HARISHKUMAR RAMNIKLAL PATEL,SURAT vs. INCOME TAX OFFICER, CIRCLE - 1(3), SURAT

Grounds of appeal

We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. Shri Tinish R Modi, Learned Counsel for the assessee, pleaded that interest expenses of Rs.8,43,300/- claimed u/s 57(iii) of the I.T. Act by the assessee, has been laid out or expended wholly and exclusively for the purposes of earning income from other sources and the assessee has established the nexus between interest bearing unsecured loans and the interest earning advances. The ld Counsel has stated that assessee has not accepted any new unsecured loans during the year and the interest expenditure of Rs.8,43,300/- has been expended on interest of old unsecured loans starting from A.Y 2012-13. In A.Y 2012-13, the assessee had obtained new unsecured loans of Rs.75,00,000/- and the same were advanced to Sahaj Residency.

On the other hand, Ld. Sr.DR for the Revenue relied on the order of lower authorities and submitted that assessee failed to make the co-relation between the unsecured loan taken and the unsecured loans given. The Ld. Sr-DR for the Revenue took us to paper book pages 3 and stated that on 31.03.2015, the assessee took unsecured loan of Rs.75,00,000 and given the loan and advances at Rs.10,57,200/-. Similarly, the assessee took the unsecured loan in the financial year ending on 31.03.2016 at Rs.1,70,70,000/- whereas the loan and advance given by the assessee, out of this loan taken, was to the tune of Rs.1,51,70,000/-. Therefore, Ld. Sr-DR contended that assessee failed to establish the co-relation between the loan taken and loan given to earn interest income. Therefore, the addition made by the Assessing Officer should be sustained.

Before us, Ld. Counsel for the assessee submitted the following documents and evidences, viz: (i) The copy of reply dated 15.11.2019, vide pages 8 to 19 of paper book; (ii) Copy of ROI for A.Y. 2017-18, vide pages nos. 20 to 25 of paper book; (iii) Ledger copy of interest & expenditure account, vide pages 25 to 28 of paper book; (iv) Summary chart of co-relation of unsecured loan and loans and advances along with interest income from A.Ys 201-13 to 2017-18, vide pages 29 of paper book; (v) Chart showing comparative loans & advances unsecured loans from A.Ys 2015-16 to 2017-18 vide page-30 of paper book; (vi) Chart showing unsecured loans with name & amount A.Y 2012-13 to 2017-18 pages 30-35; (vii) Copy of detailed balance-sheet A.Y. 2012-13 to 2017-18, vide pages 36 to 41 of paper book and

Based on the above documents and evidences, we have observed that there was a complete co-relation of unsecured loans taken as well as loans given along with interest income and interest expenses. Therefore, we are of the view that assessee deserves deduction under section 57 of the Act in respect of interest expenses which were incurred by the assessee to earn interest income. We note that assessee has earned interest income at Rs.18,97,400/- from loans given by him to others and he paid interest of Rs.8,43,300/- in respect of loan taken by him, and offered the balance amount for tax at Rs.10,54,100/- ( Rs.18,97,400- Rs.8,43,300), hence it is not a case that assessee has not paid taxes on the differential interest income.

We note that assessee took the loan and advances from various parties at lower interest rate and gave the loan and advances to other parties, who are needy, at a higher interest rate. We note that at page-30 of the paper book, the assessee has submitted the summary of unsecured loan taken and advances given to the parties. We note that assessee took unsecured loans normally @ 9% and given the loan and advances @ 12% and earned differential interest income (between 9% to 12%). We further note that assessee has been doing such business since long and in the previous year, the assessee has filed his return of income, which were accepted by the Department u/s 143(1) of the Act, therefore, no any addition was made on this count by the Department. We note that on differential interest the assessee has offered tax, hence it cannot be said that assessee has engaged in tax evasion practices. We note that during the assessment proceedings, the assessee has submitted plethora of documents and evidences which were not proved untrue by the assessing officer. The whole exercise is to be based on facts and it is the duty of the assessing officer to marshal all the facts and come to a logical conclusion about the income of the assessee for the year under consideration. For that reliance can be placed on the Judgment of Hon'ble Supreme Court in case of Sreelekha Bannerjee (491 ITR 122), wherein it was held that “ ..... before the department rejects such evidence, it must either show an inherent weakness in the explanation or rebut it by putting to the assessee some information or evidence, which it has in possession ...”

Based on these facts and circumstances, as narrated above, we are not inclined to accept the contention of the Assessing Officer in any manner and hence the addition so made is deleted. Hence this appeal of the assessee is allowed.

In the result, appeal of the assessee is allowed.