NANJI DANA PATEL, MUMBAI V. ASST CIT 19(3), MUMBAI

ITA 9051/MUM/2010

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 3118 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 25-03-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 27-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR SANTOSH MANKOSKAR
• Keywords: Capital asset; Proportionate interest
• Section: 143(3); 68; 6

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI B BENCH , , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & SAKTIJIT DEY ,JUDICIAL MEMBER /. ITA NO. 9051 /MUM/201 0 , / ASSESSMENT YEAR - 200 5 - 06 MR. NANJI DANA PATEL 100 - A , HILL ROAD , BANDRA (W) MUMBAI - 400 050. PAN:AABPP 5772 B VS ACIT - 19(3) MUMBAI. ( / APPELLANT ) ( / RESPONDENT ) /ASSESSEE BY : SHRI HIRO RAI / REVENUE BY : DR. SANTOSH MANKOSKAR / DATE OF H EARING : 24 - 09 - 2015 / DATE OF PRONOUNCEMENT : 30 - 09 - 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX AC T,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DT. 05.10.2010 OF CIT(A) - 30 ,MUMBAI, THE ASSESS EE , HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. DELETING ONLY PART OF THE ADDITION U/S.68 AMOUNTING TO RS.30,85,000/ OUT OF TH E TOTAL OF RS.35,50,000/ ADDED BY THE LEARNED AO AND ERRED IN CONFIRMING ADDITION COMPLETELY IGNORING THE SUBMISSIONS WITH REFERENCE TO THE FOLLOWING TRANSACTIONS: A. LOAN OF RS.2,00,000/ FROM MS. ELA D. SHAH. B. LOAN OF RS.1 ,00,000/ FROM MRS. KAMLABEN DAVE. C. LOAN OF RS.1 ,65,000/ FROM MR. KARSAN M. RAVRIYA. 2. CONFIRMING THE DISALLOWANCE OF INTEREST AMOUNTING TO RS.5,26,052/ COMPLETELY IGNORING THE SUBMISSIONS AND HOLDING THAT APPELLANT HAS NOT FURNISHED ANY EXPLANATION AND HOLDING FURTHER THAT AO WAS JUSTIFIED IN MAKING THE IMPUGNED ADDITION. 3. CONFIRMING THE DISALLOWANCE OF INTEREST AMOUNTING TO RS.5,70,510/ COMPLETELY IGNORING THE SUBMISSIONS AND HOLDING THAT APPELLANT HAS NOT GIVEN ANY REPLY AND HOLDING FURTHER THAT AO WA S JUSTIFIED IN MAKING THE IMPUGNED ADDITION. 4. CONFIRMING THE DISALLOWANCE OF INTEREST AMOUNTING TO RS.18,75,780/ WITHOUT PROVIDING ANY SUBSTANTIVE REASON FOR HOLDING THAT AO WAS JUSTIFIED IN CAPITALIZING THE INTEREST. 5. CONFIRMING THE ADHOC DI SALLOWANCE OF 1/4TH OF THE TELEPHONE EXPENSES AMOUNTING TO RS.10,765/ WITHOUT PROVIDING ANY SUBSTANTIVE REASON FOR HOLDING THAT AO WAS JUSTIFIED IN DISALLOWING THE SAME. 6. EACH OF THE ABOVE GROUND IS INDEPENDENT OF EACH OTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR DELETE ANY OF THE OTHER GROUND ON OR BEFORE THE COMPLETION OF THE APPELLATE PROCEEDINGS. A SSESSEE ,AN INDIVIDUAL, DERIVES INCOME S FROM OTHER SOURCES AND A PARTNERSHIP FIRM. HE IS ALSO A IS PROPRIETOR OF A PROVISION STORE. H E FILED RETURN OF INCOME ON 27.10.2006 DECLARING LOSS OF RS. 17. 26 LACS. THE ASSESSING OFFICER( AO ) COMPLETED THE ASSESSMENT ON 28.12.2007, U / S. 143(3) OF THE ACT , DETERMINING THE INCOME OF THE ASSESSE AT RS.50.30 LACS. 2 .F IRST GROUND OF APPEAL IS ABOUT ADDITION OF RS.4 .65 LACS .DURING THE ASSESSMENT PROCEEDINGS , THE AO FOUND THAT THE ASSESSEE HAD RECEIVED LOANS FROM VARIOUS PARTIES AND HAD PAID INTEREST TO THEM.FROM A CHART SUBMITTED BY THE ASSESSEE ,IN THAT REGARD, HE REACHED TO THE CONCLUSION THAT ITA/9 051 /MUM/2010 - AY.06 - 07,N ANJI DPATEL. 2 THERE WAS A CLEAR AND UN RECONCILED DIFFERENCE OF RS.35.50 LACS BETWEEN THE FIGURES IN T HE BALANCE SHEET AND THE CHART. ACCORDINGLY, HE ADDED A SUM OF RS.35,50,000/ - TO THE INCOME OF THE ASSESSEE U/S. 68 OF THE ACT. 2.1. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE PREFERRED AN APP EAL BEFORE THE FIRST APPELLATE A UTHORITY (F A A ),WHO DIRECTED THE AO TO FILE A REMAND REPORT AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE .THE AO,VIDE HIS LETTER DT.2.6.09, SUBMIT TED HIS REPORT. AFTER CONSIDERING THE REPORT, THE F A A HELD THAT THE AO HAD ADM ITTED THAT THE LOAN OF R S.27.95 LACS WAS NOT OUTSTANDING, THAT SAME HAD BEEN PAID DURING THE FY 2004 - 05, THAT OUT OF THE TOTA L ADDITION, ADDITION TO THE EXTENT OF R S.27.95 LACS WAS NOT WARRANTED .REGARDING THE LOAN TO ELA D. SHAH, THE F A A HELD THAT THE AO HAD INFORMED THAT THE ASSESSEE DI D NOT PRODUCE E LA D. SHAH OR HER BROKER BHAVESH BHAI, THAT THE LOAN COULD NOT BE VERIFIED, THAT THE ADDITION MADE BY THE AO AMOUNTING TO RS.2.00 LACS PERTAINING TO E LA D. SHAH WAS TO BE CONFIRMED.WITH REGARD TO LOAN OF RS.1.00 L ACS OF KAMLABEN DAVE, HE HELD THAT THE ASSESSEE HAD FAILED TO PRODUCE THE CREDITOR AND THE BROKER, THAT LOAN TAKEN FROM HER HAD TO BE ADDED TO THE INCOME OF THE ASSESSEE .S IMILARLY, REGARDING THE LOAN FROM KASARAM M. RAVIRIA, THE F A A HELD THAT THE AO HAD MENT IONED THAT THE ASSESSEE HAD FAILED TO PROVE HIS CLAIM.ACCORDING L Y HE CONFIRMED THE ADDITION . 2.2. DURING THE COURSE OF HEARING BEFORE US THE AR REFE RR ED TO PAGE 22 OF THE PB AND STATED THAT THE F A A HAD NOT CONSIDERED THE REMAND REPORT AS WELL AS THE SUBMIS SIONS MADE BEFOR E HIM DURING THE APPELLATE PROCEEDINGS.DR LEFT THE ISSUE TO THE DISCRETION OF THE BENCH. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD.WE FIND THAT BEFORE THE F A A THE ASSESSEE HAD SUBMITTED THAT EL A D. SHAH WAS NOT I N A POSITION TO APPEAR BEFORE THE AO ON AC COUNT OF DIFFICULTY AT HER END, THAT SHE HAD FILED AN AFFIDAVIT CONFIRMING THE TRANSACTION ALONG WITH THE COPY OF THE BANK STATEMENT, ACKNOWLEDGEMENT OF THE RETURN OF INCOME FILED, COMPUTA - TION OF HER TOTAL INCOME, BALANCE SHEET AND THE CAPITAL ACCOUNT. WE FIND THAT WHILE DECIDING THE APPEAL , THE F A A HAS NOT CONSIDERED THE BANK STATEMENT, THE FINANCIAL STATEMENT AND T HE RETURN OF INCOME FILED BY ELA D. SHAH.SIMILAR IS THE CASE OF KAMLA BEN DAVE AND KARSEN M. RAVERIA. THE ASSESSEE HAD FILED DOCUMENTARY EVIDENCES ABOUT THE LOANS BUT THE SAME WERE NOT CONSIDERED BY THE F A A .THEREFORE, WE ARE OF THE OPINION THAT THE MATTE R NEEDS FURTHER VERIFICATION.SO,IN THE INTEREST OF JUSTICE, WE ARE RESTORING BACK TH E ISSUE OF LOANS ADVANCED BY EL A D. SHAH, KAMLABEN DAVE AND KARSEN M. RAVERIA TO THE FILE OF THE AO FOR FRESH ADJUDICATION.HE IS DIRECTED TO AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE AND TO DECIDE THE ISSUE AFTER CONSIDERING DOCUMENTARY EVIDENCES FILED BY THE ASSESS EE .GROUND NO.1 IS DECIDED IN FAVOUR OF THE ASSESSEE , IN PART. 3. NEXT GROUND IS ABOUT DISALLOWANCE OF INTEREST AMOUNTING TO RS.5.26 LACS. DURING THE ASSESS - MENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD CLAIMED INTEREST PAID TO THE EXTENT OF R S.29.72 L ACS, THAT AS PER THE CHART PREPARED BY THE ASSESSEE WITH REGARD TO INTEREST PAID, HE HAD PAID INTER EST OF RS.24.46 LACS ONLY, THAT ASSESSEE HAD NOT EXPLAINED THE DIFFERENCE OF RS.5.26 LACS ( RS.29.72 LACS RS.24.46 LACS). THE AO MADE A DISALLOW AN CE OF RS.5,26 ,052/ - . 3.1. BEFORE THE F A A ,IN THE APPELLATE PROCEEDINGS, THE ASSESSEE STATED THAT HE HAD RECONCILED THE DIFFERENCE OF INTEREST.HOWEVER, THE F A A HELD THAT THE ASSESSEE H AD NOT FURNISHED ANY EXPLANATION, THAT THE AO WAS NOT JUSTIFIED IN MAKING THE IMPUGNED ADD ITION. 3. 2 . BEFORE US, THE AR REFERRED TO THE REMAND REPORT OF THE AO DATED 2.6.2009 AND STATED THAT THE AO HAD CLEARLY MENTIONED THAT THERE WAS NO DIFFERENCE IN INTEREST WORKING. WE WOULD LIKE TO REPRODUCE THE RELEVANT PORTION OF THE REMAND REPORT. ITA/9 051 /MUM/2010 - AY.06 - 07,N ANJI DPATEL. 3 IN THI S CASE, ASSESSEE S AUTHORISED REPRESENTATIVE HAD BEEN CALLED FOR AND HAS BEEN ASKED TO OFFER EXPLANATION ABOUT ADDITION OF RS.35,50,000/ U/S. 68 AND OF RS.5,26,052/ ON ACCOUNT OF DIFFERENCE IN THE INTEREST CHARGED.IN RESPONSE, AR HAS ATTENDED FROM TIME T O TIME AND MADE SUBMISSIONS. XXXXX 2) REGARDING DIFFERENCE IN INTEREST WORKING, AR PRODUCED THE RECONCILIATION WHICH HAD BEEN VERI F IED AND FOUND TO BE CORRECT. WE ARE OF THE OPINION THAT THE ORDER OF THE F A A CANNOT BE ENDORSED IN VIEW OF THE CLEAR FINDING GIVEN BY THE AO IN THE REMAND REPORT. SO,R EVERSING HI S ORDER, WE DECIDE GROUND NO.2 IN FAVOUR OF THE ASSESSEE . 4. GROUND NO.3 IS ABOUT DISALLOWANCE OF INTEREST OF RS.5.70 LACS . THE AO,D U RI NG THE ASSESSMENT PROCEEDINGS, FOUND THAT THE ASSESSEE HAD SHOWN HUGE OUTSTANDING LOANS AND ADVANCES. HE DIRECTED THE ASSESSEE TO SUBMIT THE LEDGER COPIES OF THE SAID OUTSTANDING LOANS AND THE LOAN CONFIRMATIONS . HE DIRECTED THE ASSESSEE TO RECONCILE THE DIF FERENCE. THE ASSESSEE ,VIDE HI S LETTER , DATED 24.12. 2007, STATED THAT THERE WAS NO DIFFERENCE IN THE LOAN CONFIRMATION AND BALANCE SHEET, THAT RENT INCOME WAS RECEIVED FROM TRY ME MENSWEAR, THAT NO INTEREST WAS EARNED FROM OWN CAPITAL LYING IN THE BUSINESS. H OWEVER, THE AO DISALLOWED AN AMOUNT OF RS.5.70 LACS HOLDING THAT TOTAL INTEREST CLAIMED BY THE ASSESSEE WAS OF RS.29.72 LACS, THAT AN AMOUNT OF RS.5.26 LACS WAS ALREADY DISALLOWED, THAT REMAINING AMOUNT OF RS.18.75 LACS WAS TO BE CAPITALISED IN KRISH CONSTR UCTIONS . 4.1. BEFORE THE F A A, THE ASSESSEE STATED THAT AN AMOUNT OF RS.69.65 LACS HAD BEEN INVESTED IN THE PROPRIETARY BUSINESS OF THE ASSESSEE , THAT THE BUSINESS WAS LEASED OUT FOR A CONSIDERATION OF RS.9.00 LACS, THAT INCOME WAS ACCOUNTED FOR IN THE BOOKS O F ACCOUNT AND OFFERED FOR TAXATION, THAT THE DISALLOWANCE ON AN ASSUMED RATIO WORKED OUT BY THE AO WAS NOT CALLED FOR. THE F A A MENTIONED THAT THE ASSESSEE HAD NOT FILED ANY EXPLANATION, THAT THE AO WAS JUSTIFIED IN MAKING THE ADDITION. 4.2. BEFORE US, THE AR STATED THAT THE F A A HAD NOT CONSIDERED THE SUBMISSION MADE BY THE ASSESSEE .WE FIND THAT THE F A A HAS TOTALLY IGNORED THE EXPLANATION FILED BY THE ASSESSEE AND HAS DECIDED THE ISSUE.THEREFORE, IN THE INTEREST OF JUSTICE THE MATTER IS RESTORED BACK TO THE FI L E OF AO FOR FRESH ADJUDICATION.H E IS DIRECTED TO AFFORD REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE . GROUND NO.3 OF THE ASSESSEE IS ALLOWED, IN PART. 5 . GROUND NO.4 IS ABOUT DISALLOWANCE OF INTEREST OF RS.18.75 LACS AND HOLDING THE SAME TO BE CAPITAL ISED.DU RING THE ASSESSMENT PROCEEDINGS, THE AO HELD THAT OUT OF THE INTEREST PAID, AMOUNTING TO RS.24.46 LACS, MOST OF THE INTEREST W A S ON ACCOUNT OF LOAN RECEIVED BY THE ASSESSEE AND SUBSEQUENTLY TRANSFERRED TO HIS PROPRIETARY BUSINESS NAMELY KRISH CONSTRU CTION .H E HAD THAT THE ASSESSEE HAD INTRODUCED NET CAPITAL OF RS.93.50 LACS IN THE PROPRIETARY BUSINESS DURING THE YEAR UNDER APPEAL, THAT THE PROPORTIONATE INTEREST WAS TO BE CAPITALISED. 5 .1. IN THE APPELLATE PROCEEDINGS,THE ASSESSEE ARGUED THAT IT WAS FOL LOWING MERCANTILE SYSTEM OF ACCOUNTING, THAT HE HAD DISBURSED THE INTEREST FROM TIME TO TIME TO THE LOAN CREDITORS, THAT THE FUNDS WERE USED IN FOR THE CAPITAL CONTRIBUTI ON OF THE PROPRIETARY BUSINESS, THAT THE COST OF CONTRIBUTION OF THE CAPITAL WAS A REVEN UE COST , THAT IT WAS ALLOWABLE CONSIDERING THE METHOD OF ACCOUNTING FOLLOWED BY HIM . THE F A A SIMPLY END ORSED THE STAND TAKEN BY THE AO WITHOUT DISCUSSING ANYTHING ABOUT THE REASONS FOR REJECTING THE SUBMISSION MADE BY THE ASSESSEE . 5 .2. BEFORE US, THE AR STAT ED THAT MONEY WAS USED FOR BUSINESS PURPOSES, THERE WAS NO JUSTIFICATION FOR CAPITALISING THE INTEREST PORTION.HE RELIED UPON THE CASES OF CORE HEALTH CARE ITA/9 051 /MUM/2010 - AY.06 - 07,N ANJI DPATEL. 4 LTD.(298 ITR 194), LOK HANDWALA CONSTRUCTION INDS LTD. (260 ITR 579 ), T APADIA TOOLS LTD.(372 ITR 605)AND ROHAN ESTATE PVT. LTD. (ITA /7200/MUM/2010,A.Y.06 - 07 - DATED 16.1.2013) . THE DR SUPPORTED THE ORDER OF THE F A A . 5 .3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT WHILE DECIDING HE APPEAL IN THE CASE OF LOKHANDWAL A CONSTRUCTION (INDS) THE HBHC HAS HELD AS UNDER : - WHERE AN ASSESSEE CLAIMS DEDUCTION OF INTEREST PAID ON CAPITAL BORROWED, ALL THAT THE ASSESSEE HAS TO SHOW IS THAT THE CAPITAL WHICH WAS BORROWED WAS USED FOR BUSINESS PURPOSE IN THE RELEVANT YEAR OF AC COUNT AND IT DOES NOT MATTER WHETHER THE CAPITAL WAS BORROWED IN ORDER TO ACQUIRE A REVENUE ASSET OR A CAPITAL ASSET. RESPECTFULLY FOLLOWING THE ABO VE, WE DECIDE GROUND NO.4 IN FAVOUR OF THE ASSESSEE AS THE INTEREST WAS PAID FOR BUSINESS PURPOSES. 6 . LA ST GROUND OF APPEAL IS ABOUT DISALLOWANCE OF RS.10,765/ - OUT OF THE TELEPHONE EXPENSES. DU RING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD DEBITED AN AMOU N T OF R S 43 , 058/ - UNDER THE HEAD TEL EPHONE EXPENSE, THAT HE HAD NOT MAINTAINED TEL EPHO NE CALL REGISTER. H E HELD THAT ELEMENT OF PERSONAL USE OF TELEPHONE COULD NOT BE RULED OUT.THEREFORE, HE DISALLOWED 1/4 TH OF THE TEL EPHONE EXPENSES AM OUNTING TO RS.10,675/ - .THE F A A IN THE APPELLATE PROCEEDINGS UPHELD THE ORDER OF THE AO. 6 .1. BEFORE US THE A R STATED THAT THE ISSUE COULD BE DECIDE ON MERITS.DR SUPPORTED THE ORDER OF THE F AA . WE HAVE PERUSED THE MATERIAL ON RECORD AND ARE OF THE OPINION THAT THE ORDER OF THE F A A DOES NOT REQUIRE ANY INTERFERENCE . GROUND NO.5 IS DECIDED AGAINST THE ASSESSEE . AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH SEPTEMBER,2015. 30 , 2015 S D/ - SD/ - ( / SAKTIJIT DEY ) ( / RAJE NDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, /DATE: 30 .09. 2015 . . . JV . SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI.