RAJESH PAGARIA,KOLKATA vs. I.T.O.,WARD-46(3), KOLKATA

I have heard the arguments of both the sides and also perused the relevant material available on record. As regards the issue involved in Ground No. 1 relating to the disallowance made by the Assessing Officer and confirmed by the ld. CIT(Appeals) out of motor car expenses, it is observed that the assessee had shown income of Rs.9,65,000/- received from hiring of one car, while the expenses claimed on maintenance of the said motor car including depreciation stood at Rs.11,61,475/-. Since no record in the form of log book, etc. was maintained by the assessee to show that the said car was solely used for giving it on hire, the Assessing Officer was of the view that the chances of personal use of car by the assessee could not be ruled out. He accordingly made a disallowance of Rs.5,80,588/- being 50% of the car expenses claimed by the assessee on account of use for personal element. On appeal, the ld. CIT(Appeals) confirmed the said disallowance made by the Assessing Officer.

After considering the rival submissions and perusing the relevant material available on record, I am inclined to agree with the contention of the ld. Counsel for the assessee that the disallowance of 50% of the car expenses made by the authorities below is on the higher side keeping in view all the facts and circumstances of the case including especially the fact that rental income of Rs.9,65,000/- was received by the assessee from hiring the said car. In my opinion, it would be fair and reasonable to restrict the disallowance out of car expenses to 20%. The impugned order of the ld. CIT(Appeals) is accordingly modified and the Assessing Officer Assessment Year: 2011-2012 Rajesh Pagaria is directed to restrict the disallowance out of car expenses to 20%. Ground No. 1 of the assessee’s appeal is thus partly allowed.

At the time of hearing before me, the ld. Counsel for the assessee has not pressed Ground No. 2 raised in this appeal of the assessee. The same is accordingly dismissed as not pressed.

As regards the issue involved in Ground No. 3 relating to the disallowance on account of interest made by the Assessing Officer and confirmed by the ld. CIT(Appeals), it is observed that interest expenditure of Rs.8,30,163/- incurred in respect of unsecured loan of Rs.1.95 crores was claimed by the assessee as deduction. As noticed by the Assessing Officer during the course of assessment proceedings, the assessee had given interest-free loans of Rs.2.34 crores. Since the assessee had received interest income of Rs.4,16,000/- during the year under consideration, the net interest amounting to Rs.4,14,163/- was disallowed by him. On appeal, the ld. CIT(Appeals) confirmed the said disallowance observing that there was failure on the part of the assessee to establish any nexus between the loans given free of interest and his business.

After considering the rival submissions and perusing the relevant material available on record, I find that the unsecured loans taken on interest were utilized by the assessee for giving interest-free loans. Since the assessee has failed to establish the business expediency of the unsecured loans so given either before the authorities below or even before the Tribunal, I am of the view that the interest expenditure claimed by the assesese cannot be allowed as deduction. Moreover, as rightly pointed out by the ld. D.R., the Assessing Officer has taken a very fair and reasonable stand on the matter while disallowing only net interest expenditure after adjusting the interest received by the assessee. I, therefore, find no infirmity in the impugned order of the ld. Assessment Year: 2011-2012 Rajesh Pagaria CIT(Appeals) confirming the disallowance made by the Assessing Officer on account of interest and upholding the same, I dismiss Ground No. 3 of the assessee’s appeal.

In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on October 18, 2019.