NEERAJ NATH ,MUMBAI V. ITO WARD 28(2)(3), MUMBAI

ITA 1519/MUM/2025

AI Insights

The case involves Neeraj Nath, the appellant, contesting two additions made by the Income Tax Officer (ITO) for the Assessment Year 2012-13. The first issue was the disallowance of interest expenditure amounting to \\u20b97,68,942, and the second was the denial of exemption on the sale of land claimed to be agricultural, amounting to \\u20b960,00,000. The Tribunal found that the interest expenditure was justifiable as the funds were used for taxable income-generating activities, aligning with a previous Tribunal decision in AY 2009-10. For the land sale, the Tribunal directed a re-examination of the agricultural status of the land to determine the correct tax treatment.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 792986 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 03-03-2025
• Other Referred Cases: AY 2009-10
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LEYAQAT ALI AAFAQUI
• Assessee Lawyers: RAJESH S SHAH; THIS
• Keywords: Additional evidence; Corroborative evidences; Unexplained cash credit; Capital Gains; Earning of tax free income
• Section: 143(3); 68

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, ‘B’ BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No.1519/Mum/2025 (Assessment Year :2012-13) Neeraj Nath Plot No.153, Sector-21 Nerul, Navi Mumbai- 400 706 Vs. ITO Ward 28(2)(3), Mumbai PAN/GIR No.AABPN6775A (Appellant) .. (Respondent) Assessee by Shri Rajesh S Shah Revenue by Shri Leyaqat Ali Aafaqui, Sr. AR Date of Hearing 04/08/2025 Date of Pronouncement 24/09/2025 आदेश / O R D E R PER AMIT SHUKLA (J.M): This appeal has been preferred by the assessee against the order dated 21/09/2023 passed by the National Faceless Appeal Centre, Delhi, arising from the assessment framed under section 143(3) of the Income-tax Act, 1961 (“the Act”) for the Assessment Year 2012–13. 2. At the very threshold, the appeal is accompanied by a petition for condonation of delay. The delay involved is 459 days. In support thereof, the assessee has filed an affidavit affirming on oath that he had received the impugned appellate order on 21/09/2023. Unfortunately, on Printed from counselvise.com ITA No.1519/Mum/2025 Neeraj Nath Mumbai 2 30/09/2023, he suffered a grievous fall from the staircase, which incapacitated him and required prolonged bed rest for about two months. During this period, he had instructed his household staff to forward the relevant documents to the office of his Chartered Accountant. However, due to inadvertence on the part of the staff, the papers were never delivered. The assessee remained under the bona fide impression that the matter was being attended to, only to discover later, upon receipt of a penalty notice, that no appeal had been filed. The moment this came to his knowledge, the appeal papers were prepared and lodged without further delay. 3. Having heard rival submissions and upon perusal of the record, we are satisfied that the delay is neither deliberate nor borne out of any mala fide intent. Rather, there exists a reasonable and sufficient cause for the late filing. In the interest of substantial justice, we therefore condone the delay of 459 days and proceed to adjudicate the appeal on merits. 4. The assessee has assailed two additions sustained by the learned Commissioner (Appeals): first, the disallowance of interest expenditure amounting to ₹7,68,942/-, and secondly, the denial of exemption on sale of land claimed to be agricultural in nature, whereby the amount of ₹60,00,000/- was brought to tax. 5. On a careful perusal of the assessment order, it is noted that the assessee had disclosed interest income of ₹19,223/-. It further transpired that during the relevant year, the Printed from counselvise.com ITA No.1519/Mum/2025 Neeraj Nath Mumbai 3 assessee had advanced loans, including one to his spouse, on which he earned interest of ₹7,88,165/-, while simultaneously claiming deduction of interest paid to ICICI Bank amounting to ₹7,68,942/-. The Assessing Officer was of the view that the loan from ICICI Bank, being sanctioned in the nomenclature of a “home loan,” had no nexus with the interest income declared, and thus he disallowed the claim. The learned Commissioner (Appeals), without delving deeper into the commercial substance of the transaction, merely echoed the Assessing Officer’s conclusion and upheld the disallowance. 6. Before us, the learned counsel for the assessee expounded that the loan of ₹79.50 lakh was in fact availed against mortgage of land and not towards acquisition of a residential house. The assessee consistently serviced interest at 10.75% on this loan, while the borrowed funds were advanced to his wife on which interest at 12% was duly charged and recovered. It was emphasised that the entire arrangement was genuine, the interest received was duly offered to tax, and in earlier years too, the very issue had arisen and stood decided in favour of the assessee by this Tribunal in AY 2009–10. 7. In order to appreciate the continuity and factual substratum of the transaction, the details of the interest paid to ICICI Bank and interest received from Mrs. Preeti Nath are elaborated hereunder:- Printed from counselvise.com ITA No.1519/Mum/2025 Neeraj Nath Mumbai 4 NEERAJ NATH ASSESSMENT YEAR 2009-10 & 2012-13 INTEREST RECEIVED & INTEREST PAID ON MORTGAGE LOAN Loan Taken Date Amount Interest paid for the year ending 31-03-2009 31-03-2010 31-03-2011 31-03-2012 ICICI Bank 11-07- 2006 50,00,000 6,52,221 5,99,875 5,80,737 6,44,790 ICICI Bank 10-08- 2006 29,50,000 3 79,942 3,49,344 3,38,435 3,77,035 Total Interest Paid 10,32,163 9,49,219 9,19,172 10,21,825 Interest Charged to Preeti Nath 12,60,000 10,50,000 8,75,000 7,88,165 Interest Expenditure claimed 10,32,163 9,49,309 8,54,380 7,68,942 8. It was further submitted that in AY 2009–10, the Tribunal had exhaustively examined the sanction letters, disbursement schedules, and bank accounts, and had concluded that the so-called “housing loan” was in reality a personal loan secured against property, and the funds were deployed in lending transactions which generated taxable interest income. By applying the principle of substance over form, the Tribunal had held that the claim under section 57 was fully justified. 9. The learned Departmental Representative, however, maintained that no direct nexus between the bank borrowing and the lending to the spouse was established, and that the lower authorities were correct in disallowing the claim. Printed from counselvise.com ITA No.1519/Mum/2025 Neeraj Nath Mumbai 5 10. We have given our thoughtful consideration to the rival submissions, the material placed before us, and the binding decision of the co-ordinate Bench in assessee’s own case. The facts are in pari materia with those in AY 2009–10. The assessee has demonstrated that the very funds borrowed from ICICI Bank, on which interest was paid at 10.75%, were advanced to his wife yielding taxable interest at 12%. The borrowing and lending are thus inextricably linked. The Tribunal in the earlier year had lucidly held as follows: 4. Ground Nos. 1 & 2 are interrelated, hence, disposed of by a common finding During the year under consideration, assessee taken a housing loan of Rs. 79.5 Lakhs from ICICI Bank This amount of loan, assessee never used for the purposes of buying a house rather the funds on the said loan were utilized in giving loan to the Mrs. Preeti Nath for purchase of land by her. The total amount given to Mrs. Preeti Nath was amounting to Rs 78.82 Lakhs 5 This loan given to Mrs. Preeti Nath was chargeable to interest and assessee received interest to the tune of Rs. 12.6 Lakhs. In addition to this interest assessee earned other interest income of Rs. 14,491/- Interest paid by the assessee on so-called housing loan is amounting to Rs. 10,46,245/- 6 We have gone through the sanction-cum-disbursement document furnished by assessee on page no 5 to 8 of the Paper Book (PB) along with Loan A/c statement furnished vide page no. 12 to 24 of PB and assessee's own bank account vide page no. 25 to 27 of PB (reflecting funds transfer to Mrs. Preeti Nath) 7. We have gone through the order of AO under section 143(3) r.w.s. 254 of the Act, order of Ld. CIT(A) and assessee's submissions before the authorities below There is no challenge to the fact that assessee has taken personal loan in the guise of home loan which in turn was being used for further funding of Mrs. Preeti Nath against interest. Both AO and First Printed from counselvise.com ITA No.1519/Mum/2025 Neeraj Nath Mumbai 6 Appellate Authority ignored the fact that the amount of so- called housing loan was never being used for the purposes of house purchase rather the same being used to earn the interest. They simply disown the argument of the assessee that sanction letter issued by the ICICI Bank mentioned that it is home loan sanctioned to Mr. Neeraj Nath. The concept of substance over form will apply here and assessee is succeeded in establishing the nexus between the amount of interest earned and interest paid ie. funds given to Mrs. Preeti Nath out of loan taken from ICICI Bank. We do not have any hesitation in accepting the claim of the assessee under section 57 of the Act resulting in netting of the interest income of Rs. 12,74,491/- against interest incurred of Rs. 10,46,245/-. 11. In the light of the aforesaid decision, which squarely covers the controversy, and there being no distinguishing features in the present year, we hold that the assessee’s claim under section 57 deserves to be accepted. The concept of “substance over form” leaves no room for doubt that the netting of interest income and interest expenditure must be allowed. The disallowance sustained by the authorities below is therefore directed to be deleted. 12. Coming to the second limb of dispute, the assessee had declared exempt income of ₹82,18,200/- on account of sale of agricultural land. The Assessing Officer observed that while one sale deed valued at ₹31,65,000/- was produced, in respect of the other transaction involving ₹60,00,000/- no supporting evidence was filed. On that premise, the sum of ₹60,00,000/- was brought to tax under section 68 as unexplained cash credit. Printed from counselvise.com ITA No.1519/Mum/2025 Neeraj Nath Mumbai 7 13. In appellate proceedings, the assessee sought to adduce additional evidence comprising the sale deed of the impugned land and other supporting documents, including a certificate of the Tehsildar certifying the agricultural character of the land. The learned Commissioner (Appeals) forwarded these for remand. The Assessing Officer, while accepting the genuineness of the agreement, nonetheless expressed the view that the land was not agricultural but non-cultivable, and on that basis the addition was sustained. The learned Commissioner (Appeals) relied on the remand report and confirmed the addition, observing as under: “ 4.3. Grounds of Appeal No. 3 & 4 are pertains to the addition of Rs. 60 lacks by this allowing the exempt income by the sale by agriculture land. It is noticed that certain cash amount were noticed by the department in the bank account of the assessee. When asked, assessee has stated that the said amount was received on account of sale of agriculture land. The Ld. A.O. has discussed the issue in the para 5 of his order. The Ld. A.O. made this addition as the appellant failed to submit the proof any such sale deed showing receipt of such cash. During the course of appellate proceedings, the said document is filed by the AO by filing application dated 24.08.2023 under rule 4SA of the Income Tax Rules. The documents produced by the appellant were sent to the assessing officer for his comments. The report from the Ld. A.O. sent his report on 02.07.2019. In which the Ld. A.O. has accepted the validity of the agreement but did not accept that the said land was agriculture and treat is non-cultivable land on the basis of this report the appellant has suggested that in such case the amount should be considered as sale consideration of the land and but not the cash credit have gone through the facts and circumstances of the case and the notice that the said cash was received by the appellant of sale of the land which is not agriculture land. Hence, capital gains are applicable the A.O. is directed to treat the said amount as sale consideration of not agriculture land Printed from counselvise.com ITA No.1519/Mum/2025 Neeraj Nath Mumbai 8 and worked out capital gains accordingly This ground is partly allowed.” 14. On a close examination of the sale deed and the revenue authority’s certificate now placed on record, there is material to indicate that the land was indeed classified as agricultural in official records. In such a scenario, the correct course in the interest of justice is to remit this matter back to the file of the Assessing Officer with the direction to examine all evidences afresh, particularly the certificate of the Tehsildar and other corroborative records. If the land is certified to be agricultural, then the sale consideration of ₹60,00,000/- cannot be brought to tax. 15. The ground raised by the assessee in this respect is accordingly treated as partly allowed for statistical purposes. 16. In the result, the appeal of the assessee is partly allowed in the manner indicated above. Order pronounced on 24th September, 2025. Sd/- (GIRISH AGRAWAL) Sd/- (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 24/09/2025 KARUNA, sr.ps Printed from counselvise.com ITA No.1519/Mum/2025 Neeraj Nath Mumbai 9 Copy of the Order forwarded to : BY ORDER, (Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// Printed from counselvise.com "