MAHADEV INFRACON,AHMEDABAD V. DY. COMMISSIONER OF INCOME TAX, CIR 3(2)(1), AHMEDABAD, AHMEDABAD

ITA 477/AHD/2025

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Mahadev Infracon, a partnership firm engaged in various construction and real estate activities, appealed against the order of the National Faceless Appeal Centre (NFAC), which confirmed the disallowance of Rs. 10,39,500 by the Assessing Officer. The disallowance was initially made on the grounds that borrowed funds were used for non-business purposes, specifically investments in mutual funds. The firm contended that the investments were made from interest-free funds and that no new unsecured loans were taken during the assessment year 2017-18, contrary to the Assessing Officer's findings. The tribunal, after reviewing the evidence, including the repayment of Rs. 7.15 crores in existing loans and the interest expenses incurred, ruled in favor of the assessee.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 783542 (ITAT-AHMEDABAD)
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2017-2018
• Appeal Filed On: 01-03-2025
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B.P. SRIVASTAVA
• Assessee Lawyers: PRASHANT SRIVASTAV
• Keywords: Proportionate interest
• Section: 143(3)

Judgement Text

"THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “A” BENCH Before Dr. BRR Kumar, Vice President And Ms. Suchitra Kamble, Judicial Member Mahadev Infracon, B- 121, Jivan Park Society, Nr. Samrat Nagar, Isanpur, Ghodasar PAN: AAXFM8708L (Appellant) Vs The Dy. CIT, Circle-3(2)(1) Ahmedabad (Respondent) Assessee by: Shri Prashant Srivastav, A.R. Revenue by: Shri B.P. Srivastava, Sr. D.R. Date of hearing : 23-09-2025 Date of pronouncement : 04-11-2025 आदेश/ORDER Per Suchitra Kamble, Judicial Member: This is an appeal filed against the order dated 31-12- 2024 passed by National Faceless Appeal Centre (NFAC), Delhi for assessment year 2017-18. 2. The grounds of appeal are as under:- “a. The Ld. CIT(A) erred in confirming the order of the AO making Disallowance u/s 36(1)(iii) to the extent of Rs. 10,39,500/-. b. Any other ground which may be urged before or during the time of hearing of the appeal.” ITA No. 477/Ahd/2025 Assessment Year 2017-18 Printed from counselvise.com I.T.A No. 477/Ahd/2025 Mahadev Infracon, A.Y. 2017-18 2 3. The assessee is a partnership firm incorporated on 18-12- 2013 and engaged in business activities such as development construction and organizing activities for residential, commercial and industrial properties as well as buying and selling of land, residential houses, shops, offices, flats, duplex or tenement as well as selling the land by way of plotting as well as consulting services related to construction. The return of income for assessment year 2017-18 was filed on 28-10-2017 declaring income of Rs. 1,98,10,210/- based on audited financial statement. The assessee had made short term investment of Rs. 5 crore in mutual fund on 27-01-2017 which was redeemed in March, 2017 and May, 2017, yielding short term capital of Rs. 81,391/- in assessment year 2017-18 and Rs. 8,19,200/- for assessment year 2018-19 which was offered to tax in relevant assessment year. The case was selected for scrutiny and assessment was completed u/s. 143(3) on 10-12-2019 wherein the Assessing Officer disallowed Rs. 10,39,500/- u/s. 36(1)(iii) alleging thereby the diversion of borrowed fund for investment in mutual fund. The assessee had made investment in mutual fund which was observed as not related to the business but the assessee contended that investment was made from interest free fund. The assessee also submitted that no fresh and unsecured loans were taken during assessment year 2017-18 instead of Rs. 7.15 crores of existing loan were repaid. The Assessing Officer held that borrowed funds were used for mutual fund investment and disallowed proportionate interest despite absence of direct nexus of the funds. Thus, the Assessing Officer made addition of Rs. 10,39,500/- by disallowing interest expenses u/s. 36(1)(iii) of the Act. Printed from counselvise.com I.T.A No. 477/Ahd/2025 Mahadev Infracon, A.Y. 2017-18 3 4. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee. 5. The Ld. A.R. submitted that in the relevant assessment year 2017-18, the assessee has yielded short term capital gain of Rs. 81,391/- and in subsequent yeas it was Rs. 8,19,200/- and in both the assessment years the said amount was offered to tax. In respect of balance 4 crore, the same was reflected in the subsequent years and this crucial fact was not taken into account by the Assessing Officer. At page no. 62 of the paper book, the ld. A.R. pointed out that this balance Rs. 4 crore was reflected in the balance sheet as well. Thus there was an expenditure of interest to the extent of Rs. 10.39 lakhs which should have been allowed. 6. The ld. D.R. submitted that there was no business purpose reflected and therefore the ld. D.R. relied upon the assessment order and the order of the CIT(A). 7. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the assessee has repaid 7 crores as unsecured loans and in fact has incurred expenses/expenditure of interest paid on the said loan and it is totally reflected in the balance sheet more specifically the assessee has given the details of unsecured loans repayment as well as the interest component from page 62 onwards in the paper book filed before us which was submitted before both the revenue authorities. Thus, the Assessing Officer as well as the CIT(A) has totally ignored this fact. The appeal of the assessee is allowed. Printed from counselvise.com I.T.A No. 477/Ahd/2025 Mahadev Infracon, A.Y. 2017-18 4 8. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 04-11-2025 Sd/- Sd/- (Dr. BRR Kumar) (Suchitra Kamble) Vice President Judicial Member Ahmedabad : Dated 04/11/2025 आदेश क\u0006 \u0007\bत ल प अ\u000fे षत / 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 अपील\u0012य अ\u0013धकरण, अहमदाबाद Printed from counselvise.com "