Shri Bhadresh Vasantlal Shah, Vadodara V. The ITO, Ward-3(1)(1), Vadodara

ITA 526/AHD/2020

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The case revolves around the disallowance of interest expenses claimed by the assessee, Bhadresh Vasantlal Shah, against his income from business and other sources for the Assessment Year 2012-13. The AO disallowed interest expenses totaling Rs. 20,43,936/-, which was upheld by the CIT(A). The assessee appealed to the Income Tax Appellate Tribunal, which found that the Revenue had accepted similar claims in the preceding assessment year and there were no changes in facts or law to warrant a different conclusion in the current year. The Tribunal emphasized the need for consistency in the application of tax laws and allowed the appeal, directing the deletion of the disallowed interest expenses.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 135623 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 28-12-2022
• Assessment Year: 2012-2013
• Appeal Filed On: 25-10-2020
• Other Referred Cases: PCIT vs. Quest Investment Advisor (P.) Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Rule of consistency; Set aside; Capital Gains
• Section: 143(3); 43

Judgement Text

आयकर आयकरआयकर आयकर अपी अपीअपी अपीलीय लीयलीय लीय अिधकरण अिधकरणअिधकरण अिधकरण, अहमदाबाद अहमदाबादअहमदाबाद अहमदाबाद यायपीठ यायपीठ यायपीठ यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’ SMC” BENCH, AHMEDABAD SHRI WASEEM AHMED, ACCOUNTANT MEMBER आयकर अपील सं./ITA No. 526/AHD/2020 िनधा रण िनधा रणिनधा रण िनधा रण वष वष वष वष /Asstt. Year: 2012-2013 Bhadresh Vasantlal Shah, C/o. Suresh Thakkar & Co, Chartered Accountant, Matrusmruti bldg., First Floor, Opp. Kothi Collector Office, Raopura Road, Vadodara-390001. PAN: AJFPS4832E Vs. I.T.O, Ward-3(1)(1), Vadodara. (Applicant) (Respondent) Assessee by : Shri Suresh Thakkar, A.R Revenue by : Shri Purushottam Kumar, Sr. D.R सुनवाई क तारीख/Date of Hearing : 29/12/2022 घोषणा क तारीख /Date of Pronouncement: 24/03/2023 आदेश आदेशआदेश आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-3, Vadodara, dated 08/09/2020 arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2012-13. 2. The assessee has raised following grounds of appeal: 1. On the facts and circumstances of the case, the Ld.CIT appeals erred in upholding the assessment order of Ld.A.O and confirming disallowance of interest of Rs.20,43,936/- ITA no.526/AHD/2020 A.Y. 2012-13 2 It is prayed that the interest be allowed as claimed by the appellant and no addition on account of disallowance of interest of Rs.20,43,936/- be made. 2. The appellant craves leave, to add to alter, amend or delete any of the grounds of appeal on or before the date of hearing. 3. The only issue raised by the assessee is that the learned CIT(A) erred in confirming the disallowance of interest expense for Rs. 20,43,936/- only. 4. The facts in brief are that the assessee in the present case is an individual and deriving income from property, partnership firm and other sources. The assessee during the assessment proceedings claimed to have borrowed money from bank, friends and others which were utilized for making investment in the property and partnership firms as capital contribution in earlier years. During the year, the assessee incurred interest expenses of Rs. 25,53,161/- on the borrowings. Out of such interest expense, a sum of Rs. 10,08,368 was claimed against income from other sources and rest of the interest amount was claimed against the income from business in the following manner: Against business income Interest paid to Vijay Shah Rs.1,10,000/- Interest paid to Bhanumatiben Shah Rs.10,31,122/- Interest paid to Kalpana Shah Rs.3,17,329/- Against Other income Interest paid to Central Bank of India Rs.6,09,588/- Interest paid to Gopi India Pvt Ltd. Rs.2,40,000/- Interest paid to Vasantlal Shah HUF Rs.1,54,324/- Interest paid to Sahil B Shah Rs.4,456/- 5. The assessee during the assessment proceedings expresses his inability to establishes the directs nexus of utilization of interest bearing fund for earning business income and income from other sources by contending that the funds were borrowed for making investment in properties and partnership firm on earlier occasion and he does not maintain separate books of account. ITA no.526/AHD/2020 A.Y. 2012-13 3 6. However, the AO observed that the assessee under the head income from other sources declared total income of Rs. 9,32,677/- which includes interest income of Rs. 2,872.00 and Rs. 54,850/- only from bank and HUF respectively and consultancy income of Rs. 8.75 lakh. The AO further found that the amount was borrowed in earlier years which was claimed to have been utilized for making investment. Therefore, such interest cost on the amount borrowed was not incurred for earning such income under the head other sources. Hence, the AO disallowed the interest cost of Rs. 10,08,368/- only. 6.1 Likewise, the AO found that the assessee claimed interest cost of Rs. 10,31,122/- on account of borrowing from Smt. Bhanumatiben Shah against the business income being interest, remuneration and profit sharing from the firms. However, on perusal of ledger account of the party, it can be seen that the majority of the amount borrowed was in the year under consideration itself whereas capital contribution in the firm and investment in property was made in the earlier year. Hence, it is established that the nexus of utilization of money borrowed from Smt. Bhanumatiben Shah was not explained. Thus the AO disallowed the same. In the result, the AO disallowed interest expenses of Rs. 20,43,446/- and added to the total income of the assessee. 7. The aggrieved assessee preferred an appeal before the learned CIT(A). 8. The assessee before the learned CIT(A) submitted that the AO in the show cause notice sought explanation for payment of interest expenses of Rs. 10,08,368/- claimed against income from other sources. However, the AO made disallowances of interest expenses of 20,43,937/- which should not be accepted. 8.1 The Assessee besides reiterating its submission during assessment proceedings, further submitted that fresh loan received during the year were either utilized for repayment of old loan liability or making investment in ITA no.526/AHD/2020 A.Y. 2012-13 4 partnership. There is no personal investment or expenditure other than making investment in partnership. Therefore, the assessee rightly claimed the deduction of interest expenditure. 9. The learned CIT(A) after considering the facts in totality confirmed the addition made by the AO by observing as under: 6. 1 During current proceedings, submissions were filed and has been | considered carefully, In the assessment order it can be seen that the appellant has not ; been able to clarify any of the query with regard to its claim of interest expenditure as well as the nexus between the borrowed fund and their use in business or generation of income out of such borrowed fund. The issue has been discussed in detail in the assessment order with regard to the borrowings, investment activities of appellant, generation of income out of borrowed funds etc. At any point of time, including the current proceedings, the appellant had not been able to explain or prove that funds borrowed are used wholly and exclusively for generating income from other sources or income from business or profession. This fact was reaffirmed by the appellant in the present proceedings also by submitting that during the course of assessment proceedings and in replies to the Ld. AO it was stated that the appellant had not kept separate books of account for different investments made in property land and partnership firms from borrowed funds for many years. It was further submitted that ii was not possible for the appellant to prove nexus of particular income with particular expenditure (Interest). It is well settled position of law that any deduction of expenditure either in computation of income from other sources or in computation of income from business and profession shall be allowed provided expenditure was incurred for the purpose of business. Here it is clear that the appellant had failed to prove the nexus of income and expenses claimed against it during the assessment proceedings as well as current proceedings. From the discussion in the assessment order it is clear that the appellant could not prove that funds borrowed are used wholly and exclusively for generation income from other source or income from business and profession. 6.2 Thus, in view of the foregoing discussion and after considering the facts and circumstances of the case, I am of the considered opinion that there is no reason to interfere in *he order of AO on this issue. The addition made of Rs.20,43,936/- by the AO on account of disallowance of interest expenses is confirmed. 10. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before me. 11. The learned AR before me filed a paper book running from pages 1 to 43 and submitted that the claim of the assessee in the identical facts and circumstances in his own case for the assessment year 2011-12 was accepted by the Revenue in the assessment framed under section 143(3) of the Act. Accordingly, it was contended by the learned AR that the principles of consistency ITA no.526/AHD/2020 A.Y. 2012-13 5 should be maintained, particularly in a situation where there is no change in the facts as well as under the provisions of law. 12. On the other hand, the learned DR vehemently supported the order of the authorities below. 13. I have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the assessee during the year claimed to have incurred interest expenditure of Rs. 25,53,161/- out of which, a sum Rs. 10,08,368/- was claimed against income from other sources and remaining amount against the interest and remuneration received from partnership firm namely M/s Silverline Developper and M/s Shah & Co Faraskhana Store. The AO in the assessment order disallowed the interest expenditure of Rs. 20,43,936/- which includes disallowances Rs, Rs. 10,08,368/- and further disallowances of Rs. 10,35,568/- claimed against income from firms. The disallowance made by the AO was also confirmed by the learned CIT(A). 13.1 In this respect, we find that assessee in the immediate preceding assessment year i.e. A.Y. 2011-12 made identical claim of interest expenditure paid to same parties against the income from firm and income from other sources. The return of the assessee for A.Y. 2011-12 was selected for scrutiny assessment through CASS. During the assessment proceeding of A.Y. 2011-12, a question with regard to claim of interest expense was also raised vide notice dated 07-10-2013 which was replied by the assessee vide letter dated 21-10-2013. The AO after considering the reply of the assessee accepted the return of the assessee without any addition or disallowance vide order dated 04-03-2014. The above fact can be verified from computation of income, submission made by the assessee and the assessment order for A.Y. 2011-12 which are placed in page 14 to 24 of the paper book. Thus, in my considered opinion once the revenue accepted the identical claim of the assessee in the immediate preceding assessment year, then such ITA no.526/AHD/2020 A.Y. 2012-13 6 claim made in the year under consideration should also be accepted to maintain principle of consistency, particularly in a situation where there was no change in the facts. In holding so, we draw support and guidance from the judgment of Hon’ble Bombay High Court in case of PCIT vs. Quest Investment Advisor (P.) Ltd. reported in 96 taxmann.com 157 where it was held as under: 9. The principle accepted by the Revenue for 10 earlier years and 4 subsequent years to the Assessment Years 2007-08 and 2008-09 was that the entire expenditure is to be allowed against business income and no expenditure is to be allocated to capital gains. Once this principle was accepted and consistently applied and followed, the Revenue was bound by it. Unless of course it wanted to change the practice without any change in law or change in facts therein, the basis for the change in practice should have been mentioned either in the assessment order or atleast pointed out to the Tribunal when it passed the impugned order. None of this has happened. In fact, all have proceeded on the basis that there is no change in the principle which has been consistently applied for the earlier assessment years and also for the subsequent assessment years. Therefore, the view of the Tribunal in allowing the respondent's appeal on the principle of consistency cannot in the present facts be faulted with, as it is in accord with the Apex Court decision in Bharat Sanchar Nigam Ltd.'s case (supra). 13.2 Thus in view of the above and considering the fact that the identical claim has been accepted by the Revenue in preceding year, we hereby set aside the finding of the learned CIT(A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is hereby allowed. 14. In the result, the appeal filed by the assessee is allowed. Order pronounced in the Court on 24/03/2023 at Ahmedabad. Sd/- Sd/-/- (SUCHITRA KAMBLE) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 24/03/2023 Manish