2021 (6) TMI 596 - AT - Income Tax

Disallowance of interest - assessee made advance payment for purchase of flats/office premises for investment purposes - HELD THAT - The finding of the case decided in Reliance Utilities Power Ltd 2009 (1) TMI 4 - BOMBAY HIGH COURT is duly applicable to the facts of the present case in which it is specifically held that if there are funds available both interest free and overdraft and/or loans taken then a presumption would arise that investments would be out of the interest free fund generated or available with the company, if the interest free funds are sufficient to meet the investment. Since the issue is squarely covered by the decision of the Hon ble ITAT in the assessee s own case 2020 (7) TMI 764 - ITAT MUMBAI therefore, we set aside the finding of the CIT(A) on this issue and allowed the claim of the assessee. Disallowance of rent expenses - assessee has taken the premises at Vapi, Lonavla for the purpose of business - HELD THAT - The rent agreement speaks about this fact that the property was taken for the business purposes. Rent has also been mentioned in the agreement. The assessee also book the property on Lonavla on rent in sum of ₹ 10,000/- per month which was for the residence of employees. The TDS was deducted from every property. Nothing is on record to which it can be assumed that the property was not used for the business purposes. At least, it is necessary on the part of the AO to collect same material to which it can be assumed that the property was not taken on rent for the business purposes. The copy of agreement with regard to the residential property at Vapi dated 01.10.2011 to 30.09.2014 and dated 01.10.2014 to 30.09.2017. The copy of receipt of rent paid for the period of on 01.04.2012 to 31.03.2016. No cogent and convincing reason on the record to decline the claim of the assessee. Taking into account all the facts and circumstances, we are of the view that the finding of the CIT(A) is not justifiable, hence, we set aside the finding of the CIT(A) on this issue and allowed the claim of the assessee.

Summary

Issues Involved:
1. Disallowance of interest amounting to ?13,08,070
2. Disallowance of rent expenses totaling ?4,92,000

Issue No.1: Disallowance of Interest

The assessee contested the disallowance of interest of ?13,08,070. The representative argued that a similar issue was decided in the assessee's favor in a previous ITAT case. Referring to the decision, it was noted that the assessee had sufficient interest-free funds available and had earned significant profits during the year. Citing the principle that investments made when interest-free funds are available can be presumed to be from such funds, the disallowance was deemed unjustified. The assessee's advance payment for property purchase was adequately covered by the available funds, leading to the allowance of the claim based on the precedent set by the Hon'ble ITAT and Bombay High Court.

Issue No.2: Disallowance of Rent Expenses

The challenge here was against the confirmation of disallowance of rent expenses amounting to ?4,92,000. The assessee maintained that the rented premises at Vapi and Lonavla were used for business purposes, supported by rental agreements and TDS deductions. Despite the CIT(A) ruling against the business use, the agreements clearly indicated the properties' intended business use. The absence of evidence suggesting otherwise led to the finding that the CIT(A)'s decision lacked justification. Consequently, the disallowance of rent expenses was set aside, and the claim of the assessee was allowed.

In conclusion, the appellate tribunal ruled in favor of the assessee, allowing the appeal against the disallowance of interest and rent expenses. The decision was based on the availability of interest-free funds for investments and the clear business purpose of the rented properties, as evidenced by rental agreements and TDS deductions. The judgment emphasized adherence to legal precedents and the importance of justifiably assessing expenses and disallowances in income tax matters.