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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, JM & SHRI MANOJ KUMAR AGGARWAL, AM
आदेश / O R D E R
Per Manoj Kumar Aggarwal (Accountant Member)
Aforesaid appeal by assessee for Assessment Year [AY] 2011-12 contest the order of the Ld. Commissioner of Income-Tax (Appeals)-51 [CIT(A)], Mumbai, Appeal No.CIT(A)-51/DC CC-3(2)/IT-29/15-16 dated 30/11/2016 qua confirmation of disallowance u/s 14A and certain interest Viren R. Shah Assessment Year-2011-12 disallowance u/s 36(1)(iii). The assessment for impugned AY was framed by Ld. Assistant Commissioner of Income Tax Central Circle- 3(2), Mumbai [AO] u/s 143(3) read with section 147 of the Income Tax Act, 1961 on 27/03/2015 wherein the income of the assessee has been assessed at Rs.85.27 Lacs after certain additions as against returned income of Rs.49.75 Lacs filed by the assessee on 30/09/2009 which was processed u/s 143(1). The assessee being resident individual was engaged in the business of retail trade of garments and advertising under proprietorship concerns namely Roopam & Roopam Advertising respectively. 2.1 Facts qua the dispute are that during reassessment proceedings, it was noted that the assessee advanced interest free loans and advances aggregating to Rs.92.87 Lacs to three parties and claimed interest expenditure of Rs.68.55 Lacs in one of the proprietorship concern namely Roopam, which called for proportionate disallowance u/s 36(1)(iii). The proportionate disallowance so worked out amounted to Rs.13.93 Lacs which was added to the income of the assessee. 2.2 The second disallowance was u/s 14A read with Rule 8D, since the assessee earned exempt income of Rs.5.08 Lacs during the impugned AY. The disallowance so worked out amounted to Rs.17.79 Lacs which comprise-off of interest disallowance u/r 8D(2)(ii) for Rs.17.48 Lacs and expense disallowance u/r 8D(2)(iii) for Rs.0.30 Lacs. 3. Aggrieved, the assessee contested the same with partial success before Ld. CIT(A) vide impugned order dated 30/11/2016 wherein Ld. CIT(A), after due consideration, confirmed disallowance u/s 36(1)(iii) with respect to loan of Rs.4 Lacs granted by the assessee to his sister Viren R. Shah Assessment Year-2011-12 concern namely Roopam Property Private Limited. The disallowance u/s 14A was confirmed since the provisions of Section 14A, in the opinion of Ld. CIT(A), were attracted to the case of the assessee. Aggrieved, the assessee is in further appeal before us.
The Ld. Auhtorized Representative for Assessee [AR], Shri Mayur R. Makadia, drawing our attention to the financial statements of the proprietorship concern as well as personal Balance Sheet of the assessee, contested the additions as sustained by Ld. CIT(A). The same has been controverted by Ld. Departmental Representative [DR], Shri Rajeev K.Gubgotra.
We have carefully heard the rival submissions and perused relevant material on record including the financial statements of the assessee. So far as the disallowance u/s 36(1)(iii) is concerned, we find that the assessee has claimed interest expenditure of Rs.68.55 Lacs in his proprietorship concern namely Roopam. The perusal of Balance Sheet of this concern reveal that as against total funds of Rs.868.86 Lacs, the assessee’s working capital stood at Rs.775.96 Lacs i.e. more than 89% of total funds. Secondly, the assessee does not hold the stated investments in this concern rather the investment forms part of personal Balance Sheet of the assessee. In other words, no part of loan funds obtained in Roopam has been used for making the stated investments. This being the case, the disallowance u/s 36(1)(iii) could not be sustained. On the same analogy, disallowance u/s 14A also could not be sustained since it has already been noted that the stated investments did not form part of financial statements of the concern namely Roopam, Viren R. Shah Assessment Year-2011-12 rather the same were part of personal Balance Sheet of the assessee and funded out of assessee’s own capital.
In view of the stated position, both the disallowances as confirmed by Ld. first appellate authority could not be sustained. Therefore, the same stand deleted.
Resultantly, the assessee’s appeal stands allowed.
Order pronounced in the open court on 12th September, 2018.