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Income Tax Appellate Tribunal, “ B”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI, JM
आदेश / O R D E R PER BENCH: These are appeals filed by two assessees against the order of CIT(A)-52, Mumbai dated 12/06/2015 for A.Y.2010-11 and 2011-12 in the matter of order passed u/s.143(3) r.w.s.153A of the IT Act.
Shri Narpat Mehta & Smt. Madhu Narpat Mehta 2. Grievance of both the assessee in both the years under consideration is same. Assessee has agitated disallowance of claim of interest expenses against interest income earned on capital account with the partnership firm.
3. Facts in are that the assessee has earned interest income of Rs.45,39,958/- from partnership firm in which she is partner. Assessee had also earned income from other sources of Rs.2,74,838/-. Assessee had claimed interest expenses of Rs.10,52,028/- against the interest income. AO held that Interest income from partnership firm is not in the nature of business income but is only in the nature of income from other sources. The learned Assessing Officer disallowed the interest & other expenses of Rs.11,53,237/- by treating the same as personal expenses. The learned Assessing Officer held that since assessee failed to prove the nexus between the interest earned & expenses claimed against the said income, the assessee is not entitled to deduction u/s 57(iii) of the IT Act. The learned assessing Officer has disallowed deduction of interest & other expenses of Rs. 11,53,237/- and assessed the interest income at gross amount of Rs. 48,14,796/- under the head other sources.
4. Before CIT(A), it was argued that interest income from the partnership firm is chargeable to tax under the head ‘profits and gains of business and profession’ and not under the head ‘income from other source’. The CIT(A) accepted assessee’s contention that such income is to be assessed u/s.40(3) of the Act and therefore, directed the AO to Shri Narpat Mehta & Smt. Madhu Narpat Mehta assess the interest income from partnership firm under the head ‘income from business in place of income from other source’. The CIT(A) did not allow deduction of interest expenditure against such interest income on the plea that assessee has not proved utilisation of borrowed funds for investment in the partnership firm.
5. Learned AR placed on record prayer for admission of additional evidence under Rule 29 of the Tribunal Rules. The prayer for admission of additional evidence reads as under:- 2. The appellant is an individual and her main source of income is interest earned from partnership firms. The appellant is wife of Shri Narpat Mehta, who was an employee of Kanakia Group. The premises of Kanakia Crop were searched on 29.03.2011 and also premises of the appellant was also covered. The appellant filed her return of income in response to notice issued u/s.l53A of the Act disclosing income of Rs.45,78,930/- which mainly consisted of interest earned from firms. While computing the income, the appellant had claimed deduction on account of interest and other expenses in the same manner in which it was claimed regularly in earlier years.
The Assessing Officer called for justification to claim deduction for interest and expenses. The appellant expressed her inability to furnish details as she had been to native place for period of 10 days due to illness of the relative. The Assessing Officer disallowed the expenditure for the reason that nexus could not be established between interest income and expenses claimed against it.
The learned CIT(A) confirmed the disallowance as no nexus could be established and expenses could not be allowed merely on basis of rule of consistency, more particularly when earlier assessments had been completed u/s.143(1) of the Act.
It is submitted that the major funds had been invested by the appellant in partnership firm in the earlier years and the borrowings on which interest has been paid are also on old loans. This will be evident from pages 3-4 of the paper book 2 filed before Your Honours separately. It is submitted that the said details clearly reveal that the investments in firm would not have been possible without borrowings. As such, the appellant is entitled to claim Shri Narpat Mehta & Smt. Madhu Narpat Mehta deduction for interest paid on borrowed funds which have been utilized in making investment in firms from which the appellant has earned interest income. It is submitted that the details furnished before Your Honours are duly supported by entries made in the books of account and evidenced by entries in the bank.
It is submitted that the appellant was prevented from filing these details due to family reasons and that before the CIT(A) these details could not be filed for want of proper advice as the Chartered Accountant appearing before CIT(A) was hopeful to get relief on principle of rule of consistency rather than establishing nexus.
It is humbly submitted that the non-production of the relevant documents was not due to any malafide intention or negligence on the part of the appellant. It is humbly submitted that the admission of the additional evidence would not, in any way, prejudice the revenue; rather it would render assistance to this Hon'ble Tribunal to dispose of the matter in accordance with law. We, therefore, pray that the Hon'ble Tribunal may be pleased to admit the additional evidence under Rule 29 of the Appellate Tribunal Rules, 1963.
In view of the above, we submit that the documents compiled in the paper book for A,Y. 2010-11 at pages 3 -4 filed before Your Honours, that could not be furnished before the Assessing Officer and the CIT (A), may kindly be admitted.
In the interests of justice and equity, we most humbly pray Your Honours to kindly admit the additional evidence and if Your Honours' may, if consider fit, restore the matter to the file of the Assessing Officer for limited purpose of verification of the above details and make the assessment. Considering the factual aspects of the matter, it is humbly prayed that Your Honours may be pleased to admit the additional evidences in the interest of justice and fair play and to adjudicate the disputes in accordance with law.