Lachhmandas Jethanand Advani, Jalgaon V. Joint Commissioner of Income-tax,

ITA 1854/PUN/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 0688 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 6 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 21-08-2018
• Assessment Year: 2011-2012
• Appeal Filed On: 29-08-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M K VERMA
• Assessee Lawyers: P S SHINGTE
• Keywords: Unexplained cash credit; Earning of tax free income; Rule 8D
• Section: 14A; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E BEFORE SHRI R.S.SYAL, VP AND SHRI PARTHA SARATHI CHAUDHURY, JM / ITA NO.1854/PUN/2016 / ASSESSMENT YEAR : 2011-12 SHRI LACHHMANDAS JETHANAND ADVANI, 2 ND FLOOR, SONY CHAMBER, 2245 BALIRAM PETH, JALGAON-425 001. PAN : AAPPA5164J .... / APPELLANT / V/S. THE JOINT COMMISSIONER OF INCOME TAX, RANGE-2, JALGAON. / RESPONDENT ASSESSEE BY : SHRI P.S. SHINGTE REVENUE BY : SHRI M.K. VERMA / DATE OF HEARING : 27.03.2019 / DATE OF PRONOUNCEMENT : 28.03.2019 / ORDER PER PARTHA SARATHI CHAUDHURY, JM : THIS APPEAL PREFERRED BY THE ASSESSEE EMANATES FROM TH E ORDER OF THE LD. CIT(APPEALS)-2, NASHIK DATED 08.07.2016 FOR THE ASSESSM ENT YEAR 2011- 12 AS PER FOLLOWING GROUNDS OF APPEAL ON RECORD. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LOWER AUTHORITIES HAVE ERRED IN MAKING THE ADDITION OF RS.8,50,000/-, BEING LOAN TAKEN FROM SMT. MAYA C TEJWANIBY INVOKIN G PROVISIONS OF SECTION 68 OF THE INCOME TAX ACT, 1961 BY DISREGARD ING APPELLANT'S CONTENTION AND DOCUMENTARY EVIDENCES BROUGHT ON REC ORD, THE ADDITION NEEDS TO BE DELETED. 2 ITA NO. 1854/PUN/2016 A.Y.2011-12 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LOWER AUTHORITIES HAVE ERRED IN MAKING THE DISALLOW ANCE OF RS.28,636/- BEING INTEREST PAID ON ABOVE UNSECURED LOAN BY DISR EGARDING APPELLANT'S CONTENTION. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LOWER AUTHORITIES HAVE ERRED IN MAKING AD-HOC DISAL LOWANCE OF RS.27,870/- OUT OF TOTAL VEHICLE EXPENSES OF RS.1,1 1,477/- WITHOUT POINTING OUT ANY SPECIFIC DEFECT IN THE BOOKS OF AC COUNTS. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LOWER AUTHORITIES HAVE ERRED IN MAKING AD-HOC DISAL LOWANCE OF RS.16,250/- OUT OF TOTAL TELEPHONE EXPENSES OF RS.3 2,500/- WITHOUT POINTING OUT ANY SPECIFIC DEFECT IN THE BOOKS OF AC COUNTS. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LOWER AUTHORITIES HAVE ERRED IN MAKING AD-HOC DISAL LOWANCE OF RS.25,000/- OUT OF TOTAL MATADOR EXPENSES OF RS.2,0 0,000/- WITHOUT POINTING OUT ANY SPECIFIC DEFECT IN THE BOOKS OF AC COUNTS. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LOWER AUTHORITIES HAVE ERRED IN MAKING AD-HOC DISAL LOWANCE OF RS.35,000/- OUT OF TOTAL UNLOADING EXPENSES OF RS.5 ,00,000/- WITHOUT POINTING OUT ANY SPECIFIC DEFECT IN THE BOOKS OF AC COUNTS. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LOWER AUTHORITIES HAVE ERRED IN MAKING AD-HOC DISAL LOWANCE OF RS.20,000/- OUT OF TOTAL CORK EXPENSES OF RS.2,00,0 00/- WITHOUT POINTING OUT ANY SPECIFIC DEFECT IN THE BOOKS OF ACCOUNTS. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LOWER AUTHORITIES HAVE ERRED IN MAKING ADDITION OF RS.94,523/- BY INVOKING PROVISIONS OF SECTION 14A R.W.RULE 8D BY D ISREGARDING APPELLANTS CONTENTION. 2. THE BRIEF FACTS IN THIS CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF WHOLE SALE DEALER IN WINE AND LIQU OR. THE ASSESSEE FILED RETURN OF INCOME ON 30.09.2011 DECLARING TOTAL INCOME OF RS.1,24,86,520/-. THE ASSESSING OFFICER ASSESSED THE INCOME O F THE ASSESSEE AT RS.1,46,96,677/- BY MAKING VARIOUS ADDITIONS/DISALLOWANCES AS APPEARING IN THE ASSESSMENT ORDER. 3. WITH RESPECT TO GROUND NO.1, THE LD. AR OF THE ASSESS EE VEHEMENTLY ARGUED PLACING RELIANCE ON THE DOCUMENTS PLACED IN THE P APER BOOK AND CERTAIN OTHER ARGUMENTS ONLY TOWARDS ESTABLISHING THE ID ENTITY OF THE LOAN CREDITOR AND THE TRANSACTIONS OF LOAN ADVANCED BY THE A /C PAYEE BANK 3 ITA NO. 1854/PUN/2016 A.Y.2011-12 CHEQUE. THAT WHATEVER DOCUMENTS HE HAS RELIED ON IN THE PAPER BOOK AND THE ARGUMENTS PLACED, DOES NOT PROVE THE CREDITWORTHINESS O F THE LENDER. THE FACTS ON RECORDS CLEARLY DEMONSTRATES THAT THE ASSES SING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND TREATED THE LOAN AS UNEXPLAINED CASH CREDIT ON THE GROUND THAT THE ASSESSEE HAS NOT PROVED THE CREDITWORTHINESS OF THE LENDER. IT HAS BEEN LAID DOWN BY T HE VARIOUS TRIBUNAL AND THE COURTS INCLUDING HON'BLE SUPREME COURT THAT THE ASSESSEE HAS TO PROVE THE IDENTITY OF THE CREDITORS, GENUINENESS OF THE TR ANSACTIONS AND CREDITWORTHINESS OF THE LENDER U/S.68 OF THE INCOME TAX A CT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 4. WE HAVE PERUSED CASE RECORDS AND THE DOCUMENT PLA CED AT PAGE 18 OF THE PAPER BOOK WHICH IS THE INSPECTORS REPORT WHO H AS SPOT VERIFIED THE HOUSE OF THE LENDER WHEREIN SHE ADMITTED THAT SHE NEVER CONDUCTED ANY YOGA/COOKING CLASSES IN THE PAST AND INCOME THEREOF SHO WN WRONGLY WHICH SHE HERSELF HAS GIVEN IN WRITING. THAT ALONG WITH INSPECTOR S REPORT, THE STATEMENT OF THE LENDER IS ALSO ENCLOSED. THE LD. AR OF THE ASSESSEE DID NOT PUT FORTH ANY ARGUMENT IN DEFENSE WITH REGARD TO THIS IN SPECTORS SPOT VERIFICATION OF THE LENDER. THE LD. AR OF THE ASSESSEE NEITHE R COULD STATE CATEGORICALLY THAT WHEN LENDER HERSELF HAS STATED THAT S HE DOES NOT HAVE ANY SUCH SOURCE OF INCOME THEN IN WHAT CIRCUMSTANCES, THE LEN DER COULD BE SAID TO HAVE CREDITWORTHINESS. THE LD.CIT(APPEALS) THEREFORE, HAS RIGHTLY CONFIRMED THE ADDITION OF RS.8,50,000/- MADE BY THE ASSESSING OFFICER . WE DO NOT FIND ANY INFIRMITY WITH THE FINDINGS OF THE LD. CIT(APPEALS) AND THE SAME IS, THEREFORE, UPHELD. THUS, GROUND NO.1 RAISED IN APPEAL BY THE ASSESSEE IS DISMISSED . 4 ITA NO. 1854/PUN/2016 A.Y.2011-12 5. GROUND NO.2 RELATES TO THE INTEREST PAID ON THE ABOV E LOAN AMOUNTING TO RS.28,636/-. THAT WHEN THE IMPUGNED LOAN IS HELD TO BE UNEXPLAINED, THE INTEREST ON THE SAID LOAN AMOUNTING TO RS.28,636/- IS THE REFORE, ALSO NOT ALLOWABLE. THIS FINDING OF THE LD. CIT(APPEALS) IS ALSO UPHELD. THU S, GROUND NO.2 RAISED IN APPEAL BY THE ASSESSEE IS DISMISSED. 6. GROUND NO.3 IS IN RESPECT OF DISALLOWANCE OF RS.27,870/- O UT OF TOTAL VEHICLE EXPENSES OF RS.1,11,477/-. THE ASSESSING OFFICER HAD MADE THIS ADDITION IN PARA 2 OF THE ASSESSMENT ORDER @20% OF THE V EHICLE EXPENSES AND SCOOTER EXPENSES ON ACCOUNT OF ALLEGED PERSONAL USE OF T HE VEHICLE. THE ASSESSING OFFICER FURTHER OBSERVED THAT SIMILAR ADDITIONS MAD E IN THE EARLIER YEAR WAS NOT CONTESTED BY THE ASSESSEE IN APPEAL. 6.1 THAT BEFORE THE LD. CIT(APPEALS), THE LD. AR OF THE ASSE SSEE SUBMITTED THAT THE VEHICLE EXPENDITURE WAS INCURRED FOR BUSINESS P URPOSE ONLY AND THE IMPUGNED VEHICLES WERE NOT USED FOR PERSONAL PURPOSE AND HENCE, THE ADDITION MADE ON ACCOUNT OF SURMISES AND CONJECTURES @2 0% OF VEHICLE EXPENSES IS NOT JUSTIFIED. THE LD. CIT(APPEALS) AFTER CONSIDE RING THE FACTS AND MEETING INTEREST OF JUSTICE RESTRICTED THE DISALLOWANCE @5% OF VEHICLE EXPENSES. 6.2 WE HAVE PERUSED THE CASE RECORDS. WE FIND THAT THE FINDINGS OF THE LD. CIT(APPEALS) AND THE RESTRICTION OF DISALLOWANCE @5% IS QUITE REASONABLE AND JUSTIFIED THEREFORE, THE SAME IS UPHELD. THUS, GROUND NO. 3 RAISED IN APPEAL BY THE ASSESSEE IS DISMISSED . 7. GROUND NO.4 RELATES TO THE DISALLOWANCE OF TELEPHONE EX PENSES @10% AND THE LD. CIT(APPEALS) HAS RESTRICTED THE ADDITION @5% O F TELEPHONE 5 ITA NO. 1854/PUN/2016 A.Y.2011-12 EXPENSES OF RS.3,25,047/-. THEREFORE, THE ADDITION OF RS.32,500 /- IS CONFIRMED TO THE EXTENT OF RS.16,250/-. IN OUR HUMBLE OPINIO N, THIS HAS BEEN DONE BY THE LD. CIT(APPEALS) TO PROTECT ANY LEAKAGE OF REVENUE AND IN THE INTEREST OF JUSTICE AND THEREFORE, THE SAME IS UPHELD. THUS , GROUND NO.4 RAISED IN APPEAL BY THE ASSESSEE IS DISMISSED . 8. GROUND NO.5 RELATES TO THE DISALLOWANCE MADE BY THE A SSESSING OFFICER OF RS.2,00,000/- ON ACCOUNT OF MATADOR EXPENSES. THE LD. C IT(APPEALS) HAS GIVEN RELIEF TO THE ASSESSEE AT RS.1,75,000/- AND CONFIRME D THE ADDITION TO THE EXTENT OF RS.25,000/-. WE DO NOT FIND ANY INFIRMITY WITH THE FINDINGS OF THE LD. CIT(APPEALS) AND THE SAID ADDITION IS THEREFORE, UPH ELD. THUS, GROUND NO.5 RAISED IN APPEAL BY THE ASSESSEE IS DISMISSED . 9. GROUND NO.6 RELATES TO DISALLOWANCE OF RS.35,000/- OUT OF TOTAL UNLOADING EXPENSES OF RS.5,00,000/-. THE LD. CIT(APPEALS) ON THE FACT THAT CERTAIN VOUCHERS WERE SELF MADE AND NOT PROPERLY MAINTA INED WITH DETAILS OF EXPENDITURE, TO PROTECT ANY LEAKAGE OF REVENUE CONFIRMED THE ADDITION TO THE EXTENT OF RS.35,000/- AND BALANCE ADDITION OUT OF RS.5,00,000 /- I.E.4,65,000/- WAS DELETED. WE DO NOT FIND ANY INFIRMITY WITH THE FINDINGS OF THE LD. CIT(APPEALS), THIS ADDITION IS UPHELD. THUS, GROUND NO.6 RAISED IN APPEAL BY THE ASSESSEE IS DISMISSED . 10. GROUND NO.7 IS WITH REGARD TO THE DISALLOWANCE OF RS.20 ,000/- OUT OF TOTAL CORK EXPENSES OF RS.2,00,000/-. THE ASSESSING OFFICER MADE THIS ADDITION IN PARA NO.6 OF THE ASSESSMENT ORDER WHEREIN HE HAS NOTICED THAT THE ASSESSEE HAS INCURRED TOTAL CORK SCHEME EXPENDITURE OF RS.23,55,7 15/- WHICH IS IN THE NATURE OF SALES PROMOTION EXPENSES AND IS REQUIR ED TO BE INCURRED IN THE BUSINESS OF THE ASSESSEE. THE ASSESSING OFFICER FURTHER NOTICED THAT IN THE 6 ITA NO. 1854/PUN/2016 A.Y.2011-12 PRECEDING YEAR 1% EXPENDITURE WAS DISALLOWED ON AGREED BASIS. THE ASSESSING OFFICER THEREFORE MADE ADDITION OF RS.2,00,000/- OUT OF CORK S CHEME EXPENSES. THE LD.CIT(APPEALS) HAS DELETED THE ADDITION TO THE EXTENT OF RS.1,80,000/- AND BALANCE OF RS.20,000/- WAS CONFIRMED. 10.1. ON PERUSAL OF THE RECORDS, WE ARE OF CONSIDERED VIEW THAT THE FINDINGS OF THE LD. CIT(APPEALS) ON THIS ISSUE IS WELL REASONED AND T HE SAME DOES NOT CALL FOR ANY INTERFERENCE. THUS, GROUND NO.7 RAISED IN APPEAL BY THE ASSESSEE IS DISMISSED. 11. GROUND NO.8 IS WITH REGARD TO THE ADDITION OF RS.94,52 3/- BY INVOKING PROVISIONS OF SECTION 14A R.W. RULE 8D. THE ASSESSING OFFICER MADE THIS ADDITION IN PARA NO.7 OF THE ASSESSMENT ORDER WHEREIN HE HAS NOTICED THAT THE ASSESSEE HAD EARNED DIVIDEND OF RS.6,749/-, PPF INTEREST R S.87,774/- AND NSC INTEREST RS.12,488/-. THE ASSESSING OFFICER REJECTED TH E CONTENTIONS OF THE ASSESSEE THAT HE HAD NOT INCURRED ANY EXPENDITURE FOR EARNING EXEMPT INCOME. THE ASSESSING OFFICER ALSO NOTICED THAT THE ASSESSE E HAD DEBITED INTEREST EXPENDITURE TO THE EXTENT OF RS.79,56,259/- AND HAD ACCORDINGLY WORKED OUT DISALLOWANCE UNDER RULE 8D(2)(II) AS UNDER AFTER CO NSIDERING AVERAGE INVESTMENT IN ASSETS EARNING EXEMPT INCOME RS.4 4,25,812/- AND TOTAL AVERAGE ASSET AT RS.13,26,71,059/-. RS.79,56,259 X RS.44,24,812 = RS.2,65,415/- RS.13,26,71,059/- FURTHER, THE ASSESSING OFFICER HAD WORKED OUT DISALLOWANC E AS PER RULE 8D(2)(III) AT RS.22,130/- @5% OF AVERAGE INVESTMENT IN ASSETS E ARNING EXEMPT INCOME RS.44,25,812/-. THE ASSESSING OFFICER HAD ACCORDINGLY, DISALLOWED RS.2,87,544/- ( RS.2,65,415/- + RS.22,130/-) U/S. 14A R.W. RULE 8D. 7 ITA NO. 1854/PUN/2016 A.Y.2011-12 12. THE ASSESSEE SUBMITTED BEFORE THE LD. CIT(APPEALS) T HAT HE HAD NOT INCURRED ANY EXPENDITURE FOR EARNING EXEMPT INCOME. HE FU RTHER SUBMITTED THAT INTEREST BEARING FUND IS NOT UTILIZED FOR INVESTMENT IN ASSETS EARNING EXEMPT INCOME. HE FURTHER SUBMITTED THAT DURING THE YEAR THE ASSESSEE HAD INVESTED ONLY RS.10,00,000/- OUT OF CURRENT YEARS INCOME . THE LD. AR OF THE ASSESSEE FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAD NOT RECORDED HIS SATISFACTION THAT THE ASSESSEE HAD INCURRED EXPENDITURE FOR EARNING EXEMPT INCOME BEFORE INVOKING PROVISIONS OF SECTION 14A R.W. RULE 8 D AND HENCE DISALLOWANCE IS NOT JUSTIFIED. THE LD. CIT(APPEALS) AFTER CONSID ERING THE FACTS OF THE CASE AND ASSESSMENT ORDER HAS HELD AS UNDER: 11.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND RIVAL CONTENTIONS. ON PERUSAL OF THE SAME IT HAS BEEN NOT ICED THAT THE A.O. HAD NOTED THAT THE APPELLANT HAD INCURRED INTEREST EXPE NDITURE IN THE YEAR UNDER APPEAL TO THE EXTENT OF RS.79,56,259/- WHICH IS NOT ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT AND HENCE ACCORDIN GLY WORKED OUT DISALLOWANCE U/S.14A R.W. RULE 8D AND THE PROPOSED ADDITION WAS ALSO COMMUNICATED TO THE APPELLANT ON 13/02/2014. THEREF ORE IT CANNOT BE SAID THAT THE AO HAD NOT RECORDED HIS SATISFACTION BEFORE MAKING ADDITION U/S.14A R.W. RULE 8D. THEREFORE THE SAID C ONTENTION OF THE APPELLANT IS REJECTED. HOWEVER, IT HAS ALSO BEEN NO TICED THAT THERE ARE VARIOUS DECISIONS OF HIGH COURTS AND TRIBUNALS, HOL DING THAT NO. ADDITION U/S.14A R.W. RULE 8D CAN BE MADE WHERE THE APPELLAN T HAD NOT EARNED ANY EXEMPT INCOME. APPLYING THE SAME ANALOGY, I AM OF THE CONSIDERED VIEW THAT THE DISALLOWANCE U/S.14A R.W. RULE 8D SHO ULD NOT EXCEED THE AMOUNT OF EXEMPT INCOME EARNED BY THE APPELLANT. IN THE CASE UNDER APPEAL THE APPELLANT HAD EARNED EXEMPT INCOME IN TH E FORM OF DIVIDEND RS.6,789/- AND PPF INTEREST RS.87,774/- TOTALING TO RS.94,523/. THE A.O. HAD INCORRECTLY CONSIDERED THE NSC INTEREST OF RS.12,488/- AS EXEMPT INCOME. IN VIEW OF THE ABOVE FACTS AND DISCU SSION, THE ADDITION U/S.14A R.W.RULE 8D IS THEREFORE RESTRICTED TO RS.9 4,523/- AS AGAINST THE ADDITION M.ADE BY THE A.O. AT RS.2,87,544/-. 13. WE HAVE PERUSED THE CASE RECORDS AND GIVEN CONSID ERABLE THOUGHT TO THE FINDINGS OF THE LD. CIT(APPEALS). WE AGREE WITH THE FINDINGS OF THE LD. CIT(APPEALS). HOWEVER, WITH REGARD TO THE INTEREST COMPONE NT IN RULE 8D(2)(II), IS TO BE ALLOWED AS HELD BY THE VARIOUS HON'BLE HIGH COURTS AND HON'BLE SUPREME COURT. IN VIEW OF THE MATTER, INTEREST CO MPONENT RELIEF 8 ITA NO. 1854/PUN/2016 A.Y.2011-12 SHOULD BE GRANTED TO THE ASSESSEE. THUS, GROUND NO.8 RAISED IN APPEAL BY THE ASSESSEE IS PARTLY ALLOWED. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 28 TH DAY OF MARCH, 2019. SD/- SD/- R.S.SYAL PA RTHA SARATHI CHAUDHURY VICE PRESIDENT JUDICIAL MEMBER / PUNE; / DATED : 28 TH MARCH, 2019. SB !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(APPEALS)-2, NASHIK. 4. THE CIT-2, NASHIK. 5. '#$ %%&' , ( &' , )*+ , / DR, ITAT, B BENCH, PUNE. 6. $,- ./ / GUARD FILE. // TRUE COPY // (0 / BY ORDER, %1 &+ / PRIVATE SECRETARY ( &' , / ITAT, PUNE. 9 ITA NO. 1854/PUN/2016 A.Y.2011-12 DATE 1 DRAFT DICTATED ON 27 .03 .2019 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 27 .03 .201 9 SR.PS/PS 3 DRAFT PROPOSED AND PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/JM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 DATE OF UPLOADING OF ORDER SR.PS/PS 8 FILE SENT TO BENCH CLERK SR.PS/PS 9 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 10 DATE ON WHICH FILE GOES TO THE A.R 11 DATE OF DISPATCH OF ORDER