TMI Blog2012 (11) TMI 658X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent by : Shri C.K. Mishra, Sr. D.R. ORDER PER SHRI MUKUL Kr. SHRAWAT, JUDICIAL MEMBER : This is an appeal at the behest of the Assessee which has emanated from the order of Learned CIT(Appeals)-II, Baroda dated 03/10/2007 passed for A.Y. 2004-05. Ground raised by the assessee are as follows:- 1. The C.I.T. (Appeals) erred in upholding the decision of the Assessing Officer in allowing only the amount of Rs.36,000/- by way of expenditure against income from other sources and not allowing the total expenditure against income under that head. 2. The C.I.T. (Appeals) ought to have held that the interest received is not the income of the assessee but is the income of the Government because the same was earned by the user of its money with the assessee and if the same was taxable in the hands of the assessee then the assessee was entitled to deduct the interest which it was liable to pay to the Government for its moneys (Government moneys) with it (the assessee). 2. Facts in brief as emerged from the corresponding assessment order passed u/s.143(3) of the I.T. Act, 1961 dated 20/11/2006 were that the assessee is a Co-operative Society and the Central Registrar o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The issue is discussed in detail from Paras-3 to 23 in the assessment order. The appellant, a joint venture of Govt. of India and Co-Op. Societies engaged in manufacturing of polyster filament yarn and due to heavy losses the Central Registrar Co-Op. Societies has appointed the liquidator to wind the society. It was found by the Assessing Officer that the appellant has earned interest of Rs.37,32,077/- and claimed expenditure of Rs.1,79,48,000/- which included deficit in liquidator s account and premium paid for insurance of assets. Also the deficit in liquidators account is net off income of Rs.8,50,135/- earned interest and rent and thus the total income earned was of Rs.45,82,212/- (Rs.37,32,077 + Rs.8,50,135). The Assessing Officer noticed that there were no activities during the year under consideration. It was found by the Assessing Officer that the appellant had incurred expenditure on insurance, salary, security charges, legal and professional fee, conveyance and telephone expenses and interest paid to Govt.of India and these expenditure were incurred for the purpose of winding up business. Thus, it was held that these expenses were incurred to wind up the appellant socie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... processing charges 466000 Electricity water charges 319000 Entertainment expenses 9000 Salary benefits 3269000 Insurance 7000 Int.on Govt.of India loan 3480000 Repair maintenance 82000 Postage, telegram fax exp. 14000 Security charges 3685000 Printing stationery 36000 Telephone expenses 172000 5.1. He has therefore argued that against the interest of Rs.37,32,077/- the assessee had to pay interest to Government of India of Rs.34,80,000/-. The said payment of interest therefore should be adjusted against the interest earned. His another plank of argument was that the entire expenditure was to maintain and to procure the assets of the assessee, therefore allowable expenditure. Decisions cited by him are as follows:- Sl.No(s) Decision in the case of Reported in ITA.. 1. ITO vs. Bachoobai Woronzow, Bombay (1984) Taxation 76(6)-39 ITA Nos.3595 to 3597/Bom/1981 AYs 1976-77 to 1977-78 [ITAT Bombay Bench B ] Order dtd.26-3- 1984 2. CIT vs. Gannon Dunkerley and Co.(P.) Ltd. [2000] 243 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was incurred to maintain the infrastructure for earning or making interest income and that without incurring the said expenditure it would not have been possible to earn income by way of interest. It was noted that the finding of the Tribunal had clearly showed that there was a nexus between the expenditure and the interest earned. On account of those factual finding the Hon'ble Court has finally decided that the Tribunal was correct in holding that the expenditure was deductible under the provisions of section 57(iii) of the I.T.Act. The relevant portion is reproduced hereinbelow:- But, on the facts of the case, it is found that the expenses were incurred to preserve the assets and to maintain the source which yielded the income. The facts found by the Tribunal clearly show that the official liquidator has incurred expenditure for the purpose of protecting the source of income. In addition thereto, the earning of interest income by the official liquidator cannot be construed in isolation or apart from other activities of the official liquidator. The official liquidator performed his statutory duties and during the course of his performance of duties, he incurred certain expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mined the accounts made available before us and noticed that in Schedule-19 under the head Liquidator s Account an expenditure of Rs.34.80 lacs was towards interest on Government of India loan. However, as per Scheduel-6 under the head Unsecured Loans , we have noticed that there was no change in the amounts outstanding as on 31/03/2003 and 31/03/2004 of Rs.13,283.78 lacs. We have also noted that the amount of interest accrued was also identical in figures, found to be outstanding as on 31/03/2003 and 31/03/2004 of Rs.1,906.54 lacs. Meaning thereby that there was no accrual of interest liability, though admittedly the ld.AR has stated before us that mercantile system of accounting was adopted by the assessee. In that case, the assessee has to prove the basis on which the interest expenditure of Rs.34.80 lacs was claimed. A.O. is hereby directed to proceed accordingly as per law. 8.1. Another head of income, in addition to the interest income as discussed above, is under the head rent income . The question is that whether legal expenses, car running expenses, traveling expenses, data processing charges, electricity and water charges and entertainment expenses, salary expen ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
