HARMAN HARJASPAL SINGH BAWEJA, MUMBAI V. INCOME TAX OFFICER WARD-11(1)(2), MUMBAI

ITA 5641/MUM/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0373 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 05-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N HEMALATHA
• Assessee Lawyers: R C JAIN
• Keywords: Reasonable cause

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO.5641/MUM/2017 ASSESSMENT YEAR : 2011-12 MR HARMAN HARJASPAL SINGH BAWEJA, 65, AASHIRWAD, 2 ND CROSS LANE, LOKHANDWALA COMPLEX, ANDHERI (W), MUMBAI 400 053. PAN AFZPB8018B VS ITO WARD 11(1)(2), MUMBAI (APPELLANT) RESPONDENT) APPELLANT BY : SHRI R C JAIN RESPONDENT BY : MS N HEMALATHA DATE OF HEARING : 16 . 11 .201 7 DATE OF PRONOUNCEMENT : 05 .0 2 . 201 8 O R D E R THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST ORDER OF LEARNED CIT(A)-4, MUMBAI, DATED 15.02.2017 AND PERTAINS TO ASSESSMENT YEAR 2014-15. 2. THE ASSESSEE HAS FOLLOWING GROUNDS OF APPEAL: 1. THE LD. CIT(A) ERRED IN UPHOLDING THE DISALLOWA NCE OF INTEREST OF RS 955027/- U/S 57(III) OF THE ACT. I. IN DOING SO, BOTH THE LD. CIT(A) AND THE ITO DID NO T APPRECIATE THE MATERIAL AND EVIDENCE ON RECORD. YOUR APPELLANT, THEREFORE, SUBMITS THAT DUE RELIEF BE ALLOWED. 3. AT THE OUTSET IT IS NOTED THAT THERE IS A DELAY OF 79 DAYS IN FILING THIS APPEAL. THE REASONABLE CAUSE FOR THE DELAY IS ATTRIBUTED TO THE ILLNESS OF ONE OF THE EMPLOYEES. UPON CAREFUL CONSIDERATION AND HEARING B OTH THE COUNSEL I CONDONE THE DELAY IN FILING THE APPEAL. ITA NO5641/MUM/2017 MR HARMAN HARJASPAL SINGH BAWEJA 2 4. BRIEF FACTS OF THE CASE ARE THAT ACCORDING TO TH E ASSESSING OFFICER THE ASSESSEE HAS SHOWN INTEREST OF ` 35,56,597/- ON LOAN TAKEN FROM DHFL. ASSESSEE WAS ASKED BY LETTER DATED 24.01.2014 TO EXPLAIN THE CLAIM OF EXPENDITURE. IN RESPONSE, ASSESSEE HAS SUBMITTED AN EXPLANATION BY LETTER DATED 31.01.2014. THIS EXPLANATION HAS NOT BEEN ACCEPTED BY THE ASSESSING OFFICER ON THE GROUND THAT THIS LOAN HAS BEEN UTILIZED FOR GIVING ADVANCE TO RELATE D CONCERN ON LOWER RATE OF INTEREST. ACCORDING TO ASSESSING OFFICER, ASSESSEE TOOK LOAN FROM DHFL @14.5% P.A WHEREAS SUCH LOAN HAS BEEN LENT TO RELATED CONCERN ON INTEREST @6.53% HENCE, CORRESPONDING INTEREST EXPENDITURE IS TO BE ALLOWED . IN SUPPORT OF THIS CONTENTION, ASSESSING OFFICER HAS PLACED HIS RELIANCE IN CASES OF : SETH R DALMIA VS. CIT 110 ITR 644 (SC) CIT VS. DR V P GOPINATHAN 248 ITR 449 (SC) OMERODS (INDIA) PVT LTD. VS. CIT 36 ITR 329 (BOM) THUS, ACCORDING TO ASSESSING OFFICER, ASSESSEE HAS OBTAINED LOAN AT HIGHER RATE OF INTEREST BUT HAS DIVERTED IT TO RELATED CONCERN AT LOWER RATE OF INTEREST WHICH IS AGAINST PRINCIPLE ENUNCIATED BY SUPREME COURT FOR A LLOWABILITY OF EXPENDITURE U/S. 57(III) OF INCOME TAX ACT, 1961. 5. UPON ASSESSEE'S APPEAL, LEARNED CIT(A) CONFIRMED THE ASSESSING OFFICER'S ORDER BY HOLDING AS UNDER: 5.2 I HAVE CONSIDERED THE FINDINGS OF THE ASSESSIN G OFFICER AND RIVAL SUBMISSION OF APPELLANT CAREFULLY. I FIND THAT LD. ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE CORRESPONDING INTEREST EXPEN DITURE. IT IS AN ADMITTED FACT THAT ASSESSEE HAS OBTAINED LOAN FROM DHFL BEARING INTEREST RATE OF 14.5%, BUT HAS GIVEN THE BORROWED LOAN TO R ELATED CONCERN @6.53%. THUS, IT IS VERY EVIDENT THAT AS COMPARED TO RATE OF INTEREST ON BORROWED FUND, ASSESSEE HAS CHARGED LESS RATE OF IN TEREST TO HIS RELATED CONCERN OR PERSON. FURTHER, ASSESSEE HAS NOT DEMON STRATED THE BUSINESS BENEFIT OF CHARGING OF INTEREST @6.53%. THEREFORE, THE FINDING OF LD. ASSESSING OFFICER IS UNCONTROVERTED ONE. ASSESSEE HAS NOT EXPLAINED AS TO HOW SUCH ENTIRE EXPENDITURE IS WHOLLY AND EXCLUS IVELY FOR BUSINESS PURPOSES AND HOW LOWER RATE OF INTEREST IS JUSTIFIE D. THEREFORE, CONSIDERING THE FACTS OF THE CASE AND LACK OF JUSTI FICATION OF CHARGING OF LOWER RATE OF INTEREST, THE DISALLOWANCE OF INTERES T EXPENDITURE TO THE EXTENT OF RS.9,55,027/- BY THE ASSESSING OFFICER IS SUSTAINED. AGAINST ABOVE ORDER ASSESSEE IS IN APPEAL BEFORE TH E ITAT. ITA NO5641/MUM/2017 MR HARMAN HARJASPAL SINGH BAWEJA 3 6. I HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RE CORDS. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AUTHORITIES BELOW H AVE NOT APPRECIATED THE FACTS OF THE CASE. HE SUBMITTED THAT ASSESSEE HAS BORROWED F UNDS AND, THEREAFTER, MADE SOME FIXED DEPOSIT AND ALSO GIVEN LOANS FOR THE PUR POSE OF BUSINESS. HE SUBMITTED THAT THE INTEREST RECEIVED/INTEREST PAID BOTH WERE BEING SHOWN IN INCOME FROM OTHER SOURCES. HENCE, LEARNED COUNSEL PLEADED THAT THERE IS NO REASON TO MAKE THE DISALLOWANCE. HE FURTHER SUBMITTED THAT IT IS SETTL ED LAW THAT IF THE ASSESSEE MAKES A LOSS IN HIS TRANSACTION THE SAME CANNOT BE DISALLOW ED, IF IN VIEW OF THE ASSESSING OFFICER ASSESSEE'S ACTION WAS NOT PRUDENT. 7. PER CONTRA LEARNED DEPARTMENTAL REPRESENTATIVE R ELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 8. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. I FIND CONSIDERABLE COGENCY IN THE SUBMISSION OF THE LEARN ED COUNSEL OF THE ASSESSEE THAT AUTHORITIES BELOW HAVE NOT PROPERLY APPRECIATED THE FACTS. THIS IS EVIDENT FROM THE ASSESSING OFFICERS ENQUIRY AND THE RESPONSE FOR TH E SAME BY THE ASSESSEE WHICH IS AS UNDER: IN THE COMPUTATION OF INCOME SUBMITTED BY YOU, YO U HAVE CLAIMED DEDUCTION U/S. 57(1) OF THE I.T.ACT OF RS. 35,56,59 77- AS DEDUCTIONS MADE UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. KI NDLY EXPLAIN THE NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE INTE REST INCOME EARNED. THE EXPENDITURE CLAIMED U/S. 57(1) SHOULD BE INCURR ED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING OR MAKING TH AT PROFIT/INCOME FROM OTHER SOURCES. IN YOUR LETTER DATED 20/01/2014 YOU HAVE STATED THAT, YOU HAVE BORROWED RS. 2.49 CRS. FROM DEWAN HOUSING AND FINANCE PVT. LTD. @ 14.40% P.A. AND YOU HAVE MADE A FIXED DEPOSIT OF RS. 1.40 CRS. AND THE BALANCE RS. 1.09 % WAS USED FOR GENERATING INTE REST INCOME AND FOR THE PURPOSE OF YOUR PROFESSION. KINDLY SHOW CAUSE W HY YOU CLAIM U/S. 57(1) SHOULD NOT BE RESTRICTED TO THE AMOUNT OF INT EREST EARNED. KINDLY EXPLAIN THE CLEAR NEXUS BETWEEN THE EXPENDITURE INC URRED U/S. 57(1) AND THE INCOME EARNED. IN RESPONSE TO THE ABOVE, THE ASSESSEE FILED LETTER DATED 31.01.2014 WHICH READS AS UNDER : ITA NO5641/MUM/2017 MR HARMAN HARJASPAL SINGH BAWEJA 4 '.................EXPENSES U/S. 57(III) IN OUR EARLIER SUBMISSIONS AND REPLY TO THE SHOW CA USE NOTICE WE HAVE EXPLAINED THAT THE INTEREST PAID TO DHFL WAS INCURR ED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF EARNING THE INTERES T INCOME FROM FIXED DEPOSITS, BANK INTEREST AND INTEREST ON LOAN. THERE HAS BEEN NO OTHER DEPLOYMENT OF THE BORROWED FUNDS BY THE ASSESSEE. UNFORTUNATELY SINCE THE INTEREST RATE ON FIXED DEPOSITS AND SB ACCOUNT IS LOWER THAN THE INTEREST ON BORROWED FUND S, THE ASSESSEE HAS INCURRED A LOSS IN THE PROCESS. ACCORDINGLY, WE SUBMIT THAT THERE IS NO EVIDENCE OF THE BORROWED FUNDS NOT BEING USED WHOLLY AND EXCLUSIVELY FOR THE PURPO SE OF INTEREST INCOME. DUE TO THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSEE HAS EARNED A NEGATIVE INTEREST FROM THE LENDING OF MONEY AND S HOULD NOT BE PENALIZED BY THE- TAX AUTHORITIES FOR HAVING SUFFER ED A LOSS IN THE ACTIVITY. DURING THE COURSE OF THE ASSESSMENT HEARING YOU HAV E ASKED US AND ALSO AS STATED IN THE SHOW CAUSE NOTICE AS TO WHY THE IN TEREST EXPENSES SHOULD NOT BE RESTRICTED TO THE INTEREST EARNED. WE SUBMIT AS UNDER : SECTION 57(III) LAYS DOWN AS UNDER ANY OTHER EXPENDITURE (NOT BEING IN THE NATURE OF C APITAL EXPENDITURE) LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME; THERE IS NO CONDITION IN THE SECTION THAT THE EXPEN DITURE SHOULD BE RESTRICTED TO THE AMOUNT OF INCOME OR THAT THE EXPE NDITURE SHOULD NOT EXCEED THE AMOUNT OF INCOME. ONCE ON THE BASIS OF FACTS IT IS JUSTIFIED AND EXPLAINED THAT THE EXPENDITURE IS EXPENDED WHOL LY AND EXCLUSIVELY FOR EARNING INCOME, THE EXPENDITURE HAS TO ALLOWED AS A DEDUCTION. WE PLACE RELIANCE ON THE DECISION OF THE HONOURABLE SUPREME COURT OF INDIA IN THE CASE OF COMMISSIONER OF INCOME VS RAJE NDRA PRASAD MOODY 119 ITR 519 (SC) THEREIN THE HONORABLE SUPREME COUR T HAS HELD AS UNDER: 'EQUALLY, IT WOULD MAKE NO DIFFERENCE WHETHER {THER E 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 O F APPRECIATE HOW EXPENDITURE WHICH IS OTHERWISE A PROPERTY EXPENDITU RE CAN CEASE TO BE SUCH MERELY BECAUSE THERE IS NO RECEIPT OF INCOME. WHATEVER IS A PROPER OUTGOING BY WAY OF EXPENDITURE MUST BE DEBIT ED IRRESPECTIVE OF WHETHER THERE IS RECEIPT OF INCOME OR NOT. THAT I S THE PLAIN REQUIREMENT OF PROPER ACCOUNTING AND THE INTERPRETATION OF SECT ION 57(III) CANNOT BE ITA NO5641/MUM/2017 MR HARMAN HARJASPAL SINGH BAWEJA 5 DIFFERENT. THE DEDUCTION OF THE EXPENDITURE CANNOT, IN THE CIRCUMSTANCES, BE HELD TO BE CONDITIONAL UPON THE MAKING OR EARNIN G OF THE INCOME' WE ALSO PLACE RELIANCE ON THE DECISION OF THE HONOU RABLE PUNJAB AND HARYANA HIGH COURT (FULL BENCH) IN THE CASE OF COMM ISSIONER OF INCOME TAX (CENTRAL) LUDHIANA VS ROCKMAN CYCLES INDUSTRIES PRIVATE LIMITED 15 TAXMANN.COM 306 WHICH HELD THAT THE EVEN IF THE BOR ROWING IS DONE TO LEND TO A SISTER CONCERN THE EXPENDITURE SHOULD BE ALLOWED. FROM THE ABOVE, IT IS CLEAR THAT THE FACTS HAVE NOT BEEN PROPERLY APPRECIATED. HENCE, CONSIDERING THE PRESENT CASE ON THE ANVIL OF AFORESAID DISCUSSION I'M OF THE CONSIDERED OPINION THAT INTEREST OF JUSTICE WILL BE SERVED IF THE ISSUE IS REMITTED TO THE FILE OF THE ASSESSING OFFICER. ASSESSING OFFICE R IS DIRECTED TO CONSIDER THE ISSUE AFRESH IN LIGHT OF THE OBSERVATION AND DISCUSSION H ERE IN ABOVE. NEEDLESS TO ADD, ASSESSEE SHOULD BE GRANTED PROPER OPPORTUNITY OF BE ING HEARD. 9. IN THE RESULT, THIS APPEAL BY THE ASSESSEE APPEA L BY THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 5 TH FEBRUARY, 2018. SD/- (SHAMIM YAHYA) ACCOUNTANT MEMBER MUMBAI, DATED 5 TH FEBRUARY, 2018. SA COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE C I T(A), 4. THE C I T 5. THE DR, SMC BENCH BY ORDER //TRUE COPY// (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI