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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI D. KARUNAKARA RAO, AM & SHRI AMARJIT SINGH, JM
PER AMARJIT SINGH, JM:
This is an appeal against the order dated 18.12.2013 of learned Commissioner of Income Tax (Appeals)-17, Mumbai [hereinafter referred to as the “CIT(A)”] for the assessment year 2008-09. 2. The assessee is a resident individual and is proprietor of M/s. Perry Impex, who is engaged in the business of trading in Assessment Year: 2008-09
Chemicals. The assessee has shown business income of Rs.2,07,79,472/- from his proprietary concern, M/s. Perry Impex and Income from Other Sources of Rs.2,22,501/-, Income from Speculation Business of Rs.42,980/- and income from Short Term Capital Gains of Rs.2,75,974/-. After claiming deduction u/s. 80C and 80D of Rs.1,08,075/-, the assessee has shown net taxable income of Rs.2,12,11,760/-. The assessee has also earned dividend income of Rs.4,71,987/- and Long Term Capital Gain on sale of mutual fund of Rs.12,67,903/- which were claimed as exempt. The Assessing Officer arrived at this conclusion that the loan a sum of Rs.1,00,000/- taken by the assessee from Manchhagauri M. Andharia and Rs.5,00,000/- from Gopaliji V. Variya and Rs.4,95,000/- from D.S.Mehta was not creditworthy and genuine therefore the same was declined and added to the income u/s. 68 of the Income Tax Act, 1961( in short “the Act”). The Assessing Officer has also applied the provision u/s.14A read with Rule 8D of the Income Tax Rules, 1962 in connection with the income which has been claimed as exempt challenged by the assessee which were confirmed by the learned CIT(A).
The assessee has raised the following ground of appeals:-
A. Addition on account of alleged unexplained cash credits – Rs.10,95,000/-
1) The learned Commissioner of Income Tax (Appeals) – 17, Mumbai [CIT(A)] erred on facts and in law in upholding the order of the Deputy Commissioner of Income Tax 8(2),
2 Assessment Year: 2008-09
Mumbai (AO) making an addition of Rs.10,95,000/- on account of alleged unexplained cash credits as under without appreciating that the loan creditors had confirmed the loans by way of loan confirmation letters and also in the statement on oath before the CIT(A):
a) Ms. Manchhagauri A. Andharia – Rs.1,00,000/-
b) Mr. Gopalji V. Variya HUF – Rs.5,00,000/-
c) Ms. D.S.Mehta – Rs.4,95,000/-
2) The appellant prays that the addition on account of alleged unexplained cash credits of Rs.10,95,000/- as made by the AO and confirmed by the CIT(A) is required to be deleted:
a) Ms. Manchhagauri A. Andharia – Rs.1,00,000/-
b) Mr. Gopalji V. Variya HUF – Rs.5,00,000/-
c) Ms. D.S.Mehta – Rs.4,95,000/-
B. Disallowance u/s. 14A – Rs.99,093/-
3) The learned CIT(A) having held that the appellant had not incurred any direct or indirect expenditure for earning the exempt income erred in confirming the disallowance u/s.14A to the extent of Rs.99,093/- out of the disallowance of Rs.5,11,228/- as made by the AO
4) The appellant prays that the disallowance u/s.14A of Rs.99,093/- as confirmed by the CIT(A) may be deleted.
3 Assessment Year: 2008-09
C. Disallowance out of sales promotion expenses - Rs.6,177/-
5) The learned CIT(A) erred on facts and in law in upholding the order of the AO making a disallowance of Rs.6,177/- out of sales promotion expenses.
6) The appellant prays that the disallowance of Rs.6,177/- out of sales promotion expenses as made by the AO and as confirmed by the CIT(A) may be deleted.
D. Disallowance out of Conveyance Expenses – Rs.3,676/-
7) The learned CIT(A) erred on facts and in law in upholding the order of the AO making a disallowance of Rs.3,676/- out of Conveyance expenses.
8) The appellant prays that the disallowance of Rs.3,676/- out of Conveyance Expenses as made by the AO and as confirmed by the CIT(A) may be deleted.
E. Disallowance out of Misc. Expenses – Rs.1,063/-
9) The learned CIT(A) erred on facts and in law in upholding the order of the AO making a disallowance of Rs.1,063/- out of Misc. Expenses.
10) The appellant prays that the disallowance of Rs.1,063/- out of Misc. Expenses as made by the AO and as confirmed by the CIT(A) may be deleted.
4 Assessment Year: 2008-09
F. Disallowance out of Staff Welfare expenses – Rs.3,910/-
11) The learned CIT(A) erred on facts and in law in upholding the order of the AO making a disallowance of Rs.3,910/- out of staff welfare expenses.
12) The appellant prays that the disallowance of Rs.3,910/- out of staff welfare expenses as made by the AO and as confirmed by the CIT(A) may be deleted.
G. Disallowance out of Telephone expenses – Rs.3,416/-
13) The learned CIT(A) erred on facts and in law in upholding the order of the AO making a disallowance of Rs.3,416/- out of Telephone expenses.
14) The appellant prays that the disallowance of Rs.3,416/- out of Telephone expenses as made by the AO and as confirmed by the CIT(A) may be deleted.
H. Disallowance out of Travelling expenses – Rs.4,638/-
15) The learned CIT(A) erred on facts and in law in upholding the order of the AO making a disallowance of Rs.4,638/- out of Travelling expenses.
16) The appellant prays that the disallowance of Rs.4,638/- out of Travelling expenses as made by the AO and as confirmed by the CIT(A) may be deleted.
5 Assessment Year: 2008-09
ISSUE NO.:-A:-
The learned representative of the assessee has argued that the assessee has furnished sufficient documents before the learned CIT(A) and also proved the identity of the lenders and correct address and proved the genuineness of the claim which has not considered by the learned CIT(A) wrongly and illegally therefore the order of learned CIT(A) is wrong against law and facts and is liable to be set aside. However the learned Departmental Representative has refuted the said contention. The Assessing Officer has declined the loan taken from Manchhagauri M. Andharia, Gopaliji V. Variya and D.S.Mehta. The assessee has furnished the following documents at the time of arguments:-
Sr. Particulars No. Mr. Gopalji V. Varaiya H.U.F.(Relation –nil)
Confirmation letter
Copy of Bank Pass Book
Income Tax Acknowledgement
Computation of Total Income Balance Sheet as at 31st March, 2008
Form 15G
Ms. Manchhagauri M. Andharia (Relation-Mother-in law)
Confirmation letter
Bank Statement of Ms. Hina M. Andharia (Sister in law)
Death Certificate
Bank Certificate confirming that amount transferred from bank account of Ms. Hina M. Andharia’s account to appellant’s bank account
Form 15H
6 Assessment Year: 2008-09
Income Tax Acknowledgement of Ms. Hina M. Andharia
Salary Certificate of Ms. Hina M. Andharia
Statement on Oath recorded by Commissioner of Income Tax(Appeals) – 17, Mumbai
Ms.Darshana S. Mehta (Relation-Sister)
Confirmation
Copies of Bank Accounts/Statements
Copy of Post Office Savings account
Copy of Acknowledgement and Copy of Income Tax Return
Computation of Total Income
Copy of Challan
Copy of Certificate for amount received from Mahindra & Mahindra towards Provident Fund dues
Copy of Annual Information Return
Statement on Oath recorded by Commissioner of Income Tax (Appeals) – 17, Mumbai
No doubt the Assessing Officer and learned CIT(A) accepted the identity of the lenders but doubting about the capacity of the lenders however it also came into notice that he learned CIT(A) also recorded the statement of Ms. Manchhagauri M. Andharia which has been shown at page 221 to 222 of the paper book and statement of Ms. Hina M. Andharia which has been shown at page 222 and 223 of the paper book and Ms. Darshana Mehta which has been shown at page 223 of the paper book. Ms. Hina M. Andharia proved the transactions of her mother Ms. Manchhagauri M. Andharia. The remand report which has been attached at page 234 of the paper book speaks that the assessee was not entitled to adduce the evidence because the evidence was not produced before
7 Assessment Year: 2008-09
the Assessing Officer at initial stage, hence by not fulfilling the condition u/s. 47A of the Act nothing is required to be considered. However, the said report also confirmed the transactions but raised the point of creditworthiness of the creditors. Now it is to be seen whether the claim of the assessee has rightly been declined by the authority below. Before going further to decide the matter of controversy it is observed that the learned CIT(A) accepted the additional evidence but arrived at this conclusion that the lender were not having capacity to give the loan therefore the loan given by above said three person falls under section 68 of the Act. The relevant para of the finding of the learned CIT(A) is hereby reproduced as under:
“1.3.8
As regards the identity of the persons who had given loan to the appellant there is no dispute. The creditworthiness of Mr. Gopalji V. Varaiya HUF who had given loan of Rs.5 lakhs to the appellant required to be examined in respect of their creditworthiness of advancing such a loan. From a perusal of the computation of total income it can be seen that the gross total income of the HUF is Rs.1,64,727 for A.Y.2009-10 and in earlier year it is even less than this, after claiming deduction under section 8 Assessment Year: 2008-09
80C the net taxable income of the Mr. Gopalji V. Varaiya HUF is below the taxable income. The creditworthiness of the person who is filing income tax return just for the sake of it cannot be said to be proved automatically. The circumstantial evidences thus indicate that it is highly unbelievable that a person of such of lowly mean can advance sum of Rupees 5 lakh to the appellant. Further, it is also seen that Mr.Gopalji V. Varaiya HUF had given loan and advances standing in the name of various persons amounting to Rs.16.90 lakhs. Therefore, under the circumstances the creditworthiness of Mr. Gopalji V. Varaiya HUF is not established and the transaction in this backdrop does not transpire confidence and thus cannot be taken as trustworthy. Similarly in respect of the Darshan S. Mehta, I find the g ross total income for assessment year 2008-09 is Rs.1,75,862/- and after claiming deduction under section 80C the amount of income is Rs.1,45,860/- the total tax paid is Rs.90 only. A perusal of his account revealed
9 Assessment Year: 2008-09
that there are several entries which are made in cash and no source of the same were explained. Further, in the case of Hina Maganlal Andharia who had gifted money to her mother Manchhagauri M. Andharia is also in doubt as the total income of Mrs. Hina Maganlal Andharia was Rs.3,30,088/- and after making investment of approximately on lakh, her carry home salary is Rs.2,20,000/- approximately which in any case is not sufficient to support a single family. It is therefore highly improbable that she had advanced his money to her mother who then had invested this money with the appellant. Under the circumstances, undoubtedly the identity of the loan givers is not in doubt however, their creditworthiness is highly questionable. The loan givers is not in doubt however, their creditworthiness is highly questionable. The loan givers are persons of very low means and under the circumstances could not have given the money in question to the appellant. Under these circumstances coupled with 10 Assessment Year: 2008-09
the fact that the loan givers were not able to explain the sources of credits appearing in their bank accounts immediately preceding to the entry of giving loan, the creditworthiness of these persons therefore cannot be said to be proved. The additional made by the Ld.AO is based on the material on record and also on the circumstantial evidences indicating that the immediate sources of advancing loan stands unexplained in accordingly upheld. This ground of appeal is thus dismissed.”
Apparently, the learned CIT(A) discredited the said credit on the basis of creditworthiness. He relied upon the Income Tax return of the creditors. Gopalji V. Varaiya HUF produced the confirmation of account at page 3 of the paper book wherein the closing balance has been shown to the tune of Rs.10,61,049. 00. Copy of pass book has also been produced at page 4 and 5 of the paper book which speaks about the withdrawal of the said money. No doubt these documents have not been discussed in the order however in the written submissions before us these document only on the file of the CIT(A) as well as Assessing Officer. Accordingly, the loan received from Late Manchhagauri M. Andharia is concerned, in this regard the confirmation of account for the period from 11 Assessment Year: 2008-09
2008 to 31.03.2009 is on the file which speaks about the closing balance of the Manchhagauri M. Andharia is to the tune of Rs.4,44,230. 00. Bank statement of Hina Maganlal Andharia has also been produced which is at page 7 of the paper book and speaks about some transactions which is required to be verified in the interest of justice also. However, it is also recorded that the statement of Hina Maganlal Andharia has also been recorded at the time of assessment of the case which is also required to be viewed in accordance with law. Anyhow these transactions have also not been discussed in the order passed by the learned CIT(A). So far as the loan received from D.S.Mehta is concerned the copy of bank pass book showing the withdrawals are also produced before us at page 9 to 23 of the paper book. These documents also nowhere found discussed in the order under challenged. Since the assertion of the assessee has been declined by the Assessing Officer as well as confirmed by the learned CIT(A) on the ground of non- creditworthiness of the creditors but the said documents were not discussed therefore, we are of the view that the matter of controversy in this regard is also required to be re-examined by taking into account the above mentioned documents to decide the claim of the assessee in the interest of the justice therefore we restore this issue upon the file of Assessing Officer again to decide the matter afresh after giving an opportunity of being heard to the assessee in accordance with law. Accordingly this issue is decided in favour of Assessee and against the Revenue.
12 Assessment Year: 2008-09
ISSUE NO.:-B:-
So far as the issue no.2 regarding disallowance u/s. 14A of the Act to the extent of Rs.99,093/- is concerned this issue has been decided in the assessee’s own case for the A.Y.2010-11 in ITA No.5710/Mum/2010 the relevant para no.2 is hereby mentioned below:-
“So far as, disallowance of Rs.1,65,830/- u/s. 14A of the Act read with Rule 8D of the Rules is concerned, we find that as per letter dated 15.11.2012, of the assessee, addressed to the DCIT, the assessee, during the relevant period earned Rs.89,981/- (dividend from shares), Rs.2,92,557/- (dividend from mutual fund) and Rs.6,12,061/- (PPF interest). This income was generated from the shares, mutual fund and PPF, which was treated as investment in the balance sheet. The expenses debited to the profit and loss accounts, relates to the business, carried out by the assessee and thus, there is no nexus of the expenses debited to the profit & loss account and the income generated out of investment. The claim of the assessee is that unsecured loans were utilized for payment of imports of chemical for trade or for paying
13 Assessment Year: 2008-09
import duties or for establishing the fixed deposit with the bank which was required as collateral security by the bank for letter of credit for import of chemicals. It was empathetically asserted that none of the loan, taken on which interest was paid, was utilized for investment purposes. In view of these facts, we find merit in the explanation of the assessee, consequently, this ground of assessee is allowed.”
1 Turning to the case in hand it is specifically asserted by the assessee that the appellant is maintaining separate accounts of the business carried on by him and his investment activities. The investment activities and its expenses are reflected in the appellant’s personal accounts. No expenses pertaining to the investment activity are debited to the business accounts. Further, though the investment has been made out of the proprietary concern’s bank account, the same has not been made out of borrowed funds but out of own funds, as is evident from the copies of bank statements filed with AO also. The appellant’s capital account shows a figure of Rs.3,85,83,534/-. As against this, the appellant has invested in fixed assets of Rs.2,00,977/- and current assets of Rs.2,67,57,531/- i.e. Rs.2,69,58,508/-. The investment shown in the proprietary firm’s balance sheet is in Fixed Deposit with banks, interest of which is very much taxable. The appellant had earned a profit of Rs.2,08,22,452/- during the year under consideration. His capital, even after considering the investment in 14 Assessment Year: 2008-09
shares during the year of Rs.74,31,583/-, increased from Rs.2,99,95,455/- as at the beginning of the year to Rs.3,85,83,534/- at the close of the year. The borrowed funds are only to the extent of Rs.89,59,626/-, which have been invested in fixed deposits in order to obtain letter of credits from banks for the purpose of our business of importing goods. As per the bank sanction letter, the appellant is required to maintain a minimum term deposit of 25% of this limit as margin money. The appellant has invested more money in fixed deposits in order to obtain additional letters of credit from the bank at short notice. The appellant submits that the borrowed money was utilized for the purpose of business and not for the purpose of investment in share. Further, all expenses pertaining to the exempt income like D’mat charges, bank charges, etc. are debited by the appellant to his personal capital account and not to the business accounts. Therefore it is quite clear that no expenditure of any kind was occurred to get the exempt income therefore in these said circumstances no disallowance of expenses is required u/s. 14A read with Rule 8D of the Act. In view of the said circumstances and by following the order passed by the Income Tax Appellate Tribunal in assessee’s own case for the A.Y.2010-11 in ITA No.5710/Mum/2010. We allowed this issue in favour of Assessee and against the Revenue.
ISSUE NO.:-C to H:-
Issue no. C to H are in connection with certain disallowances which were restricted by the learned CIT(A) to the extent of 10%
15 Assessment Year: 2008-09
and in this regard Income Tax Appellate Tribunal in assessee’s own case for the A.Y.2010-11 in ITA No.5710/Mum/2010 confirmed the addition to the extent of 10% therefore, in view of the said decision we declined the assertion of the assessee and held 10% disallowance as justifiable accordingly, theses grounds are decided in favour of the Revenue and against the Assessee.
In the result, appeal of the Assessee is hereby partly allowed
Order pronounced in the open court on 23rd March, 2016. (AMARJIT SINGH) (D.KARUNAKARA RAO) लेखा सद"य / ACCOUNTANT MEMBER "या"यक सद"य/JUDICIAL MEMBER मुंबई Mumbai; "दनांक Dated : 23rd March, 2016 MP MP MP MP
16 Assessment Year: 2008-09
आदेश क" ""त"ल"प अ"े"षत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant
""यथ" / The Respondent. 3. आयकर आयु"त(अपील) / The CIT(A)- 4. आयकर आयु"त / CIT
"वभागीय ""त"न"ध, आयकर अपील"य अ"धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड" फाईल / Guard file. आदेशानुसार/ BY ORDER, स"या"पत ""त //// उप/सहायक पंजीकार (Dy./Asstt.