2021 (11) TMI 313 - AT - Income Tax

Disallowance of deduction claimed u/s. 24(b) - interest incurred on outstanding purchase consideration to acquire the properties of real estate division of M/s. Ballarpur Industries Ltd. on its demerger - HELD THAT - We find that the ld. CIT(A) has not solely adjudicated based on the earlier assessments but has also so considered the various judgments of Hon'ble High Court of Calcutta in the case of CIT Vs. R.P Goenka 1998 (3) TMI 106 - CALCUTTA HIGH COURT and the judgment of Sunil Kumar Sharma 2002 (2) TMI 91 - PUNJAB AND HARYANA HIGH COURT wherein it was held that unpaid price is to be treated as borrowed capital within the meaning of Section 24(b). Hence, on independent examination of the facts and the provisions of law, we hold that the interest paid by the assessee to BIL is an allowable deduction as it amounts to interest on the capital borrowed. Disallowance u/s. 14A - AR argued that the disallowance cannot be more than the exempt income earned - HELD THAT - Since, the proposition of law is clear by now that the disallowance cannot exceed the exempt income, the contention of the ld. AR is allowed. Disallowance of expenses u/s.14A for computing the book profit u/s. 115JB - In accordance with the clause (f) of Explanation to Section 115JB, the disallowance under Section 14A of the Act is a notional disallowance and therefore, by taking recourse to Section 14A of the Act, the amount cannot be added back to book profit under clause (f) of Section 115JB of the Act. The AO is directed to re-compute the profits following the two directions given above.

Summary

Issues involved:
- Deduction of interest u/s. 24
- Disallowance u/s. 14A

Deduction of interest u/s. 24:
The appeal involved a dispute regarding the deduction of interest claimed under section 24(b) of the Income Tax Act, 1961. The appellant had acquired properties from another entity, incurring a debt of ?64,00,00,000. The appellant paid interest of ?6.4 Crores on the outstanding amount, claiming it as a deduction under section 24(b) as "income from house property." The Assessing Officer disallowed the deduction, arguing that the unpaid purchase amount had not been paid despite years passing since the transaction. However, the CIT(A) disagreed, stating that interest on the unpaid amount to the seller was akin to interest on borrowed capital, making the appellant eligible for the deduction. The CIT(A) also noted that the deduction had been allowed in previous years. The Tribunal agreed with the CIT(A), emphasizing that the interest paid by the appellant was allowable as it constituted interest on borrowed capital, citing relevant court judgments supporting this interpretation.

Disallowance u/s. 14A:
The issue of disallowance under section 14A for computing book profit under section 115JB was also addressed. The appellant argued that the disallowance should not exceed the exempt income earned, a contention accepted by the Tribunal. Regarding the consideration of disallowance of expenses under section 14A for computing book profit under section 115JB, the Tribunal held that as per the Explanation to Section 115JB, the disallowance under section 14A is a notional disallowance. Therefore, the amount disallowed under section 14A cannot be added back to the book profit under section 115JB. The Tribunal directed the Assessing Officer to re-compute the profits based on these principles. Ultimately, all the appeals of the Revenue were dismissed by the Tribunal in this judgment delivered on 25/10/2021.