2018 (7) TMI 874 - AT - Income Tax

Addition of Interest payment as not for the purpose of business - claim of deduction of interest expenditure - Held that - This appeal is to be dismissed as there is no merit in the appeal filed by the assessee and there is no material on record to prove that assessee has carried out any business in connection therewith these interest expenditure - Only bald statement have been made not supported by evidence to contend that the assessee is engaged in business of NBFC. Both the authorities below have concurrently held that no business activity was carried out by the assessee and there was no nexus between the interest earned and interest expended by the assessee. So far as allowability of interest expenses in preceding years, principle of res judicata is not applicable to income tax proceedings - decided against assessee.

Summary

Issues:
1. Disallowance of interest expenditure claimed by the assessee as a business expense.

Detailed Analysis:
The appeal before the ITAT Mumbai was filed by the assessee against the appellate order passed by the Commissioner of Income Tax (Appeals) for the assessment year 2010-11. The primary issue raised in the appeal was the disallowance of interest expenditure amounting to ?57,59,731 by the Assessing Officer. The AO disallowed the interest paid by the assessee as there was no direct nexus established between the income earned and the expenses incurred. The assessee failed to provide evidence to substantiate the claim that the loans were utilized for business purposes and that there was a nexus between interest paid and interest earned.

The CIT(A) upheld the AO's decision, stating that the assessee did not carry out any business activity and there was no connection between the income earned and expenses incurred, including the interest expenditure. The CIT(A) noted that the assessee could not explain the nexus before the AO, leading to the dismissal of the appeal.

The ITAT observed that the assessee was engaged in the business of investment in securities and real estate. The authorities noted that the interest income received was from old loans granted to a sister concern, and there were no significant business activities apart from the sale of old shares and some other minor income sources. The ITAT found that the loans given to the sister concern were old, and the assessee could not establish a clear nexus between the interest earned and expended. Despite the assessee's claims of investing in increasing holdings and making investments in group companies, no concrete evidence was presented to prove commercial expediency.

The ITAT further emphasized that the assessee did not appear before the tribunal, and there was a lack of material to demonstrate the business purpose of the loan proceeds. Both the AO and CIT(A) had concluded that no business activity was conducted by the assessee, and there was no nexus between the interest earned and expended. The ITAT dismissed the appeal, stating that there was no merit in the appeal and no evidence to prove that the assessee conducted any business activities justifying the interest expenditure. The principle of res judicata was deemed inapplicable to income tax proceedings, and the appeal was dismissed based on the factual matrix and lack of supporting evidence.