ANILABEN AMBALAL PATEL,MUMBAI vs. ASST CIT 24(3), MUMBAI

This appeal has been filed by the assessee against the order dated 06.02.2017 passed by the Commissioner of Income Tax (Appeals)-9 (for short ‘the CIT(A), Mumbai, for the assessment year 2010-11, whereby the Ld. CIT(A) has dismissed the appeal filed by the assessee against the assessment order passed u/s 143 (3) of the Income Tax Act, 1961 (for short the ‘Act’).

Brief facts of the case are that the assessee an individual and partner of M/s Laxmi Industrial Estate, engaged in the business of development of property and real estate and having income from house property and other sources, filed her return of income for the assessment year under consideration declaring the total income at Rs. 45,83,031/-. Since, it was noticed that the assessee had shown interest received amounting to Rs. 20,39,809/- and had claimed term loan interest amounting to Rs. 40,43,986/- and interest on bank over draft (OD) of Rs. 15,294/- (total 40,59,280) the assessee was asked to Assessment Year: 2010-11 submit the details of interest paid to bank along with necessary documentary evidence. The AO after going through the details furnished by the assessee, noticed that the interest paid was against the term loan and bank OD. Accordingly, the AO asked the assessee as to why the interest paid should not be disallowed. The assessee submitted that the term loan was utilized for FDR. The AO holding that certain portion of the loan was utilized for investment which has not earned any income, disallowed the interest expenditure amounting to Rs. 20,02,617/- and completed the assessment u/s 143 (3) of the Act and determined the total income of the assessee at Rs. 66,36,140/- inter alia making disallowance of Rs. 20,02,617/- of interest expenses claimed against income from other sources. In the first appeal, the Ld. CIT (A) confirmed the addition made by the AO. The assessee is in appeal against the order passed by the Ld. CIT (A).

The assessee has challenged the impugned order passed by the Ld. CIT (A) on the following effective grounds:- A) Disallowance of interest – Rs. 20,02,617/-. 1) The learned Commissioner of Income Tax (Appeals)-42, Mumbai [CIT (A)] erred on facts and in law in confirming the order passed by the Assistant Commissioner of Income Tax-24(3), Mumbai (AO) making a disallowance out of interest of Rs. 20,02,617/-. 2) The appellant prays that the disallowance of interest of Rs. 20,02,617/- as made by the AO and as confirmed by the CIT (A), may be deleted.”

Before us, the Ld. counsel for the assessee submitted that the assessee had taken a term loan amounting to Rs. 4 crores from M/s Kapol Cooperative Bank Ltd. at the interest rate of 13.5% per annum. The assessee paid interest of Rs. 40,43,986/- on the said loan. The outstanding term loan as on 31.03.2009 was Rs. 3,45,11,202/- and as on 31.03.2010 at Rs. 2,55,95,188/-. The assessee invested part of the funds in Fixed Deposits with the Banks. The Fixed Deposits with banks as on 31.03.2009 was Rs. 2,86,62,318/- and as on 31.03.2010 was Rs. 1,68,13,498/-, the appellant earned interest on Fixed Deposits amounting to Rs. 20,56,663/-. The Ld. counsel further submitted Assessment Year: 2010-11 that an average of Rs. 2,27,37,908/- was invested in fixed deposits out of average term loan of Rs. 3,00,53,195/- interest to the extent of average fixed deposit amounting to Rs. 30,59,634/- needs to be allowed u/s 57 (3) of the Act. So far as the observations of the authorities below, that assessee cannot borrow at higher rate and invest at lower rate the Ld. counsel placing reliance on the decision of the Hon’ble Supreme Court in the case of CIT vs. Walchand & Company Pvt. Ltd. 65 ITR 381 (SC), JK Woolen Manufacturing vs. CIT 72 ITR 612 (SC) and CIT vs. Panipat Woolen and General Mills Company Ltd. 103 ITR 66 (SC) submitted that AO cannot direct the assessee to carry on its business in a particular manner. The Ld. counsel further pointed out that during the AY 2009-10 the assessee claimed the set off of the bank term loan interest paid by her against the bank FDR interest and interest received from M/s Pranay Investment and that the claim was accepted vide assessment order dated 16.12.2011 passed u/s 143 (3) of the Act. Similarly, in the case of Sh. Ambalal Kishorbhai, the husband of the assessee the set off of interest received was allowed by the Ld. CIT (A) in the AY 2010-11. In the light of the aforesaid facts, the Ld. counsel for the assessee submitted that the excess disallowance to the extent of Rs. 10,18,265/- may be deleted out of the total disallowance confirmed by the Ld. CIT (A). The Ld. counsel placed on record a working of excess disallowance made by the AO.

On the other hand, the Ld. Departmental Representative (DR) relying on the concurrent findings of the authorities below submitted that there is no infirmity in the order of the Ld. CIT (A) to interfere with.

We have heard the rival submissions and also gone through the relevant material on record including the cases relied upon by the assessee. The grievance of the assessee is that the Ld. CIT (A) has wrongly confirmed the disallowance of interest claimed by the assessee. The Ld. CIT (A) has confirmed the disallowance on the ground that in the previous year the assessee had not given loan on interest and not dealt in any TDR matter. Further, the assessee has not adduced any evidence to show that there was any effort on the part of Assessment Year: 2010-11