CHOMANSINGH M. DEORA , MUMBAI V. PCIT-19, MUMBAI

ITA 401/MUM/2023

AI Insights

The case involves Chomansingh M. Deora, the appellant, who challenged the order under section 263 of the Income Tax Act, 1961, which was invoked by the Principal Commissioner of Income Tax, Mumbai-19. The revisionary proceedings were initiated because the Assessing Officer had not verified the nexus between the interest income and the interest expenditure claimed under section 57 during the assessment for the year 2017-18. The Tribunal dismissed the appeal, agreeing with the PCIT that the original assessment was erroneous and prejudicial to the interests of the Revenue as it lacked a proper examination of the claimed deductions.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 125496 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 27-06-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 09-02-2023
• Other Referred Cases: Collector Land Acquisition, Anantnag Vs. MST Katiji and others: 1987 SCR (2) 387
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Salary income; Period of limitation; Time period of passing order; Condonation of delay; Capital expenditure; TDS; Set aside
• Section: 263; 143(3); 142(1); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER AND SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER ITA no.401/Mum./2023 (Assessment Year : 2017–18) Chomansingh M. Deora 3 rd Floor, Geetanjali Arcade Nehru Road, Vile Parle (East) Mumbai 400 057 PAN – AEDPD4615D ................ Appellant v/s Principal Commissioner of Income Tax Circle–19, Mumbai ................ Respondent Assessee by : Shri Bhupendra Shah Revenue by : Shri K.C. Selvamani Date of Hearing – 28/06/2023 Date of Order – 07/09/2023 O R D E R PER SANDEEP SINGH KARHAIL, J.M. The present appeal has been filed by the assessee challenging the impugned order dated 25/03/2022, passed under section 263 of the Income Tax Act, 1961 ("the Act") by the learned Principal Commissioner of Income Tax, Mumbai–19, Mumbai, [―learned PCIT‖], for the assessment year 2017–18. 2. The present appeal is delayed by 262 days. In the affidavit seeking condonation of delay filed by the assessee, it has been submitted that the impugned order was received by the assessee on 25/03/2022, and thus, the appeal was required to be filed on or before 24/05/2022, i.e. within 60 days. Chomansingh M. Deora ITA no.401/Mum./2023 Page | 2 The assessee further submitted that his old accountant looking after the tax litigation matters had left job after Covid 19 and shifted back to another place due to his family reasons, and there was no accountant with the assessee for quite a long time. By the time a new accountant was appointed, the delay had already occurred in filing the appeal against the impugned order. The assessee further submitted that the delay in filing the present appeal is unintentional. 3. On the other hand, the learned Departmental Representative („learned DR‟) vehemently opposed the condonation of delay in filing the appeal. 4. Having considered the submissions of both sides and perused the material available on record, we find that the reasons stated by the assessee for seeking condonation of delay fall within the parameters for grant of condonation laid down by the Hon‟ble Supreme Court in the case of Collector Land Acquisition, Anantnag Vs. MST Katiji and others: 1987 SCR (2) 387. It is well established that rules of procedure are handmaid of justice. When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred. In the present case, nothing has been brought on record to show that the assessee shall stand to benefit by late filing of the present appeal. In view of the above and having perused the submissions made in the affidavit filed by the assessee, we are of the considered view that there exists sufficient cause for not filing the present appeal within the limitation period and therefore we condone the delay in filing the appeal by the assessee and we proceed to decide the appeal on merits. 5. In its appeal, the assessee has raised the following grounds:– Chomansingh M. Deora ITA no.401/Mum./2023 Page | 3 ―[A] Grounds of Appeal: 1. In the facts of the case and in Law, the learned PCIT erred in invoking Section 263 to the case of the Appellant only by way of change of opinion, without pointing out any error in the order of the A.O. and also by disregarding detailed submissions made to him from time to time. 2. In the facts of the case and in Law, the Show Cause Notice & or order u/s 263 alleging errors and prejudice, itself is erroneous on many counts as follows. a. In the facts of the case and in Law, the learned PCIT has erred in invoking the provision of sec. 263 merely because he wants to take a view different from the one taken by the Assessing Officer and thereby changing the opinion of the Assessing Officer by his opinion. b. In the facts of the case and in Law, the learned PCIT has erred in holding that the Assessing Officer failed to verify the nexus of the interest income of Rs. 6,26,525/- and interest paid amounting to Rs.34,26,183/- shown in the computation of Total Income. c. In the facts of the case and in Law, the learned PCIT has erred in holding that the Assessing Officer failed to verify allowability of interest expense of Rs.34,26,183/- u/s 57. d. In the facts of the case and in Law, the learned PCIT has erred in passing the order u/s 263 by disregarding exhaustive details cited in the reply to show cause notice and thereby passing the order not tenable in law.‖ 6. In the present appeal, the assessee is aggrieved against the invocation of revisionary proceedings under section 263 of the Act by the learned PCIT. 7. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is an individual and for the year under consideration, filed its return of income on 29/09/2017, declaring a total income of Rs.46,56,450. The return filed by the assessee was selected for limited scrutiny assessment via CASS and statutory notices under section 143(2) as well as section 142(1) of the Act were issued and served on the assessee. Vide order dated 04/12/2019, passed under section 143(3) of the Act, the Assessing Officer (“AO”) completed the assessment at the returned income. Chomansingh M. Deora ITA no.401/Mum./2023 Page | 4 8. Subsequently, vide notice dated 25/02/2022, issued under section 263 of the Act, the learned PCIT initiated revisionary proceedings on the basis that the assessee has shown a loss of Rs.15,06,179 under the head “income from other sources”, which is arrived by claiming interest expenses of Rs.34,26,183, on unsecured loans against the interest income of Rs.6,25,525, and interest capitalised of Rs.12,94,479. It was alleged that the AO during the assessment proceedings has not verified the claim of expenses under section 57 of the Act and has also not established the nexus between the income earned and expenses claimed. Thus, the claim of interest expenses of Rs.34,23,183, has been allowed under section 57 of the Act without proper verification. To this extent, the learned PCIT alleged that the action of the AO is erroneous insofar as it is prejudicial to the interest of the Revenue. 9. In response to the aforesaid notice, the assessee submitted that the claim of expenses by the assessee was duly verified and thoroughly checked by the AO at the time of assessment proceedings before allowing the claim of the assessee under section 57 of the Act. The assessee submitted that the AO specifically asked the assessee about the genuineness of the claim made under section 57 of the Act and also asked to prove the allowability of the expenditure, which were duly responded with necessary details by the assessee during the assessment proceedings. The assessee further submitted that all the borrowed funds have been invested mostly in the land and in repaying the previous loans from various persons, therefore the interest payment has been made to earn interest income only and it is directly related to each other. Chomansingh M. Deora ITA no.401/Mum./2023 Page | 5 10. The learned PCIT vide impugned order did not agree with the submissions of the assessee and held that to establish a direct nexus of the interest income and expenditure, the assessee has not submitted any documentary evidence apart from a chart showing the receipt of funds and their return. The learned PCIT further held that the assessee has earned interest income of Rs.6,25,525, which includes interest on income tax refund of Rs.3,77,131, saving account interest of Rs.1,55,596, and Rs.92,798, from three individual parties. However, no evidence has been submitted to show how this interest income is earned and its nexus with the interest expenditure of Rs.34,26,183. It was also held that the assessee has claimed that the funds received from various parties have been invested in the land from which interest of Rs.12,94,479, is capitalised as per AS 16 or in returning the loan, however, no documentary evidence is submitted by the assessee in support of the same during the assessment proceedings. Therefore, it was held that the nexus between the interest expenditure claimed under section 57 of the Act and the interest income is not established by the assessee. Accordingly, the PCIT set aside the assessment order passed under section 143(3) of the Act and directed the AO to examine the allowability of the claim of interest expenditure as per section 57 of the Act and reframe the assessment. Being aggrieved, the assessee is in appeal before us. 11. During the hearing, the learned Authorised Representative submitted that the AO sought information regarding the income from other sources, details of expenditure claimed under section 57 of the Act, and supporting documents/proof of payments, during the assessment proceedings, which Chomansingh M. Deora ITA no.401/Mum./2023 Page | 6 were duly provided by the assessee. Accordingly, after considering the documents and submissions filed by the assessee, the AO concluded the scrutiny assessment accepting the returned income. 12. On the other hand, the learned DR vehemently relied upon the impugned order passed under section 263 of the Act and submitted that the nexus between the interest income and interest expenditure was not established by the assessee while claiming benefit of section 57 of the Act. 13. We have considered the submissions of both sides and perused the material available on record. Vide notice dated 28/08/2018, issued under section 143(2) of the Act, forming part of the paper book from pages 29-30, the return filed by the assessee was selected for limited scrutiny for examination of the following issues:- (a) Salary income (b) Deduction against income from other sources 14. During the assessment proceedings, notice dated 23/10/2019, was issued under section 142(1) of the Act, forming part of the paper book from pages 13-15, seeking the following details from the assessee:- (i) Details regarding income from other sources (ii) Details of expenditure claimed under section 57 against the head income from other sources (iii) Copy of ledgers of all such expenditures (iv) Supporting documents/proof of payments made (v) Details regarding TDS deducted for the expenses/payments (vi) Details of payment made for expenses to specified persons covered under section 40(A)(2)(b) of the Act 15. The aforesaid notice was replied to by the assessee and details as required were submitted during the assessment proceedings. From the paper book furnished by the assessee we find that the assessee filed bank account Chomansingh M. Deora ITA no.401/Mum./2023 Page | 7 statement, confirmation of accounts from various parties from whom the loan was taken, Form No.16, statement of total income, details of income from other sources, list of expenditure of income from other sources and ledger of the parties in its accounts to whom the interest was paid. The details of income from other sources, furnished by the assessee during the assessment proceedings, forming part of the paper book on page 34, are reproduced as under:- ―Details of Income From Other Sources SR. NO. PERSON OR ENTITY WHICH INCOME RECEIVED FROM AMOUNT / INCOME NATURE OF RECEIPT RESPECTIVE DOCUMENTARY EVIDENCE 1. LALSINGH B. DEORA 477–479, MAULANA AZAD ROAD, 2 ND FLOOR, LADI BAZAR, MUMBAI 400 004 PAN – ADGPD6892A 4,722 INTEREST ON RECEIVED UNSECURED LOAN – 2. LAVEENA C. DEORA 503, OM MANAN CO. OP. HSG. SOC., PARK ROAD, VILE–PARLE (E), MUMBAI 400 057 PAN– AKNPD2110R 55,209 INTEREST ON RECEIVED UNSECURED LOAN – 3. TAMARSINGH L. DEORA 302, VISHAL SUSHEEL SOCIETY, NANDA PATKAR ROAD, VILE PARLE (E), MUMBAI 400 057 PAN– ASFPD8614DC 32,867 INTEREST ON RECEIVED UNSECURED LOAN – 4. INCOME TAX REGUND 377,131 INTEREST ON RED. I. TAX REF – 5. SAVINGS ACCOUNT INTEREST 155,596 INTEREST ON VIJAYA BANK – 6. INTEREST ON INVESTMENT 12,94,479 INT. ON INVESTMENT‖ – 16. Further, the details of expenditure claimed under the head “income from other sources”, forming part of the paper book on page 35, is reproduced as under:- Chomansingh M. Deora ITA no.401/Mum./2023 Page | 8 ―LIST OF EXPENDITURE OF INCOME FROM OTHER SOURCES Sr. No. Particulars Amount 1. Interest Expenses 3,426,183 17. As regards the interest payment, the assessee furnished the following extracts of the ledger account in its books, forming part of the paper book on page 36:- ―INTEREST Ledger Account 1–Apr–2016 to 31–Mar–2017 Date Particulars Vch Type Vch no. Debit Credit 31.03.2017 Cr Mool Singh B. Deora Interest @ 12% P.A. Journal 35 2,16,583.00 Cr Narendra C. Panani Interest @ 12% P.A. Journal 36 13,98,767.00 Cr Prime Civil Infrastructure Pvt. Ltd. Interest @ 12% P.A. Journal 37 4,87,800.00 Cr Neelima R. Madhani Interest @ 12% P.A. Journal 38 13,23,033.00 34,26,183.00 34,26,183 Dr Closing Balance 34,26,183.00 34,26,183 18. Apart from the aforesaid details, it is evident from the record that neither any other information/clarification was sought by the AO nor any other explanation was furnished by the assessee. As per the assessee, after considering the aforesaid details the return of income filed by the assessee was accepted vide order dated 04/12/2019, passed under section 143(3) of the Act. However, as per the learned PCIT, the AO has not verified the nexus between the interest expenses claimed under section 57 of the Act with the interest income. Before proceeding further, it is relevant to note the provisions of section 57(iii) of the Act, which reads as under:- Chomansingh M. Deora ITA no.401/Mum./2023 Page | 9 ―57. The income chargeable under the head "Income from other sources" shall be computed after making the following deductions, namely :— (i).......... (ia)........ (ii).......... (iia)....... (iii ) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income.‖ 19. Therefore, under section 57(iii) of the Act, any expenditure which is not in the nature of capital expenditure and has been expended wholly and exclusively for the purpose of earning income chargeable under the head “income from other sources” is allowable as a deduction. In the present case, there is no dispute regarding the nature of the expenditure and the only claim of the learned PCIT is that the nexus between the interest expenditure and interest income is not examined by the AO during the assessment proceedings. We find that in response to the notice issued under section 263 of the Act, the assessee made a claim that all the borrowed funds have been invested mostly in the land and in repaying the previous loans from various persons, therefore the interest payment has been made to earn interest income only and it is directly related to each other. In support of the aforesaid submission, the assessee furnished various charts, forming part of the paper book from pages 8-11 to show the nexus between the interest income and interest expenditure claimed under section 57 of the Act. However, it is evident from the record that neither the aforesaid submission/the details regarding the nexus of the interest expenditure with interest income was sought by the AO during the assessment proceedings nor the same was furnished by the assessee. As noted above during the assessment proceedings, the AO only sought the Chomansingh M. Deora ITA no.401/Mum./2023 Page | 10 details of expenditure claimed under section 57, ledgers of all such expenditures, and supporting documents/proof of payment made. Thus, there was no examination of the nexus between interest income and interest expenditure. As noted above under section 57(iii) of the Act the expenditure claimed as a deduction, while charging the income under the head “income from other sources”, should be expended wholly and exclusively for the purpose of making or earning such income. Since the return filed by the assessee was selected for limited scrutiny, inter-alia, regarding deduction against income from other sources, the AO was required to examine not only the details and proof of payment of such expenditure but also its nexus with the interest income chargeable under the head “income from other sources” as per section 57 of the Act. Since there is no material available on record to show that this aspect was examined during the assessment proceedings, we find no infirmity in the revision order passed by the learned PCIT under section 263 of the Act, whereby the assessment order passed under section 143(3) of the Act was set aside and the AO was directed to reframe the assessment after examining the allowability of interest expenses as per section 57 of the Act. Accordingly, the impugned order passed under section 263 of the Act is upheld and the grounds raised by the assessee are dismissed. 20. In the result, the appeal by the assessee is dismissed. Order pronounced in the open Court on 07/09/2023 Sd/- PRASHANT MAHARISHI ACCOUNTANT MEMBER Sd/- SANDEEP SINGH KARHAIL JUDICIAL MEMBER MUMBAI, DATED: 07/09/2023 Chomansingh M. Deora ITA no.401/Mum./2023 Page | 11 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Assistant Registrar ITAT, Mumbai