SHRI HIRENBHAI REVABHAI PATEL,HUF,VISNAGAR vs. THE INCOME TAX OFFICER,PATAN WARD-3,, MEHSANA

As the facts in both the appeals are similar, so, we take ITA No. 70/Ahd/2016 as the lead case and decide both the appeals for the sake of convenience.

The assessee has raised following grounds of appeal:- ITA No. 70/Ahd/2016 “1. The Id. AO as well as the Id. CIT (A) has disallowed interest expense of Rs. 8,03, 060/- paid to Mehsana Urban Bank. The entire expenses are the expenses incurred for the business purpose. The Id.AO as well as the Id. CIT (A) has erred in considering the facts of the case on account of disallowance of interest claimed by the appellant, when no such addition is justified. The same may kindly be deleted. 2. The Id. AO as well as the Id. CIT (A) has violated the principles of natural justice and has passed the assessment order with a bias frame of mind. 3. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in levying interest u/s 234A/B/C of the Act. 4. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in initiating penalty u/s 271(1)(c) of the Act.” 4. In this case, return of income declaring income of Rs. 1,65,520/- was filed on 29-03-2009. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 143(2) of the act on 20th August, 2009. During the course of assessment proceedings, the assessing officer has noticed that the assessee has claimed expenses of Rs. 8,03,060/- u/s. 57 of the act as interest expenses.

Aggrieved against the decision of the assessing officer, the assessee preferred appeal before the ld. CIT(A) who has sustained the disallowance made by the assessing officer by observing as under:- “ 4.3 I have considered the assessment order and submission filed by appellant. Appellant has shown of Rs.8,03,060/-. Appellant has claimed that interest expenditure is paid towards loan from interest income of Rs.1,399/- as income from other sources and claimed interest expenditure Mehsana Urban Bank and same is used in the business of appellant being real estate business. The appellant has also claimed that in A.Y. 2006- 07, he has filed ITR showing business income but due to inadvertence, income of current year is not shown as income from business. This contention of appellant cannot be accepted as appellant has not shown any business income in the year under consideration nor established any nexus with use of borrowed funds for business purpose. Even appellant has shown income from capital gain against which interest expenditure cannot be allowed. Appellant has also claimed that money borrowed from bank were utilized for repayment of unsecured loan which were in fact used for investment in partnership firms being Shardul Corporation from which taxable interest income is earned, hence, interest expenditure need to be allowed. Even this claim of the appellant cannot be accepted as he has shown interest income from said firm of Rs. 1,399/- against which he has claimed interest expenditure of Rs.8,01,661/- in the computation of total income. Interest income earned by appellant is very minor when compared to interest expenditure already claimed by the appellant and allowed by the AO. Appellant has also claimed that funds were utilized for making payment to creditors for goods but as appellant has not shown any business income in year under consideration and no direct nexus is established,, this claim of appellant cannot be allowed. Even appellant has shown profit on sale of land as Short Term Capital Gain. Even appellant has not reflected land purchased as Stock -in- Trade in the P&L Account in the return of income filed. Further, as claimed by the appellant, the above interest is paid to Mehsana Urban Bank and the funds borrowed from the bank were utilized for business purpose of real estate. Further, it is also claimed tht he is filing Income Tax Return (which is the ITR for the assessee carrying out the business or profession) for the AY 2008-09, but due to the mistake of the ITP return was filed in the category of FFR to be used when the income is taxed under the head of "Income from Other Sources" instead of ITR to be used when the income is taxed under the head "Business & Procession. It is also claimed by the appellant that the AO misunderstood due to negligence of the ITP the said expenses were wrongly classified and were wrongly adjusted against the Income from

During the course of appellate proceedings before us, the ld. counsel has submitted paper book containing details of submission made at the time of assessment proceedings before the assessing officer and before the ld. CIT(A) at the time of appellate proceedings. He has and contended that ld. CIT(A) erred in not allowing the claim of interest expenses made by the assessee. On other hand, ld. departmental representative has supported the order of the ld. CIT(A).

We have heard both the sides and perused the material on record. We observed that during the year under consideration the assessee has not shown any business income and not established that the borrowed funds were used for business purposes during the year under consideration. We have further observed that assessee has already closed down its business in the preceding years and no business activities was carried out during the year under consideration. We also find no direct nexus could be established for claim of huge interest expenses of Rs.8,03,060/-against marginal

In the result, both the appeals of the assessee are dismissed.