2011 (7) TMI 1325 - AT - Income Tax

Summary

Issues involved: Disallowance of miscellaneous and staff welfare expenses, disallowance of deduction of interest amounting to Rs. 4,89,55,754.

Disallowed expenses: Ground Nos. 1 & 2 regarding disallowance of miscellaneous expenses of Rs. 69,733/- and staff welfare expenses of Rs. 13,209/- were not pressed by the assessee and thus dismissed. Remaining grounds for adjudication are Ground Nos. 3 & 4, pertaining to disallowance of deduction of interest amounting to Rs. 4,89,55,754.

Interest deduction disallowance: The AO disallowed the interest paid by the assessee on borrowed funds, totaling Rs. 4,89,55,754, as expenses not relatable to the assessee's business. The assessee contended that the interest paid on borrowed funds is allowable as deduction u/s 36(1)(iii) of the Act since the company is predominantly an investment company. The AO and CIT(A) relied on the previous year's order and disallowed the interest. However, the Tribunal noted the difference in taxable income due to dividend income earned and exempted in previous years. The matter was remitted back to the AO for fresh examination considering the specific circumstances of the current year.

Decision: The Tribunal set aside the CIT(A)'s order and remitted the matter back to the AO for reevaluation, considering the unique circumstances of the year under consideration. The appeal of the assessee was treated as partly allowed for statistical purposes.