2023 (2) TMI 790 - AT - Income Tax

Revision u/s 263 - wrong claim of deduction made u/s 43B - as per CIT with respect to the claim of interest expenses assessee claimed deduction for bank interest paid relating to another bank RCC Bank which had been paid through assessee s wife account - HELD THAT - We find that the assessee had duly substantiated his claim of interest expenses under section 43B on payment basis. The ld.Pr.CIT has, except for stating that the payment has been made by his wife, and therefore, is not allowable, has pointed out no other anomaly in the explanation of the assessee nor has he pointed out why despite all the facts, as narrated and substantiated by the assessee, the claim was still disallowable under section 43B of the Act. The fact that payment made by his wife was on account of repayment of loan given by him to his wife was duly demonstrated with evidence to the Ld.PCIT. Even otherwise how the fact of payment of interest by any other person other than the assessee affects claim of expenses on payment basis as per section 43B of the Act has not been brought out by the Ld.PCIT. Therefore, we agree with the ld.counsel for the assessee that there is no error in the order of the AO allowing the assessee s claim of interest under section 43B Claim of interest u/s 36(1)(iii) - as per CIT there was a huge negative capital balance account of the assessee and on that basis he held that proportionate loans were utilized towards the negative capital account which tantamounted to utilization of the same for non business purposes and accordingly interest expenses relating to the same was not allowable - As noted that the assessee had explained to the ld.Pr.CIT that the loans appearing in his books of accounts were very old loans since 1999 and from RNSB and RCC Bank, and therefore, they could not be attributed to have been utilized for non-business purpose in the impugned year. Despite these explanations given by the assessee to the ld.Pr.CIT, the ld.Pr.CIT being aware of all these facts, he has still gone ahead to hold that interest expenses claimed by the assessee not allowable under section 36(1)(iii) - We are not in agreement with the ld.Pr.CIT on this aspect also, noting that the assessee has duly explained that there was no nexus between the loans and negative capital balance in the impugned year, the loans being very old pertaining to 1999. We agree with the ld.counsel for the assessee that there was no error in the order of the AO vis- -vis the allowability of claim of interest expenses under section 36(1)(iii) of the Act also. Thus order of the ld.Pr.CIT passed u/s 263 on the above two issues of disallowance is not sustainable in law, and there was no error in the order of the AO allowing both these claim to the assessee. Decided in favour of assessee.

Issues Involved:
1. Whether the order of the Assessing Officer (AO) was erroneous and prejudicial to the interests of the revenue.
2. Applicability of the amendment to section 263 by Finance Act 2015 to Assessment Year (AY) 2013-14.
3. Allowability of the claim of interest expenses under section 43B of the Income Tax Act.
4. Allowability of the claim of interest expenses under section 36(1)(iii) of the Income Tax Act.

Detailed Analysis:

1. Erroneous and Prejudicial Order:
The learned Commissioner of Income Tax (Pr.CIT) held that the AO's order was erroneous and prejudicial to the interests of the revenue, asserting that the assessment was passed without proper inquiry. The assessee contended that the AO had conducted a full inquiry and the decisions were in line with appellate authorities. The Tribunal found that the assessee had sufficiently demonstrated that there was no error in the AO's order.

2. Applicability of Amendment to Section 263:
The assessee argued that the amendment to section 263 by the Finance Act 2015 was not applicable to AY 2013-14. This issue was not elaborately discussed in the judgment, implying it was not a decisive factor in the Tribunal's decision.

3. Claim of Interest Expenses under Section 43B:
The Pr.CIT contended that the assessee's claim of Rs.1,15,36,991/- under section 43B was incorrect, as it was paid through the assessee's wife's account. The assessee explained that the interest expenses pertained to old loans from 1999, and due to disputes, payments were delayed but eventually made as per a court order. The Tribunal noted that the assessee had provided sufficient evidence, including court orders and bank statements, demonstrating that the interest expenses were allowable under section 43B. The Tribunal found no error in the AO's acceptance of these claims.

4. Claim of Interest Expenses under Section 36(1)(iii):
The Pr.CIT argued that the interest expenditure of Rs.12,07,435/- should be disallowed under section 36(1)(iii) due to the diversion of loans for non-business purposes, indicated by a negative capital balance. The assessee clarified that the loans were old and unrelated to the negative capital balance. The Tribunal agreed with the assessee, noting that the loans could not be correlated to non-business purposes in the impugned year, thus finding no error in the AO's decision to allow the interest expenses under section 36(1)(iii).

Conclusion:
The Tribunal concluded that the Pr.CIT's order under section 263 was not sustainable in law, as there was no error in the AO's order regarding the claims of interest expenses under sections 43B and 36(1)(iii). The appeal of the assessee was allowed, and the Pr.CIT's order was set aside.

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