Income Tax Appellate Tribunal - Mumbai
Chandrakanta S. Juneja , Mumbai vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI 'C' BENCH
BEFORE SHRI D.MANMOHAN, VICE PRESIDENT &
SHRI T.R.SOOD, ACCOUNTANT MEMBER
I.T.A.NO.3340/Mum/2009 - A.Y 2004-05
Asst. Commissioner of I.T., Vs. Mrs. Chandrakanta S. Juneja,
Circle 21 [1], Samrat, Presidency Society, 8th Road,
Mumbai. Juhu Parle Scheme, Vile Parle (W),
Mumbai 400 049.
PAN: AAGPJ 8843 A
(Appellant) (Respondent)
Appellant by : Shri Alexander Chandy. Sr. DR
Respondent by : Shri Vijay C. Kothari.
ORDER
Per T.R.SOOD, AM:
In this appeal Revenue has raised various grounds involving the following four disputes:
1. Ld. CIT(A) erred in deleting the disallowance of transfer expenses amounting to Rs.1,51,460/-.
2. Ld. CIT(A) erred in directing Assessing Officer to allow loss under the head capital gains amounting to Rs.4,49,385/-.
3. Ld. CIT(A) erred in deleting the addition of Rs.30 lakhs on account of cash credits.
4. Ld. CIT(A) erred in directing the Assessing Officer to allow interest of Rs.2,16,516/- and further erred in deleting the addition of notional interest amounting to Rs.7,65,855/-.
2. Issue No.1: After hearing both the parties we find that during the year under consideration assessee had sold some factory unit and offered the same under the head long term capital gains. It was noticed by the AO that assessee had claimed expenses of Rs.1,51,460/- including brokerage, against which no details were filed and only an affidavit of Smt. Geeta Jethwa who was allegedly paid a 2 ITA NO.3340/M/09 sum of Rs.1 lakh as brokerage was filed. But she was also not produced. Accordingly, AO rejected the claim of Rs.1,51,460/-.
3. On appeal, Ld. CIT(A) deleted the addition by observing that in response to queries by the AO assessee had filed vide letter dated 1-11-06 brokerage bills of Manish Estate Consultants, Mr. Vinod Jethwa and D. R. Thakkar and Company. After furnishing of such details AO had not called upon assessee's explanation and further details and an affidavit provided all details and hence the addition was deleted.
4. Both the parties were heard.
5. After considering the rival submissions, we find that expenditure of Rs.1,51,460/- consisted of following three items:
Sr.No. Name of the Party Amount (Rs.) Remark
1 D.R.Thakkar & Co. 25,000 Copy of Bills is enclosed
herewith once again.
2 Geeta V. Jethva. 1,00,000 Copy of Bill and
Affidavit is enclosed
herewith once again
3 Vinod J. Jethwa 26,400 Copy of Bills is enclosed
herewith once again.
We further find that the AO vide letter dated 11th October, 2006 [copy of which has been filed at pages 64 to 68 of the paper book], vide para-10 has specifically asked assessee that since evidence has not been furnished for various expenses, except for the affidavit of Smt. Geeta V. Jethva, assessee was further directed to file necessary details and also produce Smt. Geeta V. Jethva. Though Ld. Counsel of the assessee has brought to our attention pages 42 to 45 of the paper book, which is a copy of the bills and affidavit in respect of expenditure which was filed, but he admitted that Smt. Geeta V. Jethva was not 3 ITA NO.3340/M/09 produced. He submitted that in case the Bench feels it was necessary to produce Smt. Geeta V. Jethva, then assessee was ready to produce her before the AO. It was noticed by us that Smt. Geeta V. Jethva and Shri Vinod A. Jethva who had also issued a bill for Rs.26,460/- for brokerage, are husband and wife. It is not clear as to how both of them were involved in selling the same property. In any case, AO had expressed his doubts regarding this expenditure and, therefore, assessee was duty bound to produce full details before him. The ld. CIT(A) has allowed the relief merely by stating that assessee has discharged the onus by furnishing the bills. It is settled law that the burden is always on the assessee to prove that expenditure has really been incurred for which a claim is made. Therefore, in the interests of justice, we set aside the order of the ld. CIT(A) and remit this issue to the file of the AO with a direction that one more opportunity should be given to the assessee to produce Smt. Geeta V. Jethva and also file any other details required by the AO. The AO may decide the issue after her production in accordance with the law.
6. Issue No.2: After hearing both the parties, we find that during assessment proceedings AO further noticed that assessee had claimed long term loss of Rs.4,49,385/- on sale of shares of M/s Swift Finlease India Pvt. Ltd. It was claimed that the assessee was owner of 25,000 shares which were purchased in A.Y 1994-95 for Rs.2,50,000/- and were sold during the previous year for a sum of Rs.25,000/-. The assessee was asked to furnish proof of purchase and sale of these 4 ITA NO.3340/M/09 shares and the basis of determination of sale price, copies of share certificates as well as statement of accounts of the private limited company. The assessee could file only a copy of dividend warrant dated 14-11-1995 declaring dividend of Rs.45,000/- to show ownership of the shares by the assessee. Further, it was claimed that shares were sold to V.S.Juneja HUF a family concern. No other details were furnished. In the absence of details, AO was of the opinion that loss was manipulated and was created fraudulently only to reduce the long term gains earned by the assessee on account of sale of factory premises and tenancy rights and accordingly AO rejected the claim of this long term loss.
7. The ld. CIT(A) decided the issue vide para 5.4 which is as under:
"5.4 I have considered the submissions of the Appellant. The ownership of the shares of Swift Finlease India Limited, is entirely proved by the Appellant by submitting the Dividend Warrant issued in the name of the Appellant in Financial Year 1995-96. The Appellant has also given cogent reasons for the rate at which the shares were transferred. Nothing is brought on record to even suspect, let alone prove, that payment in excess of the apparent consideration, was made. Having regard to the evidences submitted, and the fact that the shares have been delivered to the purchaser on receipt of sale consideration by the Appellant, the loss of Rs.4,49,385/- is held to be genuine. The AO is directed to allow the said loss while computing the income under the head Capital Gains. Accordingly, ground No.3 of Appeal is allowed."
8. Before us, Ld. DR mainly submitted that shares remained within the family and no details as required by the AO were filed, therefore, the AO has rightly concluded that loss was generated only to reduce the capital gains.
5 ITA NO.3340/M/09
9. On the other hand, Ld. Counsel of the assessee referred to page 40 of the paper book, which is copy of the letter written by the assessee to the AO explaining the details of loss incurred on sale of shares. He argued that dividend warrant produced before the AO clearly shows that shares were owned by the assessee. It was further pointed out that AO was informed that Swift Finlease India Ltd. was functioning well in F.Y 94-95 and declared dividend also. Later on, the company stopped the operations due to numeral problems and became a defunct company and net worth of the said company eroded and the book value became negative and as such value of the shares was nil. That is why shares were sold to the HUF @ Re.1/- per share. In this background, ld. CIT(A) was justified in allowing the capital loss because fact of ownership of shares as well as sale of shares and price at which the shares were sold, is justified.
10. After considering the rival submissions, we find that no evidence is available by way of confirmation from Swift Finlease India Ltd. to show that shares have really been transferred in the name of HUF. It was stated by the Ld. Counsel of the assessee that the said company had become defunct and is not maintaining any records. If that is so, then we wonder why one of the family members has come forward to purchase these shares which have a zero value. Naturally shares have been transferred within the family just to create a loss in the hands of the assessee so as to set off the same against the capital gains earned from sale of factory premises. This is clearly a case of creating the loss 6 ITA NO.3340/M/09 by colourable device. In the absence of proof for transfer of shares it cannot be accepted that shares have really been transferred, particularly, when it was admitted that net worth of Swift Finlease India Ltd. was negative and value of the shares was zero. The ld. CIT(A) allowed the relief without giving any reasons and has simply mentioned that assessee has given cogent reasons for which shares were transferred. Nothing is stated in appellate order about what were the cogent reasons. Accordingly, we set aside the order of the ld. CIT(A) and restore that of the AO.
11. Issue No.3: After hearing both the parties we find that reasons for making an addition of Rs.30 lakhs given by the AO at para 6.3[a] are as under:
"6.3[a] New loans taken during the previous year are apparently of Rs.27.11 lakhs. Moreover, the details of squared up loans, if any, are not given though specifically called for. Hence, in the absence of proper details the new same are estimated to be of Rs.30,00,000/- and in the absence of evidence for their genuineness the same are held to be unproved thus representing the assessee's own income from undisclosed sources. A sum of Rs.30 lakhs is added to total income accordingly."
12. Before the CIT(A) it was submitted that necessary confirmation letter in respect of new loans of Rs.27.11 lakhs was furnished before the AO and no further loans were received. It was also pointed out that certain loans were refunded from her disclosed bank account. The ld. CIT(A) found merit in these arguments because, according to him, there was no dispute in respect of new loans and the dispute was regarding addition of Rs.30 lakhs on estimated basis. He observed that 7 ITA NO.3340/M/09 addition u/s.68 could be made only on the basis of entries in the books of accounts and not on estimated basis and accordingly deleted the addition.
13. Before us, Ld. DR relied on the order of the AO.
14. On the other hand, Ld. Counsel of the assessee strongly supported the order of the CIT(A) and also pointed out that confirmation in respect of loans were duly filed before the AO and copies of same have been enclosed at pages 54 to 63 of the paper book.
15. After considering the rival submissions, we find that ld. CIT(A) has correctly adjudicated the issue because addition cannot be made u/s.68 on the basis of estimate. Whatever loans were taken by the assessee were generally taken from family members and copy of confirmations along with the acknowledgment of the return have been duly filed before the AO and copy of the same is available in the paper book. Therefore, we find nothing wrong in the order of the ld. CIT(A) and confirm the same.
16. Issue No.4: After hearing both the parties, we find that during assessment proceedings AO noticed that assessee had declared income from other sources at Rs.4,10,167/-. He further noted that assessee had shown total interest receipt of Rs.13,65,601/-, out of which interest on account of FDR in Saraswat Bank was Rs.12,93,219/-. Interest on other loans was only of Rs.39,173/- against the outstanding loans of Rs.67,08,573/-. The assessee had claimed 8 ITA NO.3340/M/09 deduction against the interest income on account of interest on bank over draft amounting to Rs.2,16,516/-. Further, deduction was claimed on account of interest on other loans of about Rs.94 lakhs at Rs.7,38,918/-. In this background, AO estimated interest @ 12% on the outstanding loans of Rs.67,08,53/- and after reducing the interest declared at Rs.39,173/- made addition for the balance of interest. The deduction claimed for interest paid on bank over draft account amounting to Rs.2,16,516/- was also not allowed because no evidence was filed regarding utilization of the over draft. Against the claim of interest amounting to Rs.7,38,918/- it was observed that there was no evidence to show that loans were taken and utilized for giving loans to others. Therefore, interest was allowed only on estimated basis at Rs.5,00,000/-. Thus, income from other sources by way of interest was computed as under:
Interest income as shown Rs.13,65,601/-
Add: Interest received estimated
at Rs.8,05,028/- in place of
Rs.39,173 shown Rs. 8,05,028/-
[as discussed in 6.3(b)] -----------------
Rs.21,70,629/-
Less: Interest paid on bank OD NIL
Disallowed as discussed in 6.3[c]
Interest paid on loans allowed at
Rs.5 lakhs as discussed in 6.3[d] Rs. 5,00,000/- Rs.16,70,629/-
17. Before ld. CIT(A) it was submitted that over draft was taken because assessee required short term funds for the purpose of earning various income which has been offered in return of income. The 9 ITA NO.3340/M/09 Saraswat Bank had a scheme under which a person holding a FD was allowed to borrow the money against the FD by paying differential rate of 1%. Thus, there was a clear nexus between the interest income received in the form of interest on FDR and interest paid against the over draft facility. The ld. CIT(A) deleted the addition by stating that AO has nowhere established that interest paid is not wholly and exclusively in relation to earning of the income which was assessable under the head 'income from other sources'. The other addition of Rs.7,65,855/- was also deleted by observing that it was a case of notional income and AO had failed to consider that loans and advances were given on non interest bearing funds. However, as far as the claim for balance of interest paid to others at Rs.2,38,918/- is concerned, that addition was confirmed by the CIT(A).
18. Before us, Ld. DR strongly relied on the order of the AO.
19. On the other hand, Ld. Counsel of the assessee strongly supported the order of the CIT(A). He also argued that no addition was possible by estimation a notional income and interest which was actually paid on bank over draft should have been allowed by the AO. He further argued that in any case ld. CIT(A) has disallowed the claim for interest paid amounting to Rs.2,38,l918/- and, therefore, ld. CIT(A)'s order does not require any interference.
20. We have considered the rival submissions carefully. We find that as far as contention of the Ld. Counsel of the assessee is concerned that no addition on account of notional income in respect of interest 10 ITA NO.3340/M/09 could have been made, is correct. However, at the same time in that case possibly no interest can be claimed against the loans given on interest free basis. Because ld. CIT(A) has allowed the relief mainly on the basis that moneys were borrowed for giving interest free loans. Before the AO or CIT(A) or even before us it has not been shown that for what purposes the loans have been taken by the assessee on interest. Simply by stating that such funds have been used for giving loans and income against which has been offered is not sufficient and also not correct, because out of the total interest income shown by the assessee amounting to Rs.13,65,601/- a sum of Rs.12,93,219/- has been earned as interest on FDR itself.
21. We further find that there is no force in the argument that there is a clear nexus between the interest earned on FD and interest paid to the bank. In fact, this issue is now settled by the decision of the Hon'ble Supreme Court in the case of CIT vs. Dr. V.P.Gopinathan [248 ITR 449]. In that case assessee had earned some interest on bank FDR against which some loans were obtained on which some interest was paid. It was claimed that assessee should be charged tax only on the basis of net income because there is a clear nexus between interest earned and interest paid. The Hon'ble Supreme Court rejected this argument by observing that there was no provision in sec.57[iii] to allow such interest. In the case before us also unless and until the purpose of taking and utilization of loan is stated clearly, such interest cannot be allowed. In view of these facts, we set aside the order of the 11 ITA NO.3340/M/09 ld. CIT(A) and hold that no income can be assessed on notional basis and at the same time we further hold that no interest expenditure is allowable which has been paid to be bank or to the outsider because funds have not been used for earning any interest income. Accordingly, we direct the AO to recompute the income from other sources.
22. In the result, appeal is partly allowed.
Order pronounced in the open Court on this day of 29/7/2011.
Sd/- Sd/-
(D.MANMOHAN) (T.R.SOOD)
Vice President Accountant Member
Mumbai: 29/7/2011.
P/-*