2012 (10) TMI 18 - AT - Income Tax

Deduction u/s 80RR - assessee is an individual and is a playback singer - remuneration in foreign currency - denial of deduction on ground that two encashment certificates from Wallstreet Finance Ltd. were not in Form 10H - Held that - It is observed that RBI, vide its letter dated 31.10.1998 and again vide letter dated 16.06.2006, clarified that in the case of salaries of shipping crew members, the certificate is to be issued in Form 10H against encashment of foreign currency / travelers chaque but in other cases, the certificate should be issued for encashment of foreign currency notes / travelers cheuqes in Form ECF. Walstreet Finance Ltd. an authorised FFMCs issued certificate of Rs 14.34 lacs to the assessee and the said certificate should be accepted as valid to allow deduction to the assessee u/s 80RR. However, the other certificate of Rs.2.4 lacs, is not in the name of the assessee but is in the name of assessee s son and, therefore, the assessee cannot take benefit for deduction u/s 80RR in respect of same - Decided in favor of assessee restricting the claim of deduction u/s on the basis of the certificate issued by Wallstreet Finance Ltd. Dis-allowance u/s 14A of interest paid to bank on borrowings - nexus of interest payment to the income earned - investment in partnership firm - assessee has neither received interest income, remuneration from the firm and dividend from the companies in which the assessee has used the loan for investment - Held that - No infirmity found in the order of the Commissioner (Appeals) to confirm the action of the AO in the absence of any documents placed on record. Addition - low withdrawal for household expenses - assessee claimed that his wife s income from AOP is used for house hold expenses - Held that - It is observed that there is a withdrawal by way of cheque and no details have been given as to how much amount was contributed by assessee s wife for household expenses. Further, there is no dispute to the fact that there are no household expenses shown by the assessee in Profit & Loss account filed by him. CIT(A) order of sustaining addition upheld

Summary

Issues involved:
1. Disallowance of deduction under section 80RR of the Income Tax Act, 1961.
2. Disallowance of interest paid to the bank on borrowings.
3. Addition of Rs. 2,00,000 on account of low withdrawal of household expenses.
4. Dispute regarding levy of interest under sections 234A, 234B, and 234C of the Act.

Issue 1: Disallowance of deduction under section 80RR
The appeal was against the disallowance of deduction under section 80RR of the Income Tax Act, 1961. The dispute arose when the Assessing Officer denied the claim due to encashment certificates not being in Form 10H. The appellant argued that the certificates were issued by an authorized FFMCs and should be accepted as valid. The Tribunal observed RBI circulars specifying the form of certificates required for different cases. It was concluded that one certificate was valid for deduction under section 80RR, while the other was not, resulting in a partial allowance of the claim.

Issue 2: Disallowance of interest paid to the bank on borrowings
The Assessing Officer disallowed the interest paid by the assessee to the bank on borrowings under section 14A of the Act. This disallowance was based on the lack of nexus between the interest payment and income earned, as the income was exempted under section 10(2A) of the Act. The Commissioner (Appeals) upheld the disallowance after seeking a remand report and receiving no reply from the assessee. The Tribunal found no infirmity in the decision, as the assessee failed to provide any documents to support the claim, leading to the confirmation of the disallowance.

Issue 3: Addition of Rs. 2,00,000 on account of low withdrawal of household expenses
The Assessing Officer added Rs. 2,00,000 to the assessee's income due to low withdrawal for household expenses. The assessee claimed that the wife's income from AOP was used for household expenses. However, insufficient details were provided to substantiate this claim, as no household expenses were shown in the Profit & Loss account. The Tribunal upheld the decision of the Commissioner (Appeals) as there was no evidence to support the claim, resulting in the rejection of the appeal on this issue.

Issue 4: Dispute regarding levy of interest under sections 234A, 234B, and 234C of the Act
The assessee disputed the levy of interest under sections 234A, 234B, and 234C of the Act. However, as the charging of interest under these sections is consequential, no specific adjudication was required. Therefore, the appeal on this issue was not upheld, and the interest charges were maintained as per the relevant sections of the Act.

In conclusion, the Tribunal partially allowed the assessee's appeal on the disallowance of deduction under section 80RR, upheld the disallowance of interest paid to the bank on borrowings, rejected the addition of Rs. 2,00,000 for low withdrawal of household expenses, and maintained the levy of interest under sections 234A, 234B, and 234C of the Act.