2020 (4) TMI 451 - AT - Income Tax

Income from other sources - Interest expense allowance against interest income brought to tax under the head income from the other sources - HELD THAT - As decided in own case 2016 (11) TMI 743 - ITAT MUMBAI and 2017 (10) TMI 1523 - ITAT MUMBAI merit in the arguments of the ld.AR that the interest incurred to the banks should be allowed while assessing the interest income of the assessee from the deposits with NSE and we are not convinced with the findings of ld.CIT(A) that there is no nexus between the funds/deposits lying with the NSE under lien and NSE have various deposits or FDR under lien or deposits out of sources as discussed supra and the interest expense accrued in favour of various banks on the money borrowed for the purpose of FDRs for security and also for bank guarantees to NSC. Accordingly, we set aside the order of ld.CIT(A) and direct the AO to allow deduction of interest out of the interest received from the National Stock Exchange. - Decided against revenue

Issues Involved:
1. Disallowance under Section 57(iii) of the Income Tax Act.
2. Interest expenses against interest income.
3. Applicability of Section 43B.
4. Credit of Tax Deducted at Source (TDS).
5. Depreciation claim on discontinued business.

Detailed Analysis:

1. Disallowance under Section 57(iii) of the Income Tax Act:
The assessee, engaged in share brokering and trading, filed returns declaring Nil income. The AO added ?22,053 on account of share trading stock and ?1,88,64,396 on account of disallowance under Section 57(iii). The CIT(A) partly allowed the appeal, restricting the deduction of interest expenditure to the interest income earned during the year. The revenue's appeal challenged the CIT(A)'s decision to allow interest expenses of ?3,28,65,299 (restricted to ?1,88,64,396) against interest income, arguing that the assessee's funds in FD were sourced from its own funds on which no interest was paid.

2. Interest Expenses Against Interest Income:
The Tribunal had previously allowed the assessee's appeal, permitting the interest claimed by the assessee. The coordinate Bench found that the facts for AYs 2011-12 and 2012-13 were identical to AY 2010-11. The Tribunal noted that the CIT(A) did not follow the Tribunal's earlier order for AYs 2008-09 and 2009-10, which allowed the assessee's claim of deduction of interest out of interest income. The Tribunal reiterated that the CIT(A) should have adhered to the higher wisdom of the Tribunal.

3. Applicability of Section 43B:
The Tribunal observed that Section 43B applies to income computed under "business income" and not to "income from other sources." The Tribunal emphasized that if the bank waives the interest, Section 41(1) would not apply, but Section 59 would.

4. Credit of Tax Deducted at Source (TDS):
The assessee's appeal included a ground for non-allowance of TDS credit amounting to ?38,79,584. The CIT(A) directed the assessee to file a rectification application under Section 154, which the Tribunal found incorrect. The Tribunal directed the AO to verify and allow the TDS credit after giving the assessee a reasonable opportunity.

5. Depreciation Claim on Discontinued Business:
The CIT(A) rejected the depreciation claim of ?1,79,634, stating that no business activity was carried out due to SEBI's order. The Tribunal upheld this decision but allowed the assessee to claim depreciation in the year when the business recommences based on the Written Down Value.

Conclusion:
The Tribunal dismissed the revenue's appeals for AYs 2010-11, 2011-12, and 2012-13 as infructuous, following the decision in the assessee's favor regarding interest expenses. The Tribunal's order emphasized adherence to higher judicial wisdom and consistent application of legal principles across similar cases. The appeals were pronounced dismissed in the open court on 31st January 2020.

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