Mr. Ashok Baburoji Khanorkar, Nagpur V. Asstt.Commissioner of IncomeTax Circle-6, Nagpur

ITA 331/NAG/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1710 (ITAT-NAGPUR)
• Duration Of Justice: 2 year(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 14-08-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KANE
• Assessee Lawyers: D S JOGANI
• Keywords: Salary income; Opportunity of being heard; Earning of tax free income; Cost of acquisition; Commercial expediency
• Section: 69C; 14A

Judgement Text

1 ITA NO. 331/NAG/20 13 IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T.A. NO. 331/NAG/2013 ASSESSMENT YEAR : 2008 - 09. ASHOK BABURAOJI KHANORKAR, ASSTT. COMMISSIONER OF C/O D.S.JOGANI, ADVOCATE, V/S. INCOME TAX, CIRCLE - 6, 604 A, NAV NIDHI, NAGPUR. TEKDI ROAD, SADAR, NAGPUR - 440 001. PAN AFZPK 62098 APPELLANT. RESPONDENT. APPELLANT BY : SHRI D.S.JOGANI. RESPONDENT BY : SHRI NARENDRA KANE. DATE OF HEARING : 09 - 07 - 2015 DATE OF PRONOUNCEMENT : 28 TH AUGUST, 2015 O R D E R PER SHAMIM YAHYA, A.M. . THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS) DATED 02 - 04 - 2013 AND PERTAINS TO ASSESSMENT YEAR 2008 - 09. THE GROUNDS OF APPEAL READ AS UNDER : 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS ALSO IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - I, NAGPUR ERRED IN 2 ITA NO. 331/NAG/20 13 CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AT ` .1,959,798/ - ON ACCOUNT OF INTEREST PAID BY ASSESSEE. 2. THAT THE DISALLOWANCE OF INTEREST PAID IS UNJUSTIFIED , UNWARRANTED AND EXCESSIVE. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS ALSO IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - I, NAGPUR ERRED IN CONFIRMING THE ESTIMATED ADDITION OF ` .192,400/ - ON ACCOUNT OF HOUSE HOLD EXPENSES TREATING THE SAME AS UNEXPLAINED INCOME U/S 69C OF THE INCOME TAX ACT, 1961. 4. THAT THE ADDITIONS ON ACCOUNT OF HOUSE HOLD EXPENSES IS UNJUSTIFIED, UNWARRANTED AND EXCESSIVE. 2. A PROPOS GROUND NO. 1: IN THIS CASE THE ASSESSING OFFICER NOTED THAT THE ASSESSEE DERIVES INCOME FROM SALARY, HOUSE PROPERTY AND BUSINESS. UNDER THE HEA D INCOME FROM BUSINESS, THE ASSESSEE HAS SHOWN INTEREST FROM PARTNERSHIP FIRM ( ` .89,528/ - ), REMUNERATION FROM PARTNERSHIP FIRM ( ` .65,558/ - ), DALALI IN RESPECT OF BUSINESS OF FINANCE BROKER ( ` .5,75,773/ - ), COMMISSION ( ` .8,90,378/ - ), INTEREST ( ` .3,08,474/ - ) ACCOUNTING CHARGES ( ` . 35,000/ - ). AS AGAINST THE ABOVE MENTIONED ITEM, AGGREGATE EXPENSES OF ` .19,73,893/ - ) HAVE BEEN CLAIMED WHICH INCLUDES INTER ALIA, INTEREST PAID OF ` .19,59,798/ - . THE ASSESSEE ALSO HAS LONG TERM CAPITAL GAIN WHICH HAS BEEN CLAIMED AS EXEMP AMOUNTING TO ` .8,31,309/ - . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED THE PURPOSES FOR WHICH INTEREST BEARING LOANS HAVE BEEN OBTAINED IN RESPECT OF WHICH INTEREST HAS BEEN CLAIMED AS AN EXPENSE. THE ASSESSEE WAS ALSO REQUIR ED TO EXPLAIN THE NEXUS BETWEEN THE SOURCE OF INCOME I.E. INTEREST ON DALALI INCOME WITH THE INTEREST PAID ON UNSECURED LOAN. IN RESPONSE, THE ASSESSEE HAS STATED THAT THE ASSESSEE HAS INCURRED THE EXPENDITURE FOR COMMERCIAL EXPEDIENCY THEREAFTER, THE ASSE SSEE HAS GIVEN VAGUE EXPLANATION WHICH TRIES TO DEFINE THE TERM COMMERCIAL EXPEDIENCY WAS FOR WHICH FUNDS CLAIMED INTEREST HAS BEEN DEPLOYED. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS 3 ITA NO. 331/NAG/20 13 CLAIMED DEDUCTION UNDER THE HEAD PROFITS AND GAINS OF BUSINESS A ND PROFESSION AND THEREFORE, IT IS PRESUMED THAT THE DEDUCTION CLAIMED IN RESPECT OF INTEREST PAID IS WITH REFERENCE TO THE PROVISIONS OF SEC. 36 OF THE ACT. THAT T HE DEDUCTION UNDER SECTION 36 AND SPECIFICALLY CLAUSE (III) OF SUB - SECTION 1 THEREOF IS THA T INTEREST ALLOWABLE IN RESPECT OF CAPITAL FOR THE PURPOSES OF BUSINESS. THAT T HE ONUS LIES ON THE ASSESSEE TO PROVE THAT INTEREST CLAIMED AS DEDUCTION IS FOR THE PURPOSES OF BUSINESS OR PROFESSION CARRIED ON BY HIM. THAT T HE ASSESSEE FAILED TO DISCHARGE T HIS ONUS IN SO FAR AS HE HAS NOT DEMONSTRATED AS TO HOW THE INTEREST BEARING FUNDS HAVE BEEN DEPLOYED FOR EARNING ANY INCOME. FURTHER, A.O. MADE REFERENCE TO THE PROVISIONS OF SECTION 14A OF THE ACT WHICH MANDATES THAT NO DEDUCTION IS ADMISSIBLE IN RESPE CT OF ANY EXPENDITURE INCURRED BY AN ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF HIS TOTAL INCOME. A.O. OPINED THAT I N THE CASE UNDER CONSIDERATION, THE ASSESSEE HAS FAILED TO SPECIFY ANY ITEM OF INCOME WITH WHICH THE NEXUS OF INTEREST BEAR ING FUNDS CAN BE ESTABLISHED AND, THEREFORE, THE DISALLOWANCE WAS PRIMARILY MADE IN TERMS OF PROVISIONS OF SECTION 36(1)(III) OF THE ACT. A.O. FURTHER OBSERVED THAT H OWEVER, IN CASE, AT A FUTURE DATE ASSESSEE CLAIMS THAT SUCH FUNDS HAVE BEEN DEPLOYED FOR A NY INCOME, WHICH IS EXEMPT, SUCH INTEREST WILL BE LIABLE TO BE DISALLOWED U/S 14A OF THE ACT. ACCORDINGLY, THE CLAIM OF DEDUCTION OF INTEREST AMOUNTING TO ` .19,59,798/ - WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 3. BEFORE THE LEARNED CIT(APPEALS) THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS BORROWED FUNDS FROM PERSONS WHOSE PAN NO. HAS BEEN INDICATED. THE ASSESSEE HAS ALSO INVESTED IN IMMOVABLE PROPERTY AND HAS EARNED THE INCOME IN NEXT FINANCIAL YEARS F ROM THE INVESTMENTS MADE. THAT T HE ASSESSEE HAS ALSO OFFERED INCOME EARNED FROM INVESTMENTS AS TAXABLE INCOME UNDER THE HEAD INCOME FROM CAPITAL GAINS IN FINANCIAL YEAR 2009 - 10 IN WHICH INCOME WAS EARNED BY THE 4 ITA NO. 331/NAG/20 13 ASSESSEE. THAT THE ASSESSEE HAD MIXED INDIVIDUAL FUND FOR INVESTMENT. THAT BO RROWED FUNDS WERE USED FOR THE PURPOSE OF EARNING THE INCOME FROM INVESTMENT MADE BY THE ASSESSEE. THAT THERE IS NO ACTUAL EXPENDITURE IN RELATION TO EXEMPT INCOME. THAT THE ASSESSEE HAS ALSO EARNED INTEREST AND SAME HAS BEEN SHOWN UNDER THE HEAD INCOME F ROM BUSINESS. THAT FUNDS AVAILABLE TO ASSESSEE OTHER THAN BORROWINGS WERE SUFFICIENT TO COVER THE OTHER INVESTMENTS MADE BY THE ASSESSEE FOR EARNING OF TAX FREE AND/OR NIL INCOME AND THERE IS NO DIVERSION OF FUNDS JUSTIFYING THE DISALLOWANCE OF INTEREST. T HAT IN VIEW OF THE PROVISIONS OF SECTION 24(B) OF THE ACT, THE ASSESSEE IS ELIGIBLE TO CLAIM SET OFF OF INTEREST PAID ON BORROWED FUNDS USED FOR RESIDENTIAL HOUSE, OF ANY, NOT EXCEEDING ` .1,50,000/ - AGAINST TAXABLE INCOME OF ASSESSEE UNDER OTHER HEAD OF T AXABLE INCOME SHOWN BY THE ASSESSEE. THAT T HE FUNDS BORROWED BY THE ASSESSEE WERE USED FOR THE PURPOSE OF EARNING OF TAXABLE INCOME ONLY, HENCE ASSESSEE IS ELIGIBLE TO ALLOW THE CLAIM OF INTEREST PAID ON BORROWED FUNDS AND SAME IS DEDUCTIBLE FROM TAXABLE I NCOME SHOWN BY THE ASSESSEE. THAT T HE ASSESSING OFFICER HAS REJECTED THE EXPLANATION AND DISALLOWED THE ENTIRE TOTAL INTEREST PAYMENT OF ` .19,59,798/ - WITHOUT GIVING ANY CONCRETE FINDING THAT EXPENDITURE ON ACCOUNT OF INTEREST HAS BEEN INCURRED FOR EARNI NG THE EXEMPT INCOME AND INTEREST FREE FUNDS ARE NOT AVAILABLE WITH THE ASSESSEE. THAT THE EXPENDITURE ASSUMED OR DEEMED TO BE INCURRED ON NON TAXABLE RECEIPTS CANNOT BE DISALLOWED. THAT THE BURDEN LIES ON ASSESSING OFFICER TO PROVE THE NEXUS BETWEEN THE EXPENDITURE TO BE DISALLOWED ON NON TAXABLE RECEIPTS AND HE MUST HAVE PINPOINTED SUCH EXPENDITURE ON THE BASIS OF THE MATERIAL ON RECORD. THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST FREE AND BORROWED FUNDS, THEN A PRESUMPTION WOULD ARISE THAT ANY INV ESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF CAPITAL/INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. 5 ITA NO. 331/NAG/20 13 4. CONSIDERING THE ABOVE, LEARNED CIT(APPEALS) WAS NOT CONVINCED. HE HELD AS UNDER : THE AO HAS MADE DISALLOWANCE U/S 36 SINCE THE APPELLANT FAILED TO DEMONSTRATE THAT THE FUNDS BORROWED ON WHICH INTEREST HAS BEEN PAID AND CLAIMED AS DEDUCTION WERE BORROWED FOR THE PURPOSE OF THE APPELLANTS BUSINESS OR PROFESSION. THE I.T. ACT ALLOWS DEDUCTION U/S 36(1)(III) FOR THE INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS OR PROFESSION. THIS NEXUS AND PURPOSE HAS NOT BEEN SHOWN IN APPEAL PROCEEDINGS EITHER. THE AO'S ACTION IN MAKING DISALLOWANCE IS THEREFORE CONFIRMED. THE APPELLANTS CONTENTION REG ARDING DISALLOWANCE U/S 14A ARE NOT RELEVANT AS THE DISALLOWANCE IS PRIMARILY MADE U/S 36(1)(III). THE WITHOUT PREJUDICE ARGUMENT THAT INTEREST BE ALLOWED AGAINST SHORT TERM CAPITAL GAIN IS ALSO NOT ACCEPTABLE AS THE APPELLANT HAS NOT SHOWN THAT THE INTEREST EXPENDITURE WAS WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER OF THE ASST OR REPRESENTED COST OF ACQUISITION OR COST OF IMPROVEMENT OF THE ASSET TRANSFERRED. 5. AGAINST THE ABOVE ORDER, ASSESSEE IS IN APPEAL BEFORE US. 6. WE HAVE HEA RD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT DISALLOWANCE HAS BEEN MADE IN THIS CASE BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SECTION 36(1)(III) BY HOLDING THAT INTEREST PAID IN RESPECT OF CAPITAL BORROWED WAS NOT FOR THE PURPOSE OF BUSINESS OR PROFE SSION. NOW IN THIS REGARD NOTHING HAS BEEN BROUGHT ON RECORD BY THE ASSESSING OFFICER TO PROVE THAT THE ASSESSEE HAS USED THE BORROWED FUNDS FOR NON BUSINESS PURPOSE. THE ASSESSEE HAS ALSO SUBMITTED THAT HE HAS USED THE BORROWED FUNDS FOR THE CONSTRUCTION OF HOUSE AND HAS SOUGHT CAPITALIZATION OF THE SAME UNDER SECTION 24(B) OF THE I.T. ACT. AUTHORITIES BELOW HAVE NOT AT ALL EXASMINED THIS ASPECT OF THE SUBMISSION OF THE ASSESSEE. ASSESSEE HAS FURTHER CLAIMED THAT IT HAS THE MIXED SOU RCE OF FUNDS AND HAS ALSO CONTENDED ABOUT THE PRESUMPTION REGARDING FIRST USES OF INTEREST FREE FUNDS. T THIS ASPECT HAS ALSO NOT BEEN ADJUDICATED BY THE AUTHORITIES BELOW. THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME AND HENCE DISALLOWANCE UNDER 6 ITA NO. 331/NAG/20 13 SEC TION 14A IS NOT SUSTAINABLE HAS ALSO NOT BEEN ADJUDICATED BY THE AUTHORITIES BELOW. HOWEVER, SINCE THE AUTHORITIES BELOW HAVE NOT PROPERLY ADJUDICATED THE CONTENTIONS OF THE ASSESSEE, WE ARE OF THE OPINION THAT INTEREST OF JUSTICE WILL BE SERVED IF THE MAT TER IS REMITTED TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER IS DIRECTED TO TAKE INTO ACCOUNT THE ASSESSEES SUBMISSION AND ADJUDICATE AS PER LAW. THE ASSESSING OFFICER SHALL TAKE INTO ACCOUNT THE ENTIRE SUBMISSION OF THE ASSESSEE AND ADJUDI CATE THEREUPON. NEEDLESS TO ADD THE ASSESSEE SHOULD BE GRANTED ADEQUATE OPPORTUNITY OF BEING HEARD. 7. APROPOS GROUND NO. 3 PERTAINING TO ESTIMATED ADDITION ON ACCOUNT OF HOUSEHOLD EXPENSES. IN THIS CASE THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HA S SHOWN ` .47,600/ - AS PERSONAL EXPENSES IN THE CAPITAL ACCOUNT. THE ASSESSING OFFICER OPINED THAT IT WAS TOO LOW AND THE SAME SHOULD BE ` .2,40,000/ - . HENCE AFTER DEDUCTING ` .47,600/ - NET AMOUNT OF ` .1,92,400/ - WAS ADDED TO THE TOTAL INCOME AS UNEXPLAINED I NCOME UNDER SECTION 69. 8. UPON ASSESSEES APPEAL, LEARNED CIT(APPEALS) CONFIRMED THE ADDITION. AGAINST THE ABOVE ORDER, ASSESSEE IS IN APPEAL BEFORE US. 9. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT THE ABOVE ADDITION HAS BEEN MADE BY THE ASSESSING OFFICER WITHOUT BRINGING ANY COGENT MATERIAL ON RECORD. THE SAME IS BASED UPON CONJECTURE AND SURMISES. NO CASE HAS BEEN MADE THAT THE REVENUE IS IN POSSESSION OF DOCUMENTS OR INFORMATION WHICH SUPPORT THE CASE OF ASSESSEE INCURRING H OUSEHOLD EXPENDITURE BEYOND THAT WHAT HAS BEEN CLAIMED IN THE RETURN OF INCOME. IN THESE CIRCUMSTANCES, IN OUR CONSIDERED OPINION SINCE THE ADDITION HAVE NO BASIS WHATSOEVER, THE SAME IS LIABLE TO BE DELETED. ACCORDINGLY WE SET ASIDE THE ORDERS OF THE AUT HORITIES BELOW ON THIS ISSUE AND DELETE THE ADDITION. 7 ITA NO. 331/NAG/20 13 10. IN THE RESULT, THIS APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF AUGUST, 2015. SD/ - SD/ - (MUKUL K. SHRAWAT) ( SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER. NAGPUR, DATED: AUGUST, 2015. COPY OF ORDER FORWARDED TO : 1. THE ASSESSEE. 2. REVENUE. 3. THE CIT(A) 4. THE CIT, NAGPUR. 5. THE D.R., ITAT, NAGPUR. 6. GUARD FILE. TRUE COPY. BY ORDER WAKODE ASSISTANT REGISTRAR, ITAT, NAGPUR