ANITA KHANNA,MUMBAI vs. ASST CIT CEN CIR 20, MUMBAI

Per Manoj Kumar Aggarwal (Accountant Member)

Name of the Assessee Assessment Year Appeal No. 2008-09 171/Mum/2016 Rakesh Khanna Rakesh Khanna 2009-10 170/Mum/2016 Rakesh Khanna 2010-11 172/Mum/2016 Rakesh Khanna 2012-13 169/Mum/2016 Anita Khanna 2007-08 175/Mum/2016 2008-09 173/Mum/2016 Anita Khanna Anita Khanna 2009-10 174/Mum/2016 Anita Khanna 2010-11 176/Mum/2016 AYs 2008-09 to 2010-11 & 2012-13 : Rakesh Khanna 2. The appeal for Assessment Year [AY] 2012-13 contest the order of Ld. Commissioner of Income-Tax (Appeals)-51 [CIT(A)], Mumbai, Appeal No.CIT(A)-51/IT-60/2014-15 dated 20/10/2015. The assessment for impugned AY was framed by Ld. Assistant Commissioner of Income Tax, Central Circle-20, Mumbai [AO] u/s 143(3) of the Income Tax Act, 1961 on ITA NO.169-176/Mum/2016 Rakesh Khanna & Anita Khanna 24/03/2014. The assessee has raised the following effective grounds of appeal:-

1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) was not justified in sustaining the addition of Rs.1,89,000/- made by the Assessing Officer by way of 9% additional interest income allegedly earned in cash and not declared in the return.

2. On the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in upholding an addition of Rs.12,77,130/- representing gifts of jewellery received on various occasion from parents, in-laws and others.

3. On the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in upholding an addition of Rs.35,83,674/-, representing jewellery inherited by your Appellant from his mother.

4. On the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in not deleting an amount of Rs.19,904/- representing jewellery purchased by your Appellant for his children.

5. On the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in not giving a finding in respect of jewellery aggregating Rs.12,76,651/- (Rs.3,52,893/- by parents/in-laws, Rs.6,71,678/- by parents and Rs.2,52,080/- by in-laws) given by the parents and in-laws on the engagement of your Appellant and his wife and, hence, in not deleting the concerned addition by the AO.

6. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have allowed a largest amount than 500 gms. For your Appellant’s wife and 100 gms. For your Appellant in respect of relief available under Instruction no.1916 dated 11th May,1994 as para (iii) thereof.

3.1 Facts in brief are that the assessee being resident individual has been assessed u/s 143(3) on 24/03/2014 at Rs.133.21 Lacs after certain adjustments/disallowances as against returned income of Rs.64.05 Lacs filed by the assessee on 16/09/2012. Consequent to search operations u/s 132 on 16/09/2011 on Universal Medical Group, the assessee being director of Universal Group, was also covered in the said operations. The return of income was filed by the assessee for the impugned AY u/s 139(1) on 16/09/2012 declaring total income of Rs.64,05,380/- which comprised of Income from Salary, Business Income, Capital Gains and Income from other sources. -176/Mum/2016 Rakesh Khanna & Anita Khanna 3.2 During search operations, backup of laptop of the assessee was taken wherein loan and interest calculation sheet was found containing certain interest calculations and the same is extracted below:-

FOR THE PERIOD 01.04.08-31.12.2008 AMT.(Rs.) AMT.(Rs.) (I)LOAN ACCOUNT RAKESH KHANNA(HUF) 1500000 RAKESH KHANNA/ANITA KHANNA 2100000 ANITA KHANNA/RAKESH KHANNA 5400000 9000000 (II) PROFESSION FEES O/S AS ON 05/01/09 262044 262044 (III)INTREST ON LOAN O/S AS ON 31/12/08 ANITA KHANNA 972000 RAKESH KHANNA 402000 CHANDAN KHANNA 96000 1470000 10732044 Intt. Calculated at the rate of 24% (15% in cheques and 9% in cash) Rs. 25.00 Lacs (20 to Mr. Chandan and 5 to Mr Rakesh) was paid on 12/06/08. Intt. For 73 days The assessee submitted that it was an attachment of an email sent by one Shri Sanjeev Swamy, Chief Promoter of an entity namely Douceur Sportswear Mfg. Co. Pvt. Ltd. [DSM]. Consequently, the statement u/s 131 of the assessee as well as Sh. Sanjeev Swamy was recorded, the relevant extract of which has been reproduced at page numbers 3 & 4 of the quantum assessment order. During assessment proceedings, the assessee was show-caused to explain the details of loan advanced to the said entity namely DSM. The main dispute under appeal is year of taxability of 9% additional sum as stated in the above email receivable by the assessee against the said loan. The assessee as well as Sanjeev Swamy admitted that interest of 9% referred to in above e-mail was payable to the assessee Rakesh Khanna & Anita Khanna against Share Application Money advanced by assessee to DSM as additional compensation in personal capacity of Sanjeev Swamy whereas the interest amount of 15% was payable by DSM to the assessee. The assessee submitted that the said additional compensation of 9% was not received by the assessee and therefore, the same was to be offered on ‘cash basis’ upon actual receipt thereof. However, not convinced, Ld. AO worked out 9% additional interest for relevant AYs and added the same to the income of the assessee as unexplained income, which are as follows:- No. AY Amount (Rs.) 1. 2008-09 89,112/- 2. 2009-10 1,98,366/- 3. 2010-11 1,89,000/- 4. 2011-12 1,89,000/- 5. 2012-13 1,89,000/- Total 8,54,478/- 3.3 The second addition pertains to Gold & Diamond jewellery & Silver Articles valued at Rs.67,27,325/- found at the residential premises as well as from the Locker held by the assessee with HDFC Bank. The assessee attributed the source of jewellery as Gifts received on various occasions, inheritance through Will upon death of assessee’s mother on 09/12/2009 & purchases from time to time through Banking Channels. However, not convinced with assessee’s submissions, the Ld. AO added the same to the income of the assessee as unexplained jewellery.

is, thus, allowed. Similarly, partial relief has been provided against jewellery addition by Ld. CIT(A) to the following extent:- No. Particulars Relief Provided Addition Sustained

1. Purchases Made by Assessee 5,70,776/- 19,094/-

2. Gifts Received on Various Occasions Overall Relief as per CBDT Not Quantified Circular No. 1916

3. Inherited from Mother’s Will Nil 35,83,674/- Aggrieved, the assessee is in further appeal before us.

5. The Ld. Authorized Representative [AR] taking us through documents placed in the paper-book contested the impugned additions as sustained by Ld. CIT(A) whereas Ld. Departmental Representative submitted that Ld. -176/Mum/2016 Rakesh Khanna & Anita Khanna CIT(A) erred in providing interest relief to the assessee for AYs 2010-11 to 2012-13 since the assessee was following mercantile system of accounting as evident from the quantum assessment order. Our attention is drawn to the letter No. DCIT-CC-3(2)/ITAT/2017-18 dated 19/03/2018 of Ld. AO to submit that the revenue is not in appeal for different assessment years only due to low tax effect circular issued by CBDT and therefore, the additions, as made by Ld. CIT(A) should be confirmed. 6.1 We have carefully heard the rival contentions and perused relevant material on record. First we take up the issue of year of taxability of 9% additional compensation / interest component on amount advanced by assessee to DSM. At the outset, we find that whatever nomenclature is given to the said amount viz. interest or additional compensation, the same was taxable under the head Income from Other Sources only. As per the provisions of Section 145, the income under this head could be offered by the assessee either on cash basis or on mercantile basis. However, the said method is to be followed consistently and the assessee is not permitted to flicker its stand qua the same for different assessment years. Therefore, the year of taxability of the said amount would depend upon the method of accounting being regularly followed by the assessee in earlier assessment years to offer income under the head Income from Other Sources. The Ld. AR has stressed the point that the said sum has never been received by the assessee which has been substantiated by the affidavit of Shri Sanjeev Swamy. On the other hand, in terms of submission of Ld. DR, we find that the Ld. AO, in the quantum order, has noted that the -176/Mum/2016 Rakesh Khanna & Anita Khanna assessee was following mercantile system of accounting. Further, the material on record does not decipher the exact method of accounting being followed by the assessee and both the representatives have failed to demonstrate the said fact conclusively. In the absence of Statement of Account of DSM, Bank Statement of the assessee and earlier Income Tax Returns / Computations, we are unable to examine the same. It is noted that the assessee has offered interest income of 15% in original return of income for AYs 2008-09 & 2009-10 which has been filed before the date of search. The examination of the same couple with bank statement and aforesaid documents would reveal the method of accounting being followed by the assessee. Therefore, on factual matrix, we are left with no option, but to remit the matter back to the file of Ld. AO for re-examination of documentary evidences to find out the method of accounting being followed by the assessee and re-adjudicate accordingly. The assessee, in turn, is directed to substantiate his stand in this regard by filing requisite information / documentary evidences. 6.2 It is also noted that Ld. CIT(A) has deleted additions for AY 2010-11 to 2012-13, against which the revenue is not in further appeal before us, apparently due to low tax effect circular issued by CBDT. The principal of natural justice demands that the assessee remain benefitted by the concessions granted by the said circular, irrespective of the stand taken by Ld. AO in this regard. Consequently, no additions qua interest amounts shall be warranted for AYs 2010-11 to 2012-13.

ITA NO.169-176/Mum/2016 Rakesh Khanna & Anita Khanna 6.3 Resultantly, this ground raised in AYs 2008-09 & 2009-10 stands allowed for statistical purposes whereas this ground for AYs 2010-11 & 2012-13 becomes infructuous since Ld. CIT(A) has already provided the relief to the assessee for these AYs. 6.4 So far as the addition on account of jewellery is concerned, upon consideration of factual matrix, we find that the assessee is unable to reconcile the jewellery in toto and refute the finding of Ld. CIT(A) that the jewellery bestowed upon by the will of the assessee’s mother was meant for the assessee’s two sons who were married and living separately and therefore, it is difficult to accept the proposition that the said jewellery represented inheritance from mother. At the same time, the assessee was qualified Chartered Accountant and he and his wife were Income tax Assessee for several years and offering healthy returned income and therefore, the acquisition of jewellery from time to time could not be ruled out. Further, the receipt of gifts in the shape of Jewellery on various occasions, being customary, could also not be ruled out. We find that the Ld. CIT(A) has already directed Ld. AO to provide relief to the assessee jewellery weight in terms of CBDT circular No. 1916. However, we find that the same would not be an appropriate direction since the jewellery has been acquired by the assessee over a long period of time and the same being of numerous variety / quality / standard would give rise to difficulty in arriving at the valuation. Hence, on peculiar facts of the case, taking a holistic view, we restrict the said disallowance to an adhoc amount of Rs.20 Lacs, which the assessee shall suffer in the impugned AY. No further relief, Rakesh Khanna & Anita Khanna whatsoever, shall be available to assessee against this addition. We order accordingly. Ground Numbers 2 to 6 stands partly allowed.

7. The assessee’s appeal for AY 2010-11 contest another addition of Rs.2,83,495/- (excluding TDS) on account of alleged receipt of interest income of 15% from DSM. We find that the taxability of the same, in similar manner, would depend upon the method of accounting being followed by the assessee. Therefore, the same stands remitted back to the file of Ld. AO for re-adjudication with similar directions.

8. Resultantly, ITA No. 170/Mum/2016 for AY 2009-10 & 171/Mum/2016 for AY 2008-09 stands allowed for statistical purposes. ITA 172/Mum/2016 for AY 2010-11 stands partly allowed for statistical purposes. ITA 169/Mum/2016 for AY 2012-13 stands partly allowed. No order as to costs. ITA Nos. 173-176/Mum/2016 AYs 2007-08 to 2010-11 : Anita Khanna 9.1 The sole ground raised in appeals for AY 2008-09 & 2009-10 contest interest addition of 9%. Factual matrix being the same, taking the same stand, the issue stands remitted back to the file of Ld. AO for re- adjudication on similar lines. 174/Mum/2016 stands allowed for statistical purposes. 9.2 The Ground No. 2 of appeal for AY 2010-11 contest addition of interest income of 15% from DSM which stand remitted back to the file of Ld. AO for re-adjudication on similar lines. Ground No.1 becomes infructuous since relief has already been provided by Ld. CIT(A) in this Rakesh Khanna & Anita Khanna regard. The appeal ITA No. 176/Mum/2016 stands partly allowed for statistical purposes. 9.3 The sole ground raised in assessee’s appeal for AY 2007-08 contest the stand of lower authorities in not allowing a new claim of the assessee in assessment u/s 153A which was never claimed in original return of income. The claim of the assessee, in our opinion, is not tenable since this was an un-abated assessment and the time limit for filing revised return of income had already expired since a long time back. ITA No. 175/Mum/2016 stands dismissed.

10. All the appeals stands disposed off in the following manner:-

Name of the AY Appeal No. Decision Assessee Rakesh Khanna 2008-09 171/Mum/2016 Allowed for statistical purposes Rakesh Khanna 2009-10 170/Mum/2016 Allowed for statistical purposes Rakesh Khanna 2010-11 172/Mum/2016 Partly allowed for statistical purposes 2012-13 169/Mum/2016 Rakesh Khanna Partly Allowed 2007-08 175/Mum/2016 Anita Khanna Dismissed 2008-09 173/Mum/2016 Anita Khanna Allowed for statistical purposes Anita Khanna 2009-10 174/Mum/2016 Allowed for statistical purposes 2010-11 176/Mum/2016 Anita Khanna Partly allowed for statistical purposes Order pronounced in the open court on 11th April, 2018. Sd/- Sd/- (Mahavir Singh) (Manoj Kumar Aggarwal) �ाियकसद� / Judicial Member लेखासद� / Accountant Member मुंबई Mumbai; िदनांकDated : 11 .04.2018 Sr.PS:- Thirumalesh Rakesh Khanna & Anita Khanna