MR BHARAT JAIN,KOLKATA vs. ITO, WD-8(1), KOLKATA, KOLKATA

This appeal by assessee is arising out of order of CIT(A)-18, Kolkata vide appeal No. 282/CIT(A)-18/14-15/ITO,Wd-8(1)/Kol dated 01.03.2016. Assessment was framed by ITO, Ward-8(1), Kolkata u/s. 143(3) of the Income tax Act, 1961 (hereinafter referred to as the “Act”) for AY 2008-09 vide his order dated 31.12.2010.

At the outset, there is a delay of 3 days in filing of appeal by the assessee before us. In view of concession given by the ld DR for condonation of the same, the delay is hereby condoned and the appeal is hereby admitted for adjudication.

The only issue to be decided in this appeal is as to whether the ld CITA is justified in upholding the disallowance of interest to the extent of Rs. 7,94,500/- in the facts and circumstances of the case.

The brief facts of this case is that the assessee is an individual having income from proprietorship concern under the name and style of Benz Traders besides deriving Director’s Remuneration and income from other sources. The ld AO observed from the accounts of Benz Traders that the assessee had availed unsecured loans of Rs. 57,15,334/- as on 31.3.2008 and suffering interest thereon. Since there was no purchase and sale during the year, the ld AO concluded that the unsecured loan has been utilized by the assessee for other than business purposes and hence the interest paid thereon was sought to be Bharat Jain, AY 2008-09 disallowed in the sum of Rs. 19,26,671/-. The assessee replied that the loans were availed in earlier years and had been used only for the purpose of business of the assessee and since the loans were subsisting during the year, interest thereon was paid and claimed as deduction. The ld AO however proceeded to disallow the interest paid in the sum of Rs. 19,26,671/- in the assessment.

Before the ld CITA, the assessee submitted party wise details of loans taken and given and the interest charged on such loans. The assessee also submitted that during the year, he had earned interest to the tune of Rs. 3,07,241/- on the loans given by the assessee. It was submitted that the loans taken in the earlier years were utilized to gain control over the companies. Hence interest was not charged by the assessee on the monies advanced to said companies. During the current year, same old loans were brought forward. It was also submitted that for the Asst Year 2007-08 (i.e immediately preceding previous year), the ld AO had disallowed 50% of interest paid which was deleted by the ld CITA and on further appeal, the order of the ld CITA was upheld by the tribunal. The assessee also submitted before the ld CITA the following details :- Interest free loans taken by Benz Traders Beautiful Living Pvt Ltd 10,00,000 Yamini Agencies Pvt Ltd 21,75,000 Global Coke Pvt Ltd 8,00,000 Rajputana General Com Corp. P ltd 21,00,000 Eco Orchards Pvt Ltd 10,00,000 Interest free loans given to companies where assessee is one of the Director Nerve Knock Theme Parks Pvt ltd 20,30,987 Bansilal Credit Pvt Ltd 6,00,000 Akhil Orchards Pvt Ltd 4,25,000 5.1. The assessee submitted that the assessee had taken loans in earlier years and had utilized the same for extending interest free loans to certain companies in order to have a control in the management in the said companies. In other words, the borrowed funds were used for acquiring controlling interest in other companies and the same being in the interest of the assessee’s business, interest paid on such borrowed funds is deductible u/s 36(1)(iii) of the Act. Reliance in this regard was placed on the decision of the Hon’ble Calcutta High Court in the case of CIT vs Rajeev Lochan Kanoria reported in 208 ITR 616 (Cal). The assessee is the director of eleven companies and earned Directors Remuneration of Bharat Jain, AY 2008-09 Rs.17,40,000/- during the year under review. The directorship is also a vocation and for gaining control of other companies, the borrowed money had been utilized. It was also submitted that the ld AO had ignored the factum of receipt of interest income to the tune of Rs. 3,07,241/- on the loans given by the assessee 5.2. The ld CITA went on a wrong assumption that the assessee had given interest free loans to various companies (as against interest free loans taken by the assessee in respect of five companies ) as listed out in his order as below:- Beautiful Living Pvt Ltd 10,00,000 Global Coke Pvt Ltd 8,00,000 Rajputana General Com Corp. P ltd 21,00,000 Nerve Knock Theme Parks Pvt ltd 20,30,987 Akhil Orchards Pvt Ltd 4,25,000 Yamini Agencies Pvt Ltd 21,75,000 Eco Orchards Pvt Ltd 10,00,000 Bansilal Credit Pvt Ltd 6,00,000 The ld CITA observed that the assessee had given list of ten companies in which he is a director which included three companies listed hereinabove. Accordingly he concluded that the assessee had given interest free loans of Rs. 63,55,987/- to the companies in which he is not a director. The ld CITA observed that the assessee has been paying interest @ 10 to 15% on loans taken by him on an average. Accordingly he applied 12.5% on Rs 63,55,987/- and restricted the disallowance to Rs. 7,94,500/- made by the ld AO. Aggrieved , the assessee is in appeal before us on the following grounds :- “

The ld AR argued that first of all the ld CITA proceeded on an erroneous presumption that the assessee had given interest free loans to certain companies (five companies) as against the interest free loans taken from those five companies by the assessee. He argued that accordingly the assessee had given interest free loans only to three parties i.e Nerve Knock Theme Parks Pvt Ltd (Rs. 20,30,987) ; Akhil Orchards Pvt Ltd (Rs. 4,25,000) and Bansilal Credit Pvt Ltd (Rs 6,00,000) and claimed that the assessee is one of the directors in these companies. He placed reliance on the decision of the Hon’ble Calcutta High Court in the case of Rajeev Lochan Kanoria supra as the advances were made by the Bharat Jain, AY 2008-09 assessee for obtaining controlling interest and assessee had also derived directors remuneration from these companies which was duly offered to tax. In response to this, the ld DR argued that there was no sale and purchase transaction during the year and hence interest should not be allowed as deduction.

We have heard the rival submissions. We find that there are factual discrepancies in the list of companies in which the assessee was director as pointed out by the assessee and as pointed out by the ld CITA in his order. Moreover, the assessee seems to have taken interest free loans from certain companies which the ld CIT(A) had stated that the same were interest free loans given by assessee. The working of proportionate disallowance of interest as made by the ld CITA revolves on this finding which apparently seems to be conflicting. In these circumstances, we deem it fit and appropriate, in the interest of justice and fair play, to set aside this issue to the file of the ld AO, to decide this issue afresh in accordance with law. The ld AO is also directed to give a finding as to the applicability of various case laws relied upon by the ld AR , if any. Accordingly, the grounds raised by the assessee are allowed for statistical purposes.

In the result, the appeal of the assessee is allowed for statistical purposes.