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Sri Shomenath Roy Chowdhury Versus Addl. JCIT, Range-30,

2016 (1) TMI 1350 - ITAT, KOLKATA

Disallowing the interest expenditure against the interest income - CIT-A treating the interest income as “business income” - Held that:- DR has not brought anything contrary to the submission of the assessee. We also observe that the assessee is at liberty to utilize the borrowed fund in the best possible manner. There is nobody who can interfere in the working of the assessee. The fund utilized in the earlier year for investment in securities can be used for different activity like investment i .....

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appeal is allowed. - Disallowance on account of interest expenses and other expenses u/s 14A r.w.r. 8D - Held that:- Taking a consistent view in the case of M/s Trade Apartment Ltd. (2012 (3) TMI 421 - ITAT KOLKATA) we restore this file to the AO for fresh adjudication as per law with the direction that :- - i) Regarding the disallowance as per rule 8D(ii), the net figures of interest should be taken into consideration. - ii) Regarding the disallowance as per rule 8D(iii), the disall .....

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income will not be treated as “business income”. In the instant case, the “commercial assets” is being exploited by the third party and the receipt arising from the exploitation of the commercial assets has been regarded as “business receipts”. Besides this, even otherwise the income from the exploitation of commercial assets is shown as income from other sources then also the assessee is also entitled for depreciation on the trademarks being intangible assets. In view of above, we are inclined .....

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the third party to whom the maintenance work was outsourced. The AO disallowed all the expenses except ₹ 12 lacs. Since the same income has been held as business income of the assessee in the immediate preceding assessment year, we are not inclined to treat the same as income from other sources. Therefore to maintain the consistency we reverse the order of the lower authorities and treat the same as income from business. Regarding the disallowance of the expenses we find that in the immedi .....

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whom the maintenance charges were paid, have duly disclosed the receipt in its return of income and paid the due taxes on it. Now as per the amended provisions of the Finance Act 2012, the assessee shall not be treated as assessee in default if the recipient of the income has duly shown in its return of income. Accordingly we reverse the order of the lower authorities, hence, ground raised by assessee is allowed. - Allowing the loss of future & options against the speculation income - Held t .....

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orities and this ground of appeal of assessee is allowed. - ITA No.615/Kol /2013 - Dated:- 20-1-2016 - Shri Mahavir Singh, Judicial Member and Shri Waseem Ahmed, Accountant Member By Appellant Shri Sunil Surana, FCA By Respondent Md. Ghayas Uddin, JCIT-SR-DR ORDER Waseem Ahmed, Accountant Member:- This appeal by the assessee is arising out of order of Commissioner of Income Tax (Appeals)-XIV, Kolkata in appeal No.730.ctta-XIV/11-12 dated 15.02.2013. Assessment was framed by JCIT, Range-30, Kolka .....

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with the income earned by way of interest to the extent of receipt of interest income and the remaining interest had nexus with the investment activities. The Ld. AO further erred in treating the interest income of ₹ 19,144/- as business income. 3. For that the Ld AO erred in disallowing ₹ 30,67,213/- from interest and ₹ 5,71,648/- from expenses u/s 14A read with rule 8D when no such expenditure were incurred or claimed and further even otherwise the disallowance of any expend .....

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ting the income of ₹ 25,25,508/- as income from other sources and further erred in disallowing the expenses claimed for earning such income. 7. For that the Ld AO erred in disallowing ₹ 12,00,000/- by applying the provisions of section 40(a)(ia) which was not applicable. 8. For that the Ld AO erred in not allowing the set off of the F & O loss of ₹ 3,29,661/- being business loss with the speculation income which was claimed in accordance with law and was allowable as such. .....

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s income . The facts of the case are that the assessee is an individual and engaged in the business of investing in shares and managing properties. During the year the assessee has declared income under the head salary, business & profession and income from other sources. The assessee during the year has made fixed deposit for an amount of ₹ 5 crores for 181 days beginning from 13.10.2008 and earned interest income of ₹ 26,59,277/- which was shown as income from other sources. Th .....

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against the income from capital gains. This borrowed fund was not repaid by the assessee during the year. Therefore the AO observed that the borrowed fund was utilized in investment in shares and mutual funds. There was also no evidence that the borrowed fund was utilized for the investment in fixed deposit. So after comparison of the old accounts with the current year the AO opined that prima facie the assessee borrowed fund was making the investment in shares and mutual funds. So there is no n .....

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.00 only as income from other sources which the AO held as income from the business. Accordingly the AO disallowed the interest of ₹ 43,10,083/- which was claimed as an expenditure against the income from the other sources and added to the total income of the assessee. 4. Aggrieved assessee preferred an appeal before Ld. CIT(A) who has upheld the action of AO by observing as under:- Having considered the finding by the Assessing Officer and submission of the appellant I am of the considere .....

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interest, therefore the assessee adjusted the interest expenditure against the head income from other source. I agree with the view of the Assessing Officer that such adjustment is convenience based and it is aimed of avoiding the taxes. After examining the accounts of the appellant it is found that the assessee has borrowed fund and utilized the same for investment in share and mutual fund. In the immediate previous year the assessee had treated the interest paid on unsecured loan (Rs.45,73,14 .....

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ut as the same borrowed fund and it has been invested in share and mutual fund. I agree with the view of the Assessing Officer that there is no evidence to show that investment in fixed deposit was out of loan/borrowed fund. The comparison of accounts of earlier year and current year reveals that the assessee has borrowed fund for making investment in shares. I agree with the view of the Assessing Officer that the interest payable on such borrowed fund are not allowable as deduction on account o .....

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Officer was right in law and on facts in holding that there was no direct nexus between the interest expenditure claimed and the interest income earned on the fixed deposits. Accordingly, I find that the action of the AO is strictly in accordance with law. Therefore, the action of the AO is confirmed and ground No.2 of the appeal is dismissed. Besides, the action of the Assessing Officer in treating the interest income of ₹ 19,144/- as income from business is also confirmed. Being aggriev .....

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n the earlier year the same borrowed fund was used in the shares trading business so the deduction was claimed against the capital gain income accordingly. However this year the borrowed fund was used in fixed deposit after the sale of the investment i.e. redemption of mutual funds and refund of unsecured loan. The ld. AR drew our attention on page 20 of the paper book where comparative balance sheet for the year ending March 2008 and March 2009 were furnished. It is clear from the same the FD o .....

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the income of other sources. The AO found that the same borrowed fund was utilized in the earlier year for the income under the head capital gain and the assessee claimed the interest expenses accordingly against the capital gain income. But in the year of consideration the assessee incurred loss under the head capital gain so the interest expense on the borrowed fund was claimed against the income from other sources to avoid from the tax liability. The AO also observed that the same borrowed f .....

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(10.10.08 to 13.04.09) Reliance Medium Term Fund 2,55,40,057 HSBC Fixed term series 58 1,21,56,840 Refund of unsecured loan Aditdya Vikram Roy Chowdhury 1,11,90,000 Sonali Roy Chowdhury 33,00,000 5,00,00,000 5,23,86,897 The ld. DR has not brought anything contrary to the submission of the assessee. We also observe that the assessee is at liberty to utilize the borrowed fund in the best possible manner. There is nobody who can interfere in the working of the assessee. The fund utilized in the ea .....

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ess. In view of above, we reverse the order of lower authorities. This ground of assessee s appeal is allowed. 6. The second issue raised by the assessee in this appeal is that Ld. CIT(A) erred in confirming the disallowance of ₹ 30,67,213/- and ₹ 5,71,648/- on account of interest expenses and other expenses u/s 14A of the Act read with Rule 8D of the Income Tax Rules 1962. 6.1 During the year under consideration assessee has declared dividend income of ₹ 15,22,890/- being exem .....

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4A of the Act. The assessee explained that the borrowed fund has been invested in the fixed deposit and shares market for earning interest and short term capital gain. So question of disallowance under section 14A of the Act does not arise. Besides the above, the assessee further submitted that the rate of interest paid on the borrowed fund was less than the rate of income from interest and share market. The assessee also submitted that the borrowed fund was invested for the relevant year in FD, .....

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nder : i) Expenses directly relatable ₹ 31,290.00 ii) Interest expenses on borrowed fund ₹ 30,67,213.00 iii) ½ % of average value of investment ₹ 5,71,648.00 Total disallowance ₹ 36,70,151.00 7. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who upheld the action of AO by observing as under:- 5.1 As per findings given in the ground No.1 of the appeal it has been held that the interest expenditure had no direct nexus with the interest income earned on FD. .....

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ng Rule 8D read with section 14A of the IT Act, 1961. Therefore, I do not find any infirmity in the action of the AO of making disallowance of ₹ 30,67,213/- which has been worked out by the Assessing Officer in accordance with Rule 8D of the I.T Rule, 1962. Hence, the action of the AO on this issue is confirmed, Besides this, the addition of ₹ 5,71,648/- has also been made by the AO on the basis of 0.5% of average value of investment in accordance with Rule 8D of the IT Rule, 1961. T .....

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t the AO has considered the entire interest expenses of ₹ 43.10 lacs for the calculation of disallowance under rule 8D(ii) of Income tax Rules 1962. The ld. AR submitted that the interest pertaining to the period after the creation of FD should not be taken for the purpose of disallowance under rule 8D(ii) of Income tax Rules 1962. Accordingly the AO submitted that the interest expenses of ₹ 26.78 lacs has the direct nexus with the interest income from the bank on FD for ₹ 26.5 .....

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claimed by the assessee are of ₹ 1.06 lacs and out of this a sum of ₹ 0.31 lacs towards Demat charges has already been disallowed. For the balance expenses the ld. AR submitted that these are basic establishment & maintenance expenses and should be allowed. However the ld. AR offered another expense of ₹ 1597.00 towards the bank charges for the disallowance under rule 8D(iii) of Income tax Rules 1962. 8.1 Form the aforesaid discussion we find that the AO has applied the pr .....

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(iii) of Income tax Rules 1962, we find that the assessee incurred a sum of ₹ 1.06 lacs but the AO has disallowed a sum ₹ 5,71,648.00 though the actual expenses in total claimed in the profit & loss account are very less i.e. 1.06 lacs only. Thus the expense worked out as per the provisions of rule 8D(iii) exceeds the actual expenses claimed by the assessee which does not hold any merit in the instant case. We are also relying the order of this Tribunal A Bench dated 30.03.2012 i .....

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at entire expenses incurred by the assessee have been offered for disallowance, and once that happen, nothing remains for further disallowance u/s. 114A. The disallowance under section 14A can come into play only out of expenses claimed for deduction and expenses have been claimed for deduction, there cannot be any disallowance either. The conclusions arrived at by the CIT(A) are, therefore, correct and admit no interference by us. We, approve and confirm the order of the CIT(A). Taking a consis .....

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he next issue raised by the assessee in this appeal is that Ld CIT(A) erred in treating the receipt of ₹ 4,40,730/- as income from other sources and further erred in disallowing the depreciation of ₹ 55,000/-. 10. The relevant details of the case are that the assessee purchased Trade Mark for a value of ₹ 2 lacs on dated 09.03.2007 from M/s SAF Fermion Ltd. The assessee also incurred an expense of ₹ 20,000/- towards government charges for getting it transferred in his nam .....

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fic reply to the query raised by the AO for not allowing the depreciation, but submitted the agreement copy for the assignment of Trade Mark and copies of the provision contained under section 32 of the Act. The AO disregarded the claim of the assessee by observing as under : 1) There was no business activity of the assessee where the trade mark can be used. 2) As per the provisions of section 32 of the Act, depreciation is allowed on the assets if it is used for the business carried on by the a .....

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is chargeable only under the head income from the other sources. 7) The trade mark was developed by the company - M/s SAF Fermion Ltd. and its stake was controlled by the assessee being a promoter director and shareholder of the company. On the basis of above the AO treated the receipt of ₹ 4,40,730/- as income from other sources and the depreciation for an amount of ₹ 55,000/- was disallowed and added to the total income of the assessee. 11. Aggrieved assessee preferred appeal befor .....

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f the company and not the assessee s business. The AO disallowed the depreciation on this ground and held that the whole deal is a collusive deal aimed at defrauding the revenue and unduly enriching the assessee. The assessee is beneficiary of the collusive deal without doing any activity on his own. In light of the facts and circumstances of the case I am of the considered view that such income received by way of collusive deal has rightly been taxed under the head income from other source and .....

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claim the ld. AR drew our attention to page nos. 44 to 51 of the paper book where the deed of assignment of trade mark was placed. The same trade marks were allowed for use to M/s SAF Fermion Ltd. for the consideration in terms of agreement to use which is placed on page 40 to 42 of the paper book. The ld. AR also submitted that the confirmation from the party for charging the fees for the use of trademarks which is placed on page 34 of the paper book. Finally the AR prayed to treat the income c .....

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he fees charged from the party for the use of the trademarks. The assessee has treated such receipts as business receipts and claimed depreciation on the purchase of trademarks. Now in the instant case the activity of letting out the use of the trademark is to be seen whether it is business of the assessee or not. There is no bar under the Act that if the commercial asset is used by the third party then the income will not be treated as business income . In the instant case, the commercial asset .....

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cordingly, we reverse the orders of authorities below and allow this ground raised by assessee. 13. The next issue raised by the assessee is that the Ld. CIT(A) erred in confirming the order of the AO by treating the receipt of ₹ 25,25,508/- as income from other sources and further erred in disallowing expenses incurred for earning such income. 14. Before coming to the specific issue, let us understand the brief history of the case. There are two Pvt. Companies namely M/s SNR Constructions .....

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maintenance contract was further sublet out by M/s Essar Fermion Pvt. Ltd. to the assessee in his proprietorship concern. The assessee further sublet this contract to M/s S.R. data services Pvt. Ltd. which is actually providing maintenance services to the tenants. During the year the assessee receipts service charges from the tenants for an amount of ₹ 25,25,508/-. The AO observed that the assessee has not rendered any services for receiving the income. So the AO held such income chargeabl .....

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1 Travelling and conveyance 424/- 2 Audit fees 18,000/- 3 Business promotion expenses 2,94,001/- 4 Generator maintenance charges 8,999/- 5 Lift maintenance charges 36,000/- 6 Maintenance charges 36,390/- 7 Salary 1,89,000/- 8 Repairs & maintenance 33,000/- 9 Trade licence 1,375/- 10 Bonus 3,000/- 11 Telephone charges 2,020/- 16. Aggrieved, assessee preferred an appeal before Ld CIT(A) who upheld the action of AO by observing as under:- 8.1 Thus, the assessee by virtue of having controlling s .....

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his the appellant claimed expenditure on account of service charges, which has not been substantiated by any evidence. Hence, it is held that the Assessing Officer was right in law in disallowing the same holding that the appellant had not rendered ay service for receiving the aforesaid income. Accordingly, on this ground the action of the AO is confirmed. Hence, ground No.6 of the appeal is dismissed Being aggrieved by this order of Ld. CIT(A) assessee preferred second appeal before us. 17. We .....

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R submitted that in the last assessment year some of the expenses were disallowed and prayed to disallow the expenses in the same manner. 18.1 From the aforesaid discussion we find that the assessee declared business income from the maintenance activity. But the AO treated the same as income from income from other sources on the ground that the assessee has outsourced the entire activity to a third party. It means that the assessee in the instant case was not actually performing any work of main .....

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refore to maintain the consistency we reverse the order of the lower authorities and treat the same as income from business. Regarding the disallowance of the expenses we find that in the immediate preceding assessment year, the AO has disallowed the expenses to the tune of ₹ 3,16,752.00 only. Now to maintain the consistency in the order of lower authorities, we are inclined to restore this file to the AO with the direction to work out the disallowance of the expenses in the light of asses .....

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of the assessee. 20. Aggrieved assessee preferred appeal before Ld. CIT(A) who upheld the action of AO by observing as under:- 9. Ground No. 7 of the appeal has been directed against disallowance of service charges of ₹ 12,00,000/- u/s 40(a)(ia) of the I.T Act, 1961. In this regard the Ld. A/R of the appellant has stated that no amount was outstanding at the end of the year. Hence no disallowance u/s 40(a)(ia) called for, in view of the ratio laid down by Special bench of the Hon'ble .....

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'ble High Court of Andhra Pradesh in TIR No. 304 of 2012. In view of the suspension/stay of the order of the Special Bench by Hon'ble High Court of Andhra Pradesh and also in view of the facts that the Ld. A/R of the appellant has failed to produce any cogent evidence to show that the amount had already been paid during the year, I hold that the addition made by the AO of ₹ 12,00,000/- u/s 40(a)(ia) is justified in law and on facts of the case. Accordingly, ground No. 7 of the appe .....

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tation of income, ITR acknowledgment, intimation under section 143(1) of the Act of the party which are placed at pages- 28, 26, 25 & 24 of the paper book. We find from the aforesaid discussion that the assessee failed to deduct TDS on the maintenance expenses and therefore, the AO disallowed the same and added to the income of the assessee in terms of the provisions of section 40(a)(ia) of the Act. However we find that the party to whom the maintenance charges were paid, have duly disclosed .....

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e speculation income. During the assessment proceedings the AO found that the assessee has claimed the set off of the brought forward loss arising from intraday trading of shares for ₹ 3,29,661/- against the income of speculative transactions. However there was speculation profit in the immediate preceding year for an amount of ₹ 40,51,405/- but then the loss was not set off in that year by the assessee. Accordingly the AO held that such brought forward loss which could have been set .....

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off in the immediate preceding year. However, the AO has stated that the assessee did not set it off in that year. This finding of the Assessing Officer has not been controverted by the assessee by bringing any fact on record. The Ld. A/R has not been able to justify why speculation loss of ₹ 32,96,61/- was not set off with the speculation profit of earlier year. The Ld. A/R has filed additional explanation wherein he has claimed it to be future and option loss without bringing on record a .....

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