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Facts
The assessee, Amitkumar Jasvantlal Doshi, filed an appeal against the order of the CIT(A)NFAC for Assessment Year 2020-21. The assessee had lent funds to M/s. Ronak Cotton Pvt. Ltd. at 9% interest while borrowing funds from relatives at 12% interest. The Assessing Officer disallowed the excess interest expense, and this was upheld by the CIT(A).
Held
The Tribunal observed that the assessee failed to prove the nexus between expenditure incurred and income earned, and did not provide sufficient details of own capital and surplus funds. While the AO did not doubt the genuineness of the transaction, the Tribunal found merit in the assessee's case and directed the AO to make an addition at a net profit rate of 12% on the cash deposited in the bank account.
Key Issues
Whether the disallowance of interest expenses by the Assessing Officer and CIT(A) was justified. Whether the assessee failed to prove the nexus between expenditure and income.
Sections Cited
143(3), 144B, 143(2), 142(1), 57, 250
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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: DR. ARJUN LAL SAINI & SHRI DINESH MOHAN SINHA
(�नधा�रणवष� / Assessment Year: (2020-21) (Hybrid Hearing) Amitkumar Jasvantlal Doshi CIT(Appeals), NFAC-Delhi, Vs. 16, Ashok Nagar Society, Meghani Road, DCIT, Circ – 4(1)(1), Surendranagar-363001 Ahmedabad �थायीलेखासं./जीआइआरसं./PAN/GIR No.: AAZPD3668C (Appellant) (Respondent) Appellant by : Shri Krunal Karia, Ld. AR Respondent by : Shri Abhimanyu Singh Yadav, Ld. Sr. DR Date of Hearing : 28/07/2025 Date of Pronouncement : 27/10/2025 आदेश / O R D E R PER DINESH MOHAN SINHA, JM:
Captioned appeal filed by the assessee, pertaining to Assessment Year 2020-21, is directed against the order passed under section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) by National Faceless Appeal Centre (NFAC), Delhi/Commissioner of Income-tax (Appeals), dated 26.08.2024, which in turn arises out of an order passed by the Assessing Officer u/s 143(3) r.w.s. 144B of the Act, on 25.09.2022. 2. Grounds of appeal raised by the assessee are as follows:
1. That, on facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals)-NFAC, has erred on Law by justifying the act of the Ld. Assessing Officer who had violated Section 144 (xxii) of the Income Tax Act, 1961.
Amitkumar J. Doshi 2) That, on facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals)-NFAC has passed the Order u/s 250 of the Income Tax Act, 1961 in a mechanic way, without application of mind and without appreciating all the submissions made by Your Appellant during the Appellate Proceedings. 3) That, on facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals)-NFAC, has erred on Law & violated the principles of Natural Justice by delineating from Sub Paragraph (2) of Paragraph 13 of the E-Appeals Scheme, 2023 [Notification No 33/2023 dated 29.05.2023] as notified by the Honorable Central Board of Direct Taxes. 4) That, on facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals)-NFAC, has erred by bringing on record a Contrary View in para no 4.3 of his Appellate Order which has never been made by Your Appellant during the Appellate Proceedings.”
Brief facts of the case that the return of income declaring total income of Rs.1,24,19,980/- was filed on 25.08.2020 for A.Y. 2020-21. Subsequently, the case was selected for limited scrutiny through CASS and the issue was reported as "Deductions from Income from other Sources" and "Agricultural income". Statutory notice u/s 143(2) of the income Tax Act, 1961 dated 29.06.2021 was issued and this was followed by notices u/s 142(1) from time to time. During the year under consideration the assessee has shown interest income of Rs.1, 10,88,857/- @ 9% on loan amount of Rs. 10,43,16,296/- from M/s. Ronak Cotton Pvt. Ltd in which the assessee is a director. On the other hand, the assessee is paying interest @ 12% on unsecured loan to the persons. It non tenable as the assessee has shown loan and advance of Rs.18,65,10,591/- in financial asset (As per Schedule AL of ITR filed) out of which a sum of Rs.15,14,64,873/- was given to Mis. Ronak Cotton Pvt. Ltd. (As per closing balance of loan account as on 31.3.2020) on which interest has been received @ 9% by the assessee but no interest income has been shown on the remaining amount of Rs.3,50,45,718/- shown as loan given by the assessee to somebody. From which it appears that the remaining amount
SI No. Description Amount (in INR) 1. Income as per Return of Income filed Rs.1,24,19,980/- 2. Income as computed u/s143(1)(a) Rs.1,24,19,980/- 3. Addition made as discussed above Rs.1,24,19,980/- 4. Total Income Rs.8,29,862/-
That the assessee filed an appeal before the Ld. CIT(A) against the order of the AO vide order dated 25.09.2022. That the Ld. CIT(A) dismissed the appeal of the assessee with following remarks: “4.3 From the perusal of the above submission, it is clear that interest bearing fund @12% was given as advance to the company in which the appellant is a director @9%. The appellant argument that such fund was given from the reserve and surplus fund of the appellant is not tenable, as much as the appellant failed to submit the details of his own capital as well as surplus fund. Therefore, the case laws submitted by the appellant is clearly distinguishable in the case on hand. Hence, in my considered opinion, I find no merit in the argument of the appellant and therefore, not inclined to interfere with the order of the AO. Hence, the addition made is hereby sustained in appeal 5. In the result, the appeal of the assessee is dismissed.”
That the assessee filed an appeal against the impugned order of the Ld. CIT(A), vide order dated 26.08.2024 before us.
During the course of hearing, the Ld.AR of the assessee submitted that, there are different observation in the order of Ld. CIT(A) and AO.
On the contrary, the Ld. Sr. DR for the revenue relied on the order of the Ld. CIT(A). 8. We have heard both the parties and perused the material available on record. Subsequently, the Return of Income was selected for Limited Scrutiny under CASS (Computer Aided Scrutiny Selection) on issues of "Deduction from Amitkumar J. Doshi Income from Other Sources" and "Agriculture Income". For the Assessment Year-2020-21, the Appellant was a director in Ronak Cotton Private Ltd. wherein assessee had lent funds to the Company@9% interest rate p.a. by borrowing funds from family and relatives@12% interest rate p.a. The Appellant had disclosed the interest income earned@9% after deducting interest expense@12% paid to friends and relatives u/s 57 of the Act. With issuance of a Draft Assessment Order dated 23.03.2022, the Ld. Assessing Officer had proposed a variation to the Income of Your Assessee to the tune of Rs 8,29,862/- by expressing a view/reason for variation which has been re- produced as hereunder [page no 6 of the Assessment Order u/s 143(3)]: - "....From the above chart it is clear that the assessee pays excess interest i.e. interest above the interest rate of 9%. From the record it is crystal clear that assessee receives interest @ 9% from the relative (M/s Ronak Cotton Pvt. Ltd.) whereas paying interest @ 12%. Therefore, excess interest paid of Rs. 8,29,862/- as calculated above is hereby disallowed and added to the income of the assessee....”
Accurate and satisfactory response was filed to this Draft Assessment Order which was never rebutted by the Assessing Officer and the Final Assessment Order u/s 143(3) of the Act was framed on 25.09.2022 with a completely different view which was contrary to the view adopted in the Draft Assessment Order dated 23.03.2022 and the same is reproduced as hereunder: ".....I have gone through the reply filed by the assessee in response to show cause notice but found it non tenable as the assessee has shown loan and advance of Rs.18,65,10,591/- in financial asset (As per Schedule AL of ITR filed) out of which a sum of Rs.15,14,64,873/- was given to M/s. Ronak Cotton Pvt. Ltd. (As per closing balance of loan account as on 31.3.2020) on which interest has been received @ 9% by the assessee but no interest income has been shown on the remaining amount of Rs.3,50,45,718/- shown as loan given by the assessee to somebody. From which it appears that the remaining amount has been given on loan to relative and others on interest free loan. If the assessee is having sufficient fund in his hand, then what is the necessity of taken Amitkumar J. Doshi loan on interest @ 12% from other parties and needed to given to the company @ 9% in which he is director. Keeping in view of the above, it is clear that the assessee has failed to prove the nexus between expenditure incurred and income earned as the onus is on the assessee to substantiate genuineness of the expenses claimed. The assessee failed to discharge Therefore, excess interest paid of this onus. Rs.8,29,862/- is hereby disallowed and added to the income of the assessee....
We note that the appellant had raised the issues of wrong disallowance of Interest expended along with New/Additional Ground of Appeal which was never disposed of by the Ld. CIT(Appeals)-NFAC in his order passed u/s 250 of the Act. Ironically, the Ld. CIT(Appeals)-NFAC had expressed another view in para no 4.3 of his Order u/s 250 of the Act dated 26.08.2024 for sustaining the disallowance of Rs 8,92,862/- made by the Ld. Assessing Officer and the same is reproduced as hereunder: - 4.3 From the perusal of the above submission, it is clear that interest bearing fund @12% was given as advance to the company in which the appellant is a director @9%. The appellant argument that such fund was given from the reserve and surplus fund of the appellant is not tenable, as much as the appellant failed to submit the details of his own capital as well as surplus fund. Therefore, the case laws submitted by the appellant is clearly distinguishable in the case on hand. Hence, in my considered opinion, I find no merit in the argument of the appellant and therefore, not inclined to interfere with the order of the AO. Hence, the addition made is hereby sustained in appeal...s."
11. We further note that during the Appellate Proceedings, the appellant had requested for an Opportunity of being heard via Video Conferencing Proceeding in accordance with Para 13 of the E- Appeals Scheme, 2023. The Ld. CIT(Appeals)-NFAC, had never brought on record this submission dated 14.01.2014 and passed the Appellate Order u/s 250 of the Act. After gone through the facts and circumstances of the case, we observe that there is disallowance of interest of Rs.829862/-, interest is charged @9% by Ronak Amitkumar J. Doshi Cotton Pvt. Ltd., interest paid @12% as unsecured loan recorded by the assesse, therefore expenses paid of Rs. 829862/- in draft assessment order of Ld.FAO interest to disallowance of @3%, interest expenses which is in the final order where assessed of Rs. 829862 was disallowed. That the assessee has submitted the complete list of all parties to whom appellant paid interest @12%. The AO observe that the assessee failed to prove the nexus between expenditure incurred and income earned. However, the AO has not doubted the genuine of the transaction. We observe that the assessee has submitted all detail before the AO. We note that AO did not point out any specific defect in the evidences produced before the authority. Therefore, we find in this case of the assessee has some merit whole relief can note be provided to the assessee. In order to get due justice, we are of the view that a net profit rate of 12% is to be adopted on the amount of cash deposited in the bank account, since the same would take care of the inconsistencies if any, in the various evidence’s submitted before the lower authorities. Therefore, in order to safe guard the revenue. We direct the assessing officer to make addition at the rate 15% of Rs.8,29,862/-, in the hands of the assessee, which comes to Rs.1,24,480/-. We hereby make it clear that since the assessee had explained the detail of interest received on paid, therefore, 15% addition of Rs.1,24,480/- sustained by us, should be taxed under the normal rate of income tax.