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Income Tax Appellate Tribunal, LUCKNOW BENCH ‘SMC’, LUCKNOW
Before: SHRI T. S. KAPOOR
This is an appeal filed by the assessee against the order of learned CIT(A)-2, Lucknow dated 23/03/2018 pertaining to assessment year 2013- 2014. The only ground taken by the assessee is the action of learned CIT(A) by which he has upheld the disallowance made by the Assessing Officer of interest expenditure.
The brief facts, as noted in the assessment order, are that the assessee is a partner in M/s Swarn Enterprises and has declared receipt of interest and remuneration from firm as her income. During the year under consideration the assessee obtained a housing loan of Rs.50,00,000/- from Vijaya Bank and out of this she spent Rs.20,00,000/- for the purchase and repair of her house and remaining Rs.30 lac was transferred as part of capital in the firm Swarn Enterprises. The assessee claimed the expenditure
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of Rs.2,28,331/- as interest paid to bank on the amount obtained from bank which was invested in the firm. The Assessing Officer however did not allow the claim of the assessee by holding that since the interest has been paid on housing loan, which was utilized for self-occupation, the maximum deduction was limited to Rs.1,50,000/-. The learned CIT(A) also upheld the addition.
Before us, Learned A. R. submitted that it is an undisputed fact that out of Rs.50 lac, Rs.30 lac was transferred to the firm and was credited in the capital account of the assessee and in this respect our attention was invited to the capital account of the assessee placed at pages 10 and 11 of the paper book. Our specific attention was invited to the entries of Rs.6,00,000/-, Rs.8,00,000/-, Rs.4,00,000/- and Rs.12,00,000/- representing in all Rs.30,00,000/- which the assessee had invested as capital after obtaining loan of Rs.50,00,000/- from Vijaya Bank. The entries in the savings bank account of the assessee also shows these amounts as having been transferred to the firm Swarn Enterprises which is apparent from the copy of saving account of the assessee placed at page No. 5 of the paper book. Learned A. R. submitted that the assessee had paid interest to bank on the entire Rs.50,00,000/- and since out of Rs.50,00,000/-, Rs.30,00,000/- was invested in the firm on which the assessee received interest as interest on partner’s capital, the expenditure incurred in the form of payment to Vijaya Bank on Rs.30,00,000/- is an allowable expenditure as the funds on which the assessee got interest were borrowed from the bank.
Learned D. R., on the other hand, supported the orders of the authorities below.
I have heard the rival parties and have gone through the material placed on record. I find that it is an undisputed fact that the assessee, as
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partner in the firm, had introduced Rs.30,00,000/- vide four entries of Rs.6,00,000/-, Rs.8,00,000/-, Rs.4,00,000/- and Rs.12,00,000/- received by the firm on 20/12/2012, 28/12/2012, 31/12/2012 and 11/-02/2013 respectively. The assessee had opening balance of Rs.50,18,262/- as opening capital as is apparent from page 10 of the paper book where a copy of capital account is placed. The detail of daywise calculation of interest on the capital is placed at pages 10 & 11 of the paper book and total interest earned by the assessee amounted to Rs.5,60,865/-. This income of the assessee comprised of interest on opening balance of capital as well as the new additions in the capital therefore, the findings of the Assessing Officer that the interest received by the assessee from the firm related to only opening balance is not correct because of the fact that the assessee had filed a detailed calculation of interest calculated @10% on a daily basis. Out of this interest the assessee obviously paid interest to the extent of Rs.2,28,331/- to Vijaya Bank and claimed deduction against the interest income. I am in agreement with the arguments of Learned A. R. that since the interest income earned from the firm included interest on addition made in capital account by taking loan from the bank, the proportionate amount relating to interest on borrowed funds is an allowable revenue expenditure against the interest income. 6. In the result, the appeal of the assessee stands allowed.
Sd/. ( T. S. KAPOOR ) Accountant Member Dated:18/01/2019 *Singh
Copy of the order forwarded to : 1. The Appellant 2. The Respondent. 3. Concerned CIT 4. The CIT(A) 5. D.R., I.T.A.T., Lucknow