2020 (7) TMI 565 - AT - Income Tax

Addition on account of deduction of interest expenditure u/s 24 (b) - whether interest was paid on loan which was meant for investment in shares and bonds and not for the purpose of purchasing the property - grievance of the assessing officer is that that above interest expenditure cannot be granted as deduction from income from house property - HELD THAT - In the previous year has reached at a finding that until the amount has been utilized in the investment of bonds et cetera, no interest can be claimed by the assessee as deduction under the income from house property. However when such bonds have been redeemed and utilized for the purpose of purchase of the property, then the borrowed fund from HSBC bank amounts to utilization of same for the purpose of purchase of the property. As held that since the amount was purchased from the borrowed funds of the HSBC bank, interest paid by the assessee should be allowed as a deduction. The above facts are not disputed by the revenue. Even it was not shown to us that the order of the learned CIT A for assessment year 2011 12 has not been accepted by the revenue and is agitated before the higher forum. In view of this, we do not find any infirmity in the order of the learned CIT A in directing the learned assessing officer to ascertain the interest on funds utilized for acquisition of the property on which rental income has been earned by it during the year and to grant deduction of such interest under section 24 (b) - Decided against revenue. Disallowance u/s 14A read with Rule 8D - CIT- A directed the learned AO to restrict the disallowance to the extent of the exempt income earned - HELD THAT - CIT-A's direction are in view of the decision of JOINT INVESTMENTS PRIVATE LIMITED VERSUS CIT 2015 (3) TMI 155 - DELHI HIGH COURT . Also further directed AO to recompute the disallowance to exclude the interest expenditure, which pertains to the income from house property and in respect of the interest expenditure related to the income from other sources - Consider the remaining interest expenditure for the purpose of computation of the disallowance. With respect to the disallowance of 0.5% of the average value of the investment, he directed the learned assessing officer to consider only those bonds, which yielded tax-free income. After hearing the parties on this issues, we do not find any infirmity in the order of the learned CIT A in directing the AO so. As CIT A has followed the order of his predecessor and honourable Delhi High Court. The revenue has not challenged the order of the learned CIT A for assessment year 2011 12, at least as no evidences produced before us. In view of this, we do not find any infirmity in the order of the learned CIT A. Accordingly ground number two and three of the appeal of the AO is dismissed. Addition on account of various business expenses claimed - HELD THAT - On careful analysis of the order of the learned CIT A, we found that he relied on the order of his predecessor for assessment year 2011 12 wherein all the facets of the allowability of those expenditure have been considered and disallowance has been deleted. We also do not find any infirmity in the order of the learned CIT A in following the order of his predecessor, when revenue could not produce any evidence before us that the order of the CIT A for assessment year 2011 12 has not been accepted by the revenue. - Decided against revenue.

Summary

Issues involved:
1. Deduction of interest under section 24(b) of the Income Tax Act.
2. Disallowance under section 14A of the Income Tax Act.
3. Deletion of business expenses claimed by the assessee.

Issue 1: Deduction of interest under section 24(b) of the Income Tax Act:
The appeal by the revenue challenged the deletion of ?1,54,33,735 on account of interest deduction under section 24(b) of the Income Tax Act. The assessing officer disallowed the deduction as the interest was paid on a loan meant for investment in shares/bonds, not for property purchase. The CIT(A) directed the AO to ascertain interest on funds used for property acquisition to allow proportionate deduction. The Tribunal upheld the CIT(A)'s decision, stating that interest paid for property purchase should be allowed as a deduction.

Issue 2: Disallowance under section 14A of the Income Tax Act:
The AO disallowed ?1,56,78,235 under section 14A read with Rule 8D, citing investments in mutual funds. The CIT(A) directed the AO to restrict disallowance to the extent of exempt income earned, following a Delhi High Court decision. The Tribunal upheld the CIT(A)'s order, emphasizing the need to exclude interest expenditure related to house property income and consider only tax-free income bonds for disallowance calculation.

Issue 3: Deletion of business expenses claimed by the assessee:
The AO disallowed ?98,27,363 of business expenses, which the CIT(A) deleted based on a previous decision for assessment year 2011-12. Both parties agreed that circumstances remained unchanged. The Tribunal upheld the CIT(A)'s decision, noting the absence of evidence challenging the previous order. Consequently, the appeal by the assessing officer was dismissed.

This detailed analysis covers the key issues addressed in the legal judgment, providing a comprehensive understanding of the Tribunal's decision on each matter.