In the case of Mitul Construction (P.) Ltd. V. Dy. Commissioner of Income tax (107TAX247) the assessee started the construction business with a meagre capital of Rs. 800 but raised loans and booking deposits of RS. 2 crores. As the project has remained under progress the assessee did not draw any profit and loss account in the first year. Further the assessee has advanced certain monies interest free to some persons. The Commissioner in the exercise of his power u/s 263 held that: –
- the assessing officer has failed to discharge his role in making enquiries regarding the genuineness/capacity of cash creditors to advance such loans and booking deposits in as much as the initial burden would cause on the assessee to prove such fact,
- the assessing officer has failed to discharge his role in making enquiries regarding the assessees failure to file the profit and loss account,
- the assessing officer has failed to discharge his role in making enquiries regarding the assessees failure to charge interest on advances .
The Pune bench of the Tribunal upheld the order of the Commissioner in regard to the first issue following the Supreme Court ruling in the case of Rampyari Devi Saraogi v. CIT (67ITR84). As regards non furnishing of profit and loss account along with the return and capitalizing of expenses separately the Bench held that since the assessee was not claiming any deduction in respect of expenses, it was not necessary for it to prepare any profit and loss account. Further as regard advance of interest free loan the Bench held that it is open to the assessee to arrange his financial affairs in the manner it suits him. It further held that the question of taxing the assessee on the notional interest did not arise in such a case where the assessee had not claimed any deduction on account of interest on borrowed capital.