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Facts
The assessee's minor son received corpus funds from his grandfather, from which he advanced loans earning interest, and also borrowed funds incurring interest. The assessee claimed netting of this interest income and expenditure, clubbing the minor son's income under section 64(1A) of the Income Tax Act. The Assessing Officer and CIT(A) disallowed the interest expenditure, taxing the entire interest income, as the assessee failed to substantiate that the loans taken by the minor child were related to earning interest.
Held
The Tribunal found the findings of the AO and CIT(A) to be cryptic and based on a shallow assessment order, indicating a failure to conduct proper inquiry regarding the alleged loans taken by the minor child. Consequently, the Tribunal restored the issue back to the file of the AO for fresh adjudication (denovo assessment proceedings). The AO is directed to grant the assessee reasonable opportunity to make submissions and consider all furnished documents.
Key Issues
Disallowance of interest expenditure claimed by the assessee against the clubbed interest income of her minor son under section 64(1A) due to failure to substantiate the nexus between loans taken by the minor and interest earned.
Sections Cited
64(1A) of the Income Tax Act, 1961, 142(1) of the Act
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “A”, DELHI
(A.Y.2021-22) Brinda Jajoo, Opp. PWD Rest House, Ratnakar Lane, Civil Lines, Ludhiana, Punjab 141001 PAN: AJUPJ-4443-R ...... अपीलाथ�/Appellant बनाम Vs. Income Tax Officer, Ward-51(1), E-2 Block, Civil Centre, Minto Road, ..... �ितवादी/Respondent Delhi अपीलाथ� �ारा/ Appellant by : Ms Vibhooti Malhotra, and Shri Udit Sharma, Advocates �ितवादी�ारा/Respondent by : Shri Kanv Bali, Sr.DR सुनवाई क� ितिथ/ Date of hearing : 08/08/2024 घोषणा क� ितिथ/ Date of pronouncement : 30/08/2024 आदेश/ORDER
PER VIKAS AWASTHY, JM:
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [in short ‘the CIT(A)’] dated 24.01.2024, for Assessment Year 2021-22.
The assessee in appeal has raised multiple grounds, all the ground are in respect of single issue i.e. disallowance of interest expenditure in respect of assessee’s minor son. The assessee in her return of income had also accounted for income of her minor son under the provisions of section 64(1A) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
Ms. Vibhooti Malhotra Counsel for the assessee, narrating facts of the case submitted that the assessee filed her return of income declaring total income of Rs. 3,01,210/-. The income of her minor son Vivaan Jajoo was also clubbed with the income of the assessee u/s. 64(1A) of the Act. She pointed that minor son of the assessee had interest income from advancing of loans from corpus funds he had received from his grandfather. He had also borrowed some funds on which interest was paid. The assessee had claimed netting of interest earned and interest paid in respect of her minor child. The Assessing Officer rejected contention of the assessee and taxed the entire interest income and disallowed interest expenditure in full. Aggrieved by the assessment order dated 19.10.2022, the assessee filed appeal before the CIT(A). The First Appellate Authority without appreciating the facts and submissions of the assessee upheld disallowance of interest. Hence, the present appeal. 3.1. The ld. Counsel for the assessee submitted that during assessment proceedings in reply to notice u/s. 142(1) of the Act dated 19.10.2022, the assessee furnished detailed reply on 18.11.2022, wherein, it was explained that the assessee had received interest income amounting to Rs. 20,20,471/- on loans advanced, the assessee had also taken loans which were further advanced to her minor son. Some loans were taken through Shubhashish Wealth Management Consultants LLP. The assessee claimed netting of interest received and interest paid, however the same was denied by AO, as well as, the CIT(A).
Per contra, Kanv Bali representing the department vehemently defended the impugned order. He submitted that the assessee has failed to furnish details of borrowings. The nature of advances received by minor son of assessee is not emanating from submissions of the assessee and the documents on record. The CIT(A) has given a categoric finding that earning of interest by minor child is unrelated to the loans taken by the appellant and interest paid thereon. He further asserted that no material was placed on record by the assessee to substantiate that the loans taken on which interest was paid is in respect of minor child.
We have heard the submissions made by rival sides and have examined the orders of authorities below. The short issue for our consideration in this appeal is with regard to disallowance of interest. The income of minor child of assessee is clubbed with the assessee u/s. 64(1A) of the Act. The minor child has earned interest income which was offered to tax. Purportedly, there was some payment of interest by the minor child as well on loans taken. The assessee in computation of income claimed interest expenditure against the interest income of the minor child. The AO and CIT(A) disallowed the claim of interest expenditure as the assessee failed to substantiate that the interest expenditure was related to the loans allegedly taken by the minor child. We observe, that findings of the AO on this issue are cryptic. The AO has failed to conduct proper inquiry regarding alleged loans taken by the minor child. The CIT(A) has also passed the impugned order on the basis of shallow assessment order. Therefore, we deem it appropriate to restore this issue back to the file of AO for fresh adjudication. The AO shall also consider the documents/submissions furnished by the assessee. In denovo assessment proceedings The AO shall grant reasonable opportunity of making submissions to the assessee before deciding the issue, in accordance with law.