Loading judgment…
Facts
The assessee, engaged in manufacturing and export of woolen carpets, claimed interest expenditure of Rs. 3,11,520/-. The AO disallowed this expenditure, holding it was for non-business purposes, and this was upheld by the CIT(A).
Held
The Tribunal held that the interest expenditure claimed in P&L account was for business purposes and that the specific interest expenditure of Rs. 3,11,520/- related to loans for property investments was not debited to the P&L account.
Key Issues
Whether the interest expenditure claimed in the Profit & Loss account is for business purposes and whether the disallowance by the AO and CIT(A) was justified.
Sections Cited
143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “SMC”, DELHI
(A.Y.2016-17) Pankaj Shukla, Kachwa Road Crossing, Thatra, Uttar Pradesh 221301 ...... अपीलाथ�/Appellant PAN: AQKPS-0678-Q बनाम Vs. Income Tax Officer, Ward-3, Shankar Chowk Road, Phase V, Udyog Vihar, ..... �ितवादी/Respondent Sector-19, Gurugram, Haryana 122016 अपीलाथ� �ारा/ Appellant by : Shri Navin C. Agrawal, Chartered Accountant �ितवादी�ारा/Respondent by : Shri Om Prakash, Sr. DR सुनवाई क� ितिथ/ Date of hearing : 07/03/2025 घोषणा क� ितिथ/ Date of pronouncement : : 06/06/2025 आदेश/ORDER
PER VIKAS AWASTHY, JM:
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeal)-2, Gurgaon (hereinafter referred to as 'the CIT(A)') dated 30.10.2019, for assessment year 2016-17.
Shri Navin C. Agrawal, appearing on behalf of the assessee submits that the solitary issue raised by the assessee in appeal is with regard to disallowance of interest expenditure Rs.3,11,520/-. 2.1. Narrating facts of the case, he submitted that the assessee is engaged in the business of manufacturing, trading and export of woolen carpets. The assessee (AY 2016-17) enjoys credit limit from the bank and paid interest on credit against the limits. During the period relevant to assessment year under appeal, the assessee made investments for acquiring following properties:- (i) Payment for purchase of flat to Lilac Infracon P. Ltd.; & (ii) Payment of advance for booking flat with Panorma. The ld. Counsel submitted that, as regards payment to Lilac Infracon Pvt. Ltd. Home Loan Rs. 1,14,51,369.40 was obtained by the assessee from ICICI Bank and payment of Rs. 83,65,852,00 was made out of the ICICI Loan Account. Interest accrued on Home Loan amounting to Rs.85,517.40 was also debited to party account. Thus, the interest on Home Loan account was not debited to Interest Account claimed in Profit and Loss Account. Besides Rs. 30,00,000.00 were paid out of own funds. With respect to payment to Panorama, Mumbai he stated that Rs. 27,36,000.00 was paid as booking advance for a flat at Mumbai. Money was paid out of own fund. 2.2. The AO has erred in holding held that interest expenditure of Rs.3,11,520/- debited to P&L account is not allowable expenditure as the investments are for non business purposes. Aggrieved by the assessment order dated 21.11.2018 passed u/s. 143(3) of the Income Tax Act, 1961(hereinafter referred to as ‘the Act’), the assessee filed appeal before the CIT(A). The CIT(A) without appreciating facts of the case confirmed the disallowance. He contended that the assessee had paid Rs.27,36,00,000/- as booking advance for Panorma flat at Mumbai. The money was paid through Bank of Baroda out of own funds. Likewise, investment in Lilac Infracon P. Ltd. Rs.1,14,51,369.40/- was made from the following sources:-
(AY 2016-17) (i) Own funds from Bank of Baroda 30,00,0000.00 (ii) Housing loan from ICICI Bank 83,65,852.00 (iii) Interest charged by ICICI Bank on the loan 85,517.40____ 1,14,51,369.40 The interest on above housing loan has not been charged to P&L account. This fact was repeatedly brought to the notice of AO during assessment proceedings on 01.03.2018, 16.07.2018 and 12.10.2018. However, the AO erred in disallowing interest expenditure on the premise that the assessee has debited interest expenditure in respect of above mentioned properties in the P&L account. The bank interest charged to P&L account Rs.1,04,33,985.96/- is with respect to credit facilities utilized wholly and exclusively for the business purposes. He referred to Schedule ‘O’ of Bank Interest and Charges reflected at page 17 of the paper book and the Ledger Account at page 18 of the paper book. Both the authorities below have failed to record the facts correctly. He thus prayed for deleting disallowance made on account of interest expenditure.
Shri Om Prakash, representing the department vehemently defended the impugned order and prayed for dismissing appeal of the assessee. The ld. DR submits that the interest expenditure disallowed by the AO and confirmed by the CIT(A) is unrelated to the business of the assessee, hence, the same was disallowed.
Both sides heard, orders of the authorities below examined. The short issue for consideration before the Tribunal is with regard to disallowance of expenditure Rs.3,11,520/-. The AO has disallowed aforesaid interest expenditure holding that the assessee has diverted funds for non business purposes.
(AY 2016-17) 5. The stand of assessee is that the interest expenditure claimed in P&L account is exclusively for the purpose of business. In so far as interest expenditure towards investment in Panorama and Lilac Infracon P. Ltd. the same are not debited to P&L account. In support of his submissions the assessee has also referred to bank interest ledger account at page 18 to 20 of the paper book. A perusal of ledger account reveals that the interest expenditure of Rs.1,04,33,985/- as claimed in the P&L account is also reflected in the ledger account. The interest expenditure reflected in the ledger is in respect of three accounts as under:- Bank of Baroda CC A/c No. 26300500000022 = Rs.1,03,50,166/- Bank of Baroda A/c No. 43600600000011 = Rs.51,983/- Bank of Baroda A/c No. 26300600001024 = __Rs.35,569/- Rs.1,04,37,718/- Whereas, the assessee has taken Home Loan for purchase of flats at Panorama and Lilac Infracon P. Ltd. from ICICI Bank Ltd.
It is not emanating from the accounts furnished by the assessee that the interest expenditure claimed in P&L account includes interest paid to ICICI Bank Ltd. I find merit in the submissions of the assessee, hence, disallowance of interest expenditure Rs.3,11,520/- is deleted.