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Income Tax Appellate Tribunal, “J”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN, JM
आदेश / O R D E R PER R.C.SHARMA (A.M): These are the appeals filed by assessee against the order of CIT(A)-41, Mumbai dated 03/01/2011 for the Assessment Years 2005-06, 2006-07, 2008-09 and 2009-10 in the matter of order passed u/s.143(3) / 143(3) r.w.s. 263 of the IT Act.
2 and three other appeals Mr. Jaswantlal J Shah ITA 2599/Mum/2014 (A.Y.2005-06) In this appeal, assessee alleged that order passed by AO was being barred by period of limitation. On merit of addition, assessee is aggrieved by addition of Rs.3,06,87,960/-.
Rival contentions have been heard and record perused.
Facts in brief are that the assessee filed his return of income for the A.Y. under consideration on 29.03.2007 declaring total income at Rs.60,0l,940/-. Thereafter, the case was selected for scrutiny and order u/s, 143(3) of the Act was passed on 24.12.2007 determining total income of the assessee at Rs.89,37,960/- after making certain additions. A survey operation u/s.133A of the Act had been conducted at the premises of the assessee on 11/12.12.2004 by the DDIT (lnv.), Unit III(2), Mumbai. In his statement recorded u/s.133A of the Act, the assessee had accepted that an amount of Rs.2,17,50,000/- deposited in account NO.0060460000320 in the name of M/s. Essjay Incorporation with the HDFC Bank, Worli Branch, Mumbai represented his unexplained money. During the survey it was offered by him as his undisclosed income in the A.Y. under consideration. The assessee had not declared this amount as income in his return of income and the AO however, while completing the assessment vide order dated 24.12.2007, had not made any addition on this account. Therefore, proceedings u/s.263 of the Act was initiated by the CIT, Central-Ill, Mumbai. In the course of revision proceedings, the assessee challenged the jurisdiction u/s.127 of the Act and contradicted the statement recorded during the course of survey, contending that it 3 and three other appeals Mr. Jaswantlal J Shah was merely tentative and had no evidentiary value whatsoever. The CIT vide his order u/s.263 dated 29.03.2010 concluded that the assessment order dated 24.12.2007 was erroneous and prejudicial to the interest of the revenue in so far as the A.O had omitted to bring to tax the undisclosed income of the assessee amounting to Rs.2,17,50,000/-. The CIT set aside the order dated 24.12.2007 and directed the AO to pass a fresh assessment order after examining the above issues in detail and providing reasonable opportunity of being heard to the assessee. To give effect to the order of CIT(A) passed u/s.263, AO issued notices u/s.143(2) and 142(1), however, assessee had not attended assessment proceedings. AO observed that the assessee had not reflected in his return for the AY under consideration undisclosed income of Rs.2,17,50,000/- offered to tax during the course of survey u/s. 133A of the Act. Therefore, the AO vide his order dated 29/12/2010 added the same to the total income of the assessee and the revised total income of the assessee was determined at Rs.3,06,87,960/-.
Before the CIT(A), assessee challenged validity of assessment order on the plea that it was barred by a period of limitation. Merit of addition was also challenged. In the A.Y.2008-09 also assessee has challenged validity to the Assessment Order on the ground of limitation period. The CIT(A) rejected assessee’s contention after observing as under:- "The appellant's case was transferred within the city itself and as per Section 127(3), no opportunity of being heard requires to be given if the transferring A.O. and the case receiving AO are in the same city. It is also pertinent to note that the appellant has himself been filing returns of income regularly with the AO to whom the 4 and three other appeals Mr. Jaswantlal J Shah case has been transferred. Hence, now he cannot object to the assessment being done in his case by the AO Where he himself had filed return of income. It is also noted that the appellant had raised this ground in A Y.2007-08 also and the CIT(A)- 41 vide his order No.CIT(A)-41/DCCC-32/IT-766/09-10 dated October 1, 2010 had discussed this issue threadbare and had decided against the appellant. Since there is' no change in facts, following the order of the CIT(A)-41 and for the reasons mentioned above, the ground of the appellant is dismissed".
Considering the reasoning and finding given by the CIT(A) as reproduced above, we do not find any merit in the contention of the assessee. Nothing was produced before us to persuade from the above findings of CIT(A). Accordingly, ground taken by assessee is dismissed.
With regard to the assessment order being barred by limitation, we found that the CIT vide his order dated 29.03.2010 has set aside the order of original assessment dated 24.12.2007 and directed the AO to pass a fresh assessment order after examining the issues involved and providing the assessee reasonable opportunity of being heard. It is also observed that the AO completed the consequential assessment proceedings vide his order dated 29.12.2010. The CIT(A) rejected assessee’s contention after observing as under:- 5.3.1 I have considered the submissions of the appellant and perused the materials on record. As per Section 153(2A) read with the second proviso, the period of limitation for passing the fresh assessment order was available up to 31.12.2010, whereas the impugned order is seen to have been passed on 29.12.2010. It is observed that in view of the serious allegations levelled by the appellant against the AO., my predecessor had vide letter dated 06.11.2012 sought a remand report from the AO in this regard. The relevant extract of the remand report furnished by the AO. vide letter dated 06.06.2013 is reproduced below:- " ..... it is seen that the following notices were issued to the assessee- notices u/s.143(2) and 142(1) dated 21.06.2010, 5 and three other appeals Mr. Jaswantlal J Shah u/s.142(1) dated 14.09.2010 & 01.10.2010 With regards to the non-availability of proof of service of notices, a fact cannot be disregarded that the assessment proceedings for A.Y.2008-09 were simultaneously being carried out in case of the assessee, wherein notices for A. y's2005-06 and 2008-09 of same dates were sent to the assessee in common envelopes from time to time. Further attention is invited to the case records of the assessee for A. Y.2004-05 wherein the assessee had resorted to a similar stand of non-service of notice u/s.143(2), which was reiterated by him in his affidavit. The said stand of the assessee was found non est by Hon'ble CIT(A) vide order dated 12.11.2007. With regard to the order having been passed beyond the period of limitation, the assessment has been completed vide order dated 29.12.2010 and was duly dispatched by speed post on 30.12.2010. Both acts are well within the period of limitation. ...the document evidencing the speed post has been found in the file of Assessment year 2008-09 while going through the order of Hon'ble CIT(A) for A. Y. 2008-09 similar ground of limitation was taken by the assessee in appeal filed by him for A. Y.2008-09 for order passed u/s.143(3) of the Act dated 29.12.2010 and the said ground was dismissed by the Hon'ble CIT(A) .... The relevant para is reproduced as under: "6.1 I have considered the submissions of the appellant and called for the assessment records and verified that the assessment order was dispatched by Speed Post on December 29.10.10 itself. Therefore, the order being barred by limitation does not arise. Hence the ground of appeal raised by the appellant is dismissed. Even during the appellate proceedings for A.Y. 2007-08 ... the similar ground of the assessee was dismissed. ….. it is seen that since centralization of the case, the assessee has been repeatedly taking the same pleas in A. Y.s 2004-05, 2005-06, 2007-08, 2008-09 viz: non-jurisdiction, non service of notices, non service of assessment order as per period of limitation and every time the said pleas of the assessee has neither been found to be good in facts nor in law. Again in the impugned order, the assessee has resorted to the same pleas and such a repeated baseless act can only be regarded to be causing delay in judicial proceedings. Since the assessment order was served to the assessee well within the period of limitation, the appeal filed by the assessee is beyond the period allowed u/s. 249 of the Income Tax Act, 1961, the Hon'ble CIT(A) is requested 6 and three other appeals Mr. Jaswantlal J Shah not to consider the appeal under consideration and reject the same". 5.3.2 The said Remand Report dated 06.06.2013 forwarded by the Addl. CIT, Central Range-8, Mumbai vide letter dated 11.06.2013 was received on 17.06.2013. A copy of the same was provided to the appellant for rebuttal, if any. The appellant has furnished his rejoinder vide Affidavit dated 04.12.2013 wherein he has reiterated his submissions as well as allegations against the AO such as forgery, interpolations and tampering of the original despatch registers, backdating of proceedings etc. It is alleged that the AO has "falsely created records to show that he had passed and sent the assessment order within the period of limitation". It is stated that the appellant has already filed complaints with the DGIT (Vigilance), New Delhi with a request to carry out an investigation in the matter. It is also urged that the case may be entrusted to the CBI as it involves serious offences like forgery, tampering of official records, false verification etc. 5.3.3 In this connection, it emerges that the appellant has constantly been raising objections as regards lack of jurisdiction, issue of limitation etc. year after year but such objections have been found to be devoid of merit in first appeals filed by the appellant as mentioned above. It deserves to be noted that neither the present appeal is the appropriate proceedings nor the first appellate authority is the competent authority to probe allegations of forgery, tampering of official records etc. (which are offences under the IPC) against the AO. If the appellant has any such grievance, he has to seek his remedies elsewhere. As far as the issue under appeal is concerned, it is observed from perusal of the remand report that the impugned order has been passed well within the period of limitation on 29.12.2010 and the document evidencing its despatch by way of speed post on the same day has- been found by the AO to be available in the file for AY.2008- 09. Thus, Ground No.2 raised by the Assessee is found to be devoid of substance and is dismissed.
7. We had carefully gone through the orders of the authorities below as well as the remand report dated 06/06/2013 as referred by the CIT(A) in his order, we found that impugned order of the AO has been passed well within the period of limit on 29/12/2010 which is duly evidenced by the fact that it was dispatched through speed post on the same day. No 7 and three other appeals Mr. Jaswantlal J Shah positive material was brought on record by the assessee during proceedings before us to persuade us to deviate from the above findings. Accordingly this ground of assessee is also dismissed.
8. While giving effect to the order of CIT(A) u/s.263, the AO had computed revised total income at Rs.3,06,87,960/-. By the impugned order, CIT(A) confirmed the addition after observing as under: 6.3.1 I have considered the submissions of the appellant and perused the materials on record. At the outset, it needs to be made clear that the A.O. has made addition of only Rs.2,17,50,000/- vide the impugned order and, therefore, the appellant cannot in the present appeal object to the addition of Rs.3,06,87,960/- which actually represents the revised total income assessed vide the impugned order. As far as the addition of said amount of Rs.2,17,50,000/- is concerned, it is observed from the record that the said amount represents unexplained or undisclosed income of the appellant admitted by him in the course of his sworn statement recorded on 12.12.2004 based on incriminating materials impounded in the course of survey at his premises, as brought out above. It would be pertinent to refer to the following extracts of his statement recorded during the course of survey:- "Question No. 6: Perusal of bank statement reveals that maximum amount of cash deposited on a single occasion was on 6/12/2004 and the amount was Rs.2,17,50,000/-. As per your statement this entire amount appears to be your unaccounted cash balance. What do you have to say? Ans.: Yes, I accept this amount of RS.2,17,50,000/- as my unexplained money and offer it for taxation as concealed income in the current year. Question No.7: In the light of your statement, do you accept the cash seized of Rs. 1,23,46,500/- as your unexplained money? Ans.: As Mr. Mangilal Devashi has already stated, this money was given by me out of the same rotating cash balances which I have just now offered as my concealed income ". 6.3.2 A perusal of the statements of the appellant recorded in the course of search/survey shows that the appellant has accepted the following facts:-
• That M/s. Essjay Incorporation has an account No.0060460000320 in the HDFC Bank, Worli Branch, Mumbai; • That he had got this concern registered with the HOFe Bank for bullion trade; • That he had deposited cash of Rs.2,17,50,000/- (peak amount) in the said bank account which represented his undisclosed income for the F.Y. relevant to the AY. under consideration and • That cash of Rs.l,23,46,500/-, seized from Shri Mangilal Devashi had been given to him by the appellant out of his unexplained income. It is not the case of the appellant that his statement was recorded under duress, coercion or threat. The appellant has also not taken any plea that the said statement was made under a mistaken notion of law or facts. In view of this position, it cannot be denied that the statements of the appellant recorded in the course of search/survey have got great evidentiary value [ACIT v, Jaqat Explosives 98 ITD 50 (Jd)(TM)}. Under these circumstances, no fault can be found with the action of the AO in making the addition of Rs.2,17,50,000/- based on the admission made by the appellant in his statement recorded during the course of survey u/s.133A upon being confronted with the incriminating materials impounded from his premises. The action of the AO in making addition of Rs.2,17,50,000/- as undisclosed income of the appellant cannot, thus, be said to be unjustified or illegal and the same is hereby sustained. Ground No.3 raised by the appellant is accordingly dismissed.
9. With regard to the merit of the addition, from the record, we found that one Shri Mangilal Devashi, who is a relative of the assessee, was found in possession of cash of Rs.1,23,46,500/- during the course of search carried out on 12.12.2004. The assessee was also accompanying Shri Mangilal Devashi. During the course of search, Shri Mangilal Devashi in the course of his statement u/s.132(4) stated that this cash belonged to 9 and three other appeals Mr. Jaswantlal J Shah the assessee. Based on this information, survey action u/s.133A was conducted at the office premises of the assessee on the same date, ie.,12.12.2004. During the course of survey, the assessee in his statement on oath recorded by the DDIT(Inv.), Unit-Ill, Mumbai admitted that cash of Rs.1,23,46,500/- recovered from the possession of Shri Mangilal Devashi represented the assessee's income from unexplained sources. While explaining the contents of pages 26 and 27 impounded during the course of survey proceedings, the assessee stated that "all the loans recorded on these two pages have been received back by me and the cash of Rs.1,23,46,500/- was generated out of the liquidation of the loans". In light of the notings on page 27, the assessee offered for taxation undisclosed income of Rs.2,17,50,000/- being peak credit in HDFC Account in the name of Essjay Incorporation. M/s. Essjay Incorporation is proprietary concern of Mrs. Sangeeta Jain, wife of Shri Mukesh Jain who happens to be cousin brother of the assessee. The assessee had undertaken to bifurcate his offer of undisclosed income of Rs.2,17,50,000/- in two years, but it is seen from the record that the assessee never disclosed the said amount in his return for the A.Y. under consideration. The facts narrated above have been culled out from the order of CIT(A), Central VIII, Mumbai dated 12.11.2007 in case of the assessee for A.Y.2004-05. It deserves to be noted that upon being asked to furnish copy of his statement recorded during the course of survey, the assessee vide letter dated 06.01.2014 stated that he did not have any copy of statement recorded at the time of search or survey which is a 10 and three other appeals Mr. Jaswantlal J Shah blatant lie, because we found from the record that the assessee was provided with copies of his statement as well as impounded material on 20.08.2007. It is seen from the record that one statement of the assessee was recorded u/s.131 on 11.12.2004 at the time of search and another sworn statement was recorded on 12.12.2004 in the course of survey.
Furthermore, the assessee in his statement recorded u/s, 133A of the Act on 12.12.2004 had accepted that an amount of Rs.2,17,50,000/- deposited in HDFC bank account was his unexplained money/undisclosed income which was offered to tax in the A.Y. under consideration. However, later it was noticed that the assessee had not declared this amount as income in his return of income. Further, in respect of the evidentiary value of his statement recorded u/s.133A of the Act, the assessee had contended that the statement made by him at the time of survey action u/s. 133A was merely tentative and had no evidentiary value whatsoever. In this connection, we observe that there is nothing on record to show that the statement of the assessee was recorded under coercion or threat. In such circumstances, the onus shifts to the assessee to prove that the statement given by him was wrong which is not the situation in the instant case. The statement of Mr. Mangilal Devashi was recorded u/s.132(4) of the Act which has got evidentiary value and as per that statement also, the amount was given by the assessee who had accepted it as his concealed income. As regards the statement made by the assessee during the course of survey, the CIT(A) , Central VIII, Mumbai in his aforesaid order in case of the 11 ITA No.2444/Mum/2011 and three other appeals Mr. Jaswantlal J Shah assessee for AY.2004-05 has held that "the statement of the assessee is on oath and is based on the entries recorded in the impounded documents. Accordingly we do not find any infirmity in the order of CIT(A). (A.Y.2006-07) 11. In this appeal, assessee is aggrieved for addition of Rs.5,91,802/- being 15% of notional interest of Kisan Vikas Patra. Assessee is also aggrieved for addition of Rs.5,91,802/- on account of FDs, Rs.16,12,275/- on account of loans and advances and Rs.63,000/- on account of bogus loans. Assessee is also aggrieved for disallowance made under Rule 8D and for disallowance of 20% of motor car expenses. The AO also treated SPCG of Rs.80,33,589/- as business income. By the impugned order CIT(A) confirmed the additions against which assessee is in further appeal before us.
We have considered rival contentions and from the record, we found that in the course of assessment for A.Y.2006-07. The Assessing Officer has noticed that in the assessment year passed u/s. 143(3) for A.Y. 2005- 06, the Assessing Officer has made additions based on the documents found during the course of survey u/s.133A of the Income Tax Act. The Assessing Officer has also discussed the issue of accrued interest on the loans advanced and investments in the assessment order for AY 2005- 06. The relevant part of this order is reproduced at page 5 and 6 of the assessment order. Since the facts of the case for the year under consideration are the same, therefore, again the Assessing Officer has 12 and three other appeals Mr. Jaswantlal J Shah given show cause notice to explain the interest accrued on KVP, FDs loans and advances. However, no explanation was filed. From the record, we found that in terms of documents found during course of survey u/s.133A, the AO found that assessee has not disclosed interest accrued on KVPs, investment in FDs, loans and advances and interest of loan advance to Shri M Joshi. Accordingly AO calculated interest on these deposits / investment / KVP and made the addition. No explanation was filed by assessee in support of these not declaring income on these FDs and KVPs etc., accordingly CIT(A) confirmed the action of the AO after having detailed observation at para 5. Nothing was brought to our notice by learned AR so as to persuade us to deviate from the findings recorded by lower authorities, accordingly ground raised
by assessee is dismissed.
13. With regard to disallowance u/s.14A with Rule 8D, the CIT(A) has upheld the addition after observing as under:- 7.3. I have considered the submission given by the appellant, order of the Assessing Officer and the facts of the case. In brief of that the appellant has shown dividend income of Rs. 4,35,458/- and dividend of Rs. 2,557. No expenditure has been debited to the profit and loss account relating to the earning of this income. The Assessing Officer has made the disallowance of Rs. 3,34,788/- by computing the expenditure as per provision of section 14A r.w.s.8D and relied on the decision of M/s. Daga Capital Management Pvt.Ltd. Supra. From these facts, it is noticed that the Assessing Officer has computed the disallowance of expenditure relating to the exempt income as per the provisions of section 14A r.w.s. 8D and has followed the special Bench decision of Honorable Tribunal Mumbai. The appellant has relied on the decision of jurisdictional High Court of Bombay where it is held that the Rule 80 was inserted with effect from 24.03.2008 hence applicable from AY 2008-09 and applicability cannot be regarded as retrospective. In this decision, the Hon'ble Bombay High Court has held that the AO shall determine as to whether the assessee has incurred any 13 and three other appeals Mr. Jaswantlal J Shah expenditure (direct or indirect) in addition to dividend income/income from mutual funds which does not form of the total income as contemplated u/s. 14A. The AO can adopt reasonable basis for effecting apportionment, while making that determination the AO shall provide a reasonable opportunity to the assessee for producing its accounts and relief or German material having a bearing on the facts and circumstances of the case. From the perusal of the decision of Bombay High Court, which is binding on the lower authorities, the AO is directed to re-compute the disallowances made u/s. 14A as per this decision. Therefore, the ground of appeal is partly allowed.
14. We have considered rival contentions and found that both AO and CIT(A) has dealt with the issue in great detail and disallowed expenditure u/s.14A to the tune of Rs.3,34,788/- by computing expenditure as per Section 14A in respect of dividend income of Rs.4,35,458/- Since, assessment year involved is 2006-07 which is prior to insertion of Rule 8D, therefore, we direct the AO to restrict the disallowance u/s.14A to the extent of 5% of the dividend income. We direct accordingly.
15. With regard to treatment of short term capital gain as business income, the CIT(A) observed that from the computation of income and details filed before the Assessing Officer, it was noticed that the assessee has declared short term capital gain of Rs. 80,33,589/-. From the statement of Short Term Capital Gain, the Assessing Officer has noticed that the assessee has claimed Short Term Capital loss of Rs. 30,37,651/- against Rs.1,10,71,240/- resulting in net Short Term Capital Gain of Rs.80,33,589/- The Assessing Officer has also observed that the assessee has dealt in shares of 313 companies during the year on which Short Term Capital Gain has been claimed. The total transactions have run into crores of rupees and loans have been received of Rs.2,74,08,904/- and repaid loan 14 ITA No.2444/Mum/2011 and three other appeals Mr. Jaswantlal J Shah of Rs. 2,53,07,487/- during the year. The assessee has also paid interest of Rs. 17,84,7091- on these loans. The Assessing Officer has also given share transactions in tabulated form at page 2 of the assessment order. In view of the volume of the share transactions and other circumstances, the Assessing Officer has given show cause notice to the assessee to explain why the share transactions may not be treated as business income in place of Short Term Capital Gain claimed. In response to the show cause notice, the assessee submitted its reply, which is produced at page 3,of the assessment order.
16. After considering assessee’s reply, the CIT(A) held as under:-
8.3. I have considered the submission of the appellant, order of the Assessing Officer and facts of the case In brief are that assessee was dealing In the share transaction through 9 brokers. In the year under consideration, assessee has dealt in shares of 313 companies and the transactions have been made in crores of rupees. The appellant has also raised fresh loan of Rs. 2,74,08,904/- for the share transactions and also repaid loan of Rs. 2,53,07,4871-. The interest of Rs. 17,84,7091- was paid on the borrowed funds utlised in the share transaction. The volume of transactions with different brokers as given in tabulated form on page 2 of the assessment order shows debit transactions of Rs. 11,36,54,971/-. The appellant has treated share transactions as short term capital gain because the tax rate is only 10% in place of business income where tax rate is 30%. Thus the Assessing Officer has treated share transaction profit under the head business income in the place of short term capital gain claimed by the appellant. The arguments taken by the appellant before the Assessing Officer were rejected by giving reasons as stated above. No further argument was taken before me to substantiate its claim except technical ground that the Assessing Officer has not given opportunity while treating the profit of share transactions as business income in place of STCG claimed in the return. Thus objection raised by the appellant is without any basis because the Assessing Officer has given opportunity vide order sheet noting dated 11.12.2008 and in response to this show cause notice the appellant submitted its 15 and three other appeals Mr. Jaswantlal J Shah reply dated 2.12.2008 which is reproduced at page 3 of the Assessing Officer. Therefore, the argument of the appellant that the opportunity was not provided is baseless and over ruled. The claim of the appellant before the Assessing Officer that he is not a share dealer but only an investor is evident from the transactions carried out amounting to Rs. 11,36,54,971/- through 9 brokers and share of 313 companies which proves that he was wrongly claiming STCG in place of business income to avoid payment of taxes at higher rates. The appellant has also raised loans of Rs.2,74,08,904/- for share transactions and paid interest of Rs. 17,84,709/- on these loans. The other argument of the appellant that the share transactions shown as investments in the balance sheet is also not tenable because share transactions made by the appellant are so frequent thus were never shown as investments or stock in trade in the balance sheet 90% of the transactions made during the year under consideration were holding of shares for period less than 10 days. It clearly shows that it was business transactions and not investments. Further the appellant has argued that the main intention was investment in shares by taking delivery in shares. This factor is also not favorable to the appellant when the transactions of sale/purchase were made within few days even if delivery of the share has been taken cannot change the nature of transactions. From the total share transactions during the year under consideration, the appellant has earned a profit of Rs. 113654971/- and loss of Rs. 30,37,651/-. Thus keeping in view the totality of the facts that the appellant has made share transactions of Rs. 11,36,54,971/- by dealing in shares of 313 companies through nine brokers. The appellant has also raised loans of Rs. 2,74,08,904/- and paid interest of Rs. 17,84,709/- for the share transactions. All the sale/purchase of shares was made within 10 days of the purchase. More than 90% of transactions were taken place in few days and few weeks only. These were never shown as investment in the balance sheet, therefore, these facts prove that the appellant was showing STCG only to avoid the payments of taxes on share profit. Looking into the volume, frequency, continuity and regularity of transactions of purchase and sales in shares, it is held that these transactions were carried out with the intention of running business and not investment. Though the word "business" is not defined in the taxing statutes yet it postulates the existence of certain elements in the activity of an assessee which would invest it with the character of business. According to well established interpretation of word "business" as found in taxing statutes, it in the sense of an occupation of profession which occupies the time, attention and labour of a person normally with the object of making profit. To strengthen his view, reliance is placed on the following decisions:
CIT vs. Motlay Finance (P) Ltd. 290 ITR 719(MP) OCIT vs. Smt. Oeepaben Amitbhai Shah 99 ITD 219(Ahd) CIT vs Motilal Hirabhai Sp. Wvg. Co. Ltd. 113 ITR 173 (Guj) Shri Motilal Oswal-ITA No. 3860/M/2001 AY 1993-94 G Bench (Mumbai) Keeping all these facts and circumstances, the decision of the Assessing Officer by treating share transactions as business income in place of STCG claimed by the appellant of Rs. 80,33,589/- is upheld and ground of appeal is dismissed.
17. We have considered rival contentions and found that CIT(A) has dealt in great detail with each and every script dealt with by the assessee, its magnitude turn over and the frequency of purchases and sales and thereafter arrived at a conclusion that assessee’s claim of short term capital gain was not correct and held the same as business income. The detailed finding so recorded by CIT(A) has not been controverted by learned AR by bringing any positive material on record, accordingly we do not find any reason to interfere in his findings. (A.Y.2008-09):- 18. In this appeal, assessee is aggrieved for addition of Rs.1,68,000/- on account of deemed rent. Addition made on account of deemed rent was confirmed by CIT(A) by following his order for A.Y.2007-08. However, nothing was brought on record by learned AR that any appeal having been filed for A.Y.2007-08. It implies that assessee has accepted the addition made on account of rent. No fresh arguments were advanced alleging the orders of the lower authorities. Accordingly we confirm the addition so made by AO on account of deemed rent.
17 and three other appeals Mr. Jaswantlal J Shah 19. Disallowance made u/s.14A of Rs.14,75,018/- was confirmed by CIT(A) after observing as under:- In the instant case, the AO has applied the Rule 8D which was in force for the AY 2008-09. In this regard the decision of Mumbai High Court in Godrej & Boyce Mfg. Co. Ltd. Mumbai vs Dy. Commissioner Of Income Tax delivered on 12 August, 2010 is relevant. The conclusion or the judgment is in para 74 which is as under: 74, Our conclusions in this judgment are as follows: 1) Dividend income and income from mutual funds falling within the ambit of Section 10(33) of the Income Tax Act 1961, as was applicable for Assessment Year 2002-03 is not includible in computing the total income of the assessee. Consequently, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to such income which does not form part of the total income under the Act, by virtue of the provisions of Section 14A(1); (ii) The payment by a domestic company under Section 1150(1) of additional income tax on profits declared, distributed or paid is a charge on a component of the profits of company. The company is chargeable to tax on its profits as a distinct taxable entity and it pays tax in discharge of its awn liability and not on behalf of or as an agent for its shareholders. In the hands of the shareholder as the recipient of dividend, income by way of dividend does not form part of the total income by virtue of the provisions of Section 10(33). Income from mutual funds stands on the same basis; iii) The provisions of sub sections (2) and (3) of Section 14A of the Income Tax Act 1961 are constitutionally valid; iv)The provisions of Rule 8D of the Income Tax Rules as inserted by the Income Tax (Fifth Amendment) Rules 2008 are not ultra vires the provisions of Section 14A, more particularly sub section (2) and do not offend Article 14 of the Constitution; v) The provisions of Rule 8D of the Income Tax Rules which have been notified with effect from 24 March 2008 shall apply with effect from Assessment Year 2008-09. vi) Even prior to Assessment Year 2008-09, when Rule 8D was not applicable, the Assessing Officer has to enforce the provisions of sub section (1) of Section 14A. For that purpose, the Assessing Officer is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income under the Act. The Assessing Officer must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after 18 and three other appeals Mr. Jaswantlal J Shah furnishing a reasonable opportunity to the assessee to place all germane material on the record; vii) The proceedings for Assessment Year 2002-03 shall stand remanded back to the Assessing Officer. The Assessing Officer shall determine as to whether the assessee has incurred any expenditure (direct or indirect) in relation to dividend income / income from mutual funds which does not form part of the total income as contemplated under Section 14A. The Assessing Officer can adopt a reasonable basis for effecting the apportionment. While making that "determination, the Assessing Officer shall provide a reasonable opportunity to the assessee of producing its accounts and relevant or germane material having a bearing on the facts and circumstances of the case.
It can be seen from the above that the Hon'ble Bombay High Court has clearly held that Rule 8D will apply from AY 2008-09. Hence, the stand of the AO is upheld and the ground of appeal
of the appellant is dismissed.
20. We have considered rival contentions and found that both AO and CIT(A) has computed the disallowance u/s.14A and disallowed Rs.14,75,018/- against the exempt income of Rs.3,08,830/-. In view of the following decisions, disallowance u/s.14A should be restricted to the amount of exempt income. 1) Joint Investments v. CIT [372 ITR 694 (Del)] 2) Indus Valley Investments v. DCIT being ITA NO: 3763/De1/2013 for AY. 2009-10 dated 29.04.2015 3) Essar Properties Ltd v. DCIT (ITA No: 423/Mum/2015) for AY. 2009-10 dated 19.07.2016 4) M/s Slyvex Cable Co. Pvt. Ltd. v Dy.CIT being ITA No: 8581/Mum/2011 for AY. 2008-09 dated 24.02.2016 5) M/s Global Capital Ltd v ACIT being ITA No: 6586/Del/2013 for AY. 2009-10 dated 27.11.2015 6) DCIT v. DCM Ltd being ITA No: 4467/Del/2012 for AY. 2009-10 dated 01.09.2015 19 and three other appeals Mr. Jaswantlal J Shah 7) M/s Daga Global Chemicals v. Asst. CIT being ITA No: 5592/Mum/2012 dated 01.01.2015 Accordingly, we direct the AO to restrict the disallowance to the extent of exempt income. (2009-10) 21. In this appeal, assessee is aggrieved for addition of Rs.2,40,000/- and Rs.43,750/- on account of deemed rent.
We have considered rival contentions and found that as per balance sheet of the assessee AO seen that the assessee possessed three house properties as per the details of fixed assets i.e. bungalow at Deolali, Flat at Abhilasha CHS Ltd. and shop at Ahmedabad out of which the Flat at Abhilasha CHS Ltd., Mumbai was a self occupied property. Accordingly, the assessee was asked vide letter dated 12.12.2011 to show cause as to why the bungalow at Deolali and the shop at Ahmedabad should not be treated as deemed let out properties within the meaning of provisions of Section 23(4) of the Act. The assessee vide letter dated 15.12.2011 claimed that his shop in Ahmedabad and the house in Deolali were in bad, dilapidated and un-tenantable condition and that these remained vacant and no rent was earned as it was not possible to let out the properties. Thus, it was contended that no rental income could have been earned from these properties.
The AO observed that Section 23(4) clearly states that where the property referred to in Section 23(2) consists of more than one house, the annual value of the house or houses, other than the house in respect of 20 and three other appeals Mr. Jaswantlal J Shah which the assessee has exercised an option under clause 23(4)(a), shall be determined under sub-section (1) as if such house or houses had been let. Hence, it was held that the bungalow at Deolali and the shop at Ahmedabad were liable to be treated as deemed let out properties. It was observed that the assessee had not shown any rental income from the Deolali bungalov as well as the Ahmedabad shop. AO followed reasoning given in the Assessment Year 2007-08 and 2008-09 and added Rs.1,68,000/- to total income of the assessee on account of rent from those properties. 24.The assessee had furnished copy of the Purchase Deed (in Gujarati language) in respect of the shop at Ahmedabad which seemed to have been executed on 25.09.2008. The annual value of the shop at Ahmedabad was determined by the AO. at Rs.75,000/-. Since the assessee had acquired the said shop in September, 2008, the value was computed for 7 months at Rs.43,750/- which was also treated as income of the assessee from house property.
By the impugned order CIT(A) confirmed the action of the AO after observing as under:- 6.3 I have considered the submissions of the appellant and perused the materials available on record. The issue for consideration is determination of annual letting value (AL V) of the house at Deolali and the shop at Ahmedabad. It is observed from the record that even in the earlier AY.s 2007-08 and 2008- 09, the ALV of the house at Deolali was assessed at Rs.l,68,000/-. It is also observed that my predecessor has vide his order for AY.2007-08 dated 01.10.2010 upheld the action of the AO in computing ALV of the said house at Rs.1,68,000/-. Though the appellant claims to have submitted municipal valuation of the house at Deolali, it is found that no such 21 and three other appeals Mr. Jaswantlal J Shah documents have actually been placed on record. Without prejudice to the above, the appellant has also not brought on record any judicial authorities holding that the AL V of the properties covered by Section 23(4) has to be taken on the basis of the municipal rateable value rather than the fair rent. As regards the shop at Ahmedabad, it is seen that the appellant does not have a consistent or coherent stand. On the one hand, it is claimed that the said shop is in a bad, dilapidated and un- tenantable condition which remained vacant during the period and on the other hand, it is said to have been used for the purpose of business of the appellant. There is nothing on record to indicate that the appellant is carrying on any business at Ahmedabad. In view of the above discussion, I do not find any legal or factual error or infirmity in the action of the A.O. in assessing the ALV of the house/ bungalow at Deolali and the shop at Ahmedabad at Rs.1,68,OOO/- and Rs.43,750/- respectively. The additions made by the AO in this regard are accordingly confirmed. Ground NO.3 raised by the appellant is thus dismissed.
We have considered rival contentions and found that AO & CIT(A) has recorded detailed finding to support ALV of house and shops so arrived at. Nothing was placed before us by learned AR to controvert the findings of lower authorities. Accordingly we do not find any reason to deviate from the findings recorded by lower authorities.
Assessee is also aggrieved for disallowance of Rs.29,96,180/- u/s.14A read with Rule 8D. From the record, we found that the assessee had earned certain incomes to the tune of Rs.5,75,408/- which do not form part of total income. These included dividend on shares of Rs.2,74,685/-, dividend on mutual funds of Rs.18,791/-, refund on maturity of ULIP of Rs.1,08,234/-, share of profit from partnership firm M/s.Asha Steel of Rs.59,341/-,. and interest on PPF A/c. of Rs.1,14,355/-. Accordingly, the assessee was asked by AO vide order sheet entry dated 10.10.2011 to explain as to why provisions of Section 14A r.w. Rule 8D should not be 22 and three other appeals Mr. Jaswantlal J Shah applied to his case. In response, the assessee vide letter dated 15.12.2011 submitted that no disallowance under Section 14A could be made as no expenses had either been incurred or claimed in the relevant AY. It was claimed that investments in these securities had been made out of the assessee's capital account and no interest had been paid on borrowed amounts for the purpose of making the said investments. However, the AO did not find the explanation the assessee to be acceptable. According to the AO., Section 14A(2) automatically comes into play if the assessee contends that no expenditure has been incurred by him to earn the exempt income. Therefore, the AO. was satisfied that the provisions of Section 14A r.w. Rule 8D are very much applicable in the assessee's case and that it was not possible to earn any exempt income without incurring some administrative expenses. Therefore, as per Rule 8D, the AO calculated the expenses attributable to earning of dividend income at Rs.29,96,l80/- which was added to the total income of the assessee.
By the impugned order CIT(A) confirmed the disallowance after observing as under:- 7.3.1 I have considered the submissions of the appellant and perused the materials available on record including copies of the judicial decisions relied upon by the appellant. It is an undisputed fact that the applicant is in receipt of tax free incomes of Rs.5,75,408/-. The appellant is found to be having investments in shares to the tune of Rs.2.49 crores. It is also observed that the appellant has incurred interest expenditure of Rs.22,90,139/- on secured as well as unsecured loans taken by it. It is also observed that the appellant has incurred demat and DP charges of Rs.3,354/-, Other Expenses on shares of Rs.17,834/- and SIT on delivery-based transactions amounting to Rs.17,452/- which are found to be debited to the Capital Account of the appellant. It thus emerges from the record that 23 and three other appeals Mr. Jaswantlal J Shah even though the appellant had incurred expenses in relation to earning of tax free incomes, i ot made any disallowance u/s.l4A while computing its total income. In view of the facts and circumstances stated above, it is clear that the AO was justifiably not satisfied with the correctness of the claim of the appellant that it had incurred nil expenditure in relation to incomes not forming part of total income under the Act. After examining the facts of the case and having regard to the accounts of the appellant, the AO is found to have duly recorded his satisfaction in regard to the incorrectness of appellant's claim of 'nil' disallowance u/s.14A Thus, I do not find any error or infirmity in the action of the AO in rejecting the appellant's claim by invoking the provisions of Section 14A(2) and computing such disallowance in accordance with the provisions of Section 14A r.w. Rule 8D. 7.3.2 At this stage, it would be pertinent to refer to the judgment of the Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Company Ltd. v. DCIT 328 ITR 81 (Born) wherein the following significant propositions or principles concerning application of provisions of Section 14A have been laid down:- a) Whether or not any expenditure was incurred by the assessee in relation to the earning of non taxable income falls within the domain of the AD. The fact that the assessee has utilised its own funds in making the investments would not be dispositive of the question as to whether the assessee had incurred expenditure in relation to the earning of such income. Even if the assessee has utilised its own funds for making investments which have resulted in tax free income, the expenditure which is incurred in the earning of that income would have to be disallowed. b) After the introduction of Section 14A(l), no presumption can be drawn that investments are out of interest free funds available since Parliament expressly requires apportionment. The real enquiry is whether there are interest· free funds available on the asset side of the balance sheet and in the absence of sufficient proof of available interest free funds, no such presumption can be drawn. In view of the legal position enunciated above, the submissions made by the appellant to the extent these are not in line with the said position cannot be accepted. In CIT v. Walfort Share & Stock Brokers (P) Ltd. 326 ITR 1 (SC), the Hon'ble Supreme Court made it very clear that the permissible deductions 24 and three other appeals Mr. Jaswantlal J Shah enumerated in Section 15 to 59 are now to be allowed only with reference to the income which is brought under one of the heads of income and is chargeable to tax. The Hon'ble Apex Court also clarified that if an income like dividend is not part of the total income, the expenditure/deduction related to such income, though of the nature specified in Sections 15 to 59, cannot be allowed against other income which is includible in the total income for the purpose of chargeability to tax. 7.3.3 It is well-established that the onus lies on the assessee to show that the shares in question were acquired from his own funds. In order that no disallowance is made u/r 8D, it is on the assessee to establish before the AO. that there is no nexus between the exempt income and the interest expenditure incurred ACIT v. Transformers & Rectifiers (1) Ltd. (2012) 32 CCH 033 (Ahd.) (Trlb)). The appellant has not demonstrated with the help of cogent materials and evidences that the interest bearing funds have been utilized wholly and exclusively for the purpose of earning taxable income and that no part thereof has been diverted for making investments yielding tax free income. In the case of Dhanuka & Sons v. CIT 339 ITR 319 (Cal), it has been held that the object of Section 14A is to disallow the direct and indirect expenditure incurred in relation to income which does not form part of the total income. The onus is on the assessee to produce material before the AO. showing the source from which shares were acquired. It is for the assessee to show that shares were acquired from own funds because the source of acquisition of shares is within the special knowledge of the assessee. The mere fact that those shares are old ones and not acquired recently is immaterial. It is a matter of record that the appellant is not maintaining separate accounts for the purpose of exempt income. Nor has he given one to one co- relation between the funds available and the funds deployed. In view of the failure of the appellant to discharge the said onus, the AO. was correct in holding that proportionate amount of interest payable by him is to be disallowed, having regard to the investments in shares and total interest bearing loan in terms of Rule 8D. 7.3.4 It is observed that the ratio of the decisions of Hon'ble ITAT relied upon by the appellant is not applicable to the facts of its own case. For instance, in the case of Mohan Exports Pvt. Ltd. (supra), there was a specific finding by the CIT(A) that interest was not directly related to receipts by way of dividends which is not so in the instant case. Similarly, in the case of Justice S.P. Bharucha (supra), it was found that the expenditure 25 and three other appeals Mr. Jaswantlal J Shah incurred and claimed by the assessee had direct nexus with his professional income rather than any tax exempt income. However, no such finding has been reached in the present case. The appellant has not placed on record copies of unreported decisions in the cases of Esquire Pvt. Ltd. and Tarun Chandmal lain cited supra and so it is not possible to ascertain their relevance in the context of the present case. The decision in case of Champion Commercial Co. (supra) is actually found to be in favour of the revenue wherein it has been clearly held that in a situation where the assessee does not offer any disallowance u/s.14A in respect of tax exempt income, the provisions of Section 14A(2) r.w. Rule BD can be invoked u/s.14A(3) of the Act. The ratio of said decision, in fact, goes against the appellant. Finally, reliance on the case of M/s. Auchtel Products Ltd. (supra) will also be of no help to the appellant who though earning exempt income has not offered any amount disallowable u/s.14A, because the A.O. has not automatically invoked Rule 8D but has duly followed the mandate of Rule 8D as he was not satisfied with the correctness of the appellant's claim. In view of the above discussion, the action of the AO. in making disallowance of Rs.29,96,180/- u/s.14A r.w. Rule 8D is found to be justified and the same is accordingly upheld. Ground No.4 taken up by the appellant is accordingly dismissed.
Assessee is in further appeal before us.
We had gone through the material placed before us and found that AO had disallowed Rs.29,96,180/- u/s.14A as against dividend income of Rs.5,75,408/-. In view of the following decisions, disallowance u/s.14A should be restricted to the amount of exempt income. 1) Joint Investments v. CIT [372 ITR 694 (Del)] 2) Indus Valley Investments v. DCIT being ITA NO: 3763/De1/2013 for AY. 2009-10 dated 29.04.2015 3) Essar Properties Ltd v. DCIT (ITA No: 423/Mum/2015) for AY. 2009-10 dated 19.07.2016 4) M/s Slyvex Cable Co. Pvt. Ltd. v Dy.CIT being ITA No: 8581/Mum/2011 for AY. 2008-09 dated 24.02.2016 26 and three other appeals Mr. Jaswantlal J Shah 5) M/s Global Capital Ltd v ACIT being ITA No: 6586/Del/2013 for AY. 2009-10 dated 27.11.2015 6) DCIT v. DCM Ltd being ITA No: 4467/Del/2012 for AY. 2009-10 dated 01.09.2015 7) M/s Daga Global Chemicals v. Asst. CIT being ITA No: 5592/Mum/2012 dated 01.01.2015 31. Accordingly, we direct the AO to restrict the disallowance to the extent of exempt income which is to the tune of Rs.5,75,408/-. We direct accordingly.
Next grievance of assessee relates to ignoring the loss of Rs.1,30,69,693/-. We have considered rival contentions and found from record that the assessee had declared total income at Rs.7,25,000/- in his return of income claiming current year loss of Rs.1,30,69,693/-. However, the AO. did not deal with the issue of allowance of set off and/or carry forward of said loss in the impugned order. In the course of appellate proceedings, it was submitted on behalf of the assessee that the impugned order has been passed by the AO without considering current year loss of Rs.1,30,69,693/-. It is pointed out that after taking into account the said loss, there will be no demand. It is also submitted that the unabsorbed losses may be allowed to be carried forward.
By the impugned order CIT(A) confirmed the action of the AO after observing as under:- 8.3.1 I have considered the submissions of the appellant and perused the materials available on record. It is observed from the record that in the computation of income attached with the return of income, the appellant has worked out the losses to be carried forward as under:-
Nature of loss Amount (Rs.) Loss from speculative 33,12,375 business Business loss 58,60,962 Short term capital loss on 38,96,356, sale of shares Total 1,30,69,693 At the outset, it is imperative to first ascertain whether the appellant is an investor or a trader in shares in light of the settled judicial precedents and the guidelines laid down in this behalf in the CBDT Circulars issued from time to time. For this purpose, the entire pattern of the appellant's dealings in shares, whether delivery-based or otherwise, has to be closely scrutinized and analyzed. However, such an exercise cannot be carried out for want of complete (scrip-wise) details and evidences viz., contract notes, demat account, broker's account, bank statement etc. It is observed from the record that the appellant has not furnished any details in regard to the loss of Rs.33,12,375/- claimed to have been incurred on "speculative business" of intraday trading in shares and trading in commodities. For want of the relevant details, the A.O. had no occasion to consider whether the aforesaid dealings of the appellant in shares/ commodities could be characterized as a separate speculative business and whether the loss incurred on such dealings was eligible to be carried forward for set off in subsequent years in accordance with law. Even in the course of appellate proceedings, the appellant has not furnished the necessary details/ explanation/ submissions supported by documentary evidences. Thus, the appellant has not been able to discharge the onus cast upon him in this regard and his claim for carrying forward the said loss of Rs.33,12,375/- cannot be allowed. 8.3.2 As regards his claim for carry forward of loss from derivatives business/ F&O trading in shares amounting to Rs.58,60,962/-, it is again seen that the appellant has not submitted any details either along with his return or in course of assessment appellate proceedings. Nor has the appellant placed on record necessary explanation as well as evidence to show: (I) that the F&O transactions undertaken by the appellant constitute a separate and independent business and (ii) that such transactions were eligible transactions carried out on a recognized stock exchange in terms of Section 43(5)(d) of the Act. In view of the above position, the claim of the appellant for carrying forward the said loss on derivatives/F&O transactions amounting to 28 and three other appeals Mr. Jaswantlal J Shah Rs.58,60,962/- for being set off against business profits in subsequent years cannot be allowed. 8.3.3 Finally, the appellant has claimed short term capital loss of Rs.38,96,356/- on sale of shares. It is observed from the record . that scrip-wise details have been furnished along with the computation of income annexed to the return of income filed by the appellant. However, the A.O. could not be expected to allow the claim for carry forward of short term capital loss of Rs.38,96,356/- merely on the strength of a chart showing scrip- wise details of certain transactions in shares in the absence of supporting documentary evidences which have not been submitted even at the appellate stage. Thus, for want of necessary evidences, the claim of the appellant for allowing carry forward of short term capital loss is found to be not tenable. Ground NO.5 raised by the appellant is thus found to be devoid of substance and is accordingly dismissed.
We have considered rival contentions and found that AO has disallowed assessee’s claim for set off of loss of Rs.1,30,69,693/- incurred in respect of speculation business, business loss and short term Capital Loss. The CIT(A) has recorded detailed finding for not allowing set off of such loss after observing that assessee has not filed relevant details either before the AO or before the CIT(A). CIT(A) also observer that even during the appellate proceedings, assessee has not furnished necessary details / explanation / submission supported by the documentary evidences. Accordingly, he held that assessee has not been able to discharge onus cast upon him in this regard. The detailed finding recorded by the CIT(A) at para 8.3.1 to 8.3.3 have not been controverted by learned AR by bringing any positive material on record. Accordingly, we do not find any reason to interfere in the order of CIT(A) for not allowing set off of loss of Rs.1,30,69,693/-.