2008 (9) TMI 404 - AT - Income Tax

Summary

Issues involved: Appeal against order of CIT(A) for assessment year 2005-06 - Disallowance of interest and additions under s. 2(22)(e).

Issue 1 - Disallowance of Interest:
The AO disallowed Rs. 1,07,784 of interest claimed by the assessee, stating that only Rs. 10 lacs of the total loan of Rs. 25 lacs was used for business purposes. The CIT(A) deleted the disallowance, emphasizing that no diversion of funds was proven and other funds were available for investments. The Revenue appealed, arguing in line with the AO's observations. The assessee's counsel presented the loan account details to refute the AO's stance. The Tribunal found no justification for the disallowance, noting the reduction in the opening balance and upheld the CIT(A)'s decision.

Issue 2 - Additions under s. 2(22)(e):
The AO observed a loan/advance from M/s Perk Credit & Properties (P) Ltd. in the balance sheet, suspecting it to fall under s. 2(22)(e). The CIT(A) ruled in favor of the assessee, citing the exception under s. 2(22)(e). The Revenue challenged this decision. The Departmental Representative relied on the AO's order, while the assessee's counsel highlighted the transactions with M/s Perk Credit & Properties (P) Ltd. The Tribunal concluded that s. 2(22)(e) did not apply to the transactions, dismissing the Revenue's appeal.

In conclusion, the Tribunal dismissed the Revenue's appeal against the CIT(A)'s order for the assessment year 2005-06.