NILESH PORWAL,INDORE vs. DCIT-5(1), INDORE

This appeal by assessee is directed against the order dated 18.05.2023 of the Commissioner of Income Tax (Appeal), National Faceless Appeal Centre, Delhi for A.Y.2016-17.

ITANo.279/Ind/2023 Nilesh Porwal “I Following are the grounds of appeal: -

1. That, the Learned CIT (A) has erred in confirming in addition of Rs. 23,20,854/- on account of disallowance of interest expenses considering that the amount of unsecured loan on which above interest is paid used for purchase of fixed assets.

2. That, the Learned AO has disallowed interest expenses in proportion to the total fixed assets held by the assessed which is not justified. The amount of fixed represents the total value of fixed assets held by Assessee as on 31/03/2016 while the interest amount is only for the period under consideration 01/04/2015 to 31/03/2016.

3. That the learned AO has erred in not considering in interest paid on unsecured loan as business expenditure. As business of real estate required huge amount of funds. Sometimes random transaction needs to be undertaken for which funds available in hand or borrowing from unsecured sources is to be used. So, income earned against interest income earned against interest paid for unsecured loans from which profit can be generated compensate the same. Therefore, the interest paid on unsecured loans used for purpose of business should be considered as business expenditure and is allowable expenses under income tax act, 1961.

4. That the learned AO has erred in passing the order. Hence, we request your good self to kindly reconsider the same. they Learned CIT (A) has erred in confirming an addition of Rs. 23,20,854/- on account of disallowance of interest expenses considering that the ITANo.279/Ind/2023 Nilesh Porwal amount of unsecured loan on which above interest is paid used for purchase of fixed assets.”

3. The solitary issue raised by the assessee in this appeal is regarding disallowance made by the AO on account of interest expenses in proportionate to the total value of fixed assets to the loan amount. Ld. DR has submitted that the assessee has claimed deduction under section 57 of the Act towards interest expenditure against the various interest income and further claimed deduction of interest against various incomes under the head remuneration and interest. The AO has noted that borrowed fund was not utilized by the assessee for earning interest income and remuneration but part of the borrowed fund was utilized for the purpose of acquiring fixed assets and therefore, the AO has made disallowance of interest in proportionate to investment in fixed asset which is capital expenditure. The CIT(A) has upheld the disallowance made by the AO. Hence, Ld. DR has submitted that when the assessee has failed to furnish the details to show that the borrowed fund was utilized for earning income against which the deduction of interest

ITANo.279/Ind/2023 Nilesh Porwal expenditure is claimed then the addition made by the AO is reasonable and justified.

3.1 The assessee has filed the written submissions along with ledger account for payment of interest and loan. In the written submissions the assessee has submitted as under:

ITANo.279/Ind/2023 Nilesh Porwal

ITANo.279/Ind/2023 Nilesh Porwal 3.2 Thus, the assessee has claimed that he spent only Rs.44,70,619/- towards cost of construction of house out of the borrowed fund and rest of the amount is claimed as used for ITANo.279/Ind/2023 Nilesh Porwal earning the interest income. Further the assessee has also given details of purchase of various plots total amounting to Rs. 2,30,35,500/- and share of the assessee is stated at Rs.1,30,08,000/-. It is not clear from these details as to whether these plots are part of the fixed asset and borrowed fund was used for the purchase of these plots or not. Therefore, in the facts and circumstances of the case, we are of the considered opinion that these details furnished by the assessee before us are required to be properly verified and examined at the level of the AO. Accordingly we set aside the impugned order of the CIT(A) and remand the matter to the record of the AO for fresh adjudication after giving one more opportunity of hearing to the assessee.