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Income Tax Appellate Tribunal, DELHI BENCH: ‘E’: NEW DELHI
Before: SHRI CHANDRA MOHAN GARG, & SHRI O.P. KANT,
PER CHANDRA MOHAN GARG, JUDICIAL MEMBER
The above cross appeals pertain to same assessee involving similar issues and were heard together. Hence, these are being taken for disposal for the sake of brevity and convenience.
2. This appeal filed by the assessee is directed against the order of the CIT(A)-II, New Delhi dated 12/12/2012 passed in first appeal No. 164/11-12 for A.Y 2008-09.
The following grounds raised by the assessee read as under:
“1. That on the facts and circumstances of the case, the order dated 22nd December, 2011, as passed by the Assistant Commissioner of Income-tax, Central Circle - 21 [hereinafter referred to as "the A.O."] and as upheld by the Commissioner of Income-tax (Appeals) - II, New Delhi [hereinafter referred to as "the CIT(A)] v:de order 12th December, 2012 is void ab initio.
That on the facts and circumstances of the case, the CIT(A) erred in holding that: a. The AO was right in exercising jurisdiction u/s 148 of the Act. b. The AO has not passed his order u/s 147 in violation of the settled law and pivotal facts that existed on the date of assessment order.
3. That on the facts and circumstances of the case, the CIT (A) grossly erred in holding that AO was correct in increasing the sales consideration of the Appellant to the tune of Rs. 49,56,108/- on account dump documents found at the premises on Sh. Pradeep Baranwal.
4. That on the facts and circumstances of the case the ld. CIT(A) grossly erred in exercising jurisdiction u/s 251 of the Act to enhance the income of the appellant by Rs. 4,18,472/- on account of dumb paper.
That on the facts and circumstances of the case the ld. CIT(A) grossly erred in upholding the addition to the tune of Rs. 2,87,028/- under the head ‘’other sources”.
3 998 & 588/Del/2013 6. That on the facts and circumstances of the case the ld. CIT(A) erred in holding that there is no inextricable link between the FDs and the business of the appellant.”
On a specific query raised by the Bench, the ld. Counsel for the assessee submitted that if the Bench is satisfied with the contention of the assessee on merits, then the assessee is not serious about Ground Nos. 1 and 2 challenging the validity of reopening of assessment and issuance of notice u/s 147 of the Act. The ld. DR fairly submitted the department has no serious objection if the appeal is heard on merits. Accordingly, Ground Nos. 1 and 2 of the assessee stand dismissed.
Ground Nos. 3 and 4
5. The ld. AR submitted that the ld. CIT(A) grossly erred in holding that the AO was correct in increasing sales consideration of the assessee to the tune of Rs. 49,56,108/- on account of dumb documents found at the premises of Shri Pradeep Kumar Baranwal. The ld. AR vehemently contended that the ld. CIT(A) erred in exercising jurisdiction u/s 251 of the Income-tax Act, 1961 ['the Act' for short] to enhance income of the assessee by Rs. 4,18,472/- on account of dumb papers. The ld. AR further submitted that confirmation in the form of an affidavit of Shri 3
4 998 & 588/Del/2013 Pradeep Kumar Baranwal has been filed, according to which, total consideration was only Rs. 30 lakhs which was paid by draft. The ld. AR also pointed out that in the appeal of Shri Pradeep Kumar Baranwal, the ld. CIT(A), Varanasi deleted the alleged cash payments and therefore, when the addition made in the hands of the payer has been deleted, then similar addition on similar allegation cannot be made in the hands of the payee, i.e, the assessee, in the present case. The ld. Counsel strenuously contended that the assessee has discharged the primary burden by providing confirmation in the form of affidavit of Shri Pradeep Kumar Baranwal in support of the contention that no cash transaction has taken place in respect of sale of shop No. 123, measuring 916 sq. Ft located on ground floor of the Mall at Site IV UPSIDC, Greater Noida. The ld. AR also drew our attention towards assessee’s paper book page 57 to 67 and submitted that the ld. CIT(A), Varanasi, for A.Y 2008-09, has deleted similar addition in the hands of the purchaser payer. Therefore, addition in the hands of the present payee seller cannot be held a sustainable. The ld. AR pointed out that the appeal of the Revenue against the order of the ld. CIT(A), Varanasi has been dismissed by the ITAT, Allahabad Bench vide order dated
The ld. DR supported the action of the AO and submitted that the AO rightly noted that there was a payment over and above DD payment amounting to Rs. 49,56,108/- which was not accounted by the assessee and the same was rightly taxed u/s 28 of the Act treating the amount as concealed income of the assessee. However, the ld. DR could not bring on record before us any other order of the higher authority to show that the order of the ld. CIT(A), Varanasi dated 21.6.2011, which has been upheld by the ITAT, Allahabad dated 12.12.2012 for A.Y 2008-09 similar addition in the hands of the payer/purchaser Shri Pradeep Kumar Baranwal, has been deleted. In the absence of any contrary order, we can safely presume that the addition on similar allegation in the hands of the purchaser payer has been deleted by the ld. CIT(A) and the order of the ld. CIT(A) has also been upheld by the ITAT, Allahabad and there is no further appeal by the Revenue. Therefore, similar issue attained finality in favour of the purchaser Shri Pradeep Kumar Baranwal and thus the allegation has no legs to stand that there was over and above
6 998 & 588/Del/2013 DD payment amounting to Rs. 49,56,108/- as concealed income of the assessee and the same deserves to be taxed u/s 28 of the Act. In view of the above, we decline to uphold the action of the AO and impugned order wherein the addition made by the AO has been upheld and thus we demolish the same as and when it has been adjudicated by the ld. CIT(A), Varanasi that no over and above cash payment was made by Shri Pradeep Kumar Baranwal towards purchase of shop No. 123 in the Mall constructed by the assessee Company, then similar addition in the hands of the seller payee cannot be held as sustainable. Consequently, addition made by the AO and upheld by the ld. CIT(A) is dismissed.
In Ground No. 4, the ld. AR submitted that in the case of Shri Pradeep Kumar Baranwal, the AO made addition of Rs. 53,74,850/- [Rs. 49,56,108/- + 4,18,472/-] which includes enhancement made by the ld. CIT(A) u/s 21 of the Act and when the main addition made by the AO is not found to be sustainable in the case of the purchaser payee, then the enhancement amount of Rs. 4,18,742/- cannot be held as sustainable in the hands of the assessee.
7 998 & 588/Del/2013 8. The ld. DR supported the first appellate order and contended that the assessee has received additional sum of Rs. 418742/- at the time of giving possession of shop No. 123 to Shri Pradeep Kumar Baranwal and books of account do not reflect the said sum. Therefore, addition of the said amount was correctly made to the undisclosed income of the assessee and ld. CIT(A) was not justified in making enhancement.
Replying to the above, the ld. AR vehemently pointed out that when it has been found in the case of Shri Pradeep Kumar Baranwal. That there was no over and above payments of cash by purchaser, then no addition can be based purely on guess work in the hands of the assessee seller payee i.e. present assessee in this regard.
On careful consideration of the above rival submissions, we are of the considered view that when the ld. CIT(A), Varanasi has deleted the entire addition of Rs. 53,74,850/- for A.Y 2008-09 made by the AO in the hands of Shri Pradeep Kumar Baranwal, who was purchaser payee of shop No. 123 in the Mall of the assessee company, then no addition can be made in the hands of the present assessee as alleged recipient of over and above cash
8 998 & 588/Del/2013 payment alleged by the AO and enhanced by the ld. CIT(A). We cannot ignore the fact that the order of the ld. CIT(A), Varanasi in the case of Shri Pradeep Kumar Baranwal has been upheld by the ITAT Allahabad Bench vide order dated 12.12.2012. Thus, in the absence of any other contrary order on this issue, we have no alternative but to follow the conclusion of the coordinate Bench of the ITAT Allahabad Bench in the case of the payee purchaser. Ground No. 4 of the Revenue is also allowed and the AO is directed to delete the enhanced amount made by the ld. CIT(A). Accordingly, Ground Nos. 3 and 4 are allowed.
Ground Nos. 5 and 6
Apropos these grounds, the ld. AR contended that the ld. CIT(A) has erred in upholding the addition to the tune of Rs. 2,87,028/- under the head ‘other sources’. The ld. AR also pointed out that the ld. CIT(A) erred in holding that there is no inextricable link between the FDs and the business of the assessee, therefore, the interest income earned from therefrom should be taxed under the head ‘income from other sources’.
9 998 & 588/Del/2013 12. The ld. AR vehemently pointed out that in respect of treatment of interest as income from other sources given by the AO, it was explained before the authorities below that the interest earned by the assessee had direct nexus with general operations of the business of the assessee and was hence taxable under the head ‘business’. To support this contention, the ld. AR placed his reliance on the decision of the Hon'ble Jurisdictional High Court of Delhi in the case of CIT Vs. Koshika Telecom reported at 287 ITR 479 [Del] and CIT Vs. JPDSC Ventures Ltd 335 ITR 132 [Del]. The d. Counsel drew our attention towards submissions of the assessee recorded by the ld. CIT(A) in para 11.2 of the impugned order and submitted that the ld. CIT(A) chose to utilise its FDs towards its obligations of keeping margin money for bank guarantee and instead of providing some other collateral for retaining requisite amount with the bank the assessee chose to utilise its FD to fulfil the said obligation. Therefore, there was inextricable link between the interest earned from FDs and business of the assessee. Replying to the above, the ld. DR supported the action of the AO as well as the impugned order of the ld. CIT(A) and contended that the factum of having FDs with the bank and keeping some margin money for 10 998 & 588/Del/2013 guarantee are two different and distinct transactions and in this situation, these facts would not alter the character of interest income earned on such FDs. The ld. DR contended that the AO was correct in making addition which was rightly upheld by the ld. CIT(A).
On careful consideration of the rival submissions, at the very outset, we observe that there is no dispute regarding this fact that the assessee earned interest income of Rs. 2,87,028/- from the FD kept with the bank. But the controversy remained that whether the income earned therefrom has to be treated as business income or as income from other sources. The AO held that there was no link between the interest income earned from FDs and business operations of the assessee and same view was taken by the ld. CIT(A) while confirming the addition. Per contra, from the facts noted by the ld. CIT(A) in para 11.1 and 11.2 of the impugned order, we observe that there were some fixed deposits by the assessee company with the bank and the assessee chose to utilise its FDs towards its obligations of keeping some margin money for bank guarantee. Therefore, we decline to accept allegation of the ld. CIT(A) that keeping some margin money for bank guarantee and having fixed deposits with the 11 998 & 588/Del/2013 bank are two distinct and separate transactions. At the same time, we are satisfied that when the assessee chose to utilise its fixed deposits towards its obligation of keeping margin money towards it business obligation, then it has to be held that there is inextricable link between the fixed deposits and business obligation of keeping margin money. Hence the interest income has to be treated as business income and not income from other sources. Consequently, Ground Nos. 5 and 6 of the assessee for A.Y 2008-08 are allowed.
Assessee’s Appeal Revenue’s Appeal A.Y 2009-10
These cross appeals have been filed against the order of the ld. CIT(A)-II, New Delhi 26.11.2012 passed in first appeal No. 165/2011-12 for A.Y 2009-10.
Effective grounds raised by the assessee read as under:
1. That on the facts and circumstances of the case, the order dated 22nd December, 2011, as passed by the Assistant Commissioner of Income-tax, Central Circle - 21 [hereinafter referred to as "the A.O."] and as upheld by the Commissioner of Income-tax (Appeals) - II, New Delhi [hereinafter referred to as
2. That on the facts and circumstances of the case, the CIT (A) erred in holding that there is no inextricable link between the FDs and the business of the appellant to the entire tune of Rs. 3,04,939/-.
3. That on the facts and in circumstances of the case, the CIT(A) erred in holding that the Appellant failed to substantiate the claim as referred in Ground 2.”
Grounds raised
by the Revenue read as under:
1. That the Commissioner of Income Tax (Appeals) erred in law and on facts of the case in directing the Assessing Officer to reduce Rs. 1,37,10,343/- being the income assessed in A.Y 2008-09 under the head business income instead of Rs. 87,51,902/- reduced by the Assessing Officer, without properly appreciating that the assessment order for A.Y 2008- 09 and has not been accepted by the assessee and has not reached finality.
That the Commissioner of Income Tax (Appeals) erred in law and on facts of the case in Ignoring the fact that if income of Rs. 1,37,10,343/- was reduced under the head business income, the assessee’s total income will be reduced to a figure lower than the income returned by the assessee.”
13 998 & 588/Del/2013 16. Briefly stated, the facts giving rise to these cross appeals are that the AO passed the assessment order u/s 143(3) of the Act on 20.2.2011 at Rs. 32,10,308/- as against the returned income of Rs. 28,88,200/- by making certain disallowances. Aggrieved, the assessee preferred an appeal before the ld. CIT(A), which was partly allowed on the issue of treatment of head of business income of the assessee and challenging the reduction of total income of the assessee to a figure lower than the income returned by the assessee. However, the ld. CIT(A) upheld and confirmed the addition made by the AO regarding interest income accrued to the assessee from fixed deposit in the bank. Now the aggrieved assessee as well as the Revenue, challenging the part relief granted to the assessee, have filed these cross appeals with the grounds as reproduced hereinabove.
Apropos Ground Nos 1, 2 and 3, the ld. AR submitted that the order of ht AO as upheld by the ld. CIT(A) is void ab initio as the ld. CIT(A) has erred in holding that there is no inextricable link between the fixed deposits and business of the assessee to the entire tune of Rs. 3,04,939/-. But the ld. CIT(A) held that these are two distinct and separate
14 998 & 588/Del/2013 transactions which are not factually correct. The ld. AR further pointed out that the facts and circumstances of the case of the A.Y 2008-09 are quite similar to the facts and circumstances of the A.Y under consideration i.e. 2009-10.
Replying to the above, the ld. DR strongly supported the action of the ld. CIT(A) as well as the first appellate order which upheld the addition. However the ld. DR did not object to this fact that the facts and circumstances of the case of A.Y 2008-09 are quite similar to the present A.Y 2009-10 as the AO made addition on the same allegations which was upheld by the ld. CIT(A) by observing similar findings. Since by the earlier part of the assessee for A.Y 2008-09 we have allowed the ground of the assessee pertaining to the treatment of interest income accrued to the assessee from the fixed deposits kept in the bank, therefore, in the similar set of facts and circumstances of the case, we are of the considered view that our conclusion for A.Y 2008-09 would apply mutatis mutandis to A.Y 2009-10 also on this ground only. Thus the grounds Nos 1,2 and 3 are allowed.
15 998 & 588/Del/2013 19. Apropos Ground Nos. 1 and 2 of the Revenue, the ld. DR supported the action of the AO and the order of the ld. CIT(A) and contended that the ld. CIT(A) grossly erred in directing the AO to reduce Rs. 1,37,10,343/- being income assessed in A.Y 2008-09 under the head business income instead of Rs. 87,51,902/- reduced by the AO without properly appreciating that the assessment order for A.Y 2008- 09 has not been accepted by the assessee and the same has not reached to the finality. The ld. DR vehemently contended that the ld. CIT(A) was not justified in the facts and circumstances of the case has he ignored the fact that if the income of Rs. 1,37,10,343/- was reduced under the head business income, then the assessee’s total income will be reduced to a figure lower than the income returned by the assessee for A.Y 2009-10.
Replying to the above, the ld. AR The ld. AR drew our attention towards operative para 4 of the impugned order and submitted that the assessee has claimed that while computing business income for the A.Y under consideration, the AO ought to have reduced Rs. 1,37,10,343/-, the same assessed by him as net taxable income in the preceding year
16 998 & 588/Del/2013 and not Rs. 87,51,902/- which was declared by the assessee in the return of income. The ld. AR vehemently contended that as it is clearly evident and vivid from the record of the preceding A.Y, the income assessed by the AO under the head business income was Rs. 1,37,10,343/- and interest income from fixed deposit was separately assessed as income from other sources. The ld. AR supporting the first appellate authority submitted that the figures which was to be reduced from the net profit would therefore be income assessed by the AO under the head business income in the preceding year and not the total income assessed by the AO. The ld. AR lastly pointed out that the actual quantum of business income was to be reduced pertaining to the preceding year and therefore, the ld. CIT(A) was quite justified and reasonable granting relief to the assessee and directed the AO to take appropriate action.
On careful consideration of the above rival submissions, we note that the ld. CIT(A) granted relief to the assessee by observing as under:
17 998 & 588/Del/2013 “Ground three of the appeal is considered next. During the relevant year, income was declared at Rs 28,88,200 after reducing profit declared in the preceding year at Rs 87,51,902 from the estimated net profit of Rs 1,16,40,098. The appellant has claimed that while computing the business income of the year in question, the AO ought to have reduced Rs 1,39,97,371, the sum assessed by him as the net taxable income in the preceding year and not Rs 87,51,902 that was declared by it in the return of income. As is evident from the record of the preceding year, the income assessed by the AO under the business head was Rs 1,37,10,343. The interest income was assessed separately as income from other sources. The figure to be reduced from the net profit would therefore be the income assessed by the AO under the ‘business’ head in the preceding year and not the ‘total income’. Income assessed under ‘other sources’ would not qualify for reduction from the net profit. While the general point raised by the appellant is in order, the actual quantum to be reduced will depend upon the income assessed under the ‘business’ head in the preceding year. The AO is directed to give effect accordingly. Ground 3 of the appeal is therefore partly allowed.
In view of the above, from the assessment order available in the appeal file in we clearly note that the AO assessed income from business viz calculation of profitability on project completion basis at Rs. 1,37,10,343/- whereas while passing order for A.Y 2009-10 he reduced the amount of Rs.
18 998 & 588/Del/2013 87,51,902/- as profit already declared for the preceding A.Y 2008-09 which is not a proper and correct approach of the AO. In view of the above noted facts and circumstances, we are in agreement with the conclusion of the ld. CIT(A) which granted relief to the assessee and directed the AO to give effect accordingly. We are unable to see any ambiguity or perversity or any other valid reason to interfere with the order of the ld. CIT(A). Thus we uphold the same. Accordingly, Ground Nos. 1 and 2 of the Revenue being devoid of merits are dismissed.
To sum up, in the result, the appeals of the assessee for A.Ys 2008-09 and 2009-10 are allowed whereas the appeal of the Revenue for A.Y 2009-10 is dismissed.
The order is pronounced in the open court on 31.05.2016.