Shri Budhmal Manaklal Kankaria, Nashik V. Income-tax Officer,

ITA 21/PUN/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1645 (ITAT-PUNE)
• Duration Of Justice: 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 12-07-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 05-01-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAWE
• Keywords: Business income; Rule of consistency; Source of fund
• Section: 40A(3); 143(3); 28

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC, PUNE , BEFORE MS. SUSHMA CHOWLA, JM / ITA NO. 21/PN/2016 ! ' ' / ASSESSMENT YEAR : 2010-11 SHRI BUDHMAL MANAKLAL KANKARIA, 371, M/S. MANAKLAL RAJMAL NEHRU PATH, BHAGUR, NASHIK-422502 . / APPELLANT PAN : AARPK6152A VS. THE INCOME TAX OFFICER, WARD 1(3), NASHIK . RESPONDENT / APPELLANT BY : SMT. DEEPA KHARE / RESPONDENT BY : SHRI HITENDRA NINAWE DATE OF HEARING : 12.07.2016 / DATE OF PRONOUNCEMENT: 15.07.2016 # / ORDER PER SUSHMA CHOWLA, JM: THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE OR DER OF CIT(A)-1, NASHIK DATED 09.10.2015 RELATING TO ASSESSMENT YEAR 2010-11 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN ENHANCING THE INCOME BY RS.11,92,477/- IN RESPECT OF INTEREST INCOME AND DIRECTED TO TAX THE SAME AS INCOME FROM OTHER SOURCES. SUCH ENHANCEMENT AMOUNTS TO ASSESSING THE NEW SOURCE OF INCOME WHICH WAS NOT PR OCESSED BY LEARNED AO AND THEREFORE IS NOT WITHIN THE POWERS P ROVIDED U/S. 251 OF THE ACT. ITA NO.21/PN/2016 2 2. WITHOUT PREJUDICE TO GROUND NO 1, THE LEARNED CI T(A) ERRED IN LAW AND ON FACTS IN TREATING THE INTEREST INCOME AS INCOME FROM OTHER SOURCES AS AGAINST BUSINESS INCOME CLAIMED BY THE APPELLANT. T HE FUNDS UTILIZED FOR EARNING INTEREST INCOME ARE BUSINESS FUNDS AND THER EFORE THE SAME HAS TO BE ASSESSED AS BUSINESS INCOME ESPECIALLY IN VIE W OF THE FACT THAT ON IDENTICAL FACTS IN THE PAST THE SAME WAS ACCEPTED A S BUSINESS INCOME. 3. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF RS.2,79,161/- U/S 40A(3) WITHOUT APPRECIATING TH AT THE APPELLANT WAS COVERED UNDER THE PROVISIONS OF 44AF AND NO SEPARAT E DISALLOWANCE COULD BE MADE. 4. THE APPELLANT CRAVES TO ADD, ALTER, MODIFY OR SU BSTITUTE ANY GROUND OF APPEAL AT THE TIME OF HEARING. 3. THE ISSUE RAISED VIDE GROUND OF APPEAL NO. 1 IS AGAINST THE ORDER OF CIT(A) IN MAKING AN ADDITION OF ` 11,92,477/- ON ACCOUNT OF INTEREST INCOME. THE ASSESSEE IS AGGRIEVED BY THE ORDER OF CIT(A) CL AIMING IT TO BE ENHANCEMENT BY ASSESSING A NEW SOURCE OF INCOME. V IDE GROUND OF APPEAL NO. 2, THE ASSESSEE HAS RAISED THE ISSUE ON MERITS. 4. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING IN READYMADE CLOTHS AND CLOTHIN G MATERIAL AND ALLIED ITEMS ON SEMI WHOLESALE BASIS UNDER THE NAME AND STYLE OF M/S. MANAKLAL RAJMAL IN BHAGUR, NASHIK SINCE LAST ABOUT MORE THAN 30 YEARS. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD MADE CERTAIN PAYMENTS T O RELATED PARTIES AS SPECIFIED UNDER SECTION 40A(2)(B) OF THE ACT. THE ASSESSING OFFICER WAS OF THE VIEW THAT SALARY PAID TO SHRI RAKESH KANKARIA OF ` 63,000/- WAS UNREASONABLE AND EXCESSIVE AND HENCE, THE SAME WAS DISALLOWED IN VIEW OF SECTION 40A(2)(B) OF THE ACT. FURTHER, THE ASSESSING OFFIC ER NOTED THAT CASH PAYMENTS TOTALING ` 2,79,161/- WERE PAID TO DIFFERENT PARTIES IN EXCESS OF ` 20,000/- ON EACH OF THE DAY. THE DETAILS OF SUCH PAYMENTS ARE TABULATED UNDER PARA 5 OF THE ASSESSMENT ORDER. THE ASSESSEE EXPLAINED THAT CERTAIN CASH PURCHASES HAD TO BE MADE BY HIM FROM NEW SUPPLIERS WHO REFUSE D TO TAKE THE ITA NO.21/PN/2016 3 CHEQUES/DRAFTS. THE ASSESSEE RECEIVED CASH DISCOUN T FOR MAKING THE PAYMENT IN CASH. ANOTHER PLEA RAISED BY THE ASSESSEE WAS T HAT THE BUSINESS INCOME WAS DECLARED UNDER SECTION 44AF OF THE ACT WHEREIN NET PROFIT OF 11.15% OF THE TURNOVER WAS SHOWN AND HENCE, NO OTHER DISALLOWANCE COULD BE MADE IN THE HANDS OF THE ASSESSEE. THE ASSESSING OFFICER NOTED THAT THE CLAIM OF THE ASSESSEE WAS ENTIRELY BASED ON WRONG FOOTING. THE ASSESSEE HAD SHOWN TURNOVER OF ` 37,21,126/-, AS AGAINST WHICH HE HAD DECLARED GROSS PROFIT OF ` 5,95,386/-. THE ASSESSING OFFICER FURTHER NOTED TH AT FROM THE AMOUNT OF GROSS PROFIT, IF THE AMOUNT OF EXPENDITURE DEBITED TO PRO FIT AND LOSS ACCOUNT WAS REDUCED, THE INCOME FROM BUSINESS WOULD COME TO NEG ATIVE I.E. (-) ` 7,77,460/-. THE PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT WAS BECAUSE OF THE ASSESSEE HAVING CREDITED THE INCOME WHICH HE HAD EARNED FROM OTHER SOURCES I.E. INTEREST RECEIVED ON LOAN AND ADVANCES, INCOME TAX REFUND, ON UNION BANK FDRS, ETC. TOTALING ` 11,92,477/-. THEREFORE, THE ASSESSING OFFICER HELD THAT THE PROFITS SHOWN BY THE ASSESSEE IN THE PROFIT AND LOS S ACCOUNT WAS NOT FROM THE BUSINESS. HENCE, THE CLAIM OF THE ASSESSEE THAT HI S CASE WAS COVERED UNDER SECTION 44AF OF THE ACT AND HE HAD DECLARED PROFIT AT HIGHER SIDE, WAS FOUND TO BE INCORRECT. REJECTING THE SAME, ADDITION WAS MAD E ON ACCOUNT OF DISALLOWANCE UNDER SECTION 40A(2)(B) OF THE ACT AT ` 63,000/- AND UNDER SECTION 40A(3) OF THE ACT AT ` 2,79,161/-. 6. THE CIT(A) FIRST ADDRESSED THE ISSUE RAISED BY T HE ASSESSEE AGAINST THE ORDER OF ASSESSING OFFICER IN DENYING APPLICATION O F PROVISIONS OF SECTION 44AF OF THE ACT. VIDE PARA 5 OF THE APPELLATE ORDER, TH E CIT(A) HELD THAT ON SALES OF ` 37,21,126/-, WHERE THE TOTAL TURNOVER WAS LESS THAN ` 40 LAKHS, THE INCOME WAS TO BE ASSESSED UNDER SECTION 44AF OF THE ACT. HE F URTHER OBSERVED THAT NO FURTHER DEDUCTION WAS TO BE ALLOWED UNDER THOSE SEC TIONS. THE ASSESSING OFFICER WAS DIRECTED TO COMPUTE THE BUSINESS INCOME @ 5% OF THE TURNOVER I.E. ` 37,21,126/-. THE SECOND GROUND RAISED BY THE ASSES SEE WAS AGAINST THE ITA NO.21/PN/2016 4 DISALLOWANCE MADE UNDER SECTION 40A(2)(A) OF THE AC T WHICH WAS DELETED BY THE CIT(A). 7. THE THIRD ISSUE RAISED BY THE ASSESSEE BEFORE CI T(A) WAS AGAINST THE DISALLOWANCE MADE UNDER SECTION 40A(3) OF THE ACT. THE CIT(A) WAS OF THE VIEW THAT WHERE THE OPENING WORDS IN SECTION 44AF O F THE ACT ARE NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 28 TO 43C, AND WHERE THE PROVISIONS OF SECTION 40A(3) OF THE ACT S TART WITH OPENING WORDS THAT THE PROVISIONS OF SECTION SHALL HAVE EFFECT NOTWITH STANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PROVISIONS OF THE A CT, THE SAID PROVISIONS WERE TO BE APPLIED AND IN THE ABSENCE OF ASSESSEE HAVING JUSTIFIED THE CASH PAYMENTS IN VIEW OF RULE 6DD OF THE INCOME TAX RULE S, 1962 THE DISALLOWANCE MADE UNDER SECTION 40A(3) OF THE ACT AT ` 2,79,161/- WAS UPHELD. THE CIT(A) FURTHER NOTED THAT DURING THE YEAR THE ASSESSEE HAD RECEIVED INTEREST INCOME OF ` 11,92,477/- AND THE BREAKUP OF THE SAME IS TABULATE D UNDER PARA 8.1(1) OF THE APPELLATE ORDER. FURTHER THE ASSESSEE HAD PAID INT EREST TO THE TUNE OF ` 8,35,168/- TO DIFFERENT PARTIES AS TABULATED UNDER PARA 8.1(2) OF THE APPELLATE ORDER. THE CIT(A) OBSERVED THAT THE INTEREST PAID TO THE FAMILY MEMBERS AND RELATIVES ON LOAN TAKEN WHICH WAS UTILIZED FOR THE PURPOSE OF BUSINESS AND WHERE THE INCOME OF THE ASSESSEE WAS COMPUTED UNDER SECTION 44AF OF THE ACT, NO FURTHER DEDUCTION UNDER SECTION 36(1)(III) COULD BE GRANTED. IN RESPECT OF INTEREST RECEIVED BY THE ASSESSEE, IT WAS SUBMITTED BY ASSESSEE THAT THE TOTAL FUND INVESTED IN BANK FDRS AND LOANS GIVEN TO PRIVA TE PARTIES WERE OUT OF BUSINESS INCOME ONLY. THE CIT(A) IN THIS REGARD NO TED THAT THE ASSESSEE WAS THE TRADER AND NOT INVOLVED IN MONEY LENDING BUSINE SS. HENCE, THE SHOW CAUSE NOTICE WAS ISSUED BY HIM TO THE ASSESSEE AND THE AS SESSEE WAS ASKED TO EXPLAIN AS TO WHY THE INCOME FROM INTEREST SHOULD N OT BE TREATED AS INCOME FROM OTHER SOURCES AND INCOME ENHANCED ACCORDINGLY. THE CIT(A) AFTER CONSIDERING VARIOUS JUDICIAL PROPOSITIONS ON THIS A CCOUNT INCLUDING JUDGMENTS OF ITA NO.21/PN/2016 5 HON'BLE SUPREME COURT AND HON'BLE DELHI HIGH COURT HELD THAT WHERE THE ASSESSEE HAD NOT BEEN ABLE TO DEMONSTRATE THE NEXUS BETWEEN THE INTEREST EARNED AND INTEREST PAID, NO INTEREST EXPENDITURE U NDER SECTION 57(III) OF THE ACT COULD BE ALLOWED AGAINST THE INTEREST INCOME. THE ASSESSING OFFICER WAS DIRECTED TO ASSESS THE INCOME EARNED FROM INTEREST AS INCOME FROM OTHER SOURCES. THE PLEA OF THE ASSESSEE THAT JUDICIAL DI SCIPLINE DEMANDS THAT CONSISTENCY SHOULD BE MAINTAINED WHEREAS IN THE PAS T YEAR THE SAID INCOME WAS TREATED AS INCOME FROM BUSINESS, WAS ALSO REJEC TED BY THE CIT(A) IN VIEW OF THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF DISTRIBUTORS (BARODA) (P) LTD., REPORTED IN 155 ITR 120 (SC). 8. THE ASSESSEE IN APPEAL AGAINST THE ORDER OF CIT( A). 9. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE AS SESSEE POINTED OUT THAT THE ASSESSEE HAD FILED THE RETURN OF INCOME UNDER T HE PROVISIONS OF SECTION 44AF OF THE ACT, WHEREIN THE INCOME WAS DECLARED TO BE LESS THAN ` 40 LAKHS AND AS AGAINST RATE OF 5% PROVIDED UNDER THE SECTIO N, THE ASSESSEE HAD DECLARED THE INCOME 11.15%. SHE FURTHER SUBMITTED THAT WHERE THE INCOME IS ASSESSED IN THE HANDS OF THE ASSESSEE UNDER SECTION 44AF OF THE ACT, THEN NO FURTHER DISALLOWANCE IS TO BE MADE UNDER SECTION 40 A(3) OF THE ACT. SHE FURTHER VEHEMENTLY STRESSED THAT THE ASSESSMENT OF INTEREST INCOME IN THE HANDS OF THE ASSESSEE AT ` 11,92,477/- AS INCOME FROM OTHER SOURCES WAS A NEW SOURCE OF INCOME BY THE CIT(A) AND THE SAID ENHANCEMENT WAS N OT WARRANTED. IN THIS REGARD RELIANCE WAS PLACED ON THE RATIO LAID DOWN B Y THE PUNE BENCH OF THE TRIBUNAL IN M/S. VIJAY BUILDERS VS. THE INCOME TAX OFFICER IN ITA NO. 863/PN/2013, RELATING TO ASSESSMENT YEAR 2008-09, O RDER DATED 25-02-2015. 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT THE ASSESSING OFFICER HAD HELD THAT THE PROVIS IONS OF SECTION 44AF OF THE ACT ARE NOT TO BE APPLIED WHERE THE ASSESSEE HAD DE CLARED A LOSS. HE HAD ITA NO.21/PN/2016 6 FURTHER OBSERVED THE PERUSAL OF PROFIT AND LOSS ACC OUNT WOULD SHOW THAT THE PROFIT WAS ONLY BECAUSE OF THE ASSESSEE HAVING CRED ITED THE INCOME FROM THE SOURCES OF ` 11,92,477/-. THE CLAIM OF THE ASSESSEE THAT HE HAD DECLARED HIGHER PROFIT UNDER SECTION 44AF OF THE ACT WAS REJ ECTED. HE FURTHER POINTED OUT THE CIT(A) HAS HELD THAT THE PROVISIONS OF SECTION 44AF ARE TO BE APPLIED ON TOTAL SALES OF ` 37,21,126/- AND HAS DIRECTED TO COMPUTE THE BUSINES S INCOME @5% OF THE TURNOVER, AGAINST WHICH THE ASSESSEE IS NOT IN APPEAL. HENCE, THE TURNOVER FOR APPLICATION OF SECTION 44AF OF THE ACT HAS BEEN ACCEPTED AND ONCE, THE SAME HAS BEEN ACCEPTED THE BALANCE INCOME HAS TO BE INCLUDED IN THE HANDS OF THE ASSESSEE AS INCOME FROM OTHER SOUR CES. THE ISSUE OF OTHER SOURCES HAVING BEEN SEEN BY THE ASSESSING OFFICER A ND THEN BY THE CIT(A) DOES NOT IMPLY THAT THE NEW SOURCE OF INCOME HAS BE EN SEEN BY THE CIT(A). 11. ON THE PERUSAL OF RECORD, IT IS APPARENT THAT T HE ISSUE ARISING IN PRESENT APPEAL IS INTERLINKED TO EACH OTHER. THE ASSESSEE BY WAY OF GROUNDS OF APPEAL NOS. 1 AND 2 ARE AGGRIEVED BY THE ORDER OF CIT(A) I N ASSESSING THE INTEREST INCOME OF ` 11,92,477/- AS INCOME FROM OTHER SOURCES, WHICH AS PER THE ASSESSEE AMOUNTS TO ENHANCEMENT BY THE CIT(A) AND A SSESSMENT OF A NEW SOURCES OF INCOME, WHICH WAS NOT PROCESSED BY THE A SSESSING OFFICER. IN THE ALTERNATE THE ASSESSEE HAS RAISED THE ISSUE THAT TH E INTEREST INCOME IS TO BE ASSESSED AS BUSINESS INCOME SINCE BUSINESS FUNDS WE RE UTILIZED FOR THE SAME AND ALSO TO APPLY PRINCIPLE OF CONSISTENCY IN THIS REGARD. BY WAY OF GROUNDS OF APPEAL NO. 3 THE ASSESSEE IS AGGRIEVED BY THE DISAL LOWANCE MADE UNDER SECTION 40A(3) OF ` 2,79,161/-. 12. THE ASSESSEE WAS A TRADER OF CLOTH AND CLOTH RE LATED ITEMS. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD PREPARED A TRADING PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDING 31-03-2010 AND BALANCE SHEET, COPY OF WHICH ARE PLACED AT PAGES 86 AND 87 OF THE PAPER BOOK. THE S AID DOCUMENTS WERE ANNEXED TO THE RETURN OF INCOME FILED BY THE ASSESS EE DECLARING GROSS INCOME ITA NO.21/PN/2016 7 OF ` 4,27,615/-, WHICH INCLUDE INCOME FROM BUSINESS AS P ER THE PROFIT AND LOSS ACCOUNT AND ALSO UNDER SECTION 44AF OF THE ACT AT ` 4,15,015/-. THE ASSESSEE CLAIMS THAT ON SALES OF ` 37,21,126/- THE ASSESSEE HAD DECLARED NET PROFIT @11.15% UNDER SECTION 44AF OF THE ACT. THE PERUSAL OF THE PROFIT AND LOSS ACCOUNT REFLECTS THAT THE TOTAL SALES FOR THE YEAR UNDER CONSIDERATION WERE ` 37,21,126/- ON WHICH THE ASSESSEE DECLARED GROSS PR OFIT OF ` 5,95,386/-. FURTHER, IT HAD DECLARED INTEREST INCOME AS UNDER : I. INTEREST RECEIVED (LALWANI BROS.) ` 4,43,323.00 II. INTEREST RECEIVED (PRAGATI) ` 1,97,028.00 III. INTEREST RECEIVED ON INCOME TAX REFUND ` 2,180.00 IV. INTEREST RECEIVED ON UNION BANK FDR ` 3,92,936.00 V. INTEREST RECEIVED (SANJAYKUMAR SHIVCHAND) ` 1,09,085.00 VI. INTEREST RECEIVED S/B ACCOUNT ` 378.00 VII. INTEREST RECEIVED (UNION BANK FLEXI) ` 47,048.00 13. AS AGAINST THE SAME THE ASSESSEE INCURRED EXPEN DITURE UNDER DIFFERENT HEADS INCLUDING INTEREST EXPENDITURE OF ` 8,35,168/- AND THE NET PROFIT WAS WORKED OUT AT ` 4,15,016/-. THE SAID FIGURE HAS BEEN DECLARED BY T HE ASSESSEE AS PROFIT UNDER SECTION 44AF OF THE ACT IN THE RETU RN OF INCOME. ADMITTEDLY, UNDER THE PROVISIONS OF SECTION 44AF OF THE ACT, WH ERE THE TOTAL TURNOVER OF THE ASSESSEE IS LESS THAN ` 40 LAKHS AND WHERE THE ASSESSEE IS ENGAGED IN RETAI L BUSINESS CAN DECLARE ITS INCOME @5% OR ANY HIGHER R ATE. THERE ARE TWO CONDITIONS TO BE SATISFIED I.E. THE TURNOVER SHOULD BE LESS THAN ` 40 LAKHS AND THE ASSESSEE SHOULD BE ENGAGED IN RETAIL BUSINESS. THE ASSESSEE HAD DECLARED SALES OF ` 37,21,126/- AND IN CASE IF WE ACCEPT THE PLEA OF TH E ASSESSEE THAT THE INTEREST INCOME DECLARED BY IT WAS ITS BUSINESS INC OME, THEN THE TOTAL OF THE SO CALLED BUSINESS/INTEREST INCOME IS ` 11,92,477/- AND ONCE ADDED TO THE TOTAL TURNOVER, WOULD EXCEED ` 40 LAKHS AND CONSEQUENTLY THE PROVISIONS OF SECTION 44AF WOULD NOT BE ATTRACTED. THE ASSESSING OFFICER HAD MADE AN OBSERVATION TO THIS EFFECT AND IN LINE WITH THE SAME HAD OBSERV ED THAT AGAINST THE TOTAL TURNOVER OF ` 37,21,126/- IN CASE THE TOTAL EXPENDITURE IS REDUCE D, THE INCOME ITA NO.21/PN/2016 8 FROM BUSINESS WOULD BE NEGATIVE I.E. ` 7,77,460/- AND THE PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT WAS BECAUSE OF THE INCOME F ROM OTHER SOURCES OF ` 11,92,477/- CREDITED TO THE PROFIT AND LOSS ACCOUNT . 14. FURTHER THE CIT(A) HAS ADJUDICATED THE FIRST IS SUE RAISED BY THE ASSESSEE AGAINST THE APPLICATION OF PROVISIONS OF SECTION 44 AF OF THE ACT BY THE ASSESSING OFFICER. THE CIT(A) HELD THAT ON THE TOT AL TURNOVER OF ` 37,21,126/-, THE PROVISIONS OF SECTION 44AF OF THE ACT ARE TO BE APPLIED AND BUSINESS INCOME IS TO BE COMPUTED @ 5% OF THE TOTAL TURNOVER. THE CLAIM OF THE ASSESSEE THAT IN THE COMPUTATION OF INCOME WAS THAT ON TOTAL SALES OF ` 37,21,126/-, HE HAD DECLARED NP RATE OF 11.15% IS M ISPLACED. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE ASSESSEE IN ADDITION TO THE SALES OF ` 37,21,126/- HAS INTEREST INCOME OF ` 11,92,477/-, AND BY CLUBBING THE TWO AND AFTER DEBI TING THE EXPENDITURE, INCLUDING INTEREST EXPENDITURE OF ` 8,35,168/-, THE ASSESSEE HAD SHOWN THE NET PROFIT OF ` 4,15,016/-, WHICH HE CLAIMS TO BE THE PROFIT DECLAR ED UNDER SECTION 44AF OF THE ACT @11.15%. THE INTERES T INCOME DECLARED BY THE ASSESSEE HAS NOT BEEN ACCEPTED BY THE CIT(A) AS INC OME FROM BUSINESS, AS THE TOTAL SALES HAVE BEEN TAKEN AT ` 37,21,126/-, AGAINST WHICH THE ASSESSEE IS NOT IN APPEAL. FIRST OF ALL, THE PROVISIONS OF SEC TION 44AF OF THE ACT ARE ATTRACTED WHERE THE TOTAL TURNOVER IS LESS THAN ` 40 LAKHS. IN CASE THE ASSESSEE CLAIMS THAT THE INTEREST INCOME RECEIVED BY HIM WAS INCOME FROM BUSINESS, THEN THE TOTAL RECEIPTS FROM BUSINESS WOULD EXCEED ` 40 LAKHS I.E. SALES OF ` 37,21,126/- AND BUSINESS/INTEREST INCOME OF ` 11,92,477/-, THEN THE PROVISIONS OF SECTION 44AF WOULD NOT APPLY. IN ANY CASE THE CIT(A) HAS H ELD THAT THE TURNOVER IS LESS THAN ` 40 LAKHS I.E. ONLY SALES OF ` 37,21,126/- IS TO BE TAKEN AS TOTAL TURNOVER FOR THE YEAR ON WHICH THE BUSINESS INCOME IS TO BE COMP UTED @5%. ONCE, THE SAID ORDER OF CIT(A) HAS BEEN ACCEPTED BY THE ASSES SEE, IT CANNOT NOW CLAIM THAT THE BUSINESS RECEIPTS FOR APPLICATION UNDER SE CTION 44AF OF THE ACT WOULD ALSO INCLUDE THE INTEREST INCOME, WHERE THE FUNDS U TILIZED FOR EARNING INTEREST INCOME WERE BUSINESS FUNDS. MAY BE THE FUND ARE UT ILIZED OUT OF BUSINESS ITA NO.21/PN/2016 9 FUNDS FOR EARNING THE INTEREST INCOME BUT THAT ITSE LF WOULD NOT MAKE THE INTEREST INCOME AS INCOME FROM BUSINESS. THE PERUSAL OF DET AILS OF INTEREST INCOME REFLECTS THE ASSESSEE TO HAVE THE RECEIVED INTEREST ON UNION BANK FDRS OF ` 3,92,936/-. FURTHER INTEREST RECEIVED ON UNION BAN K FLEX A/C IS `47,048/- AND INTEREST ON SAVING BANK ACCOUNT WAS ` 378/- AND INTEREST ON INCOME TAX REFUND WAS ` 2,180/-. IN ADDITION THE ASSESSEE HAD RECEIVED INT EREST ON ADVANCES MADE TO DIFFERENT PARTIES FOR EARNING INTE REST. THE NATURE OF THE INTEREST INCOME RECEIVED BY THE ASSESSEE CLEARLY ES TABLISHES THAT THE SAME IS TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURC ES. WHERE THE ASSESSING OFFICER IN THE ASSESSMENT ORDER HAS REJEC TED THE CLAIM OF THE ASSESSEE AND OBSERVED THAT THE INCOME DECLARED BY T HE ASSESSEE ALSO INCLUDES INCOME FROM OTHER SOURCES OF ` 11,92,477/-, WHICH HAS BEEN SO ASSESSED BY THE CIT(A), THE CLAIM OF THE ASSESSEE T HAT IT IS A NEW SOURCE OF INCOME IS INCORRECT. THE SAID FACT WAS NOTED BY TH E ASSESSING OFFICER AND HAS BEEN ASSESSED BY THE CIT(A) DOES NOT ESTABLISH THE CASE OF THE ASSESSEE THAT THE ENHANCEMENT CARRIED OUT BY THE CIT(A) AMOUNTS T O ASSESSMENT OF NEW SOURCE OF INCOME. THE BUSINESS INCOME WAS DIRECTED BY THE CIT(A) TO BE ASSESSED UNDER SECTION 44AF OF THE ACT BY TAKING TH E TURNOVER AT ` 37,21,126/-. THE BALANCE RECEIPTS OF ` 11,92,477/- WERE TAXED AS INCOME FROM OTHER SOURCES BY THE CIT(A) AND SAME WERE ALSO TREATED AS SUCH BY THE ASSESSING OFFICER BUT NO SEPARATE ADDITION WAS MADE, BY THE ASSESSING OFF ICER, WHERE HE HAD DENIED THE CLAIM OF THE ASSESSEE UNDER SECTION 44AF OF THE ACT. IN THE TOTALITY OF THE FACTS AND CIRCUMSTANCES WE FIND NO MERIT IN THE GRO UNDS OF APPEAL NOS. 1 AND 2 RAISED BY THE ASSESSEE. FURTHER THE ASSESSEE HAS N OT SATISFIED THE CONDITIONS OF SECTION 57(III) OF THE ACT, SO INTEREST EXPENDIT URE IS NOT TO BE ALLOWED AS DEDUCTION. 15. THE SECOND ISSUE RAISED BY THE ASSESSEE IS AGAI NST THE DISALLOWANCE MADE UNDER SECTION 40A(3) OF THE ACT. THE CIT(A) H AD ASSESSED THE INCOME IN THE HANDS OF THE ASSESSEE UNDER SECTION 44AF OF THE ACT AND AFTER SUCH ITA NO.21/PN/2016 10 ASSESSMENT NO DISALLOWANCE IS TO BE MADE UNDER SECT ION 40A(3) OF THE ACT. I FIND SUPPORT FROM RATIO LAID DOWN BY CHANDIGARH BEN CH OF TRIBUNAL IN DCIT VS. SHRI KASHMIR SINGH IN ITA NO.844/CHD/2009, RELATING TO ASSESSMENT YEAR 2006- 07, ORDER DATED 02.05.2012, WHICH IN TURN, RELYING ON THE DECISION OF HONBLE HIMACHAL PRADESH HIGH COURT IN THE CASE OF M/S AMRI T SUGAR COMPANY IN ITA NO. 31 OF 2003, HAS ALSO LAID DOWN THE SAID PROPOSI TION. ACCORDINGLY, THE CLAIM OF ASSESSEE IS ALLOWED. THE GROUND OF APPEAL NO.3 IS THUS, ALLOWED. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED ON THIS 15 TH DAY OF JULY, 2016. SD/- (SUSHMA CHOWLA) / JUDICIAL MEMBER / PUNE ; DATED : 15 TH JULY, 2016 . RK #$%&'()(& / COPY OF THE ORDER IS FORWARDED TO : THE APPELLANT; THE RESPONDENT; # # $ () THE CIT(A)-1, NASHIK; # # $ THE PR. CIT-1, NASHIK '() **+,, # +, , , . / 00 / DR SMC, ITAT, PUNE; )12 3 / GUARD FILE. #! / BY ORDER // ' * // TRUE COPY // *4 +5 / PRIVATE SECRETARY # +, , ITAT, PUNE