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Income Tax Appellate Tribunal, PUNE BENCHES “A” :: PUNE
Before: SHRI S.S.GODARA & DR. DIPAK P. RIPOTE
ORDER
PER DR. DIPAK P. RIPOTE, AM:
This appeal filed by the Assessee is directed against the order of ld.Commissioner of Income Tax(Appeals)-2, Pune, dated 20.02.2020for the A.Y. 2016-17 under section 143(3) of the Income Tax Act, 1961. The assessee has raised the following grounds of appeal: “1) That the learned Commissioner of Income Tax (A) Pune 2 has erred on the facts and in the circumstances in confirming the disallowance made out of interest paid on secured and unsecured loan Rs.4590480/- treated as interest paid as capital expenditure by the assessing officer. That the interest paid on secured and on unsecured loan was of revenue nature and business purpose only and not for investment of capital nature. That the interest paid be treated as revenue nature and addition made by Assessing Officer and the same confirmed C I T (A) be deleted. for A.Y. 2016
17. Motilal Harakchand Lodha (A)
2 ). That your appellant prays that he may be allowed to add, to alter, to amend the above ground of appeal.”
The ld.Authorised Representative(ld.AR) of the Assessee explained that the Assessing Officer(AO) has vaguely on the basis of surmises held that interest paid by the assessee was for investments and was not for business purpose without demonstrating it. The ld.AR explained that all the relevant details like all ledger accounts were filed before the AO. Inspite of that without verifying it, the AO has made the disallowance. The ld.AR also submitted that assessee has received interest of Rs.42,05,864/- from Nirmal Mutha. The ld.AR reiterated the submission that interest of Rs.1,29,096/- paid the A.S.Bank was on account of purchase of plot. This fact has been admitted by the assessee even before the ld.CIT(A). The ld.AR explained that assessee had sufficient own funds. Therefore, as held by the Hon’ble High Court whenever there is sufficient capital, then investment is to be treated from the capital and not very borrowed funds. Therefore, the ld.AR submitted that the addition may be deleted.
3.Ld.DR relied on the orders of the lower authorities.
We have heard both the parties and perused the records. In the assessment order the AO has made addition of Rs.45,90,480/- by for A.Y. 2016-17 Motilal Harakchand Lodha (A)
disallowing interest paid to bank treating it as not for business purpose. AO had not bothered to verify the fund flow statement. The assessee is in the business of food grains on wholesale basis.The details are as under : Particulars As on As on 31.3.2016 Rs. 31.3.2015 Rs. Sales net of sales tax 50,23,843 30,60,157 Purchases 46,05,081 26,86,730 Gross Profit 4,18,763 3,73,427 Other Income 5999318 3987827 Transport receipt 806340 Interest on Loan 4205846 Interest on fixed deposit 61614/- Rent 360000 Dividend Co-Op bank 3450 Discount 26438 Net Profit 7,32,577 4,83,604
In this case, it is an admitted position that interest of Rs.1,29,096/- paid to A.S.Bank was for the loan of Rs.1,90,00,000/- taken on 16/03/2016 by assessee for acquiring plot of land. Assessee has shown this land in the balance sheet as investment. Therefore, the interest paid of for A.Y. 2016-17 Motilal Harakchand Lodha (A)
Rs.1,29,096 /- is not a business expenditure and hence, disallowance to the extent of Rs.1,29,096/- is confirmed.
4. The details as appearing in the balance sheet of the assessee are reproduced here as under : Particulars As on 31.3.2016 Rs. As on 31.3.2015 Rs. Capital 1,74,44,965 1,25,20,014 Unsecured loan 2,05,51,554 1,67,84,604 Secured loan 4,03,55,345 2,35,40,492 Fixed Assets 9,74,905 10,94,874 Investments 3,41,54,085 1,67,31,625 Sundry Debtors 1,16,16,303 1,03,97,101 Cash and bank 65,76,128 6,58,515 Thus, the opening capital was Rs.1,25,20,014 and opening investment was Rs.1,67,31,625/-. Thus, in earlier year, the availability of assessee’s own funds was less than the investment. Therefore, obviously loan amount was utilized for making investments. Therefore, the investments over and above own funds i.e Capital, will be treated as Investment made from borrowed funds.Therefore, the AO is directed to calculate the exact investment made by the assessee by utilizing borrowed funds by studying the fund flow statement. The interest to that extent will be disallowed as for A.Y. 2016-17 Motilal Harakchand Lodha (A)
non business expenditure. AO shall give opportunity to the assessee. Assessee shall submit all the details before the AO. During the year the assessee has made investment of (3,41,54,085 - 1,67,31,625 = 1,74,22,460/-) Rs.1,74,22,460/-. The assessee has already admitted that he had taken loan of Rs.1,90,00,000/- for purchasing land on 16/03/2016 on which interest has been paid of Rs.1,29,096/- . We have already held in the earlier para that the interest of Rs.1,29,096/- is not a business expenditure and hence not allowable as deduction. Accordingly, grounds of appeal raised by the assessee are partly allowed.
In the result, appeal of the Assessee is Partly Allowed. Order pronounced in the open Court on 21st December, 2022.