Shri Madhuvandas O Kothari, Panchmahal V. ITO, Ward-2, Godhara

ITA 314/AHD/2019

• Counselvise Citation: [2023] 100 COUNSELVISE.COM (IT) 5674 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-11-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 03-10-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 28-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Tax effect; Tax effect; Commercial expediency; Revenue expenditure
• Section: 80C

Judgement Text

ITA No.314/Ahd/2019 Assessment Year: 2014-15 Page 1 of 7 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “SMC” BENCH, AHMEDABAD BEFORE Ms. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA No.314/Ahd/2019 Assessment Year: 2014-15 Smt. Apexa Kamleshkumar Kothari, L/H. of Late Shri Madhuvandas O. Kothari, 39-40, Gopinaker, Kanjiri Road, Halol, Dist. Panchmahal – 389 350. [PAN – AETPK 3824 P] Vs. The Income Tax Officer, Ward – 2, Godhra.. (Appellant) (Respondent) Assessee by Ms. Kinjal Shah, CA Revenue by Shri Sanjay Jain, Sr. DR Da te o f He a r in g 04.10.2023 Da te o f P ro n o u n ce m e n t 03..11.2023 O R D E R This appeal is filed by the Assessee against order dated 18.12.2018 passed by the CIT(A-4), Vadodara for the Assessment Year 2014-15. 2. The Assessee has raised the following grounds of appeal :- “The CIT(A) has erred both in Law and in Fact in confirming the order of the Assessing Officer wherein the Assessing Officer had made huge addition of Rs.19,56,3167- and since entire expenditure was incurred during course of business and for purpose of business the addition referred above is required to be deleted as per following Grounds. Sr.No. Grounds Tax Effect Rs. 1. On Interest u/s.36(l)(ii) (a) The CIT(A) has erred in confirming disallowance Rs.2,68,844/- of Rs.11,57,304/- being Interest of Rs.10,43,798/- and Rs.1,13,500/- being Loan Processing charges paid to the Yes Bank for taking Term Loan of Rs.95,00,000/- and Demand Loan of Rs.75,00,000/-. (b) It is submitted by your Appellant that the entire ITA No.314/Ahd/2019 Assessment Year: 2014-15 Page 2 of 7 amount of Loan of Rs.1,70,00,000/- being Loan taken for the purpose of Business of your Appellant as well as that of his Business Association and the Interest & Loan Processing charges of Rs.11,57,304/- be wholly & fully allowed. (c) It is also submitted that the Assessing Officer has failed to establish Nexus between Free Advance and Interest bearing Loan taken by your Appellant. (d) It is further submitted by your Appellant that he had sufficient own Interest Free Funds more than the Interest Free Advance and therefore no Disallowance of Interest and Processing Charge is called for and therefore both Interest of Rs.10,43,798/- and Rs.1,13,500/- be deleted. 2. On Consultant Free The CIT(A) has erred in confirming disallowance of Rs.1,30,507/- Rs.5,61,800/- being Consultant Charges paid by your Appellant which was incurred during course of business for purpose of business. It is submitted that the professional bill paid for conducting the matter before settlement Commission is initially business expenditure and since the liability of payment had crystallised and finally determined in the year under Appeal the disallowance ought to have been deleted by CIT(A). 3. On Computation of Property. The CIT(A) also erred in confirming disallowance Rs.34,845/- of Interest payment of Rs.1,50,000/- claimed by your Appellant u/s.24 under the head of Income from Property. The loan taken from Kothari Developers and Traders of Halol has a direct nexus and relation with earning of income of your Appellant and considering the facts of the case as well as provisions of Law, the CIT(A) ought to have deleted the addition. 4. On 80C The CIT(A) has further erred in confirming Rs.20,259/- disallowance of Rs.87,212/- claimed by your Appellant u/s.80C of the Act. On facts of the case and provisions of Law it is submitted that ITA No.314/Ahd/2019 Assessment Year: 2014-15 Page 3 of 7 the claim be allowed. ------------------- Total Rs.4,54,455/- ------------------- It is therefore submitted that reliefs claimed above be allowed and the order of the CIT(A) be modified accordingly. Your appellant reserves right to add, alter, amend to withdraw any or all Ground of Appeal.” 3. The return of income for A.Y. 2014-15 declaring total income of Rs.3,26,658/- was filed by the assessee on 25.12.2014. The return was processed u/s.143(1) of the Income Tax Act, 1961. The case was selected for scrutiny and notice u/s.143(2) of the Act was issued on 24.09.2015, which was duly served upon the assessee. In response to the various statutory notices, the Authorised Representative of the assessee filed details and attended the proceedings. The source of income of the assessee during the year is out of bond writing, sale and purchase of plot and interest income. The Assessing Officer observed that during the year, the assessee claimed bank charges of Rs.1,15,325/- and bank interest of Rs.10,43,798/-. The assessee submitted before the Assessing Officer that during the year the assessee availed term loan of Rs.95,00,000/- and demand loan of Rs.75,00,000/- from Yes Bank which was utilized for the business purposes and interest expenses incurred on these loans. The Assessing Officer observed from the balance sheet that no new assets were added either under the head fixed asset or under the head investment during the year. The Assessing Officer issued show cause notice to the assessee. The assessee filed his submissions. The Assessing Officer observed that the claim of premium paid to Ravjibhai Patel and Girishbhai Madhabha & others for purchase of land out of loan cannot be considered to be incurred for business purpose of the assessee. Further, the Assessing Officer observed that regarding the payment of Rs.1,05,00,000/- to Kothari Developers & Traders assessee took loan from banks and advanced the same to associate concern without charging interest, and on the other hand the assessee is incurring huge interest expenses on the loans taken from banks. Regarding balance loan amount the assessee has not given any explanation. Therefore, the Assessing Officer made addition of Rs.11,57,304/. The Assessing Officer further observed that the assessee claimed an amount of Rs.5,61,800/- as consultancy charges in the Profit and Loss Account which was paid to CA Mukund & Rohit for representing assessee before Settlement ITA No.314/Ahd/2019 Assessment Year: 2014-15 Page 4 of 7 Commission for A.Y. 2012-13 & 2013-14. The Assessing Officer held that the same cannot be allowed as revenue expenditure in the present assessment year i.e. A.Y. 2014-15 and thus, made addition of Rs.5,61,800/-. The Assessing Officer further observed from the computation of income that the assessee claimed loss of Rs. 1,50,000/- under the head house properties being interest paid or borrowed capital u/s 24 of the Act. The Assessing Officer observed that the house property purchased out of assessee’s own income and loan received back from Kothari Developers & Traders. No borrowed capital was used for purchasing the said property and therefore disallowed the interest expenses of Rs.1,50,000/-. The Assessing Officer also disallowed deduction claimed under Section 80C of the Act being repayment of principal amount of housing loan of Rs.87,212/-. 4. Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal. 5. The Ld. AR submitted that as regards to Ground No.1 relating to disallowance of interest expenses, out of total loan received from Yes Bank of Rs.1,70,00,000/-, Rs.1,58,65,880/- was given to Kothari Developers and Traders by the assessee for the purpose of commercial expediency as Kothari Developers and Traders is proprietary firm which is owned by Kamlesh Madhuvandas Kothari son of assessee. The Ld. AR submitted that both the assessee and his son are engaged in the business of development of land, construction of residential houses, earning commission from sale of land. The Ld. AR submitted that Kothari Developers and Traders utilized the said loan amount for sole purpose of business for which the assessee submitted Bank Statement of the Kothari Developers and Traders in which details of loan received was given during the assessment proceedings. The Ld. AR submitted that the assessee was having interest free funds and the loans were given for the purpose of business. The Ld. AR relied upon the decision of Hon’ble Supreme Court in case of PCIT vs. Shapoorji Pallonji and Co. Ltd. (2022) 288 Taxman 661 (SC). The Ld. AR further submitted that there is no tradition to charge interest on unsecured loan due to convenience of the nature of business. In fact, during the year, Kothari Developers and Traders has also provided unsecured loan to the assessee for purchase of the house property and no interest has been charged to the assessee which can be seen from ledgers of the party. The Ld. AR submitted that the assessee also ITA No.314/Ahd/2019 Assessment Year: 2014-15 Page 5 of 7 obtained unsecured loans from Mr. Himanshu Vyas, M. O. Kothari HUF, Narayan Thakkar and Mr. Rakeshbhai Patel without any interest charged to the assessee. For balance loan of Rs.11,34,120/-, the same has been utilized only for the purpose of the business of the assessee. 6. The Ld. DR submitted that there was no capital free fund as per page 14 of the paper book filed by the assessee. Hence, the CIT(A) rightly confirmed the addition. Besides this the assessee could not prove that the assessee’s business has impacted/profited from his son’s business. The Ld. DR relied upon the assessment order and the order of the CIT(A). 7. Heard both the parties and perused all the relevant material available on record. It is pertinent to note that the assessee submitted before the Assessing Officer that during the year the assessee availed term loan of Rs.95,00,000/- and demand loan of Rs.75,00,000/- from Yes Bank which was utilized for the business purposes and interest expenses incurred on these loans. Further it was noted that out of total loan received from Yes Bank of Rs.1,70,00,000/-, Rs.1,58,65,880/- was given to Kothari Developers and Traders by the assessee for the purpose of commercial expediency as Kothari Developers and Traders is proprietary firm which is owned by Kamlesh Madhuvandas Kothari son of assessee as per the submissions of the assessee. The Ld. DR’s contention that there is no capital free fund appears to be not justifiable. In fact, the assessee also obtained unsecured loans from Mr. Himanshu Vyas, M. O. Kothari HUF, Narayan Thakkar and Mr. Rakeshbhai Patel without any interest charged to the assessee. It can be seen that the balance loan of Rs.11,34,120/- was utilized for the purpose of the business of the assessee as the assessee is dealing in sale and purchase of plots and interest income. The contention of the Ld. DR that the funds were not utilized for business purpose appears to be incorrect. Thus, the CIT(A) was not justified in confirming the disallowance of interest expense as the assessee has explained the nexus between free advance and interest bearing loan taken by the assessee. Ground No.1 is allowed. 8. As regards to Ground No. 2 relating to consultancy charges, the Ld. AR submitted that the CIT(A) in case of assessee’s son Kamlesh Kothari deleted the said addition under similar facts and circumstances as the expenditure incurred ITA No.314/Ahd/2019 Assessment Year: 2014-15 Page 6 of 7 are related to consultancy charges paid to CA for representing the assessee’s case before the Settlement Commission. The Ld. AR submitted that on principles of consistency, the same should have been allowed. 9. The Ld. DR submitted that the consultancy charges were paid for subsequent year and not for this year, hence, the CIT(A) rightly confirmed the addition. The Ld. DR relied upon the Assessment Order and the order of the CIT(A). 10. Heard both the parties and perused all the relevant material available on record. It is pertinent to note that the consultancy charges was in relation to the fees paid to CA for the representation before the Settlement Commission in respect of reducing Tax Effect for A.Y. 2012-13 and 2013-14. But the said expenses incurred during the year and the Assessing Officer cannot held that the said expenditure incurred is not backed by matching principle since it has nothing to do with Income earned for A.Y. 2014-15. In fact, the consultancy charges was incurred by the assessee during the year, this fact was never disputed by the Assessing Officer. The dispute and its representation can be settled or decided in later years and the fees or expenditure on the consultation fees is incurred in the year in which it should be allowed. In fact, in case of assessee’s son, the same was accepted by the Revenue. Therefore, the CIT(A) was not right in confirming the disallowance of consultation charges. Ground No. 2 is allowed. 11. As regards to Ground No. 3 and 4 relating to interest on housing loan of Rs.1,50,000/- and Chapter VI-A deduction of Rs.87,212/-, the Ld. AR submitted that during the year, the assessee took loan from HDFC Bank and the old loan was paid off. The loan taken by the HDFC bank for repayment of loan was never disputed by the Revenue and therefore, the same should have been allowed. In fact, the loan taken from Kothari Developers and Traders of Halol has a direct nexus and relation with earning of income of the assessee. Therefore, the deduction claimed under 80C of the Act being repayment of the principal amount of housing loan should have been allowed. 12. The Ld. DR relied upon the Assessment Order and the order of the CIT(A). ITA No.314/Ahd/2019 Assessment Year: 2014-15 Page 7 of 7 13. Heard both the parties and perused all the relevant material available on record. It is pertinent to note that the assessee has produced the evidence regarding the repayment of original loan taken for purchase of property by loan taken form HDFC Bank. The observation made by the Assessing Officer contrary to the evidence is not acceptable. Thus, Ground No. 3 and 4 are allowed. 14. In result, appeal of the assessee is allowed. Order pronounced in the open Court on this 3 rd November, 2023. Sd/- (SUCHITRA KAMBLE) Judicial Member Ahmedabad, the 3 rd November, 2023 PBN/* Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad