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06-09-2019, Sudarshan Kumar Parakh, Section 71(2A), 14A, Tribunal Chennai

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4 months 1 week ago #10781 by amit
Section - 71(2A), 14A, 36, 57, 8D, 37
Order Date - 06-09-2019
Favouring - Partly allowed for statistical purposes
Court - Tribunal Chennai
Appellant - Sudarshan Kumar Parakh
Respondent - ITO
Citation - 919Taxpundit97
Appeal No. - ITA Nos.2453 & 2454/Chny/2017
Asstt. Year - 2013-14 & 2014-15



The assessee filed these two appeals against the common order of the Commissioner of Income Tax (Appeals)-8, Chennai in ITA No.93 & 237/16-17 dated 24.08.2017 for the assessment years (AYs) 2013-14 & 2014-15.

2. The ld AR submitted that the assessee is the Director of the companies viz National Polyplast India Ltd & National Plastic Technologies Ltd and a partner in a firm viz National Autoplast. He has received salary as Director from the above companies and admitted them under the head Salaries, received interest from the two companies on the advances made to them and others which is admitted under head Other Sources. He has received remuneration of Rs 50,000 from the firm National Autoplast and admitted under the head Business. The assessee had borrowed monies from Standarad Chartered Bank and made advances primarily to the above Companies, the firm and also others. The Total amount owed to Standard Chartered Bank was Rs 6.79 crores as on 31.03.2013. He has incurred interest on loan from the bank and others totalling Rs.86,47,582 as under:

The assessee apportioned the interest expenditure of Rs. 86,47,582 under the heads Business and Other sources based on the amounts advanced as under:

The claim under head business was limited to Rs. 2,41,071 due to the restriction contained in Section 71 (2A), which prohibits set off of loss under the head business against the income from Salary. Therefore, after adjusting Rs 50,000/-, the remuneration received from M/s National Auto Plast (Firm) which is admitted under business and Rs.1,81,245 income under the head Property and Rs 9,826 bank interest admitted under the head Other Sources, the balance amount of Rs 49,82,571 was only sought to be carried forward and not set off against current year’s income. However, the AO made a disallowance of interest of Rs. 47,25,713/- and a disallowance u/s 14A at Rs.18,79,106/- and thus made an addition of Rs. 66,04,819 to the returned income for the assessment year 2013-14. Similar method was adopted for the assessment year 2014-15. In addition, the assessee freshly borrowed Rs 3 crores from Standarad Chartered Bank, during the assessment year 2014-15 and out of which advanced Rs.2.75 crores to M/s National Auto Plast (Firm) with an additional interest cost of Rs.25,07,736/- and therefore, in the assessment made for this assessment year, the AO made a disallowance of interest in respect of the amount advanced to M/s National Auto Plast (Firm) at Rs.71,73,606/- and a disallowance of interest claimed under other sources at Rs.25,07,736/- and thus made an addition of Rs. 96,81,342/- to the returned income for the assessment year 2014-15.

3. The ld AR submitted that the assessee has made reasonable apportionment and arrived the income in the respective assessment year whereas the disallowances made by the AO are far in excess of what has been deducted in the Total Income Statement the respective assessment year which are patently erroneous, based on misconception, incorrect appreciation of facts and incorrect application of formula prescribed under Rule 8D and the ld CIT(A) erred in sustaining such assessments. The Assessing Officer is factually incorrect in observing that the assessee has not furnished reasonable reply and failed to prove the genuineness of the transaction with M/s National Autoplast. The assessee made elaborate submissions explaining the source and application of funds and the allocation of Interest expenditure incurred under time heads business and Other Sources. Moreover all the transactions were routed through bank and statement of accounts from the firm/companies have been furnished. Hence, the Assessing

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