2019 (1) TMI 527 - AT - Income Tax

Adjustment of interest expenditure against interest income - Held that - It is noticed that this issue is pertained to the assessing of income u/s. 50C of the act on the additional stamp duty of ₹ 13,995/- paid for two plots by the assessee on 20/07/2009. During the course of appellate proceedings, the ld. counsel could not controvert the impugned addition with any relevant material therefore this ground of appeal of the assessee is dismissed. Disallowance of interest expenditure - AO observed that assessee has shown investment in agricultural land and investment in shares and stated that against interest income of ₹ 5,88,073/- expenses of ₹ 90,389/- was to be allowed - Held that - As examined the contention of the assessee claiming that her own capital as on 31-03-2010 was to the amount of ₹ 22870663/- and investment in the fixed assets and shares and LIC were to the amount of ₹ 3,95,54,837/-. As demonstrated that 58% of the investment was made from her own fund and remaining 42% investment was made from the borrowed funds. As contended that 42% of the interest expenses out of the total interest expenses of ₹ 11,06,847/- can be disallowed. It is noticed that the above facts was not disproved at the time of the appellate proceedings by the CIT(A), therefore, we find merit in the contention of the assessee and restrict the disallowance of interest expenses to the amount of ₹ 4,64,876/- and the remaining interest payment of ₹ 6,41,971/- is to be set off against the interest income. Accordingly, the appeal of the assessee is partly allowed.

Summary

Issues:
1. Addition under section 50C of the Income Tax Act
2. Disallowance of interest expenditure against interest income

Analysis:

Issue 1: Addition under section 50C of the Income Tax Act
The assessee appealed against the addition of ?5,71,200 under section 50C of the Income Tax Act, related to additional stamp duty paid for two plots of land. The assessing officer computed the sale consideration based on the additional stamp duty paid by the assessee. The CIT(A) rejected the appeal stating that the assessee did not press this ground during the appellate proceedings. The Tribunal observed that the assessee failed to provide relevant material to challenge the addition. Consequently, the Tribunal dismissed this ground of appeal due to lack of substantiating evidence.

Issue 2: Disallowance of interest expenditure against interest income
The second issue involved the disallowance of ?4,97,684 out of interest expenditure against interest income. The assessing officer noted a disparity in the interest income and expenses declared by the assessee. The CIT(A) upheld the addition made by the assessing officer. However, during the Tribunal proceedings, the assessee contended that a portion of the interest expenses should be disallowed based on the source of funds for investments. The Tribunal examined the contention and found merit in the argument presented by the assessee. It was established that a portion of the interest expenses should be disallowed, resulting in a revised disallowance of ?4,64,876. The remaining interest payment was allowed to be set off against the interest income. Consequently, the Tribunal partially allowed the appeal of the assessee, adjusting the disallowance of interest expenses accordingly.

In conclusion, the Tribunal partially allowed the appeal of the assessee concerning the addition under section 50C and the disallowance of interest expenditure against interest income. The Tribunal's decision was based on the lack of substantiating evidence for the first issue and the valid argument presented by the assessee for the second issue.