9911796707
TMI Blog2015 (10) TMI 2422X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee’s appeal is allowed on this ground Trading addition U/s 68 - credit appearing in the name of Shri Kanha Ram Agarwal - Held that:- It is revealed from the assessment order that Sh. Kanha Ram Agarwal, brother of the assessee has declared additional income U/s 132(4) of the Act on 27/08/2008. IN answer to question No. 22, he has disclosed 1.5 crores during the search under the various heads. It is also fact that the AR of the assessee submitted different confirmation before both the authorities. Now before us, he has filed different confirmations, therefore, the Assessing Officer is directed to verify the confirmation from the books of account of Shri Kanha Ram Agarwal. Accordingly, this issue is set aside to the Assessing Officer for limited purpose to verify and take decision as per law. - Decided on favour of assessee for statistical purposes only. Trading addition by applying GP rate of 15% as against 12.57% declared by the assessee and invoking the provisions of Section 145(3)- Held that:- The defects pointed out by the Assessing Officer are not specific in nature. He has not brought on record any discrepancy in the books of account produced by the assessee but the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The effective grounds of appeal are as under:- "1. Under the facts and circumstances of the case the Assessing Officer has erred in initiating proceedings U/s 153A without having any incrimination material, hence the assessment completed is ab-initio void. 2 Under the facts and circumstances of the case the Assessing Officer has erred in confirming the addition of ₹ 6,69,062/- on account of "Interest paid to bank" without consideration the submission of the assessee and material evidences submitted during the assessment proceedings." 3. Ground No. 1 of the appeal is not pressed, therefore, we dismiss this ground as not pressed. 4. The ground No. 2 of the appeal is against confirming the addition of ₹ 6,69,062/- on account of interest paid to bank. The assessee derived income from share of profit from firm, capital gain and other sources. He filed his return for A.Y. 2008-09 on 30/01/2009 declaring total income of ₹ 34,24,610/-. There was a search and seizure operation conducted in this case on 27/08/2008 U/s 132 of the Income Tax Act, 1961 (hereinafter referred as the Act). Therefore, assessment in this case as passed U/s 153A/143(3) of the Act. The ld Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the overdraft taken to advance loans to other persons outside the family from whom interest was charged. The assessee was maintaining continuous current account with the family members of the firm M/s Carpet Palace from where amounts were withdrawn from time to time to prevent the overdraft from going over the allowed limit. She further held that the overdraft facility was used to grant loans to person other than the family from whom the interest has been declared, though nexus has never been proved whether entire interest reflected in the computation of income was from loans advanced through OD account. Thus the appellant had taken OD facility which was used to advance loans to person other than family members from whom interest was charged and shown as income and also invested in shares and IPO, the income from which is dividend and was not taxable. The appellant did not have any surplus fund with him when he invested the surplus money in the FDRs. The OD taken against the FDRs amount withdrawn from the OD and invested in the IPOs cannot be claimed that the assessee was having surplus fund. The assessee is also not entitled to netting of the interest earned on FDR with interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra Seamless Ltd. (2011) 52 DTR 5 (Del Trib). The case law referred by the Assessing Officer i.e. Cheminvest Ltd. Vs. ITO is dated 05/08/2009 and the case law cited by him are of later date. Therefore, the decision cited by the assessee prevails over earlier decisions. It is further submitted that if there are divergent opinions on an issue the one favourable to the assessee has to be followed. If Section 14A considered by the Assessing Officer is applied, the ld Assessing Officer had to prove the nexus that interest bearing fund was utilized for the purpose of earning of tax free income. The tax free income in the shape of long term capital gain and dividend income was earned out of the funds invested in the earlier years and not from utilizing of the funds withdrawn from OD account. It is settled law that where interest is received by the assessee on his fixed deposit and is also paid on loan obtained on the security of that fixed deposit, only the net interest is chargeable to tax on the principle of mutuality. He relied on the decision in the case of CIT Vs. Dr. V.P. Gopinathan 229 ITR 801 (Ker). Therefore, he prayed to delete the addition. At the outset, the ld DR has vehement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt for the amount referred above. The assessee had not even furnished the confirmation letter alongwith other documents so the primary onus had also not been discharged. In view of this, the ld Assessing Officer made addition of ₹ 6,60,440/- U/s 68 of the Act. 11. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had confirmed the addition by observing that the confirmation of account filed by the assessee in case of Kanha Ram Agarwal showed the opening balance of ₹ 6,40,439/- as on 01/4/2002. To verify the observation of the Assessing Officer in the assessment order, the assessment record was called for, further verifications were made by her. She found that Sh. Kanha Ram Agarwal in the books of account had been submitted during the course of assessment proceedings, a different copy of account, which submitted before her. As per ledger account, the opening balance as on 01/4/2002 was ₹ 4,76,296/- and not ₹ 6,40,439/-. Therefore, it is a case of misrepresentation of fact before her and the submissions being made in the various proceedings of the department are to be fabricated to suit the conve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id. 2. Under the facts and circumstances of the case the Assessing Officer has erred in confirming the addition of ₹ 1,12,021/- on account of "Interest paid to bank" without consideration the submission of the assessee and material evidences, submitted during the assessment proceedings. 3. Under the facts and circumstances of the case the Assessing Officer has erred in sustaining the trading addition of ₹ 1,01,755/- by applying GP rate of 15% as against 12.57% declared by the assessee and invoking the provisions of Section 145(3) of the IT Act, 1961 without consideration the submission of the assessee and material evidences produced during the assessment proceedings." 16. Ground No. 1 of the appeal is not pressed, therefore, we dismiss this ground as not pressed. 17. The ground No. 2 of the appeal is against confirming the addition of ₹ 1,12,021/- on account of interest paid to bank. The assessee derived income from capital gain on transactions in shares and other sources in the form of interest. He filed his return for A.Y. 2008-09 on 28/10/2009 declaring total income of ₹ 9,64,590/-. There was a search and seizure operation conducted in this case on 27 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ₹ 1,12,021/- during the year. The overdraft limit was used to invest in IPOs and shares to the extent of ₹ 7,80,875/- during this assessment year apart from the overdraft taken to advance loans to other persons outside the family from whom interest was charged. The assessee was maintaining continuous current account with the family members of the firm M/s Carpet Palace from where amounts were withdrawn from time to time to prevent the overdraft from going over the allowed limit. She further held that the overdraft facility was used to grant loans to person other than the family from whom the interest has been declared, though nexus has never been proved whether entire interest reflected in the computation of income was from loans advanced through OD account. Thus the appellant had taken OD facility which was used to advance loans to person other than family members from whom interest was charged and shown as income and also invested in shares and IPO, the income from which is dividend and was not taxable. The appellant did not have any surplus fund with him when he invested the surplus money in the FDRs. The OD taken against the FDRs amount withdrawn from the OD and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10) 52 DTR 1 (Del Trib). (iv) DCIT Vs. Maharastra Seamless Ltd. (2011) 52 DTR 5 (Del Trib). The case law referred by the Assessing Officer i.e. Cheminvest Ltd. Vs. ITO is dated 05/08/2009 and the case law cited by him are of later date. Therefore, the decision cited by the assessee prevails over earlier decisions. It is further submitted that if there are divergent opinions on an issue the one favourable to the assessee has to be followed. If Section 14A considered by the Assessing Officer is applied, the ld Assessing Officer had to prove the nexus that interest bearing fund was utilized for the purpose of earning of tax free income. The tax free income in the shape of long term capital gain and dividend income was earned out of the funds invested in the earlier years and not from utilizing of the funds withdrawn from OD account. It is settled law that where interest is received by the assessee on his fixed deposit and is also paid on loan obtained on the security of that fixed deposit, only the net interest is chargeable to tax on the principle of mutuality. He relied on the decision in the case of CIT Vs. Dr. V.P. Gopinathan 229 ITR 801 (Ker). Therefore, he prayed to delete the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses. 22. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had confirmed the addition by observing that the ld Assessing Officer had made specific observations regarding defects of books of account of the appellant. During the course of assessment proceedings, the ld AR of the assessee had not furnished the quantitative details of stock and its valuation was not supported by the purchase bills. These bills are essential for determining the true profit of the appellant even in absence of stock register. Considering that the appellant had consistently failed to furnish the quantitative details of the stock and purchase and sale bills for necessary verification. Therefore she confirmed the rejection of books of account U/s 145(3) of the Act. She further held that regarding estimation of the GP rate the A.O. had relied on the sister concern's GP rate while the AR of the appellant has insisted that its case is different from the sister concerns because he was not exporting his product. In view of this submission and the consistent stand of the Hon'ble ITAT that past history of the appellant is the best guide for determini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oonam Rani (2010) 41 DTR 194 (Del). 24. The ld DR has vehemently supported the orders of the lower authorities. 25. We have heard the rival contentions of both the parties and perused the material available on the record. The defects pointed out by the Assessing Officer are not specific in nature. He has not brought on record any discrepancy in the books of account produced by the assessee but the compared case with M/s Supreme Carpet and Carpet palace who are in the export business. The assessee was trading goods for local market. The case is audited U/s 44AB of the Act as claimed by the assessee. The case law referred the assessee are squarely applicable. Further during the course of search, no incriminating documents were found and seized, therefore, lump sum addition made by the Assessing Officer and partly confirmed by the ld CIT(A) is not justified. Accordingly we reverse the order of the ld CIT(A) and allow the assessee's appeal on this ground. 26. In the result, the assessee's appeal is partly allowed. 27. ITA No. 973/JP/2013 This is an appeal filed by the assessee against the order dated 11/11/2012 passed by the ld CIT(A), Central, Jaipur for A.Y. 2009-10. The sole g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck of roughly 1000 sq. ft value of which cannot be more than ₹ 100 per sq.ft. The ld Assessing Officer after considering the assessee's reply has held that the assessee was asked to prepare trading account to the date of survey and from the date of survey to the year end, but the same was not found complied with. Further the details in respect of purchase and sale have been maintained on monthly basis and proper record of purchases in the form of stock register containing day to day entry was not available. The ld Assessing Officer further relied on the case of Chuharmal Vs. CIT 172 ITR 250 (SC), Dhakeshwari Cotton Mills Ltd. Vs. CIT 26 ITR 775 (SC), Sukh Ram Vs. ACIT (2006) 285 ITR 256 and CIT Vs. Lal Chand Bhabutmal Jain (1985) 151 ITR 360 (Bom). He further observed that that Shri Kanha Ram Agarwal, brother of the husband of the assessee in the statement recorded on oath during the search has categorically admitted to have undisclosed income on account of money lending, share business, gift received in the name of family members etc. excess stock found during search/survey and also surrendered ₹ 1.5 crores on this account. However, he retracted subsequently on the sur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... showed that the purchase bill and sale bill file was available with him during the course of survey. It is held that stock register was not maintained. It has also been mentioned by the auditor that closing inventory was not made available to him in the audit report. The survey report in the case of M/s Supreme Carpet was found in the record, which was being made part of order of ld CIT(A) as Annexure-A. Three significant observations have been made by the ITO in the survey report, which are as under:- (a) The expenses on account of washing, commissions and salary were inflated as per the documents found during the course of survey. (b) The value of the stock of yarn was taken as per the submissions of the assessee but was not supported by purchase bills though the assessee agreed to provide the purchase bills. (c) Valuation of the stock found was taken on the basis of sale value of the carpet less GP rate and the value of the stock was calculated as follows: "Valuation of stock is given as under:- A. Value of carpets finished @ ₹ 303/- (i.e. 7206 sq.ft X ₹ 303 Satevalue GP) ₹ 21,88,418 B. Value of unfinished carpets @ 273 sq.ft as 2932 sq.ft.X ₹ 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was found by the ld Assessing Officer in order but she has disturbed the GP rate. She further relying on the past history of the assessee's case but the same has not been applied as the assessee has shown GP rate @ 26% during the year under consideration as against 25.8% in the immediate preceding year and 15.2% in A.Y. 2007-08. Both the lower authorities are contradicting each other one is accepting the book result another has not accepted the books result even past history has not been considered by the ld CIT(A). The assessee made detailed submissions before the ld CIT(A) on facts, books of account accepted the GP rate. He further submitted that the ld Assessing Officer had made straightway addition of 50% of stock as unexplained and had not provided any opportunity to the assessee as to why 50% of stock was to be treated as unexplained. Therefore, action of the Assessing Officer is against the principles of natural justice. He further argued that stock found at the time of survey at ₹ 43,99,054/- whereas as per stock computed on the basis of books of account was ₹ 42,02,386/-, the difference of ₹ 1,96,668/-was due to wrong measurement of carpet taken at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence that old stock had been sold by the assessee at lower rate, therefore, keeping in view of the facts and circumstances of the case, we confirm the addition of ₹ 2 lacs in case of assessee. The assessee gets relief of ₹ 7,89,668/-. Hence, this ground of assessee's appeal is partly allowed. 33. In the result, the assessee's appeal is partly allowed. 34. ITA No. 989/JP/2013 This is an appeal filed by the assessee against the order dated 11/11/2013 passed by the ld CIT(A), Central, Jaipur for A.Y. 2007-08. The sole effective ground of appeal is as under:- "Under the facts and circumstances of the case the ld CIT(A) has erred in confirming the addition of ₹ 74,837/- on account of "Interest paid to bank" without consideration the submission of the assessee and material evidences submitted during the assessment proceedings." 35. The ld Assessing Officer observed that the assessee derived income from business i.e. proprietory concern M/s Carpet Palace, income from capital gain from shares and income from other sources. The assessee had debited a sum of ₹ 74,837/- in the P&L account under the head interest paid to bank. He found that the assessee had utiliz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd was not taxable. The argument of the assessee was also not found convincing to her because once the appellant had invested the surplus funds in the FDR he no longer had any surplus funds. The netting of interest argument was also not found convincing to her. She further relied on the decision of Hon'ble Jurisdictional High Court in the case of Hamendra Singh Vs. CIT 170 ITR 508 (Raj). Therefore, she confirmed the addition. 37. Now the assessee is in appeal before us. The ld AR of the assessee has submitted that the assessee has positive balance of interest. The assessee has earned short term capital gain of ₹ 60,516/- in addition to dividend income by virtue of investment in share application on account of which interest on OD of ₹ 74,837/- had been disallowed. He further argued that short term capital gain does not come U/s 14A of the Act. The investment made in the shares/IPO out of own capital, which was at ₹ 7,69,78,116/- as on 01/4/2007 whereas the investment in share is much lower. The dividend income of ₹ 24,861 is an incidental on addition of investment in shares. The assessee did not invest for earning dividend income, which is just incidental b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was given reasonable opportunity of being heard on this issue. After considering the assessee's reply by observing that the interest from the FDR is entirely different issue. The assessee own several assets in the balance sheet but they do not have relevance so far as application of fund taken on interest and claim of deduction of such interest from income generated from such assets is concerned. The interest had been paid to the bank on withdrawals used for investment in applications of initial public offer of shares in listed companies. The income from such investments (Dividends) is exempt from tax U/s 10(38) of the Act. Thus, the expenditure on assets income from which is exempt from tax is not allowable under the provisions of Section 14A of the Act. He relied on the decision of ITAT Delhi Bench 'B' Special bench, New Delhi in the case of Cheminvest Ltd. Vs. ITO ITA No. 87/Del/2008 order dated 05th August, 2009. Thus, he made addition of ₹ 3,91,952/-. 43. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had confirmed the addition by observing that the appellant received interest @ 9.75% of ₹ 11,75,63 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing case laws: (i) Yatish Trading Co. P. Ltd. Vs. ACIT (2011) 50 DTR 158 (Mum). (ii) CCI Ltd. Vs. JCIT (2012) 71 DTR 141 (Kar) (iii) CIT Vs. Hero Cycles 323 ITR 518 P&H). (iv) DCIT Vs. Maharastra Seamless Ltd. (2011) 52 DTR 5 (Del Trib). Therefore, he prayed to delete the addition. 45. At the outset, the ld DR has vehemently supported the order of the ld CIT(A). 46. We have heard the rival contentions of both the parties and perused the material available on the record. The net interest income is positive. The assessee has shown short term capital gain of ₹ 6,32,154/- and paid tax on it. The assessee had own capital more than at ₹ 8.14 crores. The intention in applying of the IPO of the assessee may be earning of short term capital gain, long term capital gain or dividend. It depends on various factors to decide the nature of transaction. The ld Assessing Officer has not verified from the balance sheet whether this investment has been taken in stock in trade or in investment. The ld Assessing Officer has not established any direct nexus between borrowings and investment made in the IPO/shares and paid interest on account of OD facility. Therefore, addition made ..... X X X X Extracts X X X X X X X X Extracts X X X X
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