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Income Tax Appellate Tribunal, “SMC” BENCH,
Before: SHRI SHAMIM YAHYA, AM
आयकर अपील सं/ (िनधा�रण वष� / Assessment Year:2012-13) बनाम/ Shri Ramchand Raimalani Income Tax Officer 18(3)(1) Patwa Chawl, Gr. Floor, 80, Mumbai Vs. Sheikh Memon Street, Mumbai - 400002 �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AEXPR5064A (अपीलाथ� /Appellant) (��थ� / Respondent) .. Assessee by: Ms. Neha Paranjpe Revenue by: Beena Santosh सुनवाई की तारीख / Date of Hearing: 05.04.2017 घोषणा की तारीख /Date of Pronouncement: 13.04.2017 आदेश / O R D E R PER SHAMIM YAHYA, AM:
This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-29, Mumbai [hereinafter referred to as the “CIT(A)”]dated 22.07.2016 and pertains to A.Y.2012-13.
The grounds of appeal are as under:-:-
“1. The Ld. Commissioner of Income Tax (Appeals) [hereinafter referred to as “CIT(A)”] erred in confirming the following additions and disallowances made by the Ld. Assessing Officer without appreciating the facts and circumstances of the case:
Sr. Particulars Amount No. (Rs.) A Disallowance of interest paid from 27,63,587 personal Account for Business purpose. B Disallowance of Bank charges charged by 1,32,259 Bank on O/D. C Disallowance of 10% of the expenses 44,955 debited to P&L Account of M/s.M.K.Sons Jewellers. D Disallowance of 10% of the expenses 5,281 debited to P&L Account of M/s.Kush India Commodities.
A. Disallowance of interest paid of Rs.27,63,587/- from personal Account The Ld. CIT(A) erred in confirming the addition of Rs.27,63,587/- on Account of Disallowance of interest paid from personal Account for business purpose. B. Disallowance of Bank charges of Rs.1,32,259/- charged by Bank on O/D. The Ld. CIT(A) erred in confirming the addition of Rs.1,32,259/- on account of Disallowance of Bank charges charged by Bank for closure of Bank O/D Account. C. Disallowance of 10% of the expenses of Rs.4,49,553/- debited to P&L Account of M/s. M.K.Sons Jewellers. The Ld. CIT(A) erred in confirming the addition of Rs.44,955/- on account of Disallowance of 10% of the business expenses debited to P&L Account. D. Disallowance of 10% of the expenses of Rs.4,49,553/- debited to P&L Account of M/s. Kush India Commodities. The Ld. CIT(A) erred in confirming the addition of Rs.5,281/- on account of Disallowance of 10% of the business expenses debited to P&L Account. The addition is not at all justified and the same may be deleted.”
At the outset the learned counsel of the assessee submitted that she will not be pressing Ground No. B. Hence the above ground No.B is dismissed as not pressed.
Apropos Ground No. A:-
In this case the Assessing Officer observed in the assessment order that assessee has already debited interest amount of Rs.23,42,057/- and Rs.31,98,922/- in the proprietary concerns, M/s. M.K.Sons Jewellers and M/s. Kush India Commodities respectively. That assessee further claimed deduction of interest of Rs.27,63,587/- paid for acquiring personal assets which are reflected in his personal balance sheet. The Assessing Officer held that this not being related to business purposes cannot be allowed and he made addition of Rs.27,63,587/-.
Before the learned CIT(A), the learned counsel for the appellant claimed that it is not easy to get loans for the proprietary concern dealing in commodities on MCX which is the business of Kush India Commodities. Therefore, the proprietor has taken loans in his personal name and transferred the same to the proprietary concern which can be seen from the capital account of the proprietary concern. He further submitted that the bank statement reflects the loan account borrowed by the assessee in individual capacity which were transferred to proprietorship concerns. As the loans have been utilized for earning profit from business, the interest cost incurred on the said personal borrowings was integral part of earning profit in the said business and is therefore deducted u/s.36(1)(iii) of the Income Tax Act, 1961 ( in short “the Act”). In support of his argument, he had relied upon the cases of ACIT 19(1) vs. Smt. Suman Jain, New Delhi, S.A.Builders Ltd. vs. CIT(A) (SC) and ACIT vs. Tulip Star Hotels Ltd. (SC).
However the learned CIT(A) has not convinced. He held as under:-
“Therefore, there is no substance in the argument of the learned counsel that loans were taken in the personal capacity as it is difficult to get loans for commodities business. It is also the contention of the Ld. Counsel that there is an interest free loan received from Gurukripa P. Ltd. which went into investment in assets reflected in the balance sheet and only the interest bearing funds have been transferred to the proprietary concern. But the bank statement of the appellant submitted during the appellate proceedings clearly shows the loans received from Gurukripa P. Ltd. being transferred to Kush India Commodities. This clearly shows that the interest bearing funds have been invested in the personal assets of the appellant and the interest paid on the same is not an allowable business expenditure. The argument of the Ld. Counsel for the appellant defies all logic. It is nothing but an argument without any substance. He could not explain satisfactorily why the loans could not be raised directly in the proprietary concern where interest has been claimed. Further, he could not prove that interest bearing funds have not gone into the investments in personal assets. In the absence of any evidence, the claim of the assessee that the loans taken have been used only for business and consequently the interest paid on these loans has to be allowed as business expenditure cannot be accepted. The cases relied upon by the Ld. Counsel for the appellant are not applicable as the facts are different. In the case of Smt. Suman Jain, it was proved that the loan amount borrowed by the assessee in individual capacity for earning profit from M/s. Sandip Enterprises. But in the present case, there is no proof supplied by the appellant. Same is the case with other two cases where the loans have been advanced for commercial expediency. In the present case, the appellant could not prove the commercial expediency involved in taking personal loans. From the facts, it appears that loans raised in personal capacity have been utilized for acquiring personal assets. The action of the AO in disallowing the interest expenditure of Rs.27,63,587/- holding that it has not been incurred for business but for acquiring personal assets is upheld.”
Against the above order assessee is in appeal before the ITAT. I have heard both the counsel and perused the record. I find that first adverse inference has been drawn by the authorities below in this case, on the ground that assessee could have taken loan for commodity business and should not have utilized loan taken in personal capacity. I find that this adverse inference is devoid of cogency. Assessee has raised loan and used it for business purpose. Revenue authorities cannot sit into the shoes of the businessman and direct as to from where he should raise the loan. Secondly the assesse has interest bearing as well as interest free funds. In the said circumstances it is the settled law that it is up to the assesse to attribute the source of investment if interest free and interest bearing funds are available. The assessee can very well attribute the interest free funds for other purpose and interest bearing funds for the business purpose. Hence adverse inference drawn by the authorities below is not also sustainable on this issue. It is not the case of the revenue that interest free funds were not sufficient to meet the amount spent on acquisition of other assets. Hence attribution of the authorities below that interest bearing funds were not used for business purpose cannot be sustained. Accordingly, I set aside the order of the authorities below and decide the issue in favour of the assessee.
Apropos Ground No. C&D:-
On both the issues the Assessing Officer has made 15% disallowance out of various expenses debited in Profit & Loss Account. This was done by the Assessing Officer on the ground that all the expenditures were not supported by complete expenditure bills and vouchers hence he made an adhoc disallowance of 15%. Upon assessees appeal learned CIT(A) restricted the disallowance to 10%. Against this order the assessee is in appeal before the Income Tax Appellate Tribunal.
I have heard both the counsel and perused the record. I note that Assessing Officer has made the disallowance on adhoc basis. He has not brought on record specific vouchers and the defects therein. However this fact also cannot be ruled out that the expenditures were not fully backed by proper external vouchers. In these circumstances in my considered opinion the disallowance of 5% of the expenditure involved would serve the end of justice. Learned counsel of the assessee fairly agreed to this proposition. Accordingly, I direct that disallowance be restricted to 5% of the expenditure.
In the result, this appeal filed by the assessee is partly Allowed.
Order pronounced in the open court on 13th April, 2017.