K.Badal Bai L/H of Late Sri A.Kewalchand, Gudiyatham V. ACIT, Vellore

ITA 1688/CHNY/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5050 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 24-05-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 06-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS ANN MARY BA
• Assessee Lawyers: H PADAMCHAND
• Keywords: Capital asset; Rule of consistency; Earning of tax free income; Source of fund; Additional evidence; Reasonable cause
• Section: 40A(3); 234B; 14A; 131

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI ... , , $ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ I.T.A. NO. 1688/MDS/2016 / ASSESSMENT YEAR : 2011-12 K. BADALBAI, L/H OF LATE SHRI A. KEWALCHAND, NO. 89, SANTHAPET, GUDIYATTAM, CHENNAI 632602. [PAN: AJZPK 2435K] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1, VELLORE 632 001. ( / APPELLANT) ( / RESPONDENT) &' / APPELLANT BY : SHRI. H. PADAMCHAND, CA *+&' / RESPONDENT BY : MRS. ANN MARY BABY, JCIT ' /DATE OF HEARING : 13.10.2017 ' /DATE OF PRONOUNCEMENT : 10.01.2018 /O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-13, CHENNAI IN ITA NO. 231/ A-13/2011-12 DATED 08.03.2016 FOR ASSESSMENT YEAR 2011-12. :-2-: ITA NO. 1688/MDS/2016 2. IN THE ASSESSMENT MADE FOR ASSESSMENT YEAR 2011- 12 IN THIS ASSESSEE SMT. K. BADALBAI, THE L/H OF LATE SHRI A. KEWALCHAN D WHO DIED ON 14.02.2012 LEAVING BEHIND HIS WIFE AND CHILDREN, THE AO MADE A DISALLOWANCE OF RS. 22,00,000/- U/S. 40A(3) ON THE CASH PAYMENT MADE FO R PURCHASE OF LAND, TREATING THE LAND AS STOCK IN TRADE. THE ASSESSEE FILED INCOME AND EXPENDITURE A/C WHEREIN RECEIPT FROM AGRICULTURE WA S SHOWN AT RS. 28,68,214/-, CLAIMED EXPENSES OF RS. 8,45,622/- AND DECLARED A NET AGRICULTURAL INCOME AT RS. 20,22,592/-. HOWEVER, I N THE COMPUTATION OF TOTAL INCOME, SHE DECLARED THE AGRICULTURAL INCOME OF RS . 18,22,519/-ONLY. WHEN THE AO SOUGHT DETAILS, THE ASSESSEE SUBMITTED THAT SHRI A. KEWALCHAND HAS NOT MAINTAINED BOOKS AND HENCE THE AO TREATED THE E NTIRE AGRICULTURAL INCOME AS INCOME FROM OTHER SOURCES. FURTHER, HE FOUND TH AT THE ASSESSEE HAD INVESTED IN IMMOVABLE PROPERTY, DIAMONDS, SHARES, G OLD JEWELLERY ETC., AND THE TOTAL OF SUCH INVESTMENTS AS ON 31.03.2010 WAS RS. 60,87,958/- AND FOR THE YEAR ENDED 31.03.2011 WAS AT RS. 60,81,178/-. SINCE THE ASSESSEE HAS CLAIMED RS. 34,69,014/- INTEREST PAYMENT TO VARIOUS PARTIES. THE AO FOUND THAT SUCH INTEREST WAS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT. HE CONSIDERED THAT THE INCOME FROM THESE I NVESTMENTS DO NOT OR SHALL NOT FORM PART OF TOTAL INCOME AND HENCE APPLYING SE CTION 14A R.W.R. 8D(2)(II) & (III) DISALLOWED INTEREST OF RS. 3,56,347/-. AGG RIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) AND THE CIT(A) CONFIRMED A LL THE ABOVE DISALLOWANCES/ADDITIONS. :-3-: ITA NO. 1688/MDS/2016 3. AGGRIEVED, THE ASSESSEE FILED THIS APPEAL WITH T HE FOLLOWING GROUNDS OF APPEAL: 1.1 THE LEARNED CIT(A)-13, CHENNAI HAS ERRED IN C ONFIRMING THE DISALLOWANCE UNDER SECTION 40A(3) AMOUNTING TO RS. 22,00,000 FOR THE IMPUGNED REASON THAT THE LAND PURCHASED IN CASH IS TREATED AS 'STOCK IN TRADE'. 1.2 THE IMPUGNED FINDING OF THE LEARNED CIT(A) THAT LAND PURCHASED IN CASH IS TREATED AS 'STOCK IN TRADE' IS FACTUALLY INCORRECT AS THE SAID LAND PURCHASED IN CASH WAS HELD AS 'CAPITAL ASSET' AND SHOWN AS INVES TMENT UNDER IMMOVABLE PROPERTIES IN THE BALANCE SHEET. 1.3 ON FACTS AND CIRCUMSTANCES OF THE CASE AND LAW APPLICABLE AND THERE BEING NO CLAIM OF DEDUCTION UNDER CHAPTER IVD IN RESPECT OF THE IMPUGNED EXPENDITURE INCURRED IN CASH, ADDITION OF RS. 22,00 ,000 UNDER SECTION 40A(3) IS BAD IN LAW AND LIABLE TO BE DELETED. 2.1 THE LEARNED CIT(A)-13, CHENNAI HAS ERRED IN CON FIRMING THE ACTION OF THE LEARNED AO IN TREATING GROSS AGRICULTURAL INCOM E OF RS. 28,68,247 AS INCOME FROM OTHER SOURCES FOR THE MERE REASON THAT NO BOOK S WERE MAINTAINED IN RESPECT OF THE AGRICULTURAL INCOME AND EXPENDITURE. 2.2 ON FACTS AND CIRCUMSTANCES OF THE CASE AND LAW APPLICABLE, THE ADDITION OF RS. 28,68,247 AS INCOME FROM OTHER SOURCES IS CO NTRARY TO FACTS, WITHOUT ANY FINDING THAT THE IMPUGNED ADDITION REPRESENTS TAXAB LE INCOME CHARGEABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCES', CONTRARY TO T HE RULE OF CONSISTENCY, BAD IN LAW AND LIABLE TO BE QUASHED. 3.1 THE LEARNED CIT(A)-13, CHENNAI HAS ERRED IN CON FIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER IN MAKING DISALLOWANCE UN DER SECTION 14A READ WITH RULE 8D OF THE IT RULES TOTALLY AMOUNTING TO RS. 3, 56,347. IN THE ABSENCE OF ANY EXEMPT INCOME DURING THE PREVIOUS YEAR, THE DIS ALLOWANCE MADE UNDER SECTION 14A READ WITH RULE 8D IS BAD IN LAW. 3.2 IN ANY CASE AND WITHOUT PREJUDICE, THE ENTIRE B ASIS / RATIONALE OF MAKING DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D IS FACTUALLY AND LEGALLY INCORRECT AND BAD IN LAW. 3.3 THE DECISIONS RELIED ON BY THE LEARNED AO AND C IT(A) ARE NOT APPLICABLE TO THE PRESENT CASE AND HENCE DISTINGUISHABLE. :-4-: ITA NO. 1688/MDS/2016 3.4 THE LEARNED CIT(A) HAS ERRED IN NOT APPRECIATIN G THAT CBDT CIRCULARS ARE NOT BINDING ON THE APPELLATE AUTHORITIES, TRIBUNAL, COURTS AND THE ASSESSEE. 3.5 WITHOUT PREJUDICE, COMPUTATION OF DISALLOWANCE UNDER RULE 8D IS ALSO INCORRECT AS IMMOVABLE PROPERTY, DIAMOND, SHARES AN D GOLD JEWELLERY HAVE BEEN CONSIDERED AS ASSETS, INCOME FROM WHICH DOES N OT FORM PART OF TOTAL INCOME. 4 THE LEARNED AO HAS ERRED IN LEVYING INTEREST UNDE R SECTION 234B OF THE IT ACT, 1961. ON FACTS AND CIRCUMSTANCES OF THE CASE AND LA W APPLICABLE, INTEREST UNDER SECTION 234B IS NOT LEVIABLE. THE APPELLANT DENIES ITS LIABILITY TO PAY INTEREST UNDER SECTION 234B. 5 IN VIEW OF THE ABOVE AND OTHER GROUNDS TO BE ADDU CED AT THE TIME OF HEARING, THE APPELLANT PRAYS THAT THE ORDER PASSED BY THE LE ARNED CIT(A)-13, CHENNAI TO THE EXTENT PREJUDICIAL TO THE APPELLANT BE QUASHED OR IN THE ALTERNATIVE, DISALLOWANCE UNDER SECTION 40A(3), ADDITION OF GROS S AGRICULTURAL INCOME AS INCOME FROM OTHER SOURCES, DISALLOWANCE MADE UNDER SECTION 14A READ WITH RULE 8D AND LEVY OF INTEREST UNDER SECTION 234B BE DELETED. THE ASSESSEE PRAYS ACCORDINGLY. 4. THE ASSESSEE FILED A PETITION FOR ADMISSION OF A DDITIONAL GROUNDS WITH PAPERS CONTAINING COPIES OF ADDITIONAL EVIDENCE. T HE ADDITIONAL GROUNDS ARE EXTRACTED AS UNDER: 1. THE ABOVE REFERRED APPEAL IS FILED AGAINST THE ORDER PASSED BY THE LEARNED CIT (A) - 13, CHENNAI WHEREIN THE DISALLOWA NCE MADE BY THE LEARNED AO UNDER SECTION 40A (3), 14A AND THE GROSS AGRICUL TURAL INCOME TREATED AS INCOME FROM OTHER SOURCES WAS CONFIRMED BY THE LEAR NED CIT(A). 2. GROUND NO. 2.1 AND 2.2 OF THE APPEAL DEALS WITH THE ADDITION OF RS.28,68,214 WHEREIN THE LEARNED AO HAS TREATED THE GROSS AGRICULTURAL INCOME FOR THE YEAR AS INCOME FROM OTHER SOURCES AN D ASSESSED THE SAME TO TAX. 3. THE LEARNED AO HAS TREATED THE GROSS AGRICULTURA L INCOME OFRS.28,68,214 AS INCOME FROM OTHER SOURCES AND ASSESSED THE SAME TO TAX FOR THE IMPUGNED REASON THAT THE BOOKS OF ACCOUNT ARE NOT MAINTAINED FOR AGRICULTURAL ACTIVITY. :-5-: ITA NO. 1688/MDS/2016 IT WAS THEREFORE CONCLUDED THAT THE ASSESSEE HAS NO T CARRIED OUT AGRICULTURE ACTIVITY, IT IS ONLY AN IMAGINARY AMOUNT TO SHOW UN ACCOUNTED SOURCES OF INCOME IN THE FORM OF AGRICULTURAL INCOME. THE LEAR NED CIT (A) ALSO CONFIRMED THE IMPUGNED FINDINGS OF THE LEARNED AO. 4. DURING THE ASSESSMENT PROCEEDINGS, THE LEGAL HEI R FILED LETTER STATING THAT HER HUSBAND LATE SRI AKEWALCHAND HAS NOT MAINTAINED BOOKS FOR AGRICULTURE INCOME AS THE LEGAL HEIR COULD NOT FOUND THEM DURIN G THE COURSE OF ASSESSMENT. THE LEGAL HEIR SUBMITS THAT SHE COULD N OW TRACE THE ACCOUNTS MAINTAINED IN RESPECT OF AGRICULTURE ACTIVITY MADE BY HER HUSBAND LATE SRI A KEWALCHAND BASED ON WHICH THE STATEMENT OF INCOME A ND EXPENDITURE A/C, CAPITAL ALE AND STATEMENT OF AFFAIRS WERE PREPARED FOR AGRICULTURE ACTIVITIES. THE DELAY IN SUBMISSION OF RELEVANT DOCUMENTS WAS O NLY DUE TO REASONABLE CAUSE AND NOT DELIBERATE OR INTENTIONAL. MERELY BEC AUSE ACCOUNTS ARE NOT PRODUCED FOR AGRICULTURE ACTIVITIES THE LEARNED AO HAS TREATED THE AGRICULTURAL INCOME AS INCOME FROM OTHER SOURCES. 5. THE CERTIFICATE ISSUED BY A TRADER FOR THE PURCH ASE OF AGRICULTURE PRODUCE IS ENCLOSED. THE LEGAL HEIR SUBMITS THAT AS AND WHEN T HE AGRICULTURE PRODUCE WERE SOLD THE SAME WERE REGARDED IN THE BOOKS. 6. THE APPELLANT HUMBLY PRAYS BEFORE THE HON'BLE BE NCH TO KINDLY ADMIT THE ADDITIONAL EVIDENCE IN THE INTEREST OF JUSTICE AND EQUITY AND TO DO THE NEEDFUL. THE APPELLANT PRAYS ACCORDINGLY. 5. WE HEARD THE RIVAL CONTENTIONS ON THE ADDITIONAL GROUNDS AND ON DUE CONSIDERATION ADMIT THEM. 6. THE AR SUBMITTED THAT THE ASSESSEE BEING ONE OF THE LEGAL HEIR OF LATE SRI A. KEWALCHAND. SRI A. KEWALCHAND STARTED THE BUSINESS IN REAL ESTATE ONLY IN F.Y 2010-11 AND IN PREVIOUS F.YS HE WAS DEALING ONLY IN JEWELLERY, FINANCE BUSINESS AND DOING AGRICULTURAL ACTIVITIESFOR MORE THAN 3 :-6-: ITA NO. 1688/MDS/2016 DECADES. HE FILED HIS RETURN OF INCOME IN THE STAT US OF INDIVIDUAL FOR THE F.Y ENDED 31.03.2011 RELEVANT TO A.Y 2011-12 ON 27.01.1 2. LATE SRI A. KEWALCHAND WAS FOLLOWING CASH METHOD OF ACCOUNTING AND NOT MERCANTILE BASIS AS MENTIONED IN THE ASSESSMENT ORDER. THE FIN DING THAT LATE SRI A. KEWALCHAND CARRIED ON REAL ESTATE BUSINESS IN EARLI ER YEARS IS ALSO INCORRECT. IN THIS REGARD, THE AR INVITED OUR ATTENTION TO COLUMN 8(B) OF FORM NO. 3CD, WHEREIN THE AUDITOR HAS FOR THE COLUMN (B) : IF THE RE IS ANY CHANGE IN THE NATURE OF BUSINESS OR PROFESSIONS, THE PARTICULARS OF SUCH CHANGE CERTIFIED THAT SALE OF LAND & SHARES COMMENCED DURING THE YEAR A ND INVITED OUR ATTENTION TO THE P&L A/C FOR THE YEAR ENDED 31.03.2011 WHEREI N, APART FROM THE PROFIT ARRIVED FROM THE BUSINESSES OF GOLD AND SILVER JEWE LLERY AND SHARE TRADING PROFIT ARRIVED FROM LAND ACCOUNT WAS ALSO THERE. I NVITING OUR ATTENTION TO THE CLOSING STOCK VALUE AT RS.19,44,702/-, THE AR SUBM ITTED THAT THE IMPUGNED LAND WAS SHOWN UNDER THE HEAD IMMOVABLE PROPERTIES AND KEPT UNDER ASSET SIDE OF THE BALANCE SHEET. THUS, THE AR SUBMITTED THAT THE ASSESSEE HAS TREATED LAND PURCHASED DURING THE YEAR AS AN ASSET AND KEPT IT UNDER THE HEAD FIXED ASSETS AND BY THIS TREATMENT IT IS PROV ED THAT THE IMPUGNED LAND IS NOT A STOCK IN TRADE AS THE VALUE OF THE CLOSING STOCK DOES NOT INCLUDE THE LAND PURCHASED DURING THE YEAR. INVITING OUR ATTEN TION TO THE BOARD CIRCULAR NO. 4/2007 DATED 15.06.2007 AND CIRCULAR NO. 6/2016 DATED 29.02.2016, THE AR SUBMITTED THAT THE IMPUGNED ASSET IS NOTHING BUT CAPITAL ASSET. :-7-: ITA NO. 1688/MDS/2016 FURTHER, HE INVITED OUR ATTENTION TO PARA 2 OFTHE CIRCULAR NO. 34[F.NO. 13A/92/69-IT(A-III)], DATED 05.03.1970 WHICH IS EXT RACTED AS UNDER: THEPROVISIONS OF SECTION 40A(3) WOULD APPLY IN C OMPUTING THE INCOME UNDER THE HEADS PROFITS AND GAINS OF BUSINESS OR P ROFESSIONS AND INCOME FROM OTHER SOURCES AS PER SECTION 58(2). ALL PAYM ENTS IN EXCESS OF RS. 2,500 AT ONE TIME WHETHER FOR GOODS OR SERVICES OBTAINED FOR CASH OR CREDIT, WHICH ARE DEDUCTIBLE IN COMPUTING THE INCOME, HAVE TO BE MADE BY CROSSED CHEQUE OR BANK DRAFT. THUS, THE PRICE OF GOODS PURCHASED FOR RESALE OR USE IN MANUFACTURING PROCESS OR PAYMENTS FOR SERVICES WILL BE COVERED BY THE PROVISIONS OF SECTION 40A(3). HOWEVER, THE SECTION WILL NOT APPLY TO REPAYMENT OF LOANS OR PAYMENT TOWARDS THE PURCHASE PRICE OF C APITAL ASSETS SUCH AS PLANT AND MACHINERY NOTFOR RESALE. 6.1 FURTHER, THE A R SUBMITTED THAT THE INVESTMEN T OF RS.22,00,000/- MADE IN PURCHASE OF LAND WHICH WAS REFLECTED UNDER THE HEAD IMMOVABLE PROPERTIES IN THE STATEMENT OF AFFAIRSAS ON 31.03.1 1, IT WAS NOT CLAIMED AS AN EXPENDITURE AND IT IS A CAPITAL ASSET. RELYING ON T HE ABOVE CIRCULAR, HE SUBMITTED THAT SECTION 40A (3) WILL NOT APPLY TO TH E PURCHASES MADE IN CONNECTION WITH CAPITAL ASSETS AND HENCE THE SA ID ADDITION MADE U/S 40A (3) NEEDS DELETION. IN SUPPORT OF HIS CONTENTION, H E RELIED ON VARIOUS DECISIONS. PER CONTRA, THE DR SUPPORTED THE ORDERS OF THE CIT (A)/AO. 7 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN THE ASSESSMENT ORDER, THE AO RECORDS THATIN THE EARLIER ASSESSMENT YEARS , STATEMENT ON OATH WAS RECORDED FROM SHRIKEWAL CHAND AND HE HAS STATED THA T HE IS INTO REAL ESTATE BUSINESS, I.E., BUYING AND SELLING OF PLOTS. SINCE , THE ASSESSEE HAS EXPIRED :-8-: ITA NO. 1688/MDS/2016 THE ASSESSING OFFICER IS LEFT WITH ONLY OPTION OF G OING BY RECORDS TO PROVE THAT THE ASSESSEE IS INTO REAL ESTATE AS STATED SUPRA. THUS, THE ASSESSEES AR CONTENTION THAT HE ONLY INVESTED ONLY FOR INVESTMEN T PURPOSE IS NOT CONSIDERED. ACCORDINGLY, THE PAYMENT MADE FOR PURC HASED OF LAND BY CASH TO THE EXTENT OF RS. 22,00,000/- IN VIOLATION OF SECTI ON 40(A)(3) OF I.T. ACT. ACCORDINGLY, THE SAME WAS ADDED TO THE RETURNED INC OME AND BROUGHT TO TAX. IN SUPPORT OF AGRICULTURAL INCOME, THE ASSESSEE FI LED CERTAIN EVIDENCES WHICH INCLUDE THE ORDER PASSED BY THE CIT(A) FOR ASSESSME NT YEAR 2009-10 IN THE CASE OF SHRI KEWAL CHAND IN ITA NO. 318/11-12 DATED 21.12.2012. IN THIS ORDER, THE CIT(A) HAS TAKEN NOTE OF THE FACTS RECOR DED BY THE ASSESSING OFFICER AS UNDER: NATURE OF THE ASSESSEES BUSINESS: SHRIKEWAL CHAND, THE ASSESSEE HAD IN HIS SWORN STAT EMENT U/S. 131 DATED 16.12.2011, STATED THAT HE WAS CARRYING O N REAL ESTATE BUSINESS FOR THE PAST 25 YEARS. VERIFICATION OF TH E INCOME TAX RECORDS OF THE ASSESSSEE FOR THE EARLIER ASSESSMENT YEARS S HOWED THAT HE HAS BEEN PURCHASING AND SELLING AGRICULTURAL LANDS ON A REGULAR BASIS, AS GIVEN BELOW: F.Y TOTAL AREA OF LAND SOLD TOTAL CONSIDERATION 2007-08 20.95 ACRES RS. 7,28,000 2006-07 ABOUT 25 ACRES RS. 12,03,409 2005-06 336.625 SQ.FT. RS. 41,666 :-9-: ITA NO. 1688/MDS/2016 2004-05 NOT KNOWN RS. 4,31,666 THE ABOVE FACTS GO IN CONSONANCE WITH THE ASSESSEE S SWORN STATEMENT THAT HE IS CARRYING ON REAL ESTATE BUSINESS FOR THE PAST 25 YEARS. IT CAN, THEREFORE, BE STRONGLY PRESUMED THAT THE ASSESSSEE PURCHASED T HE LAND WITH THE INTENTION OF RESELLING IT. AND AFTER CONSIDERING V ARIOUS OTHER FACTORS THE COMMISSIONER RECORDS A FINDING IN PARA 8.2 THAT AP PELLANT HAS BEEN IN THE REAL ESTATE BUSINESS FOR THE PAST SEVERAL YEARS. T HEREFORE, THE GAINS ON SALE PROCEEDS PERTAINING TO PROPERTY SITUATED AT ARASAKU PPAM IN HOSURTALUK ARE NECESSARILY BE CONSIDERED AS BUSINESS PROFITS OF TH E APPELLANT AND HENCE THE PROPERTY SOLD SHOULD BE TREATED AS BUSINESS ASSET. IN THE ABOVE FACTS AND CIRCUMSTANCES, IT IS CLEAR THAT THE NATURE THIS PAR TICULAR TRANSACTION HAS NOT BEEN PROPERLY APPRECIATED BY THE LOWER AUTHORITIES. IN THE FACTS AND CIRCUMSTANCES, WE DEEM IT FIT TO REMIT THIS ISSUE B ACK TO THE AO FOR DUE EXAMINATION, AFRESH, TO DETERMINE THE CHARACTER OF THE IMPUGNED TRANSACTION I.E., WHETHER THE PROPERTY WAS ACQUIRED FOR CAPITA L PURPOSE OR FOR SALE ETC., FROM THE DOCUMENTS AND AS WELL AS THE OTHER EVIDENC ES WHICH ARE ESSENTIAL FOR DECIDING THIS ISSUE . HENCE THIS ISSUE IS REMIT TED BACK TO THE AO TO DECIDE THE ISSUE IN ACCORDANCE WITH LAW, AFTER AFFORDING A DEQUATE OPPORTUNITY TO THE ASSESSEE. THE ASSESSEESGROUNDS OF APPEAL ON THIS ISSUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. :-10-: ITA NO. 1688/MDS/2016 8. ON THE DISALLOWANCE OF AGRICULTURAL INCOME, THE AR SUBMITTED THAT THE ASSESSEES HUSBAND WAS CARRYING ON AGRICULTURAL ACT IVITIES FOR MORE THAN 3 DECADES AND THE ADDITION OF THE GROSS AGRICULTURAL INCOME OF RS.28,68,214/- AS INCOME FROM OTHER SOURCES IS INCORRECT FOR THE REAS ON THAT REGULAR BOOKS FOR AGRICULTURAL ACTIVITY IS NOT MAINTAINED. THE AR SUB MITTED THAT THE ASSESSEES HUSBAND DIED ON 14.02.12AND SHE COULD NOT LOCATE T HE DETAILS IN RESPECT OF AGRICULTURAL INCOME AND HENCE COULD NOT BE FURNISHE D. NOW, SHE HAS LOCATED AND FURNISHED THROUGH THE ADDITIONAL GROUND AND PLE ADED AS EXTRACTED , SUPRA, WHICH HAS BEEN ADMITTED ALSO. THE AR SUBMITTED THAT IN THE EARLIER SCRUTINY ASSESSMENTS ALSO AGRICULTURAL INCOME WAS SHOWN AND THE SAME WERE ACCEPTED WITH ADDITION HOWEVER THE SAID ADDITION WERE DELETE D IN THE APPEALS. THE AR SUBMITTED THAT AGRICULTURAL INCOME WAS INADVERTENTL Y MENTIONED AS RS.18,22,590/- INSTEAD OF RS.20,22,590/- WHICH MIST AKE WAS INADVERTENT , NEITHER DELIBERATE NOR INTENTIONAL. UNDER THE SAID CIRCUMSTANCE, THE ADDITION OF ENTIRE GROSS AGRICULTURAL INCOME AS INCOME FROM OTHER SOURCES IS CONTRARY TO FACTS. RELYING ON VARIOUS CASE LAWS, THE AR PLEADED TO DELETE THIS ADDITION. PER CONTRA, THE DR SUPPORTED THE ORDERS OF THE CIT(A)/A O. 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND GON E THROUGH THE ORDERS OF THE LOWER AUTHORITIES. THE ASSESSE IS RIGHT, ON THE ABOVE FACTS, THAT HER HUSBANDS AGRICULTURAL INCOME CANNOT BE DISALLOWED FULLY. IT IS SEEN FROM THE ORDERS THAT THE AUTHORITIES HAD NO OCCASION TO CONS IDER THE CLAIM PROPERLY FOR :-11-: ITA NO. 1688/MDS/2016 THE REASON THAT THE ASSESSEE FAILED TO FURNISH THEM THE REQUIRED EVIDENCES. FURTHER, THERE WERE APPARENT MISTAKES IN THE QUANTU M OF AGRICULTURAL INCOME CLAIM ALSO. SINCE, THE ASSESSEE HAS SUBMITTED ADDI TIONAL EVIDENCE BEFORE US, FOR THE FIRST TIME, THEY REQUIRE APPRECIATION AT TH E AO LEVEL. THIS ISSUE IS REMITTED BACK TO THE AO FOR A FRESH EXAMINATION. A FTER AFFORDING ADEQUATE OPPORTUNITY TO THE ASSESSEE, THE AO SHALL PASS APPR OPRIATE ORDER. THE ASSESSEES GROUNDS OF APPEAL ON THIS ISSUE IS TREAT ED AS ALLOWED FOR STATISTICAL PURPOSES. 10. THE NEXT ISSUE IS DISALLOWANCE U/S. 14A R.W.R. 8D. THE AR SUBMITTED THAT FOR THE PURPOSE OF MAKING DISALLOWANCE UNDER R ULE 8D(2)(II), THE AO CONSIDERED THAT THE INTEREST EXPENDITURE DEBITED TO P&L ACCOUNT AT RS.34,69,014. THE AVERAGE OF VALUE OF ASSETS, INCOM E FROM WHICH DOES NOT FORM PART OF TOTAL INCOME, FOR THE PURPOSE OF RULE 8D(2)(II) AND (III) WAS COMPUTED BY CONSIDERING THE FOLLOWING ASSETS. DETAILS OF ASSETS AS ON AS ON 31.03.2010 (RS) 31.03.2011 (RS) IMMOVABLE PROPERTY 48,36,216 50,04,828 DIAMOND 30,000 30,000 SHARES 1,75,392 - GOLD JEWELLERY 10,46,350 10,46,350 TOTAL 60,87,958 60,81,178 :-12-: ITA NO. 1688/MDS/2016 10.1 THE AR FURTHER SUBMITTED THAT THE CAPITAL OF THE ASSESSEE WAS SUFFICIENT TO COVER THE INVESTMENT IN THE ASSETS CO NSIDERED FOR THE PURPOSE OF DISALLOWANCE U/S 14A AND HENCE, NO DISALLOWANCE COU LD BE MADE UNDER SECTION 14A. THE VALUE OF DIAMOND RS.30,000/- ARE A PPEARING IN THE STATEMENT SINCE F. Y 1992-93 AND OUT OF THE VALUE O F GOLD JEWELLERY RS.10,46,350/- , RS.1,11,000/- VALUE OF GOLD JEWELL ERY OWNED BY THE ASSESSE SINCE F.Y 1992-93 AND BALANCE VALUE OF GOLD JEWELLE RY OF RS.9,35,350/- ERE OFFERED AS INCOME IN FY 1998-99 UNDER KVSS-1999 AND HENCE THE SAME SHOULD NOT BE CONSIDERED FOR THE PURPOSE OF DISALLO WANCE OF INTEREST U/S 14A AND FURTHER AS AND WHEN IT IS SOLD WILL ATTRACT ONL Y TAXABLE CAPITAL GAINS AND NOT EXEMPTED INCOME. THE INVESTMENT MADE IN PURCHAS E OF AGRICULTURE LAND ON 10.03.2011 AT THE END OF THE FY ARE OUT OF HIS O WN FUNDS AND HIS CAPITAL AS ON 31.03.2011 IS RS.4,07,50,530 WHICH IS MORE THAN THE LOAN CREDITORS OF RS.2,03,12,610 AND HENCE THE AFORESAID TOTAL OF RS. 60,81,178 CONSIDERED BY THE AO FOR MAKING DISALLOWANCE UNDER SECTION 14A IS INCORRECT AND REQUIRES DELETION. IN OTHER WORDS, THE INVESTMENT IN IMMOVAB LE PROPERTIES AS AND WHEN IT IS SOLD WILL BE SUBJECT TO TAX UNDER THE HEAD CA PITAL GAINS AND NO TAX FREE INCOME WILL ARISE AND HENCE THE DISALLOWANCE OF INT EREST IN RESPECT OF VALUE OF IMMOVABLE PROPERTIES IS INCORRECT AND REQUIRES DELE TION. THE SALE OF CAPITAL ASSET IN F. Y 2010-11 OUT OF IMMOVABLE PROPERTIES W ERE OFFERED UNDER THE HEAD CAPITAL GAINS. IN FACT THE CIT (APPEAL) IN ITA NO.318/11-12, DT.21.12.2012 IN AY 2009-10 DELETED THE DISALLOWANC E MADE U/S 14A R.W. :-13-: ITA NO. 1688/MDS/2016 RULE 8D AMOUNTED TO RS.220737/- IN THE AY 2009-10 I N RESPECT OF SIMILAR ASSETS OF AY 2009-10 ON THE GROUND THAT THE SALE OF THE SAID ASSETS WILL YIELD ONLY TAXABLE INCOME AND NO NEXUS HAS BEEN ESTABLISH ED BETWEEN BORROWED FUND AND INVESTMENT WITH REGARD TO IMMOVABLE PROPER TY, SHARES, GOLD JEWELLERY AND DIAMOND. RELIED CIT V. RELIANCE UTILI TIES AND POWER LTD. [2009] 313 ITR 340 (BORN), WHEREIN IT HAS BEEN HELD THAT I F FUNDS ARE AVAILABLE BOTH INTEREST-FREE AND OVERDRAFT AND/OR LOANS TAKEN, THE N A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST -FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST-FREE FU NDS WERE SUFFICIENT TO MEET THE INVESTMENTS. THE HIGH COURT CONCURRED WITH THE VIEWS OF THE CIT(A) AND THE TRIBUNAL THAT THERE WAS SUFFICIENT INTEREST FRE E FUNDS TO MAKE INVESTMENTS AND ACCORDINGLY UPHELD THE DELETION OF DISALLOWANCE OF INTEREST. THE ABOVE DECISION WAS FOLLOWED IN CIT V SBI DHFL LTD [2015] 376 ITR 296 (BOMBAY) AND HDFC BANK LTD V DCIT [2016] 383 ITR 529 AND IT WAS HELD THAT IN THESE DECISIONS THAT NO DISALLOWANCE OF INTEREST PAID SHO ULD BE MADE UNDER SECTION 14A UNDER THESE CIRCUMSTANCES. THE GUJARAT HIGH COU RT IN CIT V UTI BANK LTD [2013] 32 TAXMANN.COM 370 IT WAS HELD THAT IF THERE ARE SUFFICIENT INTEREST FREE FUNDS TO MEET TAX FREE INVESTMENTS, THEY ARE P RESUMED TO BE MADE FROM INTEREST FREE FUNDS AND NOT LOANED FUNDS AND NO DIS ALLOWANCE CAN BE MADE UNDER SECTION 14A AND THE JURISDICTIONAL HIGH COURT DECISION IN REDINGTON (INDIA)LTD V ADDL CIT, CO RANGE-V, CHENNAI IN TCA N O 520 OF 2016 DT 23.12.2016. PER CONTRA, THE DR SUPPORTED THE ORDERS OF THE CIT (A)/AO. :-14-: ITA NO. 1688/MDS/2016 11. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND GO NE THROUGH RELEVANT MATERIAL. THE ASSESSE IS RIGHT IN HER SUBMISSIONS, SUPRA, THAT PART OF THE IMPUGNED INVESTMENTS ARE ASSESSABLE, PART OF IT W AS ACQUIRED LONG BACK AND NOT OUT OF BORROWED FUNDS, EVEN OTHERWISE , ON THE ABOVE FACTS , HER HUSBAND HAD ADEQUATE CAPITAL TO COVER THE IMPUGNED TRANSACTIONS. NO DISALLOWANCE IS WARRANTED U/S 14A R.W. RULE 8D. THE ASSESSEES GROUNDS OF APPEAL ON THIS ISSUE IS ALLOWED. 12. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOW ED/ TREATED AS ALLOWED. ORDER PRONOUNCED ON WEDNESDAY, THE 10 TH DAY OF JANUARY, 2018 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) !' /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) ' /ACCOUNTANT MEMBER /CHENNAI, 1 /DATED: JANUARY , 2018 JPV '*2343 /COPY TO: 1. &/ APPELLANT 2. *+& /RESPONDENT 3. 5 ( )/CIT(A) 4. 5 /CIT 5. 3* /DR 6. 8 /GF :-15-: ITA NO. 1688/MDS/2016