Case Law Details
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.
FULL TEXT OF THE ORDER OF ITAT SURAT
This appeal by assessee is directed against the order of National Faceless Appeal Centre, Delhi [for short to as “NFAC/Ld. CIT(A)”] dated 02.08.2022 for assessment year 2018-19, which in turn arises out of assessment order passed by the Assessing Officer under section 143(3) r.w.s. 143(3A) & 143(3B) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 01.03.2021. The assessee has raised the following grounds of appeal: –
“1. The Ld. CIT(A), NFAC has erred and was not just and proper on the facts of the case and in law in confirming the addition of Rs.5,30,895/- (1,10,985/- + 4,20,000/-) and passing an ex parte order.
2. The Ld. CIT(A), NFAC has erred and was not just and proper on the facts of the case and in law in not considering submission of the “Assessee” which was uploaded on the portal on20/07/2022 whereas the order was passed by LD CIT(A), NFACC on 02/08/2022.
3.1 The addition may be kindly deleted.
3.2 Personal hearing may be granted.
3.4 Any other relief that your honours may deem fit maybe granted.
4. The assessee craves leave to add, amend, modify alter or delete any of the grounds at the time of hearing.”
2. Rival submissions of both the parties have been heard and record The Ld. Authorized Representative (Ld.AR) for the assessee submits that there is delay of 597 days in filing appeal before Tribunal. The impugned order was passed by ld. CIT(A) on 02.08.2022, however, this appeal is filed before Tribunal on 21.05.2024. The Ld.AR for the assessee submits that delay in filing appeal was neither intentional nor deliberate. The Ld.CIT(A) while passing the impugned order on 02.028.2022 has not considered the submission of assessee which were uploaded on 20.07.2022. After receipt of impugned order, the assessee raised grievance in ITBA portal on 05.08.2022 for rectification of such mistake, copy of acknowledgment of such grievance is filed on paper book pages 1-2. Since there was very small claim in the first appeal, which was has not considered by ld CIT(A). The assessee was availing alternative remedy for seeking rectification in the impugned order, instead of filing appeal before Tribunal. The assessee has raised the grievance under bona fide that his grievance would be considered and order will be rectified by considering the submission of assessee on merit. The Ld.CIT(A)/NFAC neither considered the grievance of assessee nor rejected it for sufficient time, the assessee on presumed that grievance raised by him for rectification of the impugned order is not going through the materials. Therefore, the assessee having left no option but to file present appeal before Tribunal. Since assessee was pursuing alternative remedy before Ld.CIT(A)/NFAC thus, there is no intentional or deliberate delay on the part of assessee rather assessee was going under bona fide advice. The Ld. AR for the assessee submits that delay in filing appeal may kindly be condoned.
On merit of the grounds of appeal, the Ld. AR for the assessee submits that while passing assessment order Assessing Officer made addition / disallowance under section 36(1)(iii) of the Act on account of interest free advance by assessee by taking view that assessee has paid interest on various parties and has not charged any interest on the money landed by assessee. The Ld. AR for the assessee submits that interest free funds for such money even otherwise the money was advance for the purpose of business. It is settled position under law that when interest free funds were available to assessee which was sufficient to meet its investment in its subsidiary. The Revenue Authority were not justified in allowing claim of deduction on similar year. The assessee entitled for relief. The Ld. AR for the assessee submits that he has already placed on record copy of financial statement of assessee for assessment year at pages 16 to 29 of the paper book. On second addition relates to low household expenses withdrawal, Ld. AR for the assessee submits that assessee has shown sufficient withdrawals for his household expenses, the assessee has withdrawn Rs. 78,400/-. Similarly, his wife has also shown withdrawal of Rs. 60,000/-. The family of assessee consists himself, his wife, two minor children – one children is school going and assessee resides in the house owned by his father. Assessee’s withdrawal shown by assessee are sufficient to meet day-to-day expenses.
3. On the other hand, Ld. Senior Departmental Representative (Ld. Sr-DR) for the Revenue submits that assessee has not explained the delay in a proper manner and assessee was availing alternative remedy for seeking rectification in the impugned order passed by CIT(A). against the submissions of merit, the ld Sr DR of the revenue submits that that on disallowance of interest expense assessee has availed loan of Rs..16,36,297/- on the same time assessee paid advance interest free loan to various persons. Thus, Assessing Officer rightly disallowed the addition of interest. So far as addition on account of household expense is concerned, the assessee having in a big category resides like Surat city and has shown only meagre withdrawal as claim which are not sufficient. The Assessing Officer had estimated household expenses of assessee @ Rs. 40,000/- per month which is very reasonable.
4. I have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. First I will consider the plea of condonation of delay of 597 days in filing Before me, Ld. AR for the assessee has explained the fact that assessee was under bona fide that Ld.CIT(A) would be considered the rectification application though Ld.CIT(A) neither considered the grievance of assessee nor rejected it for sufficient time. On overall considering the explanation offered by the ld AR of the assessee that the assessee under bonafide belief was pursuing alternative remedy before ld CIT(A) in seeking rectification of the order. Such facts are not disputed by revenue. Therefore, keeping in view facts that the assessee was pursuing alternative remedy before ld CIT(A), which is neither repudiated nor any communication about its outcome was intimated, thus, delay in filing appeal is condoned. Now adverting to the merits of the case.
5. I have considered the rival submission of both the parties and perused the order of lower authorities carefully. Though the assessee has raised multiple grounds of appeal, however, the grievances of assessee is against the disallowance of interest expenditure of Rs. 1,10,895/- and addition on account of house hold expenses. The disallowance of interest expenses was made by Assessing Officer by taking view that the assessee has shown unsecured loan of Rs. 16,36,297/- as on 31/03/2018 and has also given loan and advances of Rs. 11,39,473/-. The 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 dated 12/01/2021. The contents of reply are not recorded by Assessing Officer in his order. Before me, the assessee has filed copy of his reply. In the said reply it is stated that disallowance of interest, if any, is to be made on actual basis and not on hypothetical basis. The assessee has furnished complete details with supporting documents in the form of Annexure-E and details of loan advances in Annexure-E. The assessee also explained that as a routine practice in textile industry, a temporary loan is given to associate concerned as per needs on which neither interest is charged nor interest is given as the interest amount are nominal. The amount of loan is adjusted in debit or against in credit entry. The assessee has received and given interest free loan to Shreeji Creation and Swastik Creation. The Assessing officer disregarded the submission of assessee and made addition of 1,10,895/- on proportionate basis. The ld. CIT(A) confirmed the action of Assessing Officer. I find that neither the assessee has paid interest on short borrowings nor charged any interest on the advances given for short periods. Rather the assessee was having running account with both the parties, therefore, there was no justification for making disallowance of interest expenses. In the result, first part of ground No. 1 of appeal is allowed. So far as second part of addition which relates to addition on account of low household expenses, the Assessing Officer made addition by taking view that total household expenses withdrawal or assessee and his family is of Rs. 1,38,568/- which is not sufficient for four members in the family in Y category of city. The Assessing Officer 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. Before me, the ld. AR of the assessee vehemently argued that the assessee has shown sufficient withdrawals for his household expenses, the assessee has withdrawn Rs. 78,400/-. The wife of assessee has also shown withdrawal of Rs. 60,000/-. The family of assessee consists himself, his wife, two minor children – one children is school going and assessee resides in the house owned by his father. Assessee’s withdrawal shown by assessee are sufficient to meet day-to-day expenses. I find that no benefit of withdrawal of Rs. 78,400/- is allowed by Assessing Officer. The assessee is living in the house owned by his father. Thus, considering the overall facts and circumstances of the case, in my view, the total household expenses of four members of a family is not less than Rs. 30,000/- per month in City Light, Surat. Thus, the assessee is 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/- is sustained. In the result, second part of ground No. 1 is partly allowed.
6. In the result, the appeal of the assessee is partly allowed.
Order pronounced in open court on 27th November, 2024.
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