Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA & SHRI AMARJIT SINGH
The present appeal has been filed by the assessee challenging the assessment order dated 28th September 2017, passed by the learned Commissioner (Appeals)–6, Mumbai, pertains to assessment year 2013–14.
The grounds raised by the assessee read as under:–
2 Mehul Kanti Shah “1. The learned Commissioner (Appeals) erred in passing an ex–parte order without considering the written submissions made by the appellant. Appellant submits that in view of the facts and circumstances of the case as well as in law said ex–parte order passed is bad–in–law and deserves to be quashed.
2. The learned Commissioner (Appeals) erred in confirming the order of the Assessing Officer in disallowing interest expenditure to the tune of ` 1,87,796, on the plea that it is in excess of interest received on loan given to M/s. Quick Infrastructure and Developers Pvt. Ltd. Appellant submits that in view of the facts and circumstances of the case as well as in law the said disallowance of interest expenditure of ` 1,87,796, is bad– in–law and deserves to be deleted.”
In this appeal, there is only one issue which relates to action of the Assessing Officer in disallowing interest expenditure to the tune of ` 1,87,796.
During the year under consideration, the assessee has shown income from Salary, Income from House Property, Income from Capital gains and Income from other Sources. The AO observed that in the Computation of Income from other sources, the assessee had claimed Interest Expenditure against Interest Income shown from M/s.Quick Infrastructure in the following manner:
Deposits with other concerns, M/s. Quick Infrastructure – ` 9,99,082 Less: Deduction u/s 57 (Intt. Paid to Sunila Shah) – ` 9,86,732
In this regard, the assessee was asked by the AO to furnish the 3 Mehul Kanti Shah copy of ledger account of the M/s. Quick Infrastructure Pvt. Ltd. and Mrs. Sunila Shah, which were subsequently filed. On verification of the ledger account of loans receipt and loans repaid to Mrs. Sunila Shah and loans paid & received back from M/s.Quick Infrastructure Pvt. Ltd., it was observed by the AO that the rates of interest charged for Loans disbursal to Mrs. Sunila Shah was More i.e. 14% than the rate of interest (12%) charged on Loans provided to the Quick Infrastructure. Accordingly, the AO asked as to why the excessive interest paid to Mrs. Sunila Shah should not be disallowed u/s.57(iii) of the Act. In response to the same the assessee vide its letter dated 23.02.2016, submitted as under:–
"Assessee has taken loan from Mother, Mrs. Sunila Shah of Rs.1,50,00,000/- on 26th September 2012 which is utilized for granting loan to Quick Infrastructure & Developer Pvt. Ltd. on the same date. The is no other loan taken from Mrs. Sunila Shah other than the said Rs.1,50,00,000/-. The said loan was repaid partly to the tune of Rs. 1,31,75,000/- on 7th March 2013 by Quick Infrastructure India Pvt. Ltd. Assessee had his own funds to the tune ,of Rs.18,25,000/- on the said date. Accordingly entire loan taken from Mrs. Sunila Shah was repaid. As interest bearing loan taken was repaid by Assessee. The Balance loan of Rs.18,25,000/- outstanding as receivable from Quick Infrastructure was from owned funds only. Accordingly the said owned funds can be used by assessee in granting interest free loan so long as Interest being loan taken is repaid. There is no interest bearing loan taken from any party from 7th March 2013 to 31st March 2013. Thus Assessee is not required to charge interest on loans given during the said period. Assessee is entitled to give interest free loans from his own capital so long as there is no interest bearing loan taken during the period interest free loan is subsisting.
4 Mehul Kanti Shah
I am enclosing herewith a chart explaining exactly date of loan interest bearing taken & repaid, date of loan given and received back together with date of interest free loans were given out of owned fund. From the said chart it can be seen that Assessee has charged interest @ 15.1% to Quick Infrastructure whereas Assessee has paid interest @ 14.90% to Sunila shah for the same period. In view of the above, your goodself will appreciate that no interest should be disallowed uls. 57 of the Act.
The Assessing Officer in his order, has made the following observations:
"i. The assessee being an individual has provided the Loans to M/s.Quick Infrastructure & Developer Pvt. Ltd. and Quick Infrastructure & Developer Pvt. Ltd. paid interest on the loans borrowed from the assessee. The approximate rates of interest on the borrowed loans found to be @12% per annum on the said loans. ii. In the above said submission, the AR bifurcated the loans and rates of interest worked out @15%for charging interest from Quick Infra and worked out payable interest to Mrs. Sunila Shah @14.9%. Both the charging rates of interest on the loans and payable interest on the said repaid rates are different. iii. The assessee's contention with regard to providing interest free loans from its own funds and only accepting interest on the loans borrowed cannot be justified. Because the assessee has not entered into any agreement with Quick Infra to charge interest on the borrowed capital and not to charge on its Qwn loans. iv. The rates of interest have been worked out is entirely after thought and to avoid the taxability of interest income in the hands of the assessee. v. It is seen the assessee has received interest on loans given to M/s.Quick Infrastructure @ 12% amounting to RS.9,99,o82/- during the year. Accordingly, the interest on the loans receipts of RS.l,55,00,000/- was worked 011 @12% as under:–
5 Mehul Kanti Shah
Sunila Shah Interest 20.09.2012 ` 5,000 12.09.2012 ` 5,000 28.09.2012 ` 10,000 26.09.2012 ` 1,50,00,000 07.03.2012 ` 15,00,000 09.03.2012 ` 1,35,00,000
R,50,000 x 12% x 162 days / 365 = 7,98,904/–“
The Assessing Officer accordingly observed that actually the assessee has paid interest to Mrs. Sunila Shah @ 14% on the above said loans amounting to ` 9,86,701, which is excessive than the interest received from Quick Infrastructure, therefore, the difference in the rates of the loans worked out at ` 1,87,796/– (` 9,86,701 – ` 7,98,904) was disallowed out of the expenses claimed under section 57(iii) of the Act.
Upon assessee’s appeal, the learned Commissioner (Appeals) noted that none appeared on behalf of the assessee despite several notices. He proceeded to uphold the order of the Assessing Officer.
The learned Counsel for the assessee submitted before us that the lower authority have totally erred in giving a finding that the assessee has charged 12% interest. He submitted that this was duly explained before the authorities and the same was not appreciated. He further submitted that the assessee had sufficient non–interest bearing funds.
6 Mehul Kanti Shah
Per contra, the learned Commissioner (Appeals) relied upon the orders of the authorities below.
Have heard rival submissions and on a perusal of the material available on record, we note that the assessee’s contention that he has sufficient interest free funds has been rejected by the Assessing Officer without assigning any cogent reason. Furthermore, the assessee’s claim that the assessee has not charged interest @ 12% has also not been looked into. The learned Commissioner (Appeals) has dismissed the appeal for non–prosecution and has not given proper finding on the facts submitted before him. In our considered opinion, the interest of justice mandates that the present issue be remitted to the file of the Assessing Officer. Accordingly, we set aside the order of the learned Commissioner (Appeals) and restore the matter to the file of the Assessing Officer with a direction to consider the issue afresh keeping in mind our observations as above.
In the result, appeal is allowed for statistical purposes. Order pronounced in the open Court on 09.04.2019
SD/– SD/– AMARJIT SINGH SHAMIM YAHYA JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 09.04.2019
7 Mehul Kanti Shah