Chhatarmal Gokulchand Chhajer, V. Deputy Commissioner of Income-tax,

ITA 2148/PUN/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6932 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 21-03-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 04-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Earning of tax free income; Difference of opinion; Tax effect; Change of opinion; Reassessment proceedings
• Section: 143(3); 14A; 147; 68; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE , ! '#$ %, ' ( I BEFORE MS. SUSHMA CHOWLA, JM AND SHRI MANOJ KUMAR AGGARWAL, AM !. / ITA NO. 2148/PUN/2014 ' + + / ASSESSMENT YEAR : 2008-09 CHHATARMAL GOKULCHAND CHHAJED, K 2, MIDC, AREA, JALGAON 425001 PAN : ABYPC2617C ....... / APPELLANT ,' /VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 1, JALGAON / RESPONDENT !. / ITA NO. 2159/PUN/2014 ' + + / ASSESSMENT YEAR : 2008-09 THE INCOME TAX OFFICER, WARD 1(3), JALGAON ....... / APPELLANT ,' /VS. CHHATARMAL GOKULCHAND CHHAJED, K 2, MIDC, AREA, JALGAON 425001 PAN : ABYPC2617C / RESPONDENT ASSESSEE BY : NONE (WRITTEN SUBMISSION) REVENUE BY : SHRI ANIL CHAWARE / DATE OF HEARING : 21-03-2017 / DATE OF PRONOUNCEMENT : 23-03-2017 2 ITA NOS. 2148 & 2159/PUN/2014, A.Y. 2008-09 - / ORDER PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) THESE ARE TWO APPEALS ONE EACH BY ASSESSEE AS WELL AS BY REVENUE FOR ASSESSMENT YEAR [AY] 2008-09 AGAINST TH E ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-2, NASHIK DATED 26/09/2014. SINCE NONE IS PRESENT FOR ASSESSEE, WE PROCEED WITH THE APPEAL ON THE BASIS OF WRITTEN SUBMISSIONS MADE BY THE ASSESSEE AND HEARING THE CONTENTIONS OF LD. DR. FIRST, WE TAKE REVENUES APPEAL ITA NO. 2159/PN/2014 WHERE TH E REVENUE IS AGGRIEVED BY DELETION OF UNEXPLAINED LOA N CREDITORS FOR RS.30,27,890/-. 2. BRIEFLY STATED, THE ASSESSEE IS A RESIDENT INDIV IDUAL ENGAGED IN SHARE DEALING & INVESTMENT WHO E-FILED ITS RETURN OF INCOME FOR IMPUGNED AY ON 30/09/2008 DECLARING INCO ME OF RS.2,45,42,750/- WHICH WAS ASSESSED U/S 143(3) AT RS.2,46,22,650/- VIDE ASSESSING OFFICER [AO] ORDER DATED 20/12/2010. THE ASSESSEE EARNED SHORT TERM CAPITAL GAINS & LONG TERM CAPITAL GAINS ON SHARES FOR RS.2,55,08,393/- & RS.59,41,819/- RESPECTIVELY WHICH WERE REFLECTED UN DER THE HEAD CAPITAL GAINS. LONG TERM CAPITAL GAINS WERE CLAIMED TO BE EXEMPT U/S 10(38). THE ASSESSEE ALSO EARNED DIVIDEND INCOME OF RS.4,51,876/- WHICH WAS CLAIMED AS EXEMPT. HOWEV ER, AFTER CONSIDERING THE NATURE AND VOLUME OF SHARE TRANSACT IONS, AO CONCLUDED THAT THE SHORT TERM CAPITAL GAINS WERE CHARGEABLE 3 ITA NOS. 2148 & 2159/PUN/2014, A.Y. 2008-09 UNDER THE HEAD BUSINESS INCOME . SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS RE-OPENED BY ISSUANCE OF NOTICE U/S 148 DATED 30/03/2012 ON THE GROUND THAT THE ASSESSEE EARNED E XEMPT LONG TERM CAPITAL GAINS AND DIVIDEND INCOME FOR RS.58,41,819/- & RS.4,51,876/- BUT DID NOT MAKE ANY DISALLOWANCE U/S 14A. THE ASSESSEE, WHILE OBJECTING TO REOPENING, REQUESTED THE AO TO TREAT THE ORIGINAL R ETURN FILED BY HIM AS A RETURN FILED IN RESPONSE TO THE REASSESSME NT NOTICE. FINALLY, THE INCOME WAS DETERMINED U/S 143(3) READ WITH SECTION 147 AT RS.2,46,81,790/- AFTER MAKING DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D FOR RS.23,25,697/- , WHICH IS THE SUBJECT MATTER OF ASSESSEES APPEAL. T HE ASSESSEE SUFFERED ANOTHER ADDITION OF CASH CREDIT U/S 68 FOR RS.30,27,890/- AS IN AOS OPINION, HE FAILED TO PRO VE CREDITWORTHINESS OF NINE PARTIES FROM WHOM THE LOAN S WERE TAKEN BY THE ASSESSEE. THE ASSESSEE ASSAILED BOTH T HE ADDITIONS WITH PARTIAL SUCCESS BEFORE FIRST APPELLATE AUTHORI TY VIDE ORDER DATED 26/09/2014. THE LD. CIT(A) WHILE UPHOLDING TH E REASSESSMENT PROCEEDINGS AND SECTION 14A DISALLOWAN CE, DELETED ADDITION FOR CASH CREDIT U/S 68 BY NOTICING THAT THE LOANS WERE OBTAINED IN THE PRECEDING YEAR AND MEREL Y REPRESENTED OPENING BALANCE IN THE IMPUGNED AY. AGG RIEVED, THE REVENUE IS IN APPEAL BEFORE US AGAINST THE STAN D OF LD.CIT(A) WHILE THE ASSESSEE HAS CONTESTED THE REAS SESSMENT PROCEEDINGS AND SECTION 14A DISALLOWANCE ON LEGAL G ROUNDS AS WELL AS ON MERITS. 4 ITA NOS. 2148 & 2159/PUN/2014, A.Y. 2008-09 3. SO FAR AS THE REVENUES APPEAL IS CONCERNED QUA CASH CREDIT U/S 68, A QUERY WAS RAISED BY THE BENCH REGA RDING THE TAX EFFECT OF REVENUES APPEAL AND AFTER PERUSAL, T HE TAX EFFECT WAS FOUND TO BE MORE THAN RS.10 LACS, CONSIDERING E FFECTIVE TAX RATE OF 33.99% AND HENCE WE PROCEED TO DECIDE THE I SSUE ON MERITS. WE FIND THAT THE LD. CIT(A) HAS PROVIDED RE LIEF TO THE ASSESSEE BY MAKING FOLLOWING OBSERVATIONS:- FROM THE CONFIRMATIONS OF LOAN CREDITORS ON RECORD AND THE ACCOUNT EXTRACTS OF THE LOAN CREDITORS FOR A.Y.2008-09 IN T HE BOOKS OF APPELLANT, IT IS CLEAR BEYOND DOUBT THAT ALL THE CREDIT BALANCES ERE OUT OF OPENING BALANCES AS ON 01/04/2007 AND NOT ACCEPTED DURING T HE F.Y.2007-08 RELEVANT FOR A.Y.2008-09. THEREFORE, THE ADDITION C OULD NOT BE MADE UNDER SECTION 68 IN THE ASSESSMENT YEAR CONCERNED I N RESPECT OF CARRIED FORWARD OF CASH CREDIT BALANCES CARRIED FORWARD CAS H CREDIT BALANCES CAN ONLY BE EXAMINED IN THE YEAR IN WHICH THEY ARE FIRSTLY/FRESHLY INTRODUCED. THUS, BY RESPECTFULLY FOLLOWING VARIOUS JUDICIAL PRECEDENTS INCLUDING THE DECISION OF JURISDICTIONAL HONBLE IT AT, PUNE IN CASE OF HARISH KAWADMAL BAJAJ (SUPRA), THE ADDITION OF RS.3 0,27,890/- U/S 68 IS HEREBY DELETED. WE FIND THAT THE CONCLUSIONS REACHED BY THE LD. CIT (A) ON THE BASIS OF FINDINGS ARE QUITE PROPER AND REQUIRE NO I NTERFERENCE ON OUR PART IN ANY MANNER. IF THE LOANS WERE OBTAINED IN EARLIER YEARS AND MERELY REPRESENTED THE OPENING BALANCES, THEN ADDITIONS, AT LEAST, IN THIS IMPUGNED YEAR COULD NO T BE MADE. THE REVENUE HAS NOWHERE DISPUTED THE FINDINGS OF TH E LD. CIT(A). HENCE, WE CONCUR WITH THE VIEWS OF THE LD. CIT(A) AND SEE NO REASON TO DISTURB THE FINDINGS / CONCLUSIONS OF LD. CIT(A) AND HENCE, DISMISS THE REVENUES APPEAL. 5 ITA NOS. 2148 & 2159/PUN/2014, A.Y. 2008-09 4. THE ASSESSEE IN HIS APPEAL ITA NO. 2148/PN/2014 HAS CONTESTED THE REASSESSMENT PROCEEDINGS ON THE GROUN D THAT SAID PROCEEDINGS WERE INITIATED ON MERE CHANGE OF O PINION AND FURTHER AO TOTALLY DISREGARDED THE SUO-MOTO DISALLOWANCE OF RS.6.33 LACS MADE BY ASSESSEE IN HIS RETURN OF INCO ME AND STRAIGHTWAY APPLIED RULE 8D IN VIOLATION OF STATUTO RY PROVISIONS. THE ASSESSEE, IN HIS WRITTEN SUBMISSIONS DATED 16/0 3/2017 HAS CONTENDED THAT THE ASSESSEE ESTIMATED THE SAID DISALLOWANCE BY ADOPTING A REASONABLE METHOD AND TH EREFORE, AO COULD NOT DETERMINE THE AMOUNT OF EXPENDITURE IN CURRED IN RELATION TO EXEMPT INCOME WITHOUT RECORDING A REASO N IN SPEAKING MANNER OPPOSING ASSESSEES METHOD OF DISAL LOWANCE AS TO HOW HE WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIMS OF THE ASSESSEE. FURTHER, THE ASSESSEE PROVI DED DETAILED WORKING OF THE SAID DISALLOWANCE WHICH WERE NOT ADD RESSED BY THE AO ANYWHERE IN THE REASSESSMENT ORDER WHICH WAS A CONDITION PRECEDENT U/S 14A(2) TO PROCEED TO APPLY RULE 8D. RELIANCE HAS BEEN PLACED ON THE ORDER OF TRIBUNAL I N KALYANI STEELS LTD. VS. ACIT [ITA NO. 1733/PN/2012 ORDER DA TED 30/01/2014]. PER CONTRA, LD. DR PLACED RELIANCE ON THE CONCLUSIONS REACHED BY THE LOWER AUTHORITIES AND CO NTENDED THE REASSESSMENT PROCEEDINGS WERE RIGHTLY INVOKED A S AO DID NOT FORM ANY OPINION DURING ORIGINAL ASSESSMENT PRO CEEDINGS. IT WAS FURTHER CONTENDED THAT RULE 8D HAS RIGHTLY BEEN INVOKED BY THE LOWER AUTHORITIES. 6 ITA NOS. 2148 & 2159/PUN/2014, A.Y. 2008-09 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. SO FAR AS REGARDING LE GAL GROUNDS IS CONCERNED WE NOTE THAT THE ORIGINAL ASSESSMENT HAS BEEN COMPLETED U/S 143(3) AND THE RE-OPENING HAS BEEN DO NE WITHIN 4 YEARS FROM END OF RELEVANT AY. THEREFORE, THE ONL Y CONDITION TO INITIATE REASSESSMENT PROCEEDINGS AS PER SECTION 14 7 IS THAT THE ASSESSING OFFICER HAS REASONS TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. WE FIND T HAT IN THE ORIGINAL ASSESSMENT PROCEEDINGS, THIS ISSUE IS NOWH ERE ADDRESSED BY THE AO IN HIS ORDER AND ALSO, IT NOWHE RE EMANATES FROM THE RECORDS WHETHER ANY SUCH QUERIES WERE PUT FORWARD TO THE ASSESSEE IN THIS REGARD. THEREFORE, WE FIND THAT NO OPINION WAS FORMED BY THE AO DURING ORIGINAL ASS ESSMENT PROCEEDINGS AND HENCE, THE REASSESSMENT PROCEEDINGS WERE VALIDITY INITIATED BY HIM AS IT WAS NOT A CASE OF CHANGE OF OPINION RATHER IT WAS A CASE OF NO OPINION ONLY. ON MERITS, WE FIND THAT THE ASSESSEE HAS MADE SUO-MOTO DISALLOWANCE OF RS.6,33,000/- U/S 14A OUT OF TOTAL ADMINISTRATIVE E XPENSES OF RS.33,34,229/- DEBITED BY THE ASSESSEE IN PROFIT & LOSS ACCOUNT, AS NOTED BY LD. CIT(A). THE DISALLOWANCE W AS WORKED ON THE BASIS OF RATIO OF INCOME EARNED BY ASSESSEE UNDER DIFFERENT HEADS / SOURCE. IN THE REASSESSMENT ORDER , THE ASSESSEE PROVIDED WORKING OF DISALLOWANCE U/S 14A A ND RAISED VARIOUS CONTENTIONS. HOWEVER, BUT WITHOUT APPRECIAT ING THE METHOD OF DISALLOWANCE ADOPTED BY THE ASSESSEE, AO SHIFTED THE BURDEN ON ASSESSEE TO POINT OUT THE MISTAKES IN AO S WORKING 7 ITA NOS. 2148 & 2159/PUN/2014, A.Y. 2008-09 AS PROVIDED IN THE REASSESSMENT NOTICE, WHICH IN OU R OPINION, WAS NOT CORRECT APPROACH AS PER STATUTORY PROVISION S AS CONTAINED IN SECTION 14A. AT THIS JUNCTURE, IT WOUL D BE PRUDENT TO REPRODUCE THE RELEVANT PORTION OF SECTION 14A(2) WHICH READS AS FOLLOWS:- (2) THE ASSESSING OFFICER SHALL DETERMINE THE AMOU NT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHO D AS MAY BE PRESCRIBED, IF THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. THEREFORE, THE AO WAS REQUIRED TO EXAMINE THE METHO D OF DISALLOWANCE ADOPTED BY THE ASSESSEE HAVING REGARDS TO HIS ACCOUNTS OF THE ASSESSEE AND SATISFY HIMSELF ABOUT THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. THEREAFTE R, HE COULD HAVE PROCEEDED TO APPLY RULE-8D ONLY IF HE WAS NOT SATISFIED WITH THE CORRECTNESS OF ASSESSEES CLAIM. HOWEVER, NO SUCH SATISFACTION HAS BEEN RECORDED BY THE AO IN THE PRE SENT CASE WHICH VITIATES THE VERY APPLICABILITY OF RULE 8D, W HICH WAS NOT AUTOMATIC IN NATURE. OUR VIEW IS WELL SETTLED BY VA RIOUS JUDICIAL PRONOUNCEMENTS OF VARIOUS AUTHORITIES INCLUDING THE CITED CASE LAW OF PUNE TRIBUNAL IN KALYANI STEELS LTD. VS. ACIT [SUPRA] . THEREFORE, WE FIND MERITS IN THE SUBMISSIONS OF THE ASSESSEE AND ON THE PARTICULAR FACTS AND CIRCUMSTANCES, INCL INED TO DELETE IMPUGNED ADDITIONS. THE ASSESSEES APPEAL ST AND ALLOWED. 8 ITA NOS. 2148 & 2159/PUN/2014, A.Y. 2008-09 6. IN NUTSHELL, THE REVENUES APPEAL STAND DISMISSE D WHEREAS THE ASSESSEES APPEAL SUCCEEDS. BOTH THE APPEALS ST AND DISPOSED-OFF IN THE ABOVE MANNER. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD MARCH, 2017. SD/- SD/- (SUSHMA CHOWLA) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; !' / DATED : 23 RD MARCH, 2017 RK - . /012 %20 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. # # $ () / THE CIT(A)-2, NASHIK 4. # # $ / THE CIT-2, NASHIK 5. '() *+ , # *+ , , -./ , / DR, ITAT, A BENCH, PUNE. 6. )01 23 / GUARD FILE. // ' // TRUE COPY// # 4 / BY ORDER, 5 '6 / ASSISTANT REGISTRAR, # *+ , / ITAT, PUNE