2023 (8) TMI 758 - AT - Income Tax

Tax Appeals: Mixed Outcome on Finance Charges, Cash Credits, Interest, Rental Income, and More

Shri Sushil Kumar Agrawal, Prop. of M/s. Shrikishan & Co. Versus The Joint Commissioner of Income Tax, Korba

The Tribunal partially allowed the appeals concerning various tax issues, including disallowance of finance charges under Sec. 40(a)(ia), addition under ... Disallowance u/s 40(a)(ia) - claim for deduction of interest paid to NBFC - HELD THAT:- On the basis of settled position of law as had been laid down by the Hon’ble Apex Court in the case of Shree Choudhary Transport Co. [2020 (8) TMI 23 - SUPREME COURT] we are of the considered view that the issue in hand is no more res-integra and the amendment made vide the Finance (No.2) Act, 2014 restricting the disallowance to 30% of the sum payable could not be given a retrospective effect. We, thus, in terms of our aforesaid observations reject the claim of the Ld. AR that the disallowance u/s. 40(a)(ia) of the Act was liable to be restricted only to the extent of 30% of the sum payable by the assessee. Ground of appeal No.2 raised by the assessee is partly allowed in terms of our aforesaid observations. Unexplained cash credits u/s 68 - Loans raised by the assessee from the companies - HELD THAT:- Non-compliance of the notices issued by the A.O u/s 131 and u/s 133(6) to both the aforementioned companies, coupled with the fact that the said lender companies had duly confirmed the loan transactions; and also that the loans that were advanced by both the said companies to the assessee concern in the immediately succeeding year i.e A.Y 2011-12 had been accepted by the A.O while framing the assessment u/s 143(3), we find no justification in treating the loans raised by the assessee from the said companies as unexplained cash credits u/s 68 - Apart from that the part-repayment of loan by the assessee to one of the lender, i.e, M/s MRA Global Pvt. Ltd further fortifies the authenticity of the loan transaction under consideration. Now when the assessee had duly substantiated the authenticity of the loan transactions under consideration and the same had not been dislodged by the department, therefore, the treating of the same as unexplained cash credits u/s 68 cannot be sustained. Loans raised by the assessee from certain individuals - As the lower authorities had neither considered the aforesaid supporting documentary evidences that were filed by the assessee in order to fortify his claim of having raised genuine loans from the aforementioned parties, nor had the occasion to taken cognizance of the respective “affidavits” of the lenders that have been filed for the very first time before us, therefore, the matter in all fairness requires to be restored to the file of the A.O. We, thus restore the matter to the file of the A.O for re-adjudication after considering the aforesaid supporting documents that have been filed by the assessee in order to drive home his claim of having raised genuine loans from the aforementioned three parties. Disallowance of expenditure made u/s 14A r.w.r. 8D - HELD THAT:- We find that the CIT(Appeals) too had failed to record his satisfaction that having regards to the accounts of the assessee it was not possible to accept the correctness of the assessee‘s claim that no disallowance of any expenditure was called for u/s 14A of the Act. In case the A.O or the CIT(A) in exercise of his powers which are coterminous with that of an A.O, sought to have disallowed the assessee’s claim that no expenses could be attributed to earning of the exempt dividend income by him, then, there was an innate obligation cast upon them to have recorded the requisite satisfaction that having regard to the accounts of the assessee as were placed before them, it was not possible to generate the requisite satisfaction with regards to the correctness of the said claim. We may herein observe that in the case of CIT Vs. Sociedade De Fomento Industrial (P). Ltd. [2020 (11) TMI 277 - BOMBAY HIGH COURT] had observed that the A.O before rejecting the disallowance offered by the assessee remains under a statutory obligation to give a clear finding with reference to the accounts of the assessee that the other expenditure which were being claimed qua the non-exempt income were in fact related to its exempt income. Alternatively, we may herein observe that even otherwise as the assessee was having sufficient self-owned interest free funds available with him, therefore, on the said count itself no disallowance of any part of interest expenditure was liable to be made in the his hands. Be that as it may, we are of the considered view that as the A.O had failed to record his satisfaction as to why the assessee’s claim that no part of the expenditure was attributable towards earning of exempt dividend income, was not to be accepted having regard to his books of account as were placed before him, therefore, disallowance so made by him u/s. 14A could not be sustained and was liable to be quashed - Ground of appeal No.4 raised by the assessee is allowed accordingly. Unexplained credit of bank interest - HELD THAT:- In case the interest income on FDR is included in the interest income on FDR’s credited by the assessee in the profit & loss account of his proprietary concern, viz. M/s. Shrikishan & Co., then no separate addition would be called for in his hands. In our considered view the aforesaid aspect can be verified by the A.O by calling for the requisite details from the bank as regards the total amount of interest on FDRs received/accrued in the account of the assessee during the year under consideration. As observed by us hereinabove, in case the aggregate amount of FDRs interest as reported by the bank had been credited by the assessee in his profit and loss account of the proprietary concern, viz. M/s. Shrikishan & Co., then the addition made by the A.O would stand vacated. We, thus, in terms of our aforesaid observations for the said limited purpose restore the matter to the file of the A.O. Thus, the Ground of appeal No.5 is allowed for statistical purpose in terms of our aforesaid observations. Addition on account of LIC maturity proceeds - HELD THAT:- As it was for the assessee to substantiate his aforesaid claim that the amount in question was non-taxable which he had failed to do, therefore, no infirmity could be attributed to the A.O who had held the same as the unexplained income of the assessee. In so far the claim of the assessee that the A.O ought to have carried out necessary verifications, from LIC before rejecting his aforesaid claim, we are of the considered view that as no such request was made by the assessee in the course of the assessment proceedings, therefore, on the said count also the order passed by the A.O does not suffer from any infirmity In all fairness and interest of justice in order to avoid any exempt income being subjected to tax the matter requires to be restored to the file of the A.O with an opportunity to the assessee to substantiate his aforesaid claim on the basis of supporting documentary evidence. In case the assessee in the course of the set-aside proceedings is able to substantiate that the amounts were the LIC maturity proceeds that were exempt within the meaning of section 10(10D) of the Act, then, the addition so made by the A.O by dubbing the same as the unexplained income of the assessee shall stand vacated. Addition on account of notional lettable value of the residential houses owned by the assessee - HELD THAT:- As the assessee had failed to place on record any material which would prove to the hilt that his residential property i.e. HIG-101. M.P Nagar, Korba was being used for the purpose of business, therefore, his said unsubstantiated claim that was raised in the thin air cannot be accepted. Also the claim of the assessee that his another residential house at Jal vihar Colony, Raipur was under construction during the year under consideration cannot be summarily accepted and would require to be verified. At the same time, we find substance in the claim of the Ld. AR that the determination of the ALV of the aforesaid residential properties could not have been arrived at by the A.O on an estimation basis. As the methodology for determining the ALV of a property is provided in section 23(1) of the Act, therefore, we herein direct the A.O to determine the same strictly as per the mandate of law. Accordingly, the matter is restored to the file of the A.O for giving effect to our aforesaid observations. Low house hold withdrawals - HELD THAT:- As no substance at all in the claim of the Ld. AR that the quantification of the household expenses in the case of the assessee who has a family comprising og five members (including two school going children) was taken by the A.O at an exorbitant figure of Rs. 3 lac. In our considered view the A.O had in all fairness quantified the household expenses of the assessee at Rs. 3 lac. At the same time, we are of the considered view that the claim of the assessee that S/Smt. Sarita Devi Agrawal (wife) and Murti Devi Agarwal (mother) had during the year under consideration contributed towards the household expenses had been lost sight of by the A.O despite the fact that the same in the course of the assessment proceedings was brought to his notice by the assessee vide his letter. In case the aforesaid letter/reply of the assessee is found available on the assessment record, then, the A.O shall verify the respective contributions made towards household expenses by S/Smt. Sarita Devi Agrawal (wife) and Murti Devi Agarwal (mother) during the year under consideration and shall scale down the addition to the said extent in the hands of the assessee. We, thus, restore the matter to the file of the A.O to give effect to our aforesaid observations. Disallowance of interest expenditure corresponding to interest free loans/advances given by the assessee - HELD THAT:- The interest free advances so made by him were sourced out of such interest free funds and no disallowance of any part of interest expenditure was called for in his hands. Our aforesaid view is fortified by case of CIT Vs. Reliance Industries Ltd [2019 (1) TMI 757 - SUPREME COURT] while approving the view taken by the Hon’ble High Court, had observed, that in case the interest free funds available with the assessee were sufficient to meet its investment, then, it could be presumed that the investments were made by the assessee from the interest free funds available with it. We, are of the considered view that no disallowance of any part of the assessee’s claim for deduction of interest expenditure u/s.36(1)(iii) was called for in his hands. Charging of interest u/s. 234B - HELD THAT:- As we find no substance in the same. We, say so, for the reason that as held in the case of Anjum M.H Ghaswala & Ors [2001 (10) TMI 4 - SUPREME COURT] as the levy of interest u/s. 243B is mandatory, therefore, no infirmity can be attributed to the direction of the A.O for charging of the same in the body of the assessment order. Adhoc disallowance of expenses - HELD THAT:- We are of the considered view that a disallowance of an expenditure claimed by the assessee as a deduction as per the mandate of section 37 of the Act can only be disallowed in case of satisfaction of either of the conditions set out in the said section, viz. (i) the expenditure is in the nature of a capital expenditure or personal expenditure of the assessee; or (ii) that the expenditure had been incurred for any purpose which is an offence or which is prohibited by law. As the A.O had failed to place on record any material which would prove to the hilt that the assessee had either raised a bogus claim of expenditure; or that the said expenditure was not incurred wholly and exclusively for the purpose of business; or that the expenditure so claimed as a deduction did not fall within the four parameters of Section 37 of the Act, therefore, we are unable to persuade ourselves to subscribe to the disallowance to the said effect so made by the A.O. We, thus, in terms of our aforesaid observations vacate the disallowance made by the A.O. Enhancing the gross profit of the assessee by CIT(A) - HELD THAT:- In our considered view there is substance in the claim of the Ld. AR that the CIT(Appeals) had carried out the impugned enhancement without validly putting the assessee to show cause as to why the same may not be made in his hands. At the same time, we are unable to concur with the Ld. AR that merely for the said failure on the part of the CIT(Appeals) the enhancement so made is liable to be quashed. We are of the considered view that as the CIT(Appeals) while carrying out the enhancement had failed to comply with the mandate of sub-section (2) of Section 251 of the Act, therefore, the matter in all fairness requires to be restored to his file for re-adjudication after affording a reasonable opportunity to the assessee to show cause as to why enhancement to the said effect may not be carried out in his hands. We, thus, in terms of our aforesaid observations restore the matter to the file of the CIT(Appeals). TDS u/s 194A - interest charges - Disallowance u/s. 40(a)(ia) - HELD THAT:- Although the CA certificates refers to the fact that the respective payees, respectively, in their taxable income and had paid the taxes on the same, however, as the said certificates are either incomplete or not in the prescribed form i.e. not in “Form 26A” as provided in the “1st proviso” to Sec. 201(1) r.w. Section 40(a)(ia) of the Act, therefore, the same cannot be acted upon for concluding that the assessee is not to be treated as being in default as regards deduction of tax at source u/s 194A of the Act on the interest charges paid to M/s. Religare Finvest Limited and M/s Magma Fincorp Limited, respectively. Considering the aforesaid technical lapse on the part of the assessee in not furnishing the accountant certificates in the prescribed form i.e “Form 26A”, we, thus, in all fairness restore the issue to the file of the A.O with a liberty to the assessee to furnish the same in the prescribed form in the course of the set-aside proceedings. In case the assessee furnishes the certificates in the prescribed form i.e “Form 26A” with the A.O in the course of the set-aside proceedings, then, the disallowance u/s 40(a)(ia) to the said extent shall be vacated by him. The Ground of appeal No.4 is allowed for statistical purposes in terms of our aforesaid observations. Short receipts shown by the assessee - Assessee failed to reconcile the difference in receipts, thus, he sustained the aforesaid addition - HELD THAT:- As the genesis of the controversy can be traced in the books of account of the assessee which were duly produced in the course of the assessment proceedings, therefore, the matter in all fairness requires to be restored to the file of the A.O for fresh adjudication. Accordingly, we set aside the order of the CIT(Appeals) and restore the matter to the file of the A.O for fresh adjudication, wherein he is directed to re-adjudicate the matter after considering the reconciliation statement of the assessee explaining the impugned discrepancies in the gross receipts shown in his books of accounts as against those reflected in the TDS certificates. Issues Involved:1. Disallowance of finance charges under Sec. 40(a)(ia).2. Addition under Sec. 68 for unexplained cash credits.3. Disallowance under Sec. 14A for notional interest.4. Addition of unexplained bank interest.5. Addition of maturity proceeds of LIC.6. Addition of notional rental income.7. Addition for low household expenses.8. Disallowance of interest-free loans.9. Interest charged under Sec. 234B.10. Enhancement of income by CIT(A) for various reasons.Summary:1. Disallowance of Finance Charges:The assessee's claim for deduction of finance charges paid to NBFCs was disallowed under Sec. 40(a)(ia) due to non-deduction of TDS. The Tribunal allowed the assessee to submit CA certificates in the prescribed form (Form 26A) to prove that the payees had included the finance charges in their taxable income. If submitted, the disallowance would be vacated.2. Addition under Sec. 68:The AO added Rs. 1.20 crores as unexplained cash credits for loans from five parties. The Tribunal vacated the addition of Rs. 90 lakhs for loans from two companies after considering confirmations and repayments. For the remaining Rs. 30 lakhs from individuals, the matter was restored to the AO for re-adjudication after considering additional affidavits and documents submitted by the assessee.3. Disallowance under Sec. 14A:The AO disallowed Rs. 2,86,300/- under Sec. 14A for notional interest on exempt income investments. The Tribunal quashed the disallowance due to the AO's failure to record dissatisfaction with the assessee's claim that no expenditure was incurred for earning exempt income.4. Addition of Unexplained Bank Interest:The AO added Rs. 86,795/- for unexplained bank interest credited in the assessee's capital account. The Tribunal restored the matter to the AO to verify if the interest was already included in the profit and loss account of the proprietary concern.5. Addition of Maturity Proceeds of LIC:The AO added Rs. 9,82,649/- as unexplained income, which the assessee claimed as exempt LIC maturity proceeds. The Tribunal restored the matter to the AO for verification, allowing the assessee to substantiate the claim with documentary evidence.6. Addition of Notional Rental Income:The AO added Rs. 5 lakhs as notional rental income for properties owned by the assessee. The Tribunal restored the matter to the AO to determine the Annual Lettable Value (ALV) as per the law, considering the assessee's claims about property usage and construction status.7. Addition for Low Household Expenses:The AO added Rs. 2 lakhs for low household withdrawals. The Tribunal restored the matter to the AO to verify the contributions made by the assessee's wife and mother towards household expenses.8. Disallowance of Interest-Free Loans:The AO disallowed Rs. 1,42,000/- for interest-free loans given by the assessee. The Tribunal vacated the disallowance, noting that the assessee had sufficient self-owned funds to cover the loans.9. Interest Charged under Sec. 234B:The Tribunal upheld the AO's direction for charging interest under Sec. 234B, as it is mandatory.10. Enhancement of Income by CIT(A):The CIT(A) enhanced the assessee's income by Rs. 36,77,935/- for gross profit discrepancies and other reasons. The Tribunal restored the matter to the CIT(A) for re-adjudication after giving the assessee a reasonable opportunity to show cause against the enhancement.Conclusion:The appeals were partly allowed and partly allowed for statistical purposes, with several issues restored to the AO or CIT(A) for re-adjudication based on additional evidence and proper verification.