2019 (5) TMI 1317 - AT - Income Tax

Disallowance of interest paid expenses u/s. 36(1)(iii) - Contention of the assessee s counsel that borrowed funds were not used for the purpose of giving advance and that the advances were given out of reserves and surplus - HELD THAT - It is evident that the interest bearing funds were used for the purposes of giving advance for non business purposes. Therefore, the disallowance was made by the AO was accordingly rightly confirmed by the CIT(A), which does not need any interference hence, the ground no. 2 is dismissed. Disallowance on account of rent payment - assessee had failed to furnish any documentary evidence with regard to his claim of payment of rent to the 7 persons as recorded in the assessment order - HELD THAT - No evidence of ownership of the property by these persons was furnished. The assessee had also failed to furnish the copies of lease a agreements. In these circumstances, the genuineness of the claim of deduction pertaining to rent expenditure remained unverified. Even during the course of appellate proceedings, no evidence of ownership of property by the 7 persons to whom the rent was claimed to have been paid was furnished. Out of the 3 persons in whose names the electricity bills were filed only one person figured in the list of 7 persons to whom the rent paid. In the case of remaining 2 persons there was no rent payment. The rent agreement filed by the assessee is in the name of Sh. Kurma whereas no payment has been made to him. From all the aforesaid facts, it is evident that the genuineness of the rent expenses claimed by the assessee has not been established. The disallowance made by the AO on this account was rightly confirmed by the Ld. CIT(A), which does not need any interference on hence, the ground no. 3 is dismissed.

Summary

Issues:
1. Confirmation of assessment order by CIT(A) for increased income.
2. Disallowance of interest paid expenses under section 36(1)(iii).
3. Disallowance of rent expenses.
4. Compliance with legal provisions and presentation of evidence.

Issue 1: Confirmation of assessment order by CIT(A) for increased income:
The Assessee filed an appeal against the assessment order that increased the income to ?34,66,000 from the declared ?16,62,690 for the assessment year 2014-15. The AO noted interest-free loans given by the Assessee and disallowed ?11,18,006 under section 36(1)(iii) of the Act. Additionally, rent expenses of ?6,85,300 were disallowed due to lack of documentary evidence. The CIT(A) confirmed the AO's decision, leading to the Assessee's appeal before the Tribunal.

Issue 2: Disallowance of interest paid expenses under section 36(1)(iii):
The Assessee contended that advances were given for business expediency, citing a case law to support the claim. However, no evidence of business transactions with the concerned parties was provided. The Tribunal noted that borrowed funds were used for non-business advances, confirming the disallowance made by the AO and upheld by the CIT(A).

Issue 3: Disallowance of rent expenses:
The Assessee failed to provide documentary evidence regarding rent payments to seven individuals, claiming the property was ancestral with undefined ownership shares. The Tribunal found discrepancies in the evidence presented, highlighting that the genuineness of the rent expenses remained unverified. The disallowance of rent expenses was upheld by the CIT(A) and confirmed by the Tribunal.

Issue 4: Compliance with legal provisions and presentation of evidence:
The Tribunal emphasized the importance of providing documentary evidence to support claims during assessment proceedings. Lack of ownership proof and lease agreements led to the disallowance of expenses. The Tribunal dismissed the appeal, affirming the decisions of the lower authorities based on the lack of substantiating evidence.

In conclusion, the Tribunal dismissed the Assessee's appeal, upholding the assessment order that increased the income and disallowed interest paid and rent expenses due to insufficient evidence provided by the Assessee. The judgment highlighted the significance of complying with legal provisions and presenting verifiable evidence to support claims during assessment proceedings.