TMI Blog2015 (8) TMI 1492X X X X Extracts X X X X X X X X Extracts X X X X ..... g any concrete diversion of interest bearing funds CIT (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 2006-07, 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. Assessing Officer in scrutiny assessment. Thus considering the past history and stand of the revenue itself, we are of the view that AO has erred in making the disallowance. CIT (Appeals) also failed to appreciate that total expenditure is to be allowed which is incurred wholly and exclusively for earning income. It cannot be restricted in proportion of income. We allow the ground of appeal raised by assessee and consequently reject the ground raised by the revenue. The assessee is entitled to expenditure of ₹ 1,09,29,139/- claimed by him. Addition of cost of improvement on account of long term capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 ₹ 1,09,29,139/- as against interest income of ₹ 50,27,815/-. The ld. Assessing Officer has noticed the details of interest earned and interest paid. After considering the explanation of assessee, he disallowed the claim of assessee to the extent of ₹ 1,07,38,991/-. The finding recorded by the Assessing Officer reads as under:- 4. Interest Expenses On perusal of the original return of income filed on 23.10.2008 it is observed that the assessee has claimed Interest Expenses of ₹ 1,09,29,139/- as against the interest income of ₹ 50,27,815/- as detailed under: Interest Earned Interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use for the allowably of the interest expenses. Also the assessee was requested to furnish the details of TDS deducted on interest payment to the various persons alongwith the copies of challans of TDS deposited into Govt. A/c. and returns of TDS filed with the Department, if he is treating the same as business expenses. In reply the assessee vide his letter dated 25.11.2010 submitted as under: For the allowability of the interest expenses claimed in the proprietary business in the name of M/s. Apollo Organizers Builders, the assessee relies on the decision of ITAT delivered in his own case for AY 2003-04. Furthermore the interest expense of ₹ 1,90,148/- debited and claimed in this proprietary concern pertains to Shah Ambalal Dosachand only and TDS of ₹ 19,585/- is deducted on it. In support details of TDS expenses and copy of TDS Chalaln is enclosed herewith. The same should therefore be allowed in full. Moreover there is an opening balance of ₹ 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 ₹ 19585/- on interest paid of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - on interest paid of ₹ 1,90,148/-. In view of the above discussion the interest expenses of ₹ 1,07,38.991/- are disallowed and added to the total income of the assessee. Penalty proceedings u/s. 271(1)(c) of the I.T. Act are initiated for furnishing inaccurate particular of return of income. 5. On appeal, ld. first appellate authority has partly deleted the disallowance made by the Assessing Officer. The relevant finding recorded by ld. first appellate authority in para 5.6 5.7 is wroth to note. Thus, they read as under:- 5.6 On perusal of the records of the appellant, I find that the appellant has declared the impugned interest income of ₹ 50,27,815/- and expenditure of ₹ 1,09,29,139/- under the head income from other sources in the original return of income filed on 23.10.2008 for A.Y.2008-09. Subsequently, the appellant filed revised return of income on 30.03.2009, declaring impugned 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 nones ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income. As per the provisions of section 57 of the IT Act, 196, only the expenditure incurred for the purpose of earning income taxable under the head income from other sources is allowable. In the instant case, the appellant has earned interest income of ₹ 50,27,815/- taxable under the head income from other sources. The appellant has claimed interest expenditure of ₹ 1,09,29,139/- to earn aforesaid interest income. Neither during assessment proceedings nor during appellate proceedings, the appellant could establish that borrowings were at substantially higher rate of interest than to the investment which resulted into such huge loss to the appellant under the head income from other sources . It is an undisputed fact that the appellant has shown the impugned interest income and expenditure under the head income from other sources and therefore, only the interest expenditure incurred for earning impugned interest income can be allowed to the appellant 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 purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure incurred directly for earning such income. The ld. first appellate authority has partly confirmed the disallowance for three reasons namely; (a) that it appears assessee had taken loan/borrowings at interest and invested these for earning interest income as shown under the head income from other sources and part of such borrowing has been invested by the assessee for some other purpose or for business purpose for which interest expenditure cannot be allowed under the head, income from other sources against impugned interest income, (b) on random verification of the past record, it reveals that assessee has declared interest income and expenditure under the head income from other sources but in most of earlier years, the interest income is more than the interest expenditure, therefore, it was allowed. (c) No prudent businessman would borrow the funds at higher rate of interest and invest those funds at lower rate of interest. 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 loans/borrowings at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .. Interest on Govt. Securities 1781677 UNIT 64 BOND INTEREST Less: Deductions 9086 MANIBHAI V. PATEL (HUF) 890481 KAILASHBEN MANIBHAI PATEL 786483 MANAN MANIBHAI PATEL 2067640 MAULIK MANIBHAI PATEL 1469794 MANIBEN MANIBHAI PATEL 902013 MEHSANA URBAN BANK 23/421 1578540 MEHSANA URBAN BANK 17/6269 915834 MEHSANA URBAN BANK 20/53 148106 PINALBEN MANAN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 JAYNTILAL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsons 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, interests have also been paid in the present year. Thus, the loan was taken from these persons long back and every year assessse 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 not used by the assessee for earing income which is to be assessed as income from other source . In the present year, Ld. First Appellate Authority has allowed the deduction to the extent, he assumed that assessee must have incurred 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 ₹ 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 allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue reads as under:- 6.1 During the course of appeal hearing the appellant has submitted detailed written submission along with relevant enclosures (P.B. 390 to 394). Relevant portion may be reproduced as below:- From the records it verifiable that the Assessee has already explained the matter vide Assessee's; letter dated 23rd November, 2010. It is also to be noted from the records that the Assessing Officer has not accepted the Assessee's claim of additional cost to the tune of ₹ 6 lacs in computing capital gains chargeable to tax for, want of corresponding bill raised by the builder. The appellant has filed complete details as per para 2.5(I) (ii) of submission dated-03.11.210 which interalia includes ledger account of the party and copy; of construction bill as further explained as per para-3 of submission dated 23.11.2010. The appellant is regularly and consistently maintaining his books of accounts on mercantile basis and the same is accordingly accounted for in the books and payment of ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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