2021 (7) TMI 449 - AT - Income Tax

Disallowance of interest u/s 36(1)(viii) - allocation of the assessee on account of interest with regard to segmental reporting in respect of housing loan business, loan against property and other business - HELD THAT - Similar issue has been decided by the revenue in favour of the assessee for A.Y. 2012-13 wherein held that AO has not examined the submissions furnished by the appellant company and simply disallowed the deduction. Deduction claimed u/s. 36(1)(viii) is duly supported by segmental accounting which includes apportionment of expenses, details of which are filed before the AO and in appellate proceedings - a more acceptable method for determining the profits from eligible business would be allocation of interest expenditure on the basis of turnover of the eligible and ineligible business segments. AO is directed to recompute the profit of eligible business deduction by allocating interest expenditure on the basis of turnover and not on the basis of balance of outstanding housing loan and loan against property recoverable at the end of the year as apportioned by the appellant company. Deduction u/s. 36(1)(viii) i.e. 20% shall be allowed on such profits and gains of the eligible business arrived after apportionment of the interest expenditure on the basis of turnover ratio of the two segments. Addition on account of cessation of trade liability - CIT(A) deleted the addition on the ground that the amount has not been remitted from the books of accounts of the assessee and not even three years have been passed, hence, they are beyond the provisions of the law of limitation and creditor can always claim the amount from the assessee - HELD THAT - The debts still subsists. On going through the fact on record, we find no legal infraction in the decision of the Ld. CIT(A) and hence decline to interfere with the order of the Ld. CIT(A) on this ground.

Summary

Issues:
1. Allocation of interest expenditure for eligible business deduction without establishing nexus.
2. Deletion of trade liability amount due to cessation of trade.

Analysis:

Issue 1: Allocation of Interest Expenditure
In the case of ITA No. 6433/Del/2017 for A.Y. 2013-14, the AO disallowed interest amount under section 36(1)(viii) due to improper allocation of interest with respect to different business segments. The Ld. CIT(A) considered the submissions and previous rulings in favor of the assessee for the preceding assessment year. The appellant maintained separate accounts for housing loans and loans against property, allocating common expenses based on turnover ratio. The Ld. CIT(A) directed the AO to recompute eligible business deduction profit by allocating interest expenditure based on turnover ratio, not outstanding loan balances. This methodology was accepted for the previous year, supporting the appellant's claim. The Tribunal found the Ld. CIT(A)'s decision well-founded, declining to interfere with the order.

Issue 2: Deletion of Trade Liability
Regarding the deletion of trade liability amount in ITA No. 6433/Del/2017, the AO disallowed an aggregate amount due to various liabilities. The Ld. CIT(A) reversed this decision, noting that the liabilities had not been remitted from the books and were still within the statute of limitations for creditors to claim. The Tribunal found no legal fault in the Ld. CIT(A)'s reasoning and upheld the decision.

Additional Issue: Similar Ground in ITA No. 7679/Del/2017
In ITA No. 7679/Del/2017 for A.Y. 2014-15, the sole ground raised by the revenue mirrored the issue addressed in ITA No. 6433/Del/2017 for the previous assessment year. The Tribunal applied the same rationale and upheld the dismissal of the revenue's appeals.

In conclusion, the Tribunal upheld the Ld. CIT(A)'s decisions on both issues, emphasizing proper allocation of interest expenditure for eligible business deduction and the validity of trade liabilities within the statute of limitations. The appeals of the revenue were dismissed, and the orders were pronounced in open court on 29/06/2021.