VEERATH GOPALAN NAIR, MUMBAI V. ACIT CIRCLE-3, KALYAN

ITA 2468/MUM/2019

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 2595 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-05-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: F
• Assessment Year: 2011-2012
• Appeal Filed On: 21-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Earning of tax free income; Additional evidence; TDS; Rule 8D
• Section: 68; 144; 14A; 133(6); 194A; 119

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “F” MUMBAI BEFORE SHRI VIKAS AWASTHY (JUDICIAL MEMBER) AND SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) ITA No. 2468/MUM/2019 Assessment Year: 2011-12 Shri Veerath Gopalan Nair, Gr. Floor, Gurumilan CHS Ltd., Opp. Tilak Nagar Post Office, Dombivali (E), Mumbai-421 201. Vs. The Asst. Commissioner of Income Tax Circle-3, Kalyan-421 301. PAN No. AAJPN 9435 H Appellant Respondent Assessee by : None Revenue by : Mr. S.N. Kabra, DR Date of Hearing : 13/04/2022 Date of pronouncement : 11/05/2022 ORDER PER OM PRAKASH KANT, AM This appeal by the assessee is directed against order dated 19.03.2019 passed by the Ld. Commissioner of Income Tax (Appeals)-2, Nashik [in short ‘the Ld. CIT(A)’] for assessment year 2011-12, raising following grounds : 1. The Learned CIT(A) erred on law and facts in not deleting the addition of Rs.4,87,864/- made on account of profit from share trading Shri Veerath Gopalan Nair ITA NO. 2468/M/2019 2 transactions ignoring the accounts produced at the time of Remand Report. 2. The Learned CIT(A) erred in law and on facts in not granting set off of losses of speculation of Rs. 3,27,634/- when the same was claimed in the Return of Income. 3. (i) The Learned CIT(A) erred in law and on facts in not granting the interest expenses to the extent of Rs.9,34,265/- being considered as expenses not related to business. (ii) The Learned CIT(A) erred on law and on facts in not granting the interest paid of R$ 29,640/- to Tata Capital on the ground that TDS is not deducated from the interest payment 4. The Learned CIT(A) erred on law and on facts in disallowing the unsecured loan of Rs.3,00,000/- even though confirmation alongwith PAN CARD were produced before the learned AO. 5. The Learned CIT(A) erred on law and on facts the disallowance of Rs.2,10,120/- u/s 14A even though the Assessee has not received any exempt income. 2. At the outset, we may like to mention that despite notifying none attended on behalf of the assessee nor any adjournment was sought. On hearing dated 20.12.2021 and 10.03.2022 also none attended on behalf of the assessee before the Tribunal. In the circumstances, we were of the opinion that assessee is not Shri Veerath Gopalan Nair ITA NO. 2468/M/2019 3 interested in prosecuting appeal and therefore same was heard ex- parte qua the assessee, after hearing arguments of the Ld. Departmental Representative (DR). 3. Briefly stated, the facts of the case are that the assessee is an individual and running his proprietary business of M/s VGN Departmental Stores for trading of consumer products, household articles etc. The assessee is also doing business of DTP Printing and Job work through M/s VGN Computers. For the year under consideration, the assessee filed return of income on 30.09.2011 declaring total income of Rs.21,75,376/-. The return of income filed by the assessee was selected for scrutiny. In view of no compliance by the assessee of the various notices along with questionnaire issued, the Assessing Officer completed the assessment u/s 144 of the Act on 19.03.2014 assessing total income at Rs.14,96,81,135/-. On further appeal, the Ld. CIT(A) allowed part relief to the assessee. Shri Veerath Gopalan Nair ITA NO. 2468/M/2019 4 4. Aggrieved with the additions sustained the assessee is before the Tribunal by way of raising grounds as reproduced above. 5. We have heard the submission of the Ld. DR and perused the relevant material on record. 5.1 In ground No. 1, the assessee has challenged addition of Rs.4,87,864/- sustained by the Ld. CIT(A) on profit from share trading transactions. We find that Ld. CIT(A) has adjudicated the issue-in-dispute in para 10.1 of the impugned order as under : “10.1 I have gone through the submission of the appellant, observation of the AO in the assessment order, Remand report of A.O. and counter comments on the remand report. The A.O. reiterated in the remand proceedings that, the appellant had received profit of Rs. 11,32,867/- through trading activities executed via various stock brokers namely United Credit Securities Ltd, JNR Securities Broking Pt Ltd. and Religare Commodities Pvt Ltd. The A.O. further reiterated during the remand proceedings that, the appellant had not submitted any details in support of its contention that, he has earned only Rs. 3,30,624/- as profit through trading activities. The appellant has failed to submit P&L account for trading in shares and the appellant has failed to prove that his profit from trading in shares is only Rs.3,30,624/- and not submitted any details of any expenses for earning the income. Further, the appellant has not made any comment on the profit of Rs.11,32,867/- Shri Veerath Gopalan Nair ITA NO. 2468/M/2019 5 arrived at by the A.O.. In the absence of any corroborative evidence in this support, the addition made by the A.O. is sustained and the ground of appeal raised by the appellant is dismissed.” 5.2 We find that the Ld. CIT(A) referred the additional evidences and comment of the Assessing Officer. The Assessing Officer provided due opportunity to the assessee for substantiating evidence and support of claim of the assessee, however he failed to do so and therefore in absence of any evidence in support, the Ld. CIT(A) is justified in sustaining the addition. We do not find any perversity or error in the order of the Ld. CIT(A) and accordingly, we uphold the same. Ground No. 1 of the assessee is accordingly dismissed. 5.3 In ground No. 2, the asssessee has contested that the Ld. CIT(A) has not granted set off losses of speculation of Rs.3,27,624/-. However, on perusal of the order of the Ld. CIT(A), we do not find any such rejection of set off losses by the Ld. CIT(A) and therefore, ground of the appeal being infructuous same is dismissed. Shri Veerath Gopalan Nair ITA NO. 2468/M/2019 6 5.4 The ground No. 3 of the appeal of the assessee relate to not allowing interest expenses to the extent of Rs.9,34,265/- and interest paid of Rs.29,640/- on capital, on the ground that TDS was not deducted. We find that the Ld. CIT(A) after analyzing remand report sent by the Assessing Officer, has allowed substantial relief and wherever the assessee failed to support the claim with documentary evidence, the Ld. CIT(A) has sustained disallowance. The relevant finding of the Ld. CIT(A) is reproduced as under : “13.1 I have gone through the submission of the appeilant, observation of the AO in the assessment order, Remand report of A.0. and counter comments on the remand report. On perusal of the same, it is seen that, the A.O., in the absence of any information available on record, added the same to the total income of the appellant. In the absence of details, the AO has mentioned that the interest paid of Rs.62;05,791/- is inadmissible u/s.36(1)(ili), 40(a)(ia), 40A(2)(b) and also 43B(d) &(e) of the Act. 13.2 During the remand proceedings, the AR was requested to furnish the form No.15G in respect of person to whom the TDS was not deducted on the interest paid. The appellant submitted the same and it was observed by the A.O. that, the TDS Was not deducted u/s 194A on the interest of Rs. 29,640/- paid to Tata Capital for car loan. In respect of the payment of interest of Rs. 26,01,191/- to VGN jewellwers and Rs. Shri Veerath Gopalan Nair ITA NO. 2468/M/2019 7 3,35,973/- from VGN Departmental stores, TDS was rightly deducted. The same has been confirmed/verified from VGN Jewellers in response to notice issued u/s 133(6) of the Act, 1961 and the same was duly offered for tax in P&L account for the relevant year. Therefore, the total interest offered for taxation is Rs.29,34,164/-, which is around 47% of the total interest expenditure. The A.O. further reiterated in his remand report that, appellant has not wholly utilized the amount for business purpose. However, the appellant has contended that, the interest expense was incurred wholly and exclusively for business purposes so is allowable u/5.36 of the Act. Further, the appellant argued that, interest expense has been historically allowed. The interest of Rs.79,00,925/- and Rs.80,37,820/- has been allowed for A.Ys.2010-11 & 2012-13 respectively and no disallowance has been made under this head. The AO has made an observation in the remand report that, the appellant has two businesses, VGN Department Stores and money lending business. VGN Department stores has claimed interest expense of Rs.3,35,973/- and in personal P&L A/c i.e. money lending business, interest expense is Rs.58,40,168/- as against interest income of Rs.49,05,903/-. Hence, it can infer that the appellant has not wholly used for business purpose. In this regard, I do agree with the observation of the AO, therefore, I restrict the interest expense to the extent of interest income and the disallowance of interest works out to Rs.9,34,265/- i.e. (58,40,168 - 49,05,903) and the same is added to the total income of the appellant. In addition to the above, as observed by the AO in the remand proceedings, the appellant failed to deduct TDS on the interest of Rs. 29,640/- paid to Tata Capital, therefore, the same is disallowed and added to the total income of the appellant. Shri Veerath Gopalan Nair ITA NO. 2468/M/2019 8 Therefore, the total addition works out to Rs.9,63,905/- i.e. (9,34,265 +29,640) as against the addition of Rs.62,05,781/-. The appellant gets relief of Rs.52,41,876/- The ground of appeal raised by the appellant is partly allowed.” 5.5 We do not find any error or perversity in the order of Ld. CIT(A) and accordingly we uphold the same. The ground No. 3 of the appeals of the assessee is accordingly dismissed. 5.6 The ground No. 4 of the appeal, relates to sustaining the addition of unsecured loan of Rs.3,00,000/-. The relevant finding of the Ld. CIT(A) is reproduced as under : “14.0 Ground No.10 is directed against the addition of Rs. 3,95,04,854/- made on account of increase in unsecured loans. 14.1 I have gone through the submission of the appellant, observation of the AO in the assessment order, Remand report of A.O. and counter comments on the remand report. On perusal of the same, it is seen that, the A.O., in the absence of any information regarding genuineness of transaction, confirmation and credit worthiness of creditors, the A.O. added the same to the total income of the appellant as unexplained credits u/s 68 of the Act, 1961. During the remand proceedings, the appellant has stated that, out of the total loan creditor of Rs.3,95,04,854/-, the new loan are only Rs.5,00,000/- and the break up is as follows- a)Shri. G.T.Varghese Shri Veerath Gopalan Nair ITA NO. 2468/M/2019 9 Rs.3,00,000/- b)Smt. Pratibha K. Dhande Rs.1,00,000/- c) Shri. Joseph M. Arrackan Rs.1,00,000/-. In this regard, the appellant has submitted the bank statement, ledqer of Pratibha Dhande & Joseph M .Arrackan. The A.O. failed to file the details of G.T. Varghese from whom the loan of Rs. 3,00,000/- was received hence, the loan of Rs. 3,00,000/- remains unverified. The remaining loan details have been discussed in the remand report and the relevant portion is reproduced as under:- "7.3 Further, notice u/s 133 (6) was issued to the VGN Jewellers to verify the genuineness of the transactions. Reply was received on 05.03.2018 in Tapaal. It is seen that VGN Jewellers have confirmed the transaction of loan as specified by the assessee. Further, VGN Jewellers has submitted the Bank statement reflecting transactions, 26AS details and Balance Sheet where closing balance of loans by Shri VG Nair of Rs. 4,02,63,697/- and VGN Departmental Stores of Rs. 36,78,066/- are reflected and interest income has been offered on the same in its P&L account. Hence, loan from VGN Jewellers stands verified." In view of the above stated facts, I am of the considered view that, the addition is restricted to Rs. 3,00,000/- as against Rs.3,95,04,854/- and the same is added to the total income of the appellant. The appellant gets relief of Rs.3,92,04,854/-.The ground of appeal raised by the appellant is partly allowed.” 5.7 In view of failure of the assessee to furnish the relevant documentary evidence, the Ld. CIT(A) is justified in sustaining the addition of Rs.3,00,000/- shown to be received from Mr. G.T. Varghese as unexplained cash credit in terms of section 68 of the Shri Veerath Gopalan Nair ITA NO. 2468/M/2019 10 Act. The Ground No. 4 of the appeal of the assessee is accordingly dismissed. 5.8 In ground No. 5, the assessee has challenged the disallowance of Rs.2,10,120/- u/s 14A of the Act. The Ld. CIT(A) has sustained the disallowance observing as under : 15.1 Mhave gone through the submission of the appellant, observation of the AO in the assessment order, Remand report of A.O. and counter comments on the a remand report. On perusal of the same, it is seen that, the A.O. has disallowed the amount of Rs.3,64,068/- u/s 14A of the Act, 1961 as the appellant failed to make disallowance as per section 14A r.w.r. 8D. Therefore, the A.O. has disallowed the same and added to the total income of the appellant. The A.O. in the remand proceedings reiterated that the appellant has invested in VGN Chit and Finance Co P Ltd and VGN jewellery Put Ltd. and amount of investment was Rs. 16,71,700/- and the appellant has reiterated in his submission that, he has not earned any exempt during the year. The A.O. has rejected the plea of the appellant in the light of circular No. 5/2014 dated 11.02.2014 issued by CDT, New Delhi. The Circular clarifies the doubt regarding disallowance of expenses under section 14A of the Income-tax Act in cases where corresponding exempt income has not been earned during the financial year. In its Para 6, it concludes that, "Thus, in light of above, Central Board of Direct Taxes, in exercise of its powers under section 119 of the Act hereby clarifies that Rule 8D read with section 14A of the Act provides for disallowance of Shri Veerath Gopalan Nair ITA NO. 2468/M/2019 11 the expenditure even where taxpayer in a particular year has not earned any exempt income." The disallowance u/s 14A worked out by the A.O. as under: The appellant reiterated again that, he has not received any exempt income during the year. The AR of the appellant has also placed reliance on the various judqments such as Delhi HC in the case of CheminvestPvt Ltd and CIT Vs Chettinand Logistics, Madras HC and also Bombay Tribunal in case of Kamat Hotels (India) Ltd Vs DCIT in support of its contention. In view of above stated facts &circular issued by the CBDT, even if there is no income, the disallowance has to be worked out as per rule 8D(2)) and 8D(2Xiii) and the AO has rightly computed the disallowance.Hence, the addition of Rs.3,94,068/- made by the A.0. is restricted to Rs. 2,10,120/-.The ground of appeal raised by the appellant is partly allowed. 5.9 The undisputed fact in the case is that the assessee has not received any exempted income during the year under consideration. Shri Veerath Gopalan Nair ITA NO. 2468/M/2019 12 Therefore, in view of the decision of the Hon’ble Delhi High Court in the case of Cheminvest Ltd. v. CIT (2009) 317 ITR 86, no disallowance is called for in terms of section 14A of the Act. Therefore, the disallowance sustained by the Ld. CIT(A) is deleted. The ground of the appeal of the assessee is accordingly allowed. 6. In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open Court on 11/05/2022. Sd/- Sd/- (VIKAS AWASTHY) (OM PRAKASH KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 11/05/2022 Dragon Legal/Rahul Sharma, Sr. P.S. Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// (Sr. Private Secretary) ITAT, Mumbai