2024 (6) TMI 1367 - AT - Income Tax

Denial of deduction u/s 57(iii) of interest expenditure - assessee has offered interest income under the head of interest from other sources - AO was of the view that as assessee agreed to charge interest at the rate of 15% but calculated interest only at the rate of 12% - assessee submitted that the assessee has paid interest to some of the parties at the rate of 12% and to the borrower the interest was paid at the rate of 15%. Due to economic slowdown the parties to whom the loans were provided the interest rates were negotiated at the rate of 12%. HELD THAT - The fact shows that the assessee has earned interest income of ₹ 37,42,093/- and have incurred expenses of ₹ 30,84,320/- resulting into net interest income of ₹ 6,57,773/-. AO has assumed that assessee should have earned interest income from loans given at the rate of 15% and thereby made the addition at the rate of 3%. This is against the actual interest received by the assessee which are supported by loan confirmation and form no. 26AS. In response to reply under Section 133(6) of the Act also payer of interest confirmed interest as offered by assessee. The parties confirmed to have paid interest at the rate of 12% as the interest income amount what is accounted for. Therefore the amount of addition made by AO has neither accrued to the assessee nor received. AO also does not have any evidence that assessee received more interest than interest than what is shown. The addition made by AO is incorrect and hence, deleted. Assessee appeal allowed.

Summary

Issues:
- Disallowance of deduction under Section 57(iii) of the Income-tax Act, 1961.
- Correct calculation of interest income and expenses.
- Appeal against the order of the Additional Commissioner of Income-tax (Appeals).

Analysis:

1. Disallowance of deduction under Section 57(iii) of the Income-tax Act, 1961:
The case involved an appeal filed by the assessee against the assessment order passed by the Income Tax Ward, Mumbai, where the assessee had claimed deduction under Section 57(iii) of the Act. The Assessing Officer disallowed the deduction based on the difference in the interest rates agreed upon and calculated by the assessee. However, the Tribunal found that the interest income and expenses were correctly accounted for by the assessee, supported by loan confirmation and Form 26AS. The Tribunal noted that the parties involved confirmed the interest rates at 12%, contrary to the assumption made by the Assessing Officer at 15%. As there was no evidence to suggest that the assessee received more interest than reported, the disallowance of &8377; 9,35,523 was deemed incorrect and subsequently deleted. This issue was crucial in determining the correctness of the deduction claimed by the assessee under Section 57(iii) of the Act.

2. Correct calculation of interest income and expenses:
The Tribunal analyzed the interest income and expenses declared by the assessee, amounting to &8377; 37,42,093 and &8377; 30,84,320, respectively, resulting in a net interest income of &8377; 6,57,773. The Assessing Officer had assumed that the assessee should have earned interest at a rate of 15%, leading to the addition of 3% as per the difference in interest rates. However, the Tribunal observed that the actual interest received by the assessee was at 12%, as confirmed by loan documents and Form 26AS. The Tribunal further highlighted that the addition made by the Assessing Officer was not supported by any evidence indicating that the assessee received more interest than reported. Consequently, the Tribunal concluded that the addition of &8377; 9,35,523 was unwarranted and thus, deleted. This issue was pivotal in determining the accuracy of the interest income calculation and the subsequent addition made by the Assessing Officer.

3. Appeal against the order of the Additional Commissioner of Income-tax (Appeals):
The appeal was filed by the assessee against the order of the Additional Commissioner of Income-tax (Appeals), Kolkata, confirming the decision of the Assessing Officer to disallow the deduction under Section 57(iii) of the Act. The Tribunal, after considering the facts and submissions, allowed the appeal of the assessee by deleting the addition made by the Assessing Officer. The Tribunal noted that the grounds of appeal were supportive only and hence not adjudicated upon. Consequently, the appeal of the assessee was allowed, emphasizing the significance of challenging the appellate order and seeking redressal through the Tribunal.