Case Law Details
Amit Agarwal Vs ITO (ITAT Kolkata)
Introduction: The Income Tax Appellate Tribunal (ITAT) Kolkata recently addressed an appeal filed by Amit Agarwal against the disallowance of interest on unsecured loans. The appeal dealt with two key issues – the addition related to the purchase and sale of future/options and the disallowance of interest on unsecured loans. This article provides a detailed analysis of the case and the ITAT’s ruling.
Detailed Analysis:
1. Background of the Case: Amit Agarwal’s appeal is directed against the order of the Commissioner of Income Tax (Appeals)-NFAC, Delhi (CIT(A)) for the Assessment Year 2015-16. The appeal raised two main grounds: a. The addition of Rs. 6,63,623 related to the purchase of forward transactions of future/options. b. The disallowance of interest of Rs. 2,05,000 on unsecured loans of Rs. 37,42,250.
2. Issue of Purchase and Sale of Future/Options: The Assessing Officer (AO) observed that the appellant made purchases of future/options on the National Stock Exchange amounting to Rs. 8,72,352 but only sold Rs. 2,08,731 worth, carrying forward the remaining Rs. 6,63,623. The AO disallowed this amount, as the losses were not disclosed in the return of income.
3. ITAT’s Ruling on Future/Options: The ITAT found that the appellant had squared off the purchases by making corresponding sales, and the profit and loss account reflected a loss of Rs. 1,33,45,101 related to trading of shares, consistent with the contract notes filed. The ITAT held that since the loss was not claimed in the computation of income, there was no basis for disallowance or addition. As a result, the first ground of appeal was allowed.
4. Disallowed Interest on Unsecured Loans: The AO disallowed the interest of Rs. 2,05,000 on unsecured loans without providing a specific basis for the disallowance. The CIT(A) affirmed this disallowance, claiming the loan was used for personal purposes.
5. ITAT’s Ruling on Unsecured Loan Interest: The ITAT considered the balance sheet, profit and loss account, and the capital of the appellant. The total capital amounted to Rs. 59,42,826 after accounting for the net profit earned and withdrawals made during the year. The ITAT found that the loan was taken for business purposes, and the interest was incurred wholly and exclusively for business. Therefore, the disallowance of interest was unjustified, and the second ground of appeal was allowed.
6. Conclusion of the Appeal: The ITAT Kolkata allowed Amit Agarwal’s appeal, ruling in favor of the appellant for both the disallowed addition related to future/options and the disallowed interest on unsecured loans.
Conclusion: The ITAT Kolkata’s decision in the case of Amit Agarwal vs. ITO highlights the importance of providing proper reasoning and justification for disallowances and additions. In this case, the ITAT ruled in favor of the appellant, allowing both the disallowed addition related to future/options and the disallowed interest on unsecured loans. The ruling underscores the significance of substantiating claims and adhering to the principles of natural justice in income tax assessments. This case serves as a reminder for assessing officers to provide clear and well-supported grounds for disallowances and additions in the assessment process.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This is an appeal preferred by the assessee against the order of Learned Commissioner of Income-tax (Appeals)-NFAC, Delhi [hereinafter referred to Ld. ‘CIT(A)’] dated 08.06.2023 for the Assessment Year (in short ‘AY’) 20 15-16.
2. The assessee has raised the following grounds of appeal:
“1. The Ld. AO erred in adding Rs. 6,63,623/- being the purchase of forward transactions of Future/option through National Stock Exchange, without considering the sales of those Future/option transactions.
2. The Ld. AO disallowed and added back the amount of Interest of Rs. 2,05,000/- on the unsecured loan of Rs. 37,42,250/-.”
3. The issue raised in ground no. 1 is against confirmation of addition of Rs. 6,63,623/- by Ld. CIT(A) as made by the Assessing Officer (in short ld. ‘AO’) on account of purchase of forward transactions of Future/option through National Stock Exchange without considering the sale of future/option.
4. The facts in brief are that the AO during the course of assessment proceedings observed that the assessee made purchases through National Stock Exchange of future/option of Rs. 8,72,352/- and effected sale to the tune of Rs. 2,08,731/- thereby carrying forward the future & options to the next year to the tune of Rs. 6,63,623/-. The AO, on this basis, deducted the said amount from the purchases. Thereafter, the AO disallowed the same by observing that the assessee has not disclosed the said losses in the return of income and the same was not allowed to be carried forward thereby making addition of Rs. 6,63,623/- to the income of the assessee. Ld. CIT(A) simply affirmed the order of the AO.
5. After hearing the rival contentions and perusing the material on record, we find that the assessee has done some transactions of purchases and sales of future/option. The modus operandi of the future/option is such that whenever the purchases are made, the same are squared off by making the sales as is apparent from the contract notes filed by the assessee before us. We have also perused the profit and loss account filed by the assessee before us and find that the assessee has charged to the profit and loss account, the loss from trading of shares amounting to Rs. 1,33,45,101/- which is in agreement with the contract notes filed by the assessee. However, while filing the return, we note that the assessee has not claimed this loss and therefore, there is no question of disallowance of loss or addition of loss when the same is not claimed in the computation of income. In our opinion, the AO has wrongly appreciated the facts of the case which is also in appellate proceedings by Ld. CIT(A). In view of the above facts, we are inclined to set aside the order of Ld. CIT(A) and direct the AO to delete the addition. Therefore, ground no. 1 raised by the assessee is allowed.
6. The issue raised by the assessee in ground no. 2 is against the confirmation of addition of Rs. 2,05,000/- by Ld. CIT(A) as made by the AO by disallowing the interest on unsecured loans.
7. The facts in brief are that the AO has disallowed the interest charged in the profit and loss account of Rs. 2,05,000/- without making any discussion for making the said disallowance which according to the AO is of personal in nature. Ld. CIT(A) simply affirmed this addition on the same ground that the loan was taken for the personal purposes without taking into account the contentions and submissions of the assessee and facts available on records.
8. After hearing the rival contentions and perusing the material on record including the balance sheet, profit and loss account, we find that the assessee has raised unsecured loan of Rs. 37,42,250/-. The total capital of the assessee as on 31.03.2015 after adjustment of net profit earned during the year and withdrawal made by the assessee worked out to Rs. 59,42,826/-. These are only two major items on the liability side which are correspondingly matched by various assets on the asset side of the balance sheet. The observations of the AO that the interest paid on the unsecured loan is personal in nature is without any substantive finding whereas on the other hand the assessee has vehemently argued before us by referring to the balance sheet and profit and loss account that the said loan was in fact taken for the purpose of business and interest was incurred wholly and exclusively for the purpose of business of the assessee. We find merit in the contentions of the assessee that the loan is taken only for the purpose of business and not for any personal objectives. Accordingly, we set aside the order of Ld. CIT(A) and direct the AO to delete the addition.
9. In the result, the appeal filed by the assessee is allowed.
Kolkata, the 12th October, 2023.
