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TMI Blog2015 (8) TMI 1491X X X X Extracts X X X X X X X X Extracts X X X X ..... of balance at Rs. 59,62,567/-. The revenue in its appeal is impugning deletion of disallowance at Rs. 47,76,424/- whereas assessee is impugning the confirmation of addition at Rs. 59,62,567/-. 3. Brief facts of the case are that assessee has 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 Rs. 51,56,527/- was claimed which was reduced to Rs. 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 change of the Assessing Officer, a fresh notice was issued u/s. 143(2). The ld. Assessing Officer has not accepted the revised return on the ground that original return filed was not filed within time, therefore, assessee cannot file revised return. 4. On scrutiny of the accounts, it revealed to the Assessing Officer that assessee has claimed interest expenses of Rs. 1,09,29,139/- as against interest income of Rs. 50,27,815/-. The ld. Assessing Officer has notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TDS Chalaln is enclosed herewith. The same should therefore be allowed in full. Moreover there is an opening balance of Rs. 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 Rs. 19585/- on interest paid of Rs. 1,90,148/-. The assessee furnished the copy of challan of Rs. 19585/- only as a proof of depositing the TDS into the Govt. A/c. on 16.04.2008. From the submission of the assessee it is seen that the assessee himself admitted that interest expenses of Rs. 1,90,148/- is claimed as business expenses in his proprietary concern M/s. Apollo Organizers & Builders which means the balance interest expenses of Rs. 1,07,38,991/- has been claimed to earn income from other sources i.e. Interest Income of Rs. 50,27,815/- which is apparently unreasonable and cannot be allowed in whole. Accordingly the interest expenses of Rs. 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 Rs. 1,07,38,991/- did not have any correlation with the interest income earned in acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugned interest income and expenditure under the head "business and profession". It is a fact on record observed by the Assessing Officer that the original return of income was belated return and therefore, 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 Rs. 50,27,815/- and interest expenditure against the same claimed by the appellant is Rs. 1,09,29,139/- and therefore, not satisfied with explanation offered for various reasons discussed above disallowed interest expenditure of Rs. 1,07,38,991/-. As discussed, supra, the Ld. A.R. submitted voluminous details and arguments to allow the impugned interest expenditure. From the facts on record, it is gathered that the appellant has shown the interest income and expenditure under the head "income from other sources" since last - several years and most of the parties from whom interest is received and paid are the same. No doubt a few of the parties have been added as new parties to whom interest have been paid dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in view of direct provisions of section 57 of the IT. Act. The argument of the appellant that the unsecured loan borrowed on interest has been used for earning impugned interest income as well as for other business purposes will come to his rescue only to the extent the borrowings utilized directly for earning interest chargeable under the head income from other sources. The argument of the appellant that most of the parties to whom interest has been paid are old and the interest payment to such old parties has been accepted by the department as well as the Hon'ble ITAT, 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 invest those funds at lower rate of interest which will result into loss venture. The material available on record sugg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax (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 income was not sufficient to take care of interest expenditure and, Ld. First Appellate Authority inferred that assessee must have invested the funds somewhere else. This observation is not based on any evidence from the record. It is only an assumption on the ground that no businessman would take funds on a higher rate of interest and invest them at a lower rate. At this stage, we would like to refer the assessment of assessee in the earlier years and subsequent years and how the department has 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 Inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 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 Rs. 60,000/- on account of dividend income and accepted the loss of Rs. 23,43,707/- 12. In the subsequent year, the income from interest income has been shown by the assessee in the computation of income. It reads as under:- "INCOME FROM INTEREST Interest from S/B and Notified Companies BANK INTEREST 2303 Interest on F.D. with Banks BANK FOR INTEREST 4189997 Other Interest Income NSS INTEREST 29311 PINALBEN MANANBHAI PATEL 87297 DEEPABEN MAULIKKUMAR PATEL 342183 MANAN MANIBHAI PATEL 65711 PRABHU STEEL CORPORTION 264495 MAHENDRABHAI HARANBHAI 232603 BHIKHABHAI NARANBHAI 232603 PYANK JAYANTILAL 78904 JAYANTILAL SOMABAHI 12329 ANANIBEN JAYNT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 Rs. 50,27,815/-. He must have incurred 95% of this income as expenditure on interest and, therefore, 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 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 (Appeals) but inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and consistently maintaining his books of accounts on mercantile basis and the same is accordingly accounted for in the books and payment of Rs. 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 Rs. 6 lacs is added to his total income as undisclosed income of the assessee. Thus, the action of the Assessing Officer on this count is contradictory to each other and amounts to double taxation and non-application of mind for the sake of making flimsy addition. The Hon'ble Commissioner of Income Tax (Appeals) may be pleased to delete the said disallowance of Rs. 6 lacs in computing capital gains and also delete the addition of Rs. 6 lacs as alleged undisclosed income. For ready reference copy of Appellant's letter dated 23.11.2010 (Annex. 1), copy of appellant's letter dated 03.11.2010 (Annex.3 with relevant enclosures marked as Annex.3.1 to 3.6 are submitted herewith for kind-perusal and necessary actions." ..... 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