R N SAHNI, NEW DELHI V. ITO, Ward - 32(3), NEW DELHI

ITA 1521/DEL/2019

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 0784 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 20-05-2024
• Assessment Year: misc
• Appeal Filed On: 24-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Earning of tax free income; Source of fund; TDS; Rule 8D; Capital Gains
• Section: 10; 143(3); 14A; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘F’: NEW DELHI BEFORE, SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER AND SHRI SUDHIR PAREEK, JUDICIAL MEMBER ITA No.1521/Del/2019 (ASSESSMENT YEAR 2012-13) R.N. Sahni 51, Paschimi Marg Vasant Vihar New Delhi- 110057 PAN:ABJPS2875D Vs. Income Tax Officer New Delhi (Appellant) (Respondent) Assessee by Shri A.K. Batra, CA Respondent by Shri Vivek Vardhan, Sr. DR Date of Hearing 21/05/2024 Date of Pronouncement 24/06/2024 O R D E R PER S.RIFAUR RAHMAN, AM: 1. This appeal has been filed by the Assessee against the order of Learned Commissioner of Income Tax (Appeals), New Delhi [“Ld. CIT(A)”, for short], dated 27/12/2018 for Assessment Year 2012-13. The assessee has raised following Grounds of appeal: “1.(a) The Id. CIT(A) is wrong in confirming the disallowance u/s 14A of Rs. 15,36,766/- in calculating at 0.5 percent on overall value of investments as per Rule 8D(2)(iii) of the IT Rules since the investment does not belong to any 2 ITA No.1521/Del/2019 R. N. Sahni vs. ITO business activity of the assessee& separate set of books have been maintained for each entity. (b) The Id. CIT(A) has erred on the facts and in law in confirming the disallowance of Rs. 15,36,766/-14A r.w.r. 8D(2)(iii) of the Rules without appreciating the facts that the investment of Rs.30,54,85,037/- as on 31.03.2012 relating to personal investment of the assessee and not relating to business. (c) The Id. CIT(A) has erred on the facts and in law in confirming the disallowance of Rs. 15,36,766/- without appreciating the facts that the A.O. did not specifically recorded his satisfaction for rejecting the claim of the appellant. 2. The Id. CIT(A) has erred on the facts and in law in confirming the addition of Rs. 21,10,871/- on the ground that the assessee has not furnished the complete break up of sales of rooms of resorts reflected at Rs. 4,08,13,204/- already included in total sale of rooms disclosed in the profit & loss of hospitality business and ignoring the reconciliation of receipts with 26 AS filed before CIT(A) & again considering the said amount as income from house property resulting into double additions. 3. The Id. CIT(A) is wrong in confirming the disallowance of Rs.30985/- out of the total disallowance amounting to Rs. 1893103/- u/s 43-B on account of unpaid taxes since the assessee has furnished all the bills/vouchers & copy of Tax Audit Report duly marked. 4. The Id. CIT(A) is wrong in confirming the addition of Rs. 27195/- out of the total disallowance of sundry balances written off amounting to Rs.508811/- since the complete details / evidence was furnished by the assessee and placed on records. 5. The appellant craves to add, alter or substitute any ground of appeal at the time of hearing.” We have dealt with the above issues ground wise. 2. The brief facts of the case are as under:- 1.1 The assessee is an individual carrying on the hospitality business under the name & style of M/s. Ashok Country Resort, 30 Rajokri Road, Kapashera, New Delhi, disclosed 3 ITA No.1521/Del/2019 R. N. Sahni vs. ITO sales and services from rooms on hire, food, beverages and other services at Rs. 53375979/-, besides having income from interest and other income of Rs. 2,29,71,188/- and dividend income of Rs. 8465/- in the profit & loss account, after claiming the expenses of the business, disclosed net profit of Rs.1,63,22,100/- in the Profit & Loss account. 1.2. The assessee has also carried on business of trading in shares and securities from 51, Paschimi Marg, Vasant Vihar, New Delhi and has disclosed sale of shares, profit on speculation transactions, interest etc. besides dividend of Rs. 16,90,974/- in P& L account and also claimed expenses relating to the above said business, declared net loss of Rs. 2,73,12,754/-. The assessee has maintained separate books of accounts, prepared Balance sheet and profit & loss account as on 31.03.2012. The assessee has disclosed the income/loss from both businesses in the computation of income including dividend income as taxable. 1.3. The assessee has further disclosed income from house property, capital gains (loss) and other sources of income as taxable income. 1.4. Apart from the above the assessee is maintaining his personal assets and prepared statement of affairs separately for such assets/income. The assessee has disclosed income from dividend from shares / mutual fund amounting to 4 ITA No.1521/Del/2019 R. N. Sahni vs. ITO Rs.83,08,087/- which was claimed as exempt u/s 10 of the Income Tax Act (in short ‘Act’) in the computation of income. 1.5. The assessee filed return of income on 30.09.2012 declaring loss of Rs. 52,47,705/. This case was selected for scrutiny and the regular assessment was completed u/s 143(3) on a total income of Rs. 1,95,25,590/-. Against the assessment order, the assessee filed an appeal before the CIT(A)-31, New Delhi. The Ld CIT(A) decided the appeal vide order No.34/17-18/54/15-16 dated 27.12.2018 and the appeal is partly allowed. Aggrieved with the above order, the assessee is in appeal before the ITAT. The facts relating to the grounds raised by the assessee are discussed below. 2. With regard to the Disallowance u/s 14A read with Rule 8D(2)(iii) Rs. 15,36,766/- confirmed by the CIT(A) out of the total disallowance of Rs. 1.41,88,792/- are, the A.O. disallowed u/s 14-A read with rule 8D a sum of Rs. 1,41,88,792/- comprising of interest of Rs. 1,26,52,026/- & an amount of Rs. 15,36,766/- being 0.5% of average value of investment. The Ld. CIT (A), out of the above disallowances, deleted the addition of Rs. 1,26,52,026/- u/r 8D(2)(ii) and confirm the balance addition of Rs.15,36,766/- u/s 8D(2)(iii). The Id. CIT (A) after considering the submission of the assessee, partly allowed the appeal on the plea that "since time and energy of management and resources of business 5 ITA No.1521/Del/2019 R. N. Sahni vs. ITO concerns have been utilized for managing such a huge investment of more than Rs. 30 crores, the disallowance on account of administrative cost being 0.5% of average value of investment amounting to Rs. 15,36,766/- is confirmed". At the time of hearing, Ld AR submitted that the Id. CIT(A) has wrongly confirmed the disallowance since the assessee has filed the profit & loss account and balance Sheet separately for both the business activity i.e. Ashok Country Resort and R.N. Sahni Trading in shares. In the profit & loss account for the trading in shares and other business, the assessee has shown the receipt of dividend income of Rs. 16,90,974/- and Rs.8,465/- during the year. The dividend income has been declared as taxable in the profit & loss account in the year under consideration. It is further submitted that the assessee has made personal investment amounting to Rs.30.55 crores as on 31.03.2012 and Rs 30.89 crores as on 31.03.2011 which does not belong to any business activity of the assessee and assessee has maintained separate statement of affairs of personal account for the year ending as on 31.03.2012 as well as earlier year. The assessee has earned dividend income on the personal investments amounting to Rs. 83,08,083/-, The assessee has neither taken any loan for the purchase of these investments nor has incurred or claimed any expenditure on this income which is exempt u/s 10(34) of the IT Act. It was also submitted 6 ITA No.1521/Del/2019 R. N. Sahni vs. ITO that there is no nexus of expenditure incurred for the separate business carried by him and with the personal investments. In view of the facts of the case and under the law, the CIT(A) is not justified in confirming the disallowance u/s 14A of Rs. 15.36,766/- and the same may be deleted. 3. With regard to the Addition of Rs. 21,10,871/- on account of rental income confirmed by the CIT(A), New Delhi, the relevant facts are, the A.O. made the above addition by observing as under: During the course of assessment proceedings, the A.O. on perusal of reconciliation of TDS furnished by the assessee, it is found that the assessee has not declared rental income in his P & L Account in respect of M/s. Ashok Country Resorts of Rs. 21,10,871/- for the A.Y. 2012-13, but however, assessee has claimed TDS of Rs. 2,11,088/- during the year. Assessee has received rental income from the following airlines Austrian Airlines of Rs.3,14,500/- Aerosvit Airlines of Rs. 1,50,000/-, Ethiopian Airlines of Rs.38,312/- China Easter Airlines Co. Limited of Rs. 4,38,000/-, Druk Air Corporation Limited of Rs.9,00,366/-, Uzbekistan Airways of Rs. 41,700/- and Air India of Rs. 2,28,000/-. Assessee has not submitted any details in this regard therefore; these are added to the income of the assessee. At the time of hearing, Ld AR submitted that the assessee has duly filed the details vide letter dated 28.01.2015 vide para 2 of the letter and stated therein as under: 7 ITA No.1521/Del/2019 R. N. Sahni vs. ITO Reconciliation of tax deducted at source as per 26-AS head wise deducted on business transactions and non business transactions along with reconciliation of income of property as returned by the assessee at Rs.45.95.625/- as shown in 26-AS u/s 194 1 at Rs.58,21,505/-. He submitted that the A.O. has not made any further query /clarification in the matter and passed the assessment order u/s 143(3) on 30.03.2015 stated therein the assessee has not submitted any details in this regard, hence, these are added back to the income of the assessee. During the course of first appellate proceedings, the details of receipts as per 26AS were filed. The Ld. CIT(A) called for the remand report from the A.O and the Assessing Officer in his remand report has commented as under: The claim of the assessee that the aforesaid receipts on which TDS u/s 194I has been deducted are his business receipts is not acceptable as he has not provided the detailed breakup of his business receipts reflecting these transaction specifically. It is also highlighted that the assessee has received rental receipts separately as the TDS has been deducted u/s 194I. The assessee has rental income of Rs. 21,10,871/- on which TDS has been deducted u/s 194I of the Act and the same has not been shown in his return of income. In view of the above facts, the undersigned is in concurrence with the then AO regarding the addition of rental income.. 8 ITA No.1521/Del/2019 R. N. Sahni vs. ITO It was submitted that the Ld. CIT(A) considered the remand report of the A.O. and the submissions of the assessee on this issue, he observed that the assessee has never furnished complete break up of Sales-Rooms of Resorts reflected at Rs. 4,08,13,204/- in the P & L A/c. Under these circumstances, it was not proved by the appellant that rental receipts of Rs. 21,10,871/- were disclosed in return of income. Therefore, I hold that the A.O. has rightly made the addition on this account and hence appellant fails. It was submitted that the Id. CIT(A) has wrongly confirmed the disallowance since the breakup of Sales Rooms of resort has never been called for during the course of assessment proceedings and the assessee vide letter dated 28.01.2015 has furnished the reconciliation of tax deducted at source as per 26-AS head wise deducted on business transactions and non business transactions along with reconciliation of income of property as returned by the assessee at Rs.45,95,625/- as shown in 26-AS u/s 194 I at Rs.58,21,505/-. He submitted that despite of above, A.O. has not raised further query in the matter. He submitted that before the CIT(A), it has been submitted that the assessee has shown the income from sale of the rooms at Rs. 4,08,13,204/- as business receipt and the amount of Rs. 21,10,871/- is part of the sales of the rooms. In 9 ITA No.1521/Del/2019 R. N. Sahni vs. ITO view of the above facts and under the circumstances, the Ld. CIT(A) is not justified in confirming the addition of Rs. 21,10,871/-. 4. With Regard to the Addition of Rs. 30,985/- confirmed by the CIT(A) out of the total addition of Rs. 18,93,103/- u/s 43-B of the IT Act. The relevant facts are, the A.O. in his remand report commented as under: On perusal of the details submitted by the assessment and the appellate proceedings, it is seen that the assessee has furnished the voucher of luxury tax payable amounting to Rs. 12,20,463/- and the VAT payable amounting to Rs.1,71,410/. However, the assessee has not furnished any details regarding expenses payable for service charges, TDS payable, TDS contractor, TDS interest, TDS professional, service tax Rs. 75,433/-, Rs. 23,000/-, Rs. 14,501/-, Rs.3,35,144/-, Rs.22, 167/-, Rs. 30,985/- respectively. The assessee has failed to substantiate these expense claims even at the appellate stage. It is submitted that the CIT(A) considered the remand report of the A.O. and the submissions of the assessee thereafter "directed the A.O. to delete the addition made by this account. However, I find that no proof regarding payment of Rs.30,985/- on account of Service Tax is furnished by the appellant and hence addition to this extent is confirmed". It is submitted that the CIT(A) is wrong in confirming the addition of Rs.30,985/- ignoring the submissions of the 10 ITA No.1521/Del/2019 R. N. Sahni vs. ITO assessee, since the Service Tax of Rs. 30,985/- has been paid on 23rd April 2012 and the same has been certified by the Auditor in the Tax Auditor's report. Refer para 21(1)of the Tax Audit Report which has already filed before the A.O. as well as before the CIT(A) page no. 56 Annexure C to form no. 3CD of paper book. In view of the above facts and under the circumstances, the Ld. CIT(A) is not justified in confirming the addition of Rs.30,985/-. 5. With Regard to the disallowance of Rs.27,195/- confirmed by the CIT(A) out of the total sundry balances written off amounting to Rs.5,08,811/-. The relevant facts are, the A.O. in his remand report commented as under: The AR of the assessee has furnished the copy of ledger of Exotic Tours, UVI Holidays Ltd. and Short/Excess recovery. On perusal of the ledger of Exotic Tours, it is seen that the assessee has shown Rs.1,02,112/- being sundry balances written off on account of not being recoverable. Also, on perusal of the ledger of UVI Holidays Ltd. it is seen that the assessee has shown Rs. 3,28,775/- being sundry balances written off on account of short recovery or excess payment amounted to Rs. 50,720/- as verified from the ledger of Short/Excess recovery. Based upon the additional evidences in form of copy of ledger only, it appears that the sundry balances written off of Rs. 5,08,811/- are available as per copy of ledger. 11 ITA No.1521/Del/2019 R. N. Sahni vs. ITO It was submitted that the Ld. CIT(A) considered the remand report of the A.O. and submissions of the assessee, deleted the addition of Rs.4,81,616/-out of the total addition of Rs. 5,08,811/- and the balance amount of Rs. 27,195/- has been confirmed on the grounds that no details of the same has been furnished by the appellant and hence, the addition to the extent has been confirmed. It is submitted that the Ld. CIT(A) is wrong in confirming the disallowance of Rs. 27,195/-. The A.O. in his remand report has stated that the sundry balances written off Rs.5,08,811/- are available as per copy of ledger. This amount stands confirmed by the A.O. in the remand report as sundry balances written off. It was submitted that the Ld. CIT(A) is not justified in confirming the disallowance of Rs. 27,195/- and the same be deleted since the total amount of Rs. 5,08,811/- duly written off as irrecoverable in the books of accounts of the assessee for the previous year. The assessee is duly fulfilled all the conditions laid down in section 36(1)(vii) r.w.s.36(2) of the IT Act. 3. On the other hand, Ld DR brought to our notice relevant findings of lower authorities and relied on them. 4. Considered the rival submissions and material placed on record, we observe that the assessee has two separate business operations involving investment activities in business entity as well 12 ITA No.1521/Del/2019 R. N. Sahni vs. ITO as individual capacity and maintained separate books of accounts. He has declared the respective income separately. The assessee has declared taxable as well as exempt income separately. The AO has treated the exempt income earned by the assessee as one and proceeded to make the 14A disallowances in the business entity. He has made two disallowances u/r 8D(2)(ii) and (iii). In the appellate proceedings, Ld CIT(A) has deleted the interest disallowance by following the coordinate bench decision in the case of assessee’s own case. With regard to administrative expenses, he sustained the same. Before us Ld AR brought to our notice that the assessee has not claimed any expenditure in the individual capacity and AO cannot make any disallowance towards the dividend earned by the assessee in the individual capacity. With regard to disallowances made in the business income, he submitted that earning of exempt income in the individual capacity cannot be tagged along the business income. Further, he submitted that the disallowances u/s 14A should be restricted to the exempt income actually earned by the assessee. In this case, the assessee has actually earned income of Rs. 8465/-. After considering the facts on record, we are of the view that the assessee has maintained separate books of account and declared the income separately, the disallowances u/s 14A relating to the business division cannot be stretched to include the exempt income separately declared by the assessee. It was not brought on record by the tax authorities, how the exempt income earned by the assessee in the individual capacity are linked to the business activities. May be the assessee managing the investment activities together, the assessee may devote time for both, it cannot be a reason to include the exempt income earned by him in the individual capacity particularly when the accounts are maintained separately for both activities. Therefore, we are inclined to restrict the disallowance u/s 14A to the extent of actual receipt of exempt income. Accordingly, we direct the AO to restrict the disallowance to 13 ITA No.1521/Del/2019 R. N. Sahni vs. ITO the extent of Rs. 8465/-. Accordingly, the ground raised by the assessee is partly allowed. 5. With regard to ground no.2, we observed that the AO has noticed the difference in the rental income declared by the assessee and as per the records available with him. The assessee has filed the reconciliation statement. After considering the reconciliation, he has made an addition of Rs. 21,10,871/- as additional income. According to the assessee, the difference amount is nothing but the income already declared by the assessee under the head Sales and Services, which is part of income declared in the profit and loss account, which was part of reconciliation statement submitted before tax authorities. Ld CIT(A) also discussed the issue but sustained the findings of AO. After considering the submissions of both sides, we are inclined to remit this issue back to the file of AO to verify the relevant information submitted in the paper book and allow the same as per law after giving proper opportunity of being heard to the assessee. Accordingly, the ground raised by the assessee is allowed for statistical purpose. 6. With regard to ground no.3, it is brought to our notice that the assessee has already remitted the service tax dues on 23.04.2012 and the same was already certified by the auditor. The payment of tax was paid within the due dates, the same is allowed in favour of the assessee. 7. With regard to ground no.4, we observe that the assessee has written off of sundry balances due to short recovery or excess payments of Rs.508,811/-. The same was disallowed, in the remand proceedings, the AO has certain observations, based on which, the Ld CIT(A) has sustained the amount of Rs. 27,195/- because of no details were furnished by the assessee. The assessee submits before us that the details are already filed by the assessee before the AO in the remand proceedings, the same was also confirmed by 14 ITA No.1521/Del/2019 R. N. Sahni vs. ITO the AO himself in the remand proceedings. For the sake of justice, we are inclined to remit this issue to the file of AO to verify the same and allow as per law after giving proper opportunity of being heard to the assessee. Accordingly, the ground raised by the assessee is allowed for statistical purpose. 8. In the result, the appeal filed by the assessee is allowed as per the above directions. Order pronounced on 24 th July, 2024. Sd/- Sd/- (SUDHIR PAREEK) (S.RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 24/07/2024 Pk/sps Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI