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Mr. Rajesh J. Thakkar Versus The Deputy Commissioner of Income Tax – 13 (3) , Mumbai

2016 (9) TMI 259 - ITAT MUMBAI

Taxing Agricultural Income as "Income from other sources" - Held that:- It is a matter of record that the assessee is declaring agricultural income in the return of income filed with the Revenue year to year and the same was accepted by the Revenue in preceding years even under scrutiny assessments framed u/s 143(3) of the Act. The exemption from income-tax can be granted u/s 10(1) of the Act to the agricultural income earned by the assessee if the agricultural activities are actually carried ou .....

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o connect it with an agricultural purpose, the land could not be ''agricultural land''. We are also fully aware that principles of res-judicata is not applicable to the income tax proceedings but principle of consistency is to be followed. In our considered view keeping in view the facts and circumstances of the case, this issue needs to be set aside and restored back to the file of the A.O. for denovo determination of the issue on merits - Disallowance u/s. 14A - Held that:- Keeping in vie .....

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urred by the assessee with regard to earning of exempt income is restricted to ₹ 2,500/- which in our considered view is reasonable disallowance in the instant case. We order accordingly. - I .T.A. No. 2808/Mum/2014 - Dated:- 28-7-2016 - SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee : Shri Sanjay R. Parikh For The Revenue : Shri B.S. Bist, Sr. D.R. ORDER PER RAMIT KOCHAR, Accountant Member This appeal, filed by the assessee, being ITA No. 2808 .....

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essee in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called the Tribunal ) read as under:- A) Taxing Agricultural Income as "Income from other sources" - ₹ 1,40,600/- 1) The learned Commissioner of Income Tax (Appeals) - 24, Mumbai [CIT(A)] erred on facts and in law in confirming the order passed by the Deputy Commissioner of Income Tax, Circle - 13(3), Mumbai (AO) taxing the agricultural income earned by the appellant amounting to ₹ .....

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ciate that the appellant had not incurred any expenditure for earning exempt income and hence no disallowance could be made u/s.14A. 5) The appellant prays that the disallowance of ₹ 3,13,336/- made by the AO u/s. 14A and confirmed by the CIT(A) u/s. 14A may be deleted. C) General 6) The above grounds of appeal are without prejudice to one another and the appellant craves leave to add, alter, amend, delete or modify any of the above grounds of appeal. 3. The brief facts of the case are tha .....

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proof for sale of agricultural products and/or any expenditure incurred for earning agricultural income. Thus, the A.O. treated the same as income from other sources . Without prejudice to the above , the AO observed that since the assessee has claimed the agricultural income as exempt u/s 10(1) of the Act and hence the same was also taken into account for the purpose of computing disallowance u/s 14A r.w.r. 8D of the Income Tax Rules, 1962. The A.O. observed that the assessee has earned dividen .....

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377; 40,32,648/- and agricultural land worth ₹ 2,27,840/- as on 31st March, 2009. The AO observed that the assessee has diverted the funds to investments and hence interest expenditure was incurred , otherwise owned funds would have been sufficient for running his affairs and no interest expenditure were to be incurred by the assessee. Disallowance of ₹ 3,13,334/- was made by the AO u/s. 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 vide assessment order dated 19th O .....

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-03-2009 3,04,37,026 D-1 Average assets 1,52,18,513 E Interest proportionate to average investment and the average assets (B* C-1/D-1) 2,93,929 F Disallowance = A+E+C-2 3,13,334 4.Aggrieved by the assessment order dated 19.10.2011 passed by the A.O. u/s 143(3) of the Act, the assessee filed his first appeal before the ld. CIT(A). 5. Before the learned CIT(A), the assessee submitted that the assessee owns 119.02 gunthas equivalent to 3 acres of agricultural land. The assessee submitted that he ha .....

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duce. Since no other details were asked for during the earlier years, the assessee had not maintained any details of the sale proceeds of agricultural produce and the expenses incurred. The A.O. has added agricultural income of ₹ 1,40,600/- as income from other sources. The assessee contended that the assessee is the owner of agricultural land , which is evidenced by 7/12 extracts of land records and the Revenue has accepted the income as agricultural income from year to year in the preced .....

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as unexplained income of the assessee, on the other hand while making disallowance u/s 14A, the A.O. stated that the disallowance is justified as the assessee has earned agricultural income. The ld. CIT(A) considered the facts and submission of the assessee and observed that the assessee has filed four copies of 7/12 extracts of the agricultural land, however, the assessee had not filed any evidence in support of deriving agricultural income. The said 7/12 extracts of land records also does not .....

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year. The assessee failed to produce any evidence regarding production of any agricultural outputs. Thus, the A.O. s action to treat the income of ₹ 1,40,600/- as income from other sources was confirmed by learned CIT(A) vide appellate orders dated 03-01- 2014. Similarly, the learned CIT(A) confirmed the additions of ₹ 3,13,535/- made by the AO u/s 14A of the Act read with Rule 8D of Income Tax Rules, 1962 on the grounds that the funds were borrowed by the assessee from time to time .....

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ished that borrowed funds were utilized for investments in shares and securities which generated tax-free income for the assessee. The learned CIT(A) passed appellate orders dated 03-01-2014 confirming/sustaining the additions made by the AO in his assessment order dated 19-10-2011 passed u/s. 143(3) of the Act. 6. Aggrieved by the appellate order dated 03-01-2014 passed by the ld. CIT(A), the assessee filed second appeal before the Tribunal. 7. The ld. Counsel for the assessee submitted that th .....

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4 filed with the Tribunal. The learned counsel for the assessee submitted that the assessee owns 119.02 gunthas equivalent to 3 acres of agricultural land. The learned counsel for the assessee submitted that the assessee has been consistently showing agricultural income every year , which has been accepted by the Revenue even in assessments framed u/s 143(3) of the Act. However, during the year under consideration the Revenue asked the details of agricultural income and proof of the same. The le .....

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roduce and the expenses incurred for carrying on agricultural activities during the relevant previous year. The A.O. has added agricultural income of ₹ 1,40,600/- as income from other sources. The assessee contended that the assessee is the owner of agricultural land , which is evidenced by 7/12 extracts of land records and the Revenue has accepted the income as agricultural income from year to year in the preceding years even in the assessment framed u/s 143(3) of the Act, hence, no adver .....

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ssee had not incurred any expenditure for earning the exempt income and no disallowance u/s 14A of the Act can be made. It is submitted that the assessee has incurred interest expenses amounting to ₹ 11,52,535/- and interest on secured loans amounting to ₹ 48,707/-. It is submitted that the interest on secured loan was for the purposes of the business and with respect to interest on unsecured loans, it is submitted that the assessee is in the business of financing and assessee has ea .....

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de by the assessee yielding taxable and exempt income amounted to ₹ 40,32,648.08 as at 31-03-2009. The assessee has own capital of ₹ 2,28,63,468/- as at 31-03-2009 which is sufficient to cover the investment of ₹ 40,32,648.08 held as at 31-03-2009 and the presumption will lie that the investments are made out of own funds. Since the assessee has sufficient own funds, the investment in assets yielding exempt income has been made out of own funds and not borrowed funds. In suppor .....

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duction while computing income , that the assessee has himself voluntarily disallowed an amount of ₹ 1,51,630/- towards Godown Repair expenses and ₹ 12,870/- out of Rent, Rates and Taxes. It is submitted that these are the amounts of expenditure which are attributable to earning of income from house property and the assessee voluntarily disallowed the same while computing income chargeable to tax. If the interest expenses, godown repair expenses, rent, rates and taxes were removed fr .....

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arges of ₹ 7,227.60, electricity charges of ₹ 22,446/-, interest on service tax of ₹ 99, discount of ₹ 106.85, professional tax of ₹ 2,000/- and professional fees of ₹ 21,680/- , out of which discount and professional tax has nothing to do with the investment activities. Similarly, bank commission & charges were pertaining to the financial activities while professional fee is towards taxaudit fee and for filing return of income. Accordingly, the assessee s .....

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uld be restricted to ₹ 164/- and hence disallowance of 0.5% of the average value of investment as contemplated under Section 14A of the Act read with Rule 8D(2)(iii) of Income Tax Rules, 1962 is not warranted as was done by authorities below. 8. The ld. D.R. submitted that the assessee was holding 3 acres of land as per the records. The assessee has produced land record vide 7/12 extracts for the year 2006-07 which is placed in paper book page 11-14 whereby it cannot be said that agricultu .....

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or the assessee to give cogent evidences with respect thereof as to actual carrying out of the agricultural activity during the relevant previous year as the primary onus lay on the assessee . It was submitted that principle of resjudicata is not applicable to income tax proceedings and every year is an independent assessment year . The assessee in the instant previous year is not able to prove that the agricultural operations were actually carried on by the assessee on the said land. The ld. DR .....

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d extract with respect to the land owned by the assessee being stated to be utilized by the assessee for agricultural purposes whereby rice is being reflected as cultivated in the 7/12 extract of land record but the said relevant 7/12 extract of land record produced by the assessee belonged to the year 2006-07 and not to the relevant previous year 2008-09 under instant appeal before us. The assessee has also not produced any other relevant evidences to demonstrate and substantiate that agricultu .....

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under scrutiny assessments framed u/s 143(3) of the Act. The exemption from income-tax can be granted u/s 10(1) of the Act to the agricultural income earned by the assessee if the agricultural activities are actually carried out on the said land by the assessee during the assessment year as stipulated and mandated under Section 2(1A) of the Act to enable earning of agricultural income to fall within exemption as provided u/s 10(1) of the Act. One of the objects for exemption from income-tax is t .....

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view keeping in view the facts and circumstances of the case, this issue needs to be set aside and restored back to the file of the A.O. for denovo determination of the issue on merits after considering the contentions, explanations and evidences of the assessee in his defense whereby the assessee will be entitled to produce the relevant evidences and explanations in his defense which shall be admitted by the AO. Needless to say that proper and adequate opportunity of being heard shall be provi .....

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0.5% of average investment u/s 14A of the Act read with Rule 8D(2)(iii) of Income Tax Rules, 1962. The assessee submitted that the total investment made in the assets yielding taxable and exempt income were to the tune of ₹ 40,32,648/- as at 31-03-2009 while the assessee has an own capital investment of ₹ 2,28,63,468/- as at 31-03-2009 which are reflected in the Financial Statements as at 31-03-2009 which is sufficient to cover the quantum of investment held as at 31-03-2009 being ma .....

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High Court in the case of Reliance Utilities and Power Ltd. (supra) and. HDFC Bank Ltd. (supra) shall apply and it will be presumed that the assessee has made investment in the aforesaid investments of ₹ 40,32,648/- as at 31-03-2009 out of own funds of the assessee of ₹ 2,28,63,468/- as at 31-03-2009 which are more than sufficient to cover the investment of ₹ 40,32,648/- held by the assessee as at 31-03-2009 Thus, in our considered view disallowance made under Section 14A of th .....

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w regards of the accounts of the assessee has explained that the additions to the tune of ₹ 19,406/- is not sustainable keeping in view the mandate of Section 14A(2) of the Act of the expenses incurred by the assessee in order to earn exempt income having regards to the accounts of the assessee . The explanation of the assessee with respect to each of the expenses debited to the Profit and Loss Accounts is that with respect to other expenses claimed by the assessee as deduction while compu .....

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penses of ₹ 16,21,585.41, there remains balance expenditure of ₹ 2,55,844.20 out of which a sum of ₹ 2,03,903.75 pertains to depreciation on trucks which was stated to be used for transportation business and has nothing to do with the investment activities was the contentions of the assessee before us. No part of ₹ 2,03,903.73 could be allocated towards the earning of exempt dividend income and if these expenses are also removed, the balance amount comes to ₹ 51,940 .....

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