KIRANBHAI RASIKLAL KAMDAR,AHMEDABAD vs. THE ITO, WARD -(1)(1), AHMEDABAD

The assessee has raised the following grounds of appeal:

During the course of appellate proceedings, the appellant has stated that he had mortgaged his personal assets and borrowed funds from the banks and utilized partial funds for funding his business project of his proprietary firm. The assessee hence debited interest of amount utilized towards construction of the project only and not the full interest was claimed by him as expense. The assessee further contended that the impugned expense is allowable as per section 36(1)(iii) of the Act. The contentions of the assessee have been perused but not found to be tenable by the Ld. CIT(A). The only test that has to be seen is the purpose of taking of the loan from the bank by the appellant. The assessee had taken personal loans from the bank for the purpose of personal use i.e. car loan and personal loan. However, the assessee wrongly utilized the same for his business purpose which might not have been allowable as per the terms of disbursement of loan by the bank as also from the point of view of income tax There is no applicability of section 36(1)(iii) of the Act which clearly mandates that the loan has to be taken for the purpose of business for the interest to be allowed as a deduction. The case laws stated by the appellant is distinguishable on facts and is not applicable to the facts at hand. Further, the Ld. AO has correctly applied section 37(1) of the Act to the make the necessary disallowance/addition.”

Aggrieved by the order of the Ld.CIT(A), the assessee filed appeal before the tribunal.

We have heard the rival submissions and perused the material available on record. It is observed that the assessee claimed deduction of interest expenditure amounting to Rs. 10,19,849/- in respect of a car loan and a personal loan. The material on record shows that the loans were admittedly sanctioned for personal purposes and not for the purpose of business. The assessee contended that the loan amounts have been utilized for business purpose. Therefore, we hereby direct the Jurisdictional Assessing Officer to examine the utilization of loan for the business purpose or not. If so, utilized for business purpose, the JAO shall allow the interest.

In the result, the appeal of the assessee is allowed for statistical purposes