2011 (1) TMI 1474 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of disallowance of proportionate interest component.
2. Applicability of section 40A(2) of the I.T. Act, 1961.
3. Applicability of sections 92 and 93 of the I.T. Act, 1961.
4. Deletion of disallowance made on account of property tax.

Summary:

Issue 1: Deletion of disallowance of proportionate interest component
The Assessing Officer (AO) disallowed Rs. 3,25,33,488 as interest on debentures, claiming the payment for properties was 182% above market value. The CIT(A) deleted this disallowance, stating that the interest on borrowed capital is allowable u/s 24 of the I.T. Act if used for property purchase. The CIT(A) emphasized that stamp duty valuation is not conclusive for determining market value and that the AO did not provide independent valuation to substantiate the claim of excessive payment. The Tribunal upheld the CIT(A)'s decision, noting no legal provision allows disallowance of interest for excess consideration paid for property.

Issue 2: Applicability of section 40A(2) of the I.T. Act, 1961
The AO argued that section 40A(2) applies as the transaction involved payments to associate concerns. The CIT(A) and the Tribunal found that section 40A(2) was not applicable as the transaction was between two domestic entities and the interest on borrowed capital was for property acquisition, which is allowable under the head "House Property Income."

Issue 3: Applicability of sections 92 and 93 of the I.T. Act, 1961
The AO contended that sections 92 and 93 applied due to the excessive price paid for properties, generating exempt income for the group company. The CIT(A) and the Tribunal concluded that these sections were not relevant as the transaction was domestic and the income was considered under "House Property Income."

Issue 4: Deletion of disallowance made on account of property tax
The AO disallowed Rs. 69,40,217 for municipal taxes, arguing the payment receipt did not reflect the assessee's name. The CIT(A) deleted the disallowance, noting the payment was made by the assessee and the delay in updating municipal records was reasonable. The Tribunal upheld the CIT(A)'s decision, confirming the payment was made by the assessee and the name discrepancy was due to procedural delays.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions on all grounds. The appeal was pronounced in the open court on 28th January, 2010.