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TMI Blog2018 (5) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... s on merits. 4.1 That under the facts and circumstances, addition of Rs. 47,20,000/- u/s. 2 (22) (e) is absolutely illegal in law as well as on merits. 4.2 That without prejudice, in any case, this disallowance should not exceed by Rs. 12,55,000/-. 5.1 That under the facts and circumstances, addition of Rs. 2,50,000/- u/s. 68 as alleged income from un-disclosed sources is un-sustainable in law as well as on merits. 5.2 That without prejudice, in any case, the addition of Rs. 2,50,000/- should have been made as income from business against wrongly made as income from other sources. 5.3 That without prejudice, in view of G.N. 5.2., the addition of Rs. 2,50,000/- should have been set off against available b/f. losses. 6.1 That without prejudice, under the facts and circumstances, the AO erred in law as well as on merits in not setting offf the income from other sources of Rs. 49,70,000/- out of available b/f. losses (4720000 as addition u/s. 2 (22) (e) + 250000 as addition u/s. 68). 6.2 That without prejudice, in any case, income from other sources has to be set off out of b/f. losses to the extent of b/f. unabsorbed depreciation included in b/f. losses. 7. That under the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said disallowance. CIT (A) confirmed the disallowance by holding that no income can be earned without incurring some expenditure. Considering the huge investment in shares, he confirmed the disallowance of Rs. 39,559/-calculated as per Rule-8D. 7. The Ld. A.R. has not disputed that disallowance u/s.14A/Rule-8D can be made, however his limited grievances for the amount of disallowance. It has been argued that the disallowance, under no case, can exceed the exempted income which is only Rs. 13,063/-, therefore his limited contention is that the disallowance u/s.14A/Rule-8D should be restricted only up to Rs. 13,063/-, which is the amount of exempted income. The Ld. A.R. has placed reliance on Joint Investment (P.) Ltd. v. CIT [2015] 372 ITR 694/233 Taxman 117/59 taxmann.com 295 (Delhi) wherein it has been held that the disallowance u/s.14A cannot exceed the exempted income. The Ld. D.R., on the other side, placed reliance on the findings of A.O. and as the same has been confirmed by CIT (A). 8. I have carefully considered the issue. It is not in dispute that exempted income is only Rs. 13,063/-. Thus in view of the above cited case law, the disallowance u/s.14A/Rule-8D cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that during this year, in the beginning, the assessee had given certain amounts to the said company and thereafter the company returned back out of the said amounts to the assessee. These amounts returned back by the company out of the amounts received earlier in this year, is to be taken as the refund of money to assessee taken by the company earlier in the same year. It has been stated that such returns of amounts by the said company to the assessee should not be linked with opening payable and thus, since it should be treated as the amount returned back by the company, taken by the company earlier, cannot be covered u/s. 2 (22) (e). In this manner, as per paper book Pg.6, it has been argued that the maximum outstanding payable by the assessee to the said company at any point of time during the year calculates only Rs. 12,55,000/-. It has been argued that only Rs. 12,55,000/- should be examined to the test of applicability of sec. 2 (22) (e). Regarding Rs. 12,55,000/-, the Ld. A.R. further submitted that the assessee has been maintaining a running a/c with the company as a director/share holder of the said company. It has been further argued that the transactions in the running a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company has returned back to the assessee and so on and so forth. To the extent, the amounts taken earlier by the company and thereafter returned to the assessee, the said returned amount cannot be considered as the loan or advance received by the assessee during the year. On complete analysis of the transactions only of A.Y.2010-11, the maximum amount outstanding at any point of time in the hands of the assessee as payable to the company calculates Rs. 12,55,000/-. Thus, out of Rs. 47,20,000/-, in total, given by the said company to the assessee in this year, only Rs. 12,55,000/- can be examined w.r.t. applicability of sec. 2 (22) (e) of the I.T. Act. Thus to the extent of Rs. 34,65,000/-, out of Rs. 47,20,000/-, is not covered u/s. 2 (22) (e). Now, regarding balance Rs. 12,55,000/-, the claim of the assessee is that he has maintaining the running account with the company being a share holder and there is no finding or evidence that there is any intend to evade the tax, which was the objective of introducing sec. 2 (22) (e). I have examined this contention in the light of law laid down in Suraj Devi Dada (supra). In the said case, the assessee being a share holder was having a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evance is limited to the extent that the A.O. has made addition under the head as income from other sources while, correctly the head of income should be as income from business and profession. The Ld. A.R. argued that since this income has been assessed as from a business/earning activity therefore it should be correctly assessed as income from business and profession and not as income from other sources, which can be there only as a residuary head of income when there is no other head of income to which the said income can be allocated. 13. I have carefully considered this issue. I have already confirmed the addition of Rs. 2,50,000/- for the reasons given in Para-5 above. However, I find myself in agreement with the contention of the Ld. A.R. that the correct head of income for this addition should be as income from business and profession. The head of income being income from other sources is a residuary head of income wherein, apart from the specific nature of income as are to be covered under the head income from other sources, only such other incomes are to be included which cannot be assessed under any other head of income. Rs. 2,50,000/- have been received as hire charges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that sec.71 (1) r/w sec.71 (2) further provides that the current year business loss can be set off against any income accept salary income. In view of this it has been argued that since the un-absorbed B/F depreciation becomes the business loss of the current year therefore the income from other sources can be definitely set off out of this B/F depreciation which becomes the business loss. The Ld. A.R. further argued that CIT (A) has misinterpreted sec.72 (2) for not allowing the benefit of set off the income from other sources out of B/F depreciation since sec.72 (2) only provides that any allowance (which also includes depreciation) shall be first treated as provided in sec.71 (1) and only thereafter the balance will be carry forward. Thus it has been argued that sec.72 (2) only provides that to the extent allowance remains un-set off as per sec.71 (1), only to that extent it shall be carry forward. It has been argued that sec.72 (2) nowhere debars for setting off the income from other sources of this year for setting off against un-absorbed B/F depreciation. The Ld. A.R. placed reliance on the case of ACIT v. Shree Raghupati Fibers (P.) Ltd. (ITAT Ahd.) In ITA No.256/Ah ..... X X X X Extracts X X X X X X X X Extracts X X X X
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