KISHINCHAND G. UTTAMCHANDANI,MUMBAI vs. ASST CIT 19(3), MUMBAI

Ground 1 deals with the grievance of the assessee with respect to action of lower authorities in sustaining the addition of Rs.2,81,74,649 on account of interest income on the FDR held with Vijaya Bank.

It has been submitted by the ld. Counsel that assessee had FDRs with Vijaya Bank and also availed overdraft facility against the FDRs from Vijaya Bank. The assessee paid interest on the overdraft facility to Vijaya Bank of Rs.3,90,70,591 and earned interest on the FDRs with Vijaya Bank for Rs.2,81,74,649. It is stated that assessee omitted to report both the transactions in its return of income. The lower authorities have made addition of interest income amounting to Rs.2,81,74,649 but deduction of interest of Rsa.3,90,70,691 has been omitted to be granted. Being aggrieved, assessee is before us. 3. During the course of hearing before us, it has been stated by the Ld. Counsel for the assessee that there was no malafide intention on the part of the assessee in not reporting the transactions, as is evident from this fact that interest expenses are more than the interest income. It happened inadvertently due to oversight. It was further submitted that the AO was duty bound to treat both the transactions uniformly. If the AO is taking into account income, then he is bound under the law to give advantage of the expenses also, because the Income Tax Act envisages taxability of ‘net income’ and not of the ‘gross receipts’. 4. Per contra, the ld. DR fairly stated that this issue can be sent back to the file of the AO for proper verification on facts. 5. We have considered the submissions made by both the sides. We find force in the arguments of the ld. counsel that in case of income is being taxed, then, interest expenses should also be considered, if allowable as per law. Thus, we send this issue back to the file of the AO with the direction that if direct nexus is found by the AO, then benefit of netting between the interest income and interest expenses should be provided. The balance amount of interest expenditure should also be considered to be allowed as per provisions of the Act. In this regard, the assessee shall submit requisite details and documentary evidences which shall be considered by the AO while deciding the issue afresh after providing adequate opportunity of hearing to the assessee. The assessee is free to raise all legal and factual issues before the AO. This ground is treated as allowed for statistical purposes as indicated above.

In Ground 2, the assessee has challenged the action of the lower authorities in disallowing the deduction of interest on borrowed capital claimed for purchase of property u/s 24(b) of the Act amounting to Rs.1,02,51,496 against the rental income shown by the assessee under the head ‘Income from house property’. It has been submitted that the disallowance has been made by the lower authorities under some mis- appreciation and misunderstanding of facts whereby it has been presumed by the lower authorities that the loan on which aforesaid amount of interest has been paid has not been utilised for acquiring the property, the income of which has been shown as ‘Income from house property’, and that the loan was utilised elsewhere for the purpose of business. In view of the facts so misunderstood, the lower authority denied the benefit of deduction u/s 24(b). It is stated that complete evidence are available from where it can be shown that overdraft facility on which impugned interest was paid was utilised for acquiring the property from which income from house property has been shown in the return. It is also stated that in subsequent assessment years, no disallowance has been made in the assessments framed U/S 143(3).

Per contra, ld. DR relied upon the orders of lower authorities. 8. We have considered the submissions of both the parties. Our attention was drawn by ld. Counsel on various evidences showing utilisation of loan for acquiring impugned property. Our attention was also drawn on the fact that similar interest has been allowed in the subsequent assessment years by the AO himself. The ld. counsel has claimed that there are requisite evidences to clear the confusion and doubts arising in the mind of the lower authorities. Thus, we send this issue also back to the file of the AO for adjudication afresh. The assessee shall furnish requisite details and documentary evidences in support of its claim which shall be considered by the AO before deciding this issue afresh. Needless to add that adequate opportunity of hearing shall be granted to the assessee. As a result, this ground may be treated as allowed for statistical purpose. 9. In the result, appeal of the assessee is allowed for statistical purposes.