SHRI MANGILAL JHAWAR,INDORE vs. THE DCIT 1(1), INDORE

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ITA 478/IND/2015Status: DisposedITAT Indore16 January 2017AY 2005-065 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that while the assessee had sufficient interest-free funds, a portion of the disallowance was justified. The disallowance was restricted to the interest paid exceeding 12%, as the assessee had received interest at 12% on advances.

What were the facts?

The assessee did not charge interest on a significant debit balance with a private limited company. The Assessing Officer disallowed proportionate interest, which was confirmed by the CIT(A). The assessee argued that sufficient interest-free funds were available to cover such advances.

What were the issues?

Whether disallowance of interest on advances is justified when the assessee has sufficient interest-free funds, and to what extent can such disallowance be sustained.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, INDORE BENCH, INDORE

Before: SHRI D.T. GARASIA & SHRI O.P. MEENA

Page 1 of 5 Shri Mangilal Jhawar,Indore vs. DCIT1(1)ITA No.478/Ind/2015/AY:2005-06

आयकरअपील�यअ�धकरण ,इ�दौर�यायपीठ ,इ�दौर IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE �ीडी.ट�.गरा�सया ,�या�यकसद�य तथा �ीओ.पी.मीना ,लेखासद�यकेसम�

BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER

आ.अ.सं /.I.T.A. No.478/Ind/2015 �नधा�रणवष� / Assessment Year:2005-06 Shri Mangilal Jhawar vs. DCIT 1(1), Indore 69 Janki Nagar Extension, Indore अपीलाथ� /Appellant ��यथ� /Respondent �था.ले.सं./PAN: ABJPJ 8399P Shri Girish Agarwal, CA अपीलाथ� क� ओर से/Appellant by ��यथ� क� ओर से/Respondent by Shri Mohd. Javed, Sr. DR 16.01.2017 सुनवाई क� तारीख/Date of hearing 16 .01.2017 उ�ोषणा क� तारीख/Date of pronouncement आदेश /O R D E R PER O.P. MEENA, ACCOUTANT MEMEBR. This appeal is filed by the assessee against the order of ld. Commissioner of Income tax (Appeals)-I, Indore [hereinafter referred to as the CIT (A)] dated 26.02.2015. This appeal pertains to Assessment Year 2005-06 as against appeal decided in respect of assessment order dated 16.10.2007 passed u/s. 143(3) of Income Tax Act, 1961(herein after referred to as "the Act) by the DCIT 1(1), Indore [hereinafter referred to as the AO]. The assessee has taken following grounds of appeal:- 1. “The learned CIT(A) has erred in confirming the addition of Rs. 6,28,000/- made by the AO on account of disallowance of interest under section 36(1)(iii).

Page 2 of 5 Shri Mangilal Jhawar,Indore vs. DCIT1(1)ITA No.478/Ind/2015/AY:2005-06 2. The Ld. CIT (A) has erred in not appreciating and adjudicating judgements Jurisdictional High Court and Apex Court submitted before him. 3. The addition made to returned income and sustained by the CIT(A) may please be deleted. 4. The appellant prays to grant such relief as is found admissible under the law & equity.

2.

Succinctly, facts as culled out from the orders of lower authorities are that the assessee is an individual and has filed his return of income on 07.03.2006 declaring total income of Rs.1, 15,710/-. It was noted that the assessee has not charged an interest from M/s. Maa Annapurna Agritech Pvt. Ltd. which was shown its opening debit balance at Rs.85,33,412/- and closing debit balance at Rs. 17,00,000/- and average closing debit balance was Rs.16,50,000/-. It was further noticed that the assessee had received interest of Rs.8,90,706/- and paid interest of Rs.8,67,414/-, and has thus, shown net interest income of Rs. 23,292/-. The assessee was asked to explain as to why proportionate interest@ 12% should not be disallowable on the debit balance of M/s. Maa Annapurna Agritech Pvt. Ltd. Accordingly, Assessing Officer has worked out proportionate disallowable interest of Rs.6,28,000/- by computing disallowable interest at Rs.85,00,000/-being opening debit balance to Rs. 17,00,000/- being closing debit balance at the end of the year. 3. Being, aggrieved with the order, the assessee has filed an appeal before the Ld. CIT (A). The Ld. CIT(A) was of the view that the onus was on the appellant to prove that such loan and advances for this year and last year was not extended out of interest bearing funds. Since the assessee has failed to furnish copy of bank account to show the nexus, therefore the Ld. CIT(A) has drawn an inference that borrowed funds were used for none business purpose hence interest disallowance by the Assessing Officer was confirmed.

Page 3 of 5 Shri Mangilal Jhawar,Indore vs. DCIT1(1)ITA No.478/Ind/2015/AY:2005-06 4. Being, aggrieved the assessee filed an appeal before us. The Ld. Counsel submitted that the assessee had shown net interest income of Rs.23,292/- (890706-867414) and received interest of loan advances of Rs.1,34,59,744/- @ 12% per annum. The assessee has paid interest @ 6% to 24% during the year as follows:

@6% Four parties Rs.4,79,251/-

@9% One party Rs. 78,149/-

@11.15% Two parties Rs. 65,100/-

@12% Two parties Rs.1,46,780/-

@24% One party Rs. 98,134/-

5.

The learned Counsel submitted that from the above calculation the interest of Rs.6,22,500/- has been paid at the rate of 6 % to 12% which is less than 12% i.e. the rate at which is interest is received except in one case which is @ 24%. Therefore, the assessee has paid an amount of interest of Rs.98,134/ which is exceeding 12% i.e. @ of 24% which the Ld. Assessing Officer has taken note in the assessment order. The assessee has total income free deposit of Rs.20,90,000/- and own capital of Rs.44,39,966/-. Thus, the assessee has total interest free funds available his disposal at Rs.65,32,966/- as against interest free/exempt income yielding investments of Rs.47,81,682/- which has been arrived after reducing Rs.1,34,59,744/- being interest bearing loans and advances given from the total asset of Rs.1,82,41,426/- in the balance sheet. It was also submitted that other investment and assets of Rs.47,81,682/- also were included debit balance of Rs.16,50,000/- of M/s. Maa Annapurna Agritech Pvt. Ltd. therefore, it was argued that the interest free funds available with the assessee were at Rs.65,32,966/- which are more than the interest free/exempt income yielding investment of Rs.47,81,682/- therefore, disallowance of

Page 4 of 5 Shri Mangilal Jhawar,Indore vs. DCIT1(1)ITA No.478/Ind/2015/AY:2005-06 interest calculated on a notional basis by applying interest rate of 12% which is unwarranted, hence, same may be deleted. 6. We have considered the facts and perused the material on record and also considered rival submissions of the parties. From the submissions of Ld. Counsel, we find that the assessee had total interest free funds available at his disposal at Rs.65,32,966/- as against the interest free/exempt income yielding investment of Rs.47,81,682/-. We are also aware of the fact that the assessee has shown net interest income of Rs.23,292/- which is the outcome of interest received @ 12% on loan and advances and interest paid @ 12% loan and advances as could be seen from the chart as given above. We find that the assessee has given interest of Rs.98,134/- only which is exceeding 12% interest rate. In view of these facts and circumstances, the disallowance of interest to the extent of Rs.98,134/- is required to be sustained and balance disallowance of interest of Rs.5,29,866/- is deleted as the assessee had interest free funds available at his disposal amounting to Rs.65,32,966/- as against interest free/exempt income yielding investments of Rs.47,81,683/-. In the light of these facts, the above grounds of appeals of the assessee are partly allowed. 7. In the result, the appeal filed by the assessee is partly allowed. 8. This order was pronounced on open court as on 16.01.2017.

Sd/- Sd/- (डी.टी.गरािसया) (ओ.पी.मीना) !याियक सद�य लेखा सद�य (D.T.GARASIA) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER

$दनांक /Dated : 16 January, 2017/opm

Page 5 of 5 Shri Mangilal Jhawar,Indore vs. DCIT1(1)ITA No.478/Ind/2015/AY:2005-06

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