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Judgment
PER S. RIFAUR RAHMAN, AM :
This appeal is filed by the assessee against the order of the Ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. CIT(A)] dated 30.06.2025 for the Assessment Year 2019-20 raising following grounds of appeal :-
“1.The Hon'ble Commissioner of Income Tax each Ground of (Appeal), National Faceless Appeal Centre (NFAC), Delhi erred in law and fact in confirming the addition of Rs.24,75,730/- on account of interest income without giving effect of the corresponding interest expenses under section 57 of the Income Tax Act which results into net zero income as reported in return of income.
2.The Hon'ble Commissioner of Income Tax (Appeal), National Faceless Appeal Centre (NFAC), Delhi erred in law and fact in confirming the addition of Rs.24,75,730/- without discarding the apparent live nexus of the income with expenses as admitted on record in making approbate and reprobate by taking shifting stand on income and corresponding expenses of the same head.
3.The Hon'ble Commissioner of Income Tax (Appeal), National Faceless Appeal Centre (NFAC), Delhi confirming the addition of Rs.24,75,730/- merely on facial columns of return of income shown on net basis after reducing interest expenses in ignoring principle of form over substance and confirming addition on mere confusion over facial reporting in return in ignoring computation income having statutory recognition in income tax act.
4.That impugned order passed u/s 250 by NFAC/CITA, dismissing the appeal of the assessee and sustaining impugned assessment order of ld AO is unlawful as in violation of principles of natural justice.
5.That impugned order passed u/s 250 by NFAC/CITA, dismissing the appeal of the assessee and sustaining impugned assessment order of ld AO is unlawful as no valid show cause notice has been issued in compliance with CBDT Instruction No.20/2015.”
Brief facts of the case are, the assessee filed his return of income on 26th October 2019 declaring total income at Rs.90,83,160/-. The return was revised and same was filed on 21stJanuary 2020 wherein no change in the total income declared by the assessee. The case was selected for scrutiny. During the year, the assessee declared income from salary, Income from house property, income from business, income from speculative business and income from other sources. During the assessment proceedings, the assessing officer on perusal of Form 26ASnoticed that assessee had not declared the interest income of Rs.24,75,730/- as received from. M/s ML Brother LLP, in which the assessee was a partner during the year under consideration. When a show cause notice was issued to the assessee to substantiate the above, the assessee submitted that he has taken overdraft loan from bank and the same was financed to LLP, the payment of interest to the bank was compensated with the interest received from the LLP. The assessee also submitted the balance sheet to substantiate the investment in the LLP, apart from the capital invested in the LLP.
The AO rejected the same and observed that the assessee had acknowledged the receipt of interest from the LLP but not declared the same in the return of income and now the assessee cannot claim the interest expenditure, since the same was also not declared in the return of income, hence he rejected the claim of the assessee on the interest expenditure and only retained the interest income.
Aggrieved with the above order, the assessee preferred an appeal before the NFAC, Delhi. After considering the submissions, the Ld CIT(A) sustained the additions made by the AO.
Aggrieved with the above order, the assessee is in appeal before us and raised several grounds.
After considering the detailed submissions and material placed on record by the both the parties. We observed that the assessee in actual gave loan to the LLP out of overdraft loan availed from the bank, which was diverted to the LLP and earned the interest income during the year. The assessee had set off the income earned from the LLP against the interest expenditure, it is so happened that the income and expenditure are same. The assessee had not declared both the income as well as the expenditure in the return of income, the officers who are holding quasi-judicial positions, chose only to bring interest income to tax and consciously overlooked the interest expenditure, even though both the income as well expenditure was not declared in the return of income. The officers failed to acknowledge the fact that only income has to be brought to tax.
In this case, we noticed that the assessee has no income in the above transaction, in case the officers intend to bring the income to tax, they have to also recognise the corresponding expenditure linked to the transaction. Therefore, we are inclined to allow the claim and ground raised.
In the result, appeal filed by the assessee is allowed.