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Income Tax Appellate Tribunal, ‘C (SMC
Before: SHRI ABRAHAM P. GEORGE]
आदेश / O R D E R
In this appeal filed by the assessee, it has raised the following grounds:-
‘’1. The order of the learned Commissioner Of Income Tax (Appeals)-5, Chennai, is wrong, illegal and is opposed to law and facts of the case.
2. The learned CIT (A) ought to have seen that while the assessing officer admits that the appellant had borrowed money in the normal course of its business for the purpose of investment in the firm erred in disallowing the loss claimed by the appellant.
ITA No.2958/Mds/2016. :- 2 -:
3. The learned CIT(A) ought to have seen that although the appellant erroneously claimed the loss under section 57(iii) of the Commissioner of Income Tax ought to have allowed the loss under the head business loss and under section 36 of the Income Tax Act.
4. The learned CIT (A) erred in law in disallowing a sum of RS.5,50,000/-- under the head unexplained creditors. The learned CIT(A) ought to have seen that the said creditors are identifiable and creditworthy. 5. The learned CIT(A) ought to have seen that the appellant had discharged his onus and that the learned CIT(A) ought to have deleted the addition under the head unexplained creditors. 6. The learned CIT(A) erred treating the loss declared by the appellant as income of the appellant while computing the taxable income. 7. The learned CIT(A) ought to have seen that the loss declared by the appellant was converted into positive income of account of disallowance of expense claimed by the appellant and addition u/s.68. The learned assessing officer erred in adding the loss declared by the appellant as also income while arriving at the taxable income which tantamount to double addition and double jeopardy’’.
Facts apropos are that assessee a partner in M/s. Chariot 2.
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
ITA No.2958/Mds/2016. :- 3 -: 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.
Assessee had claimed in the return of income a loss of �4,31,677/-. As per ld. Assessing Officer there was no details in support of the above claim of loss. He also made an addition of �4,31,677/-.
Aggrieved, assessee moved in appeal before ld. Commissioner of Income Tax (Appeals). Viz-a-viz disallowance of expenditure claimed u/s.57 (iii) of the Act, argument of the assessee was that it represented interest expenditure on unsecured loans raised from various parties, which were invested in M/s. Chariot Realty. As
per the assessee during the relevant previous year it could not earn
ITA No.2958/Mds/2016. :- 4 -: any interest income from M/s. Chariot Realty and therefore interest outgo was claimed as expenditure. Assessee also mentioned that the expenditure was erroneously shown under the head ‘’income from other sources’’ in the return of income. As per assessee it ought have been shown under the head income from business.
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 7. 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.
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 ITA No.2958/Mds/2016. :- 5 -:
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.
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, ld. Authorised Representative
ITA No.2958/Mds/2016. :- 6 -: submitted that confirmations, PAN details etc were submitted but these were ignored. Further ld. Authorised Representative submitted if the interest expenditure was considered under the head income from business, the relevant loss would have to be allowed.
Per contra, ld. Departmental Representative supported the 10.
orders of the authorities below.
I have heard the rival contentions and perused the orders. In 11. 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 ITA No.2958/Mds/2016. :- 7 -: 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, the appeal of the assessee is allowed for 12. statistical purpose.
Order pronounced on Wednesday, the 25th January, 2017, at Chennai.