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2023 (11) TMI 985 - AT - Income TaxIncome from house property - Interest paid on loans borrowed for purchase of Surat Property which was given on Rent - claim rejected by the AO on the ground that the assessee did not produce the interest certificate in support of his claim as per proviso to section 24(b) and so, he disallowed the claim and added it under the head income from the house property - HELD THAT - As per sub-clause (b) of section 24 of the Act, assessee in order to succeed on this issue has to prove by adducing evidence to show that the property in question (Surat) has been acquired with borrowed capital and the interest claimed by him was in respect of such borrowed capital. DR submitted that assessee has borrowed un-secured loan from several persons and has incurred interest expenses, but failed to satisfy before AO that the interest claimed as deduction was for capital borrowed for acquiring/construction/re-construction of the shop at Surat. Be that as it may, it is admitted fact that the relevant documents were not filed before the AO/Ld. CIT(A) and for the first time some additional evidences has been filed. Therefore, this issue is restored back to the file of the AO for denovo adjudication to consider to whether, the deduction claimed u/s 24(b) of the Act is allowable or not. Addition on account of deemed rent of the flat at Borivali - assessee replied that his employees are occupying the flat - AO noted assessee that he had more than one house property and he is not offering the deemed lettable value (ALU) of this property - AO noted that the assessee failed to produce any supportive evidences which proves that house was occupied by his employees and he further noted that assessee has not debited any expenses in Profit and Loss account for perquisite in the form of rent- free accommodation provided to the employees and also assessee has failed to establish employer-employee relationship about the person who was supposed to be residing in that apartment - HELD THAT - AO found that assessee has not debited any expenses in P L for perquisites provided to employee. So, AO computed the ALV of the house property. On appeal, the Ld. CIT(A) observed that only one property can be claimed by assessee as self-property under the Act and noted that assessee s claim that flat was occupied by employees was not accepted by AO because the assessee failed to prove the fact by filing any supporting evidence. The action of AO/Ld. CIT(A) cannot be faulted because before this Tribunal also the assessee failed to produce any evidence to substantiate that Star Apartment was occupied by the employee of the assessee. And since the ALV computed by AO has not assailed, in the absence of any evidence as discussed, the impugned action of Ld. CIT(A) is confirmed and this ground of appeal of assessee is dismissed. Disallowance of business expenses as personal expenses - AO s reason for disallowance was that in the entire year assessee has only transacted once in bullion on a single day and has claimed expenses of telephone, mobile, conveyance, car etc for entire year, which according to him was unreasonable; and that expenses are not incurred wholly and exclusively for business purpose - HELD THAT - One of the reason given by AO/Ld. CIT(A) to disallow the expenditure cannot be countenanced for the simple reason that expenditure in course of the trade which is un-remunerative is a proper deduction, if wholly and exclusively made for the purpose of the business Refer Hon ble Supreme Court decision in CIT Vs. Rajendra Prasad Moody 1978 (10) TMI 133 - SUPREME COURT . However, assessee is a proprietor of a proprietary concern, so personnel element in expenses claimed by assessee viz telephone, mobile, conveyance etc cannot be ruled out in the absence of evidence to show that the expenditure claimed was incurred wholly and exclusively for the purpose of business. So out of expenses listed out taking into consideration the fact that the personal expenditure may have been incurred for the aforesaid expenses, the disallowance made by the AO is restricted to 20% of such expenses. Balance amount is directed to be deleted and assessee s ground is partly allowed. Disallowing of interest paid on unsecured loan - assessee failed to prove the nexus of borrowing with earning from amenities FD, therefore, he disallowed the interest claim - HELD THAT - The assessee before this Tribunal could not demonstrate by adducing any evidence to show that the borrowing from the aforesaid three (3) persons were laid out or expended wholly and exclusively for the purpose of making or earning of income other sources i.e. amenity charges and FD interest. Unless assessee shows that purpose of borrowing from three persons was for making or earning amenity income or interest from FD, the claim of interest expenses to these persons cannot be allowed and so it is confirmed. Alternate contention assessee that since the AO in the assessments made u/s 147/143(3) of the Act for earlier years ie. AY. 2008-09 and AY. 2009-10 has accepted the interest deduction u/s 57(iii) of the Act and as per Rule of consistency the claim should be allowed , cannot be accepted for the reasons that in those orders passed by the AO u/s 147/143(3) of the Act which were re-assessments made after re-opening the assessment pursuant to the search happening in premises of Mukesh Chokshi, and the AO had looked into the accommodation entry in the form of purchase of shares of M/s. Alchemist Ltd. From perusal of the order, it is not discernable as to whether the AO has scrutinized the deduction claimed u/s 57(iii) of the Act and unless the AO had securitized the claim which fact assessee failed to demonstrate before this Tribunal, such a contention of the assessee cannot be accepted. Therefore, ground nos. 4 5 are dismissed.
Issues Involved:
1. Addition of Rs. 4,71,939/- on account of interest paid on loans for Surat Property. 2. Addition of Rs. 1,68,000/- on account of deemed rent of Borivali flat. 3. Addition of Rs. 1,65,016/- on account of business expenses treated as personal expenses. 4. Addition of Rs. 3,82,476/- on account of disallowing interest paid on unsecured loan against bank interest and amenity charges. 5. Addition of Rs. 3,82,476/- on account of disallowing interest paid on unsecured loan against interest received on loans and advances. Summary: Issue 1: Addition of Rs. 4,71,939/- on account of interest paid on loans for Surat Property: The assessee claimed a deduction of Rs. 4,71,939/- as interest paid on loans borrowed for the purchase of a Surat property given on rent. The AO disallowed this claim due to the non-production of an interest certificate as required by the third proviso to section 24(b) of the Income Tax Act. The Tribunal found merit in the assessee's argument that the third proviso was not applicable since the property was rented out and not covered under section 23(2). However, the issue was remanded back to the AO for fresh adjudication to verify the use of borrowed capital for the property. Issue 2: Addition of Rs. 1,68,000/- on account of deemed rent of Borivali flat: The AO added Rs. 1,68,000/- as deemed rent for the Borivali flat, which the assessee claimed was occupied by employees. The assessee failed to provide evidence supporting this claim. The Tribunal upheld the AO's decision, noting the absence of proof that the flat was used by employees and the lack of perquisite expenses in the Profit and Loss account. Issue 3: Addition of Rs. 1,65,016/- on account of business expenses treated as personal expenses: The AO disallowed Rs. 1,65,016/- out of the total business expenses claimed, citing that the expenses were not incurred wholly and exclusively for business purposes, given that the assessee only conducted one bullion transaction in the year. The Tribunal partially upheld this disallowance, restricting it to 20% of the claimed expenses due to the potential personal element in the expenditures. Issue 4 & 5: Addition of Rs. 3,82,476/- on account of disallowing interest paid on unsecured loan: The AO disallowed Rs. 3,82,476/- claimed under section 57(iii) of the Act, stating that the assessee failed to establish a direct nexus between the borrowed funds and the income generated from amenities and fixed deposit interest. The assessee's argument for consistency based on previous years' assessments was rejected, as those assessments were not scrutinized for the deduction under section 57(iii). The Tribunal upheld the disallowance due to the lack of evidence proving the nexus between the borrowed funds and the income. Conclusion: The appeal was partly allowed for statistical purposes, with specific issues remanded back to the AO for fresh adjudication and others upheld due to lack of substantiating evidence. Order pronounced in the open court on this 01/09/2023.
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