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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI SUNIL KUMAR YADAV & SHRI A.K. GARODIA
O R D E R Per Sunil Kumar Yadav, Judicial Member
This appeal is preferred by the assessee against the order of CIT(Appeals) inter alia on the following grounds:-
“1. The learned CIT (A) on the facts and in the circumstances of the case, ought to have allowed the interest of Rs. 38,86,780/- paid to ICICI bank as claimed by the Appellant in full.
2. On the facts, the learned CIT (Appeals) ought to have accepted the evidence produced by the Appellant where the Appellant was restricted to give loan to the firm at concessional rate on business compulsion, whereas the loan borrowed was for business purposes and accordingly he ought to have refrained from disallowing the claim of the Appellant.
3. Without prejudice, the disallowance as sustained by the learned CIT (Appeals) is arbitrary, excessive and ought to be deleted in full.
4. The learned CIT (A) erred confirming the levy of interest u/s. 234B and 234C of the Act.
For these and such other grounds that may be urged at the time of hearing, the appellant prays that the appeal may be allowed.”
The main ground involved in this appeal relates to the addition made on account of disallowance of interest of Rs.38,86,780 paid to ICICI Bank.
The facts in brief borne out from the record are that the assessee is an individual and has filed the return of income declaring income of Rs.48,96,370 which was processed u/s. 143(1) of the I.T. Act, 1961 [hereinafter called as “the Act”]. The case was taken up for scrutiny and notice u/s. 143(2) and 143(1) was issued. The AO examined the nature of payment of interest by the assessee to ICICI Bank, but was not convinced with the issue of payment of interest and disallowed the interest of Rs.38,86,780 paid on loan taken from ICICI Bank on the ground that funds have been diverted to a firm at concessional rate.
The assessee preferred an appeal before the CIT(Appeals) with the explanation that assessee has borrowed funds from ICICI Bank and the same was invested in Basant Betons, a firm in which assessee is a partner.
Thus there was direct nexus for the borrowed funds and its investment in the firm, Basant Betons. The CIT(Appeals), following its earlier order for the AY 2009-10 confirmed the disallowance. Now the assessee is in appeal before the Tribunal.
5. During the course of hearing, the ld. counsel for the assessee has filed a copy of the order of Tribunal confirming the order of CIT(A) for the AY 2009-10 along with letter of partnership firm, computation of income, profit & loss account of the assessee as well as of the firm and the balance sheet of the firm, etc., with the submission that the funds were borrowed for the purpose of investment in the firm as the firm was not able to borrow the funds. Since the funds were borrowed for business exigencies, interest paid to the bank on the borrowed fund should be allowed. The assessee has also filed the statement of the bankers, advancing the loan and the disbursement to the partnership firm as it was facing financial crisis. The ld. counsel for the assessee further contended that in the earlier assessment year, the entire relevant evidence was not considered by the lower authorities and they have made the additions. He, however, submitted that in the earlier years at least interest charged from the firm should have been allowed by the Tribunal.
The ld. DR, on the other hand, has placed reliance on the order of CIT(Appeals).
Having carefully examined the order of lower authorities in the light of rival submissions, we find that in the earlier assessment years, payment of interest was disallowed only for the reason that it was diverted to the partnership firm, without assessing the business need of such investment in the light of judgment of Hon’ble Apex Court in the case of S.A. Builders v. CIT, 288 ITR 1 (SC). During the impugned assessment year, the assessee has filed enormous evidence to explain the business need of the investment of borrowed fund in the partnership firm. Therefore, we are of the view that this issue requires a fresh look by the AO in the light of judgment of the Hon’ble Apex Court in the case of S.A. Builders (supra).
Accordingly, we set aside the order of CIT(Appeals) and restore the matter to his file with a direction to readjudicate the issue afresh in the light of judgment the Hon’ble Apex Court in the case of S.A. Builders (supra), after affording opportunity of being heard to the assessee. If need be, the CIT(Appeals) may also call for remand report from the AO on the new evidence filed by the assessee.
In the result, the appeal of assessee is allowed for statistical purposes.
Pronounced in the open court on this 28th day of April, 2017.