TaxTMI 
TaxTMI 
2019 (4) TMI 742
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....M/s. Vishnu Priya Hotels Pvt. Ltd., which is engaged in hotel business and also deriving income from business and other sources. A search & seizure operation under section 132 of the Act was carried out in the case of Gayatri Group on 20/02/2012 and the assessee was also covered in the search of Gayatri group. Subsequently, the Assessing Officer issued a notice under section 153A of the Act on 18/03/2014 calling for the return of income. In response to the notice issued, the assessee has filed the return of income for the A.Y. 2012-13 on 03/04/2014, admitting total income of Rs. 1,82,87,670/-. During the course of assessment proceedings, the assessee filed the revised return of income on 21/01/2015 revising the total income to Rs. 10,70,890/-. From the revised return, the Assessing Officer has found that assessee has declared the income of Rs. 1,26,201/- under the head 'income from other sources' and had claimed the deduction of Rs. 96,48,764/- relating to interest on bank loans and Rs. 76,68,023/- towards interest on unsecured loans thereby resulting the loss of Rs. 1,71,90,586/-. The Assessing Officer has further observed from the returns of income for the Assessment Years 2007-0....
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....nvestments made in M/s. Vishnu Priya Hotels Pvt. Ltd. The Assessing Officer also disallowed the balance amount of Rs. 8,83,287/- under section 57(iii) of the Act, holding that the assessee did laid out the same wholly and exclusively for the purpose of earning the income. 4. Aggrieved by the order of the Assessing Officer, the assessee went on appeal to the ld. CIT(A) and the Ld.CIT(A) allowed the appeal of the assessee, hence the Revenue is in appeal before us. 5. Ground No.1 relates to the disallowance of interest expenditure on borrowed funds invested in the company which was disallowed under section 57(iii) of the Act. The assessee has claimed the interest expenditure of Rs. 1,73,16,787/- under the head 'income from other sources' which resulted into loss of Rs. 1,71,90,586/- and same was claimed as set off against the income from capital gains and the business income. During the assessment proceedings, the Assessing Officer found that the assessee had diverted the interest bearing funds for non-business purposes by giving interest free loans/ advances and made the investments in M/s. Vishnu Priya Hotels Pvt. Ltd, therefore, the Assessing Officer held that the interest relata....
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....the business of running hotel and the made the investments in M/s. Vishnu Priya Hotels Pvt. Ltd. It is not disputed that the investments were made for the purpose of business and for earning of the income. The assessee has borrowed the funds from cooperative bank and made the investments in M/s. Vishnu Priya Hotels Pvt. Ltd. On verification of the statement of computation of income, it shows that the assessee has declared the interest income from other sources for an amount of Rs. 1,26,201/- and claimed the interest on unsecured loans of Rs. 76,68,023/- and interest on bank loans for Rs. 96,48,764/- (aggregating to Rs. 1,73,16,783/-) which resulted in loss of Rs. 1,71,90,586/-and the same was claimed for set off against the income from other sources, business and capital gains under section 71 of the Act, which the Assessing Officer disputed for disallowance. There is no dispute that the assessee has borrowed the funds and made the investments in the business. The Assessing Officer did not make out a case that the assessee has diverted the funds for non-business purpose. Business consideration is the decision of the assessee, but not the Assessing Officer. The Hon'ble Supreme C....
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....oked section 14A r.w.r. 8D incorrectly and made the disallowance without having earned the dividend income. On an identical issue, in the case of M/s. Redington (India) Ltd., (supra) Hon'ble Madras High court has taken a view that no disallowance is called for under section 14A in the absence of dividend income. This tribunal has followed the decision of Hon'ble Madras High Court and decided the issue in favour of the assessee in P. Venkateswara Rao Vs. ACIT. For the sake of clarity and convenience, we extract the relevant part of the order of this Tribunal in the case of P. Venkateswara Rao Vs. ACIT in ITA No. 429/VIZ/2018, dated 30/11/2018 which reads as under: "4. We have heard both the parties and perused the material placed on record. In the impugned assessment year, the assessee made the investment out of interest free surplus fund available to the assessee and the assessee did not earn the income which is exempt u/s 14A of the Act. The above facts were not disputed by the lower authorities. The AO made the addition placing reliance on the Circular No.5/2014 of the CBDT and the Ld.CIT(A) confirmed the addition. Hon'ble High Court of Delhi in the case of Pr.Commissioner of I....
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....r the Income Tax Act". 15. What is taxable under Section 5 of the Act is the "total income" which is neither notional nor speculative. It has to be 'real income'. The subsequent amendment to Section 14A does not particularly clarify whether the disallowance of the expenditure would apply even where no exempt income is earned in the AY in question from investments made, not in that AY, but earlier AYs. 16. Rule 8D (1) of the Rules is helpful, to some extent, in understanding the above issue. It reads as under: "8D. (1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with- the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2)." 17. The words 'in relation to income which does not form part of the total income under the Act for such previous year" in the above Rule 8D(1) indicates a correl....
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....g direct as well as indirect attribution. Thus, accepting the submission of the Revenue would result in the imposition of an artificial method of computation on notional and assumed income. We believe thus would be carrying the artifice too far." 21. The decisions in CIT v. M/s Lakhani Marketing Inc, 2014 SCC Online P&H 20357, CIT v. Winsome Textile Industries Limited [2009] 319 ITR 204 (P&H), CIT v. Shivam Motors (P) Ltd (2014) 272 CTR (All) 277 have all taken a similar view. The decision in Taikisha Engineering India Pvt. Ltd. (supra) does not specifically deal with this issue. 22. It was suggested by Mr. Hussain that, in the context of Section 57(iii), the Supreme Court in Commissioner Of Income Tax, West v. Rajendra Prasad Moody [1978] 115 ITR 519 (SC) explained that deduction is allowable even where income was not actually earned in the AY in question. This aspect of the matter was dealt with by this Court in M/s Cheminvest Ltd. (supra) where it reversed the decision of the Special Bench of the ITAT by observing as under: "20. Since the Special Bench has relied upon the decision of the Supreme Court in Rajendra Prasad Moody (supra), it is considered necessary to discuss ....
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....ddl. CIT (supra), to the extent that they are inconsistent with what has been held hereinbefore do not merit acceptance. Further, the mere fact that in the audit report for the AY in question, the auditors may have suggested that there should be a disallowance cannot be determinative of the legal position. That would not preclude the Assessee from taking a stand that no disallowance under Section 14 A of the Act was called for in the AY in question because no exempt income was earned. 24. For all of the aforementioned reasons, this Court is of the view that the CBDT Circular dated 11th May 2014 cannot override the expressed provisions of Section 14A read with Rule 8D." 4.1. This Tribunal also in the case of SLC Projects Pvt. Ltd. vs. ACIT, CC-2 (supra) for the A.Y. 2013-14 held that no disallowance is called for in the absence of exempt income. We extract relevant part of the order of this Tribunal from para No.9 to 10 which reads as under: "9. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The Ld. A.R. argued that no expenditure required to be disallowed in case the assessee did not earn any exe....
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....opy of statement of computation, return of income, balance sheet and profit and loss account. It is seen from the profit and loss account and the statement of computation of income that the assessee has not derived any dividend income. When the assessee has no exempt income, the question of disallowance u/s14A r.w.Rule 8D is not called for. The same view is expressed by the decision of Hon'ble Madras High Court in Redington (India) Ltd. Vs. Addl.CIT, 77 taxman.com 257, Hon'ble Delhi High Court in Chem Investments Vs. CIT, 61 taxman.com 118 and the Hon'ble Gujarat High Court in Principal CIT Vs. Sintex Industries Ltd., 82 taxman.com 171 held that no disallowance is called for when assessee makes small investment from the surplus funds. There was no dividend income earned by the assessee and the case was taken for revision to disallow the business loss claimed against the property income which was examined by the AO and dropped the assessment proceedings and the Ld.CIT also satisfied that there is no case for revision on account of incorrect set off of business loss. With regard to the issue of disallowance u/s 14A as per the judicial pronouncements no disallowance is called for when....
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....own Visakhapatnam. He further stated that Shri Ch.Madhusudhan Rao has worked out the sale consideration of flat No. 805, admeasuring 1950sq.ft. @ Rs. 3,800/- per sq.ft. for a sum of Rs. 74.10 lakhs, out of which Rs. 39.00 lakhs as official and Rs. 35.10 lakhs to be payable in black. For the sake of clarity and convenience, we extract the relevant part of statement which reads as under:- "Q.11 I am showing you page no, 74 of Annexure-KSR/R/2 which is a bundle of loose sheets serially numbered 1 to 96. Please go through the same, identify the document and explain its contents? Ans. I have seen the page no. 74 of Annexure-KSR/R/2. I confirm that the same has been seized during the course of Search proceedings today at my residence. The contents of this page pertaining to sale of flat no.805 to Mr. Ch. Madhusudhan Rao, a professor in AVN College, Old Town, Visakhapatnam. The scribbling on this page are in the handwriting of a friend of Mr. Madhusudhan Rao who scribbled the workings of the sale consideration of flat No. 805 admeasuring 1950sq.ft. @Rs.3,800/- per sft. The total consideration was arrived at Rs. 74,10,000/- out of which as mentioned that Rs. 39,00,090/- is to be paid o....
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....5 @ 3800 per sq.ft. which works out to Rs. 74.10 lakhs and the registration value would be Rs. 39.00 lakhs and cash competent would be Rs. 34.10 lakhs. This proposal was not materialized and the assessee has sold the flat before completion of construction for the registered price of Rs. 35.00 lakhs as per the sale deed. The ld. AR further stated that the assessee has not received any amount over and above the documented price. Ld.AR argued that the seized material only shows the estimated price, it was undated, not in the hand writing of the assessee and it does not bear the signature of the assessee, thus, argued that the loose-sheet is unauthenticated document, hence much reliance cannot be placed on the loose sheet. The Assessing Officer has neither examined the buyer of the flat nor ascertained the actual consideration. The assessee has neither admitted the income under section 132(4) of the Act, nor had agreed that the flat consideration was Rs. 74.10 lakhs. In the absence of any evidence to show that the assessee had received the consideration over above the registered sale price, the same cannot be made addition in the hands of the assessee. 22. Per contra, ld. Departmental....
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.... to the actual consideration the Ld.DR's argument that the information available in the loose-sheet has to be considered in full does not hold that waters. The Assessing Officer without examining and ascertaining the complete information of the notings on the loose-sheet gave his finding which is favourable to the revenue. There is no other evidence found in the course of search evidencing the receipt of on money for sale of flat as rightly argued by the ld. AR. The Assessing Officer neither examined the vendee nor the person who has written loose-sheet. In the absence of relatable evidence we are unable to consider the loose sheet as reliable evidence. It is settled issue by the Hon'ble Punjab & Haryana High Court [2010] 195 Taxman 273 (PUNJ. & HAR.) Parmijit Singh. V. Income-tax Officer on similar facts and held that: "It is a well-known principle that no oral evidence is admissible once the document contains all the terms and conditions. Sections 91 and 92 of the Indian Evidence Act, 1872 incorporate the aforesaid principle. According to section 91, when terms of a contract, grants or other dispositions of property have been reduced to the form of documents, then no ev....
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.... assessee could not produce any evidence to support the cash balance available as on the day of search. Cash flow statement submitted by the assessee was not accepted on by the CIT(A) since the assessee did not file wealth tax returns for the assessment year under consideration before the date of search. 28. Against the order of the ld. CIT(A), the assessee is in appeal before this Tribunal. During the appeal hearing, ld. AR submitted that the cash found represents the correct cash balance as per the books of accounts and there is no unexplained transaction. In support, the assessee furnished cash flow statement for the Financial Years 2007-08 to 2012-13 and argued that neither Assessing Officer nor ld. CIT(A) found any defect in cash flow statement. As per cash flow statement, the cash on hand as on 31/03/2013 was of Rs. 38,07,136/- therefore submitted that cash found should be treated as explained. Apart from the above, the assessee also submitted that the assessee has filed the wealth tax returns for the Assessment Years 2009-10 and 2010-11, and the wealth tax assessments were completed under section 16(3) read with section 17 of the Wealth Tax Act and the Assessing Officer did....
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.... support the claim with wealth tax returns of his wife and mother, treated 50% of the jewellery as unexplained and added the sum of Rs. 24,45,531/- (50% of 48,91,062/-) as unexplained investment. 32. Aggrieved by the order of the Assessing Officer, the assessee went on appeal to the ld. CIT(A) and the ld. CIT(A) allowed the gold jewellery keeping in view of the Board Circular. As per the Board Circular, gold jewellery to the extent of 500 grams for a married lady, 250 grams for unmarried lady and 100 grams for male member is not to be seized in case they are not assessed to wealth tax. As the assessee is having wife, mother and two unmarried daughters and all of them are not assessed to wealth tax, the ld. CIT(A) held that holding of 1000 grams of gold jewellery is reasonable and accordingly, allowed 1000 grams of gold. With regard to silver articles, ld. CIT(A) held that 50% of the silver articles required to be taxed in the hands of the assessee and his mother. Accordingly, 50% of the value of the silver articles amounting to Rs. 9,69,737/- (50% of 19,31,474/-) was confirmed and allowed the appeal partly. 33. Against the order of the ld. CIT(A), the assessee is in appeal before....
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....the absence of any evidence in form of wealth tax returns. Once the explanation found to be reasonable, there is no case for making the addition in the hands of the assessee. Merely because of non-furnishing of wealth tax returns, the Assessing Officer cannot make the addition in the hands of the assessee when it was explained to the Assessing Officer that the jewellery belonged to his wife and mother. If at all the addition is required to be made it should be made in the right person duly initiating the proceedings. In the absence of wealth tax returns, if the gold and jewellery is to be taxed, the same is required to be brought to in the hands of the assessee's wife & mother, but not in the hands of the assessee. Apart from the above, the assessee filed wealth tax returns for the Assessment Years 2009-10 & 2010-11, which was accepted by the department without making any addition. Therefore we hold that there is no case for making the addition on account of gold and jewellery found during the course of search in the hands of the assessee, accordingly, we set aside the order of the ld. CIT(A) and allow the appeal of the assessee. ITA No. 494/VIZ/2017 36. All the grounds of appeal....