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Facts
The assessee claimed interest expenditure as a deduction against interest income received on delayed payment of sale consideration of a proprietorship business transferred to a company. The Assessing Officer and CIT(A) disallowed the deduction, holding that the interest expenditure was not related to earning the interest income and was not substantiated.
Held
The Tribunal held that the interest expenditure was incurred on loans taken for the proprietorship business which was later transferred, and therefore, it was connected with the sale of the business (potentially capital gains) and not with the earning of interest income from delayed payment. The Tribunal also noted the lack of substantiation for the interest payments and TDS.
Key Issues
Whether the interest expenditure incurred on loans taken for the proprietorship business, which was subsequently transferred, can be claimed as a deduction against interest income received from the buyer on delayed payment of sale consideration.
Sections Cited
57 of the Income-tax Act, 1961
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Income Tax Appellate Tribunal, MUMBAI BENCH “F” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI RAHUL CHAUDHARY
in both these appeal in both these appeals , therefore, same were heard together and e were heard together and disposed off by way this consolidated order for convenience and disposed off by way this consolidated order for convenience and disposed off by way this consolidated order for convenience and avoid repetition of facts. avoid repetition of facts.
First we take up the appeal of the assess First we take up the appeal of the assessee for assessment ee for assessment year 2018-19. The grounds raised by the assessee are reproduced he grounds raised by the assessee are reproduced he grounds raised by the assessee are reproduced as under:
The learned CIT(A) has erred in law and in facts and in The learned CIT(A) has erred in law and in facts and in The learned CIT(A) has erred in law and in facts and in circumstances of case to confirm disallowance of interest of Rs. circumstances of case to confirm disallowance of interest of Rs. circumstances of case to confirm disallowance of interest of Rs. 1,30,73,008/--u/s 57. --u/s 57.
2. The learned CIT(A)has disallowed interest on incorrect facts that the 2. The learned CIT(A)has disallowed interest on incorrect facts that the 2. The learned CIT(A)has disallowed interest on incorrect facts that the unsecured loans existed in the balance unsecured loans existed in the balance sheet of the proprietorship sheet of the proprietorship concern of the appellant as on 31 concern of the appellant as on 31-03-2017 whereas there is no such 2017 whereas there is no such loan existed in the balance sheet of the proprietorship concern as loan existed in the balance sheet of the proprietorship concern as loan existed in the balance sheet of the proprietorship concern as apparent from the Balance Sheet filed of proprietorship concern apparent from the Balance Sheet filed of proprietorship concern apparent from the Balance Sheet filed of proprietorship concern namely M/s Rajwadi Emporium Pv namely M/s Rajwadi Emporium Pvt. Ltd. 3. The learned CIT(A) has erred in law and in facts to held that it 3. The learned CIT(A) has erred in law and in facts to held that it 3. The learned CIT(A) has erred in law and in facts to held that it becomes only academic whether the unsecured loans were transferred becomes only academic whether the unsecured loans were transferred becomes only academic whether the unsecured loans were transferred from the books of the proprietorship concern to the proprietor viz... the from the books of the proprietorship concern to the proprietor viz... the from the books of the proprietorship concern to the proprietor viz... the appellant and failed to appreciate the appellant and failed to appreciate the business transferred was of business transferred was of proprietary concern and not of all assets and liabilities of proprietor. proprietary concern and not of all assets and liabilities of proprietor. proprietary concern and not of all assets and liabilities of proprietor. 4. The learned CIT(A) has erred in law and in facts and in 4. The learned CIT(A) has erred in law and in facts and in 4. The learned CIT(A) has erred in law and in facts and in circumstances of case to held wrongly that the appellant has also not circumstances of case to held wrongly that the appellant has also not circumstances of case to held wrongly that the appellant has also not furnished any details with furnished any details with regard to the TDS made on such interest regard to the TDS made on such interest payments in spite of the fact that all details payments in spite of the fact that all details against the documents against the documents submitted. 5. The learned CIT(A) has erred in law and in facts and in 5. The learned CIT(A) has erred in law and in facts and in 5. The learned CIT(A) has erred in law and in facts and in circumstances of case to held wrongly that the interest payments circumstances of case to held wrongly that the interest payments circumstances of case to held wrongly that the interest payments stated to be payable by the appellant to various parties are not e payable by the appellant to various parties are not e payable by the appellant to various parties are not actually been paid upto 31 actually been paid upto 31-03-2020. 6. The learned CIT(A) has erred in law and in facts and in The learned CIT(A) has erred in law and in facts and in The learned CIT(A) has erred in law and in facts and in circumstances of case to held that the interest payments are not truly circumstances of case to held that the interest payments are not truly circumstances of case to held that the interest payments are not truly legitimate rather only employed as a legitimate rather only employed as a strategy to lower the taxable strategy to lower the taxable income and such observation is only on the basis of surmises & income and such observation is only on the basis of surmises & income and such observation is only on the basis of surmises & presumptions rather then on actual facts. presumptions rather then on actual facts. 7. The learned CIT(A)has erred in law and in facts and in The learned CIT(A)has erred in law and in facts and in The learned CIT(A)has erred in law and in facts and in circumstances of case to appreciate the facts that loans and a circumstances of case to appreciate the facts that loans and a circumstances of case to appreciate the facts that loans and advances on which interest has been paid has arisen only from the loan taken on which interest has been paid has arisen only from the loan taken on which interest has been paid has arisen only from the loan taken
Vinod D Chheda. 3 & 3705/MUM/2023 ITA Nos. 3683 & 3705/MUM/2023 on which interest has been paid and assuming that even if it is not on which interest has been paid and assuming that even if it is not on which interest has been paid and assuming that even if it is not believed by CIT(A), The learned CIT(A) has not given finding that loans believed by CIT(A), The learned CIT(A) has not given finding that loans believed by CIT(A), The learned CIT(A) has not given finding that loans taken has been used for any other purpos taken has been used for any other purposes.
8. The learned CIT(A) has failed to understand how the interest can be 8. The learned CIT(A) has failed to understand how the interest can be 8. The learned CIT(A) has failed to understand how the interest can be paid if there is no liability of unsecured loan in books of accounts and paid if there is no liability of unsecured loan in books of accounts and paid if there is no liability of unsecured loan in books of accounts and failed to understand that The interest paid is directly against interest failed to understand that The interest paid is directly against interest failed to understand that The interest paid is directly against interest received& If the assessee has not i received& If the assessee has not incurred the expenditure on such ncurred the expenditure on such loan, the earning of such income was impossible. loan, the earning of such income was impossible.
9. The learned CIT(A) has failed to understand that if The Assessing 9. The learned CIT(A) has failed to understand that if The Assessing 9. The learned CIT(A) has failed to understand that if The Assessing Officer has further noticed while concluding the assessment of Officer has further noticed while concluding the assessment of Officer has further noticed while concluding the assessment of subsequent year AY 2020 subsequent year AY 2020-21, that the interest payments stated to be st payments stated to be payable if the loan liabilities on which interest is paid had not been payable if the loan liabilities on which interest is paid had not been payable if the loan liabilities on which interest is paid had not been taken over, the asessee would not have got the interest and paid the taken over, the asessee would not have got the interest and paid the taken over, the asessee would not have got the interest and paid the interest and that figure of interest would have been paid interest and that figure of interest would have been paid M/s M/s Rajwadi Emporium Pvt. Ltd dir Emporium Pvt. Ltd directly to the loan creditors.
10. The learned CIT(A) has erred in law and in facts to confirm the 10. The learned CIT(A) has erred in law and in facts to confirm the 10. The learned CIT(A) has erred in law and in facts to confirm the disallowance of interest of Rs.1,01,74,226/ disallowance of interest of Rs.1,01,74,226/- inspite of the fact the AO inspite of the fact the AO has failed to consider the Instruction No. 20/2015 Government of has failed to consider the Instruction No. 20/2015 Government of has failed to consider the Instruction No. 20/2015 Government of India Ministry of Fina India Ministry of Finance Department of Revenue Central Board of nce Department of Revenue Central Board of Direct Taxes North Block, New Delhi, dated 29th of December, 2015 Direct Taxes North Block, New Delhi, dated 29th of December, 2015 Direct Taxes North Block, New Delhi, dated 29th of December, 2015 and in such a case the disallowance is bad and required to be and in such a case the disallowance is bad and required to be and in such a case the disallowance is bad and required to be deleted.
11. The learned CIT(A) has erred in law and in facts to appreciate the The learned CIT(A) has erred in law and in facts to appreciate the The learned CIT(A) has erred in law and in facts to appreciate the facts of the case and has failed to consider the relevant submission as of the case and has failed to consider the relevant submission as of the case and has failed to consider the relevant submission as well as submission made during video conference before disallowing well as submission made during video conference before disallowing well as submission made during video conference before disallowing the expenditure and made disallowance in a predetermined manner the expenditure and made disallowance in a predetermined manner the expenditure and made disallowance in a predetermined manner and without application of mind and without application of mind 12.
The The learned learned CIT(A)has CIT(A)has erred erred in in law law and and in in facts facts to to confirmdisallowance of interest inspite of the fact that interest paidhas confirmdisallowance of interest inspite of the fact that interest paidhas confirmdisallowance of interest inspite of the fact that interest paidhas been for earning income from other sources and there is no finding been for earning income from other sources and there is no finding been for earning income from other sources and there is no finding that funds of interest paid has been used that funds of interest paid has been used for other purposes. for other purposes.
The learned CIT(A)ou 13. The learned CIT(A)ought to have allowed the interest expenditure ght to have allowed the interest expenditure when nothing in the reply is found wrong and there is nothing to when nothing in the reply is found wrong and there is nothing to when nothing in the reply is found wrong and there is nothing to suggest that interest expenditure has not been spent for earning suggest that interest expenditure has not been spent for earning suggest that interest expenditure has not been spent for earning income from other source. income from other source.
Briefly stated, facts of the case are that the asses Briefly stated, facts of the case are that the asses Briefly stated, facts of the case are that the assessee filed return of income on 31.08.2018 declaring gross income of return of income on 31.08.2018 declaring gross income of return of income on 31.08.2018 declaring gross income of Rs.26,14,219/- and claimed further deduction amounting to and claimed further deduction amounting to and claimed further deduction amounting to Rs.2,25,000/-. The return of income filed by the assessee was . The return of income filed by the assessee was . The return of income filed by the assessee was selected for ‘limited scrutiny limited scrutiny’ for examining the deduction claimed for examining the deduction claimed
Vinod D Chheda. 4 & 3705/MUM/2023 ITA Nos. 3683 & 3705/MUM/2023 by the assessee under the head ‘income from other sources’. The y the assessee under the head ‘income from other sources’. The y the assessee under the head ‘income from other sources’. The statutory notices under the Income statutory notices under the Income-tax, 1961 (in short ‘the Act’) tax, 1961 (in short ‘the Act’) were issued and complied with. The claim of interest expenses as and complied with. The claim of interest expenses as and complied with. The claim of interest expenses as deduction against interest income was disallowed by the Assessing deduction against interest income was disallowed by the Assess deduction against interest income was disallowed by the Assess Officer and addition of Rs.1,30,73,008/ Officer and addition of Rs.1,30,73,008/- was made in the was made in the assessment order passed on 22.03.2021. assessment order passed on 22.03.2021.
3. On further appeal, the Ld. CIT(A) upheld the disallowance. On further appeal, the Ld. CIT(A) upheld the disallowance. On further appeal, the Ld. CIT(A) upheld the disallowance. Aggrieved, the assessee is in appeal before the Tribunal by way of the assessee is in appeal before the Tribunal by way of the assessee is in appeal before the Tribunal by way of raising grounds as reprodu raising grounds as reproduced above.
Before us, the Ld. counsel for the assessee filed a Paper Book Before us, the Ld. counsel for the assessee filed a Paper Book Before us, the Ld. counsel for the assessee filed a Paper Book containing pages 1 to 124. containing pages 1 to 124.
The grounds raised by the assessee are in respect of sole issue The grounds raised by the assessee are in respect of sole issue The grounds raised by the assessee are in respect of sole issue of disallowance of deduction of the interest claimed u/s 57 of the of disallowance of deduction of the interest claimed u/s 57 of the of disallowance of deduction of the interest claimed u/s 57 of the Act against the interest income received by the assessee. In ground interest income received by the assessee. In ground interest income received by the assessee. In ground No. 12 this specific issue has been raised by the assessee. All the No. 12 this specific issue has been raised by the assessee. All the No. 12 this specific issue has been raised by the assessee. All the grounds being connected with the single issue of disallowance of being connected with the single issue of disallowance of being connected with the single issue of disallowance of interest expenditure expenditure, all these grounds raised are adjudicated all these grounds raised are adjudicated together.
Briefly stated, facts qua the issue in dispute are that the Briefly stated, facts qua the issue in dispute are that the Briefly stated, facts qua the issue in dispute are that the assessee was carrying on business under the proprietorship assessee was carrying on business under the proprietorship assessee was carrying on business under the proprietorship concern namely M/s Rajwadi Emporium concern namely M/s Rajwadi Emporium, which was transferred as was transferred as going concern to M/s M/s Rajwadi Emporium India P. Ltd. w.e.f. going concern to M/s M/s Rajwadi Emporium India P. Ltd. w.e.f. going concern to M/s M/s Rajwadi Emporium India P. Ltd. w.e.f. 01.04.2017. An agreement for takeover of business as going 2017. An agreement for takeover of business as going 2017. An agreement for takeover of business as going
Vinod D Chheda. 5 & 3705/MUM/2023 ITA Nos. 3683 & 3705/MUM/2023 concern was made between the assessee and the purchaser concern was made between the assessee and the purchaser concern was made between the assessee and the purchaser company on 31.03.2017. A copy of said agreement is placed on company on 31.03.2017. A copy of said agreement is placed on company on 31.03.2017. A copy of said agreement is placed on paper book page 94 to 97. As per terms of this agreement, the paper book page 94 to 97. As per terms of this agreement, the paper book page 94 to 97. As per terms of this agreement, the ld sale and the purchaser i.e. company buy vendor i.e. assessee wou vendor i.e. assessee would sale and the purchaser i.e. company buy all the assets and liabilities of proprietorship and liabilities of proprietorship business excluding business excluding bank accounts. Further, the bank accounts. Further, the agreement provided that the agreement provided that the purchaser should satisfy and discharge all the mortgage and other debts and should satisfy and discharge all the mortgage and other debts and should satisfy and discharge all the mortgage and other debts and liabilities of the vendor in respect of said business which subsists f the vendor in respect of said business which subsists f the vendor in respect of said business which subsists on the date of takeover. The purchase consideration would be on the date of takeover. The purchase consideration would be on the date of takeover. The purchase consideration would be balance of all the assets less liabilities as per the balance sheet as balance of all the assets less liabilities as per the balance sheet balance of all the assets less liabilities as per the balance sheet on 31.03.2017 except bank balances. Under the agreement it was on 31.03.2017 except bank balances. Under the agreement it was on 31.03.2017 except bank balances. Under the agreement it was provided that the purchaser company ded that the purchaser company would pay the consideration pay the consideration in five years and would would pay interest @ 18% per annum from pay interest @ 18% per annum from outstanding balances. 01.04.2017 till the date of the payment 01.04.2017 till the date of the payment of outstanding balances. The purchaser company had not paid the purchase consideration The purchaser company had not paid the purchase consideration The purchaser company had not paid the purchase consideration till the end of the year under consideration and thus year under consideration and thus interest @ 18% year under consideration and thus was paid by the said company to the assessee for the period from was paid by the said company to the assessee for the period from was paid by the said company to the assessee for the period from 01.04.2017 to 31.03.2018 01.04.2017 to 31.03.2018, which amounted to Rs.1,31,57,660/ which amounted to Rs.1,31,57,660/-. This amount of the interest has been offered by the assessee in the This amount of the interest has been offered by the assessee in the This amount of the interest has been offered by the assessee in the return of income under the head ‘income from other sources’. return of income under the head ‘income from other sources’. return of income under the head ‘income from other sources’.
6.1 But against such interest received the assessee claimed But against such interest received the assessee claimed But against such interest received the assessee claimed interest expenditure of Rs.1,3 interest expenditure of Rs.1,30,73,008/- as deduction as deduction. It was claimed before the Assessing Officer that s claimed before the Assessing Officer that said sum on d aid sum on deduction represented the interest payment made by the assessee to various represented the interest payment made by the assessee to various represented the interest payment made by the assessee to various
Vinod D Chheda. 6 & 3705/MUM/2023 ITA Nos. 3683 & 3705/MUM/2023 persons against the loan taken from them persons against the loan taken from them. It was contended that t was contended that unsecured loan outstanding in t unsecured loan outstanding in the books of proprietary concern he books of proprietary concern M/s Rajwadi Emporium M/s Rajwadi Emporium amounting to Rs. 8,48,94,091/ amounting to Rs. 8,48,94,091/- was transferred to capital account of the assessee in said proprietorship transferred to capital account of the assessee in said proprietorship transferred to capital account of the assessee in said proprietorship concern. It was explained that the interest expenditure claimed is t was explained that the interest expenditure claimed is t was explained that the interest expenditure claimed is the interest payment made on s the interest payment made on such loans taken by the assessee taken by the assessee from his proprietary concern from his proprietary concern into his personal capital account into his personal capital account before transfer of business to the private limited company. before transfer of business to the private limited company. before transfer of business to the private limited company.
6.2 The Assessing Officer rejected the contention of the assessee The Assessing Officer rejected the contention of the assessee The Assessing Officer rejected the contention of the assessee for the two reasons. Firstly, Firstly, the interest expenditure claimed of Rs. expenditure claimed of Rs. 1,30,73,008/- was not for the purpose of earning the interest not for the purpose of earning the interest not for the purpose of earning the interest income and secondly secondly, the assessee did not substantiate actual d not substantiate actual payment or credit by way of payment or credit by way of TDS details. On further appeal, the Ld. On further appeal, the Ld. CIT(A) upheld the disallowa CIT(A) upheld the disallowance observing as under :
“5.4 The above submissions of the appellant have been carefully The above submissions of the appellant have been carefully The above submissions of the appellant have been carefully considered. It is the contention of the appellant that the unsecured considered. It is the contention of the appellant that the unsecured considered. It is the contention of the appellant that the unsecured loans were transferred to the capital account of the appellant just loans were transferred to the capital account of the appellant just loans were transferred to the capital account of the appellant just before the transfer of before the transfer of business to the Private Limited Company. business to the Private Limited Company. However, it is seen that the unsecured loans existed in the balance However, it is seen that the unsecured loans existed in the balance However, it is seen that the unsecured loans existed in the balance sheet of the proprietorship concern of the appellant as on 31 sheet of the proprietorship concern of the appellant as on 31 sheet of the proprietorship concern of the appellant as on 31-03-2017. The agreement of transfer of business is for takeover of business as a The agreement of transfer of business is for takeover of business as a The agreement of transfer of business is for takeover of business as a going concern. All the assets and liabilities of the proprietorship concern. All the assets and liabilities of the proprietorship concern. All the assets and liabilities of the proprietorship concern except the bank balances would become the assets and concern except the bank balances would become the assets and concern except the bank balances would become the assets and liabilities of the purchaser. Accordingly, the purchaser has taken over liabilities of the purchaser. Accordingly, the purchaser has taken over liabilities of the purchaser. Accordingly, the purchaser has taken over the business along with the existing liabilities including t the business along with the existing liabilities including the unsecured he unsecured loans of the proprietary concern. Further, there is no reason why the loans of the proprietary concern. Further, there is no reason why the loans of the proprietary concern. Further, there is no reason why the unsecured loans should be retained by the appellant when the unsecured loans should be retained by the appellant when the unsecured loans should be retained by the appellant when the business is sold as a going concern. business is sold as a going concern. Also, the business run by the Also, the business run by the appellant is a proprietorship concern which d appellant is a proprietorship concern which does not have separate oes not have separate legal existence. Further, the appellant does not have any other legal existence. Further, the appellant does not have any other legal existence. Further, the appellant does not have any other business other than the proprietorship concern run in the name of M/s business other than the proprietorship concern run in the name of M/s business other than the proprietorship concern run in the name of M/s Rajwadi Emporium. That being the case, it becomes only academic Rajwadi Emporium. That being the case, it becomes only academic Rajwadi Emporium. That being the case, it becomes only academic whether the unsecured loans were tra whether the unsecured loans were transferred from the books of the nsferred from the books of the proprietorship concern to the proprietor viz... the appellant. proprietorship concern to the proprietor viz... the appellant.
Vinod D Chheda. 7 & 3705/MUM/2023 ITA Nos. 3683 & 3705/MUM/2023 5.5 Further, it is claimed by the appellant that interest at the rate of Further, it is claimed by the appellant that interest at the rate of Further, it is claimed by the appellant that interest at the rate of 18% has been paid by the purchaser company M/s Rajwadi 18% has been paid by the purchaser company M/s Rajwadi 18% has been paid by the purchaser company M/s Rajwadi Emporium Private limited and the s Emporium Private limited and the said amount was almost entirely aid amount was almost entirely paid out as interest at the rate of 18% to the unsecured lenders. If that paid out as interest at the rate of 18% to the unsecured lenders. If that paid out as interest at the rate of 18% to the unsecured lenders. If that were the case, it defies logic why the purchaser company did not pay were the case, it defies logic why the purchaser company did not pay were the case, it defies logic why the purchaser company did not pay the interest directly to such parties. The Assessing Officer has fürther the interest directly to such parties. The Assessing Officer has fürther the interest directly to such parties. The Assessing Officer has fürther noticed while concluding the assessment of subsequent year AY 2020 hile concluding the assessment of subsequent year AY 2020 hile concluding the assessment of subsequent year AY 2020- 21, that the interest payments stated to be payable by the appellant to 21, that the interest payments stated to be payable by the appellant to 21, that the interest payments stated to be payable by the appellant to various parties are not actually been paid upto 31 various parties are not actually been paid upto 31-03-2020. Further, 2020. Further, the appellant has also not furnished any details with reg the appellant has also not furnished any details with reg the appellant has also not furnished any details with regard to the TDS made on such interest payments. In the given situation, the TDS made on such interest payments. In the given situation, the TDS made on such interest payments. In the given situation, the interest payments are not truly legitimate rather only employed as a interest payments are not truly legitimate rather only employed as a interest payments are not truly legitimate rather only employed as a strategy to lower the taxable income. strategy to lower the taxable income. Such interest cannot be treated Such interest cannot be treated as directly relatable to the as directly relatable to the interest income admitted to the head me admitted to the head "Income from other sources". Only such expenditure laid out or "Income from other sources". Only such expenditure laid out or "Income from other sources". Only such expenditure laid out or expended wholly and exclusively for the purpose of earning the expended wholly and exclusively for the purpose of earning the expended wholly and exclusively for the purpose of earning the income admitted shall be allowed as a deduction u/s 57 of the Ac income admitted shall be allowed as a deduction u/s 57 of the Ac income admitted shall be allowed as a deduction u/s 57 of the Act. Since, the interest payments Since, the interest payments do not pass this test, it cannot be allowed s this test, it cannot be allowed as a deduction. Therefore, the order of the Assessing Officer is as a deduction. Therefore, the order of the Assessing Officer is affirmed.”
Before us, the Ld. counsel for the assessee referred to page 40 Before us, the Ld. counsel for the assessee referred to page 40 Before us, the Ld. counsel for the assessee referred to page 40 and 42 of paper book of paper book to support that the unsecured loans which to support that the unsecured loans which were appearing in the books of proprietorship concern as liability were appearing in the books of proprietorship concern as liability were appearing in the books of proprietorship concern as liability were transferred to the capital account of the assessee in the books were transferred to the capital account of the assessee in the books were transferred to the capital account of the assessee in the books of said proprietorship of said proprietorship concern. He further submitted that, concern. He further submitted that, the assessee received interest on the sale consideration of the ed interest on the sale consideration of the ed interest on the sale consideration of the proprietorship concern and which has been shown as income under proprietorship concern and which has been shown as income under proprietorship concern and which has been shown as income under the head ‘income from other sources’. According to the Ld. counsel the head ‘income from other sources’. According to the Ld. counsel the head ‘income from other sources’. According to the Ld. counsel for the assessee, the interest payment incurred by the assessee in for the assessee, the interest payment incurred by the assessee in for the assessee, the interest payment incurred by the assessee in respect of loans was in respect of was in respect of amount due from company and mount due from company and therefore, interest expenditure incurred was for the purpose of therefore, interest expenditure incurred was for the purpose of therefore, interest expenditure incurred was for the purpose of earning of the interest income and thus deduction is justified u/d earning of the interest income and thus deduction is justified u/d earning of the interest income and thus deduction is justified u/d 57 of the Act.
Vinod D Chheda. 8 & 3705/MUM/2023 ITA Nos. 3683 & 3705/MUM/2023
On the other hand, the Ld. Departmental Representative ( On the other hand, the Ld. Departmental Representative ( On the other hand, the Ld. Departmental Representative (DR) submitted that interest income has been earned in respect of late submitted that interest income has been earned in respect of late submitted that interest income has been earned in respect of late payment payment payment of of of sale sale sale consideration consideration consideration of of of the the the proprietary proprietary proprietary concern concern concern whereas the interest expenditure sold/transferred by the assessee sold/transferred by the assessee, whereas the interest expenditure is in respect of loans taken earlier for the purposes of business of is in respect of loans taken earlier for the purposes of busin is in respect of loans taken earlier for the purposes of busin the proprietary concern but now stands transferred to the personal concern but now stands transferred to the personal concern but now stands transferred to the personal account of the assessee. The income from sale or transfer of the account of the assessee. The income from sale or transfer of the account of the assessee. The income from sale or transfer of the proprietary concern has not been shown under the head ‘income proprietary concern has not been shown under the head ‘income proprietary concern has not been shown under the head ‘income from other sources’. Therefore, the loan taken for the purpose of from other sources’. Therefore, the loan taken for the from other sources’. Therefore, the loan taken for the proprietary concern sold now cannot be claimed as interest proprietary concern sold now cannot be claimed as interest proprietary concern sold now cannot be claimed as interest expenditure against the interest income received by the assessee for expenditure against the interest income received by the assessee expenditure against the interest income received by the assessee delayed payment of the sale consideration of the proprietary delayed payment of the sale consideration of the proprietary delayed payment of the sale consideration of the proprietary concern. Accordingly, he submitted that order of the lower concern. Accordingly, he submitted that order of the low concern. Accordingly, he submitted that order of the low authorities on the issue in dispute might be sustained. authorities on the issue in dispute might be sustained. authorities on the issue in dispute might be sustained.
We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the relevant material on record. The issue in dispute is in respect of relevant material on record. The issue in dispute is in respect of relevant material on record. The issue in dispute is in respect of deduction under the provisions of section 57 of the Act for under the provisions of section 57 of the Act for interest under the provisions of section 57 of the Act for expenditure incurred on loans appearing in the capital account of expenditure incurred on loans appearing in the capital account of expenditure incurred on loans appearing in the capital account of proprietary concern against the interest income received on delayed proprietary concern against the interest income received on delayed proprietary concern against the interest income received on delayed payment of sale consideration of said proprietary concern namely payment of sale consideration of said proprietary concern namely payment of sale consideration of said proprietary concern namely M/s Rajwadi Emporium M/s Rajwadi Emporium. The expenditure incurred for r The expenditure incurred for realizing interest receipt is only allowed as deduction interest receipt is only allowed as deduction under the provisions of under the provisions of the Act, therefore, for claiming deduction therefore, for claiming deduction, the onus was on the onus was on the assessee to substantiate whether the interest expenditure has been assessee to substantiate whether the interest expenditure has been assessee to substantiate whether the interest expenditure has been Vinod D Chheda. 9 & 3705/MUM/2023 ITA Nos. 3683 & 3705/MUM/2023 incurred for the purpose of earning the said incurred for the purpose of earning the said interest nterest income. In the case interest income has been earned on delayed payment of the case interest income has been earned on delayed payment of the case interest income has been earned on delayed payment of the sale consideration of the proprietorship concern, whereas the sale consideration of the proprietorship concern sale consideration of the proprietorship concern interest expenditure has been incurred on the loans which were interest expenditure has been incurred on the loans which were interest expenditure has been incurred on the loans which were taken by the proprietorship concern for its b taken by the proprietorship concern for its business purchases usiness purchases which later on transfer which later on transferred to the capital account of the assessee. to the capital account of the assessee. Therefore, Therefore, Therefore, the the the interest interest interest expenditure expenditure expenditure is is is connected connected connected with with with the the the proprietorship concern which has been sold. Such interest proprietorship concern which has been sold. Such interest proprietorship concern which has been sold. Such interest expenditure is not connected in any manner with the interest which expenditure is not connected in any manner with the int expenditure is not connected in any manner with the int has been earned on the late payment of sale consideration by the has been earned on the late payment of sale consideration by the has been earned on the late payment of sale consideration by the purchaser company. The . The receipt of the sale consideration by the receipt of the sale consideration by the assessee in five years assessee in five years was as per the terms of contract between two as per the terms of contract between two parties and such interest income being revenue parties and such interest income being revenue in nature has been in nature has been correctly charged under the head ‘income from other sources’. But correctly charged under the head ‘income from other sources’. correctly charged under the head ‘income from other sources’. the interest expenditure however being connected with the sale of he interest expenditure however being connected with the sale of he interest expenditure however being connected with the sale of proprietorship concern proprietorship concern, which is liable for tax under the head which is liable for tax under the head ‘capital gain’ and thus the expenditure in ‘capital gain’ and thus the expenditure incurred for investment for investment in f the proprietorship concern is related to cost of the said proprietary the proprietorship concern is related to cost of the said proprietary the proprietorship concern is related to cost of the said proprietary concern to the assessee. Thus on this ground only the claim of the concern to the assessee. Thus on this ground only the claim of the concern to the assessee. Thus on this ground only the claim of the assessee is not allowable. Further, we find that assessee has failed assessee is not allowable. Further, we find that assessee has failed assessee is not allowable. Further, we find that assessee has failed to substantiate any ded to substantiate any deduction of the tax at source on such interest on such interest credited or actual payment of the interest to the parties or actual payment of the interest to the parties or actual payment of the interest to the parties. In absence of any documentary evidence to support that interest was either of any documentary evidence to support that interest was either of any documentary evidence to support that interest was either credited in the respective account of those unsecured loans donors credited in the respective account of those unsecured loans donors credited in the respective account of those unsecured loans donors
Vinod D Chheda. 10 & 3705/MUM/2023 ITA Nos. 3683 & 3705/MUM/2023 or paid by the assessee, t the assessee, the claim of the deduction he claim of the deduction is also not eligible for allowance in view of lack of the evidences. eligible for allowance in view of lack of the evidences. eligible for allowance in view of lack of the evidences.
9.1 In view of the above discussion, we do not find any infirmity in In view of the above discussion, we do not find any infirmity in In view of the above discussion, we do not find any infirmity in the order of the Ld. CIT(A) on the issue in dispute and we the order of the Ld. CIT(A) on the issue in dispute and we the order of the Ld. CIT(A) on the issue in dispute and we accordingly uphold the same. All the grounds raised by the d the same. All the grounds raised by the d the same. All the grounds raised by the assessee are accordingly dismissed. assessee are accordingly dismissed.
In assessment year 2020 In assessment year 2020-21 also the identical issue of 21 also the identical issue of disallowance of interest expenditure against the interest income disallowance of interest expenditure against the interest income disallowance of interest expenditure against the interest income from M/s Rajwadi Emporium India P. Ltd has been raise s Rajwadi Emporium India P. Ltd has been raised, s Rajwadi Emporium India P. Ltd has been raise therefore, following our finding in assessment year 2018 herefore, following our finding in assessment year 2018 herefore, following our finding in assessment year 2018-19, the grounds raised in assessment year 2020 grounds raised in assessment year 2020-21 are also dismissed. 21 are also dismissed.
In the result, both the appeals of the assessee for assessment In the result, both the appeals of the assessee for assessment In the result, both the appeals of the assessee for assessment year 2018-19 and 2020 19 and 2020-21 are dismissed.