SHRI AJAY BANSAL,MUMBAI vs. ACIT,CIRCLE-19(1), MUMBAI

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.

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.

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:-

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)

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.

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

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.