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

3. erred in holding that in AY 2015-16, the\ngross receipts of Interest is Rs.7,36,10,235/- and failed to take into\nconsideration that this Interest income was assessed to tax under the\nhead Income from Other Sources and not Business Income and therefore\nthe Interest income earned cannot be referred to as Gross Receipts.\n(iv) The learned CIT(A) failed to take into consideration that the words ‘gross\nreceipts' used in this section 194A, is in relation to business or profession\nand that since in AY. 2015-16, there was no gross receipts from\nbusiness/profession, the proviso to section 194A applies and no tax audit\nor TDS is required to be deducted in AY. 2016-17.\nPage | 3\n \nA.Y. 2016-17\nMulchand Shamji Chheda HUF\nGround No. 3: Applicability of section 44AB\n(v) The learned CIT(A) erred in holding that the Appellant is subject to tax\naudit u/s.44AB. He failed to take into consideration that the Appellant\ndisclosed the Interest income under the head Income from Other\nSources' and was therefore not liable to get his books of accounts\naudited.\n(vi) The Appellant cannot be penalized u/s.271B, merely on account of\nchange of head by the Assessing Officer.\n2. At the outset, it was noticed that the appeal filed was delayed as\nthe appellate order was passed by the ld.CIT(A) on 29.11.2019 while the\nappeal before the Bench was filed on 11.03.2025.In this regard, the\nassessee has submitted that the appeal order was not communicated or\nserved on it for which the assessee wrote a letter dated 12.02.2020 to\nhim regarding delay and sent several emails to NFAC with no\nresponse.It also sent communications to CBDT in this regard and only\non 25.02.2025 the order was made available and the appeal could be\nfiled on and filed appeal on 11.3.3025.Thus,there was no delay on part of\nthe assessee. Relevant copies of above communications were also\nsubmitted. Taking due cognizance of the same and finding sufficient\nreasons attributed the delay, we condone the same and proceed to\ndecide the appeal om merits.\n3. All the grounds of appeal

are connected with the main\ngrievance regarding the treatment given by the AO to the main income\nearned on interest as Business income which the assessee treated as\nIncome from Other Sources. Rest of the grounds are inextricably linked\nto above finding of the AO. Therefore, all the grounds of appeal are\nbeing considered together.\n4. Facts of the case are that the assessee HUF declared income\nof Rs 5,51,840/-, mainly comprising of Interest income disclosed under\nthe head 'Income from Other Sources'. The AO after examining the facts\nof the case opined that the assessee was into the business of Finance\nprovider akin to a moneylender considering the facts that it was engaged\nin this activity exclusively as apparent from the fact that it lent money to\nvarious parties on which it earned interest income.For the purposes of\ngiving loan, it made borrowing from the private sources. Unsecured\nLoan taken as on 31.03.2016 was Rs 115.17 cr. and Loan given amounted\nto Rs 114.17 cr. It was also noted that, it paid interest and brokerage of\nRs 15.11cr. in aggregate comprising of interest of Rs 14.87 cr. and Rs\n24,53,510/-as brokerage.\n4.1 It was also observed that the assessee had taken loans from\n379 parties of Rs 115.17 cr.at various rates of interest from the market\nand paid loan to 26 parties at various rates of interest.In the month of\nApril 2015 alone, it had done as many as 110 loan transactions. Further\nno TDS was deducted on the interest paid. The AO was of the opinion\nPage | 4\n \nA.Y. 2016-17\nMulchand Shamji Chheda HUF\nthat the assessee was engaged in such activity continuously for past\nseveral years in a systematic manner which were the attributes of\nBusiness income.\n4.2 The assessee in response to show cause notice issued in\nthis\nregard to tax the interest income as income from Business and\nProfession, contented that in a similar case of his own family concern\ni.e. Arvind Cheda, such activity was held to be Income from Other\nSources by the ITAT, Mumbai in ITA No.3421/Mum.2013 dated\n6.6.2013.\n4.3 The AO concluded that the assessee was not doing any other\nactivity than that of money lending and the purpose of borrowing was\nonly to earn interest. The assessee was not showing the interest income\nas Business income but as ‘Other sources' only to avoid tax audit and to\nTDS liability. He relied on the hon'ble Supreme Court decision in Sole\nTristeee Loka Shikshana Trust 101 ITR 235. He also placed reliance on\nthe decision of hon'ble Delhi High Court in Smt. Gulab Sundari Bapna\n79 ITD 455 wherein, considering such systematic activity of money\nlending even in the absence of money lending licence, the income was\nheld liable to be treated as Business income. Accordingly, the AO\ntreated the impugned income as business income,also disallowed the\ninterest paid u/s40(a)(ia) of the Act on account of non deduction of TDS\non the interest paid and also initiated penalty proceedings u/s 44AB of\nthe Act for its failure to get the books of account since the gross business\nturnover exceeded Rs 1 cr.\n5. Aggrieved, the assessee preferred appeal before the\nld.CIT(A) and argued against AO's finding. The assessee reiterated the\nsubmissions made before the AO during the assessment proceedings\nand asserted that for several years in the past and till date,it had been\noffering the interest income under the head income from Other Sources\nin the income tax returns filed. Further, to support his submission and\ncontention, the Ld.AR made reference to the order dated 15.06.2016 of\nthe ITAT, Mumbai 'A' Bench in the case of Shri Arvind S. Chheda\n(brother of the appellant) wherein it is held that interest income be\nassessed under the head income from Other Sources.\n5.1 The ld.CIT(A) observed that on perusal of the return of\nincome, computation of total income and the financial statements for\nthe year ended on 31.03.2016 that the assessee earned interest income\nby borrowing loans which amounted to Rs.115,71,22,466/- from 379\nparties claiming it be its sole activity carried out during the impugned\n assessment year. The loans given amounted to Rs.114,17,14,742/-. It\nPage | 5\n \nA.Y. 2016-17\nMulchand Shamji Chheda HUF\nPage | 6\nITA No. 1700/Mum/2025\nA.Y. 2016-17\nMulchand Shamji Chheda HUF\nclaimed expenses on account of interest paid and brokerage paid for\nidentifying loan lenders from the market. An analysis of the above\ndemonstrated that the activity of the assessee had main features of\nbusiness activity. The activity of borrowing loans and lending loans\nimplies real, substantial and systematic organized course of activity with\na profit motive. Interest, generated from such an activity, was business\nIncome. He also noted that the interest income being subject to tax\nunder the head income from Other Sources in the preceding assessment\nyears, the same should be assessed to tax as income from Other Sources\nin the impugned assessment year as the principle of res-judicata is not\napplicable to Income Tax proceedings as each assessment year is\ndistinct. In the case of Distributors (Baroda) Pvt. Ltd. vs. Union of India\nand two Others in W.P.No.2043 of 1981, the Hon'ble Supreme Court in\nits order dated 01.07.1985 observed that \"to perpetuate an error is no\nheroism. To rectify it is the compulsion of judicial conscience......... we are\ntherefore unable to accept Revenue's contention that a considered opinion\nexpressed by the Tribunal, after applying its mind to an issue in appeal,\ncannot be unsettled even if the mistake in the process of reasoning is a simple\nmistake apparent from record on which no two views are possible.\"\n5.2 He went on to state that the citation in the case of Arvind\nChheda(supra) was distinguishable from the facts of the instant case. In\nthe cited case Shri Arvind S. Chheda, had taken unsecured loans and\nutilized these loans for capital contribution in the Partnership firm in he\nwas a partner whereas in the instant case the assessee had taken loans\nand invested the same only with the motive to earn interest income.\nAccordingly, he upheld the finding and decision of the AO the interest\nincome was liable to be assessed under the head Income from Other\nSources.\n5.3 In respect of disallowance of interest expenses u/s.40(a)(ia)\nfor Rs.3,79,06,957/-, being 30 percent of total interest paid of Rs.\n13,23,56,523/- ignoring the provisions of section 194A(1) of the Act, he\nobserved that the AO was of the opinion that the interest income earned\nby the assessee was business income and it ought to have deducted the\nTDS on interest. The ld.AR. emphatically stressed on the point that in\nthe past, in all the scrutiny assessments, AO had accepted the interest\nincome as income from Other Sources as disclosed in the computation of\nincome. Thus, mere change in the opinion in this regard was not\npermissible in view of Supreme Court decision in the case of\nRadhasaomi Satsang, the hon'ble Supreme Court has held that the\nprinciple of consistency has to be followed.\nPage | 7\nITA No. 1700/Mum/2025\nA.Y. 2016-17\nMulchand Shamji Chheda HUF\nPage | 8\nITA No. 1700/Mum/2025\nA.Y. 2016-17\nMulchand Shamji Chheda HUF\n5.4 Further, it was contended before him that u/s.194A(1) of\nthe Act, the assessee was not required to deduct tax at source on the\npayment of interest which he had paid since in the immediately\npreceding financial year, the assessee was not covered u/s.44AB of the\nAct. Hence, Sec. 194A of the Act was wrongly applied. In nutshell, the It\nwas submitted that the liability to deduct the tax at source arises only\nwhen Tax audit is carried out by the assessee in the second year and\nsubsequent years. The appellant, in view of past practice could not have\nanticipated that in the assessment proceedings of A.Y.2016-17, the AO\nwould take a different view and violate the principle of consistency.\nHence,it was under no obligation to either carry out tax audit or deduct\nthe TDS under the law.\n5.5 The ld.CIT(A) noted that as per the financial statements of\nFinancial Year 2014-15, immediately preceding the Financial Year 2015-\n16,the gross receipts of interest wasRs.7,36,10,235/-. Hence, the above\nproviso to section 194A was not applicable to the case of assessee since\nthe gross receipts in the Financial Year 2014-15, was more than Rs.1\ncr.As stipulated in section 44AB of the Act. Therefore, in the given facts\nand circumstances with reference to section 194A and 44AB of the Act,\nthe assessee could not take shelter of the above proviso for non-\ndeduction of tax on the interest payments which exceeded Rs.1 cr. made\nin the instant assessment year. Taking into consideration the entire facts\nof the case, he concurred with the stand taken by the AO that the\nprovisions of section 40(a)(ia) of the Act were attracted. Therefore, the\naddition made in accordance with the provisions of section 40(a)(ia) in\nthe assessment order was sustained.\n6. In the course of hearing before us, the ld.AR vehemently\nargued that action of the AO was not justified as the assessee was\nfollowing the same treatment for last several years which was also being\naccepted by the revenue.Therefore,in terms of the principles of\nconsistency, the stand of the assessee needed to be accepted as facts and\nthe circumstances of the case remaining the same. He placed reliance on\ncertain decision in the cases of Yamini Khandelwal 142 taxmann.com\n529(Kol), Arihant Developers ITA 3395 /Mum/2024 and Radhosaomi\nSatsang

1. 60. Taxman 248(SC).Per contra the ld.DR placed reliance on the\ncase of Shambhu Investment P.Ltd 249ITR 47(Cal).\n7. We have carefully considered all the relevant facts of the case,\nheard rival submissions and perused the records. The moot point in the\ninstant appeal revolves around the treatment given to the interest\nearning activity as business income by the AO while claim of the\nassessee being ‘Other sources'. Receipts of the assessee and the expenses\nclaimed need to be examined accordingly to find out the exact nature of\nthe receipts and expenses. It is undisputed fact that the only source of\nincome of the assessee is from interest earned on Unsecured loans\nadvanced to several parities after arranging loans at lower rates of\ninterest from the market and to advance such loans to the borrowers at\nhigh rates.The expenses in the form interest paid are set off against the\nreceipts and the balance are disclosed as income.Since the provisions of\nTDS did not apply to the assessee being HUF, no TDS was made by the\nassessee. Also, no audit of the account was required as per law u/s 44AB\nof the Act with turnover less than the threshold limit.\n7.1 The meaning of the 'Business' has been defined in section\n2(13) of the Act. According to this definition, business includes any\ntrade, commerce or manufacture or any adventure or concern in the\nnature of trade, commerce or manufacture. The concept of business\npresupposes the carrying on of any activity for profit. The definition of\n\"business\" is an inclusive one. It includes \"business\" in its general\ncommercial sense but also several other activities, namely- trade,\ncommerce, manufacture and any adventure in the nature of trade,\ncommerce or manufacture. Business, trade and commerce refer to\nPage | 9\n \nA.Y. 2016-17\nMulchand Shamji Chheda HUF\nPage | 10\n \nA.Y. 2016-17\nMulchand Shamji Chheda HUF\nPage | 11\nITA No. 1700/Mum/2025\nA.Y. 2016-17\nMulchand Shamji Chheda HUF\nbuying and selling of goods orservices for profit and other incidental\nactivities. Thus, business is any activity carried out with the intention to\nearn profit, whether such an activity is continuous or temporary is\nimmaterial. In considering the question whether the activity was a\nbusiness activity or not, would depend upon the dominant intention of\nthe assessee and the actual activity carried on by the assessee as held by\nthe hon'ble Madra High Court in the case of Mrs. Kamala Muthia vs.\nCIT (2003) 175 Taxation 581 (Mad.). According to the 'Shorter\nOxford Dictionary”, “business” includes a state occupation, profession or\ntrade; profession in a wide sense means any calling or occupation by\nwhich a person habitually earns his living. Even so, “trade” is explained\nas the practice of some occupation, business or profession habitually\ncarried on. The hon'ble Supreme Court in Narain Swadeshi Weaving\nMills vs. Commissioner of Excess Profits Tax (1954)