SHAHANSHAH DAL MILL,BHOPAL vs. ITO-5(3), BHOPAL, BHOPAL

आदेश/ O R D E R

Per B.M. Biyani, A.M.:

“1. That the Ld. AO erred in law and on facts in making an addition of Rs. 4,33,857/- to the total returned income of the appellant.

before the appeal is decided.”

2. The background facts leading to present appeal are as under:

(i) The assessee “M/s Shahanshah Dal Mill” is a partnership firm. For AY 2015-16 under consideration, the assessee filed return declaring a total income of Rs. 30,690/-. The case of assessee was selected for limited scrutiny to examine the payments made to related persons u/s 40A(2)(b) and claim of high interest expenditure. The AO issued notices u/s 143(2)/142(1) which were complied by assessee. During assessment-proceeding, the AO found that the assessee-firm came into existence w.e.f. 15.06.2014. Originally, a proprietorship concern with same name of “M/s Shahanshah Dal Mill” was owned and carried by “Shri Somamal Waswani”. However, “Shri Somamal

Waswani” expired on 14.06.2014 and in terms of will executed by him, his son “Shri Shyam Sundar Waswani” became owner of proprietorship concern. However, “Shri Shyam Sunder Waswani” converted proprietorship concern into a partnership firm w.e.f.

15.06.2014 by adding his wife and son. Thus, the present assessee- firm came into existence from 15.06.2014.

(ii) During assessment-proceedings, the AO issued a show-cause notice dated 12.09.2017 and raised following query among others:

“3. All the expenses have been claimed by you in the account of firm after 15.06.14, but you have claimed interest of Rs 21,11,436/- on unsecured loan received from various 9 parties for the period of 01.04.14 to 31.03.15. Hence, the amount of interest up to the period of 14.06.14 that comes to Rs 4,33,857/- (21,11,436*75/365), is liable to be disallowed and proposed to be added in your income. Please Explain.” (iii) The assessee filed following reply to the query raised by AO:

“3. In reference to this we hereby submit that no interest has been paid in respect to earlier period of the year under consideration i.e. from “1st April 2014 - 16 June 2014”. Rate of Interest has been increases after firm was established and consequently rate has been proportionally taken on the basis of number of days for which Interest has been paid. Interest to the firm cannot be disallowed for the reason that interest has not been paid in the earlier period. Further, whatever Interest was debited in profit and loss account was actually paid and interest was offered by the recipient for tax. Even if the rate of interest may not be 12% on calculation yet the interest payment made by the assessee was income in hands of recipient of interest and assessee have also filed form 26A before your honour and have paid interest from the day on which interest was credited in its book and actual filing of return by the recipient.” (iv) The AO, however, rejected assessee’s reply and disallowed proportionate deduction of interest for the period from 01.04.2014 to 14.06.2014 i.e. for the period during which the present assessee-firm was not in existence. The order passed by AO in this regard is re- produced below:

“7. The assessee has claimed interest of Rs 21,11,436/- on unsecured loan received from various 9 parties for the period of 01.04.14 to 31.03.15. In Third Para of his reply the assessee submitted that - "no interest has been paid in respect to earlier period of the year under consideration i.e. from "1st April 2014 - 16 June 2014". It is important to mention here that the assessee himself has submitted in his reply that Late Shri Somamal Waswani in his registered will dated 09.02.11, had decided to give ownership of M/s Shahnshah Dal Mill to Shri Shyam Sundar Waswani as a going concern, consequently, the ownership of M/s Shahnshah Dal Mill devolved to shri Shyam Sundar Waswani immediately after his death. On 15.06.14 immediately after death of Shri Somamal waswani, Shri Shyam Sundar Waswani after becoming owner by devolution from his father had decided that M/s Shahanshah Dal Mill to be converted to a partnership business, by Page 3 of 9 AY 2015-16 adding two more partners his wife and son and the running business of Shahanshah Dal Mill was converted to partnership business on 15.06.14. It is clear that on conversion all the liabilities had been taken over by the firm and the loans outstanding in the business of individual transferred to the firm. The assessee has also submitted the copy of Audit Report of late Shri Somamal Waswani and it was noticed that all the loans were outstanding from 01.04.14 and it cannot be said that the interest amount was not payable from 01.04.14. The assessee has also paid the interest amount against loan from bank and against car loan. In both the cases the assessee has computed interest amount separately, paid for the period for 01.04.14 to 14.06.14 and for the period of 15.06.14 to 31.03.15. The assessee has submitted this fact in his reply dated 09.07.17 and the same is evident from the perusal of Audit Report of late Shri Somamal Waswani. There is no reason to accept the contention of the assessee that he has not paid the interest amount from 01.04.14 to 14.06.14. The assessee itself submitted in his reply dated 09.07.17 that the interest has been paid for the period of 01.04.14 to 31.03.15. The loan amount was outstanding from 01.04.14 and the assessee himself submitted the ledger copy of Interest to Others which shows the period 01.04.14 to 31.03.15. There is also no ground available that the interest amount for the period of 01.04.14 to 14.06.14, was not charged. The assessee further submitted that whatever interest was debited in profit and loss account was actually paid and interest was offered by the recipient for tax. Even if the rate of interest may not be 12% on calculation yet the interest payment made by the assessee was income in hands of recipient of interest and assessee have also filed form 26A before your honour and have paid interest from the day on which interest was credited in its book and actual filing of return by the recipient. Offering income by the recipients has no connection with this default of the assessee. The ground taken by the assessee is related with TDS default and the point has already been considered in earlier Para. All the expenses have been claimed by the assessee in the account of firm after 15.06.14, but the assessee has claimed interest of Rs. 21,11,436/- on unsecured loan received from various 9 parties for the period of 01.04.14 to 31.03.15. Hence, the amount of interest up to the period of 14.06.14 that comes to Rs 4,33,857/- (21,11,436*75/365), is liable to be disallowed, hence, added in the income of the assessee. As the assessee has furnished inaccurate particular of his income the penalty u/s 271(1)(c) is hereby initiated.” (v) Aggrieved, the assessee carried matter in first-appeal but did not file any response to the notices of hearing issued by CIT(A). The CIT(A), vide order dated 31.01.2023, dismissed assessee’s appeal and upheld the disallowance made by AO.

3. The registry has informed that the present appeal had been filed by assessee on 08.04.2025 against impugned order dated 31.01.2023 passed by CIT(A) and hence the appeal is time-barred by 739 days. Ld. AR for assessee submitted that the assessee has filed an application for condonation of delay supported by an affidavit. The application filed by assessee is scanned and re-produced below:

Thereafter, in Para 3 of application, it is submitted that all details of assessee-firm were in the knowledge of “Shri Shyam Sunder Waswani” but unfortunately, he too expired on 06.03.2018. After his demise, the firm was re-constituted by “Shri Narendra Waswani” son of late “Shri Shyam Sunder Waswani” but “Shri Narendra Waswani” remained unaware of the appeal pending before CIT(A) [the appeal before CIT(A) was filed on 03.11.2017 against assessment-order dated 25.09.2017]. That apart, the counsel of assessee, CA M.K. Sharma, also expired on 13.12.2020 during Covid-19 pandemic. Therefore, due to such onerous circumstances one after other, neither there could be participation in the hearings given by CIT(A) nor the Page 6 of 9 AY 2015-16 present appeal could be filed in time before ITAT. Ld. AR submitted that there is “sufficient cause” for delay and hence the delay should be condoned.

Ld. DR for Revenue left the matter to the wisdom of Bench without raising any objection. We have considered the explanation advanced by assessee and in absence of any contrary fact or material on record, the assessee is found to have a “sufficient cause” for delay in filing present appeal. We find that section 253(5) of the Act empowers the ITAT to admit an appeal after expiry of prescribed time, if there is a “sufficient cause” for not presenting appeal within prescribed time. It is also a settled position by Hon’ble Supreme Court in Collector, Land Acquisition Vs Mst. Katiji and others 1987 AIR 1353, 1987 2 SCC 387 that whenever “substantial justice” and “technical considerations” are opposed to each other, the cause of “substantial justice” must be preferred by adopting a justice-oriented approach. Thus, taking into account the facts of case, the provision of section 253(5) and the decision of Hon’ble Supreme Court, we take a judicious view, condone delay, admit appeal and proceed with hearing.

Page 7 of 9 AY 2015-16 the AO is very correct in disallowing proportionate interest for the period upto 14.06.2014 (i.e. before existence of assessee-firm). Ld. AR for assessee, though tried to advance assessee’s case to serve his professional duty but, however, could not convince us as to how such interest for the period prior to 15.06.2014 can be allowed to assessee-firm when it was not in existence during that period? Ld. DR for revenue made a serious objection to the claim of assessee and submitted that the disallowance made by AO is perfectly correct according to the law and this bench cannot upset the same. We need not make any elaborate narration of the submission of parties when the issue as well as underlying facts are very clear. Nobody can dispute the statutory scheme of the Income-tax Act according to which every “person” is a separate and distinct taxable entity. In present case, the assessee-firm which is a “person” came into existence w.e.f. 15.06.2014 and prior to that, it was a proprietorship concern carried on by late Shri Somamal Waswani.

Therefore, the assessee-firm can claim deduction of expenditure incurred during its own period of existence. Being so, we find no infirmity in the action of the AO as confirmed by Ld. CIT(A), in disallowing the proportionate interest for the period prior to 15.06.2014. Accordingly, the grounds raised by the assessee lack merit and stand dismissed. The assessee fails in this appeal.

Order pronounced in open court on 27/02/2026