NIRMAL SINGHAL,DELHI vs. ITO, NEW DELHI

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ITA 4452/DEL/2016Status: DisposedITAT Delhi16 March 2017AY 2012-135 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal admitted additional evidence submitted by the assessee, finding it relevant to the core issues. Consequently, the Tribunal set aside the matter to the AO for fresh adjudication.

What were the facts?

The assessee claimed deduction for interest paid to relatives, which the AO disallowed by invoking Section 40A(2)(b) and restricting it to the interest income earned. The CIT(A) upheld this disallowance, stating the assessee failed to justify the utilization of loan for earning interest income lower than expenditure.

What were the issues?

Whether the disallowance of interest paid to relatives under Section 40A(2)(b) was justified, and whether additional evidence should be admitted for fresh adjudication.

Which sections of the Income-tax Act were involved?

Section 40A(2)(b),Section 57

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH ‘SMC’, NEW DELHI

Before: Sh. N. K. Saini

For Respondent: Ms. Bedobani Choudhari, Sr. DR
Hearing: 14.03.2017Pronounced: 16.03.2017

ORDER This is an appeal by the assessee against the order dated 29.06.2016 of ld. CIT(A)-11, New Delhi.

2.

Following grounds have been raised in this appeal:

1.

“1. That the Ld. AO erred in law and on facts in making an addition of Rs.362814/-and the Ld. CIT(Appeals) erred in law and on facts in confirming the addition in the facts and circumstances of the case. 2. That the Ld CIT(A) erred in law and on facts in confirming the addition made by the AO by disallowing interest of Rs.362814/- out of interest paid by the assessee and claimed u/s 57, just for the purpose of restricting the interest paid to interest income.

2 Nirmal Singhal 3. The Ld CIT(A) erred in law and on facts in not allowing u/s 24 the interest paid by the assessee and attributable to capital borrowed for acquisition of house property to the extent of Rs.275636/- as per details given to him.

4. The Ld A.O erred in making and CIT(A) erred in law and on facts in confirming the addition of Rs.362814/- on the premise that provisions of Section 40A(2)(b) of the Act are applicable to the deductions claimed u/s 57.

5.

That the addition made and confirmed by considering interest paid to relatives @ 10% to 13% per annum as unreasonable was unjustified.

6. The Ld A.O should have allowed interest paid by the assessee and claimed u/s 57 in the facts and circumstances of the case since the funds were borrowed for the purpose of earning income and conditions u/s 57 for allowance of interest were satisfied.

7.

The assessee craves leave to amend, alter, add to or delete any of the grounds of appeal

.”

3. From the above grounds, it is gathered that the grievance of the assessee relates to the confirmation of addition of Rs.3,62,814/- made by the AO on account of disallowance interest by invoking the provisions of Section 40A(2)(b) of the Income Tax Act, 1961 (hereinafter referred to as the Act).

4.

Facts of the case in brief are that the assessee e-filed her return of income on 06.07.2012 declaring an income of Rs.14,89,350/- which was processed u/s 143(1) of the Act. Later on, the case was selected for 3 Nirmal Singhal scrutiny. During the course of assessment proceedings, the AO noticed that the assessee claimed deduction on account of interest paid at Rs.7,61,849/-, out of income from other sources amounting to Rs.3,99,035/-. He further observed that all the parties to whom interest had been paid were relatives within the definition of Section 40A(2)(b) of the Act and that the interest paid by the assessee @10% to 15% was apparently appearing to be unreasonable. The AO restricted the interest paid to the extent of income earned at Rs.3,99,035/- and disallowed the remaining amount of Rs.3,62,814/- (Rs.7,61,849 – Rs.3,99,035).

5. Being aggrieved the assessee carried the matter to the ld. CIT(A) who sustained the disallowance made by the AO by observing that no reason had been given by the assessee to justify the utilization of loan taken for earning interest income lower than interest expenditure and as such interest expenditure could not have been stated to be wholly and exclusively for the purpose of earning interest income resulting in a loss.

6.

Now the assessee is in appeal. The ld. Counsel for the assessee moved an application dated 14.03.2017 under Rule 29 of the ITAT Rules, 1963 for admission of the following additional evidence: “(i) Copies of account of parties for AY 2009-10 to 2012-13 (ii) Statement of affairs of the assessee relevant to AY 2008-09 to 2011-12 (iii) Bank statement of FY 2007-08 & 2008-09 (iv) Details of investment in acquisition of property and source thereof”

4 Nirmal Singhal 7. It was further submitted that the AO did not raise any query after the explanation was furnished by the assessee and even no show cause notice was issued/served proposing any addition. It was further submitted that the ld. CIT(A) although noted that certain evidences were furnished by the assessee which were not required to be produced but no finding has been given on these evidences. It was further submitted that all the additional evidences now furnished, could have been furnished before the AO and the ld. CIT(A), if the assessee was so required to furnish the same. It was stated that these evidences go to the root of the issues raised in the appeal, therefore, the same may be admitted.

8.

In her rival submissions the ld. DR opposed the admission of the additional evidences and supported the orders of the authorities below.

9.

I have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it appears that the evidences now furnished by the assessee go to the root of the matter and are relevant to resolve the present controversy, so these deserve to be admitted. In the instant case, it is an admitted fact that these documents were asked neither by the AO nor by the ld. CIT(A) to be furnished and were not available either to the AO or to the ld. CIT(A) for their examination. I, therefore, considering the totality of the facts, deem it appropriate to set aside this issue back to the file of the AO to be adjudicated afresh in accordance with law by considering these 5 Nirmal Singhal additional evidences furnished by the assessee, after providing due and reasonable opportunity of being heard to the assessee.

10.

In the result, the appeal of the assessee is allowed for statistical purposes. (Order Pronounced in the Court on 16/03/2017)

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