Shri Dinesh Goel, Patiala V. ITO-Ward-1, Patiala

ITA 34/CHANDI/2020

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 4335 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2016-2017
• Appeal Filed On: 08-01-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Gift; Business income; Transactions in derivatives; Source of fund; Tax effect; Capital receipt; Futures and options; Capital Gains
• Section: 68; 28; 44AD; 250; 69A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH CHANDIGARH Before Shri Sanjay Garg, Judicial Member I.T.A. No.1270/CHANDI/2018 Assessment Year: 2015-16 Shri Dinesh Goel......................... ..................................................... Appellant H No.25, Jyoti Enclave, Opp. Mohindra College, Patiala-147001. [PAN: AEEPG7470G] vs. ITO, Ward-1, Patiala........................................................................ Respondent I.T.A. No.34/CHANDI/2020 Assessment Year: 2016-17 Shri Dinesh Goel......................... ..................................................... Appellant H No.25, Jyoti Enclave, Opp. Mohindra College, Patiala-147001. [PAN: AEEPG7470G] vs. ITO, Ward-1, Patiala........................................................................ Respondent Appearances by: Shri Vibhore Garg, CA, appeared on behalf of the appellant. Smt. Amanpreet Kaur, Sr. DR, appeared on behalf of the Respondent. Date of concluding the hearing : August 03, 2022 Date of pronouncing the order : September 22, 2022 ORDER Per Sanjay Garg, Judicial Member: The captioned appeals have been preferred by the assessee against the separate orders both dated 23.08.2018 & 22.11.2019 of the Commissioner of Income Tax (Appeals), Patiala [hereinafter referred to as ‘CIT(A)’] passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’) for assessment year 2015-16 & 2016-17 respectively. Since the facts and issues involved in both the appeals are identical, hence, both the captioned appeals were heard together and are being disposed of with this common order. First, I take up assessee’s appeal for assessment year 2015-16 in ITA No.1270/CHANDI/2018. I.T.A. No.1270/CHANDI/2018 & I.T.A. No.34/CHANDI/2020 Shri Dinesh Goel 2 2. ITA No.1270/CHANDI/2018 - The assessee in this appeal has taken the following grounds of appeal: “1. (a) because the action is under challenge for misinterpreting the true intent & scope of Section 44AD which commences with non obstante clause stating notwithstanding anything to the contrary u/s 28 to 43C while the exclusionary clause u/s 44AD(6)(ii)r.w. Explanation(b)(i),(ii) does not restrict the business transactions namely(i)"commission from real estate business ", (ii) "business from trading in equities and derivatives". (b) Because the law is settled that the fiscal statute has to be construed strictly [SnehEnterprises vs Comm. of Customs (2006) 7 SCC 714 Para 24] and till specifically excluded a wider meaning has to be given to the provisions of the statute hence the narrow interpretation by the CIT(A) is erroneous. 2 Because the action for upholding the addition of Rs 6,91,748/- is being challenged on facts& law and even the quantum of additions are under challenge. 3. (a) Because the action is under challenge on facts & law for upholding the addition of 6,20,100/- treating the same as unexplained money u/s 69A r.w 115BBE while the assessee has himself volunteered to offer the amount for taxation to be written back as an income. (b) In accordance with Section 2(j) & 3 r.w Schedule Part-ll for Suits relating to Contracts, Entry 19 of the Limitations Act 1963, the limitation prescribed for recovery of non-repayment of loans beyond a period of 3 years is barred, resultingly the write back of loan for the AY 2008-09(7 years retrospect) it has been wrongly denied the benefit of writing back by treating it as an income. 4. Because the action is being challenged on facts & law as the income already offered for taxation has not been given the benefit/credit whereas the same amounts have been added back again treating the same as income hence double addition. 5. Because the prayer is for kindly allowing any addition, modification, deletion, amendment in the grounds of appeal along with the consequential benefit thereon before the disposal of the appeal in the interest of substantial justice for a decision in accordance with law.” 3. The brief facts of the case are that the assessee filed the return declaring business income of Rs.4,80,000/- u/s 44AD on gross turnover of Rs.55,59,108/- and net taxable income of Rs.3,22,090/-. During the assessment proceedings, the Ld. Assessing Officer enquired about details of gross receipts declared u/s 44AD. The assessee declared gross receipts as under: Turnover of future and options 35,16,210/- Sale of property 7,31,050/- Commission income 6,91,748/- I.T.A. No.1270/CHANDI/2018 & I.T.A. No.34/CHANDI/2020 Shri Dinesh Goel 3 Unsecured loans surrendered 6,20,100/- Total 55,59,108/- The Assessing Officer while making the assessment made additions of Rs.6,91,748/- observing that commission income was out of the purview of section 44AD and further observed that the assessee failed to establish commission agency business and treated the same to be unaccounted money u/s 69A read with section 115BBE of the I.T. Act. Further, the Assessing Officer rejected the plea of the assessee regarding the surrender of unclaimed loans Rs.6,20,100/- (unsecured loans taken from Late Sh P C Gupta Rs.3,44,500/- and Sh Karnail Singh Rs.2,75,600/- in FY 2008-09) and made addition of Rs.6,20,100/- treating the same as unaccounted money u/s 69A read with section 115BBE. 4. Being aggrieved by the order of the Assessing Officer, the assessee preferred appeal before the CIT(A). However, the ld. CIT(A) observed that commission income was not covered u/s 44AD and further that business from trading in F&O should not be covered u/s 44AD as the books needed to determine the profit/loss from derivative transactions. However, he noted that since no books of accounts/evidence was produced by the assessee, hence no benefit can be given to the assessee of the loss incurred in derivative transactions. 5. Being aggrieved by the above order of the CIT(A), the assessee has come in appeal before this Tribunal. The ld. Counsel for the assessee in this respect has made the following submissions: “The assessee had reported receipts from four sources u/s 44AD as stated above, whereas assessment order deals with only two sources while ignoring the receipts from other two sources. The Assessing Officer ignored the receipts of Rs 35,16, 210/- from trading in ‘Futures and Options’ in which assessee had incurred loss of Rs.12,47,996/- even after specifically being pointed out by the assessee vide his letter dated 11.09.2017 (which is even reproduced by A.O in the assessment order at page no. 10). Instead of allowing loss in trading of future and options, Ld AO kept silent on this issue and further erred in treating the same u/s 44AD where income is declared @8%. I.T.A. No.1270/CHANDI/2018 & I.T.A. No.34/CHANDI/2020 Shri Dinesh Goel 4 The AO ignored the receipts of Rs.7,31,050 /- from sale of property. On one hand Ld AO has observed in para 10 of the assessment order that the assessee failed to establish that he is working as real estate agent or is in the real estate business. In the same breath AO kept silent on the receipts from sale of property which can only be taxed under Capital Gains more so when assessee is not working in real estate business. Instead of treating the sale of property under proper head AO kept silent on the issue and further erred in treating the same u/s 44AD where income is declared @8%. The entire assessment is based on taking punitive action against the assessee because the assessee had inadvertently mentioned that the commission income at Rs.13,11, 848/- which was later on corrected by the assessee vide his reply dated 16.06.2017 clarifying that the receipts on account of commission is Rs.6,91,748/- and unsecured loans are Rs.6,20,100/-. The assessee even filed a duly sworn in affidavit to clarify his stand. The Ld AO has pierced the deeming fiction of section 44AD where expenses allowed under section 28 to section 43C are deemed to be allowed and net income of 8%/6% is taken as net taxable income. Once Assessing Officer has pierced into the deeming fiction and proceeded to address individual sources separately, then he cannot pick and choose on other sources. A.O has to address the issue in totality which he has failed miserably. The Ld. A.O ended up in making a high pitched assessment instead of rightful assessment. We have discussed the anomalies in assessment order above, we also draw ‘Your Honors’ kind attention to the tax effect if proper & correct treatment is given to all sources of income declared u/s 44AD. a) The total receipts of Rs.35,16,120/- on account of trading in futures and options will be reduced from the total turnover u/s 44AD and Loss of Rs.12,47,996/- wil1 be adjusted against the Current year business income. Moreover the business income declared u/s 4 4AD will be reduced by Rs.3,03,441/-. Documents relevant for computing derivative losses are at Paper book page 78-132 &149-198. b) Receipts from sale of property of RS 7,31,050/- can only be taxed under head capital gains. This will reduce the receipts u/s 44AD resulting into further reduction in business income of Rs.63089/-. c) Surrender of unclaimed loans by two parties (unsecured loans taken from Late Sh P C Gupta Rs.3,44,500/- and Sh Karnail Singh Rs 2,75,600/- in FY 2008-09) are in the nature of capital receipts not liable to tax and if it has to be taxed then it can only be taxed u/s 68 in the year of receipt of the amount being FY 2008-09. By no stretch of imagination the receipts could be taxed in the year under dispute. The assessee due to lack of knowledge offered the same to tax. Only the interest portion can be disallowed and not the principle amount. This will again reduce the gross receipts u/s 44AD. The Ld AO has added the amount of Rs.620100/-u/s 69A read with section 115BBE but has not adjusted the gross receipts u/s 44AD by this amount. I.T.A. No.1270/CHANDI/2018 & I.T.A. No.34/CHANDI/2020 Shri Dinesh Goel 5 d) Further Commission Income of Rs.6,91,748/- can be brought to tax which is a valid source. The loss of Rs.12,47, 996/- on future and options will be adjusted against the commission income, which will result in nil business income. e) Therefore if Correct & proper assessment is made by the AO, then business income will be reduced to nil and the resultant tax effect will reduce further. The assessee has not tried to evade tax but has ended up paying more taxes due to lack of proper knowledge.” 6. The ld. DR, on the other hand, has relied upon the findings of the lower authorities. 7. I have considered the rival submissions and gone through the records. In this case, the assessee earned income under different heads, however ignorantly offered all of his receipts u/s 44AD of the Act and offered the entire receipts @8%/6% tax on presumptive basis. However, the Assessing Officer found that entire income of the assessee was not eligible to be offered for taxation at fixed rate on presumptive basis u/s 44AD of the Act. He, however, instead of assessing the income of the assessee under the different heads as per the provisions of Income Tax Act, adopted pick and choose manner and only excluded the income wherein, the tax liability was increased such as commission income and unsecured loans, whereas income assessable under the other heads i.e. receipt from sale of property and loss from future options has not been assessed by the Assessing Officer under relevant heads. In this case, the Assessing Officer on the one hand has taken advantage of the ignorance of the assessee in offering the income on presumptive basis and taxed the receipts where the assessee was not supposed to pay the taxes, however, picked the other income whereupon the Assessing Officer found that the same was exigible to higher taxes. This, in my view, cannot be held justified at all. It has been held time and again that the Assessing Officer should help the assessee in computing and assessing the true and correct taxable income of the assessee and further that the income tax authorities should charge legitimate taxes from the assessees and they should not punish the assessees for their bona fide and ignorant mistakes. In this case, the Assessing Officer has adopted pick and choose manner to fasten high tax liability upon the assessee which cannot be allowed at all. In view of this, the impugned order of the CIT(A) is set aside and the matter is restored to the file of the Assessing Officer with a direction that the Assessing Officer will assess the income of the assessee under different heads as per I.T.A. No.1270/CHANDI/2018 & I.T.A. No.34/CHANDI/2020 Shri Dinesh Goel 6 the provisions of the Act, after considering the submissions of the assessee in this respect and after giving adequate and proper opportunity to the assessee to present his case and necessary details and evidences. It is made clear that the Assessing Officer will not be influenced by the fact that the assessee himself has offered/returned any of the receipts/income under wrong head or has himself offered higher taxes in respect of certain income. The Assessing Officer will determine the true and correct income of the assessee under different heads as per the provisions of the Act. The appeal of the assessee is treated as allowed for statistical purposes. 8. ITA No.34/CHANDI/2020 – In this case, the facts and issues are almost identical as that of the appeal of the assessee for assessment year 2015-16 in ITA No.1270/CHANDI/2018. In this appeal, the assessee has declared the gross receipts as under: Sale of land at Patiala 11,87,000 Income sale/purchase/renting of properties 4,73,644/- Forfeiture of advance against land at Ghuman Nagar 3,00,000/- Turnover of future and options 58,56,350/- Total 78,16,994/- The assessee offered tax @6%/8% on presumptive basis on the entire receipts as per the provisions of section 44AD of the Act. The ld. Counsel for the assessee in this respect has made the following submissions: “The ld. A.O while making the assessment made additions of Rs.6,15,000/- u/s 69A r.w.s 115BBE observing that trading liability on account of land sold on GPA cannot be retained by the assessee ignoring that the amount belong to Mrs Hem Lata mother-in law of the assessee. The assessee had declared the amount u/s 44AD due to lack of knowledge of tax laws. The amount could have been simply declared as gift from mother in law. Further the ld A.O added the commission income of Rs.4,73, 644/-to be out of the purview of Section 44AD and further observed that the assessee failed to establish I.T.A. No.1270/CHANDI/2018 & I.T.A. No.34/CHANDI/2020 Shri Dinesh Goel 7 commission agency business and treated the same to be unaccounted money u/s 69A read with section 115BBE. Further the Ld A.O rejected the plea of the assessee regarding the forfeiture of advance amounting to Rs.3,00,000/- and added the same as unaccounted money u/s 69A read with section 115BBE ignoring the evidence placed on record merely as a punitive measure. The amount of Rs 3, 00,000/- is taxable u/s 56(2)(ix) inserted w.e.f 01.04.2015. The AO ignored the receipts of Rs 58,56,350 from trading in ‘Futures and Options’ in which assessee had incurred loss of Rs.6,52,315/- even after specifically being pointed out by the assessee vide his letter dated 03.12.2018. Instead of allowing loss in trading of future and options, Ld A.O kept silent on this issue and further erred in treating the same u/s 44AD where income is declared @8%. That the Ld. A.O disallowed unsecured loans of Rs.3,00,000/- (Rs 1,50,000 each) taken from Dinesh Goel HUF and Sohan Lal HUF during the year. The assessee has submitted the copy of ITR’s for AY 2015-16 & 2016-17 alongwith copy of balance sheet and capital account of Dinesh Goel HUF and Sohan Lal HUF. Assessee also submitted the affidavit and bank statement of Dinesh Goel HUF and Sohan Lal HUF. All these documents were submitted before AO. The AO ignored all the documentary evidence and treated the loans as sham and made addition of Rs 3,00,000/- u/s 69A r.w.s 115BBE . That the Ld AO disallowed interest of Rs.96,656/- by observing that the assessee was never in need of funds. The addition made by the AO is on flimsy ground liable to be deleted. The Ld. AO has pierced the deeming fiction of section 44AD where expenses allowed under section 28 to section 43C are deemed to be allowed and net income of 8%/6% is taken as net taxable income. Once AO has pierced into the deeming fiction and proceeded to assess individual sources separately, then he cannot pick and choose on other sources. AO has to address the issue in totality which he has failed miserably. The Ld AO ended up in making a high pitched assessment instead of rightful assessment. We have discussed the anomalies in assessment order above, we also draw ‘Your Honors’ kind attention to the tax effect if proper & correct treatment is given to all sources of income declared u/s 44AD. a) The total receipts of Rs 58,56,350/- on account of trading in futures and options will be reduced from the total turnover u/s 44AD and Loss of Rs 6,52, 315/- will be adjusted against the current year business income. Moreover, the business income declared u/s 44AD will be reduced by Rs 4,68,508/-. Documents relevant for computing derivative losses are at Paper book page 210-243. b) Retention of money of Rs 6,15,000/- of Mrs Hem Lata mother in law be treated as gift and ignorance of assessee should not become basis for high pitched assessment. I.T.A. No.1270/CHANDI/2018 & I.T.A. No.34/CHANDI/2020 Shri Dinesh Goel 8 c) Further Commission Income of Rs 4,73, 644/- can be brought to tax which is a valid source . The loss of Rs.6,52,315/- on future and options will be adjusted against the commission income, which will result in nil business income. The set off of loss is allowed by CIT (A). d) Therefore if correct &proper assessment is made by the AO, then business income will be reduced to nil and the resultant tax effect will reduce further. The assessee has not tried to evade tax but has ended up paying more taxes due to lack of proper knowledge.” 9. In view of my finding given above, the matter in this appeal is also restored to the file of the Assessing Officer for de novo assessment with a direction that the Assessing Officer will assess the income of the assessee under different heads as per the provisions of the Act as per the directions given above in respect of the appeal of the assessee for assessment year 2015-16. 10. In the result, both the appeals are treated as allowed for statistical purposes. Kolkata, the 22 nd September, 2022. Sd/- [Sanjay Garg] Judicial Member Dated: 22.09.2022. RS Copy of the order forwarded to: 1. (a) Shri Dinesh Goel (b) Shri Dinesh Goel 2. ITO, Ward-1, Patiala 3. CIT(A)- 4. CIT- , 5. CIT(DR), ITAT, Chandigarh //True copy// By order Assistant Registrar I.T.A. No.1270/CHANDI/2018 & I.T.A. No.34/CHANDI/2020 Shri Dinesh Goel 9