2012 (7) TMI 357 - AT - Income Tax

Disallowance of expenses - Held that - Assessee failed to submit evidence in support of its claim as no material was brought on the record indicating that he has carried out business activities. In this year, it has only shown rental income and against such income, the expenses enumerated in section 24b can be allowed and the expenses like Loan processing fee, Sales-tax, Insurance Expenses and Bank charges as claimed by assessee cannot be allowed - decided against assessee. Disallowance of interest expenses - the borrowed capital was not used for business purposes - Held that - If an assessee has borrowed funds, purchased a property/land, raised construction it or renovated it and then earned income, then expenses in the shape of interest etc. would be allowed as a deduction out of the rental income - assessee has filed a bank certificate to provide the transaction details and the accounts of the assessee for earlier years i.e. balance sheet, ledger account etc has alleged that it has raised unsecured loan from individual for construction, these loans were repaid by taking a term loan from the bank - remit the case back for verification and re adjudicate - in favour of assessee for statistical purposes.

Summary

Issues:
1. Delay in filing appeal before ITAT.
2. Disallowance of loan processing fee, sales-tax, insurance expenses, and bank charges.
3. Disallowance of financial expenses amounting to &8377; 14,23,797.

Analysis:
1. Delay in filing appeal before ITAT:
The appellant filed an appeal against the order of Learned CIT(Appeals) dated 17.08.2010 for the assessment year 2006-07. The registry pointed out that the appeal was time-barred by twenty days. The appellant submitted an application supported by an affidavit explaining the delay. The affidavit stated that the appellant's CA was out of station when the order was received, leading to the delay in filing the appeal. The ITAT, after considering the explanation, allowed the condonation of the delay of twenty days, noting that there was no deliberate attempt to delay the filing.

2. Disallowance of loan processing fee, sales-tax, insurance expenses, and bank charges:
The Assessing Officer disallowed expenses amounting to &8377; 1,51,446 debited by the appellant in its books of account. The appellant had shown only rental income and failed to provide evidence to support the claim of business activities. The ITAT upheld the disallowance, stating that the expenses were not related to the rental income and could not be allowed under section 24b. The appellant's failure to submit evidence led to the confirmation of the disallowance.

3. Disallowance of financial expenses amounting to &8377; 14,23,797:
The Assessing Officer disallowed financial expenses claimed by the appellant, stating that the borrowed capital was not used for business purposes. The appellant failed to provide satisfactory explanations, leading to the disallowance. The ITAT affirmed the disallowance, noting that the bank certificate submitted by the appellant did not specify the purpose for which the loan was granted. However, considering the details provided by the appellant regarding the loan utilization and repayment, the ITAT set aside the issue for verification by the Assessing Officer. The appellant was directed to submit necessary details, and the Assessing Officer was instructed to reexamine the issue after providing a hearing opportunity to the appellant.

In conclusion, the ITAT partly allowed the appeal for statistical purposes, highlighting the importance of providing sufficient evidence to support expense claims and the need for thorough verification by the Assessing Officer in such matters.