Shri Rashminbhai Mohanlal Majithia, Ahmedabad V. The Jt.CIT.,Range-9, Ahmedabad

ITA 3424/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6440 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 29-12-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SAMIR TEKRIWA LA
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : B BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HONBL E SHRI A.K.GARODIA, A.M.) I.T.A. NO. 3424/AHD./2009 ASSESSMENT YEAR : 2006-2007 SHRI RASHMINBHAI MOHANLAL MAJITHIA, ABAD -VS- JCIT, RANGE-9, ABAD (PAN : AAZPM 0135F) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.N.SOPARKAR WITH MS.URVA SHI SODHAN, A.RS RESPONDENT BY : SHRI SAMIR TEKRIWALA, SR.D. R. O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE O RDER DATED 13-08-2009 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-XVI, AH MEDABAD CONFIRMING THE ADDITION OF RS.6,27,339/- MADE BY THE AO BY DISALLO WING THE INTEREST PAID FOR THE ASSESSMENT YEAR 2006-07. 2. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE IS AN INDIVIDUAL. FOR THE ASSESSMENT YEAR UNDER APPEAL, HE FILED THE RETURN O F INCOME SHOWING TOTAL INCOME AT RS.NIL. IN THE ASSESSMENT ORDER, THE AO OBSERVED THAT THE ASSESSEE DERIVES INCOME FROM OTHER SOURCES WHICH INCLUDES BOND INTEREST OF RS.1,944/- AND ROYALTY FEES OF RS.1,25,000/-. THE ASSESSEE DEBITED BANK INTEREST O F RS.6,12,339/- AND INTEREST OF RS.15,000/- FROM THIS INCOME. THE AO FRAMED THE ASS ESSMENT UNDER SECTION 143(3) ON 29.12.2008 WHEREIN HE DISALLOWED THE INTEREST PAID AMOUNTING TO RS.6,27,339/- (RS.6,12,339/- + RS.15,000/-). 3. ON APPEAL, IN THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE OF INTEREST FOR THE DETAILED REASONS GIVEN IN PARA 3.1, WHICH READS AS UNDER: 3.1 I HAVE CONSIDERED THE SUBMISSION. THOUGH THE ASSESSING OFFICER HAS NOT GIVEN ELABORATE REASONS FOR THE DISALLOWANCE OF INT EREST OF RS. 6,27,339/-, THE ITA NO.3424/AHD/2009 2 AUTHORISED REPRESENTATIVE WAS REQUESTED TO STATE TH E PURPOSE OF LENDING THE MONEY TO VARIOUS CONCERNS IN WHICH THE APPELLANT IS DIRECTOR. THE AUTHORISED REPRESENTATIVE STATED THAT THE FUNDS WERE BORROWED BY THE APPELLANT FROM BANKS AND ADVANCED TO THE ABOVE MENTIONED SIX COMPA NIES IN WHICH THE APPELLANT IS A DIRECTOR FOR THE BUSINESS PURPOSE OF THE SAID COMPANIES. WHEN ASKED SPECIFICALLY AS TO WHAT IS THE RELATIONSHIP B ETWEEN THE BUSINESS OF THE APPELLANT AND THE BUSINESS OF THE COMPANIES, THE AU THORISED REPRESENTATIVE ADMITTED THAT THERE IS NO NEXUS BETWEEN THE TWO. IN FACT THE AMOUNT HAS NOT BEEN BORROWED BY THE APPELLANT FOR HIS BUSINESS BUT FOR THE PURPOSE OF BUSINESS OF THE ABOVE MENTIONED SIX COMPANIES ON WHICH INTER EST HAS BEEN PAID BY THE APPELLANT. THE APPELLANT IS NOT DOING ANY BUSINESS OF HIS OWN AS PER THE TOTAL INCOME SHOWN IN THE RETURN OF INCOME I.E. ROYALTY F EES OF RS. 1,25,000/- & BOND INTEREST OF RS. 1944/- WHICH IS SHOWN UNDER THE HEA D OF INCOME FROM OTHER SOURCES. THERE IS NO DIRECT NEXUS BETWEEN THE INTER EST PAID ON BORROWED FUNDS AND THE INCOME SHOWN BY THE APPELLANT NOR THE BORRO WED FUNDS ARE USED FOR THE BUSINESS PURPOSE OF THE APPELLANT OR FOR EARNING IN COME FROM OTHER SOURCES. THEREFORE, THE INTEREST ON THE BORROWED FUNDS CANNO T BE ALLOWED AS ADMISSIBLE EXPENSES IN THE HANDS OF THE APPELLANT FURTHER THE APPELLANT HAS INVESTED IN THE SHARES OF SOME OF THESE PRIVATE LIMITED GROUP C OMPANIES. SINCE INVESTMENT IN SHARES OF PVT. LTD COMPANIES IS NOT THE BUSINESS OF THE APPELLANT, SAME CANNOT BE STATED TO HAVE BEEN USED FOR THE PURPOSE OF THE BUSINESS. I THEREFORE HOLD THAT THE AMOUNT BORROWED ON INTEREST AND INVES TED IN SHARES OR ADVANCED TO GROUP COMPANIES IS NOT FOR ANY BUSINESS EXPEDIEN CY_AND THEREFORE INTEREST EXPENSES OF_RS. 6,27,339/- ON SUCH BORROWED FUNDS I S NOT AN ALLOWABLE EXPENDITURE. THE DISALLOWANCE OF INTEREST OF RS. 6,27,339/- IS THEREFORE UPHELD . 4. AGGRIEVED WITH THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING BEFORE US, SHRI S.N.SOPAR KAR WITH MS. URVASHI SODHAN, APPEARED ON BEHALF OF THE ASSESSEE AND CONTENDED TH AT INTEREST PAID AMOUNTING TO RS.6,27,339/- BE ALLOWED UNDER SECTION 36(1)(III) O R UNDER SECTION 57(3) OF THE I.T.ACT, 1961. 6. ON THE OTHER HAND, THE LD. D.R. POINTED OUT THAT INTEREST PAID CANNOT BE ALLOWED UNDER SECTION 36(1)(III) BECAUSE THE ASSESSEE HAS N OT DECLARED ANY INCOME UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION. FURTHER , FOR ALLOWANCE OF DEDUCTION UNDER SECTION 57 OF THE I.T. ACT, THE DOMINANT PURP OSE OF EXPENSES INCURRED MUST BE TO EARN THE INCOME. THE EXPENSES MUST HAVE BEEN INCURR ED SOLELY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING INCOME OR MAKING PROFIT WHICH IS DECLARED UNDER THE HEAD INCOME FROM OTHER SOURCES. IN THIS CASE, NEITHER BEFORE T HE AO, NOR BEFORE THE LD. CIT(A), THE ITA NO.3424/AHD/2009 3 ASSESSEE COULD DEMONSTRATE HOW THE EXPENDITURE IN Q UESTION IS INCURRED SOLELY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING INTEREST ON BOND AMOUNTING TO RS.1,944/- OR ROYALTY FEES OF RS.1,25,000/-. IN THESE CIRCUMSTANC ES, THE LD. CIT(A) IS LEGALLY AND FACTUALLY CORRECT IN CONFIRMING THE DISALLOWANCE OF INTEREST OF RS.6,27,339/-. 7. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT, IN THE IMPUGNED ORDER, THE LD. CIT(A) HAS STATED THAT THE AMOUNT ON WHICH INTEREST IS PAID HA D BEEN BORROWED FOR THE PURPOSE OF BUSINESS BY SIX COMPANIES MENTIONED AT PAGE 2 OF TH E IMPUGNED ORDER OF THE LD. CIT(A). THE ASSESSEE IS NOT DOING ANY BUSINESS OF H IS OWN, AS, IN THE RETURN OF INCOME, HE HAS SHOWN INCOME I.E. ROYALTY FEES OF RS.1,25,00 0/- AND BOND INTEREST OF RS.1,944/- UNDER THE HEAD INCOME FROM OTHER SOURCES. THE LD. CIT(A) HAS ALSO STATED THAT THERE IS NO NEXUS BETWEEN THE INTEREST PAID ON BORROWED F UNDS AND THE INCOME SHOWN BY THE ASSESSEE NOR THE BORROWED FUNDS ARE UTILISED FOR TH E BUSINESS PURPOSE OF THE ASSESSEE OR FOR EARNING INCOME FROM OTHER SOURCES. WE ARE, T HEREFORE, OF THE CONSIDERED OPINION THAT THE VIEW TAKEN BY THE LD. CIT(A), LOOKING TO T HE FACTS, IS FAR AND REASONABLE. WE, THEREFORE, INCLINE TO UPHOLD THE ORDER OF THE LD. C IT(A). 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. THE ORDER PRONOUNCED IN THE COURT ON 17.06.2011 SD/- SD/- (A.K.GARODIA) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 17/06/2011 COPY OF THE ORDER IS FORWARDED TO:- (1) THE ASSESSEE (2) THE DEPARTMENT. (3) CIT (A.) CONCERNED. (4) CIT CONCERNED. (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AH MEDABAD. TALUKDAR/ SR. P.S.