Sri I P Mallokaradhya , Davangere V. The Deputy Commissioner of Income Tax Circle-1(1), Davangere

ITA 2817/BANG/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 1886 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 10-06-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 11-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR SHANKAR PRASAD
• Keywords: Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V VASUDEVAN, VICE PRESIDNET AND SHRI B.R BASKARAN, ACCOUNTANT MEMBER ITA NO.2817/BANG/2018 ASSESSMENT YEAR : 2013-14 SRI I.P MALLOKARADHYA, 385, ARADHYA HOUSE, KB EXTENSION, DAVANGERE-577 002. PAN ACMPM 7814 L. VS. THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), DAVANGERE. APPELLANT RESPONDENT APPELLANT BY : SHRI NARENDRA SHARMA, ADVOCATE RESPONDENT BY : DR. SHANKAR PRASAD, ADDL. CIT DATE OF HEARING : 13.06.2019 DATE OF PRONOUNCEMENT : 26.06.2019 O R D E R PER B.R BASKARAN, ACCOUNTANT MEMBER THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 25/7/2018 PASSED BY LD CIT(A), DAVANGERE AND IT RELATES TO ASST. YEAR 2013-14. 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN CONFIRMING INTEREST DISALLOWANCE OF RS.28.32 LAKHS MADE BY THE AO. 3. THE FACTS RELATING TO THE ABOVE SAID ISSUE ARE T HAT THE ASSESSEE TOOK A LOAN FROM A BANK AND PAID A INTERES T OF RS.35.97 ITA NO.2817/BANG/2018 PAGE 2 OF 5 LAKHS. THE ASSESSEE USED THE LOAN PROCEEDS TO ADVA NCE FUNDS TO A COMPANY NAMED M/S ARADHYA STEEL PVT. LTD, I.E., HE INVESTED A SUM OF RS.1 CRORE ON 19/6/2012 AND ANOTHER SUM OF RS.1 CRORE ON 18/12/2012. IN THE RETURN OF INCOME, THE ASSESSEE D ECLARED INTEREST INCOME OF RS.28.32 LAKHS ON THE LOANS GIVEN TO THE ABOVE SAID COMPANY. THE ASSESSEE ALSO CLAIMED INTEREST EXPEND ITURE OF RS.28.32 LAKHS AGAINST THE ABOVE SAID INTEREST INCO ME, SINCE HE HAD PAID INTEREST OF RS.35.97 LAKHS ON THE LOAN TAKEN F ROM THE BANK. THE AO COLLECTED THE LEDGER ACCOUNT OF THE ASSESSEE AS AVAILABLE IN THE BOOKS OF M/S ARADHYA STEEL PVT. LTD., AND NOTIC ED THAT THE ABOVE SAID COMPANY HAS NOT PROVIDED FOR ANY INTERES T PAYABLE TO THE ASSESSEE. THE AO FURTHER NOTICED THAT THE ASSESSEE HAS GIVEN HUGE AMOUNT TO THE ABOVE SAID COMPANY AND THE INTEREST A MOUNT OF 28.32 LAKHS IS NOT COMMENSURATE WITH THE LOAN AMOUN T SO GIVEN BY THE ASSESSEE. ACCORDINGLY, THE AO TOOK THE VIEW TH AT THE ASSESSEE, BY MAKING PROVISION FOR INTEREST INCOME IN HIS BOOK S, HAS ONLY ATTEMPTED TO ENHANCE HIS CAPITAL. THE AO ALSO NOTI CED THAT THE ASSESSEE DID NOT CLAIM DIFFERENCE INTEREST EXPENDIT URE OF RS.7.65 LAKHS (RS.35.07 LAKHS PAID TO THE BANK 28.32 LAKH S CLAIMED AGAINST THE INTEREST INCOME) AS EXPENDITURE, I.E., THE DIFFERENCE AMOUNT WAS DEBITED TO THE CAPITAL ACCOUNT OF THE AS SESSEE. ACCORDINGLY THE AO TOOK THE VIEW THAT PROVISION MAD E BY THE ASSESSEE FOR INTEREST INCOME AND ALSO CLAIMING OF I NTEREST EXPENDITURE AGAINST IT IS NOT ACCEPTABLE, SINCE I T IS ONLY AN ARRANGEMENT MADE TO INCREASE THE CAPITAL OF THE ASS ESSEE IN UNDUE MANNER. ACCORDINGLY THE AO TOOK THE VIEW THAT THE INTEREST CLAIM OF 28.32 LAKHS MADE BY THE ASSESSEE IS NOT ALLOWABL E. ACCORDINGLY HE DISALLOWED THE INTEREST EXPENDITURE AND ADDED TH E SAME TO THE ITA NO.2817/BANG/2018 PAGE 3 OF 5 TOTAL INCOME OF THE ASSESSEE. THE LD CIT(A) ALSO C ONFIRMED THE SAME AND HENCE THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 4. WE HEARD THE PARTIES AND PERUSED THE RECORD . THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE PART OF LO AN TAKEN FROM THE BANK HAS BEEN USED BY THE ASSESSEE TO MAKE ADVANCE TO M/S ARADHYA STEEL PVT. LTD. THERE SHOULD NOT BE ANY DI SPUTE THAT THE INTEREST EXPENDITURE RELATABLE TO THE ADVANCE SO GI VEN IS DEDUCTIBLE AGAINST THE INTEREST INCOME RECEIVED/RECEIVABLE FRO M THE ADVANCE SO GIVEN. IN THE INSTANT CASE, THE ASSESSEE HAS SHOWN INTEREST INCOME OF RS.28.32 LAKHS AS RECEIVABLE FROM THE ABOVE SAID COMPANY AND CLAIMED EQUAL AMOUNT OF INTEREST EXPENDITURE. THE CASE OF THE AO IS THAT THE ASSESSEE IS NOT ENTITLED TO RECEIVE INT EREST INCOME, SINCE M/S ARADHYA STEEL PVT. LTD HAS NOT PROVIDED FOR INT EREST PAYABLE TO THE ASSESSEE. ACCORDINGLY THE AO HAS TAKEN THE VIE W THAT INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE IS NOT ALLOWABL E. ONCE THE AO HAS TAKEN THE VIEW THAT THE INTEREST INCOME DOES NO T ACCRUE TO THE ASSESSEE, THEN THE AO SHOULD HAVE EXCLUDED INTEREST INCOME ALSO, WHILE DISALLOWING INTEREST EXPENDITURE CLAIMED BY T HE ASSESSEE. IF THE AO ASSESSES INTEREST INCOME, THEN THERE IS NO B AR IN CLAIMING CORRESPONDING INTEREST EXPENDITURE. HENCE THE ACTI ON OF THE TAX AUTHORITIES IN ASSESSING INTEREST INCOME (WHICH WAS HELD AS NOT ACCRUED TO THE ASSESSEE), WHILE DISALLOWING INTERES T EXPENDITURE IS NOT JUSTIFIED. 5. WE HAVE NOTICED THAT THE NET EFFECT OF INTER EST INCOME OFFERED AND EXPENDITURE CLAIMED BY THE ASSESSEE IS NIL. TH E CASE OF THE AO IS THAT THE ASSESSEE HAS INCREASED HIS CAPITAL BY A CCOUNTING FOR THE ITA NO.2817/BANG/2018 PAGE 4 OF 5 INTEREST INCOME. UNDER THE ACCOUNTING PRINCIPLES, IF THE ASSESSEE DID NOT RECEIVE THE SAID INTEREST, THEN HE IS REQUI RED TO REVERSE THE SAME IN THE SUBSEQUENT YEAR, WHICH WILL CONSEQUENTL Y RESULT IN REDUCTION OF CAPITAL IN THAT YEAR. HENCE THE REASO NING GIVEN BY THE AO FOR DISALLOWING INTEREST EXPENDITURE IS NOT SUST AINABLE. 6. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THA T THE DISALLOWANCE OF INTEREST EXPENDITURE IS NOT JUSTIFIED. ACCORDIN GLY, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND DIR ECT THE AO TO DELETE THE DISALLOWANCE OF INTEREST EXPENDITURE CLA IMED BY THE ASSESSEE. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSE SSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH JUNE, 2019. SD/ - (N.V VASUDEVAN) VICE PRESIDENT SD/ - (B.R BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED, 26 TH JUNE, 2019. / VMS / COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3 . THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER A SST. REGISTRAR, ITAT, BANGALORE. ITA NO.2817/BANG/2018 PAGE 5 OF 5 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR.P.S .. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE.. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER . 13. DATE OF DESPATCH OF ORDER. ..