Case Law Details

Case Name : Shri Ashok Kumar Rai Vs. The Joint Commissioner of Income Tax (ITAT Bangalore)
Appeal Number : ITA No. 1705/Bang/2016
Date of Judgement/Order : 08/09/2017
Related Assessment Year : 2011- 12
Courts : All ITAT (4230) ITAT Bangalore (193)

In this case AO has made addition merely on the basis of ledger extract filed by the assessee on the assumption that the said payments are interest payments which attracts TDS under the provisions of section 194A of the Act, without conducting further inquiries in the background of the assessee’s claim that the said payments are loss from subscription to chits. The AO should have conducted necessary inquiries before making the dis allowance u/s. 40(a)(ia). The AO has not exercised his option to conduct the necessary inquiries and made the addition purely on suspicion and surmises, based on the ledger extract ignoring the evidence filed by the assessee to claim that the said amount is loss on account of chit which was wrongly booked under the head interest payment to MCI Leasing Ltd. At the same time, the assessee, though claims said payment is not interest, but chit loss, failed to furnish required evidence. If payment to MCI Leasing Ltd. is on account of chit loss, then, the question of TDS does not arise. Consequently, no dis allowance of expenditure u/s. 40(a)(ia). Therefore, we set aside the issue to the file of Assessing Officer and direct him to examine the issue in the light of claim of assessee that the said amount is loss on chit account which does not come under the purview of provisions of section 194A of the Act.

Full Text of the ITAT Order is as follows:-

This appeal filed by the assessee is directed against the order of the CIT(Appeals), Mangaluru dated 28.07.2016 and it pertains to assessment year 2011-12.2. The brief facts of the case are that the assessee is an individual engaged in the business of civil construction, dealer in real estate, petroleum products and allied business, filed his return of income for AY 2011-12 on 30.09.2011 declaring total income of Rs. 25,91,650. The case has been selected for scrutiny and the assessment has been completed us. 143(3) on 27.12.2013 determining total income at Rs.68,96,887 after making additions towards suppression of closing stock, dis allowance of interest relating to other projects, dis allowance of agricultural income, addition towards difference in sale proceeds of flats, dis-allowance of expenses and dis allowance of expenses u/s. 40(a)(ia) of the Income-tax Act, 1961 [“the Act”]. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(Appeals).

3. Before the CIT(Appeals), the assessee has filed elaborate written submissions and challenged all the additions made by the AO. During the course of appellate proceedings, the assessee has withdrawn ground challenging additions made by the AO towards dis allowance of interest relating to other projects and hence, the CIT(Appeals) confirmed the additions made by the AO towards difference of interest. Insofar as additions made towards difference in sale consideration of flats, the assessee has agreed for confirming the additions made by the AO towards difference in sale consideration of flat sold to Shri Jayaram P Shetty, accordingly the same is upheld. Similarly, ground raised challenging the additions made by the AO towards expenses of other projects has been withdrawn. Accordingly, the same has been dismissed.

4. As regards the additions made by the AO towards difference in sale consideration of flat to Shri Nishith Shetty, the assessee has filed the details of ledger account evidencing refund of excess amount collected from the party. Accordingly addition made by the AO towards difference in sale consideration of Rs. 10 lakhs has been deleted. Insofar as additions made towards agricultural income of Rs. 3 lakhs is concerned, the CIT(Appeals) confirmed the dis allowance of agricultural income by  holding that assessee has shown agricultural income which is more than the agricultural income declared for the preceding financial year for which the assessee has not filed any evidence. Though assessee has filed certain land records to claim that he had claimed agricultural income on the basis of additional land which generates agricultural income, those lands are not registered in the name of assessee. Therefore, the AO giving the benefit of doubt to the assessee has made a reasonable dis allowance of Rs. 3 lakhs out of agricultural income of Rs. 20,06,042 and hence dis allowance made by the AO is confirmed.

5. As regards dis allowance of expenditure u/s. 40(a)(ia) of the Act for failure to deduct tax at source, the CIT(Appeals) observed that though assessee claims that amount shown in the name of MCI Leasing Ltd. is not interest payment, but loss on chit amount, assessee failed to furnish any evidence in support of his claim. Therefore, he confirmed the additions made by the AO towards dis allowance of expenditure u/s. 40(a)(ia) of the Act. Aggrieved by the CIT(Appeals) order, the assessee is in appeal before us.

6. The first issue that came up for our consideration is dis allowance of agricultural income. The ld. AR for the assessee submitted that the ld. CIT(Appeals) erred in confirming the dis allowance of agricultural income by holding that assessee has not furnished any evidence, despite the fact that assessee has furnished land holding and also sale bills for having sold agricultural products. The ld. AR referring to the paper book filed submitted that assessee has filed copies of RTC and also filed sale bills, which prove the fact that assessee is having sufficient land to explain the agricultural income declared in the relevant financial year. The ld. AR further submitted that there were additional properties which were acquired, but not registered in assessee’s name, which gives more income in the relevant financial year. The lower authorities without taking into account the additional land holdings by the assessee, merely on the ground that agricultural income declared for the year is more than the income declared in the previous financial year has disallowed on the basis of suspicion and surmises which is incorrect.

7. The ld. DR, on the other hand, strongly supported the order of the CIT(Appeals). The ld. DR further submitted that though assessee claims to have sufficient land holdings to justify agricultural income, on perusal of copies of RTC filed by the assessee, it was noticed that in many RTCs, there was no information of crops grown for the relevant financial year. Therefore, declaration of such huge agricultural income is not supported by sufficient land holdings and also sale bills for having generated such a huge agricultural income. The AO has brought out clear fact to the effect that assessee is not justified in declaration of agricultural income and hence disallowed a reasonable amount of Rs. 3 lakhs which should be upheld.

8. We have heard both the parties and considered relevant material available on record. The AO has not disputed the land holdings which generates agricultural income and also sale bill copies produced filed by the assessee in support of declaration of agricultural income. The AO was of the opinion that agricultural income declared by the assessee is excessive when compared to land holdings by the assessee. We do not find any merit in the findings of the AO for the reason that the AO has not brought any cogent reasons for disallowing part of agricultural income, when he has accepted substantial part of agricultural income declared by the assessee. We further observe that assessee has furnished copies of RTC which shows he is holding more than 14 acres of agricultural land. The assessee also filed copies of sale bills evidencing sale of agricultural crops. All these evidence leads to the conclusion that assessee is having sufficient land holdings to justify declaration of agricultural income. Therefore, we are of the considered view that the AO erred in disallowing part of agricultural income when he has accepted the remaining part of agricultural income by considering the evidence filed by the assessee. Hence, we direct the AO to delete the addition made towards dis allowance of agricultural income.

9. The next issue that came up for consideration is addition towards difference in sale consideration of flat sold to Shri Jayaram P. Shetty. The AO made addition of Rs. 3,50,000 towards difference in sale consideration of flats sold to Shri Jayaram P. Shetty. According to the AO, the assessee has sold a flat No. 001 in Glory Apartment for a sale consideration of Rs. 22 lakhs and the said sale deed was registered on 8.4.2010 vide Document No. MGC-1-134/2010-11. As against the sale consideration of Rs. 22 lakhs, the assessee has transferred an amount of Rs. 18,50,000 to the profit & loss account leaving the remaining consideration of Rs. 3,50,000 under unsecured loan. Therefore, the AO has treated the balance amount of Rs. 3,50,000 as part of sale consideration of flat No.001 and added to the total income of assessee. Before the CIT(Appeals), though the assessee has challenged the additions made by the AO, but agreed with the difference of Rs.3,50,000 on account of sale consideration received for sale of flat No.001 and hence withdrawn the ground raised challenging the addition made by the AO. The facts remain unchanged. The assessee has not brought on record any evidence to disprove the findings of fact recorded by the CIT(Appeals). Therefore, we are inclined to uphold the order of CIT(Appeals) and dismiss the ground raised by the assessee.

10. The next issue that came up for our consideration is dis allowance of expenditure u/s. 40(a)(ia) for failure to deduct tax at source u/s. 194A of the Act. The AO disallowed a sum of Rs. 2,27,964 u/s. 40(a)(ia) for failure to deduct tax at source u/s. 194A on interest payments to MCI Leasing Ltd. It is the contention of the assessee that amount debited in the name of MCI Leasing Ltd. is not interest payments, but loss on subscription to chit, therefore, the provisions of section 194A has no application, consequently the amount cannot be disallowed u/s. 40(a)(ia) of the Act.

11. Having heard both sides, we find force in the arguments of the assessee for the reason that the AO has made addition merely on the basis of ledger extract filed by the assessee on the assumption that the said payments are interest payments which attracts TDS under the provisions of section 194A of the Act, without conducting further inquiries in the background of the assessee’s claim that the said payments are loss from subscription to chits. The AO should have conducted necessary inquiries before making the dis allowance u/s. 40(a)(ia). The AO has not exercised his option to conduct the necessary inquiries and made the addition purely on suspicion and surmises, based on the ledger extract ignoring the evidence filed by the assessee to claim that the said amount is loss on account of chit which was wrongly booked under the head interest payment to MCI Leasing Ltd. At the same time, the assessee, though claims said payment is not interest, but chit loss, failed to furnish required evidence. If payment to MCI Leasing Ltd. is on account of chit loss, then, the question of TDS does not arise. Consequently, no disallowance of expenditure u/s. 40(a)(ia). Therefore, we set aside the issue to the file of Assessing Officer and direct him to examine the issue in the light of claim of assessee that the said amount is loss on chit account which does not come under the purview of provisions of section 194A of the Act. Accordingly, the ground raised by the assessee is allowed for statistical purposes.

12. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.

Pronounced in the open court on this 08th day of September, 2017.

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Category : Income Tax (25012)
Type : Judiciary (9879)
Tags : ITAT Judgments (4409) Section 194A (22) TDS (892)

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