DIT CIR 21(1), MUMBAI v. CHANDRAKANTA S. JUNEJA, MUMBAI

ITA 3340/MUM/2009 | 2004-2005
Pronouncement Date: 27-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 334019914 RSA 2009
Assessee PAN AAGPJ8843A
Bench Mumbai
Appeal Number ITA 3340/MUM/2009
Duration Of Justice 2 year(s) 2 month(s) 7 day(s)
Appellant DIT CIR 21(1), MUMBAI
Respondent CHANDRAKANTA S. JUNEJA, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 27-07-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 27-07-2011
Date Of Final Hearing 18-07-2011
Next Hearing Date 18-07-2011
Assessment Year 2004-2005
Appeal Filed On 20-05-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI C BENCH BEFORE SHRI D.MANMOHAN VICE PRESIDENT & SHRI T.R.SOOD ACCOUNTANT MEMBER I.T.A.NO.3340/MUM/2009 A.Y 2004-05 ASST. COMMISSIONER OF I.T. CIRCLE 21 [1] MUMBAI. VS. MRS. CHANDRAKANTA S. JUNEJA SAMRAT PRESIDENCY SOCIETY 8 TH ROAD JUHU PARLE SCHEME VILE PARLE (W) MUMBAI 400 049. PAN: AAGPJ 8843 A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ALEXANDER CHANDY. SR. DR RESPONDENT BY : SHRI VIJAY C. KOTHARI. O R D E R PER T.R.SOOD AM: IN THIS APPEAL REVENUE HAS RAISED VARIOUS GROUNDS INVOLVING THE FOLLOWING FOUR DISPUTES: 1. LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF TR ANSFER EXPENSES AMOUNTING TO RS.1 51 460/-. 2. LD. CIT(A) ERRED IN DIRECTING ASSESSING OFFICER TO ALLOW LOSS UNDER THE HEAD CAPITAL GAINS AMOUNTING TO RS.4 49 3 85/-. 3. LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.30 LAKHS ON ACCOUNT OF CASH CREDITS. 4. LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW INTEREST OF RS.2 16 516/- AND FURTHER ERRED IN DELE TING THE ADDITION OF NOTIONAL INTEREST AMOUNTING TO RS.7 65 855/-. 2. ISSUE NO.1 : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURIN G THE YEAR UNDER CONSIDERATION ASSESSEE HAD SOLD SOME FACTORY UNIT AND OFFERED THE SAME UNDER THE HEAD LONG TERM CAPITAL G AINS. IT WAS NOTICED BY THE AO THAT ASSESSEE HAD CLAIMED EXPENSE S OF RS.1 51 460/- INCLUDING BROKERAGE AGAINST WHICH NO DETAILS WERE FILED AND ONLY AN AFFIDAVIT OF SMT. GEETA JETHWA WHO WAS ALLEGEDLY PAID A ITA NO.3340/M/09 2 SUM OF RS.1 LAKH AS BROKERAGE WAS FILED. BUT SHE WA S ALSO NOT PRODUCED. ACCORDINGLY AO REJECTED THE CLAIM OF RS. 1 51 460/-. 3. ON APPEAL LD. CIT(A) DELETED THE ADDITION BY OB SERVING THAT IN RESPONSE TO QUERIES BY THE AO ASSESSEE HAD FILED VI DE LETTER DATED 1-11-06 BROKERAGE BILLS OF MANISH ESTATE CONSULTANT S MR. VINOD JETHWA AND D. R. THAKKAR AND COMPANY. AFTER FURNISHING OF SUCH DETAILS AO HAD NOT CALLED UPON ASSESSEES EXPLANATION AND FURT HER DETAILS AND AN AFFIDAVIT PROVIDED ALL DETAILS AND HENCE THE ADDITI ON WAS DELETED. 4. BOTH THE PARTIES WERE HEARD. 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT EXPENDITURE OF RS.1 51 460/- CONSISTED OF FOLLOWING THREE ITEMS : SR.NO. NAME OF THE PARTY AMOUNT (RS.) REMARK 1 D.R.THAKKAR & CO. 25 000 COPY OF BILLS IS ENCLOSE D HEREWITH ONCE AGAIN. 2 GEETA V. JETHVA. 1 00 000 COPY OF BILL AND AFFIDAVIT IS ENCLOSED HEREWITH ONCE AGAIN 3 VINOD J. JETHWA 26 400 COPY OF BILLS IS ENCLOSED HEREWITH ONCE AGAIN. WE FURTHER FIND THAT THE AO VIDE LETTER DATED 11 TH OCTOBER 2006 [COPY OF WHICH HAS BEEN FILED AT PAGES 64 TO 68 OF THE PA PER BOOK] VIDE PARA-10 HAS SPECIFICALLY ASKED ASSESSEE THAT SINCE EVIDENCE HAS NOT BEEN FURNISHED FOR VARIOUS EXPENSES EXCEPT FOR THE AFFIDAVIT OF SMT. GEETA V. JETHVA ASSESSEE WAS FURTHER DIRECTED TO F ILE NECESSARY DETAILS AND ALSO PRODUCE SMT. GEETA V. JETHVA. THOUGH LD. C OUNSEL OF THE ASSESSEE HAS BROUGHT TO OUR ATTENTION PAGES 42 TO 4 5 OF THE PAPER BOOK WHICH IS A COPY OF THE BILLS AND AFFIDAVIT IN RESPECT OF EXPENDITURE WHICH WAS FILED BUT HE ADMITTED THAT SMT. GEETA V. JETHVA WAS NOT ITA NO.3340/M/09 3 PRODUCED. HE SUBMITTED THAT IN CASE THE BENCH FEELS IT WAS NECESSARY TO PRODUCE SMT. GEETA V. JETHVA THEN ASSESSEE WAS READY TO PRODUCE HER BEFORE THE AO. IT WAS NOTICED BY US THAT SMT. G EETA V. JETHVA AND SHRI VINOD A. JETHVA WHO HAD ALSO ISSUED A BILL FOR RS.26 460/- FOR BROKERAGE ARE HUSBAND AND WIFE. IT IS NOT CLEAR AS TO HOW BOTH OF THEM WERE INVOLVED IN SELLING THE SAME PROPERTY. IN ANY CASE AO HAD EXPRESSED HIS DOUBTS REGARDING THIS EXPENDITURE AND THEREFORE ASSESSEE WAS DUTY BOUND TO PRODUCE FULL DETAILS BEF ORE HIM. THE LD. CIT(A) HAS ALLOWED THE RELIEF MERELY BY STATING THA T ASSESSEE HAS DISCHARGED THE ONUS BY FURNISHING THE BILLS. IT IS SETTLED LAW THAT THE BURDEN IS ALWAYS ON THE ASSESSEE TO PROVE THAT EXPE NDITURE HAS REALLY BEEN INCURRED FOR WHICH A CLAIM IS MADE. THEREFORE IN THE INTERESTS OF JUSTICE WE SET ASIDE THE ORDER OF THE LD. CIT(A) A ND REMIT THIS ISSUE TO THE FILE OF THE AO WITH A DIRECTION THAT ONE MORE O PPORTUNITY SHOULD BE GIVEN TO THE ASSESSEE TO PRODUCE SMT. GEETA V. JETH VA AND ALSO FILE ANY OTHER DETAILS REQUIRED BY THE AO. THE AO MAY DE CIDE THE ISSUE AFTER HER PRODUCTION IN ACCORDANCE WITH THE LAW. 6. ISSUE NO.2 : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS AO FURTHER NOTICED THAT ASSE SSEE HAD CLAIMED LONG TERM LOSS OF RS.4 49 385/- ON SALE OF SHARES O F M/S SWIFT FINLEASE INDIA PVT. LTD. IT WAS CLAIMED THAT THE ASSESSEE WA S OWNER OF 25 000 SHARES WHICH WERE PURCHASED IN A.Y 1994-95 FOR RS.2 50 000/- AND WERE SOLD DURING THE PREVIOUS YEAR FOR A SUM OF RS. 25 000/-. THE ASSESSEE WAS ASKED TO FURNISH PROOF OF PURCHASE AND SALE OF THESE ITA NO.3340/M/09 4 SHARES AND THE BASIS OF DETERMINATION OF SALE PRICE COPIES OF SHARE CERTIFICATES AS WELL AS STATEMENT OF ACCOUNTS OF TH E PRIVATE LIMITED COMPANY. THE ASSESSEE COULD FILE ONLY A COPY OF DIV IDEND WARRANT DATED 14-11-1995 DECLARING DIVIDEND OF RS.45 000/- TO SHOW OWNERSHIP OF THE SHARES BY THE ASSESSEE. FURTHER IT WAS CLAI MED THAT SHARES WERE SOLD TO V.S.JUNEJA HUF A FAMILY CONCERN. NO OTHER D ETAILS WERE FURNISHED. IN THE ABSENCE OF DETAILS AO WAS OF THE OPINION THAT LOSS WAS MANIPULATED AND WAS CREATED FRAUDULENTLY ONLY T O REDUCE THE LONG TERM GAINS EARNED BY THE ASSESSEE ON ACCOUNT OF SAL E OF FACTORY PREMISES AND TENANCY RIGHTS AND ACCORDINGLY AO REJE CTED THE CLAIM OF THIS LONG TERM LOSS. 7. THE LD. CIT(A) DECIDED THE ISSUE VIDE PARA 5.4 W HICH IS AS UNDER: 5.4 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT. THE OWNERSHIP OF THE SHARES OF SWIFT FINLEASE INDIA LIM ITED IS ENTIRELY PROVED BY THE APPELLANT BY SUBMITTING THE DIVIDEND WARRANT ISSUED IN THE NAME OF THE APPELLANT IN FINANCIAL YEAR 1995-96 . THE APPELLANT HAS ALSO GIVEN COGENT REASONS FOR THE RATE AT WHICH THE SHARES WERE TRANSFERRED. NOTHING IS BROUGHT ON RECORD TO EVEN S USPECT LET ALONE PROVE THAT PAYMENT IN EXCESS OF THE APPARENT CONSI DERATION WAS MADE. HAVING REGARD TO THE EVIDENCES SUBMITTED AND THE FACT THAT THE SHARES HAVE BEEN DELIVERED TO THE PURCHASER ON RECEIPT OF SALE CONSIDERATION BY THE APPELLANT THE LOSS OF RS.4 49 385/- IS HELD TO BE GENUINE. THE AO IS DIRECTED TO ALLOW THE SAID LOSS WHILE COMPUTING THE INCOME UNDER THE HEAD CAPITAL GAINS. ACCORDINGLY G ROUND NO.3 OF APPEAL IS ALLOWED. 8. BEFORE US LD. DR MAINLY SUBMITTED THAT SHARES R EMAINED WITHIN THE FAMILY AND NO DETAILS AS REQUIRED BY THE AO WER E FILED THEREFORE THE AO HAS RIGHTLY CONCLUDED THAT LOSS WAS GENERATE D ONLY TO REDUCE THE CAPITAL GAINS. ITA NO.3340/M/09 5 9. ON THE OTHER HAND LD. COUNSEL OF THE ASSESSEE R EFERRED TO PAGE 40 OF THE PAPER BOOK WHICH IS COPY OF THE LETTER W RITTEN BY THE ASSESSEE TO THE AO EXPLAINING THE DETAILS OF LOSS I NCURRED ON SALE OF SHARES. HE ARGUED THAT DIVIDEND WARRANT PRODUCED BE FORE THE AO CLEARLY SHOWS THAT SHARES WERE OWNED BY THE ASSESSE E. IT WAS FURTHER POINTED OUT THAT AO WAS INFORMED THAT SWIFT FINLEAS E INDIA LTD. WAS FUNCTIONING WELL IN F.Y 94-95 AND DECLARED DIVIDEND ALSO. LATER ON THE COMPANY STOPPED THE OPERATIONS DUE TO NUMERAL PROBL EMS AND BECAME A DEFUNCT COMPANY AND NET WORTH OF THE SAID COMPANY ERODED AND THE BOOK VALUE BECAME NEGATIVE AND AS SUCH VALUE OF THE SHARES WAS NIL. THAT IS WHY SHARES WERE SOLD TO THE HUF @ RE.1/- PE R SHARE. IN THIS BACKGROUND LD. CIT(A) WAS JUSTIFIED IN ALLOWING TH E CAPITAL LOSS BECAUSE FACT OF OWNERSHIP OF SHARES AS WELL AS SALE OF SHARES AND PRICE AT WHICH THE SHARES WERE SOLD IS JUSTIFIED. 10. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIN D THAT NO EVIDENCE IS AVAILABLE BY WAY OF CONFIRMATION FROM SWIFT FINL EASE INDIA LTD. TO SHOW THAT SHARES HAVE REALLY BEEN TRANSFERRED IN TH E NAME OF HUF. IT WAS STATED BY THE LD. COUNSEL OF THE ASSESSEE THAT THE SAID COMPANY HAD BECOME DEFUNCT AND IS NOT MAINTAINING ANY RECOR DS. IF THAT IS SO THEN WE WONDER WHY ONE OF THE FAMILY MEMBERS HAS CO ME FORWARD TO PURCHASE THESE SHARES WHICH HAVE A ZERO VALUE. NATU RALLY SHARES HAVE BEEN TRANSFERRED WITHIN THE FAMILY JUST TO CREATE A LOSS IN THE HANDS OF THE ASSESSEE SO AS TO SET OFF THE SAME AGAINST THE CAPITAL GAINS EARNED FROM SALE OF FACTORY PREMISES. THIS IS CLEARLY A CA SE OF CREATING THE LOSS ITA NO.3340/M/09 6 BY COLOURABLE DEVICE. IN THE ABSENCE OF PROOF FOR T RANSFER OF SHARES IT CANNOT BE ACCEPTED THAT SHARES HAVE REALLY BEEN TRA NSFERRED PARTICULARLY WHEN IT WAS ADMITTED THAT NET WORTH O F SWIFT FINLEASE INDIA LTD. WAS NEGATIVE AND VALUE OF THE SHARES WAS ZERO. THE LD. CIT(A) ALLOWED THE RELIEF WITHOUT GIVING ANY REASON S AND HAS SIMPLY MENTIONED THAT ASSESSEE HAS GIVEN COGENT REASONS FO R WHICH SHARES WERE TRANSFERRED. NOTHING IS STATED IN APPELLATE OR DER ABOUT WHAT WERE THE COGENT REASONS. ACCORDINGLY WE SET ASIDE THE O RDER OF THE LD. CIT(A) AND RESTORE THAT OF THE AO. 11. ISSUE NO.3 : AFTER HEARING BOTH THE PARTIES WE FIND THAT REASO NS FOR MAKING AN ADDITION OF RS.30 LAKHS GIVEN BY THE AO AT PARA 6.3[A] ARE AS UNDER: 6.3[A] NEW LOANS TAKEN DURING THE PREVIOUS YE AR ARE APPARENTLY OF RS.27.11 LAKHS. MOREOVER THE DETAILS OF SQUARED UP LOANS IF ANY ARE NOT GIVEN THOUGH SPECIFICALLY CALLED FOR. HENCE IN THE ABSENCE OF PROPER DETAILS THE NEW SAME ARE ESTIMATED TO BE OF RS.30 00 000/- AND IN THE ABSENCE OF EVIDENCE FOR THEIR GENUINENES S THE SAME ARE HELD TO BE UNPROVED THUS REPRESENTING THE ASSESSEE S OWN INCOME FROM UNDISCLOSED SOURCES. A SUM OF RS.30 LAKHS IS A DDED TO TOTAL INCOME ACCORDINGLY. 12. BEFORE THE CIT(A) IT WAS SUBMITTED THAT NECESSA RY CONFIRMATION LETTER IN RESPECT OF NEW LOANS OF RS.27.11 LAKHS WA S FURNISHED BEFORE THE AO AND NO FURTHER LOANS WERE RECEIVED. IT WAS A LSO POINTED OUT THAT CERTAIN LOANS WERE REFUNDED FROM HER DISCLOSED BANK ACCOUNT. THE LD. CIT(A) FOUND MERIT IN THESE ARGUMENTS BECAUSE ACCORDING TO HIM THERE WAS NO DISPUTE IN RESPECT OF NEW LOANS AND TH E DISPUTE WAS REGARDING ADDITION OF RS.30 LAKHS ON ESTIMATED BASI S. HE OBSERVED THAT ITA NO.3340/M/09 7 ADDITION U/S.68 COULD BE MADE ONLY ON THE BASIS OF ENTRIES IN THE BOOKS OF ACCOUNTS AND NOT ON ESTIMATED BASIS AND ACCORDIN GLY DELETED THE ADDITION. 13. BEFORE US LD. DR RELIED ON THE ORDER OF THE AO . 14. ON THE OTHER HAND LD. COUNSEL OF THE ASSESSEE STRONGLY SUPPORTED THE ORDER OF THE CIT(A) AND ALSO POINTED OUT THAT CONFIRMATION IN RESPECT OF LOANS WERE DULY FILED BE FORE THE AO AND COPIES OF SAME HAVE BEEN ENCLOSED AT PAGES 54 TO 63 OF THE PAPER BOOK. 15. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIN D THAT LD. CIT(A) HAS CORRECTLY ADJUDICATED THE ISSUE BECAUSE ADDITIO N CANNOT BE MADE U/S.68 ON THE BASIS OF ESTIMATE. WHATEVER LOANS WER E TAKEN BY THE ASSESSEE WERE GENERALLY TAKEN FROM FAMILY MEMBERS A ND COPY OF CONFIRMATIONS ALONG WITH THE ACKNOWLEDGMENT OF THE RETURN HAVE BEEN DULY FILED BEFORE THE AO AND COPY OF THE SAME IS AV AILABLE IN THE PAPER BOOK. THEREFORE WE FIND NOTHING WRONG IN THE ORDER OF THE LD. CIT(A) AND CONFIRM THE SAME. 16. ISSUE NO.4 : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAD DECLARED INCOME FROM OTHER SOURCES AT RS.4 10 167/-. HE FURTHER NOT ED THAT ASSESSEE HAD SHOWN TOTAL INTEREST RECEIPT OF RS.13 65 601/- OUT OF WHICH INTEREST ON ACCOUNT OF FDR IN SARASWAT BANK WAS RS. 12 93 219/-. INTEREST ON OTHER LOANS WAS ONLY OF RS.39 173/- AGA INST THE OUTSTANDING LOANS OF RS.67 08 573/-. THE ASSESSEE H AD CLAIMED ITA NO.3340/M/09 8 DEDUCTION AGAINST THE INTEREST INCOME ON ACCOUNT OF INTEREST ON BANK OVER DRAFT AMOUNTING TO RS.2 16 516/-. FURTHER DED UCTION WAS CLAIMED ON ACCOUNT OF INTEREST ON OTHER LOANS OF ABOUT RS.9 4 LAKHS AT RS.7 38 918/-. IN THIS BACKGROUND AO ESTIMATED INT EREST @ 12% ON THE OUTSTANDING LOANS OF RS.67 08 53/- AND AFTER RE DUCING THE INTEREST DECLARED AT RS.39 173/- MADE ADDITION FOR THE BALAN CE OF INTEREST. THE DEDUCTION CLAIMED FOR INTEREST PAID ON BANK OVER DR AFT ACCOUNT AMOUNTING TO RS.2 16 516/- WAS ALSO NOT ALLOWED BEC AUSE NO EVIDENCE WAS FILED REGARDING UTILIZATION OF THE OVER DRAFT. AGAINST THE CLAIM OF INTEREST AMOUNTING TO RS.7 38 918/- IT WAS OBSERVED THAT THERE WAS NO EVIDENCE TO SHOW THAT LOANS WERE TAKEN AND UTILIZED FOR GIVING LOANS TO OTHERS. THEREFORE INTEREST WAS ALLOWED ONLY ON EST IMATED BASIS AT RS.5 00 000/-. THUS INCOME FROM OTHER SOURCES BY W AY OF INTEREST WAS COMPUTED AS UNDER: INTEREST INCOME AS SHOWN RS.13 65 601/- ADD: INTEREST RECEIVED ESTIMATED AT RS.8 05 028/- IN PLACE OF RS.39 173 SHOWN RS. 8 05 028/- [AS DISCUSSED IN 6.3(B)] ----------------- RS.21 70 629/- LESS: INTEREST PAID ON BANK OD NIL DISALLOWED AS DISCUSSED IN 6.3[C] INTEREST PAID ON LOANS ALLOWED AT RS.5 LAKHS AS DISCUSSED IN 6.3[D] RS. 5 00 000/- RS.16 70 629/- 17. BEFORE LD. CIT(A) IT WAS SUBMITTED THAT OVER DR AFT WAS TAKEN BECAUSE ASSESSEE REQUIRED SHORT TERM FUNDS FOR THE PURPOSE OF EARNING VARIOUS INCOME WHICH HAS BEEN OFFERED IN RETURN OF INCOME. THE ITA NO.3340/M/09 9 SARASWAT BANK HAD A SCHEME UNDER WHICH A PERSON HOL DING A FD WAS ALLOWED TO BORROW THE MONEY AGAINST THE FD BY PAYIN G DIFFERENTIAL RATE OF 1%. THUS THERE WAS A CLEAR NEXUS BETWEEN THE IN TEREST INCOME RECEIVED IN THE FORM OF INTEREST ON FDR AND INTERES T PAID AGAINST THE OVER DRAFT FACILITY. THE LD. CIT(A) DELETED THE ADD ITION BY STATING THAT AO HAS NOWHERE ESTABLISHED THAT INTEREST PAID IS NO T WHOLLY AND EXCLUSIVELY IN RELATION TO EARNING OF THE INCOME WH ICH WAS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. THE OTH ER ADDITION OF RS.7 65 855/- WAS ALSO DELETED BY OBSERVING THAT IT WAS A CASE OF NOTIONAL INCOME AND AO HAD FAILED TO CONSIDER THAT LOANS AND ADVANCES WERE GIVEN ON NON INTEREST BEARING FUNDS. HOWEVER AS FAR AS THE CLAIM FOR BALANCE OF INTEREST PAID TO OTHERS AT RS.2 38 9 18/- IS CONCERNED THAT ADDITION WAS CONFIRMED BY THE CIT(A). 18. BEFORE US LD. DR STRONGLY RELIED ON THE ORDER OF THE AO. 19. ON THE OTHER HAND LD. COUNSEL OF THE ASSESSEE STRONGLY SUPPORTED THE ORDER OF THE CIT(A). HE ALSO ARGUED T HAT NO ADDITION WAS POSSIBLE BY ESTIMATION A NOTIONAL INCOME AND INTERE ST WHICH WAS ACTUALLY PAID ON BANK OVER DRAFT SHOULD HAVE BEEN A LLOWED BY THE AO. HE FURTHER ARGUED THAT IN ANY CASE LD. CIT(A) HAS D ISALLOWED THE CLAIM FOR INTEREST PAID AMOUNTING TO RS.2 38 L918/- AND THEREFORE LD. CIT(A)S ORDER DOES NOT REQUIRE ANY INTERFERENCE. 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. WE FIND THAT AS FAR AS CONTENTION OF THE LD. COUNSEL OF THE ASSE SSEE IS CONCERNED THAT NO ADDITION ON ACCOUNT OF NOTIONAL INCOME IN R ESPECT OF INTEREST ITA NO.3340/M/09 10 COULD HAVE BEEN MADE IS CORRECT. HOWEVER AT THE S AME TIME IN THAT CASE POSSIBLY NO INTEREST CAN BE CLAIMED AGAINST TH E LOANS GIVEN ON INTEREST FREE BASIS. BECAUSE LD. CIT(A) HAS ALLOWED THE RELIEF MAINLY ON THE BASIS THAT MONEYS WERE BORROWED FOR GIVING INTE REST FREE LOANS. BEFORE THE AO OR CIT(A) OR EVEN BEFORE US IT HAS NO T BEEN SHOWN THAT FOR WHAT PURPOSES THE LOANS HAVE BEEN TAKEN BY THE ASSESSEE ON INTEREST. SIMPLY BY STATING THAT SUCH FUNDS HAVE BE EN USED FOR GIVING LOANS AND INCOME AGAINST WHICH HAS BEEN OFFERED IS NOT SUFFICIENT AND ALSO NOT CORRECT BECAUSE OUT OF THE TOTAL INTEREST INCOME SHOWN BY THE ASSESSEE AMOUNTING TO RS.13 65 601/- A SUM OF RS.12 93 219/- HAS BEEN EARNED AS INTEREST ON FDR ITSELF. 21. WE FURTHER FIND THAT THERE IS NO FORCE IN THE A RGUMENT THAT THERE IS A CLEAR NEXUS BETWEEN THE INTEREST EARNED ON FD AND INTEREST PAID TO THE BANK. IN FACT THIS ISSUE IS NOW SETTLED BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. DR. V. P.GOPINATHAN [248 ITR 449]. IN THAT CASE ASSESSEE HAD EARNED SOME INT EREST ON BANK FDR AGAINST WHICH SOME LOANS WERE OBTAINED ON WHICH SOM E INTEREST WAS PAID. IT WAS CLAIMED THAT ASSESSEE SHOULD BE CHARGE D TAX ONLY ON THE BASIS OF NET INCOME BECAUSE THERE IS A CLEAR NEXUS BETWEEN INTEREST EARNED AND INTEREST PAID. THE HON'BLE SUPREME COURT REJECTED THIS ARGUMENT BY OBSERVING THAT THERE WAS NO PROVISION I N SEC.57[III] TO ALLOW SUCH INTEREST. IN THE CASE BEFORE US ALSO UNL ESS AND UNTIL THE PURPOSE OF TAKING AND UTILIZATION OF LOAN IS STATED CLEARLY SUCH INTEREST CANNOT BE ALLOWED. IN VIEW OF THESE FACTS WE SET A SIDE THE ORDER OF THE ITA NO.3340/M/09 11 LD. CIT(A) AND HOLD THAT NO INCOME CAN BE ASSESSED ON NOTIONAL BASIS AND AT THE SAME TIME WE FURTHER HOLD THAT NO INTERE ST EXPENDITURE IS ALLOWABLE WHICH HAS BEEN PAID TO BE BANK OR TO THE OUTSIDER BECAUSE FUNDS HAVE NOT BEEN USED FOR EARNING ANY INTEREST I NCOME. ACCORDINGLY WE DIRECT THE AO TO RECOMPUTE THE INCOME FROM OTHER SOURCES. 22. IN THE RESULT APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 29/7/2011. SD/- SD/- (D.MANMOHAN) (T.R.SOOD) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI: 29/7/2011. P/-*