2018 (10) TMI 849 - AT - Income Tax

Eligibility for netting the interest received from the interest expenditure incurred by the assessee - Net interest income included in the income of the assessee - Held that - The total interest has been received from the booking to the date of cancellation by the HUF of 20, 71, 233/- which is eligible for deduction for the payment of interest of 34, 32, 926/- as per section 57 of the Act because this interest has been received out of the said loan taken from ICICI Bank which was paid by HUF to M/s. Ansal Properties & Infrastructure Ltd. through co-parcener. It is not the case of the Revenue that any such expenditure of interest incurred by the assessee was claimed by him in the preceding assessment years. Thus there is direct nexus between earning of interest and expenditure of interest as per section 57 of the Act. Therefore the assessee is entitled for netting of interest from the expenditure incurred. This principle is settled down in the case of ACG Associates Capsules (P) Ltd. vs. CIT 2012 (2) TMI 101 - SUPREME COURT OF INDIA that the net interest income should be included in the income of the assessee - decided in favour of assessee.

Summary

Issues:
1. Disallowance of interest paid on loan for a future project against interest received on cancellation of booking.
2. Adoption of incorrect figure of income under the head "Income from Other Sources."
3. Initiation of penalty proceedings under section 271(1)(c) of the Act.

Issue 1: Disallowance of interest paid on loan for a future project against interest received on cancellation of booking:
The case involved an appeal filed by the assessee against the order of the ld. CIT(A) regarding the disallowance of interest paid on a loan taken for a future project against interest received on cancellation of booking. The assessee argued that the interest earned had a direct nexus with the interest paid and should be allowed as a deduction under section 57(iii) of the Income Tax Act. The Assessing Officer disallowed the interest paid, stating that there was no nexus between the expenditure and income earned. The Tribunal observed that the loan was utilized for investment in a flat, and there was a direct connection between the interest paid and earned. Relying on legal precedents, the Tribunal allowed the appeal, stating that the assessee was entitled to netting the interest received against the interest expenditure incurred.

Issue 2: Adoption of incorrect figure of income under the head "Income from Other Sources":
The second issue pertained to the incorrect adoption of the income figure under the head "Income from Other Sources" by the Assessing Officer. The assessee contended that the correct figure was different from what was assessed by the AO, but the CIT(A) did not adjudicate on this ground. The Tribunal noted the disparity in figures and directed that the correct income figure should be considered, emphasizing the importance of accurate assessment under the relevant head.

Issue 3: Initiation of penalty proceedings under section 271(1)(c) of the Act:
The third issue revolved around the initiation of penalty proceedings under section 271(1)(c) of the Act. The assessee challenged the AO's decision to uphold the penalty proceedings. The Tribunal, after considering the arguments presented, did not specifically address this issue in the judgment, indicating that the penalty proceedings aspect was not a focal point of the appeal.

In conclusion, the Tribunal allowed the appeal of the assessee concerning the disallowance of interest paid on a loan for a future project, emphasizing the direct nexus between the interest paid and earned. The correct income figure under the head "Income from Other Sources" was directed to be considered. However, the issue regarding penalty proceedings was not explicitly discussed in the judgment.