TaxTMI 
TaxTMI 
2019 (4) TMI 742
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....ntertainment and also the Managing Director of 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 re....
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....med as deduction from the income from other sources) relating to the investments 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 Hotel....
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....s in appeal before this Tribunal. 8. We have heard both the sides and perused the material placed on record. 9. The assessee is engaged in 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....
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....d the material placed on record. In the instant case as stated by the assessee and as observed from the ld. CIT(A)'s order, the Assessing Officer has invoked 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 ....
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....on 14A was to provide that "no deduct/on shall be made in respect of any expenditure incurred by the Assessee in relation to income which does not form part of the total income under 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 a....
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....at Section 14A is "clearly relatable to the earning of the actual income and not notional income or anticipated income." It was further explained that, "The computation of total income in terms of Rule 8D is by way of a determination Involving 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....
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....sad Moody (supra) cannot be used in the reverse to contend that even if no income has been received, the expenditure incurred can be disallowed under Section 14A of the Act." 23. The decisions of the ITAT in ACIT v. Ratan Housing Development Ltd. (supra) and Relaxo Footwear Ltd. V. Addl. 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 ....
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....earning of dividend income. The CIT also did not rebut the explanation offered by the assessee stating that no expenditure was incurred for making the investments. The Ld.DR did not make any clarification with regard to the quantum of dividend income earned by the assessee. The Ld.AR submitted paper book enclosing the copy 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 ....
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....ially and Rs. 35.10 lakhs was to be paid in black. The assessee was asked to clarify the said notings during the course of search and the assessee confirmed that the said loose sheet was found in their premises and the writing was identified as relating to Shri Ch. Madhusudhan Rao, his friend who happens to be the professor of AVN college, Old town 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 profes....
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....in appeal before this Tribunal. 21. During the appeal hearing, ld. AR argued that the scribbling note was found in the premises of the assessee during the course of search, and the hand writing was of Shri Ch. Madhusudhan Rao, who happens to be the friend of the assessee and working with AVN College, Visakhapatnam. He has estimated the expected rate for flat No.805 @ 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 considerat....
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....s several amounts mentioned in the loose sheet i.e.Rs. 39.00 lakh, Rs. 14.00 lakhs, Rs. 35.00 lakh &Rs. 21.00 lakhs, Rs. 34.00 lakhs, 80% etc. which was not verified by the Assessing Officer or the investigation team. Therefore, we are unable to take the contents of the seized material as the sale consideration of the flat. In the absence of correct information with regard 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 ....
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....he assessee explained that the cash represents the daily cash balance as per the accounts. Since the assessee could not produce the evidence, the Assessing Officer made the addition of Rs. 5,37,775/- as unexplained cash and brought to tax. 27. Aggrieved by the order of the Assessing Officer, the assessee went on appeal before the ld. CIT(A), who confirmed the addition holding that the 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 a....
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....wellery of 1064.6 grams, diamonds of 27 ct and silver of 11525 grams were found. The Assessing Officer asked the assessee to explain the source of gold jewellery and silver articles and the assessee explained that both gold jewellery and silver articles are belonging to his wife and his mother. The Assessing Officer accepted the explanation as reasonable, but due to non-submission of evidence to 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 accordin....
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.... it is clear that the Assessing Officer has accepted the explanation of the assessee that the gold jewellery and silver articles found in the premises of the assessee were belonging to the assessee's wife and his mother inherited ancestrally. The Assessing Officer even categorically found that the explanation of the assessee is found to be reasonable, however, the Assessing Officer made the addition in 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 A....