2020 (7) TMI 622 - AT - Income Tax

Addition made on account of interest on interest free deposit received - HELD THAT - As could be seen from the facts on record, identical addition of interest on interest free security deposit was made by the AO in assessee s own case in the assessment year 2012 13. When the dispute ultimately came up for consideration before the Tribunal 2018 (2) TMI 1987 - ITAT MUMBAI the Tribunal after considering the submissions of the parties and relevant facts and materials on record, though, upheld the decision of the Assessing Officer in computing interest on interest free security deposit received by the assessee, however, the quantum was reduced from 10% to 9%. Disallowance of interest expenditure - HELD THAT - Similar disallowance was made by the Assessing Officer in assessment year 2012 13, which was confirmed by Commissioner (Appeals), however, the assessee did not contest such disallowance before the Tribunal. Even otherwise also, the assessee had not established on record that the interest expenditure is directly incurred for earning interest income. That being the case, we uphold the disallowance made by the Assessing Officer and confirmed by learned Commissioner (Appeals). Set off of business loss against the other heads of income while completing the assessment - HELD THAT - As it appears from the facts on record, this issue was not raised by the assessee before learned Commissioner (Appeals). This is evident from the grounds of appeal attached with Form no.35. Therefore, there was no occasion on the part of learned Commissioner (Appeals) to examine the issue. It is before the Tribunal the assessee has raised the issue by way of additional ground. Though, we admit the additional ground considering the fact that the AO has also accepted the loss while computing the income of the assessee, however, whether such loss can be set off against income from other heads is subject to verification by the AO. Accordingly, we restore the issue to the file of the Assessing Officer for deciding afresh in accordance with law after providing due opportunity of being heard to the assessee. This ground is allowed for statistical purposes.

Summary

Issues Involved:
1. Addition on account of interest on interest-free deposit received.
2. Disallowance of interest expenditure.
3. Alleged violation of rules of natural justice.
4. Allegation that the Commissioner (Appeals) passed the order on conjecture and surmises.
5. Set-off of business loss against income from other heads.

Issue-wise Detailed Analysis:

1. Addition on Account of Interest on Interest-Free Deposit Received:
The assessee challenged the addition of ?27,48,594 made by the Assessing Officer (AO) for the assessment year 2014-15, which was based on an estimated 10% interest on an interest-free security deposit of ?2,74,85,940. The AO followed a similar approach from the assessment year 2012-13. The Commissioner of Income Tax (Appeals) [CIT(A)] reduced the interest rate from 10% to 9%, following the Tribunal's earlier decision. The Tribunal upheld this decision, noting that the security deposit was disproportionate to the leave and license fees, indicating a device to reduce taxable income. The Tribunal directed the AO to estimate interest on the security deposit at 9% and add it to the income under the head "Income from House Property."

2. Disallowance of Interest Expenditure:
The AO disallowed ?1,93,400 of the claimed interest expenditure of ?2,45,196, allowing only the amount equivalent to the interest income of ?51,796. The CIT(A) upheld this disallowance, noting that similar disallowance in the previous year was not contested by the assessee before the Tribunal. The Tribunal confirmed the CIT(A)'s decision, as the assessee failed to establish that the interest expenditure was directly incurred for earning the interest income.

3. Alleged Violation of Rules of Natural Justice:
The assessee alleged a violation of natural justice and claimed the CIT(A)'s order was based on conjecture and surmises. However, the Tribunal found no merit in these claims, noting that the assessee was given a reasonable opportunity to be heard and that the CIT(A)'s findings were based on facts and well-reasoned.

4. Allegation that the Commissioner (Appeals) Passed the Order on Conjecture and Surmises:
The Tribunal dismissed this ground, stating that the CIT(A)'s order was based on factual analysis and was well-reasoned, thus rejecting the allegation of conjecture and surmises.

5. Set-off of Business Loss Against Income from Other Heads:
The assessee raised an additional ground seeking directions to allow the set-off of business loss against income from other heads. The Tribunal admitted this additional ground considering that the AO had accepted the business loss while computing the income. The Tribunal restored this issue to the AO for fresh adjudication in accordance with the law, after providing the assessee an opportunity to be heard.

Procedural Issue:
The Tribunal addressed the delay in pronouncing the order due to the COVID-19 pandemic lockdown. Citing precedents and the extraordinary situation, the Tribunal excluded the lockdown period from the 90-day limit for pronouncement of orders, interpreting the rules pragmatically.

Conclusion:
The appeal was partly allowed for statistical purposes, with the Tribunal upholding the CIT(A)'s decisions on the addition of notional interest and disallowance of interest expenditure, while restoring the issue of set-off of business loss to the AO for fresh consideration.