VIRENDRA PRATAP ,DELHI vs. ITO, WARD- 61(3), NEW DELHI

PER KULDIP SINGH, JUDICIAL MEMBER :

“1. On the facts and circumstances of the case, the order passed by the learned Assessing Officer (AO) is bad, both in the' eye of law and on facts.

2. On the facts and circumstances of the case, the learned AO has erred both on facts and in law in extending the scope of assessment, inspite of the same having been selected for limited scrutiny.

3. On the facts and circumstances of the case, the learned AO has erred both on facts and in law in making assessment at an income of Rs.89,92,097/- as against income of Rs.9,94,900/- declared by the assessee. 4(i) On the facts and circumstances of the case, the learned AO has erred both on facts and in law in making addition of an amount of Rs.67,60,138/- on account of interest, invoking the provision of Section 40(a)(ia) of the Act. (ii) The learned AO has erred in invoking Section 40(a)(ia) despite the fact that the interest income has not been claimed by the assessee as expenditure and therefore the payment is not exigible to provision of tax deduction at source. (iii) That the provision of Section 40(a)(ia) has been invoked misinterpreting the facts of the case.

(iv) That the Ld. AO has erred both in law and facts of the case in applying proviso to section 44AB treating the interest income as income from profession ignoring the fact that at the most Rs.1139862 can be treated as interest under the head 'income from profession'.

5(i) On the facts and circumstances of the case, the learned AO has erred both on facts and in law in making addition of an amount of Rs.97,200/- being the difference in interest declared by the assessee and as shown in 26AS.

(ii) That the AO has erred in making the addition without taking into consideration the reply and explanation furnished by the assessee. 6(i) On the facts and circumstances of the case, the learned AO has erred both on facts and in law in making addition of an amount of Rs.11,39,862/- on account of undisclosed interest income. (ii) That the addition has been made despite the assessee having disclosed the same in the Profit & Loss Account, which is the basis of income disclosed. (iii) That the addition has been made misinterpreting the facts of the case.

He is Karta of M/s. VP & Sons HUF and partner in VP & Company with 50% share of profit and also looking after investment of M/s. VP & Sons HUF in return of fixed salary and part of receipts. During the year under consideration, assessee claimed payment of interest expenses of Rs.67,60,138/- made to VP & Sons HUF, who being a chartered accountant filed his return of income in his individual capacity and shown gross receipt from business and profession at Rs.4,18,700/- under the head “profession and interest income of Rs.79,00,000/- under the head “other income” in the profit & loss account. Assessing Officer (AO) noticed that since the gross professional receipts of assessee exceeded the threshold limit, he was liable to get his accounts audited under section 44AB of the Act. AO concluded that assessee while making payment of interest expenses of Rs.67,60,138/- to VP & Sons HUF has failed to deduct tax at source u/s 40(a)(ia) of the Act and thereby made disallowance of Rs.67,60,138/-.

GROUNDS NO.1, 2, & 3 6. Grounds No.1, 2 & 3 are general in nature and do not require any adjudication.

GROUND NO.4 7. This ground pertains to addition of Rs.67,60,138/- made by the AO on account of interest by invoking the provisions contained u/a 40(a)(ia) of the Act.

It is also not in dispute that there is a discrepancy in the interest income shown by the assessee to the tune of Rs.79,00,000/- as against actual interest income of Rs.78,69,388/- shown in the Form - 26AS. It is also not in dispute that interest income of Rs.11,39,862/- paid by VP & Sons HUF to the assessee has not been declared by the assessee in its return of income. It is also not in dispute that assessee himself is a chartered accountant and is also Karta of VP & Sons HUF and partner of VP & Company with 50% share of profit but has filed return of income in individual capacity showing gross receipt from business and profession of Rs.4,18,700/- under the head “Profession” and interest income of Rs.79,00,000/- in the other income in the P&L account. It is also not in dispute that assessee is also looking after the investment of M/s. VP & Sons HUF and in return gets a fixed salary and part of the receipts. It is also not in dispute that assessee has made investment of Rs.7,85,00,000/- on which he has received interest to the tune of Rs.79,00,000/-.

“6.13 On the basis of the above discussion the claim of the appellant that the investments belongs to the HUF and not to the appellant deserves to be rejected and the grounds of rejection are summarized below: -  The investment have been made in the name of the appellant and the deductors have deducted the TDS showing the appellant as deductee in his PAN.

 The entire TDS has been claimed by the appellant in the Return of Income. Even the refund arising due to this has been claimed by the appellant in the Return of Income.  No interest payment either by cash or by cheque has been made by the appellant to the HUF and this has not been shown even payable to the HUF in the Return of Income.  Appellant has accepted this fact that only notional payment of interest has been shown in the Return of Income which is against the accounting principal and the provisions of Income Tax Act. The appellant being a Chartered Accountant by profession is fully aware about the Income Tax Laws and accounting system. Despite this, such transactions have been claimed which is not allowable under the Act.  The investments to the tune of Rs.21,85,Ol,767 /- is related to earning of interest income has neither been disclosed in the Return of Income of the appellant nor in the Return of Income of HUF. Even the asset and liability has also not been shown by the appellant in the Return of Income despite the submission made by the appellant that the investment in movable properties are made in the name and PAN of the appellant but the funds were provided and accounted for by the HUF.  HUF has shown only Rs.9,31,116/- as income from other sources in the Return of Income and the appellant could not explain why the entire investment was not shown in the hands of HUF if it belongs to the HUF.  The transactions of the hand written accounts are not supported by the Return of Income filed either the appellant or the HUF.  By such device, interest income which is earned by the appellant and the HUF as per their claim which is of Rs.94,46,241/- was offered for taxation only to the tune of Rs.20,70,978/- (11,39,862 + 9,31,116) by the appellant and the HUF in the Return of Income respectively.  Neither the appellant nor the HUF has claimed any expenditure under section 57(iii) of the Act which has the direct nexus to earn such interest income. Hence, the entire transaction is not genuine and is a colourable device to evade the tax. The Hon'ble Supreme Court in the following cases has held that Tax Authorities should take into account the entire circumstantial evidences produced by the assessee to arrive the correct facts and held that colourable devices cannot be part of tax planning.

In the case of McDowell & Co. 154ITR 148 Hon'ble Supreme Court has held that "So far as the contention that it is open to every one to so arrange his affairs as to reduce the brunt of taxation to the minimum, was concerned, the tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by restoring to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges. Courts are now concerning themselves not merely with the genuineness of a transaction, but with the intended effect of it for fiscal purposes. No one can now get away with a tax avoidance project with the mere statement that there is nothing illegal about it."

In the case of Durga Prasad More 82 ITR 540 Hon'ble Supreme Court has held "8. it is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real party who relies 011 a recital in a deed has to establish the truth of those recitals, other wise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents.

13 …….Science has not yet invented any instrument to test the reliability of the evidence placed before a court or tribunal. Therefore, the courts and Tribunals have to judge the evidence before them by applying the test of human probabilities."

In the case of Sumati Dayal 214 ITR 801 Hon'ble Supreme Court has again given the importance of human probability and held that "The majority opinion after considering surrounding circumstances and applying the test of human probabilities had rightly concluded that the appellant's claim about the amount being her winning from races, was not genuine. It could not be said that the explanation offered by the appellant in respect of the said amounts had been rejected unreasonably and that the finding that the said amounts were income of the appellant from other sources was not based on evidence."

The Hon'ble Punjab and Haryana High Court in the case of Som Nath Maini, 306 ITR 414 has held as under:-

“•••••••••••• That the burden of proving that income is subject to tax is on the Revenue but on the facts, to show that the transaction is genuine, burden is primarily on the assesses. The Assessing Officer is to apply the test of human probabilities for deciding genuineness or otherwise of a particular transaction. Mere leading of evidence that the transaction was genuine, cannot be conclusive. Such evidence is required to be assessed by the Assessing Officer in a reasonable way. Genuineness of the transaction can be rejected even if the assessee leads evidence which is not trustworthy, even if the Department does not lead any evidence on such an issue" .

6.13 In the light of the above, I have no hesitation to hold that entire interest income of Rs.79,00,000/- is to be taxed under the head 'Income from other sources' in the hands of the appellant which is claimed by the appellant as business income in the Return of Income as no business activity is carried out for this. Further, the appellant has made a false. claim of the payment of Rs.67,60,138/- which is neither paid nor shown by the appellant as payable in the Return of Income. This is not permissible either under cash system of accounting O[ mercantile system of accounting. It is strange how this deduction is allowable if there is neither any payment made by the appellant to the HUF nor this amount has been shown by the appellant as 'payable to the HUF' in the balance sheet and Return of Income. It appears this income of Rs.79,00,000/- is shown in the Return of Income just to pre-empt and explain the information which is available to the department in the form of 26AS. The appellant being a Chartered Accountant by profession is fully aware about the Income Tax Laws and accounting system. Despite this, such transactions have been claimed which is not allowable under the Act.

6.14 The Assessing Officer has also made the addition of Rs.97,200/- on the ground that u/s 133(6) information from different companies were obtained regarding the confirmation of interest payment to the appellant and there is a difference of Rs.2,05,112/- in the interest receipts and the interest declared by the appellant during the year as per detailed discussion made by the Assessing Officer in the assessment order mentioned supra in Para 4.1. However, the Assessing Officer was satisfied about the explanation of the appellant regarding the difference of Rs.107328/- which was accepted. As the appellant could not give any justification for Rs.97,200/- the addition of this amount was made by the Assessing Officer.

6.15 During the course of appellate proceedings, the appellant has submitted that these additions have been made on the basis of 26AS details and there might be some reconciliation difference. However, the appellant has totally failed to support his claim that the figure taken by the Assessing Officer as per the details given by the Assessing Officer of the amount of interest shown in a chart in para 5.1 supra is wrong. The contention of the Assessing Officer that this can be reconciled once he is provided the replies received by the Assessing Officer has no basis as this was duly confronted, during the course of assessment proceedings and reply regarding the difference of Mahindra & Mahindra has also been submitted by the appellant which was accepted by the Assessing Officer. Had there been any explanation this could have been provided before Assessing Officer or during the course of appellate proceedings which was not done. In this light, the addition of Rs.97,200/- is confirmed.

6.16 As the Assessing Officer has not made detailed enquiry in this case, the Assessing Officer has disallowed it u/s 40(a)(ia) whereas it should be taxed under the head 'Income from other Sources' on the basis of the fact that the appellant has never paid this amount to the HUF nor claimed this as payable in the Return of Income and also claimed the entire TDS credit and the resulted refund. As the Assessing Officer has already taxed interest income of Rs.11,39,862/- and Rs.97,200/- as 'Income from other sources' the difference of Rs.67,60,138/- is to be further added in the total income under the head 'Income from other Sources' by the Assessing Officer and not under section 40(a)(ia). Further, no disallowance is to be given to the appellant against this income, as the expenses which is allowable to be deducted under section 56 is only u/s 57(iii) which has the direct nexus of earning such income and no such expense has been claimed in the Return of Income by the appellant nor it is there in the accounts of the appellant reproduced supra. In this light, the Assessing Officer is directed to tax the entire amount of Rs.79,97,200/- (79,00,000 + 97,200) as 'Income From Other Sources'. It is clarified further that no enhancement of income has been done in this case as the amount of disallowance made by the Assessing Officer is of Rs.79,00,000/- (6760138 + 1139862) which is the same as decided in this appellate order.

Hon'ble HIGH COURT OF DELHI has held in the case of CIT v. Jansampark Advertising & Marketing (P.) Ltd. 56 taxmann.com 286 that-

• The provision of appeal, before the Commissioner (Appeals) and then before the Tribunal, is made more as a check on the abuse of power and authority by the Assessing Officer. Whilst it is true that it is the obligation of the Assessing Officer to conduct proper scrutiny of the material, given the fact that the two appellate authorities viz. Commissioner (Appeals) and Tribunal are also forums for fact-finding, in the event of Assessing Officer failing to discharge his functions properly, the obligation to conduct proper inquiry on facts would naturally shift to the door of the said appellate authority. For such purposes, one only need to point out one step in the procedure in appeal as prescribed in section 250 wherein, besides it being obligatory for the right of hearing to be afforded not only to the assessee but also the Assessing Officer, the first appellate authority is given the liberty to make, or cause to be made, 'further inquiry', in terms of sub-section (4). [Para 38]

However, I am restricting myself to give any decision on the professional income declared by the appellant in the Return of Income which is not a subject matter of appeal. Besides this, the claim of the appellant made regarding non deduction of TDS and not auditing the books of accounts has become academic in the light of the fact that the entire interest income should be taxed under the head 'Income From Other Sources' and not under the head ‘Business Income’.”

Some of the glaring discrepancies in furnishing necessary particulars in ITR which otherwise amount to suppression of facts inter alia are :-

(i) that it is the case of the assessee that assessee claimed to have made investment being a senior citizen on behalf of his HUF and received an amount of Rs.79,00,000/- as interest on behalf of the HUF and out of this interest, he has paid back Rs.67,60,138/- to the HUF and remaining amount of Rs.11,39,862/- is shown as his own income but the facts on record are otherwise because when the assessee has specifically claimed to have invested the money of HUF on which he has received Rs.79,00,000/- on account of interest income on behalf of HUF then why this amount has not been shown by the HUF in its return of income as discussed in para 6.4 of the impugned order;

(ii) that secondly, during the first appellate proceedings before the ld. CIT (A), when assessee was called upon to bring on record evidence the detail of bank account and cheque details qua the alleged payment of Rs.67,60,138/- made to the HUF, the ld. AR for the assessee had fairly conceded before ld. CIT (A) vide order sheet entry dated 20.03.2018 that, “no such payment is made to HUF ever and it is the notional interest only which is claimed in the return of income.

These facts have also been conceded by the ld. AR for the assessee before the Bench”.

Furthermore, total funds provided by VP & Sons HUF were Rs.6,97,15,071/- for the total investment made of Rs.7,85,00,000/-, the amount of Rs.6,97,15,071/- is not appearing in the liability side of the return of income of the assessee nor he has shown any amount under the head “investment” or “current assets” relating to the interest income of Rs.79,00,000/-. Moreover, when it is categoric case of the assessee that he has made entire investment of HUF in its own name being a senior citizen to attract more interest then such amount was required to be shown by the assessee as unsecured loan in its account. During the course of arguments before the Bench, all these questions remained unanswered.

During the course of arguments, the ld. AR for the assessee failed to address and controvert aforesaid findings returned by ld. CIT(A).

Moreover, the assessee has made a false claim of Rs.67,60,138/- which is neither paid nor shown by the assessee as payable in the return of income which is not permissible in the cash system and mercantile system of accounting. This fact goes to prove that income of Rs.79,00,000/- is shown in the return of income by the assessee just to preempt and explain the information which is available to the Department in the form of 26AS to evade the tax.

Consequently, ground no.4 is determined against the assessee.

GROUND NO.5 19. AO has made separate addition of Rs.97,200/- on the basis of information received u/s 133(6) of the Act from different companies qua confirmation of interest payment to the assessee and there was a difference of Rs.2,05,112/- in the interest received and the interest declared by the assessee. During the assessment proceedings, AO got satisfied about the explanation of the assessee to the difference of Rs.1,07,328/- and has made addition of remaining amount of Rs.97,200/- which was confirmed by the ld. CIT (A).

Assessee has failed to bring on record any facts before the first appellate authority or before the Tribunal as to how the difference of Rs.97,200/- is not addressed during reconciliation. So, we are of the considered view that ld. CIT (A) has rightly confirmed the addition of Rs.97,200/-, hence ground no.5 is determined against the assessee.

GROUND NO.6 21. Assessee challenged the addition of Rs.11,39,862/- made by the AO on account of undisclosed interest. As discussed in the preceding paras under ground no.4, when interest income of Rs.79,00,000- has already been considered as “income from other sources” as assessee has not paid this amount to HUF nor claimed this as payable in the return of income but at the same time claimed the entire TDS credit and the resulted refund, the interest income of Rs.11,39,862/- cannot be taxed twice, so interest income of Rs.11,39,862/- is part and parcel of total interest income of Rs.79,00,000/- (Rs.67,60,138/- claimed to have been paid by the assessee to HUF + Rs.11,39,862/- being the interest income of the assessee = Rs.79,00,000/-).

raised by the assessee which have largely challenged the order passed by the Assessing Officer but has never challenged the findings returned by ld. CIT (A). So, the assessee has failed to bring on record any perversity or illegality in the impugned order passed by the ld. CIT(A) which are findings on the facts based upon material evidence discussed in detail.

25. Resultantly, the appeal filed by the assessee is partly allowed. Order pronounced in open court on this 23rd day of March, 2021.