Case Law Details
Smt. Anuradha Agarwal Vs ITO (ITAT Jodhpur)
In all these appeals, the common issue involved is against confirming the disallowance on interest payment claimed U/s 57 of the Act. In this regard, the brief facts of the case are that the assessee has taken the one time loan from State Bank of India – Bhilwara on account of House Loan for house construction and concerned bank have charged and levied the interest amount of Rs 695008/-, however, the assessee has claimed the said interest as deduction U/s 57 of the Income Tax Act 1961 against interest income of Rs 8629517-which was received from various parsons and parties to whom the advances were given on interest towards. It was contention of assessee that one time house loan taken and received from the bank directly been transferred from bank channel to parties in respect to earning the interest on higher rates. Being not convinced with the assessees’ contention, the Assessing Officer disallowed the interest expenditure U/s 57 of the Act.
Assessee has availed housing loan from State Bank of India. The fact that the interest was charged with respect to the loan so taken, had not been denied by the Assessing Officer. The Assessing Officer has declined claim of deduction of interest on the plea that the assessee has claimed the same U/s 57 of the Act against the interest income received by him and not under the head of income from house property. Merely because the assessee has not claimed interest expenditure against the income from house property and claimed the same against the interest income earned by him will not disentitle the assessee to claim the same against such interest income which has been earned out of advances so made.
In the instant case, it is claim of assessee that the amount so borrowed from the bank even for the purpose of house construction was utilized in advancing the same for earning interest income. The assessee is also demonstrated that he has earned substantial interest income out of such advances. Before allowing the interest expenditure against the interest income, the burden is on the assessee to prove that the amount so borrowed has been actually and directly used for the purpose of advancing loan on which interest income has been earned. One to one link is required to be established in respect of utilization of interest bearing funds so borrowed. Merely because the loan was sanctioned for housing purpose, it cannot be said that the assessee cannot use it for advancing loans to others for earning interest. It may amount to violation of terms and conditions of the agreement so entered with the bank while sanctioning of the loan, but there is no contravention under the Income Tax Act for advancing such funds for earning interest income. However, there is no finding by the lower authorities that the interest earned out of advances were not out of interest bearing funds taken from bank. In the interest of justice and fair play, I restore this issue back to the file of the Assessing Officer for deciding afresh and the assessee is directed to demonstrate one to one use of borrowed funds for advancing loan on interest. I direct the Assessing Officer accordingly.
I also observe that in case of failure on the part of assessee to establish one to one relation between the amount of loan availed from bank and advance given by the assessee out of such borrowed funds for earning interest, the interest so paid is to be allowed against the income under the head ‘income from other sources’ as per provisions of section 24 of the Act.
FULL TEXT OF THE ITAT JUDGMENT
These are the appeals filed by the different assessees against the separate orders of the ld. CIT(A) Ajmer dated 05/10/2017 for the A.Y. 2013-14 in the matter of order u/s 143(3) of the Income-tax Act, 1961 [hereinafter referred to as ‘the Act’, for short].
2. In all these appeals, a common issue has been taken, therefore, all the appeals are being heard together and the Bench decided to dispose off all these appeals by a consolidated order.
3. At the time of hearing, none appeared on behalf of the assessee. Even though, the assessee filed adjournment petition but no body was there to prosecute the adjournment petition. Accordingly, the Bench decided to dispose off the appeals after hearing the ld Departmental Representative.
4. In all these appeals, the common issue involved is against confirming the disallowance on interest payment claimed U/s 57 of the Act. In this regard, the brief facts of the case are that the assessee has taken the one time loan from State Bank of India – Bhilwara on account of House Loan for house construction and concerned bank have charged and levied the interest amount of Rs 695008/-, however, the assessee has claimed the said interest as deduction U/s 57 of the Income Tax Act 1961 against interest income of Rs 8629517-which was received from various parsons and parties to whom the advances were given on interest towards. It was contention of assessee that one time house loan taken and received from the bank directly been transferred from bank channel to parties in respect to earning the interest on higher rates. Being not convinced with the assessees’ contention, the Assessing Officer disallowed the interest expenditure U/s 57 of the Act.
5. By the impugned order, the ld. CIT(A) has confirmed the disallowance made by the Assessing Officer, by observing as under:
“4.3 I have gone through the assessment order, grounds of appeal, written submission, remand report and rejoinder carefully. It is seen that interest of Rs. 6,95,008/- has been paid by the appellant as interest on housing loan obtained from SBI-BHL. The amount of housing loan outstanding as on 31.03.2013 was Rs. 71,31,177/-. The amount utilized in construction of the house was Rs. 70,28,708/-. Therefore, the contention of the appellant that she had used the housing loan for the purpose of earning interest income is not found to be correct. Hence, the disallowance made by the AO of the deduction of Rs. 6,95,008/- claimed by the appellant u/s 57 in respect of the interest paid to SBI- BHL on housing loan is hereby confirmed.”
6. Now the assessee is in further appeal before the ITAT.
7. I have heard the contentions of ld. DR and perused the material placed on record. The assessee has taken loan for construction of house property. The justification given by the assessee for allowing the same U/s 57 of the Act was as under:
That direct nexus of transferring of funds between bank to parties here to well proved through record maintained by the assessee as well from bank statement but having of predetermined views the Ld. A.O.to making the beyond fact allegation upon the assessee here to added the amount of Rs 695008/- to disallowing the deduction claimed U/S 57 is absolutely illegal, unwarranted and beyond the facts.
That during the course of hearing of the case in brief and detailed the assessee already given the proper explanation supporting with corroborative evidences, bank statement with home loan account with, letter dated 12.01.2015.
In regard of justification / allowability of interest payment of Rs 695008/- to State Bank of India, commercial Br -Bhilwara house loan which claimed as deduction U/S 57 of the Income Tax Act 1961 under the head of Income from other sources which covered and followed in respect of expenditure laid out and expended wholly and exclusively for the purpose of making and earning of any income specially in our case earning and receiving of interest income.
And further we submit your honor according to showing the nature and transferring of funds from disbursement of bank loan from initial stage of loan sanction letter we have well proved and argued supporting with corroborative evidences and record in the last Asst. Year 2012-13 and agreed with and decided the issue in the appeal to giving the full relief to deleting the addition in whole vide appeal no 99/2014-15 dated 26.09.2016 and submit repeating to the same there are no change in nature and income as well of expenses made on account of interest paid to bank on loan account name known as House Loan and specially In the year under review there the construction work of residential house completed and the assessee appellant and her family shifted and occupied for self residence and some portion of newly buildup house here to have let out and income thereof also been shown under the head of income from house property.
There for in our case the assessee appellant also entitle to get the deduction from the head of income from house property U/s 24 but the ld. A.O. hereto not given the deduction narrating to the bias language in the order the assessee has not made any claim U/S 24 of the income tax act 1961.
That in our case the assessee appellant here to rightly claimed the deduction U/S 57 which made the same on account of interest paid to bank loan taken for purpose of construction of house property and simultaneously directly the same loaning fund here to utilized for earning of interest/ income but having of pre determined views the Ld. A.O added the amount of Rs 695008/- to disallowing the expenditure claimed U/S 57 is absolutely illegal and beyond the facts.
According to the law we submit your honor in our case to showing the facts of the case and record the assessee entitled to get the deduction both the section 24 & 57 hence disallowance of expenditure of amount of Rs 695008/- completely bias and agreed with the appeal order dated 13.01.2016 relevant to the Asst. Year 2012-13 which passed by your honor to providing the relief on the basis thereof the claim of the appellant U/S 57 for deduction of interest paid on the loan utilized for giving interest bearing advances cant not be disallowed by the AO . As the appellant with the help of documentary evidences had proved that the amount of loan obtained by her. was utilized for giving interest bearing advances, therefore, the claim of the appellant for deduction of the interest paid to SBI on the housing loan is hereby allowed.
The Gujarat High Court in the case of Vimati Ramakrishana V/s CIT (1981)131 ITR 659 has observed in respect of deduction of an expenditure U/S 57 cited in order to decide whether and expenditure is a permissible deduction U/S 57, the nature of the expenditure must be examined secondly the nature must not be in the nature of capital expenditure or personal expenses of the assessee and third the expenditure must have been laid out or expended wholly and exclusively for the purpose of earning “ Income from other Sources” and also decided that the purpose of making or earning such income must be the sole purpose for which the expenditure must have been incurred.
In fact in our case the nexus of transaction for earning of income against expenditure we have well proved through documentary evidences and channel of bank statement in respect to transferring the funds from loan account to another persons and parties so there no logic to give the freedom to anybody for making of any type of addition in any head on the basis of presumption.
Further we also submit your owner in respect of any transaction and connection between the expenditure and earning of income need not be direct and it may be indirect but in our case the expenditure here to made and incurred for the earning of income directly so the nexus between the expenditure and earning of the income as interest well proved which here to I have well decided in the case of Addl.CIT V/s Madras Fertilisers Ltd (1980) 122 ITR 139 (Mad.), Vijaya Laxmi Sugar Mills Ltd V/s CIT (1991) 191 1TR 641 (SC), CIT V/s Dwarka Chit Funds P Ltd (1996) 132 Taxation 109 (Mad.), CIT V/s K P Madan Mohan (1997) 136 taxation 506 (Mad.)
There For to going on the facts of the case the assessee appellant here to rightly claimed the deduction U/S 57 on account of interest paid amount of Rs 695008/-to bank on account of fully sanctioned loan account which diverted and transferred on account of advances given to parties and persons for earning the income as interest fully entitled to get the deduction U/S 57 and hoping with we warmly request kindly given the relief to the total tune of amount of Rs 695008/-which is extremely genuine and on fact true and correct expenditure here to have claimed against earning of interest and another income. ”
8. During the course of appellate proceedings, further evidences filed by the assessee were forwarded to the Assessing Officer for his remand report. After receipt of remand report, the assessee was called to file rejoinder. The rejoinder was also filed by the assessee, which reads as under:
“With respect in regard of remand report/ comments of the Income Tax Officer, Wrad-3-Bhilwara upon the written submissions and corroborative evidences furnished by the assessee appellant and regarding the issue involved in the case and matter we wish to respectfully submit in brief and furnished the proper reply in respect to point wise according to the remand report dated 25/26.07.2017 given as under-
Point No 2
We here to agreed with the Ld A.O. there no any type of new additional evidences filed and submitted during the hearing of the case and personally attended for remand report and total explanation supporting with documents as required was given and submitted before your good honor against bias addition amount of Rs 695008/- made to disallowing the deduction claim in U/s 57 of the Income Tax Act 1961, again we refer the same with regard.
Point No 3.1
We agreed with the valuation report submitted by the assessee appellant during the course of assessment proceedings which here to well accepted by the A.O. regarding investment made in construction of wholly buildup of residential house to incurring and withdrawing the further amount of Rs 1086177/- in the year under review and proved the same source of investment since initial stage till to the completion of house construction through the record maintained and in support thereof in regard to showing the total amount of construction expenses till to the year ended on 1.03.2013 amount of Rs 7654416/- spent specially there the balance sheet already given during the proceeding so the allegation of the A. O regarding Valuation report does not contain the cost for some essential construction , things etc. and mentioned easily the entire loan taken from SBI, even more than this amount and further mentioned not a single rupee must be available with the assessee for giving the loans to the other parties . We here to not agree with the views of own story and personal opinion made by the A.O. and strongly raised the objection about the whole scenario and facts to showing the capital, assets and liabilities only of home loan and other investment and advances where each and every transactions properly been examined by the A. O. and passed the bias order only of by making of beyond facts and illegal addition to disallowing the deduction claim U/S 57 amount of Rs 695008/-.
We submit your honor the same story was furnished in the last year of the case about the relevant matter which made of their own opinion without based of the record and having of purely of predetermined views the unlawful addition was made against which your good self kind honor given the full relief.
Further submit there no changes in facts of any type extra ordinary here to made in the year under review specially of the head of Loans & Advances slightly reduced and similar to the tune of amount of Rs 5710284/- in comparison of last year amount of Rs 7309320/- and according to this effect the interest income comes Rs 862951/- in compare of last year income of Rs 858067/- and simultaneously to this effect prima facie shows on fact the recoveries from the loans and advances of Rs 1599036/= (7309320- 5710284) plus to adding of this years surplus income out of them diverted to construction of house it means this year expenses amount of Rs 1086177/- similar to proved the source of investment in buildup of residential house hence we disagree with the views of the Ld A.O specially of the words mentioned in the remand report “not availability of the funds for spent”.
Point No 3.2, 3.3 & 3.4
The total lacunas mentioned in the remand report of the A. O. we submit your honor the total same their personal opinion and story already given in last year’s report and proper reply also been given supporting with evidences and considering to our written submission and arguments, Respected Sir granted to all the genuine facts of the case and given the full relief so we again refer the last year’s appeal order with regard.
Further we agreed with the views of Ld A.O. at point No 3.4 there the construction of the house property was going on during this period and also on another view there the HBA loan taken have been utilized for the purpose for which it has been taken .In detail we submit in support to views of ld. A.O. in brief to showing the balance sheet of the assessee appellant at the of the year up to 31.03.2013 there home loan account from bank Reflected in liability side the amount of Rs 7131179/-against which shown in construction on house Rs 7654416/- the spent amount and on other way there the capital balance comes Rs 8917118/- at the close of the year in the name of the assessee appellant against there in the assets side shown the figure of amount Rs 5710284/- in the title head of Loans and advances hence there nexus of transactions well linked as direct so we submit your honor the assessee appellant rightly claimed the deduction of expenditure U/S 57 & on other side also entitled to get the deduction U/S 24 under the head of income from house property.
Point No 4
In this case there the assessee has taken the home loan since beginning of loan sanction letter and opening of bank loan account as well of saving bank account jointly as well as personal account and directly disbursed in same time to earning of interest and utilized for given as loans and advances, in this regard the direct nexus of transactions already well proved during the assessment as well of appellate proceeding in last year so there no question arises for establishment of source of funds given on loan to other parties here to prove there for the primary condition for deduction claimed of expenses u/s 57 as laid down wholly fulfilled in our case.
Hence we submit your honor according to the facts of the case and to showing the scenario specially of transactions made in the whole of the matter the assessee appellant rightly claimed the deduction amount of Rs 695008/- and entitled to get the same as relief.
There for with warmest regard kindly allow the appeal to considering the facts of the case based on the genuine facts , transactions and explanation through record maintained and request to delete the addition in whole amount of Rs 695008/-which claimed as expenditure U/S 57 of the Income Tax Act 1961.”
09. I have carefully gone through the orders of the authorities below and I found that the assessee has availed housing loan from State Bank of India. The fact that the interest was charged with respect to the loan so taken, had not been denied by the Assessing Officer. The Assessing Officer has declined claim of deduction of interest on the plea that the assessee has claimed the same U/s 57 of the Act against the interest income received by him and not under the head of income from house property. Merely because the assessee has not claimed interest expenditure against the income from house property and claimed the same against the interest income earned by him will not disentitle the assessee to claim the same against such interest income which has been earned out of advances so made.
10. There is no dispute to the well settled legal proposition that the expenditure incurred for earning the interest income is to be allowed against the same. In the instant case, it is claim of assessee that the amount so borrowed from the bank even for the purpose of house construction was utilized in advancing the same for earning interest income. The assessee is also demonstrated that he has earned substantial interest income out of such advances. Before allowing the interest expenditure against the interest income, the burden is on the assessee to prove that the amount so borrowed has been actually and directly used for the purpose of advancing loan on which interest income has been earned. One to one link is required to be established in respect of utilization of interest bearing funds so borrowed. Merely because the loan was sanctioned for housing purpose, it cannot be said that the assessee cannot use it for advancing loans to others for earning interest. It may amount to violation of terms and conditions of the agreement so entered with the bank while sanctioning of the loan, but there is no contravention under the Income Tax Act for advancing such funds for earning interest income. However, there is no finding by the lower authorities that the interest earned out of advances were not out of interest bearing funds taken from bank. In the interest of justice and fair play, I restore this issue back to the file of the Assessing Officer for deciding afresh and the assessee is directed to demonstrate one to one use of borrowed funds for advancing loan on interest. I direct the Assessing Officer accordingly.
11. I also observe that in case of failure on the part of assessee to establish one to one relation between the amount of loan availed from bank and advance given by the assessee out of such borrowed funds for earning interest, the interest so paid is to be allowed against the income under the head ‘income from other sources’ as per provisions of section 24 of the Act. I direct the Assessing Officer accordingly.
12. The facts and circumstances in the cases of ITA No. 499 & 500/Jodh/2017 are same, therefore, following the reasoning given hereinabove. I direct the Assessing Officer accordingly.
13. In the result, all the three appeals are allowed in part for statistical purposes in terms indicated hereinabove.
Order pronounced in the open court on 25/05/2018.
