Smt. Jayshreeben B. Thakrar, RAJKOT-GUJARAT V. The Income Tax Officer, Ward-2(1)(1), RAJKOT-GUJARAT

ITA 415/RJT/2017

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 3092 (ITAT-RAJKOT)
• Duration Of Justice: 6 year(s) 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-04-2024
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 01-04-2024
• Assessment Year: 2014-2015
• Appeal Filed On: 26-11-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Source of fund; Corroborative evidences; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 56; 271(1)(c); 80C; 143(3); 234B; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT (THROUGH VIRTUAL COURT) BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER & Ms. MADHUMITA ROY, JUDICIAL MEMBER I .T .A . N o s . 1 0 8 & 41 5 / R jt/2 01 7 (A s s e s s m en t Ye ar s : 2 0 1 2- 13 & 2 01 4 - 1 5) S mt. J a ys h r e e b e n B . T ha k r ar , 2 n d F l oo r , R a d ha kr i sh na A p a r t me nt , O p p . G o n dh i ya H o s p ita l, R aj k o t V s .In c o me Ta x Of f ic e r , War d- 2( 2 ) ( 3 )/ Wa r d - 2( 1) ( 1 ) , Ra j ko t [ P A N N o. A A X P T6 40 0 E ] (Appellant) .. (Respondent) Appellant by : Shri D. M. Rindani, AR. Respondent by : Shri V. J. Boricha, Sr. D.R. D a t e o f H e a r i n g 02/04/2024 D a t e o f P r o n o u n c e m e n t 08/04/2024 O R D E R PER Ms. MADHUMITA ROY - JM: Both appeals filed by the same assessee are directed against the separate orders dated 01.02.2017 & 13.09.2017 passed by the Commissioner of Income Tax (Appeals)-2, Rajkot arising out of the assessment orders dated 27.03.2015 & 04.10.2016 passed by the ITO, Ward – 2(2)(3) & 2(1)(1), Rajkot under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred as to “the Act”) for the Assessment Years (A.Ys.) 2012-13 & 2014-15 respectively. Since the issues involved in these appeals are arising out of the same orders, these are heard analogously and are being disposed of by a common order for the sake of convenience. ITA No. 108/Rjt/2017(A.Y. 2012-13) 2. The assessee has raised the following grounds of appeal:- - 2 - ITA Nos.108&415/Rjt/2017 Smt. Jayshreeben B Thakrar vs. ITO Asst. Years – 2012-13 & 2014-15 “1. The learned Commissioner of Income Tax, (Appeals)-2, Rajkot has erred in dismissing the appeal and whereby upholding the assessed the total income of Rs. 13,01,659/- as against the returned income of Rs.NIL is unwarranted, unjustified and bad in law. 2. The learned Commissioner of Income Tax, (Appeals)-2, Rajkot has erred in dismissing the appeal and whereby upholding the disallowance of Long Term Capital Gain on sale of plot of land set off against the claimed Interest payment of Rs. 15,18,975/- as discussed in Para 2 of the assessment order and added to the total income of Rs. 1,76,772/- is unwarranted, unjustified and bad in law. 3. The learned Commissioner of Income Tax, (Appeals)-2, Rajkot has erred in dismissing the appeal and whereby upholding the disallowance of the Bank interest income set off against the claimed Interest payment of Rs. 15,18,975/- as discussed in Para 3 of the assessment order and added to the total income of Rs.17,833/- is unwarranted, unjustified and bad in law. 4. The learned Commissioner of Income Tax, (Appeals)-2, Rajkot has erred in dismissing the appeal and whereby upholding the addition of the saving bank interest income of Rs. 13,530/- as discussed in Para 3 of the assessment order and added to the total income of Rs. 13,530/- is unwarranted, unjustified and bad in law. 5. The learned Commissioner of Income Tax, (Appeals)-2, Rajkot has erred in dismissing the appeal and whereby upholding the disallowance of interest on FOR set off against the claimed Interest payment of Rs. 15,18,975/- and added to the total income of Rs.11,08,534/- is unwarranted, unjustified and bad in law. 6. The learned Commissioner of Income Tax, (Appeals)-2, Rajkot has erred in dismissing the appeal and whereby upholding the wrongly mentioned the facts in his body of order it is totally against the facts of the case and passed the order and reduced the loss is unwarranted, unjustified and bad in law. 7. The learned Commissioner of Income Tax, (Appeals)-2, Rajkot has erred in dismissing the appeal and whereby upholding the charging interest u/s. 234A, 234B and 234C is unwarranted, unjustified and bad in law. 8. The learned Commissioner of Income Tax, (Appeals)-2, Rajkot has erred in dismissing the appeal and whereby upholding the initiating penalty u/s.274 r.w.s. 271(1)(c) of the I T Act, 1961 is unwarranted, unjustified and bad in law.” 3. During the assessment proceedings it was found that the assessee has claimed Rs. 15,18,975/- being the interest charged by the Bank to M/s. Kishore Project Pvt. Ltd. and the same was claimed in her return of income. The assessee filed the written submission upon perusal of which brings the further following facts:- “2. On verification of above submissions following facts emerges : (a) You have given loan / advances to the following persons as under: Name Opening Balance Closing Balance (in Rs.) Income offered for taxation Interest as per bank rate Difference (in Rs.) - 3 - ITA Nos.108&415/Rjt/2017 Smt. Jayshreeben B Thakrar vs. ITO Asst. Years – 2012-13 & 2014-15 Kishor Project Pvt. Ltd. 1,70,55,250/- 1,70,55,250/- (42,75,000 +1,27,80,250) Upto 42.75 Lacs @ 11.25% and 10% for balancing amount as per OBC Bank loan sanction letter 4,80,938/- 12,78,025/- Aditya B. Thakrar 49,100/- 54,100/- - @ 10% 4,910/- Rishabh B. Thakrar 1,19,100/- 1,19,100/- - @ 10% 11,91 0/- Vipul J. Shrimankar 5,00,000/- 5,00,000/- - @ 10% 50,000/- Total Interest leviable but not offered for taxation 18,25,783/- Please show cause why the said amount of Rs. 18,25,783/- should not be added to your return income as you are paying bank interest of Rs. 15,18,975/- and you have not charged any interest on the above investment made by you. (b) On verification of copy of bank account of OBC Bank the OBC bank has charged following interest: Name Bank A/c No. Interest charged (in Rs.) Remarks Kishor Project Pvt. Ltd. 05568011000785 1,30,388/- You have claimed the said amount as interest paid Kishor Project Pvt. Ltd. 05568011000778 87,153/- --Do-- Kishor Project Pvt. Ltd. 05568011000754 2,S7,624/- --DO-- Kishor Project Pvt. Ltd. 05568011000877 7,23,954/- -Do- Kishor Project Pvt. Ltd. 05568011000747 2,89,856/- -Do- Ca) Sub Total 15,18,975/- -Do- Smt. Jayshreeben B. Thakrar 05563471000924 and various accounts 10,89,907/- You have not claimed in your computation Please show cause why the said amount of Rs. 15,18,975/- should not be disallowed in you case as the same is in the name of Kishore Project Pvt. Ltd. And you have claimed the same in your computation of income. (c) You have earned Long Term Capital Gain of Rs. 176772/- but claimed set off against the loss arise on account of excess interest paid on bank loan so please show cause why the same should not be disallowed in computation of income ? (d) Further you have shown Long Term Capital Gain on sale of share of Rs. 86879/- but no working is given therein and why the same is not offered for taxation. Please show cause why the same should not be added in your return income? (e) Please furnish details of Long Term Capital Gain earned by you on sale of plot of lands i.e. purchased price and working.” 4. The assessee filed reply as follows:- - 4 - ITA Nos.108&415/Rjt/2017 Smt. Jayshreeben B Thakrar vs. ITO Asst. Years – 2012-13 & 2014-15 “In response to the notice the AR of the assessee appeared and filed a written submission the same is reproduced here under: - 5 - ITA Nos.108&415/Rjt/2017 Smt. Jayshreeben B Thakrar vs. ITO Asst. Years – 2012-13 & 2014-15 ” 5. The Ld. Assessing Officer passed order with the following observations:- “6. After careful consideration of above referred two submissions it is found that the plea of assessee that she has taken a loan from bank overdraft on FD and given to the company in which her husband is a director. It is not a logical reason and same is not acceptable. In my opinion any wise person will not take loan from bank and advance interest free money to any company. The claim of interest payment to bank loan of Rs.15,18,975 is in fact bank loan granted to M/s Kishor Project Pvt. Ltd. as mentioned in para B of final show cause dated 24/03/2015. The assessee is not doing any business. Further the assessee has shown interest income in his computation under the head income from other source, thus the assessee has earned interest on her savings and the only deduction allowable under the head income from other source are deduction u/s 57 and u/s 56 of, the I.T. Act. On verification of the above sections it is established that the assessee has not made any expenditure for earning the interest income therefore, the claim of deduction of Rs. 15,18,975/- is not an incidental expenditure made to earn the interest income on Fixed Deposit Nexus has not been proved and assessee has not produced any concrete evidence to establish his claim. As regard the interest payment of Rs. 10,89,907/- nothing on record which can prove that the assessee has taken loan to earn incidental income so it is also not under preview of direction of section 57 or section 56 of the IT Act. The onus is upon the assessee to prove her claim with supporting evidence but the same has not been discharged by the assessee. In fact the same pertains to repayment of loan interest of M/s Kishor Project Pvt. Ltd. Which is not permissible in any stage of imagination and therefore I hereby disallow Rs. - 6 - ITA Nos.108&415/Rjt/2017 Smt. Jayshreeben B Thakrar vs. ITO Asst. Years – 2012-13 & 2014-15 15,18,975/- in the hands of assessee. Penalty u/s 271(1)(c) is being initiated for furnishing inaccurate particular of income in this regard. The effect of the same is given in re-computation of income in para 9 of this order. 7. Further the assessee has claimed set off of Long Term Capital Gain earned on sale of plot of lands of Rs. 1,76,772/- is not permissible in the eyes of law and income of the assessee is recomputed as in subsequent paras. 8. The assessee has claimed carry forward loss of Rs.2,15,836/- in computation of income which is also not permissible as per I.T. Act as the assessee has filed the return of income on 11/12/2012 i.e. after due date of filing of return. 9. After due verification, the Income of the assessee is determined as under: Total income as per return of income filed 11/12/2012. Rs. 0/- Re-computation of Income (A) Long Term Capital gain on sale of plot of land : Rs. 1,76,772/- (B) Income from other source Bank Interest : Rs. 17,833/- Add: As per Para 3 : Rs. 13,530/- Interest on F.D : Rs. 11,08,534/- : Rs.11,39,897/- ---------------------------- (c) Gross Total Income : Rs. 13,16,669/- Less: Deduction Under CH VI-A u/s 80C : (-) Rs. 15,010/- ---------------------------- (D) Net Taxable Income : Rs. 13,01,659/- The claim of carry forward loss of Rs. 215863/- is hereby disallowed as narrated in para 8 of the order.” 6. During the appellate proceedings the assessee submitted as follows:- “3.2.3 Contention of the assessee. During appellate proceedings assessee filed written submission in which it is contended that:- “In this regards your appellant has to clarify that the Company M/s. Kishor Projects Private Limited had taken a Loan from the Bank in the year 2007 and at that time Bank Interest rate is @ 11.25%. Ledger Account of Bank Loan Interest Expenses which is paid by your appellant @ 11.25% is attached herewith for your kind perusal. And also your appellant had purchased a FOR in the year 2007 and at that time rate of Interest @ 9.75%. Ledger Account of Bank FOR Interest Income which is received by your appellant @ 9.75% is attached herewith for your kind perusal. Further your appellant has to clarify that your appellant is only the guarantors of loan. The Loan is taken by M/s. Kishor Projects Private Limited in which Company your appellant's husband was ex-director. The company has not paid any interest on bank loan so the liability of the Bank loan interest comes on guarantor. Due to non payment of interest or principal of loan by the borrower company, without any issuance of any show cause notice bank had adjusted your appellant's all (10) FDRs in December 2015. Due to this matter, your appellant has filed the petition before the Hon'ble High Court of Gujarat on 09.12.2015. However after the intervention of High Court of - 7 - ITA Nos.108&415/Rjt/2017 Smt. Jayshreeben B Thakrar vs. ITO Asst. Years – 2012-13 & 2014-15 Gujarat has issued a stay order on 10.12.2015 (Copy of the same is attached herewith), 9 FDRs was restored again but the case still pending and final verdict is awaited. If the verdict of Hon'ble High Court of Gujarat do not decided in favour of your appellant, the Bank will appropriate the remaining 9 FDRs also against the third party loan. But 1 FDRs amounting to Rs.16,99,686/- which was adjusted by Bank against the third party loan on 07.12.2015 before the Court Stay Order. So it is crystal clear shows that liability of loan and interest is casted on your appellant's FDR by Bank. Copies of all 10 FDRs appropriated by Bank in December, 2015 are attached herewith for your kind perusal. Hence your appellant should be entitled to claim the expenditure of Interest on loan. Even though the Assessing Officer had not considered the facts of the case and passed the order on his own motion and made the addition on surmises and conjecture basis. 2.2 The plain construction of section 57 of the IT Act leads to the conclusion that it is not necessary that any income should in fact have been earned as a result of expenditure. Provisions requires that expenditure must be laid out wholly and exclusively for the purpose of making or earning income. It is the purpose of expenditure that is relevant. This section does not require that such purpose must be fulfilled in order to qualify the expenditure for deduction. For allowability of expenditure, it must not necessarily produce income. 2.3 The assessee hereby relies upon the decision of Hon'ble ITAT "C" Bench, Ahmedabad (ITA No. 3797/AHD/2008) in the case of Kaushikbhai Nandubhai Patel HUF vs. ACIT, Circle-7, Ahmedabad. 2.4 Further, reliance is placed on the decision of Gujarat High Court in the case of Virmati Ramkrishna vs. CIT(1981) 131ITR 659, wherein it is observed as under: (1) in order to decide whether an expenditure is a permissible deduction u/s 57(7/7), the nature of the expenditure must be examined. (2) the expenditure must not be in the nature of capital expenditure or personal expenses of the assessee; (3) the expenditure must have been laid out or expended wholly and exclusively for the purpose of making of earning "income from other sources”, (4) the purpose of making or earning such income must be the sole purpose for which the expenditure must have been incurred, that is to say, the expenditure should not have been incurred for such purpose as also for another purpose, or for a mixed purpose; (5) the distinction between purpose and motive must always be borne in mind in this connection, for, what is relevant is the manifest and immediate purpose and not the motive or personal considerations weighing the mind of the assessee in incurring the expenditure; (6) if the assessee has no option except to incur the expenditure in order to make the earning of the income possible, such as when he has to incur legal expenses for preserving and maintaining the source of income, then undoubtedly, such expenditure would be an allowable deduction; however, where the assessee has an option and the option which he exercises has no connection with the making or earning of the income and the option depends upon personal considerations or motives of the assessee, the expenditure incurred in consequence of the exercise of such option cannot be treated as an allowable deduction; (7) it is not necessary, however, that the expenditure incurred must have been obligatory; it is enough to show that the money was expended not of necessity and with a view to an immediate benefit to the assessee but voluntarily and on the ground of commercial expediency and in order indirectly to facilitate the making or earning of the income; - 8 - ITA Nos.108&415/Rjt/2017 Smt. Jayshreeben B Thakrar vs. ITO Asst. Years – 2012-13 & 2014-15 (8) if, therefore, it is found on application of the principles of ordinary commercial trading that there is some connection, direct or indirect, but not remote, between the expenditure incurred and the income earned, the expenditure must be treated as an allowable deduction; (9) it would not, however, suffice to establish merely that the expenditure was incurred in order indirectly to facilitate the carrying on of the activity which is the source of the income; and nexus must necessarily be nexus must necessarily be between the expenditure incurred and the income earned; (10) it is not necessary to show that the expenditure was a profitable one or that in fact income was earned; (11) the test is not whether the assessee benefited thereby or whether it was a prudent expenditure which resulted in ultimate gain to the assessee but whether it was incurred legitimately and bonafide for making or earning the income; (12) the question whether the expenditure was laid out or expended for making or earning the income must be decided on the facts of each case, the final conclusion being on of law. Under the circumstances, it is clearly established that the assessee has rightly claimed deduction of Rs. 16.95.801/- in respect of interest expenses. In view of the above, the question of disallowing the claim of interest expenditure to the extent of Rs. 2,26,107/- does not arise.”” 7. Considering the above submission the Ld. CIT(A) confirmed the addition made by the Ld. AO with the following observation:- “3.2.4 Decision These three grounds relate to disallowance of interest expenses of Rs. 15,18,975/- charged by the Bank. The AO has disallowed these expenses on the ground that the assessee is not doing any business and these expenses do not relate to her interest income or the capital gain income. The assessee on the other hand has pleaded that the company in which her husband was Director had taken a loan from Bank against which she has pledged her FD as security. On default by the company, the Bank forfeited her FD of Rs. 16,99,686/- and adjusted against loan of the company. It is contended that since the assessee's FDR's are pledged against loan of the company, the interest liability of the company on such loans is allowable expenditure of assessee. Having considered facts and circumstances of the case and rival contentions, I find no merit in contentions of assessee. The forfeiture of FD by Bank in no way relates to the income from other sources or income under the head capita/ gains. The interest expenses of company cannot be held to be assessee's expenditure simply because assessee had pledged her FDS against such loan. Such interest expenditure of company therefore is not allowable as revenue expenditure of assessee not being relatable to the sources of income of assessee. The cases cited by the assessee are distinguishable on facts. The action of AO therefore calls for no interference. Grounds of appeal are rejected.” 8. We find that the interest expenses of a company cannot be held to be assessee’s expenditure merely for the reason that the assessee had placed her FDs against the loan. - 9 - ITA Nos.108&415/Rjt/2017 Smt. Jayshreeben B Thakrar vs. ITO Asst. Years – 2012-13 & 2014-15 Relevant to mention that our above observation when expressed before the Court during hearing, the Ld. Counsel appearing for the assessee gave his consent with all his fairness. 8. Thus, the interest expenditure of the company as held not allowable expenditure of the assessee is therefore, rightly been upheld by the Ld. CIT(A) which is found to be just and proper so as to warrant interference. 9. In the result, the appeal filed by the assessee, therefore, is dismissed. ITA No. 415/Rjt/2017 (A.Y. 2014-15):- 10. The identical issue involved in the case has already been dealt with by us in ITA No. 108/Rjt/2017 for A.Y. 2012-13 and in the absence of any changed circumstances, the same shall apply mutatis mutandis. Hence, the appeal preferred by the assessee is dismissed. 11. In the combined result, both the appeals filed by the assessee are dismissed. This Order pronounced in Open Court on 08/04/2024 Sd/- Sd/- (WASEEM AHMED) (MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 08/04/2024 TANMAY, Sr.PS आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A). 5. वभागीय त न ध, आयकर अपील!य अ धकरण, अहमदाबाद / DR, ITAT, Rajkot 6. गाड' फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, राजोकट / ITAT, Rajkot