Appeal details
Counselvise Citation
[2024] 138 COUNSELVISE.COM (IT) 8199 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
5 month(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
13-12-2024
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
A
Assessment Year
2017-2018
Appeal Filed On
13-07-2024
Judgement Text
" \n \n \n \n \nआयकर अपीलीय अिधकरण, अहमदाबाद \u0011ायपीठ “ए“,अहमदाबाद । \nIN THE INCOME TAX APPELLATE TRIBUNAL \n “ A ” BENCH, AHMEDABAD \n \n \n \n \n\u0016ी टी.आर. से\u001a\u001bल क\nुमार, \u0011ाियक सद\u001d एवं \n\u0016ी मकरंद वसंत महादेवकर, लेखा सद\u001d क\nे सम\"। \n] \n] \n \n \n \n \nBEFORE SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER \nAND \nSHRI MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER \n \nआयकर अपील सं /ITA Nos.1367/Ahd/2024 & 1368/Ahd/2024 \nिनधा\n\u000fरण वष\u000f /Assessment Years :2016-17 & 2017-18 respectively \n \n \nAbhaykumar Sevantilal \nSanghavi \nSanghavi Brothers \n1st Floor, Swastik Bldg \nNr. City Police Station \nNr. Dena Bank, Main Bazar \nDeesa – 385 535 \n(Gujarat) \n \nबनाम/ \nv/s. \n \nACIT Circle, Palanpur \n[Old Jurisdiction-Circle, \nPalanpur. \nNew Jurisdiction-Circle, \nGandhinagar.] \n\u0013थायी लेखा सं./PAN: AFBPS 1660 L \n \n \n(अपीलाथ%/ Appellant) \n \n(&' \nयथ%/ Respondent) \n \n \n \n \n \nAssessee by : \nShri Mehul Shah, AR \nRevenue by : \nShri B.P. Srivastava, Sr.DR \n \n सुनवाई की तारीख/Date of Hearing : 05/12/2024 \n घोषणा की तारीख /Date of Pronouncement: 13/12/2024 \n \nआदेश/O R D E R \n \n \n \nPER MAKARAND V. MAHADEOKAR, AM: \n \nBoth these appeals preferred by the assessee pertain to the Assessment \nYears (AYs) 2016-17 and 2017-18. Since the issues involved are common and \nconnected, they were heard together and are being disposed of by this \nconsolidated order. The appeals arise out of the orders passed by the Learned \nCommissioner of Income Tax (Appeals), National Faceless Appeal Centre \n(NFAC), Delhi [hereinafter referred to as “CIT(A)”] under Section 250 of the \n\n \n \nITA Nos.1367/Ahd/2024 & 1368/Ahd/2024 \nAbhaykumar Sevantilal Sanghavi vs. ACIT-Palanpur [Old Jurisdiction-Circle, Palanpur \nNew Jurisdiction-Circle, Gandhinagar] \nAsst. Years : 2016-17 & 2017-18 respectively \n \n \n 2 \n \nIncome Tax Act, 1961 [hereinafter referred to as “the Act”]. These orders \nupheld the assessments framed by the Assessing Officer [hereinafter referred \nto as “AO”] under Section 143(3) of the Act. \n \nFacts of the case: \n \n2. \nThe assessee filed his return of income for both the A.Y.(s) and the \nreturns were processed u/s 143(1) of the Act. Later, the cases were selected \nfor scrutiny under CASS. The assessments were completed by passing orders \nu/s 143(3) of the Act with some additions. Following are the tabulated details \nof return filed and additions for both the years under consideration: \n \nDetails \nAY 2016-17 \nAY 2017-18 \nDate of Filing Return \n29/03/2017 \n19/03/2018 \nReturned Income \nRs. (-2,00,000/-) Rs. 26,76,430/- \nAgricultural Income \nRs. 2,69,907/- \nRs. 3,26,769/- \nDate of AO Order \n30/12/2018 \n18/12/2019 \nSection under which AO Order Passed \n143(3) \n143(3) \nDisallowance u/s 14A \nRs. 14,042/- \nNot applicable \nProportionate Interest Disallowance \nRs. 38,36,692/- \nRs. 44,06,456/- \nUnexplained Cash Credits (Sec. 68) \nRs. 16,50,000/- \nRs. 12,50,000/- \nDisallowance of Cost of Improvement \n(Capital Gains) \nRs. 29,18,308/- \nRs. 51,88,368/- \nBogus Gift \nRs. 10,00,000/- \nNot applicable \nNotional Rent (Sec. 23(4)) \nRs. 52,530/- \nNot applicable \nHigher Tax Rate under Section 115BBE \nNot applicable \nYes \nTotal Additions by AO \nRs. 94,71,572 \nRs. 1,08,44,820/- \nAssessed Income by AO \nRs. 90,48,690/- \nRs. 1,35,21,250/- \n \n3. \nThe assessee preferred appeals before the CIT(A), who found no merit \nin the assessee's appeals for both assessment years, sustaining all additions \nand disallowances made by the AO. The primary basis for the decisions was \nthe lack of adequate evidence and justification provided by the assessee. \n\n \n \nITA Nos.1367/Ahd/2024 & 1368/Ahd/2024 \nAbhaykumar Sevantilal Sanghavi vs. ACIT-Palanpur [Old Jurisdiction-Circle, Palanpur \nNew Jurisdiction-Circle, Gandhinagar] \nAsst. Years : 2016-17 & 2017-18 respectively \n \n \n 3 \n \n4. \nAggrieved by the orders of CIT(A), the assessee is in appeal(s) before \nus with following grounds of appeal: \n \nITA No. 1367/Ahd/2024 for A.Y. 2016-17 \n \n1. On the facts and circumstances of the case as well as law on the subject, the learned \nCIT(A) has erred in confirming the action of assessing officer in making addition of \nRs.14,042/- u/s.14A r.w.r. 8D. \n \n2. On the facts and circumstances of the case as well as law on the subject, the learned \nCIT(A) has erred in confirming the action of assessing officer in making addition of \nRs.38,36,692/- on account of disallowance of proportional interest expense for \nallegedly utilising borrowed funds for investment in personal assets/interest for \nloans. \n \n3. On the facts and circumstances of the case as well as law on the subject, the learned \nCIT(A) has erred in confirming the action of assessing officer in making an addition \nRs.16,50,000/- u/s 68 of the Act on account of unexplained cash credit. \n \n4. On the facts and circumstances of the case as well as law on the subject, the learned \nCIT(A) has erred in confirming the action of assessing officer in disallowing cost of \nimprovement of Rs. 29,18,308/- claimed. \n \n5. On the facts and circumstances of the case as well as law on the subject, the learned \nCIT(A) has erred in confirming the action of assessing officer in making an addition \nof Rs.10,00,000/- on account of gift considered as bogus. \n \n \n6. On the facts and circumstances of the case as well as law on the subject, the learned \nCIT(A) has erred in confirming action of assessing officer in not granting deduction \nof interest on borrowed funds from notional rent calculated at Rs. 52,530/-. \n \n7. It is therefore prayed that above additions/disallowance made by the assessing officer \nand confirmed b¥ CIT(A) may please be deleted. \n \n8. Appellant craves leave to add, alter or delete any ground(s) either before or in the \ncourse of hearing of the appeal. \n \n \n \n\n \n \nITA Nos.1367/Ahd/2024 & 1368/Ahd/2024 \nAbhaykumar Sevantilal Sanghavi vs. ACIT-Palanpur [Old Jurisdiction-Circle, Palanpur \nNew Jurisdiction-Circle, Gandhinagar] \nAsst. Years : 2016-17 & 2017-18 respectively \n \n \n 4 \n \n \nITA No. 1368/Ahd/2024 for A.Y. 2017-18 \n1. On the facts and circumstances of the case as well as law on the subject, the learned \nCIT(A) has erred in confirming the action of assessing officer in disallowing cost of \nimprovement of Rs. 51,88,368/- claimed on sale of property. \n \n2. On the facts and circumstances of the case as well as law on the subject, the learned \nCIT(A) has erred in confirming the action of assessing officer in making addition of \nRs. 44,06,456/- on account of disallowance of proportional interest expense for \nallegedly utilising borrowed funds for investment in personal assets/interest for \nloans. \n \n3. On the facts and circumstances of the case as well as law on the subject, the learned \nCIT(A) has erred in confirming the action of assessing officer in making an addition \nRs.12,50,000/- u/s. 68 of the Act on account of unexplained cash credit. \n \n4. On the facts and circumstances of the case as well as law on the subject, the assessing \nofficer has erred in taxing the income u/s 115BBE @ 77.25 % in a retrospective \nmanner by applying the duly substituted S.115BBE inserted retrospectively instead \nof taxing it at 35.54 % as per the old provisions of S.115BBE \n \n \n5. On the facts and circumstances of the case as well as law on the subject, the learned \nassessing officer has erred in taxing the addition made u/s.68 by taking the rate \n@77.25% by attracting S. 115BBE instead of normal tax rate. The addition if any \nthat maybe confirmed should be taxed as business income. \n \n6. It is therefore prayed that above additions/disallowance made by the assessing officer \nand confirmed by CIT(A) may please be deleted and/or addition to be taxed at normal \nrate. \n7. Appellant craves leave to add, alter or delete any ground(s) either before or in the \ncourse of hearing of the appeal. \n \n4. \nDuring the course of hearing before us, the Authorized Representative \n(AR) of the assessee did not press for the Ground No. 1 relating to \ndisallowance u/s 14A of the Act in ITA No. 1367/Ahd/2024 for the A.Y. \n2016-17 and, hence, the same is not adjudicated. \n \n\n \n \nITA Nos.1367/Ahd/2024 & 1368/Ahd/2024 \nAbhaykumar Sevantilal Sanghavi vs. ACIT-Palanpur [Old Jurisdiction-Circle, Palanpur \nNew Jurisdiction-Circle, Gandhinagar] \nAsst. Years : 2016-17 & 2017-18 respectively \n \n \n 5 \n \n5. \nWe now deal with common grounds of appeal for each assessment \nyear. \n \nGround Relating to disallowance of proportionate interest Expenses \n \n6. \nDuring the course of assessment, the AO observed that the assessee has \nclaimed certain amount as interest expenses and also has claimed some \ninterest income. The AO also observed that the assessee has some personal \nassets, agricultural land and interest free loans and advances. The AO noted \nthat personal investments and loans were significant compared to the overall \nborrowed funds. The AO concluded that the borrowed funds were partly \nutilized for these non-income-generating investments. The AO calculated a \nproportionate disallowance by attributing a portion of the interest expenses \nto investments in personal assets and interest-free loans. The details of the \nsame are tabulated below: \n \nParticulars (Amounts in Rs.) \nAY 2016-17 \nAY 2017-18 \nTotal Interest Claimed \n52,71,292 \n56,79,181 \nInterest Disallowed u/s 14A \n14,042 \n0 \nInterest Considered for disallowance \n52,57,250 \n56,79,181 \nPersonal Assets (Balance Sheet) \n1,58,06,759 \n1,63,79,495 \nAgricultural Land Value / Non-Agri. Land \n3,60,27,911 \n5,51,36,091 \nInterest-Free Loans & Advances \n2,97,36,737 \n3,53,15,732 \nAssets considered for proportionate disallowance \n8,15,71,407 \n10,68,31,318 \nTotal Assets \n11,17,73,713 \n13,76,87,588 \nProportionate Interest Disallowed by AO \n38,36,692 \n44,06,456 \n \n7. \nThe CIT(A) upheld the AO's disallowance, stating that the assessee \nfailed to provide clear evidence that interest-bearing funds were not used for \npersonal investments. The CIT(A) also concluded that no direct correlation \n\n \n \nITA Nos.1367/Ahd/2024 & 1368/Ahd/2024 \nAbhaykumar Sevantilal Sanghavi vs. ACIT-Palanpur [Old Jurisdiction-Circle, Palanpur \nNew Jurisdiction-Circle, Gandhinagar] \nAsst. Years : 2016-17 & 2017-18 respectively \n \n \n 6 \n \nwas established to prove the exclusive use of non-interest-bearing funds for \nthe questioned investments. The CIT(A) observed that the disallowance was \nproportionate and reasonable in light of the facts presented. \n \n8. \nDuring the course of the hearing before us, the AR stated that the \nsufficient interest-free funds were available to cover the investments in \npersonal assets and loans/advances. The AR explained from the paper book \nthat the interest free funds are exceeding the personal assets and investments \nfor both the years as detailed below – \n- For AY 2016-17 Interest-free funds included owned capital of \nRs. 3,58,51,055/- and interest-free loans of Rs. 77,15,325/- totalling to \nRs. 4,35,66,380/- which exceeded personal asset investments. \n \n- For AY 2017-18 Interest-free funds included owned capital of \nRs. 4,18,97,438/- and interest-free loans of Rs. 2,37,15,325/- totalling to \nRs. 6,26,36,342/- which exceeded personal asset investments. \n \n8.1. \nThe AR also stated that a significant portion of the personal assets, \nagricultural land, and liabilities reflected in the balance sheet were inherited \nor pre-existing from earlier years. The AR further stated that these inherited \nassets \nwere \nacquired \nthrough \nnon-interest-bearing \nfunds, \nfamily \narrangements, or earlier non-borrowed investments. The AR argued that the \nAO failed to establish a direct nexus between the interest-bearing borrowed \nfunds and the personal investments or interest-free loans. The AR stated that \ninterest expenses were consistently allowed in earlier years under scrutiny \nassessments and the CIT(A) has taken note of the same in his order but has \nnot appreciated the same. The AR pointed out that the assessee provided \ndetailed ledgers and documentation for certain assets during appellate \n\n \n \nITA Nos.1367/Ahd/2024 & 1368/Ahd/2024 \nAbhaykumar Sevantilal Sanghavi vs. ACIT-Palanpur [Old Jurisdiction-Circle, Palanpur \nNew Jurisdiction-Circle, Gandhinagar] \nAsst. Years : 2016-17 & 2017-18 respectively \n \n \n 7 \n \nproceedings, demonstrating that their acquisition was not financed by \ninterest-bearing borrowed funds. The AR also contended that the funds \nwere mixed, making it impractical to trace the use of specific borrowed funds. \nThe AR placed reliance on certain judicial precedents which suggest that in \ncases of mixed funds, disallowance should not be made without clear \nevidence of misuse of borrowed funds. The put forward the fact that in case \nof assessee’s bother the co-ordinate bench has decided in favour of the \nassessee and allowed such interest expenditure. (ITA No. 520/Ahd/2020 – \nShreyans S. Sanghavi Vs. ACIT dated 10-08-2022). The Departmental \nRepresentative (DR) relied on the order of lower authorities and stated that \nthe co-ordinate bench has observed and commented on the capitalization of \ninterest. \n \n9. \nWe have considered the contentions of the rival parties, perused the \nmaterial on record, and examined the relevant judicial precedents. It is \nevident that the assessee had sufficient interest-free funds in the form of \nowned capital and unsecured loans, exceeding the alleged investments in \npersonal assets and interest-free advances for both assessment years. \nFollowing the principles established in South Indian Bank Ltd. vs. CIT (2021) \n438 ITR 1 (SC) and the decision of the Co-ordinate Bench in Shreyans S. \nSanghavi vs. ACIT (ITA No. 520/AHD/2020), it must be presumed that the \ninvestments were made from interest-free funds in the absence of a direct \nnexus between borrowed funds and the investments. \n \n9.1. \nFurther, the assessee demonstrated that a substantial portion of the \npersonal assets and liabilities were inherited or pre-existing and were not \n\n \n \nITA Nos.1367/Ahd/2024 & 1368/Ahd/2024 \nAbhaykumar Sevantilal Sanghavi vs. ACIT-Palanpur [Old Jurisdiction-Circle, Palanpur \nNew Jurisdiction-Circle, Gandhinagar] \nAsst. Years : 2016-17 & 2017-18 respectively \n \n \n 8 \n \nfunded by interest-bearing borrowings. The AO’s failure to establish any \ndirect connection between borrowed funds and non-income-generating \ninvestments, coupled with the inconsistent treatment of similar expenses in \nearlier scrutiny assessments, renders the disallowance unsustainable. \n \n9.2. \nThe CIT(A) erred in upholding the proportionate disallowance of \ninterest expenses without adequately addressing the aspects discussed \nabove. \n \n9.3. \nAccordingly, we hold that the proportionate disallowance of interest \nexpenses amounting to Rs.38,36,692/- for AY 2016-17 and Rs.44,06,456/- for \nAY 2017-18 is unjustified and liable to be deleted. \n \n10. \nThe ground of appeal is allowed in favour of the assessee for both \nassessment years. \n \nGround relating to addition u/s 68 on account of unexplained cash credit \n \n11. \nThe AO noted that the assessee had taken unsecured loans from the \nfollowing parties during the assessment years under consideration. \n \nA.Y. \nName of the Lender \nAmount \n(Rs.) \n2016-17 \nSmt. Ramilaben Sanghavi \n1100000 \nShri Shreyans S. Sanghavi \n550000 \nTotal \n1650000 \n2017-18 \nAbhay Singhvi HUF \n750000 \nShri Shreyans S. Sanghavi \n500000 \nTotal \n1250000 \n\n \n \nITA Nos.1367/Ahd/2024 & 1368/Ahd/2024 \nAbhaykumar Sevantilal Sanghavi vs. ACIT-Palanpur [Old Jurisdiction-Circle, Palanpur \nNew Jurisdiction-Circle, Gandhinagar] \nAsst. Years : 2016-17 & 2017-18 respectively \n \n \n 9 \n \n \n12. \nThe assessee furnished Loan confirmations, Bank statements, PAN \ndetails and Ledger accounts. Based on ledger accounts and bank statements \nsubmitted by the assessee, the AO observed that the loans were advanced via \nbanking channels (cheques) but significant cash deposits were made in the \nbank accounts of the lenders just prior to issuing cheques to the assessee. The \nassessee explained that the cash deposits in the lenders’ accounts represented \nindependent sources of income and Pre-existing cash balances. Despite the \ndocuments submitted, the AO considered the explanation insufficient, citing \nunexplained cash deposits and lack of credible evidence regarding the \nlenders’ creditworthiness. The AO invoked Section 68 of the Act, to treat \nunsecured loans received by the assessee as unexplained cash credits. \n \n13. \nThe CIT(A) relied heavily on the inability of the assessee to establish \nthe source of cash deposits in the lenders' bank accounts. The submissions \nmade by the assessee, including loan confirmations and financial details, \nwere deemed insufficient to prove the genuineness of the loans. Both \nadditions under Section 68 of the Act for AY 2016-17 and AY 2017-18 were \nupheld. \n \n14. \nDuring the course of hearing before us, the AR stated that the assessee \nhad already provided confirmations, copy of ITR along with computation of \nincome, ledger account extracts, cash book and bank statements of lenders \ntherefore identity, genuineness and credit worthiness is proved. The AR \nfurther stated that the all the lenders are filing return of income and assessed \nto tax and they were having sufficient cash balance to deposit the cash in their \n\n \n \nITA Nos.1367/Ahd/2024 & 1368/Ahd/2024 \nAbhaykumar Sevantilal Sanghavi vs. ACIT-Palanpur [Old Jurisdiction-Circle, Palanpur \nNew Jurisdiction-Circle, Gandhinagar] \nAsst. Years : 2016-17 & 2017-18 respectively \n \n \n 10 \n \nbank accounts which can be verified from the cash books of the ledgers which \nwere submitted to both AO and CIT(A). The AR explained the fact pointing \nout the case of loan from Ramilaben Sanghvi in whose case the main source \nof cash was mainly from sale proceeds of land which was offered for tax as \nper her computation of income. The AR also placed on record the assessment \norder of Ramilaben Sanghvi for the A.Y. 2016-17 in support of his contention. \nThe AR further stated that all these loans in question are from the family \nmembers having independent source of income, therefore, should not be \ntreated as non-genuine. The AR argued that when the identity of the creditor \nis proved, documents such as confirmation, copy of ITR is submitted and \nwhen the amounts are received by cheque or through banking channel, which \nis not in dispute in present case, the assessee must be taken to have proved \nthat the creditor has credit worthiness to advance the loan. The AR also \nargued that the burden gets shifted to the AO to prove the contrary. The AR \nplaced reliance on following judicial precedents: \n \n• CIT Vs. Ranchod Jivabhai Nakava [2012] 21 taxmann.com 159 (Guj. \nHC). \n• CIT Vs. Chanakya Developers [2014] 43 taxmann.com 91 (Guj.HC) \n \n15. \nThe DR, on the other hand, relied on the order of lower authorities and \nstated that only cash book can’t be considered as sufficient evidence to prove \nthe genuineness of the source. \n \n16. \nWe have carefully considered the rival submissions, perused the \nmaterial on record, and examined the decisions cited. The core issue pertains \nto the addition of unsecured loans received by the assessee, which were \n\n \n \nITA Nos.1367/Ahd/2024 & 1368/Ahd/2024 \nAbhaykumar Sevantilal Sanghavi vs. ACIT-Palanpur [Old Jurisdiction-Circle, Palanpur \nNew Jurisdiction-Circle, Gandhinagar] \nAsst. Years : 2016-17 & 2017-18 respectively \n \n \n 11 \n \ntreated as unexplained cash credits under Section 68 by the AO. The assessee \nfurnished loan confirmations, copies of income tax returns, bank statements, \nPAN details, and ledger extracts to establish the identity, genuineness, and \ncreditworthiness of the lenders. It is undisputed that the loans were advanced \nvia banking channels. The primary contention of the AO was the presence of \nsignificant cash deposits in the lenders’ bank accounts before issuing the \ncheques. However, the AO failed to substantiate that these cash deposits were \nlinked to the assessee or that the loans were non-genuine. The assessee \nexplained that the cash deposits were sourced from independent activities of \nthe lenders, including business receipts, pre-existing cash balances, and in the \ncase of Smt. Ramilaben Sanghavi, proceeds from the sale of land. The sale \nproceeds were offered to tax in her income tax return, and the assessment \norder for AY 2016-17 substantiates this claim. Despite these explanations and \nsupporting documents, the AO did not issue any notice under Section 133(6) \nof the Act or summon the lenders under Section 131 of the Act to verify the \ncash deposits or their sources. This crucial step, which could have resolved \nany doubt regarding the lenders’ creditworthiness, was not undertaken by \nthe AO. \n \n16.1. It is a settled legal position, as held by the Hon’ble Gujarat High Court \nin CIT vs. Ranchod Jivabhai Nakava [2012] 21 taxmann.com 159 and CIT vs. \nChanakya Developers [2014] 43 taxmann.com 91, that once the assessee \nprovides \nevidence \nto \nestablish \nthe \nidentity, \ngenuineness, \nand \ncreditworthiness of the lenders, the onus shifts to the Revenue to prove \notherwise. In the present case, the assessee has discharged its initial burden \nof proof, and the AO has failed to rebut the evidence submitted. \n\n \n \nITA Nos.1367/Ahd/2024 & 1368/Ahd/2024 \nAbhaykumar Sevantilal Sanghavi vs. ACIT-Palanpur [Old Jurisdiction-Circle, Palanpur \nNew Jurisdiction-Circle, Gandhinagar] \nAsst. Years : 2016-17 & 2017-18 respectively \n \n \n 12 \n \n16.2. Considering the above, we hold that the additions made under Section \n68 of the Act for AY 2016-17 and AY 2017-18 are not sustainable. The loans \nhave been sufficiently substantiated by the assessee, and no adverse inference \ncan be drawn solely based on the cash deposits in the lenders’ bank accounts, \nespecially when corroborative evidence of their sources has been provided. \nThis ground of appeal is allowed, and the additions made under Section 68 \nfor both assessment years are deleted. \n \nGround relating to disallowance of cost of improvement while calculating \ncapital gains. \n \n17. \nThe AO disallowed the cost of improvement claimed by the assessee \nwhile computing capital gains from the sale of properties for both AY 2016-\n17 and AY 2017-18. The amounts disallowed were: \n \nA.Y. \nCost \nof \nImprovement \nClaimed (Rs.) \nAmount \nDisallowed \nby AO (Rs.) \n2016-17 \n29,18,308 \n29,18,308 \n2017-18 \n51,88,368 \n51,88,368 \n \n17.1. The AO observed that the assessee claimed significant amounts as costs \nincurred for improving the properties sold during the relevant assessment \nyears. The assessee submitted some bills relating to “Mitti for Puran”, as \nevidence of the costs incurred. The assessee also submitted identification \nproofs of suppliers such as PAN copy. The AO found the documentation \n\n \n \nITA Nos.1367/Ahd/2024 & 1368/Ahd/2024 \nAbhaykumar Sevantilal Sanghavi vs. ACIT-Palanpur [Old Jurisdiction-Circle, Palanpur \nNew Jurisdiction-Circle, Gandhinagar] \nAsst. Years : 2016-17 & 2017-18 respectively \n \n \n 13 \n \nsubmitted by the assessee to be inadequate. The AO noted that the suppliers \nhave not filed return of income. \n \n18. \nThe CIT(A) sustained the disallowance, agreeing with the AO’s \nfindings. It was held that the evidence provided, such as invoices and vendor \ndetails, were insufficient to establish the genuineness and reasonableness of \nthe improvement costs. \n \n19. \nDuring the course of hearing before us, the AR stated that all the bills \nand invoices were sample copies, and other bills are part of paper book. The \nAR stated that the cost of improvement is justified. The AR further stated that \nfor land at 508, 509/2 (2,612.77 sq. meters), the cost of acquisition was \nRs. 7,29,333/-, while the land was sold for Rs. 1,16,82,000/- (16 times the cost) \nand such an increase in value necessitated improvements like fencing and \n\"Mati Puran,\" which were essential for plotting and selling the land. The AR \nemphasized that the AO failed to verify the invoices, vendors, or transactions \nunder Section 133(6) of the Act or Section 131 of the Act despite having access \nto all necessary details. Reliance was placed, by the AR, on the Hon’ble \nGujarat High Court decision in CIT vs. Chanakya Developers [43 \ntaxmann.com 91], where it was held that once the assessee submits details \nlike PAN and address of the vendors, the onus shifts to the AO to conduct \nproper inquiries. Without prejudice, the assessee submitted that if any \ndisallowance is made due to lack of verification, it should be restricted to 5% \nof the expenses on a reasonable estimation basis. \n \n\n \n \nITA Nos.1367/Ahd/2024 & 1368/Ahd/2024 \nAbhaykumar Sevantilal Sanghavi vs. ACIT-Palanpur [Old Jurisdiction-Circle, Palanpur \nNew Jurisdiction-Circle, Gandhinagar] \nAsst. Years : 2016-17 & 2017-18 respectively \n \n \n 14 \n \n20. \nThe DR relied on the orders of CIT(A) and AO and stated that the \nassessee has not provided any proof that actual improvement on land was \nmade. \n \n21. \nWe have carefully considered the rival submissions, examined the \nmaterial on record, and reviewed the orders of the lower authorities. The \nissue pertains to the disallowance of the cost of improvement claimed by the \nassessee while computing capital gains for the sale of properties during AY \n2016-17 and AY 2017-18. The assessee claimed improvement expenses of \nRs. 29,18,308/- for AY 2016-17 and Rs. 51,88,368/- for AY 2017-18, supported \nby bills and invoices for \"Mati Puran\" (land levelling and filling) and other \nworks, along with PAN and addresses of the vendors. The expenses were \nrecorded in the books of accounts, and some of them were accepted during \nthe scrutiny assessment of earlier years. The AO disallowed the entire claim, \nciting inadequate documentation, lack of corroborative evidence, and the \nnon-filing of tax returns by the vendors. The CIT(A) upheld the disallowance \non similar grounds. \n \n22. \nDuring the hearing, the assessee explained that the expenses were \nessential for improving the land’s value, particularly for land at 508, 509/2, \nwhere the cost of acquisition was Rs.7,29,333/- and the sale price was \nRs. 1,16,82,000/-. The assessee argued that the AO failed to conduct inquiries \nunder Section 133(6) or 131 to verify the invoices and vendors. Reliance was \nplaced on the Hon’ble Gujarat High Court decision in CIT vs. Chanakya \nDevelopers [43 taxmann.com 91], which held that once the identity of \n\n \n \nITA Nos.1367/Ahd/2024 & 1368/Ahd/2024 \nAbhaykumar Sevantilal Sanghavi vs. ACIT-Palanpur [Old Jurisdiction-Circle, Palanpur \nNew Jurisdiction-Circle, Gandhinagar] \nAsst. Years : 2016-17 & 2017-18 respectively \n \n \n 15 \n \nvendors and supporting documents are submitted, the onus shifts to the AO \nto conduct proper inquiries. \n \n23. \nWhile the evidence provided by the assessee substantiates a significant \nportion of the claimed expenses, the absence of additional corroborative \nevidence, such as agreements with contractors or photographic proof of the \nimprovements, raises questions about the complete genuineness of the claim. \nFurther, the AO did not undertake any verification to disprove the expenses \nbut relied solely on the perceived inadequacies in the documentation. \n \n23.1. Considering these factors, we deem it appropriate to restrict the \ndisallowance to 10% of the claimed expenses. This estimation is justified \nbased on the following rationale: \n \n1. While the invoices and vendor details substantiate the majority of the \nexpenses, the lack of full corroboration warrants a reasonable \nadjustment. \n2. Activities such as \"Mati Puran\" and fencing often involve cash-\nintensive transactions, increasing the possibility of overstatement. \n3. A 10% disallowance provides a fair balance between recognizing \ngenuine improvement costs and addressing the Revenue's concerns \nabout incomplete verification. \n4. Judicial precedents emphasize proportional disallowance in cases \nwhere documentation is partially verifiable. \n \n23.2. The assessee’s alternative submission to restrict the disallowance to 5% \nis considered but given the above reasons and the fact that the assessee \n\n \n \nITA Nos.1367/Ahd/2024 & 1368/Ahd/2024 \nAbhaykumar Sevantilal Sanghavi vs. ACIT-Palanpur [Old Jurisdiction-Circle, Palanpur \nNew Jurisdiction-Circle, Gandhinagar] \nAsst. Years : 2016-17 & 2017-18 respectively \n \n \n 16 \n \nhimself offered 10% disallowance before CIT(A), a higher disallowance of \n10% better reflects the nature of the deficiencies noted. \n \n24. \nThe disallowance is partly sustained, and the AO is directed to allow \n90% of the improvement expenses claimed by the assessee for both AYs. The \nground of appeal is partly allowed. \n \n \nGround in ITA No. 1367/Ahd/2024 relating to Bogus gift of Rs.10,00,000/- \n \n25. \nDuring the A.Y. 2016-17 the assessee claimed to have received a gift of \nRs. 10,00,000/- from Ms. Julieben A. Sanghavi during the assessment year. A \nconfirmation of Accounts for the gift was submitted. A capital account of the \ndonor was also provided, showing an opening balance of Rs. 45,01,432.29, \nfrom which the gift was claimed to have been given. The gift was stated to \nhave been made out of cash in hand. The AO observed that the confirmation \nand capital account were unsigned, raising questions about their authenticity. \nThe AO also stated that the relationship is not disclosed and no gift deed or \nformal documentation to substantiate the gift transaction was furnished. The \nAO also stated that the source of the opening balance in the donor’s capital \naccount was not explained. The AO concluded that the assessee failed to \nestablish the genuineness of the gift and its source. The AO treated as \nunexplained cash credit under Section 68 of the Act. \n \n26. \nBased on the lack of sufficient and credible evidence, the CIT(A) \nupheld the addition of Rs. 10,00,000/- made by the AO as unexplained and \ntreated the gift as bogus. \n\n \n \nITA Nos.1367/Ahd/2024 & 1368/Ahd/2024 \nAbhaykumar Sevantilal Sanghavi vs. ACIT-Palanpur [Old Jurisdiction-Circle, Palanpur \nNew Jurisdiction-Circle, Gandhinagar] \nAsst. Years : 2016-17 & 2017-18 respectively \n \n \n 17 \n \n27. \nDuring the course of the hearing before us, the AR explained that the \nsaid Julieben A. Sanghavi is a wife of brother of the assessee – Amitbhai \nSanghavi who was having sufficient cash balance as per her cash book \ntherefore gifted the amount to the assesse. The AR further stated that she has \nfiled return of income for the said assessment year and the copy of ITR along \nwith computation of income and cash book was submitted to both AO and \nCIT(A). The AR pointed out that the cash balance as on 01-04-2015 in the \nhands of Jublieben Sanghavi was Rs. 14,87,566.82 out of which she gifted \nRs.5,00,000/- on 28-04-2015 and Rs.5,00,000/- on 15-05-2015. \n \n28. \nThe DR stated that since relationship with the assessee was not \ndisclosed at the time of assessment, the AO treated the same as unexplained. \n \n29. \nWe have considered the rival submissions, examined the material on \nrecord, and reviewed the orders of the lower authorities. The issue pertains \nto the addition of Rs.10,00,000/- as unexplained cash credit under Section 68 \nof the Income Tax Act, 1961, representing a gift claimed to have been received \nby the assessee during AY 2016-17 from Ms. Julieben A. Sanghavi. \n \n29.1. The assessee submitted a signed confirmation from the donor in \nsupport of his claim, along with capital account and cash book. The cash book \nreflected an opening balance of Rs.14,87,566.82 as on 01-04-2015, from which \ngifts of Rs.5,00,000/- each were made on 28-04-2015 and 15-05-2015. The \ndonor’s income tax return and computation for the relevant assessment year \nwere also submitted, evidencing her creditworthiness. \n\n \n \nITA Nos.1367/Ahd/2024 & 1368/Ahd/2024 \nAbhaykumar Sevantilal Sanghavi vs. ACIT-Palanpur [Old Jurisdiction-Circle, Palanpur \nNew Jurisdiction-Circle, Gandhinagar] \nAsst. Years : 2016-17 & 2017-18 respectively \n \n \n 18 \n \n29.2. The AR clarified during the hearing that Ms. Julieben Sanghavi is the \nwife of the assessee’s brother, thus establishing that the donor is a relative \nwithin the meaning of Section 56(2)(vii) of the Act. The relationship, which \nwas not disclosed during the assessment, was satisfactorily explained during \nthe appellate proceedings. The additional documents submitted demonstrate \nthat the donor had sufficient cash balance to make the gift, and her \ncreditworthiness stands proved. \n \n29.3. The AO’s disallowance was primarily based on the unsigned \nconfirmation and the absence of formal documentation, such as a gift deed. \nThe CIT(A) sustained the disallowance, concluding that the creditworthiness \nof the donor and the genuineness of the transaction were not established. \nHowever, the evidence submitted before us, including the signed \nconfirmation, cash book, and ITR of the donor, adequately addresses these \nconcerns. \n \n29.4 Considering the relationship of the donor with the assessee, the \nsufficiency of cash balance in the donor’s hands, and the established \ncreditworthiness and genuineness of the transaction, we find no justification \nto sustain the addition made by the AO and upheld by the CIT(A). \n \n30. \nThe addition of Rs.10,00,000/- made under Section 68 of the Act is \ndeleted. The ground of appeal is allowed. \n \n \n \n\n \n \nITA Nos.1367/Ahd/2024 & 1368/Ahd/2024 \nAbhaykumar Sevantilal Sanghavi vs. ACIT-Palanpur [Old Jurisdiction-Circle, Palanpur \nNew Jurisdiction-Circle, Gandhinagar] \nAsst. Years : 2016-17 & 2017-18 respectively \n \n \n 19 \n \nGround Relating to Notional Rent in ITA No. 1367/Ahd/2024 \n \n31. \nThe AO made an addition to the assessee’s income by considering \nnotional rent under Section 23(1)(a) of the Income Tax Act, 1961, for certain \nproperties owned by the assessee that were lying vacant during the relevant \nassessment year. The assessee contended that the properties were not let out, \nand hence no actual rental income was received. However, the AO \ndetermined the fair rental value of the properties and added it to the \nassessee's income as notional rent. Before the CIT(A) the assessee claimed \ndeduction on account of interest paid on unsecured loan from such notional \nrent to the extent of disallowance of interest on unsecured loans. The CIT(A) \ndismissed the ground stating that the assessee has not filed any details and \nevidence for admissibility of said interest. \n \n32. \nThe AR did not advance any arguments on this ground before us. \nHowever, since the ground relating to interest on unsecured loans has been \ndecided in favor of the assessee, this ground is dismissed as consequential. \nSince the additions made under Section 68 of the Act in ITA No. \n1368/Ahd/2024 have been deleted, the following grounds are rendered \ninfructuous as they are consequential in nature: \n• Ground No. 4: The assessing officer's action in taxing the income under \nSection 115BBE at 77.25% retrospectively, instead of 35.54% as per the \nold provisions of Section 115BBE, is no longer relevant. \n• Ground No. 5: The assessing officer’s action in taxing the addition \nmade under Section 68 at 77.25% under Section 115BBE, instead of the \nnormal tax rate or as business income, does not survive as the addition \nitself has been deleted. \n \n\n \n \nITA Nos.1367/Ahd/2024 & 1368/Ahd/2024 \nAbhaykumar Sevantilal Sanghavi vs. ACIT-Palanpur [Old Jurisdiction-Circle, Palanpur \nNew Jurisdiction-Circle, Gandhinagar] \nAsst. Years : 2016-17 & 2017-18 respectively \n \n \n 20 \n \n32.1. Accordingly, these grounds are dismissed as infructuous. \n \n33. \nIn the combined result, both the appeals filed by assessee are partly \nallowed. \n Order pronounced in the Open Court on 13th December, 2024 at Ahmedabad. \n \n \n \n Sd/- Sd/- \n(T.R. SENTHIL KUMAR) \nJUDICIAL MEMBER \n (MAKARAND V. MAHADEOKAR) \nACCOUNTANT MEMBER \n \nअहमदाबाद/Ahmedabad, िदनांक/Dated 13/12/2024 \n \nटी.सी.नायर, व.िन.स./T.C. NAIR, Sr. PS \n \nआदेश की \"ितिलिप अ#ेिषत/Copy of the Order forwarded to : \n \n1. \nअपीलाथ$ / The Appellant \n2. \n\"%थ$ / The Respondent. \n3. \nसंबंिधत आयकर आयु& / Concerned CIT \n4. \nआयकर आयु&\n)\nअपील\n (\n/ The CIT(A)-(NFAC), Delhi \n5. \nिवभागीय \"ितिनिध\n ,\nअिधकरण\n \nअपीलीय\n \nआयकर\n,\nराजोकट/DR,ITAT, Ahmedabad, \n6. \nगाड\u000f फाईल /\n Guard file. \n \n \n \nआदेशानुसार/ BY ORDER, \n \nस%ािपत \"ित //True Copy// \n \nसहायक पंजीकार (Asstt. Registrar) \nआयकर अपीलीय अिधकरण, ITAT, Ahmedabad \n \n1. \nDate of dictation (word processed by Hon’ble AM in his laptop) \n: \n 12.12.2024 \n2. \nDate on which the typed draft is placed before the \nDictating Member. \n: \n 12.12.2024 \n3. \nDate on which the approved draft comes to the Sr.P.S./P.S \n: \n \n4. \nDate on which the fair order is placed before the Dictating \nMember for pronouncement. \n: \n \n5. \nDate on which fair order placed before Other Member \n: \n \n6. \nDate on which the fair order comes back to the \nSr.P.S./P.S. \n: \n13.12.’24 \n7. \nDate on which the file goes to the Bench Clerk. \n: \n 13.12.’24 \n8. \nDate on which the file goes to the Head Clerk. \n: \n \n9. \nThe date on which the file goes to the Assistant Registrar \nfor signature on the order. \n: \n \n10. \nDate of Despatch of the Order \n: \n \n \n \n"
Mehul