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2020 (9) TMI 1046 - AT - Income TaxInterest expenses claim against the interest income received from various parties u/s 57(iii) - HELD THAT - It is not necessary that you can earn in every transaction and in this case, instead of making interest income, assessee has incurred a loss. We do not agree with the tax authorities that only income is chargeable to tax under the head income from other sources and the loss is not chargeable under the head income from other sources. The intention of the legislature to allow the expenditure incurred by the assessee to earn the income from other sources, which is directly linked to the earning of such income. In the given case, the assessee has not incurred the expenditure directly linking the interest income but incurred the loss by arranging the funds for earning the interest income. You cannot segregate the income alone without considering the object of the transaction or nature of the business of earning the interest income and the expenses includes loss vice versa. No doubt that assessee is into arranging funds and earns interest income by refinancing to the other parties and the difference in the rates in refinancing is the income of the assessee. It is the nature of the business and all the expenditure incurred in earning the income is allowable expenditure. It is only characterization whether it is relating to expenses incurred to earn income or loss incurred in the process of making the income. Therefore,interest expenditure incurred by the assessee will fall under the category of loss. Therefore, it is allowed as an expenditure. Accordingly, ground No. 1 raised by the assessee is allowed. Disallowance u/s 14A r.w.r. 8D - HELD THAT - AO should have considered only those investments which has earned exempt income and eliminate those investment which has not earned exempt income. In our considered view, AO should calculate the disallowance under rule 8D (2) (iii) by eliminating the investments which has not earned the exempt income. By calculating the disallowance as per above direction and AO should compare the disallowances as above by simultaneously calculating 31% of the administration expenditure and the revised disallowance under rule 8D (2) (iii). In case the revised disallowance under rule 8D(2) is less than 31% of the adminstration expenditure then AO should disallow as per rule 8D(2). Accordingly, we are remitting this issue back to the file of AO to determine the proper disallowance under section 14A. Therefore, ground No. 2 raised by the assessee is allowed for statistical purpose. Unaccounted cash consideration paid over and above the consideration paid by cheque which is reflected in the books of accounts - certain loose papers pertaining to M/s Growmore Investments were found and seized being copies of undated 6 numbers of hundies - HELD THAT - Even if accept the findings of revenue authorities that assessee has received on money over and above sale consideration in cash and why should the company, where assessee is a director to pay back in cash to the purchaser. What is that assessee has achieved. As such there is no clear finding that the cash was actually received by assessee except that Mr Vipul who is the finance manager has confirmed in writing on the back side of the hundies. Other than that there is no other proof linking the assessee to have received the cash from Bliss GVS, moreover in this case, it was found that employee of the Bliss GVS has received the cash. From the hundi transaction and the contents of the hundi, clearly indicate that this transaction was between Growmore Investment and Bliss GVS. Any proceedings has to be taken with these companies and just because there is property transaction by the assessee, the revenue cannot presume itself linking assessee as the beneficiary of the transaction. As there is no benefit to Bliss GVS in the above transactions and neither to Growmore Investment. Whatever Bliss GVS has paid in cash presumably to assessee, was received back. AO has linked hundi transaction between Growmore Investment and Bliss GVS with assessee. There is no proof coming out of the documents found during search linking the assessee as the beneficiary except presumption and assumptions of the tax authorities. Since there is no cogent material in the possession of the revenue to indicate that the assessee has actually received cash from Bliss GVS, we are inclined to delete the addition made by AO - Decided in favour of assessee.
Issues Involved:
1. Disallowance of interest expenses. 2. Addition under Section 14A. 3. Addition of unaccounted sales consideration. 4. Non-issue of notice under section 153A. 5. Levy of interest under sections 234B and 234C. Detailed Analysis: 1. Disallowance of Interest Expenses: The assessee claimed interest expenses of ?11,98,032/- against interest income of ?49,50,210/- under section 57(iii) of the Income Tax Act, 1961. The AO disallowed the interest expenditure, stating that the assessee failed to prove it was incurred wholly and exclusively for earning the interest income. The assessee argued that the interest was incurred to arrange funds for lending to M/s Supreme Mega Constructions LLP at a higher interest rate. The CIT(A) partially allowed the appeal, directing the AO to verify the nexus between the borrowings and the investment in FDRs. The Tribunal found that the assessee had made genuine efforts to arrange funds, and the interest expenditure should be considered as incurred in the course of earning interest income. Therefore, the disallowance of interest expenditure was deleted. 2. Addition under Section 14A: The AO disallowed ?6,80,760/- under section 14A read with Rule 8D(2)(iii), attributing administrative expenses to the earning of exempt income (dividend). The assessee argued that no administrative expenses were incurred for earning the exempt income. The CIT(A) upheld the AO's decision, stating that some administrative expenses were definitely attributable to earning the dividend income. The Tribunal directed the AO to recalculate the disallowance by excluding investments that did not earn exempt income and compare it with 31% of the actual administrative expenses incurred. The issue was remitted back to the AO for proper determination. 3. Addition of Unaccounted Sales Consideration: During a search in the case of Bliss GVS Pharmaceutical Group, certain loose papers (hundies) were found indicating unaccounted cash transactions involving M/s Growmore Investment and Developers Pvt. Ltd. The AO added ?75 lakhs to the assessee's income, being 50% of the alleged unaccounted cash consideration received for the sale of property. The assessee argued that no such cash was received, and the transactions were misrepresented by an employee of Bliss GVS Pharma Ltd. The CIT(A) upheld the addition, relying on the seized documents and statements made during the search. The Tribunal found no cogent material linking the assessee directly to the receipt of cash and deleted the addition, stating that the AO's conclusion was based on presumptions and assumptions. 4. Non-issue of Notice under Section 153A: This ground was not pressed by the assessee and was dismissed. 5. Levy of Interest under Sections 234B and 234C: This ground was not pressed by the assessee and was dismissed. Conclusion: The Tribunal allowed the appeal partly, deleting the disallowance of interest expenses and the addition of unaccounted sales consideration, while remitting the issue of disallowance under Section 14A back to the AO for proper determination. Grounds regarding the non-issue of notice under Section 153A and levy of interest under Sections 234B and 234C were dismissed as they were not pressed by the assessee.
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