THE DY CIT CEN CIR-1, THANE V. M/S. SHRI KANTILAL H. JAIN, MUMBAI

ITA 728/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1179 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 28-06-2010
• Assessment Year: 1998-1999
• Appeal Filed On: 01-02-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A P SINGH
• Assessee Lawyers: B V JHAVERI
• Keywords: Notional interest
• Section: 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F, MUMBAI BEFORE SHRI D. MANMOHAN, VP AND SHRI A.L. GEHLOT, AM I.T.A. NO. ASSESSMENT YEAR: 728/MUM/08 1998-1999 729/MUM/08 1999-2000 730/MUM/08 2000-2001 THE DY.COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-I, THANE PAWAR INDL. ESTATE, EDULJI ROAD, CHARAI, THANE 400 601. VS. SHRI KANTILAL H. JAIN, EXCELLENCY, 4 TH SAMARTH CROSS LANE, LOKHANDWALA COMPLEX, ANDHERI (W), MUMBAI PAN: AACP 4367 M (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A.P. SINGH RESPONDENT BY : SHRI B.V. JHAVERI O R D E R PER A.L GEHLOT, AM: THESE APPEALS ARE FILED BY THE REVENUE. THE COMMO N GROUND IN ALL THE THREE APPEALS IS IN RESPECT OF ADDITION ON ACCOUNT OF UNDISCLOSED INCOME. THE AMOUNTS INVOLVED IN ALL THE YEARS ARE AS UNDER: ASSESSMENT YEAR AMOUNT 1998-1999 RS.12,97,312/- 1999-2000 RS.14,58,680/- 2000-2001 RS.66,17,066/- 2. SINCE COMMON GROUNDS ARE INVOLVED BASED ON IDENT ICAL SET OF FACTS, THESE APPEALS HAVE BEEN HEARD TOGETHER AND ARE BEING DISP OSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. SINCE THE GROUND RAISED ON IDENTICAL SET OF FACTS, THEREFORE, FOR THE SAKE OF CONVENIENCE, THE FACTS FOR THE ASSESSME NT YEAR 1998-99 HAVE BEEN CONSIDERED WHILE DECIDING ALL THESE APPEALS. 3. BRIEF FACTS OF THE CASE ARE THAT A SEARCH ACTION UNDER SECTION 132 OF THE ACT WAS CARRIED OUT AT THE RESIDENTIAL AS WELL AS BUSINESS PREMISES OF THE ASSESSEE ON 30 TH ITA NO728-730/MUM/2008 OCTOBER, 2003. DURING THE COURSE OF SEARCH SOME INC RIMINATING DOCUMENTS WERE FOUND. THE ASSESSING OFFICER NOTICED FROM THE BACK SIDE OF PAGE NO. 13 OF THE PAPERS SEIZED THAT THE ASSESSEE RECEIVED INTEREST OF RS.14,58,680 /- FOR THE ASSESSMENT YEAR 1999-2000 AND RS. 10,72,312/- FOR THE ASSESSMENT YEAR 1998-99 FROM VASTUSHREE ESTATES PVT. LTD. FROM PAGE 2 OF BUNDLE NO.1 SEIZED BY THE PARTY NO. M-1/M-2, WHICH INDICATED THAT ASSESSEE HAD RECEIVED INTEREST OF RS. 2,25,000/- FR OM SHRI SUMATILAL KARNAVAT DURING ASSESSMENT YEAR 1998-99. FROM 17 OF BUNDLE NO. 1 T HE NOTICED THAT THE ASSESSEE HAD RECEIVED INTEREST OF RS.64,17,066/- RELEVANT TO THE ASSESSMENT YEAR 2000-01. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS NOT DECLARED THE ABOVE INTEREST INCOME IN THE RETURN OF INCOME FILED FOR THE RESPECTIVE YE ARS. THE A.O. ASKED THE ASSESSEE TO EXPLAIN WHY THE INTEREST INCOME SHOULD NOT BE TREAT ED AS UNDISCLOSED INCOME. THE EXPLANATION FILED BY THE ASSESSEE VIDE LETTER DATED 31.03.2003 HAS BEEN REPRODUCED BY THE A.O. AT PAGE 3, WHICH READS AS UNDER: I HAVE RECEIVED INTEREST FOR FINANCIAL YEARS 1997- 98, 1998-99 AND 99-2000 AS PER SEIZED RECORDS CONTAINED IN BUNDLE NO.1, PARTY NO. M-1 & M-2 IS NOT CORRECT. I SUBMIT THAT I HAVE NOT RECEIVED ANY INTE REST OVER AND ABOVE THE INTEREST CREDITED IN MY BOOKS OF ACCOUNTS FOR THE A BOVE REFERRED ASSESSMENT YEARS FROM M/S. VASTUSHREE ESTATES P. LTD. THE REFE RENCE TO INTEREST IN THE SEIZED RECORDS IS THE NOTIONAL INTEREST CALCULATED TO WORK OUT THE SURPLUS/DEFICIT OF EITHER OF THE PROMOTER GROUPS VIS--VIS THE OTHE R. IN REALITY AS IS EVIDENCED BY OTHER ENTRIES NO AMOUNT OF INTEREST HAS BEEN PAI D BY THE COMPANY TO EITHER OF THE PROMOTERS. THE FACT THAT YOU PROPOSE TO GRAN T DEDUCTION IN RESPECT FOR THESE EXPENSES TO M/S. VASTUSHREE ESTATE IS NOT MAT ERIAL TO THE ISSUE OF DETERMINING ITS TAXABILITY IN MY HANDS. THE MATTER HAS TO BE INDEPENDENTLY DECIDED ON THE FACTS OF MY CASE. 4. THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSE ES SUBMISSION OBSERVING THAT ALL OTHER ENTRIES ON THESE PAPERS SEIZED REFLECT PAYMEN TS OR RECEIPT OF THE CASH. THEREFORE, THE CONTENTION OF THE ASSESSEE THAT THIS IS ONLY NO TIONAL INTEREST IS NOT ACCEPTABLE. 5. THE CIT(A) ACCEPTED THE ASSESSEES CONTENTION OB SERVING AS UNDER: THE GROUNDS OF APPEAL NO. 1 & 3 ARE CO-RELATED AND FOR THE SAKE OF CONVENIENCE ARE BEING DISPOSED OFF TOGETHER. ON VERIFICATION O THE DOCUMENTS PRODUCED ITA NO728-730/MUM/2008 BEFORE ME BY THE APPELLANT, I FIND THAT THE ENTRIES IN THE ACCOUNTS SUPPORT THE ARGUMENTS ADVANCED BY THE APPELLANT. THE BOOKS OF A CCOUNTS OF M/S. VASTUSHRI ESTATE PVT. LTD. SHOW THE TOTAL LOANS RECEIVED BY I T FROM THE MEMBERS OF SHRI KANTILAL H. JAINS FAMILY IS AT RS. 1,81,38,269/- F OR AY 98-99. OUT OF THIS, THE LOAN STANDING IN THE NAME OF SHRI KANTILAL H.JAIN WAS RS . 3,58,713/- FOR AY 98-99. ON THE SEIZED PAPER, ON WHICH RELIANCE HAS BEEN PLACED BY THE A.O. INTEREST HAS BEEN COMPUTED @ 6%. ON THE OTHER HAND, THE APPELLAN T AND HIS FAMILY MEMBERS HAVE DISCLOSED IN THEIR IT RETURNS INTEREST @ 18% O N THE LOANS ADVANCED TO M/S. VASTUSHRI ESTATE PVT. LTD. THE AO HAS NOT GIVEN ANY REASONS FOR REJECTING THE CLAIM OF THE APPELLANT IN RESPECT OF INTEREST RECEI VED ON LOANS BY MEMBERS OF JAIN FAMILY FROM M/S. VASTUSHRI ESTATE PVT. LTD. WHICH W AS DULY DISCLOSED IN THEIR IT RETURNS. THE RETURNS OF INCOME TAX WERE FILED IN TH E INCOME TAX DEPARTMENT BEFORE THE DATE OF SEARCH. THERE IS NO SUBSTANTIVE REASON GIVEN BY THE AO FOR NOT ACCEPTING THE CLAIM OF THE APPELLANT IN RESPECT OF INTEREST ON LOAN DISCLOSED IN HIS AND HIS FAMILY MEMBERS INCOME TAX RETURNS. SIN CE THE ACCOUNTS FILED WITH THE INCOME TAX DEPARTMENT FOR THE EARLIER AYS ALSO REFL ECTED THE QUANTUM OF LOANS ADVANCED BY THE MEMBERS OF SHRI KANTILAL H. JAINS FAMILY TO M/S. VASTUSHRI ESTATE PVT. LTD. AS WELL AS THE INTEREST RECEIVED F ROM M/S. VASTUSHRI ESTATE PVT. LTD., THESE ENTRIES CANNOT BE IGNORED NOW AT THE TI ME OF DECIDING THESE ISSUES. THE SUBMISSIONS MADE BY THE APPELLANT ON THIS ISSUE ARE CONVINCING AND ARE BACKED BY THE INFORMATION ALREADY DISCLOSED TO THE INCOME TAX DEPARTMENT. THEREFORE, THE ADDITIONS MADE OF RS. 10,72,312/- ON ACCOUNT OF INTEREST RECEIVED ON THE LOANS ADVANCED TO M/S. VASTUSHRI ESTATE PVT. LTD. HAS TO BE DELETED AS THE SAME CANNOT BE TAXED TWICE. AS REGARDS THE ISSUE OF ADDITION OF RS. 2,25,000/- ON ACCOUNT F INTEREST RECEIVED FROM SHRI S.C.KARNAWAT, THE AO HAS NOT GIVEN ANY CO NVINCING REASON. I HAVE PERUSED THE SEIZED PAPER REFERRED TO BY THE AO FOR THIS ADDITION. THERE IS NO MENTION OF THE NAME OF THE APPELLANT ON THAT PAPER. THE PAPER WAS RELATED WITH THE BUSINESS ACTIVITY OF M/S. VASTUSHRI ESTATE PVT. LTD. IT WAS NOT RELATED WITH THE BUSINESS ACTIVITIES OF SHRI S.C. KARNAWAT. THE ADDI TION APPEARS TO BE BASED ON THE INFERENCE DRAWN BY THE AO. IN THE ABSENCE OF AN Y CONVINCING REASON GIVEN BY THE AO, I FIND THAT IT DIFFICULT TO UPHOLD THE A DDITION OF RS. 2,25,000/- MADE BY THE AO ON THIS BASIS OF HIS INFERENCE AND SURMISES . 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED U PON THE ORDERS OF THE ASSESSING OFFICER AND SUBMITTED THAT THE PAPER FOUND DURING T HE COURSE OF SEARCH CLEARLY INDICATED THAT THE ASSESSEE RECEIVED THE INTEREST INCOME WHIC H WAS NOT ACCOUNTED FOR IN THE BOOKS OF ACCOUNT. THE LEARNED DEPARTMENTAL REPRESENTATIVE WITH REFERENCE TO THE ORDER OF THE I.T.A.T N THE CASE OF VASUSHRI ESTATE PVT. LTD. SUB MITTED THAT WHILE DECIDING THE ISSUE IN RESPECT OF ON MONEY A DEDUCTION WAS ALLOWED TO VASU SHRI ESTATE PVT. LTD. WHO PAID THE INTEREST TO THE ASSESSEE. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE CONTENTION OF THE ASSESSEE THAT IT WAS NOTIONAL INC OME IS NOT CORRECT. THE LEARNED DR ITA NO728-730/MUM/2008 FURTHER SUBMITTED THAT THE CALCULATION @ 6% POINTED OUT BY THE ASSESSEE AND NOTED BY THE CIT(A) AT PAGE 5 OF HIS ORDER IS NOT THE CORREC T CALCULATION. THE LEARNED DR SUBMITTED THAT THE CIT(A) HAS SIMPLY ACCEPTED THE A SSESSEES SUBMISSION WITHOUT VERIFYING THE EXPLANATION GIVEN BY THE ASSESSEE. 7. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE A SSESSEE RELIED UPON THE ORDER OF THE CIT(A) AND SUBMITTED THAT THE PAPERS WERE NOT F OUND FROM THE ASSESSEES PREMISES. THE PAPERS WERE NOT IN THE HANDWRITING OF THE ASSES SEE. HE FURTHER SUBMITTED THAT IN THE CASE OF RECIPIENTS, M/S. VASUSHRI ESTATE PVT. L TD. THERE IS NO SPECIFIC ALLOWANCE OF SUCH INTEREST EXPENSES. HE FURTHER REITERATED THE SUBMISSIONS WHICH WERE MADE BEFORE THE CIT(A) AND RELIED UPON THE ORDER OF THE CIT(A). 8. IN THE REJOINDER THE LEARNED DEPARTMENTAL REPRES ENTATIVE SUBMITTED THAT THERE ARE NO SUCH ARGUMENT EITHER BEFORE THE AO OR BEFORE THE CIT(A) THAT THE PAPERS WERE NOT FOUND IN THE HAND-WRITING OF THE ASSESSEE AND T HE SAME WERE NOT BELONGED TO THE ASSESSEE. THE ASSESSEE HAS BROUGHT NEW FACTS NOW WH ICH REQUIRE VERIFICATION. 9. WE HAVE HEARD THE SUBMISSIONS OF BOTH THE PARTIE S AND PERUSED THE FACTS ON RECORD. THE UNDISPUTED FACTS OF THE CASE ARE THAT I NVESTMENT OF JAIN GROUP INCLUDING THE ASSESSEE IN M/S. VASUSHRI ESTATE PVT. LTD. AND INT EREST EARNED FOR THE ASSESSMENT YEAR 1998-99 AS NOTED BY THE CIT(A) AT PAGE 4 READS AS U NDER: NAME OF LENDER LOAN BALANCE AS ON 31.3.98 REF.TO ENCLOSED PAGE NO. INTEREST PAID/CREDITED REF.TO ENCLOSED PG. NO. KANTILAL H. JAIN 3,58,713/- 47 1,28,562 /- 45 PARASMAL B. MODI 5,25,871/- 51 1,39,85 7/- 49 RAJESH P. JAIN 24,35,406/- 55 3,72,673/ - 53 SUNITA V. JAIN 28,76,061/- 58 4,17,846 /- 57 VAISHALI U. JAIN 14,82,452/- 61 4,24,94 7/- 60 CHIRAG P. JAIN 27,40,598/- 65 3,78,442 /- 63 DEEPALI V. JAIN 3,60,222/- 68 1,78,0 25/- 67 ANIL C. BRAHMECHA 1,77,271/- 72 8 5,857/- 71 SANTOSH KOTHARI 11,62,000/- 85 1,80,00 0/- 84 LOTUS ENTERPRISES 42,76,675/- 75 6,40,7 50/- 76A LABHLAXMI ENTERPRISES 17,43,000/- 79A 2, 70,000/- 80A TOTAL RS. 1,81,38,269/- 32,16,959/- ITA NO728-730/MUM/2008 THE ABOVE INTEREST INCOME RECEIVED FROM M/S. VASUSH RI ESTATE PVT. LTD HAVE BEEN OFFERED TO TAX BY THE RESPECTIVE PERSONS. IT IS ALS O UNDISPUTED THE FACT THAT THE PAPER FOUND AT THE TIME OF SEARCH INDICATES THE PAYMENT O F INTEREST OF THE AMOUNT AS STATED IN THE GROUND OF APPEALS. THE ENTRIES RECORDED IN THE SEIZED PAPERS DID NOT INDICATE THE TOTAL AMOUNT OF THE LOANS AND ADVANCES AND DETAILS OF THE PERSONS TO WHOM THE INTEREST WERE PAID. THERE IS NO EVIDENCE OR CONNECTION IN TH E SEIZED MATERIAL THAT THE LOANS AND ADVANCES WERE MORE THAN THAT AMOUNT AS STATED ABOVE TABLE. IF IT IS PRESUMED THAT THE INTEREST WAS PAID TO THE ASSESSEE ONLY, I.E. KANTIL AL H. JAIN, THEN WE FIND THAT THE AMOUNT OF INTEREST RECORDED IN THE SEIZED PAPER IS RS. 12 ,97,312/-, WHEREAS THE OUTSTANDING LOANS AND ADVANCES AS ON 31.3.1998 IN INDIVIDUAL N AME OF THE ASSESSEE ,SHRI KANTILAL H. JAIN WAS RS. 3,58,713/-. THEREFORE, APPARENTLY, THE INTEREST AMOUNT OF RS. 12, 97,312/- CANNOT BE THE INTEREST ON LOAN OF RS. 3,58,713/- IF WE CONSIDER THE TOTAL AMOUNT OF THE LOANS AND ADVANCES OF THE GROUP CONCERN, WHICH IS R S.1,81, 38,269/- AND PRESUME THAT THE INTEREST RECORDED IN THE SEIZED PAPER IS RELATE D TO THE TOTAL AMOUNT OF ADVANCES WHICH PERTAINED TO DIFFERENT PARTIES, EVEN IN THAT CASE ALSO THE ADDITION CANNOT BE MADE IN THE HANDS OF THE ASSESSEE BECAUSE THE INTEREST W ERE RELATED TO DIFFERENT PARTIES. 10. THE EXPLANATION OF THE ASSESSEE THAT IN ACT THE INTEREST PAID FOR A.Y. 1990-91 TO JAIN GROUP OF MEMBERS WAS RS, 32,16,959/- @ 18%, WH EREAS IN THE SEIZED PAPER IT WAS RECORDED ONLY RS.10,72,312/- OF WHICH THE CALCULATI ON COMES TO ONLY 6%. WHEN THE INTEREST @ 18% HAS BEEN PAID AND SAME WAS DECLARED BY THE PARTIES AGAINST 6% INTEREST NOTED IN THE SEIZED PAPER THAT MEANS A HIG HER INTEREST @ 18% WAS ALREADY DECLARED IN THE RETURN OF INCOME BY THE RESPECTIVE ASSESSEES. . THEREFORE, ADDITION OF THE INTEREST CLAIMED @ 6% CANNOT BE ADDED OTHERWISE THAT WILL BE DOUBLE TAXATION ON ITA NO728-730/MUM/2008 THE SAME AMOUNT OF INTEREST TO THE EXTENT OF 6%. I T IS NOT THE CASE OF REVENUE THAT INTEREST @ 24% WAS PAID. 11. IF WE EXAMINE THE ISSUE FROM ANOTHER ANGLE C ONSIDERING THE TOTAL ADVANCES OF THE GROUP AND INTEREST THEREON WHICH HAVE ALREADY BEEN OFFERED TO TAX, WE HAVE NOTICED THAT THE INTEREST FIGURE NOTED IN THE SEIZED PAPER IS LESSER AMOUNT WHICH IS EVIDENT FROM THE FOLLOWING TABLE: ASST. YEAR LOAN BALANCES OF THE GROUP LOAN BY THE ASSESSEE INTEREST OFFER TO TAX INTEREST AS PER SEIZED PAPER 1998-1999 1,81,38,269/- 3,58,713/- 32,16.959/- 12,97,312/- 1999-2000 2,97,38,269/- 3,58,713/- 43,76,056/- 14,58,680/- 2000-2001 1,87,77,998/- - - 66, 17,066/- FROM THE ABOVE TABLE WE FIND THAT THE AMOUNT OF INT EREST RECORDED IN THE SEIZED PAPER IS LESSER AMOUNT. IN A.Y.1998-99 TOTAL AMOUNT OF INTER EST IS RS. 32,17,959/- WHICH HAS BEEN OFFERED TO TAX BY THE RESPECTIVE PARTIES. THE AMOUNT OF INTEREST RECORDED IN THE SEIZED PAPER IS ONLY RS. 12,97,312/-. THERE IS NO I NDICATION IN THE SEIZED PAPER THAT THE ABOVE AMOUNT OF INTEREST WAS EXTRA AMOUNT IN ADDITI ON TO THE INTEREST RECORDED BY THE RESPECTIVE PARTIES. IN ABSENCE OF RELEVANT DETAILS IN THE SEIZED PAPER, IT CANNOT BE HELD THAT INTEREST RECORDED IN THE SEIZED PAPER IS AN AD DITIONAL AMOUNT OF THE INTEREST PAID TO THE PARTIES OR TO THE ASSESSEE. THE SEIZED PAPER DI D NOT CONTAIN OTHER DETAILS REGARDING TOTAL LOANS AND ADVANCES, NAME OF THE PARTIES TO WH OM INTEREST WERE PAID ETC. THE ABOVE FINDING IS FURTHER SUPPORTED BY THE FACT THAT THE OUTSTANDING AMOUNT OF LOAN IN INDIVIDUAL NAME OF ASSESSEE AS ON 31 ST MARCH, 1998 IS RS,. 3,58,713/- WHERE ON INTEREST AMOUNT OF RS. 12,97,312/- AS AT 31.3.98 AND ON SIMI LAR AMOUNT OF LOAN INTEREST RS 14,58,680/- AS AT 31.3.98-99 CANNOT BE HELD AS AN ADDITIONAL INTEREST PAID TO THE ASSESSEE. SIMILARLY IN A.Y. 2000-01 THE OUTSTANDING LOAN IN THE NAME OF THE ASSESSEE IS NIL WHEREAS THE INTEREST RECORDED IN THE SEIZED P APER IS RS. 66,17,066/-.AFTER ITA NO728-730/MUM/2008 CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE W E CONFIRMED THE ORDER OF THE CIT(A) AS PER REASONS DISCUSSED ABOVE BY US. 12. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 9 TH DAY OF JULY, 2010. SD. SD. (D. MANMOHAN) (A.L.GEHLOT) VICE-PRESIDENT ACCOUNTANT MEMBER MUMBAI DATED THE 9 TH JULY, 2010. KN COPY TO: 1. THE ASSESSEE 2. THE REVENUE 3. THE CIT, CENTRAL, PUNE. 4. THE CIT(A)-I,THANE 5. THE DR F BENCH, MUMBAI BY ORDER /TRUE COPY/ ASST. REGISTRAR, ITAT, MUMBAI