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2015 (6) TMI 564 - ITAT MUMBAI

2015 (6) TMI 564 - ITAT MUMBAI - TMI - Assessment of the interest income - under the head "Profit & gains of business or profession" OR "Income from other sources" - Held that:- There is no evidence of any organized activity or embarking on housing finance business in any manner. The loan, given to a director, prior to the stated decision of change in the business, is not shown to be for the purchase or acquisition of any house property. Further, rather than the same being recalled, it continues .....

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incurred for various functions/activities, ostensibly for maintaining the establishment of the assessee’s undertaking. The same would thus not fall to be covered within the compass of section 57(iii), given its limited scope, i.e., for earning income, and which is only the interest income on a single loan granted by the assessee to, one, Shri Maneklal Bhandari. In fact, the expenditure allowed, i.e., on filing fees, bank charges and audit fee, would, again, strictly speaking, not fall within the .....

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certainty in collecting interest, which has not been provided for. The same can, under the circumstances, be either agreed to between the parties, or directed by a third party, as an arbitrator, for example, to whom the parties may approach, or a court of law. We are conscious, when we state so, that we presume a normal, genuine problem on hand, while the Revenue’s case is based on the transaction, as being reflected, in the absence of any evidence, as not true, raising serious and valid doubts .....

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t: Shri Jitendra Kumar ORDER Per Sanjay Arora, A. M.: This is a set of two Appeal by the Assessee, directed against the Orders by the Commissioner of Income Tax (Appeals)-XXVII, Mumbai ( CIT(A) for short) dated 28.02.2008 & 20.11.2008, dismissing the assessee s appeals contesting its assessments u/s.143(3) r/w s. 263 of the Income Tax Act, 1961 ( the Act hereinafter) for assessment year (A.Y.) 2002-03 and u/s. 143(3) r/w.s.147 for AY 2004-05 respectively. ITA No. 3359/Mum/2008 (A.Y. 2002-03) .....

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learned Commissioner of Income-tax(Appeals) erred in upholding the action of the Assessing Officer in treating the interest income on loans as "Income from other sources" as against income under the head "Profits & gains of business or profession", as considered by the appellant. 3. The learned Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in disallowing a sum of ₹ 7,25,385/- being aggregate of various expenses out of t .....

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x (Appeals) was not justified in taking a different view without any reasoning for the same. (c) The appellant submits that without prejudice to its argument that the aforesaid amount was not a loan, in any case there can be no addition for notional interest as the same is not warranted under the provisions of the Act. 5. The appellant submits that the Assessing Officer be directed: (i) to treat interest income as income under the head "Profit & gains of business or profession" and .....

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w of the assessee having appealed against the section 263 order, pursuant to which the impugned assessment has been framed, before the Appellate Tribunal. Clearly the two, i.e., the section 263 order and the impugned order, are separate orders, both appealable before the Tribunal. This explains our reason for stating the said ground as not valid or maintainable in law. We decide accordingly. 3. The second ground relates to the assessment of the interest income under the head Income from Other So .....

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, so that he was obliged to follow the same, and had no discretion to take any different view in the matter, assessing in the manner as directed is only in direct consequence of section 263 order, and which cannot therefore be adjudicated upon by the ld. CIT(A) as the first appellate authority; the same being outside the purview of s.246A. 4. Without prejudice, we observe the AO to have also considered the assessee s case on merits, issuing his findings, which supplement that by the ld. CIT per .....

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his ground, dwell on this issue in some detail. The assessee, incorporated in the year 1994, with the main object of development of the property, sites the reason for a lull in the real estate market for having never commenced the said business, i.e., since its inception. It further states to have, for this reason, decided to embark on the housing finance business, passing a resolution by its Board of Directors to that effect, besides seeking a clarification from the Reserve Bank of India (RBI), .....

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der tabulating the balance outstanding as at each year end, beginning 31.03.1997 (at ₹ 107.83 lacs) up to the current year (at ₹ 83.76 lacs). No interest, though charged, had been recovered, and the entire interest charged from year to year stands accumulated in a separate account as interest recoverable (being at ₹ 60.20 lacs as on 31.03.2002). The Revenue s stand of the interest income being, under the circumstances, not arising out of business activity is unmistakable. To be .....

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dition of a lull in the real estate market? The assessee, thus, only contradicts itself. Further, there is no evidence of any organized activity or embarking on housing finance business in any manner. The loan, given to a director, prior to the stated decision of change in the business, is not shown to be for the purchase or acquisition of any house property. Further, rather than the same being recalled, it continues to outstand year after year, with even the interest thereon being not received .....

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apposite. 5. The second issue, raised vide ground 3 before us, is in response to the expenditure claimed by the assessee through its Profit & Loss Account as business expenses . The AO, in view of his finding of the assessee not carrying on any business during the year and, in fact, for the preceding year as well, restricted the same only to the expenditure in respect of filing fees; bank charges; and audit fees, being the statutory, minimum charges payable by the assessee in view of its st .....

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the interest income is treated as income from other sources. A.O. is bound to consider whether any such expenses claimed have a direct nexus in earning interest income and therefore allowable u/s. 57(iii). I have noted that the A.O. has given his finding in the asstt.order as to which of such expenses has nexus to earn interest 'income. As such I do not find any reason to interfere the action of the Assessing Officer. This ground is dismissed. 6. We have heard the parties, and perused the ma .....

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on 57(iii) of the Act. The expenditure disallowed, tabulated below (refer para 4 of the assessment order): Expense head Amount Rs. Remarks Compensation 1,08,000/- Paid for office premises Office Expenses 7,280/- Expenses on account of tea, snacks etc. Telephone Expenses 49,100/- Communication expenses. Motor car expenses - Expenses on car rental. Professional fees 44,272/- Advise on taxation. Filing fees - Statutory requirement. Salary 12,000/- Salary to staff. Travelling expenses 4,94,518/- Tra .....

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ngle loan granted by the assessee to, one, Shri Maneklal Bhandari. In fact, the expenditure allowed, i.e., on filing fees, bank charges and audit fee, would, again, strictly speaking, not fall within the purview of section 57(iii), and stands allowed on being the minimum statutory expenses required to be incurred in view of the legal requirement incident on the assessee as a company. The decision by the AO, since endorsed by the ld. CIT(A), cannot, therefore, be faulted with. We decide according .....

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lacs respectively. While the conveyance was agreed to be executed within a period of three years, neither the possession of the property had been taken by the assessee-company after nearly a decade, nor the amount recovered. The assessee clarified it to be an advance for office premises. The prolonged delay was stated to be on account of want of necessary permissions. The same was not found tenable by the AO in the absence of substantiation by the assessee of its claims. The correspondence adduc .....

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ssee had failed to give any reasonable explanation for the purchase of the two shops, while the amount continued to be retained by the payee-developer/seller. 8. We have heard the parties, and perused the material on record. The Revenue is no doubt empowered, nay, obliged under law, to ascertain or unveil the real nature of the transaction. The inference of a loan is not misplaced in the absence of the assessee failing abysmally to exhibit the reasons for the extreme delay in the performance of .....

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amount would have been taken. What are the various permissions/approvals being sought, since almost a decade, and what steps have been taken to meet the deficiencies for which the same stand withheld by the relevant authorities? Why is the builder or the seller not brought to book or to account for the same, especially considering that the property was supposed to have been delivered within a period of three years, and which expired years ago. Funds have opportunity cost and, besides, this consi .....

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find any infirmity in the Revenue inferring the said transaction to be in fact representing a loan to the payee under the garb of purchase of property, and not a genuine business transaction and, accordingly, endorse the same. So however, we inclined to, however, not to impute or assign any interest cost thereto. When the principal amount itself is not forthcoming, there is great uncertainty in collecting interest, which has not been provided for. The same can, under the circumstances, be eithe .....

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