ACIT, CENTRAL CIRCLE-2(3), PUNE, PUNE vs. NANDU ANTARAM RAJPUT, PUNE

This appeal filed by the Revenue is directed against the order dated 07.05.2024 passed by Ld. CIT(A), Pune-12 [Ld. CIT(A)’] for the assessment year 2014-15.

The Revenue has raised the following grounds of appeal :- “1) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in not providing any opportunity to the AO under Rule 46A to verify the purpose of interest-free advances, the details of which were only submitted before the Ld.CIT(A) after the assessment and therefore, the source, purpose and commercial expediencies of the interest-free advances were not verified. 2) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in allowing the appeal of the assessee by accepting plea of the assessee that the Sneha Hillview Developers Pvt. Ltd purchased the land for 'business purposes out of the interest free advances from the assessee, without verifying the commercial expediency of the said land purchased by the Sneha Hillview Developers Pvt. Ltd. for the assessee. 3) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition by stating that the interest free advances given by the assessee was not examined by the AO, and Ld.CIT(A) has also not given a finding that interest free advances were given out of the assessee's own funds for the commercial expediency.”

Facts of the case, in brief, are that the assessee is an individual engaged in the business of Promoter, Builder and Developer in the name of ‘Sneha Construction’. The assessee also earned interest income from fixed deposits with bank. The assessee filed his return of income on 30.11.2014 declaring total income of Rs.12,64,610/-. The case was selected for scrutiny and notices u/s 142(2) & 142(1) of the IT Act were issued and served upon the assessee. During the course of assessment proceedings, it was seen by the Assessing Officer that the assessee has claimed huge expenses on account of interest payment in respect of unsecured loan raised by the assessee from parties and banks. And total interest of Rs.2,57,39,201/- has been claimed in the profit and loss account as expenditure. On the Rs.18,87,79,793/- to parties most of which as interest free loan. It was also seen by the Assessing Officer that the assessee has capital of Rs.12.14 crore which is invested in personal jewellery of Rs.4.13 crore and other personal assets including the bungalow of Rs.9.93 crore. Accordingly, the Assessing Officer found that the assessee has channelized interest bearing funds towards interest free advances to various entities which has no positive financial bearing on the performance of the assessee. Accordingly, the Assessing Officer asked the assessee to furnish working of interest expenses and also other details but the assessee did not furnished such details. Accordingly, the Assessing Officer disallowed the interest expenses claimed, on the basis of interest free advances made to the parties from which the assessee has derived no substantial financial benefit. Accordingly, the Assessing Officer passed the order u/s 143(3) on 30.12.2016 by assessing total income of Rs.2,13,73,110/- by making addition of Rs.2,01,08,503/- (Interest paid Rs 2,57,39,201- Interest Received Rs 56,30,698) on account of disallowance of interest expenses as against the income returned by the assessee at Rs.12,64,610/-.

Ld. DR appearing from the side of the Revenue submitted before us that the order passed by Ld. CIT(A) is unjustified. Ld. DR submitted before the Bench that the assessee could not submit relevant documents before the Assessing Officer which could prove that by providing interest free loan to other parties the assessee has earned substantial financial benefit. However, the assessee furnished various documents before Ld. CIT(A) and by accepting those documents Ld. CIT(A) allowed the appeal of the assessee and deleted the addition made by the Assessing Officer. Ld. DR further submitted before the Bench that Ld. CIT(A) erred in not providing an opportunity to the Assessing Officer to verify the additional evidences which were furnished before him. It was contended by Ld. DR that it was inevitable for Ld. CIT(A) to forward all these evidences to the Assessing Officer for his comments and in contravention of Rule 46A, Ld. CIT(A) accepted these documents which is bad in law. In this regard, Ld. DR relied on the judgement Hon’ble Supreme Court in the case of S.A. Builders Ltd. vs. CIT (2007) 158 Taxman 74 (SC) wherein it was held that the matter can be remanded back for examination of loan to sister concern was by way of commercial expediency or not. Accordingly, it was requested by Ld. DR that the order passed by Ld. CIT(A) may kindly be set-aside and the order passed by the Assessing Officer may kindly be restored.

Ld. AR appearing from the side of the assessee submitted before us that the order passed by Ld. CIT(A) is justified. Ld. AR submitted before the Bench that the interest free advances were given to the concern belonging to the assessee himself for the purposes of business & was advanced interest free by way of commercial expediency and accordingly requested to confirm the order passed by Ld. CIT(A).

We have heard Ld. Counsels from both the sides and perused the material available on record including the paperbook furnished by the assessee. In this regard, we find that there is no dispute regarding the fact that the assessee has obtained interest bearing loans from parties and banks and on the other hand provided interest free loans to others. However, it is the claim of the assessee that the interest free loans were given for business purposes and by way of commercial expediency. In this regard, we find that during the appellate proceedings the assessee has submitted copies of financial statement for financial year 2011-12 to 2013-14, copy of agreement for purchase of land at Khandala by Sneha Hillview Development Pvt. Ltd., copy of MOU with Ghodawat Pan Masala Product (I) Pvt. Ltd. Apart from this he has also furnished details of interest free advances to group concerns of Rs.18,87,97,793/- which has been reproduced by Ld. CIT(A) in his order at page no.14 to 16. However, we find that all these details were never furnished before the Assessing Officer & even in the paperbook it has been accepted by the assessee that these details were furnished before LD CIT(A) and therefore in our considered opinion constitutes as additional evidences and Ld. CIT(A) has not provided any opportunity to the Assessing Officer to verify the purposes of interest free advances, the source and commercial expediency of the interest free advances as well as comment/remark on all these relevant documents and allowed the appeal of the assessee. Accordingly, we find that Rule 46A has not been followed by Ld. CIT(A). Accordingly, we deem it appropriate to set-aside the order passed by Ld. CIT(A) and