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2015 (3) TMI 793 - ITAT DELHI

2015 (3) TMI 793 - ITAT DELHI - TMI - Deduction u/s 36(1)(viii) disallowed - computation of deduction under Chapter VI-A - Nexus with income chargeble as income from other sources - nexus of investment in such bonds with the interest bearing or interest free bonds - CIT(A) restored the deduction u/s 36(1)(viii) to the amount as claimed by the assessee - case of the Revenue is that since the amount of ‘Reserves and surplus’ appearing in the assessee’s balance sheet is more than the investment mad .....

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essment or the impugned order as to the nexus of investment in such bonds with the interest bearing or interest free bonds. The AO has gone with the figures of the current year to hold that interest bearing advances are more than the interest bearing loans. On the other hand, the contention of the assessee is that investment in such bonds were made in earlier years and that too out of interest bearing funds. The ld. CIT(A) has simply held that since deductions under Chapter VI-A are to be done o .....

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this issue afresh to find out the source of the amount invested in such funds, at the time when such investments were made. - Decided in favour of revenue for statistical purposes. - ITA Nos.5490/Del/2013, 477/Del/2010 & 4868/Del/2010 - Dated:- 12-3-2015 - Shri R.S. Syal And Shri A.T. Varkey JJ. For the Appellant : Shri V.K. Nischal, Advocate For the Respondent : Shri Vikram Sahay, Sr. DR ORDER PER R.S. SYAL, AM: These three appeals by the Revenue relate to the assessment years 2006-07, 2007-08 .....

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on amounting to ₹ 8,14,50,000/- was claimed u/s 36(1)(viii) of the Income-tax Act, 1961 (hereinafter also called the Act ) with the computation as under:- Chart-A Computation of Rebate Allowable u/s 36(1)(viii) of the Income Tax Act, 1961. 1. Business income before deduction u/s 36(1)(viii) of the Income Tax Act 59,68,03,660 Ratio of interest on Long Term Housing Loans to Total interest of Housing Loans 140,69,40,560 : 205,70,94,576 68.39: 100 2. Profit from Long Term Housing Loans Therefo .....

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Chart-B 1 Business income after making adjustments 66,21,03,014 2 Less: (i) Depreciation on Fixed Assets as per Income Tax Rules 48,89,252 (ii) Recovery of unrealized interest 70,35,453 (iii) Reversal of provisions for doubtful debts & advances 2,07,74,884 (iv) Income from Other Sources 10,41,98,731 (a) Interest on investments Less: Expenses @ 68.95% (Computation enclosed) 7,18,45,025 3,23,53,706 (iv) Short Term Capital Gains 2,46,059 6,52,99,354 3 Gross Business Income 59,68,03,660 The fig .....

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ulation of item at Sl. no. (iv) under Chart-B, was started by the assessee with Income from other sources at ₹ 10,41,98,731/- and, thereafter, the assessee deducted expenses amounting to ₹ 7,18,45,025/- @ 68.59%, which was determined as per Chart-C. This interest income of ₹ 10.41 crore and odd was earned by the assessee by investing a sum of ₹ 42,36,76,000/- as long-term investment in 12.25% in UP State Government Bonds. Besides, the assessee had also invested a sum of & .....

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at ₹ 138.57 crore on 31.3.2008. Besides that, there were certain sums amounting to ₹ 1883.35 crore appearing on the Liability side and loans to the tune of ₹ 1906.49 crore appearing on the Asset side of the assessee s balance sheet. By making a comparison of these two loan figures, the AO opined that no part of loans amounting to ₹ 1883.35 crore could be said to have been attributed to the investments made by the assessee in UP State Bonds and others. In view of the fact .....

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after making adjustments 66,21,03,014 2 Less: (i) Depreciation on Fixed Assets as per Income Tax Rules 48,89,252 (ii) Recovery of unrealized interest 70,35,453 (iii) Reversal of provisions for doubtful debts & advances 2,07,74,884 (iii) Short term Capital Gains 2,46,059 (iv) Income from Other Sources 1041,98,731 (a) Interest on investments Less: Expenses @ 3.82% 39,80,392 - 100218339 (iv) Short Term Capital Gains - 13,31,63,987 3 Gross Business Income 52,89,39,027 Chart-C Computation for Ap .....

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u/s 36(1)(viii), as under:- Computation of Rebate Allowable u/s 36(1)(viii) of the Income Tax Act, 1961. 20% of Profit from Long term Housing loan ……..transferred to special reserve whichever is less 1. Business income before deduction u/s 36(1)(viii) of the Income Tax Act 52,89,39,027 Ratio of interest on Long Term Housing Loans to Total Receipts of the Business. 140,69,40,560 : 2167244624 64.92 : 100 2. Profit from Long Term Housing Loans Therefore, 64.92% of business income is e .....

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7,72,557/-. The ld. CIT(A) got convinced with the assessee s submissions and restored the deduction u/s 36(1)(viii) to the amount as claimed by the assessee. The Revenue is aggrieved with such direction of the ld. first appellate authority. 7. We have heard the rival submissions and perused the relevant material on record. Before proceeding further, we want to make it clear that ld. DR restricted his arguments only to the non-deductibility of Interest and other charges in Chart-C, which was clai .....

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ts capital and reserves and not from any interest bearing funds. And as such, the claim for deduction of interest and other charges amounting to ₹ 145.66 crore is untenable. Per contra, the ld. AR vehemently argued that the investment in these bonds were made in earlier years out of interest bearing funds and, hence, deduction should be accordingly allowed. 8. Section 57 of the Act deals with deductions in the computation of the income chargeable under the head "Income from other sour .....

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from other sources . In view of the above legal position, it is apparent that the amount of interest expenditure can be allowed as deduction u/s 57 of the Act provided the investments are made from interest bearing loans. 9. Coming back to the factual matrix of the case, we note that there is no discussion in the assessment or the impugned order as to the nexus of investment in such bonds with the interest bearing or interest free bonds. The AO has gone with the figures of the current year to ho .....

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