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2015 (8) TMI 1041 - ITAT AHMEDABAD

2015 (8) TMI 1041 - ITAT AHMEDABAD - TMI - Expenditure towards interest disallowed - assessee failed to establish the nexus between interest paid and income earned - FAA deleted part addition - Held that:- All the details were before the ld. Commissioner of Income Tax (Appeals) but instead of pin pointing any concrete diversion of interest bearing funds; ld. Commissioner of Income Tax (Appeals) only assumed that some funds might have been used by the assessee for some other purposes. The departm .....

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the revenue itself, we are of the view that ld. Assessing Officer has erred in making the disallowance. Ld. Commissioner of Income Tax (Appeals) also failed to appreciate that total expenditure is to be allowed which is incurred wholly and exclusively for earning income. It cannot be restricted in proportion of income. We allow the ground of appeal raised by assessee and consequently reject the ground raised by the revenue. The assessee is entitled to expenditure of ₹ 1,09,29,139/- claimed .....

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ition of the asset and the cost of any improvement thereof. The assessee while offering capital gain on sale of a plot of land had claimed cost of improvement for ₹ 10,84, 275/-. The Assessing Officer rejected the additional cost to the extent of ₹ 6 lacs. On appeal, ld. Commissioner of Income Tax (Appeals) allowed the claim of assessee on the ground that payment was made through account payee cheque for the construction made. The detail of material and other evidence were produced o .....

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ssee and revenue are in cross appeals against the order of ld. Commissioner of Income Tax (Appeals) dated 9th January, 2012 passed for Assessment Year 2008-09. 2. Grounds of appeal taken by the assessee are not in consonance with Rule 8 of ITAT Rules, they are descriptive and argumentative in nature. In brief his grievance revolves around a single issue which is interconnected with ground no. 1 raised by the revenue. The issue in these grounds of appeal is that assessee had claimed an expenditur .....

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filed his original return of income on 23-10-2008 i. E. much after the due date of filing of return u/s. 139(1). This return was revised on 30th March, 2009. In the original return, a loss of ₹ 51,56,527/- was claimed which was reduced to ₹ 25,41,139/- in the alleged revised return. A notice u/s. 143(2) of the income tax act, 1961 (hereinafter referred to as the act) was issued on 4th of August, 2009 which was served upon the assessee. According to the Assessing Officer, due to chang .....

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ed and interest paid. After considering the explanation of assessee, he disallowed the claim of assessee to the extent of ₹ 1,07,38,991/-. The finding recorded by the Assessing Officer reads as under:- 4. Interest Expenses On perusal of the original return of income filed on 23.10.2008 it is observed that the assessee has claimed Interest Expenses of ₹ 1,09,29,139/- as against the interest income of ₹ 50,27,815/- as detailed under: Interest Earned Interest Paid Bank Interest 31 .....

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Mananbhai Patel 70287 Ambalal Dosachand Shah 190148 Gujarat Tubwell Co. 23281 Pragnaben Madhubhai Patel 20853 Bhaveshbhai Madhubhai Patel 20853 Jayeshkumar Madhubhai Patel 20853 Motilal Oswal 657 Total 5027815 Total 10929139 Hence the assessee vide this office show cause dated 19.11.2010 requested to show cause for the allowably of the interest expenses. Also the assessee was requested to furnish the details of TDS deducted on interest payment to the various persons alongwith the copies of chal .....

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imed in this proprietary concern pertains to Shah Ambalal Dosachand only and TDS of ₹ 19,585/- is deducted on it. In support details of TDS expenses and copy of TDS Chalaln is enclosed herewith. The same should therefore be allowed in full. Moreover there is an opening balance of ₹ 21,81,42l/- as on 1/4/2007 and so it is an old balance which justify the allowability as per ITAT s Order. The assessee only furnished the details of TDS of ₹ 19585/- on interest paid of ₹ 1,90 .....

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Income of ₹ 50,27,815/-which is apparently unreasonable and cannot be allowed in whole. Accordingly the interest expenses of ₹ 1,07,38,991/- is disallowed for the following reasons : i) The assessee failed to establish the nexus between interest paid and income earned. The interest payment of ₹ 1,07,38,991/- did not have any correlation with the interest income earned in accordance to section 57 of the Income-tax Act, 1961. The assessee has merely passed the entries of interest .....

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lished that the income shown by the depositors is the same one received from the assessee. iii) In respect of interest paid to Mehsana Urban Co-op. Bank the assessee could not furnish any evidences from the bank to have received interest from the assessee. Also from the ledgers accounts of the FDRs furnished by the assessee it is seen that the opening balance and closing balance are same which means there is no transaction of loans taken during the year as FDOD. iv) The assessee while in his tim .....

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disallowed and added to the total income of the assessee. Penalty proceedings u/s. 271(1)© of the I. T. Act are initiated for furnishing inaccurate particular of return of income. 5. On appeal, ld. first appellate authority has partly deleted the disallowance made by the Assessing Officer. The relevant finding recorded by ld. first appellate authority in para 5.6 & 5.7 is wroth to note Thus, they read as under:- 5.6 On perusal of the records of the appellant, I find that the appellant .....

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herefore, the revised return was treated as nonest by the Assessing Officer. Meaning thereby, the impugned interest income and expenditure were assessed by the Assessing Officer under the head income from other sources . The Assessing Officer noticed that the interest income is only ₹ 50,27,815/- and interest expenditure against the same claimed by the appellant is ₹ 1,09,29,139/- and therefore, not satisfied with explanation offered for various reasons discussed above disallowed int .....

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been paid during the year under consideration. It is also a fact that the new advance/loans have been obtained from the existing parties as well as new parties and interest has been paid on the same. The Ld. A. R. could not establish from one to one entry that all the loans and advances on which interest has been paid are directly connected for earning interest and taxable under the head income from other sources . Apparently, if the amount taken on interest is invested directly for earning int .....

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te of borrowings. In the totality of the facts, in my considered opinion, the appellant has taken loan / borrowings at interest and invested those for earning interest as shown under the head income from other sources and part of such borrowings has been invested by the appellant for some other purposes or for business purpose for which interest expenditure cannot be allowed under the head income from other sources against impugned interest income. As per the provisions of section 57 of the IT A .....

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at substantially higher rate of interest than to the investment which resulted into such huge loss to the appellant under the head income from other sources . It is an undisputed fact that the appellant has shown the impugned interest income and expenditure under the head income from other sources and therefore, only the interest expenditure incurred for earning impugned interest income can be allowed to the appellant in view of direct provisions of section 57 of the IT. Act. The argument of th .....

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Ahmedabad has considerable force. On random verification of the past record, I observed that the appellant has declared interest income and expenditure under the head income from other sources, but in most of the earlier years, the interest income is more than the interest expenditure. In the year under consideration, the unique feature is that there is loss to the appellant from interest activity. It is a common fact that no business man would borrow the funds at higher rate of interest and in .....

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rest activity. Meaning thereby, the interest expenditure of ₹ 47,76,424/-(Rs.50,27,815 - ₹ 2,51,391) should be allowed to the appellant. I, therefore, direct the Assessing Officer to delete the interest addition of ₹ 47,76,424/ -. The balance interest addition of ₹ 59,62,567/- is confirmed. As such, this ground of appeal is partly allowed. 6. With the assistance of ld. representative, we have gone through the record carefully. 7. The Ld. First Appellate Authority has not .....

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diture incurred directly for earning such income. The ld. first appellate authority has partly confirmed the disallowance for three reasons namely; (a) that it appears assessee had taken loan/borrowings at interest and invested these for earning interest income as shown under the head income from other sources and part of such borrowing has been invested by the assessee for some other purpose or for business purpose for which interest expenditure cannot be allowed under the head, income from oth .....

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ome Tax (Appeals) makes it clear that in principle ld. Commissioner of Income Tax (Appeals) was satisfied that assessee had taken loans/borrowings at interest and invested those for earning interest income which has been shown as income from other sources . In the past, such income was accepted and expenditure was allowed because assessee has more interest income than the expenditure. This year, Ld. First Appellate Authority did not allow the claim of assessee fully for the reason that interest .....

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treated the assessee on this issue. 9. First we take Assessment Year 2007-08, along with the computation of income, assessee has shown following details. INCOME FROM INTEREST Interest from S/B and Notified Companies BANK INTEREST 979 Interest on F. D. with Banks BANK FOR INTEREST Other Interest Income NSS INTEREST 25364 NEPTUNE INFRACTURE PVT LTD 8863 MAHALAXMI BHAVAN CO OP SOCIETY 68196 SIMANDHAR OWNERS ASSOCTION 282990 INCOME TAX REFUND INTEREST 41310 PATEL DIPABEN MAULIKBHAI 178542 ROYAL CON .....

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141842 (-)4009600 10. Copy of the assessment order dated 31st December, 2008 passed u/s. 153A read with section 143)(3) is available on the record. The assessee has filed his original return of income on 31st August, 2007 declaring a loss of ₹ 55,65,831/-. Since a search was carried out at his premises on first of November, 2006, a notice u/s. 153A was issued and he filed the return on 28th February, 2008 again and claimed the loss of ₹ 55,65,831/-. The Assessing Officer has passed h .....

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r, assessee has shown a net loss of ₹ 37,13,028/- under the head income from interest. The copy of the assessment is available on the record. In this year also, the assessee has filed his original return on 31st August, 2006 declaring a loss of ₹ 24,03,707/-. The same return was filed in response to the notice u/s. 153A. The Assessing Officer has only made an addition of ₹ 60,000/- on account of dividend income and accepted the loss of ₹ 23,43,707/- 12. In the subsequent .....

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JAYANTILAL SOMABAHI 12329 ANANIBEN JAYNTILAL 78904 ………. 1424340 Less: Deductions UNJHA SPCIES COPRIATON 6019 SHAH AMBALAL DOSARAM 16110 MEHSANA URBAN BANK A/C. 13/09/70 61767 MEHSANA URBAN BANK A/C 20/53 211796 MEHSANA URBAN BANK A/C 17/6269 2420427 MEHSANA URBAN BANK A/C 23/421 486140 AJITKUMAR TRIBHOVANDAS PATEL 121879 MAULIK MANI BHAI PATEL 2580591 MANIBEN MANILAL PATEL 1254959 KAILASHBEN MANIBHAI PATEL 1948456 MANIBHAI V. PATEL HUF 1344735 ………(-) 104 .....

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regard to the sale of land where assessee has received some cash component in his share, except ₹ 3,44,417/- Assessing Officer has accepted the loss at ₹ 20,25,241/-. Apart from these three assessment years and computation of income, assessee has placed on record, the copies of the assessment orders starting form Assessment Year 2001-02 up to 2012-13. We have perused Assessment Year 2004-05 and 2005-06 also. We find that as far as persons namely; Nanibhai V. Patel HUF Mehsana Urban B .....

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quent years, claim of the assessee was disputed that the money taken from them was not used by the assessee for earing income which is to be assessed as income from other source . In the present year, Ld. First Appellate Authority has allowed the deduction to the extent, he assumed that assessee must have incurred interest expenditure up to 95% of the interest income earned by him. In other words, Ld. First Appellate Authority has assumed that assessee has shown interest income of ₹ 50,27, .....

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ng of section 57 is also to the same effect that, the expenditure ought to be incurred for earning income which is assessable under the head income from other sources . If the logic of ld. Commissioner of Income Tax (Appeals) is accepted, then, in each and every case, expenditure would be allowed only, when there is resultant income. In other words, there cannot be any loss in any activity which results income from other sources . All the details were before the ld. Commissioner of Income Tax (A .....

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10, the interest expenditure was more than income, in spite of that loss under the head income from other source was allowed by the ld. Assessing Officer in scrutiny assessment. Thus considering the past history and stand of the revenue itself, we are of the view that ld. Assessing Officer has erred in making the disallowance. Ld. Commissioner of Income Tax (Appeals) also failed to appreciate that total expenditure is to be allowed which is incurred wholly and exclusively for earning income. It .....

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Income Tax (Appeals) on this issue reads as under:- 6.1 During the course of appeal hearing the appellant has submitted detailed written submission along with relevant enclosures (P. B. 390 to 394). Relevant portion may be reproduced as below:- From the records it verifiable that the Assessee has already explained the matter vide Assessee s; letter dated 23rd November, 2010. It is also to be noted from the records that the Assessing Officer has not accepted the Assessee s claim of additional co .....

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ccordingly accounted for in the books and payment of ₹ 6 lacs was made by cheque on 06.04.2008 in the subsequent year. The same is reflected in the contra account filed. However, in the same para, the Assessing Officer holds that in view of the above it is ascertained that the Assessee has incurred these expenses out of his income from undisclosed sources and sum; of ₹ 6 lacs is added to his total income as undisclosed income of the assessee. Thus, the action of the Assessing Officer .....

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levant enclosures marked as Annex.3.1 to 3.6 are submitted herewith for kind-perusal and necessary actions. 6.2 I have carefully considered the above submissions and gone through the record. I find that the assessee has submitted all the material details during assessment proceedings before the Assessing Officer vide his letter dated 03.11.2010 (P. B. 108 to 388) and further letter dated 23.11.2010 (P. B. 390 to 394). The assessee has made payment of ₹ 6 lakhs by account payee cheque on 06 .....

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