The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) the matter of disallowance of interest expenses back to the Jurisdictional Assessing Officer for fresh adjudication.
Upendra Chinubhai Shah,the appellant-assessee,an individual with income from salary, house property, capital gains, and business, declared a total income of ₹1,90,00,480 in his Return of Income filed on October 29, 2017.
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During scrutiny assessment, the Assessing Officer (AO) issued a notice questioning the interest expenses of ₹10,79,531, suggesting these should be treated as unexplained under Section 69C due to the alleged lack of genuineness of unsecured loans.
In response, the assessee referred to a previous assessment for AY 2016-17, where the Commissioner of Income Tax(Appeals)[CIT(A)] had deemed similar unsecured loans genuine and had deleted a prior disallowance of interest. The assessee argued that since no new loans were taken during the financial year, the proposed disallowance was unwarranted.
However, the AO rejected this explanation, asserting that the pending appeal against the CIT(A) order rendered the loans as non-genuine. Consequently, the AO confirmed the disallowance of the interest expense.
Dissatisfied with the AO’s decision, the appellant appealed to the Additional/Joint Commissioner of Income Tax(Appeals), who dismissed the appeal on the grounds that the matter was still unresolved at the Tribunal. The assesse raised multiple grounds, emphasizing the genuine nature of the unsecured loans and past decisions where similar disallowances had been overturned.
During the hearing, the assessee’s counsel presented a Paper Book containing various documents, including previous appellate orders from the Tribunal. The Senior Departmental representative(DR) informed the tribunal that the appellant had opted for the Vivad Se Vishwas Scheme for the earlier assessment years, which affected the stance on the unsecured loans deemed bogus, resulting in the payment of taxes accordingly. It was highlighted that the department could not pursue its appeal for AY 2016-17 due to low tax effect.
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The Tribunal reviewed the case and noted that previous decisions on the genuineness of the loans were linked to the Vivad Se Vishwas Scheme rather than substantive merits. It found that the Additional/JCIT had not adequately considered the status of earlier appeals regarding interest disallowance.
The two member bench comprising T.R.Senthil Kumar(Judicial Member) and Ramit Kochar(Accountant Member) remanded the case to the Jurisdictional Assessing Officer for a fresh evaluation of the interest expense disallowance, taking into account the current situation of the unsecured loans.
The tribunal stressed the need for the appellant to provide all necessary documentation for proper adjudication. Ultimately, it partially allowed the appeal for statistical purposes, instructing a detailed review of the disallowed interest expenses based on the loans’ genuineness.
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