Amarjeet Singh, New Delhi V. ITO, New Delhi

ITA 2347/DEL/2014

• Counselvise Citation: 234720114 RSA 2014
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC 2
• Next Hearing Date: 30-06-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 17-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P D TAN EJA
• Assessee Lawyers: K SANPATH
• Keywords: Earning of tax free income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC -2, NEW DELHI BEFORE SH. I.C.SUDHIR, JM ITA NO. 2347/DEL./2014 : ASSTT. YEAR : 2010-11 AMARJEET SINGH 23-REGAL BUILDING, CONNAUGHT PLACE NEW DELHI VS I.T.O. WARD-31(1) NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AAGPS2209D APPELLANT BY : SH . K. SANPATH, C.A. RESPONDENT BY : SH. P.D.TAN EJA, SR. DR DATE OF HEARING : 30.06.2015 DATE OF PRONOUNCEMENT : 30.07.2015 ORDER PER I.C.SUDHIR, J.M. THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 5.03.2014 OF THE LD. C.I.T.(A)-XXVII. NEW DELHI. 2. THE ASSESSEE HAS IMPUGNED ACTION OF THE LD. CIT(A) IN UPHOLDING THE ADDITION OF RS. 2,96,333/- TO RETURN INCOME BY DISALLOWING INTEREST PAID ON LOAN. 3. HEARD AND CONSIDERED THE ARGUMENTS ADVANCED BY THE PARTIES IN VIEW OF THE ORDERS OF THE AUTHORITIES BE LOW, MATERIAL AVAILABLE ON THE RECORD AND THE DECISIONS RELIED UP ON. ITA NO.2347/DEL/2014 2 4. THE FACTS IN BRIEF ARE THAT DURING THE YEAR TH E ASSESSEE DERIVED INCOME FROM PROPERTY, SHARE OF PROFIT FROM PARTNERSHIP CONCERNS, M/S SANTOKH SINGH & SONS AND M/S. S.M. & SONS AND INTEREST INCOME. THE RETURN OF INCOME SHOWING INCOM E OF RS. 8,19,950/- WAS FILED. DURING THE YEAR THE ASSESSEE HAD PAID INTEREST OF RS. 58,17,044/- INCLUDING INTEREST OF RS. 55,20, 711/- TO BANK LOAN. THE BANK LOAN WAS UTILIZED FOR ACQUIRING FLAT S AND PROPERTY. SINCE NO INCOME WAS RECEIVED FROM SUCH PROPERTIES, THEREFORE, INTEREST PAID TO BANK ON LOAN WAS CAPITALIZED AND A DDED INTO REVALUE OF THE FLATS AND PROPERTIES BY THE ASSESSEE. IN ADD ITION TO THE BANK LOAN, THE ASSESSEE HAD ALSO TAKEN LOAN OF RS. 70,00 ,000/- FROM SMT. MADHU BHANDARI ON 8.7.2009 AND REPAID ON 15.11.2009 ALONG WITH INTEREST OF RS. 2,96,333/-. THE ASSESSEE CLAIMED IN TEREST OF RS. 2,96,333/- PAID TO SMT. MADHU BHANDARI U/S 57 AGAIN ST THE INTEREST INCOME RECEIVED BY HIM. THE AO REJECTED THE CLAIM O N THE BASIS THAT THERE WAS NO LIVE NEXUS BETWEEN INTEREST INCOM E AND INTEREST PAYMENT OF RS. 2,96,333/- AND ADDED THE DISALLOWANC E IN THE INCOME OF THE ASSESSEE. THE SAME HAS BEEN UPHELD BY THE LD. CIT(A). 5. IN SUPPORT OF THE GROUND, THE LD. AR REITERAT ED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. HE S UBMITTED THAT LOAN OF RS. 70,00,000/- TAKEN FROM SMT. MADHU BHAND ARI WAS USED IN BUSINESS AS INVESTMENT IN M/S S.M.SONS IN WHICH THE ASSESSEE IS PARTNER AND MADE ADVANCE PAYMENT FOR BOOKING OF SPA CE FOR SALE. THE ASSESSEE HAS EARNED INCOME OF RS. 7,11,573/- WH ICH INCLUDES PROFIT OF RS. 5,43,573/- SALARY OF RS. 1,20,000/- A ND RENT OF RS. 48,000. THE ASSESSEE HAD ALSO GIVEN ADVANCE OF RS. 20,00,000/- TO ITA NO.2347/DEL/2014 3 ABV INFRASTRUCTURE LTD. AND RS. 5,00,000/- TO GLOBA L COMMUNICATION FOR BOOKING OF SPACE FOR SALE. THE LD . AR SUBMITTED THAT THE PROFIT ON SALE OF BOOKING SPACE IS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AND SIMILARLY THE EXPENDI TURE ON ACCOUNT OF INTEREST PAID ON LOAN FOR BOOKING OF SPACE IS AL SO ALLOWABLE DEDUCTION UNDER INCOME FROM OTHER SOURCES. HE STATE D THAT THE ASSESSEE HAD TRIED TO SALE THE BOOKING BUT COULD NO T SUCCEED. THE LD. AR PLACED RELIANCE ON THE FOLLOWING DECISIONS :- 1. C.I.T. VS. RAJENDRA PRASAD MODY (1978) 115 ITR51 9 (SC) 2. EASTERN INVESTMENTS LTD. VS. CIT (20) ITR 1 (SC ) 3. C.I.T. VS. P.L. RAMIAHI (2002) 254 ITR 238 (MAD RAS) 4. C.I.T. VS. GOPAL CHAND PATNAIK (1978) 111 ITR 8 6 ORISSA THE LD. AR CONTENDED FURTHER THAT THE REQUIREM ENT OF SECTION 57(III) IS THAT THE EXPENDITURE MUST BE LAID OUT OR EXPANDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNIN G INCOME. 6. THE LD. DR ON THE OTHER HAND TRIED TO JUSTIFY THE ORDERS OF THE AUTHORITIES BELOW. 7. ON PERUSAL OF THE FIRST APPELLATE ORDER, I FIN D THAT LD. CIT(A) HAS UPHELD THE DISALLOWANCE MADE BY THE AO O N THE BASIS THAT THE INCOME RECEIVED FROM THE FIRM WHERE THE AS SESSEE IS PARTNER HAS NO RELATIONSHIP WITH THE BORROWED FUND TAKEN FR OM SMT. MADHU BHANDARI. HE HAS OBSERVED THAT INTEREST ON BORROWED SUM TAKEN FROM SMT. MADHU BHANDARI HAS NO NEXUS WITH THE SHARE OF PROFIT AND REMUNERATION FROM FIRM AS PARTNER AND THEREFORE THE DEDUCTION CLAIMED U/S 57 OF THE ACT BY THE ASSESSEE IS NOT AL LOWABLE. HE HAS NOTED THAT SHARE OF PROFIT IS EXEMPT INCOME AND REM UNERATION IS PAID TO WORKING PARTNER. HE HAS NOTED FURTHER THAT THE L OAN TAKEN FROM ITA NO.2347/DEL/2014 4 SMT. MADHU BHANDARI HAS NOT BEEN USED IN ACQUIRING THE HOUSE PROPERTY WHICH IS RESULTING RENTAL INCOME, THEREFOR E, THE INTEREST OF RS. 2,96,333/- IS ALSO NOT ALLOWABLE AS DEDUCTION U /S 24. IN THIS REGARD LD. CIT(A) HAS PLACED RELIANCE ON THE DECISI ON OF DELHI HIGH COURT IN THE CASE OF M/S TAJ INTERNATIONAL JEWELLER S (A.Y. 2007-08) IN ITA NO. 113/2012, ORDER DATED 21.2.2012. IN THE CASE OF M/S TAJ INTERNATIONAL JEWELLERS (SUPRA) THE MONEY OBTAINED ON LOAN WAS CONVERTED AND MADE INTO FDRS. THE ASSESSEE FOLLOWED THE SAME PRACTICE OR METHOD OF ACCOUNT / TREATMENT FOR THE ASSESSMENT YEARS 2005-06 AND 2006-07. THE ASSESSING OFFICER HAD MADE SIMILAR ADDITIONS IN THE SAID YEARS AND DID NO T ALLOW NETTING OF THE INTEREST PAID ON THE LOAN FROM THE INTEREST REC EIVED ON DEPOSITS. THE HONBLE HIGH COURT HELD THAT THE INTEREST PAID WAS EXPENDITURE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING THE INTEREST INCOME. THE LD. CIT(A) FOLLOWING THE R ATIO OF THIS DECISION IN THE PRESENT CASE HAS HELD THAT THERE IS NO DIRECT NEXUS BETWEEN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR EARNING INTEREST INCOME. THE ASSESSEE IN THE PRESENT CASE B EFORE THE TRIBUNAL, HOWEVER, HAS ADVANCED THE ARGUMENT THAT T O BRING A CASE U/S 57 (III) IT IS NOT NECESSARY THAT ANY INCOME SH OULD IN FACT, HAVE BEEN EARNED AS A RESULT OF THE EXPENDITURE. 8. HAVING GONE THROUGH THE CITED DECISIONS BY TH E PARTIES, I FIND THAT THERE IS NO DISPUTE THAT INTEREST EXPENDI TURE IS ADMISSIBLE AS A DEDUCTION U/S 57(III) OF THE ACT IN COMPUTING INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. THE AUTHORITIES B ELOW HAVE DENIED THE CLAIMED DEDUCTION OF INTEREST ON THE BAS IS THAT IN THE PRESENT CASE THERE IS NO DIRECT NEXUS BETWEEN EXPEN DITURE INCURRED ITA NO.2347/DEL/2014 5 WHOLLY AND EXCLUSIVELY FOR EARNING INTEREST INCOME. THE CONTENTION OF THE ASSESSEE REMAINED THAT PROFIT EARNED ON SALE OF BOOKING OF SPACE IS TAXABLE UNDER THE HEAD INCOME FROM OTHER S OURCES AND SIMILARLY THE EXPENDITURE ON ACCOUNT OF INTEREST PA ID ON LOAN FOR BOOKING OF SPACE IS ALSO ALLOWABLE DEDUCTION UNDER THE INCOME FROM OTHER SOURCES. IN THE CASE OF CIT VS. RAJENDRA PRAS AD MODI (SUPRA), THE ASSESSEE HAD BORROWED MONEY FOR THE PURPOSE OF MAKING INVESTMENT IN CERTAIN SHARES AND PAID INTEREST THER ETO BUT DID NOT RECEIVE ANY DIVIDEND THEREON. THE HONBLE SUPREME C OURT WAS PLEASE TO HOLD THAT THE INTEREST WAS ADMISSIBLE AS A DEDUCTION U/S 57(III) OF THE ACT IN COMPUTING INCOME FROM DIVIDEN D UNDER THE HEAD INCOME FROM OTHER SOURCES. I, THUS, IN THE INTERE ST OF JUSTICE SET ASIDE THE MATTER TO THE FILE OF THE AO TO DECIDE TH E ISSUE AFRESH IN VIEW OF THE ABOVE CITED DECISION OF HONBLE SUPREME COURT AFTER VERIFICATION OF THE CLAIM OF THE ASSESSEE THAT DURI NG THE YEAR, THERE WAS INCOME FROM OTHER SOURCES AFTER AFFORDING OPPOR TUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUND IS ACCORDINGLY ALLOWED FOR STATISTICAL P URPOSES. IN THE RESULT APPEAL IS ALLOWED FOR STATISTICAL PUR POSES. ORDER PRONOUNCED IN THE COURT ON 30/07/2015. SD/- (I.C.SUDHIR) JUDICIAL MEMBER DATED: 30 / 07/2015 *B.RUKHAIYAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITA NO.2347/DEL/2014 6 DATE INITIAL 1. DRAFT DICTATED ON 20.07.2015 2. DRAFT PLACED BEFORE AUTHOR 21.07.2015 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.