SH.SURINDER KUMAR SINGAL,CHANDIGARH vs. DY.COMMISSIONER OF INCOME TAX, CHANDIGARH
What did the Tribunal hold?
The Tribunal restored the issue of interest-free advances to the AO to examine the nexus between the assessee's own funds and the advances. Similarly, the issue of disallowance of interest expenditure was restored to the AO to verify the direct nexus between interest income and expenditure.
What were the facts?
The assessee challenged additions made by the Assessing Officer (AO) concerning interest-free advances and disallowance of interest expenditure. The CIT(A) had partly sustained the addition on interest-free advances and upheld the disallowance of interest expenditure.
What were the issues?
Whether disallowance of interest on interest-free advances is justified without considering the nexus with own funds, and whether interest expenditure can be set off against interest income when a direct nexus exists.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, CHANDIGARH BENCHES, ‘B’ CHANDIGARH
Before: SHRI SANJAY GARG & Ms. ANNAPURNA GUPTA
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
That in the f acts and circumstances of the case, the
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.
That the appellant craves to add, amend or alter any
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.
The Ld. DR, on the other hand, has relied on the findings
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.
In the view of the issue is restored to the file of the Assessing
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.
The next issue raised by the assessee is against the
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.
The Ld. DR, on the other hand, has submitted that the
assessee could not prove with satisfactory evidence the direct
nexus between interest income earned and the interest
expenditure incurred by the assessee.
We have considered the rival contentions. If the averments
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
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