2022 (9) TMI 73 - AT - Income Tax

Disallowance of interest expense claim - From the loan agreement, the Assessing Officer noted that the loan was not taken for the construction of house property - case of the assessee is that the assessee has claimed interest paid towards loan taken for the purpose of construction of building belongs to the assessee from M/s. Maurya Hotels (Madras) Private Limited, who has borrowed from M/s. Sundaram Finance Ltd. and M/s. Maurya Hotels (Madras) Pvt. Ltd. is a substantial share holder of the assessee company and offered loan to the assessee by availing loan from M/s. Sundaram Home Finance Ltd. - HELD THAT - On perusal of the assessment order, we find that the Assessing Officer has not made any extensive enquiry with M/s. Maurya Hotels (Madras) Pvt. Ltd. as to whether it has offered loan to the assessee company for the purpose of construction of building belongs to the assessee or called for any relevant details and verified. The assessment order is very cryptic. Accordingly, we set aside the order of the ld. CIT(A) and remit the matter back to the file of the Assessing Officer to call for the details and verify as to whether M/s. Maurya Hotels (Madras) Pvt. Ltd. has offered loan to the assessee and decide the issue afresh in accordance with law by affording an opportunity of being heard to the assessee - Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues:
Challenging disallowance of interest expenses of Rs. 59,49,330 for assessment year 2014-15.

Analysis:
1. The appeal was filed against the order of the Commissioner of Income Tax (Appeals) confirming the disallowance of interest expenses. The delay in filing the appeal was attributed to the COVID-19 pandemic, which was condoned, and the appeal was admitted for adjudication.

2. The Assessing Officer disallowed the interest expenses claimed under income from house property as the loan was taken by another entity, M/s. Maurya Hotels (Madras) Private Limited, and the assessee was only a confirming party. The ld. CIT(A) upheld this decision.

3. The assessee contended that the loan was taken for the construction of a building belonging to them, supported by financial statements and necessary certificates. The appeal raised claims under sections 24 and 37(1) of the Income Tax Act, 1961.

4. After hearing both parties and reviewing the documents, the Tribunal found merit in the argument that the interest expenses should be allowed. It noted that the Assessing Officer did not conduct a thorough inquiry into whether the loan was indeed offered to the assessee for building construction. The assessment order was deemed insufficient, leading to the decision to remit the matter back to the Assessing Officer for further verification.

5. Consequently, the order of the ld. CIT(A) was set aside, and the matter was directed to be reconsidered by the Assessing Officer after obtaining necessary details and providing the assessee with a fair opportunity to present their case.

6. The appeal by the assessee was allowed for statistical purposes, with the order pronounced in Chennai on 3rd August 2022.