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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Aayakr ApIlaIya AiQakrNa “B” nyaayapIz maMuba[- mao. IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI श्री महावीर स िंह, न्याययक दस्य एविं श्री मनोज कुमार अग्रवाल लेखा दस्य के मक्ष । BEFORE SRI MAHAVIR SINGH, JM AND SRI MANOJ KUMAR AGGARWAL, AM Aayakr ApIla saM./ (inaQa-arNa baYa- / Assessment Year 2004-05) Neysa Jewellery Ltd. Income Tax Officer 8(3)(1) Gems & Jewellery Complex- III, G-36 Seepz, Andheri Vs. (East) Mumbai-400 096 .. (p`%yaqaaI- / Respondent) (ApIlaaqaI- / Appellant) स्थायी लेखा िं./PAN No. AAECS1821N अपीलाथी की ओर े / Appellant by : Ms. Dinkle Hariya, AR प्रत्यथी की ओर े / Respondent by : Shri DG Pansari, DR ुनवाई की तारीख / Date of hearing: 18.10.2018 घोषणा की तारीख / Date of pronouncement : 18.10.2018 AadoSa / O R D E R महावीर स िंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-18, Mumbai [in short CIT(A)], in appeal No. CIT(A)-18/ITO-8(3)/IT-329/2012-13 vide order dated 28.02.2013. The Assessment was framed by the Income Tax Officer, Ward-8(3)(1), Mumbai (in short ‘ITO’/ AO’) for the A.Y. 2004-05 under section 143(3) read with section 254 of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in not allowing interest expenditure amounting to ₹ 17,58,316/-. For this assessee has raised the following ground:-
“1. Learned Commissioner of Income Tax (Appeals) erred in confirming the order of learned Assessing Officer is not allowing interest expenditure to the tune of Rs. 1758316/- as an expense against interest income earned by the appellant of ₹ 1799913/-.
Appellant submits that there is a nexus between interest incomes earned and interest expense incurred and accordingly the said interest expenditure ought to have been netted out with interest income for the purpose of assessment of income of the Appellant.”
Briefly stated facts are that the AO on verification of details filed by the assessee noted that the assessee has claimed interest expenses incurred during the previous year relevant to this Assessment year in respect to credit/ loan outstanding. The assessee claimed these expenses against the interest earned from fixed deposits made in the earlier years. This matter travelled to Tribunal and Tribunal directed the AO to verify whether the expenses are allowable under section 57(iii) of the Act in case when the nexus is proved directly with the interest earned. The assessee has incurred expenses of ₹ 1,63,95,382/-, which was claimed against interest income earned on FD of ₹ 17,99,913/-. The AO disallowed the interest expenses amounting to ₹ 17,99,913/-. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) confirmed the action of the AO by observing in Para 1.3 as under: -
“1.3. I have considered the submissions of the appellant, order of the A 0 and facts of the case carefully. it is noticed that the Hon'ble Tribunal has set-aside the issue with the file of the A.O. with the finding that in Principle as per Sec. 57 expenditure incurred for earning income has to be at owed as deduction. However necessary material is not available on record from which it can be decided as to how much interest expenditure was incurred for earning the interest income. Thus, the case was set. aside to the file of the AG. to verify the nexus and allow the expenditure permissible. As per the directions of the Tribunal. the AO has allowed the assessee to explain its case. After verifying the submissions made by the appellant, the A.O. has held that the assessee has failed to prove the direct nexus between the expenditure incurred and the fixed deposits made in the earlier years. Therefore, he has not allowed the claim of netting of interest income with the interest on FDs
On the other hand, the AR of the appellant has submitted that major portion of fixed deposits made in the earlier years was sourced out of the bank loan taken in earlier years. Interest charged and bank loan for F.Y. 2033-04 pertaining to loan taken in earlier years as well as current financial year. Bank loans taken in earlier years are repaid by taking another loan from the same bank. Copy of bank accounts was filed be -ore the A.
The appellant has also relied on the decision of Hon’ble Mumbai Tribunal in the case of C.A. Doshi Vs ITO and also relied on decision of Hon’ble Supreme Court in the case of M/S. ACG Associated Capsules Pvt. Ltd. Vs. CIT.
From the perusal of the submissions and facts of the case, it is clear that as per the directions of the Hon’ble Tribunal, the A 0. has allowed opportunity to the assessee to explain its case and prove the nexus that expenditure was incurred to earn interest income. The AR has submitted details, from the perusal of which the A.O. has held that the assessee has failed to prove any direct nexus with the interest income earned by the assessee during the year under consideration Therefore, interest expenses claimed were not allowed to be netted against the interest earned on FDs. Even before me, the AR has submitted the same reply as before the A.O. and has failed to prove the direct nexus of expenditure incurred for earning interest income. As per the decision of Hon’ble Supreme Cowl in the case of Calcutta Agency 19 ITR 191, the onus is always on the assessee to prove the nexus. But in the present case, the AR has failed to submit any clinching evidence to prove the direct nexus. The decisions relied on by the AR are not helpful to the assessee because in the present case, the assessee has failed to prove nexus otherwise the other Hon’ble Tribunal has held that in principle the expenses is allowable but due to the fact that nexus has not been established by submitting any documentary evidence, therefore not allowable, To support the decision of the A.O. reliance is also placed on the decision of Hon'ble Delhi Tribunal in the case of Moral Trading & Investment Ltd. Vs. DCIT 127 IDO 127 where it is held that interest on mories borrowed car, be allowed as a deduction u/s 57(iii) only if assessee earned interest from such borrowed funds but in the present case assessee has failed to prove that the expenses are incurred for earning the interest income, therefore the netting is not allowed against the interest of fixed deposits. In view of these facts & circumstances, the decision of the A.O. is upheld and the ground of appeal is dismissed.”
Aggrieved, now assessee is in appeal before Tribunal.
We have heard rival contentions and gone through the facts and circumstances of the case. The learned Counsel for the assessee before us explained that the source of making this fixed deposit is out of mixed funds and she produced the following details as under: - Name of Fixed Source of making Fixed Deposit the Bank deposit Loan from Mixed Mixed Interest Total kept with bank funds (in funds (in free loan the bank ratio of ratio of Borrowed own funds funds to to total total funds) funds) SBI 9875000 5402020 2301301 2168597 3082 9875000 Bank of 17379128 11204080 101424 95576 5978048 17379128 India 5. She also filed a paper book containing pages 1 to 102 in which she only referred to page 16 to co-relate the nexus. The details of page 16 reads as under: - Bank of India Type of Source % of Proportionate Interest Interest source funds funds interest interest Rate Expenses Bearing bearing funds funds Mixed funds 197000 51.48% 101424 9.25% 9682 Bank Loan 11204080 100,00% 11204080 9.25% 1036377 Interest Free 5978048 Loan Total 17379128 11305504 1045759 State Bank of India Type of Source % of Proportionate Interest Interest source funds Interest interest rate expenses Funds bearing bearing funds funds Mixed fund 4469898 51.48% 2301301 9.25% 212870 Bank loan 5402020 100.00% 5402020 9.25% 499687 Interest Free 3082 loan Total 9875000 77,3321 712557 6. From the above facts, it is clear that the assessee has made these FDRS in earlier years and even the origin of FDRs are not given by the assessee. The assessee is unable to prove the nexus that the interest income earned and this expenditure of interest claimed. Hence, we find that the CIT(A) has rightly confirmed the action of the AO and hence this appeal of assessee is dismissed.
In the result, the appeal of assessee is dismissed.
Order pronounced in the open court on 18-10-2018. AadoSa kI GaaoYaNaa Kulao mao idnaMk 18-10-2018 kao kI ga[- .