FAHIM RAI,SECUNDERABAD vs. INCOME TAX OFFICER, WARD-10(5), HYDERABAD

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ITA 1810/HYD/2019Status: DisposedITAT Hyderabad25 November 2021AY 2015-1613 pages

In favour of the Revenue: the assessee's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the disallowance of interest expenses amounting to Rs. 32,55,646/- was justified. Regarding the first issue, the Tribunal noted that the assessee's profession as a medical doctor did not require significant fixed or circulating capital. The assessee's own submissions before the Assessing Officer indicated that loans were taken for housing, vehicle, and personal purposes. While the assessee later claimed some loans were for business, the Tribunal found no nexus between these loans and the assessee's professional activity, confirming the disallowance of Rs. 7,23,519/- (the undisputed portion) and the remaining disallowance. For the second issue concerning credit card payments, the Tribunal found that the assessee's drawings from his capital account were meagre after accounting for other expenses like LIC premiums and household needs. Therefore, the Tribunal concluded that the source of credit card expenditure was unexplained and upheld the addition of Rs. 1,30,000/-. No other grounds were pressed.

What were the facts?

This appeal by the assessee, Fahim Rai, for Assessment Year 2015-16, challenges the order of the Commissioner of Income Tax (Appeals) - 6, Hyderabad, dated 09.10.2019, which upheld proceedings under section 143(3) of the Income Tax Act, 1961. The dispute involves disallowance of interest expenses and an addition for credit card payments. The assessee is a medical doctor running a clinic. The lower authorities disallowed interest on loans, treating them as not related to business, and added credit card payments as unexplained expenditure. The assessee contended that some loans were for business purposes and that credit card payments were out of drawings from his capital account.

What were the issues?

1. Whether the disallowance of interest amounting to Rs. 32,55,646/- made under section 69C of the Act, pertaining to loans claimed to be for business purposes, is justified? The assessee argued that a portion of the loans, amounting to Rs. 29,19,139/-, were for business purposes, and the interest thereon should be allowed as a deduction. The revenue contended that the loans were for housing, vehicle, and personal purposes, not for business, and thus the interest was not deductible. 2. Whether the addition of Rs. 1,30,000/- towards credit card payments, made under section 69C of the Act, as unexplained expenditure is justified? The assessee contended that the credit card payments were made from drawings from his capital account. The revenue argued that the drawings were insufficient to cover the credit card payments and other household expenses, making the source of expenditure unexplained.

Which sections of the Income-tax Act were involved?

Section 69C,Section 57,Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, Hyderabad ‘ A‘ Bench, Hyderabad

Before: Shri A. Mohan Alankamony & Shri S.S. Godara

Hearing: 29/11/2021Pronounced: 09/12/2021

O R D E R Per S. S. Godara, J.M. This assessee’s appeal for A.Y 2015-16 arises from the Commissioner of Income Tax (Appeals) – 6, Hyderabad’s order dated 09.10.2019 involving proceedings under section 143(3) of Income Tax Act, 1961 (in short, “the Act”).

Heard both the parties. Case file perused.

1.

Coming to the first issue of interest disallowance 2. amounting to Rs.3,87,013/- made u/s 69C of the Act in both the lower appellate proceedings, we note from a perusal of CIT(A)’s discussion in Para 7.1 to 7.12 that the same had rather been paid from his wife’s bank account only without any nexus qua loans and advances in question. We note in these facts that the learned lower authorities have rightly disallowed the impugned instant in these peculiar facts and circumstances.

Next comes the second issue of interest payment 3. disallowance amounting to Rs.32,55,646/- made in the course of assessment and affirmed in the CIT(A)’s order as under :

(LEFT SPACE INTENTIONALLY)

4.

It is clear form a perusal of the above extract of lower appellate discussion that the impugned interest amount pertains to housing loan, vehicle loan and personal loan only without having any nexus with the assessee’s business / professional activity. Learned counsel vehemently contended before us that the assessee has intended to carry out his professional activity from residential property only. We find no merit in the assessee’s foregoing arguments as both the lower authorities detailed discussion made it clear that the loan account in question had no nexus with the assessee’s business / professional activity u/s 57 of the Act. The impugned disallowance stands confirmed accordingly.

5.

Lastly comes credit card addition of Rs.1,30,000/- u/s 69C of the Act. The CIT(A)’s detailed discussion confirms the same as under :

6.

Learned authorised representative fails to rebut the clinching fact that the assessee had not been able to prove the corresponding cash payment by explaining the source thereof as evident in the lower appellate discussion. We thus find no reason to interfere with the learned CTI(A)’s action affirming the impugned addition.

No other ground has been pressed before us. 7. This assessee’s appeal is dismissed in above terms.

Order pronounced in the Open Court on 9th December, 2021.

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