The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) held that interest received from a loan given from the overdraft is not taxable hence deleted the additions.
The assessee derives income from salary and income from other sources. The assessee has filed the return of income disclosing a total income of Rs. 18,15,940/-. The case was selected for scrutiny under CASS and notices under Section 143(2) and 142(1) of the Income Tax Act, 1961 were issued.
The Assessing Officer (AO) on perusal of the financial statements found that the assessee has claimed a deduction of interest paid from the interest received under income from other sources under Section 57 of the Income Tax Act and details were called.
The assessee received interest from Wellman Plastic Pvt Ltd and pays interest on the personal loan. The assessee has taken an overdraft against the bank fixed deposits and provided funds to Wellmac Plastic Pvt ltd. The Assessing Officer has asked the assessee to explain the nexus between interest received and interest earned.
The Authorized Representative submitted that the Commissioner of Income Tax (Appeal) [CIT(A)] erred in sustaining the additions of deemed interest irrespective of the fact that the assessee has not received interest from the company and the loan transaction is between a company and the Director.
It was further submitted that the assessee has surplus funds, which are utilized for the purpose of loan transactions and relied on the judicial decisions and substantiated the submissions with the factual paper book, and prayed for allowing the assessee’s appeal.
The contentions of the Authorized Representative that the assessee has filed the return of income disclosing under the income from other sources, interest on savings bank account, interest on FDR and interest from power finance, and interest from parties and has claimed deduction of professional fees, interest paid and bank interest and highlighted with the computation of income.
The assessee is a director of the company and for the purpose of loan facility to the company, he has obtained personal loan from the bank on fixed deposits which cannot be disputed.
Further, the assessee has substantial surplus funds and referred to the financial statements explaining that the assessee has a capital account balance of Rs.4,49,85,053/- which is more than the Loan funded by the assessee to Welmac Plastics Pvt Ltd.
The Authorized Representative relied on the judicial decisions in support of surplus funds availability and the investments/ funding is considered out of surplus funds. The assessee has received interest on the loan from the company and the same was offered for taxation and claimed the interest payments made to banks & other parties.
The two-bench member comprising of Pavan Kumar Gadale (Judicial member) and Rifaur Rahman (Accountant member) held that the action of the Assessing Officer in making an addition of deemed interest is not tenable and we set aside the order of the Commissioner of Income Tax (Appeal) and allow the ground of appeal in favour of the assessee.
Therefore, the appeal filed by the assessee is partly allowed.
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