2016 (11) TMI 796 - HC - Income Tax

Interest on loan disallowed - amount utilized for non-business purposes - Held that - There is no material which proves that there was outstanding interest as on 31.03.2004 in the overdraft account under consideration, the interest accrued on month to month basis had been paid on month to month basis as the deposit of each month was much more than the corresponding interest debited in respective month and as such no part of such interest remained which could be said to have been converted into any loan or advance as on the close of the previous year so as to be deemed not actually paid. Under the facts and the circumstances, the disallowance of interest is deleted - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of interest under section 43B of the Income Tax Act.
2. Disallowance of interest on loan utilized for non-business purposes.

Analysis:

Issue 1: Disallowance of Interest under Section 43B:
The assessing officer disallowed interest payment of a specific sum due to the absence of a repayment schedule from the bank, leading to a surplus amount deposited compared to the total interest charged. The provision under section 43B of the Income Tax Act mandates the deduction of interest payable by an assessee on a loan from a scheduled bank, subject to the terms of the agreement. The Revenue contended for disallowance of interest, but the CIT(A) reversed this decision, emphasizing the lack of outstanding interest as on the specified date and the absence of a payment schedule. The Tribunal upheld the CIT(A)'s decision, noting the uncontroverted observations. Thus, the disallowance of interest was deemed unnecessary under section 43B.

Issue 2: Disallowance of Interest on Loan for Non-Business Purposes:
The assessing officer disallowed interest amount attributed to funds invested in Long Term and Short Term assets, considering them sourced from loan funds. The CIT(A) partially deleted the disallowance based on the proportionate disallowance of expenses, considering the applicability of section 14A concerning dividends from investments. The Tribunal upheld the CIT(A)'s decision, referencing a previous judgment. The Revenue's appeal was dismissed as no errors were identified in the CIT(A)'s reasoning. The disallowance of interest on loan for non-business purposes was thus upheld based on the specific circumstances and legal provisions.

In conclusion, the High Court of Calcutta dismissed the appeal, with each issue analyzed thoroughly and the decisions under section 43B and interest disallowance on non-business loan purposes being upheld based on the legal interpretations and factual considerations presented in the case.