Claim for Deduction of Interest Expenditure u/s 57 of Income Tax Act is Lawful as Assessee established the borrowed Funds were used for Interest bearing Advances: ITAT [Read Order]

The Ahmedabad Bench of Income Tax Act Appellate Tribunal (ITAT) held that children education, helper & uniform attire reimbursement, the same are coming under the purview of Section 10(14) of the Income Tax Act, 1961 thus allowed tax free allowance on these perquisites.

The assessee Amit Dhirajlal Doshi filed return of income declaring total income of Rs.77,78,190/-. The return was duly processed under Section 143(1) of the Income Tax Act and statutory notices were issued to the assessee and served.

The Assessing Officer (AO) observed that the assessee has credited an amount of Rs.58,63,992/- being salary income, however, in the statement of income the assessee has shown salary income of Rs.52,52,592/- only. The AO added Rs.6,11,400/- as short declaration of salary income. The AO also disallowed interest under Section 57 of the Income Tax Act amounting to Rs.31,99,303/- which was utilised for the purpose of immovable property. The AO also made addition of Rs.44,573/- in respect of interest on LIC loans.

Being aggrieved by the Assessment Order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) partly allowed the appeal of the assessee.

Further aggrieved the assessee filed an appeal before the Tribunal.

The Authorised Representative of the assessee (AR) as regards to relating to addition of Rs.31,47,497/- under Section 57 of the Income Tax Act submitted that the assessee has given details of 11 parties from whom the assessee has taken advance/borrowed fund and paid interest thereof AR submitted that in respect of these loans, the same were taken in earlier years and was immediately paid thereafter and, therefore, there was no question of interest paid. The AR further submitted that the funds were utilised for purchase of immovable property and the same is on record.

The AR relied upon the decision of CIT vs. Sridev Enterprises and contended that with regards the addition of Rs.31,47,497/- under Section 57 of the Income Tax Act, the CIT(A) has given a partial relief in the original addition which was Rs.31,99,303/-.

The Departmental Representative (DR) relied upon the assessment Order and the order of the CIT(A).

The Bench comprising of Smt. Annapurna Gupta, Accountant Member and Ms. Suchitra Kamble, Judicial Member observed that it is clearly mentioned that at the time of scrutiny assessment proceedings the assessee submitted that unsecured loan on which interest has been paid but were utilised to purchase immovable property. The contention of the assessee that the funds were utilised and the loans were taken in earlier year and, therefore, the interest portion should have been allowed appears to be correct.

The CIT(A) has categorically observed that the funds were given to Ashit Doshi on the very same date on which advances were taken from these 11 parties and such funds were repaid by Ashit Doshi immediately. The assessee has also paid interest of Rs.7,60,770/- to Ramilaben Doshi and only submitted ledger account of current year which shows opening balance of Rs.63,39,754/-. In case of Nishit Doshi, assessee paid interest of Rs.9,38,647/-.

Thus, the assessee has established that the borrowed funds were utilised for such interest bearing advance and hence claim of the assessee for deduction of interest expenditure under Section 57 of the Income Tax Act was proper. The AO as well as the CIT(A) was not right in making this addition. Hence, appeal filed by the assessee was allowed.

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