The DCIT, Central Circle-1(4), Ahmedabad V. Shri Udaykumar Dineshchandra Bhatt, Ahmedabad

ITA 441/AHD/2017

• Counselvise Citation: [2023] 100 COUNSELVISE.COM (IT) 4795 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2023
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 02-10-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 20-02-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Salary income; Tax effect; Set aside
• Section: 143(3); 72; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “A” BENCH Before: Smt. Annapurna Gupta, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member The DCIT, Central Circle-1(4), Ahmedabad (Appellant) Vs Shri Udaykumar Dineshchandra Bhatt A/31, Galaxy Complex, Opp: Galaxy Cinema, Naroda, Ahmedabad-382330 PAN: AAVPB6252C (Respondent) Revenue Represented: Ms. Saumya Pandey Jain, Sr.D.R. Assessee Represented: Shri Karan Shah, A.R. Date of hearing : 03-10-2023 Date of pronouncement : 06-12-2023 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- This appeal is filed by the Revenue as against the appellate order dated 21.12.2016 passed by the Commissioner of Income Tax (Appeals)-13, Ahmedabad arising out of the assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2013-14. ITA No. 441/Ahd/2017 Assessment Year 2013-14 I.T.A No. 441/Ahd/2017 A.Y. 2013-14 Page No DCIT Vs. Shri Udaykumar Dineshchandra Bhatt 2 2. Originally this Revenue appeal was dismissed on account of Low Tax Effect. However the same was recalled vide M.A. No. 03/Ahd/2020 dated 28.07.2023 wherein the tax effect in this appeal is more than Rs. 50 lakhs and the appeal is restored for fresh hearing. 3. The brief facts of the case is that the assessee is an individual and deriving income from salary, house property, capital gain and income from other sources. For the Assessment Year 2013-14, the assessee filed its Return of Income declaring total income of Rs. 1,43,82,580/-. The return was taken up for scrutiny assessment on the ground that the assessee had claimed expenditure u/s. 57 to the tune of Rs. 2.5 crores which include interest expenses of Rs. 2.41 crores. After claiming set off of the expenditure u/s. 57 of the Act, the resultant income shown in capital gain was only Rs. 1.43 crores. Therefore the assessee was asked to justify the expenditure claimed u/s. 57 of the Act. The assessee was also asked to explain the purposes for which term loan on which huge interest and other expenses have been claimed and also to explain where the funds were deployed. 4. In reply the assessee submitted interest has been paid on unsecured loans which have been taken in the earlier year as well as fresh loans during the year. The assessee also submitted interest expenses on SBI term loan has been claimed as expenditure, as the loan is of earlier year, the same was advanced to Galaxy Avenue Pvt. Ltd. and assessee earned interest income which has offered under “other sources”. The assessee also I.T.A No. 441/Ahd/2017 A.Y. 2013-14 Page No DCIT Vs. Shri Udaykumar Dineshchandra Bhatt 3 submitted it has availed fresh loan during the year from SBI and Tata Capital and the same as advanced to M/s. Galaxy Mall Pvt. Ltd. and also utilized for purchasing lands or investment in partnership firms, from where the assessee is receiving interest income from loans and advances. Therefore the assessee claimed the expenses u/s. 57 is to be allowed. 5. The Assessing Officer not satisfied with the above reply of the assessee held that by making claim of expenses u/s. 57, the capital gain has been drastically reduced. The assessee nowhere shows any kind of nexus between the advances taken for which interest expenses have been paid with the deployment of such loans. In order to decide whether an expenditure is a permissible deduction u/s. 57(iii), the nature of the expenditure must be examined whether it is capital or personal, whether expended wholly and exclusively for the purpose of earning income from other sources, etc. Since the assessee admits that the loans taken were utilized for making investment in land and taking stake of capital in firms, it is clear that the loans taken were advanced for some other purposes, like investment, etc. Therefore it is clear that the entire expenses has not been incurred to earn income from other sources, but the claim of expenses u/s. 57 has drastically reduced the capital gain, thus the expenses is restricted to the income from other sources of Rs. 42,23,750/- and the remaining expenses were disallowed. The Ld. A.O. determined the income as Rs.3,55,32,346/- and demanded taxes thereon. I.T.A No. 441/Ahd/2017 A.Y. 2013-14 Page No DCIT Vs. Shri Udaykumar Dineshchandra Bhatt 4 5. Aggrieved against the appellate order, the assessee filed an appeal before Commissioner of Income Tax (Appeals). The Ld. CIT(A) deleted the above addition without making a detailed verification and the nexus between the claim of deduction u/s. 57 and the advances taken for which interest expenses have been paid with the deployment of such loans by the assessee by observing as follows: “....5. I have perused the assessment order and detailed written submissions made in this regard. I am of the view that the A.O. has erred in allowing the expenditure only to an extent of an income offered under the head "Income from other sources". The appellant has filed details of unsecured/secured loans taken in the past and in the current financial year and its deployment. Such details were available on page no. 13 and 14 of the paper-book so filed. From such tabulation, it is evident that all the loans so taken, have been deployed for business purposes, on which interest at varying rates has been shown to be earned. Under these circumstances, it is clear that the funds taken were deployed for business purposes. Further, there are decisions from the Hon'ble Gujarat High Court CIT v/s. Gautam Sarabhai - 44 CTR 143, wherein it is held that the interest expenditure should be allowed even though no income has been earned during the year under consideration. A similar view was taken by the Hon'ble Gujarat High Court in the case of Atir Textile Industries (P) Ltd v/s. DCIT 55 Taxmann.com 380. From the cited pronouncements, it is clear that the interest expenses and other related expenses should be allowed u/s. 57 (iii) of the Act or u/s. 36(1)(iii) of the Act, even if there is no sufficient interest income, during the year, despite such loans utilized or applied in the earlier financial years. The interest expenses and other expenses have to be allowed as per the provisions of set off and carry forward losses, as the appellant is entitled to set off of loss of one head of income against the income from other heads in the current year. Considering the above, I am of the view that the disallowance made by the A.O. of Rs.2,12,62,780/- on account of claim of expenditure u/s. 57(iii) against expenses from other sources, is legally untenable and the same is, therefore, directed to be deleted.” 7. Aggrieved against the appellate order, the Revenue is in appeal before us raising the following Grounds of Appeal: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and/or on facts in deleting the disallowance made on account of claim of expenditure u/s 57 of the Act of Rs.2,12,62,780/-. 2. On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the A.O. 3. It is, therefore, prayed that the order of the CIT(A) be set aside and that of the A.O. be restored to the above extent. I.T.A No. 441/Ahd/2017 A.Y. 2013-14 Page No DCIT Vs. Shri Udaykumar Dineshchandra Bhatt 5 8. The Ld. Sr. D.R. Ms. Saumya Pandey Jain appearing for the Revenue submitted that the Ld. CIT(A) granted the relief to the assessee without making any inquiry about the loan transaction and the interest payment thereon with investments in the partnership firm by the assessee. The Ld. CIT(A) also not called for any Remand Report from the Assessing Officer before deleting the addition made by the Assessing Officer. Therefore the order passed by the Ld. CIT(A) is liable to be set aside to the Assessing Officer for correct verification of the claim of expenses u/s. 57 of the Act. 9. Per contra, the Ld. Counsel Shri Karan Shah appearing for the assessee submitted a Paper Book running to 72 pages and brought to our attention to page Nos. 16 to 22 wherein the details of loan taken, name of the creditor, date and amount of loan, bank details, date of utilization of the funds, deployment of investment and earning of interest for each loan transactions. Similarly the assessee also explained the secured loan taken from SBI, Tata Capital and Mortgaged loan. Thus claimed that the assessee could able to prove the nexus of availing the loan and deployment of the funds by various investments and therefore the assessee is eligible to claim the expenses u/s. 57 of the Act. Thus the finding arrived by the Ld. CIT(A) does not require any interference and Revenue appeal is liable to be dismissed. 10. We have given our thoughtful consideration and perused the materials available on record. On going through the appellate order passed by the Ld. CIT(A) though he refers to the secured and unsecured loans taken in the past and the current financial year I.T.A No. 441/Ahd/2017 A.Y. 2013-14 Page No DCIT Vs. Shri Udaykumar Dineshchandra Bhatt 6 and its deployment which are available at page nos. 16 to 22 of the Paper Book filed by the assessee. Whereas there is no discussions/findings of having verified by Ld. CIT(A) or called for a Remand Report from the assessing officer, before deleting the additions made by the Assessing Officer. Thus in our considered view, the ld. CIT(A) erred in deleting the addition made by the Assessing Officer. Therefore in the interest of justice, we deem it fit to set aside the issue back to the file of the Assessing Officer for the limited purpose of verifying the details of interest expenses claimed by the assessee, as submitted before us in Page Nos. 16 to 22 of the Paper Book for proper verification and adjudication of the issue, in accordance with law. Needless to say the assessee should cooperate with the Assessing Officer in the above proceedings. 11. In the result, the appeal filed by the Revenue is allowed for statistical purposes. Order pronounced in the open court on 06-12-2023 Sd/- Sd/- (ANNAPURNA GUPTA) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 06/12/2023 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद