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2023 (2) TMI 707 - AT - Income TaxDisallowance u/s 57 - disallowing of interest paid to bank which has been claimed by assessee against the income from other sources - principle consistency in earlier assessment years - AO while completing the assessment denied the claim for set off of interest paid by the assessee to banks/financial institutions against the income earned by the assessee from various companies on the ground that the assessee has not expanded the interest expenditure for earning interest income - CIT(A) sustained the stand of the AO observing that on perusal of the loan statements it is noticed that the loans have been granted either for purchase of home or for development of land - HELD THAT - The principle accepted by the Revenue for the earlier four assessment years and three subsequent assessment years to the assessment year under consideration was that the assessee has been taking loans from the banks and financial institutions and the same were lent to various other companies for earning interest income and the claim for set off of interest paid to banks/financial institutions was allowed against interest earned by the assessee u/s 57 - Since the Revenue was accepted the principle consistency in earlier assessment years and also in subsequent assessment years there is no justification and deviating from the said principle only for the assessment year under consideration i.e. AY 2015-16. The Hon ble Delhi High Court in the case of Vodafone South Ltd. 2015 (10) TMI 22 - DELHI HIGH COURT held that where assessee having availed of loan from HSBC advanced said amount to its holding company there was a direct nexus between earning of interest on loan advanced by assessee to its holding company and payment of interest to HSBC. The assessee s claim for netting off of interest in terms of Section 57(iii) of the Act was in order. Ratio of the decision applies to the facts of the case. We delete the disallowance made u/s 57 of the Act. Grounds raised by the assessee are allowed.
Issues Involved:
1. Disallowance of interest paid to banks claimed against income from other sources. 2. Consistency in the treatment of interest paid and received in previous and subsequent assessment years. Detailed Analysis: 1. Disallowance of Interest Paid to Banks Claimed Against Income from Other Sources: The Assessee filed a return of income for AY 2015-16 declaring a total income of Rs. 27,41,380/-. The Assessing Officer (AO) completed the assessment determining the income at Rs. 1,05,23,064/- by disallowing the interest paid to banks amounting to Rs. 66,96,097/- which the Assessee had claimed against the interest income received from various parties. The AO's rationale was based on Section 57 of the Income Tax Act, which allows expenses laid out or expended wholly and exclusively for the purpose of earning such income. The AO observed that the loans on which interest was paid were not taken for the purpose of earning interest income but were related to real estate. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, noting that the loans were for purchasing homes or developing land, not for advancing loans to earn interest. 2. Consistency in Treatment of Interest Paid and Received in Previous and Subsequent Assessment Years: The Assessee argued that similar claims had been allowed in previous and subsequent assessment years from AY 2011-12 to 2018-19, where the interest paid to banks was set off against interest income earned from loans advanced to various parties. The Assessee provided detailed records and evidence, including loan statements and certificates from financial institutions, to support the claim that the loans were taken against property and not for purchasing property. The Assessee also cited the principle of consistency, as no disallowance had been made in any other year except for AY 2015-16. Tribunal's Findings: The Tribunal examined the evidence and found that the loans were indeed taken against property and not for purchasing real estate, contradicting the CIT(A)'s observations. The Tribunal noted that the Assessee had consistently made similar claims in previous and subsequent years, which had been accepted by the Revenue under Section 143(3) of the Act. Legal Precedents: The Tribunal referred to the Hon'ble Delhi High Court's decision in Vodafone South Ltd. Vs. CIT [378 ITR 410], which supported the Assessee's claim for netting off interest in terms of Section 57(iii) of the Act. The Tribunal also cited the Hon'ble Supreme Court's rulings in CIT Vs. Excel Industries Ltd. [358 ITR 295], CIT Vs. J.K. Charitable Trust [308 ITR 161], and Radha Soami Satsang Vs. CIT [193 ITR 321], emphasizing the importance of consistency in tax assessments. Conclusion: The Tribunal concluded that the Revenue had accepted the Assessee's claims for interest paid and received in previous and subsequent years, and there was no justification for deviating from this principle for AY 2015-16. The Tribunal set aside the CIT(A)'s order and directed the AO to delete the disallowance made under Section 57 of the Act. The appeal of the Assessee was allowed. Order Pronounced: The order was pronounced in the open court on 16/02/2023.
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