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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
O R D E R
PER PAVAN KUMAR GADALE JM:
The assessee has filed the appeal against the order of National Faceless Appeal Centre (NFAC), Delhi /CIT(A) passed u/s 143(3) r.w.s 254 and 250 of the Act. The assessee has raised the following grounds of appeal:
1 On the facts and in circumstances of the case, and in law, learned Commissioner of Income-tax (Appeal) erred in upholding action of the Assessing Officer in Biren Suresh Karani, Mumbai. - 2 - disallowing interest expense of RS. 243,521 without appreciating that all these loans were old loans carried forward from the earlier year that were utilized for the purpose of business, and interest was allowed in earlier year also.
2. Without prejudice to above, on the facts, and in circumstances of the case, and in law, learned Commissioner of Income-tax (Appeal) and the Assessing Officer erred in not appreciating that overdraft was raised in the business as some of the funds were employed to buy industrial units which were let out; and thus, interest if not allowable as business expense was allowed against income from house property.
3. On the facts, and in circumstances of the case, and in law, learned Commissioner of Income-tax (Appeal) erred in upholding action of the Assessing Officer in disallowing interest of RS. 37,965 paid against loan from LIC and loan from HDFC without appreciating that the said loans were obtained in connection with acquisition of the industrial units, and interest was allowed against income from house property.
Your Appellant craves leave to add to, amend, alter, modify and / or delete any grounds of appeal at or before final disposal of appeal the above
The brief facts of the case are that the assessee is an individual and Prop. of M/s Vartsila, which is a dealer of pressure reducing valves. The assessee has filed the return of income A Y 2012-13 on 19.09.2012 disclosing a total income of Rs.10,23,840/- and the return of income was processed u/s 143(1) of the Act.
Biren Suresh Karani, Mumbai. - 3 - Subsequently the case was selected for scrutiny and the notice u/s 143(2) and 142(1) of the Act are issued. In compliance to the notice, the Ld. AR of the assessee appeared from time to time and submitted the details and the case was discussed. Whereas the AO (Assessing Officer) on perusal of the information and details found that the assessee has claimed interest on house property and interest paid to banks and interest on unsecured loans. The AO has considered the facts, details and was not satisfied with the claim of interest debited to profit &loss account and dealt elaborately at Para 5 of the order and has made disallowance of interest of Rs.6,48,422/- and also housing loan interest of Rs.37,965/- and assessed the total income of Rs. 20,33,340/- and passed the order u/s 143(3) of the Act dated 27.03.2015.
Aggrieved by the order, the assessee has filed an appeal before the CIT(A). Whereas the CIT(A) confirmed the action of the AO and dismissed the assessee appeal. On further appeal, the Hon’ble Tribunal in dated 15.02.2019 has restored the disputed issues to the Biren Suresh Karani, Mumbai. - 4 - file of the Assessing officer. Accordingly, now the AO has issued notice u/s 143(2) and 142(1) of the Act and the observations of the AO are that the assessee has not explained the sources of investments and the interest bearing funds are used for acquisition of property and therefore the AO is of the opinion that the assessee is not entitled for claim of deduction and has discussed on the issues at Para 9 to 14 of the order and passed the order u/s 143(3) r.w.s 254 of the Act.
In the earlier previous year the assessee claimed interest payment of Rs.1,88,080/- As regards of the payment of interest of Rs.6,48,422/- the same has been explained for the following reasons:
Sr. Head Amount in Remarks No Rupees 1 Bank Charges 13,833 Regular charges levied by the bank 2 Interest on 3,91,288 Taken partially to find Citibank loan the business and partially for property acquisition 3 Interest on 2,43,251 Interest paid on unsecured loans others.
The assessee has claimed that the interest expenses are allowable and that the loan from Citibank was used to repay unsecured loan also. The assessee admitted that the main reason for the negative capital balance is on account of the amount paid to Ms Sejal Karani, debit on Biren Suresh Karani, Mumbai. - 5 -
account of residential premises transfer to personal balance sheet and other withdrawals.
The above submission of the assessee are duly considered. It is seen that the assessee had a negative capital balance of Rs.41,20,030/- and the assessee has borrowed secured funds from M/s. Citibank to the tune of Rs.62,88,015/- and the assessee has also taken minor amount of unsecured loans from friends/relative of Rs.5,82,200/-. The loan from Citibank and some of the unsecured loans are interest bearing. As against these, the net current assets of the assessee are only to the tune of Rs.25,52,607/- and the assessee has nearly obliterated his fixed assets and investments. Therefore it is clear that the assessee is finding his activities through interest bearing funds only. It is only on account of massive loans taken from the bank and others for the purpose of acquiring properties that the assessee has been forced to pay bank interests, other interest and bank charges on the same. Further the assessee had not acquired any business asset also and the industrial unit acquired by the assessee jointly with his wife have been merely let out. The income from the let out property is claimed as income from House Property only.
12 In view of the foregoing paragraph out of interest disallowance of Rs.6,48,422/- and Rs. 2,43,251/- paid for unsecured loan is disallow considering the debit balance of assessee in capital account Rs.41,20,030/_ for the reason Interest bearing fund have been utilized for non-business purpose.
13 As regards to the interest paid to Citi Bank loan account 3,91,288/- considering the ITAT observation in its order the assessee has filed enough evidences to prove the loan has been partially borrowed for the purpose of Biren Suresh Karani, Mumbai. - 6 - business. In view of the above fact considering the material available on the record and AR submission 65% of the interest paid to the bank is treated as business expenses and balance 35% amounting to Rs. 1,36,950/- is disallowed. The total disallowance 1,36,950/- plus 243,250/- total Rs 3,80,200/- disallowed under section 36 (i)(iii-) and added to the total income of the assessee. Penalty proceeding under section 271 (1)(c) of the Income Tax Act are separated initiated. Bank charges debited of Rs. 13,833/- is treated as business income, hence allowed as claimed. 14 Subject to the above remark the total income of computed as under:
Particulars Amount in Rs. Total assessed income as per the 17,32,640 CIT(A) order No. CIT(A)-42/IT- 167/2015-16, dated 29.06.2017 Less Interest paid to the bank is treated 2,54,338 as business expenses 9 as discussed above Less Bank charges is treated as 13,833 business expenses Revised assessed income 14,64,469 Rounded off 14,64,470 4. Aggrieved by the order, the assessee has filed an appeal with the CIT(A), whereas the CIT(A) considered the grounds of appeal, submissions of the assessee and findings of the AO and has granted partial relief and partly allowed the assessee appeal. Aggrieved by the CIT(A)order, the assessee has filed an appeal before the Hon’ble Tribunal challenging the Biren Suresh Karani, Mumbai. - 7 - sustainment of disallowance of interest expenses of Rs.2,43,521/- and disallowance of interest paid to LIC Ltd and HDFC Ltd Rs.37,965/-.
5. At the time of hearing, the Ld. AR submitted that CIT(A) has over looked the facts that the interest on unsecured loans disallowed by the AO, is in respect loans obtained in earlier years and interest was paid subject to TDS. Further the assessee has paid interest on housing loans obtained from LIC Ltd and HDFC Ltd and are supported by the evidences and the assessee also has own funds which are utilized. The Ld.AR substantiated the submissions with the factual paper book, synopsis and prayed for allowing the appeal. Contra, the Ld. DR supported the order of the CIT(A).
6. Heard the rival contentions and perused the material on record. The Ld. AR submitted that the CIT(A) has erred in sustaining the disallowance of interest on unsecured loan creditors which was subject to TDS. The Ld. AR emphasized that no fresh loans were obtained from the unsecured loan creditors during the financial year 2011-12 and the Biren Suresh Karani, Mumbai. - 8 - Ld. AR has referred to page 5 of the paper book, where the unsecured loans group details were provided and there is opening balance of loan creditors of Rs. 58.78 lakhs and no fresh loans obtained during the year. Further the Ld. AR referred to the ledger account of interest on loan paid to the unsecured loan creditors placed at page 7 of paper book. The contentions of the Ld. AR that there is opening balance of unsecured loan creditors and was disclosed in the balance sheet and there is no dispute with respect to loans obtained in earlier years. Further the Ld.AR filed the ledger account of unsecured loan creditors for F.Y.2010-11 to 2012-13 to substantiate the transactions that the funds are utilized for the business operations. Therefore there is no dispute that the assessee has obtained loans in earlier years and has paid interest to the unsecured loan creditors and debited in the profit and loss account. Further the AO has not disputed on the genuineness of loans and the loan funds were utilized wholly and exclusively for the purpose of business. The Ld.AR emphasized that the own funds are more than the loan funds and relied on the judicial
Biren Suresh Karani, Mumbai. - 9 - decisions. Considering the facts, circumstances and the information filed in the course of hearing find that there is no dispute with respect to the interest paid to the unsecured loan creditors on the opening balances and further the revenue has been accepting the interest claim in earlier years. Accordingly, the order of the CIT(A) on this disputed issue is set aside and direct the Assessing officer to delete the disallowance of interest on unsecured loans of Rs.2,43,521/- .
On the second disputed issue, with respect to interest on housing loan paid to LIC Ltd Rs.10,698/ and HDFC Ltd Rs 27,267/- both aggregating to Rs.37,965/-. The assessing officer has not disputed the genuineness of loans, The Ld.AR filed the evidences of interest paid to LIC Ltd loans and supported with the loan repayment and loan interest receipts and in the case of HDFC Ltd, statement of account was filed. Considering the facts, circumstances and submissions and there is no dispute that the assessee has let out the property and derived the rental income and the assessee has substantiated the submissions with the documentary
Biren Suresh Karani, Mumbai. - 10 - evidences. Accordingly, set aside the order of the CIT(A) on the present disputed issue and direct the Assessing officer to delete the disallowance of interest of Rs.37,965/- and allow the grounds of appeal in favour of the assessee.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on .08.2023.