2014 (3) TMI 365 - AT - Income Tax

Disallowance of interest u/s 24(b) of the Act - Whether the said amount advanced by Saraswat Bank to the assessee in the form of rent advance could be considered as amount borrowed by the assessee from the said Bank for purchase of the property Held that - It was a loan advanced by Saraswat Bank Cooperative Ltd to the assessee which was utilized by the assessee for purchase of first floor of the premises and the said rent/advance carried interest at the rate of 12% per annum with monthly rest - though the amount advanced to the assessee is termed as rent advance but in all form it is an advance of loan to the assessee and a part of the said loan has been utilized by the assessee for purchase of first floor of the premises which was later on let out by the assessee to Saraswat Bank Cooperative Ltd. and the rental income has been derived by the assessee - the assessee utilized the sum for purchase of the immovable property i.e. first floor of Sailor building at Fort, Mumbai, and the assessee is entitled to get the deduction of the interest paid thereon u/s 24(b) of the Income Tax Act - thus, the assessee is allowed to have a deduction of interest u/s 24(b) of the Act Decided in favour of Assessee. Set off of business loss against income from house property not allowed Held that - When the assessee resumed his business of purchase and sale of shares, it is not known whether the assessee sold any of shares held as stock-in-trade - It might be possible that the assessee when resumed trading in shares, he started with fresh purchase and sale of shares - All the facts need verification - The assessee will furnish requisite details of the shares held as stock-in-trade to the AO and the AO will verify the said details and decide the issue as to whether the assessee had temporarily suspended his business or there was complete stoppage of business by assessee the assessee has not filed requisite details of total loss claimed by assessee thus, the AO is directed for fresh adjudication Decided in favour of Assessee.

Summary

Issues Involved:
1. Addition of interest on bank loan claimed by the assessee.
2. Disallowance of expenses under "Income from Business & Profession".
3. Validity of the assessment order dated 4/1/2011.
4. Charging of interest under sections 234A, 234B, and 234C of the Income Tax Act, 1961.
5. Penalty under section 271(1)(c) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Addition of Interest on Bank Loan:
The assessee contested the addition of Rs. 11,37,521/- as interest on a bank loan, which was claimed under section 24(b) of the Income Tax Act. The Tribunal referenced a previous order where the assessee had similarly claimed interest on an advance rent used for purchasing property. The Tribunal concluded that the advance from Saraswat Co-operative Bank Ltd., although termed as rent advance, functioned as a loan used for purchasing property. Consequently, the Tribunal allowed the deduction of interest on Rs. 29,00,000/- out of the Rs. 51,00,000/- advance since it was used for property purchase. The Tribunal followed the same reasoning for the current assessment year, allowing the claim in part.

2. Disallowance of Expenses under "Income from Business & Profession":
The assessee argued that the disallowance of Rs. 16,31,853/- was unjust as these expenses were related to the business. The Tribunal noted that the assessee had a history of share trading but had not conducted any business activity during the assessment year in question. The Tribunal directed the Assessing Officer (AO) to verify whether the business was temporarily suspended or completely stopped. If it was a temporary suspension, the business loss should be set off against the income from house property. The Tribunal restored this issue to the AO for a fresh decision based on evidence provided by the assessee.

3. Validity of the Assessment Order:
The assessee did not press this ground during the appeal, leading to its dismissal.

4. Charging of Interest under Sections 234A, 234B, and 234C:
The Tribunal directed the AO to recompute interest under sections 234A, 234B, and 234C based on the assessed income after considering the Tribunal's order.

5. Penalty under Section 271(1)(c):
The Tribunal dismissed this ground as premature, indicating that the issue of penalty was not ripe for adjudication.

Conclusion:
The appeal was partly allowed for statistical purposes. The Tribunal allowed the interest claim on the bank loan in part, restored the disallowance of business expenses to the AO for fresh consideration, dismissed the unpressed ground regarding the assessment order, directed recomputation of interest under sections 234A, 234B, and 234C, and dismissed the penalty issue as premature. The order was pronounced in the open court on 25/02/2014.