Shri Jayprakash Laxmichand Bajaj, Ahmedabad V. The Dy.CIT.,Circle-10, Ahmedabad

ITA 570/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6835 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 07-03-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 20-02-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K MADHUSUDAN SRDR
• Assessee Lawyers: J P SHAH SRAR; S R SHAH
• Keywords: Proportionate interest; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD B BENCH BEFORE SHRI G.D. AGARWAL, HONBLE VICE-PRESIDENT (AZ) AND SHRI D.K. TYAGI, HONBLE JUDICIAL MEMBER ITA NO.570/AHD/2009 [ASSTT.YEAR 2005-06] SHRI JAYPRAKASH LAXMICHAND BAJAJ -VS- DY. COMMISS IONER OF INCOME- 5, DARSHAN SOCIETY, KAILASH TOWER TAX, CIRCLE-10, AHMEDABAD STADIUM CROSS ROADS, NAVRANGPURA AHMEDABAD-9 PAN NO.AATPB7498Q (APPELLANT) (RESPONDENT) REVENUE BY : SHRI K.MADHUSUDAN, SR-DR ASSESSEE BY: SHRI J.P. SHAH, SR-AR & SHRI S.R. SHAH, AR O R D E R PER D.K. TYAGI, JUDICIAL MEMBER:- THIS IS ASSESSEES APPEAL AGAINST THE ORDER OF COM MISSIONER OF INCOME-TAX (APPEALS)-XVI, AHMEDABAD IN APPEAL NO. C IT(A) XVI /DC. CIR.10 / 093/2007-08 DATED 17-12-2008 FOR ASSESSMENT YEAR 20 05-06. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUND:- YOUR APPELLANT BEING AGGRIEVED BY THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-XVI, AHMEDABAD (HEREINAFTER REFERRED TO THE LEARNED CIT(APPEALS)), PRESENTS T HIS APPEAL AGAINST THE SAME ON THE FOLLOWING AMONGST OTHER GROUNDS OF APPE AL, WHICH ARE WITHOUT PREJUDICE TO EACH OTHER. (1) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN LAW AND ON FACTS IN REDUCING THE DEDUCTION ALLOWABLE TO THE APPELLANT FROM THE ONE CALCULATED BY LEARNED ASSESSING OFFICER WIT HOUT GIVING ANY NOTICE OF ENHANCEMENT TO THE APPELLANT. IT IS SUBMI TTED THAT IN VIEW OF ITA NO.570/AHD/2009 A.Y. 2005-06 SH.JAYPRAKASH L BAJAL V. DCIT, CIR-10 ABD PAGE 2 ABOVE, THE ORDER PASSED BY LEARNED CIT(APPEALS) IS BAD IN LAW AND DESERVES TO BE QUASHED. (2) THE LEARNED ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN DISALLOWING A SUM OF RS.20,79,006/- OUT OF THE SUM OF RS.26,55,616/- BEING INTEREST PAID ON THE AMOUNT BORROWED BY THE A PPLICANT. IT IS SUBMITTED THAT SUCH INTEREST IS ALLOWABLE AS DEDUCT ION U/S.57 AND/OR OTHER PROVISIONS OF THE I.T. ACT. IT IS SUBMITTED T HAT IT BE SO HELD NOW AND DEDUCTION OF ENTIRE SUM OF RS.26,55,616/- BE GR ANTED TO THE APPELLANT. (3) THE LEARNED ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN HOLDING THAT THE INTEREST PAID ON BORROWED FUNDS HAS TO BE RESTRICTED TO THE EXTENT OF INTEREST EARNED OUT OF THE UTILIZATION OF SUCH BORROWED FUNDS. THE LEARNED CIT(APPEALS) ERRED IN UPHOLDING THE ABOVE FINDING OF LEARNED ASSESSING OFFICER. IT IS SUBMITT ED THAT ENTIRE AMOUNT OF INTEREST OF RS.26,55,616/- IS ALLOWABLE A S DEDUCTION TO THE APPELLANT. IT IS SUBMITTED THAT IT BE SO HELD NOW. (4) (I) THE LEARNED ASSESSING OFFICER AS WELL AS TH E LEARNED CIT(APPEALS) FAILED TO APPRECIATE THAT THERE WERE ALSO OWN FUNDS OF THE APPELLANT WHICH HAVE BEEN UTILIZED FOR THE PURP OSE OF GRANTING INTEREST FREE ADVANCES TO SOME OF THE PARTIES. IT I S SUBMITTED THAT DISALLOWANCE ATTRIBUTABLE TO SUCH OWNED FUNDS SHOUL D NOT HAVE BEEN MADE OUT OF THE INTEREST PAID BY THE APPELLANT ON T HE BORROWED FUNDS. IT IS SUBMITTED THAT IT BE SO HELD NOW. (II) THE LEARNED CIT(APPEALS) ERRED IN HOLDING THAT THERE IS DIRECT NEXUS OF THE BORROWING MADE BY THE APPELLANT TO THE INTEREST FREE ADVANCES GIVEN TO SOME OF THE PARTIES AND THUS ERRE D IN DISMISSING THE ABOVE GROUND 4(I) OF THE APPELLANT. (5) WITHOUT PREJUDICE TO FOREGOINGS, IF AT ALL ANY DISALLOWANCE IS TO BE MADE ON THE GROUND THAT APPELLANT HAS LENT INTEREST FREE AMOUNT OUT OF INTEREST BEARING BORROWED FUNDS, SUCH DISALLOWAN CE HAS TO BE WORKED OUT CONSIDERING PROPORTIONATE AMOUNT OF INTE REST ATTRIBUTABLE TO THE AMOUNT OF INTEREST FREE ADVANCES FOR THE PER IOD FOR WHICH SUCH AMOUNT IS LENT FOR THE YEAR UNDER CONSIDERATION WHI CH COMES TO RS.10,79,356/- ONLY. IT IS SUBMITTED THAT IT BE SO HELD NOW. 3. DURING THE YEAR ASSESSEE DERIVED LOSS OF RS.16,6 4,925/- FROM INCOME FROM OTHER SOURCES AND ON GOING THERE DETAILS FURNI SHED BY ASSESSEE, IT WAS SEEN THAT ASSESSEE HAS OBTAINED LOAN OF RS.2.25 CRO RES FROM SHRI CHANDRAKANT SHAH AN NON-RESIDENT INDIA (NRI FOR SHO RT) ON 07-04-2004. THIS ITA NO.570/AHD/2009 A.Y. 2005-06 SH.JAYPRAKASH L BAJAL V. DCIT, CIR-10 ABD PAGE 3 AMOUNT WAS KEPT IN THE BANK ACCOUNT OF ASSESSEE. OU T OF THIS RS.25 LAKH WAS PAID TO ONE SHRI NARENDRA SOMANI @ 12% ON 23-04-200 4, RS.1 CRORE WAS PAID @ 12% TO KRANTI LIQUORS (A CONCERN OF IN-LAWS OF ASSESSEE) ON 05-05- 2005. ON 07-05-2004 INTEREST FREE LOAN OF RS.1 CROR E WAS GIVEN TO M/S. CANTRONICS. ON THE BORROWED AMOUNT, THE ASSESSEE DE BITED INTEREST ACCOUNT BY RS.26,55,616/-. AGAINST THIS TOTAL INTEREST INCO ME OF RS.9,90,691/- IS SHOWN BY ASSESSEE. THE ASSESSING OFFICER HELD THAT THERE IS NO NEXUS BETWEEN THE EXPENDITURE AMOUNTING TO RS.26,55,616/- AND INCOME EARNED FROM OTHER SOURCES OF RS.9,90,691/-. HE THEREFORE HELD THAT T HERE IS NO NEXUS OF EARNING INTEREST AGAINST INTEREST PAYMENT OF RS.26,55,616/- . ACCORDING TO AO, ONLY INTEREST OF RS.5,76,610/- FROM THE BELOW MENTIONED PARTIES ARE ADJUSTABLE AGAINST THE INTEREST INCOME OF RS.26,55,616/-:- NAME OF THE PARTY AMT. OF ADVANCE RS. AMT. OF INTER EST RS. H C FRUITS 25,00,000 25,000 KRANTI LIQUOR 1,00,00,000 3,24,110 N G SOMANI 25,00,000 1,12,500 SHREE JAYAN AND TEXTILES 15,00,000 31,733 VISION 2001 13,50,000 83,277 TOTAL 5,76,610 HE, THEREFORE DISALLOWED THE BALANCE AMOUNT OF RS.2 0,79,006/- AS EXCESS INTEREST U/S.57(III) OF THE I.T. ACT. 4. AGGRIEVED BY THIS ORDER, ASSESSEE FILED APPEAL B EFORE FIRST APPELLATE AUTHORITY. BEFORE LD. CIT(A) ASSESSEE FILED WRITTEN SUBMISSION, WHICH READS AS UNDER:- YOUR APPELLANT LIKES TO SUBMIT THAT HE HAD RECEIVE D RS.2.25 CRORES FROM SHRI CHANDRAKANT SHAH ON 7.4.2004 AS INTEREST BEARI NG LOAN (INTEREST PAYABLE @ 12% PA) AND HAD MADE THE FOLLOWING ADVANC ES FROM THE MONEY SO RECEIVED: DATE AMOUNT RS. PERSON INTEREST % 23.04.2004 25,00,000 SHRI NG SOMANI 12% 05.05.2004 1,00,00,000 M/S. KRANTI LIQUORS 12% ITA NO.570/AHD/2009 A.Y. 2005-06 SH.JAYPRAKASH L BAJAL V. DCIT, CIR-10 ABD PAGE 4 07.05.2004 1,00,00,000 M/S. CANTRONICS INTEREST FREE PROPORTION OF INTEREST FREE DIVERSION 100 / 225 I.E . 44.4% TOTAL INTEREST PAID TO SHRI G.T. SHAH RS.2 6,55,616 INTEREST ON A/C. OF INTEREST FREE DIVERSION RS.10 ,78,356 (FROM 7.5.2004 TO 31.3.2005) AS THE INTEREST BEARING LOANS OF RS.1.25 CRORES HAV E BEEN GIVEN FROM THE INTEREST BEARING FUNDS OF RS.2.25 CRORES, THE C LEAR NEXUS IS ESTABLISHED BETWEEN THEM. ONLY RS.1 CRORE IS ADVANC ED AS INTEREST FREE ADVANCE AND ACCORDINGLY THE LEARNED AO IS SNOT JUST IFIED IN DISALLOWING THE INTEREST IN EXCESS OF RS.10,78,356 WHICH IS THE INTEREST ATTRIBUTABLE TO DIVERSION OF INTEREST BEARING FUNDS TO NON-INTER EST BEARING LOANS. WE FURNISH HEREWITH A COPY OF THE BANK BOOK OF THE APPELLANT HIGHLIGHTING THE AMOUNT OF THE INTEREST BEARING LOA N OF RS.2.25 CRORES TAKEN AND THE LOANS GIVEN THERE AGAINST WHICH SHOWS CLEARLY THAT OUT OF THE AMOUNT OF RS.2.25 CRORES THE APPELLANT HAS MADE THE ABOVE ADVANCES AND THE NEXUS CAN BE ESTABLISHED. DISALLOWANCE ALSO NOT ON PROPORTIONATE BASIS: WITHOUT PREJUDICE TO THE ABOVE (1), (2) AND (3) YOU R APPELLANT LIKES TO POINT OUT THAT AS ON THE DATE OF THE RECEIPT OF INT EREST BEARING FUNDS, THE ASSESSEE HAD ALSO HIS OWN CAPITAL AS WELL AS INTERE ST FREE LOANS FROM HIS FAMILY MEMBERS. THE TOTAL FUND POSITION AS ON THE D ATE OF THE BORROWING WAS AS UNDER: OWN CAPITAL RS.283,70 LAKHS INTEREST FREE LOANS FROM FAMILY MEMBERS RS.104.00 L AKHS MR. KARISHMA BAJAJ RS. 27.00 LAKHS MR. SHEETAL BAJAJ RS. 18.80 LAKHS SHRI SURESH BAJAJ RS. 5.00 LAKHS MS. URVASHI BAJAJ RS. 27.75 LAKHS SHRI PRANAV BAJAJ RS. 25.50 LAKHS INTEREST BEARING LOANS RS.225.00 LAKHS TOTAL RSS.612.70 LAKHS % OF INTEREST BEARING FUNDS TO THE TOTAL FUNDS 36.7 2%. THE INTEREST @ 12% ON THE ADVANCES MADE TO THE FOUR PARTIES FROM W HOM INTEREST WAS NOT CHARGED WORKS OUT AS UNDER:- M/S. CAANTRONICS OFFICE EQUIP P. LTD. RS. 3.26.4 79 M/S SHUKUN BUILDERS P. LTD. RS.34,58,400 M/S. PRANAV MULTITECH P. LTD. RS. 1,35,097 M/S BHAGWATI HOTELS LTD. RS. 56,301 ITA NO.570/AHD/2009 A.Y. 2005-06 SH.JAYPRAKASH L BAJAL V. DCIT, CIR-10 ABD PAGE 5 TOTAL RS.39,76,277 AS THE PROPORTION OF INTEREST BEARING FUNDS IS 36.7 2% TO THE TOTAL AVAILABLE FUNDS, AN AMOUNT OF RS.14,60,080 (36.72% OF 39,76,277) IS RELATABLE TO THE ABOVE ADVANCES. THE DISALLOWANCE O F THE INTEREST EXPENDITURE ON THE ABOVE CONSIDERATION CAN NOT EXCE ED RS.14,60,080. 5. WITHOUT PREJUDICE TO THE ABOVE SUBMISSIONS, YOUR APPELLANT SUBMITS THAT THE APPELLANT HAS EARNED INTEREST TOTALING TO RS.9,90,691. IN ADDITION TO THIS, THE ASSESSEE ALSO EARNED AN AMOUN T OF RS.1,20,386 BY WAY OF INTEREST ON CAPITAL WITH M/S ZODIAC DEVELOPE RS IN WHICH HE IS A PARTNER. CONSIDERING THE FACT THAT THE AMOUNTS REAL IZED ON REPAYMENT OF THE ADVANCES GRANTED FROM INTEREST BEARING FUNDS WE RE MERGED WITH THE OWN FUNDS AND FRESH ADVANCES WERE MADE, THE INTERES T EXPENSE SHOULD BE ALLOWED TO THE EXTENT OF INCOME EARNED. THUS ALL OWING THE INTEREST EXPENSES TO THE EXTENT OF INTEREST EARNED ON LOANS RS.9,90,691 AND INTEREST EARNED ON CAPITAL RS.1,20,386, THE INTERES T PAID IN EXCESS OF THIS MAY BE DISALLOWED. AFTER TAKING INTO CONSIDERATION THE WRITTEN SUBMISS ION OF ASSESSEE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO RE-CALCULATE THE DEDUCTION ALLOWABLE TO THE ASSESSEE AS PER OBSERVATION IN PARA-6 OF HIS APPELL ATE ORDER:- 5. AT THE TIME OF HEARING AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT LD. CIT(A)S ACTION HAS RESULTED IN REDUCTION OF DEDUCTION ALLOWED TO ASSESSEE BY THE AO WITHOUT GIVING ANY NO TICE OF ENHANCEMENT TO THE ASSESSEE AND THEREFORE THE ORDER PASSED BY LD. CIT(A) IS BAD IN LAW AND DESERVES TO BE QUASHED. 6. IN REPLY LD. DEPARTMENTAL REPRESENTATIVE SUBMITT ED THAT THE ACTION OF CIT(A) CANNOT BE SAID TO BE ENHANCEMENT OF INCOME O F THE ASSESSEE AS HE HAS SIMPLY RE-CALCULATED THE DEDUCTION ALLOWED BY A SSESSING OFFICER. THEREFORE, NO NOTICE FOR ENHANCEMENT IS REQUIRED TO BE ISSUED. 7. WE ARE OF THE CONSIDERED OPINION THAT NO ENHANCE MENT OF INCOME EITHER BY WAY OF RE-CALCULATION OR OTHERWISE CAN BE DONE B Y LD. CIT(A) WITHOUT GIVING ITA NO.570/AHD/2009 A.Y. 2005-06 SH.JAYPRAKASH L BAJAL V. DCIT, CIR-10 ABD PAGE 6 NOTICE OF ENHANCEMENT. THEREFORE TO THE EXTENT OF E NHANCEMENT OF INCOME OF ASSESSEE, THE ORDER OF LD. CIT(A) IS NOT SUSTAINABL E IN LAW. 8. COMING TO MERITS OF ISSUE. LD. COUNSEL FOR THE A SSESSEE REITERATED THE SUBMISSION MADE BEFORE LOWER AUTHORITIES AND FURTHE R PLACED RELIANCE ON THE CASE OF CIT V. RAJENDRA PRASAD MOODY (1978) 115 ITR 519 (SC) FOR THE PROPOSITION THAT WHAT SECTION 57(III) REQUIRES IS T HAT EXPENDITURE MUST BE LAID DOWN OR EXPANDED WHOLLY AND EXCLUSIVELY FOR THE PUR POSE OF MAKING OR EARNING INCOME. THE SECTION DOES NOT REQUIRE THAT T HIS PURPOSE MUST BE FULFILLED IN ORDER TO QUALIFY THE EXPENDITURE FOR D EDUCTION. IT DOES NOT SAY THAT EXPENDITURE SHALL BE DEDUCTIBLE ONLY IF ANY INCOME IS MADE OR EARNED. LD.DR ON THE OTHER HAND RELYING ON THE ORDERS OF LOWER AU THORITIES FURTHER SUBMITTED THAT CASE LAW RELIED BY LD. AR IS NOT APPLICABLE TO THE FACTS OF THIS CASE AS IN THE INSTANT CASE, THERE WAS NO INTENTION OF THE ASS ESSEE TO EARN ANY INCOME AS MONEY WAS BORROWED AND LENT @ 12%. THEREFORE NO DEDUCTION U/S.57(III) CAN BE ALLOWED TO THE ASSESSEE. HE THEREFORE PRAYED THAT ORDER PASSED BY LOWER AUTHORITIES MAY KINDLY BE UPHELD. 9. HEARD BOTH THE PARTIES AND PERUSED THE CASE RECO RDS. WE FIND THAT ASSESSEE DURING THE YEAR UNDER APPEAL HAS SHOWN LOS S OF RS.16,64,925/- UNDER THE HEAD INCOME FROM OTHER SOURCES WHILE FI LING HIS RETURN OF INCOME. THE ASSESSEE TOOK A LOAN OF RS.2.25 CRORES FROM SHR I CHANDRAKANT SHAH AND CREDITED INTEREST @ 12% TO HIM AMOUNTING TO RS.26.5 5 LAKH. THE ASSESSEE SHOWED INTEREST RECEIPT OF RS.9.09 LAKH DURING THE YEAR AND THUS INCURRED LOSS OF RS.16,64,925/- UNDER THE HEAD INCOME FROM OTHER SOURCES. ASSESSING OFFICER WAS OF THE VIEW THAT AS PER SECTION 57 OF T HE I.T. ACT DEDUCTION FROM INCOME CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES IS COMPUTED AFTER DEDUCTING THE EXPENDITURE LAID OUT OR EXPENDE D WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. HE TH EREFORE SHOW-CAUSED THE ASSESSEE AS TO WHY INTEREST OF RS.26.55 LAKH BE NOT DISALLOWED. THE ASSESSEES CONTENTION WAS AS UNDER:- ITA NO.570/AHD/2009 A.Y. 2005-06 SH.JAYPRAKASH L BAJAL V. DCIT, CIR-10 ABD PAGE 7 (I) THAT THE ASSESSEE HAS SUFFICIENT FUNDS ON WHIC H INTEREST HAS BEEN CHARGED. (II) THAT THE ASSESSEE IS DIRECTOR IN SHUKUN BUILDE RS AND PRANAV MULTITECH PVT. LTD. THE ADVANCES GIVEN TO MEET THE COST OF LAND AND BUILDING PURCHASED BY TWO COMPANIES AND THAT BY SEL LING SHARES OF THE COMPANIES, THE ASSESSEE HAS EARNED CAPITAL GAIN, WH ICH IS OFFERED FOR TAX AND THEREFORE, THE INTEREST SHOULD BE ALLOWED. (III) PROPORTIONATE INTEREST MAY BE DISALLOWED FOR INTEREST FREE DIVERSION. (IV) THE ASSESSEE HAS ALSO GIVEN WORKING OF INTERES T FREE DIVERSION AS STATED ABOVE AND DETAILS OF INTEREST NOT CHARGED AM OUNTING TO RS.49.45 LACS AND INTEREST NOT PAID ON LOANS & ADVANCES OF R S.38.43 LACS, WHICH INCLUDES INTEREST NOT CHARGED FROM SELF RS.33.49 LA CS. AFTER TAKING INTO CONSIDERATION THE SUBMISSION OF T HE ASSESSEE ASSESSING OFFICER DISALLOWED A SUM OF RS.20,79,006/- U/S.57(I II) OF THE ACT AND THE SAME WAS ADDED TO THE INCOME OF ASSESSEE BY OBSERVING AS UNDER:- THE NEXUS BETWEEN EXPENDITURE LAID OUT AMOUNTING T O RS.26.55 LACS TO INCOME EARNED FROM OTHER SOURCES RS.9.9 LACS IS NOT ESTABLISHED. IN FACT, AS SEEN FROM ONE OF THE SUBMISSIONS MENTIONED IN POINT NO. (II) THE ASSESSEE, WHO IS DIRECTOR OF SHUKUN BUILDERS, INTEN DED TO PURCHASE LAND AND THEREFORE, THIS LOAN HAS BEEN ADVANCED TO THE COMPANY BY THE DIRECTOR. THIS CLEARLY SHOWS THAT THERE IS NO NEXUS AND EXPENDITURE IS NOT ALLOWABLE U/S.57(III) OF THE ACT. HOWEVER, LOOKING TO THE TOTALITY OF FACTS, AND NATU RAL JUSTICE, THE EXPENDITURE TO THE TUNE OF AMOUNT MENTIONED IN THE CHART AT ITEM NO.(V) OF REBUTTAL OF ASSESSEES SUBMISSION UTILIZED FOR E ARNING INTEREST OF RS.5,76,610 IS ALLOWED. THUS, EXCESS EXPENDITURE IS DISALLOWED U/S.57(III) OF THE ACT. 10. IN APPEAL LD. CIT(APPEALS) HAS INCREASED THIS DISALLOWANCE THEREBY ENHANCING INCOME OF THE ASSESSEE WITHOUT GIVING NOT ICE OF ENHANCEMENT OF INCOME TO THE ASSESSEE. AS WE HAVE ALREADY HELD THA T ENHANCEMENT OF INCOME WITHOUT GIVING NOTICE FOR SUCH ENHANCEMENT I S NOT SUSTAINABLE, WE WILL CONFINE OURSELVES TO THE DISALLOWANCE MADE BY ASSES SING OFFICER. SO THE ISSUE TO BE DECIDED BY US IS WHETHER AO WAS JUSTIFI ED IN MAKING THIS DISALLOWANCE U/S.57(III) OF THE ACT. SINCE THERE IS NO DISPUTE THAT ASSESSEE HAS ITA NO.570/AHD/2009 A.Y. 2005-06 SH.JAYPRAKASH L BAJAL V. DCIT, CIR-10 ABD PAGE 8 SHOWN INCOME/LOSS UNDER THE HEAD INCOME FROM OTHER SOURCES, THE ASSESSEE IS ENTITLED TO DEDUCTION FROM INCOME CHARGEABLE UND ER THIS HEAD AS PER PROVISIONS OF SECTION 57 OF THE I.T. ACT. THE RELEV ANT PORTION OF WHICH READS AS UNDER:- 57. THE INCOME CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES SHALL BE COMPUTED AFTER MAKING THE FOLLOWI NG DEDUCTIONS, NAMELY:- (I) .. [(IA) (II) [(IIA) (III) ANY OTHER EXPENDITURE (NOT BEING IN THE NATUR E OF CAPITAL EXPENDITURE) LAID OUT OR EXPENDED WHOLLY AND EXCLUS IVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. [(IV) IT IS CLEAR FROM THE ABOVE THAT INCOME CHARGEABLE U NDER THE HEAD INCOME FROM OTHER SOURCES IS TO BE COMPUTED AFTER DEDUCTI NG THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING SUCH INCOME. AS THE ASSESSEE HAS FAILED TO ESTABLISH THE NEXUS THAT TO EARN INCOME OF RS.9.91 LAKH FROM OTHER SOURCES EXPENDITURE AMOUNTING TO RS .26.55 LAKH HAS BEEN INCURRED WE FIND NO MERITS IN THE APPEAL FILED BY A SSESSEE. 11. NOW COMING TO THE CASE LAW RELIED BY ASSESSEE. WE FIND THAT ASSESSEE HAS RELIED ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF RAJENDRA PRASAD MOODY (SUPRA) FOR THE PROPOSITION THAT WHAT SECTION 57(III) REQUIRES IS THAT THE EXPENDITU RE MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURP OSE OF MAKING OR EARNING INCOME. THE SECTION DOES NOT REQUIRE THA T THIS PURPOSE MUST BE FULFILLED IN ORDER TO QUALIFY THE EXPENDITU RE FOR DEDUCTION, IT DOES NOT SAY THAT EXPENDITURE SHALL BE DEDUCTIBLE O NLY IF ANY INCOME IS MADE OR EARNED. IN THIS CASE THE ASSESSEE BORROWED MONIES FOR THE PURPOSE OF MAKING INVESTMENT IN CERT AIN SHARES AND PAID INTEREST THEREON DURING THE ACCOUNTING PERIOD RELEVANT TO THE ASSESSMENT YEAR BUT DID NOT RECEIVE ANY DIVIDEND ON THE SHARES ITA NO.570/AHD/2009 A.Y. 2005-06 SH.JAYPRAKASH L BAJAL V. DCIT, CIR-10 ABD PAGE 9 PURCHASED WITH THOSE MONIES. IT WAS HELD THAT INTER EST ON MONIES BORROWED FOR THE INVESTMENT IN SHARES WHICH HAD NOT YIELDED ANY DIVIDEND WAS ADMISSIBLE AS A DEDUCTION U/S. 57(III) OF THE INCOME-TAX ACT, 1961 IN COMPUTING ITS INCOME FROM DIVIDEND UND ER THE HEAD INCOME FROM OTHER SOURCES. THE RATIO HAS LAID DOW N BY THE HONBLE APEX COURT IN THIS CASE IS NOT APPLICABLE TO THE FA CTS OF THE CASE IN HAND. IN THE INSTANT CASE, FACTS ARE QUITE DIFFEREN T. HERE THE ASSESSEE HAS BORROWED THE SUM OF RS.2.25 CRORES WHI CH WAS PARTLY UTILIZED FOR THE PURPOSE OF EARNING THE INCOME. THE REMAINING MONEY WAS NOT UTILIZED AT ALL FOR PURPOSE OF EARNING INCO ME. IN THE CASE OF RAJENDRA PRASAD MOODY (SUPRA), THE ASSESSEE HAD UTILIZED MONEY BY WAY OF INVESTMENT IN SHARES, THEREFORE THE UTILIZAT ION OF MONEY WAS FOR EARNING DIVIDEND INCOME WHICH THE ASSESSEE COUL D NOT EARN DURING THE YEAR UNDER CONSIDERATION. ON THIS FACT, THE HONBLE APEX COURT HELD THAT THE ASSESSEE IS ENTITLED TO DEDUCTI ON FOR INTEREST. HOWEVER, IN THE CASE UNDER APPEAL BEFORE US, THE AS SESSEE HAS NOT UTILIZED THE PART OF THE MONEY FOR THE PURPOSE OF E ARNING INTEREST INCOME. THE ASSESSING OFFICER HAS ALREADY ALLOWED D EDUCTION TO THE EXTENT THE ASSESSEE UTILIZED MONEY FOR THE PURPOSE OF EARNING INTEREST INCOME. THE LD. COUNSEL FOR ASSESSEE COULD NOT POINT OUT ANY MISTAKE OR DISCREPANCY IN WORKING OF THE AO WHE REIN HE HAS ALREADY ALLOWED THE DEDUCTION OF THE INTEREST WHERE THE BORROWED MONEY WAS UTILIZED FOR PURPOSE OF EARNING INTEREST INCOME. WE THEREFORE UPHOLD THE DISALLOWANCE OF INTEREST MADE BY THE AO AND REVERSE THE ORDER OF THE LD CIT(A) TO THE EXTENT TH E LD. CIT(A) MADE ENHANCEMENT OF DISALLOWANCE OF INTEREST. 12. IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALLOWED . ORDER PRONOUNCED ON THIS DAY OF 15 TH APRIL, 2011 ( G.D.AGARWAL ) ( D.K. TYAGI ) (VICE PRESIDENT) (JUDICIAL MEMBER) AHMEDABAD, DATED : 15/03/2011 ITA NO.570/AHD/2009 A.Y. 2005-06 SH.JAYPRAKASH L BAJAL V. DCIT, CIR-10 ABD PAGE 10 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 4. THE CIT CONCERNS. 2. THE REVENUE. 5. THE DR, ITAT, AHMEDABAD 3. THE CIT(APPEALS)-XVI, AHMEDABAD 6. GUARD FILE . BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD