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Income Tax Appellate Tribunal, DELHI BENCH “SMC”, NEW DELHI
Before: SHRI S.V. MEHROTRA
O R D E R PER S.V. MEHROTRA, A.M :
This is an appeal filed by the assessee against the order dated 30.10.2015 passed by the Commissioner of Income Tax (Appeals)-11, New Delhi, u/s 143(3) of the Income Tax Act, 1961 (in short “the Act”), relating to assessment year 2009-10.
Brief facts of the case are that during the relevant assessment year, the assessee earned income from house property, from business or profession and other sources. He had filed his return of income declaring income of Rs.14,60,662/- and agricultural income of Rs.17,49,480/-. In the course of assessment proceedings, the Assessing Officer observed that the assessee had not produced any evidence as to sale proceeds of huge quantity of agricultural produce consisting of Amla, Papaya, etc.. He estimated the agricultural income at Rs.12,00,000/- and treated the balance income of Rs.3,99,480/- as income from undisclosed sources.
2.1 He further noticed that assessee had claimed expenses of Rs.4,59,720/- on account of expenses incurred to earn the agricultural income. He required the assessee to furnish necessary proof of these expenses. However, the assessee could not produce these evidences, therefore, he estimated 50% of the entire expenses claim as expenses on account of agricultural income and disallowed the balance 50%.
2.2 The Assessing Officer further observed that assessee had claimed an amount of Rs.1,30,575/- paid on account of interest to the bank. He noted that no business activity had been done by the assessee during the relevant assessment year and no satisfactory reply was submitted in this regard.
However, taking note of the fact that the assessee had earned an interest income of Rs.75,167/-. He made a disallowance of balance interest of Rs.55,408/-.
The Assessing Officer further noticed that assessee had claimed business expenses of Rs.4,33,721/- but since no business activity had been done by the assessee and assessee failed to produce any evidence in relation to purchase and sale. Therefore, he disallowed the business expenses claimed by assessee.
Ld. CIT(A) partly allowed the assessee’s appeal by deleting the 50% of the expenses towards earning of agricultural income disallowed by the Assessing Officer. Being aggrieved with the order of ld. CIT(A), the Tribunal, the assessee is in appeal before the Tribunal and has taken following grounds of appeal :-
“The order of CIT(A)-11 confirming additions to Income in assessment u/s 143(3) is bad in law & facts of the following grounds :-
1. Because CIT(A) has erred in confirming the addition on account of treating agricultural income of Rs 3,99,480 as income from undisclosed sources ignoring the facts of cases & on wrong basis.
2. Because CIT(A) has erred in confirming the addition of Rs 55,408/= on account of interest on loan ignoring the facts the case & submissions of the appellant and on wrong premises.
3. Because CIT(A) has erred in Confirming the addition of Rs 4,33,721 on account of business expenses on wrong observation & conclusions drawn.
4. The appellant craves to add, delete, amend, modify records, any ground or grounds of appeal.”
5. Apropos ground no.1, ld. counsel for the assessee referred to pages 25 to 27 of Paper Book, wherein, the affidavit of assessee is contained giving the details of earning of net agricultural income at Rs.15,99,480/- as under :-
“2. That during FY 2008-09, I derived Net Agricultural Income of Rs.15,99,480/- from Sale of agricultural produce as under :-
S.No. Agricultural Land Area Qty. Sold Av. Rate of Gross Sale Produce Covered Sale (Rs.) (Rs.) 1 Papaia 1.50 Acre 1,05,000 kg 8 per kg 840,000 2 Sarsoon 20.00 Acre 18,000 Kg 20 per kg 360,000 3 Wheat 3.50 Acre 6,300 Kg 10 per kg 63,000 4 Gram 2.00 Acre 2,100 kg 22 per kg 46,200 5 Gvaar 1.00 Acre 1,200 kg 50 per kg 60,000 6 Amla 1.00 Acre 15,000 kg 18 per kg 270.000 7 Lemon 1.00 Acre 21,000 kg 20 per kg 420,000 Total 30.00 Acre 2,059,200 Less : Agricultural Expenses 1. Seeds 60,500 2. Manure, Chemicals, Pesticides 37,500 3. Water & Electricity 42,000 4. Labour 260.000 5. Other Misc. 59,720 459,720 1,599,480 Net Agricultural Income
Ld. counsel further referred to page 28, wherein, the statement of assessee is contained and pointed out that the averments made in the affidavit have not been found to be wrong. Ld. counsel pointed out that assessee inherited land from his father, who passed away on 13.01.2004, therefore, the agricultural income shown by assessee in assessment year 2009-10 was on his own as well as land inherited by his father as well as owned by sister of assessee, who was out of India. Ld. DR submitted that no records were produced by assessee to substantiate its claim and merely on the basis of averments made in affidavit, without being substantiated, the assessee’s claim was rightly rejected partly by Assessing Officer.
I have considered the submissions of both the parties and perused the record of the case. Admittedly, before the Assessing Officer, the assessee, inter-alia, admitted that no records were maintained in regard to sale of crops. The Assessing Officer had given due weightage to assessee’s plea regarding increase in land holdings. The submissions of ld. counsel that assessee’s plea on the basis of affidavit should have been accepted in toto, is devoid of any merit because unless the averments made in the affidavit are duly supported by evidence, the same cannot be taken as sacrosanct. The assessee had been provided opportunity to substantiate the averments by Assessing Officer as he had taken assessee’s statement also and, therefore, the estimate made by the Assessing Officer does not call for any inference.
Accordingly, this ground is dismissed.
Brief facts propos ground no.2 are that the disallowance had been made primarily on the ground that the no business activity had been done by the assessee during the relevant assessment year. The Ld. CIT(A) confirmed the addition.
Ld. counsel submitted that assessee had taken a personal loan from HDFC Bank and invested as a partner in its firm, namely, “Better Living” and also earned interest income amounting to Rs.75,167/- from the firm.
Ld. counsel pointed out that the interest is to be allowed u/s 36(1)(iii) because the business activity in the context of proprietory business “Darroumana” in respect of furniture had started. Ld. counsel pointed out that business had been setup during the year because assessee had purchased stock like decorative items, furniture items, amounting to Rs.1,25,000/- from various places including Udaipur, Jaipur and from various scrap dealers and, therefore, merely because there was no sale, it could not be held that no business had been setup. He, therefore, submitted that this claim is to be allowed u/s 36(1)(iii) of the Act. Ld. DR relied on the order of ld. CIT(A) and submitted that since there was no business activity, this claim could not be allowed.
I have considered the submissions of both the parties and perused the record of the case. As far as the claim u/s 36(1)(iii) is concerned, the same can be allowed only if assessee could substantiate the setting off of his business. The onus was on assessee to establish that first step had been taken towards setting up of his business. Ld. CIT(A) concluded that there was no setting up of business because assessee failed to substantiate the purchases of Rs.1,25,000/-. However, the assessee had also claimed rent of Rs.69,000/- out of which Rs.57,000/- had been paid through cheque and had also claimed Rs.1,58,785/- towards repairs and maintenance out of which Rs.1,51,105/- was paid through cheque as is evident from pages 52 to 53 of Paper Book. Further, the assessee had paid salary of Rs.48,000/- in cash apart from telephone and conveyance of Rs.9,700/-. Even if the Assessing Officer was not satisfied with the cash payments but the payments made through cheque towards rents clearly show that the assessee had taken the premises on rent for his business purpose and that was sufficient evidence to come to the conclusion that assessee had setup its business because it is not disputed that assessee eventually carried on business from the said premises.
Therefore, the interest expenditure claimed by assessee was allowable as business expenditure u/s 36(1)(iii). Alternatively, even if, the Department’s view is to be accepted regarding no business activity, still, I find that this claim is allowable u/s 57(iii) as entire amount borrowed had been invested in firm and, therefore, it was an allowable deduction being incurred wholly and exclusively for earning interest. In the result, the ground no.2 is allowed.
Apropos ground no.3 the main reason for making disallowance was that no business activity had been done by the assessee. However, as held earlier, in regard to ground no.2, that the business of the assessee had been setup, therefore, I direct that expenses through cheque by assessee only should be allowed by Assessing Officer and rest incurred in cash to be disallowed as assessee failed to substantiate its claim. In the result, the ground no.3 is partly allowed.
In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on this 09th day of February, 2017.