SH.SURINDER KUMAR SINGAL,CHANDIGARH vs. DY.COMMISSIONER OF INCOME TAX, CHANDIGARH

Per Sanjay Garg, Judicial Member:

The captioned appeal has been preferred by the assessee

against the order dated 08.09.2016 of the Commissioner of

Income Tax (Appeal)-2, Chandigarh [hereinafter referred to as

‘CIT(A)]. The assessee in this appeal has taken the following

grounds:-

“1) That the order passed under section 250(6) of the

Income Tax Act, 1961 by the learned Commissioner of

Income Tax (Appeals)-2, Chandigarh in Appeal No.

54/2/2015-16 dated 08.09.2016 is contrary to law and

facts of the case.

ITA No. 1224/Chd/2016- Sh. Surinder Kumar Singal, Chandigarh

Ld. Commissioner of Income Tax (Appeals)-2, Chandigarh

gravelly erred in sustaining addition of Rs. 4,27,894/- out

of total addition of Rs. 11,49,279/- made by Ld. Assessing

Off icer under section 36(I)(iii) on account of interest free

advances given by appellant.

3 a) That in the f acts and circumstances of the case,

the Ld. Commissioner of Income Tax (Appeals)-2,

Chandigarh gravelly erred in not considering the

submissions and evidences f iled by the appellant in

response to remand report of the Ld. Assessing Officer with

respect disallowance of interest expenditure of Rs.

72,24,534/- claimed under section 57(iii) of Income Tax

Act.

b) That in that f acts and circumstances of the case, the

Ld. Commissioner of Income Tax (Appeals)-2, Chandigarh

gravelly erred in upholding the disallowance of Rs.

72,24,534/- made by the Ld. Assessing Off icer of interest

expenditure claimed by appellant under section 57.

c) That without prejudice to ground number 3(b) of the

disallowance of Rs. 72,24,534/- under section 57 (iii)

upheld by the Ld. CIT(A), Chandigarh is highly excessive.

ground of appeal before or at the time of hearing of appeal,

with the permission of the Hon'ble Income Tax Appellate

Tribunal, Chandigarh.”

ITA No. 1224/Chd/2016- Sh. Surinder Kumar Singal, Chandigarh 3 2. The assessee in the above grounds of appeal has raised two effective issues. The first issue is relating to disallowance of interest u/s 36(1)(iii) of the Income Tax Act. At the outset,

Ld. Counsel for the assessee has submitted that though the

Assessing Officer had made disallowance on this issue of Rs.

11,49,279/-, however, the Ld. CIT(A) has restricted the same to

Rs. 4,27,894/-, observing that the assessee had advanced.

Interest free advance/loans of Rs. 35,65,780/- and not of Rs.

95,77,326/- as taken by the Assessing Officer. Now, the

learned counsel for the assessee has submitted that even the

assessee was having its own interest funds free funds out of

which the investments were made by the assessee. He has

further submitted that the assessee may be given opportunity

to prove the nexus between the own money / interest free fund

with the investments/interest free advances given by the

assessee.

of the lower authorities. However, he could not rebut

averments of the Ld. Counsel for the assessee that if the

assessee would be able to prove the nexus between the own

funds and the interest free advances, then no disallowance u/s

36(I)(iii) should be attracted.

Officer to examine it afresh. If the assessee will be able to

prove the nexus between the own funds/interest free funds

available with the assessee and the interest free advances

ITA No. 1224/Chd/2016- Sh. Surinder Kumar Singal, Chandigarh 4 given to third parties, no disallowance on this issue will be

attracted.

disallowance of interest expenditure of Rs. 72,24,534/- u/s

57(iii) of the Act. At the outset, Ld. Counsel for the assessee

has submitted that there was a direct nexus between the

interest income earned and expenditure claimed. That the

assessee had received loan amount from the bank which was

further disbursed as loan to other parties from whom the

interest income was earned. That the assessee was entitled to

set off the interest expenditure against interest income as there

was a direct nexus between the two.

assessee could not prove with satisfactory evidence the direct

nexus between interest income earned and the interest

expenditure incurred by the assessee.

of the assessee are taken as correct, the assessee, in our view,

will be entitled to claim deduction of the expenditure out of the

interest income offered by the assessee. We therefore set aside

the impugned order on this issue and restore the issue to the

file of the Assessing Officer to examine it afresh and decide the

same in the light of the above observations made after giving

proper opportunity to the assessee to present his case.

ITA No. 1224/Chd/2016- Sh. Surinder Kumar Singal, Chandigarh

In the result, the appeal of the assessee is treated as allowed

for statistical purposes.

Order pronounced in the Open Court

Sd/- Sd/- (ANNAPURNA GUPTA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated : 03.07.2018

Ganesh Kumar

Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR