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Income Tax Appellate Tribunal, KOLKATA BENCH ‘C’, KOLKATA
Before: Shri P.M. Jagtap, AM & Shri Aby. T. Varkey, JM]
order
: March 14, 2018 ORDER
Per P.M. Jagtap, AM
This appeal is preferred by the revenue against the order of Ld. CIT(Appeals) – 9, Kolkata dated 31.12.2015 whereby he deleted the addition of Rs. 53,46,249/- made by the A.O. by way of disallowance of interest.
The assessee in the present case is an individual who filed her return of income for the year under consideration on 28.03.2013 declaring a loss of Rs. 25,93,498/-. In the said return, deduction of Rs. 53,46,249/- was claimed by the assessee on account of interest paid on borrowed funds. During the course of assessment proceedings, the assessee was called upon by the A.O. to establish the nexus between the interest bearing borrowed funds and her business activities. In 2 Assessment Year: 2012-13 Smt. Shyama Devi Dalmia reply, the following submissions were made by the assessee before the A.O.: “In response thereto assessee furnished a written submission stating inter alia: ‘That the Dalmias namely your assessee Smt. Shyama Devi Dalmia and her husband Shri Kailash Pati Dalmia were having following individuals and companies under their control:
1. 1. Smt. Shyama Devi Dalmia 2. Sri Kailash Pati Dalmia 3. Star Iron Works Ltd.
4. Star Overseas Ltd. 5. Shree Bihari Trade & Service P. Ltd. 6. Tirubala Structural P. Ltd.
7. Shree Katyayani Infrastructure P. Ltd. That as because of old age of both the individuals and no one to rely upon Sri Kailash Pati Dalmia was conducting Bank transactions in such a manner so that he have full control on such transactions besides since the couple was entitled for additional interest on fixed deposits with the bank due to status of senior citizens, the fixed deposits were also routed by putting first name of individual to all the fixed deposits whether those were belonging to individuals or to the companies. That Sri Kailash Pati Dalmia in consideration to fixed deposits taken loan on lien of fixed deposit from banks and the loans transactions were also routed through Smt. Shyama Devi Dalmia as such even though there are no business in the hand of your assessee transactions of very big amounts are reflected in the bank. Accordingly, interests were received and paid by your assessee.”
The above submissions made by the assessee were not found acceptable by the A.O. According to him, interest paid by the assessee had no nexus with the activities of the assessee of earning interest income mainly from bank and other deposits. He accordingly disallowed the deduction of Rs. 53,46,249/- claimed by the assessee on account of interest.
The disallowance made by the A.O. on account of interest was challenged by the assessee in the appeal filed before the Ld. CIT(A) and the following submissions were made on behalf of the assessee in support of her case on the issue before the Ld. CIT(A): “3.1 That the assessee Mrs Shyama Devi Dalmia being an individual e-filed her Return of Income showing Net Loss of Rs 25,93,498. The case was selected for scrutiny through CASS and Assessment Order was passed by the Income Tax Officer 31(4) vide order dated 2010212075. The Ld. Assessing Officer while passing the Assessment Order u/s 143(3) of the Income Tax Act, 1961 added following amount in the income of the Assessee: (a) Interest Paid Rs. 53,46,249/- (b) Cash Receipts Rs. 35,50,000/- 3.2 That being aggrieved with the addition for interest paid of Rs53,46,249 by the Appellant Assessee to the Bank against loan taken the Assessee preferred an appeal before your honour. In this connection we would like to brought your kind attention to the fact that the Appellant Assessee is 76 years old window and housewife. The Appellant Assessee and her late husband Kailash Pati Dalmia who died intestate on 5th February, 201.4 at old age of 80 years. The Appellant Assessee and her husband were living separately from their children and no one was there to look after then physically and financially. The Appellant Assessee and her husband were shareholder and director in the following companies: (a) Star Iron Works Ltd. (b) Star Overseas Ltd. (c) Shree Bihariji Trade and Services Pvt. Ltd. (d) Tirubala Structural Pvt. Ltd. (e) Shree Katyayani Infrastructure Pvt. Ltd. 3.3 That to protect both individual from the financial irregularities that may be committed by any of the staff employed by them, the late husband of the Appellant Assessee used to obtained fixed deposits either in his name or in the name of his wife, which also make them entitled for additional interest being senior citizen. The late husband of the Appellant Assessee also taken decision to lien the fixed deposits in the name of various parties with the bank and to take loan against lien of fixed deposits solely in the name of Appellant Assessee to avoid any pilferage.
3.4 That the conclusion of the Ld. A.O. in his Assessment Order regarding claim of assessee for interest paid against loan taken on fixed deposits is erroneous. The Ld. A.O. stated in his order ‘From the explanation as above, it is evident that the interest claimed to have been paid by the assessee has no nexus with the present activities of the assessee who has been earning interest income mainly from Bank/Other Deposits’ 3.4 That the conclusion of the Ld. A.O. in his Assessment Order regarding claim of assessee for interest paid against loan taken on fixed deposits is erroneous. The Ld. A.O. stated in his order 3.5 That the Ld. A.O. failed to appreciate the entire facts and documents on records submitted during the course of assessment proceeding. The Ld. A.O. failed to note that the capital of the Appellant Assessee at the beginning of the Financial Year that is 01.04.2011 was Rs.1,55,58,256/- and at the close of the Financial Year on 31.03.2012 was Rs.12,01,054/- and out of which the Appellant Assessee was having fixed assets of Rs.41,99,360/-, year we would like to emphasis the fact that the earning of the assessee from the fixed deposit interest was only due to loan taken by her from the parties as stated above without paying any interest, similarly, the loans taken on the fixed deposits were also used by the Appellant Assessee and the entire income of interest on fixed deposits of Rs.26,88,144/- was on the fixed deposits made out of funds not belonging to the Appellant Assessee.
3.6 That we would also like to submit that in similar kind of addition made in the income of the Appellant Assessee during the Astt. Year 2006- 07, Hon'ble CIT (A) deleted the addition made therein and Hon'ble ITAT in the Appeal No. I.T.A.No.:1588/Kol/2010 vide order dated 24th day of April 2014 confirmed the deletion in favour of the Appellant Assessee. The reliance in the case was placed on Munjal Sales Corporation v CIT & Another [2008] 298 ITR 298 (SC) and CIT v Reliance Utilities & Power Ltd. [2009] 313 ITR 340 (Bom). Since the case of the Appellant Assessee for addition of Rs.53,46,249/- towards payment of interest on Loan taken on fixed deposits from The Karur Vysya Bank Ltd. is squarely covered and settled in earlier year, the addition made by the Ld. A.O. is bad in law and we request your honour to provide relief to the Appellant Assessee accordingly.”
5 Assessment Year: 2012-13 Smt. Shyama Devi Dalmia 5. The Ld. CIT(A) found merit in the submissions made on behalf of the assessee and deleted the disallowance made by the A.O. on account of interest by following the order of the Tribunal in assessee’s own case dated April 24, 2014 in ITA No. 1588/Kol/2010 for A.Y. 2006-07on the similar issue. Aggrieved by the order of the Ld. CIT(A), revenue has preferred this appeal before the Tribunal.
We have heard the arguments of both the sides and also perused the relevant material available on record. As agreed by the learned representatives of both the sides, the solitary issue involved in this appeal of the revenue in relation to the deletion by the Ld. CIT(A) of the disallowance made by the A.O. on account of interest is squarely covered in favour of the assessee by the order of the Tribunal dated April 24, 2014(supra) for A.Y. 2006-07 whereby the decision of the Ld. CIT(A) deleting the similar disallowance made by the A.O. on account of interest was upheld by the Tribunal vide paragraph no 14 which reads as under: “We have heard the rival contentions and perused the material available on record. Ld. CIT(Appeals) has given a clear finding that assessee had produced the Bank statement of M/s. Karur Vysya Bank Ltd, during the course of assessment proceedings before the Assessing 0fficer as well as before him. After perusing such Bank statement, Ld. CIT(Appeals) has also given a finding that the Fixed Deposits on which interest was earned, were made out of loans taken from the Bank. Submission of ld. D.R. that the Fixed Deposits were made on dates prior to raising of the loans has not been proved or substantiated by him. Once Fixed Deposits were made out of loans taken from the Bank, in our opinion, the nexus stood when established. Even otherwise, assessee was having sufficient own funds with her for giving interest-free advances, Hon'ble Mumbai High Court in the case of CIT -vs.- Reliance Utilities and Power Ltd. (supra) at para 10 of its order had held as under : "If there be interest-free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a 6 Assessment Year: 2012-13 Smt. Shyama Devi Dalmia loan it can be presumed that the investments were from the interest-free funds available. In our opinion, the Supreme Court in East India Pharmaceutical Works Ltd. (supra) had the occasion to consider the decision of the Calcutta High Court in Woolcombers of India Ltd, (supra) where a similar issue had arisen. Before the Supreme Court it was argued that it should have been presumed that in essence and true character the taxes were paid out of the profits of the relevant year and not out of the overdraft account for the running of the business and in these circumstances the appellant was entitled to claim the deductions, The Supreme Court noted that the argument had considerable force, but considering the fact that the contention had not been advanced earlier it did not require to be answered. It then noted that in Woolcomber’s case (supra) the Calcutta High Court had come to tile conclusion that the profits were sufficient to meet the advance tax liability and the profits were deposited in the overdraft account of the assessee and in such a case it should be presumed that the cases were said out of the profits of the year and not out of the overdraft account for the running of the business. It noted that to raise the presumption, there was sufficient material and the assessee had urged the contention before the High Court. The principle therefore, would be that if these are funds available both interest free and overdraft and / or loans taken, then a presumption would arise that investments would be out of the interest free fund generated or available with the company, if the interest free funds were sufficient to meet the investments. In this case this presumption is established considering the finding of fact both by the CIT(A) and Tribunal.
We are therefore, of the opinion that Ld. CIT(Appeals) was justified in allowing the interest paid on loans to be deducted from the interest earned. We do not find any reason to interfere with the order of Ld. CIT(Appeals). Grounds 3 and 4 of the revenue are also dismissed.
As the issue involved in the year under consideration as well as all the facts relevant thereto are similar to A.Y. 2006-07, we respectfully follow the order of the Co-ordinate Bench of this Tribunal for A.Y. 2006-07 and uphold the impugned order of the Ld. CIT(A) deleting the disallowance made by the A.O. on account of interest.
In the result, the appeal of the revenue is dismissed. Order Pronounced in the Open Court on 14th March, 2018.