DCIT, Tambaram V. A.Ramamurthy, CHENNAI

ITA 1848/CHNY/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7767 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 19-01-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 13-08-2015
• Court: TRIBUNAL
• Department Lawyers: R DURAIPANDIAN
• Assessee Lawyers: P RAJASEKHARAN
• Keywords: Unexplained cash credit; Business income; Proportionate interest; Reasonable cause; Commercial expediency

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . ! ' , # '$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER . /ITA NO. 1848/MDS/2015 / ASSESSMENT YEAR : 2008-09 THE DEPUTY COMMISSIONER OF INCOME-TAX, NON CORPORATE CIRCLE-22, TAMBARAM. ( /APPELLANT) V. SHRI A. RAMAMURTHY, NO.2, VII CROSS STREET, NEW COLONY, CHROMEPET, CHENAAI 600 044. PAN ADDPR9196C RESPONDENT) / APPELLANT BY : SHRI R. DURAIPANDIAN, JCIT / RESPONDENT BY : SHRI P. RAJASEKHARAN, CA ! / DATE OF HEARING : 19.01.2016 '# ! / DATE OF PRONOUNCEMENT : 18.03.2016 % / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) DATED 13 .1.2015 FOR THE ASSESSMENT YEAR 2008-09. - - ITA 1848/15 2 2. THE FIRST GROUND FOR OUR CONSIDERATION IN THIS A PPEAL IS WITH REGARD TO DELETION OF ADDITION OF ` 18,14,000/- MADE AS UNEXPLAINED CREDIT IN THE NAME OF SHRI MUTHIALU. 3. IN THIS ASSESSMENT YEAR, THE ASSESSEE HAS CLAIME D A SUM OF ` 18,14,000/- SAID TO BE RECEIVED FROM SHRI P.G.MUTH IALU. THE ASSESSEE HAS NOT PRODUCED THE PAN TO VERIFY THE IDE NTITY OF THE CREDITOR. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE HAS NOT PROVED THE GENUINENESS OF THE TRANSACTION AS WE LL AS THE CREDIT WORTHINESS OF THE LENDER. THEREFORE, HE TRE ATED ` 18,14,000/- AS UNEXPLAINED CREDIT U/S.68 OF THE ACT . HOWEVER, THE COMMISSIONER OF INCOME-TAX(APPEALS) OBSERVED TH AT THE ASSESSEE HAS FURNISHED THE CONFIRMATION LETTER FROM SHRI MUTHIALU WITHOUT PAN AND ASKED THE ASSESSING OFFICER TO EXAM INE THE CONFIRMATION LETTER DURING THE REMAND PROCEEDINGS. ACCORDING TO THE COMMISSIONER OF INCOME-TAX(APPEALS), NON-MENTIO NING OF PAN IN THE CONFIRMATION LETTER IS NOT A REASON TO T REAT THE LOAN AS UNEXPLAINED CREDIT. SINCE, THE AMOUNT OF ` 18,14,000/- ISSUED BY CHEQUE AND THE ASSESSEE HAS FURNISHED THE CONFIR MATION LETTER FROM SHRI MUTHIALU, THE COMMISSIONER OF INCO ME- - - ITA 1848/15 3 TAX(APPEALS) TREATED IT A GENUINE AND DELETED THE A DDITION. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD. THE LD. DR SUBMITTED THAT IT IS THE DUT Y OF THE ASSESSEE TO PROVE THE IDENTITY OF THE CREDITOR, GEN UINENESS OF THE TRANSACTION AND CREDIT WORTHINESS. WHEN ALL THESE INGREDIENTS ARE NOT PROVED, THE ASSESSING OFFICER IS AT LIBERTY TO TREAT THE SAID AMOUNT AS UNEXPLAINED CREDIT. HOWEVER, THE LD. AR SUBMITTED THAT SHRI PG MUTHIALU IS A REGULAR CUSTOMER AND HE HAS FURNISHED THE CONFIRMATION LETTER FROM MUTHIALU BEFORE THE CI T(APPEALS). THE LD. AR FURTHER SUBMITTED THAT SIMILAR TRANSACTI ON WAS CONSIDERED IN EARLIER ASSESSMENT YEARS AND NO ADDIT ION WAS MADE. THEREFORE, HE PLEADED THAT DELETION OF ADDIT ION MAY CONFIRMED. 4.1 IN OUR OPINION, ONCE THE ASSESSEE PROVED THE ID ENTITY OF THE CREDITOR, HIS CAPACITY TO ADVANCE THE LOAN AND GENUINENESS OF THE TRANSACTION, THEN THE ONUS SHIFTS TO THE ASSESS ING OFFICER. IN SUCH CASE, THE ASSESSING OFFICER IS ENTITLED TO PRO BE THE MATTER FURTHER AND INVESTIGATE THE MATERIAL AVAILABLE BEFO RE HIM TO COME TO AN INDEPENDENT CONCLUSION AND HE SHOULD NOT REJE CT THE - - ITA 1848/15 4 ASSESSEES EXPLANATION SUMMARILY OR ARBITRARY WITHO UT SUFFICIENT REASON. IN THE PRESENT CASE, THE ASSESSEE HAS NOT PROVED ALL THE ABOVE INGREDIENTS. UNLESS, THE ASSESSEE ESTABL ISHES THE ABOVE INGREDIENTS, THEN ONLY THE ASSESSING OFFICER CAN MAKE FURTHER ENQUIRY IN THE MATTER. THE ASSESSEE BEING FAILED TO DISCHARGE PRIMARY BURDEN CAST UPON IT, THE ASSESSEE CANNOT SAY CATCH ME IF YOU CAN. BEFORE THE ASSESSING OFFICE R, THE ASSESSEE STATED THAT HE COULD NOT PROVE THE ABOVE L OAN AND THE CREDITOR. HOWEVER, HE HAS FILED A CONFIRMATION LET TER BEFORE THE COMMISSIONER OF INCOME-TAX(APPEALS) STATING THAT TH E AMOUNT WAS BORROWED BY CHEQUE AND PAID BY CHEQUE. THIS EX PLANATION OF THE ASSESSEE IS NOT BASED ON ANY MATERIAL BROUGH T ON RECORD. BY APPRECIATING ALL THE MATERIAL BROUGHT ON RECORD, THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THE ASSESSEES EXPLANATION REGARDING THIS CASH CREDIT COULD NOT BE ACCEPTED. HOWEVER, THE COMMISSIONER OF INCOME-TAX(APPEALS) DISTURBED THE F INDING OF THE ASSESSING OFFICER ONLY ON THE BASIS OF CONFIRMA TION LETTER, WHICH IS NOT HAVING PAN. IN OUR OPINION, IT IS NOT APPROPRIATE ON THE PART OF THE COMMISSIONER OF INCOME-TAX(APPEALS) TO DELETE THE SAID ADDITION MADE BY THE ASSESSING OFFICER AND DISTURB THE - - ITA 1848/15 5 FINDING OF THE ASSESSING OFFICER WITHOUT RELEVANT E VIDENCE. ACCORDINGLY, THIS GROUND OF THE REVENUE IS ALLOWED. 5. THE NEXT GROUND IS WITH REGARD TO DELETION OF AD DITION OF ` 45,00,000/- BEING UNPROVED LAND ADVANCES CLAIMED TO HAVE BEEN RECEIVED BY THE ASSESSEE. 6. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE DUR ING THE FINANCIAL YEAR 2007-08 RELEVANT TO THE ASSESSMENT Y EAR CLAIMED TO HAVE BEEN RECEIVED LAND ADVANCES OF ` 45 LAKHS FROM THREE PERSONS. HOWEVER, THE ASSESSEE COULD NOT FURNISH T HE PANS / CONFIRMATION LETTERS FROM THE SAID PERSONS. THEREF ORE, THE ASSESSING OFFICER TREATED THE SAME AS UNEXPLAINED C ASH CREDITS AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE AND T HE RELEVANT PORTION OF THE ASSESSMENT ORDER IS AS UNDER : 4) APART FROM THE OPENING BALANCE LAND OF ` 91,66,134/- AS ON 1.4.2007, THE ASSESSEE CLAIMED LAND ADVANCE RECEIVED DURING THE YEAR ` 46,00,000 FROM 4 PERSONS. OUT OF THE 4 PERSONS, FOR THE FOLLOWING 3 PERSONS T HE ASSESSEE DID NOT GIVE PAN NO. AND IN THE CASE OF SH RI KRISHNAN CONFIRMATION AND ALSO PAN IS NOT FILED. W HEN THE ASSESSEE IS ASKED TO PRODUCE THE FOLLOWING 3 PE RSONS TO VERIFY THE IDENTITY WITH PAN NO. GENUINENESS AND CREDIT WORTHINESS, THE ASSESSEE INFORMED THAT HE COULD NOT PRODUCE THE FOLLOWING AND HE COULD NOT PROVE THE FOLLOWING LOAN. HENCE, THE FOLLOWING LAND ADVANCES ARE DISALLOWED U/S. 68. 1. SHRI M. PACHIAPPAN: ` 5,00,000 2. P.G.MUTHAIALU : ` 15,00,000 - - ITA 1848/15 6 3. SHRI KRISHNAN : ` 25,00,000 TOTAL : ` 45,00,000 ` 45,00,000 6.1 BEFORE THE CIT(APPEALS), THE ASSESSEE SUBMITTED THAT ALL THE LAND ADVANCES OF ` 45 LAKHS RECEIVED DURING THE FINANCIAL YEAR 2007-08 ARE GENUINE AND ALSO ALL THESE ADVANCE S WERE RECEIVED BY WAY OF ACCOUNT PAYEE CHEQUES. HOWEVER, THE ASSESSEE FURTHER STATED THAT HE COULD NOT FURNISH T HE DETAILS OF THE LOANS LIKE PANS/CONFIRMATION LETTERS ETC. FROM THE SAID PERSONS DURING THE COURSE OF ASSESSMENT PROCEEDINGS DUE TO LACK OF SUFFICIENT TIME. IN SUPPORT OF HIS CLAIM, THE ASSESSEE FURNISHED THE DETAILS OF THE LOANS LIKE CONFIRMATIO N LETTERS FROM THE SAID PERSONS ALSO BEFORE THE CIT(APPEALS). HEN CE, BEFORE THE CIT(APPEALS), THE ASSESSEE CLAIMED THAT THE ABO VE LAND ADVANCES ARE GENUINE AND ADDITION OF ` 45 LAKHS MADE BY THE ASSESSING OFFICER BY WAY OF UNPROVED/UNEXPLAINED CA SH CREDITS, BE DELETED. 6.2 THE CIT(APPEALS) OBSERVED THAT AS THE ASSESSEE, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, FAILED TO FUR NISH THE DETAILS OF THE LAND ADVANCES RECEIVED AND THE CONFI RMATION LETTERS FROM THE SAID PERSONS, THE ASSESSING OFFICER WAS LE FT WITH NO - - ITA 1848/15 7 OPTION BUT TO TREAT THEM AS UNPROVED AND UNEXPLAINE D CASH CREDITS AND BRING TO TAX. SINCE THE ASSESSEE, BEFO RE THE CIT(APPEALS) FURNISHED THE DETAILS OF THE LAND ADVA NCES RECEIVED AND THE CONFIRMATION LETTERS FROM THE SAID PERSONS, THE SAME WERE FORWARDED TO THE ASSESSING OFFICER, WHO IN TUR N EXAMINED THE DETAILS AND SUBMITTED HIS REMAND REPORT AND THE RELEVANT PORTION OF THE REMAND REPORT IS AS UNDER : 4. ADDITION MADE U/S.68 TOWARDS LAND ADVANCES TO TH REE PERSONS- ` 45,00,000: THE ASSESSEE CLAIMED LAND ADVANCE RECEIPT OF ` 46,00,000/- DURING THE RELEVANT PERIOD FROM THE UNDER MENTIONED 4 PERSONS. AS THE ASSESSEE COULD NOT FURNISH NECESSA RY DETAILS OF 3 PERSONS, AS GIVEN BELOW, AMOUNTING TO ` 45,00,000/- THE AO ADDED THE SAME U/S.68. SL.NO. NAME AMOUNT IN ` 1. SHRI M. PACHIAPPAN : ` 5,00,000 2. P.G.MUTHAIALU : ` 15,00,000 3. SHRI KRISHNAN : ` 25,00,000 TOTAL : ` 45,00,000 THE ASSESSEE, DURING THE REMAND PROCEEDING, FILED CONFIRMATION LETTERS FROM THE PERSONS VIDE SL. NO.2 & 3 IN THE ABOVE LIST WITHOUT PAN. IN RESPECT OF SL.NO.1 ABOV E, THE ASSESSEE FILED CONFIRMATION FROM SRI P. MANOHARAN, S/O. LATE PATCHIAPPAN. THE CONFIRMATION LETTERS FILED B Y THE ASSESSEE HAVE BEEN PLACED IN RECORD. ACCORDING TO THE COMMISSIONER OF INCOME-TAX(APPEALS ) NON- MENTIONING OR NON-AVAILABILITY OF PANS SHOULD NOT B E THE CRITERIA - - ITA 1848/15 8 FOR DISALLOWING A LOAN CLAIM. THEREFORE, THE COMMI SSIONER OF INCOME-TAX(APPEALS) DELETED THE ADDITION OF ` 45 LAKHS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNPROVED/UNEXPL AINED LAND ADVANCES. AGAINST THIS, THE REVENUE IS IN APPEAL B EFORE US. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. THE CONTENTION OF THE LD. AR IS THAT TH E ASSESSEE HAS FURNISHED THE CONFIRMATION LETTERS. HOWEVER, THE C ONFIRMATION LETTERS ARE NOT HAVING PAN, AS DISCUSSED IN EARLIER PARAGRAGH, IN THE CASE OF P.G.MUTHIAU. IN OUR OPINION, THE IDENT ITY OF THE CREDITOR, CREDIT WORTHINESS AND THE GENUINENESS OF THE TRANSACTION ARE NOT ESTABLISHED AND MERELY ON THE B ASIS OF CONFIRMATION LETTERS, IT IS NOT POSSIBLE TO HOLD TH AT THESE CREDITS ARE GENUINE AND THESE PERSONS HAVE CAPACITY TO ADVA NCE SUCH HUGE LOANS. BEING SO, WE ARE INCLINED TO CONFIRM T HE ORDER OF THE ASSESSING OFFICER AND REVERSE THE ORDER OF THE COMM ISSIONER OF INCOME-TAX(APPEALS) ON THIS ISSUE. 8. THE NEXT GROUND IN THIS APPEAL IS WITH REGARD TO DELETING THE DISALLOWANCE OF ` 38 LAKHS MADE U/S.40A(3) BEING EXPENSES MADE IN CASH IN EXCESS OF ` 20,000/- OTHERWISE THAN CHEQUE OR DEMAND DRAFT. - - ITA 1848/15 9 9. THE FACTS OF THE ISSUE ARE THAT DURING THE COURS E OF ASSESSMENT PROCEEDINGS FOR THE YEAR UNDER CONSIDERA TION, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS IN CURRED CERTAIN EXPENSES IN CASH IN EXCESS OF ` 20,000/-, AMOUNTING TO ` 45,75,000/- AND DISALLOWED THE SAME BY INVOKING THE PROVISIONS OF SEC.40A(3) OF THE ACT AND ADDED TO THE TOTAL INC OME OF THE ASSESSEE. AGAINST THIS, THE ASSESSEE WENT IN APPEA L BEFORE THE COMMISSIONER OF INCOME-TAX(APPEALS). 10. BEFORE THE COMMISSIONER OF INCOME-TAX(APPEALS), IT WAS STATED THAT THE ASSESSEE IS ENGAGED IN INVESTMENTS AND BUYING AND SELLING OF THE PROPERTIES IN CHENNAI. IN THE C OURSE OF BUYING AND SELLING OF PROPERTIES, THE ASSESSEE HAS TO DEVE LOP THE PROPERTY BY LEVELING, PUTTING THE COMPOUNDS AROUND THE PROPERTIES, WHICH REQUIRE PURCHASE OF VARIOUS ITEMS LIKE SAND, STONES, METAL, LAND FILLING AND FENCING. ACCORDING TO THE COMMISSIONER OF INCOME-TAX(APPEALS), THE SELLERS OF THESE MATERIALS ARE TOTALLY UNORGANIZED AND INSIST FOR CA SH PAYMENTS ONLY, THEREBY HE DELETED ` 10 LAKHS TOWARDS EXPENDITURE INCURRED FOR PURCHASING THE ABOVE MATERIALS. FURTHER, THE C OMMISSIONER OF INCOME-TAX(APPEALS) OBSERVED THAT SINCE THE ASSE SSEE IS IN - - ITA 1848/15 10 THE BUSINESS OF INVESTMENTS AND BUYING AND SELLING OF THE PROPERTIES IN CHENNAI, IN SOME OF THE PROPERTIES PU RCHASED /OWNED BY THE ASSESSEE, THERE WERE OCCUPANTS/TENANT S. TWO OF THE PROPERTIES, I.E. NO.68, NORTH USMAN ROAD, T. NA GAR, CHENNAI AND DRUG HOUSE, NO.188/2, NORTH USMAN ROAD, T. NAGA R, CHENNAI HAD EXISTING TENANTS, VIZ., SHRI A. NARANAS WAMY AND SHRI BALU SINEY, RESPECTIVELY. THEREFORE, THE ASSE SSEE HAD TO GET THEM VACATED FOR WHICH HE HAD TO PAY SOME COMPE NSATION. ACCORDING TO THE COMMISSIONER OF INCOME-TAX(APPEALS ), IN THE CASE OF VACATING THE TENANTS/OCCUPANTS OF THE PROPE RTIES, WHICH IS NORMALLY A LONG DRAWN PROCESS, THE TENANTS ALWAY S INSIST FOR THE COMPENSATION IN THE FORM OF CASH ONLY. IN SUCH CASES, WHERE THE TENANTS INSIST FOR CASH PAYMENTS, THE OWNERS AR E LEFT WITH NO OPTION BUT TO MAKE THE PAYMENTS IN CASH, FAILING WH ICH THE ENTIRE PROCESS OF EVICTING THE TENANTS/OCCUPANTS WILL BECO ME COMPLICATED. THEREFORE, ACCORDING TO THE COMMISSIO NER OF INCOME-TAX(APPEALS), PAYMENTS IN CASH FOR VACATING THE TENANTS/OCCUPANTS OF THE PROPERTIES CAN BE CONSIDER ED AS EXTRA ORDINARY AND EXCEPTIONAL CIRCUMSTANCES AND IT IS NO T THE CASE OF THE ASSESSING OFFICER THAT THE PAYMENTS ARE NOT GEN UINE. - - ITA 1848/15 11 ACCORDINGLY, THE COMMISSIONER OF INCOME-TAX(APPEALS ) OBSERVED THAT THE CASH PAYMENTS FOR VACATING THE TENANTS/OCC UPANTS OF THE PROPERTIES CAN BE ALLOWED AS AN ALLOWABLE EXPENDITU RE AND ALLOWED COMPENSATION OF ` 28 LAKHS PAID FOR VACATING THE PROPERTIES. AGGRIEVED, THE REVENUE IS IN APPEAL BE FORE US. 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE MAIN PLEA OF THE ASSESSEE IS THAT T HE PAYMENTS WERE MADE IN CASH OTHERWISE THAN CHEQUE OR DEMAND D RAFT IN VIEW OF COMMERCIAL EXPEDIENCY AS WELL AS INSISTED B Y THE RECIPIENTS. HOWEVER, THERE IS NO MATERIAL ON RECOR D TO SHOW THAT THOSE RECIPIENTS HAVE NO BANK ACCOUNT, BANKING FACI LITY IS NOT AVAILABLE. BEING SO, IN OUR OPINION, THE ASSESSEE HAS NOT SHOWN ANY REASONABLE CAUSE FOR MAKING SUCH PAYMENTS IN CA SH OTHERWISE THAN BY CROSSED CHEQUE OR DEMAND DRAFT. THE LD. AR PLACED RELIANCE ON THE DECISION OF THE TRIBUNAL, HY DERABAD BENCH IN THE CASES OF SAHITYA HOUSING P. LTD. V. DC IT IN ITA NO.246/HYD/2011 AND DCIT V. AVINANDA HOUSING LTD. IN ITA NO.1320 & 1321/HYD/2014 DATED 3.12.2014, WHICH CANN OT BE APPLIED TO THE FACTS OF THE PRESENT CASE. IN THOSE CASES, THE PAYMENTS WERE MADE TO LAND OWNERS WHO ARE AGRICULTU RISTS AND - - ITA 1848/15 12 BANKING FACILITIES ARE NOT AVAILABLE, WHERE THE PAY MENTS WERE MADE. BEING SO, THE COMMISSIONER OF INCOME-TAX(APP EALS) IS NOT JUSTIFIED IN DELETING THE ADDITION OF ` 38 LAKHS. ACCORDINGLY, THIS GROUND OF APPEAL OF THE REVENUE IS ALLOWED. 12. THE NEXT GROUND IN THIS APPEAL IS WITH REGARD T O DELETING THE PROPORTIONATE DISALLOWANCE OF INTEREST EXPENDIT URE OF ` 5,46,000/- FOR DIVERSION OF INTEREST BEARING FUNDS FOR NON- BUSINESS PURPOSE. 13. THE FACTS OF THE CASE ARE THAT THE ASSESSING OF FICER OBSERVED THAT THE ASSESSEE HAD MADE INTEREST FREE A DVANCES OF ` 1,29,87,015/- TO HIS SON, SHRI KUMARRAJA AND ` 1,33,04,454/- AND HIS WIFE SMT.VADIVAMBAL, AMOUNTING TO A TOTAL I NTEREST FREE LOANS OF ` 2,62,91,469/-. ON THE OTHER HAND, THE ASSESSEE HA S BORROWED SUBSTANTIAL AMOUNTS FROM VARIOUS PERSONS A ND PAID INTEREST. HENCE, THE ASSESSING OFFICER TREATED TH E SAME AS DIVERSION OF INTEREST BEARING FUNDS FOR NON-BUSINES S ACTIVITIES AND ACCORDINGLY, DISALLOWED A PROPORTIONATE INTEREST AN D ADDED TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED, THE ASSES SEE WENT IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX(APPEAL S), WHO - - ITA 1848/15 13 DELETED THE DISALLOWANCE OF INTEREST OF ` 5,46,000/-. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIAL ON RECORD. THE COMMISSIONER OF INCOME-TAX (APPEALS) DELETED THE ADDITION ON THE REASON THAT THE ASSESSE E IS HAVING ACCUMULATED PROFITS OF ` 4.47 CRORES AS ON 31.3.2008 AS PER THE BALANCE SHEET FOR THE FINANCIAL YEAR 2007-08 AND TH E AMOUNT WAS ADVANCED FROM HIS OWN FUNDS. THE ASSESSEE CLAIMED DEDUCTION TOWARDS INTEREST PAID TO VARIOUS LOANS. THE ASSESSI NG OFFICER NOTICED THAT THE ASSESSEE HAS DIVERTED THE FUNDS OF ` 1,29,87,015/- TO HIS SON AND ` 1,33,04,454/- TO HIS WIFE TOTALLING TO ` 2,62,92,469/- AS ADVANCE. THE ASSESSING OFFICER W AS OF THE OPINION THAT THE PROPOSED INTEREST ON THE AMOUNT IN VESTED LIKE THIS IS NOT FOR THE PURPOSE OF BUSINESS AND THE SAM E WAS DISALLOWED PROPORTIONATELY. AS PER PROVISIONS OF SE CTION 36(1)(III) OF THE ACT, THE INTEREST ON LOANS RAISED BY THE ASS ESSEE FOR BUSINESS PURPOSES ARE AVAILABLE. ONCE THE ASSESSE E CLAIMS ANY SUCH INTEREST AS DEDUCTION IN THEIR BOOKS OF AC COUNT THE ONUS ALWAYS WILL BE ON THE ASSESSEE TO SATISFY THE ASSES SING OFFICER THAT WHATEVER LOANS WERE RAISED BY THE ASSESSEE WER E FOR THE - - ITA 1848/15 14 PURPOSE OF BUSINESS. IF IN THE PROCESS OF EXAMINATI ON OF GENUINENESS OF SUCH DEDUCTION, IF IT TRANSPIRES THA T THE ASSESSEE HAS ADVANCED CERTAIN FUNDS TO HIS SON AND WIFE CHAR GING NO INTEREST, THERE WOULD BE A VERY HEAVY ONUS ON THE A SSESSEE TO DISCHARGE BEFORE THE ASSESSING OFFICER TO THE EFFEC T THAT IN SPITE OF OUTSTANDING LOANS ON WHICH THE ASSESSEE IS INCUR RING LIABILITY TO PAY INTEREST, THERE WOULD BE NO JUSTIFICATION TO ADVANCE THE LOANS TO HIS SON AND WIFE FOR NON-BUSINESS PURPOSES WITHOUT CHARGING ANY INTEREST. 15. ENTIRE MONEY IN A BUSINESS ENTITY COMES IN A C OMMON KITTY. THE MONIES RECEIVED AS SHARE CAPITAL, AS TER M LOAN, AS WORKING CAPITAL LOAN, AS SALE PROCEEDS ETC. DO NOT HAVE ANY DIFFERENT COLOUR. WHATEVER ARE THE RECEIPTS IN THE BUSINESS, WHICH HAVE THE COLOUR OF BUSINESS RECEIPTS AND HAVE NO SEPARATE IDENTIFICATION? THE ONLY THING SUFFICIENT TO DISALL OW THE INTEREST PAID ON THE BORROWING TO THE EXTENT THE AMOUNT IS L ENT TO HIS SON AND WIFE WITHOUT CARRYING ANY INTEREST FOR NON-BUSI NESS PURPOSES WOULD BE THAT THE ASSESSEE HAS SOME LOANS OR OTHER INTEREST BEARING DEBTS TO BE REPAID. IN CASE THE ASSESSEE HA D SOME SURPLUS AMOUNT WHICH, ACCORDING TO HIM, COULD NOT B E REPAID - - ITA 1848/15 15 PREMATURELY TO ANY LENDER, STILL THE SAME IS EITHER REQUIRED TO BE CIRCULATED AND UTILISED FOR THE PURPOSE OF BUSINESS OR TO BE INVESTED IN A MANNER IN WHICH IT GENERATES INCOME A ND NOT THAT IT IS DIVERTED TO HIS SON AND WIFE FREE OF INTEREST. T HIS WOULD RESULT IN NOT PRESENTING TRUE AND CORRECT PICTURE OF THE A CCOUNTS OF THE ASSESSEE AS AT THE COST BEING INCURRED BY THE ASSES SEE, THE SISTER CONCERN WOULD BE ENJOYING THE BENEFITS THERE OF. IT CANNOT POSSIBLY BE HELD THAT THE FUNDS TO THE EXTENT DIVER TED TO HIS SON AND WIFE OR OTHER PERSONS FREE OF INTEREST WERE REQ UIRED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS AND LOANS TO THAT EXTENT WERE REQUIRED TO BE RAISED. WE DO NOT SUBSCRIBE TO THE THEORY OF DIRECT NEXUS OF THE FUNDS BETWEEN BORROWINGS OF THE FUNDS AND DIVERSION THEREOF FOR NON-BUSINESS PURPOSES. RATH ER, THERE SHOULD BE NEXUS OF USE OF BORROWED FUNDS FOR THE PU RPOSE OF BUSINESS TO CLAIM DEDUCTION UNDER SECTION 36(1)(III ) OF THE ACT. THAT BEING THE POSITION, THERE WOULD BE NO ESCAPE F ROM THE FINDING THAT INTEREST BEING PAID BY THE ASSESSEE TO THE EXTENT THE AMOUNTS ARE DIVERTED TO HIS SON AND WIFE ON INTERES T FREE BASIS ARE TO BE DISALLOWED. - - ITA 1848/15 16 16. IF THE PLEA OF THE ASSESSEE IS ACCEPTED THAT T HE INTEREST FREE ADVANCES MADE TO HIS SON AND WIFE FOR NON-BUSI NESS PURPOSES WAS OUT OF HIS OWN FUNDS IN THE FORM OF CA PITAL INTRODUCED IN BUSINESS, THAT AGAIN WILL SHOW A CAMO UFLAGE BY THE ASSESSEE AS AT THE TIME OF RAISING OF LOAN, THE ASS ESSEE WILL SHOW THE FIGURES OF CAPITAL INTRODUCED BY IT AS A M ARGIN FOR LOANS BEING RAISED AND AFTER THE LOANS ARE RAISED, WHEN S UBSTANTIAL AMOUNT IS DIVERTED TO HIS SON AND WIFE FOR NON-BUSI NESS PURPOSES WITHOUT INTEREST, A PLEA WOULD BE RAISED THAT THE A MOUNT ADVANCED WAS OUT OF ITS CAPITAL, WHICH IN FACT STOO D EXHAUSTED IN SETTING UP OF THE UNIT. SUCH A PLEA MAY BE ACCEPTA BLE AT A STAGE WHEN NO LOANS HAD BEEN RAISED BY THE ASSESSEE AT TH E TIME OF DISBURSEMENT OF FUNDS. THIS WOULD DEPEND ON FACTS O F EACH CASE. 17. THE VIEW THAT WHERE THE AMOUNT IS ADVANCED FRO M A MIXED ACCOUNT OR SHARE CAPITAL OR SALE PROCEEDS OR PROFITS, IT WOULD NOT BE DEEMED AS DIVERSION OF BORROWED CAPITA L OR THAT THE REVENUE HAD NOT BEEN ABLE TO ESTABLISH NEXUS OF THE FUNDS ADVANCED TO HIS SON AND WIFE WITH THE BORROWED FUND S IS NOT CORRECT. ONCE IT IS BORNE OUT FROM THE RECORD THAT THE ASSESSEE HAD BORROWED CERTAIN FUNDS ON WHICH LIABILITY TO PA Y TAX IS BEING - - ITA 1848/15 17 INCURRED AND ON THE OTHER HAND, CERTAIN AMOUNTS HAD BEEN ADVANCED TO HIS SON AND WIFE OR OTHERS WITHOUT CARR YING ANY INTEREST AND WITHOUT ANY BUSINESS PURPOSE, THE INTE REST TO THE EXTENT THE ADVANCE HAD BEEN MADE WITHOUT CARRYING A NY INTEREST IS TO BE DISALLOWED UNDER SECTION 36(1)(III) OF THE ACT. ACCORDINGLY, WE ARE OF THE OPINION THAT THE ASSESSE E USED CERTAIN AMOUNTS TO ADVANCE HIS SON AND WIFE AS INTE REST FREE AND THAT PORTION OF INTEREST CANNOT BE ALLOWED WHILE CO MPUTING THE BUSINESS INCOME OF THE ASSESSEE. BEING SO, WE CONF IRM THE ORDER OF THE AO AND REVERSE THE ORDER OF THE COMMIS SIONER OF INCOME-TAX(APPEALS) ON THIS ISSUE. 18. THE LAST GROUND IN THIS APPEAL IS WITH REGARD T O DELTING THE NOTIONAL RENTS OF ` 5,39,000/- FOR THE PERIOD FROM APRIL 2007 TO FEBRUARY 2008. 19. THE FACTS OF THE ISSUE IS THAT THE ASSESSEE PUR CHASED A HOTEL PROPERTY IN DECEMBER, 2006, WHICH HAS AN EXIS TING TENANT. BUT THE ASSESSEE HAS OFFERED RENTAL INCOME @ ` 49,000/- PER MONTH FROM MARCH 2008 ONLY. THE ASSESSEE DID NOT O FFER ANY RENTAL INCOME FROM THE PROPERTY FOR THE PERIOD 1.4. 2007 TO 29.2.2008 ON THE GROUND THAT HE DID NOT RECEIVE ANY RENT OWING - - ITA 1848/15 18 TO CERTAIN DISPUTES WITH TENANT. THE ASSESSING OFF ICER, IN HIS ORDER, DID NOT ACCEPT THE ASSESSEES CONTENTIONS. SINCE THE ASSESSEE IS THE LEGAL OWNER OF THE PROPERTY THROUGH OUT THE YEAR, THE ASSESSING OFFICER COMPUTED THE RENTAL INCOME @ ` 49,000/- PER MONTH FOR THE PERIOD FROM 1.4.2007 TO 29.2.2008 ALSO, ON NOTIONAL BASIS AND BROUGHT TO TAX. THE RELEVANT PO RTION OF THE ASSESSMENT ORDER IS AS UNDER: 6) THE ASSESSEE HAS PURCHASED IN DECEMBER 2006 TRIPLICANE PROPERTY WHICH IS ALREADY OCCUPIED BY TE NANT SANGEETHA HOTEL. BEFORE THE ASSESSEE BOUGHT THE PROPERTY IT WAS RENTED OUT TO SAME SANGEETHA HOTEL BY THE PREVIOUS OWNER OF THE BUILDING. BUT THE ASSESS EE HAS OFFERED RENT ONLY FOR MARCH 2008 FOR ` 49,000/- AS EVIDENCED IN THE FORM NO.16A. WHEN THIS IS QUESTIO NED THE ASSESSEE INFORMED THAT THERE WAS A DISPUTE BETW EEN THE PREVIOUS OWNER OF THE BUILDING WITH SANGEETHA H OTEL AND ASSESSEE STARTED RECEIVING RENT FROM SANGEETHA HOTEL ONLY FROM MARCH 2008. THE ASSESSEE COULD NOT PRODUCE ANY DOCUMENTARY EVIDENCE FOR THE ABOVE CLAI M OF DISPUTE AND NON RECEIPT OF RENTAL INCOME FROM 1.4.2007 TO 29.2.2008. SINCE NO EVIDENCE IS PRODUC ED A NOTIONAL MONTHLY RENT OF ` 49,000/- FOR 11 MONTHS FROM 1.4.07 TO 29.2.2008 I.E. ` 5,39,000/- IS ADDED: ` 5,39,000 19.1 BEFORE THE COMMISSIONER OF INCOME-TAX(APPEALS ), THE ASSESSEE SUBMITTED THAT THOUGH THE PROPERTY WAS PURCHASED IN DECEMBER 2006, THERE WAS A DISPUTE WITH THE EXIS TING TENANT OF THE PROPERTY. ONLY BY MARCH 2008, THE DISPUTES WERE SETTLED AND THE TENANT AGREED TO PAY THE RENT @ ` 49,000/- PER MONTH - - ITA 1848/15 19 FROM MARCH 2008. THEREFORE, THE ASSESSEE CLAIMED T HAT THE ACTUAL RENTS RECEIVED ARE FROM MARCH 2008 ONLY AND NOT FOR THE ENTIRE FINANCIAL YEAR 2007-08 ON NOTIONAL BASIS. 19.2 ACCORDING TO THE COMMISSIONER OF INCOME- TAX(APPEALS), THE ASSESSEE IS THE OWNER OF THE PROP ERTY THROUGHOUT THE FINANCIAL YEAR 2007-08. DUE TO DISP UTES, THE TENANT HAS NOT PAID ANY RENT TILL FEBRUARY 2008 AND THE TENANT STARTED TO GIVE RENT FROM MARCH 2008 ONLY. THEREFO RE, THE COMMISSIONER OF INCOME-TAX(APPEALS) OBSERVED THAT T HE ASSESSING OFFICER CANNOT BRING TO TAX RENT ON NOTIO NAL BASIS. FURTHER, THE COMMISSIONER OF INCOME-TAX(APPEALS) OB SERVED THAT ANNUAL LETTING VALUE OF THE PROPERTY FROM DECEMBER 2006 TO FEBRUARY 2008 CANNOT BE ASCERTAINED AND THE ASSESSI NG OFFICER IS NOT JUSTIFIED IN ESTIMATING THE RENT FOR THE PER IOD FROM APRIL, 2007 TO MARCH, 2008 ON NOTIONAL BASIS. ACCORDINGL Y, HE DELETED THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOU NT OF NOTIONAL RENT FROM SANGEETHA HOTEL FOR THE PERIOD F ROM APRIL 2007 TO FEBRUARY 2008. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. - - ITA 1848/15 20 20. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MA TERIAL ON RECORD. WHILE COMPUTING THE INCOME FROM HOUSE P ROPERTY, ANNUAL LETTING VALUE TO BE DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF SEC.23 OF THE ACT WHICH READS AS UNDE R : 23. (1) FOR THE PURPOSES OF SECTION 22 , THE ANNUAL VALUE OF ANY PROPERTY SHALL BE DEEMED TO BE (A) THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR; OR (B) WHERE THE PROPERTY OR ANY PART OF THE PROPERTY IS LET AND THE ACTUAL RENT RECEIVED OR RECEIVABLE BY THE OWNER IN RESPECT THEREOF IS IN EXCESS OF THE SUM REFERRED TO IN CLAUSE (A), THE AMOUNT SO RECEIVED O R RECEIVABLE; OR (C) WHERE THE PROPERTY OR ANY PART OF THE PROPERTY IS LET AND WAS VACANT DURING THE WHOLE OR ANY PART OF THE PREVIOUS YEAR AND OWING TO SUCH VACANCY THE ACTUAL RENT RECEIVED OR RECEIVABLE BY THE OWNER IN RESPECT THEREOF IS LESS THAN THE SUM REFERRED TO IN CLAUSE (A), THE AMOUNT SO RECEIVED OR RECEIVABLE : PROVIDED THAT THE TAXES LEVIED BY ANY LOCAL AUTHORITY IN RESPECT OF THE PROPERTY SHALL BE DEDUCTED (IRRESPEC TIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUC H TAXES WAS INCURRED BY THE OWNER ACCORDING TO THE METHOD O F ACCOUNTING REGULARLY EMPLOYED BY HIM) IN DETERMININ G THE ANNUAL VALUE OF THE PROPERTY OF THAT PREVIOUS Y EAR IN WHICH SUCH TAXES ARE ACTUALLY PAID BY HIM. EXPLANATION.FOR THE PURPOSES OF CLAUSE (B) OR CLA USE (C) OF THIS SUB-SECTION, THE AMOUNT OF ACTUAL RENT RECEIVED OR RECEIVABLE BY THE OWNER SHALL NOT INCLUDE, SUBJE CT TO SUCH RULES AS MAY BE MADE IN THIS BEHALF, THE AMOUN T OF RENT WHICH THE OWNER CANNOT REALISE. - - ITA 1848/15 21 21. NOW, THE CONTENTION OF THE LD. AR IS THAT THE A SSESSEE HAS NOT RALISED THE RENT FROM APRIL 2007 TO FEBRUARY 20 08, AS IT WAS SUBJECT TO LITIGATION. HOWEVER, THERE IS NO EVIDEN CE BROUGHT ON RECORD TO SUGGEST THAT THE PROPERTY WAS VACANT DURI NG THAT PERIOD. EVEN BEFORE US, THE ONLY PLEA OF THE LD. A R IS THAT THERE IS LITIGATION BETWEEN THE TENANT AND THE ASSESSEE. FOR THIS ALSO, THERE IS NO EVIDENCE. THE COMMISSIONER OF INCOME-T AX(APPEALS) HAS GIVEN A RELIEF TO THE ASSESSEE ON THE REASON TH AT THERE WAS DISPUTE BETWEEN THE ASSESSEE AND THE TENANT THOUGH THERE IS NO EVIDENCE. IN SUCH CIRCUMSTANCES, WHEN THE ASSESSEE IS THE LEGAL OWNER OF THE PROPERTY AND IT WAS LET OUT TO T HE PERSON AND THE TENANT WAS IN OCCUPATION OF THAT PREMISES, HE I S LIABLE TO PAY RENT AND THE ASSESSEE HAS THE RIGHT TO RECEIVE THE RENT IN ACCORDANCE WITH LAW. IF THE ASSESSEE FAILS TO TAKE ANY STEPS FOR RECOVERY, HE CANNOT TAKE A PLEA THAT THE RENT IS NO T REALIZED. AS SUCH, THE ASSESSING OFFICER IS ENTITLED TO DETERMIN E THE EXPECTED RENT RECEIVABLE AND THE ALV OF THE PROPERTY FOR THE PURPOSE OF ASSESSING THE INCOME. ACCORDINGLY, THE ASSESSING O FFICER IS JUSTIFIED IN ASSESSING THE RENTAL INCOME IN ACCORDA NCE WITH THE - - ITA 1848/15 22 PROVISIONS OF SEC.23 OF THE ACT AND THE SAME IS CON FIRMED. THIS GROUND OF APPEAL OF THE REVENUE IS ALSO ALLOWED. 22. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOWED . ORDER PRONOUNCED ON FRIDAY, THE 18 TH OF MARCH, 2016 AT CHENNAI. SD/- SD/- ( $% & ) ( ' ( ) $ ) *%+,-,./01,2345,.62,+778,293 : ;< /JUDICIAL MEMBER ! ;<=>>70.?,.?@A1BA2 ': /CHENNAI, C; /DATED, THE 18 TH MARCH, 2016. MPO* ;D EFGF /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. H3 /CIT(A) 4. H /CIT 5. FIJ K /DR 6. JLM /GF.