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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI D. KARUNAKARA RAO & SHRI AMARJIT SINGH
सुनवाई की तायीख / Date of Hearing : 28.04.2016 घोषणा की तायीख /Date of Pronouncement : 20.07.2016 आदेश / O R D E R
PER D. KARUNAKARA RAO, AM:
This appeal filed by the assessee on 6.3.2012 is against the order of the CIT (A)-16, Mumbai dated 18.1.2016 for the assessment year 2001-2002.
In this appeal, assessee raised three main grounds which revolve around a couple of issues ie (i) taxation of interest income of Rs. 39,26,828/- without giving the set off against the interest expenditure when there is a nexus of the loans taken with interest yielding funds and (ii) upholding of the addition of Rs. 50 lakhs claimed by the assessee as brokerage expenses. In the first round, CIT (A) confirmed the same and this is the second round of proceedings. 3. We shall take up the first issue relating to the taxation of interest income under the head „income from other sources‟. On this issue, before us Ld Counsel for the assessee submitted that in the first found of proceedings, the Tribunal remanded the issue to the file of the AO with the following directions:-
3.2.........There is no dispute about the fact that the interest expenditure capitalized of Rs. 3,71,76,974/- is net of the interest income of Rs. 39,26,827/- which was earned on the funds invested temporarily. If the interest income is taxed separately, then to that extent, interest expenses which are capitalized to the „const of construction‟ should also be increased. We therefore, direct the AO also to consider the alternate plea of the assessee after deciding the first part of the issue. We therefore, set aside the order of the CIT (A) on this issue and remand the same to the file of the AO. Accordingly, Ground no.1 is allowed for statistical purposes.
During the set aside proceedings, AO was not pleased with the submissions made by the assessee. It appears, there is a failure to furnish the details of evidences despite the repeated opportunities (para 10 of the assessment order are relevant). AO confirmed the same vide para 11 of the assessment order that reads as under:-
“11. After discussion and considering the details submitted, the total income of the assessee is computed as under:- Income from other sources as per the order dated 26.3.2004 - Rs. 39,26,830/-“
During the first appellate proceedings in the second round, CIT (A) came to the conclusion that the assessee failed to establish the nexus between the short term loan taken and the loan given during the year. Para 3.3.1 of the CIT (A)‟s is relevant in this regard and the same reads as under:-
“3.3.1. I have carefully considered the contention of the appellant company as well as carefullky gone through the available documents on record. The Ld AO found that no expenditure is allowable u/s 57 of the Act earning interest income which is nothing but the investment of the borrowed funds and the share application money. The appellant before me submitted that there is a direct nexus between the loan taken and given, therefore, the interest income is to be charged on net basis. However, stating in generality, the Ld AR of the appellant did not produce any evidence either before me or before the Ld AO to substantiate his claim. Therefore, the addition made by the Ld AO is accordingly confirmed and I am of the view that the deduction u/s 57 is not allowable to the appellant having failed to identified the direct expenditure attributable to earning of the income. This ground of appeal is thus dismissed.”
6. Before us, Ld Counsel for the assessee brought our attention to pages 11 to 14 of the paper book and submitted that the page 11 speaks about the sources of funds ie Rabo India Finance Co. Ltd and page 14 confirms the deposit of the same in the bank account. He also brought our attention to pages 3 to 10 of the paper book and submitted that it is not correct to presume that the details were not furnished.
After hearing both the parties, we find the contents of operational para 3.3.1 of the CIT (A) on this issue should not be considered as a speaking order as there is no reference to the submissions made by the assessee and the details mentioned above ie pages no. 3 to 14. Considering the same, we remand this issue to the file of the CIT (A) for want of a speaking order in accordance with the provisions of section 250(6) of the Act and the same should be finalized in a time bound manner considering the fact that the issue under consideration is repeatedly remanded. It is needless to mention that the assessee should be given a reasonable opportunity of being heard to the assessee as per the set principles of natural justice. Thus, this issue is allowed for statistical purposes.
The second issue relates to the addition of Rs. 50 lakhs on account of brokerage charges disallowed by the AO. On fact, we find the assessee furnished the bank details; confirmation letters; assessment particulars of the recipient of the brokerage charges. This is the case, where the assessee is engaged in the purchase of lease hold land. Assessee paid a sum of Rs. 50 lakhs as brokerage to a broker named M/s. M.V. Marketing Pvt Ltd. Assessee furnished acknowledgement of return of income for AY 2003-2004; showing the confirmation of receipt of the brokerage and affidavit dated 27.3.2004 (page 23 to 25 of the PB) in support of the genuineness of the claim. The said affidavit provides dates; cheque nos and the amounts paid by the assessee to the broker. Further, in the first round, the Tribunal remanded this issue with the following directions:- “12......At the same time, we find that the rejection of the claim of the assessee is only on some hypothetical opinion is also not correct. In our opinion, this issue needs re- consideration by the AO. We, therefore, restore this issue for fresh adjudication to the file of the AO and set aside the order of the Ld CIT (A) on this issue. The AO has to take into consideration the fact that the payment of the commission is made by the Bank cheques / Demand Drafts which is supported by the affidavit. The AO is directed to give a reasonable opportunity of being heard to the assessee. Accordingly, Ground no.4 is allowed for statistical purposes.” 9. Despite the fact that the transactions are effected through the banking channel and the broker is assessed to tax, the Tribunal found it relevant to restore the matter to the file of the AO in the first round for reconsideration by the AO. During the set aside proceedings, AO issued summons to M/s. M.V. Marketing Pvt Ltd (broker). The broker replied questioning the AO‟s attempt to directly summon it, which is a Delhi Based company (page 18 of the paper book is relevant in this regard). Subsequently, AO put the investigation wing of Delhi into service, who reported adversely on the genuineness of the transactions. Further, there is a remand report on the affidavits and other particulars specified above wherein the AO submitted the remand report dated 14.3.2006 vide page 48 of the paper book. On perusal of the same, we find it relevant to extract the relevant portions from the said remanded which is as follows:-
.......It is confirmed in the affidavit that this amount has been duly accounted for in the books and they are assessed at Range-6(1), New Delhi. However, it may be noted that the disallowance was made on enquiries made through DDIT (Inv.), Unit VI(2), New Delhi from whom an adverse report was received regarding the genuineness of the transaction. Moreover, it is observed from records that there is an envelope addressed to ITO6(2)(3), apparently in which the affidavit and letter would have been enclosed. However, the affidavit and letter appears to be perfectly wrinkle free and hence, appears to be sent directly by the party concerned. Neither the envelop bears any marks of postal department / courier company.
In the background of these facts, the CIT (A) in the second round disproved the claim of the assesse and gave an adverse finding by confirming the decision of the AO. Para 2.2.3 of the CIT (A)‟s order is relevant in this regard which reads as under:-