Indramal B Jain, Mumbai vs Department Of Income Tax

Date of hearing : 11.02.2015 Date of Order : 20.02.2015 ITA No. 2471/Mum/2012 2 C.O. No. 84/Mum/2013 Assessment Year: 2007-08

ORDER

PER AMIT SHUKLA, JM:

The aforesaid appeal has been filed by the Revenue and Cross Objection by the Assessee, against the order dated 31.01.2012, passed by Ld.CIT(A)-27, Mumbai for the quantum of assessment passed u/s 143(3) for the A.Y. 2007-08.

2. In the grounds of appeal the revenue as challenged the impugned order on following grounds:-

"1. On the facts and circumstances and in law, the Ld. CIT(A) has erred in not considering the AO's remand report on addition on account of 20% of Rs.5,11,926/- on account of expenses at para

(g) of the Remand Report as quoted by the CIT(A).

2. The CIT(A) erred in asking for comments of the AO and not directing for a verification/examination of the claim of the assessee's claim of loan leading to a disallowance of Rs.22,00,234/- on account of interest. Consequently, no verification/examination was done on the claim of loan transaction and interest paid thereon.

3. On the facts and circumstances and in law, the order of the CIT(A) on the above grounds may be restored to the AO for verification as the order was passed u/s 144 of the Act."

3. Brief facts of the case are that, the assessee is an individual carrying on the business of wholesale trading from his proprietary concern, M/s. Jain Enterprises. From the perusal of the assessment order, it is seen that various notices were issued to the assessee, however, no response or compliance was made by the assessee. Accordingly the assessing officer completed the assessment u/s 144, after making the following conditions:-

ITA No. 2471/Mum/2012 3 C.O. No. 84/Mum/2013 Assessment Year: 2007-08

Returned income, as per return. Rs.2,66,836/- Add:-

(a) On account of the interest Rs.22,00,234/-

(b) Any other income for Rs. 14,153/- (c) On account the Rent Rs. 7,85,400/- (d) Unexplained Income Rs. 3,78,544/- (e) 20% of 5,11,926 on Account expenses Rs. 1,02,385/-

--------------------------------- Rs.34,80,716/- Total income Rs.37,47,552/- Rounded off to Rs.37,47,550/-"

4. Before the Ld. CIT(A), the assessee submitted that, all the notices issued by the assessing officer could not be served upon the assessee due to change of address, hence the details required could not be furnished. The assessee thereafter, furnished all the relevant details and evidences explaining the entire transaction on which various additions were made by the AO. Ld. The CIT(A) accordingly forwarded all the documents and evidences to the assessing officer to submit his remand report. The assessing officer vide letter dated 03.11.2011 submitted his remand report which have been reproduced in the impugned appellate order. However, for the sake of ready reference the same are reproduced herein again:-

" The Ld. CIT(A) has sought the comments of the AO n the submissions made by the assessee/AR in the course of appellate proceedings. The comments of the AO are as under:-

(a)The AR's letter dated 14.07.2011 states that the non attendance during assessment proceedings was due to the assessee having shifted from his old address 22. Sai Bhavan, 3rd floor. flat no 33, 12th Khetwadi Back Road, Mumbai -4, to his new address at 1501/A, Sankheshwar Darshan Tower, Behind Mazgaon Telephone Exchange, Lovelane, Byculla, Mumbai -

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400010. It may be mentioned that there is nothing on record to indicate that the change in address was notified by the assessee to the department. Accordingly, reference was made by the AO to the address on record which resulted in no response from the assessee's side and therefore order came to be passed u/s 144.

(b) Assessee has now filed evidences pertaining to the additions made by the AO on the following grounds;

Sr. No. Ground of addition Amount in Rs. a Interest Rs.22,00,234/- b Any other income Rs. 14,153/- c Rend paid Rs. 7,85,400/- d Unexplained income Rs. 3,78,544/- e 20% of Rs.5,11,926/- on a/c of Rs. 1,02,385/- expenses Rs.34,80,716/-

(c) Interest on Loans: As per the assessee the loan WCIS taken on interest for business purpose, The assessee has taken Loan from various parties, For the purpose of substantiation, the assessee has now submitted a copy of loan confirmation and a copy of the TDS deducted. On the face of it, the paper requirement as regards PAN etc was complied with by the assessee. The capacity of the lender in terms of the said documents appears to be recorded and on the basis of the submissions there appears to be no reason to prima facie doubt the genuineness of the said transactions.

(d) Any other income: The assessee has now submitted the ledger account of the transaction. However the assessee had already offered this income to tax in the Rol. Addition by the AO has resulted in double taxation.

(e) Rent paid: The assessee has now submitted the ledger account of the transactions and the rent agreement. On the basis of the record submitted there appears to be no reason to prima facie doubt the genuineness of the said transaction.

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(f) Unexplained income: The AD had added Rs 3.78.544/- on the basis of the TDS details available in the RoI. The assessee has no'l-V submitted the Ledger account of the transactions pertaining to the assessee and(a)Aciel Creations(Rs 3,49,200/-)

(b) S A Jewels (Rs 29,344/-) and (c) Smt. Jayanti I Jain ( Rs 16,043/-). The total of all the three transactions amount to Rs 3,78,544/-.

An amount of Rs 3,78,544/- has been returned as income from other sources by the assessee in his Rol. However, in the column appearing in the Rol pertaining to TDS details, the assessee has claimed that the said amount has been received from Aciel Creations (Rs 3.49,200/-) and one Vimalkumar F Jain (Rs 29,344/-). Therefore it is not clear how the entities from whom the amount has been shown to have been received in the RoI and the entities at (b) and (c) above are the same.

(g) 20% of Rs.5,11,926/- on a/c of expenses. The assessee has submitted the ledger account of the transaction pertaining to the expenses debited to the P&L account. The AO in the assessment order has not specified the individual components which go to form the total of Rs.5,11,926/-. The assessee has submitted a summary and ledger a/c's pertaining to an amount of Rs.7,16,723/- debited to the P/L account. Therefore though the amount of Rs.5,11,926/- is includible in the amount of Rs.7,16,723/-it is uncertain as to which transactions the former amount corresponds to with regard to the submission now made by the assessee."

5. The Ld. CIT(A) after considering the assessee's submission made before him and the contents of the remand report given by the AO, held that the AO has examine the entire material submitted by the assessee and also the assessee's explanation on account of various additions made in the assessment order. The assessing officer in the remand proceeding was satisfied with the assessee's explanation and the evidences and has accepted the assessee's contention on most of the issues. However, the Ld. CIT(A) with regard to addition on account of undisclosed income based on TDS certificates held that in respect of two ITA No. 2471/Mum/2012 6 C.O. No. 84/Mum/2013 Assessment Year: 2007-08

persons, the assessee has not furnished TDS certificate in respect of the interest received, therefore, he confirmed the sum of Rs.45,387/- being un-reconciled income reported in the TDS and income shown in the return of income.

6. Before us, Ld. DR submitted that the assessment order was completed u/s 144 as the assessee did not comply with the and of the notices issued by the AO. Once, the matter was remanded to the AO to examine the evidences filed before the Ld. CIT(A) for the first time, then the Ld. CIT(A) himself should have examined the claim of the assessee, specifically with regard to the loans which had led to disallowance of interest of expenses. With regard to other disallowance of expenses also, Ld. CIT(A) has not given his own findings. Therefore, matter should be restored back to the file of the AO for fresh consideration.

7. Before us, learned counsel, Ms. Natasha Mangat submitted that the there was a reasonable cause for not attending the assessment proceedings as none of the notices issued by the AO could be served upon the assessee due to change of address. Before the Ld. CIT(A), assessee submitted all the necessary information and details and has explained the entire matter duly supported by evidences relating to additions made by the AO. The Ld. CIT(A) has taken note of this fact and has remanded the matter to the AO to examine all the information and details and to submit his remand report. In the remand proceedings, the assessing officer has not only verified the details but has also carried out detail scrutiny. Thereafter, he has given his comments accepting the assessee's explanation which are corroborated by material placed on record. Regarding interest on loans, the assessing officer has categorically held that genuineness of the said transaction ITA No. 2471/Mum/2012 7 C.O. No. 84/Mum/2013 Assessment Year: 2007-08

cannot be doubted. She submitted that, once the loan which was taken in the earlier year have been held to be genuine by the AO in the remand proceedings, then interest paid on such loans cannot be disallowed, specially when TDS has been deducted on payment of the interest to the parties. Regarding disallowance of expenses also, she submitted that the amount of Rs.5,11,926/- on account of which ad hoc disallowance of 20% has been made part of the indirect expenses of Rs.7,16,723/- debited in the P&L Account. Each and every head of expenses was duly explained with evidences and how they were incurred for the business purpose. Some of the major amount have been incurred through cheque. The assessing officer in the remand report has not given any adverse comment except for holding that it is not clear how the assessing officer in the assessment order has taken the figure of Rs.5,11,926/-. Thus, the Ld. CIT(A) findings which is completely based on remand report of the assessing officer should be accepted.

8. We have heard the rival submissions and also perused the relevant material placed on record. It is an undisputed fact that none of the notices issued by the assessing officer could be served upon the assessee due to change of address. Hence the assessment order was completed u/s 144, wherein the AO has added the amount of interest payment and has made ad hoc disallowance of certain expenses and added unexplained income on account of un-reconciled income flowing from the TDS details and as shown by the assessee. Before the Ld. CIT(A), entire details and explanation with regard to each and every addition was submitted before the Ld. CIT(A) along with the written submissions. All these details were remanded to the assessing officer, who has submitted his remand report. The assessing officer in the ITA No. 2471/Mum/2012 8 C.O. No. 84/Mum/2013 Assessment Year: 2007-08

remand proceedings has analyzed each and every details and has given his positive finding on most of the issues stating that the most of the transactions are genuine, specifically relating to interest paid on loans. The content of the remand report has already been reproduced in the foregoing paragraph. So far as disallowance of interest is concerned, it is seen that AO has verified the loan confirmation and the copy of TDS certificate deducted on such a payment. Even the capacity of the lenders has also been accepted. Thus, there is no reason for confirming the disallowance of interest payment made by the assessee to the loan creditors from whom loans were taken in earlier years. Regarding ad hoc disallowance on account of expenses, it is seen that in the remand report the assessing officer has not given any adverse comment with regard to the genuineness of the expenses or has given any adverse comment that they are unverifiable. He has simply stated that it is not clear as to, from where the figure of Rs.5,11,926/- has been taken by the AO in the original assessment order, when the assessee has debited the amount in the P/L account at Rs.7,16,723/-. In the absence of any adverse comment with regard to un-verifiability of expenses, we do not find any reason to sustain any part of the disallowance on ad hoc basis. Thus, the finding of the Ld. CIT(A) which is completely based on remand report of the AO is upheld. Accordingly, the ground raised by the department stands dismissed.

9. Now we will take up Cross Objection filed by the Assessee, vide which the following grounds have been raised:-

1. Under the facts and circumstances of case and in law, the learned Assessing Officer (AD) has erred in objecting the judicious approach adopted by the learned CIT(A) by way of a ITA No. 2471/Mum/2012 9 C.O. No. 84/Mum/2013 Assessment Year: 2007-08

remand report after concluding the remand proceedings in the due course of law.

2. Under the facts and circumstances of case and in law; the learned AO erred in objecting the judicious view taken by the learned CIT(A) regarding the allowance of the legitimate interest expense in his speaking order.

3. Under the facts and circumstances of case and in law; the learned AO erred in making addition of Rs. 45,387 I-on account of unreconciled interest without appreciating facts and by brushing aside the submissions and explanations made during proceedings.

4. Under the facts and circumstances of case and in law; the learned AO has erred in initiating penalty proceedings u/s. 271(1)(c).

5. Under the facts and circumstances of case and in law; the learned AO has erred in levying interest u/s. 234B & 234C of the Act."

10. Ground no. 1 and 2 are in support of the order of the Ld. CIT(A), hence they are treated as infructuous.

11. Regarding addition of Rs.45,387/- on account of un-reconciled interest, learned counsel submitted that, before the assessing officer in the remand proceedings as well as before the Ld. CIT(A), the entire interest income was reconciled and it was submitted that none of the interest income can be held to be unexplained. The learned assessing officer has treated the amount of interest of Rs.3,78,544/- as unexplained merely on account of difference in the figures shown in TDS certificate with that of the income shown by the assessee in the return of income. She drew our attention to the P/L Account enclosed in the paper book and submitted that, sum of Rs.45,387/- has been duly shown as indirect income. She also filed copy of confirmation of account of two parties from whom interest aggregating to Rs.45,387/- was received.

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12. Ld. DR on the other hand strongly relied upon the findings of the Ld. CIT(A).

13. After carefully considering the rival submissions and also on perusal of profit & loss account and confirmation of the accounts as submitted by the learned counsel, we find that in the P/L Account under the head "indirect income", amount of loans received of Rs.45,387/- has duly been credited. Such a payment received is also corroborated by confirmation of account by M/s. S.A. Jewells Mumbai and Jayant I. Jain, wherein details of interest received and also the TDS deducted on such loans has been given. Thus, in wake of these evidences, it cannot be held that interest income shown by the assessee is unexplained income. Accordingly, the assessee's ground no. 3 is allowed.

14. Ground no. 4 relates to initiation of penalty proceedings u/s 271(1)(c), which is premature and hence treated as dismissed.

15. Ground no. 5 relates to levy of interest u/s 234B and 234C, which is consequential in nature, hence same is dismissed.

16. In the result the Cross Objection filed by the Assessee is partly allowed.

17. In the result, the appeal filed by the Revenue is dismissed whereas Cross Objection filed by the Assessee is partly allowed.

Order pronounced in the open court on this 20th day of February, 2015.

Sd/- Sd/- (N.K. BILLAIYA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai, Dated: 20.02.2015 *Srivastava ITA No. 2471/Mum/2012 11 C.O. No. 84/Mum/2013 Assessment Year: 2007-08

Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT(A) Concerned, Mumbai The DR "I" Bench

//True Copy//

By Order

Dy/Asstt. Registrar, ITAT, Mumbai.