SHRI ANUMALASETTY KISHORE KUMAR,CHENNAI vs. ACIT, NCC - 13 (1), CHENNAI

Aforesaid appeal by assessee for Assessment Year (AY) 2013-14 arises out of the order of learned Commissioner of Income Tax (Appeals)-14,Chennai [CIT(A)] dated 13.12.2019 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) of the Act on 17.03.2016. The sole grievance of the assessee is disallowance 2 - of expenses u/s 57(iii). Having heard rival submissions, the appeal is disposed-off as under.

The impugned disallowance stem from the fact that the assessee earned interest income of Rs.11.07 Lacs which was offered to tax under the head ‘Income from other source’. The assessee claimed interest expenses of Rs.12.66 Lacs against the same. The substantial interest was paid to Citibank which was described as home loan. The funds so obtained were advanced on interest to assessee’s wife, mother and a firm in which both were partners. Accordingly, interest income was earned. The Ld. AO noted that the assessee was incurring losses by giving out loans and there was no intention to earn the profits. Secondly, no direct link was established between the interest earned and the expenditure claimed against it. Accordingly, the amount of Rs.12.68 Lacs was added to the income of the assessee. The Ld. CIT(A) merely confirmed the stand of Ld. AO against which the assessee is in further appeal before us.

Upon perusal of computation of income, it could be seen that the assessee has earned interest income of Rs.11.07 Lacs and paid interest of Rs.12.66 Lacs. The interest has been paid to Citibank on loan which is ‘property power term loan’ and not a home loan as held by lower authorities. The rate of interest paid by the assessee is in the range of 10.5% to 13% whereas the assessee has advanced loans @12% interest rate. It is the finding of Ld. AO that the loans so obtained has been advanced to assessee’s wife, mother and a firm in which both were partners. In such a case, the nexus between the loans obtained and loans granted could not be disputed. At the most, the excess interest paid by the assessee could be disallowed since there is no rationale for paying higher interest. In other words, the loss of Rs.1,61,337/- as claimed by the assessee under the head ‘income from other sources’ is to be ignored. We order so. The Ld. AO is directed to recompute the income of the assessee. 4. The appeal stands partly allowed. Order pronounced on 12th October, 2022.