THE DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION)., VISAKHAPATNAM vs. VARUN OGILI, NELLORE
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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).
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.
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.
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.
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.
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.
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.
Sd/- Sd/- (दु�वू�आर.एलरे�डी) (एसबालाकृ�णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) �या�यकसद�य/JUDICIAL MEMBER लेखासद�य/ACCOUNTANT MEMBER
Dated : 04.05.2023 OKK - SPS
16 आदेशक���त�ल�पअ�े�षत/Copy of the order forwarded to:- �नधा�रती/ The Assessee– Sri Varun Ogili, D.No. 24-6-29, Saraswathi 1. Nagar, Nellore – 524003, Andhra Pradesh. राज�व/The Revenue –Deputy Commissioner of Income Tax / Asst. 2. Commissioner of Income Tax (International Taxation), D.No.50-92- 34/1, Ground Floor, Infinity Tower, Shantipuram, Shankaramattam Road, Visakhapatnam – 530016. 3. (i) The Principal Commissioner of Income Tax, (ii) Commissioner of Income Tax (IT&TP), Hyderabad. आयकरआयु�त (अपील)/ The Commissioner of Income Tax 4. �वभागीय��त�न�ध, आयकरअपील�यअ�धकरण, �वशाखापटणम/ 5. DR,ITAT, Visakhapatnam गाड�फ़ाईल / Guard file 6. आदेशानुसार / BY ORDER
Sr. Private Secretary ITAT, Visakhapatnam
