Shri Kaushikbhai Nandubhai Patel,HUF, Ahmedabad V. The ACIT.,Circle-7, Ahmedabad

ITA 3797/AHD/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9114 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 08-12-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 21-11-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Business expenditure; Opportunity of being heard; Earning of tax free income; Source of fund; Capital expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : C BENCH : AHMEDABAD (BEFORE HONBLE SHRI G.D. AGRAWAL, V.P.(AZ) & HON'BLE SHRI T.K. SHARMA, J.M.) I.T.A. NO. 3797/AHD./2008 ASSESSMENT YEAR : 2005-2006 KAUSHIKBHAI NANDUBHAI PATEL HUF -VS.- ASSI STANT COMMISSIONER OF INCOME TAX, AHMEDABAD (PAN : AAAHP 7401 E) CIRCLE-7, AHMEDAB AD (APPELLANT) (RESP ONDENT) APPELLANT BY : SHRI S.N. SOPARKAR RESPONDENT BY : SHRI K. MADHUSUDAN, 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 16.09.2008 OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-XI, AHMEDABAD FOR THE ASSESSMENT YEAR 2005-06. 2. BRIEFLY STATED THE FACTS ARE THAT FOR THE ASSESS MENT YEAR UNDER APPEAL, THE ASSESSEE HUF FILED THE RETURN OF INCOME ON 24.08.2005 DECLARING TOTAL INCOME OF RS.4,65,340/-. THIS INCOME WAS DERIVED FROM HOUSE PROPERTY AND SHORT-TERM CAPI TAL GAIN. THE ASSESSEE ALSO HAS SHOWN LOSS UNDER THE HEAD INCOME FROM OTHER SOURCES AT RS.46 ,876/-. ON VERIFICATION OF DETAILS, THE ASSESSING OFFICER OBSERVED THAT AS PER ANNEXURE ATT ACHED WITH THE RETURN OF INCOME IN RESPECT OF COMPUTATION OF INCOME UNDER THE HEAD INCOME FROM O THER SOURCES, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS RECEIVED INTEREST FRO M DEPOSITS WITH VARIOUS PARTIES AMOUNTING TO RS.6,98,043/- CHARGING INTEREST AT THE RATE OF 6% T O 15%, WHEREAS INTEREST PAID AT THE RATE OF 10% TO 12% ON UNSECURED LOANS. IT WAS FURTHER NOTICED T HAT THE ASSESSEE CLAIMED PAYMENT OF BANK INTEREST TO THE TUNE OF RS.2,13,290/-. IN THE ASSES SMENT ORDER, THE ASSESSING OFFICER ALSO OBSERVED THAT EXPENDITURE UNDER THE HEAD INCOME FROM OTHER SOURCES IS ALLOWABLE ONLY WHEN ANY EXPENDITURE MADE TO INCURRED TAXABLE INCOME AND THE ASSESSEE HAS MADE VARIOUS DEPOSITS ON LOWER RATE OF INTEREST AND PAID INTEREST ON UNSECUR ED LOANS AT HIGHER RATE. IN THIS WAY, THE ASSESSEE HAD DIVERTED ITS INTEREST BEARING FUNDS TO NON-INTE REST BEARING ADVANCES. THE ASSESSING OFFICER ASKED THE ASSESSEE TO SHOW-CAUSE WHY EXCESS OF INTE REST PAID I.E. RS.46,876/- SHOULD NOT BE DISALLOWED. IN THIS REGARD, NOTHING WAS FURNISHED T O JUSTIFY THE CLAIM BEFORE THE ASSESSING 2 ITA NO. 3797-AHD-2008 OFFICER. THEREAFTER, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE IS IN RECEIPT OF EXEMPTED INCOME OF RS.41,380/- FROM DIVIDEND UNDER SECTION 1 0(34) OF THE I.T. ACT. THEREFORE, HE DISALLOWED INTEREST PAID IN EXCESS OF RECEIPT AMOUN TING TO RS.41,380/- AND ADDED TO THE TOTAL INCOME. 3. ON APPEAL, BEFORE THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS) THE ASSESSEE MADE THE FOLLOWING SUBMISSIONS, WHICH ARE REPRODUCE D BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN THE IMPUGNED ORDER, WHICH ARE AS U NDER :- IN PARA THREE OF THE ASSESSMENT ORDER, THE A.O. HA S CONCLUDED THAT INTEREST PAID IN EXCESS OF INTEREST RECEIVED DURING THE YEAR IS D ISALLOWED AND ADDED TO THE TOTAL INCOME. FOR DRAWING THE INFERENCE, THE A.O. HAS GIV EN THE FINDING THAT : (A) EXPENDITURE UNDER THE HEAD INCOME FROM OTHER SOURCE S IS ALLOWABLE ONLY WHEN EXPENDITURE IS MADE TO INCURRED TAXABLE INCOME . (B) VARIOUS DEPOSITS ARE MADE AT LOWER RATE OF INTEREST AND INT EREST ON UNSECURED LOAN IS AT HIGHER RATE. THUS INTEREST BEARING FUNDS ARE DIVERTED TO NON INTEREST BEARING ADVANCES, (C) ASSESSES HAS RECEIVED EXEMPT INCOME OF RS. 41,3 807- AS DIVIDEND INCOME. IT IS HUMBLY SUBMITTED THAT ALL THE THROE INFERENCE S ARE EITHER INCORRECT OR NOT RELEVANT AND THEREFORE DISALLOWANCE MADE DESERVES T O BE DELETED. (1) THE PLAIN CONSTRUCTION OF THE SECTION 57 (III) OF THE I. T ACT LEADS TO THE CONCLUSION THAT IT IS NOT NECESSARY THAT ANY INCOME SHOULD IN FACT HAVE BEEN EARNED AS A RESULT OF EXPENDITURE. PROVISIONS REQUI RES THAT EXPENDITURE MUST BE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING INCOME. IT IS THE PURPOSE OF EXPENDITURE THAT IS RELEVANT. THE SE CTION DOES NOT REQUIRE THAT SUCH PURPOSE MUST BE FULFILLED IN ORDER TO QUALIFY THE E XPENDITURE FOR DEDUCTION. FOR ALLOW ABILITY OF EXPENDITURE, IT MUST NOT NECESSARI LY PRODUCE INCOME. FROM THE COPIES OF INTEREST ACCOUNT YOUR HONOUR WIL L APPRECIATE THAT FROM THE PARTIES, OTHER THAN BANK, YOUR ASSESSEE HAD EARNED INCOME OF RS. 1,61,440/-. HOWEVER, FOR THE BORROWING MADE FROM THE BANK, FOR THE PURPOSE OF EARNING INCOME INTEREST (NET) HAS BEEN PAID LO BANK AMOUNTI NG TO RS. 2,13,290/-. YOUR ASSESSEE IS MAINTAINING PERSONAL SETS OF ACCOUNT WH EREIN ALL THE TRANSACTION ATE INCORPORATED. THE BANK ACCOUNT IS ALSO COMPOSITE AC COUNT WHEREIN DEPOSITS AND WITHDRAWALS ARE MADE ALL THROUGH CUT THE YEAR. SINC E NO SEGREGATION CAN BE MADE WHICH AMOUNT HAVE BEEN MADE FOR EARNING INCOME AND NO INCOME IS EARNED THEREOF. ALSO IT IS NOT POSSIBLE TO CARVE OUT BORRO WED FUND AND IT'S UTILIZATION FOR 3 ITA NO. 3797-AHD-2008 EACH ADVANCES AND ALL SOURCES OF INCOME. UNDER THE CIRCUMSTANCES CLAIM OF DEDUCTION OF INTEREST PAID TO BANKS HAVE BEEN MADE UNDER THIS HEAD. MOREOVER AS PER THE PROVISIONS OF SECTION 57 APART FROM ABOVE OTHER BASIC CONDITIONS WHICH REQUIRES TO BE FULFILLED ARE (I) THE EXPENDITURE SHOULD NOT BE IN TH E NATURE OF CAPITAL EXPENDITURE. (II) THE EXPENDITURE SHOULD NOT BE OF PERSONAL IN NATURE,. (III) THE EXPENDITURE SHOULD HAVE BEEN INCURRE D IN THE RELEVANT ACCOUNTING YEAR ETC. (2) FOR THE SECOND INFERENCE, IT IS CLARIFIED THAT FROM THE DETAILS OF THE INTEREST ACCOUNT YOUR HONOUR WILL APPRECIATE THAT INTEREST H AD BEEN CHARGED @ 10% TO 12% WHEREAS INTEREST HAD BEEN PAID @ 6% TO 12% ONLY . ONE PAYMENT IS MADE @ 15% AMOUNTING TO RS. 24,182/- OUT OF TOTAL INTEREST INCOME OF RS.5,36,603/-, INTEREST OF RS.62,709/- IS PAID @ 6%. AND THERE IS NET INCOME OF RS.1,61,440/-. THUS, THE CONTENTION THAT INTEREST BEARING FUNDS AR E DIVERTED IS NOT CORRECT. MOREOVER YOUR HONOUR WOULD APPRECIATE THAT IN NORMA L COMMERCIAL ACTIVITIES, IT IS NOT THE CASE THAT YOU ALWAYS GET THE FUNDS EXACT LY ON THE DAY YOU NEED. YOU HAVE TO KEEP YOUR SAFETY MARGIN AND KEEP CERTAIN FU NDS TO FREE OF INTEREST TO GRAB THE OPPORTUNITY WHENEVER IT COMAS IN REDUCING INTER EST MARKET SCENARIO, THE COST AT WHICH YOU HAVE LOCKED IN, MAY NOT BE REDIRECT AN D /OR YOU MAY HAVE TO WAIT TO GOT PROPER OPPORTUNITY. ALL THESE KIND OF FACTORS A LSO HAS ITS OWN EFFECT, IT HAS NEVER BEEN CLAIM OF A.O. THAT BORROWED FUNDS WERE U TILIZED FOR PERSONAL PURPOSES. SO IT IS MERELY ON GENERALIZED ASSUMPTION AND SURMI SE THE DISALLOWANCE HAS BEEN MADE. (3) AT THE BEGINNING OF THE YEAR ASSESSEE HAS ITS O WN CAPITAL OF MORE THAN TWENTY LACS. IT IS NOT THAT ALL BORROWED FUNDS HAVE BEEN U TILIZED FOR INVESTMENT IN SHARES ONLY, IN ABSENCE OF ANY DIRECT NEXUS, DISALLOWANCE MADE ON PRESUMPTION ONLY DESERVES TO BE DELETED. CONSIDERING THE FACTS OF THE CASE AND EVIDENCES, IT IS REQUESTED THAT DISALLOWANCE MADE MAY KINDLY BE DELETED. 4. AFTER CONSIDERING THE AFORESAID SUBMISSIONS, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN THE IMPUGNED ORDER CONFIRMED THE DI SALLOWANCE AMOUNTING TO RS.46,876/- FOR THE DETAILED REASONS GIVEN IN PARA 2.1.2 TO 2.1.3, WHICH ARE REPRODUCED HEREUNDER :- 2.1.2. FROM THE ABOVE SUBMISSIONS IT IS NOT CLEAR, WHETHER THE APPELLANT HAD ADEQUATE FUNDS OF ITS OWN TO INVEST TO EARN EXEMPTE D INCOME. THE APPELLANT COULD HAVE FURNISHED DETAILS LIKE CAPITAL, RESERVES ETC., AVAILABLE WITH THE APPELLANT TO EXPLAIN THAT IT HAS GOT ITS OWN FUNDS TO MAKE INVES TMENTS AND ALSO TO EXPLAIN THAT 4 ITA NO. 3797-AHD-2008 THE BORROWED FUNDS ARE NOT UTILIZED FOR THE PURPOSE OF MAKING INVESTMENTS TO EARN EXEMPTED INCOME. 2.1.3. THEREFORE, IN ABSENCE OF SUCH DETAILS, I FIN D THAT THE A. R'S ARGUMENTS CANNOT BE ACCEPTED. FURTHER, THE APPELLANT HAS EARN ED DIVIDEND INCOME, WHICH ARE NOT TAXABLE. THEREFORE, THE INTEREST PAID ON TH E INVESTMENTS BY BORROWING LOANS CANNOT BE TREATED AS A BUSINESS EXPENDITURE. THEREFORE, U/S. 14A OF I. T. ACT, 1961, THE A.O. HAS RIGHTLY DISALLOWED THE INTEREST EXPENDITURE. THEREFORE, THIS GROUND OF APPEAL IS DISMISSED. AGGRIEVED WITH THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING GROUNDS :- (1) THAT THE LEARNED CIT(A.)-XI HAS ERRED BOTH IN LAW A ND ON FACTS OF THE CASE WHILE PASSING AN APPELLATE ORDER DTD. 16.09.2008 FO R ASST. YEAR 2005-06. (2) THAT THE LEARNED CIT(A.)-XI HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.46,876/- OUT OF INTEREST EXPENSES. (3) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-XI HAS ERRED IN NOT ENTERTAINING GROUND RELATING TO INITIATION OF PENAL TY PROCEEDING U/S. 271(1)(C) OF THE I.T. ACT. 5. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF A SSESSEE SHRI S.N. SOPARKAR, LD. SR. COUNSEL APPEARED AND FURNISHED THE DETAILED SUBMISSIONS FIL ED BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). HE ARGUED THAT IN PARA 3 OF T HE ASSESSMENT ORDER, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE MADE VARIOUS DEPOSITS AT LOWER RATE OF INTEREST AND PAID INTEREST ON UNSECURED LOANS AT HIGHER RATE. IN THIS WAY, THE AS SESSEE HAS DIVERTED THE INTEREST BEARING FUND TO NON-INTEREST BEARING ADVANCES. HE CONTENDED THAT ON THIS BASIS, NO DISALLOWANCE CAN BE MADE BY INVOKING THE PROVISIONS CONTAINED IN SECTION 10(14A ) OF THE INCOME TAX ACT, 1961. HE SUBMITTED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS. 41,380/- ONLY, WHICH IS EXEMPT UNDER SECTION 10(34) OF THE INCOME TAX ACT, 1961. IN THE ASSESSME NT ORDER, THERE IS NO FINDING THAT MONEY BORROWED ON INTEREST IS USED FOR MAKING INVESTMENT IN SHARES ON WHICH ASSESSEE EARNED DIVIDEND INCOME OF RS.41,380/- ONLY, THEREFORE, LEARNED COMM ISSIONER OF INCOME TAX(APPEALS) OUGHT TO HAVE DELETED THE SMALL DISALLOWANCE OF INTEREST AMO UNTING TO RS.46,876/-. 6. ON THE OTHER HAND, SHRI K. MADHUSUDAN, LD. SR. D.R. APPEARING ON BEHALF OF THE REVENUE VEHEMENTLY SUPPORTED THE ORDER OF LEARNED COMMISSIO NER OF INCOME TAX (APPEALS). HE POINTED 5 ITA NO. 3797-AHD-2008 OUT THAT DURING THE COURSE OF ASSESSMENT PROCEEDING S, THE ASSESSING OFFICER ASKED THE ASSESSEE TO SHOW-CAUSE WHY EXCESS OF INTEREST PAID I.E. RS.46,8 76/- SHOULD NOT BE DISALLOWED. BEFORE THE ASSESSING OFFICER, THE ASSESSEE HAS NOT FURNISHED A NY EXPLANATION. IN THESE CIRCUMSTANCES, THE ASSESSING OFFICER WAS NOT HAVING ANY OPTION BUT TO DISALLOW THE INTEREST. 6.1. THE LD. D.R. ALSO POINTED OUT THAT THE ASSESSE E HUF IS NOT DOING ANY BUSINESS THEREFORE, ONUS IS ON THE ASSESSEE TO PROVE HOW INTEREST PAID IS ALLOWABLE UNDER SECTION 57(III) OF THE INCOME TAX ACT, 1961. AS IS EVIDENT FROM THE ASSESS MENT ORDER THE ASSESSEES ONLY SOURCES OF INCOME ARE HOUSE PROPERTY, SHORT TERM CAPITAL GAIN, THE LOSS FROM INCOME FROM OTHER SOURCES RS.46,876/- WHICH IS NOTHING BUT DEFICIT OF INTERES T IS NOT ALLOWABLE. JUSTIFYING THE ACTION OF ASSESSING OFFICER, THE LD. D.R. POINTED OUT THAT BE FORE THE ASSESSING OFFICER THE ASSESSEE HAS NOT FURNISHED THE UTILIZATION OF MONEY BORROWED ON INTE REST IN SHARES, HOUSE PROPERTY OR ADVANCING INTEREST ON LOAN AT A LESSER RATE OF INTEREST THAN RATE OF INTEREST AT WHICH IT IS BORROWED. IT IS WEL L SETTLED LAW THAT UNDER SECTION 57(III) OF THE I.T. ACT, THERE MUST BE CLEAR NEXUS BETWEEN THE EXPENDITURE INCURRED AND INCOME SOUGHT TO BE EARNED . ONUS IS ON THE ASSESSEE TO PROVE THE NEXUS. HE FURTHER SUBMITTED THAT BEFORE THE LEARNED COMMIS SIONER OF INCOME TAX (APPEALS) THE ASSESSEE HAS NOT FURNISHED THE UTILIZATION OF LOAN, I.E. ITS BIFURCATION INTO GIVING LOAN AND MAKING INVESTMENT IN SHARES. HE SUBMITTED THAT THE ASSESSE E-HUF IS NOT DOING ANY BUSINESS. THEREFORE, ONUS IS ON THE ASSESSEE TO PROVE HOW THE INTEREST P AID IS ALLOWABLE UNDER SECTION 57(III) OF THE INCOME TAX ACT, 1961. THE LD. D.R. FURTHER ARGUED T HAT SINCE THE ASSESSEE IS NOT ENGAGED IN THE BUSINESS OF MONEY LENDING, INTEREST INCOME IS ASSES SABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. UNDER SECTION 57(III) OF THE INCOME TAX A CT, 1961, INTEREST PAID ON MONEY BORROWED IS ALLOWABLE TO THE EXTENT THE ASSESSEE PROVES NEXUS T HAT IT IS UTILIZED FOR GIVING LOAN/ DEPOSIT ON INTEREST. NEITHER BEFORE THE ASSESSING OFFICER NOR BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), THE ASSESSEE MADE AN ATTEMPT TO PROV E THE NEXUS. 7. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE HON'BLE SUPREME COURT IN THE CASE OF SET H R. DALMIA VS.- CIT (1977) 110 ITR 644 (SC) HELD THAT BEFORE SECTION 57(III) CAN BE APPLY, THE FOLLOWING CONDITION MUST BE FULFILLED :- THE EXPENDITURE MUST HAVE BEEN INCURRED SOLELY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING INCOME OR MAKING PROFIT. THE EXPENDITURE SHOULD NOT BE IN THE NATURE OF A CA PITAL EXPENDITURE. 6 ITA NO. 3797-AHD-2008 THE AMOUNT IN QUESTION SHOULD NOT BE IN THE NATURE OF PERSONAL EXPENSES OF THE ASSESSEE. THE EXPENDITURE SHOULD BE INCURRED IN THE ACCOUNTIN G YEAR. THERE MUST BE A CLEAR NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE INCOME SOUGHT TO BE EARNED. THE HON'BLE GUJARAT HIGH COURT ALSO IN THE CASE OF VIRMATI RAMKRISHNA VS.- CIT [1981] 131 ITR 659 (GUJ.) ON AN ANALYSIS OF STATUTORY LANGUAGE USED IN SECTION 57(III) AND PRINCIPLES LAID DOWN IN THE DECIDED CASES HELD THAT AT PAGE 672 OF THE REPORT THAT FOLLOWING PROPOSITIONS CLEARLY EMERGE :- IN ORDER TO DECIDE WHETHER AN EXPENDITURE IS A PERM ISSIBLE DEDUCTION UNDER SECTION 57(III), THE NATURE OF THE EXPENDITUR E MUST BE EXAMINED. THE EXPENDITURE MUST NOT BE IN THE NATURE OF CAPITA L EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE. THE EXPENDITURE MUST HAVE BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING IN COME FROM OTHER SOURCES. THE PURPOSE OF MAKING OR EARNING INCOME MUST BE THE SOLE PURPOSE FOR WHICH THE EXPENDITURE MUST HAVE BEEN INCURRED, THAT IS TO SAY, THE EXPENDITURE SHOULD NOT HAVE BEEN INCURRED FOR SUCH PURPOSE AS ALSO FOR ANOTHER PURPOSE, OR FOR A MIXED PURPOSE. THE DISTINCTION BETWEEN PURPOSE AND MOTIVE MUST ALW AYS BE BORNE IN MIND IN THIS CONNECTION, FOR, WHAT IS RELEVANT IS THE MA NIFEST AND IMMEDIATE PURPOSE AND NOT THE MOTIVE OR PERSONAL CONSIDERATIO NS WEIGHING IN THE MIND OF THE ASSESSEE IN INCURRING THE EXPENDITURE. IF THE ASSESSEE HAS NO OPTION EXCEPT TO INCUR THE E XPENDITURE IN ORDER TO MAKE THE EARNING OF THE INCOME POSSIBLE SUCH AS WHE N HE HAS TO INCUR LEGAL EXPENSES FOR PRESERVING AND MAINTAINING THE S OURCE OF INCOME, THEN UNDOUBTEDLY SUCH EXPENDITURE WOULD BE AN ALLOWABLE DEDUCTION. HOWEVER, WHERE THE ASSESSEE HAS AN OPTION AND THE OPTION WHI CH HE EXERCISES HAS NO CONNECTION WITH THE MAKING OR EARNING OF THE INCOME AND THE OPINION DEPENDS UPON PERSONAL CONSIDERATIONS OR MOTIVES OF THE ASSESSEE, THE EXPENDITURE INCURRED IN CONSEQUENCE OF THE EXERCISE OF SUCH OPTION CANNOT BE TREATED AS AN ALLOWABLE DEDUCTION. 7 ITA NO. 3797-AHD-2008 IT IS NOT NECESSARY, HOWEVER, THAT THE EXPENDITURE INCURRED MUST HAVE BEEN OBLIGATORY; IT IS ENOUGH TO SHOW THAT THE MONEY WAS EXPENDED NOT OF NECESSITY AND WITH A VIEW TO AN IMMEDIATE BENEFIT T O THE ASSESSEE BUT VOLUNTARILY AND ON THE GROUND OF COMMERCIAL EXPEDIE NCY AND IN ORDER INDIRECTLY TO FACILITATE THE MAKING OR EARNING OF T HE INCOME. IF THEREFORE IT IS FOUND ON APPLICATION OF THE PRIN CIPLES OF ORDINARY COMMERCIAL TRADING THAT THERE IS SOME CONNECTION, D IRECT OR INDIRECT, BUT NOT REMOTE, BETWEEN THE EXPENDITURE INCURRED AND TH E INCOME EARNED, THE EXPENDITURE MUST BE TREATED AS AN ALLOWABLE DEDUCTI ON. IT WOULD NOT HOWEVER SUFFICE TO ESTABLISH MERELY TH AT THE EXPENDITURE WAS INCURRED IN ORDER INDIRECTLY TO FACILITATE THE CARR YING ON OF THE ACTIVITY WHICH IS THE SOURCE OF INCOME; THE NEXUS MUST NECES SARILY BE BETWEEN THE EXPENDITURE INCURRED AND INCOME EARNED. IT IS NOT NECESSARY TO SHOW THAT THE EXPENDITURE WA S A PROFITABLE ONE OR THAT IN FACT INCOME WAS EARNED. THE TEST IS NOT WHETHER THE ASSESSEE BENEFITED THER EBY OR WHETHER IT WAS A PRUDENT EXPENDITURE WHICH RESULTED IN ULTIMATE GAIN TO THE ASSESSEE BUT WHETHER IT WAS INCURRED LEGITIMATELY AND BONA FIDE FOR MAKING OR EARNING THE INCOME. THE QUESTION WHETHER THE EXPENDITURE WAS LAID OUT O R EXPENDED FOR MAKING OR EARNING THE INCOME MUST BE DECIDED ON THE FACTS OF EACH CASE, THE FINAL CONCLUSION BEING ONE OF LAW. IT IS PERTINENT TO NOTE THAT NEITHER BEFORE THE ASS ESSING OFFICER NOR BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THE ASSESSEE H AS FURNISHED HOW THE MONEY BORROWED WAS UTILIZED I.E. ITS BIFURCATION IN GIVING INTERES T-FREE LOAN OR MAKING INVESTMENT IN LAND AND BUILDING, INVESTMENT IN SHARES, RBI RELIEF BOND, IC ICI SAFETY BOND, 2002, ETC. IN THESE CIRCUMSTANCES, ASSESSING OFFICER MADE THE ADDITION ON ASSUMPTION AND PRESUMPTION. NOW THE ASSESSEE IS NOT SATISFIED WITH THE AMOUNT OF DISALL OWANCE. WE ARE, THEREFORE, OF THE VIEW THAT IT WILL MEET THE END OF JUSTICE, IF ONE MORE OPPORTUNI TY IS ALLOWED TO THE ASSESSEE TO FURNISH THE COMPLETE DETAILS OF UTILIZATION OF MONEY BORROWED O N INTEREST, I.E. DATE ON WHICH MONEY WAS BORROWED, RATE OF INTEREST AND HOW MUCH MONEY WAS G IVEN ON INTEREST INDICATING RATE OF INTEREST, DATE ON WHICH LOAN WAS GIVEN ON INTEREST, HOW MUCH WAS UTILIZED IN MAKING INVESTMENT IN ICICI SAFETY BOND, RBI RELIEF BOND, LAND & BUILDING AND O THER ASSETS. ON RECEIPT OF THE SAME, THE ASSESSING OFFICER WILL ASSESS THE INTEREST INCOME U NDER THE HEAD OTHER SOURCES AND ALLOW THE 8 ITA NO. 3797-AHD-2008 BENEFIT OF INTEREST PAID TO THE EXTENT BORROWED MON EY IS UTILIZED FOR MAKING OR ADVANCING LOAN ON INTEREST. IN CASE, PART OF THE MONEY BORROWED ON IN TEREST IS UTILIZED FOR MAKING INVESTMENT IN SHARES OR IN THE HOUSE PROPERTY, ASSESSING OFFICER WILL CONSIDER THE ALLOWABILITY OF PART OF THE INTEREST UNDER THE RESPECTIVE HEADS OF INCOME. IN T HIS CONTEXT, WE MAY ALSO OBSERVE THAT IN CASE, ASSESSEE FAILED TO FURNISH THE NECESSARY DETAILS AN D ALSO THE NEXUS, THE ASSESSING OFFICER IS AT LIBERTY TO DISALLOW THE DEFICIT OF INTEREST KEEPING IN VIEW THE PRINCIPLES LAID DOWN BY HON'BLE GUJARAT HIGH COURT IN THE CASE OF VIRMATI RAMAKRISH NA (SUPRA). IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDER OF LE ARNED COMMISSIONER OF INCOME TAX (APPEALS) AND RESTORE THE MATTER TO THE FILE OF ASS ESSING OFFICER WHO WILL READJUDICATE THE ALLOWANCE OF INTEREST AFRESH IN TERMS OF DIRECTION GIVEN HEREINABOVE AFTER GIVING PROPER OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 8. IN THE RESULT, FOR STATISTICAL PURPOSES, THE APP EAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 28.12.20 10 SD/- SD/- (G.D. AGRAWAL) (T.K. SHARMA ) VICE-PRESIDENT (AZ) JUDICIAL MEMBER DATED : 28/ 12 / 2010 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 REGI STRAR, ITAT, AHMEDABAD LAHA/SR.P.S.