2016 (4) TMI 477 - AT - Income Tax

Addition on account of interest income not offered to tax - CIT(A) deleted the addition - Held that - We find that the CIT(A) has followed real income principal as per various decisions holding that no interest accrues when the principal amount of loan itself becomes doubtful. The Revenue neither points out any illegality therein nor does it take us to any evidence rebutting factual finding that the assessee s loan in question has not become doubtful. We accept assessee s arguments supporting lower appellate findings under challenge. - Decided against revenue Bad debt disallowance - Held that - There is no dispute that the assessee is already in money lending business as his claim throughout. There can hardly be any dispute that section 36(vii)(2) provide for this deduction subject to the condition that the concerned assessee takes into account the same in computing of his income of the previous year in which the same is written off or any earlier prevision or that representing the money lent in the ordinary course of business of banking or money lending being carried on by the assessee. There is no such condition in case of money lending/finance business as propagated by the Assessing Officer that only interest income not recoverable and written off is to be allowed as bad debt deductions. We find no reason to interfere with the CIT(A) s findings under challenge. This ground is decided in assessee s favour. - Decided against revenue Interest disallowance on account of interest expenditure not incurred for the purpose of the business - Held that - It emerges from the lower appellate findings that the assessee had already available at his disposal interest free funds to the tune of 5, 29, 93, 800/-. The CIT(A) finds that the assessee had only utilized interest bearing funds in the investments in question amounting to 3, 30, 01, 822/- from 27-02-2009 to 31-03-2009. He thereafter reduces the impugned interest disallowances for this time period as 3, 47, 197/-. This crucial finding has gone un-rebutted in the course of hearing before us. We reject Revenue s argument on this score. - Decided against revenue

Summary

Issues:
1. Addition of interest income not offered to tax.
2. Disallowance of bad debt write-off.
3. Disallowance of interest expenditure not incurred for business purposes.

Issue 1: Addition of interest income not offered to tax:
The Revenue appealed against the deletion of an addition of Rs. 31,90,550 made by the Assessing Officer on account of interest income not declared for tax. The CIT(A) accepted the assessee's argument that interest cannot accrue when the loan itself becomes doubtful, citing legal precedents. The Tribunal upheld the lower appellate order, emphasizing the real income principle and the absence of evidence to prove the loan had become doubtful. The Revenue's challenge failed.

Issue 2: Disallowance of bad debt write-off:
The Revenue sought to revive a bad debt disallowance of Rs. 26,74,708. The Assessing Officer disallowed the write-off, claiming the principal amount could not be written off as bad debt. The CIT(A) ruled in favor of the assessee, highlighting that if advances given for business purposes become bad and unrecoverable, they are allowable as a business loss. The Tribunal upheld the CIT(A)'s decision, stating that the disallowance was unjustified as the advances were for business purposes. The Revenue's challenge was rejected.

Issue 3: Disallowance of interest expenditure not incurred for business purposes:
The Revenue aimed to restore an interest disallowance of Rs. 1,29,43,122 on the grounds that the expenditure was not for business purposes. The CIT(A) found that the Assessing Officer did not thoroughly examine the facts before disallowing the interest claim. It was revealed that the appellant had utilized interest-bearing funds for investments, leading to the disallowance. The Tribunal reduced the disallowance to Rs. 3,47,197 based on specific calculations provided by the appellant. The Revenue's appeal was dismissed as the lower appellate findings remained unchallenged.

In conclusion, the Tribunal upheld the CIT(A)'s decisions on all three substantive grounds, dismissing the Revenue's appeal in its entirety.