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Income Tax Appellate Tribunal, KOLKATA BENCH “A” KOLKATA
Before: Shri S.S.Godara & Dr. A.L. Saini
O R D E R
PER S.S.Godara, Judicial Member:
- This assessee’s appeal for assessment year 2011-12 arises against the Commissioner of Income Tax (Appeals)-9 Kolkata’s order dated 22.03.2016 passed in case No.223/CIT(A)-9/Wd-1(4)/2015-16/Kol, involving proceedings u/s 143(3) of the Income Tax Act, 1961; in short ‘the Act’. Heard both the parties. Case file perused.
The assessee’s first and foremost grievance seeks to reverse both the lower authorities’ action disallowing its sec.24(b) interest amount of ₹30,80,025/- in the course of assessment and affirm in the lower appellate proceedings. The CIT(A)’s detailed discussion to this effect reads as under:- “4 Conclusion:
Addarsh Managemetn P. Ltd. Vs. ITO Wd-1(4) Kol. Page 2 4·1 The AO has disallowed the interest of Rs 30,80,025 paid to HDFC Bank. This interest was claimed as deduction u/s 24(b) against income from house property. Deduction of interest u/s 24(b) is allowable deduction provided the loan is taken for purchase of property. In the instant case, the loans from HDFC Bank are not housing loans but term loan and has been used for providing loans to sister concerns and others, either interest free or with interest. This is a normal business loan taken from bank, part of which has been utilized for financing part of the cost of a property. The appellant does not have clear bifurcation of interest which is attributable to the loan for purchase of property and that for giving interest free/interest bearing advances to sister concerns or others. It is further seen that the loans from HDFC are not housing loans which carry lower rate of interest and which are to be spent as per directions of Bank but normal business loans which were disbursed by Bank on the security of property and repayments out of rent of this property. The appellant was free to use it the way he liked for interest free/interest bearing loans to sister concerns/others for his business. Therefore, as the loans were taken for business and were advanced as loans to other concern for business, the same cannot be allowed as deduction u/s 24(b) against income from house property. This disallowance is confirmed and the ground number 1 is dismissed.”
It is thus claimed that both the lower authorities hold the assessee to have failed in proving nexus of the loan amount in issue availed / utilized for the purchasing the house property in issue. Mr. Ghosh invites our attention to some basic facts. He submits that this assessee is engaged investment and loan business. He takes us to para 2.2 page 4 in the assessment order that the assessee’s short term loan amount borrowed from HDFC bank held to have not utilized for purchasing house property but it had provided interest free advances to other concerns in the regular course of business. He refers to the corresponding interest details in pages 27 in the paper book indicating amount paid to M/s HDFC bank. It is reiterated that in case the lower authorities have declined the assessee’s deduction claim u/s24(b) of the Act, the same deserves to be allowed u/s 36(1)(iii) since the assessee’s interest bearing funds had been advanced to its sister concern in regular course of business involving commercial expediency. Learned departmental representative fails to dispute that neither of the lower authority has adjudicated all these clinching aspects whilst disallowing the assessee’s interest amount. We therefore deem it appropriate that this first substantive ground raised in the instant appeal deserves to be restored back to the Addarsh Managemetn P. Ltd. Vs. ITO Wd-1(4) Kol. Page 3 Assessing Officer for afresh adjudication as per law within three effective opportunities of hearing. We order accordingly.
Mr. Ghosh does not press for assessee’s second substantive ground challenging correctness of both the lower authorities’ action adding speculation loss of ₹2,76,530/- thereby denying its set off against the short term loss of ₹36,33,469/-. This second substantive ground is declined as not pressed.
Next comes assessee’s third substantive ground seeking to delete travelling expense disallowance of ₹16,62,171/- made in both the lower proceedings on the premise that the assessee failed to prove the same to have been incurred wholly and exclusively for the purpose of its business u/s 37(1) of the Act.
We find that neither party(ies) submissions against and in support of the impugned disallowance deserves to be accepted in entirety as the assessee had failed to prove nexus of the impugned expenses with the corresponding business / other activities and the Revenue has not pin-pointed any specific defect in the impugned claim. We therefore deem it appropriate that a lump sum disallowance @ 10% of the sum in issue of ₹16,62,171/- would meet the ends of justice with a rider that same shall not be treated as a precedent. The impugned disallowance sum of ₹16,62,171/- is restricted to ₹1,66,217/- only. Consequential computation to follow.
Lastly comes sec. 14A r.w.s. Rule 8D disallowance of ₹10,21,610/- made in the course of assessment and uphold in the lower appellate proceedings. It comprises of proportionate interest and administrative expenditure figures amounting to ₹10,25,497/- and ₹1,17,148/-; respectively. It transpires during the course of hearing that the assessee’s interest free funds read an amount of ₹15,40,89,600/- as against exempt income yielding Addarsh Managemetn P. Ltd. Vs. ITO Wd-1(4) Kol. Page 4 investments of ₹200,02,348/- only. The necessary presumption in such a case as per hon'ble Bombay high court in the case of CIT vs. Reliance Utilities and Power Ltd. reported in (2009) 313 ITR 340 (Bom) is that of deployment of interest free funds in exempt investments only. We accordingly delete the former disallowance of proportionate interest expenditure amounting to ₹10,25,497/-.