BAIJNATH MANIRAM,MUMBAI vs. ADDL.C.I.T. 14(3), MUMBAI

O R D E R Per Sanjay Arora, A. M.: This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-25, Mumbai (‘CIT(A)’ for short) dated 19.10.2011, dismissing the Assessee’s appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 (‘the Act’ hereinafter) for the assessment year (A.Y.) 2008- 09 vide order dated 16.12.2010.

2. The learned CIT (A) has erred in law and on facts in approving the assessment of the total income of the appellant at Rs.1,56,29,010/- as against the returned income of Rs.1,11,77,272/ -.

5. The learned CIT (A) has erred in law and on facts in sustaining the levy of interest u/s. 234A, 234B and 234C of the Income-tax Act.’ 3. Grounds # 1 and 2 are general in nature, warranting no adjudication on merits. Ground No. 3 assails the impugned order for want of satisfaction of the mandate of section 250(6) of the Act, which reads as under: Procedure in appeal. 250. (1) ………. (2) ………….. (6) The order of the Commissioner (Appeals) disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reason for the decision. It was argued by the ld. Authorized Representative (AR), the assessee’s counsel, that the ld. CIT(A) ought to have passed a speaking order, which he has failed to, so that his order is per se bad in law, and would therefore merit being set aside. The argument (A.Y. 2008-09) Baijnath Maniram Holding & Finance Co. Pvt. Ltd. vs. Addl. CIT is misplaced. The ld. CIT(A), as noted by the Bench, granted as many as eight opportunities of hearing to the assessee to present it’s case before him, with the assessee seeking adjournment each time. The relevant dates and the course of events has been stated by the ld. CIT(A) at para 3 of his order, with in fact the adjournment of hearing on the last four dates being granted by him by way of ‘last opportunity’. The first appellate authority has in our view granted indulgence to the assessee in the matter of extension of proper opportunity, so that he cannot be said to be at fault in proceeding to hear and decide the appeal before him ex parte qua the assessee. Again, at para 4, reference is made by him to Section 114(g) of the Indian Evidence Act, 1872, which lays a presumption that evidence which could be, but is not produced, would, if produced, be unfavourable to the person who withholds it. The burden of proof in the appellate proceedings is, in any case, on the assessee, who has clearly failed to improve his case in any manner before him. Further still, reliance is placed by him on the decision by the Hon'ble jurisdictional High Court in Chemipol vs. Union of India (dated December 12, 2009), wherein, relying on the decisions by the Apex Court, it has been held that the court or the tribunal hearing an appeal has an inherent power to decide it either on merits or can dismiss it on account of non- prosecution, which power must be exercised judicially, taking into consideration all the facts and circumstances of the case, reproducing the relevant part of the said decision in his order (at para 4). At para 5 of his order, the ld. CIT(A) notes that the assessee’s appeal requires to be rejected on merits as well. The A.O. had discussed the matter at length qua each of the three issues at paras 3 to 5 (pgs. 2 to 13) of his order, and which had been carefully perused. The reasons of the A.O. were self explanatory and no infirmity therein was observed by him. This surely is an order on merits, and it is not necessary that an appellant authority must necessarily, i.e., mandatorily, record its’ separate reasons, even where the reasons cited in the order appeal against are detailed and the appellate authority is in complete agreement therewith (refer: CIT vs. (A.Y. 2008-09) Baijnath Maniram Holding & Finance Co. Pvt. Ltd. vs. Addl. CIT K. Y. Pilliah and Sons [1967] 63 ITR 411 (SC)). We, accordingly, find no merit in the assessee’s Ground # 3.

4. Coming to Ground 4, raised by the assessee without prejudice to its earlier Grounds, challenges the concurrent decision of the Revenue on merits. The ld. AR was likewise required by the Bench to show any infirmity attending the same. He could not point out any such with regard to Grounds 4(i) and 4(ii). Toward the former, the A.O. has in fact transversed the assessee’s reporting of its’ activity relating to purchase and sale of shares A.Y. 2004-05 onwards (up to A.Y. 2009-10), to find no consistency and, rather, incoherence therein. The activity, which was reported as a trading activity for A.Y. 2004-05 (by way of ‘share trading account’) was, without any change in the underlying facts, or without reference thereto, changed to share trading as well as share investment activity. The intention with which the shares are acquired being paramount (for determining their character as either an investment or a trading asset), though the assessee could no doubt begin its investment activity at any time, the ‘share investment account’ (for A.Y. 2006-07) disclosed an opening stock of Rs.1369.06 lacs, i.e., at the same amount of the closing stock (of stock-in-trade) for the immediately preceding year (i.e., as at 31.3.2005). Not only is this inexplicable as the stock-in-trade could be converted, if at all, into an investment only from a particular date, post 31.3.2005, there was, consequentially, no opening stock (in trade) in the share trading account (for A.Y. 2006-07). The variability continues from year to year, narrated year-wise, along with the relevant incidents, in the assessment order, with the assessee disclosing the entire share activity as, again, share trading activity for A.Y. 2009-10. The ld. AR would, in fact, before us admit to having no case with regard to any part of its share activity as being regarded as an investment. As regards Gd. 4(ii), he would though draw our attention to copies of the ledger accounts of the two parties, whose balances stand written off as irrecoverable and claimed as bad debts, the same being admittedly neither before the assessing nor the (A.Y. 2008-09) Baijnath Maniram Holding & Finance Co. Pvt. Ltd. vs. Addl. CIT first appellate authority. Even before us the assessee has not furnished any application for admission of additional evidence, i.e., with reference to Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963. Merely stating that the issue goes to the root of the matter, or that the Tribunal is the final fact finding authority (as the assessee does per its’ covering letter addressed to the Tribunal), would be by itself of little consequence. This is particularly so in the facts of the present case, i.e., being not supported by any primary evidence and, further, given the back-drop of the assessee failing to evidence it’s claim/s before the Revenue authorities despite being specifically called for to do so, and grant of abundant opportunity, by them. Further, in fact, of the total claim of Rs.2.63 lacs, that for Rs.1,71,695/-, i.e., in respect of Century Consultants Ltd., is admittedly not against sales so as to be considered as toward ‘debt’ within the contemplation of section 36(1)(vii) r/w s. 36(2), but only loss on account of bad delivery against purchases made during f.y. 2000-01, i.e., relevant to assessment year 2001-02. The same would, therefore, amount to loss of stock on account of bad delivery, a business loss, which is, assuming so, admissible for the year for which it is incurred and not in the year of its’ write off as bad debt in the books of account. We, accordingly, find no reason to admit the same at this stage. Reference in this regard may also be made to the decision by the Hon'ble jurisdictional High Court in Velji Deoraj & Co. vs. CIT [1968] 68 ITR 708 (Bom). With regard to the third limb, i.e., per Ground 4(iii), the same is in respect of disallowance u/s. 14A. The A.O. has admittedly applied rule 8D, mandatory for the current year, the relevant working of which (break up here-in-below) appears at para 5.4 of his order: Break-up of Disallowance as per Rule 8D Amount (Rs.) A) Direct Expenses 3,40,145 B) Interest Expense 20,31,911 C) Indirect Expenses 18,15,451 Total 41,87,507 (A.Y. 2008-09) Baijnath Maniram Holding & Finance Co. Pvt. Ltd. vs. Addl. CIT The assessee’s contention before us was with regard to the third limb of the total disallowance of Rs.41,87,507/-, i.e., qua the indirect administrative expenditure, disallowed at Rs.18.545 lacs, working the same at 0.5% of the average value of the investment. Adverting to the details of the total indirect expenses (including interest) claimed by the assessee, the same thus works to Rs.63,01,807/- (PB pg. 32), as under, of which Rs.17,28,421/- being on account of STT, stand suo motu disallowed by the assessee per its’ return of income: Details of Total Expenses Debited in Profit & Loss A/c. Particulars Amount (Rs.) Audit Fees 10,000 Bank Interest 18,772 Bad Debts 2,63,739 Service tax 4,95,641 Other Charges Share Trading 9,13,342 Interest 23,44,072 Salary & Bonus Exp 1,86,425 Printing & Stationary 1,248 SIT 17,28,421 Demat Charges 3,40,145 Total Expenses debited in Profit & Loss A/c 63,01,807 Less: Disallowed in Computation of Total Income (17,28,421 ) (SIT) Bad Debts (2,63,739) Interest Considered separately (23,44,072) Total 19,65,574 The interest component (Rs.23.44 lacs) has been separately considered, while the claim for bad debt (Rs.2.64) has been disallowed, leaving the balance of Rs.19.66 lacs, of which Rs.18.15 stands disallowed, and which is clearly on the higher side. We agree, the total of Rs.19.66 lacs is in fact inclusive of Demat charges (Rs.3.40 lacs), separately disallowed as direct expenses, so that the indirect administrative expenditure claimed by the assessee works to Rs.16.26 lacs (Rs.19.66 lacs – Rs.3.40 lacs). The assessee’s share trading income has already been considered as its business (A.Y. 2008-09) Baijnath Maniram Holding & Finance Co. Pvt. Ltd. vs. Addl. CIT income. In our view, therefore, the assessee is justified, with reference to its accounts, to contend that the entire expenditure claimed by it (Rs.16.26 lacs) could not be regarded as wholly in relation to income not forming part of the total income. We consider the ratio of the 20% as fair and, accordingly, direct 20% of the said expenditure (Rs.16.26 lacs), besides interest expenditure of Rs.23.44 lacs, again at 20%, as toward such tax-exempt income and, thus, liable to be disallowed u/s. 14A. The balance 80%, forming part of the regular business expenditure, is liable to be taken in to account in computing the assessee’s business income from share trading income. We direct accordingly, and the assessee’s gets part relief.