9911796707
TMI Blog2024 (9) TMI 286X X X X Extracts X X X X X X X X Extracts X X X X ..... n the opinion of the AO, the expenditure is partly laid out or expended for earning such income. AO cannot have presumption that exemption of expenditure is partly laid out or expended for earning the income. We need to look at the entire transaction as a whole and not to adopt a dissecting approach. AO ignored that assessee had other legal recourse to recover the principal amount from the Builder. In order to recover not only the principal amount but also the interest thereon from the Builder, assessee took up the matter by availing the services of the brokers and their associates by agreeing to pay them a lump sum amount of ₹ 50 lakhs which ultimately resulted into the recovery of the entire amount including the principal and interest thereon. Assessee has duly offered the interest component as income in his return under the head 'income from other sources' and has thus claimed a deduction of 50 lakhs plus other expenses, from the said interest income which was received by him only after the services of the brokers. Accordingly, the balance of convenience is in favour of the assessee and thus the deduction of claim of Rs. 50 lakhs from the interest income of Rs. 85, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which included interest income of ₹ 85,63,262/- where from a deduction of ₹ 51,66,936/- was claimed u/s. 57 of the Act. This deduction comprised of an amount of Rs. 50,00,000/- paid as brokerage in order to recover investment made by the assessee in a project of M/s. Concrete Builders. The builder had failed to commence the project and had also refused to return the money due to which the assessee had to take the services of group of brokers. 3.1. In the course of assessment proceedings, ld. Assessing Officer enquired from the builder about the said transaction which was confirmed in the statement recorded by him. According to the builder, the project in which the assessee had invested was cancelled due to non-receipt of necessary permissions from the government which therefore required it to refund the money paid by the assessee for booking the property in the said project. Ld. Assessing Officer had summoned the brokers also who appeared before him and confirmed about the transaction for which copies of memorandum of understanding entered into, between the brokers and the assessee was placed on record. Copies of bank statements were also furnished, evidencing payment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of brokerage paid by the assessee is not in dispute as the same has been accepted by the ld. Assessing Officer in para 9 of the impugned assessment order, after considering the submissions of all the concerned parties and their statements recorded by him in the course of assessment. It was also submitted that payment of brokerage by the assessee is not in the nature of payment specifically disallowable u/s. 58 of the Act. Assessee also submitted that section 57 provides for such expenditure which is wholly and exclusively laid out or expended for earning such income. The said section does not provide for such expenditure to be partly allowed by adopting certain proportionality based on assumption which is incorrect and not in accordance with the provisions contained in the said section but as per personal surmises and conjectures. 5.1. Assessee placed reliance on several decisions to buttress his contentions. He also placed reliance on the decision in the case of Virmati Ramkrishna vs. CIT (1981) 131 ITR 659 (Guj) which laid down the principles in respect of claim of deduction of expenditure u/s. 57 of the Act. Ld. CIT(A) also reproduced the principles laid down by the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efund of amount from M/s. Concrete Builders which is due to the assessee. Against this service, assessee agreed to pay a sum of Rs. 50 lakhs as brokerage and for getting the deal settled between the assessee and the Builder. The consideration agreed upon is not in terms of percentage of the amount recovered by the brokers from the builder. We note that it is a lumpsum amount agreed to at Rs. 50 lakhs, for the recovery of entire amount from the builder due to the assessee. The said agreed consideration is not bifurcated in the memorandum of understanding towards recovery of principal and interest, separately. 8. We delve into the provisions of section 57 to note that it allows deduction from the income chargeable under the head 'income from other sources' towards 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. Amounts not deductible are provided u/s. 58 which do not apply in the present case before us. We have also perused the principles enunciated by the Hon'ble Gujarat High Court in the case of Virmati Ramakrishna (supra) which are reproduced in the order of ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source of the income, the nexus must necessarily be between the expenditure incurred and the income earned, (x) it is not necessary to show that the expenditure was a profitable one or that in fact income was earned, (xi) the test is not whether the assessee benefited thereby or whether it was a prudent expenditure which resulted in ultimate gain to the assessee but whether it was incurred legitimately and bona fide for making or earning the income, (xii) the question whether the expenditure was laid out or expended for making or earning the income must be decided on the facts of each case, the final conclusion being one of law 9. From the above, we note that the manifest and immediate purpose of making the payment of Rs. 50 lakhs by the assessee was to receive back the full amount due to the assessee from the Builder, which was under very specific and clear understanding. From the principles enunciated by the Hon'ble Gujarat High Court in the case of Virmati Ramakrishna (supra), we find that the expenditure incurred by the assessee is for the sole purpose of recovering the amount due by him from the Builder. Assessee had no option except to incur the expenditure in order to ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion as a whole and not to adopt a dissecting approach. On this aspect, Hon ble High Court of Gujarat in the case of Atir Textile Industries (P.) Ltd. vs DCIT [2015] 55 taxmann.com 380 (Guj) held in para 12 and 13 as under: 12. In nutshell, while considering the case to extend benefit under Section 157(iii) of the Act, the competent authority is within its right to find out the legal nature of transaction and for that purpose, it may lift the veil but while doing so, the competent authority has to consider the transaction as a whole and for that reason, the competent authority cannot split the transaction in more than one part and select any particular part so as to say that such part is illegal or illegitimate or impermissible and deny to extend benefits under Section 57(iii) of the Act. 13. So, it appears that the Revenue splitted the transactions in such a manner that it upheld the genuineness of borrowing, payment and receipt of interest but when question of considering payment of additional interest of 6.5% came into consideration, it termed the said part of transaction as colourable device/tax planning. So, the question is whether the Revenue can split the transaction in the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ared with the words for the purpose of business or profession used in section 37(1). In order to decide whether a deduction is permissible, connection between the expenditure and earning of income must exist, either direct or indirect. Also, the expenditure must be incurred for the purpose for earning the income though it is not necessary that incurring of expenditure is profitable one or in fact income was earned. Hon ble Supreme Court in the case of Vijaya Laxmi Sugar Mills Ltd. vs CIT [1991] 191 ITR 641 (SC) held that The requirement under section 57(iii) that the expenditure should have been incurred 'for the purpose of making or earning such income' shows that the object of spending or the end or aim or the intention of such spending was for earning the interest income. 12. Considering the facts and circumstances of the case and detailed factual elaboration made in the above paragraphs, judicial precedents discussed herein, we find it proper to delete the addition made by the ld. AO by disallowing a portion of the total expense of Rs. 50 lakhs incurred by the assessee towards recovery of brokerage from total amount due from the builder. Accordingly, grounds taken by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
