1991-VIL-116-ITAT-DEL

Equivalent Citation: TTJ 042, 262,

Income Tax Appellate Tribunal DELHI

Date: 31.07.1991

RAJ VIKAS QUARIES & INDUSTRIES PVT. LTD.

Vs

ASSISTANT COMMISSIONER OF INCOME TAX.

BENCH

Member(s)  : RAM RATTAN., M. C. AGARWAL.

JUDGMENT

These are appeals by the assessee arising out of its assessments for asst. Yrs. 1985-86 and 1986-87.

2. We have heard the learned counsel for the assessee had the learned Departmental Representative and have perused the material placed before us.

3. The assessee was engaged in the business of purchase and sale of immovable properties. In the course of that business the only transaction that was conducted was the purchase of land measuring 41 areas situate in village Sarai Khawaja, Distt.FaridabadThe land was purchased in the year 172 at a cost of rs 2,60,299 and was ultimately sold onthe 23rd of January, 1985for a consideration of Rs 10 lacs. Throughout this period the land was held as a trading asset by the assessee. The assessee claimed that during the accounting periods relevant to asst. yrs. 1985-86 and 1986-87, which ended on 30th Sept., 184 and 30th Sept., 1985 respectively the assessee carried out certain developmental activities on the said land at a cost of Rs 6,74,217 in the first accounting period and Rs 86,262 in the second accounting period. For meeting this cost the assessee claimed to have raised loans amounting to Rs 6,50,000 during the accounting period relevant to asst. yr. 1985-86. The details thereof are as below:

4. As regards the development expenditure the assessee claimed that the following expenditure was incurred during the accounting period relevant to asst. yr. 1985-86

5. During the accounting period relevant to asst. yr. 1986-87 the assessee further claimed to have incurred the following expenditure:

During the assessment proceedings the Assessing Officer doubted the genuineness of the credits as well as of the expenditure alleged to have been incurred. Ultimately the Assessing Officer held the credits to be non-genuine and treated the sum of Rs. 6,50,000 as the assessee's income for asst. yr. 1985-86. The Assessing Officer also held that te expenditure claimed by the assessee was not, in fact, incurred and, therefore, he did not allow any development expenditure while computing the profit arising from the sale of the land in question during the accounting period relevant asst. yr. 1986-87. He determined the profit arising from the sale at Rs 7,39,701(Rs. 10,00,000 minus Rs. 2,60,299), against which he allowed expenses on account of salary amounting to Rs. 3,300 and other expenses amounting to Rs 1250. Thus, for asst. yr. 1986-87 the net income determined was rs 7,35,150. The assessee appealed to CIT(A) but failed and that is how the assessee is now before us in these appeals.

6. Assessment proceedings for asst. yr. 1985-86 had been commenced by the Assessing Officer somewhere before May, 187 when the Assessing Officer summoned certain creditors, out of whom only on Prem Chand Jain appeared and made a statement before the Assessing Officer that he had not advanced any money to the assessee. Summons used to certain creditors under s. 131 by post were received back with the reports that no such person was available. Some other creditors purported to have appeared through counsels and sought adjournment. From6th Oct., 1987the case seems to have been issued a letter dt.6th Oct., 1987to the assessee, copy at page 37 of the departmental paper book, whereby he forwarded a copy of the statement of Prem chand Jain to the assessee and asked the assessee to produce all the creditors in person for examination. He also asked the assessee that the was of the opinion that no expenditure had been incurred and asked the assessee to produce the persons to whom the payments had been made.26th Oct., 1987was fixed for hearing. On that date the assessee by a letter dt.26th Oct., 1987asked that assessee officer to personally see the land for examining the development work. Regarding the cash creditors that assessee stated that it was contacting them and they would be produced. By letter dt.24th Feb., 1988the Assessing Officer again asked the assessee to produce the creditors etc. Fixing3rd March, 1988as the date of hearing. On that date the case was adjourned to15th March, 1988. In between kuldip Tandon, Brij Bala Tohtangi and M.B. Rohtagi creditors were produced before the Assessing Officer. On 15th March, 1988 the assessee filed affidavits of 19 creditors which were all sworn on 12th March, 1988 and also filed copies if their first and last assessment orders and expressed inability to produce on the next date. No further date was however fixed in the case and the assessment for asst. yr. 1985-86 was made vide order dt.28th March, 1988. The assessee had already filed written confirmations from the creditors in support of the loans which the Assessing Officer did not accept since most of the creditors were not produced for examination.

7. In the appeal for asst. yr. 1985-86 the first point relates to the genuineness of the credits amounting to Rs. 6,50,000 and the second point is about the genuineness of the expenditure alleged to have been incurred by the assessee.

8. We will first take up the question of the genuineness of the credits. The learned counsel for the assessee contended that the assessee had filed written confirmation from all the creditors. The repayments of the loans were made through a/c payee cheques. He also pointed out that the Assessing Officer of his own issued summons to certain creditors under s. 131 and therefore, it was his burden to enforce attendance of those persons. He contended that the confirmations filed by the assessee disclosed the permanent a/c numbers of the creditors and the wards where they were assessed and the ass had also filed their latest assessment orders as well as the earliest assessment order and therefore, the assessee has produced sufficient evidence to discharge his burden. According to him, Premchand Jain was examined in the absence of the assessee and no opportunity to cross examine him was allowed to the assessee the therefore, his statement could not be used against the assessee. he also pointed out that several creditors, namely, Basant lal. Radhey Shyam, Smt. Nirmal Gupta, Ram Chander Gupta, Jagdish Rai Verma, Ved Prakash, Shakuntlal Devi, Sharda Ranin gupta, shantio Devi and Ram Kumar Gupta has appeared through counsel sought adjournments. They did not appear on the next date and Assessing Officer never issued Simmons to them again to enforce attendance similarly, regarding the persons whose summons were received back with the remark "not available", the Assessing Officer did not depute any inspector to make enquiries about them as to whether they has ever existed and what were their present whereabouts.

9. He contended that the assessing Officer wrongly discarded the affidavit filed on 12th March, 1988 by relaying on the case of Chowk chand Bala Bux vs. CIT (1961) 41 ITR 465 (Assam) ans that in fact that ruling helps the assessee because there was no cogent reason for discarding the affidavits as the assessee had himself shut the ass out from producing the creditors by closing the case on 15th March, 1988 on which date creditors could not be produced because of Bharat Bandh and by not fixing any other date for the production of th4 creditors. Reliance was placed on CIT vs. Orissa Corpn. Pvt. Ltd (1986) 159 ITR 78 (SC) in which the Tribunal had held that the ass having given the index numbers of the assessee ane having filed confirmation letters the initials onus that lay on the assessee stood discharge. The Hon’ble Supreme Court held that this approach of the Tribunal could not be said to be unreasonable or based on no evidence. In that case also notices issued to the creditors were returned with the endorsement left and no further attempt was made to procure their attendance. Reliance was also placed on Addl. CIT vs. Hanuman Agarwal (1984|) 40 CTR (Pat?) 15 : (1985) 151 ITR 150 (Pat) in which it was held that the assessee having furnished the GIR Nos., addresses and confirmatory letters from the creditors the burden of proof stood discharged by the assessee. In that case also the creditors were not summoned under s. 131 and the confession by the creditors in their earlier proceedings was held to be of no value. Reliance was also placed on CIT vs. S.C. Ghosal (1977) 106 ITR 980 (Cal) in which it was held that the existence of creditors confirmation letters and books of account of at least of one of the creditors were positive pieces of evidence which established the genuineness of the credits. The learned Departmental Representative, on the other hand contended that the assessee had not produced the best evidence i.e. the creditors and the confirmation which were produced by the assessee became doubtful by the statement of Prem Chand Jain He also contended that as pointed out by the Assessing Officer the signatures on the confirmation letters ans the affidavits did not tally with each other and this too was a circumstances that adversely affects the veracity of the confirmation letters as well as that of the affidavits. He contended that all the creditors has advanced money in cash although many of them purport to have mentioned band accounts. No interest was paid to the credits dyeing the invention period and the entire interest was paid at the alleged final return of the money though taw was also deducted at source. He contended that the Assessing Officer had repeatedly and specifically asked the assessee to produce the creditors by the assessee continuously avoided production them although the assessee conduct in filing the affidavit of as manyas 19 of them on15th March, 1988. Shows that the creditors were within the assessee reach. He also contended that the fact that the assessee could collected 19 creditors at one place on12th March 1988and get their affidavits sworn by the same Oath Commissioner reflected adversely on the genuineness of the credits. He pointed out that later, i.e. after the assessment proceeding were over and during the course of the penalty proceedings the Assessing Officer summoned some of the cheques issued by the assessee for the payment of the credit in question and they showed that in some cases the creditors had issued cheques drawn on self which were encashed by one O.P Kedia and one Prem Sharma. Mr. O.P. Kedia was an employee of a sister concern of the assessee namely M/s Suraj Lamp & Industries Pvt. Ltd His statement was recorded on the 12th of March 1990 in the presence of the assessee counsel and he had stated that he had encashed the cheques under instructions from the directors Shri C.L. Chandok and Shri S.K. Chandok and delivered the money to either of them. These two persons are the directors of the assessee as well as well as of the aforesaid sister concern. He also pointed out that an inspector of the department had examined Shri R.K. Singh, the Oath Commissioner, who purposes to have verified the affidavits of the 19 creditors and that the said R.K. Singh had denied having verified the affidavits in question. The learned departmental Representative therefore, stressed that the genuineness of the credits had not been established in this case and the sum of Rs. 6,50,000 was firstly assessed in the assessee's hands.

10. In reply the learned counsel for the assessee contended that Roop Kamal Singh (R.K. Singh Oath Commissioner) was examined at the back of the assessee and therefore, his statement was of no use and that as regards Kedia the circumstances of his encasing the cheques issued by the ex creditors by the assessee could be explained by the creditors or by the directors of M/s Suraj Lamps, who got the cheques allegedly encashed thorough O.P. Kedia and the Revenue could not make capital out of the statement of Shri O.P. Kedia, who purports to have encashed cheques issued by a few of the ex creditors.

11. We have given our careful consideration to the facts of the case. As of evident a large amount of Rs. 6,50,000 was involved in this case. The assessee had filed the copies of accounts of the creditors duly confirmed giving the addressees and the GIR Nos. Etc. Of the alleged creditors. The Assessing Officer had stated investigation much the in time and no doubt he was asking the assessee time and again to personally produce the creditors. The Assessing Officer of his own issued summons under s. 131 to certain persons some of whom appeared through counsel and some were reported not available. Thereafter no further attempt was made to enquire whether the names ans addresses given by the assessee were totally fictitious or the persons had gone out temporarily or had shifted their places of residence or business. The Assessing Officer inspite of the fact that all the confirmations mentioned certain GIR Nos. Ans Income tax Wards, where the creditors were claimed to be assessed did not make any enquires from the concerned ITOs whether such persons existed and whether they could have sources of advancing the money to the assessee. In response to summons under s. 131 on Prem Chand Jain had appeared and had denied having advanced any money to the assessee. As already stated, the Assessing Officer had denied having advanced any money to the assessee. As already stated the Assessing Officer had duly communicated this fact to the assessee and supplied the assessee a copy of his statement. In spite of this the assessee neither produced him nor filed us affidavit, wen it filed the affidavits of other persons. On11th March 1988on which dare the assessee could not produce them because oof Baharat Bandth. It is not disputed by the revenue that on that date there was Bharat Bandth organised by some political party due to which it was not possible for the assessee to produce the creditors. Patenly thereafter no other opportunity was given to the assessee under there circumstances were ate of the view that in respect of the creditors whose confirmations had been filled on 15th March, 1988, the initial burden that lay on the assessee stood discharged. As regards the revenues contention that the bank records summoned by the Assessing Officer during the penalty show that the alleged creditors maintained very negligible balances and as soon as the assessee issued cheques for alleged repayments and the moneys were deposited in the accounts of the creditors the money was immediately withdrawn in some cases by a person connected with the assessee who claimed to have delivered the money back to the directors of the assessee. We are of the view that this evidence having not been collected during assessment proceedings, could not be used to reinforce the findings arrived at in the assessment proceedings could not be used to reinforce the findings arrived at in the assessment proceedings and further the said circumstances were insufficient to rebut the evidence led by the assessee. As regards the Assessing Officer contention is not tenable. The learned Departmental Representative argument that the signatures on the confirmation letters and the affidavit do not tally were are of the view that this contention is not tenable. The learned departmental Representative has filed the copies of the confirmation letters and the affidavits in the paper book and we find that in the absence of any expert evidence their is no reason to have such an impression. Signatures on the affidavits and the confirmation letters have great pictorial similarities and a person who is not qualified in the identification ane examination of hand writing cannot say that the signatures on the two set of documents have been made by different persons.

12. A group of 18 creditors namely Shri Basan Lal Khandhelwal, Ram Manohar Vashist, Smt. Sham Bateri, Radhey Lal, Natresh Aggarwal, Gian Singh Smt. Nirmal Gupta, Ram Chander Gupta, Jagdish Rai Verma, Ved Prakash, Jawahar4 Singh, Smt. Shakuntala Devi, Smt. Bhanti Devi, Smt. Shardha Rani Gupta. Smt. Shanthi Devi, Parshadhi Lal, Ram Kumar Goel, and Suresh Chand Sharma stands in identical situations. In respect of all of them confirmation letters were duly filed and on 15th March 1988 the assessee also filed their affidavits along with the copies of their earliest and latest ask orders, which showed that they were duty assessed to tax and were even given credit for the tax deducted at source from the interest paid by the assessee. The learned Departmental Representative did not even contended that the assessment orders were not genuine or that Assessing Officer obtained copies of their respective band accounts which further reinforced their identity and existence. In out view therefore, the genuineness of loans from the see 18 persons was satisfactorily established and the amounts appearing to their credit could not be treated as the assessee's income under s. 68 of the Act.

13. One Mool Chand Mittal is claimed to have advanced a sum of Rs. 25,000 to the assessee on6th June, 1984. In respect of this creditor the assessee filed a confirmation that was signed by his son Brij Mohan Mittal. The copy of confirmation is at page 80 of the paper book and gives note as on why the confirmation of account of Mool chand Mittal is signed by Brij Mohan Mittal who advanced money to the assessee on the other hand in his affidavit Brij Mohan Says that he gave as loan of Rs. 25,000 to the assessee ion 6th June 1984. This affidavit therefore, does not speak of any loan by Mooll Chand Mittal and the confirmation is also not signed by Mool Chand Mital therefore, as regards this loan there is no evidence whatsoever in support. It is not the case of the assessee that it borrowed any money from Brij Moham Mittal. This credit of Rs. 25,000 appearing in the name of Mool Chand Mittal has therefore, not been established ans the disallowance thereof would have to be upheld.

14. As regards Prem Chand Jain the assessee had filed a confirmation but in response to summons under s. 131 a person describing himself as Prem Chand Jain and residing at the address given by the assessee appeared and denied having advanced any money to the assessee. A copy of his statement has been placed by the Revenue at pages 43 to 46 of the paper book. As copy whereof had been as supplied to the assessee through letter dt.6th Oct. 1987served on the assessee on15th Oct. 1987. In spite of this the assessee did not produce this person nor was has affidavit filed when the affidavit of the persons mentioned above were filed. The learned counsel for the assessee contended that the real Prem Chand Jhaion was not traceable and some other person seems to have appeared before the Assessing Officer. There is no material on record in support of this argument ans therefore, the evidence on record does not established the genuineness of the credit of Rs. 30,000 in the name of Prem Chand Jain. The orders of the authorities below treating the sum of Rs. 30,000 as the assessee income under s. 68 are therefore, upheld.

15. Ss.K. mohta is another person from whom Rs. 35,000 are said to have been received by the assessee on22nd June, 1984. The Assessing Officer has mentioned that no detail in respect of this cerise were furnished. Similarly in relation to Mrs Krishna Rohtahi and alleged creditor or Rs. 35,000 the Assessing Officer says that not confirmation was filed this finding was not challenged before the CIT(A) nor was it challenged before us. In the paper book filed before his Tribunal the assessee has placed confirmation letters etc. In respect of these creditors but since those documents were not placed before the authorities below ans no application for their admission as additional evidence in the present appeal; was made they cannot be looked into. even otherwise ion the circumstances of the case mere confirmations would bot be sufficient to prove the genuineness of the credits. Therefore, the genuineness of the credits appearing in the name of S.K. Mohta and Smt. Krishna Rohtagi is also not established and these amounts were rightly treated as assessee in come under s. 68.

16. We are now left creditors namely Kuldip Tandosn, Brij Bala Rohtagi and M.B. Rohtagi. All of them had appeared before the Assessing Officer and had affirmed the advance of money to the assessee through a Chartered Accountant namely shri Vikram Tandon. Kuldip Tandon is a brother of the said Vikram Tandon, chartered Accountant and from the facts that have been narrated by the Assessing Officer in respect of these creditors we feel that there was no good reason for holding that they did not have the means to advance money to the assessee. We therefore, hold that the geniuses of the credits appearing in the names of these three persons was satisfactorily established. It reasonable doubt. In view of our above discussion the addition of Rs. 6,50,000 in asst. yr. 1985-86 on account of cash credits is hereby reduced to Rs. 1,25,000 in respect of the credits appearing in the names of Prem Chand Jain, Mool Chand Jain, S.K. Mohta and Smt. Krishna Rohtagi.

17. Now we come to the other point involved in these appeals i.e. expenditure claimed by the assessee tio have been incurred in respect of the land in question. This is relevant for determining the profit arising from the sale of land in the accounting period relevant to asst. Yr. 1986-87. Regarding the major expenses on the construction of well building levelling of land and compensation paid to alleged jhugi dewllers the Assessing Officer has asked the assessee to produce the persons to whom the payments had been made. In a letter dt.9th Sept., 1987addressed to the assessee a copy of which is at pages 35 and 36 of the revenue paper book the Assessing Officer stated as below.

"Spot enquiries made by the Inspector reveal that there is no such boundary marking building construction any development of land no well on the land. Moreover the enquiries also suggest that the land was not occupied by any person to whom you have alleged to have paid compensation of Rs. 2,93,100. You are requested to produce all these persons to whom these expenses have been paid, produce books of account."

18. By letter dt.26th Oct., 1987the assessee asked for inspection of the spot. Thereafter the Assessing Officer inspected the spot and high observations would be referred to later. The assessee in its letter dt.15th March 1988stated as below:

"regarding the improvement of the assets it is to state again that we have already produced before you all the books of accounts and the photocopies of the supporting vouchers have been submitted with you. Further your goodself has already visited the site and verified the improvement dine on the site physically. Further in support of our claim we are enclosing herewith the certificate of Mr. Amrit Singh Ex Sarpanch of the area where the assets are situated and all the development was done within knowledge. This certificate is self explanatory that the improvement was done there. Your goodself are requested to please give us a short time to produce the parties and other evidence in support of our claims. Please note that any information or detail if asked shall be submitted with you on the next hearing."

19. As already stated no further date was fixed and the proceedings were closed on15th March, 1988. The Assessing Officer has held that no expenditure as claimed by the assessee, was incurred and the claim of this expenditure has been set up to off set the profit arising from the slaw of land. This finding has been upheld by the learned CIT(A) and the learned Departmental Representative also raised a similar argument.

20. Let us now examiner each expenditure separately. The first item of expenditure is a well claimed to have been constructed at a cost of Rs. 1,18,900. The assessee claimed that the well was dug by a contractor, Hahi & Sons whose bills and the connected vouchers were produced before the authorities below and copies have been placed in the paper book. The well was found to be in existence at the spot when the Assessing Officer went there. Neither the inspector nor the Assessing Officer seem to have recorded and inspection the learned departmental Representative could not tell us whether any such inspection on the spot. The learned departmental Representative could not tell us whether any such inspection note had been prepared in the assessee order the Assessing Officer has observed that the land in question was near Barkal lake and is a hilly area or uneven land. It is stony land and can only be blasted. He found local people drawing water farm the well ion since beginning. It had not been plastered from inside. It appears in its original for. No pulley had been fixed on the well. There was no boundary wall. Their was no tubewell of other pipes fitted inside. On the basis of these observations the Assessing Officer has concluded that the well was not built by the assessee.

21. No doubt area or uneven land. It is stony land and can only be blasted. He found local people drawing water farm the well ion since beginning. It had not been plastered from inside. It appears in its original for. No pulley had been fixed on the well. There wags no boundary wall. Their was no tubewell of other pipes fitted inside. On the basis of these observations the Assessing Officer has concluded that the well was not built by the assessee.

21. No doubt the contractor was not produced by the assessee but the vouchers produced by the assessee before the authorities below contained full address of the contractor, H. Llahi & Sons, 796, Saket near Anupam Cinema,New Delhi. The Assessing Officer did not depute any Inspector to verify whether such a contractor was there and completed works like digging of well. The well was in physical at the spot. The observation made by the Assessing Officer that the well was reported to be in existence from the "beginning" is very vague. According to the assessee the well had been built more than 3 years prior to the visit of the assessing officer and the assessing officer paternal did not clarify what was meant by the word beginning. He should have recorded the statements of those persons or at least specifically enquired from the people concerned whether the well existed even prior to June 1984 when according to the assessee the construction of the well was started. The Assessing Officer also does not state that from his own observation he found that the well was very old and could not be a recent construction of about three years of age. It is a masonary well from which water could be drawn manually and he actually found people drawing water from the well. The fact that no pulley or pipes were fitted in the well was therefore of no consequence.

22. The learned Departmental Representative contended that these days it is only a tubewell which is installed and such masonry wells are out of vogue. This in our view is a matter of ones own thinking for which no material has been brought on record and the assessee was never asked to explain why instead pf tube well it considered it proper to have a masonry well in our view therefore the incurring of expenditure amounting to Rs. 1,18,900 was satisfactorily established and we hold accordingly.

23. Another item of expenditure is Rs. 38,112 allegedly incurred on the construction of building. the assessing officer on his visit to the spot found that there was a structure of 15 x 20 in dismantled condition without roof. The structure was made of a stone and the assessee informed that it had asbests sheet roof. The assessing Officer estimated that the maximum expenditure p. m the construction could be only Rs. 20,000. However, even the estimated cost of Rs. 20,000 was not allowed as a seduction and no specific reason has been given by the assessing officer.

24. Thus the evidence of the existence of a building was also physically present at the spot. The assessee had already sold the land vide sale deed dt.23rd Jan., 1986and the new owner might have removed the roof. The assessing officer has not mentioned that the structure found at the sport was old and could not be mentioned that the structure found that the spot was old and could not have been raised by the assessee. It is thus established that the assessee did not construct a building on the land in question the assessee has not placed the relevant vouchers in then paper book. Therefore we are of the view that the assessing officer estimate of the cost of the building at Rs. 20,000 should be allowed as a deduction as expenditure incurred in connection with the land in question.

25. The next item of expenditure is a sum of Rs. 20,686 spent on boundary marking the claim is supported by vouchers of purchase of material like cement lime etc. And payment to labours. The assessee had stated taking interest in the land and developing it and we see no reason for disbelieving this expenditure. The assessing officer also has not stated that when he visited the spot there were no boundary marks. He has not specifically discussed this expenditure in the assessment order. In our view therefore the assessee's claim for this expenditure deserves to be accepted.

26. The next item of expenditure is a sum of Rs. 1,46,455 claimed to have been spent on levelling a portion of the land. According to the assessee this expenditure was incurred for filling certain depressions. Trucks loads of Malba (deabris) were, therefore, dumped in those pits or depressions for which payments were made to the truck operators the expenditure is supported by internal vouchers on which signatures of the drivers have been obtained. The learned assessing officer disallowed this item of expenditure on the ground that when he visited the spot no visible evidence of such activity was available. The learned CIT(A) has upheld his finding by referring to the Assessing Officer observation that the stones and shrubs are in their natural place and there was one road which was going through the land but it was all government. The learned assessing officer has observed that at the spot there is miles and miles barren area. He visited the spot more that three years after the assessee had already sold the land and in such circumstances the land fillings could not be readily visible we therefore hold that the fore said amount was spent by the assessee for levelling certain portions of the land in question and shall be allowed deduction in computing the profit from the sale of the said.

27. The next item of expenditure is the amounts paid to certain persons who had laid jhugus on the land in question and who were paid compensation for removing their possession. On this account a sum of Rs. 2,93,100 is claimed to have been paid during the accounting period relevant to asst. yr. 1985-86 and a sum of Rs. 15,000 is claimed to have been paid in the accounting period relevant to asst. yr. 1986-87. this expenditure has been disallowed because the Assessing Officer found no visible signs of jhujis when he visited the spot for local inspection and also because the persons toe whom compensation was paid were not produced. The assessee however produced the internal vouchers and the receipts obtained from the various persons and also filed a certificate from one Shri Amrit Singh Ex Sarpanch of Anandpur supporting the payment of compensation and the expenditure. The ass has placed in the paper book internal vouchers and receipts obtained from the persons to whom payments were made. Accordingly to the papers placed in the paper book following payments were made. Accordingly to the papers placed in the paper book following payments were made:

All the aforesaid payments were made betweenthe 30th of May, 1984and 30th of June, 1984, i.e., within the accounting period relevant to asst. yr. 1985-86 and tangible evidence of the earlier existence of jhugis at the time of the Assessing Officer's visit could not reasonably the expected. The assessee‘s inability to produce the persons, to whom the payments were made, was probably because it did not record their erstwhile addresses. However, all the receipts are duly witnessed by one Shri Manga Lal Sharma R/o 1-D/56, N.I.T. Faridabad, who was never contacted by the AO nor was required to be produced. In our view, therefore, so far as payments amounting to Rs. 1,94,900 to the aforesaid persons are concerned, they were satisfactorily established. The balance of the expenditure is not shown to have been properly vouched. We, therefore, hold that out of the total claim of the assessee amounting to Rs. 3,08,100 only expenditure to the extent of Rs. 1,94,900 would be allowed as deduction.

28. The next item of expenditure is a sum of Rs. 20,000 said to have been paid to a property broker in connection with the sale of the land in question. No material has been placed in support of this claim and, therefore, we agree with the authorities below that this claim is not established. This expenditure cannot, therefore, be allowed.

29. The next item of dispute is interest amounting to Rs. 37,234 in asst. yr. 1985-86 and Rs. 26,000 in asst. yr. 1986-87 paid on the loans amounting to Rs. 6,50,000 mentioned above. This claim has been negatived on the ground that the assessee had advanced substantial amounts free of interest to sister concerns like M/s Suraj Lamp & Industries Pvt. Ltd. which had a debit balance with the assessee amounting to Rs. 8,82,337 as on 30th Sept., 1985. The learned AO has not mentioned when was the amount advanced to the sister concerns and there is no finding that the amounts raised from the creditors in question were utilised for making the advances. On the other hand, there is evidence to show that the amounts raised as loans were utilised soon afterwards for making payments in respect of the development expenditure in respect of the land. It cannot, therefore, be said that the aforesaid amounts were not utilised for the assessee’s business and were diverted to the sister concerns. However, since genuineness of some of the credits, as discussed above, has not been established, the assessee’s claim will be allowed only in respect of the interest paid on the loans which have been proved. Therefore, the amount of interest allowable shall be recalculated by the AO and allowed as a deduction.

30. The rest of the expenditure claimed by the assessee is of miscellaneous type out of which the AO has allowed Rs. 4,550 and no grievance on that account was made before us.

31. As stated above, the AO has mentioned that the alleged development expenditure was shown merely to reduce the profit from the sale of the land and learned Departmental Representative also contended that it was strange that although the assessee owned the land for about 12 years and there has been substantial rise int he prices of immovable properties, yet in this transaction the assessee made no profit and, according to him, this indicated that the alleged developmental expenditure was bogus. In our view, this impression is not supported by any cogent material. The AO has not collected any evidence to show what was the extent of price rise in the area where the land in question ins situate. The observations of the learned AO in the assessment order for asst. yr. 1985-86 are that the land is situate in an area where there is miles and miles of barren stony land. It is, thus, a land which was not fit for agriculture nor for colonisation. Therefore, it would be improper to assume that the prices of such land would also rise in the same proportion in which the prices of other better placed lands have risen. Further the nature of the development work done by the assessee was of a nature that would not add materially to the value of the land and, therefore, the amount spent could not be expected to be paid back by a buyer by way of rise in the value of land. For example, trespass reduces the value of land and removal of trespassers by payment of compensation merely restores that value. There is no actual addition. Similarly a buyer may think that a masonry well would be of little use and though the assessee spent a substantial amount on the construction of the well there may bot be any return on that account. This line of thinking, therefore, does not establish that the above acts of development were not actually carried out by the assessee.

32. Lastly, the learned Departmental Representative contended that most of the expenditure incurred by the assessee was in sums above Rs. 2,500 and payments were made in cash. Therefore, the expenditure is disallowable under s. 40A(3) of the Act. Sec. 40A(3) has not been invoked by the AO or by the CIT(A) and, in our view, such a plea cannot be raised by the Revenue at this stage because the assessee has had no opportunity of showing why payments were made in cash. This plea is, therefore, rejected.

33. No other point was raised in the aforesaid appeals and in view of the above discussion, both the appeals are partly allowed. The profit arising on the sale of the land in asst. yr. 1986-87 shall be recomputed by the AO in the light of our decision on the various items of expenditure.

 

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