2021 (11) TMI 521 - AT - Income Tax

Tribunal's Decision on Income Classification & Disallowances

The Tribunal reversed the Assessing Officer's decision and classified the income from the sale of shares of Wipro Ltd. as capital gains due to substantial ... Assessment u/s 153A - determination of correct head of income from sale of shares - whether CIT(A) has erred in law and on facts in confirming the action of the AO wherein the AO has treated the sale of shares of Wipro Ltd., as business income instead of treating the capital gain,in absence of any incriminating material? - HELD THAT: - Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed in these assessment years. Issue decided in favour of assessee. Addition under section 41(1) - Scope of abated assessment - Onus to prove - HELD THAT:- We note that primary onus is on the assessee to prove the genuineness of the transactions supported with evidences. The expression ‘burden of proof’ really means two different things. It means sometimes that a party is required to prove an allegation before judgment can be given in his favour. It also means that on a contested issue, one of the two contending parties has to introduce evidence. In the first sense, if the burden is not discharged, the party must eventually fail. In the second case, where the parties have jointed issue and have led evidence and the conflicting evidence can be weighed to determine which way to issue can be decided, the question of burden of proof becomes an abstract question and is therefore academic. The section 101 to 114 of Indian Evidence Act, 1872 deals with burden of proof. The section 102 of the Evidence Act provides that the burden of proof lies on that party who would fail if no evidence at all were given on either side. We note that in assessee`s case under consideration, the assessee has failed to discharge his initial burden of proof, as the assessee has failed to submit Bank Statements, Confirmation of creditors, PAN number of creditors, Address of creditors, and the proof that payment has been made by account payee cheques or non-account payee cheques to M.S. Fabrics. Even before the Bench, the ld Counsel fails to submit the basic document, bank statement, therefore it is not possible for the Bench to find the fact that whether payment has been made by account payee cheques or non-account payee cheques. The ld Counsel also argues that in assessment year 2011-12, the assessing officer cannot make addition without the aid of incriminating material. We note that assessment year 2011-12 is an abated assessment where assessing officer can do regular scrutiny, hence plea raised by the ld Counsel is not acceptable. It is well established that res-judicata does not apply to the Income Tax proceedings, which are independent from each other for different years. Therefore, based on the factual position narrated above, we are of the view that one more opportunity should be given to the assessee to plead his case before the assessing officer, hence, the issue should be remitted back to the file of the ld Assessing officer for fresh adjudication, therefore, we set aside the order of ld CIT(A) and remit this issue back to the file of the assessing officer for de-novo adjudication. The assessee is directed to furnish before assessing officer, the necessary documents and evidences, as required by him. Thus, Concise ground No.2 is allowed for statistical purposes. Whether income disclosed during search as under the head “income from other sources or under the head income from business - HELD THAT:- We note that before the assessing officer, the assessee took the stand that undisclosed income of ₹ 5,35,75,000/-is out of real estate transactions by way of brokerage or profit as mediator, however, before the Bench, the ld Counsel explained that undisclosed income of ₹ 5,35,75,000/-is pertaining to purchase of land, as noted by us above. During the course of hearing, the Bench asked the ld Counsel to explain the reasons that how and why the assessee has changed his stand to explain the nature of undisclosed income of ₹ 5,35,75,000/-. In response, the Bench did not get any acceptable reply from the ld Counsel. Purchase agreement dated 17-09-2010, has neither been examined by assessing officer nor by ld CIT(A). During the course of search, the search team has found diary, other loose papers, and statement of the assessee was also taken by the search team, all these relevant material would help the assessing officer to decide the nature of said undisclosed income of ₹ 5,35,75,000/-.Therefore, we remit this issue back to the file of the assessing officer to examine the purchase agreement of land, statement of assessee under section 131, and other necessary documents decide the nature of undisclosed income of ₹ 5,35,75,000/-, whether it is business income or income under other sources. Thus, summarized and concise Ground No.3 raised by the assessee is allowed for statistical purposes. Disallowances u/s 14A r.w.r. 8D - HELD THAT:- As if the assessee had enough own funds which was more than the investments which yielded tax free income there can be no disallowance of interest expenses in terms of Rule 8D(2)(ii) of the Rule. The Hon’ble Supreme Court in the case of Maxopp Investment,[2018 (3) TMI 805 - SUPREME COURT], wherein it was held that when the shares are held as 'stock-in-trade', certain dividend is also earned, though incidentally, which is also an income. However, by virtue of section 10(34), this dividend income is not to be included in the total income and is exempt from tax. This triggers the applicability of section 14A which is based on the theory of apportionment of expenditure between taxable and non-taxable income. Therefore, to that extent, depending upon the facts of each case, the expenditure incurred in acquiring those shares will have to be apportioned. AO has not worked out the disallowance as per the above judicial pronouncements. In the light of the judicial pronouncements, as noted above, we are of the view that this issue should also be remitted back to the file of the ld assessing officer to adjudicate the same in the light of the judicial pronouncements. Therefore, we direct the assessing officer to rework the disallowance in the light of the above judicial pronouncements. The assessee is directed to submit the balance sheet, interest received, interest paid details, and details of exempt income before the assessing officer. The Concise ground No.4 raised by the assessee is allowed for statistical purposes. Issues Involved:1. Classification of income from the sale of shares of Wipro Ltd. as business income or capital gain.2. Addition under section 41(1) of the Income Tax Act.3. Classification of income disclosed during the search as business income or income from other sources.4. Disallowance under section 14A of the Income Tax Act.Issue-wise Detailed Analysis:1. Classification of Income from Sale of Shares of Wipro Ltd.:The primary issue was whether the sale of shares of Wipro Ltd. should be treated as business income or capital gain. The assessee argued that the shares were held as investments and thus should be treated as capital gains. However, the Assessing Officer (AO) treated the sale as business income, citing that there was no incriminating material found during the search to support the claim of capital gains. The Tribunal observed that the AO did not rely on any incriminating material to make the addition and noted that the assessee had provided substantial documentary evidence (e.g., affidavits, demat accounts, and transaction records) to support the claim of capital gains. The Tribunal concluded that the AO's addition was not justified and reversed the AO's decision, treating the income as capital gains.2. Addition under Section 41(1) of the Income Tax Act:The AO made additions under section 41(1) for the assessment years 2011-12 and 2012-13, claiming that the assessee could not provide sufficient evidence for the repayment of amounts to M.S. Fabrics. The CIT(A) upheld the AO’s decision, noting that the assessee failed to provide details such as the address, PAN, or any other verification of M.S. Fabrics. The Tribunal observed that the assessee did not discharge the onus of proving the identity, creditworthiness, and genuineness of the creditors. Given the lack of evidence and the evasive responses from the assessee, the Tribunal remitted the issue back to the AO for fresh adjudication, providing the assessee another opportunity to submit necessary documents and evidence.3. Classification of Income Disclosed During Search:The assessee disclosed an income of Rs. 5,35,75,000 during a search, which was treated by the AO as 'income from other sources' instead of business income. The CIT(A) did not adjudicate this issue, considering it academic. The Tribunal noted that the assessee had initially claimed this income as business income earned from real estate transactions. However, the Tribunal found inconsistencies in the assessee's statements and remitted the issue back to the AO to examine the purchase agreement, the statement under section 131, and other necessary documents to accurately determine the nature of the disclosed income.4. Disallowance under Section 14A of the Income Tax Act:The AO made disallowances under section 14A for the assessment years 2012-13 and 2013-14, attributing expenses to the earning of exempt income (dividends). The assessee argued that no expenditure was incurred in relation to such investments. The Tribunal referred to various judicial precedents, including the Bombay High Court's ruling in CIT vs. Reliance Utilities and Power Ltd., which established that if interest-free funds are sufficient to cover investments, no disallowance under section 14A should be made. The Tribunal remitted the issue back to the AO to rework the disallowance in light of these judicial pronouncements, directing the assessee to provide relevant financial details.Conclusion:The appeals were partly allowed for statistical purposes, with several issues remitted back to the AO for fresh adjudication based on additional evidence and judicial guidelines. The Tribunal emphasized the need for the AO to carefully examine the provided documents and make decisions grounded in substantial evidence and legal precedents.