ACIT, New Delhi V. M/s. Sahdev Jewellers, New Delhi

ITA 3517/DEL/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3742 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 25-01-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 10-08-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B KISHORE
• Assessee Lawyers: N O N E

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH G DELHI ] BEFORE SHRI R. P. TOLANI, JM AND SHRI K. D. RANJ AN, AM I. T. APPEAL NO. 3517 (DEL) OF 2009. ASSESSMENT YEAR : 2006-07. ASSTT. COMMISSIONER OF INCOME-TAX, M/S. SAHDEV JEWELLERS, CIRCLE : 33 (1), VS. 2459/09/10 [2 ND FLOOR]; N E W D E L H I. GURUDWARA ROAD, KAROL BAGH , N E W D E L H I. PAN / GIR NO. AAL FS 0015 Q. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : N O N E; DEPARTMENT BY : SHRI B. KISHORE, SR. D. R. O R D E R. PER K. D. RANJAN, AM : THIS APPEAL BY THE REVENUE FOR ASSESSMENT YEAR 200 6-07 ARISES OUT OF ORDER OF THE LD. CIT (APPEALS)XXVI, NEW DELHI. NONE APPEARED ON BEHALF OF THE ASSESSEE. HOWEVER, HAVING REGARD TO THE ISSUE INVOLVED, THE APPEAL IS DECIDED AFTER HEARING THE LD. SR. DR. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READ AS FOLLOWS :- THE LD. CIT (APPEALS) HAS ERRED IN ALLOWING NETTING OF INTEREST PAID TO BANKS ON LOANS FOR BUSINESS PURPOSES AGAINST THE INTEREST EARNED ON FDR, WHICH IS INCOME FROM OTHER SOURCES. 3. THE ONLY ISSUE FOR CONSIDERATION RELATES TO DELE TING THE ADDITION ON ACCOUNT OF INTEREST EARNED ON FDRS. THE FACTS OF THE CASE STATED IN BR IEF ARE THAT THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND EXPORT OF GOLD JEWELLER Y FROM SEZ, NOIDA. THE ASSESSEE OBTAINED CREDIT FACILITIES FROM THE BANK FOR THE PURPOSE OF BUSINESS. THE ASSESSEE EARNED INTEREST NOVA SCOTIA AT RS.30,67,160/- AND BANK INTEREST OF RS.24 ,05,940/-. THE ASSESSING OFFICER ASSESSED THE 2 I. T. APPEAL NO. 3517 (DEL) OF 2009. INTEREST INCOME ON FDRS. AMOUNTING TO RS.54,73,100/ - UNDER THE HEAD OTHER SOURCES, WHICH WAS CLAIMED EXEMPT UNDER SECTION 10-A OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS SUBMITTED BY THE ASSESSEE THAT I N ORDER TO HAVE FIXED DEPOSIT WITH THE BANK ON ACCOUNT OF MARGIN MONEY WAS PART OF EXPORT BUSINESS ON WHICH THE ASSESSEE FIRM GOT INTEREST AND ON THE OTHER HAND, THE ASSESSEE FIRM PAID INTEREST ON CREDIT FACILITIES AVAILED BY THE ASSESSEE ON THE BASIS OF FIXED DEPOSITS. THE ASSESSING OFFICER HOWEVER WAS OF THE VIEW THAT THE CREDIT FACILITIES OBTAINED WERE FOR THE PURPOSE OF BUSINES S WHEREAS INTEREST EARNED ON FDRS. WAS TO BE ASSESSED UNDER THE HEAD OTHER SOURCES. THEREFORE , NETTING OF INTEREST WAS NOT PERMISSIBLE. 4. ON APPEAL THE LD. CIT (APPEALS) RELYING ON THE O RDER OF THE ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2003-04 HELD THAT INTEREST PAID TO BANK SHOULD BE ALLOWED TO BE NETTED AGAINST INTEREST RECEIVED FROM THE BANK. HE, THERE FORE, ALLOWED THE APPEAL OF THE ASSESSEE. 5. BEFORE US THE LD. SR. DR FOR THE REVENUE SUBMITT ED THAT THE ASSESSEE HAD OBTAINED BANK LOAN FOR THE PURPOSE OF BUSINESS. THEREFORE, INTER EST PAID HAS NO NEXUS WITH THE INTEREST EARNED ON FDRS. AND HENCE NETTING OF INTEREST EARNED ON FD RS. CANNOT BE ALLOWED AGAINST INTEREST PAID FOR THE PURPOSES OF BUSINESS. HE PLACED RELIANCE O N THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. DELHI BRASS & METAL WORKS LTD. 313 ITR 352 (DEL.) AND THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. AS IAN STAR CO. LTD. 326 ITR 56 (BOM). 6. WE HAVE HEARD THE LD. SR. DR AND GONE THROUGH TH E MATERIAL PLACED ON RECORD CAREFULLY. HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SRI RAM HONDA POWER EQUIP 375 ITR 289 (DEL.) HAS HELD THAT IF THERE IS NEXUS BETWEEN THE INTEREST PAID ON THE BORROWED FUNDS AND THE INTEREST EARNED ON FDRS, THEN NETTING OF INTEREST S HOULD BE ALLOWED. HONBLE DELHI HIGH COURT IN THE CASE OF DELHI BRASS & METAL WORKS LTD. (SUPR A) HAS HELD THAT INTEREST EARNED ON FIXED DEPOSITS DID NOT HAVE ANY IMMEDIATE NEXUS WITH THE EXPORT BUSINESS AND THE INTEREST EARNED WOULD HAVE TO BE TREATED AS INCOME FROM OTHER SOURC ES. THE ASSESSEE COULD NOT BE ALLOWED TO ADJUST BY WAY OF EXPENDITURE INTEREST PAID TO THE B ANK ON OVER-DRAFT FACILITIES AGAINST THE INTEREST RECEIVED BY IT ON FIXED DEPOSITS KEPT WITH THE BANK AS THIS WAS NOT EXPENDITURE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF EARNING INTERES T ON FIXED DEPOSITS. IN THE CASE BEFORE US, THE 3 I. T. APPEAL NO. 3517 (DEL) OF 2009. LD. CIT (APPEALS) HAS NOT EXAMINED THE ISSUE WHETHE R THE INTEREST PAID BY THE ASSESSEE HAD ANY NEXUS FOR EARNING THE INTEREST ON FDRS. THE AO HAD TREATED THE INTEREST INCOME UNDER THE HEAD OTHER SOURCES ON THE GROUND THAT THERE WAS NO NEX US BETWEEN THE EARNING OF INTEREST AND INTEREST PAID BY THE ASSESSEE. THE AO HAD ALSO NOTED THAT B ORROWING OF FUNDS WAS NOT DONE TO EARN INTEREST ON FDRS. THE BORROWING WAS DONE PRIMARILY TO ENJOY CREDIT FOR 360 DAYS. THEREFORE, THERE WAS NO NEXUS BETWEEN THE INTEREST EARNED ON F DRS. AND INTEREST PAID ON BORROWED FUNDS. THE ASSESSEES CASE IS, THEREFORE, SQUARELY COVERED BY THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF DELHI BRASS & METAL WORKS LTD. (SUPR A). WE, THEREFORE, SET ASIDE THE ORDER OF THE LD. CIT (A) AND RESTORE THE ORDER OF THE ASSESSING OFFICER. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 10 TH JUNE, 2011. SD/- SD/- [ R. P. TOLANI ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 10 TH JUNE, 2011. *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT. 4 I. T. APPEAL NO. 3517 (DEL) OF 2009.