M/s. Nanak Ram Jaisinghani, New Delhi V. ITO, New Delhi

ITA 6729/DEL/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2849 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 01-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 11-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V K JIWANI
• Assessee Lawyers: RAJ KUMAR SHRI SUM IT GOEL
• Keywords: Business income; Depreciation; Salary income; Deemed to accrue or arise in india; Deemed dividend; Tax effect; Unabsorbed depreciation
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI SMC BENCH, NEW DELHI BEFORE SHRI B.P. JAIN, ACCOUNTANT MEMBER ITA NO. 6729 /DEL/201 4 [A.Y. 20 10 - 11 ] SHRI NANAK RAM JAISINGHANI VS. THE I . T .O B - 14, JS INN, VASANT MARG WARD 13 ( 1 ) VASANT VIHAR, NEW DELHI N EW DELHI PAN : A AFPJ 7461 F [ ASSESSEE ] [RESPONDENT] DATE OF HEARING : 2 0 . 0 2 .201 8 DATE OF PRONOUNCEMENT : 07 .0 3 .201 8 ASSESSEE BY : SHRI RAJ KUMAR SHRI SUM IT GOEL , CA REVENUE BY : SHRI V.K. JIWANI , SR. DR ORDER THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST ASS ESSMENT ORDER U/S 143 (3) OF THE INCOME - TAX ACT, 1961 [HEREIN AFTER REFERRED TO AS 'THE ACT' FOR SHORT] D A T E D 05.03.13 FOR ASSESSMENT YEAR 2010 - 11 . THE ASSESSEE DECLARED THE INCOME AT NIL AFTER SETTING OFF THE B/F LOSSES AND DEPRECIATION. THE A SSESSMENT HAS BEEN FRAMED AT NET TAXABLE INCOME OF RS.49,67,523/ - . 2 ITA NO. 6 729 /DEL/201 4 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: - 1 . THAT UNDER THE FACTS AND CIRCUMSTANCES, THE DISALLOWANCE OF RS. 95,000/ - OUT OF PROFESSIONAL EXPENSES U/S. 40 (A) (IA) IS UN WARRANTED. 2 . THAT UNDER THE FACTS AND CIRCUMSTANCES, DISALLOWANCE OF R S. 51,000/ - OUT OF PROFESSIONAL FEES U/S. 40 (A) (IA) IS ILLEGAL AND UN JUSTIFIED. 3 . THAT UNDER THE FACTS AND CIRCUMSTANCES, DISALLOWANCE OF RS. 39,559/ - U/S. 14 A IS ABSOLUTELY UN CALLED FOR IN LAW AS WELL AS ON MERITS. 4.1 THAT UNDER THE FACTS AND CIRCUMSTANCES, ADDITION OF RS.47,20,000/ - U/S. 2 (22) (E) IS ABSOLUTELY ILLEGAL IN LAW AS WELL AS ON MERITS. 4.2 THAT WITHOUT PREJUDICE , IN ANY CASE, THIS DISALLOWANCE SHOULD NOT EXCEED BY RS. 12,55,000/ - . 5.1 THAT UNDER THE FACTS AND CIRCUMSTANCES, ADDI TION OF RS. 2,50,000/ - U/S. 68 AS ALLEGED INCOME FROM UN DISCLOSED SOURCES IS UN SUSTAINABLE IN LAW AS WELL AS ON MERITS. 3 ITA NO. 6 729 /DEL/201 4 5.2 THAT WITHOUT PREJUDICE , IN ANY CASE, THE ADDITION OF RS. 2,50,000/ - SHOULD HAVE BEEN MADE AS INCOME FROM BUSINESS AGAINST W RONGLY MADE AS INCOME FROM OTHER SOURCES. 5.3 THAT WITHOUT PREJUDICE , IN VIEW OF G.N. 5.2., THE ADDITION OF RS. 2,50,000/ - SHOULD HAVE BEEN SET OFF AGAINST AVAILABLE B/F. LOSSES. 6.1 THAT WITHOUT PREJUDICE , UNDER THE FACTS AND CIRCUMSTANCES, THE AO ERRE D IN LAW AS WELL AS ON MERITS IN NOT SETTING OFFF THE INCOME FROM OTHER SOURCES OF RS. 49,70,000/ - OUT OF AVAILABLE B/F. LOSSES (4720000 AS ADDITION U/S. 2 (22) (E) + 250000 AS ADDITION U/S. 68). 6.2 THAT WITHOUT PREJUDICE , IN ANY CASE, INCOME FROM OTHER SOURCES HAS TO BE SET OFF OUT OF B/F. LOSSES TO THE EXTENT OF B/F. UNABSORBED DEPRECIATION INCLUDED IN B/F. LOSSES. 7. THAT UNDER THE FACTS AND CIRCUMSTANCES, NO INTEREST U/S. 234 B CAN BE CHARGED ON DEEMED INCOME OF RS. 47,20,000/ - ASSESSED U/S. 2 (22) ( E) AND ON ADDITION OF RS. 2,50,000/ - AS DEEMED INCOME U/S. 68 AND ALSO SINCE ON RS. 2,50,000/ - TDS HAS BEEN DEDUCTED . 3. G ROUND NO S .1 & 2 ARE AGAINST DISALLOWANCES MADE U/S. 40(A) (IA) FOR RS.95,000/ - CLAIMED AS LEGAL AND PROFESSIONAL EXPENSES AND RS.51,00 0/ - OUT OF PROFESSIONAL FEES. THE A.O. MENTIONED THAT THERE IS 4 ITA NO. 6 729 /DEL/201 4 NO EVIDENCE FOR DEDUCTION OF TDS AT SOURCE OR DEPOSIT OF TDS ON SUCH AMOUNTS. HENCE HE ADDED RS.1,46,000/ - BEING THE TOTAL OF RS.95,000/ - & RS.51,000/ - TO THE INCOME. CIT (A) CONFIRMED THE SAID DISALLOWANCE. 4. THE LD. A.R. SUBMITTED THAT OUT OF RS.95,000/ - , RS.45,000/ - WERE PAID TO VBM ASSOCIATES CHARTERED ACCOUNTANTS ON WHICH PAYMENT RS.4,500/ - HAS BEEN DEDUCTED AS TDS WHICH WAS DEPOSITED VIDE CHALLAN DTD.15.01.10 AS NOTED DOWN BY THE A.O. IN THE ASSTT. ORDER ALSO. THUS IT HAS BEEN ARGUED THAT OUT OF RS.95,000/ - , RS.45,000/ - CANNOT BE ADDED U/S. 40(A)(IA). THE LD. A.R. FAIRLY CONCEDED THAT THE TDS ON THE BALANCE AMOUNT OF RS.50,000/ - OUT OF RS.95,000/ - AND ON RS.51,000/ - WERE NEITHER DEDUCTE D NOR DEPOSITED. ON THER OTHER SIDE, LD. D.R., PLACED RELIANCE ON THE ORDER OF A.O. AND CIT (A). 5. I HAVE CAREFULLY CONSIDERED THE ISSUE. OUT OF TOTAL EXPENSES CLAIMED AT RS.1,46,000/ - AS LEGAL AND PROFESSIONAL CHARGES AND PROFESSIONAL FEES, TDS HAS BEE N DEDUCTED AS WELL AS PAID WITHIN THE SAME FINANCIAL YEAR ON EXPENSE OF RS.45,000/ - ONLY. HENCE TO THIS EXTENT NO DISALLOWANCE U/S. 40 (A) (IA) CAN BE MADE. HOWEVER FOR THE BALANCE EXPENSE RS.1,01,000/ - , THE LD. A.R. COULD NOT STATE AS TO WHY 5 ITA NO. 6 729 /DEL/201 4 TO THIS EXTEN T THE DISALLOWANCE U/S. 40 (A) (IA) HAS BEEN INCORRECTLY MADE. THUS, THE DISALLOWANCE TO THE EXTENT OF RS.1,01,000/ - STANDS CONFIRMED AND DISALLOWANCE TO THE EXTENT OF RS.45,000/ - STANDS DELETED. THIS GROUND IS PARTLY ALLOWED. 6. G ROUND NO. 3 IS AGAINST ADDITION OF RS.39,559/ - U/S.14A R/W RULE - 8D OF THE IT RULES. THE A.O. NOTED THAT THE ASSESSEE EARNED DIVIDEND INCOME OF RS.13,063/ - WHICH WAS CLAIMED AS EXEMPTED. THE ASSESSEE HAD ALSO SHOWN SECURED LOAN OF RS.1,53,188/ - AND UNSECURED LOANS OF RS.8,87,03,6 04/ - AND ALSO CLAIMED THE INTEREST EXPENSE. HOWEVER NO SELF DISALLOWANCE WAS MADE U/S.14A R/W RULE - 8D OF THE IT RULES. THE A.O. CALCULATED THE DISALLOWANCE BY APPLYING RULE - 8D AT RS.39,559/ - . THE ASSESSEE HAS CHALLENGED THE SAID DISALLOWANCE. CIT (A) CONFI RMED THE DISALLOWANCE BY HOLDING THAT NO INCOME CAN BE EARNED WITHOUT INCURRING SOME EXPENDITURE. CONSIDERING THE HUGE INVESTMENT IN SHARES, HE CONFIRMED THE DISALLOWANCE OF RS.39,559/ - CALCULATED AS PER RULE - 8D. 7. THE LD. A.R. HAS NOT DISPUTED THAT DIS ALLOWANCE U/S.14A/RULE - 8D CAN BE MADE, HOWEVER HIS LIMITED GRIEVANCES FOR THE AMOUNT OF 6 ITA NO. 6 729 /DEL/201 4 DISALLOWANCE. IT HAS BEEN ARGUED THAT THE DISALLOWANCE, UNDER NO CASE, CAN EXCEED THE EXEMPTED INCOME WHICH IS ONLY RS.13,063/ - , THEREFORE HIS LIMITED CONTENTION IS THA T THE DISALLOWANCE U/S.14A/RULE - 8D SHOULD BE RESTRICTED ONLY UP TO RS.13,063/ - , WHICH IS THE AMOUNT OF EXEMPTED INCOME. THE LD. A.R. HAS PLACED RELIANCE ON JOINT INVESTMENT (P) LTD. VS. CIT 372 ITR 694 (DEL.) WHEREIN IT HAS BEEN HELD THAT THE DISALLOWANCE U/S.14A CANNOT EXCEED THE EXEMPTED INCOME. THE LD. D.R., ON THE OTHER SIDE, PLACED RELIANCE ON THE FINDINGS OF A.O. AND AS THE SAME HAS BEEN CONFIRMED BY CIT (A). 8. I HAVE CAREFULLY CONSIDERED THE ISSUE. IT IS NOT IN DISPUTE THAT EXEMPTED INCOME IS ONLY RS.13,063/ - . THUS IN VIEW OF THE ABOVE CITED CASE LAW, THE DISALLOWANCE U/S.14A/RULE - 8D CANNOT EXCEED THE AMOUNT OF EXEMPTED INCOME WHICH IS ONLY RS.13,063/ - . FOLLOWING THE RATIO OF SAID JURISDICTIONAL HIGH COURT DECISION, I RESTRICT THE DISALLOWANCE TO RS .13,063/ - AND DELETE THE DISALLOWANCE TO THE EXTENT OF RS.26,496/ - . THUS THIS GROUND IS PARTLY ALLOWED. 9. G ROUND NO.4 IS AGAINST ADDITION OF RS.47,20,000/ - U/S.2 (22) (E) OF THE I.T. ACT. THE ASSESSEE IS A DIRECTOR AND SHARE HOLDER IN M/S NANAK BUILDERS AND INVESTORS (P) LTD. HAVING 48.46% OF SHARE HOLDINGS. 7 ITA NO. 6 729 /DEL/201 4 THE OPENING DEBIT BALANCE IN THE BOOKS OF THE COMPANY IN THE NAME OF THE ASSESSEE (PAYABLE BY THE ASSESSEE TO THE COMPANY) WAS RS.6,44,44,842/ - AS ON 01.04.09. DURING THE YEAR, RS.3,28,20,000/ - WAS RE PAID BY THE ASSESSEE TO THE COMPANY AND RS.47,20,000/ - WERE TAKEN AS LOANS/ADVANCES BY THE ASSESSEE FROM THE COMPANY. THE CLOSING DEBIT BALANCE OF THE ASSESSEE (PAYABLE BY ASSESSEE TO THE COMPANY) WAS RS.3,63,44,842/ - . THE A.O., MADE ADDITION OF RS.47,20,0 00/ - U/S.2 (22) (E). THE FINDINGS OF A.O. STANDS CONFIRMED BY CIT (A). 10. THE LD. A.R. SUBMITTED THAT UNDER THE FACTS OF THIS CASE, THERE IS NO LOAN OR ADVANCE TO THE TUNE OF RS.47,20,000/ - GIVEN BY THE SAID COMPANY TO THE ASSESSEE FOR WHICH SEC. 2 (22 ) (E) CAN BE INVOKED. IT HAS BEEN SUBMITTED THAT THE OPENING BALANCE AS ON 31.03.09, PAYABLE BY THE ASSESSEE TO THE SAID COMPANY IS RS.6,44,44,842/ - . IT HAS BEEN CONTENDED THAT AN ADDITION OF RS.4,97,53,092/ - HAS BEEN MADE U/S. 2 (22) (E) FOR A.Y.2009 - 10 I .E. IN THE IMMEDIATE PRECEDING YEAR ON THE BASIS OF SAID PAYABLE OF RS.6,44,44,842/ - BY THE ASSESSEE TO THE SAID COMPANY AS ON 31.03.09. IN VIEW OF THIS, IT HAS BEEN ARGUED THAT NO COGNIZE AND EFFECT OF THE OPENING BALANCE OF RS.6,44,44,842/ - SHOULD HAVE BEEN TAKEN WHILE DECIDING THE ISSUE OF SEC.2 (22) (E) OF THE ACT. 8 ITA NO. 6 729 /DEL/201 4 THE CONTENTION MADE IS THAT, THE TRANSACTIONS OF THE ASSESSEE WITH THE SAID COMPANY, UNDERTAKEN INDEPENDENTLY IN THIS YEAR BY IGNORING THE OPENING BALANCE SHOULD HAVE BEEN EXAMINED W.R.T. SEC. 2 (22) (E). THE LD. A.R., SUBMITTED THAT IN CASE THE TRANSACTIONS WITH THE SAID COMPANY ARE CONSIDERED IN THIS PARTICULAR MANNER I.E. BY MAKING AN INDEPENDENT LEDGER A/C OF SUCH TRANSACTIONS ONLY FOR THE TRANSACTIONS UNDERTAKEN IN A.Y.2010 - 11 BY TAKING OPENING BALANCE AS ON 31.03.09 AS NIL, A DIFFERENT FACTUAL POSITION WILL COME OUT AS IS APPARENT FROM THE LEDGER A/C FURNISHED IN THE PAPER BOOK AT PG. NO.6. IT HAS BEEN SUBMITTED THAT DURING THIS YEAR, IN THE BEGINNING, THE ASSESSEE HAD GIVEN C ERTAIN AMOUNTS TO THE SAID COMPANY AND THEREAFTER THE COMPANY RETURNED BACK OUT OF THE SAID AMOUNTS TO THE ASSESSEE. THESE AMOUNTS RETURNED BACK BY THE COMPANY OUT OF THE AMOUNTS RECEIVED EARLIER IN THIS YEAR, IS TO BE TAKEN AS THE REFUND OF MONEY TO ASSES SEE TAKEN BY THE COMPANY EARLIER IN THE SAME YEAR. IT HAS BEEN STATED THAT SUCH RETURNS OF AMOUNTS BY THE SAID COMPANY TO THE ASSESSEE SHOULD NOT BE LINKED WITH OPENING PAYABLE AND THUS, SINCE IT SHOULD BE TREATED AS THE AMOUNT RETURNED BACK BY THE COMPANY , TAKEN BY THE COMPANY EARLIER, CANNOT BE COVERED U/S. 2 (22) (E). IN THIS MANNER, AS PER PAPER BOOK PG.6, IT HAS BEEN ARGUED THAT THE MAXIMUM OUTSTANDING PAYABLE BY THE ASSESSEE TO THE SAID COMPANY AT ANY POINT OF TIME DURING THE 9 ITA NO. 6 729 /DEL/201 4 YEAR CALCULATES ONLY RS.1 2,55,000/ - . IT HAS BEEN ARGUED THAT ONLY RS.12,55,000/ - SHOULD BE EXAMINED TO THE TEST OF APPLICABILITY OF SEC. 2 (22) (E). REGARDING RS.12,55,000/ - , THE LD. A.R. FURTHER SUBMITTED THAT THE ASSESSEE HAS BEEN MAINTAINING A RUNNING A/C WITH THE COMPANY AS A DIRECTOR/SHARE HOLDER OF THE SAID COMPANY. IT HAS BEEN FURTHER ARGUED THAT THE TRANSACTIONS IN THE RUNNING A/C WITH THE SHARE HOLDER ARE NOT COVERED U/S. 2 (22) (E) SINCE THE OBJECT OF SEC. 2 (22) (E) WAS PREVENTION OF EVASION OF TAX AND IN THIS CASE THERE IS NO EVIDENCE TO SHOW ANY INTEND TO EVADE TAX. THE LD. A.R., FOR THIS PREPOSITION HAS RELIED UPON THE CASE OF CIT VS. SURAJ DEVI DADA 367 ITR 78 (P&H). HENCE IT HAS BEEN ARGUED THAT OUT OF TOTAL SOME OF RS.47,20,000/ - ONLY RS.12,55,000/ - CAN BE EXAMINED FOR THE PURPOSES OF SEC. 2 (22) (E) AND EVEN TO THIS EXTENT, ADDITION CANNOT BE MADE U/S. 2 (22) (E) FOLLOWING THE RATIO OF DECISION IN THE CASE OF CIT VS. SURAJ DEVI DADA 367 ITR 78 (P&H). 11. I HAVE CAREFULLY CONSIDERED THE WHOLE ISSUE. I HAVE ALSO SEE N THE COPY OF LEDGER A/C OF THE COMPANY IN THE BOOKS OF ASSESSEE FILED AT PG. NO.6 OF THE PAPER BOOK. THERE IS NO DISPUTE THAT THE ASSESSEE WAS A SHARE HOLDER IN M/S NANAK BUILDERS & INVESTORS (P) LTD. HAVING 48.86% 10 ITA NO. 6 729 /DEL/201 4 OF SHARE HOLDING IN THE SAID COMPANY. AS PER THE LEDGER A/C OF THE COMPANY IN THE BOOKS OF ASSESSEE, RS.6,44,44,842/ - WAS PAYABLE BY THE ASSESSEE AS ON 01.04.09 I.E. ON THE OPENING DAY OF THE RELEVANT FINANCIAL YEAR. IN THE PAPER BOOK AT PG.21 - 37 COPY OF ASSTT. ORDER FOR A.Y.2009 - 10 PASSED U/S.1 43 (2) DTD.28.12.11 HAS BEEN FILED. AS PER THIS ORDER, ADDITION U/S.2 (22) (E) HAS BEEN MADE FOR RS.4,26,60,501/ - IN A.Y.2009 - 10. THIS ADDITION IS OBVIOUSLY ON THE BASIS OF TRANSACTIONS OF LOANS TO THE ASSESSEE FROM THE SAID COMPANY IN A.Y.2009 - 10. HENCE, THE AMOUNT OF OPENING PAYABLE BY THE ASSESSEE TO THE SAID COMPANY ALREADY STANDS TAKEN INTO CONSIDERATION FOR MAKING ADDITION IN A.Y.2009 - 10. DURING THE COURSE OF HEARING, IT WAS INFORMED THAT THE APPEAL FILED BY THE ASSESSEE FOR A.Y.2009 - 10 AGAINST THE SA ID ADDITION IS STILL PENDING IN ITA NO.2298/D/2015 BEFORE B BENCH. THUS, AT THE OUTSET I AM INCLINED TO AGREE WITH THE ASSESSEE THAT TO THE EXTENT OF OPENING BALANCE OF RS.6,44,44,842/ - , NO CONSIDERATION THEREOF IS TO BE TAKEN FOR DECIDING THE ADDITION U/S . 2 (22) (E) FOR THE TRANSACTIONS UNDERTAKEN BETWEEN ASSESSEE AND THE SAID COMPANY IN A.Y.2010 - 11. NOW ON PERUSAL OF PG.6 & 7 OF THE PAPER BOOK FILED, WHICH IS THE COPY OF LEDGER A/C OF M/S NANAK BUILDERS & INVESTMENTS (P) LTD. IN THE BOOKS OF ASSESSEE, IT COMES OUT ON ANALYSIS OF THIS LEDGER A/C, IGNORING THE OPENING BALANCE, THAT DURING THE YEAR, FIRSTLY, THE ASSESSEE HAS GIVEN 11 ITA NO. 6 729 /DEL/201 4 AMOUNTS TO THE SAID COMPANY, THEREAFTER THE COMPANY HAS RETURNED BACK TO THE ASSESSEE AND SO ON AND SO FORTH. TO THE EXTENT, THE AMOUNTS TAKEN EARLIER BY THE COMPANY AND THEREAFTER RETURNED TO THE ASSESSEE, THE SAID RETURNED AMOUNT CANNOT BE CONSIDERED AS THE LOAN OR ADVANCE RECEIVED BY THE ASSESSEE DURING THE YEAR. ON COMPLETE ANALYSIS OF THE TRANSACTIONS ONLY OF A.Y.2010 - 11, THE M AXIMUM AMOUNT OUTSTANDING AT ANY POINT OF TIME IN THE HANDS OF THE ASSESSEE AS PAYABLE TO THE COMPANY CALCULATES RS.12,55,000/ - . THUS, OUT OF RS.47,20,000/ - , IN TOTAL, GIVEN BY THE SAID COMPANY TO THE ASSESSEE IN THIS YEAR, ONLY RS.12,55,000/ - CAN BE EXAMI NED W.R.T. APPLICABILITY OF SEC. 2 (22) (E) OF THE I.T. ACT. THUS TO THE EXTENT OF RS.34,65,000/ - , OUT OF RS.47,20,000/ - , IS NOT COVERED U/S. 2 (22) (E). NOW, REGARDING BALANCE RS.12,55,000/ - , THE CLAIM OF THE ASSESSEE IS THAT HE HAS MAINTAINING THE RUNNIN G ACCOUNT WITH THE COMPANY BEING A SHARE HOLDER AND THERE IS NO FINDING OR EVIDENCE THAT THERE IS ANY INTEND TO EVADE THE TAX, WHICH WAS THE OBJECTIVE OF INTRODUCING SEC. 2 (22) (E). I HAVE EXAMINED THIS CONTENTION IN THE LIGHT OF LAW LAID DOWN IN CIT VS. SURAJ DEVI DADA 367 ITR 78 (P&H) . IN THE SAID CASE, THE ASSESSEE BEING A SHARE HOLDER WAS HAVING A RUNNING ACCOUNT WITH THE COMPANY, THERE WAS NO FINDING OR EVIDENCE THAT THERE WAS ANY INTEND TO EVADE THE TAX WHICH WAS THE OBJECT OF INTRODUCING SEC.2 (22) (E). UNDER THESE 12 ITA NO. 6 729 /DEL/201 4 FACTS, THE HONBLE HIGH COURT HELD THAT PROVISIONS OF SEC. 2 (22) (E) CANNOT BE APPLIED. ON EXAMINING THE FACTS OF PRESENT CASE, THE ASSESSEE IS A SHARE HOLDER IN M/S NANAK BUILDERS & INVESTORS (P) LTD., HAVING 48.86% OF SHARE HOLDINGS. PG .6 & 7 OF THE PAPER BOOK SHOWS THAT THE ASSESSEE IS HAVING A RUNNING ACCOUNT WITH THE COMPANY. THERE IS NO FINDING OR EVIDENCE ON RECORD OR OTHERWISE TO SHOW THAT THE TRANSACTIONS ARE UNDERTAKEN WITH THE OBJECT OF EVASION OF ANY TAX. HENCE, I FIND THAT THE RATIO OF LAW AS LAID DOWN IN CIT VS. SURAJ DEVI DADA 367 ITR 78 (P&H) SQUARELY APPLIES TO THE FACTS OF THIS CASE ALSO. THE LD. D.R., COULD NOT CITE ANY AUTHORITY CONTRARY TO THE FINDINGS IN THE SAID CASE. THE LD. D.R. ALSO DID NOT CONTROVERT THE CONTENTIO N OF THE LD. A.R. THAT UNDER THE PECULIAR FACTS OF THIS CASE, ONLY THE TRANSACTIONS OF A.Y.2010 - 11 SHOULD BE CONSIDERED INDEPENDENTLY IGNORING THE OPENING BALANCE FOR THE LIMITED PURPOSES OF EXAMINING THE APPLICABILITY OF SEC.2 (22) (E). THUS UNDER THE FAC TS OF THE CASE AND FOLLOWING THE LAW LAID DOWN IN CIT VS. SURAJ DEVI DADA 367 ITR 78 (P&H) , I HOLD THAT EVEN RS.12,55,000/ - ARE NOT HIT BY SEC. 2 (22) (E) OF THE ACT, THEREFORE CANNOT BE ADDED U/S.2 (22) (E). IN RESULT THIS GROUND OF APPEAL STANDS ALLOWED AND ADDITION OF RS.47,20,000/ - STANDS DELETED. 13 ITA NO. 6 729 /DEL/201 4 12. GROUND NO.5 IS AGAINST ADDITION OF RS2,50,000/ - . AS PER FORM - 26AS, THE A.O. NOTICED THE RECEIPT OF AMOUNT OF RS.2,50,000/ - . IT FURTHER TRANSPIRED THAT THIS RECEIPT WAS IN THE NATURE OF HIRE CHARGES RECEIV ED FROM M/S JAY POLLY CHEM (P) LTD. FOR USING SOME FARM LAND FOR HOLDING ONE DAY EVENT. THE ASSESSEE, CONTESTED THIS ADDITION RIGOROUSLY BEFORE THE A.O. AS WELL AS BEFORE CIT (A). HOWEVER, IN THE BEGINNING OF ARGUMENTS, THE LD. A.R. CONTESTED THE SAID ADDI TION BUT DURING THE COURSE OF FURTHER HEARING, HE SUBMITTED FOR NOT PRESSING THIS GROUND FOR THE REASON OF SMALLNESS AND ALSO SINCE THIS ADDITION WILL STAND SET OFF AGAINST B/F LOSSES AND DEPRECIATION THEREBY BRINGING NO TAX EFFECT. DURING HEARING, HOWEVER , THE LD. A.R. DID NOT CONCEDE THAT THE ADDITION WAS RIGHTFULLY MADE. HOWEVER, IN VIEW OF NOT PRESSING THIS GROUND, FOR WHATEVER REASON MAY BE, THIS ADDITION STANDS SUSTAINED. THE LD. A.R., HOWEVER SUBMITTED THAT HIS GRIEVANCE IS LIMITED TO THE EXTENT THAT THE A.O. HAS MADE ADDITION UNDER THE HEAD AS INCOME FROM OTHER SOURCES WHILE, CORRECTLY THE HEAD OF INCOME SHOULD BE AS INCOME FROM BUSINESS AND PROFESSION. THE LD. A.R. ARGUED THAT SINCE THIS INCOME HAS BEEN ASSESSED AS FROM A BUSINESS/EARNING ACTIVITY T HEREFORE IT SHOULD BE CORRECTLY ASSESSED AS INCOME FROM BUSINESS AND PROFESSION AND NOT AS INCOME FROM OTHER SOURCES, WHICH CAN BE THERE ONLY AS A 14 ITA NO. 6 729 /DEL/201 4 RESIDUARY HEAD OF INCOME WHEN THERE IS NO OTHER HEAD OF INCOME TO WHICH THE SAID INCOME CAN BE ALLOCATED. 13. I HAVE CAREFULLY CONSIDERED THIS ISSUE. I HAVE ALREADY CONFIRMED THE ADDITION OF RS.2,50,000/ - FOR THE REASONS GIVEN IN PARA - 5 ABOVE. HOWEVER, I FIND MYSELF IN AGREEMENT WITH THE CONTENTION OF THE LD. A.R. THAT THE CORRECT HEAD OF INCOME FOR THIS ADD ITION SHOULD BE AS INCOME FROM BUSINESS AND PROFESSION. THE HEAD OF INCOME BEING INCOME FROM OTHER SOURCES IS A RESIDUARY HEAD OF INCOME WHEREIN, APART FROM THE SPECIFIC NATURE OF INCOME AS ARE TO BE COVERED UNDER THE HEAD INCOME FROM OTHER SOURCES, ONLY S UCH OTHER INCOMES ARE TO BE INCLUDED WHICH CANNOT BE ASSESSED UNDER ANY OTHER HEAD OF INCOME. RS.2,50,000/ - HAVE BEEN RECEIVED AS HIRE CHARGES OF SOME FARM LAND FOR ONE DAY TO A PRIVATE PARTY FOR SOME EVENT. THUS IT IS AN ACTIVITY IN THE NATURE OF THE BUSI NESS ACTIVITY. THEREFORE, IN MY CONSIDERED OPINION, THIS AMOUNT SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION. ON PERUSAL OF ASSTT. ORDER I FIND THAT THE A.O. HAS NOT ASSIGNED ANY REASON FOR OPTING THE HEAD OF INCOME AS INCOME FROM OTHER SOURCES FOR THIS ADDITION. THUS, THE CONTENTION OF THE ASSESSEE STANDS ACCEPTED AND THE INCOME OF RS.2,50,000/ - IS DIRECTED 15 ITA NO. 6 729 /DEL/201 4 TO BE ASSESSED AS INCOME FROM BUSINESS AND PROFESSION. IN RESULT THIS GROUND OF APPEAL IS PARTLY ALLOWED. 14. G ROUND NO.6 IS IN RESPECT OF THE CLAIM OF THE ASSESSEE THAT WHATEVER INCOME STANDS ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES SHOULD BE SET OFF AGAINST UN - ABSORBED BROUGHT FORWARD DEPRECIATION. IT HAS BEEN SUBMITTED THAT THE A.O. ASSESSED THE FOLLOWING INCOMES UN DER THE HEAD INCOME FROM OTHER SOURCES AND DID NOT SET OFF THE S AID INCOME AGAINST AVAILABLE UN ABSORB ED BROUGHT FORWARD DEPRECIATION: ADDITIONS UNDER THE HEAD INCOME FROM OTHER SOURCES: - DEEMED DIVIDEND U/S. 2 (22) (E) RS. 47,20,000/ - ADDITION AS HIRE C HARGES OF FARM HOUSE RS. 2,50,000/ - BANK INTT. RS. 1,524/ - TOTAL RS. 49,71,524/ - IT HAS BEEN ARGUED THAT IN CASE THE ABOVE INCOME STANDS ASSESSED AS INCOME FROM OTHER SOURCES, THEN ALSO, IT SHOULD BE ALLOWED TO BE SET OFF AGAINST UN - ABSORBED B/F DEPRECIATION WHICH IS AVAILABLE AT RS.1,07,07,334/ - AS PER THE CALCULATIONS GIVEN ON PG.45 OF THE PAPER BOOK BEING THE SUBMISSIONS MADE TO CIT (A). AT THE OUTSET, THE LD. A.R. SUBMITTED THAT, ADDITION OF RS.47,20,000/ - U/S.2 (22) ( E) HAS BEEN 16 ITA NO. 6 729 /DEL/201 4 WRONGLY MADE AND IN CASE THE SAME STANDS DELETED, THIS ISSUE WILL NOT ARISE SO FAR AS THIS AMOUNT IS CONCERNED. IT HAS BEEN FURTHER ARGUED THAT IN CASE, ADDITION OF RS.2,50,000/ - STANDS ASSESSED AS INCOME FROM BUSINESS, THEN FOR THIS ADDITION A LSO, THIS ISSUE WILL NOT SURVIVE. IT HAS BEEN ARGUED THAT IN ANY CASE, WHATEVER INCOME REMAINS AND ASSESSED AS INCOME FROM OTHER SOURCES, IT SHOULD BE SET OFF AGAINST UN - ABSORBED B/F DEPRECIATION WHICH IS SUFFICIENTLY AVAILABLE TO ADJUST AND ABSORBED THIS WHOLE ADDITION. THE LD. A.R., CONTENDED THAT SEC.32 (2) PROVIDES THAT UN - ABSORBED DEPRECIATION OF EARLIER YEARS BECOMES THE CURRENT YEAR DEPRECIATION AND CONSEQUENTLY IT TAKES THE NATURE AND CHARACTER OF CURRENT YEAR BUSINESS INCOME. IT HAS BEEN FURTHER SU BMITTED THAT SEC.71 (1) R/W SEC.71 (2) FURTHER PROVIDES THAT THE CURRENT YEAR BUSINESS LOSS CAN BE SET OFF AGAINST ANY INCOME ACCEPT SALARY INCOME. IN VIEW OF THIS IT HAS BEEN ARGUED THAT SINCE THE UN - ABSORBED B/F DEPRECIATION BECOMES THE BUSINESS LOSS OF THE CURRENT YEAR THEREFORE THE INCOME FROM OTHER SOURCES CAN BE DEFINITELY SET OFF OUT OF THIS B/F DEPRECIATION WHICH BECOMES THE BUSINESS LOSS. THE LD. A.R. FURTHER ARGUED THAT CIT (A) HAS MISINTERPRETED SEC.72 (2) FOR NOT ALLOWING THE BENEFIT OF SET OFF THE INCOME FROM OTHER SOURCES OUT OF B/F DEPRECIATION SINCE SEC.72 (2) ONLY PROVIDES THAT ANY ALLOWANCE (WHICH ALSO INCLUDES DEPRECIATION) SHALL BE FIRST TREATED AS PROVIDED IN SEC.71 17 ITA NO. 6 729 /DEL/201 4 (1) AND ONLY THEREAFTER THE BALANCE WILL BE CARRY FORWARD. THUS IT HAS BEEN ARGUED THAT SEC.72 (2) ONLY PROVIDES THAT TO THE EXTENT ALLOWANCE REMAINS UN - SET OFF AS PER SEC.71 (1), ONLY TO THAT EXTENT IT SHALL BE CARRY FORWARD. IT HAS BEEN ARGUED THAT SEC.72 (2) NOWHERE DEBARS FOR SETTING OFF THE INCOME FROM OTHER SOURCES OF T HIS YEAR FOR SETTING OFF AGAINST UN - ABSORBED B/F DEPRECIATION. THE LD. A.R. PLACED RELIANCE ON THE CASE OF ACIT VS. SHREE RAGHUPATI FIBERS (P) LTD. (ITAT AHD.) IN ITA NO.256/AHD./2011, ORDER DTD.12.09.14 FOR THIS PREPOSITION. THE LD. A.R. ALSO SUBMITTED TH AT UNDER THE SIMILAR FACTS IN A.Y.2009 - 10, THE INCOME FROM OTHER SOURCES STANDS ADJUSTED AGAINST SIMILAR B/F DEPRECIATION AND LOSSES, THE COPY OF SUCH ASSTT. ORDER DTD.28.12.11 U/S.143 (3) HAS BEEN FILED ON PGS.21 - 37 OF THE PAPER BOOK. THE LD. A.R. ALSO SU BMITTED THAT THIS SET OFF HAS NOT BEEN ALLOWED BY THE A.O. WITHOUT ASSIGNING ANY REASON WHATSOEVER. THE CIT (A), HOWEVER CONFIRMED THIS ACTION OF A.O. BY ONLY MENTIONING THAT SEC.72 (2) FULLY JUSTIFIES IN NOT ALLOWING THE SET OFF OF BUSINESS LOSSES AGAINST INCOME FROM OTHER SOURCES. 15. I HAVE CAREFULLY CONSIDERED THE WHOLE ISSUE. AT THE OUTSET, ADDITION OF RS.47,20,000/ - MADE U/S.2 (22) (E) ALREADY STANDS DELETED. 18 ITA NO. 6 729 /DEL/201 4 SIMILARLY, ADDITION OF RS.2,50,000/ - HAS ALSO BEEN HELD AS TO BE ASSESSED UNDER THE HEAD I NCOME FROM BUSINESS AND PROFESSION. THUS, THIS ISSUE DOES NOT SURVIVE FOR THESE TWO ADDITIONS. THE ONLY THIRD ADDITION UNDER THE HEAD INCOME FROM OTHER SOURCES REMAINS OF BANK INTEREST OF RS.1,524/ - . HOWEVER THE ISSUE REMAINS THAT WHETHER THE INCOME ASSESS ED UNDER THE HEAD INCOME FROM OTHER SOURCES CAN BE SET OFF AGAINST B/F DEPRECIATION AND B/F BUSINESS LOSSES. I HAVE GONE THROUGH THE CASE LAW CITED BY THE LD. A.R. NAMELY ACIT VS. SHREE RAGHUPATI FIBERS (P) LTD. (ITAT AHD.) IN ITA NO.256/AHD./2011 COPY OF WHICH HAS BEEN PLACED IN THE PAPER BOOK ON PGS.12 - 15. IN THIS CASE LAW, IN PARA - 9, THE FINDING GIVEN READS AS IT IS NOT IN DISPUTE THAT BROUGHT FORWARD UN - ABSORBED DEPRECIATION CAN BE SET OFF AGAINST THE INCOME WHICH IS ASSESSABLE UNDER THE HEAD INCOME FR OM OTHER SOURCES . SEC.32 (2) PROVIDES FOR TREATING THE UN - ABSORBED DEPRECIATION OF EARLIER YEARS AS THE DEPRECIATION OF THE CURRENT YEAR AND THUS IT BECOMES IN THE NATURE OF CURRENT YEARS BUSINESS LOSS. SEC.71 (1) R/W SEC.71 (2A) FURTHER PROVIDES THAT THE CURRENT YEARS BUSINESS LOSS CAN BE SET OFF AGAINST ANY INCOME ACCEPT THE INCOME UNDER THE HEAD SALARY. THUS ON COLLECTIVE READING OF THESE THREE SECTIONS, IT IS VERY CLEAR THAT B/F DEPRECIATION CAN BE SET OFF AGAINST INCOME FROM OTHER SOURCES OF THE CURRE NT YEAR. SAME IS THE RATIO OF CASE LAW AS CITED ABOVE BY THE 19 ITA NO. 6 729 /DEL/201 4 LD. A.R. SEC.72 (2) AS MENTIONED BY THE LD. CIT IS FOR A DIFFERENT PREPOSITION. SEC.72 (2) PROVIDES THAT ANY ALLOWANCE SHALL BE FIRST TREATED AS PROVIDED IN SEC.71 (1) AND ONLY THEREAFTER THE BAL ANCE SHALL BE CARRY FORWARD. THUS, SEC.72 (2) NOWHERE RESTRICTS FOR SETTING OFFF OF INCOME FROM OTHER SOURCES FROM B/F DEPRECIATION. IT IS ALSO FOUND THAT IN THE CASE OF THE ASSESSEE, IN A.Y.2009 - 10, THE A.O. HIMSELF ALLOWED SIMILAR SET OFF U/S.143 (3). IT IS ALSO NOTEWORTHY THAT FOR NOT ALLOWING THIS SET OFF, IN THIS YEAR, THE A.O. HAS NOT ASSIGNED ANY REASON WHATSOEVER. THUS IN VIEW OF ABOVE LEGAL POSITION AND FOLLOWING THE RATIO OF ABOVE CITED CASE INCLUDING THE PAST HISTORY OF THE ASSESSEE, I DIRECT THA T WHATEVER INCOME STANDS ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES SHOULD BE ALLOWED TO BE SET OFF AGAINST B/F DEPRECIATION AND B/F LOSSES. IN RESULT THIS GROUND OF APPEAL IS ALLOWED. 16. G ROUND NO.7 IS AGAINST INTEREST U/S.234B. THE MAIN CONT ENTION OF THE LD. A.R. IS THAT INTEREST U/S.234B CANNOT BE LEV IED ON DEEMED INCOME U/S.2 (22) (E) IN VIEW OF SEC.209 (1) (A) R/W SEC.210 (3)/210 (4). HOWEVER , I HAVE ALREADY DELETED THE ADDITION U/S2 (22)(E) OF THE ACT , THUS THIS GROUND DOES NOT SURVIVE AND BECOMES IN FRUCTUOUS, HENCE DISMISSED AS IN - FRUCTUOUS. 20 ITA NO. 6 729 /DEL/201 4 17. IN RESULT THE APPEAL OF THE ASSESSEE IN ITA NO. 6729/DEL/2014 IS PARTLY ALLOWED. THE ORDER IS PRO NOUNCED IN THE OPEN COURT ON 07 . 0 3 .201 8 . SD/ - [B.P. JAIN] ACCOUNTANT MEMBER DATED: 07 TH MARCH, 2018 VL/ COPY FORWARDED TO: 1 . ASSESSEE 2 . RESPONDENT 3 . CIT ASSISTANT REGISTRAR 4 . CIT(A) ITAT, NEW DELHI 5 . DR