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Income Tax Appellate Tribunal, KOLKATA ‘A(SMC
Before: Shri P.M. Jagtap, Vice-
This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals)-8, Kolkata dated 29.04.2019 and the solitary issue involved therein relates to the disallowance of Rs.5,93,455/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of interest expenditure.
The assessee in the present case is an individual, who filed her return of income for the year under consideration on 27.09.2013 declaring total income of Rs.2,33,850/-. As mentioned in the assessment order, the assessee was engaged in the business of trading of pulses, commission agent etc. In the return of income filed for the year under consideration, deduction of Rs.5,93,455/- was made by the assessee on account of interest paid on unsecured loan. In order to justify this claim, the following explanation was offered by the assessee in writing before the Assessing Officer during the course of assessment proceedings:- “In para (2) of your letter you have asked for an explanation regarding interest claim of Rs.5,93,455/- which as per your letter has been paid for investments wherein no income has been derived.
Sir, as per my Balance sheet as at 31.03.2013, my total capital is Rs.3546739/- out of which Rs. 2516679/- has been invested in purchase of a flat & Rs.1117584/- are held in shares & Mutual Funds.
I am running my proprietorship business of Aditya Kumar Raunak Kumar (whose audited accounts have been submitted to you) out of the unsecured loans taken in my personal name.
As per the balance Sheet a sum of Rs.19.00 Lacs is invested in the said proprietorship concern. Interest on which @ 12% p.a. comes to about Rs.228000/-.
Apart from my proprietorship business in the" name of Aditya Kumar Raunak Kumar, I have entered into purchase & sale of real estate for which I have booked some flats.
As you are fully aware that the real estate business is not a business wherein there are dally purchase & sale transactions and is a capital intensive venture. At times it may take months on - even a year before the flat is subsequently sold. The flats that have been booked by me were under construction units which were sold in 'subsequent years. Since the flats were booked out of borrowed money and interest was paid there on, the same was claimed as an expenditure.
Sir, since the flats were booked by me with borrowed money and with basic intention of resale within a few months and not to be held by me for a long time over the years. The sum so invested as such were recorded as business transactions in my books. Further proper TDS has been deducted and deposited on interest paid on sum borrowed for such investment. Almost all interest paid by me on unsecured loans has been paid @ 12% p.a. which by rough estimates will be much more than the amount claimed. Out of which only a portion amount of Rs.593455/- has been claimed as expenditure. Out of Rs.593455/-an amount of Rs.228000/- can be purported as interest on sum employed in proprietorship business and rest Rs.365455/- as interest for real estate business. Rest of the interest which was paid for non-business investment has been capitalized as Is evident from my balance Sheet under the head procurement expenses appearing In the Assets side.
I therefore, pray you not to add the interest amount of Rs.593455/- to my returned Income”.
The Assessing Officer did not find the above explanation offered by the assessee to be acceptable. According to him, the assessee had already claimed Bank interest of Rs.5,88,765/- on trade loan in her proprietary concern namely ‘Aditya Kumar Raunak Kumar’ and, therefore, any further claim of interest on loan in the case of the said proprietary concern was not tenable. As regards the other claim of the assessee of having utilized the unsecured loans for the purpose of her business of purchase and sale of properties, the Assessing Officer found that the same was not supported by any documentary evidence. He also noted that there was not even a single sale of property made by the assessee in the year under consideration to earn any income and even in the balance-sheet, the amounts paid were declared as advance for purchase of properties and not closing stock of real estate business. He, therefore, rejected the contention of the assessee and disallowed the interest of Rs.5,93,455/- claimed by the assessee.
The disallowance made by the Assessing Officer on account of interest amounting to Rs.5,93,455/- was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and since the submissions made by the assessee in support of her case on this issue were not found acceptable by him, the ld. CIT(Appeals) proceeded to confirm the disallowance made by the Assessing Officer on account of interest for the following reasons given in his impugned order:- “I have considered the material before me. The appellant is an individual, and has derived income from trading in Pulses, Commission agent and income from other sources. The AO found that the assessee claimed Rs.6,98.545/- as deduction u/s 57 of the Income Tax Act, 1961 including a claim of Rs.5,94,455/- on account of interest paid on unsecured loan, Rs.1,05,000/- paid on account of commission to Sri Rajendra Kumar Gupta and Rs.90/- on account of Bank charge. The AO observed that Unsecured loan as per balance sheet as on 31.03.2013 was Rs 1,21.104.08 and the loan was utilized to invest in shares, mutual funds & advances for purchase of properties, but no income was derived from such investment. The A.O found the explanation of the appellant to be unsatisfactory as it was unable to substantiate its claim for deduction of the interest of Rs.5.93.455/-, as all investments were found to be personal in nature which was shown as advance for purchase and not as closing stock for investment in properties and the interest expenditure of Rs.5,93,455/- was not incidental to the appellant's business and disallowed as not deductible u/s 57 of the I.T. Act,1961. The Appellant's AM has mainly challenged the disallowance by claiming that in the Balance Sheet there was sale figure of Rs.24.60,OOO/- which was derived from sale of properties during the year of two properties and a profit of Rs. 153927/- was made there from. From perusal of the Profit & Loss ale and the Audit Report in form No. 3CD, it is observed that it pertains to the proprietary business "Bhawna Agarwal & Aditya Kumar Ruanak Kumar" for the previous year-ending March 31, 2013. The nature of business, as-per Annexure -1 to the Audit Report is shown as Trading & General Commission Agents.
The A.O has also recorded the nature of the appellant's source of Income as "Trader of Pulses, Commission Agent &, Income from Other Sources". It is also evident from the list of Sundry Creditors, Sundry Debtors i.e. R.P. Comtrade Pvt. Ltd and Ravi Greals Pvt. Ltd and it is inferred that these relate to trading in pulses and no stock in trade or any transaction of sale & purchase of properties is mentioned by the Auditors in the Audit Report in form 3CD. "It was also claimed by the A/R that the Balance Sheet of the appellant there was sale figure of Rs.24,60,000/- from sale of two properties and it also reflects that monies were paid as advances for purchase of flats. It is also pertinent to note that the appellant was unable to submit any documentary evidence either during the course of assessment or appellate proceedings to substantiate its claim that the interest expenditure was incurred for earning income from other sources. Therefore, the appellant's claim is found lobe incorrect and to be an afterthought and is bereft of any merit. The appellant’s AR has relied upon the ratio of decision in the case of Rajendra Prasad Moody (1979 AIR 373) by the Apex Court. The facts of the appellant's case wherein the investment was made in properties by diverting loans from business whereas in the decision of the Hon'ble Apex Court the investment was made out of borrowed monies for the purpose of making investment in shares of certain companies for earning dividend are found to be distinct and thus the ratio of the decision relied upon is found to be not applicable in the appellant's case.
In view of the above discussion, I am of the view that there is no infirmity in the finding or the A.O that the impugned interest expenditure of Rs.5,93,455/- was not incidental to the appellant's business and was correctly disallowed as not deductible u/s 57 of the I.T. Act, 1961 which is confirmed. Therefore, Ground No. 2 is not allowed”.
Aggrieved by the order of the ld. CIT(Appeals), the assessee has preferred this appeal before the Tribunal.
I have heard the arguments of both the sides and also perused the relevant material available on record. As submitted by the ld. Counsel for the assessee, the claim of having utilized the relevant unsecured loans for the purpose of business of purchase and sale of properties was specifically made by the assessee during the course of assessment proceedings before the Assessing Officer as well as during the course of appellate proceedings before the ld. CIT(Appeals). He has invited my attention to the details furnished before the Assessing Officer as well as before the ld. CIT(Appeals) to show that substantial investment was made by the assessee in the purchase of various properties during the course of business of purchase and sale of properties. He contended that the interest bearing unsecured loans thus were utilized by the assessee for the purpose of business of purchase and sale of properties, but the claim of the assessee of having carried on the said business and having utilized interest bearing unsecured loans for the purpose of the said business was disallowed by the authorities below without giving proper and sufficient opportunity to the assessee to support and substantiate her claim by producing the relevant details and documents. He has contended that the assessee is in a position to produce the relevant details and documents to support and substantiate her claim on this issue and urged that an opportunity may be given to the assessee to do so by sending the matter back to the Assessing Officer. Keeping in view all the facts and circumstances of the case, I consider it fair and proper and in the interest of justice to accept this contention of the ld. Counsel for the assessee. Even the ld. D.R. has not raised any objection for sending the matter back to the Assessing Officer for proper verification of the assessee’s claim. I, therefore, set aside the impugned order passed by the ld. CIT(Appeals) and restore the matter to the file of the Assessing Officer for deciding the same afresh after giving the assessee proper and sufficient opportunity to support and substantiate her claim for deduction on account of interest in question by producing the relevant details and documents.
In the result, the appeal of the assessee is treated as allowed for statistical purposes. Order pronounced in the open Court on July 07, 2021.