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Income Tax Appellate Tribunal, ‘A’ (SMC
Before: SHRI ABRAHAM P. GEORGE]
आदेश / O R D E R
In this appeal filed by the assessee, which is directed against an order dated 31.03.2017 of ld. Commissioner of Income Tax (Appeals)-2, Coimbatore.
Assessee has filed this appeal with a delay of one day. 2.
Condonation petition has been filed. Reason shown for the delay seems to be justified. Ld. Departmental Representative did not raise any serious objection. Delay is condoned. Appeal is admitted.
Grounds taken by the Revenue are reproduced hereunder:-
‘’The assessing officer erred in this disallowing interest payment raised en house property.
The assessing officer erred in this disallowing interest payment made by account payee cheques assess to tax. 3. The ClT appeal erred in rejecting the interest payment to creditors for non availability of confirmation letter. 4. The ClT appeal erred in not considering the PAN No. ledger account and the interest payment made by banking channels by account payee cheque of the creditors. 5. The assessing officer erred in initiating penalty proceedings’’.
Through the above grounds, assessee is aggrieved on 4. disallowance of �1,26,500/- claimed by it u/s. 24(b) of the Income Tax Act, 1961 (in short ‘’the Act’’) against its income from house property and disallowance of interest payment of �7,52,547/- claimed by it against its interest receipts.
Ld. Counsel for the assessee submitted that interest payment on the housing loan was disallowed for a reason that copy of housing loan sanctioning letter was not furnished by the assessee. As per the ld. Authorised Representative, ld. Commissioner of Income Tax (Appeals) had confirmed such disallowance taking a view that proof for interest on loan borrowed for house construction was a mandatory requirement for allowing a claim u/s.24(b) of the Act. Submission of the ld. Authorised Representative, was that if assessee was given an opportunity, it will be able to substantiate payment of interest against housing loan.
Viz-a-viz, disallowance of interest of �7,52,547/-, 6. submission of the ld. Authorised Representative was that assessee had advanced loans to two concerns called M/s. Saberwal Surgical Company Pvt Ltd and M/s. Jupiter Manufacturing Works. As per the ld. Authorised Representative, these were closely related concerns.
Contention of the ld. Authorised Representative was that these loans were given for commercial expediency. Further, contention of the ld. Authorised Representative was that assessee had capital of �63,43,000/- and source to this extent for the total loans of �90,24,000/- advanced to related parties stood explained. As per the ld. Authorised Representative, apart from these unsecured loans to the tune of �99,93,000/- was unavailable with the assessee. Further, as
per the ld. Authorised Representative, interest payments made on the loans ought not have been disallowed since advances were given to related concerns due to commercial expediency.
Per contra, ld. Departmental Representative fairly admitted that para 4 of the assessment order, which dealt with disallowance of interest �7,52,547/- was not clear. Nevertheless, according to him for the sum of �1,26,500/- claimed as interest on borrowed capital against rental income, assessee was not able to furnish any evidence, despite sufficient opportunities granted by the lower authorities.
I have considered the rival contentions and perused the orders of the authorities below. Viz-a-viz, disallowance of �1,26,500/- against house property income, ld. Authorised Representative has given an undertaking that assessee will produce evidence for interest payments relating to the housing loan if given one more opportunity.
Coming to the aspect of interest payment of �7,52,547/-, what was held by the ld. Assessing Officer at para 4 is reproduced hereunder:-
Assessee's interest receipts as per Form 26AS was more than the interest receipt admitted by the assessee in return of income and hence assessee's A.R was asked to produce the details of interest income received during the year. Assessee's representative in his letter dated nil, replied as under: 'the interest income admitted in the Income Tax return has been reflected in the profit and loss account alongwith other income. The Profit and loss account also reflects the interest payment of Rs.12,62,633.12 which was utilised for the assessee's income activities which has been taken in to account in the Memo of Total income.' From the details of interest payments claimed by assessee and the confirmations furnished, it is seen payments to the extent of Rs.7.52.5471/- remains unexplained. Therefore interest payments to the extent of Rs.7,52,5471/- is disallowed from the net loss of Rs.320406/- and a sum of ₹3,20,406/- is added back as income from other sources.
On the very same issue on assessee’s appeal, what was held by ld. Commissioner of Income Tax (Appeals) at para 4 of his order is reproduced hereunder:-
‘’I have considered the grounds, written submissions and documents filed by the AR during the hearing. As per the balance sheet, the appellant had advanced loans to related concerns namely Mls Saberwal Surgical Company Pvt Ltd and Mls Jupiter Manufacturing Works but did not show any interest receipt for these parties. On perusal of balance sheet, it is noticed that the appellant had capital of about Rs. 63.43 lakhs against which investment of about RS.90.24 lakhs were shown which means that advances to related concerns are not given out of capital. The appellant had shown unsecured loans of Rs. 99.93. lakhs and advances of Rs. 59.12. lakhs and such advances include Rs. 53.34 lakhs given to the related concerns. So, it is obvious that advances were given out of unsecured loans on which appellant was accounting interest and claiming it as deduction. The business exigencies of granting such interest free advances were not proved. Therefore, the AR's argument that interest disallowance was wrongly made cannot be accepted. On the other hand, the AO had made this disallowance because the interest payments as per the appellant were not reflected in the confirmations of the loan creditors. The AR has not furnished any explanation with regard to that -variation. Secondly, it is also noted from assessment order for AY. 2012-13 in the appellant's own case, a copy of which was produced by the AR, that similar interest disallowance was made after a detailed discussion and that finding made in that year equally holds good for this year though AO did not elaborate on this matter in this years' order. Considering the circumstances in totality, I am of the view that AO was justified in making interest disallowance and making consequent addition as income from other sources. Regarding disallowance of interest. claimed uls24, except stating that such interest was allowed in AY. 2010-11, the AR has not produced any proof for having paid interest on loan borrowed for house construction purposes. Therefore, this disallowance is also confirmed. The grounds are rejected ‘’’.
What I find is that there is an obvious dichotomy between the observations of the ld. Assessing Officer and what is stated by the ld. Commissioner of Income Tax (Appeals). It is not even clear, as to the head of income under which ld. Commissioner of Income Tax (Appeals) considered the interest. Though it is stated by the ld. Commissioner of Income Tax (Appeals) that assessee had advanced loans to sister concerns, it is also mentioned that assessee did not file any confirmation of the loan creditors. The disallowance was for interest and not for unconfirmed credits. Considering the contradictory stands taken by the ld. Assessing Officer and ld. Commissioner of Income Tax (Appeals), I am of the opinion that question whether any interest disallowance was warranted, needs a revisit by the ld. Assessing Officer. I set aside the orders of the lower authorities and remit the issue regarding interest paid on housing loan of �1,26,500/- as well as disallowance of interest of �7,52,547/-, back to the file of the ld. Assessing Officer for consideration afresh in accordance with law.
In the result, appeal of the assessee is allowed for statistical purpose.
Order pronounced on Monday, the 2nd day of July, 2018, at Chennai.