Pawan Kumar Goel, Ludhiana V. ACIT, Ludhiana

ITA 343/CHANDI/2013

• Counselvise Citation: 34321514 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: 56; 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.343/CHD/2013 ASSESSMENT YEAR:2008-09 PAWAN KUMAR GOEL, VS. ACIT 259, INDUSTRIAL AREA A CIRCLE VI LUDHIANA LUDHIANA PAN NO. ABGPG2298F (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 APPEALS: - 1. THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN SU STAINING THE ADDITION OF RS. 19,42,220/- AGAINST ADDITION OF RS. 38,44,967/- MAD E BY A.O. U/;S 57(III) OF THE ACT. WITHOUT APPRECIATING THE FACTUAL POSITION AND THE S UBMISSIONS 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 CASE SPECIFICALLY WHEN MONTH WISE EXCESS BORROWED FUND W AS DETERMINED. THEREFORE, FURTHER ADDITION OF RS. 12,92,865/- IS UNWARRANTED. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FI LED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR ON 27.03.2009 DECLARIN G AN INCOME OF RS. 7,82,084/. THEREAFTER ASSESSMENT U/S 143(3) WAS FRA MED ON THE ASSESSEE AT AN INCOME OF RS.49,09,551/- AFTER MAKING DISALLOWANCE OF RS. 38,44,967/- U/S 57(III) OF THE ACT, AND RS. 2,82,500/-UNDER THE HEAD CAPITA L GAIN. 2 4. THE LD CIT(A) VIDE HIS ORDER DATED 21.01.2013. R ESTRICTED THE DISALLOWANCE MADE U/S 57(III) TO RS. 19,42,220/- AND UPHELD THE DISALLOWANCE MADE OF RS. 2,82,500/- UNDER THE CAPITAL GAIN. AGGRIEVED BY THE SAME THE ASSESSEE FILED THE PRESENT APPEAL BEFORE US AGITATING THE DISALLOWANCE MADE U/S 57(III) OF RS 19,42,220/-. 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. 66,83,284/- UNDER THE HEAD INCOME FROM OTHER SOURCES, AGAINST WHICH T HE ASSESSEE CLAIMED DEDUCTION OF RS. 67,92,635/- 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 BORNE BY THE ASSESSEE FOR EARNING INTEREST FROM INVESTMENTS AMOUNTED TO R S. 29,47,668/- AND DISALLOWED THE BALANCE INTEREST EXPENDITURE TO THE TUNE OF RS. 38,44,967/- U/S 57(III) 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 5 -14, ANALYZING THE INTEREST EXPENDITURE INCURRED IN RELATION TO THE MAJOR INTER EST INCOME EARNED FROM FOUR 3 PARTIES I.E. M/S JANPATH STATES P. LTD. RS. 32,19,4 80/-, MRG HOTELS P. LTD. OF RS. 69,28,44/-, M/S NUCHEM DYESSTUFF P. LTD. OF RS.21,3 0,939/- AND SH. VINAY SINGAL OF RS.2,44,931/- AS FOLLOWS: 'THE ASSESSEE HAS CLAIMED INTEREST EXPENDITURE AS A LLOWABLE U/S 5 7(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 INCOME AND EXPENDITURE. A PERUSAL OF BALAN CE SHEET FOR THE YEAR ENDING 31.03.2008 SHOWS THAT AGAINST THESE FUNDS THE ASSES SEE HAS EARNED INTEREST INCOME OF RS.6683284/- AND INTEREST EXPENDITURE OF RS.6792 635/-. IN THE INTEREST INCOME MAJOR INCOME IS COMING FROM 4 PARTIES, I.E. JANPATH ESTATES PVT. LTD. (RS. 3219480/-), MRG HOTELS PVT. LTD. (RS. 692844/-), NUCHEM DYES TUFFS PVT. LTD. (RS.2130939/-) AND VINAY SINGAL (RS.244931/-), ONE BY ONE ANALYSIS OF THESE ACCOUNTS IS AS UNDER:- JANPATH EASTES PVT. L TP. (INTEREST RS.3219480/-) MAJOR INTEREST INCOME IS FROM JANPATH ESTATES PVT. LTD. WHICH IS RS.3219480/- AGAINST TOTAL INTEREST INCOME OF RS.6683284/- WHICH CONSTITUTE APPROXIMATELY 48.17%. A) ACCOUNTS FOR THE PERIOD 01.04.2006 TO 31.03.2007 BALANCE AS ON 12.12.2006 DR. 60881/- QN THIS DATE BALANCE REDUCED LO RS. 60881/- THEREFORE MONEY RECEIVED AFTER THIS DATE HAS BEEN CONSIDERED. PAGE NO. REFER -ENCE NO. I4.03.2U07 2000000/- HDFC (LAP) A/C. NO.2974829 (INTEREST BEARING) 8&28 1 14.03.2007 1600000/- DO - 8&28 2 28.03.2007 2000000/- K. LALL OVERSEAS (INTEREST BEARING) 7 &43 3 31.03.2007 2533288/- INTEREST INCOME 2 4 B) ACCOUNTS FOR THE PERIOD 01.04.2007 TO 31.03.2008 16.08.2007 9000000/- K.LALL OVERSEAS (INTEREST BEAR ING) 11 & 52 5 24.09.2007 1000000/- -DO- 11 & 49 6 31.10.2007 19000000/- -DO- 11 & 53 7 21.11.2007 6000000/- -DO- 12 & 50 8 28.12.2007 14400000/- EASTMAN LMPEX (INTEREST BEARI NG) 14 & 40 9 21.01.2008 1000000/- K. LALL OVERSEAS 12 & 54 10 15.03.2008 1000000/- -DO- 13 & 51 11 24.03.2008 10000000/- -DO- 13 & 55 12 4 ANALYSIS OF THE WHOLE ACCOUNT FOR THE PREVIOUS YEAR 2006-07 IS NOT RELEVANT BECAUSE AS ON 12.12.2006 THE TOTAL DEBIT BALANCE WA S RS.60881/- ONLY. MRG HOTEL PVT. LTD. (INTEREST RS.692844/-) ANALYSIS OF ACCOUNTS DONE FROM 11.05.2006 AS ON THE SAME DATE OPENING BALANCE OF RS.45 LACS IS ADJUSTED. DUE TO THIS REASON ANALY SIS BEFORE F.Y. 2006-07 IS NOT RELEVANT. A) ACCOUNTS FOR THE PERIOD 01.04.2006 TO 31.03.2007 11.05.2006 2500000/- K. LALL OVERSEAS 30.05.2006 1000000/- K. LALL OVERSEAS 31.05.2006 1000000/- K. LALL OVERSEAS 31.05.2006 1000000/- K. LALL OVERSEAS 07.06.2006 300000/- UNIVERSAL BUILDERS AS P ARTNER FROM CAPITAL ACCOUNT 09.06.2006 700000/- UNIVERSAL BUILDERS AS P ARTNER FROM CAPITAL ACCOUNT 04.07.2006 800000/- K. LALL OVERSEAS 10.08.2006 400000/- K. LALL OVERSEAS 17.08.2006 400000/- K. LALL OVERSEAS 03.02.2007 400000/- SWADESHI MFG. SYNDICATE (LO AN) (INTEREST BEARING) 01.03.2007 2500000/- K. LALL OVERSEAS 15.03.2007 300000/- HDFC BANK (LAP) A/C. NO.2 974829 (INTEREST BEARING) B) ACCOUNTS FOR THE PERIOD 01.04.2007 TO 31.03.2008 OPENING BALANCE AS 01.04.2007 DR. 11300000/- 02.04.2007 100000/- OVERDRAFT LIMIT FROM HDFC BANK 15.05.2007 200000/- K. LALL OVERSEAS 16.05.2007 100000/- K. LALL OVERSEAS 01.06.2007 300000/- K. LALL OVERSEAS 09.06.2007 50000/- K. LALL OVERSEAS 28.07.2007 2500000/- K. LALL OVERSEAS 09.11.2007 300000/- K. LALL OVERSEAS 19.11.2007 500000/- SALE OF PLOT AT JODHEWAL NUECHEM DYESTUFFS PVT. LTD. (INTEREST O F RS.2130939 /-) A) ACCOUNTS FOR THE PERIOD 01.04.2005 TO 31.03.2006 OPENING 3150000/- BALANCE 01. 04.2005 5000000/- K. LALL OVERSEAS 04.04.2005 900000/- K. LALL OVERSEAS 06.04.2005 400000/- K. LALL OVERSEAS 08.04.2005 300000/- K. LALL OVERSEAS 18.04.2005 1100000/- SHAKTI BUILDERS (INTEREST FREE) 30.05.2005 1000000/- JANPATH ESTATES 17.08.2005 800000/- K. LALL OVERSEAS 23.09.2005 1450000/- ____________ MRG HOTELS PVT. LTD. (INTEREST BEARING) 24.11.2005 825000/- INDIAN OVERSEAS BANK (LOAN A/C) 25.11.2005 200000/- INDIAN OVERSEAS BANK (LOAN A/C) 5 14.12.2005 600000/- INDIAN OVERSEAS BANK (LOAN A/C) B) ACCOUNTS FOR THE PERIOD 01.04.2006 TO 31.03.2007 C) ACCOUNTS FOR THE PERIOD 01.04.2007 TO 31.03.2008 VINAY SINGAL (INTEREST O F RS. 244931/-) 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 T O ESTABLISH THE NEXUS:- DETAIL OF ACCOUNTS FOR THE F. Y. 2006-07 IS AS UNDE R:- 11.12.2006 2500000/- JANPATH ESTATES 1 & 26 69 15.12.2006 2500000/- JANPATH ESTATES I & 26, 27 70 OPENING BALANCE 8034097/- 05.04.2006 497000/- ASHA KHANNA (INTEREST FREE) 05.07.2006 765000/- CENTURION BANK OF PUNJAB (LOAN A/C.) 07.08.2006 600000/- OVERDRAFT LIMIT FROM HDFC BANK 09.08.2006 300000/- K. LALL OVERSEAS 04.09.2006 1040000/- AMARJIT SINGH (INTEREST FREE) 28.09.2006 1130000/- MAHESH KUMAR GOEL (INTEREST FREE) 04.12.2006 402000/- JANPATH FSLATES 25.12.2006 408000/- JANPATH ESTATES 27.01.2007 505000/- SWADESHI MFG. SYNDICATE (LOAN) (INTEREST BEARING) 12.02.2007 270000/- A.S.T. PAPER MILLS PVT. LTD. (INTEREST BEARING) 28.02.2007 600000/- K. LALL OVERSEAS 28.03.2007 540000/- K. LALL OVERSEAS OPENING BALANCE 13901833 /- 17.04.2007 180000/- MARGO BATTERIES (INTEREST BEARING INTEREST PR OVIDED IN THE PREVIOUS YEAR) 30.04.2007 300000/- K. LALL OVERSEAS 18.05.2007 635000/- K. LALL OVERSEAS 09.07.2007 675000/- MRG HOTEL PVT. LTD. (INTEREST BEARING) 02.08.2007 2800000/- VINAY SINGAL (INTEREST BEARING) 01.09.2007 900000/- K. LALL OVERSEAS 24.10.2007 500000/- K. LALL OVERSEAS 08.11.2007 80000/- K. LALL OVERSEAS 08.01.2008 485000/- OUT OF OWN FUND 16.01.2008 160000/- OUT OF OWN FUND 28.02.2008 2600000/- RS. 300000/- FROM HEENA GOEL (INTEREST EARNING) AND RS. 2300000/- FROM SUNITA GOEL (INTEREST BEARIN G) 28.02.2008 800000/- K. LALL OVERSEAS 04.03.2008 4000000/- K. LALL OVERSEAS 6 ANA YLSIS OF BORROWED FUND THE ASSESSEE HAS TAKEN FUNDS FROM VARIOUS PERSONS T O WHOM INTEREST IS PAID. I.E. EASTMAN IMPEX (RS.448525/-), PAWAN KUMAR GOEL HUF ( RS. 1399380/-), HEENA GOEL (RS.1775/-) , HDFC BANK (RS. 2393729/-) AND K. LALL OVERSEAS (RS.2549226/-). ANALYSIS OF THE ACCOUNTS IS AS UNDER:- EASTMAN IMPEX RS. 448525/- 28.12.2007 14400000/- JUNPATH EASTATES PVT. LTD. PA WAN KUMAR GOEL HVF (RS.1399380/-) 31.03.2006 5000000/- RECEIVED ON 31.03.2006 AND CLE ARED IN THE BANK ON 11.04.2006 AND THEN GIVEN TO K.LALL OVERSEAS 31.03.2006 5000000/- RECEIVED ON 31.03.2006 AND CLE ARED IN THE BANK ON 11.04.2006 AND THEN GIVEN TO K.LALL OVERSEAS 31.03.2006 400000/- RECEIVED ON 31.03.2006 AND CLEA RED IN THE BANK ON 11.04.2006 AND THEN GIVEN TO K.LALL OVERSEAS 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 K. LALL OVERSEAS (RS.2549226/-) 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. ( SEE PAGE NO.9 TO 13) HDFC BANK (RS.2393729/-) THE ASSESSEE HAS TAKEN VARIOUS LOANS FROM HDFC BANK ALONG WITH LOANS FROM CENTURION BANK. 1CICI BANK AND ALLAHABAD BANK. INTE REST PAID IN VARIOUS ACCOUNTS IS AS UNDER:- - HDFC BANK A/C. NO. 1760155 860865/- - HDFC BANK A/C. NO. 2974829 666265/- - HDFC BANK A/C. NO. 2617949 263163/- - CENTURION BANK 366333/- - ICICIBANK 54155/- - HDFC BANK AND ALLAHABAD BANK 182948/- ------------- TOTAL: - 2393729/- ========= ANALYSIS O F A/C. NO.2974829 THE ASSESSEE HAS TAKEN LOAN FROM HDFC BANK ON 05.03 .2007 OF RS.25 LACS AND 12.03.2007 OF RS. 37.50 LACS (SEE REFERENCE NO. 75 & 76 ON PAGE NO. 123 & 28). OUT OF RS.25 LACS, RS.22 LACS GIVEN TO K. LALL OVERSEAS (SEE REFERENCE NO.77 ON PAGE NO.6 & 28) AND OUT OF RS.37.50 LACS, RS.36 LACS GIVEN TO JANPA TH ESTATES (SEE REFERENCE NO. 78 ON PAGE NO.L & 28) ANALYSIS O F A/C. NO. 1760155 THE ASSESSEE HAS TAKEN RS.6217065/- ON 30.08.2005 A ND RS.37.50 LACS ON 26.09.2005 (SEE REFERENCE NO.79 & 80 ON PAGE NO. 124 &94) O UT OF RS.6217065/-, RS.40 LACS GIVEN TO JANPATH ESTATES (SEE REFERENCE NO.81 ON PA GE NO.94 & 77) AND RS.20 LACS GIVEN TO MRG HOTELS PVT. LTD (SEE REFERENCE NO .82 ON PAGE NO. 78 & 94) 7 ANALYSIS O F A/C. NO. 2617949 THE ASSESSEE HAS TAKEN RS.25 LACS ON 30.06.2006 (SEE REFERENCE NO.83 ON PAGE NO. 123 & 24) AND OUT OF THIS RS.20 LACS GIVEN TO K. LALL OVERSEAS (SEE REFERENCE NO.84 ON PAGE NO.24 & 3) ANALYSIS O F A/C. O F CENTURION BANK THE ASSESSEE HAS TAKEN RS.40 LACS ON 03.07.2006 (SEE REFERENCE NO.45 ON PAGE NO.84 & 24) THESE FUNDS HAVE BEEN USED AGAINST NUCHEM DYESTUFF, K . LALL OVERSEAS AND JANPATH ESTATES. 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. 19,42,220/- BY HOLDIN G 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 - MAY - JUNE - JULY - AUGUST 53,13,354/- SEPTEMBER 53,82,155/- OCTOBER 55,72,604/- NOVEMBER 63,22,368/- DECEMBER 53,70,412/- JANUARY 1,11,80,920/- FEBRUARY 91,95,587/- MARCH 1,65,98,353/- TOTAL 6,49,35,753/- ON THIS BASIS THE TOTAL EXCESS INTEREST BEARING BOR ROWED FUNDS FROM APRIL, 2007 TO MARCH, 2008 WORKED OUT TO RS.6,49,35,753/-. ON AN A VERAGE, 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 6,49,35,753/- FOR A PERIOD OF ONE MONTH. THE INTEREST ON THESE EXCESS BORROWED FU NDS @ 12% PER ANNUM WORKS OUT TO RS.6,49,355/-. IT IS HELD THAT THIS INTEREST EXPENDITURE AMOUNTING TO RS. 6,49,355/- - WAS INCURRED BY THE APPELLANT NOT FOR EARNING INTEREST INCOME BUT WAS DEPLOYED FOR OTHER PURPOSES AND IS THEREFORE NOT AL LOWABLE U/S 57(III) OF THE INCOME TAX ACT. 8 (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 INTEREST DEBITED ON 31.3.2007 01.04.2007- 31.03.2008 2533288 303995 INTEREST DEBITED. MRG HOTEL PVT. LTD. 19.11.2007 19.1 1.2007- 31.03.2008 5.00 LACS 21863 SALE OF PLOT AT JODHEWAL -DO- 07.06.2006 01.04.2007- 31.03.2008 3.00 LACS 36000 UNIVERSAL BUILDERS AS PARTNER FROM CAPITAL ACCOUNT -DO- 09.06.2006 01.04.2007- 31.03.2008 7.00 LACS 84000 UNIVERSAL BUILDERS AS PARTNER FROM CAPITAL ACCOUNT NUCHEM DYESTUFFS PVT . LTD. OPENING BALANCE 01.04.2007- 31.03.2008 3150000 378000 OPENING BALANCE NOT SOURCED FROM BORROWED FUNDS. -DO- 18.04.2005 01.04.2007- 31.03.2008 1 1.00 LACS 132000 SHAKTI BUILDERS (INTEREST FREE) -DO- 05.04.2006 01.04.2007- 31.03.2008 497000 59640 ASHA KHANNA (INTEREST FREE) -DO- 04.09 2006 01.04.2007- 31.03.2008 1040000 124800 AMARJEEET SINGH (INTEREST FREE) -DO- 28.09.2006 01.04.2007- 31.03.2008 1130000/- 135600 MAHESH KUMAR GOEL (INTEREST FREE) -DO- 08.01.2008 08.01.2008- 31.03.2008 485000 13075 OUT OF OWN FUNDS -DO- 16.01.2008 16.01.2008- 31.03.2008 160000 3892 OUT OF OWN 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. 12,92,865/-. T HUS, THE TOTAL DISALLOWANCE IN THIS CASE IS WORKED OUT AT RS. 19,42,220/-. 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 9 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 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 19-20 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 INTEREST DEBITED ON 31.3.2007 01.04.2007- 31.03.2008 2533288 303995 INTEREST DEBITED. MRG HOTEL PVT. LTD. 19.11.2007 19.11.2007- 31.03.2008 5.00 LACS 21863 SALE OF PLOT AT JODHEWAL -DO- 07.06.2006 01.04.2007- 31.03.2008 3.00 LACS 36000 UNIVERSAL BUILDERS AS PARTNER FROM CAPITAL ACCOUNT -DO- 09.06.2006 01.04.2007- 31.03.2008 7.00 LACS 84000 UNIVERSAL BUILDERS AS PARTNER FROM CAPITAL ACCOUNT NUCHEM DYESTUFFS PVT. LTD. OPENING BALANCE 01.04.2007- 31.03.2008 3150000 378000 OPENING BALANCE NOT SOURCED FROM BORROWED FUNDS. -DO- 18.04.2005 01.04.2007- 11.00 LACS 132000 SHAKTI BUILDERS (INTEREST FREE) 10 31.03.2008 -DO- 05.04.2006 01.04.2007- 31.03.2008 497000 59640 ASHA KHANNA (INTEREST FREE) -DO- 04.09 2006 01.04.2007- 31.03.2008 1040000 124800 AMARJEEET SINGH (INTEREST FREE) -DO- 28.09.2006 01.04.2007- 31.03.2008 1130000/- 135600 MAHESH KUMAR GOEL (INTEREST FREE) -DO- 08.01.2008 08.01.2008- 31.03.2008 485000 13075 OUT OF OWN FUNDS -DO- 16.01.2008 16.01.2008- 31.03.2008 160000 3892 OUT OF OWN FUNDS TOTAL 12,92,865 13. THEREFORE, IN THE SETTING OF SUCH FACTS, INTERE ST TO THE EXTENT OF RS. 12,92,865/- 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. 6,49,3 55/- 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 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. 12,92,865/-. 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