TMI Blog2017 (6) TMI 1149X X X X Extracts X X X X X X X X Extracts X X X X ..... Addition on difference between sale and purchase - addition stands enhanced by the ld. CIT(A) by taking 1% profit on the sales figure - Held that:- Such an enhancement by the ld. CIT(A) admittedly is without complying the mandatory requirement of subsection (2) of section 251 which provides that enhancement of income by first appellate authority cannot be made without giving notice to the assessee. Consequently, such an enhancement of income cannot be sustained. Accordingly, we direct the deletion of enhanced amount of ₹ 5,52,969/- and thus, ground no. 6 is allowed. - ITA No.4316/Mum/2016 - - - Dated:- 17-1-2017 - Shri Amit Shukla, JM And Ashwani Taneja, AM For The Appellant : Shri Madhur Agrawal Mani Jain For The Respondent : Shri Rahul Raman ORDER Per Amit Shukla, Judicial Member The aforesaid appeal has been filed by the assessee against impugned order dated 15.03.2016, passed byLd. CIT(Appeals)-3, Thane,for assessment passed u/s. 144 r.w.s. 145(3) of the Income Tax Act, 1961 for A.Y. 2003-04.In the appeal memo the assessee has raised the following grounds of appeal: 1. On the facts and in the circumstances of the case and in law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued by RBI,if the interest income is more than 50% of the gross receipts of the business of the company, then it need not be required to register as an NBFC with the Reserve Bank of India. As an alternative, it was contended that if the assessee s income is treated as income from other sources u/s. 56, then the interest expenditure directly attributable for earning of such an income should be allowed as deduction u/s. 57(iii). However, the ld. AO has rejected the assessee s s first contention on the ground that the press release does not ipso facto give license to the assessee company to be deemed NBFC, rather section 4 of the Bombay Moneylenders Act, 1946 provides that, no person can carry out the business of money lending without a license. Thus, he held that interest income should be taxed as income from other sources . Regarding assessee s claim of interest expenditure of ₹ 6,70,71,580/- AO held that assessee could not prove the nexus of this expenditure with the interest income of ₹ 16,22,76,094/-. The relevant observations of the AO in this regard read as under: 5.3 Vide letter dated 19.03.2014, the assessee has furnished a chart of secured and unsec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated before him that the AO had also verified genuineness and credit worthiness of the parties from whom the assessee had taken loans, which is evident from details incorporated at page 18 of the appellate order. It was also pointed out that there was a direct nexus between the source of fund as shown in the balance sheet, loan taken and application of funds. Thus, there was a direct nexus of interest expenditure for the earning of interest income. However, the learned CIT(A) too confirmed the action of the AO. 4. Before us, Shri Madhur Agrawal, first of all drew our attention to the balance sheet of the assessee company to point out that the assessee had funds in the form of:-i) share application money of ₹ 21.77 crores;ii) secured loans of ₹ 100 crores; and iii) unsecured loans of ₹ 111.80 crores. Out of these funds the assessee has given loans and advances of ₹ 222.9 crores to various parties. Thus, there was a direct nexus of utilization of fund for giving advances to various parties from whom the assessee had earned interest income and also paid interest on loans. Hence, u/s. 57(iii) such an interest should be allowed. 5. On the other hand, lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect nexus with the earning of such an income. We are unable to appreciate the blanket observation of the AO that funds lying with the assessee ware not identifiable and the assessee is unable to prove the nexus. Once, both the availability and application of funds are evident from the balance sheet, then there is apparently direct nexus between earning of income from deployment of funds and expenses incurred on cost of funds. Accordingly, the assessee is eligible for claim of interest expenditure of ₹ 16,70,31,580/- u/s. 57(iii) and the same is directed to be allowed. 7. In view of our finding as above, we are not adjudicating ground no.2, as the ld counsel submitted that this issue will be purely an academic exercise.Accordingly, ground nos. 3 and 4 are allowed and ground no. 2 is treated as infructuous. 8. Regarding the second issue, which has been raised vide ground nos. 1, 5 and 6, learned counsel before us submitted that the assessee is engaged in the business of purchase and sale of fabrics, which is evident from the profit loss account of the assessee which has been reproduced at page 2 of the assessment order. In the trading account, the assessee has shown sal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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