TaxTMI 
TaxTMI 
2024 (12) TMI 861
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.... Facts of the case: 2. The assessee filed his return of income for both the A.Y.(s) and the returns were processed u/s 143(1) of the Act. Later, the cases were selected for scrutiny under CASS. The assessments were completed by passing orders u/s 143(3) of the Act with some additions. Following are the tabulated details of return filed and additions for both the years under consideration: Details AY 2016-17 AY 2017-18 Date of Filing Return 29/03/2017 19/03/2018 Returned Income Rs. (-2,00,000/-) Rs. 26,76,430/- Agricultural Income Rs. 2,69,907/- Rs. 3,26,769/- Date of AO Order 30/12/2018 18/12/2019 Section under which AO Order Passed 143(3) 143(3) Disallowance u/s 14A Rs. 14,042/- Not applicable Proportionate Interest Disallowance Rs. 38,36,692/- Rs. 44,06,456/- Unexplained Cash Credits (Sec. 68) Rs. 16,50,000/- Rs. 12,50,000/- Disallowance of Cost of Improvement (Capital Gains) Rs. 29,18,308/- Rs. 51,88,368/- Bogus Gift Rs. 10,00,000/- Not applicable Notional Rent (Sec. 23(4)) Rs. 52,530/- Not applicable Higher Tax Rate under Section 115BBE Not applicable Yes ....
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....of the appeal. ITA No. 1368/Ahd/2024 for A.Y. 2017-18 1. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of assessing officer in disallowing cost of improvement of Rs. 51,88,368/- claimed on sale of property. 2. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of assessing officer in making addition of Rs. 44,06,456/- on account of disallowance of proportional interest expense for allegedly utilising borrowed funds for investment in personal assets/interest for loans. 3. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of assessing officer in making an addition Rs. 12,50,000/- u/s. 68 of the Act on account of unexplained cash credit. 4. On the facts and circumstances of the case as well as law on the subject, the assessing officer has erred in taxing the income u/s 115BBE @ 77.25 % in a retrospective manner by applying the duly substituted S.115BBE inserted retrospectively instead of taxing it at 35.54 % as pe....
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....56 7. The CIT(A) upheld the AO's disallowance, stating that the assessee failed to provide clear evidence that interest-bearing funds were not used for personal investments. The CIT(A) also concluded that no direct correlation was established to prove the exclusive use of non-interest-bearing funds for the questioned investments. The CIT(A) observed that the disallowance was proportionate and reasonable in light of the facts presented. 8. During the course of the hearing before us, the AR stated that the sufficient interest-free funds were available to cover the investments in personal assets and loans/advances. The AR explained from the paper book that the interest free funds are exceeding the personal assets and investments for both the years as detailed below - - For AY 2016-17 Interest-free funds included owned capital of Rs. 3,58,51,055/- and interest-free loans of Rs. 77,15,325/- totalling to Rs. 4,35,66,380/- which exceeded personal asset investments. - For AY 2017-18 Interest-free funds included owned capital of Rs. 4,18,97,438/- and interest-free loans of Rs. 2,37,15,325/- totalling to Rs. 6,26,36,342/- which exceeded personal asset investments.....
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....tantial portion of the personal assets and liabilities were inherited or pre-existing and were not funded by interest-bearing borrowings. The AO's failure to establish any direct connection between borrowed funds and non-income-generating investments, coupled with the inconsistent treatment of similar expenses in earlier scrutiny assessments, renders the disallowance unsustainable. 9.2. The CIT(A) erred in upholding the proportionate disallowance of interest expenses without adequately addressing the aspects discussed above. 9.3. Accordingly, we hold that the proportionate disallowance of interest expenses amounting to Rs. 38,36,692/- for AY 2016-17 and Rs. 44,06,456/- for AY 2017-18 is unjustified and liable to be deleted. 10. The ground of appeal is allowed in favour of the assessee for both assessment years. Ground relating to addition u/s 68 on account of unexplained cash credit 11. The AO noted that the assessee had taken unsecured loans from the following parties during the assessment years under consideration. A.Y. Name of the Lender Amount (Rs.) 2016-17 Smt. Ramilaben Sanghavi 1100000 Shri Shreyans S. Sanghavi 550000 Total 165000....
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....hat when the identity of the creditor is proved, documents such as confirmation, copy of ITR is submitted and when the amounts are received by cheque or through banking channel, which is not in dispute in present case, the assessee must be taken to have proved that the creditor has credit worthiness to advance the loan. The AR also argued that the burden gets shifted to the AO to prove the contrary. The AR placed reliance on following judicial precedents: * CIT Vs. Ranchod Jivabhai Nakava [2012] 21 taxmann.com 159 (Guj. HC). * CIT Vs. Chanakya Developers [2014] 43 taxmann.com 91 (Guj.HC) 15. The DR, on the other hand, relied on the order of lower authorities and stated that only cash book can't be considered as sufficient evidence to prove the genuineness of the source. 16. We have carefully considered the rival submissions, perused the material on record, and examined the decisions cited. The core issue pertains to the addition of unsecured loans received by the assessee, which were treated as unexplained cash credits under Section 68 by the AO. The assessee furnished loan confirmations, copies of income tax returns, bank statements, PAN details, and ledger....
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....isallowed were: A.Y. Cost of Improvement Claimed (Rs.) Amount Disallowed by AO (Rs.) 2016-17 29,18,308 29,18,308 2017-18 51,88,368 51,88,368 17.1. The AO observed that the assessee claimed significant amounts as costs incurred for improving the properties sold during the relevant assessment years. The assessee submitted some bills relating to "Mitti for Puran", as evidence of the costs incurred. The assessee also submitted identification proofs of suppliers such as PAN copy. The AO found the documentation submitted by the assessee to be inadequate. The AO noted that the suppliers have not filed return of income. 18. The CIT(A) sustained the disallowance, agreeing with the AO's findings. It was held that the evidence provided, such as invoices and vendor details, were insufficient to establish the genuineness and reasonableness of the improvement costs. 19. During the course of hearing before us, the AR stated that all the bills and invoices were sample copies, and other bills are part of paper book. The AR stated that the cost of improvement is justified. The AR further stated that for land at 508, 509/2 (2,612.77 sq. meters), the cost of acquisi....
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....Developers [43 taxmann.com 91], which held that once the identity of vendors and supporting documents are submitted, the onus shifts to the AO to conduct proper inquiries. 23. While the evidence provided by the assessee substantiates a significant portion of the claimed expenses, the absence of additional corroborative evidence, such as agreements with contractors or photographic proof of the improvements, raises questions about the complete genuineness of the claim. Further, the AO did not undertake any verification to disprove the expenses but relied solely on the perceived inadequacies in the documentation. 23.1. Considering these factors, we deem it appropriate to restrict the disallowance to 10% of the claimed expenses. This estimation is justified based on the following rationale: 1. While the invoices and vendor details substantiate the majority of the expenses, the lack of full corroboration warrants a reasonable adjustment. 2. Activities such as "Mati Puran" and fencing often involve cash intensive transactions, increasing the possibility of overstatement. 3. A 10% disallowance provides a fair balance between recognizing genuine improvement....
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.... in the hands of Jublieben Sanghavi was Rs. 14,87,566.82 out of which she gifted Rs. 5,00,000/- on 28-04-2015 and Rs. 5,00,000/- on 15-05-2015. 28. The DR stated that since relationship with the assessee was not disclosed at the time of assessment, the AO treated the same as unexplained. 29. We have considered the rival submissions, examined the material on record, and reviewed the orders of the lower authorities. The issue pertains to the addition of Rs. 10,00,000/- as unexplained cash credit under Section 68 of the Income Tax Act, 1961, representing a gift claimed to have been received by the assessee during AY 2016-17 from Ms. Julieben A. Sanghavi. 29.1. The assessee submitted a signed confirmation from the donor in support of his claim, along with capital account and cash book. The cash book reflected an opening balance of Rs. 14,87,566.82 as on 01-04-2015, from which gifts of Rs. 5,00,000/- each were made on 28-04-2015 and 15-05-2015. The donor's income tax return and computation for the relevant assessment year were also submitted, evidencing her creditworthiness. 29.2. The AR clarified during the hearing that Ms. Julieben Sanghavi is the wife of the assessee's br....