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Income Tax Appellate Tribunal, PUNE BENCH “SMC”, PUNE
Before: SHRI D. KARUNAKARA RAO, AM
ORDER
PER D. KARUNAKARA RAO, AM:
This appeal is filed by the assessee against the order of CIT(A)-11, Pune dated 23.09.2019 for the Assessment Year 2010-11.
The grounds raised by the assessee are as under :- “On the facts and circumstances of the case and in law the learned ‘CIT(A)’ 1. erred in applying the provisions of section 14A read with Rule 8D and disallowance of Rs.1,07,993/- without having regard to the nature of investments and expenditure incurred. And further erred in not considering the Appellant’s contention that disallowance should be restricted to 0.50% of average investment on which dividend income is received which is computed at Rs.6,000/-. 2. erred in treating the income declared amounting to Rs.38,25,000/- in the statement U/s 132(4), under the head “Income from Other Source” as against the Appellant Company’s contention that the same was chargeable under the head “Profits and Gains from Business or Profession” without appreciating the fact that cash payment has nexus towards land and building which are the business assets.
The appellant craves leave to add, alter and withdraw any ground of appeal at the time of appeal hearing.”
3. Briefly stated the relevant facts include that the assessee is a company and is engaged in the business of finance and investment. Assessee belongs to ‘Serum Group’ of companies. The assessee filed the return of income declaring loss of Rs.3,66,911/-. A search action was carried out in this Serum Group. During the search action, some incriminating documents were found and the bundle no.7 contains the papers relating to the purchase of land. On verification of the same, the Assessing Officer found that the said incriminating documents relating to purchase of land by the assessee was executed on 29.01.2010. The Assessing Officer noted that Rs.38,25,000/- was paid by the assessee in cash to one Shri Jayprakash Ghule and the same was not reflected in the books of account.
4. On these facts, the Assessing Officer reopened the assessment u/s 147 of the Act by issuing notice u/s 148 of the Act. In response to the said notice, the assessee filed the revised return of income declaring total income of Rs.22,73,544/-. The assessee declared the additional income on account of payment made in cash for purchase of land of Rs.38,25,000/- as ‘business income’. The Assessing Officer completed the reassessment u/s 147 r.w.s. 143(3) of the Act and assessed the total income of Rs.34,06,058/- after making certain additions i.e. (i) disallowance of expenditure of Rs.1,07,993/- u/s 14A of the Act and (ii) another disallowance of brought forward business losses of Rs.10,24,521/-. The CIT(A) upheld the action of the Assessing Officer and dismissed the appeal of the assessee.
5. Aggrieved with the said decision of the CIT(A), the assessee is in appeal before the Tribunal with the grounds extracted above.
6. After hearing both the sides, I find it is the case of the assessee that an amount of Rs.38,25,000/- was surrendered as a part of the gross disclosure during the search action u/s 132 of the Act on 21.06.2011 on Serum group of company. The present assessee belongs to said group of cases. In response to the said surrendered of undisclosed income, in view of the incriminating paper, a sum of Rs.38,25,000/- is offered and included in the return of income filed by the assessee for the assessment year 2010- 11. Referring to the revised computation of income which is placed at page 17 of the Paper Book, ld. Counsel for the assessee brought our attention to the same and read out that Item No.4 reflects the income from the business disclosed u/s 132 of the Act amounting to Rs.38,25,000/-. Explaining the same, ld. Counsel mentioned that Rs.38,25,000/- was offered as a ‘business income’ of the assessee. However, in the reassessment, the said amount of Rs.38,25,000/- was segregated by the Assessing Officer and treated the same as ‘income from other sources’. The Assessing Officer treated the said additional income as “income from other sources” and the provisions of section 69B of the Act were invoked. The said decision of the Assessing Officer has implications when it comes to adjustment of the business profits of the assessee against the brought forward losses of the assessee of the earlier years. Otherwise, the assessee reported the brought forward losses amounting to Rs.10,24,521/-. The relevant lines from the order of the Assessing Officer at page 17 are extracted as under :- “The additional income offered is treated under “income from other sources” and provision of section 69B is squarely applicable. Accordingly, claim of set off of brought forward business loss (excluding depreciation loss) to the tune of Rs.1024521/- was disallowed and added back in the income of assessee. Penalty proceedings u/s 271(1)(c) is initiated separately for concealment of income as the additional income was offered after detection of the same during search and seizure action.”
During the first appellate proceedings, the same issue was agitated vide the ground no.2 arguing that the said amount of Rs.38.25 lakhs constitutes a “business profits” of the assessee. The assessee desires that the claim of the assessee as given in revised computation of income should be accepted and consequential benefit of set off against the brought forward losses should be allowed. However, the CIT(A) rejected the above line of argument of the assessee and affirmed the Assessing Officer’s decision of treating the said undisclosed income/surrendered income as ‘income from other sources’. In the process, the CIT(A) relied on various judicial pronouncements such as (i) Fakir Mohmed Haji Hasan vs. CIT, 247 ITR 290 (Guj-HC); and (ii) ACIT vs. Ratan Industries (P.) Ltd., 143 TTJ 24 (Agra – TM). These decisions are relevant for the proposition that such surrendered income discovered from the search action u/s 133A and section 132 of the Act are required to be taxed as deemed income under the head ‘income from other sources’. No benefit of set off should be allowed against the business losses brought forward by the assessee.
Aggrieved with the above decision of the CIT(A), the assessee is in appeal before the Tribunal with the grounds extracted above. Before the Tribunal 9. Before us, the ld. Counsel for the assessee vehemently argued and prayed for setting aside the orders of the Assessing Officer and the CIT(A). Regarding the additional income of Rs.38,25,000/-, the payment in cash to Shri Jayprakash Ghule for the purchase of land, we find the same has the support of an evidence gathered during the search action. The land transaction and cash transaction is between the assessee and Shri Ghule. We have also examined the contents of page 85 of the Paper Book which is brought our attention by ld. Counsel for the assessee and find the said page is handwritten letter by Vivek Pradhan relating to sale deed for land purchased from Shri Jay Prakash Ghule. The contents of page 85 only shows the cost about the settlement of the disputed property between the parties and the procedure is also for bringing them for signatures and registration etc. The requirement of payment of an amount of cash was also discussed in the said letter. However, there is no whisper about the “sources of income” and the nature of income in the hands of the assessee. Further, no names of companies whatsoever are discussed. The letter contained only the names of the persons involved in the whole transaction of purchase of land. The organization they represent is a matter of imagination. We also examined the ld. AR’s contention that there are exist of diary seized during the search operation. The entry in the said diary supports the assessee’s contention that the amount of Rs.38,25,000/- is of ‘business nature’ and not the ‘income from other sources’. The ld. Counsel for the assessee accepting the strong possibility of the existence of direct nexus to bring that the said cash of Rs.38,25,000/- is a ‘business income’ in the hands of the assessee and Serum group of company. The ld. Counsel fairly mentioned that if the assessee fails to demonstrate the same before the CIT(A), the CIT(A) free to confirm the additions made by the Assessing Officer. In this regard, ld. Counsel prayed for remanding this issue to the file of the CIT(A) for fresh examination with the direction to admit the additional evidences, if any, to be produced before the first appellate authority.
We also considered the contention of the ld. DR for the Revenue, who heavily relied on the orders of the Assessing Officer and the CIT(A). In fact, the CIT(A) confirmed this addition for want of direct nexus which is also highlighted by the ld. DR for the Revenue.
Considering the above contention of both the parties, I am of the opinion that, in the interests of justice, an opportunity should be granted to the assessee. Accordingly, I proceed to remand this issue, raised in ground no.2, to the file of the CIT(A) for fresh adjudication. The CIT(A) shall adjudicate the said issue afresh after entertaining the submissions and additional evidences of the assessee, if any, which is directly connected to this transaction of Rs.38,25,000/- paid in connection with the transaction of purchase of land by Serum group of company. The CIT(A) shall also grant reasonable opportunity of being heard to the assessee in accordance with set principles of natural justice. With these directions, the ground no.2 raised by the assessee in the present appeal is allowed for statistical purposes.
Regarding ground no.1, ld. Counsel argued that the Assessing Officer failed to consider the entire investments as ‘average investment’ including the fact that most of the investments never yielded exempt income by way of dividend income to the assessee in the year under consideration. Referring to page 21 of the Paper Book, ld. Counsel submitted that the same constitutes the written submissions given by the assessee and mentioned that, out of the total investment of Rs.2,16,23,585/-, the dividend was earned of Rs.1,80,000/- in the year under consideration only on account of investments of unlisted securities, where the average investments is Rs.12,00,000/-. Further, referring to the investments in unlisted securities of Rs.2,03,98,858/-, ld. Counsel mentioned that no dividend income is earned by the assessee out of the same. Relying on the order of the Delhi Bench of the Tribunal in the case of ACIT vs. Vireet Investment (P) Ltd., 82 taxmann.com 415 and the decision of the Pune Bench of the Tribunal in the case of Quick Heal Technologies Ltd. vide & 1710/PUN/2017 dated 12.03.2019, ld. Counsel for the assessee submitted that these decisions are relevant for the proposition for computation of the average investments only the dividend yielded investments needs to be considered.
The ld. DR for the Revenue relied on the orders of the Assessing Officer and the CIT(A) on this issue.
On hearing both the sides, we find relevant to extract the contents of the assessee as given at page 21 and 22 of the Paper Book and the same are extracted hereunder :- “2. Investment held by our Company and Income received: Section 14A refers to disallowance of expenses incurred in relation to earning exempt income which does not form part of the total income. Considering the wording of the section, disallowance u/s 14A should be worked out on only those investments on which any exempt income is received during the year. Without prejudice to our contention as per ground 1, if at all disallowance is to be worked out, difference method other than Rule 8D may be applied, if it gives more reasonable and realistic results. It is was the contention of the appellant before the learned A.O. that for computing average investments only those investments are to be considered on which income is received during the year. Disallowance computed by following this contention is Rs.6,000/-. For the sake of simplicity investments made by the appellant company are bifurcated into three categories. Sr. Particulars Average Dividend Disallowable No. Investment Received U/s 14A read with Rule 8D- 0.50% of Avg. Inv. 1 Listed Securities and Income is NIL NIL NIL received 2 Unlisted Securities and Income 2,03,98,585/- 0 - is NOT received 3 Unlisted Securities and income 12,00,000/- 1,80,000/- 6,000/- is received 4 Securities earning taxable 25,000/- 0 0 income Total 2,16,23,585/- 1,80,000/- 6,000/-