9911796707
TMI Blog2022 (7) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s. 57. It is also held that such interest expenditure is allowable, even when there is no income. Thus, the issue as to whether the assessee has correctly claimed the set-off such interest paid to Chola-IDBI, in absence of any interest income for the firm is a highly debatable issue. It has been held in various decisions that provisions u/s. 154 for rectification of the order cannot be applied to debatable issues. The Hon ble Supreme Court in the case of T.S.Balaram vs Volkart Brothers [ 1971 (8) TMI 3 - SUPREME COURT] has held that a mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points which there may be conceivably two opinions. It was held that a decision on a debatable point is not a mistake apparent from the record. Therefore set aside the order of the ld.CIT(A) on this issue and the grounds raised by the assessee are allowed. - ITA Nos.144 And 148/Hyd/2020 - - - Dated:- 30-6-2022 - Shri Rama Kanta Panda, Accountant Member For the Assessee : Shri A.V.Raghuram, Advocate For the Revenue : Shri Dinesh Paruchuri, Sr.AR ORDER PER SHRI RAMA KANTA PAN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,85,752/- claimed under the head income from business. In absence of any reply from the side of the assessee, the AO construed that assessee has no objection. Since the mistake was apparent from the record, the AO passed the order u/s. 154 of the Act by rectifying the order passed u/s. 143(3) and made disallowance of Rs. 15,85,752/- 4. In appeal, the ld.CIT(A) upheld the action of the AO by observing as under:- 6. The assessment order u/ s. 143(3) was passed and the claim of the appellant of interest of Rs. 15,85,752/- being paid to Chola IDBl was allowed. The AO issued notice u/s. 154 to disallow the said interest on account of the fact that the money was invested in the capital of the firms, to earn exempt income, therefore the interest has to be disallowed. In the adjudication for A. Y. 2015- 16 in ITA No. 0191/2017-18/CITIA)-5, dated 17.05.2018, wherein 143(3) was passed on 10.11.2017, it was noted that the appellant was neither deriving any interest income nor remuneration from these partnership firms and the interest expenditure was thus disallowed. The adjudication is reproduced as under:- ..... The AO noted that the appellant has set off the interest paid of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... snatched away in the manner in which the investment has been made. Thus the interest expenditure has been incurred for the purpose of earning an exempt income and therefore cannot be allowed as a business expenditure u/s. 36(1)(iii) of the Income Tax Act as no business activity has been carried out by the appellant and merely an investment has been made which can only generate an exempt income and no taxable income at all for the year under consideration. The judgment cited by the appellant has no relevance to the issue under consideration as this is an investment in capital of the firms by the appellant and not for the purpose of business expediency or preservation of capital. The judgment of SA Builders has itself been considered for consideration by the Honourable Apex Court in the case of Tulip Star Hotels Limited. In view of the above, the submission of the appellant is rejected. As regards the claim of consistency, the appellant cannot claim an illegal allowance in an earlier year by the AO, as a matter of right being conferred upon it as law, which has not even been provided in the Income Tax Act by the Parliament. An error in granting an allowance in one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest expenditure is allowable against the same. He submitted that even though there is no interest received from the firm in absence of any profit, the provisions of section 36 are not such that the expenditure could be allowed only when there is income. 7. Referring to the decision of Hon ble Supreme Court in the case of Eastern Investments Ltd. vs. CIT reported in 20 ITR 1, he submitted that the Hon ble Supreme Court in the said decision has held that the expenditure is allowable, even when there is no income. He accordingly submitted that this is a debatable issue and therefore, debatable issues cannot be rectified u/s. 154 of the I.T.Act. 8. Referring to the decision of the Bangalore Bench of the Tribunal in the case of Suresh Sreeram vs. ITO in ITA No. 1605/Bang2019, dated 28.01.2021, he submitted that the Tribunal in the said decision has held that loss and income receivable by all the partners from the firm could be set-off against the other income earned by the partners under the same head i.e interest and salary. 9. Referring to the decision of Hon ble Supreme Court in the case of CIT vs. Rajendra Prasad Mody 1978 CTR: 115 ITR 519, he drew the attention of the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned. There is in fact nothing in the language of section 57(iii) to suggest that the purpose for which the expenditure is made should fructify into any benefit by way of return in the shape of income. The plain natural construction of the language of section 57(iii) irresistibly leads to the conclusion that to bring a case within the section, it is not necessary that any income should in fact have been earned as a result of the expenditure. It may be pointed out that an identical view was taken by this Court in Eastern Investments Ltd. v. Commissioner of Income tax, where interpreting the corresponding provision in section 12(2) of the Income Tax Act, 1922 which was ipsissima verba in the same terms as section 57(iii), Bose, J., speaking on behalf of the Court observed: It is not necessary to show that the expenditure was a profitable one or that in fact any profit was earned . It is indeed difficult to see how, after this observation of the Court, there can be any scope for controversy in regard to the interpretation of section 57(iii). 10. He accordingly submitted that since the issue is a highly debatable one, therefore, the ld.CIT(A) is not justified in upho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue as to whether the assessee has correctly claimed the set-off such interest paid to Chola-IDBI, in absence of any interest income for the firm is a highly debatable issue. It has been held in various decisions that provisions u/s. 154 for rectification of the order cannot be applied to debatable issues. The Hon ble Supreme Court in the case of T.S.Balaram vs Volkart Brothers reported in (1971) 82 ITR 50 has held that a mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points which there may be conceivably two opinions. It was held that a decision on a debatable point is not a mistake apparent from the record. I, therefore set aside the order of the ld.CIT(A) on this issue and the grounds raised by the assessee are allowed. 14. In the result, the appeal filed by the assessee is allowed. ITA No.148/Hyd/2020 15. There is a delay of 15 days in filing of this appeal for which the assessee has filed a condonation application along with an affidavit. After hearing both the sides, the delay in filing of the appeal is condoned and appeal is admitted for adjudication ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the course of assessment proceedings for the AY 2015-16, issued notice u/s. 133(6) to M/s. chola and IDBI and the IDBI clarified that the said account was opened for personal use and M/s. Chola clarified that the loan was sanctioned as Home Equity Loan. The similar issue has come up in the appellant s own case for the AY 2015-16 wherein the interest paid of Rs. 14,33,370/- was disallowed by the AO and the addition was upheld by the CIT(A) vide order in ITA No. 0191/2017-18, dated 17.05.2018. The adjudication in the above referred appellate order is reproduced as under:- 6. Decision: ..... The AO noted that the appellant has set off the interest paid of Rs. 14,33,370/- to Chola and IDBI, which was invested in the capital of partnership firms. The AO verified that the IDBI loan was taken for personal use and chola loan was a home loan by the appellant and was invested as a capital of the partnership firm. The AO further noted that the share capital introduced in the firms namely Ms VDIC, wherein the appellant had 25% shares and Ms VDCL wherein the appellant had 45% shares. The AO noted that no business income was derived during the year under consideration an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce to the issue under consideration as this is an investment in capital of the firms by the appellant and not for the purpose of business expediency or preservation of capital. The judgment of SA Builders has itself been considered for consideration by the Honourable Apex Court in the case of Tulip Star Hotels Limited. In view of the above, the submission of the appellant is rejected. As regards the claim of consistency, the appellant cannot claim an illegal allowance in an earlier year by the AO, as a matter of right being conferred upon it as law, which has not even been provided in the Income Tax Act by the Parliament. An error in granting an allowance in one year does not become a rule in the case of an appellant for a life time. In view of the above the claim of the appellant is rejected in toto and the second ground of appeal is dismissed accordingly. The first and third grounds being general in nature need no adjudication. To slim up appeal is dismissed ... 6.2. In the above adjudication it was clearly brought out that the loans obtained by the appellant were for personal/house loan purposes and not for any business purposes as clarified by the Finan ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
