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Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
Before: SHRI SANJAY GARG & SHRI ASHWANI TANEJA
Per Sanjay Garg, Judicial Member:
The above captioned appeals have been preferred by the assessee against two separate orders both dated 27.10.2014 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment years 1993-94 & 1998-99. Since the facts and issues involved therein are identical in nature, hence both the appeals have been heard together and are being disposed of by this common order. First we take up the assessee’s appeal for A.Y. 1993-94 bearing as lead case.
(A.Y. 1993-94) 2. The assessee has taken the following grounds of appeal:
1. On the facts and circumstances of the case and in law, Hon. CIT-A erred in confirming disallowance of appellants' claim for netting off the interest expenditure against the interest income.
2 & 317/M/2015 M/s. Royal Anti-Biotics & Investments Pvt. Ltd. 2. On the facts and circumstances of the case and in law, Hon. CIT-A erred in holding that there was no nexus between the borrowed funds and the funds lent by the appellants during the year in spite of the fact that for AY-199798, Hon. CIT-A had accepted Appellants' similar claim on the basis of AO's Remand Report, which had verified the accounts for three assessment years preceding the said year.
On the facts and circumstances of the case and in law, Hon. CIT-A erred in not allowing appellants' claim for enhancement of deduction u/s 80 HHA & 80 I of the Act, as consequence of the relief claimed in the preceding grounds of Appeal.
Appellants crave leave to add, alter, amend, modify or withdraw the Grounds of Appeal.”
3. In brief, the assessee had claimed the impugned receipts as income from business whereas the Assessing Officer (hereinafter referred to as the AO) has held that they were income from other sources.
4. On appeal, the Ld. CIT(A) confirmed the action of the AO. Being aggrieved by the order of the Ld. CIT(A), the assessee preferred appeal before the Tribunal.
The short issue raised before the Tribunal was as to whether the impugned receipts were income from business or income from other sources? If the said receipts were income from business, then they were liable to be netted against the expenses relating to business. On the other hand, if the said receipts were found to be income from other sources, then the same could not be netted against the expenses relating to business.
The Tribunal, after considering the rival submissions, vide order dated 16.09.05 passed in & 2126/M/2002 relevant to the assessment years in question i.e. A.Y. 1993-94 and 1998-99 respectively restored the issue to the file of the Ld. CIT(A) with a direction to record a categorical finding as to the nature of receipts and further directed that if the Ld. CIT(A) would come to the conclusion that the impugned receipts were in the nature of income from business, then he would allow the benefit of netting of the impugned receipts
3 & 317/M/2015 M/s. Royal Anti-Biotics & Investments Pvt. Ltd. against the business expenses in terms of the decision of the special bench of the Tribunal in the case of “Lal Sons Enterprises vs. CIT” 89 ITD 25 (SB). The relevant findings of the Tribunal for the sake of convenience are reproduced as under: 7. We have considered the rival submissions. The issue needs to be restored to the file of the learned CIT(A) in order to enable him to record a categorical finding as to the nature of receipts, and in particular, as to whether the impugned receipts are in the nature of income from business or income from other sources. He will keep in mind the decisions of the Tribunal in DCIT v. Mira Industries 87 ITD 475 and in Nirma Industries Ltd. vs. ACIT, 95 ITD 199 (ITAT Ahd.) (SB) as also other cases which the parties may cite before him. If he comes to the conclusion that the impugned receipts are in the nature of income from business, he will allow the benefit of netting the impugned receipts against the business expenses in terms of the decision of the Special bench of the Tribunal in Lalsons Enterprises (supra).
In view of the foregoing, the orders passed by the learned CIT(A)for both the assessment years are set aside and the matter is restored to his file with direction to decide the issue afresh in accordance with law after giving reasonable opportunity of hearing to both the parties. He will keep in mind the observations made by us above.
Both the appeals are treated as allowed for statistical purposes.”
On the above directions of the Tribunal, the Ld. CIT(A) has again passed the impugned order dated 27.10.14. The operating part of the order of the Ld. CIT(A) is reproduced as under: “5. I have considered the facts of the case and also gone through the appellant's submission as well as remand report submitted by the AO. This appeal arises out of Appellate Order bearing No.CIT(A)- IV/Cir.4/61/2000-01 dated 13.2.2002 passed by my predecessor. The Hon’ble TAT vide order in dated 16.9.2005 has set aside the order of CIT(A) dated 13.2.2002 to the file of CIT(A) to record categorical finding as to the nature of receipts as to whether the impugned receipts Authorised Representative in the nature of income from business or income from other sources and directed the CIT(A) to decide the issue afresh in accordance with law after giving opportunity of hearing. Accordingly, the case was fixed for hearing and reheard and factual remand report from the AO was called for. The AO has stated that in the assessment order for AY 1993-94, the interest income was treated
4 & 317/M/2015 M/s. Royal Anti-Biotics & Investments Pvt. Ltd. as other income under the head income from other sources. As per the computation of total income, it is evident that interest received on loans of Rs.2,97,341/- have been considered separately under the head income from other sources. The assessee vide letter dated 22.11.2013 has filed copy of audited balance sheet along with schedules before the AO during the course of remand proceedings and no bank statements were filed before the AO stating that the same was not available with assessee. The AO in the remand report has stated that in absence of bank statements, it could not be established that the assessee has advanced loans out of its borrowed funds. The AO has also reported in the remand report that nexus could not be established by the assessee that it has spent/paid interest for earning interest income. From the chart filed by the assessee there was borrowal of funds as well as advance of funds. The assessee has also earned interest income and has also paid interest income. From the details filed by the assessee, nexus could not be established by the assessee that it has advanced loans out of the borrowed funds. Therefore, the nexus could not be established that the interest paid is for earning interest income. Accordingly, the AO reported that the netting of interest paid against interest received cannot be allowable.
On perusal of the remand report and the submission of the appellant, I find that the AO has in fact not accepted the details and contention of the appellant regarding the nexus between the interest bearing borrowings and interest bearing advances and the interest paid and received by the assessee with sufficient details and bank statements. It is the onus of the appellant to prove that the interest expenditure has been incurred for the purpose of earning the interest income which, in this case, the appellant has failed to discharge. In view of the above, I find no reason to interfere with the order passed by my predecessor for AY 1993-94.”
8. A perusal of the above order of the Ld. CIT(A) reveals that the Ld. CIT(A) has failed to comply with the directions of the Tribunal to give a categorical finding regarding the nature of receipts as to whether the same were business receipts or income from other sources. After arriving at a categorical finding the Ld. CIT(A) was supposed to decide the netting of the receipts against business expenses. However, the Ld. CIT(A) has not given any finding as directed by the Tribunal. The matter is therefore required to be restored to the file of the Ld. CIT(A) directing the him to comply with the directions of the Tribunal given vide order dated 16.09.05 in letter and spirit. At this stage, the Ld. A.R. of the assessee has pleaded that in case the Ld. CIT(A) comes to the conclusion that the nature of receipts is income from other sources then he may be allowed to take the plea of netting of the interest income against interest expenditure. According to the Ld. A.R. that there was 5 & 317/M/2015 M/s. Royal Anti-Biotics & Investments Pvt. Ltd. a nexus between the interest income earned and interest expenditure incurred but the lower authorities have not properly appreciated the evidences produced by the assessee. Considering the above plea of the Ld. A.R. and in the interest of justice, we direct that after giving a categorical finding about the nature of receipts, the Ld. CIT(A) will also decide the alternate plea of the assessee regarding the netting of the interest income against interest expenditure by way of a speaking order after duly considering the evidences and submissions of the assessee in this respect.
9. The facts and issues involved in are exactly identical, hence in view of our findings given above, both the appeals are restored to the file of the Ld. CIT(A) as per our directions given above.
In the result, both the appeals of the assessee are treated as allowed for statistical purposes.
Order pronounced in the open court on 21.10.2016.