Excess Expenditure can’t be allowed since Interest bearing Loans were Utilized to Advances Interest Free Loans: ITAT [Read Order]

Preliminary Expenditure ITAT -Taxscan

In a recent decision in Nitin Kumar Ganeriwala vs. Income Tax Officer, Mumbai bench of Income Tax Appellate Tribunal (ITAT) recently held that excess expenditure cannot be allowed since interest-bearing loans were utilized to advances interest-free loans.

The assessee in the present case is an individual duly filed his return of income for the relevant assessment year and declared his total income as nil and claimed exemption on account of interest expenditure on advances.

During the assessment proceedings, the Assessing Officer (AO) observed during the assessment year the Assessee has obtained the loan from LIC at the rate of 9 percent of interest and the Assessee advanced the same to various parties interest rate ranging from 12% to 15% and few loans were granted without any interest. The AO further found that the Assessee earned interest income of Rs.12 lakhs as against the interest expenditure at Rs.16.02 lakhs. Subsequently, the AO disallowed the claim of the Assessee against interest expenditure amounting to Rs.4.02 lakhs under section 57(iii) of the Income Tax Act 1961 and recomputed the total income and declared a total income at Rs. 55,31,970 as against the nil return filed by the Assessee,

On appeal CIT(A) uphold the order of the AO and confirmed the disallowance made by him. Aggrieved by the order passed by the authority, Assessee approached the Tribunal on further appeal.

The Tribunal bench comprising of Judicial Member Mahavir Singh and Accountant Member Manoj Kumar Aggarwal observed that “disallowance of interest expenditure under section 57(iii) of the Act is concerned, the same was justified since the interest-bearing loans were utilized to advances interest fee loans and therefore, the excess expenditure could not be allowed to the Assessee in the present case”.

While dismissing the appeal filed by the Assessee, the Division Bench held that “excess expenditure cannot be allowed, since interest-bearing loans were utilized to advance interest-free loans”.

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