M/S AMRITLAL BHABUTMAL HUF,MUMBAI vs. NFAC, DELHI

PER OM PRAKASH KANT, AM

This appeal by the assessee is directed against order dated 01.06.2022 passed by the Ld. Commissioner of Income-tax (Appeal) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2018-19, raising following grounds:

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1 The learned CIT(A) The learned CIT(A)- NFAC passed the order u/s.250 of the Income Tax NFAC passed the order u/s.250 of the Income Tax Act, 1961 ("the Act") without providing proper opportunity of being heard. 61 ("the Act") without providing proper opportunity of being heard. 61 ("the Act") without providing proper opportunity of being heard. The learned CIT(A) The learned CIT(A) - NFAC failed to provide further opportunity of hearing NFAC failed to provide further opportunity of hearing and/or through video conferencing. The action of the learned CIT(A) and/or through video conferencing. The action of the learned CIT(A) and/or through video conferencing. The action of the learned CIT(A) - NFAC is against the provisions of law and a NFAC is against the provisions of law and against the principle of natural gainst the principle of natural justice; 2.1 The learned CIT(A) The learned CIT(A) - NFAC erred in confirming the action of the NFAC erred in confirming the action of the learned AO in computing the business income u/s. learned AO in computing the business income u/s. 44AD of the Income 44AD of the Income Tax Act, 1961 ("the Act") on proportionate basis instead of reducing the Tax Act, 1961 ("the Act") on proportionate basis instead of reducing the Tax Act, 1961 ("the Act") on proportionate basis instead of reducing the amount of capital gain from turnover and profit declared u/s.44AD of the of capital gain from turnover and profit declared u/s.44AD of the of capital gain from turnover and profit declared u/s.44AD of the Act. The computation of profit u/s.44AD on proportionate basis is The computation of profit u/s.44AD on proportionate basis is The computation of profit u/s.44AD on proportionate basis is erroneous, illegal, void, based on surmises and conjectures and against erroneous, illegal, void, based on surmises and conjectures and against erroneous, illegal, void, based on surmises and conjectures and against the provisions of law; the provisions of law; 2.2 The learned CIT(A) ought The learned CIT(A) ought to have appreciated that short term capital to have appreciated that short term capital gain of Rs 6,05,999/ gain of Rs 6,05,999/- arisen from the redemption of debt funds was arisen from the redemption of debt funds was wrongly included in list of interest received (and thereby included in wrongly included in list of interest received (and thereby included in wrongly included in list of interest received (and thereby included in turnover declared u/s.44AD) and erroneously treated as business income turnover declared u/s.44AD) and erroneously treated as business income turnover declared u/s.44AD) and erroneously treated as business income u/s 44AD of the Act which should have been reduced from the turnover s 44AD of the Act which should have been reduced from the turnover s 44AD of the Act which should have been reduced from the turnover and net profit offered by the appellant in the return of income. and net profit offered by the appellant in the return of income. and net profit offered by the appellant in the return of income. The addition made is illegal and bad in law; addition made is illegal and bad in law; 2.3 The learned CIT(A) failed to appreciate the submission dated The learned CIT(A) failed to appreciate the submission dated The learned CIT(A) failed to appreciate the submission dated 03/02/2021 of 03/02/2021 of the appellant filed during the assessment proceedings; the appellant filed during the assessment proceedings; 3.1 The learned CIT(A) erred in not allowing The learned CIT(A) erred in not allowing TDS credit claimed in the TDS credit claimed in the return of income to the tune of Rs.1,60,077/ return of income to the tune of Rs.1,60,077/-; 3.2 The learned CIT(A) erred in not adjudicating this ground on the The learned CIT(A) erred in not adjudicating this ground on the The learned CIT(A) erred in not adjudicating this ground on the pretext that an pretext that an application for rectification is still pending and the ground application for rectification is still pending and the ground in this respect is still premature; in this respect is still premature; 4.1 erred in confirming the action of the learned AO in levying excess erred in confirming the action of the learned AO in levying excess erred in confirming the action of the learned AO in levying excess interest u/s.234C of the Act; interest u/s.234C of the Act; 4.2 The learned CIT(A) erred in not adjudicating this gr The learned CIT(A) erred in not adjudicating this ground on the The learned CIT(A) erred in not adjudicating this gr pretext that this ground is premature at this Stage; pretext that this ground is premature at this Stage; 2. Briefly stated, facts of the case are that the assessee filed Briefly stated, facts of the case are that the assessee filed Briefly stated, facts of the case are that the assessee filed return of income on 28.09.2018 declaring return of income on 28.09.2018 declaring total income at Rs. 26,15,100/-. In the return of income, the assessee had offered In the return of income, the assessee had offered In the return of income, the assessee had offered income under the ‘profit and gains of business and profession’ from income under the ‘profit and gains of business and profession’ from income under the ‘profit and gains of business and profession’ from money lending activity amounting to Rs.25,80,098/- against total money lending activity amounting to Rs.25,80,098/ money lending activity amounting to Rs.25,80,098/ receipts of Rs.80,45,858/ receipts of Rs.80,45,858/- under the provisions of section 44AD of under the provisions of section 44AD of

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the Act. The return of income filed by the assessee was selected for The return of income filed by the assessee was selected for The return of income filed by the assessee was selected for scrutiny and notices under the Income-tax Act, 1961 (in short ‘the tax Act, 1961 (in short ‘the Act’) were issued and complied with. In the assessment completed Act’) were issued and complied with. In the assessment completed Act’) were issued and complied with. In the assessment completed u/s 143(3) r.w.s. 143(3A) and 14 u/s 143(3) r.w.s. 143(3A) and 143(3B) of the Act, t 3(3B) of the Act, the Assessing Officer assessed income of the assessee at Rs.30,26,218/-. In the Officer assessed income of the assessee at Rs.30,26,218/ Officer assessed income of the assessee at Rs.30,26,218/ the Assessing Officer , firstly, excluded assessment, the Assessing Officer , , excluded the short term capital gain of Rs. 6,05,999/ of Rs. 6,05,999/- from the interest from the interest receipt of Rs.80,45,858/-and taxed the same under the head ‘capital and taxed the same under the head ‘capital gain’. and taxed the same under the head ‘capital Secondly, the Assessing Officer computed the income the Assessing Officer computed the income the Assessing Officer computed the income under the head ‘profit and gains of business or profession’ head ‘profit and gains of business or profession’ u/s 44AD of the u/s 44AD of the Act at Rs. 23,85,219/ at Rs. 23,85,219/- i.e. the profit in proportion of i.e. the profit in proportion of the balance receipt reduced by the amount of short ter reduced by the amount of short term capital g m capital gain of Rs.6,09,998/- to the total receipt of Rs.80,45,858/ to the total receipt of Rs.80,45,858/ to the total receipt of Rs.80,45,858/- ( 25,80,098X 74,39,859/80,45,858). 74,39,859/80,45,858). The assessee being aggrieved with the The assessee being aggrieved with the computation of the proportionate computation of the proportionate income to filed before the Ld. to filed before the Ld. CIT(A) but the Ld. CIT(A) rejected the contention of the assessee and CIT(A) but the Ld. CIT(A) rejected the contention of the a CIT(A) but the Ld. CIT(A) rejected the contention of the a upheld the disallowance made by the Assessing Officer observing as upheld the disallowance made by the Assessing Officer observing as upheld the disallowance made by the Assessing Officer observing as under:

“7. The appellant has not brought anything on record in support of his The appellant has not brought anything on record in support of his The appellant has not brought anything on record in support of his claim that the Short claim that the Short-Term Capital Gains of Rs. 6,05,999/- was already was already included in the turnover of included in the turnover of business of Rs. 80,45,856/- as declared in as declared in the return of income. the return of income. Since, it is the appellant's claim that they are not required to maintain Since, it is the appellant's claim that they are not required to maintain Since, it is the appellant's claim that they are not required to maintain any books of accounts while declaring the income u/s 44AD of the IT any books of accounts while declaring the income u/s 44AD of the IT any books of accounts while declaring the income u/s 44AD of the IT Act; the claim that such short Act; the claim that such short-term capital gain was already included in was already included in the gross turnover remains unverifiable. the gross turnover remains unverifiable. 7.1 The short-term capital gain was not included in the returnof income term capital gain was not included in the returnof income term capital gain was not included in the returnof income and the same has been assessed separately bythe AO under the head and the same has been assessed separately bythe AO under the head and the same has been assessed separately bythe AO under the head where it is due to be assessed. The AO does not have where it is due to be assessed. The AO does not have the power to the power to

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change the 8% of gross turnover declared u/s 44AD of the Act by the change the 8% of gross turnover declared u/s 44AD of the Act by the change the 8% of gross turnover declared u/s 44AD of the Act by the appellant in its return of income since, the same is the appellants appellant in its return of income since, the same is the appellants appellant in its return of income since, the same is the appellants estimation. The same is not backed by any books of accounts nor the estimation. The same is not backed by any books of accounts nor the estimation. The same is not backed by any books of accounts nor the appellant has produced any documentary appellant has produced any documentary evidence that the capital gain evidence that the capital gain was included while calculating the gross turnover. was included while calculating the gross turnover. 7.2 Section 44AD is for the eligible business turnover over only and by Section 44AD is for the eligible business turnover over only and by Section 44AD is for the eligible business turnover over only and by no stretch of imagination could it possibly include short term capital no stretch of imagination could it possibly include short term capital no stretch of imagination could it possibly include short term capital gain from redemption of debt gain from redemption of debt funds from mutual funds. This ground of funds from mutual funds. This ground of appeal is therefore, dismissed. appeal is therefore, dismissed.” 3. Before us, the Ld. Counsel for the assessee has filed a Paper Before us, the Ld. Counsel for the assessee has filed a Paper Before us, the Ld. Counsel for the assessee has filed a Paper Book containing pages 1 to 22. Book containing pages 1 to 22.

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income on reduced reduced turnover and computed the income to puted the income to Rs.23,85,219/- under the head ‘profit and gains of business or under the head ‘profit and gains of business or under the head ‘profit and gains of business or profession’ , excluding the amount of short term capital gain of excluding the amount of short term capital gain of excluding the amount of short term capital gain of Rs.6,05,999/- under the head ‘capital gains’ under the head ‘capital gains’. The assessee is The assessee is aggrieved with the computation computation of its income u/s 44AD of the Act /s 44AD of the Act on proportionate basis on proportionate basis. According to the assessee, the Assessing ccording to the assessee, the Assessing Officer Officer Officer should should should have have have reduced reduced reduced or or or excluded excluded excluded the the the income income income of of of Rs.6,05,999/- which is held as short term capital gain, which is held as short term capital gain, from which is held as short term capital gain, income computed of Rs.25,80,098/ of Rs.25,80,098/- under section 44AD by under section 44AD by the assessee. We have perused the profit and loss account of the . We have perused the profit and loss account of the . We have perused the profit and loss account of the assessee available on Paper Book page 4. For ready reference which assessee available on Paper Book page 4. For ready reference which assessee available on Paper Book page 4. For ready reference which is reproduced as under: is reproduced as under:

M/S.RIKHBAJI CORPORATION PROP,AMRITLAL BHABUTMAL JAIN (HUF) PROP,AMRITLAL BHABUTMAL JAIN (HUF) PROFIT & LOSS ACCOUNT FOR THE YEAR ENDING 31.03.2018 PROFIT & LOSS ACCOUNT FOR THE YEAR ENDING 31.03.2018 To Postage & Stationery To Postage & Stationery 7,876.00 By Interest Recd. 8,045,857.50 " Insurance 20,125,00 Shop Rent 210,000.00 " Interest Paid 5,217,357.00 " Depreciation on Car 128,538.00 " Bank Charges 3,721.28 " Donation 50,000.00 " Professional Fees 14,555.00 " Salary 84,000.00 " Telephone Expenses 14,030.00 " Shop Exp 9,625.00 " Staff Welfare 9,000.00 “ Net Profit 2,697,030,.22 Total 8,255,857.50 Total Rs. 8, 255,857.50

4.1 Further, the assessee has Further, the assessee has computed income u/s 44AD of the computed income u/s 44AD of the Act as under:

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Profit for 44AD Net Profit as per Profit & Loss A/c Net Profit as per Profit & Loss A/c 2697030 2697030 (+) Depn as per P&L A/c (+) Depn as per P&L A/c 128538 128538 (-) Depn as per Income Tax Act ) Depn as per Income Tax Act 85470 85470 (-) Shop Rent Considered under other Heads of Income ) Shop Rent Considered under other Heads of Income 210000 210000 (+) Donation 50000 50000 2,580,098.00 2,580,098.00 4.2 So if contention of the assessee are accepted, then after contention of the assessee are accepted, then after contention of the assessee are accepted, then after exclusion of the amount of short capital gain from the receipt the amount of short capital gain from the receipt of the amount of short capital gain from the receipt Rs.80,45,857/- , the , the profit as per the profit and loss account profit as per the profit and loss account would also to be reduced by by the corresponding amount of Rs.6,05,999/ the corresponding amount of Rs.6,05,999/- which would then worked out to Rs.20,91,031/- and after which would then worked out to Rs.20,91,031/ which would then worked out to Rs.20,91,031/ adjustment for depreciation and donation and shop rent would adjustment for depreciation and donation and shop rent would adjustment for depreciation and donation and shop rent would worked out to Rs.19,74,099/ worked out to Rs.19,74,099/-. The assessee wants that income The assessee wants that income under the head ‘profit and gains of under the head ‘profit and gains of business and profession’ should business and profession’ should be taxed at this amount only. be taxed at this amount only. In our opinion, the Assessing Officer In our opinion, the Assessing Officer has applied the principle principle that expenses appearing in the profit and that expenses appearing in the profit and loss account are also also related to the activity of earning s related to the activity of earning short term capital gain of Rs.6, 6,05,999/- and therefore, he has excluded the and therefore, he has excluded the corresponding expenses from the profit and loss account also. corresponding expenses from the profit and loss account also. corresponding expenses from the profit and loss account also. During the course of the hearing the Ld. During the course of the hearing the Ld. Counsel for the assessee for the assessee was asked for exclusion of for exclusion of amount of expenditure amount of expenditure for earning of short term capital gain gain, which he could not substantiate. The which he could not substantiate. The expenses debited in the profit and loss account include postage & expenses debited in the profit and loss account include postage & expenses debited in the profit and loss account include postage & stationery, insurance, interest paid, depreciation on car, bank stationery, insurance, interest paid, depreciation on car, bank stationery, insurance, interest paid, depreciation on car, bank charges, donation, professional fee, salary telephone expenses, shop charges, donation, professional fee, salary telephone expenses, shop charges, donation, professional fee, salary telephone expenses, shop expenses, staff welfare and it could not be denied that ff welfare and it could not be denied that ff welfare and it could not be denied that some of the expenses out of those expenses out of those, must be incurred for earning the income must be incurred for earning the income

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from short term capital gain. In such circumstances, the action of from short term capital gain. In such circumstances, the action of from short term capital gain. In such circumstances, the action of the Assessing Officer in charging proportionate expenses and the Assessing Officer in charging proportionate expenses and the Assessing Officer in charging proportionate expenses and rejecting contention of assessee for contention of assessee for computing u/s 44AD of the Act computing u/s 44AD of the Act in the manner computed by the assessee in the manner computed by the assessee, is justified. Accordingly, is justified. Accordingly, we reject the contention of the assessee we reject the contention of the assessee in ground No. 2 of the in ground No. 2 of the appeal. The ground No. 1 and 3 of the appeal was not pressed appeal. The ground No. 1 and 3 of the appeal was not pressed appeal. The ground No. 1 and 3 of the appeal was not pressed before us. The ground No. 4 being consequential same is not us. The ground No. 4 being consequential same is not us. The ground No. 4 being consequential same is not required adjudicated and hence dismissed as infructuous. required adjudicated and hence dismissed as infructuous. required adjudicated and hence dismissed as infructuous.

Order pronounced in the open Court on nounced in the open Court on 31/07/2024. /07/2024. Sd/- - Sd/ Sd/- (SUNIL KUMAR SINGH (SUNIL KUMAR SINGH) (OM PRAKASH KANT PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 31/07/2024 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai