Income Tax Appellate Tribunal - Bangalore
Sri I P Mallokaradhya , Davangere vs The Deputy Commissioner Of Income Tax ... on 26 June, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
"A'' BENCH : BANGALORE
BEFORE SHRI N.V VASUDEVAN, VICE PRESIDNET AND
SHRI B.R BASKARAN, ACCOUNTANT MEMBER
ITA No.2817/Bang/2018
Assessment year : 2013-14
Sri I.P Mallokaradhya, Vs. The Dy. Commissioner of Income-tax,
385, Aradhya House, Circle-1(1),
KB Extension, Davangere.
Davangere-577 002.
PAN - ACMPM 7814 L.
APPELLANT RESPONDENT
Appellant by : Shri Narendra Sharma, Advocate
Respondent by : Dr. Shankar Prasad, Addl. CIT
Date of hearing : 13.06.2019
Date of Pronouncement : 26.06.2019
ORDER
Per B.R Baskaran, Accountant Member
The appeal filed by the assessee is directed against the order dated 25/7/2018 passed by ld CIT(A), Davangere and it relates to asst. year 2013-14.
2. The assessee is aggrieved by the decision of ld CIT(A) in confirming interest disallowance of Rs.28.32 lakhs made by the AO.
3. The facts relating to the above said issue are that the assessee took a loan from a bank and paid a interest of Rs.35.97 ITA No.2817/Bang/2018 Page 2 of 5 lakhs. The assessee used the loan proceeds to advance funds to a company named M/s Aradhya Steel Pvt. Ltd, i.e., he invested a sum of Rs.1 crore on 19/6/2012 and another sum of Rs.1 crore on 18/12/2012. In the return of income, the assessee declared interest income of Rs.28.32 lakhs on the loans given to the above said company. The assessee also claimed interest expenditure of Rs.28.32 lakhs against the above said interest income, since he had paid interest of Rs.35.97 lakhs on the loan taken from the bank. The AO collected the ledger account of the assessee as available in the books of M/s Aradhya Steel Pvt. Ltd., and noticed that the above said company has not provided for any interest payable to the assessee. The AO further noticed that the assessee has given huge amount to the above said company and the interest amount of 28.32 lakhs is not commensurate with the loan amount so given by the assessee. Accordingly, the AO took the view that the assessee, by making provision for interest income in his books, has only attempted to enhance his capital. The AO also noticed that the assessee did not claim difference interest expenditure of Rs.7.65 lakhs (Rs.35.07 lakhs paid to the bank - 28.32 lakhs claimed against the interest income) as expenditure, i.e., the difference amount was debited to the capital account of the assessee. Accordingly the AO took the view that provision made by the assessee for interest income and also claiming of interest expenditure against it is not acceptable, since it is only an arrangement made to increase the capital of the assessee in undue manner. Accordingly the AO took the view that the interest claim of 28.32 lakhs made by the assessee is not allowable. Accordingly he disallowed the interest expenditure and added the same to the ITA No.2817/Bang/2018 Page 3 of 5 total income of the assessee. The ld CIT(A) also confirmed the same and hence the assessee has filed this appeal before us.
4. We heard the parties and perused the record. There is no dispute with regard to the fact that the part of loan taken from the bank has been used by the assessee to make advance to M/s Aradhya Steel Pvt. Ltd. There should not be any dispute that the interest expenditure relatable to the advance so given is deductible against the interest income received/receivable from the advance so given. In the instant case, the assessee has shown interest income of Rs.28.32 lakhs as receivable from the above said company and claimed equal amount of interest expenditure. The case of the AO is that the assessee is not entitled to receive interest income, since M/s Aradhya Steel Pvt. Ltd has not provided for interest payable to the assessee. Accordingly the AO has taken the view that interest expenditure claimed by the assessee is not allowable. Once the AO has taken the view that the interest income does not accrue to the assessee, then the AO should have excluded interest income also, while disallowing interest expenditure claimed by the assessee. If the AO assesses interest income, then there is no bar in claiming corresponding interest expenditure. Hence the action of the tax authorities in assessing interest income (which was held as not accrued to the assessee), while disallowing interest expenditure is not justified.
5. We have noticed that the net effect of interest income offered and expenditure claimed by the assessee is NIL. The case of the AO is that the assessee has increased his capital by accounting for the ITA No.2817/Bang/2018 Page 4 of 5 interest income. Under the accounting principles, if the assessee did not receive the said interest, then he is required to reverse the same in the subsequent year, which will consequently result in reduction of capital in that year. Hence the reasoning given by the AO for disallowing interest expenditure is not sustainable.
6. In view of the above, we are of the view that the disallowance of interest expenditure is not justified. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the disallowance of interest expenditure claimed by the assessee.
7. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the Open Court on 26th June, 2019.
Sd/- Sd/-
(N.V Vasudevan) (B.R Baskaran)
Vice President Accountant Member
Bangalore,
Dated, 26th June, 2019.
/ vms /
Copy to:
1. The Applicant
2. The Respondent
3 . The CIT
4. The CIT(A)
5. The DR, ITAT, Bangalore.
6. Guard file
By order
Asst. Registrar, ITAT, Bangalore.
ITA No.2817/Bang/2018
Page 5 of 5
1. Date of Dictation .............................................
2. Date on which the typed draft is placed before the dictating Member .........................
3. Date on which the approved draft comes to Sr.P.S ...................................
4. Date on which the fair order is placed before the dictating Member ....................
5. Date on which the fair order comes back to the Sr. P.S. .......................
6. Date of uploading the order on website...................................
7. If not uploaded, furnish the reason for doing so ................................
8. Date on which the file goes to the Bench Clerk .......................
9. Date on which order goes for Xerox & endorsement..........................................
10. Date on which the file goes to the Head Clerk .........................
11. The date on which the file goes to the Assistant Registrar for signature on the order .....................................
12. The date on which the file goes to dispatch section for dispatch of the Tribunal Order ...............................
13. Date of Despatch of Order.
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