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Income Tax Appellate Tribunal, ‘B’ (SMC
Before: SHRI ABRAHAM P. GEORGE]
आदेश / O R D E R
Assessee in this appeal assails a disallowance of �8,14,351/- claimed as interest paid to M/s.Karnataka Bank Limited for the purpose of its business.
Facts apropos are that assessee a manufacturer of AAAC/ AAC & ACSR conductor & Galvanishing of M.S. Wires and Wire
ITA No. 789/Mds/2016 :- 2 -: products, had filed her return of income for the impugned assessment year declaring income of �9,16,940/- which was later revised to �21,16,940/-. During the course of assessment proceedings, ld. Assessing Officer noted that assessee had constructed a house in Gopalapuram for her own use. As per ld. Assessing Officer a sum of �1,28,32,350/- was utilized for the construction of residence and the funds came from a cash credit account with M/s. Karnataka Bank Limited. Ld. Assessing Officer noted that interest paid on the above account was charged to the profit and loss account of the business.
Ld. Assessing Officer was of the opinion that asset acquired out of the loan was a personal one, and interest claimed as business expenditure could not be allowed. Submission of the assessee on this was that she had abundant capital available in the business and the drawings of the money from the business never exceeded such capital. Thus, according to her, the presumption taken regarding borrowed capital being used for the purpose of meeting construction cost was incorrect.
However, the above explanation was not accepted by the ld. Assessing Officer. He made a disallowance of �8,14,351/- being interest charged on the loan by M/s. Karnataka Bank Limited.
Assessee’s appeal before ld. Commissioner of Income Tax 3.
(Appeals) was not successful. According to him, there was a direct nexus between borrowed fund and investment made in residential
ITA No. 789/Mds/2016 :- 3 -: house. Thus, as per ld. Commissioner of Income Tax (Appeals) interest on such borrowed fund was rightly disallowed.
Now before me, ld. Authorised Representative strongly assailing the order of the ld. Commissioner of Income Tax (Appeals) reiterated the contentions made before lower authorities and also submitted that capital in her proprietorship of the assessee exceeded Rupees Four Crore. As per the ld. Authorised Representative drawings were much lower than that. Reliance was also placed on the judgment of Hon’ble Jurisdictional High Court in the case of CIT vs. Hotel Savera 239 ITR 0795.
Per contra, ld. Departmental Representative strongly supported the orders of the authorities below.
I have considered the rival contentions and perused the orders 6. of the authorities below. Disallowance was made for a reason that borrowed loan on which interest of �8,14,351/- was debited to profit and loss account was used for constructing residence and not for the purpose of business. However, it is not disputed by the Revenue that assessee in her proprietorship business had an opening capital of �4,09,72,141/-. Closing capital came to �4,43,10,486/-. In other words, even after despite the drawings by assessee from the proprietorship concern, her closing credit balance had gone up substantially. This by itself in my opinion show that there was no ITA No. 789/Mds/2016 :- 4 -: diversion of interest bearing funds. Hon’ble Jurisdictional High Court in the case of Hotel Savera (supra) has held that when there were sufficient funds with an assessee to cover the advances, even after debiting the drawings and the loss, a presumption would arise that the drawings were out of own funds. When the assessee had more than Rupees four crores in credit balance in her capital account which was not interest bearing, a part withdrawal of such capital, cannot be considered as drawings made out of loans taken during the relevant previous year. As held by the Lordship in the case of Hotel Savera (supra) principle of probability is not a universal rule that can be applied bereft of corroborating facts. I find that disallowance was not justified. Such disallowance stands deleted.
In the result, appeal of the assessee is allowed. 7.