AMITABH DAS MUNDHRA,KOLKATA V. D.C.I.T., CC-11(1), KOLKATA

ITA 965/KOL/2024

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Amitabh Das Mundhra, the appellant, challenged the order of the Commissioner of Income Tax (Appeals) - NFAC, Delhi, which confirmed the addition of Rs. 4,89,39,786 as interest expenses claimed under section 57 of the Income Tax Act. The Assessing Officer had rejected these expenses, stating they were not incurred wholly and exclusively for earning interest income. The Tribunal noted that similar activities had been accepted in previous assessment years without any change in facts or circumstances, and thus, the revenue could not take a different stand in the current year. The Tribunal relied on precedents and the principle of consistency in taxation, reversing the decision of the CIT(A) and allowing the appeal.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 35988 (ITAT-KOLKATA)
• Duration Of Justice: 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 30-07-2024
• Assessment Year: 2020-2021
• Appeal Filed On: 01-05-2024
• Other Referred Cases: Radhasoami Satsang vs. CIT, CIT vs. Pudukottai Company Pvt. Ltd., Rupee Finance & Management Pvt. Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Set aside; Commercial expediency; TDS
• Section: 143(3)

Judgement Text

"आयकर अपीलȣय अͬधकरण, कोलकाता पीठ “बी’’, कोलकाता IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH: KOLKATA Įी राजेश क ुमार, लेखा सटèय एवं Įी Ĥदȣप क ुमार चौबे, ÛयाǓयक सदèयक े सम¢ [Before Shri Rajesh Kumar, Accountant Member &Shri Pradip Kumar Choubey, Judicial Member] I.T.A. No. 965/Kol/2024 Assessment Year: 2020-21 Amitabh Das Mundhra (PAN: AIPPM 5957 K) Vs. DCIT, C.C-11(1), Kolkata Appellant / ) अपीलाथȸ ( Respondent / Ĥ×यथȸ Date of Hearing / सुनवाई कȧ Ǔतͬथ 30.07.2024 Date of Pronouncement/ आदेश उɮघोषणा कȧ Ǔतͬथ 09.10.2024 For the Appellant/ Ǔनधा[ǐरती कȧ ओर से Shri Ravi Tulsiyan, A.R For the Respondent/ राजèव कȧ ओर से Shri P. P. Barman, Addl. CIT, Sr. D.R ORDER / आदेश Per Rajesh Kumar, AM: This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-NFAC, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 06.02.2024 for the AY 2020-21. 2. At the outset we note that there is a delay of 25 days in filing the appeal by the assessee. After hearing both the sides and after taking into account the facts and corroborating evidences especially the affidavit of the assessee before us , we observe that the delay in filing the appeal is for the reasons that the assessee is fully dependent on his accountant so far as the taxation issues are concerned. We note from the 2 I.T.A. No.965/Kol/2024 Assessment Year: 2020-21 Amitabh Das Mundhra affidavit filed by the accountant of the assessee that he did not check the online portal of the department nor the mails on that day. In our considered view the assessee can not be penalized for the delay which is very minor and beyond his control and is wholly attributable to his accountant. Thus after taking into consideration the condonation petition filed by the assessee alongwith affidavit and reasons for late filing of appeal as cited before us, we are of the view that the delay in filing the appeal is for bonafide and genuine reasons and accordingly the delay of 25 days is condoned and appeal is admitted for adjudication. 3. The only issue raised in the grounds of appeal is against the confirmation of addition of Rs. 4,89,39,786/- as made by the AO by rejecting and adding the interest expenses as claimed u/s 57 of the Act. 4. Facts in brief are that the assessee filed return of income on 09.01.2021 declaring total income of Rs. 2,65,79,170/-. The assessee is a director in 15 Indian Companies and has earned income by way of salary , interest and income from investments in shares and mutual funds. The case of the assessee was selected for scrutiny under CASS in limited category for the reason that (i) salary shown under TDS Schedule in ITR is higher than the salary shown under Part-B-TI (ii) large deduction claimed u/s 57 (non-business ITR). The statutory notices were duly issued and served upon the assessee. The assessee appeared before the AO from time to time during the assessment proceedings and furnished the details as sought by the AO. The AO observed that the gross interest income of the assessee of Rs. 4,82,41,200/- comprised of Rs. 4,79,29,035/- as interest received whereas Rs. 3,12,165/- as interest received from SB account and FDRs. The AO further observed that the assessee has claimed a deduction against the gross income from other sources of Rs. 4,89,41,376/- and thus returned a loss of Rs. 4,70,344/- under the head income from other sources. Accordingly, the details were called for from the assessee qua the expenditure claimed u/s 57 of the Act. It was submitted before the AO that the assessee has given loans amounting to Rs. 39,41,84,379/- on which interest of Rs. 4,79,29,035/- was received. It was also submitted that the assessee has borrowed loans to the tune of Rs. 3 I.T.A. No.965/Kol/2024 Assessment Year: 2020-21 Amitabh Das Mundhra 43,14,62,320/- on which interest of Rs. 4,89,39,786/- was paid during the year. The assessee uploaded the details of income from other sources, partywise breakup of interest received , partywise breakup of interest paid , ledger copies , confirmations from parties , copies of loan confirmations , note on interest expenses claimed and bank statement etc. The AO rejected the contentions of the assessee by stating that the assessee could not prove the interest expenses claimed which were not incurred wholly and exclusively incurred for earning interest income which is the only requirement for claiming expenses u/s 57 of the Act. The AO calculated the interest received and interest paid by the assessee during the year on page 5 and 6 of the assessment order and noted that the assessee has incurred more interest on the loans then the income earned from advancing of loans and therefore held that the expenses were not wholly and exclusively incurred for earning the interest income and the same was not allowable u/s 57(iii) of the Act. The AO also noted that the assessee has offered interest income from money lending activities as income from other sources. The AO noted that the total outstanding balance of unsecured loans of Rs. 75,74,84,056/- comprised of loans from three parties namely Govinddas madhodas Mundhra, IIFL Wealth Finance Ltd and Amitabh Das Mundhra and sons (HUF). Then the AO observed that out of above outstanding loans, Rs. 75,25,68, 493/- was from IIFL Wealth Finance Ltd. Then the AO noted that as per the loan transactions furnished , the assessee has obtained new loan of Rs. 75,80,00,148/- from M/s Anupriya Consultants Pvt. Ltd. during the impugned assessment year and has received repayments of loan including interest from M/s RBS credit & Financial Developments Pvt. Ltd., Shri Bharat Mohta and Shri Rajiv Mundhra. The AO also observed that the assessee has repaid the loans including interest outstanding to IIFL Wealth and Finance Ltd. and also to Shri Govinddas Madhodas Mundhra. The AO further noted that the entire outstanding loan of Rs. 80,02,11,935/- due to IIFL Wealth and Finance Ltd including interest has been repaid during the impugned year out of new loan of Rs. 75,80,00,148/- received from M/s Anupriya Cosultants Pvt. Ltd. and out repayment of loans and interests received from the above three parties. Therefore, the AO concluded that from the above analysis, it is clear that the assessee has not 4 I.T.A. No.965/Kol/2024 Assessment Year: 2020-21 Amitabh Das Mundhra received loans for the purpose of lending the same to others as claimed by him and finally added the same by disallowing the entire amount of interest claimed of Rs. 4,89,49,786/- u/s 57 of the Act thereby assessing the income at Rs. 7,55,18,960/- vide order dated 24.09.2022 passed u/s 143(3) / 144B of the Act. 5. In the appellate proceedings, the Ld. CIT(A) dismissed the appeal of the assessee on the ground that the loans were taken at higher interest and were advanced at lower rates without any commercial expediency. 6. The Ld. A.R vehemently submitted before us that the assessee has been consistently engaged in the activity of advancing the money to third parties by borrowing the money at interest from the market. It is also undisputed that the money borrowed on interest was also lent to various parties and the interest received was shown under the head income from other source. The ld AR argued that the interests paid were claimed as deduction u/s57(iii) as incurred wholly and exclusively for the purpose of earning of interest income. The Ld. A.R submitted that the said activity being carried on right from the earlier assessment years and have been accepted by the Revenue. The AR furnished before the bench the assessment orders for the preceding three assessment year i.e. 2017-18 to 2019-20 and submitted that interest received on loans , interest paid on loan and net interest income offered during the above assessment years were examined by the AO and extracted the said details in the impugned assessment order. The Ld. A.R therefore submitted that the activity of borrowing and lending has been accepted by the Department in the preceding assessment years and since there is no change in facts and circumstances in the current year vis-à-vis earlier assessment years, therefore the revenue cannot be allowed to relook the claim of the assessee u/s 57(iii) which in fact represented the interest paid on loans taken by the assessee for lending money to third parties though it is different matter that during the instant year the assessee has sustained loss of Rs. 4,70,344/-. The Ld. A.R therefore submitted that the complete and comprehensive details of money outstanding by way of unsecured loans raised during the year and repaid were placed before the authorities below along with the details of parties 5 I.T.A. No.965/Kol/2024 Assessment Year: 2020-21 Amitabh Das Mundhra involved in the whole activity in borrowing and lending but despite that the authorities below have failed to appreciate the facts in correct perspective by ignoring precedents of accepting the similar activity in the earlier assessment years. The Ld. A.R relied on the decision of Hon’ble Apex Court in the case of Radhasoami Satsang vs. CIT [1992] 193 ITR 321 (SC) to defend his arguments that once the assessee’s stance has been accepted in the earlier assessment year and unless there is a change of circumstances and facts of the case, the revenue cannot be allowed to take a different stand. The Ld. A.R also submitted that that it is also true that money was borrowed from IIFL Wealth and Finance Pvt. Ltd. at 12.50 % as against interest received @ 10% per annum and it is only for this reason the Ld. AO concluded that assessee has not established the commercial expediency. As a matter of fact the assessee has taken loan of Rs. 75.00 crores from IIFL Wealth and Finance Ltd. in preceding assessment year to advance loan to M/s Anupriya Consultants Pvt. Ltd. of Rs. 37,50,00,000/-, to M/s RBS Credit & Financial Developments Pvt. Ltd. of Rs. 37,50,00,000/- at 10% per annum. However the fact remains that the loans taken by the assessee from M/s Steelco Agency was taken at 10% to repay the loan to M/s IIFL Wealth Finance Ltd. which was taken at 10.5%. So the allegation of the Ld. CIT(A) is that loan were taken at a higher rate and lent at lower rate is factually incorrect as these was the commercial expediency of activity carried on by the assessee which determines the borrowing and lending rate by the assessee . The Ld. A.R submitted that only requirement for claiming expenses u/s 57(iii) was that the expenses incurred were incurred wholly and exclusively for the purpose of earning income by the assessee which has been shown under the head other source. The Ld. A.R submitted that it is undisputed that the interest bearing loans were taken and advanced to third parties in lieu of interest. Therefore this is adequately proved that the interest paid on the loans was wholly and exclusively expended for the purpose of earning of interest income. In defense of his arguments the Ld. A.R relied on the following decisions: i) CIT vs. Pudukottai Company Pvt. Ltd. [1972] 84 ITR 788 (Mad-HC) 6 I.T.A. No.965/Kol/2024 Assessment Year: 2020-21 Amitabh Das Mundhra ii) Rupee Finance & Management Pvt. Ltd. in [2017] 81 taxmann.com 249 (Mum- Trib) Finally the Ld. A.R submitted that in view of the underlying facts, and also the fact of having done the similar activity in the preceding assessment years and ratio laid down in the above decisions, the order of Ld. CIT(A) may be reversed and the AO may be directed to allow the interest u/s 57(iii) of the Act. 7. The Ld. D.R on the other hand relied on the orders of authorities below by submitting that there is no bar on the revenue to accept anything which is wrong and has been inadvertently allowed in the preceding assessment years whereas the revenue found during the year that the income earned by the assessee was not in accordance with the provisions of Act though the Ld. DR admitted that in the preceding three assessment years the assessee has claimed the similar interest paid on unsecured loans out of the interest income shown under the head other sources. However the ld DR stressed that the net results were the surplus from the said activity whereas in the current year the assessee has shown a loss of Rs. 4,70,344/-. The Ld. D.R therefore prayed that the order passed by the authorities below were very detailed, reasoned and speaking ones and may kindly be upheld by dismissing the appeal of the assessee. 8. We have heard the rival contentions and perused the material on record. We note that the assessee has derived income by way of salary as he was director of 15 Indian companies. Besides he was also deriving income from money lending for which he was raising unsecured loans from market on which he has paid interest. The assessee incurred loss of Rs. 4,70,344/- from the said activity as interest in the case of loan taken from M/s IIFL Wealth Finance Ltd. was 12.5% whereas the money was lent at 10%. What we find that the said loans were raised in the preceding three assessment years and were given to two parties namely M/s Anupriya Consultants Pvt. Ltd. and RBS Credit & Financial Pvt. Ltd. at only 10%. We note that the assessee has raised money from M/s Steelco Agency Pvt. Ltd. at 10% rate but IIFL Wealth Finance 7 I.T.A. No.965/Kol/2024 Assessment Year: 2020-21 Amitabh Das Mundhra Ltd. the interest rate was 12.5%. Therefore, we find merit in the contention of the assessee that it is not the case of assessee that the results were manipulated but genuinely the net result from the activity of interest earning and interest paid turned out to be loss. We note that this cannot be a ground for rejecting the claim of the assessee on the ground of commercial expediency. We also note that the activity of advancing of money on interest out of interest bearing borrowed loans by the assessee had been accepted by the revenue. Since there is no change in the facts and circumstances during the impugned assessment year vis-à-vis in the earlier assessment year. Therefore the revenue cannot be allowed to take different stand as has been held by the Hon’ble Apex Court in the case of Radhasoami Satsang (supra). The case of the assessee finds support from the decision of Hon’ble Madras High Court in the case of CIT vs. Pudukottai Company Pvt. Ltd. (supra) wherein the Hon’ble Court has held as under: The assessee company was carrying on the business on money lending. For the relevant assessment year the assessee claimed deduction under section 10(2)(iii) of 1922 Act in respect of the interest paid on its borrowed funds. The ITO found that the assessee had paid interest on its borrowings at an average rate of 6.01 per cent, it had charged interest only at the rate of 4.92 per cent, on its lendings. The ITO sought to disallow the difference of interest between 6.01 per cent and 4.92 per cent. The reason given by the ITO for disallowing this amount was that the interest charged on the lending was at a lower rate than that on the borrowing and that the lending was in favour of persons who were intimately connected with the assessee. On second appeal the Tribunal held that there was no justification for disallowing interest payment. Once it was found that the capital was borrowed for the purpose of the business, the assessee was entitled to deduct the interest paid for the borrowed capital. It might also be mentioned that the ITO himself accepted that the capital was borrowed for the purpose of the business because he had permitted a deduction of 4.92 per cent though the borrowing was on 6.01 per cent. The scaling down of the interest was not permitted when once the ITO accepted that the capital was borrowed for the purpose of the business.” 8.1. Similarly the Co-ordinate Bench in the case of Rupee finance & Management Pvt. Ltd. (supra) has held that the AO cannot disallow the claim of the assessee on the basis of surmises and conjectures, doubt and suspicion made by the lower authorities and it is settled law that Tribunal cannot sit in the armchair of a businessman and dictate how a business is to be carried out. The relevant portion is extracted as under: 8 I.T.A. No.965/Kol/2024 Assessment Year: 2020-21 Amitabh Das Mundhra “It is noted that assessee had taken loans from well established and duly identified financial institutions. The factum of borrowing of amount and payment of interest from these well established companies has neither been doubted nor denied by the Assessing Officer. Similarly, the assessee gave loans to corporate entities. The factum of earning of interest income from these companies was also duly verified by the Assessing Officer and nothing could be brought on record by the Assessing Officer to negate or even doubt if any amount of interest higher than the amount shown by the assessee in its accounts was received by the assessee. Thus, the entire transaction of taking of loan and payment of interest thereon and giving of loan and earning of interest income therefrom was duly established and substantiated. Nothing ingenuine has been found by either of the lower authorities. The only grievance of the lower authorities was that there was no prudence in carrying out the activity in such a manner which culminated into incurring of net interest loss. The doubt noted by the Assessing Officer with respect to incurring of loss could have at the best be it a triggering point for further investigation but that itself cannot be a conclusive ground to make disallowance in the hands of the assessee. Unfortunately, the Assessing Officer failed in carrying out any investigation to contradict the transaction. In fact, it also appears that the Assessing Officer did make some verification but noting ingenuine or wrong was noted by him. Rather, the transactions were duly substantiated. Similarly, at the stage of the Commissioner (Appeals) also nothing wrong or ingenuine could be brought on record by him. Under these circumstances, the disallowance has been made merely on the basis of whims and fancies, surmises and conjectures and doubts and suspicion made by the lower authorities. It is well settled law that a revenue officer cannot sit in the armchair of a businessman and dictate how a business is to be carried out. Thus, taking into account the totality of facts and circumstances of the case, it is found that the Assessing Officer had no material in his possession so as to enable him to make the impugned disallowance. Thus, the disallowance made by him on mere suspicion is not sustainable in law and therefore, it is deleted. [Para 16]” 8.2. Considering the above facts and circumstances and ratio laid down in the above decisions, we are inclined to set aside the order of Ld. CIT(A) and direct the AO to allow the claim of interest u/s 57 of the Act. 9. In the result, the appeal of the assessee is allowed. Order is pronounced in the open court on 9th October, 2024 Sd/- Sd/- ( Pradip Kumar Choubey /Ĥदȣप क ुमार चौबे) (Rajesh Kumar/राजेश क ुमार) Judicial Member/ÛयाǓयक सदèय Accountant Member/लेखा सदèय Dated: 9th October, 2024 SM, Sr. PS 9 I.T.A. No.965/Kol/2024 Assessment Year: 2020-21 Amitabh Das Mundhra Copy of the order forwarded to: 1. Appellant- Amitabh Das Mundhra, 126, Southern Avenue, Kolkata-700029 2. Respondent – DCIT, CC-11(1), Kolkata 3. Ld. CIT(A)- NFAC, Delhi 4. Ld. Pr. CIT- , Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail) True Copy By Order Assistant Registrar ITAT, Kolkata Benches, Kolkata "