Income-tax Officer, Jalgaon V. Pramod Bhaichand Raisoni, Jalgaon

ITA 1398/PUN/2017

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 8036 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 31-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; TDS
• Section: 68; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “B”, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER ITA Nos. 1397 & 1398/PUN/2017 नधा रण वष / Assessment Years : 2011-12 and 2012-13 ITO, Ward-1(2), Jalgaon Vs. Pramod Bhaichand Raisoni, 210, Baliram Peth, Jalgaon, Dist. Jalgaon – 425 001 PAN : AAQPR2668R Appellant Respondent आदेश / ORDER PER R.S.SYAL, VP : These two appeals by the Revenue relate to the assessment years 2011-12 & 2012-13. For the sake of convenience, these appeals have been clubbed for disposal by a consolidated order. A.Y. 2011-12 : 2. The first issue raised in this appeal is against the deletion of addition of Rs.48,78,668/- on account of interest. 3. Briefly stated, the facts of the case are that the assessee at the material time has been engaged in the business of sale Assessee by None Revenue by Shri M.G. Jasnani Date of hearing 23-02-2022 Date of pronouncement 24-02-2022 ITA Nos.1397 & 1398/PUN/2017 2 and purchase of shares and also earning income from salary, rent and profit from partnership firm. During the course of assessment proceedings, the Assessing Officer (AO) observed that the assessee had shown huge cash balances, that is, Tijori Account Rs.3.96 crore and Cash of Rs.10,55,565/-. On being called upon to explain the necessity of such huge cash in hand, the assessee submitted that he was in the business of development of land and plot and the cash was required to be kept in hand for meeting the business requirements. The AO noted that the assessee had availed interest bearing funds. Applying 12% interest rate on such cash in hand maintained by the assessee at Rs.3.96 crore plus Rs.10,55,565/-, he made addition of Rs.48,78,668/- on the premise that interest bearing funds were kept idle. The ld. CIT(A) deleted the addition, against which the Revenue has approached the Tribunal. 4. We have heard the ld. DR and gone through the relevant material on record. There is no appearance from the side of the assessee despite several notices issued from time to time. Since the appeal is on board since 2019 and has been marked as an old appeal, the same requires to be disposed off on merits, albeit ex parte qua the assessee. ITA Nos.1397 & 1398/PUN/2017 3 5. It is seen that the AO made disallowance of interest at 12% amounting to Rs.48.78 lakh on the ground that the assessee kept huge interest bearing funds idle in the form of cash in hand. We are unable to comprehend the reasoning given by the AO for the obvious reason that retaining cash in hand during the course of business is the assessee’s prerogative. Disallowance of interest can be warranted if interest bearing funds are diverted for non-business purpose. If the funds are kept in the business itself, there can be no question of making any disallowance of interest on the cash in hand available with the assessee. We, therefore, approve the view taken by the ld. CIT(A). This ground fails. 6. The second ground is against the deletion of addition of Rs.2,02,86,856/- made by the AO on account of disallowance of interest u/s.40(a)(ia) of the Act. The AO observed that the assessee made interest payment of Rs.2,02,86,856/- to Bhaichand Hirachand Raisoni Multi State Co-operative Credit Society Ltd. (in short ‘BHR’) without deduction of tax at source. On being called upon to explain as to why payment of interest was made without deduction of tax at source, the assessee submitted that the TDS provisions were not ITA Nos.1397 & 1398/PUN/2017 4 applicable on such interest paid to BHP. Not convinced, the AO made the disallowance, which came to be deleted in the first appeal. 7. We have heard the ld. DR and gone through the relevant material on record. It is seen that the assessee paid interest to BHR. The business of BHR is of banking. Section 194A(3)(iii)(a) provides that no deduction of tax at source is required in respect of interest paid to “any cooperative society engaged in carrying on the business of banking (including cooperative land mortgage bank)”. The assessee paid interest to BHR, which is engaged in the business of banking. The ld. CIT(A) deleted the addition by relying on the judgment of Hon’ble Madras High Court in SBI Staff Co-op. Society Ltd. Vs. ITO (1998) 234 ITR 104 (Mad.) holding that : “A cooperative society which undertakes the business of banking, such as, lending money to its members or accepting deposits or raising loans from financial and banking institutions and advancing the same to its members is definitely engaged in the business of banking.” He also referred to another decision of Hon’ble Madras High Court in Syndicate Bank Employees Co- op. Thrift and Credit Society Vs. ITO (2006) 287 ITR 40 ITA Nos.1397 & 1398/PUN/2017 5 (Mad.) reiterating the same proposition. Then he also referred to certain Tribunal orders on page 30 of its order taking similar view. The ld. DR could not point out any direct decision on the point contrary to those considered and decided by the ld. CIT(A). In the absence of any such decision, we respectfully follow the precedents cited by the ld. CIT(A) and accord our imprimatur to the view canvassed. This ground fails. 8. The third ground is against restricting the disallowance u/s.14A to Rs.1,35,010/- as against Rs.70,25,949/- made by the AO. Succinctly, the factual scenario of this ground is that the assessee earned exempt income of Rs.1,35,010/- and offered suo motu disallowance u/s.14A of the Income-tax Act, 1961 (hereinafter also called `the Act’) at Rs.51,363/-. Not satisfied, the AO invoked the provisions of Rule 8D and computed the disallowance at Rs.70,25,949/-. The ld. CIT(A) directed to restrict the disallowance to the amount of the income claimed as exempt or the disallowance offered by the assessee at Rs.51,363/-, whichever is higher. 9. The Hon'ble Delhi High Court in Cheminvest Ltd. vs. CIT (2015) 378 ITR 33 (Del) has held that if there is no exempt income, there can be no question of making any ITA Nos.1397 & 1398/PUN/2017 6 disallowance u/s 14A of the Act. Similar view has been taken by the Hon'ble Delhi High Court in CIT vs. Holcim India P. Ltd. (2014) 90CCH 081-Del-HC. More recently, the Hon’ble jurisdictional High Court in Pr. CIT VS. Kohinoor Projects Pvt. Ltd. (2020) 425 ITR 700 (Bom) has held that in the absence of any exempt income, there cannot be any disallowance of expenses u/s 14A of the Act. As the ld. CIT(A) in the instant case has restricted the disallowance to the amount of exempt income or disallowance suo motu offeed by the assessee at Rs.51,363/-, whichever is higher, we hold that the same is in order and does not call for any interference. This ground is not allowed. A.Y. 2012-13 : 10. The only issue raised in this appeal is against the confirmation of addition of Rs.9,93,06,354/- made by the AO u/s.68 of the Act. 11. Tersely stated, the facts of the case are that the assessee declared eight unsecured loans with closing balances at Rs.24,04,99,100/-. On being called upon to prove the genuineness of the loans along with identity and capacity of the creditors, the assessee submitted the account ledgers of the ITA Nos.1397 & 1398/PUN/2017 7 said parties along with respective confirmations. Also the bank account extracts of the lenders were attached. The AO observed from the bank accounts of the lenders that they provided unsecured loans to the assessee from their cash credit accounts maintained with BHR. The AO addressed a letter to the Manager, BHR asking him to provide papers submitted by the above persons for loan processing along with security for mortgage offered by them, loan sanction letters and purpose of loan. On examination of the reply furnished by the society, the AO came to know that in most of the cases property of the assessee was mortgaged by the borrowers for obtaining loans from the society, which were thereafter given as loan to the assessee. He, therefore, made an addition of Rs.9,93,06,354/- representing fresh loans received from six persons during the year as under : Sl.No. Name Amount 1 Shri Prakash Sitaram Baviskar Rs.2,06,11,590/- 2 Shri Subhash Fulchand Chaudhary Rs.2,42,49,000/- 3 Shri Vishal Shalik Koli Rs.2,41,06,500/- 4 Shri Suresh Namdev Jiri Rs.99,00,000/- 5 Shri Sukdeo Shankar Bormale Rs.77,23,844/- 6 Shri Ishwar Shriram Koli Rs.1,27,15,420/- Total Rs.9,93,06,354/- 12. The ld. CIT(A) deleted the addition. ITA Nos.1397 & 1398/PUN/2017 8 13. Having heard the ld. DR and gone through the relevant material on record, it is found that the AO made the addition u/s.68 of the Act. One can escape from the rigor of section 68 by establishing three ingredients, namely, the identity and capacity of the lenders along with the genuineness of the transaction. We are confronted with a situation in which the assessee received fresh loans during the year amounting to Rs.9.93 crore from six parties mentioned above. All these six parties had, in turn, taken loans from the BHR which were then advanced to the assessee. The AO has also not denied this factual scenario. His objection was that the loan creditors did not furnish their securities, which were actually provided by the assessee. All these facts amply indicate that the loans were obtained by the above six persons from BHR which were then advanced to the assessee. In view of these clear-cut findings, we do not see how section 68 comes to play. Once the identity of the unsecured lenders was established; there was no doubt that they took loans from BHR for giving further loans to the assessee; and that it was the same amount of loans taken by them, which was deposited in their respective bank accounts from which the loans were advanced to the assessee, ITA Nos.1397 & 1398/PUN/2017 9 we see no reason as to the applicability of section 68 to the facts of the extant case. If the assessee colluded with certain individuals for taking indirect loans from BHR in violation of the rules of the society, remedy lies elsewhere and not in making addition u/s.68 of the Act. We, therefore, countenance the view taken by the ld. CIT(A) on this score. 14. In the result, both the appeals are dismissed. Order pronounced in the Open Court on 24 th February, 2022. Sd/- Sd/- (S.S.VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT प ु णे Pune; दनांक Dated : 24 th February, 2022 Satish आदेश क त ल प अ े षत/Copy of the Order is forwarded to: 1. अपीलाथ / The Appellant; 2. यथ / The Respondent; 3. 4. The CIT(A)-2, Nashik The Pr.CIT-2, Nashik 5. िवभागीय ितिनिध, आयकर अपीलीय अिधकरण, पुणे “B” / DR ‘B’, ITAT, Pune 6. गाड फाईल / Guard file आदेशान ु सार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune ITA Nos.1397 & 1398/PUN/2017 10 Date 1. Draft dictated on 23-02-2022 Sr.PS 2. Draft placed before author 24-02-2022 Sr.PS 3. Draft proposed & placed before the second member JM 4. Draft discussed/approved by Second Member. JM 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *