AMITABH DAS MUNDHRA,KOLKATA vs. D.C.I.T., CC-11(1), KOLKATA

At the outset we note that there is a delay of 25 days in filing the appeal by the assessee. After hearing both the sides and after taking into account the facts and corroborating evidences especially the affidavit of the assessee before us , we observe that the delay in filing the appeal is for the reasons that the assessee is fully dependent on his accountant so far as the taxation issues are concerned. We note from the Assessment Year: 2020-21 Amitabh Das Mundhra affidavit filed by the accountant of the assessee that he did not check the online portal of the department nor the mails on that day. In our considered view the assessee can not be penalized for the delay which is very minor and beyond his control and is wholly attributable to his accountant. Thus after taking into consideration the condonation petition filed by the assessee alongwith affidavit and reasons for late filing of appeal as cited before us, we are of the view that the delay in filing the appeal is for bonafide and genuine reasons and accordingly the delay of 25 days is condoned and appeal is admitted for adjudication.

The only issue raised in the grounds of appeal is against the confirmation of addition of Rs. 4,89,39,786/- as made by the AO by rejecting and adding the interest expenses as claimed u/s 57 of the Act.

Facts in brief are that the assessee filed return of income on 09.01.2021 declaring total income of Rs. 2,65,79,170/-. The assessee is a director in 15 Indian Companies and has earned income by way of salary , interest and income from investments in shares and mutual funds. The case of the assessee was selected for scrutiny under CASS in limited category for the reason that (i) salary shown under TDS Schedule in ITR is higher than the salary shown under Part-B-TI (ii) large deduction claimed u/s 57 (non-business ITR). The statutory notices were duly issued and served upon the assessee. The assessee appeared before the AO from time to time during the assessment proceedings and furnished the details as sought by the AO. The AO observed that the gross interest income of the assessee of Rs. 4,82,41,200/- comprised of Rs. 4,79,29,035/- as interest received whereas Rs. 3,12,165/- as interest received from SB account and FDRs. The AO further observed that the assessee has claimed a deduction against the gross income from other sources of Rs. 4,89,41,376/- and thus returned a loss of Rs. 4,70,344/- under the head income from other sources. Accordingly, the details were called for from the assessee qua the expenditure claimed u/s 57 of the Act. It was submitted before the AO that the assessee has given loans amounting to Rs. 39,41,84,379/- on which interest of Rs. 4,79,29,035/- was received. It was also submitted that the assessee has borrowed loans to the tune of Rs.

In the appellate proceedings, the Ld. CIT(A) dismissed the appeal of the assessee on the ground that the loans were taken at higher interest and were advanced at lower rates without any commercial expediency.

The Ld. A.R vehemently submitted before us that the assessee has been consistently engaged in the activity of advancing the money to third parties by borrowing the money at interest from the market. It is also undisputed that the money borrowed on interest was also lent to various parties and the interest received was shown under the head income from other source. The ld AR argued that the interests paid were claimed as deduction u/s57(iii) as incurred wholly and exclusively for the purpose of earning of interest income. The Ld. A.R submitted that the said activity being carried on right from the earlier assessment years and have been accepted by the Revenue. The AR furnished before the bench the assessment orders for the preceding three assessment year i.e. 2017-18 to 2019-20 and submitted that interest received on loans , interest paid on loan and net interest income offered during the above assessment years were examined by the AO and extracted the said details in the impugned assessment order. The Ld. A.R therefore submitted that the activity of borrowing and lending has been accepted by the Department in the preceding assessment years and since there is no change in facts and circumstances in the current year vis-à-vis earlier assessment years, therefore the revenue cannot be allowed to relook the claim of the assessee u/s 57(iii) which in fact represented the interest paid on loans taken by the assessee for lending money to third parties though it is different matter that during the instant year the assessee has sustained loss of Rs. 4,70,344/-. The Ld. A.R therefore submitted that the complete and comprehensive details of money outstanding by way of unsecured loans raised during the year and repaid were placed before the authorities below along with the details of parties Assessment Year: 2020-21 Amitabh Das Mundhra involved in the whole activity in borrowing and lending but despite that the authorities below have failed to appreciate the facts in correct perspective by ignoring precedents of accepting the similar activity in the earlier assessment years. The Ld. A.R relied on the decision of Hon’ble Apex Court in the case of Radhasoami Satsang vs. CIT [1992] 193 ITR 321 (SC) to defend his arguments that once the assessee’s stance has been accepted in the earlier assessment year and unless there is a change of circumstances and facts of the case, the revenue cannot be allowed to take a different stand. The Ld. A.R also submitted that that it is also true that money was borrowed from IIFL Wealth and Finance Pvt. Ltd. at 12.50 % as against interest received @ 10% per annum and it is only for this reason the Ld. AO concluded that assessee has not established the commercial expediency. As a matter of fact the assessee has taken loan of Rs. 75.00 crores from IIFL Wealth and Finance Ltd. in preceding assessment year to advance loan to M/s Anupriya Consultants Pvt. Ltd. of Rs. 37,50,00,000/-, to M/s RBS Credit & Financial Developments Pvt. Ltd. of Rs. 37,50,00,000/- at 10% per annum. However the fact remains that the loans taken by the assessee from M/s Steelco Agency was taken at 10% to repay the loan to M/s IIFL Wealth Finance Ltd. which was taken at 10.5%. So the allegation of the Ld. CIT(A) is that loan were taken at a higher rate and lent at lower rate is factually incorrect as these was the commercial expediency of activity carried on by the assessee which determines the borrowing and lending rate by the assessee . The Ld. A.R submitted that only requirement for claiming expenses u/s 57(iii) was that the expenses incurred were incurred wholly and exclusively for the purpose of earning income by the assessee which has been shown under the head other source. The Ld. A.R submitted that it is undisputed that the interest bearing loans were taken and advanced to third parties in lieu of interest. Therefore this is adequately proved that the interest paid on the loans was wholly and exclusively expended for the purpose of earning of interest income. In defense of his arguments the Ld. A.R relied on the following decisions:

The Ld. D.R on the other hand relied on the orders of authorities below by submitting that there is no bar on the revenue to accept anything which is wrong and has been inadvertently allowed in the preceding assessment years whereas the revenue found during the year that the income earned by the assessee was not in accordance with the provisions of Act though the Ld. DR admitted that in the preceding three assessment years the assessee has claimed the similar interest paid on unsecured loans out of the interest income shown under the head other sources. However the ld DR stressed that the net results were the surplus from the said activity whereas in the current year the assessee has shown a loss of Rs. 4,70,344/-. The Ld. D.R therefore prayed that the order passed by the authorities below were very detailed, reasoned and speaking ones and may kindly be upheld by dismissing the appeal of the assessee.

We have heard the rival contentions and perused the material on record. We note that the assessee has derived income by way of salary as he was director of 15 Indian companies. Besides he was also deriving income from money lending for which he was raising unsecured loans from market on which he has paid interest. The assessee incurred loss of Rs. 4,70,344/- from the said activity as interest in the case of loan taken from M/s IIFL Wealth Finance Ltd. was 12.5% whereas the money was lent at 10%. What we find that the said loans were raised in the preceding three assessment years and were given to two parties namely M/s Anupriya Consultants Pvt. Ltd. and RBS Credit & Financial Pvt. Ltd. at only 10%. We note that the assessee has raised money from M/s Steelco Agency Pvt. Ltd. at 10% rate but IIFL Wealth Finance Assessment Year: 2020-21 Amitabh Das Mundhra Ltd. the interest rate was 12.5%. Therefore, we find merit in the contention of the assessee that it is not the case of assessee that the results were manipulated but genuinely the net result from the activity of interest earning and interest paid turned out to be loss. We note that this cannot be a ground for rejecting the claim of the assessee on the ground of commercial expediency. We also note that the activity of advancing of money on interest out of interest bearing borrowed loans by the assessee had been accepted by the revenue. Since there is no change in the facts and circumstances during the impugned assessment year vis-à-vis in the earlier assessment year. Therefore the revenue cannot be allowed to take different stand as has been held by the Hon’ble Apex Court in the case of Radhasoami Satsang (supra). The case of the assessee finds support from the decision of Hon’ble Madras High Court in the case of CIT vs. Pudukottai Company Pvt. Ltd. (supra) wherein the Hon’ble Court has held as under: