2020 (5) TMI 549 - AT - Income Tax

Non-admittance of the appeal by the CIT(A) - tax liability arising on account of returned income has not been paid by the assessee - HELD THAT - Assessee is deceased and the appeal is represented by the legal heir of the assessee. Admittedly, the taxes were not paid by the assessee alongwtih return of income; though repeated pleas, were raised before the authorities below to sell the gold ornaments seized and adjust the sale proceeds against the tax payable by the assessee, but no such exercise was carried out by the Department. Thereafter, the assessee claims that she sold house property and paid the taxes due with interest on returned income before her death during 18.03.2015 to 12.08.2015. Thus especially where the assessee had demised, it is deemed fit to admit the appeals of the assessee and decide the issue on merits. We do not find any merit in setting aside the issue to the CIT(A) and proceed to decide present appeals. Disallowance of bank charges as expenses while calculating the interest income for the respective years - claim of bank charges debited by the foreign bank account maintained by the assessee with HSBC Bank, Switzerland - HELD THAT - The Hon ble Supreme Court in the case of Seth R.Dalmia vs CIT 1977 (9) TMI 1 - SUPREME COURT was held that for allowability of such deduction, the dominant purpose of the expenditure incurred must be to earn income. The connection between the expenditure and the earning of income need not be direct; even an indirect connection could prove the nexus between the expenditure incurred and the income. The claim of the assessee has been allowed in succeeding years 2010-11 2011-12 by the CIT(A) against which no appeal has been filed by the Revenue. We hold that the assessee has merit in her claim; the bank charges being related to the interest income are duly allowable as expenditure in the hands of the assessee. Accordingly, we hold so. AO is directed to allow the deduction on account of bank charges against the interest income assessed in the hands of the assessee. - Decided in favour of assessee.

Summary

Issues:
1. Non-admittance of appeal by CIT(A) due to unpaid tax liability.
2. Disallowance of bank charges as expenses while calculating interest income.

Analysis:

Issue 1: Non-admittance of appeal by CIT(A)
The appeals were filed against the order of CIT(A) dated 31.10.2014 under section 153A r.w.s 143(3) of the Income-tax Act, 1961. The primary contention was the non-admittance of the appeal by CIT(A) based on the unpaid tax liability. The assessee argued that due to the immovable property provisionally attached and seized jewellery, she lacked cash liquidity to pay the tax dues. However, the taxes were later paid from the sale proceeds of a house property. The Tribunal deliberated on whether such appeals, initially rejected by CIT(A), could be decided at this stage. Considering the circumstances, including the demise of the assessee, the Tribunal deemed it appropriate to admit the appeals and proceed to decide on merits. The Tribunal found no merit in remanding the issue back to CIT(A) and proceeded to adjudicate the appeals.

Issue 2: Disallowance of Bank Charges
The second issue pertained to the disallowance of bank charges as expenses while calculating interest income for various assessment years. The assessee maintained accounts with HSBC, Switzerland, and paid bank charges against the interest received. The contention was that these charges were incurred for managing the accounts, and the income declared was net off of bank charges. The Tribunal referred to section 57(1) of the Income Tax Act, emphasizing that expenses for earning income should not be capital in nature and should have a clear nexus with the income sought to be earned. Citing the case of Seth R. Dalmia vs CIT [1977], the Tribunal held that the bank charges related to interest income were allowable as expenditure in the hands of the assessee. The Tribunal directed the Assessing Officer to allow the deduction for bank charges against the interest income assessed. Consequently, all appeals filed by the assessee were allowed.

In conclusion, the Tribunal upheld the appeals, addressing both issues raised by the assessee regarding the non-admittance of the appeal by CIT(A) and the disallowance of bank charges as expenses. The judgment was pronounced on 21st May, 2020, in favor of the assessee.