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Pr. Commissioner of Income Tax Versus Manibhai Virchandbhai Patel

2016 (7) TMI 914 - GUJARAT HIGH COURT

Disallowance on account of interest expenses - ITAT allowed the claim - Held that:- While the Department has consistently accepted the claim of the assessee in the earlier years when the income under the head “income from other sources” was more than the interest expenditure, such claim is sought to be disallowed in the year under consideration only because the interest expenditure exceeds the interest income. Having regard to the past history of the assessee, this court is of the view that the .....

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- revenue in both these appeals under section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act ) has challenged the common order dated 18th August, 2015 passed by the Income Tax Appellate Tribunal, C Bench, Ahmedabad (hereinafter referred to as the Tribunal ) by proposing the following common question, stated to be a substantial question of law:- [A] Whether the ITAT has erred in law and on facts in deleting the disallowance of ₹ 1,09,29,139/- made by the AO on account .....

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ssing Officer did not accept the revised return on the ground that the original return was not filed within the time and, therefore, the assessee could not file the revised return. On scrutiny of the matters, the Assessing Officer found that the assessee had claimed interest expenses of ₹ 1,09,29,139/- as against the interest income of ₹ 50,27,815/-. The Assessing Officer noted the details of the interest earned and interest paid and after considering the explanation of the assessee, .....

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been added as new parties to whom the interest had been paid during the year under consideration. It was also a fact that the new advances/loans had been obtained from the existing parties as well as the new parties and interest had been paid on the same. According to the Commissioner (Appeals), if the amount taken on interest was invested directly for earning interest, then there should not be any loss as shown by the assessee and that such loss can arise only if the loans/advances are taken a .....

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o earn the interest income. The Commissioner (Appeals) was of the view that the assessee would have incurred 95% of interest expenditure to earn interest income of ₹ 50,27,815/-. In other words, the assessee would earn higher rate of interest which would result in 5% earning from interest activity and accordingly held that interest expenditure of ₹ 47,76,424/- should be allowed to the assessee and directed the Assessing Officer to delete the interest addition of ₹ 47,76,424/- a .....

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these appeals. 3. Tax Appeal No.361/2016 arises out of the order passed by the Tribunal in the appeal preferred by the revenue and Tax Appeal No.362/2016 arises out of the appeal preferred by the assessee before the Tribunal. 4. Mr. Sudhir Mehta, learned senior standing counsel assailed the impugned order by submitting that the Tribunal has erred in holding that the total expenditure is to be allowed which is incurred wholly and exclusively for earning income and that the same cannot be restric .....

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e earned in accordance with section 57 of the Act. It was, accordingly, urged that the appeals require consideration on the question of law as proposed or as may be deemed fit by the court. 5. From the facts noted hereinabove, it is evident that the assessee had claimed expenditure of ₹ 1,09,29,139/- and had shown interest income at ₹ 50,27,815/-. As can be seen from the order passed by the Commissioner (Appeals), he has recorded as a matter of fact that the assessee had shown intere .....

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issioner (Appeals), no business man would borrow funds at a higher rate of interest and invest those funds at a lower rate of interest which would result into a loss. He further found that the material available on the record suggested that the assessee had borrowed the funds at a lesser rate of interest than the interest on investment. The Commissioner (Appeals) has, therefore, proceeded on the basis of a presumption that the assessee would have incurred 95% of interest expenditure to earn inte .....

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ioner 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 income was not sufficient to take care of interest expenditure .....

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ission income also which is a positive figure of ₹ 18,33,271/-. This income was also offered as income from other sources . The assessment order for Assessment Year 2009-10 was passed u/s. 143(3) on 30th December, 2011. The assessee has filed his return on 2nd November, 2010 declaring a loss of ₹ 23,69,658/-. The Assessing Officer has made an addition of ₹ 3,44,417/-. This addition was made with regard to the sale of land where assessee has received some cash component in his s .....

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en Manibhai Patel Maulik Manibhai Patel are concerned, they are the persons who have advanced the money to the assessee and to whom interest was paid. To these very persons, interest have also been paid in the present year. Thus, the loan was taken from these persons long back and every year assessee has been paying at the same rate of interest. In spite of the search neither in the earlier year nor in the subsequent years, claim of the assessee was disputed that the money taken from them was no .....

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fore, only to that extent, interest expenditure is to be allowed. But that is not the requirement in law, the requirement is that expenditure must be laid down by the assessee wholly and exclusively for earning of income. The expression wholly refers to quantum of expenditure and exclusively refers to the object and purpose of expenditure. Though these expressions are not used in section 57 but the overall meaning of section 57 is also to the same effect that the expenditure ought to be incurred .....

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ld. Commissioner of Income Tax (Appeals) only assumed that some funds might have been used by the assessee for some other purposes. The department has been consistently accepting the claim in earlier years and in subsequent years. It appears that in the beginning, assessee has more income under the head income from other sources as than the interest expenditure, but in Assessment Year 2007-07, 2007-08 and 2009-10, the interest expenditure was more than income, in spite of that loss under the hea .....

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