SHRI ALBENDRA SINGH,JAIPUR vs. INCOME TAX OFFICER, WARD-3-5, JAIPUR
What did the Tribunal hold?
The Tribunal noted that for a subsequent assessment year, the AO allowed interest expenditure to the extent of interest income. Following this precedent, the Tribunal allowed the claim of interest expenditure to the extent of interest income earned by the assessee.
What were the facts?
The assessee claimed deduction for interest expenditure incurred on an overdraft facility, stating it was for giving advances to parties from whom interest income was earned. The AO disallowed the deduction as the assessee failed to establish the nexus between the expenditure and income. The CIT(A) confirmed the disallowance.
What were the issues?
Whether interest expenditure incurred on borrowed funds is allowable as a deduction when the funds are used for earning interest income, and if so, to what extent.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, JAIPUR BENCHES ‘SMC’, JAIPUR
Before: Shri Vijay Pal Raovk;dj vihy la-@ITA No. 1260/JP/2018
ORDER
PER VIJAY PAL RAO, JM
This appeal by the assessee is directed against the order dated 30-08-2018 of ld. CIT(A)-1, Jaipur for the Assessment Year 2012-13 wherein the assessee has raised following grounds of appeal. ‘’Under the facts and circumstances of the case, the ld. CIT(A) has legally and factually erred in confirming addition of Rs. 5,04,843/-, kindly delete the same.’’ 2.1 Brief facts of the case are that the assessee is an individual and filed the return of income on 29-05-2013 declaring total income of Rs. 4,89,740/- which and rent of land. In the computation of income, the assessee claimed interest expenditure of Rs. 5,04,843/- paid in respect of Overdraft facility taken from Bank.
The AO in the assessment order passed u/s 143(3) of the Act disallowed the deduction of interest of Rs. 5,04,843/- u/s 57(iii) of the Act on the ground that the assessee failed to establish that the expenditure was incurred for earning interest income.
2.2 The assessee challenged the action of the AO before the ld. CIT(A) and filed fresh confirmation from the parties regarding receipt of interest. The ld. CIT(A) after considering the remand report confirmed the disallowance made by the AO.
2.3 Before the Tribunal, the ld.AR of the assessee contended that in the original confirmation filed before the AO the interest amount charged from each party was not specified and the assessee was not maintaining the books of account. However, before the ld. CIT(A) assessee filed the fresh confirmation letters from the borrowers showing interest amount charged from each party. The ld.AR of the assessee submitted that these confirmation letters were filed as additional evidences before the ld. CIT(A) which were referred to the AO for examination and filing of the remand report. The same cannot be rejected on the ground of non- genuineness. The ld.AR of the assessee further contended that there is no dispute parties to whom advances were given. Once the assessee has earned interest income then corresponding interest expenditure on the borrowed funds is an allowable deduction u/s 57(iii) of the Act. The ld.AR of the assessee further submitted that for the subsequent Assessment Year 2013-14, the AO allowed interest expenditure to the extent of interest expenditure. He has referred to the assessment order for the Assessment Year 2013-14 passed u/s 143(3) as well as order of the ld. CIT(A) and submitted that interest expenditure to the interest income was allowed by the AO. The ld. CIT(A) has confirmed the order of the AO. The assessee challenged the part disallowance of interest.
2.4 On the other hand, the ld. DR relied on the orders of the authorities below and submitted that the assessee has failed to establish the fact that the expenditure was incurred by the assessee for earning interest income so as to claim deduction u/s 57(iii) of the Act.
2.5 I have considered the rival submissions as well as the materials available on record. There is no dispute that in the return of income the assessee has shown entire income as income from other sources which includes interest from saving bank a/c, interest from FDR and interest from parties. The assessee has claimed borrowed funds on which interest paid by the assessee was used for giving advance assessee. It is pertinent to note that an identical issue was also arisen for the Assessment Year 2013-14 and the AO had allowed the claim of interest expenditure to the extent of interest income received from various parties. Thus it appears that interest received by the assessee against these parties for the Assessment Year 2013-14 was accepted by the AO and corresponding interest was also allowed by the AO for which relevant portion of the assessment order at page 2 is reproduced as under:-
‘’2. In the reply dated 10-02-2016, it has also been mentioned by the assessee ‘’that the assessee have taken OD limit of Rs. 60,00,000/- against the residential house of the assessee and not for any business purpose. The above amount has been taken mainly for the investment to loan given, earn rent and earn interest.’’ Whereas looking upon the computation/ITR detail it has been noticed the assessee shown in the head of income from other source as interest from parties as Rs. 5,00,300/- and interest paid on the OD account of SBBJ as Rs. 7,74,287/-. As per the provision of section 57(iii) the excess amount of Rs. 2,73,987/- (7,74,287 – 5,00,300) paid found not justifiable therefore, it is restricted to Rs. 5,00,300/- and the difference amount of Rs. 2,73,987/- is hereby added to his total income for the A.Y. 2013-14.’’ The assessee challenged the said action of the AO restricting the claim of deduction on account of interest expenditure to the interest income. However, the ld. CIT(A) while passing the order dated 19-12-2017 for the Assessment Year
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