Ramkali Banwarilal Saraf, Ahmedabad V. The ACIT.,(OSD)Circle-6, Ahmedabad

ITA 2593/AHD/2010

• Counselvise Citation: 259320514 RSA 2010
• Duration Of Justice: 1 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 31-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROOPCHNAD
• Assessee Lawyers: A C SHAH
• Keywords: Opportunity of being heard
• Section: 143(3); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD BEFORE BEFORE SHRI MUKUL KR. SHRAWAT , JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER ITA NO. 2593/AHD/2010 ASSESSMENT YEAR :2006-07 RAMKALI BANWARILAL SARAF 30, ROYAL ENCLAVE BUNGLOWS, NR. ASOPALAV BUNGLOW, THALTEJ, AHMADABAD-380054. V/S . THE ACIT (OSD), CIRCLE-6, AHMEDABAD PAN NO. AMDPS7827G (APPELLANT) .. (RESPONDENT) BY APPELLANT SHRI A.C. SHAH, A.R. /BY RESPONDENT SHRI ROOPCHNAD, SR. D.R. /DATE OF HEARING 10.07.2012 /DATE OF PRONOUNCEMENT 10.07.2012 O R D E R PER : T.R.MEENA, ACCOUNTANT MEMBER THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE, WH ICH HAS EMANATED FROM THE ORDER OF CIT(A)-XVI, AHMEDABAD, ORDER DATE D 25.06.2010 FOR ASSESSMENT YEAR 2006-07. 2. THE SOLE GROUND OF APPEAL OF THE ASSESSEE IS AGA INST CONFIRMATION OF INTEREST EXPENDITURE OF RS.2,33,450/- BY THE CIT(A) . ITA NO. 2593/AHD/10 A.Y. 06-07 PAGE 2 3. THE SHORT FACTS APROPOS ARE THAT THE ASSESSEE FI LED RETURN ON 25.07.2006 DECLARING TOTAL INCOME AT RS.16,74,830/- . THE ASSESSEES CASE WAS SCRUTINIZED U/S 143(3) OF THE IT ACT BY THE A.O . THE ASSESSEE HAD CLAIMED INTEREST EXPENDITURE OF RS.2,33,450/-. THE A.O. HAD GIVEN REASONABLE OPPORTUNITY OF BEING HEARD. THE ASSESSEE HAD BORRO WED RS.30,00,000/- ON 07.07.2003 FOR INVESTMENT IN THE NATIONAL HOUSING B ANK BONDS AND THIS LOAN HAS BEEN REPAID OUT OF BORROWED FUND AND CLAIMED IN TEREST EXPENDITURE AGAINST INTEREST INCOME. THE LD. A.O. OBSERVED THA T THE APPELLANT HAS NOT ESTABLISHED ANY NEXUS BETWEEN FUND BORROWED AND INC OME EARNED U/S 57(III) OF THE IT ACT. THE IMMEDIATE MOTIVE AND PURPOSE OF INCURRING THE INTEREST EXPENDITURE WAS TO RE-PAYMENT FOR OLD LOANS AND NOT EARN ANY INCOME TAXABLE UNDER THE HEAD OTHER SOURCES. THE A.O. FURTHER O BSERVED THAT EXPENDITURE HAD NOT BEEN INCURRED WHOLLY A EXCLUSIVELY FOR EARN ING THE INCOME FROM NHB BONDS OR FOR THAT MATTER ANY OTHER INCOME TAXABLE U NDER THE HEAD INCOME FROM OTHER SOURCE. THE A.O. MADE ADDITION OF RS.2 ,33,450/- IN THE INCOME OF THE ASSESSEE. 4. BEING AGGRIEVED, THE MATTER CAME BEFORE THE CIT( A) WHO HAD CONFIRMED THE ADDITION AND OBSERVED AS UNDER:- 5.2. I HAVE CONSIDERED THE SUBMISSION OF THE APPEL LANT. THERE IS DIFFERENCE BETWEEN SECTION 57(III) AND SECTION 37(1 ) OF THE IT ACT REGARDING THE ALLOWABILITY OF EXPENSES. SECTION 37 (1) DEALS WITH THE EXPENSES INCURRED WHOLLY AND EXCLUSIVELY FOR THE PU RPOSE OF THE BUSINESS OF THE ASSESSEE. ON THE OTHER HAND SECTIO N 57(III) SPEAKS OF AN EXPENDITURE R BEING IN THE NATURE OF CAPITAL EXP ENDITURE INCURRED WHOLLY AND EXCLUSIVE FOR THE PURPOSE OF MAKING OR E ARNING SUCH INCOME . ITA NO. 2593/AHD/10 A.Y. 06-07 PAGE 3 SUCH INCOME IN SECTION 57(III) REFERS TO THE INCOME CHARGEABLE UNDER THE HEAD OF INCOME FROM OTHER SOURCES. THE DIFFERENC E BETWEEN THE TWO SECTIONS IS THAT UNDER THE CATEGORY OF EXPENSES IN SECTION 37 WIDE RANGE OF EXPENSES WHICH ARE INCURRED FOR THE PURPOS E OF BUSINESS OF THE ASSESSEE, WILL FALL. WHERE UNDER THE CATEGORY OF E XPENSES IN SECTION 57(III) ONLY THOSE EXPENSES WOULD BE ALLOWED WHICH ARE INCURRED FOR THE PURPOSE OF MAKING OR EARNING SU INCOME . IN OTHER WORDS, THERE HAS TO BE A DIRECT NEXUS BETWEEN THE EXPENDITURE AND EARNI NG OF SUCH INCOME. IF THERE IS NO SUCH DIRECT NEXUS THEN THE EXPENSES WILL NOT BE ALLOWABLE U/S.57(III). IN THE PRESENT CASE THE APPELLANT HAD BORROWED FUNDS TO REPAY THE OLD LOANS WHICH WERE USED THE APPELLANT T O PURCHASE THE BONDS OF NATIONAL HOUSING BANK. THE APPELLANT IS S HOWING INTEREST INCOME FROM SUCH BONDS UNDER THE HEAD INCOME FROM OTHER SOURCES SINCE A.Y. 2004-05. DURING THIS YEAR THE OLD LOANS ARE REPAID OUT OF THE BORROWED FUNDS. THUS THE NEW LOANS ARE NOT USED FO R EARNING THE INTEREST FROM NHB BONDS BECAUSE IRRESPECTIVE OF THE FACT WHETHER THE OLD LOANS ARE REPAID OR NOT, THE APPELLANT WOULD CO NTINUE TO RECEIVE THE INCOME FROM THE NHB BONDS . THEREFORE, I AGREE WITH THE AO THAT THERE IS NO DIRECT NEXUS BETWEEN THE INTEREST INCOME FROM NHB BONDS AND INTEREST EXPENSES ON THE NEW BORROWED FUNDS UTILIZE D FOR REPAYMENT OF OLD LOANS WHICH WERE USED IN PURCHASING THE NHB BON DS. THEREFORE THE APPELLANT WOULD NOT BE ENTITLED TO THE DEDUCTIO N OF INTEREST EXPENSES OF RS.2,33,450/- ON SUCH NEW LOANS. THIS GROUND OF THE APPELLANT IS DISMISSED. 5. NOW THE ASSESSEE IS IN APPEAL BEFORE US. LD. CO UNSEL FOR THE ASSESSEE FILED PAPER BOOK AND SUBMITTED THAT THE ASSESSEE IN VESTED RS.32,00,000/- IN NHB BONDS ON 07.07.2003 BY BORROWING FROM THE FOLLO WING PARTIES: SHRI RAMBHAI A. PATEL RS.8,00,000/- PINKI G. PATEL RS.10,00,000/- ITA NO. 2593/AHD/10 A.Y. 06-07 PAGE 4 MANIBEN R. PATEL RS.12,00,000/- DURING THE YEAR, THE ASSESSEE REPAID THE LOAN TO TH E ABOVE REFERRED THREE PARTIES BY BORROWING FROM SHRI SUNIL SARAFF. THE I NTEREST OF RS.1,80,000/- WAS PAID TO SHRI SUNIL SARAFF. THE BALANCE INTEREST WA S PAID TO THE OTHER PARTIES ON OUTSTANDING AMOUNT AND THE INTEREST WAS PAID AND AL LOWED AS DEDUCTION. THE LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THAT THERE IS A DIRECT NEXUS BETWEEN INVESTMENT AND FUNDS BORROWED. THE FRESH B ORROWING IS MADE FOR THE PURPOSE OF REPAYING THE OLD BORROWING UTILIZED FOR THE PURPOSE OF INVESTMENT IN NHB BONDS. THE INTEREST ON NHB BONDS IS OFFERED FO R TAXATION. SHE FILED COPY OF THE STATEMENT OF INCOME AND COPY OF ACCOUNT S OF THE PARTIES WHO HAVE LENT MONEY TO THE ASSESSEE. THE LD. CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT BORROWINGS WERE MADE FOR REPAYING OLD LOANS AND INT EREST EXPENDITURE IS NOT ALLOWABLE U/S 57(III) OF THE IT ACT. THE APPELLANT FILED THE COPY OF THE BANK ACCOUNT FOR THE A.Y. 04-05 AND HAS DRAWN OUR ATTENT ION ON PAGE NO.3 OF THE PAPER BOOK IN WHICH THERE WAS A CLEARANCE ON 07.07. 2003 OF RS.30,00,000/- AND ON SAME DAY THE ASSESSEE PURCHASED NHB BONDS FO R RS.32,00,000/-. HE AGAIN REFERRED THE PAGE NO.5 OF THE PAPER BOOK WHIC H IS THE COPY OF BANK ACCOUNT FOR A.Y. 06-07, REVEALS THAT THE ASSESSEE T OOK A LOAN FROM SUNIL B SARAFF ON 05.04.2005 AT RS.4,00,000/- AND PAID TO M ANIBEN R PATEL ON 06.04.2005 AT RS.13,08,000/-. THE ASSESSEE AGAIN T OOK LOAN OF RS.11,25,000/- FROM SUNIL B SARAFF ON 16.08.2005 AN D PAID RS.10,00,000/- TO PINKY G PATEL. THUS, THE APPELLANT HAD DIRECT NEXU S BETWEEN BORROWING AND THE INTEREST INCOME. THEREFORE, CIT(A) WAS NOT JUD ICIOUS IN HOLDING THE ADDITION. FROM THE SIDE OF REVENUE, LD. SR. D.R. RELIED UPON THE ORDER OF THE ITA NO. 2593/AHD/10 A.Y. 06-07 PAGE 5 A.O. AND CIT (A) AND REQUESTED TO CONFIRM THE ADDIT ION MADE BY THE A.O. AND UPHELD BY THE CIT(A). 8. WE HAVE PERUSED THE ORDERS OF THE AUTHORITIES BE LOW AND HEARD THE ARGUMENTS FROM BOTH SIDES. THESE SIMILAR EXPENSES ON ACCOUNT OF INTEREST PAYMENT HAD BEEN ALLOWED BY THE A.O. FOR A.Y. 05-06 . THE APPELLANT HAD TAKEN LOAN FOR REPAYMENT OF OLD LOAN WHICH WERE USE D IN PURCHASING OF NHB BONDS. THE LD. A.O. HAD NOT DOUBTED THE GENUINENES S OF THE LOAN BUT WERE NOT WHOLLY FOUND FOR THE PURPOSE OF EARNING. THE A SSESSEE HAS ESTABLISHED DIRECT NEXUS THROUGH THE COPY OF BANK ACCOUNT ENTRI ES THAT THESE LOANS WERE BORROWED FOR THE PURPOSE OF INTEREST INCOME. WE AR E OF CONSIDERED VIEW THAT CIT(A) WAS NOT JUSTIFIED IN HOLDING THE ADDITION OF RS.2,35,400/-. 9. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE. SD/- SD/- ( MUKUL KR. SHRAWAT ) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER TRUE COPY S.K.SINHA ! ! ! ! '! '! '! '! / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. '(' ) * / CONCERNED CIT 4. *- / CIT (A) 5. !./ ), ) , 12( / DR, ITAT, AHMADABAD ITA NO. 2593/AHD/10 A.Y. 06-07 PAGE 6 6. /45 67 / GUARD FILE. BY ORDER/ , 8/ 1 ': ) , 12( ; STRENGTHEN PREPARATION & DELIVERY OF ORDERS IN THE ITAT 1) DATE OF TAKING DICTATION 20.07.2012 2) DIRECT DICTATION BY MEMBER STRAIGHT ON COMPUTER/LAPTOP/DRAGON DICTATE XXX 3) DATE OF TYPING & DRAFT ORDER PLACE BEFORE MEMBER 23.07.2012 4) DATE OF CORRECTION 24.07.2012 5) DATE OF FURTHER CORRECTION XXX 6) DATE OF INITIAL SIGN BY MEMBERS 26.07.2012 7) ORDER UPLOADED ON ,, ,, 8) ORIGINAL DICTATION PAD HAS BEEN ENCLOSED IN THIS FILE YES 9) FINAL ORDER AND 2 ND COPY SEND TO BENCH CLERK ON 26.07.2012