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Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH
Before: SHRI MAHAVIR PRASAD & SHRI WASEEM AHMED
PER MAHAVIR PRASAD, JUDICIAL MEMBER
This appeal by the Assessee is directed against the order of the Ld. CIT(A)-5, Ahmedabad dated 13.01.2015 pertaining to A.Y. 2011-12 and following grounds have been taken:
ITA No. 824-Ahd-2015 2 . A.Y. 2011-12 1 The part of impugned order is contrary to the evidence and material on record, contrary to the principles of law and binding judgments of the Court, contrary to the relevant provisions of the Act and deserves to be quashed and set aside. 2 The learned CIT(A) has erred in disallowing the partial interest of Rs.6,75,719/- by stating that loans were obtained subsequently to the date of completion of construction without considering the facts of examining the interest in totality. Your appellate therefore submits that the order deserves to be quashed so it may be so held now. 3.The Learned CIT (A) ought to have considered the appellant's claim of disallowance u/s 14A of the Act. Such Addition of Rs. 52,037/- confirmed by learned CIT (A) being contrary to the facts and relevant provisions is of the Act deserves to be quashed and set aside. It may be so held now. 4.Your appellant again respectfully submits that the action of learned CIT(A) for passing an order wholly unjustified and against the principles of the natural justice. Your appellant therefore requests you to cancel the order.
On verification of computation of income, it is seen that the assessee has shown rent income at Rs. 21,77,701/- after claiming deduction of interest paid Rs. 15,94,949/-on borrowed capital. Details for the same were called for which is as under: Sr.No. Particulars Interest Amount
1 Textile Traders Co-op Bank 83,104/-
2 IDBI Bank 69,261/-
3 Textile Traders Co-op Bank -7267 2,55,825/-
. 4 Forty other related persons 11,86,759/-
ITA No. 824-Ahd-2015 3 . A.Y. 2011-12 3. On verification of the details submitted it is seen that the assessee has taken loans. and paid interest for the same, the assessee was asked to submit vide order sheet entry dated 19/1272013 to file evidences regarding the borrowed capital used for acquiring /construction of the property from which rent is received. In response, the assessee submitted a chart showing the net borrowing and Interest claimed. The assessee failed to submit the bank account from which loan was taken and used for the property. The assessee was once again requested for the same vide this; office notice dated 06/01/2014, which is reproduced hereunder: "......It is seen that you are receiving rent from various properties rented to business concerns. You have claimed deduction of interest paid Rs. 1594949/- from rental income. You are requested to submit proof of payment of expenses claimed against rental income, application made to the bank with all its enclosures, valuation report of the properties submitted to the bank sanction letter issued by the bank, bifurcation of payment of principal and interest issued by the bank. Also submit evidences of the use of such loan for the property from which rent has been received, in absence of which please show cause as to why adverse infrance should not be drawn....."
In response the assessee has submitted a copy of loan sanction letter dated 24/07/2008 from Textile Traders Co-op Bank Ltd for mortgage loan of Rs. 80,00,000/- . The assesses has also submitted BU permission letter dated 14/07/2008 from Ahmedabad Municipal Corporation.
The submission of the assessee has been carefully verified. The BU permission granted by the AMC, reflects the completion of construction date of the property as 25/03/2006 whereas the sanction letter of Textile Traders Co-op Bank Ltd for mortgage loan of Rs. 80.00.000/- is dated 24/07/2008. This clearly shows that this loan is availed only after the completion of the construction of the property. This loan is not utilized for acquiring or
ITA No. 824-Ahd-2015 4 . A.Y. 2011-12 constructing the property rented. It is also pertinent that this is a mortgage loan.
Similarly, on verification of the loan availed from IDBI Bank it is seen that this is an Overdraft account and the account is opened after the completion of the construction of the property. The assessee has also claimed interest paid to .account No. 480 of Textile Traders Co-op Bank Ltd which is a cash credit account opened after the completion of construction of the property.
The assessee was requested to file confirmations from the rest of the persons. The assessee was not able to submit the same and was also not able to prove the nexus of the loan taken and used for acquiring / construction of the property. The assessee was issued a show-cause notice u/s 142(1) dated 06/01/2014 which is reproduced hereunder: "...,.. You have submitted the copies of accounts of unsecure d loans, from which the following are not submitted: GROUP AMOUNT REMARKS i) Group 1 Rs. 13665304 - Anvi Corporation Rs. 103000/- Confirmation/PAN pending Dineshbhai Shah,HUF Rs. 250000/- -do- Manali Munshi Rs. 15450/- -do- Hiren Shah Rs.316140/- -do- Kusum R Gandhi Rs.174661/- -do- Manubhai KShah, HUF Rs. 540160/- -do- Mittalbhai M Shah Rs.606317/- -do- Nilam Corporation Rs. 24600/- -do- ParagMShah Rs. 1723557/- -do-
ITA No. 824-Ahd-2015 5 . A.Y. 2011-12 Rashmi R Shah Rs. 165200/- -do- Sejalben R Shah Rs. 30975/- -do- Suresh Sutaria Rs. 138283/- -do- Amishi Parag Shah Rs. 227843/- -do- ii) -group 3 Amita K Shah Rs. 408800/- -do- Harshad N Shah Rs. 61600/- -do- Kalpana Shah Rs. 14560/- -do- Ketki K Shah Rs. 61600/- -do- Mind K Shah Rs. 39200/- -do- Nimish k Shah Rs.61600/- -do- Nirvi H Shah Rs. 61600/- -do- Rekha K Shah Rs. 22400/- -do- Sadhana R Shah Rs. 50400/- -do- Sarla H Shah Rs. 13400/- -do-
In absence of confirmations regarding the above unsecured loans please show- cause as to why adverse inference should not be drawn......"
In response the assessee requested adjournment which was granted Information was collected from Textile Traders Co-op Bank Ltd which confirmed that account No. 2277 is a vehicle loan account, A/c No.2267 is a mortgage loan account (sanctioned after the BU permission granted) and A/c No. 40 is a cash-credit account.
A final show-cause notice u/s 142(1) was issued on 31/01/2014 which reads as under:
ITA No. 824-Ahd-2015 6 . A.Y. 2011-12 "..... You are given a final opportunity to show cause as to why the interest amount of Rs. 15,94,949/- as claimed should not be disallowed since the same are not relatable to the property from which the rent income is received. This is also evident from the details received from the following Banks and other facts on record. Textile Traders Co-op Bank (M.T Loan) sanctioned on 24/07/2008 i.e. after the completion of construction of the property rented. (ii)IDBI Bank Loan — not relatable to acquiring or constructing the property (iii)Textile Traders Co-op Bank -not relatable to acquiring or constructing the property. Your attention is also invited to the confirmations and income-tax particulars with PAN sought for. The loans taken as intimated to you vide this office notice dated 06/01/2014. However, you have failed to file such details and establish the identity, credit worthiness and genuineness of the transaction. As such, you are requested to show-cause as to why the same should not be added to your total income….”
In response the assessee submitted letter dated 06/02/2014 in which the assessee states that the entire loans taken from different parties and banks is utilized for the repayment of loans taken from various parties for the construction of the property. The submission of the assessee is reproduced here under: "... ...As regards the loan taken from Textile Traders Co-op bank, it is submitted that the said loan is taken for the repayment of loans taken from depositors. The loan of Rs. 80 lacs has been taken on 26/08/2008. The entire loan is utilized for the repayment of loans taken from various parties for the construction of the property. This is evident from the copy of the balance sheet of our above named clients as on 31/03/2008 and 31/03/2009. Thus we have to submit that the claim of interest of Rs. 15,94,949/- is correctly claimed by our clients......."
The contention of the assessee has been carefully considered. It is confirmed by the assessee that the present loans have not been utilized for acquiring or the construction of the property but have been utilized for the repayment of loans taken. The loans availed from Textile Traders Co-op Bank are vehicle loans and cash-credit loans. As such, the interest payment on this loan is not an allowable expense from income from house property. The same is disallowed
ITA No. 824-Ahd-2015 7 . A.Y. 2011-12 and added to the total income of the assessee. The disallowance on this account comes to Rs. 15,94,949/-. Penalty proceedings u/s 271(1)(c) are initiated for furnishing inaccurate particulars of income.
It is pertinent to mention here that similar disallowance was made in assessee's own case in previous year also. The issue is pending before the Hon. ITAT and has not attained finality.
Disallowance u/s 14A r.w.r. 8(D). 13. On going through the computation of income it is seen that the assessee has claimed dividend income of Rs 18,32,986/- as exempt dividend income. As per provisions contained in Section 14A r.w. rule 8D, the interest and administrative expenditures are required to be disallowed. A show cause notice was issued to the assessee regarding the same. The assessee has vide letter dated 06/02/2014 submitted the working of disallowance u/s 14A r.w.r. 8(D) which is reproduced hereunder:
".....As asked for the working for disallowance u/s 14A read with rule 8D we are enclosing herewith the working : Calculation of Disallowance u/s 14A as per Rule 8Dfor A.Y. 2011-12
Amount of Direct Expenditure NIL 2. Interest Expenditure NIL = Interest x average value of Investment/ Average value of Assets 3. 1/2 % of Average Investment NIL ( 0.50% x 1, 04,07, 460/-) 52,0377-
Total Expenditure Disallowed u/s 14A (rule 8D) 5 2,037 /-
ITA No. 824-Ahd-2015 8 . A.Y. 2011-12 1. Value of Average Investment Particulars Amount 1. As on 31/03/2011 2. 1,08,57,196 99,57 2. As on 01/04/20 10 725/-
Value of Average Investment 1,04,07,460
………”
As per the working submitted by the assessee.an amount of Rs.52,037/- is disallowed* u/s. 14A of the Act and added back to the total income of the assessee.The disallowance on this account comes to Rs. 52,037/-.
After perusal of the submissions and the material on record and the discussion held, the total income of the assessee is computed as follows: Total income as per return of income : Rs. 22,17,960/- Add : Disallowance of interest : Rs. 15,94,949/- Disallowance u/s 14A : Rs. 52,037/-
And finally total income assessed at Rs. 38,64,946/-. 16. Against the order of the ld. A.O., assessee preferred first statutory appeal before the ld. CIT(A) who partly allowed the appeal of the appellant.
We have gone through the relevant record and impugned order. Ld. CIT(A) had disallowed an interest of Rs. 6,75,719/-. In support of its contention, appellant has submitted all the details to the persons from whom loan was taken and bank statement but lower authorities did not bothered to look into it in detail. All transactions have been made through banking channel and
ITA No. 824-Ahd-2015 9 . A.Y. 2011-12 appellant also submitted a copy of loan sanctioned letter from the bank as well as at page 69 of the paper book. Detailed summary of assessment year-wise interest and closing balance-wise was submitted before the lower authorities. But revenue did not believe the appellant without any substance.
Before us, appellant has filed detailed working of loan and interest paid thereon. Therefore, we allow the first ground of appeal of the appellant.
So far next ground related to disallowance u/s. 14A for amount of Rs. 52,037/- is concerned, A.O. has discussed this issue at page 5 Para 3.1 and ld. CIT(A) has given decision at Para 5.2. After going through both the order f the authorities below, we do not find any ambiguity in the order passed by the lower authorities. Hence, we confirm the addition of Rs. 52,037/-.
In the result, appeal filed by the Assessee is partly allowed.
Order pronounced in Open Court on 18 - 10- 2018 Sd/- Sd/- (WASEEM AHMED) (MAHAVIR PRASAD) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad: Dated 18 /10/2018 Rajesh Copy of the Order forwarded to:- 1. The Appellant. 2. The Respondent. 3. The CIT (Appeals) – 4. The CIT concerned. 5. The DR., ITAT, Ahmedabad. 6. Guard File. By ORDER
Deputy/Asstt.Registrar ITAT,Ahmedabad