Case Law Details

Case Name : CIT Vs Shri S. Ganesh
Appeal Number : Appeal No.1930 OF 2011 (High Court Bombay)
Date of Judgement/Order : 18/03/2014
Related Assessment Year : 2006-07
Courts : All High Courts (6281) Bombay High Court (1092)


  • Addition on account of information of AIR & just because can’t reconcile source of income is not justified for addition in hie total income
  • Being 2nd holder of investments & all receipts received by 1 st holder…then explanation & addition regarding such investments is to be done on such 1 st holder.
  • To maintain bank accounts & spending in other process to receive exempt income, then such spending is to be on appropriate basis of calculation to be disallowed.

Fact of the Case:

The assessee is an Advocate by profession and filed his return of income on 8.12.2006 declaring total income of ` 4,96,57,940/-. The Assessing Officer during the course of assessment proceedings asked the assessee to explain the sources of investments made in various mutual funds and reconcile the same with the AIR information as well as co-relate the payments with the assessee’s bank account. The Assessing Officer noted that the assessee has failed to explain the source of investment in respect of the following mutual funds totalling to Rs. 4.75 crores:

Name of the mutual fund          Date                            Amount

HSBC                                       9.5.2005                      50,00,000

DSP                                         30.5.2005                     50,00,000

SBI                                           14.2.26                          25,00,000

HDFC                                      6.4.2005                      1,00,00,000

TATA                                       5.4.2005                      2,00,00,000

HDFC                                      6.4.2005                      50,00,000

TOTAL                                                                   4,75,00,000

 1. In absence of any satisfactory explanation by the assessee with supporting evidences, the Assessing Officer made the addition of ` 4.75 crores as unexplained

2. The Assessing Officer asked the assessee to furnish party-wise details of professional fees received during the year under consideration and reconcile the same with TDS certificates. He also requested the assessee to reconcile the professional fees received by the assessee as per AIR information. The assessee, vide letter dated 8.10.2008 submitted that all professional fees are received by way of cheques and all such cheques received are deposited in his HDFC account. It was further submitted that professional receipts disclosed by the assessee are more than the receipts shown in AIR information and accordingly, there is no discrepancy. The assessee also expressed his inability to furnish party-wise details of professional fees received during the year under consideration. The Assessing Officer noted that 40 items amounting to`Rs. 47,37,000/- as per page 3 & 4 of the assessment order has not been disclosed as professional fees receipts in respect of the said parties. Since the assessee could not furnish party-wise details of professional fees received during the year and also could not reconcile with the AIR information, except by giving vague reply stating that the professional receipts disclosed by him are much more than the professional receipts shown in the AIR information and in the absence of any satisfactory explanation, the Assessing Officer made an addition of Rs. 47,37,000/- being professional fee not disclosed by the assessee as per AIR information.

3. The Assessing Officer further noted that the assessee has disclosed dividend income of ` 6.39 crores as exempt from tax. The Assessing Officer asked the assessee to compute the disallowance u/s 14A as per Rule 8D. It was submitted by the assessee that the expenditure claimed by him as deduction relates purely to professional activities and no part of the expenditure relates to his dividend income which is not taxable and therefore, provisions of sec. 14A and Rules 8D have no application. However, the Assessing Officer was not satisfied with the explanations given by the assessee. Following the decision of the Hon’ble Supreme Court in the case of Distributors Baroda Pvt Ltd reported in 155 ITR 120 and the decision of the Tribunal in the case of Gherzi Eastern Ltd in ITA No.6562/Bom/94 dated23.9.2002, the Assessing Officer disallowed an amount of ` 50,000/- on estimate basis u/s 14A of the I T Act as expense attributable to exempt income.

 Judgement of Reputed ITAT:

The assessee has deposited all his professional receipts in one bank account only and since all the fees are received by cheques which came from the clients directly or from the Instructing advocates or CAs, if they have collected the amounts from the clients and since no other bank account is maintained by him wherein professional fees are deposited and since the amount returned in the audited accounts is more than the fees as per the AIR information; therefore, no addition is called for. We find sufficient force in the above submissions of the assessee.Admittedly, the revenue has not controverted the submissions of the assessee before the Assessing Officer during the assessment proceedings as well as remand proceedings that all professional fees received are by way of cheques and all such cheques have been deposited in his Oriental Bank of Commerce Account, South Extension Branch, New Delhi (vide letter addressed to Assessing Officer on 8.10.208). Therefore, in absence of any contrary material brought by the revenue authorities that the assessee has received amount more than the professional fees than what has been declared by him, no addition should have been made. It is also a fact that the professional income declared by the assessee far exceeds the professional fees as per AIR information. There may be so many reasons such as low deduction of tax, non-deduction of tax, deduction on account of reimbursement of expenses etc., for which the figure as per the AIR may not tally with the income declared by the assessee on account of professional fees from various clients. Further, it has categorically been explained by the assessee that it is not practically possible to give detailed party wise breakup of fees receipts since the assessee received his fees either directly from the clients or from the instructing advocates or CAs, if they have collected the amounts from the clients. Similar explanation have been accepted in the past in scrutiny assessment and no addition has been made, a fact already brought on record. In this view of the matter, we find sufficient force in the submissions made by the assessee that no addition is called for on this account.

The grounds of appeal sustaining the addition of Rs. 75 lacs on account of investment for mutual funds was answered by ITAT as follows:

The Assessee submitted that the investment in DSP Black Rock mutual fund was purchased by his father Mr K R Srinivasan and his name was appearing as joint holder. Referring to page 29 of the paper book, he submitted that investment of Rs. 25 lacs in SBI Blue chip mutual fund stands in the name of Smt S Rajalakshmi, his mother and he is the second holder. since Shri K R Srinivasan and Smt S Rajalakshmi are separately assessed to income tax and since the money has gone through their bank account and since the investments are made by them and their names appears as 1st holder and he is only the 2nd holder, therefore, no addition should have been made. Since the identity of these person are established and they are assessed to income tax; therefore, addition, if any could have been made in their hands only on account of unexplained investments and not in the hands of the assessee.

The assessee has challenged the order of the CIT(A) in confirming the addition of Rs.  50,000/- made by the Assessing Officer u/s 14A was answered by ITAT as follows

The total dividend income received by the assessee and claimed to be exempt is 6.39 crores. Although the dividend income may be directly credited to his bank account still, some time is devoted by the assessee for monitoring the accounts tracking the investment as well as reinvestments during the year. Therefore, it cannot be said that no part of the expenditure is attributable to such dividend income. Further, the expenditure disallowed by the Assessing Officer at. 50,000/- appears to be very reasonable considering the volume of dividend income. In this view of the matter, we do not find any infirmity in the order of the CIT(A) sustaining the disallowance of 50,000/- made by the Assessing Officer. The ground raised by the assessee is accordingly dismissed.

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