Shri Dharam Pal Aggarwal Vs ACIT (ITAT Chandigarh)
In the present case it is noticed that the Assessing Officer himself admitted that on the loans and advances given by the assessee out of the borrowed funds by using the OD facility the interest was earned, he therefore allowed the interest expenditure to the extent of Rs. 7,17,875/-.
As regards to the other interest free advances, the bank statement of the assessee placed at page no. 16 of the assessee’s compilation reveals that the capital of the assessee as on 31.3.2012 was at Rs. 3,48,04,747/- and the Assessing Officer pointed out in the assessment order that the assessee had given interest free advances to the family and relatives for a sum of Rs. 2,79,00,000/- which shows that the interest free funds in the form of capital were more than the interest free loans given to the family and relatives. In the present case, no nexus had been established by the Assessing Officer in between the interest free advances and the interest bearing borrowed funds, therefore, the disallowance of Rs. 13,77,730/- made by the Assessing officer out of the interest paid by the assessee and sustained by the Ld.CIT(A) was not justified. Accordingly the same is deleted.
FULL TEXT OF THE ITAT JUDGEMENT
This is an appeal by the Assessee against the order of the Ld. CIT(A)-4 dt. 23/11/2017.
2. In the present appeal Assessee has raised the following grounds:
1. That order passed u/s 250(6) of the Income Tax Act, 1961 is against law and facts on the file in as much as the Ld. Commissioner of Income Tax (Appeals)-4, Ludhiana was not justified to arbitrarily uphold the action of the Ld. Assessing Officer in disallowing a sum of Rs. 13,77,730/- out of interest account by resort to provisions of Sec. 36(1)(iii).
2. That he was further not justified to arbitrarily uphold the action of the Ld. Assessing Officer in disallowing a sum of Rs. 2,26,635/- out of car expenses, depreciation, telephone and travelling expenses on account of estimated personal use thereof.
3. Vide ground no. 1 the grievance of the assessee relates to the sustenance of disallowance of Rs. 13,77,730/- made by the Assessing Officer by invoking the provisions of Section 36(1)(iii) of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’).
4. Facts of the case in brief are that the assessee filed the return of income on 22/09/2012 declaring income of Rs. 25,64,499/- which was processed under section 143(1) of the Act. Later on the case was selected for scrutiny.
5. During the course of assessment proceedings the Assessing Officer noticed that the assessee had given interest free advances to friends and family which were not for the business purposes and also claimed interest expenditure of Rs. 23,88,993.89 in the P&L Account. He also observed that the assessee had claimed deduction on interest expenditure under section 57 of the Act for Rs. 2,73,628/-. Thus the total interest expenditure claimed by the assessee was Rs. 26,62,621/- (Rs. 23,98,993.00 + Rs. 2,73,628.00). The Assessing Officer also pointed out that the loans to family and relatives outstanding in the balance sheet were as under:
