2014 (6) TMI 506 - AT - Income Tax

Partial deletion of interest paid to bank u/s 57(iii) of the Act Held that - The assessee claimed to have borrowed the sum of Rs.77,48,250/- from ICICI Bank and out of which, Rs.75,00,000/- is advance to SBPL - the details furnished by the assessee, the working of the disallowance of interest made by the CIT(A) is not verifiable thus, the matter is required to be remitted back to the AO to rework out the disallowance of interest considering the utilization of borrowed money - Decided in favour of Revenue. Deletion made u/s 68 of the Act Held that - CIT(A) had found from the examination of bank account of Yakub Khan that the sum of Rs.9,00,000/- was deposited by Mr. Khan in his bank account which sum was withdrawn by him from the bank a few days earlier for procurement of some material - CIT(A) has examined in detail the facts of the case relating to each and every creditor - He has meticulously examined the source from where the creditor advanced the money to the assessee and had allowed the relief to the assessee only when he was fully satisfied about the creditworthiness of the creditor and exact source from where creditor advanced the money there was no infirmity in the order of CIT(A) Decided against Revenue. Deemed dividend u/s 2(22)(e) of the Act Held that - CIT(A) has recorded the finding that SBPL has not given any loan or advance to the assessee - it was assessee s own money which was utilized by SBPL for making the payments on behalf of the assessee - the assessee produced the copy of account of SBPL in assessee s books of account - there was always substantial debit balance in the account of SBPL - the assessee advanced the sum to SBPL during the accounting year - the assessee gave the loan to SBPL and not SBPL gave the loan to the assessee - SBPL has incurred certain expenditure on behalf of the assessee and debited the sum to the assessee s account but, nevertheless, the net result was always substantial debit balance in the account of SBPL - when no loan is given by SBPL to the assessee, the question of application of Section 2(22)(e) does not arise Decided against Revenue.

Summary

Issues involved:
1. Deletion of addition of interest paid to banks under section 57(iii) of the IT Act.
2. Deletion of addition made under section 68 of the IT Act.
3. Deletion of addition made under section 2(22)(e) of the IT Act.

Issue 1: Deletion of addition of interest paid to banks under section 57(iii) of the IT Act:
The appeal by the Revenue challenged the deletion of an addition of Rs.14,49,068 out of Rs.15,27,929 made on account of interest paid to banks under section 57(iii) of the IT Act for AY 2007-08. The Assessing Officer questioned the deduction claimed by the assessee for interest paid to ICICI Bank and ABN Amro Bank, which was utilized for giving loans to M/s Sachdeva Buildcon Pvt. Ltd. The CIT(A) restricted the disallowance to Rs.78,861 and directed the Assessing Officer to rework the disallowance considering the utilization of borrowed money. The ITAT set aside the orders of authorities below and directed the Assessing Officer to verify the utilization of borrowed money and allow the deduction for interest paid to the banks to the extent it was utilized for giving advances to SBPL.

Issue 2: Deletion of addition made under section 68 of the IT Act:
The Assessing Officer had made an addition of Rs.39,00,000 in respect of money borrowed by the assessee from various individuals. Subsequently, the addition was reduced to Rs.34,00,000 after a correction in the loan amount from one of the creditors. The CIT(A) deleted the additions for certain creditors after detailed examination of each case, verifying the source of funds and genuineness of transactions. The ITAT upheld the CIT(A)'s decision, noting the meticulous examination of facts by the CIT(A) and finding no infirmity in his order.

Issue 3: Deletion of addition made under section 2(22)(e) of the IT Act:
The Assessing Officer made an addition of Rs.80,492 under section 2(22)(e) alleging that SBPL had paid amounts on behalf of the assessee. However, the CIT(A) found that SBPL did not give any loan to the assessee, rather the assessee had given a loan to SBPL. The ITAT concurred with the CIT(A)'s findings, stating that since no loan was given by SBPL to the assessee, the application of Section 2(22)(e) did not arise, and thus rejected the ground raised by the Revenue.

In conclusion, the ITAT partly allowed the appeal of the Revenue for statistical purposes, upholding the decisions of the CIT(A) in deleting certain additions and directing the Assessing Officer to reevaluate the disallowance of interest paid to banks based on the utilization of borrowed funds.