9911796707
TMI Blog2024 (12) TMI 375X X X X Extracts X X X X X X X X Extracts X X X X ..... erest expenses were incurred solely for the purpose of business - linkage between the borrowed funds and their utilization in business activities was not substantiated satisfactorily - HELD THAT:- CIT(A) observed that the borrowed funds were used for non-business purposes, such as providing interest-free loans to related parties weakens the case for a business deduction as per income tax laws. CIT(A), based on the examination of the documents furnished and the legal framework, the AO's decision to disallow the interest expenses was upheld, as the assessee did not meet the burden of proof required to establish that these expenses were incurred wholly and exclusively for business purposes. Thus the ground raised by the assessee was dismissed and addition made by the AO was upheld. Disallowance u/s 57 - AO observed that the assessee claimed an expenditure as interest expenses, which were asserted to be incurred for earning income from other sources, but were not recorded in the Profit Loss Account of the business - HELD THAT:- Certain lenders have confirmed the transaction. AO out of total 43 lenders, issued notices u/s 133(6) of the Act only to 10 lenders out of which 4 lenders c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed funds to a sister concern was on account of commercial expediency even if the same is interest free, the deduction claimed by the assessee cannot be disallowed. Thus, ground raised by the assessee is allowed. It is reiterated that the allowance of any expenditure is within the judicial periphery laid in the Act and mere non recording in the books of account can hardly negate the claim. Disallowance of interest expenses claimed u/s 36(1)(iii) in the books of accounts - The matter has to be directed to be re examined since we do not ascribe to the views that loan is unexplained. AO could not make out a single case of diversion of funds for non business purpose apart from making a general and casual statement which has no basis to be sustained. Hence, we find force in the submissions of the learned Counsel for the assessee that the interest is used for the purpose of business. The order of CIT(A) cannot be sustained because he has failed to highlighted about how the submissions of the assessee is fallacious. He failed to advert about the financial affairs which clearly demonstrates that the assessee has own funds to the extent of ₹ 1.25 crore. Thus, it is beyond any logic as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see. Hence, the Assessing Officer sought to verify the genuineness, creditworthiness, and identity of the creditors from whom these loans were reportedly received. The Assessing Officer had directed the assessee to provide comprehensive documentation for all creditors. This included detailed contact information, PAN details, bank statements, and income tax returns which are crucial for verifying the financial standing and identity of the lenders. The Assessing Officer issued multiple notices under Sections 142(1) and 133(6) of the Income Tax Act, 1961 ( the Act ) requesting specific details about the lenders and the loans. In response to notices under section 142(1) of the Act, the assessee submitted list of lenders, their PAN, address, ledger confirmation of most of the debtors, interest payment details, details of TDS deducted on interest and the TDS returns of the assessee. However, the assessee did not submitted tax returns and Bank Statements of the lender making it challenging to assess their capacity to lend such amounts. It was submitted by the assessee that they are unable to submit the return of income and bank statements of the lenders, as the said documents were persona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng interest-free loans to related parties weakens the case for a business deduction as per income tax laws. The learned CIT(A), based on the examination of the documents furnished and the legal framework, the Assessing Officer's decision to disallow the interest expenses totalling to ₹ 97,66,308, was upheld, as the assessee did not meet the burden of proof required to establish that these expenses were incurred wholly and exclusively for business purposes. Thus the ground raised by the assessee was dismissed and addition of ₹ 97,66,308, made by the Assessing Officer was upheld. 10. Insofar as ground no.3, which relates to disallowance of ₹ 72,32,292, under section 57 of the Act is concerned, the Assessing Officer observed that the assessee claimed an expenditure of ₹ 72,32,292, as interest expenses, which were asserted to be incurred for earning income from other sources, but were not recorded in the Profit Loss Account of the business. The Assessing Officer disallowed this expenditure on the grounds that the expenditure claimed was not reflected in the Profit Loss Account, which is a standard practice for legitimate business expenses. This raised doubts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew model of business, it was decided to incorporate a new private limited company. Accordingly, a new private limited concern, named M/s Khandelwal Jewellers Akola Private Limited ( KJAPL ) was formed, wherein all the shares are held by the assessee s family. Therefore, gradually from 2012, the business of proprietorship concern was shifted to Private Limited Company. As the assessee had existing credit bank limits and other debts in the proprietorship concern, it was decided that the assessee will continue both the concerns (i.e.) private limited company and proprietorship concern for few years. Your kindness may appreciate that both the concerns are subject to audit u/s 44AB of the Income Tax Act, 1961. 1.2. For the year under consideration, the assessee raised loans from various parties to the tune of Rs. 7,59,60,000/- (Rs.6,74,00,000/- in the proprietorship concern and Rs. 85,60,000/- in his personal capacity). To verify the genuineness of the transaction of cash credit entries, the AO had asked the assessee to submit the following details. a) Name, Address, Contact Number, Email Id of lenders of loan:- These details were provided by the assessee in the submissions before the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e loans received from these parties and also the loans repaid back to the parties. h) Copy of ITRs of lenders of last 3 years:- Time and again it has been held by the courts that the tax returns are in the realm of personal details of the tax payer and same cannot be divulged without the permission of the tax payer. Therefore, all the lenders have expressed their reservations for sharing their personal details. It was submitted before the AO by the assessee that being a quasi-judicial authority the AO had access to all the income tax details of these lenders on the income tax portal. We have already submitted their PAN details. We humbly requested the AO to download the said details and verify the same at your end. Your kindness may also appreciate the fact that all these lenders have duly reported income is their tax returns and have also claimed credit of TDS deducted by the assessee. i) Copy of documentary evidences to substantiate identity and creditworthiness of the lenders:- The assessee submitted details like PAN number of the lenders before the AO. All the lenders are tax paying assessee and have duly filed tax returns. Their complete details like, address, email id and con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fact which deserves to be appreciated is that the AO has disputed assessee s submission that these transactions are in the realm of loan. 1.3. In para 6.7 of the assessment order, the AO has mentioned that the assessee had not submitted the confirmations of 8 parties even after repeated reminders. The assessee most humbly wishes to submit that the assessee had submitted the confirmations of 5 out of the 8 parties mentioned by the AO. However, the AO has inadvertently not considered the same. 1.4. Moreover, on request of the assessee, the AO s had issued notice under section 133(6) of the Act to a total of 10 people, out of which 4 people had filed the replies. It is pertinent to note that out of the remaining 6 assessee had already filed the confirmation of 5 parties. Since, the parties had not even replied to the notice issued by the AO under section 133(6). We most humbly wish to submit that it is unfair of the AO to ask assessee to furnish the personal details of the parties. The AO has enough powers under the Act to summon the non-compliant parties and get the details from them. The assessee has discharged his first onus by submitting the PAN of these parties as all the infor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In a recent similar case before Ahmedabad Tribunal in the case of M/S Hindon Forge Ltd Vs DCIT (Del) (Trib) dated 03/12/20, the Hon ble tribunal has relied on the case laws relied upon by the assessee and allowed the appeal in favour of the assessee. The relevant extract of the order is re-produced below. It is well settled Law that assessee need not to prove source of the source. We rely upon the Judgment of the Hon ble Delhi High Court in the case of CIT vs., Dwarkadhish Investment Pvt. Ltd., [2011] 330 ITR 298 (Del.) and Judgment of Hon ble Gujrat High Court in the case of DCIT vs., Rohini Builders [2002] 256 ITR 360 (Guj.). 1.11. Further, in the landmark decision of the Hon ble Delhi High Court in the case of CIT vs. Dwarkadhish Investment Pvt. Ltd., (2011) 330 ITR 298 (Del.) it was held that assessee need not prove source of the source . 1.12. On similar findings, Judgment of the Hon ble Supreme Court in the case of CIT vs. Orissa Corporation (P.) Ltd., (1986) 159 ITR 78 (SC) in which the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the revenue that the said creditors were the income-tax assessees. Their index number was in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, shifts as soon as the assessee establishes the authenticity of transactions as executed between the assessee and its creditors. It is no part of the assessee s burden to prove either the genuineness of the transactions executed between the creditors and the sub-creditors nor is it the burden of the assessee to prove the creditworthiness of the sub-creditor. 1.15 The Hon ble Delhi High Court in the case of CIT v/s Kamdhenu Steel and Alloys Ltd. Ors. 361 ITR 220 held that Once adequate evidence/material is given, which would prima facie discharge the burden of the assessee in proving the identity of shareholders, genuineness of the transaction and creditworthiness of the shareholders, thereafter in case such evidence is to be discarded or it is proved that it has created evidence, the Revenue is supposed to make thorough probe before it could nail the assessee and fasten the assessee with such a liability under s.68; AO failed to carry his suspicion to logical conclusion by further investigation and therefore addition under s. 68 was not sustainable. 1.16. It is evident from the above jurisprudence that the assessee was not required to disclose the source of the source ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s your kindness can figure out that the assessee is already under lot of debt, sometimes, to honor the old repayment of loans, which were earlier advanced to KJAPL, the assessee borrowed from the market and repaid the old loans. All in all, the fact which your kindness can easily figure out, is that the assessee is under severe debt and entire business is being run by borrowing funds from the market and most of the income is being spent in paying interest on the borrowed debt. 2.6. Another major reason for borrowing in personal capacity and further lending it to the company, is the restriction of the company law that the private limited company cannot borrow from the public. Even as far as shareholders are concerned, private limited company can only borrow to the extent of aggregate of paid-up capital, reserves and share premium. Therefore, as the company has no option to borrow funds from the outsiders, the shareholders have borrowed funds in their Individual capacities and forwarded same to the company. Even the cash credit limit of the assessee s proprietorship concern was used to advance funds to the private limited company. Therefore, the end-use of the borrowed funds is only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 44,57,836/- belongs to the interest paid by the assessee to the unsecured loan providers. The aforementioned interest is part of audited books of accounts of the assessee which is duly accounted and TDS on the same has also been paid. A tabular representation of the breakup of this interest is being reported below along with detail of TDS deducted. Sr. No. Party Name Interest Paid TDS Deducted 1 Amarchand Omprakash Kasat 4,200 - 2 Arihant Corporation 30,667 3,067 3 Ashok Bharatlal Agrawal 1,100 - 4 Ashok Bharatlal Agrawal (HUF) 11,025 1,103 5 Baba Accosiates 1,07,000 10,700 6 Bilala Refinaries 1,02,000 10,200 7 Chandadevi B Khandelwal 73,608 7,361 8 Chetan Ashok Agrawal 25,550 2,555 9 Deepak Mohanlalji Chandak 5,167 517 10 Ekta Ravindra Khandelwal 1,73,024 17,302 11 Gangasahay Tarachand 34,640 3,464 12 Garg Agro Industries 61,975 6,198 13 Kamlesh Kisanchand Motwani 550 - 14 Kanika Agro Industries 94,808 9,481 15 M/s, Shradha Ginning Pressing Factory 20,333 2,033 16 M/s. Kapil Industries 5,425 543 17 Maa Vaishnavi Udyog 20,000 2,000 18 Mukesh Ramchand Motwani 550 - 19 Nikhil Bharat Shah 1,21,667 12,167 20 Nikita Tushar Shah 1,21,667 12,167 21 Pannalal Sumerchand 60,116 6,011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee borrowed the fund from the bank and lent part of it to its sister concern (a subsidiary) as interest-free loan. The test in such a case was really whether this was done as a measure of commercial expediency. [Para 21] The decisions relating to section 37 will also be applicable to section 36(1)(iii) because in section 37 also the expression used is 'for the purpose of business'. It has been consistently held in decisions relating to section 37 that the expression 'for the purpose of business' includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby. [Para 22] It is not in every case that interest on borrowed loan has to be allowed if the assessee advances it to a sister concern. It all depends on the facts and circumstances of the respective case. For instance, if the directors of the sister concern utilize the amount advanced to it by the assessee for their personal benefit, obviously it cannot be said that such money was advanced as a measure of commercial expediency. However, money can be said to be advanced to a sister concern for commercial expediency in many other circumstances. Where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of making of earning income from other sources ; expenditure must not be in the nature of capital expenditure or personal expenses of the assessee; 4.5 Clause (iii) to section 57 makes admissible the deduction of any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income (income chargeable under the head income from other sources'). This means section 57(iii) provides for deduction only of expenditure incurred wholly and exclusively 'for the purpose of making or earning such income . In order that expenditure may be admissible under section 57(iii), it is necessary that the primary motive of incurring it is directly to earn income falling under the head income from other sources . The plain natural construction of the language of section 57(iii) of the Act, irresistibly leads to the conclusions that to bring a case within that section it is not necessary that any income should in fact have been earned as a result of the expenditure. What section 57(iii) requires is that the expenditure must be laid out or expended wholly and exclusively for the purpose of making or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the Jaipur Tribunal in case of Shri Kailash Chand Soni V/s ACIT (ITA NO.960/JP/2019) where in it was held that- Para 14 :- We are of the view that it is not necessary that the expenditure incurred must have been obligatory; it is enough to show that the money was expended not of necessity and with a view to an immediate benefit to the assessee but voluntarily and on the ground of commercial expediency and in order indirectly to facilitate the making or earning of the income. Para 15 :- Further, clause (iii) to section 57 makes admissible the deduction of any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income (income chargeable under the head income from other sources'). This means section 57(iii) provides for deduction only of expenditure incurred wholly and exclusively 'for the purpose of making or earning such income . In order that expenditure may be admissible under section 57(iii), it is necessary that the primary motive of incurring it is directly ITA No. 960/JP/2019 Shri Kailash Chand Soni, Jaipur Vs. ACIT, Jaipur 16 to earn income falling under the head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lows: 5. Being aggrieved by the aforesaid, the assessee preferred an appeal before the learned CIT(Appeals). Surat who vide its order dated 10-2-2020 allowed the appeal of the assessee observing, inter alia, as under: 7.6 Repayment of advances. The AR pointed out that the impugned advances have been re-paid by assessee company within the financial year mostly within 30 days). The repayments are evident from the ledger accounts, bank a/c. statements and also from the affidavits filed by the lenders. The Ld. AO has not questioned repayments or sources of the repayments. No contrary findings or evidences are lead by Ld. AO. The repayment of loan or advances when no fault is found by Ld. AO, constitutes a good evidence regarding genuineness of the said loans or advances. This commercial logic common knowledge is recognized by judiciary. The Hon'ble jurisdictional High Court in case of Ayachi Chandrashekhar Narsangaji TA 992 of 22013 datd. 2-12-2013 has held that It has also come on record that the said loan amount has been repaid by the assessee to 'IA' in the immediately next year and the Department had accepted the repayment of loan without probing into it. In the aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2015 50,00,000 1 day 4. M/s. Look At Me Retails Pvt. Ltd. 04/12/2015 2,10,00,000 07/12/2015 10/12/2015 22/06/2015 21,34,000 1,88,66,000 3 6 days 5. M/s. Veena Gems 18/06/2015 5,00,000 22/06/2015 5,00,000 4 days 6. M/s. Royal Refinery Pvt. Ltd. 01/09/2015 03/09/2015 50,00,000 1,40,000 07/09/2015 08/09/2015 30/09/2015 10,00,000 50,00,000 1,30,00,000 6 27 days 7. M/s. Rama Exports 07/05/2015 75,00,000 08/09/2015 75,00,000 124 days 8. M/s. Kaushal Diamonds 07/05/2015 15,00,000 15/09/2015 15,00,000 131 days 9. M/s. Kumar Exports 07/05/2015 13/05/2015 14/05/2015 63,25,000 30,00,000 28,00,000 15/09/2015 01/10/2015 01/10/2015 30,00,000 83,25,000 8,00,000 131 141 days 10. M/s. Piyush Exports 08/05/2015 15/05/2015 19/05/2015 25/05/2015 50,00,000 28,00,000 20,00,000 8,00,000 01/10/2015 10,60,00,000 146 days 11. M/s. Jai Shree Exports 19/05/2015 27,00,000 01/10/2015 27,00,000 135 days 12. Rajen Vasant 29/12/2015 2,00,00,000 13/05/2016 16/05/2016 1,00,00,000 1,00,00,000 138 days 13. M/s. Osiaji Exports 22/03/2016 ₹ 49,54,500 22/03/2016 46,54,500 1 day Total 11,57,79,500 11,57,79,500 6. A bare perusal of the aforesaid details makes it clear that the assessee has refunded the entire deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilable, the assessee has furnished the copies of returns filed by the creditors with the Department along with their statement of income. All the loans were received by the assessee by account payee cheques and the repayments of loans have also been made by account payee cheques along with the interest in relation to those loans. It is rather strange that although the Assessing Officer has treated the cash credits as non-genuine, he has not made any addition on account of interest claimed/paid by the assessee in relation to those cash credits, which has been claimed as business expenditure and has been allowed by the Assessing Officer. It is also pertinent to note that in respect of some of the creditors the interest was credited to their accounts/paid to them after deduction of tax at source and information to this effect was given in the loan confirmation statements by those creditors filed by the assessee before the Assessing Officer. Thus it is clear that the assessee had discharged the initial onus which lays on it in terms of section 68 by proving the identity of the creditors by giving their complete addresses, GIR numbers/permanent accounts numbers and the copies of assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und credited in the books of an assessee maintained for any previous year. and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The phraseology of section 68 is clear. The Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year. In this, case the legislative mandate is not in terms of the words shall be charged to income-tax as the income of the assessee of that previous year . The Supreme Court while interpreting similar phraseology used in section 69 has held that in creating the legal fiction the phraseology employs the word may and not shall . Thus the unsatisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of the assessee as held by the Supreme Court in the case of CIT v. Smt. P. K. Noorjahan [1999] 237 IIR 570. 11. Keeping in mind the ratio laid down ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue payment of Rs. 14 lakhs dated 21- 7-2009 to the Appellant. Prior to the issuance of the cheques, this amount was credited into the bank account of Smt. Savitri Thakur maintained in the State Bank of India. Rae Baraeli Branch. There were three transfers of Rs. 5 lakhs. Rs. 5 lakhs and Rs. 4 lakhs into the above account of Smt. Savitri Thakur before issue of cheques by her to the assessee. Smt. Savitri Thakur claimed that these amounts were received by her as gifts from one Shri Rajendra Bahadur Singh and Smt. Sarojini Thakur. Shri Rajendra Bahadur Singh is the brother of Smt. Savitri Thakur and Smt. Sarojini Thakur is the sister of Smt Savitri Thakur. Shri Rajendra Bahadur Singh had gifted Rs. 5 lakhs to Smt. Savitri Thakur and Smt. Sarojini Thakur had gifted to Rs. 5 lakhs and Rs. 4 lakhs to Smt. Savitri Thakur. Result of verification and remarks by the Department in respect of Shri Rajendra Bahadur Singh is as under: The donor had retired in 2003 and claims to earn tuition income of Rs. 1.5 Lacs p.a. and this money has been claimed to have been hoarded and kept in cash by him over several years and he claims that out of this accumulation he deposited a sum of Rs. 5,00,000/- in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e credit. There is no requirement under the law to explain the source of the source. In the instant case, there is no dispute as to the identity of the creditor. There is also no dispute about the genuineness of the transaction. That apart, the creditor has explained as to how the credit was given to the assessee. Thus assessee had discharged the onus which was on him as per the requirement of section 68 of the Act. What the Assessing Officer held was that sources of the source were suspect ie, he suspected the two sources Shri Rajendra Bahadur Singh and Smt. Sarojini Thakur of the source Smt. Savitri Thakur. 15. In view of discharge of burden by the assessee, burden shifted to the revenue; but revenue could not prove or bring any material to impeach the source of the credit. Though Mr. Walve, learned standing counsel, has pointed out that the creditor had no regular source of income to justify the advancement of the 45 pm credit to the assessee, we are of the view that the assessee had discharged the onus which was on him to explain the three requirements, as noted above. It was not required for the assessee to explain the sources of the source. In other words, he was not required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grawal AEQPA6182D 1,000,000.00 25,550.00 18.01.18 Khandelwal Jewellers (Akola) Pvt Ltd TJSB Bank - Repaid on 18-07-18 TJSB Sahakari Bank Ltd 7 Deepak Mohanlalji Chandak ADDPC9114B 500,000.00 5,167.00 17.10.17 Khandelwal Jewellers (Akola) Pvt Ltd Bank of India Repaid during the year - 8 Gangasahay Tarachand AABHR2376F 1,600,000.00 34,640.00 16.11.17 22.02.18 Ravindra M Khandelwal Bank of India Repaid during the year Rs. 8,00,000 Repaid on 27-11-18 Bank of India 9 Garg Agro Industries AAKPG5738R 1,500,000.00 61,975.00 13.12.17 Khandelwal Jewellers (Akola) Pvt Ltd Bank of India - Repaid on 15-10-18 TJSB Sahakari Bank Ltd 10 Kanika Agro Industries AAIFK1433H 4,000,000.00 94,808.00 05.09.17, 12.09.17 15.12.17 Khandelwal Jewellers (Akola) Pvt Ltd TJSB Bank Repaid during the year - 11 M/s, Shradha Ginning Pressing Factory ADDFS5015R 1,000,000.00 20,333.00 28.09.17 Ravindra M Khandelwal TJSB Bank Repaid during the year - 12 M/s. Kapil Industries AADFK9950C 500,000.00 5,425.00 19.12.17 Tulsiram Goenka (Repayment of Loan) TJSB Bank Repaid during the year - 13 Maa Vaishnavi Udyog AAQFM4952P 2,000,000.00 20,000.00 05.01.18 Ravindra M Khandelwal Bank of India Repaid during the year - 14 Pannala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank of India 29 Shah Agencies AAHHS5716G 5,000,000.00 26,667.00 17.06.17 Khandelwal Jewellers (Akola) Pvt Ltd Bank of India Repaid during the year - 30 Shah Brothers APLPS9971A 6,000,000.00 123,750.00 07.07.17, 28.09.17 08.01.18 Khandelwal Jewellers (Akola) Pvt Ltd R.G. Agro Industries (Repayment of Loan) TJSB Bank (35L) Bank of India (25L) Repaid during the year - 31 Sharad Makhanlal Agrawal HUF AABHS8253A 500,000.00 15,334.00 23.10.17 Bilala Refineries (Repayment of Loan) TJSB Bank Repaid during the year - 32 Sukhdeo Sitaram AADFS8090B 4,000,000.00 102,634.00 17.10.17 31.03.18 Ravindra M Khandelwal Bank of India Repaid during the year Rs. 20,00,000/- Repaid on 01-10-18 Bank of India 33 Sumit Traders AGQPK1334H 1,000,000.00 32,700.00 13.12.17 Khandelwal Jewellers (Akola) Pvt Ltd Bank of India - Repaid on 28-05-18 Bank of India 34 Uday Traders AAZPA2484R 1,500,000.00 71,300.00 24.07.17 18.10.17 Khandelwal Jewellers (Akola) Pvt Ltd TJSB Bank (5L) Bank of India (10L) Repaid during the year Rs 5,00,000/- Repaid on 15-09-18 Bank of India 35 Umesh Laxmikant Agrawal AAYPA2169E 500,000.00 14,408.00 19.07.17 Khandelwal Jewellers (Akola) Pvt Ltd TJSB Bank Repaid during the year - 36 Vimlaba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest is in personal capacity of the Assessee and paid over and above the financial accounts submitted. Details of the interest paid for Audited accounts and personal loans are already submitted. In these details the name of the tenders, address, PAN, opening balance. Loan received, Loan paid, Closing balance interest paid are given. It is further added that the due amount of TDS has been deducted TDS returns in this regard are filed in time. All these transactions have been made through bank alt only all the copies of bank a/c are already submitted with the reply. For your ready reference we are again enclosing with copies of bank a/c which shows that the amount received from parties has been either to Khandelwal Jewelers (Firm) or Khandelwal Jewellers (Akola) Pvt. Ltd. From the Khandeshwal Jewellers (Akola) Pvt. Ltd., the Assessee received interest to the ture of Rs. 5152434. The total amount of interest paid in personal capacity is As under: Interest paid to parties 7427850 Interest paid to LIC 37517 Interest paid to Buldhana Urban Co operative Credit Society 2726565 Total Interest Paid 10191932 Interest received from Khandelwal Jewellers (Akola) Pvt. Ltd. 545243 Interest re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from the common pool account, should be given to the assessee. However, the primary burden of establishing that on the date when each interest-free loan is given by the assessee there were sufficient non-interest bearing/own funds available with the assessee to advance the money to the sister concern without charging interest, is on the assessee. Merely because the overall interest-free funds available with the assessee were more than the interest-free loan given by the assessee, it cannot be said that the interest-free loans given by the assessee were out of its own funds-Sanghvi Swiss Refills (P.) Ltd. v. ITO [2003] 85 ITD 59 (Mum.) (SMC-I) Transfer of borrowed fund to a sister concern-Once it is established that there is nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The income tax authorities must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rajendra Prasad Moody [1978], 115 ITR 519 (SC). In the present case, the assessee has made an investment in a related company and the resultant income in the form of a dividend income, interest income or directors remuneration fall within the head of income from other sources . Therefore, for claiming deduction under section 57(iii) of the Act, it would be sufficient to prove that there is nexus between the income which will be earned and amount expended. In the given case, it is undisputed fact that the funds have been advanced to related concern. At this juncture it is also apropos to refer to the landmark judgment of the Hon'ble Supreme Court in S.A. Builders Ltd., 288 ITR 1 (SC) wherein it has been held that the tax authorities must not look at the matter from their own view point but that of a prudent businessman. In case, it is found that transfer of borrowed funds to a sister concern was on account of commercial expediency even if the same is interest free, the deduction claimed by the assessee cannot be disallowed. Thus, ground no. 2, raised by the assessee is allowed. It is reiterated that the allowance of any expenditure is within the judicial periphery laid in the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he views that loan is unexplained. Further, the Assessing Officer could not make out a single case of diversion of funds for non business purpose apart from making a general and casual statement which has no basis to be sustained. Hence, we find force in the submissions of the learned Counsel for the assessee that the interest is used for the purpose of business. The order of the learned CIT(A) cannot be sustained because he has failed to highlighted about how the submissions of the assessee is fallacious. He failed to advert about the financial affairs which clearly demonstrates that the assessee has own funds to the extent of ₹ 1.25 crore. Thus, it is beyond any logic as to how the entire interest can be disallowed straightway. Moreover, out of the total interest of ₹ 0.97 crore, the interest paid by the assessee on cash credit of ₹ 0.53 crore is availed from Bank, which is undisputedly loan taken for business, which fact is examined and is not in dispute. Even for the balance interest, not even single instance of diversion of funds have been brought by the Assessing Officer. In the absence of any instance of diversion of funds, the interest claimed under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
