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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM
O R D E R
PER DR. A. L. SAINI, ACCOUNTANT MEMBER:
Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2013-14, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals)-3, Surat [in short “the ld. CIT(A)”] in Appeal No. CAS-3/11/2016-17, dated 29.01.2018, which in turn arises out of an order passed by the Assessing Officer (AO) under section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as the “Act”], dated 24.02.2016.
2. Grounds of the appeal raised by the assessee are as follows: “1. On the facts and in the circumstances of the case as well as law on the subject the learned commissioner of the Income Tax (Appeals) has erred in confirming the action of the assessing officer in making addition of Rs.5,03,670/-, on account of disallowance of interest expenses claimed as deduction u/s 57 of the Income Tax Act, 1961.
On the facts and in the circumstances of the case as well as law on the subject, we have objection on ex-parte order as notice of hearing was issued by Hon'ble CIT(A)-3, Surat., on 01.08.2017, 27.09.2017 and 04.12.2017, but not a single notice served up on assessee.
3. On the facts and in the circumstances of the case as well as law on the subject, the learned commissioner of the Income Tax (Appeals) has not Assessment Year. 2013-14 Mansukhlal D. Mangukiya provided the ample opportunities to hear the case, hence the case may please be allowed and set aside to the CIT(A), Surat. 4. It is therefore prayed that the above addition may please be deleted as learned members of the tribunal may deem it proper. 5. Assessee craves leave to add, alter or delete any ground(s) either before or in the course of the hearing of the appeal.”
Succinct facts are that during the course of assessment proceedings, on verification of the return of income filed by the assessee for the year under consideration, it was noticed by the assessing officer that assessee has filed his return of income for the year under consideration u/s 44AD of the Income Tax Act, 1961, declaring net profit of Rs.5,32,610/- @ 18.53% on total turnover of Rs.28,73,692/- and claimed deduction u/s 57 of the I T Act of Rs.5,03,670/- against the income declared u/s 44AD of the Act. Therefore, assessing officer observed that assessee is showing income on presumptive basis u/s 44AD of the Act and is also claiming interest expenses of Rs.5,03,670/- against the said income. The assessing officer confronted the assessee about non allowability of such expenses against income under section 44AD of the Act. The assessee’s reply is considered and even reproduced in the Assessment order by the assessing officer. The assessing officer did not accept the explanation/reply of the assessee and held that since all expenses against the income declared u/s 44AD of the Act, are deemed to have been allowed as per the provisions of Section 44AD of the Act, therefore, the claim of deduction u/s 57 of the Act to the tune of Rs.5,03,670/- claimed by the assessee during the year under consideration as against his income declared u/s 44AD of the Act was disallowed and added back to total returned income of the assessee.
Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has confirmed the action of the Assessing Officer. Aggrieved, the assessee is in appeal before us.
Assessment Year. 2013-14 Mansukhlal D. Mangukiya 5. Shri P. M. Jagasheth, Pleads that amount to the tune of Rs.5,03,670/-, had been disallowed by the assessing officer on account interest expenses claimed as deduction under section 57 of the Income Tax Act, 1961, under the head ‘Income From Other Sources’. The said interest expense of Rs.5,03,670/-, does not pertain to business income declared by the assessee under section 44AD of the Act. The assessee is partner in various firms and in order to invest in these partnership firms, the assessee has borrowed money. On the said borrowed money, assessee has paid interest of Rs.5,03,670/- and claimed set off from business income, hence no disallowance should be made. Apart from his oral arguments, Learned Counsel also submitted written submissions before the Bench, which is reproduced below:
The assessee is partner in M/s. Balaji Metallisers and M/s. Shree Balaji Creation. The assessee has invested around Rs. 10.00 lac in the same. The remuneration and interest income from partnership firm is taxable under the head Profit and Gains from Business and Profession as per I.T. Act. The assessee has also invested Rs.65.00 lac in T.B.P. Pvt. Ltd. and became director of the company. The purpose of investment is to become part of internal management of the company and earn director’s remuneration. The remuneration income from company is taxable under the head salary income as per I. T. Act. However, as the company was in its initial stage and suffering from losses not able to give remuneration to directors. The interest is in fact deductible as regular business expenditure as investment was made by the assessee in two partnership firms to earn salary income and interest income which is table under the head business and profession income" as per the income tax Act. Over and above investment in partnership firms, the assessee has also invested in Pvt. Ltd. company and is a Director having" NIL" director remuneration for the year in concern. Director remuneration is a taxable income and hence the question of disallowance of expenditure to earn such income is a deductible expense. The investment is done by using due business prudent. The assessee was short of funds and hence the assessee has to resort to taking money on interest from third person. Hence the question of disallowance of interest expense of Rs.5,03,670/- does not arise at all. Copy of confirmation and acknowledgement of return of income of following unsecured loan parties are attached herewith: Harjibhai D. Mangukiya Jivrajbhai B. Mangukiya Jenish M. Mangukiya”
On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. Page | 3
Assessment Year. 2013-14 Mansukhlal D. Mangukiya
We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. The assessee submitted before us copy of income tax return for the AY.2013-14 wherein the assessee has shown the gross total income to the tune of Rs.2,72,307/- and claimed the deduction under Chapter VIA to the tune of Rs.25,783/-.We note that assessee is partner in M/s Balaji Metallers and earned net income of Rs.15004/- by way of remuneration and interest (PB-2). The assessee is also partner in M/s Shree Balaji Creation and earned net income of Rs.2,26,018/- by way of remuneration and interest (PB-2). The assessee is proprietor of M/s Tirupati Balaji Emery Stone, in which the assessee has declared profit under section 44AD of the Act to the tune of Rs.5,32,610/-. We note that under the head “Income from other sources” the assessee has shown interest income at Rs. 2,345/- and also shown interest paid to various parties (at Rs.5,03,670/-), from whom the assessee had borrowed funds to invest in partnership firms, as mentioned above. Therefore, we note that said interest of Rs.5,03,670/-, does not pertain to assessee`s business under section 44AD of the Act. In order to invest in above noted two partnership firms, the assessee has borrowed money from various persons and paid interest to these persons to the tune of Rs. 5,03,670/-, therefore, it is a business expense and hence assessee has rightly claimed the set off from business income of partnership firms. The said interest expenses are for the purpose of business, hence question of disallowance does not arise. In the case of CIT v. Delhi Safe Deposit Co. Ltd. [1982] 133 ITR 756 (SC), the Hon`ble Supreme Court held that a sum of money expended, not of necessity and with a view to direct and immediate benefit to the trade, but voluntarily on the ground of commercial expediency, and in order indirectly to facilitate the carry on of the business, may yet be expended wholly and exclusively for the purposes of trade. Therefore, considering the factual position narrated above, we are not inclined
Assessment Year. 2013-14 Mansukhlal D. Mangukiya to accept the contention of the Assessing Officer in any manner and hence the addition of Rs.5,03,670/-, so made is deleted. Hence, this ground of the assessee is allowed.
In the result, appeal filed by the assessee is allowed
Order is pronounced on 12/01/2022 by placing result on notice board.