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Income Tax Appellate Tribunal, ‘SMC‘ BENCH
Before: SHRI VIKAS AWASTHY & SHRI M.BALAGANESH
आदेश / O R D E R PER M. BALAGANESH (A.M):
This appeal in A.Y.2013-14 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-53, Mumbai in appeal No.CIT(A)-53/IT-203/ACIT-25(1)/2018-19 dated 20/09/2019 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 21/03/2016 by the ld. Asst. Commissioner of Income Tax Circle 25(1), Mumbai (hereinafter referred to as ld. AO).
The first issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in confirming the disallowance of interest in the sum of Rs 42,54,086/- u/s 36(1)(iii) of the Act in the facts and circumstances of the case. 2.1. We have heard the rival submissions and perused the materials available on record. We find that assessee is a partnership firm engaged in the business of manufacture of garments. The ld. AO during the course of assessment proceedings called for the details of interest paid on loans by the assessee. The assessee furnished the statement of interest paid during the year as under:- Total interest paid 17976200 Less: Capitalised to Premises (asset account) 4055631 Less: Voluntarily disallowed by assessee in Return of income 9666482 --------------- Claimed as deduction by the assessee 4254086 --------------- 2.2. The assessee also submitted that the total interest paid represent interest paid on term loans, cash credit account, unsecured loans, interest on partners balances and also overdue late payments. We find that the ld. AO had given a categorical finding that the term loan taken by the assessee from SBI in earlier years and home loan taken from Kotak Mahindra Bank have been utilised for investing in purchase of property at Standford which is under construction during the year under consideration. The assessee always submitted that this property is meant for use of office premises once the construction of the same is completed. We find that the ld. AO had disallowed the interest payment of Rs 42,54,086/- on the ground that the said property has not been utilised by the assessee in his business activities during the year under consideration.
2.3. The assessee submitted the statement of purchase of office at Stanford and ledger account of office premises –Stanford for the financial years 2008-09 to 2012-13. It is not in dispute that the assessee had utilised a sum of Rs 60 lacs out of loan received from Kotak Mahindra Bank Ltd towards purchase of office premises- Stanford. It is not in dispute that the SBI term loan borrowed by the assessee was completely utilised only for purchase of office premises – Stanford. SBI term loan was repaid by the assessee in Financial Year 2011-12. It is not in dispute that the assessee later borrowed loan from Reliance Capital Ltd and partly utilised the same for repayment of loan taken from Kotak Mahindra Bank. The purchase of office premises – Stanford is also meant only for the purpose of business of the assessee, as admittedly the said property under construction is meant to be utilised only for the purpose of office of the assessee for the purpose of his business. Infact from the perusal of the order of the ld. AO , we find that the ld. AO had never doubted the fact that the office premises – Stanford is not meant for the purpose of business of the assessee. We find that the ld. AO had just stated that since the said office premises was under construction, the same could not be used for the purpose of business during the year under consideration. This does not mean, that the said property, as and when ready, would not be ready for usage for the purpose of business. The ld AR submitted that the assessee , on a conservative note, had erroneously understood the provisions of section 36(1)(iii) of the Act together with its proviso thereon and resorted to treat the major part of the interest paid on borrowings that were utilised for office premises- Stanford, as capital in nature. We find that the ld. CIT(A) had duly appreciated the alternative plea of the assessee that the entire interest paid on borrowings should be eligible to be capitalised and added to the cost of office premises- Stanford. Against this direction of the ld. CIT(A), the revenue is not in appeal before us and hence the said direction of the ld. CIT(A) had attained finality. We also find that the ld. CIT(A) had rightly appreciated the contentions of the assessee and the treatment given for the interest by the assessee, on which, we do not find any infirmity. Accordingly, we deem it fit to uphold the order of the ld. CIT(A) in this regard. Hence the Ground No.A raised by the assessee is dismissed.
The second issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in confirming the disallowance of professional fees of Rs 6,23,750/- paid to Reliance Capital Ltd for loan borrowed from them. 3.1. We have heard the rival submissions and perused the materials available on record. As stated in the previous ground, we find that the loan borrowed from Reliance capital Ltd has been effectively partly utilized for investment in office premises – Stanford. This is in view of the fact that the loan borrowed from Kotak Mahindra Bank by the assessee has been utilized for investment in Office premises- Stanford and the loan borrowed from Reliance Capital Ltd was partly utilised for repayment of loan taken from Kotak Mahindra Bank. All said and done , the entire loan of Reliance Capital Ltd has been utilised by the assessee only for the purpose of business of the assessee and hence the processing fees paid for procuring the said loan becomes an allowable business expenditure. Hence we direct the ld. AO to grant deduction of Professional fees of Rs 6,23,750/- to the assessee. Accordingly, the Ground No. B raised by the assessee is allowed.
The last issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in confirming the adhocc disallowance of conveyance expenses and miscellaneous expenses made by the ld. AO in the facts and circumstances of the case.
4.1. We have heard the rival submissions and perused the materials available on record.We find that the assessee had claimed total conveyance expenses of Rs 7,38.976/- and miscellaneous expenses of Rs 97,073/- in the return of income. The ld. AO summarily disallowed 10% of the said expenditure on an adhoc basis merely on the assumption that personal element of the said expenditure cannot be ruled out and the expenses are only supported by self made cash vouchers. We hold that the said disallowance was made on an adhoc basis without rejecting the books of accounts of the assessee and without finding any defects in the books of the assessee. Hence the said disallowance would have no legs to stand. Accordingly, we direct the ld. AO to delete the adhoc disallowance made in respect of conveyance and miscellaneous expenses. Hence the Ground No. (C ) raised by the assessee is allowed.
The Ground No. (D) raised by the assessee is general in nature and does not require any specific adjudication.
In the result, the appeal of the assessee is partly allowed.
Order pronounced on 14/07/2022 by way of proper mentioning in the notice board.