BAL KISHORE KHANNA,NEW DELHI vs. ACIT CIRCLE-51(1), NEW DELHI

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ITA 8747/DEL/2019Status: DisposedITAT Delhi13 December 2022AY 2016-173 pages

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

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that since the source of the loan amounts was proved and accepted as gifts from the assessee, and the interest paid was taxable in the hands of the recipients, there was no reason to disallow the interest in the hands of the assessee.

What were the facts?

The assessee took loans from his granddaughters, who had received the funds as gifts from him. The Assessing Officer disallowed the interest paid on these loans, treating it as a re-characterization of the assessee's own capital.

What were the issues?

Whether interest paid on loans received from granddaughters, where the loan amount originated from the assessee as a gift, is disallowable.

Which sections of the Income-tax Act were involved?

Section 68

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH ‘A’, NEW DELHI

Before: Dr. B. R. R. KumarSh. Yogesh Kumar US

Hearing: 18.10.2022Pronounced: 16.12.2022

ORDER

Per Dr. B. R. R. Kumar, Accountant Member:

1.

The present appeal has been filed by the assessee against the order of the ld. CIT(A)-42, New Delhi dated 16.08.2019.

2.

The assessee has raised the following grounds of appeal

1. The action of the Ld. CIT(A) in upholding the action of the Ld. AO in disallowing interest paid to Chaitanya Khanna and Surbhi Khanna of Rs.2,58,027/- each totaling Rs.5,16,054/- on loan of Rs.25.00 lakhs each is illegal, arbitrary, unwarranted, uncalled for and against the facts and circumstances of the case.

2. The action of the Ld. CIT(A) in upholding the action of the Ld. AO in ignoring the past history of the case and making disallowance of interest of Rs.5,16,054/- is illegal, arbitrary, unwarranted, uncalled for and against the facts and circumstances of the case.

3. The action of the Ld. CIT(A) in upholding the action of the Ld. AO in disallowing interest paid of Rs.5,16,054/- to two granddaughters, namely, Surbhi Khanna and Chaitanaya Khanna after accepting the loan taken from them as genuine, is illegal, arbitrary, unwarranted, uncalled for and against the facts and circumstances of the case.”

3.

Sh. Bal Kishore Khanna, Proprietor of M/s Bal Kishore Khanna Jewellers, New Delhi is regular income tax assessee for the last 40 years. The AO noticed that two loans of Rs.27,14,830/- each were taken by the assessee from Ms. Chaitanya Khanna and Ms. Surbhi Khanna on 31.08.2015.

4.

The assessee explained to the AO that the aforesaid loan was out of the gift amount of Rs.50 lacs received by them from their grandfather i.e. the assessee Sh. Bal Kishore Khanna.

5.

The AO made addition of Rs.50 lacs as well as disallowed the interest paid on the amount of Rs.50 lacs received as loan. The ld. CIT(A) on verification held that the amount of Rs.50 lacs has been transferred from the proprietary concern of Sh. Bal Kishore Khanna named M/s Bal Kishore Khanna Jewellers. Thus, since the source of Rs.50 lacs received as loan has been proved, the same has been deleted. However, the ld. CIT(A) held that it is re- characterization of own capital in guise of unsecured loans and hence the interest paid is disallowable.

6.

We find that Sh. Bal Kishore Khanna gifted the amounts from his disclosed sources to the grand-daughters namely Ms. Chaitanya Khanna and Ms. Surbhi Khanna which is an accepted fact by the revenue. It is also an accepted fact that the grand-daughters Ms. Chaitanya Khanna and Ms. Surbhi Khanna have lend their amounts on interest to Sh. Bal Kishore Khanna who paid interest to the lenders and claimed the same in his P&L account. The interest is taxable in the hands of the recipients and debitable (DR) in the hands of the payer. Hence, we find no reason to disallow the same in the hands of the assessee. The appeal of the assessee on this issue is allowed.

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