2015 (4) TMI 1174 - HC - Income Tax

Addition u/s 2(22)(e) - Held that - The first question has already been answered in favour of the respondent-assessee in this very appeal by the order of the Division Bench 2015 (2) TMI 1233 - PUNJAB AND HARYANA HIGH COURT as held that as the assessee has proved business expediency the advance is not covered by Section 2(22)(e) of the Act. Disallowance u/s 40A(2)(b) - Held that - The second question raised is not a substantial question of law. It is purely a question of fact. The Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal rightly held that the mere fact that the assessee obtained loans @ 12% per annum does not believe the assessee s contention that the loans are from the family which are at 15% per annum. It was a question of appreciation of fact and thus no question of law arises. Disallowance u/s 36(1)(iii) - proportionate interest on borrowed funds used for capital work in progress - Held that - Admittedly a question of fact namely as to whether the amounts borrowed were used for capital work in progress. Even in the previous years the assessee s case has been upheld.

Summary

Issues:
1. Addition under section 2(22)(e) of the Income Tax Act, 1961
2. Disallowance under section 40A(2)(b) for excess interest paid
3. Disallowance under section 36(1)(iii) for proportionate interest on borrowed funds

Analysis:
1. The appellant challenged the deletion of an addition made under section 2(22)(e) of the Income Tax Act, 1961. The Division Bench had already ruled in favor of the respondent-assessee in this regard. The court found no merit in revisiting this issue, as it had been settled in a previous order.

2. The second issue raised by the appellant pertained to the disallowance under section 40A(2)(b) for excess interest paid. The court determined this to be a question of fact rather than a substantial question of law. Both the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal had correctly concluded that the interest rates on loans did not contradict the assessee's claim of borrowing from family members at a higher rate. Therefore, the court dismissed this issue.

3. The final issue concerned the disallowance under section 36(1)(iii) for proportionate interest on borrowed funds used for capital work in progress. The court noted that this, too, was a question of fact regarding the utilization of borrowed amounts for specific purposes. Given the consistent rulings in favor of the assessee in previous years, the court found no substantial question of law to consider. Consequently, the appeal was dismissed, affirming the decisions of the lower authorities.