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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD


TAX APPEAL No. 50 of 2011



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THE COMMISSIONER OF INCOME TAX - Appellant(s)

Versus

RANCHHOD JIVABHAI NAKHAVA - Opponent(s)

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Appearance :
MRS MAUNA M BHATT for Appellant(s) : 1,
None for Opponent(s) : 1,
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CORAM :
   

HONOURABLE THE ACTING CHIEF JUSTICE MR.BHASKAR BHATTACHARYA
   

and
   

HONOURABLE MR.JUSTICE J.B.PARDIWALA



Date : 20/03/2012

ORAL ORDER

(Per : HONOURABLE THE ACTING CHIEF JUSTICE MR.BHASKAR BHATTACHARYA)


This Appeal under Section 260A of the Income Tax Act, 1961 is at the instance of the Revenue and is directed against the order dated 25th August 2010 passed by the Income Tax Appellate Tribunal, Rajkot Bench, Rajkot in I.T.A.No.710/RJT/2010 for the Assessment Year 2006-07, by which the Tribunal has dismissed the appeal preferred by the Revenue and has affirmed the order passed by the Commissioner of Income Tax (Appeals).


Being dissatisfied, the Revenue has come up with the present Appeal.


The only question that arise for determination in this Appeal is, whether the Tribunal below committed substantial error of law in confirming the decision of the Commissioner of Income Tax (Appeals), by which the said appellate authority deleted addition of Rs.15 lac made on account of alleged unexplained income under Section 68 of the Income Tax Act by the Assessing Officer.


The following facts are not in dispute :


The assessee is an individual and is engaged in the business of trading of iron scrap. In the Accounting Year in question, the assessee claimed to have taken the following loans :

      (1) Smt. Manjula J. Shah Rs.4 lac

      (2) Shri Mital J. Shah Rs.3 lac

      (3) Shri Vaibhav J. Shah Rs.8 lac


During the course of proceeding, the assessee had produced confirmation letters from these depositors and the photocopy of their PAN card. It further appears that the assessee had received loans by Accounts Payee Cheque from these three persons.


The Assessing Officer, without verifying whether those three creditors in their respective income tax return had shown those transactions, decided to examine those three persons under Section 131 of the Income Tax Act. Those persons stated that before receiving the cheques, the assessee had given cash to them which was deposited in the account of M/s.Vaibhav Enterprises on different dates, and against that, they had received cheque and out of that balance they had deposited the money with the assessee.


The assessee was given opportunity to cross-examine two of the lenders. In the cross-examination, both the lenders had confirmed giving loan to the assessee, and in response to the question of the assessee about the source of the money, it was stated that they had received cash from the assessee which they had deposited in M/s.Vaibhav Enterprises and from that account cheques were issued in favour of the lenders, and in turn, the lenders issued cheques and deposited with the assessee. They, however, confirmed that signature and address on the confirmation letters were theirs. They further stated that they did not know the assessee but the father of Mital J.Shah & Vaibhav J.Shah and the husband of Manjula Shah knows the assessee.


The Assessing Officer issued a show-cause notice, which was replied by the assessee stating that the assessee had produced confirmation letters of the lenders who are assessed to tax and had given their passbooks and it was also stated that they had received loan from M/s.Vaibhav Enterprises and the source of money deposited by them is a loan from M/s.Vaibhav Enterprises. He further stated that as all those persons, the lenders as well as the persons who had deposited the money in his bank account and issued cheques in favour of the assessee are all assessed to income tax, therefore, the assessee cannot be asked to prove the source of money.


The Assessing Officer, however, on consideration of the above facts, added Rs.15 lac in the hand of the assessee under Section 68 of the Act.


Being dissatisfied, the assessee preferred appeal before the Commissioner of Income Tax (Appeals) and the said appellate authority, on consideration of the above materials, came to the conclusion that all the three lenders and other entity, namely, M/s.Vaibhav Enterprises, of which Jayendra Kanji Shah was the proprietor, are assessed to income tax regularly and the Assessing Officer did not examine the books of account of M/s.Vaibhav Enterprises. The appellate authority further came to the conclusion that suddenly the lenders made confessional statement to the Assessing Officer that the appellant had given them money and the same were deposited in the bank account; however, later on, they had stated that the money was given by some other person whom they did not know. According to the Commissioner of Income Tax (Appeals), the statement of the lenders were full of inconsistency and incongruity and thus it was not a fit case of believing those persons.


The Commissioner of Income Tax (Appeals), thus, deleted the said amount.


Being dissatisfied, the Revenue preferred appeal before the Commissioner of Income Tax (Appeals) and by the order impugned, the Tribunal has affirmed the order passed by the Commissioner of Income Tax (Appeals).


Being dissatisfied, the Revenue has come up before us.


After hearing Mrs.Bhatt, the learned advocate appearing on behalf of the appellant and after going through the materials on record, we are unable to accept her contention that in this case the Revenue has discharged its onus and it was for the assessee to further prove the genuineness and creditworthiness of the creditors.


In our view, once the assessee has established that he has taken money by way of accounts payee cheques from the lenders who are all income tax assessees whose PAN have been disclosed, the initial burden under Section 68 of the Act was discharged. It further appears that the assessee had also produced confirmation letters given by those lenders.


Once the Assessing Officer gets hold of the PAN of the lenders, it was his duty to ascertain from the Assessing Officer of those lenders, whether in their respective return they had shown existence of such amount of money and had further shown that those amount of money had been lent to the assessee. If before verifying of such fact from the Assessing Officer of the lenders of the assessee, the Assessing Officer decides to examine the lenders and asks the assessee to further prove the genuineness and creditworthiness of the transaction, in our opinion, the Assessing Officer did not follow the principle laid down under Section 68 of the Income Tax Act.


If on verification, it was found that those lenders did not disclose in their income tax return the transaction or that they had not disclosed the aforesaid amount, the Assessing Officer could call for further explanation from the assessee to prove the genuineness of the transaction or creditworthiness of the same. However, without verifying such fact from the income tax return of the creditors, the action taken by the Assessing Officer in examining the lenders of the assessee was a wrong approach. Moreover, we find that those lenders have made inconsistent statement as pointed out by the Commissioner of Income Tax (Appeals) and in such circumstances, we find that both the Commissioner of Income Tax (Appeals) and the Tribunal were justified in setting aside the deletion as the Assessing Officer, without taking step for verification of the Income Tax Return of the creditors, took unnecessary step of further examining those creditors. If the Assessing Officers of those creditors are satisfied with the explanation given by the creditors as regards those transactions, the Assessing Officer in question has no justification to disbelieve the transactions reflected in the account of the creditors. In other words, the Assessing Officer had no authority to dispute the correctness of assessments of the creditors of the assessee when a co-ordinate Assessing Officer is satisfied with the transaction.


We, thus, find that in the case before us the Tribunal below rightly set-aside the deletion made by the Assessing Officer, based on erroneous approach by wrongly shifting the burden again upon the assessee without verifying the Income Tax return of the creditors. The position, however, would have been different if those creditors were not income tax assessees or if they had not disclosed those transactions in their income tax returns or if such returns were not accepted by their Assessing Officers.


No substantial question of law is, thus, involved. We find no merit in this Appeal and the same is dismissed.


(Bhaskar Bhattacharya, Acting C.J.)


(J.B.Pardiwala, J.)

/moin

   
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Well, Bajrang Oil Mills v. ITO [2007] 163 Taxman 154/295 ITR 314 (Raj.) was in the context of s. 44AB which reads as follows:

44AB.  5 Every person,—
          (a)  carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds  6 [sixty lakh rupees] in any previous year  7 [***]; or
          (b)  carrying on profession shall, if his gross receipts in profession exceed  8 [fifteen lakh rupees] in any  9 [previous year; or
          (c) carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under  10 [section 44AE ]  11 [or section 44BB or section 44BBB], as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any  12 [previous year; or]]  13 [***]
      14 [(d)  carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AD and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his business and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year,]
get his accounts of such previous year  15 [***] audited by an accountant before the specified date and  16 [furnish by] that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed

The High Court held as follows:

23. Having given our careful consideration to the rival submissions and looking to the object with which the provisions have been enacted, it appears that the maximum limit of Section 40 lakhs has been fixed in the case of every person who is carrying on business and whose total receipts exceed from his business activity which came under the head 'Income from the profit and gains from the business' has to be viewed as one integrated whole and not independently. The assessment of a person is on the total income and not on the income derived from the different sources separately. The three expressions used by the legislation, the total "sales", "turnover" or "gross receipts" though not defined under the Act, in the ordinary sense refers to the volume of the business to which it relates and which is/are carried on by the assessee and in making assessment of profits and gains from the business whether such volume is a part of the business concerns trading in commodities or otherwise the business activities where the assessee has to indulge in incurring cost before receiving the amount in relation to that business or he is carrying on other business activities in which the cost factor is excluded by the assessee and what he is receiving as charges for the work done by him, like job work, where the raw material is provided by the other manufacturer, the assessee is merely to relate his receipts to labour charges or procuring cost incurred by him along with part of his profit. It is in that sense that business which is carried on by the assessee has to be taken into totality. It may be noticed that the "sales", "turnover" or "gross receipts" are not words of art used in relation to any individual transaction independently but has been used as "sales", "turnover" or "gross receipts". The expression 'total' qualifies all the other three expressions viz. 'sales', 'turnover' and 'gross receipts'. Total sales indicate the aggregate price of the sales of commodities carried out by the assessee as a trading business. Obviously, it would not include such transfer of immovable or movable property by way of investment. Similarly, where the assessee is not merely selling the movable commodities, but relating to other trading activities e.g. where assessee is a land developer and he is engaged in business of acquiring land developing it and selling houses or purchasing or is indulged in leasing business or is indulged in stock market so on and so forth, the expression "turnover" is made out to denote receipts from such activities. There may be third or residuary category which may not be termed properly a trading activity yet it is carrying on as business activity like job works for others, without himself being the manufacturer and selling such manufactured goods, or running a motor service garage, for the receipts of such business can aptly termed as receipts of firm. However, integral relation of receipts by a person from business, does indicate that it refers to revenue receipts only and do not include capital receipts and certainly not the receipts which are not relatable to business and may fall under the expression income to be subjected to tax as income from sources other than 'profits or gains from business, profession or vocation.

As one can see, the context of the observations was totally different. There is a marked departure in the language of s. 44AD and s. 44AB. S. 44AD refers to the turnover of the "eligible business" while s. 44AB applies refers to the turnover/ with respect to the turnover/gross receipts of the (whole) business. 

[on account of such business]

Section 44AD reads as follows:

Special provision for computing profits and gains of business on presumptive basis.

44AD. (1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession".

.....
.....

Explanation.—For the purposes of this section,—

          (a)  "eligible assessee" means,—

       (i)  an individual, Hindu undivided family or a partnership firm, who is a resident, but not a limited liability partnership firm as defined under clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009) 27a ; and

      (ii)  who has not claimed deduction under any of the sections 10A, 10AA, 10B, 10BA or deduction under any provisions of Chapter VIA under the heading "C. - Deductions in respect of certain incomes" in the relevant assessment year;

          (b)  "eligible business" means,—

       (i)  any business except the business of plying, hiring or leasing goods carriages referred to in section 44AE; and

      (ii)  whose total turnover or gross receipts in the previous year does not exceed an amount of  28 [sixty lakh rupees]."

So, s. 44AD is "eligible business" based.

Thank you Mr Natarajan...however my question was different... the property was on rental for less than 300 days and hence WT would obviously be applicable. But my question was more about whether any property can be shown as self-occupied irrespective of the reality, and if yes, then can this be changed from year to year at the option of the assessee?

I'll look up the provisions and revert. Don't have access to the WT Act at the moment.

I take it that the assessee filed a ROI and complied with the s. 143(2) notices without any protest. There are judgements that an additional ground challenging the reopening can be raised at any time. Also, in NTPC 229 ITR ?, the assessee had offered the income to tax and then raised a dispute before the Tribunal. The SC held that the duty was to assess as per the law and there could be no estoppel.

Applying this principle, GKN does not suggest that the non-filing of objections is an acquiescence to the reopening.

The judgements on additional ground to challenge the reopening will be on the point. Can't recollect off-hand. Let me know if you can't find them. 

Well, the "capital asset" that you are seeking to transfer are the rights under the agreement to purchase. As the agreement was entered into more than 3 years ago, the capital asset is held for more than 3 years and the gains will be a LTCG. The earnest money and the other payments paid by you is the cost of the asset. This is settled by the judgements in Sterling Investment Corporation Ltd. (1980) 123 ITR 441 (Bom) & several others.

Well it is a good thing that you noticed it before the I. T. authorities did. I suggest the following:

(i) Pay up the due taxes and interest. Then file the returns for all the years. Some years may be within the time limit. Some may be beyond.

(ii) Where the returns are beyond time, write a letter to the AO pointing out that you have voluntarily file the ROIs and that he should regularize it by issuing appropriate notices u/s 17 of the W. T. Act.

(iii) As you have voluntarily disclosed the wealth, paid taxes and interest, your bona fides will be established & you will be spared of penalty & prosecution. For the motor car, you can take the insurance value. The jewellery can be got valued by a valuer. 

(iv) On the point of valuation, you can go by the "ready reckoner" and sale instances in and around your locality. If you feel that these are high, get a valuation report from a Govt. approved valuer who will identify the deficiencies in your property and value it accordingly.

Of course you should. It is a good judgement. U/s 139(5) a revised return can be filed at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. The sooner the better.

S. 115BBD reads as follows:

Tax on certain dividends received from foreign companies.

115BBD. (1) Where the total income of an assessee, being an Indian company, for the previous year relevant to the assessment year beginning on the 1st day of April, 2012 includes any income by way of dividends declared, distributed or paid by a specified foreign company, the income-tax payable shall be the aggregate of—

          (a)  the amount of income-tax calculated on the income by way of such dividends, at the rate of fifteen per cent; and

          (b)  the amount of income-tax with which the assessee would have been chargeable had its total income been reduced by the aforesaid income by way of dividends.

(2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of this Act in computing its income by way of dividends referred to in sub-section (1).

(3) In this section,—

           (i)  "dividends" shall have the same meaning as is given to "dividend" in clause (22) of section 2 but shall not include sub-clause (e) thereof;

          (ii)  "specified foreign company" means a foreign company in which the Indian company holds twenty-six per cent or more in nominal value of the equity share capital of the company.

The dividends will become a part of the gross total income and will be eligible for Chapter VI-A deduction in the normal course. S. 115BBD (2) provides that "no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of this Act in computing its income by way of dividends".

The Chapter VI-A deduction is not allowed "in computing income by way of dividends. In fact, it is after the income by way of dividends is computed that it enters the GTI. The Chapter VI-A deduction is allowed thereafter, in computing the total income.

I am afraid the employer may be right. S. 192 imposes an obligation on the employer and does not give him an option to not deduct tax at source. S. 192 (2B) reads as follows:

[(2B) Where an assessee who receives any income chargeable under the head "Salaries" has, in addition, any income chargeable under any other head of income (not being a loss under any such head other than the loss under the head "Income from house property") for the same financial year, he may send to the person responsible for making the payment referred to in sub-section (1) the particulars of—

             (a)   such other income and of any tax deducted thereon under any other provision of this Chapter;

             (b)   the loss, if any, under the head "Income from house property",

in such form and verified in such manner as may be prescribed28, and thereupon the person responsible as aforesaid shall take—

               (i)   such other income and tax, if any, deducted thereon; and

             (ii)   the loss, if any, under the head "Income from house property",

also into account for the purposes of making the deduction under sub- section (1) :

Provided that this sub-section shall not in any case have the effect of reducing the tax deductible except where the loss under the head "Income from house property" has been taken into account, from income under the head "Salaries" below the amount that would be so deductible if the other income and the tax deducted thereon had not been taken into account.]

As you can see, the employer can increase the tax deductible but he cannot reduce (except where the loss is from house property) the tax deductible.

If your concern is that the employer will deduct and not pay up to the Govt, you don't have to worry because you get an indemnity from paying up the TDS. Just keep your Form 16 handy.

Is assessee liable to deduct TDS on payment made to any bank for commission on use of credit card ?????

The answer is Yes. Section 194H of the Act makes it clear that there has to be TDS on commission. Where is the doubt?

S. 54 reads as follows:

Profit on sale of property used for residence.

54. [(1)] [ 1[Subject to the provisions of sub-section (2), where, in the case of an assessee 2 being an individual or a Hindu undivided family], the capital gain arises from the transfer of a long-term capital asset 3 [***], being buildings or 4 lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property" (hereafter in this section referred to as the original asset), and the assessee has within a period of 5 [one year before or two years after the date on which the transfer took place purchased 6 ], or has within a period of three years after that date constructed, a residential house, then], instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,—

           (i)  if the amount of the capital gain 7 [is greater than the cost of 8 [the residential house] so purchased or constructed (hereafter in this section referred to as the new asset)], the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or

          (ii)  if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain.

You will "transfer" your flat in April 2012. So, the cut off date for purchase of one year prior to the date of transfer is April 2011. Any purchase earlier to that date will not be eligible. As your house is still under construction and you have not occupied it, you cannot be said to have "purchased" it till either the deed of conveyance is executed or you take possession. As that hasn't happened till date, you have nothing to worry about. 

S. 80-IA reads as follows:

Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business for ten consecutive assessment years

Is our example correct? The dividend income is exempt from tax. So, your Gross Total Income will be a loss of Rs. 60.

Lets assume that you had some other taxable income of Rs. 100. If this was non-business income, then you would be in trouble because s. 70 requires that a profit under one head has to be set off against the loss under the same head. The result is that your income under the head "Profits & gains" will be a loss of Rs. 60. This can be set off against the other income of Rs. 100. However, the GTI would *not* include the profits derived from the eligible undertaking.

Well s. 220(1) provides that the demand has to be paid within 30 days of service of the notice of demand. Failure to do so renders the assessee in default and the department is entitled to exercise coercive measures against him.

The pendency of the appeal before the CIT (A) does not mean that the demand does not have to be paid though S. 220(6) empowers the AO to treat the assessee as not being in default if a stay application is filed.

I suggest you pursue the stay application and come to terms with the department. Typically, the department will demand that you pay 50% of the demand though if you bargain hard and have a good case on merits, you may be able to reduce the amount. You may have to provide some security to the department.

(i) S. 143 (2) applies

"Where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer shall ...."

As no ROI has been furnished, the s. 143 (2) notice is invalid.

(ii) S. 148 provides that:

"Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve82 on the assessee a notice requiring him to furnish within such period, 83[* * *] as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be84, apply accordingly as if such return were a return required to be furnished under section 139"

So, the assessee ought to have filed a ROI u/s 139 (1)

(iii) S. 144 reads as follows:

"If any person—

          (a)  fails to make the return required 46[under sub-section (1) of section 139] and has not made a return or a revised return under sub-section (4) or sub-section (5) of that section, or

          (b)  fails to comply with all the terms of a notice issued under sub-section (1) of section 142 47[or fails to comply with a direction issued under sub-section (2A) of that section], or

          (c)  having made a return, fails to comply with all the terms of a notice issued under sub-section (2) of section 143,

the 48[Assessing] Officer, after taking into account all relevant material which the 48[Assessing] Officer has gathered, 49[shall, after giving the assessee an opportunity of being heard, make the assessment50] of the total income or loss to the best of his judgment and determine the sum payable by the assessee 51[* * *] on the basis of such assessment"

As there has been a failure on the assessee's part to file a ROI u/s 139(1), the AO can make a BJ assessment.