- (1.) THE appeal pertaining to the assessment year 2002 -03 was admitted on 29.3.2007 when the following question of law was formulated. " Whether on the facts and in the circumstances of the case and in view of the introduction of provision of sec. 14A of the Income Tax Act, 1961 with retrospective effect, the Income Tax Tribunal was justified in law and on the facts to delete addition of Rs.8,43,660/ - coming under sec. 36(I)(iii) of the Income Tax Act, 1961 -
(2.) IT is not in dispute that a sum of Rs.1.99 crore was invested by the assessee from the cash credit account for purchasing shares by transferring the aforesaid sum to the account of Aryan Energy Pvt. Ltd. It is also not in dispute that on account of transactions in the cash credit account a sum of Rs. 3,99,553/ - was debited towards interest. Question arose whether the interest incurred or paid by the assessee is deductible from the taxable income. The learned Tribunal has answered the question as follows: "Considering the totality of the facts of the case and relying on the decisions cited above and considering the fact that the assessee's bank account is a mixed one and the assessee had sufficient funds of its own for the purpose of such investment and further considering the fact that the revenue has not brought on record any concrete evidence to prove the direct nexus between such borrowed funds being utilised for interest free investments, we are of the considered opinion that no part of such interest can be disallowed U/s. 14A read with Section 36(I)(iii) of the I.T.Act. Therefore, we set aside the order of the CIT(A) and direct the AO to delete the addition."
(3.) HOW does the interest paid or incurred by the assessee for earning exempt income become an expenditure allowable under section 36 of the Income Tax Act has not been explained by the learned Tribunal nor has Mr. Bagaria, learned Advocate for the assessee tried to make any improvement thereupon. Therefore, the finding given by the learned Tribunal is palpably wrong. Mr. Bagaria contended that the assessee had invested his own funds for the purpose of purchasing the shares, but that contention was never substantiated before the Assessing Officer. Admittedly, money was paid from the cash credit account. The position would have been different if the money had been paid from a current account or a savings account. Money was admittedly paid from the cash credit account and admittedly interest was also paid.;