INDU R. BAGGA, MUMBAI V. ITO WD 20(1)-3, MUMBAI

ITA 3656/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8323 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 06-09-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 07-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRADEEP KUMAR SINGH
• Keywords: Unexplained cash credit; Gift; Additional evidence; Capital expenditure
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I, MUMBAI BEFORE SHRI I.P.BANSAL,JUDICIAL MEMBER & SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO.3656/MUM/2010(A.Y. 2005-06) SMT. INDU R. BAGGA, G-11, LAXMI IND. ESTATE, NEW LINK ROAD, ANDHERI (W), MUMBAI - 53. PAN:AAEPB 4773B (APPELLANT) VS. THE INCOME TAX OFFICER 20(1)-3, PIRAMAL CHAMBER, MUMBAI. (RESPONDENT) APPELLANT BY : SHRI NITESH JOSHI RESPONDENT BY : SHRI PRADEEP KUMAR SING H DATE OF HEARING : 12/11/2012 DATE OF PRONOUNCEMENT : 12 /11/2012 ORDER PER I.P.BANSAL, J.M, THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS D IRECTED AGAINST THE ORDER PASSED BY LD. CIT(A)- 31, MUMBAI DATED 11.0 2.2010 FOR ASSESSMENT YEAR 2005-06. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ AS UNDER: THE APPELLANT APPEALS AGAINST THE IMPUGNED ORDER O F THE COMMISSIONER OF INCOME TAX (APPEALS)-31, MUMBAI (THE JTCA) DATED FE BRUARY 11, 2010 (RECEIVED BY ON MARCH 10,2010 ON THE FOLLOWING AMON GST OTHER GROUNDS WHICH IS IN THE ALTERNATIVE AND WITHOUT PREJUDICE TO ANY OTHERS. 1. THE CIT(A) ERRED IN UPHOLDING THE ADDITION OF RS .4,14,005/- AS AN UNEXPLAINED CASH CREDIT UNDER SECTION 68 OF THE INC OME TAX ACT (THE ACT). 2. THE CIT(A) ERRED IN UPHOLDING THE ADDITION OF RS . 4,14,005/- UNDER SECTION 68 OF THE ACT CIT(A) HAS ERRED IN RELYING ON MATERI ALS WHICH WAS NOT RELEVANT TO THE ISSUE UNDER CONSIDERATION AND ALSO IGNORED THE RELEVANT MATERIAL WHICH WAS PLACED BEFORE HIM FOR CONSIDERATION. ITA NO.3656/MUM/2010(A.Y. 2005-06) 2 3. THE CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE O F INTEREST EXPENDITURE OF RS. 4,42,611/- 4. THE CIT(A) OUGHT TO HAVE HELD THAT BORROWINGS MA DE BY THE APPELLANT ON WHICH INTEREST WAS PAID HAD A NEXUS WITH FUNDS ADVA NCED TO INDU PHOTO FRAMES PVT. LTD. AND HENCE DEDUCTION IN RESPECT OF INTEREST ON BORROWINGS OUGHT TO HAVE BEEN ALLOWED. 5. THE CIT(A) ERRED IN UPHOLDING THE COMPUTATION OF INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY AT RS. 84,000/- 6. THE CIT(A) OUGHT TO HAVE HELD THAT ANNUAL VALUE OF THE INDUSTRIAL GALA CANNOT EXCEED THE STANDARD RENT OR THE MUNICIPAL RATEBLE V ALUE OF THE SAID PREMISES WHICH WAS JUST AROUND RS. 69961- FOR THE ENTIRE YEA R 2004-05 IN RESPECT OF INDUSTRIAL GALA. THE APPELLANT CRAVES LEAVE TO ADD, TO AMEND OR TO A LTER ANY OF THE ABOVE GROUNDS OF APPEALS 2. IN GROUND NO.1 & 2, THE ISSUE IS REGARDING ADD ITION OF RS.4,14,005/- MADE UNDER SECTION 68 OF THE INCOME T AX ACT 1961 (THE ACT). IT WAS SUBMITTED BY LD. A.R THAT THIS ADDITION IS R EGARDING THE GIFT RECEIVED BY THE ASSESSEE FROM NON-RESIDENT. THE ASSESSEE CO ULD NOT FILE PROPER EVIDENCE DURING THE COURSE OF ASSESSMENT PROCEEDING S. LD. CIT(A) HAS DISCARDED THE EVIDENCE FILED BY THE ASSESSEE, WHICH WAS IN THE SHAPE OF GIFT DEED AND BANK STATEMENT SHOWING GIFT RECEIVED, ON THE GROUND THAT THESE ARE NOT SUFFICIENT EVIDENCES AS THE IDENTITY AND CR EDITWORTHINESS OF THE DONOR ITSELF IS DOUBTFUL. 3. IT IS THE CASE OF LD. A.R THAT ASSESSEE HAS NOW OBTAINED CERTAIN ADDITIONAL EVIDENCES WHICH ARE FILED IN THE PAPER B OOK AS ADDITIONAL EVIDENCES AND IS ABLE TO OBTAIN LETTER FROM THE DO NOR, HER BANK STATEMENT ALONGWITH TAX RETURN. THEREFORE, HE PLEADED THAT A SSESSEE IS IN A POSITION TO ESTABLISH THE IDENTITY AND CREDITWORTHINESS OF TH E DONOR. IT WAS SUBMITTED THAT SINCE AFOREMENTIONED EVIDENCE WAS NOT FURNISH ED BEFORE AO, THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF AO TO GIVE THE ASSESSEE A FAIR CHANCE TO MEET HER CASE. ITA NO.3656/MUM/2010(A.Y. 2005-06) 3 4. ON THE OTHER HAND, LD. D.R RELIED UPON THE ORDE R PASSED BY LD. CIT(A). HE PLEADED THAT MERE SUBMISSION OF GIFT DE ED AND BANK STATEMENS ARE NOT SUFFICIENT TO DISCHARGE THE ONUS LAID UPON THE ASSESEE TO PROVE THE GENUINENESS OF THE CREDITOR. HE, THEREFORE, PLEADE D THAT LD. CIT(A) HAS RIGHTLY CONFIRMED THE ADDITION AND THESE GROUNDS O F THE ASSESSEE SHOULD BE DISMISSED. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND THEIR CONTENTIONS HAVE CAREFULLY BEEN CONSIDERED. AFTER CONSIDERATION, WE ARE OF THE OPINION THAT THIS ISSUE SHOULD BE RESTORED BACK TO THE FILE OF AO WITH A DIRECTION TO GIVE THE ASSESSEE A REASONABLE OPPORTU NITY OF HEARING. AFTER GIVING SUCH OPPORTUNITY HE WILL DECIDE THE ISSUE DE -NOVO AS PER THE PROVISIONS OF LAW. THESE GROUNDS ARE CONSIDERED T O BE ALLOWED FOR STATISTICAL PURPOSES. 6. APROPOS GROUND NO.3 & 4, THIS ISSUE IS DISCUSSED BY THE AO IN PARA -4 OF THE ASSESSMENT ORDER. THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED INTEREST EXPENSES OF RS.4,42,611/-. THE ASSESSEE WAS REQUIRED TO EXPLAIN AS TO HOW SUCH INTEREST WAS ALLOWABLE AS EXPENDITU RE AGAINST INCOME FROM OTHER SOURCES. VIDE LETTER DATED 3/12/2007 IT WAS SUBMITTED THAT THE INTEREST IS PAID ON OLD LOANS PERTAINING TO ERSTWHI LE PROPRIETARY BUSINESS NAMELY M/S. INDU PHOTO FRAMES, WHICH IS CONVERTED I NTO A PRIVATE LIMITED CO. THE ASSESSEE, TO SUBSTANTIATE THE CONTENTION THAT SUCH EXPENSES WERE ALLOWABLE RELIED UPON THE EARLIER COMPLETED ASSESS MENT IN WHICH NO DISALLOWANCE WAS MADE. HOWEVER, AO DISALLOWED THE AMOUNT ON THE GROUND THAT THE ASSESSEE HAS DISCONTINUED THAT BUSI NESS AND PATTERN OF BALANCE SHEET REVEALS THAT SUBSTANTIAL PART OF THE BORROWINGS WERE INVESTED IN SHARES OF THE PRIVATE LIMITED COMPANY AND SHARE APPLICATION MONEY AND ALSO IN IMMOVABLE PROPERTIES. ACCORDING TO AO AS SESSEE COULD NOT ESTABLISH ITA NO.3656/MUM/2010(A.Y. 2005-06) 4 THE NEXUS BETWEEN THE FUNDS BORROWED AND FUNDS ADVA NCED. IT IS IN THIS MANNER THE AO DISALLOWED THE INTEREST CLAIMED BY TH E ASSESSEE. 7. AN APPEAL WAS FILED BEFORE LD. CIT(A). IT WAS S UBMITTED THAT PRIOR TO THE YEAR 2002, M/S. INDU PHOTO FRAMES, WAS A PROPRI ETARY CONCERN OF THE ASSESSEE AND THE INTEREST PAID ON FUNDS BORROWED BY THE ASSESSEE ON THAT BUSINESS WAS ALLOWED AS DEDUCTION BY THE AO. LAT ER ON PROPRIETARY CONCERN WAS CONVERTED INTO A PRIVATE LIMITED COMP ANY AND THE FUNDS BORROWED BY THE ASSESSEE WERE TRANSFERRED TO SUCH COMPANY. THE INTEREST RECEIVED FROM THE SAID COMPANY WAS ADJUSTED AGAIN ST INTEREST PAID TO THE LENDERS/BORROWERS. LD. CIT(A) AFTER CONSIDERING AL L THESE SUBMISSIONS DID NOT ACCEPT THE CASE OF THE ASSESSEE ON THE GROUND T HAT FOR ALLOWABILITY OF SUCH CLAIM THE ASSETS AND LIABILITIES OF THE COMPA NY SHOULD HAVE BEEN TAKEN OVER BY THE NEWLY CREATED PRIVATE LIMITED COMPANY O N ITS CONVERSION. THE CASE OF AO IS THAT INVESTMENT IN THE PVT. LIMITED C OMPANY BY THE ASSESSEE IS ON ACCOUNT OF PURCHASE OF SHARES AND NOT BY WAY OF GIVING LOANS. THE BORROWED FUNDS ARE NOT UTILIZED ONLY FOR MAKING IN VESTMENT IN PRIVATE LIMITED COMPANY BUT ALSO FOR MAKING INVESTMENT IN P URCHASE OF IMMOVABLE PROPERTIES AND THE ASSESSEE HAS FAILED TO FURNISH ANY EVIDENCE TO PROVE THE NEXUS THAT THE BORROWED FUNDS ARE UTILIZED FOR GIVI NG LOAN ON WHICH INTEREST INCOME IS RECEIVED. INTEREST PAID OR CREDITED IS HIGHER THAN INTEREST RECEIVED. THEREFORE, IT IS EVIDENT THAT INTEREST CHARGED ON BORROWED FUNDS, EVEN IF GIVEN TO ITS ASSOCIATE CONCERNS IS LESS THAN THE IN TEREST PAID FOR THE RELEVANT ASSESSMENT YEAR. HOWEVER, SINCE THE ASSESSEE HAS FAILED TO FURNISH ANY DETAILS OR EVIDENCE, EITHER DURING THE COURSE OF A SSESSMENT PROCEEDINGS OR IN APPEAL, SUCH INTEREST COULD NOT BE ALLOWED . IN TH IS MANNER LD. CIT(A) UPHELD THE ADDITION. 8. AFTER NARRATING THE FACTS IT WAS ARGUED BEFORE U S THAT IT IS FACTUALLY INCORRECT THAT THE ASSESSEE HAS MADE INVESTMENT OF BORROWED FUNDS EITHER IN SHARES OR IN IMMOVABLE PROPERTY. THE CONTENTION OF THE LD. AR WAS THAT ITA NO.3656/MUM/2010(A.Y. 2005-06) 5 FACTS HAVE NOT BEEN PROPERLY APPRECIATED BY AO AND LD. CIT(A). HE, THEREFORE, PLEADED THAT THE MATTER MAY BE RESTORED BACK TO THE FILE OF AO FOR PROPER APPRECIATION OF THE FACTS AS THE ASSESSEE HA S HER OWN MONEY TO MAKE INVESTMENT IN FUNDS WHICH HAVE BEEN INVESTED IN THE SHARES AND IMMOVABLE PROPERTIES. IT WAS SUBMITTED THAT THE ASSESSEE CAN PROVE THE NEXUS ALSO. THEREFORE, THE MATTER MAY BE RESTORED BACK TO THE F ILE OF AO. 9. ON THE OTHER HAND, LD. D.R RELIED UPON THE ASSES SMENT ORDER AND ORDER OF LD. CIT(A). 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. THE ASSESSEE HAS EARNED INTEREST INCOME FROM M/S. INDU PHOTO FRAME PVT. LTD. OF A SUM OF RS. 4,2 1,566/- AGAINST WHICH SHE HAS CLAIMED INTEREST OF RS. 4,42,611/-. THE CAPITAL OF THE ASSESSEE AS AT THE BEGINNING OF THE YEARS IS RS.74,59,802.65. THE MAJOR INVESTMENT OF THE ASSESSEE IS A SUM OF RS.22,36,980/- IN THE FLA T AT GREEN ACRES AND RS.30,01,000/- IN SHARE APPLICATION MONEY SUBMITTED TO INDU PHOTO FRAME PVT. LTD. BESIDES THE ABOVE AMOUNT THE ASSESSEE HA S ALSO GIVEN A SUM OF RS.53,85,743/- TO M/S.INDU PHOTO FRAMES PVT. LTD. THE ASSESSEE HAS ALSO VARIOUS CREDITORS. OBSERVING FROM THE PATTERN OF T HE BALANCE SHEET, WE ARE OF THE OPINION THAT THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF AO FOR DE- NOVO CONSIDERATION OF THIS ISSUE WITH A DIRECTION TO GIVE THE ASSESSEE A REASONABLE OPPORTUNITY OF HEARING AND PLACING EVID ENCE ON RECORD TO SHOW WHETHER THERE IS ANY NEXUS BETWEEN THE INTEREST BEA RING BORROWED FUNDS AND ADVANCING THE SAME TO INDU PHOTO FRAMES PVT. LTD. F OR THE PURPOSE OF EARNING INTEREST. UNDER SECTION 57(III) ANY OTHER EXPENDITURE, NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE, IF LAID OUT, EX PENDED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME IS ALLOWABLE. IF THE ASSESSEE IS ABLE TO ESTABLISH THAT THE INTEREST PAI D BY HER IS EXPENDED OR LAID OUT WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF EARNIN G INTEREST RECEIVED BY HER FROM M/S. INDU PHOTO FRAMES PVT. LTD. THEN THE SAID AMOUNT OF INTEREST WILL ITA NO.3656/MUM/2010(A.Y. 2005-06) 6 BE ALLOWABLE. WITH THESE DIRECTIONS WE RESTORE THI S ISSUE TO THE FILE OF AO FOR DE-NOVO ADJUDICATION AS PER THE PROVISIONS OF LAW. THESE GROUNDS OF THE ASSESSEE ARE CONSIDERED TO BE ALLOWED FOR STATISTIC AL PURPOSES. 11. APROPOS GROUND NO.5&6, THIS ISSUE IS DISCUSSED BY THE AO IN PARA-5 OF THE ASSESSMENT ORDER. THE FACTS ARE THAT THE AS SESSEE IS OWNER OF A GALA FROM WHERE NO RENTAL INCOME WAS OFFERED TO TAX. TH E AO REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY RENTAL INCOME FROM TH E SAID GALA HAS NOT BEEN OFFERED FOR TAXATION. VIDE LETTER DATED 3/12/2007 IT WAS SUBMITTED THAT THE ASSESSEE IS A DIRECTOR OF M/S. INDU PHTO FRAMES PVT . LTD. AND THE GALA IS USED BY THE SAID CONCERN AND NO RENT HAS BEEN CHARG ED. THE AO TAKING INTO CONSIDERATION VARIOUS FACTORS WHICH INCLUDE THE LO CATION OF THE PROPERTY ETC. ESTIMATED THE FAIR MARKET RENT OF THE PROPERTY AT R S.1,20,000/-, AFTER GIVING SET OFF OF 30% ON ACCOUNT OF REPAIRS NET INCOME OF RS.84,000/- HAS BEEN ASSESSED. THE ADDITION HAS BEEN AGITATED IN AN APP EAL FILED BEFORE LD. CIT(A). THE ESTIMATION OF RENT WAS INTER ALIA CHAL LENGED, HOWEVER, LD. CIT(A) HAS UPHELD THE ADDITION. THE ASSESSEE IS AGGRIEVED AND HAS RAISED THE AFOREMENTIONED GROUNDS. 12. AN APPLICATION DATED 25/4/2011 IS FILED BEFOR E US VIDE WHICH A CERTIFICATE FROM SHREE LAXMI KIRTI INDUSTRIAL PREMI SES CO-OPERATIVE SOCIETY LTD DATED 7/4/2010 HAS BEEN FURNISHED, WHEREIN IT HAS BEEN STATED THAT DURING THE FINANCIAL YEAR 2004-05 IN REGARD TO GALA 11/G THE RATABLE VALUE IS RS.6996/- REFERRING TO SUCH ADDITIONAL EVIDENCE IT IS THE CASE OF LD. AR THAT IN ANY CASE, ASSESSABLE INCOME WITH REGARD TO INDUS TRIAL GALA CANNOT EXCEED THE RATABLE VALUE. 13. ON THE OTHER HAND, IT IS THE CASE OF LD. DR TH AT SUCH EVIDENCE WAS NOT PRODUCED BEFORE AO OR LD. CIT(A) AND THIS IS ALSO N OT A CERTIFICATE GIVEN BY ITA NO.3656/MUM/2010(A.Y. 2005-06) 7 THE CONCERNED AUTHORITIES THEREFORE, LD. D.R OBJEC TED TO THE ADMISSION OF ADDITIONAL EVIDENCE. 14. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONT ENTIONS HAVE CAREFULLY BEEN CONSIDERED. ACCORDING TO JUDICIAL PRECEDENTS , IN CASE OF A PROPERTY WHICH IS NOT RENTED OUT FAIR MARKET RENT CANNOT EXC EED RATABLE VALUE. HOWEVER, CONSIDERING THE FACTS OF THE CASE, AS AO H AS ONLY ESTIMATED THE FAIR MARKET RENT WITHOUT REFERENCE TO RATABLE VALUE, WE CONSIDER IT JUST AND PROPER TO RESTORE THIS ISSUE TO THE FILE OF AO FOR DE-NOVO CONSIDERATION AS PER LAW AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUN ITY OF HEARING. WE DIRECT ACCORDINGLY. THIS GROUND IS ALSO ALLOWED FOR STATI STICAL PURPOSES IN THE MANNER AFORESAID. 15. BEFORE PARTING WE MAY MENTION HERE THAT THE ASS ESSEE HAS ALSO FILED CERTAIN ADDITIONAL EVIDENCES WITH REGARD TO OTHER G ROUNDS ALSO AND SINCE WE HAVE RESTORED ALL THE ISSUES RAISED IN THE PRESENT APPEAL TO THE FILE OF AO, WE DO NOT CONSIDER IT NECESSARY TO ADJUDICATE UPON THO SE ADDITIONAL EVIDENCES AS THE ASSESSEE WILL HAVE OPPORTUNITY TO PRODUCE TH EM BEFORE THE AO AND AO WILL ALSO GET OPPORTUNITY TO VERIFY THE AUTHENTICIT Y OF THOSE DOCUMENTS. 16. IN VIEW OF ABOVE DISCUSSIONS, ALL THE ISSUES RA ISED BY THE ASSESSEE IN THE PRESENT APPEAL ARE CONSIDERED TO BE ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. 17. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE 12 TH DAY OF NOV. 2012 SD/- SD/- (RAJENDRA ) (I.P.BANSAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 12 TH NOV. 2012. ITA NO.3656/MUM/2010(A.Y. 2005-06) 8 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.R I BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM.