2018 (4) TMI 261 - AT - Income Tax

Disallowance on interest claimed on total outstanding loan u/s 24(b) - Held that - The assessee availed loan from its holding company which was repaid from the loan initially availed from State Bank of Mysore and again the assessee availed additional loan from State Bank of Mysore after restructuring the existing loan that was initially taken and the outstanding stood at ₹ 20 crore and whether interest paid on such outstanding is covered by provisions of Section 24(b) of the Act. The Coordinate Bench in assessee s own case 2015 (12) TMI 359 - ITAT KOLKATA held that subsequent loan availed by the assessee to repay his original loan is very much covered to claim deduction u/s 24(b) of the Act. We note that the CIT(A) by placing reliance on the decision of the Coordinate Bench in the assessee s own case deleted the addition by the AO. - Decided against revenue

Summary

Issues:
1. Justification of deleting the addition of interest claimed on total outstanding loan u/s 24(b) of the Income Tax Act.
2. Treatment of Long Term Capital Loss as Short Term Capital Gains and its classification as business loss.

Analysis:

Issue 1:
The appeal by the Revenue was against the order deleting the addition of interest claimed on the outstanding loan u/s 24(b) of the Act for A.Y. 2011-12. The main contention was whether the CIT(A) was justified in deleting the addition of ?70,10,160/- made on account of disallowance of interest. The Tribunal noted that the assessee availed a subsequent loan from State Bank of Mysore after restructuring the existing loan, and the outstanding amount was ?20 crore. The Coordinate Bench held that subsequent loans to repay the original loan are covered under Section 24(b) of the Act. The CIT(A) relied on this decision and deleted the addition made by the AO, emphasizing that no third loan was obtained, and the deduction u/s 24(b) was applicable. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

Issue 2:
Regarding the treatment of Long Term Capital Loss (LTCG) as Short Term Capital Gains (STCG) and its classification as a business loss, the AO treated the loss arising from the conversion of LTCG shares into stock-in-trade as LTCG loss covered u/s 10(38) of the Act. The CIT(A) deleted the addition, citing CBDT Circular No. 4/2007 and relevant case laws. The Revenue appealed, arguing that the conversion was not in the normal course of business. However, the Tribunal noted that Sec. 45(2) allows the conversion of capital assets into stock-in-trade, and there was no prohibition under the Act for such actions. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal as the conversion was within the ambit of the law.

In conclusion, the Tribunal dismissed the Revenue's appeal in both issues, upholding the CIT(A)'s decisions.