2019 (7) TMI 1698 - AT - Income Tax

Expenditure claimed u/s.36(1)(iii) - difference between interest received and interest paid - HELD THAT - Assessee has been considered as an investment company and making investments was part of its business. In the case of CIT vs. Shriram Investments (Firm) 2013 (11) TMI 1656 - ITAT CHENNAI held that deduction u/s.36(1) (iii) of the Act had to be allowed in respect of interest paid, if capital was borrowed for the purpose of business or profession. As already mentioned there is no finding by any of the lower authorities that disparity between interest receipts and payments arose on account of charging of lower rate of interest on loans advanced when compared to interest paid on loans received. AO was not justified in making a disallowance for the difference between interest received and interest paid by the assessee. Disallowance stands deleted.- Decided in favour of assessee.

Summary

Issues:
Appeal against Order of CIT (A) allowing expenditure claimed u/s.36(1)(iii) of the Act.

Analysis:
The appeal was filed by the Revenue against the Order of the Commissioner of Income Tax (Appeals)-2, Chennai, regarding the allowance of expenditure claimed u/s.36(1)(iii) of the Act for the AY 2014-15. Both parties agreed that the only issue in the Revenue's appeal was against the action of the CIT(A) in allowing the expenditure claimed. It was acknowledged that the issue was covered by decisions of the Tribunal in the assessee's own case for preceding assessment years. The Tribunal had previously held in favor of the assessee, citing the cash basis of accounting system and the absence of selective charging of interest as reasons for the disparity between interest received and paid. The Tribunal also referred to previous judgments supporting the assessee being considered an investment company, justifying the deduction u/s.36(1)(iii) for interest paid when capital was borrowed for business purposes.

The Revenue had not accepted the previous decisions, and appeals were pending. After hearing both sides and reviewing the material on record, the Tribunal found that the issue raised in the Revenue's appeal was already addressed in the assessee's favor in previous decisions. The CIT(A) had appropriately followed judicial discipline by deleting the disallowance made by the Assessing Officer, based on the Tribunal's previous rulings in the assessee's case. Consequently, the Tribunal saw no reason to interfere with the CIT(A)'s order, leading to the dismissal of the Revenue's appeal. The appeal of the Revenue was dismissed, and the order was pronounced on July 22, 2019, in Chennai.