MANJI K. PATEL,MUMBAI vs. INCOME TAX OFFICER 5(2)(3), MUMBAI

These appeals are filed by assessee against the order of CIT(A)-10, Mumbai dated 24/10/2017 for A.Y.2011-12 in the matter of order passed u/s.143(3) and 154 of the IT Act.

In this appeal, assessee is aggrieved for assessing income from business at Rs.31,67,240/- as against Rs.21,18,861/- offered by the assessee in the return of income. i. Trishul Enterprises Interest on Capital Rs. 15,20,898 ii. Patel & Associates Remuneration Rs. 2, 62,388 Interest on Capital Rs. 20. 69.527 iii. Trishul Realtors Interest Paid on capital Rs. 6. 85.293 Total income from partnership firm Rs..31.67.420/-

It was contention of assessee before the AO that he has paid total interest of Rs. 1,37,99,484/- on borrowed fund and out of said amount; the assessee on his own disallowed interest of Rs. 47,39,351/- u/s 14A in view of such disallowance made by AO in the Asst. Year 2009-10, thus he has allowable interest of Rs.90,60,199/-. The assessee further submitted that he has also received interest of Rs.80,21,574, therefore net interest payment of Rs. 10,38,559/- was claimed by assessee against business income from partnership firm as stated above, that he has also claimed expenses of Rs. 10,000/- for Profession Tax paid, thus he had claimed expenses of Rs. 10,48,559/- against the business income and vide letter dated 26/8/2013 it was submitted before AO that the assessee has of his own disallowed interest of Rs.47.39r351/- u/s. 14A and therefore there should not be any further disallowance of interest. However, the AO has 3 & 1869/Mum/2018 Shri Manji K Patel taken business income as per return/ computation and given no explanation for adopting business income at higher figure of Rs. 31,67,420/- as against Rs.21,18,860/- shown by the assesses, hence in the absence of speaking order the enhancement be deleted.

The CIT(A) observed that the claim of the assessee on admissibility of expenses of Rs. 10,48,559/- claimed against the business Income, the AO has elaborated on the admissibility of the claim while deciding the assessee's application u/s 154(8) of the act vide order dated 11/04/2014. Prima facie the assessee has claimed interest expenses of Rs.10,48,559/- against the Remuneration and Interest Received on partner's capital, Rs.31,67,420/-, however the assessee could not produce any documentary evidence before the AO to substantiate the genuineness of the expenses incurred, therefore the AO held that the expenses are not allowable either u/s 36(1)(iii) or u/s 37(1). Assessee is in further appeal before us against the impugned order of CIT(A). 6. We have considered rival contentions and carefully gone through the orders of the authorities below and found from record that in the course of assessment u/s. 143(3), AO has disallowed interest expenses of Rs.10,48,559/- claimed against income from remuneration and interest received on partner’s capital of Rs.31,67,240/-. It was contention of learned AR that assessee has already disallowed interest of Rs.47,39,351/- u/s.14A and therefore, no further disallowance can be made. The disallowance has been made by the AO basically on the 4 & 1869/Mum/2018 Shri Manji K Patel ground that assessee has not substantiated genuineness of the expenses incurred for earning income from remuneration and interest. Interest expenditure can be allowed only if it is proved that assessee has genuinely incurred the same for earning the income from business. The CIT(A) has also observed that assessee has not placed any documentary evidence to prove the genuineness of the claim or nexus of the expenses with the income earned.

From the record we found that assessee’s claim of interest of Rs.10,48,559/- and expenses of Rs.10,000/- claimed against Trishul Enterprises was disallowed on the plea that assessee was unable to prove the specific expenses against the specific income.

Learned AR drawn our attention to the incurring of actual expenses on the borrowed funds which was alleged to be used as deployment of capital in the partnership firm. As per learned AR such expenses should be allowed against the income earned by assessee out of remuneration from the firm and interest on partner’s capital so received by it.

In view of above discussion and in the interest of justice and fair play, we restore the issue back to the file of the AO and assessee is directed to explain the genuineness of the expenses so incurred for earning interest income on capital employed with the firm and remuneration so as to enable the AO to consider its allowability against the income so earned. The nexus of expenses so incurred against 5 & 1869/Mum/2018 Shri Manji K Patel particular head of income is also required to be established by the assessee before allowing the same. We direct accordingly.

We have considered rival contentions and found that while passing order u/s 143(1), the assessed income got enhanced by Rs. 10,48,560/- and it got perpetuated in the assessment order u/s 143(3) and as a result, the assessed Income got enhanced by Rs. 10,48,560/-. The assessee, therefore, applied for rectification of mistake u/s 154 against intimation u/s 143(1) vide letter dated 04/04/2014 as also against the order u/s 143(3) vide letter dated 24/03/2014. However, the AO vide the impugned order dated 11/04/2014 has refused to rectify the mistake.

By the impugned order, CIT(A) confirmed the action of the AO by observing as under:- 6.2.1 I have considered the submissions of the appellant. It is observed that while computing the total income of the appellant u/s 143(3), the AO has computed the income of the appellant under different heads of income. The AO has computed the total income of the appellant at Rs. 49,06.516/- which includes Salary of Rs. 7,20,000/-, Income from House Property Rs,9,58,407/-, Income from Business Rs. 31,67,420/- and Income from Other Sources Rs. 1,75,689/-, besides Agricultural Income of Rs. 15,42,820/-. It is also apparent from the computation of total income in the assessment order that the AO has incorporated the income "as per computation" under various head as part of assessment order in contradistinction to income determined u/s 143(1). Therefore, even if the adjustment carried out while computing the income u/s 143(1) may not be valid, it would still be valid u/s 143(3) because what