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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI SANJAY ARORA, AM
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)-16, Mumbai (‘CIT(A)’ for short) dated 05.03.2015, 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 24.12.2010.
(A.Y. 2008-09) Sneha Murli Gulabani vs. Asst. CIT
None appeared for and on behalf of the assessee-appellant when her appeal was called out for hearing nor any adjournment motion was made. There is also no power of attorney or vakalatnama in favour of any counsel on record. This despite service of notice of hearing, as evidenced by its’ non-return, issued on 03.11.2015 through RPAD, which in fact is the third such notice, the two earlier meeting the same fate. In fact, this was clearly communicated to be a final opportunity to the assessee on the last occasion when the appeal came up for hearing, i.e., on 02.11.2015. It was accordingly considered proper that the hearing of the appeal be proceeded with, and the instant appeal decided after hearing the party before us and considering the material on record.
The first issue in appeal is the disallowance of the claim for set off of loss in F & O (Futures and Options) transactions, being by way of trading in derivatives, at Rs.16.18 lacs, i.e., against other income, in-as-much as the same is claimed as business income. The same, claimed initially in the sum of Rs.18,58,740/-, was disallowed by the Assessing Officer (A.O.) as the assessee failed to substantiate her claim before him, so that there was no evidence as to the said loss, to any extent, having been suffered, much less on that account. In appeal, the assessee made out a case for lack of opportunity before the A.O., also seeking admission of additional evidence by way of: i) Contract note for all contracts entered for F & O trading. ii) Ledger account of the assessee in the books of the broker. iii) Scrip-wise and date wise statement of F & O loss for the year iv) Demat account of the assessee. v) Photocopy of the bank statement
The ld. CIT(A), in view thereof, remitted the matter to the assessing authority. The A.O., firstly, states that no case for admission of additional evidence/s was made
(A.Y. 2008-09) Sneha Murli Gulabani vs. Asst. CIT out; none of the clauses of Rule 46A (of the Income Tax Rules, 1963) being satisfied, and that the Affidavit by the assessee before the ld. CIT(A) as to submission of details before, and non-grant of opportunity by, the A.O. was not correct. Without prejudice, he examined the material furnished by the assessee, to find the same pertaining to the share transactions in the F & O segment through a sub broker, specifying his name. Information was also called for from the National Stock Exchange (NSE) u/s. 133(6) in respect of the transactions with the said broker, to find discrepancies, which were communicated to the assessee, leading to a revised claim at Rs.16,18,149/-, admitted to by his counsel vide order sheet entry dated 01.8.2014. The ld. CIT(A) was, however, of the view that the assessee had failed to provide any evidence toward its’ claim of business loss and, accordingly, confirmed the disallowance of the impugned loss.
I have heard the parties, and perused the material on record. The ld. CIT(A) has, it is firstly observed, given no finding with regard to the admission of additional evidence/s by the assessee. The same could, in my view, only be by rebutting or dislodging on facts the averments made by the assessee per her affidavit before him. I consider it to be a fit case for the exercise of the power by the first appellate authority, which are not constrained by rule 46A(1), but covered by r. 46A(4), even as explained by the Hon’ble jurisdictional High Court in Smt. Prabhavati S. Shah vs. CIT [1998] 231 ITR 1 (Bom). The assessee has admitted to her claim being discrepant, revising it to a lower sum of Rs.16,18,149/-. The same has been confirmed on the basis of the information in respect of the transactions with the assessee’s broker, called for and received by the A.O. from the relevant stock exchange (representing the relevant market). I therefore see no reason not to allow the loss at the said revised sum, at which it is in fact claimed before the Tribunal. I decided accordingly.
The second issue raised per the instant appeal is qua the confirmation of disallowance of the claim for interest expenditure, made at Rs.2,52,724/-. The A.O.
(A.Y. 2008-09) Sneha Murli Gulabani vs. Asst. CIT observed the assessee to have availed unsecured loans at Rs.54.53 lacs, while at the same time also granting loans and advances, on interest free basis, at Rs.81.85 lacs, so that the claim for interest was not justified. In appeal, the assessee clarified the interest expense to be arising on loans for Rs.21.40 lacs, while the assessee had, at the same time, also extended interest bearing loans at Rs.26 lacs, receiving interest at Rs.2,29,117/-. Further, the loans given on interest free basis exceeded that granted by him on interest free basis to family members (refer para 3.2 of the impugned order).
I have heard the party before us, and also perused the material on record. There is firstly no finding by the ld. CIT(A) qua any of the pleadings made, with reference to the facts and figures, by the assessee before him. As claimed, the assessee is both the payer and recipient of interest, as well as, on the other hand, recipient and provider of interest-free funds, and seeks an allowance of her claim for interest on that basis. The nexus between borrowed funds and that lent or even used for business purpose, has not been shown at any stage. It would be, under the circumstances, only reasonable to infer a pro-rata utilization of all capital, including that borrowed, toward different assets, during the year. This utilization may be reckoned either on the basis of an average for the year or on a month-wise basis. The interest bearing borrowed capital, to the extent attributable to investment yielding income not forming part of the total income, as capital in partnership firm (as it appears, no interest arises there-from, so that the only income arising is the share of profit, which is tax-exempt), or that incapable of yielding any income, being on interest-free basis, would accordingly warrant a disallowance. So, however, the assessee’s claim of set off of interest expenditure against interest income (at Rs.2.29 lacs), claimed to be on a larger capital, would have to be examined first, so that to the extent valid, the same would merit allowance in computing income assessable u/s. 56, which has clearly been at a gross interest of Rs.2,29,117/-. Toward this, firstly, the interest rate/s must be specified. This is as (A.Y. 2008-09) Sneha Murli Gulabani vs. Asst. CIT interest can be validly claimed as an expenditure u/s. 57(iii) only to the extent it yields income by way of interest, and no more. Nobody can, after all, be said to have borrowed at a higher rate (at 18% p.a. - say) to earn interest at a lower rate (at 15% - say). It has already been pointed out earlier that no nexus of borrowed capital with any investment has been shown. The figures provided are annual figures. A month-wise break-up of both the interest expenditure and interest income would, more clearly, reveal the extent to which the assessee’s claim of borrowed capital having been used for being advanced on interest bearing advances, could be accepted. Again, as regards the interest paid, it is observed that of the 15 persons to whom it is, there is no capital stated against 7, to whom interest is allowed at a total of Rs.28,674/- (para 3.2 of the impugned order). How could that be, though it may well be that the loan does not outstand as at the year-end, which is not relevant as interest is a function of time. It is for this reason that interest expenditure is suggested for being stated on a time scale, as on a monthly basis, and the claim for it set off examined against interest income – realized or accrued, for that month. The matter is, accordingly, restored to the file of the A.O., though the onus to furnish the relevant data, and present her case on the lines suggested, is only on the assessee, who would have the primary data, and on whom is cast in law the burden of proving his return and the claims preferred thereby. The A.O. shall verify the assessee’s claim/s and decide in accordance with law, issuing definite findings of fact. Before parting, it may also be stated that the assessee’s claim of interest earned on personal investments (Bank FDR, NSC, etc., at Rs.90,252/-), as being out of own capital, has not been disputed by the Revenue, allowing deduction in its respect on gross basis. As such, both the said investments and the corresponding capital would, in computing the pro rata application, stand to be excluded. I decide accordingly.
The third issue arising in this appeal is the assessment of income of Rs.3,67,425/-, returned as short term capital gain (STCG), as business income. The (A.Y. 2008-09) Sneha Murli Gulabani vs. Asst. CIT admitted facts in relation to this claim are that the assessee traded in 35 scrips, entering into 48 transactions during the year. The average holding period of the investments is less than two months. The profit percentage is at 3.45%, being at Rs.3.67 lacs on a sale of Rs.106.51 lacs. The activity is also financed by bank loans. This gives rise to an unmistakable inference of the activity being a trading activity and, in any case of the matter, it is difficult to fault the Revenue’s inference of it being so. The assessee’s claim stands accordingly dismissed.
The fourth and the last issue arising in appeal is the disallowance of expenditure on following counts, to the extent of 50%:
Head of Expenses Amount i) Car Expenses 48,371 ii) Car Insurance 6,109 iii) Electricity 41,312 iv) Entertainment 11,169 v) Telephone Expenses 99,677 vi) Depreciation on Car 29,285 vii) Depreciation on Mobile 4,109 Viii) Society Taxes 35,910 Total 2,75,942
The electricity and telephone bills, produced in verification of the assessee’s claim, revealed it to be pertaining to the assessee’s residence, with the domestic rate of electricity being charged. The assessee was, accordingly, inferred as operating from her residence, and the claim for expenditure restricted to 50%. The assessee does not dispute these facts. The Revenue has under the circumstances acted more than reasonably, considering that the certain expenditure is not vouched and, two, that the premises is used primarily as a residence. The Revenue’s stand is upheld and the assessee fails on this ground. I decide accordingly.