2023 (4) TMI 816 - AT - Income Tax

Allowability of deduction of interest expenditure u/s 57 - Interest claimed as expenditure against the interest paid on loan taken from ICICI Home Finance - Interest claimed as expenses only up to the interest earned on FDR made out of the loan taken - interest has not claimed other source of income, but claimed upto the income earned and allowed in A.Y.2009-10 completed u/s 143(3) - HELD THAT - It is not in dispute that the assessee could not obtain the requisite permission from the competent authority for proceeding with the additional floor construction. Since, the loan amounts were lying idle with the assessee, the assessee thought it fit to use the said loan funds by making investment in fixed deposits with ICICI Bank and State Bank of Patiala. Hence, it is crystal clear that loan funds received by the assessee were directly utilized for making investment in fixed deposits. Admittedly, the interest income earned on fixed deposit is taxed under the head of interest income u/s 56 of the Act. The provisions of section 57(iii) of the Act categorically provide for allowability of deduction of interest expenditure that has been incurred for the purpose of earning exempt income. When the claim has been in accordance with the statutory allowable provision by the assessee, the action of the lower authorities dismissing the plea thereon without even considering the provisions of the Act cannot be sustained. Hence, we direct the Ld. AO to allow the interest claimed by the assessee in the sum u/s 57(iii) of the Act. Allowability of business loss - AO had disbelieved the fact that the assessee had not carried on any business and, accordingly, the entire business expenditure were disallowed - HELD THAT - AO himself while disallowing certain business expenditure on adhoc basis partially, had practically conceded to the fact of assessee carrying on the business. AO made adhoc disallowance of driver salary, labour charges, manager salary, Security Guard etc. @ 60% in AY 2014-15, which goes to prove that remaining 40% of the very same expenditure would be allowable as business expenditure. This clearly proves that the Ld. AO himself in AY 2014-15 had accepted the fact that assessee was indeed carrying on business. The reasons for business not being conducted in full fledged manner in AY 2013-14 was also clearly explained by the assessee that he was not well during the year under consideration i.e., AY 2013-14. The business of the assessee was never closed. Hence, once the business is continued, there is absolutely no justifiable reasons for the Ld. AO to disallow the business loss entered thereon. Accordingly, we direct the Ld. AO to allow the business loss claimed for AY 2013-14.

Summary

Issues Involved:
The judgment involves issues related to interest claimed as expenditure against interest paid on a loan, and the confirmation of loss claimed by the assessee in the income return. The judgment also addresses the allowability of business loss and interest paid on a loan taken from ICICI Home Finance Ltd for different assessment years.

Issue 1: Interest Expenditure and Business Loss for AY 2013-14:
The assessee claimed interest expenditure of Rs.27,18,524 against interest paid on a loan from ICICI Home Finance. The assessee restricted the deduction of interest payment to the extent of interest income earned. Additionally, a loss of Rs.9,29,941 claimed in the income return was challenged by the authorities.

The Tribunal found that the loan funds were utilized by the assessee for fixed deposits due to the unavailability of permission for construction. The interest income earned was taxed, and the deduction of interest expenditure was in accordance with statutory provisions. The Tribunal directed the Ld. AO to allow the interest claimed by the assessee under section 57(iii) of the Act.

Regarding the business loss, the Tribunal noted that the business continued in a shed on the property, even though the front portion was rented out. The Ld. AO disallowed the business loss without considering the facts presented by the assessee. The Tribunal directed the Ld. AO to allow the business loss claimed for AY 2013-14.

Issue 2: Interest Paid on Loan for AY 2014-15 and AY 2015-16:
For AY 2014-15, the only ground raised by the assessee was the disallowance of interest paid on the loan from ICICI Home Finance Ltd, similar to the issue in AY 2013-14. The Tribunal allowed the ground raised by the assessee for AY 2014-15 based on the decision made for AY 2013-14.

Similarly, for AY 2015-16, the grounds raised by the assessee were identical to those in AY 2013-14. The Tribunal applied the decision made for AY 2013-14, allowing the grounds raised by the assessee for AY 2015-16.

Conclusion:
In conclusion, the Tribunal allowed all the appeals of the assessee related to interest expenditure, business loss, and the disallowance of interest paid on a loan for different assessment years.