PREMJI SATRA, MUMBAI V. DCIT CEN CIR 3, MUMBAI

ITA 3097/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75891 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 04-03-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 21-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M L PERUMAL
• Assessee Lawyers: VIJAY KOTHARI
• Keywords: Earning of tax free income
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C , BENCH MUMBAI , BEFORE SHRI R.C.SHARMA , A M & DR.STM PAVLAN , J M ITA NO. 30 9 7 / MUM/20 1 0 ( ASSESSMENT YEAR : 200 7 - 0 8 ) MR. PREMJI SATRA, KRISHNA BHUVAN, 2 ND FLOOR, 67 NEHRU ROAD, VILE PARLE (EAST), MUMBAI - 400 057 VS. D CIT, C C - 3 (3), MUMBAI PAN/GIR NO. : A A B PS 5244 D ( APPELLAN T ) .. ( RESPONDENT ) /ASSESSEE BY : SHRI VIJAY KOTHARI /REVENUE BY : SHRI M.L.PERUMAL DATE OF HEARING : 6 TH MARCH , 201 4 DATE OF PRONOUNCEMENT : 12 TH MARCH , 201 4 O R D E R PER R.C.SHARMA ( A .M.) : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A), DATED 31 - 3 - 2010 , FOR THE ASSESSMENT YEAR 200 7 - 0 8 , IN THE MATTER OF ORDER PASSED UNDER SECTION 143(3) OF THE I.T. ACT. 2 . THE SOLE GRIEVANC E OF THE ASSESSEE RELATES TO DISALLOWANCE OF CLAIM OF DEDUCTION OF INTEREST PAID OF RS. 17,63,584/ - . 3 . RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS DERIVING INCOME FROM HOUSE PROPERTY, INTEREST AND SALARY IN COME FROM PARTNERSHIP FIRM AND INCOME FROM OTHER SOURCES. DURING THE COURSE OF SCRUTINY ASSESSMENT, THE AO FOUND THAT THE ASSESSEE HAS DECLARED INTEREST INCOME ON LOANS ADVANCED ITA NO. 309 7 /20 1 0 2 AMOUNTING TO RS.12,53,152/ - AND CLAIMED INTEREST OF RS.17,63,584/ - AGAINST THE SAME. THE AO FURTHER OBSERVED THAT INTEREST HAS BEEN EARNED ON MONEY ADVANCED AS LOANS AND INVESTMENT MADE WITH RAJENDRA BUILDERS, WHEREAS INTEREST HAS BEEN PAID ON ACCOUNT OF PERSONAL AND UNSECURED LOANS. THERE IS NO DIRECT NEXUS BETWEEN THE INTEREST EAR NED AND INTEREST CLAIMED. ACCORDINGLY, HE DISALLOWED THE ENTIRE INTEREST OF RS. 17,63,584/ - . BY THE IMPUGNED ORDER, THE CIT(A) CONFIRMED THE ACTION OF THE AO. 4 . IT WAS ARGUED BY THE LEARNED AR THAT ASSESSEE HAS GIVEN LOANS AND ADVANCES OF RS.1,04,65,340/ - OUT OF INTEREST BEARING LOANS. THEREFORE, THE ENTIRE AMOUNT OF INTEREST RECEIVED WAS DIRECTLY RELATABLE TO THE INTEREST BEARING FUNDS OBTAINED BY THE ASSESSEE BY WAY OF LOANS AND ADVANCES. AS PER THE LEARNED AR, BALANCE AMOUNT OF INTEREST BEARING LOANS WE RE UTILIZED FULLY AND EXCLUSIVELY FOR EARNING INCOME TAXABLE UNDER TH E VARIOUS PROVISIONS OF THE ACT. 5 . ON THE OTHER HAND, LEARNED DR RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. 6 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND CAREFULLY GONE THROUGH THE O RDERS OF THE AUTHORITIES BELOW AND FOUND THAT THE DISALLOWANCE OF INTEREST EXPENDITURE MADE BY THE AO ON THE PLEA THAT THERE IS NO DIRECT NEXUS BETWEEN THE INTEREST EARNED AND INTEREST CLAIMED. THE ASSESSEE HAS EARNED INTEREST OF RS.12,53,152/ - ON THE ADVA NCES GIVEN, AGAINST WHICH INTEREST EXP ENDITURE HAS BEEN CLAIMED AT RS.17,63,584/ - . THERE IS NO DISPUTE TO THE WELL SETTLED PROPOSITION OF ITA NO. 309 7 /20 1 0 3 LAW THAT DEDUCTION FOR INTEREST EXPENDITURE CAN BE ALLOWED ONLY IF FUNDS HAVE BEEN BORROWED FOR THE PURPOSE OF BUSINES S AND ALSO UTILIZED FOR THE SAME. IF THE INTEREST BEARING FUNDS HAD BEEN DIVERTED FOR NON - BUSINESS PURPOSE, INTEREST EXPENDITURE CANNOT BE ALLOWED UNDER SECTION 36(1)(III) OF THE ACT. IN CASE THE ASSESSEE IS HAVING INTEREST INCOME ONLY WHICH IS TAXABLE UN DER THE HEAD INCOME FROM OTHER SOURCES, ONLY THOSE EXPENDITURES CAN BE ALLOWED, WHICH HAS BEEN INCURRED FOR EARNING SUCH INCOME. SIMILARLY, INTEREST EXPENDITURE IF INCURRED FOR EARNING EXEMPT INCOME, THE SAME CANNOT BE ALLOWED. IN THE INSTANT CASE, IT IS NOT CLEAR AS TO WHICH ADVANCES HAVE BEEN MADE FOR EARNING INTEREST OUT OF INTEREST BEARING BORROWINGS . THE AO HAS NOT ALSO GIVEN ANY FINDING AS TO THE DIVERSION OF INTEREST BEARING FUNDS FOR NON - BUSINESS PURPOSES OR FOR NOT EARNING INTEREST INCOME . ACCORD INGLY, WE SET ASIDE THE ORDER OF BOTH THE LOWER AUTHORITIES AND RESTORE THE MATTER BACK TO THE FILE OF THE AO FOR DECIDING AFRESH, KEEPING IN VIEW OUR ABOVE OBSERVATION S . 7 . IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12 TH MARCH . 201 4 . 12 TH MARCH ,2014 SD/ - SD/ - ( ) ( S.T.M .PAVLAN ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 12 / 0 3 /2014 /PKM , PS ITA NO. 309 7 /20 1 0 4 COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A), MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//