ACIT, International Taxation Cir.-1(2), Kolkata , Kolkata V. Mahabir Prasad Gupta , Kolkata

ITA 2302/KOL/2019

AI Insights

The case involves Mahabir Prasad Gupta, a non-resident Indian, who was assessed for unexplained cash deposits and interest income during the assessment year 2013-14. The Assessing Officer (AO) made additions under section 69A for unexplained money and disallowed interest expenditure claimed against the interest income. The Commissioner of Income Tax (Appeals) (CIT(A)) partly allowed the assessee's appeal by reducing the addition to 8% of the cash deposit treated as business turnover but sustained some additions. The Tribunal found that the assessee had adequately explained the source of cash deposits and that the CIT(A) erred in treating the transactions as business-related without evidence. The Tribunal also addressed the taxability of interest income under the DTAA.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 128799 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2023
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: C
• Next Hearing Date: 21-11-2022
• Assessment Year: 2013-2014
• Appeal Filed On: 16-10-2019
• Other Referred Cases: Mr. Shanmugam Ethiraj vs. ITO, Ajit Bapu Satam vs. DCIT, Jashpal Singh Sehgal vs. ITO, Sudhirbhai Pravinkant Thakkar, Veena Awasthi vs. DCIT, Shri Kulwant Rai vs. ITO, Shri Gordhan vs. ITO
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Business expenditure; Double taxation relief; Peak credit; Bonafide belief; Permanent establishment; TDS
• Section: 148; 143(3); 142(1); 250; 143(2); 69A; 139(1); 13; 22

Judgement Text

आयकर अपीलीय अधिकरण कोलकाता 'सी' पीठ, कोलकाता म ें IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘C’ BENCH, KOLKATA डॉ. मनीष बोरड, ल े खा सदस्य एवं श्री संजय शमा ा , न्याधयक सदस्य क े समक्ष Before DR. MANISH BORAD, ACCOUNTANT MEMBER & SONJOY SARMA, JUDICIAL MEMBER I.T.A. No.: 2302/KOL/2019 Assessment Year: 2013-14 ACIT (IT), Circle-1(2), Kolkata...................................Appellant Vs. Mahabir Prasad Gupta.........................................Respondent [PAN: ANFPG 6822 Q] C.O. No.: 6/KOL/2020 Assessment Year: 2013-14 Mahabir Prasad Gupta.............................................Appellant [PAN: ANFPG 6822 Q] Vs. ACIT (IT), Circle-1(2), Kolkata................................Respondent Appearances by: Sh. S. Jhajharia, A/R, appeared on behalf of the Assessee. Smt. Ranu Biswas, Addl. CIT (D/R), appeared on behalf of the Revenue. Date of concluding the hearing : November 22 nd , 2022 Date of pronouncing the order : January 23 rd , 2023 I.T.A. No.: 2302/KOL/2019 C.O. No.: 6/KOL/2020 Assessment Year: 2013-14 Mahabir Prasad Gupta. Page 2 of 22 ORDER Per Manish Borad, Accountant Member: This appeal filed by the Revenue and the Cross Objection filed by the assessee pertaining to the Assessment Year (in short “AY”) 2013-14 are directed against the order passed u/s 250 of the Income Tax Act, 1961 (in short the “Act”) by Commissioner of Income Tax (Appeals)-22, Kolkata [in short ld. “CIT(A)”] dated 15.07.2019 arising out of the assessment order framed u/s 143(3) r.w.s. 147 of the Act dated 27.12.2018. 2. Registry has informed that the Cross Objection is time barred by 53 days. Condonation application has been filed by the assessee. After perusing the same, we find force in the reasons mentioned therein and are satisfied that the assessee was prevented for reasonable cause in filing the instant Cross Objection within statutory time limit. We, therefore, condone the delay and admit the Cross Objection for adjudication. 3. The Revenue has raised the following grounds of appeal: “1 The Ld. CIT (A) has erred on facts and law by deleting an addition of Rs. 1,73,77,481/-made on account of unexplained money by Assessing Officer under section 69A of Income Tax Act 1961. 2. On the facts and circumstances of the case and in law the Ld. CIT (A) erred in estimating profit of Rs.13,90,198/- which is 8% of total cash deposit and consequently allowing the relief of Rs.1,59,87,283/- to the assessee treating the amount of cash deposit of Rs.1,73,77,481/- as turnover of out of book business. 3. On the facts and circumstances of the case and in law the Ld. CIT (A) erred in not appreciating the fact that in the cash flow statement/ cash book submitted before the Assessing Officer the assessee has shown opening cash balance of Rs.81,93,269/-as major source of I.T.A. No.: 2302/KOL/2019 C.O. No.: 6/KOL/2020 Assessment Year: 2013-14 Mahabir Prasad Gupta. Page 3 of 22 cash deposit whereas no return was filed and no books of accounts were maintained by the assessee and hence source of cash in hand could not be established. 4. Without prejudice to the merit of the case; considering the entire cash deposit of Rs.1,73,77,481/- as unexplained money under section 69A of Income Tax Act 1961; while estimating profit at the rate of 8% on turnover the Ld. CIT (A) erred in law and facts by treating only amount of cash deposit in bank accounts as business turnover whereas there were several other deposits in bank accounts through RTGS and cheques. The Ld. CIT (A) ought to have considered all deposits in bank account as turnover in absence of proper explanation from the assessee. 5. Without prejudice to the merit of the case; considering the entire cash deposit of Rs.1,73,77,481/- as unexplained money under section 69A of Income Tax Act 1961; the Ld. CIT (A) erred in law and facts by holding that the assessee was not legally required to maintain books of accounts whereas the Ld. CIT (A) himself treated the cash deposit as business turnover. The view of the Ld. CIT (A) is contrary to the provisions of section 44AA of Income Tax Act 1961, according to which every person carrying on business should maintain books of accounts if turnover of business exceeds ten lakh rupees. 6. The Ld. CIT (A) has erred on facts and law by giving relief of Rs.28,27,141/- on account of interest income. 7. On the facts and circumstances of the case and in law the Ld. CIT (A) erred in deleting the disallowance of Rs.28,27,141/- made by the Assessing Officer rejecting the deduction claimed by the assessee on account of interest and bank charges, paid for OD facility, against FD interest income. 8. On the facts and circumstances of the case and in law the Ld. CIT (A) erred in treating that interest and bank charges are connected to the out of book business whereas neither the assessee has claimed the same during the assessment or appellate proceedings nor has the Assessing Officer noticed such business angle during the assessment proceeding. 9. Without prejudice to the merit of the case; considering the interest of Rs.18,05,847/-and Rs.28,27,141/- as income chargeable at normal tax rate, the Ld. CIT (A) erred in not appreciating the argument I.T.A. No.: 2302/KOL/2019 C.O. No.: 6/KOL/2020 Assessment Year: 2013-14 Mahabir Prasad Gupta. Page 4 of 22 of the assessee, made during the course of appellate proceeding, that the gross interest of Rs.46,36,912/- should be taxed at the beneficial rate of 12.5% as prescribed in DTAA between India and UAE as the assessee was non-resident during the year under consideration. 10. Without prejudice to the merit of the case; considering the entire cash deposit of Rs.1,73,77,481/- as unexplained money under section 69A of Income Tax Act 1961; the Ld. CIT (A) erred in law and facts by deleting the disallowance of Rs.28,27,141/-on account of interest and bank charges while estimating the net profit at 8% of cash deposit transactions which applied normally as net profit without further deduction on account of other expenses including depreciation and interest. 11. Without prejudice to the merit of the case; considering the entire cash deposit of Rs.1,73,77,481/- as unexplained money under section 69A of Income Tax Act 1961; the Ld. CIT (A) erred in law and facts by deleting the disallowance of Rs.28,27,141/-on account of interest and bank charges while estimating the net profit at 8% of cash deposit transactions by holding an income of Rs.13,90,198/- and gave a deduction of Rs.28,27,141/- from the profit estimated @8% on cash deposit of Rs.1,73,77,481/- 12. Without prejudice to the merit of the case; considering the entire cash deposit of Rs.1,73,77,481/- as unexplained money under section 69A of Income Tax Act 1961-the Ld. CIT (A) erred in law and facts by not initiating and / or imposing penalty u/s271A of Income Tax Act 1961 for failure to maintain books of accounts as prescribed u/s 44AA of Income Tax Act 1961, while estimating profit @ 8% on cash transactions considering it as turnover amounting to Rs.1,73,77,481/- and treating the estimated profit as business income. 13. The appellant craves leave add to and/or alter, amend, modify or rescind the grounds hereinabove before or during hearing of this appeal.” 4. The assessee has raised following grounds in Cross Objection No. 6/KOL/2020: “1. For that on the facts and in the circumstances of the case, the CIT(A] was grossly unjustified in retaining addition to the extent of Rs.13,90,198/-made by the AO u/s 69A of the Act. I.T.A. No.: 2302/KOL/2019 C.O. No.: 6/KOL/2020 Assessment Year: 2013-14 Mahabir Prasad Gupta. Page 5 of 22 2. For that on the facts and in the circumstances of the case, the source of cash deposits in the bank account stood explained and in that view of the matter no addition whatsoever was sustainable by way of unexplained investment u/s 69A and the AO be therefore directed to delete the balance addition of Rs.13,90,198/- as well. 3. For that on the facts and in the circumstances of the case, the Ld. CIT(A) erred on facts and in law in confirming the addition of net interest income of Rs.18,09,771/- under the head 'Other Sources’. 4. For that on the facts and in the circumstances of the case and without prejudice to the preceding ground, the AO be directed to tax the net interest income of Rs.18,09,771/- at the beneficial tax rate prescribed in the DTAA. 5. For that the appellant craves leave to submit additional grounds and/or amend or alter the grounds already taken either at the time of hearing of the appeal or before.” 5. Brief facts of the case as culled out from the records are that the assessee is a non-resident Indian and is a resident of United Arab Emirates (UAE). For the year under consideration, ld. AO came across the information about deposit of cash of Rs. 1,56,67,481/- in the bank account held in the name of the assessee, term deposit of Rs. 11,00,000/- made during the financial year and interest of Rs. 46,77,588/- received on deposits which were subject to tax deducted at source u/s 194/195 of the Act at Rs. 5,14,245/-. The assessee did not file the return of income as required u/s 139(1) of the Act. Ld. AO accordingly issued notice u/s 276CC of the Act dated 12.07.2017 directing the assessee to show cause in writing as to why the prosecution proceedings should not be initiated against him. In response, the assessee submitted that the source of alleged cash deposit is the cash withdrawal made from his bank accounts during the year and in the preceding years. Thereafter, notice u/s 148 of the Act issued I.T.A. No.: 2302/KOL/2019 C.O. No.: 6/KOL/2020 Assessment Year: 2013-14 Mahabir Prasad Gupta. Page 6 of 22 and in compliance the assessee filed e-return on 13.03.2018 declaring income of Rs. 1,96,080/- subjected to normal tax and Rs. 18,05,847/- included in income chargeable to special rate of tax. Subsequently, notices u/s 143(2) & 142(1) of the Act were duly served upon the assessee. Thereafter, ld. AO called for details of the cash deposited during the year to which necessary submissions were made to prove that there were regular cash withdrawals from the bank and the assessee had sufficient cash in hand to explain the deposit. Ld. AO also noticed that the assessee gave interest free financial assistance to M/s. Soham Shipping Pvt. Ltd. Ld. AO, thus, was not satisfied with the submissions filed by the assessee and made the addition for unexplained money u/s 69A of the Act at Rs. 1,73,77,481/-. Further, ld. AO noticed that the assessee has claimed interest expenditure of Rs. 28,27,141/- paid on the cash credit limits availed from the bank against fixed deposits and reduced it from the income earned from fixed deposits of Rs. 46,36,912/-. Ld. AO found that the said interest expenditure is not eligible for deduction as it cannot be linked with the interest earned and thus, he did not allow the expenditure claimed u/s 57(3) of the Act. Income assessed at Rs. 2,22,06,549/-. 6. Aggrieved, the assessee preferred appeal before ld. CIT(A) challenging the additions for unexplained money and disallowance of interest expenditure. The assessee filed detailed submissions along with the copies of cash book for the preceding financial year and the year under appeal to demonstrate that regular cash was withdrawn from the bank and was deposited and it was not in I.T.A. No.: 2302/KOL/2019 C.O. No.: 6/KOL/2020 Assessment Year: 2013-14 Mahabir Prasad Gupta. Page 7 of 22 connection with any business and though the assessee is a non- resident Indian but the authority has been given to his relative to operate the said bank account. However, ld. CIT(A) was not convinced with the said submissions and came to a conclusion that the frequency of transactions in the bank account shows that they are in the nature of business transactions and treating the alleged cash deposits as business turnover estimated the income @ 8% from the said deposit thereby sustaining the addition to Rs. 13,90,198/- deleting the remaining addition of Rs. 1,59,87,283/-. Further, as regards to the interest disallowance ld. CIT(A) deleted the said disallowance observing that it has also been incurred in the course of business and the same is eligible for set off against the interest on fixed deposit treating the same as business receipt. Thus, appeal of the assessee was partly allowed. 7. Aggrieved, the Revenue is now in appeal before this Tribunal raising various grounds and on the other hand, the assessee is in Cross Objection challenging the addition of Rs. 13,90,198/- confirmed by ld. CIT(A) and also supporting the finding of ld. CIT(A). 8. Ld. D/R vehemently argued supporting the detailed finding of ld. AO submitted that the assessee did not file the return of income even though he had taxable income during the year. Further, she submitted that the assessee is a non-resident Indian and therefore, what is the source of such huge amount of cash deposit made during the year and what is the reason for carrying out transactions with M/s. Soham Shipping Pvt. Ltd. Ld. D/R, I.T.A. No.: 2302/KOL/2019 C.O. No.: 6/KOL/2020 Assessment Year: 2013-14 Mahabir Prasad Gupta. Page 8 of 22 further submitted that the alleged interest expenditure in the form of interest paid on cash credit limit cannot be allowed against the interest received on fixed deposits because Section 57(3) of the Act is applicable only for expenses incurred to earn the income, therefore, the alleged interest expenditure having no nexus with the interest earned during the year cannot be allowed as deduction. 9. Per contra ld. Counsel for the assessee vehemently argued referring to the paper book containing various details including cash flow statement for FY 2011-12 & 2012-13, placing reliance on the decision of coordinate Bench Chennai in the case of Mr. Shanmugam Ethiraj vs. ITO in ITA No. 822/Chny/2020 order dated 11.05.2022 and that of Mumbai Tribunal in the case of Ajit Bapu Satam vs. DCIT in ITA No. 1599/Mum/2021 order dated 29.08.2022 and further referring to the following written submissions: “I. Grounds No. 1 to 5 pertains to addition of Rs. 1,73,77.481/- by the AO which was partly deleted by the CIT(A). [CIT(A) reduced the addition to 8% of total cash deposit and allowed relief of Rs. 1,59,87,283/-]. Assessee is a non-resident (UAE Resident) and the case was reopened u/s 147 on the ground that the interest income of Rs. 20.05 lakh and the same was alleged to be not matching with interest received on deposit i.e. Rs. 46.77 lakh. Assessee did not carry any business in India and was earning interest income on which TDS was made and hence it was under bonafide belief of no return filing. AO in the order u/s 147 alleged deposit of cash in bank account of Rs. 1,73,77.481/-as unexplained money u/s 69A and finally concluded prejudicially and added entire cash deposited in bank account being Axis Bank A/c. No. 011010100215077 during the F.Y 2012-13 (A.Y I.T.A. No.: 2302/KOL/2019 C.O. No.: 6/KOL/2020 Assessment Year: 2013-14 Mahabir Prasad Gupta. Page 9 of 22 2013-14). The cash deposit and withdrawal during F.Ys. 2011-12 & 2012-13 (A.Ys 2012-13 & 2013-14) is summarized as follows : - A.Y 2012-13 Op. 49.29 lakh Pg. 34-36 - Cash Book Withdrawal 110.46 lakh 37-44 - Axis Bank Deposit 77,81 lakh Closing 81.93 lakh A.Y 2013-14 Op. 81.93 lakh Pg. 51-53 - Cash book Withdrawal 111.11 lakh Pg 54-59 - Axis Bank 193.04 lakh Deposit 173.77 lakh Closing 19.27 lakh The AO's allegation on such addition were basically on the ground that: i) Assessee did not file Balance Sheet and Profit & Loss Account along with R.O.I and hence the cash deposits are unsubstantiated. ii) Assessee was remaining mostly out of India. iii) Assessee did not satisfactorily prove cash deposits were out of cash balance and withdrawals from banks. The appellant duly submitted before the concerned authorities [i.e. AO & CIT(A)] that - i) Assessee was a non-resident. Assessee was not carrying out any business in India hence it was not required to maintain any books of accounts u/s 44AA. Still the assessee furnished cash book for A.Ys 2012-13 and 2013-14 which duly corroborated with bank statement and substantiated the cash so deposited in the said bank account. ii) Even if the assessee was not remaining in India, the withdrawals and deposit were conducted by Authorised Signatory of the appellant or on his behalf and hence mere absence for some period does not have any implication. iii) Money so withdrawn were deposited in such bank account only and it is nobody’s case that same was utilized for acquisition of assets or incurring of personal expenses or expenses of any kind etc. In some cases, some amount was paid to “Soham Shipping Pvt. Ltd.” which was an advance extended to them but the same was returned by such company and indeed despite appellant’s submission AO failed to examine such person. I.T.A. No.: 2302/KOL/2019 C.O. No.: 6/KOL/2020 Assessment Year: 2013-14 Mahabir Prasad Gupta. Page 10 of 22 iv) Assessee has submitted that it had withdrawn and deposited cash in said bank account during F.Y 2011-22 (A.Y 2012-13) and it had sufficient cash balance as on 31.3.2012 which appeared as opening cash balance on 1.4.2012 i.e. opening date relevant to (F.Y 2012-13, A.Y 2013-14). Appellant also submitted the Cash Flow for A.Ys 2012- 13 and 2013-14 and which duly showed the cash drawn and deposited and also cash balance as on 31.3.2012 which was duly carried forward to 1.4.2012 (i.e. F.Y 2012-13, A.Y 2013-14). The AO merely brushed aside the appellant’s submission and despite such cash withdrawn and deposited in A.Y 2012-13, AO failed to conduct an enquiry for that year as well. Since revenue did not make any inquiry in that respect and hence mere assertion of the revenue of not accepting opening balance of cash (as on 1.4.2012) without any enquiry has no relevance and as such the opening balance of the cash has to be accepted as such. Moreover, the behaviour of assessee in having withdrawal and deposit from / to Bank account which is exhibited in A.Y 2013-14 as well cannot be seen with suspicion in absence of any evidence with AO and on the same there is also legally no bar. Hence, no adverse inference can be drawn. On the basis of the above, the appellant submits that- i) Since the money withdrawn and deposited corresponds with the cash book and cash flow of the appellant and the money withdrawn has not been utilized for personal expenses or acquisition of assets, hence no adverse inference can be drawn in the matter. ii) Without prejudice, appellant submits that only the peak credit can be considered for the purpose of addition if any in the matter for which the attention is drawn to the cash flow [at pages 51 to 53 of paper book] and since the peak credit of Rs.67,10,316/- is duly met by opening balance of Rs.81,93,269/- and hence the cash deposited is fully explained and no addition can be made in F.Y 2013-14 (A.Y 2014-15). iii) The appellant also places reliance on the following judicial pronouncements:- a) Since it is not case of revenue that money withdrawn has been utilized in expenses/ asset acquisition and hence deposit cannot be questioned and hence no addition can be made for cash deposited and hence reliance is placed on - I.T.A. No.: 2302/KOL/2019 C.O. No.: 6/KOL/2020 Assessment Year: 2013-14 Mahabir Prasad Gupta. Page 11 of 22 i) Shamnugam Ethiraj [ITA 828/Cheny/2020 dt. l1.5.2022 (Paper book page 60 -73 -para 9-10] ii) Ajit Bapu Satam v. DCIT [ITA 1599/Mum/2021 dt. 29.8.2022] (Paper book page 79 - 81 - para 9-11) iii) Jashpal Singh Sehgal v. ITO (2017) 83 taxmann.com 246 (Mum) iv) Sudhirbhai Pravinkant Thakkar -88 taxmann.com 382 (Ahmadabad) b) Simply suspicion and behavioural pattern of frequent withdrawal by assessee cannot be basis of treating cash deposited as unexplained money u/s 69A. Veena Awasthi ITA 215/Lukw/2016 c) No addition can be made for cash deposited unless AO brings evidence/ material on record to prove that cash withdrawal is for some other purpose. i) CIT v. Shri Kulwant Rai (2007) 291 ITR 36 (Del) ii) Shri Gordhan, Delhi v. ITO. Gurgaon. ITA 811/DEL/2015 dt 19.10.2015 Hence it may be held accordingly and addition of Rs. 1,73,77.481/- may kindly be deleted. II. Grounds No. 6 to 11 pertains to the disallowance of interest of Rs. 28,27,141/-. The appellant had earned gross interest of Rs. 46,36,912/- on FD and had incurred Rs. 28,27,141/- on O/D so taken and hence net interest was offered for tax Rs. 18.09.771/-. Ld. CIT(A) held interest as inextricably linked and allowed the claim of the appellant and hence reliance is placed on the judgment of Ld. CIT(A). Without prejudice, it is humbly submitted that since the appellant is a non-resident and is a tax resident of UAE and hence in terms of Article 12 of India UAE-DTAA the gross interest of R's. 46,36,912/- be taxed @ 10% of Article 12 of such DTAA Cross Objection of appellant: III. Ground No. 1 pertains to addition of Rs. 13,90,198/- u/s 69A sustained by CIT(A) (dealt in Ground No. 1 to 5) I.T.A. No.: 2302/KOL/2019 C.O. No.: 6/KOL/2020 Assessment Year: 2013-14 Mahabir Prasad Gupta. Page 12 of 22 IV. Ground No. 2 pertains to addition of net interest of Rs. 118.09,771/- (dealt in Grounds No. 6 to 11)” 10. We have heard rival contentions and perused the records placed before us. The Revenue is aggrieved with the relief given by ld. CIT(A) and the assessee has filed Cross Objection challenging the additions sustained by ld. CIT(A) and also filing grounds in support of the relief given by ld. CIT(A). We notice that the assessee is a non-resident Indian and he holds bank accounts in India in which funds are transferred from outside India and also there are transactions carried out during the year in these bank accounts by way of withdrawal of cash, deposit of cash and also issuing cheques and receiving cheques from local parties. For the year under consideration, ld. AO came across the information about various transactions of cash deposits totalling to Rs. 1,56,67,481/- in the non-resident ordinary account held with Axis Bank, Gariahat Branch. Based on this information coupled with term deposits of Rs. 11,00,000/- made during the year and also interest received on deposits amounting to Rs. 46,77,588/- which were subject to TDS, ld. AO, further, found that the assessee did not file the return of income. Thereafter, during the course of re- assessment proceedings carried out u/s 147 of the Act after issuance of notice u/s 148 of the Act, ld. AO noticed that during the year there is a cash deposit of Rs. 1,73,77,481/-. Though, during the course of proceedings before the lower authorities it was submitted that the source of alleged cash deposit in cash in hand available with the assessee, however, the assessee failed to convince ld. AO who made the addition u/s 69A of the Act for I.T.A. No.: 2302/KOL/2019 C.O. No.: 6/KOL/2020 Assessment Year: 2013-14 Mahabir Prasad Gupta. Page 13 of 22 unexplained money of Rs. 1,73,77,481/- and also disallowed the interest expenditure of Rs. 28,27,141/- claimed against the interest income earned during the year. 11. During the course of appellate proceedings ld. CIT(A) came to a conclusion that the frequent transactions carried out in the bank account are in the nature of business transactions which are controlled by the assessee staying outside India and also through its representative having authority to operate the bank account. Ld. CIT(A) also allowed the claim of interest expenditure of Rs. 28,27,141/- treating it to be a business expenditure against the business receipt in the form of alleged cash deposits as well as the interest earned on term deposits. Ld. CIT(A), thus, sustained the addition of Rs. 13,90,198/- estimating net profit @ 8% on the alleged cash deposit. 12. As far as the issue that whether ld. CIT(A) was justified in estimating the profit @ 8% of the cash deposit and also whether ld. CIT(A) was justified in treating the transactions carried out in the bank account as part of the business carried out by the assessee we notice that the assessee is a resident of UAE and has nowhere stated to have carried out any business activity in India. The Revenue authorities have never disputed this fact that the assessee is a non-resident and also no evidence whatsoever has been put forth by the Revenue authorities which can indicate that the assessee is carrying out business activity in India. It seems that ld. CIT(A) based on the frequency of transactions carried out in the bank account took impression that they are carried out in I.T.A. No.: 2302/KOL/2019 C.O. No.: 6/KOL/2020 Assessment Year: 2013-14 Mahabir Prasad Gupta. Page 14 of 22 the course of business. Before us, the assessee has filed a copy of bank statement for the preceding financial year i.e. FY 2011-12 and also the year under appeal i.e. FY 2012-13. The assessee has filed cash flow statement for FY 2011-12 & 2012-13. On bare perusal of the bank statement of these two years we notice that there is an opening balance of Rs. 28,14,882/- as on 01.04.2011. Thereafter, there are entries of cash withdrawals, cash deposits, credit through account payee cheques/clearing and transfers, from his own account or various other accounts including that of Soham Shipping Pvt. Ltd. It is evident that the assessee has entered into numerous transactions with Soham Shipping Pvt. Ltd. which are both debit and credit entries. As far as the position of cash in hand is concerned the assessee has placed before us a copy of cash book for FY 2011-12 & 2012-13. As per this cash book the assessee has stated to have opening cash in hand as on 01.04.2011 at Rs. 49,29,400/- and thereafter the assessee has incorporated all the cash withdrawals and cash deposits in this cash book which on our test check basis have been correctly incorporated and as on 31.03.2012 the cash in hand is Rs. 81,93,269/-. 13. Now, moving into the FY 2012-13 i.e. the year under appeal, we notice that the transactions in the bank account are similar to that of FY 2011-12 and on incorporating the entries cash withdrawals and cash deposits in the cash book, the assessee still has cash in hand of Rs. 19,27,033/- at the year-end. There is apparently no negative cash balance at any time during the year. The alleged transactions of cash deposits which took place during I.T.A. No.: 2302/KOL/2019 C.O. No.: 6/KOL/2020 Assessment Year: 2013-14 Mahabir Prasad Gupta. Page 15 of 22 the year and on the basis of which ld. AO initiated the reassessment proceedings are duly shown in this cash book prepared for FY 2012-13. Now, an overall analysis except the opening cash balance as on 01.04.2011 at Rs. 49,59,400/- all the other transactions of cash deposits and cash withdrawals are duly verifiable from the bank statement filed by the assessee. 14. Now, the question arises that firstly, why the assessee carried out so many transactions of cash deposits and cash withdrawals in its bank account and secondly, what was the reason of carrying out transactions with Soham Shipping Pvt. Ltd. Now, as far as entering into the transactions with Soham Shipping Pvt. Ltd. is concerned it is contended by the assessee that they were merely in nature of giving advances and receiving the same from time to time. This contention of the assessee has not been verified at the end of the Revenue authorities by calling for any investigation in the case of Soham Shipping Pvt. Ltd. Ld. AO ought to have issued notice to this concern to know about the reason of entering into such transactions. Since ld. AO has not contended any inquiry on this issue nor had made any addition for these transactions, they are out of the purview to be examined at this stage. Therefore, since ld. AO has not questioned the genuineness of these transactions, therefore, dealing with these issues which have not been referred in the impugned order, is not relevant at this stage. Now, what remains is the source of alleged cash deposit. On going through the bank statement as well as the cash book, we find that there are regular credits in this bank account through clearing and the assessee has withdrawn the cash on multiple occasions and I.T.A. No.: 2302/KOL/2019 C.O. No.: 6/KOL/2020 Assessment Year: 2013-14 Mahabir Prasad Gupta. Page 16 of 22 has deposited also on multiple occasions. Now, why the assessee or the person authorised on its behalf withdrew and deposited the cash cannot be questioned because the assessee was having sufficient balance in the bank as well as cash in hand to explain the said sum. Further, since the assessee is a non-resident Indian and except earning income from fixed deposits, there is no iota of evidence which could indicate that the assessee is carrying out any activity in the nature of business or otherwise to earn income from any other sources in India. Simply suspicion and behavioural pattern of frequent withdrawal by the assessee cannot be the basis of treating cash deposits as unexplained money u/s 69A of the Act and for this proposition we find support from the decision of the coordinate Bench of Lucknow in the case of DCIT vs Smt. Veena Awasthi in ITA No. 215/Lkw/2016 order dated 30.11.2018. Further, drawing support from the decision in the case of CIT vs. Shri Kulwant Rai (2007) 291 ITR 36 (Del) and the decision of the coordinate Bench of ITAT Delhi in the case of Shri Gordhan vs. ITO in ITA No. 811/Del/2015 order dated 19.10.2015 where it has been laid down that no addition can be made for cash deposits unless ld. AO brings evidence/material on record to prove that cash withdrawal is for some other purposes. Therefore, since in the instant case the frequent cash withdrawal and cash deposit, though are not supported by any concrete reason for the purpose for which they have been entered into but that itself cannot be taken as a ground to disprove the fact that the assessee had sufficient cash in hand to explain the source of each of such cash deposits. Even the peak credit in the said cash book of Rs. I.T.A. No.: 2302/KOL/2019 C.O. No.: 6/KOL/2020 Assessment Year: 2013-14 Mahabir Prasad Gupta. Page 17 of 22 67,10,316/- for FY 2012-13 is less than the opening cash balance of Rs. 81,93,269/- as on 01.04.2012. Though, there remains the question that what was the source of cash in hand as on 01.04.2011 at Rs. 49,29,400/-, however looking to the flow of transactions in these two financial years and the assessee being a non-resident Indian for the last many years and also looking to the amount of deposits made by the assessee, it will not be justified to question the availability of cash in hand in the hands of the as on 01.04.2011. Therefore, on the overall analysis of the facts and circumstances of the case, examination of the bank statement for FY 2011-12 & 2012-13 and availability of cash in hand on various dates during the year as well as the availability of cash in the preceding FY 2011-12, we come to a conclusion that firstly, the assessee has successfully explained the source of alleged cash deposits of Rs. 1,73,77,481/- and secondly, ld. CIT(A) erred in treating the frequent transactions in the bank account as those carried out in the course of business and further, ld. CIT(A) erred in estimating the profit @ 8% of the alleged cash deposit without finding any evidence which could show that the assessee is carrying out the business activity. We, therefore, set aside the finding of ld. CIT(A) and delete the addition of unexplained money made by ld. AO u/s 69A of the Act at Rs. 1,73,77,481/- and accordingly dismissed the Revenue’s ground nos. 1 to 5 and allow the assessee’s ground nos. 1 & 2 raised in the Cross Objection. 15. As regards the issue relating to the disallowance of interest of Rs. 28,27,141/- paid on cash credit limits availed by the assessee and claimed against the interest earned on fixed deposits I.T.A. No.: 2302/KOL/2019 C.O. No.: 6/KOL/2020 Assessment Year: 2013-14 Mahabir Prasad Gupta. Page 18 of 22 at Rs. 46,36,912/-, ld. CIT(A) has allowed the said claim treating it to be a business expenditure. We, however, looking to the said transactions firstly, note that the said transactions of earning income and paying interest are not in the nature of any business activity and hence the finding of ld. CIT(A) is set aside since we have already held in the preceding para that the assessee is not carrying out any business activity. 16. Now, as far as the disallowance made by ld. AO is concerned, we notice that the assessee being a non-resident Indian transferred its income earned outside India in the bank accounts held in India and from such balances held in the bank, the assessee made fixed deposits from time to time. Further, the assessee took the cash credit limits against such fixed deposits and paid interest thereon. So, if we see the flow of the activity first, the assessee earned the income from outside India and from such income it made fixed deposits and earned interest thereon and thereafter took bank credit limit from bank against the mortgage of such fixed deposits and used for the purpose best known to the assessee. So, in this case the assessee has not incurred any expenditure to earn the income on fixed deposits. In case, the assessee had first taken loan and then utilised such amount for earning interest then the interest paid on such loan could have been claimed against the interest income but in the instant case the situation is reverse. For the purpose of Section 57(3) of the Act the assessee can claim an expenditure against the income provided u/s 56 of the Act if it is laid out or expanded wholly and exclusively for the purpose of making or earning such income. Since in the I.T.A. No.: 2302/KOL/2019 C.O. No.: 6/KOL/2020 Assessment Year: 2013-14 Mahabir Prasad Gupta. Page 19 of 22 instant case the alleged interest expenditure is not laid out or expanded wholly and exclusively for the purpose of earning interest income on fixed deposits, the same deserves to be disallowed and to this extent finding of ld. AO is confirmed and so far as the grounds raised by the Revenue in ground nos. 6 to 8 are concerned, the same are allowed and the ground no. 3 raised by the assessee in the Cross Objection is dismissed. 17. Now, as far as ground no. 4 raised by the assessee in the Cross Objection is concerned, it is stated that without prejudice to the ground no. 3 of the Cross Objection, ld. AO may be directed to tax the net interest income of Rs. 18,09,771/- at the beneficial tax rate prescribed in Double Taxation Avoidance Agreement (DTAA). We find that firstly, since we have already disallowed the claim of interest expenditure made by the assessee the taxable interest income is the interest received on fixed deposits at Rs. 46,36,912/- along with savings bank interest on NRO at Rs. 40,676/- (total interest income comes to Rs. 46,77,588/-). It is claimed by the assessee that the same should be taxable at the beneficial tax rate as prescribed under the DTAA. 18. We note that the assessee is a non-resident Indian and is a resident of UAE and there is an agreement for avoidance of double taxation and the prevention of fiscal evasion between India and UAE. Vide Notification No. GSR 710(E) dated 18.11.1993 as amended by Notification No. SO 2001(E) dated 28.11.2007, the Article 11 of the said Agreement reads as follows: I.T.A. No.: 2302/KOL/2019 C.O. No.: 6/KOL/2020 Assessment Year: 2013-14 Mahabir Prasad Gupta. Page 20 of 22 “ARTICLE 11 - Interest - 1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such interest may be taxed in the Contracting State in which it arises and according to the laws of that State, but if the recipient is the beneficial owner of the interest, the tax so charged shall not exceed: (a) 5 per cent of the gross amount of the interest if such interest is paid on a loan granted by a bank carrying on a bona fide banking business or by a similar financial institution; and (b) 12.5 per cent of the gross amount of the interest in all other cases. 3. Notwithstanding the provisions of paragraph (2) interest arising in a Contracting State shall be exempt from tax in that State provided it is derived and beneficially owned by: (i) the Government, a political sub-division or a local authority of the other Contracting State; or (ii) the Central Bank of the other Contracting State. 4. The term “interest” as used in this Article means income from debt- claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor’s profits, and in particular, income from Government securities and income from bonds or debentures including premiums and prizes attaching to such securities, bonds or debentures. Penalty charges for late payment shall not be regarded as interest for the purpose of this Article. 5. The provisions of paragraphs (1) and (2) shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises, through a permanent establishment situated therein or performs in that other State independent personal services from a fixed base situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply. 6. Interest shall be deemed to arise in a Contracting State when the payer is that Contracting State itself, a political sub-division, a local authority or a resident of that State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or I.T.A. No.: 2302/KOL/2019 C.O. No.: 6/KOL/2020 Assessment Year: 2013-14 Mahabir Prasad Gupta. Page 21 of 22 not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated. 7. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest, having regard to the debt-claim for which it is paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last- mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement.” 19. Now, from perusal of the above Article we notice that the interest may be taxed in the Contracting State (i.e. in India) in which it arises and according to the law of that State and if the recipient is the beneficial owner of the interest, the tax so charged shall not exceed 5% of the gross amount of the interest if such interest is paid on a loan granted by a bank carrying on a bona fide banking business or by a similar financial institution and @ 12.5% of the gross amount of the interest in all other cases. 20. Now perusal of the above Article 11 of the DTAA between India and UAE, we note that the same is applicable in the case of the assessee and the alleged interest earned on fixed deposit of Rs. 46,36,912/- is liable to be taxed at the beneficial rate i.e. @ 12.5%. Accordingly ground no. 4 raised in the Cross Objection is partly allowed. I.T.A. No.: 2302/KOL/2019 C.O. No.: 6/KOL/2020 Assessment Year: 2013-14 Mahabir Prasad Gupta. Page 22 of 22 21. All the other grounds of the Revenue and that of the assessee are either consequential or alternative in nature or have become academic in nature. 22. In the result, the appeal filed by the Revenue and the Cross Objection filed by the assessee are partly allowed. Kolkata, the 23 rd January, 2023 Sd/- Sd/- [Sonjoy Sarma] [Manish Borad] Judicial Member Accountant Member Dated: 23.01.2023 Bidhan (P.S.) Copy of the order forwarded to: 1. ACIT, International Taxation, Circle-1(2), Kolkata. 2. Mahabir Prasad Gupta, 6/5D, Anil Moitra Road, Binayak Residence, Flat No. 411, Kolkata-700 019. 3. CIT(A)-22, Kolkata. 4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata. //True copy// By order Assistant Registrar ITAT, Kolkata Benches Kolkata