TaxTMI 
TaxTMI 
TaxTMI 
2023 (8) TMI 758
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.... case the order of the Ld. AO is bad in law. 2. That the Ld. CIT(A) has erred in confirming the disallowance of finance charges of Rs. 1262678/- u/s. 40(a)(ia). 3. The Ld. CIT(A) has erred in confirming addition u/s. 68 of Rs. 12000000/- on suspicious basis and without any concrete evidence. 4. That the Ld. CIT(A) has erred in confirming addition of notional interest of Rs. 286300/- u/s. 14A of the I.T Act, 1961. 5. The Ld. CIT(A) has erred in confirming addition of Rs. 86795/- on account of unexplained credit of Rs. 86795/- on account of bank interest. 6. The Ld. CIT(A) has erred in confirming addition of Rs. 982649/- on account of maturity of LIC. 7. The CIT(A) has erred in confirming addition of Rs. 500000/- on account of notional rental income. 8. The Ld. CIT(Appeals) has erred in confirming the addition of Rs. 200000/- on account of law household expenses. 9. The Ld. CIT(A) has erred in confirming addition of Rs. 142000/- on account of interest free loan given by the assessee. 10. The interest charged u/s. 234B is bad in law and unjustified. 11. That the assessee craves leave to add, alter, and amend modify, substitute, delete and or rescind all or any of t....
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....nce addition of Rs. 30 lac [Rs. 8 lac + Rs. 12 lac + Rs. 10 lac] the CIT(Appeals) observed that not only the summons issued by the A.O to the said respective parties were returned back unserved but also the assessee had failed to produce either of the said parties for examination before the A.O. It was further observed by him that though the A.O in the course of the assessment proceedings in order to verify the authenticity of the loan transactions had issued a commission the Joint Director (Inv.), Bhubaneswar for conducting an enquiry, however, the said respective lenders had failed to comply with the summons that were issued to them. Considering the aforesaid facts, the A.O was of the view that the assessee in guise of the above mentioned loan transactions had in fact routed his unaccounted income in his books of accounts. Accordingly the CIT(Appeals) on the basis of his aforesaid observations sustained the addition of Rs. 1.20 crore made by the A.O under Sec. 68 of the Act. 7. Apropos the disallowance made by the A.O u/s 14A of the Act of the assessee's claim for deduction of interest expenditure of Rs. 2,86,300/-, it was observed by the CIT(Appeals) that though the assessee ha....
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....ition of Rs. 2 lac made by the A.O on account of low house hold withdrawals, it was observed by the CIT(Appeals) that as the assessee had failed to establish that withdrawals of an amount even less than Rs. 1 lac were sufficient for his household expenses, therefore, the A.O on an estimate basis had rightly made an addition of Rs. 2 lac on the said count. 12. Apropos the disallowance of interest expenditure of Rs. 1,42,000/- relatable to interest free loans advanced by the assessee the CIT(Appeals) finding no infirmity in the view taken by the A.O upheld the disallowance made by him. 13. The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us. 14. The Ld. Authorized Representative (for short "A.R") for the assessee at the very outset of the hearing of the appeal submitted that he is not pressing the ground of appeal No. 1. Considering the concession of the Ld. AR the Ground of appeal No. 1 raised by the assessee is dismissed as not pressed. 15. Apropos the disallowance under Sec. 40(a)(ia) of the assessee's claim for deduction of interest paid to NBFC of Rs. 12,62,678/-, the assessee has filed before us an application U/rule 29....
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....ce charges paid to Magma Sarachi Ltd.: Rs. 4,63,177/-; (ii) finance charges paid to Tata Motors Finance Ltd.: Rs. 4,95,684/-; and (iii) finance charges paid to other contractors parties: Rs. 1,99,344/-, it was submitted by the Ld. AR that as per the amendment that was made available on the statute by the Finance Act, (No.2) 2014 w.e.f 01.04.2015 the disallowance under Sec. 40(a)(ia) was liable to be restricted to 30% of the amount of expenditure that was claimed as a deduction by the assessee. It was submitted by the Ld. AR that as the assessee could not produce the certificates from the recipient companies, viz. (i) M/s Magma Sarachi Ltd; (ii) M/s Tata Motors Finance Ltd.; and (iii) other parties, therefore, the disallowance in the said respective cases be restricted to 30% of the expenditure which was claimed as a deduction. In support of his aforesaid contention the Ld. AR had relied on the following judicial pronouncements: (i) Muradul Haque Vs. ITO, ITA No. 114/Del/2019 dated 18.06.2020 (ii) Punabhai G Pardava Vs. ITO, ITA No.219/RJT/2018 (iii) Amruta Quarry Works Vs. ITO, ITA No. 1481/Ahd/2013 dated 19.07.2016 (iv) Neena Kaul Vs. Asst. CIT, ITA No. 1386/Mum/2017 dated....
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.... baseless but is bereft of any logic. Neither the amendment made by the Finance (No.2) Act, 2014 could be stretched anterior the date of its substitution so as to reach the assessment year 2005-2006 nor the said decision in Calcutta Export Company has any correlation with the case at hand or with the amendment made by the Finance (No.2) Act of 2014. 19.1. By the amendment brought about in the year 2014, the legislature reduced the extent of disallowance under Section 40(a)(ia) of the Act and limited it to 30% of the sum payable. On the other hand, by the Finance Act of 2010, which was considered in the case of Calcutta Export Company (supra), the proviso to Section 40(a)(ia) of the Act was amended so as to provide relief to a bonafide assessee who could not make deposit of deducted tax within prescribed time. In fact, even before the year 2010, the said proviso was amended by the Finance Act 2008 and that amendment of the year 2008 was provided retrospective operation by the legislature itself. For ready reference, we may reproduce in juxtaposition the main part of Section 40(a) (ia) of the Act as it would read after the amendments of 2008, 2010 and 2014 respectively, as under13:....
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.... the due date specified in sub-section (1) of section 139: Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid: *** *** ***" (iii) After the amendment by Finance (No. 2) Act, 2014 "40. Amounts not deductible. - Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",- (a) in the case of any assessee- *** *** *** (ia) thirty per cent. of any sum payable to a resident, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139: Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-sect....
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....the said amendment, being curative in nature, is required to be given retrospective operation that is, from the date of insertion of Section 40(a)(ia). 19.4. Learned counsel for the appellant has only referred to the concluding part of the decision in Calcutta Export Company but, a look at the entire synthesis by this Court, of the reasons for the amendments of 2008 and 2010, makes it clear as to why this Court held that the amendment of the year 2010 would be retrospective in operation. We may usefully reproduce the relevant discussion and exposition of this Court in Calcutta Export Company as under:- (at pp. 663-666 of ITR):- "19. The above amendments made by the Finance Act, 2008 thus provided that no disallowance under section 40(a)(ia) of the Income-tax Act shall be made in respect of the expenditure incurred in the month of March if the tax deducted at source on such expenditure has been paid before the due date of filing of the return. It is important to mention here that the amendment was given retrospective operation from the date of April 1,2005, i.e., from the very date of substitution of the provision. 20. Therefore, the assessees were, after the said amendment in....
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....ime to the deductors to deposit the TDS so made. However, the Memorandum Explaining the Provisions of the Finance Bill, 2010 expressly mentioned as follows: "This amendment is proposed to take effect retrospectively from April 1, 2010 and will, accordingly, apply in relation to the assessment year 2010-11 and subsequent years." 25. The controversy surrounding the above amendment was whether the amendment being curative in nature should be applied retrospectively, i.e., from the date of insertion of the provisions of section 40(a)(ia) or to be applicable from the date of enforcement. *** *** *** 27. A proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section, is required to be read into the section to give the section a reasonable interpretation and requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole. 28. The purpose of the amendment made by the Finance Act, 2010 is to solve the anomalies that the insertion of section 40(a)(ia) was causing to the bona fide tax payer. The amendment, even if not given oper....
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....a)(ia) of the Act by the Finance (No.2) Act, 2014 could only be rejected as entirely baseless, rather preposterous. 19.7. Hence, Question No.3 is also answered in the negative, i.e., against the assessee-appellant and in favour of the revenue." On the basis of the aforesaid settled position of law as had been laid down by the Hon'ble Apex Court in the case of Shree Choudhary Transport Co. Vs. ITO (supra), 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. Thus, the Ground of appeal No.2 raised by the assessee is partly allowed in terms of our aforesaid observations. 19. Apropos the loans aggregating to Rs. 90 lac claimed by the assessee to have been raised from the aforementioned two companies, viz. (i). M/s MRA Global Pvt. Ltd. : Rs. 60 lac ; and (ii). M/s. Maa Samleshwari Steels Pvt. L....
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....eir bank statements to justify the genuineness of transactions; and copies of the returns of income of the lenders to justify their creditworthiness. The Ld. A.R in support of his contention that now when the assessee had discharged the primary onus that was cast upon him as regards proving the authenticity of the loan transactions then the A.O without dislodging the same could not have drawn adverse inferences as regards the said transactions, relied on the following judicial pronouncements: (i) G.M Overseas Vs. ACIT, ITA No. 1891/Del/2020 dated 21.03.2022 (ii) CIT Vs. Ayachi Chandrashekhar Narsangi, 42 Taxmann. Com ( Guj. HC) (iii) Pr. CIT Vs. Sky Lark Build, TIOL-2323-HC-Mum. (iv) Shree Samruddhi Overseas Trading Company Vs. DCIT, ITA No. 909 and 910/Ahd/2018 dated 19.04.2021. 20. It was submitted by the Ld. AR that the impugned additions made by the A.O u/s 68 of the Act were sustained by the CIT(Appeals) only for the reason that the lenders had not appeared before him. It was submitted by the Ld. AR that Section 68 of the Act cannot be invoked merely for the reason that the lenders had not complied with the notices issued u/s. 131 or u/s 133(6) of the Act. In support ....
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....to appear before him. (ii). The ld. A.R explaining the reasons for non-compliance of the aforesaid notice(s) u/s 131 and u/s 133(6) by the aforementioned companies, had submitted that the same was for the reason that the director of the said companies, viz. Shri. Mahendra Goenka (supra) at the relevant point of time was out of station and the notice(s) were served upon his staff member. It is the claim of the ld. A.R that Shri. Mahendra Goenka (supra) on returning back had forwarded the requisite information as was called for by the A.O as regards the transactions of both the companies with the assessee concern i.e M/s Shrikishan & Co., Korba, vide Speed Post acknowledgement No. EC907168504IN and EC907168623IN, dated 28.03.2013, Page 61 of APB. However, as stated by the ld. A.R and, rightly so, as the aforesaid postal communication was received by the A.O after passing of the assessment order u/s 143(3), dated 28.03.2013 i.e on 01.04.2013, Page 62-63 of APB, therefore, there was no occasion for the A.O to consider the same. On a perusal of the records it transpires that the aforementioned companies had vide Speed Post acknowledgement No. EC907168504IN and EC907168623IN, dated 28.0....
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....id preceding year had in two tranches of Rs. 30 lac each advanced a loan aggregating to Rs. 60 lac to the assessee out of which an amount of Rs. 30 lac was received back during the said year itself. Relevant extract of the statement of Shri. Mahendra Goenka (supra) as was recorded by the A.O in the course of the assessment proceedings for A.Y 2011-12 is culled out as under : On a perusal of the records to which our attention was drawn by the ld. A.R, it transpires that the authenticity of both the loans received by the assessee during the said succeeding year i.e AY 2011-12 was accepted by the A.O while framing the assessment for the said year vide his order passed u/s 143(3) of the Act, dated 26.03.2014, Page 66 - 72 r.w Page 8 - 11 of APB. (iv). We further find that out of the unsecured loan of Rs. 60 lac that was raised by the assessee from M/s. MRA Global Private Limited an amount of Rs. 30 lac was repaid by him through banking channel to the lender company during the year itself. Considering the fact of part repayment of loan during the year itself further fortifies the genuineness of the loan raised by the assessee from the lender company. (v). Considering the reasons whic....
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....s undisclosed income made an addition of the same to his returned income. On appeal the CIT(Appeals) finding no infirmity in the view taken by the A.O upheld the same. (ii). It is the claim of the ld. A.R that as at the relevant point of time when notice(s) u/s 131 were issued by the Jt. DIT (Inv.), Bhubaneswar all the three parties were out of station to attend a family function, therefore, for the said reason they could not make a necessary compliance to the same. Apart from that, it is the claim of the ld. A.R that now when all the aforementioned three parties were residing at Rourkela where the office of the Commissioner of Income-tax was based, therefore, they had been subjected to undue hardship by the A.O who had issued a commission to Jt.DIT(Inv.), Bhubaneswar i.e a town which was 317 kms far from Rourkela. It is the claim of the ld. A.R that the assessee in order to substantiate the authenticity of the respective loan transactions had placed on record supporting documentary evidences, viz. (i). Names, addresses and PAN Nos. of the lenders (ii). Confirmations of all the aforesaid three lenders; (iii). Copies of the income-tax returns of the lenders; and (iv). Copies of the....
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....(s) of the respective lenders, and had discharged the primary onus that was cast upon him as regards proving the authenticity of the loan transactions in question, Page 111-119 of APB. Apart from that it transpires that the assessee in his attempt to dispel all doubts as regards the veracity of the loan transactions had filed before us the "affidavits", dated 18.07.2022 of the respective lenders wherein they had admitted of having advanced the interest bearing loans to the assessee a/w the reasons for doing so, Page 50-57 of APB. (iv). Although the assessee by filing the aforesaid supporting documentary evidences had duly discharged the primary onus that was cast upon him as regards proving the authenticity of the interest bearing loans that were claimed to have been raised from the aforementioned parties, viz. (i). Shri. Pawan Garg; (ii). Smt. Sharda Devi; and (iii). Smt. Mohini Garg, however, the said material aspect had not been considered by the lower authorities. On a perusal of the records, we find that the fact that the aforementioned parties had failed to comply with the notice(s) issued u/s. 131 of the Act by the ADIT(Inv.), Bhubaneswar had weighed in the mind of the lowe....
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....aforementioned three parties. Needless to say, the A.O shall in the course of the set-aside proceedings afford a reasonable opportunity of being heard to the assessee who shall remain at a liberty to substantiate his claim of having raised genuine loans from the aforementioned three persons, viz. (i). Shri. Pawan Garg; (ii). Smt. Sharda Devi; and (iii). Smt. Mohini Garg. The Ground of appeal No.3 is allowed/allowed for statistical purposes in terms of our aforesaid observations. 22. Apropos the disallowance of expenditure made by the A.O u/s 14A of the Act of Rs. 2.86 lac the same comprises of two parts, viz. (i). disallowance of interest expenditure u/s 14A r.w Rule 8D(2)(ii) : Rs. 2,65,610/-; and (ii). disallowance of administrative expenditure u/s 14A r.w Rule 8D(2)(iii) : Rs. 20,790/-. As regards the disallowance of interest expenditure, it was submitted by the Ld. AR that as the assessee had sufficient self-owned funds and had not used any interest-bearing funds for earning of exempt dividend income, therefore, no disallowance of any part of interest expenditure u/s 14A r.w Rule 8D(2)(ii) was warranted in his case. It was submitted by the Ld. AR that the very fact that the as....
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.... in shares, therefore, no disallowance was warranted u/s 14A of the Act. On the other hand, the A.O after exhaustively discussing Sec. 14A of the Act a/w the mechanism for working out the disallowance as contemplated in Rule 8D of the Income Tax Act, Rules 1963, and the law pertaining to the said statutory provision as had developed over the time, therein, without recording his satisfaction as to why the assessee's claim that no expenditure could be attributed for earning of the exempt dividend income had in a mechanical manner worked out the disallowance as per the mechanism contemplated in Rule 8D of the Income Tax Rules, 1963. On appeal, the CIT(A) merely on the basis of his general observations that the incurring of expenditure for earning of exempt income could not be ruled out had upheld the disallowance made by the A.O. In our considered view, neither of the lower authorities had recorded their satisfaction as to why the assessee's claim that no part of the expenditure pertaining to his proprietary business could be attributed to earning of the exempt dividend income was not to be accepted. In our considered view the issue as to whether it is obligatory on the part of the A.....
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.... aforementioned statutory provision, as well as had exhaustively dealt with the aspect as to how the law in so far the aforementioned statutory provision had developed over the time, but there is no whisper on his part that having regard to the accounts of the assessee, it was not possible for him to generate the requisite satisfaction with regard to the correctness of the assessee's claim that no part of expenditure pertaining to his proprietary business could be attributed to earning of exempt dividend income. As observed by us hereinabove, the state of affairs qua dissatisfaction as regards the claim of the assessee that no part of the expenses incurred by him with respect to his regular business could be attributed to earning of the exempt dividend income remained more or less the same before the CIT(A). 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 ha....
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....ee was a proprietor; and (ii) the second represent the personal capital account and balance sheet of the assessee in his individual capacity. It was submitted by the Ld. AR that the assessee had made few FDR's with the banks wherein some were held by him in the books of accounts of the proprietary concern, viz. M/s. Shrikishan & Co., while for the remaining were held by him in his individual account. It was stated by him that as both the set of FDRs were held under the same PAN i.e. of the assessee, therefore, the bank had jointly deducted the TDS on both the set of FDR's. It was stated by the Ld. AR that in the backdrop of the aforesaid factual matrix the assessee had credited the entire amount of interest received/accrued from the bank in the books of accounts of the proprietary concern i.e. M/s. Shrikishan & Co. It was, thus, the claim of the Ld. AR that the entire amount of FDR interest was credited by the assessee in the profit and loss account of his proprietary concern, viz. M/s. Shrikishan & Co.. It was the claim of the assessee that as the entire amount of interest received/accrued from bank was credited in the profit and loss account of his proprietary concern i.e. M/s. S....
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....acated. 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. 28. We shall now deal with the grievance of the assessee that both the lower authorities had erred in making/sustaining an addition Rs. 9,82,649/- on account of LIC maturity proceeds. It is the claim of the Ld. AR that the A.O had grossly erred in law and facts of the case in making an addition of the LIC maturity proceeds of Rs. 9,82,649/- which as per section 10(10D) was clearly in the nature of an exempt receipt. Taking us to the genesis of the controversy, it was stated by the Ld. AR that the assessee during the year was in receipt of an amount of Rs. 18,47,092/- as LIC maturity receipts from Max New York Insurance and LIC of India, Page 110 of APB. It was submitted by the Ld. AR that as the assessee could not substantiate his claim that the amount of Rs. 9,82,649/-(out of Rs. 18,47,092/-) was in the nature of LIC maturity proceeds, therefore, the same was whimsically held by the A.O as the unexplained income of the assessee. It was submitted by....
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....f 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. At the same time, we are of the considered view that 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 aggregating to Rs. 9,82,649/- (supra) 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. Thus, the Ground of appeal No.6 is allowed for statistical purposes in terms of our aforesaid observations. 31. We shall ....
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....(supra) that the house at Darri Road, Korba was being used by him for his residential purpose, while for the other house i.e. HIG-101, M.P Nagar, Korba was being used as a godown to store hardware items, technical instruments, spare parts etc. As regards the residential house at Jal vihar Colony, Raipur it was the claim of the assessee that the same during the year under consideration was under construction. It was the case of the assessee that on the one hand the annual value of the house which was being used for residential purpose i.e. at Darri Road, Korba as per section 23(2)(a) was to be taken as nil; while for in the case of the other house i.e. HIG-101, M.P Nagar, Korba which was being used for the purposes of business the annual value was not chargeable to income tax as provided in section 22 of the Act. Also, it was the claim of the assessee that as the house at Jal vihar Colony, Raipur was under construction, therefore, the ALV of the same could not be determined. Alternatively it was the claim of the Ld. AR before us that as the ALV of the properties in question is to be determined as per the prevailing market rate of the rents of the properties falling in the immediate ....
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....ile of the A.O for giving effect to our aforesaid observations. The Ground of appeal No. 7 is allowed for statistical purposes in terms of our aforesaid observations. 36. We shall now take up the grievance of the assessee that both the lower authorities had erred in making/sustaining an addition of Rs. 2 lac on account of low house hold withdrawals. Succinctly stated, the assessee had during the year under consideration made a withdrawal of Rs. 1.7 lac towards house hold expenses. On being called upon to explain the source of his share of expenses of Rs. 76,275/- that were incurred towards stamp papers and other miscellaneous charges pertaining to acquisition of land at Telibandha, Raipur, it was the claim of the assessee that the same was borne out of his drawings. Considering the aforesaid fact it was observed by the A.O that the assessee was left with a net drawings of Rs. 99,725/- [Rs. 1,76,000/- (-) Rs. 76,275/-]. The A.O taking cognizance of the fact that the assessee had paid LIC premium of Rs. 14.36 lac (approx.) and club subscription charges of Rs. 1 lac during the year under consideration and was also owner of a number of properties, thus, was of the view that he was lea....
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....ita Devi Agrawal (wife) and Murti Devi Agarwal (mother) who were regular income tax payees had duly contributed towards the household expenses. 40. Per contra the Ld. DR relied on the orders of the lower authorities. 41. We have given a thoughtful consideration to the aforesaid issue in hand and find 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 dated 11.03.2013 (supra), Page 105-Sr. No.8 of APB. However, as noticed by us hereinabove, the fact that the afores....
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....entioned persons was called for in his hands. In order to buttress his aforesaid claim the Ld. AR had taken us through the 'balance sheet' of the assessee concern, viz. M/s. Shrikishan & Co. for the year under consideration, Page 138-140 of APB. It was, thus, the claim of the Ld. AR that now when the assessee was having sufficient interest free self-owned funds, therefore, no disallowance of interest expenditure as regards the interest free loans advanced by him was liable to be made. 46. Per contra the Ld. DR relied on the orders of the lower authorities. 47. We have given a thoughtful consideration to the aforesaid issue in hand, i.e., sustainability of the disallowance of the assessee's claim for deduction of interest expenditure u/s. 36(1)(iii) of the Act, and find substance in the claim of the Ld. AR. Admittedly, as the assessee during the year under consideration was having substantial interest free self- owned funds of Rs. 6.63 crore (approx.) Page 138-140 APB, therefore, it could safely be inferred 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.....
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.... u/s. 40 (a) (ia) of Rs. 7,89,386/-. 5. The learned CIT(A) has erred on facts and in law in confirming addition of Rs. 12,48,617/- on account of so-called short receipt shown by the assessee. 6. The appellant craves leave to add, urge, alter, modify or withdraw any ground/s before or at the time of hearing. Also the assessee has raised additional grounds of appeal before us which reads as under: "7. That the Ld. CIT(A) erred in enhancement of income of Rs. 1,56,000/- on account of interest on impugned cash credit of Rs. 1,20,00,000/- added back in the income of the assessee in preceding Assessment Year. 8. That the Ld. CIT(A) erred in enhancement of income of Rs. 1,42,000/- on account of interest free loan given to outsiders as it was added back in the income of the assessee in preceding Assessment Year. 9. That the Ld. CIT(A) erred in enhancement of income of Rs.5,00,000/- on account of notional rental income as it was added back in the income of the assessee in preceding Assessment Year. 10. That the Ld. CIT(A) erred in enhancement of income of Rs. 2,86,300/- invoking section 14A, as it was added back in the income of the assessee in preceding Assessment Year i.e. 20....
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.... Elaborating further, it was observed by the A.O that a verification of the muster rolls revealed that they were poorly maintained and the thumb impressions of the recipient labour against the amounts stated to have been received by them was beyond recognition and verification. Also it was observed by the A.O that some of the expenses which were incurred in cash were not cross-verifiable. Considering the aforesaid facts the A.O made a lumpsum disallowance of Rs. 10 lac. 55. Aggrieved the assessee assailed the lumpsum disallowance of Rs. 10 lac (supra) made by the A.O before the CIT(Appeals). On a perusal of the order of the CIT(Appeals) we find that he had without giving any cogent reason upheld the lumpsum disallowance of Rs. 10 lac (supra) made by the A.O. At the same time, it was observed by the CIT(Appeals) that the A.O despite referring to the serious infirmities in the muster rolls which were poorly maintained and the fact that there was steep decline in the GP rate from 8.59% to 6.57%, had erred in not rejecting his trading results. The CIT(Appeals) on the basis of his aforesaid observations adopted the average GP rate of the immediately two preceding years i.e. 8.025% and ....
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....On the basis of his aforesaid contentions, it was submitted by the Ld. AR that as there was neither any justification nor basis for making of the impugned ad-hoc disallowance of Rs. 10 lac (supra) by the A.O, therefore, the same could not be sustained and was liable to be struck down. 58. Per contra, the Ld. DR relied on the orders of the lower authorities. 59. We have given a thoughtful consideration to the aforesaid issue in hand, i.e., sustainability of the ad-hoc disallowance of Rs. 10 lac (supra) made by the A.O. As is discernible from the assessment order, we find that the reasons given by the A.O for making the aforesaid lumpsum disallowance of Rs. 10 lac (supra) were, viz. (i) the assessee's NP & GP rate had considerably gone down; (ii) contract work expenses had increased from 16.38 % to 28.20%; (iii) sub-contract expenses had gone up from 44.50% to 72.83%; (iv) though other expenses i.e. bank commission charges, depreciation, interest on unsecured loans had also witnessed an increase but the turnover had considerably declined from 52.20 crore to 32.15 crore; (v) that the payments made by the assessee to labour (which were included in contract work expenses) were not ful....
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....he 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 of Rs. 10 lac made by the A.O. The Ground of appeal No. 3 is allowed in terms our aforesaid observations. 60. We shall now take up the grievance of the assessee that the CIT(Appeals) had grossly erred in enhancing the gross profit of the assessee by an amount of Rs. 36,77,935/- (net amount). At the very outset of the hearing of the appeal, it was, inter alia, submitted by the Ld. AR that the CIT(Appeals) had carried out the aforesaid enhancement at the back of the asssessee, i.e., without giving any opportunity to him to show cause that no such enhancement was called for in his case. It was submitted by the Ld. AR that the failure of the C....
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.... (Mad.) (iv) Saheli Synthetics P. Ltd. Vs. CIT (2008) 302 ITR 126 (Guj.) 61. Per contra, the Ld. DR relied on the orders of the CIT(Appeals). It was submitted by the Ld. DR that as the assessee was validly put to notice about the enhancement of his gross profit, therefore, it was incorrect on his part to claim that the addition to the said effect had been made without validly putting him to notice. 62. We have given a thoughtful consideration to the aforesaid issue and find that the adjudication of the same hinges around the aspect as to whether or not the CIT(Appeals) prior to enhancing the gross profit had afforded a reasonable opportunity to the assessee to explain as to why the same may not be made in his hands. Before proceeding any further, we deem it fit to cull out section 251 of the Act which reads as under: "251. (1) In disposing of an appeal, the Commissioner (Appeals) shall have the following powers- (a) in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment; (aa) in an appeal against the order of assessment in respect of which the proceeding before the Settlement Commission abates under section 245HA,he may, after....
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....66 ITR 443 (SC) therein had observed that the power for enhancement by the Commissioner of Income-tax is subject to limitation as provided in sub-section (2) of Section 251 of the Act, and such question would be considered only if a notice was given in that regard. On the basis of the aforesaid settled position of law it is clear beyond doubt that an enhancement by the CIT(Appeals) can validly be made only after the assessee had been given a reasonable opportunity to show cause against the enhancement that is proposed to be made in his hands. 63. We shall now in light of the aforesaid position of law deal with the claim of the assessee that the enhancement of gross profit in his case had been made in violation of the mandate of sub-section (2) of Section 251 of the Act. Although it is alleged by the Ld. AR that the CIT(Appeals) had interpolated the words "- Asked for enchantment of income by GP" in his order sheet noting dated 29.03.2016, Page 94 of APB, but in the absence of any clinching evidence the said claim of the Ld. AR cannot be accepted. At the same time, we find that the very fact that the CIT(Appeals) had disposed off the appeal vide order dated 29.03.2016, i.e., on the....
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....1-12 taken into account finance charges of Rs. 1,41,751/- that was received from Sushil Kumar Agrawal, Prop. of ShriKishan & Co. Also, the assessee had filed before us as an "additional evidence" certificate from a Chartered Accountant which is not in the prescribed format, wherein it is stated that M/s.Magma Fincorp Limited, i.e. the payee, had included the finance charges of Rs.4,221/- in its income tax return for A.Y.2011-12. We have given a thoughtful consideration and are of the considered view that as the aforesaid CA certificates will have a strong bearing on the adjudication of the ground of appeal No.4, therefore, in all fairness the same merits admission. 65. Although the aforesaid CA certificates refers to the fact that the respective payees, viz. (i) M/s. Religare Finvest Ltd.; and (ii) M/s Magma Fincorp Limited had included the interest charges of Rs. 1,41,751/- and Rs.4,221/-, respectively, in their taxable income and had paid the taxes on the same, however, as the said certificates are either incomplete (as in case of M/s. Religare Finvest Limited) or not in the prescribed form ( as in case of M/s. Magma Fincorp Ltd.) i.e. not in "Form 26A" as provided in the "1st p....
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.... addition made by the A.O was thereafter sustained by the CIT(Appeals). The Ld. AR had filed before us a reconciliation statement to explain/reconcile the impugned difference in turnover which had occasioned due to inclusion of the service tax in the gross receipts reflected in the TDS certificate, Page 81 of APB. The Ld. AR had also filed before us a copy of service tax account (as appearing in his books of accounts), in order to impress upon us that as the gross receipts accounted for by the assessee in his books of accounts did not include the service tax component which was separately accounted for, therefore, the impugned variance had therein emerged. It was submitted by the Ld. AR that as per guidance note on tax audits u/s. 44AB of the Act as had been issued by Institute of Chartered Accountants of India, if indirect tax (Excise Duty, Sales Tax, Service Tax) recovered are credited separately to excise duty or sales tax or service tax account (being separate accounts) and payment to the authorities concerned are debited in the same account, then, they would not be included in the turnover. 70. After having given a thoughtful consideration to the orders of the lower authoriti....
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....tional grounds would not require looking any further beyond the facts borne on record, therefore, we have no hesitation in admitting the same. 73. We shall first take up the grievance of the assessee that the CIT(Appeals) had erred in enhancing his income by an amount of Rs. 1,56,000/- by disallowing the interest on loans of Rs. 1.20 crore that were claimed by the assessee to have been raised in the immediately preceding year i.e. A.Y.2010-11 from five parties, viz. (i) MRA Global Pvt. Ltd.; (ii) Maa Samleshwari Steel Pvt. Ltd.; (iii) Smt. Mohini Garg; (iv) Shri Pavan Garg; and (v) Smt. Sharda Devi, but the same were held by the A.O while framing the assessment for the said preceding year i.e. A.Y.2010-11 as unexplained cash credits u/s. 68 of the Act. The CIT(Appeals) was of the view that now when the impugned loans/advances had been held to be bogus, therefore, the assessee's claim for deduction of the interest of Rs. 1,56,000/- on the same was liable to be disallowed. 74. We have heard the Ld. Authorized Representatives of both the parties and perused the order of the lower authorities in context of the aforesaid issues. As we have while disposing off the appeal for the immedi....
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....s. 1,42,000/- u/s. 36(1)(iii) of the Act, therefore, the very basis for making of the impugned enhancement by the CIT(Appeals) during the year under consideration does not survive any more and is accordingly vacated. The additional Ground of appeal No.8 is allowed in terms of our aforesaid observations. 76. We shall now take up the grievance of the assessee that the CIT(Appeals) had erred in enhancing his income by an amount of Rs. 5 lac on account of ALV of the residential properties owned by him. On a perusal of the order of the CIT(Appeals) it transpires that the aforesaid enhancement by way of addition of Rs. 5 lac towards ALV/notional lettable value of the houses owned by the assessee was made by the CIT(Appeals) for the reason that an addition on the said count was made by the A.O while framing the assessment for the immediately preceding year i.e. A.Y.2010-11. As we have while disposing off the assessee's appeal for the immediately preceding year i.e. A.Y.2010-11 in ITA No.93/RPR/2017 set- aside with specific directions the addition of Rs.5 lac that was made on an estimate basis by the A.O, therefore, on the same footing, the enhancement of Rs.5 lac made by the CIT(Appeals)....