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

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ITA 1224/CHANDI/2016Status: DisposedITAT Chandigarh03 July 2018AY 2012-135 pages
AI SummaryRemanded

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?

Section 36(1)(iii),Section 57(iii)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, CHANDIGARH BENCHES, ‘B’ CHANDIGARH

Before: SHRI SANJAY GARG & Ms. ANNAPURNA GUPTA

For Appellant: Shri Vinit Krishan
For Respondent: Shri Manjit Singh
Hearing: 19.06.2018Pronounced: 03.07.2018

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

2.

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.

4.

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.

3.

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.

4.

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.

5.

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.

6.

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.

7.

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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