Rajendra Kumar Jain v. The Income-tax Officer, Non Corporate Ward 2(3), Chennai
[Citation -2020-LL-1005-42]

Citation 2020-LL-1005-42
Appellant Name Rajendra Kumar Jain
Respondent Name The Income-tax Officer, Non Corporate Ward 2(3), Chennai
Court HIGH COURT OF MADRAS
Relevant Act Income-tax
Date of Order 05/10/2020
Assessment Year 2011-12
Judgment View Judgment
Keyword Tags commercial expediency • purpose of investment • business activities • claim of interest • interest expense • return of income • interest payment • promissory note • liquidity ratio • borrowed money • interest paid • other sources • lent money
Bot Summary: The assessee filed this appeal by raising the following substantial questions of law : i. Whether, in the facts and circumstances of the case, the interest expense of the assessee on such moneys borrowed be disallowed under Section 57(iii) of the Income Tax Act, 1961 merely because of the Assessing Officer's claim that the assessee is financially sound ii. Whether, in the facts and circumstances of the case, the interest expense claimed under Section 57(iii), not being a capital expense and having corresponding income offered under the income from other sources, be disallowed by the Assessing Officer on the ground of commercial expediency of loans obtained by the assessee 4. The assessee filed the return of income for the assessment year under consideration namely AY 2011-12 on 27.6.2012 admitting a total income of Rs.11,82,660/-. The case of the assessee is that those persons, who had lent money to the assessee, were also income tax assessees and that the interest paid to them by the assessee were duly accounted for in their respective return of income filed by them. As against the order passed by the CIT(A), the assessee preferred further appeal before the Tribunal by contending that the interest paid were all loans, which were borrowed in the prior years and which had been allowed as deduction year on year and the CIT(A) had not considered the statement of confirmations given evidencing that no new loan was taken during the financial year relevant to the assessment year under consideration. The assessee further contended that the CIT(A) erred in not allowing the interest expense even though the assessee was following mercantile system of accounting. The assessments could not have been brushed aside and an attempt ought to have been made to examine the genuineness of the stand taken by the assessee especially when the assessee contended that he is a partner in five firms, which were all established in 1980s.


TCA.No.744 of 2019 In High Court of Judicature at Madras Dated : 05.10.2020 Coram : Honourable Mr.Justice T.S.SIVAGNANAM and Honourable Mrs.Justice V.BHAVANI SUBBAROYAN Tax Case Appeal No.744 of 2019 Mr.Rajendra Kumar Jain .Appellant Vs Income Tax Officer, Non Corporate Ward 2(3), Chennai-34. ...Respondent APPEAL under Section 260A of Income Tax Act, 1961 against order dated 22.12.2016 made in ITA.No.2110/Mds/2016 on file of Income Tax Appellate Tribunal, Chennai 'A' (SMC) Bench for assessment year 2011-12. For Appellant: Ms.V.Logheswari for Mr.V.Raghavachari For Respondent: Mrs.R.Hemalatha, SSC Judgment was delivered by T.S.Sivagnanam,J We have heard Ms.V.Logheswari, learned counsel appearing for Mr.V.Raghavachari, learned counsel on record for appellant 1/9 http://www.judis.nic.in TCA.No.744 of 2019 assessee and Mrs.R.Hemalatha, learned Senior Standing Counsel appearing for respondent Revenue. 2. This appeal, filed by assessee under Section 260A of Income Tax Act, 1961 (for short, Act) is directed against order dated 22.12.2016 made in ITA.No.2110/Mds/2016 on file of Income Tax Appellate Tribunal, Chennai 'A' (SMC) Bench (for brevity, Tribunal) for assessment year 2011-12. 3. assessee filed this appeal by raising following substantial questions of law : i. Whether, in facts and circumstances of case, interest expense of assessee on such moneys borrowed be disallowed under Section 57(iii) of Income Tax Act, 1961 merely because of Assessing Officer's claim that assessee is financially sound ? ii. Whether, in facts and circumstances of case, Assessing Officer's action in disallowing assessee's claim of interest deduction under Section 57(iii) amounts to review of accepted views by Department in earlier years? And 2/9 http://www.judis.nic.in TCA.No.744 of 2019 iii. Whether, in facts and circumstances of case, interest expense claimed under Section 57(iii), not being capital expense and having corresponding income offered under income from other sources, be disallowed by Assessing Officer on ground of commercial expediency of loans obtained by assessee? 4. assessee is individual and is said to be partner in five family run partnership firms, which were established in 1980s. assessee filed return of income for assessment year under consideration namely AY 2011-12 on 27.6.2012 admitting total income of Rs.11,82,660/-. case was selected for scrutiny and notice under Section 143(2) of Act was issued. assessee sent reply giving details as to five partnership firms, in which he was partner and also names of persons, from whom, he availed loan. 5. case of assessee is that those persons, who had lent money to assessee, were also income tax assessees and that interest paid to them by assessee were duly accounted for in their respective return of income filed by them. Assessing Officer, while 3/9 http://www.judis.nic.in TCA.No.744 of 2019 completing assessment, vide order dated 24.3.2014 under Section 143(3) of Act, found that assessee did not furnish details of dates of receipt of loans, copies of agreements, modes of receipt of loans and other details. Apart from that, Assessing Officer observed that financial position and liquidity ratio of assessee appeared to be sound. Accordingly, deduction claimed to extent of Rs.7,36,579/- was disallowed and assessment was completed. 6. Aggrieved by same, assessee preferred appeal before Commissioner of Income Tax (Appeals) -2, Chennai-34 [for short, CIT(A)]. Among other things, assessee contended that amounts of loan were received through proper banking channels and from family members, that therefore, necessity of obtaining promissory note did not arise, that persons, from whom monies were borrowed, were assessed to income tax and they filed income tax returns regularly and that interest paid to them had been offered to tax. CIT(A), on considering facts noted by Assessing Officer, dismissed appeal primarily on ground that assessee failed to produce necessary evidence to establish his claim for interest payment to relatives nor made out any case for 4/9 http://www.judis.nic.in TCA.No.744 of 2019 deduction of such interest under Section 57(iii) of Act. 7. As against order passed by CIT(A), assessee preferred further appeal before Tribunal by contending that interest paid were all loans, which were borrowed in prior years and which had been allowed as deduction year on year and CIT(A) had not considered statement of confirmations given evidencing that no new loan was taken during financial year relevant to assessment year under consideration. assessee further contended that CIT(A) erred in not allowing interest expense even though assessee was following mercantile system of accounting. Without prejudice to above submissions, assessee also contended that interest receipts on loan given had to be set off with interest payments before disallowing interest payments. 8. However, Tribunal dismissed appeal filed by assessee by impugned order and in doing so, proceeded on totally different basis by observing that assessee borrowed amount for purpose of investment in other firms as capital of assessee and therefore, it could not be allowed as deduction and in this regard, followed decision of Kerala High Court in case 5/9 http://www.judis.nic.in TCA.No.744 of 2019 of CIT Vs. Popular Vehicles and Services Ltd. [reported in (2010) 325 ITR 523]. Further, with regard to earlier assessments, Tribunal held that those assessments were accepted by intimation given under Section 143(1) of Act and none of them was scrutiny assessment. assessee is before us by way of this appeal challenging order passed by Tribunal. 9. Admittedly, assessee had given names of persons, from whom he borrowed money and also stated that interest paid had been allowed as deduction from year to year. It may be true that earlier assessments stood concluded upon intimation being issued under Section 143(1) of Act and in none of years, there was scrutiny assessment under Section 143(3) of Act. However, assessments for previous years had not been disturbed by Revenue. Neither they were selected for scrutiny nor there was reopening by way of issuance of notice under Section 148 of Act. Therefore, assessments could not have been brushed aside and attempt ought to have been made to examine genuineness of stand taken by assessee especially when assessee contended that he is partner in five firms, which were all established in 1980s. 6/9 http://www.judis.nic.in TCA.No.744 of 2019 10. That apart, assessee specifically stated that loans were availed through banking channels and interest amounts were paid to lenders, who have disclosed same in their respective return of income and tax had been remitted by them on interest income. Had Assessing Officer directed assessee to produce those lenders to appear for enquiry by issuing notice, probably correct factual decision would have been ascertained. 11. In grounds of appeal filed before Tribunal, assessee contended that CIT did not consider statement of confirmations given evidencing that no new loan was taken during year under consideration. This aspect had not been dealt with in impugned order passed by Tribunal. As mentioned earlier, Tribunal proceeded on totally different footing, which neither appears to be case of assessee nor that of Revenue. assessee cannot be worse off before Tribunal in his own appeal. Thus, considering facts and circumstances of case and taking note of nature of business activities done by assessee, we deem it appropriate to set aside orders passed by Assessing Officer, CIT(A) and Tribunal and remand matter to Assessing Officer for fresh consideration. 7/9 http://www.judis.nic.in TCA.No.744 of 2019 12. Accordingly, above tax case appeal is allowed, orders passed by Assessing Officer, CIT(A) and Tribunal are set aside and matter is remanded to Assessing Officer for fresh consideration. Before Assessing Officer, assessee shall produce all relevant details to establish his case. Assessing Officer shall consider documents and take fresh decision on merits and in accordance with law. substantial questions of law raised are left open. No costs. 05.10.2020 To 1.The Income Tax Appellate Tribunal, Chennai 'A' (SMC) Bench. 2.The Income Tax Officer, Non Corporate Ward 2(3), Chennai-34. RS 8/9 http://www.judis.nic.in TCA.No.744 of 2019 T.S.SIVAGNANAM,J AND V.BHAVANI SUBBAROYAN,J RS TCA.No.744 of 2019 05.10.2020 9/9 http://www.judis.nic.in Rajendra Kumar Jain v. Income-tax Officer, Non Corporate Ward 2(3), Chennai
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