2022 (9) TMI 772 - AT - Income Tax

Disallowing interest expenditure - interest paid resulting in loss under the head income from other sources‟ - Addition u/s section 57(iii) or under section 36(1)(iii) - Assessee accepted the disallowance - assessee was asked to submit the details of party-wise interest paid and was also asked to prove its nexus with the interest income earned - HELD THAT - In the present case, the assessee has earned income from business, which comprises of remuneration and interest from the firm in which the assessee is a partner. Further, the assessee has also earned interest which is taxable under the head income from other sources‟. Since the interest paid by the assessee during the year was more than the interest earned under this head, income from other sources was declared at loss - We find that during the course of assessment proceedings, the Authorised Representative for the assessee admitted that the net excess interest paid resulting in loss under the head income from other sources does not fit into the conditions of section 57(iii) or section 36(1)(iii) and agreed for disallowance while computing income from other sources. It is the plea of the assessee that the assessee has not accepted the aforesaid disallowance and the same was challenged before the learned CIT(A). From the perusal of the impugned order we find that the learned CIT(A) has noted that the assessee has filed different balance sheets at different times, which are contradictory in nature. Assessee has claimed that no interest was received on certain loans given by it, and at the same time assessee has also not paid interest on borrowings from certain parties. The assessee has claimed that its own funds and interest free loans are more than loans on which interest has been paid. However, no details were furnished either before the lower authorities or before us, during the course of hearing, in support of the aforesaid claim. Further, even though the assessee has claimed that it has not accepted the disallowance however, nothing has been brought on record to prove that said net excess interest paid fit into the conditions of section 57(iii) or section 36(1)(iii) of the Act. - Decided against assessee.

Summary

Issues:
Challenge to disallowance of interest expenditure of Rs. 5,37,438 under the Income Tax Act, 1961 for the assessment year 2014-15.

Analysis:
The appeal was filed by the assessee against the order passed by the Commissioner of Income Tax (Appeals) upholding the disallowance of interest expenditure of Rs. 5,37,438. The assessee's only grievance was against this disallowance. The facts revealed that the assessee incurred interest amounting to Rs. 26,05,403, resulting in a loss under the head "income from other sources." The Assessing Officer made an addition of Rs. 5,37,438 under this head, which was not contested during the assessment proceedings. The assessee claimed that the excess interest paid was related to income earned from a partnership firm. However, the Authorized Representative admitted during the assessment proceedings that this excess interest did not meet the conditions of the relevant sections of the Act. The Commissioner dismissed the appeal filed by the assessee, leading to the current appeal before the Tribunal.

During the hearing, the Authorized Representative argued that the assessee had received and given interest-free loans, with sufficient funds available to cover the interest paid. The Departmental Representative contended that the assessee had agreed to the disallowance during the assessment, while the Authorized Representative claimed otherwise. The Tribunal noted that the assessee had earned income from business and interest from other sources, resulting in a loss due to higher interest paid than earned. The Authorized Representative admitted the excess interest paid did not meet the statutory conditions and agreed to the disallowance. The Commissioner observed discrepancies in the balance sheets submitted by the assessee, leading to a lack of confidence in the claims made. The Tribunal found no evidence to support the claim that the excess interest paid met the statutory conditions, upholding the Commissioner's decision to dismiss the appeal.

In conclusion, the Tribunal dismissed the appeal by the assessee, affirming the decision to disallow the interest expenditure of Rs. 5,37,438. The Tribunal found no merit in the assessee's arguments and upheld the Commissioner's order.