Neelesh Satish Kanade,, Pune vs Assessee

Neelesh Satish Kanade 1073, Bhosale Mystiqa, Model Colony, Pune - 411016 .... Appellant

PAN: AGDPK4376L

Vs.

The Asst. Commissioner of Income Tax Central Circle -2 (1), Pune .... Respondent

Appellant by : Smt. Deepa Khare Department by : Shri A.K. Modi, CIT Date of hearing : 19-03-2015 Date of pronouncement : 19-03-2015

ORDER

PER G.S. PANNU, AM:

The captioned two appeals relate to the same assessee and involve a

common issue, therefore, they have been clubbed and heard together, and a

consolidated order is being passed for the sake of convenience and brevity.

2. The captioned appeals are directed against two separate orders of

CIT(A)-Central, Pune dated 25.10.2011 for assessment years 2003-04 and

2004-05, which in turn arise from the respective orders of assessment passed

by the Assessing Officer under section 143(3) / 153A of the Income Tax Act,

1961 ((in short "the Act"), dated 31.12.2009.

2 ITA No.79/PN/2012

ITA Nos.359 & 360/PN/2012

3. In both the appeals, the only issue relates to interest expenditure

disallowed by the income-tax authorities amounting to Rs.2,45,904/- and

Rs.43,258/- for assessment years 2003-04 and 2004-05, respectively.

4. At the time of hearing, it was a common point between both the

Authorized Representatives that identical controversy in assessee's own case

for the assessment years 2006-07 to 2008-09, vide ITA Nos.1702 to

1704/PN/2013, dated 03.03.2015 has been considered by the Division Bench

'B', Pune and accordingly, the claim of the assessee for deduction of aforesaid

interest expenditure is allowable.

5. Briefly put, the relevant facts are that assessee individual derives

income from salary as well as through a proprietary business concern of Finix

Constructions. In the course of impugned assessment proceedings, the

Assessing Officer noted that in the Profit & Loss Account of Finix

Constructions, assessee had claimed expenditure by way of interest of

Rs.2,45,904/- and Rs.43,258/- for assessment years 2003-04 and 2004-05,

respectively, which was not allowable as assessee had failed to establish that

the corresponding loan funds were utilized for the purposes of business. The

CIT(A) has also affirmed the aforesaid decision of Assessing Officer.

6. The Tribunal in its order dated 03.03.2015 (supra) considered similar

disallowance for assessment years 2006-07 to 2008-09 and allowed deduction

while making the following discussion:-

"12. We have heard the rival contentions and perused the record. The assessee during the year under consideration had claimed loss from his proprietary concern i.e. M/s. Finix Constructions. Admittedly, during the year under consideration, no business receipts were shown by the assessee. The claim of the assessee was that it was engaged in the construction activity, but for the captioned assessment year though the business was continuing, but there were no receipts from the 3 ITA No.79/PN/2012 ITA Nos.359 & 360/PN/2012

proprietary business. The issue before us is in relation to the allowability of the expenditure claimed to have been incurred in the year under appeal. The assessee had obtained loan from Sri Suvarna Sahakari Bank Ltd. in the earlier years and sum of Rs.6,88,171/- was debited as interest due on such loan. The assessee in the preceding years and also in the succeeding years had debited same amount of interest i.e. Rs.6,88,171/- as interest payable to the bank. The claim of the assessee was that the said interest was not to be disallowed under the provisions of section 43B of the Act since the bank was not a scheduled bank. Another issue raised by the assessee was that even where the account had become NPA, the recognition of the liability in cases where the person was maintaining the books of account on mercantile basis had to be made in the year of accrual itself, irrespective of the amount being paid in the year or not. Another plea raised by the assessee was that the liability was existing on the close of the year as is evident from the fact that the said liability was settled by way of OTS in assessment year 2009-10 and difference on settlement of the loan account was offered to tax.

The assessee has placed on record the copy of the bank statement reflecting the statement of loan and interest thereon at page 439 of the Paper Book and the entries passed in the books of account of the assessee as per the copy of accounts placed at page 440 of the Paper Book. The interest debited to the Profit & Loss Account in the earlier years to the extent of Rs.25,70,909/- was offered for taxation in assessment year 2009-10 as is evident from the computation of income filed for the said year, which is placed at pages 418 and 419 of the Paper Book. Admittedly, during the year under consideration, the assessee had no contract receipts but the loan raised by the assessee in the earlier years for the purpose of carrying on the business was still payable and the interest on such loan was booked by the assessee irrespective of the account having become NPA. The assessee has recognized the liability and has further in assessment year 2009-10 has entered into OTS with the bank, under which there was waiver of interest liability, which has been offered to tax as income of the assessee in assessment year 2009-10.

In view of the above said facts and circumstances, we find merit in the claim of the assessee and accordingly, direct the Assessing Officer to allow the expenditure of Rs.6,88,171/- as interest due on the loan outstanding during the year under consideration. The ground of appeal No.1 raised by the assessee is thus, allowed."

7. In view of the aforesaid findings of the Division Bench, the impugned

claim of assessee relating to the interest debited in the Profit & Loss Account

is an allowable deduction. As a consequence, the impugned orders of CIT(A)

are set-aside and the Assessing Officer is directed to allow deduction of

Rs.2,45,904/- and Rs.43,258/- on account of interest pertaining to assessment

years 2003-04 and 2004-05, respectively. As a consequence, the captioned

appeals of the assessee are allowed.

4 ITA No.79/PN/2012

ITA Nos.359 & 360/PN/2012

8. In the result, both the appeals of the assessee are allowed.

Above decision was pronounced in the open court at the conclusion of

hearing in the presence of both parties i.e. on 19.03.2015.

Sd/-

(G.S. PANNU) ACCOUNTANT MEMBER

Pune, Dated: 19th March, 2015.

GCVSR

Copy of the order is forwarded to: -

1) The Assessee; 2) The Department; 3) The CIT(A)-Central, Pune; 4) The CIT-Central, Pune; 5) The DR "SMC" Bench, I.T.A.T., Pune; 6) Guard File.

By Order

//True Copy// Assistant Registrar I.T.A.T., Pune