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Income Tax Appellate Tribunal, “SMC”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM Shri Rajesh Laxmandas Harguani
आदेश / O R D E R PER R.C.SHARMA (A.M):
This is an appeal filed by the assessee against the order of CIT(A)- 2, Thane dated 12/06/2017 for A.Y. 2012-13 in the matter of order passed by AO u/s.143(3) of the IT Act. 2. The following grounds have been taken by the assessee:-
1. On the facts and in the circumstances of the case & in law, the learned ITO, Ward 3(2),Thane in erred "in passing the order without giving full and proper opportunity of being heard in the matter.
2. On the facts and in the circumstances of the case & in Jaw, the learned ITO, Ward 3(2).Thane erred in passing the order without fully and properly appreciating the facts and circumstances of the case.
3. On the facts and in the circumstances of the case & in law, the learned ITO, Ward 3(2),Thane erred in passing the order without taking into consideration fully and properly the written submissions submitted during the course of hearing proceedings.
Shri Rajesh Laxmandas Harguani 4. On the facts and in the circumstances of the case & in law, the learned ITO, Ward 3(2),Thane erred in disallowing the expenses u/s 40(a)(ia) of The Income Tax Act, 1961.
On the facts and in the circumstances of the case & in law, the learned ITO, Ward 3(2),Thane erred in applying provisions of section 40(a)(ia) of The Income Tax Act. 1961 to income from other sources.
Your Appellant begs to reserve the right to add, alter or amend any of the facts/ grounds mentioned here in above.
In this appeal, assessee is basically aggrieved by the order of AO for disallowing interest u/s.40(a)(ia).
Rival contentions have been heard and record perused. 5. The AO had disallowed the interest expenditure of Rs.6,62,182/-, paid to M/s. Cholamandalam Investment and Finance Co. Ltd. (NBFC), on loan of Rs 55 lakhs borrowed for purchase of property, on the ground that no TDS was deducted. During the course of appellate proceedings it is claimed that the loan of Rs 55 lakhs was borrowed for the purchase of property, however, could not find suitable property, therefore, the loan amount remained unutilized. In order to cover up the interest burden and earn some income there from, it is claimed that the loan amount was advanced, as soft loan, to his friend namely Shri Thakore Santosh Narayan. It is stated that the assessee had earned the interest income, against loan advanced to friend, at Rs 4,31,230/- and declared in the return of income. It is claimed that the assessee had declared interest income and claimed interest expenditure under the head ''income from other sources", in the computation of income and not in the P& L A/c.
Shri Rajesh Laxmandas Harguani 6. By the impugned order, CIT(A) accepted assessee’s contention for not deducting tax u/s.40(a)(ia), therefore, did not disallow the interest expenditure on the ground of disallowance adopted by the AO i.e., 40(a)(ia). However, he has restricted the disallowance with respect to the interest expenditure incurred for the non-business purposes, in so far as assessee has diverted the interest bearing funds for advancing to his friend at a lower interest. The precise observation of CIT(A) as under:- 6.3. As regard the earning of interest of Rs 4,31,250/- from Mr. T Santosh Narayan, against the above loan is concerned it is seen that the appellant had incurred loss of Rs 2,30,932/- (6,62,182 - 4,31,250), by advancing the said loan to his friend. The appellant could not bring any material on record to prove that the said loan was borrowed for purchase of property and also could not substantiate the reasons as how come M/s Cholamandalam Investment and Finance Co. Ltd had advanced a loan of Rs 55 lakhs for purchase of property, without such documents. Had it been case the loan could have been disbursed only on finalization of property deal, rather than advancing the same to his friend. Under these set of circumstances, the loss of Rs 2,30,932/-, on account of advancing the loan to his friend after borrowing from M/s Cholamandalam Investment and Finance Co. Ltd, is not explainable, hence cannot be allowed. Since the appellant had declared the interest income of Rs 4,31,250/-, against said loan and offered in the computation of income, therefore, the balance disallowance of Rs 2,30,932/- (6,62,182 - 4,31,250), is hereby sustained. These grounds of appeal are partly allowed. "