TMI Blog2016 (7) TMI 914X X X X Extracts X X X X X X X X Extracts X X X X ..... tricted to a proportion of the income and deleting the disallowance made by the Assessing Officer on account of interest expenses. - Decided in favour of assessee. - Tax Appeal No. 361, 362 of 2016 - - - Dated:- 25-4-2016 - Harsha Devani And G. R. Udhwani, JJ. For the Appellant : Mr Sudhir M Mehta ORDER ( Per : Honourable Ms. Justice Harsha Devani ) 1. The appellant - 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 ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad income from other sources since the last several years and most of the parties from whom interest was received and paid, were the same. A few parties had 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 at a higher rate of interest and those are invested to earn low rate of interest. The Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal 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 restricted to a proportion of income. It was submitted that the Tribunal has failed to appreciate that there is no reason to believe that any reasonable person would borrow funds at a higher rate of interest and give loans and advances at a lower rate of interest and incur a huge loss. It was submitted that the assessee had failed to est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 interest of ₹ 50,27,815/- and has accordingly allowed interest expenditure of ₹ 47,76,424/- and disallowed the remaining amount. Thus, though the very same interest expenditure has been allowed in the earlier years, it is only on the basis of an assumption that the expenditure has been disallowed in the current year. The Tribunal, in the impugned order, has recorded thus:- 8. A perusal of the finding of ld. Commissioner of Income Tax (Appeals) makes it clear that in principle ld. Commissioner of Income Tax (Appeals) was satisfied that assessee had taken loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 stating 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 Bank Ltd. Mehsana Urban Bank Ltd Co-op Bank of Mehsana Maniben Manilal Patel Kailashben 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 pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... results income from other sources . 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 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 head income from other source was allowed by the ld. Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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