Manish Chiranjilal Jain Vs ITO (ITAT Surat)
Conclusion: As regarding disallowance of interest-free loans on unsecured loans, it was concluded that the same were part of routine business transactions and were of short-term nature therefore, no addition for interest charged on the loans. With regard to addition on account of low household expenses Tribunal took a more reasonable approach, considering the family size and living conditions and allowed a deduction of Rs. 1.20 lakh for the household expenses, including the wife’s withdrawals, and upheld a part of the addition of Rs. 2,81,600.
Held: In the instant case, the disallowance of interest expenses was made by AO by taking view that assessee had shown unsecured loan of Rs. 16,36,297/- and had also given loan and advances of Rs. 11,39,473/-. Assessee was asked to furnish party- wise details of unsecured loans and the interest paid and received. The show cause notice was responded by assessee by filing reply. The contents of reply were not recorded by AO in his order. In the said reply it was stated that disallowance of interest, if any, was to be made on actual basis and not on hypothetical basis. Assessee had furnished complete details with supporting documents and details of loan advances. Assessee also explained that as a routine practice in textile industry, a temporary loan was given to associate concerned as per needs on which neither interest was charged nor interest was given as the interest amount were nominal. The amount of loan was adjusted in debit or against in credit entry. Assessee had received and given interest free loan to Shreeji Creation and Swastik Creation. AO disregarded the submission of assessee and made addition of 1,10,895/- on proportionate basis. CIT(A) confirmed the action of AO. It was held that neither assessee had paid interest on short borrowings nor charged any interest on the advances given for short periods. Rather assessee was having running account with both the parties, therefore, there was no justification for making disallowance of interest expenses. So far as second part of addition which related to addition on account of low household expenses, AO made addition by taking view that total household expenses withdrawal or assessee and his family was of Rs. 1,38,568/- which was not sufficient for four members in the family in Y category of city. AO after giving show cause notice, estimated Rs. 40,000/- as a reasonable expenses and by allowing the credit of withdrawal of Rs. 60,000/-, made addition of Rs. 4.20 lacs. Assessee vehemently argued that assessee had shown sufficient withdrawals for his household expenses, assessee had withdrawn Rs. 78,400/-. The wife of assessee had also shown withdrawal of Rs. 60,000/-. The family of assessee consisted himself, his wife, two minor children – one children was school going and assessee resides in the house owned by his father. Assessee’s withdrawal shown by assessee were sufficient to meet day-to-day expenses. There was no benefit of withdrawal of Rs. 78,400/- was allowed by AO. Total household expenses of four members of a family was not less than Rs. 30,000/- per month in City Light, Surat. Thus, assessee was allowed benefit of Rs. 1.20 lacs plus (+) his own withdrawal of Rs. 78,400/- and rest of the addition to the extent of Rs. 2,81,600/- was sustained.
