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TMI Blog2022 (1) TMI 423X X X X Extracts X X X X X X X X Extracts X X X X ..... T [ 1982 (8) TMI 10 - CALCUTTA HIGH COURT] has held that where interest paid on overdraft account maintained with bank for purpose of business and all receipts are deposited in the overdraft account and all payments including taxes made from that account, the entire interest paid would be allowable deduction. Hon ble Supreme Court recently in the case of South India Bank Ltd.[ 2021 (9) TMI 566 - SUPREME COURT] has held that where interest free own funds available with assessee-banks exceeded their investments in tax-free securities; investments would be presumed to be made out of assessee's own funds and proportionate disallowance was not warranted under section 14A on the ground that separate accounts were not maintained by assessee for investments and other expenditure incurred for earning tax-free income. Similar view has been taken by the Coordinate Benches of the Tribunal in the decisions relied on by the Learned Counsel for the Assessee. Under these circumstances, since in the instant case the A.O. in the past and subsequent assessment years has not made any disallowance of such interest expenditure and the assessee has not raised any fresh loans during the impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest is permissible while computing the total income and thus the claim of deduction made from interest income was a permissible deduction. 4. The finding of the learned CIT(A) in his order that the deduction is not allowable u/s 57of the Act is based on complete misconception of the facts and is in disregard of the fact that the deduction of interest had been claimed and had been allowed in all the preceding six years and was thus required to be allowed as a deduction, while computing the total income of the assessee for the instant year, since no sum had been borrowed during this year on which interest has been claimed. 5. That the learned CIT(A) has further erred in not directing the AO to allow the credit of tax deducted at source of ₹ 2,95,029/- as had been deducted. The entire amount of tax deduced at source of ₹ 2,95,029/- was thus required to be allowed. 6. That the learned CIT(A) has further erred in not deleting the interest levied u/s 234A, u/s 234B and u/s 234C of the sums of ₹ 1,43,939/-, ₹ 2,07,867/- and ₹ 37,439/- respectively. 3. Facts of the case, in brief, are that the assessee is a Chartered Accountant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y approval from the competent authority had expanded the scrutiny to other income which is not permissible under law. 3.4. So far as the merit of the case is concerned, it was argued that the A.O. was not framing the assessment of assessee s income earned by him from business or profession. He was dealing with the income earned by the assessee from other sources i.e., interest received. It was argued that assessee had received interest on the personal savings only which are not taxable under the head income from profession. If income out of personal savings is taxable, interest paid for loans raised by the assessee for meeting the personal expenses is also allowable out of interest received as expenditure not being in the nature of capital expenditure laid out or expended wholly and exclusively for making or earning of such income as is allowable under the provisions of Section 57(iii) of the I.T. Act, 1961. The assessee also submitted the following chart which was also filed before A.O. Date Amount (Rs.f Loan raised from - Utilisation of loan 02/12/2010 11,00,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition made by the A.O. is not sustainable. 3.6. However, the Ld. CIT(A) was not satisfied with the arguments advanced by the assessee and upheld the addition made by the A.O. by observing as under : 6.1 The Assessing Officer has disallowed the deduction of ₹ 5,41,397/- claimed by the appellant u/s 57 of the Act as the appellant has shown interest income of ₹ 42,09,926/- and claimed deduction of interest expense of ₹ 5,41,397/- whereas this interest was paid by the appellant on borrowed capital @ 18% which was invested for acquisition of agriculture land and repayment of earlier loans and advances. The Assessing Officer has also claimed that the appellant has shown interest income at the lower rate than 18% as per detailed discussion made by the Assessing Officer in the assessment order mentioned supra in Para 4. 6.2. The appellant on the other hand has filed detailed written submission mentioned supra in Para 5 and claimed that the entire interest expense is allowable u/s 57 of the Act. 6.3. The contention of the Assessing Officer and the submission of the appellant has been considered and from the submission of the appellant, it is gathered th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucceeding A.Y. 2016-17 such disallowance has not been made though assessment has been made under section 143(3) of the I.T. Act, 1961, copy of which is placed at page numbers. 79 to 80 of the PB. He submitted that it is not a case wherein assessee had paid interest on loans borrowed by him either for incurring of personal expenses or for making tax free investment. He submitted that there is absolutely no nexus between the loans raised on which interest had been paid and the loans raised for making personal expenses or any tax free investment. Learned Counsel for the Assessee submitted that unless and until the assessee had borrowed the funds and had not substantial capital of its own and there is nexus between the amount borrowed and personal expenses or making such investment on which no tax is payable, the disallowance could be made, otherwise, deduction is admissible either under section 36(1)(iii) or Section 57(iii) of the I.T. Act, 1961. He submitted that it is not the case where the assessee had no income from business or the assessee had no substantial capital. On the contrary, it is a case wherein the expenditure has been incurred and allowed in the preceding and succeedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause the said sum was also advanced out of borrowed amounts. We are in agreement with the view expressed by the Appellate Tribunal. The status of the amount outstanding from Nalanda on the first day of the accounting year is the amount that stood outstanding on the last day of the previous accounting year and, therefore, its nature and status cannot be different on the first day of the current accounting year from its nature and status as on the last day of the previous accounting year. Regarding the past years, the assessee's claims for deduction were allowed in respect of the sums advanced during those years; this could be only on the assumption that those advances were not out of borrowed funds of the assessee. This finding during the previous years is the very basis of the deductions permitted during the past years, whether a specific finding was recorded or not. A departure from that finding in respect of the said amounts advanced during the previous year would result in a contradictory finding; it will not be equitable to permit the Revenue to take a different stand now in respect of the amounts which were the subject-matter of previous years' assessments; con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sal of the assessment order shows that the disallowance had been made by the Assessing Authority on account of non-filing of the details of travel. A perusal of the order of the Ld. CIT(A) shows that he has verified the assessment record and has found that substantial details had been filed. However, it is noticed that the Ld. CIT(A) drew a conclusion that the travel of the Managing Director to Paris, London, Amsterdam and Hong Kong had apparently no connection with the business of the assessee. It is noticed that the assessee is in the business of textile and garment manufacturing. The disallowance has been made on presumption and the disallowance is an ad-hoc disallowance. The details of the expenditure have been found to have been produced before the Assessing Authority. Ld. CIT(A) not found any defect in the claim of expenses, could not now make a change in the stand of the Assessing Authority to say that apparently the travel to Paris, London, Amsterdam and Hong Kong was not for business purposes. Further, as the revenue has not been able to point out as to which expenses of foreign travel as claimed by the assessee is not for the business purpose and as the assessee has produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,06,35,580/- 2,38,51,052/- 2015-16 26,98,838/- 5,66,830/- 13.03.2016 u/s 143(1) 1,60,11,057/- 2,36,02,312/- 2016-17 16,88,403/- 5,48,717/- 19.12.2018 u/s 143(3) 1,36,89,858/- 1,39,99,169/- 2017-18 13,12,556/- 5,06,778/- 01.10.2018 u/s 143(1) 1,39,99,169/- 1,14,35,662/- 2018-19 12,00,000/- 3,24,000/- 13.04.2019 u/s 143(1) 1,14,33,201/- 1,14,33,201/- 4.4. In his second plank of argument, the Learned Counsel for the Assessee submitted that the case was selected for limited scrutiny for two reasons. However, the A.O. in the instant case without following the due process of law had made the impugned addition which was not one of the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest expenditure and, therefore, following the rule of consistency alone, the disallowance made by the A.O. and sustained by the Ld. CIT(A) is not justified especially when the assessee has not taken any fresh loan during the F.Y. 2013-14 and the assessee has huge capital of his own and the assessee does not maintain any separate bank account of borrowed fund and self-acquired fund. 6.1. We find some force in the above arguments advanced by the Learned Counsel for the Assessee. A perusal of the chart filed before the A.O. as well as the Ld. CIT(A) show that assessee has not raised any loan during the impugned assessment year. Further the A.O. in the order passed under section 143(3) of the I.T. Act, 1961 for the A.Y. 2013-14 and in the order passed under section 143(3) of the I.T. Act, 1961 for the A.Y. 2016-17 has not made any disallowance of interest, a statement made by the Learned Counsel for the Assessee at the Bar and not controverted by the Ld. D.R. 6.2. We find the Hon ble Calcutta High Court in the case of Indian Explosives Ltd., vs., CIT reported in 147 ITR 392 (Cal.) has held that where interest paid on overdraft account maintained with bank for purpose of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment. 6.6. Similar view has been taken by the Coordinate Benches of the Tribunal in the decisions relied on by the Learned Counsel for the Assessee. Under these circumstances, since in the instant case the A.O. in the past and subsequent assessment years has not made any disallowance of such interest expenditure and the assessee has not raised any fresh loans during the impugned assessment year, we are of the considered opinion that no disallowance of interest is called for during the impugned assessment year. Accordingly, the order of the Ld. CIT(A) is set aside and A.O. is directed to delete the addition. 6.7. Even otherwise also, as mentioned earlier the case was selected for limited scrutiny for two reasons, the details of which are given at Para Number.3.2 of this order. However, the A.O. has not made any addition/disallowance on those two counts for which the case was selected for limited scrutiny, but he has made certain additions on an issue which was not the subject matter of limited scrutiny and there is nothing on record to suggest that the A.O. has taken necessary approval from the PCIT/CIT for converting the limited scrutiny to full scrutiny. Therefore, on this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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