2019 (12) TMI 516 - AT - Income Tax

Addition of income - interest from savings bank a/c, Interest on FDR, Interest from parties and rent of land - AO in the assessment order passed u/s 143(3) of the Act disallowed the deduction of interest u/s 57(iii) of the Act on the ground that the assessee failed to establish that the expenditure was incurred for earning interest income - HELD THAT - There is no dispute that in the return of income the assessee has shown entire income as income from other sources which includes interest from saving bank a/c, interest from FDR and interest from parties. It is pertinent to note that an identical issue was also arisen for the Assessment Year 2013-14 and the AO had allowed the claim of interest expenditure to the extent of interest income received from various parties. Thus it appears that interest received by the assessee against these parties for the Assessment Year 2013-14 was accepted by the AO and corresponding interest was also allowed by the AO - The assessee challenged the said action of the AO restricting the claim of deduction on account of interest expenditure to the interest income. However, the ld. CIT(A) while passing the order dated 19-12-2017 for the Assessment Year 2013-14 has confirmed the action of the AO. The claim of interest expenditure of the assessee to the interest income of ₹ 3.57 lacs is allowed - the appeal of the assessee is partly allowed.

Summary

Issues:
Disallowance of interest expenditure claimed by the assessee under section 57(iii) of the Income Tax Act for the Assessment Year 2012-13.

Analysis:
The assessee, an individual, declared total income in the return of income for the Assessment Year 2012-13, including interest income from various sources. The claimed interest expenditure of ?5,04,843 was disallowed by the Assessing Officer (AO) under section 57(iii) of the Act for failure to prove it was incurred for earning interest income.

The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], submitting fresh confirmation letters specifying interest amounts charged from parties. The CIT(A) upheld the AO's disallowance.

Before the Tribunal, the assessee argued that interest expenditure should be allowed as corresponding to interest income earned. Reference was made to the Assessment Year 2013-14 where similar treatment was allowed by the AO. The Department contended the assessee failed to establish the expenditure was for earning interest income.

The Tribunal noted the assessee's income sources included interest income from parties and that borrowed funds were used to give advances to these parties. Referring to the Assessment Year 2013-14, where a similar issue arose, the AO had allowed interest expenditure corresponding to interest income. The CIT(A) confirmed this decision for 2013-14. Consequently, the Tribunal partly allowed the assessee's appeal, permitting the interest expenditure claimed against the interest income of ?3.57 lakhs.

In conclusion, the Tribunal partially allowed the appeal of the assessee, considering the facts and circumstances of the case.