TMI Blog2017 (5) TMI 778X X X X Extracts X X X X X X X X Extracts X X X X ..... has not disclosed interest accrued on KVPs, investment in FDs, loans and advances and interest of loan advance to Shri M Joshi. Accordingly AO calculated interest on these deposits / investment / KVP and made the addition. No explanation was filed by assessee in support of these not declaring income on these FDs and KVPs etc., accordingly CIT(A) confirmed the action of the AO after having detailed observation at para 5. Nothing was brought to our notice by learned AR so as to persuade us to deviate from the findings recorded by lower authorities, accordingly ground raised by assessee is dismissed. Disallowance u/s.14A with Rule 8D - Held that:- Since, assessment year involved is 2006-07 which is prior to insertion of Rule 8D, therefore, we direct the AO to restrict the disallowance u/s.14A to the extent of 5% of the dividend income. We direct accordingly. Short term capital gain OR business income - Held that:- CIT(A) has dealt in great detail with each and every script dealt with by the assessee, its magnitude turn over and the frequency of purchases and sales and thereafter arrived at a conclusion that assessee’s claim of short term capital gain was not correct and held the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are that the assessee filed his return of income for the A.Y. under consideration on 29.03.2007 declaring total income at ₹ 60,0l,940/-. Thereafter, the case was selected for scrutiny and order u/s, 143(3) of the Act was passed on 24.12.2007 determining total income of the assessee at ₹ 89,37,960/- after making certain additions. A survey operation u/s.133A of the Act had been conducted at the premises of the assessee on 11/12.12.2004 by the DDIT (lnv.), Unit III(2), Mumbai. In his statement recorded u/s.133A of the Act, the assessee had accepted that an amount of ₹ 2,17,50,000/- deposited in account NO.0060460000320 in the name of M/s. Essjay Incorporation with the HDFC Bank, Worli Branch, Mumbai represented his unexplained money. During the survey it was offered by him as his undisclosed income in the A.Y. under consideration. The assessee had not declared this amount as income in his return of income and the AO however, while completing the assessment vide order dated 24.12.2007, had not made any addition on this account. Therefore, proceedings u/s.263 of the Act was initiated by the CIT, Central-Ill, Mumbai. In the course of revision proceedings, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A)-41 and for the reasons mentioned above, the ground of the appellant is dismissed . 5. Considering the reasoning and finding given by the CIT(A) as reproduced above, we do not find any merit in the contention of the assessee. Nothing was produced before us to persuade from the above findings of CIT(A). Accordingly, ground taken by assessee is dismissed. 6. With regard to the assessment order being barred by limitation, we found that the CIT vide his order dated 29.03.2010 has set aside the order of original assessment dated 24.12.2007 and directed the AO to pass a fresh assessment order after examining the issues involved and providing the assessee reasonable opportunity of being heard. It is also observed that the AO completed the consequential assessment proceedings vide his order dated 29.12.2010. The CIT(A) rejected assessee s contention after observing as under:- 5.3.1 I have considered the submissions of the appellant and perused the materials on record. As per Section 153(2A) read with the second proviso, the period of limitation for passing the fresh assessment order was available up to 31.12.2010, whereas the impugned order is seen to have been passed on 29.12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 005-06, 2007-08, 2008-09 viz: non-jurisdiction, non service of notices, non service of assessment order as per period of limitation and every time the said pleas of the assessee has neither been found to be good in facts nor in law. Again in the impugned order, the assessee has resorted to the same pleas and such a repeated baseless act can only be regarded to be causing delay in judicial proceedings. Since the assessment order was served to the assessee well within the period of limitation, the appeal filed by the assessee is beyond the period allowed u/s. 249 of the Income Tax Act, 1961, the Hon'ble CIT(A) is requested not to consider the appeal under consideration and reject the same . 5.3.2 The said Remand Report dated 06.06.2013 forwarded by the Addl. CIT, Central Range-8, Mumbai vide letter dated 11.06.2013 was received on 17.06.2013. A copy of the same was provided to the appellant for rebuttal, if any. The appellant has furnished his rejoinder vide Affidavit dated 04.12.2013 wherein he has reiterated his submissions as well as allegations against the AO such as forgery, interpolations and tampering of the original despatch registers, backdating of proceedings etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it needs to be made clear that the A.O. has made addition of only ₹ 2,17,50,000/- vide the impugned order and, therefore, the appellant cannot in the present appeal object to the addition of ₹ 3,06,87,960/- which actually represents the revised total income assessed vide the impugned order. As far as the addition of said amount of ₹ 2,17,50,000/- is concerned, it is observed from the record that the said amount represents unexplained or undisclosed income of the appellant admitted by him in the course of his sworn statement recorded on 12.12.2004 based on incriminating materials impounded in the course of survey at his premises, as brought out above. It would be pertinent to refer to the following extracts of his statement recorded during the course of survey:- Question No. 6: Perusal of bank statement reveals that maximum amount of cash deposited on a single occasion was on 6/12/2004 and the amount was ₹ 2,17,50,000/-. As per your statement this entire amount appears to be your unaccounted cash balance. What do you have to say? Ans.: Yes, I accept this amount of ₹ 2,17,50,000/- as my unexplained money and offer it for taxation as conceal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of his statement u/s.132(4) stated that this cash belonged to the assessee. Based on this information, survey action u/s.133A was conducted at the office premises of the assessee on the same date, ie.,12.12.2004. During the course of survey, the assessee in his statement on oath recorded by the DDIT(Inv.), Unit-Ill, Mumbai admitted that cash of ₹ 1,23,46,500/- recovered from the possession of Shri Mangilal Devashi represented the assessee's income from unexplained sources. While explaining the contents of pages 26 and 27 impounded during the course of survey proceedings, the assessee stated that all the loans recorded on these two pages have been received back by me and the cash of ₹ 1,23,46,500/- was generated out of the liquidation of the loans . In light of the notings on page 27, the assessee offered for taxation undisclosed income of ₹ 2,17,50,000/- being peak credit in HDFC Account in the name of Essjay Incorporation. M/s. Essjay Incorporation is proprietary concern of Mrs. Sangeeta Jain, wife of Shri Mukesh Jain who happens to be cousin brother of the assessee. The assessee had undertaken to bifurcate his offer of undisclosed income of ₹ 2,17,50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty in the order of CIT(A). ITA NO.2444/Mum/2011 (A.Y.2006-07) 11. In this appeal, assessee is aggrieved for addition of ₹ 5,91,802/- being 15% of notional interest of Kisan Vikas Patra. Assessee is also aggrieved for addition of ₹ 5,91,802/- on account of FDs, ₹ 16,12,275/- on account of loans and advances and ₹ 63,000/- on account of bogus loans. Assessee is also aggrieved for disallowance made under Rule 8D and for disallowance of 20% of motor car expenses. The AO also treated SPCG of ₹ 80,33,589/- as business income. By the impugned order CIT(A) confirmed the additions against which assessee is in further appeal before us. 12. We have considered rival contentions and from the record, we found that in the course of assessment for A.Y.2006-07. The Assessing Officer has noticed that in the assessment year passed u/s. 143(3) for A.Y. 2005-06, the Assessing Officer has made additions based on the documents found during the course of survey u/s.133A of the Income Tax Act. The Assessing Officer has also discussed the issue of accrued interest on the loans advanced and investments in the assessment order for AY 2005-06. The relevant part of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me from mutual funds which does not form of the total income as contemplated u/s. 14A. The AO can adopt reasonable basis for effecting apportionment, while making that determination the AO shall provide a reasonable opportunity to the assessee for producing its accounts and relief or German material having a bearing on the facts and circumstances of the case. From the perusal of the decision of Bombay High Court, which is binding on the lower authorities, the AO is directed to re-compute the disallowances made u/s. 14A as per this decision. Therefore, the ground of appeal is partly allowed. 14. We have considered rival contentions and found that both AO and CIT(A) has dealt with the issue in great detail and disallowed expenditure u/s.14A to the tune of ₹ 3,34,788/- by computing expenditure as per Section 14A in respect of dividend income of ₹ 4,35,458/- Since, assessment year involved is 2006-07 which is prior to insertion of Rule 8D, therefore, we direct the AO to restrict the disallowance u/s.14A to the extent of 5% of the dividend income. We direct accordingly. 15. With regard to treatment of short term capital gain as business income, the CIT(A) observed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt term capital gain claimed by the appellant. The arguments taken by the appellant before the Assessing Officer were rejected by giving reasons as stated above. No further argument was taken before me to substantiate its claim except technical ground that the Assessing Officer has not given opportunity while treating the profit of share transactions as business income in place of STCG claimed in the return. Thus objection raised by the appellant is without any basis because the Assessing Officer has given opportunity vide order sheet noting dated 11.12.2008 and in response to this show cause notice the appellant submitted its reply dated 2.12.2008 which is reproduced at page 3 of the Assessing Officer. Therefore, the argument of the appellant that the opportunity was not provided is baseless and over ruled. The claim of the appellant before the Assessing Officer that he is not a share dealer but only an investor is evident from the transactions carried out amounting to ₹ 11,36,54,971/- through 9 brokers and share of 313 companies which proves that he was wrongly claiming STCG in place of business income to avoid payment of taxes at higher rates. The appellant has also raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing decisions: CIT vs. Motlay Finance (P) Ltd. 290 ITR 719(MP) OCIT vs. Smt. Oeepaben Amitbhai Shah 99 ITD 219(Ahd) CIT vs Motilal Hirabhai Sp. Wvg. Co. Ltd. 113 ITR 173 (Guj) Shri Motilal Oswal-ITA No. 3860/M/2001 AY 1993-94 G Bench (Mumbai) Keeping all these facts and circumstances, the decision of the Assessing Officer by treating share transactions as business income in place of STCG claimed by the appellant of ₹ 80,33,589/- is upheld and ground of appeal is dismissed. 17. We have considered rival contentions and found that CIT(A) has dealt in great detail with each and every script dealt with by the assessee, its magnitude turn over and the frequency of purchases and sales and thereafter arrived at a conclusion that assessee s claim of short term capital gain was not correct and held the same as business income. The detailed finding so recorded by CIT(A) has not been controverted by learned AR by bringing any positive material on record, accordingly we do not find any reason to interfere in his findings. ITA NO.8274/Mum/2011 (A.Y.2008-09):- 18. In this appeal, assessee is aggrieved for addition of ₹ 1,68,000/- on account of deemed rent. Add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income Tax Rules which have been notified with effect from 24 March 2008 shall apply with effect from Assessment Year 2008-09. vi) Even prior to Assessment Year 2008-09, when Rule 8D was not applicable, the Assessing Officer has to enforce the provisions of sub section (1) of Section 14A. For that purpose, the Assessing Officer is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income under the Act. The Assessing Officer must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record; vii) The proceedings for Assessment Year 2002-03 shall stand remanded back to the Assessing Officer. The Assessing Officer shall determine as to whether the assessee has incurred any expenditure (direct or indirect) in relation to dividend income / income from mutual funds which does not form part of the total income as contemplated under Section 14A. The Assessing Officer can adopt a reasonable basis for effecting the apportionment. While making that determination, the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent was earned as it was not possible to let out the properties. Thus, it was contended that no rental income could have been earned from these properties. 23. The AO observed that Section 23(4) clearly states that where the property referred to in Section 23(2) consists of more than one house, the annual value of the house or houses, other than the house in respect of which the assessee has exercised an option under clause 23(4)(a), shall be determined under sub-section (1) as if such house or houses had been let. Hence, it was held that the bungalow at Deolali and the shop at Ahmedabad were liable to be treated as deemed let out properties. It was observed that the assessee had not shown any rental income from the Deolali bungalov as well as the Ahmedabad shop. AO followed reasoning given in the Assessment Year 2007-08 and 2008-09 and added ₹ 1,68,000/- to total income of the assessee on account of rent from those properties. 24.The assessee had furnished copy of the Purchase Deed (in Gujarati language) in respect of the shop at Ahmedabad which seemed to have been executed on 25.09.2008. The annual value of the shop at Ahmedabad was determined by the AO. at ₹ 75 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings recorded by lower authorities. 27. Assessee is also aggrieved for disallowance of ₹ 29,96,180/- u/s.14A read with Rule 8D. From the record, we found that the assessee had earned certain incomes to the tune of ₹ 5,75,408/- which do not form part of total income. These included dividend on shares of ₹ 2,74,685/-, dividend on mutual funds of ₹ 18,791/-, refund on maturity of ULIP of ₹ 1,08,234/-, share of profit from partnership firm M/s.Asha Steel of ₹ 59,341/-,. and interest on PPF A/c. of ₹ 1,14,355/-. Accordingly, the assessee was asked by AO vide order sheet entry dated 10.10.2011 to explain as to why provisions of Section 14A r.w. Rule 8D should not be applied to his case. In response, the assessee vide letter dated 15.12.2011 submitted that no disallowance under Section 14A could be made as no expenses had either been incurred or claimed in the relevant AY. It was claimed that investments in these securities had been made out of the assessee's capital account and no interest had been paid on borrowed amounts for the purpose of making the said investments. However, the AO did not find the explanation the assessee to be accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 14A r.w. Rule 8D. 7.3.2 At this stage, it would be pertinent to refer to the judgment of the Hon'ble Bombay High Court in the case of Godrej Boyce Manufacturing Company Ltd. v. DCIT 328 ITR 81 (Born) wherein the following significant propositions or principles concerning application of provisions of Section 14A have been laid down:- a) Whether or not any expenditure was incurred by the assessee in relation to the earning of non taxable income falls within the domain of the AD. The fact that the assessee has utilised its own funds in making the investments would not be dispositive of the question as to whether the assessee had incurred expenditure in relation to the earning of such income. Even if the assessee has utilised its own funds for making investments which have resulted in tax free income, the expenditure which is incurred in the earning of that income would have to be disallowed. b) After the introduction of Section 14A(l), no presumption can be drawn that investments are out of interest free funds available since Parliament expressly requires apportionment. The real enquiry is whether there are interest free funds available on the asset side ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available and the funds deployed. In view of the failure of the appellant to discharge the said onus, the AO. was correct in holding that proportionate amount of interest payable by him is to be disallowed, having regard to the investments in shares and total interest bearing loan in terms of Rule 8D. 7.3.4 It is observed that the ratio of the decisions of Hon'ble ITAT relied upon by the appellant is not applicable to the facts of its own case. For instance, in the case of Mohan Exports Pvt. Ltd. (supra), there was a specific finding by the CIT(A) that interest was not directly related to receipts by way of dividends which is not so in the instant case. Similarly, in the case of Justice S.P. Bharucha (supra), it was found that the expenditure incurred and claimed by the assessee had direct nexus with his professional income rather than any tax exempt income. However, no such finding has been reached in the present case. The appellant has not placed on record copies of unreported decisions in the cases of Esquire Pvt. Ltd. and Tarun Chandmal lain cited supra and so it is not possible to ascertain their relevance in the context of the present case. The decision in case of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO. did not deal with the issue of allowance of set off and/or carry forward of said loss in the impugned order. In the course of appellate proceedings, it was submitted on behalf of the assessee that the impugned order has been passed by the AO without considering current year loss of ₹ 1,30,69,693/-. It is pointed out that after taking into account the said loss, there will be no demand. It is also submitted that the unabsorbed losses may be allowed to be carried forward. 33. By the impugned order CIT(A) confirmed the action of the AO after observing as under:- 8.3.1 I have considered the submissions of the appellant and perused the materials available on record. It is observed from the record that in the computation of income attached with the return of income, the appellant has worked out the losses to be carried forward as under:- Nature of loss Amount (Rs.) Loss from speculative business 33,12,375 Business loss 58,60,962 Short term capital loss on sale of shares 38,96,356, To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uent years cannot be allowed. 8.3.3 Finally, the appellant has claimed short term capital loss of ₹ 38,96,356/- on sale of shares. It is observed from the record. that scrip-wise details have been furnished along with the computation of income annexed to the return of income filed by the appellant. However, the A.O. could not be expected to allow the claim for carry forward of short term capital loss of ₹ 38,96,356/- merely on the strength of a chart showing scrip-wise details of certain transactions in shares in the absence of supporting documentary evidences which have not been submitted even at the appellate stage. Thus, for want of necessary evidences, the claim of the appellant for allowing carry forward of short term capital loss is found to be not tenable. Ground NO.5 raised by the appellant is thus found to be devoid of substance and is accordingly dismissed. 34. We have considered rival contentions and found that AO has disallowed assessee s claim for set off of loss of ₹ 1,30,69,693/- incurred in respect of speculation business, business loss and short term Capital Loss. The CIT(A) has recorded detailed finding for not allowing set off of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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