DCIT, JODHPUR v. Shri Nand Lal Bhati L/H Late Sh. Kishan Bhati, JODHPUR

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH JODHPUR BEFORE SHRI S.V. MEHROTRA ACCOUNTANT MEMBER AND SHRI V.D. RAO JUDICIAL MEMBER ITA NO. 196/JU/2010 ASSTT. YEAR :2005-06 D.C.I.T. CICEL 3 VS. SHRI NAND LAL BHATI JODHPUR. L/H LATE SHRI KISHAN BHATI PROP. M/S. HARI OM COMPANY D-4 MANDORE MANDI JODHPUR. (PAN : ACKPB 8073C) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AVADHESH KUMAR D.R. RESPONDENT BY : SHRI SHAILENDRA BARDIA A.R. O R D E R PER S.V. MEHROTRA A.M : THIS APPEAL BY THE DEPARTMENT ARISES OUT OF THE OR DER DATED 18.01.2010 OF LEARNED CIT(A) JODHPUR. THE ONLY GROUND RAISED BY DEPARTME NT READS AS UNDER : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. XCIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF I NTEREST EXPENSES OF RS.4 24 569/- MADE U/S. 154 OF I.T. ACT IGNORING TH E FACT THAT THE INTEREST EXPENDITURE ALLOWED AGAINST THE INCOME FROM OTHER SOURCES IS NOT ALLOWABLE AND IS AN APPARENT MISTAKE ON RECORD. 2. THE ASSESSEE FILED HIS RETURN OF INCOME DECLARIN G TOTAL INCOME AT RS.8 77 140/- ALONGWITH TAX AUDIT REPORT IN FORM 3CD. THE ASSESSM ENT WAS COMPLETED U/S. 143(3) ON 17.12.2007 INTER ALIA AFTER CONSIDERING THE DETAI LS OF INTEREST PAYMENTS AND RECEIPT AT RS.9 67 800/- BY MAKING VARIOUS DISALLOWANCES FOR EXPENSES AGGREGATING TO RS.90 659/-. THEREAFTER THE ASSESSING OFFICER ISSUED NOTICE U/S . 154 ON 12.08.2009 POINTING OUT THAT THE ASSESSEE HAD SHOWN UNDER THE HEAD INCOME FROM OTHER SOURCES INTEREST INCOME OF 2 RS.526/- BESIDES INTEREST RECEIVED FROM THE INCOME- TAX DEPARTMENT ON REFUND AMOUNTING TO RS.89 737/- TOTALING TO RS.90 363/-. AGAINST THE SE INTEREST INCOME THE ASSESSEE HAS CLAIMED DEDUCTION TOWARDS PAYMENT OF INTEREST OF RS .4 26 569/- AND CLAIMED LOSS OF RS.3 36 306/- UNDER THIS HEAD WHICH IS NOT ALLOWAB LE. THE ASSESSEE IN ITS REPLY ENUMERATED IN THE ORDER U/S. 154 POINTED OUT THAT THE LOANS RAISED BY THE ASSESSEE IN HIS PERSONAL BOOKS HAVE BEEN INVESTED IN PROPRIETARY BU SINESS AND THEREFORE THE INTEREST PAID WAS FOR EARNING BUSINESS INCOME AND HENCE ALLOWAB LE AS DEDUCTION OUT OF BUSINESS INCOME. IT WAS FURTHER POINTED OUT THAT IN THE COMP UTATION OF INCOME INTEREST PAID WAS INADVERTENTLY SHOWN AS THE INCOME FROM OTHER SOURCE S INSTEAD OF AS DEDUCTION FROM BUSINESS INCOME AND THE INTEREST PAID WAS FULLY ALL OWABLE. THE ASSESSING OFFICER HOWEVER OBSERVED THAT U/S. 56 OF THE ACT EXPENDIT URE IS DEDUCTIBLE ONLY WHEN IT IS LAID WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING INCOME CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. HOWEVER IN THE P RESENT CASE THIS CONDITION IS NOT FULFILLED. HENCE THE INTEREST PAYMENT CLAIMED BY T HE ASSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES IS NOT ALLOWABLE. HE DID NOT AC CEPT THE ALTERNATE PLEA TAKEN BY THE ASSESSEE INTER ALIA OBSERVING THAT THOUGH THE ASS ESSEES ACCOUNTS ARE AUDITED THE ASSESSEE HIMSELF HAS NOT CLAIMED THIS INTEREST PAYM ENT. HE ACCORDINGLY MADE ADDITION OF RS.4 26 569/-. 3. THE LEARNED CIT(A) DELETED THE ADDITION INTER A LIA OBSERVING THAT IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF T .S. BALRAM ITO VS. VOLKART BROTHERS 82 ITR 50 (SC) SECTION 154 CAN BE INVOKED ONLY WHE N A MISTAKE APPARENT ON RECORD IS 3 OBVIOUS AND PATENT AND NOT IN RESPECT OF SOMETHING WHICH CAN BE ESTABLISHED BY A LONG DRAWN PROCESS OF REASONING ON DEBATABLE POINT OF LA W. 4. THE LEARNED DR RELIED ON THE ORDER OF THE ASSESS ING OFFICER. 5. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ASSESSEE HAD TAKEN LOANS IN HIS PERSONAL CAPACITY FROM VARIOUS PERSONS AND H AD INVESTED THE SAME IN HIS PROPRIETARY BUSINESS. HE SUBMITTED THAT IN ORIGINAL ASSESSMENT PROCEEDINGS THE ASSESSEE HAD FILED STATEMENT OF TOTAL INCOME IN WHICH THE ASSESSEE HAD CLAIMED THIS INTEREST AGAINST INCOME FROM OTHER SOURCES. HE REFERRED TO THE LAST PAGE O F ASSESSMENT ORDER WHEREIN THE RETURNED INCOME IS SHOWN AT RS.8 77 141/-. HE THER EFORE SUBMITTED THAT THE ASSESSING OFFICER HAD DULY APPLIED HIS MIND BEFORE ALLOWING T HIS DEDUCTION. FURTHER IT IS HIGHLY DEBATABLE ISSUE WHETHER THE ASSESSEES INCOME WAS A SSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES OR AS INCOME FROM BUSINESS. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PER USED THE RECORD OF THE CASE. THE ASSESSEE HAD CLAIMED THE INTEREST PAYMENT AGAINST I NCOME FROM OTHER SOURCES IN THE STATEMENT OF TOTAL INCOME FILED BY IT ALONGWITH THE RETURN. THE ASSESSING OFFICER PASSED THE ORDER U/S. 143(3) AND SPECIFICALLY REFERRED TO THE RETURNED INCOME AS PER STATEMENT OF TOTAL INCOME. THUS IMPLIEDLY HE ACCEPTED THE ASSE SSEES CONTENTION THAT THIS INTEREST EXPENDITURE WAS INCURRED FOR EARNING THE INCOME TAX ABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. NOW THE QUESTION BEFORE US IS WHETH ER THE ASSESSING OFFICERS VIEW THAT THIS TREATMENT CONSTITUTES A MISTAKE APPARENT ON FA CE OF RECORD IS CORRECT OR NOT. IN OUR 4 CONSIDERED OPINION THIS CANNOT BE TREATED A MISTAK E WHICH IS SO OBVIOUS OR PATENT THAT THE SAME MAY COME WITHIN THE AMBIT OF SECTION 154. THE AO HAD DULY APPLIED HIS MIND TO THIS ISSUE AS HE ACCEPTED THE INCOME AS PER COMP UTATION OF TOTAL INCOME WHILE DETERMINING TAXABLE INCOME. IT IS TRUE THAT U/S. 57 ONLY THAT EXPENDITURE IS ALLOWABLE WHICH IS INCURRED WHOLLY AND EXCLUSIVELY FOR SUCH I NCOME. IT IS NOT A CASE WHERE INTEREST EXPENDITURE INCURRED BY ASSESSEE PER SE WAS NOT ALLOWABLE. BUT IT IS A CASE WHERE AFTER EXAMINING ALL FACTS ONLY CONCLUSION COULD BE ARRIVE D AT REGARDING ALLOWABILITY OR OTHERWISE OF THE EXPENDITURE. FURTHER THE ASSESSEE S ALTERNATE CLAIM OF ALLOWING EXPENDITURE IN ANY CASE AS BUSINESS EXPENDITURE A LSO CANNOT BE IGNORED BECAUSE THE FUNDS HAD BEEN INVESTED IN ASSESSEES PROPRIETARY B USINESS. THUS CONCLUSION EITHER WAY COULD BE ARRIVED AT AFTER LONG DRAWN REASONING. UND ER SUCH CIRCUMSTANCES THE LD. CIT(A) RIGHTLY OBSERVED THAT IT WAS HIGHLY DEBATABLE ISSUE FOR WHICH SECTION 154 COULD NOT BE INVOKED. 7. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 09.02.11. SD/- SD/- (V.D. RAO) (S.V. MEHROTRA) JUDICIAL MEMBER ACCO UNTANT MEMBER DATED : 9 TH FEBRUARY 2011 *AKS/- 5 COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. INCOME-TAX OFFICER 4. CIT 5. D/R 6. GUARD FILE