Suresh Chand Agrawal, New Delhi V. ACIT Circle-25(2), New Delhi

ITA 4667/DEL/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 2306 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Appeal Filed On: 23-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C.P. SINGH
• Keywords: Business expenditure; Commercial expediency
• Section: 56; 143(2); 20

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI SMC-I BENCH, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER ITA NO. 4667/DEL/2019 [ASSESSMENT YEAR: 2015-16] SURESH CHAND AGRAWAL, VS. ACIT, CIRCLE 25(2) , A-104-A, ASHOK VIHAR-III, NEW DELHI NEAR LAXMI BAI COLLEGE, DELHI 110 092 (PAN: AAHPA7386E) [APPELLANT] [RESPONDENT] ASSESSEE BY: SHRI VED JAIN, ADVOCATE REVENUE BY : SH. C.P. SINGH, SR. D R. ORDER THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF THE LD. COMMISSIONER OF INCOME TAX [APPEALS-27], NEW DELHI DATED 14.3.2019 PERTAINING TO ASSESSMENT YEAR 2015-16 ON THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER PASSED BY THE LD. CIT(A) IS BAD BOTH IN THE EYE OF LAW AND ON FACTS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF AN AMOUNT OF RS. 6,05,398/- ON ACCOUNT OF EXPENDITURE CLAIMED BY THE ASSESSEE UNDER SECTION 57(III) OF THE INCOME TAX ACT. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE DESPITE THE FACT THAT THE INTEREST EXPENDITURE HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING THE INTEREST INCOME. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED BOTH ON FACTS AND IN 2 LAW IN CONFIRMING THE DISALLOWANCE BY ARBITRARILY REJECTING THE EXPLANATION AND EVIDENCE BROUGHT ON RECORD BY THE ASSESSEE IN THIS REGARD. 5. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ANY OF THE GROUNDS OF APPEAL. 2. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE OR DERS OF THE REVENUE AUTHORITIES ALONGWITH THE WRITTEN SUBMISSIO NS FILED BY THE LD. COUNSEL FOR THE ASSESSEE AS WELL AS THE PAPER B OOK FILED BY THE LD. COUNSEL FOR THE ASSESSEE CONTAINING PAGES 1-56 IN WHICH HE HAS ATTACHED THE DOCUMENTARY EVIDENCES FOR SUBSTANT IATING THE CLAIM OF THE ASSESSEE. ASSESSEE HAS FILED THE PRESE NT APPEAL AGAINST THE IMPUGNED ORDER DATED 14.3.2019 PASSED BY THE LD . CIT(A) WHEREIN, THE LD. CIT(A) HAS PARTLY ALLOWED THE APPE AL OF THE ASSESSEE AND CONFIRMED THE DISALLOWANCE OF RS. 6,05,398/- ON ACCOUNT OF EXPENDITURE CLAIMED BY THE ASSESSEE UNDER SECTION 57(III) OF THE INCOME TAX ACT, 1961. 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND HAS EARNED INCOME UNDER THE HEAD SALARY, HOUSE PROP ERTY, CAPITAL ACCOUNT AND OTHER SOURCES DURING THE YEAR UNDER CON SIDERATION. THE RETURN OF INCOME WAS FILED ON 26.08.2015 DECLARING INCOME OF RS. 6,85,200/-. THE ASSESSING OFFICER SELECTED THE CASE OF THE ASSESSEE FOR SCRUTINY UNDER CASS AND ACCORDINGLY NOTICE U/S. 143(2) OF THE INCOME TAX ACT, 1961 WAS ISSUED TO THE ASSESSEE ON 05.8.2016. THEREAFTER VARIOUS STATUTORY NOTICES WERE ISSUED FR OM TIME TO TIME. THE REPLY OF THE SAME WAS SUBMITTED FROM TIME TO TI ME BY THE ASSESSEE. DURING THE YEAR UNDER CONSIDERATION, ASSE SSEE HAS TAKEN LOAN FROM NBFCS @14% (CHOLA MANGALAM INVESTMENT & F INANCE LTD.), FULLERTON INDIA CREDIT CO. LTD. AND GE CAPIT AL) FOR THE PURPOSE OF MAKING INVESTMENT. HOWEVER, DUE TO NON-MATERIALI ZATION OF DEAL THE AVAILABLE FUNDS OF THE ASSESSEE WERE INVESTED B Y HIM IN FIXED 3 DEPOSIT @9%, SO AS TO EARN INTEREST INCOME FROM THE SAME. THE ASSESSEE EARNED INTEREST INCOME AMOUNTING TO RS. 16 ,17,144/- AND INCURRED INTEREST EXPENSES AMOUNTING TO RS. 25,94,4 68/- ON ACCOUNT OF LOANS TAKEN FROM FOLLOWING NBFCS, RESULTING IN T HE NET INTEREST LOSS OF RS. 9,77,324/-. THE DETAILS OF DEDUCTION CLAIMED UNDER SECTION 57 OF THE ACT, WHICH IS ATTACHED IN PAPER B OOK AT PAGES 15- 17. AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, THE AO MADE THE DISALLOWANCE U/S. 57 OF THE ACT BY HOLD ING THAT THE LOSS THAT THE EXPENSES INCURRED FOR THE PURPOSE OF INVESTMENT IS NOT SUBSTANTIATED BY PLACING ANY MATERIAL ON RECORD EXC EPT THE FDR/SAVING FROM WHICH HE EARNED THE INTEREST INCOME OF RS. 16,17,144/-. UNDER THE CONTEXT ASSESSEES CLAIM OF INTEREST PAYMENT TO THE EXTENT OF RS. 9,77,324/- (RS. 25,94, 468- RS.16,17,144). AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A), WHO VIDE HIS IMPUGNED ORDER DATED 14.3.2019 UPHELD THE ADDITION OF RS. 6,05,368/-. AGAINST THE IMPUGNED ORDER, THE ASSES SEE FILED THE APPEAL BEFORE THE TRIBUNAL. 4. I HAVE GONE THROUGH THE WRITTEN SUBMISSIONS FILE D BY THE LD. COUNSEL FOR THE ASSESSEE AND THE ARGUMENTS ADVANCED BY THE LD. SR. DR ALONGWITH THE ORDERS PASSED BY THE REVENUE AUTHORITIES AS WELL AS THE DOCUMENTARY EVIDENCES FILED BY THE LD. COUNSEL FOR THE ASSESSEE IN THE SHAPE OF PAPER BOOK AND I AM OF TH E VIEW THAT THE REVENUE AUTHORITY HAS NOT DOUBTED THE NEXUS BETWEEN THE LOAN TAKEN FROM NBFCS AND THE AMOUNT INVESTED IN FDR IS NOT DOUBTED BY THE ASSESSING OFFICER. IT IS A SETTLED LAW THAT THE DEDUCTION U/S. 57(III) OF THE ACT WILL BE ALLOWABLE EVEN IF NO INC OME IS EARNED BY THE ASSESSEE U/S. 56 OF THE ACT. THE LANGUAGE OF SECTIO N 57(III) OF THE ACT DOES NOT ANYWHERE SPECIFIES THAT ANY INCOME SHO ULD HAVE BEEN 4 EARNED AS A RESULT OF THE EXPENDITURE INCURRED. IT ONLY SPECIFIED THAT THE PURPOSE OF EXPENDITURE SHOULD BE THAT OF EARNIN G INCOME, IT IS MANDATORY THAT INCOME SHOULD HAVE BEEN EARNED BY TH E ASSESSEE. KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, I AM OF THE VIEW THAT THE ADDITION IN DISPUTE IS CON TRARY TO LAW AND FACTS ON THE FILE AND THEREFORE, THE SAME IS HEREB Y DELETED. MY AFORESAID VIEW IS FULLY SUPPORTED BY THE FOLLOWING CASE LAWS:- I) THE HON'BLE SC IN THE CASE OF CIT VS. RAJENDRA PRASAD MOODY, [1978] 115 ITR 519 (SC) HAS HELD AS UNDER: 'WHAT S. 57(III) REQUIRES IS THAT THE EXPENDITURE MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING INCOME. IT IS THE PURPOSE OF THE EXPENDITURE THAT IS RELEVANT IN DETERMINING THE APPLICABILITY OF S. 57(III) AND THA T PURPOSE MUST BE MAKING OR EARNING OF INCOME. S. 57(III) DOES NOT REQUIRE THAT THIS PURPOSE MUST BE FULFILLED IN ORDER TO QUALIFY THE EXPENDITURE FOR DEDUCTION. IT DOES NOT SAY THAT THE EXPENDITURE SHALL BE DEDUCTIBLE ONLY IF ANY INCOME IS MADE OR EARNED. THERE IS IN FACT NOTHING IN THE LANGUAGE OF S. 57(III) TO SUGGEST THAT THE PURPOSE FOR WHICH TH E EXPENDITURE IS MADE SHOULD FRUCTIFY INTO ANY BENEFI T BY WAY OF RETURN IN THE SHAPE OF INCOME. THE PLAIN NATURAL CONSTRUCTION OF THE LANGUAGE OF S. 57(III) IRRESISTIBLY LEADS TO THE CONCLUSION THAT TO BRING A CASE WITHIN THE SECTION, IT IS NOT NECESSARY THAT A NY INCOME SHOULD IN FACT HAVE BEEN EARNED AS A RESULT OF THE EXPENDITURE. IT MAY BE POINTED OUT THAT AN 5 IDENTICAL VIEW WAS TAKEN BY THIS COURT IN EASTERN INVESTMENTS LTD. V. CIT [1951] 20 ITR 1, 4 (SC), WHERE INTERPRETING THE CORRESPONDING PROVISION IN S . 12(2) OF THE INDIAN /. T. ACT, 1922, WHICH WAS IPSISSIMA VERBA IN THE SAME TERMS AS S. 57(III). BOSE J., SPEAKING ON BEHALF OF THE COURT, OBSERVED: 'IT IS NOT NECESSARY TO SHOW THAT THE EXPENDITURE WAS A PROFITABLE ONE OR THAT IN FACT ANY PROFIT WAS EARNED. IT IS INDEED DIFFICULT TO SEE HOW, AFTER THIS OBSERVATION OF THE COURT, THERE CAN BE ANY SCOPE FO R CONTROVERSY IN REGARD TO THE INTERPRETATION OF S. 57(III)'. II) THE HON'BLE DELHI HIGH COURT IN THE CASE OF VODAFONE SOUTH LTD. VS. CIT, [2015] 3781TR 410 HAVE HELD: '22. IN THE PRESENT CASE, THE ADVANCING OF LOAN TO SCL WAS A BUSINESS DECISION TAKEN BY THE ASSESSEE OUT OF COMMERCIAL EXPEDIENCY. FURTHER, THE SANCTION LETTER OF HSBC MADE IT CLEAR THAT THE ASSESSEE COUL D DRAW LOANS UP TO THE SANCTIONED LIMIT AS AND WHEN NEEDED. THE SANCTION LETTER ALSO PERMITTED THE ASSESSEE TO FURTHER UTILISE THE MONEY BORROWED TO ADVANCE LOANS TO OTHERS. THE SUM OF RS. 25 CRORES DRAWN BY THE ASSESSEE ON 24TH DECEMBER 2001 IN TERMS OF HSBC'S SANCTION LETTER WAS TRANSFERRED TO SCL ON THE VERY SAME DATE. WITHOUT THE FACILITY OF 6 CREDIT BY THE HSBC, THE ASSESSEE COULD NOT HAVE ADVANCED THE LOAN TO SCL. THEREFORE, THERE WAS A DIRECT NEXUS BETWEEN THE EARNING OF INTEREST ON THE LOAN ADVANCED BY THE ASSESSEE TO SCL AND PAYMENT OF INTEREST TO HSBC ON THE LOAN DRAWN IN TERMS OF THE SANCTION LETTER DATED 2ND AUGUST 2001. THE INCOME EARNED ON THE LOAN ADVANCED TO SCL WAS RIGHTLY OFFERED TO TAX BY THE ASSESSEE AS 'INCOME FROM OTHER SOURCES', SINCE THE INTEREST PAID TO HSB C ON THE LOAN AVAILED WAS IN THE NATURE OF AN EXPENDITURE WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF EARNING THE INTEREST INCOME, IT OUGHT TO BE PERMITTED TO BE NETTED AGAINST SUCH 'INCOME FROM OTHER SOURCES IN TERMS OF SECTION 57 (III). III) IN THE CASE OF RAJ KUMAR SHARMA VS. ACIT, ITA NO. 3083/0/2018 -ITAT DELHI, HAS HELD AS UNDER: '4.3 AFTER READING THE AFORESAID JUDICIAL PRONOUNCEMENT IT IS CLEAR THAT THE AD HAS WRONGLY DISALLOWED THE EXPENDITURE CLAIMED BY THE ASSESSEE U/S 36(1)(III) OF THE ACT, BY ALLEGING THAT THE INTEREST EXPENDITURE WERE NOT DIRECTLY RELATED TO T HE BUSINESS OF THE ASSESSEE. EVEN OTHERWISE, IF THE SAID EXPENDITURE IS NOT ALLOWABLE AS A BUSINESS EXPENDITURE, THEN THE INTEREST EXPENDITURE IS ALLOWABLE AS A DEDUCTION U/ S 57(III) OF THE ACT. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD EARNED INTEREST ON FDR AMOUNTING TO RS. 13,41,303/- AND A TOTAL 7 EXPENDITURE ON INTEREST ON LOAN AND BANK INTEREST AMOUNTING TO RS. 14,90,125/- AS PER THE LANGUAGE OF SECTION 57(III) OF THE ACT, THE EXPENDITURE WHIC H IS WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF EARNING INCOME CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES, IS ALLOWED AS DEDUCTION FROM THE SAID INCOME OF THE ASSESSEE. THUS, IT CAN BE CONCLUDED THAT THERE IS A DIRECT NEXUS BETWEEN THE INCOME EARNED AND THE EXPENDITURE INCURRED WHICH SHOULD ALLOWABLE AS A DEDUCTION U/S 57(III) OF THE ACT. 4.4 KEEPING IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND RESPECTFULLY FOLLOWING THE PRECEDENTS AS AFORESAID, THE ADDITION MADE BY THE AD AND SUSTAINED BY THE LD. CIT(A) IS HEREBY DELETED BY ALLOWING THE GROUNDS RAISED BY THE ASSESSEE.' 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. THE ORDER PRONOUNCED ON 19.03.2020. SD/- [H.S. SIDHU] JUDICIAL MEMBER DATED:19-03-2020 SRB COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) ASST. REGISTRAR, 5. DR ITAT, NEW DELHI