TMI Blog2020 (9) TMI 1046X X X X Extracts X X X X X X X X Extracts X X X X ..... difference in the rates in refinancing is the income of the assessee. It is the nature of the business and all the expenditure incurred in earning the income is allowable expenditure. It is only characterization whether it is relating to expenses incurred to earn income or loss incurred in the process of making the income. Therefore,interest expenditure incurred by the assessee will fall under the category of loss. Therefore, it is allowed as an expenditure. Accordingly, ground No. 1 raised by the assessee is allowed. Disallowance u/s 14A r.w.r. 8D - HELD THAT:- AO should have considered only those investments which has earned exempt income and eliminate those investment which has not earned exempt income. In our considered view, AO should calculate the disallowance under rule 8D (2) (iii) by eliminating the investments which has not earned the exempt income. By calculating the disallowance as per above direction and AO should compare the disallowances as above by simultaneously calculating 31% of the administration expenditure and the revised disallowance under rule 8D (2) (iii). In case the revised disallowance under rule 8D(2) is less than 31% of the adminstration expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R S. RIFAUR RAHMAN, ACCOUNTANT MEMBER: The present appeal filed by the assessee is against the order of Ld. Commissioner of Income Tax (Appeals)-49, Mumbai in short Ld. CIT(A) dated 12.08.2016 for AY 2011-12. 2. Brief facts of the case are, assessee filed his return of income for AY 2011 12 on 26.09.2011 declaring total income of ₹ 1,88,99,970/ . The return of income was processed under section 143(1) of the Income Tax Act 1961 (in short The Act). The case was selected for scrutiny and notices under section 143(2) and 142(1) of the Act were issued and served on the assessee. 3. Aggrieved with the order of Ld. CIT(A), assessee filed appeal before us for sustaining the 1). disallowance of interest expenses, 2). Addition under Section 14A, 3). addition of unaccounted sales consideration, 4). non-issue of notice under section 153A and 5). levy of interest under section 234B and 234C. 4. At the time of hearing Ld AR submitted that assessee prefers to press only ground Nos. 1,2 3 and not presses ground No. 4 and 5. We are extracting the facts only relating to ground No. 1, 2 and 3. 5. The AO observed that assessee has claimed interest expenses of ₹ 11,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenditure claimed are not as per section 57 (iii) of the Act. In the instant case assessee has failed to fulfill the conditions that interest expenditure of ₹ 11,98,032/ is incurred by him for the purpose of earning the interest income. Accordingly he disallowed the interest expenditure. 9. AO observed that the assessee has shown an amount of ₹ 86,92,794/-as dividend income and claimed the same as exempt. The assessee has not shown any expenditure incurred for earning the exempt income. When the assessee was asked to furnish the details unexplained as to why expenditure should not be attributed for earning of this exempt income. In response vide letter dated 15.02.2014 stated that no expenses were incurred for earning of exempt income and relied on judicial pronouncements. AO rejected the submissions of the assessee and invoked the provisions of section 14A read with rule 8D (2) (iii) and disallowed ₹ 6,80,760/ by relying on Citicorp Finance (India) Ltd 12 SOT 248 and the case of Daga Capital Management Ltd. 10. AO observed that during the course of search in the case of Bliss GVS Pharmaceutical Group, certain loose papers pertaining to M/s Growmore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... low:- 6.2. During the appeal proceedings the appellant has submitted as under: i. The Ld. A.O. falsely claimed that the appellant failed to establish that the interest paid of ₹ 11,98,032/- was incurred by him for the purpose of earning interest income. ii. The fact of the matter was that the appellant had provided detailed explanation to Ld. A.O. vide his letter dt. 15.02.2014 (Ann 17) giving party wise details of interest paid and interest received as follows: Interest Received: Name of the party Amount of interest Rate of interest Samir N. Bhojani 230833 15.6% Jewel Developers 303333 15% Satellite Developers Ltd 3822329 12% Pure Toners Developers Pvt. Ltd. 43397 12% Prakash Housing Pvt. Ltd. 341250 16.4% Venus Wines 55068 12% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000/- to the said Supreme Mega Constructions LLP on 29.06.2010 against the overall requirement of ₹ 20 crores. Unfortunately, the LLP after accepting the said part amount returned the said amount with a request to approach them only when ₹ 20 crores were arranged. The appellant once again with the intention to raise required funds, borrowed ₹ 50,00,000/- from Global Capital Market Ltd. and ₹ 1,45,00,000/- from Khoobsurat Ltd. with the hope that by the required date he will be able to raise the required funds. During the period while he was building up the funds, he wisely chose to invest these available funds in the fixed deposits with bank and earn interest thereon at whatever available rate so as to minimise the cost of the funds. The interest earned during this period has been offered for taxation. vii. The appellant in spite of his efforts, was unable to raise the required ₹ 20 crore and had to drop the idea of lending in a big way. At the same time, he was unable to refund the amounts borrowed form the said Khoobsurat and Global which were obtained for a fixed period and were returnable after the said period. In order to minimise the cost of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e common account for Interest. Attention is invited to the Supreme Court judgement in the case of ACG Associated Capsules (P.) Ltd. 18 taxmann.com 137 has held that ninety per cent of not gross rent or gross interest but only net interest or net rent, which has been included in profits of business of assessee as computed under head 'Profits and Gains of Business or Profession', is to be deducted under clause (I) of Explanation (baa) to section 80111-1C for determining profits of business. Similarly, applying the theory of netting, only net interest is to be taxed under the same head of income. Thus, while computing the total income, interest paid has to be reduced from the amount of interest received as both come under the same head of income Income from Other Sources Your appellant prays that disallowance of interest of ₹ 11,98,032-/ u/s 57(iii) be deleted. 6.2.1. The appellant further submitted as under : 1. Explanation for utilization of borrowed funds ( Ground no.2) 1. The following loans of ₹ 2,50,00,000/- were received by your appellant : Sr. No. Name Amount D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O. disallowed an amount of ₹ 6,80,760/- by falsely resorting to Clause (iii) of Rule 8D(2) which provides for disallowance of 0.5% of average investment for indirect expenses. ii. Your appellant had vide letter dt. 15.02.2C14 (Ann 17) informed the Ld. A.O. that no administrative expenditure whatsoever was incurred for the purposes of earning the exempt income. iii. All the expenses that are debited to the Profit Loss A/c (Ann 22)., have been incurred in the due course of business and none of it is directly or indirectly incurred for the purpose of earning dividend income. iv. No expenditure could have been incurred by the appellant to earn the dividend income for the reason that the said dividend income was directly credited to the bank account through ECS. Also, all the investments have been made by the appellant through broker, who used to carry out all the operational work like filling the forms, etc. Thus, your appellant hardly spent any time or amount on the investment activities and thus no administrative expenses can be allocated to the earning of dividend income. v. Your appellant submits that no expenditure has been incurred for earning the divi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me has to be excluded as per s. 14A of the Act. iv. There should be proximate relation between the expenditure and the exempt income and in absence thereof no disallowance can be made u/s14A. The said contention of the appellant is supported by the following decisions: a) Priya Exhibitors (P.) Ltd 54 SOT 356 (Delhi-Trib) (2012)[A.Y. 2008-09] b) Justice Sam P. Bharucha, 53 SOT 192 (Mumbai) [A.Y.2008-09] c) Hero Cycles Ltd, 323 ITR 518 (P H) [A.Y.2004-05] d) Sun Investment Ltd. 8 ITR(Trib)33 (Del.) (2011) [A.Y.2005-06] 2. Failure on part of the A.O. to record satisfaction i. The appellant has not incurred any expenditure in computing dividend income which is claimed exempt from tax and therefore no expenditure was claimed for earning an exempt income. This stand of the appellant was rejected by the AO without recording any reason as to why the same was found as not satisfactory. ii. In appellant's case also the Ld AO has not recorded his satisfaction as to why the claim of the company that no expenditure has been incurred in relation to the exempt income cannot be accepted and found to be unsatisfactory. iii. The appellant had furnishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red any administrative expenses during the year to maintain these investments in the Partnership Firms and LLP. iii. Reliance is placed on the decision by the Hon'ble Mumbai ITAT in case of Garware Wall Ropes Limited (ITA No. 49571MJ2012), where it was held that no disallowance could be made uls. 14A read with Rule 8D if primary objective of investment is to hold controlling stake in group concern and not to earn tax-free income. iv. Without prejudice, it is submitted that, investment amount, being long term strategic trade investment in Partnership Firm and LLP, be excluded while J computing disallowance under Rule 8D. 4. Inaccurate calculation of average investment Without prejudice, it is submitted that the Id. AO while calculating the disallowance u/s 14A r,w.r 8D took the average of the investments at the beginning end of the year. He added the investments on which no dividend was earned while calculating the disallowance u/s 14A r.w.r 81). He also added investments which were held at the beginning of the year and sold during the year on which no dividend was earned. The id. AO while calculating the disallowance u/s 14A should have taken only the inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the following decisions; a) Balaram Chini Mills Ltd., 140 TTJ 73 (Kol) [A.Y.2008-091 b; Mohan Exports, 138 ITD 108 (Delhi) [A.Y.2008-09] Delite Enterp--ise, 135 'TTJ 663(Mum) [A.Y.2003-04] d) BNP Paribas SA, 32 twunann.com 276 (Bombay) (2013) e) GIDC Ltd (Gujarat) 37 taxmann.com 254 (2013) [A.Y.2004-05] f) Reliance Utilities, 313 ITR 340 (Born.) [A.Y.1999-00] g) UTI Bank Ltd. 32 taxrnann.com 370 (Gujarat) (2013) [A.Y.2003-04] h) Jammu Kashmir Bank Ltd. 33 ta.xmann.com 155 (Amritsar) i) Bunge Agribusiness (India) (P.) Ltd. 142 'ITJ 817 (Mum). j) Shoppers Stop Ltd No.1448 4475/Mum/2010 dt 30.08.2011. 6. Expenditure debited to Profit Loss Account was wholly incurred for earning taxable income Your appellant prays that disallowance of ₹ 6,80,760-/ u/s 14A be deleted. 8.2. The submissions made by the appellant during the appeal proceedings are summarised as under : 1. Complete failure on the part of the Ld. A.O. to observe the provisions of natural justice, equity and fairness -No inquiry - no opportunity to explain the facts and the case - sole reliance on the findings of the AO in third party&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herwise was sustainable either in your appellant's case or in any other case including in the case of the said Growmore Investments Developers and Pvt. Ltd. on the basis of the said Hundis in the limited facts of the case known to your appellant. i. Addition based on loose per The AO failed to establish any real connection between the seized documents and the appellant or Grownmore Investments Developers Pvt. Ltd (GIDPL) . It has simply assumed that the loose papers belong to the appellant or GIDPL. The paper were not even discovered at the appellant's or G1DPL's premises but were recovered from a third party's premises. The seized hundis-bills were not even dated. They were simply dumb documents with absurd noting on loose sheets. 'The Ld. A.O. has made additions simply on the basis of loose documents. He has no material record to prove that ₹ 1,50,00,000/- represents income of the appellant of GmPL. He has no material or corroborative evidence on record to prove that cash of ₹ 1,50,00,0001- was paid by the appellant or GIDPL to Bliss GVS Pharma Ltd. ii. Loose papers found in search of third party premises. No addition can be mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income Tax(Invt) furnishing the explanation of the seized material gave the following explanation: These are the discharged hunch papers for an maount of ₹ 1.25 crore. The transaction of loan to Growmore Investments is reflected in the books of accounts of Bliss GVS Pharma Pvt. Ltd. The hand written figures mentioned on the reverse of these pages are cash transactions. We have issued a cheque to Growmore Investments and Developers Pvt. Ltd which is reflected in the regular books of account. Copy of account in books of Bliss GYS Pharma Ltd is enclosed . From the declaration it is clear that the transaction was a loan transaction and no income was involved, that there was only cheque transaction and no cash were involved and all the entries were reflected in the books of accounts. vi. The nature of transaction was in the knowledge of the third party M/s. Bliss GVS Pharma Ltd. vide its letter dt. 25.03.2013 stated that We wish to state that we had no other financial transaction with M/s. Growmore Investments and Developers Pvt. Ltd This is the only transaction between M/s. Bliss GVS Pharma Ltd and M/s. Growmore Investments and Developers Pvt. Ltd and there are no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which was clearly brought out in it's order. ix. The backside of the loose paper indicates refund of money The photocopies seized from the premises of Bliss GVS Pharma Pvt. Ltd. contained a narration which read Received cosh with thanks from M/s. Growmore Investmnts and Developers Pvt. Ltd. ₹ 25,00,000/- Even if this narration is believed to be true and binding on the appellant or GIDPL, it speaks of money /advance being refunded to Bliss GVS Phanna Pvt. Ltd. An advance that is returned can never be considered to mean anybody's income. Consequently, no addition u/s. 69 can be made when the money paid and received represented an advance being returned. x. GIDPL had explained the nature of transaction which it had with -M/s. Bliss GVS Pharma Pvt. Ltd, by explaining the facts with proofs that it had borrowed money by cheque on interest and had repaid the same with interest after deducting tax. GIDPL had entered into a normal business transaction with MIs. Bliss GVS Phanna Pvt. Ltd. This transaction was basically an intention to do real estate business jointly in future; involved the receipt of sum of ₹ 1,50,00,0001- by GIDPL from the said NI/s. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the declaration it is clear that the transaction was a loan transaction and no income was involved, that there was only cheque transaction and no cash were involved and all the entries were reflected in the books of accounts. xiii. An affidavit and confirmation to this effect of the 114/se Bliss GVS Pharma Pvt. Ltd. was obtained and filed by GIDPL. Mr. S.N. Kamath vide his affidavit dt. 28.01.2015 confirmed the following facts: The said Mr. Vipul Thakkar, FINANCE MANAGER of the company Bliss GVS Pharma Ltd, was in need of money for his personal use and therefore, on the strength of the above promissory notes, he had taken a cash loan from the company Bliss GVS Pharma Ltd. by misrepresenting that it was Growmore Investments and Developers Pvt Ltd who had borrowed the money, this time in cash without disclosing the true fact that it was he who had borrowed cash and had misused the security offered by the said Growmore Investments and Developers Pvt Ltd against the advance given to it by cheque. That the said cash loan taken by the said FINANCE MANAGER Mr. Vipul Thakkar was repaid by him in cash to Bliss GVS Pharma Ltd and the fact of refund of loan by the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cheque transaction and no cash were involved and all the entries were reflected in the books of accounts. xv. None of the case law relied upon by the Ld. A.O. are relevant to the facts of the said GMPL's case or of your appellant's case. Kindly note that none of the cases referred to and relied upon by the id. A.O. in his order are relevant to the facts of your appellant's case. Further, the said cases dealt with the assessment of persons who were searched and not with the cases of the third party assessment similar to the case of your appellant. In addition, the said cases dealt with the statements on oath made by the searched person concerning their income while in your appellant's case no such statement has been made by your appellant or GMPL. (in fact some of the cases directly support your appellant's contention that no addition could have been made on the basis of presumptions) All the details as stated above have been submitted by Growmore Investments and Developers Pvt. Ltd. before your honour in the appeal no. 49/IT-445/13-14 from time to time. 3. Once again without prejudice to the aforesaid submission that the addition made by the Ld. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t found or seized from the appellant's premises but was seized in the hands of the said Bliss GVS Pharma Ltd. In the circumstances, no addition could have been made on the basis of a loose paper that was seized from third party without examining the facts and without establishing that the said loose paper belonged to your appellant and importantly it represented your appellant's unaccounted income. viii. Again the said loose paper was a Xerox copy when seized and was undated and unsigned and Was not in handwriting of your appellant and therefore no addition could have been made by the Ld. A.O. without discharging his onus of establishing that it belonged to your appellant and represented his unaccounted income. ix. Not only the Ld. A.O. had convinced himself that the said loose paper belonged to your appellant but he had failed to record any satisfaction to the effect that such a loose paper belonged to him. Importantly, he was not even in possession of the alleged loose paper to have formed any opinion about it's belonging and for recording his satisfaction thereby. x. The said Bliss GVS Pharma Ltd. had clearly explained and confirmed in writing vide let ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that the said amount was borrowed to earn interest @15% per annum by lending the same to M/s. Supreme Mega Constructions LLP and therefore should be allowed as an expense u!s.57(iii) is not found to be justified since the same is not supported by any agreement with M!s. Supreme Mega Constructions LLP in this regard. The only evidence submitted by the appellant is a letter dated 25.5.2010 from the said MIs. Supreme Mega Constructions LLP which states as under: With reference to our discussion of the captioned subject , we request you to lend us or arrange for such lending an amount of ₹ 20 crores on or befcre 30 June 2010 on which we will be pleased to pay an interest @15%. The said amount is required for the purpose of the proposed subject of development of land bearing CTS No.372, CTS No.372/1 to 4 and CTS No.425 situated at Mar 01, the acquisition of which is in progress. We shall refund the money by 31st March 2011. 6.5. I find that the payment of ₹ 13.80 crores was made on 29.6.2010 to MIs. Supreme Mega Constructions LLP, which has been received back on 30.6.2010. In the submissions made it has been admitted by the appellant that the loan to M/s. Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that although the A.O. has not specifically mentioned the expenses which have been incurred towards earning of dividend income he has computed the disallowance. u/s 14A at ₹ 680760/-, by taking 0.5% of average investment, under Rule 8D (2)(iii). 7.4.1 I find that the primary onus was on the appellant to show that no expense was incurred in relation to the exempt income. The same has not been discharged. The A.0 has made the assessment after considering the accounts and submissions of the assessee. The appellant has admitted that its investment in shares and securities at the year end aggregated to an amount of ₹ 14.39 Crore( Op. Bal. of ₹ 13.62 Crores). The appellant has also earned dividend income of Rs. ₹ 86,92,794/- and claimed the same as exempt. Considering the sizeable portfolio of shares and the activities undertaken, I am of the considered opinion that expenses would have been incurred for managing the same by way of using the services of staff, office phones etc. Similarly, expenses would be involved in maintaining and keeping records, their audit and accounting etc. From the profit and loss account it is seen that the various administrative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n capital of the appellant is far in excess of the average investment in shares and securities, in view of the decision of the Bombay High Court in the case of CIT vs. HDFC Bank Ltd- ITA No.330 of 2012- Pronounced on 23-July-2014. However, the A.O. would work out the disallowance under Rule 8D (2)(i) with respect to interest expenditure on borrowings utilized in purchase of Kotak Flexi Debit scheme, if applicable, as directed in pare 6.5 above. This ground is partly allowed. 8.3. I have carefully examined the facts of the case, the stand taken by the A.O in the assessment order, the grounds of appeal, the written submissions filed by the appellant during the hearing proceedings and the remand report of the A.O. 8.4. I find that the appellant and his wife Priya Gehi, being co-owners of the property at 101, Hyde Park and 112, Hyde Park have sold these properties during the F.Y.2010-11 relevant to A.Y.2011-12. The appellant is also director of M/s. Growrnore Investment Developers Pvt Ltd (GIDPL). Following the search in the case of M/s. Bliss GVS Pharma Ltd and Shri S.N. Kamath, wherein certain documents i.e. pages 35 to 46 of Annexure A-i showing financial transactions, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or order the sum of Rupees Twenty five lakhs only for value received this day. Sd- Growmore Invesment Developers Pvt ltd Address:- Director Notice of Dishonour Waived Signature of Drawer On the backside of the document it is noted as under: Received cash with thanks from M/s. Growmore Investments Developers Pvt Ltd. ₹ 25,00,000/- ( Rs. Twenty Five lacs only) For BLISS GVS PHARMA LTD Sd/- Authorised Signatory 8.4.3. On a reading of both the sides of the said bill of exchange it prima-facie appears that cash loan of ₹ 25 lacs has been received by Growmore Investment Developers Pvt Ltd (GIDPL) from Bliss GVS Pharma Ltd and it has been subsequently repaid in cash to Bliss GVS Pharma Ltd, since there is no mention of any cheque or other bank transaction or date on the front side and there is a specific mention of cash received on the backside of the document. This shows that these are cash hundies and not promissory notes against a loan taken through banking channel, as claimed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en to GIDPL by M/s. Bliss GVS Pharma. He has also confirmed that whatever was stated in his affidavit dated 18.2.2011 was correct. He has also stated that the transaction with GIDPL was purely cheque transaction which was reflected in the regular books of CCOUflt. It was further stated by Shri Karnath regarding the nature of transaction of ₹ 1.50 crcres paid to GIDPL, in reply to Q.No.27 as under: In my personal capacity / had to buy a property at 101, Hyde Park. The related papers page No. 40 was found from my residence which was giving the estimation of total consideration and I was to pay ₹ 1.13 crores approximately in cash and to meet this obligation the cheque of ₹ 1.50 crore was given to Mis. Growmore. / completed my obligation in purchasing the property and the cheque was returned to MIs. Bliss GVS. Another question (No.29) was put to Shri Kamath : Q- it is noticed that M/s. Bliss GVS Pharma has purchased a property 102, Hyde Park from Mr. Ravi Gehi. Why the inference cannot be drawn that this can be the same type of obligation as referred by you in the answer to Q.No.28 (correct question No. is 27). Ans. The same inference cannot be draw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the company. The loose papers No.35 to 46, being photocopies of the backside of the promissory notes, represent the repayment of loan by Mr. Vipul Thakkar and have nothing to do with the said GIDPL. These facts have been confirmed by Shri Vipul Thakkar in the statement of facts filed before the settlement commission in application made by him for settlement of his income for A.Y.2011-12. (viii) M/s GIDPL has submitted before the A.O. that a sum of ₹ 1.5 crores was given by M/s. Bliss GVS Pharma Ltd by way of RTGS transfer into the bank account of M/s. GIDPL on 29.6.2010 which was returned on 16.7.2010 by cheque no.040501 dtd 16.7.2010. The same was cleared for payment in the bank account of GIDPL on 19.7.2010 and interest of ₹ 93698/- was paid on this loan. It has been submitted that the transaction of receipt of amount of ₹ 1.5 crore was supported by bills of exchange issued by GIDPL which was signed by Mr. Ravi Gehi, Director of the company and on repayment of the amount, the security provided i.e. all the six original bills of exchange were duly returned to M/s. GiDPL without any such noting on the backside of the bills of exchange. 8.5. It is furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e period of transaction through banking channel of ₹ 1,50 crores matches with the sale transaction with respect to property at 102, Hyde park vide agreement dated 7.7.2010. It is also noted that there is no co-relation between the transaction amounting to ₹ 113,22,9401- and the issue of hundies of ₹ 1.50 crores. In fact, even before the settlement commission the payment of cash of ₹ 1.5 crore has been treated by Bliss GVS Pharma Ltd as application of funds/cash outflow and it has been submitted as under : The applicant has purchased office premises at Hyde Park, Opp. Chandivali Crossing, Powai, Anciheri (East), Mumbai. In this deal, applicant was to pay cash towards part consideration but failed to meet the obligation as committed and a cheque was drawn in favour of Ws. Growmore Investment and Developers Pvt. Ltd. The bundles were drawn by Growmore Investment and Developers Pvt. Ltd and got it discharged so that the applicant cannot demand cash/cheque from Growmore Investment and Developers Pvt Ltd. The applicant has discharged the obligation in the deal of property by settling the dues and hundies were returned to the applicant. The source of this ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee is in appeal before us, raising 6 grounds of appeal and since assessee has not preferred to press ground No. 4 and 5, ground No. 6 being general. Accordingly, ground No. 4, 5 and 6 are dismissed. 15. At the time of hearing, Ld AR brought to our notice page 4 of paper book and brought to notice details of interest income and interest expenditure claimed by the assessee in the statement of total income. He brought to our notice page 11 of the paper book, which is submission of the assessee before assessing officer that assessee is earning interest income by lending the money on interest. He submitted that assessee is earning the interest income ranging from 12% to 16.4% and also takes loans from private parties to whom he pays interest @9% . The differential rate is the income of the assessee. He brought to our notice page 19 of the paper book which is letter of request/proposal for loan of ₹ 20 crores @ 15% from M/s Supreme Mega Constructions LLP required for the purpose of proposed development of land. He also brought to notice bank statement of HDFC bank in which assessee has taken various loans from M/s Khoobsurat Ltd and M/s Satellite Developers Ltd on various da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceipt of ₹ 1.5 crores by assessee or his wife. He brought to our notice the copies of Hundies, which are between GIDPL and BGVSPL. No doubt, the assessee has signed the document on behalf of GIDPL, as a director. Further he submitted that the income was already assessed to tax in the hands of GIDPL and the same income is assessed to tax in the hands of assessee. Further he brought to our note that no addition was made in the hands of assessee s wife. He prayed that the above addition may be deleted as there is no material found linking the assessee who has actually not received anything above the declared consideration in the return of income. 18. On the other hand learned DR submitted with regard to ground No. 1 that the letter produced from M/s Supreme Mega Constructions LLP is afterthought arrangement and there is no link of interest expenditure to the interest income earned by the assessee during this assessment year, therefore the interest expenditure has no direct link to the interest income earned by the assessee. Therefore, as per the provisions of section 57, assessee can claim deduction only those expenditure which are incurred to earn the interest income. 19. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to make arrangement of total requirement of the developer i.e. ₹ 20 crores. The intention of the assessee to arrange for the above requirement and managed to arrange only ₹ 13.8 crores, remitted the above said amount to the developer and the developer has returned the same next day. It clearly indicates that assessee made effort to complete the transaction. It is not necessary that you can earn in every transaction and in this case, instead of making interest income, assessee has incurred a loss. We do not agree with the tax authorities that only income is chargeable to tax under the head income from other sources and the loss is not chargeable under the head income from other sources. The intention of the legislature to allow the expenditure incurred by the assessee to earn the income from other sources, which is directly linked to the earning of such income. In the given case, the assessee has not incurred the expenditure directly linking the interest income but incurred the loss by arranging the funds for earning the interest income. You cannot segregate the income alone without considering the object of the transaction or nature of the business of earni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture to simplify the procedure for calculating the expenditure incurred for earning the exempt income, sometimes it ends up in absurd results. In the given case, we notice that the assessee has actually incurred administration expenses only ₹ 15,39,003/ whereas AO determined that the disallowance under rule 8D (2) (iii) of ₹ 6,80,760/-, which is equal to 44% of the total administration expenses. The assessee has incurred that the administration expenses to earn the total income which includes exempt income. The gross total taxable income of the assessee is ₹ 1,90,28,159/ and exempt income is ₹ 86,92,794/ . Therefore, the total gross income earned by the assessee is ₹ 2,77,20,953/ . The percentage of exempt income on total gross income is 31%. 24. We notice from the assessment order that the AO has considered average value of investment and applied the rule. We do not know whether the assessee has earned the exempt income from all the investments made by the assessee. As per the judicial precedents, the AO should have considered only those investments which has earned exempt income and eliminate those investment which has not earned exempt income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bliss GVS u/s 69B and the same shall be added in the hands of assessee and co-owner of the property as unaccounted cash consideration received for sale of property. Because it is added in the assessment in the case of Bliss GVS, it was also added in the hands of assessee and the co-owner. 27. During assessment proceedings, the assessee obtained an affidavit and confirmation from Bliss GVS and as per which Mr. Vipul Thakkar who is the finance manager of Bliss GVS and was in need of funds for personal requirement has misused his capacity as finance manager and utilized the hundies to withdraw cash from the company. It was confirmed that he has refunded the funds to the company. The transaction recorded back side of the hundies represents the repayment of loan by Mr. Vipul. M/s Bliss GVS has confirmed in writing that there was no cash transaction with M/s Growmore Investments. This was also confirmed by Mr. Kamath vide letter dt 25.02.2011 before Addl Director of Income Tax (investigation) that the transaction of discharged hundi papers involving loan transaction with Growmore Investments. 28. We find that Ld CIT(A) confirmed that assessee and his wife co-owner sold two propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... writing on the back side of the hundies. Other than that there is no other proof linking the assessee to have received the cash from Bliss GVS, moreover in this case, it was found that employee of the Bliss GVS has received the cash. From the hundi transaction and the contents of the hundi, clearly indicate that this transaction was between Growmore Investment and Bliss GVS. Any proceedings has to be taken with these companies and just because there is property transaction by the assessee, the revenue cannot presume itself linking assessee as the beneficiary of the transaction. We already indicated above that there is no benefit to Bliss GVS in the above transactions and neither to Growmore Investment. Whatever Bliss GVS has paid in cash presumably to assessee, was received back. 32. In our considered view, AO has linked hundi transaction between Growmore Investment and Bliss GVS with assessee. There is no proof coming out of the documents found during search linking the assessee as the beneficiary except presumption and assumptions of the tax authorities. Since there is no cogent material in the possession of the revenue to indicate that the assessee has actually received cash ..... X X X X Extracts X X X X X X X X Extracts X X X X
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