WEL INTERTRADE PVT. LTD.,NEW DELHI vs. DCIT, NEW DELHI

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “G”: NEW DELHI BEFORE BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND MS. ASTHA CHANDRA, JUDICIAL MEMBER ITA No. 170/Del/2020 Asstt. Year : 2011-12 WEL Intertrade Private Vs. ACIT, Circle-27(2), Limited, New Delhi. 5,E Local Shopping Centre Masjid Moth, Greater Kailash Part 2, New Delhi – 110 048 PAN AAACW10187F (Appellant) (Respondent)

ITA No. 1460/Del/2017 Asstt. Year : 2012-13

WEL Intertrade Private Vs. DCIT, Circle-27(2), Limited, New Delhi. 5,E Local Shopping Centre Masjid Moth, Greater Kailash Part 2, New Delhi – 110 048 PAN AAACW10187F (Appellant) (Respondent)

Assessee by: Shri C.S. Agarwal, Sr. Advocate Department by: Shri Umesh Takyar, Sr. DR Date of Hearing 31.03.2022 Date of 13.06.2022 pronouncement

O R D E R PER ASTHA CHANDRA, JM

The appeals by the assessee arise out of the orders dated 19.11.2019 and 30.01.2017 passed by the Ld. Commissioner of Income Tax (Appeals)- 15, New Delhi [“CIT(A)-1”] and the Ld. Commissioner of Income Tax

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(Appeals)-10, New Delhi [“CIT(A)-2”] pertaining to the Assessment Years (“AYs”) 2011-12 and 2012-13 respectively. Since both the appeals were consolidated and heard together, these are being disposed off by this common order.

Assessment Year 2011-12 2. The assessee has taken the following grounds of appeal :-

“1. That the learned CIT(A) has erred both on facts and in law in confirming the assessment made u/s 143(3) of the Income Tax Act despite the fact the learned AO had failed to establish that a notice u/s 143(2) of the Act allegedly issued on 13.09.2012 was ever served on the assessee. In fact, the learned CIT(A) went into an error in confirming the order of assessment on the ground that the assessee had attended the assessment proceeding and had not objected to the proceedings before the completion of assessment proceedings, which consideration alone could not have been held as a valid consideration for upholding the assumption of jurisdiction to make an order u/s 143(3) of the Act. 2. That the learned CIT(A) has failed to comprehend that the burden to establish that the notice u/s 143(2) of the Act had been served within the statutory period had to be discharged by the AO and as such in the absence of such a burden having been discharged by the AO, it had to be held that very assumption of jurisdiction to frame an assessment u/s 143(3) of the Act is vitiated in law. The learned CIT(A) ought to have thus held that the order of assessment itself was nullity in law. 3. That the learned CIT(A) has erred both on facts and in law in substantially confirming the order of assessment in having failed to allow even the routine business expenditure incurred by the assessee, despite the fact such an expenditure claimed represented business expenditure and that too without assigning any reason whatsoever. 3.1 That the learned CIT(A) has failed to comprehend that it was even undisputed by the AO that the assessee is engaged in the business and is carrying on such business activities since preceding many years and as such there remained no justification whatsoever not to have allowed the business expenditure incurred by the assessee company. 4. That the learned CIT(A) has further erred in holding that the income earned from Business Centre including reimbursement of expenses, does not constitute business income and is an income assessable under the head ‘income from property’ without appreciating that the assessee had not let out any such house property and the income had been 2

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derived by exploiting a commercial asset and thus represented business income. 5. That the learned CIT(A) has erred in failing to appreciate that the assessee had suffered a business loss of Rs. 87,87,033/- and as such, such loss being business loss ought to have been computed and allowed to be carried forward and set off from the business income. 6. That the learned CIT(A) has also erred both on facts and in law in confirming an aggregate addition made of Rs. 7,45,81,575/- which sum had been included by the AO as an income from undisclosed sources. 6.1 That the learned CIT(A) has erred while confirming the aforesaid sum as an income, had failed to appreciate that the assessee had discharged its initial onus to establish the identity, genuineness of the transaction and the creditworthiness of the creditors and as such the addition sustained by the learned CIT(A) of Rs. 7,45,81,575/- is entirely misconceived. 6.1.1 That the learned CIT(A) has failed to appreciate that the assessee had taken an interest bearing loan of Rs. 5,50,00,000/- from Binaguri Tea Company Pvt. Ltd. which creditor was not an entry provider company. 6.1.2 That the learned CIT(A) has further failed to appreciate that Rs. 12,81,575/- (out of aggregate credit balance of Rs. 5,62,81,575/-) which sum had been included in the credit balance in the account of Binaguri Tea Company Pvt. Ltd. could not have been held to be an unexplained credit and as such without prejudice the said sum could not have been included in the total income of the assessee as unexplained credit, while confirming the addition of Rs. 5,62,81,575/- as an income from undisclosed sources, which sum had separately been disallowed. 6.2 That the learned CIT(A) has further erred in sustaining an addition of Rs. 1,83,00,000/- received by it as advance from Searock Developers Pvt. Ltd. against the sale of property, despite the fact the assessee had discharged its initial onus in establishing the identity, creditworthiness and genuineness of the transaction and as such the addition sustained by the learned CIT(A) is entirely misconceived. 6.2.1 The learned CIT(A) has further failed to appreciate that the additions of Rs. 7,45,81,575/- had been made by the learned AO only on the ground that the creditors had failed to respond to his notice u/s 133(6) of the Income Tax Act, which could not have been held to be any valid and legal basis. 6.2.2 That the learned CIT(A) has further failed to appreciate that it had been admitted by the AO in his order that the source of advance of Rs.

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5,50,00,000/- had been established by the assessee when it had furnished the bank account of the creditor which reflected that the creditor before advancing the loan to the assessee, had received Rs. 5,85,00,000/-, from a source through cheque and not in cash. 6.2.3 That the learned CIT(A) while confirming the addition of Rs. 1,83,00,000/- has failed to comprehend that the basis on which the addition has been made is wholly ingenious and as such the addition made of Rs. 1,83,00,000/- did not deserve to be confirmed instead deserved to have been deleted. 7. That the learned CIT(A) has erred both on facts and in law in confirming the computation of income from property at Rs. 4,51,35,325/- as against the income computed by the AO of Rs. 4,74,18,582/-. In confirming the income as computed by I ' the AO as income from house property, the learned CIT(A) has erred in confirming the findings of the AO that the income derived from Business Centre is an income from property and not from business. That the learned CIT(A) ought to have directed the AO to have reduced the income of Business Centre from the head ‘property’ while computing the income from property, which sum had been included by the AO of Rs. 1,17,76,874/-. 7.1 That the learned CIT(A) has further erred in holding that a sum of Rs. 13,43,161/- received by the assessee from various vendors as reimbursement of expenditure represented income from property; whereas the AO had brought to tax the same under the head “income from other sources”, despite the fact that such income represented business income. 7.2 That the learned CIT(A) has erred both on facts and in law in failing to appreciate that the assessee is engaged in the business and as such the expenditure incurred during the course of business and debited in the profit and loss account, (which had not been held or found either unverifiable or not allowable) ought to have been held as allowable deduction. 7.3 That the learned CIT(A) has thus erred in confirming the aggregate disallowances of Rs. 3,70,35,314/- i.e. (a) Rs. 2,39,73,332/- out of the claim of Bank charges and interest aggregating to Rs. 3,78,70,901/-. He has failed to appreciate that out of the said claim of Rs. 3,78,70,901/- the AO had merely allowed a deduction of Rs. 1,38,97,569/- under the head ‘other sources’ and as such remaining expenditure incurred of Rs. 2,39,73,332/- ought to have been held as an allowable expenditure. (b) Rs. 34,61,513/-, expenditure incurred representing employees cost.

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(c) Rs. 93,63,130/- representing other costs as debited in the Profit & Loss account (i.e. Rs.3,76,74,222/- less Rs. 2,83,11,092/- which sum had not been claimed being provisions made) (d) Rs. 2,37,339/-, representing an amount of depreciation. 7.4 That the learned CIT(A) has failed to appreciate that out of an expenditure debited in the profit and loss account of Rs. 3,76,74,222/- the assessee itself had not claimed a amount of Rs. 2,83,11,092/- representing the provision made for advances, sinking fund, ground rent and property tax and as such he ought to have held that the assessee, to be allowed a deduction of Rs. 93,63,130/-. 7.5 That the learned CIT(A) ought to have directed the AO to allow a deduction of a sum aggregated to Rs. 3,70,35,314/- as an allowable expenditure, while computing its business income. 7.6 That the learned CIT(A) has thus erred in upholding the disallowance of an amount of Rs. 48,73,153/-, and claimed under the head ‘interest’ and the amount of interest paid to M/s Binaguri Tea Company Pvt. Ltd. despite the fact the said sum was debited in the books of accounts under the head “ interest expenses”. He has failed to appreciate that the assessee had borrowed the amount of Rs. 5,50,00,000/- from M/s Binaguri Tea Company Pvt. Ltd. and had been utilised for the purposes of business. 7.7 That the learned CIT(A) has erred in failing to appreciate that the assessee had further claimed a deduction of Rs. 1,90,64,516/- representing an amount of outstanding credit balance in the account of M/s Bell Ceramics Ltd. which sum has been offered as income in the preceding year but had been written off during the year, the write off of an income which had not been realised, ought to have been held as allowable deduction which sum had been debited under the head ‘interest’. 8. That the learned CIT(A) has further erred both on facts and in law in sustaining a disallowance of Rs. 14,745/- by holding that the said disallowance is warranted u/s 14A of the Act despite the fact the exempt income earned by the assessee only aggregated to Rs. 8,027/- and as such disallowance sustained of Rs. 14,745/- as against Rs. 8,027/- is unsustainable. 9. That the learned CIT(A) ought to have directed the AO to set off and carry forward an unabsorbed business loss and as well as carry forward business loss.” 3. The assessee is a private limited company engaged in the business of Consultancy and Real Estate. In the AY 2011-12 the assesee filed its return

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electronically on 30.9.2011 declaring a total negative income of Rs. 87,87,033/- which was processed under section 143(1) of the Income Tax Act, 1961 (the “Act”) and the case was selected for scrutiny.

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5.1 We find substance in the above contention of the assessee and direct the Ld. AO to scrutinise the expenses debited to the P&L Account relatable to the aforesaid business income and allow the same in accordance with law after giving reasonable opportunity of hearing to the assessee.

“...On the basis of submissions made in the AY 2010-11 it has been established that receipt from consultancy & business centre is nothing but in the nature of rent for the premises and connected services, which ought to be taxed as ‘income from house property’...”(para 4.1a) 6.1 The assessee vide letter dated 04.02.2014 replied that it has been receiving such income (Business Centre receipts) since past many years. Though the activity of Business Centre was lying dormant in AY 2008-09 but income from Business Centre is being earned since AY 2002-03 and is being received every year except AY 2008-09. Details of such income earned and assessed were given. The details showed that the Business Centre remained inoperative during AY 2008-09 since some of the occupants who were on lease & licence basis wanted to take the premises on rent. However, it was not found very practical looking to the entirety of the circumstances and looking to the services being rendered earlier by the assessee and lying dormant and unfruitful due to rental arrangement. Therefore, the assessee discontinued the practice of giving the property on rent and restarted the activity on lease & licence basis. It was requested that receipt from Business Centre be assessed as business activity only and not income from house property.

6.2 Regarding receipt by way of reimbursement of expenses, the assessee submitted that it is running a Business Centre in its property in which

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various offices have been provided to different companies on lease & licence basis and the said sum comprises of charges for providing electricity, air conditioner, power back-up and other support services on cost basis based on proportionate super area of business suit to the super area of building. The amount of Rs. 13,43,161/- comprised of electricity and water expenses of Rs. 7,74,232/- and repair and maintenance expenses of Rs. 5,68,929/-.

6.3 The reply of the assessee was not acceptable to the Ld. AO. According to him these income are assessable as ‘income from house property’ as per ratio decidendi in the case of Shambhu Investment [263 ITR 143 & 249 ITR 47] where the Hon’ble Supreme Court confirmed the order of the Hon’ble Calcutta High Court wherein it is held as under :- “Hence, we hold that prime object of the assessee under the said agreement was to let out the portion of the said property to various occupants by giving them additional right of using the furniture and fixtures and other common facilities for which rent was being paid month by month in addition to the security free advance covering the entire cost of the said immovable property. In view of the facts and law discussed above, we hold that the income derived from the said property is an income from property and should be assessed as such.” 6.4 The Ld. AO also observed (page 12 of Assessment Order) that the assessee has itself admitted in its submission made in AY 2010-11 that income from Business Centre is inclusive of cost of fully air condition business-cum-facility in the nature of commercial space and for providing temporary office and other similar charges provided under a specific agreement executed with them.

6.5 According to the Ld. AO in the assessee’s own case for AY 2008-09, the Assessing Officer’s finding that there is no business activity such as to warrant computation of income under the head ‘Income from Business’ has been upheld by the Ld. CIT(A) vide order dated 30.12.2011.

6.6 Finally, the Ld. AO held that income of Rs. 1,17,76,874/- from Business Centre is actually in the nature of rent and is assessed as ‘Income

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from House Property’ and other income of Rs. 13,43,161/- (by way of reimbursement of expenses) is assessed as ‘Income from other sources’.

6.7 On appeal, the Ld. CIT(A)–1 following the appellate orders of his predecessors for AY 2010-11 and 2012-13 held that income earned by the assessee from Business Centre is ‘Income from house property’.

6.7.1 Regarding income of Rs. 13,43,161/- by way of reimbursement of expenses, the assessee contended before the Ld. CIT(A)-1 that the said sum are charges recovered by the assessee from occupants of the building which is being used for Business Centre purposes on account of services rendered. The Ld. CIT(A)–1 held that the said sum should also be assessed under the head ‘Income from house property’.

6.8 Aggrieved, the assessee is before us and ground No. 4 relates thereto.

6.8.1 In written submission filed before the Tribunal it is submitted that the assessee is running a Business Centre at 5E, Local Shopping Centre, Masjid Moth, Greater Kailash II, a premises owned by it. In the course of carrying on such a business activity it provides office space as also the infrastructure such as facilities of security, facility of receptionist etc. During the year the assesee entered into an agreement with three space holders namely, Aten Capital Pvt. Ltd., Eminent Networks Pvt. Ltd. and Country Development & Management Services Pvt. Ltd.

6.8.2 It is stated that income from such activity has been assessed as ‘Business income’ since inception i.e. AY 2002-03 till AY 2015-16 except AYs 2010-11, 2011-12 and 2012-13 when it has been held by the Ld. AO as assessable under the head ‘Income from house property’ which has been upheld by the Ld. CIT(A). It is emphasised that in assessment framed under section 143(3) of the Act for subsequent AY 2013-14 and 2014-15 the Ld. AO has accepted that income derived from Business Centre is Business income. Therefore, the principle of consistency applies as in the preceding and subsequent assessment years the income from Business Centre has

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been assessed as Business income. Reliance is placed on the judgement of the Apex Court in CIT vs. Excel Industries Ltd. (2013) 358 ITR 295 (SC), CIT vs. J.K. Charitable Trust 308 ITR 161 (SC) and CIT vs. Maruti Suzuki India Ltd. 416 ITR 613 (SC).

6.8.3 The contention of the assessee is that it has not let out any property or part thereof, instead it has been allowing the spaces for commercial use by commercially exploiting the property for the purpose of business. Therefore the impugned income from Business Centre is assessable as business income and not as income from house property. In support, reliance is placed on Chennai Properties & Investment Ltd. vs. CIT (2015) 373 ITR 673 (SC); Rayala Corporation (P) Ltd. vs. ACIT (2016) 386 ITR 500 (SC); PCIT vs. Sri Bharathi Warehousing Corporation (2017) 392 ITR 160 (AP).

6.8.4 Likewise, it is submitted that the amount of Rs. 13,43,161/- received by way of reimbursement of expenses forms part of business receipt and had the same character i.e. as income from Business Centre.

6.8.5 It is also a grievance of the assessee that while computing total income of the assessee the Ld. AO did not allow expenditure debited in the P&L Account which has been allowed since inception

6.9 We have given our careful thought to the rival submissions. The intention of the assessee in letting out the property is determinative of the nature of income. Whether a particular letting is business or not has to be decided on the particular circumstances of each case. Each case has to be looked at with a view to find out whether the letting was doing of a business or exploitation of his property as an owner. It is well settled that if an assessee derived any income by exploitation of its commercial assets, whether by itself or through other agencies, such income should normally be considered to be the business income of the assessee. Thus, in order to determine whether rent is assessable as income from property or business income what has to be seen is whether the asset is being exploited 10

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commercially by letting out or whether it is being let out for the purpose of enjoying the rent.

6.9.1 The case of the assessee company has all along been that it has been running the Business Centre since AY 2002-03 in its property known as No. 5-E, Local Shopping Centre, Masjid Moth, Greater Kailash, Part-II, New Delhi. In the course of carrying on such a business activity, the assessee company provides office space as also the infrastructure such as facilities of security, receptionist etc.

6.10 We have perused the Business Centre Agreement (“Agreement”) entered into between the assessee company and three space holder companies appearing at pages 72-90 of the Paper Book. The Agreement mentions that the licensor assessee is owner and in possession of commercial building situated in Greater Kailash-II, New Delhi and that it is authorised to utilise commercial space appx. 1852 sq. ft. located at Mezzanine Floor of the said complex for running Business-cum-Facility Centre therefrom. In pursuance of the same the assessee has set up a fully air conditioned Business-cum-Facility Centre in the said commercial space for providing temporary office and other secretarial services and facilities to different individuals, companies and entities against payment of monthly Licence Fee and other charges to enable them to carry on their business operations within the basic structure and framework of the Business Centre.

6.10.1 In the backdrop of the above factual matrix, we find substance in the submission of the assessee that it was never the intention of the assessee to let out its commercial building for the purpose of enjoying the rent but to commercially exploit the same by letting it out Therefore, income derived therefrom partakes the character of income from business.

6.10.2 During the assessment proceedings it was brought to the notice of the Ld. AO that since inception starting from AY 2002-03 the assessee

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company has been receiving Business Centre income which has duly been assessed as Business income till AY 2007-08. The activity of the Business Centre was dormant in AY 2008-09 for which the assessee furnished explanation. The inability of the assessee to make use of the commercial building in one year will not change its nature. In the following AY 2009-10 Business Centre receipts were taxed as Business income. Except the AYs 2010-11, 2011-12 and 2012-13 Business Centre receipts have again been taxed as Business income in assessments framed under section 143(3) for the AYs 2013-14 and 2014-15. It is thus obvious that income derived from Business Centre has been accepted by the Revenue as Business income in preceding years as well as subsequent assessment years.

6.10.3 We are aware that the principle of estoppel and res-judicata do not apply in income tax proceedings, since each assessment year is a separate unit. However, it is necessary to maintain consistency when the facts are not different. There has been judicial consensus on this issue in the interest of certainty in tax litigation. The assessee has forcefully asserted that in its case there is neither change in facts nor there is any change in the position of law. Therefore, we agree with the submissions of the assessee that in its case, it is expedient to follow the rule of consistency.

6.10.4 We have gone through the decision of Hon’ble Calcutta High Court in CIT vs. Shambhu Investments Pvt. Ltd. 249 ITR 47 (Calcutta). In that case the Hon’ble Calcutta High Court observed that merely because income is attached to any immovable property that cannot be the sole factor for assessment of such income as income from property. What has to be seen is what was the primary object of the assessee while exploiting the property. If it is found applying such test that the main intention is for letting out the property or any portion thereof the same must be considered as rental income or income from property. In case it is found that the main intention is to exploit the immovable property by way of complex commercial activities in that event it must be held as business income.

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6.10.5 These observations of the Hon’ble Calcutta High Court in decision (supra) have been affirmed by the Hon’ble Supreme Court in Shambhu Investments Pvt. Ltd. vs CIT 263 ITR 143(SC). It is interesting to note that in the case before the Hon’ble Calcutta High Court the prime object of the assessee was to let out portion of the property to various occupants by giving them additional right of using the furniture and fixtures and other common facilities for which rent was being paid month by month in addition to the security free advance covering the entire cost of the said immovable property. It was in the back drop of this factual matrix that the Hon’ble Calcutta High Court held that income derived from the said property is income from property. The point to be noted is that in the case before the Hon’ble Calcutta High Court there was no commercial exploitation of the property by the assessee whereas in the case of the assessee before us the prime object of the assessee was not to let out any property or part thereof, instead the assessee had been allowing the spaces for commercial use by commercially exploiting the property for the purpose of business. In such a scenario income derived by commercially exploiting the property is assessable as business income as held in the judgements relied upon by the assessee. In our opinion reliance by the Ld. AO on the decision of Calcutta High Court in Shambhu Investment Pvt. Ltd. (supra), confirmed by the Hon’ble Supreme Court is totally misplaced as in that case there was no commercial exploitation of the property by the assessee.

6.10.6 We, therefore, hold that the income derived by the assessee from running Business Centre amounting in all to Rs. 1,17,76,874/- and income of Rs. 13,43,161/- by way of reimbursement of expense constitute Business income and are assessable as such. The Ld. AO is directed to modify the assessment and carry out necessary consequential amendments. He shall allow the deduction of expenses debited to P&L Account as per law and withdraw the deduction allowed under section 24 of the Act. We order accordingly and allow this ground of the assessee.

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8.1 During assessment proceedings, the assessee filed confirmation from Binaguri Tea Company Pvt. Ltd., Kolkata, W.B. and copy of bank statement. Regarding advances from Searock Developers Pvt. Ltd., Thane, Maharashtra it was submitted that the assessment has no relationship with them and requested the Ld. AO to obtain confirmation directly and furnished full address of the party.

8.2 The Ld, AO issued notice under section 133(6) of the Act to both the parties which remained unanswered. He brought this fact to the notice of the assessee. The assessee then filed copy of acknowledgment of IT Return of Binaguri Tea Company Pvt. Ltd. for AY 2011-12.

8.3 The Ld. AO was not satisfied with the explanation and observed as under :- “i From the Bank statement of Binaguri Tea Co. Pvt. Ltd. with HDFC Bank, Stephen House, Kolkata it is seen that an amount of Rs. 5,50,00,000/- has been sent through RTGS to the assessee company on 28-5-2010. But on 25-5-2010 i.e. just 3 days earlier, there Is a deposit 14

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of Rs. 5,85,00,000/-. Another interesting feature is that prior to these two transactions i.e. before or after the said party’s Bank A/c was in the range of a few lakhs and the next deposit in the said Bank A/c is on 9-6-2010 which is Rs. 10 Lakhs. Besides, from the copy of Return of Income of the said party it is seen that income for FY 2010-11 relevant to A.Y. 2011-12 is NIL. ii The amount of Rs. 1,83,00,000/- is shown to have been received from Searock Developers Pvt. Ltd. for the first time during the year and that too as an advance from customer and even if the assessee’s contention of some dispute is accepted, it is not comprehensible how & why assessee should hold on to the said amount. In fact, in ordinary course whenever there is any dispute the said amount would be returned forthwith.” He, therefore, made impugned addition under section 68 read with section 69A of the Act.

8.4 On appeal, the Ld. CIT(A)-1 discussed this issue in para 4.4 of his appellate order. The assessee submitted before the Ld. CIT(A)-1 that in respect of unsecured loan of Rs. 5,62,85,575/- received from Binaguri Tea Company Pvt. Ltd., it filed before the Ld. AO a confirmation of account from the said company which is an income-tax payee and is assessed at PAN: AABCD1008P. The bank statement of the assessee was also filed from where it is seen that the said company had paid a sum of Rs. 5,50,00,000/- to the assessee company on 28.05.2010 through Banking Channel. Regarding advance received from M/s. Searock Developers Pvt. Ltd. of Rs. 1.83 crore, the submission made before the Ld. AO was reiterated. Accepting the findings of the Ld. AO, the Ld. CIT(A)-1 held that the assessee has not been able to establish the credentials of loan shown from M/s. Binaguri Tea Company and advance received from M/s. Searock Developers Pvt. Ltd. Neither genuineness of transaction nor the creditworthiness of the lender companies, the onus which rested on the assessee has been discharged. He, therefore upheld the impugned additions.

8.5 Aggrieved, the assessee is in appeal before us and ground No. 6 with all its sub-grounds relate thereto.

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8.6 We have carefully considered the rival submissions and perused the material available on records. The impugned addition of unexplained credit of Rs. 7,45,81,575/- has been made under section 68 of the Act which reads as under :- “68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof all the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.” 8.7 In CIT vs. P Mohankala (2007) 161 Taxman 169 (SC), the Hon’ble Supreme Court observed that a bare reading of section 68 suggest that there has to be credit of amounts in the books maintained by the assessee, that such credit has to be of a sum during the previous year, and that the assessee offers no explanation about the nature and source of such credit found in the books or the explanation offered by the assessee, in the opinion of the Assessing Officer, is not satisfactory. It is only then the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The expression ‘the assessee offers no explanation’ means where the assessee offers no proper, reasonable and acceptable explanation as regards the sum found credited in the books maintained by the assessee. It is true that the opinion of the Assessing Officer for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is a sine qua non for forming the opinion.

8.8 The onus of proving the source of a sum of money found to have been received by the assessee is on him as held by the Hon’ble Supreme Court in Kale Khan Mohammad Hanif vs. Commissioner of Income-Tax (1963) 50 ITR 1 (SC) and Roshan Di Hatti vs. CIT (1997) 107 ITR 938 (SC).

8.9 It is also well settled that in the case of cash credit entry it is necessary for the assessee to prove not only the identity of the creditors but

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also to prove the capacity of the creditors to advance the money and the genuineness of the transaction. In C. Kant & Co. vs Commissioner Of Income-Tax (1980) 126 ITR 63 (Cal), the Hon’ble Calcutta High Court held that on whom the onus of proof lies in a particular case is a question of law . But whether the onus has been discharged in a particular case is a question of fact.

8.10 Hon’ble Kolkata High Court observed in the case of S.K. Bothra & Sons (HUF) vs. ITO (2011) 203 TAXMAN 436 (Kol) that the law is settled that if the initial burden is discharged by the assessee by producing sufficient materials in support of the loan transaction, the onus shifts upon the Assessing Officer and after verification, he can call for further explanation from the assessee and in the process, the onus may again shift from the Assessing Officer to the assessee.

8.11 Ahmedabad Bench of the ITAT held in the case of of Claris Lifesciences Ltd. vs. ACIT (2008) 298 ITR (AT) 403 (Ahm) that when the assessee has discharged the primary onus, the Assessing Officer has to rebut it. If this is not done, cash credit cannot be added as unexplained income.

9.1 Binaguri Tea Company Pvt. Ltd.: The assessee’s explanation before the Ld. AO/CIT(A)-1 has been that the assessee has taken an interest bearing loan of Rs. 5,50,00,000/- from Binaguri Tea Co. Pvt. Ltd. during the previous year relevant to AY 2011-12. The assessee filed before the Ld. AO copy of account of the creditor appearing in its books, duly confirmed by the creditor, bearing PAN No.: AABCD1008P (page 93 of the Paper Book). It also filed statement of HDFC Bank account bearing No. 00082000010021 (opened on 30.03.2000) of the creditor reflecting therein that the creditor company had paid a sum of Rs. 5,50,00,000/-on 28.5.2010 (page 94 of Paper Book). Copy of acknowledgement of the return of income filed by the 17

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creditor on 22.09.2011 for AY 2011-12 before ACIT, Circle-4, Kolkata showing therein tax payable Rs. 68,83,685/- and paid Rs. 45,00,000/- by way of advance tax, Rs. 16,47,893/- by way of TDS and Rs. 7,35,792/- by way of self assessment tax (page 95 of the Paper Book).

9.2 The Ld. AO did not consider the explanation of the assessee satisfactory. Firstly, because notice under section 133(6) issued by him was not answered by the creditor. In written submission dated 24.04.2017 filed before the Ld. CIT(A)-1 the assessee stated that it had discharged the onus of proving the nature and source of the impugned credit which lay upon it. Merely because notice under section 133(6) issued to the creditor which was not complied with, the addition is not justified placing reliance on the judgement of the Hon’ble Supreme Court in CIT vs. Orissa Corporation Pvt. Ltd. 159 ITR 78 (SC). In that case the assessee had given the names and addresses of the alleged creditors who were income-tax assessees and their index numbers were on the file of the Revenue. Apart from issuing notices under section 131 at the instance of the assessee, the revenue did not pursue the matter further. In those circumstances, the Hon’ble Supreme Court held that if the Tribunal came to the conclusion that the assessee has discharged the burden which lay on him, then it could not be said that such conclusion was unreasonable or perverse or based on no evidence.

9.3 Secondly, according to the Ld. AO there is deposit of Rs. 5,85,00,000/- on 25.05.2010 just three days earlier in the account of the creditor in HDFC bank. In this regard, the submission of the assessee is that the said deposit is through clearance of a cheque. It is not a deposit in cash.

9.4 Thirdly, as per Ld. AO the account of the creditor reflected few transactions, the submission of the assessee is that the Ld. AO overlooked the fact that the said account was only one of the account and not all (page 274 of the Paper Book).

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9.5 Lastly, the Ld. AO observed that income of the creditor for AY 2011-12 as per return is NIL. The assessee stated that during appellate proceeding the Ld. CIT(A)-1 directed to file further details. In response thereto, the assessee filed written submission dated 09.10.2018 and enclosed therewith Financial Accounts of the creditor company for the year ending 31.03.2011; a copy of ledger account of the creditor in the books of the assessee; list of directors of the creditor company as on 31.03.2011 and list of shareholders of the creditor company with their shareholding. (pages 265–293 of the Paper Book).

9.5.1 It is seen from the P&L Account of the creditor for the year ending 31.03.2011 (page 273 of the Paper Book) that it showed profit from Tea Division of Rs. 11,51,81,845/- as against Rs. 8,96,05,323/- of the preceding year.

9.6 In the backdrop of the above factual matrix and the legal position, we hold that the assessee discharged its onus of proving the identity of the creditor, the capacity of the creditor to advance loan to the assessee and the genuineness of the transaction. The impugned addition does not rest on sound footing. We accordingly delete the addition of Rs. 5,62,81,575/-.

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10.1 Before the Ld. CIT(A)-1, the assessee submitted that since the notice under section 133(6) of the Act was duly served upon the creditor, it is evident that the party was genuine. Only because no reply was received by the Ld. AO, the addition is not correct and cited the judgment of Hon’ble Supreme Court in CIT vs. Orissa Corporation Pvt. Ltd. 159 ITR 78 (SC). It was asserted that the assessee discharged its onus which lay upon it.

10.2 Before us, the assessee submitted that the mere fact that the assesee could not repay the said sum cannot be the basis of the addition. In fact inability of the assessee to refund the amount back to the creditor is the cause of dispute between the assessee and the creditor. Drawing our attention to the ledger account of the creditor for the subsequent year (page 462 of the Paper Book), it is submitted that the assessee had further refunded Rs. 1 lac. It is pointed out that the Ld. AO has not disputed either the creditworthiness or the source of the credit. The assessee has placed on record Financial Account of the creditor for the year ending on 31.03.2011 (page 438-451 of the Paper Book). Profit and Loss Account shows the income of Rs. 39,55,609/- in AY 2011-12 as against income of Rs. 25,33,745/- of the preceding year.

10.3 Having heard the submission of the parties and on careful consideration thereof, we have reached to the conclusion that the assessee has discharged the primary onus which lay upon it. The identity of the creditor, the creditworthiness of the creditor and genuineness of the transaction have been proved by the assessee. In CIT vs. Bedi & Co. Pvt. Ltd. (1998) 230 ITR 580 (SC) , the Hon’ble Supreme Court held that where the explanation offered by the assessee as to the nature and source of credit is prima facie credible, it cannot be rejected on mere surmises. We, therefore, delete the impugned addition of Rs. 1,83,00,000/-. Ground No. 6 and its sub-grounds are decided in favour of the assessee.

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14.1 On appeal, the Ld. CIT(A)-1 dealt with this issue in para 4.5 of his appellate order. Since the Ld. CIT(A)-1 had confirmed the addition of the borrowed sum under section 68, he upheld the disallowance of impugned interest of Rs. 48,73,153/- as well.

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14.2 It is submitted before us that the assessee has been claiming deduction of interest on the amount borrowed by it from M/s. Binaguri Tea Co. Pvt. Ltd. It is further submitted that interest paid by the assessee to the said company on borrowal has not been disputed by the Ld. AO from AY 2013-14 onwards and interest claimed by the assessee has not been disallowed.

14.3 On consideration of the submission of the parties we are of the view that the impugned interest paid on borrowal for the purpose of assessee’s business has to be allowed under section 36(1)(iii) of the Act. We, therefore, direct the AO to allow the interest (inclusive of TDS deposited by the assessee to the credit of the lender) while computing income of the assessee under the head ‘business’. It may not be out of place to mention that the loan obtained by the assessee appearing in its books as credit has been held to be genuine by us. Accordingly, interest on the capital borrowed for the purposes of business is a deductible expenditure. We direct the Ld. AO to modify the assessment.

15.1 The assessee is now before us. It is submitted that the amount of Rs.1,90,64,516/- is interest accrued and offered to tax in the preceding year. Since the said sum could not be recovered from the debtor M/s. Bell Ceramics Ltd. the assessee has written it off during the year in its account. The contention of the assessee is that the write off of an income which has

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not been realised is an allowable deduction which the assessee has claimed. On being asked by the Ld. CIT(A)-1, the assessee submitted before him account of M/s. Bell Ceramics Ltd. in the books of the assessee along with details of amounts paid on loan, interest accrued year-wise, TDS certificate and receipt of interest on loan amount (pages 408-434 of the Paper Book).

15.2 On consideration of the rival submissions, we agree with the contention of the assessee that the impugned sum is allowable as deduction for the reason that the Ld. AO has not disputed that the said sum has been offered as income in the preceding year which has been brought to tax. The writing off of the impugned sum during the year in the accounts of the assessee has also not been disputed by the Ld. AO/CIT(A)-1. We, therefore, decide this ground in favour of the assessee.

Assessment Year 2012-13 19. The original grounds of appeal taken by the assesee have been substituted by the following amended ground of appeal:

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“1. That the learned Commissioner of Income Tax (Appeals), has erred both on facts and in law in holding that the income derived from running of business centre is the income from property and is not the income from business. 2. That the learned CIT(A) ought to have held that the entire expenditure incurred and debited in the Profit & Loss account and claimed by it in the computation of income of Rs. 3,43,32,655/- be allowed, when it has not been disputed that the assessee was engaged in the business. The finding of the learned CIT(A) that the only proportionate expenditure is allowable is erroneous. He has failed to appreciate that once the assessee is engaged in the business, the entire expenditure incurred and debited in the Profit & Loss account which has not been disputed, is an allowable deduction. 3. That in any case and without prejudice, the learned Commissioner of Income Tax (Appeals), has failed to appreciate that as the income earned by it from business centre aggregated to Rs. 1,45,64,364/- is held to be income from property, then statutory deduction u/s 24(a) of the Income Tax Act had to be allowed, and thus the disallowance made of Rs. 25,09,214/- under the head ‘ business income’ was untenable instead CIT(A) ought to have held that a deduction of Rs. 43,69,309/- be allowed to the assessee as a deduction. 4. That the learned Commissioner of Income Tax (Appeals), has erred both on facts and in law in upholding a disallowance of claim of interest of Rs. 57,90,822/- representing expenditure incurred on the amounts of unsecured loan. The CIT(A) has further failed to appreciate that admittedly the assessee had utilized the said sum of loan for the purpose of business and as such there was no justification, not to have allowed the claim of interest paid on the amount so borrowed by it. 5. That the learned Commissioner of Income Tax (Appeals), has further erred in holding that the disallowance by invoking section 14A of the Act could be made to the extent the assessee had earned a dividend of Rs. 8,228/- as against disallowance computed by the assessee at Rs. 968/-. The disallowance sustained in excess of Rs. 968/- was thus untenable. 6. That the learned Commissioner of Income Tax (Appeals), ought to have held that no interest u/s 234B and 234C of the Income Tax Act was leviable on the assessee and thus the interest levied should have been directed to be deleted.”

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deduction under section 36(1)(iii) of the Act in computing income from business. Accordingly, the similar issue raised in AY 2012-13 is decided in favour of the assessee. The Ld. AO is directed to modify the assessment.

Order pronounced in the open court on 13th June, 2022.

sd/- sd/-

(N.K. BILLAIYA) (ASTHA CHANDRA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 13/06/2022 Veena Copy forwarded to - 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi Date of dictation Date on which the typed draft is placed before the dictating Member Date on which the typed draft is placed before the

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Other Member Date on which the approved draft comes to the Sr. PS/PS Date on which the fair order is placed before the Dictating Member for pronouncement Date on which the fair order comes back to the Sr. PS/PS Date on which the final order is uploaded on the website of ITAT Date on which the file goes to the Bench Clerk Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order