PRASHANT CHHAJER,RAIPUR vs. INCOME TAX OFFICER, WARD 3(2), RAIPUR

आयकर अऩीऱीय अधधकरण, रायऩुर न्यायऩीठ, रायऩुर IN THE INCOME TAX APPELLATE TRIBUNAL RAIPUR BENCH, RAIPUR श्री रविश सूद, न्याययक सदस्य एवं श्री अरुण खोड़वऩया, ऱेखा सदस्य के समक्ष । BEFORE SHRI RAVISH SOOD, JM & SHRI ARUN KHODPIA, AM आयकर अऩीऱ सं./ITA No.218/RPR/2018 (ननधाारण वषा / Assessment Year :2014-2015) Prashant Chhajer, Vs ITO-3(2), Raipur APAS & Co., Nalghar Chowk, Raipur PAN No. : ACZPC 6072 F (अऩीऱाथी /Appellant) (प्रत्यथी / Respondent) ..

ननधााररती की ओर से /Assessee by : Shri Praveen Khandelwal & Shri Praveen Goyal, CAs राजस्व की ओर से /Revenue by : Shri G.N.Singh, Sr. DR सुनिाई की तारीख / Date of Hearing : 26/07/2022 घोषणा की तारीख/Date of Pronouncement : 21/09/2022 आदेश / O R D E R Per Arun Khodpia, AM : This appeal is filed by the assessee against the order passed by the CIT(A)-I, Raipur, dated 05.06.2018 for the assessment year 2014-2015, wherein the assessee has raised the following grounds :- 1. The Order passed by the ITO 3(2) and upheld by the CIT(A) is bad in law and facts of the case. 2. The Learned CIT(A) erred in confirming the disallowance of Rs.4,00,000/- out of interest paid, made by AO 3. The Appellant craves leave to add, to alter, amend or modify or delete any or all of the above Grounds of Appeal. 2. In this appeal, during the course of assessment proceedings, the AO found that the assessee has invested huge part of the amount of unsecured loans with the concerns and shares from which the assessee has not derived any income during. The assessee has claimed interest payment on unsecured loans but shown interest income only from the

2 ITA No.218/RPR/2018 concerns Share and Care Communication Prop. Shreyans Chhajer. Therefore, the AO was of the view that the assessee has made investment for non-business expediency out of the unsecured loans taken and disallowed the part of the interest expenses u/s.36(1)(iii) of the Act. The CIT(A) in appeal sustained the disallowance made by the AO on the ground that the assessee could not establish his claim by producing fund flow chart and bank statements. Now, the assessee is in further appeal before the Tribunal. 3. Ld. AR before us submitted that the assessee has furnished the details of investments consisting of loans, advances and capital contribution before the appellate authority. Even before the AO the assessee has explained regarding the funds utilized for the purpose of income generating. It was also submitted by the Ld. AR that the assessee had sufficient interest free funds including the capital of the assessee to give interest free advance and all interest bearing funds have been used in making investment in business ventures out of business expediency. Ld. AR further submitted that the assessee has proved that the borrowed funds were used in making business investment though in some cases there is no income from the said business in the year under consideration but that cannot be a reason for disallowance of expenses. Therefore, ld. AR submitted that both the authorities below have committed gross error in not allowing the claim of the assessee and the orders of the lower authorities deserves to be set aside.

3 ITA No.218/RPR/2018 4. On the other hand, ld. Sr. DR relied on the orders of both the authorities below and submitted that the assessee could not substantiate his claim either before the AO or before the CIT(A), therefore, CIT(A) has rightly sustained the disallowance made by the AO. 5. We have considered rival submissions and perused the material available on record. From the orders of the authorities below it is discernable that in the instant case the assessee’s claim that he possess sufficient interest free funds and the same were utilised for the purpose of investment under business expediency was not find any favour before the AO as well as before the Ld CIT(A). It is also observed that, the figure work produced in the assessment order was confusing, AO was not able to appreciate / explain the figures, had devoid the contentions of the assessee and under such circumstances AO took a stand based on his own assumption to make a lump sum disallowance of Rs.4,00,000/- u/s 36(1)(iii) of the ACT. Ld CIT(A) has also irritated the findings of the AO, considered the submissions of assessee, arrived at a finding that the contentions of the assessee are not acceptable since the figures of interest free fund submitted by the Assessee at appellate stage was Rs.1,15,82,548/-, before AO the same was Rs.1,90,13,091/- and on the other hand on verification the AO had worked out the same as Rs.1,80,13,090/- (Interest Free Loan Rs.1,46,95,865/- + Capital 33,17,225/-). It is also observed by the Ld CIT(A) that the appellants claim that the investment in non income generating items has been made out of the interest free funds was not established by the assessee by submitting

4 ITA No.218/RPR/2018 a fund flow chart and bank statements and therefore he sustained the addition made by AO. 6. We have also perused the paper book submitted by the Ld AR of the Assessee before us containing submissions before the Ld CIT(A), where in the assessee relied on the following case laws, but the same were not discussed the Ld CIT(A) in his order. a. JCIT Vs. Beekay Engineering Corporation (2010) 325 ITR 384 (CG); and b. CIT Vs. Reliance Utilities & Power Limited (2009) 313 ITR 340 (Bom) 7. From both the above cases the assessee has submitted that Hon’ble Jurisdictional High Court of Chhatisgarh and Hon’ble Mumbai High Court has laid down a principle that where interest free funds are available in the balance sheet of the assessee and the department failed to prove that borrowed funds have been used in making advances, it will be presumed that such advances have been paid out of the interest free funds. 8. Now, to decide the sole issue raised by the assessee in present appeal that The Learned CIT(A) erred in confirming the disallowance of Rs.4,00,000/- out of interest paid, made by AO, we respectfully following the principle laid down by the aforesaid judicial decisions, are of the considered opinion that if the assessee has sufficient interest free funds available and are utilised for investment with business expediency then the same cannot be disallowed under section 36(1)(iii), more over a disallowance on lump sum basis is not at all justifiable.

5 ITA No.218/RPR/2018 9. However, based on the facts of the present case examined by us it is observed that Ld CIT(A) has not concluded the issue with logical finding to sustain the disallowance. The basic ingredient for disallowance u/s 36(1)(iii) is that there should be nexus between the interest bearing funds received and interest free advances / investments made, but admittedly Ld CIT(A) in his conclusive para has held that it was not established that whether the non income generating investments were made by the assessee are out of the interest free funds? The same could be answered only by drawing a cash/fund flow chart of the assessee’s transactions from such activities for the year along with verification of the bank statements. Since, no such information was ever called and verified by the AO, we deem it fit to send this matter back to AO for verification of this limited aspect to re-adjudicate the issue as per law, provide reasonable opportunity of being heard to the assessee. Ground no 2 of the appeals is thus disposed off in accordance with our observations herein in before. 10. Ground no 1 & 3 are general in nature needs no separate adjudication. 11. In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in pursuance to Rule 34(4) of ITAT Rules, 1943 on 21/09/2022. Sd/- Sd/- (RAVISH SOOD) (ARUN KHODPIA) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER रायऩुर/Raipur; ददनाांक Dated 21/09/2022 Prakash Kumar Mishra, Sr.P.S.

6 ITA No.218/RPR/2018 आदेश की प्रनतलऱपऩ अग्रेपषत/Copy of the Order forwarded to : अऩीऱाथी / The Appellant- 1. 2. प्रत्यथी / The Respondent- आयकर आयुक्त(अऩीऱ) / The CIT(A), 3. आयकर आयुक्त / CIT 4. विभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, रायऩुर/ DR, ITAT, 5. Raipur गार्ड पाईऱ / Guard file. 6. आदेशानुसार/ BY ORDER, सत्यावऩत प्रयत //True Copy// (Assistant Registrar) आयकर अऩीऱीय अधधकरण, रायऩुर/ITAT, Raipur