JITEN P. MATHURIA, MUMBAI V. ACIT 25(3), MUMBAI

ITA 327/MUM/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4467 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Assessment Year: 2009-2010
• Appeal Filed On: 13-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Source of fund; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BE NCH J MUMBAI. BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO 327/MUM/2014 ASSESSMENT YEAR: - 2009-10 SHRI JITEN P. MATHURIA 1702-4, PANCHASEEL HEIGHTS, MAHAVIR NAGAR, KANDIVALI (W) MUMBAI 400 067. VS.` ACIT 25(3), MUMBAI, C-11, 3 RD FLOOR, BANDRA KURLA COMPLEX, BANDRA (EAST) MUMBAI 400 051. PAN/GIR NO. AOBPS7066K APPELLANT RESPONDENT ORDER PER RAJESH KUMAR, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 18.11.2013 OF CIT (A) FOR A.Y. 2009-10. THE ASSESSEE HAS RAISED F OLLOWING GROUNDS OF APPEAL:- ASSESSED BY SHRI BIREN GABHAWALA REVENUE BY SHRI NAVEEN GUPTA DATE OF HEARING 01.09.2015 DATE OF PRONOUNCEMENT 06 .01 .201 6 2 ITA NO 327/MUM/2014 ASSESSMENT YEAR: - 2009-10 PAGE 2 OF 8 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN IN LA W THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE DISA LLOWANCE OF INTERST RS.3,97,244/- CLAIMED AS DEDUCTION U/S 57(III) OF I NCOME TAX ACT AGAINST INTEREST INCOME OF RS.16,08,399/- DISCLOSED UNDER T HE HEAD INCOME FROM OTHER SOURCE. 1.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN IN LA W THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN IGNORING THE PROVI SIONS OF SEC57(III) OF THE INCOME TAX ACT ACCORDING TO WHICH ANY EXPENDITURE ( NOT BEING THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENDITURE) LAID O UT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING OF SUCH INCOME IS ALLOWABLE AS A DEDUCTION IN COMPUTING THE INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. 1.2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN IN LA W THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN FAILING TO APPRECI ATE THAT THE FACTS OF SUPREME COURT DECISION IN THE CASE OF CIT VS. DR. V.P. GOPI NATHAN (2001) 116 TAXMAN 489(SC) IS DISTINGUISHABLE FROM THE FACTS OF YOUR A PPELLANTS CASE AND HENCE IS NOT APPLICABLE. 1.3 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN IN LA W THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN FAILING TO APPRECI ATE THAT THE HON. SUPREME COURT IN THE CASE OF SETH R. DALMIA V. CIT(1977) 11 0 ITR 644 HAS HELD THAT THE NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE INCO ME EARNED NEED NOT BE DIRECT AND EVEN AN INDIRECT CONNECTION COULD PROVE THE NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE INCOME EARNED. HE OUGH T TO HAVE FOLLOWED THIS DECISION AND ALLOWED THE APPEAL. 1.4 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN IN LA W THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN IGNORING THE EXPLA NATION OF YOUR APPELLANT THAT THE INTEREST ON THE OPENING BALANCE OF RS.25,0 0,000/- AS WELL AS ADDITIONAL 3 ITA NO 327/MUM/2014 ASSESSMENT YEAR: - 2009-10 PAGE 3 OF 8 LOAN OF RS.23.50 LAKHS TAKEN DURING THE YEAR FROM M /S. AMCO LAND & MARINE SERVICE AND M/S. MAYUR GEMS WERE LEGITIMATE EXPENSE S FOR EARNING THE INCOME FROM OTHER SOURCES AS THESE BORROWINGS WERE EXCLUSI VELY USED FOR ADVANCING THE LOANS TO THE COMPANIES FROM WHERE THE APPELLANT EAR NED INTEREST INCOME. 2. YOUR APPELLANT PRAYS THAT THE DISALLOWANCE OF INTER EST OF RS3,97,244/- MADE BY THE LEARNED ASSESSING OFFICER MAY KINDLY BE DELETE D. 2. THE COMMON ISSUE RAISED IN ALL THE GROUNDS OF APPEA LS IS AGAINST THE CONFIRMATION OF ADDITION OF RS. 3,97,244/- BY CIT(A ) MADE BY THE AO BY REJECTING THE CLAIM OF THE ASSESSEE U/S 57(III) OF THE ACT 3. FACTS IN BRIEF ARE THAT THE ASSESSEE AN INDIVIDU AL WAS ENGAGED IN THE BUSINESS OF TRADING IN PLASTIC GRANULES AND DERIVED INCOME F ROM VARIOUS SOURCES OF INCOME SUCH AS SALARY, CAPITAL GAIN AND INCOME FROM OTHER SOURCES. DURING THE YEAR UNDER REFERENCE, THE ASSESSEE FILED HIS RETURN OF INCOME ON 29.09.2009 DECLARING AN INCOME OF RS. 38,96,730/- UNDER VARIOUS HEADS OF IN COME. THE ASSESSEE HAD SHOWN RS. 15,99,664/- AS INCOME UNDER THE HEAD INCOME FRO M OTHER SOURCES WHICH WAS RECEIVED ON THE LOANS GIVEN TO VARIOUS COMPANIES A ND AGAINST THE SAID INCOME THE ASSESSEE CLAIMED DEDUCTION U/S 57(III) OF RS. 3,97, 244/- AS INTEREST ON THE MONEY RAISED FOR REPAYMENT/ ADVANCING LOANS TO OTHER COM PANIES. 4. THE AO FRAMED HE ASSESSMENT U/S 143(3) OF THE A CT VIDE ORDER DATED 17.10.2011 AT RS. 42,93,975/- BY REJECTING THE SUB MISSIONS OF THE ASSESSEE DATED 16.08.2011 AS INCORPORATED IN THE ASSESSMENT ORDER AT PAGE NO. 2 BY HOLDING THAT THE INTEREST OF RS. 3,97,244/- WAS NOT DIRECTLY CON NECTED WITH THE EARNING OF INTEREST INCOME. 5. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE CIT(A). THE APPEAL OF THE ASSESSEE WAS DISMISSED B Y REJECTING THE CONTENTION OF THE ASSESSEE THAT INTEREST PAID ON MONEY RAISED WAS ADMISSIBLE U/S 57(III) OF THE 4 ITA NO 327/MUM/2014 ASSESSMENT YEAR: - 2009-10 PAGE 4 OF 8 INCOME TAX ACT BY RELYING UPON THE VARIOUS DECISIO NS AS INCORPORATED IN PARA 6 OF THE CIT(A) ORDER. 6. THE LD AR FOR THE ASSESSEE SUBMITTED THAT INTER EST OF RS. 3,97,244/- PAID BY THE ASSESSEE ON THE FUNDS BORROWED TO RETURN THE EX ISTING LOANS AND TO ADVANCE TO LOANS TO OTHER COMPANIES AT HIGHER RATE AND THEREFO RE THE INTEREST PAID OF RS. 3,97,244/- WAS AN ADMISSIBLE EXPENSE U/S 57(III) OF THE ACT. THE LD AR ALSO SUBMITTED THAT THE MONEY WAS BORROWED AT THE RATE O F 9% AND THE SAME WAS UTILIZED TO RETURN THE EXISTING LOANS AND FOR ADVANCING LOAN S WHICH WERE @ RATE OF 12%. THE ASSESSEE FILED DETAILED STATEMENT SHOWING THE N EXUS OF LOANS TAKEN, LOANS ADVANCED, INTEREST EARNED AND INTEREST PAID ON PAGE NO. 1 OF THE PAPER BOOK. THE ASSESSEE ALSO FILED COPY OF BANK STATEMENT THROUGH WHICH MONEY WAS RAISED AND DISTRIBUTED WHICH IS FILED AT PAGE NO. 2 TO 7 OF TH E PAPER BOOK. THE BALANCE-SHEET OF THE ASSESSEE WHICH SHOWED THAT THE UNSECURED LOA NS AS ON 31.03.2009 WERE AT RS. 2,98,23,849/- AND LOAN & ADVANCES WERE AT RS. 2 ,05,01,790/- AND THE CORRESPONDING FIGURES OF THE PREVIOUS YEAR WERE 1,7 0,21,272/- AND 1,72,64,952/- RESPECTIVELY. THE BALANCE-SHEET IS FILED AT PAGE N O. 15 OF THE PAPER BOOK. THE LD AR SUBMITTED BEFORE US THAT THAT THE DECISIONS RELI ED ON BY THE AO AND CIT(A) WERE DISTINGUISHABLE AND WERE WRONGLY APPLIED TO TH E ASSESSEE,S CASE. THE LD COUNSEL FOR THE ASSESSEE STRONGLY RELIED ON THE DEC ISION SETH R DALMIA (1977)110ITR644 (SC), CIT VS HH MAHARANI SHRI VIJAY KUERBA SAHIB OF MORVI (1975)100TR67 (BOM).IT WAS AGRUED THAT THE INTEREST PAID CONSTITUTED THE EXPENSES INCURRED INDIRECTLY TO EARN THE INTEREST OF RS. 15, 99,664/- ON LOANS ADVANCED TO VARIOUS COMPANIES AND IN FACT REPRESENTED INPUT CO ST AND PRAYED FOR ALLOWING THE INTEREST PAID.THE LD DR RELIED ON THE ORDERS OF AUT HORITIES BELOW. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. THE ISSUE BEFORE US IS WHETHER THE ASSESSEE IS ENTI TLED TO DEDUCTION OF RS. 3,97,244/- ON THE MONEY RAISED BY HIM AND CLAIMED U/S 57(III) OF THE ACT. THE RELEVANT EXTRACTS OF THE PROVISIONS ARE REPRODUCED AS UNDER:- THE INCOME CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES SHALL BE COMPUTED AFTER MAKING FOLLOWING DEDUCTIONS, NAMELY: - 5 ITA NO 327/MUM/2014 ASSESSMENT YEAR: - 2009-10 PAGE 5 OF 8 (I) (II).. (III) ANY OTHER EXPENDITURE(NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE) LIAD OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME; WE FIND THAT THE ASSESSEE HAD RAISED MONEY DURING THE YEAR WHICH WAS UTILIZED EITHER TO LEND OR TO REPAY THE LOANS OF TH E ASSESSEE AS PER DETAILS AT PAGE NO. 1 OF THE PAPER BOOK. THE BANK STATEMENT OF THE ASS ESSEE WHICH WAS FILED AT PAGE NO. 2 TO 4 OF THE PAPER BOOK ALSO SHOWS THE NEXUS B ETWEEN THE BORROWINGS AND LENDINGS/REPAYMENTS. WE ALSO NOTE THAT THE MONEY R AISED WAS PAID INTEREST @ 9% WHEREAS THE MONEY LENT/REPAID WAS @ 12% RATE OF INT EREST. THE BALANCE-SHEET OF THE ASSESSEE AT PAGE NO. 15 OF THE PAPER BOOK SHOWS THE INCREASE IN UNSECURED LOAN (LIABILITIES) AND ALSO INCREASE IN LOANS & ADVANCES (ASSETS) IN COMPARISON CORRESPONDING FIGURES IN THE PRECEDING YEAR. IN OU R OPINION THE CASE RELIED UPON BY THE REVENUE CIT VS DR VP (2001) 116 TAXMAN 489(SC) IS DISTINGUISHABLE ON FACTS. IN THE SAID CASE THE ASSESSEE MADE AN FDR WI TH THE BANK AND AGAINST THAT FDR THE ASSESSEE RAISED A BANK LOAN. THE HONBLE CO URT HELD THAT INTEREST ON THE SAID LOAN WAS NOT DEDUCTIBLE FROM THE AMOUNT OF BAN K INTEREST ON FDR AS THERE WAS NO PROVISION IN LAW FOR THE SAME WHEREAS IN THE INS TANT CASE THE ASSESSEE HAD INTEREST INCOME FROM MONEY LENDING TO VARIOUS COMPA NIES TO THE TUNE OF RS. 15,99,664/- AND HE HAD ALSO PAID INTEREST OF RS. 3 ,97,244/- ON LOANS TAKEN BY THE ASSESSEE FOR THE PURPOSE OF LENDING/REPAYMENTS OF E XISTING LOANS. THUS THERE IS DIRECT NEXUS BETWEEN THE TAKING LOANS AND LENDING T O OTHERS OR REPAYING THE LOANS TAKEN AT HIGHER RATE. THUS THE FACTS OF THE ASSESSE E CASE ARE TOTALLY DIFFERENT FROM THAT CONSIDERED BY THE HONBLE APEX COURT. ON THE OTHER HAND THE DECISIONS RELIED ON BY THE LD AR NAMELY SETH R DALMIA (1977)1 10ITR644 (SC), CIT VS HH MAHARANI SHRI VIJAYKUERBA SAHIB OF MORVI (1975)100I TR67 (BOM). IN THE FIRST CASE THE HONBLE COURT HAS HELD THAT THE EXPENSES I NCURRED FOR THE PURPOSE OF EANING INCOME AND WHICH ARE NOT OF CAPITAL NATURE O R OR PERSONAL NATURE THE SAME ARE DEDUCTIBLE. IN THE SECOND CASE, THE HONBLE COUR T HAS HELD THAT THAT THE PURPOSE OF INCURRING THE EXPENSES SHOULD BE TO EARN INCOME AND CONNECTION BETWEEN THE INCOME AND THE EXPENSES NEED NOT BE DIRECT. IT MAY BE INDIRECT BUT THERE MUST BE A 6 ITA NO 327/MUM/2014 ASSESSMENT YEAR: - 2009-10 PAGE 6 OF 8 NEXUS OR CONNECTION BETWEEN THE INCOME AND THE EXPE NDITURE. IN THE CASE OF THE ASSESSEE, WE ARE OF THE OPINION THAT THERE IS A DIR ECT NEXUS BETWEEN THE MONEY RAISED AND UTILIZED AND THE EXPENSES BY WAY OF INTE REST IS ALSO NOT OF CAPITAL NATURE. DURING THE INSTANT YEAR THE ASSESSEE EARNED INTERE ST INCOME OF RS. 15,99,664/- AND CLAIMED DEDUCTION OF INTEREST PAID ON BORROWINGS TO THE TUNE OF RS. 3,97,244/- U/S 57(III) OF THE ACT. WE IN AGREEMENT WITH THE SUBMIS SIONS OF THE LD AR OF THE ASSESSEE THAT THE INTEREST PAID CONSTITUTE THE INPUT COST OF THE FUND AND THEREFORE HAS TO BE REDUCED WHILE DETERMINING THE INCOME FROM OTHER SOURCES WHICH IS THE SPIRIT OF THE PROVISION OF SECTION 57 (III) OF THE ACT . IN VIEW OF THESE FACTS, WE REVERSE THE ORDER OF CIT(A) BY ALLOWING THE APPEA L OF THE ASSESSEE. THE AO IS DIRECTED ACCORDINGLY. 8. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 06 TH DAY OF JANUARY, 2016. SD/- SD/- (AMIT SHUKLA) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT ME MBER) MUMBAI DATED 06-01-2016 SKS SR. P.S COPY TO: THE APPELLANT THE RESPONDENT THE CONCERNED CIT(A) THE CONCERNED CIT THE DR, G BENCH, ITAT, MUMBAI 7 ITA NO 327/MUM/2014 ASSESSMENT YEAR: - 2009-10 PAGE 7 OF 8 BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI