ABHAY BENARA,KANPUR V. .DY. COMMISSIONER OF INCOME TAX, KANPUR

ITA 267/LKW/2017

AI Insights

The case involves Abhay Benara, the appellant, who appealed against the order of the Learned Commissioner of Income-tax (Appeals)-1, Kanpur, which confirmed the disallowance of interest amounting to Rs.12,79,271. The disallowance was initially made by the Assessing Officer during the scrutiny assessment for the assessment year 2013-14. The Tribunal considered the arguments and evidence presented, including the financial transactions between Benara and his companies, and the legal provisions under the Income Tax Act, particularly Section 57 concerning deductions under the head 'Income from other sources'. The Tribunal found that although the assessee had incurred some expenses in earning interest income, the total claimed was excessive compared to the interest income generated.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 471456 (ITAT-LUCKNOW)
• Duration Of Justice: 7 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 20-04-2017
• Other Referred Cases: Collector of Land Acquisition Vs. MST. Katiji & Ors 167 ITR 471 (SC), Shri Pankaj Surana Vs. ITO in ITA. No. 153/RPR/2018
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUNIL KUMAR RAJWANSHI; ADDL
• Assessee Lawyers: ASHISH JAISWAL
• Keywords: Salary income; Capital expenditure
• Section: 143(2); 32

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH “A”, LUCKNOW BEFORE SHRI KUL BHARAT, VICE PRESIDENT AND SHRI ANADEE NATH MISSHRA, ACCOUNTANT MEMBER ITA No.267/LKW/2017 Assessment Year: 2013-14 Abhay Benara, C/o 24/4, The Mall Kanpur-208001. v. The Deputy Commissioner of Income Tax, Central Circle-1 Kanpur. PAN:ADLPB2007Q (Appellant) (Respondent) Appellant by: Shri Ashish Jaiswal, Adv. Respondent by: Shri Sunil Kumar Rajwanshi, Addl CIT(DR) Date of hearing: 10 12 2024 Date of pronouncement: 13 12 2024 O R D E R PER KUL BHARAT, VICE PRESIDENT.: This appeal, by the assessee, is directed against the order of the Learned Commissioner of Income-tax (Appeals)-1, Kanpur dated 30.12.2016 pertaining to the assessment year 2013-14. The assessee has raised the following grounds of appeal: - “1. That the Learned CIT(Appeals) has erred in confirming the disallowance on account of interest of Rs.12,79,271.00. 2. That the addition/disallowance sustained by the learned CIT(Appeals) are arbitrary and unlawful. 3. That the appellant craves the right to introduce or withdraw any ground of appeal with your kind permission.” 2. Ground nos. 2 & 3 of the assessee’s appeal are general in nature and requires no separate adjudication. 3. The only effective ground which needs consideration is against the confirming the disallowance of interest amounting to Rs.12,79,271/-. ITA No.267/LKW/2017 Page 2 of 6 4. It is reported by the Registry that the appeal is barred by limitation for 33 days. An application seeking condonation has been filed by the assessee. Ld. Counsel submitted that inadvertently staff of the Counsel could not file the appeal in time. The delay in filing was not deliberate but due to reasonable cause he prayed for condonation of delay. 5. On the other hand, the Ld. DR opposed the submissions. 6. The reasons stated in the application and looking into the delay of 33 days, we hereby condone the delay following the ratio laid down in the judgment of the Hon'ble Supreme Court in the case of Collector of Land Acquisition Vs. MST. Katiji & Ors 167 ITR 471 (SC). 7. Now coming to the ground of appeal, the facts giving rise to the appeal is that the assessee filed his return of income through electronic mode on 29.03.2014 declaring total income of Rs.2,82,000/-. Thereafter, the case was selected for scrutiny assessment and a notice u/s 143(2) of the Income Tax Act, 1961 (hereinafter referred as “the Act”) was issued and duly served upon the assessee. In response to the statutory notices, Ld. Authorized Representative of the assessee attended the assessment proceedings. The Assessing Officer (“AO”) while framing the assessment made various additions i.e. Long Term Capital Gain (LTCG) of Rs.1,06,05,092/- and income from other sources of Rs.8,35,384/-, disallowance of interest of Rs.12,79,271/- and the addition of Rs.32,65,300/- u/s 68. The AO also made an addition of Rs.15,643/- being the income of minor. Aggrieved by this, the assessee preferred an appeal before the Ld. CIT(A) who partly allowed the appeal thereby he sustained the disallowance made on account of interest ITA No.267/LKW/2017 Page 3 of 6 expenditure of Rs.12,79,271/-. Aggrieved against this, the assessee is in appeal before this Tribunal. 8. Heard the Ld. Representatives of the parties and perused the material available on records. The Assessing Officer made disallowance of Rs.12,79,271/-. For the sake of clarity, the relevant observation of the assessing authority is reproduced as under: - “In the computation of income, the assessee has deducted interest of Rs.12,79,271/- as paid on unsecured loans. The assessee was asked to show cause as to why the expenses claimed u/s 57 may not be disallowed. The assessee in his reply has stated that though assessee is individual in status and enjoying income from salary as Director, trading in cloth, income from other sources, like interest from private parties etc. There was need of fund in the hand of company and the person giving loan in knowing only assessee and not to company. The depositors were agree for giving deposit to the assessee but they were not interested for making any advance to the company and therefore, in the interest of the company, the assessee had decided to take deposit from the individual depositors in his own hand which in turn has been immediately transferred in the hand of company. The company is paying interest on deposit made by him in the company and assessee is paying interest on deposit taking in individual status therefore, it is allowable expenditure. From the computation of income and from the perusal of return of income, at Tax Audit Report, Balance Sheet and Profit and Loss account, it has been noticed that no interest has been debited on account of loan raised which stated to have been utilized in the business. The assessee has not furnished personal balance sheet, income & expenditure account. No person would like to pay higher interest on the loan raised in comparison to the interest received on advancing such loans further. Therefore, the contention of the assessee is not acceptable and the interest deducted from the total income of Rs.12,79,271/- is being disallowed and added to the total income of the assessee.” 9. The Ld. CIT(A) affirmed the view of AO by observing as under : - “b. The second issue pertains to allowability of interest payment on the deposits/loans. It is seen that the assessee is running the business and for this business the borrowed money was not used, in fact his money was routed from his accounts to the accounts of different companies of Benara group. The appellant is not holding any license for money lending, therefore he has no business of money lending. The assessee has not business activity with the Benara group nor there is any business nexus with the funds given to Benara group on loan, therefore as per the provision of section 36(1)(iii) this interest paid Rs.12,79,271/- is not an allowable expenditure. Addition made is therefore sustained on this ground.” ITA No.267/LKW/2017 Page 4 of 6 10. In the course of hearing, the Ld. Counsel of the assessee placed reliance on the decision of the Co-ordinate Bench rendered in the case of Shri Pankaj Surana Vs. ITO in ITA. No. 153/RPR/2018 for the A.Y. 2013-14. Undisputedly, the Assessing Officer has disallowed the expenses claimed u/s 57 of the Act. The assessee was asked to explain why the expenses are allowable under the facts of the present case. In response thereto, it was stated that the depositors agreed for depositing the amount with the assessee but not to company. Therefore, the assessee borrowed these funds and lent the same to the company. The payment of interest to borrower was claimed as deduction u/s 57 of the Act. For the sake of clarity, the provision of Section 57 of the Act is reproduced as under: - “Section 57 of the Act 57. The income chargeable under the head \"Income from other sources\" shall be computed after making the following deductions, namely:- (i) [in the case of dividends, other than dividends referred to in section 115- O] [or interest on securities] any reasonable sum paid by way of commission or remuneration to a banker or any other person for the purpose of releasing such dividend [or interest] on behalf of the assessee; (ia) [ in the case of income of the nature referred to in sub-clause (x) of clause (24) of section 2 which is chargeable to income-tax under the head \"Income from other sources\", deductions, so far as may be, in accordance with the provisions of clause (va) of sub-section (1) of section 36;] (ii) in the case of income of the nature referred to in clauses (ii) and (iii) of sub-section (2) of section 56, deductions, so far as may be, in accordance with the provisions of sub-clause (ii) of clause (a) and clause (c) of section 30, section 31, and [sub-section (1) and (2)] of section 32 and subject to the provisions of [section 38]. (iia)[ in the case of income in the nature of family pension, a deduction of a sum equal to thirty-three and one-third per cent of such income or ]fifteen] thousand rupees, whichever is less. Explanation. - For the purposes of this clause, \"family pension\" means a regular monthly amount payable by the employer to a person belonging to the family of an employee in the event of his death;] (iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income. (iv)[ in the case of income of the nature referred to in clause (viii) of sub- section (2) of section 56, a deduction of a sum equal to fifty per cent. of such income and no deduction shall be allowed under any other clause of this section.] ITA No.267/LKW/2017 Page 5 of 6 11. As per the above provision of Section 57 of the Act, the expenditure incurred for the purpose of earning of interest income is allowable. We failed to understand that the modus operandi in present case, the assessee had been borrowing the funds at higher rate and advancing such fund to the company at a lower rate, therefore, incurring losses. In our considered view, no prudent person would incur such losses. However, the Assessing Officer has disallowed the entire expenses. It cannot be construed that there was no expenditure incurred by the assessee towards earning of the interest income. Having considered the material available on record and provisions of law and applying the same on the present case, we are of the view that it is not a case where assessee has not made payment of interest and earned income from such borrowed amount. However, the expenditure claimed by the assessee is excessive, we hold accordingly. As the assessee failed to give any justification about lending, the borrowed amount at lower rate. Therefore, the Assessing Officer hereby is directed to restrict the disallowance to the extent of the interest paid to the depositors in excess of the interest received from the companies to whom he had lend the borrowed amount. The appeal of the assessee is partly allowed. 12. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on 13/12/2024. Sd/- Sd/- [ANADEE NATH MISSHRA] [KUL BHARAT] ACCOUNTANT MEMBER VICE PRESIDENT DATED: 13/12/2024 Vijay Pal Singh, (Sr. PS) ITA No.267/LKW/2017 Page 6 of 6 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. DR 5. Guard File By order // True Copy// Assistant Registrar "