M/s Krishi Technologies P. Ltd., V. DCIT,

ITA 223/BANG/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80720 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 27-10-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 12-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR K SHANKAR PRAS
• Assessee Lawyers: V CHANDRASEKHAR
• Keywords: Business income; Capital expenditure
• Section: 234B; 37(1); 37

Judgement Text

ITA NO.223 OF 2014 KRISHI TECHNOLOGIES PVT LTD BANG ALORE PAGE 1 OF 11 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE C BENCH, BANGALORE BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.223/BANG/2014 (ASSESSMENT YEAR: 2010-11) M/S. KRISHI TECHNOLOGIES PVT. LTD NO.29/2 KH ROAD, BANGALORE 560027 PAN: AACCK 4714 C VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 11(5) NRUPATHUNGA ROAD, BANGALORE 560001 (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI V.CHANDRASEKHAR, ADVOCATE DEPARTMENT BY: DR. K.SHANKAR PRAS AD, (DR) DATE OF HEARING: 27/10/2014 DATE OF PRONOUNCEMENT: 31/10/2014 O R D E R PER RAJPAL YADAV, J.M. THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE OR DER OF THE LEARNED CIT (A) DATED 29.10.2013 PASSED FOR ASSESSM ENT YEAR 2010-11. THE ASSESSEE HAS TAKEN 11 GROUNDS OF APPEA L WHICH ARE NOT IN CONSONANCE WITH RULE 8 OF THE ITAT RULES, TH EY ARE DESCRIPTIVE AND ARGUMENTATIVE IN NATURE. IN BRIEF, ITS GRIEVANCE REVOLVES AROUND A SINGLE ISSUE, NAMELY THAT THE LEA RNED CIT (A) WAS NOT JUSTIFIED IN LAW IN CONFIRMING THE ADDITION OF RS.1,11,21,527/- MADE U/S 37(1) OF THE INCOME TAX A CT, 1961. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COMPANY ENGAGED IN I.T. ENABLED BPO SERVICES AND RE AL ESTATE DEVELOPMENT. IT HAS FILED ITS RETURN OF INCOME ON 28.09.2010 ITA NO.223 OF 2014 KRISHI TECHNOLOGIES PVT LTD BANG ALORE PAGE 2 OF 11 DECLARING AN INCOME OF RS.7,36,21,700/-. THE CASE O F THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND A NOTICE U/S 143(2) OF THE I.T. ACT WAS ISSUED ON 27.08.2011. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE ASSESSING OFFICER THAT THE ASSESSEE HAD DEBITED A SUM OF RS.1,43,56,156/- UNDE R THE HEAD INTEREST EXPENDITURE. ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE HAD NOT SHOWN ANY BUSINESS INCOME AND THE WHOLE INCOME OF RS.9,47,78,619/- IS EARNED IN THE FORM OF INTEREST. HE DIRECTED THE ASSESSEE TO SUBMIT THE DETAILS OF INTE REST EXPENDITURE AND ALSO GAVE EXPLANATION AS TO HOW ITS CLAIM IS ADMISSIBLE IN LAW. IN RESPONSE TO THE QUERY OF THE ASSESSING OFFICER, ASSESSEE FILED ITS REPLY VIDE LETTER DATED 4.12.2012. IT WAS PLEADED BY THE ASSESSEE THAT IT HAD PAID INTEREST O F RS.1,43,45,999/- DURING THE ACCOUNTING YEAR TO SBI, MAIN BRANCH, ST. MARX ROAD, BANGALORE. THE COMPANY HAD M ADE A FIXED DEPOSIT OF RS.12.23 CRORES. THE ASSESSEE FURT HER CONTENDED THAT IT HAS MADE ADVANCES TO THE SUBSIDIARY COMPANY TO FACILITATE THE PURCHASE OF REAL ESTATE PROPERTY. THE SUBSIDIAR Y COMPANY HAS PAID INTEREST ALSO ON THE AMOUNT ADVANCED BY TH E COMPANY DURING THE PREVIOUS ASSESSMENT YEAR. HOWEVER, IN TH E CURRENT ASSESSMENT YEAR, THE TRANSACTIONS RELATING TO REAL ESTATE ENTERED BY THE SUBSIDIARY COMPANY WAS DELAYED DUE TO CERTAI N STATUROTY CLEARANCE AND THEREFORE, NO INTEREST IS BEING PROVI DED TO THE ASSESSEE BY THE SUBSIDIARY COMPANY. THE ADVANCES WE RE GIVEN TO THE SUBSIDIARY COMPANY ON ACCOUNT OF COMMERCIAL EXI GENCIES. THE STAND ALONE SUBSIDIARY COMPANY WAS CREATED TO A TTRACT INVESTMENT FROM THIRD PARTIES ONCE THE INTENDED PRO PERTY IS BEING ACQUIRED ASSESSEE WOULD EARN PROFIT. WITH REGARD TO THE NEXUS BETWEEN THE INTEREST EXPENDITURE AND THE INTEREST I NCOME, IT WAS ITA NO.223 OF 2014 KRISHI TECHNOLOGIES PVT LTD BANG ALORE PAGE 3 OF 11 CONTENDED BY THE ASSESSEE THAT TO THE EXTENT OF RS. 32,24,472/- DIRECT NEXUS IS AVAILABLE. THE ASSESSEE HAD CLAIMED INTEREST EXPENDITURE OF RS.1,43,56,156/-. IT HAS INTEREST IN COME OF RS.9,47,78,619/-. THE ASSESSING OFFICER ACCEPTED TH E NEXUS TO THE EXTEND OF EXPENDITURE OF RS.32,24,472/-. AFTER ALLOWING THESE EXPENDITURES FROM THE TOTAL INTEREST EXPENDIT URE, HE MADE AN ADDITION OF RS.1,11,21,527/- (RS.1,43,42,999 R S.32,24,472). THE EXPLANATION OF THE ASSESSEE THAT IT ADVANCED SU M TO ITS SUBSIDIARY COMPANY IN ORDER TO FACILITATE THE SUBSI DIARY TO PURCHASE REAL ESTATE PROPERTY WAS REJECTED BY THE A SSESSING OFFICER BY OBSERVING AS UNDER: THE ASSESSEE HAS SUBMITTED THAT THE LOANS TAKEN BY IT ARE USED FOR THE PURPOSE OF BUSINESS AND IN THE COU RSE OF BUSIENSS, AS ADVANCE MADE TO ITS SISTER CONCERN WAS IN THE COURSE OF BUSINESS AND FOR THE PURPOSE OF BUSIENSS. BUT IT HAS TO BE NOTED THAT THE BUSINESS OF COMPANY IS NOT TO MAKE INVESTMENT OR LENDING MONEY. THE ADVANCES EXTENDED BY THE ASSESSEE TO ITS SISTER CONCERN IS NOT RELATED TO ANY BUSINESS TRANSACTION AND NOT IN THE NATURE OF BUSINESS ADVANCE. THEREFORE, I T IS CLEAR THAT THE ADVANCES MADE TO SISTER CONCERN IS N OT FOR THE PURPOSE OF ASSESSEES BUSINESS. 3. APPEAL TO THE CIT (A) DID NOT BRING ANY RELIEF T O THE ASSESSEE. 4. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE A T THE VERY OUTSET SUBMITTED THAT AN IDENTICAL ISSUE AROSE IN A SSESSMENT YEARS 2007-08 AND 2008-09 AND THE TRIBUNAL HAS REMI TTED THE ISSUE TO THE ASSESSING OFFICER FOR RE-EXAMINATION. HE POINTED OUT THAT BASICALLY ASSESSING OFFICER HAS NEGATED THE PL EA OF THE ASSESSEE THAT ADVACNES WERE GIVEN TO THE SISTER CON CERN FOR ITA NO.223 OF 2014 KRISHI TECHNOLOGIES PVT LTD BANG ALORE PAGE 4 OF 11 BUSIENSS PURPOSE ON THE GROUND THAT THE ASSESSEE HA S NO BUSINESS INCOME IN THIS YEAR AND THE ASSESSEE IS NO T IN THE BUSINESS OF MONEY LENDING. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, THE ASSESSEE IS IN THE BUSINESS OF RE AL ESTATE DEVELOPMENT. IT HAD ACQUIRED LAND THROUGH ITS SUBSI DIARY IN EARLIER YEAR ALSO. THEREFORE, ADVANCES WERE GIVEN F OR THE PURPOSE OF THE BUSINESS. FOR BUTTERESSING HIS CONCERN, HE T OOK US THROUGH THE STATEMENT OF FACTS FILED BEFORE THE TRI BUNAL AND RUNNING INTO 13 PAGES. HE DREW OUR ATTENTION TOWARD S THE DETAILS COMPILED BY THE ASSESSEE IN TABULAR FORM AND AVAILA BLE ON PAGE 8 OF THE STATEMENT OF THE FACTS. THESE DETAILS HAVE A LSO BEEN REPRODUCED BY THE CIT (A) ON PAGE NOS. 11 & 12 OF T HE IMPUGNED ORDER. ON THE STRENGTH OF THESE DETAILS, HE POINTED OUT THAT BOTH THE AUTHORITIES HAVE NOT EXAMINED THE ISSUE WITH TH E ANGLE, WHETHER THE ASSESSEE IS IN THE BUSINESS OF REAL EST ATE OR NOT?. IF THE ADVANCES WERE MADE FOR ACHIEVING THE BUSINESS O BJECT, THEN INTEREST EXPENDITURE WOULD BE ALLOWED U/S 37(1) OF THE I.T. ACT. TAKING US THROUGH THE FINDINGS IN PARAGRAPH NO.3.7, HE SUBMITTED THAT NO REASONS ARE ASSIGNED BY THE LEAR NED CIT (A) IN CONCURRING WITH THE FINDINGS OF THE ASSESSING OFFIC ER. 5. ON THE OTHER HAND, THE LEARNED DR RELIED UPON TH E ORDER OF THE REVENUE AUTHORITIES BELOW. HE SUBMITTED THAT TH E ASSESSEE HAS BEEN GETTING INTEREST ON THE ADVANCES EVEN FROM THE SISTER CONCERN, BUT THIS YEAR INTEREST HAS NOT BEEN PROVID ED. THERE WAS NO SPECIFIC REASON FOR NOT PROVIDING INTEREST. THE ASSESSEE HAS NOT SHOWN ANY INCOME FROM REAL ESTATE BUSIENSS. THE REFORE, IT CANNOT CLAIM DEDUCTION OF INTEREST EXPENDITURE ON T HE SUMS WHICH WERE USED FOR NON BUSINESS PURPOSE. ITA NO.223 OF 2014 KRISHI TECHNOLOGIES PVT LTD BANG ALORE PAGE 5 OF 11 6. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. THE BASIC CONTENTION OF THE ASSESSEE IS THAT IT IS IN THE BUSINESS OF REAL ESTA TE WHICH WAS TAKEN UP IN FINANCIAL YEAR 2007-08. IT HAD PARTICIP ATED IN OPEN AUCTION CONDUCTED BY THE GOVERNMENT AND ALSO APPROA CHED THE KARNATAKA UDYOG MITRA FOR THE PURPOSE OF ACQUIRING LAND. IT HAD ACQUIRED LAND FOR ITS REAL ESTATE BUSINESS TO THE T UNE OF RS.7,92,84,106/- IN THE PREVIOUS YEAR. FOR BUTTERES SING THIS CONTENTION, OUR ATTENTION WAS DRAWN TOWARDS THE DET AILS SUBMITTED IN TABULAR FORM BEFORE THE CIT (A) WHICH ARE AVAILABLE ON PAGE NOS. 11 & 12 OF THE IMPUGNED ORDER. THEREFO RE, THE QUESTION IS WHETHER THE ADVANCES GIVEN TO THE SISTE R CONCERNS WERE FOR THE PURPOSE OF BUSINESS OR THE INTEREST BE ARING FUNDS WERE USED BY THE ASSESSEE IN MAKING ADVANCES TO THE SISTER CONCERN FOR NON BUSINESS PURPOSES. IF IT IS HELD TH AT THESE ADVANCES WERE GIVEN FOR THE PURPOSE OF THE BUSINESS , THEN THE INTEREST EXPENDITURE COULD NOT BE DISALLOWED. BUT I F IT IS HELD THAT INTEREST BEARING FUNDS WERE USED FOR NON BUSINESS P URPOSE, THEN INTEREST EXPENDITURE CANNOT BE ALLOWED TO THE ASSES SEE. IN ASSESSMENT YEAR 2007-08 AND 2008-09, THE TRIBUNAL H AS OBSERVED THAT REVENUE AUTHORITIES HAVE NOT EXAMINED THE ISSUE, WHEN THE ASSESSEE HAS SET UP ITS REAL ESTATE BUSINE SS. IF IT IS ESTABLISHED THAT REAL ESTATE BUSINESS WAS SET UP IN ACCOUNTING YEAR RELEVANT FOR ASSESSMENT YEAR 2007-08, THEN, TO SOME EXTENT, SAME CONSEQUENCE WOULD FOLLOW IN THIS YEAR. IN A WA Y, THIS FACT WOULD BE A CORROBORATIVE FACTOR IN JUDGING THE CLAI M OF THE ASSESSEE. THEREFORE, IT IS PERTINENT FOR US TO TAKE NOTE OF THE TRIBUNALS FINDINGS IN 2007-08 AND 2008-09. THE FIN DINGS OF THE ITA NO.223 OF 2014 KRISHI TECHNOLOGIES PVT LTD BANG ALORE PAGE 6 OF 11 TRIBUNAL CONTAINING FACTUAL BACKGROUND IN ASSESSMEN T YEAR 2008-09 RENDERED IN ITA NO.51/BANG/2013 READ AS UND ER: 11. THE FACTUAL BACKGROUND AS FAR AS THIS ASSESSMEN T IS CONCERNED IS AS FOLLOWS. THE ASSESSEE HAD BORROWED FUNDS ON THE SECURITY OF FDS. ON SUCH BORROWING THE ASSE SSEE MADE INTEREST PAYMENT OF RS.1,34,92,955/-. THE ASS ESSEE EARNED INTEREST ON FDS OF A SUM OF RS.6,74,82,525/- . THE ASSESSEE CLAIMED THAT THE INTEREST THAT WAS PAID ON THE BORROWINGS HAD TO BE ALLOWED AS DEDUCTION AGAINST T HE INTEREST EARNED ON FDS. IT WAS THE PLEA OF THE ASS ESSEE THAT THE FUNDS THAT WERE BORROWED WERE ON THE BASIS OF T HE FDS ALREADY MADE BY THE ASSESSEE WITH THE BANKS OFFERED AS SECURITY. THE LOANS THAT WERE SO BORROWED WHICH WE RE NOT IMMEDIATELY REQUIRED FOR THE PURPOSE OF BUSINESS HA D ALSO BEEN RE-DEPOSITED IN THE BANK AND EVEN SUCH DEPOSIT S YIELDED INTEREST INCOME. ACCORDING TO THE ASSESSEE, SINCE THERE WAS A CLEAR NEXUS BETWEEN THE INTEREST EARNED ON THE FD S AND THE INTEREST PAID ON THE BORROWINGS, THE INTEREST P AID HAD TO BE ALLOWED AS A DEDUCTION U/S.57(III) OF THE ACT AG AINST INTEREST INCOME EARNED BY THE ASSESSEE. IN THE ALT ERNATIVE, THE ASSESSEE HAS PRAYED THAT INTEREST EXPENDITURE H AD TO BE ALLOWED U/S.37(1) OF THE ACT. FOR ALLOWING THE CLA IM U/S.37(1) OF THE ACT, THE ASSESSEE HAS SUBMITTED TH AT DURING THE PREVIOUS YEAR IT HAD VENTURED INTO THE BUSINESS OF REAL ESTATE DEVELOPMENT. THE ASSESSEE POINTED OUT THAT IT HAD GIVEN ADVANCES FOR ACQUIRING LANDS. IT WAS SUBMITT ED THAT THE PROCESS OF ACQUIRING PROPERTIES GENERALLY TAKES TIME. IT WAS SUBMITTED THAT DURING THE PERIOD WHEN THE PROPE RTY IS BEING ACQUIRED ADMINISTRATIVE EXPENSES AS WELL AS T HE INTEREST EXPENSES ON LOANS BORROWED HAVE TO BE CONS IDERED AS REVENUE EXPENSES AND ALLOWED AS A DEDUCTION. IT WAS ALSO SUBMITTED THAT IN THE CASE OF REAL ESTATE BUSI NESS, THE MOMENT ONE STARTS LOOKING OUT FOR PROPERTIES FOR TH E PURPOSE OF BUSINESS, SUCH BUSINESS IS SAID TO HAVE BEEN SET UP OR COMMENCED AND THEREFORE INTEREST EXPENSES SHOULD BE ALLOWED AS A DEDUCTION. THE ASSESSEE ALSO POINTED OUT THAT AS PER THE MOA, IT HAD THE POWER TO CARRY OUT REAL ESTATE VENTURES. ITA NO.223 OF 2014 KRISHI TECHNOLOGIES PVT LTD BANG ALORE PAGE 7 OF 11 12. THE CLAIM OF THE ASSESSEE WAS HOWEVER REJECTED BY THE AO THE FOLLOWING REASONS : THE COMPANY IS NOT IN THE BUSINESS OF INVESTMENT OR LENDING MONEY. DURING THE PREVIOUS FINANCIAL YEAR, THE BUSINESS OF THE ASSESSEE IS SHOWN AS PROVIDING IT ENABLED SERVICES AND BPO SERVICES. ONLY IN THIS YEAR, THE BUSINESS HAS BEEN SHOWN AS REAL ESTATE DEVELOPMENT. THE BALANCE SHEET OF THE ASSESSEE SHOWS HUGE CASH A ND BANK BALANCES OF RS.60 CRORES. THIS MONEY HAS BEEN OBTA INED MAINLY DUE TO THE SALE OF THE LAND AT WHITEFIELD AR EA DURING THE PREVIOUS FINANCIAL YEAR. THERE IS NO VALID REASON ON THE INTEREST PAYMENT ON LOANS. THE ASSESSEE HAS NOT TAKEN THE LOAN FOR BUSINESS PU RPOSE EITHER FOR ITES OR REAL ESTATE DEVELOPMENT. THE AS SESSEE ONLY SUBMITS THAT LOAN WAS TAKEN TO REINVEST IN THE FIXED DEPOSITS. IT IS SEEN THAT THE ASSESSEE HAS INVESTE D THE EXCESS AMOUNT EARNED DURING THE PREVIOUS FINANCIAL YEAR IN FIXED DEPOSITS AND ONCE AGAIN TAKEN THE LOAN TO REINVEST IN FIXED DEPOSITS. AS THE ASSESSEE IS NOT A NBFC, OR IN THE BUSINESS O F LENDING MONEY, THE INTEREST EXPENDITURE OF RS.1,34,92,955/- INCURRED FOR LOANS OF NON-BUSINESS PURPOSE IS DISALLOWED U/S .37 OF THE I. T. ACT 1961 AND ADDED TO THE INCOME OF THE ASSES SEE. 13. ON APPEAL BY THE ASSESSEE, CIT (A) CONFIRMED T HE ORDER OF THE ASSESSING OFFICER. 14. AS FAR AS THE CLAIM OF THE ASSESSEE FOR DEDUCTI ON U/S.57(III) IS CONCERNED, THE COMMISSIONER OF INCOME-TAX (APPEALS) HELD AS FOLLOWS : 3.3 I HAVE CAREFULLY CONSIDERED THE APPELLANTS SU BMISSIONS. IT IS SEEN FROM THE RECORDS AND THE COMPUTATION OF TOTAL INCOM E FILED WITH THE RETURN OF INCOME THAT THE APPELLANT IN FACT ADDED A SUM OF RS.1,34,92,9255/- FROM THE COMPUTATION OF PROFITS A ND GAINS OF BUSINESS INCOME AND CLAIMED THE SAME FROM THE INCOM E FROM OTHER SOURCES UNDER THE HEAD BANK INTEREST BY NETTING O FF THE INTEREST OF RS.6,74,82,525/- AND THE INTEREST PAYMENT OF RS.1,3 4,92,955/-. THEREFORE, THE DISALLOWANCE MADE BY THE AO SPECIFIC ALLY U/S 37 OF THE ACT IS UNDER A MISTAKEN IMPRESSION. ACCORDINGLY, TH E SUBMISSIONS OF THE APPELLANT IN THIS REGARD FOR ALLOWING THE SAME U/S 37 OF THE ACT ARE ITA NO.223 OF 2014 KRISHI TECHNOLOGIES PVT LTD BANG ALORE PAGE 8 OF 11 NOT APPLICABLE AND DO NOT REQUIRE ANY CONSIDERATIO N. HOWEVER, THE DISALLOWANCE IS CONFIRMED FOR DIFFERENT REASONS MEN TIONED BELOW. 3.4 IT MAY BE SEEN FROM THE SUBMISSIONS OF THE APPE LLANT THAT SUBMISSIONS WERE MADE FOR ALLOWING THE SAID INTERES T U/S 57(III) OF THE ACT. ACCORDING TO SECTION 57(III) OF THE ACT, ANY E XPENDITURE NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE LAID OUT OR EX PENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SU CH INCOME IS ALLOWABLE. THE CONTENTION OF THE APPELLANT IS THAT THE INTEREST OF RS.1,34,92,955/- IS INCURRED IN EARNING THE INCOME FROM OTHER SOURCES. HOWEVER, THE APPELLANT IS UNABLE TO PROVE THE NEXUS BETWEEN THE EARNING OF INCOME FROM OTHER SOURCES AND THE INTERE ST EXPENDITURE ON SUCH EARNING. AS PER THE PROVISIONS OF SECTION 57(I II) NEXUS HAS TO BE ESTABLISHED. IT IS AN UNDISPUTED FACT THAT THE APPE LLANT MADE TERM DEPOSITS IN BANKS OUT OF SURPLUS FUNDS IN THE EARLI ER YEAR. HOWEVER, IT BORROWED THE MONEY NOT FOR EARNING INCOME OUT OF TH E FIXED DEPOSITS BUT FOR OTHER PURPOSES. THE BORROWED MONEY WAS NOT UTILIZED EITHER FOR ANY ACTIVITY UNDER THE HEAD INCOME FROM OTHER SOURC ES OR FOR EARNING INTEREST OUT THE FDS. THEREFORE, THIS AMOUNT OF RS. 1,34,92,955/- IS NOT ALLOWABLE. THE APPELLANT STATED THAT THE INTEREST I NCOME CAN BE SET OFF AGAINST INTEREST EXPENDITURE BY RELYING ON E DECISI ON IN THE CASE OF VGR FOUNDATION 298 ITR 132. T HE FACTS OF THE SAID CASE ARE DIFFERENT AND THE APPELLANT HAS NOT INCURRED THE IN TEREST EXPENDITURE FOR EARNING THE INCOME OUT OF THE FDS. THEREFORE, NETTI NG OFF INTEREST IS NOT PERMISSIBLE. THE APPELLANT ALSO RELIED ON THE DECIS ION IN DR. V. P. GOPINATHAN 299 ITR 801 FOR NETTING OFF THE INTEREST . THE HONBLE HIGH COURT OF KERALA STATED THAT THE ACT OF MAKING DEPOSIT AND THE ACT OF BORROWING ON SUCH DEPOSITS COULD NOT BE VIEWED A S REPRESENTING TWO DIFFERENT TRANSACTIONS. THE HONBLE HIGH COURT HAS GIVEN A FINDING THAT THERE WAS NEXUS BETWEEN THE DEPOSIT AND THE BORROWI NG. IN THE INSTANT CASE, THE APPELLANT FAILED TO ESTABLISH THE NEXUS B ETWEEN MAKING THE DEPOSIT AND THE ACT OF BORROWING. THEREFORE, THE BE NEFIT OF THE SAID DECISION OF KERALA HC IS NOT APPLICABLE. IN VIEW OF THIS, THE DISALLOWANCE IS CONFIRMED U/S 57(III) OF THE ACT AN D THE A.O IS DIRECTED ACCORDINGLY. IN VIEW OF THIS, THE GROUNDS ARE DISMI SSED. THE CIT (A) DID NOT ADJUDICATE ON THE QUESTION AS T O WHETHER THE EXPENSES CAN BE ALLOWED U/S.37(1) OF THE ACT. AGGRIEVED BY THE ORDER OF THE CIT (A), THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 15. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LEARN ED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS AS WERE MADE BEFORE THE LOWER AUTHORITIES. THE LEARNED DR BROUGHT TO OUR NOTICE THAT WITH REGARD TO THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S.57(III) OF THE ACT IS CONCERNED, THE ISSUE HAS ITA NO.223 OF 2014 KRISHI TECHNOLOGIES PVT LTD BANG ALORE PAGE 9 OF 11 BEEN SETTLED BY THE HON'BLE SUPREME COURT IN THE CA SE OF DR. V. P. GOPINATHAN (248 ITR 449) (SC). THE FACTS OF THE CASE BEFORE THE HONBLE SUPREME COURT WAS THAT THE ASSES SEE HAD PUT MONEYS INTO FIXED DEPOSIT WITH A BANK AND HAD E ARNED IN THE ASSESSMENT YEAR IN QUESTION INTEREST IN THE SUM OF RS. 1,17,444 THEREON. ON THE SECURITY OF THE AMOUNT SO DEPOSITED, THE ASSESSEE TOOK A LOAN FROM THE BANK A ND PAID IN RESPECT OF THE LOAN INTEREST TO THE BANK IN THE SUM OF RS. 90,410. THE ASSESSEE CLAIMED THAT HE COULD BE TAXED ONLY ON THE DIFFERENTIAL AMOUNT OF RS. 27,034. ON SUCH A CL AIM THE HONBLE SUPREME COURT HELD: IT WAS NOT DISPUTED, AS IT COULD NOT BE, THAT IF T HE ASSESSEE HAD TAKEN A LOAN FROM ANOTHER BANK AND PAID INTEREST TH EREON HIS REAL INCOME WOULD NOT DIMINISH TO THE EXTENT THEREO F. THE ONLY QUESTION THEN IS : DOES IT MAKE ANY DIFFERENCE THAT HE TOOK THE LOAN FROM THE SAME BANK IN WHICH HE HAD PLACED THE FIXED DEPOSIT. THERE IS NO DIFFERENCE IN THE EYE OF THE L AW. THE INTEREST THAT THE ASSESSEE RECEIVED FROM THE BANK W AS INCOME IN HIS HANDS. IT COULD STAND DIMINISHED ONLY IF THERE WAS A PROVISION IN LAW WHICH PERMITS SUCH DIMINUTION. THE RE IS NONE, AND, THEREFORE, THE AMOUNT PAID BY THE ASSESSEE AS INTEREST ON THE LOAN THAT HE TOOK FROM THE BANK DID NOT REDUCE HIS INCOME BY WAY OF INTEREST ON THE FIXED DEPOSIT PLACED BY H IM IN THE BANK. AS FAR AS THE DEDUCTION U/S.37(1) IS CONCERNED, THE LEARNED DR RELIED ON THE DECISIONS TO WHICH WE HAVE ALREADY MADE A REFERENCE WHILE DECIDING THE ASSESSEE'S APPEAL FOR A. Y. 2007-08. 16. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS FA R AS THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S.57(III) IS CONCERNED. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE FACT TH AT THE BORROWED FUNDS ON WHICH INTEREST WAS PAID HAD NO NE XUS WITH THE FDS ON WHICH INTEREST WAS EARNED, DEDUCTIO N U/S.57(III) OF THE ACT WAS RIGHTLY DISALLOWED BY TH E REVENUE AUTHORITIES. IN THIS REGARD, CLAIM OF THE ASSESSEE IS IDENTICAL TO THE CLAIM AS WAS MADE BY THE ASSESSEE IN THE CAS E OF DR.V.GOPINATHAN (SUPRA) AND THE DECISION RENDERED BY THE HONBLE SUPREME COURT WILL CLEAR APPLY TO THE PRESE NT CASE ALSO. IN VIEW OF THE AFORESAID DECISION OF THE HON 'BLE SUPREME COURT, WE ARE OF THE VIEW THAT THE CLAIM OF THE ITA NO.223 OF 2014 KRISHI TECHNOLOGIES PVT LTD BANG ALORE PAGE 10 OF 11 ASSESSEE U/S.57(III) OF THE ACT WAS RIGHTLY REJECTE D BY THE REVENUE AUTHORITIES. 17. AS FAR AS DEDUCTION U/S.37(1) OF THE ACT IS CON CERNED, WE FIND THAT NONE OF THE AUTHORITIES HAVE EXAMINED THE QUESTION AS TO WHETHER THE BUSINESS OF REAL ESTATE OF THE ASSESSEE HAD BEEN SET UP DURING THE PREVIOUS YEAR. IN OUR VIEW THIS ASPECT WOULD BE VERY RELEVANT BECAUSE THE BUSINESS OF REAL ESTATE IS A SOURCE OF INCOME WHICH HAS NEWL Y COME INTO EXISTENCE. AS TO WHEN THE SOURCE OF INCOME CO MES INTO EXISTENCE IS A QUESTION WHICH NEEDS TO BE DECIDED T O ADJUDICATE THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S.37(1) OF THE ACT. THE PROVISO TO SECTION 3 OF THE ACT CO NTEMPLATES PREVIOUS YEAR FOR A SOURCE OF INCOME NEWLY COMING I NTO EXISTENCE AS THE DATE ON WHICH THE INCOME OF SUCH N EW SOURCE HAS TO BE DETERMINED. IF DURING THE PREVIO US YEAR THE NEW SOURCE OF INCOME HAD COME INTO EXISTENCE, T HE ASSESSEE WOULD BE ENTITLED TO CLAIM INTEREST EXPEND ITURE AS DEDUCTION. WE, THEREFORE, SET ASIDE THE ORDER OF T HE COMMISSIONER OF INCOME-TAX (APPEALS) AND DIRECT THE ASSESSING OFFICER TO EXAMINE THIS ASPECT. FOR STAT ISTICAL PURPOSE, THE APPEAL OF THE ASSESSEE IS TREATED AS P ARTLY ALLOWED. 18. IN THE RESULT, ITA.913/BANG/2011 IS ALLOWED FOR STATISTICAL PURPOSE AND ITA.51/BANG/2013 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 7. ON A DUE CONSIDERATION OF THE FACTS AND CIRCUMST ACNES AND THE FINDINGS OF THE COORDINATE BENCH IN THE EARLIER YEARS, WE ARE OF THE VEIW THAT THIS ISSUE REQUIRES FRESH EXAMINAT ION AT THE LEVEL OF THE ASSESSING OFFICER. THEREFORE, WE SET ASIDE T HE IMPUGNED ORDER OF THE CIT (A) AND RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR RE-ADJUDICATION. THE OBSERVAT IONS MADE BY US WILL NOT IMPAIR OR INJURE THE CASE OF THE ASSESS ING OFFICER AND WOULD NOT CAUSE ANY PREJUDICE TO THE DEFENCE/EXPLAN ATION OF THE ASSESSEE. THE LEARNED ASSESSING OFFICER SHALL DECID E THE ISSUE IN ITA NO.223 OF 2014 KRISHI TECHNOLOGIES PVT LTD BANG ALORE PAGE 11 OF 11 ACCORDANCE WITH LAW AFTER PROVIDING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. 8. THE ASSESSEE HAS ALSO CHALLENGED THE CHARGING OF INTEREST U/S 234B & C WHICH IS CONSEQUENTIAL IN NATUTRE. IN VIEW OF THE ABOVE DISCUSSIONS, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER, 2014. SD/- SD/- (JASON P. BOAZ) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE DATED 31 ST OCTOBER, 2014. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCHES, BANGALORE