JIMMY B. PARIKH, MUMBAI V. ITO 18(2)(1), MUMBAI

ITA 3719/MUM/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2676 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2011-2012
• Appeal Filed On: 27-05-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Commercial expediency; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H , MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI N.K. PRADHAN , HON'BLE ACCOUNTANT MEMBER ITA NO. 3719 /MUM/201 6 (A.Y: 2011 - 12) SHRI JIMMY BHASKAR PARIKH 4302, B WING, LODHA BALLISSIMMO, N.M. JOSHI MARG, APPOLLO MILL COMPOUND, MAHALAKSHMI, MUMBAI 400 011 PAN: AFUPP 4721 Q V. INCOME TAX OFFICER 18(2)(1) C - 10, 7 TH FLOOR, PRATYAKSHKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA(E), MUMBAI 400 051 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAJEN DAMANI DEPARTMENT BY : SHRI MANOJ KUMAR SINGH DATE OF HEARING : 07.08.2018 DATE OF PRONOUNCEMENT : 31 . 10 .2018 O R D E R PER C. N. PRASAD (JM) 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 33, MUMBAI [HEREINAFTER IN SHORT LD.CIT(A)] DATED 29.03.2016 F OR THE ASSESSMENT YEAR 2011 - 12. 2. THE ONLY ISSUE IN THE APPEAL OF THE ASSESSEE IS WITH REGARD TO DISALLOWANCE O F INTEREST PAID ON OVERDRAFT. 2 ITA NO.3719/MUM/2016 (A.Y: 2011 - 12) SHRI JIMMY BHASKAR PARIKH 3. BRIEFLY STATED TH E FACTS ARE THAT, THE ASSESSEE FILED RETURN OF INCOME DECLARING INCOME OF .9,96,510/ - . THE ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE ACT ON 27.03.2014 DETERMINING THE INCOME AT .2,68,04,910/ - . WHILE COMPLETING THE ASSESSMENT THE ASSESSING OFFICER DISAL LOWED I NTEREST ON OVER DRAFTS OF .28,7 0,697/ - . THE ASSESSEE EARNED INTEREST OF .33,91,510/ - FROM FIXED DEPOSITS AND ALSO INCURRED INTEREST ON OVER DRAFTS AT .28,70,697/ - , IN THE RETURN OF INCOME FILED , THE ASSESSEE REDUCED THE INTEREST PAID ON OVERDRAFT FROM THE INTEREST EARNED ON FIXED DEPOSITS AND THE NET INCOME OF .5,20,813/ - WAS OFFERED UNDER THE HEAD INCOME FROM OTHER SOURCES . IT WAS THE CONTENTION OF THE ASSESSEE THAT INTEREST EARNED ON INTERE STS IS FULLY OFFERED FOR TAX AFTER DEDUCTING THE INTEREST PAID ON OVERDRAFT , NET INTEREST IS OFFERED FOR TAX. THE FIXED DEPOSITS ARE MADE OUT OF SALE PROCEEDS OF SHARES SOLD IN FINANCIAL YEAR 2008 - 09 . THE I NTEREST ON OVER DRAFT WAS USED FOR ACQUIRING RESI DENTIAL FLAT. IN CASE THE ASSESSEE HAD NOT AVAILED THE OVERDRAFT ON FIXED DEPOSITS HE WOULD HAVE ENCASHED THE FIXED DEPOSITS TO PAY FOR THE PROPERTY AND IN THAT CASE THE NET INTEREST INCOME WOULD HAVE BEEN LOWER. NOT CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE THE ASSESSING OFFICER DISALLOWED THE INTEREST ON FIXED DEPOSITS IN TERMS OF PROVISIONS OF SECTION 57 OF THE ACT. ON APPEAL THE LD.CIT(A) SUSTAINED THE DISALLOWANCE AGAINST WHICH THE A SSESSEE IS IN APPEAL BEFORE US. 3 ITA NO.3719/MUM/2016 (A.Y: 2011 - 12) SHRI JIMMY BHASKAR PARIKH 4. LD. COUNSEL FOR THE ASSESSEE R EITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. IT WAS FURTHER SUBMITTED THAT INTEREST ON OVERDRAFT WAS INCURRED BY THE ASSESSEE TO PROTECT THE SOURCE OF INCOME I.E. THE FIXED DEPOSITS AND IT IS A COMMERCIAL EXPEDIENCY. HE PLACED RELIANCE ON THE DECISION OF THE AGRA BENCH IN THE CASE OF RAJKUMAR AGARWAL V. DCIT IN ITA.NO. 176/ AGRA/2013 DATED 18.07.2014 IN SUPPORT OF HIS CONTENTION. 5. LD. DR VEHEMENTLY SUPPORTED THE ORDERS OF THE AUTHORITIE S BELOW. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E ORDERS OF THE AUTHORITIES BELOW. THE ASSESSING OFFICER DISALLOWED THE INTEREST PAID ON OVERDRAFTS AS HE WAS OF THE VIEW THAT THE EXPENDITURE WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE E ARNING THE INTEREST INCOME AND T HEREFORE THE CLAIM OF T HE ASSESSEE FOR REDUCING THE INTEREST PAID ON OVERDRAFT AGAINST INTEREST EARNED ON FIXED DEPOSITS WAS DENIED. THIS ACTION OF THE ASSESSING OFFICER WAS SUSTAINED BY THE LD.CIT(A) AGREEING WITH THE VIEW OF THE ASSESSING OFFICER BY HOLDING AS UNDER: - 11. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT BUT FIND NO MER IT IN IT. THERE IS , NO DISPUTE THAT THE INTEREST INCOME EARNED F ROM THE FIXED DEPOSIT OF RS, 33, 91 , 510/ - IS TO BE TAXED AS 'INCOME FROM OTHER SOURCES'. IN THIS REGARD, I FIND THAT SECTION 57( III) OF THE I. T. ACT PROVIDES AS UNDER: 'THE INCOME CHARGEABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCES' IS TO BE COMPUTED AFTER MAKING THE FOLLOWING DEDUCTIONS, NAMELY (I) XXXXX (IA) XXXXX 4 ITA NO.3719/MUM/2016 (A.Y: 2011 - 12) SHRI JIMMY BHASKAR PARIKH ( I I) XXXXX (II A ) XXXXX (III) ANY OTHER EXPENDITURE ( NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE) OUT OR EXPENDED WHOLLY ANY EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. IT IS CLEAR FROM THE PLAIN READING OF THE AFORESAID PROVISIONS THAT ONLY THOSE EXPENDITURE, WHICH ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING SUCH INCOME, ARE ADMISSIBLE DEDUCTION ON COMPUTATION OF INCOME UNDER THE' HEAD 'INCOME F R OM OTHER SOURCES'. PARTICULAR ATTENTION IS REQUIRED WITH RESPECT TO THE WORDS 'WHO LLY AND EXCLUSIVELY' AND 'SUCH INCOME' . 12 . THE QUESTION TO BE DECIDED HERE IS WHETHER INTEREST PAID ON OVERDRAFT OF . 28,7 0 ,697/ - CAN BE SAID TO HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING SUCH INCOME I.E. INTEREST INCOME FROM THE FIXED DEPOSIT. THE AO HAS TAKEN THE VIEW THAT INTEREST PAID ON OVERDRAFT CANNOT BE SAID TO BE INCURRED 'WHOLLY AND EXCLUSIVELY' FOR THE PURPOSE OF EARNING INTEREST INCOME FROM THE FIXED DEPOSIT. ON THE. OTHER HAND, THE CLAIM OF THE APPELLANT IS THAT IN THE INSTANT CASE, HAD THE BANK FIXED DEPOSIT S WERE ENCASHED & OVERDRAFT NOT AVAILED, THERE WOULD NOT BE ANY TAXABLE INTEREST AS ON ENCASHMENT OF FDS, NO INTEREST WOULD ACCRUE. THIS IS IRRESPECTIVE OF THE FACT THAT THE FUNDS FROM OVERDRAFT WERE UTILISED FOR THE ACQUISITION OF THE FLAT, 13. IN THE INS TANT CASE, THE FIXED DEPOSITS WERE MADE OUT OF SALES PROCEEDS OF EQUITY SHARES SOLD BY THE APPELLANT IN F.Y. 200 8 - 2009 RELEVANT TO A.Y. 2009 - 10. THE OVERDRAFT FACILITIES WERE UTILIZED AS & WHEN THE PAYMENTS FOR ACQUISITION OF THE FLATS WERE MADE. AS - SUCH, DURING TH E YEAR, TOTAL PAYMENT OF RS. 28,70, 697/ - WAS MADE TO THE BANK AGAINST THIS OVERDRAFT FACILITY. THUS FROM THE FACTS OF THE CASE, IT IS VERY CLEAR THAT THE OVERDRAFT FACILITY WAS TAKEN FOR ACQUISITION OF THE FLAT AND HENCE THE ACT OF USING OVERDRAFT FACILITY AND PAYMENT OF INTEREST THEREIN CANNOT BE CONSIDERED TO BE INCURRED 'WHOLLY AND EXCLUSIVELY' FOR THE PURPOSE OF PURCHASE OF THE FIXED DEPOSIT, EARNING OF INTEREST FROM IT OR EVEN KEEPING ALIVE THAT SOURCE OF INCOME. ONCE THE MAKING OF FIXED DEPOS ITS PRECEDED THE SANCTION OF OVERDRAFT FACILITY AND THE APPELLANT IS MAKING HUGE TAX FREE GA IN BY SELLING VARIOUS SCRIPTS IN DIFFERENT YEARS, THE CLAIM OF THE APPELLANT THAT HAD THE BANK FIXED DEPOSITS WERE ENCASHED & OVERDRAFT NOT AVAILED, THERE WAS NO TA XABLE INTEREST, AS ON ENCASHMENT OF FDS. NO INTEREST WOULD ACCRUE. SUCH CLAIM HAS NO BASIS AS SUBSEQUENT TO MAKING THE FDS THE APPELLA NT HAD SUFFICIENT CASH BALANCE FOR ACQUIRING THE FLAT IT IS ALSO HIGHLIGHTED BY THE AO THAT EVEN IN THE YEAR UNDER CONSIDE RATION THE APPELLANT HAD GIVEN LOANS AND ADVANCES TO THE TUNE OF RS 2,03, 24,574/ - ON WHICH NO INTEREST INCOME IS OFFERED. 14. APART FROM THAT IN PARA 7.6 OF THE SUBMISSION , THE APPELLANT H AS GIVEN AN EXAMPLE TO JUSTIFY H IS STAND. HOWEVER, THE CLAIM IS ERRONEOUS. HON'BLE ITAT, MUMBA I BE NCH IN THE CASE OF LUPIN LTD., M UMBAI VS ACIT IN ITA NO. 4061/M UM/2011 DATED 17.02.2016 HAS CLEARLY HELD IN THE CONCLUDING PARAGRAPH THAT 'HOWEVER, EVEN GRANTING DEDUCIBILITY , THE PARAMETERS OF SECTION 57(III) DO NOT ADMIT OF EXPENDITURE BEING INCURRED TO SUSTAIN A PREDETERMINED LOSS, WHICH AGAIN POINTS TO THE EXPENDITURE BEING INVOLUNTARY - ANOTHER ASPECT OF 5 ITA NO.3719/MUM/2016 (A.Y: 2011 - 12) SHRI JIMMY BHASKAR PARIKH THE MATTER EMPHASIZING ITS' NON - DEDUCTIBILITY. THE DEDUCTION FOR INTEREST PAID WOULD THUS BE LIMITED TO THE QUANTUM OF INTEREST RECEIVED ON THE LIKE (PRINCIPAL) AMOUNT FOR THE SAME PERIOD, DEFINED AS FROM A PARTICULAR DATE TO A PARTICULAR DATE.' FROM THE ABOVE, IT EMERGES THAT IF THE EXPENDITURE IS PRE DETERMINED AND INVOLUNTARY, IT WILL BE INADMISSIBLE U/S 5 7(III). MOREOVER, THE DEDUCTION FOR INTEREST PAID WOU LD BE RESTRICTED TO THE QUANTUM OF INTEREST RECEIVED ON THE LIKE (PRINCIPAL) AMOUNT FOR THE SAME PERIOD . IN THE INSTANT CASE, PAYMENT OF INTEREST ON OVERDRAFT IS PREDETERMINED, INVOLUNTARY AND DETRIMENTA L TO THE EARNING OF THE INTEREST ON FD. MOREOVER, WHILE THERE IS NO MATCHING CONCEPT AS FAR AS PRINCIPAL AMOUNT AND THE PERIOD ARE CONCERNED FOR TH E PURPOSE OF INTEREST EARNED AND INTEREST PAID. WHILE INTEREST IS EARNED FOR THE ENTIRE FD FOR THE WHOLE YEAR , INTEREST HAS BEEN INCURRED FOR RELATIVELY SMALLER WITHDRAWALS FROM OVERDRAFT FACILITY & FOR A LIMITED PERIOD OF THE YEAR, RESULTING INTO POSITIVE INTEREST AMOUNT. 15. THE APPELLANT HAS RELIED UPON THE JUDGMENT OF HON'BLE ITAT, AGRA BENCH IN THE CASE OF R AJKUMAR AGARWAL VS DCIT IN ITA NO. 176/AGRA/2013 DATED 18 TH JULY, 2014 ON CAREFULLY READING OF THE JUDGMENTS, I FIND THE FACTS ARE DISTINGUISHABLE AS IN THAT CASE THE PREDOMINANT FEATURE AS NOTICED BY T HE HON'BLE BENCH WAS THAT THE FD R WAS PURCHASED AT THE INTEREST RATE OF 11.10% WHILE 'AT THE TIME OF TAKING THE LOAN, THE INTEREST RATE WAS 8.5% AND THE INTENTION OF THE ASSESSEE IN NOT ENCASHING THE FD R WAS TO SAVE HIGHER INTEREST RATE. IN THE INSTANT CASE, THE INTEREST RATES ON OVERDRAFT WERE HIGHER AS COMPARED TO THE FDS. MOREOVER, AS ALREADY STATED EARLIER, IN THE INSTANT CASE, THE APPELLANT WAS NEVER SHORT OF MONEY THAT REQUIRES OVERDRAFT FROM BANK FOR INSTALLMENT PAYMENTS FOR BANK. AS MENTIONED IN THE PRECEDING PARAGRAPH, DURING THE YEAR UNDER CONSID ERATION, THE APPELLANT HAD AMPLE SURPLUS MONEY AVAILABLE WITH HIM SO THAT HE OFFERED INTEREST FREE LOANS AN D ADVANCES TO THE TUNE OF RS 2,03,24,574/ - , APART FROM THAT, I RESPECTFULLY DISAGREE WITH THE FOLLOWING OBSERVATION OF THE HON'BLE TRIBUNAL IN THE AF ORESAID CASE THAT '18. IT IS THUS CLEAR THAT AS LONG AS THE EXPENSE IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING AN INCOME, EVEN IF IT IS NOT NECESSARY FOR EARNING THAT INCOME, IT SHALL STILL BE DEDU CTIBLE IN COMPUTATION OF INCOME ' IN MY H UMBLE OPINION, THE AFORESAID OBSERVATION IS CONTRARY TO THE EXPRESSED PROVISIONS OF SECTION 57(III) AS WELL DECISIONS RENDE RED IN THE CASES OF HON'BLE MUM BAI TRIBUNAL IN LUPIN LTD., MUMBAI VS ACIT (SUPRA) AND HON'BLE GUJARAT HIGH COURT IN VIRMAT I RAMAKRISH NA VS CIT (1981) 131 ITR 659. THE HON'BLE GUJARAT HIG H COURT IN VIRMAT I RAMAKRISHNA (SUPRA) HAS CLEARLY HELD AS UNDER: - '(3) THE EXPENDITURE MUST HAVE BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING 'INCOME FROM OTHER SOURCES'. (4) THE PURPOSE OF MAKING AND EARNING SUCH INCOME MUST BE THE PURPOSE FOR WHICH THE EXPENDI TURE MUST HAVE BEEN INCURRED, TH AT IS TO SAY, THE EXPENDITURE SHOULD NOT HAVE BEEN INCURRED FOR SUCH PURPOSE AS ALSO FOR ANOTHER PURPOSE, OR FOR ANY MIXED PURPOSE. (5) THE DISTINCTION BETWEEN PURPOSE AND MOTIVE MUST ALWAYS BE BORNE IN M IND IN THIS CONNECTION, FOR, WHAT IS RELEVANT IS THE MANIFEST AND IMMEDIATE 6 ITA NO.3719/MUM/2016 (A.Y: 2011 - 12) SHRI JIMMY BHASKAR PARIKH PURPOSE AND NOT THE MOTIVE OR PERSONAL CONSIDERATIONS WEIGHING THE MIND OF THE ASSESSES IN INCURRIN G THE EXPENDITURE.' FROM THE ABOVE IT IS APPARENT THAT THE EXPENDITURE MUST BE INCURRED FOR EARNING SUCH INCOME I.E., THE INCOME IN QUESTION UNDER INCOME FROM OTHER SOURCES AND NOT ANY INCOME, AS SUGGESTED BY THE HON'BLE TRIBUNAL, AGRA BENCH IN THE CASE OF RAJKUMAR AGARWAL VS DCIT (SUPRA). 16. I T ALSO FIND THAT THE ISSUE UNDER CONSIDERATION IS COVERED BY THE RECENT DECISION OF HON'BLE KERALA HIGH COURT IN THE CASE OF MALANKARA PLANTATION LTD. VS AC I T (2016) 236 TAXMAM 61 (KERALA). THE HON'BLE HIGH COURT HAS CLEARLY HELD IN PARA 6 AS UNDER; 'THE INCOME IN QUESTION WAS RETURNED AS INCOME FROM OTHER - SOURCES. WHEN AN INCOME HAS BEEN RETURNED AS INCOME FROM OTHER SOURCES, ONE OF THE HEAD OF INCOME PROVIDED IN SECTION 40, DEDUCTION CAN ALSO BE ONLY UNDER THE PROV ISIONS IN THE SAME HEAD OF INCOME. THEREFORE, IN RESPECT OF INCOME FROM OTHER SOURCES, DEDUCTION OF INCOME IS PERMISSIBLE ONLY U NDER SECTION 57, SUB SECTION (III ) OF WHICH PROVIDES FOR DEDUCTION UNDER ANY OTHER EXPENDITURE (BEING IN THE NATURE OF CAPITAL EXPENDITURE) LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. EVIDENTIALLY, THE PROVISION IS NOT ATTRACTED IN THE CAS E IN QUESTION AND, THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY DECLINED THE. CLAIMS OF THE ASSESSEE.' 17. IN THE LIGHT OF DISCUSSION MADE IN THE PRECEDING PARAGRAPHS AND RESPECTFULLY FOLLOWING THE AFORESAID JUDGMENTS, I AM OF CONSIDERED O PINION THAT THE A O HAS RIGHTLY DISALLOWED EXPENSES OF RS. 28,70,697/ - AS CLAIMED U/S 57(III) OF THE ACT AND HENCE THE ADDITION IS CONFIRMED. THUS GROUND OF APPEAL NO. 2 IS DISALLOWED. 7. ON A CAREFUL PERUSAL OF THE ORDER OF THE LD.CIT(A) WHO HAS CONSIDERED THE DECISION OF TH E ITAT AGRA BENCH IN THE CASE OF RAJKUMAR AGARWAL V. DCIT (SUPRA), DECISION OF THE MUMBAI BENCH IN THE CASE OF LUPIN LIMITED V. ACIT IN ITA.NO. 4061/MUM/2011 DATED 17.02.2016 AND THE DECISION OF THE HON'BLE KERALA HIGH COURT IN THE CASE OF MALANKARA PLANTATION LTD. V. ACIT (SUPRA), CONCLUDED THAT THE EXPENSES INCURRED BY THE ASSESSEE ON OVERDRAFT ACCOUNT IS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING INTEREST INCOME AND THEREFORE NOT ALLOWABLE AS DEDUCTION U/S. 57(III) OF THE ACT. THE ORDER PASSED BY THE LD.CIT(A) IS A 7 ITA NO.3719/MUM/2016 (A.Y: 2011 - 12) SHRI JIMMY BHASKAR PARIKH WELL - REASONED ORDER AND DO NOT CALL FOR ANY INTERFERENCE. THUS, WE SUSTAIN THE ORDER OF THE LD.CIT(A) AND REJECT THE GROUND RAISED BY THE ASSESSEE. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 31 ST OCTOBER , 2018 SD/ - SD/ - ( N.K. PRADHAN ) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI / DATED 31 / 10 / 2018 GIRIDHAR , S R. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER (ASSTT. REGISTRAR) ITAT, MUM