INCOME-TAX OFFICER,, JALGAON vs. PRAMOD BHAICHAND RAISONI,, JALGAON

आदेश / ORDER PER R.S.SYAL, VP : These two appeals by the Revenue relate to the assessment years 2011-12 & 2012-13. For the sake of convenience, these appeals have been clubbed for disposal by a consolidated order. A.Y. 2011-12 : 2. The first issue raised in this appeal is against the deletion of addition of Rs.48,78,668/- on account of interest. 3. Briefly stated, the facts of the case are that the assessee at the material time has been engaged in the business of sale

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and purchase of shares and also earning income from salary,

rent and profit from partnership firm. During the course of

assessment proceedings, the Assessing Officer (AO) observed

that the assessee had shown huge cash balances, that is, Tijori

Account Rs.3.96 crore and Cash of Rs.10,55,565/-. On being

called upon to explain the necessity of such huge cash in hand,

the assessee submitted that he was in the business of

development of land and plot and the cash was required to be

kept in hand for meeting the business requirements. The AO

noted that the assessee had availed interest bearing funds.

Applying 12% interest rate on such cash in hand maintained

by the assessee at Rs.3.96 crore plus Rs.10,55,565/-, he made

addition of Rs.48,78,668/- on the premise that interest bearing

funds were kept idle. The ld. CIT(A) deleted the addition,

against which the Revenue has approached the Tribunal.

material on record. There is no appearance from the side of

the assessee despite several notices issued from time to time.

Since the appeal is on board since 2019 and has been marked

as an old appeal, the same requires to be disposed off on

merits, albeit ex parte qua the assessee.

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12% amounting to Rs.48.78 lakh on the ground that the

assessee kept huge interest bearing funds idle in the form of

cash in hand. We are unable to comprehend the reasoning

given by the AO for the obvious reason that retaining cash in

hand during the course of business is the assessee’s

prerogative. Disallowance of interest can be warranted if

interest bearing funds are diverted for non-business purpose.

If the funds are kept in the business itself, there can be no

question of making any disallowance of interest on the cash in

hand available with the assessee. We, therefore, approve the

view taken by the ld. CIT(A). This ground fails.

Rs.2,02,86,856/- made by the AO on account of disallowance

of interest u/s.40(a)(ia) of the Act. The AO observed that the

assessee made interest payment of Rs.2,02,86,856/- to

Bhaichand Hirachand Raisoni Multi State Co-operative Credit

Society Ltd. (in short ‘BHR’) without deduction of tax at

source. On being called upon to explain as to why payment of

interest was made without deduction of tax at source, the

assessee submitted that the TDS provisions were not

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applicable on such interest paid to BHP. Not convinced, the

AO made the disallowance, which came to be deleted in the

first appeal.

material on record. It is seen that the assessee paid interest to

BHR. The business of BHR is of banking. Section

194A(3)(iii)(a) provides that no deduction of tax at source is

required in respect of interest paid to “any cooperative society

engaged in carrying on the business of banking (including

cooperative land mortgage bank)”. The assessee paid interest

to BHR, which is engaged in the business of banking. The ld.

CIT(A) deleted the addition by relying on the judgment of

Hon’ble Madras High Court in SBI Staff Co-op. Society Ltd.

Vs. ITO (1998) 234 ITR 104 (Mad.) holding that : “A

cooperative society which undertakes the business of banking,

such as, lending money to its members or accepting deposits

or raising loans from financial and banking institutions and

advancing the same to its members is definitely engaged in the

business of banking.” He also referred to another decision of

Hon’ble Madras High Court in Syndicate Bank Employees Co-

op. Thrift and Credit Society Vs. ITO (2006) 287 ITR 40

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(Mad.) reiterating the same proposition. Then he also referred

to certain Tribunal orders on page 30 of its order taking similar

view. The ld. DR could not point out any direct decision on

the point contrary to those considered and decided by the ld.

CIT(A). In the absence of any such decision, we respectfully

follow the precedents cited by the ld. CIT(A) and accord our

imprimatur to the view canvassed. This ground fails.

u/s.14A to Rs.1,35,010/- as against Rs.70,25,949/- made by

the AO. Succinctly, the factual scenario of this ground is that

the assessee earned exempt income of Rs.1,35,010/- and

offered suo motu disallowance u/s.14A of the Income-tax Act,

1961 (hereinafter also called `the Act’) at Rs.51,363/-. Not

satisfied, the AO invoked the provisions of Rule 8D and

computed the disallowance at Rs.70,25,949/-. The ld. CIT(A)

directed to restrict the disallowance to the amount of the

income claimed as exempt or the disallowance offered by the

assessee at Rs.51,363/-, whichever is higher.

CIT (2015) 378 ITR 33 (Del) has held that if there is no

exempt income, there can be no question of making any

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disallowance u/s 14A of the Act. Similar view has been taken

by the Hon'ble Delhi High Court in CIT vs. Holcim India P.

Ltd. (2014) 90CCH 081-Del-HC. More recently, the Hon’ble

jurisdictional High Court in Pr. CIT VS. Kohinoor Projects

Pvt. Ltd. (2020) 425 ITR 700 (Bom) has held that in the

absence of any exempt income, there cannot be any

disallowance of expenses u/s 14A of the Act. As the ld.

CIT(A) in the instant case has restricted the disallowance to

the amount of exempt income or disallowance suo motu offeed

by the assessee at Rs.51,363/-, whichever is higher, we hold

that the same is in order and does not call for any interference.

This ground is not allowed.

A.Y. 2012-13 :

confirmation of addition of Rs.9,93,06,354/- made by the AO

u/s.68 of the Act.

declared eight unsecured loans with closing balances at

Rs.24,04,99,100/-. On being called upon to prove the

genuineness of the loans along with identity and capacity of

the creditors, the assessee submitted the account ledgers of the

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said parties along with respective confirmations. Also the

bank account extracts of the lenders were attached. The AO

observed from the bank accounts of the lenders that they

provided unsecured loans to the assessee from their cash credit

accounts maintained with BHR. The AO addressed a letter to

the Manager, BHR asking him to provide papers submitted by

the above persons for loan processing along with security for

mortgage offered by them, loan sanction letters and purpose of

loan. On examination of the reply furnished by the society,

the AO came to know that in most of the cases property of the

assessee was mortgaged by the borrowers for obtaining loans

from the society, which were thereafter given as loan to the

assessee. He, therefore, made an addition of Rs.9,93,06,354/-

representing fresh loans received from six persons during the

year as under :

Sl.No. Name Amount 1 Shri Prakash Sitaram Baviskar Rs.2,06,11,590/- 2 Shri Subhash Fulchand Chaudhary Rs.2,42,49,000/- 3 Shri Vishal Shalik Koli Rs.2,41,06,500/- 4 Shri Suresh Namdev Jiri Rs.99,00,000/- 5 Shri Sukdeo Shankar Bormale Rs.77,23,844/- 6 Shri Ishwar Shriram Koli Rs.1,27,15,420/- Total Rs.9,93,06,354/-

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material on record, it is found that the AO made the addition

u/s.68 of the Act. One can escape from the rigor of section 68

by establishing three ingredients, namely, the identity and

capacity of the lenders along with the genuineness of the

transaction. We are confronted with a situation in which the

assessee received fresh loans during the year amounting to

Rs.9.93 crore from six parties mentioned above. All these six

parties had, in turn, taken loans from the BHR which were

then advanced to the assessee. The AO has also not denied

this factual scenario. His objection was that the loan creditors

did not furnish their securities, which were actually provided

by the assessee. All these facts amply indicate that the loans

were obtained by the above six persons from BHR which were

then advanced to the assessee. In view of these clear-cut

findings, we do not see how section 68 comes to play. Once

the identity of the unsecured lenders was established; there

was no doubt that they took loans from BHR for giving further

loans to the assessee; and that it was the same amount of loans

taken by them, which was deposited in their respective bank

accounts from which the loans were advanced to the assessee,

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we see no reason as to the applicability of section 68 to the

facts of the extant case. If the assessee colluded with certain

individuals for taking indirect loans from BHR in violation of

the rules of the society, remedy lies elsewhere and not in

making addition u/s.68 of the Act. We, therefore, countenance

the view taken by the ld. CIT(A) on this score.

2022.

Sd/- Sd/- (S.S.VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 24th February, 2022 Satish

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order is forwarded to: 1. अपीलाथ� / The Appellant; 2. ��यथ� / The Respondent; 3. The CIT(A)-2, Nashik 4. The Pr.CIT-2, Nashik िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “B” / 5. DR ‘B’, ITAT, Pune गाड� फाईल / Guard file 6.

आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

10 ITA Nos.1397 & 1398/PUN/2017

Date 1. Draft dictated on 23-02-2022 Sr.PS 2. Draft placed before author 24-02-2022 Sr.PS 3. Draft proposed & placed before the JM second member 4. Draft discussed/approved by Second JM Member. 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *