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TMI Blog2015 (8) TMI 1491X X X X Extracts X X X X X X X X Extracts X X X X ..... king the disallowance. Ld. Commissioner of Income Tax (Appeals) also failed to appreciate that total expenditure is to be allowed which is incurred wholly and exclusively for earning income. It cannot be restricted in proportion of income. We allow the ground of appeal raised by assessee and consequently reject the ground raised by the revenue. The assessee is entitled to expenditure claimed by him. Addition of of long term capital gain - cost of improvement claimed - HELD THAT:- As gone through the record carefully. Section 48 of the income tax act, 1961 provides that income chargeable under the head capital gains, shall be computed by deducting from the full value of consideration received or accrued as a result of the transfer of the capital asset, the amounts namely (a) expenditure incurred wholly and exclusively in connection with such transfer (b) the cost of acquisition of the asset and the cost of any improvement thereof. The assessee while offering capital gain on sale of a plot of land had claimed cost of improvement for ₹ 10,84, 275/-. AO rejected the additional cost to the extent of ₹ 6 lacs. On appeal, ld. Commissioner of Income Tax (Appeals) allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 1,09,29,139/- as against interest income of ₹ 50,27,815/-. The ld. Assessing Officer has noticed the details of interest earned and interest paid. After considering the explanation of assessee, he disallowed the claim of assessee to the extent of ₹ 1,07,38,991/-. The finding recorded by the Assessing Officer reads as under:- 4. Interest Expenses On perusal of the original return of income filed on 23.10.2008 it is observed that the assessee has claimed Interest Expenses of ₹ 1,09,29,139/- as against the interest income of ₹ 50,27,815/- as detailed under: Interest Earned Interest Paid Bank Interest 3142 Manibhai V. Patel, HUF 1157595 Interest on FDRs with Banks 3563608 Kailashben Manibhai Patel 1082772 NSS Interest 27266 Manan Manibhai Patel 1771542 Prabhu Infrastructu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Apollo Organizers Builders, the assessee relies on the decision of ITAT delivered in his own case for AY 2003-04. Furthermore the interest expense of ₹ 1,90,148/- debited and claimed in this proprietary concern pertains to Shah Ambalal Dosachand only and TDS of ₹ 19,585/- is deducted on it. In support details of TDS expenses and copy of TDS Chalaln is enclosed herewith. The same should therefore be allowed in full. Moreover there is an opening balance of ₹ 21,81,42l/- as on 1/4/2007 and so it is an old balance which justify the allowability as per ITAT's Order. The assessee only furnished the details of TDS of ₹ 19585/- on interest paid of ₹ 1,90,148/-. The assessee furnished the copy of challan of ₹ 19585/- only as a proof of depositing the TDS into the Govt. A/c. on 16.04.2008. From the submission of the assessee it is seen that the assessee himself admitted that interest expenses of ₹ 1,90,148/- is claimed as business expenses in his proprietary concern M/s. Apollo Organizers Builders which means the balance interest expenses of ₹ 1,07,38,991/- has been claimed to earn income from other sources i.e. Interest Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 5.7 is wroth to note. Thus, they read as under:- 5.6 On perusal of the records of the appellant, I find that the appellant has declared the impugned interest income of ₹ 50,27,815/- and expenditure of ₹ 1,09,29,139/- under the head income from other sources in the original return of income filed on 23.10.2008 for A.Y.2008-09. Subsequently, the appellant filed revised return of income on 30.03.2009, declaring impugned interest income and expenditure under the head business and profession . It is a fact on record observed by the Assessing Officer that the original return of income was belated return and therefore, the revised return was treated as nonest by the Assessing Officer. Meaning thereby, the impugned interest income and expenditure were assessed by the Assessing Officer under the head income from other sources . The Assessing Officer noticed that the interest income is only ₹ 50,27,815/- and interest expenditure against the same claimed by the appellant is ₹ 1,09,29,139/- and therefore, not satisfied with explanation offered for various reasons discussed above disallowed interest expenditure of ₹ 1,07,38,991/-. As discussed, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant could establish that borrowings were at substantially higher rate of interest than to the investment which resulted into such huge loss to the appellant under the head income from other sources . It is an undisputed fact that the appellant has shown the impugned interest income and expenditure under the head income from other sources and therefore, only the interest expenditure incurred for earning impugned interest income can be allowed to the appellant in view of direct provisions of section 57 of the IT. Act. The argument of the appellant that the unsecured loan borrowed on interest has been used for earning impugned interest income as well as for other business purposes will come to his rescue only to the extent the borrowings utilized directly for earning interest chargeable under the head income from other sources. The argument of the appellant that most of the parties to whom interest has been paid are old and the interest payment to such old parties has been accepted by the department as well as the Hon'ble ITAT, Ahmedabad has considerable force. On random verification of the past record, I observed that the appellant has declared interest income and expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om other sources against impugned interest income, (b) on random verification of the past record, it reveals that assessee has declared interest income and expenditure under the head income from other sources but in most of earlier years, the interest income is more than the interest expenditure, therefore, it was allowed. (c) No prudent businessman would borrow the funds at higher rate of interest and invest those funds at lower rate of interest. 8. A perusal of the finding of ld. Commissioner of Income Tax (Appeals) makes it clear that in principle ld. Commissioner of Income Tax (Appeals) was satisfied that assessee had taken loans/borrowings at interest and invested those for earning interest income which has been shown as income from other sources . In the past, such income was accepted and expenditure was allowed because assessee has more interest income than the expenditure. This year, Ld. First Appellate Authority did not allow the claim of assessee fully for the reason that interest income was not sufficient to take care of interest expenditure and, Ld. First Appellate Authority inferred that assessee must have invested the funds somewhere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 786483 MANAN MANIBHAI PATEL 2067640 MAULIK MANIBHAI PATEL 1469794 MANIBEN MANIBHAI PATEL 902013 MEHSANA URBAN BANK 23/421 1578540 MEHSANA URBAN BANK 17/6269 915834 MEHSANA URBAN BANK 20/53 148106 PINALBEN MANANBHAI PATEL 61278 AMBALAL DOSACHAND SHAH 300886 GUJARAT TUBEWELL CO. 20787 (-)9141842 (-)4009600 10. Copy of the assessment order dated 31s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 342183 MANAN MANIBHAI PATEL 65711 PRABHU STEEL CORPORTION 264495 MAHENDRABHAI HARANBHAI 232603 BHIKHABHAI NARANBHAI 232603 PYANK JAYANTILAL 78904 JAYANTILAL SOMABAHI 12329 ANANIBEN JAYNTILAL 78904 Less: Deductions . 1424340 UNJHA SPCIES COPRIATON 6019 SHAH AMBALAL DOSARAM 16110 MEHSANA URBAN BANK A/C. 13/09/70 61767 MEHSANA URBAN BANK A/C 20/53 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her in the earlier year nor in the subsequent years, claim of the assessee was disputed that the money taken from them was not used by the assessee for earing income which is to be assessed as income from other source . In the present year, Ld. First Appellate Authority has allowed the deduction to the extent, he assumed that assessee must have incurred interest expenditure up to 95% of the interest income earned by him. In other words, Ld. First Appellate Authority has assumed that assessee has shown interest income of ₹ 50,27,815/-. He must have incurred 95% of this income as expenditure on interest and, therefore, only to that extent, interest expenditure is to be allowed. But that is not the requirement in law, the requirement is that expenditure must be laid down by the assessee wholly and exclusively for earning of income. The expression wholly refers to quantum of expenditure and exclusively refers to the object and purpose of expenditure. Though these expressions are not used in section 57 but the overall meaning of section 57 is also to the same effect that, the expenditure ought to be incurred for earning income which is assessable under the head income from other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of ₹ 6 lacs in computing capital gains chargeable to tax for, want of corresponding bill raised by the builder. The appellant has filed complete details as per para 2.5(I) (ii) of submission dated-03.11.210 which interalia includes ledger account of the party and copy; of construction bill as further explained as per para-3 of submission dated 23.11.2010. The appellant is regularly and consistently maintaining his books of accounts on mercantile basis and the same is accordingly accounted for in the books and payment of ₹ 6 lacs was made by cheque on 06.04.2008 in the subsequent year. The same is reflected in the contra account filed. However, in the same para, the Assessing Officer holds that in view of the above it is ascertained that the Assessee has incurred these expenses out of his income from undisclosed sources and sum; of ₹ 6 lacs is added to his total income as undisclosed income of the assessee. Thus, the action of the Assessing Officer on this count is contradictory to each other and amounts to double taxation and non-application of mind for the sake of making flimsy addition. The Hon'ble Commissioner of Income Tax (Appeals) may be pleased to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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