DCIT, NEW DELHI vs. SH. RANJAN DAGAR, NEW DELHI

(PAN : ADKPD7090A) (APPELLANT) (RESPONDENT) ASSESSEE BY : None REVENUE BY : Shri Atiq Ahmad, Senior DR Date of Hearing : 21.09.2017 Date of Order : 22.09.2017

O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : Since common question of law and facts is involved in both the aforesaid appeals filed by the Revenue for AYs 2009-10 and 2010-11, the same are being disposed off by way of consolidated order to avoid repetition of discussion.

ASSESSMENT YEAR : 2009-10

“ 1. On the facts and in the circumstances of the case, Ld. CIT(A) has erred in :

(i) Reducing the addition of Rs. 40,80,835/- to Rs. 4,45,838/- on account of interest of funds borrowed for acquiring immovable and issuing directions to adjust the same against the income from other sources;

(ii) Holding that the loan taken from Reliance Capital Ltd was for the purposes of earning income from other sources;

(iii) Holding that the intention of the assessee was to earn assurance return given by the Omaxe Ltd and to purchase multiplex in the commercial space in Omaxe NRI city;

(iv) Directing to allow the interest on loan under section 57(3) of the I T Act though the same is specifically allowable u/s 24(b) of the I T Act.

(v) Holding that the interest on loan was a revenue expenditure and not a capital expenditure.

(vi) Holding that the assessee had made an investment in commercial property ignoring the fact that the unit allotted to the assessee was a house property.

(vii) Not applying the ratio of decision in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd Vs CIT (1997) 227 ITR 172 (SC) which is fully applicable in this case.”

ASSESSMENT YEAR : 2010-11

“1. On the facts and in the circumstances of the case, Ld. CIT(A) has erred in :

(i) Deleting the addition of Rs.33,23,793 /- and restricting the addition at RS.9,326/- without considering the fact that the loan taken by the assessee was for investment in purchase of property and nor for earning interest;

(ii) Holding that the loan taken from Reliance Capital Ltd was for the purposes of earning income from other sources;

(iii) Holding that the intention of the assessee was to earn assured return given by Omaxe Ltd and to purchase multiplex in the commercial space in Omaxe NRI city;

(iv) Directing to allow the interest on loan under section 57(3) of the I T Act though the same is specifically allowable u/s 24(b) of the I T Act.

(v) Holding that the interest on loan was a revenue expenditure and not a capital expenditure.

(vi) Holding that the assessee had made an investment in commercial property ignoring the fact that the unit allotted to the assessee was a house property.

(vii) Not applying the ratio of decision in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd Vs CIT (1997) 227 ITR 172 (SC) which is fully applicable in this case.”

Reliance Capital Limited for the purpose of earning interest income on advance made to M/s. Omaxe Limited; that assessee has invested in commercial property as investment for appreciation; that the assessee has not been given possession of the property in question; that M/s. Omaxe Limited with whom the assessee has invested in commercial property has stopped paying assured return to the assessee and the assessee has stopped making payment of EMI to the developer.

“as to whether the interest expenditure incurred by the assessee on the loan availed of from M/s. Reliance Capital Limited is directly related with the interest income earned on advance made to M/s. Omaxe Limited should be allowed to be deducted from the said interest income u/s 57 (iii) of the Act?”

Reliance Capital Limited and invested the same in M/s. Omaxe Limited for getting assured return only. However, M/s. Omaxe Limited has resiled form its promise and did not pay the assured return to the assessee and thereafter assessee has also stopped making payment of EMI to M/s. Reliance Capital Limited.

12. In these circumstances, the ld. CIT (A) has rightly held that this income is to be treated as income from other sources and the interest paid by assessee to M/s. Reliance Capital Limited is to be allowed as expenditure incurred for earning the income u/s 57 (iii) of the Act. Moreover, when there was a categoric understanding between the assessee and M/s. Reliance Capital Limited that the assessee will get assured return, the interest was being paid for the purpose of earning interest i.e. assured income from M/s. Omaxe Limited and acquisition of the property was incidental only.

Hon’ble Apex Court in case of CIT vs. Rajendra Prasad 11.

Moody (supra) while interpreting section 57 (iii) of the Act held as under :-

“ The plain natural construction of the language of s. 57(iii) of the Income-tax Act, 1961 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. What section 57(iii) requires is that the expenditure must be laid out or expended wholly and exclusively for the purpose of making or earning income. This section does not require that this purpose must be fulfilled in order to qualify the expenditure for deduction. It does not say that the expenditure shall be deductible only if any income is made or earned. Where the assessee borrowed monies for the purpose of making investment in shares and paid interest thereon during the accounting period relevant to the assessment year but did not receive any dividend on the shares purchased with those monies : Held, accordingly, that the interest on monies borrowed for investment in shares which had not yielded any dividend was admissible as a deduction under section 57(iii) of the Income-tax Act, 1961, in computing its income from dividend under the head “Income from other sources”.”