Mahesh Kumar Goel, Ludhiana V. ACIT, Ludhiana

ITA 342/CHANDI/2013

• Counselvise Citation: 34221514 RSA 2013
• Duration Of Justice: 2 year(s) 7 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 30-09-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 28-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: S R CHHABRA
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NO.342/CHD/2013 ASSESSMENT YEAR:2008-09 MAHESH KUMAR GOEL, VS. ACIT 259, INDUSTRIAL AREA A CIRCLE VI LUDHIANA LUDHIANA PAN NO. ABGPG2297L (APPELLANT) (RESPONDENT) APPELLANT BY : SH. S. R. CHHABRA RESPONDENT BY : SH. MANJIT SINGH DATE OF HEARING : 30/09/2015 DATE OF PRONOUNCEMENT : 27/11/2015 ORDER PER ANNAPURNA MEHROTRA A.M. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-II LUDHIANA, DATED 21.01.2013. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING OF GROUNDS: - 1. THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN SU STAINING THE ADDITION OF RS. 25,43,012- AGAINST ADDITION OF RS. 35,33,3405/- MADE BY A.O. U /S 57(III) OF THE ACT. WITHOUT APPRECIATING THE FACTUAL POSITION AND THE SUBMISSIO NS MADE BY THE ASSESSEE. 2. THAT THE LD. CIT(A) HAS NOT APPRECIATED THE FACT TH AT ASSESEE HAS SUFFICIENT OWN CAPITAL AND ALSO ALL THE FUNDS ARE COMMON IN NATURE , THEREFORE WISDOM OF UTILIZATION OF CAPITAL MUST BE APPRECIATED 3. THAT THE ADDITION ON THE BASIS OF PICK AND CHOOSE I S AGAINST THE FACT OF THE CASE SPECIFICALLY WHEN MONTH WISE EXCESS BORROWED FUND W AS DETERMINED. THEREFORE, FURTHER ADDITION OF RS. 14,86,271/- IS UNWARRANTED. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FI LED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR ON 30/09/2008 DECLARIN G AN INCOME OF RS. 12,07,852/. THEREAFTER ASSESSMENT U/S 143(3) WAS FR AMED ON THE ASSESSEE AT AN INCOME OF RS. 47,41,257/- AFTER MAKING DISALLOWANC E OF RS. 35,33,405/-/- U/S 57(III) OF THE ACT. 2 4. THE LD CIT(A) VIDE HIS ORDER DATED 21.01.2013. R ESTRICTED THE DISALLOWANCE MADE U/S 57(III) TO RS. 25,43,012/-. AGGRIEVED BY T HE SAME THE ASSESSEE FILED THE PRESENT APPEAL BEFORE US. 5. BRIEF FACTS RELATING TO THE ISSUE ARE THAT DURIN G THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE HAD SHOWN INTEREST INCOME AMOUNTI NG TO RS. 52,63,530/- UNDER THE HEAD INCOME FROM OTHER SOURCES, AGAINST WHICH T HE ASSESSEE CLAIMED DEDUCTION OF RS. 62,18,278/- ON ACCOUNT OF INTEREST PAID. 6. DURING ASSESSMENT PROCEEDINGS THE ASSESSEE WAS A SKED TO JUSTIFY THE CLAIM OF INTEREST EXPENSES U/S 57(III) AND WAS ASKED TO PRODUCE FUND FLOW STATEMENT FOR THE IMPUGNED ASSESSMENT YEAR. ON PERUSAL OF THE SAME THE A.O. NOTED THAT THE FUND FLOW STATEMENT SHOWED MIXED USE OF FUNDS, BOTH FOR PERSONAL PURPOSES AND FOR THE PURPOSE OF MAKING INVESTMENTS FOR EARNI NG INTEREST INCOME. FURTHER THE A.O. COMPILED A DETAIL SHOWING MONTH WISE DEPLO YMENT OF FUNDS OF THE ASSESSEE INTO INTEREST YIELDING INVESTMENTS AND NOT ED THAT THE INVESTMENTS WERE DISTRIBUTED BETWEEN BOTH INTEREST EARNING AND NON-I NTEREST EARNING ACTIVITIES. THE A.O. THEREFORE CONCLUDED THAT ALL INTEREST BEAR ING FUNDS WERE NOT USED FOR EARNING INTEREST INCOME AND WERE DEPLOYED FOR OTHER ACTIVITIES ALSO. THE A.O. THEREFORE, HELD THAT THE CLAIM OF THE ASSESSEE ON I NTEREST PAYMENTS WAS TO BE LIMITED TO THE EXTENT THE FUNDS WHICH WERE DEPLOYE D FOR EARNING INTEREST INCOME. THE A.O. COMPILED A MONTH WISE WORKING OF T HE APPLICATION OF FUNDS INTO INTEREST YIELDING AND NON INTEREST YIELDING AN D THE SOURCES OF FUNDS WERE ALSO BIFURCATED INTO INTEREST BEARING FUND AND INTEREST FREE FUNDS. THEREAFTER, THE UTILIZATION OF INTEREST BEARING FUNDS INTO INTEREST YIELDING INVESTMENT AND OTHERWISE WAS WORKED OUT AND THE INTEREST PAYMENTS WERE APPOR TIONED BETWEEN THE TWO. ON THE BASIS OF THIS WORKING THE A.O. HELD THAT THE INTEREST EXPENDITURE TO THE TUNE OF RS. 35,33,405/- WAS NOT ALLOWABLE U/S 57(II I) OF THE INCOME-TAX ACT, 1961. 7. DURING APPELLATE PROCEEDINGS THE ASSESSEE FILED WRITTEN SUBMISSIONS REPRODUCED IN THE ORDER OF THE LD. CIT(A) AT PAGE 4 -9, ANALYZING THE INTEREST EXPENDITURE INCURRED IN RELATION TO THE MAJOR INTER EST INCOME EARNED FROM FOUR PARTIES I.E. M/S JANPATH STATES P. LTD. RS. 32,87,0 07/-, MRG HOTELS P. LTD. OF RS. 5,86,603/-, M/S NUCHEM DYESSTUFF P. LTD. OF RS. 8,8 3,915/- AND SH. MANOJ SOBTI OF RS.3,99,000/- AS FOLLOWS: 3 'THE ASSESSEE HAS CLAIMED INTEREST EXPENDITURE AS A LLOWABLE U/S 57(III) AGAINST INTEREST INCOME BASED ON THE NEXUS BETWEEN THE FUND S. TO ESTABLISH THIS NEXUS WE HAVE ANALYSIS THE ROTATION OF FUND BETWEEN VARIOUS ACCOUNTS HAVING LINK WITH INTEREST.. A PERUSAL OF BALANCE SHEET FOR THE YEAR ENDING 31.03.2008 SHOWS THAT AGAINST THESE FUNDS THE ASSESSEE HAS EARNED INTERES T INCOME OF RS.5263530/- AND INTEREST EXPENDITURE OF RS.6218278/--. IN THE INTER EST INCOME MAJOR INCOME IS COMING FROM 4 PARTIES, I.E. JANPATH ESTATES PVT. LTD. (RS.3287007/-), MRG HOTELS PVT. LTD. (RS. 586603/-), NUCHEM DYES TUFFS PVT. LTD. (RS.883915/-) AND MANOJ SOBTI (RS. 399000/-), ONE BY ONE ANALYSIS OF THESE ACCOUNTS IS AS UNDER:- JANPATH EASTES PVT. LTD. (INTEREST RS.3287007/-) MAJOR INTEREST INCOME IS FROM JANPATH ESTATES PVT. LTD. WHICH IS RS.3287007/- AGAINST TOTAL INTEREST INCOME OF RS.6263530/- WHICH CONSTITUTE APPROXIMATELY 52.48%. A) ANALYSIS OF MONEY GIVEN DURING THE PERIOD 01.04. 2007 TO 31.03.2008 OPENING BALANCE AMOUNT DR. RS. 5595868/- PAGE NO. REFERENCE NO. 18.07.2007 2950000/- K. LALL OVERSEAS 3 & 17 1 16.08.2007 9000000/- K. LALL OVERSEAS 4 & 36 2 08.10.2007 3000000/- AMOUNT RECEIVED ON 08.10.2007 FROM ADVANCE ADVERTISING AGENCY (INTEREST FREE) AND THE SAME IS RETURNED BACK ON 25.10.2007 AGAINST WHICH MONEY IS TAKEN FROM JANPATH ITSELF 6 & 46 3 30.10.2007 7000000/- K. LALL OVERSEAS 4 & 46 4 01.11.2007 5000000/- K. LALL OVERSEAS 4 & 24 5 21.11.2007 1000000/- K. LALL OVERSEAS 4 & 38 6 28.12.2007 10000000/- EASTMAN IMPEX (INTEREST BEARING) 120 & 47 7 07.01.2008 6000000/- K. LALL OVERSEAS 4 & 39 8 16.01.2008 500000/- K. LALL OVERSEAS 4 & 32 9 19.01.2008 6000000/- K. LALL OVERSEAS 4 & 40 10 29.01.2008 4000000/- K. LALL OVERSEAS 4 & 40 11 29.01.2008 1000000/- K. LALL OVERSEAS 4 & 40 12 18.02.2008 4500000/- K. LALL OVERSEAS 5 & 41 13 28.02.2008 3500000/- K. LALL OVERSEAS 5 & 41 14 25.03.2008 1500000/- K. LALL OVERSEAS 5 & 42 15 ANALYSIS OF THE ACCOUNT FOR THE PREVIOUS YEARS IS N OT RELEVANT BECAUSE AS ON 25.12.2006 THE TOTAL DEBIT BALANCE WAS RS. 919832/- ONLY. THE REMA INING AMOUNT IS ON ACCOUNT OF NET INTEREST INCOME FOR THE F.Y. 2006-07. THUS CLOSING BALANCE B ECOME RS. 5595868/-. MRG HOTEL PVT. LTD. (INTEREST RS.586603/-) MONEY GIVEN ON VARIOUS DATES IN THE F.Y. 2006-07. T HERE IS NO MONEY TRANSACTION EXCEPT INTEREST AMOUNT IN THE F.Y. 2007-08. THEREFO RE ANALYSIS OF THE ACCOUNT FOR MONEY GIVEN IN THE F.Y. 2006-07 IS MORE RELEVANT TO ESTABLISH THE NEXUS: 4 DATE AMOUNT RECEIVED FROM 18/05/2006 1000000/- K. LALL OVERSEAS 25/05/2006 500000/- K. LALL OVERSEAS 29/05/2006 200000/- K. LALL OVERSEAS 05/06/2006 100000/- K. LALL OVERSEAS 06/06/2006 100000/- K. LALL OVERSEAS 15/06/2006 100000/- K. LALL OVERSEAS 21/06/2006 25000/- K. LALL OVERSEAS 21/06/2006 500000/- K. LALL OVERSEAS 13/07/2006 500000/- K. LALL OVERSEAS 20/07/2006 500000/- K. LALL OVERSEAS 24/07/2006 200000/- K. LALL OVERSEAS 25/07/2006 300000/- K. LALL OVERSEAS 02/08/2006 200000/- K. LALL OVERSEAS 10/08/2006 300000/- K. LALL OVERSEAS 25/08/2006 100000/- K. LALL OVERSEAS 12/09/2006 350000/- K. LALL OVERSEAS NUECHEM DYESTUFFS PVT. LTD. (INTEREST O F RS.883915/ -) A) ANALYSIS OF MONEY GIVEN DURING THE PERIOD 01.04.200 5 TO 31.03.2006 OPENING BALANCE 2450000/- ------ 30/07/2005 1000000/- PAWAN KUMAR GOEL(INTEREST FREE ) 12/08/2005 700000/- OUT OF CASH AGAINST FUND RECEIVED FROM MANOJ SOBTI (INTEREST FREE) 22/08/2005 400000/- K. LALL OVERSEAS (INTEREST BEARING) 29/08/2005 900000/- K. LALL OVERSEAS 03/09/2005 600000/- K. LALL OVERSEAS 14/09/2005 300000/- K. LALL OVERSEAS 16/09/2005 200000/- K. LALL OVERSEAS 27/10/2005 200000/- K. LALL OVERSEAS 08/11/2005 100000/- K. LALL OVERSEAS 27/12/2005 600000/- K. LALL OVERSEAS 01/02/2006 250000/- K. LALL OVERSEAS 07/02/2006 500000/- K. LALL OVERSEAS 01/03/2006 100000/- K. LALL OVERSEAS 09/03/2006 800000/- K. LALL OVERSEAS 17/03/2006 1350000/- K. LALL OVERSEAS DURING THE YEAR THE ASSESSEE HAS RECEIVED RS. 80 LA CS ON DIFFERENT DATES AND ALSO RETURNED RS. 35 LACS FROM NUCHEM DYESTUFFS PVT. LTD . IT MEANS TOTAL FUND RECEIVED DURING THE YEAR IS WELL EXPLAINED AS FAR AS NEXUS B ETWEEN THE FUND RECEIVED AND FUND DEPLOYED IS CONCERNED. 5 MANOJ SOBTI (INTEREST OF RS. 399000/-) DETAIL OF ACCOUNTS FOR THE F.Y. 2006-07 IS AS UNDER : DEBIT CREDIT RECEIVED FROM OPENING BALANCE ----- 2000000/- ---- 27/05/2006 1000000/- ----- ---- 30/06/2006 1165426/- ---- K. LAL OVERSEAS 06/07/2006 2500000/- ---- PAWAN KUMAR GOEL 23/08/2006 184574/- ---- K.LALL OVERSEAS OF RS. 1750000/- A PERUSAL OF ABOVE ACCOUNT SHOWS THAT DURING THE F. Y. 2006-07 ASSESSEE HAS GIVEN RS. 25 LACS AGAINST WHICH ASSESSEE HAS EARNED INTER EST HENCE THE NATURE OF RS. 25 LACS NEEDS TO BE ANALYZED. THE ASSESSEE HAS TAKEN R S. 25 LACS FROM PAWAN KUMAR GOEL ON 05/07/2006 WHICH IS INTEREST FREE AND THE SAME IS RETURNED BACK ON 25/09/2006 AGAINST WHICH ASSESSEE HAS TAKEN RS. 25 LACS FROM K. LALL OVERSEAS ON 25/09/2006 AGAINST WHICH ASSESSEE HAS TAKEN RS. 25 LACS FROM K. LALL OVERSEAS ON 25/09/2006. IT MEANS NATURE OF THE ULTIMATE FUND GI VEN TO MANOJ SOBTI IS INTEREST BEARING FUND TAKEN FROM K. LALL OVERSEAS. A PERUSAL OF ALL THE FOUR ACCOUNTS CLEARLY ESTABLIS HING THE NEXUS BETWEEN THE BORROWED FUND AND INTEREST EARNING FUND. IT WILL NO T BE WRONG, ON THE BASIS OF FACTS THAT THE INTEREST INCOME FROM THESE 4 PARTIES WHICH IS IN TOTALITY RS. 5156525/-, IS DIRECTLY RELATABLE TO INTEREST EXPENDITURE. HENC E INTEREST EXPENDITURE TO THE EXTENT IS ALLOWABLE U/S 57 (III) OF THE ACT. ANALYSIS OF BORROWED FUND THE ASSESSEE HAS TAKEN FUNDS FROM VARIOUS PERSONS T O WHOM INTEREST IS PAID I.E. EASTMAN IMPEX (RS. 311475/-), MAHESH KUMAR GOEL HUF (RS. 1766786/-), ANURADHA GOEL (RS. 724629/-) K. LALL OVERSEAS (RS. 1540774/- ) AND HDFC BANK (LAP) (RS. 1757518/-). ANALYSIS OF ACCOUNTS IS AS UNDER: EASTMAN IMPEX (RS. 311475/-) 28/12/2007 10000000 GIVEN TO JANPATH EASTATES PVT. LTD. MAHESH KUMAR GOEL HUF (RS. 1766786/-) 08/04/2006 1800000 RECEIVED ON 31/03/2006 AND CLEARED IN THE BANK ON 08/04/2006 AND THEN GIVEN TO K. LALL OVERSEAS 08/04/2006 5000000/- RECEIVED ON 31/03/2006 AND CLEARED IN THE BANK ON 08/04/2006 AND THEN GIVEN TO K. LALL OVERSEAS 08/04/2006 5000000/- RECEIVED ON 31/03/2006 AND CLEARED IN THE BANK ON 08/04/2006 AND THEN GIVEN TO K. LALL OVERSEAS 6 SINCE THE MONEY IS TAKEN, THE ASSESSEE IS PAYING IN TEREST. THE MONEY IS GIVEN TO K. LALL OVERSEAS WHICH IS ALSO INTEREST BEARING FUND. ANURADHA GOEL (RS. 724629/-) THE ASSESSEE HAS RECEIVED RS. 5400000/- ON 31/03/20 06. THE CHEQUE WAS CLEARED IN THE F.Y. 2006-07 ON 08/04/2006. THIS PAYMENT WAS MADE TO K. LALL OVERSEAS WHICH IS INTEREST BEARING FUND. K. LALL OVERSEAS (RS. 1540774/-) THE ASSESSEE HAS OVERDRAWN HIS CAPITAL ACCOUNT AND THE FUND HAS BEEN INVESTED AGAINST INTEREST EARNING FUND. IN THE ACCOUNT THERE ARE OTHER TRANSACTIONS LIKE; PERSONAL WITHDRAWALS ETC., WHICH HAS BEEN ROUTED. HDFC BANK (RS. 1757518/-) THE ASSESSEE HAS TAKEN THREE DIFFERENT KIND OF LOAN FROM HDFC BANK HAVING ACCOUNT NO. 1760155, 2617949 AND 2974829. THE TOTAL INTEREST PAID IN ALL THESE THREE ACCOUNT IS RS. 1757518/-. DURING THE F.Y. 200 6-07 THE ASSESSEE HAS TAKEN LOAN OF RS. 25 LACS ON 26/06/2006 IN THE ACCOUNT NO. 261 7949 (SEE REFERENCE NO. 56 ON PAGE NO. 58 & 61) AND THE SAME IS GIVEN TO K. LALL OVERSEAS. (SEE REFERENCE NO. 56 ON PAGE NO. 51 & 61) SIMILARLY IN THE SAME FINAN CIAL YEAR ASSESSEE HAS TAKEN RS. 25 LACS ON 05/03/2007 AND RS. 37.50 LACS ON 12/03/2 007 IN THE ACCOUNT NO. 2974829 (SEE REFERENCE NO. 57 & 58 ON PAGE NO. 58,5 9, & 64) AND THE SAME IS GIVEN TO K. LALL OVERSEAS (SEE REFERENCE NO. 57 & 5 8 ON PAGE NO. 53 & 64). IN THE F.Y. 2005-06 ASSESSEE HAS TAKEN RS. 6218000/- ON 2 9/08/2005 AND RS. 3750000/- ON 15/09/2005 IN THE ACCOUNT NO. 1760155 (SEE REFERENC E NO. 59 & 60 ON PAGE NO. 93 & 102). OUT OF RS. 6218000/- RS. 60 LACS GIVEN T O JANPATH ESTATES PVT. LTD. (SEE REFERENCE NO. 59 ON PAGE NO. 93 & 102) AND RS. 3750 000/- IS REMAINED USED FOR OTHER PURPOSES. A PERUSAL OF VARIOUS BORROWED FUND ACCOUNTS CLEARLY SHOWS THAT THE FUND HAS BEEN USED AGAINST INTEREST EARNING FUND THEREFORE R ELATABLE TO EACH OTHER. ' 8. LD. CIT(A) AFTER CONSIDERING THE ASSESSEES SUBMI SSIONS DISALLOWED INTEREST U/S 57 (III) AMOUNTING TO RS. 25,43,012/- BY HOLDING AS FOLLOWS IN PARA 4.3 OF HIS ORDER. (I) WHETHER THE TOTAL INTEREST BEARING FUNDS BORROW ED WERE EQUAL OR LESS THAN THE INTEREST YIELDING LOANS GIVEN. THE VARIOUS FACTS AND FIGURES OF THE CASE AS WELL A S THE TABLES COMPILED BY THE AO WERE DISCUSSED DURING THE COURSE OF APPELLATE PROCE EDINGS. THE APPELLANT CONFIRMED THAT THE FIGURES TAKEN BY THE AO IN TABLE -2 WERE CORRECT. FROM THE DATA COMPILED BY THE AO IN TABLE-2, IT IS CLEAR THA T IN EACH OF THE MONTHS DURING THE YEAR, THE TOTAL INTEREST BEARING BORROWED FUNDS OF THE APPELLANT WERE IN EXCESS OF THE TOTAL INTEREST YIELDING LOANS GIVEN. IT IS THEREFORE APPARENT FROM THIS TABLE THAT ALL THE INTEREST BEARING BORROWED FUNDS WERE NOT DEPLOYED TOWARDS INTEREST YIELDING LOANS. THEREFORE THE EXCESS OF INTEREST BEARING BOR ROWED FUNDS TAKEN BY THE APPELLANT WERE DEPLOYED FOR OTHER PURP OSES AND THEREFORE THE INTEREST ON THIS EXCESS INTEREST BEARING BORROWED F UNDS WHICH HAVE NOT BEEN USED FOR ADVANCING INTEREST BEARING LOANS IS NOT ALLOWAB LE U/S 57(III) OF THE INCOME TAX ACT. THIS EXCESS HAS BEEN WORKED OUT BY THE AO AS U NDER:- MONTH EXCESS LOAN (RS.) APRIL 33,09,138/- MAY 1,07,63,794/- 7 JUNE 1,11,67,339/- JULY 1,19 ,71,877 AUGUST 1,06,65,788/- SEPTEMBER 1,21,97,001/- OCTOBER 61,44,304/- NOVEMBER 1,32,94,265/- DECEMBER 1,34,44,214/- JANUARY 48,19,871/- FEBRUARY 49,64,911/- MARCH 29,31,704/- TOTAL 10,56,74,206 IT MAY BE RELEVANT TO MENTION HERE THAT AS PER APP ELLANTS OWN SUBMISSIONS, THE EXCESS BORROWED FUNDS NOT DEPLOYED AGAINST INTEREST EARNING ADVANCE ARE LINKED TO ADVANCES GIVEN OF RS. 23,83,367/-TO TOWN PLANNER AND RS. 77,25,000/- TO JANPATH ESTATES PVT. LTD. ON THIS BASIS THE TOTAL EXCESS INTEREST BEARING BOR ROWED FUNDS FROM APRIL,2007 TO MARCH, 2008 WORKED OUT TO RS. 10,56,74,206/- ON AN AVERAGE, IT CAN BE TAKEN THAT THE EXCESS WORKED OUT FOR EACH MONTH BY THE AO WAS SPREAD OUT THROUGHOUT THE MONTH. THEREFORE THERE WAS EXCESS BORROWINGS OF RS. 10,56,74,206/- FOR A PERIOD OF ONE MONTH. THE INTEREST ON THESE EXCESS BORROWED FU NDS @ 12% PER ANNUM WORKS OUT TO RS. 10,56,741/-. IT IS HELD THAT THIS INTERE ST EXPENDITURE AMOUNTING TO RS. 10,56,741/- WAS INCURRED BY THE APPELLANT NOT FOR E ARNING INTEREST INCOME BUT WAS DEPLOYED FOR OTHER PURPOSES AND IS THEREFORE NOT AL LOWABLE U/S 57(III) OF THE INCOME TAX ACT. (II) WHETHER THE SOURCES OF FUNDS ADVANCED FOR EARNING I NTEREST INCOME WAS BORROWED MONEY ON WHICH INTEREST WAS PAID OR WAS AN Y OTHER SOURCE INCLUDING OWN CAPITAL OR INTEREST FREE FUNDS AVAILABLE. WITH REGARD TO THE SECOND ISSUE, THE APPELLANT WAS ASKED TO SHOW THE NEXUS OF BORROWED FUNDS AND THE LOANS GIVEN. FROM THE DETAIL S SUBMITTED BY THE APPELLANT VIDE HIS REPLY DATED 28.12.2012, IT IS SEEN THAT FO LLOWING LOANS GIVEN HAVE NOT BEEN SOURCED FROM THE BORROWED FUNDS ON WHICH INTEREST HAS BEEN PAID:- NAME DATE ON WHICH LOAN GIVEN PERIOD RELEVANT TO THE YEAR UNDER REFERENCE AMOUNT INTEREST REMARKS JANPATH ESTATES OPENING BALANCE AS ON 01/04/2007 01/04/2007 31/03/2008 5595868 671504 OPENING BALANCE IS ON ACCOUNT OF INTEREST RECEIVABLE OF RS. 52,66,993/- DEBITED ON 31/03/2007. IT IS THEREFORE NOT SOURCED FROM BORROWED FUNDS. JANPATH ESTATES 08/10/2007 08/10/2007 25/10/2007 30.00 LACS 16767 AMOUNT RECEIVED ON 08/10/2007 FROM ADVANCE ADVERTISING AGENCY (INTEREST FREE) AND THE SAME IS RETURNED BACK ON 25/10/2007 AGAINST WHICH MONEY IS TAKEN FROM JANPATH ITSELF. NUCHEM DYESTUFFS PVT. LTD. 30/07/2005 01/04/2007- 31/03/2008 10.00 LACS 120000 PAWAN KUMAR GOEL (INTEREST FREE). IT IS THEREFORE NOT SOURCED FROM BORROWED INTEREST BEARING FUNDS. -DO- 12/08/2005 01/04/2007- 31/03/2008 7.00 LACS 84000 OUT OF CASH AGAINST FUND RECEIVED FROM MANOJ SOBTI (INTEREST FREE). IT IS THEREFORE NOT SOURCED FROM BORROWED INTEREST BEARING FUNDS. -DO- OPENING BALANCE AS ON 01/04/2007- 31/03/2008 24.5 LACS 294000 OPENING BALANCE IS NOT SOURCED FROM BORROWED FUNDS. IT IS THEREFORE NOT SOURCED FROM 8 01/04/2005 BORROWED INTEREST BEARING FUNDS. MANOJ SOBTI 06/07/2006 01/04/2007- 31/03/2008 25.00 LACS 300000 PAWAN KUMAR GOEL (INTEREST FREE) IT IS THEREFORE NOT SOURCED FROM BORROWED INTEREST BEARING FUNDS. FOR THE REMAINING AMOUNTS THE APPELLANT HAS BEEN AB LE TO ESTABLISH NEXUS BETWEEN THE ADVANCED AMOUNT AND BORROWED FUNDS. THE REFORE INTEREST ON THE AFORESAID AMOUNT IS ALSO DISALLOWED U/S 57(III) OF THE INCOME TAX ACT, WHICH WORKED OUT TO RS. 1486271/-/-. T HUS, THE TOTAL DISALLOWANCE IN THIS CASE IS WORKED OUT AT RS. 25,43,012/-. 9. BEFORE US LD. AR REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A) AND STATED THAT IT HAD CLEARLY DEMONSTRATED THE NEX US OF INTEREST BEARING BORROWED FUNDS USED FOR MAKING INTEREST EARNING INV ESTMENTS. LD. AR FURTHER PLEADED BEFORE US THAT ALTERNATIVELY THE ASSESSEE H AD A COMMON KITTY OF INTEREST BEARING BORROWED FUNDS AND THE PRESUMPTION IN SUCH A CASE SHOULD BE THAT INTEREST BEARING FUNDS WERE USED FOR MAKING INTERES T EARNING INVESTMENTS. LD. DR ON THE OTHER HAND RELIED UPON THE ORDER OF LD. CIT( A) & FURTHER EMPHASIZED THAT FOR THE PURPOSE O CLAIMING DEDUCTION U/S 57 (III) T HE ONUS IS ON THE ASSESSEE TO ESTABLISH THAT THE EXPENDITURE IS LAID OUT OR EXPEN DED WHOLLY AND EXCLUSIVELY FOR EARNING THE INCOME FROM WHICH THE DEDUCTION IS BEIN G CLAIMED. LD. DR PLACED RELIANCE ON THE FOLLOWING DECISIONS OF HONBLE SUPR EME COURT IN SUPPORT OF HIS CONTENTION: SMT. PADMAWATI JAIKRISHNA VS. ADDL. CIT (1987) 166 ITR 176 (SC), MRS. ARUNDHATI BALKRISHNA VS. CIT, AHMEDABAD (1989) 177 ITR 275 (SC) VIJAY LAXMI SUGAR MILLS LTD. VS. CIT (1991) 191 ITR 641 (SC) CIT VS. RAJENDRA PRASAD MOODY (1978) 115 ITR 519(SC ) 10. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. 11. THE ONLY ISSUE IN THE PRESENT APPEAL IS THE ALL OWABILITY OF INTEREST U/S 57(III) OF THE INCOME TAX ACT, 1961. AS PER THE PROVISIONS OF SECTION 57 (III) EXPENSES LAID OUT OR EXPENDED WHOLLY OR EXCLUSIVELY FOR THE PURPO SE OF MAKING OR EARNING INCOME FROM OTHER SOURCES ARE ALLOWED WHILE COMPUTI NG INCOME FROM OTHER SOURCES U/S 56 OF THE ACT. THE HONBLE APEX COURT I N THE CASE OF VIJAY LAXMI SUGAR MILLS LTD. VS. CIT (1991) 191 ITR 641 HAS INT ERPRETED THE SECTION AS FOLLOWS: THE REQUIREMENT U/S 57(III) THAT THE EXPENDITURE SH OULD HAVE BEEN INCURRED FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME SHOWS THAT THE OBJECT OF SPENDING OR THE END OR AIM OR THE INTENTION OF SUCH SPENDING WAS FOR EARNING THE INTEREST INCOME. 12. ACCORDINGLY UNDER SECTION 57(III), ONLY THAT EX PENDITURE CAN BE ALLOWED WHICH CAN BE SAID TO BE INCURRED SOLELY FOR THE PUR POSE OF EARNING INCOME. THEREFORE, IT IS TO BE SEEN IN THE FACTS OF THE PRE SENT CASE AS TO WHICH INTEREST 9 PAID HAS BEEN INCURRED FOR THE PURPOSE OF EARNING I NTEREST INCOME. UNDISPUTED FACTS IN THE PRESENT CASE ARE THAT OWN FUNDS / NON- INTEREST BEARING BORROWED FUNDS TO CERTAIN EXTENT HAVE BEEN USED FOR EARNING INTEREST INCOME, THE DETAILS OF WHICH ARE GIVEN AT PAGE 14-15 OF THE APPEAL ORDE R WHICH IS REPRODUCED AS UNDER : NAME DATE ON WHICH LOAN GIVEN PERIOD RELEVANT TO THE YEAR UNDER REFERENCE AMOUNT INTEREST REMARKS JANPATH ESTATES OPENING BALANCE AS ON 01/04/2007 01/04/2007 31/03/2008 5595868 671504 OPENING BALANCE IS ON ACCOUNT OF INTEREST RECEIVABLE OF RS. 52,66,993/- DEBITED ON 31/03/2007. IT IS THEREFORE NOT SOURCED FROM BORROWED FUNDS. JANPATH ESTATES 08/10/2007 08/10/2007 25/10/2007 30.00 LACS 16767 AMOUNT RECEIVED ON 08/10/2007 FROM ADVANCE ADVERTISING AGENCY (INTEREST FREE) AND THE SAME IS RETURNED BACK ON 25/10/2007 AGAINST WHICH MONEY IS TAKEN FROM JANPATH ITSELF. NUCHEM DYESTUFFS PVT. LTD. 30/07/2005 01/04/2007- 31/03/2008 10.00 LACS 120000 PAWAN KUMAR GOEL (INTEREST FREE). IT IS THEREFORE NOT SOURCED FROM BORROWED INTEREST BEARING FUNDS. -DO- 12/08/2005 01/04/2007- 31/03/2008 7.00 LACS 84000 OUT OF CASH AGAINST FUND RECEIVED FROM MANOJ SOBTI (INTEREST FREE). IT IS THEREFORE NOT SOURCED FROM BORROWED INTEREST BEARING FUNDS. -DO- OPENING BALANCE AS ON 01/04/2005 01/04/2007- 31/03/2008 24.5 LACS 294000 OPENING BALANCE IS NOT SOURCED FROM BORROWED FUNDS. IT IS THEREFORE NOT SOURCED FROM BORROWED INTEREST BEARING FUNDS. MANOJ SOBTI 06/07/2006 01/04/2007- 31/03/2008 25.00 LACS 300000 PAWAN KUMAR GOEL (INTEREST FREE) IT IS THEREFORE NOT SOURCED FROM BORROWED INTEREST BEARING FUNDS. 13. THEREFORE, IN THE SETTING OF SUCH FACTS, INTERE ST TO THE EXTENT OF RS. 14,86,271/- IN RESPECT OF THE ABOVE MENTIOND AMOUNT S AS COMPUTED IN THE TABLE REPRODUCED ABOVE CANNOT BE ALLOWED US 57(III) AND A CCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) TO THIS EX TENT. HOWEVER, LD. CIT(A)S WORKING OF DISALLOWANCE TO THE EXTENT OF RS. 10,56, 741/- IS NOT SUSTAINABLE FOR THE REASON THAT SUCH INTEREST PAID IS IN RESPECT OF SUC H INTEREST BEARING BORROWED FUNDS WHICH HAVE BEEN USED FOR GIVING INTEREST BEAR ING LOANS. THEREFORE WHEN EACH INTEREST BEARING LOAN GIVEN IS FOUND TO HAVE B EEN SOURCED FROM INTEREST BEARING OR NON INTEREST BEARING FUNDS AND DISALLOWA NCE IS COMPUTED HAVING REGARD TO THAT IN THE CHART REPRODUCED ABOVE, THERE IS NO JUSTIFICATION AGAIN FOR GOING BY THE MONTHLY OR ANY OTHER METHOD ADOPTED BY LD. CIT(A). FOR THIS VERY REASON ALSO, WE ARE NOT IMPRESSED BY THE ARGUMENT O F THE ASSESSEE THAT THE FUNDS ARE IN COMMON KITTY AND THE PRESUMPTION IN SU CH CASES WOULD BE THAT 10 INTEREST BEARING BORROWED FUNDS ONLY HAVE BEEN USED . THEREFORE, STRICTLY GOING BY THE LAW AS ENSHRINED IN SECTION 57(III) WE UPHOL D THE DISALLOWANCE U/S 57(III) TO THE EXTENT OF RS. 14,86,871/-. 14. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 27/11/2015 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR