LOAN AGAINST FIXED INCOME – NOT A BUSINESS INCOME

[DR.MARIAPPAN GOVINDARAJAN]

In SHRI GANESH MADHUKAR KAMTHE TARWADI VERSUS ITO, WARD 14 (4), PUNE - 2025 (4) TMI 1219 - ITAT PUNE, the assessee is an individual.  He did not file the income tax return.  The Assessing Officer observed from the AIS, Form 26AS contained in the income tax web site, that the assessee-

• has received commission/brokerage from Sandeep Baburao Kamthe – Rs.44,81,237/-;
• purchased immovable property for Rs.35 lakhs;
• made deposits with Bank of Maharashtra.

Since the Assessee did not file return of income, the Assessing Officer from the data indicated above came to a conclusion that there has income escaped assessment.  Therefore, he invoked the provisions of Section 147 of the Income Tax Act, 1961 (‘Act’ for short) after taking prior approval of the competent authority.  The Assessing Officer issued a notice to the assessee on 22.03.2019 under section 148 of the Act.  The said notice was duly served on him.  The assessee did not respond to this notice.  Therefore, the Assessing Officer issued another notice.  In response to this notice the assessee filed the return of income.  He declared the income Rs.17,59,641/- in the return of income filed on 10.08.2019.  In addition, the Assessing Officer issued notices under Section 143(2) and Section 142(1) of the Act to furnish certain details.  The assessee complied with the said notice.

The bank account of the assessee was analysed by the Assessing Officer for the entire year.  The Assessing Officer observed that the assessee-

• made fixed deposits to the tune of Rs.13 lakhs;
• repaid loan of Rs.5,07,619/-;
• paid insurance premium Rs. 12,655/-;
• purchase of land through demand draft – Rs.23,09,047/-;
• purchase of car – Rs.11,35,276/-; etc.

The Assessing Officer computed the total income of the assessee as Rs.71,23,071/-.  He deducted the business income Rs.20,18,900/- from the total income.  The Assessing Officer also determined the income / profit from the activities other than the interest income at Rs. 51,04,171/-.  Since the assessee had already declared income from the partnership firm at Rs. 1,00,319/- and income from business at Rs. 14,64,252/- both totalling to Rs. 15,64,571/-, he made addition of Rs. 35,39,600/- being the difference between Rs. 51,04,171/- and Rs. 15,64,571/-.

The assessee, against this order, filed an appeal before the Commissioner of Income Tax (Appeals)/NFAC.  The First Appellate Authority upheld the order of Assessing Officer on the ground that the assessee failed to furnish any substantial documents to substantiate his claim during the assessment proceedings as well as in appeal proceedings.

Also being aggrieved against the order of the First Appellate Authority the assessee filed the present appeal before the Income Tax Appellate Tribunal (‘ITAT’ for short). The appellant raised the following grounds before the ITAT-

• The Commissioner of Income Tax (Appeals), National Faceless Appeals Centre (‘NFAC’ for short), Delhi erred in dismissing the appeal of the appellant contesting the appeal filed by the appellant against the assessment order passed u/s. 143(3) read with section 147 of the Act dated 23.12.2019 by the Assessing Officer making addition of Rs. 35,39,600/- with the total income thereby assessing the total income at Rs. 52,99,240/-, as against the income declared by the assessee in the return of income filed under section 148 of the Act on 10.08.2019 of Rs. 17,59,641/-. The variation in assessment so made thereby making addition of Rs. 35,39,600/- being arbitrary, illegal and bad-in-law be deleted.
• The First Appellate Authority erred in dismissing the appeal of the appellant thereby confirming the addition made by the Assessing Officer in the assessment order passed under section 143(3) read with section 147 of the Act, dated 23.12.2019 of Rs. 35,39,600/- ignoring and without appreciating the facts that the Assessing Officer had totally ignored or had not duly appreciated the submission and contention of the appellant along with details submitted before him on 17.09.2019 vide submission dated 12.09.2019 during the assessment proceedings wherein the appellant had explained the details of income earned by him and also the expenses incurred in connection with earning of such income. The addition therefore so made by the Assessing Officer duly confirmed by the Commissioner of Income Tax (Appeals) being arbitrary, illegal and bad in law, such addition be deleted.
• The First Appellate Authority erred in dismissing the appeal of the appellant thereby confirming the addition made by the Assessing Officer ignoring and without appreciating the facts that the amount of Rs. 35,39,600/- added to the total income included the estimated household expenses of Rs. 2,00,000/- and also the total expenses of Rs. 20,18,900/- having no basis and further wrongly holding total receipts of Rs. 71,23,071/- in the credits in bank account for this year were not only the commission/brokerage income and interest income but were also the loans/advances received by the appellant by cheques and also the maturity value of the fixed deposits credited therein. Therefore, both the estimation of expenses by the Assessing Officer of Rs. 20,18,900/- and also consideration of income/receipts of Rs. 71,23,071/- being arbitrary, illegal and bad in law, the addition made of Rs. 35,39,600/- be deleted.

The appellant submitted before the ITAT that he had opted his income under Section 44AD of the Act.  The appellant also declared the income under the Income Tax Declaration Scheme, 2016 for the assessment year 2013 – 14 at Rs.14,45,309/- and paid taxes for the said amount.  The appellant gave the break up for the total income Rs.71,23,071/- as detailed below-

• Loan taken from Bank of Maharashtra against fixed deposits – Rs.9,00,000/-
• Unsecured loan from Uttam Kamathae            -  Rs.7,00,000/-
• Receipts from sale of milk        -  Rs.   34,500/-
• Business receipt  - Rs.17,07,334/-
• Commission received  - Rs.37,81,237/-

The appellant further submitted that the Assessing Officer has included the amount of loan taken from Bank of Maharashtra against fixed deposit Rs. 9 lakhs and unsecured loan from Uttam Kamathe at Rs. 7 lakhs as the receipts of the assessee which is not correct.  Therefore, the Assessing Officer was not justified in bringing to tax the amount of Rs. 35,39,600/-. Similarly, the First Appellate Authority was also not justified in upholding the same. He accordingly submitted that the addition made by the Assessing Officer and sustained by the Commissioner of Income Tax (Appeals) be deleted.

The Revenue contended the following before the ITAT-

• The assessee had not filed any documentary evidence before the Commissioner of Income Tax (Appeals) for which he has confirmed the addition made by the Assessing Officer.
• The bank statement and confirmation letter of Uttam Baburao Kamthe were never produced either before the Assessing Officer or before the Commissioner of Income Tax (Appeals).
• The assessee had never produced the statement containing the loan against the fixed deposits before the Assessing Officer or before the Commissioner of Income Tax (Appeals).

Therefore, the Department desired to restore the case before the Assessing Officer for fresh adjudication. 

The ITAT considered the submissions of both the parties.  The ITAT analysed the entire facts of the case with the available records.  The ITAT observed that the assessee has furnished a certificate from the bank towards loan against fixed deposits of Rs. 9 lakhs on 05.01.2013. A perusal of the bank statement of the assessee clearly shows that the assessee has received an amount of Rs. 7 lakhs from Uttam Baburao Kamthe Rs. 7 lakhs from Shri Sandeep Baburao Kamthe and Rs. 9 lakhs from Shri Ganesh Madhukar Kamthe i.e. the assessee (against FD) on 05.01.2013.  The ITAT held that these amounts cannot be considered as business receipts.  The ITAT was of the opinion that there is no point in restoring the issue to the file of the Assessing Officer for adjudication of the issue afresh as argued by the Ld. DR since the figures are crystal clear from the bank statement filed by the assessee. 

The ITAT set aside the order of the Commissioner of Income Tax (Appeals) and directed the Assessing Officer to delete the addition made by it.