ORDER

Deepak A.R. Shah, Accountant Member. - These appeals by the assessee's and cross appeals by the revenue are heard together and are being disposed of by this common order for the sake of convenience.

ITA Nos. 4126/Delhi/2006 & 124/Delhi/2007

2. We shall take appeals in the case of Shri K.J. Arora first. These cross appeals by the assesses and by the revenue are directed against the order of the learned Commissioner of Income-tax (Appeals)-II New Delhi, dated 9-10-2006 for assessment year 2003-04.

3. The assessee in this case is an individual who derives income from business of real estate agency and also income by way of salary, income from house property, capital gain and also income from other sources. The assessee filed return of income declaring total income of Rs. 48,90,427.

4. The first ground of appeal by the assessee as also by the revenue is in respect of disallowance of foreign travelling expenses. The Assessing Officer found during the course of assessment proceedings that foreign travel had been undertaken during the instant year by the assessee himself, as well as assessee's son Rajesh Arora who was also an employee of the sole proprietorship concern of the assessee M/s. Arora & Associates as well as by D.N. Arora who is brother of the assessee and who is also working for the assessee. The Assessing Officer directed the assessee to substantiate the claim for expenditure on foreign travelling by filing the copies of the bills as also the purpose for which such foreign travelling has been undertaken. Being dissatisfied with the explanation so furnished impugned disallowance has been made by holding that the tour expenses were not attributable to business and were private tours.

This resulted into disallowance of Rs. 26,09,688 being the entire foreign travelling expenses incurred by the assessee. Before the learned CIT(A) elaborate arguments were made. The learned CIT(A) after considering the assessment order as also the arguments by the assessee held as under :—

"4. I have carefully considered the findings of the Assessing Officer as also the submissions of the AR as well as the supporting documents filed by the AR. The details of travelling expenses have been filed by the assessee at page No. 98 of the paper book, according to which there are three foreign trips. The first foreign trip has been made by the assessee along with his son Rajesh Arora who is stated to be working for the assessee and in respect of whom salary also stands allowed by the Assessing Officer while completing the impugned assessment. The second foreign trip has been made by Shri Rajesh Arora only and this visit is to USA. The third trip is to Dubai by the assessee and his brother Shri D.N. Arora who is also stated to be working for the assessee. The copies of letters filed by the assessee during the course of assessment proceedings on 6-9-2005, 2-10-2005 and 9-3-2006 as also another letter filed after 16-3-2006 have been carefully perused. It is seen from the copies of these letters and the enclosures thereto (hat the assessee has given specific names of clients/prospective clients with whom meetings were fixed and held abroad in connection with the business of the assessee. The documentary evidences from these prospective clients including the copies of letters from these clients have also been filed as were also enclosed with the explanations filed before the Assessing Officer. The perusal of these documentary evidences show that the assessee has undertaken these foreign visits to visit clients whose specific particulars have been furnished. The names of certain clients as given by the assessee are M/s. Top Ten (Fiorucci), J&A Eurogel, Noories Restaurant (India). These are the parties whose specific particulars have been given and documentary evidences have been filed to show that the assessee had visited these parties while on his first foreign trip. It is seen that no discrepancy has been pointed out by the Assessing Officer in these documentary evidences and the claim of the assessee that first visit to Europe was made for meeting these people. As regards the second foreign trip to USA, it is seen that a letter Mexomic Mill Stone Management which is stated be a property consultant in California, USA has been filed wherein this company has invited Mr. Rajesh Arora, CEO of the proprietorship concern of the assessee to visit USA and meet various clients in New Orleans, Houston, Sandiago and Los Vegas regarding their office premises requirement in India for further expansion. Similarly for the Dubai visit there is a invitation by a Indian Restaurant called CHAPPAN Bhog in Abu Dhabi where the assessee has been invited to meet the proprietor of that Restaurant as also the proprietors of two more stores for holding further negotiations and discussion for arranging showroom space in Delhi. The assessee has explained that all these visits were necessary in the line of business of assessee since the nature of business is such that it can be promoted only by meeting successful businessmen and in understanding their needs for real estate in Delhi and for personally giving them offers in respect of properties available in Delhi. The assessee has also furnished details of income earned by him from foreign parties in various years and it is seen that in assessment year 1999-2000 commission income of Rs. 50,93,437 was earned by the assessee from foreign parties. Similarly in assessment year 2002-03 and the instant year the assessee has received commission of Rs. 40.80 lacs and Rs. 11.70 lacs from foreign parties. It is seen that substantial commission has accrued to the assessee from foreign parties. The perusal of the assessment order shows that the Assessing Officer has not pointed out any discrepancy in this fact also. The argument of the AR that since the assessee's total commission during the instant year had gone down to Rs. 88.05 lacs as against Rs. 1.68 crores in the last year and therefore also it was imperative for the assessee to make more efforts to generate business during the instant year can also not be lost sight of. The facts brought on record by the assessee clearly show that the nature of business of the assessee is such that even if one deal materalises then the assessee is entitled to substantial commission. The assessee has furnished details of each and every foreign trip undertaken by it and have also submitted the documentary evidences in respect of each of the foreign trips undertaken by him. The perusal of the assessment order further shows that the Assessing Officer has made the impugned disallowance on the ground that since the family member of Rajesh Arora had also accompanied the assessee and Rajesh Arora on their business trip to Europe, the expenses have been held by him to be personal in nature. The AR submitted that it was explained to the Assessing Officer also that the personal expenses in respect of these family members were not debited in the books of accounts and that the same were debited to the drawings account and that no portion of the same was claimed in the Profit and Loss Account. This submission was made in letter dated 9-3-2006. The Assessing Officer however, has not pointed out any discrepancy in this fact also. It is thus seen that the Assessing Officer without pointing out any discrepancy in the fact as established by the assessee that the foreign visits were made to meet prospective clients has still disallowed the entire expenditure on the ground that no deal could be materialized during such foreign visits and in the opinion of the Assessing Officer such expenditure was personal in nature. Having carefully perused the facts of the case and the observations of the Assessing Officer I find myself unable to subscribe to the view of the Assessing Officer that the entire expenditure is not allowable. It is an undisputed fact that the Assessing Officer has failed to bring on record any material to show that any specific expenditure incurred on the family members of the assessee has been claimed by the assessee as his business expenses. It is a settled law that merely because there is no immediate benefit to assessee's business this alone cannot be a sufficient ground for disallowance of tour expenses. Reliance in. this regard is placed on the judgement of Delhi Bench of ITAT in the case of UP Ceramics & Potteries Ltd. 52 TTJ 499 wherein the Managing Director of that company had undertaken foreign tour to build foreign market and to study the latest technology and it was held that such expenditure was allowable and that it was not necessary that there is a immediate benefit to the assessee out of the foreign tours. In my considered opinion what is important for allowance of deduction on account of foreign travel expenses is to see if the expenditure has been incurred for business consideration or is the expenditure incurred for private purposes. The mere fact that there has been no immediate benefit to the assessee's business is not a sufficient ground for disallowance of foreign tour expenses. As regards the Assessing Officer's observation that the family members of Rajesh Arora had also accompanied the assessee and Rajesh Arora on their foreign trip to Europe, I agree with AR's contention that since no expenditure incurred on these family members has been claimed by the assessee and also since the assessee has been able to prove that he had undertaken these visits for the purpose of his business, the entire expenditure cannot be disallowed. Similarly in respect of. the trips of Rajesh Arora to USA and of the assessee to Dubai, it is seen that these trips were also made only for the purpose of business and intact in these trips no family member has accompanied them. Keeping in view the facts and circumstances of the case as stated above it is hereby held that the trips were undertaken for the purposes of business. However, keeping in view the fact that there may be some personal element in the expenditure claimed by the assessee, in my considered view the ends of justice will be met if disallowance of 20 per cent out of expenditure incurred on ticket and 25 per cent on hotel expenses and other expenses is disallowed. Accordingly out of the total claim of the assessee of Rs. 26,09,688 a disallowance of Rs. 1,17,845 is made out of expenditure on air tickets and a further disallowance of Rs. 5,05,115 is made out of hotel expenditure and other expenses incurred by the assessee during these foreign visits. In the result a disallowance of Rs. 6,22,960 is sustained out of a total disallowance of Rs, 26,09,688 and the balance disallowance is deleted. This ground of appeal is thus partly allowed."

5. Against the disallowance sustained by the learned CIT(A) the assessee is in appeal whereas against part of the disallowance deleted, the revenue is in further appeal before us.

6. The learned counsel for the assessee Shri Ashwani Taneja submitted that fact that the foreign travelling was undertaken for the purpose of businesses not now in dispute. The reason for disallowance given by the Assessing Officer is that no business/dealings took place as a result of these tours and no business was procured. However, it is settled law that the expenses are allowable even if they do not result into immediate benefit' accrued to the assessee. CBDT Circular No. 4 dated 19-6-1950 clarifies that the expenses could not be disallowed on the ground that they did not result in earning of profits immediately. This fact has been considered by the CIT(A). However, having found that the travel was undertaken for the purpose of business, no part thereof could have been disallowed on ad hoc basis. When the travel was undertaken for the purpose of business, the airfare was required to be paid and hence disallowance of 20 per cent of expenditure incurred on ticket is not justifiable as the entire expenses are for the purpose of business. Similarly when the assessee travels abroad, he has to incur necessary boarding and lodging expenses. In the foreign tour nothing is personal as tour is undertaken for the purpose of business. Reliance was placed on the decision of ITAT in the case of a Asstt. CIT v. Amtek Auto Ltd. [2007] 112 TTJ (Delhi) 455 .

7. The learned DR Shri T. Vasanthan on the other hand, relied upon assessment order. He submitted that not only the assessee but also his son as well as his brother travelled abroad. In a way it was a personal tour and this is evident from the fact that no business was procured while travelling abroad. Therefore, the entire expenses need to be disallowed. In reply the learned counsel for the assessee submitted that the expenses on the family members have not been claimed rather the same are debited to the personal account and not forming part of the expenditure claimed in computation of income.

8. We have considered the rival submissions. The details of tour and the expenses incurred thereon were filed. The assessee has given specific name of clients/prospective clients with whom meetings were held in abroad in connection with business. These details were also filed before the Assessing Officer. The assessee has been earning income in the past from such foreign parties. Therefore, in furtherance of the same business tour was undertaken. When the expenses are claimed what is to be examined is whether the expenses ate incurred wholly and exclusively for the purposes of business and in the course of carrying on such business. The earning of the revenue as a result of visit abroad is to sine for claiming and allowing the expenses. CBDT Circular No. 4 dated 19-6-1950 has opined that while considering the admissibility of visits to foreign country, the same should not be approached from the point of view as to whether the such visits result into earning of profits or not. Therefore, the premise with which the Assessing Officer proceeded on the issue is misconceived. Whereas the CIT(A) was satisfied that the expenses were incurred in the course of business and when there is no finding that particular expenses were for the personal use, merely on the basis of some estimate the expenses cannot be disallowed. The expenses on airfare is wholly and exclusively for the purpose of business. Therefore, such expenses could not have been disallowed even in part. As regards hotel expenses, when the assessee or its employees travelled abroad and stayed in the hotel, the expenses are wholly and exclusively for the purpose of business. From the details the Assessing Officer has not found out as to which part is not towards travel abroad or for otherwise than for the purpose of business. Accordingly the sustenance of disallowance of Rs. 6,22,960 is not in accordance with law. We, therefore, delete the entire disallowance.

9. Grounds No. 2 & 3 by the assessee are against disallowance of Rs. 10,000 out of telephone expenses and Rs. 11,508 as well as Rs. 11,825 out of car repair, maintenance and car depreciation expenses respectively on the allegation of personal user.

10. The learned CIT(A) in this regard has observed as under :—

"9. The submissions made by the AR have been considered. As far as telephone expenses are concerned it is seen that none of the telephones has been installed at residential premises of the assessee and therefore the disallowance as made is excessive. The disallowance of Rs. 50,163 made by the Assessing Officer is therefore directed to be restricted to Rs. 10,000 on account of personal use by the assessee. However, as regards, the vehicle maintenance expenses, the disallowance made is very modest and the same is upheld. In the result assessee gets a relief of Rs. 40,163 out of disallowance in respect of telephone expenses and the ground of appeal in relation to vehicle repair and maintenance and depreciation is dismissed."

11. After considering the submissions made by both the counsels we do not find any reason to interfere in the finding given by the learned CIT(A). When the personal element for the user of telephone and vehicles is not denied, the learned CIT(A) was justified in estimating such personal user so as to disallow the same.

12. Ground No. 4 in the appeal by the assessee is against upholding a disallowance of Rs. 30,476 out of total disallowance of Rs. 1,01,863 made by the Assessing Officer invoking provision of section 14A of the Act. The revenue also challenges relief granted of Rs. 71,387 in ground No. 2 before us.

13. The Assessing Officer noted that the assessee has earned income of Rs. 10,18,632 by way of dividend of shares, mutual fund, UTI bonds, RBI bonds and interest of PPF. The same were exempt. The Assessing Officer held that the total expenditure debited by assessee is Rs. 1.21 crores. As per section 14A, the expenditure incurred in relation to income which is not includable in total income, cannot be allowed. During assessment proceedings, the assessee submitted that it has not incurred any expenditure for earning such exempt income. The Assessing Officer held that though the assessee is using staff and incurring various office and administrative expenses, but were not shown in relation to earning exempt income. The Assessing Officer, therefore, apportioned the total expenses in proportion to exempt income as basis to gross receipts. Accordingly, sum of Rs. 6,07,150 were disallowable but he restricted the disallowance to 10 per cent of the total expenses. Accordingly, a sum of Rs. 1,07,863 was disallowed as having been incurred for earning exempt income. Learned CIT(A) held that there is no material on record whereby there is any nexus between incurring of expenditure for carrying out different business activity of real estate and income earned on investment from, which exempt income was earned. In absence of any such nexus, provisions of section 14A cannot be applied. Reliance was placed on the decision of ITAT, New Delhi in the case of Maruti Udyog Ltd. v. Dy. CIT [2006] 92 ITD 119 . The learned CIT(A) held that since the assessee has incurred expenditure of about Rs. 3,04,766 on interest payment, 10 per cent of such interest expenses is to be held towards earning of exempt income as there is a mixture of interest free funds as well as interest bearing funds. He accordingly upheld the disallowance of Rs. 30,476. The assessee as well as revenue are in appeal before us.

14. Whereas learned DR relied upon assessment order, learned counsel for assessee relied the order of ITAT in his case for assessment year 2002-03. Shri Ashwani Taneja also relied upon following decisions :—

1. Impulse India (P.) Ltd. v. Asstt. CIT [2008] 22 SOT 368 (Delhi);
2. Wimco Seedling Ltd. v. Dy. CIT [2007] 107 ITD 276 (Delhi); (TM.)
3. Maruti Udyog Ltd.'s case ( supra).

15. We have considered rival submissions and the decision of Tribunal cited above. We find that for applicability of section 14A, it is for the Assessing Officer to demonstrate that the expenditure were incurred by the assessee in relation to income which does not form part of the total income. When the assessee specifically denied having incurred any expenditure and having also proved that the expenditure was incurred in the business of real estate agent, it was for the Assessing Officer to prove that such expenditure was not incurred in the course of carrying on business but were incurred for earning exempt income. The Assessing Officer having failed to do such exercise cannot presume and allocate the expenditure in the ratio of exempt income to total income. The finding has to be specific. The nexus has to be proved. In absence of such finding or nexus, provisions of section 14A cannot be invoked so as to disallow the expenses on proportionate basis. The decisions relied by learned counsel for assessee squarely applies. We, therefore, delete the disallowance of Rs. 30,476.

16. Ground No. 3 in revenue's appeal is against deletion of addition of Rs. 4,63,700 being treated as unexplained investment under section 69B in construction of house property E-114, Malcha Marg, New Delhi. The Assessing Officer has made this addition by holding that the assessee has made unexplained investment of Rs. 4,63,700 in construction of house property at E-l 14, Malcha Marg, New Delhi. The Assessing Officer found that the assessee was constructing a house which was primarily completed upto 31-3-2003 and there were three co-owners in this property as the following ratio :—

The investment made by the assessee and other co-owners in the construction of property upto 31-3-2003 has been declared at Rs. 1,01,80,523 as per the following details extracted by the Assessing Officer :—

The Assessing Officer further found that the declared cost upto 31-3-2004 is Rs. 1,24,67,560. The assessee furnished a valuation report by a registered valuer Shri Ranjeet Singh, according to which the cost of construction estimated by him was Rs. 1,04,30,196, However, the Assessing Officer referred the matter for valuation to the DVO who has given his report vide his letter No. D/ND/IT 7/2005-06/2002 dated 30-1-2006. On the basis of this report the Assessing Officer found that the total cost of construction as determined by the DVO upto 31-3-2004 is Rs. 1,36,03,297. In this manner the Assessing Officer found that there was a difference of Rs. 11,35,737 in the declared cost upto 31-3-2004 vis-a-vis the cost estimated by the DVO upto 31-3-2004. The Assessing Officer thereafter computed proportionate figure of difference in cost of construction in the property upto 31-3-2003 as per the following details given in the assessment order :—

The assessee was asked to show cause as to why difference in the cost of investment in the property may not be added under section 69B of the Act and the Assessing Officer was not satisfied with the reply so submitted and made addition of Rs. 4,36,700 to the income of the assessee being 50 per cent of the amount of Rs. 9,27,398.

17. Before the learned CIT(A) it was submitted that the addition has been made on the basis of DVO's report ignoring the approved valuer's report obtained by the assessee. The assessee has also raised objection to the report of DVO which has not been considered by the Assessing Officer while considering the addition. Some mistakes in the DVO's report were pointed out. It as submitted that even the measurement taken in respect of covered area is wrong which results into excess valuation to the extent of Rs. 5,18,406. It was also submitted that part of the building material of old building was utilized in the construction of new house. The credit for self-supervision has been given at the rate of 7.5 per cent which should have been 12.5 per cent. It was also contended that the assessee has maintained complete vouchers for day-to-day records of construction. It was also contended that as against DVO's valuation., of Rs. 136 lacs, the assessee's cost is Rs. 124.67 lacs. The difference is merely 9.1 per cent which does not lead to conclusion that any unexplained investment has been made. Considering all these submissions the learned CIT(A) held as under :—

"14. I have considered the submissions of the AR as also the observations of the Assessing Officer leading to the impugned addition. I have perused the valuation report of the DVO as also the explanation furnished by the assesses. It is seen that the first reason for variation is on account of difference in area as pointed out by the assessee in his letter dated 20-2-2006. It is seen that the difference of Rs, 5,18,406 is on account of such difference in area. The difference in area has been duly certified by the registered valuer of the assessee who has explained that the open areas like balconies and open court yard have been considered as covered area by the DVO and full rate has been applied as if it was a totally constructed area, whereas the assessee had kept these areas as open areas and neither there was roof nor any enclosure around these areas and therefore there is no justification to include the same as fully constructed areas. It is further seen that the self-supervision is allowed by the DVO only at 7.5 per cent whereas according to various judgments of ITAT Benches as relied upon by the assessee the same is allowable at 10 per cent to 12.5 per cent. The fact also remains that the assessee has filed complete details of expenses incurred on construction of the property including bills and vouchers. The accounts of the assessee are audited and have been duly examined by the Assessing Officer. The Assessing Officer has not pointed out any specific item of suppression in investment by the assessee.

The Assessing Officer however has made the addition only on the basis of valuation report of the DVO without bringing on record any material to show that any actual expenditure over and above the amount declared by the assessee has been incurred by him. The Assessing Officer has also not brought on record any material to show that any expenditure which ought to have been incurred by the assessee find other co-owners for construction of the impugned house property has not been incurred by them. He has also not pointed out any specific item of construction expenditure where cost has been suppressed by the assessee. The assessee on the other and has furnished complete details of each and every expenditure incurred on construction of this house property. The details of expenses incurred by other co-owners has also been considered by the Assessing Officer since he has made the assessments in all the three cases together. No discrepancy in such detail has been pointed out. The addition has been made only on the basis of Departmental Valuation Officer's report which is a mere estimate and cannot be taken to be gospel truth, moreso when details regarding actual expenditure are available and in which no discrepancy is found. It is a settled principle of law now that where cost of construction was regularly recorded by the assessee in records maintained by him and duly supported by vouchers etc., wherein no discrepancy was found then no addition could be made merely on the basis of DVO's report, I agree with A.R, of the assessee that the assessee's case is fully covered by the following judgments cited by the assessee before the Assessing Officer :—

(i) Shri Har Swaroop Gold Storage & General Mills v. ITO 27 ITD 1 (Delhi);
(ii) CIT v. Pratap Singh 200 ITR 788 (Raj.);
(iii) Commissioner Of Income-Tax v. Roshanlal. 178 ITR 660;
(iv) 114 Taxman 353 (Mad.).

It is also seen that the Assessing Officer has failed to discharge the onus to prove the factum of any investment over and above the declared amount having been actually made by the assessee. On these facts and circumstances the addition as made cannot be sustained and is deleted."

18. Whereas the learned DR relied upon the assessment order, the learned counsel for the assessee relied upon appellate order. He also submitted that there is hardly any difference between two valuations. The Hon'ble Jammu & Kashmir High Court in the case of Honest Group of Hotels (P.) Ltd. v. CIT [2002] 123 Taxman 464 , held that where the difference between cost estimated by DVO and cost declared by the assessee is less than 10 per cent, the difference is liable to be ignored. Similar view has been adopted by ITAT Chandigarh in the case of Amir Chand v. Asstt. CIT [2002] 124 Taxman 162 (Mag.).

19. We have considered the rival submissions. The assessee filed complete details in respect of investment made. Total investment by three co-owners upto 31-3-2004 is Rs. 124,67 lacs. The DVO's estimate shows the value at Rs. 136,03 lacs. In the report of DVO the assessee has specifically pointed out certain defects which has not been dealt with by the Assessing Officer. Even the credit for self-supervision is granted at 7.5 per cent as against 12.5 per cent approved by various decisions of the Tribunal as reported in the following decisions of ITAT :—

(1) Smt. Mamita Rauto v. ITO [2002] 76 TTJ 455(Ctk.);
(2) Asstt. CIT v. Smt. Ramkali Shivharey [2004] 4 SOT 338 (Agra).
(3) Asstt. CIT v. Munni Devi Ice. & Cold Storge (P.) Ltd. [2003] 88 TTJ 647(Agra).

Considering the facts it cannot be said that there was any unexplained investment by the assessee in construction of house property, After all the report of DVO is only an opinion and not a conclusive proof that any unexplained investment has been made. Moreover, defects were also pointed out in the said report. Considering these facts, we find that the addition was rightly deleted by the learned CIT(A).

20. The next ground of appeal by the revenue is against directing the Assessing Officer to compute the income earned on sale of properties as capital gain as against business income held by the Assessing Officer, The assessee has sold his flats in Enkay Tower, Gurgaon during the instant year which were acquired by him in 1996 and also a property at West Patel Nagar, According to the Assessing Officer since the assessee is engaged in the business of real estate commission agency therefore these are his stock in trade.

21. Before the learned CIT(A) it was submitted that the assessee never carried on business as dealer in property rather he was earning commission on property dealt with or negotiate through him. Due to this activity the assessee happened to purchase certain properties but the business of the assessee was never dealing in property. It was also contended that in earlier three years the assessee has never sold any property. The frequency of transaction does not show that the assessee is trader in property. The learned CIT(A) after considering the submissions held as under :—

"17. I have considered the submissions made as also the relevant material brought on record by the AR. It is found that the assessee has been consistently declaring the immovable properties held by him under the head "Flats" in audited balance sheet, copies whereof have been filed. The office building which has been which has been used by him for the purpose of head "Fixed facts" of which depreciation has alos been claimed. It is also seen that the immovable properties shown under the head "Flats" is not stock in trade of the assessee as the same has been shown only in balance sheet and has not been routed through profit and loss account. It is also seen from the perusal of accounts of the assessee for the last three years, copies where of have been filed, that the assessee has not traded in properties as a trader of properties. The business carried on by the assessee involves only earning of commission and brokerage on properties and does not include the trading of properties. Even in the earlier years the assessee has never been held to be trader of any property. I have also examined the details of properties purchased and sold by the assessee as submitted by him and it is seen that in financial years 1999-2000 and 2000-01 no property was sold at all and only three flats were purchased in these two years. Similarly in financial year 2001-02 no purchase of property was made and only two of the flats were sold including a flat at Enkay Tower, Gurgaon. In all these years assessments were completed under section 143(3) of the Act and in no case the assessee was held to be a trader of properties. None of the properties held by the assessee under the head "Flats" was ever held to be stock in trade of the assessee. Even during the instant year there are no purchase of properties and only sale of flats in Enkay Tower and sale of property in West Patel Nagar. On these facts and circumstances it cannot be said that the assessee is a trader of properties as neither the frequency nor nature of transaction in the instant year as well as in the earlier years support the view of the Assessing Officer that the assessee was a trader in properties, The Assessing Officer has in fact failed to prove that the property sold by the assessee during the instant year was his stock in trade, Merely because the assessee owns various properties, out of which he has sold some properties during the instant year cannot be held out against him, moreso when these properties were acquired by him way back in 1996 i.e., more than five years back. On these facts and circumstances it is held that the Assessing Officer has not been able to discharge the onus to prove that the properties sold by the assessee were his stock in trade or that ohe transactions of sale were transactions of trade. The Assissing Officer is accordingly directed to recompute the income from sale of such property under the head "Income from capital gains" by allowing indexation as per law."

22. On careful consideration of relevant facts we do not find any reason to disturb the findings arrived at by the learned CIT(A). The fact that the assessee is engaged only in consultancy business or as a broker in real estate is not denied. The assessee never acquired property so as to deal in the same rather the property acquired way back in 1996 was sold after a gap of six years. This does not make the assessee a dealer in property. Therefore, there is no infirmity in the order of the learned CIT(A).

23. The next ground of appeal is against allowing relief of Rs. 4,88,554against addition of Rs. 6,12,475 made on account of annual value of the property. The Assessing Officer found that the property at Flat No. 504-A, Ambadeep Building (2/3rd share), New Delhi, farm house at Ghaziabad, and at 5, Appu Ghar, New Delhi which is owned by the assessee and in respect of which no ALV has been offered for taxation. It was contended that all these properties are lying vacant and no rent is received in respect of these properties. The Assessing Officer held that under section 23(1)(a) the annual value of the property is chargeable to tax, He accordingly assessed annual value at Rs,8,75 lacs and after allowing deduction wider section 24 of 30 per cent, the addition of Rs. 6,12,475 was made. The learned CIT(A) in this regard held as as under :—

"20. I have considered the submissions of the AR. It is seen that the addition on account of notional value of properties under section 23 of the Act has been made in respect of Amba Deep Flat, Farm House and Appii Gkar property. I have also gone through the order of my learned predecessor in appeal No. Delhi/CIT(A)II/05-06/20 dated 4-8-2005 passed in the case of the same assessee for immediately preceding year - assessment year 2002-03. It is seen that during the last year also similar addition was made in respect of these three properties. The CIT (Appeals) while dealing with this issue in para 4,2 on page 15 of his order has held that an amendment had been made in section 23 of the Act with effect from assessment year 2002-03 and that as per the amended provisions of section 23(1)(c) of the Act the only requirement was that in case a property or any part thereof was let and was vacant during the whole year or any part of the previous year and owing to such vacancy no rent had been received then the annual value under section 23 of the Act had to be assessed at Nil value. It was further held by him that there is no such condition in tin's section that the property should be let out in the immediately preceding year and that the only requirement was that the property must have been let out in any of the earlier years or even during the instant year for part of the year. Accordingly the addition in respect of Amba Deep property was deleted by him since the same have been found to be let out in earlier years and vacant during that year. The facts relating to this property remain to be the same during the instant year also and accordingly it is held that no notional income can be assessed in respect of this property as per the provisions of section 23(1)(c) of the Act. However, no relief is allowable to the assessee on account of the other two properties and the balance addition as made by the Assessing Officer amounting to Rs. 1,23,930 is sustained. As a result this ground of appeal is partly allowed and out of total addition of Rs. 6,12,475 the assessee is allowed relief of Rs. 4,88,545 (697933 (-) 30 per cent which is the amount of notional value included in the total income on account of Amba Deep property."

24. At the tune of hearing both the counsels agreed that similar issue arose before ITAT in appeal by revenue for assessment year 2002-03. The Tribunal after considering the submissions held as under :—

"12, After considering rival submissions, we are in agreement with the finding of learned CIT(A). The law in this regard is very clear. The assessee demonstrated that earlier the property at Ambadeep was let out and was vacant during the whole year and owing to such vacancy there was no actual rent received by the assessee in respect of said property. Therefore, the annual letting value is to be taken as nil as no amount is received or receivable in respect of said property, Accordingly, Ground No. 3 fails."

Since the issue in appeal before us was regarding ALV of Ambadeep building which was deleted by the learned CIT(A) and upheld by us, there being no change in the facts, we upheld the order of the learned CIT(A).

25. In the result, the appeal of the assessee is partly allowed and that of revenue is dismissed.

ITA Nos. 4127/Delhi/2006 & 121/Delhi/2007

26. Now we shall take appeals in the case of Shri Rajesh Arora, These cross appeals by the assessee and by the revenue are directed against the order of the learned Commissioner of Income-tax (Appeals)-II, New Delhi, dated 9-10-2006 for assessment year 2003-04.

27. The only issue in appeal by the assessee is against sustenance of disallowance of Rs. 1,00,594 out of total disallowance of Rs. 10,05,946 made by the Assessing Officer out of business expenses incurred in the course of carrying on business. The perusal of the impugned assessment order shows that the Assessing Officer found that while the assessee has earned only commission of Rs. 20,000 during the instant year, as against the earlier year's commission of Rs. 29,06,939, he still has incurred an expenditure of Rs. 13,59,683. The Assessing Officer therefore issued a show cause notice to the assessee requiring him to explain as to why the expenditure so claimed should not be disallowed. The assessee explained that even though he had made best efforts to negotiate various deals and to increase the business during the instant year, still due to down fall in the market as well as in the property trade and also because of the fact that assessee was busy in post search assessments, his business had suffered and he was able to only earn a commission of Rs. 20,000 during the instant year. However, it was explained that the regular expenses like establishment, professional charges, sales promotion etc., were continued to be incurred as it was not possible to retrench the staff if business was slow in a particular year. It was further pointed out that the assessee had not closed down its business activities and that in the immediately succeeding year the assessee and earned a commission of Rs, 28.50 lacs. The Assessing Officer however, did not accept the submissions of the assessee and he has held in the impugned order that, the explanation of the assessee is not convincing and expenses claimed in excess of income from commission and after reducing the amount of house tax paid is disallowed.

28. Before the learned CIT(A) it was contended that the Assessing Officer having accepted that business was carried on and there being no discontinuation. Only because slow down of business, the nature of expenses does not loose its character as incurred during the course of carrying of business. The learned CIT(A) after considering the submissions held as under :—

"4. I have considered the findings of the Assessing Officer which led him to make the impugned disallowance as also the contentions of the AR, and the supporting documents filed by him in his paper book, I have also perused the copies of audited Profit and Loss Account of the assessee for the instant year as well as for the preceding two years filed by the assessee. It is seen that the assessee has been carrying on business of property broking in all these years. In fact the finding of the Assessing Officer in para 2 of the assessment order is very relevant which is reproduced as under;

'The assessee derived income from the commission on sale/purchase/renting of the properties as business income'.

This finding shows that even the Assessing Officer is aware of the fact that the assessee is in the business of earning commission on sale/purchase and renting of the properties. The total commission income earned by the assessee in financial year 2000-01 as is evident from the profit and loss account for that year is Rs, 26.87 lacs. Similarly for financial year 2001-02 the total commission income earned by the assessee is to the tune of Rs. 29.06 lacs. The commission income earned by the assessee in financial year 2003-04 is Rs. 28.50 lacs. However, the commission income earned by the assessee in the instant year i.e., financial year 2002-03 relevant for assessment year 2003-04 is only Rs. 20,000. The assessee has filed a letter before the Assessing Officer explaining the reasons for down fall in commission income during the instant year vide his letter dated 6-3-2006, a copy whereof has been filed on page 83 of the paper book. The explanation so filed is produced as under :

'This is with reference to your query that the assess has earned commission only Rs. 20,000whereas there are large expenses, In this connection it is submitted that the assessee is a famous estate agent and doing business on behalf of its clients and earning commission from year to year. You will appreciate that the commission earned in the immediately proceeding year at Rs, 29,06,939. Due to the downfall in the market and specially in our trade, best efforts was made to negotiate and to increase the business as sated above due to the fall in real estate market the only commission was earned at Rs. 20,000 however regular expenses like establishment, sales promotion, professional charges continued as it is not possible to retrench the staff in case the business in a particular year is slow. At no stretch of imagination it can be said that the assess has closed its business activities. In fact the staff continued to work hard for getting more business on going through the income in the subsequent year, you will observe that the assessee has earned commission at Rs, 28,50,000. Sir you will appreciate the fact that the business of the assessee is that of service industry work and getting less commission in a particular year due to fall in market condition will not stop the business activity and running expenses was continued as a going concern. The expenses has also reduced from Rs. 28,60,000 to Rs. 10,00,000. It may also be stated that due to search cases assessee was busy with Income-tax Department for the computation of Income-tax assessments."

It is also seen that the assessee vide various letters furnished to the Assessing Officer, copies whereof have been placed at pages 54 to 66 of the paper book as also on pages 87 to 88 has furnished complete details of each and every expenditure incurred by him for running of his business during the instant year. A comparative chart of expenses incurred during the instant year vis-a-vis the expenses incurred in the immediate preceding year have also been filed before the Assessing Officer and it has been explained to him that because of the slow down in business the assessee had also reduced its expenses considerably during the instant year as total expenses had also gone down from Rs. 47,80 lacs in the last year to Rs. 13.59 lacs during the instant year. It was further explained that since the assessee was still in business, therefore it was necessarily required to incur certain expenses to keep the business alive and could not have discontinued the business totally as he could not have closed down his business merely because there was a slow down in the business. The contention of the A,R. that merely because there was a slow down in the business it could not be held that no expenses would be incurred, is found to be justified. The Assessing Officer himself has not doubted the fact that the business activity of the assessee had not ceased during the instant year and that the assessee continued to carry on his business of commission agency during the instant year. The Assessing Officer has also not pointed out any expenditure of inadmissible nature having been incurred by the assessee. The perusal of the assessment order further shows that it is not the case of the Assessing Officer that the expenditure incurred by the assessee is not genuine expenditure. Therefore in my considered opinion once iris held that the assessee has not ceased to be in business then in such a case a disallowance of total expenses incurred is not justified, However, to meet the ends of justice I hold that a disallowance of 10 per cent of the amount of Rs. 10,05,946 will be justified in the facts and circumstances of the case and accordingly a disallowance of Rs. 1,00,594 is sustained out of the total disallowance made and the assessee is allowed relief of Rs. 9,05,352 on this account. In the result this ground of appeal is partly allowed."

29. The learned counsel for the assessee submitted that the assessee has filed complete details of expenses. It is not the case of the Assessing Officer that the expenses are not incurred for the purpose of business or they are not genuine. Having given such finding, the learned CIT(A) was not justified in upholding disallowance even of 10 per cent of such normal business expenses. Reliance was placed on the decision of ITAT Delhi Bench in the case of Amtek Auto Ltd. (supra).

30. The learned DR on the other hand relied upon the appellate order as extracted hereinabove.

31. We have considered the rival submission. The Assessing Officer disallowed the expenses on the ground that the receipt is minuscule whereas the expenses are manifold. However, when the claim is made in respect of business expenses under section 37(1) of the Act what is to be examined is whether the expenses are incurred wholly and exclusively for the purpose of business or not. Since there is no dispute about this fact, there cannot be ad hoc or artificial disallowance without giving a finding that particular expense was not incurred for the purpose of business. We, therefore, delete the disallowance of Rs. 1.00,594.

32. In the appeal by the revenue the first ground of appeal is against defection of addition of Rs. 2,31,849 added as unexplained investment under section 69B of the Act in the construction of house property at E-114, Malcha Marg, New Delhi.

33. We find that the assessee is one of the co-owner of the property along with Shri K.J. Arora, The addition was made on pro rata basis. The issue has been discussed at length in the case of Shri KJ. Arora. For the reasons stated above, we confirm the deletion of addition of Rs. 2,31,849.

34. The next ground of appeal by revenue is on account of treating the income from sale of properties under the head "Capital gain" as against "Business income" assessed by the Assessing Officer.

35. We find that the issue is similar to that of in the case of Shri K.J. Arora, Both the counsels agreed that the facts in these two cases are identical. For the reasons stated in appeal of Shri K.J. Arora, the action of the learned CIT(A) in treating the income on sale of properties as capital gain is upheld.

36. In the result, the appeal of the assessee is allowed and that of the revenue is dismissed.

ITA No. 123/Delhi/2007

37. This appeal by the revenue is directed against the order of the learned CIT(A)-II, New Delhi, dated 9-10-2006 for the assessment year 2003-04.

38. The first ground of appeal is against the deletion of addition of Rs. 2,31,849 being unexplained investment under section 69B in construction of house property E-114, Malcha Marg, New Delhi.

39. We find that the assessee is one of the co-owner of the property along with Shri K.J. Arora & Shri Rajesh Arora. The issue has been discussed at length in the case of Shri K.J. Arora hereinabove, For the reasons stated therein, we confirm the deletion of addition of Rs. 2,31,849.

40. The next ground of appeal by the revenue is against the direction of the learned CIT(A) to the Assessing Officer to compute income earned on sale of properties as income from capital gain and not as business income. This issue is similar to that we have dealt in the case of Shri K.J. Arora. Both the counsels agreed that the facts in these cases are identical For the reasons stated in the appeal of Shri K.J. Arora, the action of the learned CIT(A) in treating the income on sale of properties as capital gain is upheld.

In the result, the appeal is dismissed.

42. In the result, ITA No. 4126/Delhi/2006 is partly allowed, ITA No. 112/Delhi/2006 is allowed whereas ITA Nos. 124, 121 & 123/Delhi/2007 are dismissed.