Jyoti Agarwal, Hyd, Hyderabad V. ITO, Ward-14(5)(I/C), Hyd, Hyderabad

ITA 1191/HYD/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2441 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 09-09-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S PRAVEENA
• Assessee Lawyers: ARUN KUMAR MALANI
• Keywords: Notional interest; Capital expenditure

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD SMC - A BENCH : HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT ITA.NO.1191/HYD/2016 ASSESSMENT YEAR 2012 - 2013 SMT. JYOTI AGARWAL, 8 - 2 - 684/3K/11&12, ROAD NO.12, BANJARA HILLS, HYDERABAD 500 034. PAN: AAKPA 6898 G VS. ITO - WARD 14(5)(I/C), HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE: SHRI ARUN KUMAR MALANI FOR REVENUE : SMT. S. PRAVEENA, DR DATE OF HEARING : 2 9 .09 .2017 DATE OF PRONOUNCEMENT : 31 .10 .2017 ORDER PER D. MANMOHAN, VP. THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST ORDER PASSED BY LD. CIT(A) - 6, HYDERABAD AND IT PERTAINS TO ASSESSMENT YEAR 2012 - 13. FOLLOWING GROUNDS WERE URGED BEFORE THE TRIBUNAL: - (A) THE APPELLANT ASSESSEE HAD TAKEN A LOAN OF RS. 1,08,00,000/ - FOR HOUSING PURPOSE BUT DIVERTED TO M/S. SHEETAL REFINERIES LTD, AS UNSECURED LOAN, THE ENTIRE AMOUNT AT HIGHER RATE OF INTEREST (PARA 03.1 OF THE ORDER) BUT HAS RECEIVED LESSER INTEREST (TO EXTENT OF RS. 5,84,911/ - ) COMPARED TO THE INTEREST PAID TO BANK FOR THE REASON THAT THE ASSESSEE HAS BEEN PERIODICALLY WITHDRAWING THE UNSECURED LOAN FROM M/S. SHEETAL REFINERIES LTD. TO BE UTILISED TOWARDS THE REPAYMENT OF EMI (RS. 1,25,062/ - PER MONTH) . (B) IF THE EMI WOULD NOT HAVE BEEN PAID, THE INTEREST ON UNSECURED LOAN COULD NOT HAVE BEEN GENERATED. THE ASSESSEE HAS NOT UTILIZED THE LOAN AMOUNT FOR ANY OTHER PURPOSE. (C) THERE IS NO PROVISIONS IN THE INCOME TAX ACT, WHICH STATES THAT INCOME FROM OTHER SOURCES CANNOT BE NEGATIVE. (D) WITHOUT PREJUDICE TO THE ABOVE, THE AFORESAID PAYMENT OF EMI CONSISTING OF INTEREST AND PRINCIPAL REPAYMENT IS FOR THE PURPOSE OF OCCUPYING THE PREMISES ON WHICH THE LOAN WAS TAKEN AND WAS USED BY THE ASSESSEE FOR THE PURPOSE OF DOING THE LENDING ACTIVITY FOR EARNING THE INCOME FROM OTHER SOURCES WHICH SHALL BE A N ALLOWABLE EXPENDITURE U/S 57 OF THE INCOME TAX ACT. ALTERNATIVELY, IF ANY OTHER PREMISES WOULD HAVE BEEN USED, THEN THE ASSESSEE WOULD HAVE INCURRED RENT WH ICH WOULD HAVE BEEN ALLOWED AS EXPENDITURE U/S 57. 2 2. FACTS NECESSARY FOR DISPOSAL OF APPEAL ARE STATED IN BRIEF. DURING THE PREVIOUS YEAR RELEVANT TO A.Y. UNDER CONSIDERATION, ASSESSEE EARNED INTEREST INCOME WHICH WAS SHOWN UNDER THE HEAD INCOME OTHER SOURCES. AGAINST THE SAID INCOME, ASSESSEE CLAIMED INTEREST EXPENDITURE OF RS. 12,36,329/ - AND THUS DECLARED TOTAL LOSS OF RS. 5,29,679/ - . THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, BANK ACCOUNT COPIES ETC., WERE V ERIFIED TO NOTICE THAT THE INTEREST INCOME WAS RECEIVED ON LOANS GIVEN TO PRIVATE PARTIES FOR BUSINESS PURPOSE WHEREAS THE INTEREST PAID IS WITH REFERENCE TO LOANS TAKEN FROM SBH AND LIC. IT DESERVES TO BE NOTICED THAT THE SAID LOANS WERE TAKEN FOR MAKING INVESTMENTS TO ACQUIRE BUSINESS OF M/S. SHEETAL REFINERIES LTD., AND ALSO FOR MAKING OTHER INVESTMENTS. HOUSING LOAN OF RS. 1,13,30,000/ - WAS TAKEN FROM SBH. THE SAME WAS CONFIRMED BY THE BANK MANAGER VIDE LETTER DATED 23.01.2015. IT IS ALSO EVIDENT TH AT THE ASSESSEE ENTERED INTO A SALE DOCUMENT WITH REGARD TO SHAMSHABAD PROPERTY AND THE LOAN AMOUNT WAS UTILISED FOR OTHER PURPOSES. A.O. FURTHER OBSERVED THAT LOAN FROM LIC WAS ALSO NOT FOR BUSINESS PURPOSE. UNDER THESE CIRCUMSTANCES, HE WAS OF THE VIEW THAT NO DEDUCTION WAS PERMISSIBLE AGAINST THE INCOME EARNED UNDER THE HEAD INCOME FROM OTHER SOURCES SINCE THE EXPENDITURE WAS NOT CONNECTED TO THE EARNING OF SUCH INCOME. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE ALSO SUBMITTED THAT SHE RE CEIVED INTEREST INCOME FROM M/S. VIJAY JEWELLERS ON LOAN AMOUNT OF RS. 14,70,133/ - WHICH WAS REPAID BY THEM ON 10.10.2011. HOWEVER, SUCH INTEREST INCOME WAS NOT REFLECTED IN THE RETURN OF INCOME AND DESPITE OPPORTUNITY , ASSESSEE COULD NOT FURNISH ANY INFOR MATION. THEREFORE, A.O. ESTIMATED INTEREST INCOME ON MINIMUM BANK RATE OF 13% PER ANNUM FOR 193 DAYS. THUS, INTEREST OF RS. 1,01,057/ - WAS ADDED TO THE INCOME. 3. AGGRIEVED BY THE ORDER OF A.O., AN APPEAL WAS PREFERRED BEFORE LD. CIT(A) CONTENDING INTER ALIA THAT ASSESSEE UTILISED THE HOUSE PREMISES, PURCHASED OUT OF BANK LOAN, FOR THE PURPOSE OF DOING MONEY LENDING ACTIVITIES AND HENCE INTEREST ON SUCH LOAN OUGHT TO HAVE BEEN ALLOWED AS DEDUCTI ON FROM INTEREST EARNING UNDER THE HEAD OTHER SOURCES. SIM ILARLY IT WAS CONTENDED THAT THE LOAN TAKEN FROM LIC WAS GIVEN TO SRI JITENDRA KUMAR AGARWAL AND SHE ALSO DERIVED INTEREST INCOME OF RS. 44,268/ - . WITH REGARD TO LOAN GIVEN TO M/S. VIJAY JEWELLERS, IT WAS STATED THAT THOUGH CERTAIN INTEREST WAS RECEIVED IN THE PRECEDING A.Y., IN THE A.Y. UNDER CONSIDERATION THE BUYER DID NOT WANT TO GIVE FURTHER INTEREST AND HENCE LOAN AMOUNT WAS TAKEN BACK. UNDER THESE 3 CIRCUMSTANCES, IT WAS UNETHICAL ON THE PART OF A.O. TO ASSUME THAT INTEREST INCOME WAS RECEIVED. 4. BEFO RE LD. CIT(A), ASSESSEES REPRESENTATIVE CONTENDED THAT LO AN WAS TAKEN FROM SBH FOR REPAIR OF THE BUILDING AND FOR PURCHASE OF FURNITURE AND THE SAME WAS UTILISED TO GIVE UNSECURED LOAN TO M/S. SHEETAL REFINERIES PVT. LTD. SINCE ASSESSEE EARNED INTEREST @ 12% PER ANNUM FROM M/S. SHEETAL REFINERIES PVT LTD., AGAINST INTEREST OF 8.5% PAID TO SBH, THE SAME WAS ALLOWABLE AS DEDUCTION. ACCORDING TO ASSESSEE, THE VILLA AT SHAMSHABAD MANDAL WAS PURCHASED ON 30.06.2010 FROM M /S. SHEETAL REFINERIES PVT LTD., AND SRI JITENDRA KUMAR AGARWAL FOR A SALE CONSIDERATION OF RS. 39.81 LAKHS AND THE MONEY AVAILABLE FROM MONEY LENDING BUSINESS WAS UTILISED FOR THAT PURPOSE. THEREFORE, THE INTEREST PAID ON HOUSING LOAN SHOULD BE ALLOWED A S DEDUCTION U/S 57 OF THE ACT. REGARDING THE INTEREST PAID ON LIC LOAN, IT WAS STATED THAT LOAN AMOUNT WAS UTILISED FOR ADVANCING THE SAME TO SRI JITENDRA KUMAR AGARWAL, HUSBAND OF THE ASSESSEE. SIMILARLY, WITH REGARD TO ADDITION OF RS. 1,01,057 / - , IT WAS STATED THAT THE BUYER, HAVING NOT GIVEN ANY INTEREST IN THE YEAR UNDER CONSIDERATION, IT CANNOT BE ASSUMED THAT THE ASSESSEE EARNED INTEREST. 5. LD. CIT(A) NOTICED THAT AN AMOUNT OF RS. 1,08,00,000/ - WAS TAKEN AS HOUSING LOAN FROM SBH BUT IT WAS DIVERTED TO M/S. SHEETAL REFINERIES PVT LTD., AS UNSECURED LOAN. ASSESSEE INCURRED EXPENDITURE OF RS. 11,70,595/ - ON HOUSING LOAN BUT CHARGED ONLY RS. 5,85,684/ - AS INTEREST FROM M/S. SHEETAL REFINERIES PVT LTD. THUS, DIFFERENTIAL AMOUNT OF RS. 5,84,911/ - CANNOT BE ALLOWED AS DEDUCTION SINCE IT WAS NOT INCURRED FOR EARNING ANY INCOME. THUS, EXCESS INTEREST EXPENDITURE WAS NOT ALLOWED BY LD. CIT(A). 6. AS REGARDS THE AMOUNT BORROWED FROM LIC AND DIVERTED TO HER HUSBAND IN THE FORM OF UNSECURED LOAN, SINCE INTEREST EXPENDITURE WAS ALSO CHARGED AS INTEREST FROM THE LATTER, LD. CIT(A) DELETED THE ADDITION OF RS. 30,022/ - . SIMILARLY ADDITION OF RS. 1,01,057/ - WAS ALSO DELETED ON THE GROUND THAT NOTIONAL INTEREST CANNOT BE ASSESSED TO TAX. IN SUM AND SUBSTANCE, LD. CI T(A) CONFIRMED THE DISALLOWANCE TO THE EXTENT OF RS. 5,84,911/ - . 7. AGGRIEVED BY THE AFOREMENTIONED ADDITION, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL BUT ON BEHALF OF A.O. NEITHER ANY APPEAL NOR CROSS OBJECTION WAS FILED TO 4 CONTEST THE DELETION OF ADDITI ON. THUS, THE ISSUE IS LIMITED TO CONFIRMATION OF ADDITION OF RS. 5,84,911/ - . 8. LD COUNSEL FOR THE ASSESSEE ADMITS THAT LOAN AMOUNT OF RS. 1,08,00,000/ - WAS TAKEN FOR HOUSING PURPOSE BUT IT WAS DIVERTED TO M/S. SHEETAL REFINERIES PVT LTD., AS UNSECURED L OAN AT A LESSER RATE OF INTEREST, AS COMPARED TO INTEREST PAID TO BANK. SINCE THE LOAN TAKEN WAS USED BY ASSESSEE FOR THE PURPOSE OF DOING MONEY LENDING ACTIVITY I.E., FOR EARNING INCOME FROM OTHER SOURCE IT WAS STATED THAT ASSESSEE IS ENTITLED TO CLAIM DEDUCTION OF THE AFOREMENTIONED AMOUNT U/S 57 OF THE ACT. 9. I HAVE HEARD LD COUNSEL FOR THE ASSESSEE AS WELL AS LD DR IN THIS REGARD AND CAREFULLY PERUSED RECORD. IT IS NOT IN DISPUTE THAT ASSESSEE HAD TAKEN LOAN FOR HOUSING PURPOSES BUT DIVERTED THE SAME TO M/S. SHEETAL REFINERIES PVT LTD., AS UNSECURED LOAN. SECTION 57(III) OF THE ACT , WHICH IS RELEVANT IN THIS CONTEXT, READS AS UNDER: - 57 (III) ANY OTHER EXPENDITURE (NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE) LAID OUT OR EXPENDED WHOLLY AND E XCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME ; 10. ON A CAREFUL PERUSAL OF THE SECTION , IT INDICATES THAT AN EXPENDITURE SHOULD BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING OF SUCH INCOME. IN THE INSTANT CASE, LOAN WAS TAKEN FOR HOUSING PURPOSE AT A HIGHER RATE OF INTEREST AND IT WAS DIVERTED TO M/S. SHEETAL REFINERIES LTD., AS UNSECURED LOAN FOR EARNING LESSER RATE OF INTEREST THUS, IT CANNOT BE SAID THAT INTEREST EXPENDITURE INCURRED BY ASSESSEE IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING OF INCOME. HOWEVER, SINCE THE LD. CIT(A) HAVING CONFIRMED THE DISALLOWANCE ONLY TO THE EXTENT OF RS. 5,84,911/ - , I DO NOT FIND ANY INFIRMITY IN SO FAR AS THE D ISALLOWANCE CONFIRMED BY LD. CIT(A). 11. IN THE RESULT, APPEAL FILED BY ASSESSEE IS DISMISSED. SD/ - (D. MANMOHAN) VICE PRESIDENT HYDERABAD, DATED: 31ST OCTOBER, 2017 5 OKK, SR.PS COPY TO 1. SMT. JYOTI AGARWAL, 8 - 2 - 684/3K/11&12, ROAD NO.12, BANJARA HILLS, HYDERABAD 500 034. 2. ITO, WARD - 14(5)(I/C), HYDERABAD. 3. CIT (A) - 6 , HYDERABAD . 4. PR. CIT - 6 , TIRUPATI. 5. D.R. ITAT A - SMC BENCH, HYDERABAD. 6. GUARD FILE