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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
PER S. BALAKRISHNAN, Accountant Member :
The captioned appeal filed by the Revenue is against the order of the Ld. Commissioner of Income Tax (Appeals)-10, Hyderabad in DIN & Order No. ITBA/APL/S/250/2020-
2 21/1031091098(1), dated 1/3/2021 arising out of the order passed by the Ld. Assessing Officer U/s. 143(3) of the Income Tax Act, 1961 [the Act], dated 31/12/2019 for the AY 2017-18. The Cross objection is filed by the assessee.
At the outset, we noticed from the appeal record there is a delay of 80 days in filing the Revenue’s appeal before the Tribunal. Explaining the reasons for belated filing of the appeal, the Ld. DR brought our attention to the affidavit filed for condonation of delay, dated 18/8/2021 wherein the Deputy Commissioner of Income Tax (International Taxation), Visakhapatnam (I/c) has explained the unavoidable circumstances that prevented the Revenue to file the appeal with a delay of 80 days. For the sake of reference, the reasons explained by the Revenue for the delay are extracted herein below:
“……. …….. …….. (i) Sri Varun Ogili for the AY 2017-18 this office could not file the appeal before the Hon’ble ITAT within the due date as a result of the Covid-19 pandemic situation. The Commissioner of Income Tax (IT & TP), Hyderabad ie., Aayakar Bhavan Building was being operated as per DoPT & Home Ministry Guidelines and as per the guidelines in Para 6 of the Ministry of Health Family Welfare on 3 preventive measures dated 18/5/2020. This had adverse effect in obtaining copies and arranging logistics for filing of the appeal before the Hon’ble ITAT within stipulated time of 60 days ie by 4/6/2021. (ii) Further, it is also submitted that the Supreme Court has extended various limitation timelines vide order in Miscellaneous Application No. 665/2021 in SMW(C) No. 3/2020, dated 27/4/2021, wherein it was held, “We also take judicial notice of the fact that the steep rise in Covid-10 Virus cases is not limited to Delhi alone but it has engulfed the entire nation. The extraordinary situation caused by the sudden and second outburse of Covid-19 Virus, thus requires extraordinary measures to minimize the hardship of litigant- public in all the states. We therefore restore the order dated 23rd March, 2020 in continuation of the order dated 8th March, 2021 that the period(s) of limitation, as prescribed under any general or special laws in respect of all judicial or quasi-judicial proceedings, whether condonable or not shall extended till further orders. We have passed this order in exercise of our power under Article 142 read with Article 141 of the Constitution of India. Hence it shall be a binding order within the meaning of Article 141 on all Courts / Tribunals and Authorities.”
In view of the above, it is prayed that the delay of 80 days in filing appeal before the ITAT for the AY 2017-18 in the case of Varun Ogili may kindly be condoned……….”
Considering the submissions of the Ld. DR as well as the contents of the affidavit filed by the Revenue, we are of the considered view that the Revenue was prevented by a reasonable and sufficient cause in filing the appeal beyond the prescribed time limit. Therefore, in our view this is a fit case to condone the delay and accordingly, we hereby condone the delay of 80 days in filing the appeal before the Tribunal and proceed to adjudicate the appeal on merits.
Brief facts of case are that the assessee filed the return of income for the AY 2017-18 admitting a total income of Rs. 24,66,800/-. Subsequently, the case was selected for scrutiny under CASS and notices U/s. 143(2) and 142(1) of the Act were issued and served on the assessee. Subsequently, a show cause notice was also issued and served on the assessee. On examining the details furnished by the assessee, the Ld. AO completed the assessment by making the following additions:
1 Disallowance of Agricultural income Rs. 6,55,000 2 Suppression of interest income Rs. 36,90,643 3 Unexplained cash deposit by peak credit Rs. 1,06,70,000 4 Excess claim of interest payment Rs. 11,632 5. Interest on borrowed capital claimed U/s. 24(b) Rs. 19,05,640 of the Act 6. Suppression of Bank Interest Rs. 69,191 Total Rs. 1,94,68,908 Aggrieved by the above additions, the assessee filed an appeal before the Ld. CIT(A).
5. Before the Ld. CIT(A), the assessee submitted evidences with respect to the land holdings on which agricultural income was 5 derived by the assessee. Further, the Ld. AR also argued before the Ld. CIT(A) that the interest on the outstanding balances has been calculated based on the amount of loan outstanding at the end of the year for a period of full year and not from the date of granting of loan to the various borrowers. Further, the Ld. AR also argued before the Ld. CIT(A) that the assessee has a total withdrawal of Rs. 1,64,64,000/- and cash deposits of Rs. 1,35,77,000/-. The Ld. AR also further submitted before the Ld. CIT(A) that the assessee has disclosed Rs. 1,85,50,356/- as cash deposits which is already disclosed in the AY 2016-17. Further, during the submissions before the Ld. CIT(A), the Ld. AR stated that interest was wrongly claimed U/s. 24(b) of the Act but has to be allowed from the business income already disclosed by the assessee while filing the return of income and pleaded before the Ld. CIT(A) that this fact was already submitted before the Ld. AO.
Considering the various submissions as above, the Ld. CIT(A) partly allowed the appeal of the assessee. Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us.
The Revenue has raised the following grounds of appeal:
“1. The order of the Ld. CIT(A) is erroneous in law and on facts of the case, and therefore liable to be quashed and set- aside in respect of deletion of addition of Rs. 1,06,70,000.
2. In the given facts and circumstances of the case, the Ld. Cit(A) was not justified in deleting the addition made towards unexplained cash deposits in the bank accounts without testing the case of the assessee on the anvil of the provisions of section 69A r.w.s 115BBE of the Act.
3. The Ld. CIT (A) ;has erred on facts and in law in deleting the addition of Rs. 1,06,70,000/- being the peak credit of various bank accounts maintained by the assessee, made by the AO on account of the assessee’s failure to explain the nature and source of the same, by holding that the addition made by the AO in the earlier assessment years towards peak credits accumulating to Rs. 1,85,50,356/- would explain the accounted sources of cash deposits in the current assessment year.
4. The Ld. CIT(A) has erred on facts and in law in wrongly applying the concept of telescoping and deleting the addition of Rs. 1,06,70,000/- being the peak credit of unaccounted cash deposits found in various bank accounts, but without appreciating the fact that the addition made in earlier assessment years towards peak credit of the relevant assessment years cannot be telescoped to explain the accounted sources of cash deposits / peak credit of the current year.
The Ld. CIT(A) has erred in law in misunderstanding the concept of telescoping which is applicable to explain or delete, as the case may be, the addition proposed to be made towards explained investment / expenditure / advances on the basis of addition made towards unexplained / unaccounted income and therefore unaccounted cash deposits / peak credit assessed to tax in one particular assessment year cannot explain the accounted sources of cash deposits / peak credit found in subsequent assessment years.
6. The appellant craves leave to add to, amend or modify the above grounds of appeal either before or at the time of hearing of the appeal, if considerate necessary.”
Further, the Revenue filed the following additional grounds of appeal:
“1. The CIT(A) has erred in deleting the agricultural income of Rs. 2,00,000 in the absence of any evidence furnished by the assessee in support of carrying on agricultural activities and generation of agricultural income.
2. The CIT(A) is not justified in allowing the interest expenses to an extent of Rs. 10,81,524/- for which the assessee never filed any statement of certificate from the bank before the Assessing Officer. Further, there is no finding of fact recorded to this extent in the appellate order of the Ld. CIT(A). Further, the Ld. CIT(A) has erred in allowing interest on mortgage loan of Rs. 8,24,116/-. The assessee could not establish that the interest expenditure incurred against the income of Rs. 10,43,193/-.
3. The Ld. CIT(A) has erred in deleting the addition of Rs. 26,90,643/-. During the assessment proceedings in response to the show cause notice issued by the AO, the assessee vide para no.7 of his letter dated 23/12/2019 voluntarily admitted Rs. 10,42,193/- as his additional interest income. The Ld. CIT(A) has confirmed Rs. 9,55,573/- as interest income which resulted in granting additional relief of Rs. 86,620/- which was voluntarily admitted by assessee. 4. Any other ground of appeal that may be raised with the prior approval of the Hon’ble ITAT during the appellant proceedings.”
With respect to Ground No.1 of the additional grounds of appeal, the Ld. DR submitted that no proof of land holdings is made available before the Ld. AO. The Ld. DR therefore submitted that the order of the Ld. AO be upheld.
Per contra, the Ld. AR stated that the assessee has disclosed the holding of land and also the leased lands while submitting his reply to the Ld. AO which is evidenced in the assessment order. The Ld. AO without considering the facts, disallowed the agricultural income of Rs. 6,55,000/-. He
8 therefore pleaded that the agricultural income may be allowed to the assessee.
We have heard both the sides and perused the material available on record as well as the orders of the Ld. Revenue Authorities. Admittedly, the assessee has submitted before the Ld. AO and the Ld. CIT(A) regard the holding of lands and the land taken on lease. The Ld. AO considering that the holding of the land cannot procure agriculture income and therefore rejected the agricultural income claimed by the assessee.
However, the Ld. CIT(A) in his order in para 8.3 has estimated the agricultural income and has granted partial relief to the extent of Rs. 2 lakhs. We are therefore of the considered view that the Ld. CIT (A) has rightly considered the fact in the instant case and we find no reason to interfere in the order of the Ld. CIT(A) on this ground. Therefore, this ground raised by the Revenue is dismissed.
With respect to Additional Ground No.2 on the issue of disallowance of interest on borrowed capital U/s. 24(b) of the Act, the Ld. DR submitted that the assessee has wrongly claimed the interest U/s. 24(b) of the Act and hence the Ld. AO has rightly disallowed the same. The Ld. DR further submitted that the 9 interest payments were for the purpose of mortgage loan taken by the assessee which is not eligible for deduction U/s. 24(b) of the Act. The Ld. DR therefore pleaded that the order of the Ld. AO be upheld.
Per contra, the Ld. AR submitted that the assessee while submitting a reply to the Ld. AO has clearly stated that the interest was wrongly claimed U/s. 24(b) of the Act. The Ld. AR further submitted that the interest has to be considered as a business expenditure as the amount borrowed has been utilized for granting loans to various parties and the interest income arising out of the loans granted has been admitted while filing the return of income. The Ld. AR further submitted that these facts have been submitted before the Ld. AO and the Ld. AO has failed to consider the same. He therefore pleaded that the order of the Ld. CIT(A) be upheld.
We have heard both the parties and perused the material available on record as well as the orders of the Ld. Revenue Authorities. It is the case of the Ld. AO that the assessee has wrongly claimed interest to the extent of Rs. 21,72,118/- U/s. 24(b) of the Act. However, the Ld. AO observed that during the assessment proceedings the assessee has not produced any 10 certificate from the bank in support of his claim. The Ld. AO based on the information gathered found that the assessee has paid only Rs. 2,66,478/- towards interest on housing loan which is eligible for deduction u/s 24(b), and thereby disallowed Rs. 19,05,640/- which is not eligible for deduction U/s. 24(b) of the Act. However, we find from the assessment order that the Ld. AO has not considered the reply of the assessee stating that it was a wrong claim made while filing the return of income claiming it to be an interest U/s. 24(b) of the Act. Further, we find that the assessee has taken mortgage loan for the purpose of money lending business and has admitted interest income with respect to the money lending activities. The Ld. AO ought to have disallowed the claim U/s. 24(b) of the Act but allowed the claim as a business expenditure since the interest income is offered by the assessee. We find that the Ld. CIT(A) has rightly considered the facts of the case and has allowed the same. Therefore, in our considered view there is no need to interfere in the order of the Ld. CIT(A) on this issue and the thus this Ground raised by the Revenue is dismissed.
Additional Ground No.3 is with respect to suppression of interest of Rs. 36,90,643/-. The Ld. DR argued that the assessee
11 has not charged any interest from various borrowers and therefore, the Ld. AO has rightly concluded the interest being suppressed by the assessee as his business income for the AY under consideration. He further submitted that the Ld. CIT(A) has wrongly allowed a sum of Rs. 27,35,070/- by sustaining an addition of Rs. 9,55,573/- wherein the assessee has admitted voluntarily the sum of Rs. 10,42,193/-. The Ld. DR therefore pleaded that the Ld. CIT (A) has granted additional relief of Rs.86,620/- as against the voluntary admission made by the assessee. He therefore pleaded that the order of the Ld. AO be upheld.
Per contra, the Ld. AR relied on the order of the Ld. CIT(A).
We have heard both the parties and perused the material available on record and the orders of the Ld. Revenue Authorities. It is the case of the Ld. AO that the assessee has failed to charge interest thereby suppressing interest on various amounts lent by the assessee during the year. Further, the Ld. AO also calculated the interest @ 18% on the outstanding loans at the end of the year since the assessee has failed to file any evidences for adopting the rate of interest @ 12% . Further, we find that the Ld. AO has also not considered the interest free
12 short term loans given to the relatives by the assessee and has also charged interest on the same @ 18% on the outstanding amounts. The Ld. CIT(A) has therefore found that the Ld. AO has estimated a uniform rate of interest and has adopted uniform time period with respect to every loan lent by the assessee.
However we find that the Ld AO has not adopted uniform time period but has adopted interest @ 18% . We find that the Ld CIT(A) has computed the interest on the loans advanced by the assessee @ 12% . However the Ld CIT(A) has failed to consider the voluntary admission of interest for Rs 10,42,193/-. We also find from the order of the Ld AO in Page No 7 the assessee has admitted interest voluntarily for Rs.10,42,193/- being the difference in the computation by the assessee on the interest receipts aggregating to Rs 15,13,533/-after netting interest admitted in the return of income for Rs 4,71,340/-. The Ld AO has not substantiated his assuming of interest at 18% as the prevailing rate. Neither the Ld AO conducted any enquiry with the borrowers. We find that Ld CIT(A) has adopted interest @12% as claimed by the assesseee, but has failed to consider the assessee’s computation and his voluntary admission of Rs 10,42,193/-.We therefore do not concur with the revised computation and direct the Ld. AO to adopt the amount
13 voluntarily admitted by the assessee for Rs. 10,42,193/-.
Accordingly, this ground raised by the Revenue is partly allowed for statistical purposes.
Grounds No.1 to 5 raised in the original grounds of appeal are with respect to deletion of addition of Rs. 1,06,70,000/- being unexplained cash deposits in the bank accounts of the assessee.
The Ld. DR submitted that the assessee has made cash deposits into the multiple bank accounts. The Ld. DR also further submitted that the Ld. CIT(A) has wrongly allowed the telescoping benefit as against the income disclosed during the previous assessment years. He therefore pleaded that the order of the Ld. AO be upheld.
Per contra, the Ld. AR submitted that the assessee very frequently deposits cash and withdraws cash from the bank accounts through a General Power of Attorney [GPA] holder and father of the assessee. The Ld. AR further submitted that the assessee is into money lending business and the interest income earned from the money lending business has been declared in the return of income during the previous assessment years which was not disputed by the Department. The Ld. AR further submitted that during the AY 2016-17 the assessee has
14 accumulated cash of Rs. 1,85,50,356/- which was deposited into the assessee’s bank account during the year 2017-18 and hence the Ld. CIT(A) has rightly allowed the telescoping benefit. He therefore pleaded that the order of the Ld. CIT(A) be upheld.
We have heard both the sides and perused the material available on record and the orders of the Ld. Revenue Authorities. The undisputed fact in the instant case is that the assessee is into money lending business through his GPA holder and has frequently made cash deposits and withdrawals into the bank accounts. Further, the assessee has also declared interest income from the money lending business during the earlier assessment years which were also not disputed by the Revenue.
From the table in para 10.4 as mentioned in the Ld. CIT(A) order, we find that the assessee is regularly making cumulative cash deposits out of the taxed income until the AY 2016-17. However, we find that no details are provided regarding the cash deposits made during the impugned assessment year where the Ld. CIT(A) erred in treating the cash deposits made during the AY 2016-17 and considered it as available for depositing during the impugned assessment year. In our view these cash deposits of Rs 1.85 crores pertains to AY 2016-17 and cannot be considered for 15 telescoping during the impugned AY. Therefore, we are not in agreement with the conclusions drawn by the Ld. CIT(A) and consequently set-aside the order of the Ld. CIT(A) on this ground and allow the grounds raised by the Revenue.
Ground No.6 is general in nature and needs no adjudication.
In the result, appeal of the Revenue is partly allowed for statistical purposes.
With respect to Cross Objection raised by the assessee, since it is supportive in nature, and therefore the adjudication of the CO becomes infructuous.
Pronounced in the open Court on the 04th May, 2023.