SHRI MAHENDRA SINGH MEEL, JAIPUR V. INCOME TAX OFFICER, JAIPUR

ITA 55/JPR/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 3666 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 15-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: POONAM RAI DCIT DHK
• Keywords: Question of law; Set aside
• Section: 37(1)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCH SMC, JAIPUR JH FOT; IKY JKWO] U;KF;D LNL; DS LE{K BEFORE: SHRI SHRI VIJAY PAL RAO, JUDICIAL MEMBER VK;DJ VIHY LA-@ ITA NO. 55/JP/2018 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2014-15. SHRI MAHENDRA SINGH MEEL, A-6, MAHAVEER NAGAR-A, MUHANA ROAD, JAIPUR. CUKE VS. THE INCOME TAX OFFICER, WARD 6(2), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. ABKPM 3647 A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI S.L. JAIN (ADVOCATE) JKTLO DH VKSJ LS@ REVENUE BY : SMT. POONAM RAI (DCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 23.09.2019. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 29/10/2019. VKNS'K@ ORDER PER VIJAY PAL RAO, JM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 17.10.2017 OF LD. CIT (APPEALS)-2, JAIPUR FOR THE ASSESSMENT YEAR 2014-15. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. THAT THE LEARNED AUTHORITIES BELOW HAVE GROSSL Y ERRED IN LAW AND FACTS IN PASSING THE ORDER WHICH IS BAD IN LAW AND FACTS. HENCE LIABLE TO BE QUASHED. 2. THAT THE LEARNED AUTHORITIES BELOW HAVE GROSSLY ERRED IN LAW AND FACTS IN MAKING/CONFIRMING DISALLOWANCE OF CLAIM OF INTEREST EXPENSES OF RS. 1,33,335/- ON ASSUMPTION AND PRESUM PTION BASIS. HENCE THE ADDITION IS LIABLE TO BE DELETED. 3. THE APPELLANT HAS RESERVED A RIGHT TO ADD, AMEND OR ALTER ANY GROUND OR GROUNDS OF APPEAL ON OR BEFORE THE APPEAL HEARING. 2 ITA NO. 55/JP/2018 SHRI MAHENDRA SINGH MEEL, JAIPUR. 2. THE ASSESSEE IS AN INDIVIDUAL AND FILED HIS RETU RN OF INCOME ON 21 ST MARCH, 2015 DECLARING TOTAL INCOME OF RS. 6,89,140/- WHICH INCLUDES INCOME FROM HOUSE PROPERTY, BUSINESS AND OTHER SOURCES. DURING THE A SSESSMENT PROCEEDINGS, THE AO NOTED THAT THE ASSESSEE HAS SHOWN INTEREST INCOME A S WELL AS INTEREST PAYMENT. FROM THE DETAILS, THE AO NOTED THAT THE ASSESSEE HA S RECEIVED INTEREST INCOME AT THE MAXIMUM RATE OF 18% WHEREAS IN ONE OF THE PAYMENTS OF INTEREST THE ASSESSEE HAS PAID THE INTEREST AT 20%. ACCORDINGLY, THE AO REST RICTED THE INTEREST PAID AGAINST THE INTEREST RECEIVED BY APPLYING THE RATE AT 18% INSTE AD OF 20% PAID BY THE ASSESSEE IN RESPECT OF ONE PARTY. THE ASSESSEE CHALLENGED T HE ACTION OF THE AO BEFORE THE LD. CIT (A) BUT COULD NOT SUCCEED. 3. BEFORE THE TRIBUNAL, THE LD. A/R OF THE ASSESSEE HAS SUBMITTED THAT WHEN THE ASSESSEE HAS PAID THE INTEREST ON THE BORROWED FUND WHICH HAS BEEN USED FOR EARNING THE INTEREST INCOME, THEN THE EXPENDITURE I NCURRED BY THE ASSESSEE IS WHOLLY AND EXCLUSIVELY FOR EARNING THE INTEREST INCOME. T HUS THE DEDUCTION OF INTEREST PAID IS ALLOWABLE UNDER SECTION 57(III) OF THE ACT. THE RE IS NO PROVISION UNDER SECTION 57 TO RESTRICT THE CLAIM OF EXPENDITURE ON THE GROUND THAT THE EXPENDITURE IS MORE THAN THE INCOME. IN SUPPORT OF HIS CONTENTION, HE HAS RE LIED UPON THE DECISION OF HONBLE SUPREME COURT IN CASE OF CIT VS. RAJENDRA PRASAD MO ODY, 115 ITR 519 (SC) AS WELL AS THE DECISION OF HONBLE PUNJAB & HARYANA HIGH CO URT IN CASE OF CIT VS. PANKAJ MUNJAL FAMILY TRUST, 326 ITR 286 (P&H) AND SUBMITTE D THAT THE HONBLE SUPREME COURT HAS HELD THAT IT IS NOT NECESSARY THAT ANY IN COME SHOULD IN FACT HAVE BEEN EARNED AS A RESULT OF THE EXPENDITURE. THE ONLY RE QUIREMENT FOR ALLOWING THE DEDUCTION UNDER SECTION 57(III) IS THAT THE EXPENDI TURE MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING INCOME. IT DOES NOT 3 ITA NO. 55/JP/2018 SHRI MAHENDRA SINGH MEEL, JAIPUR. REQUIRE THAT THIS PURPOSE MUST BE FULFILLED IN ORDE R TO QUALIFY THE EXPENDITURE FOR DEDUCTION. THEREFORE, THERE IS NO SUCH CONDITION TH AT THE EXPENDITURE SHALL BE DEDUCTED ONLY IF ANY INCOME IS MADE OR EARNED. THU S THE LD. A/R HAS SUBMITTED THAT THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY TH E LD. CIT (A) IS UNJUSTIFIED AND NOT SUSTAINABLE IN LAW. 4. ON THE OTHER HAND, THE LD. D/R HAS RELIED UPON T HE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE AO HAS MADE THE DISALL OWANCE OF INTEREST ONLY IN RESPECT OF ONE TRANSACTION OF PAYMENT OF INTEREST @ 20% WHEREAS THE ASSESSEE HAS EARNED THE INTEREST AT THE MAXIMUM RATE OF 18%. THU S THE AO HAS RESTRICTED THE PAYMENT OF INTEREST TO 18%. 5. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS RECEIVED INTEREST INCOME AS WELL AS PAID INTEREST EXPENDITURE, THE DETAILS OF WHICH HAS BEEN REPRODUC ED BY THE AO IN THE ASSESSMENT ORDER AS UNDER :- S. NO. NAME OF THE PARTY INTEREST RECEIVED RATE 1. UNIVERSAL CORPORATION 2473382/ - 18% 2. CITY BUILDTECH 12903/ - 6% 3. MEEL TRADERS 45570/ - 15% 4. VIKAS TRADERS 174024/ - 12% 5. VAIBHAV ENTERPRISES 2988/ - 18% FURTHER THE ASSESSEE HAS ALSO PAID FOLLOWING INTER EST TO PARTIES :- S.NO. NAME OF THE PARTY INTEREST PAID RATE 1. ROYAL ENSIGN REALTECH P LTD. 1333347/ - 20% 2. VAIBHAV ENTERPRISES 832744/ - 18% 3. RAJARAM MEEL 266947/ - 12% 4. BANKS 84318/ - 12% 4 ITA NO. 55/JP/2018 SHRI MAHENDRA SINGH MEEL, JAIPUR. THUS THE ASSESSEE HAS RECEIVED TOTAL INTEREST INCOM E OF RS. 27,08,867/- FROM 5 PARTIES AND PAID INTEREST OF RS. 25,17,356/- WHICH HAS RESULTED NET INTEREST INCOME OF RS. 1,91,511/-. AS IT IS CLEAR FROM THE DETAILS OF THE INTEREST INCOME AND INTEREST PAYMENT THAT THE ASSESSEE HAS RECEIVED INTEREST @ 1 8%, 6%, 15%, 12% AND 18% RESPECTIVELY FROM 5 PARTIES WHEREAS THE INTEREST PA ID BY THE ASSESSEE IS 20%, 18%, 12% AND 12% RESPECTIVELY TO 4 PARTIES. THE AO HAS NOT DOUBTED THE GENUINENESS OF THE PAYMENT AND ALSO NOT GIVEN A FINDING THAT TH E PAYMENT IS EITHER INFLATED BY THE ASSESSEE. ONCE THE INTEREST IS PAID TO A THIRD PARTY WHICH IS NOT RELATED TO THE ASSESSEE, THEN IT IS A COMMERCIAL DECISION OF THE A SSESSEE TO TAKE THE FUNDS AT AN INTEREST RATE WHICH MAY BE HIGHER THAN THE NORMAL P REVAILING RATE DUE TO PRESSING CIRCUMSTANCES OR URGENT NEED OF FUNDS. WHEN THE AO HAS NOT DISPUTED THE CORRECTNESS OF THE PAYMENT AND GENUINENESS OF THE T RANSACTION, THEN MERELY BECAUSE THE PAYMENT OF INTEREST TO ONE OF THE PARTI ES IS HIGHER THAN THE AVERAGE EARNING OF INTEREST, THE SAME CANNOT BE A REASON FO R DISALLOWING THE CLAIM OF INTEREST EXPENDITURE. THE ONLY REQUIREMENT FOR ALLOWING THE DEDUCTION UNDER SECTION 57(III) IS THAT THE EXPENDITURE HAS BEEN INCURRED WHOLLY AND E XCLUSIVELY FOR THE PURPOSE OF EARNING THE INCOME. THUS THE PURPOSE OF EXPENDITURE IS RELEVANT AND NOT THE END RESULT OF SUCH EXPENDITURE LAID OUT BY THE ASSESSEE . THE HONBLE SUPREME COURT IN CASE OF CIT VS. RAJENDRA PRASAD MOODY (SUPRA) HAS H ELD IN PARA 4 TO 6 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 DETE RMINING THE APPLICABILITY OF S. 57( III ) AND THAT PURPOSE MUST BE MAKING OR EARNING OF INC OME. S. 57( III ) DOES NOT REQUIRE THAT THIS PURPOSE MUST BE FULFILLE D 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. TH ERE IS IN FACT NOTHING IN THE 5 ITA NO. 55/JP/2018 SHRI MAHENDRA SINGH MEEL, JAIPUR. LANGUAGE OF S. 57( III ) TO SUGGEST THAT THE PURPOSE FOR WHICH THE EXPENDI TURE IS MADE SHOULD FRUCTIFY INTO ANY BENEFIT BY WAY OF RET URN 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 SECT ION, IT IS NOT NECESSARY THAT ANY INCOME SHOULD IN FACT HAVE BEEN EARNED AS A RES ULT OF THE EXPENDITURE. IT MAY BE POINTED OUT THAT AN 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 I .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 W AS A PROFITABLE ONE OR THAT IN FACT ANY PROFIT WAS EARNED.' IT IS INDEED DIFFICULT TO SEE HOW, AFTER THIS OBSER VATION OF THE COURT, THERE CAN BE ANY SCOPE FOR CONTROVERSY IN REGARD TO THE INTERPRE TATION OF S. 57( III ). IT IS ALSO INTERESTING TO NOTE THAT, ACCORDING TO T HE REVENUE, THE EXPENDITURE WOULD DISQUALIFY FOR DEDUCTION ONLY IF NO INCOME RE SULTS FROM SUCH EXPENDITURE IN A PARTICULAR ASSESSMENT YEAR, BUT IF THERE IS SOME INCOME, HOWSOEVER SMALL OR MEAGRE, THE EXPENDITURE WOULD BE ELIGIBLE FOR DEDUCTION. THIS MEANS THAT IN A CASE WHERE THE EXPENDITURE IS RS. 1,000, IF THERE IS INCOME OF EVEN RE. 1, THE EXPENDITURE WOULD BE DEDUCTIBLE AND THERE WOULD BE RESULTING LOSS OF RS. 999 UNDER THE HEAD 'INCOME FR OM OTHER SOURCES'. BUT IF THERE IS NO INCOME, THEN, ON THE ARGUMENT OF THE RE VENUE, THE EXPENDITURE WOULD HAVE TO BE IGNORED AS IT WOULD NOT BE LIABLE TO BE DEDUCTED. THIS WOULD INDEED BE A STRANGE AND HIGHLY ANOMALOUS RESULT AND IT IS DIFFICULT TO BELIEVE THAT THE LEGISLATURE COULD HAVE EVER INTENDED TO PR ODUCE SUCH ILLOGICALITY. MOREOVER, IT MUST BE REMEMBERED THAT WHEN A PROFIT AND LOSS ACCOUNT IS CAST IN RESPECT OF ANY SOURCE OF INCOME, WHAT IS ALLOWED BY THE STATUTE AS PROPER EXPENDITURE WOULD BE DEBITED AS AN OUTGOING AND INC OME WOULD BE CREDITED AS A RECEIPT AND THE RESULTING INCOME OR LOSS WOULD BE DETERMINED. IT WOULD MAKE NO DIFFERENCE TO THIS PROCESS WHETHER THE EXPENDITU RE IS X OR Y OR NIL, WHATEVER IS THE PROPER EXPENDITURE ALLOWED BY THE S TATUTE WOULD BE DEBITED. EQUALLY, IT WOULD MAKE NO DIFFERENCE WHETHER THERE IS ANY INCOME AND IF SO, WHAT, SINCE WHATEVER IT BE, X OR Y OR NIL, WOULD BE CREDITED. AND THE ULTIMATE INCOME OR LOSS WOULD BE FOUND. WE FAIL TO APPRECIAT E HOW EXPENDITURE WHICH IS OTHERWISE A PROPER EXPENDITURE CAN CEASE TO BE S UCH MERELY BECAUSE THERE IS NO RECEIPT OF INCOME. WHATEVER IS A PROPER OUTGOING BY WAY OF EXPENDITURE MUST BE DEBITED IRRESPECTIVE OF WHETHER THERE IS RE CEIPT OF INCOME OR NOT. THAT IS THE PLAIN REQUIREMENT OF PROPER ACCOUNTING AND T HE INTERPRETATION OF S. 57( III ) CANNOT BE DIFFERENT. THE DEDUCTION OF THE EXPENDITU RE CANNOT, IN THE CIRCUMSTANCES, BE HELD TO BE CONDITIONAL UPON THE M AKING OR EARNING OF THE INCOME. IT IS TRUE THAT THE LANGUAGE OF S. 37(1) IS A LITTL E WIDER THAN THAT OF S. 57( III ), BUT WE DO NOT SEE HOW THAT CAN MAKE ANY DIFFERENCE IN T HE TRUE INTERPRETATION OF S. 57( III ). THE LANGUAGE OF S. 57( III ) IS CLEAR AND UNAMBIGUOUS AND IT HAS TO BE CONSTRUED ACCORDING TO ITS PLAIN NATURAL MEANING AN D MERELY BECAUSE A SLIGHTLY WIDER PHRASEOLOGY IS EMPLOYED IN ANOTHER SECTION WH ICH MAY TAKE IN SOMETHING MORE, IT DOES NOT MEAN THAT S. 57( III ) SHOULD BE GIVEN A NARROW AND 6 ITA NO. 55/JP/2018 SHRI MAHENDRA SINGH MEEL, JAIPUR. CONSTRICTED MEANING NOT WARRANTED BY THE LANGUAGE O F THE SECTION AND, IN FACT, CONTRARY TO SUCH LANGUAGE. SIMILARLY, THE HONBLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT VS. PANKAJ MUNJAL FAMILY TRUST (SUPRA) HAS HELD IN PARA 12 AS UNDER : - 12. AFTER HEARING THE LEARNED COUNSEL FOR THE PARTIES A ND GOING THROUGH THE IMPUGNED ORDER, WE DO NOT FIND ANY FORCE IN THE CON TENTION RAISED BY THE LEARNED COUNSEL FOR THE REVENUE ; AND, IN OUR OPINI ON, NO SUBSTANTIAL QUESTION OF LAW IS ARISING FROM THE IMPUGNED ORDER PASSED BY THE TRIBUNAL. IN THE PRESENT CASE, UNDISPUTEDLY, THE ASSESSEE HAS BORROW ED CERTAIN AMOUNT FROM THE FAMILY CONCERNS AT 16 PER CENT. IT IS ALSO NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS NOT PAID THE INTEREST AT THE SAID RATE TO THE LENDER. MERELY BECAUSE THE ASSESSEE HAS INVESTED THE SAID BORROWED AMOUNT FOR THE PURCHASE OF 4 PER CENT, NON-CUMULATIVE PREFERENCE S HARES, IT CANNOT BE PRESUMED THAT THE SAID TRANSACTION WAS COLOURABLE B ECAUSE NO PERSON WITH ORDINARY PRUDENCE WILL BORROW MONEY AT 16 PER CENT, AND INVEST THE SAME FOR THE PURPOSE OF NON-CUMULATIVE PREFERENCE SHARES. IT IS THE WISDOM OF THE ASSESSEE TO TAKE A BUSINESS DECISION. IF A WRONG OR UNWISE DECISION HAS BEEN TAKEN BY THE ASSESSEE, IT CANNOT BE SAID THAT THE D ECISION IS DUBIOUS, OR THE ASSESSEE IN SUCH TRANSACTION HAS ADOPTED DUBIOUS ME THOD TO EVADE THE PAYMENT OF TAX. IN THE INSTANT CASE, THERE IS NO EV IDENCE OF ANY DUBIOUS METHOD OR PRACTICE ADOPTED BY THE ASSESSEE TAX PLAN NING IS A LEGITIMATE RIGHT OF THE ASSESSEE. IN THE PRESENT CASE, THE ASSESSEE HAS NOT ADOPTED ANY COLOURABLE DEVICE OR DUBIOUS METHOD WHILE BORROWING CERTAIN AMOUNT AT A HIGHER RATE OF INTEREST. THE REVENUE HAS ALSO NOT B ROUGHT ON RECORD ANY EVIDENCE TO SHOW THAT THE INTEREST PAID BY THE ASSE SSEE ON THE AFORESAID BORROWED AMOUNT WAS HIGHLY EXORBITANT AND NO SUCH R ATE OF INTEREST WAS EVER PREVALENT IN THE MARKET. THEREFORE, IN OUR OPINION, THE TRIBUNAL IS RIGHT IN LAW IN ALLOWING INTEREST AS CLAIMED BY THE ASSESSEE. 7 ITA NO. 55/JP/2018 SHRI MAHENDRA SINGH MEEL, JAIPUR. ACCORDINGLY, WHEN THE INTEREST EXPENDITURE WAS LAID OUT BY THE ASSESSEE FOR EARNING THE INTEREST INCOME, THEN THE RATE OF INTEREST FOR PAYMENT OF INTEREST IS NOT RELEVANT FOR THE PURPOSE OF ALLOWING THE DEDUCTION UNDER SEC TION 57(III) OF THE ACT. THE AUTHORITIES BELOW HAVE COMMITTED AN ERROR WHILE DIS ALLOWING THE CLAIM OF INTEREST ON THE GROUND THAT THE PAYMENT IN CASE OF ONE PARTY IS AT A HIGHER RATE THAN THE INTEREST EARNED BY THE ASSESSEE FROM SUCH EXPENDITU RE. THE ORDERS OF THE AUTHORITIES BELOW ARE ACCORDINGLY SET ASIDE AND CLA IM OF THE ASSESSEE IS ALLOWED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 29/10/20 19. SD/- ( FOT; IKY JKWO (VIJAY PAL RAO) U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 29/10/2019. DAS/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- SHRI MAHENDRA SINGH MEEL, JAIPUR. 2. THE RESPONDENT THE ITO WARD 6(2), JAIPUR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 55/JP/2018) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR 8 ITA NO. 55/JP/2018 SHRI MAHENDRA SINGH MEEL, JAIPUR.