been not able to submit fresh confirmations in compliance to order of Hon'ble ITAT, on its own. Therefore these amount which have not been confirmed as per ITAT direction is taken as unexplained cash credit Sr.no Party Name Sr. No in Amount Remarks silicon valley member List 1 Ashok K Patel 7 400000 Not found/not served 2 Girish N Chawala 24 200000 Not found/not served 3 Indiraben Manubhai 33 230000 Not found/not served 12 ITA No. 852/Ahd/2012 . A.Y. 1998-99 4 Jayesh B Patel 34 400000 Not found/not served 5 Jayesh R Patel 35 270000 Not found/not served 6 Jayaram Patel 36 20000 Not found/not served 7 Jayant D Patel 40 430000 Not found/not served 8 Kiritbhai CTrivedi 42 300000 Not found/not served 9 Kaushik C Dave 43 50000 No confirmation received 10 Lalbhai Trivedi 44 50000 No confirmation received 11 Laldhar Udairaj 45 501000 Not found/not served 12 M.S.Patel 47 30000 No confirmation received 13 Manhar Sadrani 48 150000 No confirmation received 14 N.B.Jani 50 20000 No confirmation received 15 Nitaben N Shah 52 511000 Not found/not served 16 Priti.Purohit 56 125000 No confirmation received 17 Raman G Kher 59 151000 Not found/not served 18 Rameshbhai P Patel 61 101000 No confirmation received 19 Sandhyaben N Jaiswal 64 850000 Not found/not served 20 Shoe valley 69 850000 Not found/not served 21 Vakil Jayantital 75 490000 No confirmation received G(HUF) Total 6129000 As assessee failed to furnish any explanation or details of receipt of Rs 61,29,000/- from Silicon Valley members during year under consideration. receipt of Rs. 61,29,000/- is treated as unexplained cash credits u/s 68 of I.T. Act and same is added to total income of assessee. 13 ITA No. 852/Ahd/2012 . A.Y. 1998-99 17.When matter was agitated before ld. CIT(A), assessee failed to convince him. 18.Before us, ld. counsel for assessee vehemently stated that all transactions were made by account payee cheques. creditors were allottees of flat wherever PAN details were available; same was made available to A.O. ld. counsel further pointed out that in addition to above details municipal tax bill from Ahmedabad Municipal Corporation, wherein name of respective member appears and details of flat/shop on which municipal tax is assessed by AMC, were also provided to A.O. along with electricity bills, copy of sale deed and confirmations of payments made by members with booking details. It is say of ld. counsel that assessee had proved identities beyond all doubts. Therefore, there is no room for making additions as unexplained cash credit. Per contra, ld. D.R. strongly supported findings of revenue authorities. 19. We have given thoughtful consideration to orders of authorities below qua directions of Tribunal in first round of litigation qua issue under consideration. In our understanding, if transaction is done by account payee cheque then identity of payer goes into oblivion because money has flown from one identified bank account to another identified bank account. We also find that wherever it was possible PAN details were made available to A.O. No effort to verify from allottees of flats by making any physical verification thereof. In our 14 ITA No. 852/Ahd/2012 . A.Y. 1998-99 considered opinion, assessee has successfully established identities. transaction is done by account payee cheque. Further identities of allottees are supported by municipal tax bills of AMC and electricity bills. Considering these facts in totality, we do not find any reason for making impugned addition. We, accordingly, set aside findings of ld. CIT(A) and direct A.O. to delete addition of Rs. 61,29,000/-. third grievance of assessee mentioned hereinabove is allowed. 20.In result, appeal filed by Assessee is allowed. Order pronounced in Open Court on 18 - 10- 2016. Sd/- Sd/- (MAHAVIR PRASAD) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad: True Copy Rajesh Copy of Order forwarded to:- 1. Appellant. 2. Respondent. 3. CIT (Appeals) 4. CIT concerned. 5. DR., ITAT, Ahmedabad. 6. Guard File. By ORDER Deputy/Asstt.Registrar ITAT,Ahmedabad Busy Bee Engineers Pvt. Ltd. v. Income Tax Officer, Ward- 1 (2), Ahmedabad