DILIP KUMAR MURARKA - HUF,MUMBAI vs. INCOME TAX OFFICER, WARD 20(1)(4), MUMBAI

The dispute in the present appealis confined to disallowance of interest expenditure amounting to ` 5,04,833.

Brief facts are, the assessee HUF filed its return of income on 30th July 2012, declaring total income of ` 17,713. During the assessment proceedings, the Assessing Officer while examining the return of income and computation of total income filed by the assessee noticed that the assessee has availed loan of ` 96,87,533, in the relevant previous year including interest out of which the assessee has advanced loan to the individual account amounting to ` 78,49,297. He also noticed that on the loan advanced to the individual account, the assessee has earned interest income and has claimed TDS against such income. Whereas, the assessee has paid interest on borrowed loan without deducting TDS at source under section 194A of the Income–tax Act, 1961 (for short "the Act"). Therefore, he called upon the assessee to explain why the transfer of loan fund to individual account should not be treated to be capital in nature and the interest expenditure claimed as deduction under section 57(iii) of the Act should not be disallowed. Though, the assessee justified the deduction claimed through reply dated 25th February 2015, however, rejecting the explanation of the assessee, the Assessing Officer disallowed the interest expenditure claimed by the assessee amounting to ` 5,04,833.

Though, the assessee challenged the aforesaid disallowance before the first appellate authority, however, the learned

The learned Authorised Representative submitted, the assessee has advanced loan to the individual account out of the borrowed funds and has earned interest income.Whereas, it has paid interest on the unsecured loan borrowed from others. Thus, he submitted, there is a direct nexus between the interest income and interest expenditure. That being the case, the interest expenditure claimed by the assessee should be disallowed.

The learned Departmental Representative relied upon the observations of the learned Commissioner (Appeals) and the Assessing Officer.

We have considered rival submissions and perused material on record. As could be seen from the facts discussed by the Assessing Officer in the assessment order, there is no dispute that out of the unsecured loan availed by the assessee, some amount was transferred to the individual account as loan. It is also a fact that the interest income on the loan advanced to the individual account has been offered as income. Therefore, there is a direct nexus between the unsecured loan availed by the assessee and loan advanced to the individual account. That being the case, there is also a direct nexus

In the result, assessee’s appeal is allowed. Order pronounced in the open Court on 30.01.2019