2019 (4) TMI 1054 - AT - Income Tax

Block assessment u/s 158BC 158BD - Addition towards interest earned on pro-notes - accrued interest from such investments and patras - HELD THAT - No merit in the order of the Ld.Revenue Authorities in this regards because the additions are made on the basis of estimate when the Ld.Revenue Authorities could have computed the accrued interest from such investments and patras. Moreover the interest accrued on such investment is not realized by the assessee during the relevant assessment year and if the assessee prefers to account the same on cash basis, the income arising out of such investment will be taxed in the year in which assessee realizes such interest or on the redemption of the bond and the patras. Therefore we hereby direct the Ld.AO to delete the addition Addition towards the business income of the assessee - HELD THAT - Revenue Authorities has not examined the return of income produced before them stated to have been filed by the assessee. It was simply rejected because the acknowledgment numbers of the return of income filed by the assessee did not match with the records maintained by the Revenue authorities. Since the Ld.Revenue Authorities had not conducted proper enquiries on that regard and had simply brushed aside the documents produced by the assessee, we do not find any merit in the stand of the Ld.Revenue Authorities. Therefore we are of the considered view that the addition made by the Ld.Revenue Authorities for ₹ 4,00,000/- towards the business income of the assessee is not warranted. Penalty u/s 271F - AO rejected the reply filed by the assessee in lieu of the notice issued U/s.142(1) that she had filed the return of income belatedly by admitting income claiming an amount as refund - HELD THAT - Revenue Authorities has also not verified the claim of the assessee that she had claimed an amount of ₹ 65,719/- as refund. Therefore we are of the considered view that the penalty levied by the Ld.AO invoking the provisions of Section 271F of the Act is not warranted because it is not conclusively proved that the assessee has not filed her return of income. Hence we hereby direct the Ld.AO to delete the penalty levied Addition by estimating the accrued interest on sundry debtors - HELD THAT - The assessee has only declared ₹ 4,21,490/- as her income in her return of income filed with respect to the relevant assessment year. Since the income declared by the assessee in her return of income is meager there is nothing to suggest that the assessee is maintaining her accounts as per mercantile system of accounting because predominantly her income flows only from huge advance extend which is disclosed as sundry debtors and that has to be enormous in commensurate with the advance extended . The assessee has also claimed that she is maintaining her books of accounts as per cash system of accounting and her declared sundry debtors from which she has to receive substantial revenue as interest. Since the assessee is maintaining her books of accounts as per cash system of accounting we are of the considered view that the addition made by estimating the accrued interest on the sundry debtors by the Ld.Revenue Authorities is not warranted because the same ought to be treated as the income of the assessee in the previous year in which the assessee receives the interest as per cash system of accounting. Addition u/s 14A r.w.r.8D - assessee have claimed no expenditure as deduction - HELD THAT - The assessee is an individual and it appears that she has made the investment based on her own decision without any external or internal aid and from her own interest free funds. In such situation no expenditure could be attributed for making such investment. Moreover there is nothing on record to suggest that the assessee have claimed any expenditure as deduction. When the assessee has not claimed any expenditure there could not have be any expenditure that is attributable towards earning exempt income.Therefore we are of the considered view that no disallowance can be made U/s.14A of the Act or by invoking Rule 8D of the Rules in the case of the assessee. Hence we hereby direct the Ld.AO to delete the addition

Summary

Issues Involved:

1. Addition towards interest earned on pro-notes.
2. Addition towards interest on advances recorded in the computer.
3. Addition towards interest on investments in bonds and Kisan Vikas Patras.
4. Addition towards interest on recurring deposit.
5. Unexplained cash credit.
6. Estimation of business income.
7. Penalty under Section 271F of the Act.
8. Addition towards interest from sundry debtors.
9. Disallowance under Section 14A.

Detailed Analysis:

1. Addition towards interest earned on pro-notes:
The Ld.AO added interest earned on pro-notes by estimating the interest rate at 24% per annum due to certain pro-notes seized during a search operation. The Tribunal directed the deletion of these additions for the assessment years 2004-05 and 2009-10, as the related undisclosed income towards pro-notes was deleted in a previous order.

2. Addition towards interest on advances recorded in the computer:
The Ld.AO added interest presumed to have been earned from advances recorded in the assessee's computer, estimating the interest at 24%. The Tribunal directed the deletion of these additions for the assessment years 2004-05 and 2009-10, as the related undisclosed income towards advances was deleted in a previous order.

3. Addition towards interest on investments in bonds and Kisan Vikas Patras:
The Ld.AO estimated interest accrued towards investments in bonds and Kisan Vikas Patras. The Tribunal directed the deletion of these additions for the assessment years 2004-05 and 2009-10, as the interest was not realized in the relevant assessment year and should be taxed when realized or on redemption.

4. Addition towards interest on recurring deposit:
The Ld.AO added interest income earned on a recurring deposit. The Tribunal directed the deletion of this addition for the assessment year 2004-05, as the interest should be taxed when realized.

5. Unexplained cash credit:
The Ld.AO added unexplained cash deposits in the bank account for the assessment year 2006-07. The Tribunal confirmed this addition as the assessee could not explain the source of the cash deposit.

6. Estimation of business income:
The Ld.AO estimated the business income for the assessment year 2007-08 at ?4,00,000/-. The Tribunal directed the deletion of this addition, treating the amount of ?2,54,470/- as the business income being the admitted amount in the return of income filed by the assessee.

7. Penalty under Section 271F of the Act:
The Ld.AO levied a penalty of ?5,000/- for not filing the return of income for the assessment year 2007-08. The Tribunal directed the deletion of the penalty, as it was not conclusively proved that the assessee had not filed her return of income.

8. Addition towards interest from sundry debtors:
The Ld.AO added accrued interest on sundry debtors. The Tribunal directed the deletion of this addition, as the assessee maintained her books of accounts as per the cash system of accounting, and the interest should be taxed when realized.

9. Disallowance under Section 14A:
The Ld.AO made an addition under Section 14A for investments earning exempt income. The Tribunal directed the deletion of this addition, as there was no evidence of expenditure incurred for earning exempt income, and the investments were made from interest-free funds.

Conclusion:
The Tribunal allowed the appeals of the assessee for the assessment years 2004-05, 2007-08, 2008-09, 2009-10, and 2010-11, directing the deletion of the disputed additions. The appeal for the assessment year 2006-07 was partly allowed, confirming the addition of unexplained cash credit.