2015 (8) TMI 281 - HC - Income Tax

Disallowance of interest on borrowed capital u/s 36(1)(iii) - ITAT confirming the order of the CIT(A) in directing to allow the claim - Held that - It was not the case of the revenue that the finding of the Commissioner of Income Tax (Appeals) that the borrowed money was utilized for the purpose of business, is not correct and/or perverse. Similarly, in the present appeal challenging the impugned order of the Tribunal no ground challenging the factual finding of the activities has been urged in the appeal memo. It is not open to the revenue to urge investigation into facts which were not disputed by it before the Tribunal or even when the memo of appeal filed in 2008 in this Court. The jurisdiction under Section 260A of the Act is to entertain substantial questions of law arising in the case. In the present facts, both the Commissioner of Income Tax (Appeals) as well as the Tribunal, have reached a finding of fact that the interest was paid on amounts borrowed and used for the purposes of business. The issue stands covered by virtue of a decision of Core Health Club Ltd., (2008 (2) TMI 8 - SUPREME COURT OF INDIA ). The decision cited by Mr. Chhotaray in the case of Challapalli Sugars Ltd. (1974 (10) TMI 3 - SUPREME Court) would have no application to the present facts. In this case there is concurrent finding of fact that the amounts have been utilized in the carrying on business and one of the business carried out by the respondent-assessee was that of a Estate Agent. - Decided against revenue.

Summary

Issues:
1. Appeal challenging Tribunal's order dated July 18, 2007.
2. Recalling order dated October 21, 2008.
3. Justification of Tribunal's decision on interest deduction under Section 36(1)(iii) of the Act.
4. Disallowance of interest paid by the assessee.
5. Business activities of the assessee.
6. Applicability of legal precedents.
7. Dispute over deduction of interest for incomplete projects.

Analysis:
1. The appeal by the revenue contested the Tribunal's order from July 18, 2007, concerning the Assessment Year 1998-99. The revenue's appeal was initially dismissed on October 21, 2008, due to non-appearance, but was later recalled and admitted for consideration in 2015.

2. The revenue sought to recall the order from October 21, 2008, which dismissed the appeal for default. The matter was eventually heard in July 2015, leading to the admission of the appeal for further consideration.

3. The main issue revolved around the Tribunal's decision to confirm the Commissioner of Income Tax (Appeals) order directing the allowance of interest on borrowed capital under Section 36(1)(iii) of the Act. The Tribunal upheld the finding that the borrowed funds were used for business purposes, allowing the deduction.

4. The Assessing Officer disallowed the interest paid by the assessee, amounting to Rs. 18.37 lacs, as non-business expenditure. However, the Commissioner of Income Tax (Appeals) reversed this decision, stating that the borrowed funds were indeed utilized for business activities, leading to the allowance of the deduction.

5. The respondent-assessee, engaged in real estate development and agency, had borrowed capital used for business purposes, as confirmed by both the Commissioner of Income Tax (Appeals) and the Tribunal. The revenue's argument challenging the business activities of the assessee was dismissed due to lack of factual dispute raised earlier.

6. Legal precedents, such as the decision in Dy. C.I.T. v/s Core Health Club Ltd., were cited to support the assessee's position, emphasizing the utilization of borrowed funds for business activities, thereby justifying the deduction.

7. The revenue's argument that interest deduction should only apply upon project completion was rejected, as both the Commissioner of Income Tax (Appeals) and the Tribunal had already established that the borrowed funds were indeed used for business purposes, including real estate agency operations. The Tribunal found no substantial question of law to consider and dismissed the appeal.