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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC-I’, NEW DELHI
Before: Sh. N. K. Saini
ORDER This is an appeal by the assessee against the order dated 28.01.2016 of ld. CIT(A)-2, Gurgaon.
The only grievance of the assessee in this appeal relates to the addition of Rs.7,49,621/- made by the AO by disallowing the interest paid on unsecured loan.
Facts of the case in brief are that the assessee filed the return of income electronically on 29.09.2011 which was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act). Later on, the case was selected for scrutiny. During the course of assessment proceedings, the AO noticed that the assessee had deducted an amount of Rs.7,49,621/- (on account of interest paid) from interest income of Rs.4,895/- (derived from NSC & bank interest) while computing his 2 Sushil Jain income from other sources. The AO asked the assessee to explain the utilization of unsecured loan on which interest of Rs.7,49,621/- was paid and as to how this amount was deductible in computing the income from other sources. Since the assessee failed to comply, the AO made the addition of Rs.7,49,621/- in the hands of the assessee.
Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted as under:
“The Ld. AO has disallowed the interest only on the reason that utilization of the amount was not explained. This observation of the Ld. AO is factually incorrect. The utilization of the loans raised is duly reflected in the statement of affairs filed before the Ld. AO. Sir, Ld. AO has disallowed the entire interest claimed but has totally ignored that part of loan amount was also invested in the business which is clear from the balance sheet as on 31.03.2011. As per that balance sheet the capital of the appellant as on 31.03.2011 was only Rs. 36,63,402.58 whereas his investment in business as per balance sheet as on 31.03.2011 was Rs. 72,66,214.35. Thus, the investment in business was made out of personal loans also, and as such the interest paid on such loans is also allowable out of the business income. The appellant had claimed it against income from other source instead of income from business which is a technical defect and has no bearing on the taxable income of the appellant. Thus the interest paid at Rs. 749621/- was for business purpose and as such should be allowed by your good self.”
3 Sushil Jain 5. The ld. CIT(A) after considering the submissions of the assessee confirmed the addition by observing in para 5.3 of the impugned order as under: “5.3 I have carefully considered the appellant's submissions. I have also perused the assessment order. As per facts recorded in the assessment order, the appellant had claimed the expenditure of Rs. 7,49,621/- against the interest income of Rs. 4,895/- under the head income from other sources. Any claim' of expenditure under the head income from other sources is allowable u/s 57 of the IT Act. For this purpose the appellant has to show that the expenditure has been incurred wholly and exclusively for the purpose of earning income. There is nothing in the assessment order or in the written submissions of the appellant to show that this interest expenditure was for earning the interest income of Rs. 4,895/-. The appellant has rather changed his contention and now submitted that the expenditure is allowable against business income. Even this contention of the appellant is not supported by any cogent evidence. The appellant has not been able to even remotely show the nexus of borrowed funds on which interest expenditure has been paid with the business income or business investment.”
Now the assessee is in appeal. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the loans were accepted by the assessee in personal capacity and those were utilized in the business. A reference was made to page no. 4 of the assessee’s compilation which is the copy of statement of affairs as on 31.01.2011. It was further submitted that the assessee is a Proprietor of M/s Vardhman Loha & Traders and all the 4 Sushil Jain loans on which interest amounting to Rs.7,49,621/- was paid, were utilized in proprietary business. Therefore, the addition made by the AO and sustained by the ld. CIT(A) was not justified. It was also submitted that the interest paid on the loans used for business purposes was wrongly shown under the head income from other sources although it was very much related to the business of the assessee.
In his rival submissions the ld. DR supported the orders of the authorities below and reiterated the observations made by the ld. CIT(A) in para 5.3 of the impugned order.
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 assessee was maintaining statement of affairs in his individual capacity in which the unsecured loans received from various persons were shown as sources of funds and investment was shown as utilization of funds in M/s Vardhman Loha and Traders. The claim of the assessee is that all the loans were utilized in the Proprietary business. In the present case, it is not clear as to whether the copy of the statement of affairs placed at page no. 4 of the assessee’s paper book was furnished to the authorities below and if it was furnished as to whether the same was considered by them. I, therefore, considering the totality of the facts deem it appropriate to set aside this limited issue back to the 5 Sushil Jain file of the AO to be decided afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee.
In the result, the appeal filed by the assessee is allowed for statistical purposes. (Order Pronounced in the Court on 28/11/2016)