HEMAL PUNAMCHAND TURAKHIA,,AHMEDABAD vs. THE ACIT, CENTRAL CIRCLE 1(1),, AHMEDABAD

This appeal by the Assessee is directed against the order of learned Commissioner of Income tax (Appeals)-7, Ahmedabad (in short “the CIT (A)”) dated 07.11.2017 for the Assessment Year 2014-15 2. Ground no. 1 to 3 are against the confirmation of disallowance of interest of Rs.1,61,525 by the Ld. CIT (A). 3. Succinctly, facts as culled out from the orders of lower authorities are that the assessee has incurred interest expenses of Rs. 25, 37,219. On verification of utilization of funds, the AO noted that the assessee has utilized Rs. 14 lakhs towards purchase of immovable property. Therefore, the AO disallowed Hemal P Turakhia v. ACIT-CC-1(1) Ahmedabad /I.T.A.No. 2819/AHD/2017/A.Y. 14-15 2 proportionate interest expenditure of Rs.1, 61,525 on the ground that the assessee has utilized borrowed funds towards purchase of property.

Being, aggrieved the assessee filed an appeal before the ld. CIT (A).

Being, aggrieved the assessee filed this appeal before the Tribunal. The learned counsel for the assessee submitted that the assessee has received total interest free loans/advances of Rs.1,14,91,000 from Shri Chetan Turakhia (brother of the assessee) and out of said funds Rs.14 Lakh were invested in immovable property. In support of this contention, the assessee has filed a chart appearing at Paper Book Page No. 26 demonstrating the utilization of funds. The learned counsel for the assessee referred Paper Book Page No. 31 being an interest account to contend that no interest was given to Shri Chetan Turakhia. The assessee has made investment of Rs. 14 lakhs out of these interest free advances hence, no disallowance under section 36(1)(iii) are called for. The learned counsel for the assessee further submitted that the observation of the AO is not correct on the facts of the case as the assessee has substantial interest-free funds of Rs.23,34,418 (PB-19) being capital as against the investment made in house property at Rs. 14 Lakhs. Therefore, there was no question of diversion of interest bearing funds by the assessee. Thus, the disallowance as made by the AO are not correct. The learned counsel for the assessee has also placed reliance on the judgement of Hon`ble Supreme Court in the case of CIT v. Reliance Industries Ltd. Hemal P Turakhia v. ACIT-CC-1(1) Ahmedabad /I.T.A.No. 2819/AHD/2017/A.Y. 14-15 3 [2019] 102 taxmann.com 52 (SC) wherein it was held that where the Assessing Officer rejected assessee`s claim under section 36(1)(iii) taking a view that interest would not have been payable to banks if funds were not provided to subsidiaries, in view of the fact that interest-free funds were available to assessee which sufficient to meet its investment in subsidiaries, appellate authorities were justified in allowing assessee`s claim for deduction.