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TMI Blog2023 (11) TMI 985X X X X Extracts X X X X X X X X Extracts X X X X ..... st Bank interest received Rs. 1,10,986/- on Fixed Deposit and Rs. 2,71,490/- against amenity charges received for premises given on Rent. 5. Confirming addition of Rs. 3,82,476 on account of disallowing of interest paid on unsecured loan, while the borrowed fund has been advanced and interest was claimed against interest received of Rs. 1,10,986/-. The appellant has also received interest of Rs. 3,07,508/- on loans and advances which has been shown in Business income against which the interest paid should be allowed." 3. Ground no. 1 is against the action of the Ld. CIT(A) confirming the addition of Rs. 4,71,939/- on account of interest paid on loans borrowed for purchase of Surat Property which was given on Rent. 4. Brief facts pertaining to the aforesaid ground are that the assessee has debited Rs. 4,71,939/- from the house property income "as interest paid". The AO taking note of the claim asked the assessee to substantiate as to whether the deduction claimed u/s 24 of the Income Tax Act, 1961 (hereinafter "the Act') is allowable as per the Act. Pursuant to which assessee replied, but the same was rejected by the AO on the ground that the assessee did not produce the interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been acquired, constructed, reconstructed with borrowed capital, the amount of any interest payable on such capital. According to assessee his claim falls under section 24(b) of the Act. Thus, the assessee has to only prove that the deduction claimed (interest payable) on such capital for construction/acquiring the property has been borrowed and that the interest is payable on such capital borrowed. I find force in the submission of the assessee that he has made the claim of interest deduction of Rs. 4,71,939/- u/s 24(b) of the Act and the AO erred in insisting on producing the certificate as stipulated in third proviso to section 24(b) of the Act. However, in the facts of the case, I am of the view 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. In this context, I note that the Ld. DR had drawn my attention to page no. 4 of the PB (Balance sheet) and submitted that assessee has borrowed un-secured loan from several persons and has incurred i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. CIT(A). 9. Assailing the action of AO, the Ld. AR, submitted that AO was not justified in making the notional addition in respect of the flat situated at Star Apartment, Borivili without considering the fact that the said flat was never let-out, and no rental income was derived from it to Appellant. Further, according to him, the said flat was being utilized by the employees of the proprietary concern for residential purpose and therefore, the same is directly attributable to the business of the Appellant. And according to assessee, as per the provisions of section 22 of the Act, the annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him, the profits of which are chargeable to income-tax shall be chargeable to income-tax under the head "Income from house property" and so submits that the said flat constitutes as business property of the Appellant and therefore, action of AO is erroneous. And for such a preposition, he relies on the decision of the Hon'ble Madras High Court in the case of CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee has shown to have incurred expenses for the following purposes to the tune of Rs. 2,00,770/-. And, he disallowed out of it total amount of Rs. 1,65,016/- as under: - Sr. No. Head of Expenses Amount Dr. in P & L) (Rs.) Disallowance made (Rs.) 1 Car Insurance Expenditure 20727 17036 2 Conveyance Expenditure 4429 3640 3 Depreciation on motor cars 116953 96126 4 Mobile phone charges 10520 8647 5 Motor car expenses 24000 19726 6 Shop Expenditure 4931 4053 7 Telephone charges 19210 15789 Total 2,00,770 1,65,016 13. The 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; and that the assessee failed to justify the claim though asked to by AO vide notice dated 04.01.2016. Therefore, AO was of the opinion that personal element in such expenditure cannot be ruled out and he partly disallowed the claim. 14. Facts stated above are not repeated for the sake of brevi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tablish the fact that the borrowed funds had been utilized for the purpose of repayment of loan for acquiring the income generating property under section 56 of the Act by proving the direct nexus between the interest claimed under section 57(iii) of the Act with the amenities income declared under the head 'Income from other sources' under section 56 of the Act. Thus, the A.O. disallowed the interest amounting to Rs. 3,82,476/- claimed u/s 57(iii) of the Act, which action of AO has been confirmed by Ld. CIT(A). Aggrieved, the assessee is before this Tribunal. 17. Assailing the action of Ld. CIT(A), the Ld. AR submits that the Appellant had availed certain loans from Kush Commodities, HDFC Bank and Manav Jewellers to acquire property at J.P. Infrastructure property, Surat which was let out on rental basis to M/s. Trent Ltd. At the time of letting out the said premises, two separate agreements were executed: (i) lease agreement and (ii) amenities agreement (Pages 101 to 107 and 108 to 128 of the paper book). According to Ld. AR, AO's action of attributing Rs. 8,15,628/- to the lease of property was not justified. Hence, the disallowance made by the A.O. ought to be deleted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otes that assessee couldn't prove by stating that assessee had claimed to have incurred interest expenditure of Rs. 3,82,476/- from three individual [(i) Ashok Raimalani (HUF) Rs. 1,74,061/- and M. K. Sons Fine Jewels Pvt. Ltd Rs. 1,61,667/-] and that assessee failed to show that the amount borrowed from the aforesaid persons were laid out or expended wholly and exclusively for the purpose of earning any "income from other sources". In other words, assessee failed to prove the nexus of borrowing with earning from amenities & FD. Therefore, he disallowed the interest claim. 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 (supra) was for making or earning amenity income or interest from FD, the claim of interest expenses to these persons to the tune of Rs. 3,82,476/- cannot be allowed and so it is confirmed. 19. Coming to the alternate contention assessee that since the AO i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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