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2019 (10) TMI 918 - AT - Income TaxInterest expenses allowability as a business expenses u/s. 36(1)(iii) - HELD THAT - As before the AO assessee has not substantiated the claim while filing any relevant documentary evidences and the AO disallowed the claim of the assessee u/s. 36(1)(iii) and disallowed the interest @12% and added the same to the income of the assessee. CIT(A), after considering the submissions filed by the assessee alongwith documentary evidences has also dismissed the appeal of the assessee and upheld the assessment order by holding that the assessee failed to prove any business purpose of advance given against property and therefore, the amount @ 12% of amount was disallowed out of interest expenses debited to the profit and loss account. No interference is called for in the well reasoned order of the Ld. CIT(A), because the assessee has not given any detail of unsecured loan which was necessary and other documentary evidence for substantiating the claim before the revenue authorities, especially before the AO and Ld. CIT(A) and before the tribunal. Therefore uphold the order of the Ld. CIT(A) on the issue in dispute and reject the ground raised by the assessee.
Issues:
1. Disallowance of interest expenses under section 36(1)(iii) of the Income Tax Act, 1961. Analysis: 1. The appeal filed by the Assessee challenges the order of the Ld. CIT(A) regarding the disallowance of interest expenses amounting to &8377; 12,28,800/- out of the total interest debited to the profit and loss account for the assessment year 2014-15. The main contention revolves around the allowability of this interest expense under section 36(1)(iii) of the Income Tax Act. 2. The Assessing Officer (AO) disallowed the interest component of &8377; 12,28,800/-, considering it as an advance for the purchase of commercial properties, which the Assessee claimed were exclusively for business purposes and interest-free. However, the AO rejected this explanation, citing the failure of the Assessee to prove the business purpose of the advances. Consequently, the AO disallowed the interest under section 36(1)(iii) and added it back to the Assessee's income. 3. The Ld. CIT(A) upheld the AO's decision, emphasizing the Assessee's failure to substantiate the business purpose of the advance against the property. The Ld. CIT(A) also noted the absence of details regarding the interest-free unsecured loan, which the AO considered as the source for the interest-free advance. The Ld. CIT(A) concluded that the Assessee did not provide sufficient documentary evidence to support the claim, leading to the dismissal of the appeal. 4. During the hearing, the Assessee's counsel reiterated the grounds of appeal and submitted a Paper Book containing various documents supporting the appeal. On the other hand, the Departmental Representative (DR) relied on the orders of the lower authorities and submitted written arguments along with citations of relevant case laws to support the disallowance of interest under section 36(1)(iii). 5. After considering the contentions of both parties, the Tribunal observed that the main issue was the allowability of interest expenses under section 36(1)(iii) of the Act. The Tribunal noted the lack of substantiation by the Assessee before the AO and the Ld. CIT(A) regarding the business purpose of the advance against the property. Consequently, the Tribunal upheld the decision of the Ld. CIT(A) and dismissed the Assessee's appeal, stating that no interference was warranted in the well-reasoned order of the Ld. CIT(A). 6. Ultimately, the Tribunal upheld the order of the Ld. CIT(A) regarding the disallowance of interest expenses, emphasizing the Assessee's failure to provide necessary details and documentary evidence to support the claim. As a result, the Assessee's appeal was dismissed, and the order was pronounced on 18-10-2019.
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