Shri Mahendra R.Gandhi, Ahmedabad V. Asstt. Commissioner of Income tax, Ahmedabad

ITA 824/AHD/2015

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4792 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 09-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N J VYAS
• Keywords: Principle of natural justice; Valuation report
• Section: 142(1); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD SMC BENC H (BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER & SHRI WASEEM AHMED, ACCOUNTANT MEMBER) ITA. NO: 824/AHD/2015 (ASSESSMENT YEAR: 2011-12) SHRI MAHENDRA R. GANDHI 41, JAIN SOCIETY, PALDI AHMEDABAD-380007 V/S ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-11, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: ACEPM6168R APPELLANT BY : SHRI BHARAT SHAH, AR RESPONDENT BY : SHRI N. J. VYAS, SR. D.R. ( )/ ORDER DATE OF HEARING : 15 -10-201 8 DATE OF PRONOUNCEMENT : 18 -10-2018 PER MAHAVIR PRASAD, JUDICIAL MEMBER 1. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-5, AHMEDABAD DATED 13.01.2015 PERTAINING TO A.Y. 2011- 12 AND FOLLOWING GROUNDS HAVE BEEN TAKEN: ITA NO. 824- AHD-2015 . A.Y. 2011-1 2 2 1 THE PART OF IMPUGNED ORDER IS CONTRARY TO THE EV IDENCE AND MATERIAL ON RECORD, CONTRARY TO THE PRINCIPLES OF LAW AND BINDING JUDGM ENTS OF THE COURT, CONTRARY TO THE RELEVANT PROVISIONS OF THE ACT AND DESERVES TO BE QUASHED AND SET ASIDE. 2 THE LEARNED CIT(A) HAS ERRED IN DISALLOWING THE P ARTIAL INTEREST OF RS.6,75,719/- BY STATING THAT LOANS WERE OBTAINED SUBSEQUENTLY TO THE DATE OF COMPLETION OF CONSTRUCTION WITHOUT CONSIDERING THE FACTS OF EXAMI NING THE INTEREST IN TOTALITY. YOUR APPELLATE THEREFORE SUBMITS THAT THE ORDER DES ERVES TO BE QUASHED SO IT MAY BE SO HELD NOW. 3.THE LEARNED CIT (A) OUGHT TO HAVE CONSIDERED THE APPELLANT'S CLAIM OF DISALLOWANCE U/S 14A OF THE ACT. SUCH ADDITION OF R S. 52,037/- CONFIRMED BY LEARNED CIT (A) BEING CONTRARY TO THE FACTS AND REL EVANT PROVISIONS IS OF THE ACT DESERVES TO BE QUASHED AND SET ASIDE. IT MAY BE SO HELD NOW. 4.YOUR APPELLANT AGAIN RESPECTFULLY SUBMITS THAT TH E ACTION OF LEARNED CIT(A) FOR PASSING AN ORDER WHOLLY UNJUSTIFIED AND AGAINST THE PRINCIPLES OF THE NATURAL JUSTICE. YOUR APPELLANT THEREFORE REQUESTS YOU TO C ANCEL THE ORDER. 2. ON VERIFICATION OF COMPUTATION OF INCOME, IT IS SEE N THAT THE ASSESSEE HAS SHOWN RENT INCOME AT RS. 21,77,701/- AFTER CLAIMING DEDUCTION OF INTEREST PAID RS. 15,94,949/-ON BORROWED CAPITAL. DETAILS FOR THE SAME WERE CALLED FOR WHICH IS AS UNDER: SR.NO. PARTICULARS INTEREST AMOUNT 1 TEXTILE TRADERS CO - OP BANK 83,104/ - 2 IDBI BANK 69,261 / - 3 TEXTILE TRAD ERS CO - OP BANK - 7267 2,55,825/ - . 4 FORTY OTHER RELATED PERSONS 11,86,759/ - ITA NO. 824- AHD-2015 . A.Y. 2011-1 2 3 3. ON VERIFICATION OF THE DETAILS SUBMITTED IT IS SEEN THAT THE ASSESSEE HAS TAKEN LOANS. AND PAID INTEREST FOR THE SAME, THE ASSESSEE WAS ASKED TO SUBMIT VIDE ORDER SHEET ENTRY DATED 19/1272013 TO FILE EVIDENCE S REGARDING THE BORROWED CAPITAL USED FOR ACQUIRING /CONSTRUCTION OF THE PRO PERTY FROM WHICH RENT IS RECEIVED. IN RESPONSE, THE ASSESSEE SUBMITTED A CHA RT SHOWING THE NET BORROWING AND INTEREST CLAIMED. THE ASSESSEE FAILED TO SUBMIT THE BANK ACCOUNT FROM WHICH LOAN WAS TAKEN AND USED FOR THE PROPERTY . THE ASSESSEE WAS ONCE AGAIN REQUESTED FOR THE SAME VIDE THIS; OFFICE NOTI CE DATED 06/01/2014, WHICH IS REPRODUCED HEREUNDER: '......IT IS SEEN THAT YOU ARE RECEIVING RENT FROM VARIOUS PROPERTIES RENTED TO BUSINESS CONCERNS. YOU HAVE CLAIMED DEDUCTION OF IN TEREST PAID RS. 1594949/- FROM RENTAL INCOME. YOU ARE REQUESTED TO SUBMIT PR OOF OF PAYMENT OF EXPENSES CLAIMED AGAINST RENTAL INCOME, APPLICATION MADE TO THE BANK WITH ALL ITS ENCLOSURES, VALUATION REPORT OF THE PROPERTIES SUBM ITTED TO THE BANK SANCTION LETTER ISSUED BY THE BANK, BIFURCATION OF PAYMENT OF PRINC IPAL AND INTEREST ISSUED BY THE BANK. ALSO SUBMIT EVIDENCES OF THE USE OF SUCH LOAN FOR THE PROPERTY FROM WHICH RENT HAS BEEN RECEIVED, IN ABSENCE OF WHICH PLEASE SHOW CAUSE AS TO WHY ADVERSE INFRANCE SHOULD NOT BE DRAWN.....' 4. IN RESPONSE THE ASSESSEE HAS SUBMITTED A COPY OF LO AN SANCTION LETTER DATED 24/07/2008 FROM TEXTILE TRADERS CO-OP BANK LTD FOR MORTGAGE LOAN OF RS. 80,00,000/- . THE ASSESSES HAS ALSO SUBMITTED BU PERMISSION LETTER DATED 14/07/2008 FROM AHMEDABAD MUNICIPAL CORPORATION. 5. THE SUBMISSION OF THE ASSESSEE HAS BEEN CAREFULLY V ERIFIED. THE BU PERMISSION GRANTED BY THE AMC, REFLECTS THE COMPLETION OF CONS TRUCTION DATE OF THE PROPERTY AS 25/03/2006 WHEREAS THE SANCTION LETTER OF TEXTILE TRADERS CO-OP BANK LTD FOR MORTGAGE LOAN OF RS. 80.00.000/- IS DA TED 24/07/2008. THIS CLEARLY SHOWS THAT THIS LOAN IS AVAILED ONLY AFTER THE COMPLETION OF THE CONSTRUCTION OF THE PROPERTY. THIS LOAN IS NOT UTIL IZED FOR ACQUIRING OR ITA NO. 824- AHD-2015 . A.Y. 2011-1 2 4 CONSTRUCTING THE PROPERTY RENTED. IT IS ALSO PERTIN ENT THAT THIS IS A MORTGAGE LOAN. 6. SIMILARLY, ON VERIFICATION OF THE LOAN AVAILED FROM IDBI BANK IT IS SEEN THAT THIS IS AN OVERDRAFT ACCOUNT AND THE ACCOUNT IS OPENED A FTER THE COMPLETION OF THE CONSTRUCTION OF THE PROPERTY. THE ASSESSEE HAS ALSO CLAIMED INTEREST PAID TO .ACCOUNT NO. 480 OF TEXTILE TRADERS CO-OP BANK LTD WHICH IS A CASH CREDIT ACCOUNT OPENED AFTER THE COMPLETION OF CONSTRUCTION OF THE PROPERTY. 7. THE ASSESSEE WAS REQUESTED TO FILE CONFIRMATIONS FR OM THE REST OF THE PERSONS. THE ASSESSEE WAS NOT ABLE TO SUBMIT THE SAME AND WA S ALSO NOT ABLE TO PROVE THE NEXUS OF THE LOAN TAKEN AND USED FOR ACQUIRING / CONSTRUCTION OF THE PROPERTY. THE ASSESSEE WAS ISSUED A SHOW-CAUSE NOTI CE U/S 142(1) DATED 06/01/2014 WHICH IS REPRODUCED HEREUNDER: '...,.. YOU HAVE SUBMITTED THE COPIES OF ACCOUNTS O F UNSECURE D LOANS, FROM WHICH THE FOLLOWING ARE NOT SUBMITTED: GROUP AMOUNT REMARKS I) GROUP 1 RS. 13665304 - ANVI CORPORATION RS. 103000/- CONFIRMATION/PAN PENDING DINESHBHAI SHAH,HUF RS. 250000/- -DO- MANALI MUNSHI RS. 15450/- -DO- HIREN SHAH RS.316140/- -DO- KUSUM R GANDHI RS.174661/- -DO- MANUBHAI KSHAH, HUF RS. 540160/- -DO- MITTALBHAI M SHAH RS.606317/- -DO- NILAM CORPORATION RS. 24600/- -DO- PARAGMSHAH RS. 1723557/- -DO- ITA NO. 824- AHD-2015 . A.Y. 2011-1 2 5 RASHMI R SHAH RS. 165200/- -DO- SEJALBEN R SHAH RS. 30975/- -DO- SURESH SUTARIA RS. 138283/- -DO- AMISHI PARAG SHAH RS. 227843/- -DO- II) -GROUP 3 AMITA K SHAH RS. 408800/- -DO- HARSHAD N SHAH RS. 61600/- -DO- KALPANA SHAH RS. 14560/- -DO- KETKI K SHAH RS. 61600/- -DO- MIND K SHAH RS. 39200/- -DO- NIMISH K SHAH RS.61600/- -DO- NIRVI H SHAH RS. 61600/- -DO- REKHA K SHAH RS. 22400/- -DO- SADHANA R SHAH RS. 50400/- -DO- SARLA H SHAH RS. 13400/- -DO- IN ABSENCE OF CONFIRMATIONS REGARDING THE ABOVE UNS ECURED LOANS PLEASE SHOW- CAUSE AS TO WHY ADVERSE INFERENCE SHOULD NOT BE DRA WN......' 8. IN RESPONSE THE ASSESSEE REQUESTED ADJOURNMENT WHI CH WAS GRANTED INFORMATION WAS COLLECTED FROM TEXTILE TRADERS CO-O P BANK LTD WHICH CONFIRMED THAT ACCOUNT NO. 2277 IS A VEHICLE LOAN A CCOUNT, A/C NO.2267 IS A MORTGAGE LOAN ACCOUNT (SANCTIONED AFTER THE BU PERM ISSION GRANTED) AND A/C NO. 40 IS A CASH-CREDIT ACCOUNT. 9. A FINAL SHOW-CAUSE NOTICE U/S 142(1) WAS ISSUED ON 31/01/2014 WHICH READS AS UNDER: ITA NO. 824- AHD-2015 . A.Y. 2011-1 2 6 '..... YOU ARE GIVEN A FINAL OPPORTUNITY TO SHOW CAU SE AS TO WHY THE INTEREST AMOUNT OF RS. 15,94,949/- AS CLAIMED SHOULD NOT BE DISALLOWED SINCE THE SAME ARE NOT RELATABLE TO THE PROPERTY FROM WHICH THE RE NT INCOME IS RECEIVED. THIS IS ALSO EVIDENT FROM THE DETAILS RECEIVED FROM THE FOL LOWING BANKS AND OTHER FACTS ON RECORD. TEXTILE TRADERS CO-OP BANK (M.T LOAN) SANCTIONED ON 24/07/2008 I.E. AFTER THE COMPLETION OF CONSTRUCTION OF THE PROPERTY RENTED. (II)IDBI BANK LOAN NOT RELATABLE TO ACQUIRING OR CONSTRUCTING THE PROPERTY (III)TEXTILE TRADERS CO-OP BANK -NOT RELATABLE TO A CQUIRING OR CONSTRUCTING THE PROPERTY. YOUR ATTENTION IS ALSO INVITED TO THE CONFIRMATIONS AND INCOME-TAX PARTICULARS WITH PAN SOUGHT FOR. THE LOANS TAKEN AS INTIMATED T O YOU VIDE THIS OFFICE NOTICE DATED 06/01/2014. HOWEVER, YOU HAVE FAILED TO FILE SUCH DETAILS AND ESTABLISH THE IDENTITY, CREDIT WORTHINESS AND GENUINENESS OF THE TRANSACTION. AS SUCH, YOU ARE REQUESTED TO SHOW-CAUSE AS TO WHY THE SAME SHOU LD NOT BE ADDED TO YOUR TOTAL INCOME. 10. IN RESPONSE THE ASSESSEE SUBMITTED LETTER DATED 06/ 02/2014 IN WHICH THE ASSESSEE STATES THAT THE ENTIRE LOANS TAKEN FROM DI FFERENT PARTIES AND BANKS IS UTILIZED FOR THE REPAYMENT OF LOANS TAKEN FROM VARI OUS PARTIES FOR THE CONSTRUCTION OF THE PROPERTY. THE SUBMISSION OF THE ASSESSEE IS REPRODUCED HERE UNDER: '... ...AS REGARDS THE LOAN TAKEN FROM TEXTILE TRADE RS CO-OP BANK, IT IS SUBMITTED THAT THE SAID LOAN IS TAKEN FOR THE REPAYMENT OF LO ANS TAKEN FROM DEPOSITORS. THE LOAN OF RS. 80 LACS HAS BEEN TAKEN ON 26/08/2008. T HE ENTIRE LOAN IS UTILIZED FOR THE REPAYMENT OF LOANS TAKEN FROM VARIOUS PARTIES F OR THE CONSTRUCTION OF THE PROPERTY. THIS IS EVIDENT FROM THE COPY OF THE BALA NCE SHEET OF OUR ABOVE NAMED CLIENTS AS ON 31/03/2008 AND 31/03/2009. THUS WE HA VE TO SUBMIT THAT THE CLAIM OF INTEREST OF RS. 15,94,949/- IS CORRECTLY CLAIMED BY OUR CLIENTS.......' 11. THE CONTENTION OF THE ASSESSEE HAS BEEN CAREFULLY C ONSIDERED. IT IS CONFIRMED BY THE ASSESSEE THAT THE PRESENT LOANS HAVE NOT BEE N UTILIZED FOR ACQUIRING OR THE CONSTRUCTION OF THE PROPERTY BUT HAVE BEEN UTIL IZED FOR THE REPAYMENT OF LOANS TAKEN. THE LOANS AVAILED FROM TEXTILE TRADERS CO-OP BANK ARE VEHICLE LOANS AND CASH-CREDIT LOANS. AS SUCH, THE INTEREST PAYMENT ON THIS LOAN IS NOT AN ALLOWABLE EXPENSE FROM INCOME FROM HOUSE PROPERTY. THE SAME IS DISALLOWED ITA NO. 824- AHD-2015 . A.Y. 2011-1 2 7 AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. THE DISALLOWANCE ON THIS ACCOUNT COMES TO RS. 15,94,949/-. PENALTY PROCEEDIN GS U/S 271(1)(C) ARE INITIATED FOR FURNISHING INACCURATE PARTICULARS OF INCOME. 12. IT IS PERTINENT TO MENTION HERE THAT SIMILAR DISALL OWANCE WAS MADE IN ASSESSEE'S OWN CASE IN PREVIOUS YEAR ALSO. THE ISSUE IS PENDIN G BEFORE THE HON. ITAT AND HAS NOT ATTAINED FINALITY. 3. DISALLOWANCE U/S 14A R.W.R. 8(D). 13. ON GOING THROUGH THE COMPUTATION OF INCOME IT IS SE EN THAT THE ASSESSEE HAS CLAIMED DIVIDEND INCOME OF RS 18,32,986/- AS EXE MPT DIVIDEND INCOME. AS PER PROVISIONS CONTAINED IN SECTION 14A R.W. RULE 8 D, THE INTEREST AND ADMINISTRATIVE EXPENDITURES ARE REQUIRED TO BE DISA LLOWED. A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE REGARDING THE SAME. THE ASSESSEE HAS VIDE LETTER DATED 06/02/2014 SUBMITTED THE WORKING OF DISALLOWANCE U/ S 14A R.W.R. 8(D) WHICH IS REPRODUCED HEREUNDER: ' .....AS ASKED FOR THE WORKING FOR DISALLOWANCE U/S 14A READ WITH RULE 8D WE ARE ENCLOSING HEREWITH THE WORKING : CALCULATION OF DISALLOWANCE U/S 14A AS PER RULE 8DF OR A.Y. 2011 - 12 1. AMOUNT OF DIRECT EXPENDITURE 2. INTEREST EXPENDITURE = INTEREST X AVERAGE VALUE OF INVESTMENT/ AVERAGE VALUE OF ASSETS 3. 1/2 % OF AVERAGE INVESTMENT ( 0.50% X 1, 04,07, 460/-) NIL NIL NIL 52,0377- TOTAL EXPENDITURE DISALLOWED U/S 14A (RULE 8D) 5 2,037 / - ITA NO. 824- AHD-2015 . A.Y. 2011-1 2 8 1. VALUE OF AVERAGE INVESTMENT PARTIC ULARS AMOUNT 1. AS ON 31/03/2011 2. 2. AS ON 01/04/20 10 1,08,57,196 99,57 725/- VALUE OF AVERAGE INVESTMENT 1,04,07,460 14. AS PER THE WORKING SUBMITTED BY THE ASSESSEE.AN AMO UNT OF RS.52,037/- IS DISALLOWED* U/S. 14A OF THE ACT AND ADDED BACK TO T HE TOTAL INCOME OF THE ASSESSEE.THE DISALLOWANCE ON THIS ACCOUNT COMES TO RS. 52,037/-. 15. AFTER PERUSAL OF THE SUBMISSIONS AND THE MATERIAL O N RECORD AND THE DISCUSSION HELD, THE TOTAL INCOME OF THE ASSESSEE IS COMPUTED AS FOLLOWS: TOTAL INCOME AS PER RETURN OF INCOME : RS. 22,17,9 60/- ADD : DISALLOWANCE OF INTEREST : RS. 15,94,949/ - DISALLOWANCE U/S 14A : RS. 52,037/- AND FINALLY TOTAL INCOME ASSESSED AT RS. 38,64 ,946/-. 16. AGAINST THE ORDER OF THE LD. A.O., ASSESSEE PREFERR ED FIRST STATUTORY APPEAL BEFORE THE LD. CIT(A) WHO PARTLY ALLOWED THE APPEAL OF THE APPELLANT. 17. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMPUGN ED ORDER. LD. CIT(A) HAD DISALLOWED AN INTEREST OF RS. 6,75,719/-. IN SU PPORT OF ITS CONTENTION, APPELLANT HAS SUBMITTED ALL THE DETAILS TO THE PERS ONS FROM WHOM LOAN WAS TAKEN AND BANK STATEMENT BUT LOWER AUTHORITIES DID NOT BOTHERED TO LOOK INTO IT IN DETAIL. ALL TRANSACTIONS HAVE BEEN MADE THROUGH BANKING CHANNEL AND ITA NO. 824- AHD-2015 . A.Y. 2011-1 2 9 APPELLANT ALSO SUBMITTED A COPY OF LOAN SANCTIONED LETTER FROM THE BANK AS WELL AS AT PAGE 69 OF THE PAPER BOOK. DETAILED SUMMARY O F ASSESSMENT YEAR-WISE INTEREST AND CLOSING BALANCE-WISE WAS SUBMITTED BEF ORE THE LOWER AUTHORITIES. BUT REVENUE DID NOT BELIEVE THE APPELLANT WITHOUT A NY SUBSTANCE. 18. BEFORE US, APPELLANT HAS FILED DETAILED WORKING OF LOAN AND INTEREST PAID THEREON. THEREFORE, WE ALLOW THE FIRST GROUND OF AP PEAL OF THE APPELLANT. 19. SO FAR NEXT GROUND RELATED TO DISALLOWANCE U/S. 14A FOR AMOUNT OF RS. 52,037/- IS CONCERNED, A.O. HAS DISCUSSED THIS ISSUE AT PAGE 5 PARA 3.1 AND LD. CIT(A) HAS GIVEN DECISION AT PARA 5.2. AFTER GOING THROUGH BOTH THE ORDER F THE AUTHORITIES BELOW, WE DO NOT FIND ANY AMBIGUITY IN THE ORDER PASSED BY THE LOWER AUTHORITIES. HENCE, WE CONFIRM THE ADDITION O F RS. 52,037/-. 20. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PART LY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 18 - 10- 2018 SD/- SD/- (WASEEM AHMED) (MAHAVIR PRASAD) ACCOUNTANT MEMBER TRUE COPY JUDICIAL MEMBER AHMEDABAD: DATED 18 /10/2018 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD