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Facts
The assessee appealed against an order of the Ld. CIT(A) concerning additions made under section 68 for unsecured loans and disallowance of interest expense under section 37 for funds used in property acquisition. The assessee claimed repayment of unsecured loans occurred even before the assessment order was passed.
Held
The Tribunal held that no addition was called for regarding unsecured loans, citing a Gujarat High Court judgment where loan repayments were made. Regarding interest disallowance, the Tribunal directed the AO to modify the disallowance, acknowledging that only a portion of the investment was funded by loans, not the entire amount claimed by the AO.
Key Issues
Whether additions for unsecured loans are justified when repaid, and how to calculate disallowance of interest on funds used for property acquisition when mixed funding is involved.
Sections Cited
68, 37, 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: DR. B.R.R. KUMAR, VICE-MS SUCHITRA RAGHUNATH KAMBLE
O R D E R
PER DR. B.R.R. KUMAR, VICE-PRESIDENT:
This appeal has been filed by the assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as “Ld. CIT(A)”] dated 31.07.2024, under section 250 of the Income-tax Act, 1961 [in short “the Act”] for the Assessment Year 2016-17.
Ground No.2: 2. The Assessing Officer made addition of Rs.81,000/- u/s 68 of the Act on account of unsecured loan. Before us, Ld. AR submitted that the statement of repayment of unsecured loans which took place even before the passing of the assessment order on 26.12.2028. The same are reproduced below:
Priteshkumar Vikrambhai Patel Asst. Year : 2016-17 - 2–
Since all the amounts have been repaid, keeping the judgement of Hon’ble jurisdictional High Court in case of PCIT v. Merrygold Gems Pvt. Ltd., [2024] 164 taxmann.com 764 (Gujarat) we hold that no addition called for.
Ground No.1: 4. The disallowance of Rs.9,01,670/- u/s 37 was made on account of interest expense claimed in profit and loss account for fund utilized for investment in property. The Assessing Officer made disallowance of Rs.9,01,670/- by alleging that the amount Priteshkumar Vikrambhai Patel Asst. Year : 2016-17 - 3– received on loan has been utilized for acquisition of properties, but not related to the business. It was submitted before us that the investment was made out of the assessee’s own fund Rs.34,26,300/- and loans and advances of Rs.24,85,000/-. Total investment made by the assessee on the properties was to the tune of Rs.1,42,11,300/-. The amount of Rs.34,26,300/- and Rs.24,85,000/- can be considered as investment made out of his own funds. Hence, the interest should be disallowed only on the remaining amount of Rs.83,00,000/- (Rs.1,42,11,300 – Rs.59,11,300). The AO is directed to modify the disallowance accordingly.
In the result, the appeal of the assessee is allowed. The order is pronounced in the open Court on 22.01.2026.