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Income Tax Appellate Tribunal, DELHI BENCH: ‘SMC-I’ NEW DELHI
Before: SMT DIVA SINGH
Date of Hearing 07.09.2015 Date of Pronouncement 23.09.2015 ORDER
The present appeal has been filed by the assessee assailing the correctness of the order dated 14.07.2014 of CIT(A), Noida pertaining to 2009- 10 assessment year on the following grounds:-
1. “That on the facts and on the circumstances of the case, the L'd Commissioner of Income Tax(Appeals) has erred in summarily upholding the disallowances made by the Assessing Officer. The L'd Assessing Officer has invoked the provisions of section 115D and consequentially denied the deductions as claimed by assessee U/S 57 and 80C at Rs 1,77,287/- and Rs 1,00,000/- respectively. The Observations made, Inferences drawn and findings recorded in this regard, while confirming the additions made are arbitrary, illegal and not consonant with the facts and law.
2. The L'd Commissioner of Income Tax (Appeals) as well as the Assessing Officer has failed to appreciate that in the "new annexure less returns", there is no space/column, wherein assessee could mention her declaration, that assessee wants not to be governed by the provisions of chapter XII-A .
3. The L'd Commissioner of Income Tax ( Appeals) as well as the Assessing Officer has failed to appreciate that by filing the return and claiming the deductions assessee has given deemed/implied consent that she does not want to be governed by the provisions of Chapter XII A of the Income Tax Act.
4. That the L'd Commissioner of Income Tax ( Appeals) has erred in upholding the action of the Assessing Officer wherein he has taxed the income of the assessee @ 20%.
I.T.A .No.-5582/Del/2014
5. That the appellant reserves her right to raise additional grounds of appeal at the time of hearing.”
2. The relevant facts as emanating from the record are that the assessee declared a taxable income of Rs. 1,36,471/-. The said return was selected for scrutiny. The assessee enjoyed the status of Non-Resident Indian and had claimed a deduction of Rs.1 lac under chapter VI-A. The AO also observed that the assessee had shown “income from other sources” as Rs.4,13,758/- on which expenses were claimed amounting to Rs.1,77,287/-. Apart from that the assessee was found to have made substantial investments in Mutual Funds. The assessee supported its claim stating that she had received foreign remittance amounting to Rs.34,45,581/- from Sri. Gurkirpal Singh Sehgal who was her husband and this amount has been invested in mutual fund accounts for which advance loan of the stated amount had been made. For ready- reference, the relevant extract from the assessment order is reproduced hereunder:- 7. “The assessee vide ordersheet entry dated 23.12.2011 was required to showcause why the deduction claimed under section 57 of the I.T.Act for paying interest to the lender and deduction claimed under chapter VI-A may not be added back to the income of the assessee under section 115D of the I.T.Act,1961. In response to which the assessee appeared herself and filed submission dated 23.12.2011 which is reproduced here under- “This order is in reference to my earner submissions dated November 11.2011, December 8, 2011, December 9, 2011, December 12,2011 and December 19, 2011. The following documents have already been furnished to your Honours in support of my return :- a. Loan Confirmation from Professor Dr. Gurkirpal Singh Sehgal. b. Income Tax Return filed by Professor Dr. Gurkirpal Singh Sehgal, declaring the receipt of interest income. c. Source of funds from Professor Dr.Gurkirpal Singh Sehgal provided as a loan to me, Dr.Alka Mithal. 1. In addition, attached to this letter, please find a copy of the Loan Agreement. 2. In view of the above, Your Honours may be pleased to grant any or all statutory permissible deductions allowable to me as per the provisions of the Income Tax Act, 1961, taking into account the refund of Rs.1,45,220/- claimed by me.”
However considering the provision of section 115D, 115E and 115-I, the AO was of the view that section 115D overrides all the provisions of I.T.Act and Page 2 of 7
I.T.A .No.-5582/Del/2014 only at the written option exercised by the non-resident Indian assessee in his return of income under section 115-I, the assessee may elect not be governed by the special provisions of Chapter XII-A. Since the assessee was found not to have exercised her option for not being governed by the special provisions of this Chapter in return of income filed by her the income was assessed at Rs.4,13,758/- by disallowing deduction claimed of Rs.1,77,287/- u/s 57 and Rs.1,00,000/- by disallowing deduction claimed under VI-A.
4. Aggrieved by this the assessee went in appeal before the CIT(A).
5. The arguments advanced before the AO were reiterated. For-ready- reference, these are reproduced hereunder:- 2. “FIRST Ground For Appeal a. Chapter XII-A, section 115-I allows the non-resident Indian to 'elect not to be governed by the provisions of this Chapter for any assessment year by furnishing his return of income for that assessment year under section 139 declaring therein that the provision of this chapter shall not apply to him for that assessment year and his total income for that assessment year shall be computed and tax on such total income shall be charged in accordance with the other provisions of the I T. Act. b. In this respect, I humbly submit that I filed my return under section 139 on Form ITR-2 as required by law. c. There is no provision in the new annexure-less, paperless or e-file return formats to file any special "declaration therein" as specified above. There is no space or input for any comments or statements or to "declare anything therein". d For all tax returns pertaining to the 2009 FY as well as subsequent years, including "paperless" and e-filed returns, income tax rules (see rule 12(2)) mandate that no statement or annexure may be attached to the Form ITR-2. If, any document is attached, the receiving clerk will not accept the document other than the original income tax return farms. e. When my authorized representative went to file my return accompanied by the declaration prescribed under section 115-1 and other attachments, the receiving clerk returned all the attachments and refused to accept them, as expected under Rule 12(2) of Income Tax Rules which prohibit the attachment of any documents to the return. f. The income tax return form does not have any space or option for making such an election therein as stated in section 115-1 and described in paragraph 2(a) above. g. Similarly, the e-file, paperless and annexure-less options currently available also do not allow any attachments and there is no option to makes such a declaration therein as required by Section 115-I. h. Thus the assessee is prevented by sufficient cause in not furnishing the "declaration therein" at the time of filing of return-under section 139. i. In my meeting with the Assessing Officer during the assessment proceedings, I offered to provide her with the written election as I.T.A .No.-5582/Del/2014 required by section 115-I and stated in 2 (a) above, but she refused to accept it stating that such an election needed to be filed with the income tax return. However, for reasons stated above it was not possible to file any such election or statement with the income tax return given the new requirements of the income tax rules as well as annexure-less, paperless formats and e-filing rules. j. I am attaching a copy of such a declaration as Annex 1 to this document. k. If Chapter XII, section 115 G is applied to my tax return, I was not required to file ANY income tax return. I. The fact that I filed an Income Tax Return is proof that I was electing not to be governed by Chapter XII. This should be considered as an implicit election since it is not possible to furnish a formal written election ("declaration therein") any more after the introduction of the new rules, annexure-less rules, paperless forms and e-filing. m. Therefore, the denial of the deductions (see 1 (d) above) under Chapter XII should be reversed since I would have been implicitly deemed to elect not to be governed by this Chapter Consequentially, the deduction U/S 57 as well as the deduction U/S 80C should be allowed and tax should be calculated as per the slab rate.”
3. SECOND Ground For Appeal a. The Assessing Officer has cited Chapter XII A Section 115-D and denied the deduction for interest expense of Rs 1,77,287.00, stating "As per Section 115D subsection (1), no deduction in respect of any expenditure or allowance shall be allowed under any provision of this Act in computing the investigation income of a non-resident Indian. " b. The Assessing Officer also cited Chapter XII-A, Section 115-D, subsection 2 to deny the section 57 deduction of Rs. 1,00,000 (see 1 (c) above on page 2). c. Please note that section 115-D specifically deals with "Investment income" only and the disallowance of “any expenditure” is only applicable in computing the “investment income”. d. "Investment income" is defined in Section 115-C as "any income derived (other than dividends referred to in section 115-O) from a foreign exchange asset. " o. Further "Foreign Exchange Asset" is defined in section 115(b) which says "foreign exchange asset means any specified asset which the assesses has acquired or purchased with, or subscribed to, in convertible foreign exchange" f. Now section 115-C (f) specifically describes the meaning of the words "specified asset". The Act states that 'specified asset" means any of the following assets, namely:- i. shares in an Indian company ii debentures issued by an Indian company which is not a private company as defined in the Companies Act. 1956 2 (1 of 1956); iii. deposits with an Indian company which is not a private company as defined in the Companies Act, 1956 3 (1 of 1956 ); iv. any security of the Central Government as defined in Clause (2) of section 2 of the Public Debt Act, 1944 (18 of 1944) v. such other assets as the Central government may specify in this behalf by notification in the Official Gazette. g. Please note that ALL of my income is from funds invested in various Mutual Funds. Page 4 of 7
I.T.A .No.-5582/Del/2014 h. Since Mutual Funds are not specifically listed U/s 115(c)(f) above as contributing to “Investment income”, this section should not be considered applicable to me.
Since Section 115-D does not apply to me, the denial of deductions under Section 115-D should be reversed Consequentially, I request that the deduction U/S 57 as well as the deduction U/S 80C be allowed and tax be calculated as per slab rate.
5. THIRD Ground for Appeal a. Without prejudice to the above, it is humbly submitted that the amount of interest (Rs.1,77,287/-) which 1 gave to my husband Professor Gurkirpal Singh Sehgal, has been taxed in the return of income filed by him. If 1 am disallowed this deduction and this amount is added back into my income, it is effectively a "double taxation" of the said sum - once in my husband's return and then again in mine. I realize that there may not be a specific law that prevents this, but it is certainly against the principles of fairness and natural justice. It is the duty of the State to collect fair taxes. 1 humbly submit that the deduction of Rs 1,77,287 be kindly allowed on this ground alone.
FOURTH - inaccuracies in a. In point 8 of her order, the Assessing Office states: "Section 115Eof the I. T. Act prescribes the rates of tax chargeable on certain incomes of non-resident assessee including rate of 20% chargeable on investment income. However, as per provisions of section 151-I of the I.T. Act. a non-resident Indian assessee may elect not to be governed by the provisions of this special Chapter XII-A for any assessment year by furnishing his return of income for that assessment year under section 139 declaring therein that the provisions of this chapter shall not apply to him for that assessment year and his total income for that assessment year shall be computed and tax on such total income shall be charged in accordance with the other provisions of the I.T. Act. " b. Please note that Section 151 of the I.T. Act mentioned above deals with "Sanction for Issue of Notice". I am unable to understand how this section applies to my tax return. c. Please note that there is no section 151-I of the l.T. Act referred above - it simply does not exist d. In point 9.2 of her order, the Assessing Officer states that "Further, as per sub-section (2) of section 115D in case of a non-resident Indian where the gross total income consists of only investment income or Income by the way of long-term capital gains or both, no deduction shall be allowed to the assessee under chapter VI-A. In light of the above discussion, the deductions claimed by the assessee under section 57 amounting to Rs.1,00,000/- are added back to the income of the assessee. The assesses vide her submission dated 23.12.2011 herself has agreed to the above," e. There are several inaccuracies in point 9.2 cited above: i. I did not claim Rs. 1,00,000/- deduction under section 57. This deduction was claimed under section 80-C since I had invested Rs.1,00,000/- in ELSS Canara Taxsaver Fund. A statement issued by Canara Mutual Fund proving this investment was provided to the Assessing Officer.
I.T.A .No.-5582/Del/2014 ii. I have never agreed to the denial of this deduction and for the Rs 1,00,000/- to be added back to my income. In fact, my letter of 23 12.2011, quoted verbatim in the Assessing Officer's order, provides details of the loan from my husband as required by the Assessing Officer, documentation of source of funds from my husband, and copy of loan agreement. I state "In view of the above, Your Honours may be pleased to grant any or all statutory permissible deductions allowable to me as per provisions of the income Tax Act, 1961." Nowhere in my submission have I agreed to the denial of the deductions under section 80-C or section 57.
During appellate proceedings, Learned AR of the appellant further attended and filed following written submissions dated 02.07.2014:- In continuation of my earlier submissions dated 9.8.13, I further submit as under:- That the assessing officer has while passing the assessment order has mentioned that assessee has failed to me a written declaration as per section 115I, alongwith the return of income wherein he has to declare that the provisions of chapter XIIA i.e. section 115D be not applicable to him and hence the claim of interest paid as well as deduction claimed u/s 80C has not been allowed to the assessee. Further tax at flat rate of 20% has been levied. In this respect, I submit here that with effect from 01.04.1990, an amendment has been made in section 115I, wherein the express provisions of filing the declaration in writing have been removed. However, by filing the return and claiming the deduction of interest paid as well as deduction u/s80C, assessee has given an implied declaration that the provisions of section 115D are not applicable to him. It is therefore humbly requested that the appeal of the assessee be kindly allowed and the deduction of interest paid be as well as deduction claimed u/s 80C be also allowed. Further directions be issued to calculate tax at normal rates instead of flat 20% as done by Assessing Officer.”
6. In the said background, the finding arrived at in pages 12-14 it was submitted by the ld. AR is a mere justification of the AO’s action. It was submitted that on the reading of the same, it would show that the specific grievances of the assessee had not been discussed at all. Even otherwise it was argued that this was the initial period of e-filing of returns where admittedly no such place was available to the assessee where the said option could have been exercised and in the facts of the present case as per the pleading before the CIT(A) the assessee did try to file a hard copy before the AO and even otherwise the position was taken that the option is exercised which is found recorded in the arguments of the assessee recorded by the CIT(A) however no finding thereon has been given.
I.T.A .No.-5582/Del/2014 6.1. The Ld. Sr. DR, Dr. B. R. R. Kumar considering the impugned order and the grievance of the assessee could not point out where the said issues are discussed and considered by the Ld.CIT(A).
Having heard the rival submissions in the light of the arguments of the parties before the Bench and considering the material available on record, I am of the view that in the peculiar facts and circumstances of the case, the impugned order does not meet the requirements of law. The specific grievances of the assessee though have been reproduced in the impugned order however while arrived at a conclusion why they cannot to be accepted has not been addressed. The statutory mandate of section 250(6) of the Act is found to be not fulfilled. In view thereof, the impugned order is set aside and the issue is restored back to the file to the CIT(A) with the direction to pass a speaking order in accordance with law after giving the assessee a reasonable opportunity of being heard. The said order was pronounced in the open Court.