2019 (11) TMI 1180 - AT - Income Tax

Unexplained cash deposits - assessee failed to furnish material in support of source of income - CIT-A deleted the addition - HELD THAT - CIT(A) has recorded a finding of fact on examination of the cash flow statement for the year under consideration, as also for the earlier two years and cross verifying it with the entries in the bank statements, find that the entries are recorded in the disclosed bank accounts of the assessee which showed that sufficient cash withdrawals were made by the assessee from his bank account to cover the cash deposit. This finding of fact made by the AO after examination of the cash flow statement for the year under consideration as also for the earlier two years after cross verifying it with the entries in the bank statement could not be dislodged by the departmental representative before us. In such a scenario, we are inclined to uphold the action of the CIT(A) and dismiss the ground of appeal of the revenue. Disallowance u/s. 17(3)(ii) - loan taken from two companies - HELD THAT - CIT(A) has made a clear finding of fact that assessee is not an employee of the two companies namely, M/s. Rolls Print Co. Pvt. Ltd. and M/s. Rolls Print Graphics Pvt. Ltd. which finding of fact has not been challenged by the department before us and since the amounts taken has been admitted by the assessee as given by these companies as loan, the question of this amount falling in the ken of section 17(3)(ii) does not arise Assessee in subsequent year has repaid the said loan to both these companies. Therefore, the amount which the assessee had taken as loan from these two companies does not attract section 17(3)(ii) of the Act and the CIT(A) s action on this score is upheld. Loan taken from the M/s. XPRT Engineered Packaging Solutions Pvt. Ltd., we note that assessee was a whole time director of the said company and has drawn salary from it. Therefore, once the assessee had drawn interest free loan from the said company where he was employed, what is chargeable to tax is only the perquisite value computed in the manner prescribed in Rule 3(7)(i) of the Rules, which is assessable under the head salary . We note that in the aforesaid scenario, the CIT(A) has directed the AO to assess/compute the perquisite value in respect of interest free loan granted by the M/s. XPRT Engineered Packaging solutions Pvt. Ltd. to the assessee in the manner prescribed under Rule 3(7)(i) of the Rules. We find that the action of the Ld. CIT(A) is as per law and need not be interfered with. Business loss derived from non-speculation transactions - HELD THAT - CIT(A) has recorded a finding that since tax audit was conducted in the assessee s case, the date of filing of return of income was 30th September and since the assessee had filed the return of income on 28th September the return of income was not belatedly filed; and he also found that the loss could not be qualified as Speculative, because it was incurred by the assessee in the trading conducted in derivatives and since the derivative trading was carried out through authorized members of the recognized Stock Exchanges, as per clause (d) of the Explanation to section 43(5) it did not constitute Speculative transaction which findings of the CIT(A) is valid and, therefore, the action of Ld CIT(A) in the facts is upheld. Revenue appeal dismissed.

Summary

Issues Involved:
1. Deletion of addition of ?71,16,000/- due to unsubstantiated cash deposits.
2. Deletion of disallowance made by the AO u/s. 17(3)(ii) of the Act at ?1,65,51,054/-.
3. Direction to assess the loss of ?81,50,871/- as business loss derived from non-speculation transactions.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?71,16,000/- Due to Unsubstantiated Cash Deposits:
The revenue's appeal contested the Ld. CIT(A)'s decision to delete the addition of ?71,16,000/- made by the AO. The AO had added this amount under section 68 of the Income-tax Act, 1961, due to the assessee's failure to substantiate the source of cash deposits in his bank accounts at Punjab National Bank (PNB) and HSBC. The assessee explained that the deposits were made from past savings and cash withdrawals intended for a land purchase that did not materialize. The Ld. CIT(A) reviewed the cash flow statements and bank statements, noting that the opening cash balance as of 01.04.2011 was ?44,99,361/-, which was sufficient to cover the deposits. The CIT(A) also verified cash balances from previous years and confirmed that the deposits were substantiated by the assessee's withdrawals from his own accounts. The Tribunal upheld the CIT(A)'s findings, noting that the departmental representative could not dislodge the factual findings, thereby dismissing the revenue's ground of appeal.

2. Deletion of Disallowance Made by the AO u/s. 17(3)(ii) of the Act at ?1,65,51,054/-:
The AO had disallowed ?1,65,51,054/- under section 17(3)(ii) of the Act, considering it as profits in lieu of salary. The AO noted outstanding loan balances from three companies where the assessee was a director. The AO treated these as interest-free loans and included them as income under section 17(3)(ii). The assessee contended that he was a non-executive director and did not draw a salary from these companies, thus not an employee. The CIT(A) partially agreed, stating that only the perquisite value of the interest-free loan from M/s. XPRT Engineered Packaging Solutions Pvt. Ltd., where the assessee was a whole-time director, should be taxed under Rule 3(7)(i) of the Income Tax Rules. The CIT(A) held that loans from the other two companies were not taxable as the assessee was not an employee there. The Tribunal upheld this decision, noting that the revenue did not challenge the factual findings of the CIT(A).

3. Direction to Assess the Loss of ?81,50,871/- as Business Loss Derived from Non-Speculation Transactions:
The AO had disallowed the loss claimed by the assessee, considering it speculative and noting that the return was filed belatedly. However, the CIT(A) found that the return was filed within the due date since the tax audit was conducted, and the loss was from derivative trading through authorized members of recognized stock exchanges, thus not speculative under section 43(5) of the Act. The Tribunal noted that the department had withdrawn these grounds and also found no merit in the appeal on this issue, thereby upholding the CIT(A)'s decision.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions on all grounds. The order was pronounced in the open court on 22nd November, 2019.