9911796707
TMI Blog2019 (5) TMI 274X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of disallowance of Rs. 13,77,730/- made by the Assessing Officer by invoking the provisions of Section 36(1)(iii) of the Income Tax Act, 1961 (hereinafter referred to as 'Act'). 4. Facts of the case in brief are that the assessee filed the return of income on 22/09/2012 declaring income of Rs. 25,64,499/- which was processed under section 143(1) of the Act. Later on the case was selected for scrutiny. 5. During the course of assessment proceedings the Assessing Officer noticed that the assessee had given interest free advances to friends and family which were not for the business purposes and also claimed interest expenditure of Rs. 23,88,993.89 in the P&L Account. He also observed that the assessee had claimed deduction on interest expenditure under section 57 of the Act for Rs. 2,73,628/-. Thus the total interest expenditure claimed by the assessee was Rs. 26,62,621/- (Rs. 23,98,993.00 + Rs. 2,73,628.00). The Assessing Officer also pointed out that the loans to family and relatives outstanding in the balance sheet were as under: Sr. No. Particular Amount 1 Vaishali Aggarwal Rs. 4,05,000/- 2 Dev Bhoomi Angora Spng & Allied Ind. Rs. 5,00,000/- 3 Fab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the OD facility on which interest had been received were having the direct nexus, therefore interest expenditure of Rs. 7,17,875/- was allowable. On the remaining advances the Assessing Officer worked out the interest at Rs. 31,65,778/- and observed that the assessee had claimed the interest expenditure of Rs. 26,62,621/- out of which Rs. 7,17,875/- was allowable as the assessee had established direct nexus between the interest bearing borrowed funds and the interest income earned. He also observed that the interest amounting to Rs. 5,67,016/- was on the car loans which was allowable. He therefore restricted the disallowance to Rs. 13,77,730/- ( Rs. 26,62,621.00 - Rs. 7,17,875.00 - Rs. 5,67,016/-). 6. Being aggrieved the assessee carried the matter to the Ld. CIT(A) and submitted as under: During the relevant assessment year under consideration, the appellant had claimed an interest expenditure of Rs. 23,88,993.89 in its Profit and Loss Account. The appellant had also claimed in its return o f income a deduction of interest expenditure of Rs. 2.73.628/- U/s 57 of the Income-Tax Act, 1961. Thus, the total interest expenditure claimed by the appellant was Rs. 26,62,621/- [Rs. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 014 order dt. 02/07/2015 6.2 It was further submitted as under : From the perusal o f the Balance Sheet o f M/s Shakti International [a proprietary concern of the appellant], drawings/withdrawals were made amounting to Rs. 5,93,52,025.44 from the Capital A/c of Sh. Dharam Pal Aggarwal. Simultaneously, the same got transferred to the personal Capital A/c o f Sh. Dharam Pal Aggarwal. The transfer o f the funds to and from [or vice-versa]the Capital A/c o f Sh. Dharam Pal Aggarwal appearing in the books o f M/s Shakti International and the personal Capital A/c o f Sh. Dharam Pal Aggarwal took place as and when the need for the same arose. The advances o f Rs. 2,79.01,598/had been made out of internal accruals and non-interest bearing funds being "Capital" and "Unsecured Loans "to the tune of Rs. 5.73 crores in the books of M/s Shakti International [a proprietary concern o f the appellant] and Sh. Dharampal Aggarwal [the appellant] .The amount of Rs. 5.73 crores included an amount of the appellant's capital of Rs. 3.71 crores, which, was also much more than the amount of interest-free advances of Rs. 2,79,01,598/-. The Balance Sheets of Sh. Dharam Pal Aggarwal and M/s Shakti I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e opinion that the Assessing Officer is fully justified in making an addition of Rs. 13,77,730/- in this case on account of disallowance out of interest expenses by invoking provisions of section 36(l)(iii) of the Act as the assessee has given interest free advance to related/unrelated parties allegedly out of borrowed funds which according to the Assessing Officer is for non business purposes. The addition of Rs. 13,77,730/- made by the Assessing Officer in this case on account of disallowance out of interest expenses by invoking provisions of section 36(l)(iii) of the Act is, therefore, upheld. In the result, the ground No. 1 of appeal taken by the assessee is dismissed. 8. Now the assessee is in appeal. 9. The Ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the assessee was having a capital of Rs. 3.48 Crores while the advances given as pointed out by the Assessing Officer were of Rs. 2.79 Crores therefore the capital of the assessee on which no interest was to be paid was more than the advances given to family and relatives, reference was made to page no. 16 of the assessee's compilation. It was further su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st was earned, he therefore allowed the interest expenditure to the extent of Rs. 7,17,875/-. As regards to the other interest free advances, the bank statement of the assessee placed at page no. 16 of the assessee's compilation reveals that the capital of the assessee as on 31.3.2012 was at Rs. 3,48,04,747/- and the Assessing Officer pointed out in the assessment order that the assessee had given interest free advances to the family and relatives for a sum of Rs. 2,79,00,000/- which shows that the interest free funds in the form of capital were more than the interest free loans given to the family and relatives. In the present case, no nexus had been established by the Assessing Officer in between the interest free advances and the interest bearing borrowed funds, therefore, the disallowance of Rs. 13,77,730/- made by the Assessing officer out of the interest paid by the assessee and sustained by the Ld.CIT(A) was not justified. Accordingly the same is deleted. 12. Vide ground no. 2 the grievance of the assessee relates to the confirmation of disallowance of Rs. 2,26,635/- made by the Assessing Officer out of car expenses. 13. The facts related to this issue in brief are tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition by observing in para 6.2 and 6.3 as under: 6.2 I have considered the observations of the Assessing Officer as made by her in the assessment order while making the impugned addition. I have also considered written submissions filed by the assessee through his learned AR vide letter dated 23.01.2017 on the issue under reference. On careful consideration of the rival contentions, I am of the opinion that the personal use of car and telephone cannot be ruled out in the case of the assessee in the absence of any day to day details with regard to use of telephone and car. Similarly, personal expenses of the assessee in traveling expenses cannot be ruled out. Moreover, the disallowance made by the Assessing Officer is very reasonable and cannot be said to be excessive under any circumstances. Under such circumstances, the action of te Assessing Officer in making an addition of Rs. 2,26,635/- in this case on account of disallowance out of expense claimed by the assessee under the heads 'telephone expenses', 'car expenses', 'car insurance expenses', 'car depreciation' and travelling expenses' cannot be said to be unjustified. 6.3 In view of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
