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Income Tax Appellate Tribunal, DELHI BENCH “SMC”, NEW DELHI
Before: SH.BHAVNESH SAINI
PER BHAVNESH SAINI, JUDICIAL MEMBER
This appeal by the assessee has been directed against the order of Ld.CIT(A), Meerut dated 09.11.2017 for AY 2014-15.
I have heard Ld. Representatives of both the parties and perused the findings of the authorities below.
Ld. Counsel for the assessee did not press Ground No.1 of the appeal of the assessee claiming deduction of interest, the same is dismissed as not pressed.
On ground No.2, the assessee challenged the addition on account of interest on loan debited in P&L Account of Rs.1,87,283/-. The AO noted that during the assessment year under appeal, the assessee has purchased a commercial plot No.A-7, T.P.Nagar, Meerut vide registered sale deed dated 22.07.2013. The assessee was required to explain the source of investment in the property. The assessee explained that payment of Rs.8 Lacs was made in FY 2012-13 through Union Bank of India for which he has taken loan of Rs.10 Lacs and rest of the payments were made from Punjab National Bank. The amounts of loan was credited in PNB against the loan taken from HDB Finance Services on 10.07.2013. Bank account statement, Ledger account of plot and interest expenses ledger etc. were obtained which were examined carefully by the AO. The AO noted that the assessee had debited interest expenses of Rs.3,18,723/-. Ledger account of interest expenses has been examined and found that the assessee has claimed interest expenses of Rs.1,45,429/- against interest paid to UBI, Meerut and interest expenses of Rs.41,854/- against HDB Finance Services. The assessee has taken these loans for acquiring of commercial plot which was not utilized in his business. In other words, this plot is a capital asset of the assessee and has nothing to do with his business activities. Hence, interest expenses claimed for repayment of loan cannot be allowed as business expenditure. The AO noted that after discussion, the assessee has submitted that he has made a wrong claim of interest expenses in P&L Account of the firm and agreed for addition of Rs.1,87,283/-. The AO, accordingly, disallowed the same.
4.1. The assessee made a prayer simplicitor that 1/5th of the interest should be allowed and accumulated from the year of use. Ld. CIT(A) noted that there is no provision in the Act to accumulate interest on the acquisition of business asset. It is a capital expenditure and will be added to the cost of acquisition of the assets. This ground was dismissed.
After considering rival submissions, I do not find any merit in this ground of the appeal of the assessee. It is well settled law that no appeal lies on agreed additions. I rely upon the decision of Hon’ble Bombay High Court in Page | 2 the case Jivat Lal Purtapshi 65 ITR 261, decision of Hon’ble Kerala High Court in the case Vama Davan Bhanu 330 ITR 559 and decision of Hon’ble Punjab & Haryana High Court in the case of Banta Singh Kartar Singh 125 ITR 239. The assessee made a claim of deduction of the interest before the AO. However, the assessee submitted that wrong claim is made, therefore, agreed for the addition of the amount in question. Since the assessee agreed for addition before AO, therefore, no appeal lies on this ground before Ld.CIT(A). Further, whatever prayer was made before Ld.CIT(A) for allowance of 1/5 of the interest was not arising out of the order of the AO. Ld.CIT(A) also correctly held that there is no provision in the Act to accumulate interest on acquisition of business asset.
No evidence of use of plot has been filed. This ground is same as Ground No.1, not pressed. Therefore, this ground of appeal of the assessee was not maintainable in law. The same is, accordingly, dismissed.
6. On Ground No.3, the assessee challenged the addition of Rs.9,01,183/- on account of merged capital account of two firms of the assessee. Briefly the facts of the case are that in the preceding previous year i.e. F.Y. 2012-13, the assessee declared income from business of wholesale trading of washing powder under the proprietorship firm M/s Yash Enterprises and wholesale trading of bidi under proprietorship firm M/s Shivi International. During the examination of financial statement of proprietorship Firm M/s Shivi International for AY 2014-15 under appeal, it came to the notice that the assessee has merged all assets & liabilities of proprietorship firm M/s Yash Enterprises into M/s Shivi International. This merger came into effect on 01.04.2013. As per balance sheet of M/s Yash Enterprises as on 31.03.2013, capital of the proprietor was at Rs.12,45,940/-. However, the capital Page | 3 transferred from M/s Yash Enterprises was shown at Rs.21,47,123/- in the balance sheet of M/s Shivi International as on 31.03.2014. The assessee was asked to explain the same. The assessee gave detail of the capital contribution and submitted that balance sheet of M/s Yash Enterprises is misplaced. The AO reproduced balance sheet of both the firms of the assessee and noted that the assessee has failed to reconcile the difference. The AO/Ld.CIT(A) found that there is a sundry creditors of Rs.3,76,927/-; closing stock of Rs.66,832/- for which no details have been given. There is unsecured loan from Smt.
Shobha Rani of Rs.3 Lacs which is also not explained and that there is a liability of Rs.1,57,423/-. Since the assessee could not provide the correct detail of capital contribution, therefore, the AO made addition of Rs.9,01,183/- being unexplained credit in terms of section 68 of the Act.
The only argument of the assessee before Ld.CIT(A) was that no addition u/s 68 of the Act can be made as these liabilities relate to assessment year 2013-14 and does not pertain to assessment year under appeal i.e. 2014-15.
Ld.CIT(A) found contention of the assessee be technically correct as it is a case of cessation of liability and AO should have made addition u/s 41(1) of the Act and not u/s 68 of the Act. It is also noted that the assessee has not brought on record any material/evidence to show that these liabilities are still payable.
Ld.CIT(A), accordingly, confirmed the addition u/s 41(1) of the Act.
After considering rival submissions, I am of the view that the matter requires re-consideration at the level of the AO. The AO made addition u/s 68 of the Act on account of unexplained capital contribution made by the assessee u/s 68 of the Act. However, Ld.CIT(A) did not approve addition u/s 68 of the Act. Ld.CIT(A) confirmed the addition u/s 41(1) of the Act because the Page | 4 assessee has not brought any material on record to show that these liabilities are still payable. Ld. Counsel for the assessee pointed out that balance sheet of both the proprietorship concerns of the assessee are available before the AO and also reproduced in the assessment order. Therefore, such finding of Ld.CIT(A) is incorrect. I may note that the contention of the assessee is correct that both the balance sheet were available with the AO and that no opportunity has been given to the assessee to explain the conditions of section 41(1) of the Act if satisfied in the present case. Therefore, the matter requires re- consideration at the level of the AO. I, accordingly, set aside the orders of the authorities below and restore this issue to the file of the AO with direction to re-decide the issue in the light of the provisions of section 41(1) of the Act strictly on merits by giving reasonable sufficient opportunity of being heard to the assessee. This ground of appeal of the appeal of the assessee is allowed for statistical purposes.
In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open court.