Smt. Namrata Kabra, Baroda V. The Income tax Officer,Ward-=8(4), Baroda

ITA 338/AHD/2011

• Counselvise Citation: 33820514 RSA 2011
• Duration Of Justice: 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 22-09-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 07-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S A BOHRA
• Section: 143(3)

Judgement Text

-1- IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'SMC' BEFORE SHRI MUKUL KUMAR SHRAWAT JUDICIAL MEMBER ITA NO.338/AHD/2011 (ASSESSMENT YEAR:-2005-06) SMT. NAMRATA KABRA, 8, SEVAL NAGAR, RACE COURSE, ALKAPURI, BARODA- 390007 V/S THE INCOME-TAX OFFICER, WARD-8(4), BARODA PAN: ADBPK 9372 M [APPELLANT] [RESPONDENT] APPELLANT BY :- SHRI SAKAR SHARMA, AR RESPONDENT BY:- SHRI S A BOHRA, SR. DR DATE OF HEARING:- 22-09-2011 DATE OF PRONOUNCEMENT:- 23-09-2011 O R D E R THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE WH ICH HAS EMANATED FROM THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-VI, BARODA [THE CIT(A)] DATE D 26-11- 2010. THE ASSESSEE HAS RAISED THE ONLY GROUND, REPR ODUCED BELOW:- THE LD. CIT(A) ERRED ON FACTS AND IN LAW IN CONFI RMING DISALLOWANCE OF INTEREST AND FINANCIAL CHARGES OF RS.6,59,528/-. 2 THE FACTS IN BRIEF AS EMERGED FROM THE CORRESPOND ING ASSESSMENT ORDER PASSED U/S 143(3) DATED 28-12-2007 WERE THAT THE ASSESSEE IN INDIVIDUAL CAPACITY HAS EARNED SALA RY AND INTEREST. AN INTEREST INCOME ON FIXED DEPOSIT [FD] WAS SHOWN AT RS.2,60,924/- AND IT HAS ALSO BEEN NOTED BY THE ASS ESSING OFFICER [AO FOR SHORT] THAT THE ASSESSEE HAS PAID INTERES T TO BANK ON OVER DRAFT [OD] OF RS.2,69,321/-. FURTHER, IT HAS A LSO BEEN NOTED 2 ITA NO.338/AHD/2011 BY THE AO THAT THE ASSESSEE HAD PAID INTEREST TO OT HERS AMOUNTING TO RS.3,89,008/-. THE FACTS HAVE REVEALED THAT THER E WAS ONE FIXED DEPOSIT RECEIPT [FDR] OF RS.25 LACS WITH STAT E BANK OF TRAVANCORE, DATED 26-02-2002. A FINDING WAS GIVEN B Y THE AO THAT THE SAID FD WAS MADE OUT OF THE BALANCE FUNDS AVAILABLE WITH THE ASSESSEE AND THEREFORE THERE WAS NO CORRES PONDING INTEREST LIABILITY IN RESPECT OF THE SAID INVESTMEN T MADE IN FDR. IT HAS ALSO BEEN NOTED BY THE AO THAT THE FUNDS AVA ILABLE DUE TO OD ACCOUNT WERE USED FOR THE PURCHASE OF SHARES AND FRIENDLY LOANS TO COMPANIES. AS PER AO, THOSE FUNDS WERE NOT UTILIZED FOR THE PURPOSE OF EARNING OF INCOME. 2.1 IN RESPECT OF OTHER CLAIM OF INTEREST OF RS.3,89,008/-, IT WAS NOTED BY THE AO THAT THE ASSESSEE WAS NOT ABLE TO CORRELATE THE EXPENSES VIS--VIS THE LOANS TAKEN FROM THE PAR TIES. THE AO HAS NOTED THAT THE ASSESSEE HAS NOT SHOWN ANY INCOM E FROM OTHER SOURCE IN RESPECT OF SUCH LOANS ADVANCED TO OTHER PARTIES. AS AGAINST THAT THE ASSESSEE HAS PLACED RELIANCE ON TH E DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF RAJENDRA P RASAD MODY [1978] 115 ITR 519 (SC)] FOR THE LEGAL PROPOSITION THAT INTEREST ON MONIES BORROWED FOR INVESTMENT IN SHARES WHICH H AD NOT YIELDED ANY DIVIDEND WAS HELD AS ADMISSIBLE AS A DE DUCTION U/S 57(III) OF THE ACT. 2.2 HOWEVER, THE AO WAS OF THE VIEW THAT THE TOTAL EXPENDITURE OF RS.6,59,528/- HAD NOT BEEN LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING ANY INCOME T AXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. THE AO HAS CI TED A DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F CIT VS. DR. V P GOPINATHAN [2001] 248 ITR 449 (SC)] AND HELD TH AT THE CLAIM OF INTEREST EXPENDITURE WAS NOT AN ADMISSIBLE DEDUCTION BEING NOT EXPENDED FOR EARNING ANY INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. 3 THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. BEFORE THE LEARNED CIT(A), FACTS IN RESPECT OF CERT AIN LOANS WERE NARRATED AS FOLLOWS:- 3.1. IN APPEAL, IT WAS SUBMITTED THAT OUT OF LIC P REMIUM OF RS.2,34,808/- APPELLANT HAD DEPOSITED RS.1,59,832/- IN CASH ON VARIOUS DATES. REGARDING ASSESSING OFFICER'S OBSERVATION TH AT APPELLANT PAID RS.5,33,128/- TO SOMANI CHEMICAL & FERTILIZERS LTD. AND RS.17,42,285/- TO VISHAL FINSTOCK LTD. FOR INVESTME NT IN SHARES, APPELLANT SUBMITTED THAT LOAN WAS OBTAINED FROM THE SE COMPANIES IN 3 ITA NO.338/AHD/2011 EARLIER YEAR WHICH WAS REPAID FROM OD ACCOUNT. IN T HIS WAY APPELLANT HAD SAVED INTEREST GAP BETWEEN INTEREST ON OD AND I NTEREST TO OTHERS AND AS REFLECTED FROM LEDGER ACCOUNT OF THESE PARTI ES, NO INTEREST WAS PAID TO THEM. APPELLANT SUBMITTED THAT OUT OF TOTAL INTEREST PAID DURING THE YEAR, MAJOR INTEREST WAS PAID TO M/S. BALDAOU A GRI. & PLANT PVT. LTD. OF RS.1,46,461/- AND M/S. SOHAM SECURITIES LTD . OF RS.2,12,420/- AND ACCOUNTS OF THESE PARTIES SHOWED THAT APPELLANT HAD REGULAR TRANSACTIONS WITH THE PARTIES. AS PER APPELLANT, FD S ON WHICH OD WAS TAKEN WERE MADE FROM FUNDS RECEIVED FROM SOHAM SECU RITIES LTD. DURING THE YEAR 2001-02. APPELLANT SUBMITTED LEDGER ACCOUNT OF SOHAM SECURITIES LTD. AND M/S BALDAOU AGRI & PLANT PVT. LTD. HOWEVER, THE LEARNED CIT(A) WAS NOT CONVI NCED THOUGH THE BALANCE SHEET OF THE ASSESSEE FOR THE YEARS END ED ON 31-3- 2001 AND 31-3-2002 WERE ASKED TO FURNISH TO ASCERTA IN THE POSITION OF ASSETS AND LIABILITIES. ACCORDING TO TH E LEARNED CIT(A), IT WAS NOT POSSIBLE TO COME TO A CONCLUSION THAT THE INVESTMENT IN FDR WAS MADE OUT OF LOANS FROM M/S VI SHAL FINSTOCK LTD.AND M/S SOMANI CHEMICAL & FERTILIZERS LTD. WHICH WERE CLAIMED TO HAVE BEEN REPAID OUT OF OD ACCOUNT OF THE YEAR. ABOUT THE CIRCULATION OF THE MONEY FROM THE SIDE OF THE ASSESSEE IT WAS EXPLAINED THAT INITIALLY THE SAID FDR OF RS. 25 LACS WAS MADE OUT OF A LOAN TAKEN FROM M/S SOHAM SECURITIES. THAT LOAN WAS REPAID AFTER TAKING LOAN FROM THE AFORESAID TWO PARTIES. AS PER LEARNED CIT(A) FOR CLAIMING DEDUCTION U/S 57(II I) IT WAS UPTO THE APPELLANT TO PROVE THAT FDRS WERE MADE OUT OF B ORROWED FUNDS AND THERE WAS A DIRECT NEXUS BETWEEN THE INTE REST PAID AND THE INTEREST EARNED ON FDR. IN HIS OPINION THE ASSE SSEE HAS NOT DISCHARGED THE SAID ONUS, THEREFORE, THE ADDITION W AS CONFIRMED. 4 WITH THIS FACTUAL BACKGROUND, I HAVE HEARD BOTH T HE SIDES AT SOME LENGTH. THE LEARNED AR MR. SAKAR SHARMA HAS ST ATED THAT INSTEAD OF ARGUING ON THE ENTIRE ADDITION, HE WANTS TO CONFINE HIS CLAIM ONLY IN RESPECT OF INTEREST PAID TO BANK ON O D OF RS.2,69,321/-. HIS BASIC ARGUMENT WAS THAT AN FDR O F RS.25 LACS WAS MADE WITH THE BANK AND INTEREST ON THAT FDR WAS UNDISPUTEDLY SHOWN IN THE P&L ACCOUNT AND PAID TAX THEREON. IN TURN ON THAT FDR ASSESSEE HAD AVAILED AN OD FACILIT Y. ON THAT OD FACILITY THE ASSESSEE HAS PAID INTEREST TO THE BANK . SINCE THE NEXUS WAS DIRECT AND THERE WAS NO POSSIBILITY OF ANY DOUB T BECAUSE THE RECEIPT OF INTEREST AND PAYMENT OF INTEREST WERE DU LY VERIFIED 4 ITA NO.338/AHD/2011 FROM THE BANK RECORDS, THEREFORE, THE CLAIM TO THAT EXTENT DESERVES TO BE ALLOWED. 5 ON THE OTHER HAND, FROM THE SIDE OF THE REVENUE, THE LEARNED DR MR. S A BOHRA HAS SUPPORTED THE ORDERS O F THE AUTHORITIES BELOW WITH THE SUBMISSION THAT A CLAIM OF INTEREST EXPENDITURE CAN ONLY BE ALLOWED IF THERE IS A DIREC T NEXUS BETWEEN THE FUNDS BORROWED AND THE INVESTMENT MADE. HE HAS, THEREFORE, PLEADED TO AFFIRM THE ORDERS OF THE AUTH ORITIES BELOW. 6 HAVING HEARD THESE SUBMISSIONS, I AM OF THE VIEW THAT THE LEARNED AR HAS REASONABLY PLEADED TO CONSIDER ONLY THAT PORTION OF CLAIM OF INTEREST WHICH HAD A DIRECT NEXUS AND N OT TO CONTEST REST OF THE CLAIM OF INTEREST WHICH PERTAINED TO I NTEREST PAID TO OTHERS. AS DISCUSSED HEREINABOVE, FACTS OF THE CAS E HAVE REVEALED THAT THE ASSESSEE HAD ONE FDR OF RS.25 LAC S WITH STATE BANK OF TRAVANCORE AND ON THAT FDR THE ASSESSEE EAR NED INTEREST; DULY SHOWN IN THE P&L ACCOUNT, COPY FURNISHED. FACT S HAVE FURTHER REVEALED THAT THE ASSESSEE HAD AVAILED OD F ACILITY AGAINST THE SAID FDR AND, THEREFORE, HAD TO PAY INTEREST TO BANK OF RS.2,69,321/-. I FIND NO FALLACY IN THIS SUGGESTION THAT THE INTEREST EARNED FROM THE BANK AND INTEREST PAID TO BANK DESE RVES TO BE CONSIDERED FOR NETTING-OFF THE INTEREST INCOME. I O RDER ACCORDINGLY. REST OF THE PART OF THE ADDITION IS HE REBY CONFIRMED. THE GROUND IS PARTLY ALLOWED. 7 IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT TODAY ON 23-09-2011 SD/- (MUKUL KUMAR SHRAWAT) JUDICIAL MEMBER DATE : 23-09-2011 COPY OF THE ORDER FORWARDED TO: 1. SMT. NAMRATA KABRA, 8, SEVAL NAGAR, RACE COURSE, 5 ITA NO.338/AHD/2011 ALKAPURI, BARODA-390007 2. THE INCOME-TAX OFFICER, WARD-8(4), BARODA 3. CIT CONCERNED 4. CIT(A)-VI, BARODA 5. DR, ITAT, AHMEDABAD BENCH-SMC, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD