TaxTMI 
TaxTMI 
2020 (8) TMI 435
X X X X Extracts X X X X
X X X X Extracts X X X X
....CIT(A) erred is not noticing that the Hon'ble Supreme Court in the case V.P. Gopinathan confirmed the decision merely on the fact that the argument of the Assessee of real income was not accepted , whereas there is no such argument in the case Anjani Vinayak. 5. The CIT(A) erred is not considering the expression "wholly and exclusively" and that does not mean necessarily. 6. The CIT(A) erred in not noticing the finding of the ITAT Agra in the case of Raj Kumari Agarwal wherein it was held an such expenditure is an expenditure incurred wholly and exclusively for earning from interest on fixed deposits, whereas there is no such discussion in the case of Dr. V.P. Gopinathan 248 ITR 449 7. The above grounds are without prejudice to each other. 8. The appellant craves leave to add, modify and withdraw any other grounds of appeal before or during the appellate proceedings. From the aforesaid grounds it would be clear that the only grievance of the assessee relates to the confirmation of disallowance of claim for deduction under section 57(iii) of the Income Tax Act, 1961 (hereinafter referred to as 'Act'). 3. Facts of the case in brief are th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ible in computation of income. What thus logically follows is that even in a situation in which proximate or immediate cause of an expenditure was an event unconnected to earning of the income in the sense that the expenditure was not triggered by the objective to earn that income, but the expenditure was, nonetheless, wholly and exclusively to earn or protect that income, it will not cease to be deductible in nature. It is also important to bear in mind the fact that a borrowing against fixed deposit cannot be considered in isolation of a fixed deposit itself inasmuch as going by the admitted facts of this case, the interest chargeable on the fixed deposit itself is linked to the interest accruing and arising from the fixed deposit. On these facts, in order to protect the interest earnings from fixed deposits and to meet her financial needs, when an assessee raises a loan against the fixed deposits, so as to keep the source of earning intact, the expenditure so incurred in wholly and exclusively to earn the fixed deposit interest income. The assessee could have gone for premature encashment of bank deposits, and thus ended the source of income itself as well, but instead ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....28,93,281/- by observing in para 3.3 of the assessment order dt. 28/11/2016 as under: " 3.3 From the facts discussed above, it is apparent that the assessee has failed to justify that the said expenditure of interest has been incurred wholly and exclusively for the purpose of making or earning such income as prescribed u/s 57(iii) of the IT Act, 1961. Interest paid on loans raised against FDRs for giving the money to son cannot be said to be an expenditure incurred wholly and exclusively for the purpose of making or earning such income as prescribed u/s 57(iii) of the IT Act, 1961. Hence, the explanation filed by the assessee with regard to deduction of Rs. 28,93,281/- claimed u/s 57 (iii) of the I.T. Act, 1961 out of interest income declared at Rs. 45,49,341/- is hereby rejected. Accordingly, an addition of Rs. 28,93,281/- is made to the income of the assessee under the head income from other sources." 4. Being aggrieved the assessee carried the matter to the Ld. CIT(A) and submitted as under: " In this regard it is submitted that assesse filed return declaring income of Rs. 1320390/-. Assessee's only source of income is interest from bank FDRs, Inter....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wer side as had been declared by her in the return as duly explained during the course of assessment but the learned A.O. had not accepted the contention of the assessee. 3. The learned assessing officer has failed to understand the facts and circumstances of the assessee. 4. The appellant may be allowed to add/alter or modify any of the grounds of appeal at the time of hearing. Ground no. 1 to 3 raised by the assessee are in respect of disallowance of interest of Rs. 28,93,281. Assessee has been receiving interest on various FDR and the same was being credited to the saving bank account of the assessee. Assessee has raised two loans of Rs. 180 Lacs and of Rs. 102 Lacs against security of the FDR's of the assessee as these funds were required for the need of the family, for the purposes of business being handled by her sons. It may be seen that assessee has interest earning apparatus in the shape of FDR's in the bank on which she was receiving interest @ 9.15% Per annum and interest on each of the FDR's was being credited to the saving bank account of the assessee. Assessee claimed deduction of the interest paid under section 57(iii) of IT Act. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The case of the assessee is squarely covered on the fact situation in the case of Raj Kumari of ITAT AGRA who has discussed in detail the similar facts (such situation and facts not existing in VP GOPINATHAN CASE of Hon'ble Supreme Court. FACTS AND SITUATION EXPLAINED AS UNDER For the purposes of requirement of funds, which were assessee's own funds and were lying with the bank in the shape of FDR assessee had the following options: Option 1: assessee could have prematurely en-cashed the FDR and in that case she was required to pay back the interest in the shape of penalty for premature closing of FDR's. Option2: Assessee could have raised loans against the FDR's and paid interest on the loan raised against. In the first case the income earning apparatus would have ceased to exit at the time of premature closing of FDR and assessee would not have earned any income on such closed FDR. Further assessee was also liable to pay bank the penal charges for premature closing the FDR. In the second option assessee raised loans against security of her own FDR so as to save her income earning apparatus but had to pay interest on the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed that the assessee earned interest income on FDR amounting to Rs. 45,49,341/-and raised the loan against the security of FDR and paid interest of Rs. 28,93,281/-. He further observed that the interest expenditure was incurred for providing loan to the family members therefore the disallowance of interest made by the A.O. on account of loan raised against security of FDR was to be upheld. Accordingly the addition made by the A.O. was sustained 6. Now the assessee is in appeal. 7. Ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the assessee invested in FDR's in bank in earlier years and was earning interest @ 9.15% per annum. Against the said FDR valuing Rs. 4,42,50,000/-, the assessee raised the loan of Rs. 180.89 lacs @ 10.15% amounting to Rs. 1994713/-, another loan of Rs. 102.55 lacs was raised, on the said loan interest of Rs. 898568/- was paid. It was further submitted that as per the policy of the bank if the FDR were to be encashed prematurely, then there was a penalty @ 1.5% by the bank. Therefore, the assessee by getting the FDR premature, would have loosed 1½ % interest which worked out ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gly supported the impugned order passed by the Ld. CIT(A). 10. We have considered the submissions of both the parties and perused the material available on the record. In the present case it is an admitted fact that the assessee was having old FDR's with the Bank and earning interest @ 9.15%. The assessee raised the loan against the FDR and paid 1% extra interest. The Ld. Counsel for the assessee pointed out that as per the policy of the Bank if the FDR with the bank were encashed prematurely then there was penalty of 1.5% by the bank, therefore by not encashing the FDR prematurely and raising the loans against the same FDR, the assessee saved interest @ 0.5%. So, there is no loss of the Revenue. In the instant case, it is not the case of the Department that the assessee raised the interest bearing funds and utilized the same for giving interest free advances. On the contrary the advances given by the assessee were out of the assessee's own funds. Moreover, by raising the loans against the FDR and not encashing prematurely the assessee saved the interest and also kept the income earning apparatus intact, therefore the disallowance made by the A.O. and sustained by the Ld. CIT(A)....