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TMI Blog2022 (1) TMI 634X X X X Extracts X X X X X X X X Extracts X X X X ..... hat assessing officer has examined the issues raised by the ld PCIT. Thus, the order passed by the Assessing Officer is erroneous and prejudicial to the interest of revenue. Counsel did not submit the details of interest with reference to under the head 'income from other sources' nor expenses details which were mentioned with reference to section 57 - there is no any working submitted by the assessee in respect of general expenses that against which interest income such general expenses were incurred by the assessee. That is, nexus is absent. To earn the interest income the assessee has claimed to have incurred general expenses which is not believable. To collect the interest income from customers only some collection charges to be incurred, such as transportation charges, postal charges if interest cheques were received by post etc, thus, some small expenses may be incurred. Thus, to claim the general expenses against the interest income is not justifiable, particularly when assessee has not demonstrated that on which activities the assessee has spent ₹ 37,04,113/- to earn such interest income. Thus, it is clear that Assessing Officer did not make enquiry to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erived income from House Property and Embroidery job work. The Scrutiny assessment under section 143(3) of the Act was finalized on 23.11.2016 at assessed income of ₹ 2,92,880/- by way of making additions of ₹ 2,92,880/- on account of disallowance of expenditure under section 14A of the Act. 3. Later on, Learned Principal Commissioner of Income Tax-1, [in short the ld. PCIT ], has exercised his jurisdiction under section 263 of the Income Tax Act 1961. On perusal of Scrutiny records, Ld. PCIT noticed that assessee has shown an amount of ₹ 29,90,030/- under the head income from other sources on account of interest income and an amount of ₹ 37,04,113/- was claimed as deduction on account of expenses. However, there was nothing on record to show that the said expenses of ₹ 37,04,113/- were incurred wholly and exclusively for the purpose of making or earning such income. Hence the amount of expenses of ₹ 37,04,113/- claimed under the head 'income from other sources' was not justified as the same was not incurred/utilized for earning the income under 'other sources' and therefore, there was underassessment of income. Therefore, l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome during the year under consideration and in earlier years. Hence the amount of expenses of ₹ 37,04,113/- claimed under the heading income from other sources was not justified as the same was not incurred/utilized for earning the income under the head 'income from other sources' and therefore while finalizing the assessment, same was required to be disallowed u/s. 57(iii) of the Act which reads as under: Deductions 57. The income chargeable under the head Income from other sources shall be computed after making the following deductions, namely:-- iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income; Thus, the AO concerned was required to disallow such claim of expenses which were not attributable to wholly and exclusively for the purpose of making or earning the income under the head 'other sources'. Moreover, this case was selected for scrutiny under CASS for limited scrutiny having one of the reasons for selection being large deduction claimed u/s. 57 which was not done during the course of assessment proceedings. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nor prejudicial to the interest of the Revenue, as the assessing officer has conducted necessary enquiry therefore, jurisdiction exercised by ld PCIT under section 263 of the Act is bad in law. Therefore, first of all, let us examine whether Assessing Officer has examined the issue, in his assessment order, which was raised by the ld. PCIT under section 263 of the Act. The relevant para of assessment order is reproduced below: The assessee has filed her return of income on 25.02.2015 declaring therein total income of NIL. The return of income was processed u/s. 143(1) of the Income-tax Act, 1961. The case was selected for scrutiny. Accordingly, a notice u/s. 143(2) of the Act was issued on 21.09.2015 and duly served upon the assessee. Further, a notice u/s. 143(1) of the Act was issued on 04.04.2015 and 25.05.2016 along-with detailed questionnaire calling for various details was issued and served upon the assessee by speed post. 2. In response to the aforesaid statutory notices, Mr. Harishankar Toshniwal, CA and Authorized Representative (AR) of the assessee attended the proceedings on the dates of hearing and submitted the required details from time to time, which were p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,900 in quoted share and unquoted shares of ₹ 32,00,000/- and the capital of the assessee as on 31.03.2013 is ₹ 45,86,072/-. This shows that all the investment made in shares is out of owned capital of the assessee. Reliance is placed on judgment of the Honourable Gujarat High Court in the case of CIT-1 vs. UTI Bank Ltd. (2014) 45 taxman.com 365 (Gujarat) Held that Where assessee had sufficient income free funds to meet it tax free investment yielding exempt income, it could be presumed that such investment were made from interest free fund and no from loaned Fund, and thus no disallowance under section 14A being warranted. Further the assessee has not made any claim for exemption of any income from payment of tax, disallowance u/s. 14A cannot be made . 5.1 The Submission of the assessee is not acceptable. As per books of accounts, there are interest bearing loans and investments made in shares. There is likelihood of exempt income from interest bearing loans. Therefore, section 14A is applicable in this case. Working is as follows: Calculation of Expenditure Disallow U/s. 14A 1. Expenditure directly relating to the Exempt Income - NIL 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of interest received (vide at page 5 of PB). In response to the notice, the assessee replied by letter dated 29.07.2016. However, we note that it is a general reply of interest received and paid. The Ld. Counsel did not submit the details of interest with reference to under the head 'income from other sources' nor expenses details which were mentioned with reference to section 57 of the Act. That is, there is no any working submitted by the assessee in respect of general expenses of ₹ 37,04,113/-, that against which interest income such general expenses were incurred by the assessee. That is, nexus is absent. To earn the interest income of ₹ 29,90,030/-, the assessee has claimed to have incurred general expenses of ₹ 37,04,113/-, which is not believable. To collect the interest income from customers only some collection charges to be incurred, such as transportation charges, postal charges if interest cheques were received by post etc, thus, some small expenses may be incurred. Thus, to claim the general expenses of ₹ 37,04,113/-, against the interest income of ₹ 29,90,030/-, is not justifiable, particularly when assessee has not demonstrated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be invoked even where full facts are disclosed but the Assessing Officer has not examined these details as per correct provisions of law. In support of this proposition, we place reliance on the decision of the Hon'ble Rajasthan High Court delivered in the case of CIT Vs. Emery Stone Manufacturing Company, 213 ITR 843 (Rajasthan). In the assessee's case under consideration, the assessing officer did not make enquiry in respect of expenses of ₹ 37,04,113/- and did not try to establish the nexus that such expenditure has been incurred by the assessee to earn interest income of ₹ 29,90,030/-. No doubt, assessee has filed some details during the assessment proceedings, but the AO did not raise query to dig the truth. The assessing officer should examine the details filed by the assessee and must reach on right conclusion, which the AO has failed to do so in the assessee's case under consideration. Therefore, order passed by the assessing officer is erroneous as well as prejudicial to the interest of Revenue, hence, the jurisdiction exercised by ld PCIT under section 263 of the Act is upheld. 16. In the result, appeal of the assessee is dismissed. Order is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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