Income Tax Appellate Tribunal - Kolkata
Dcit, Cc-Xxv, Kolkata, Kolkata vs M/S Baidyanath Glass Works (P) Ltd., ... on 8 February, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH "A" KOLKATA Before Shri Aby.TVarke, Judicial Member and Shri Waseem Ahmed, Accountant Member ITA No.42/Kol/2014 Assessment Year :2006-07 ITO, W ard-4(2), P-7, V/s. Shri Kedar Nath Fatehpuria Chowringhee Square, 1, R.N. Mukherjee Road, Aayakar Bhavan, 8 t h Kolkata-700 001 Floor, Kolkata-01 [P AN No. AADPF 5700 D] अपीलाथ /Appellant .. यथ /Respondent अपीलाथ क ओर से/By Appellant Shri Subhro Das, JCIT-SR-DR यथ क ओर से/By Respondent Shri Soumitra Choudhury, Advocate सन ु वाई क तार ख/Date of Hearing 09-01-2017 घोषणा क तार ख/Date of Pronouncement 08-02-2017 आदे श/O R D E R PER Waseem Ahmed, AccountantMember:-
This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-IV, Kolkata dated 04.09.2013. Assessment was framed by ITO Ward-4(2), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') vide his order dated 05.12.2008 for assessment year 2006-07.
Shri Subhro Das, Ld. Senior Departmental Representative represented on behalf of Revenue and Shri Soumitra Choudhury, Ld. Advocate appeared on behalf of assessee.
ITA No.42/Kol/2014 A.Y. 2006-07ITO Wd.-4(2), Kol. Vs. ShKedrNathFatehpuria Page 2
2. Facts in brief are that assessee in the present case is an individual and deriving his income from salary, sale of land and income from partnership firm namely M/s Santi Commercial Corporation. The assessee is also a proprietor of M/s K.N. Fatehpuria and Company. The assessee for the year under consideration has filed his return declaring total income of ₹4,11,220/-. Thereafter, case was selected for scrutiny under CASS module. Accordingly, notice u/s 143(2)/142(1) of the Act was issued upon the assessee. The assessment was completed u/s. 143(3) of the Act after making certain disallowances / additions to the total income of assessee.
3. First issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition u/s. 68 of the Act for ₹ 25 lacson the basis of additional evidences which were accepted in contravention of provision of Rule 46A of the Income Tax Rule, 1962 (hereinafter referred to as 'the Rule).
The assessee in his revised return has shown advance of ₹ 25 lacs which was received against the sale of agricultural land. However, Assessing Officer treated the same as unexplained cash credit u/s. 68 of the Act as the supporting evidence were submitted just one day before prior to completion of assessment.Therefore the AO could not verify the evidence as submitted by assessee. Accordingly, AO disallowed a sum of ₹25 lacs as unexplained cash credit and added to the total income of assessee.
4. Aggrieved, assessee preferred an appeal before Ld. CIT(A) whereas assessee submitted that land in question was sold on 17.07.2006 which was shown in the return of income in the subsequent year. The assessee also submitted the sale deed dated 17.07.2006 in support of his claim. After considering the submission of assessee Ld. CIT(A) deleted the addition made by AO by observing as under:-
"5.3 I have carefully considered the arguments adduced by the AR of the appellant and the documentary evidences produced and find that the said amount of Rs.25,00,000/- was received as an advance against ITA No.42/Kol/2014 A.Y. 2006-07 ITO Wd.-4(2), Kol. Vs. ShKedrNathFatehpuria Page 3 sale of land at Dongargaon for which purpose Sale Deed was available with the AO at the time of remand proceedings and the said amount was received through a Demand Draft. No attempt was made by the A.O to verify the documentation in the form of Sale Deed and the origin and source of Rs.25,00,000/- receive by the appellant through baking channels. Even the existence of such a land could have been verified by examining the balance sheet of the appellant but no such verification was conducted. The AR of the appellant has also identified the PAN of the party who purchased the said land but again no verification was conducted. Section 68 of the IT Act, 1961 is invoked only when the assessee has no explanation to offer or the explanation so offered is not found to be satisfactory by the Assessing Officer. In this case, an explanation has been offered by the AR of the appellant and this explanation hasnot been contradicted by the AO trough a process of verification. Under these circumstances, I am of the view that this is not a fit case for attracting the provision of Section 68 of the IT Act, 1961. Addition made on this account for s. 25,00,000/- is accordingly deleted."
Aggrieved by this, Revenue has come up in appeal before us.
5. Before us Ld. DR for the Revenue submitted that Ld. CIT(A) has admitted additional evidence in contravention to the provision of Rule 46A of the Income Tax Rules, 1962 (hereunder referred to as 'the Rule') and prayed before the Bench to restore the issue back to the file of AO for fresh examination.
On the other hand, Ld. AR for the assessee filed paper book which is running pages 1 to 85 and stated that Ld. CIT(A) called for remand report from the Assessing Officer vide letter dated 10.08.2009, however, AO did not verify the contents of the document calling for remand report and simply denied to admit the additional evidence vide letter dated 16.08.2011. The AO denied to furnish the comments on the document even after expiry of two years from the date of letter issued by Ld. CIT(A). He relied on the order of Ld. CIT(A).
6. We have heard rival contentions of both the parties and perused the materials available on record. In the present case, AO has treated the advance money received by assessee against the sale of agricultural land at a future date as cash credit u/s. 68 of the Act. The reason for treating the cash ITA No.42/Kol/2014 A.Y. 2006-07 ITO Wd.-4(2), Kol. Vs. ShKedrNathFatehpuria Page 4 credit u/s. 68 of the Act was that assessee failed to furnish supporting evidence during the assessment proceedings. In fact, the documents were submitted just one day prior to completion of assessment proceedings and these documents were not considered by AO. However, on perusal of orders of Authorities Below, we find that Ld. CIT(A) called for remand report from AO but AO denied to put his comments on the contents of documents sent to him calling for remand report. However, Ld. CIT(A) granted relief to assessee on the basis of additional evidence which was admitted by him in terms of provision of Rule 46A of the Rules. From the perusal of records, we find that AO was given time to verify the additional document for almost two years but he has not brought any defect in those documents but simply denied to accept the same. In our considered view, the documents were admitted by Ld. CIT(A) in terms of provision of Rule 46A of the Rules. At this juncture, we find important to reproduce the provisions of Rule 46A which read as under:-
[Production of additional evidence before the [Deputy Commissioner (Appeals) [and Commissioner (Appeals)] 46A.(1) The appellant shall not be entitled to produce before the [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals)], any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the [Assessing Officer], except in the following circumstances, namely:-
(a) ... ...
(b) ... ...
(c) ... ..
(d) .... ...
(2) ... ....
(3) The [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals)] shall not take into account any evidence produced under sub-rule (1) unless the [Assessing Officer] has been allowed a reasonable opportunity-"
From the above provision, we find that Commissioner of Appeal(s) can admit the additional evidence after giving reasonable opportunities to Assessing Officer. In the instant casethe AO was given reasonable opportunity at least for 2 years and he has not brought any defect in the additional evidence submitted forhis remand report. On perusal of paper book, we also find that ITA No.42/Kol/2014 A.Y. 2006-07 ITO Wd.-4(2), Kol. Vs. ShKedrNathFatehpuria Page 5 the property was sold in subsequent year as per sale deed dated 26.05.2006 which is placed on pages 1 to 56 of the paper book. In view of above, we find no reason to interfere in the findings arrived by the Ld. CIT(A). Under the circumstances, this issue of Revenue's appeal is dismissed.
7. Next issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by AO for ₹48,09,476/- on the basis of additional evidence.
8. Assessee in the revised computation of income has shown the Long Term Capital Gains (LTCG) on sale of agricultural land for Rs.48,09,476/- which assessee claimed exempted from tax. Assessee submitted the copy of sale deed in support of his claim. However, AO was of the view that the sale of agricultural land is not eligible for exemption under the Income Tax Act. The documents submitted by the assessee were not verified by the AO as these were submitted just one day prior to completion of assessment proceedings. Accordingly, AO disallowed the LTCG of ₹48,09,476/- and added to the total income of assessee.
9. Aggrieved, assessee preferred an appeal before Ld. CIT(A) whereas assessee submitted that impugned land was located outside the jurisdiction of Municipal Corporation as specified under 2(14)(b)(iii) of the Act. The assessee in support of his claim attached a certificate from the local government body. It was also submitted that the population of the area was also less than 10,000. Therefore, the impugned land is not a capital asset within the meaning of provision of Sec 2(14) of the Act. Ld. CIT(A) called for remand report from the AO on the additional documents submitted by assessee. However, AO did not verify the additional evidence even after the expiry of two years which were submitted by assessee before appellate stage. Accordingly, Ld. CIT(A) deleted the addition made by AO by observing as under:-
ITA No.42/Kol/2014 A.Y. 2006-07ITO Wd.-4(2), Kol. Vs. ShKedrNathFatehpuria Page 6 "4.3 I have carefully considered the arguments and documentary evidences produced and find that the Agriculture land does not come within the ambit of Capital asset and as such the gain on sale of said land is exempted. When during the remand stage, verification should have been carried out as these documents were available with the AO even at the time of assessment. Therefore, I am of the view that in view of the description of land as falling within the Gram panchyat of VillageMohgon at page 4 of Registration Deed as well as the Certificationfrom the staged Grampanchayat regarding the land location, this land should not be treated as a Capital asset us/s 2(14) of the IT Act, 1961 and should accordingly be exempted from taxation.
Hence, I delete the said addition Rs.4809476/-"
Aggrieved by this, Revenue has come up in appeal before us.
10. Before us Ld. DR for the Revenue submitted that Ld. CIT(A) has admitted additional evidence in contravention to the provision of Rule 46A of the Income Tax Rules, 1962 (hereunder referred to as 'the Rule') and prayed before the Bench to restore the issue back to the file of AO for fresh examination.
On the other hand, Ld. AR for the assessee reiterated same submissions as made before Ld. CIT(A) and he drew our attention on pages 64 to 69 of the paper book where the Gram Panchayat certificate of the impugned land in question was placed. He relied on the order of Ld. CIT(A).
11. We have heard rival contentions of both the parties and perused the materials available on record. In this case, the addition made by AO as the land was the capital asset within the meaning of Sec. 2(14) of the Act. Therefore the capital gains arose on the sale of such land was taxable in the hands of assessee, However, Ld. CIT(A) opined that land is agricultural land located in an area where population is less than 10,000 and land also does not fall in the jurisdiction of 8 kms.of Municipal Corporation. Before us Ld. DR has not brought any defect in the finding of Ld. CIT(A) and he simply stated that relief was given on the basis of additional evidence which were accepted by Ld. CIT(A) in contravention of provision of Rule 46A of the Rules. However, ITA No.42/Kol/2014 A.Y. 2006-07 ITO Wd.-4(2), Kol. Vs. ShKedrNathFatehpuria Page 7 on perusal of appellate order, we find that ample opportunities were given by Ld. CIT(A) to AO for his comment on the documents submitted at the time of appellate stage. But AO failed to provide any comment / defect on such documents even after the expiry of 2 years. In the light of above reasoning, we hold that the order of the Ld. CIT(A) is correct and in accordance with law and no interference is called for. Hence, this ground of Revenue's appeal is dismissed.
12. Next issue raised by Revenue is this appeal is that Ld. CIT(A) erred in deleting the addition made by AO for Rs.50,000/- u/s 68 of the Act on account of additional evidence.
13. The assessee, in the year under consideration has claimed to receive gifts worth of ₹ 50,000/- but failed to furnish necessary details of the gift donor at the time of assessment proceedings. Accordingly, AO disallowed the same and added to the income of assessee.
14. Aggrieved, assessee preferred an appeal before Ld. CIT(A) whereas assessee submitted the following details:-
Sl. Name of donor Relationship Cq. Bank name & address Amount PAN No. No. No.& date 1 Smt. Shanti Devi Mother-son 547056 Bharat Oversea Bank 75,000/- AADPF Fatehpuria 02.06.05 Ltd. A/c No. 9588K 341319794 Dalhousie Sq. Branch Kolkata The assessee also filed the gift deeds in support of his claim before Ld. CIT(A). The ld. CIT(A) called for remand report from AO who denied to accept the additional evidence in terms of Rule 46A of the Rules. However, considering the submissions the ld. CIT(A) deleted the addition made by AO by observing as under:-
"6.2 I am not agreement with the views expressed by the AO that the admissibility of evidence at the appellant stag is violative of Rule 46A. I ITA No.42/Kol/2014 A.Y. 2006-07 ITO Wd.-4(2), Kol. Vs. ShKedrNathFatehpuria Page 8 find from the Assessment Order that at the very fag end when the assessment proceedings we getting time-barred, such details were called for the first time by the AO through his letter dt. 17.12.2008, when these could have been called for earlier. To my view, insufficient time was allowed to the appellant at the assessment stage. At the remand stage complete details in the form of Gift Deed, Cheque Nos. and date, Ban a/c No. and Bank name and PAN of the donors were provided to the AO which he failed to verify. This addition of Rs.50,000/- been made u/s. 68 in spite of the fact that tat due explanation was offered at the remand stage by the AR of the appellant and the explanation so offered was not contradicted factually through any verification by the AO. Addition made for Rs.50,000/- is, therefore, outside the purview of the Sec. 68 and, hence, deleted."
Aggrieved by this, Revenue has come up in appeal before us.
15. Before us both parties relied on the orders of Authorities Below as favorable to them.
16. We have heard rival contentions and perused the materials available on record. At the outset, we find that gift was received by assessee from his mother. The source of money was explained out of refund of PPF from Allahabad Bank for ₹3,10,084/- dated04.05.2005. We also find that sufficient opportunities were given to AO for his comments on the additional evidence submitted by the assessee before the Ld. CIT(A) through remand report. However, AO has not pointed out any defect in such document. To this point, Ld. DR has also not pointed out anything contrary to the finding of Ld. CIT(A). Accordingly we find no infirmity in the order of Ld. CIT(A). We hold accordingly. This ground of Revenue's appeal is dismissed.
17. Last issue raised by Revenue in this appeal is that Ld. CIT(A) erred deleting the addition made by AO for ₹14,00,025/- on account of interest expense.
18. The assessee in the year under consideration has shown its business of sale-purchase of share under the name and style of M/s K.N.Fatehpuria & Co.
ITA No.42/Kol/2014 A.Y. 2006-07ITO Wd.-4(2), Kol. Vs. ShKedrNathFatehpuria Page 9 The assessee has shown opening stock of share and closing stock of shares and sales of share of ₹40,810/-. It was also observed by the AO observed that assessee has claimed interest expenses for its share trading business for ₹14,00,025/-. Considering the sale and purchase of the business, the AO was of the view that assessee is not engaged in the share trading activities but it is the investment activity.
19. The AO also observed that assessee has given loan and advance for ₹1.92 crores and ₹5.42 crores respectively out of the unsecured loan of ₹11.55 crores. Accordingly, AO opined that assessee is not engaged in share trading business rather it is investment activity. Therefore, interest for ₹14,00,025/- was disallowed by AO u/s14A of the Act and added to the total income of assessee.
20. Aggrieved, assessee preferred an appeal before Ld. CIT(A) whereas assessee submitted that his proprietorship firm M/s K.N.Fatehpuria & Co. is registered with SEBI as dealer in share and securities vide registration No. INB 030670915 dated 23.11.1994. Further, assessee submitted that interest expense has also been claimed in earlier years and the same has been allowed by Revenue. After considering the submissions of assessee and considering the facts and circumstances, Ld. CIT(A) deleted the addition made by AO by observing as under:-
"8.2 I have considered the arguments and submission of both the AR of the appellant as well as AO. The section under which addition has been made is Section 14A read with Rule 8D(2)(ii). IT may be stated at the very outset that Rule 8D became operative only from AY 2008-09 and judicial pronouncements have clearly held that for the period prior to A.Y 2008-09, Rule 8D is not applicable. The appellant's case pertains to A.Y 2006-07 during which year there was no applicability of Rule 8D. As far as any disallowance u/s. 14A is concerned, the AO should have first quantified if there was any exempted income earned by the appellant during the previous year and, if so, whether there was any nexus between the exempted income earned and expenses incurred. Disallowance u/s. 14A is not automatic and the AO has to give his reasoning for invoking section 14A. When the AO has not established any nexus between any exempted income earned and expenses relatable, I find that there is no case either for invoking sec. 14A. I am of ITA No.42/Kol/2014 A.Y. 2006-07 ITO Wd.-4(2), Kol. Vs. ShKedrNathFatehpuria Page 10 the view that neither sec. 14A nor Rule 8D is applicable to the case of the appellant, and hence, addition made for Rs.14,00,025/- is deleted."
Aggrieved by this, Revenue has come up in appeal before us.
21. Before us Ld. DR for the Revenue submitted that it is true that provision of Rule 8D of Income Tax Rule cannot be applied in the instant case as the instant case pertains to the A/Y 2006-07 and the Rule 8D came in effect from the AY 2008-09. However the disallowance can certainly be made under the provision of Sec. 14A of the Act. He vehemently relied on the order of AO whereas Ld. AR before us submitted that no satisfaction has been recorded by AO before invoking the provision of Sec. 14A of the Act. Ld. AR reiterated same submission as placed before Ld. CIT(A) and he relied on the order of Ld. CIT(A).
22. We have heard rival contentions of both the parties and perused the materials available on record. In the instant case, we find that AO observed that assessee is not engaged in the business of share trading and he treated the activity of assessee as investment activity. Accordingly, he has not allowed the interest expense. However, Ld. CIT(A) granted relief to assessee by observing that Rule 8D of the Rules is applicable from the assessment year 2008-09 and the instant case, pertains to AY 2006-07. Therefore no disallowance can be made by Assessing Officer. Now the issue before us arises whether the disallowance made by AO is justifiable in the aforesaid facts and circumstances of the case. At the outset, we find that to invoke the provisions of Sec. 14A of the Act the AO has to record his satisfaction which in the instant case, has not been done. The AO has not brought any defect in the books of account assessee. We also find that AO has not considered the factual position that assessee was registered under SEBI as dealer in share and security. The registration certificate from SEBI was given to assessee vide dated 29.11.1994. Since then assessee has been carrying his share trading activity. On perusal of order of Authorities Below, we also find that interest expense has been allowed by Revenue in earlier years. Simply in the ITA No.42/Kol/2014 A.Y. 2006-07 ITO Wd.-4(2), Kol. Vs. ShKedrNathFatehpuria Page 11 year under consideration, the turnover of assessee is less than it cannot be termed as assessee is not carrying business of share dealing. We also observe there is no change in the facts of assessee's case in comparison to earlier years as there is no such finding in this regard was brought on record. Hence, in our considered view, the assessee has been carrying business of share trading activity and therefore eligible for claiming deduction of ₹14,00,025/-. In this view of the matter, we find no infirmity in the order of Ld. CIT(A). We hold accordingly. This ground of Revenue's appeal is dismissed.
23. In the result, Revenue's appeal stands dismissed.
Order pronounced in the open court 08/02/2017
Sd/- Sd/-
(Aby. T. Varke) (Waseem Ahmed)
(Judicial Member) (Accountant Member)
Kolkata,
*Dkp
दनांकः- /02/2017कोलकाता ।
आदे श क त ल प अ े षत / Copy of Order Forwarded to:-
1. अपीलाथ /Appellant-ITO, Ward-4(2), P-7, Chowringhee Square, Aayakar Bhawan, 8th Floor, Kolkata-001
2. यथ /Respondent-Shri Kedar Nath Fathepuria, 1 R.N. Mukherjee Road, Kolkta-001
3. संब*ं धत आयकर आय-
ु त/ Concerned CIT Kolkata
4.आयकर आय-
ु त- अपील / CIT (A) Kolkata
5. 0वभागीय 3त3न*ध,आयकर अपील य अ*धकरण,कोलकाता/ DR, ITAT, Kolkata
6. गाड7 फाइल / Guard file.
By order/आदे श से, /True Copy/ उप/सहायक पंजीकार आयकर अपील य अ*धकरण, कोलकाता ।