ACIT CIR 25(3), MUMBAI vs. ALKESH K PATEL, MUMBAI

The brief facts of the case are that the assessee is an individual derives income from remuneration from M/s Amrutva Exports Pvt Ltd and Income from other sources. The assessee filed his return of income for AY 2009-10 on 15-07-2009 declaring total income of Rs.23,88,230. The case was selected for scrutiny and notices u/s 143(2) and 142(1) of the Act were issued. In response, the authorised representative of the assessee appeared from time to time and filed various details. During the course of assessment proceedings, the AO noticed from the ITR details, that assessee has made huge investments of Rs.7,01,32,021 in the units of mutual funds, bonds and debenture, etc. In order to ascertain the nature and source of investments, the AO called upon the assessee to file necessary details. In response, the assessee has submitted various details to prove source of investments in mutual funds and bonds. The AO, after considering relevant submissions of the assessee noticed that the assessee has availed unsecured loan from various parties amounting to Rs.2,42,30,609; but failed to file complete details including identity, genuineness of transactions and creditworthiness of the parties. Therefore,

Aggrieved by the assessment order, assessee preferred appeal before the CIT(A). Before the CIT(A), assessee has filed additional evidences in the form of confirmations from the parties alongwith other details to prove identity and creditworthiness of the parties. The assessee further submitted that the AO has made even addition towards amount received from the assessee towards repayment of finance given to various parties on the wrong premises that the assessee has availed loans from various individuals. The Ld.AR further submitted that the AO even made addition towards amount credited in the books of account towards maturity of fixed deposit for which necessary details had been filed. Similarly, in regard to loans taken from various parties, the assessee has filed confirmation alongwith their PAN and their income-tax return copies. The Ld.CIT(A) during appellate proceedings, forwarded additional evidence filed by the assessee to the AO for his comments. The AO, in his remand report, commented about the admissibility of additional evidence and also about unsecured loans taken by the assessee from various parties and re-iterated his findings in the assessment order to come to the conclusion that assessee failed to prove identity, genuineness of transactions and creditworthiness of the parties. The Ld.CIT(A), after

Aggrieved by the order of Ld.CIT(A), the revenue is in appeal before us.

The Ld.DR submitted that the Ld.CIT(A) was erred in giving relief on the issue of addition of Rs.2,42,30,609 made on account of unexplained credit u/s 68 of the Act without appreciating that mere furnishing bank statement and 6 ITA 5676/Mum/2012 stating that investments are out of bank account will not absolve the assessee of his primary responsibility of proving source of those credits in the bank statement and the assessee was given enough opportunity to explain the source of investment and source of funds credited in banks, but he filed to do so. The Ld.DR further submitted that the Ld.CIT(A) was erred in giving relief on the issue of addition of Rs.3,13,501 made on account of interest expenses without appreciating the fact that interest expenses claimed against interest received, cannot be allowed when the same is not co-related.

The Ld.AR for the assessee, on the other hand, strongly supporting the order of the CIT(A) submitted that the assessee has filed details of loans and advances and also other details to explain nature and source. Therefore, the Ld.CIT(A), after considering relevant facts, has rightly deleted addition made by the AO and his order should be upheld. The Ld.AR further submitted tht the AO ignored all evidences filed by the assessee including confirmations and PAN of creditors to make addition only on suspicion and surmises manner for the reason that the assessee has received loan from one family members. When initial onus cast upon the assessee has been discharged, it is for the AO to prove that credits found in the books of account is unexplained income of the assessee, but, the AO has failed to do so. The Ld.CIT(A), after considering all

We have heard both the parties, perused the materials available on record and gone through the orders of authorities below. It is an admitted fact that during assessment proceedings, the assessee could not file complete details of unsecured loans taken from various parties including confirmations and their addresses. It is also an admitted fact that the assessee has filed various details including confirmation from the parties in the form of additional evidences before the Ld.CIT(A). Although the Ld.CIT(A) given an opportunity to the AO to comment on additional evidence filed by the assessee, but, the AO has refused to admit additional evidence and also re-iterated his findings recorded in the assessment order about the creditworthiness of the parties to come to the conclusion that the assessee has failed to explain creditworthiness, therefore, no receipt could be given to the assessee on account of addition made towards unsecured loans. The Ld.CIT(A) has allowed relief to the assessee on the basis of additional evidence filed by the assessee including confirmations from the parties. On perusal of the details filed by the assessee before Ld.CIT(A), we find that the Ld.CIT(A) primarily commented on the admissibility of additional evidence without going into substance of the matter in light of observations made by the AO during assessment proceedings

Coming to the issue on hand, the AO has made addition towards unsecured loans and other credits found in the books of account of the assessee. The assessee has segregated credits into three parts, as per which, credits in the form of return of advances given by the assessee to various parties in the earlier period, credits in the form of maturity proceeds of FDs and cash deposits; finally, credits in the form of unsecured loan accepted from various parties. As regards first kind of credits, i.e. repayment of advances given to various parties, although the Ld.CIT(A) has stated that the assessee has filed complete details, but whether these documents were part of AOs records or not is a question needs to be examined. Insofar as credits in the form of maturity of FD also, there is no discussion in the order of Ld.CIT(A) with regard to the source of such FDs. As regards unsecured loan taken from various individuals, the primary objection of the AO is with regard to genuineness of transactions and creditworthiness of the parties. But, the Ld.CIT(A) recorded his finding only on the issue of identity of the parties

The next issue that came up for our consideration is disallowance of interest expenditure. The AO has disallowed expenses debited in the P&L account including interest on the ground that interest claimed against interest income cannot be allowed as deduction. The AO further observed that the assessee has failed to co-relate interest expenses against interest income by filing necessary details; therefore, disallowed interest expenses and other expenses debited to the P&L account. It is the contention of the assessee that it has earned interest income against which various expenses including interest paid on loans, has been claimed. The assessee further contended that when certain expenditure has been incurred to earn income, necessary deduction has to be allowed towards expenditure, whether such income has been offered under the head, ‘Income from other sources’ or under the head, ‘Income from business or profession’.

Having heard both the parties and perused the material available on record, we find that the assessee has filed complete details of interest expenses paid to Shamrao Vithal Co-operative Bank Ltd towards funds borrowed to make various income generating investments. When the assessee has offered to tax interest income generated from investments, corresponding expenses incurred including interest on loan borrowed from banks needs to be allowed as deduction. The Ld.CIT(A), after considering

In the result, appeal filed by the revenue is treated as partly allowed, for statistical purpose.