Goutham Siddhardhudu, Hyderabad v. DCIT, Hyderabad

ITA 960/HYD/2010 | 2005-2006
Pronouncement Date: 23-09-2011 | Result: Dismissed

Appeal Details

RSA Number 96022514 RSA 2010
Assessee PAN AGVPK7330C
Bench Hyderabad
Appeal Number ITA 960/HYD/2010
Duration Of Justice 1 year(s) 2 month(s) 25 day(s)
Appellant Goutham Siddhardhudu, Hyderabad
Respondent DCIT, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 23-09-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 23-09-2011
Date Of Final Hearing 29-08-2011
Next Hearing Date 29-08-2011
Assessment Year 2005-2006
Appeal Filed On 28-06-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH HYDERABAD BEFORE SHRI G.C. GUPTA VICE PRESIDENT AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER ITA NO.960/HYD/2010 ASSESSMENT YEAR 2005-06 SHRI GOUTHAM SIDDHARDHUDU HYDERABAD (PAN AGVPK 7330 C) VS THE DCIT CIRCLE 16(1) HYDERABAD APPELLANT RESPONDENT APPELLANT BY : SHRI V. RAGHAVENDRA RAO RESPONDENT BY : SHRI T. DIWAKAR PRASAD DATE OF HEARING : 29.8.2011 DATE OF PRONOUNCEMENT : ORDER PER CHANDRA POOJARI A.M. THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) V HYDERABA D DATED 16.4.2010 AND PERTAINS TO THE ASSESSMENT YEAR 2005 -06. 2. THE FIRST GROUND IN THIS APPEAL IS WITH REGARD TO REOPENING OF ASSESSMENT U/S 147 OF THE INCOME TAX ACT. 3. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE HAS FILED RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005-06 ON 30.7.2005 DECLARING AN INCOME OF RS.3 58 220/-. TH IS RETURN WAS PROCESSED U/S 143(1) ON 24.11.2005. LAT ER A NOTICE U/S 148 WAS ISSUED AND SERVED ON THE ASSESSE E ON 27.3.2007 RECORDING FOR REASONS FOR REOPENING OF TH E ASSESSMENT AS FOLLOWS: ITA NO.960/H/2010 SHRI GOUTHAM SIDDHARDHUDU HYD. 2 REASONS FOR REOPENING OF ASSESSMENT U/S 147: IT IS SEEN FROM THE LIABILITIES AS PER BALANCE SHEE T AS ON 31.3.2005 THAT YOU HAD A HOUSING LOAN OF RS.62 49 056/- WITH ICICI BANK AND AN AMOUNT OF RS.62 42 396/- WAS SHOWN ON THE ASSETS SIDE AS LONG GIVEN TO M/S LAKSHMI GANAPATHI PAPER MILLS LTD. THE INTEREST PAID ON ICICI LOAN AND THE INTEREST AM OUNT RECEIVED FROM M/S LAKSHMI GANAPATHI PAPER MILLS LTD . HAVE BEEN SET OFF BY YOU. AS PER PROVISIONS OF SECTION 24(IV) OF THE IT ACT INTEREST PAID ON HOUSING LOAN HAS TO BE SET OFF FROM INCOME FROM HOUSE PROPERTY ONLY. HENCE THE INTEREST PA ID ON HOUSING LOAN BY YOU CANNOT BE ALLOWED TO BE SET OFF AGAINST THE INTEREST INCOME EARNED. IN VIEW OF THE ABOVE I AM OF THE OPINION THAT THE ASSESSEE HAS WRONGLY SET OFF INTEREST PAID ON ICICI LOAN TOWARDS INTEREST AMOUNT RECEIVED FROM M/S LAKSHMI GANAPATHI PAPER MILLS LTD. AND AS PER SECTI ON 24(IV) OF THE ACT THE SAME SHOULD HAVE BEEN SET OFF FROM INCOME FROM HOUSE PROPERTY ONLY AND HENCE THE RE ARE REASONS TO BELIEVE THAT THERE IS ESCAPEMENT OF INCOME WITHIN THE MEANING OF SECTION 147 OF THE IT ACT. 4. IN RESPONSE TO THE ABOVE NOTICE ISSUED U/S 148 OF THE ACT THE ASSESSEE HAS REQUESTED THE ASSESSING OFFIC ER TO TREAT THE RETURN OF INCOME FILED BY HIM ON 30.7.200 5 AS RETURN OF INCOME FILED IN RESPONSE TO THE NOTICE IS SUED U/S ITA NO.960/H/2010 SHRI GOUTHAM SIDDHARDHUDU HYD. 3 148. THE ASSESSING OFFICER THEREAFTER COMPLETED TH E ASSESSMENT MAKING THE FOLLOWING TWO ADDITIONS: 1. DISALLOWANCE OF INTEREST PAID ON ICICI HOME LOAN AT RS.7 10 787/- 2. TREATING THE GIFT RECEIVED FROM THE RELATIVES WHO A RE NRIS AS INCOME OF THE ASSESSEE AT RS.6 31 473/- 5. THE ASSESSEE CARRIED THE APPEAL BEFORE THE CIT( A). THE CIT(A) CONFIRMED REOPENING OF THE ASSESSMENT A ND ALSO ADDITIONS MADE BY THE ASSESSING OFFICER. REGARDING REOPENING OF THE ASSESSMENT THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED THAT THERE IS NO REASON TO BELIEVE THAT INCOME HAS ESCAPED FROM THE ASSESSMENT AND ONL Y ON THE ASSUMPTION BASIS THE ASSESSING OFFICER HAS REOP ENED THE ASSESSMENT. HE SUBMITTED THAT REOPENING WAS BASED O N MISAPPLICATION OF THE PROVISIONS OF SECTION 24(1)(V ) OF THE ACT. THE MISAPPLICATION OF PROVISIONS OF LAW CANNO T BE HELD TO PROVIDE REASONS TO BELIEVE THAT INCOME ESCAPED ASSESSMENT. ACCORDING TO THE A R THERE ARE NO FRES H MATERIALS TO REOPEN THE ASSESSMENT. HE SUBMITTED A LL JUDGEMENT RELIED BY THE DR IS NOT APPLICABLE TO THE FACTS OF THE CASE AND HE DISTINGUISHED THEM AS FOLLOWS: (I). IN THE CASE OF CONSOLIDATED FIBRES & CHEMICALS LTD. VS. CIT (273 ITR 353) (CAL. HC) INTEREST ON UNUTILISED FUNDS BORROWED FROM FINANCIAL INSTITUTIO NS WHERE THERE WAS NO NEXUS BETWEEN THE PURPOSE FOR WHICH MONIES WERE BORROWED AND THE PURPOSE FOR WHICH THEY WERE UTILISED. THE INTEREST RECEIVED WA S ON FUNDS BORROWED FROM ON FINANCIAL INSTITUTIONS BEFORE COMMENCEMENT OF THE BUSINESS. THE PURPOSE ITA NO.960/H/2010 SHRI GOUTHAM SIDDHARDHUDU HYD. 4 OF BORROWAL WAS FOR CONSTRUCTION OF THE PROJECT. T HE INTEREST INCOME WAS FROM THEIR DEPOSIT WITH THE BAN K PENDING UTILISATION. THIS IS A CASE OF INVESTMENT BEFORE COMMENCEMENT. THEREFORE THIS DECISION IS DISTINGUISHABLE. (II) IN THE CASE OF UP STATE BRASSWARE CORPORATION LTD. VS. CIT (277 ITR 40) (ALLAHABAD HC) ALSO THERE IS N O CONNECTION BETWEEN THE PURPOSE FOR WHICH LOANS WERE BORROWED THAT IS SEED LOAN FOR INDUSTRIAL ESTATE AND THE UTILISATION OF THE BORROWALS. THE COURT OBSERV ED THAT ADMITTEDLY THE INDUSTRIAL ESTATE HAS NOT COME INTO EXISTENCE DURING THE ASSESSMENT YEAR IN QUESTION. THEREFORE THE RATIO OF THIS CASE IS ALSO DISTINGUISHABLE. THIS ALSO IS A CASE OF INVESTMENT BEFORE COMMENCEMENT OF BUSINESS. (III). IN THE CASE OF CIT VS. PUNJAB STATE WAREHOUS ING CORPORATION (317 ITR 288) (P&H HC) THE QUESTION OF LAW WAS ON WHETHER DIRECT NEXUS COULD BE ESTABLISHE D BETWEEN INTEREST RECEIPTS AND INTEREST PAYMENTS. T HE HIGH COURT HELD THAT THERE IS NO DIRECT NEXUS. THE CASE IS ALSO DISTINGUISHABLE. IN THE CASE OF THE ASSESSEE THERE IS DIRECT NEXUS BETWEEN BORROWAL AND UTILISATION OF LOAN. 5.1 IN THE CASE OF THE ASSESSEE WHO IS AN INDIVIDUA L (UNLIKE IN THE CITED CASES WHICH RELATE TO COMPANIE S) THE PURPOSE OF BORROWAL AND THE PURPOSE OF LENDING HAVE DIRECT NEXUS. THEREFORE THE ABOVE CASE LAW IS NOT AT ALL APPLICABLE. ITA NO.960/H/2010 SHRI GOUTHAM SIDDHARDHUDU HYD. 5 6. ON THE OTHER HAND THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THERE WAS A WRONG CLA IM MADE BY THE ASSESSEE W.R.T. INTEREST PAID TO ICICI BANK U/S 57(III) OF THE ACT. TO CORRECT THIS MISTAKE THE A SSESSMENT WAS REOPENED. HE SUBMITTED THAT THE ASSESSEE WRON GLY CLAIMED THE INTEREST PAID TO THE ICICI BANK THOUGH THE LOAN WAS AVAILED FOR THE PURPOSE OF ACQUISITION/CONSTRUC TION OF HOUSE PROPERTY IT WAS DIVERTED BY THE ASSESSEE FOR OTHER PURPOSES AS SUCH THE INTEREST CANNOT BE ALLOWED EIT HER U/S 24 OF IT ACT OR UNDER 57(III) OF THE ACT. AT THE T IME OF ISSUE OF NOTICE U/S 148 IF THE ASSESSING OFFICER HAS REA SON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT HE CAN REOPEN THE CONCLUDED ASSESSMENT. HE NEED NOT HAVE CONCLUS IVE EVIDENCE AT THE TIME OF ISSUE OF NOTICE U/S 148 TO REOPEN THE ASSESSMENT. WHAT IS REQUIRED IS REASON TO BELIEVE BUT NOT THE ESTABLISHED FACT OF ESCAPEMENT OF INCOME. ACCO RDINGLY HE RELIED ON THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF ACIT VS. RAJESH JHAVERI STOCK BROKERS P. LT D. (291 ITR 500) (SC) AND JUDGEMENT IN THE CASE OF CIT VS. SUN ENGINEERING WORKS P. LTD. (198 ITR 297) (SC). 7. FURTHER HE RELIED ON THE FOLLOWING JUDGEMENTS: (I). CONSOLIDATED FIBRES & CHEMICALS LTD. VS. CIT ( 273 ITR 353) (CAL. HC) WHEREIN HELD THAT IN THIS CASE T HE INCOME WAS IDENTIFIED AS INCOME FROM OTHER SOURCES. THEREFORE IT HAD TO BE TAXED ONLY UNDER THE PROVISIONS OF THAT HEAD AND DEDUCTIONS WOULD NOT BE AVAILABLE UNLESS THE AMOUNT FOR WHICH DEDUCTION WAS CLAIMED WAS ELIGIBLE FOR DEDUCTION UNDER THE PROVISIONS OF THE SAID HEAD. INCOME FROM OTHER SOURCES U/S 56 IS COMPUTED U/S 57 WHERE THE ITA NO.960/H/2010 SHRI GOUTHAM SIDDHARDHUDU HYD. 6 ELIGIBILITY FOR DEDUCTION IS SPECIFIED IN NO UNCERT AIN TERMS IN CLAUSE (III) WHICH DOES NOT QUALIFY THE AMOUNT OF INTEREST PAID ON THE BORROWED CAPITAL FOR ACQUIRING THE ASSET BEFORE IT WAS FIRST PUT TO USE. THE PURPOSE OF THE BORROWING WAS CONSTRUCTION OF THE PROJECT AND THE INTEREST WOULD HAVE BEEN PAID EVEN IT IF HAD NOT BEEN INVESTED. THEREFORE THE INTEREST COULD NOT BE SAID TO HAVE BEEN LAID OUT OR EXPENDED FOR T HE PURPOSE OF EARNING THE INCOME AND PARTICULARLY WHEN THE INTEREST PAID WAS ELIGIBLE FOR BEING CAPITALISE D IT WOULD NOT COME WITHIN THE PURVIEW OF SECTION 57(III ). (II). UP STATE BRASSWARE CORPORATION LTD. VS. CIT ( 277 ITR 40) (ALLAHABAD HC) WHEREIN HELD THAT THE INTER EST PAID ON SEED LOAN FOR INDUSTRIAL ESTATE COULD NOT BE ALLOWED AS A DEDUCTION U/S 57 OF THE ACT AS THE SAM E HAD NOT BEEN EXPENDED FOR EARNING THE INTEREST WHIC H HAD BEEN ASSESSED U/S 56 OF THE ACT. (III). CIT VS. PUNJAB STATE WAREHOUSING CORPORATION (317 ITR 288) (P&H HC) WHEREIN HELD THAT THE TERM PURPOSE REFERRED TO BE CLAUSE (III) OF SECTION 57 WAS RELATABLE TO THE ACTIVITY OF THE ASSESSEE IN EARNIN G INCOME BY EXTENDING LOANS TO ITS EMPLOYEES. THE DEDUCTION CONCEIVED OF UNDER CLAUSE (III) OF SECTIO N 57 WAS RELATABLE ONLY TO EXPENDITURE INCURRED FOR THE SAID PURPOSE. IT WAS NOT THE CASE OF THE ASSESSE E AND IN FACT COULD NOT BE ITS CLAIM THAT THE INTERE ST PAID BY IT TO NABARD WAS AN EXPENDITURE INCURRED BY IT FOR THE PURPOSE U/S 57 (III). THUS THE ASSES SEE COULD NOT BE ALLOWED TO SET OFF THE INTEREST INCOME DERIVED BY IT ON LOANS GRANTED FOR THE WELFARE OF T HE ITA NO.960/H/2010 SHRI GOUTHAM SIDDHARDHUDU HYD. 7 EMPLOYEES ENGAGED BY IT AGAINST THE INTEREST PAID B Y IT TO NABARD. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE SCOPE AND EFFEC T OF SECTION 147 AS SUBSTITUTED WITH EFFECT FROM APRIL 1 1989 AS ALSO SECTION 148 TO 152 ARE SUBSTANTIALLY DIFFER ENT FROM THE PROVISIONS AS THEY STOOD PRIOR TO SUB SUBSTITUT ION. UNDER THE OLD PROVISIONS OF SECTION 147 SEPARATE C LAUSES (A) AND (B) LAID DOWN THE CIRCUMSTANCES UNDER WHICH INC OME ESCAPING ASSESSMENT FOR THE PAST ASSESSMENT YEARS C OULD BE ASSESSED OR REASSESSED. TO CONFER JURISDICTION UNDER SECTION 147(A) TWO CONDITIONS WERE REQUIRED TO BE S ATISFIED FIRSTLY THE ASSESSING OFFICER MUST HAVE REASON TO B ELIEVE THAT INCOME PROFITS OR GAINS CHARGEABLE TO INCOME TAX H AVE ESCAPED ASSESSMENT AND SECONDLY HE MUST ALSO HAVE REASON TO BELIEVE THAT SUCH ESCAPEMENT HAS OCCURRED BY REASON OF EITHER OMISSION OR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY OR TRULY ALL MATERIAL FA CTS NECESSARY FOR HIS ASSESSMENT OF THAT YEAR. BOTH TH ESE CONDITIONS WERE CONDITIONS PRECEDENT TO BE SATISFIE D BEFORE THE ASSESSING OFFICER COULD HAVE JURISDICTION TO IS SUE NOTICE U/S 148 READ WITH SECTION 147(A). BUT UNDER THE SUBSTITUTED SECTION 147 EXISTENCE OF ONLY THE FIRST CONDITION SUFFICES. IN OTHER WORDS IF THE ASSESSING OFFICER FOR WHATEVER REASON HAS REASON TO BELIEVE THAT INCOME HAS ESCAPE D ASSESSMENT IT CONFERS JURISDICTION TO REOPEN THE ASSESSMENT. IT IS HOWEVER TO BE NOTED THAT BOTH THE CONDITIONS MUST BE FULFILLED IF THE CASE FALLS WITH IN THE AMBIT OF THE PROVISO TO SECTION 147. ITA NO.960/H/2010 SHRI GOUTHAM SIDDHARDHUDU HYD. 8 8.1. SO LONG AS THE INGREDIENTS OF SECTION 147 ARE FULFILLED THE ASSESSING OFFICER IS FREE TO INITIATE PROCEEDIN G U/S 147. THE FORMATION OF BELIEF BY ASSESSING OFFICER IS WIT HIN THE REALM OF THE SUBJECTIVE SATISFACTION OF HIM. AS S UCH IN THIS CASE THE ASSESSING OFFICER HAS REASON TO BELIEVE T HAT INCOME HAD ESCAPED ASSESSMENT AS THE ASSESSEE MADE A WRONG CLAIM OF PAYMENT HOUSING LOAN INTEREST PAID TO ICI CI BANK AS ALLOWABLE U/S 57(III) OF THE ACT. ACCORDINGLY W E HOLD THAT THE ASSESSING OFFICER IS JUSTIFIED IN ISSUING THE NOTICE FOR REOPENING OF THE ASSESSMENT AND THERE IS NO INFIRMI TY IN INVOKING THE PROVISIONS OF SECTION 147 R.W.S. 148 O F THE IT ACT TO ASSESS THE INCOME ESCAPED FROM ASSESSMENT. 9. THE NEXT GROUND IS THAT THE CIT(A) ERRED IN UPH OLDING THE DISALLOWANCE OF INTEREST EXPENDITURE INCURRED O N THE LOAN BORROWED FROM THE ICICI BANK AS HOUSING LOAN W HICH WAS DIRECTLY DEPOSITED WITH THE COMPANY FOR INTERES T. HE HAS FAILED TO APPRECIATE THAT THE EXPENDITURE INCUR RED WAS FOR PURPOSE OF EARNING INCOME AND THEREFORE ALLOWAB LE U/S 57 (III) OF THE ACT. 10. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER WRONGLY DISALLOWED THE INTERE ST AMOUNTING TO RS.7 10 787/- RECEIVED FROM ICICI BANK . HE SUBMITTED THAT THE ASSESSEE IS THE MANAGING DIREC TOR OF M/S LAKSHMI GANAPATHI PAPER MILLS LTD. THE ASSESSE E TOOK A HOUSING LOAN FROM THE ICICI BANK BUT NOT UTILISE THE LOAN FOR BUILDING A HOUSE. INSTEAD OF THIS HE HAS GIVEN LOAN TO LAKSHMI GANAPATHI PAPER MILLS LTD. AND RECEIVED INT EREST OF RS.7 01 787/- FROM THE COMPANY AND THE SAME WAS OF FERED TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. A SIMILAR AMOUNT OF INTEREST WAS PAID BY THE ASSESSEE TO ICICI ITA NO.960/H/2010 SHRI GOUTHAM SIDDHARDHUDU HYD. 9 BANK. THIS INTEREST WAS DEDUCTED BY THE ASSESSEE I NCOME FROM OTHER SOURCES. THE ASSESSING OFFICER DISALLOW ED THE DEDUCTION OF INTEREST UNDER THE HEAD INCOME FROM O THER SOURCES STATING THAT IT WAS TO BE CLAIMED UNDER TH E HEAD INCOME FROM HOUSE PROPERTY. 11. THE LD. AR SUBMITTED THAT THE ASSESSEE IS A MANAGING DIRECTOR OF THE ABOVE COMPANY HOLDING MAJO RITY SHARES ALONG WITH HIS FAMILY MEMBERS IN THE COMPANY M/S LAKSHMI GANAPATHI PAPER MILLS LTD. THE NATURE OF A SSESSEE COMPANY BUSINESS IS WHOLESALE DEALERS/TRADERS FOR V ARIOUS PAPER PRODUCTS. THE ASSESSEES COMPANY REQUIRES LO T OF WORKING CAPITAL AND TO MEET THE WORKING CAPITAL REQUIREMENTS OF THE COMPANY THE ASSESSEE HAS TAKEN LOAN FROM ICICI BANK BY MORTGAGING HIS HOUSE PROPERTY. THE ENTIRE LOAN PROCEEDS RECEIVED BY THE ASSESSEE WERE TRANSFERRED TO THE COMPANY. 12. HE SUBMITTED THAT THE ASSESSEE HAS CLAIMED THE DEDUCTION OF INTEREST PAID BY HIM AT RS.7 10 787/- TO THE ICICI BANK ON THE HOUSING LOAN TAKEN BY HIM OUT OF INTEREST RECEIVED FROM THE COMPANY. THE LOAN HAS GIVEN BY T HE ICICI BANK WAS FOR THE PURPOSE OF CONSTRUCTION OF HOUSE THE ASSESSEE WOULD HAVE BEEN ELIGIBLE FOR DEDUCTION OF INTEREST IF A HOUSE PROPERTY WAS CONSTRUCTED AND THE SAME WOULD HAVE BEEN DEDUCTIBLE FROM OUT OF INCOME FROM HOUSE PROP ERTY. SINCE THE ASSESSEE HAS NOT CONSTRUCTED HOUSE PROPER TY OUT OF THE HOUSING LOAN TAKEN FOR CONSTRUCTION OF HOUSE PROPERTY THE ASSESSEE IS ELIGIBLE FOR DEDUCTION OF INTEREST PAID TO ICICI BANK ON HOUSING LOAN OUT OF INCOME EA RNED OUT OF THAT LOAN WHICH IS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. ITA NO.960/H/2010 SHRI GOUTHAM SIDDHARDHUDU HYD. 10 13. FURTHER THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE RAISED A LOAN FROM ICIC I BANK AGAINST THE HOUSE PROPERTY. THE LOAN RAISED WAS FO R BUSINESS PURPOSES. IF THE ASSESSEE RAISED A LOAN O N HIS HOUSE PROPERTY FOR THE PURPOSE OF MAKING AN INVESTM ENT IN THE COMPANY THE ITO CAN HAVE NO GROUNDS TO OBJECT. THE ASSESSING OFFICER HAS NOT ARRIVED AT ANY FINDING TH AT THE HOUSING LOAN WAS NOT INVESTED IN THE COMPANY OR THA T SUCH INVESTMENT WAS NOT THE SOURCE OF INCOME FOR THE ASS ESSEE. FOR MAKING THE INVESTMENT THE ASSESSEE WAS OBLIGED TO BORROW FROM THE BANK BY MORTGAGING THE HOUSE PROPER TY. THE SOURCES OF INVESTMENT NAMELY THE LOAN FROM ICIC I BANK IS NOT DENIED. THEREFORE THE ASSESSING OFFICER IS NOT JUSTIFIED IN DISALLOWING THE INTEREST EXPENDITURE I NCURRED FOR EARNING THE INTEREST INCOME. 14. ON THE OTHER HAND THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAS BORR OWED LOAN FOR THE PURPOSE OF ACQUIRING/CONSTRUCTING THE HOUSE WHICH WAS NOT USED FOR THIS VERY PURPOSE AND THE SA ME WAS DIVERTED AND MADE ADVANCED TO CERTAIN COMPANIES AND THAT CAN NOT BE ALLOWED EITHER U/S 24 OR U/S 57(III). HE RELIED ON THE FOLLOWING JUDGEMENTS: 1. CIT VS. STANDARD MOTOR PRODUCTS OF INDIA LTD. (MAD. HC) (142 ITR 877) 2. KERALA FINANCIAL CORPORATION VS. JCIT & OTHERS (308 ITR 434) (KER. HC) IN THIS CASE THE PATENTLY INADMISSIBLE CLAIM U/S 36 (1) WAS MADE AND THEREFORE THE RATIO OF THE CASE IN 203 ITA NO.960/H/2010 SHRI GOUTHAM SIDDHARDHUDU HYD. 11 ITR 456 (SC) HAS BEEN APPLIED. THE FACTS IN THE CA SE OF THE ASSESSEE ARE NOT COMPARABLE. 15. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. ADMITTEDLY IN THIS CASE THE ASSESSEE RAISED LOAN FROM ICICI BANK FOR THE PURPOS E OF CONSTRUCTION OF HOUSE. HE HAS NOT CONSTRUCTED THE HOUSE INSTEAD UTILISED THE SAME BY GIVING THE LOAN TO COM PANY BY NAME M/S LAXI GANAPATHI PAPER MILLS LTD. THE ASSES SEE CLAIMED DEDUCTION OF INTEREST PAID BY HIM TO THE IC ICI BANK ON THE HOUSING LOAN TAKEN BY HIM OUT OF INTEREST R ECEIVED FROM THE COMPANY. THE LOAN WAS GIVEN BY ICICI FOR THE PURPOSE OF CONSTRUCTION OF THE HOUSE; THE ASSESSEE COULD HAVE CLAIMED DEDUCTION U/S 24. SINCE THE ASSESSEE HAS NOT CONSTRUCTED THE HOUSE OUT OF THE HOUSING LOAN TAKEN BY HIM THE ASSESSEE IS NOT ELIGIBLE DEDUCTION U/S 24 OF TH E ACT. ON THE OTHER HAND ASSESSEE CLAIMED DEDUCTION U/S 57(II I) OF THE ACT. IN OUR OPINION THE ASSESSEE IS ALSO NOT ENTI TLED FOR DEDUCTION U/S 57(III) OF THE ACT. INTEREST ON BORR OWING WAS NOT ALLOWABLE AS DEDUCTION FROM INTEREST INCOME DER IVED FROM LOAN GIVEN TO COMPANY AS INTEREST PAID HAD NO NEXUS WITH INTEREST EARNED IN AS MUCH AS EXPENDITURE BY W AY OF INTEREST COULD NOT BE SAID TO HAVE BEEN EXPENDED WH OLLY AND EXCLUSIVELY FOR EARNING INCOME BY WAY OF INTERE ST FROM LOAN. FOR THE PURPOSE OF ALLOWABILITY OF DEDUCTION U/S 57(III) WHAT HAD TO BE CORRELATED OR CONNECTED WAS NOT THE FUND WITH THE INCOME RECEIVED FROM SUCH LOAN BUT EARLIER BORROWING AND SUBSEQUENT EARNING OF INTEREST FROM T HE LOAN. IN THIS CASE THE ASSESSEE FAILED TO ESTABLI SH THAT IT WAS HIS PURPOSE OR ONE OF HIS PURPOSES OF UTILISE T HE AMOUNT RECEIVED ON LOAN FOR EARNING INTEREST. FOR EXAMPLE IF THE ASSESSEE AFTER BORROWING THE AMOUNT FOR THE PURPOSE ITA NO.960/H/2010 SHRI GOUTHAM SIDDHARDHUDU HYD. 12 OF BUSINESS HAD KEPT PART OF IT IN SHORT TERM DEPOS IT IN THE BANK AND IT WAS TO BE HELD THAT THE INTEREST PAID O N AMOUNT OF BORROWED WAS NOT DEDUCTIBLE FROM INTEREST EARNED FROM SHORT TERM DEPOSIT AS BORROWING WAS NOT FOR THE PUR POSE OF EARNINGS SAID INTEREST INCOME. 16. WE PLACE RELIANCE ON THE JUDGEMENT OF THE KARN ATAKA COURT IN THE CASE OF KARNATAKA FOREST PLANTATIONS CORPORATION LTD. VS. CIT (156 ITR 275) (KARNATAKA HC) WHEREIN HELD THAT : THE BORROWINGS HAD BEEN MADE FOR PURPOSES OF BUSINESS. THE BORROWINGS WERE NOT MADE TO MAKE INVESTMENTS AND EARN INTEREST FROM THEM. THE INTEREST INCOME FROM SUCH DEPOSITS WAS FROM SUCH DEPOSITS ONLY AND WAS INDEPENDENT OF THE BORROWINGS . INTEREST PAYABLE ON SUCH BORROWINGS WAS THEREFORE NOT DEDUCTIBLE U/S 57(III). 16.1. FURTHER IN THE CASE OF CIT VS. UNIT WIRE ROPES LIMITED (121 ITR 762) (BOM. HC) HELD THAT CAPITAL RAISED BY THE ASSESSEE HAD BEEN KEPT AS BANK DEPOSIT DUE TO RESTRICTIONS ON THE REMITTANCE THE ASSESSEE HAD PAI D INTEREST ON FOREIGN EXCHANGE LOANS AND IT WAS HELD THAT INTEREST PAID CANNOT BE INTEREST RECEIVED AS THE TR ANSACTIONS WERE NOT INTER RELATED AND INTER DEPENDENCE. 3. FURTHER IN THE CASE OF CIT VS. DR. V. GOPINATHAN (248 ITR 449) (SC) THE ASSESSEE HAD PUT MONEYS IN FIXED DEPOSIT WITH A BANK AND HAD EARNED INTEREST OF RS.1 77 444. ON TH E ITA NO.960/H/2010 SHRI GOUTHAM SIDDHARDHUDU HYD. 13 SCRUTINY OF THE AMOUNT SO DEPOSITED THE ASSESSEE T OOK A LOAN FROM THE BANK AND PAID IN RESPECT OF THE LOA N INTEREST OF RS.90 410. THE QUESTION WAS WHETHER TH E ASSESSEE COULD BE TAXED ONLY ON THE DIFFERENCE OF RS.27 034. THE INTEREST THAT THE ASSESSEE RECEIVED FROM THE BA NK ON THE FIXED DEPOSIT WAS INCOME IN HIS HANDS AND IT COULD STAND DIMINISHED ONLY IF THERE WAS A PROVISIO N IN LAW PERMITTING SUCH DIMINUTION. THERE WAS NO SUCH PROVISION OF LAW AND THE INTEREST ON THE LOAN TAKEN FROM THE BANK DID NOT REDUCE HIS INCOME BY WAY OF INTEREST ON THE FIXED DEPOSIT. 16.2. FURTHER IN THE CASE OF DR.V. GOPINATHAN (S UPRA) IT WAS NOT DISPUTED AS IT COULD NOT BE THAT IF THE AS SESSEE HAD TAKEN A LOAN FROM ANOTHER BANK AND PAID INTEREST TH EREON HIS REAL INCOME WOULD NOT DIMINISH TO THE EXTENT TH EREOF. THE ONLY QUESTION THEN IS DOES IT MAKE ANY DIFFEREN CE THAT HE TOOK THE LOAN FROM THE SAME BANK IN WHICH HE HAD PLACED THE FIXED DEPOSIT. THERE IS NO DIFFERENCE I N THE EYE OF THE LAW. THE INTEREST THAT THE ASSESSEE RECEIVED F ROM THE BANK WAS INCOME IN HIS HANDS. IT COULD STAND DIMIN ISHED ONLY IF THERE WAS A PROVISION IN LAW WHICH PERMITS SUCH DIMINUTION. THERE IS NONE AND THEREFORE THE AMO UNT PAID BY THE ASSESSEE AS INTEREST ON THE LOAN THAT HE TOO K FROM THE BANK DID NOT REDUCE HIS INCOME BY WAY OF INTERE ST ON THE FIXED DEPOSIT PLACED BY HIM IN THE BANK. 18. IN VIEW OF THE ABOVE DISCUSSION WE DO NOT FIN D ANY INFIRMITY IN THE ORDER OF THE CIT(A) AND THE SAME I S CONFIRMED. ITA NO.960/H/2010 SHRI GOUTHAM SIDDHARDHUDU HYD. 14 19. THE SECOND GROUND IS WITH REGARD TO ADDITION O F A SUM OF RS.6 31 573/- TOWARDS FOREIGN GIFT AS THE IN COME OF THE ASSESSEE. 20. THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTE D THAT THE ASSESSING OFFICER ERRED IN APPLYING THE P ROVISIONS OF SECTION 147 TO ASSESS THE AMOUNT OF RS.6 31 473 AS BEING ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPE D ASSESSMENT WITHOUT ARRIVING AT A SPECIFIC FINDING THAT THIS AMOUNT REPRESENTED INCOME AND THAT IT ESCAPED ASSESSMENT. 21. AS THE FINDING IS NECESSARY ABOUT THE ESCAPEME NT BEFORE THE INCOME CAN BE BROUGHT WITHIN THE SCOPE O F SECTION 147 OF THE IT ACT THE ASSESSING OFFICER LA CKS JURISDICTION TO ASSESS RS.6 31 473/-. THE ASSESSIN G OFFICER IS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECT ION 57(1)(V) OF THE ACT IN THE FACTS AND CIRCUMSTANCES OF THE CA SE. THE ASSESSING OFFICER HAS ALSO ERRED IN INFERRING THAT THE AMOUNT OF RS.6 31 573/- IS HIT BY THE PROVISIONS OF SECTION 56(1) (V) OF THE ACT WITHOUT GIVING AN OPPORTUNITY TO FILE THE EVIDENCE ABOUT THE NRI RELATIVES WHO GIFTED THE AMO UNT OF RS.6 31 473/-. THE ASSESSING OFFICER HAS ERRED IN NOT AFFORDING OPPORTUNITY TO FILE THE REQUISITE EVIDENC E ABOUT THE RECEIPT OF THE SAID AMOUNT FROM THE RELATIVES. 22. FURTHER HE RELIED ON THE ORDER OF THE TRIBUNA L DATED 30.11.2010 IN THE CASE OF SHRI G. PRABHAKAR HYDERA BAD VS. ACIT IN ITA NO.1154/HYD/2010 FOR THE ASSESSMENT YEA R 2005-06. FINALLY HE RELIED ON THE JUDGEMENT IN TH E CASE CIT VS. JET AIRWAYS (I) LTD. (331 ITR 236) (BOM. H C) AND IN ITA NO.960/H/2010 SHRI GOUTHAM SIDDHARDHUDU HYD. 15 THE CASE OF VIPAN KHANNA VS. CIT & OTHERS (P&H) (H C) 255 ITR 200). 23. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE EXPLANATION 3 TO SECTION 147 WHICH READS AS FOLLOWS : SECTION 147: INCOME ESCAPING ASSESSMENT: IF THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT ANY INCOME MAY SUBJECT TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR HE MAY SUBJECT TO PROVISI ONS OF SECTION 148 TO 153 ASSESS OR REASSESS; SUCH INC OME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH H AS ESCAPED PROCEEDINGS UNDER THIS SECTION OR RECOMPUT ED THE LOSS OR THE DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE AS THE CASE MAY BE FOR THE ASSESSMENT YEAR CONCERNED (HEREINAFTER IN THIS SECTION AND IN SECTIONS 148 TO 153 REFERRED TO AS THE RELEVANT ASSESSMENT YEAR). PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB SECTION (3) OF SECTION 143 OR THIS SECTION HAS BEEN MADE FO R THE RELEVANT ASSESSMENT YEAR NO ACTION SHALL BE TAKEN UNDER THIS SECTION AFTER THE EXPIRY OF FOUR YEARS F ROM THE END OF THE RELEVANT ASSESSMENT YEAR UNLESS ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REASON OF THE FAILURE ON TH E PART OF THE ASSESSEE TO MAKE A RETURN U/S 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB SECTION (1) O F SECTION 142 OR SECTION 148 TO DISCLOSE FULLY AND TR ULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR TH AT ASSESSMENT YEAR. ITA NO.960/H/2010 SHRI GOUTHAM SIDDHARDHUDU HYD. 16 PROVIDED FURTHER THAT THE ASSESSING OFFICER MAY ASS ESS OR REASSESS SUCH INCOME OTHER THAN THE INCOME INVOLVING MATTERS WHICH ARE THE SUBJECT MATTERS OF ANY APPEAL REFERENCE OR REVISION WHICH IS CHARGEABLE TO TAX AND HAS ESCAPED ASSESSMENT. EXPLANATION 1: PRODUCTION BEFORE THE ASSESSING OFFICER OF ACCOUNT BOOKS OR OTHER EVIDENCE FROM WHI CH MATERIAL EVIDENCE COULD WITH DUE DILIGENCE HAVE BEE N DISCOVERED BY THE ASSESSING OFFICER WILL NOT NECESSARILY AMOUNT TO DISCLOSURE WITHIN THE MEANING OF THE FOREGOING PROVISO. 24. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE CASE LAW CITED BY THE AR. IN THIS CASE THE ASSESSMENT WAS R EOPENED TO CONSIDER THE PAYMENT OF INTEREST TO ICICI. THERE AFTER WHILE COMPLETING THE ASSESSMENT THE ASSESSING OFFIC ER CAME TO KNOW ABOUT THE FOREIGN GIFT RECEIVED BY THE ASSE SSEE FROM SMT. V. NALINI AND SRI TARAKESWAR WHO ARE SAID TO B E CO- BROTHER AND SISTER IN LAW OF THE ASSESSEE. HOWEVER NO CONFIRMATION LETTERS FROM THE ABOVE PARTIES AND OTH ER EVIDENCES HAVE BEEN FILED. SINCE NO EVIDENCE HAS B EEN FILED FROM THE ABOVE PARTIES HE TREATED THE IMPUGNED GI FTS AS INCOME U/S 56(1)(V) OF THE ACT. THE CONTENTION OF THE ASSESSEE ON THIS ISSUE IS THAT THE ASSESSING OF FICER HAS NOT DEALT THE ISSUE WHILE RECORDING THE REASONS FOR REOPENING THE ASSESSMENT U/S 147. UNDER SECTION 147 OF THE ACT THE ASSESSING OFFICE R HAS TO ASSESS OR REASSESS THE INCOME WHICH ESCAPED ASSESSMENT AND WHICH WAS THE BASIS OF THE FORMATION OF ITA NO.960/H/2010 SHRI GOUTHAM SIDDHARDHUDU HYD. 17 BELIEF AND IF HE DOES SO HE CAN ALSO ASSESS OR REA SSESS ANY OTHER INCOME WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE DURING THE COURSE OF THE PROCEE DINGS. HOWEVER IF AFTER ISSUING A NOTICE U/S 148 HE ACCEP TED THE CONTENTION OF THE ASSESSEE AND HOLDS THAT THE INCOM E WHICH HE HAS INITIALLY FORMED A REASON TO BELIEVE HAD ESC APED ASSESSMENT HAS AS A MATTER OF FACT NOT ESCAPED ASSE SSMENT IT IS NOT OPEN TO HIM INDEPENDENTLY TO ASSESS SOME OTHER INCOME. IF HE INTENDS TO DO SO A FRESH NOTICE U/S 148 WOULD BE NECESSARY THE LEGALITY OF WHICH WOULD BE TESTED IN THE EVENT OF A CHALLENGE BY THE ASSESSEE. 25. IN THE PRESENT CASE SINCE THE ASSESSMENT OF INCOME W.R.T. PAYMENT OF INTEREST TO ICICI BANK IS TREATED AS ESCAPED ASSESSMENT THEREAFTER THE ASSESSING OFFICER TOOK UP THE ISSUE RELATING TO GIFT WHICH IS NOT MENTIONED I N THE REASONS RECORDED IN SECTION 147. BEING SO IN OUR OPINION IN VIEW OF THE EXPLANATION 3 TO SECTION PROVISO TO SECTION 147 THE ASSESSMENT OF GIFT AS INCOME OF THE ASSESS EE UNDER SECTION 56(1) (V) IS JUSTIFIED. MORESO THE ASSESSE E WAS FAILED TO PROVE THE GENUINENESS OF THE GIFT WITH REFERENCE TO CREDIT WORTHINESS CAPACITY OF THE DONOR. IT IS THE DUTY O F THE ASSESSEE TO PROVE THE GIFT AS GENUINE TO THE SATI SFACTION OF THE ASSESSING OFFICER. AS THE ASSESSEE HAS NOT DISC HARGED THE BURDEN CAST HIM IT IS TO BE TREATED AS INCOME OF THE ASSESSEE AND THE ORDER OF CIT(A) IS CONFIRMED ON T HIS ISSUE ALSO. ITA NO.960/H/2010 SHRI GOUTHAM SIDDHARDHUDU HYD. 18 26. IN THE RESULT THE APPEAL OF THE ASSESSEE STAN DS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON: 23.9 . 2011 SD/- SD/- ( G.C. GUPTA ) ( CHANDRA POOJARI ) VICE PRESIDENT ACCOUNTANT M EMBER DATED THE 23 RD SEPTEMBER 2011 COPY FORWARDED TO: 1. SHRI GOUTHAM SIDDHARDHUDU H.NO.8-2-893 52/F/C-3 PLOT NO.C-2 ROAD NO.8 FILM NAGAR HYDERABAD 2. THE DCIT CIRCLE 16(1) HYDERABAD 3. THE CIT(A) V 4. THE CIT HYDERABAD 5. THE DR ITAT HYDERABAD NP/