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Facts
The Assessing Officer disallowed interest expenditure claimed by the appellant, which was upheld by the CIT(A). The appellant had borrowed funds and lent them to a company where he was a director, and the company was closely held by his family members. The AO disallowed the interest expenditure under Section 57 of the Income Tax Act.
Held
The Tribunal decided to remit the issue back to the CIT(A) to provide one more opportunity to the appellant to explain the reasons for the allowability of interest expenditure. The appeal was allowed for statistical purposes.
Key Issues
Whether the disallowance of interest expenditure on funds borrowed and lent to a closely held company, where the appellant is a director, is justified. Whether the appellant should be granted another opportunity to explain the allowability of the interest.
Sections Cited
57, 37, 234B, 234C, 271(1)(c)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Mumbai “F” Bench, Mumbai.
Before: Shri Rahul Chaudhary (JM) & Shri Omkareshwar Chidara (AM)
Per Omkareshwar Chidara (AM) :- This appeal is directed against the order of Ld. CIT(A) dated 16.10.2023 which deals with disallowance of interest expenditure under section 57 of the Income Tax Act. This disallowance made by Ld. AO was upheld by Ld. CIT(A). Aggrieved by the orders of Ld. AO/Ld. CIT(A), an appeal was filed by the appellant with following grounds of appeal :
1. 1. (a) The learned Assessing Officer has erred in making the addition of Rs. 30,29,225/- towards the disallowance of interest expenditure under Section 57 of the Act which is upheld by CIT (A). (b) The learned Assessing Officer has erred in considering the said disallowance merely on the ground that the appellant has borrowed funds from outside and infused into the company where the appellant is a Director, without considering the facts and circumstances that Private Limited Company belongs to the appellant and his family members and the appellant is a Director and only family members are directors of the company.
The learned Assessing Officer has erred in charging interest under Sections 234B and C of the Income Tax Act, 1961.
2 Mr. Jigar Hemant Shah 3. The learned Assessing Officer has erred in initiating penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961.
The Appellant craves leave and reserves his right to add, alter, amend and/or delete any of the above grounds of appeal as and when required.”
2. The only issue to be decided in this appeal is whether the appellant is entitled to the claim of interest. The Ld. AO disallowed the claim of interest of appellant as there was no proper response from the appellant and adjudicated that the appellant is not entitled to the interest because he borrowed the money from others and lent the same to the company. As the appellant is a director of company, the Ld. AO, disallowed the interest under section 57 of the Income Tax Act read with provisions of Explanation 1 of section 37 of the I.T. Act.
3. Aggrieved by the order of Ld. AO, the appellant filed an appeal before Ld. CIT(A) and this first appellate authority confirmed the addition as there is no response from the appellant. Actually, the Ld. CIT(A) has given three opportunities to the appellant and still there was no response from him.
The appellant filed an appeal to the ITAT with the grounds of appeal mentioned in page No. 1 of this order. The Ld. AR of the appellant has requested that one more opportunity may be given to explain the reasons for allowability of interest before the Ld. CIT(A).
The Ld. DR has opposed the argument of Ld. AR of the appellant and supported the order of Ld. AO and Ld. CIT(A).
After hearing both the parties, it is decided to give one more opportunity to the appellant to explain the reasons for allowability of interest and issue is remitted to Ld. CIT(A) to decide the issue on merits.
3 Mr. Jigar Hemant Shah
The appellant’s appeal is allowed for statistical purposes.
Order pronounced in the open court on 28th January, 2025.