2020 (11) TMI 278 - AT - Income Tax

Eligibility for deduction of interest u/s.57 - interest income of deposits under the head income from other sources - CIT(A) had restricted allowability of interest expenditure only to the extent of interest receipts under the head income from other sources - HELD THAT - As decided in CASCADE HOLDINGS PVT. LTD. AND VICE-VERSA. 2020 (3) TMI 1252 - ITAT MUMBAI the investment as well as the fund management are under the supervision of the Hon'ble Spl. Court, assessee has no role to play. From the facts on record, prima facie, it appears that there is a nexus between the borrowed funds on which assessee has paid interest and the investment on which it has earned interest income. Therefore, the assessee should get deduction of interest expenditure to the extent of interest income earned - It is relevant to observe, in assessee's own case in AY 2017-18, the AO himself has allowed claim of deduction of interest expenditure to the extent of interest income earned during that year. In view of the aforesaid, the ground is allowed as indicated above. Thus we direct the ld. AO to restrict the disallowance of interest to the extent being the interest income received on term deposits. Accordingly, the ground No.1 raised by the assessee is allowed for statistical purposes. Charging of interest u/s.234A, 234B 234C - Interest for all the assessment years which was charged without giving credit for tax deducted at source - HELD THAT - As in case of Sudhir S. Mehta 2017 (12) TMI 1668 - ITAT MUMBAI the issue was decided that interest levied under section 234A, 234B 234C be recomputed after excluding the income which is subject to TDS. Therefore, Assessing Officer is directed to recompute the interest accordingly. In the result, these grounds of appeal are allowed for statistical purpose.

Summary

Issues involved:
1. Eligibility of deduction of interest u/s.57 of the Act on deposits in the sum of ?4,43,743 under the head 'income from other sources'.
2. Charging of interest u/s.234A, 234B, and 234C of the Act without giving credit for tax deducted at source.

Analysis:

Issue 1:
The primary issue in this appeal pertains to the eligibility of the assessee for deduction of interest u/s.57 of the Act on deposits amounting to ?4,43,743 under the head 'income from other sources'. The Assessing Officer (AO) disallowed the deduction claimed by the assessee towards interest u/s.57 of the Act, amounting to ?54,91,676, on the grounds of provisional and contingent liability. The Commissioner of Income Tax (Appeals) modified the interest disallowance by restricting it to the extent of interest receipts of ?4,43,743. The Tribunal referred to a previous decision in the assessee's case for A.Yrs. 2012-13, 2013-14, and 2015-16, where it was held that interest expenditure should be allowed only to the extent of interest income. Consequently, the Tribunal directed the AO to restrict the disallowance of interest to the amount of ?4,43,743, being the interest income received on term deposits. The decision was held to apply for subsequent assessment years as well.

Issue 2:
The second issue raised in the appeal concerns the charging of interest u/s.234A, 234B, and 234C of the Act without giving credit for tax deducted at source. The Tribunal referred to a previous decision in the case of DCIT vs. Aatur Holdings Pvt. Ltd., where it was directed that interest levied under sections 234A, 234B, and 234C should be recomputed after excluding income subject to TDS. Following this precedent, the Tribunal allowed the grounds raised by the assessee for statistical purposes, directing the AO to recompute the interest in light of the previous decision.

In conclusion, all the appeals of the assessee were allowed for statistical purposes, with the Tribunal providing detailed reasoning and referring to previous decisions to support its rulings. The judgment emphasized the importance of aligning deductions with income and ensuring proper computation of interest charges under the relevant sections of the Income Tax Act.