KRISHNAGOPAL TILAKRAJ KAPOOR,GHATKOPAR EAST V. ASSISSTANT COMMISSIONER OF INCOME TAX, GRANT ROAD

ITA 1111/MUM/2024

AI Insights

The case involves Krishnagopal Tilakraj Kapoor, the appellant, contesting several additions and disallowances made by the Assessing Officer (AO) under various sections of the Income Tax Act, 1961, for the Assessment Year 2012-13. The main issues included disallowance under section 14A related to exempt income, addition of notional rent as deemed income from properties, and treatment of unsecured loans and unexplained cash credits as income. The Tribunal found that the AO and CIT(A) had not properly considered the appellant's arguments and evidence in some instances, leading to a remittance of certain issues back to the AO for re-examination.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 314078 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2012-2013
• Other Referred Cases: Godrej and Boyce 328 ITR 81 (Bom), Sachin Tendulkar 163 ITD 65 (Mum), Merck Specialties Ltd. 88 Taxman.com 338
• Laws Referred To: Income-tax Act, 1961, Income-tax Rules, 1962
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HEMANSHU JOSHI
• Assessee Lawyers: KRISH DESAI
• Keywords: Business income; Unexplained cash credit; Unexplained expenditure; Salary income; Capital Gains; TDS; Source of fund; Earning of tax free income; Rule 8D
• Section: 68; 54F; 14A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL Mumbai “E” Bench, Mumbai. Before Shri Sandeep Gosain (JM) & Shri Omkareshwar Chidara (AM) ITA No. 1111/MUM/2024 (Assessment Year : 2012-13) Krishnagopal Tilakraj Kapoor Flat No. 13, Plot No. 353 Triveni Building, Vallabh Baugh Exten. Lane Ghatkopar East Mumbai-400 077. Vs. ACIT 14(2)(1) Matru Mandir Building Grant Road Mumbai-400 007. PAN : AAHPK0342G Appellant Respondent Assessee by : Shri Krish Desai Revenue by : Shri Hemanshu Joshi Date of Hearing : 12/02/2025 Date of pronouncement : 05/05/2025 O R D E R Per Omkareshwar Chidara (AM) :- The appellant in this appeal has taken up the following grounds and one additional ground :- Ground No.1: Disallowance under section 14A - Rs. 1,18,543/-: 1. On the facts and in the circumstances the case and in law, the C[T(A) erred in confirming the action of the Asst. Commissioner of Income Tax-14(2)(2), Mumbai (\"the AO\") of disallowing the expenditure of Rs. 1,18,543/- under section 14A read with rule SD of the Income-tax Rules, 1962 (\"the Rules\") on the ground that the disallowance has to be made under section 14A irrespective of the fact whether the assessee has incurred expenditure or not or has earned except income or not, subject to fulfillment of other conditions of section 14A of the Act. 2. The Appellant prays that the action of the lower authorities be deleted. Ground No.2 : Addition of notional rent - computation of annual ratable value: Rs. 8,80,175/-: 1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in confirming the action of the AO of computing the annual ratable value of two properties at an aggregate value of Rs. 8,80,175/- on the ground that he found that there is no Krishnagopal Tilakraj Kapoor 2 need to interfere with the addition made by the AO as the Appellant was given ample opportunities to submit details to substantiate its claim. 2. The Appellant prays that the action of the lower authorities be deleted. Ground No. 3 : Unexplained cash credit : Rs. 20,00,000/- 1. On the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in confirming the action of the AO of treating the aggregate unsecured loan of Rs. 20,00,000/- from two parties as income of the Appellant on the ground that the Appellant failed to substantiate his claim. 2. The Appellant prays that the action of the lower authorities be deleted. Ground No.4 : Non-consideration of entries in AIR Rs. 55,150/-: 1. On the facts and in the circumstances of the case and in law, the AO erred in confirming the action of the AO of treating the entries in AIR of Rs. 55,150/- as income of the Appellant on the ground that the Appellant failed to substantiate his claim. 2. The Appellant prays that the action of the lower authorities be deleted. 2. The first ground relates to disallowance under section 14A to the extent of Rs. 1,18,543/- by the Ld. AO, as he held that Rule 8D is to be pressed into service and the expenditure relating to exempt income should be disallowed. This issue was dealt by the Ld. AO at para 4, in the assessment order. The appellant earned an exempt income of Rs. 35,335/- including dividend of Rs. 441/-. During the assessment proceedings, the Ld. AO requested the appellant to file the details of income relating to earning the exempt income and the appellant has stated that no expenditure was incurred to earn this exempt income. The Ld. AO is of the view that the ratio of Godrej and Boyce 328 ITR 81 (Bom) is applicable to the appellant and computed the disallowance under section 14 of the Act at Rs. 1,18,543/- as mentioned in the assessment order. The Ld. CIT(A) confirmed the disallowance of expenditure under section 14A of the Act for the reasons mentioned in his order. _icann Krishnagopal Tilakraj Kapoor 3 3. Aggrieved by the disallowance/confirmation of the addition of Ld. AO/Ld. CIT(A), the appellant filed the grounds as mentioned in 1st page of this order. Before the Bench, the Ld. AR of the appellant has argued on the following lines and requested the Bench to delete the addition made under section 14A of the Act :- a) The appellant has not incurred any expenditure with respect to earning exempt income. b) The Ld. AO has not recorded any satisfaction regarding invoking section 14A/Rule 8D. c) The appellant has not claimed any expenditure as he does not have any business income. The sources of income of appellant are –income from salary, income from house property, capital gains and income from other sources. The appellant has charged interest expenditure to his personal capital account and not claimed any expenditure in the profit and loss account –actually, there is no profit and loss account because the appellant does not have any income from business/profession. d) Appellant’s own funds are more than the amounts of investment made in securities earning tax free income. e) Disallowance under section 14A of the Act should be restricted to exempt income. For the A.Y. 2014-15, the Revenue has restricted the disallowance to exempt income and the same should be followed. 4. For all these propositions, the Ld. AR of the appellant relied on several cases-law while filing written submission and arguing before the Bench. After considering all these arguments, the Bench is of the opinion that unless the appellant claims any expenditure against the exempt income, provisions under section 14A read with Rule 8D cannot be invoked and no addition can be made as held by Mumbai Tribunal in the case o Sachin Tendulkar 163 ITD 65 (Mum) and Merck Specialties Ltd. 88 Taxman.com 338 claimed by interest expenditure against the exempt income of Rs. Krishnagopal Tilakraj Kapoor 4 35,494/-, being interest from PPF and the interest expenditure was debited to his personal account. Hence, the disallowance under Rule 8D2(ii) and 8D(2)(iii) to the extent of Rs. 1,18,543/- cannot be made and the additions are deleted. The disallowance to the extent of exempt income claimed under the head, “Dividend Income” of Rs. 441/- only is upheld. 4. The second addition made by Ld. AO relates to determination of annual ratable value and deemed rental income from properties to the extent of Rs. 8,80,175/-. The Ld. AO made this addition because the Ld. AO opined that there are two flats at Safal Twin Apartments at Chembur. During the appeal proceedings, the Ld. CIT(A) remanded the matter to the Ld. AO and directed him to send a report to find out whether the appellant has two flats or one flat. The Ld. AO deputed his Inspector of Income Tax who gave a report that even though there are two separate numbers to the flats, they were combined into one, interlinked passages inside and a single entry/exit and only kitchen was there. In these two flats combined into one, appellant’s family members are only living, the Inspector of Income Tax has mentioned. As this combined unit is self-occupied by appellant family, bifurcating it into two flats and computing deemed/notional rent for another part of this unit, is unjustified, argued the Ld. AR of the appellant. Since the Departmental Inspector himself gave a report that it is a single unit, computation of deemed rental income for one part of it is not proper, it was submitted by Ld. AR of the appellant the Ld. CIT(A) simply confirmed the addition without taking cognizance of Inspector’s report. 5. The Ld. DR relied on the orders of Ld. AO and Ld. CIT(A). 6. After hearing both parties it is decided that the deemed rental value computation for one part of this unit where appellant is residing alongwith family, is deleted because the report of Inspector of Income Tax is clear that both units of flat were self occupied. Krishnagopal Tilakraj Kapoor 5 7. Ld. AR of the appellant filed an additional ground before ITAT which relates to the denial of claim under section 54F of the I.T. Act. The Ld. AR of the appellant relied on NTPC Ltd. and other decisions for the proposition that any disallowance made by Ld. AO and if the issue was dealt in the assessment order and if no further material is required, an additional ground relates to disallowance can be raised before the ITAT for the first time. 8. The Ld. AO has denied the claim of section 54F of the Act to the appellant as there are two separate units in Safal Twin apartments. But, as mentioned in paragraph 2 of this order, the Ld. AR of the appellant has argued and relied on the report of Inspector of Income Tax, in which it was stated that even though two separate numbers are given, it was a combined unit and appellant’s family is only residing in it. Hence, it was argued that appellant is entitled to deduction under section 54F(1) of the I.T. Act. 9. After taking into consideration the submissions of Ld. AR of the appellant, it is observed that the appellant/assessee has not challenged this disallowance/addition before Ld. CIT(A). Secondly, in paragraph 3 of the assessment order, the Ld. AO has denied the claim of section 54F of appellant as no particulars were filed. Since this issue was not examined by Ld. AO/Ld. CIT(A), the same is remitted back to the file of Ld. AO for fresh examination. The AO is directed to give an opportunity to the appellant and pass an order accordingly to law. 10. The next ground of appeal relates to addition of Rs. 20 lakhs by the Ld. AO as the appellant has not responded to the query of AO. The appellant was requested to provide the full address, PAN, bank account details to examine the genuineness of loans taken by appellant. It is observed from paragraph 7 of the assessment order, the appellant has not provided these details and hence addition was made under section 68 of the Act. The Ld. CIT(A) confirmed the addition. Krishnagopal Tilakraj Kapoor 6 11. Aggrieved by the addition, the Ld. AR of the appellant contended before the ITAT that PAN card of creditors was provided before Ld. AO, but the bank statements were not produced before the AO and Ld. CIT(A). But, in the paper book, page 20, it was mentioned that the same were provided before the ITAT. Fact remains that full particulars of lenders, bank statement of lenders were not provided for examination before the AO and Ld. CIT(A). Admittedly, they were filed before the ITAT for the first time. Be that as it may, the Ld. AO and Ld. CIT(A) gave a categorical finding that no specific details were filed relating to lenders. In view of the same, the Bench decides to remit the issue back to the file of Ld. AO for examination of genuineness of creditors. 12. The last addition made by Ld. AO relates to unexplained expenditure. At paragraph 8 of assessment order, it was mentioned that the appellant failed to submit the reconciliation of amounts appearing in the AIR information and hence an amount of Rs. 55,150/- was added by the Ld. AO. The Ld. CIT(A) also confirmed the addition because there was no explanation by appellant. (page 21 of appeal order). 13. During the appellate proceedings before the ITAT, the Ld. AR of the appellant submitted that the appellant could not reconcile the income and related TDS, as reflected in AIR information because the transactions were not related to the appellant. But, there was no response before lower authorities in this regard also, as mentioned in their orders. Hence, this issue is also remitted to the file of the AO. The Ld. AO is directed to give an opportunity and take action as per law. 14. The appeal of the appellant is partly allowed as above for statistical purposes. Order pronounced in the open Court on 05/05/2025. Krishnagopal Tilakraj Kapoor 7 Sd/- Sd/- (SANDEEP GOSAIN) (OMKARESHWAR CHIDARA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 05/05/2025 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, //True Copy// (Assistant Registrar) ITAT, Mumbai PS "