BHANWARLAL RAWATMAL SINGHI, MUMBAI V. CIT (A) - 29, MUMBAI

ITA 6108/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5464 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2012-2013
• Appeal Filed On: 13-10-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V VIDHYADHAR
• Keywords: Salary income; Earning of tax free income

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & SHRI RAMLAL NEGI (JM) I.T.A. NO. 6108 /MUM/ 2016 (ASSESSMENT YEAR 20 12 - 13 ) SHRI BHANWARLAL RAWATMAL SINGHI SHOP NO. 8, JAI HIND BUILDING, DR. ATMARAM MERCHANT ROAD BH ULESHWAR MUMBAI - 400002. PAN : AFZPS4076G V S . CIT(A) - 29 MUMBAI. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI JAYANT BHATT DEPARTMENT BY SHRI V. VIDHYADHAR DATE OF HEARING 1 8 . 7 . 201 8 DATE OF PRONOUNCEMENT 18 . 7 . 201 8 O R D E R PER B.R. BAS KARAN (AM) : THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 23.8.2016 PASSED BY THE LEARNED CIT(A) - 29, MUMBAI AND IT RELATES TO A.Y. 2012 - 13. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF THE LEARNED CIT(A) IN CONFIRMING THE DISALLOW ANCE OF INTEREST EXPENDITURE OF ` 6,83,771/ - . 2. FACTS RELATING TO THE ISSUE ARE STATED IN BRIEF. THE ASSESSEE IS A DIRECTOR IN A COMPANY NAMED M/S. SUBHENE SYNTHETICS PRIVATE LIMITED, WHICH IS ENGAGED IN THE BUSINESS OF TRADING IN FABRICS. DURING THE YE AR UNDER CONSIDERATION THE ASSESSEE DECLARED INCOME FROM SALARY , INCOME FROM HOUSE PROPERTY AND INCOME FROM CAPITAL GAINS . THE ASSESSEE DECLARED LOSS UNDER THE HEAD OTHER SOURCES TO THE TUNE OF ` 4,96,079/ - . THE ASSESSING OFFICER NOTICED THAT THE ASS ESSEE HAS CLAIMED INTEREST EXPENDITURE OF ` 6,83,771/ - AGAINST INCOME DECLARED UNDER THE HEAD INCOME FROM OTHER SOURCES . THE AO QUESTIONED THE ELIGIBILITY OF THE ASSESSEE TO CLAIM INTEREST EXPENDITURE. THE ASSESSEE SUBMITTED THAT THE PROPORTIONATE INTERE ST RELATABLE TO EXEMPT INCOME IS ` 2,98,924/ - AND AGREED FOR DISALLOWANCE OF THE SAME. WITH REGARD TO SHRI BHANWARLAL RAWATMAL SINGHI 2 REMAINING INTEREST EXPENDITURE OF ` 3,84,847/ - , THE ASSESSEE SUBMITTED THAT INTEREST BEARING LOANS WERE MAINLY USED FOR MAK ING INVESTMENT IN HOUSE PROPER TIES AND ACCORDINGLY CLAIMED THAT REMAINING AMOUNT OF ` 3,84,847/ - MAY BE ALLOWED AGAINST RENTAL INCOME. SINCE THE ASSESSEE COULD NOT PROVE NEXUS BETWEEN BORROWINGS AND INVESTMENT S MADE IN HOUSE PROPERTIES AND FURTHER SINCE THE ASSESSEE DID NOT FURNISH INT EREST CERTIFICATE AS REQUIRED UNDER T HIRD PROVISO TO SECTION 24 OF THE ACT, THE ASSESSING OFFICER REJECTED THE SAID CLAIM OF THE ASSESSEE. FURTHER , THE AO NOTICED THAT THE ASSESSEE COULD NOT PROVE THAT INTEREST OF ` 3,84,847/ - WAS INCURRED FOR EARNING INCO ME DECLARED UNDER INCOME FROM OTHER SOURCES . ACCORDINGLY THE ASSESSING OFFICER DISALLOWED THE CLAIM OF INTEREST EXPENDITURE OF ` 6,83,771/ - . T HE LEARNED CIT(A) ALSO CONFIRMED THE SAME AND HENCE THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 3. THE LEARN ED AR SUBMITTED THAT THE ASSESSEE HAS USED ITS BORROWED FUNDS FOR MAKING INVESTMENT S IN RESIDENTIAL BUILDING, SHARES AND ALSO FOR MAKING DEPOSITS AND LOAN S . FURTHER THE ASSESSEE WAS ALSO HAVING OWN FUNDS OF ` 88.12 LAKHS AT THE BEGINNING OF THE YEAR. SINCE ALL FUNDS WERE MIXED UP AND USED, ASSESSEE HAD BIFURCATE D THE INTEREST EXPENDITURE AGAINST SHARES AND OTHER INVESTMENT S. A CCORDINGLY THE ASSESSEE HAS SOUGHT DEDUCTION OF INTEREST EXPENDITURE OF ` 3.84 LAKHS AGAINST RENTAL INCOME. HE SUBMITTED THE FACT THA T THE ASSESSEE HAD INCURRED INTEREST EXPENDITURE IS NOT DENIED AND ASSESSEE HIMSELF HAS STATED THAT THE INTEREST AMOUNT OF ` 2,89,924/ - PERTAINS TO EXEMPT INCOME. ACCORDINGLY HE SUBMITTED THAT THE BALANCE INTEREST EXPENDITURE OF 3.84 LAKHS MAY KINDLY BE AL LOWED AS DEDUCTION EITHER AGAINST RENTAL INCOME OR INCOME FROM OTHER SOURCES. 4. ON THE CONTRARY, LEARNED DR SUBMITTED THAT THE ASSESSEE HAS FAILED TO PROVE THE NEXUS BETWEEN BORROWINGS AND INVESTMENT AND HENCE CLAIM OF THE ASSESSEE WAS RIGHTLY REJECTED BY THE LEARNED CIT(A). SHRI BHANWARLAL RAWATMAL SINGHI 3 5. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. WE NOTICED THAT OPENING BALANCE OF INTEREST BEARING UNEXPLAINED LOAN STOOD AT ` 36.55 LAKHS AND CLOSING BALANCE OF THE SAME STOOD AT ` 75.25 LAKHS, MEANING THEREBY, THERE IS INCRE ASED OF APPROXIMATELY ` 40 LAKHS IN THE INTEREST BEARING UNSECURED LOAN ACCOUNT. WE NOTICED THAT THE VALUE OF INVESTMENT IN SHARES STAND AT ` 124.34 LAKHS AND ` 169.80 LAKHS AS AT THE BEGINNING OF THE YEAR, MEANING THEREBY, INCREMENTAL LOAN AMOUNT HAS BEEN FULLY UTILIZED IN MAKING INVESTMENT IN SHARES. IN THAT CASE, WE ARE REQUIRED TO EXAMINE THE POSSIBLE UTILISATION OF OPENING BALANCE OF UNSECURED LOAN OF ` 36.55 LAKHS. CONSIDERING THE FACT THE ASSESSEE HAS USED ITS OWN CAPITAL AS WELL AS LOAN FUNDS FOR MA KING INVESTMENT IN PROPERTIES, SHARES AND OTHER INVESTMENTS, WE ARE OF THE VIEW THAT A PORTION OF INTEREST EXPENDITURE PERTAINING TO ` 36.55 LAKHS MAY BE ALLOCATED AGAINST HOUSE PROPERTIES. 6. WE NOTICED THAT THE TAX AUTHORITIES HAVE INVOKED THE THIRD PROVISO TO SECTION 24 OF THE ACT TO DENY DEDUCTION OF INTEREST EXPENDITURE AGAINST RENTAL INCOME. HOWEVER, THE THIRD PROVISO TO SECTION 24 OF THE ACT, WOULD APPLY ONLY TO SELF OCCUPIED PROPERTY AND NOT TO OTHER PROPERTIES. IN VIEW OF THE FOREGOING DISCUSS IONS , WE ARE OF THE VIEW THAT 50% OF THE INTEREST EXPENDITURE RELATING TO OPENING BALANCE LOAN OF ` 36.55 LAKHS MAY BE ALLOCATED AGAINST RENTAL INCOME AND DEDUCTION BE ALLOWED. REMAINING AMOUNT OF INTEREST EXPENDITURE, IN OUR VIEW, HAS BEEN RIGHTLY DISALLO WED BY THE TAX AUTHORITIES , SINCE THE ASSESSEE COULD NOT PROVE THE NEXUS BETWEEN LOANS AND INVESTMENTS . ACCORDINGLY, WE MODIFY THE ORDER PASSED BY THE LEARNED CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW DEDUCTION FOR INTEREST EXPENDITURE AGAINST RENTA L INCOME IN THE MANNER STATED ABOVE. SHRI BHANWARLAL RAWATMAL SINGHI 4 6. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 18 . 7 . 201 8 . SD/ - SD/ - (RAMLAL NEGI) (B.R.BASKARAN) J U DICIAL ME MBER ACCOUNTANT MEMBER MUMBAI ; DATED : 18 /7 / 20 1 8 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDE R, //TRUE COPY// ( SENIOR P RIVATE S ECRETARY ) PS ITAT, MUMBAI