SHRI SANJAY KUMAR RUNGTA, DURG V. INCOME TAX OFFICER WARD 2(2), BHILAI

ITA 2/RPR/2018

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 3205 (ITAT-RAIPUR)
• Duration Of Justice: 4 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Appeal Filed On: 09-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AMIT M JAIN
• Keywords: Rule of consistency; Capital expenditure
• Section: 143(3)

Judgement Text

आयकर अपीलȣय अͬधकरण Ûयायपीठ रायप ु र मɅ। IN THE INCOME TAX APPELLATE TRIBUNAL, RAIPUR BENCH, RAIPUR BEFORE SHRI RAVISH SOOD, JUDICIAL MEMBER AND SHRI RATHOD KAMLESH JAYANTBHAI, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No. 02/RPR/2018 Ǔनधा[रण वष[ / Assessment Year : 2013-14 Shri Sanjay Kumar Rungta 1, Rungta Bhawan, Ganj Para, Durg (C.G.)-491 001 PAN : ACLPR1072J .......अपीलाथȸ / Appellant बनाम / V/s. The Income Tax Officer-2(2), Bhilai (C.G.) ......Ĥ×यथȸ / Respondent Assessee by : Shri Amit M Jain, CA Revenue by : Shri G.N Singh, DR स ु नवाई कȧ तारȣख / Date of Hearing : 10.06.2022 घोषणा कȧ तारȣख / Date of Pronouncement : 26.07.2022 2 Shri Sanjay Kumar Rungta Vs. ITO, Ward 2(2) ITA No. 02/RPR/2018 आदेश / ORDER PER RAVISH SOOD, JM: The present appeal filed by the assessee is directed against the order passed by the CIT (Appeals)-II, Raipur (dated 12.10.2017, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income-Tax Act, 1961 (for short ‘the Act’) dated 03.03.2016 for assessment year 2013-14. Before us the assessee has assailed the impugned order on the following grounds of appeal: “1. On the facts and in the circumstances o the case, the learned CIT(A) has erred in confirming the disallowance made by the A.O of Rs.29,72,185/- on account of interest expenses claimed u/s.57 of the Income Tax Act. The disallowance made by the AO and sustained by the Ld. CIT(A) is unjustified, unwarranted and uncalled for. 2. On the facts and circumstances of the case, the learned CIT(A) has erred in confirming the assessed income at Rs.29,72,185/- as assessed by the A.O instead of Rs.23,95,877/- (before claiming deduction u/s.57 of Rs.29,72,185/-). The said assessed income is not correct and is unjustified, unwarranted and uncalled for. 3. That the appellant reserves the right to add, amend or modify any grounds of appeal at the time of hearing.” 2. Succinctly stated, the assessee who is a promoter director of GDR Rungta group of institutions had filed his return of income for AY 2013-14 on 28.03.2013, declaring an income of Rs. 3 Shri Sanjay Kumar Rungta Vs. ITO, Ward 2(2) ITA No. 02/RPR/2018 Nil. Subsequently, the case of the assessee was selected for scrutiny assessment u/s.143(2) of the Act. 3. During the course of the assessment proceedings, it was observed by the A.O that the assessee as against his interest income of Rs.10,75,877/- had claimed deduction u/s.57 of the Act of Rs.29,72,185/- towards interest paid on unsecured loans. It was observed by the A.O that the assessee after claiming the aforesaid deduction had shown net interest of (-) Rs. 18,96,308/- . On being queried as regards the maintainability of his claim for deduction of interest expenditure of Rs.29,72,185/-, it was submitted by the assessee that as the corresponding interest bearing funds were raised by him wholly and exclusively for the purpose of advancing interest bearing amounts, therefore, his claim for deduction u/s.57(iii) of the Act was in order. However, the aforesaid claim of the assessee did not find favour with the A.O. Observing, that the assessee had failed to establish that the unsecured loans were raised for earning of interest income, the A.O disallowed his claim for deduction u/s.57(iii) of the Act and 4 Shri Sanjay Kumar Rungta Vs. ITO, Ward 2(2) ITA No. 02/RPR/2018 vide his order passed u/s.143(3) dated 03.03.2016 assessed his income at Rs.29,72,185/-. 4. Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals) but without any success. 5. The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter before us. 6. We have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the ld. AR in order to drive home his contentions. 7. After having given a thoughtful consideration to the aforesaid issue in hand, i.e., sustainability of the disallowance of the assessee’s claim for deduction under Sec.57(iii) of the Act, we find substantial force in the claim of the Ld. AR that both the lower authorities by failing to appreciate the correct factual position had hushed through the matter and drawn adverse 5 Shri Sanjay Kumar Rungta Vs. ITO, Ward 2(2) ITA No. 02/RPR/2018 inferences as regards the assessee’s entitlement for deduction u/s.57(iii) of the Act. Before us, the Ld. AR has filed a “chart” wherein he had furnished details as regards the interest paid/received from various parties during the year under consideration, which reads as under: SUMMARY OF INTEREST F.Y 2012-13 Name of the lender Interest paid Name of Borrower Interest received Interest paid to Hill queen Investment Pvt. Ltd. 847555 Interest from Sakuntala Devi Rungta 405378 Interest paid to Dynasty Tradelink Pvt. Ltd. 1861993 Interest from Rajni Devi Rungta 451645 Interest paid to Tanishq Export Pvt. Ltd. 70818 Interest from GDR Education society 205586 Interest paid to Sonal Kumar Rungta 81643 Savings bank interest 13268 Interest paid to OBC ( Temporary OD) 110176 Total 2972185 Total 1075877 On a perusal of the aforesaid details, we find that the assessee had claimed deduction of interest paid of Rs.29,72,185/- as against the interest income of Rs.10,75,877/-. As such, the assessee had claimed payment of excess interest as against that received from the aforementioned parties. 6 Shri Sanjay Kumar Rungta Vs. ITO, Ward 2(2) ITA No. 02/RPR/2018 8. Controversy involved in the present appeal lies in a narrow compass, i.e., as to whether or not the interest paid by the assessee to the aforementioned 5 parties was rightly claimed as a deduction against the interest income that was received by him during the year under consideration. Before adverting any further, we deem it fit to cull out the provision of section 57(iii) of the Act, as the scope and domain of the same is relevant for adjudication of the present appeal and, reads as under: “57. The income chargeable under the head "Income from other sources" shall be computed after making the following deductions, namely :— (i) xxxxxxxx (ii) xxxxxxxx (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;” On a perusal of the aforesaid statutory provision, we find that the same therein contemplates that 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 income chargeable under the head “income from other sources” is to be allowed as a deduction while computing the taxable income of the 7 Shri Sanjay Kumar Rungta Vs. ITO, Ward 2(2) ITA No. 02/RPR/2018 assessee. Before us, it is the claim of the assessee that as the interest bearing funds were raised wholly and exclusively for the purpose of earning of interest income by advancing the same as interest bearing loans to various parties, therefore, the interest expenditure incurred on the aforesaid loans was duly allowable as a deduction u/s.57(iii) of the Act. For adjudicating the aforesaid issue, we shall deal with respective loans which had been raised by the assessee from various lenders, as under: A.) Dynasty Tradelink Pvt. Ltd. : Rs.3,39,15000/- :- 9. The assessee has filed before us a “chart” revealing utilization of the loans aggregating to Rs.3.39 crores (approx.) raised from the aforementioned party, i.e., M/s Dynasty Tradelink Pvt. Ltd. As claimed by the assessee the interest bearing funds raised from M/s Dynasty Tradelink Pvt. Ltd had been utilized for advancing of interest bearing loans/deposits to GDR Educational Society and certain other parties, as under: INFLOW OF FUND OUTFLOW OF FUND Date Amount received from Amount Date Amount given to Amount Remarks 8 Shri Sanjay Kumar Rungta Vs. ITO, Ward 2(2) ITA No. 02/RPR/2018 22.11.2012 Dynasty Tradelink Pvt. Ltd. 1000000 22.11.2012 GDR Educational Society 1000000 24.11.2012 Dynasty Tradelink Pvt. Ltd. 2000000 24.11.2012 GDR Educational Society 2000000 26.11.2012 Dynasty Tradelink Pvt. Ltd. 1900000 26.11.2012 GDR Educational Society 1900000 29.11.2012 Dynasty Tradelink Pvt. Ltd. 1000000 29.11.2012 GDR Educational Society 1000000 03.12.2012 Dynasty Tradelink Pvt. Ltd. 1000000 03.12.2012 GDR Educational Society 1000000 03.12.2012 Dynasty Tradelink Pvt. Ltd. 2500000 03.12.2012 GDR Educational Society 2500000 05.12.2012 Dynasty Tradelink Pvt. Ltd. 1000000 05.12.2012 GDR Educational Society 1000000 07.12.2012 Dynasty Tradelink Pvt. Ltd. 2100000 07.12.2012 GDR Educational Society 2100000 07.12.2012 Dynasty Tradelink Pvt. Ltd. 1400000 07.12.2012 GDR Educational Society 1400000 12.12.2012 Dynasty Tradelink Pvt. Ltd. 1500000 12.12.2012 GDR Educational Society 1500000 15.12.2012 Dynasty Tradelink Pvt. Ltd. 2000000 18.12.2012 GDR Educational Society 2000000 17.12.2012 Dynasty Tradelink Pvt. Ltd. 2000000 18.12.2012 GDR Educational Society 2000000 21.12.2012 Dynasty Tradelink Pvt. Ltd. 1000000 21.12.2012 GDR Educational Society 1000000 24.12.2012 Dynasty Tradelink Pvt. Ltd. 1000000 24.12.2012 GDR Educational Society 1000000 29.12.2012 Dynasty Tradelink Pvt. Ltd. 1000000 29.12.2012 GDR Educational Society 1000000 02.01.2013 Dynasty Tradelink Pvt. Ltd. 1500000 02.01.2013 GDR Educational Society 1500000 04.01.2013 Dynasty Tradelink Pvt. Ltd. 1250000 04.01.2013 GDR Educational Society 1250000 10.01.2013 Dynasty Tradelink Pvt. Ltd. 900000 10.01.2013 GDR Educational Society 900000 9 Shri Sanjay Kumar Rungta Vs. ITO, Ward 2(2) ITA No. 02/RPR/2018 11.01.2013 Dynasty Tradelink Pvt. Ltd. 500000 11.01.2013 GDR Educational Society 500000 15.01.2013 Dynasty Tradelink Pvt. Ltd. 1600000 15.01.2013 GDR Educational Society 1600000 31.01.2013 Dynasty Tradelink Pvt. Ltd. 1600000 31.01.2013 GDR Educational Society 1600000 06.02.2013 Dynasty Tradelink Pvt. Ltd. 1000000 06.02.2013 GDR Educational Society 1000000 07.02.2013 Dynasty Tradelink Pvt. Ltd. 1500000 07.02.2013 GDR Educational Society 1500000 12.02.2013 Dynasty Tradelink Pvt. Ltd. 1165000 14.02.2013 Cash withdrawal 500000 Cash in hand as on 31.03.2013 14.02.2013 Dynasty Tradelink Pvt. Ltd. 500000 26.02.2013 Mary Mathai 258456 Payment of old interest bearing u/s. loan 26.02.2013 V.K Satija HUF 259834 Payment of old interest bearing u/s. loan 26.02.2013 Jaya Solanki 259834 Payment of old interest bearing u/s. loan 20.03.2013 Yashwant Rao Kavre 389202 Payment of old interest bearing u/s. loan Total 33915000 Total 33917326 In order to substantiate the factual position as had been projected in the aforesaid chart, a copy of assessee’s bank account, i.e., A/C No.05362041004078 with Oriental Bank of Commerce, Branch: Bhilai had been placed on our record. On a perusal of the aforesaid details, we find that it is a matter of fact borne from record that an amount of Rs.3,22,50,000/- (out of the 10 Shri Sanjay Kumar Rungta Vs. ITO, Ward 2(2) ITA No. 02/RPR/2018 amount of Rs.3,39,15,000/-) was utilized wholly and exclusively by the assessee for the purpose of advancing amounts on interest over the period, i.e., 22.02.2012 to 07.02.2013 to GDR Educational Society. Accordingly, an inextricable nexus between the interest bearing loans raised by the assessee from M/s Dynasty Tradelink Pvt. Ltd. and the interest bearing advances/deposits given to GDR Educational Society is established beyond any doubt. Backed by the aforesaid facts, we are of the considered view, that as the assessee had raised interest bearing loans from M/s Dynasty Tradelink Pvt. Ltd. for the purpose of making or earning interest income from GDR Educational Society, therefore, the interest expenditure so incurred would clearly fall within the realm of the deduction contemplated under Sec. 57(iii) of the Act. At this stage, we are reminded of the judgment of the Hon’ble Supreme Court in the case of Commissioner of Income Tax Vs. Rajendra Prasad Moody (1978) 115 ITR 519 (SC), wherein, the Hon’ble Apex Court while deliberating on the scope and domain of Section 57(iii) of the Act, 11 Shri Sanjay Kumar Rungta Vs. ITO, Ward 2(2) ITA No. 02/RPR/2018 had observed, that Section 57(iii) of the Act only requires that the expenditure must be laid out or expended wholly and exclusively for making or earning income and not that such income must have been earned. Also, a similar view had been taken by the Hon’ble High Court of Punjab & Haryana in the case of CIT Vs. Pankaj Munjal Family Trust, 326 ITR 286 (P&H). It was observed by the Hon’ble High Court that though the assessee before them had raised interest bearing funds at a higher rate of interest from its family concerns for making investments in lower interest yielding shares, no adverse inferences as regards allowability of the assessee’s claim for deduction under Sec. 57(iii) of the Act was liable to be drawn on the said count. 10. In the backdrop of the aforesaid facts read with the settled position of law, we are of the considered view that as the assessee had raised interest bearing loans to the extent of Rs. 3,22,50,000/- (supra) from M/s. Dynasty Tradelink Pvt. Ltd. wholly and exclusively for the purpose of earning interest income on the loans/deposits given to GDR Educational Society, 12 Shri Sanjay Kumar Rungta Vs. ITO, Ward 2(2) ITA No. 02/RPR/2018 therefore, his claim for deduction of the corresponding interest expenditure (out of Rs. 18,61,993/-) is well in order and had wrongly been disallowed by the lower authorities. We, thus, in terms of our aforesaid observations set-aside the order of the CIT(Appeals) and direct him to allow the assessee’s claim for deduction under Sec. 57(iii) of the interest expenditure corresponding to the interest bearing amount of Rs. 3,22,50,000/- that was raised from M/s Dynasty Tradelink Pvt. Ltd. B). (i). Hill Queen Investment Pvt. Ltd.; (ii).Sonal Kumar Rungta ; & (iii). Tanishq Export Pvt. Ltd. : Rs.79,10,512/- : 11. It is the claim of the assessee that it had prior to 01.04.2009 raised interest bearing loans from the aforementioned parties and had utilized the same primarily for advancing of interest bearing loans to S/smt. Shakuntala Devi Rungta and Rajni Devi Rungta. It is the claim of the Ld. AR that the interest paid on aforesaid interest bearing loans that were raised prior to 01.04.2009 from the aforementioned parties, viz. (i) Hill Queen Investment Pvt. Ltd.; (ii) Sonal Kumar Rungta; and (iii) Tanishq Export Pvt. Ltd. 13 Shri Sanjay Kumar Rungta Vs. ITO, Ward 2(2) ITA No. 02/RPR/2018 were deposited with the aforementioned parties, viz. (i) Shakuntala Devi Rungta; (ii) Rajni Devi Rungta and also partly deposited in the assessee’s bank account with Axis Bank and OBC bank for earning of interest income. In the backdrop of his aforesaid contentions, it was submitted by the Ld. AR, that now when the aforesaid interest bearing amounts raised by the assessee had wholly and exclusively been utilized for the purpose of earning of interest income on the deposits made with the aforementioned parties, therefore, the interest expenditure so incurred on the correlating interest bearing loans was rightly claimed as a deduction by the assessee u/s.57(iii) of the Act. 12. After having given a thoughtful consideration to the aforesaid issue, we are principally in agreement with the contention of the Ld. AR that interest expenditure incurred on the interest bearing loans which are raised wholly and exclusively for the purpose of earning of interest come by advancing the same on interest would be allowable as a deduction within the meaning of Section 57 (iii) of the Act. However, we find that neither the 14 Shri Sanjay Kumar Rungta Vs. ITO, Ward 2(2) ITA No. 02/RPR/2018 complete facts which would prove to the hilt the existence of an inextricable nexus between the aforesaid interest bearing loans and the interest generating advances is discernible from the records, nor any such claim of deduction of interest is found to have been raised by the assessee in its return of income for the immediately preceding year i.e AY 2012-13. Be that as it may, as the issue as regards the allowability of the assessee’s claim for deduction under Sec. 57(iii) of the interest paid on the loans raised from the aforementioned three parties cannot be adjudicated in the absence of complete set of facts before us, therefore, in all fairness we restore the matter to the file of the A.O with a direction to re-adjudicate the same in the backdrop of our aforesaid observations. In case the assessee in the course of the set-aside proceedings is able to substantiate that the interest bearing loans raised by him from the aforementioned three parties, viz. (i) Hill Queen Investment Pvt. Ltd.; (ii) Sonal Kumar Rungta; and (iii) Tanishq Export Pvt. Ltd. were advanced for the purpose of earning of interest income in question, then, the A.O 15 Shri Sanjay Kumar Rungta Vs. ITO, Ward 2(2) ITA No. 02/RPR/2018 shall allow his claim for deduction qua the same under Sec. 57(iii) of the Act. C). OBC : Rs.1,10,176/- : (i) Mary Mithai : Rs.24,394/-; (ii) V.K Satija HUF : Rs.24,524/-; (iii) Jaya Solanki : Rs.24,524/- and (iv) Yashwant Rao Kavre : Rs.36,734/-: 13. It is the claim of the Ld. AR that as the assessee had paid interest on the old interest bearing loans that were raised in the earlier years from the aforementioned four parties, viz. (i) Mary Mithai; (ii) V.K Satija HUF; (iii) Jaya Solanki ; and (iv) Yashwant Rao Kavre for advancing of interest bearing amounts, therefore, his claim for deduction of the interest paid on the interest bearing loans was rightly claimed as a deduction under Sec. 57(iii) of the Act. It was submitted by the ld. AR that the old outstanding loans of the aforesaid four parties were repaid by the assessee a/w interest during the year under consideration by raising interest bearing funds, i.e, a temporary OD from OBC bank, as under (Page 27 of APB) : Sr.No. Particulars Principal repaid Interest paid Date of payment 1. Smt. Mary Mithai Rs. 2,34,062/- Rs. 24,394/- 26.02.2013 16 Shri Sanjay Kumar Rungta Vs. ITO, Ward 2(2) ITA No. 02/RPR/2018 2. V.K Satija, HUF Rs. 2,35,310/- Rs. 24,524/- 26.02.2013 3. Smt. Jaya Solanki Rs. 2,35,310/- Rs. 24,524/- 26.02.2013 4. Shri. Yashwant Rao Kavre Rs. 3,52,468/- Rs. 36,734/- 20.03.2013 On the basis of aforesaid facts, it was claim of the Ld. AR that now when the assessee, as in the preceding years, had utilized the aforesaid old interest bearing funds for advancing the same on interest to third parties, therefore, the interest expenditure so borne by him for earning the corresponding interest income was duly allowable as a deduction u/s.57 (iii) of the Act. In order to buttress his claim for allowing the aforesaid interest expenditure of Rs.1,10,176/- (supra), it was submitted by the Ld. AR that the deduction of the interest expenditure that was incurred on the aforesaid interest bearing loans was claimed by the assessee in his return of income for the immediately preceding year, i.e., A.Y. 2012-13, Page 11 of APB, and the same had been accepted as such. On the basis of his aforesaid averments, it was submitted by the Ld. AR that as the claim of the assessee for deduction of interest expenditure in question was in order, therefore, the same did merit acceptance and was liable to be allowed. 17 Shri Sanjay Kumar Rungta Vs. ITO, Ward 2(2) ITA No. 02/RPR/2018 14. After having given a thoughtful consideration to the contentions advanced by the Ld. Authorized representatives for both the parties qua the aforesaid issue in hand, we find substance in the claim of the ld. AR as regards the allowability of his claim for deduction of the interest expenditure on the old loans which were utilized for earning of interest income by advancing the same as interest bearing loans/deposits. Our aforesaid conviction is supported by the fact that the assessee’s claim for deduction of interest paid on the loans raised from the aforesaid four parties in his return of income for the immediately preceding year, i.e, AY 2012-13 had been accepted by the department and had not been dislodged, Page 11 of APB. Nothing to the contrary has been brought to our notice by the ld. DR to rebut the aforesaid factual position as had been canvassed by the ld. AR before us. Considering the aforesaid facts, we are of the considered view, that as the fact situation during the year under consideration remains the same except for that the outstanding loans of the aforesaid four parties were squared up by the 18 Shri Sanjay Kumar Rungta Vs. ITO, Ward 2(2) ITA No. 02/RPR/2018 assessee by raising a bank loan i.e, a temporary OD from OBC bank, therefore, going by the principle of consistency we find no reason to take a different view and thus allow the assessee’s claim for deduction of interest on aforesaid loans of Rs. 1,10,176/-. Thus, the Grounds of appeal Nos.1 & 2 raised by the assessee are partly allowed in terms of our aforesaid observations. 15. Ground of appeal No.3 being general in nature is dismissed as not pressed. 16. In the result, appeal of the assessee is partly allowed in terms of our aforesaid observations. Order pronounced under rule 34(4) of the Appellate Tribunal Rules, 1963, by placing the details on the notice board. Sd/- Sd/- RATHOD KAMLESH JAYANTBHAI RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायप ु र/ RAIPUR ; Ǒदनांक / Dated : 26 th pJuly, 2022 **SB 19 Shri Sanjay Kumar Rungta Vs. ITO, Ward 2(2) ITA No. 02/RPR/2018 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of the Order forwarded to : 1. अपीलाथȸ / The Appellant. 2. Ĥ×यथȸ / The Respondent. 3. The CIT(Appeals)-II, Raipur (C.G) 4. The Pr. CIT-II, Raipur (C.G) 5. ͪवभागीय ĤǓतǓनͬध, आयकर अपीलȣय अͬधकरण,रायप ु र बɅच, रायप ु र / DR, ITAT, Raipur Bench, Raipur. 6. गाड[ फ़ाइल / Guard File. आदेशान ु सार / BY ORDER, // True Copy // Ǔनजी सͬचव / Private Secretary आयकर अपीलȣय अͬधकरण, रायप ु र / ITAT, Raipur. 20 Shri Sanjay Kumar Rungta Vs. ITO, Ward 2(2) ITA No. 02/RPR/2018 Date 1 Draft dictated on 10.06.2022 Sr.PS/PS 2 Draft placed before author 20.06.2022 Sr.PS/PS 3 Draft proposed and placed before the second Member JM/AM 4 Draft discussed/approved by second Member AM/JM 5 Approved draft comes to the Sr. PS/PS Sr.PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order