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Income Tax Appellate Tribunal, MUMBAI BENCH
Before: SHRI SHAMIM YAHYA & SHRI PAWAN SINGHShri Ajay Bansal
Date of hearing 01-08-2019 Date of pronouncement 20-08-2019 O R D E R
Per Pawan Singh, Judicial Member :
This appeal by assessee is directed against the order of learned Commissioner (Appeals)-34, Mumbai dated 31st May 2018 which in turn arises from assessment order passed under section 143(3) dated 24th February 2014. The assessee has raised following grounds of appeal.
(a) On the facts and in the circumstances of the case and in law, learned Commissioner (Appeals) has erred in assessing total income of assessee at Rs. 41,94,710/- instead of Rs. 21,75,251/- as returned by the assessee. The return income of assessee may please be accepted. (b) On the facts and in the circumstances of the case learned Commissioner (Appeals) has erred in law in confirming the addition of Rs. 20,19,454/- paid to Standard Chartered Bank as claiming the expenditure under section 57 of the 2 ITA 4946/Mum/2018
Act, in respect of amount borrowed from Standard Chartered Bank. The said interest rate may please be allowed as deduction. (c) On the facts and in the circumstances of the case landed counsel appeal has erred in law in confirming not allowing the interest paid as deduction under section 36 (l)(iii) of the income tax act as business expenses. The said interest may please be allowed as deduction.” 2. Brief facts of the case are that assessee derives income from salary, business and other sources. The assessee filed his return of income on 09- 03-2012 for assessment year 2011-12 declaring total income of Rs. 21,75,251/-. The return of income was selected for scrutiny. The assessing officer after serving the statutory notices under section 143(2) and 142(1) completed assessment on 24th February 2014. The assessing officer while making assessment order, besides other additions/disallowances, made addition on account of interest disallowances of Rs. 20,19,454/- under section 57 of the Act. On appeal before learned Commissioner (Appeals) the action of assessing officer was confirmed. Further aggrieved by the order of learned Commissioner (Appeals), the assessee has filed this appeal before the Tribunal.
None appeared on behalf of the assessee. However, an application for adjournment was filed on behalf of the assessee without any valid reasons. Therefore, the application for adjournment was rejected.
We have heard the submission of learned departmental representative (ld.
DR) for the revenue and perused the material available on record. The ld.
3 ITA 4946/Mum/2018 DR for the revenue supported the order of lower authorities. The ld. DR further submitted that assessee has not proved the nexus of interest. The certificate issued by Standard Chartered Bank indicates that the assessee has taken loan for housing purpose only and is eligible for deduction under section 24(b). The learned Commissioner (Appeals) also rightly confirmed action of Assessing Officer.
We have considered the submission of ld. DR for the revenue and perused the orders of authorities below. During the assessment, the AO noted that assessee has claimed interest expenses of Rs.20,19,455 u/s 57. The assessee was asked to explain the nexus of expenditure to justify the interest expenses against the income. The assessee filed a certificate of Standard Chartered Bank dated 126-06-2011. The Assessing Officer has recorded the contents of certificate in the following manner:-
“Your certificate of Principal and interest for the financial period April, 2010 to March 31, 2011. Greetings from Standard Chartered priority banking. We are writing to you to certify that the Home Loan (A/c No.47935251) granted by us is held in the name/s of : Mr. Ajay Narendra Bansal Ms. Usha Ajay Bansal Mr. Narendra Bansal And M/s Shiv Jagannath Steel Pvt Ltd Details with respect to interest and principal paid during the period April 1,2010 to 31,2011 are as under:- Interest payable Rs. 2,019,454.85 Interest paid Rs.20,10,454.85 Principal amount repaid Rs. 8,92,717.15 The loan balance outstanding as on March 31, 2011 is Rs. 23,958,970.13 Note:
4 ITA 4946/Mum/2018
Deduction under section 24(b) of the Income Tax Act, 1961 (the act) in respect of interest on the borrowed principal amount and deduction under section 80C(2)(xviii) of the Act in respect of repayment of the principal amount can be claimed, if the borrowed amount is being used for the purpose specified in section 24(b) and section 80C(2)(xviii) of the Income Tax Act, subject to the fulfilment of conditions specified therein.”
After considering the certificate furnished by the assessee, the Assessing Officer concluded that the assessee is eligible for deduction under section 24(b)as well as under section 80C. The assessee could not prove that interest expenses were incurred wholly and exclusively for the purpose of making or earning income from other sources. The Assessing officer disallowed the entire interest expenses. Before learned Commissioner (Appeals), in the statement of facts, the assessee specifically stated that assessee claimed deduction of interest under section 57 of the Act. The Assessing officer made disallowance without verification of fact and providing opportunity to the assessee. The assessee, again vide submissions dated 06-04-2018 stated that the assessee made the payment of principal amount of Rs.8,92,717 and the interest amount of Rs.20,19,455. The assessee further stated that the assessee has granted loan to Hari Om Carriers, Shiv Aum Steel (P) Ltd and Soften Carriers Pvt Ltd and received interest @15% p.a. from such parties. The assessee has offered said interest income under the head “Income from other sources” in the return of income. The assessee has claimed deduction of the 5 ITA 4946/Mum/2018 interest paid to Standard Chartered Bank against the interest declared under the head, “Income from other sources”, therefore, entitled for deduction 57(iii). The assessee also relied upon the decision of Hon’ble Delhi High Court in the case of CIT Vs Taj International Jewelers (2012)
20 taxmann.com 217 (Del).
The learned Commissioner (Appeals) after considering the contention of assessee held that during the assessment the assessee failed to prove the nexus of interest expenses against the income earned. It was observed by learned Commissioner (Appeals) that perusal of certificate / letter of Standard Chartered Bank referred by Assessing Officer in the assessment order that interest on the loan granted to the assessee can be claimed under section 24(b) and deduction of principal amount under section 80C.
However, the assessee claimed deduction in respect of interest u/s 57(iii) without establishing direct nexus for interest claimed and against the interest income declared under the heard “ Income from other sources”.
For claiming interest expenditure under section 57(iii), the assessee must be laid or expended wholly and exclusively, must not be in the nature of capital expenditure, must not be in the nature of personal expenses and must be incurred in the relevant previous year and not in prior of subsequent year. Thus, the assessee has not fulfilled the aforesaid
6 ITA 4946/Mum/2018 conditions and failed to prove the direct nexus for interest paid and earned.
We have carefully seen the contents of the certificate issued by Standard Charted Bank (SCB), contents of which are extracted by Assessing officer in his order. We have noted that SCB has clearly mentioned in the said certificate that “ deduction under section 24(b) of the Income Tax Act, 1961 (the act) in respect of interest on the borrowed principal amount and deduction under section 80C(2)(xviii) of the Act in respect of repayment of the principal amount can be claimed, if the borrowed amount is being used for the purpose specified in section 24(b) and section 80C(2)(xviii) of the Income Tax Act”. In our view the lower authority has escaped their attention in noting the contents of the certificate of SCB. Admittedly no investigation is made by assessing officer or by learned Commissioner (Appeals) either from SCB or from the debtor of the assessee. The lower authority disallowed the interest expenses without bringing any adverse material on record that the assessee borrowed the capital as home loan and not for the purpose of business or profession.
The Hon’ble Delhi High Court in the case of CIT vs Taj International Jewellers (supra), on the facts that assessee availed loan from bank. The sum was deposited with the bank and converted into fixed deposit for opening letters of credit, etc. The assessee earned interest on the said
7 ITA 4946/Mum/2018 deposit and the same was offered under the head, “Income from other sources”. It adjusted interest paid on the loan against the interest earned on FDR while computing its taxable income under the head, “Income from other sources”. The AO did not allow netting of interest from interest earned on deposit and made addition. On appeal before the Tribunal, the addition was deleted. On further appeal before Hon’ble High Court it was held that interest paid should be allowed u/s 57(iii) as the amount was borrowed from the bank taking advantage of exim policy as well as lower LIBOR rate of interest and the interest paid was expenditure laid out and expended wholly and exclusively for the purpose of making or earning of interest income and dismissed the appeal of the revenue.
We have noted that in the present appeal despite the specific contention of assessee that assessee has granted loan to three concerns, viz. Hari Om Carriers, Shiv Aum Steel (P) Ltd and Soften Carriers Pvt Ltd and earned interest @15% from these parties. The assessee has offered the said interest income under the head “Income from other sources”, in the return of income and claimed interest expenses paid to Standard Chartered Bank. We have further noted that despite specific contention of the assessee that assessee has offered interest income against expenditure incurred on interest, the lower authorities have not verified the facts. In 8 ITA 4946/Mum/2018 our considered view, the ratio of decision in Taj International Jewellers (supra) is squarely applicable on the facts of the present case. Therefore, we direct the AO to allow interest expenditure of Rs.20,19,454. 11. In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 20-08-2019.