M/S. ISHA CORPORATION,,AHMEDABAD vs. THE ITO, WARD-6(1)(4), AHMEDABAD

These two appeals filed by assessee for A.Y. 2013-14, arise from order of the CIT(A)-6, Ahmedabad dated 21-03-2018, in proceedings under section 263 of the Income Tax Act, 1961; in short “the Act”.

In this appeal, the assessee has contested two grounds of appeal: (i) Addition of Rs. 52 lacs on account of unsecured loan taken from Shri Deelip L. Patel u/s. 68 of the Act and (ii) Addition of Rs. 4,02,448/- on account of disallowance on interest u/s. 36(1)(iii) of the I.T.

The assessee has filed appeal before the ld. CIT(A). the ld. CIT(A) has dismissed the appeal of the assessee.

During the course of appellate proceedings before us, the ld. counsel has contended that assessee has purchased property from Shri Dilip L. Patel and part of the payment was made out of the loan of Rs. 52 lacs obtained by the assessee from Shri Dilip L. Patel. He has further submitted that during the course of assessment and appellate proceedings the assessee has furnished relevant supporting documents i.e. copies of ledger account, copies of bank account, loan confirmation letter in support of genuineness of the transaction. However, the lower authorities have unreasonably made the addition without controverting the supporting documents and evidences furnished by the assessee. In this regard, the ld. counsel has referred page no. 55 of the paper book comprising copy of bank statement of the assessee showing loan obtained from Shri Dilip L. Patel by cheque on 16th May, 2012 and 21st May, 2012. He also referred page no. 56-57 of the copy of bank statement and page no. 69 to 70 of the paper book comprising copies of bank statement showing transaction of loan obtained and repayment of loan made by the assessee. Then, he referred the various pages of paper book showing copies of ledger account of Dilip L. Patel showing the transaction of obtaining of loan and repayment of loan along with payment of interest on the loan amount obtained. On the other hand, ld. Departmental Representative has supported the order of lower authorities.

Heard both the sides and perused the material on record. During the course of assessment, the Assessing Officer asked the assessee to explain the unsecured loan of Rs. 52 lacs obtained from Shri Dilip L. Patel. In this regard, the assessee has submitted the copies of ledger accounts of Shri Dilip L. Patel, bank account statement of assessee reflecting credit and debit entry in support of obtaining loan and repayment of unsecured loan from Shri Dilip L. Patel. With the assistance of ld. authorized representatives, we have perused the copies of bank statement of the assessee placed in the paper book. In the bank statement, the detail of transaction of unsecured loan obtained and repaid are reproduced as under:-

During the course of assessment, the Assessing Officer noticed that assessee has paid interest @ 12%/15% on the unsecured loan obtained during the year under consideration as compared to interest received by the assessee on FDR maintained with the bank @ 8% per annum. The Assessing Officer was of the view that assessee had paid excess interest to the extent of Rs. 5 to 7% on the unsecured loan obtained during the year under consideration. Therefore, the Assessing Officer has disallowed the interest expenses of Rs. 4,02,448/- and added to the total income of the assessee.

Heard both the sides and perused the material on record. During the course of assessment, the Assessing Officer has compared the payment of interest @ 12%/15% on the unsecured loan obtained by the assessee with the interest amount received by the assessee @ 8% on FDR made with the HDFC bank. In this regard, the assessee explained that it had kept fund received on booking deposit towards sale of flats in the FDR mode temporary with bank on which it had earned interest instead of keeping the funds in the current account without fetching any interest. After taking into consideration the above facts and circumstances, we are of the view that earning of interest on surplus fund maintained in FDR cannot be compared with the unsecured loan obtained by the assessee because both are of different nature as the interest on fixed deposit is specified by the bank in the form of automatic switched off fixed deposit account whenever surplus fund was available in current year, the same was transferred to fix deposit account otherwise the current account did not fetch any interest. On the other hand, the definite amount of interest paid on unsecured loan used to be on higher side compared to the interest charged on secured loan, therefore, we do not find any justification in the decision of ld. CIT(A) in sustaining the disallowance of interest payment made by the Assessing Officer. Therefore, this ground of appeal of the assessee is also allowed.

In the result, the appeal of the assessee is allowed.

This appeal is directed against the order of ld. CIT(A) made u/s. 263 of the act for setting aside the order passed by the Assessing Officer on 29th Feb, 2016. Since the assessee has not pressed this appeal, therefore, the same stands dismissed.

In the result, appeal ITA 1745/Ahd/2019 is allowed and appeal ITA 862/Ahd/2018 is dismissed.