Sh. Sanjeev Kumar Jain, Rajpura V. ITO, Ward , Rajpura

ITA 1638/CHANDI/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7501 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 01-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KULTEJ SINGH BAINS
• Section: 6; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCHSMD, CHANDIGARH BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NOS. 1637 & 1638/CHD/2017 (ASSESSMENT YEARS : 2012-13 & 2013-14) SH. SANJEEV KUMAR JAIN VS. THE ITO C/O M/S JAIN COLD STORAGE WARD- RAJPURA PATIALA ROAD, RAJPURA RAJPURA PAN NO. AAXPJ2089F ITA NOS. 1639 & 1640/CHD/2017 (ASSESSMENT YEARS : 2012-13 & 2013-14) SH. SUNIL KUMAR JAIN VS. THE ITO C/O M/S JAIN COLD STORAGE WARD- RAJPURA PATIALA ROAD, RAJPURA RAJPURA PAN NO. AAXPJ2091D (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI. ASHOK GOYAL DEPARTMENT BY : SH. KULTEJ SINGH BAINS DATE OF HEARING : 10/07/2018 DATE OF PRONOUNCEMENT : 11/07/2018 O R D E R PER BENCH: ALL THE ABOVE APPEALS HAVE BEEN FILED BY THE ASSESS EE AGAINST THE ORDER OF THE LD. CIT(A)-1, LD. CIT(A)-3 LUDHIANA DT. 13/0 9/2017 AND 18/09/2017. 2. APPEAL WISE GROUND REPRODUCED HEREUNDER: GROUND OF APPEAL IN ITA NO. 1637/CHD/2017 1. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DIS ALLOWANCE OF INTEREST OF RS. 7,16,011/- WHEN IT WAS EXPLAINED & ADMITTED BY AO THAT FUNDS BORROWED WERE INVESTED IN PARTNERSHIP FIRMS AS CAPITAL & INTEREST IS EARNED FOR THE SAME, AFTER REJECTING THE EXPLANATION FILED FOR DISALLOWANCE OF INTEREST. 2. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADD ITION OF RS. 7,16,011/- ON THE GROUND THAT NEXUS BETWEEN THAT LOAN RAISED & IN VESTED IN VARIOUS FIRMS WAS NOT PROVED WHEN THE SAME WAS EXPLAINED & ADMITTED B Y AO ALSO. HENCE RELIEF BE ALLOWED. 2 GROUND OF APPEAL IN ITA NO. 1638/CHD/2017 1. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST OF RS. 6,43,420/-, WHEN IT WAS EXPLAINED & ADMITTED BY AO THAT FUNDS BORROWED WERE INVESTED IN PARTNERSHIP FIRMS AS CAPITAL & INTERES T IS EARNED FOR THE SAME, AFTER REJECTING THE EXPLANATION FILED FOR DISALLOWANCE O F INTEREST. 2. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 6,43,420/- ON THE BASIS THAT THERE IS NO EARNING FROM THE SAID FIRMS IN WHICH AMOUNT WERE INVESTED, WHICH WAS SUBJECT TO THE TAX WHEN ACTUALLY INTEREST INCOME IS THERE AND THE SAME IS SUBJECT TO TAX ALSO. GROUND OF APPEAL IN ITA NO. 1639/CHD/2017 1. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DIS ALLOWANCE OF INTEREST OF RS. 5,38,365/- WHEN IT WAS EXPLAINED & ADMITTED BY AO THAT FUNDS BORROWED WERE INVESTED IN PARTNERSHIP FIRMS AS CAPITAL & INTEREST IS EARNED FOR THE SAME, AFTER REJECTING THE EXPLANATION FILED FOR DISALLOWANCE OF INTEREST. 2. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADD ITION OF RS. 5,38,365/- ON THE BASIS THAT THERE IS NO EARNING FROM THE SAID FI RMS IN WHICH AMOUNT WERE INVESTED, WHICH WAS SUBJECT TO THE TAX WHEN ACTUALL Y INTEREST INCOME IS THERE AND THE SAME IS SUBJECT TO TAX ALSO. GROUND OF APPEAL IN ITA NO. 1640/CHD/2017 1. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST OF RS. 6,49,524/-, WHEN IT WAS EXPLAINED & ADMITTED BY AO THAT FUNDS BORROWED WERE INVESTED IN PARTNERSHIP FIRMS AS CAPITAL & INTERES T IS EARNED FOR THE SAME, AFTER REJECTING THE EXPLANATION FILED FOR DISALLOWANCE O F INTEREST. 2. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 6,49,524/- ON THE GROUND THAT NEXUS BETWEEN THAT LOAN RAISED & INVEST ED IN VARIOUS FIRMS WAS NOT PROVED WHEN THE SAME WAS EXPLAINED & ADMITTED BY AO ALSO. HENCE RELIEF BE ALLOWED. 3. SINCE THE APPEALS DEAL WITH THE SIMILAR ISSUE TH EY ARE BEING DISPOSED OF BY WAY OF A COMMON ORDER. FOR DEALING THE CASE, WE SHA LL TAKE ITA NO. 1637/CHD/2017 AND 1638/CHD/2017 AS A LEAD CASE. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S INCOME FROM HOUSE PROPERTY, INCOME FROM BUSINESS & PROFESSION AS INTE REST/REMUNERATION FROM M/S JAIN COLD STORAGE, RAJPURA, ARIHANT INDUSTRIES, OKH LA DELHI AND M/S ARIHAND COLD STORAGE. THE ASSESSEE HAS FILED HIS INCOME TAX RETU RN AT AN INCOME OF RS. 9,45,040/-. 5. AS PER COMPUTATION OF INCOME, THE AO NOTICED THA T THE ASSESSEE HAS SHOWN INTEREST FROM BANK AT RS. 7243/-. FURTHER HE CLAIMED DEDUCTION OF RS. 6,43,420/- U/S 57 OF THE INCOME TAX ACT ON ACCOUNT OF FOLLOWING :- 1. INTEREST PAID TO SH. PREM CHAND JAIN, HUF RS. 2,16,795/- 2. INTEREST PAID TO SANJEEV JAIN, HUF, RS. 2,15,760 /- 3. INTEREST PAID TO PUNJAB STEELS, MGG RS. 2,18,836 /- 3 RS. 6,43,420/- 6. AFTER CLAIMING DEDUCTION, THE ASSESSEE HAS DECLA RED NET LOSS OF RS.6,43,420/-UNDER THE HEAD INCOME FROM OTHER SOURC ES'. IN THIS REGARD, THE ASSESSEE WAS ASKED TO EXPLAIN THE JUSTIFICATION OF HIS CLAIM U/S 57OF THE ACT IN RESPONSE TO THE SAME THE ASSESSEE HAD FILED HIS REP LY. VIDE WHICH HE SUBMITTED THAT THE ABOVE SAID AMOUNT WAS PAID TO VARIOUS PART IES AS INTEREST AGAINST THE LOAN TAKEN FROM THEM. THE REPLY SUBMITTED BY THE AS SESSEE WAS CONSIDERED BUT NOT ACCEPTED BY THE ASSESSING OFFICER, SINCE THE AS SESSEE STATING IN HIS REPLY THAT THE LOANS TAKEN WERE INVESTED IN THE FIRMS IN WHICH HE IS PARTNER. HENCE, THE ASSESSING OFFICER TREATED THIS EXPENDITURE IS ON AC COUNT OF INTEREST IN ORDER TO EARN PROFIT OF THE FIRMS. THEREFORE THE SAME ARE DI SALLOWED I.E. RS. 6,43,420/- AND ADDED TO THE INCOME OF THE ASSESSEE. 7. THE LD. CIT(A) CONFIRMED THE ADDITION HOLDING TH AT THE APPELLANT FAILED TO JUSTIFY THE DEDUCTION BY BRINGING ON RECORDS THE PROFITS EARNED BY HIM BY MAKING INVESTMENTS IN VARIOUS FIRM S OUT OF THE LOAN AMOUNT. THE APPELLANT HAS ALSO FAILED TO BRING ON RECORDS N EXUS BETWEEN LOANS RAISED AND ITS INVESTMENTS IN VARIOUS FIRMS. I AM THEREFOR E OF CONSIDERED VIEW THAT DEDUCTION ON ACCOUNT OF PAYMENT OF INTEREST IS NOT ALLOWABLE AND AO HAS RIGHTLY DISALLOWED THE CLAIM OF THE APPELLANT IN TH IS REGARD. IT IS HELD THAT SINCE THE APPELLANT HAS FAILED IN CLEAR TERMS TO DISTINGU ISH BETWEEN OF BORROWED FUND OR OWN FUND FOR THE PURPOSE OF CLAIM U/S 57, THE CL AIM OF APPELLANT IS NOT ALLOWABLE, THE WAY APPELLANT HAS CLAIMED. SECTION 5 6 DEALS WITH THE INCOME FROM OTHER SOURCES. DEDUCTIONS, WHICH ARE ALLOWABLE WHILE COMPUTING THE INCOME FROM OTHER SOURCES, ARE GIVEN IN SECTION 57 OF THE ACT. SUB-SECTION (III) OF SECTION 57 DEALS WITH THAT EXPENDITURE WHICH IS LAI D OUT OR EXPENDED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING TH E INCOME FROM OTHER SOURCES. IF WE READ THE PROVISIONS OF SECTIONS 56 AND 57 OF THE ACT SIMULTANEOUSLY WE WOULD FIND THAT IF THE INCOME IS TREATED TO BE THE INCOME FROM OTHER SOURCES, ONLY THOSE DEDUCTIONS ARE ALLOWABLE WHICH ARE ENUME RATED IN SECTION 57 OF THE ACT. HENCE, WHILE COMPUTING THE INCOME FROM OTHER S OURCES ONLY THAT EXPENDITURE IS ALLOWED TO BE DEDUCTED WHICH IS LAID OUT OR EXPENDED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SU CH INCOME, AS PER SECTION 57(III) OF THE ACT. THE EXPRESSION USED FOR THE PURPOSE OF BUSINESS OR PROFESSION IN SECTION 36(1)(III) HAS A WIDER AMPLITUDE THAN SECTI ON 57(III) IN WHICH THE 4 LEGISLATURE HAS USED THE EXPRESSION 'EXPENDITURE LA ID OUT OR EXPENDED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SU CH INCOME'. 8. THE LD. CIT(A) FURTHER HELD THAT THE ASSESSEE HA S TO SHOW A DIRECT AND COMPLETE NEXUS BETWEEN THE INCOME AND EXPENDITURE F OR CLAIM OF DEDUCTION UNDER SECTION 57, WHEREAS THE ASSESSEE HAS FAILED T O BRING ANY SUCH NEXUS ON RECORD AND ACCORDINGLY THE DISALLOWANCE WAS CONFIRM ED. 9. BEFORE US, THE LD. AR ARGUED THAT THE ASSESSEE H AS RECEIVED LOANS WHICH HAVE BEEN DIRECTLY INVESTED IN THE FORMS TO EARN BU SINESS INCOME AND INTEREST. 10. WE ARE IN PRINCIPLE AGREE WITH THE ORDER OF THE LD. CIT(A) THAT THE ASSESSEE HAS TO PROVE THE NEXUS BETWEEN THE LOANS RECEIVED A ND THE AMOUNTS INVESTED SO AS TO MAKE HIM ELIGIBLE FOR DEDUCTION ON ACCOUNT OF THE INTEREST PAID. HENCE, THE MATTER IS BEING REMANDED BACK TO THE FILE OF TH E ASSESSING OFFICER TO EXAMINE THE NEXUS AND IF FOUND SO, TO ALLOW THE DED UCTION BY GOING THROUGH THE RELEVANT BANK ACCOUNTS OF THE ASSESSE. 11. IN THE RESULT ALL THE APPEAL OF THE ASSESSEE AR E ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (DIVA SINGH) (DR. B.R.R. KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 11/07/2018 AG COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR