Anjana Vinayak, Yamunanagar V. ITO, W-1, Yamunanagar

ITA 247/CHANDI/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8230 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 07-03-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARVIND SUDARSHAN JCIT DR
• Assessee Lawyers: RAMAN KUMAR GOYAL CCITRETD
• Keywords: Business income; Capital expenditure
• Section: 27; 2

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BE NCH A, CHANDIGARH .., !' '# $, % &' BEFORE: SHRI. N.K.SAINI, VP & SHRI , SANJAY GARG, J M ITA NO. 247/CHD/2019 ASSESSMENT YEAR : 2014-15 ANJANA VINAYAK H.NO. 545, MODEL TOWN YAMUNANAGAR, HARYANA THE ITO, W - 1 WARD-1 YAMUNANAGAR, HARYANA PAN NO: APPELLANT RESPONDENT !' ASSESSEE BY : SHRI RAMAN KUMAR GOYAL, CCIT(RETD) #!' REVENUE BY : SHRI ARVIND SUDARSHAN, JCIT DR $ %! & DATE OF HEARING : 09/07/2020 '()*! & DATE OF PRONOUNCEMENT : 23/07/2020 &(/ ORDER PER N.K. SAINI, VICE PRESIDENT THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER OF T HE LD. CIT(A)-4, LUDHIANA DT. 18/01/2019. 2. IN THE PRESENT APPEAL ASSESSEE HAS RAISED THE FOLLOWI NG GROUNDS: 1. THE ORDER OF CIT(A) IS BAD IN LAW. DISALLOWANCE OF DEDUCTION UNDER SECTION 57 (III) 2. THE CTT(A) ERRED IS NOT CONSIDERING THE DECISION OF ITAT AGRA IN THE CASE OF RAJ KUMARI AGARWAL (ITA NO. 176/AGRA/2013) THAT RELIED UPON DE CISION OF SUPREME COURT IN THE CASE OF SASOON J DAVID & CO. (118 ITR 261) 3. THE CIT(A) ERRED IN RELYING UPON DECISION OF HON'BL E SUPREME COURT IN THE CASE OF DR. V.P. GOPINATHAN 248 TTR 449, WHEREIN THE ASSESSEE D ID NOT CLAIM DEDUCTION U/S 57(III), WHEREAS THE ASSESSEE CLAIMED DEDUCTION U/S 57(III). 2 4. THE CIT(A) ERRED IS NOT NOTICING THAT THE HON'BLE S UPREME COURT IN THE CASE V.P. GOPINATHAN CONFIRMED THE DECISION MERELY ON THE FAC T THAT THE ARGUMENT OF THE ASSESSEE OF REAL INCOME WAS NOT ACCEPTED , WHEREAS THERE IS NO SUCH ARGUMENT IN THE CASE ANJANI VINAYAK. 5. THE CIT(A) ERRED IS NOT CONSIDERING THE EXPRESSION 'WHOLLY AND EXCLUSIVELY' AND THAT DOES NOT MEAN NECESSARILY. 6. THE CIT(A) ERRED IN NOT NOTICING THE FINDING OF THE ITAT AGRA IN THE CASE OF RAJ KUMARI AGARWAL WHEREIN IT WAS HELD AN SUCH EXPENDITURE IS AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR EARNING FROM INTEREST ON FIXED DEPO SITS, WHEREAS THERE IS NO SUCH DISCUSSION IN THE CASE OF DR. V.P. GOPINATHAN 248 ITR 449 7. THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTH ER. 8. THE APPELLANT CRAVES LEAVE TO ADD, MODIFY AND WITHD RAW ANY OTHER GROUNDS OF APPEAL BEFORE OR DURING THE APPELLATE PROCEEDINGS. FROM THE AFORESAID GROUNDS IT WOULD BE CLEAR THAT THE ONLY GRIEVANCE OF THE ASSESSEE RELATES TO THE CONFIRMATION OF DISALLOWANCE O F CLAIM FOR DEDUCTION UNDER SECTION 57(III) OF THE INCOME TAX ACT, 1961 (HEREINAFT ER REFERRED TO AS ACT). 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE FIL ED HER RETURN OF INCOME ON 21/03/2015 DECLARING AN INCOME OF RS. 13,20,390/-. LA TER ON, THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O. NOTICED THAT THE ASSESSEE HAD SHOWN INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES WHICH WAS ON ACCOUNT OF INTEREST FROM SAVING BANK ACCOUNT AND FDR, A MOUNTING TO RS. 45,49,341/- OUT OF WHICH DEDUCTION OF RS. 28,93,281/- WAS CLAIMED ON ACCOUNT OF PAYMENT OF INTEREST ON LOAN. THE A.O. ASKED THE ASSESSEE TO JUSTIF Y THE CLAIM FOR DEDUCTION OF RS. 28,93,281/-. IN RESPONSE THE ASSESSEE SUBMITTED AS UND ER: 'WITH REGARD TO POINT NO. 2. IN CONTINUATION OF DED UCTION OF RS. 2893281/-CLAIMED ON ACCOUNT OF INTEREST PAID ON LOAN RAISED AGAINST FDR TO BANK U/S 57, AS REQUIRED BY YOUR GOODSELF COPY OF ACCOUNT OF LOAN STATEMENT FROM BAN K IS BEING ENCLOSED FOR YOUR KIND VERIFICATION:- WITH REFERENCE TO EXPENSES CLAIMED AGAINST FDR INTT . I HAD CLAIMED RS. 2893281/-UNDER SECTION 57(III) OF THE ACT. 1961 TOWARDS LOAN RAISE D FROM THE SAME BANK AGAINST SECURITY OF FIXED DEPOSIT. 3 THERE IS NO DISPUTE THAT INTEREST INCOME IN THIS CA SE IS TO BE TAXED AS AN 'INCOME FROM OTHER SOURCES' FOR YOUR KIND REFERENCE SECTION 57(III) OF THE ACT IS REPRODUCED HERE AS 'SECTION 57(III) OF THE ACT CLEARLY PROVIDES THAT ' THE INCO ME CHARGEABLE UNDER 'INCOME FROM OTHER SOURCES' SHALL BE COMPUTED AFTER MAKING THE .... DE DUCTION NAMELY (INTERALIA)..ANY ..EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE O F MAKING OR EARNING SUCH INCOME. THE QUESTION HERE IS THAT WE REALLY NEED TO ADJUDIC ATE ON WHETHER OR NOT INTEREST PAID ON THE LOAN AGAINST THE FIXED DEPOSIT CAN BE SAID TO H AVE BEEN INCURRED 'WHOLLY AND EXCLUSIVELY 'FOR THE PURPOSE OF EARNING OF INTEREST INCOME FROM FIXED DEPOSITS. THE LEGAL CONNOTATIONS OF EXPRESSIONS 'WHOLLY AND E XCLUSIVELY' CAME UP FOR CONSIDERATION BEFORE A COORDINATE BENCH OF THIS TRIBUNAL, THOUGH IN THE CONTEXT OF DEDUCTIONS FROM BUSINESS INCOME, AND THE COORDINATE BENCH, EXTENSIV ELY REPRODUCING FROM BINDING JUDICIAL PRECEDENTS, OBSERVED AS FOLLOWS IN THE CASE OF A/AY SINGH DEAL VS. [JCIT (91 ITD 196) 2004] : .. IT IS THUS CLEAR THAT AS LONG AS THE EXPENSE IS INC URRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING AN INCOME, EVEN IF IT IS NOT NECESSARILY FOR EARNING THAT INCOME, IT WILL STILL BE DEDUCTIBLE IN COMPUTATION OF INCOME. WHAT THUS LOGI CALLY FOLLOWS IS THAT EVEN IN A SITUATION IN WHICH PROXIMATE OR IMMEDIATE CAUSE OF AN EXPENDI TURE WAS AN EVENT UNCONNECTED TO EARNING OF THE INCOME IN THE SENSE THAT THE EXPENDI TURE WAS NOT TRIGGERED BY THE OBJECTIVE TO EARN THAT INCOME, BUT THE EXPENDITURE WAS, NONETHELESS, WHOLLY AND EXCLUSIVELY TO EARN OR PROTECT THAT INCOME, IT WILL NOT CEASE TO BE DEDUCTIBLE IN NATURE. IT IS ALSO IMPORTANT TO BEAR IN MIND THE FACT THAT A BORR OWING AGAINST FIXED DEPOSIT CANNOT BE CONSIDERED IN ISOLATION OF A FIXED DEPOSIT ITSELF I NASMUCH AS GOING BY THE ADMITTED FACTS OF THIS CASE, THE INTEREST CHARGEABLE ON THE FIXED DEP OSIT ITSELF IS LINKED TO THE INTEREST ACCRUING AND ARISING FROM THE FIXED DEPOSIT. ON THESE FACTS, IN ORDER TO PROTECT THE INTEREST EARNINGS FROM FIXED DEPOSITS AND TO MEET HER FINANCIAL NEEDS , WHEN AN ASSESSEE RAISES A LOAN AGAINST THE FIXED DEPOSITS, SO AS TO KEEP THE SOURC E OF EARNING INTACT, THE EXPENDITURE SO INCURRED IN WHOLLY AND EXCLUSIVELY TO EARN THE FIXE D DEPOSIT INTEREST INCOME. THE ASSESSEE COULD HAVE GONE FOR PREMATURE ENCASHME NT OF BANK DEPOSITS, AND THUS ENDED THE SOURCE OF INCOME ITSELF AS WELL, BUT INST EAD OF DOING SO, SHE RESORTED TO BORROWINGS AGAINST THE FIXED DEPOSIT AND THUS PRESE RVED THE SOURCE OF EARNING. THE EXPENDITURE SO INCURRED, IS AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR EARNING FROM INTEREST ON FIXED DEPOSITS. WE ARE ALIVE TO THE FAC T THAT IN THE CASE OF A BUSINESS ASSESSEE, AND IN A SITUATION IN WHICH THE BORROWINGS AGAINST FIXED DEPOSITS WERE RESORTED TO FOR USE IN BUSINESS, CONSIDERATION FOR END USE OF FUNDS SO BOR ROWED WOULD BE RELEVANT BECAUSE THE INTEREST DEDUCTION IS CLAIMED AS A BUSINESS DEDUCTI ON UNDER SECTION 36(L)(III). THAT ASPECT OF THE MATTER, HOWEVER, IS ACADEMIC IN THE PRESENT CON TEXT AS THE LIMITED ISSUE FOR OUR CONSIDERATION IS WHETHER OR NOT, ON THE FACTS BEFOR E US, THE INTEREST ON BORROWING AGAINST THE FIXED DEPOSITS COULD BE SAID OR PROTECT THE INT EREST INCOME FROM FIXED DEPOSIT INTEREST AND THUS, INCURRED WHOLLY AND EXCLUSIVELY FOR THE P URPOSES OF EARNING SUCH INCOME.' 3.1 THE A.O. AGAIN ASKED THE ASSESSEE TO EXPLAIN AS UNDE R: YOU HAVE CLAIMED DEDUCTION OF R.S. 28,93,281/- AS EXPENSES AGAINST INTEREST EARNED OF BANK FDRS. AS PER ORDER SHEET ENTRY DATED 22.08.201 6, IT WAS REQUESTED TO EXPLAIN THE PURPOSE OF AVAILING THE OVERDRAFT FACILITY FROM THE BANK AND HOW THE LOAN FUNDS HAVE BEEN UTILIZED BY YOU. FURTHER, IT WAS REQUESTED TO JUSTI FY THAT THE EXPENDITURE OF INTEREST HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME AS PRESCRIBED U/S 57 (III) OF THE IT ACT, 1961. THE PR OCEEDINGS WERE FIXED ON HEARING ON 26.08.2016 BUT NO REPLY HAS BEEN FILED, TODAY. PLEA SE EXPLAIN. ' 4 3.2 IN RESPONSE THE ASSESSEE STATED AS UNDER: I HAD GIVEN MONEY TO MY SON TO AVOID PREMATURE ENC ASHMENT OF THE FIXED DEPOSITS, FOR THAT PURPOSE WHICH WOULD HAVE RESULTED IN NET LOSS TO ME, I TOOK LOAN AGAINST FIXED DEPOSIT SO AS TO KEEP THE FIXED DEPOSIT INTACT AND EARN THE INTEREST INCOME THEREON. AS IF I HAD PREMATURE FDR INSTEAD OF TAKING LOAN, MY INCOME WOU LD BE LESS AS COMPARED TO AT PRESENT. SAME WAS HELD IN CASE OF RAJ KUMARI AGGARW AL VS DCIT, CIRCLE AGRA ITANO. 176/AGRA/2013 AY 2008-09 DATED 19.07.2014.' THE ASSESSEE HAS RELIED UPON THE FOLLOWING JUDGMENT S: AJAY SINGH DEOL VS. [JCIT (91 ITD 196] 2004 RAJ KUMARI AGGARWAL VS DCIT, CIRCLE AGRA 3.3 THE A.O., HOWEVER, WAS NOT SATISFIED FROM THE EXPLA NATION OF THE ASSESSEE AND MADE THE ADDITION OF RS. 28,93,281/- BY OBSERVING IN PARA 3.3 OF THE ASSESSMENT ORDER DT. 28/11/2016 AS UNDER: 3.3 FROM THE FACTS DISCUSSED ABOVE, IT IS APPAREN T THAT THE ASSESSEE HAS FAILED TO JUSTIFY THAT THE SAID EXPENDITURE OF INTEREST HAS BEEN INCU RRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME AS PRESCRI BED U/S 57(III) OF THE IT ACT, 1961. INTEREST PAID ON LOANS RAISED AGAINST FDRS FOR GIVI NG THE MONEY TO SON CANNOT BE SAID TO BE AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME AS PRESCRIBED U/S 57(III) OF THE IT ACT, 196 1. HENCE, THE EXPLANATION FILED BY THE ASSESSEE WITH REGARD TO DEDUCTION OF RS. 28,93,281/ - CLAIMED U/S 57 (III) OF THE I.T. ACT, 1961 OUT OF INTEREST INCOME DECLARED AT RS. 45,49,341/- IS HEREBY REJECTED. ACCORDINGLY, AN ADDITION OF RS. 28,93,281/- IS MADE TO THE INCOME O F THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES. 4. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED AS UNDER: IN THIS REGARD IT IS SUBMITTED THAT ASSESSE FILED RETURN DECLARING INCOME OF RS. 1320390/-. ASSESSEES ONLY SOURCE OF INCOME IS INTEREST FROM B ANK FDRS, INTEREST ON SAVING BANK ACCOUNT OR INTEREST ON SECURITIES. ASSESSEE HAS INVESTED IN FIXED DEPOSITS RECEIPTS IN BANK IN EARLIER YEARS AND IS EARNING INTEREST THEREON AS BELOW: DATE OF PURCHASE OF FDR RATE OF INTEREST AT WHICH I NVESTED INTEREST RECEIVED QUARTERLY DURING THE FINANCIAL YEAR 2013-14 RENEWAL OF OLD FDR VALUING RS. 44250000/- @ 9.15% P.A RS 4549341.00 5 ASSESSEE RAISED LOANS AGAINST THE FOLLOWING FDRS AND PAID INTEREST ON THE SAME TO BANK AS INDICATED EACH SUCH LOAN: PARTICULAR AMOUNT OF LOAN RAISED AGAINST THE FDR RATE OF INTEREST INTEREST PAID DURING THE YEAR LOAN A/C NO. 358607030106673 OPENING BALANCE 180.89 LACS @ 10.15 RS. 1994713/- LOAN A/C NO. 358607030106712 ADDITION RECEIVED DURING THE YEAR 2013-14 OPENING BALANCE 52.30 LACS 50.25 LACS @ 10.15 RS. 898568 102.55 LACS 2893281.00 AS PER POLICY OF THE BANK, IF FDR WITH BANK ARE ENC ASHED PRE MATURITY, THEN THERE IS PENALTY OF 1.5% BY THE BANK. THE ASSESSEE GOT LOAN AGAINST THE SECURITY OF FDR R S. 102.55 LACS @ 10.15% I.E; 1% HIGHER. THE INTEREST RECEIVABLE ON FDR I.E; 9.15%. HAD THE ASSESSEE GOT FDR PRE MATURED, THEN SHE WILL LOSE % MORE AND IT WORKS OUT TOTAL RS. 51275/ -. YOUR HONOUR WILL APPRECIATE THAT THE ASSESSEE HAS G OT MORE INCOME ON ACCOUNT OF INTEREST ON FDR DURING THE YEAR, EVEN AFTER MAKING PAYMENT O F INTEREST ON LOAN RECEIVED AGAINST SECURITY OF THESE FDR. THUS DURING THE YEAR ASSESSEE RECEIVED INTEREST OF RS. 45,49,341/- AGAINST THE FDR AND PAID A SUM OF RS. 28,93,281/- IN RESPECT OF LOANS RAISED AGAINST THE FDRS ASSESSEE CLAIMED THE ABOVE REFERRED AMOUNT OF RS. 28,93,291/- AS DEDUCTI ON AGAINST THE INTEREST RECEIVED AS DEDUCTION UNDER SECTION 27 OF IT ACT. HOWEVER THE L EARNED ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF THE ASSESSEE AND MADE ADDITION OF RS. 28,93,281/- TO THE INCOME OF THE ASSESSEE. AGGRIEVED THE SAID ADDITION, ASSESSEE HAS FILED AN APPEAL BEFORE YOUR GOODSELF. ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THE LEARNED ASSESSING OFFICER HAS WRONGLY APPLIED T HE PROVISIONS OF SECTION 57(III) OF IT ACT. 2. THE LEARNED ASSESSING OFFICER HAD NOT APPRECIATED T HE INTENTION OF THE ASSESSEE, IF SHE HAD PREMATURE FDR INSTEAD OF TAKING LOAN, HER NET INCOM E WOULD BE ON THE LOWER SIDE AS HAD BEEN DECLARED BY HER IN THE RETURN AS DULY EXPLAINE D DURING THE COURSE OF ASSESSMENT BUT THE LEARNED A.O. HAD NOT ACCEPTED THE CONTENTION OF THE ASSESSEE. 3. THE LEARNED ASSESSING OFFICER HAS FAILED TO UNDERST AND THE FACTS AND CIRCUMSTANCES OF THE ASSESSEE. 4. THE APPELLANT MAY BE ALLOWED TO ADD/ALTER OR MODIFY ANY OF THE GROUNDS OF APPEAL AT THE TIME OF HEARING. 6 GROUND NO. 1 TO 3 RAISED BY THE ASSESSEE ARE IN RES PECT OF DISALLOWANCE OF INTEREST OF RS. 28,93,281. ASSESSEE HAS BEEN RECEIVING INTEREST ON VARIOUS FDR AND THE SAME WAS BEING CREDITED TO THE SAVING BANK ACCOUNT OF THE ASSESSEE . ASSESSEE HAS RAISED TWO LOANS OF RS. 180 LACS AND OF RS. 102 LACS AGAINST SECURITY OF TH E FDRS OF THE ASSESSEE AS THESE FUNDS WERE REQUIRED FOR THE NEED OF THE FAMILY, FOR THE P URPOSES OF BUSINESS BEING HANDLED BY HER SONS. IT MAY BE SEEN THAT ASSESSEE HAS INTEREST EARNING A PPARATUS IN THE SHAPE OF FDRS IN THE BANK ON WHICH SHE WAS RECEIVING INTEREST @ 9.15% PE R ANNUM AND INTEREST ON EACH OF THE FDRS WAS BEING CREDITED TO THE SAVING BANK ACCOUNT OF THE ASSESSEE. ASSESSEE CLAIMED DEDUCTION OF THE INTEREST PAID UNDER SECTION 57(III ) OF IT ACT. ASSESSING OFFICER HOWEVER RELIED ON THE JUDGMENT IN THE CASE OF CIT VS. VP GOPINATHAN 248 ITR 449. HOWEVER THE RATIO LAID DOWN IN THAT CASE I S NOT APPLICABLE AS IN THAT CASE, ASSESSEE BEFORE THE TRIBUNAL HAD MADE IT CLEAR THAT THE ASSE SSEES CASE DID NOT REST UPON THE PROVISIONS OF SECTION 57(III) OF THE ACT. IN OTHER WORDS, IT WAS NOT THE CONTENTION OF THE ASSESSEE, THAT HE WAS PAYING INTEREST TO THE BANK T O FACILITATE THE EARNING OF INTEREST FROM THE BANK. THE ARGUMENT BEFORE THE HONORABLE SUPREME COURT WAS ON BEHALF OF THE ASSESSEE WAS THAT THE REAL INCOME OF THE ASSESSEE IS ONLY RS. 27 ,034. THE HONORABLE SUPREME COURT IN THAT SITUATION HELD THAT IT COULD STAND DIMINISHED ONLY IF THERE WAS A PROVISION IN LAW WHICH PERMITS SUCH DIMINUTION. THERE IS NONE, AND, THEREF ORE, 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 BY HIM IN THE BANK. THE RELEVANT PARAS OF CIT VS. V.P. GOPINATHAN 248 I TR 449 ARE REPRODUCED AS UNDER: 4. LEARNED COUNSEL APPEARING FOR THE ASSESSEE BEF ORE THE TRIBUNAL HAD MADE IT CLEAR THAT THE ASSESSEES CASE DID NOT REST UPON THE PROVISION S OF SECTION 57(III) OF THE ACT. IN OTHER WORDS, IT WAS NOT THE CONTENTION OF THE ASSESSEE, V ERY RIGHTLY, THAT HE WAS PAYING INTEREST TO THE BANK TO FACILITATE THE EARNING OF INTEREST FROM THE BANK. 5. THE ARGUMENT BEFORE US ON BEHALF OF THE ASSESSEE WA S THAT THE REAL INCOME OF THE ASSESSEE IS ONLY RS. 27,034/-. 6. IT WAS NOT DISPUTED, AS IT COULD NOT BE, THAT IF TH E ASSESSEE HAD TAKEN A LOAN FROM ANOTHER BANK AND PAID INTEREST THEREON HIS REAL INCOME WOUL D NOT DIMINISH TO THE EXTENT THEREOF. THE ONLY QUESTION THEN IS DOES IT MAKE ANY DIFFEREN CE THAT HE TOOK THE LOAN FROM THE SAME BANK IN WHICH HE HAD PLACED THE FIXED DEPOSIT. THER E IS NO DIFFERENCE IN THE EYE OF THE LAW. THE INTEREST THAT THE ASSESSEE RECEIVED FROM T HE BANK WAS INCOME IN HIS HANDS. IT COULD STAND DIMINISHED ONLY IF THERE WAS A PROVISIO N IN LAW WHICH PERMITS SUCH DIMINUTION. THERE IS NONE, AND, THEREFORE, THE AMOUNT PAID BY T HE 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 HIM IN THE BANK. THE CASE WAS DECIDED BASED ON ARGUMENTS TAKEN BY TH E ASSESSEE BEFORE ITAT. THE CASE OF THE ASSESSEE IS SQUARELY COVERED ON THE FACT SITUATION IN THE CASE OF RAJ KUMARI OF ITAT AGRA WHO HAS DISCUSSED IN DETAIL THE SIMILA R FACTS (SUCH SITUATION AND FACTS NOT EXISTING IN VP GOPINATHAN CASE OF HON'BLE SUPREME C OURT. FACTS AND SITUATION EXPLAINED AS UNDER FOR THE PURPOSES OF REQUIREMENT OF FUNDS, WHICH WER E ASSESSEES OWN FUNDS AND WERE LYING WITH THE BANK IN THE SHAPE OF FDR ASSESSEE HAD THE FOLLOWING OPTIONS: 7 OPTION 1: ASSESSEE COULD HAVE PREMATURELY EN-CASHED THE FDR AND IN THAT CASE SHE WAS REQUIRED TO PAY BACK THE INTEREST IN THE SHAPE OF P ENALTY FOR PREMATURE CLOSING OF FDRS. OPTION2: ASSESSEE COULD HAVE RAISED LOANS AGAINST T HE FDRS AND PAID INTEREST ON THE LOAN RAISED AGAINST. IN THE FIRST CASE THE INCOME EARNING APPARATUS WOUL D HAVE CEASED TO EXIT AT THE TIME OF PREMATURE CLOSING OF FDR AND ASSESSEE WOULD NOT HAV E EARNED ANY INCOME ON SUCH CLOSED FDR. FURTHER ASSESSEE WAS ALSO LIABLE TO PAY BANK THE PENAL CHARGES FOR PREMATURE CLOSING THE FDR. IN THE SECOND OPTION ASSESSEE RAISED LOANS AGAINST SECURITY OF HER OWN FDR SO AS TO SAVE HER INCOME EARNING APPARATUS BUT HAD TO PAY INTERES T ON THE DEMAND LOAN. ASSESSEE CHOSE THE SECOND OPTION SO AS TO SAVE HER INCOME EARNING APPARATUS AND CLAIM THE INTEREST PAID AGAINST THE INTEREST EARNED ON FD RS AS DEDUCTION UNDER SECTION 57(III) OF ITA ACT. SECTION 57 OF THE IT ACT READS AS UNDER: SECTION 57: DEDUCTIONS:- THE INCOME CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES SHALL BE COMPUTED AFTER MAKING THE FOLLOWING DEDUCTIONS, NAMELY: (III) ANY OTHER EXPENDITURE (NOT BEING IN THE NATUR E OF CAPITAL EXPENDITURE) LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME: THUS FOR CLAIMING DEDUCTION UNDER SECTION 57(III) I T HAS TO BE PROVED THAT THE EXPENSES HAVE BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVE LY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. THERE IS NO DISPUTE THAT INTEREST INCOME IN THIS CA SE IS TO BE TAXED AS AN INCOME FROM OTHER SOURCES. SECTION 57(III) OF THE ACT CLEARLY PROVID ES THAT THE INCOME CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES IS TO BE COMPUTED MAKING THE .DEDUCTION, NAMELY..(INTER ALIA)ANYEXPENDITURE (NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE) LAID OUT OR EXPENDED WHOLLY AND EXLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. IT IS THUS CLEAR THAT AS LONG AS EXPENDITU RE IS INCURRED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE EARNING AN INCOME, SUCH, EXPENDITURE CONSTI TUTES AN ADMISSIBLE DEDUCTION IN COMPUTATION OF THE INCOME. REFERENCE WAS MADE TO THE CASE OF RAJ KUMAR AGARWAL ITAT AGRA ITA NO. 176/AGRA/2013 DATED 18-07-14(COPY ENCLOSED) AS CAN BE SEEN ABOVE THE CASE OF THE ASSESSEE FALLS WITHIN THE RATIO OF THE JUDGMENT OF ITAT AGRA BENCH IN THE CASE OF RAJ KUMARI AGGARWAL VS. DCIT CIRCLE 2 AGRA IN ITA NO. 176/AGRA/2013 WHERE THE FACTS OF THE CASE OF ASSESS EE ARE IDENTICAL. THE DECISION OF HON'BLE SUPREME COURT IS DISTINGUIS HABLE IN VIEW OF THE FACT THAT FACTUAL SITUATION IS DIFFERENT AS THE ISSUE OF NECESSITY OF LOAN AND THE LOSS ARISING DUE PREMATURE ENCASHMENT OF FDR WAS NOT BEFORE THE SUPREME COURT. THE ITAT AGRA HAS ALSO RELIED UPON THE SC DECISIONS. KEEPING IN VIEW THE ABOVE EXPLAINED POSITION, IT IS RESPECTFULLY PRAYED THAT ASSESSEE MAY BE ALLOWED DEDUCTION AS CLAIMED IN THE RETURN OF IN COME AT RS. 28,93,281/-. 8 5. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE ASSESSEE EARNED INTEREST INCOME ON FDR AMOUNTING TO RS. 45,49,341/-AND RAISED THE LOAN AGAINST THE SECURITY OF FDR AND PAID INTEREST OF RS . 28,93,281/-. HE FURTHER OBSERVED THAT THE INTEREST EXPENDITURE WAS INCURRED FOR PROVIDING LOAN TO THE FAMILY MEMBERS THEREFORE THE DISALLOWANCE OF INTEREST MADE BY THE A.O. ON ACCOUNT OF LOAN RAISED AGAINST SECURITY OF FDR WAS TO BE UPHELD. ACCORDINGLY THE ADDITION MADE BY THE A.O. WAS SUSTAINED 6. NOW THE ASSESSEE IS IN APPEAL. 7. LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISS IONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE ASSESSE E INVESTED IN FDRS IN BANK IN EARLIER YEARS AND WAS EARNING INTEREST @ 9.15% PER ANNU M. AGAINST THE SAID FDR VALUING RS. 4,42,50,000/-, THE ASSESSEE RAISED THE LOAN OF RS . 180.89 LACS @ 10.15% AMOUNTING TO RS 1994713/-, ANOTHER LOAN OF RS. 102.55 LACS WAS RAIS ED, ON THE SAID LOAN INTEREST OF RS. 898568/- WAS PAID. IT WAS FURTHER SUBMITTED THAT AS PER THE POLICY OF THE BANK IF THE FDR WERE TO BE ENCASHED PREMATURELY, THEN THERE WAS A PENALT Y @ 1.5% BY THE BANK. THEREFORE, THE ASSESSEE BY GETTING THE FDR PREMATURE, WOULD HAVE LOOSED 1 % INTEREST WHICH WORKED OUT TO RS. 51275/-. IT WAS CONTENDED THAT THE ASSESSEE RECEIVED INTEREST OF RS. 45,49,341/- ON THE FDR AND PAID SUM OF RS. 28, 93,281/- IN RESPECT OF LOAN RAISED AGAINST THE FDR AND CLAIMED THE PAYMENT OF INTEREST AGAI NST THE INTEREST RECEIVED, AS A DEDUCTION UNDER SECTION 57(III) OF THE ACT. IT WAS STAT ED THAT IN CASE THE FDR WAS TO BE PREMATURELY ENCASHED THEN THE INCOME EARNING APPARATUS W OULD HAVE SEIZED TO EXIST AND THE ASSESSEE WAS NOT HAVE EARNED ANY INCOME ON SAID CLO SED FDR AND WAS LIABLE TO PAY THE BANK THE PENAL CHARGES FOR PREMATURE CLOSING OF THE FDR. IT WAS CONTENDED THAT THE ASSESSEE OPTED TO RAISE THE LOAN AGAINST THE FD R AND IN THIS MANNER SAVED THE INTEREST AS WELL AS DID NOT PAY ANY PENALTY, THEREFORE, IT CAN BE SAID THAT THE ASSESSEE INCURRED THE EXPENDITURE EXCLUSIVELY OR WHOLLY FOR THE PURPOSES OF EARNING THE INCOME, SO IT WAS AN ADMISSIBLE DEDUCTION IN COMPUTATION OF THE INCOME. RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS OF THE ITAT AND HON'BLE HIGH COU RTS: RAJ KUMAR AGARWAL VS. DCIT, CIRCLE-2, AGRA IN ITA NO . 176/AGRA/2013 ORDER DT. 18/07/2014 9 KNITWELL INDIA PVT. LTD. VS. DCIT, CIRCLE-1(1), CHANDIG ARH IN ITA NO. 1174/CHD/2017 ORDER DT. 06/02/2019 CIT VS. U.K. BOSE IN ITA NO. 258/2010 (DEL HC) ORDER DT. 30/11/2012 CIT VS. J.B. ROYD IN ITA NO. 546/2010 (DEL HC) ORDER DT. 30/11/2012 8. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE L D. CIT(A) HAD GIVEN THE FINDINGS WITHOUT CONSIDERING THE REPLY OF THE ASSESSEE WHICH SHOWS THAT THE LD. CIT(A) HAS PREJUDGED THE ISSUE. IT WAS CONTENDED THAT THE LD. CI T(A)REFERRED THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. DR. V. P. GOPINATHAN REPORTED AT 248 ITR 449 WHICH WAS RELIED BY THE A.O. HOWEVER THE SAID JUDGMENT WAS DISTINGUISHABLE ON FACTS BECAUSE IN THE SAID CASE THERE WAS NO ISSUE REL ATING TO THE DISALLOWANCE UNDER SECTION 57(III) OF THE ACT. IT WAS FURTHER SUBMITTED T HAT IN THE SAID CASE WHICH WAS RELIED BY THE A.O. AND CONSIDERED BY THE LD. CIT(A) THE LOAN WAS TAKEN BY THE ASSESSEE FROM ANOTHER BANK AND INTEREST WAS PAID ON THE SAID LOAN AND THE INTEREST EARNED ON FDR WAS FROM DIFFERENT BANK WHILE IN THE CASE OF ASSESSEE T HE LOAN WAS RAISED AGAINST THE FDR TO SAVE THE INTEREST AND NOT TO PAY THE PENALTY. 9. IN HIS RIVAL SUBMISSIONS THE LD. SR. DR REITERATED THE OBSERVATIONS MADE BY THE AUTHORITIES BELOW AND STRONGLY SUPPORTED THE IMPUGNED OR DER PASSED BY THE LD. CIT(A). 10. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTI ES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE I T IS AN ADMITTED FACT THAT THE ASSESSEE WAS HAVING OLD FDRS WITH THE BANK AND EARNING INTE REST @ 9.15%. THE ASSESSEE RAISED THE LOAN AGAINST THE FDR AND PAID 1% EXTRA INTER EST. THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT AS PER THE POLICY OF THE BANK IF THE FDR WITH THE BANK WERE ENCASHED PREMATURELY THEN THERE WAS PENALTY OF 1.5% BY THE BANK, THEREFORE BY NOT ENCASHING THE FDR PREMATURELY AND RAISING THE LOANS AG AINST THE SAME FDR, THE ASSESSEE SAVED INTEREST @ 0.5%. SO, THERE IS NO LOSS OF THE REVENUE. IN THE INSTANT CASE, IT IS NOT THE CASE OF THE DEPARTMENT THAT THE ASSESSEE RAIS ED THE INTEREST BEARING FUNDS AND UTILIZED THE SAME FOR GIVING INTEREST FREE ADVANCES . ON THE CONTRARY THE ADVANCES GIVEN BY THE ASSESSEE WERE OUT OF THE ASSESSEES OWN FU NDS. MOREOVER, BY RAISING THE LOANS AGAINST THE FDR AND NOT ENCASHING PREMATURELY THE AS SESSEE SAVED THE INTEREST AND ALSO KEPT THE INCOME EARNING APPARATUS INTACT, THERE FORE THE DISALLOWANCE MADE 10 BY THE A.O. AND SUSTAINED BY THE LD. CIT(A) WAS NOT JUS TIFIED PARTICULARLY WHEN THE ASSESSEE HAS SHOWN THE INCOME UNDER THE HEAD INCOME FRO M OTHER SOURCES AND NOT THE BUSINESS INCOME. IN THE PRESENT CASE, THE INTEREST PA ID ON THE LOANS RAISED AGAINST THE FDR WAS HAVING THE DIRECT NEXUS WITH THE INTEREST R ECEIVED FROM THE FDRS AND THE ASSESSEE CHOOSE TO SAVE THE PENALTY OF 1.5% BY RAISING THE LOANS AT 1% HIGHER RATE OF INTEREST THAN THE INTEREST RATE ON FDR THUS THERE WERE SAV ING OF 0.5%. AS REGARDS TO THE DECISIONS RELIED BY THE A.O. AND CONSIDERED BY THE LD. C IT(A) I.E; CIT VS. DR. V.P. GOPINATHAN (SUPRA) IS CONCERNED, IT IS NOTICED THAT THE S AME IS DISTINGUISHABLE FROM THE FACTS OF THE ASSESSEES CASE, SINCE THE ISSUE IN THE S AID CASE WAS NOT RELATING TO THE APPLICABILITY OF SECTION 57(III) OF THE ACT RATHER IN THE SAID CASE THE LOAN WAS RAISED FROM DIFFERENT BANK ON WHICH INTEREST WAS PAID WHILE THE INTERES T WAS EARNED ON THE FDR WITH THE DIFFERENT BANK, SO THERE WAS NO NEXUS. WE THEREFORE B Y CONSIDERING THE FACTS OF THE PRESENT CASE AS DISCUSSED HEREIN ABOVE, ARE OF THE VIEW THAT THE DISALLOWANCE SUSTAINED BY THE LD. CIT(A) WAS NOT JUSTIFIED, ACCORD INGLY, THE SAME IS DELETED. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 23/07/2020 ) SD/- SD/- '# $ .., (SANJAY GARG ) ( N.K. SAI NI) % &'/ JUDICIAL MEMBER / VICE PRESIDENT AG DATE: 23/07/2020 (+! ,-.- COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. $ / CIT 4. $ / 01 THE CIT(A) 5. -2 45&456789 DR, ITAT, CHANDIGARH 6. 8:% GUARD FILE