2013 (7) TMI 38 - AT - Income Tax

Disallowance of interest and advances written off CIT deleted disallowance Held that - CIT without going into details deleted disallowance on basis of assesse s submission Assessee led evidences that M/s. Sleek Sales became bad Assessee could not produce any evidence Issue set aside to Assessing Officer s file and re-directed to allow liberty to assessee to file evidence and then decide issue Appeal dismissed. Disallowance of interest on borrowed funds CIT deleted disallowance Held that - Assessee could not prove that interest free advances are treating advances Unsecured loan or trade advances, needs verification at Assessing Officer s level Appeal allowed. Disallowance of interest claimed on house building property CIT deleted disallowance Hels that - assessee paid interest on loan borrowed for housing property Once Assessee has income from house property disallowance of interest not restricted But allowable on entire payment of interest No infirmity in order of CIT Appeal dismissed.

Summary

Issues:
1. Disallowance of interest and advances written off.
2. Disallowance of interest on borrowed funds.
3. Disallowance of interest on house building property.

Issue 1: Disallowance of interest and advances written off:
The Revenue appealed against the CIT(A)'s order deleting the disallowance of interest and advances written off. The Assessing Officer disallowed Rs.88,050/- and Rs.12,500/- for interest and advances written off, respectively, due to lack of evidence provided by the assessee. The CIT(A) allowed the claim based on the assessee's submission without thorough verification. The ITAT directed the issue back to the Assessing Officer for further evidence submission and verification, allowing the appeal for statistical purposes.

Issue 2: Disallowance of interest on borrowed funds:
The Revenue contested the CIT(A)'s decision to delete the disallowance of Rs.13,16,080/- interest on borrowed funds. The Assessing Officer disallowed the interest paid as the assessee provided interest-free loans while borrowing at interest. The CIT(A) allowed the claim, stating that the borrowed funds were fully utilized for business purposes, justifying the interest payment. However, the ITAT found the need for verification regarding the nature of interest-free advances, directing the issue back to the Assessing Officer for further examination, allowing the appeal for statistical purposes.

Issue 3: Disallowance of interest on house building property:
The Revenue challenged the CIT(A)'s decision to delete the disallowance of Rs.83,675/- interest claimed on a house building property. The Assessing Officer restricted the claim to Rs.1.50 lakh under section 24(b) of the Act. The CIT(A) allowed the full claim as the property was let-out with rental income exceeding the restriction limit. The ITAT upheld the CIT(A)'s decision, confirming that the interest disallowance should be based on the total payment when income is generated from the property. Thus, the Revenue's appeal on this issue was dismissed.

In conclusion, the ITAT partially allowed the Revenue's appeal concerning the disallowance of interest and advances written off and interest on borrowed funds, while dismissing the appeal regarding the disallowance of interest on house building property. The judgments were made after thorough consideration of the facts and circumstances of the case, ensuring proper application of the Income-tax Act, 1961.