TaxTMI 
TaxTMI 
2025 (8) TMI 910
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....m salary, income from other sources, house property and capital gains. The return of income was filed on 20.07.2018 declaring total income of Rs. 49,05,370/-. Notice under section 143(2) was served on 23.09.2019 and notices under section 142(1) were thereafter issued calling for details on the limited scrutiny issue. 2.2 As recorded by the AO, a perusal of Form 26AS revealed interest credited of Rs. 14,65,941/- on which tax was deducted under section 194A. The assessee's computation under the head "Income from other sources" disclosed interest from savings bank Rs. 15,475/-. commission income Rs. 3,74,723/-, interest on fixed deposits and from parties Rs. 51,17,989/- aggregating to Rs. 55,08,187/-. Against the said total, the assessee claimed interest expense of Rs. 51,17,989/- and commission related expenses of Rs. 6,751, returning net income from other sources at Rs. 3,83,447/-. 2.3 The AO noted the assessee's working that total interest payable/paid for the year was Rs. 67,55,526/- to various parties (out of which Rs. 66,59,593/- stood to the account of Shri Alpesh Bhikhabhai Patel by way of a journal entry dated 31.03.2018) and further interest of Rs. 7,62,791/- pertained....
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....rest receipts and the interest payments had been demonstrated. 2.6 Proceeding on the above and noting that none of the interest payments were made during the year and were stated to have been made in subsequent years, the AO held that the assessee failed to satisfy the statutory requirement of section 57(iii) that the expenditure must be laid out or expended wholly and exclusively for the purpose of making or earning such income. He, therefore, disallowed Rs. 34,17,989/- and added the same to the returned income, initiated penalty proceedings under section 270A for under-reporting/misreporting, and completed the assessment under section 143(3) r.w.s. 144B. 2.7 Aggrieved, the assessee carried the matter in appeal. The CIT(A), after reproducing the assessee's submissions, recorded, inter alia, the assertions that the assessee follows mercantile accounting in terms of section 145(1) and Tax Accounting Standard-1; that interest income of Rs. 51,17,989/- comprised FD interest and interest from parties, of which interest receivable on mercantile basis from identified parties-Anuj Gupta (Rs.17,75,000/-), Priyanka Gupta (Rs.13,52,448/-) and Meenaben Vedprakash Chhabria (Rs. 1,56,389/....
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....t followed mercantile accounting, as per Tax Accounting Standard-1, offering interest income on an accrual basis. - The AO failed to apply the matching principle, which allows expenses to be deducted in the year the corresponding income is recognized. 6. Non-Consideration of Past Assessments: - The AO and CIT(A) ignored previous scrutiny assessments for AY 2016-17 which had accepted similar interest claims. - Such arbitrary deviation from past assessments is against principles laid down by the Supreme Court in Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC). 7. Breach of Natural Justice: - The AO failed to properly examine the evidence submitted and disregarded legitimate business transactions. - The AO's action is based on assumptions rather than verified facts, which violates the principles of natural justice. PRAYER: In light of the above grounds, it is respectfully prayed that the Hon'ble Tribunal may: 1. Delete the disallowance of Rs. 34,17,989 made under section 57. 2. Grant relief to the appellant by allowing the appeal in full. 3. Pass any other order deemed....
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....d those advanced. 6.1 We also find from the record that several of the parties to whom loans were stated to have been advanced are closely associated or related to the assessee. Despite this, the learned AR could not justify why the alleged lender, Shri Alpesh B. Patel, did not directly advance monies to those persons, particularly when the assessee did not appear to carry on any regular money lending business nor demonstrated any arm's length rationale for such intermediation. The explanation merely rested on accounting entries, without establishing the underlying commercial purpose or genuineness of the transaction. The principle of nexus, as envisaged under section 57(iii), is not confined to a mere quantitative correlation or mechanical matching between income and expenditure, but requires that the expenditure must be incurred wholly and exclusively for the purpose of earning such income. 6.2 The learned Authorised Representative placed reliance on the assessment order passed under section 143(3) of the Act for A.Y. 2016-17, a copy of which was filed in the paper book, to contend that in the earlier year the Assessing Officer had accepted the claim of interest expenditure....