TaxTMI 
TaxTMI 
2023 (2) TMI 198
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.... filing the instant Cross Objection within statutory time limit. We, therefore, condone the delay and admit the Cross Objection for adjudication. 3. The Revenue has raised the following grounds of appeal: "1 The Ld. CIT (A) has erred on facts and law by deleting an addition of Rs. 1,73,77,481/-made on account of unexplained money by Assessing Officer under section 69A of Income Tax Act 1961. 2. On the facts and circumstances of the case and in law the Ld. CIT (A) erred in estimating profit of Rs.13,90,198/- which is 8% of total cash deposit and consequently allowing the relief of Rs.1,59,87,283/- to the assessee treating the amount of cash deposit of Rs.1,73,77,481/- as turnover of out of book business. 3. On the facts and circumstances of the case and in law the Ld. CIT (A) erred in not appreciating the fact that in the cash flow statement/ cash book submitted before the Assessing Officer the assessee has shown opening cash balance of Rs.81,93,269/-as major source of cash deposit whereas no return was filed and no books of accounts were maintained by the assessee and hence source of cash in hand could not be established. 4. Without prejudice ....
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....consideration. 10. Without prejudice to the merit of the case; considering the entire cash deposit of Rs.1,73,77,481/- as unexplained money under section 69A of Income Tax Act 1961; the Ld. CIT (A) erred in law and facts by deleting the disallowance of Rs.28,27,141/-on account of interest and bank charges while estimating the net profit at 8% of cash deposit transactions which applied normally as net profit without further deduction on account of other expenses including depreciation and interest. 11. Without prejudice to the merit of the case; considering the entire cash deposit of Rs.1,73,77,481/- as unexplained money under section 69A of Income Tax Act 1961; the Ld. CIT (A) erred in law and facts by deleting the disallowance of Rs.28,27,141/-on account of interest and bank charges while estimating the net profit at 8% of cash deposit transactions by holding an income of Rs.13,90,198/- and gave a deduction of Rs.28,27,141/- from the profit estimated @8% on cash deposit of Rs.1,73,77,481/- 12. Without prejudice to the merit of the case; considering the entire cash deposit of Rs.1,73,77,481/- as unexplained money under section 69A of Income Tax Act 1961-t....
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.... notice u/s 276CC of the Act dated 12.07.2017 directing the assessee to show cause in writing as to why the prosecution proceedings should not be initiated against him. In response, the assessee submitted that the source of alleged cash deposit is the cash withdrawal made from his bank accounts during the year and in the preceding years. Thereafter, notice u/s 148 of the Act issued and in compliance the assessee filed e-return on 13.03.2018 declaring income of Rs. 1,96,080/- subjected to normal tax and Rs. 18,05,847/- included in income chargeable to special rate of tax. Subsequently, notices u/s 143(2) & 142(1) of the Act were duly served upon the assessee. Thereafter, ld. AO called for details of the cash deposited during the year to which necessary submissions were made to prove that there were regular cash withdrawals from the bank and the assessee had sufficient cash in hand to explain the deposit. Ld. AO also noticed that the assessee gave interest free financial assistance to M/s. Soham Shipping Pvt. Ltd. Ld. AO, thus, was not satisfied with the submissions filed by the assessee and made the addition for unexplained money u/s 69A of the Act at Rs. 1,73,77,481/-. Further, ld.....
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....out transactions with M/s. Soham Shipping Pvt. Ltd. Ld. D/R, further submitted that the alleged interest expenditure in the form of interest paid on cash credit limit cannot be allowed against the interest received on fixed deposits because Section 57(3) of the Act is applicable only for expenses incurred to earn the income, therefore, the alleged interest expenditure having no nexus with the interest earned during the year cannot be allowed as deduction. 9. Per contra ld. Counsel for the assessee vehemently argued referring to the paper book containing various details including cash flow statement for FY 2011-12 & 2012-13, placing reliance on the decision of coordinate Bench Chennai in the case of Mr. Shanmugam Ethiraj vs. ITO in ITA No. 822/Chny/2020 order dated 11.05.2022 and that of Mumbai Tribunal in the case of Ajit Bapu Satam vs. DCIT in ITA No. 1599/Mum/2021 order dated 29.08.2022 and further referring to the following written submissions: "I. Grounds No. 1 to 5 pertains to addition of Rs. 1,73,77.481/- by the AO which was partly deleted by the CIT(A). [CIT(A) reduced the addition to 8% of total cash deposit and allowed relief of Rs. 1,59,87,283/-]. Ass....
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....ome cases, some amount was paid to "Soham Shipping Pvt. Ltd." which was an advance extended to them but the same was returned by such company and indeed despite appellant's submission AO failed to examine such person. iv) Assessee has submitted that it had withdrawn and deposited cash in said bank account during F.Y 2011-22 (A.Y 2012-13) and it had sufficient cash balance as on 31.3.2012 which appeared as opening cash balance on 1.4.2012 i.e. opening date relevant to (F.Y 2012-13, A.Y 2013-14). Appellant also submitted the Cash Flow for A.Ys 2012-13 and 2013-14 and which duly showed the cash drawn and deposited and also cash balance as on 31.3.2012 which was duly carried forward to 1.4.2012 (i.e. F.Y 2012-13, A.Y 2013-14). The AO merely brushed aside the appellant's submission and despite such cash withdrawn and deposited in A.Y 2012-13, AO failed to conduct an enquiry for that year as well. Since revenue did not make any inquiry in that respect and hence mere assertion of the revenue of not accepting opening balance of cash (as on 1.4.2012) without any enquiry has no relevance and as such the opening balance of the cash has to be accepted as such. Moreover, the behaviour ....
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....The appellant had earned gross interest of Rs. 46,36,912/- on FD and had incurred Rs. 28,27,141/- on O/D so taken and hence net interest was offered for tax Rs. 18.09.771/-. Ld. CIT(A) held interest as inextricably linked and allowed the claim of the appellant and hence reliance is placed on the judgment of Ld. CIT(A). Without prejudice, it is humbly submitted that since the appellant is a non-resident and is a tax resident of UAE and hence in terms of Article 12 of India UAE-DTAA the gross interest of R's. 46,36,912/- be taxed @ 10% of Article 12 of such DTAA Cross Objection of appellant: III. Ground No. 1 pertains to addition of Rs. 13,90,198/- u/s 69A sustained by CIT(A) (dealt in Ground No. 1 to 5) IV. Ground No. 2 pertains to addition of net interest of Rs. 118.09,771/- (dealt in Grounds No. 6 to 11)" 10. We have heard rival contentions and perused the records placed before us. The Revenue is aggrieved with the relief given by ld. CIT(A) and the assessee has filed Cross Objection challenging the additions sustained by ld. CIT(A) and also filing grounds in support of the relief given by ld. CIT(A). We notice that the assessee is a non-....
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....e is a resident of UAE and has nowhere stated to have carried out any business activity in India. The Revenue authorities have never disputed this fact that the assessee is a non-resident and also no evidence whatsoever has been put forth by the Revenue authorities which can indicate that the assessee is carrying out business activity in India. It seems that ld. CIT(A) based on the frequency of transactions carried out in the bank account took impression that they are carried out in the course of business. Before us, the assessee has filed a copy of bank statement for the preceding financial year i.e. FY 2011-12 and also the year under appeal i.e. FY 2012-13. The assessee has filed cash flow statement for FY 2011-12 & 2012-13. On bare perusal of the bank statement of these two years we notice that there is an opening balance of Rs. 28,14,882/- as on 01.04.2011. Thereafter, there are entries of cash withdrawals, cash deposits, credit through account payee cheques/clearing and transfers, from his own account or various other accounts including that of Soham Shipping Pvt. Ltd. It is evident that the assessee has entered into numerous transactions with Soham Shipping Pvt. Ltd. which ar....
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....elevant at this stage. Now, what remains is the source of alleged cash deposit. On going through the bank statement as well as the cash book, we find that there are regular credits in this bank account through clearing and the assessee has withdrawn the cash on multiple occasions and has deposited also on multiple occasions. Now, why the assessee or the person authorised on its behalf withdrew and deposited the cash cannot be questioned because the assessee was having sufficient balance in the bank as well as cash in hand to explain the said sum. Further, since the assessee is a non-resident Indian and except earning income from fixed deposits, there is no iota of evidence which could indicate that the assessee is carrying out any activity in the nature of business or otherwise to earn income from any other sources in India. Simply suspicion and behavioural pattern of frequent withdrawal by the assessee cannot be the basis of treating cash deposits as unexplained money u/s 69A of the Act and for this proposition we find support from the decision of the coordinate Bench of Lucknow in the case of DCIT vs Smt. Veena Awasthi in ITA No. 215/Lkw/2016 order dated 30.11.2018. Further, draw....
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....he disallowance of interest of Rs. 28,27,141/- paid on cash credit limits availed by the assessee and claimed against the interest earned on fixed deposits at Rs. 46,36,912/-, ld. CIT(A) has allowed the said claim treating it to be a business expenditure. We, however, looking to the said transactions firstly, note that the said transactions of earning income and paying interest are not in the nature of any business activity and hence the finding of ld. CIT(A) is set aside since we have already held in the preceding para that the assessee is not carrying out any business activity. 16. Now, as far as the disallowance made by ld. AO is concerned, we notice that the assessee being a non-resident Indian transferred its income earned outside India in the bank accounts held in India and from such balances held in the bank, the assessee made fixed deposits from time to time. Further, the assessee took the cash credit limits against such fixed deposits and paid interest thereon. So, if we see the flow of the activity first, the assessee earned the income from outside India and from such income it made fixed deposits and earned interest thereon and thereafter took bank credit limit from b....
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..... However, such interest may be taxed in the Contracting State in which it arises and according to the laws of that State, but if the recipient is the beneficial owner of the interest, the tax so charged shall not exceed: (a) 5 per cent of the gross amount of the interest if such interest is paid on a loan granted by a bank carrying on a bona fide banking business or by a similar financial institution; and (b) 12.5 per cent of the gross amount of the interest in all other cases. 3. Notwithstanding the provisions of paragraph (2) interest arising in a Contracting State shall be exempt from tax in that State provided it is derived and beneficially owned by: (i) the Government, a political sub-division or a local authority of the other Contracting State; or (ii) the Central Bank of the other Contracting State. 4. The term "interest" as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's profits, and in particular, income from Government securities and income from bonds or debentures including premiums and prizes attac....