DEPUTY COMMISSIONER OF INCOME-TAX vs. SHRI RAJENDRA BANSILAL RAISONI,, PUNE

The facts of the case have been culled out from the appeal of Revenue for assessment year 2005-06. The assessee is an individual and is engaged in the business of hiring of tippers. The assessee was also engaged in the business of trading of goods through his proprietary concern M/s. Shubham Exports. In the period relevant to assessment year 2005-06, the assessee has also received salary income from M/s. Ashoka Builders Pvt. Ltd. The assessee filed original return of income u/s. 139 of the Act on 20-07-2006 declaring total income of Rs.3,22,500/-. A search action u/s. 132 was conducted in the premises of the assessee. Notice u/s. 153A of the Act was issued to the assessee on 25-02-2011. In response to the said notice the assessee filed return of income on 17-10- 2011 declaring income of Rs.3,22,500/-. While finalizing the assessment, the Assessing Officer made following additions/disallowances in the income returned : i. Addition on account of disallowance of expenses in M/s. Shubham Exports Rs.28,46,783/-. ii. Addition on account of profit on sale of land Rs.32,53,605/-.

Against the findings of Commissioner of Income Tax (Appeals), the Revenue in appeal before the Tribunal has raised following grounds : “1) On the facts & circumstances of the case the Ld CIT(A) ,has erred in accepting the additional evidence, considering the fact that the assessee was provided time and opportunity during the assessment to submit documentary evidences and explain the return of income. The Hon'ble CIT(A) erred in not accepting the fact that the assessee failed to explain the circumstances which prevented him in submitting the said additional evidences during the assessment proceedings even though ample opportunities were provided for the same. 2) On the facts and circumstances of the case, the Ld CIT(A) has erred in deleting the addition to the extent of Rs.19,21,835/- made the AO on a/c of expenses in M/s. Shubham Exports. 3) On the facts & circumstances of the case, the Ld CIT(A) erred in not accepting the fact that the assessee had utilized the borrowed funds for non business purpose and erred in deleting the addition to the extent of Rs19,21 ,835/- made u/s 36(1 )(iii) of the Act. 4) On the facts & circumstances of the case, the Ld CIT(A) erred in allowing the set off and carried forward of loss of Rs.41,41,769/- during the year under consideration accepting the additional evidence, when the assessee failed to submitted the same during the assessment proceedings even though ample opportunities were provided for the same. 5) Any other ground that may be urged at the time of hearing.”

Smt. Nirupama Kotru representing the Department submitted that the Commissioner of Income Tax (Appeals) has erred in admitting additional evidences filed by the assessee during the First Appellate proceedings. Sufficient opportunity of hearing was granted to the assessee by the Assessing Officer during the assessment proceedings. However, the assessee failed to furnish the documents in support of his submissions.

On the other hand Shri Vipin Gujrathi appearing on behalf of the assessee vehemently defending the impugned order submitted that during assessment proceedings sufficient opportunity was not given to the assessee for furnishing necessary documents for proper adjudication of the case. Specific show cause notice for the first time was issued to the assessee by Assessing Officer on 15-03-2013. The said show cause notice was served on the assessee on 18-03-2013 and the assessment order was passed on 26-03-2013. In the short period of one week the assessee could not produce all the necessary documents to support his contentions. The Commissioner of Income Tax (Appeals) appreciated this fact and accepted the additional evidence filed by the assessee. The ld. AR further submitted that the Commissioner of Income Tax (Appeals) has sought remand report from the Assessing Officer in respect of additional evidences filed. The ld. AR pointed that the assessee in additional evidences had filed the copy of acknowledgment of return of income for the assessment year 2003-04 and copy of the assessment order for the assessment year 2003-04. The Assessing Officer merely opposed admission of additional evidences but did not comment on the merits of additional evidences.

We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. The Revenue in ground Nos. 1 and 4 of the appeal has impugned the order of Commissioner of Income Tax (Appeals) in admitting additional evidence filed by the assessee during First Appellate proceedings. It is an undisputed fact that the Commissioner of Income Tax (Appeals) before accepting additional evidence had sought the comments of Assessing Officer on the documents filed by the assessee as additional evidence. The Assessing Officer in its remand report vehemently opposed the admission of documents filed by the assessee as additional evidence. The documents on record indicate that the show cause notice was issued to the assessee by the Assessing Officer for the first time on 15-03-2013. The said notice was served on the assessee on 18-03-2013. The assessee replied to the show cause notice on 25-03-2013 and on 26-03-2013 the assessment order was passed. The chronology of events clearly indicates that the assessee did not have sufficient time to respond to the queries raised by the Assessing Officer in the show cause notice dated 15-03-2013. The Commissioner of Income Tax (Appeals) appreciated this fact and accepted the additional evidence filed by the assessee. We do not find any infirmity in the action of Commissioner of Income Tax (Appeals) in accepting additional evidence filed by the assessee during First Appellate proceedings. The Commissioner of Income Tax (Appeals) had given due opportunity to the Assessing Officer to comment on the documents

In ground Nos. 2 and 3 of the appeal, the Revenue has assailed deleting of the addition of Rs.19,21,835/- in respect of expenditure incurred on account of M/s. Shubham Exports, a proprietary concern of the assessee/respondent. The assessee had claimed loss of Rs.28,46,783/- which was primarily on account of interest charges paid to the bank on account of loan taken by the assessee during Financial Year 2001-02. The case of the Revenue is that the assessee had advanced borrowed funds for non-business purpose to M/s. Shubham Exports and hence disallowed the same u/s. 36(1)(iii) of the Act. The Commissioner of Income Tax (Appeals) restricted the disallowance to Rs.9,24,948/- by observing in para 4.7 of the impugned order as under : “It can be seen that at the beginning of the year there were borrowed funds of Rs.4.56 cr which has gone down to Rs.4.04 cr at the end of the year. Average borrowed funds were of Rs.4.30 cr. Appellant's debit balance in capital account stood at Rs.2.18 cr as on 1.4.2004 which increased to Rs.2.46 cr after including the loss incurred during the year. As discussed earlier, appellant's debit balance included loss suffered by the concern during FY 2002-03 of Rs.0.78 cr. Therefore, out of borrowed funds appellant had diverted borrowed funds to the extent of Rs.1.4 cr (Rs.2.18 cr – Rs.0.78 cr) for non-business purposes. Appellant was specifically asked to show if diverted funds were used for the purpose of business and appellant had failed to furnish any details. Therefore, it is held that out of average borrowed funds of Rs.4.3 cr, funds to the extent of Rs.1.4 cr were not used for the purpose of business. Accordingly in view of the provision of section 36(1)(iii) of the Act, proportionate interest would not be admissible. Interest paid on the funds diverted for non-business purposes would be Rs.9,24,948 (Rs 28,40,911 x 1.4 / 4.3). Disallowance made out of the interest expenditure is upheld to the extent of Rs.9,24,948. Appellant gets relief of Rs.19,15,963 on account of disallowance of interest, Rs.2,848 on account of disallowance of bank charges and of Rs.3,024 of on account of disallowance of depreciation. Ground raised by the appellant is partly allowed.”

We further observe that the tax effect in the appeal is less than Rs.20 lakhs. The recent CBDT Circular No. 3/2018, dated 11-07-2018 has raised the monetary limit of tax effect for filing of appeals by the Department before the Tribunal to Rs.20 lakhs. The circular applies to the appeals to be filed by the Department in future, as well as the appeals pending before the Tribunal. Thus, in view of the CBDT Circular the present appeal of the Revenue is liable to be dismissed on account of low tax effect as well.

In the result, the appeal of Revenue for the assessment year 2005-06 is dismissed.

In the assessment year 2008-09 the assessee has filed return of income u/s. 139 of the Act on 24-05-2010 declaring loss of Rs.4,19,450/-. Consequent to the search, notice u/s. 153A was issued to the assessee on 25-02-2011. In response to the said notice, the assessee filed return of income on 17-10-2011 declaring loss of Rs.4,19,450/-. In the assessment proceedings the Assessing Officer made following additions/disallowances in the income returned by the assessee : i. Disallowance of loss from M/s. Shubham Exports Rs.23,52,479/-. ii. Disallowance of interest on borrowed funds used for non-business purpose Rs.15,26,200/-.

The ground Nos. 1 and 2 of the appeal are in respect of admitting additional evidence. As was the case in the assessment year 2005-06, the show cause notice was issued to the assessee by Assessing Officer on 15- 03-2013 which was served on the assessee on 18-03-2013. The assessee replied to the show cause notice on 23-03-2013 and the assessment order u/s. 143(3) r.w.s. 153A was passed on 26-03-2013. In the short span of 10 days the assessee could not produce all the requisite documents as sought by the Assessing Officer. The Commissioner of Income Tax (Appeals) appreciated lack of time faced by the assessee during assessment proceedings and accepted the additional evidence filed during the First Appellate proceedings. The Commissioner of Income Tax (Appeals) before admitting the documents filed by the assessee had sought comments of the Assessing Officer on the admissibility as well as on the merits of additional evidences. The Assessing Officer merely objected to the admission of the documents as additional evidence and did not comment on the merits of documents and the submissions made by the assessee. In the facts of the case we do not find any infirmity in the order of Commissioner of Income Tax (Appeals) in admitting additional evidence furnished by the assessee during First Appellate proceedings. Accordingly, ground Nos. 1 and 2 raised in the appeal by the Revenue are dismissed being devoid of any merit.

In respect of ground No. 3 relating to disallowance of loss claimed in respect of M/s. Shubham Exports. We find that the assessee had imported cement from Pakistan. The Custom Authorities did not clear import consignment of the assessee as the quality of the cement failed to qualify the standards fixed by the Bureau of Indian Standard (BIS). The assessee

In ground No. 4 of the appeal the Revenue has assailed deleting of addition of Rs.15,26,200/- u/s. 36(1)(iii) of the Act. The ld. AR has pointed that no borrowed funds were utilized by the assessee for advancing to M/s. Shubham Exports. The Commissioner of Income Tax (Appeals) has given categoric findings on this issue. The same is reproduced here-in-below : “6.4 I have gone through the profit and loss accounts and the balance sheet of the proprietary concerns M/s. Shubham Exports, M/s. Shubham Agencies and consolidated audited balance sheet of the appellant. In the balance sheet of M/s Shubham Exports as on 31.3.2008 there are borrowed funds of Rs.2,86,09,194 and same were applied in form of debit balance of appellant's capital at Rs.32,32,891, advance to Surekha Raisoni of Rs.1,52,62,000, debtors of Rs.95,77,247. However, in the profit and loss account interest was debited to the extent of Rs.6,546 and balance amount of Rs.30,76,680 was shown as interest suspense under the grouping loan and advances. In the accounts of M/s. Shubham Agencies, borrowed funds were applied in form of stock, advances, debtors and interest bearing loan to M/s. B.B. Raisoni & Sons. Net interest debited to M/s. Shubham Agencies was Rs.11,57,117 and no part of borrowed funds were found to be diverted for personal purpose. The appellant had demonstrated the nexus of funds with the help of bank statements which show that money received from sale of land was routed through M/s. Shubham Exports to Smt. Surekha Raisoni. No borrowed funds as per fund flow were used for this purpose. In the books of M/s Shubham Exports, interest on borrowed fund was not debited in the profit and loss account. The disallowance made by the AO is based on the

In ground No. 5 of the appeal the Revenue has assailed deleting the addition of Rs.4,71,694/- made on account of various expenses which inter alia includes postage and telephone, professional fee, legal expenses, loan processing charges etc. We observe that the assessee has claimed total expenditure of Rs.5,01,694/-. The Commissioner of Income Tax (Appeals) after examining the facts upheld ad hoc addition of Rs.30,000/- and deleted the remaining amount. On account of smallness of the amount involved on various expenditure, we are not inclined to interfere with the findings of Commissioner of Income Tax (Appeals). Accordingly, ground No. 5 raised in the appeal by the Revenue is dismissed.

We further observe that the tax effect in the appeal is less than Rs.20 lakhs. The recent CBDT Circular No. 3/2018, dated 11-07-2018 has raised the monetary limit of tax effect for filing of appeals by the

In the result, the appeal of the Revenue for assessment year 2008-09 is dismissed.

To sum up, both the appeals of the Revenue are dismissed.