LOTUS INVESTMENTS LTD,MUMBAI vs. ACIT CEN CIR 13, MUMBAI

आदेश / O R D E R Per Joginder Singh (Judicial Member) The assessee is aggrieved by the impugned order dated 18/02/2013 of the ld. First Appellate Authority, Mumbai. The only ground raised in this appeal pertains to imposing penalty of Rs.2,63,357/- u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter the Act).

3.1. We have considered the rival submissions and perused the material available on record. Before coming to any conclusion, we are reproducing hereunder the relevant portion from the aforesaid order dated 30/09/2013 for ready reference:-

“The present appeal has been filed by the assessee against the order of the CIT(A) dated 17.06.09 relevant to assessment year 2006-07.

2. The only substantive issue coming out of the ground of appeal is regarding disallowance of a sum of Rs.7,82,403/- being interest paid on bank overdraft.

During assessment proceedings under section 143(3) of the Income Tax Act, the Assessing Officer disallowed the interest amount of Rs.7,82,403/- which the assessee claimed to be paid to bank against overdraft/loan. It has been claimed by the assessee that the overdraft facility was granted to the assessee against the security of his FDR with the bank for Rs.1,34,48,380/- which earned corresponding interest of Rs.6,83,467/- and the same was offered as income of the assessee. The assessee thus has claimed that there is a nexus between the FDR interest and the interest paid on overdraft and as such has claimed the said overdraft interest as business expenditure. The second contention of the ld. representative of the assessee has been that the overdraft loan amount was utilized by the assessee towards repayment of interest and loan amount of Rs.13.53 crores outstanding against the assessee. These loan amounts were used by the assessee for the purpose of “investment business” of the assessee. On the other hand ld. D.R. has relied upon the authorities below.

3. A perusal of the order under appeal reveals that the disallowance of interest expenditure of Rs.7,82,403/- has been confirmed by the ld. CIT(A) observing that there was no nexus between the interest income accrued to the assessee on the FDR and the interest paid on the overdraft. We do not find any infirmity of the finding of the ld. CIT(A), so far the nexus between the interest income and the interest paid on overdraft is concerned. It may be observed that even if the FDR in question was kept as a security with the bank for the overdraft facility that itself does not establish any nexus between the interest earned on such FDR with the loan taken from the bank and the interest paid there upon. For the purpose of sanction of overdraft facility/loan, the bank generally requires some security which may be either in the shape of FDR or in the shape of any other valuable property including immovable property. Merely because the FDR was kept as a security for the overdraft facility, it does not establish any nexus between the two. Moreover the income from interest on the FDR has been computed under the head “other sources”, whereas the interest paid on the loan amount has been claimed for business purposes.

However, there seems to be a force in the second contention of the ld. A.R. to the effect that the overdraft loan amount was paid/used for the business or for the repayment of unsecured loan/interest of Rs.13.53 crores outstanding against the assessee. However, this contention of the assessee has not been taken into consideration by the authorities below. Under such circumstances we restore the issue back to the file of the Assessing Officer with a direction to examine as to whether the overdraft amount of loan upon which the payment of interest expenditure of Rs.7,82,403/- has been claimed was used for the repayment of the outstanding loans which were used by the assessee for the purpose of its business. If the contention of the assessee in this respect is found true, then the assessee will be entitled to claim the expenditure being used for the purpose of business. Needless to say that the AO will give proper opportunity to the assessee to present its case and the evidences/documents, if any required, thereafter, to pass a speaking order in accordance with law.

3.2. We find that the co-ordinate Bench vide order dated 30/09/2013 (supra) remanded the quantum addition to the file of the ld. Assessing Officer with respect to entitlement to the claim of expenditure, being used for business purposes, therefore, the penalty appeal is also remanded back to the file of the ld. Assessing Officer to decide on merit as the same will be outcome of the appeal on quantum addition. The assessee be given opportunity of being heard, thus, the appeal of the assessee is allowed for statistical purposes.

Finally, the appeal of the assessee allowed for statistical purposes only.

This order was pronounced in the open court in the presence of the ld. representative from both sides at the conclusion of the hearing on 09/12/2015