TaxTMI 
TaxTMI 
2017 (1) TMI 391
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....ncome claimed by the appellant. The funds utilized for earning interest income are business funds and therefore the same has to be assessed as business income especially in view of the fact that on identical facts in the past the same was accepted as business income. 3. The learned CIT(A) erred in law and on facts in confirming disallowance of Rs. 2,79,161/- u/s 40A(3) without appreciating that the appellant was covered under the provisions of 44AF and no separate disallowance could be made. 4. The appellant craves to add, alter, modify or substitute any ground of appeal at the time of hearing. 3. The issue raised vide ground of appeal No. 1 is against the order of CIT(A) in making an addition of Rs. 11,92,477/- on account of interest income. The assessee is aggrieved by the order of CIT(A) claiming it to be enhancement by assessing a new source of income. Vide ground of appeal No. 2, the assessee has raised the issue on merits. 4. Briefly, in the facts of the case, the assessee was engaged in the business of trading in readymade cloths and clothing material and allied items on semi wholesale basis under the name and style of M/s. Manaklal Rajmal in Bhagur, Nashik since....
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....isions of section 44AF of the Act. Vide para 5 of the appellate order, the CIT(A) held that on sales of Rs. 37,21,126/-, where the total turnover was less than Rs. 40 lakhs, the income was to be assessed under section 44AF of the Act. He further observed that no further deduction was to be allowed under those sections. The Assessing Officer was directed to compute the business income @ 5% of the turnover i.e. Rs. 37,21,126/-. The second ground raised by the assessee was against the disallowance made under section 40A(2)(a) of the Act which was deleted by the CIT(A). 7. The third issue raised by the assessee before CIT(A) was against the disallowance made under section 40A(3) of the Act. The CIT(A) was of the view that where the opening words in section 44AF of the Act are "notwithstanding anything to the contrary contained in section 28 to 43C", and where the provisions of section 40A(3) of the Act start with opening words that the provisions of section shall have effect notwithstanding anything to the contrary contained in any other provisions of the Act, the said provisions were to be applied and in the absence of assessee having justified the cash payments in view of Rule 6DD....
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....% provided under the section, the assessee had declared the income 11.15%. She further submitted that where the income is assessed in the hands of the assessee under section 44AF of the Act, then no further disallowance is to be made under section 40A(3) of the Act. She further vehemently stressed that the assessment of interest income in the hands of the assessee at Rs. 11,92,477/- as income from other sources was a new source of income by the CIT(A) and the said enhancement was not warranted. In this regard reliance was placed on the ratio laid down by the Pune Bench of the Tribunal in M/s. Vijay Builders Vs. The Income Tax Officer in ITA No. 863/PN/2013, relating to assessment year 2008-09, order dated 25-02-2015. 10. The learned Departmental Representative for the Revenue pointed out that the Assessing Officer had held that the provisions of section 44AF of the Act are not to be applied where the assessee had declared a loss. He had further observed the perusal of profit and loss account would show that the profit was only because of the assessee having credited the income from the sources of Rs. 11,92,477/-. The claim of the assessee that he had declared higher profit under....
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....s. 4,43,323.00 ii. Interest Received (Pragati) Rs. 1,97,028.00 iii. Interest Received on Income Tax Refund Rs. 2,180.00 iv. Interest Received on Union Bank FDR Rs. 3,92,936.00 v. Interest Received (Sanjaykumar Shivchand) Rs. 1,09,085.00 vi. Interest Received S/B Account Rs. 378.00 vii. Interest Received (Union Bank Flexi) Rs. 47,048.00 13. As against the same the assessee incurred expenditure under different heads including interest expenditure of Rs. 8,35,168/- and the net profit was worked out at Rs. 4,15,016/-. The said figure has been declared by the assessee as profit under section 44AF of the Act in the return of income. Admittedly, under the provisions of section 44AF of the Act, where the total turnover of the assessee is less than Rs. 40 lakhs and where the assessee is engaged in retail business can declare its income @5% or any higher rate. There are two conditions to be satisfied i.e. the turnover should be less than Rs. 40 lakhs and the assessee should be engaged in retail business. The assessee had declared sales of Rs. 37,21,126/- and in case if we accept the plea of the assessee that the interest inco....
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....e, the said order of CIT(A) has been accepted by the assessee, it cannot now claim that the business receipts for application under section 44AF of the Act would also include the interest income, where the funds utilized for earning interest income were business funds. May be the fund are utilized out of business funds for earning the interest income but that itself would not make the interest income as income from business. The perusal of details of interest income reflects the assessee to have the received interest on Union Bank FDRs of Rs. 3,92,936/-. Further interest received on Union Bank Flex A/c is Rs. 47,048/- and interest on Saving Bank Account was Rs. 378/- and interest on Income Tax Refund was Rs. 2,180/-. In addition the assessee had received interest on advances made to different parties for earning interest. The nature of the interest income received by the assessee clearly establishes that the same is to be assessed under the head "income from other sources". Where the Assessing Officer in the assessment order has rejected the claim of the assessee and observed that the income declared by the assessee also includes income from other sources of Rs. 11,92,477/-, which ....