Biren Suresh Karani Vs ITO (ITAT Mumbai)
ITAT Mumbai held that disallowance of interest on unsecured loans unjustified as genuineness of loans and utilization of loan funds for business purpose not disputed and interest paid on open in balances of unsecured loan creditors.
Facts- The assessee is an individual and Prop. of M/s Vartsila, which is a dealer of pressure reducing valves. The assessee has filed the return of income AY 2012-13 disclosing a total income of Rs.10,23,840 and the return of income was processed u/s. 143(1) of the Act. Subsequently the case was selected for scrutiny and the notice u/s. 143(2) and 142(1) of the Act are issued.
AO not being satisfied with the claim of interest debited to profit &loss account, has made disallowance of interest of Rs.6,48,422 and also housing loan interest of Rs.37,965 and assessed the total income of Rs. 20,33,340 and passed the order u/s. 143(3) of the Act.
CIT(A) confirmed the action of AO. Being aggrieved, the present appeal is filed.
Conclusion- Held that the AO has not disputed on the genuineness of loans and the loan funds were utilized wholly and exclusively for the purpose of business. Considering the facts, circumstances and the information filed in the course of hearing find that there is no dispute with respect to the interest paid to the unsecured loan creditors on the opening balances and further the revenue has been accepting the interest claim in earlier years. Accordingly, the order of the CIT(A) on this disputed issue is set aside and direct the Assessing officer to delete the disallowance of interest on unsecured loans of Rs.2,43,52 1/- .
Held that AO has not disputed the genuineness of loans, The Ld.AR filed the evidences of interest paid to LIC Ltd loans and supported with the loan repayment and loan interest receipts and in the case of HDFC Ltd, statement of account was filed. Considering the facts, circumstances and submissions and there is no dispute that the assessee has let out the property and derived the rental income and the assessee has substantiated the submissions with the documentary evidences. Accordingly, set aside the order of the CIT(A) on the present disputed issue and direct the Assessing officer to delete the disallowance of interest of Rs.37,965/- and allow the grounds of appeal in favour of the assessee.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The assessee has filed the appeal against the order of National Faceless Appeal Centre (NFAC), Delhi /CIT(A) passed u/s 143(3) r.w.s 254 and 250 of the Act. The assessee has raised the following grounds of appeal:
1 On the facts and in circumstances of the case, and in law, learned Commissioner of Income-tax (Appeal) erred in upholding action of the Assessing Officer in disallowing interest expense of RS. 243,521 without appreciating that all these loans were old loans carried forward from the earlier year that were utilized for the purpose of business, and interest was allowed in earlier year also.
2. Without prejudice to above, on the facts, and in circumstances of the case, and in law, learned Commissioner of Income-tax (Appeal) and the Assessing Officer erred in not appreciating that overdraft was raised in the business as some of the funds were employed to buy industrial units which were let out; and thus, interest if not allowable as business expense was allowed against income from house property.
3. On the facts, and in circumstances of the case, and in law, learned Commissioner of Income-tax (Appeal) erred in upholding action of the Assessing Officer in disallowing interest of RS. 37,965 paid against loan from LIC and loan from HDFC without appreciating that the said loans were obtained in connection with acquisition of the industrial units, and interest was allowed against income from house property.
4. Your Appellant craves leave to add to, amend, alter, modify and / or delete any grounds of appeal at or before final disposal of appeal the above
2. The brief facts of the case are that the assessee is an individual and Prop. of M/s Vartsila, which is a dealer of pressure reducing valves. The assessee has filed the return of income A Y 2012-13 on 19.09.2012 disclosing a total income of Rs.10,23,840/- and the return of income was processed u/s 143(1) of the Act. Subsequently the case was selected for scrutiny and the notice u/s 143(2) and 142(1) of the Act are issued. In compliance to the notice, the Ld. AR of the assessee appeared from time to time and submitted the details and the case was discussed. Whereas the AO (Assessing Officer) on perusal of the information and details found that the assessee has claimed interest on house property and interest paid to banks and interest on unsecured loans. The AO has considered the facts, details and was not satisfied with the claim of interest debited to profit &loss account and dealt elaborately at Para 5 of the order and has made disallowance of interest of Rs.6,48,422/- and also housing loan interest of Rs.37,965/- and assessed the total income of Rs. 20,33,340/- and passed the order u/s 143(3) of the Act dated 27.03.2015.
3. Aggrieved by the order, the assessee has filed an appeal before the CIT(A). Whereas the CIT(A) confirmed the action of the AO and dismissed the assessee appeal. On further appeal, the Hon’ble Tribunal in ITA No. 6273/Mum/2017 dated 15.02.2019 has restored the disputed issues to the file of the Assessing officer. Accordingly, now the AO has issued notice u/s 143(2) and 142(1) of the Act and the observations of the AO are that the assessee has not explained the sources of investments and the interest bearing funds are used for acquisition of property and therefore the AO is of the opinion that the assessee is not entitled for claim of deduction and has discussed on the issues at Para 9 to 14 of the order and passed the order u/s 143(3) r.w.s 254 of the Act.
9. In the earlier previous year the assessee claimed interest payment of Rs.1,88,080/- As regards of the payment of interest of Rs.6,48,422/- the same has been explained for the following reasons:
