Case Law Details
Amit Dhirajlal Doshi Vs DCIT (ITAT Ahmedabad)
Explore the ITAT Ahmedabad ruling in Amit Dhirajlal Doshi vs. DCIT regarding interest expenditure deduction under Section 57 of Income Tax Act.
Introduction: In the case of Amit Dhirajlal Doshi vs. DCIT (ITAT Ahmedabad), the Income Tax Appellate Tribunal (ITAT) has addressed a significant matter concerning the deduction of interest expenditure under Section 57 of the Income Tax Act. The ITAT ruled in favor of the assessee, asserting the lawfulness of the deduction based on the utilization of borrowed funds for interest-bearing advances.
Background: Amit Dhirajlal Doshi, the assessee, filed an appeal against the order dated 18.05.2018 issued by the CIT(A)-1, Ahmedabad for the Assessment Year 2013-14. The appeal focused on two key issues: the addition of Rs. 6,11,400 under the “salaries” category and the addition of Rs. 31,47,497 under Section 57.
Salary Income Discrepancy: During the assessment, it was observed that the assessee credited an amount of Rs. 58,63,992 as salary income, which included various components like car reimbursement, children education, driver salary reimbursement, helper, telephone reimbursement, and uniform attire reimbursement. However, in the income statement, the assessee had declared a salary income of only Rs. 52,52,592. As a result, the Assessing Officer added Rs. 6,11,400 as the difference in the declared salary income.
Interest Expenditure Disallowance: Another issue pertained to the disallowance of interest under Section 57, amounting to Rs. 31,47,497. The Assessing Officer asserted that the funds used were for the acquisition of immovable property, leading to the disallowance. The Assessing Officer also made an additional addition of Rs. 44,573 related to interest on LIC loans.
CIT(A) Partial Relief: The CIT(A) partially allowed the appeal. For the salary income, certain components were deemed as perquisites and were thus disallowed. However, elements like children education, helper, and uniform attire reimbursements were recognized as allowable under Section 10(14) of the Act. In relation to the interest expenditure, the CIT(A) partially granted relief, reducing the initial addition of Rs. 31,99,303.
Assessee’s Argument: The assessee contended that the disallowance of Rs. 6,11,400 under the salary head was based on certain non-taxable allowances. Still, the Assessing Officer had failed to consider these allowances properly. However, as per Section 10(14) of the Act, certain reimbursements are indeed exempt, and the certificate issued by the employer could not supersede the statutory provision.
Regarding the interest expenditure addition, the assessee provided detailed information about 11 parties from whom advances and borrowed funds had been received. The argument presented was that these loans had been taken in prior years and were immediately paid thereafter, eliminating any actual interest payment. Furthermore, it was explained that the borrowed funds had been used to purchase immovable property.
ITAT’s Verdict: The ITAT reviewed the entire matter and offered the following rulings:
- Salary Income: Certain components of the salary income, such as car reimbursement, driver salary reimbursement, and telephone reimbursement, are indeed taxable and were rightfully disallowed. However, the children education, helper, and uniform attire reimbursements fall under Section 10(14) and should be allowed. The certificate provided by the employer cannot override the provisions of the Income Tax Statute.
- Interest Expenditure: The CIT(A) provided a partial relief, but the ITAT concluded that the interest expenditure should indeed be allowed. The borrowed funds had been clearly used for interest-bearing advances, and the CIT(A) had failed to consider the evidence presented. In the ITAT’s view, the Assessing Officer and the CIT(A) had incorrectly disallowed this deduction.
Conclusion: The Amit Dhirajlal Doshi case is notable as it confirms the lawfulness of claiming deductions under Section 57 of the Income Tax Act when the assessee establishes that borrowed funds were utilized for interest-bearing advances. The ITAT’s decision aligns with the principles of the Income Tax Statute and favors the assessee, allowing them to claim the deduction of interest expenditure. This case reaffirms the importance of providing clear evidence to support claims during income tax assessments.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal is filed by the Assessee against order dated 18.05.2018 passed by the CIT(A)-1, Ahmedabad for the Assessment Year 2013-14.
2. The Assessee has raised the following grounds of appeal :-
“1. The Learned Assessing Officer has erred in law and on facts in making addition of Rs.6, 11,400/- under the head salaries and Hon. CIT (Appeals) has erred in law and on facts in confirming the addition of Rs.6, 11,400/-.
2. The learned Assessing Officer has erred in law and on facts in making addition of Rs.31,47,497/- under Section 57 and Hon CIT (Appeals) has erred in law and on facts in confirming the addition of Rs.31,47,497/-.
3. The appellant craves leave to adduce, alter and submit detailed grounds of appeal.
4. it is prayed that the addition of Rs.6, 11,400/- and Rs.31,47,497/- be deleted.”
3. The assessee filed return of income on 31.07.2013 declaring total income of 77,78,190/-. The return was duly processed under Section 143(1) of the Income Tax Act, 1961 and statutory notices were issued to the assessee and served. The assessee’s AR filed response along with the details during the course of assessment proceedings. The Assessing Officer observed that the assessee has credited an amount of Rs.58,63,992/- being salary income, however, in the statement of income the assessee has shown salary income of Rs.52,52,592/- only. The Assessing Officer added Rs.6,11,400/- as short declaration of salary income. The Assessing Officer also disallowed interest under Section 57 amounting to Rs.31 ,99,303/- which was utilised for the purpose of immovable property. The Assessing Officer also made addition of Rs.44,573/- in respect of interest on LIC loans.
4. Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.
5. The Ld. AR submitted that as regards ground no.1 related to addition of Rs.6,11,400/- the assessee received gross salary of Rs.58,63,992/- which included car reimbursement, children education, driver salary reimbursement, helper, telephone reimbursement and uniform Attire reimbursement. The Ld. AR submitted that the Assessing Officer has not considered tax free allowance and included the said allowance in taxable salary. The Ld. AR submitted that the Assessing Officer has overlooked a certificate of employer acknowledging the payment of tax free allowances. As regards to ground no.2 relating to addition of Rs.31 ,47,497/- under Section 57 of the Act, the Ld. AR submitted that the assessee has given details of 11 parties from whom the assessee has taken advance/borrowed fund and paid interest thereof. Ld. AR submitted that in respect of these loans, the same were taken in earlier years and was immediately paid thereafter and, therefore, there was no question of interest paid. The Ld. AR further submitted that the funds were utilised for purchase of immovable property and the same is on record. The Ld. AR submitted that the addition does not sustain as the CIT(A) as well as the Assessing Officer has totally ignored the details of the parties from whom advances were taken.
6. The Ld. DR submitted that the CIT(A) as well as the Assessing Officer has given all the detailed finding in respect of gross salary and the reimbursement is taxable income and the same was rightly disallowed by the CIT(A). As regards the addition of Rs.31 ,47,497/- under Section 57 of the Act, the CIT(A) has given a partial relief in the original addition which was Rs.31 ,99,303/-.. The Ld. DR relied upon the Assessment Order and the order of the CIT(A).
7. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the incentive such as car reimbursement, driver salary reimbursement and telephone reimbursement comes under the purview of taxable income and thus the Assessing Officer has rightly disallowed the same as they are perquisites. But, as regards to children education, helper & uniform attire reimbursement, the same are coming under the purview of Section 10(14) of the Act and hence are allowable. The certificate issued by the employer cannot override the applicability of the Income Tax Statute wherein such kind of reimbursements are Thus, ground no.1 is partly allowed. As regards ground no.2, the CIT(A) in respect of party-wise has given the finding as to the 11 parties and the evidences filed by the assessee was considered. In fact, in paragraph no.3.1(vi), it is clearly mentioned that at the time of scrutiny assessment proceedings the assessee submitted that unsecured loan on which interest has been paid but were utilised to purchase immovable property. The contention of the assessee that the funds were utilised and the loans were taken in earlier year and, therefore, the interest portion should have been allowed appears to be correct. Further, in paragraph no.3.7 the CIT(A) has categorically observed that the funds were given to Ashit Doshi on the very same date on which advances were taken from these 11 parties and such funds were repaid by Ashit Doshi immediately. The assessee has also paid interest of Rs.7,60,770/- to Ramilaben Doshi and only submitted ledger account of current year which shows opening balance of Rs.63,39,754/-. In case of Nishit Doshi, assessee paid interest of Rs.9,38,647/-. The Ld. AR relied upon the decision of CIT vs. Sridev Enterprises, 192 ITR 165. Thus, the assessee has established that the borrowed funds were utilised for such interest bearing advance and hence claim of the assessee for deduction of interest expenditure under Section 57 of the Act was proper. The Assessing Officer as well as the CIT(A) was not right in making this addition. Hence, ground no.2 is allowed.
8. In the result, appeal filed by the assessee is partly allowed.
Order pronounced in the open Court on this 13th September, 2023.
