TMI Blog2019 (4) TMI 742X X X X Extracts X X X X X X X X Extracts X X X X ..... estments for the purpose of business and paid the interest. The income under the head income from other sources resulted into loss which was claimed for set off under section 71 of the Act. Intra head loses are allowable to be set off against other sources of income in the same assessment year. Since the Assessing Officer did not make out a case that the assessee has diverted the funds for non-business purposes, we do not see any reason to interfere with the order of the ld. CIT(A) and the same is upheld. Appeal of the Revenue on this ground is dismissed. Disallowance u/s 14A r.w.r. 8D - interest on borrowed funds for investment in M/s. Vishnu Priya Hotels Pvt. Ltd.which yield dividend income which is exempt from the total income - diverting of funds for non-business purposes - HELD THAT:- Assessing Officer has invoked section 14A r.w.r. 8D incorrectly and made the disallowance without having earned the dividend income. On an identical issue, in the case of M/s. Redington (India) Ltd. [2017 (1) TMI 318 - MADRAS HIGH COURT] has taken a view that no disallowance is called for under section 14A in the absence of dividend income. Also see P. Venkateswara Rao Vs. ACIT [2018 (12) TM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings. In the absence of wealth tax returns, if the gold and jewellery is to be taxed, the same is required to be brought to in the hands of the assessee s wife mother, but not in the hands of the assessee. Apart from the above, the assessee filed wealth tax returns for the Assessment Years 2009-10 2010-11, which was accepted by the department without making any addition. Therefore we hold that there is no case for making the addition on account of gold and jewellery found during the course of search in the hands of the assessee. - ITA Nos. 493, 494, 496/VIZ/2017 And C.O.No. 19/VIZ/2018 (Asst. Year : 2012-13 And 2013-14) (Arising out of ITA No. 496/VIZ/2018) - - - Dated:- 20-3-2019 - Shri V. Durga Rao and Shri D.S. Sunder Singh, JJ. Assessee by: ShriG.V.N. Hari Advocate. Department By: ShriD.K. Sonawal Sr.DR ORDER D.S. Sunder Singh, ITA Nos.493 494/VIZ/2017 C.O.No. 19/VIZ/2018 have been filed by the different assessees against the separate orders of Commissioner of Income Tax (Appeals), Vijayawada, all dated 24/03/2017 for the Assessment Years 2013-14. ITA No.496/VIZ/2017 has been filed by the Revenue against the order of Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e also made the investments in hotel which yields the dividend income and does not form part of total income. The breakup of loans taken by the assessee, interest free loans given and the interest paid by the assessee are furnished by the Assessing Officer as under:- 1) Loans taken by the assessee on which interest is being paid of ₹ 12.96 crores. 2) Interest free loans and advances given by the assessee ₹ 6.91 crores. 3) Investment made by the assessee where the income does not form part of the total income of ₹ 31.89 crores. 3. The Assessing Officer is of the view that since, the assessee is deriving only the interest income from the savings bank account and bank deposits claiming of huge expenditure against the said income is not permissible since the funds were diverted for non-business purposes and used for making investments in shares and giving interest free loans. The Assessing Officer further observed that the investments made in the company does not yield taxable income since it fetches the dividend income which is exempt and does not form part of the total income. Therefore the Assessing Officer held that the interest and expenditure relatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. The assessee had made the investment which would yield exempted income. 6. The contention of the assessee that the investment made in M/s.VishnuPriya Hotels Resorts Pvt. Ltd. was not on account of earning dividend income is not tenable as the assessee had not shown any income on account of remuneration received from the company. 7. The judicial pronouncements relied upon by the assessee would not apply to the assessee's case as the facts of that cases differ from the assessee's case. 8. The assessee had not complied with the provisions of section 57(iii) of the Act since the assessee had not offered any income for which the expenditure was being claimed. 9. The assessee had given interest free loans and advances, which clearly states that the assessee was diverting the loan funds but simultaneously claiming expenditure on such loans. 6. On appeal, the ld. CIT(A) observed that the assessee has borrowed money for the purpose of making investment in hotel and paid the interest on borrowings. The ld. CIT(A) further observed that the Assessing Officer has not disputed the fact that the investment made was for the purpose otherwise than for earning of the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has diverted the funds for non-business purposes, we do not see any reason to interfere with the order of the ld. CIT(A) and the same is upheld. Appeal of the Revenue on this ground is dismissed. 10. Ground Nos. 2 3 are related to the disallowance made by the Assessing Officer under section 14A r.w.r. 8D of the IT Rules, 1962. 11. The assessee has claimed the total loss of ₹ 1,73,16,787/- as deduction from the taxable income, which includes the interest on borrowed funds for investment in M/s. Vishnu Priya Hotels Pvt. Ltd. Since the investments in M/s. Vishnu Priya Hotels Pvt. Ltd. yield dividend income which is exempt from the total income, the Assessing Officer disallowed a sum of ₹ 1,63,07,299/- u/s 14A of the Act and the balance amount of ₹ 8,83,287/- was disallowed under section 57(iii) of the Act for diverting of funds for non-business purposes. 12. On appeal, ld. CIT(A) deleted the addition made by the Assessing Officer, since, there was no dividend income earned by the assessee and also observed that there is no diversification of funds, for non-business pursoses. While deleting the addition, the ld. CIT(A) relied on the decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... serted in Section 14A to clarify that it could not be used to reopen or rectify a completed assessment. Sub-sections (2) and (3) of Section 14A were inserted with effect from 1st April, 2007 to provide for methodology for computing of disallowance under Section 14A. However, the actual methodology was provided in terms of Rule 8D only from 24th March 2008. There was a further amendment to Rule 8D with effect from 2nd June 2016 limiting the disallowance the aggregate of the amount of expenditure directly relating to income which does not form part of total income and an amount equal to one per cent of the annual average of the monthly average of the opening and closing balances of the value of investment, income from which does not form part of the total income. It is also provided that the amount shall not exceed the total expenditure claimed by the Assessee. 13. In the above background, the key question in the present case is whether the disallowance of the expenditure will be made even where the investment has not resulted in any exempt income during the AY in question but where potential exists for exempt income being earned in later AYs. 14. In the Explanatory Memorandum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be included in a particular year's income for the disallowance to be triggered. 19. In the considered view of the Court, this will be a truncated reading of Section 14 A and Rule 8D particularly when Rule 8D (1) uses the expression 'such previous year'.Further, it does not account for the concept of 'real income'. It does not note that under Section 5 of the Act,- the question of taxation of 'notional income' does not arise. As explained in Commissioner of Income Tax v. Walfort Share and Stock Brokers Pvt. Ltd [2010] 326 ITR 1 (SC), the mandate of Section 14A of the Act is to curb the practice of claiming deduction of expenses incurred in relation to exempt income being taxable income and at the same time avail of the tax incentives by way of exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income. Consequently, the Court is not persuaded that in view of the Circular of the CBDT dated 11th May 2014, the decision of this Court in Cheminvest Ltd. (supra) requires reconsideration. 20. In M/s. Redington (India) Ltd. v. The Additional Commissioner of Income Tax, Company Range - V. Chennai (order da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be laid out or expended wholly and exclusively for the purpose of making or earning income. It is the purpose of the expenditure that is relevant in determining the applicability of s. 57(iii) and that purpose must be making or earning of income. s. 57(iii) does not require that this purpose must be fulfilled in order to qualify the expenditure for deduction. It does not say that the expenditure shall be deductible only if any income is made or earned. There is in fact nothing in the language of s. 57(iii) to suggest that the purpose for which the expenditure is made should fructify into any benefit by way of return in the shape of income. The plain natural construction of the language of s. 57(iii) irresistibly leads to the conclusion that to bring a case within the section, it is not necessary that any income should in fact have been earned as a result of the expenditure. 21. There is merit in the contention of Mr. Vohra that the decision of the Supreme Court in Rajetidra Prasad Moody (supra) was rendered in the context of allowability of deduction under Section 57(iii) of the Act, where the expression used is for the purpose of making or earning such income. Section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er has completed the assessment u/s 143(3) by order dated 04.11.2011. The Ld.CIT has called for the record u/s 263 and issued the notice for revision for incorrect set off of business loss against the rental income. After verification of the material on record, the Ld.CIT has dropped the issue with regard to incorrect set off of business loss against the income from property which was examined by the assessing officer. During the course of revision proceedings, it has come to the notice of Ld.CIT that the assessee has made investments in shares and bonds and did not make disallowance which was required to be made u/s14A of IT Act. The assessee explained that there were no expenses incurred in relation to the exempt income which was claimed as deduction for the assessment year 2009-10. Hence, the assessee argued before the Ld.CIT that Section 14A is not applicable in assessee s case. As per the observation of the Ld.CIT, the assessee made the investments to the tune of ₹ 19,90,625/- in shares and bonds from the borrowed funds and the interest expenditure relating to the earning of dividend income is required to be disallowed u/s 14A. Though CIT opined that the expenditure rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the view taken by this Tribunal in the above referred to case, we uphold the order of the ld. CIT(A) and dismiss this appeal of the revenue on this issue. C.O.No.19/VIZ/2018 15. Cross Objection filed by the assessee is only to support the order of the ld. CIT(A). Since the Revenue s appeal is dismissed, the cross objection filed by the assessee becomes infructuous and hence dismissed. ITA No. 493/VIZ/2017,A.Y.2013-14 16. The assessee filed appeal against the order of the Commissioner of Income Tax (A) in this case and raised as many as five grounds in this appeal. Ground Nos. 1 5 are general in nature, which do not require any adjudication. 17. Ground No.2 is related to the receipt of on money amounting ₹ 35,10,000/- for sale of flat jointly owned by the assessee and his mother. Out of the said total sum of ₹ 35,10,000/- the assessee s share of ₹ 15,13,161/- was brought to tax as unexplained income. During the course of search proceedings, the incriminating material was found and marked as Annexure-A/KSK/R/2 on which the transaction regarding the sale of flat No.805 belonged to the assessee and his mother was found recording the sale considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per price registered in the sale deed, hence, the question of undisclosed income does not arise. The assessee further submitted in the sworn statement that nowhere the assessee had agreed for the addition or confessed that said amount was received by him. The Assessing Officer not being convinced with the explanation of the assessee held that the assessee has sold the flat for ₹ 74.10 lakhs and received a sum of ₹ 35.10 lakhs in cash which was not disclosed, hence, he taxed the assessee s share of 42%, which worked out to ₹ 15,13,161/- as unexplained income in the hands of the assessee. 19. Aggrieved by the order of the Assessing Officer, the assessee went on appeal to the ld. CIT(A), who confirmed the addition observing that the assessee and his mother have already executed the construction agreement on 21/02/2017 vide registered document No.4452/2010, having executed the agreement the ld.CIT(A) is of the opinion that they might have received the full consideration. The ld. CIT(A) further opined that the assessee has recovered the cost of construction from the purchaser and paid to the builder. The said fact was not disputed by the assessee, hence, held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 35.10 lakhs in the hands of the vendor, hence, the order of the ld. CIT(A) should be upheld and to dismiss the appeal of the assessee. 23. We have heard both the parties and perused the material placed on record. 24. During the course of search under section 132, the department has found the loose-sheet numbered as page No.4 of Annexure-A/KSK/R/2 wherein it was mentioned that 3,800 x 1950 working out to ₹ 74.10 lakhs, and sum of ₹ 39,00,000/- was recorded as official and ₹ 35.10 lacs as black. The assessee has clarified in the statement that it was proposal for sale of flat No. 805 admeasuring 1950 sq.ft.at the rate of 3,800/- per sq.ft. for a total consideration of ₹ 74.10 lakhs, out of which ₹ 39.00 lakhs was to be paid officially and ₹ 35.00 was to be paid in cash. The assessee further submitted that the assessee has to sell the flat before completion of construction hence, sold the flat for the consideration recorded in the registered sale deed and he did not receive the amount over and above the sale price recorded in the registered sale deed. On the same loose-sheet found during the course of search indicating the price at ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt can be offered. Once the aforesaid principal is clear, then in the instant case, ostensible sale consideration disclosed in the sale deed had to be accepted and it could not be contradicted by adducing any oral evidence. Therefore, the order of the Tribunal did not suffer from any legal infirmity in reaching to the conclusion that the amount shown in the registered sale deed was received by the vendors and deserved to be added to the gross income of the assessee. [Para 4]. In the instant case a loose sheet was found evidencing the on money consideration for sale of the flat. The said loose sheet was not in the handwriting of the assessee or of any of the family members. No statement was recorded from the author of the loose sheet regarding the contents and enquiries were conducted with the buyer of the flat. The assessee has never agreed or accepted that he has received the sale consideration over and above the amount recorded in the registered document and no evidence was found with regard to receipt of cash. Therefore, we are unable to sustain the order of the ld. CIT(A)) and the same is set aside and the appeal of the assessee is allowed. 25. Ground No.3 is related to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a sum of ₹ 5,37,775/- was found in cash in the residence of the assessee, for which assessee explained that the cash represented the book balance and there was no unaccounted or unexplained cash. In support of the availability of the cash balance, the assessee has filed a cash flow statement for the Financial Years2007-08 to 2012-13, which indicated that there was huge cash balance available with the assessee for the year ended 31/03/2012 and 31/03/2013. Cash on hand as on 31/03/2013 was ₹ 38,07,136/- As stated by the ld. AR, assessee filed the wealth tax returns in response to the notice issued by the Assessing Officer under section 17 of the Wealth Tax Act and the assessments were accepted by the department taking the cash balance as per wealth tax returns and no defects were found. Therefore, we are unable to discard the cash flow statement. Neither the Assessing Officer nor the ld. CIT(A) find any defect in the cash flow statement submitted by the assessee during the wealth tax proceedings also Therefore, we hold that the cash balance available as on the date of search is treated as explained and no addition is warranted. Accordingly, we set aside the order of the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viewed that the explanation is reasonable, there is no case for making the addition to protect the interest of the revenue. The ld. AR further submitted that it is not possible to submit any evidence for moveable property inherited ancestrally. If something required to be taxed in the hands of the assessee for the purpose of wealth tax, the Assessing Officer should take action in the hands of Smt. Kotu Bhavani and Smt. Kotu Anasuya for escapement of wealth but should not tax in the hands of the assessee. Therefore, requested to delete the addition made by the Assessing Officer and allow the appeal of the assessee. 34. On the other hand, ld. Departmental Representative supported the order of lower authorities. 35. We have heard both the parties and perused the material placed on record. During the course of search, gold jewellery of 1064.6 grams, diamonds of 27 ct and silver of 11525 grams were found in the premises of the assessee. The source of acquisition of gold jewellery is stated to be acquired out of ancestral property. The Assessing Officer also examined the explanation of the assessee and viewed that the explanation of the assessee found to be reasonable. Once the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ten by his friend Shri Ch.MadhusudhanRao in respect of flat No. 805. According to the loose-sheet, the sale value of the property was ₹ 74.10 lakhs, out of which ₹ 39.00 lakhs was paid officially and ₹ 35.10 lakhs was to be paid in cash. Accordingly, the share of the assessee in black amount works out toRs. 19,96,839/- towards her share of 57.40% and ₹ 15,13,161/- by her son Mr.Sarat Kumar. However, the assessee has admitted the consideration as recorded in the registered document of ₹ 39.00 lakhs and stated that she has not received the consideration over and above the registered document. Disbelieving the explanation of the assessee, the Assessing Officer made the addition of ₹ 19,96,839/- in the hands of the assessee. Identical issue has come up for adjudication in appeal No. 493/VIZ/2017 in the case of Kotu Sarat Kumar which was discussed in this order and held that there is no evidence for receipt of on money and accordingly allowed the appeal of the assessee. Since the facts are identical, we set aside the order of the ld.CIT(A) and delete the addition made by the Assessing Officer and allow the appeal of the assessee. 38. In the resu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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