Saroj Gupta, Sirsa V. ITO, Ward -1, Sirsa

ITA 234/CHANDI/2023

• Counselvise Citation: [2023] 102 COUNSELVISE.COM (IT) 0671 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 04-09-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 23-04-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Business expenditure; Capital expenditure; TDS
• Section: 32; 2; 143(3); 119

Judgement Text

आयकर अपीलीय अिधकरण,च᭛डीगढ़ ᭠यायपीठ “बी” , च᭛डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “B”, CHANDIGARH ᮰ी आकाश दीप जैन, उपा᭟यᭃ एवं ᮰ी िवᮓम ᳲसह यादव, लेखा सद᭭य BEFORE: SHRI. AAKASH DEEP JAIN, VP & SHRI. VIKRAM SINGH YADAV, AM आयकर अपील सं./ ITA NO. 234/Chd/2023 िनधाᭅरण वषᭅ / Assessment Year : 2018-19 Saroj Gupta SCF-20, First Floor, 2 nd Add, Mandi 0 Sirsa 125055, Haryana बनाम The Addl/Joint/Asst. CIT National E-Assessment Centre, Delhi ̾थायी लेखा सं./PAN NO: AATPG3314N अपीलाथᱮ/Appellant ᮧ᭜यथᱮ/Respondent िनधाᭅᳯरती कᳱ ओर से/Assessee by : Shri Sudhir Sehgal, Advocate राज᭭व कᳱ ओर से/ Revenue by : Shri Dharam Vir, JCIT, Sr. DR सुनवाई कᳱ तारीख/Date of Hearing : 05/09/2023 उदघोषणा कᳱ तारीख/Date of Pronouncement : 19/10/2023 आदेश/Order PER VIKRAM SINGH YADAV, A.M. : This is an appeal filed by the Assessee against the order of the Ld. CIT(A), NFAC, Delhi dt. 29/03/2022 pertaining to Assessment Year 2018-19. 2. In the present appeal, the assessee has raised the following grounds: 1. That the Ld. CIT(A) NFAC has erred in confirming the addition of Rs. 8,80,188/- as made by the Assessing Officer with regard to the claim of expenses u/s 57 being not allowable. 2. That the Ld. CIT(A) NFAC has disallowed such deduction as made in the computation of income which is against the facts & circumstances of the case. 3. That the appellant craves leave to add, amend, alter, withdraw any other ground or grounds of appeal before or during the hearing. 3. Briefly the facts of the case are that the assessee is an individual engaged in trading of agriculture commodities such as Paddy, Rice, Guar, Gram, Mustard Barley, Wheat etc. under the name and style of M/s. Haryana Trading 2 Company. The assessee is also having commission income during the year under consideration. The assessee filed her return of income of the AY 2018-19 on 30.10.2018 declaring total income of Rs. 14,47,720 /-. Further, the case of the assessee was selected under scrutiny through CASS with the reason of “Disallowing amount of interest paid on borrowed capital wrongly claimed u/s 57 of the I.T Act, 1961”. The assessment in the case of the assessee was completed u/s 143(3) the I.T Act, 1961 by denying the claim of expenses claimed u/s 57 of Rs. 8,94,800/- which was added back to the income of the assessee, stating that “No Loss under income from other sources is available as claimed by assessee”. 4. The assessee filed an appeal before the ld. CIT-Appeals NFAC against the said assessment order submitting that the amount of Rs. 8,94,800/- was amount of interest paid against unsecured loans that were invested in the business capital of the assessee only. The assessee submitted that the said amount of unsecured loan was credited in the saving bank account of the assessee and then transferred to the business of the assessee. Therefore the interest paid on such unsecured loans taken in the personal capacity deserves to be allowable expenditure incurred for the business purposes only, it is just the matter of presentation that the said expense has been claimed under the ‘head the income from other sources’ but there is no other source of income and the amount has been invested in the business and thus, the expense is allowable. 5. The Ld. CIT(A) did not accept the contention of the assessee and confirmed the action of the AO. Against the order passed by the Ld. CIT-NFAC, the assessee is in appeal before us. 6. During the course of hearing, the Ld. AR submitted that the assessee is a merchant and commission agent for last so many years engaged in trading of agricultural commodities such as paddy, Rice, Guar, Gram, Mustered Barley, 3 Wheat etc. apart from this business income, the assessee is not having any other source of income as evident from the computation of income and return of income filed by him. 7. It was submitted that the books of the account of the assessee are duly audited by a Chartered Accountant and the assessee has been regularly filing the Return of income every year. Apart from this, the Assessee is also maintaining personal books of accounts and prepares the personal Balance Sheet. 8. It was submitted that the assessee is in practice of availing unsecured loan from third parties in order to finance her business requirements in routine course in order to maintain her business activities and utilising the funds, and the details of the same are evident from the balance sheet of the Assessee. The assessee from the past many years had taken the credit of unsecured loans in her personal capacity i.e., in the saving bank account of the assessee and then transfers the same to the capital account of the assessee for the business purpose only. Only for the purpose of keeping the records separate for the unsecured loans taken in personal capacity, the assessee has been following the practice of claiming the expenditure incurred u/s 57 under the head “income from other sources” instead of the business head for the last many years and the details thereof are tabulated as under: Assessment Year Net Income From Business and profession Interest paid on loan taken in personal balance sheet claimed u/s 57 of the Income Tax Act Net Income 2016-17 23,51,310 10,90,000 12,61,310 2017-18 23,15,177 9,87,750 13,27,427 2018-19 24,81,355 8,94,800 15,86,555 2019-20 22,19,644 4,87,508 17,32,136 2020-21 24,49,019 1,40,874 23,08,145 4 9. As it is evident from the previous years that the assessee is claiming the deduction for “Interest Paid on loan taken in personal capacity” and the same has been duly accepted by the department in the case of the assessee so far. 10. The assessee during the relevant year under consideration claimed the impugned expenditure against interest paid on Unsecured Loan and filed the return of income declaring income of Rs. 15,86,555/- vide Ack. NO. 360945991301018 dated 30.10.2018. 11. During the assessment proceedings, the assessee, vide. Point no 10 of the reply (placed at Page No. 15 to 17 of the Paper Book), clearly stated that “There was no income other than business head of income. All the income of assessee firm was shown under the business head. However, the assessee firm has taken unsecured loans in personal capacity and the same were duly credited for in the books of accounts in Capital account of Proprietor. Interest paid on the said loans has duly been reduced from the computation of income”. However, no consideration to the same was given by the Ld AO.” 12. Again during the First Appellate proceedings as well, the assessee duly explained the complete facts of the case as evident from para 1 of page 3 of the written submissions filed before the Worthy CIT(A), placed at Page No. 99 to 103 of the Paper book. From the same, it is crystal clear that no consideration has been given either to the explanations given by the Assessee or to the documentary evidences filed by the assessee during the assessment as well as during first appellate proceedings. 13. The Assessee has established a direct nexus between the funds received as unsecured loans in personal capacity and parking of the same in her business as the capital balance appearing in the audited balance sheet of the assessee is duly reflecting in the asset side of the personal balance sheet, further, the liabilities side of the personal balance sheet shows that the said capital has 5 been funded by the unsecured loans availed by the Assessee in her personal capacity. 14. Further Ld. AR drew our reference to the following chart depicting the capital balance in audited books of accounts viz.a.viz. Unsecured loan balance in the personal books of accounts and its relevant pages in the paper books filed: Assessment Year Capital Balance Unsecured Loan Page No. 2016-17 1,41,49,665.48 83,42,050.00 104 and 116 of Paper Book -2 2017-18 1,52,10,283.80 90,33,175.00 44 of Paper Book -1, 118 of Paper Book -2 2018-19 1,76,66,380.00 1,03,33,495.00 7 of Paper Book -1, 119 of Paper Book -2 2019-20 1,23,18,352.00 42,53,305.00 75 of Paper Book -1, 120 of Paper Book -2 2020-21 1,15,46,418.00 19,80,092.00 97 of Paper Book -1, 121 of Paper Book -2 15. It was submitted that it is thus proved beyond any iota of doubt that the interest expense that has been disallowed has been incurred on the funds exclusively used for the business purposes and there is direct nexus between the same. Therefore, the Assessee must not be punished for just the presentation error when the other facts of the case are genuine, Reliance in this regard is placed on the CBDT Circular No. 14 (XL-35) dated 11/04/1955-Department must not take advantage of ignorance of assessee. 16. Per contra, the Ld. DR has relied on the findings of the AO as well as that of the Ld. CIT(A) and our reference was drawn to Page 4 to 8 of the impugned order wherein the relevant findings reads as under: “It is pertinent to reproduce here the observation made by the AO in the Assessment Order and the same is reproduced below: 6 "4. From the return of Income, it is noticed that the assessee has claimed expenses u/s. 57 of Rs.8,94,800/- under Schedule OS: Income from other sources at si. No.1(k). In the Profit & Loss Account, the assessee has debited interest paid of Rs. 1,89,90,090/- and credited interest received of Rs. 42,27,605/-. The assessee has shown net profit of Rs. 24,81,354/-. There is no other details regarding claim of expenses u/s 57 of Rs.8,94,800/-, which is claimed in the computation under head" Income from other source." It is noted that the assessee has already accounted interest received and interest debited in the P&L account as stated above. Whereas the assessee has separately shown expenses u/s.57 of Rs.8,94,800/- in the computation under the head "Income from other source"; the income from other source determined by the assessee is not correct. Therefore, the claim for the expenses u/s. 57 of Rs. 8,94,800/- is not allowable." From the above, it is clearly observed that the assessee has debited the entire interest payable/paid against the loans/borrowed funds in the profit and loss account prepared for the year ended 31/03/2018. It was also observed that when the opportunity was given, the appellant did not substantiate the claim of interest claimed under the head income from other sources. Therefore the AO was of the opinion that when the entire interest is shown and debited in the profit and loss account, the question of allowing the interest separately does not arise. In this connection, it must be mentioned here the provisions of Sec.57 of the Income Tax Act 1961, which is the appropriate section that provides for the deductions to be allowed against the income from other sources and the same is reproduced below for clarity: "Deductions: S. 57: The income chargeable under the head "Income from other sources" shall be computed after making the following deductions, namely: (1) in the case of dividends, [other than dividends referred to in section 115- 0,][for interest on securities], any reasonable sum paid by way of commission or remuneration to a banker or any other person for the purpose of realising 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- sections (1) [***] and (2)] of section 32 and subject to the provisions of [section 38]: 7 [(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.]" The above section prescribes the deductions that are allowable against the income from other sources, when the assessee declares income under the head other sources. On examination of the provision, the sub-sections (i), (ia), (ii), (iia) and (iv) relates to the expenditures relating to specific items of income, other than the allowable general deduction. Whereas, specifically, sub-section (iii) mandates that any other expenditure, laid out or expended wholly and exclusively for the purpose of making or earning such income has to be allowed. It is understood from sub-section (iii) that the expenditure incurred wholly and c - exclusively for earning such income has to be allowed. In the instant case, from the computation of income under the head other sources, it is observed that the appellant has not declared/earned any income against which expenditure has been claimed. Therefore, the AO has rightly observed that there is no nexus between the expenditure claimed under the head other sources and income not declared against such expenditure claimed. Accordingly, I find there is no merit in the grounds raised by the appellant. As such, the disallowance made is upheld. In the light of the above observations, it must be mentioned here that to claim such expenditure, the appellant should have income from other sources and such expenditure must have direct nexus, incurred, wholly and exclusively to the income earned/offered under the head Income from other sources. Under the circumstances, in the instant case, since the appellant has failed to establish the same, I am of the considered opinion that the disallowance made by the AO is justified and the grounds raised are dismissed.” 17. We have heard the rival contentions and purused the material available on record. The assessee is an individual engaged in trading of agricultural commodities and has admittedly taken unsecured interest bearing loan in her personal capacity and has paid interest thereon after deducting TDS thereon. 8 The assessee has maintained separate accounts for her business activities and separate accounts for her personal financial dealings including the subject unsecured loans. The claim of the assessee is that for financing her business activities, she has utilized the unsecured loans taken in her personal capacity and therefore, the amount so borrowed has direct nexus with her business activities and interest on such borrowings should be allowed to her. In order to support the said contention, the ld AR has taken us through the personal balance sheet of the assessee as well as the balance sheet maintained for her business purposes for the financial year ended 31/03/2016, 31/03/2017 and 31/03/2018. On going through the same, we find that for the financial year ended 31/03/2016, the amount of capital invested in assessee’s business is Rs 1.41 cr and the same has been funded out of assessee’s own resources to the tune of Rs 57.12 lacs and an amount of Rs 83.42 lacs out of unsecured loan taken from Akash Goyal, Ganga Ram Suresh Kumar and Gaurav Goyal, for the financial year ended 31/03/2017, the amount of capital invested is Rs 1.52 cr and the same has been funded out of assessee’s own resources to the tune of Rs 61.15 lacs and an amount of Rs 90.33 lacs out of unsecured loan taken from Akash Goyal and Sheetal Jhunthra and for the financial year ended 31/03/2018 relevant to the impugned assessment year 2018-19, the amount of capital invested is Rs 1.76 cr and the same has been funded out of assessee’s own resources to the tune of Rs 72.71 lacs and an amount of Rs 1.03 Cr out of unsecured loan taken from Akash Goyal, Sheetal Jhunthra and Suresh Kumar HUF. We therefore find that the borrowed funds continue to remain invested in assessee’s business though there are changes in individual borrowers and the quantum of respective borrowings therefrom. We therefore find merit in the contention of the ld AR that there is direct nexus between the borrowing and utilization for business purposes and therefore, interest on such borrowings should be allowed while computing the income under the head “profits and gains from business/profession”. Further, we find that mere making a claim under the 9 wrong head of income will not debar the assessee from claiming the interest expenditure as a business expenditure and it was incumbent on part of the lower authorities to consider the explanations and submissions so made by the assessee which are duly supported by the audited financial statements before arriving at their findings which apparently has not happened in the instant case. In light of aforesaid discussions, the interest paid on loans, though taken in personal capacity, which have been utilized for assessee’s business is directed to be allowed as allowable business expenditure while computing the income under the head “Income from business/professions” and the addition so made is hereby directed to be deleted. 18. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 19/10/2023. Sd/- Sd/- आकाश दीप जैन िवᮓम ᳲसह यादव (AAKASH DEEP JAIN) ( VIKRAM SINGH YADAV) उपा᭟यᭃ / VICE PRESIDENT लेखा सद᭭य/ ACCOUNTANT MEMBER AG Date: 19/10/2023 आदेश कᳱ ᮧितिलिप अᮕेिषत/ Copy of the order forwarded to : 1. अपीलाथᱮ/ The Appellant 2. ᮧ᭜यथᱮ/ The Respondent 3. आयकर आयुᲦ/ CIT 4. िवभागीय ᮧितिनिध, आयकर अपीलीय आिधकरण, च᭛डीगढ़/ DR, ITAT, CHANDIGARH 5. गाडᭅ फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar