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Income Tax Appellate Tribunal, JODHPUR BENCH, JODHPUR
Before: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM
(Virtual hearing) Assessee By Shri Raksha Birla-C.A. Revenue By Shri S.M. Joshi, JCIT-DR Date of hearing 05/07/2023 03/10/2023 Date of Pronouncement O R D E R PER: Dr. S. Seethalakshmi, JM The assessee has filed an appeal against the order of the National Faceless Appeal Centre, Delhi [herein after “NFAC/Ld.CIT(A)”] dated 29.09.2021 for the assessment year 2017-18. 2. The assessee has raised the following grounds of appeal:-
1. That on the facts and in the circumstances of the case the order passed by the ld. CIT(a), NFAC is bad in law & bad in facts and also against the policy of National Faceless system i.e. Honour the Honest Taxpayer.
Naval Kishore Daga vs. DCIT 2. That on the facts and in the circumstances of the case the ld. CIT(A), NFAC grossly erred in holding the validity of order passed u/s 143(1) of the Act.
3. That on the facts and in the circumstances of the case the ld. CIT(A), NFAC grossly erred in sustaining the addition of Rs. 205303/- in respect of disallowance of interest expenditure claimed against the interest income u/s 57 of the Act.
That on the facts and in the circumstances of the case the ld. CIT(A) ought to have allowed the claim of deduction of interest expenditure as such the same is allowable in accordance with provisions of law.
5. That on the facts and in the circumstances of the case the ld. CIT(A), NFAC grossly erred in not appreciating the contention of the assessee in right perspective & judicial manner which is supported from legal & valid documentary evidence.
6. That on the facts and in the circumstances of the case the observations & findings recorded by the ld. CIT(A), NFAC is not only contrary to the provision of law but also against the principle of natural justice. That the petitioner may kindly be permitted to raise any additional or alternative grounds at or before the time of hearing. The petitioner prays for justice & relief.”
Brief facts of the case are that the assessee is an individual and filed his return of income on 01.08.2017 for the assessment year 2017-18, declaring total income of Rs. 10,74,515/-, claiming refund of Rs. 2,720/-. Later, assessee filed his revised return of income on 29.09.2017 declaring total income of Rs. 10,76,941/- claiming refund of Rs. 2,340/-. CPC, Bengaluru processed the return of assessee and Naval Kishore Daga vs. DCIT issued intimation u/s 143(1) of the Income Tax Act, 1961 dated 01.06.2019, making addition of Rs. 2,05,303/- under the head “income from other sources” on account of disallowance of interest expenditure and considering interest income as per Form 26AS. The assessee filed rectification application on 28.03.2019 however the same was rejected by the CPC vide order dated 01.06.2019.
4. Aggrieved, from the said order of the ld. AO passed rejecting the rectification application an appeal was filed before the ld. CIT(A). The ld. CIT(A) after hearing the contention of the assessee dismissed the appeal of the assessee by giving following findings on the issue:- “6.3 Decision:- The order u/s 143(1), statement of facts, and the submissions of the appellant have been considered. 6.4 In this case, the appellant had filed his revised return of income on 29.09.2017 declaring total income of Rs. 10,76,941/- claiming refund of Rs. 2,340/-. CPC, Bengalaru issued Intimation u/s 143(1) of the Act, making addition of Rs. 2,05,303/- under the head "income from other sources" on account of disallowance of Interest expenditure and considering Interest Income as per Form 26-AS. The appellant filed rectification application on 28-03-2019 however the same was rejected by the CPC vide order dated 01-06- 2019. 6.5. During the appellate proceedings, the appellant has replied as below; "That Appellant is having Interest Income of Rs. 12,51,349/- and Interest Expenditure of Rs. 2,07,881/- Appellant has shown Rs. 10,40,890/- as Net Interest Income in his Return of Income. That Appellant has made submission against the proposed adjustment u/s 143(1)(a) of Income Tax Act, 1961 of this fact that Interest has been shown Net against Notice Dated 29.05.2018 and 10.08.2018. Copy of Reply submitted against both notice is attached herewith [Ref. Ann-2 & Ann-3] 6.6. The appellant was sent a notice u/s 250 of the Act, dated 29.07.2021 along- with a questionnaire as below, "1. You have claimed that you have paid interest of Rs 2,07,881/- Naval Kishore Daga vs. DCIT Please explain how the loan raised were utilised to earn the interest income which you have earned and therefore why deduction of such interest paid should be allowed to you from interest received.
You have stated that you paid interest of Rs 9,282/- to IDBI bank on various dates (16 different instances). Please explain why deduction of such interest paid should be allowed to you from interest received." 6.7. In response to the above, the appellant has filed reply dated 12-08-2021 stating as under; "Appellant is in receipt of your Notice asking for certain clarification on Interest issue. We would like to submit that matter of Interest which has been taken in Appeal has arisen because of simple thing that CPC while processing of Return has taken Interest directly from Form-26AS without considering Interest Expenses and that's why case has come in Appeal. That Appellant while making submission to Compliance u/s 143(1)(a) of Income Tax Act, 1961 has also given the complete details of Interest Expenses, but it was due to system Technical fault and some default checking procedure entire Interest Income has been considered without considering Interest Expenses. In our earlier reply we have already filled Interest Expenses Ledger and Compliance u/s 143(1)(a). We would like to further submit that Appellant is regular Tax payer and is having regular Interest Income and Expenses. Interest during the year under consideration has been paid on old deposits. Such Interest Expenses has been allowed to Appellant Assessment in past also. We are further attaching herewith Copy of Financial Statement for the year under consideration (Ann-1) which shows that funds taken on Interest has been used for advancement of Loans on which Appellant is regularly earning Interest Income. We would like to state that almost all Unsecured Loans and Loans & Advances are old. Further Assessee has substantial Capital as against Non-Income generating Assets and as such no addition is required for on this ground. We are attaching herewith Confirmation of Unsecured Loans and Loans & Advances on which Interest has been paid or received in form of Annexure marked as Ann-2. We would also like to submit here few judgment, wherein it is held that no Interest Expenses is to be disallowed wherein Interest Income is more than expenses or Appellant is having sufficient Interest Free Fund or owned Funds: 1. Hon'ble Supreme Court in case of CIT Vs Rajendra Prasad Moody 115 ITR 519 (SC) COME 2. Hon'ble Andhra Pradesh High Court in case of CIT Vs Gopikrishan Murlidhar, 47 ITR 469 (AP) We would like to submit that appellant is having following owned Capital and interest Free Loan as on 31.03.2017." Capital A/c 14458990.00 Unsecured Loan (interest free) Krishna Corporation 4059782.00 Shree Krishan Steel 2531993.50 Shikha Daga 460000.00 Nikhil Daga 50000.00 Krishna Daga 592968.16 Total 22153733.66 6.8. Thus the appellant has stated that Interest Expenses was allowed to Appellant in past also. The appellant furnished copy of Financial Statement for the year under consideration and claimed that funds taken on Interest has been used for advancement of Loans on which Appellant is regularly earning Interest Income. 6.9 However, mere financial statement cannot show the utilisation of loan funds. Fund flow is required to show that loan funds were utilised to earn interest. Similarly, confirmation of loan funds do not show the utilisation of loan funds. The reply of the appellant shows that he received interest of Rs 9,40,562/- and paid interest of Rs 1,98,599/-. Relevant information regarding relation of interest received and interest paid has not been furnished. Therefore, the Ground No 1.3 is DISMISSED.”
Per contra, the ld. DR relied upon the order of the ld. CIT(A) where in the finding is recorded at para no. 6.8 & 6.9.
We have heard both the parties and perused the materials available on record. The bench noted that the apple of discord in this case is that whether the interest expenses claimed by the assessee against the interest income can be considered as prima facie adjustment or not. On this issue ld. AR of the assessee placed reliance on the decision of the ITAT Kolkata bench in where in the bench has considered that the CPC cannot be make the adjustment in the return of income u/s. 143(1)(a) of the Act. Since, in this case the revenue has not controverted the fact that the assessee has claimed interest expenses against the interest income already offered and in support of this claim the ld. AR of the assessee filed the return of income, computation of income justifying that the against the interest income interest expenditure is claimed. Now the issue is that whether the action of the CPC Naval Kishore Daga vs. DCIT denying the claim of the interest expenditure to the assessee is within the permissible adjustments or not, for this we would like to reproduced the relevant provision of the law here in below Assessment. 143. (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:— (a) the total income or loss shall be computed after making the following adjustments, namely:— (i) any arithmetical error in the return; (ii) an incorrect claim, if such incorrect claim is apparent from any information in the return; (iii) disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139; (iv) disallowance of expenditure 97[or increase in income] indicated in the audit report but not taken into account in computing the total income in the return; (v) disallowance of deduction claimed under 98[section 10AA or under any of the provisions of Chapter VI-A under the heading "C.—Deductions in respect of certain incomes", if] the return is furnished beyond the due date specified under sub-section (1) of section 139; or (vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return: Provided that no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode: Provided further that the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made:
Based on the above provision of law we are of the considered view that the disallowance of interest expenditure by the CPC u/s. 143(1)(a) is not permissible adjustment and on being consistent the finding of the Kolkatta bench in the case of Anit Sheth in we vacate the Naval Kishore Daga vs. DCIT addition made by the CPC. Based on these observation the appeal filed by the assessee is allowed.
In the result, the appeal of the assessee is allowed.