AI Drafter 
TaxTMI 
TaxTMI 
2014 (12) TMI 135
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....tablished the nexus between the earning of interest income and expenditure so claimed on estimation basis. Therefore, the same was disallowed. The appellant has also received service charges of Rs. 36,66,291/- against this income the appellant has claimed expenditure of Rs. 8,11,987/- for earning the said income. However, appellant has failed to establish nexus between the earning of said income and expenditure. Therefore, the claim of the appellant was disallowed. The appellant has also shown other income of Rs. 6,02,405/-. However, as per the record the other income actually works out at Rs. 9,87,491/-, thus, there was a difference of Rs. 3,85,086/-. The appellant failed to explain the difference, therefore, the same was treated as income of the appellant. The AO completed the assessment u/s 143(3) of the Income Tax Act, 1961 dated 12/09/2011. Aggrieved by the assessment order the assessee filed an appeal before the ld. First Appellate Authority who vide impugned order dated 05/11/2012 partly allowed the appeal filed by the assessee. 3. Now the assessee is aggrieved with the impugned order dated 05/11/2012 filed the present appeal. 4. At the time of hearing ld. Counsel for ....
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....uj.). He stated that the issue in dispute has already been decided by the Hon'ble Gujarat High Court in favour of the assessee and he requested that appeal filed by the assessee may be allowed. 6. On the contrary ld. DR relied on the order passed by the Revenue Authorities specially the impugned order and stated that during the course of assessment proceeding as well as before the ld. First Appellate Authority assessee has not furnished any detail and explanation for substantiate its claim. Therefore, the ld. First Appellate Authority has rightly passed the impugned order. 7. We have heard the both parties and perused the orders passed by the Revenue Authorities along with the small paper book filed by the ld. Counsel for the assessee containing pages 1 to 105 in which he had attached (i) copy of written submissions dated 05/11/2012, (ii) copy of annual reports/accounts of the appellant company for A.Y. 2009-10, (iii) copy of memorandum and articles of association of the appellant company, (iv) details of interest received from bank by the appellant company during the A.Y. 2009-10, (v) details of expenditure claimed by the appellant company in respect of earning interest ....
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....ssessing Officer, being not satisfied with the reply submitted by the appellant company, issued specific show cause notice dated 01.09.2011 wherein the appellant company was asked to explain the reasons for claiming expenditure against income from deposit in bank in the shape of FDR. In response to the said show cause notice, a reply was filed before the ld. Assessing Officer on 15.09.2011 wherein vide Annexure III the justification of expenditure claimed against the interest income was duly furnished. 11. However, the ld. AO has negated the reply submitted by the appellant company and disallowed the entire claim of expenditures with the following remarks: "As per scheme of taxation income has been divided under four broad heads of income. 4. The assessee has declared income from interest on account of deposits with the bank. The assessee had surplus money which he deposited in the bank and earned interest on this deposit. As per section 14 of the Act, income is to be computed under the specific five heads. Further, these five heads are in a sense exclusive to one another and income which falls within one head cannot be assigned to or ....
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....ellate Authority concluded his finding in para no. 3 at page 8 & 9 which is reproduced as under: 6.3 Decision "I have considered the submission of the appellant and observation of the Assessing Officer. It is seen during the year the appellant has earned interest income of Rs. 7,03,14,282/- out of the surplus funds put in the bank. Against these interest income the appellant has claimed an expenditure of Rs. 22,01,478/- for earning the interest income. This claim of the appellant was disallowed by the AO on the ground that appellant has failed to establish any nexus between the earning of interest income and expenditure so claimed. The appellant has incurred an expenditure of Rs. 17,51,41,182/- during the year. Out of that the appellant claims that expenditure to the tune of 2.5% of interest income be allowed as salary paid to staff and other administrative expenditure for earning interest income. This claim of the appellant is based on estimations and no nexus has been proved with the expenditure incurred and earning of interest income. The appellant company is engaged in the development and maintenance of dedicated freight corridor and ....
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....of assessment proceedings, the appellant claimed that it has incurred number of expenditure in the project which have been capitalized and out of this expenditure, @ 2.5% have been claimed as expenditure incurred for earning income. However, the Assessing Officer held that this expenditure is not incurred wholly and exclusively for business purposes and for earning of service charges receipts. Therefore, the same was disallowed." 14. On appeal the ld. First Appellate Authority has concluded the said issue at para no. 7.3 page 12 & 13 which is reproduced as under: 7.3 Decision "I have considered the submission of the appellant and observation of the Assessing Officer. It is seen that during the year, the appellant has received income under the head "service charges receipts"of Rs. 36,66,291/-. Against this income, the appellant has claimed expenditure of Rs. 8,11,987/- on the ground that it has incurred number of expenditures in the project which have been capitalized and out of such expenditure, expenditure, @ 2.5% have been claimed as expenditure incurred for earning income. It is seen that expenditure incurred by the appellant is bas....
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....ly substantiated by the assessee before authorities below. But it does not mean that assessee is not entitled for any expenditure for the income earned by the assessee. It is not logically acceptable that if any person earned any income and did not incur any expenditure for earning the same. In the present case, assessee has deputing their staff who used their skills mentally as well as physically to earn the income in dispute. They managed its fund for better utilization and also identify the funds from time to time for their better investment to maximizing the assessee's return. This exercise of identifying the funds is time consuming needs day to day involvement of assessee company staff and also requires allocation of resources and infrastructure thereto. The cost attributable to such involvement and was claimed as deductible against interest income on estimation basis. Similarly the other disallowances of Rs. 8,11,987/- taxing on the service charges income of Rs. 36,66,291/- on gross basis. The assessee has also filed details of services charges received before the authorities below expenditure attributed to the earning of service charges have been computed/allocated the a....