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2016 (9) TMI 950 - AT - Income TaxAddition on account of interest on loan attributable to the investments in securities - CIT(A) deleted the addition - Held that - From the foregoing discussions we find that the AO has presumed that the shares held as stock in trade were converted into investments on dated 01.04.2004 and accordingly interest expenses pertaining to the investment were disallowed. However, the ld. CIT(A) has granted relief to the assessee by holding that the shares were converted as investment on dated 31.03.2005. Now the question before us arise so as to whether the shares were converted on 01.04.2004 or 31.03.2005. On query from the Bench the ld. DR has not shown any evidence that the shares were converted on dated 01.04.2004. The ld. DR failed to bring anything on record. On the other hand, the ld. AR has given sufficient proof as stated above in support of his claim that the shares were converted as investment on dated 31.03.2005. At the time of hearing the ld. DR failed to bring anything contrary to the findings of the ld. CIT(A). In view of the above we do not find any reason to interfere in the order of the ld. CIT(A). Hence this ground of appeal of the revenue is dismissed.
Issues Involved
1. Legality and validity of the appellate order passed by the CIT(A). 2. Mandatory nature of interest levy under Section 201(1A) of the Income Tax Act, 1961. 3. Calculation of interest under Section 201(1A) limited to the date of filing the return of income. 4. Disallowance of interest on loan attributable to investments in securities under the head "business and profession." Detailed Analysis 1. Legality and Validity of the Appellate Order Passed by the CIT(A) The assessee contended that the appellate order passed by the CIT(A) was unwarranted, arbitrary, without proper reasons, invalid, and bad in law to the extent it was prejudicial to the interests of the appellant assessee. The Tribunal did not find merit in this contention and upheld the CIT(A)'s order concerning the interest liability under Section 201(1A). 2. Mandatory Nature of Interest Levy under Section 201(1A) of the Income Tax Act, 1961 The CIT(A) upheld the AO's order for charging interest liability under Section 201(1A) of the Income Tax Act, 1961, amounting to ?3,61,761. The assessee argued that the interest chargeable under Section 201(1A) is compensatory and should not be levied as the deductee-payee had already included the interest in its total income and paid the requisite tax. The Tribunal referred to several judgments, including those of the Hon'ble High Courts of Rajasthan and Gujarat, which held that no interest is to be charged from the defaulting deductor if the recipient had no taxes payable and had claimed a refund of taxes. Consequently, the Tribunal ruled in favor of the assessee, stating that the interest under Section 201(1A) was not sustainable as the deductee had already paid the tax. 3. Calculation of Interest under Section 201(1A) Limited to the Date of Filing the Return of Income The Tribunal noted that the interest under Section 201(1A) should be calculated up to the date of filing the return of income for the year under consideration. The Tribunal emphasized that the interest is compensatory and should not be levied if there is no loss to the Revenue, as the tax was directly deposited by the deductee to the credit of the Central Government, and the deductee had claimed a refund of the taxes paid. 4. Disallowance of Interest on Loan Attributable to Investments in Securities under the Head "Business and Profession" The revenue contended that the CIT(A) erred in deleting the addition made by the AO for ?96,00,000 on account of interest on loan attributable to the investments in securities. The AO observed that the assessee had converted shares held as stock in trade into investments and opined that the borrowed funds had been invested in these investments, generating income under the head "capital gain." Therefore, the interest expenses on the loan were disallowed under the head "business and profession." The CIT(A) deleted the addition, stating that the shares were converted into investments on 31.03.2005, not 01.04.2004, as presumed by the AO. The Tribunal upheld the CIT(A)'s decision, noting that the assessee provided sufficient proof that the shares were converted on 31.03.2005 and not on 01.04.2004. The Tribunal dismissed the revenue's appeal, confirming that the interest expenses were allowable as business expenses. Conclusion The Tribunal ruled in favor of the assessee on all counts, allowing the appeals for the assessment years 2008-09 and 2009-10, and dismissed the revenue's appeal for the assessment year 2005-06. The Tribunal emphasized the compensatory nature of interest under Section 201(1A) and upheld the principle that when two interpretations are possible, the one favorable to the assessee should be adopted.
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