NIRANJANLAL C. SHAH, MUMBAI V. ITO 11(3)(1), MUMBAI

ITA 4494/MUM/2011

• Counselvise Citation: 449419914 RSA 2011
• Duration Of Justice: 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2006-2007
• Appeal Filed On: 03-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC BEFORE SHRI D. MANMOHAN, VICE PRESIDENT (MZ) I.T.A.NO. 4494/MUM/2011 (ASSESSMENT YEAR : 2006-07) MR. NIRANJANLAL C. SHAH 603, COTTON EXCHANGE BUILDING 6 TH FLOOR, 175 KALBADEVI ROAD MUMBAI-400 002. VS. ITO 11(3)(1) MUMBAI. APPELLANT RESPONDENT PAN/GIR NO. : AAKPS9462L ASSESSEE BY : SHRI K. GOPAL DEPARTMENT BY : SHRI ARUNKUMAR DATE OF HEARING : 19.3.2012 DATE OF PRONOUNCEMENT : 11.5.2012 ORDER THIS APPEAL IS FILED AT THE INSTANCE OF THE ASSESS EE AND IT PERTAINS TO A.Y. 2006-07. 2. THOUGH THE ASSESSEE RAISED SEVERAL GROUNDS, AT T HE TIME OF HEARING LEARNED COUNSEL, APPEARING ON BEHALF OF THE ASSESSE E, SUBMITTED THAT THE ASSESSEE DESIRES TO PRESS ONLY ONE ISSUE I.E. LEGAL ITY OF DISALLOWANCE OF ` 1,49,294/- REFERABLE TO INTEREST PAID ON MONEY BORR OWED. 3. FACTS NECESSARY FOR DISPOSAL OF THIS ISSUE ARE S TATED IN BRIEF. THE ASSESSEE IS A CHARTERED ACCOUNTANT BY PROFESSION AN D HIS TAXABLE INCOME CONSISTS OF INCOME FROM PROFESSION, SHORT-TERM-CAPI TAL GAINS AND INCOME FROM OTHER SOURCES. IN RESPECT OF THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2006-07, ASSESSEE DEBITED AN AMOUNT OF ` 1,49,294/- RELATABLE TO THE INTEREST PAID TO VARIOUS PARTIES O N THE LOAN TAKEN. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, HE CONFIRMED THAT THE LOAN WAS TAKEN FOR PURCHASE OF RESIDENTIAL FLAT. HOWEVER ASS ESSEE DID NOT PURCHASE ANY RESIDENTIAL PROPERTY. SINCE INTEREST PAYMENT IS NOT CONNECTED TO ANY INCOME EARNED BY THE ASSESSEE THE ASSESSING OFFICER DISALLOWED THE MR. NIRANJANLAL C. SHAH 2 IMPUGNED AMOUNT APART FROM DISALLOWING A PORTION OF THE EXPENDITURE UNDER THE HEAD TELEPHONE, CONVEYANCE ETC. 4. BEFORE LEARNED CIT(A) IT WAS CONTENDED THAT THE INTEREST BEARING FUNDS WERE UTILISED FOR MAKING INVESTMENT IN 8% TAX ABLE BONDS AND HENCE INTEREST EXPENDITURE IS DIRECTLY RELATABLE TO THE TAXABLE INCOME UNDER THE HEAD OTHER SOURCES. THEREFORE IT DESER VES TO BE ALLOWED. LEARNED CIT(A), IN PARAGRAPH 4 OF HIS ORDER OBSERVE D THAT THE ASSESSEE HAS NOT DISCLOSED ANY INTEREST INCOME ON BONDS, THE INTEREST FROM BONDS WHICH HAS BEEN OFFERED TO TAX IS ONLY WHAT IS EXEMP T FROM TAXATION UNDER SECTION 10. THEREUPON, HE OBSERVED THAT IF BORROWED FUNDS HAVE GONE INTO INVESTMENT AS ASSETS, INCOME OF WHICH IS NOT Y IELDING ANY TAXABLE INCOME, THE INTEREST ON THE BORROWED FUNDS IS NOT A LLOWABLE UNDER SECTION 14A OF THE INCOME TAX ACT. HE ACCORDINGLY A FFIRMED THE ACTION OF THE ASSESSING OFFICER. 5. FURTHER AGGRIEVED, THE ASSESSEE IS IN APPEAL BEF ORE ME. COUNSEL FOR THE ASSESSEE ADVERTED MY ATTENTION TO PAGE NO. 3 OF THE PAPER BOOK TO SUBMIT THAT THE INCOME AND EXPENDITURE ACCOUNT MAIN TAINED BY THE ASSESSEE REFLECTS 9% INTEREST ON TAX-FREE BONDS AND 8% TAXABLE BONDS. SINCE NET INCOME DISCLOSED IN THIS YEAR COMPRISES O F TAXABLE INTEREST INCOME OF ` 1,31,177/- ANY AMOUNT BORROWED FOR THE PURPOSE OF MAKING SUCH INCOME IS DIRECTLY RELATABLE TO EARNING OF SUC H INCOME IN WHICH EVENT, INTEREST PAID ON SUCH BORROWINGS SHOULD BE S ET OFF AGAINST INCOME EARNED BY THE ASSESSEE AND ONLY NET INCOME, IF ANY, HAS TO BE TAKEN INTO CONSIDERATION. HE SUBMITTED THAT EVEN COMPUTATION O F INCOME (PAGE 1 OF THE PAPER BOOK) SHOWS THAT TAXABLE INTEREST WAS ALS O TAKEN INTO CONSIDERATION. PAGE 11 OF THE PAPER BOOK CONTAINS T HE SUBMISSIONS OF THE ASSESSEE BEFORE LEARNED CIT(A) WHEREIN, IT WAS STAT ED THAT THE ASSESSEE INVESTED INTEREST BEARING FUNDS IN TAXABLE BONDS AN D IN SHORT TERM DEPOSITS. THEREFORE EXPENDITURE IS DIRECTLY RELATAB LE TO EARNING OF INCOME. 6. LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED TH AT THE ASSESSEE HAS NOT PROPERLY HIGHLIGHTED THIS ISSUE BEFORE THE TAX AUTHORITIES AND THUS RELIED UPON THE ORDER PASSED BY LEARNED CIT(A) . MR. NIRANJANLAL C. SHAH 3 7. I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION S AND PERUSED THE RECORD. SINCE MATERIAL ON RECORD SHOWS THAT THE ASS ESSEE HAS DECLARED INTEREST INCOME ON TAXABLE BONDS AND CLAIMED THAT I NTEREST BEARING FUNDS WERE UTILISED FOR MAKING SUCH INVESTMENTS, ONLY NET INTEREST HAS TO BE TAKEN INTO CONSIDERATION WHILE COMPUTING THE TAXABL E INCOME. SINCE FACTS ARE NOT PROPERLY ANALYSED BY THE ASSESSING OFFICER AND LEARNED CIT(A), I DEEM IT FAIR AND REASONABLE TO SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER, WHO IS DIRECTED TO CONSIDER THE CLAIM OF THE ASSESSEE IN ACCORDANCE WITH LAW. 8. OTHER ISSUES URGED BEFORE ME WERE NOT PRESSED BY LEARNED COUNSEL AND ACCORDINGLY THEY ARE NOT TAKEN UP FOR CONSIDERA TION. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS P ARTLY ALLOWED. ORDER HAS BEEN PRONOUNCED ON 11 TH DAY OF MAY, 2012. SD/- (D. MANMOHAN) VICE-PRESIDENT(MZ) DATED : 11 TH MAY, 2012. COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-CONCERNED. 4. THE CIT, CONCERNED. 5. THE DR CONCERNED, MUMBAI 6. GUARD FILE BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI PS