Income Tax Appellate Tribunal - Mumbai
Bhavarlal Mangilal Jain, Mumbai vs Acit 19 (1), Mumbai on 5 April, 2021
आयकर अपील य अ धकरण
मंब
ु ई पीठ "एस एम सी" , मंब
ु ई
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "SMC", MUMBAI
ी वकास अव थी, या यक सद य के सम!
BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER
आअसं. 2245/म/ंु 2019 ( न.व 2012-13)
ITA NO.2245/MUM/2019 (A.Y 2012-13)
Shri Bhavarlal Mangilal Jain,
58/1, Ganesh Kripa Building,
Mughbhat Lane, Thakurdwar Road,
Mumbai 400 004
PAN: AABPJ 9306K ...... अपीलाथ' /Appellant
बनाम Vs.
The ACIT -19(1),
203, 2nd Floor, Matru Mandir,
Tardeo Road,
Mumbai 400 007 ..... ( तवाद /Respondent
अपीलाथ' *वारा/ Appellant by : Shri Nimesh Chothani
( तवाद *वारा/Respondent by : Shri Sanjay J. Seth
सन
ु वाई क+ त थ/ Date of hearing : 06/01/2021
घोषणा क+ त थ/ Date of pronouncement : 05/04/2021
आदे श/ ORDER
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-60, Mumbai [in short 'the CIT(A)'], dated 15/02/2019 for the assessment year 2012-13.
2. Shri Nimesh Chothani appearing on behalf of the assessee submitted that the assessee in his return of income had wrongly claimed interest expenditure under the head, 'Income from Other Sources'. Consequently, the 2 आअसं. 2245/म/ुं 2019 ( न.व 2012-13) ITA NO.2245/MUM/2019 (A.Y 2012-13) Assessing Officer disallowed the said expenditure. In First Appellate proceedings the assessee raised an additional ground that the interest expenditure be allowed under the head, 'Income/profit from Business and Profession'. The CIT(A) after placing reliance on the decision of Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities & Power Ltd., 313 ITR 340 allowed interest expenditure under section 36(1)(iii). However, the CIT(A) restricted the interest rate to 12%. Interest paid beyond 12% was disallowed on the ground that the rate of interest is higher than the interest received on Partnership Capital Account. The ld. Authorized Representative of the assessee submitted that once the interest expenditure is treated as business expenditure under section 36(1)(iii), the Department cannot disallow proportionate interest in an arbitrary manner. In support of his contentions the ld. Authorized Representative of the assessee placed reliance on the following decisions:
i. CIT vs. Bombay Samachar Ltd., 74 ITR 723 (Bom); and ii. Subhkaran Sampathlal (HUF) vs. ITO, in ITA No.344/Kol/2020 for A.Y. 2007-08 decided on 08/07/2020.
3. On the other hand, Shri Sanjay J. Sethi representing the Department vehemently defended the impugned order. The ld. Departmental Representative submitted that the assessee has taken different stand before the Assessing Officer and the CIT(A) in respect of interest expenditure. The ld. Departmental Representative submitted that the assessee has furnished details of interest paid and interest received. A perusal of the same would show that the assessee has received interest on Partnership Capital Account @12%. Whereas, the assessee has paid interest to some of the parties as high as 24%. The CIT(A) has made disallowance of interest in excess of 12%.
3आअसं. 2245/म/ुं 2019 ( न.व 2012-13) ITA NO.2245/MUM/2019 (A.Y 2012-13)
4. Both sides heard, orders of the authorities below examined. The assessee in present appeal has raised solitary ground assailing disallowance of interest paid on unsecured loans to the extent of Rs.11,09,464/-. The Assessing Officer in assessment proceedings had disallowed assessee's entire claim of interest expenditure, as the assessee had claimed interest expenditure under the head, 'Income from Other Sources'. Before the First Appellate Authority, the assessee made a claim that the interest expenditure be treated as business expenditure. The CIT(A) accepted the alternate claim and allowed interest as business expenditure. The Department is not in appeal against the findings of CIT(A) in accepting interest as business expenditure under section 36(1)(iii) of the Act. Thus, the Department accepted that the interest paid by the assessee is a business expenditure.
5. The CIT(A) while allowing interest expenditure under section 36(1)(iii), restricted the payment of interest @ 12% on the ground that the assessee has received interest on Partnership Capital Account @ 12%, therefore, interest paid to the extent of 12% is allowable. It is observed that the Department has accepted genuineness of the loan transactions and the fact that it is for the purpose of business. Once the CIT(A) has accepted that the payment of interest is business expenditure, the CIT(A) cannot in an arbitrarily manner restrict the interest rate. For disallowing interest beyond a certain rate, the CIT(A) has to show that the interest paid by the assessee is unreasonable or for extraneous consideration. In the absence of any such finding by the CIT(A), restricting interest payment @ 12% is arbitrary and a result of surmises and conjunctures. In the impugned order, a list giving detail of the parties viz. name, amount and rate of interest, to whom interest is paid by the assessee is 4 आअसं. 2245/म/ुं 2019 ( न.व 2012-13) ITA NO.2245/MUM/2019 (A.Y 2012-13) tabulated. A perusal of the same reveals that the assessee has paid interest ranging from 5% to 24% per annum. Some of the parties to whom interest at a rate more than 12% per annum is paid include banks, non-banking finance companies and some private lenders. The CIT(A) has not pointed that any of these parties are related to the assessee within the meaning of section 40A of the Act or excessive interest is paid on account of extraneous consideration. I find merit in the contentions raised by the assessee, consequently, the sole ground raised in the appeal is allowed.
6. In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on Monday, the 05th day of April, 2021.
Sd./-
(VIKAS AWASTHY) या यक सद य/JUDICIAL MEMBER मुंबई/ Mumbai, 0दनांक/Dated: 05/04/2021 Vm, Sr. PS (O/S) 5 आअसं. 2245/म/ुं 2019 ( न.व 2012-13) ITA NO.2245/MUM/2019 (A.Y 2012-13) त ल प अ े षतCopy of the Order forwarded to :
1. अपीलाथ'/The Appellant ,
2. ( तवाद / The Respondent.
3. आयकर आयु1त(अ)/ The CIT(A)-
4. आयकर आय1 ु त CIT
5. वभागीय ( त न ध, आय.अपी.अ ध., मुबंई/DR, ITAT, Mumbai
6. गाड5 फाइल/Guard file.
BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai