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Income Tax Appellate Tribunal, DELHI BENCH SMC NEW DELHI
Before: SHRI B.P. JAIN
सुनवाई क� तार�ख/Date of Hearing : 24/04/2017 घोषणा क� तार�ख /Date of Pronouncement: 27/04/2017 ORDER This appeal of the assessee arises from the order of learned CIT(A)-31, New Delhi, vide order dated 31.08.2016 for the assessment year 2013-14. The assessee has raised the following grounds of appeal as under: “1(i). That on facts and circumstances of the case, the Ld. CIT(A) was not justified In confirming the disallowance of claim of interest in respect of business loss to the extent of Rs. 45,97,092/- as against 54,31,979/- made by the assessing officer.
(ii). That the lower authorities have failed to appreciate that the claim of interest is in respect of old loan obtained for the purpose of business and as such the rejection of claim and consequential benefit of set-off is illegal, arbitrary and on mechanical basis. (iii). That the disallowance is in total disregard to past history and rule of consistency. 2.That even otherwise, part of the claim of interest being accepted by Ld. CIT(A), there is no ground or basis for rejecting the remaining as the same is arising out of same loan transaction.
3. That the orders of the lowers authorities are bad in law. 4.The appellant craves leave to add, alter, amend, or vary the above grounds of appeal at or before the time of hearing.”
ITAs No.5820/Del/2016 2
The brief facts of the case are as per Assessing Officer’s order in paragraphs 4 and 5 which are reproduced hereinbelow: “4. The details submitted by assessee were examined. It was observed that the assessee has declared interest receipt from two partnership firms namely Kalki Builders & Developers and M/s. Suyray Kiran Trading Corporation amounting to Rs.13,38,958/-. The interest from partnership firm is declared under the head income from business and professions. Against the same, interest paid to partnership firm M/s. Suryakiran Finance Corporation amounting to Rs.67,70,937/- is adjusted. The assessee also declared loss of Rs.27,903/- on commodities trading and profit of Rs.11915/- on share trading. Thus the resulting loss of Rs.54,47,967/- is claimed under the head Business and profession. The assessee had earned income of Rs.84,000/- under the head income from house property. It has also earned interest of Rs.17,91,023/- from other parties, against which interest expenses of Rs.14,69,844/- has been claimed u/s.57 the assessee also had bank interest and minor’s interest income. The resulting income of Rs.4,65,422/- is also adjusted against the business loss claimed for the year under consideration. the assessee was asked to explain how the interest paid on loan from partnership firm is allowed as business expenses. the assessee submitted that the loan is old one which had been utilized for the purpose of advancing loan/capital to partnership firms and others from whom interest income is received, therefore, the interest on loan is allowable expenses. The assessee further submitted that the loss claimed under the head business and profession is set off to the extent of income and no carry forward of the same is claimed in the return of income. 5. The submission of assessee is carefully considered. The assessee was asked to submit the details of loan raised, loan advanced, interest paid on loans and interest charged on the loans. He was also asked to prove the nexus of loan raised with the interest bearing loan advanced. He was also asked to submit the criteria on which interest earned and paid are classified under the head business and income from other sources. The assessee submitted that the interest received and paid from the partnership firm is classified under the head business income whereas other interest received on investment is treated as Income from other sources. The assessee could not establish the nexus between the loans raised by him to interest bearing loans advanced by him. the onus to prove that the any expenditure made for the purpose of business is on the assessee. It was observed that assets of assessee include substantial amount of interest free loan advanced and investment in the Plots. it was also found that the opening balance of loan from Surya Kisan Finance Corporation was Rs.4.90 crore. During the year under considerations additional loan of Rs.1.99 crore was received where as amount of Rs.74.60 lakh was repaid. Along with the interest, the closing balance was Rs.6.76 crore. A substantial portion of loan is received during the year. In view of above facts the interest paid by the assessee is allowed
ITAs No.5820/Del/2016 3 only to the extent of interest earned by him from the partnership firm. the assessee could not establish that loan from Surya Kiran Finance corporation is utilized for the purpose of loan advance as investment. In fact in the preceding year also the assessee did not claim interest paid to Surya Kiran Finance Corporations against the interest received of investment. Therefore, the claim of assessee with regard to adjustment of interest payment to Surya Kiran Finance Corporations against income from other sources is disallowed. The assessee could not establish that the interest bearing fund is exclusively utilized in the business hence the excess claim of interest (after set off of interest from partnership firm) is not allowed to be carried forward. The assessee concealed particulars of his income, therefore penalty proceedings u/s.271(1)(c) are initiated.”
Learned CIT(A) allowed the benefit of Rs.8,34,887/-.
I have heard the rival contentions and perused the facts of the case. The ld. counsel for the assessee has placed on record facts of the case by way of chart as under: Shri Vipul Gupta A.Y 2013-14 Particulars Received Opening Balance of Suryakiran 49,056,308.23 Finance Corporation as on 01.04.2013 Total Amount Receipt from 12,300,000.00 Suryakiran During the year Interest paid to Suryakiran Finance 6,093,843.00 Corporation net of TDS (Rs.67,70,937 – Rs.677094) Amount of Loss as a partner 183,735.00 Total 67,633,886.83 Details of Investment and Amount Invested Interest utilization of abovementioned loan: Received Venus Dwellers Pvt. Ltd. (Director) 21,633,920.00 1,750,373.00 Kalki Builders & Developers 3,115,316.00 1,315,133.00 (partner) Investment in Property (without 42,884,650.00 Interest interest) capitalized Total (B) 67,633,886.00 3,065,506.00
Shri Vipul Gupta A.Y 2013-14
ITAs No.5820/Del/2016 4
Details of Interest Expense Claimed Total Interest expense claimed in the ROI in respect of 6,770,937.00 loan from M/s. Surya Kiran Finance Corporation Interest setoff against interest income from M?s. Kalki (-) 1,338,958.00 builders and developers and M/s. Surya Kiran Finance Corp. (As per para 5 page 2 of Assessment Order) (Rs.13,15,133 + Rs.23,825) Balance interest disallowed by Assessing Officer 5,431,979.00 Benefit given by CIT(A) of the proportionate interest (-)834,887.00 expenses relating to the interest bearing funds which were invested for purchase of land to be capitalized [para 5.1 of page 5 of CIT(A) order] Balance Loss disallowed by CIT(A) 4,597,092.00 Setoff of the following incomes claimed by assessee: Income from House Property 84,000.00 Income from trading in shares 11,915.00 (-) 561,337.00 Income from other sources 465,422.00 Balance Loss to be carried forward to subsequent 4,035,755.00 years
It was argued by the ld. counsel for the assessee, Mr. R.S. Singhvi, C.A. that total interest expenses was Rs.67,70,937/- out of which interest was set off against interest income as above said for an amount of Rs.13,38,958/- and benefit given by the ld. CIT(A), the balance loss was disallowed by ld. CIT(A) was Rs.45,97,092/- and after setting off balance loss was carried forward to subsequent year was Rs.40,35,755/-. It was further argued that interest received amounting to Rs.30,65,506/- should be set off against the said carried forward loss and balance should be treated as capital loss. I agree to the submission made by the ld. counsel for the assessee that interest received should be set off against the said balance loss and the ITAs No.5820/Del/2016 5 balance amount so remains should be treated as capital loss and Assessing Officer is directed to act accordingly. Thus, the grounds of the assessee are partly allowed.
In the result, the appeal of the assessee is partly allowed.