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Income Tax Appellate Tribunal, “SMC” BENCH MUMBAI
Before: SHRI PAVAN KUMAR GADALE & SHRI RIFAUR RAHMAN
आदेश / ORDER
PER PAVAN KUMAR GADALE - JM:
This appeal is filed by the assessee against the order of the National Faceless Appeal Centre (NFAC)/CIT(A), Delhi passed u/s 250 of the Act. The assessee has raised the following grounds of appeal:
A Grounds of Appeal 1. In the facts and circumstances of the case and in law, the learned A.O. erred in adding Rs. 28,66,798/- as deemed interest received being difference between interest amounts calculated by Appellant and Assessing Officer (37,26,000- 8,59,202). a. Without issuing show cause notice in this regard free b. By overlooking the fact that the Appellant had sufficient interest capital c Without considering the opening balance and repayment during the year from time to time and thereby not calculating interest on a day to day basis d. Earning of income is not the criteria e. The said interest was allowed in AY 2013-14 u/s. 143(3) and thereby not following the principle of consistency.
2. In the facts and circumstances of the case and in law, the learned A.O erred in disallowing deduction of professional fees paid claimed u/s 57 of Rs. 2,000/- by the Appellant.
3. The AO has wrongly levied interest u/s 234A, B, C & D and initiated penalty w/s 271(1)(c).
4. In the facts and circumstances of the case and in law, the learned A.O. erred in confirming both additions by wrongly rejecting submissions of the Appellant..
[B] Relief Praved:
The appellant therefore prays follows, 1. To delete the addition of Rs. 28,66798/- as deemed interest received.
2. To delete the disallowance of deduction u/s 57 as professional fees paid of Rs. 2,000/-.
To delete the interest u/s 234A, B, C &D which is wrongly levied and initiation of penalty u/s 271(1)(c).
[D] General:-
The appellant reserves rights to add alter or delete any portion of this appeal before its conclusion.
This appeal is filed in time and may please be allowed in full.
The brief facts of the case are that, the assessee derives income from salary and income from other sources. The assessee has filed the return of income for the A.Y 2013-14 on 22.07.2013 disclosing a total income of Rs. 18,15,940/-. Subsequently, the case was selected for scrutiny under CASS and notice u/s 143(2) and 142(1) of the Act are issued. In compliance to notice, the Ld.AR of the assessee appeared from time to time and submitted the details. The assessing Officer (AO) on perusal of the financial statements found that the assessee has claimed deduction of interest paid from the interest received under income from other sources u/s 57 of the Act and details were called. The assessee has submitted a letter dated 03.03.2016 explaining that the assessee has obtained personal loan and given loan to Wellmac plastic, partnership firm for bank loan facility and the same partnership firm was converted in to private limited company on 01.04.2010. The assessee received interest from Wellman Plastic Pvt Ltd and pays interest on personal loan.The assessee has taken a overdraft against the bank fixed deposits and provided funds to Wellmac Plastic Pvt ltd. The AO has asked the assessee to explain the nexus between interest received and interest earned.
3.Whereas the AO on perusal of the balance sheet of the Wellmac Plastic Pvt Ltd found that the assessee given a loan to Wellmac Plastic Pvt Ltd on two occasions aggregating to Rs.3,10,50,000/- and assessee has disclosed the interest of Rs. 8,59,202/-. Whereas the assessee has obtained overdraft facility from bank and provided loan to M/s Wellmac Plastic Pvt Ltd and paying interest to parties @ 12%p.a. The AO is of the opinion that interest is deemed to be received @ 12% which worked out to Rs.37,26,000/- and after set of the interest received from Wellmac Plastic Pvt Ltd of RS, 8,59,202/- the remaining balance amount of Rs.28,66,798/- treated as deemed interest received from loan provided to M/s Wellmac Plastics Pvt Ltd and the A.O has also made disallowance of professional fee paid of Rs. 2,000/- and assessed the total income of Rs. 46,84,730/- and passed order u/s 143(3) of the Act dated 28.03.2016.
Aggrieved by the order, the assessee has filed an appeal before the CIT(A). Whereas the CIT(A) considered the grounds of appeal, submissions of the assessee and findings of the AO but has confirmed the action of the AO and dismissed the assessee appeal. Aggrieved by the order of the AO CIT(A) the assessee has filed an appeal before the Hon’ble Tribunal.
5. At the time of hearing the Ld. AR submitted that the CIT(A) erred in sustaining the additions of deemed interest irrespective of the fact that the assessee has not received interest from the company and the loan transaction is between a company and the Director. Further the Ld. AR submitted that the assessee has surplus funds/ own funds, which are utilized for the purpose of loan transactions and relied on the judicial decisions and substantiated the submissions with the factual paper book and prayed for allowing the assessee appeal. Contra, the Ld.DR relied on the order of the CIT(A).
6. We heard the rival submissions and perused the material on record. The Ld.AR submitted that the CIT(A) has erred in confirming the addition of deemed interest overlooking the facts and submissions in the proceedings. Whereas the AO has estimated the deemed interest based on the rate of interest charged on the overdraft facility. The contentions of the Ld. AR that the assessee has filed the return of income disclosing under the income from other sources, interest on savings bank account, interest on FDR and interest from power finance and interest from parties and has claimed deduction of professional fees, interest paid and bank interest and highlighted page 1 of the paper book with the computation of income. Further for the earlier A.Y 2012-13 where the transactions are similar and the assessment was completed u/s 143(3) of the Act referred at page 7 to 10 of the paper book. The contentions of the Ld. AR that the assessee has filed substantial information, evidences in support of claim referred at page 27 of the paper book.
The assessee is a director of the company and for the purpose of loan facility to the company, he has obtained personal loan from the bank on fixed deposits which cannot be disputed. Further the assessee has substantial surplus funds and referred to the financial statements explaining that the assessee has capital account balance of Rs.4,49,85,053/- which is more than the Loan funded by the assessee to the Welmac plastics Pvt Ltd. The Ld.AR relied on the judicial decisions in support of surplus funds availability and the investments/ funding is considered out of surplus funds. The assessee has received interest on loan from the company and same was offered for taxation and claimed the interest payments made to banks & other parties. Therefore, the action of the AO in treating the differential interest based on the overdraft facility rate cannot be basis and only real income has to be taxed and not notional income. Further the loan transactions of the assessee are not doubted and the revenue has accepted the system of accounting in the earlier year A.Y.2012-13 and the assessment order was passed u/sec143(3) of the Act. Accordingly, the action of the AO in making addition of deemed interest is not tenable and we set aside the order of the CIT(A) and allow this ground of appeal
in favour of the assessee. In respect of allow ability of claim of deduction of professional fee paid from the income from other sources, the assessee could not substantiate with the evidences that it was incurred wholly and exclusively for the purpose of earning under income from other sources, Hence we uphold the decision of the CIT(A) on this disputed issue and partly allow the assessee appeal.
8. In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open court on 22.06.2023.