9911796707
TMI Blog2020 (9) TMI 1046X X X X Extracts X X X X X X X X Extracts X X X X ..... interest under section 234B and 234C. 4. At the time of hearing Ld AR submitted that assessee prefers to press only ground Nos. 1,2 & 3 and not presses ground No. 4 and 5. We are extracting the facts only relating to ground No. 1, 2 and 3. 5. The AO observed that assessee has claimed interest expenses of Rs. 11,98,032/- against the interest income of Rs. 49,50,210/- received from various parties under section 57(iii) of the Act. When the assessee was asked to prove the interest expenditure is out of or expended wholly and exclusively for the purpose of making or earning the income. In this connection assessee submitted as below:- Name of the party Amount of interest Rate of interest Samir N. Bhojani 230833 15.6% Jewel Developers 303333 15% Satellite Developers Ltd 3822329 12% Pure Toners & Developers Pvt. Ltd. 43397 12% Prakash Housing Pvt. Ltd. 341250 16.4% Venus Wines 55068 12% Sukhwani Associates 154000 13.2% Total 4950210 6. He observed that, assessee has paid interest as under: Name of the party Amount of interest Rate of interest Global Capital Markets Ltd. 75252 9% Khoobsusrat Ltd. 1122780 9% Total 1198032 7. It was s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d purchased the office premises as per agreement dated 07.07.2010. During the course of search, Mr. S. N. Kamath of BGVSPL was confronted on these documents, he stated that they have paid cash of Rs. 1.5 crore to GIDPL and offered the same as additional income for financial year 2010-11. AO observed that in view of the above statement, during the course of assessment proceedings in the case of GIDPL for assessment year 2011-12, when it was asked to explain the documents, GIDPL stated that a sum of Rs. 1.5 crore was received from BGVSPL by way of an RTGS transfer into the bank account and the same was refunded back. In that assessment, AO rejected the contention of GIDPL and observed as below: "First stream of financial transactions is that M/s Bliss GVS Pharma Ltd has purchased office premises No. 102, Hyde Park, Andheri, Mumbai from Ravi Gehi, director of Growmore Investment & Developers Private Limited and other co-owner in the financial year 2010 - 11 and has paid a sum of Rs. 1.5 crore in cash. This and unaccounted cash consideration paid over and above the consideration paid by cheque which is reflected in the books of accounts. This amount will be added in the hands of M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Mega Corporation LLP at the rate of 15% p.a. for investment in the project and in the process earn a differential of 6% p.a., ii. To recall the loans which were given @ 12% to 16% and lend it at the rate of 15% and loose about 1% p.a. or earn only 3% p.a. as a differential. v. The condition for earning a higher rate of interest was that the amount of Rs. 20 crores should be provided in one tranche. With the said intention, appellant tried to raise funds from his known sources and approached the willing lenders to lend money to the extent possible and make up the rest of the funds from his own interest free sources. The appellant had own funds of about Rs. 12 crore and required about Rs. 8 crore from the lenders to make up for the required amount of Rs. 20 crores. vi. With the intent of raising the funds to make up for the deficit, the appellant borrowed Rs. 60,00,000/-from Khoobsurat Ltd. on 29.06.2010 at the rate of interest of 9% p.a. By the said date 29.06.2010, the appellant gathered the funds of about of Rs. 13,80,00,000/- which included his own funds of about Rs. 13,20,00,000/- .equipped with the same, he sent a cheque of Rs. 11,80,00,000/- and 2,00,00,000/- to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, your appellant kept borrowing money @ 9% with intention to have an aggregate amount of Rs. 20 crore and then advancing the same to M/s. Supreme Mega Constructions LLP x. Thus, there was a possible source of income for which the appellant had incurred interest expenses and thus, the said interest of Rs. 11,98,032/- was eligible for deduction u/s. 57(iii) xi. Also, after receiving loan @ 9% from Khoobsurat Ltd. the same was parked in Fixed deposits and then were given as loan to M/s. Supreme Mega Construction LLP. Without prejudice, it is submitted that the deduction of the said interest should at least be given against the interest income earned on fixed deposits. The appellant relies on the following judgements: i) Rajendra prasad NIody, 115 I'M 519(SC) ii) Raj Kuinari Agarwal 47 taxmann.com 88 (Agra-Trib) iii) CIT v M. Entburajan, 273 ITR 95 (Mad.) xii. Without prejudice, it is submitted that only interest income is taxable and in computing the said income the interest paid should be allowed to be deducted against the interest received more so when the appellant has been maintaining the common account for Interest. Attention is invited to the Supreme Court ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpt from taxation. The said interest was included in total interest of FDR with JOB of Rs. 9,54,661/- in filing return of income. Accordingly the interest paid on the above loans was deductible against the receipt of interest of the said FDR with IOB as per provisions . of section 57 of the Income tax Act. Kindly see the decision of the Supreme Court in the case of Rajendra Prasad Moody (115 ITR 519). 7.2. During the appeal proceedings the appellant submitted as under No expenditure incurred to earn an exempt income i. The Ld. A.O. disallowed an amount of Rs. 6,80,760/- by falsely resorting to Clause (iii) of Rule 8D(2) which provides for disallowance of 0.5% of average investment for indirect expenses. ii. Your appellant had vide letter dt. 15.02.2C14 (Ann 17) informed the Ld. A.O. that no administrative expenditure whatsoever was incurred for the purposes of earning the exempt income. iii. All the expenses that are debited to the Profit & Loss A/c (Ann 22)., have been incurred in the due course of business and none of it is directly or indirectly incurred for the purpose of earning dividend income. iv. No expenditure could have been incurred by the appellant to earn t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... generic reason of resorting to Rule 8D. iii. Your kind attention is invited to the provisions of s. 14A of the Income Tax Act. It can be gathered that provisions of s. 14A are based on the principle of matching concept and based on same, the theory of nexus has evolved which implies that there should be direct or indirect link between the expenditure and the income which does not form part of the total income. Thus, only the expenditure which is incurred to earn exempt income has to be excluded as per s. 14A of the Act. iv. There should be proximate relation between the expenditure and the exempt income and in absence thereof no disallowance can be made u/s14A. The said contention of the appellant is supported by the following decisions: a) Priya Exhibitors (P.) Ltd 54 SOT 356 (Delhi-Trib) (2012)[A.Y. 2008-09] b) Justice Sam P. Bharucha, 53 SOT 192 (Mumbai) [A.Y.2008-09] c) Hero Cycles Ltd, 323 ITR 518 (P&H) [A.Y.2004-05] d) Sun Investment Ltd. 8 ITR(Trib)33 (Del.) (2011) [A.Y.2005-06] 2. Failure on part of the A.O. to record satisfaction i. The appellant has not incurred any expenditure in computing dividend income which is claimed exempt from tax and therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead with Rule 8D, the Ld. A.O. has included the said investment in capital of Partnership Firm and LLP. ii. Such long term investment in capital of Partnership Firm and LLP being strategic in nature is made for furtherance and expansion of one's own business activities. Such passive investment, being trade investments are not made for earning any income per Se, let alone exempt income. The appellant has not incurred any administrative expenses during the year to maintain these investments in the Partnership Firms and LLP. iii. Reliance is placed on the decision by the Hon'ble Mumbai ITAT in case of Garware Wall Ropes Limited (ITA No. 49571MJ2012), where it was held that no disallowance could be made uls. 14A read with Rule 8D if primary objective of investment is to hold controlling stake in group concern and not to earn tax-free income. iv. Without prejudice, it is submitted that, investment amount, being long term strategic trade investment in Partnership Firm and LLP, be excluded while J computing disallowance under Rule 8D. 4. Inaccurate calculation of average investment Without prejudice, it is submitted that the Id. AO while calculating the disallowance u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vii. Where appellant made investment in shares out of its own funds and had sufficient interest free funds to meet its tax free investments yielding exempt income, it could be presumed that such investments were made from interest free funds and not loaned funds and, thus no disallowance under section 14A being can be made. The above contention of the appellant is supported by the following decisions; a) Balaram Chini Mills Ltd., 140 TTJ 73 (Kol) [A.Y.2008-091 b; Mohan Exports, 138 ITD 108 (Delhi) [A.Y.2008-09] Delite Enterp--ise, 135 'TTJ 663(Mum) [A.Y.2003-04] d) BNP Paribas SA, 32 twunann.com 276 (Bombay) (2013) e) GIDC Ltd (Gujarat) 37 taxmann.com 254 (2013) [A.Y.2004-05] f) Reliance Utilities, 313 ITR 340 (Born.) [A.Y.1999-00] g) UTI Bank Ltd. 32 taxrnann.com 370 (Gujarat) (2013) [A.Y.2003-04] h) Jammu & Kashmir Bank Ltd. 33 ta.xmann.com 155 (Amritsar) i) Bunge Agribusiness (India) (P.) Ltd. 142 'ITJ 817 (Mum). j) Shoppers Stop Ltd No.1448 & 4475/Mum/2010 dt 30.08.2011. 6. Expenditure debited to Profit & Loss Account was wholly incurred for earning taxable income Your appellant prays that disallowance of Rs. 6,80,760-/ u/s 14A be deleted. 8.2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny findings of the facts deserves to be quashed. 2. Without prejudice to the aforesaid submission that the addition made by the Ld. A.O. in the manner aforesaid deserves to be quashed, your appellant hereafter in brief attempts to explain that how no addition even otherwise was sustainable either in your appellant's case or in any other case including in the case of the said Growmore Investments Developers and Pvt. Ltd. on the basis of the said Hundis in the limited facts of the case known to your appellant. i. Addition based on loose per The AO failed to establish any real connection between the seized documents and the appellant or Grownmore Investments Developers Pvt. Ltd (GIDPL) . It has simply assumed that the loose papers belong to the appellant or GIDPL. The paper were not even discovered at the appellant's or G1DPL's premises but were recovered from a third party's premises. The seized hundis-bills were not even dated. They were simply dumb documents with absurd noting on loose sheets. 'The Ld. A.O. has made additions simply on the basis of loose documents. He has no material record to prove that Rs. 1,50,00,000/- represents income of the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 17.11.2010 were given under duress and confusion. v. Explanation by third party that no transaction took place and explanation of the nature of transaction thereof Mr. Kamath vide his letter dt. 25.02.2011 to Addl. Director of Income Tax(Invt) furnishing the explanation of the seized material gave the following explanation: "These are the discharged hunch papers for an maount of Rs. 1.25 crore. The transaction of loan to Growmore Investments is reflected in the books of accounts of Bliss GVS Pharma Pvt. Ltd. The hand written figures mentioned on the reverse of these pages are cash transactions. We have issued a cheque to Growmore Investments and Developers Pvt. Ltd which is reflected in the regular books of account. Copy of account in books of Bliss GYS Pharma Ltd is enclosed". From the declaration it is clear that the transaction was a loan transaction and no income was involved, that there was only cheque transaction and no cash were involved and all the entries were reflected in the books of accounts. vi. The nature of transaction was in the knowledge of the third party M/s. Bliss GVS Pharma Ltd. vide its letter dt. 25.03.2013 stated that "We wish to state that we had n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the backside of the hundies "Received cash with thanks from M/s. Growmore Investmnts and Developers Pvt. Ltd. Rs. 25,00,000/-. The said fact was accepted by the Settlement Commission which was clearly brought out in it's order. ix. The backside of the loose paper indicates refund of money The photocopies seized from the premises of Bliss GVS Pharma Pvt. Ltd. contained a narration which read "Received cosh with thanks from M/s. Growmore Investmnts and Developers Pvt. Ltd. Rs. 25,00,000/-" Even if this narration is believed to be true and binding on the appellant or GIDPL, it speaks of money /advance being refunded to Bliss GVS Phanna Pvt. Ltd. An advance that is returned can never be considered to mean anybody's income. Consequently, no addition u/s. 69 can be made when the money paid and received represented an advance being returned. x. GIDPL had explained the nature of transaction which it had with -M/s. Bliss GVS Pharma Pvt. Ltd, by explaining the facts with proofs that it had borrowed money by cheque on interest and had repaid the same with interest after deducting tax. GIDPL had entered into a normal business transaction with MIs. Bliss GVS Phanna Pvt. Ltd. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs Pvt. Ltd which is reflected in the regular books of account. Copy of account in books of Bliss GVS Pharma Ltd is enclosed. ". From the declaration it is clear that the transaction was a loan transaction and no income was involved, that there was only cheque transaction and no cash were involved and all the entries were reflected in the books of accounts. xiii. An affidavit and confirmation to this effect of the 114/se Bliss GVS Pharma Pvt. Ltd. was obtained and filed by GIDPL. Mr. S.N. Kamath vide his affidavit dt. 28.01.2015 confirmed the following facts: * "The said Mr. Vipul Thakkar, FINANCE MANAGER of the company Bliss GVS Pharma Ltd, was in need of money for his personal use and therefore, on the strength of the above promissory notes, he had taken a cash loan from the company Bliss GVS Pharma Ltd. by misrepresenting that it was Growmore Investments and Developers Pvt Ltd who had borrowed the money, this time in cash without disclosing the true fact that it was he who had borrowed cash and had misused the security offered by the said Growmore Investments and Developers Pvt Ltd against the advance given to it by cheque. * That the said cash loan taken by the said FIN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear that the transaction was a loan transaction and no income was involved, that there was only cheque transaction and no cash were involved and all the entries were reflected in the books of accounts. xv. None of the case law relied upon by the Ld. A.O. are relevant to the facts of the said GMPL's case or of your appellant's case. Kindly note that none of the cases referred to and relied upon by the id. A.O. in his order are relevant to the facts of your appellant's case. Further, the said cases dealt with the assessment of persons who were searched and not with the cases of the third party assessment similar to the case of your appellant. In addition, the said cases dealt with the statements on oath made by the searched person concerning their income while in your appellant's case no such statement has been made by your appellant or GMPL. (in fact some of the cases directly support your appellant's contention that no addition could have been made on the basis of presumptions) All the details as stated above have been submitted by Growmore Investments and Developers Pvt. Ltd. before your honour in the appeal no. 49/IT-445/13-14 from time to time. 3. Onc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id premises at 102, Hyde Park was not found or seized from the appellant's premises but was seized in the hands of the said Bliss GVS Pharma Ltd. In the circumstances, no addition could have been made on the basis of a loose paper that was seized from third party without examining the facts and without establishing that the said loose paper belonged to your appellant and importantly it represented your appellant's unaccounted income. viii. Again the said loose paper was a Xerox copy when seized and was undated and unsigned and Was not in handwriting of your appellant and therefore no addition could have been made by the Ld. A.O. without discharging his onus of establishing that it belonged to your appellant and represented his unaccounted income. ix. Not only the Ld. A.O. had convinced himself that the said loose paper belonged to your appellant but he had failed to record any satisfaction to the effect that such a loose paper belonged to him. Importantly, he was not even in possession of the alleged loose paper to have formed any opinion about it's belonging and for recording his satisfaction thereby. x. The said Bliss GVS Pharma Ltd. had clearly explained and co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt that the said amount was borrowed to earn interest @15% per annum by lending the same to M/s. Supreme Mega Constructions LLP and therefore should be allowed as an expense u!s.57(iii) is not found to be justified since the same is not supported by any agreement with M!s. Supreme Mega Constructions LLP in this regard. The only evidence submitted by the appellant is a letter dated 25.5.2010 from the said MIs. Supreme Mega Constructions LLP which states as under: With reference to our discussion of the captioned subject , we request you to lend us or arrange for such lending an amount of Rs. 20 crores on or befcre 30 June 2010 on which we will be pleased to pay an interest @15%. The said amount is required for the purpose of the proposed subject of development of land bearing CTS No.372, CTS No.372/1 to 4 and CTS No.425 situated at Mar 01, the acquisition of which is in progress. We shall refund the money by 31st March 2011. 6.5. I find that the payment of Rs. 13.80 crores was made on 29.6.2010 to MIs. Supreme Mega Constructions LLP, which has been received back on 30.6.2010. In the submissions made it has been admitted by the appellant that the loan to M/s. Supreme Mega Constru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioned the expenses which have been incurred towards earning of dividend income he has computed the disallowance. u/s 14A at Rs. 680760/-, by taking 0.5% of average investment, under Rule 8D (2)(iii). 7.4.1 I find that the primary onus was on the appellant to show that no expense was incurred in relation to the exempt income. The same has not been discharged. The A.0 has made the assessment after considering the accounts and submissions of the assessee. The appellant has admitted that its investment in shares and securities at the year end aggregated to an amount of Rs. 14.39 Crore( Op. Bal. of Rs. 13.62 Crores). The appellant has also earned dividend income of Rs. Rs. 86,92,794/- and claimed the same as exempt. Considering the sizeable portfolio of shares and the activities undertaken, I am of the considered opinion that expenses would have been incurred for managing the same by way of using the services of staff, office phones etc. Similarly, expenses would be involved in maintaining and keeping records, their audit and accounting etc. From the profit and loss account it is seen that the various administrative expenses as under could be said to be partly attributable to earning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture on borrowings utilized in purchase of Kotak Flexi Debit scheme, if applicable, as directed in pare 6.5 above. This ground is partly allowed. 8.3. I have carefully examined the facts of the case, the stand taken by the A.O in the assessment order, the grounds of appeal, the written submissions filed by the appellant during the hearing proceedings and the remand report of the A.O. 8.4. I find that the appellant and his wife Priya Gehi, being co-owners of the property at 101, Hyde Park and 112, Hyde Park have sold these properties during the F.Y.2010-11 relevant to A.Y.2011-12. The appellant is also director of M/s. Growrnore Investment & Developers Pvt Ltd (GIDPL). Following the search in the case of M/s. Bliss GVS Pharma Ltd and Shri S.N. Kamath, wherein certain documents i.e. pages 35 to 46 of Annexure A-i showing financial transactions, involving undisclosed income with appellant / GIDPL was found, the cases of appellant as well as of GIDPL was transferred u1s.127 (2) of the Act to the A.O. dealing with the assessment of the search cases in Bliss GVS Pharma group i.e. DCII CC40, Mumbai. The same A.O has passed the assessment order for A.Y. 2011-12 in both the cases, i.e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; Mumbai On demand Pay at Mum bai to Bliss GVS Pharma Ltd or order the sum of Rupees Twenty five lakhs only for value received this day. Sd- Growmore Invesment & Developers Pvt ltd Address:- Director Notice of Dishonour Waived Signature of Drawer On the backside of the document it is noted as under: Received cash with thanks from M/s. Growmore Investments & Developers Pvt Ltd. Rs. 25,00,000/- ( Rs. Twenty Five lacs only) For BLISS GVS PHARMA LTD Sd/- Authorised Signatory 8.4.3. On a reading of both the sides of the said bill of exchange it prima-facie appears that cash loan of Rs. 25 lacs has been received by Growmore Investment & Developers Pvt Ltd (GIDPL) from Bliss GVS Pharma Ltd and it has been subsequently repaid in cash to Bliss GVS Pharma Ltd, since there is no mention of any cheque or other bank transaction or date on the front side and there is a specific mention of cash received on the backside of the document. This shows that these are cash hundies and not promissory notes against a loan taken through banking channel, as claimed by the appellant. 8.4.4. In this regard followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it dated 18.2.2011 was correct. He has also stated that the transaction with GIDPL was purely cheque transaction which was reflected in the regular books of ãCCOUflt. It was further stated by Shri Karnath regarding the nature of transaction of Rs. 1.50 crcres paid to GIDPL, in reply to Q.No.27 as under: In my personal capacity / had to buy a property at 101, Hyde Park. The related papers page No. 40 was found from my residence which was giving the estimation of total consideration and I was to pay Rs. 1.13 crores approximately in cash and to meet this obligation the cheque of Rs. 1.50 crore was given to Mis. Growmore. / completed my obligation in purchasing the property and the cheque was returned to MIs. Bliss GVS." Another question (No.29) was put to Shri Kamath : Q- " it is noticed that M/s. Bliss GVS Pharma has purchased a property 102, Hyde Park from Mr. Ravi Gehi. Why the inference cannot be drawn that this can be the same type of obligation as referred by you in the answer to Q.No.28 (correct question No. is 27). Ans. The same inference cannot be drawn as no other papers found during the course of the search. The relevant documents shall be furnished within a da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kkar and have nothing to do with the said GIDPL. These facts have been confirmed by Shri Vipul Thakkar in the statement of facts filed before the settlement commission in application made by him for settlement of his income for A.Y.2011-12. (viii) M/s GIDPL has submitted before the A.O. that a sum of Rs. 1.5 crores was given by M/s. Bliss GVS Pharma Ltd by way of RTGS transfer into the bank account of M/s. GIDPL on 29.6.2010 which was returned on 16.7.2010 by cheque no.040501 dtd 16.7.2010. The same was cleared for payment in the bank account of GIDPL on 19.7.2010 and interest of Rs. 93698/- was paid on this loan. It has been submitted that the transaction of receipt of amount of Rs. 1.5 crore was supported by bills of exchange issued by GIDPL which was signed by Mr. Ravi Gehi, Director of the company and on repayment of the amount, the security provided i.e. all the six original bills of exchange were duly returned to M/s. GiDPL without any such noting on the backside of the bills of exchange. 8.5. It is further observed that the sale of two properties at Hyde Park has been made by the appellant, along with the co-ownwer, as under : (i) sale of 101, Hyde Park to Shri S.N. Ka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een the transaction amounting to Rs. 113,22,9401- and the issue of hundies of Rs. 1.50 crores. In fact, even before the settlement commission the payment of cash of Rs. 1.5 crore has been treated by Bliss GVS Pharma Ltd as application of funds/cash outflow and it has been submitted as under : " The applicant has purchased office premises at Hyde Park, Opp. Chandivali Crossing, Powai, Anciheri (East), Mumbai. In this deal, applicant was to pay cash towards part consideration but failed to meet the obligation as committed and a cheque was drawn in favour of Ws. Growmore Investment and Developers Pvt. Ltd. The bundles were drawn by Growmore Investment and Developers Pvt. Ltd and got it discharged so that the applicant cannot demand cash/cheque from Growmore Investment and Developers Pvt Ltd. The applicant has discharged the obligation in the deal of property by settling the dues and hundies were returned to the applicant. The source of this cash is an amount received against the cheques issued to the non-genuine purchases parties. This is an application of funds, hence this transaction is not offered to tax." This clearly shows that there was a cash obligation towards purchase of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k and brought to notice details of interest income and interest expenditure claimed by the assessee in the statement of total income. He brought to our notice page 11 of the paper book, which is submission of the assessee before assessing officer that assessee is earning interest income by lending the money on interest. He submitted that assessee is earning the interest income ranging from 12% to 16.4% and also takes loans from private parties to whom he pays interest @9% . The differential rate is the income of the assessee. He brought to our notice page 19 of the paper book which is letter of request/proposal for loan of Rs. 20 crores @ 15% from M/s Supreme Mega Constructions LLP required for the purpose of proposed development of land. He also brought to notice bank statement of HDFC bank in which assessee has taken various loans from M/s Khoobsurat Ltd and M/s Satellite Developers Ltd on various dates and foreclosed the mutual funds with Birla Sun Life and Kotak flexi. Assessee made the payment to M/s Supreme Mega Constructions LLP of Rs. 13.8 crores on 29.06.2010. On 30 June 2010, M/s Supreme Mega Constructions LLP has returned the loan for the reason that their requirement is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IDPL and the same income is assessed to tax in the hands of assessee. Further he brought to our note that no addition was made in the hands of assessee's wife. He prayed that the above addition may be deleted as there is no material found linking the assessee who has actually not received anything above the declared consideration in the return of income. 18. On the other hand learned DR submitted with regard to ground No. 1 that the letter produced from M/s Supreme Mega Constructions LLP is afterthought arrangement and there is no link of interest expenditure to the interest income earned by the assessee during this assessment year, therefore the interest expenditure has no direct link to the interest income earned by the assessee. Therefore, as per the provisions of section 57, assessee can claim deduction only those expenditure which are incurred to earn the interest income. 19. With regard to ground No. 2, learned DR submitted that assessee has earned exempt income and assessing officer is justified in making the disallowance under section 14A. 20. With regard to ground No. 3, he supported the conclusions of the Ld CIT(A) and submitted that assessee has sold 2 properties duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates that assessee made effort to complete the transaction. 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. There is 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 incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is equal to 44% of the total administration expenses. The assessee has incurred that the administration expenses to earn the total income which includes exempt income. The gross total taxable income of the assessee is Rs. 1,90,28,159/- and exempt income is Rs. 86,92,794/-. Therefore, the total gross income earned by the assessee is Rs. 2,77,20,953/-. The percentage of exempt income on total gross income is 31%. 24. We notice from the assessment order that the AO has considered average value of investment and applied the rule. We do not know whether the assessee has earned the exempt income from all the investments made by the assessee. As per the judicial precedents, the AO should have considered only those investments which has earned exempt income and eliminate those investment which has not earned exempt income. Therefore, 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 i.e., Rs. 4,77,091/- (31% of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r which Mr. Vipul Thakkar who is the finance manager of Bliss GVS and was in need of funds for personal requirement has misused his capacity as finance manager and utilized the hundies to withdraw cash from the company. It was confirmed that he has refunded the funds to the company. The transaction recorded back side of the hundies represents the repayment of loan by Mr. Vipul. M/s Bliss GVS has confirmed in writing that there was no cash transaction with M/s Growmore Investments. This was also confirmed by Mr. Kamath vide letter dt 25.02.2011 before Addl Director of Income Tax (investigation) that the transaction of discharged hundi papers involving loan transaction with Growmore Investments. 28. We find that Ld CIT(A) confirmed that assessee and his wife co-owner sold two properties at 101 and 102 at Hyde Park, Andheri, Mumbai. There was allegation on sale of property at 101, Hyde Park of payment of on money and Ld CIT(A) has deleted the same. However, in the second sale transaction of 102, Hyde Park also, Ld CIT(A) observes from the findings of AO that there were three streams of distinct, separate and independent transactions of the same amount of Rs. 1.50 crores and the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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