NIRAL KRUPESHBHAIPATEL,VADODARA vs. THE DY.CIT ,CPC, BENGALURU

This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 25.10.2023 passed for A.Y. 2017-18.

The assessee has taken the following grounds of appeal:-

The brief facts of the case are that the assessee is an individual earning income from salary, rent, capital gains, interest and share in profits received from various firms. During the impugned year under considereation, the assessee filed it’s return of income declaring total income of Rs.40,94,780/-. Thereafter, the assessee received a letter from CPC, Bangalore dated 03.05.2018 stating that there is a variation in income of Rs. 61,51,804/- as per return of income filed by the assessee and the amount received by the assessee as per Form 26AS. The income of the assessee as per Form 26AS as Rs. 61,51,804/- which is the aggregate of interest income received by the assessee from M/s. Neptune Associates (Rs. 59,08,339/-) and Rs. 2,43,465/- being interest income received by the assessee from HDFC Bank. The assessee had not included interest received from M/s. Neptune Associates amounting to Rs. 59,08,339/- since this interest expenses had already been disallowed and added back in it’s total income by M/s. Neptune Associates (AOP) while filing it’s return of income by disallowing this amount under Section 40(b) of the Act. The assessee’s position was that since the interest expense of Rs. 59,08,339/- had been disallowed in the hands of the AOP i.e. M/s. Neptune Associates while filing return of income by such AOP, under Section 40(b) of the Act, there was no question of offering such interest income in the hands of the assessee, since this would amount to double taxation. On receipt of notice dated 03.05.2018, the assessee filed revised return of income on 26.05.2018, including interest income of Rs. 59,08,339/- received from M/s. Neptune Associates and also interest income of Rs. 2,43,465/- received from HDFC Bank, under the head “income from other sources”. Since interest of Niral Krupeshbhai Patel vs. DCIT Asst.Year –2017-18 - 3– Rs. 59,08,339/- received from M/s. Neptune Associates had already been disallowed and added back to the total income under Section 40(b) of the Act while filing return of income by Neptune Associates, the said interest was claimed by way of a deduction by the assessee against total interest income earned by the assessee, for the impugned year under consideration. Moreover, in the return of income filed by the assessee, interest expenses amounting to Rs. 7,33,662/- were restricted to Rs. 2,81,191/- since the assessee was having interest income (other than interest income from the AOP i.e. M/s. Neptune Associates), amounting to Rs. 2,81,191/-. However, the assessee again received letter from CPC Bangalore dated 30.01.2019, again showing variation of income against which the assessee filed an application for rectification under Section 154 of the Act. In response, the assessee received the rectification order under Section 154 of the Act including total income of Rs. 61,51,804/- under the head “income from other sources” (interest income received from M/s. Neptune Associates Rs. 59,08,339/- and interest income from HDFC Bank of Rs. 2,43,465/-), and raising a demand of Rs. 27,85,480/-.

The assessee filed an appeal against the aforesaid order which was dismissed by Ld. CIT(A) with the following observations:

Before us, the Counsel for the assessee submitted that since interest expenses of Rs. 59,08,339/- had already been disallowed and added back to the total income under Section 40(b) of the Act in the hands of the AOP i.e. M/s. Neptune Associates, then the question of considering the same as income of the assessee does not arise at all, since the same would amount to double taxation. The Counsel for the assessee submitted that Ld. CIT(A) erred in facts and in law in not considering that such interest income of Rs. 59,08,339/- had already been disallowed and added back to the total income of the AOP i.e. M/s. Neptune Associates under Section 40(b) of the Act, while filing it’s return of income. Accordingly, the same interest income cannot be the subject matter of taxation in the hands of the assessee.

In response, Ld. D.R. placed reliance on the observations made by CIT(A) in the appellate order.

We have heard the rival contentions and perused the material on record.

Looking into the instant facts, nothing has been brought on record to controvert the factual offerings made by the assessee. In our considered view, we concur with the view of the assessee that once the interest expenses of Rs. 59,08,339/- have been disallowed suo-moto by the AOP M/s. Neptune Associates under section 40(b) of the Act, while filing it’s return of income, then the said interest cannot again be taxed as income in the hands of the assessee (being a member of the said AOP), since this would amount double taxation. Accordingly, the matter is being restored to the file of Assessing Officer, for verify whether such interest of Rs. 59,08,339/- has been offered as income by M/s. Neptune Associates in it’s return of income, and if that be the case, then the said interest income of Rs. 59,08,339/- is hereby directed to be deleted in the hands of the assessee.

In the result, the appeal of the assessee is allowed subject to the aforesaid aforesaid verification. This Order is pronounced in the Open Court on 25/02/2025