2018 (6) TMI 154 - AT - Income Tax

Disallowance of difference between the interest received and interest paid of Interest u/s 57(iii) - allowance only to the extent of interest received by the appellant - Held that - Neither the AO nor the Ld. CIT(A) has examined the contentious issue in the light of judgement of COMMISSIONER OF INCOME-TAX VERSUS AMRITABEN R. SHAH 1999 (4) TMI 73 - BOMBAY HIGH COURT - thus we set aside the order of the Ld. CIT(A) and restore the matter to the file of the AO to make a fresh assessment - assessee must be given reasonable opportunity of being heard - allowed for statistical purposes.

Summary

Issues:
- Disallowance of interest difference under section 57(iii) of the Income Tax Act 1961.

Detailed Analysis:
1. The appeals were against the order of the Commissioner of Income Tax (Appeals) and related to the disallowance of the interest difference under section 57(iii) of the Income Tax Act 1961. The Assessing Officer noted that the assessee had netted off interest income against interest paid, resulting in a claimed loss. The AO allowed interest paid to the extent of interest received and disallowed the remaining amount under section 57(iii).

2. The assessee contended that the interest claim should not be restricted to the extent of interest received, and relied on legal precedents to support the argument. The Ld. CIT(A) upheld the disallowance, stating that the expenses were not wholly and exclusively incurred for earning the income. The Ld. counsel of the assessee presented a detailed chart and submissions to challenge the disallowance.

3. The Ld. DR supported the order of the Ld. CIT(A) and cited legal cases to justify the decision in favor of the revenue. The Tribunal analyzed the precedents cited by both parties. In one case, it was held that interest paid for investment in shares is deductible under section 57(iii). However, the Tribunal found that the case at hand was distinguishable from the cited precedents due to lack of evidence provided by the assessee.

4. Considering the arguments and legal principles, the Tribunal set aside the order of the Ld. CIT(A) and directed a fresh assessment by the AO. The Tribunal emphasized the need for the AO to consider the primary motive of incurring expenses for earning income under the head "Income from other sources." The assessee was instructed to provide necessary evidence, and the AO was directed to allow a reasonable opportunity for the assessee to present their case.

5. Ultimately, the Tribunal allowed the appeal for statistical purposes, indicating that the disallowance of the interest difference under section 57(iii) required further examination by the AO based on the legal principles outlined in relevant legal judgments. The decision was pronounced in open court on a specified date.