NEERAJ NATH,MUMBAI vs. ITO 28 (2)(3), MUMBAI
What did the Tribunal hold?
The Tribunal held that there was a direct nexus between the loan taken and the loan given, and the principle of substance over form applied. Therefore, the interest paid on the housing loan was deductible against the interest income earned.
What were the facts?
The assessee took a housing loan and used the funds to provide a loan to his wife for land purchase, earning interest income. The Assessing Officer and CIT(A) disallowed the interest paid on the housing loan.
What were the issues?
Whether interest paid on a loan taken for the purpose of advancing it to another person against interest income is deductible. Whether ad-hoc disallowance of expenses without supporting bills is justified.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
ORDER PER GAGAN GOYAL, A.M: This appeal by the assessee is directed against the order of Ld. Commissioner of Income Tax (Appeals)-26, Mumbai [hereinafter referred to as ‘the CIT (A)’] dated 13.05.2019 for the Assessment Year (AY) 2009-10. The assessee has raised the following grounds of appeal: Grounds of appeal Tax effect relating to each Ground of Appeal (see note below)
1. On the facts and circumstances of the case and in 3,16,406 law, the learned CIT(A) erred in confirming disallowance of interest of Rs. 10,44,245 though the said interest was paid for loan used for giving loan and there was a direct nexus between loan taken and utilization. 2 On the facts and circumstances of the case and in 3,16,406 law, the learned CIT(A) erred in confirming disallowance of Rs. 10,44,245 being interest paid for the loan against interest income without fully appreciating the facts of the case. 3 On the facts and circumstances of the case and in 6,330 law, the learned CIT(A) erred in confirming disallowance of Rs. 20,892 being 10% of the expenses incurred amounting to Rs. 2,08,913 on ad-hoc basis. 4 The appellant craves leave to add, amend, modify, substitute and/or cancel any of the grounds of appeal. Total tax effect (see note below) 3,22,736
Brief facts of the case are that the assessee has e-filed his return of income for AY 2009-10 on 22.09.2009 declaring total income of Rs. 5,78,060/-. The case was selected for scrutiny and scrutiny assessment was completed under section 143(3) dated 09.12.2011 assessing total income at Rs. 29,74,679/-.
Being aggrieved, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A) dismissed the appeal of the assessee stating that assessee furnished additional evidence by nature but did not made any request to add the same as additional evidences as required under the rule 46A of the Income Tax Rules. Being aggrieved, the assessee and revenue filed appeal before the Hon'ble ITAT, The Hon’ble ITAT vide order dated 30.11.2015 set aside the order of Ld. CIT(A) and restored the entire matter back to the file of the AO for deciding the entire matter afresh after considering the additional evidences so filed by the assessee before the Ld. CIT(A). Following the directions of the Hon'ble ITAT, an opportunity of being heard was given to the assessee vide letter dated 07.06.2016, 27.07.2016, 16.08.2016 & 17.10.2016. The M/s MSU & Co., AR of the assessee, filed the submissions vide letter dated 11.08.2016 and 26.10.2016 and same were perused and decided on the basis of the submissions. 4. Ground Nos. 1 & 2 are interrelated, hence, disposed of by a common finding. During the year under consideration, assessee taken a housing loan of Rs. 79.5 Lakhs from ICICI Bank. This amount of loan, assessee never used for the purposes of buying a house rather the funds on the said loan were utilized in giving loan to the Mrs. Preeti Nath for purchase of land by her. The total amount given to Mrs. Preeti Nath was amounting to Rs. 78.82 Lakhs. 5. This loan given to Mrs. Preeti Nath was chargeable to interest and assessee received interest to the tune of Rs. 12.6 Lakhs. In addition to this interest assessee earned other interest income of Rs. 14,491/-. Interest paid by the assessee on so- called housing loan is amounting to Rs. 10,46,245/-. 6. We have gone through the sanction-cum-disbursement document furnished by assessee on page no.5 to 8 of the Paper Book (PB) along with Loan A/c statement furnished vide page no. 12 to 24 of PB and assessee’s own bank account vide page no. 25 to 27 of PB (reflecting funds transfer to Mrs. Preeti Nath). 7. We have gone through the order of AO under section 143(3) r.w.s. 254 of the Act, order of Ld. CIT(A) and assesee’s submissions before the authorities below. There is no challenge to the fact that assessee has taken personal loan in the guise of home loan which in turn was being used for further funding of Mrs. Preeti Nath against interest. Both AO and First Appellate Authority ignored the fact that the amount of so-called housing loan was never being used for the
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