TaxTMI 
TaxTMI 
TaxTMI 
2025 (8) TMI 1605
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....itrary, unjustified, unwarranted and illegal. II. FOR THAT the purported action of the Learned CIT(A) in confirming the addition of Rs. 89,61,886/- on account of purported finding that the assessee had charged interest @4.79% on the loan given on the basis of method of calculation of average rate of interest which was absolutely arbitrary even though the appellant had given full details regarding the loans which were taken by the appellant and the loans which were given by the appellant including the rate of interest charged on such loans and as such the impugned order of the Learned CIT(A) is arbitrary, unjustified, unwarranted and illegal. III. FOR THAT the appellant having given loans out of his own funds available with him, the purported action of the Learned Assessment Unit as well as Learned CIT(A) in making addition of Rs. 89,61,886/- by disallowing the expenditure on account of purported interest expenditure is arbitrary, unjustified, unwarranted and illegal. IV. FOR THAT the Learned CIT(A) arbitrarily held that the doctrine of real income applies in a limited segment of cases where the realty of the situation prevents the accrual of real income a....
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....nds of Appeal on or before the hearing of this appeal." 3. Brief facts of the case are that the assessee filed the original return of income for AY 2020-21 showing total income of Rs.1,18,92,300/-. The case was selected for scrutiny through Computer Assisted Scrutiny Selection (in short 'CASS') for the reasons of large deduction claimed u/s 57 of the Act. The Assessing Officer (hereinafter referred to as the Ld. 'AO') issued notice u/s 143(2) and 142(1) of the Act and also show cause notices and the assessee filed the response to the notices issued, at times partly and in response to the show cause notice dated 17.08.2022 due compliance was made. The assessee is an individual and had shown income from salary, capital gains and income from other sources. After examining the details filed, the Assessing Officer (hereinafter referred to as Ld. 'AO') made the addition of Rs.89,61,886/- as the assessee had taken interest bearing loan of Rs.15.27 Crore at the rate of interest of 10.67% and the same amount of loans were given at the rate of interest of 4.69% to the various parties as per the calculation done by the Ld. AO. It was seen that the assessee had taken....
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....ant completed the assessment by making an addition of Rs. 89,61,886/- on account of excess interest expenditure claimed by the appellant as expense on the interest-bearing loans. Aggrieved by the addition, the appellant has filed this appeal. 7.1 Ground No. 1 of the appeal is respect of addition of Rs. 89,61,886/- on account of excess interest expenditure claimed by the appellant as expense on the interest-bearing loans. At the outset, it is mentioned that the doctrine of real income applies in a limited segment of cases where the realty of the situation prevents the accrual of real income. The appellant following the mercantile system of accounting and has given interest-bearing loans to several parties by charging an overall average rate of interest @ 4.79%, whereas while claiming the expenditure the appellant has sought to claim the same @ 10.67% i.e. the rate of interest paid by him on the interest-bearing loans. From the facts narrated above, it is evident that the appellant has taken loans at an overall average rate of interest of @ 10.67% which have been used to earned interest income by giving out loans at a much lower overall average rate of interest @ 4.....
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....en (-) 62.62 Available 42.84 Used 11.79 24.10 0.43 0.01 Total: 24.54 (-) 12.75 11.79 Available for lending 31.05 7. Our attention was drawn to pages 14 and 15 of the convenience paper book which give details of all the parties from whom loans were taken during the year and the list includes both interest-bearing as well as interest-free loans as also the interest debited. A perusal of the same shows that a sum of Rs.67.10 Crore was taken from friends and relatives at NIL interest while another sum of Rs.15.27 Crore was taken at the rate of 12%, most of which appeared to be from unrelated parties. Further, our attention was also drawn to page 16 of the convenience paper book in which a sum of Rs.62,62,41,326/- being the balance of loans as at the end of the year is shown which was given to 34 parties, apparently related to the assessee, as non-interest-bearing loans while to 7 parties a sum of Rs.46,33,53,338/-, 4 of which happened to be companies, was given at the rate of 5% while in case of only 2 entities loans were given at the rate of 15%. Thus, while the assessee had himself charged interest at the rate of....
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.... expenditure incurred for earning tax-free income in cases where assessee's like the present appellants, do not maintain separate accounts for the investments and other expenditures incurred for earning the tax-free income. (Para 13) In a situation where the assessee has mixed fund (made up partly of interest-free funds and partly of interest-bearing funds) and payment is made out of that mixed fund, the investment must be considered to have been made out of the interest-free fund. To put it another way, in respect of payment made out of mixed fund, it is the assessee who has such right of appropriation and also the right to assert from what part of the fund a particular investment is made and it may not be permissible for the Revenue to make an estimation of a proportionate figure. (For 17) The disallowance would be legally impermissible for the investment made by the assessee's in bonds/shares using interest-free funds, under Section 14-A of the Act. In other words, if investments in securities are made out of common funds and the assessee has available, non-interest-bearing funds larger than the investments made in tax-free securities then in such cases, disall....
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..... AR rebutted by stating that the decision may be relating to a private bank but the principles relating to the use of mixed funds and the right of uses apply and the disallowance cannot be made. It was further stated that as regards the grounds related to charging of interest u/s 234A of the Act, the due date was extended and the interest should not be charged up to the due date but can be charged after the due date. 10. We have considered the submissions made. The assessee had advanced interest free as well as interest-bearing loans. He also had interest-free as well as interest-bearing loans which were taken from several parties and on which interest was debited. The direction had been claimed under section 57 of the Act and as per the provision of clause (iii) to section 57 of the Act, any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income is allowed. However, the fact remains that the assessee had received loans from individuals and others and had also advanced loans to individuals and others and only the expenditure laid out or expended wholly and exclusively for th....