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Facts
The assessee claimed a deduction of Rs. 68,07,313/- under Section 57 for interest paid on borrowed funds. The Assessing Officer disallowed this claim and passed an ex-parte order. The CIT(A) confirmed the addition, leading to the present appeal.
Held
The Tribunal held that the deduction claimed under Section 57 for interest paid is allowable. The facts are undisputed, and the claim has been consistently allowed in earlier and subsequent years on similar grounds.
Key Issues
Whether the disallowance of deduction of interest under Section 57 of the Income Tax Act is justified, especially when similar claims were allowed in preceding and subsequent years.
Sections Cited
57, 143(3), 143(1), 271A(1)(d)
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Order PER KRINWANT SAHAY, A.M: This is an appeal filed by the Assessee against the order of the Ld. CIT(A)/NFAC, Delhi dt. 03/07/2024 for the Assessment Year 2017-18.
In the present appeal, Assessee has raised the following grounds:
1. "1. That the Ld. CIT(A) has erred in dismissing the appeal of the assessee, though, the submissions, which were filed by the assessee before the CIT(A), about three years ago and without giving any fresh hearing/opportunity or asking for another detail, the dismissal of appeal is not in order. That the Ld. CIT(A) has erred in confirming the addition of 2. Rs. 68,07,313/-as made by the Assessing Officer by not allowing the benefit of deduction of interest u/s 57 of the Act as claimed.
3. That the Ld. CIT(A) has failed to appreciate that in previous year and in later years, the said deduction of interest as paid to the parties have been considered and allowed by way of order 2 u/s 143(3) and 143(1) and, as such, confirmation of disallowance of deduction u/s 57 amounting to Rs. 68,07,313/- is uncalled for.
4. That the Ld. CIT(A) has erred in giving finding at page 12, 1st paragraph, that no confirmation/documentary evidence of interest having been paid to various parties have been filed, which is contrary to the evidence led by the assessee alongwith submissions before the Worthy CIT(A).
5. That the confirmation of addition by the CIT (A) ignoring the detailed submissions is against the facts and circumstances of the case and the reliance on the judgment of ITAT, Mumbai Bench while confirming the disallowance of deduction of interest, is not in order. That the appellant craves leave to add or amend the 6. grounds of appeal before the appeal is finally heard or disposed off."
The facts, in brief, are that the assessee is regularly filing his returns of income and for the year under consideration, he had filed the return of income claiming deduction u/s 57 amounting to Rs. 68,07,313/-. It was argued by the Ld. Counsel that the AO had disallowed such claim of deduction u/s 57 amounting to Rs. 68,07,313/- by passing ex-parte order u/s 143(3), since as per the AO, nobody attended the hearing before the AO.
Against the order of the AO the assessee went in appeal before the Ld. CIT(A), who has since dismissed the appeal of the Assessee.
Against the order of the Ld. CIT(A) the assessee came in appeal before us.
During the hearing, the Learned Counsel for the Assessee submitted that detailed submissions along with supporting evidence had been filed before the Learned CIT(A). The reason for non- attendance in the proceedings before the AO was due to a dispute between the assessee and their former Chartered Accountant. Since the email ID provided earlier belonged to the counsel, Shri Sarabjeet
3 Garg, he had failed to inform the assessee. Consequently, there was a reasonable cause for not furnishing a response before the AO. 6.1 It was further brought to our notice that on account of not filing any information before the AO, the penalty of Rs. 10,000/- was levied u/s 271A(1)(d) by the AO and the assessee filed an appeal before CIT(A), who after considering the said submissions of the dispute with his counsel, the penalty of Rs. 10,000/was deleted by the CIT(A) vide his order, dated 23.09.2022 as per copy of the order placed before us at pages 24.1 to 25 of the Paper Book and it was, thus, argued that there was a reasonable cause for not filing the information before the AO. 6.2 It was further argued that detailed submissions were filed before the CIT(A) explaining that the amount was borrowed from different parties as per detail at page 6 of the order of CIT(A) and these amounts were raised on interest from different parties and advanced to M/s Emson Gears Ltd. and M./s Osho Forge Ltd. on interest and the said interest was disclosed in the returns of income year after year i.e. in the earlier and later years and against such interest, so earned, from these two companies, the deduction u/s 57 was claimed on account of interest paid to various parties as per page 6 of the order of CIT(A). 6.3 It was further argued that all the receipt of loan from various parties and advancement of funds to M/s Emson Gears Ltd. and M./s Osho Forge Ltd. were through banking channels and the payment of interest to the parties, from whom, the loans had been raised were also paid through banking channel and the deduction was claimed in the earlier years and in the later years. Such deduction had been allowed year after year in the order u/s 143(1) and 143(3) as per the following detail:-
Asstt. Deduction Evidence placed in Remarks Years claimed the paper book
4 2016-17 47,51,250/- Page No. 23.1 to Deduction allowed u/s 143(1) 23.3 2018-19 52,95,097/- Page No. 23.5 to Deduction allowed u/s 143(3) 23.7 after show cause notice for disallowing deduction and copy of the order u/S 143(3) placed at paper book page 22 to 23. The show cause notice have been placed at page 23.8 to 23.10\paper book and the reply to the show cause notice at page 23.11 to 23.13 of the Paper Book. Thus on same facts the deduction was allowed of the interest paid.
6.4 It was further argued before us that such submissions in detail have been reproduced by the CIT(A) from pages 6 to 9 of his order, where the party wise opening balances, alongwith interest paid to such parties and confirmed copies of accounts of all the parties, to whom, the advances had been made and to whom the interest have been paid through banking channels have been placed at pages 26 to 41 of the paper book and from the above chart, it was stressed before us, that since the fact and circumstances are the same, the deduction u/s 57 have wrongly been disallowed by the AO and the assessee on the basis of consistency also argued that the said deduction needs to be allowed as per the following judgments since in the earlier years and later years, deduction u/s 57 had been allowed:- i). Radhasoami Satsang Vs CIT (1992) 193 ITR 321 (SC). II). Berger Paints India Ltd. Vs CIT (2004) 266 ITR 99 (SC). iii). CIT Vs Leader Valves Ltd. (2007) 295 ITR 273 ( P&H).
6.5 It was further argued before us that the Ld.CIT(A) has wrongly stated in para-1, page 12 of the order that no confirmation or evidence has been filed in proof of interest having been paid to various parties, 5 which finding is incorrect in view of the confirmed copies of accounts as furnished before the CIT(A) from pages 26 to 41 of the Paper Book and the assessee also distinguished the judgment as relied upon by the CIT(A).
The Ld. DR relied upon the order of CIT(A) and contended that the decision may be given on merits of the case.
We have considered the rival submissions and gone through the order of AO, CIT(A), arguments of both sides and also the paper book submitted by the assessee. The facts are not disputed in as much as, the borrowings has been made in earlier years also and those borrowed funds have been taken on interest and such funds were advanced to M/s Emson Gears Ltd. and M./s Osho Forge Ltd. The interest was received by the assessee from the said two companies through normal banking channels. Further the assessee was paying interest to the parties from whom borrowings had been taken and such deduction has consistently been allowed in Asstt. Year 2016-17, for which, the order was passed u/s 143(1). It was also brought to our notice that in Asstt. Year 2018-19 i.e. subsequent year, the similar deduction u/s 57 was claimed , for which, the copy of the return of income and computation of income have been filed before us. Assessment was framed u/s 143(3) and initially, the Show Cause Notice was issued in Asstt. Year 2018-19 for disallowance of interest u/s 57 detailed reply, dated 12.03.2021 was submitted by the assessee during the course of assessment proceedings for Asstt. Year 2018-19. After considering such submissions, the order u/s 143(3) was passed vide order, dated 11.04.2021 for Asstt. Year 2018-19 and the returned income of the assessee was accepted.
We have also gone through the judgments as cited before us on account of consistency. We find that those are applicable to the facts
6 and circumstances of the case. In the above said judgments, it has been held that if the facts are identical, then on the basis of consistency, the claim of the assessee should be allowed. These judgments are squarely applicable in the facts and circumstances of the case. Accordingly, we hold that the payment of interest as claimed by the assessee u/s 57 from the interest earned from two companies namely M/s Emson Gears Ltd. and M./s Osho Forge Ltd. is allowable u/s 57 as the assessee had borrowed the funds on interest and said amount had been advanced to above said companies. Thus, there is direct nexus of interest earned and interest paid to the parties as per confirmed copies of accounts of the parties, filed before the CIT(A). Such claim on similar facts and circumstances have been allowed in earlier and subsequent years by the AO. Accordingly, assessee’s appeal on this issue is allowed.
In the result, Appeal of the Assessee is allowed.