Smt Nituben Pradeep Dhingra, Surat V. Pr. CIT-1, Surat, Surat

ITA 180/SRT/2019

• Counselvise Citation: [NaN] 107 COUNSELVISE.COM (IT) 1854 (ITAT-SURAT)
• Duration Of Justice: 2 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2014-2015
• Appeal Filed On: 27-03-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: PRATEEK TOSHIWAL; RICHA TOSHIWAL
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 142(1); 14A; 143(1); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM आयकरअपीलसं./ITA No.180/SRT/2019 (Ǔनधा[रणवष[ / Assessment Years: (2014-15) (Virtual Court Hearing) Smt Nituben Pradeep Dhingra, C-11, Raj Vaibhav Apartment, Parle Point, Athwalines, Surat. Vs. The PCIT-1, Surat. èथायीलेखासं./जीआइआरसं./PAN/GIR No.: AAMPD1743M (Assessee) (Respondent) Assessee by: Shri Prateek Toshiwal & Ms Richa Toshiwal, CA Revenue by: Shri H. P. Meena, CIT(DR) स ु नवाईकȧतारȣख/ Date of Hearing : 28/10/2021 घोषणाकȧतारȣख/Date of Pronouncement : 04/01/2022 आदेश / O R D E R PER DR. A. L. SAINI, ACCOUNTANT MEMBER: By way of this appeal, the assessee has challenged the correctness of the order passed by the Learned Principal Commissioner of Income Tax-1, Surat [in short “the ld. PCIT”], under section 263 of the Income Tax, Act 1961, dated 14.02.2019. [hereinafter referred to as the “Act”]. Grievances raised by the assessee are as follows: “1. From the facts and circumstances of the case as well as the law on subject, the Ld. Principal CIT has wrongly passed an order u/s 263 setting aside the assessment order u/s143(3) citing lack of enquiry on the part of the AO as the reason. 2. From the facts and circumstances of the case as well as the law on subject, the Ld. Principal CIT on his whims and fancies has doubted the expense claimed u/s 57(iii) by the appellant even when the appellant has been able to furnish evidences during the assessment proceedings u/s 143 (3) and the proceedings u/s263 of the Act. 3. Appellant craves to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.” Page | 2 ITA No.180/SRT/2019 Assessment Year. 2014-15 Neetuben Pradeep Dhingra 2. Briefly stated, the relevant material facts are as follows. The assessee, (Smt Neetuben Pradeep Dhingra), had filed her return of income for assessment year (A.Y.) 2014-15 on 25.02.2015 declaring income at Rs. Nil. The assessee was engaged in textile business under proprietary concern, M/s Siddhant Fabrics. During the year under consideration, the assessee had derived income from House Property and Embroidery job work. The Scrutiny assessment under section 143(3) of the Act was finalized on 23.11.2016 at assessed income of Rs.2,92,880/- by way of making additions of Rs.2,92,880/- on account of disallowance of expenditure under section 14A of the Act. 3. Later on, Learned Principal Commissioner of Income Tax-1, [in short “the ld. PCIT”], has exercised his jurisdiction under section 263 of the Income Tax Act 1961. On perusal of Scrutiny records, Ld PCIT noticed that assessee has shown an amount of Rs.29,90,030/- under the head "income from other sources" on account of interest income and an amount of Rs.37,04,113/- was claimed as deduction on account of expenses. However, there was nothing on record to show that the said expenses of Rs.37,04,113/- were incurred wholly and exclusively for the purpose of making or earning such income. Hence the amount of expenses of Rs.37,04,113/- claimed under the head ‘income from other sources’ was not justified as the same was not incurred/utilized for earning the income under ‘other sources’ and therefore, there was underassessment of income. Therefore, ld PCIT was of the view that order passed by the assessing officer is erroneous and prejudicial to the interest of Revenue. Therefore, ld PCIT has issued notice under section 263 of the Act. 4. In response to the said show cause notice, assessee submitted that she had earned interest income of Rs.29,90,030/- which had been generated against the unsecured loans taken on interest and she had invested some funds in her proprietary business from which income of Rs.12,94,093/- has been generated. Thus, total income earned by her during F.Y.2013-14 is Rs.42,84,123/- (Rs.29,90,030+Rs.12,94,093). Page | 3 ITA No.180/SRT/2019 Assessment Year. 2014-15 Neetuben Pradeep Dhingra 5. However, ld PCIT noticed that there is no merit in the submissions of the assessee. The Ld PCIT observed from the computation of total income submitted by the assessee during the course of assessment proceedings, it was noticed by ld PCIT that while showing income under the head "income from other sources" an amount of Rs.29,90,030/- was shown as income on account of interest income and an amount of Rs.37,04,113/- was claimed as deduction on account of expenses. However, there was nothing on record to show that said expenses of Rs.37,04,113/- were incurred wholly and exclusively for the purpose of making or earning such income. Hence the amount of expenses of Rs.37,04,113/- claimed under the head ‘income from other sources’ was not justified as the same was not incurred/utilized for earning the income under ‘other sources’. 6. The ld PCIT also observed that during the year under consideration, the assessee has borrowed funds of Rs.81,54,437/- and Rs.2,61,56,800/- as on 31.03.2013 in the form of secured and unsecured loan respectively. On perusal of fund flow statement submitted during the course of assessment proceedings, it is noticed that assessee had utilized the said funds as under: Land & Factory Building for purpose of rent: Rs.77,68,223/- Shop at WTC (including furniture) for purpose of rent: Rs.7,75,830/- Siddhant Fabrics (proprietary concern) for business : Rs.25,13,612/- Shop at Millennium Market (incl furniture) for business: Rs.15,35,700/- Sidhant Creation Pvt. Ltd for interest income : Rs.2,23,42,201/- From the above analysis, ld PCIT noted that assessee had not utilized whole of the interest bearing funds to earn interest income during the year under consideration and in earlier years. Hence the amount of expenses of Rs.37,04,113/- claimed under the heading income from other sources was not justified as the same was not incurred/utilized for earning the income under the head ‘income from other sources’ and therefore while finalizing the assessment, same was required to be disallowed u/s 57(iii) of the Act which reads as under: Page | 4 ITA No.180/SRT/2019 Assessment Year. 2014-15 Neetuben Pradeep Dhingra Deductions 57.The income chargeable under the head "Income from other sources" shall be computed after making the following deductions, namely: — iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income; Thus, the AO concerned was required to disallow such claim of expenses which were not attributable to wholly and exclusively for the purpose of making or earning the income under the head ‘other sources’. Moreover, this case was selected for scrutiny under CASS for limited scrutiny having one of the reasons for selection being large deduction claimed u/s 57 which was not done during the course of assessment proceedings. Therefore there is clear lack of enquiry on the part of the AO concerned as issue of expenses claimed by the assessee was required to be examined during the course of assessment proceedings but not done. Thus, there was an underassessment of income of the assessee. In view of facts and observations discussed in the foregoing paragraphs, it is held by ld PCIT that Assessing Officer has passed the assessment order without making inquiries or verification which should have been made and allowed the relief to the assessee without inquiring into the claim, therefore, hold that the assessment order u/s 143(3) of the IT. Act, 1961 in the case of assessee (Smt Neet Dingra) for A.Y. 2014-15 passed on 23.11.2016 by the Assessing Officer is erroneous in so far it prejudicial to the interest of revenue. 7. Aggrieved by the order of the ld. PCIT, the assessee is in appeal before us. 8. The Learned Counsel for the assessee submits that during the assessment proceedings, assessee has submitted documents and details required by assessing officer. The Ld. Counsel submits that assessee did furnish the ledger account of all expenses at assessment stage. The assessee replied by letter dated 23.06.2016 which is placed at paper book page nos.3 and 4 of assessee`s paper book. The assessee also filed reply by letter dated 29.07.2016, vide paper book page no.6, of assessee`s paper book. All relevant questions were answered during the Page | 5 ITA No.180/SRT/2019 Assessment Year. 2014-15 Neetuben Pradeep Dhingra assessment proceedings, therefore order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of the Revenue. 9. On the other hand, Ld. Departmental Representative (ld. DR) for the Revenue relied on the order of the ld. PCIT passed under section 263 of the Act and stated that ld PCIT has found specific mistake in the order passed by the assessing officer. The ld DR has reiterated the findings of ld PCIT, which we have already noted in our earlier para and therefore not being repeated for the sake of brevity. 10. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld PCIT and other materials brought on record. We note that solitary grievance of ld Counsel is that order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of the Revenue, as the assessing officer has conducted necessary enquiry therefore, jurisdiction exercised by ld PCIT under section 263 of the Act is bad in law. Therefore, first of all, let us examine whether Assessing Officer has examined the issue, in his assessment order, which was raised by the ld. PCIT under section 263 of the Act. The relevant para of assessment order is reproduced below: “The assessee has filed her return of income on 25.02.2015 declaring therein total income of NIL. The return of income was processed u/s 143(1) of the Income-tax Act, 1961. The case was selected for scrutiny. Accordingly, a notice u/s 143(2) of the Act was issued on 21.09.2015 and duly served upon the assessee. Further, a notice u/s 143(1) of the Act was issued on 04.04.215 and 25.05.2016 along-with detailed questionnaire calling for various details was issued and served upon the assessee by speed post. 2. In response to the aforesaid statutory notices, Mr. Harishankar Toshniwal, CA and Authorized Representative (AR) of the assessee attended the proceedings on the dates of hearing and submitted the required details from time to time, which were placed on records. The case was discussed with the AR of the assessee and the materials placed on records were duly considered. Thereafter, on the basis of various documents and evidences, the assessment is being made by this order. 3. During the year, the assessee is engaged in textile business under propietary concern “M/s Siddhant Fabrics”. The details and other documents filed and Page | 6 ITA No.180/SRT/2019 Assessment Year. 2014-15 Neetuben Pradeep Dhingra furnished during the course of assessment proceedings as well as those filed along-with the return of income have been scrutinized and discussed with the learned AR of the assessee. 4. During the course of scrutiny assessment, the assessee was asked to explain why section 14A is not attracted in her case. On 25.10.2016 the assessee has filed written submission which is reproduced below: “We, on behalf of our client, Smt. Neetu Dhingra, proprietor of Siddharth Fabrics acknowledgement the receipt of your notice u/s 142(1) of the IT Act, 1961. In this connection we have been instructed by our client to state and submit the following details: The assessee had not incurred any interest expenditure or any other expenditure relating to income which does not form part of total income and therefore section 14A is not application in this case. During the year under consideration, exempt income of the assessee is NIL and therefore, Section 14A is not applicable in assessee’s case. As per Sec. 14A, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under IT Act, 1961. The scheme of Sec 14a is as under: a) The tax payer generates an income which is exempt from tax. b) For earning such income some expenditure has been incurred. If no expenditure is incurred for earning income exempt from tax, then section 14A is not applicable. c) If the assessing officer is not satisfied with the correctness for the claim of the tax payer in respect of the aforesaid expenditure which is incurred in relation to income exempt from tax then the assessing officer shall determine the quantum of such expenditure in accordance with Rule 8D. In the case of assessee, no exempt income was earned by the assessee, and also no expenditure was incurred to earn the exempt income and therefore, sec. 14A is not applicable. The investment made by the assessee is Rs.6,900 in quoted share and unquoted shares of Rs.32,00,000/- and the capital of the assessee as on 31.03.2013 is Rs.45,86,072/-. This shows that all the investment made in shares is out of owned capital of the assessee. Reliance is placed on judgment of the Honourable Gujarat High Court in the case of CIT-1 vs UTI Bank Ltd. (2014) 45 taxman.com 365 (Gujarat) Held that “Where assessee had sufficient income free funds to meet it tax free investment yielding exempt income, it could be presumed that such investment were made from interest free fund and no from loaned Fund, and thus no disallowance under section 14A being warranted. Further the assessee has not made any claim for exemption of any income from payment of tax, disallowance u/s 14A cannot be made”. Page | 7 ITA No.180/SRT/2019 Assessment Year. 2014-15 Neetuben Pradeep Dhingra 5.1 The Submission of the assessee is not acceptable. As per books of accounts, there are interest bearing loans and investments made in shares. There is likelihood of exempt income from interest bearing loans. Therefore, section 14A is applicable in this case. Working is as follows: Calculation of Expenditure Disallow U/s. 14A 1. Expenditure directly relating to the Exempt Income – NIL 2. Computation of proportionate expenditure by way of interest. Amount of expenditure by way of Interest x Average value of investment The average total assets = 37,04,113 x (32,56,960 + 32,56,960/2) (3,93,49,130 + 4,78,84,002/2) = 37,04,113 x 32,56,960 4,36,16,566 = 2,76,596/- 3. 0.5% of average value of investment (income of which is exempt) 0.5% of average value of investment = 32,56,960.00 X 0.5% = 16,285/- Total amount of expenditure disallowable u/s 14A (read with rule 8D) = Rs.0 + Rs.2,76,596 + 16,285/- = Rs.2,92,881/-” 11. From the above assessment order, it is vivid that issue of interest income Rs.29,90,030/-, assessed under the head ‘income from other sources’, has not been discussed/examined in the assessment order passed by Assessing Officer under section 143(3) dated 23.11.2016. Besides, the amount of Rs.37,04,113/- claimed as deduction on account of expenses has not been discussed/examined by Assessing Officer in his order. There is no opinion expressed by the Assessing Officer on expenses of Rs.37,04,113/- claimed under the head income from other sources. In the assessment order, only issue relating to section 14A has been brought on record and examined by the assessing officer. Therefore, we note that there is no whisper in the assessment order that assessing officer has examined the issues raised by the ld PCIT. Thus, the order passed by the Assessing Officer is erroneous and prejudicial to the interest of revenue. 12. We note that as per assessment order dated 23.11.2016 under section 143(3), vide para 1 of order, wherein Assessing Officer has mentioned that he had issued notice under section 142(1) of the Act, dated 04.04.2015 and 25.05.2016. Page | 8 ITA No.180/SRT/2019 Assessment Year. 2014-15 Neetuben Pradeep Dhingra Before us, Learned Counsel produced notice under section 142(1) of the Act dated 14.06.2016, (vide paper book page no.1 and 2), wherein we observe that Assessing Officer has not called the details of other income to the tune of Rs.29,90,030/-. Moreover, Assessing Officer did not ask the assessee to submit details of expenses of Rs.37,04,113/-, which were incurred by assessee to earn other income Rs.29,90,030/-. 13. However, Assessing Officer has issued further notice under section 142(1) dated 22.07.2016, wherein Assessing Officer asked details about deduction under section 57 of the Act and details of interest received (vide at page 5 of PB). In response to the notice, the assessee replied by letter dated 29.07.2016. However, we note that it is a general reply of interest received and paid. The Ld. Counsel did not submit the details of interest with reference to under the head ‘income from other sources’ nor expenses details which were mentioned with reference to section 57 of the Act. That is, there is no any working submitted by the assessee in respect of general expenses of Rs.37,04,113/-, that against which interest income such general expenses were incurred by the assessee. That is, nexus is absent. To earn the interest income of Rs.29,90,030/-, the assessee has claimed to have incurred general expenses of Rs.37,04,113/-, which is not believable. To collect the interest income from customers only some collection charges to be incurred, such as transportation charges, postal charges if interest cheques were received by post etc, thus, some small expenses may be incurred. Thus, to claim the general expenses of Rs.37,04,113/-, against the interest income of Rs.29,90,030/-, is not justifiable, particularly when assessee has not demonstrated that on which activities the assessee has spent Rs.37,04,113/- to earn such interest income. Thus, it is clear that Assessing Officer did not make enquiry to examine expenditure incurred to earn such interest income. Hence, order passed by the assessing officer is erroneous as well as prejudicial to the interest of Revenue. 14. The law with regard to exercise of jurisdiction u/s.263 of the Act on the ground that the AO failed to make enquiries which he ought to have made in the given circumstances of a case is well settled. The Commissioner can regard the Page | 9 ITA No.180/SRT/2019 Assessment Year. 2014-15 Neetuben Pradeep Dhingra order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. We derive support for the proposition as stated above from the decision of the Hon’ble Delhi High Court in the case of Gee Vee Enterprises 99 ITR 375 (Del). 15. Thus, it is abundantly clear from the order of Hon’ble Delhi High Court in the case of Gee Vee Enterprises (supra) that Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. The order u/s 263 of the I.T. Act, 1961 is valid even if one of the several items dealt with therein is found prejudicial to the interest of revenue and for this proposition of law, we place reliance on the decision of Hon'ble Madras High Court in the case of Indian Textiles Vs. CIT, 157 ITR 112 (Madras). Further, it is also important to mention here that the provisions of section 263 can be invoked even where full facts are disclosed but the Assessing Officer has not examined these details as per correct provisions of law. In support of this proposition, we place reliance on the decision of the Hon'ble Rajasthan High Court delivered in the case of CIT Vs. Emery Stone Manufacturing Company, 213 ITR 843 (Rajasthan). In the assessee`s case under consideration, the assessing officer did not make enquiry in respect of expenses of Rs.37,04,113/- and did not try to establish the nexus that such Page | 10 ITA No.180/SRT/2019 Assessment Year. 2014-15 Neetuben Pradeep Dhingra expenditure has been incurred by the assessee to earn interest income of Rs.29,90,030/-. No doubt, assessee has filed some details during the assessment proceedings, but the AO did not raise query to dig the truth. The assessing officer should examine the details filed by the assessee and must reach on right conclusion, which the AO has failed to do so in the assessee`s case under consideration. Therefore, order passed by the assessing officer is erroneous as well as prejudicial to the interest of Revenue, hence, the jurisdiction exercised by ld PCIT under section 263 of the Act is upheld. 16. In the result, appeal of the assessee is dismissed. Order is pronounced on 04/01/2022 by placing result on notice board. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat / Ǒदनांक/ Date: 04/01/2022 SAMANTA Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat