KUMARI NISHA SURANA,CHENNAI vs. ITO, CHENNAI

Assessee in this appeal is aggrieved that interest expenditure claimed by it u/s. 57(iii) of Income Tax Act, 1961 (in short ‘’the Act’’) was not allowed. Alternatively as per assessee if the expenditure was not allowed u/s.57(iii) of the Act, it ought have been allowed u/s.36(1)(iii) of the Act.

Facts apropos are that assessee a partner in M/s. Chariot Realty, was also earning income from salary. He had filed return of income for the impugned assessment year disclosing income of ₹68,320/-. During the course of assessment proceedings it was noted by the ld. Assessing Officer that assessee had claimed interest expenditure of ₹7,15,694/- u/s.57(iii) of the Income Tax Act, 1961 (in short ‘’the Act’’). From the details produced, ld. Assessing Officer found that assessee had not earned any income under the head income from other sources. He disallowed a claim of expenditure of ₹7,15,694/-.

Ld. Assessing Officer also noted that in the books of accounts assessee had shown unsecured loans of ₹5,06,500/- from one Smt. Kamala Bai and ₹40,000/- from the Estate of Pukhraj Gulecha. As per ld. Assessing Officer assessee could not bring in any evidence to prove the above credits. An addition of ₹5,46,500/- was made.

Viz-a-viz addition made for loan creditors, contention of the assessee was that confirmations from both creditors were produced, transactions were through bank and both creditors were assessed to tax.

Viz-a-viz disallowance of loss, argument of the assessee was that the said sum was the result of netting interest income of ₹2,86,199/- against interest payment of ₹7,15,694/-. Contention of the assessee was that claim of ₹7,15,694/- was already disallowed by the ld. Assessing Officer and therefore disallowance of the loss would result in double addition. 8. Ld. Commissioner of Income Tax (Appeals) after going through the submissions of the assessee held that interest of ₹7,15,694/- claimed u/s.57(iii) of the Act was rightly disallowed by the ld. Assessing Officer since no interest was received by the assessee from the firm in which he was a partner and such interest even if received would only be business income u/s.28(v) of the Act. Viz-a-viz addition for loan creditors, observation of the ld. Commissioner of Income Tax (Appeals) was that assessee could not prove the receipts to have been through cheques. Viz-a-viz disallowance of loss, observation of the ld. Commissioner of Income Tax (Appeals) was that computation of the loss by setting off interest income with the interest expenditure was not evidenced. In the result, he dismissed the appeal of the assessee on all the issues. 9. Now before me, ld. Authorised Representative strongly assailing the orders of the lower authorities submitted that by virtue of circular No.14/1955 of CBDT, Officers of the Department was obliged not to take advantage of the ignorance of the assessee but to assist a tax payer in every reasonable way. As per ld. Authorised Representative assessee claimed interest expenditure erroneously u/sec.57(iii) of the Act. However, according to him, since the loans taken were used for enhancing assessee’s capital in M/s. Chariot Realty where he was a partner, interest expenditure on such loans had to be allowed under the head income from business. As per ld. Authorised Representative just because assessee made a claim under the wrong head of income, it ought not have been disallowed. In so far as loan credit was considered,

Per contra, ld. Departmental Representative supported the orders of the authorities below.

I have heard the rival contentions and perused the orders. In so for as interest expenditure of ₹7,15,694/- is concerned contention of the assessee is that loans raised were used for enhancing the capital in the firm in which he was a partner. Since interest income and profit share from the firm would be assessable under the head income from business, interest on loans if any raised by the assessee for investing in the capital of a firm would definitely be allowable under the same head. Just because assessee made a claim under the head income from other sources would not demerit its claim in any manner. Ld. Assessing Officer in my opinion was duty bound to consider the claim of the assessee even if it was made under a wrong head. Viz-a-viz claim of the loan creditors, none of the lower authorities had verified whether concerned creditors were assessed to tax and whether details given by the assessee in this regard was correct or not. Viz-a- viz disallowance of loss once interest expenditure is considered under the head income from business the claim of the loss if any would get shifted to that head and has to be considered separately. No doubt as mentioned by the ld. Authorised Representative any disallowance should not result in a double addition. In the circumstances, we are of the opinion that all the issues raised by the assessee requires a fresh look by the ld. Assessing Officer. We set aside the orders of the lower authorities and remit the matter back to the file of the ld. Assessing Officer for consideration denovo.

In the result, appeal of the assessee is allowed for statistical purpose.