ITO, New Delhi V. M/s. PC Jewellers (Exports), New Delhi

ITA 4507/DEL/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0163 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 02-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 23-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIKRAM SAHAY
• Section: 143(3); 10AA; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : F : NEW DELHI BEFORE SHRI J.S. REDDY , ACCOUNTANT MEMBER AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER ITA NO. 4507 /DEL /2012 ASSESSMENT YEAR : 200 8 - 200 9 INCOME TAX OFFICER VS. M/S PC JEWELLERS (EXPORT S) WARD 33(2), 2717 - 18, BANK STREET, NEW DELHI. KAROL BAGH, NEW DELHI. (PAN AAIFP 0812 H ) (APPELLANT) (RESPONDENT) DATE OF HEARING : 02 .0 7 .2015 DATE OF PRONOUNCEMENT : 29. 0 7 . 2015 ASSESSEE BY : S RI VIK RAM SAHAY, SR. DR RESPONDENT BY: SRI SANJEEV JAIN , CA. ORDER PER CHANDRA MOHAN GARG, JUDICIAL MEMBER 1. THIS APPEAL BY THE REVENUE HAS BEEN DIRECTED AGAINST THE ORDER OF THE CIT(A) - XXXVI , DELHI DATED 02 . 05 .201 2 IN APPEAL NO. 248 / 2010 - 11 FOR AY 200 8 - 0 9 . ITA NO. 4507 /DEL/2012 2 2. BRIEFLY STATED THE FACTS GIVING RISE TO THIS APPEAL ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM DERIVING INCOME FROM BUSINESS OF MANUFACTURING AND SALE OF JEWELLERY IN ITS TWO UNITS, ONE OF WHICH IS A HUNDRED PERCENT EOU UNIT ENTITLE D FOR EXEMPTION U/S 10B OF THE INCOME TAX ACT, 1961(FOR SHORT THE ACT ) AND THE OTHER IS A UNIT IN SPECIAL ECONOMIC ZONE (SEZ) ENTITLED FOR EXEMPTION U/S 10AA OF THE ACT. THE ASSESSEE HAS BEEN FOUND ELIGIBLE FOR ALLOWANCE OF DEDUCTION U/S 10B AND 10AA OF THE ACT RESPECTIVELY BY THE ASSESSING OFFICER. 3. IN RESPECT OF HUNDRED PERCENT EOU UNIT THE ASSESSEE HAS BORROWED FUNDS FROM BANK FOR UTILIZATION IN ITS BUSINESS. OUT OF SUCH BORROWINGS FROM BANKS, THE ASSESSEE WAS REQUIRED TO MAKE PAYMENTS AS MARGIN DEP OSITS TO ITS SUPPLIERS OF GOLD. THE ASSESSEE INSTEAD OF MAKING CASH DEPOSITS WITH THE SUPPLIERS OF GOLD, OPTED TO DEPOSIT BANK FDR S WITH THE SUPPLIERS OF GOLD AS MARGIN MONEY. THE FDR S WERE PURCHASED OUT OF BORROWINGS MADE BY THE ASSESSEE FOR THE PURPOSE S OF ITS BUSINESS. THE ASSESSEE ADOPTED SAID MODUS OPERANDI WITH THE VIEW TO PARTIALLY REDUCE THE EXPENDITURE BEING INCURRED ON INTEREST ON BANK BORROWINGS IN THE REGULAR COURSE OF BUSINESS. THE ASSESSEE EARNED INTEREST OF RS.77,03,896/ - DURING THE INSTAN T YEAR ON SUCH FDR S MADE OUT OF BORROWED FUNDS FROM BANK AND KEPT AS MARGIN MONEY WITH ITS SUPPLIERS OF GOLD. THE ASSESSEE HAS NETTED OUT OF THIS AMOUNT OF RS.77,03,896/ - AGAINST ITS TOTAL INTEREST PAYMENT OF RS.6,79,50,565/ - AND HAS DEBITED THE BALANCE AMOUNT OF ITA NO. 4507 /DEL/2012 3 RS.6,02,46,669/ - IN ITS PROFIT & LOSS ACCOUNT OF THE EOU UNIT UNDER THE HEAD FINANCE EXPENSES . 4. THE ASSESSING OFFICER ALLOWED THE EXPENDITURE OF RS.6,79,50,565/ - AS INTEREST EXPENDITURE OF THE EOU AND HAS ALLOWED EXEMPTION U/S 10B OF THE AC T IN RESPECT OF THE RESULTANT PROFIT OF THE EOU UNIT. HOWEVER, THE ASSESSING OFFICER HAS ADDED THE AMOUNT OF RS.77,03,896/ - BEING THE INTEREST EARNED ON FDR S AS INCOME FROM OTHER SOURCES AND HAS NOT ALLOWED ANY DEDUCTION U/S 57(III) OF THE ACT IN RESPECT OF THE INTEREST PAID BY THE ASSESSEE ON BORROWINGS MADE FOR PURCHASE OF FDR S. THE DETAILS OF INTEREST INCURRED FOR BORROWINGS FOR EACH OF THE FDR S ALONG WITH DETAILS OF INTEREST EARNED ON EACH OF THE FDR S WAS DULY FILED BEFORE THE ASSESSING OFFICER BY T HE ASSESSEE VIDE ITS LETTER DATED 16.11.2010. 5. BEING AGGRIEVED BY THE ABOVE ACTION OF THE AO, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WHICH WAS ALLOWED BY PASSING THE IMPUGNED ORDER. NOW THE AGGRIEVED REVENUE IS BEFORE THIS TRIBUNAL IN THIS SECON D APPEAL. 6. WE HAVE HEARD ARGUMENTS ON BOTH THE SIDES AND CAREFUL PERUSED THE RELEVANT MATERIAL PLACED ON RECORD. THE LD. DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTING THE ACTION OF THE AO SUBMITTED THAT THE ASSESSING OFFICER WAS CORRECT IN ADDING THE IMPU GNED AMOUNT BEING THE INTEREST EARNED ON FDR S AS INCOME FROM OTHER SOURCES AND IN NOT ALLOWING ANY DEDUCTION U/S 57(III) OF THE ITA NO. 4507 /DEL/2012 4 ACT IN RESPECT OF INTEREST PAID BY THE ASSESSEE ON BORROWINGS MADE FOR PURCHASE OF FDR S. ALLEGING THE IMPUGNED ORDER, THE LD. DR SUBMITTED THAT THERE WAS NO FINDING OF THE CIT(A) IN THE IMPUGNED ORDER REGARDING ANY NEXUS BETWEEN THE PURCHASE OF FDR AND INTEREST BEARING LOAN TAKEN FOR PURCHASE OF SAID FDR. THE LD. DR CONTENDED THAT THE CIT(A) HAD NOT GIVEN ANY FINDING REGARDING EL IGIBILITY OF EXEMPTION U/S 10B OF THE ACT IN RESPECT OF INTEREST INCOME EARNED BY THE ASSESSEE ON FDR S. THE LD. DR FINALLY PRAYED THAT THE CIT(A) GRANTED RELIEF FOR THE ASSESSEE WITHOUT QUITE JUSTIFIED REASON OR BASIS, THEREFORE, THE IMPUGNED ORDER MAY BE SET ASIDE BY RESTORING THAT OF THE AO. 7. REPLYING TO THE ABOVE, THE LD. ASSESSEE S REPRESENTATIVE (AR) SUPPORTING THE IMPUGNED ORDER DRAWN OUR ATTENTION TOWARDS PARAGRAPH AT PAGES 9 TO 12 OF THE IMPUGNED ORDER AND SUBMITTED THAT THE CIT(A) HAS GIVEN A C ORRECT FINDING AFTER VERIFICATION OF THE MATERIAL ON RECORD I.E. THE RESPECTIVE BANK ACCOUNTS THAT THERE IS A DIRECT NEXUS BETWEEN THE FDR PURCHASED BY THE ASSESSEE FOR KEEPING THE MARGIN MONEY WITH GOLD SUPPLIERS AND THE RESPECTIVE BORROWINGS FOR MAKING S UCH FDR S. THE LD. AR FURTHER CONTENDED THAT THE CIT(A) HAS ALSO VERIFIED THE CHART FILED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER AS WELL AS BEFORE THE CIT(A) WHEREIN THE DETAILS OF EACH FDR S SHOWING RATE OF INTEREST EARNED THEREON AS WELL AS THE RES PECTIVE BANK LOAN FROM WHICH THE FDR S WAS PURCHASED AND THE INTEREST PAID BY THE ASSESSEE ON SUCH BORROWING WAS DULY REFLECTED. THE LD. AR VEHEMENTLY CONTENDED THAT ON THE ITA NO. 4507 /DEL/2012 5 BASIS OF SUCH VERIFICATION AND EXAMINATION OF DOCUMENTARY EVIDENCE AND EXPLANATION OF THE ASSESSEE THE CIT(A) HAS FOUND THAT THIS EVIDENCE AND EXPLANATION CLEARLY SHOWS A DIRECT NEXUS BETWEEN THE INTEREST BEARING LOAN OUT OF WHICH FDR S HAS BEEN PURCHASED AND THE INTEREST INCOME EARNED AND INTEREST EXPENDITURE INCURRED FOR SUCH FDR S . 8. THE LD. AR VEHEMENTLY CONTENDED THAT THE CIT(A) ALSO FOUND THAT DURING THE YEAR CONSIDE RATION , THE ASSESSEE HAD PAID AN INTEREST OF RS. 77,69,101/ - FOR LOANS RAISED FOR PURCHASE OF FDR S ON WHICH INTEREST INCOME OF RS.77,03,897/ - HAS BEEN EARNED AND HAS BE EN HELD THAT INTEREST EXPENDITURE INCURRED BY THE ASSESSEE ON FUNDS BORROWED FOR PURCHASE OF FDR S ON WHICH IMPUGNED INTEREST INCOME HAS BEEN EARNED IS ADMISSIBLE FOR DEDUCTION U/S 57 (III) OF THE ACT. THE LD. AR ALSO STRESSED ON THIS FACT THAT THE CIT(A) W AS CORRECT IN DIRECTING THE AO TO ALLOW SET OFF OF INTEREST PAID BY THE ASSESSEE TO THE BANK ON FUNDS BORROWED FOR PURCHASE OF FDR S UNDER THE PROVISIONS CONTAINED IN SECTION 57(III) OF THE ACT. 9. THE LD. AR FURTHER POINTED OUT THAT THE CIT(A) ALSO TOOK NOTE OF THE FACT THAT IN THE SIMILAR FACTS AND CIRCUMSTANCES AND ON THE IDENTICAL ISSUE IN THE ASSESSEE S OWN CASE FOR AY 2007 - 08 IN THE APPE AL EFFECT ORDER THE SET OFF WAS ALLOWED IN INTEREST ON BORROWED FUNDS AGAINST THE INTEREST INCOME FROM FDR U/S 57(I II) OF THE ACT. ITA NO. 4507 /DEL/2012 6 10. THE LD. AR REITERATED ITS UNIT SUBMISSION SUBMITTED THAT THE ORDER OF THE CIT(A) MAY KINDLY BE UPHELD. THE WRITTEN SUBMISSION OF THE ASSESSEE BEFORE US IS AS FOLLOWS: - 4) SUBMISSION OF THE ASSESSEE BEFORE THE ITAT I) THE ISSUE UNDER DISPUTE IS NOW FULLY SETTLED IN FAVOUR OF THE ASSESSEE, AS THE REVENUE ITSELF HAS ACCEPTED IDENTICAL AN SIMILAR CLAIM OF THE ASSESSEE IN ASSESSMENT YEAR 2007 - 08 WHEN ORDER DATED 8.12.11 WAS PASSED BY THE ASSESSING OFFICER IN COMPLIANCE OF THE DIRECTIONS O F THE ITAT. THE REVENUE HAS FURTHER ACCEPTED SIMILAR CLAIM OF THE ASSESSEE IN ALL SUBSEQUENT ASSESSMENTS NAMELY FOR ASSESSMENT YEAR 2009 - 10, ASSESSMENT YEAR 2010 - 11 AND ASSESSMENT YEAR 2011 - 12 WHILE COMPLETING ASSESSMENTS U/S 143(3) OF THE ACT, II) THE C OPIES OF THE ORDERS PASSED FOR ASSESSMENT YEAR 2007 - 08, 2009 - 10, 2010 - 11 AND 2011 - 12 HAVE BEEN FILED BEFORE THE ITAT. THE RELEVANT FINDINGS OF THE ASSESSING OFFICER IN RESPECTIVE YEARS IS AS UNDER: - ASSESSMENT YEAR 2007 - 08 PAGE 2 OF COMPILATION ASSESSMEN T YEAR 2009 - 10 PAGE 13 AND 14 OF THE COMPILATION ASSESSMENT YEAR 2010 - 11 PAGE 22 OF THE COMPILATION ASSESSMENT YEAR 2011 - 12 PAGE 26 TO 27 OF THE COMPILATION III) FOR THE INSTANT YEAR THE CIT(APPEALS) HAS GIVEN A CLEAR AND UNAMBIGUOUS FINDING IN PARA 9 P AGE 10 OF THE CIT(APPEALS) ORDER WHEREIN SHE HAS FOUND, ON THE BASIS OF VERIFICATION OF MATERIAL WHICH WAS FILED BOTH BEFORE THE ASSESSING OFFICER AS WELL AS THE CIT(APPEALS), THAT THERE IS A DIRECT NEXUS OF EACH FDR PURCHASED BY THE APPELLANT FOR KEEPING THE MARGIN MONEY WITH GOLD SUPPLIERS AND THE RESPECTIVE BORROWINGS FOR MAKING SUCH FDR'S. THE CIT(APPEALS) HAS FURTHER FOUND THAT DURING THE YEAR UNDER CONSIDERATION THE APPELLANT PAID AN INTEREST OF RS.77,69,101/ - FOR LOANS RAISED FOR PURCHASE OF FDR'S ON WHICH INTEREST INCOME OF RS.77,03,897/ - HAS BEEN EARNED. SHE HAS DIRECTED IN PARA 9.1 PAGE 12 THAT SUCH INTEREST EXPENDITURE INCURRED BY THE ASSESSEE ON FUNDS BORROWED FOR PURCHASE OF FDR'S ON WHICH INTEREST INCOME HAS BEEN EARNED IS A ADMISSIBLE DEDUCTIO N U/S 57(III) OF THE ACT AND HAS ACCORDINGLY DIRECTED THE ITA NO. 4507 /DEL/2012 7 ASSESSING OFFICER TO ALLOW SET OFF OF SUCH INTEREST PAID BY THE ASSESSEE ON FUNDS BORROWED FOR PURCHASE OF FDR'S AGAINST THE INTEREST INCOME EARNED ON SUCH FDR'S AS PER SECTION 57(III) OF THE ACT. IV) THE CLAIM OF EXEMPTION U/S 10B OF THE ACT ALREADY STANDS ALLOWED BY THE ASSESSING OFFICER AND THERE IS NO DISPUTE REGARDING THE SAME. THE CIT(APPEALS) HAS HELD IN PARA 10 PAGE 12 OF THE CIT(APPEALS) ORDER THAT THE INCOME FROM INTEREST ON FDR'S IS TO B E ASSESSED ONLY AS INCOME FRO M OTHER SOURCE AND NOT AS INCOME FROM BUSINESS. V) IT IS THEREFORE SUBMITTED THAT ONCE THE INTEREST INCOME OF RS. 77,03,897/ - IS BEING ASSESSED AS INCOME FROM OTHER SOURCE AND THE CORRESPONDING INTEREST EXPENDITURE OF RS.77,69 ,101/ - IS ALLOWED AS DEDUCTION U/S 57(III) OF THE ACT, THERE WILL BE NO IMPACT ON THE TOTAL TAXABLE INCOME OF HE ASSESSEE AS IT WILL REMAIN TO BE NIL. THE INTEREST EXPENDITURE OF RS.77,69,101/ - WILL BE REMOVED FROM THE DEBIT SIDE OF THE PROFIT & LOSS ACCOU NT OF THE EOU UNIT, AS A RESULT OF WHICH THE PROFIT OF THE EOU UNIT WILL INCREASE AND THE SAME IS EXEMPT U/S 10B OF THE ACT. IT IS FURTHER SUBMITTED THAT THERE IS NO DISPUTE REGARDING ADMISSIBILITY OF EXEMPTION U/S 10B OF THE ACT IN RESPECT OF THE PROFITS OF THE EOU UNIT. IT S PRAYED THAT THE ORDER OF THE CIT(APPEALS) MAY KINDLY BE UPHELD. 11. ON CAREFUL CONSIDERATION OF ABOVE RIVAL SUBMISSION OF BOTH THE SIDES , FROM OPERATIVE PART OF THE IMPUGNED ORDER , WE NOTE THAT THE CIT(A) GRANTED RELIEF TO THE ASSE SSEE WITH THE FOLLOWING OBSERVATIONS AND CONCLUSION: - 8. I HAVE GONE THROUGH THE FACTS OF THE CASE, GROUNDS OF APPEAL, ASSESSMENT ORDER DATED 24.12.2011 FOR THE AY. 2008 - 09 AND 8.12.2011 FOR THE AY. 2007 - 08 AND CONSIDERED THE WRITTEN SUBMISSIONS AND DETAI LS FILED BY THE APPELLANT. I HAVE ALSO PERUSED THE ORDERS FOR THE AY. 2007 - 08 PASSED BY THE CIT(A) DATED 5.2.2010, HON BLE ITAT ORDER DATED 27.8.2010 AND HON'BLE DELHI HIGH COURT ORDER DATED 25.7.2011. COPIES OF ALL THESE ORDERS ARE PLACED ON RECORD. 8.1 DURING THE APPELLATE PROCEEDINGS FOR THE AY. 2008 - 09, THE AR OF THE APPELLANT FILED DETAILS OF THE FDR'S. IT WAS ALSO STATED THAT THE FDR'S IN QUESTION WERE NOT PURCHASED FOR OBTAINING LOANS FROM THE BANK BUT WERE PURCHASED OUT OF THE LOANS TAKEN FROM THE BANKS WHICH WERE USED FOR ITA NO. 4507 /DEL/2012 8 PURCHASE OF GOLD IN THE REGULAR COURSE OF BUSINESS. IT WAS FURTHER SUBMITTED THAT THE MARGIN MONEY WAS TO BE PAID OUT OF THE BORROWINGS FROM THE BANK, ON WHICH THE APPELLANT INCURRED EXPENDITURE WITH A VIEW TO REDUCE ITS INTEREST EXPENDITURE AND PREFERRED TO PURCHASE MAKE FDR'S OUT OF THE BORROWINGS FROM BANKS AND KEPT THESE FDR'S AS MARGIN MONEY WITH THE SUPPLIERS OF GOLD. IT WAS ARGUED THAT IN THE ABOVE SAID MANNER, THE INTEREST INCOME EARNED BY THE APPELLANT FROM FDR'S KEPT AS MARGIN MONEY WITH SUPPLIERS OF GOLD WAS USED TO PARTIALLY OFFSET THE EXPENDITURE ON INTEREST INCURRED BY THE APPELLANT ON BORROWINGS MADE FOR THE BUSINESS PURPOSE. THE AR OF THE APPELLANT ALSO DREW MY ATTENTION TO THE FACT THAT DURING THE YEAR UNDER CONSID ERATION THE APPELLANT PAID A TOTAL INTEREST OF RS.6,79,50,566/ - ON BORROWINGS MADE FOR THE PURPOSE OF BUSINESS. IT WAS ARGUED THAT THE AO EXAMINED THE BOOKS OF ACCOUNTS AND VERIFIED THE INTEREST EXPENDITURE AND WHOLLY ALLOWED THE SAME AS 'BUSINESS EXPENDIT URE'. IT WAS ALSO ARGUED THAT THE BORROWED FUNDS ON WHICH THE AFORESAID INTEREST WAS PAID WAS PARTLY UTILIZED BY THE APPELLANT FOR PURCHASING FOR'S TO BE KEPT AS MARGIN MONEY FOR PURCHASE OF RAW - MATERIAL. 9. I FIND THAT THE ISSUE IN QUESTION, WHETHER THE INTEREST 'EXPENDITURE INCURRED BY THE APPELLANT ON FUNDS BORROWED FOR PURCHASE OF FDR'S ON WHICH INTEREST INCOME WAS EARNED IS AN ADMISSIBLE DEDUCTION U/S 57(III) OR NOT? ON PERUSAL OF MATERIAL ON RECORD, IT IS (RESPECTIVE COPIES OF BANK ACCOUNTS) SEEN TH AT THERE IS A DIRECT NEXUS BETWEEN EACH F D R PURCHASED BY THE APPELLANT FOR KEEPING THE MARGIN MONEY WITH GOLD SUPPLIERS AND THE RESPECTIVE BORROWINGS FOR MAKING SUCH F D R'S. THE AR OF THE APPELLANT FILED A CHART IN EACH CASE GIVING THE DATE OF F D R, THE BANK IN WHICH THE F D R HAS BEEN PURCHASED ALONG WITH THE DETAILS FROM WHICH BANK THE LOAN WAS PROCURED, RATE OF INTEREST AND COST OF INTEREST PAID IN RESPECT OF SUCH BORROWINGS. THIS EVIDENCE, CLEARLY REFLECTED A DIRECT NEXUS BETWEEN THE INTEREST BEARING LOAN O UT OF WHICH F D R'S HAVE BEEN PURCHASED. IT IS SEEN THAT DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT PAID AN INTEREST OF RS.77,69,101/ - FOR LOANS RAISED FOR PURCHASE OF FD R'S ON WHICH INTEREST INCOME OF RS.77,03,897/ - HAS BEEN EARNED. WHILE COMING TO THIS CONCLUSION, RELIANCE ALSO IS PLACED ON THE FINDING OF THE A O WHO PASSED AN ORDER ON THE DIRECTIONS OF THE HON'BLE ITAT ON 8.12.2011 FOR THE A.Y. 2007 - 08. A RELEVANT PORTION OF THE ORDER DATED 8.12.2011 PASSED BY THE A O FOR THE A.Y. 2007 - 08 IS REPRODUC ED BELOW: 'THE DEPARTMENT FILED AN APPEAL BEFORE THE IT AT AGAINST THE ORDER OF CIT(A) - XXVI. THE ITA T VIDE ORDER DATED 27.8.2010 HAS SET ASIDE THE ORDER OF CIT(A) AND RESTORED THE MATTER TO THE ASSESSING OFFICER TO DECIDE THE MATTER AFRESH WITH THE REMARKS REPRODUCED AS UNDER: ITA NO. 4507 /DEL/2012 9 IT IS WELL SETTLED LAW THAT THE EXPENDITURE INCURRED OR EARNING THE INCOME HAS TO BE SET OFF AGAINST THE INCOME UNDER THE PROVISION CONTAINED U/S 57(III). THEREFORE, THE QUESTION BEFORE US IS WHETHER ANY EXPENDITURE HAS BEEN INCURRE D BY THE ASSESSEE IN EARNING THE INTEREST? THE LD. CIT(A) HAS NOT GIVEN ANY DIRECT FINDING IN THIS MATTER WHEN IT HAS BEEN MENTIONED BY HIM THAT IN THIS WAY, THE ASSESSEE COULD PARTIAL SET OFF THE COST OF BORROWING FOR THE PURPOSE OF PURCHASE OF GOLD. WE A RE OF THE VIEW THAT THIS FINDING DOES NOT REALLY SUPPORT THE DEDUCTION OF ANY INTEREST PAID BY THE ASSESSEE AGAINST INTEREST INCOME EARNED OF FDR'S. TO GIVE A CORRECT FINDING IN THE MATTER THE SOURCE OF INVESTMENT IN THE FDR'S HAS TO BE EXAMINED AS TO WHET HER THE SAME WAS MADE OUT OF INTERNA L ACCRUALS OR FROM BORROWINGS MADE FROM THE BANK OR ANY OTHER PARTY ON WHICH INTEREST HAS BEEN PAID. THE NETTING IS PERMISSIBLE ONLY IF INVESTMENT HAS BEEN MADE OUT OF BORROWED FUNDS ON WHICH INTEREST HAS BEEN PAID. SINC E NO CATEGORICAL FINDING HAS BEEN GIVEN OF THIS ISSUE, WE THINK IT FIT TO RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR CONSIDERING THE MATTER AND DECIDE THE ISSUE OF NETTING ON THE BASIS OF THE PRINCIPALS LAID DOWN AS AFORESAID'. 1.1) THE DEPARTMENT FILED AN APPEAL BEFORE THE HON'BLE DELHI HIGH COURT AGAINST THE ORDER OF THE ITAT WHICH HAS BEEN DISMISSED ON 25/07/2011 AGAINST WHICH NO SLP HAS BEEN FILED. 2.) AS PER DIRECTIONS OF THE ITAT, NOTICE U/S 143(2) WAS ISSUED TO FRAME ASSESSMENT A FRESH. IN RESP ONSE TO THE NOTICE, SH. SHARAD J AIN, CA AND AR OF THE ASSESSEE, ATTENDED ASSESSMENT PROCEEDINGS AND FILED NECESSARY DETAILS. 3). THE ASSESSEE HAS SUBMITTED PROOF OF DIRECT NEXUS OF BANK FDR'S WITH RECEIPT OF BANK LOANS. THE ASSESSEE HAS FIL ED DETAILED CHART SHOWING AMOUNT OF RAISED WHICH HAVE BEEN UTILIZED FOR MAKING FDR'S. THE DETAILS FILED REVEALS THAT THE ASSESSED HAS INCURRED EXPENDITURE OF RS.62,93,022/ - FOR EARNING INTEREST INCOME OF RS.52,37,20B/ - . AS PER PROVISIONS OF SECTION 57 ( III) 'ANY EXPENDITURE, NOT BEING A EXPENDITURE OF A CAPITAL NATURE EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME CAN BE CLAIMED AS A DEDUCTION'. AS THE ASSESSEE HAS SUBMITTED EVIDENCE OF FUNDS BORROWED FOR MAKING FDR'S, THE E XPENDITURE ON INTEREST IS ADMISSIBLE. 9.1 DURING THE AY. 2008 - 09, THE AO, THOUGH EXAMINED THE CASE, DID NOT RELY ON THE FINDING GIVEN BY THE AO IN HIS ORDER DATED 8.12.2011, WHICH WAS PASSED ON THE DIRECTIONS OF THE HON'BLE IT AT, PREDOMINANTLY DUE TO TH E FACT THAT THE ISSUE IN QUESTION HAS NOT ATTAINED A FINAL END AND WAS PENDING TILL THE TIME THE DEPARTMENT DID NOT FILE AN SLP AFTER THE ORDER DATED 25.7.2011. THE HON'BLE DELHI HIGH COURT VIDE ITS ORDER DATED 25.7.2011 DISMISSED THE APPEAL OF THE DEPARTM ENT. THEREFORE, CONSIDERING THE FACTS AND CIRCUMSTANCES ITA NO. 4507 /DEL/2012 10 OF THE CASE, FINDINGS GIVEN BY THE AO IN HIS ORDER DATED 8.12.2011 FOR THE A.Y. 2007 - 08 WHICH ARE ANALOGOUS AND IDENTICAL TO THE FACTS AND CIRCUMSTANCES IN THE PRESENT CASE AND IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS, I HOLD THAT THE INTEREST EXPENDITURE INCURRED BY THE APPELLANT ON FUNDS BORROWED FOR PURCHASE OF F D R'S ON WHICH INTEREST INCOME HAS BEEN EARNED IS AN ADMISSIBLE DEDUCTION U/S 57(III) OF THE IT ACT. THE ASSESSING OFFICER IS ACCORDI NGLY DIRECTED TO ALLOW SET OFF INTEREST PAID BY THE APPELLANT TO THE BANK ON FUNDS BORROWED FOR PURCHASE OF FD R'S AGAINST THE INTEREST INCOME EARNED ON SUCH F D R'S UNDER PROVISIONS CONTAINED IN SECTION 57(III) OF THE ACT. THEREFORE, THE APPELLA NT SUCCEEDS O N THIS GROUND. 12. IN VIEW OF ABOVE, WE OBSERVE THAT DURING THE A Y 2008 - 09, THE AO PASSED AN APPEAL EFFECT VIDE ORDER DATED 8.12.2011 IN PURSUANCE TO THE DIRECTION OF THE ITAT. THE HON BLE DELHI HIGH COURT DISMISSED THE APPEAL OF THE DEPARTMENT , FILED AG AINST THE ORDER OF THE TRIBUNAL BY ORDER DATED 25.07.2011 . T HE CIT(A) ALSO HELD THAT THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE ON FUNDS BORROWED FOR PURCHASE OF FDR S OUT OF WHICH INTEREST INCOME HAS BEEN EARNED IS AN ADMISSIBLE DEDUCTION U/S 57(II I) OF THE ACT AND ACCORDINGLY , THE AO WAS DIRECTED TO ALLOW SET OF F OF INTEREST PAID BY THE ASSESSEE TO THE BANK ON FUNDS BORROWED FOR PURCHASE OF FDR S AGAINST THE INTEREST INCOME EARNED ON SUCH FDR S UNDER THE PROVISIONS OF SECTION 57(III) OF THE ACT. UN DER ABOVE NOTED FACTS AND CIRCUMSTANCES, WE ARE INCLINED TO HOLD THAT THE CIT(A) WAS QUITE JUSTIFIED AND CORRECT IN FOLLOWING THE ORDER OF THE TRIBUNAL , WHICH WAS UPHELD BY THE JURISDICTIONAL HIGH COURT OF DELHI FOR AY 2007 - 08 IN GRANTING RELIEF TO THE ASS ESSEE AND ALLOWING SETTING OF INTEREST PAID BY THE ASSESSEE TO THE BANK ON FUNDS BORROWED FOR PURCHASE OF FDR S AGAINST THE INTEREST INCOME ITA NO. 4507 /DEL/2012 11 EARNED BY THE ASSESSEE ON SUCH FDR S UNDER THE PROVISIONS OF SECTION 57(III) OF THE ACT. WE ARE UNABLE TO SEE ANY IN FIRMITY, PERVERSITY OR ANY OTHER VALID REASON TO INTERFERE WITH THE SAME AND HENCE WE UPHELD THE ORDER OF THE FIRST APPELLATE AUTHORITY ON THIS ISSUE. ACCORDINGLY, SOLE GROUND OF THE R EVENUE BEING DEVOID OF MERIT IS DISMISSED. 13. IN THE RESULT APPEAL O F THE REVENUE IS DISMISSED. THE DECISION IS PRONOUNCED IN THE OPEN COURT ON 2 9 TH JULY , 2015. SD/ - SD/ - ( J.S. REDDY ) (CHANDRAMOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 2 9 TH JULY , 2015. AKS/ - COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI