MANISHA SRIVASTAVA,KOLKATA vs. ITO, WD-7(3), KOLKATA, KOLKATA

The assessee in the present case is an individual, who filed her return of income for the year under consideration on 29.03.2006 declaring total income of Rs.2,11,304/-. During the year, she was a Director of a Private Limited Company, namely M/s. Saisha Electronics (Pvt.) Limited and earned Director’s remuneration as well as dividend interest from the said Company. During the course of assessment ./2015 Assessment year: 2005-2006 Page 2 of 4 proceedings, it was noticed by the Assessing Officer that interest of Rs.3,43,667/- paid by the assessee on unsecured loans taken from two firms was claimed as deduction. In this regard, he noted that there were interest-bearing advances/loans given by the assessee. Keeping in view this fact as well as the fact that there was no income declared by the assessee under the head “profits and gains of business or profession”, the Assessing Officer held that interest expenditure claimed by the assessee was not allowable as deduction. Accordingly, the interest expenditure claimed by the assessee was disallowed by the Assessing Officer.

The disallowance made by the Assessing Officer on account of interest was challenged by the assessee in the appeal filed before the ld. CIT(Appeals). During the course of appellate proceedings before the ld. CIT(Appeals), it was contended by the assessee that although she did not earn any interest on the investment made out of interest-bearing loan for giving advances to her two Companies, the said investment having been made to support the business of the concerned Companies and she having earned Director’s remuneration from the said Companies, interest was allowable as deduction. This contention of the assessee was not found acceptable by the ld. CIT(Appeals) and he proceeded to confirm the interest disallowance made by the Assessing Officer for the following reasons given in paragraph no. 3.2 of his impugned order:- “3.2. I have considered the submission made. It has not been denied by the appellant that the funds borrowed have been utilized for investment in the two companies in which she was a director. However, it has been claimed that the investment was made on the ground of business expediency. It is true that it has been upheld by the Supreme Court in the case of S.A. Builders Ltd. (supra), that loan given to sister concern on account of commercial expediency should not be considered as diversion of funds. (The other decision cited by the appellant is incidentally in favour of revenue and not much relevant). However, in the appellant’s case, she has not explained as to what was the commercial expediency for which loans were given. Also, earning of director’s remuneration is not material in this regard, because she would have earned remuneration in the capacity of ./2015 Assessment year: 2005-2006 Page 3 of 4

I have heard the arguments of both the sides and also perused the relevant material available on record. Although the ld. Counsel for the assesese has reiterated before me the contention raised before the ld. CIT(Appeals) in support of the assessee’s claim for deduction on account of interest, I am unable to accept the same for the same reasons as given by the ld. CIT(Appeals) in his impugned order with which I fully agree. As rightly held by the ld. CIT(Appeals), the only income received by the assessee from the concerned two Companies was in the form of Director’s remuneration and interest expenditure was not allowable as deduction against the said income. Moreover, there was no income declared by the assessee under the head “profits and gains of business or profession” and, therefore, there was no question of allowing deduction on account of interest on the ground of business expediency. I, therefore, find no infirmity in the impugned order of the ld. CIT(Appeals) confirming the disallowance made by the Assessing Officer on account of interest and upholding the same, I dismiss this appeal filed by the assessee.