2015 (8) TMI 1041 - AT - Income Tax

Expenditure towards interest disallowed - assessee failed to establish the nexus between interest paid and income earned - FAA deleted part addition - Held that - All the details were before the ld. Commissioner of Income Tax (Appeals) but instead of pin pointing any concrete diversion of interest bearing funds; ld. Commissioner of Income Tax (Appeals) only assumed that some funds might have been used by the assessee for some other purposes. The department has been consistently accepting the claim in earlier years and in subsequent years. It appears that in the beginning, assessee has more income under the head income from other sources as than the interest expenditure, but in Assessment Year 2006-07, 2007-08 and 2009-10, the interest expenditure was more than income, in spite of that loss under the head income from other source was allowed by the ld. Assessing Officer in scrutiny assessment. Thus considering the past history and stand of the revenue itself, we are of the view that ld. Assessing Officer has erred in making the disallowance. Ld. Commissioner of Income Tax (Appeals) also failed to appreciate that total expenditure is to be allowed which is incurred wholly and exclusively for earning income. It cannot be restricted in proportion of income. We allow the ground of appeal raised by assessee and consequently reject the ground raised by the revenue. The assessee is entitled to expenditure of ₹ 1,09,29,139/- claimed by him. - Decided in favour of assessee. Addition on account of long term capital gain - CIT(A)deleted addition - Held that - Section 48 of the income tax act, 1961 provides that income chargeable under the head capital gains, shall be computed by deducting from the full value of consideration received or accrued as a result of the transfer of the capital asset, the amounts namely (a) expenditure incurred wholly and exclusively in connection with such transfer (b) the cost of acquisition of the asset and the cost of any improvement thereof. The assessee while offering capital gain on sale of a plot of land had claimed cost of improvement for ₹ 10,84, 275/-. The Assessing Officer rejected the additional cost to the extent of ₹ 6 lacs. On appeal, ld. Commissioner of Income Tax (Appeals) allowed the claim of assessee on the ground that payment was made through account payee cheque for the construction made. The detail of material and other evidence were produced on the record. Contrary to this finding of fact recorded by the Commissioner of Income Tax (Appeals), nothing was pointed out to us during the course of hearing, therefore, we do not find any merit in this ground of appeal. - Decided against revenue.

Summary

Issues Involved:
1. Disallowance of Interest Expenditure
2. Addition on Account of Long-Term Capital Gain

Issue-wise Detailed Analysis:

1. Disallowance of Interest Expenditure:

The assessee and revenue filed cross appeals against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of interest expenditure for the Assessment Year 2008-09. The assessee claimed an interest expenditure of Rs. 1,09,29,139/-, out of which the Assessing Officer disallowed Rs. 1,07,38,191/-. The Commissioner of Income Tax (Appeals) allowed Rs. 47,76,424/- and confirmed the disallowance of Rs. 59,62,567/-. The revenue contested the deletion of Rs. 47,76,424/-, while the assessee contested the confirmation of Rs. 59,62,567/-.

The Assessing Officer disallowed the interest expenditure on the grounds that the assessee failed to establish a nexus between the interest paid and the income earned, and that most depositors were relatives who accommodated the assessee. The Commissioner of Income Tax (Appeals) partly deleted the disallowance, allowing 95% of the interest expenditure, reasoning that the assessee might have invested part of the borrowings for other purposes or business. However, this assumption was not based on concrete evidence.

The Tribunal observed that the assessee had consistently shown interest income and expenditure under the head "income from other sources" in previous and subsequent years, which had been accepted by the department. The Tribunal found that the Commissioner of Income Tax (Appeals) erred in assuming that the assessee must have invested funds elsewhere without concrete evidence. The Tribunal allowed the assessee's claim for the full interest expenditure of Rs. 1,09,29,139/-.

2. Addition on Account of Long-Term Capital Gain:

The revenue challenged the deletion of an addition of Rs. 6 lakhs made by the Assessing Officer on account of long-term capital gain. The assessee claimed an additional cost of Rs. 6 lakhs for the construction made, which was disallowed by the Assessing Officer for lack of corresponding bills. The Commissioner of Income Tax (Appeals) allowed the claim, noting that the payment was made by account payee cheque and the assessee consistently followed the mercantile system of accounting.

The Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision, noting that the assessee had submitted all material details during the assessment proceedings and made the payment by cheque. The Tribunal found no merit in the revenue's ground of appeal and rejected it.

Conclusion:

The Tribunal allowed the assessee's appeal regarding the interest expenditure, granting the full claimed amount of Rs. 1,09,29,139/-. It also upheld the Commissioner of Income Tax (Appeals)'s decision to allow the additional cost of Rs. 6 lakhs for the construction made, rejecting the revenue's appeal on this ground. The order was pronounced in the open court on 18-08-2015.