HUZEFA HUSAIN,NAGPUR vs. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1(2) - NAGPUR, NAGPUR

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ITA 674/NAG/2025Status: DisposedITAT Nagpur07 September 2026AY 2020-217 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the payment was an advance against salary, not a loan, thus not taxable as deemed dividend. It also ruled that late filing fees for GST are statutory payments and deductible, and that interest expenses were for business purposes and not for personal withdrawals.

What were the facts?

The assessee appealed against assessment orders concerning deemed dividend, disallowance of CGST/SGST expenses, and disallowance of interest expenses. The additions were made under sections 147 and 143(3) of the Income Tax Act.

What were the issues?

Whether payments to a director are deemed dividends, whether late GST filing fees are deductible, and whether interest expenses are for business purposes.

Which sections of the Income-tax Act were involved?

Section 2(22)(e),Section 37(1),Section 36(1)(iii),Section 147,Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, NAGPUR SMC BENCH, NAGPUR

Before: SHRI MANISH BORAD

For Appellant: Shri K.P. Dewani, Advocate
For Respondent: Ms. Jaya Lakhwani, Sr.DR
Hearing: 06/08/2026Pronounced: 07/09/2026

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR "SMC" BENCH, NAGPUR BEFORE SHRI MANISH BORAD, ACCOUNTANT MEMBER (Through virtual)

ITA Nos. 674 to 676/NAG/2025 (Asst. Year : 2020-21, 2021-22 & 2023-24) Huzefa Husain, DCIT, Central Circle-1(2), 4, Sial Layout, Nelson vs Nagpur Square, Nagpur-440013 Maharashtra PAN : ABFPH 1012 B Assessee Revenue

Assessee by : Shri K.P. Dewani, Advocate Department by : Ms. Jaya Lakhwani, Sr.DR Date of hearing : 06/08/2026 Date of Pronouncement : 07/09/2026 O R D E R These appeals by the assessee are directed against the separate orders of Ld. Commissioner of Income Tax (Appeals)-3, Nagpur (for short, “CIT(A)”) all dated 15.09.2025 passed u/sec. 250 of the Income Tax Act, 1961 (for short, “Act”) which are arising out of separate assessment orders all dated 30.12.2024 passed u/sec. 147, 147 & 143(3) of the Act by the ACIT, Central Circle-1(2), Nagpur for the Assessment Years (A.Y.) 2020-21, 2021-22 & 2023-24 respectively.

2.

First, I will take up ITA No. 674/NAG/2025. The assessee has raised two issues in the grounds of appeal, namely, (i) addition of Rs.4,10,000/- u/sec. 2(22)(e) of the Act on account of deemed dividend, and (ii) disallowance of Rs. 36,300/- under the head ‘CGST & SGST’. So far as legal issues raised in the grounds of appeal are concerned, the same have not been pressed by the learned counsel for the assessee therefore, dismissed as not pressed.

2 ITA Nos. 674 - 676/PUN/2025 (Huzefa Husain) 3. I have heard the rival submissions and perused the material placed before me. As regards ground No.1, challenging the addition for deemed dividend u/sec. 2(22)(e) of the Act of Rs. 4,10,000/-, on perusal of the records, I observe that assessee is Director in M/s. Univenture Industries Pvt. Ltd. drawing remuneration of Rs. 6,06,753/- during the year, which is duly disclosed in the income tax return. The assessee also runs sole proprietary concern, namely, M/s. Univenture Corporation which is having regular business transactions with M/s. Univenture Industries Pvt. Ltd. The alleged sum of Rs.4,10,000/- is actually payment made by M/s. Univenture Industries Pvt. Ltd. to the assessee towards advance against salary/remuneration and it is not in the nature of loan transaction. Further, from perusal of paper book at page No.7 showing the ledger account between the assessee-sole proprietary concern M/s. Univenture Corporation and M/s. Univenture Industries Pvt. Ltd. I notice that, if the alleged sum of Rs.4,10,000/- received by the assessee towards salary advance is excluded, during the relevant year, the assessee had a debit balance representing an advance given by the assessee to M/s. Univenture Industries Pvt. Ltd. These facts remain uncontroverted by the Ld.DR and therefore I am of the considered view that no addition deserves to be made for deemed dividend u/sec. 2(22)(e) of the Act. Finding of Ld.CIT(A) is reversed and the impugned addition made u/sec. 2(22)(e) of the Act at Rs. 4,10,000/- is deleted. Ground Nos. 1 & 2 raised by the assessee are allowed.

4.

Ground No.3 is against the disallowance of expenditure at Rs. 36,300/- made by the Ld. AO treating the expenses shown under the head CGST & SGST as penal in nature. I have gone through the records and find that the alleged sum is not in the nature of any penalty, but fee/charges for late filing of return and such type of late filing charges are in the nature of

3 ITA Nos. 674 - 676/PUN/2025 (Huzefa Husain) statutory payments required to be paid under the provisions of Goods & Service Tax. I note that the coordinate Bench of Ahmedabad Tribunal in the case of DCIT vs. Mahalaxmi Infracontract Ltd. [2025] 173 taxmann.com 399 (Ahd. – Trib.) placing reliance on the judgment of Hon'ble Rajasthan High Court in the case of Rajasthan Central Stores (P.) Ltd. vs. CIT [1985] 156 ITR 90 as well as that of Hon'ble Allahabad High Court in the case of Triveni Engineering Works Ltd. vs. CIT [1983] 144 ITR 732 (Allahabad) has held that interest for late payment of CGST & SGST and late filing fee are not towards violation of any law and hence is liable to be allowed as deduction u/sec. 37(1) of the Act.

5.

In view of the above, I am of the considered view that the alleged sum of Rs. 36,300/- paid towards late filing fee is not in the nature of penalty for violation of any law as referred in Explanation (1) of section 37 of the Act and therefore, is an allowable expenditure. Alleged disallowance of Rs. 36,300/- is hereby deleted. Other grounds of appeal are general and consequential in nature, for which needs no adjudication.

6.

In the result, appeal of the assessee is partly allowed.

7.

Now I take up ITA No.675/NAG/2025. Sole issue is against the disallowance of interest u/sec. 36(1)(iii) of the Act at Rs. 8,44,165/-.

8.

I have heard the rival submissions and perused the material placed before me. I note that during the financial year 2020-21, assessee claimed expenses under the head ‘financial charges’ at Rs. 10,52,831/- which includes the interest paid to bank at Rs. 8,21,765/- and interest paid on unsecured loan at Rs. 22,400/-. Ld. AO observed that assessee has positive capital balance as on 01.04.2020 at Rs. 44,59,577/-, but at the end of the year, the capital went into negative at Rs. 7,69,867/-

4 ITA Nos. 674 - 676/PUN/2025 (Huzefa Husain) showing that the assessee has withdrawn the capital from the business. Ld.AO also observed that there were loans and advances given as on 31.03.2021 at Rs. 1,81,22,966/- on which no interest income has been received. Ld. AO alleged that the interest bearing funds have been utilized for non-business purpose and for personal withdrawal and accordingly disallowed interest expenses at Rs. 8,44,165/-. Assessee failed to get any relief in appeal from the Ld.CIT(A). Now assessee is in appeal before this Tribunal.

9.

Learned counsel for the assessee vehemently argued referring to the written submissions filed before the Ld.CIT(A) as well as paper book furnished before this Tribunal running into 47 pages.

10.

On the other hand, Ld.DR supported the order of Ld.CIT(A).

11.

I note that the assessee’s books of account are duly audited and as per balance sheet placed at page No. 28, I notice that assessee has taken secured loan from Yes Bank having outstanding amount of Rs. 91,47,638/- as well as secured loan from Dailmer Financial Services India Pvt. Ltd. at Rs.1,12,787/- Assessee also taken unsecured loans. The interest expenditure claimed during the year is mainly on account of bank interest amounting to Rs.8,21,765/-, which has been undisputedly paid on the secured loan availed from Yes Bank for the purposes of acquisition of business assets and meeting working capital requirements. There is a clear nexus between the said bank interest expenditure and the secured loans availed by the assessee, which constitute a major portion of the total interest expenditure claimed during the year. Further, there is no nexus of the borrowed money not being utilized for non-business purposes. Ld. AO, on one hand, considered the interest free

5 ITA Nos. 674 - 676/PUN/2025 (Huzefa Husain) advance, but failed to consider that there are interest free funds in the shape sundry creditors amounting to Rs. 1.18 Cr.

12.

Under these given facts and circumstances, I find that the bank interest paid by the assessee on the secured loan of the Yes bank/overdraft account is purely business expenditure and even during the A.Y. 2020-21, in the assessment framed under 143(3) of the Act, no such disallowance of interest has been made. I therefore, fail to find any justification in the impugned addition/disallowance made by the Ld. AO. Finding of Ld.CIT(A) is set aside and the addition of Rs.8,44,165/- made u/sec. 36(1)(iii) stands deleted. Effective grounds of appeal raised by the assessee are allowed. So far as legal issues raised in ground Nos. 1 & 2, since learned counsel for the assessee has not pressed, the same are dismissed as not pressed. Other grounds are general and consequential in nature, needs no adjudication. 13. In the result, appeal of the assessee is partly allowed.

14.

Now I take up ITA No.676/NAG/2025. The only issue for my consideration is disallowance of interest at Rs. 7,46,325/- claimed u/sec. u/sec. 36 (1)(iii) of the Act.

15.

I have heard rival submissions and perused the material placed before me. Both the parties have confirmed the issue raised in this appeal is similar to the one raised in ITA No. 675/NAG/2025 for A.Y. 2021-22. Since the very same issue has already been examined by me in the preceding paragraph while adjudicating ITA No. 675/NAG/2025, wherein it has been held that the interest expenditure was incurred towards payment of interest to the bank as well as on unsecured loans, and there being no nexus to establish that the borrowed funds were utilised for non-business purposes, no disallowance on account of interest is warranted. Further, while the assessee

6 ITA Nos. 674 - 676/PUN/2025 (Huzefa Husain) has not charged any interest on the loans and advances aggregating to Rs. 1.38 crore, the Ld. AO failed to appreciate that the assessee had interest-free funds of Rs. 1.50 crore available with it. This clearly indicates that the interest-free funds were sufficient to cover the loans and advances, and, therefore, no notional disallowance of interest is called for. Further, I notice that the bank interest paid to IDFC bank is in respect of loan outstanding at Rs. 1,25,63,418/-, during the A.Y. 2020-21 also no such disallowance has been made in the assessment framed u/sec. 143(3) of the Act.

16.

In view of the above and taking consistent view as in ITA No. 675/NAG/2025, I hereby set aside the finding of Ld.CIT(A) and delete the impugned disallowance made u/sec. 36 (1)(iii) of the Act at Rs. 7,46,325/- and allow the grounds of appeal Nos. 1 & 2. Other grounds are general and consequential in nature, needs no adjudication.

17.

In the result, appeal of the assessee is allowed.

18.

To sum up, ITA Nos. 674 & 675/NAG/2025 are partly allowed and that of ITA No. 676/NAG/2025 is allowed.

Order pronounced on 07th September, 2026 under Rule 34(5) of the Income Tax (Appellate Tribunal) Rules, 1963

Sd/- (MANISH BORAD) ACCOUNTANT MEMBER Pune & Dated : 07th Sept., 2026 vr/-

7 ITA Nos. 674 - 676/PUN/2025 (Huzefa Husain) Copy of the Order forwarded to: 1. Assessee 2. Revenue 3. PCIT concerned. 4. DR, ITAT, “SMC” Bench, Nagpur. 5. Guard File

BY ORDER Vukkem Digitally signed by Vukkem //True Copy// Rambabu Rambabu Date: 2026.09.08 18:32:02 +05'30' Senior Private Secretary ITAT, Nagpur

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