M/S ARENA ENTERPRISES,MUMBAI vs. ITO, WARD, 41(4)(1), MUMBAI

PER OM PRAKASH KANT, AM

These two appeals by the assessee are directed against two separate orders dated 23.10.2024 and 15.10.2024 both passed by the Ld. Commissioner of Income-tax (Appeals), National Faceless
Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year
2017-18, in relation to quantum assessment proceedings and penalty proceedings respectively. As both the appeals being interlinked with same were heard together and disposed off by way of this consolidated order for the sake of convenience.

up the appeal in ITA No. 36
f the case are that the assessee ar under consideration on 30.10
07,756/-. The return was selec s 143(3) of the Income-tax Act, leted on 30.12.2019 determinin ubsequently, the Principal Co ai-17 vide order u/s 263 of the assessment order passed u
9 with a direction to carry out v ses claimed out of income from st at higher rates to persons and pass the denovo assessment challenged the order passed u/
e ITAT vide order dated 01.12.2
ough allowed the appeal of the lity of the expenses claimed out ever, upheld the order u/s 263
nterest at higher rates to perso t. In compliance of the directi sessing Officer commenced t plying to the direction of the P
M/s Arena Enterprises
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621/Mum/2024. e filed its return
0.2017 declaring cted for scrutiny
1961 (in short ng total loss at ommissioner of the Act dated u/s 143(3) of the verification of (i) house property, s specified u/s t order after due
/s 263 of the Act
2022 in ITA No.
assessee on the t of income from on the issue of on specified u/s ion of the ITAT the assessment
PCIT passed u/s 2.2 The Assessing O the business of dev commercial building the building were so been given on rent o under consideration, receipt, company ar from house property’
Assessing Officer fu income and expense loan of immovable pr was shown at Rs
Rs.12,03,52,935/- on house property of w during the year w
Rs.2,90,87,072/- on taken from related p
Assessing Officer not following related part
Sr.
No.
Name of 1
Samkit
2
Mulchan
3
Parag J
ITA Nos.

Officer accordingly noticed that velopment of the property an namely Arena Space parts. Part old in earlier year and unsold s or lose out to various parties. D the assessee had shown incom ea maintenance etc. under th
’ and ‘income from business or urther noticed that assessee c es, he noticed that assessee av roperty and outstanding loan as .1,20,14,31,950/- and interes n the aforesaid loan was treate which the assessee has earned whereas, the remaining int the unsecured loan, major por party was not related to hous ted that assessee had taken in ty:
f the party.
Amount of interest paid.
Rate of paid.
Enterprise.
73,01,656/-
18%
nd S. Chheda, HUF
40,93,406
18%
J. Chheda
39,88,373/-
18%
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assessee was in nd constructs a ts of the units of stock units had During the year me by way of rent he head ‘income profession’. The claimed interest vailed including s on 31.03.2017
st payment of ed as relating to d rental income terest payment rtion which was e property. The nterest from the of interest

4
Ayushi

5
Nathala
6
Parishm
7
Vrajbala

Total
2.3 Though initially proportionate interes parties should be submission of the a taken as loan of 15%
rate of the 15% as b payment @ 3% to th the Act which was finding the Assessing
“6. The above and found tha the assessee in its case b under the he assessee has interest expen its utilization secured loan
Rs. 12,03,52, property, on year. Wherea on the unsecu but related computation o the head 'Inc from House P
ITA Nos.

K Dudhagara
49,250/-
18%
al S. Dudhagara
1,82,500/-
18%
ma K Dudhagara
** ^1,82,500/- 18%
a N. Dudhagara
3,10,250/-
18%
1,61,07,935/- y the Assessing Officer propos st in excess of the 12% paid disallowed however after c assessee that loans from outsid
% per annum, the Assessing Off benchmark and disallowed the he related parties invoking sect determined at Rs.26,84,056/
g Officer is reproduced as under e submissions of the assessee are carefu at they do not stand any merit. The main is that the provisions of section 40A(2)(b) because they made the claim of Interes ead "Income from House Property". Fi s failed to segregate and claim the nses in different heads of income in acc n. As mentioned supra, the assessee on the immovable property and the intere
935/- made on the aforesaid loan relates which the assessee earned rental incom as the remaining interest payment of Rs.2
ured loan taken, is not related to the ho to 'Income from Business or Profes of total income, the assessee has shown come from Business or Profession' as w
Property', But instead of claiming proporti
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sed as why the d to the related considering the de parties were ficer applied the excess interest tion 40A(2)(b) of -. The relevant
:
ully considered n contention of ) cannot apply st expenditure rst of all the proportionate cordance with has availed est payment of s to the house me during the 2,19,87,072/- ouse property, ssion'. In the income under ell as 'Income ionate interest expenses und claimed the e
House Proper section 40A(2
interest paym exclusively us
6.1. Another m taken from ou be the bench relied upon th noticed that t from the case
6.2. 6.2. On p interest paym parties from assessee has 34 cases. In t
18% were m interest @ 18
mentioned ab
15% on majo excess of 1
Rs.26,84,656
total interest of the assesse initiated for u
3. On further appe mainly observing th evidence in support construction work h
The relevant finding o
“5.3
It is Rs.26,84,656
@15% was proportionate which worked back to the to Assessing Of 40A(2)(b) pres
ITA Nos.

der the different heads of income, the entire interest expenses under the head rty', which is not allowable. As such,
2)(b) of the Act are clearly applicable ment of Rs.2,19,87,072/- as the same i sed for the purpose of business expenditu main objection of the assessee is that loa utsiders @ 15% p.a. and therefore the 12
mark for making any addition. The asse he decision of Hon'ble ITAT in some of th the facts and circumstances of those case of the assessee and hence not applicable perusal of the list of unsecured loan pa ment made to them, it is noticed that o whom the assessee has taken uns s paid interest @ 15% to majority of such the remaining cases interest payment @
made. It is also noticed that the asses
8% mostly on the loan taken from relate bove. Since the assessee has made intere ority of the unsecured loan, proportiona
5% paid to the related parties, whi
6/- is disallowed u/s. 40A(2)(b) of the I expenses claimed and added back to its ee. Penalty proceeding u/s. 270A of the I under reporting of income.”
eal, the Ld. CIT(A) also upheld t hat assessee did not file an of its claim that loans were ta ence, same were claimed u/s of the Ld. CIT(A) is reproduced a noticed that the Assessing
Office
6/- u/s 40A(2)(b) of the Act since the inte made on majority of the unsecure interest in excess of 15% paid to the r d out of the total interest expenses claime otal income. It was contended by the app
Officer made proportionate disallowan suming that loans taken from related part
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assessee has d 'Income from provisions of in respect of is wholly and ure.
ans have been 2% p.a. cannot essee has also he cases. It is e are different e in this case.
arties and the ut of total 55
secured loan, h parties i.e. in 12%, 17.4% &
see has paid ed parties, as est payment @
ate interest in ich comes to I.T. Act out of s total income
I.T. Act is also the disallowance ny documentary aken utilized for 24B of the Act.
as under:
r disallowed erest payment ed loans, as related parties ed and added ellant that the ce @3% u/s ties have been allocated to loans taken activity and h stating that th appellant di substantiate i any claim tha and in the contention of case in the ca that of the ap the Assessing being 3% exce attributed to appeal are d
4. We have heard the relevant material was asked to provid taken during the yea respect of related as was provided on beh assessee questioned
Assessing Officer as Ld. counsel for the interest @ 18%. How us in support of thi from the internal c market value of the interest of the subst this matter back to th assessee to provide
ITA Nos.

business income. The appellant submi from related parties were utilized in hence claimed u/s 24(b) of the Act. Exce he loans taken were utilized for construc id not produce any documentary its claim. The onus lies on the appellant to at the finding of the Assessing Officer w absence of sufficient documentary e the appellant is not acceptable. Moreove ase laws relied upon by the appellant a ppellant. In view of the same, I confirm th g Officer at Rs.26,84,656/- u/s 40A(2)( essive interest on loans taken from relate business income. Accordingly, these dismissed.”
rival submissions of the parti ls on record. The Ld. counsel f de complete details of opening ar return during the year and clo well as unrelated parties. But half of the assessee. The Ld.
d the rate of the 15% cons paid to the unrelated parties. A assessee, the related parties wever, no such evidence have b is claim also. Since this matte omparables of the assessee a e interest rate payment and th tantial justice, we feel it approp he file of the Ld. CIT(A) with the all necessary documentary evid
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itted that the n construction ept for merely ction work, the evidence to o substantiate was erroneous evidence, the er, facts of the are different to he addition by (b) of the Act, ed parties and e grounds of ies and perused for the assessee g balance loans osing balance in no such details counsel for the sidered by the According to the were also paid been filed before er of verification as to what fair herefore, in the priate to restore direction to the dence justifying the fair market valu loans availed from in compared to the loan appeal of the asse purposes.
5. The appeal of t respect of penalty lev we have already rest of the Assessing Offi this penalty proceedi
Officer for considerat
6. In the result, bo statistical purposes.
Order pronoun (RAJ KUMAR C
JUDICIAL M
Mumbai;
Dated: 26/09/2025
Rahul Sharma, Sr. P.S.
ITA Nos.

ue of the interest rate applicab ndividual parties. In identical ci ns obtained from the relatives.
essee are accordingly allowed he assessee in ITA No. 6322/M vied in respect of quantum pro tored the quantum proceedings icer, therefore, we feel it approp ings again also back to the file o tion afresh.
oth the appeals of the assessee ced in the open Court on 26/0
/-
CHAUHAN)
(OM PRAK
MEMBER
ACCOUNTA

M/s Arena Enterprises
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ble in respect of ircumstances as The grounds of d for statistical
Mum/2024 is in oceedings. Since back to the file priate to restore of the Assessing e are allowed for 09/2025. KASH KANT)
ANT MEMBER

Copy of the Order forward
1. The Appellant
2. The Respondent.
3. CIT
4. DR, ITAT, Mumbai
5. Guard file.

////

ITA Nos.

ded to :

BY ORDER

(Assistant Re

ITAT, Mu

M/s Arena Enterprises
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R, gistrar) umbai