DINESH B POKHRIYAL,KALYAN vs. ITO WARD(2) PANVEL, PANVEL

This appeal filed at the instance of assessee is directed against the order of Ld. CIT(A)/NFAC dated 18.10.2024 which is arising out of the assessment order u/s 143(3) of the Act for Assessment Year 2010-11 framed on 28.03.2013 by the ITO, Ward-2, Panvel.

The assessee has raised multiple grounds of appeal raising legal issues challenging the validity of the assessment proceedings and also raised the grounds on merit against the disallowance of interest expenditure claimed at Rs.8,61,629/-.

Ld. assessee submitted that he has been carrying on the business of chemicals under the sole proprietary concern, M/s Garhrwal Chemicals, Plot No.17/39, MIDC, Chemical Zone, Taloje, Panvel, Dist. Raigad upto financial year 2008-09 and for the purpose of carrying business, cash credit limits taken from bank against the bank FDR. He also submitted that the business closed during the financial year 2008-09, however the liability of interest payable on the bank cash credit limits crystallize during the year and the alleged sum is on account of said bank interest and the same has been claimed against the income from bank FDR and deserves to be allowed.

On the other hand, Ld. Departmental Representative submitted that the assessee has not carrying on any business during the year and therefore, the said alleged claim has rightly been denied by Ld. CIT(A)/NFAC.

I have heard rival contentions and perused the records placed before me. The submission of the assessee is that the bank interest paid during the year at Rs.8,61,629/- deserves to be allowed against the FDR interest, I observe that in the return of income the assessee has shown bank FDR interest of Rs.16,13,394/- earned against Fixed Deposits held with SBI, Kalyan, Indian Bank, Kalyan and Federal bank, Dombivali. In the computation of income, the assessee has claimed bank interest expenditure of Rs.8,61,628/- paid on the cash credit account held with Federal Bank. Admittedly, there is no dispute to the fact that the assessee has been carrying on business of chemical under the sole proprietary concern, M/s Garhrwal Chemicals. It is also stated that in the past upto A.Y. 2009-10 assessee has filed income tax return along with audited financial statements of the sole proprietary concern, the business of which closed during the financial year 2008-09. The fact that the assessee was having the cash credit account with Federal bank stands acknowledged by Ld. Assessing Officer who called for information u/s 133(6) of the Act from the said bank. Further, the assessee in its written submissions filed before lower authorities has demonstrated that even though the business of M/s Garhrwal Chemicals was closed for financial year 2008-09, however, there were outstanding creditors which were paid off during the year and the interest paid during the financial year 2009-10 on the cash credit limit held with Federal Bank.

I find that though the assessee has declared the income under the head ‘Income from other sources’, however facts indicate that the bank FDR interest as well as interest paid on cash credit account are part of the business transactions of the erstwhile chemicals business carried by the assessee and even though it has been shown in the income tax return under the head ‘Income from other sources’ but the fact remains that the assessee is eligible for bank cash credit account interest expenditure of Rs.8,61,629/- against the gross interest received on bank FDR. I therefore under the given facts and circumstances of the case set-aside the findings of Ld. CIT(A)/NFAC, delete the impugned disallowance and allow the claim of interest expenditure of Rs.8,61,629/- claimed against the gross bank FDRs interest income shown by the assessee in the