TaxTMI 
TaxTMI 
TaxTMI 
2016 (7) TMI 914
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....:- [A] "Whether the ITAT has erred in law and on facts in deleting the disallowance of Rs. 1,09,29,139/- made by the AO on account of interest expenses?" 2. The assessment year is 2008-09 and the corresponding accounting period is the previous year 2007-08. The respondent assessee filed his original return of income on 23rd October, 2008, that is, much after the due date for filing the return under section 139(1) of the Act. This return came to be revised on 30th March, 2009. In the original return, the assessee had claimed a loss of Rs. 51,56,527/- which was reduced to Rs. 25,41,139/- in the revised return. The Assessing Officer did not accept the revised return on the ground that the original return was not filed within the time and, ....
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.... provisions of section 57 of the Act, only the expenditure incurred for the purpose of earning taxable income under the head "income from other sources" is allowable. In the present case, the assessee had earned interest income of Rs. 50,27,815/- taxable under the head "income from other sources" whereas he had claimed interest expenditure of Rs. 1,09,29,139/- to earn the interest income. The Commissioner (Appeals) was of the view that the assessee would have incurred 95% of interest expenditure to earn interest income of Rs. 50,27,815/-. In other words, the assessee would earn higher rate of interest which would result in 5% earning from interest activity and accordingly held that interest expenditure of Rs. 47,76,424/- should be allowed t....
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....terest payment of Rs. 1,07,38,991/- did not have any co-relation with the interest income earned in accordance with section 57 of the Act. It was, accordingly, urged that the appeals require consideration on the question of law as proposed or as may be deemed fit by the court. 5. From the facts noted hereinabove, it is evident that the assessee had claimed expenditure of Rs. 1,09,29,139/- and had shown interest income at Rs. 50,27,815/-. As can be seen from the order passed by the Commissioner (Appeals), he has recorded as a matter of fact that the assessee had shown interest expenditure under the head "income from other sources" since the last several years and most of the parties from whom interest was received and paid are the same. In ....
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.... other sources". In the past, such income was accepted and expenditure was allowed because assessee has more interest income than the expenditure. This year, Ld. First Appellate Authority did not allow the claim of assessee fully for the reason that interest income was not sufficient to take care of interest expenditure and, Ld. First Appellate Authority inferred that assessee must have invested the funds somewhere else. This observation is not based on any evidence from the record. It is only an assumption on the ground that no businessman would take funds on a higher rate of interest and invest them at a lower rate. At this stage, we would like to refer the assessment of assessee in the earlier years and subsequent years and how the depar....
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....ssee was disputed that the money taken from them was not used by the assessee for earning income which is to be assessed as "income from other source". In the present year, Ld. First Appellate Authority has allowed the deduction to the extent he assumed that assessee must have incurred interest expenditure up to 95% of the interest income earned by him. In other words, Ld. First Appellate Authority has assumed that assessee has shown interest income of Rs. 50,27,815/-. He must have incurred 95% of this income as expenditure on interest and, therefore, only to that extent, interest expenditure is to be allowed. But that is not the requirement in law, the requirement is that expenditure must be laid down by the assessee wholly and exclusively....
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....sing Officer has erred in making the disallowance. Ld. Commissioner of Income Tax (Appeals) also failed to appreciate that total expenditure is to be allowed which is incurred wholly and exclusively for earning income. It cannot be restricted in proportion of income. We allow the ground of appeal raised by assessee and consequently reject the ground raised by the revenue. The assessee is entitled to expenditure of Rs. 1,09,29,139/- claimed by him." 6. Thus, while the Department has consistently accepted the claim of the assessee in the earlier years when the income under the head "income from other sources" was more than the interest expenditure, such claim is sought to be disallowed in the year under consideration only because the intere....