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Income Tax Appellate Tribunal, DELHI BENCH ‘D’, NEW DELHI
Before: SH. R. K. PANDA & SH. KULDIP SINGH
ORDER PER R.K PANDA, AM:
This appeal filed by the revenue is directed against the order dated 10.08.2015 of CIT(A)-14, New Delhi relating to A.Y. 2011-12. The assessee has also filed cross objection. For the sake of convenience these were heard together and are being disposed of by this common.
Facts of the case, in brief, are that the assessee is an individual and derives income from house property and other sources. She filed her return of income on 20.09.2011 declaring loss of Rs.19,43,284/-. The return was processed u/s. 143 (1). Subsequently the AO reopened the assessment u/s. 147 of the IT Act by recording the following reasons :-
“As per records ITR for A.Y 2011-12 has been filed on 20.09.2011 declaring Nil income which was processed u/s 143(1) on 26.07.2012 on the same income. On verification of the ITR for the year under consideration it is seen that the Assessee has claimed interest on housing loan to Rs. 2223930/- and claimed as business expenses in the P&L a/c under the head Business or Profession. As per ITR I no business activities carried out by the assessee during the year. Only income from Rent and other sources has been shown. Further, the Id. CIT (A) vide her order no. 234/2010-1 l_dated 30.01.2013 for A.Y 2008-09 has confirmed the addition of Rs. 3220478/- made: by the AO on account of interest on housing loan, which was claimed by the Assessee as business expenses in her ITR. Therefore, it is established that the Assessee. has wrongly adjusted the interest on housing loan against the business profit, In view of the above facts, I have reasons to believe that income of Rs 2223930/'- was remain to be taxed and has escaped assessment. It is a fit case for reopening the assessment u/s 147 of the IT Act, 1961 for A.Y 2011-12.”
In response to the notice issued u/s. 148 the assessee vide letter dated 08.01.2014 submitted that return filed u/s. 139 be Page | 2 considered as return filed in response to notice u/s. 148 and further requested to provide the reasons in writing for reopening the case u/s. 148 of the IT Act. The AO provided the reasons. The assessee thereafter filed her objections which was dispose of by the AO.
During the course of assessment proceedings the AO noted that assessee has claimed interest expenditure of Rs.21,07,080/- as business expenditure. However, no business activity appears to have been carried out by the assessee except showing certain assets / investments in the balance sheet. Since, the assessee has not furnished any detail/ supporting document relating to the interest of Rs.21,07,080/- debited in the P & L account, the AO asked the assessee to explain the allowbility of such interest expenditure in the P & L account. The AO further asked the assessee to explain as to why the loan of Rs.2,84,84000/- obtained from Sh. Jaswinder Singh and Rs.18,000/- from Sh. Arvinder Singh should not be treated as unexplained credit in absence of furnishing of confirmations of loan and bank statement of the above persons. 5. So far as the expenditure of Rs.21,07,080/- is concerned the assessee explained that she had started her business for which purpose she had purchased properties in the last year and as well as in the current year alongwith jewellery in which the assessee also wants do business. The interest has been paid on the loan from the bank. The assessee has also raised Rs.2,50,000/- from bank on which she has paid interest of Rs.33,47,778/-. However, this year there was no sale of jewellery Page | 3 because she had made purchases and was expecting increase in price. It was explained that the loan obtained for purchase of the properties was to generate business profit and such property was shown as stock in trade while filing income tax return.
However, the AO was not satisfied with the explanation given by the assessee. He observed that the assessee has not done any business activity and wrongly claimed the interest expenditure of Rs.21,07,080/- as business expenditure with the intention to evade tax by setting off business loss against the income from house property.
Since the assessee has not done any business and has debited interest of Rs.21,07.080/- and debited various expenses totaling to Rs.1,21,350/-, the AO disallowed both the amounts treating the business income as nil and made addition of Rs.22,28,430/-. Similarly in absence of filing of the bank statement of Sh. Jaswinder Singh, the AO made addition of Rs.2,64,14,000/- being loan obtained from the said person doubting the genuineness of the loan and creditworthiness of the lender. The AO also made addition of Rs.2,40,000/- on account of low withdrawals on the ground that the assessee has not shown any drawing from the capital account and the assessee is paying 61,000/- for insurance premium and 13,665/- for medi- claim policy. The AO, therefore, estimated the house hold expenses at Rs.20,000 per month and accordingly made addition of Rs.2,40,000/- as the income from undisclosed sources.
Before CIT(A) the assessee apart from challenging the various additions on merit also challenged the reopening of the Page | 4 assessment. It was argued that the reopening was made by the AO without calling for any information u/s. 142 (1) and it is not very clear from the reasons that no believe or disclosure has been made by the AO before reopening of the case u/s. 148 and he merely reopened the case on the basis of comments of the CIT(A). Relying in various decisions it was argued that the reopening is not proper.
So far as the disallowance of interest expenditure of Rs.21,07,080/- on depreciation and bank charges of Rs.1,21,350/- are concerned, it was argued that the assessee intended to start business of dealing in realestate and jewellery from the year 2007-08 and for that purpose she had purchased properties in the preceding year as well as in the current year which are shown as stock in trade. Since the assessee is regularly trading and dealing in jewellery and properties and merely because assessee did not make any sale in the current year the same cannot be a ground for disallowing the interest expenditure and depreciation and bank charges. It was argued that the assessee in the instant case has kept office, raised loans, made purchases, sales, incurred expenses on conveyance, stationery entertainment, interest etc. Although these were brought to the notice of the AO, he ignored the same and made the addition. Therefore, in view of the circulars issued from time to time by the CBDT the expenditure disallowed by the AO deserves to be deleted. Relying on various decisions it was argued that the addition made by the AO amounting to Rs.22,28,430/- should be deleted.
So far as the addition of Rs.2,64,14,000/- on account of unexplained loan is concerned it was submitted that the amount of Rs.2,64,14,000/- is related to repayment of ICICI loan of the assessee which has been repaid by Mr.Jaswinder Singh out of the loan proceeds of Rs. 5 crores taken by Mr. Jaswinder Singh from Standard Chartered Bank. It was argued that Standard Chartered Bank paid the outstanding loan of ICICI Bank amounting to Rs.2,64,14,000/- directly to ICICI Bank and the supporting documents were produced before the AO such as copy of the demand draft, confirmation, bank statement, identity proof, Loan sanction letter of Standard Chartered Bank in case of Sh. Jaswinder Singh, closure letter of ICICI Bank loan etc. The documents already filed before the AO were again filed before the CIT(A). Accordingly it was argued that the addition made by the AO is not justified.
So far as the addition of Rs.2,40,000/- on account of low withdrawal for house hold expenses on ad-hoc basis is concerned it was argued that the AO without considering the fact that assessee is living with her family members who have declared enough drawings which is sufficient to meet the house hold expenses made the disallowance on mere surmises and presumptions. It was accordingly argued that the addition so made by the AO be deleted. Page | 6
So far as the ground relating to validity of reassessment proceedings are concerned the Ld. CIT(A) decided the issue against the assessee by holding that the AO has rightly reopened the assessment since there is tangible material to come to the conclusion that there is escapement of income.
So far as the addition of Rs.22,28,430/- is concerned the Ld. CIT(A) deleted the addition by observing as under :-
I have considered the submissions of the appellant as well as the findings of the appellant that the Ld. AO is not justified in making addition on account of disallowance of interest expenses incurred to generate the income of FDRs amounting to Rs.21,07,080/- and other expenses of Rs.1,21,350/-. i. On perusal of the documentary evidences filed by the Ld. AR during the course of assessment as well as appellate proceedings, it is evident that the loan of Rs. 2.50 crores taken from ICICI Bank is not home loan and is loan against the property. The words “Home Loan” mentioned over the Loan Agreement is as per the Categorization System of the bank. This can be made more clear by the fact that the property mentioned in loan agreement i.e., House No. 9, West Punjabi Bagh, West Avenue, Delhi-110026, has already been purchased by S. Sukhbir Singh (Husband of the Assessee) on 25th day of February, 1970 and thus the observation of the Ld. A.O. being the same property purchased against the loan is factually not correct. ii. The appellant produced the copy of bank statement along with detailed chart for preparation of FDR which clearly reflect that Rs.2.50 crores have been received by her against loan from ICICI Bank under loan against property (LAP) Page | 7 on 05-01-2007 and 5 FDRs were created on 12-01-2007 of Rs.50 lacs each. Thereafter such FDRs are utilized for purchase of property and jewellery with the clear intension to conduct the business from A.Y.2008-09. iii. The most relevant aspect, which is to be seen in this case is the intension of the Assessee for purchase of jewellery, gold, diamond & property that can be reflected from the facts of the case and the conduct of the Assessee. The Assessee has taken a loan of Rs.2.5 crores for starting her business and as a prudent businessman, she has invested such amount for purchase of jewellery and property. The intension of Assessee clearly reflect from the trading account and profit & loss account declared from the start of his business, i.e.A.Y.2008-09 and shown under the head purchase / closing stock / opening stock of properties and jewellery. The documents produced during the assessment proceeding clearly reveals that loan availed from ICICI Bank is utilized for purchase of jewellery and property w.e.f.01 -04-2007. No person shall take loan for investment in any jewellery and property. iv. The Intention for purchase of particular assets not depend on the nature of the asset, but it depends on the intension of the Assess for the purpose for which such asset has purchased. In the present case, the Assessee has kept office, raise the loan, made sale and purchase for jewellery and property, spent on stationery and other expenses, which lead to conclude that there is a business conducted by Assessee and the intension to purchase such assets are to conduct the business rather than make the investment. v. The assessee showing the sale & purchase of such jewellery and property under the head business and profession, the Assessee also lose the benefit of indexation, which is available when such assets are shown under the head investment. So the Assessee has loose such benefit of indexation for conducting the business and this conduct clearly reveals the intension of Assessee to purchase such assets for business and profession. vi. It was held by Delhi High Court in the case of CIT vs Smt. Radhe Bhai (2005) 272 ITR 264 that the period for retaining of immovable property does not ; determine the nature but the intension of purchase of such property determined the status and nature of such property. It was further held by Punjab & Haryana High Court in the case of CIT vs Sushila Devi Jain (2001) 259 ITR 671 that it was necessary to determine the intension of Assessee at the time of purchase of land and property should be considered. Therefore, keeping in view, the ratio of judgements of various courts laws of higher authorities and Hon’ble Courts I incline to agree with the contention of Ld.AR and delete the additions of Rs.22,28,430/- made on account of disallowance of interest and other expenses . Hence, the ground of appeal is allowed.
14. So far as the addition of Rs.2,64,14,000/- is concerned the Ld. CIT(A) also deleted the addition by observing as under :-
“I have considered the submissions of the appellant as well as the findings of the Ld. AO. It is noticed that the facts of the case of the appellant are covered by the decision of the Hon’ble jurisdictional High Court of Delhi in the case of Commissioner of Income Tax - XII versus Sh. Harbir Singh- I.T. Appeal No.608/2009 where it has been held that as the assessee has furnished sufficient documents to prove not only the identity of the loan creditor but also the creditworthiness and genuineness of these transactions. The source is also explained by the assessee in the hands of the loan creditor .Whereas the Assessing Officer completely ignore the fact that in case of takeover of loan by one bank to another bank, direct payment was made in the form of DD or RTGS by one bank to another bank. Such transaction was not routed through the bank of borrower. Therefore, such entries cannot be appeared in the bank statement of Jaswinder Singh as well as Assessee. Keeping into consideration the various case laws of the higher appellate authorities and the Hon’ble Courts I have no reason Page | 9 to deviate from the above mentioned decisions. Accordingly, the addition of Rs.2,64,14,000/- on account of explained loan is deleted. Hence , this ground is allowed.
So far as the disallowance of Rs.2,40,000/- on account of low houses hold deleted the addition by observing as under :-
“I have considered the submissions of the appellant as well as the findings of the Ld. AO. Keeping into consideration the various case laws of the higher appellate authorities and the Hon’ble Courts relied on by the Ld. AR I incline to agree with the intention of the appellant that the Ld. AO is not justified in making adhoc addition on account of drawing expenses as the Ld. AO has not given any finding of fact against the assessee in assessment order so as to justify the addition on account of low household expenses. The Ld. A.O. has not discussed the size of family and the withdrawals of other members of the family estimated expenses of assessee in the assessment order without any basis. In view of the above discussion, I delete the addition of Rs. 2,40,000/-. Hence, the ground of appeal is allowed”.
Aggrieved with such order of the CITA), the revenue is in appeal by taking the following grounds :- Holding that the assessee was engaged in the business, though (i) there was not even a single transaction throughout the year, thus deleting the disallowance of Rs. 22,28,430/- made on account of business expenses. Holding that the unsecured loan was genuine even though it was (ii) not supported by bank statement of the creditor, thus deleting the addition of Rs. 2,64,14,000/- made on account of unsecured loan.
Holding that the AO could not estimate the expenses on the basis (iii) of her living standards, thus deleting the addition of Rs. 2,40,000/- made on account of household expenses. The appellant craves the right to add, alter or amend any ground of (iv) appeal.
The assessee has raised the following grounds in the cross objection :- “1. (i) That Ld. CIT(A) erred in confirming the reopening action of Ld. AO u/s. 148, where reopening was made without fulfillment of mandatory jurisdictional condition stipulated under the Act. (ii) That Ld. CIT(A) erred in reopening action of Ld. AO which is based on mechanical and vague reasons to believe which cannot justify the reopening action made by the Ld. AO.
2. That the Ld. CIT(A) erred in upholding that the assessment order was not time-barred.”
18. We have considered the rival arguments made by both the sides, perused the orders of the authorities below and the paper book filed on behalf of the assessee. We have also considered the various decisions relied by the Ld. Counsel for the assessee. So far as the disallowance of interest expenditure of Rs.21,07,080/- and various other expenses of Rs.1,21,350/- all totaling to Rs.22,28,430/- disallowed by the AO and deleted by the CIT(A) is concerned we find the Ld. CIT(A) has given a categorical finding that the loan of Rs. 2.50 crores taken from ICICI Bank is not home loan and is loan against the property which was purchased way back in 1970 and, therefore, the observation of the AO that Page | 11 the property purchased against the loan is factually incorrect could not be covered by the Ld. DR. We further find the Ld. CIT(A) has given a finding that the intention of the assessee for purchase of the jewellery, gold, diamond and property which reflected from the trading account and P & L account declared from 2008-09 onwards and were shown under the head purchased/ closing stock / opening stock of properties and jewelleries. He has also given a finding that the documents purchased during the assessment proceedings clearly reveals that the loan availed from ICICI Bank is utilized for purchase of jewellery and property w.e.f. 01.04.2007 further the assessee was showing the sale and purchase of the jewellery and property under the head business and profession a detailed factual finding given by the Ld. CIT(A) could not be controverted by the Ld. DR. We find under identical circumstances the Tribunal in assessee’s own case for A.Y.2009- 10 has deleted similar addition sustained by the CIT(A) vide and Co. No.243/Del/2016 order dated 16.10.2017. Under these circumstances we do not find any infirmity in the order of the CIT(A) in deleting the disallowance of Rs.22,28,430/- made on account of business expenses. The ground of appeal No.1 by the revenue is accordingly dismissed.
19. So far as the ground No.2 is concerned the same relates to the order of the CIT(A) in deleting the addition of Rs.2,64,14,000/- made on account of unsecured loan. We find the Ld. CIT(A) has accepted the contention of the assessee that the amount of Rs.2,64,14,000/- is related to repayment of ICICI Page | 12 Loan of the assessee which has been paid by Mr. Jaswinder Singh out of the loan proceeds of Rs. 5 crores taken by Mr. Jaswinder Singh (husband of the assessee) out of loan from Standard Chartered Bank. He has given a finding that the payment was made directly by Standard Chartered Bank to ICICI Bank and, therefore, such entries cannot appear in the bank statement of Mr. Jaswinder Singh. In our opinion such entries cannot appear in the bank statement of the assessee as well as her husband since the amount has been paid directly by Standard Chartered Bank to ICICI Bank for taking over the loan. Since the deletion by the CIT(A) is based on facts and there is nothing on record to controvert the same by revenue, therefore, we do not find any infirmity in the order of the CIT(A) on this issue. Accordingly the ground No.2 raised by the revenue is dismissed.
20. So far as the deletion of Rs.2,40,000/- on account of low house hold expenses is concerned we find the Ld. CIT(A) while deleting the disallowance has considered the size of the family, withdrawal by other members and has also given an observation that the same was based on surmises. Nothing contrary was brought to our notice against the reasons given by the CIT(A) on this issue. Accordingly the ground raised by the revenue on this issue is also dismissed.
Cross Objection No. 33/Del/2018 (Assessee) 20. The assessee has raised the following grounds in the cross objection :- 1. (i) That Ld.CIT (A) erred in confirming the reopening action Page | 13 of Ld.AO u/s 148, where reopening was made without fulfillment of mandatory jurisdictional condition stipulated under the Act.
(ii) That Ld.CIT (A) erred in reopening action of Ld.AO which is based on mechanical and vague reasons to believe which cannot justify the reopening action made by Ld.AO.
2. That Ld.CIT (A) erred in upholding that the assessment order was not time-barred.
The respondent prays for leave to add, alter, modify and withdraw any of the grounds either before or at the time of hearing.
After hearing both the sides we find the Ld. CIT(A) while dismissing the ground raised before him challenging the validity of reassessment proceedings has observed as under :- “I have considered the submissions of the appellant, the decisions of different higher appellate authorities and courts and the findings of the Ld. AO. With due regard to the cases relied on by the appellant, it is noticed that the facts and circumstances of the appellant’s case are different from the cases cited by the appellant in his submissions. The Ld. AO observed that it is established that the assessee has wrongly adjusted the interest on housing loan against the business profit. In view of the above facts, the Ld. AO had reasons to believe that income of Rs.3395802 /- was remain to be taxed and has escaped assessment. It is a fit case for re-opening the assessment u/s 147 of the IT Act, 1961 for A.Y.2009-10. Accordingly, the Ld. AO initiated the proceedings u/s 147/148 of the Act & a notice on 15.03.2013 u/s 148 of the IT Act.
On perusal of the records I am of the considered opinion that the Ld. AO has initiated proceedings u/s 147/148 of the Act as he had reason to believe that income has escaped assessment and there is tangible material to come to the conclusion that there is escapement of income in view of the above mentioned facts and circumstances of the case. Therefore, the re-opening proceedings are justified and the action of the Ld. AO is confirmed. Hence, the ground of appeal is dismissed.”
22. A number of decisions have been filed by Ld. Counsel for the assessee to the proposition that the reopening of the assessment initiated by the AO was in a mechanical manner and the AO was not satisfied with proper reason to believe and not drawn any information or conclusion outside the return of income filed, therefore, such reopening is bad in law. It is also his submission that the reopening was made without fulfillment of mandatory jurisdictional conditions stipulated under the Act. The Hon’ble Supreme Court in the case of Raymond Woolen Mills Ltd. Vs. ITO and others reported in 236 ITR 34 has held that in determining whether commencement of reassessment proceedings was valid it has only to be seen whether there was prima facie some material on the basis of which the department could re-open the case. The sufficiency and correctness of the material is not a thing to be considered at this stage. Further, the assessment was earlier completed u/s. 143 (1) and bbbbb not u/s. 143 (3). Under these circumstances, we do not find any merit in the arguments advanced by the Ld. Counsel for the assessee that the re-opening of the assessment was not valid and not as per law. In our opinion the reassessment proceeding in the instant case has validly been initiated and, therefore, the Ld. Page | 15 CIT(A) was fully justified in upholding such reassessment proceedings. Accordingly the grounds raised by the assessee in the cross objection are dismissed.
23. In the result, the appeal filed by the revenue and the cross objection filed by the assessee are dismissed. Order pronounced in the open court on 02.12.2019.