DAMJI RAMJI SHAH HUF,MUMBAI vs. ASST CIT CIRCLE- 19 (2), MUMBAI

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ITA 7286/MUM/2019Status: DisposedITAT Mumbai11 August 2021AY 2011-123 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the disallowance of interest expenses was incorrect. It reasoned that the assessee had sufficient interest-free funds available, which were more than the interest-free or low-interest loans advanced, thus justifying the use of interest-bearing funds for such advances.

What were the facts?

The assessee, an HUF, claimed a deduction for interest expenses while it had borrowed funds at a higher interest rate and advanced loans at a lower rate. The Assessing Officer disallowed the interest deduction, stating a lack of justification and potential unoffered interest income.

What were the issues?

Whether interest expenses are allowable as a deduction when interest-free funds are available and exceed the amount of interest-free loans advanced. The nexus between interest-bearing borrowings and interest-free loans.

Which sections of the Income-tax Act were involved?

Section 57(iii)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI ‘SMC’ BENCH, MUMBAI

Assessment Year: 2011-12 Page 1 of 3 INCOME TAX APPELLATE TRIBUNAL MUMBAI ‘SMC’ BENCH, MUMBAI [Coram: Pramod Kumar (Vice President)] Assessment Year: 2011-12 Damji Ramji Shah HUF ....………………. Appellant 18, Tinwala Building No. 26, Tribuvan Road, Mumbai 400007. [PAN: AACHD1383D] Vs. Assistant Commissioner of Income Tax Circle 19(2) Mumbai. ……………….. Respondent [ Appearances: Vasant Kothari for the appellant Sunil Deshpande for the respondent Date of concluding the hearing: : May 12, 2021 Date of pronouncement : August 11, 2021 O R D E R Per Pramod Kumar, VP:

1.

By way of this appeal, the assessee-appellant has challenged the correctness of the order dated 14th October 2019, passed by the learned CIT(A) in the matter of assessment u/s. 143(3) of the Income Tax Act, 1961 for the assessment year 2011-12.

2.

Grievances raised by the appellant are as follows:-

1. 1. The learned Commissioner of Income Tax (Appeal) has erred in law and on facts in confirming the disallowance of interest expenses amounting to Rs. 47,18,055/- as claimed by the appellant u/s 57(iii) of the Income Tax Act, 1961 without properly considering the facts of the case and submissions made by your appellant.

2. The learned Commissioner of Income Tax (Appeal) has erred in law and on facts in not properly considering the submission that there is no direct nexus of interest free loans given out of the interest bearing borrowings and hence no disallowance is required to be made as held by the Hon’ble Bombay High Court in the case of Bombay Samachar.

3. The learned Commissioner of Income Tax (Appeal) has erred in law and on facts in not considering the adjournment application filed on 16th September, 2019

Assessment Year: 2011-12 Page 2 of 3 and not confirming the service of Notice alleged to be issued on 06th September, 2019 and 19th September, 20109 as stated in Appellate Order.

3.

To adjudicate on this appeal, only a few grievances need to be taken note of. The assessee before us is an HUF, and it has granted certain loans @6% while it has paid 12%- 15% interest on the borrowings. When Assessing Officer probed the matter further, it was explained that the loans were granted much earlier and in any event interest free funds of the assessee are much more. The Assessing Officer rejected the explanation and observed as follows:- Considering the totality of the facts of the case and the submissions made by the assessee discussed hereinabove, I am of' the view that the assessee has failed to provide any justification for claiming the deduction of interest paid against interest earned by it. On the contrary, the assessee has made interest-free loans & advances, for which no tenable justifications have been submitted for not recovering the interest and hence, to that extent the assessee has not offered the potential interest income to tax. In view of the same and to meet the demand of justice, I hereby disallow the deduction claimed by the assessee for Interest paid of Rs. 48,68,254/- and restricted to Interest received of Rs.47,18,055/- against its income from- / other sources.

4.

Aggrieved, assessee carried the matter in appeal but without any success. The assessee is not satisfied and is in further appeal before me.

5.

Having heard the rival contentions and having perused the material on record, I am inclined to uphold the plea of the assessee for the simple reason that the interest free funds available to the assessee are admittedly much more than interest free loans/low interest bearing loans, and, therefore, granting such loans cannot be put against the assessee. It is therefore reasonable to conclude that interest hearing funds were used by the assessee for the purpose of granting loans-even in the absence of a direct one to one nexus as long as there was a common pool as in this case.

6.

In view of the above discussions, I deem it fit and proper to delete the impugned disallowance. The assessee gets the relief accordingly.

5. In the result, this appeal is allowed in the terms indicate above. Pronounced in the open court today on the 11th day of Auguat 2021.

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