2019 (9) TMI 862 - AT - Income Tax

Disallowance of interest expense paid to India Infoline Financial Services by A.O . - HELD THAT - Appellant did not furnish any documentary evidence to prove that the loan taken from 1IFSL and transferred directly to MIPL was for the purpose of the business of the appellant though it was the onus of the appellant to prove the business exigency of giving loan of such a huge amount without interest after borrowing the same on huge interest expenses. Now during the appellate proceedings the appellant has been able to prove the business exigency of giving loan of such a huge amount without interest after borrowing the same at huge interest expenses. Thus the basis of disallowance by the AO has been addressed by the appellant and therefore the addition by way of disallowance of interest has to be deleted.

Issues Involved:
1. Disallowance of interest expense of ?9,67,285/- paid to India Infoline Financial Services Ltd. (IIFSL).
2. Levy of interest under sections 234A/B/C & D of the Income Tax Act.
3. Initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Interest Expense of ?9,67,285/- Paid to India Infoline Financial Services Ltd. (IIFSL):
The primary issue in the appeal was the disallowance of interest expenses amounting to ?9,67,285/- paid to IIFSL. The Assessing Officer (A.O.) disallowed this interest expense on the grounds that the interest-bearing funds were not utilized for earning interest income. The A.O. noted that this fact came to light during the assessment proceedings for the year under consideration, leading to the initiation of separate proceedings for the previous two years (A.Y. 2012-13 and 2013-14). The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the A.O.'s decision, stating that the appellant failed to prove the business purpose of the interest payment.

The appellant argued that the same CIT(A) had deleted similar disallowances for A.Y. 2012-13 and 2013-14, acknowledging that the loan from IIFSL was used for business purposes. The appellant provided detailed documentary evidence proving the business exigency of the loan transactions. The CIT(A) had earlier noted that the appellant had a mixed portfolio of funds and that the loan from IIFSL was used to repay other interest-bearing loans, thereby constituting a loan takeover.

The Tribunal observed that there was no change in the facts and circumstances between the assessment years 2012-13, 2013-14, and 2014-15. It was noted that the CIT(A) had allowed the interest expense for the earlier years based on the same set of facts. The Tribunal found that the revenue could not rebut the findings for the earlier years. Consequently, the Tribunal directed the A.O. to delete the addition of ?9,67,285/-.

2. Levy of Interest Under Sections 234A/B/C & D of the Income Tax Act:
The appellant did not press this ground, and it was considered consequential in nature. Therefore, no separate adjudication was required.

3. Initiation of Penalty Proceedings Under Section 271(1)(c) of the Income Tax Act:
Similar to the previous issue, the appellant did not wish to press this ground, and it was considered consequential in nature. Thus, no separate adjudication was necessary.

Conclusion:
The Tribunal allowed the appeal in part, directing the deletion of the disallowance of ?9,67,285/- interest expense paid to IIFSL. The grounds related to the levy of interest under sections 234A/B/C & D and the initiation of penalty proceedings under section 271(1)(c) were not pressed and were considered consequential. The appeal was partly allowed, and the order was pronounced in the open court on 18.09.2019.

← Previous Next →