ACIT RG 9(1), MUMBAI V. KINTU KISHOR BAJAJ, MUMBAI

ITA 1586/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49104 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 02-06-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 09-03-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Assessee Lawyers: V C SHAH
• Keywords: Gift; Opportunity of being heard; Notional interest; Capital receipt
• Section: 56

Judgement Text

1 I TA 1586 /M/2009 & 1465/M/10 M/S SMT. KINTU BAJAJ IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G BEFORE SHRI D.K. AGARWAL, J.M. AND SHRI R.K. PANDA, A.M. ITA NO. 1586/MUM/2009 ASSESSMENT YEAR 2005-06 ITA NO. 1465/MUM/2010 ASSESSMENT YEAR 2006-07 DCIT RG. 9(1), R. NO. 223, AAYAKAR BHAWAN, M.K. ROAD, MUMBAI - 20. VS. SMT. KINTU BAJAJ, 2, KEWAL KAMAL, 28 TH ROAD, TPS, III, BANDRA (W), MUMBAI.400050. PAN AACPB6639A APPELLANT RESPONDENT APPELLANT BY SHRI A.K. NAYAK RESPONDENT BY SHRI V.C. SHAH ORDER PER R.K. PANDA A.M. THE ABOVE TWO APPEALS FILED BY THE REVENUE ARE DIRE CTED AGAINST SEPARATE ORDERS DATED 18.12.2008 AND 2.12.2009 OF THE LD. CI T(A), MUMBAI RELATING TO A.YRS. 2005-06 & A.Y. 2006-07 RESPECTIVELY. SINCE C OMMON GROUNDS HAVE BEEN TAKEN IN BOTH THESE APPEALS, THEREFORE, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. ITA NO. 1465/MUM/2010 (BY THE REVENUE FOR A.Y. 2006 -07) 2. THE ONLY GROUND RAISED BY THE REVENUE READS AS U NDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF ` 53,50,000/- MADE TO THE ANNUAL RENT OF THE HOUSE PROPERTY U/S 23(1)(A) OF T HE INCOME-TAX ACT BY ERRONEOUSLY HOLDING THAT NOTIONAL INTEREST CANNO T FORM PART OF ACTUAL RENT AS CONTEMPLATED BY SECTION 23(1)(A) OF THE INCOME-TAX ACT, 1961 WHEREAS THE ASSESSING OFFICER HAS ESTIMATED TH E MARKET RENT AS 2 I TA 1586 /M/2009 & 1465/M/10 M/S SMT. KINTU BAJAJ PER SECTION 23(1)(A) OF THE INCOME TAX ACT 1961 AND THE PROVISIONS OF SECTION 23(1)(B) ARE NOT APPLICABLE BY VIRTUE OF SE CTION 3 OF THE MAHARASHTRA RENT CONTROL ACT, 1999 ACCORDING TO WHI CH THE HOUSE PROPERTY UNDER REFERENCE IS EXEMPTED FROM MAHARASHT RA RENT CONTROL ACT, 1999. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE REST ORED. 3. AT THE TIME OF HEARING, BOTH THE PARTIES FAIRLY AGR EED THAT THE ISSUE NEEDS TO GO BACK TO THE FILE OF A.O. FOR FRESH ADJUDICATI ON IN THE LIGHT OF THE LATEST DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS. MONI KUMAR SUBBA & OTHERS, IN ITA NO. 499 OF 2008 ORDER DATED 30.3.2011. WE, THEREFORE, RESTORE THE MATTER TO THE FILE OF THE A.O. FOR DECI DING THE ISSUE AFRESH IN THE LIGHT OF THE DECISION OF THE HONBLE DELHI HIGH COU RT AND IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THE GROUNDS RAISED BY THE REVE NUE ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. ITA 1586/MUM/2009 (BY THE REVENUE FOR A.Y. 2005-06) 4. GROUND NO. 1 BY THE REVENUE READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF ` 19,00,000/- [ BEING 8% OF THE INTEREST-FREE SECURITY DEPOSIT OF ` 4.75 CRORES (FOR HALF YEAR)] MADE TO THE ANNUAL RENT OF THE HOUSE PROPERTY U/S 23(1)( A) OF THE INCOME TAX ACT 1961 BY ERRONEOUSLY HOLDING THAT NOTIONAL I NTEREST CANNOT FORM PART OF ACTUAL RENT AS CONTEMPLATED BY SECTION 23(1)(A) OF THE INCOME-TAX ACT, 1961 WHEREAS THE ASSESSING OFFICER HAS ESTIMATED THE MARKET RENT AS PER SECTION 23(1)(A) OF THE INCO ME TAX ACT 1961 AND THE PROVISIONS OF SECTION 23(1)(B) ARE NOT APPL ICABLE BY VIRTUE OF SECTION 3 OF THE MAHARASHTRA RENT CONTROL ACT, 1999 ACCORDING TO WHICH THE HOUSE PROPERTY UNDER REFERENCE IS EXEMPTE D FROM MAHARASHTRA RENT CONTROL ACT, 1999. 5. AFTER HEARING BOTH THE SIDES, WE FIND THE ABOVE GRO UND RAISED BY THE REVENUE IS IDENTICAL TO THE GROUND RAISED IN ITA NO . 1465/MUM/2010. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUND RAISE D BY THE REVENUE HAS BEEN 3 I TA 1586 /M/2009 & 1465/M/10 M/S SMT. KINTU BAJAJ RESTORED TO THE FILE OF THE A.O. FOR FRESH ADJUDICA TION. FOLLOWING THE SAME RATIO, THIS GROUND ALSO RAISED BY THE REVENUE IS RESTORED TO THE FILE OF THE A.O. FOR FRESH ADJUDICATION. GROUND NO. 1 OF THE REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 6. IN GROUND NO. 2 & 3, THE REVENUE HAS CHALLENGED THE ORDER OF THE LD. CIT(A) IN DELETING THE ADDITION OF ` 9,58,100/- MADE U/S 56(2)(V) OF THE ACT. 6.1 FACTS OF THE CASE IN BRIEF ARE THAT THE A.O. DU RING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED FROM THE CAPITAL ACCOU NT OF THE ASSESSEE THAT AN AMOUNT OF ` 9,58,100/- HAS BEEN CREDITED TO CAPITAL ACCOUNT A S GIFT. IN ABSENCE OF FURNISHING OF ANY EVIDENCE TO THE SATISF ACTION TO SHOW THAT THE SAME IS NOT COVERED IN TERMS OF PROVISIONS OF SECTION 56 (2)(V), THE A.O. MADE AN ADDITION OF ` 9,56,100/- TO THE TOTAL INCOME OF THE ASSESSEE. 6.2 BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT TH E SAID AMOUNT WAS A GIFT RECEIVED BY THE ASSESSEE AND THEREFORE IT WAS CREDI TED TO THE CAPITAL ACCOUNT. THE SAID GIFT WAS RECEIVED FROM THE PARENTS AND REL ATIVES OF THE ASSESSEE AND THEREFORE THE PROVISIONS OF SECTION 56(2)(V) ARE NO T APPLICABLE. THE ABOVE AMOUNT WAS WAIVED ON 25.3.2004 AND NOT INCLUDIBLE I N THE INCOME. TO SUPPORT THIS CONTENTION, THE ASSESSEE SUBMITTED A LETTER OF KAMLINI D. ASHAR, THE MOTHER OF THE ASSESSEE STATING THAT THE SAME MAY BE TREATED AS GIFT WHICH WAS GIVEN BY THE ASSESSEES FATHER LATE D.R. ASHAR. TH E LD. CIT(A) NOTED FROM THE BALANCE SHEET OF THE ASSESSEE THAT THE ABOVE AMOUNT OF ` 9,56,100/- WAS REFLECTED AS LIABILITY UNDER LOANS AND ADVANCES W HICH THE ASSESSEE HAS TREATED AS GIFT BEING GIVEN BY THE LATE FATHER & MOTHER OF THE ASSESSEE. SINCE THE ASSESSEE FILED A LETTER FROM HER MOTHER MRS. KAMLIN I D. ASHAR AND SINCE THE GIFT WAS RECEIVED BY THE ASSESSEE PRIOR TO INSERTION OF SECTION 56(2)(V), THE LD. CIT(A) ACCEPTED THE ARGUMENTS ADVANCED BY THE ASSESSEE AND DELETED THE ADDITION MADE BY THE A.O. 4 I TA 1586 /M/2009 & 1465/M/10 M/S SMT. KINTU BAJAJ 6.3 AGGRIEVED BY SUCH ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 6.4 AFTER HEARING BOTH THE SIDES, WE FIND NO INFIRM ITY IN THE ORDER OF THE LD. CIT(A). ADMITTEDLY, THE AMOUNT OF ` 9,56,100/- WAS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE SINCE LAST SO MANY YEARS UNDE R THE HEAD LOANS AND ADVANCES FROM D.R. ASHAR AND MRS. KAMLINI ASHAR, W HO ARE PARENTS OF THE ASSESSEE. THE ASSESSEE IN THE IMPUGNED ASSESSMENT YEAR HAS ONLY TRANSFERRED THE ABOVE AMOUNT FROM LOANS AND ADVANCES LOAN ACC OUNT TO THE CAPITAL ACCOUNT TREATING THE SAME TO BE AS GIFT. FURTHER T HE PROVISIONS OF SECTION 56(2)(V) OF THE ACT DO NOT APPLY TO GIFT RECEIVED F ROM CLOSE RELATIONS AS DEFINED IN THE SAID PROVISION WHICH INCLUDES PARENTS. SINCE TH E ASSESSEE HAS ALREADY FURNISHED LETTER FROM THE MOTHER OF THE ASSESSEE WH EREIN THE LOAN GIVEN BY HER LATE HUSBAND HAS BEEN WAIVED TREATING THE SAME AS G IFT AND SINCE THE BALANCES WERE OUTSTANDING AND SINCE THE LOAN TAKEN IN THE PA ST WAS NEVER DOUBTED BY THE DEPARTMENT, THEREFORE, WE DO NOT FIND ANY INFIR MITY IN THE ORDER OF THE LD. CIT(A) ACCEPTING THE GIFT AS GENUINE. THE VARIOUS DECISIONS RELIED ON BY THE LD. D.R. ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE AND ARE DISTINGUISHABLE. IN THIS VIEW OF THE MATTER, THE ORDER OF THE LD. CI T(A) IS UPHELD AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. 7. GROUND NO. 4 BY THE REVENUE READ AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF ` 3,50,000/- BEING WRITE BACK OF LIABILITY CREDITED TO CAPITAL ACCOUNT WITHO UT APPRECIATING THE RATIO OF THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT VS. T.V. SUNDARAM IYENGAR & SONS LTD. (222 ITR 344) (SC ). 7.1 FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE HAS CREDITED AN AMOUNT OF ` 3,50,000/- TO CAPITAL ACCOUNT IN THE NAME OF SMT. RAJENDRA SETH. ON BEING QUESTIONED BY THE A.O., IT WAS SUBMITTED THAT IT IS VERY OLD BALANCE WHICH HE WANTED TO PAY BACK AND SINCE THE PARTY IS NOT TRACE ABLE, THE SAME IS BEING 5 I TA 1586 /M/2009 & 1465/M/10 M/S SMT. KINTU BAJAJ CREDITED TO THE CAPITAL ACCOUNT. IN ABSENCE OF FUR NISHING ANY DETAILS REGARDING WHEN THIS LOAN WAS TAKEN OR OTHER DETAILS LIKE BANK ACCOUNT FROM WHERE THE SAME WAS GIVEN OR WHETHER THE CHEQUE WAS PUT IN PER SONAL OR BUSINESS ACCOUNT, THE A.O. REJECTED THE CLAIM OF THE ASSESSE E AND ADDED THE SUM OF ` 3,50,000/- TO THE TOTAL INCOME OF THE ASSESSEE. 7.2 BEFORE THE CIT(A), IT WAS SUBMITTED THAT THE AS SESSEE HAS TAKEN A PERSONAL LOAN FROM A FRIEND MR. RAJENDRA SETH MANY YEARS AGO WHICH IS REFLECTED IN SCHEDULE A OF THE BALANCE SHEET UNDE R THE HEAD LOANS AND ADVANCES AS ON 31.3.2002, 31.3.2003 & 31.3.2004. SINCE THE PARTY WAS NOT TRACEABLE, THEREFORE, A CONSCIOUS DECISION WAS TAKE N ON 1.4.2004 TO TREAT THE SAME AS PERSONAL LOAN LIABILITY AS TIME BARRED OR P AYMENT OF WHICH IS NOT INSISTED BY THE PARTY. IT WAS, THEREFORE, CREDITED TO THE CAPITAL ACCOUNT ON THE GROUND THAT AS AND WHEN THE SAME IS CLAIMED BACK, I T WILL BE DEBITED TO THE CAPITAL ACCOUNT AND PAID OFF. IT WAS FURTHER SUBMI TTED THAT IT IS A CAPITAL RECEIPT WHICH WAS RECEIVED IN THE EARLIER YEARS, TH EREFORE, IT IS NOT INCLUDIBLE IN THE TOTAL INCOME OF THE ASSESSEE. 7.3 BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE , THE LD. CIT(A) DELETED THE ADDITION. WHILE DOING SO, HE NOTED THAT SUCH RE MISSION OF UNSECURED PERSONAL LOANS COULD NOT BE SUBJECTED TO TAX BY INV OKING THE PROVISIONS OF SECTION 28(IV) R.W.S. 41(1) OF THE I.T. ACT. ACCOR DING TO HIM, A RECEIPT SHOULD HAVE THE CHARACTER OF INCOME BEFORE IT BECOMES CHAR GEABLE TO TAX. FURTHER, THE PROVISIONS OF SECTION 41(1) ALSO COULD NOT BE INVOK ED SINCE BEFORE INVOKING THE SECTION, IT IS NECESSARY THAT AN ALLOWANCE OR A DED UCTION HAS BEEN GRANTED DURING THE COURSE OF ASSESSMENT FOR ANY YEAR IN RES PECT OF LOSS, EXPENDITURE OR TRADING LIABILITY WHICH IS INCURRED BY THE ASSESSEE AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR THE ASSESSEE OBTAINS WHETHER IN CASH OR IN ANY MANNER ANY AMOUNT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION OF SUCH LIABILITY. IN THE INSTANT CASE, IT IS AN ADMI TTED POSITION THAT THERE HAD BEEN NO ALLOWANCE OR A DEDUCTION IN THE PRECEDING Y EARS AND THEREFORE THERE IS 6 I TA 1586 /M/2009 & 1465/M/10 M/S SMT. KINTU BAJAJ NO QUESTION OF APPLYING PROVISIONS AS SUCH. IN THE INSTANT CASE, IT CANNOT BE SAID THAT THE ASSESSEE COMPANY WAS CARRYING ON THE BUSINESS OF OBTAINING LOANS AND THAT THE REMISSION OF SUCH LOANS BY THE P ARTIES CONCERNED WAS BENEFIT ARISING FROM SUCH BUSINESS. HE ACCORDINGLY HELD THAT THE AMOUNT OF ` 3,50,000/- ARISING AS A RESULT OF REMISSION OF UNSE CURED LOANS WAS NOT TAXABLE IN THE HANDS OF THE ASSESSEE. AGGRIEVED WITH SUCH O RDER OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 8. AFTER HEARING BOTH THE SIDES, WE FIND THE ASSESS EE ADMITTEDLY HAD NOT FURNISHED THE FULL DETAILS AS ASKED BY THE A.O. SUC H AS DETAILS OF LOAN, BANK ACCOUNT OR WHETHER THE CHEQUE WAS PUT IN PERSONAL O R BUSINESS ACCOUNT ETC. FROM THE SUBMISSION MADE BY THE ASSESSEE BEFORE THE A.O., WE FIND THE NATURE OF BUSINESS IS TRADING IN CLOTH AND FINANCING, WE F IND THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. T.V. SUNDARAM IYENGAR & SONS LTD. 222 ITR 344 (SC) HAS HELD AS UNDER:- (SHORT NOTES): HELD, THAT IF A COMMONSENSE VIEW OF THE MATTER WERE TAKEN, THE ASSESSEE, BECAUSE OF THE TRADING OPERATION, HAD BEC OME RICHER BY THE AMOUNT WHICH IT TRANSFERRED TO ITS PROFIT AND LOSS ACCOUNT. THE MONEYS HAD ARISEN OUT OF ORDINARY TRADING TRANSACTIONS. A LTHOUGH THE AMOUNTS RECEIVED ORIGINALLY WERE NOT OF INCOME NATURE, THE AMOUNTS REMAINED WITH THE ASSESSEE FOR A LONG PERIOD UNCLAIMED BY TH E TRADE PARTIES. BY LAPSE OF TIME, THE CLAIM OF THE DEPOSIT BECAME TIME -BARRED AND THE AMOUNT ATTAINED A TOTALLY DIFFERENT QUALITY. IT BE CAME A DEFINITE TRADE SURPLUS. THE ASSESSEE ITSELF HAD TREATED THE MONEY AS ITS OWN MONEY AND TAKEN THE AMOUNT TO ITS PROFIT AND LOSS ACCOUNT . THE AMOUNTS WERE ASSESSABLE IN THE HANDS OF THE ASSESSEE. 8.1 WE HAVE ALREADY OBSERVED THAT IN THE INSTANT CA SE, THE ASSESSEE HAS NOT FURNISHED ANY DETAILS BEFORE THE A.O. THE LD. CIT (A) WITHOUT OBTAINING ANY FURTHER DETAILS FROM THE ASSESSEE HAS SIMPLY DELETE D THE ADDITION ON THE BASIS OF THE SUBMISSIONS MADE BY THE ASSESSEE. CONSIDERI NG THE TOTALITY OF THE FACTS OF THE CASE AND IN THE INTEREST OF JUSTICE, WE DEEM IT PROPER TO RESTORE THE MATTER BACK TO THE FILE OF THE A.O. WITH A DIRECTIO N TO GIVE ONE MORE OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE ITS CLAIM. THE A.O . SHALL DECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTU NITY OF HEARING TO THE 7 I TA 1586 /M/2009 & 1465/M/10 M/S SMT. KINTU BAJAJ ASSESSEE. WHILE DOING SO, HE SHALL ALSO KEEP IN MIN D THE DECISION OF THE HONBLE SUPREME COURT CITED SUPRA. WE HOLD AND DIRECT ACCOR DINGLY. THE GROUND RAISED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. 9. IN THE RESULT, APPEAL IN ITA NO. 1465/M/2010 FOR A.Y. 2006-07 IS ALLOWED FOR STATISTICAL PURPOSE AND APPEAL IN ITA NO. 1586/ M/2009 FOR A.Y. 2005-05 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON 8.6.2011. SD/- SD/- (D.K. AGARWAL) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 8 TH JUNE, 2011. RK COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CONCERNED, MUMBAI 4. THE CIT CONCERNED, MUMBAI 5. THE DR BENCH, G 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI 8 I TA 1586 /M/2009 & 1465/M/10 M/S SMT. KINTU BAJAJ DATE INITIALS 1 DRAFT DICTATED ON 3.6.11, SR. PS 2 DRAFT PLACED BEFORE THE AUTHOR 6.6.11 SR. PS 3 DRAFT PLACED BEFORE THE SECOND MEMBER 4 APPROVED DRAFT COMES TO THE SR. PS SR. PS 5 KEPT FOR PRONOUNCEMENT ON SR. PS 6 FILE SENT TO THE BENCH CLERK SR. PS 7 DATE ON WHICH FILE GOES TO THE HEAD CLERK 8 DATE ON WHICH FILE GOES TO THE AR 9 DATE OF DISPATCH OF ORDER