RAJAT R. PATEL,MUMBAI vs. DCIT CEN CIR 25, MUMBAI

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ITA 3182/MUM/2015Status: DisposedITAT Mumbai27 July 2016AY 2006-075 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal acknowledged that while no explanation was provided for the expenses, it's reasonable to assume some expenses were incurred to earn interest income. Therefore, a partial disallowance was made.

What were the facts?

During a search operation, the assessee was issued a notice under section 153C. The Assessing Officer disallowed expenses claimed against interest income for lack of explanation. The assessee argued that no such disallowance was made in a prior regular assessment.

What were the issues?

Whether expenses claimed against interest income can be disallowed solely for lack of explanation, especially when a prior assessment did not raise this issue.

Which sections of the Income-tax Act were involved?

Section 132,Section 153C,Section 139(1),Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCHES “B”, MUMBAI

Before: SHRI R.C. SHARMA(AM) & SHRI SANDEEP GOSAIN (JM)

Hearing: 20/07/2016Pronounced: 27/07/2016

Date of Hearing : 20/07/2016 Date of pronouncement : 27/07/2016 O R D ER PER SANDEEP GOSAIN, JM :

Present appeal has been filed by the assessee against the order of Ld. Pr. CIT(OSD)[h/c. CIT(A)-51], Mumbai dt. 04/03/2015, on the ground mentioned herein below :

1.

Disallowance of Expenditure on Interest, etc. The learned CIT(A) erred on facts and in law in confirming the disallowance of Rs. 3,16,481/- out of various expenses. Relief claimed : expenses of Rs. 3,16,481/- be allowed.

2.

Brief facts of the case are that the assessee is a Director in M/s. Patel Engineering Ltd. and partner in M/s. Siddhivinayak Construction. A search operation under section 132 of the I.T. Act, 1961 was conducted on 16/12/2010 in the case of M/s. Patel Engineering Ltd., group of cases. Since the assessee was, inter alia, covered in the search operation therefore cases were centralized and after recording satisfaction, Notice u/s. 153C of the Act was issued and served upon the assessee. After seeking reply from the assessee and while computing assessment, the Assessing Officer disallowed claim of expense in the nature of interest and professional charges against interest income vide Assessment Order dt. 19/03/2013.

3.

Aggrieved by the Assessment Order, the assessee preferred the appeal before the Ld. CIT(A). After considering the submissions filed by the assessee, CIT(A) dismissed the appeal vide order dt. 23/04/2013. 4. Aggrieved by the order of Ld. CIT(A), the assessee has preferred the present appeal before us on the ground mentioned herein above.

5.

At the time of hearing, the case was called several times but none appeared on behalf of the assessee. No application for adjournment was moved before us therefore in our considered view the assessee is not interested in pursuing the appeal therefore we have decided to hear the appeal ex-parte with the assistance of Ld. DR present in the court.

6.

The only ground raised by the assessee before us is that the Ld. CIT(A) erred in confirming the disallowance of Rs. 3,16,481/- out of various explanation. On the other hand Ld. DR appearing on behalf of the Revenue supported and relied upon the order passed by lower authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A) while dealing with the said issue. The operative para of Ld. CIT(A) is reproduced below:

5. Ground 1 is with regard to disallowance of expenditure of Rs. 3,16,481/- claimed against interest income. 5.1 During the year, the appellant claimed expenditure aggregating Rs. 3,16,481/- against interest income from the partnership firm in which he is a partner. Stating that no explanation was provided by the assessee for claiming the said expenditure against income earned from partnership firm, the AO has disallowed claim of expenditure amounting to Rs. 3,16,481/-. 5.2 The appellant has been heard in the matter. It is submitted that the appellant had earlier filed regular return of income under s. 139(1) and assessment had been completed under s. 143(3) and while completing the said assessment under s. 143(3), no such disallowance had been made. It is pointed out by the appellant that while completing the impugned assessment under s. 143(3) r.w.s. 153C, the AO has overlooked the fact that in the assessment order under s. 143(3) no such disallowance was made and therefore, since no incriminating documents or any other evidence has been brought on record, the AO is not justified in taking a different view. 5.3 On a consideration of the matter, it is held that in proceedings initiated by issue of notice under s. 153C, the AO had sought for explanation regarding the claims which was not done when the regular assessment under s. 143(3) was made. Hence, no view had been taken on the impugned claims while making the regular assessment. Further it is seen that the AO had made the disallowance in the impugned proceedings for the reason that no explanation was given. Therefore, it is held that the addition is justified. The disallowance is sustained. 5.4 Ground 1 is dismissed 7. We have carefully analysed the order passed by Ld. CIT(A), we have also heard Ld. DR on this ground. We have noted from the record that assessee had earlier filed regular return of income under section 139(1) and assessment had been completed under section 143(3) and while computing the said assessment under section 143(1) r.w.s 143(3), no such disallowance had been made and moreover no incriminating material or any other evidences has been brought on record.

Ld. CIT has considered the said factual position and in this respect has given a categorical finding that the AO while computing the assessment under section 143(3) had not sought the explanation regarding the present claim and hence no view had been taken on the impugned claim by the AO while making regular assessment and even the assessee had not put forth any explanation before the AO at the time of making assessment under section 143(3) r.w.s 153(c) of the Income Tax Act, 1961.

8.

Be that as it may, it is an undisputed fact that the assessee has earned interest income during the year under consideration and while taking into consideration the facts of the present case, it can reasonable be presumed that the assessee might have incurred some reasonable expenses to earn the interest income however the AO has disallowed the entire expenses merely on the ground that no explanation was put forth by the assessee, hence considering the interest on justice and while taking into consideration that practically some reasonable expenses might have been incurred by the assessee while earning the interest income, refuse the lump sum amount of Rs. 50,000/- is allowed towards incurring of all expenses and the remaining amount of Rs. 2,66,481/- [ 3,16,481 – 50,000 = 2,66,481] is disallowed and AO is directed to compute the amount as per the above direction.

9.

In the above circumstances the appeal filed by the assessee is partly allowed.

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