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Income Tax Appellate Tribunal, MUMBAI BENCHES “A”, MUMBAI
Before: SHRI D.T.GARASIA (JM) & SHRI RAMIT KOCHAR (AM)
PER D.T.GARASIA, AM
This appeal is filed by the Assessee against the order of Ld. CIT(A)-12 Mumbai, dated 29/07/2013 for the Asst. year 2008-09 arising out of order of ITO-6(2)(4) Mumbai dated 27/12/2010 passed u/s 143(3) of the Income Tax Act, 1961(in short ‘the Act’).
The only ground i.e. ground No. 1 raised in this appeal reads as under:-
1. “On facts and circumstances of the case and in law, Ld. CIT(A) erred in confirming the further disallowance of interest of Rs. 48,89,648/- on restricting the interest expense to the extent of interest income, stated as under:-
Interest paid as per P&L A/c Rs. 1,15,82,972/- Less:- Voluntarily disallowed in ROI Rs. (35,45,901) --------------------------- Interest claimed by the appellant Rs. 80,37,071/- Less:- Interest Income Rs. 31,47,423/- ----------------------------- Further interest disallowed in assessment Rs. 48,89,648/- ===============
3. At the outset, the Ld. Counsel for the assessee submitted that he is not pressing ground No. 2 & 3, hence, we dismiss ground No. 2 & 3 as not pressed.
The short facts of the case are as under:-
The assessee is in the business of Trading in properties and marketing in goods. From the perusal of the return of income filed, it was found that the assessee had received interest income of Rs. 31,47,423/-. The assessee had offered the interest received under the head of Business & Profession and not under the head of Income from other sources. In response to the show cause notice issued to the assessee, the assessee had further submitted that the interest income is taxable under the head income from other sources when there was parking of short term parking of surplus fund, when it is direct outcome of business, it should be taxed under the under the income from Business & Profession. The assessee further stated that the borrowed funds were used to generate interest earning loans and advances which establishes direct nexus hence interest expenses and income is to be rightly set off. The assessee is in the business of Trading in properties and marketing of goods and not in the business of money lending. The assessee’s contention was that the surplus funds was parked for earning the interest was not denied but the interest earned was to be taxed under the head of income from other sources. The assessee preferred appeal before the CIT(A) and the Ld. CIT(A) after considering the submission of the assessee, dismissed the appeal filed by the assessee.
During the course of hearing the Ld. AR submitted that the said interest expenses has to be allowed as business expenditure and the Tribunal has bifurcated an average interest worked out and the relief was granted to the assessee. The same loan is carried forward from the Asst. year 2007-08 therefore, it may be allowed.
On the other hand the Ld. DR objected to it on the ground that it is an undisputed fact that the assessee had received interest income of Rs. 31,47,423/-. No other income in the nature of business is offered to tax by the assessee in its return of income. During the year the assessee had engaged in the business of money lending and marketing activities. No income was shown by the assessee from marketing activities and no evidence has been submitted by the assessee. The assessee was also asked to furnish the evidence like licence under the provisions to show money lending, the assessee could not produce the same. In the absence of the same, the assessee disclosed interest income as Income from business for carrying on money lending business. Therefore, as per the tax auditor report, no money lending business was carried out by the assessee and, therefore, as per the decision of the Hon’ble Madras High Court in the case of South India Shipping Corporation Ltd. vs. CIT (2000) 163 CTR 617, submitted that the fact that a person carries on business does not lead to the inference that all income received by such a person is business income. The manner in which the income is arrived has to be considered, therefore, the matter may be decided on merits accordingly.
We have heard the rival contentions of both the parties during the course of hearing and also perused the material available on record. We find that the Tribunal has decided this issue by considering the various judgments including the decision of Hon’ble Apex Court in the case of CIT vs. Rajendra Prasad Modi, 115 ITR 519 whereby the Tribunal has verified and worked out the capital expenditure of the assessee and calculated interest bearing funds and non-interest bearing fund. We, respectfully following the same, are of the view that the assessee is entitled for part relief. For reference, we reproduce hereunder the decision of Mumbai Bench of this Tribunal in for Asst. year 2007-08 in the case of Kavita Marketing Private Ltd. which reads as under :-
We have heard rival contentions and perused material available on record including case laws relied upon by AR. As the issue of change of head of interest income has not been pressed, our findings in the issue shall be restricted only to determine the amount of interest disallowance qua interest income offered under the head ‘Income from other sources’. At the outset, it would be prudent to reproduce relevant statutory provision as contained in Section 57 which reads as follows:
“57. The income chargeable under the head “Income from other sources” shall be computed after making the following deductions, namely:— (i) ….. .…. (iii) any other 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;”
From a plain reading of the same, it can be concluded that following are the requirements to claim an expenditure u/s 57(iii):- i) The expenditure should be incurred solely for earning such income. ii) It should not be in the nature of capital expenditure iii) It should not be in the nature of personal expense. iv) It should be incurred in the relevant accounting year.
If all the above conditions are fulfilled, the assessee is eligible to claim the expenditure irrespective of the amount of expenditure involved. Our view is fortified by judgment of Apex court rendered in CIT Vs. Rajendra Prasad Moody (supra) where the apex court held that legitimate expenditure incurred by assessee for the purpose of earning of income are allowable notwithstanding the fact that whether that purpose has been fulfilled or not. There is no requirement that the purpose should fructify into any benefit by way of return in the shape of income so as to claim the expenditure. It is not necessary that any income should in fact have been earned as a result of the expenditure. The deduction of the expenditure cannot be held to be conditional upon the making or earning of the income. Accordingly, we are of the considered opinion that legitimate expenditure incurred by assessee for the purpose of earning income are allowable u/s 57(iii) notwithstanding the amount of actual income earned by the assessee. Having said so, we proceed to compute the interest disallowance on the basis of facts and circumstances of the case. For this, it would be necessary to appreciate the capital structure of the company as on the last date of the impugned financial year which is extracted below:-
Capital Structure As on 31/03/2007 Liabilities Lacs Assets Lacs Owner's Equity & non interest bearing funds -Share Capital 5.00 Interest Bearing Loans & Advances 872.36 -Reserves & Surplus 4.09 Fixed Assets & Net Current Assets 13.97 -Ezra Trading & Finance Co. Ltd 7.00 Accumulated Losses 199.62 -Security Deposit 110.00 126.09 TDS & Security 24.13 1110.08
Non Interest Bearing Loans & 544.26 Interest Bearing Loans -Secured Loan from HDFC Bank 1585.76 Share Application money -Unsecured Loan from Shubh Shanti 15.00 Shares Investments 83.76 628.02 -Interest Due on unsecured Loan 11.25 1612.01 TOTAL 1738.10 TOTAL 1738.10
The assessee has claimed interest expenditure of Rs.176.62 Lacs on interest bearing funds obtained amounting to Rs.1600.76 Lacs (excluding interest due) on which average interest rate works out to be Rs.11.03%. Against those funds, non interest bearing funds / Share application money advanced by assessee amounts to Rs.628.02 Lacs. Applying average interest rate of 11.03% on this amount, proportionate interest disallowance comes to be Rs. 69.27 Lacs out of which the assessee has made suo-moto disallowance of Rs.59.29 lacs thereby leaving a balance of Rs.9.98 Lacs. Therefore, as against the claim of the assessee for Rs.117.33 Lacs, AO had restricted the same to Rs.74.46 Lacs, thereby disallowing Rs.42.87 Lacs. Against Rs.42.87 Lacs, the assessee shall suffer disallowance for Rs.9.98 Lacs as held by us and accordingly, the remaining claim for Rs.32.89 Lacs shall be allowed to the assessee. The appeal of the assessee is partly allowed.
Respectfully following the above decision of the co-ordinate Bench, we partly allow the appeal of the assessee.
In the result, appeal of the assessee for Asst. year 2008-09 is partly allowed as indicated above.
Judgment pronounced in open court on 31st March, 2017.