MULCHAND SHAMJI CHHEDA HUF ,MUMBAI vs. INCOME TAX OFFICER -26(2)(3), MUMBAI

IN THE INCOME-TAX APPELLATE TRIBUNAL “D” BENCH,
MUMBAI
BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER
&
SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER
Mulchand Shamji
Chheda HUF
Ground Floor, 16/76, Next to Hotel Bawa Regency,
Gokuldas
Pasta
Road,
Dadar(East),
Mumbai
–
400 014, Maharashtra v/s.
बनाम
Income Tax Officer – 26(2)(3)
Pratyakshakar
Bhavan,
C-11,
Bandra Kurla Complex, Bandra
(East),
Mumbai
–
400051,
Maharashtra
स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AAAHH2523M
Appellant/अपीलार्थी
..
Respondent/प्रतिवादी

Appellant by Shri K. Gopal, Adv.
Respondent by Shri Annavaran Kosuri, (Sr. DR)

Date of Hearing
30.09.2025
Date of Pronouncement
17.12.2025

आदेश / O R D E R

PER PRABHASH SHANKAR [A.M.] :-

The present appeal arising from the appellate order dated
29.11.2019 is filed by the assessee against the order passed by the Learned
Commissioner of Income-tax
(Appeals)-38,
Mumbai
[hereinafter referred to as “CIT(A)”] pertaining to assessment order passed u/s. 143(3) of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 30.12.2018 for the Assessment Year [A.Y.] 2016-17. P a g e | 2
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Mulchand Shamji Chheda HUF

Ground No. 2: Disallowance of Rs. 3,79,06,957/-u/s. 40(a)(ia)
4. Without prejudice to what is stated above, the learned CIT(A) erred in making disallowance u/s. 40(a)(ia) of Rs. 3,79,06,957/- (being 30% of the Interest paid of Rs. 13,23,56,523/-) on the ground that the deduction u/s.
194A has not been complied with.
5. Non-Applicability of TDS provisions:
(i) The learned CIT(A) failed to take into consideration that as per the Proviso to section 194A, the Assessee is not required to deduct any TDS u/s. 194A for AY. 2016-17, since the total sales/gross receipts from business of profession, in the financial year immediately preceding the financial year (ie. AY. 2015-16), in which such interest is credited or paid, exceeds Rs. 1,00,00,000/- (as specified in section 44AB).
(ii) In other words, since the Business Income in AY. 2015-16, did not exceed
Rs. 1,00,00,000/-, the provisions of section 194A are not applicable in AY. 2016-17 and the disallowance u/s. 40(a)(ia) cannot be made.
(iii) The learned CIT(A) in Para 7.2.3. erred in holding that in AY 2015-16, the gross receipts of Interest is Rs. 7,36,10,235/- and failed to take into consideration that this Interest income was assessed to tax under the head Income from Other Sources and not Business Income and therefore the Interest income earned cannot be referred to as Gross Receipts.
(iv) The learned CIT(A) failed to take into consideration that the words ‘gross receipts’ used in this section 194A, is in relation to business or profession and that since in AY. 2015-16, there was no gross receipts from business/profession, the proviso to section 194A applies and no tax audit or TDS is required to be deducted in AY. 2016-17. P a g e | 3
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Mulchand Shamji Chheda HUF

Ground No. 3: Applicability of section 44AB
(v) The learned CIT(A) erred in holding that the Appellant is subject to tax audit u/s. 44AB. He failed to take into consideration that the Appellant disclosed the Interest income under the head ‘Income from Other
Sources’ and was therefore not liable to get his books of accounts audited.
(vi) The Appellant cannot be penalized u/s. 271B, merely on account of change of head by the Assessing Officer.
2. At the outset, it was noticed that the appeal filed was delayed as the appellate order was passed by the ld.CIT(A) on 29.11.2019 while the appeal before the Bench was filed on 11.03.2025.In this regard, the assessee has submitted that the appeal order was not communicated or served on it for which the assessee wrote a letter dated 12.02.2020 to him regarding delay and sent several emails to NFAC with no response.It also sent communications to CBDT in this regard and only on 25.02.2025 the order was made available and the appeal could be filed on and filed appeal on 11.3.3025.Thus,there was no delay on part of the assessee. Relevant copies of above communications were also submitted. Taking due cognizance of the same and finding sufficient reasons attributed the delay, we condone the same and proceed to decide the appeal om merits.
3. All the grounds of appeal are connected with the main grievance regarding the treatment given by the AO to the main income earned on interest as Business income which the assessee treated as P a g e | 4
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Income from Other Sources. Rest of the grounds are inextricably linked to above finding of the AO. Therefore, all the grounds of appeal are being considered together.
4. Facts of the case are that the assessee HUF declared income of Rs 5,51,840/-, mainly comprising of Interest income disclosed under the head ‘Income from Other Sources’. The AO after examining the facts of the case opined that the assessee was into the business of Finance provider akin to a moneylender considering the facts that it was engaged in this activity exclusively as apparent from the fact that it lent money to various parties on which it earned interest income.For the purposes of giving loan, it made borrowing from the private sources. Unsecured
Loan taken as on 31.03.2016 was Rs 115.17 cr. and Loan given amounted to Rs 114.17 cr. It was also noted that, it paid interest and brokerage of Rs 15.11cr. in aggregate comprising of interest of Rs 14.87 cr. and Rs
24,53,510/-as brokerage.
4.1 It was also observed that the assessee had taken loans from 379 parties of Rs 115.17 cr.at various rates of interest from the market and paid loan to 26 parties at various rates of interest.In the month of April 2015 alone, it had done as many as 110 loan transactions. Further no TDS was deducted on the interest paid. The AO was of the opinion

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Mulchand Shamji Chheda HUF that the assessee was engaged in such activity continuously for past several years in a systematic manner which were the attributes of Business income.
4.2 The assessee in response to show cause notice issued in this regard to tax the interest income as income from Business and Profession, contented that in a similar case of his own family concern i.e. Arvind Cheda, such activity was held to be Income from Other
Sources by the ITAT, Mumbai in ITA No.3421/Mum.2013 dated
6.6.2013. 4.3 The AO concluded that the assessee was not doing any other activity than that of money lending and the purpose of borrowing was only to earn interest. The assessee was not showing the interest income as Business income but as ‘Other sources’ only to avoid tax audit and to TDS liability.He relied on the hon’ble Supreme Court decision in Sole
Tristeee Loka Shikshana Trust 101 ITR 235.He also placed reliance on the decision of hon’ble Delhi High Court in Smt. Gulab Sundari Bapna
79 ITD 455 wherein, considering such systematic activity of money lending even in the absence of money lending licence, the income was held liable to be treated as Business income. Accordingly, the AO treated the impugned income as business income,also disallowed the P a g e | 6
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Mulchand Shamji Chheda HUF interest paid u/s40(a)(ia) of the Act on account of non deduction of TDS on the interest paid and also initiated penalty proceedings u/s 44AB of the Act for its failure to get the books of account since the gross business turnover exceeded Rs 1 cr.
5. Aggrieved, the assessee preferred appeal before the ld.CIT(A) and argued against AO’s finding. The assessee reiterated the submissions made before the AO during the assessment proceedings and asserted that for several years in the past and till date,it had been offering the interest income under the head income from Other Sources in the income tax returns filed. Further, to support his submission and contention, the Ld.AR made reference to the order dated 15.06.2016 of the ITAT, Mumbai ‘A’ Bench in the case of Shri Arvind S. Chheda
(brother of the appellant) wherein it is held that interest income be assessed under the head income from Other Sources.
5.1 The ld.CIT(A) observed that on perusal of the return of income, computation of total income and the financial statements for the year ended on 31.03.2016 that the assessee earned interest income by borrowing loans which amounted to Rs. 115,71,22,466/- from 379
parties claiming it be its sole activity carried out during the impugned assessment year. The loans given amounted to Rs. 114,17,14,742/-. It P a g e | 7
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Mulchand Shamji Chheda HUF claimed expenses on account of interest paid and brokerage paid for identifying loan lenders from the market. An analysis of the above demonstrated that the activity of the assessee had main features of business activity. The activity of borrowing loans and lending loans implies real, substantial and systematic organized course of activity with a profit motive. Interest, generated from such an activity, was business
Income. He also noted that the interest income being subject to tax under the head income from Other Sources in the preceding assessment years, the same should be assessed to tax as income from Other Sources in the impugned assessment year as the principle of res-judicata is not applicable to Income Tax proceedings as each assessment year is distinct. In the case of Distributors (Baroda) Pvt. Ltd. vs. Union of India and two Others in W.P.No.2043 of 1981, the Hon’ble Supreme Court in its order dated 01.07.1985 observed that "to perpetuate an error is no heroism. To rectify it is the compulsion of judicial conscience......... we are therefore unable to accept Revenue’s contention that a considered opinion expressed by the Tribunal, after applying its mind to an issue in appeal, cannot be unsettled even if the mistake in the process of reasoning is a simple mistake apparent from record on which no two views are possible."
5.2 He went on to state that the citation in the case of Arvind
Chheda(supra) was distinguishable from the facts of the instant case. In P a g e | 8
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Mulchand Shamji Chheda HUF the cited case Shri Arvind S. Chheda, had taken unsecured loans and utilized these loans for capital contribution in the Partnership firm in he was a partner whereas in the instant case the assessee had taken loans and invested the same only with the motive to earn interest income.
Accordingly, he upheld the finding and decision of the AO the interest income was liable to be assessed under the head Income from Other
Sources.
5.3
In respect of disallowance of interest expenses u/s.40(a)(ia) for Rs.3,79,06,957/-, being 30 percent of total interest paid of Rs.
13,23,56,523/- ignoring the provisions of section 194A(1) of the Act, he observed that the AO was of the opinion that the interest income earned by the assessee was business income and it ought to have deducted the TDS on interest. The ld.AR. emphatically stressed on the point that in the past, in all the scrutiny assessments, AO had accepted the interest income as income from Other Sources as disclosed in the computation of income. Thus, mere change in the opinion in this regard was not permissible in view of Supreme Court decision in the case of Radhasaomi Satsang, the hon’ble Supreme Court has held that the principle of consistency has to be followed.

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Mulchand Shamji Chheda HUF deduction of tax on the interest payments which exceeded Rs.1 cr. made in the instant assessment year. Taking into consideration the entire facts of the case, he concurred with the stand taken by the AO that the provisions of section 40(a)(ia) of the Act were attracted. Therefore, the addition made in accordance with the provisions of section 40(a)(ia) in the assessment order was sustained.

Mulchand Shamji Chheda HUF assessee being ‘Other sources’. Receipts of the assessee and the expenses claimed need to be examined accordingly to find out the exact nature of the receipts and expenses. It is undisputed fact that the only source of income of the assessee is from interest earned on Unsecured loans advanced to several parities after arranging loans at lower rates of interest from the market and to advance such loans to the borrowers at high rates.The expenses in the form interest paid are set off against the receipts and the balance are disclosed as income.Since the provisions of TDS did not apply to the assessee being HUF, no TDS was made by the assessee. Also, no audit of the account was required as per law u/s 44AB of the Act with turnover less than the threshold limit.
7.1 The meaning of the ‘Business’ has been defined in section 2(13) of the Act. According to this definition, business includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. The concept of business presupposes the carrying on of any activity for profit. The definition of “business” is an inclusive one. It includes “business” in its general commercial sense but also several other activities, namely- trade, commerce, manufacture and any adventure in the nature of trade, commerce or manufacture. Business, trade and commerce refer to P a g e | 12
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Mulchand Shamji Chheda HUF buying and selling of goods orservices for profit and other incidental activities. Thus, business is any activity carried out with the intention to earn profit, whether such an activity is continuous or temporary is immaterial. In considering the question whether the activity was a business activity or not, would depend upon the dominant intention of the assessee and the actual activity carried on by the assessee as held by the hon’ble Madra High Court in the case of Mrs. Kamala Muthia vs.
CIT (2003) 175 Taxation 581 (Mad.). According to the ‘Shorter
Oxford Dictionary’, “business” includes a state occupation, profession or trade; profession in a wide sense means any calling or occupation by which a person habitually earns his living. Even so, “trade” is explained as the practice of some occupation, business or profession habitually carried on. The hon’ble Supreme Court in Narain Swadeshi Weaving
765 (SC), said that the word “business” connotes some real, substantial and systematic or organised course of activity or conduct with a set purpose. Sri Venkatarama Aiyar J., speaking for the court in Mazagaon Dock Ltd. vs. CIT (1958) 34 ITR 368 at page 376
(SC), explained “business” as a word of wide import and in fiscal statutes, it must be construed in a broad rather than a restricted sense.
The hon’ble Supreme Court in Lakshminarayan Ram Gopal and P a g e | 13
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Son Ltd. vs. Government of Hyderabad (1954) 25 ITR 449 at page 459 held: “The activities which constitute carrying on business need not necessarily consist of activities by way of trade, commerce or manufacture of activities in the exercise of a profession or vocation.
They may even consist of rendering services to others which services may be of a variegated character.” The Act has provided an inclusive definition of the word “business” capable of wide application but it is certain that activities mentioned in the definition itself indicate the nature of term “business”.
7.2 Business is any economic activity that includes the purchase or sale of goods or services with the basic objective of earning profit and satisfying the individuals' needs of the society. An activity will be considered as a business if it takes place on a regular basis. The main objective of any business is to earn profit. No business can survive only on the sale and purchase of goods and services without making profits.
Therefore, the efforts of a businessman are always directed towards earning more and more profits.The environment in which a business operates is quite uncertain. Therefore, no matter how much money is invested in a business, one cannot say for sure how much profit the business will earn in a specific time period. Hence, the chances of losses are also present in a business. Uncertain business environment and P a g e | 14
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Mulchand Shamji Chheda HUF different natural, human, social, economical, political, financial, or personal factors exist in every business that exposes them to certain risks. Therefore, a business has to consider these elements of risks while performing activities. Profit is the amount of a business's revenue over expenditure. Profit earning is the prime motive of every organization as it ensures the survival and growth of the business.
7.3 Seen in the light of the discussion above, we find that assessee’s case satisfies all the ingredient of a business activity since earning of interest being the main activity of the assessee is being carried out in a systematic manner since long and comprises of elements of profit motive being the dominant factor and has all the linked elements of risk involved in such acivities. The assessee in a systematic manner raises Unsecured loans from the market in large volumes at varied rates of interest from private market,lends such unsecured loan to various parties with attended risk as the loans are unsecured. He has engaged the services of Brokers for this purposes and has incurred substantial sum on it. Accordingly, we do not find any infirmity in the action of the AO and duly upheld by the appellate authority.
7.4 In so far as the rule of consistently being claimed by the ld.AR, we do not subscribe to this the contention merely for the fact that similar claim have been allowed in earlier assessment years. The P a g e | 15
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Mulchand Shamji Chheda HUF ld.CIT(A) has rightly placed reliance on the landmark decision of hon’ble
Supreme Court in Distributors(Baroda)(supra). Accordingly, the conclusion drawn by the AO and endorsed by the ld.CIT(A) is upheld dismissing the grounds of appeal in this regard.
8. As we in the previous para have already held that the interest income was rightly treated as income from Business and Profession, we further hold that the assessee was liable to make deduction of TDS on the interest paid as debited to the profit and loss account. Having not done so, the deduction of such interest paid was rightly disallowed u/s 40(a)(ia) of the Act. Further, the business receipts exceeding Rs 1 cr. the assessee was rightly held liable to get the accounts audited in terms of section 44AB of the Act. Accordingly, the grounds of appeal in this regard are also dismissed.

Place: म ुंबई/Mumbai
ददनाुंक /Date 17.12.2025
Lubhna Shaikh / Steno

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आदेश की प्रयियलयि अग्रेयिि/Copy of the Order forwarded to :
1. अपीलार्थी / The Appellant
2. प्रत्यर्थी / The Respondent.
3. आयकर आयुक्त / CIT
4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT,
Mumbai
5. गार्ड फाईल / Guard file.

सत्यावपि प्रवि ////
आदेशानुसार/ BY ORDER,

उि/सहायक िंजीकार (Dy./Asstt.