ISHWAR CHAND,HISAR vs. ITO WARD - 2, HISAR

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ITA 1074/DEL/2020Status: DisposedITAT Delhi23 June 2022AY 2016-174 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The tribunal deleted the disallowance on interest paid on earning interest income, finding no nexus between the income and expenditure. The disallowance on interest paid to the firm was restored to the AO for verification of the assessee's contention of a running account.

What were the facts?

The assessee claimed interest expenses exceeding interest income and also claimed interest paid to a partnership firm in which he was a partner. The Assessing Officer disallowed both claims.

What were the issues?

Whether interest expenditure exceeding interest income is allowable without a nexus, and whether interest paid to a partner's firm is deductible when there's a positive balance in the firm's account.

Which sections of the Income-tax Act were involved?

Section 57,Section 56

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH, ‘SMC’: NEW DELHI

Hearing: 23.06.2022Pronounced: 23.06.2022

ORDER This present appeal has been preferred by the assessee against the order dated 28.01.2020 of the Ld. Commissioner of Income Tax (Appeals)

Hisar, [hereinafter referred to as CIT(A)] pertaining to AY 2016-17.

2. The assessee in this appeal has taken following grounds of appeal:-

“On the facts and circumstances of the case and in law the Ld.CIT(A) confirming the following additions made to the returned income by the Assessing Officer,

1.

Rs.4,48,183/- on account of interest paid on earning interest income claimed u/s 57 of the Act.

2.

Rs.5,48,100/- on account of interest paid to M/s Shivam Industries, a partnership firm in which the assessee was a partner.”

3.

Vide ground no.1, the assessee has agitated the disallowance towards interest paid of Rs.4,48,183/- claimed by the assessee u/s 57 of the Act.

4.

The brief facts of the case are that during the course of assessment proceedings, the Assessing Officer ( in short ‘the AO’) noticed that the assessee had shown interest income u/s 56 of the I.T. Act at Rs.30,70,974/- from various parties, whereas, the assessee had paid interest to various parties totaling Rs.32,59,373/-. The AO further noted that the assessee had shown interest income at a fixed rate of interest at 12%, whereas interest expenses have been claimed at various rates ranging from 6% to 12%.

5.

On being asked to explain, the assessee explained that the loan received by the assessee upon which the interest expenditure was paid did not pertain to the year under consideration. These were past loans and that the amounts advanced as loan by the assessee to various parties did not have any nexus with the interest expenditure.

There is no finding by the AO that the interest expenditure incurred by the assessee had any nexus with the interest income earned by the assessee.

Merely because the interest expenditure of the assessee during the year is more than the interest income received, that in my view cannot be a reason to disallowance of excess of the interest expenditure over the interest income, especially, when there is no nexus between the aforesaid income and expenditure. In view of this, I do not find any justification on the part of the AO on making the impugned disallowance and the same is ordered to be deleted.

6.

Vide ground no.2, the assessee has agitated the disallowance of Rs.5,48,100/- on account of interest paid to his firm M/s Shivam Industries, in which the assessee is a partner.

7.

After analyzing the accounts of the assessee, the AO observed that at the end of the year, there was a positive balance towards the firm. Under these circumstances, he held that since in this case there was no loan outstanding of the firm towards the assessee, therefore, the interest expenditure was not genuine and he accordingly disallowed the same.

8.

The Ld. CIT(A) confirmed the disallowance so made by the AO.

9.

The ld. counsel for the assessee has invited my attention to the impugned order of the Ld. CIT(A) to submit that the submissions were made before the Ld. CIT(A) that there was a running account of the assessee with his firm. Sometimes the loan was taken from the firm and the other time the amount of the assessee exceeded towards the firm and in this way the assessee received interest from the firm from time to time and also paid the interest to the firm from time to time as per the amount received or amount paid. However, none of the lower authorities has examined this aspect. In view of this, this issue is restored to the file of the AO for verification of the contention of the assessee and to pass a fresh order on this issue after giving opportunity to the assessee.

10.

In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on 23.06.2022.

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