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TMI Blog2019 (10) TMI 391X X X X Extracts X X X X X X X X Extracts X X X X ..... of individual account, logically it would eventually be in the account of the same person and that being so the disallowance of interest expenditure of Rs. 10,06,209/- is arbitrary, without any valid reasons and liable to be deleted. 3 That, the Ld. AO & CIT(A) erred in not having considered that balance sheet of the appellant clearly reflected that the loans borrowed in individual capacity were transferred/invested in the proprietorship concerns for earning profit from business and hence the interest cost incurred on the said personal borrowings was integral part of earning profit in the said business and hence deductible u/s.36(1)(iii) of the Act. 4. That, as the Id. AO & CIT(A) failed to bring on record any cogent material to establish that interest bearing loan had not been invested/utilized in the proprietary concerns but used for personal purposes, they have erred in having disallowed interest expenditure of Rs. 10,06,209/- on such business loan when the proprietary concerns have no separate legal entity and the income of the proprietary concerns is taxable in the individual hands of the appellant. 5. That, the interest paid on old loans borrowed by the appellant and ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come amounting Rs. 16,81,496/-. The AO noted that this amount of net business income has been derived through the accounts of the business duly covered by audit u/s 44AB wherein the assessee debited all the business expenditure including interest expenditure in respect of unsecured loans taken for and utilized in his business. Therefore, according to the AO, further claim of interest in respect of another portion of unsecured loan taken in his personal accounts to deduct from his net business income computed through audited accounts is not allowable and so he issued Show Cause Notice (SCN). Pursuant to SCN of AO the assessee replied as under : ".... In case of individual account no tax audit is required as per provisions of the I. T. Act, 1961 u/s 44AB. However, both the proprietary concerns are duly tax audited under I. T. Act, 1961 by Qualified firm of Chartered Accountants." After receipt of the aforesaid reply of assessee, the AO admits that it is correct to state that in case of individual account no tax audit is required as per provision of the Section 44AB of the Income Tax Act, 1961. And the AO observes ;-'But the matter of the fact is that the accounts of the assessee& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other balancesheet that of his individual/self. The assessee has taken loan from various lenders in earlier years amounting to Rs. 65,60,000/- and the outstanding loan amount as on 31.03.2012 was Rs. 92,91,253/- break up of which is given in pages 1 and 2 of the paper book. The assessee had taken the loan in his personal capacity and the said amount was introduced as his capital in the assessee's proprietorship concern M/s. Sri Balaji prints and M/s. Raj Commercial. For the loan taken by the assessee, an amount of Rs. 10,06,209/- was paid as interest to the loan creditors and the said amount was claimed as deduction from the total income of the assessee which is found from a perusal of the profit & Loss Account enclosed at page 3 of the paper book. When the AO asked for an explanation as to the interest amount claimed to the tune of Rs. 10,06,209/- the assessee explained that the interest paid on loan taken in personal account have not been utilized for any personal purpose, but he invested it in the proprietary concern for earning income and, therefore, it is an allowable expenditure being not a personal expenditure. However, the AO did not accept the explanation given by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aint nor had signed the power of attorney which was filed in the case and no statement was made in the plaint as to who was the proprietor of the firm. In the case of P. C. Advertising (supra), it was held that the suit filed in the name of proprietorship firm which was neither a registered company nor a joint family nor a partnership firm, in the absence of any prayer to seek amendment to allow the sole proprietor to sue in his name was maintainable. 16. The petition has been filed in the name of M/s Svapn Constructions and not in the name of Shri.A. K. Khanna its sole proprietor. In the petition filed by the petitioner, no prayer has been made seeking amendment to sue in the name of the sole proprietorship firm. Even according to the averments made in the petition, though it is stated that Mr. A.K. Khanna is the sole proprietor of the firm, M/s. Svapn Construction, however, no permission has been sought to sue in the name of the sole proprietorship firm. If the sole proprietorship firm is not a legal entity, the petition should have been filed by the sole proprietor in his name on behalf of his sole proprietorship firm and not in the name of sole proprietorship firm. Consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tune of Rs. 92 lakhs which fund was thus utilized in the proprietorship concern and, therefore, the Ld. CIT(A)'s contention that utilisation of loan can only be proven through a cash flow statement cannot be countenanced in the facts of the case as discussed. Therefore, the Ld. CIT(A) erred in not appreciating the claim of the assessee in the right perspective and, therefore, since the amount which the assessee has borrowed has been utilized and invested by the assessee in the two concerns, the interest is an allowable expenditure. Moreover, it has also been brought to our notice that in the subsequent two assessment years i.e. for AY 2013-14 and 2014-15 the interest paid on the very same loan borrowed by the assessee which is carried forwarded from earlier years was allowed as business expenditure in the hands of the assessee, [copy of the same is seen placed at page 6 to 13 of the paper book]. Thus, it is seen that AO has accepted the allowability of the said interest expenditure in subsequent years and, therefore, I am of the view that a consistent stand needs to have been taken and taking into consideration the facts noted supra, I am inclined to allow the claim of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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