The ACIT, (OSD), Circle-10, Ahmedabad V. Shri Sanjay Mahendrabhai Sutaria, HUF, Ahmedabad

ITA 1672/AHD/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8563 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 10-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DHIREN SHAH AR
• Keywords: Capital expenditure

Judgement Text

, CH CHCH CH IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , EKUHK CKSJM , BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER AND SHRI, MANISH BORAD, ACCOUNTANT MEMBER ITA NO. 1672 /AHD/201 5 ( / ASSESSMENT YEAR: 2010-11) DCIT, CIRCLE 5(2), AHMEDABAD. / VS. SANJAY MAHENDRABHAI SUTARIA HUF 8, AMARSAGUN BUNGLOWS, B/H. FUN REPUBLIC CINEMA, SATELLITE, AHMEDABAD 380 015 ./ ./ PAN/GIR NO. : AAQHS 4264 N ( !' / APPELLANT ) .. ( #' / RESPONDENT ) !' $ / APPELLANT BY : SHRI MUDIT NAGPAL, SR. D.R. #' % $ / RESPONDENT BY : SHRI DHIREN SHAH, A.R. & '( % )* / DATE OF HEARING 19/02/2018 +,-. % )* / DATE OF PRONOUNCEMENT 04/04/2018 / / O R D E R PER MAHAVIR PRASAD, JUDICIAL MEMBER : THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-5, AHMEDABAD, VIDE APPEAL NO.CIT(A)-XVI/AC CIR.(OSD)-10/072/2013-14 AND NOW C IT(A)- 5/CIR.10/181/2014-15 DATED 23/03/2015 FOR THE ASSE SSMENT YEAR (AY) 2010-11. ITA NO.1672 /AHD/15 DCIT VS. SHRI SANJAY MAHENDRABHAI SUTARIA HUF. ASST.YEAR 2010-11 - 2 - 2. THE SUBSTANTIVE GRIEVANCE OF THE REVENUE READS AS UNDER:- (1) THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING THE APPEAL ON THE ISSUE REGARDING THE DISALLOWANCE OF I NTEREST OF RS.95,45,299/- MADE BY AO U/S.57 (III) OF THE ACT A ND THEREBY ALLOWING RELIEF TO THE AMOUNT OF RS.95,45,299/-, WI THOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE A.O. (2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD.CIT (A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. (3) IT IS THEREFORE PRAYED THAT THE ORDER OF T HE LD. CIT(A) MAY BE SET ASIDE AND THAT OF THE ORDER OF THE ASSESSING OFFICE R BE RESTORED TO THE ABOVE EXTENT. 3. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION ON PERUSAL OF THE COMPUTATION OF INCO ME IT IS OBSERVED THAT THE ASSESSEE HAS SHOWN NET PROFIT OF RS.6 5,75,201/ - UNDER THE HEAD ''INTEREST INCOME'. ON SEEKING CLARIFICATION, ASSES SEE SUBMITTED THAT THE SAID INCOME IS INTEREST INCOME EARNED ON LOAN AND A DVANCED GIVEN DURING THE YEAR AND HENCE TO BE CONSIDERED UNDER TH E HEAD 'INCOME FROM OTHER SOURCES'. 4. IT WAS REVEALED THAT ASSESSEE HAS EARNED TOTAL I NTEREST INCOME OF RS.1,61,60,215/- AND AFTER CLAIMING DEDUCTION OF IN TEREST EXPENSE OF RS.95,45,299/- AND OTHER EXPENSES LIKE BANK COMMISS ION OF RS.14,628/- INTEREST ON LATE PAYMENT OF RS.60/-, OFFICE EXPENSE S OF RS. 100/-, PRIMING & STATIONARY EXPENSES OF RS.189/-, TELEPHON E & MOBILE EXPENSES OF RS.16,85/- AND VEHICLE EXCHANGE A/C OF RS.7,881/- TOTALING RS.39,715/-, OFFERED INTEREST INCOME OF RS.65,75,20 0/- FOR TAXATION. ITA NO.1672 /AHD/15 DCIT VS. SHRI SANJAY MAHENDRABHAI SUTARIA HUF. ASST.YEAR 2010-11 - 3 - 5. THEREAFTER, A SHOW-CAUSE NOTICE WAS ISSUED BY TH E AO TO THE ASSESSEE AS FOLLOWS: 'ON PERUSAL OF COMPUTATION OF INCOME IT IS SEEN THA T YOU HAVE SHOWN INTEREST INCOME OF RS.65,75.201/-. DURING THE LAST HEARING DATED 06/03/2013 YOU HAVE ACCEPTED THAT THE INTEREST INCO ME IS FROM THE ''INCOME FROM OTHER SOURCES'. ON FURTHER VERIFICATION OF THE LEDGER A/C OF THE IN TEREST INCOME IT IS REVEALED THAT YOU HAVE EARNED TOTAL INTEREST INC OME OF RS,1,61,60,215/- AND YOU HAVE CLAIMED INTEREST EXPE NSES OF RS.95,45,299/- AGAINST THIS INTEREST INCOME. IT IS VERY CLEANED SITUATION UNDER THE INCOME TAX ACT THAT VARIOUS DEDUCTIONS OF ANY EXPENDITURE UNDER THE HEAD 'INCOME FROM OTHER SOURCES' IS TO BE ALLOWED ONLY U/S.57. IN YOUR CASE, SECTION 57(III) WILL BE ATTRACTED. TH E SECTION 57(III) SAID THAT ANY OTHER EXPENDITURE (NOT BEING IN THE N ATURE OF CAPITAL EXPENDITURE) LAID OUT OR EXPENDED WHOLLY AND EXCLUS IVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME WILL BE AL LOWED AS A DEDUCTION. THUS, IT IS CLEARED THAT TO CLAIM THE DE DUCTION U/S.57(III) FOLLOWING CONDITIONS MUST BE FULFILLED. A. THE EXPENDITURE SHOULD BE LAID OUT WHOLLY AND EX CLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME; B. IT SHOULD NOT BE OF THE NATURE OF CAPITAL EXPENDITURE; C. IT SHOULD NOT BE OF THE NATURE OF PERSONAL EXPE NDITURE; D. IT SHOULD BE INCURRED IN THE RELEVANT PREVIOUS YEAR AND NOT IN ANY PRIOR OR SUBSEQUENT YEARS; E. THERE MUST BE A CLEAR NEXUS BETWEEN THE EX PENDITURE INCURRED AND THE INCOME SOUGHT TO BE EARNED. ACCORDINGLY, YOU ARE REQUIRED TO GIVE THE EXPLANATI ON AND REASONABILITY FOR THE INTEREST EXPENSES OF RS.95,45 ,299/- TO BE ALLOWED U/S.57(III) AND TO ESTABLISH THE DIRECT NEXUS BETWE EN INTEREST INCOME AND INTEREST EXPENSES SO THAT IT CAN BE ALLOWED AS A DE DUCTION U/S.57(III). ITA NO.1672 /AHD/15 DCIT VS. SHRI SANJAY MAHENDRABHAI SUTARIA HUF. ASST.YEAR 2010-11 - 4 - 6. THEREAFTER ASSESSEE FILED REPLY BUT SAME WAS NOT ACCEPTED TO THE LD. AO AND RS.95,45,299/- WAS ADDED BACK TO THE TOTAL I NCOME OF THE ASSESSEE. 7. AGAINST THE SAID ORDER ASSESSEE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LD. CIT(A) WHO PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 8. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMP UGNED ORDER. THE ASSESSEE HAS BORROWED FUND VIZ. RECEIVED LOAN F ROM VARIOUS PERSONS TO WHOM THE ASSESSEE PAID INTEREST TO THE TUNE OF R S.95,45,299/- AND DETAILS HAVE BEEN GIVEN IN THE ORDER OF THE LD. CIT (A) FROM PAGES 17 TO 73. DURING THE RELEVANT ASSESSMENT YEAR 2010-11 THE INTEREST PAID IS RS.95,45,299/- AGAINST THE INTEREST INCOME EARNED R S.1,61,60,215/- LEAVING NET INTEREST SURPLUS OF RS.65,75,200/- WHIC H HAS BEEN SHOWN AS SURPLUS INTEREST INCOME. 9. FOLLOWING TEBULAR CHART OF THE INTEREST HAS BEEN GIVEN I) TABULAR CHART OF INTEREST PAID SR. NO. NAME INTEREST PAID I) SARTHAV BUILDERS RS.25,66,034/- II) SARTHAV PROJECT RS.57,62,602/- III) STHAPATHYA SHILP CONSTRUCTION RS.1,58,332/- IV) STHAPATHYA SHILP DEVELOPERS RS.9,06,632/- V) RAJSHAH ENTERPRISE (P)LTD. RS. 48,329/- VI) OTHER MISC. RS.1,03,370/- TOTAL INTEREST EXPENSES PAID RS.95,45,299/- ITA NO.1672 /AHD/15 DCIT VS. SHRI SANJAY MAHENDRABHAI SUTARIA HUF. ASST.YEAR 2010-11 - 5 - II) TABULAR CHART OF INTEREST EARNED SR. NO. NAME INTEREST EARNED I) SARAL MANAGEMENT AND CONSULTANCY RS.55,06,183/- II) SARTHAV INFRASTRUCTURE (P) LTD. RS.79,27,071/- III) ABHISHREE VILLS CO.OP. HOUSING SOC. RS.2,10,179/- IV) LABDHI FINANCE RS.25,16,782/- TOTAL INTEREST EXPENSES PAID RS.1,61,60,215/- 10. THE ASSESSEE HAS EARNED NET INTEREST INCOME OF RS.65,75,200/- FOR THE YEAR ENDING 31/03/2010 THERE IS DIRECT NEXUS BE TWEEN THE LOANS- ADVANCES TAKEN AND LOANS-ADVANCES GIVEN TO EARN THE INTEREST INCOME. 11. WHEN THERE IS A DIRECT NEXUS BETWEEN INTEREST R ECEIVED AND PAID, THE NET INTEREST SHOULD BE TAXED. THE PURPOSE OF EX PENDITURE THAT IS RELEVANT IN DETERMINING THE APPLICABILITY OF SEC.57 (III). THE PURPOSE IN PRESENT CASE IS TO EARN INCOME FROM INTEREST. 12. IN SUPPORT OF ITS CONTENTION ASSESSEE FILED LED GER ACCOUNT, AUDITED BALANCE SHEET AND ASSESSEE STATED THAT IT HAS EXPLA INED EACH AND EVERY ENTRY, UNSECURED LOAN TAKEN AND DIRECTLY GIVEN AND FURTHER STATED THAT ASSESSEE BORROWED FUNDS FOR THE SOLE PURPOSE TO EAR N INTEREST INCOME AND WHICH CAN BE PROVED FROM THE LEDGER ACCOUNT. 13. IN SUPPORT OF ITS CONTENTION, LD. AR CITED A JU DGMENT OF THE DELHI HIGH COURT IN THE CASE OF DY. CIT VS. PETROLEUM SPORT PROMOTION ITA NO.1672 /AHD/15 DCIT VS. SHRI SANJAY MAHENDRABHAI SUTARIA HUF. ASST.YEAR 2010-11 - 6 - BOARD 362 ITR PAGE 235 (DELHI HIGH COURT), WHEREIN, IT HAS BEEN HELD THAT TAX CAN BE LEVIED ON REAL INCOME AND NOT ON N OTIONAL/ARTIFICIAL INCOME. 14. IT IS APPARENT FROM THE RECORD THAT THERE IS NO THING ON RECORD TO STATE THAT THE BORROWINGS TAKEN HAVE NOT BEEN UTILI ZED FOR THE PURPOSE OF LENDING BUT WERE UTILIZED FOR SOME OTHER PURPOSES. 15. THEREFORE, IN OUR CONSIDERED OPINION, THERE IS NO MERIT IN THE ADDITION UNDER PROVISION OF SECTION 57(III) OF THE ACT AND IT IS EVIDENT THAT INTEREST EXPENDITURE WAS MADE ON BORROWING WAS TAKE N WHICH WAS UTILIZED FOR LENDING ON WHICH INTEREST INCOME HAS B EEN EARNED. THEREFORE, IN OUR OPINION, LD. CIT(A) HAS PASSED REASONED AND DETAILED ORDER HENCE, WE ARE NOT INCLINE TO INTERFERE IN THE ORDER PASSED BY THE LD. CIT(A). 16. IN THE RESULT, APPEAL FILED BY THE DEPARTMENT I S DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 04/04/2018 SD/- SD/- EKUHK CKSJM EKUHK CKSJM EKUHK CKSJM EKUHK CKSJM EGKOHJ IZLKN EGKOHJ IZLKN EGKOHJ IZLKN EGKOHJ IZLKN YS[KK LNL; U;KF;D LNL; YS[KK LNL; U ;KF;D LNL; YS[KK LNL; U ;KF;D LNL; YS[KK LNL; U ;KF;D LNL; ( MANISH BORAD ) (MAHAVIR PRASA D) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 04/04/2018 PRITI YADAV, SR. PS ITA NO.1672 /AHD/15 DCIT VS. SHRI SANJAY MAHENDRABHAI SUTARIA HUF. ASST.YEAR 2010-11 - 7 - !'# $#! / COPY OF THE ORDER FORWARDED TO : 1. !' / THE APPELLANT 2. #' / THE RESPONDENT. 3. 012) & 3) / CONCERNED CIT 4. & 3) ( !) / THE CIT(A)-5, AHMEDABAD. 5. 678 )'12 , !* 12. , 0 / DR, ITAT, AHMEDABAD 6. 89 :( / GUARD FILE. % & / BY ORDER, #6!) ) //TRUE COPY// '/& () ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION 26/02/2018 (DICTATION-PAD 4 PA GES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 27/02/2018 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER