JACOB THOMAS,KOZHENCHERRY V. ACIT, THIRUVALLA RANGE, THIRUVALLA

ITA 137/COCH/2024

AI Insights

Jacob Thomas, the appellant, is an individual deriving income from a partnership firm. For the Assessment Year 2020-21, he filed a return declaring nil income, which was later assessed by the AO, resulting in an addition of Rs. 7,93,921 to his income. This addition was primarily due to the disallowance of interest paid on loans from friends and relatives, as the AO found the appellant failed to prove the genuineness of these loans and their connection to any investment. The CIT(A) upheld the AO's decision, leading to the current appeal before the Tribunal. The Tribunal found that the lower authorities incorrectly disallowed the interest deduction based solely on the non-yielding nature of the investments, without questioning the genuineness of the loans themselves.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 474713 (ITAT-COCHIN)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2020-2021
• Other Referred Cases: Rajendra Prasad Mody vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LEENA LAL
• Assessee Lawyers: RAJAKANNAN
• Section: 143(3); 68

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH BEFORE SHRI INTURI RAMA RAO, AM ITA No. 137/Coch/2024 Assessment Year: 2020-21 Jacob Thomas .......... Appellant 1 Mulamoottil, Kozhencherry Pathanamthitta 689641 [PAN: ACKPT3269L] vs. Asst. Commissioner of Income Tax .......... Respondent Thirivalla Appellant by: Shri Rajakannan, Advocate Respondent by: Smt. Leena Lal, Sr. D.R. Date of Hearing: 12.03.2025 Date of Pronouncement: 27.03.2025 O R D E R This appeal filed by the assessee is directed against the order of the National Faceless Appeal Centre (NFAC), Delhi [CIT(A)] dated 27.12.2023 for Assessment Year (AY) 2020-21. 2. Brief facts of the case are that the appellant is an individual deriving income from partnership firm. The return of income for AY 2020-21 was filed on 31.12.2020 declaring Nil income. Against the said return of income, the assessment was completed by the ACIT, Thiruvalla (hereinafter called \"the AO\") vide order dated 28.09.2022 passed u/s. 143(3) r.w.s. 144B of the Income Tax Act, 1961 (the Act) at a total 2 ITA No. 137/Coch/2024 Jacob Thomas income of Rs. 7,93,921/-. While doing so, the AO made addition of Rs.89,73,412/- by disallowing the interest paid on loan borrowed from friends and relatives on the ground that the appellant had failed to discharge the onus of proving genuineness and provide any details of loan and also failed to establish nexus between he loan amount borrowed and the investment made. Accordingly he made disallowance u/s. 57 of the Act. 3. Being aggrieved, an appeal was filed before the CIT(A) contending that the interest paid on loan borrowed from friends and relatives is allowable as the loans were utilised for the purpose of making investments made for earning interest income. However, the CIT(A) dismissed the appeal based on the findings of the AO in the remand report that the appellant failed to prove identity, genuineness and creditworthiness of the lenders. 4. Being aggrieved, the appellant is in appeal before the Tribunal in the present appeal. 5. The learned counsel for the assessee stated that during the course of proceedings before he CIT(A) the appellant produced conformation letters from lenders, thus discharged the onus lying upon him by proving identify, genuineness and creditworthiness of the transactions. He submitted that no disallowance of interest can be made merely because the investment has not yielded interest, placing reliance on the decision of the Hon'ble Supreme Court in the case of Rajendra Prasad Mody 115 ITR 519. 3 ITA No. 137/Coch/2024 Jacob Thomas 6. On the other hand, the learned Sr. DR vehemently opposed allowance of interest paid on loans borrowed from friends and relatives. 7. On perusal of the assessment order it is clear that the AO denied deduction of interest paid on loans borrowed solely on the ground that the appellant failed to prove the genuineness of the loans as well as the investment had not yielded interest income. However, the AO had chosen not to make addition u/s. 68 of the Act. Therefore the question of genuineness of the loan does not arise. It appears that the AO disallowed the claim solely on the ground that the appellant claimed deduction of higher interest as compared to the income earned. Even the learned CIT(A), adopted the same reasoning while upholding the order of the AO. The reasoning of the lower authorities cannot be sustained in the eyes of law, as it is well settled position of law that interest expenditure incurred on moneys borrowed for the purpose of making investments, which had not yielded any interest, is still an admissible deduction u/s. 57(iii) of the Act in view of the above decision of the Hon'ble Supreme Court in the case Rajendra Prasad Moody (supra) 8. In the result, the appeal filed by the assessee stands allowed. Order pronounced in the open court on 27th March, 2025. Sd/- (INTURI RAMA RAO) ACCOUNTANT MEMBER Cochin, Dated: 27th March, 2025 n.p. 4 ITA No. 137/Coch/2024 Jacob Thomas Copy to: 1. The Appellant 2. The Respondent 3. The Pr. CIT concerned 4. The Sr. DR, ITAT, Cochin 5. Guard File By Order Assistant Registrar ITAT, Cochin "