TMI Blog2011 (9) TMI 538X X X X Extracts X X X X X X X X Extracts X X X X ..... not mentioned in notice issued under 148 - Gifts from NRI relatives as income of assessee - Held That:- In view of the explanation 3 to section proviso to section 147, the assessment of gift as income of the assessee under section 56(1) (V) is justified. - ITA No.960/Hyd/2010 - - - Dated:- 23-9-2011 - G C Gupta, VP and Chandra Poojari, JJ. Appellant Rep by: Shri V Raghavendra Rao Respondent Rep by: Shri T Diwakar Prasad Per: Chandra Poojari: This appeal preferred by the assessee is directed against the order passed by the CIT(A)-V, Hyderabad dated 16.4.2010 and pertains to the assessment year 2005-06. 2. The first ground in this appeal is with regard to reopening of assessment u/s 147 of the Income Tax Act. 3. Brief facts of the issue are that the assessee has filed return of income for the assessment year 2005-06 on 30.7.2005 declaring an income of Rs.3,58,220/-. This return was processed u/s 143(1) on 24.11.2005. Later, a notice u/s 148 was issued and served on the assessee on 27.3.2007 recording for reasons for reopening of the assessment as follows: Reasons for reopening of assessment u/s 147: It is seen from the liabilities as per balance she ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icals Ltd. Vs. CIT (273 ITR 353) (Cal. HC) interest on unutilised funds borrowed from financial institutions where there was no nexus between the purpose for which monies were borrowed and the purpose for which they were utilised. The interest received was on funds borrowed from on financial institutions before commencement of the business. The purpose of borrowal was for construction of the project. The interest income was from their deposit with the bank pending utilisation. This is a case of investment before commencement. Therefore this decision is distinguishable. (ii) In the case of UP State Brassware Corporation Ltd. Vs. CIT (277 ITR 40) (Allahabad HC), also there is no connection between the purpose for which loans were borrowed that is seed loan for industrial estate and the utilisation of the borrowals. The court observed that admittedly the industrial estate has not come into existence during the assessment year in question. Therefore the ratio of this case is also distinguishable. This also is a case of investment before commencement of business. (iii). In the case of CIT Vs. Punjab State Warehousing Corporation (317 ITR 288) (P H HC) the question of law was on w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the project and the interest would have been paid even it if had not been invested. Therefore, the interest could not be said to have been laid out or expended for the purpose of earning the income and particularly when the interest paid was eligible for being capitalised it would not come within the purview of section 57(iii). (ii). UP State Brassware Corporation Ltd. Vs. CIT (277 ITR 40) (Allahabad HC), wherein held that the interest paid on seed loan for industrial estate could not be allowed as a deduction u/s 57 of the Act as the same had not been expended for earning the interest which had been assessed u/s 56 of the Act. (iii). CIT Vs. Punjab State Warehousing Corporation (317 ITR 288) (P H HC) wherein held that the term purpose referred to be clause (iii) of section 57 was relatable to the activity of the assessee in earning income by extending loans to its employees. The deduction conceived of under clause (iii) of section 57 was relatable only to expenditure incurred for the said purpose . It was not the case of the assessee, and in fact could not be its claim, that the interest paid by it to NABARD was an expenditure incurred by it for the purpose u/s 57 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from assessment. 9. The next ground is that the CIT(A) erred in upholding the disallowance of interest expenditure incurred on the loan borrowed from the ICICI Bank as housing loan which was directly deposited with the company for interest. He has failed to appreciate that the expenditure incurred was for purpose of earning income and therefore allowable u/s 57 (iii) of the Act. 10. The learned counsel for the assessee submitted that the Assessing Officer wrongly disallowed the interest amounting to Rs.7,10,787/- received from ICICI Bank. He submitted that the assessee is the Managing Director of M/s Lakshmi Ganapathi Paper Mills Ltd. The assessee took a housing loan from the ICICI Bank, but not utilise the loan for building a house. Instead of this he has given loan to Lakshmi Ganapathi Paper Mills Ltd. and received interest of Rs.7,01,787/- from the company and the same was offered to tax under the head income from other sources . A similar amount of interest was paid by the assessee to ICICI Bank. This interest was deducted by the assessee income from other sources. The Assessing Officer disallowed the deduction of interest under the head income from other sources stating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich was not used for this very purpose and the same was diverted and made advanced to certain companies and that can not be allowed either u/s 24 or u/s 57(iii). He relied on the following judgements: 1. CIT Vs. Standard Motor Products of India Ltd. (Mad. HC) (142 ITR 877) 2. Kerala Financial Corporation Vs. JCIT Others (308 ITR 434) (Ker. HC) In this case the patently inadmissible claim u/s 36(1) was made and therefore the ratio of the case in 203 ITR 456 (SC) has been applied. The facts in the case of the assessee are not comparable. 15. We have heard both the parties and perused the materials available on record. Admittedly in this case the assessee raised loan from ICICI Bank for the purpose of construction of house. He has not constructed the house instead utilised the same by giving the loan to company by name M/s Laxi Ganapathi Paper Mills Ltd. The assessee claimed deduction of interest paid by him to the ICICI Bank on the housing loan taken by him out of interest received from the company. The loan was given by ICICI for the purpose of construction of the house; the assessee could have claimed deduction u/s 24. Since the assessee has not constructed the house out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee took a loan from the bank and paid in respect of the loan interest of Rs.90,410. The question was whether the assessee could be taxed only on the difference of Rs.27,034. The interest that the assessee received from the bank on the fixed deposit was income in his hands and it could stand diminished only if there was a provision in law permitting such diminution. There was no such provision of law and the interest on the loan taken from the bank did not reduce his income by way of interest on the fixed deposit. 16.2. Further, in the case of Dr.V. Gopinathan (supra) it was not disputed, as it could not be that if the assessee had taken a loan from another bank and paid interest thereon his real income would not diminish to the extent thereof. The only question then is does it make any difference that he took the loan from the same bank in which he had placed the fixed deposit. There is no difference in the eye of the law. The interest that the assessee received from the bank was income in his hands. It could stand diminished only if there was a provision in law which permits such diminution. There is none, and, therefore, the amount paid by the assessee as interest on the loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year concerned (hereinafter in this section and in sections 148 to 153 referred to as the relevant assessment year). Provided that where an assessment under sub section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return u/s 139 or in response to a notice issued under sub section (1) of section 142 or section 148 to disclose fully and truly all material facts necessary for his assessment, for that assessment year. Provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Explanation 1: production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily ..... X X X X Extracts X X X X X X X X Extracts X X X X
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