M/s. B U Bhandari Tempo, Pune V. Assistant Commissioner of Income tax, Pune

ITA 439/PUN/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 7650 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-11-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 18-10-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 21-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Assessee Lawyers: V L JAIN
• Keywords: Business income; Business expenditure; Opportunity of being heard; Principle of natural justice
• Section: 143(3); 37

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI ANIL CHATURVEDI, AM AND SHRI S.S. VISWANETHRA RAVI, JM . / ITA NO.439/PUN/2017 / ASSESSMENT YEAR : 2013-14 M/S. B U BHANDARI TEMPO, A/3, ABHIMANSHREE, SOCIETY, PASAHAN, PUNE 411 008. PAN : AABFB2262N. . / APPELLANT. V/S THE ASST.COMMISSIONER OF INCOME TAX, CIRCLE 2, PUNE. . / RESPONDENT ASSESSEE BY : SHRI V.L. JAIN. REVENUE BY : SHRI S.P. WALIMBE. / ORDER PER ANIL CHATURVEDI, AM : 1. THIS APPEAL FILED BY THE ASSESSEE IS EMANATING OUT OF THE O RDER OF COMMISSIONER OF INCOME TAX (A) 2, PUNE DATED 08.12.2016 FOR THE ASSESSMENT YEAR 2013-14. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER :- ASSESSEE IS A PARTNERSHIP FIRM WHO FILED ITS RETURN OF INCOME FOR A.Y. 2013-14 ON 31.07.2013 DECLARING TOTAL INCOME OF RS.15,40,07,274/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT VIDE ORDER D ATED 29.02.2016 AND THE TOTAL INCOME WAS DETERMINED AT RS.16,10 ,20,678/-. / DATE OF HEARING : 18.10.2019 / DATE OF PRONOUNCEMENT: 01.11.2019 2 AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATT ER BEFORE LD.CIT(A) WHO VIDE ORDER DATED 08.12.2016 (IN APPEAL NO.PN/C IT(A)- 2/ACIT CIR-2/PN/597/2015-16) DISMISSED THE APPEAL OF TH E ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APP EAL AND HAS RAISED THE FOLLOWING GROUNDS : 1. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN L AW IN AND ON FACTS IN NOT GRANTING A PROPER OPPORTUNITY OF BEING HEARD, THEREBY VIOLATING THE PRINCIPLES OF NATURAL JUSTICE. 2. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING AN ADDITION OF RS.70,13,404/- ON ACCOUNT OF DISALLOWANCE OF VAR IOUS EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT. 3. BEFORE US, AT THE OUTSET, LD.A.R. SUBMITTED THAT HE DOE S NOT WISH TO PRESS GROUND NO.1. IN VIEW OF THE AFORESAID SUBMISSIO N OF LD.A.R., GROUND NO.1 IS DISMISSED AS NOT PRESSED. GROUND NO.2 IS WITH RESPECT TO CONFIRMING THE ADDITION OF RS.70,13,404/- BY LD.CIT(A). 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ON PERUSING THE PROFIT AND LOSS ACCOUNT, AO NOTICED THAT ASSESSEE HAS C LAIMED TO BE CARRYING ON THE BUSINESS OF GRANTING LOANS AND EARNING IN TERESTS THEREON. AO HAS NOTED THAT ASSESSEE HAS FAILED TO ESTA BLISH THAT THE OBJECT OF THE ASSESSEE AS PER IN THE PARTNERSHIP DEED PERMITTED IT TO DO THE ACTIVITY OF MONEY LENDING. HE ALSO NOTED THAT AS PER SEC.5 OF THE BOMBAY MONEY LENDING ACT, 1947, NO PERSON CAN CARRY SU CH AN ACTIVITY OF MONEY LENDING WITHOUT OBTAINING A LICENCE TO THAT EFFECT FROM THE GOVERNMENT. HE NOTED THAT ASSESSEE HAD NOT OBTAINED ANY SUCH LICENCE FOR MONEY LENDING ACTIVITY FROM THE APPROPRIATE AUTHORITIES . HE THEREFORE CONCLUDED THAT THE ASSESSEES CLAIM OF CARRYING ON BUSINESS OF MONEY LENDING CANNOT BE ACCEPTED AND THEREFORE THE INTE RESTS EARNED BY THE ASSESSEE HAS TO BE ASSESSED AS INCOME FROM OTHE R SOURCES AS 3 AGAINST THE CLAIM OF THE ASSESSEE OF BEING BUSINESS INCOME. AO THEREAFTER RE-CASTED THE PROFIT AND LOSS ACCOUNT AND ON THE BASIS OF HIS RE-CASTING, HE CONCLUDED THAT ASSESSEE HAS CLAIMED LOSS O F RS.51,03,973/- WHICH IS NOT ALLOWABLE. HE ALSO NOTED THAT ASSESSEE HAD SHOWN INTEREST EARNED OF RS.56,79,786/- ON CAPITAL BALANC E OF PARTNERS AGAINST WHICH ASSESSEE HAD CLAIMED INTEREST EXPENDITURE OF RS.37,70,355/- BEING INTEREST PAID ON CAPITAL BALANCES TO THE PARTNERS HAVING CREDIT BALANCE. AO NOTICED THAT THE ENTIRE INTERE ST OF RS.56,79,786/- IS CHARGED ON THE DEBIT BALANCE OF ONE OF TH E PARTNERS NAMELY SHAILESH BHANDARI. HE AFTER NOTING THE INTEREST E XPENDITURE WHICH IS ALLOWED AS DEDUCTION, THE INTEREST EARNED ON DEB IT BALANCE, THE NET INCOME FROM INTEREST EARNED FROM THE PARTNERS WORK ED OUT TO RS.19,09,431/- WHICH ACCORDING TO HIM WAS ASSESSABLE AS INCOME FROM BUSINESS AS AGAINST THE LOSS SHOWN BY THE ASSESSEE OF R S.51,03,973/- AND THUS ACCORDING TO HIM THE NET ADDITION UNDER THE HE AD INCOME FROM BUSINESS WOULD BE OF RS.70,13,404/-. HE THUS PROCEEDE D TO MAKE ADDITION OF RS.70,13,404/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO UPHELD THE ORDER OF AO BY OBSERVING AS UNDER : 3.2 I HAVE GONE THROUGH THE FACTS OF THE CASE AS M ENTIONED IN THE ASSESSMENT ORDER AS WELL AS ARGUMENTS TAKEN ON BEHA LF OF THE APPELLANT. IT IS NOTICED THAT THE ASSESSING OFFICER IN THE ASSESSMENT ORDER HAS MADE SURGICAL ANALYSIS OF PROFIT AND LOSS ACCOUNT AND CAME TO THE CONCLUSION THAT VARIOUS EXPENSES CLAIME D ARE NOT RELATED TO THE EARNING OF INCOME AS NO BUSINESS WAS BEING CARRIED OUT BY THE APPELLANT. IT HAS MAINLY EARNED INCOME FROM CAPITAL GAIN AND - INCOME FROM HOUSE PROPERTY WHICH HAVE BEEN SHOWN AND TAXED UNDER THE RESPECTIVE HEADS ONLY. IT IS ALSO NOTICED THAT INTEREST EXPENSES PAID ON BANK ' LOANS ARE NOT RELATED TO THE EARNING OF THE INTEREST INCOME. THE ASSESSIN G OFFICER HAS GIVEN A CLEAR FINDING THAT THE CONDITIONS OF PR OVISION OF SEE . 36(1)(III) ARE NOT BEING FULFILLED IN THE CASE OF T HE APPELLANT . IN THE WRITTEN SUBMISSION FILED THE APPELLANT HAS ALSO ADM ITTED THAT THE APPELLANT IS NOT CARRYING ANY CORE BUSINESS ACTIVIT Y AS SUCH. HOWEVER IT HAS FAILED TO JUSTIFY AS TO HOW VARIOUS EXPENSES INCLUDING INTEREST E X PENSES CAN BE CLAIMED AS BUSINESS EXPENDITURE PARTICULARLY WHEN NO BUSINESS IS BEING CARRIED ON BY THE APPEL L ANT . 4 3. 2 . 1 FOR CLAIMING ANY E X PENDITURE U/S 37 ( 1) OF THE IT ACT, THE ONUS IS ON THE ASSESSEE TO PROVE THAT THE SAME IS WHOLLY & EXCLUSIVELY RELATED TO THE BUSINESS OF THE ASSESSEE. THIS PROPO SITION HAS BEEN LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. CALCUTTA AGENCY LTD. (19 ITR 191). 3 . 2 . 2 IN THE CASE OF L . H. SUGAR FACTORY & OIL MILLS (P.) LTD. VS. CIT (125 ITR 293) (SC), IT HAS BEEN HELD THAT WHEN AN ASSESSEE CLAIMS A DEDUCTION THE ONUS IS ON HIM TO B RING ALL MATERIAL FACTS ON RECORD TO SUBSTANTIATE HIS CLAIM. 3.3.3 IN THE WRITTEN SUBMISSION FILED, LD. COUNSEL OF THE APPELLANT HAS NOT BEEN ABLE TO JUSTIFY THE CLAIM OF VARIOUS E XPENSES PARTICULARLY KEEPING IN . VIEW OF THE FACT THAT NO BUS I NESS IS BEING CARRIED ON BY THE APPELLANT. THE RELIANCE PLACED B Y HIM ON VARIOUS DECISIONS CANNOT COME TO THE RESCUE O F TH E APPELLANT IN ABSENCE OF ANY FACTS SUPPORTING HIM. 3.3 . 4 ON THE FACE OF AFORESAID DISCUSSION ON THE FACTS OF THE CASE AND DECISIONS CITED, I HOLD THAT THE ASSESSING OFFI CER WAS PE R FECTLY JUSTIFIED IN DISALLOWING VARIOUS EXPENSES CLAIMED A S BUSINESS EXPENDITURE TO THE TUNE OF RS. 70,13 , 40 4 /- AS THE APPELLANT THOROUGHLY FAILED TO DISCHARGE ITS ONUS AS REQUIRED U/S 3 7(1) OF THE I T ACT FOR CLAIMING DEDUCTION. THE ORDER OF THE ASSE SSING OFFICER I S - ACCORDINGLY UPHELD AND THE GROUNDS RAISED ARE ACCOR D I NGLY DISMISSED. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW BEFORE US. 5. BEFORE US, LD.A.R. REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND FURTHER SUBMITTED THAT THE OBSERVA TION MADE BY THE AO OF MONEY LENDING BUSINESS BY ASSESSEE BEING NOT AS PER THE OBJECTIVE OF THE PARTNERSHIP DEED IS FACTUALLY INCORRECT A S THE PARTNERSHIP DEED VERY CLEARLY HOLDS THAT FINANCING IS ALSO THE ACTIVITY WHICH THE FIRM CAN UNDERTAKE. IN SUPPORT OF THE AFORESAID CONTENTION, HE POINTED TO THE COPY OF PARTNERSHIP DEED EXECUTED ON 31.12.2003 WHICH IS PLACED AT PAGES FROM 27 TO 30 OF THE PAPER BOOK . HE FURTHER SUBMITTED THAT THE OBSERVATION OF AO AND LD.CIT(A) THAT N O BUSINESS ACTIVITY HAS BEEN CARRIED OUT BY ASSESSEE IS ALSO INCORRE CT IN VIEW OF THE FACT THAT THE AO HIMSELF IN THE COMPUTATION MADE BY HIM H AS ASSESSED THE INCOME FROM BUSINESS AND IN SUPPORT OF WHICH HE POINT ED TO PAGE 6 OF THE ASSESSMENT ORDER. HE FURTHER POINTING TO THE BALANCE-SHEET O F THE 5 FIRM WHICH IS PLACED AT PAGES 3 AND 5 OF THE PAPER BOOK SUBMITTED THAT ONLY ONE OF THE PARTNERS MR. SHAILESH BHANDARIS CLOSING BALANCE C APITAL ON 31.03.2003 WAS HAVING DEBIT BALANCE BUT WHEN THE AG GREGATE BALANCE OF ALL THE PARTNERS IS CONSIDERED, THE CLOSING CREDIT BALANCE OF THE PARTNERS CAPITAL ACCOUNT AS ON 31.03.2003 IS RS.6,11,38 ,264/-. HE POINTING TO THE AFORESAID FACT FROM THE COPY OF THE BALANCE -SHEET WHICH IS PLACED AT PAGES 3 TO 5 OF THE PAPER BOOK. HE THEREFO RE SUBMITTED THAT AO HAS WRONGLY PROCEEDED ON THE BASIS OF THE INCORRECT ASSUMPTIONS THAT ASSESSEE IS NOT CARRYING ON THE BUSINESS AND THER EFORE THE EXPENDITURE IS NOT ALLOWABLE. HE THEREFORE SUBMITTED THAT THE ADDITION MADE BY THE AO BE DELETED. LD. D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF AO AND LD.CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPEC T TO DISALLOWANCE OF EXPENSES OF RS.70,13,404/- MAINLY BY HOLDING THAT ASSES SEE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY DURING THE YEAR. THE COPY OF THE PARTNERSHIP DEED WHICH IS PLACED BY THE ASSESSEE IN THE PAPER BOOK REVEALS THAT ONE OF THE ACTIVITY OF THE FIRM IS FINANCING AS SPELT OUT IN THE PARTNERSHIP DEED. WE FURTHER FIND THAT THE CONCLUSION OF THE AO OF ASSESSEE NOT HAVING CARRIED OUT ANY BUSINESS ACTIVITY IS ALSO CONTRARY TO THE FACTS IN VIEW OF THE FACT THAT IN COMPUTATION OF INCOME IN THE ASSESSMENT ORDER. AO HIMSELF HAS COMPUTED THE INCOME OF RS.19,09,431/- AS BUSINESS INCOME. FURTHER, THE AGGR EGATE CAPITAL BALANCE OF THE PARTNERS ALSO REVEALS THAT THE PARTNERS CAPITAL ACCOUNT IN AGGREGATE IS IN CREDIT AND ONLY THE CAPITAL OF ONE OF T HE PARTNERS IS IN DEBIT. CONSIDERING THE TOTALITY OF THE AFORESAID FACTS, WE AR E OF THE VIEW THAT AO WAS NOT JUSTIFIED IN DISALLOWING THE EXPENSES BY NO TING THAT NO 6 BUSINESS ACTIVITY HAS BEEN CARRIED OUT BY THE ASSESSEE. WE THEREFORE THE AO DIRECT TO DELETE THE ADDITION MADE BY HIM. THUS, THE GROUNDS OF THE ASSESSEE ARE ALLOWED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 1 ST DAY OF NOVEMBER, 2019. SD/- SD/- ( S.S. VISWANETHRA RAVI) ( ANIL CHATURVEDI ) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER PUNE; DATED : 1 ST NOVEMBER, 2019. YAMINI #$%&'('% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. 5 6. CIT(A)-2, PUNE. PR. CIT-2, PUNE. '#$ %%&',) &', / DR, ITAT, A PUNE; $,-./ GUARD FILE. / BY ORDER // TRUE COPY // /01%2&3 / SR. PRIVATE SECRETARY ) &', / ITAT, PUNE.