ITO Vs. M/s Borojalingh Tea Co. (ITAT Kolkata)
The question before us arises so as to whether the assessee is entitled for claiming the interest expense against the interest income in the given facts and circumstances. It is undisputed fact that the loan was provided to the parties on interest and accordingly interest income was earned. Now the question arises whether the fund used by the assessee in providing loan was interest bearing or not. On perusal of the balance-sheet we find that assessee has been paying interest on the capital contributed by the partners to the firm as well as money borrowed by the firm from the outside. As the interest bearing fund has been advanced by the assessee to the parties to earn interest then in our considered view the interest paid qua to the interest income was very much eligible for deduction u/s 57(iii) of the Act.
Full Text of the ITAT Order is as follows:-
These two appeals by the Revenue are directed against the different order of Commissioner of Income Tax (Appeals)-XX, Kolkata of even date 01.07.2014. Assessment was framed by ITO Ward-34(1), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his orders dated 17.12.2013 & 28.02.2014 for assessment years 2011-12 & 2012-13 respectively. Shri Raj Kumar Patodi, Ld. Authorized Representative appeared on behalf of assessee and Shri Arindam Bhattacherjee, Ld. Departmental Representative appeared on behalf of Revenue.
2. Both appeal are heard together and are being disposed off by way of this consolidated order for the sake of convenience. First we take up ITA No. 1964/Kol/2014 for A.Y. 2011-12.
3. The ground raise by the Revenue reads as under:-
“1. In the facts and circumstances of the assessee and in law, the CIT(A) has erred in restricting the interest expenditure to Rs.36,39,402/- in view of the submissions of the assessee that since the source of expenditure for business as well as income from other source was out of common fund accordingly the calculation of expenditure on account of interest attributable to lending activities should be ass per manner provided in Rule 8D in spite of failure on the part of the assessee to explain the nexus between the expenditure and interest income earned.
2. The appellant craves leave to make any addition, alteration modification etc. of the grounds at the appeal stage.”
4. Sole issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by the AO for ₹ 36,39,402/- on account of interest expense claimed against the interest income.
5. Briefly stated facts are that the assessee in the present case is a partnership firm and engaged in the business of growing and manufacturing tea under the trade name “Borojalingah Tea Company.” Besides the income from tea business, the assessee is also deriving interest income from money lending activity. The interest income was classified under the head income from other sources.
6. The assessee declared its income from tea business for Rs. 49,69,948/- for which deduction of the same amount was claimed under section 80IE of the Act. The assessee declared gross total income of Rs. 15,58,218/- only which is reflecting the income from interest. The assessee in its profit and loss account has claimed the interest expenses as detailed under :
