2022 (12) TMI 249 - AT - Income Tax

Disallowance of Interest expenses u/s 36(1)(iii) - HELD THAT - We direct the AO to work out the figure of interest disallowance considering the figure being assessee s own fund. For this we relied on the decision of Hon ble jurisdictional High Court in the case of Reliance Utility and Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT - We further direct the AO to delete the addition of interest expenses u/s 36(1)(iii) after considering assessee s own funds as mentioned above. As directed in clear terms no addition to income on this ground can be made, the only effect of this working to be done by AO will be on the amount of Interest capitalised by the assessee and carried to Balance-Sheet. Appeal filed by the assessee is partly allowed.

Summary

Issues Involved:
1. Addition made under section 271(1)(c) of the Income Tax Act, 1961 without incriminating documents.
2. Addition of penal interest on TDS deduction without search action connection.
3. Disallowance of interest expenses without considering relevant facts and circumstances.
4. Disallowance of interest expenses on unsecured loans and treatment of own funds.

Analysis:

Issue 1:
The appeal challenged the addition made under section 271(1)(c) of the Income Tax Act, 1961 without any incriminating documents found during the search action. The appellant contended that the action of the Assessing Officer was not justified. However, the CIT(A) confirmed the addition. The Tribunal observed that the genuineness of the loan taken and interest paid was not disputed. The Tribunal directed the Assessing Officer to consider the figure of the assessee's own funds while calculating the interest disallowance, relying on the decision of the jurisdictional High Court. Consequently, the Tribunal allowed the appeal on this ground.

Issue 2:
Regarding the addition of penal interest on TDS deduction without a connection to the search action, the appellant raised concerns about the CIT(A)'s decision to uphold the Assessing Officer's action. However, the Tribunal noted that the appellant did not press this ground during the appeal. As a result, this issue was dismissed without adjudication.

Issue 3:
The dispute over the disallowance of interest expenses incurred by the appellant was another key issue. The Assessing Officer disallowed a specific amount as interest expenses without considering the relevant facts and circumstances. The CIT(A) upheld this disallowance, leading the appellant to appeal to the Tribunal. Upon review, the Tribunal found that the authorities below had not considered all aspects, including the appellant's own funds. The Tribunal directed the Assessing Officer to reevaluate the interest disallowance by taking into account the appellant's own funds. Consequently, the Tribunal allowed the appeal on this ground.

Issue 4:
The final issue involved the disallowance of interest expenses on unsecured loans and the treatment of the appellant's own funds. The Tribunal observed that the authorities had not considered the appellant's own funds while calculating the disallowance. By directing the Assessing Officer to include the appellant's own funds in the calculation, the Tribunal allowed the appeal on this ground, emphasizing that no addition to income could be made solely based on this working.

In conclusion, the Tribunal partially allowed the appeal, addressing the various issues raised by the appellant and providing detailed reasoning for each decision made.