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Income Tax Appellate Tribunal, DIVISION BENCH’SMD’, CHANDIGARH
Before: SMT. DIVA SINGH & DR. B.R.R. KUMAR
IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH’SMD’, CHANDIGARH BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA Nos. 1637 & 1638/Chd/2017 (Assessment Years : 2012-13 & 2013-14) Sh. Sanjeev Kumar Jain Vs. The ITO C/o M/s Jain Cold Storage Ward- Rajpura Patiala Road, Rajpura Rajpura PAN No. AAXPJ2089F
ITA Nos. 1639 & 1640/Chd/2017 (Assessment Years : 2012-13 & 2013-14) Sh. Sunil Kumar Jain Vs. The ITO C/o M/s Jain Cold Storage Ward- Rajpura Patiala Road, Rajpura Rajpura PAN No. AAXPJ2091D
(Appellant) (Respondent) Assessee by : Shri. Ashok Goyal Department by : Sh. Kultej Singh Bains Date of hearing : 10/07/2018 Date of Pronouncement : 11/07/2018
O R D E R PER BENCH:
All the above appeals have been filed by the Assessee against the order of the Ld. CIT(A)-1, Ld. CIT(A)-3 Ludhiana dt. 13/09/2017 and 18/09/2017.
Appeal wise ground reproduced hereunder:
Ground of Appeal in ITA No. 1637/Chd/2017
That the Ld. CIT(A) has erred in confirming the disallowance of interest of Rs. 7,16,011/- when it was explained & admitted by AO that funds borrowed were invested in partnership firms as capital & interest is earned for the same, after rejecting the explanation filed for disallowance of interest. 2. That the Ld. CIT(A) has erred in confirming the addition of Rs. 7,16,011/- on the ground that nexus between that loan raised & invested in various firms was not proved when the same was explained & admitted by AO also. Hence relief be allowed.
Ground of Appeal in ITA No. 1638/Chd/2017
That the Ld. CIT(A) has erred in confirming the disallowance of interest of Rs. 6,43,420/-, when it was explained & admitted by AO that funds borrowed were invested in partnership firms as capital & interest is earned for the same, after rejecting the explanation filed for disallowance of interest. 2. That the Ld. CIT(A) has erred in confirming the addition of Rs. 6,43,420/- on the basis that there is no earning from the said firms in which amount were invested, which was subject to the tax when actually interest income is there and the same is subject to tax also. Ground of Appeal in ITA No. 1639/Chd/2017
That the Ld. CIT(A) has erred in confirming the disallowance of interest of Rs. 5,38,365/- when it was explained & admitted by AO that funds borrowed were invested in partnership firms as capital & interest is earned for the same, after rejecting the explanation filed for disallowance of interest. 2. That the Ld. CIT(A) has erred in confirming the addition of Rs. 5,38,365/- on the basis that there is no earning from the said firms in which amount were invested, which was subject to the tax when actually interest income is there and the same is subject to tax also. Ground of Appeal in ITA No. 1640/Chd/2017
That the Ld. CIT(A) has erred in confirming the disallowance of interest of Rs. 6,49,524/-, when it was explained & admitted by AO that funds borrowed were invested in partnership firms as capital & interest is earned for the same, after rejecting the explanation filed for disallowance of interest. 2. That the Ld. CIT(A) has erred in confirming the addition of Rs. 6,49,524/- on the ground that nexus between that loan raised & invested in various firms was not proved when the same was explained & admitted by AO also. Hence relief be allowed. 3. Since the Appeals deal with the similar issue they are being disposed of by way of a common order. For dealing the case, we shall take ITA No. 1637/CHD/2017 and 1638/CHD/2017 as a lead case.
Brief facts of the case are that the assessee has income from house property, income from business & profession as interest/remuneration from M/s Jain Cold storage, Rajpura, Arihant Industries, Okhla Delhi and M/s Arihand Cold Storage. The assessee has filed his income tax return at an income of Rs. 9,45,040/-.
As per computation of income, the AO noticed that the assessee has shown interest from Bank at Rs. 7243/-. Further he claimed deduction of Rs. 6,43,420/- u/s 57 of the Income Tax Act on account of following :- 1. Interest Paid to Sh. Prem Chand Jain, HUF Rs. 2,16,795/- 2. Interest Paid to Sanjeev Jain, HUF, Rs. 2,15,760/- 3. Interest Paid to Punjab steels, MGG Rs. 2,18,836/-
Rs. 6,43,420/- 6. After claiming deduction, the assessee has declared net loss of Rs.6,43,420/-under the head Income from Other Sources". In this regard, the assessee was asked to explain the justification of his claim u/s 57of the Act in response to the same the assessee had filed his reply. Vide which he submitted that the above said amount was paid to various parties as interest against the loan taken from them. The reply submitted by the assessee was considered but not accepted by the Assessing Officer, since the assessee stating in his reply that the loans taken were invested in the firms in which he is partner. Hence, the Assessing Officer treated this expenditure is on account of interest in order to earn profit of the firms. Therefore the same are disallowed i.e. Rs. 6,43,420/- and added to the income of the assessee.
The Ld. CIT(A) confirmed the addition holding that
“The appellant failed to justify the deduction by bringing on records the profits earned by him by making investments in various firms out of the loan amount. The appellant has also failed to bring on records nexus between loans raised and its investments in various firms. I am therefore of considered view that deduction on account of payment of interest is not allowable and AO has rightly disallowed the claim of the appellant in this regard. It is held that since the appellant has failed in clear terms to distinguish between of borrowed fund or own fund for the purpose of claim u/s 57, the claim of appellant is not allowable, the way appellant has claimed. Section 56 deals with the income from other sources. Deductions, which are allowable while computing the income from other sources, are given in section 57 of the Act. Sub-section (iii) of section 57 deals with that expenditure which is laid out or expended wholly or exclusively for the purpose of making or earning the income from other sources. If we read the provisions of sections 56 and 57 of the Act simultaneously we would find that if the income is treated to be the income from other sources, only those deductions are allowable which are enumerated in section 57 of the Act. Hence, while computing the income from other sources only that expenditure is allowed to be deducted which is laid out or expended wholly or exclusively for the purpose of making or earning such income, as per section 57(iii) of the Act. The expression used for the purpose of business or profession in section 36(1)(iii) has a wider amplitude than section 57(iii) in which the
Legislature has used the expression "expenditure laid out or expended wholly or exclusively for the purpose of making or earning such income".
The Ld. CIT(A) further held that the assessee has to show a direct and complete nexus between the income and expenditure for claim of deduction under section 57, whereas the assessee has failed to bring any such nexus on record and accordingly the disallowance was confirmed.
Before us, the Ld. AR argued that the assessee has received loans which have been directly invested in the forms to earn business income and interest.
We are in principle agree with the order of the Ld. CIT(A) that the assessee has to prove the nexus between the loans received and the amounts invested so as to make him eligible for deduction on account of the interest paid. Hence, the matter is being remanded back to the file of the Assessing Officer to examine the nexus and if found so, to allow the deduction by going through the relevant bank accounts of the assesse.
In the result all the Appeal of the Assessee are allowed for statistical purposes.
Order pronounced in the open court.
Sd/- Sd/- (DIVA SINGH) (DR. B.R.R. KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 11/07/2018 AG Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A) 4. The CIT 5. The DR