HANSAT MANEKLAL SAVANI, MUMBAI V. ITO WD 7(2)(2), MUMBAI

ITA 2339/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 5114 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 12-12-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 10-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M RAJAN
• Assessee Lawyers: G P MEHTA; VIPUL MODY
• Keywords: Business income
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AN D DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 2339/MUM/2012 ASSESSMENT YEAR: 2008-09 MR. HANSAT MANEKLAL SAVANI FLAT NO. 210, JAYALAXMI, KINGSWAY, SION (EAST), MUMBAI-.400 022 VS. ITO WARD 7(2)(2) MUMBAI. (APPELLANT) (RESPONDENT) PERMANENT ACCOUNT NO. :- AAHPS 2201 C APPELLANT BY : SHRI G.P. MEHTA & SHRI VIPUL MODY RESPONDENT BY : SHRI M. RAJAN DATE OF HEARING : 12.12.2013 DATE OF PRONOUNCEMENT : 20.12.2013 O R D E R PER DR. S.T.M. PAVALAN, JM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LD. CIT(A)-13, MUMBAI DATED 29.11.2011 FOR THE ASSESSMENT YEAR 20 05-06. 2. IN GROUND NO.1, THE ASSESSEE HAS AGITATED THE AC TION OF THE LD.CIT(A) IN CONFIRMING THE ACTION OF THE AO TREATING AN AMOUNT OF RS.75 LA KHS DISCLOSED BY THE ASSESSEE DURING THE COURSE OF SURVEY PROCEEDINGS U/S 133A AS INCOM E FROM OTHER SOURCE AS AGAINST THE ASSESSEE DECLARING THE SAME AS BUSINESS INCOME. 2.1 BRIEFLY STATED, THE ASSESSEE, AN INDIVIDUAL, A PARTNER IN M/S. SAVANT TRANSPORT LTD IN WHICH AN ACTION U/S 133A WAS CONDUCTED. DURING THE COURSE OF THE SURVEY, TWO ROUGH SHEETS WERE IMPOUNDED. THE IMPOUNDED TWO ROUGH SHEE TS CONTAINED/INDICATED THE FIGURES OF RS.1.25 CRORES AND RS.75 LAKHS IN THE NAMES OF N AYANT SAVANI (ONE OF THE PARTNERS) AND IN THE NAME OF THE ASSESSEE RESPECTIVELY. THE S URVEY TEAM ALSO RECORDED THE STATEMENT OF SHRI NAYANT SAVANI. ACCORDING TO THE S TATEMENT, SHRI NAYANT SAVANI AGREED ITA NO. 2339/MUM/2012 MR. HANSAT MANEKLAL SAVANI ASSESSMENT YEAR: 2008-09 2 THAT THE AMOUNTS FIGURING IN THE IMPOUNDED SHEETS W OULD BE OFFERED TO TAX. THEREAFTER, THE ASSESSEE, WHILE DECLARING A TOTAL INCOME AT RS. 19,88,972/-, IN THE RETURN OF INCOME HAD OFFERED THE SAID AMOUNT OF RS.75 LAKHS UNDER TH E HEAD BUSINESS INCOME U/S 133A OF THE ACT. HOWEVER, IN THE ASSESSMENT FRAMED U/S 143( 3), THE AO TREATED THE IMPUGNED RECEIPT UNDER THE HEAD INCOME FROM OTHER SOURCES ON THE REASON THAT THE ASSESSEE HAD IGNORED TO DESCRIBE THE NATURE OF BUSINESS ENGAGED DURING THE RELEVANT PREVIOUS YEAR AND ALSO THE ASSESSEE HAD NOT FURNISHED REPORT U/S 44AB IN RESPECT OF THE SAME. ACCORDINGLY, THE AO DENIED THE CLAIM OF THE ASSESSEE FOR WANT OF EVIDENCE THAT THE ASSESSEE EARNED THE IMPUGNED INCOME IN ANY BUSINESS. ON APPEAL, THE LD.CIT(A) CONFIRMED THE ACTION OF THE AO AS THE CLAIM OF THE ASSESSEE WAS AN ATTEMPT TO COVER THE INCOME UNDER HEAD BUSINESS TO AVAIL THE BENEFIT OF ACCUMULATED LOSS ES OF EARLIER YEARS SO THAT TAXABILITY GETS SUBSTANTIALLY REDUCED. AGGRIEVED BY THE IMPUGNED DE CISION, THE ASSESSEE HAS RAISED THIS GROUND IN THE APPEAL BEFORE US. 2.2 BEFORE US, THE LD.AR OF THE ASSESSEE HAS CONTEN DED THAT THE IMPUGNED INCOME HAS BEEN EARNED BY THE ASSESSEE THROUGH REFERRAL AND CO MMISSION BUSINESS ON REGULAR BASIS DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THE TRANSACTIONS ENTERED INTO HAVE BEEN NOTED DOWN ON S CRIBBLING BASED ON WHICH THE IMPUGNED AMOUNT HAS BEEN DECLARED AS BUSINESS INCOM E DURING THE SURVEY PROCEEDINGS. FURTHER, THE LD.AR HAS RELIED ON THE DECISION OF TH E JURISDICTIONAL HIGH COURT IN THE CASE OF J.C. THAKKAR VS. CIT [27 ITR 658 (BOM)] AND THE DECISION OF THE HIGH C OURT OF MADRAS IN THE CASE OF H.C. KOTHARI AND OTHERS VS. CIT [20 ITR 579 (MAD)] IN SUPPORT OF THE PROPOSITION THAT IF AN INCOME FALLS UNDER MORE THAN ONE HEAD, THE ASSESSEE HAS THE OPTION OF CHOOSING THE HEAD OF INCOME WHICH MAKES THE BURD EN OF THE ASSESSEE LIGHTER. ON THE OTHER HAND, THE LD.DR HAS RELIED ON THE ORDERS OF T HE AO AND THE LD.CIT(A) BY DRAWING OUR SPECIFIC ATTENTION TO THE STATEMENT RECORDED DU RING THE SURVEY AND TO THE FACT THAT THE ASSESSEE HAS NOT FURNISHED REPORT U/S 44AB. 2.3 WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MA TERIAL ON RECORD. IT IS PERTINENT TO MENTION THAT THE STATEMENT OF SHRI NAYANT SAVANI RE CORDED ON 09.10.2007 DURING THE SURVEY ACTION IN RESPONSE TO QUERY NO 25 AS TO THE NATURE OF TRANSACTION AND THE SOURCE OF TRANSACTIONS ON THE FIGURES CONTAINED IN THE IMP OUNDED ROUGH SHEETS IS EXTRACTED HEREUNDER:- ITA NO. 2339/MUM/2012 MR. HANSAT MANEKLAL SAVANI ASSESSMENT YEAR: 2008-09 3 DUE TO BUSINESS EXIGENCIES, I AM NOT IN A POSITION TO EXPLAIN THE SOURCE AND NATURE OF THE TRANSACTION AS APPEARING IN ANNEXURE A1 AND ANNEXURE2. HOWEVER, TO AVOID LITIGATION AND BUY PEACE, I OFFER THE TOTAL SUM OF RS. 2 CRORES (RS.1.25 CRORES + 0.75 CRORES) AS ADDITIONAL SOURCE OF THE CURRENT FINANCI AL YEAR I.E. F.Y. 2007-08. I SHALL BE PAYING THE CORRESPONDING ADVANCE TAX ON THE DUE DAT E I.E. 15 TH DECEMBER AND 15 TH MARCH 2008. IT IS REQUIRED THAT THE TAXES ON THE SA ID ADDITIONAL INCOME MAY ALSO BE ADJUSTED AGAINST THE REFUND DUE IN THE CASE OF M/S. SAVANI TRANSPORT PVT. LTD. HOWEVER, DURING THE ASSESSMENT PROCEEDINGS FRAMED U NDER SECTION 143(3), IN RESPONSE TO THE NOTICE OF THE AO, THE ASSESSEE HAS STATED THAT THE BUSINESS INCOME DECLARED PURSUANT TO THE SURVEY PROCEEDINGS HAVE BEEN DULY ACCEPTED B Y THE DEPARTMENT AND DUE TO THE BUSINESS EXIGENCIES, THE NATURE OF TRANSACTION COUL D NOT BE DISCLOSED AT THE TIME OF THE SURVEY. IT IS ALSO OBSERVED THAT THE ASSESSEE HAS F ILED AN AFFIDAVIT STATING THAT WITH THE CONSENT OF THE INVESTIGATING OFFICER, HE HAS DECLAR ED AND OFFERED IN HIS PERSONAL CAPACITY AN AMOUNT OF RS. 75 LAKHS AS BUSINESS INCOME. IT IS RELEVANT TO STATE THAT THE PERUSAL OF THE AFOREMENTIONED STATEMENT OF SHRI NAYANT SAVANI RECORDED DURING THE SURVEY DOES NOT PROVIDE ANY RATIONAL BASIS FOR TREATING THE IMPUGNE D INCOME UNDER THE HEAD INCOME FROM OTHER SOURCE AS THE SAID STATEMENT DOES NOT SUGGES T FOR THE SAME. MOREOVER, ACCORDING TO THE DECISION OF THE MADRAS HIGH COURT IN THE CAS E OF CIT VS S. KHADER KHAN SON [2008] 300 ITR 157 (MAD.), WHICH HAS BEEN CONFIRMED BY THE APEX COURT AS REPORTED IN [2013] 352 ITR 480 (SC) , WHATEVER STATEMENT IS RECORDED UNDER SECTION 133A, THE SAME IS NOT GIVEN ANY EVIDENTIARY VALUE AND THE STATEMENT OBTAI NED UNDER SECTION 133A WOULD NOT AUTOMATICALLY BIND UPON THE ASSESSEE. THEREFORE, EV EN ASSUMING THAT THERE IS A STATEMENT TO THE EFFECT OF ADMISSION BY THE ASSESSEE MADE DUR ING THE SURVEY, THE SAME CANNOT BE THE SOLE BASIS FOR TAKING A DECISION BY THE REVENUE AUTHORITIES DURING THE ASSESSMENT PROCEEDINGS. HAVING NOTED THE LEGAL POSITION, WE DO NOT FIND ANY REASON FOR THE AUTHORITIES BELOW TO DISBELIEVE THE ASSESSEES CLAI M THAT IS AVERRED IN THE AFFIDAVIT FILED DURING THE ASSESSMENT PROCEEDINGS. FURTHER, MERELY NOT COMPLYING THE PROVISION OF SECTION 44AB OF THE ACT CANNOT PRECLUDE THE ASSESSE E FROM CLAIMING/DISCLOSING AN INCOME UNDER THE HEAD BUSINESS. 2.3.1 IT APPEARS THAT THE ACTION OF THE AO AND THE REASONING OF THE LD.CIT(A) FOR CONFIRMING THE SAID ACTION HAS BEEN ONLY FOR THE PU RPOSE OF PLACING THE ASSESSEE IN A POSITION OF DENYING THE BENEFIT OF ACCUMULATED LOSS ES OF EARLIER YEARS TO BE SET OF AGAINST THE BUSINESS INCOME. IT IS PERTINENT TO MENTION THA T WHILE DECIDING THE ISSUE REGARDING THE RELEVANT HEAD OF INCOME, WHETHER THE ASSESSEE WOULD GET ANY OTHER CONSEQUENTIAL BENEFIT ITA NO. 2339/MUM/2012 MR. HANSAT MANEKLAL SAVANI ASSESSMENT YEAR: 2008-09 4 CANNOT BE THE GUIDING FACTOR/TEST FOR DECIDING THE RELEVANT HEAD OF INCOME, WHICH IN OUR VIEW IS A CONSEQUENTIAL AND LATER EFFECT WHICH FOLL OWS AFTER DETERMINING THE RELEVANT HEAD OF THE INCOME. THEREFORE, WE ARE NOT INCLINED TO AC CEPT THE REASONING OF THE LD.CIT(A) THAT THE CLAIM OF THE ASSESSEE IS AN ATTEMPT TO COV ER THE INCOME UNDER HEAD BUSINESS TO AVAIL THE BENEFIT OF ACCUMULATED LOSSES OF EARLIER YEARS SO THAT TAXABILITY GETS SUBSTANTIALLY REDUCED. 2.3.2 FURTHER, THE DECISIONS RELIED BY THE ASSESSEE IN THE CASES OF J.C. THAKKAR VS. CIT AND H.C. KOTHARI AND OTHERS VS. CIT (SUPRA) SUPPORT THE PROPOSITION THAT IF AN INCOME FALLS UNDER MORE THAN ONE HEAD, THE ASSESSEE HAS THE OPTI ON OF CHOOSING FOR THE PURPOSE OF INCOME TAX, SUCH HEAD WHICH MAKES THE BURDEN ON HIS SHOULDERS LIGHTER. APPLYING THE SAID RATIO TO THE FACTS OF THE ASSESSEE, IN THE ABSENCE OF ANY EVIDENCE BROUGHT BY THE AUTHORITIES BELOW TO DISPROVE/DISBELIEVE THE CLAIM OF THE ASSESSEE TREATING THE IMPUGNED RECEIPT UNDER THE HEAD BUSINESS INCOME, THE AUTHO RITIES BELOW ARE NOT JUSTIFIED IN TREATING THE SAME UNDER THE HEAD INCOME FROM OTHER SOURCES . IN VIEW OF THE AFOREMENTIONED DISCUSSIONS, WE ARE OF THE CONSIDERED VIEW THAT THE SAID INCOME OF 75 LACKS DECLARED BY THE ASSESSEE DURING THE COURSE OF THE SURVEY HAS NE CESSARILY TO BE TREATED UNDER THE HEAD BUSINESS INCOME AS CLAIMED BY THE ASSESSEE. WE DI RECT AND ORDER ACCORDINGLY. RESULTANTLY, THIS GROUND OF APPEAL IS ALLOWED. 3. IN GROUND NO. 2, THE ASSESSEE HAS AGITATED THE A CTION OF THE LD.CIT(A) IN CONFIRMING THE DISALLOWANCE OF INTEREST OF RS.16.85 LACKS MADE BY THE AO ON ACCOUNT OF THE INTEREST PAID BY THE ASSESSEE TO THE FIRM IN WH ICH HE IS A PARTNER. 3.1 BRIEFLY STATED THE FACTS ARE THAT THE APPELLANT IS A PARTNER IN THE FIRM M/S. MSN ENTERPRISES. THE ASSESSEE CAPITAL ACCOUNT IN THE FI RM IS SHOWN AS UNDER:- OPENING BALANCE 01.04.2007 ADDITIONS DURING THE YEAR INTEREST FROM PARTNER SHARE OF LOSS WITHDRAWALS DURING THE YEAR BALANCE ON 31.03.2008 NIL 64,54,000 (20,71,376) (6,41,315) 1,98,78,088 (1,60,45,779) THE ASSESSEE PAID RS.20.71 LACS AS INTEREST ON OVER DRAWN BALANCE IN HIS CAPITAL ACCOUNT WITH THE FIRM AND IN COMPUTATION OF INCOME (PAPER B OOK PAGE 2) THE ASSESSEE HAD CLAIMED THIS INTEREST PAYMENT AS BUSINESS LOSS AND AFTER SETTING OFF THIS LOSS, NET INCOME IS SHOWN AT RS.54.71 LACS. THE AO ALLOWED THIS LOSS OF 20.71 LACS. THE LD.CIT(A) HAD GIVEN ITA NO. 2339/MUM/2012 MR. HANSAT MANEKLAL SAVANI ASSESSMENT YEAR: 2008-09 5 CALCULATIONS OF INTEREST DISALLOWANCE AND WORKED OU T THE DISALLOWANCE AT RS. 16.85 LACS WITHOUT GIVING ANY REASONING THEREOF. 3.2 DURING THE COURSE OF THE PROCEEDINGS IN RESPONS E TO THE QUERY RAISED BY US ON THE CONTENTS OF THE RELEVANT PARTNERSHIP DEED, THE LEAR NED AR HAS POINTED OUT THAT VIDE CLAUSE 12 OF THE PARTNERSHIP DEED, THE PARTNERS ARE ENTITLED TO INTEREST ON THE CREDIT BALANCE IN THE CAPITAL ACCOUNT, AS PRESCRIBED U/S 4 0(B)(IV) OF THE I.T. ACT 1961 @ 12%. THE PARTNERS ARE ALSO LIABLE TO PAY INTEREST ON THE DEBIT BALANCE IN CAPITAL ACCOUNT ON SIMILAR BASIS. IT IS FURTHER SUBMITTED THAT THE LIA BILITY TO PAY INTEREST ARISES OUT OF CONTRACTUAL OBLIGATION. THE PERUSAL OF THE COPY OF THE FIRMS ASSESSMENT ORDER FOR ASST. YEAR 2008-09 AVAILABLE AT PAPER BOOK PAGE 30 REVEAL S THAT IN THE CASE OF THE FIRM M/S. MSN ENTERPRISES THE SAID INTEREST HAS BEEN ASSESSED AS INCOME OF THE FIRM. HAVING CONSIDERED THE RIVAL SUBMISSIONS, REASONING OF THE LOWER AUTHORITIES AND MATERIAL ON RECORD, WE ARE OF THE CONSIDERED VIEW THAT THE CLAI M OF THE ASSESSEE IS EMANATING OUT OF CONTRACTUAL OBLIGATION AND IS IN CONSONANCE WITH TH E PROVISIONS OF LAW. WE THEREFORE, SET ASIDE THE ORDER OF THE LOWER AUTHORITIES AND ASSESS EE SUCCEEDS ON THIS GROUND OF APPEAL. 4. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THI S 20 TH DAY OF DECEMBER, 2013. SD/- SD/- (D. KARUNAKARA RAO) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 20.12.2013. *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR H BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.