TaxTMI 
TaxTMI 
2024 (12) TMI 861
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....is 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 Total Additions by AO Rs. 94,71,572 Rs. 1,08,44,820/- Assessed Income by AO Rs. 90,48,690/- Rs. 1,35,21,250/- 3. The as....
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....ing 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 per the old provisions of S.115BBE 5. On the facts and circumstances of the case as well as law on the subject, the learned assessing officer has erred in taxing the addition made u/s.68 by taking the rate @77.25% by attracting....
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....uestioned 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. 8.1. The AR also stated that a significant portion of the personal assets, agricultural land, and liabilities reflected in the balance sheet were inherited or pre-existing from earlier years. The AR further stated that these inherited assets were acquired through non-interest-bearing funds, family arrangements, or earlier non-bo....
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....ments, 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 1650000 2017-18 Abhay Singhvi HUF 750000 Shri Shreyans S. Sanghavi 500000 Total 1250000 12. The assessee furnished Loan confirmations, Bank statements, PAN details and Ledger accounts. Based on ledger accounts and bank statements submitted by the assessee, the AO observed that the loans were advanced via banking channels (cheques) but significant cash deposi....
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.... 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 extracts to establish the identity, genuineness, and creditworthiness of the lenders. It is undisputed that the loans were advanced via banking channels. The primary contention of the AO was the presence of significant cash deposits in the lenders' bank accounts before issuing the cheques. However, the AO failed to substantiate that these cash deposits were linked to the assessee or that the loan....
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....red. 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 acquisition was Rs. 7,29,333/-, while the land was sold for Rs. 1,16,82,000/- (16 times the cost) and such an increase in value necessitated improvements like fencing and "Mati Puran," which were essential for plotting and selling the land. The AR emphasized that the AO failed to verify the invoices, vendors, or transactions under Section 133(6) of the Act or Section 131 of the Act despite having access to all necessary details. Re....
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....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 costs and addressing the Revenue's concerns about incomplete verification. 4. Judicial precedents emphasize proportional disallowance in cases where documentation is partially verifiable. 23.2. The assessee's alternative submission to restrict the disallowance to 5% is considered but given the above reasons and the fact that the assessee himself offered 10% disallowance before CIT(A), a higher disallowance of 10% better reflects the nature of the ....
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....nexplained 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 brother, thus establishing that the donor is a relative within the meaning of Section 56(2)(vii) of the Act. The relationship, which was not disclosed during the assessment, was satisfactorily explained during the appellate proceedings. The additional documents submitted demonstrate that the donor had sufficient cash balance to make the gift, and her creditworthiness stands proved. 29.3. The AO's disallowance was primarily based on the unsigned confirmation and the absence of formal....