Shri Paraskumar Pankajkumar Desai, Ahmedabad V. The ACIT, Circle-12, Ahmedabad

ITA 1361/AHD/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9691 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 22-12-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 07-05-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: R C SHAH
• Keywords: Salary income; Earning of tax free income
• Section: 68

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD . . , , BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ I.T.A. NO.1361/AHD/2014 ( / ASSESSMENT YEAR: 2010-11) PARAS KUMAR PANKAJ KUMAR DESAI, PARAG BUNGLOW, MITHAKHALI SIX ROAD, ELLISBRIDGE, AHMEDABAD 380006 / VS. ASST. COMMISSIONER OF INCOME-TAX CICLE 12, AHMEDABAD 1 ST FLOOR, NARAYAN CHAMBERS ASHRAM ROAD AHMEDABAD, 380009 ./ ./ PAN/GIR NO. : AAOPD 6537 H ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI R.C. SHAH, A.R. / RESPONDENT BY : SHRI PRASOON KABRA, SR.D.R. / DATE OF HEARING 22/12/2016 / DATE OF PRONOUNCEMENT 23/12/2016 / O R D E R PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-XX, AHMEDABAD, DATED 03/02/2014 FOR THE ASSESSMENT YEAR (AY) 2010-11 AND FOLLOWING GROUND HAS BEEN TAKEN: THAT THE CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF DEDUCTION OF RS.2,03,554/- CLAIMED UNDER THE HEAD INTEREST INCOME ALTHOUGH TO THIS EXTENT, THERE IS NO REAL INCOME NOR EXPENSE AS THE SAME WAS SET OFF BY CORRESPONDING INCOME. IT IS SUBMITTED THAT THE DISALLOWANCE BY THE A.O. U/S.57(III) OF THE ACT IS ALTOGETHER ON WRONG PRESUMPTION WHICH IS FACTUALLY INCORRECT. IT IS THEREFORE, ITA NO.1361/AHD/2014 PARAS KUMAR PANKAJ KUMAR DESAI VS. ACIT ASST.YEAR 2010-11 - 2 - SUBMITTED THAT THE DEDUCTION OF RS.2,03,554 BE ALLOWED IN COMPUTING THE TOTAL INCOME OF THE APPELLANT IN VIEW OF THE VIEW OF THE FACTS MENTIONED IN THE STATEMENTS OF FACTS AND THAT THE ASSESSMENT BE DIRECTED TO BE MODIFIED ACCORDINGLY. 2. THE FACTS OF THE CASE ARE ON VERIFICATION OF THE DETAILS FURNISHED BY THE ASSESSEE IT IS NOTICED BY THE LD.A.O. THAT ASSESSEE WHILE COMPUTING THE TOTAL INCOME HAS DEDUCTED THE INTEREST EXPENSES OF RS.2,03,554/- PAID TO HDFC BANK AND ALSO DEDUCTED FEES PAID TO DIVYANG OF RS.52,000/- IN THE HEAD OF INCOME FROM OTHER SOURCES. THESE DEDUCTIONS ARE NOT ALLOWABLE U/S 57(III) OF THE I.T. ACT AS THIS EXPENDITURE IS NOT INCURRED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. ACCORDINGLY A SHOW CAUSE NOTICE WAS GIVEN TO THE ASSESSEE. 3. IN RESPONSE THERETO, THE ASSESSEE REPLY IS REPRODUCE AS UNDER: WE HAVE TO STATE THAT DURING THE YEAR, THE ASSESSEE HAD EARNED INTEREST INCOME OF RS.43,59,095/- WHICH INCLUDED INTEREST INCOME OF RS.23,26,707/- ON F.D. WITH HDFC BANK ALSO. AS THE ASSESSEE WAS IN NEED OF SOME FUNDS FOR A SHORT PERIOD AND AS THE PRE-MATURED ENCASHMENT OF F.D. WITH HDFC BANK WAS LIKELY TO RESULT INTO A LOSS, THE ASSESSEE HAD TAKEN AN OVERDRAFT AGAINST THE SAID F.D. AND UTILIZED THE BORROWED MONEY FOR ACQUIRING AN IMMOVABLE PROPERTY. ON SUCH OVERDRAFT, HE HAD PAID INTEREST OF RS.2,25,363/- TO HDFC BANK AND SINCE THE ASSESSEE HAD EARNED INTEREST INCOME OF RS.2,03,554/- ON THE SAID F.D. FOR THE SAID PERIOD, THERE WAS NO REAL INCOME TO THIS EXTENT AND, THEREFORE, DEDUCTION TO THIS EXTENT WAS CLAIMED. THE REASON WAS THAT IF THE F.D. HAD BEEN WITHDRAWN AND UTILIZED THE PROCEEDS OF F.D., INTEREST ON F.D. WOULD NOT HAVE BEEN EARNED. EVEN OTHERWISE, INTEREST EXPENSE IS SET OFF BY THE INTEREST EARNED. IN VIEW OF THIS, THE DEDUCTION CLAIMED IS IN ORDER. AS REGARDS THE FEES OF RS.52,000/- PAID TO DIVYANG AND CLAIMED AS DEDUCTION, WE HAVE TO STATE THAT HE IS RENDERING THE SERVICES OF LOOKING AFTER THE FINANCIAL MATTER OF THE ASSESSEE AND ADVISES ON THE INVESTMENT OF SURPLUS FUNDS IN VARIOUS MODES OF INVESTMENT LIKE F.D., INCOME FUNDS OF MUTUAL FUNDS ETC. AND HE WAS AID THE FEES OF RS.52,000/- DURING THE YEAR. AS THE SAID FEES WERE ITA NO.1361/AHD/2014 PARAS KUMAR PANKAJ KUMAR DESAI VS. ACIT ASST.YEAR 2010-11 - 3 - PAID FOR EARNING TAXABLE INCOME OF THE ASSESSEE, THE SAID FEES ARE CLEARLY DEDUCTIBLE U/S.57 OF THE ACT. 4. I HAVE GONE THROUGH THE REPLY OF THE ASSESSEE WHICH IS NOT TENABLE AS IT IS EVIDENT THAT ASSESSEES INCOME IS NOT ONLY INTEREST INCOME BUT ALSO HE IS RECEIVING INCOME FROM CAPITAL GAIN, INCOME FROM PARTNERSHIP FIRM, INTEREST INCOME FROM PARTNERSHIP FIRM, INCOME FROM SALARY AND DIVIDEND INCOME. IT IS ALSO EVIDENT FROM THE ANNEXURE FILED BY THE ASSESSEE ALONG WITH RETURN OF INCOME THAT HE HAS SOLD AND PURCHASED THE SHARES OF AROUND 50 COMPANIES AND HE HAS DONE MORE THAN 100 TRANSACTIONS DURING THE YEAR. FURTHER IT IS CLEARLY EVIDENT THAT THE ASSESSEE IS DOING HIS INVESTMENT ACTIVITY THROUGH THE HDFC BANKING CHANNEL AND THE OVERDRAFT ACCOUNT ON WHICH THE INTEREST WAS INCURRED WAS USED FOR INVESTMENT ACTIVITY IN SHARES AS WELL AS OTHER FINANCIAL ACTIVITIES. THERE IS NO DIRECT NEXUS OR NECESSITY FOR SUCH OVERDRAFT ACCOUNT AGAINST THE F.D. INTEREST INCOME. FURTHER, THE ASSESSEE HAS NOT SHOWN THE PURPOSE OF AVAILING OF OVERDRAFT ON WHICH HE HAS INCURRED INTEREST EXPENSE. EVEN IN THE REPLY OF THE SHOW CAUSE, HE HAS JUST STATED THAT THE ASSESSEE WAS IN NEED OF SOME FUNDS FOR A SHORT PERIOD. IT CLEARLY PROVES THAT SUCH INTEREST EXPENSES WERE INCURRED FOR DAY TO DAY INVESTMENT ACTIVITIES AND ALSO FOR EARNING EXEMPT INCOME. IT IS THE PRIMARY REQUIREMENT OF SECTION 57(III) OF THE I.T. ACT THAT THE EXPENDITURE MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. SO, THE CONTENTION OF THE ASSESSEE IS NOT ACCEPTABLE AS THESE EXPENDITURE WAS INCURRED ON EARNING INCOME FROM CAPITAL GAIN AND EXEMPT INCOME BUT LD.A.O. WAS NOT SATISFIED WITH THE CONTENTION OF THE ASSESSEE, THEREFORE, TOTAL INCOME WAS ITA NO.1361/AHD/2014 PARAS KUMAR PANKAJ KUMAR DESAI VS. ACIT ASST.YEAR 2010-11 - 4 - ASSESSED 84,26,197/- INCLUDING RS.2,03,554/- RS.52,000/- WERE ADDED TO THE INCOME OF THE ASSESSEE. 5. AGAINST THE SAID ORDER ASSESSEE PREFERRED STATUTORY APPEAL BEFORE THE LD.CIT(A) AND LD.CIT(A) GAVE HIS FINDING THAT HE HAS CONSIDERED THE FACTS OF THE CASE AND SUBMISSION MADE BY THE APPELLANT. THE AO HAS MADE THE DISALLOWANCE OF THE INTEREST EXPENDITURE OF RS.2,03,5547- FOR THE REASON THAT THE INTEREST CLAIMED TO HAVE BEEN PAID TO BANK WAS NOT HAVING ANY DIRECT NEXUS WITH THE FD INTEREST INCOME. THE APPELLANT HAS SHOWN THE FDR INTEREST INCOME UNDER THE HEAD OF INCOME FROM OTHER SOURCES. TO CLAIM THE INTEREST U/S.57(III) OF THE I.T. ACT THE APPELLANT HAS TO PROVE THAT THE INTEREST PAYMENT SHOULD HAVE BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH FD INTEREST INCOME. THE APPELLANT HAS CLAIMED THAT THE INTEREST HAS BEEN PAID ON THE OVERDRAFT INVESTMENT IN AN IMMOVABLE PROPERTY. 6. THUS, THE OVERDRAFT TAKEN UTILIZED FOR THE PURPOSE OF INVESTMENT IN IMMOVABLE PROPERTY AND THE INTEREST PAID ON SUCH OVERDRAFT DOES NOT HAVE ANY DIRECT NEXUS WITH EARNING OF THE FDR INCOME FROM THE BANK. HENCE THE CLAIM OF INTEREST EXPENSES ARE NOT ALLOWABLE U/S.57(III) OF THE I.T. ACT. APPELLANT'S SUBMISSION THAT HAD THE INVESTMENT IN IMMOVABLE PROPERTY WAS MADE BY PRE-MATURING THE FDR, THE INTEREST INCOME ON SUCH FDR BECAUSE OF PREMATURITY AND TO AVOID SUCH LOSS OF INTEREST HE HAS TAKEN THE OVERDRAFT ON THE FIXED DEPOSIT. THIS CONTENTION MAY BE TRUE SO FAR AS COST BENEFIT ANALYSIS TO THE APPELLANT BUT THAT DOESN'T ALLOW THE APPELLANT TO ITA NO.1361/AHD/2014 PARAS KUMAR PANKAJ KUMAR DESAI VS. ACIT ASST.YEAR 2010-11 - 5 - CLAIM THE INTEREST EXPENSES AGAINST THE FDR INTEREST INCOME IN VIEW OF PROVISIONS OF SECTION 68 OF I.T. ACT. IN VIEW OF THE ABOVE, THE DISALLOWANCE MADE BY THE A.O. IS CORRECT AND JUSTIFIED AND RS.52,000/- WHICH WAS PAID TO SHRI DIVYANG WAS ALSO DISMISSED FOR THE REASON THAT THIS PAYMENT WAS NOT HAVING ANY NEXUS WITH THE INTEREST INCOME. THUS, THE EXPENDITURE WAS PURELY A PERSONAL EXPENDITURE NOT DEDUCTIBLE U/S.58(1)(A)(I) OF THE ACT. IT WAS ALSO NOTICED THAT THE APPELLANT WAS HAVING INTEREST INCOME FROM DIFFERENT BANKS TO THE TUNE OF RS.42.77 LAKHS BESIDES OTHER SOURCE LIKE POSTAL MONTHLY INCOME ETC. SO, THERE IS NO BASIS TO TREAT THE FEES PAYMENT AS PERSONAL EXPENSES AS THE SAME ARE DEDUCTIBLE EXPENDITURES U/S.57(1)(III) OF THE I.T. ACT. CONSIDERING THE VOLUME OF FINANCIAL ACTIVITIES, CLAIM OF FEES IS NOT ABNORMAL. FURTHER THE CLAIM WAS NOT FOUND TO BE BOGUS BY THE A.O. THEREFORE, THE DISALLOWANCE MADE BY THE A.O. IS DELETED AND THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 7. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMPUGNED ORDER PASSED BY THE AUTHORITIES BELOW. IT IS THE FACT THAT ASSESSEE EARNED INTEREST INCOME OF RS.2,03,554/- ON OVERDRAFT AGAINST THE F.D. BUT SAME WAS TAKEN FOR THE PURPOSE OF PURCHASING OF PROPERTY AND NOT FOR EARNING OF INTEREST INCOME. LD.D.R. VEHEMENTLY RELIED ON THE ORDER OF THE A.O. AND SAID F.D. WAS NOT UTILIZED FOR THE PURPOSE FOR WHICH IT WAS TAKEN. 8. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT ASSESSEE IS NOT ENTITLE FOR ANY RELIEF. ITA NO.1361/AHD/2014 PARAS KUMAR PANKAJ KUMAR DESAI VS. ACIT ASST.YEAR 2010-11 - 6 - 9. IN THE RESULT APPEAL OF THE ASSESSEE IS DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 23/12/2016 SD/- SD/- . . ( ) ( ) ( N.K. BILLAIYA ) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 23/12 /2016 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A)-XX 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD TRUE COPY