ITAT rules in favor of assessee, reduces expense disallowance, upholds interest payment, dismisses bank charges.

Shri Ramchand Raimalani Versus Income Tax Officer 18 (3) (1), Mumbai

Shri Ramchand Raimalani Versus Income Tax Officer 18 (3) (1), Mumbai - TMI Issues:
1. Disallowance of interest paid from personal account for business purpose.
2. Disallowance of bank charges charged by the bank on O/D.
3. Disallowance of 10% of the expenses debited to P&L Account of M/s. M.K.Sons Jewellers.
4. Disallowance of 10% of the expenses debited to P&L Account of M/s. Kush India Commodities.

Analysis:

Issue 1 - Disallowance of interest paid from personal account for business purpose:
The Assessing Officer disallowed interest paid from the personal account for business purposes, leading to an addition of Rs. 27,63,587. The appellant argued that loans were taken in the personal name due to difficulty in obtaining loans for the commodities business and were subsequently transferred to the proprietary concerns. However, the CIT(A) upheld the disallowance, stating that the loans were invested in personal assets, not for business purposes. The ITAT found the adverse inference drawn by the authorities to be without merit, emphasizing that the assessee had the right to attribute interest-free and interest-bearing funds for different purposes. The ITAT ruled in favor of the assessee, overturning the lower authorities' decision.

Issue 2 - Disallowance of bank charges on O/D:
The appellant decided not to press this ground, leading to its dismissal as not pressed.

Issue 3 & 4 - Disallowance of expenses debited to P&L Account:
The Assessing Officer made a 15% disallowance on various expenses debited in the Profit & Loss Account due to incomplete expenditure documentation. The CIT(A) reduced the disallowance to 10%, which the assessee appealed before the ITAT. The ITAT noted the ad-hoc basis of the disallowance and the lack of specific vouchers presented by the Assessing Officer. It decided that a 5% disallowance of the expenses would suffice in the interest of justice, a proposition agreed upon by the assessee's counsel. Consequently, the ITAT partially allowed the appeal, restricting the disallowance to 5% of the expenditure.

In conclusion, the ITAT ruled in favor of the assessee on the disallowance of interest paid from the personal account for business purposes, overturned the decision on the expenses debited to the P&L Account, and dismissed the ground regarding bank charges. The appeal was partly allowed, with the disallowance of expenses reduced to 5%.