DY. CIT, CIRCLE-1, JALGAON vs. SMT. TARADEVI RATANLAL BAFNA, JALGAON

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ITA 904/PUN/2013Status: DisposedITAT Pune09 January 2018AY 2009-1023 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal decided to remand the issues concerning disallowance of interest, disallowance of interest under Section 14A, addition under Section 69B, and addition under Section 50C back to the Assessing Officer for fresh adjudication. This was due to procedural issues, lack of opportunity for the assessee, and potential double taxation.

What were the facts?

The assessee, a jeweler and bullion trader, filed her income tax return declaring a certain income. The Assessing Officer (AO) made several additions, increasing the assessed income. The Commissioner (Appeals) partly allowed the assessee's appeal.

What were the issues?

The key issues involved the validity of disallowances of interest expenditure, additions for unexplained investment, and additions on account of sale of property, with a focus on procedural fairness and proper application of tax laws.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii),Section 14A,Section 69B,Section 50C,Section 37,Section 154

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE

Before: SHRI D.KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM

For Appellant: Shri Sunil Ganoo
For Respondent: Shri Rajeev Kumar & Shri Mukesh Jha, CIT DRs
Hearing: 10.11.2017Pronounced: 09.01.2018

Heard together (3 matters)

ITA No.732/PUN/2013
ITA No.904/PUN/2013
ITA No.447/PUN/2015

Read from the judgment's own cause title. This page is filed under one of them.

आदेश आदेश

PER D. KARUNAKARA RAO, AM :

There are 3 appeals under consideration. There are cross

appeals for the A.Y. 2009-10 and they are ITA Nos. 732/PUN/2013 and 904/PUN/2013. These appeals are filed by the Assessee and the Revenue against the order of CIT(A)-II, Nashik dated 26-02-2013. Further, there is another appeal filed by the assessee vide ITA

No.447/PUN/2015 for the same assessment year and the same has genesis in the rectification order passed u/s.154 of the I.T. Act.

2.

Brief facts of the case are that the assessee is a partner in M/s.

Bafna Builders and Land Developers, Jalgaon. Assessee is engaged in the business of trading activity in Gold and bullion & ornaments,

diamond and diamond ornaments. Assessee filed the return of income

declaring total income of Rs.30,11,75,820/-. Assessment was completed u/s.143(3) of the Act determining the assessed income at Rs.36,07,76,280/-. Number of additions were made by the AO and the details in summary are given in page 17 of the assessment order.

3.

Aggrieved with the said additions, assessee filed an appeal before

the CIT(A)-II, Nashik. At the end of the First Appellate Proceedings,

CIT(A) partly allowed the appeal of the assessee. Subsequently, the CIT(A) also found apparent mistake in his order and therefore, he

invoked the provisions of section 154 of the Act and rectified his order

vide rectification order dated 13-01-2015 after following due process of law and after giving opportunity to the assessee. Aggrieved with the relief granted by the CIT(A), the Revenue is in appeal before us vide ITA

No.904/PUN/2013. Further, aggrieved with the additions confirmed by the CIT(A) the Assessee is in appeal vide ITA No.732/PUN/2013. Smt. Taradevi Ratanlal Bafna

Further, aggrieved with the decision of the CIT(A) in assuming

jurisdiction u/s.154 of the Act, the assessee filed another appeal ITA

No.447/PUN/2015 requesting for cancelling the said rectification

order. We shall now take up the appeal-wise adjudication in the following paragraph.

4.

In connection with the cross appeals in general and the assessee’s appeal in particular, Ld. Counsel for the assessee filed a chart giving the details of the grounds raised originally in the appeal as well as the additional grounds raised during the course of the proceedings before the Tribunal. The issues, the issue-wise arguments

of the parties and the decision of the Tribunal on each of them, are given in the following paragraphs.

5.

The first issue raised by the assessee relates to the “disallowance

of interest of Rs.49,23,531/-”. It has two segments namely (1) the disallowance of interest of Rs.8,10,106/- relating to the diversion of funds for non-business purposes; and (2) the disallowance of an amount of Rs.41,13,425/- u/s.36(1)(iii) of the Act.

6.

The facts relating to the disallowance include that the assessee

debited interest expenditure as well as credited the interest income

earned by her. The AO disallowed the interest expenditure of Rs.49,23,531/- and added to the income returned by the assessee. In this regard, the Assessee’s argument includes that the said interest

constitutes an allowable expenditure u/s.37 of the Act. AO held that the claim of the assessee is not allowable as the same constitute

diversion of funds for non-business purposes. Further, in connection

with the claim of other part of interest, AO invoked the provisions of Smt. Taradevi Ratanlal Bafna

section 36(1)(iii) of the Act for denying the claim of the assessee. It is the argument of the Ld. Counsel for the assessee that the lower

authorities erred in relying on the provisions of section 36(1)(iii) for denying the claim as the advances received are for business purposes

and therefore, the interest claimed if any is allowable u/s.37 of the Act.

Ld. Counsel for the assessee filed the written submissions mentioning

the following :

“…The AO has made the addition on the ground of diversion of funds for non business purpose and u/s.36(1)(iii) of the I.T. Act, 1961. The appellant had filed her explanation before Ld.CIT(A) vide page Nos. 55 to 69 of paper book which has been quietly ignored by the Ld.CIT(A) who has drawn erroneous conclusions of his own. Basically all the advances were for business considerations, i.e. advances were given during the course of carrying on the business on which no interest was charged. The Ld. AO made the disallowance on account of diversion of funds for non business purposes and also u/s. 36(1)(iii) of the I.T. Act, 1961 and Ld.CIT(A) made the disallowance only u/s.36(1)(iii) which is incorrect and if at all the disallowance was to be made it should have been made u/s.

37.

The appellant most respectfully submits that the matter cannot be restored to the lower authorities to ascertain the applicability of provisions of section 37 of the I.T. Act, 1961 and reliance is placed on three high court decisions submitted in the case of Bafna Builders and Developers which is simultaneously heard.”

7.

From the above, it is the submission of the assessee’s counsel

that the issue may be restored to the file of the AO and the same will be in tune with the decision of the Tribunal in the case of M/s. Bafna

Builders and Land Developers - ITA Nos. 706/PUN/2013 and ITA

No.162/PUN/2015 & ITA No.902/PUN/2013 order dated 30-10-2017

where Ground No.3 was already remanded to the file of the AO for fresh

adjudication as per the discussion given in Para 17 of the said order of the Tribunal (supra). In the remand proceedings, AO was directed to grant reasonable opportunity to the assessee.

8.

Ld. DR for the Revenue relied heavily on the orders of the AO and the CIT(A). Smt. Taradevi Ratanlal Bafna

9.

After hearing both the sides, we are of the view that this ground

should revisit to the file of the AO. Therefore, Ground No.1 in its entirety, is remanded to the file of the AO for fresh adjudication.

Accordingly, Ground No.1 is allowed for statistical purposes.

10.

The second issue raised vide Ground No.2 relates to “disallowance of interest of 17,41,441/- u/s.14A r.w. Rule 8D of the I.T. Rules”. On this issue also, Ld. Counsel for the assessee submitted

in the written submissions that this issue also needs to revisit to the file of the AO submitting the following arguments :

“1. The Ld.CIT(A) has failed to properly analyse the facts in proper perspective and his conclusions drawn on page no.47 & 48 of the impugned order are erroneous and hence deserve to be rejected.

2.

Both the lower authorities have failed to appreciate that the appellant had surplus funds of her own and therefore a presumption arises that the investments were made out of own funds. The appellant therefore requests that the issue may please be restored to the file of the Ld. AO in the light of the developed legal position in this respect with a direction that the disallowance should not exceed the exempt income.”

11.

Ld. DR for the Revenue relied heavily on the orders of the AO and the CIT(A).

12.

Before us, Ld. Counsel for the assessee submitted that the assessee has excess funds which were invested in the shares which yielded dividend income and the interest claimed by the assessee is nothing to do with the investments made by him in the exempt income

yielding investments. For examining the claim of the assessee as well

as applying the correct law on this issue, Ld. Counsel desires that the matter should be restored to the file of the AO.

13.

On hearing both the parties and also in tune with our finding on an identical issue raised in Ground No.3 of the appeal adjudicated by us in the case of M/s.Bafna Builders and Land Developers, we are of Smt. Taradevi Ratanlal Bafna

the opinion that this should also re-visit to the file of the AO with identical directions. Accordingly, Ground No.2 raised by the assessee

is allowed for statistical purposes.

14.

Ground No.3 relates to the addition of Rs.63,75,000/- made

u/s.69B of the Act. Background facts of this issue include that Chhoriya Group was searched u/s.132 of the Act. Search resulted in seizure of a document involving Shri Ratanlal C. Bafna for the A.Y.

2009-10. According to the said document, the assessee purchased

Shirdi plots amounting to Rs.1,13,75,000/-. However, on verification

of the records, it was noticed that an amount of Rs.50 lakhs only was reflected in the books of the assessee. Considering the fact there was settlement of loan between Chhoriya group and Shri Ratanlal C. Bafna.

The differential amount of Rs.63,75,000/- was added in her hands and her husband hands u/s.69B of the Act. In this regard, assessee

furnished the following arguments/objections to the decision of the lower authorities :

“1. The transaction was a distress sale entered into by the appellant after the search and seizure action on the said group.

2.

Mr. Ratanlal C. Bafna in his case has challenged the addition.

3.

The addition has been made on presumptions and surmises without giving an opportunity to the appellant to cross examine the author of the document from Chhoriya group.

4.

There is no evidence with the department that the appellant has paid the amount to her husband.

5.

Once the amount is added in the hands of the husband of the appellant the same amount cannot be added in the hands of the appellant as then it would be a case of double addition.”

15.

Further, Ld. AR submitted before us, making addition of the same amount in the cases of the assessee as well as her husband, is unsustainable in law. Further, referring to the violation of principles of natural justice, Ld. AR submitted that the said seized paper was never Smt. Taradevi Ratanlal Bafna

supplied to the assessee and the opportunity was also not granted by the AO before any addition is made. Furnishing a copy to her husband

during the course of his assessment proceedings does not cure the legal defect. It is the prayer of the Ld. Counsel before us that this issue

should also revisit to the file of the AO for proper adjudication following the principles of natural justice.

16.

On hearing both the parties, where the Ld. DR for the Revenue

relied heavily on the orders of the AO and the CIT(A), we find prima-

facie, mistake in taxing the same amount both in the assessee’s case

and her husband’s case. Further, supplying the copy of the document

to the assessee is her legitimate right before any addition is made in her hands relying on the said document. Therefore, AO is directed to supply the same and also cross examination if any before making any addition in her case and in the remand proceedings. Accordingly, as requested, the issue is restored to the file of the AO for fresh

adjudication. AO is directed to grant reasonable opportunity of being

to the assessee in accordance with law. Accordingly, Ground No.3

raised by the assessee is allowed for statistical purposes.

17.

Ground No.4 by the assessee relates to the addition of Rs.1,67,54,510/-. Background facts of this issue includes that assessee is a co-owner of a property which was given to M/s. Bafna

Builders and Land Developers. As per the AO, Assessee has 1/5th

share in the said property along with other 4 members. Value of the property as per the stamp duty purposes is around Rs.13.38 crores

(rounded off). However, as per records, her share of sale consideration

of the property is around Rs.1 crore in equal proportion. This property

was referred to the valuation during the remand proceedings. However,

there was delay in receipt of the said DVO’s report by the AO and the Smt. Taradevi Ratanlal Bafna

assessment was completed considering the assessee’s share of consideration at Rs.2,67,54,510/- out of Rs.13.38 crores. After

reducing the accounted portion of Rs.1 crore, the AO proceeded to make addition of the balance amount of Rs.1,67,54,510/- u/s.50C of the Act (Rs.2,67,54,510 – Rs.1,00,00,000/-).

18.

During the First Appellate proceedings, the CIT(A) received the said valuation report of the DVO and found the DVO’s value is much

less than the said figure of Rs.13.38 crores. Considering the objections

raised by the assessee before the CIT(A), the matter was once again

referred to the DVO. As per the valuation submitted by the DVO, the property value was conclusively determined at Rs.6,72,51,553/-

against the Sub

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